Question:
Discuss about the Relation between CSR And CFP.
Corporate social responsibility (CSR) of a consumer holding company is one of the major business strategies that ensure the social and the environmental betterment. A business entity with a good management system must engage itself in corporate social responsibility. The company’s engagement in performing the responsibilities towards the society and the consumers mark the company’s social growth. Corporate financial performance (CFP) is the overall financial growth of the company that depends on the financial information from the company’s perspective. Investment in the social and environmental welfare, stakeholders’ engagement, marginal profits, commercial and social revenue is the major determinates of the financial performance of a company. Company and the stakeholders’ treatment to the society in an ethical and social manner have an impact on the entire financial performance of the company. No actual consensus has been reached concerning the relationship between the CSR and the CFP. In most of the cases, it is found that the CSR practices of the company do not really strengthen the economical condition of the company. Numerous theories are followed to quantify the financial performance of the company determined by the impact of the CSR policies by the company. The following section sheds lights on the discussion that the overall financial performance of the company is not strengthen by the CSR practices.
CSR activities by the company prepare social field for the expansion of the business and project a positive picture of the company in the mind of the consumers. CSR initiatives in the field of education, environment, health and safety and above all maintaining the reputation by performing these exercise creates a good impact on the customer (Lee, Lee & Li, 2012). Practicing CSR actively also enhance the customer loyalty and create a separate corporate advantage for the company. Some of the companies believe in making good relationship with the minor communities by implementing the CSR strategies upon them. The feedback of the stakeholders and the investors of the organiation also influence the image of the same. The reputation of the firm is measured by the outsiders’ assessment of the company meeting its commitment by performing the CSR (Lii & Lee, 2012).
It has been argued by Aguinis & Glavas (2012) that CSR is the integral part of business strategies which also to some extent are responsible for the corporate identity of the company. Scholars have identified some major business and the social issues complying with the enforcement of the importance of the CSR such as, economy and the health of the communities, financial conditions of the business firm, and the legislation of the state regulating legal enforcement in the state. Improvement of the financial performance can be considered as one of the major factors influencing the importance of the CSR. The CSR responsibilities begin with performing the ethical, legal and arbitrary responsibilities respectively. The legal and the ethical responsibilities are emphasized as the mandatory compliances to perform the business operational management in the changing environment (Erepository.uonbi.ac.ke, 2017).
Ethical compliances are another essential requirement for the business firms in terms of operating and considering the applicable laws while performing the CSR. The relationship between the company and the stakeholders must possess mutual understanding of the ethical policies that indirectly influence the financial performance of the company (Hoi, Wu & Zhang, 2013). It also comes under the CSR and the moral responsibilities of the company to look after the health and the safety of the workers as well as the community members in order to maintain the financial sustainability. The compliances responsible for the enforcement of the CSR importance are employment, environmental pollution control and prevention, human rights, improvement of the indigenous communities. The compliances enforcing the importance of the CSR agree the value and the objectives of the firm.
By performing the CSR, a company become responsible for building up a relationship between CFP and the CSR. It is found that the CSR and CFP are dependable on each other. The idea of such connection derives from the performance of the CSR and CFP by the company. A company with good economical background and stability invest for the CSR and obtain certain retur (Boaventura, Silva & Bandeira-de-Mello, 2017). The company can reinvest towards the social responsibilities with that return capital. In some cases, it is found that the company does not get certain effective return from the CSR practices. The company frequently gets into conflict with the stakeholders for not being able to fulfil the demand of them entirely. This is a fatal cause of the poor financial performance by the company. The company continually tries to maintain its market position and reputation in the native communities by performing CSR and often ignore the financial growth. The continuous social activities by the company require a great capital from the stakeholder causing them feel insecure of losing the money. The overall financial performance is not strengthened by the practice of CSR (Raza et al., 2012).
Ensuring the wellbeing of the customers is the main responsibility of the personnel in terms of enhancing their corporate attitude. Conscious approach towards the execution of this responsibility upgrades the societal position of the personnel. This type of approach aligns with the behavioural development of the professionals. This brings behavioural theory in the discussion, which enhances the clarity of the businessmen regarding the appropriate approach towards the business activities (Theodoulidis et al., 2017). Consciousness about the financial performance can be considered as the focus to grab the hot seat for winning the competitive rat race. However, this consciousness is needed in terms of attaining financial stability.
