HOW CAN CORPORATE SOCIAL
RESPONSIBILITY (CSR) EFFECT COMPANY
PERFORMANCE
BY
DINH THE ANH TUAN
E0700074
Graduation Project Submitted to the Department of Business Studies HELP
University College, in Partial Fulfillment of Requirements for The Degree of
Bachelor of Business (Accounting) Hons
OCTOBER 2011
Declaration of originality and word count.
I here by declare that the graduation project is based on my original work except for
quotations and citations which have been duly acknowledged. I also declare that it
has not been previously or concurrently submitted for any other course/degree at help
University College or other institutions. The word count is 9850 words.
Dinh The Anh Tuan
Date: 17/10/2011
2
Acknownledgement
I would like to express gratitude towards Mr Pham Duc Hieu for
their
and guidance. I would also like to thank ISVNU for this project.
3
support
Abstract
How can Corporate Social Responsibility (CSR) effect company performance
By
Dinh The Anh Tuan
October 2011
Supervisor: Pham Duc Hieu
Companies faced with complex market conditions, external effects and asymmetric
information can lead to market failures and optimize profits. In the literature, market
failure can build the theoretical basis for the implementation of corporate social
responsibility (CSR) of companies. In fact, companies in competitive markets can
use CSR as a management tool to gain more profitable through diversification.
Furthermore, the implementation of social responsibility requires the detection of
future trends and developments that make the company more stable for the
unexpected events. Therefore, CSR can offer companies the chance to achieve higher
profits they would receive without CSR. In addition, CSR can lead to higher costs
and thus the financial performance worse. Many research are taken in which the
method of study is quantitative or using the KLD data base. In this study, I will
examine the relationship of CSR and financial performance in different view and
different method. Those issues will be improved by the case of Vedan in Vietnam.
This is a very clear example of the relationship between CSR and Financial
performance.
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Table content
Acknownledgement ...................................................................................... 3
Abstract ................................................................................................................ 4
Table content ................................................................................................... 5
Chapter 1: Introduction .......................................................................... 7
1.1 Reason for choosing the subject: ....................................................................... 7
1.3 Research question: ............................................................................................ 10
1.4 CSR in the world: ............................................................................................. 10
1.5 CSR in Viet Nam:............................................................................................. 11
1.6 Structure of study: ............................................................................................ 12
Chapter 2: Literature review ............................................................... 13
2.1 Definition of CSR:............................................................................................ 13
2.1.1 Historical definition of CSR .......................................................................... 14
2.1.2 Content: ......................................................................................................... 17
2.1.2.1 CSR with workers or employees: ............................................................... 18
2.1.2.2 CSR with stakeholders: .............................................................................. 19
2.1.2.3 CSR with suppliers and customers: ............................................................ 19
2.1.2.4 CSR with community: ................................................................................ 20
2.2 Financial performance: ..................................................................................... 21
2.2.1 Definition of financial performance: ............................................................. 21
2.2.2 Content: ......................................................................................................... 21
2.2.2.1 Advantages of CSR and financial performance: ........................................ 22
2.2.2.2 Disadvantages of CSR and financial performance: .................................... 25
2.3 Benefits and cost of CSR.................................................................................. 26
2.3.1 Benefits of CSR: ............................................................................................ 26
2.3.2 Cost of CSR: .................................................................................................. 27
2.4 CSR and accounting performance: ................................................................... 28
2.4.1 How benefits are reflected in accounting ...................................................... 28
2.4.2 How costs are reflected in accounting: .......................................................... 29
2.5 How CSR can reduce the cost of the company: ............................................... 30
2.5.1 Reduce operating cost: .................................................................................. 30
2.5.2 Reduce financial cost:.................................................................................... 30
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Chapter 3: Methodology: ........................................................................ 32
3.1 Research methodology: .................................................................................... 32
3.1.1 Quantitative methodology: ............................................................................ 32
3.1.1.1 Advantages of quantitative method: ........................................................... 32
3.1.1.2 Disadvantages of quantitative method: ...................................................... 33
3.1.2 Qualitative methodology: .............................................................................. 33
3.1.2.1 Advantages of qualitative method: ............................................................. 33
3.1.2.2 Disadvantages of qualitative method: ........................................................ 34
3.2 Data collection:................................................................................................. 35
3.2.1 Primary data: ................................................................................................. 35
3.2.2 Secondary data: ............................................................................................. 37
3.3 Measurement: ................................................................................................... 38
Chapter 4: Analysis....................................................................................... 40
Chapter 5: Conclusion ................................................................................ 44
REFERENCE: .......................................................................................................... 45
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Chapter 1:
Introduction
1.1 Reason for choosing the subject:
In this section, I would like to introduction something about the corporate social
responsibility (CSR). CSR has emerged as the business issue of the 21st century and
has been studied for over 50 years. However, academics do not have a consensus on
its definition (Wood, 1991; Carroll, 1991) and it has been frequently assigned to the
field of business ethics and conduct.
