Tài liệu Influence of corporate social responsibility disclosure on corporate governance and company performance

INFLUENCE OF CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE ON CORPORATE GOVERNANCE AND COMPANY PERFORMANCE BY DINH THI BICH NGOC E0600095 Graduation Project Submitted to the Department of Business Studies, HELP University College, in Partial Fulfilment of the Requirements for the Degree of Bachelor of Business (Accounting) Hons April, 2011 Declaration of Originality and Word count DECLARATION I here by declare that this graduation project is based on my original work except for quotations and citation that have been duly acknowledged. I also declare that it has not been previously or concurrently submitted for any other courses/degrees at HELP University College or other institutions. The word Count is 10,027 words. Dinh Thi Bich Ngoc April, 2011 - Page II - Acknowledgements This project would not have been made possible without the assistance, support and encouragement of many people. I wish to take this opportunity to thank all the people who have helped me during the time of completing the dissertation. Firstly, I would like to express my deep gratitude to my supervisor at the Vietnam Commercial University (VCU). He has kindly helped me and supported me all the way through. For that, I am very grateful. I also would like to express my thanks to Ms. Sumathi and Ms. Shenba at Help University College, who initiated the project and give so much instruction and support. Secondly, I am thankful to my family and my friends, for their support and encouragement In addition, a huge thank for all managers, accountants, personnel who sacrificed theirs time to answers my questionnaire. DINH THI BICH NGOC - Page III - ABSTRACT INFLUENCE OF CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE ON CORPORATE GOVERNANCE AND COMPANY PERFORMANCE BY DINH THI BICH NGOC APRIL, 2011 Supervisor: PHAM DUC HIEU Corporate Social Responsibility (CSR) has become an inescapable priority for business leaders all over the world. Governments, activists and the media demand companies to take into account the social consequences of their actions. There is a large and growing community of international, regional and national organizations working on sustainable development issues, both in the public and private sectors. Enterprises are trying on their strategic, tactical and operational levels to identify the appropriate ways in order to meet society’s demands, at the same time achieve company performance objectives. This research first sets a definition of CSR from a different point of views and then this study focuses on the influence of CSR disclosure on corporate governance and company performance. - Page IV - Table of Contents Declaration of Originality and Word count ............................................................ II Acknowledgements .................................................................................................... III ABSTRACT ............................................................................................................... IV Table of Figures ....................................................................................................... VII List of Abbreviations ............................................................................................. VIII Chapter 1 : INTRODUCTION ............................................................................... 1 1.1 Research background .............................................................................................1 1.2 Research question ...................................................................................................2 1.2.1 CSR in developed countries .................................................................................2 1.2.2 CSR in Asia ..........................................................................................................3 1.2.3 CSR in Vietnam ...................................................................................................4 1.2.4 Research statement ...............................................................................................6 1.3 Research structure..................................................................................................6 Chapter 2 : 2.1 LITERATURE REVIEW................................................................... 7 Definition of CSR ....................................................................................................7 2.1.1 The Classical View ..............................................................................................7 2.1.2 The Modern View ................................................................................................8 2.2 Tools, standards and reporting for CSR ..............................................................9 2.2.1 Standards and tools ..............................................................................................9 2.2.1 Source of reporting .............................................................................................11 2.3 Related Theory......................................................................................................12 2.3.1 Carroll’s theory ..................................................................................................12 2.3.2 Stakeholder theory .............................................................................................15 2.3.3 Agency theory ....................................................................................................17 2.4 Corporate governance and corporate performance ..........................................19 2.4.1 Definition of Corporate Governance ..................................................................19 2.4.2 Corporate performance and performance criteria ..............................................19 2.5 Relationship between CSR practices and disclosure and Corporate governance and corporate performance ..........................................................................19 2.5.1 CSR practices and disclosure and Corporate Governance .................................20 2.5.2 CSR practices and disclosure and Corporate Performance ................................20 - Page V - 2.6 Hypothesis development.......................................................................................23 2.6.1 CSR is the same as business ethics ....................................................................23 2.6.2 CSR is positively associated with corporate governance ...................................24 2.6.3 CSR practices and disclosure can influence Corporate Performance in a very different level ..................................................................................................................24 Chapter 3 : 3.1 RESEARCH METHODOLOGY .................................................... 26 Research method ..................................................................................................26 3.1.1 Quantitative methodology ..................................................................................26 3.1.2 Qualitative methodology ....................................................................................26 3.2 Data source ............................................................................................................27 3.2.1 Secondary data ...................................................................................................27 3.2.2 Primary data .......................................................................................................27 3.3 Research tool .........................................................................................................27 3.3.1 Internet tool ........................................................................................................27 3.3.2 Questionnaire .....................................................................................................28 Chapter 4 : 4.1 FINDING AND DISCUSSION ........................................................ 29 Questionnaire Results...........................................................................................29 4.1.1 Personal Information ..........................................................................................29 4.1.2 CSR Questionnaire .............................................................................................31 4.2 Interview results ...................................................................................................38 4.2.1 CSR and business ethics.....................................................................................38 4.2.2 Motivation of business toward CSR...................................................................39 4.2.3 How to encourage the business to implement more CSR projects .....................40 Chapter 5 : 5.1 CONCLUSION.................................................................................. 41 Implications ...........................................................................................................41 5.1.1 Implications for the Vietnamese Government....................................................41 5.1.1 Implications for the enterprises ..........................................................................41 5.2 Conclusion .............................................................................................................42 Bibliography .............................................................................................................. 43 APPENDIX ................................................................................................................ 45 - Page VI - Table of Figures Figure 1: Example definitions of CSR .......................................................................... 9 Figure 2: Social Responsibility Categories (Carroll, 1979) ........................................ 13 Figure 3: The Pyramid of Corporate Social Responsibility (Carroll, 1991) ............... 13 Figure 4: Stakeholder theory diagram ......................................................................... 16 Figure 5: Agency Theory Overview ........................................................................... 18 Figure 6: Respondents’ Age ........................................................................................ 29 Figure 7: What is your business category? ................................................................. 30 Figure 8: You are aware of the term Corporate Social Responsibility ....................... 31 Figure 9: It is obvious to have practical applications of CSR within a company ....... 32 Figure 10: You are aware of the term “Business ethics” ............................................ 33 Figure 11: CSR is the same as “Business ethics” ....................................................... 33 Figure 12: You are aware of the term “Corporate Governance” ................................ 34 Figure 13: Difference of CSR and Corporate Governance ......................................... 35 Figure 14: CSR disclosure influences “Corporate Governance” ................................ 35 Figure 15: CSR disclosure influences corporate performance .................................... 