influence of corporate social responsibility disclosure on corporate governance and company performance

Social responsibility is a business process applications that aim to meet or exceed to meet the requirements and expectations of stakeholders about the economic benefits, environmental p

INFLUENCE OF CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE

ON CORPORATE GOVERNANCE AND COMPANY PERFORMANCE

University College or other institutions The word Count is 10,093 words

LE ANH CONG

28 October, 2010

Acknowledgement

This project would not have been made possible without the assistance, support and encouragement of many people I wish to take this opportunity to thank all the people who have helped me during the time of completing the dissertation

Firstly, I would like to express my deep gratitude to my supervisor Dr Nguyen Thi Phuong Hoa at the National Economics University (NEU) of Viet Nam SHe has kindly helped me and supported me all the way through For that, I am very grateful I also would like to express my thank to Ms Sumathi and Ms Shenba at Help University College, who initiated the project and give so much instruction and support

LE ANH CONG

Supervisor: Nguyen Thi Phuong Hoa

Corporate social responsibility (CSR - Corporate Social Responsibility) is a growing trend in the world but is still very new in Vietnam, only focused on footwear and apparel industries due to the needs of the customer orders overseas Vietnam is clearly hard goods that can compete on price or quantity with China, that way I can help local

businesses get the advantage in a difficult war in this market? CSR may be the answer if your business really understand the meaning and turn into a CSR culture, thinking and working methods The objective of the research is to assess the understanding of

Vietnamese individual businessmen on the topics of CSR Besides, the research also businessmen wants to define which major factors contributing to the CSR importance by asking respondents‟ understanding and opinion on CSR Besides that, the business in Viet Nam find hard to use CSR as a tool to value firm and it is also difficult for them to make investment decision when CSR issues are mentioned

