Corporate Social Responsibility: A Performance Matrix

Transcription

1 Journal of New Business Ideas & Trends 2018, 16(1), pp Corporate Social Responsibility: A Performance Matrix Ian Buscombe Principal, BDK Buscombe Certified Practising Accountants Maroochydore, Australia ian@bdkbuscombe.com Abstract Purpose This paper presents an overview and guidance on an application to evaluate corporate social responsibility from the perspective of an organisation. Design/methodology/approach The approach relies on the literature and prior development of a model culminating in a performance matrix. Originality/value The paper contributes to the dissemination of knowledge intended to promote practical applications to issues of a professional nature. Keywords: Corporate social responsibility; corporate social performance; strategic management accounting. JEL Classifications: L20; M14 PsycINFO Classifications: 3660 FoR Codes: 1501 ERA Journal ID #: JNBIT Vol.16, Iss.1 (2018) 37

2 Introduction Corporate social responsibility (CSR) has been described as social responsibilities focused on short-term profit making (Friedman, 1970); encompassing economic, legal, ethical and discretionary expectations of society (Carroll, 1979); and more recently as actions by corporations that advance social good beyond that which is mandated by law (McWilliams & Siegel, 2001). In addition, CSR has been linked to good corporate governance and as a component of strategic planning with the intention being to maximise shareholder value (Sarim, Shamshad & Akhter, 2017; Halda & Mishra, 2015). However, just as corporate governance has been found to be more effective through legislation CSR seems to receive more attention when it is mandated through legislation. In deed there are countries that have incorporated the requirement for CSR in their respective Corporations legislation, India imposes a requirement that 2% of average net profit be spent on CSR (Sinha, 2017), Indonesia also imposes a mandatory responsibility on corporations for CSR although it does not stipulate amounts or percentages (Waagstein, 2011). In Australia, the Corporations Act does not include any such mandatory requirements for CSR, at least not as yet. The importance of corporate social responsibility came to international prominence when the United Nations introduced ten principles under the auspices of a Global Compact. The ten principles themselves emanate from: the Universal Declaration of Human Rights, the International Labour Organization s Declaration on Fundamental Principles and Rights at Work, the Rio Declaration on Environment and Development, and the United Nations Convention Against Corruption. The Global Compact was a UN initiative intended to promote socially responsible actions on the part of large international corporations (United Nations, 2010). However well-intentioned the global compact maybe it does not provide an adequate guidance for establishing relevant areas in that corporations can select or justify their actions as meeting the corporate social responsibilities. Further it does not provide any guidance on how such actions should be reported. The International Accounting body has also not provided any instructions for reporting and as such the financial reports lack uniformity and consistency in regard to corporate social responsibility actions. The lack of consistency in reporting has received the attention of a number of researcher s (Deegan, 2000; Golob & Bartlet, 2007) the suggestions for improving the communication of corporate social activities have not been adopted. This focus on seeking to validate and justify corporate social activities and the reporting of the outcomes has taken the attention away from the determination of which socially responsible activities a corporation should invest their time and money in undertaking. This paper revisits the early literature seeking to identify a possible approach for use by corporations when considering the types of corporate socially responsible activities, they may choose to undertake. Literature Review The literature on corporate social responsibility has focused more on evaluating the level of activity as reported by corporations. One avenue of research has examined the extent to which pressure from various stakeholders elicit a response from corporations to engage in corporate social responsible activities (Aguilera, Rupp, Williams & Ganapathi, 2007; Campbell, 2007). Another focus of research has examined the effect that suppliers have in exerting pressure on corporations to undertake socially responsible activities (Baden, Hardwood & Woodward, 2009; Helmig, Spraul & Ingenhoff, 2013). However, research on the influence of corporate social responsibility on improving customer relations and market share has received wider attention as a justification for identifying marketing or public relations outcomes (Hilderbrand, Demotta, Sen & Valenzuela, 2017; Sen, Du & Bhattacharya, 2016). With research exploring the extent that different types of corporate JNBIT Vol.16, Iss.1 (2018) 38

