Corporate Social Performance and Responsibilities - Essay Example

Literature Review: Introduction In the literature review, the topic of corporate social responsibility (CSP) will be covered. It is important to study the concept of CSP which allows the firms to assess the performance level of its corporate social responsibility (CSR) activities. CSP acts as a vital determinant of the firms’ performance and it also determines its corporate image. Thus a firm with high levels of CSP bears high preference from customers and investors as well. 2.1 Corporate Social Responsibility Corporate social responsibility (CSR) is the business practice conducted by a firm to ensure that its profit is being used to do well in return for the society and the environment. CSR activities not only ensure that the company is gaining a positive brand image but it also ensures self-sustainability in the near future. CSR activities now a day have become quite a mainstream phenomenon where most of the well established firms have developed and maintain the concept of social sustainability (Manuel Castelo BrancoLúcia Lima 2006). CSR can be defined as the relationship between a corporation and the national government and the citizens (McDonald and Rundle-Thiele 2008). It encompasses the positive influence of the organisational activity on the welfare of the nation and its people. In a more streamlined perspective its can be stated that the CSR is the relationship between the corporation and the society (Jones and Wicks 1999). The business firms often undertake responsibility to improve the society that they are operating in. This as a result fosters social support and at the same time creates a sustainable working environment for the organisation to thrive for a longer period of time. The firms often undertake initiatives like child education for the under privileged, keeping the society clean by the environmental standards (Baumgartner and Ebner 2010). The corporate social responsibility is based on three principles Sustainability, Accountability and Transparency. The sustainability deals with the long term thriving of the organisational activities. It involves taking certain actions in the present that has a positive impact on the future. This suggests that if the resources that are not infinite are being used in the present then they may get exhausted in the future. Sustainability indicates that the organizations must utilize the resources responsibly and should also ensure that they are being generated at a steady rate (Brower and Mahajan 2013). The Accountability of the organisation involves its acknowledgement towards the impact on the environment causing from the operational activities of the firm. The concept of organisational accountability implies that the corporations should realize that it is a part of a larger social community and it should be accountable for its actions. This as a result leads to development of necessary measures to improve the social and environmental sustainability performance. The Transparency involves that the companies have fairly published their activities and their measure taken on social and environmental issues. Transparency allows the stakeholder to have a clear idea of the firms’ activities and its degree of sustainability in the near future. Disclosing all the activities allows the firm to operate in an ethical manner and it also attracts the investors thereby improving its financial status(Cheung et al. 2013). 3.1 Corporate Social Performance The corporate social performance acts as a tool to measure the effectiveness of the CSR activities and whether or not it is positively influencing the society and to what degree(Cho, Patten and Roberts 2006). The stakeholders are becoming increasingly concerned regarding the corporate social performance (CSP) of the firms. Corporate social performance defined as a measurement of the company’s responsibility towards its multiple stakeholders(Jayachandran, Kalaignanam and Eilert 2013).These stakeholders constitute of the employees, the social community and the environment as well as the traditional economic shareholders. The aggregate social performance of the firm is used to measure the degree of its involvement in the socially responsible activities(Dean 1998).The concept of CSP can be laid down in a theoretical model that has broken down the social responsibility of the firms in to three basic functions, Economic performance, Social performance and environmental performance. The economic performance includes the profitability and the market value of the firm. It includes value addition by economic performance to the stakeholders. The social performance involves the well being of the employees, customers, and social community. The environmental performance involves taking care of the biophysical resources of the environment on which the organisation is depending on. These responsibilities include responsible usage of natural resources, responsible emission of waste, impact on the ecosystem and on the supply chain (Drumwright 1994). Carroll (1979) proposed the three dimensional conceptual model of corporate performance. This model encompasses three aspects which questions the following concerns for the authority of the firms: a) what all are included in the corporate social responsibility, b) what are the social issues that a firm must address, and c) what is the philosophy of the organization towards social responsiveness. The corporate social responsibility encompasses a series of activities and is defined as the range of obligation of the organizations involving issues related to economic, legal, ethical and discretionary factors. A firm must show his obligations towards these aspects and must conduct its business activities in an ethical manner. The concept of corporate social responsibility goes beyond the traditional economic and legal concerns. It encompasses the responsibility of the organizations towards the society and the environment. Secondly there are a set of social issues that the company must deal with and address them with a sense of responsibility. The social issues are dynamic in nature and vary among the nations. Therefore it is imperative to employ different managerial strategies which are focused at handling different socially responsible activities. Moreover, different social issues are of varying concerns to the managers, thus different firms focus on different social issues which they find is more relevant for the business operations. Thirdly, the working philosophy behind the business operations and the way the organization responds to its socially responsible activities. The response of the organization can range from complete indifference towards its social responsibilities to active involvement to deal with the ongoing social and environmental issues. 