TABLE CONTENT

Declaration of Originality and Word Count ii

DECLARATION ii

Acknowledgement iii

Abstract iv

LIST OF FIGURES AND TABLES viii

LIST OF ABBREVIATIONS ix

CHAPTER 1 : INTRODUCTION 1

1.1 Research background 2

1.2 CSR in Viet Nam 3

1.3 Problem Statement 4

1.4 Objectives of Research 5

1.5 Research Methods 6

CHAPTER 2 : LITERATURE REVIEW 7

2.1 Definition of CSR 8

2.2 Caroll’s concept 9

2.3 The concepts related to CSR 11

2.3.1 Business Ethics 11

2.3.2 Corporate culture 11

2.3.3 Socially responsible investing 12

2.3.4 Sustainability investing 12

2.4 Stakeholder theory 12

2.5 Legitimacy Theory 13

2.6 Institutional Theory 13

2.6 Tripple bottom line 14

2.7 CSR reporting 14

2.8 CSR’s impacts on accounting 15

CHAPTER 3: RESEARCH METHODOLOGY 16

3.1 Research Objectives 17

3.2 Theoretical framework and measurement 17

3.2.1 Corporate governane 17

3.2.2 Links between CG and CSR 18

3.2.3 Global Reporting Initiative (GRI) 18

3.3 Research methodology 19

3.4 Data sources 19

3.4.1 Primary data 19

3.4.2 Secondary data 20

3.5 Research method 20

3.6 Research tool 20

3.7 Limitations 21

CHAPTER 4 : ANALYSIS 22

4.1 Description of Result 23

4.1.1 Age 23

Table 1 : Age 23

4.1.2 Gender 23

Table 2 : Gender 23

4.1.4 Links between Corporate governance and Corporate social responsibility

28

4.1.5 Global Reporting Initiative 31

4.2 Result Analysis 33

4.2.1 Assessment of CSR/ CSR practices 33

4.2.2 Assessment of the CG – CSR Link 35

4.2.3 Global Reporting Initiative 35

CHAPTER 5: CONCLUSION AND RECOMMENDATION 37

5.1 Conclusion 38

5.2 Recommendation 39

5.3 Limitation of Sutdy 40

5.4 Suggestion for Furture Research 40

REFERENCES ( Harvard referencing system) 41

APPENDICES 47

Appendix A: Questionnaire Sample 47

LIST OF FIGURES AND TABLES

Figure 2.1 A hierarchy of CSR (adapted from Carroll, 1991) 9

Table 1 : Age 23

Table 2 : Gender 23

Table 3 : Question 1 - Description of Result 24

Table 4 : Question 2 - Description of Result 25

Table 5 : Question 3- Description of Result 26

Table 6 : Question 4- Description of Result 27

Table 7 : Question 5 - Description of Result 28

Table 8 : Question 6 - Description of Result 29

Table 9 : Question 7 -Description of Result 30

Table 10 : Question 8 - Description of Result 31

Table 11 : Question 9 - Description of Result 32

Table 12 : Question 10- Description of Result 33

LIST OF ABBREVIATIONS

CG Corporate governance

GRI Global Reporting Initiative

SI Sustainability investing

SRI Socially responsible investing

VCCI Chamber of Commerce and Technology of Vietnam WBCSD World Business Council for Sustainable Development

CHAPTER 1 : INTRODUCTION 1.1 Research background

1.2 CSR in Viet Nam

1.3 Problem Statement

1.4 Objectives of Research

1.5 Research Methods

1.1 Research background

In the World, CSR has been acknowledged as a factor to develop a reputation of a

company in the global market CSR became the main factor to consider in the decision

of enterprises to invest responsibly Social responsibility is considered as an important factor as the other traditional factors such as cost, quality and progress in business Social responsibility is integrated into business strategy and becomes a prerequisite for enterprises to survive and grow CSR refers to business relationships with stakeholders including government, business, labourers, community, society and development

organizations CSR focuses on labor issues and the environment CSR-based businesses will gain many benefits such as improved labor relations, reduced occupational and rate holiday, increased labor productivity, and engagement of workers to the enterprise CSR

is often related to the enterprise‟s commitment to balance different interests of

stakeholders so that it can contribute to sustainable development Some aspects of CSR include environmental protection, security, labor and business rights of the community standards of participation, markets, business and economic development, health and education and leadership development The CSR concept relates closely to corporate citizenship, corporate social responsiveness, corporate social performance and

stakeholder management In this sense, CSR generally refers to business-decision

making which is related to ethical values, compliant to law and regulations, and respect for people, communities and the environment Social responsibility is a business

process applications that aim to meet or exceed to meet the requirements and

expectations of stakeholders about the economic benefits, environmental performance and social impact There are three important concepts should be considered in order to achieve sustainable development: economic growth, ecological balance and the

evolution of society With the process of social responsibility, business can contribute to the objectives of sustainable development through the local association of their activities with the community to achieve positive results for all parties Aligning CSR concepts into daily operations bring many benefits to the enterprise For small and medium enterprises in Vietnam, the application of the concept of CSR can bring significant benefits in the market, signing or extending contracts with customers, including

international organisations and customers Productivity of the enterprises can be

enhanced through the improvement of working conditions of workers Benefits of adopting CSR for businesses are substantial First, the responsibility of investors

indicated correspond to the performance and social environment of a business The positive response of investors, in the developed countries and developing countries, is seen as the environmental performance of organizations as well Similarly, the

organization is a multinational operation focused performance and the social

environment of potential partners before choosing investments The underlying trend of investment in the future will require the Vietnamese enterprises to look at the

application of CSR

1.2 CSR in Viet Nam

Becoming a member of WTO is synonymous with joining in an international playing field with many new, harsh rules to comply with Besides, globalization has made the fact that the company‟s targets are not only profit but also contribution to the society From this point of view, in the respect of strategy, CSR has a compulsory meaning in making reliable social standards for decision- making process of companies However, the concept of CSR is still relatively new in Vietnam, so the application remains limited

implementation of CSR include: 1) awareness of CSR is still limited, 2) lack of financial resources and technical capacity to implement standards CSR (especially for small and medium-size enterprises) Therefore, in Vietnam, the government has improved the awareness of businessmen and concerned sides about CSR, and made CSR an important part in the agenda of steady development International organizations in Vietnam have exerted all their strength to push up and extend CSR The programs and projects

