Corporate Social Responsibility Stages of

International Postgraduate Research Conference (IPRC) 2016 Universiti Sultan Zainal Abidin, Gong Badak Campus, 21300 Kuala Terengganu, Malaysia 8th – 10th October

Corporate Social Responsibility Stages of Transformation, Drivers and Dimensional Models: A Review *Aminu Ahmadu Hamidua and Md. Harashid Haronb and Azlan Amranc ab

c

School of Management, Universiti Sains Malaysia 11800 Pulau-Pinang, Malaysia

Graduate School of Business, Universiti Sains Malaysia 11800 Pulau-Pinang, Malaysia *

Corresponding author: [email protected]

Abstract This paper reviewed the three stages of CSR transformation from philanthropy, regulated/beyond philanthropy, to instrumental/Strategic stage. The first stage is voluntarism or fully altruistic in nature and the second stage is shaped by a form of CSR that is regulated while the final stage is the utilisation of CSR to achieve organisational objectives. For developing countries their CSR activities are a bit regulated but mostly tend to be altruistic with few exceptions of instrumental CSR. Similarly some major drivers to CSR in developing countries are identified and explained, they include; religious and cultural influences, corporate image and reputation, bridging governance gaps, pressure from stakeholders, conformity with international standards, abiding by regulations and response to disasters. The last part of this paper touched on models explaining the priory placement between different CSR dimensions. Three models were reviewed and the universal model was the most preferred because of highlighting the factors to be considered before prioritisation of responsibility and hence the reduction of vagueness or ambiguities present in both the Carroll’s and Visser’s models. Keywords: CSR transformation, CSR Drivers, CSR dimensional models, Universal CSR Model, Altruistic CSR

Introduction Corporate social responsibility (CSR) is increasingly gaining recognition due to its immense influence on organisational objectives achievement and full acceptance of its indispensable nature to business organisations. The evolution CSR from an irrelevant idea to an indispensable component in achieving organisational objectives has been recognised by business managers and all stakeholders. Managers are using it as a tool to strategize, comply with regulations and maintain set standards, build corporate reputation and get more customer loyalty which all culminates in increasing profitability and overall attainment of organisational objectives. The area defined by advocates of CSR increasingly covers a wide range of issues such as employee relations, human rights, corporate ethics, community relations, fair market operations and the environment. The objective of CSR is to build sustainable growth for business in a responsible manner (Moir, 2001).

A.A. Hamidu, M.H. Haron, A. Amran (2016)

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The Table below depicts an illustration on the different stages of corporate social responsibility transformation from Philanthropy to strategic. Table 1.1 – Stages of CSR Transformation Stages/Periods

Summary of CSR Scopes/Dimensions

1950s – 1960s Philanthropy/Altruistic CSR

Voluntarism/Charitable acts

Poverty alleviation

Community development

Obligation to the society

Other Welfare Programs

Unregulated philanthropy

Extension of CSR commitments

Socio-economic priorities

Corporate citizenship

Bridging governance gap

Stakeholder Management

Stakeholders rights

Corporate reputation

Legal & Ethical responsibilities

Competition strategy

Transparency & accountability

Environmental protection

Institutionalisation of CSR

Global CSR standards/Indices

Sustainability

1970s – 1980s Beyond Philanthropy/Regulated CSR

st

1990s – 21 Century Instrumental/Strategic CSR

CSR Drivers These are the motivating factors or reasons behind engagement in CSR practice. There are many drivers or motivating factors to CSR, some are more aligned to developing countries context like religious practice, cultural influence, bridging governance, and response to natural disasters, the general ones are almost universally accepted which includes; stakeholders pressure, the need for internationalisation of standards and building corporate reputation. There are drivers less relevant to developing countries perspective because of few literatures and empirical findings to support their relevance like; competition strategy and regulatory avoidance. Religious practice and Cultural influences Religion is a form of identity that deals with practice according to the dictates of sacred scripture, traditions, values or norms. It influences all aspects of human behaviour depending on the rate of inclusiveness it advocates, some religions are silent or less emphasising on ethics in business practice leaving its adherents to make interpretations based on their humanistic instincts while other religions emphasise on providing all interpretations in virtually every aspect