Publications, definitions and references to CSR started as early as the 1950s. One of
the pioneer books on the topic of CSR was written by Howard in 1953, titled the
"Social Responsibilities of the Businessman". This was one of the pioneer books on
social responsibility for businesses and highlighted a company's role beyond the
financial benefits.
Today, social responsibility is not a new problem for the theory of firms and
countries around the world where the only thing to discuss here is the theory that has
been "doing" and what do well it was useless.
CRS is very interested in the developed countries by the business community see it
as investment creates significant profit (after all the same, according to Philip Kotler,
the supreme goal of a business entity is profit ). Speaking to this apparent logic of the
problem is investment - profitability, "the property" long giant that is building up
day.
Defining social responsibility of business can be broken down into specific actions
with objects are employees, shareholders, suppliers, customers, and communities.
CSR is an important issue which concerns about the ethics, the society, the natural
environment, the employees and also working environment as a whole in which how
the firm behave. On September 13, 1970, in the New York Times, Milton Friedman
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wrote: ―There is one and only one social responsibility of business— to use its
resources and engage in activities designed to increase its profits so long as it stays
within the rules of the game, which is to say, engages in open and free competition
without deception or fraud.‖ The Australian Government Corporations and Markets
Advisory Committee: Corporate Social Responsibility Discussion Paper (2005)
emphasizes that ―as companies‘ play a prominent role in contemporary society, the
relationship that exists between a company and society is an important community
issue. Through the provision of goods and services, companies have substantial
power to impact society. Correspondingly, a firm‘s CSR suggests whether this
impact is positive or negative. Thus CSR is a particularly relevant issue for
evaluating firms from a community perspective.‖
The Economist Intelligence Unit (2005: 5) global survey reported that in 2000, 54%
of corporate executives regarded corporate social responsibility as ‗central‘ or
‗important‘ to their corporate decision-making. In 2005 this response grew to 88%.
This shows that firms are more and more increasingly focusing on CSR. Therefore it
is essential to look at whether investment in CSR is associated with higher or lower
financial performance.
So I chose this topic to demonstrate the importance of CSR in the business,
especially effect financial performance.
1.2 Problem statement
CSR can make a lot of benefits to companies, CRS is the best interests of the
developed countries of the enterprise are considered investments generate significant
profits as: Reduce costs and increase productivity, businesses can save money by
producing cleaner. For example, a business major packaging producers in Poland has
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saved $ 12 million within five years thanks to the installation of new equipment,
thereby reducing water use by 7%, 70% of the amount of 87% of waste water and
emissions. Or increase revenues, investment to support local economic development
can create a better workforce, provide cheaper and more reliable, and thus increase
sales. To raise brand value and reputation of the company, CSR can help companies
increase brand value and reputation significantly. Reputable companies to help
increase sales, attract partners, investors, and employees. Attract good workers,
Qualified labor resources is the decisive factor productivity and product quality. in
developing countries, a large amount of labor, but labor force of high quality is not
much; thus attracting and keeping qualified staff is good and the commitment is a
challenge for businesses. These businesses pay fair and equitable, giving employees
training opportunities, health insurance and pure environment is capable of attracting
and retaining good employees. CSR can also make the company the financial deficit.
One of the important limitation to a program of corporate social responsibility is the
cost to the company. Efforts such as sponsoring events, charitable donations,
contributions and commitment to the product of voluntary environmental standards
all the costs that the company is difficult to implement in the short term return.
Although long-term positive impact of a company's image is improved, it is
impossible for companies to measure the value of corporate responsibility, instead of
taking costs out of its profits. This means less money for shareholders and less
money to invest back into the company for future growth. It has also places the
company to invest heavily in corporate responsibility at a disadvantage competing
against other companies.
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1.3 Research question:
What is the CSR? Definition of financial performance? Advantages and
disadvantages of CSR and financial performance? What are the benefits and cost of
CSR? How benefits and cost are reflected in accounting? How CSR can reduce the
cost of the company?
1.4 CSR in the world:
Today, in the current economy is facing many difficulties, CSR still plays an
important role in the maintenance and development of the company, examples of
intel.