concerned in CSR concentrate on important contents of CSR depending on the projects targets, resources and experiences Those contents including: working conditions, safety, hygiene, environment, quality and productivity, labor relations and manpower resources management Services to advise and issue certificates for administration systems has expanded for example: the administration system of quality (ISO 9000), the

administration system of environment (ISO 14000), labor and social responsibility (SA 8000)

strategies Typically, the social programs such as "six million cups of milk to children of Vietnam" and the scholarship fund "firefly light" of big brands like Vinamilk, Dutch Lady resonate and are consumer support HUB Cafe is one of the enterprises are small and medium-scale implementation of CSR by creating a community library with more than 10,000 volumes of customer service HUB is being built as a place to share

knowledge and materials to help students and conduct research, organize events, and the assembly agreed on issues of education, work experience and career Therefore, the most difficult of Vietnam enterprises at present is the information leads to confusion not know where to start before the jobs related to CSR To promote the implementation of social responsibility of enterprises, it is best to have an association or organization to monitor and advise businesses

1.4 Objectives of Research

According to Nguyen Hong Ha Deputy director of the Chamber of Commerce and Technology of Vietnam (VCCI) in Ho Chi Minh, CSR must be placed on the business strategies of each business CSR has been and will be an essential part to the success of some business enterprises The application of CSR has created a more stable and

productive business Moreover, the enterprises received support from consumers and society in the common interests that bring businesses to the community To succeed in the application of CSR in Vietnam, the first business owners to deploy, implement CSR exploited for their labor as the observance of laws on wages policy, social insurance, employment contract to build a relationship based on trust and goodwill with business workers

1.5 Research Methods

The first aim of this study is to provide a theoretical framework for understanding the completed concept of CSR and other relevant components under this area In general, the CSR is a concept that offers to companies their opportunity to treat environmental and social problems as a part of their business operations The second aim of this study

is to evaluate the impact of corporate social responsibilities in Viet Nam Four questions are developed and tried to explain including: Why should enterprises implement social responsibility? Which are benefit of implementation of social responsibility How is the situation of implementing social responsibility of Vietnamese enterprises at present? Which are solutions to improve the social responsibility of business?

CHAPTER 2 : LITERATURE REVIEW 2.1 Definition of CSR

2.1 Definition of CSR

In the current economic integration, social responsibility (CSR - Corporate Social Responsibility) is becoming a concept many people are interested and have strategic importance for business It refers to CSR is not only the right thing to do "but also" wise

to do " So to understand exactly what is CSR? There have been numerous definitions given as "Social responsibility implies improving the behavior of the business to a level consistent with the norms, values and social expectations are common" (Prakash, Sethi, 1975) Or "social responsibility of enterprises, including the expectations of society on economic, legal, ethics and philanthropy for organizations in a given time" (Archie.B Carroll, 1979) Maignan and Ferrell also introduced the concept of their own concise about CSR: "A business with social responsibility in deciding and its operators to create

and balance the different interests of individuals and groups related bodies "

There are many different definitions to explain CSR, but one of the definitions are used most commonly defined by the World Business Council for Sustainable Development (WBCSD) launched "CSR is the commitment of business to contribute to sustainable economic development, through the compliance standards of environmental protection, gender equality, labor safety, labor rights, fair pay, training and staff development, community development in ways that benefit both businesses as well as the overall development of society " In the increasingly fierce competition, demanding customers from the growing social and increasingly strict view of the business enterprises to sustainable development must always abide by the standards of protection natural environment, work environment, gender equality, labor safety, labor rights, training and employee development, contributing to community development

2.2 Caroll’s concept

CSR is becoming more common But still there are many different views on the concept, content and scope of CSR Among them, the "pyramid" by Caroll (1999) is the most comprehensive and the widely used Accordingly, the CSR includes economic, legal, ethical and discretionary

Figure 2.1 A hierarchy of CSR (adapted from Carroll, 1991)

