The Drive Behind Corporate Social Responsibility Reporting Essay

For the last 40 old ages at that place has been a graphic argument about the boundary lines of corporate duties. Milton Friedman ( 1962/1970 ) and others have argued that the lone duty of a corporation is to its stockholders and non to society as a whole as their lone intent is to maximise returns to its stockholders. Their oppositions nevertheless province that corporations are non stray entities, but are inherently connected with the remainder of the society. Entities that operate in the society are hence expected to take duty for their impact on the society as a whole. This accordingly broadens corporation ‘s duties from simply stockholders towards a broad scope of stakeholders and other members of the populace sphere.

Stockholders, being the proprietors of a company, have a fiscal involvement in the corporation. They have invested their money into a corporation in the hope that its directors will apportion these resources in such a manner that it will maximise their return. At the terminal of the twelvemonth every corporation publishes an one-year fiscal study which gives an overview of the fiscal place and public presentation of the corporation in inquiry.

Stakeholders and other members of the populace sphere, that do non hold a direct fiscal involvement in the corporation, are less interested in the fiscal public presentation of the corporation. They are more eager to understand what impact the corporation ‘s activities have on its surrounding ( narrow ) and on the society ( wide ) now and in the hereafter. This can be labeled as the societal public presentation of the corporation. Social public presentation of a corporation can be measured in different ways and trades with a wide scope of subjects such as: Does the company usage kid labour in their procedures? Does the company put in sustainable development? What is the impact of the corporation ‘s activities on the environment and how does it manage scarce natural resources?

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Faced with its duties and the of all time increasing demand for extra revelations, many corporations started describing non-financial information besides the traditional fiscal information. During the last decennaries we have seen many tendencies and developments in the

revelation of non-financial information. While some companies decided to unwrap necessary non-financial information as portion of their one-year fiscal study, others chose to uncover this information in separate studies, such as environmental studies, sustainability studies and corporate societal duty studies. These studies have been undergoing many alterations in their format and content ; in order to implement the message and the dependability of the studies corporations even decided to seek confidence for these studies.

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Sing all these developments, nevertheless, brings us back to the chief inquiry: Does it pay to be socially responsible or is CSR simply a load on the fiscal place of a corporation? To reply this inquiry we have decided to give our literature survey to the probe of the relationship between corporate societal duty andA fiscal public presentation. By comparing several surveies available on this subject we hope to be able to acquire a better apprehension of the methodological analysis used and the diverseness of consequences obtained from these surveies. In executing this literature survey we hope to execute a preliminary probe which will supply us with interesting thoughts for our empirical survey.

The remainder of the paper has the undermentioned construction. Chapter 2 discusses corporate societal duty ( CSR ) , the motives behind CSR and the developments in corporate societal duty coverage. Chapter 3 explores the relationship between CSR and fiscal public presentation by agencies of a literature reappraisal. Chapter 4 concludes.

Chapter 2: Corporate Social Responsibility

The intent of this chapter is to obtain a better apprehension of what corporate societal duty ( CSR ) is approximately. To accomplish this end we will analyze the definition of and the motivations behind CSR. Additionally we will supply an overview of the province and recent developments in corporate societal duty coverage. However, before covering with CSR we would wish to get down by briefly turn toing the issue of ( voluntary ) revelation.

Disclosure

In this paper we would wish to look into whether fiscal public presentation is a thrust behind CSR describing. Currently, many corporations unwrap information on their CSR public presentation on a voluntary footing. Before holding a closer expression at the possible thrust behind this signifier of voluntary revelation, allow us get down by looking at the term revelation. Corporations use revelations to pass on their fiscal and non-financial information to outside investors and other related parties ( stakeholders ) . Disclosures play an indispensable function as they assist in decreasing information dissymmetry between the corporation and its stakeholders and contribute to an effectual allotment of resources in society ( Popa and Peres, 2008, p. 1407 ) .

When looking at describing we can separate between compulsory and voluntary revelations.