36 Figure 16: Your Company sets out specific objectives for the entire CSR perimeter 37 Figure 17: Your Company is motive to adopt CSR practices ..................................... 38 - Page VII - List of Abbreviations CSR Corporate Social Responsibility GRI Global Reporting Initiative CG Corporate governance SI Sustainability investing TBL Triple Bottom Line WBCSD World Business Council for Sustainable Development WTO World Trade Organization NGOs Non-Government Organizations UNEP United Nations Environment Programme CERES Coalition for Environmentally Responsible Economies - Page VIII - Chapter 1 : INTRODUCTION 1.1 Research background On every continent, in one form or another, CSR is practiced for decades. CSR practice can be carried out in various forms, such as: building kindergartens or schools for children; supporting community or social activities… CSR was born in the United States about thirty years ago. It then has been spreading to Europe, where it was refined. Large multinationals have sometimes also transplanted their production units located in other continents. These new forms are characterized by an image that the company carries on itself. At first, it raises the question about possible nuisances that the process leads to the community. In a second step, it raises the question of how it might contribute actively to the wellbeing of society at large, not only to its staff. And in this second stage, it develops creativity that goes well beyond traditional charity. Companies use CSR approach to take social and environmental influences of their business into account to implement best performs possible and therefore contribute to the improvement of environmental and social protection. This approach gives out a combination of economic, social responsibility as well as environmental responsibility. It has become a real and developed movement all over the world. If you search for the phrase on Google in English, not yet in other language, you will find more than 80 million results. In about ten thousands of studies, books, articles, forums, websites of Non-Government Organizations (NGOs), business, consulting, and government, there are many discussions about CSR. Companies can gain many benefits through the CSR commitment. They can improve their image, leading to increase in sales, making investment procedures more conveniently. Besides, CSR also contribute to improve employees’ attitude through various programme such as energy saving…. - Page 1 - 1.2 Research question 1.2.1 CSR in developed countries In many developed countries, especially in the U.S and European countries, CSR isn’t a strange term. Nowadays in these countries, consumers pay attention not to product quality, but also to how those products are made? Do the doings harm environment, to health and community? That’s why consumers make a lot of activities to protect their attentions as well as the environment. We are talking about the boycott movements against companies who use child labour (like Gap or Nike); producing fringe foods, soft drink with carbonates or has bad working conditions, etc.… Under pressures from the society, large companies have integrated CSR in their business strategy either in short or long term strategy. They implemented thousands actions; such as saving energy, using recycled materials, reducing carbon emissions, or some donation as school building, sufferers help of natural disasters. Many enterprises contribute moneys to establish research centres on diseases in developing countries (especial AIDS vaccines). There are some important corporation who are very actives in these doing as TNT, Google, Bayer, Gap, Toyota, Intel, Unilever, Coca-Cola, Sony, Samsung, GE, Nokia, HSBC, BP… The most notable case is the one of Dr. Muhammad Yunus of Grameen Bank who has provided microcredit to 6,6 million people, of which 97% are poor women in Bangladesh to borrow money to their life. He was awarded the Nobel Peace Prize in 2006. The “One Percent Club” in the U.S collects the enterprises that commit to spending minimum 1% of their profits for social work. Other example: many enterprises in France, such as RATP (subway company), France Télécom (France Telecom) ... created many cultural funds to sponsor French Contemporary Art. Other multinational companies created the Code of Conduct, in which they can indicate effectively nature principles applicable to their employees worldwide. In the other hand, when companies involve in socially irresponsible activities, they are not on the right side of the law. They will have to pay severely as consequence of making such crimes. - Page 2 - One of the most remarkable cases in history of CSR is incident of the Exxon Valdez, who dumped 11 million gallons of crude oil into Prince William Sound in Prince William Sound, off the coast of Alaska. This action is really a bad CSR act as it damaged the fishing industry and wildlife. So, as for the consequence, ExxonMobil had to pay nearly $4.84 billion for clean-up costs, fines, punitive damages 1.2.2 CSR in Asia The adoption of CSR approach in Asia has been fast, but within many Asian countries, the implementations of standards required for CSE hasn’t been so quick. However, many Asian governments and NGOs are willingly taking the CSR theory an indication for its future evolution in the region. Companies are being demanding to change and adjust their selves to corporate governance and environmental stewardship. So, like the rest of the world, the development of CSR in Asia is passing from a charity application into a strategic of company and a tactical in decision-making process. Par example, in Thailand, Phuket industry started working