The first category Caroll mentioned is economic aspects Economic aspects of social responsibility of business is to produce goods and services that society needs and wants

at a price businesses can maintain it and to satisfy obligations of the business with investors are looking for sources of labor supply, discover new resources, promoting advances in technology, product development, distribution is the source of production of goods and services, such as how social system In conducting this work, businesses actually contribute to increased social welfare, ensure the existence and development of the business For workers, the economic aspect of business is to create jobs with

remuneration deserve equal job opportunities, job opportunities and professional

development, adequate remuneration, environmental effects labor safety and hygiene and ensure the privacy and individuals in the workplace For consumers, the economic

responsibility of business is to supply goods and services, economic responsibility of the business also related to issues of quality, product safety, pricing, information on product (advertising), distribution, sales and competition Economic aspects of social

responsibility of a business is the basis for the operation of the business Most of the economic obligations in business are institutionalized into the legal obligations The second part, legal aspects Legal aspects of the social responsibility of a business enterprise is to fully implement the provisions on the formal legal for the parties

concerned Things like this law will regulate competition, consumer protection,

environmental protection, promote fairness and safety initiatives and provides protection against misconduct The legal obligation is expressed in civil and criminal law

Basically, legal obligations, including five aspects: (1) Regulatory competition, (2) Consumer Protection, (3) Environmental Protection,(4) Safety and Equality, (5)

Encourage detect and prevent misconduct Through legal liability and social force members must implement the behavior is acceptable Organizations can not survive long

if they do not perform their legal responsibilities Ethical dimensions of social

responsibility of a business are the acts and activities that society wants to exist in the business but not defined in the legal system, not been institutionalized into law This aspect is related to what the company decides to be true, fair, beyond the legal

requirements are tight, it just acts and activities that members of organizations,

communities and society expect from the business even though they were not written into law Ethical dimensions of a business is often expressed through the principles and moral values are presented in this respect the mission and strategy of the company Through this publication, principles and moral values become the lodestar for the

concerted action of each member of the company and with our stakeholders The final

category, discretionary aspect: Responsibility is the charitable acts of the business beyond the expectations of social support such as donations to the poor people, funding scholarships, contributions to community projects The difference between charity and responsible business ethics is entirely voluntary

2.3 The concepts related to CSR

2.3.1 Business Ethics

Business ethics is expressed as the standards and principles are social as well as the business world recognizes, as the rules of behavior, the professional relationship

between managers with one another, or between managers value to society in the

process of conducting business activities, allowing managers to behave honestly and responsibility to the community and with each other Business ethics is a manifestation

of the balance between the interests of managers in implementing the business

objectives with the interests of the employees work for managers, customer benefits, the partners and the interests of the community in general

2.3.2 Corporate culture

Corporate culture is full of cultural values should be build during the existence and development of a business, become the values, perceptions and practices, rooted in traditional activities of enterprises and govern her feelings, thinking and behavior for all members of the business in the pursuit and implementation purposes Corporate culture

is the product of the same work in a business and meet the needs of sustainable value Corporate culture also contributed to the difference between business and considered separately each of the traditional enterprise

2.3.3 Socially responsible investing

Socially responsible investing – the growing social expectations of shareholders

Socially responsible investing (SRI) brings together all of the approaches which consist

in integrating non-financial criteria (social, environmental and societal) in decisions involving funds and portfolio management

2.3.4 Sustainability investing

Sustainability investing( SI) is the explicit recognition that social, economic,

environmental, and ethical factors directly affect business strategy, for example, how companies attract and retain employees, how they manage the risks and create

opportunities from climate change, a company‟s culture, corporate governance

standards, stakeholder-engagement strategies, philanthropy, reputation, and brand

management

2.4 Stakeholder theory

Stakeholder Theory focuses on how an organisations interact with particular stakeholder groups There are two categories of Stakeholder Theory: the ethical ( or normative) branch and the managerial branch Under the ethical branch of Stakeholder Theory, there is a view that disclosures are responsibility driven and that all stakeholders that are impacted by the operations of the entity have a right to information about its operations Therefore, under this perspective, social responsibility disclosures are made in response

to an ethical responsibility, rather than in response to any desire to maximise wealth or

to appease particular, powerful parties By contrast, under the managerial branch,

disclosures are used as one strategy to control the actions of powerful stakeholders Powerful stakeholder are often considered as those parties who have resources which are important to the ongoing survival of the organisation Under this perspective , it is the

needs of the powerful stakeholders that are attended to over and above the needs of other parties affected by the entity‟s operations If the powerful stakeholders expect social responsibility disclosures then the firm is predicted to make them

