Business Administration Project Topics

Role of Corporate Social Responsibility on the Survival of Business Organization

Role of Corporate Social Responsibility on the Survival of Business Organization

LITERATURE REVIEW

2.1 CONCEPTUAL FRAMEWORK

2.1.1 INTRODUCTION

Evaluation of interrelated literatures in any study is indispensable in good judgment that it allows for a level for reviewing the pool of knowledge and evidence appropriate for further study.There are conflicting pools of research on the effect of CSR  on the financial results of  firms and organizations. Some studies support the notion that CSR have significant impact on business bottom line, opposite views subsists that different studies, finds that CSR has no significant impact on bottom line of organizations.

There is no doubt that the world is witnessing a real change in public expectations about the roles of organizations in the society. While economic growth, wealth creation, and employment are organizations contributions to the society, organizations are also assigned other roles and non-economic significance that might not have been expected before. It is expected that business will offer solutions to several of the major environmental and social challenges of the twenty-first century, such as accessibility to water, global warming, climate change, and affordable health care (Blowfield & Murray, 2014) CSR is a social phenomenon; it does not exist independently from the systemic context of the organization. It then becomes important to recognize the organizational environment of CSR when evaluating corporate social activities and their impact on organizations and stakeholders. There are two main sources of variation in CSR-related institutions. In a national context, the first is the evolution or change of views on CSR over time. CSR’s impact on MNE’s is often observed indirectly based on the feedback of firms ‘ stakeholders and the public (Barnett, 2007; Wang, Choi, & Li, 2008), unlike other firms ‘ operational or investment activities that have direct effects on firm operational efficiency and results.

 

Since the 1950s, the issue of Corporate Social Responsibility (CSR) has been discussed. (Secchi, 2007) and (Lee, 2008) have shown in their analysis that the CSR concept perspective and activity has been modified. CSR has been studied by various scholars around the world but there has not been any consensus definition of the term. (Mahajan , 2011) in his research opined that organizations today have a  preconceived notion that viable business performance and shareholder value cannot be achieved through optimizing short-term profitability alone, but through market-oriented yet responsible behavior.  Organizations are more aware that they can make a significant contribution to sustainable development by coordinating their activities to boost economic growth and productivity while ensuring prevention of environmental degradation and promotion of responsibility and accountability, including protecting the interests of consumers. Corporate Social Responsibility is the ongoing engagement of organizations to carry out business activities with an ethical behavior and to make a significant contribution to economic development while improving the quality of its stakeholders. Corporate social responsibility (CSR) identifies the organization’s responsibility to preserve and promote social welfare by producing sustainable benefits for stakeholders now and in the future.

In contemporary literature, the nexus between CSR and business performance has been critically examined and developed. The connection between CSR and bottom line of the organization can be neutral, positive or negative, yet there is no unanimity among scholars. The CSR literature contains three schools of thought. First thought found positive effect or association between CSR and bottom line of orgaizations (Govindarajan & Amilan, 2013; Jie & Hasan, 2016; Samira, Noor & Masudul, 2018; Yusoff & Adamu, 2016) and recommended investment in CSR activities as CSR enhances the value of enterprises. The second set recorded a negative impact or connection between CSR and corporate bottom line and embraced the concept of optimizing corporate profit through the use of their resources. They are not in favor of CSR resource investment (Babalola, 2012; Hirigoyen & Poulain-Rehm, 2014; Samira, Noor & Masudul, 2018; Singh, 2014). The third school of thought determined neutral effect or connection between CSR and bottom line of business, documented a miscellaneous relationship and suggested consideration of many other complexities that could prevent researchers from reaching a secure conclusion (Samira, Noor & Masudul, 2018).

The study will focus on Return on Investment (ROI), Tax-Income (TI) and Gross Profit Margin (GPM) ratios. This review of literature will help the study analyze numerous relevant works critically and identify areas for any further research. There are clear gaps in the literature as to why the consumer and industrial goods companies listed in Nigeria have not benefited significantly from CSR practices.