Compulsory revelations are defined as revelations that are determined by national or international professional organisations or authorities governments. For case, the one-year fiscal statements that have to be issued harmonizing to by and large recognized accounting rules ( GAAP ) or the International Financial Reporting Standards ( IFRS ) . Another illustration of compulsory revelations are internal control studies by public companies which are required by the Section 404 of the Sarbanes-Oxley Act ( 2002 ) . Voluntary revelation forms a much needed add-on to mandatory revelation, which in most of the instances seems to be deficient in run intoing user ‘s information demands. Meek, Roberts and Gray defined voluntary revelation as follows: ‘disclosure in surplus of demands, which represents free picks on the portion of a company ‘s direction to supply accounting and other information deemed relevant to the users of their one-year studies ‘ ( 1995, p. 555 ) . Management largely uses voluntary revelations as an instrument for distinction of their company from other companies.

What is CSR?

With the rise of transnational corporations in the early 1970s, the term ‘corporate societal duty ‘ ( CSR ) came into usage. During the past old ages CSR and other footings like corporate societal public presentation ( CSP ) , citizenship or sustainable responsible concern have been used interchangeably as equivalent word. The chief thought of CSR is that it includes public involvement into corporate determination devising, at the same time implicating a displacement in the corporation ‘s focal point from simply stockholders to stakeholders. The term ‘stakeholder ‘ , mentioning to ‘those groups without whose support the organisation would discontinue to be ‘ , A has been used for the first clip in 1963 during an internal memoranda at the Stanford Research institute ( Freeman and Reed, 1983, p. 89 ) . The stakeholder construct indicates that there are other groups to whom the corporation is responsible in add-on to shareholders. These are groups that are straight or indirectly affected by the corporation ‘s actions. Harmonizing to this theory, a corporation should be used as a mechanism to organize stakeholders ‘ involvements, alternatively of merely maximising the net income of its stockholders. The stakeholder theory has been shaped and further developed in the 1980s under the influence of the American philosopher and professor R. Edward Freeman[ 1 ].

In line with the position that the corporation ‘s duties lie with its stakeholders instead than its stockholders, the impression of CSR is build upon the triple-P underside line theory which was introduced by John Elkington in the seventiess: people, planet and net income. Harmonizing to this theory a corporation is a value-adding entity whose success can be measured by its economic ( net income ) , ecological ( planet ) and societal ( people ) public presentation. The economic facet relates to the value creative activity through the production of goods and services, and the creative activity of employment. The ecological facet concerns the corporation ‘s consequence on the natural environment. Finally, the societal facet refers to the consequence on human existences, both inside and outside the corporation ( Graafland et al, 2004 ) .

There are many definitions of CSR in circulation. The broad scope of definitions can be explained from the fact that CSR coverage is voluntary and is non supported by by and large accepted coverage criterions that provide a unvarying definition. Harmonizing to Baker[ 2 ]nevertheless, definitions of CSR that have been framed by different organisations have a just sum in common. The undermentioned diagram illustrates the interaction between a concern and society.

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In his diagram Baker distinguishes between the inner and the outer circle. The interior circle captures the quality of direction, both in footings of people and procedures, while the outer circle demonstrates the nature and measure of the corporation ‘s impact on society in the assorted countries[ 3 ].

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In our paper we will go from the definition of the European Commission: ‘CSR is a construct whereby companies integrate societal and environmental concerns in their concern operations and in their interaction with their stakeholders on a voluntary footing ‘ .[ 4 ]

2.3 Divers and motivations behind CSR

More and more companies throughout the universe study information non merely about their economic public presentation, but besides about their social- and environmental public presentation. The drivers for CSR do non run in isolation and different companies may hold different motives. Assorted drivers may besides be stronger in different industries than others. There are non merely economic- , but besides societal and political drivers and a move to follow CSR may originate from a combination of those drivers ( Brine, Brown and Hackett, 2007 )

Employee enlisting, motive and retaining

Companies see CSR as an of import factor in pulling and retaining talented and diverse employees. Good on the job conditions for employees could take to better public presentation in footings of quality and bringing. The company can straight profit from this higher degree of productiveness.

Learning and invention

Learning and invention are of import to the long-run being of any concern. CSR can be a medium for concern to react to environmental and social hazards and turn these into concern chances.

Reputation direction

Companies see CSR as an effectual tool for bettering its repute. How companies are judged by clients, providers and the broader community will hold an impact on their profitableness and success. CSR offers a manner by which companies can pull off and act upon the attitudes and perceptual experiences of their stakeholders, constructing their trust and enabling the benefits of positive relationships to present concern advantages.

