A literature review on corporate social responsibility

A literature review on unified hearty businessCorporate amicable Responsibility has earned a trusty deal salience over the last decades in academic literature. The literature offers sundry(a) interpretations of the image of bodily cordial responsiveness. The ideal is understood as a process or set of processes on the way a debauched approaches its environment. It is argued that line of reasoning concern and troupe atomic number 18 interwoven ordering has certain expectations regarding traffic and in that locationfore the firm has responsibilities towards society. Hence, being a steward of the needs of society is deemed to be a heartyly accountable, appropriate, and natural act.The first book decl be on CSR is the Social Responsibilities of the ancestryman by Howard R. Bowen in the mid 1950s. But, the stipulation CSR came in widespread ingestion in the early 1970s. In fact, it owes its origin due to the globalisation which took place after m each(prenomin al) multinational corporations were formed. In brief, globalisation means an increase in world(prenominal) transactions in markets for goods, services and factors of production and a growth in institutions that straddle international barriers. All these developments deport brought in force the bodily governance mechanisms to tick off fairness and transpargonncy as well as tender righteousness. Thus, this is how CSR was cause and came into existence in the integrated world.2.1.1 CSR across CountriesCSR, also known as incarnate responsibility, merged citizenship, responsible business, dumbfoundable responsible business (SRB), or embodied kindly executing, is all but a form of corporate self-regulation integrated into a business deterrent example where companies manage the business processes to recrudesce an overall prescribed impact on society. CSR has been defined in diverse ways in antithetic countries, of ab kayoed being the capacity edifice for sustainable live lihoods from Ghana to about giving back to society from Philippines.Conventionally, in the United States, CSR has been presented in a philanthropic standard whereby companies make loot and then they donate a certain shargon of the profits to good-hearted causes. It is seen as tainting the act for the bon ton to receive any benefit from the giving. As such, according to Caroll (2003), The neighborly responsibility of business encompasses the economic, legal, ethical and discretionary (philanthropic) expectations that society has of organisations at a given point in succession.The European model is much to a greater extent than than focused on operating the magnetic core business in a favorablely responsible way, complemented by investment in communities for solid business case reasons and voluntary interaction with the stakeholders. Ideally and broadly, the concept of CSR is a built-in, self-regulating mechanism whereby business would monitor and ensure its house to law, e thical standards, and international norms.2.1.1 Views on CSR correspond to Hancock (2005), CSR piece of ass be viewed by means of and through 3 ways namelySceptic view concord to this view, the nonion of CSR is opposed to democracy and freedom, frustrating business focus on its purpose of wealth creation. Milton Friedman surpass defines this approach Few trends would so soundly undermine the very foundations of free society as the acceptance by corporate officials of a fond responsibility otherwisewise than to make as much money for their stockholders as they possibly can.Utopian viewA utopian view of CSR reflects the idea that companies look at a prior concern to anyone touched by their activity, their stakeholders rather than their sh atomic number 18holders, and especially the vulnerable that whitethorn be exploited by the companys operation. This is based on the work of Evan and Freeman who are for the stakeholder surmisal where a corporation must recognise and respec t the vital amuses of each of its surrounding stakeholders.Realist viewThis view gathers the greatest act oning of an adhesiveness model advocated by Patricia Werhane. It extracts that CSR is non simply about whatever notes and expertise companies choose to invest in communities to help resolve tender problems. But, it is also about the integrity with which a company governs itself, fulfils its mission, lives by its set, engages with its stakeholders, euphonys its impacts and reports on its activities.2.1.2 The Key DriversCSR is seen by Porter and Van Der Linde (2000, p. 131) as a free-enterprise(a) driver that requires appropriate resources. CSR programmes, however, on their own, live certain main drivers which are as followBottom melodic line EffectThis is the most applicable driver of CSR programmes as it incorporates a socially responsible element into corporate practice. As John Elkington (1997) rightly underlined that legion(predicate) companies exhibit corporat e citizenship through charity or philanthropy. Nevertheless, a modern perspective evolved over time for some corporate stakeholders. Success of a corporation is now burthen and defined by evaluating businesses employ a Triple Bottom Line comprised of its social, environmental and fiscal slaying.Managing RiskAn endeavour to sop up CSR programme has been the don in market share, key personnel and investment which pioneering companies enrapture when they sternly manoeuvre labour and green issues. In fact, corporations implement such a programme to manage stakes and ensure legal compliance as de noteworthy by Levine Michael A. (2008). They try to avoid investigation, litigation, prosecution, regulation or legislation.Influence of the Corporate Disastersthither has been an increased perception of greed amidst senior business officials in the corporate world following corporate scandals affecting Enron, WorldCom and the like. CSR is important in counteracting allegations of co rporate 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 outline and corporate governance. sink candour Risk Premium Reputation ManagementCorporations can baptistry economic damage when their corporate personalitys and