CHAPTER ONE

1.1 Background to the Study

The concept of Corporate Social Responsibility (CSR) has become an ever more pressing issue for organizations since its origins dating back to the post-war rebuilding period of 1950’s (Carroll, 2015). In today’s climate, the issue of CSR has gone a step further, becoming one of the top subjects on the agenda for business leaders and people in order to tackle the global challenges society faces including poverty, inequality, climate, environmental degradation, prosperity, peace and justice (United Nations Sustainable Development, 2019). However, many savvy organizations have seen this as the perfect opportunity to create a competitive advantage in order to meet the increasing demand for a CSR-focused strategy, which pleases all stakeholders (Du and Sen, 2016).

The way in which the modern-day CSR phenomena affects an organization is a complex and
intriguing topic, with conflicting views on the overall effects on all stakeholder engagement.
Du Bhattacharya and Sen (2007) on the one hand, are convinced of the large range of benefits
that come with a successful CSR strategy promoting engagement, increased sales, stronger
brand position, improved corporate identity, reducing costs through efficiency, and enhanced
ability to attract and retain the most valued employees. With CSR come big opportunities for
enhanced reputation, revenue, and wider-societal positive impacts. However, the real
question remains how does social responsibility affects the performance of an organization. Organization must now look beyond the scope of just interacting in order to engage stakeholders. In an ideal world, stakeholder engagement and CSR can be seen as a mutually
beneficial partnership which would take the form of a mutually beneficial relationship (Phillips R, 1997). When implementing CSR activities, stakeholder engagement is an important aspect for any organization to consider, in order to have a successful impact on overall performance.

Ultimately, to ensure engagement, requires a strong degree of ‘Stakeholder Management’, a concept which is highlighted in stakeholder theory (Freeman R.E, 1984) and (Phillipps, R, 2003) and stakeholder capitalism (Freeman R.E, 2007). These theories suggest that by devoting time and other resources into the organization’s stakeholder interests in a logical, organized method, will allow the organization to make managerial decisions based upon the desired impact in a rational manner (O’Riordan and Fairbrass, 2013). The modern-day research around stakeholder engagement, in connection with CSR, shows that organizations looking to merely interact with stakeholders, are no longer operating sufficiently. This is because stakeholder interaction is a logically necessary activity (Noland J & Phillips R, 2010). An organization’s ability to ensure their CSR activities have a positive impact on stakeholder engagement, will determine its eventual influence on overall performance levels. Organizational performance can be defined as an analysis of an organization’s performance in relation to goals and objectives set within a given time period (Gjølberg, 2009). The way in which an organization uses stakeholder engagement in relation to their CSR activities will have an overall effect on organizational performance.

1.1.1 Effect of social responsibility

Social responsibility is the notion that a person ought to comply in ways that balance his or her
benefits with social benefits. Social accountability is the idea that an organization must balance
its profits with social gains. The organizations are comprised of both individuals and
corporations. Companies can profit, but not for the good of society or the environment.
Businesses of the Environmental Protection Agency (ECPA) should make informed decisions
and minimize public involvement. Regarding social responsibility, there is nothing different. Nothing new is there. The organization and writings of the Scottish businessman and American founder, Andrew Carnegie, emerged from it. Carnegie’s corporate philosophy is based on two values: charity (the poorer, thehappier) and stewardship (the wealthy keep their wealth “in confidence” for the rest of society, which society sees fit to use for all purposes).

U.S. economist and Nobel Prize winner Milton Friedman subsequently concluded that, in his
best interest, corporations exist only to increase income and work. In their attempts at social
responsibility, he felt corporations were “morally misplaced” because governments were better
able to deal with social concerns and problems. The pervasive corporate trust, including the
management of Exxon Valdez’s oil spills, Enron’s financial fiasco, and the current subprime
mortgage crisis, has worsened over the past 50 years. Social accountability is becoming
increasingly important as a way of building confidence in connections.

1.1.2 Corporate Social Responsibility

As a form of self-regulation, corporate social responsibility is an integral aspect of a business
model. A socially accountable organization tracks and retains its active promotion of legislation,
ethical values and international standards. The Coordination of CSR ensures that a corporation is
responsible and that its environmental effects, consumers, employees, communities and other
stakeholders are promoted.

CSR embraces the mission of an organization and leads and offers to its consumers what it
stands for. The international CSR standard was approved as ISO 26000. The Triple Bottom Line
(TBL) is in line with public sector organizations: (2) enhancing compensation and (2) improving
the social impact. Responsible investment standards were guided by the UN. CSR, however, has
the same values but no official act.

Social corporate accountability is a form of self-regulation which falls into the business model
and which frequently is referred to as corporate accountability and corporate citizenry. CSR
policy will act as a self-regulatory mechanism to ensure that companies comply with laws,
ethical practices and international standards and control and comply. Companies will bear out the
environmental effects of corporations, workers, businesses, stakeholders, and other public
sectors. The impact of corporate social responsibility on organizational success is enormous. The
purpose of this term paper is to explain the theoretical implications of a brand on consumer
decision-making. The author will identify some of the questions required in completing the term
paper, such as the thesis context, problem declaration, research goals, research objectives and
research topics and hypothesis. This publication frequently addresses essential evaluations,
architecture and procedures, data analysis and presentations. The author finally discusses the
main conclusions of the analyses and the findings and points out some critical aspects of the
impact on social responsibility performance.

