Drivers and theories of corporate social responsibility

Drivers and theories of corporal companionable tradeThis part of the psychoanalyze emphasises on the interrogation literary productions review related to the study. The structure of the literature review is broken d take in into three sub-sections. The miscellaneaer relates to the motley aspects of CSR. The come finished two sub-sections discuss the take issueent theoretical and empirical studies associated with CSP and CFP.2.1 collective kindly Responsibility (CSR)Corporate Social Responsibility (CSR), a wish well k without delayn as collective citizenship, trusty duty, or sustainable responsible clientele is every but a form of merged self-regulation integrated into a line of work manikin where companies manage the channel processes to produce an all overall validatory jar on baseball club. Arguably, backing and society be interwoven society has definite expectations come acrossing business and at that placefore the tauten has responsibilities tow ards society. Hence, universe a steward of the unavoidably of society is deemed to be a kindly responsible, appropriate, and natural act.The first watchword acknowledging CSR is the Social Responsibilities of the Businessman (Howard R. Bowen) in the mid 1950s. But, the term CSR came in widespread social function in the early 1970s. In fact, it owes its origin due to the globalization which took place after many multinational corporations were formed, thus, pitch in phalanx the corporate governance mechanisms to ascertain fairness and transp atomic number 18ncy as wellspring as kind responsibility in the corporate world.CSR is specify in heterogeneous bureaus in different countries, of about being the capacitance building for sustainable livelihoods from Ghana to about giving back to society from Philippines and of being conventionally presented in a philanthropic poseur from the join States to being foc apply on operating the core business in a genially responsible way, complemented by investment in communities for whole business case reasons and voluntary interaction with the stakeholders from the European model.As such(prenominal), match to Caroll (2003), The social responsibility of business encompasses the economic, legal, h whizst and discretionary (philanthropic) expectations that society has of organisations at a wedded point in clip. Hence, ideally and broadly, the concept of CSR is a built-in, self-regulating mechanism whereby business would monitor and ensure its support to law, ethical standards, and international norms.2.1.1 CSR and CSPIn todays war-ridden market environment, businesses ar confronted with a untried set of non economics-related challenges. To survive and prosper, firms must bridge economic and social systems. maximize sh atomic number 18holder wealth is a necessary but is no long-run a sufficient condition for pecuniary prosperity. Despite the concept of CSR trackes such bang, a specific con nonation of CSR and a new bring aboutance appraise called the corporate social action (abbreviated as CSP) deprivations to be coordinated to capture the act of a business in the social realm, and also to be much precise in thinking about CSR.CSP defined as a business organizations configuration of prescripts of social responsibility, processes of social responsiveness, and policies, programs, and manifest moments as they relate to the firms social races (Wood, 1991), clearly shows that social military operation is non limited to corporations only, but also applies to any firm and organisation. This comprehensive rendering assumes that CSP is broader than CSR, which consists of three norms at different takes of analysis institutional, organisational, and individual. Additionally, it includes organisational processes of environmental assessment, stakeholder management, and issues management, and also various measures of its external manifestations and societal effects, such as social impacts. Hence the CSP model expresses and articulates three stages, from less to much engage towards stakeholders social obligation, social responsibility and social responsiveness (S.P. Sethi, 1975).2.1.2 Views on CSR jibe to Hancock (2005), CSR potty be viewed through 3 ways namelySceptic viewAccording to this view, the notion of CSR is opposed to democracy and freedom, frustrating business focus on its purpose of wealth creation. Milton Friedman best defines this approach Few trends would so exhaustively undermine the very foundations of free society as the acceptance by corporate officials of a social responsibility just about some other than to make as much money for their stockholders as they possibly pile.Utopian viewA utopian view of CSR reflects the idea that companies arrest a prior duty to anyone touched by their activity, their stakeholders rather than their sh arholders, and especially the vulnerable that whitethorn be exploited by the accompanys operat ion. This is found on the work of Evan and freewoman who are for the stakeholder speculation where a corporation must recognise and respect the indispensable interests of each of its surrounding stakeholders.Realist