Tài liệu How can corporate social responsibility (csr) effect company performance

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HOW CAN CORPORATE SOCIAL RESPONSIBILITY (CSR) EFFECT COMPANY PERFORMANCE BY DINH THE ANH TUAN E0700074 Graduation Project Submitted to the Department of Business Studies HELP University College, in Partial Fulfillment of Requirements for The Degree of Bachelor of Business (Accounting) Hons OCTOBER 2011 Declaration of originality and word count. I here by declare that the graduation project is based on my original work except for quotations and citations which have been duly acknowledged. I also declare that it has not been previously or concurrently submitted for any other course/degree at help University College or other institutions. The word count is 9850 words. Dinh The Anh Tuan Date: 17/10/2011 2 Acknownledgement I would like to express gratitude towards Mr Pham Duc Hieu for their and guidance. I would also like to thank ISVNU for this project. 3 support Abstract How can Corporate Social Responsibility (CSR) effect company performance By Dinh The Anh Tuan October 2011 Supervisor: Pham Duc Hieu Companies faced with complex market conditions, external effects and asymmetric information can lead to market failures and optimize profits. In the literature, market failure can build the theoretical basis for the implementation of corporate social responsibility (CSR) of companies. In fact, companies in competitive markets can use CSR as a management tool to gain more profitable through diversification. Furthermore, the implementation of social responsibility requires the detection of future trends and developments that make the company more stable for the unexpected events. Therefore, CSR can offer companies the chance to achieve higher profits they would receive without CSR. In addition, CSR can lead to higher costs and thus the financial performance worse. Many research are taken in which the method of study is quantitative or using the KLD data base. In this study, I will examine the relationship of CSR and financial performance in different view and different method. Those issues will be improved by the case of Vedan in Vietnam. This is a very clear example of the relationship between CSR and Financial performance. 4 Table content Acknownledgement ...................................................................................... 3 Abstract ................................................................................................................ 4 Table content ................................................................................................... 5 Chapter 1: Introduction .......................................................................... 7 1.1 Reason for choosing the subject: ....................................................................... 7 1.3 Research question: ............................................................................................ 10 1.4 CSR in the world: ............................................................................................. 10 1.5 CSR in Viet Nam:............................................................................................. 11 1.6 Structure of study: ............................................................................................ 12 Chapter 2: Literature review ............................................................... 13 2.1 Definition of CSR:............................................................................................ 13 2.1.1 Historical definition of CSR .......................................................................... 14 2.1.2 Content: ......................................................................................................... 17 2.1.2.1 CSR with workers or employees: ............................................................... 18 2.1.2.2 CSR with stakeholders: .............................................................................. 19 2.1.2.3 CSR with suppliers and customers: ............................................................ 19 2.1.2.4 CSR with community: ................................................................................ 20 2.2 Financial performance: ..................................................................................... 21 2.2.1 Definition of financial performance: ............................................................. 21 2.2.2 Content: ......................................................................................................... 21 2.2.2.1 Advantages of CSR and financial performance: ........................................ 22 2.2.2.2 Disadvantages of CSR and financial performance: .................................... 25 2.3 Benefits and cost of CSR.................................................................................. 26 2.3.1 Benefits of CSR: ............................................................................................ 26 2.3.2 Cost of CSR: .................................................................................................. 27 2.4 CSR and accounting performance: ................................................................... 28 2.4.1 How benefits are reflected in accounting ...................................................... 28 2.4.2 How costs are reflected in accounting: .......................................................... 29 2.5 How CSR can reduce the cost of the company: ............................................... 30 2.5.1 Reduce operating cost: .................................................................................. 30 2.5.2 Reduce financial cost:.................................................................................... 30 5 Chapter 3: Methodology: ........................................................................ 32 3.1 Research methodology: .................................................................................... 