At the last meeting of the Asian CSR Forum, Intel has indicated that only the public's
trust business for just under 60%. This is a significant decline in public trust for
enterprises, because the Center examine social responsibility of business Svetlana
Boston College, USA, about ten years ago, people still great confidence in the ability
of sustainable development of the market will play an important role in the
sustainable development of society in general. Besides the drop in confidence, the
economic crisis is no small impact on the public purse for sustainable products, the
market share of these products which have a good position before the crisis, but were
significantly reduced after the financial crisis. Typically, M & S is a pioneer in CSR
activities and quality products and sustainable high, were 44% profit drop in half a
year (data from 11/2008, PR Week, UK) in Meanwhile, capital is a retail system
products using the very short life cycle, leading to consequences that large amounts
of waste from clothing products to be reused will be discharged into the environment
... but Primark has announced 17% increase in annual profit. Because of a significant
drop in revenue and profit by the change-oriented consumers from sustainable
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products to the product cost, short life cycle to address basic needs and immediate
consumer, businesses generally have to cut the cost of promotional activities as well
as other community activities. Typically, the operating budget for financing social
dropped 38%, the number of business abandon community activities increased 27%,
and the activities of research and development of sustainable products in the
companies fell 19%. (Intel's Survey Data). So, What is the role of CSR?
1.5 CSR in Viet Nam:
Social Responsibility of Business, also known as CSR is a topic which is quite
attractive in over three years for businesses in Vietnam. The attraction comes from
the benefits that CSR gives enterprises the immediate benefits of increased brand
recognition and consumer sentiment for the brand, rather than long-term benefits
directly next to the business, manufacturing business. So in recent years, community
activities despite instructions confined scope of the PR / Marketing but has become
an indispensable array of activities of various companies operating in Vietnam Nam.
However, in the last two years, especially this year, the economic and financial crisis
the world has little impact to operations and policies of the business community, as
well as the interest of the public for these activities. Therefore, many businesses cut
costs PR / Marketing has led to cuts in social activities or to scale community
projects, etc... However, there are companies still trying to maintain CSR activities
committed but still faces many difficulties in implementing activities. So, the
question of how CSR activities to be effective for the community and for business in
tough economic times is not only poses problems for businesses in Vietnam but also
in businesses in Asia and the world.
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So, we need to research these question: what is the CSR? What is the financial
performance? And what is the relationship between CSR and financial performance?
1.6 Structure of study:
To solve the question above, my study is divided into five chapters:
Chapter 1: Introduction
Chapter 2: Literature review
Chapter 3: Methodology
Chapter 4: Result and discussion
Chapter 5: Conclusion
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Chapter 2: Literature review
2.1 Definition of CSR:
―Corporate Social Responsibility (CSR) is committed to the enterprise (business) for
business ethics and contribute to sustainable economic development, improve the
quality of life for employees and their families, local communities and society in
general‖.
Another definitions, ―Corporate social responsibility (CSR) is a form of corporate
self-regulation integrated into a business model. CSR policy functions as a built-in,
self-regulating mechanism whereby business monitors and ensures its active
compliance with the spirit of the law, ethical standards, and international norms. The
goal of CSR is to embrace responsibility for the company's actions and encourage a
positive impact through its activities on the environment, consumers, employees,
communities, stakeholders and all other members of the public sphere. Furthermore,
CSR-focused businesses would proactively promote the public interest (PI) by
encouraging community growth and development, and voluntarily eliminating
practices that harm the public sphere, regardless of legality. CSR is the deliberate
inclusion of PI into corporate decision-making, that is the core business of the
company or firm, and the honouring of a triple bottom line: people, planet, profit‖
(Wikipedia.org)
―Corporate social responsibility (CSR) can be defined as the "economic, legal,
ethical, and discretionary expectations that society has of organizations at a given
point in time" (Carroll and Buchholtz 2003, p. 36). The concept of corporate social
responsibility means that organizations have moral, ethical, and philanthropic
responsibilities in addition to their responsibilities to earn a fair return for investors
and comply with the law. A traditional view of the corporation suggests that its
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primary, if not sole, responsibility is to its owners, or stockholders. However, CSR
requires organizations to adopt a broader view of its responsibilities that includes not
only stockholders, but many other constituencies as well, including employees,
suppliers, customers, the local community, local, state, and federal governments,
environmental groups, and other special interest groups. Collectively, the various
groups affected by the actions of an organization are called "stakeholders." The
stakeholder
concept
is
discussed
more
fully
in
a
later
section‖
According to csrnetwork.com : ―Corporate social responsibility (CSR) is about how
businesses align their values and behaviour with the expectations and needs of
stakeholders - not just customers and investors, but also employees, suppliers,
communities, regulators, special interest groups and society as a whole. CSR
describes a company's commitment to be accountable to its stakeholders‖.
