Corporate Social Responsibility And Financial Performance Of Firms Essay.

It is a part of good management to engage in corporate social responsibility, but it does not strengthen corporate financial performance.

Discuss this statement using relevant management theory research and concepts.

• Research and compare various sources of information about management
• Compare and contrast the work of influential management thinkers and researchers
• Express opinions on management issues with clarity from an objective position backed up with sound evidence and analysis

Theoretical Development and Hypothesis

There has been a considerable amount of research study conducted in the past few years to show that how CSR activity affects the structure and the financial performance of a firm (Aguilera etal, 2007 Margolis and Walsh 2003).In a research study conducted by Hilman and keim in the year 2001 easily proved that how CSR activity improves the Financial performance of a firm. It also helps to improve the image of a firm as it portrays a firm’s positive picture towards its audience so parallely it contributes to improve the financial position of the company. There is certain evidence presented by the experts which proves that CSR activity has the ability to improve the overall position of the company. Employee turnover plays a very significant impact on the competitiveness of the firm. That is the reason behind the promotion of CSR activity is very important.  It improves the morale of an organization due to social awareness programs. The Corporate social responsibility has found to have a positive impact on the financial as well as organizational health of the organization.

In this research study it will be proved how the CSR activity can contribute to the sustainable success of the organization. The main purpose of the study is that to understand that how CSR activity can lead to long term benefits of an organization which can be beyond any traditional financial outcomes. Specifically there has been a considerable amount of link between employee turnovers, and customer satisfaction. This data provides hypothesized relationships.  In this study it will be outlined how CSR activity diminishes employee turnover and increases customer satisfaction. This study offers empirical evidence that CSR can provide benefit to an organization beyond financial benefits.

Now let’s go deep in to the insight of what CSR actually means and what are the management determinants to give it a proper shape. As per the opinion of (Etzioni, 1988, Fomburn, 1997, Sen & Bhattacharya 2001, Wood, 1991) CSR actually refers to those activities to maintain the perceived societal or stakeholders obligations the CSR activity is performed by the firms. There has been considerable amount of conceptualization and responsibilities which the firms undertakes to take a consistent approach towards its empirical study (Sagebien & Lindsay, 2011). As per the opinion of Caroll, in the year 1979 he clearly stated that there are four basic responsibilities of which this activity involves in it for a firm’s betterment. So let’s see what those responsibilities are as follows:-

CSR

This includes creating new products, as per the needs of the consumers ,generate profits and provide jobs.

It involves complying with the rules and regulation of the state, central and federal government of the country.

This actually means meeting other social expectations which are not written in the law but plays a very vital role in creating a better image of a company like respecting peoples moral right, avoiding any harm or social injury, and doing what is just and right.

It helps in meeting additional behaviour of the society which contributes to the cultural and social behaviour which involves providing training to the employees, salaries as per industry standard and providing employee benefits. It has been seen that firms which demonstrate a proactive CSR activity approach gets a dual benefit. As,it helps to enhance social welfare and to improve its own performance in the long run perspective.

For the particular interest of the study it is very essential to understand the relationship of the CSR activity with two most important diamention of Organizational performance.

• Employee Turnover.
• Customer satisfaction.

Various management experts and the great Executives of the world are of the opinion that employees are considered to be the most valuable asset and so the retention of quality employees is the hallmark of a sustainable organization performance. This concept has been proved in the report that employee retention not only resembles that a given firm is valued place to work (which can show positive corporate association from the end of the public) but also several scholars opined that it also enhances a firms financial health and productivity. (e.g. Becker and Gerhart, 1996; Guthrie, 2001; Huselid, 1995; Koch and McGrath, 1996).Of a particular organization’s mechanisms which helps them to lower the employee turnover. So CSR is one of such activity.  

As per the theory of Employees justice perception it states that employees derive general justice perception of firms on the basis level of fairness demonstrated by these firms. Research on this fact has clearly demonstrated that companies which have work environments that are perceived to be fair by the employees of the organization have positively affected organizational culture like higher job satisfaction and lowering the stress of the employees (Korschun, 2008). On the counterpart of the organizational outcomes also it has demonstrated positive result like lowering absenteeism, and higher levels of employee commitment. On the other side of the coin if the fairness of the organization is compromised then it exhibits the chances of lower employee performance and vengeful behaviour on the part of the employees. CSR is the main indicator about the fairness of the firm to its employees.

CSR and Employee turnover

As per the instrumental model every individual has a requirement of psychological need to control. This need is based on the self serving issues for maintaining justice from the perspective of an employee. This behaviour which is demonstrated by the firm foretells the employees about the organizations actions in future. As per Aguilera (2007) it is been clearly stated by him that a firm which show CSR activity exhibits their concerns about the internal and external attitude of the organizations towards its stake holders. This actually exhibits fairness (Haerens & Zott, 2014). Thus, when CSR is demonstrated by the firm it clearly gives information that weather it is the best organization to work on for a long term basis and the fairness of the firm towards its employees in their future endeveaor.  Shifting from instrumental to the moral and relational needs, Lind and Tyler argued from the perspective of relational model where justice is demonstrated by the firm. This is actually signals the quality of relationships which will be going to be established between the management and the employees of the organization in the long run perspective; such relationships impacts on the sense of identity and self-worth of an employee in the organization (Truscott & Rachael, 2017).  