Hazard direction

CSR offers more effectual hazard direction, assisting companies to cut down evitable losingss, place new emerging issues and utilize places of leading as a agency to derive competitory advantage.

Competitiveness and market placement

Companies could utilize CSR stigmatization as a manner to distinguish its merchandises in its merchandise market en draw consumers off from rivals and thereby better profitableness.

Operational efficiency

CSR can offer chances to cut down present and future costs to the concern which leads to increasing operational efficiency. Adopting CSR and good corporate administration can cut down judicial proceeding hazard. A company could avoid dearly-won authorities imposed mulcts and in that manner be more cost efficient. Certain types of CSR activities translate into an increased value for a company, therefore increasing the value for its stockholders. For illustration, the determination to go more energy efficient has a cost-saving consequence.

Investor dealingss and entree to capital

The investing community is progressively sing CSR as an confidence of long-run hazard direction and good administration patterns. Investors hence place lifting importance on corporate repute as they do on fiscal public presentation.

License to run

Companies that fail to pull off their duties to society as a whole hazard losing their licence to run.

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2.4 Corporate Social Responsibility coverage

The figure of companies that unwrap information on their environmental, societal and administration public presentation has significantly increased in the recent old ages. The current fiscal crisis pull even more attending to the revelation and transparence of CSR public presentation.

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The rise of describing related to societal and environmental facets of a corporation goes back to the seventiess. During this period societal coverage and accounting was adopted by several US and West European corporations. Epstein defined societal coverage and accounting as: ‘the designation, measuring, monitoring and coverage of the societal and economic effects of an establishment on society, intended for both internal managerial and external answerability intents ‘ ( Epstein et al. , 1976, p. 24 ) . The figure of companies involved in societal coverage grew quickly during the 1970s, ensuing in 90 % of the Fortune 500 companies describing on societal public presentation in their one-year studies by 1978 ( Kolk, 2005, p.35 ) . However, as a consequence of recession and unemployment during the 1980s, societal coverage lost its prevalence and moved to the background. By the terminal of 1980s the subject of societal coverage made its rejoinder, this clip with a peculiar focal point on environmental issues ( Kolk, 2005 ) .

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Since so, societal and environmental coverage ( subsequently known as sustainability coverage or corporate duty coverage ) has grown well: from 13 % in 1993 to about 80 % across the largest 250 companies worldwide ( G250 ) in 2008 ( KPMG, 2008, p. 13 ) . The study of KPMG on the province of corporate duty coverage shows that the rate of describing amongst the largest 100 companies in 22 states is 45 % on norm. Japan leads with 88 % , followed by the UK ( 84 % ) . The Netherlands portion 4th topographic point with Canada ( both 60 % ) .

A An increasing figure of companies prefer to publish separate studies, alternatively of including information on corporate duty in their one-year fiscal studies: from 52 % in 2005 to 79 % in 2008 ( KPMG, 2008, p. 14 ) . Almost 70 % of the companies surveyed by KPMG applied the Global Reporting Initiative ‘s ( GRI ) Guidelines as the footing for their coverage ( KPMG, 2008, p.21 ) . GRI ‘s Guidelines aid companies in mensurating and describing their economic, environmental and societal public presentation. Currently, G3 Guidelines ( 2006 ) is the latest version available and replaces former issues: G1 ( 2000 ) and G2 ( 2002 ) .[ 5 ]

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We would wish to reason this chapter by adverting the development in confidence of corporate duty studies. The figure of G250 companies that make usage of formal confidence in their studies increased to 40 % in 2008, opposed to 30 % in 2002 and 2005 ( KPMG, 2008, p.56 ) .

Chapter 3: Literature reappraisal

A recent call by a broad scope of stakeholders ( e.g. clients, employees, authoritiess ) has encouraged many companies to set about extra investings in corporate societal duty ( CSR ) . However, non every company has responded positively to an allotment of their resources towards CSR. Some houses argued that increased investings in CSR prevent them from maximising their net incomes. The wide-spread concerns sing a tradeoff between CSR investing and profitableness, motivated legion research workers to research the relationship between CSR and fiscal public presentation ( McWilliams and Siegel, 2000, p. 603 ) . Since the beginning of the argument in the 1970s, many surveies have been published on this subject. Yet, there is no consensus in the literature on whether CSR leads to superior fiscal public presentation.