In depth, understanding in this direction can be achieved through the application of stakeholder theory. Stakeholders are the one, who are at profit or loss in response to the organizational events. Therefore, fulfilment of their needs, demands and requirements is accounted as the main responsibility of the companies and organizations. Theoretically speaking, ethical considerations in governance maintain the stability in the relationship between the personnel and the stakeholders. Herein, the ethical theory comes into the discussion, where the relationship hierarchy is critically dealt with (Wang, Dou & Jia, 2016). Maintenance of the ethics adds firmness in the societal position of the companies and organizations. Viewing it from other perspective, involving the stakeholders in meetings and conferences is an attachment of valuation towards their viewpoints. Using the proposed points for introducing an effective pricing method possesses flexibility for the achievement of stability in the financial issues.
Along with this, Entity Theory is also appropriate in this context. The main proposition of this theory is the enhancement of the individuality of the staffs by doing something out of the box from the usual conventions of the managers. Emerging successful in executing the tasks independently upgrades the status of the companies and organizations. Rational application in this execution proves beneficial in terms of creating a standardized corporate entity (Lee, Singal & Kang, 2013). Aligning the issue of financial performance, if the stakeholders are entrusted with the responsibility to introduce an effective pricing method and they emerge successful, their individuality is enhanced. Here, they are liable for a share of the success, which the companies and organizations would achieve through the means of financial stability.
Ethics is crucial in terms of managing the organizational events. Adherence and compliance to the ethics does not initiate until and unless the personnel feel the urge to enhance their position within the society. This is a behavioural issue, which is essential in terms of enhancing the professionalism of the corporate world. Within this, preservation of the privacy is an important point in case of the stakeholders. In meetings and interviews, refraining from asking questions, which affects the individual sentiments of the stakeholders, reflect the compliance with the ethical considerations (Schmitz & Schrader, 2015). Introduction of various CSR policies and strict vigilance regarding adherence to the policies is a typical example in this direction. These policies cannot be developed without a stable financial stock. Inadequate finance makes the relationship between the company and the stakeholders a hostile one, where ethics takes a back seat.
In view of the previous paragraph, ethics, behavior and stakeholders can be brought in the same alignment. Countering this, revealing ethical behavior stabilizes the relationship between the company personnel and the stakeholders. This results in the introduction of lucrative deals, trades and transactions. Counter arguing this, financial instability aggravates the complexities regarding executing activities, which enhance the fame and glory. Adopting the means of survey and feedbacks falls within the major “responsibilities” of the personnel for altering the plight of the business (Christensen, Mackey & Whetten, 2014).
Viewing it from other perspective, ethics is a segment of individuals’ behavioral conduct, which determines his personality. Considering the adherence to ethics as a responsibility takes the employees closer to their professional development. Within this, consciousness towards upgradation of the financial performance is a segment of the behavioral science. Delving deep into the aspect, prioritizing this upgradation, in comparison to the wellbeing of the stakeholders and shareholders, adds vulnerability to the societal position of the companies and organizations. This puts the reputation of the companies and organizations at stake, provided preventive measures are not taken. Adopting the preventive measures is also the inner urge in terms of making noticeable changes in the business environment (Rhou, Singal & Koh, 2016). Experimenting with existing products and services reflects the presence of this urge within the managers in terms of enhancing their corporate responsibilities.
The commonality of the word corporate in both the aspects reflects on its importance in the present era of competition and selfishness. As a matter of specification, the motive to grab hold of the hot seat acts as a compromise with the needs, demands and requirements of the stakeholders. This perspective contradicts the true essence of the aspect of CSR. Herein, the professional responsibilities are nullified as the only aim is to be financially strong. This nullification results in the social degradation of the personnel, which makes the corporate mask holds no value. Herein lays the need for alteration in the perspectives, which would enable the companies and organizations to excel in their corporate social responsibilities (Ilhans, Koparan & Okan, 2015). Typical examples in this direction are organizing contests, prize distribution ceremonies, interviews among others, which would stabilize the public relations. Within this, the staffs need to refrain from affecting the buying behavior of the stakeholders. This consciousness leads the employees towards their professional development, which enhances their personal identity within the society.
The second word of CSR reflects the social parameter, which can be enhanced if the companies and organizations plan extracurricular activities. The second word of the other aspect is an addition to the parameters, which the companies and organizations need stability, of which finance gains the most important position as it is the source, which determines the fate of the companies and organizations (Rojas et al., 2017). Rationalistic attitude of the staffs towards enhancing the productivity of the business processes sheds away the negative in the proposed essay question. This is after an in-depth theoretical and critical assessment of both corporate social responsibility and the corporate financial performance exposed by the companies and organizations for fulfilling the identified and the specified requirements.