toward a co-operative CSR theory by creating a program for more sustainable tourism1. This sort of network concept is passing to many other countries, not only in Asia but also in the rest of the world. In Singapore, a co-founder of Banyan Tree Holdings, Claire Chiang, are responsible of CSR within his enterprise. He was as well the foundational of Singapore Compact, the local unit of the United Nations Global Compact. This strategic approach was aimed to associate private-sector operations and strategies with general sustainable development works by approving to 10 key principles concerning environment, labour, human rights and anti-corruption. Indonesia established the first CSR laws in the world. However, China has an approach that is more effective as Chinese government researched considerably and then issued CSR instructions directly to companies. 1 Bangkok Post : Corporate Social Responsibility in Asia - Page 3 - 1.2.3 CSR in Vietnam 1.2.3.1 General situation After many years, Vietnamese shoe manufacturers and textile industries began paying attention CSR approach and standards of conduct due to pressure from multinational corporations within the country as well as worsening environmental problems. The Vietnamese government later commenced encouraging company protect the environment and to improve labour conditions. They created new regulations for sustainable development; some of the best representations are the Vietnam Agenda 212 and the new Environment Protection Law. Environmental Police was established in order to enforce measure against companies that pollute, with particular charges for the emission of polluted wastewater. Created under the support of Vietnam Chamber of Commerce and Industry, Vietnam Business Links Initiative (VBLI) creates close relationship with NGOs, different international organizations, and enterprises financed with foreign capital. Small and medium-size shoe manufacturers and textile industries can take training programs or consulting services offered by VBLI to improve the labour environment. Afterward, they can increase CSR understanding among themselves. In 2004, CSR awards started be given out to the most conscientious enterprises by VBLI. Typically, there are many social programs such as “6 million cups of milk for Vietnamese children” and funds scholarships “fireflies light” of the big brands like Vinamilk, Dutch Lady that gain resonates and consumer support. 1.2.3.2 Some problems concerning CSR in Vietnam As we can see, many enterprises in Vietnam have put CSR into their business strategies. However, with the growing economy, businesses in Vietnam are majority in small and medium-scale; therefor the adoption and implementation of CSR have not been paid attention and concern. In 2004, Vietnam Agenda 21 Office is set up in the Department of Science, Education, Natural Resources and Environment by the Ministry of Planning and Investment (MPI). The office is assigned to develop the Agenda 21 Programme on sustainable development of Vietnam. 2 - Page 4 - Consumer trust for businesses is being hurt seriously when business fraud and irresponsible to the community has become more common. The financial crisis started in America has been rapidly spread worldwide and is becoming big obsession of the business community in Vietnam. But for ordinary people, there is still an obsession other problem that is no less serious, such as the threat of poor quality goods, especially those products directly related to health, and conditions of life environmental is seriously ruined. Perpetrators of this situation are no other the businesses who are doing fraud. The sauce with 3-MCPD toxic, fish sauce containing urea, or growth stimulants infused into cattle through animal feed had barely settled completely, and then there is a break out again about melamine contamination of milk, wine produced by fatal industrial alcohol, fake and poor quality fertilizer, gas stations selling fraudulently... Even in cases where fraud is detected, many businesses have names, are well known. Because of lack of regulations concerning CSR, there are many cases difficult to solve within companies, par example: controversies surrounding the sanctions, typically the Vedan case. It is such serious case but so far the Ministry of Natural Resources and Environment has only fined the company 216 million. And about the possibility of closing factories or criminal prosecution, one person said yes, others said no and anyone can invoke the law to defend their opinions. In addition, the sanctions regime of Vietnam is not enough to deter so many companies don’t care, despite the law to do business fraud. This doing is proven. In October 2008, Vinh Long province found 11 establishments producing low-quality fertilizer, in which the content of useful organic in many products is almost zero, but ultimately the theses factories were fined a total only of 130 million VND. Obviously, the penalty is too light compared to the profit they earned from fraud employment, as well as its impact on farmers. Along with theses situations, environmental destruction actions show that business ethics and social responsibility are degradation. They are running by profit, despite the consequences for customers, whose business is always claiming to be treated as "God". - Page 5 - 1.2.4 Research statement Deputy Director of Vietnamese Chamber of Commerce and Industry (VCCI) in Ho Chi Minh City, Mrs. Nguyen Hong Ha, said: Vietnam has been joining WTO, the Government removed tariff barriers; occupational safety law, issued and modified environmental law, so businesses should seriously implement and comply with. She added “Here is the most appropriate time to implement CSR." But why do companies have to implement CSR? How can they do? When do they begin? Where do they implement? Which tool can they base on? In order to understand more about CSR, this study focuses on the influence of CSR disclosure on corporate governance and company performance. 