2.5 Legitimacy Theory

Legitimacy Theory relies on the notion of a social contract, which is an implied contract respresenting the norms and expectations of the community in which an organisation operates An organisation is deemed to be legitimate to the extent that it complies with the terms of social contract Hence, various responsibility disclosures will be made in an effort to make legitimate the ongoing existence of the organisation Legitimacy theory could also explain the effect of culture on CSR reporting This theory explains the association between accounting and society from a company‟s perspective A company would voluntarily report on activities if management perceived that the particular

information is demanded by the societies which it operates (De Villiers and Van Staden, 2006)

2.6 Institutional Theory

Institutional Theory provides a number of reasons why corporations might make

corporate social responsibility disclosurse It explains that managers will be subject to pressures to change or adopt certain voluntary corporate reporting practices Institutional theory is also capable of explaining the influence of culture and CSR reporting Literature shows that CSR activities, which are institutionalised in particular firms resulting in an improved amount and quality of disclosure (Rahaman 2004; Amran and Devi, 2008) CSR activities in these firms are related to the institutionalised values, and these values are influenced by cultural variables (Waldman, 2006) There are two main dimensions to Institutional Theory The first of these is termed “ isomorphism” while the second is

termed “ decoupling” Both of these can be of central relevance to explaining voluntary

corporate reporting practices

2.6 Tripple bottom line

Triple bottom line (TBL) – part of a CSR, is one of the mechanisms advocated for reporting on CSR Tripple bottom line reporting has been defined by Elkington (1997)

as reporting which provides information about the economic, environmental and social performance of an entity The notion of reporting against the three components ( or “ bottom lines”) of economic , environmental and social performance is directly tied to the concept and goal sustainable development

2.7 CSR reporting

CSR report can be a framework to present a good image for the shareholders and

stakeholders CSR reporting is positively related to the activities of companies and enterprises are paying more attention to such reports CSR reporting framework is to improve corporate governance and competitive advantage to achieve sustainable

development Carroll & Buchholtz (2000) comment on the finding that CSR has brought some changes in the relationship business and social approach to stakeholder

management is a necessary response CSR reporting has increased significantly

improved with the period from 2002 to 2005 CSR reporting form has seen a big change from full environmental report for sustainable development (including issues of social, environmental and economic) Businesses with annual CSR reports agree that business should look at CSR as one of two aspects for business solutions such as reducing risk and create competitive advantage CSR has just such an exception in social ethics and an exception to exist and compete in business

2.8 CSR’s impacts on accounting

Social responsibility of business is an inevitable issue associated with business It may gives companies significant advantages such as: brand confirmed in customer's business and increased corporate profits Social responsibility of enterprises plays the role of tectonic customer loyalty with great moral values "style", and it will polish the names of enterprises, and assert that the brand is good cause felt in the heart of people, they will sell many times more Confirmed brand : In times of strong brands that are seen as a tool

to create unique competitive advantage for businesses, then "faith becomes necessary Business ethics and social responsibility became the foundation for the really build a strong brand Increased corporate profits: Respect social morality and implement ethical business behavior is investing in increased profitability and sustainable development of enterprises Keep its reputation with clients, customers, employees, communities and government may create more business opportunities for enterprises and business

connections to keep customers, employees and this creates opportunities for businesses can generate much more profit

CHAPTER 3: RESEARCH METHODOLOGY 3.1 Research Objectives

3.2 Theoretical framework and measurement

3.2.1 Corporate governance

3.2.2 Links between CG and CSR

3.2.3 Global Reporting Initiative (GRI)

3.1 Research Objectives

The aim of this study is to assess the influence of CSR disclosure on corporate

governance and company performance This study explores how the application of CSR starts with vision, innovation and an organizational design to tackle CSR at the core of a firm‟s business strategy CSR is about how companies manage the business processes to produce an overall positive impact on society The researcher has collected, summarised and discussed the theories and researches related to CSR concepts ands its importance Besides, the research aims at investigating the relationship between the dependent variable or CSR importance in particular and the three components which contribute to the importance of CSR including : Corporate Governance (CG) , links between CG and CSR, and Global Reporting Initiative ( GRI)