Between many conceptions of responsibility, it is csrnetwork.com definition of CSR
that will serve as a framework for further analysis and discussion in this study as the
model is simple, easy to understand and have an intuitive logic appealing.
2.1.1 Historical definition of CSR
About 1980s:
The 1980s have been described as having ‗a more responsible approach to corporate
strategy‘ (Freeman in Lucas, Wollin & Lafferty 2001, p. 150). Prominent was the
work of R Edward Freeman on the emerging Stakeholder Theory (Lucas, Wollin &
Lafferty 2001 ; Post 2003 ; Windsor 2001). Freeman saw ‗meeting shareholders‘
needs as only one element in a value-adding process‘ and identified a range of
stakeholders (including shareholders) who were relevant to the firm‘s operations
(Freeman in Lucas, Wollin & Lafferty 2001, p. 150). Freeman‘s 1984 paper
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continues to be identified as a ‗seminal paper on stakeholder theory‘, and stakeholder
theory as the ‗dominant paradigm‘ in CSR. (McWilliams & Siegel 2001, p. 118)
Carroll believes that in the 1980s, ‗the focus on developing new or refined
definitions of CSR gave way to research on CSR and a splintering of writings into
alternative concepts and themes such as corporate social responsiveness, CSP, public
policy, business ethics, and stakeholder theory/management‘. (Carroll 1999, p. 284)
Carroll outlined the work of a number of researchers, including Jones, who ‗posited
that CSR ought to be seen not as a set of outcomes but as a process‘, and Tuzzolino
and Armandi who ‗sought to develop a better mechanism for assessing CSR by
proposing a need-hierarchy framework patterned after Maslow‘s‘. (Carroll 1999, p.
285) The authors developed the organisational hierarchy as a conceptual tool that
could be used to assess socially responsible organizational performance.
A prominent development in terms of CSR was the global debate on sustainable
development that emerged in this decade. The World Conservation Strategy that was
published in 1980 stressed the interdependence of conservation and development and
was the first to conceptualise ‗sustainable development‘ (Tilbury & Wortman 2004,
p. 8). In 1987 the World Commission on Environment and Development (WCED)
published the Brundtland Report, ‗Our Common Future‘. The report states that
‗Sustainable development seeks to meet the needs and aspirations of the present
without compromising the ability to meet those of the future‘ (World Commission on
Environment and Development 1987). This early definition of sustainable
development is often quoted, but it is interesting from the viewpoint of the CSR
debate that most authors to not seem to quote the next sentence from the report:
Far from requiring the cessation of economic growth, it recognizes that the problems
of poverty and underdevelopment cannot be solved unless we have a new era of
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growth in which developing countries play a large role and reap large benefits.
(World Commission on Environment and Development 1987)
An important contribution to the literature was made by Wood in 1991 when she
revisited the CSP model and ‗placed CSR into a broader context than just a standalone definition. An important emphasis in her model was on outcomes or
performance‘. (Carroll 1999, p. 289) The CSP framework developed by Wood and
the pyramid of responsibilities developed by Carroll, with economic responsibilities
at the base and philanthropy at the apex, are discussed in depth in the literature,
including Carroll (1999) and Windsor (2001). Swanson (1995) suggested that there
were three main types of motivation for CSR:
i. The utilitarian perspective (an instrument to help achieve performance
objectives);
ii. The negative duty approach (compulsion to adopt socially responsible
initiatives to appease stakeholders); and
iii. The positive duty view (businesses self-motivated regardless of social
pressures) (Swanson in Maignan & Ralston 2002).
Wood also identified three main types of processes used by businesses to implement
their CSR motivational principles: environmental management, issues management
and stakeholder management. ‗Once implemented throughout the organization, these
processes help the firm to keep abreast of, and to address successfully, stakeholder
demands‘ (Wood in Maignan & Ralston 2002). However, this may be a somewhat
simplistic view of CSR and relationships with stakeholders. It is also a view that was
overtaken in the 90s by a broadening discussion of the concept of stakeholder, and
whether ‗the first priority of a corporation is to its shareholders‘ (Nahan in Ryan,
2002) or whether policymakers should develop ‗a flexible multistakeholder approach
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to promoting CSR‘, as Aaronson suggests has occurred in Britain in response to
concern about global corporate responsibility (Aaronson 2003, p. 312).