viewThis view gathers the greatest hailing of an bond model advocated by Patricia Werhane. It states that CSR is not simply about whatever silver and expertise companies choose to invest in communities to supporter resolve social problems. But, it is also about the integrity with which a company governs itself, fulfils its mission, lives by its values, engages with its stakeholders, measures its impacts and reports on its activities.2.1.3 Key Drivers of CSRCSR is seen by Porter and Van Der Linde (2000, p. 131) as a belligerent driver that requires appropriate resources. CSR programmes, however, on their own, consent certain main drivers which are as followBottom railroad EffectThis is the most pertinent driver of CSR programmes as it incorporates a socially re sponsible element into corporate practice. As John Elkington (1997) functionly underlined that many companies exhibit corporate citizenship through charity or philanthropy. Nevertheless, a new perspective evolved over time for some corporate stakeholders. Success of a corporation is now plodding and defined by evaluating businesses using a Triple Bottom Line comprised of its social, environmental and monetary performance.Managing RiskAn endeavour to adopt CSR programme has been the sort out in market share, diagnose personnel and investment which pioneering companies enjoy when they ill address labour and green issues. In fact, corporations implement such a programme to manage stakes and ensure legal compliance as denoted by Levine Michael A. (2008). They try to avoid investigation, litigation, prosecution, regulation or legislation.Influence of the Corporate Disasters in that respect has been an step-upd perception of greed amidst senior business officials in the corporate world following corporate scandals affecting Enron, WorldCom and the like. CSR is measurable in counteracting allegations of corporate greed. As a result, as described by Hancock (2005) in his book, corporations are now shifting away from the philanthropic approach towards CSR and are moving towards the greater alignment of CSR with business strategy and corporate governance. sink Equity Risk Premium Reputation ManagementCorporations can typesetters case economic damage when their corporate written reports and brands are assailed or variety shows are affected by consumer boycotts. As argued by some rating agencies, a comprehensive CSR programme will lower a companys equity find premium. A direct cor carnal knowledge amidst study and financial outcome measures share price and credit rating (Hancock, 2005) has been illustrated through a model designed by the global public relations company ships bell Pottinger. In fact, companies whitethorn face a variety of legal and reput ational risks if they do not meet adequate social compliance or corporate social responsibility/sustain index programs in place.Customer LoyaltyIn todays markets, companies hand to focus on building and maintaining customer inscription. As proposed by cabbage Y. (2009), this can be done through a CSR programme which builds loyalty with customers by offering a emulous advantage in a marketplace where consumers find ethically delivered or produced goods and services.Stakeholder Activism Investment IncentivesAs comprehend by Visser, W. (2008), CSR is encouraged through the activism of stakeholder or pressure groups which often address the alleged failure of the market and disposal policy. The trend of socially responsible investment gives CSR an incentive where funds are screened on ethical, social and environmental criteria. Thus, this proactively encourages businesses to inform shareholders of potential risks and issues and it helps them to bettor understand their stakeholde rs, including shareholders. According to Hill Knowltown (2006), surveys aim indicated that analysts place as much importance on corporate reputation as they do on financial performance.2.1.4 Theories for CSRThere are some(prenominal)(prenominal) theories that emerged to excuse the reasons behind environmental reporting over the time. These are as followOperational Efficiency suppositionOperational Efficiency occurs when the right combination of people, process, and technology to boost the productiveness and value of any business operation, while reducing cost of routine operations to a desired level. In the context of CSR, operational efficiencies can be achieved through managing impend risks and liabilities more in effect and efficiently through CSR tools and perspectives by reducing cost streaming information to stakeholders concerning the investment community for better transparency and by using corporate responsibility and sustainability approaches within business decision -making to result in new market opportunities, newly developed manufacturing processes that can be spread out to other plants, regions or markets as advocated by S. B. Banerjee (2007).Social Contract systemThe current practice of CSR by corporations was explained by O. O. Amao (2007) under the social aim speculation. This surmisal dates from the classic period of history but took its modern form in the 16th and 18th centuries with best known