2.1.2 CORPORATE SOCIAL RESPONSIBILITY

Businesses reaffirm their principles and values through corporate social responsibility in their procedures and activities and also in their relationship with various social entities. CSR is usually charitable in nature and relates to operations that go beyond mere enforcement of the legislation. Enterprises’ social and environmental responsibility may represent changing societal standards. For instance, the actions which businesses believe comfortable procedures in the present may be unacceptable in the future. Moreover, the priority given to the social and economic needs of distinct social agents involved in the operations of a certain business can sometimes act as a counter against each other or compete against each other.

“Corporate Social Responsibility (CSR) is fundamentally a concept wherein the businesses willingly undertake to contribute to a cleaner ecosystem and a better society. It presumes the company has not only financial and legal obligations, but also other social responsibilities” (Carroll, 1979).

According to (Holme and Walt, 2001) CSR is the ongoing dedication of enterprises to be ethical and add to economic growth while increasing the standard of lives of the total workforce, their family and the local community as well as the society at large.

The Corporate Social Responsibility (CSR) idea recognizes that Multi National Enterprises    (MNE’s)  have a responsibility to take into account the desires of customers, employees, shareholders, communities and the ecological “footprint” in all facets of their activities.  CSR in large organizations presents a number of difficulties including; the need to identify their responsibilities in comparison to the responsibilities of the public sector, determine the magnitude of their responsibilities in the supply chain and to anticipate and prepare for the implications of their business decisions, particularly in the event of use of natural resources. The overall view that, above and beyond the idea of the desire to enhance corporate profit, organizations play an essential part in addressing societal issues is what crosses a range of meanings of CSR. CSR in itself is developed by the private industry and enhances the strategies and the work of government. It promotes closer relationships between MNE’s and the communities in which they operate in. However, it is difficult for many corporate executives to recognize where their duties begin and end in terms of development of infrastructure, increasing economic advantages, and accessing critical services that will improve the quality of life,  education, reduce poverty and  ensure environmental sustainability. (Jenkins, 2004).

It could be argued that participation in CSR or charitable operations enhances the reputation of a company among its diverse audiences, including clients, staff, distributors, community, and organizations, particularly those who monitor and report on corporate donations.

There are various CSR activities and programs that can be carried out by organizations in Nigeria before they could be termed as “socially responsible”. They could be in the form of socio-economic costs or educational and health donations. These activities and programs range among the following; giving educational scholarship to the indigenes of the community of which they operate in, awarding contracts to the indigenes of the community they operate in, donations to science related and sporting activities nationally and internationally, providing a good welfare package for their employees, funding research projects, construction of capital projects such as roads, hospitals, schools, and providing healthcare and making efforts to protect the environment in which they operate etc.

2.1.3 ASSOCIATION BETWEEN CSR AND MULTINATIONAL ENTERPRISES IN NIGERIA

The primary purpose of business is to make profit. The main objective of profit making has often been considered as portraying a lack of consideration for all other objectives of an organization. (Dewit & Meyer, 2022) indicated that the company goal of maximizing revenue is susceptible to an economic rationale instead of the moral rationale for all of the company activities. But, businesses today realize that they would need to become socially responsible in order to maintain profitability in an ever-evolving environment setting. Thus, the assumption that business corporations should represent the interests of all other stakeholders as well as make profit for shareholders has eventually resulted in the concept of Corporate Social Responsibility (CSR). Currently, organizations are under steady scrutiny from multiple stakeholders, such as demand from staff to acknowledge certain workers’ interests in the workplace, customer requests that companies withhold price rises and create healthy goods, and also society and economic conditions that do not affect local public safety (McWilliams and Siegel, 2001).