Griffin and Mahon ( 1997 ) have provided us with an overview for the period 1972 until 1997. They reviewed 51 surveies that examined the relationship between corporate societal and fiscal public presentation, and were published during a clip span of 25 old ages ( 1972-1997 ) . Each of these surveies has been reviewed for: population tested, methodological analysiss employed, informations beginnings, corporate fiscal public presentation steps, corporate societal public presentation steps, control variables, consequences and significance degree and reliability/validity testing. The writers divided theA 62 obtained research consequences into three classs: consequences that show a positive correlativity ; consequences that show a negative correlativity and consequences that show no consequence or are inconclusive. Analysis of these consequences provided the undermentioned overview: 33 research consequences found a positive relationship, 20 research consequences found a negative relationship and 9 research consequences found no relationship or were inconclusive ( Griffin and Mahon, 1997, p 8-9 ) . Two old ages subsequently, the paper of Griffin and Mahon was reconstructed by Roman, Hayibor and Agle. Their reclassification caused an even greater spread between the figure of consequences bespeaking a positive relationship ( 33 surveies ) and those bespeaking a negative relationship ( 5 surveies ) . Margolis and Walsh ( 2001 ) present a elaborate overview of the literature and use a simple “ ballot numeration ” technique to pool consequences. The result of theirA survey shows that about 50 % of the empirical surveies found a positive relationship between CSR and fiscal public presentation, 25 % found no relationship, 20 % had assorted consequences and 5 % had a negative relationship. Orlitzky et Al ( 2003 ) criticized the vote-counting technique used by Margolis and Walsh ( 2001 ) as this technique has been shown to be statistically invalid. They argued for a more strict analysis: the psychometric meta-analysis. However, their consequences back up the positive relationship between CSR and fiscal public presentation. They conducted a meta-analysis of 52 surveies and found in general a positive interaction between CSR public presentation and fiscal public presentation, in which CSR public presentation steps were correlated more extremely with accounting-based steps than with marked-based indexs. Van Beurden and Gossling ( 2008 ) reviewed 31 surveies, 68 % had a positive relationship, while 28 % show no important relationship, and merely 6 % had a negative relationship between CSP and fiscal public presentation.

3.1. The relationship between CSR and fiscal public presentation

An scrutiny of old surveies ‘ consequences shows us that four possible relationships between CSR and fiscal public presentation have been proposed by the literature: positive, negative, assorted and impersonal relationship.

3.1.1 Positive relationship

Many consequences of performed literature surveies reveal a clear empirical grounds for a positive correlativity between CSR and fiscal public presentation. This theory is based chiefly on the stakeholder position which holds that fulfilling stakeholders ‘ involvements will ensue in an betterment of the house ‘s fiscal and economic public presentation in the long tally ( Freeman, 1985 ) . Directors have a fiducial duty to all stakeholders ( including clients, employees and even communities or societies ) and non merely to stockholders. The findingsA suggest that although investings in CSR incur increased costs for companies, they have a positive consequence on the value of a house. Investing in CSR will take to positive fiscal public presentation over the medium to long term due to the impact of societal public presentation on repute and trade name and the attraction of such companies to high quality directors and employees.

3.1.2 Negative relationship

Cardinal for this line of thought are the statements of Friedman ( 1970 ) and other neoclassical economic experts ‘ who province that societal duty involves costs and hence worsens a house ‘s competitory place. Directors ‘ merely duty is to increase stockholders ‘ wealth. More recent surveies ( Brammer et Al, 2006: Boyle et Al, 1997 ) argue that societal restraints on houses and socially responsible behaviour may conflict the value maximization. CompaniesA that decide to better societal or environmental public presentation, A incur extra costs, A which does non lend to heightening stockholder value. The theoreticians expect some mensurable economic benefits to socially responsible behaviour ; nevertheless these benefits do non outweigh the legion costs.