32 3.1.1 Quantitative methodology: ............................................................................ 32 3.1.1.1 Advantages of quantitative method: ........................................................... 32 3.1.1.2 Disadvantages of quantitative method: ...................................................... 33 3.1.2 Qualitative methodology: .............................................................................. 33 3.1.2.1 Advantages of qualitative method: ............................................................. 33 3.1.2.2 Disadvantages of qualitative method: ........................................................ 34 3.2 Data collection:................................................................................................. 35 3.2.1 Primary data: ................................................................................................. 35 3.2.2 Secondary data: ............................................................................................. 37 3.3 Measurement: ................................................................................................... 38 Chapter 4: Analysis....................................................................................... 40 Chapter 5: Conclusion ................................................................................ 44 REFERENCE: .......................................................................................................... 45 6 Chapter 1: Introduction 1.1 Reason for choosing the subject: In this section, I would like to introduction something about the corporate social responsibility (CSR). CSR has emerged as the business issue of the 21st century and has been studied for over 50 years. However, academics do not have a consensus on its definition (Wood, 1991; Carroll, 1991) and it has been frequently assigned to the field of business ethics and conduct. Publications, definitions and references to CSR started as early as the 1950s. One of the pioneer books on the topic of CSR was written by Howard in 1953, titled the "Social Responsibilities of the Businessman". This was one of the pioneer books on social responsibility for businesses and highlighted a company's role beyond the financial benefits. Today, social responsibility is not a new problem for the theory of firms and countries around the world where the only thing to discuss here is the theory that has been "doing" and what do well it was useless. CRS is very interested in the developed countries by the business community see it as investment creates significant profit (after all the same, according to Philip Kotler, the supreme goal of a business entity is profit ). Speaking to this apparent logic of the problem is investment - profitability, "the property" long giant that is building up day. Defining social responsibility of business can be broken down into specific actions with objects are employees, shareholders, suppliers, customers, and communities. CSR is an important issue which concerns about the ethics, the society, the natural environment, the employees and also working environment as a whole in which how the firm behave. On September 13, 1970, in the New York Times, Milton Friedman 7 wrote: ―There is one and only one social responsibility of business— to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.‖ The Australian Government Corporations and Markets Advisory Committee: Corporate Social Responsibility Discussion Paper (2005) emphasizes that ―as companies‘ play a prominent role in contemporary society, the relationship that exists between a company and society is an important community issue. Through the provision of goods and services, companies have substantial power to impact society. Correspondingly, a firm‘s CSR suggests whether this impact is positive or negative. Thus CSR is a particularly relevant issue for evaluating firms from a community perspective.‖ The Economist Intelligence Unit (2005: 5) global survey reported that in 2000, 54% of corporate executives regarded corporate social responsibility as ‗central‘ or ‗important‘ to their corporate decision-making. In 2005 this response grew to 88%. This shows that firms are more and more increasingly focusing on CSR. Therefore it is essential to look at whether investment in CSR is associated with higher or lower financial performance. So I chose this topic to demonstrate the importance of CSR in the business, especially effect financial performance. 1.2 Problem statement CSR can make a lot of benefits to companies, CRS is the best interests of the developed countries of the enterprise are considered investments generate significant profits as: Reduce costs and increase productivity, businesses can save money by producing cleaner. For example, a business major packaging producers in Poland has 8 saved $ 12 million within five years thanks to the installation of new equipment, thereby reducing water use by 7%, 70% of the amount of 87% of waste water and emissions. Or increase revenues, investment to support local economic development can create a better workforce, provide cheaper and more reliable, and thus increase sales. To raise brand value and reputation of the company, CSR can help companies increase brand value and reputation significantly. Reputable companies to help increase sales, attract partners, investors, and employees. Attract good workers, Qualified labor resources is the decisive factor productivity and product quality. in developing countries, a large amount of labor, but labor force of high quality is not much; thus attracting and keeping qualified staff is good and the commitment is a challenge for businesses. These businesses pay fair and equitable, giving employees training opportunities, health insurance and pure environment is capable of attracting and retaining good employees. CSR can also make the company the financial deficit. One of the important limitation to a program of corporate social responsibility is the cost to the company. Efforts such as sponsoring events, charitable donations, contributions and commitment to the product of voluntary environmental standards all the costs that the company is difficult to implement in the short term return. Although long-term positive impact of a company's image is improved, it is impossible for companies to measure the value of corporate responsibility, instead of taking costs out of its profits. This means less money for shareholders and less money to invest back into the company for future growth. It has also places the company to invest heavily in corporate responsibility at a disadvantage competing against other companies. 