The Relationship Between Corporate Social Responsibility And Company Performance: A Review

The core concept of social responsibility in public companies

Social responsibility is the core concept which is studied in the context of public companies. There are many researchers who have reviewed theoretical and conceptual implications of corporate social responsibility to analyze its potential benefits for the organizations. However, initial studies have analyzed that there is the connection between CSR and the company’s reputation and performance. In some cases, prior studies have found a positive, in some cases, there is neutral and in some, there is negative relationship between these factors (Aguinis & Glavas, 2012). There are potential financial benefits of CSR which raise an important question for the companies i.e. how the companies survive in the market with the CSR practices. This is an important question for the companies because they always face a growing pressure from the group of stakeholders who always have various interests. So, they always create a challenge for the company to make significant investment decision about CSR (Orlitzky, Siegel, Waldman, 2011).

In this essay, the aim is to analyze the relationship between corporate social responsibility (CSR) and the various outcome measures on the company level. The objective of this essay is to evaluate the ability of CSR to contribute the competitive advantage of the companies in terms of improving their reputation and performance in the market. This essay discusses the empirical literature on the CSR with the link of company’s reputation and performance and provides variety of measures to develop a clear understanding about CSR practices and its potential outcomes (Bansal, 2005).

Since 1950s, CSR and its various terms such as corporate social responses, corporate social performance, corporate philanthropy, corporate social responsiveness, and corporate citizenship have been conceptualized and originated from the management area (Fitjar, 2011). Based on the stakeholder theory of the CSR, it is suggested that the company can improve the value of its business by CSR practices which are helpful in cost saving, improve company reputation, and company’s performance in the market (Barnett, 2007). Based on various researches, it is observed that reputation and branding of each and every company are positively related to the CSR practices and actions of a company. This essay is focusing on the business reputation which is a wider thought in terms of company’s brand name and customers’ expectations on the business level. Company’s reputation is based on sis criteria i.e. product quality, financial performance, community involvement, employee treatment, organizational issues and environmental performance. These all criteria are inter-connected to CSR practices in the company to one way or another (Battaglia et al, 2014).

Empirical literature on the CSR with the link of company’s reputation and performance

According to Griffin (2008), social liability can be considered as the one of the key factor in the reputation management along with the crisis. This assumption was supported by Hwakins (2006) and according to him; the overall objective of CSR in the organization is to develop more sustainable approach within the company and to endorse those strategies to draw the attention of the customers for the success of the business. From the analysis, it has observed that 80% sales are made by the product brand and 20% sales are connected with the business reputation. Siltaoza (2006) had used value theory to examine the relationship between CSR and company reputation. According to analysis, the actions of the company are evaluated by its reputation and stakeholder’s group which is built based on the respective value priorities and future goals of the company (Walker, 2010).

A research done by Minor and Morgan (2011), there are two diverse levers by which businesses can develop reputation in the market as the liable business citizen. The first lever is investment in the activities that provides advantage to the society and second lever is to avoid the issues that harm the company’s reputation such as treating employees badly or buying from unethical suppliers. According to Peloza and Papania (2008), it is significant to protect the business from negative CSR practices. Their study reveals that the group of stakeholders disfavors those businesses that have unenthusiastic CSR reputation and if any company does not contribute in the CSR practices then this behavior will not change (Barnett, Jermier & Lafferty, 2006).

Developing good reputation among the customers may take lots of time from a company and one unenthusiastic action can reduce it for months or even in days. So, neutral behavior towards CSR actions might be important or valuable for any company which is looking for a constructive CSR reputation in the market. Basically, corporate reputation is the valuable asset that must be managed carefully by the companies as corporate reputation has strategic importance in the business (Blanco, Guillamon-Saorin & Guiral, 2013). There is a potential relationship between corporate reputation and corporate social responsibility which is recognized by the various literatures of conceptual and empirical work. Many researchers generally agree that although these two notions are diverse but they are equally one part of as two sides of same coin. According to Fombrun and Shanley (1990), the greater the company contributes to social welfare; the better will be its reputation in the community. In few years, Fombrun has conducted various studies and found that improving corporate reputation may act as an inspiration for the companies to adopt CSR practices. So, gaining reputation must be considered as the important outcome of CSR. Similarly, by using market analysis and assessment, Brammer and Pavelin (2006), community performance has a significant effect on the corporate reputation but this impact varies on the various type of social performance. Focusing on the strategic and important use of CSR policies, researchers examined the significant impact of CSR on the business performance and they found that CSR has the positive connection with the corporate reputation even in emerging economies where researchers make assumption that CSR activities and practices will not be communicate effectively by the organization with the external stakeholders because of the lack of skills and proper and effectual channels (Stanaland, Lwin & Murphy, 2011)

Conceptualization and origin of CSR and its terms

There are many studies related to the corporate reputation that are concentrated on the group of stakeholders such as customers, employees, and investors. The studies have analyzed that there is the strong impact of corporate reputation on the customer outcome such as customer loyalty, customer citizen behavior, and intentional loyalty and employee outcome such as satisfaction, employee turnover intention, and effective commitment (Srivoravilai et al, 2011). Along with this, corporate reputation has impact on investor outcomes such as loyalty, behavioral intentions. So, it can be said that there is the positive relationship between the corporate social responsibility and corporate reputation in the organization. Now, corporate social responsibility also has an effective impact on the performance of the company in the operating market (Minor & Morgan, 2011).