3.1.3 Assorted relationship

A assorted relationship indicates that the relation between CSR and fiscal public presentation is non changeless over clip but shows the signifier of a ‘U ‘ or an ‘inverted U ‘ . The first theory can be explained by the fact that the company ‘s execution of a CSR plan will increase the costs and lower its net incomes in the short tally. This lessening in net incomes and hence in fiscal public presentation of the company will nevertheless be reversed in the long tally. The theory of the ‘inverted U ‘ on the other manus, beliefs in the being of an optimal degree of corporate societal duty. Beyond this degree being socially responsible will no longer be economically advantageous for a company. Several surveies that do non distinguish between short and long tally in finding a relationship between two variables, have classified consequences that indicated a ‘U ‘ or ‘inverted U ‘ signifier under positive cq negative relationship ( accordingly taking to a three-type alternatively of four-type categorization ) .

3.1.4 Impersonal relationship/No relationship

Impersonal relationship implies that there is an absence of association or relation between two variables. Harmonizing to this result no correlativity is found between CSR and fiscal public presentation, intending that corporate societal duty has no impact on the profitableness of a corporation. A impersonal relationship was found by McWilliams and Siegel ( 2000 ) who argue that a relationship between societal and fiscal steps exists by opportunity since there are excessively many variables which influence the relationship. The impersonal relationship is found when the arrested development theoretical account is decently specified and controlled for R & A ; D outgo. However, the measuring jobs of CSR could besides cover any linkage that exists.

3.2 Biass and jobs in literature

On the whole, societal and fiscal public presentation research seem to demo the being of a positive relationship, but recent research points at legion prejudices and jobs of old work ( e.g. Elsayed and Paton, 2005 or McWilliams and Siegel, 2000 ) . By reexamining Griffin andA Mahon ( 1997 ) , the writers identified three cardinal issues. The surveies were all characterized by a clear focal point on multi-industry samples, the multiple dimensions of fiscal public presentation and a shared demand for multiple steps to measure corporate societal public presentation. Other jobs revealed by the literature sing the nexus between societal and fiscal public presentation are related to: theoretical account misspecification ( endogeneity ) , omitted variables in the determiners of profitableness and limited informations ( really little samples, old periods ) .

Focus on multi-industry samples

From the surveies that have been reviewed more than 78 % ( 40 surveies ) used a population that contained multiple industries. However, the usage of multi-industry samples can hold a large colored consequence on the consequences as this attack does non separate between industries, presuming that all industries are equal and comparable. Yet every industry is alone in its ain manner, which creates a ‘specialization ‘ of societal involvements ( Holmes, 1977 ) . Therefore it is of import to account for the specific context of each industry.

Fiscal public presentation steps

During the 25 old ages of research 80 different fiscal public presentation steps have been used. Over 70 % of the steps were used merely one time. This absence in overlap makes it really hard to pull any solid decisions on the cogency and dependability of these steps. However, these individual fiscal public presentation steps can be divided in 2 classs: market-based steps and accounting-based steps ( Van Beurden and Gossling, 2008 ) . Examples of market-based steps are stock public presentation, market return, market value to book value, monetary value per portion and portion monetary value grasp. Accounting-based steps which are more normally used are: size ( logarithm of entire assets ) , plus age, return on assets ( ROA ) , return on equity ( ROE ) and 5-year return on gross revenues ( ROS ) ( Griffin and Mahon, 1997, p. 11-14 ) .

Corporate societal public presentation steps

Several surveies have been utilizing different types of corporate societal public presentation steps. However, it remains a challenge for many research workers to happen a good step for corporate societal public presentation. As these steps do non cover with difficult informations, utility of some steps that were used in the yesteryear is questionable. Some of these steps are simply an appraisal of the corporation ‘s societal public presentation by an foreigner. However, such appraisals are non ever a good contemplation of the existent public presentation. Certain comparative rankings of corporate societal public presentation, that are chiefly based on the image of a corporation ratherA than the house ‘s existent CSR public presentations, are barely suited to explicate the relationship between CSR and fiscal public presentation. In order to obtain a representative corporate societal public presentation step Griffin and Mahon ( 1997 ) proposed to establish empirical research on multiple corporate societal public presentation steps alternatively of a individual 1. This attack will assist in extenuating both restraints and impact that semen with the usage a individual step. Van Beurden and Gossling ( 2008 ) divide the different measurings of corporate societal public presentation in three classs: societal concern, corporate action ( such as philanthropic gift, societal plans, and pollution control ) and corporate repute evaluations ( KLD and Fortune ) . Each of these measurings, while offering some benefits, has restrictions. The Fortune evaluation of corporate societal public presentation tends to be viewed as a step of overall direction of a house instead than being specific to corporate societal public presentation. Further it is extremely correlated with other steps. Many steps are either unidimensional and may non properly reflect the overall degree of a company ‘s corporate societal public presentation or are hard to use systematically across the scope of industries and companies that need to be studied.