It can be concluded from the above discussion that CFP and the CSR are internally linked. The CSR in some ways is responsible factors of CFP and vice-versa. Performing CSR for the welfare of the company creates a greater impact on the consumers than only maintaining the business relationship. Factors determining the CSR are actually responsible for the reducing the financial growth of the company. The compliances responsible for CSR only ensure the social and the corporate standards of the company, which leads the company to ignore its financial exercises. Theoretical perspective towards CSR and CFP enliven the roles and responsibilities, which the personnel need to reveal for penetrating into the path of professional development. This leads to the connection between the ethics and the behavioral conduct as evident from the behavioral and the ethical theory. This connection only enhance the social standard of the company which is however affects the financial performance of the same. Conscious approach towards adhering to the ethical considerations, even while deciding about the financial issues, enables the personnel to maintain the hard earned loyalty, trust and dependence from the stakeholders, an asset in terms of expanding the scope and arena of the business environment. The continuous effort of the company to maintain a good reputation in the society as well as in the public affects the financial performance of the company. The entity theory sheds a light on this point ensuring the identity of individual as the company. Critical review of the roles and responsibilities is interplay with professionalism; however it broadens the perspectives of corporate social responsibility and to certain extent shortens the corporate financial performance.
References:
Aguinis, H., & Glavas, A. (2012). What we know and don’t know about corporate social responsibility: A review and research agenda. Journal of management, 38(4), 932-968.
Boaventura, J., Silva, R., & Bandeira-de-Mello, R. (2017). Performance Financeira Corporativa e Performance Social Corporativa: desenvolvimento metodológico e contribuição teórica dos estudos empíricos. Retrieved 6 August 2017, from
Christensen, L. J., Mackey, A., & Whetten, D. (2014). Taking responsibility for corporate social responsibility: The role of leaders in creating, implementing, sustaining, or avoiding socially responsible firm behaviors. The Academy of Management Perspectives, 28(2), 164-178.
Erepository.uonbi.ac.ke. (2017). Erepository.uonbi.ac.ke. Retrieved 6 August 2017, from https://erepository.uonbi.ac.ke/bitstream/handle/11295/13961/Nzovah-Factors%20Influencing%20The%20Practice%20Of%20Corporate%20Social%20Responsibility%20By%20Standard%20Chartered%20Bank%20In%20Kenya.pdf?sequence=3
Hoi, C. K., Wu, Q., & Zhang, H. (2013). Is corporate social responsibility (CSR) associated with tax avoidance? Evidence from irresponsible CSR activities. The Accounting Review, 88(6), 2025-2059.
Ilhan-Nas, T., Koparan, E., & Okan, T. (2015). The effects of the CSR isomorphism on both CSP and CFP. Journal of Asia Business Studies, 9(3), 251-272.
Lee, S., Singal, M., & Kang, K. H. (2013). The corporate social responsibility–financial performance link in the US restaurant industry: Do economic conditions matter?. International Journal of Hospitality Management, 32, 2-10.
Lee, Y. K., Lee, K. H., & Li, D. X. (2012). The impact of CSR on relationship quality and relationship outcomes: A perspective of service employees. International Journal of Hospitality Management, 31(3), 745-756.
Lii, Y. S., & Lee, M. (2012). Doing right leads to doing well: When the type of CSR and reputation interact to affect consumer evaluations of the firm. Journal of business ethics, 105(1), 69-81.
Raza, A., Ilyas, M. I., Rauf, R., & Qamar, R. (2012). Relationship between corporate social responsibility (CSR) and corporate financial performance (CFP): Literature review approach. Elixir Financial Management, 46(9), 8404-8409.
Rhou, Y., Singal, M., & Koh, Y. (2016). CSR and financial performance: The role of CSR awareness in the restaurant industry. International Journal of Hospitality Management, 57, 30-39.
Rojas, M., M’Zali, B., Turcotte, M. F. T., & Kooli, M. (2017). Corporate social responsibility, the h and beyond: in search of theoretical explanations for “doing well while doing good”. Revista de Investigación en Ciencias y Administración, 1(1), 27-42.
Schmitz, J., & Schrader, J. (2015). Corporate social responsibility: A microeconomic review of the literature. Journal of Economic Surveys, 29(1), 27-45.
Theodoulidis, B., Diaz, D., Crotto, F., & Rancati, E. (2017). Exploring corporate social responsibility and financial performance through stakeholder theory in the tourism industries. Tourism Management, 62, 173-188.
Wang, Q., Dou, J., & Jia, S. (2016). A meta-analytic review of corporate social responsibility and corporate financial performance: The moderating effect of contextual factors. Business & Society, 55(8), 1083-1121.
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