brands are assailed or sales are affected by consumer boycotts. As argued by some rating agencies, a comprehensive CSR programme will swallow a companys equity risk premium. A direct cor singing in the midst of reputation and fiscal matter measures share price and credit rating (Hancock, 2005) has been illustrated through a model designed by the global public relations company buzzer Pottinger. In fact, companies may acquaint a variety of legal and reputational risks if they do not come adequate social compliance or corporate social responsibility/sustainability programs in place.Customer LoyaltyIn todays markets, companies swallow to focus on construction and maintaining customer truth. As purportd by chow chow Y. (2009), this can be done through a CSR programme which builds loyalty with customers by offering a competitive gain in a marketplace where consumers find ethically delivered or produced goods and services.Stakeholder Activism Investment IncentivesAs cover 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 government 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 better understand their stakeholders, including shareholders. tally to Hill Knowltown (2006), surveys down indicated that analysts place as much importance on corporate reputatio n as they do on financial executing.2.2 Theoretical ReviewA speculative framework can be constructed around the some(prenominal) theories that emerged to condone the reasons behind environmental reporting over the time. These are as followOperational Efficiency TheoryOperational Efficiency occurs when the right crew of people, process, and technology to boost the productivity and value of any business operation, piece of music reducing cost of routine operations to a desired level. In the context of CSR, operational efficiencies can be achieved through managing impending risks and liabilities more resolutionively and efficiently through CSR tools and perspectives by reducing be be adrift information to stakeholders concerning the investment community for better transparency and by utilise corporate responsibility and sustainability approaches in spite of appearance business decision-making to result in mod market opportunities, newly essential manufacturing processes th at can be expanded to other plants, regions or markets.Social Contract TheoryThis supposition dates from the classic tip of history but it took its modern form among the sixteenth and cardinal centuries with the best known philosophers like Thomas Hobbes, John Locke and Jean Jacques Rousseau who chatter on social contract. Rousseau, in fact, conceptualised the individual-society kinship as a dependent situation whereby the two parties mutually confer some right to the state in order to maintain social order which makes human keep and cohabitation better and to gain benefits of community and safety. In parallel to the social contract, the corporate social theory, pertaining to a firms indirect social obligations, has been advanced as a theoretical basis to explain the practise of CSR by corporations. Accordingly, businesses are leap out by the social contract whereby they consent to perform respective(a) socially desired actions in repossess for approval of their objective s and other rewards. This ultimately guarantees its move existence.Legitimacy TheoryThe theory is close to the social contract theory. Here, the corporations forever and a day seek to ensure that they operate within the limits and norms of their respective societies and the out-of-door parties perceive their activities as being legitimate.Society grants legitimacy and power to business. In the enormous run, those who do not use power in a way of life which society postulates responsible will tend to lose it. This principle developed by Daviss (1973) is comm just known as the Iron Law of Responsibility. It expresses legitimacy as a societal-level concept and describes the responsibility of business as a social institution that must avoid ab exploitation its power. Thus, this principle expresses a inhibition rather than an affirmative duty, and it applies equally to all companies, regardless of their particular circumstances.According to A.K.H. Khor, the legitimacy theory is f undamentally a system-oriented theory where organisations are viewed as components of the larger 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. Companies can use stakeholder meshing to internalise societys needs, hopes, circumstances into their corporate views and decision-making. While in that location are many questions about how far a companys responsibilities extend into communities relative to the roles of governments and individual citizens, thither is a strong argument that CSR can effectively rectify a companys relations with communities and thereby produce some key features that will improve business prospects for its future.Agency TheoryThis theory comes to explain the descent that exists surrounded by the owners/s hareholders and the anxiety. As such the latter is the agent which appointed by the headspring (owner/subsidiary) and problems such as the potential clean-living hazard and conflict of interest are likely to occur. CSR comes as a middle way so that both parties can maximise their gains. As such, when CFP is strong, managers may reduce social expenditures in order to maximise their own short term surreptitious gains whereas when CFP weakens, managers will try to offset their disappointing results by engaging in conspicuous social programs, hence change over magnitude their own wealth and that of shareholders as well, pursuant to the managerial opportunism hypothesis by Preston OBannon (1997).2.2.1 Corporate Social achievement (CSP)In todays competitive market environment, business is confronted with a new set of challenges that are not only economics- connect. To survive and prosper, firms must link up economic and social systems. Maximising shareholder wealth is a incumben t but by no means sufficient condition for financial prosperity anymore. A new performance measure called corporate social performance (abbreviated as CSP) is used to capture the performance of a business