The practice of Corporate Social Responsibility (CSR) has become more global, followed by issues about the nature of CSR in emerging nations such as Nigeria. However, many public institutions are yet to fully embrace the principles of CSR. According to (Orojo, 1992), current Nigerian organizations as a socio-economic production and an exchange institution emerged in the context of colonial imperialism and thus developed over time in the context of modernization and contact with the developed world.  In 1960, Nigeria got its independence from the UK.  The economic system was largely revolved around agriculture prior to contact with the west.  Over the years, the economic system has evolved and so have the business practices. There has been involvement of various MNE’s and large indigenous firms which have followed the best practices of CSR used to run business globally. Therefore, the activities of these firms are visible due to their global reach. As such, there is a higher incentive through CSR to protect their brands and investments. Consumers in emerging countries such as Nigeria are reluctant to sacrifice comfort and pay possibly greater rates to safeguard the ecosystem because they lack expertise to create educated choices on the acquisition, use and disposal of their products; pollution control; preservation of electricity and natural assets and safety of customers and employees (Preston and Post, 1975).  Accordingly, MNE’s work on the principle of maximizing the beneficial effects of their operations on community as the adverse impact of these operations is minimized (Farrell and Fraedrich, 1997). (Amaeshi, Adi, Ogbechie & Amao, 2006) research on CSR in Nigeria indicates that Nigerian organizations are engaged in one activity of CSR or the other  According to (Amaeshi, 2006), CSR in Nigeria is intended to address the strange social, financial and weak political structure.  In building CSR in Nigeria, MNE’s are faced with unique socio-economic development challenges such as poverty alleviation, provision of healthcare services, infrastructural developments such as highways, energy and education. The CSR obligations of MNE’s in more developed countries are not similar to that of Nigeria. These difficulties and challenges do not represent expectations or standards of MNE’s in more developed countries. Their CSR is primarily concerned with consumer protection, reasonable trade prices, green market advancement, reduction of environmental degradation, socially responsible investment and financial reporting. It is worrying that, even in significant markets such as Nigeria, the problems of creation of jobs and the availability of fundamental facilities have not corresponded to the alleged growth in GDP.  It is obvious that the task is still beyond government alone because it is incapable of promoting development in the educational, environmental and financial sectors. Therefore, the involvement of MNE’s to support the government through CSR activities is needed.

MNE’s now dominate important industries of the Nigerian economic system including manufacturing, building, and petrochemical products, as well as telecommunications. Nigeria is the leading manufacturer of crude oil in Africa, the fifth biggest manufacturer in the OPEC and the eighth biggest exporter of crude oil on earth. Nigeria today earns more than 95% of its revenue from petroleum and gas export which represents more than 40% of its GDP. Requirements for compulsory disclosure pose a key approach for promoting CSR by legislation. The increased discussions on CSR since the 1990s have resulted in a broader spectrum of disclosures beyond that of the company’s financial position. Disclosures are progressively evolving even if slowly to represent these changes in operations of MNE’s. MNE’s globally are trying to cope with a new role to address the needs of the present generation without jeopardizing future generations’ capacity to satisfy their own needs. Organizations are relied on to assume responsibility for how societies and the natural environment are affected by their operations. They are also asked to assert the integration of social and environmental considerations in corporate activities and stakeholder interactions (Van Marrewijk & Verre, 2003). A MNE cannot ignore the environmental issues in the society in which it operates. Consequently, the effect of corporate social responsibility on the profitability of organizations in Nigeria needs to be examined.

Hamilton et al. (1993) opined that if a reasonably large group of investors underestimate (overestimate) the possibility that adverse events connected to CSR issues may affect businesses that do not adhere with the concepts of CSR, then their stocks will yield lower (higher) risk-adjusted returns than socially responsible stocks.

There are some recognized CSR problems around the globe, such as Human Rights, Employee Rights, Environmental Protection, Community Engagement, and Supplier Relations, national variations also exist in terms of priorities and comprehension. The motive of CSR in Nigeria arises from public organizational weakness, unlike in the United States and Europe, where public pressure on MNCs forms CSR activities (Phillips, 2006). Similarly, Amaeshi et al. (2006) asserted that the Nigerian view of CSR differed markedly from that of the West.