philosophers like doubting Thomas Hobbes, John Locke and Jean Jacques Rousseau who talk on social contract. Rousseau, in fact, conceptualised the individual-society alliance as a symbiotic situation whereby the two parties mutually confab some right to the state in order to maintain social order which makes human life and cohabitation better and to gain bene retards of community and safety. In parallel to the social contract, the corporate social theory, pertaining to a firms indirect social obligations, is advanced where businesses are bo und by the social contract to perform various socially desired actions in come down for approval of their objectives and other rewards.Legitimacy TheorySimilar to the social contract theory, the legacy theory was adopted by comporations to ensure that operations are within the limits and norms of their respective(prenominal) societies and the outside parties perceive their activities as being legitimate.Society grants legitimacy and magnate to business. In the long run, those who do not use power in a manner which society considers responsible will tend to endure it. This principle developed by Daviss (1973) is commonly known as the beseech Law of Responsibility. It expresses legitimacy as a societal-level concept and describes the responsibility of business as a social institution that must avoid abusing its power. Thus, this principle expresses a prohibition rather than an affirmative duty, and it applies equally to all companies, unheeding of their particular circumstances.A ccording to A.K.H. Khor, the legitimacy theory is fundamentally a system-oriented theory where organisations are viewed as components of the bigger social environment within which they exist.Stakeholder TheoryA key feature of CSR involves the way that a company engages, involves, and collaborates with its stakeholders including shareholders, employees, debt-holders, suppliers, customers, communities, non-governmental organisations, and governments.M. C. Branco and L. L. Rodrigues (2007) argued that companies need to use stakeholder engagement to internalise societys unavoidably, hopes, circumstances into their corporate views and decision-making. small-arm there are many questions about how far a companys responsibilities extend into communities congenator to the roles of governments and individual citizens, there is a strong argument that CSR can effectively improve a companys relations with communities and thereby produce some key features that will improve business prospects f or its future.Agency TheoryThis theory comes to explain the affinity that exists betwixt the owners/shareholders and the management. As such the latter is the agent which found by the principal (owner/subsidiary) and problems such as the potential moral prospect and conflict of interest are probably to occur. CSR comes as a place way so that both parties can exploit their gains. As such, when CFP is strong, managers may reduce social expenditures in order to maximize their own swindle term private gains whereas when CFP weakens, managers will try to offset their disappointing results by engaging in conspicuous social programs, hence increasing their own wealth and that of shareholders as well, pursuant to the managerial opportunism hypothesis by Preston OBannon (1997).2.2 Theoretical Review2.2.1 Corporate Financial Performance (CFP)Most of the businesses blend with a view of yielding profits. The financial performance of a company is reflected through its policies and ope rations in monetary terms. These results are reflected through its return on investment, return on assets, value added, return on sale and growing in sales. Managers work in the best interest of shareholders to maximise profits. Financial performance is the most common, however, it cannot be considered as the only index number utilize to measure a firms wealth. A broader translation of financial performance is accompanied by additional indicators such as short-term profits, long-term profits, market value, and other forms of competitive advantage, as noted by Jensen (2001).2.2.2 Corporate Social Performance and CFPMany previous studies have indicated an unclear kinship betwixt CSR and financial performance. Thus, literature has pointed out towards an innovation in bringing the concept of CSP to better explore its impact upon corporate financial performance (CFP). In todays world, for a firm to achieve a good and spirited level of CFP, it has to go beyond the limits of its ow n corporate strategies and adopt views of other stakeholders who may be directly or indirectly related to the company.Since over the three decades, the study of the correlation amongst CSP and CFP has gained much salience. Many studies conducted in this effect have yielded cocksure correlation, while others produced contradictory results with negative or non- hearty different causal directions being found. In effect, there are several competing theoretical models which are proposed to explain three varying findings on the CSP-CFP link. owe to these differing relationships, I.Y. Maroam (2006) proposes a unified theory of the CSP-CFP link that explain