1.0 Internal and external Factors influencing firms in CSP: According to the Ho, Wang and Vitell (2012) it has been suggested both internal and external factors influence the firm’s corporate social performance. Therefore this section will discuss this particular topic of discussion to find out several influencing factors that determine the CSP of an organization. 2.1 Internal Factors The internal factors influencing the corporate social performance can be broken down in to three primary reasons, which are corporate characteristics, general contextual factors and the internal contextual factors (Handelman and Stephen 1999; Maignan and Ralston 2002). 2.1 Corporate characteristic The corporate characteristics influencing the social performance of the organisation mostly highlight its social performance discloser. However, studies mentioned that the corporate characteristics vary across firms and therefore it covers a wide range of organisational characteristics that influence the social performance of the firm (Greening and Turban 2000). Moreover, difference in cultural background across nations has made it more difficult to generalize the definition of the influencing factors. However, in a broader sense it can be explained that the organisational culture, which reflects the vision statement of the firm largely, determines its social performance. A company, which is characterized by a culture that deals close to the society and takes care of the employees, are likely to have a higher corporate social performance (Handelman and Arnold 1999). It depends on the higher authority who defines what the organziation stands for and what are its priorities. The firms which are solely dependent on making profit will hardly have any concern for the society and may even involve in unethical activities to yeild their short term obejcetives. On the other hand the firm whose sole objective is to meet the interest of all the stake holders will voluntarily engage in social activities and will ensure that its business activities are being run ethically. 2.2 General contextual factors The general contextual factors that influence the corporate social responsibility include the country of origin of the company. Different nations bear different regulations regarding standardized corporate social performance. The internal contextual factors include the pressure from the shareholders and the board of directors. It depends on the priority of the higher management that defines whether or not the company will focus on improving its social performance. The organizations often get myopic and get blinded by their financial objective, which as a result leads to ignorance of their corporate social responsibility (Heather and Freeman 2000). Different nations bear different standards on CSR activities, depending on which the firms are compelled to be involved in CSR activities or completely stay away from it. Moreover, the degree to which the peer firms are involved in social activities also sets a standard for other firms, thereby forcing them to take care of the social responsibilities. Furthermore, the customers are also quite concerned about the organizational activities relating to CSR and they often judge a firm by their CSP (Bouquet and Deutsch 2008). 2.3 Internal contextual factors The financial performance of a firm is influenced by the corporate social performance (Ho, Wang and Vitell 2012) found that the stock prices of a company are directly proportional to the CSP of the firm. An organisation with higher levels of social performance usually bears an upward trend in its share prices and vice versa. This as a result makes it imperative for the firms to ensure that its socially responsible activities are conducted properly. These evidences have been well justified from the economic theoretical perspectives. Launching a product which otherwise puts a negative impact on the society and goes against the cultural values of the society can eventually create a negative impact on the brand image of the firm, thereby reducing its share prices and impacting its financial performance (Huber et al. 2011). The firms’ internal contextual actors clearly state that the internal performance of the firms largely determines its CSP. The financial performance and the CSP mutually correlated. The higher involvement in the CSP allows the firm to improve its financial performance which in turn helps it to improve the CSP even further by making considerable investments in the CSR activities (Huang 2010). 2.4 Build organisation reputation Organisations largely depend on their level of corporate social performance to create and enhance also protect corporate image. Building strong reputation and a favourable corporate image can create a high competitive advantage for the firms (Esther de, Juan Manuel de la and Juan Bautista 2007). The organisation having a strong corporate image is capable of attracting talent employees as well as customers thereby increasing its overall performances and sales volume and revenue generation. Moreover, potential investors are also attracted to the company due to its stable financial positive effect in the social and environment. In order to create a good organisation image, the company not only should involve in CSR activities, but it should also publish its CSP activities in the media. These factors will help the stakeholders to acknowledge the corporate social performance of the company (Liston-heyes and Ceton 2009). 2.5 Seeking legitimacy Several studies show that most firms adapted social practices and improved their corporate social performance by properly reporting to justify its actions and seeking legitimacy of their existing actions. Legitimacy theory claim that CSP disclosers are adapted as reactions to pressure group which include pressure from social, environment group, government and political regulations and economic challenges (Bouquet and Deutsch 2008).The firms, which have a tendency to seek for legitimacy often, show high corporate social performance. These firms have an obligation to take care of the society and the environment. The legitimacy theory discussed by Wilmshurst and Frost (2000) has mentioned that a business organization is bound to the society by a social contract. This contract forms a non written agreement where the organization takes care of the society in which it is operating in. The firms which have a tendency to seek for legitimacy often show high corporate social performance. These firms have an obligation to take care of the society so that the society is obliged to support the organizational activities. 