in the social realm allowing us to be more comminuted in thinking about corporate social responsibility.CSP defined as a business organizations configuration of principles of social responsibility, processes of social responsiveness, and policies, programs, and observable outcomes as they relate to the firms societal relationships (Wood, 1991), clearly shows that social performance is not express mail to corporations only, but also applies to any firm and organisation.2.2.2 Corporate Financial Performance (CFP)Most of the businesses operate with a view of yielding profits. The financial performance of a company is reflected through its policies and operations in monetary terms. These results are reflected through its return on investment, return on assets, value added, return on sale and growth 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 indicator used to measure a firms wealth. A broader exposition of financial performance is accompanied by additional indicators such as short-term profits, coarse-term profits, market value, and other forms of competitive advantage, as noted by Jensen (2001). In todays world, for a firm to achieve a good and high level of CSP, it has to go beyond the limits of its own corporate strategies and adopt views of other stakeholders who may be directly or indirectly related to the company.2.2.3 Corporate Social Performance and Corporate Financial PerformanceSince over the three decades, the study of the correlation between corporate social performance (CSP) and corporate financial performance (CSF) has gained much salience. Many studies conducted in this effect have yielded positive correlation, while othe rs produced contradictory results with controvert or non- prodigious 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. Owing 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 conclusion of simply making profits for their owners and shareholders (Berman et al., 1999). As Freeman (1984) rightly pointed out that corporations should be socially responsible for both moral and practical (instrumental) reasons, by reflecting a socially responsible posture, a corporation can upgrade its own performance. Thus, CSR activities can, inter-alia, be rewarded with more sa tisfied customers, better employee, improve reputation, and improved access to financial markets, all pertaining to improving financial performance and sustain the business. However, social accomplishments may equally involve certain financial be which can effectively reduce profits and comparative performance. Hence, Vance (1975) came up with the trade-off hypothesis to show negative linkage between CSP and CFP whereby corporations displaying strong social credentials experience declining stock prices relative to the market average.2.2.3.1 CSP as production line StrategicFrom the higher up, it is clear that CSP can be used as a business strategy which can contribute to the competitive advantage of firms. A study by N.A. Dentchey (2004) on the personal effects of CSP on the competitiveness of organisations reveals that CSP should not be thought of an innocent adventure for executives. It is rather a strategy for achieving corporate strategies, which if not carefully implemented , may harm the competitive advantage of the firm.Competitive advantage, as seen by Porter (1996), denotes the ability of a company to outperform others from successful differentiation from rivals actions. This strategic 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 profitability. Hence, as per Burke and Logsdon (1996), a strategic implementation of social responsibility brings benefits for all since it results 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 regard 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 ignore the cost sharing. Thus, investing in CSP i s likely to bear negative effects for the firms which are incurring cost that might otherwise 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 what is more that there exists a positive relationship between CSP and financial performance. As such, S.A. Waddock and S.B. Graves (1997) propose that a tension exists between the firms explicit costs (for instance, payments to bondholders) and its implicit costs to other stakeholders (for example, product quality costs, and environmental costs). Therefore, 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 Alexander and Buchholz (1982) which lead to l ower 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 facets (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 parallelism between the core business domain and the CSR domain will maximise a firms profitability.The stakeholder theory provides a framework for investigating the relationship between CSP and CFP by examining how a change in CSP is related to a change in financial accounting measures. In fac t, the two concepts of CSR and stakeholder share the proposition that social responsibility affects financial performance in some way or other. This subject field 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 preservation 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 sboulder clay being investigated across several countries. Over environmental issues, research has revealed that businesses which are eco-friendly and demonstrate good CSR practices enjoy increased consumer purchase preference (Gildea, 1994 Zaman, 1996) and good economic per formance (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 achievement 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 multiple stakeholders, ranging from cost minimisation to societal maximisation. Building on the previous mentioned definition of CSP, Wood and Jones (1995) propose that stakeholder theory is the key to brain the mental synthesis and ratios of the firms societal relationships. This theory thereby assumes that firms are responsible for honouring all the implicit and explicit co ntracts 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 dynamic and complex constitution of the interplay between them. The various stakeholders of the firms, such as the employees, shareholders/ financers, environmentalists, government, communities, customers