the different relationships that may be observed between CSR and CFP, thus basing itself on the parallels between the business and CSR domains.The concept of CSR instils in corporations the moral responsibility towards society that go beyond the goal of simply making profits for their owners and shareholders (Berman et al., 1999). As F reeman (1984) right pointed out that corporations should be socially responsible for both moral and matter-of-fact (instrumental) reasons, by reflecting a socially responsible posture, a corporation can enhance its own performance. Thus, CSR activities can, inter-alia, be rewarded with more satisfied customers, better employee, amend reputation, and improved access to financial markets, all pertaining to better financial performance and sustaining the business. However, social accomplishments may equally involve certain financial cost which can effectively reduce profits and comparative performance. Hence, Vance (1975) came up with the tradeoff hypothesis to show negative linkage between CSP and CFP whereby corporations displaying strong social credentials experience declining stock prices relative to the market average.2.2.3 CSP as a Business StrategySo far, it is clear that CSP can be used as a business strategy which can contribute to the competitive advantage of firms. A stu dy by N. A. Dentchey (2004) on the effects of CSP on the competitiveness of organisations reveals that CSP should not be thought as an innocent possibility for executives. It is rather a strategy for achieving corporate strategies, which if not warily implemented, may harm the firms competitive advantage.Competitive advantage, as seen by Porter (1996), denotes the ability of a company to outperform others from successful differentiation from rivals actions. This strategicalal fit between the outside environment and companies internal resources and capabilities (Hoskissoon et al., 1999) results in superior financial results, as indicated by various measures of positiveness. Hence, as per Burke and Logsdon (1996), a strategic implementation of social responsibility benefits all by resulting in strategic outcomes such as customer loyalty, future purchases, new products, new markets and productivity gains. Arguably, CSP can be a source of competitive disadvantage for firms which reg ard CSP as an additional cost. Business contributions to social prosperity (CSP) are seen by Keim (1978, p.33) as an investment in public good which is consumed or enjoyed by a number of individuals disregarding the cost sharing. Thus, investing in CSP is likely to bear negative effects for the firms which are incurring costs that capability other be avoided or that should be borne by others, for example, individuals or government (Aupperle et al., 1985).2.2.4 CSP, CFP and the Stakeholder TheoryFollowing the above arguments, a new perspective of CSP, based on the stakeholder analysis, emerges to argue furthermore that there exists a positive relationship between CSP and CFP. As such, S.A. Waddock and S.B. carve (1997) propose that a tension exists between the firms overt costs (for instance, payments to bondholders) and its implicit costs to other stakeholders (for example, product calibre costs, and environmental costs). Hence, a firm which tries to outweigh its explicit costs by increasing its socially responsible actions incurs higher implicit costs, resulting in competitive advantage. Thus, high levels of CSP are seen as indicators of superior management by black lovage and Buchholz (1982) which lead to lower explicit costs and enhanced financial performance.The stakeholder theory accompanies the concept of CSR by shedding more light on the issue of social responsibility. This theory is spread over three aspects (Donaldson and Preston, 1995) namely, descriptive, instrumental and normative. While the descriptive aspect describes and explains the theory, the instrumental aspect discloses the cause-effect relationships between stakeholder management practices and improving corporate performance. The normative aspect, on the other hand, as perceived by I.Y. Maroam (2006) emphasizes on the moral imperatives for practising stakeholder management, rather than the business benefits it may provide. A commensurateness between the core business domain and the C SR domain will maximise a firms profitability.The stakeholder theory provides a framework for investigating the relationship between CSP and CFP by examining how a win over in CSP is related to a change in financial accounting measures. In fact, the two concepts of CSR and stakeholder share the suggestion that social responsibility affects financial performance in some way or other. This subject area has been so vastly explored that this trend is now seen as a natural progression which goes associatively with developments in the industrial and business world. There is an increasing concern and emphasize on humanity, environmental saving and enlightened social consciousness. Thus, a new area of research began to pave its way within the field of business and society where the relationship between corporate social conduct, both toward the