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of human life be it personal and social as well. It is a well-known fact that the reason for CSR if carefully observed a notion of altruistic ethical impulse from managers is motivated by religious beliefs (Hemingway, 2002). CSR in developing countries exhibits a form of mimicry to western perspectives and an alignment with indigenous cultural traditions of philanthropy, and accepted values (Amaeshi et al, 2006; Visser, 2008). A recent modification to the Carroll’s pyramid known as CSR universal model advocates basing CSR on four major points; environment, beliefs, values and assumptions before emphasising on legal responsibilities as the first dimension because if beliefs and values of all stakeholders are in conflict with CSR, business will only survive if it is law abiding (Nalband & Al-Kelabi, 2014). Bridging governance gap CSR serves as a solution to the failures of weak and inefficient governments in providing basic necessities for its citizenry, this situation leads to existance of a gap and private corporations are obliged to complement governmental efforts in bridging the existing gaps. Filling governance gaps is an opportunity for business corporations to fine tune their CSR initiatives and gain reputation (Moon, 2002). Scholars suggest this to be a form of public private partnership and an alternative solution for weak government having multinationals within its territory (Blowfield and Frynas, 2005). Corporate reputation The need to create an image displaying good reputation of a corporate body is a major driver to CSR because of the advantages it brings such as; increase in goodwill and legitimacy, increase in profitability and customer loyalty (Brammer & Millington, 2005). Responding to need for image boosting is underpinned by choosing an effective set of philanthropic responsibilities which address issues of socio-economic priorities such as; poverty alleviation, provision of health infrastructures, social development programmes for youths, rewarding ethical conducts of workers, improvement on stakeholder engagement in formulating policies related with CSR, and introducing CSR initiatives that are customer centric. The advantages associated with increase in corporate reputation is supported by finding showing its positive relationship with profitability (Joyner and Payne 2002), marketing strategies (Maignan, 2001; Berens et al, 2005), recruitment advantage (Backhaus et al, 2002), and stakeholder relationship management (Greenwood, 2007). Stakeholders Pressure All corporate bodies are operating as institutions dealing with internal and external stakeholders. The pressures exerted by these stakeholders compel managers to introduce CSR initiatives as a response to stakeholder claims. Responding to stakeholder pressure is normally a motivator or reason for CSR because managers are constantly looking for ways to formulate, reshape and fine tune all decision making in order to satisfy both internal and external stakeholder needs and expectations. External stakeholders like the general public or host community may require CSR initiatives to solve their socio-economic needs like reduction in unemployment, poverty alleviation and recruiting staffs from host community, social and cultural development


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programmes for host community, provision of educational infrastructures and health centres etc. These set of stakeholder needs and expectations present immense amount of pressure for the business to solve so as to maintain corporate reputation and gain legitimacy from stakeholders. Conformity with Global Standards Normally for a corporation to get access to the international markets it has to comply with globally accepted CSR compliance codes, sustainability performance report, international stock market listing requirements, all these requirements needs a complete formal presentation of CSR activities before getting access to the global market (Chapple & Moon, 2005). CSR is also regarded as a license for companies in the developing countries to access international markets. Companies with international sales orientation are more likely to compete favourably and report high sales than companies which engage in regional or local sales (Baskin 2006). Similarly, corporate bodies in developing countries with international access are more strategic and have proper understanding on different dimensions of CSR when compared to those without access to international markets (Ofori, 2007). Government regulations Government as a regulatory body introduce or promulgate laws which specifies how much to be set aside for CSR out of a corporate earning to ensure that performance of voluntary activities is not neglected and reach a certain community or be sufficient for an area. The essence of regulating CSR is for the government to give voluntary or discretionary nature of philanthropic responsibilities a mandatory position which makes realising the goals of implementing CSR a full possibility. Regulating CSR is needed for engagement in CSR initiatives that are costly like environmental protection, changing entire production process to ensure standards and safety and special training for all staffs which on voluntary basis business organisations are reluctant to offer without been obliged. Responding to Natural Disasters Sometimes due to the occurrence of natural disasters corporate bodies can engage in CSR activities to show sympathy and build a good reputation with the community. In developing countries the crisis can be economic (Newell, 2005), climate change (Hoffman, 2005), health related like HIV/AIDS (Dunfee, 2006) assistance in overcoming drug abuse (Rashid & Ibrahim, 2002). Occurrence of natural disasters can influence the decision to engage in CSR activities out of sympathy to the plights of people (Mary, 2005). The figure below shows the drivers to CSR from a developing countries context.


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Religious practice & Cultural Influence Bridging governance gaps Building Corporate reputation Stakeholders Pressure International Standards Government Regulations Responding to disasters

Business Organisation

CSR

Figure 1.1 – CSR Drivers The CSR dimensions proposed by (Carroll 1979; 1991) is originally attuned to western perspective of CSR practice which is different from other perspectives in respect of cultural and religious beliefs, supporting philanthropic responsibilities over other dimensions except economic responsibilities. Visser (2006) later on revisited the Carroll’s pyramid and rearranged the four layers of CSR dimensions in conformity with the context of developing countries supported by empirical studies showing that CSR is greatly influenced by cultural values especially in prioritising between different dimensions of responsibilities (Burton et al, 2000; Orpen, 1987; Edmondson & Carroll, 1999). The rearranged pyramid has economic, philanthropic, legal and ethical responsibilities respectively in terms of CSR orientation and priority in developing Countries. It is shown diagrammatically as follows;