3.2 Theoretical framework and measurement

3.2.1 Corporate governane

Corporate governance (CG) will remind companies to develop internal control

mechanisms and strict protection of shareholder rights These findings suggest that corporate governance is formed in most cases as a necessary foundation for sustainable CSR Under the auspices of the CG, companies are encouraged to promote ethics,

fairness, transparency and accountability in all their transactions They were required to continue making a profit while maintaining the highest standards of internal governance Thus, corporate governance (CG) has been welcomed as an instigator of the tight control mechanisms internally The previous discussion leads to the development of the following hypothesis:

- I am aware of the term “ Corporate Governance “

- Companies‟ governance structure influences the quality of Corporate social

responsibility disclosure

- Companies may benefit from Corporate social responsibility disclosure

3.2.2 Links between CG and CSR

At first glance, the link between CG and CSR seems easy to distinguish Both call for companies to assume their responsibilities and fiduciary conduct for their stakeholders Good CG allows the company to gain confidence in their product markets, community supported it, and to develop a high-level strategic focus CG often enhance corporate competitiveness and thus results in outstanding performance CSR in turn strengthen relations with key stakeholders to ensure that company welfare and sustainable growth

in future By affecting the reputation of the company, CSR also improved credit ratings, reducing the risk premium to equity, and increase the stock price Other benefits of CSR, including environmental costs, improved productivity and innovation, enhancing

employment and maintaining rates of employees and better respond to environmental change

There are three relational models examined the CG and CSR:

Model 1: Corporate Governance as foundation for Corporate social reponsibility Model 2 : Corporate social responsibility as an extended model of Corporate

governance

Model 3 : Corporate governance and Corporate social responsibility as coexisting components of the same continuum

3.2.3 Global Reporting Initiative (GRI)

According to the Global Reporting Initiative (2006): The GRI reporting framework is designed to serve as the framework acceptable to report on economic activity,

environmental, and social organization It is designed for use by organizations of any size, sector, or location, and taking into account the practical considerations faced by diverse organizations - from small businesses to those who have extensive operations and geographic dispersion GRI framework describes the general content and specific areas agreed by a range of stakeholders around the world are generally applicable to reporting activities of an organization's sustainability This modified and selected

questions that have been appeared in the questionnaires are

- The GRI divided social perforamance into four sub-groups of performance indicators, including: labour practices, human rights, community and other stakeholdes in society

- There are three types of Global Reporting Initiative guidelines disclosures, namely :

Strategy and Profile , Management Approach, and Performance Indicators

- The Global Reporting Initiative – a conceptual framework for what social and

environmental reporting

3.3 Research methodology

The objective of our research is to explore the nature of the relationship between CG and CSR from the perspective of practicing managers The research is qualitative in nature, capitalizing on in-depth interviews with top managers to explore their perceptions of CG and CSR relationship

questionnaires, interviews, focus group interviews, case-studies, diaries, observations, critical incidents, portfolio The questionnaires will be used as the most proper way to collect data because of some reasons like that: this method is very cheap; this method also is contributed in many ways to increase the convenience in collecting data The questionnaires are designed for trying to obtain the employees‟ perspective as well as the accounting students‟ perspective One of the advantages of primary dada collection method is to provide the appropriate information that match with the requirements of this project

3.4.2 Secondary data

Secondary data consists of information that already exists, having been collected for another purpose ( Amstrong & Kotler, 2007).This source of data will provide the overall picture about application Corporate Social Responsibilities in Vietnam The secondary data will be collected at the minimal cost and maybe more quickly from the relating sources such as: books, websites, newspaper, magazines, and so on

3.5 Research method

For primary collection which is descriptive information, survey research is the most widely used and best suited approach This paper use survey method to collect primary data, including questionnaire