Limited informations

This job refers to theA nature of theA informations used in some existing literature. In some studies really little samples are used and this could take to consequences that are non representative. The usage of a little figure of surveies decreases the cogency and generalizability of the consequences. Furthermore, many surveies base their theoretical model and findings on literature and stuff that is outdated. The relevancy of surveies undertaken in the 1970s and 1980s may be limited because concern over corporate societal public presentation was still in its babyhood and may non be wholly relevant to patterns considered to be socially responsible by today ‘s criterions. Cross-sectional empirical surveies tend to mensurate both corporate societal and fiscal public presentation in the same individual twelvemonth, and hence, the long-run effects of certain determinations impacting stakeholder are left undiscovered.

Model misspecification and endogeneity

Surveies sometimes use theoretical accounts that are misspecified in the sense that they omit variables that have been shown to be of import determiners of profitableness ( McWilliams and Siegel, 2000 ) . Without the inclusion of variables that may act upon a house ‘s fiscal public presentation, estimated parametric quantities on corporate societal public presentation will be biased. The most normally used controls are ; the strength of R & A ; D investing by the house, house size, market hazard and industry effects.

Direction of causality

This facet has to make with the way of causality of the corporate societal public presentation and fiscal public presentation relationship. It is still ill-defined whether financially successful companies merely have more resources to pass on corporate societal public presentation and hence achieve a higher criterion ( loose resource theory ) or whether better public presentation along assorted dimensions of corporate societal public presentation itself consequences in better fiscal results ( good direction theory ) . If loose resources are available, so better societal public presentation would ensue from the allotment of these resources into the societal spheres, and therefore better fiscal public presentation would be a forecaster of better corporate societal public presentation. Good direction theoreticians argue that there is a high correlativity between good direction pattern and corporate societal public presentation, merely because attending to corporate societal public presentation domains improves relationships with cardinal stakeholder groups ensuing in better overall public presentation ( Waddock and Graves, 1997 ) . Some theoreticians argue that corporate societal public presentation is both a forecaster and effect of steadfast fiscal public presentation.

4. Decision

During the last two decades we have seen a enormous addition in involvement towards the issue of corporate societal duty ( CSR ) . The displacement in focal point from stockholders towards stakeholders forced corporations to appreciate their ends and duties. The thought that net income is the lone end of a company was replaced by a much wider spectrum, the alleged ternary underside line theory: people, planet and net income. From now on corporations realized that the lone manner to guarantee their net incomes now and in the hereafter was by including the facets ‘people ‘ and ‘planet ‘ in their scheme. This gave birth to corporate societal duty coverage.

In our paper we had a closer expression at CSR and explained several motivations behind it. However, in our literature reappraisal we focused on one motivation: fiscal public presentation. As our rubric indicates we wanted to analyze whether corporations ‘ engagement in CSR improves their fiscal public presentation. To reply this inquiry we examined legion surveies that investigated the relationship between CSR and fiscal public presentation.

The relationship between CSR and fiscal public presentation has been a hot subject for half a century. Until now, empirical surveies have ne’er been in understanding, as some surveies determined a positive correlativity, some determined a negative correlativity, while others determined no correlativity at all. Some theoreticians argue that the benefits of CSR do non countervail the extra cost and hence do non lend in heightening the stockholders ‘ value. Others find no correlativity between CSR and fiscal public presentation. They believe that there are excessively many variables which influence the relationship and that any correlativity appears by opportunity. On the whole, most research shows the being of a positive relationship, whereas several documents point at legion prejudices and jobs.

Another of import facet is the way of causality of the corporate societal public presentation and fiscal public presentation relationship. It is still ill-defined whether financially successful companies merely have more resources to pass on corporate societal issues and hence achieve a higher criterion or whether better public presentation along assorted dimensions of corporate societal public presentation itself consequences in better fiscal results. Based on this, we conclude that there is no unequivocal reply to our inquiry. Further empirical research on this subject could help us in replying our question.A