2.0 External Factors 3.1 stakeholders The external factors influencing the corporate social performance of a firm is mostly dependent on the market environment as well as the macro economic factors. It has been stated that after the global financial crisis in 2008-09 has largely influenced the way an organisation conducts its business activities(Huang 2010).The stakeholders are now more concerned about firms sustainable practises and have realized that they cannot be satisfied about their current status or economic condition, as they can change any moment. The stakeholders such as the employees, government, customers are more concerned regarding the ethically responsible activities of the firm, therefore they often face great pressure on the organisations to improve their CSP.This as a result has forced the organisations to seek out for new ways to gain future sustainability (Lu, Wang and Lee 2013).The company with high CSP is most likely to get the preference of shareholders and customers, thereby reducing the impact of the external environment pressure. 3.2 Increase competitiveness Increasing competitiveness in the global business market, the firms need to create a strong competitive position in the industry. In order to achieve a sustainable position the firms need to achieve a correct balance between the financial obligation and moral responsibilities towards the society and the environment responsibilities (Mbekomize and Wally-Dima 2013).Focusing only on the financial objectives may yield the desired result for the company but only for a short period of time. However, in order to ensure long-term sustainability of the firm it also needs to focus on the social and environmental responsibility, firms need right performance measure for those activities to ensure balance and increase its chance to increase firm sustainability and competitiveness in the market(Epstein and Roy 2001). 3.3 Attract quality workforce The corporate social performance can also act as a source of competitive advantage in attracting high quality work force(Melo 2012). The firms with maximum productivity, working efficiency and high human capital are most likely to gain a competitive position in the industry. Therefore the firms have realized the importance of retaining and attracting the high skilled employees in the workforce. The stakeholder theory suggested by (Mozes, Josman and Yaniv 2011) states that the employees are one of the vital stakeholders that are the responsible for the organisational success or failure. Thus in order to attract and retain the high skilled employees the company needs to have a high CSP. A high CSP acts as a key indicator that the work environment is highly environment friendly and that the employees are highly satisfied working with the organisation. A high level of employee satisfaction eventually leads to higher employee retention thereby yielding high competitive advantage(Neville, Bell and Mengüç 2005). 3.0 Main Drivers of CSP in different industries: 4.1 Financial Performances Financial performance of a firm and its corporate social performance are related in nature, which suggests that each of them is mutually interdependent. Increasing the level of any one of the factors reinforces the other (Tilt and Symes 1999). High corporate social performance may leads to higher financial performance, thereby leading to improved revenue generation and profitability. The favourable cash flow owing to the high CSP allows the firms to invest more in to the socially responsible activities, which in turn increases the CSP(Griffin and Mahon 1997). Traditionally the CSR activities are considered to be secondary objectives of the firms and are often considered to be waste of money and effort. However, with the changing market environment it has been evidenced that the CSP is no longer considered as a secondary organisational priority it could drive company to have better corporate social performance to improve finical performance and improve over all performances for the firms. Stakeholders today considers financial as important driver for organization to perform CSP most of stakeholder expect more and higher degree of involvement of firm in social performance, it is also become legal requirement for large companies to report their social performances as well as finical performance report (Tan 2009). Moreover most of the executives in the higher management recognize the financial importance of the CSP and allocate significant capital and work force to improve it. Wood (1991) has mentioned the advent of globalization has changed the way a firm operates. It has allowed several business firms to come together to conduct their business activities and has also allowed firms to move to several nations. Therefore multinational firms often face the challenge of standardizing their CSR activities, as they are faced with different political and cultural factors in across different borders. This as a result makes it imperative for the multinational firms to design their CSR activities according to the national culture and requirement of the host country. The advent of technological advancement has allowed the firms to implement new strategies to improve their social activities. Technologies allow the firms to leave lower carbon foot print, reduce operating costs and offer developmental services to the society. 4.2 Globalization Technology- Globalization has changed the way a firm operates. It has allowed several business firms to come together to conduct their business activities and has also allowed firms to move to several nations. Therefore multinational firms often face the challenge of standardizing their CSR activities, as they are faced with different political and cultural factors in across different borders. This as a result makes it imperative for the multinational firms to design their CSR activities according to the national culture and requirement of the host country(Kolk and Margineantu 2009). Technology: The advent of technological advancement has allowed the firms to implement new strategies to improve their social activities. Technologies allow the firms to leave lower carbon footprint, reduce operating costs and offer developmental services to the society. It also allows the firm to innovate new strategies to improve the society and environment as well. Several car companies are using advanced technologies to create low pollution hybrid cars which do not impact the ecosystem as much as the previous generation vehicles. Moreover innovative production technology also makes it less labour intensive for the employees to manufacture goods and it also has low impact on the environment owing to innovative waste management (Manuel and Lima, 2006). 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