3 activities influence consumers commitment to corporations (Ellen, Mohr & Webb, 2000). This research is concerned with the results emanating from corporate socially responsible activities and does little to provide a practical guidance on how to evaluate the various avenues of such activities. Approaches to Evaluation The notion that social responsibility was a hallmark of a mature organisation in a global civilised society was proffered by Davis (1973). In effect the 70 s was a time in which corporations were expected to perform as responsible corporate citizens and according to Drucker (1973) the relationship between strategy and legitimacy for a corporation to operate. The corporate strategy should therefore address ethical as well as contributions to society on a wider scale than mere economic performance. To address this notion of social responsibility Halal (1977) argued that there were economic benefits to corporations from following a corporate social posture. Halal (1977) proposed a form of return-on-resources model to evaluate corporate performance thus providing the first step in deriving an approach that would be useful to management decision making. The next step forward came in the form of four-dimensional model proposed by Carroll (1979) in which the obligations of business to society were categorised as being economic, legal, ethical and discretionary aspects of business performance. It was from this background that Rowe, Mason and Dickel (1986) devised the corporate social matrix. The principle is to evaluate the total social performance of the corporation from the perspective of dealing with social issues balanced with the need to satisfy stakeholders. A simple quantitative formula provides a starting point for understanding the evaluation process and may be expressed as follows: P x I = E Where: P: represents corporate performance on an issue; I: represents importance weighting of the issue; and E: represents evaluation of the issue. The implementation for strategic assessment and management appraisal involves eight steps recommended by Rowe, Mason and Dickel (1986, 122) and these are summarised as: 1. Identify the most pressing social issues facing the firm; 2. Identify the key stakeholders; 3. Evaluate the firm s current performance for each issue and each stakeholder using a scale of 5 to + 5, zero is assigned if there is no performance or it is irrelevant for a stakeholder; 4. Assign a weighting to reflect the level of importance of each issue, it is suggested that a scale of 1 to 4 may be used; 5. These should all be placed in a table (refer to Table 1); 6. Sum the values of the performance ratings per stakeholders and record this in the column named total for the row (refer Table 1); 7. Multiply the total of each row by its importance weighting and record this in the performance evaluation column (refer Table 1); 8. Sum the performance evaluation column to reveal an indicator of the performance of the firm in regard to the social issues it has dealt with. JNBIT Vol.16, Iss.1 (2018) 39

4 Table 1 Corporate Social Performance Matrix Source: Adapted from Rowe, Mason and Dickel (1986) The strategic evaluation is an attempt to provide a perspective of the corporation s activities in response to social issues that have occurred. From this point management are then able to reflect on the strategic direction they wish to take in formulating the future directions of corporate social responsibility to be incorporated in their overall strategic plan. Research is an essential part of the strategic planning process and when it comes to the undertaking of this corporate social performance matrix evaluations should include data gathered from the various stakeholders. Decisions regarding strategic resource allocation have always been complex for management, the inclusion of social expectations have made this even more complex. Results of empirical research indicate that links between social performance and financial performance can be traced to reduction of costs ro increases in revenue (McWilliams & Siegel, 2000); functioning as a form of advertising (Sen & Bhattacharya, 2001); improving labour productivity (Turban & Greening, 1996); and reducing levels of waste from production (Konar & Cohen, 2001). Applying neoclassical economic theory Brammer and Millington (2008) provide diagrammatic representations of the relationship between corporate social performance and corporate financial performance. Figure 1 depicts a positive linear relationship assuming financial benefits from social performance are not subject to diminishing returns. Figure 2 depicts a nonlinear relationship assuming that positive financial payoffs for good social performance occur, but that they are subject diminishing and eventual decreasing returns. Figure 3 depicts a converse nonlinear relationship to that presented in Figure 2. JNBIT Vol.16, Iss.1 (2018) 40