2.1.4 CONCEPT OF CORPORATE SOCIAL PERFORMANCE 

(Wartick and Cochran,1985) defined CSP as “a business organization’s configuration of principles of social responsibility, process of social responsiveness, and policies, programs, and observable outcomes  as  they  related  to  the  firm’s  societal relationships”. There has been a long-standing discussion on the relationship between CSR and bottom line.  In many CSR-related literature, corporate social performance (CSP) has been discussed as an operational concept that measures the results of CSR-related activities. CSP can be viewed as the measurable results of CSR. According to (Lee, 2008), the connection between CSR and bottom line became blurred as the subject of CSR shifted from tackling the social obligations of highly responsible firms to its pressures on stakeholders. Authors in the field of corporate social performance admit that theories on this topic have little practical significance and prove inadequate in putting forward business rationales for corporate projects that focus on social and environmental issues (e.g. Gioia, 1999 ; Wood, 2000).  (Friedman, 1970) said the ultimate responsibility of directors was to serve the interests of its shareholders. Their primary duty is “to conduct the business in conformance with their [owners ‘ i.e shareholders] desire to make as much money as possible. Directors as well as managers are the shareholders ‘ employees. He therefore concentrated on a very fundamentally different aspect of corporate and managerial responsibility. Freeman (1994) was of a different opinion and argued that in order to achieve business legitimacy, social performance is needed. Directors have a duty of care towards all stakeholders and not only towards shareholders.

The remark made by Freeman envisaged later research into the link between social responsibility and bottom line and hinted at a long-term positive correlation between the two. The central idea in stakeholder theory is that an organization’s success depends on how well the organization is able to manage its relationships with key groups, such as funders and shareholders, but also customers, employees, and even communities or societies.

(Barnett and Salomon, 2006) in their literature were of the opinion that increasing numbers of investors look at the bottom line in the portfolio of an organization, and also how these organizations fulfill their social responsibilities. If society can determine that organizations are ultimately responsible to its stakeholders, we also expect organizations to be held accountable for their social performance. Since the characteristics and preferences of stakeholders can change very quickly in different contexts and times, (Griffin 2000) noted that prioritizing CSP categories can become a herculean task. Brower and Mahajan (2013) pointed out three possible reasons for the phenomenon of stakeholders expressing their expectations of a superior CSP. Firstly, organizations use enhanced CSP as a promotional tool to improve their relationships with stakeholders (Hoeffler et al., 2022). Secondly, successes related to CSP may reflect whether businesses serve the interests of its stakeholders (Ruf et al., 2001).  Thirdly, consistent CSP helps organizations align its similar interests with that of its external stakeholders. According to (Brower & Mahajan, 2013; Ferrell et al., 2022) once these rare, valuable relationships become inimitable and non-substituteable, they can by extension, generate competitive advantage from a resource-based perspective. Measuring CSP has proved to be a herculean task since it reflects a broad spectrum of economic, social and environmental impacts caused by business activities and therefore requires multiple parameters to cover its full scope (Gond and Crane 2009, Rowley and Berman 2000). Corporate Social Performance is a means of enforcing and implementing CSR (Maron, 2006). CSR is not a variable and cannot be measured. On the other hand, CSP could be difficult to measure but can be transformed into measurable variables.

According to (Yang et al. 2009), a positive correlation between CSP and CSR suggests that CSR engagement would increase competitiveness costs and reduce stakeholder hidden costs as good relationships with employees, suppliers and customers are essential for sustainability. Bowman and Haire (1975) emphasised that CSR is a symbol of goodwill.  Therefore, “when a company increases its costs by improving CSP to enhance competitive advantages, such social responsibility activities can improve the reputation of the company, and in turn, it can improve long-term bottom line by sacrificing the short-term CFP” (Yang et al. 2009). The negative correlation between CSP and CSR implies that the practice of CSR will introduce competitive disadvantages to the business (Aupperle et al. 1985) as the significant costs may necessitate other methods or need to shoulder other costs and thereby leads to increased costs due to CSR activities which will result in little gain if measured in economic interests (Yang et al. 2009). (De Bakker et al., 2005) are of the opinion that the CSR and CSP literature is inconclusive ,as is the CSP-CFP relationship literature. This link has been thoroughly researched, but the results are not consistent

Consideration of the financial implications of CSR requires careful scrutiny of variations in the measurement of CSP and CFP as they can influence the results of the research (Orlitzky et al., 2003; Wu, 2006). Brown (1998) takes that view and argues that inconsistency in CSP measurement causes problems in analyzing the relationship between CSP and CSR. It is therefore important to consider the parameters used In measuring profitability.