9 1.3 Research question: What is the CSR? Definition of financial performance? Advantages and disadvantages of CSR and financial performance? What are the benefits and cost of CSR? How benefits and cost are reflected in accounting? How CSR can reduce the cost of the company? 1.4 CSR in the world: Today, in the current economy is facing many difficulties, CSR still plays an important role in the maintenance and development of the company, examples of intel. At the last meeting of the Asian CSR Forum, Intel has indicated that only the public's trust business for just under 60%. This is a significant decline in public trust for enterprises, because the Center examine social responsibility of business Svetlana Boston College, USA, about ten years ago, people still great confidence in the ability of sustainable development of the market will play an important role in the sustainable development of society in general. Besides the drop in confidence, the economic crisis is no small impact on the public purse for sustainable products, the market share of these products which have a good position before the crisis, but were significantly reduced after the financial crisis. Typically, M & S is a pioneer in CSR activities and quality products and sustainable high, were 44% profit drop in half a year (data from 11/2008, PR Week, UK) in Meanwhile, capital is a retail system products using the very short life cycle, leading to consequences that large amounts of waste from clothing products to be reused will be discharged into the environment ... but Primark has announced 17% increase in annual profit. Because of a significant drop in revenue and profit by the change-oriented consumers from sustainable 10 products to the product cost, short life cycle to address basic needs and immediate consumer, businesses generally have to cut the cost of promotional activities as well as other community activities. Typically, the operating budget for financing social dropped 38%, the number of business abandon community activities increased 27%, and the activities of research and development of sustainable products in the companies fell 19%. (Intel's Survey Data). So, What is the role of CSR? 1.5 CSR in Viet Nam: Social Responsibility of Business, also known as CSR is a topic which is quite attractive in over three years for businesses in Vietnam. The attraction comes from the benefits that CSR gives enterprises the immediate benefits of increased brand recognition and consumer sentiment for the brand, rather than long-term benefits directly next to the business, manufacturing business. So in recent years, community activities despite instructions confined scope of the PR / Marketing but has become an indispensable array of activities of various companies operating in Vietnam Nam. However, in the last two years, especially this year, the economic and financial crisis the world has little impact to operations and policies of the business community, as well as the interest of the public for these activities. Therefore, many businesses cut costs PR / Marketing has led to cuts in social activities or to scale community projects, etc... However, there are companies still trying to maintain CSR activities committed but still faces many difficulties in implementing activities. So, the question of how CSR activities to be effective for the community and for business in tough economic times is not only poses problems for businesses in Vietnam but also in businesses in Asia and the world. 11 So, we need to research these question: what is the CSR? What is the financial performance? And what is the relationship between CSR and financial performance? 1.6 Structure of study: To solve the question above, my study is divided into five chapters: Chapter 1: Introduction Chapter 2: Literature review Chapter 3: Methodology Chapter 4: Result and discussion Chapter 5: Conclusion 12 Chapter 2: Literature review 2.1 Definition of CSR: ―Corporate Social Responsibility (CSR) is committed to the enterprise (business) for business ethics and contribute to sustainable economic development, improve the quality of life for employees and their families, local communities and society in general‖. Another definitions, ―Corporate social responsibility (CSR) is a form of corporate self-regulation integrated into a business model. CSR policy functions as a built-in, self-regulating mechanism whereby business monitors and ensures its active compliance with the spirit of the law, ethical standards, and international norms. The goal of CSR is to embrace responsibility for the company's actions and encourage a positive impact through its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere. Furthermore, CSR-focused businesses would proactively promote the public interest (PI) by encouraging community growth and development, and voluntarily eliminating practices that harm the public sphere, regardless of legality. CSR is the deliberate inclusion of PI into corporate decision-making, that is the core business of the company or firm, and the honouring of a triple bottom line: people, planet, profit‖ (Wikipedia.org) ―Corporate social responsibility (CSR) can be defined as the "economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time" (Carroll and Buchholtz 2003, p. 36). The concept of corporate social responsibility means that organizations have moral, ethical, and philanthropic