5 Figure 1 Positive Linear Relationship between Corporate Social Performance and Financial Performance Figure 2 Low-high-low Non-Linear Relationship between Corporate Social Performance and Financial Performance Figure 3 High-low-high Non-Linear Relationship between Corporate Social Performance and Financial Performance JNBIT Vol.16, Iss.1 (2018) 41

6 Given that social issues are becoming an important concern in the current corporate climate it is essential that management have a working understanding that allows them to distinguish between responsibilities and responsiveness. To address this aspect the discussion provided by Wartick and Cochran (1985) is a good starting point. They simplify the concept as consisting of principles; processes and policies as presented in Figure 4. Figure 4 Corporate Social Responsibilities, Responsiveness and Issues Management Source: Adapted from Wartick and Cochran (1985) This paper provides management with a brief overview for a practical application when undertaking the strategic planning process involving corporate social responsibilities and reviewing the past performance. References Aguilera, R., Rupp, D., Williams, C. & Ganapathi, J. (2007). Putting the S: back in Corporate Social Responsibility: A Multilevel Theory of Social Change in Organizations, Academy of Management Review, 32(3), Baden, D., Hardwood, I. & Woodward, D. (2009). The Effect of Buyer Pressure on Suppliers in SME s to Demonstrate CSR Practices: An Added Incentive or Counter Productivite?, European Management Journal, 27(6), Brammer, S. & Millington, A. (2008). Does it Pay to be Different? An Analysis of the Relationship between Corporate Social and Financial Performance, Strategic management Journal, 29(x), Campbell, J. (2007). Why would Corporations Behave in Socially Responsible Ways? An Institutional Theory of Corporate Social Responsibility, Academy of Management Review, 32(3), Carroll, A. (1979). A Three-dimensional Conceptual Model of Corporate Performance, Academy of Management Review, 4(4), Drucker, P. (1973). Management: Tasks, Responsibilities, Practices, Harper and Row: New York. Ellen, P., Mohr, L. & Webb, D. (2000). Charitable Programs and the Retailer: Do They Mix?, Journal of Retailing, 76(3), JNBIT Vol.16, Iss.1 (2018) 42

7 Friedman, M. (1970). The social responsibility of business is to increase profits, New York Times Magazine, (Sept 13), Halal, W. (1977). A Return-on-resources Model of Corporate Performance, Claifornia Management Review, 19(4), Helmig, B., Spraul, K. & Ingenhoff, D. (2013). Under PositivePressure: How Stakeholder Pressure Affetcs Corporate Social Responsibility Implementation, Business & Society, 20(10), Hilderbrand, D., Demotta, Y., Sen, S. & Valenzuela, A. (2017). Consumer Responses to Corporate Social Responsiibility (CSR) Contribution Type, Journal of Consumer Research, 44(4), Konar, S. & Cohen, M.(2001). Does the Market Value Environmental Performance?, Review of Economics and Statistics, 83(2), McWilliams, A. & Siegel, D. (2000). Corporate Social Responsibility and Financail Performance: Correlation or Misspecification?, Strategic Management Journal, 21(5), Rowe, A., Mason, R. & Dickel, K. (1986). Strategic Management & Business Policy: A Methodological Approach, 2 nd Edn., Addison-Wesley Publishing Company: Massachusetts. Sen, S. & Bhattacharya, C. (2001). Does Doing Good always lead to Doing Better? Consumer Reactions to Corporate Social Responsibility, Journal of Marketing Research, 38(x), Sen,S., Du, S. & Bhattacharya, C. (2016). Corporate Social Responsibility: A Consumer Psychology Perspective, Current Opinion in Psychology, 10(x), Turban, D. & Greening, D. (1996). Corporate Social Performance and Organizational Attractiveness to Prospective Employees, Academy of Management Journal, 40(x), Wartick, S. & Cochran, P. (1985). The Evolution of the Corporate Social Performance Model, Academy of Management Review, 10(4), JNBIT Vol.16, Iss.1 (2018) 43