how can corporate social responsibility (csr) effect company performance

HOW CAN CORPORATE SOCIAL RESPONSIBILITY CSR EFFECT COMPANY PERFORMANCE BY DINH THE ANH TUAN... This was one of the pioneer books on social responsibility for businesses and highlighted

HOW CAN CORPORATE SOCIAL

RESPONSIBILITY (CSR) EFFECT COMPANY

PERFORMANCE

BY DINH THE ANH TUAN

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

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

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

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

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

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

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

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

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

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?

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

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

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

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 stand-alone 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

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

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%

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

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

actions of the business community to develop and assist the poor, and image building According to Charles Moore, executive director of the Committee to encourage business philanthropy CECP, "Business leaders today understand the role

of the social contract help position businesses to achieve remarkably successful reality "

2.2 Financial performance:

2.2.1 Definition of financial performance:

According to investopedia.com, financial performance means:‖ A subjective measure

of how well a firm can use assets from its primary mode of business and generate revenues This term is also used as a general measure of a firm's overall financial health over a given period of time, and can be used to compare similar firms across the same industry or to compare industries or sectors in aggregation‖

2.2.2 Content:

A measurement system financial performance should give you a set of tools and metrics to understand your financial situation This information can be used to make better business decisions in a number of sectors including:

 Incentive Compensation

We have extensive experience in developing methods of financial analysis and decision models

Typical Projects

 Activity Based Costing

 Value Stream Costing

 Financial Ratio Benchmarking

 Throughput Accounting

 Key Performance Measure Development

 Kaizen Budgeting

 Domestic and International Transfer Pricing

 Incentive Compensation Systems — Development and Validation

csr and Financial performance is related to each other very closely, relationship of csr and Financial performance can be as positive and negative

2.2.2.1 Advantages of CSR and financial performance:

About employee, Recent survey shows that social responsibility of business is increasingly important factor in attracting and maintaining a talented work force and diversity The company give the benefit of their employees, providing good working conditions to achieve better performance on quality and, therefore, experience higher levels of productivity About learning and innovation, these are critical to long-term survival of any business CSR can be a vehicle businesses to meet environmental and social risks and turn them into business opportunities About management, The company operates in a market of comments How Companies are rated by customers, suppliers and the wider community will have an impact on their profitability and

success Corporate Social Responsibility provides a means by which companies can management and influence to attitudes and perceptions of stakeholders, building their faith and allow the benefits of positive relationships to make advantages business About Operation efficiency, Corporate social responsibility can provide opportunities

to reduce current and future costs to enterprises thereby increasing operational efficiency And final, about competitiveness and market positioning, Corporate social responsibility build brand to attract consumers of competitors and thus improve profitability

_ Stakeholder theory: Since publication of Edward Freeman‘s Strategic

Management: A Stakeholder Approach (1984), stakeholder management, stakeholder theory, and other variants of stakeholder analysis have occupied a great deal of managerial research Freeman argued that business relationships should include all those who may ―affect or be affected by‖ a corporation (Clarkson 1995, Freeman

1984, Freeman/ Reed 1983) Much of the research in stakeholder theory has sought

to systematically address the question of which stakeholders deserve or require management attention (Mitchell/ Agle/ Wood 1997) Approaches to this question have focused on relationships between organizations and stakeholders based on exchange transactions, power dependencies, legitimacy claims, or other claims (Cummings/ Doh 2000, Donaldson/ Preston 1995, Mitchell/ Agle/ Wood 1997) Researchers have attempted to integrate stakeholder theory with other managerial perspectives, particularly theories of governance and agency (Hill/ Jones 1992, Jones 1995)

Stakeholder theory is useful as both an instrumental and normative frame Normative stakeholder arguments have emerged declaring firms have a moral obligation to uphold the interests of all corporate stakeholders (Wicks, Gilbert, and Freeman,