responsibilities in addition to their responsibilities to earn a fair return for investors and comply with the law. A traditional view of the corporation suggests that its 13 primary, if not sole, responsibility is to its owners, or stockholders. However, CSR requires organizations to adopt a broader view of its responsibilities that includes not only stockholders, but many other constituencies as well, including employees, suppliers, customers, the local community, local, state, and federal governments, environmental groups, and other special interest groups. Collectively, the various groups affected by the actions of an organization are called "stakeholders." The stakeholder concept is discussed more fully in a later section‖ According to csrnetwork.com : ―Corporate social responsibility (CSR) is about how businesses align their values and behaviour with the expectations and needs of stakeholders - not just customers and investors, but also employees, suppliers, communities, regulators, special interest groups and society as a whole. CSR describes a company's commitment to be accountable to its stakeholders‖. Between many conceptions of responsibility, it is csrnetwork.com definition of CSR that will serve as a framework for further analysis and discussion in this study as the model is simple, easy to understand and have an intuitive logic appealing. 2.1.1 Historical definition of CSR About 1980s: The 1980s have been described as having ‗a more responsible approach to corporate strategy‘ (Freeman in Lucas, Wollin & Lafferty 2001, p. 150). Prominent was the work of R Edward Freeman on the emerging Stakeholder Theory (Lucas, Wollin & Lafferty 2001 ; Post 2003 ; Windsor 2001). Freeman saw ‗meeting shareholders‘ needs as only one element in a value-adding process‘ and identified a range of stakeholders (including shareholders) who were relevant to the firm‘s operations (Freeman in Lucas, Wollin & Lafferty 2001, p. 150). Freeman‘s 1984 paper 14 continues to be identified as a ‗seminal paper on stakeholder theory‘, and stakeholder theory as the ‗dominant paradigm‘ in CSR. (McWilliams & Siegel 2001, p. 118) Carroll believes that in the 1980s, ‗the focus on developing new or refined definitions of CSR gave way to research on CSR and a splintering of writings into alternative concepts and themes such as corporate social responsiveness, CSP, public policy, business ethics, and stakeholder theory/management‘. (Carroll 1999, p. 284) Carroll outlined the work of a number of researchers, including Jones, who ‗posited that CSR ought to be seen not as a set of outcomes but as a process‘, and Tuzzolino and Armandi who ‗sought to develop a better mechanism for assessing CSR by proposing a need-hierarchy framework patterned after Maslow‘s‘. (Carroll 1999, p. 285) The authors developed the organisational hierarchy as a conceptual tool that could be used to assess socially responsible organizational performance. A prominent development in terms of CSR was the global debate on sustainable development that emerged in this decade. The World Conservation Strategy that was published in 1980 stressed the interdependence of conservation and development and was the first to conceptualise ‗sustainable development‘ (Tilbury & Wortman 2004, p. 8). In 1987 the World Commission on Environment and Development (WCED) published the Brundtland Report, ‗Our Common Future‘. The report states that ‗Sustainable development seeks to meet the needs and aspirations of the present without compromising the ability to meet those of the future‘ (World Commission on Environment and Development 1987). This early definition of sustainable development is often quoted, but it is interesting from the viewpoint of the CSR debate that most authors to not seem to quote the next sentence from the report: Far from requiring the cessation of economic growth, it recognizes that the problems of poverty and underdevelopment cannot be solved unless we have a new era of 15 growth in which developing countries play a large role and reap large benefits. (World Commission on Environment and Development 1987) An important contribution to the literature was made by Wood in 1991 when she revisited the CSP model and ‗placed CSR into a broader context than just a standalone definition. An important emphasis in her model was on outcomes or performance‘. (Carroll 1999, p. 289) The CSP framework developed by Wood and the pyramid of responsibilities developed by Carroll, with economic responsibilities at the base and philanthropy at the apex, are discussed in depth in the literature, including Carroll (1999) and Windsor (2001). Swanson (1995) suggested that there were three main types of motivation for CSR: i. The utilitarian perspective (an instrument to help achieve performance objectives); ii. The negative duty approach (compulsion to adopt socially responsible initiatives to appease stakeholders); and iii. The positive duty view (businesses self-motivated regardless of social pressures) (Swanson in Maignan & Ralston 2002). Wood also identified three main types of processes used by businesses to implement their CSR motivational principles: environmental management, issues management and stakeholder management. ‗Once implemented throughout the organization, these processes help the firm to keep abreast of, and to address successfully, stakeholder demands‘ (Wood in Maignan & Ralston 2002). However, this may be a somewhat simplistic view of CSR and relationships with stakeholders. It is also a view that was overtaken in the 90s by a broadening discussion of the concept of stakeholder, and whether ‗the first priority of a corporation is to its shareholders‘ (Nahan in Ryan, 2002) or whether policymakers should develop ‗a flexible multistakeholder approach 16 to promoting CSR‘, as Aaronson suggests has occurred in Britain in response to concern about global corporate responsibility (Aaronson 2003, p. 312). Even within the group that O‘Rourke has described as the ‗primary‘ stakeholders – the shareholders – ‗the boundary zone of CSR is currently being negotiated‘ with companies (O'Rourke 2003, p. 228). O‘Rourke writes that: A trend also noteworthy in the late 1990s was that of shareholder activists linking their environmental or social issue to financial performance and/or risks faced by the company. By claiming that environmental and social issues have a direct effect on shareholder value, shareholder activists are moving the rhetoric of their activism out of the realm of “ethics” or good versus bad behaviour, and into that of traditional issues of profitability, risk and shareholder value. (O'Rourke 2003, p. 230). 