There are many studies revealed that socially responsible activities and practices by the companies have a better outcome in terms of improved performance. According to Carroll and Buchholtz (2003), there are three possible relationships between CSR, corporate reputation and company’s performance. The first casual relationship is the better corporate performance develops a good CSR standing and generates good reputation of the company. Good reputation of the company improves the performance in the market and directs a development in CSR. Further, second casual relationship suggests the good quality performance of the company in terms of financial performance always leads to the superior business reputation and good outcomes in CSR. At last, third association between these variables is the interactive two-way relationship between these variables. Based on this assumption, these three variables interacts each other so, it is not probable to recognize the main variable. The success of the company depends upon the long-term benefit survival and growth. For long-term success of the company, it is important indentify the relationship between CSR and corporate performance of the company in terms of stock market performance, and non-financial performance in the market. CSR is directly affected by the various shareholders group of the company such as customers, employees, communities and the organization itself. So, it is important to identify the nature of relationship between CSR and corporate performance (Beurden & Gössling, 2008).

According to Margolis and Walsh (2003), the findings suggest that there is both positive as well as negative relationship between the social and financial performance of a company. There are different results which have been obtained by the various studies of the relationship between CSR and corporate performance. Majority of the studies has revealed that there is the positive relationship of CSR with the organizational performance. Preston (1997) has identified the theoretical frameworks in which there is positive, negative and impartial sign of the affiliation between CSR and firms’ performance. Based on the various researches, it is analyzed that there are seven possible types of CSR and firm performance relationships which could be identified. If there is the higher level of CSR practices, then there will be higher level of business performance. In the CSR theories, it has been revealed that the success of any company depends upon the capability of the company to manage the relationships with its group of stakeholders. Further, to achieve the competitive advantage in the market, company has to adopt CSR practices and policies (Langford & Smith, 2009). For instance, companies must be accountable for environmental protection which can be the important source of competitive advantage. It has proved that the commitment of the company towards environment is directly connected with the financial performance. CSR is incorporated into the business planning with the developed business strategies. By this way, managers try to exploit the benefits and values for the business. Hammann (2009) examined the relationship between CSR and the performance of the company considering that communally accountable management of the company gains competitive advantage in the society by adding values. Further, Sweeney (2009) stated that CSR implementation enhances firm performance by improving the relationship between organization and stakeholders. In one of the latest studies, Torugsa (2012) reveals that with the proactive CSR, companies are able to manage stakeholders with the effective strategy and shared vision. The study shows that proactive CSR can be the cause of improvement in the company in terms of financial performance. Battaglia (2014) declared that it is very reasonable to suppose that CSR gives a great contribution to create sustainable competitive advantages to improve the business performance of the company in the society. Barnett (2007) has stated that there is the positive impact of CSR on the business performance due to socially responsible behavior of the company (Barnett, 2007). Marin (2012) has claimed that CSR is the cause of positive stakeholder’s reaction to the company and improves the competitive positioning of the company. So it is clear from the literature review of various articles that there is the positive relationship between these three variables i.e. CSR, corporate reputation and corporate performance as by implementing CSR strategies, company is able to improve its performance and hence its helpful in gaining corporate reputation in the society (Bear, Rahman & Post, 2010).

Contributing to social welfare for better reputation

Conclusion

The aim of this essay is to examine the association between the corporate social responsibility, corporate performance and corporate responsibility. In this essay, customers employees, and community are used as the subject of study as they are the important primary stakeholders of each and every company. From the above discussion, it is observed that a firm which is socially responsible and operates in the shared environment is able to maintain the positive relationship with the stakeholders. So, management of the stakeholders and its relationship lies at the core of the CSR by which the company can improve its performance in the market. By understanding the CSR activities, interests of stakeholders can be favored over the commitments to the company and improves strategic competitiveness. To conclude, CSR practices are important for the sustainability of the company as it plays an essential role to increase the profitability of the company. Further, it is also important in improving reputation or practice of the business and also effective to improve company’s goodwill as it CSR increases effectiveness of the company amongst the stakeholders directly or indirectly. The practices of corporate social responsibility are the mainly valuable to all the departments in the business. It is beneficial for stakeholders and for the company and by CSR practices, the company is able to find the effective answer to provide advantage to all the three base lines i.e. people, planet and profit.

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