Even within the group that O‘Rourke has described as the ‗primary‘ stakeholders –
the shareholders – ‗the boundary zone of CSR is currently being negotiated‘ with
companies (O'Rourke 2003, p. 228). O‘Rourke writes that:
A trend also noteworthy in the late 1990s was that of shareholder activists linking
their environmental or social issue to financial performance and/or risks faced by
the company. By claiming that environmental and social issues have a direct effect
on shareholder value, shareholder activists are moving the rhetoric of their activism
out of the realm of “ethics” or good versus bad behaviour, and into that of
traditional issues of profitability, risk and shareholder value. (O'Rourke 2003, p.
230).
2.1.2 Content:
_ Suppliers and customers.
_ Workers rights.
_ Stakeholders.
_ For the sake of the community or environment.
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2.1.2.1 CSR with workers or employees:
One of three most important factors for employees,
survey of Ewin.com
1. Wages
68%
2. Relationship with supervisor middle
35%
3. Insurance benefits
34%
Communication between the management team and staff
29%
5. Public Policy by
27%
Evaluation criteria for implementation of the CSR include the employee
compensated (according to a survey of up to 68% Ewin.com salary is considered one
of the most important three factors), not discrimination, remuneration policies and
good training, and working conditions acceptable... The basic conditions above, but
not even a simple business that can also perform complete. Most employees love
their work better by working conditions and reasonable compensation regime.
Enterprises meet these requirements also means creating a team to receive the
attachment, love of work, pride in the company's image and determination to work
for the common good of the "extended home". These gains are clearly out here
significantly improved productivity is also a cultural link in the enterprise. Strong
cultural impact not only to individual enterprises themselves but spread very well in
the business community. This is what every business wants to build. Moreover,
actual costs, opportunity costs, and energy plus losses due to the spirit of constantly
looking for new personnel and training (in the case of older workers to quit in the
personnel policies of the unsuitable company) completely eliminated. Treatment
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policy in good, good culture and work environment to form resonance effects
"attractive" to find qualified staff to the company. Chain Success followed success.
2.1.2.2 CSR with stakeholders:
The focus of the company responsible for promoting the transparency of information
disclosure, companies operating efficiency, and rational use of capital. Conflicts of
interest between management department - executive (team was hired to work) and
the owners - the shareholders are never-ending theme in the business. Because
sometimes people run the company for personal gain forgetting its mission is to bring
maximum benefit to shareholders. Disclosure of information transparency and
effective administration of the company, which used to generate a reasonable value
for the product is made to any business for the sustainable development of industry
and business. If so, create confidence for investors, that belief is emotion - the
decisive factor contributing to the profit share or destroy shareholder value only
narrowly. An expensive lesson for businesses in the information disclosure issue that
earlier case in 2007 in VietNam a securities company blew about a strategic
partnership with prestigious international partners; added was appointed general
manager for many hours with this company. Finally, "effort" to push the stock price
was counterproductive, company shares fell by 90%. Investors interspersed feeling
of disappointment, regret, and sobering, but the company lost credibility seriously.
2.1.2.3 CSR with suppliers and customers:
As for suppliers, the work reduced to the point is to pay your bills on time and good
communication. Once embarked on the business, keeping a good relationship with
suppliers has strategic significance in ensuring a stable supply of production with
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reasonable price, from which the product is distributed distribution to consumers
timely and proper commitment to quality. For customers, CSR is reflected in the
sales of products to meet the needs, reasonable price, delivery, and safe for use. In
fact, if the products meet the consumer demand for product images, and store the
company in the minds of consumers. In business, Donimo psychological effects are
essential, "through word of mouth" is also very strong pervasive. Keep customers
and expand market share is the goal of any business that reflects the spirit of
"customer is God" (author anonymous). Mrs. Lurita Doan, the first woman head of
Service Delivery and Technical Supervisor of the U.S. government (General Services
Administration) has also said "the customer is king, if you do not provide services
well, you will not have a second chance, and so will not be sustainable". To built a
brand and consumer confidence, the business becomes much more favorable.
2.1.2.4 CSR with community:
For the general public, first and foremost task of environmental protection (also the
protection of public health) and then the charity. Environmental pollution, natural
resource depletion, climate change ... is the problem that is causing the world and
eager Nobel Peace Prize awarded to Al Gore in 2007 reflected this focus. Enterprise
environmental protection, in addition to complying with government regulations is
not overcome loss costs or damages for the consequences of litigation. Investments
in green is hot issue in many developed countries. According to a survey by the
National Forest, England 81% of customers agreed to purchase environmental
products, and 73% who will be loyal to the boss or participate in charitable activities.
Not only that, government officials and is also favored for enterprises with good
history of environmental protection, consumer and charity. Charity is honorable
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