2.1.5 CONCEPT OF CORPORATE SOCIAL RESPONSIVENESS

Taking into account the extent of corporate social action (no action–reaction–proaction) and how MNE’s relate to various social responsibilities, a whole scope of corporate responses should be highlighted. Over the course of time, this corporate social responsiveness has evolved in line with the pressure that society tends to put on the business and its relationship with society.

(Carroll, 1979) is of the view that unlike corporate social responsibility, “corporate social responsiveness is focused only on managerial processes of social response: planning and social forecasting, social response organizing, social activity control, social decision-making and corporate social policy”. Responsibility and responsiveness can be seen as a balance in the sense that the public’s expectations of business corporate social responsibilities can shape or trigger responsiveness of the stakeholders. If MNE’s serve just the short-term goals of shareholder by maximizing profit  and do so in such a way that other stakeholders interests are jeopardized, this can adversely affect the business by attacking its credibility or reputation. It may be ascertained that the primary responsibility of companies is to create wealth for their shareholders in standard business practices. However, the emergence of CSR and associated activities that adds another dimension for companies to do well financially, they must also be good, ethically.

Corporate Social Responsiveness is characterized by a deep concern for the balance of profits and ethics, also taking into account other stakeholders and not the shareholders only. In this stage of corporate moral development, a company’s management understands the value of not acting on a legal basis alone, although its approach to ethics is quite cynical, based on the profits that ethics can bring. More externally oriented codes of ethics reflect a concern for other stakeholders. The organization identifies, continues to follow and attempts to keep the best practices up-to-date; these practices are generally industry standards or standardized sets of social and environmental risks, such as the Global Reporting Initiative. These practices generally represent a challenge for operational management.

CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION

5.1 SUMMARY OF FINDINGS

This research was carried out to ascertain the Impact of Corporate Social Responsibility (CSR) on Bottom line of selected consumer and Industrial goods Companies in Nigeria.

From the study, it was specifically revealed that;

  1. The regression results showed that Socio-economic Welfare Donation had contributed insignificantly to the prediction of Tax-Income, (F (1, 152) =3.595, R2= .023; P=6.8E-20), Table 4 showed the nature of the negative statistically insignificant impact as SEW=-3.20028E-11(t=-1.896,p=.00598). These values are lower when compared with alpha level (level of significance for the statistic) 0.05. Hence, Ho is accepted. It therefore found that the effect of socio-economic welfare cost on tax income of listed consumer and industrial goods companies in the Nigeria is not significant at 5% level of significance.
  2. The regression results showed that educational and health donation had contributed significantly to the prediction of gross-profit margin (F (1, 152) =35.808, R2= .023; P=1.5E-8, Table 5 shows that P = 1.50>0.05. These values are greater when compared with alpha level (level of significance for the statistic) 0.05. Hence, Ha is accepted. Therefore, the study found that educational and health donation has a positive and statistically significant effect on GPM of listed consumer and industrial goods companies in the Nigeria at 5% level of significance.
  3. The regression results from Table 6 showed that CSR surrogates had contributed significantly to the prediction of revenue-total asset (F (1, 152) =16.8, R2= .0995; P=6.73958E-05). Also, it had contributed negatively to the variation in revenue-total asset which was statistically significant to listed companies’ performance, SEW=- 5.61739E-10(t=-4.098737625,p=6.73958E-05). Therefore, the study rejects the null hypothesis (H0) and accepts the alternate hypothesis (Ha) and concludes that CSR surrogates have a negative and statistically significant effect on the bottom line of listed consumer and industrial goods companies in the Nigeria.

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