As in CSR entails building a strong relationship between the employees and the management of the organizations as strong bonding is essential with multiple stake holders so the relationship with the employees and the management plays a very crucial role as employees derive a value and sense of belongingness to the organization through demonstrated CSR activities. Lastly it is a very true picture that every employee have an ethical dignity and if it is being compromised on any situation on the basis of value and morality factors then it may lead to serious consequences from the counter part of the firm’s wellbeing (Truscott & Rachael, 2017). A consistent ethical norm an organization is required to maintain which depends on moral values and justice framework of a firm.

From the above analysis it has been clear that CSR activity is expected to meet the relational, instrumental and moral needs of the employees on a consistent basis (Truscott & Rachael, 2017). This will clearly impact the employee turnover level in the organization.

Customer satisfaction is considered to be the global cumulative evolution based on experiences of firms over time and is one of the most fundamental indicators of firm’s performances on present, past and on future basis. In the 21^st century customers are considered to be the most valuable asset of the firm. So customer satisfaction is the prime focus of every organization depending on which business strategy are framed. As per the opinion of this eminent business practitioners and scholars (Anderson et al., 1997; Dahlsten, 2003; Fornell et al., 2006; Morgan et al., 2005; Taylor,) they have opined that CSR activity to a great extent a helpful tool in the hands of the management to build confidence in the mind of its customers (Anderson & Landao, 2006). To understand the customer satisfaction on the basis of CSR activities two theoretical orientations are used.

The first is Equity theory and the second one is the expectancy disconfirmation paradigm. On the basis of given expectations of the social exchange the equity theory and expectancy disconfirmation paradigm theory are considered to be the best options to ground the hypothesis that CSR activity affects the customer satisfaction level for an  organization.  It reflects the firm’s social responsibility towards its stake holders namely the customers (Crowther & Aras, 2008). On the basis of social exchange theory which is the root of equity theory demonstrates that rightness, fairness, and deservedness judgements individual makes if individuals are equitably treated that is balance of inputs with the balance of outputs then it results in overall satisfaction from the counter part of both the parties.

Hence, individuals incurs certain costs inputs and in exchange of certain level of outputs from the firms perspective. According to the opinion of Bolton and Lennon distributive equity is the individual’s reactions to those ratios of inputs and outputs on the basis of its fairness. Equity on the other hand affects the individual’s reaction on the overall picture of any firm. On the other hand Expectation disconfirmation paradigm leads to comparison expectation of an individual with their prior expectation to make a suitable comparison that whether the perceived notion is worse than expected or better than expected or just the same as expected ("Corporate Social Responsibility", 2005).  This will drive the satisfaction evaluation of the employees and as well as the customers of the organization. In the individual level it confirms the perceived performances which confirms or disconfirms the level of satisfaction which an individual will receive from the product or services of any organization.  

In the normal case scenario when performances exceeds expectations then satisfaction level increases. On the contrary when expectation increases then performance delivered satisfaction decreases. Thus according to the theory of expectancy disconfirmation paradigm predicts that performance delivered is directly proportional to the satisfaction level of an individual. That is the reason why Maignan clearly points out in his statement that CSR includes providing Discretionary training to the employees is not the legal requirement of the organization but gives the discretionary signals to the organization about its steps towards its CSR activity ("Corporate Social Responsibility Activities", 2015). That is the reason why an Australian company Sears Auto has implemented this technique to improve its profitability status of its firm in the year 1997. When they have incurred losses of $4billion in 1992 then they have invested entirely on their employees after that they have posted a profit margin of $1.5 billion.  

So, these theory leads to employee satisfaction and ultimately it leads to customer satisfaction.  

Conclusion

From the above discussion it has been proved that CSR activity is not only beneficial for promoting the goodwill of the organization but also to improve the financial and overall health of a concern. Motivated employees can give their best for the development of the company’s on the other hand demotivated employees cannot deliver productivity for the organization. That is reason why most of the companies now a day’s practices this method to improve the overall functioning of the firm.  

Thus, for maintaining Employee retention and Delivering the customer satisfaction this activity plays a very vital role for the organization.  

References

Anderson, H., & Landao, I. (2006). Corporate Social Responsibility in Australia: A Review. https://dx.doi.org/10.2139/ssrn.1027845

Corporate Social Responsibility. (2005). Retrieved from https://www.cebcglobal.org/wp-content/uploads/2015/02/CSR-The_Shape_of_a_History.pdf

Corporate Social Responsibility Activities. (2015). Retrieved from https://www.7andi.com/dbps_data/_template_/_user_/_SITE_/localhost/_res/ir/library/ar/pdf/p36_37.pdf

Crowther, D., & Aras, G. (2008). Corporate Social Responsibility. Retrieved from https://mdos.si/Files/defining-corporate-social-responsibility.pdf

Haerens, M., & Zott, L. (2014). Corporate social responsibility. Detroit: Greenhaven Press.

Korschun, D. (2008). When and how corporate social responsibility makes a company's frontline employees customer oriented.

Sagebien, J., & Lindsay, N. (2011). Governance ecosystems. Houndmills, Basingstoke, Hampshire: Palgrave Macmillan.

Truscott, & Rachael, A. (2017). Corporate Social Responsibility in Australia: Constructing Reputation. In Proceedings 2007 Australia And New Zealand Marketing Academy Conference (ANZMAC). Retrieved from https://eprints.qut.edu.au/14396/1/14396.pdf