and even competitors should be persuade 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 uphold 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 should consider in their decision-making process. However, like the shareholders, the other stakeholders may have a secernate 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 ultimately 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 direct 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 stakeholders of today, that is, the st ockholders are more interested in the firms current and future financial benefits and social performance.2.3 experimental ReviewThis section reviews the works done and methods used by researchers on the relationship of CFP and CSP. Empirical results on the correlation between these are entangled whereby some yielded in positive, some in negative or 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 relationship. Notably, different methods to compute top executivees 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 through questionnaire for CSP and using change in Return of Equity, change in Return on Sales and growth in sales as financial measures on a take in 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 Return on Equity and change in Return on Sales in the long term but that with the Growth of Sales to be significantly positive only in year 0 and 1. The study suggests that improvements in CSP have both immediate and continuing financial impacts.A paper by S. A. Waddock and S. B. Graves (1997) also came up with positive linkage between CFP and CSP. An index for CSP was computed using eight attributes, rated consistently across the entire Standards Poors 500 by a rating service, which were related to stakeholder concerns. The firm financial performance (profitability) was mensural using three accounting variables, namely, return on assets (ROA), return on equity (ROE) and return on sales (ROS) used to assess CFP by the investment community. Factors such as size, risk and industry which affect both CFP and CSP were taken as control variables. Used on a sample of 469 companies and using CSP as both dependent 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.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. Taking 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 step 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 virtue in the form of social responsibility and, to a lesser extent, environmental responsibility can pay off, despite the CSP-CFP operationalisations can also moderate the positive association. CSP appeared to be more passing 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 of CSP. This meta-analysis establishes a greater degree of certainty with respect to the CSP-CFP relationship than is shortly assumed to exist by many business scholars.According to Mahoney L. and Roberts R.W. (2007), there is no significant relationship between a composite measure of firms CSP and CFP. Using four years panel data of Canadian firms, they calculate a composite measure of CSP score by summing all dimension strength ratings, such as, community relations, diversity, employee relations, environment, international, product safety, and amongst others and subtracting all dimension weaknesses ratings. As concerned the CFP, following Waddock and Graves (1997a), return on assets (ROA) and return on equity (ROE) were used separately to measure a firms CFP. As CFP was judge 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 farmer causality approach, by Rim Makni et al. (2008) reaffirms Mahoney and Roberts (2007) works on the non-significant relationship.However, there may als o be a simultaneous and interactive negative relation between CSP and CFP, forming a vicious circle.Building on P. L. Cochran and R. A. Wood (1984) CSR-financial performance model where average age of corporate assets was found to be highly correlated with social responsibility rankings, D. J. Wood (1991) reformulated the CSP model to build a coherent, integrative framework for business and society research. The principles of social responsibility were enclose at the institutional, organisational, and individual levels processes of social responsiveness were shown to be environmental assessment, stakeholder management, and issues management and outcomes of CSP were posed as social impacts, programs, and policies. The third part of the CSP model concerning the social outcomes was the only portion that was actually observable and open to assessment and any real performance, determined by stakeholders, existed. It was noted that stakeholders were likely to evaluate CSP differently, de pending not only on their own interests, but also on their understanding and acceptance of social responsibility principles and their relationship to CSP. Building on this model, many researchers worked on finding the linkage between CFP and CSP. Using Wood (1991)s model, the results of a study conducted by P. A. and S.D. Stanwick (1998) showed that a firms CFP is indeed affetced by the size of the firm, and the add of pollution emissions released.Where many numerous quantitative studies have been carried out to establish, largely in samples of multiple industries, the CSP-CFP relationship, M. Soana (2009) investigated this very linkage in the banking sector using a sample of national and international banks where social performance was proxied using content analysis, surveys, reputational measures, unidimensional indicators, ethical ratings and financial economic performance was proxied using market and accounting ratios. The eventual examination resulted in a no statistically si gnificant link that could indicate any positive or negative correlation between CSP and CFP. The reason was that the majority of studies revised till now are also almost exclusively focused on the USA and UK markets. Corporate governance was also used as control variable, but it showed a non-significant and negative link with ROA and ROA. The study also affirm the hypothesis that those banks that have the most transparent and efficient ownership structure are also the least profitable for shareholders.