2.1.2 Content: _ Suppliers and customers. _ Workers rights. _ Stakeholders. _ For the sake of the community or environment. 17 2.1.2.1 CSR with workers or employees: One of three most important factors for employees, survey of Ewin.com 1. Wages 68% 2. Relationship with supervisor middle 35% 3. Insurance benefits 34% Communication between the management team and staff 29% 5. Public Policy by 27% Evaluation criteria for implementation of the CSR include the employee compensated (according to a survey of up to 68% Ewin.com salary is considered one of the most important three factors), not discrimination, remuneration policies and good training, and working conditions acceptable... The basic conditions above, but not even a simple business that can also perform complete. Most employees love their work better by working conditions and reasonable compensation regime. Enterprises meet these requirements also means creating a team to receive the attachment, love of work, pride in the company's image and determination to work for the common good of the "extended home". These gains are clearly out here significantly improved productivity is also a cultural link in the enterprise. Strong cultural impact not only to individual enterprises themselves but spread very well in the business community. This is what every business wants to build. Moreover, actual costs, opportunity costs, and energy plus losses due to the spirit of constantly looking for new personnel and training (in the case of older workers to quit in the personnel policies of the unsuitable company) completely eliminated. Treatment 18 policy in good, good culture and work environment to form resonance effects "attractive" to find qualified staff to the company. Chain Success followed success. 2.1.2.2 CSR with stakeholders: The focus of the company responsible for promoting the transparency of information disclosure, companies operating efficiency, and rational use of capital. Conflicts of interest between management department - executive (team was hired to work) and the owners - the shareholders are never-ending theme in the business. Because sometimes people run the company for personal gain forgetting its mission is to bring maximum benefit to shareholders. Disclosure of information transparency and effective administration of the company, which used to generate a reasonable value for the product is made to any business for the sustainable development of industry and business. If so, create confidence for investors, that belief is emotion - the decisive factor contributing to the profit share or destroy shareholder value only narrowly. An expensive lesson for businesses in the information disclosure issue that earlier case in 2007 in VietNam a securities company blew about a strategic partnership with prestigious international partners; added was appointed general manager for many hours with this company. Finally, "effort" to push the stock price was counterproductive, company shares fell by 90%. Investors interspersed feeling of disappointment, regret, and sobering, but the company lost credibility seriously. 2.1.2.3 CSR with suppliers and customers: As for suppliers, the work reduced to the point is to pay your bills on time and good communication. Once embarked on the business, keeping a good relationship with suppliers has strategic significance in ensuring a stable supply of production with 19 reasonable price, from which the product is distributed distribution to consumers timely and proper commitment to quality. For customers, CSR is reflected in the sales of products to meet the needs, reasonable price, delivery, and safe for use. In fact, if the products meet the consumer demand for product images, and store the company in the minds of consumers. In business, Donimo psychological effects are essential, "through word of mouth" is also very strong pervasive. Keep customers and expand market share is the goal of any business that reflects the spirit of "customer is God" (author anonymous). Mrs. Lurita Doan, the first woman head of Service Delivery and Technical Supervisor of the U.S. government (General Services Administration) has also said "the customer is king, if you do not provide services well, you will not have a second chance, and so will not be sustainable". To built a brand and consumer confidence, the business becomes much more favorable. 2.1.2.4 CSR with community: For the general public, first and foremost task of environmental protection (also the protection of public health) and then the charity. Environmental pollution, natural resource depletion, climate change ... is the problem that is causing the world and eager Nobel Peace Prize awarded to Al Gore in 2007 reflected this focus. Enterprise environmental protection, in addition to complying with government regulations is not overcome loss costs or damages for the consequences of litigation. Investments in green is hot issue in many developed countries. According to a survey by the National Forest, England 81% of customers agreed to purchase environmental products, and 73% who will be loyal to the boss or participate in charitable activities. Not only that, government officials and is also favored for enterprises with good history of environmental protection, consumer and charity. Charity is honorable 20
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