corporations stakeholders and the wider society, and the corporations financial performance was and is still being investigated across several cou ntries. Over environmental issues, research has revealed that businesses which are eco-friendly and examine good CSR practices enjoy increased consumer purchase preference (Gildea, 1994 Zaman, 1996) and good economic performance (Al-Tuwaijiri, et al., 2004).A stakeholder group, as identified and defined by Freeman (1984), is one that that can affect or is affected by act of the organisations objectives, that is, which can be harmed as well as can help it to achieve its goals. Therefore, there is a growing need for firms to address the needs and expectations of the stakeholders to avoid negative outcomes and produce positive outcomes for themselves (Donaldson and Preston, 1995 Freeman, 1984 Frooman, 1997). Pursuant to the stakeholder theory perspective, CSP can be assessed in terms of a company meeting the demands of ten-fold stakeholders, ranging from cost minimisation to societal maximisation. Building on the previous mentioned definition of CSP, Wood and Jones (1995) propose th at stakeholder theory is the key to understanding the structure and dimensions of the firms societal relationships thereby assuming that firms are responsible for honouring all the implicit and explicit contracts they hold with their various constituents.Therefore, the stakeholder theory provides a system-based perspective of the organisation and its stakeholders where it acknowledges the alive(p) and complex nature of the interplay between them. The various stakeholders of the firms, such as the employees, shareholders, financers, environmentalists, government, communities, customers and plain competitors should be convinced by the management that it is working harder to satisfy them. The more important the stakeholders to the firm, the more effort the firm needs to put to exert its relationship with the former. According to Clarkson, Donaldson and Preston et al. (1995), the stakeholder theory must place shareholders as one of the multiple stakeholder groups which managers shoul d consider in their decision-making process. However, like the shareholders, the other stakeholders may have a say upon the firm, bestowing societal legitimacy. Notably, Bernadette M. Ruf et al. (2001) asserted that firms must address these non-shareholder groups demands otherwise they might face negative confrontations which can at last result in diminished shareholder value, through boycotts, lawsuits, protests and so on. Hence, firms have a fiduciary duty relationship not only to the shareholders, but to all stakeholders (Hasnas, 1998, p.32).So far, recognising a companys contractual relationship with the various stakeholders has been instrumental in better comprehending the relationship that CSP and CFP share. Stakeholders have expectations from the organisation. Nevertheless, these expectations may conflict with the firms limited resources leading the firm to evaluate its costs and benefits tradeoffs. Firms must thus come with measures representative of the various factors of CSP and stakeholders interests. Unlike neo-classical stockholders who were only interested in financial performance (Grouf, 1994 Shapiro, 1992), the major(ip) stakeholders of today, that is, the stockholders are more interested in the firms current and future financial benefits and social performance.2.3 Empirical ReviewThis section reviews the works done and methods used by researchers on the relationship of CFP and CSP. Empirical results on the latters correlation are mixed whereby some yielded in positive, some in negative and some in non-significant relationships. Basing on the stakeholder theory approach, several models on the CFP-CSP relationship have been proposed, where the largest number of investigations found a positive CSP-CFP linkage. Notably, different methods to compute indexes for CFP and CSP have been used since data on both cannot be possibly obtained in absolute figures.As such, using aggregated weights assigned to K dimensions of social performance obtained thro ugh questionnaire for CSP and using change in return on equity (hard roe), change in return on sales (ROS) and evolution in sales as financial measures on a sample of 496 firms, Bernadette M. Ruf et al. (2001) came up with a positive relationship between CSP and CFP. They, in fact, regressed change in CSP on change in CFP. The results revealed a significant positive relationship between change in CSP and change in hard roe and change in ROS in the long term but that with growth in sales was significantly positive only in social class 0 and 1. The study suggests that improvements in CSP have both immediate and continue financial impacts. The authors have furthermore suggested that since many financial performance measures follow a random walk or mean reversion1, it is important to use lead/lag studies to establish a causal installment of CSP and CFP. Concerning time period, one year may be short in strategic terms and could well be distorted by scallywag figures, hence, it sugg ested to take two or five years data in analyses.A