1.1.3 Historical background of research work

Sustainable development and poverty reduction are key issues that governments must address,
particularly in the developing world. But without the support of the private sector, the
government cannot meet this alone. Politicians attach great importance to the future contribution
to such policy priorities of the private sector. CSR is becoming a force that tackles these
problems and, as the topic of sustainable development becomes more relevant, is becoming more
critical in daily corporate activities. Nolan says that CSR is now used to build clear public ties. It
is also used as a precautionary step to guard the skin against accidental risks and market
scandals, possible eco-accidents, national law and guidelines, secure stunning benefits,
differentiate brands and enhanced voluntary collaborations. Today, businesses know that their
CSR operations, sustainable reporting and commercial strategies are posted on their websites to
allow them to get their sympathy. CSR practice is also practiced because today, clients and
governments need companies to conduct themselves more ethically. Companies readily accept
CSR in their strategies, mission statements and multifaceted principles, comply with labor and
environmental legislation, and take care of the competing stakeholders’ interests. The lack of
competitive advantages for peer companies is another reason for leading CSR companies today.
CSR actions also help companies attract and retain customers and motivated employees, which
guarantees the company’s long-term survival. Drumright (1996) promoted a clear social identity,
and improved customer/worker loyalty through sound companies focused on CSR.
The most popular CSR metrics are related to enhanced organization’s financial results. It is more
consumer-friendly and attractive in Gildea’s research by companies that look after the
environment and have good CSR practices. Margolis found important positive links in the
financial results between CSR and the company. This allows the researcher to examine the
implications of corporate social responsibility on organizational activities.

1.1.4 Performance of an organization

After the study is done, corporate social responsibility is a significant factor in improving
corporate productivity. Cheruiyot has been studying the connection between corporate social
responsibility and financial efficiency. He concluded that CSR and organizational performance
were statistically significantly related. Many Chinese companies assessed an appraisal test,
selecting a high-value, high-performing company. Another strong correlation between portfolio
performance and CSR has been identified in CSR research. The positive partnership led to the
strong corporate image of CSR investors. The excellent performance of CSR is the
reputational value of the company.

1.1.5 CSR & financial performance

Several research projects have attempted to explain the relationship between CSR and financial
performance. The relationship between CSR and organizational profitability has been discussed
in the lists of economic added value and consumer added value. There has been a strong link
between CSR and the credibility of a company. There is no evidence that companies with a code
of ethics have a significant increase compared with non-codes in terms of economic added value
and market value. CSR-Economy also evaluates the potential positive and negative impacts of
CSR operations by hotels, restaurants and airlines on the financial results of positive and
negative activities. Different industries show mixed results between firms by introducing an
acceptable policy on CSRs.

 1.2 Problem statement

Through carrying out the literature review, it is clear to see that there are numerous studies
and literature which have been conducted within the field of CSR. However, very few articles
which focus on how CSR activities have an effect on overall performance suggesting that there is a gap in the literature when focusing on the combination of the two elements together. Further research suggests that there is a need for more CSR research in-order to move beyond the often rarefied, controlled empirical contexts to paint a more complete picture of the forces determining all reactions to CSR activities and its effects on performance (Du, Bhattacharya and Sen, 2007).
Many organizations are now facing a significant increase in demand for a good CSR strategy
from all kinds of stakeholders, over a relatively short period of time (Jenkins, 2005). The
organizations are often locked in a compromise between being socially responsible and trying
to please all stakeholders, as they had previously. Customers are now making their
purchasing decisions based on more factors than just the product itself, they also consider
factors such as social impact, human rights, working conditions and environmental impacts
when it comes to the organizations, they purchase goods and services from. Thus, it is
important that the organizations have the knowledge of how their CSR activities are received
by their stakeholders and how they react to it. Specifically, an organization’s marketing
department needs to be able to consider such facts in regard to their chosen CSR strategy, in
order to direct marketing efforts about this, which could potentially improve overall
performance (Öberseder et al., 2013, p.1846).

Therefore, there are many benefits that can be earned for organizations that are engaged in
CSR in all aspects including social, environmental and economically (Bhattacharya, C. B., &
Sen, S., 2004). CSR activities are an important tool which can be used in a competitive
context and used as a competitive advantage compared to an organization’s competitors.
However, many organizations fail to utilize the full potential of stakeholder engagement
resulting from CSR activities and therefore risk falling behind their competitors.

1.3 Purpose

The purpose of this thesis is to explore how organizations can utilize CSR or activities; in order to improve overall performance. This will be achieved by analyzing and challenging the needs of internal and external stakeholders to see what makes a CSR activity engaging and how this could eventually impact organizational performance in the short and long-term.

1.4 Research Questions

In order to ensure the research is clear and concise with a clear motive, the following research
question is used in the study:

1.4.1 Main Research question

To what extend does corporate social responsibilities effect the performance of an organisation?.
This research question will allow us to form a backbone to the study, while also giving us the
flexibility needed to explore such a complex topic. From the main research question, two
underlying questions were also formulated in order to guide the study into answering the
research question properly:

1.4.2 Specific Research Questions

1. How does ethical responsibility contribute to the performance of an organization?
2. How does economic responsibility contribute to the performance of an organization?
3. How does legal responsibility contribute to the performance of an organization?
4. How does philanthropic responsibility contribute to the performance of an organization?

1.5 Research Objectives

1.5.1 Main Objective

The main objective of the study is to examine corporate social responsibilities as a tool to improve the performance of an organisation.

1.5.2 Specific Objectives

The specific objectives of the study include;

• To examine the effects of ethical responsibilities on the performance of an organization.
• To examine the effects of economic responsibilities on the performance of an organization.
• To examine the effects of legal responsibilities on the performance of an organization.
• To examine the effects of philanthropic responsibilities on the performance of an organization.