Ethical Responsibility Legal Responsibility Philanthropic Responsibility Economic Responsibility

Adopt codes of governance and ethics Abide by all regulations Set aside funds for CSR projects

Wealth maximasation

Source: Visser, W. 2006

Figure: 2.1 – CSR Pyramid for developing countries


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Dimensional Models of Corporate social responsibility The Carroll’s CSR model is widely used to generate empirical findings on the effects CSR has on profitability of business corporations. Scholars utilise the model in conducting research on CSR orientation (Aupperle et al, 1985), corporate social performance and its relationship with profitability (Wartick & Cochran, 1985). The amount of data realised in the aforementioned researches paved the way for revisiting the Carroll’s pyramid which culminates with the emergence of a four layers/dimensional model (Carroll, 1999). The viability of the Carroll model from a developing countries context is later on brought to lime light and hence its applicability shows difference in prioritising philanthropic responsibilities over legal and ethical dimensions of CSR. This is attributed to variations in culture, state of economic development, difference in factors driving engagement in CSR like need for bridging governance gaps, political reforms, response to crisis, pressure from stakeholders etc. (Visser, 2008) suggest two main reasons behind prioritisation of philanthropic responsibilities over legal and ethical; (i) The presence of traditional and cultural practices that exhort on philanthropy and sharing with others. (ii) The need to complement governmental efforts due to inefficiency of poor and developing economies Furthermore, using Visser’s (2008) CSR model for developing countries highlights the differences between regions in what drives to CSR, the level of priority given to philanthropic responsibilities and the need for a model that consider factors which are crucial in CSR implementation like adherence to cultural traditions, stakeholder engagement due to the societal need of sharing with others, responding to crisis situation in time and dedication of corporate gains to internal stakeholders before the external ones with less urgency in claims. The interpretation of this proposed model shows that economic responsibilities is accorded the best priority because business corporations are established to produce goods and services, maximise profits for shareholders and maintain efficiency and continuity in the production process. The primary objective of business is to ensure shareholders wealth maximasation as an economic priority. Economic dimension is the first in terms of priority which is also the same with the western perspective but when it comes to what follows next philanthropic responsibilities is the next dimension due to the influence of cultural values and religious beliefs exhorting voluntariness which coincides with the underdevelopment in social welfare of developing countries (Visser, 2008). In western countries which are often termed as developed nations concentrating on philanthropy is the last dimension of CSR after prioritising legal and ethical responsibilities. Provision of social welfare for the community is fully a governmental affair and western nations have clearly succeed in providing it to their citizenry directly and also through privatising production and service sectors of the economy to ensure efficient production. To buttress the point that philanthropy is removed out from the three domain in explain CSR from a three domain approach shows weakness in choosing philanthropic responsibilities as a priority from western perspective (Schwartz & Carroll, 2003). In essence ethical dimension is just a last priority and a form of not necessary but an embellishment to the whole concept of CSR in developing countries context. Nevertheless, it is also a dimension to be reckoned with in building image and maintaining corporate reputation. In developed countries ethical consumerism is a growing trend which depicts prioritising ethical dimension of CSR, but this seems to be low in developing countries (Aria, 2014).


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The Universal CSR model by (Nalband & Al Kelabi, 2014) shows a redesigning of the most widely used Carroll’s model in an attempt to broaden the scope of the model in a way that other major factors influencing CSR are considered. The factors are the foundations of the four CSR dimensions or responsibilities in order to produce a CSR that consider both internal and external factors influencing CSR implementation process. The factors are environment, beliefs, values, and assumptions. The Universal model of CSR is more encompassing in addressing critical issues shaping CSR responsibilities in the following ways; (i)

The proper integration of both socio-economic and environmental factors in shaping the foundations of CSR dimensions or responsibilities, hence this gives the model a strategic value

(ii)

The integration of different factors within and outside the business environment affects the values, beliefs and assumptions which makes the model more adaptive to different regions

(iii)

The hierarchical assumption of legal responsibilities before simultaneous fulfillment of the remaining economic, ethical and philanthropic dimensions solves the vagueness or open ended way of operationalizing the Carroll’s model.