paper by S. A. Waddock and S. B. Graves (1997) also found positive linkage between CFP and CSP. An index for CSP was computed using eight attributes relating to shareholder concerns and were rated systematically across the entire Standards Poors 500 by a rating service. The firms profitability was measured using three accounting variables, namely, return on assets (ROA), ROE and ROS used to assess CFP by the investment community. Factors such as size, risk and attention which affect both CFP and CSP were taken as tick off variables. utilize on a sample of 469 companies and using CSP as both parasitic and independent variable, the results revealed that CFP does depend on CSP and vice-versa and also indicated the importance of controlling for industry in assessing such a relationship.Size has been suggested in previous studies, like that of Ullman (1985), to be a factor which affects both CFP and CSP. Size remains a relevant var iable because there had been evidence that smaller firms may not demonstrate the same obvious socially responsible behaviours as larger firms. Authors like Pinkston and Carroll (1993), for instance, investigated the extent social responsibility orientations, organisational stakeholders, and social issues can differ among firms of differing sizes. P. A. Stanwick and S. D. Stanwick (1998), on the other hand, found a significant positive knowledge between size (annual sales) and CFP at the 10% level for three of the sixer years of their study. Firm size is particularly the scale of operations in an organisation (Price and Mueller (1986, p. 233)).Previous literature has indicated a need to control not only for industry, and size (Ullman, 1985 Waddock and Graves, 1997), but also for risk (McWilliams and Siegel, 2000) to render research results more complete. The argument to use risk as a control variable is supported by the fact that the degree of risk is seen as the other important co mponent of firm performance assumed by a firm in order to achieve a given level of financial performance as stated by Bettis and abidance (1982). Baird and Thomas (1985) also advocated risk as being both as a strategic variable (firms choose a given level of risk) and as an outcome variable (strategic choices lead to a level of risk) which ultimately leads to improved financial performance. As such, M. Brine, R. Brown and G. Hackett (2004) used risk on board size as control variables to assess financial performance of 277 companies. Their advance results stated that the adoption of CSR does lead to increases in turnover and also an increase in equity, which in turn improve the CFP level.To bring more integrity, M. Orlitzky et al. (2003) conducted a quantitative meta-analysis on the CFP-CSP relationship building on the hypothesis that CSP and CFP are generally positively related leading to competencies, learning, efficiency and reputation-building with its external stakeholders. pi ckings CFP as a companys financial viability through three broad subdivisions consisting of market-based (investor returns), accounting-based (accounting returns), and perceptual (survey) measures and constructing CSP through four broad measurement strategies, namely (a) CSP disclosures (annual reports, letters to shareholders) (b) CSP reputation ratings (c) social audits, CSP processes, and observable outcomes and (d) managerial CSP principles and values (Post, 1991), the study suggests that corporate chastity in the form of social responsibility and, to a lesser extent, environmental responsibility can pay off, despite the CSP-CFP operationalisations can also ascertain the positive association. CSP appeared to be more highly correlated with accounting-based measures of CFP than with market-based indicators, and CSP reputation indices were more highly correlated with CFP than are other indicators.According to Mahoney L. and Roberts R.W. (2007), there is no significant relationship between a composite measure of firms CSP and CFP. utilise four years panel data of Canadian firms, they calculated a composite measure of CSP score by summing all dimension specialty ratings, such as, community relations, diversity, employee relations, environment, international, product safety, and amongst others and subtracting all dimension weaknesses ratings. Following Waddock and Graves (1997a), ROA and ROE were used separately to measure a firms CFP. As CFP was evaluate to be positively related to CSP, a one-year lag between CFP and all independent variables (CSP, firm size, debt level, and industry) was used. Inconsistent with their expectation, they found no significant relationship between the composite CSP measure and either ROA or ROE. However, the use of individual measures of firms CSP regarding environmental and international activities and CFP resulted in a significant relationship providing mixed support for the business case for CSP. A study, using the sodbuster causality approach, by Rim Makni et al. (2008) reaffirms Mahoney and Roberts (2007) works on the non-significant relationship. However, there may also be a simultaneous and interactive negative relation between CSP and CFP, forming a vicious circle.