During the industrial revolution in the late 80's, there was a lot of debate regarding corporate social responsibility and whether it was mandatory for companies to undertake social responsibility. Proponents of this system saw the need to create a system that required companies to engage in corporate social responsibility. As stated by Peloza & Shang, those opposed to the introduction of a system to enforce corporate social responsibility were of the view that it was both legally and morally wrong to force companies to engage in social responsibility (2011). The major argument among the opponents on social corporate responsibility was that the system would eventually weaken economic growth by reducing competition. This debate has existed since then despite most companies being involved in social responsibility.
Corporate social responsibility is defined as "a concept whereby companies integrate social and environmental concerns in their business operations and their interaction with their stakeholders on voluntary basis" (European Commission, 2002) despite there being various elements of CRS, the major elements involved in CRS include;
· Workplace (employee)
· Marketplace (Buyers and suppliers)
· Human rights
There are various reasons why corporate social responsibility activities have increased in the recent past. One of the major reason is environmental concerns coupled with the emerging problem of global warming. "Companies have been forced to respond to major environmental across the world by investing more in CSR" (Ioannou, & Serafeim, 2014). Unlike in the past, companies pay greater attention to the environment, social and business changes. The greatest challenge to effective CSR however is that the activity contradicts the primary objectives of most companies which is to maximise profit.
The purpose of this literature review is to better understand the relationship between engaging in corporate social responsibility and organizational performance. The review will attempt to answer the following questions;
· What are the major reasons why companies engage in corporate social responsibility?
· Why do companies apply corporate social responsibility in business?
· What is the relationship between corporate social responsibility and organizational performance?
Garriga and Melle (2013) are of the view that there is renewed pressure for companies to engage in CSR owing to the fact that customers are slowly shifting from the traditional factors influencing purchasing decisions. While factors such as products and their prices played a big role in influencing purchasing decisions in the past, the paradigm shift in business have seen potential customers consider things such as working conditions, environmental concerns and human rights when making purchases.
As stated by Comfort, Hiller& Jones, some of the key elements that have influenced the increased focus on CSR include;
· Increased stakeholder awareness
· Social and environmental behaviour.
· Stakeholders' pressure.
· Investor pressure.
· Peer pressure.
· Increased sense of social responsibility.
As stated by Kitzmueller & Shimshack, most of the studies conducted in the past have shown a consistent trend of increased business performance for companies that engage in CSR (2012). However, it is still not clear how this increased performance is achieved despite investing in social responsibility being a cost.
Purpose of the Literature Review
Research on the relationship between corporate social responsibility and organisational performance has never been conclusive. As seen in most organisation, the classification of CSR is either classified as a cost to the organisation or a benefit. This classification is depended on how a business perceives the concept of social responsibility. This literature review will look into among other factors the key elements regarding the classification of corporate social responsibility. In addition, this section will look at the underlying factors that influence business participation and engagement in social corporate responsibility. This is going by the fact that the dynamics of corporate social responsibility have greatly changed over the years. According to Cheng, Ioannou & Serafei, (2014) most companies were sceptical of the whole exercise as it went against the fundamental of business which is profit making. Things have gradually changed over the years and almost every organisations engages in CSR. There are also major misconception both in corporate, legal and social interpretations of social responsibility.
The literature review will be divided into four major parts that are,
· Reasons why companies engage in corporate social responsibilities
· How corporate social responsibilities is applied din organizations
· Relationship between corporate social responsibility and organizational performance
· Conceptual framework
The information from the highlighted parts will build the underlying argument which suggests that corporate social responsibility has a positive impact on organisational performance.
Current Trends in Corporate Social Responsibilities
In today's world, some of the major reasons why organizations engage in corporate social responsibility include;
1. As a moral obligation: Most companies engage in corporate social responsibility because they feel that it is their obligation to give back to the society.
2. Sustainability: Most of the activities related to CSR are carried out with the belief that they are important for the greater good. An example of this is environmental conservation. Most organizations have come to the realization that environmental pollution will affect everyone in the long run and hence the need to take precautionary measures when it comes to reducing pollution.
3. License to operate: Some organizations only engage in corporate social responsibility only because of government regulations on social responsibility. Refusal to engage in corporate social responsibility can lead to deregistration of companies depending on the specific rules and regulations in different countries.
4. Reputation: Companies that engage in corporate social responsibility are better placed when it comes to reputation as the activity is seen as part of the company's objectives to give back to the local community.
5. Increased market share: Customers have over the years looked at other factors other than prices when making purchasing decisions. It is therefore common that customers would prefer products from companies that engage in corporate social responsibility.
6. Employee retention: Most employees would prefer working in organizations that have a positive image. This image is created when an organizations participate in corporate social responsibility.
7. Reduced operation cost: When engaging in corporate social responsibility, most companies can greatly reduce the operating cost and in particular the cost related to advertising. The reduction of cost is based on the assumption that such companies can gain free publicity as a result of engaging in CSR.
8. Increment of investor interest: Some of the activities related to CSR can increase investor confidence in an organisation.
There are various reasons why companies engage in CSR. This study will try to relate engaging in CSR to improved organisational performance. In addition, the study will analyse the key elements that create the need for organizations to engage in CSR. Some of the key elements expected to be discussed include reputation and brand positioning. The study will also analyse the economic incitements that occur as a result of CSR. The underlying argument in this section is that while the major objective of any organisation is to serve the interest of the shareholders which is to maximise profits, why then is it important for any organization to engage in CSR.
Cheng, B., Ioannou, I., & Serafeim, G. (2014). Corporate social responsibility and access to finance. Strategic Management Journal, 35(1), 1-23.
Garriga, E., & Melé, D. (2013). Corporate social responsibility theories: Mapping the territory. In Citation Classics from the Journal of Business Ethics (pp. 69-96). Springer Netherlands.
Kitzmueller, M., & Shimshack, J. (2012). Economic perspectives on corporate social responsibility. Journal of Economic Literature, 51-84.
Ioannou, I., & Serafeim, G. (2014). The impact of corporate social responsibility on investment recommendations: Analysts' perceptions and shifting institutional logics. Strategic Management Journal.
Peloza, J., & Shang, J. (2011). How can corporate social responsibility activities create value for stakeholders? A systematic review. Journal of the academy of Marketing Science, 39(1), 117-135.