The Table below summarises the three models with the four dimensions of CSR responsibilities arranged in the following way Table 2.1 – CSR Dimensional Models Priority Level

Low

High

Carroll (1991)

Visser (2008)

Nalband & Al Kelabi (2014)

Western CSR Model

Developing countries CSR Model

Philanthropic

Ethical

Philanthropic

Ethical

Legal

Ethical

Legal

Philanthropic

Economic

Economic

Economic

Legal

Universal CSR Model

Assumptions Values Beliefs Environment


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Conclusion The definition of the term corporate social responsibility is a reflection of the types of changes that affects how business corporations operate, the growing needs of different stakeholders, the forces of market competitions, need for gaining corporate reputation and maintaining corporate citizenship by law abiding, ethical business practice, and responding to needs of shareholders/owners. All these factors motivate towards engagement in corporate social responsibility and define what the term corporate social responsibility stands for. Three basic dimensions attribute the definitions to represent philanthropy/altruistic CSR, beyond philanthropy/regulated CSR and instrumental/strategic CSR. The first dimension depicts CSR as a set of philanthropic responsibilities under titles like; voluntarism, community development efforts, social welfare, bridging governance gaps etc. The second dimension is a shift from beyond philanthropy towards regulated CSR like; specifying CSR as an obligation not a discretionary act, legislating ways to practice CSR, stakeholder’s rights, maintaining corporate citizenry status in obeying the law and order. The last dimension is the instrumental/strategic CSR which showcases the utilisation of CSR as a tool or strategy for achieving organisational objectives, corporate reputation, sustainability, competitive advantage, tactical avoidance of costly regulations, transparency and accountability etc. The major drivers to CSR in developing countries are characterised by the features of socioeconomic environment like; poverty, underdevelopment, poor infrastructures, weak governmental functionaries. This makes all the drivers or motivating reasons to be an avenue for addressing issues relating to socio-economic development of communities. CSR in developing countries is currently a combination of achieving economic motives and philanthropic priorities driven by cultural values and religious beliefs while obeying laws and not much concern on ethical business practice. The whole scenario is reduced to mimicking the western corporations when it comes to strategizing for competitive advantage and ethical conducts in business practice. The western CSR perspective is only suitable for regions that have overcome underdevelopment in infrastructures and socio-economic priorities; they are termed as striving for sustainable future development. The three models of CSR illustrate what constitute CSR and the mode of implementing it. The Carroll’s model and Visser’s model differ in the way CSR dimensions or responsibilities are prioritised with the former advocating a western perspective for developed economies less emphasising on philanthropy, while the latter is suitable for developing regions or economies in dire need of bridging governance gaps with philanthropic activities. The model proposed by (Visser, 2006) is expected to be more elaborate and encompassing if there is reduction on vagueness by making foundation on which the pyramid is to be based upon like; the characteristics of the socio-economic and political environment and its impact on business organisation, influence of culture, accepted values, belief system and assumptions on what different stakeholders expect from the business organisation. By addressing these foundational issues the four dimensions are expected to be based on concepts that define what CSR stands for. The Universal model attempt to address the implementation of the model emphasising on adding important factors like the environment, beliefs, values and assumption before looking at first the legal dimension as the most emphasised the economic, ethical and philanthropic


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responsibilities respectively. The Universal CSR model seems to be more encompassing by considering the four major factors as foundational basis of the model, but advocating legal responsibilities before economic responsibilities seems to be highly debatable and hence there is need for an empirical research on the suitability of the newly proposed universal model. Acknowledgments The authors wish to acknowledge the contributions made by School of Management, Universiti Sains Malaysia towards the success of this paper. References Amaeshi, K.M., Adi, B.C., Ogbechie, C., and Olufemi, O.A. (2006) Corporate Social Responsibility in Nigeria: Western mimicry or indigenous influences? Journal of Corporate Citizenship 24, winter: 83-99 Aria, F.T. (2014) Highlighting the emerging issue of ethical buying in a growing global market, International journal of business and behavioural sciences, Vol.4 (5): 55-67 Aupperle, K.E., Carroll, A.B. and Hatfield, J.D. (1985) An empirical examination of the relationship between corporate social responsibility and profitability, Academy of Management Review, 28 (2), pp. 446-463 Baskin, J. (2006) Corporate Responsibility in Emerging Markets, Journal of Corporate Citizenship, 24, winter: 29–47 Backhaus, K., Stone, B., and Heiner, K. (2002) Exploring the Relationship between Corporate Social Performance and Employer Attractiveness. Business & Society, 41(3), 292-318 Berens, G., Van Riel, C., and Van Bruggen, G.H. (2005) Corporate Associations and Consumer Product Responses: The Moderating Role of Corporate Brand Dominance. Journal of Marketing, 69(3), 35-48 Blowfield, M., and Frynas, J.G. (2005) Setting New Agendas: Critical Perspectives on Corporate Social Responsibility in the Developing World, International Affairs, 81(3): 499–513 Brammer, S., and Millington, A. (2005) Corporate Reputation and Philanthropy: An Empirical Analysis, Journal of Business Ethics, 61(1), 29-44 Burton, D., Farh, J.L., and Hegarty, W.H. (2000) A cross-cultural comparison of CSR orientations: Hong Kong Vs United States students, Teaching business ethics, 4 (2) pp. 151-167


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