1.3 Research structure The remainders of this research is organised as follow Chapter 2 “Literature review” starts with the definition of CSR from the classical view to the modern view so that the readers can have a general picture about CSR. Some theories and researches related to CSR concepts presents through different collections, summaries and discussion. The relationship between CSR practices and disclosure and Corporate governance and corporate performance is studied and in the end of this chapter, I, my self, give some of hypothesises hereof. Passing to the third chapter, research method is presented with different parties such as, data source, research tools. The results of research, my findings through the questionnaire are available in the fourth chapter. This chapter presents also the limitation during the research. Finally, the last chapter give some implication for Government and Enterprises and eventually the conclusion of this research. - Page 6 - Chapter 2 : LITERATURE REVIEW 2.1 Definition of CSR Since the beginning of this document, I had talked many things about CSR but what does CSR mean? Academics and students have been motivated to establish an agreed-upon definition of this concept for 50 years. CSR doesn’t have a single definition that is universally accepted. The enormous quantity of studies (report, book, etc…) defines CSR differently, despite of the same core elements of CSR presented in those definitions. Moreover, to different people, CSR concept is a continually evolving concept and means different things. 2.1.1 The Classical View There are many discussion and debates about the position of CSR in companies. For many researchers, ranging from Adam Smith3 to Milton Friedman4, social responsibility shouldn’t be part of management’s decision-making process. In the 1950-1960, Milton Friedman argued that the objective of corporate responsibility is making much profit as possible. According to him, there is only one category of CSR: spending enterprise resources and engaging in activities in order to increase companies’ profits so long as it complies with the rules that have been defined. Beside, Peter Drucker5 argues that the responsibilities of business in society are "to supply goods and services to customers and an economic surplus to society...rather than to supply jobs to workers and managers, or even dividends to shareholders". Latter, he argues about corporate mismanagement. If a hospital forgets it’s exist for its patients and a university forgets it’s exist for its student, that’s corporate mismanagement. Adam Smith (5 June 1723 – 17 July 1790]) is a Scottish social philosopher and a pioneer of political economy. 4 Milton Friedman (July 31, 1912 – November 16, 2006) is an American economist and statistician. He is also a professor at the University of Chicago. He received the Nobel Memorial Prize in Economic Sciences 5 Peter Ferdinand Drucker (November 19, 1909 – November 11, 2005) is a writer, management consultant, and self-described “social ecologist.” 3 - Page 7 - In general, classical views indicate that business should not implement any social responsibility, as a result, the one and only responsibility of business is to maximize its profits without fraud or deception. 2.1.2 The Modern View During modern era, the first definition of social responsibility approach was established in 1953 with the publication of Howard Rothmann Bowen6’s book “Social Responsibility of the Businessman”. Bowen argued that public responsibility, social obligations, and business morality were synonyms words for social responsibility. According to him, businessmen have obligation of following those policies or pursuing those lines of acts presented in “social responsibilities of businessmen” in order to make decisions. Theses activities show up the terms of objectives and values of our society. Beside, in 1979, Archie Carroll argued that: "the social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time." The table below will present some other definitions: Organization Type of Definition of CSR Organization World Bank The commitment of business to contribute to and the World sustainable economic development – working with Business Council on Governmental employees, their families, the local community and society at large to improve their quality of life, in Sustainable ways that are both good for business and good for Development development (SIDA, 2005). A concept whereby companies integrate social and European Commission Governmental environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis Howard Rothmann Bowen (October 27, 1908 – December 22, 1989) was an American economist and college president, 6 - Page 8 - The voluntary actions that business can take, over and UK Government Governmental above compliance with minimum legal requirements, to address both its own competitive interests and the interests of wider society7 A concrete action taken by Chinese companies to Chinese Ministry of Governmental Commerce implement the political aspiration of the new Communist Party collective leadership – putting people first in a harmonious society8 Means managing our business responsibility and sensitively for long-term success. Our goal is not, and HSBC Corporation never has been, profit at any cost because we know that tomorrow’s success depends on the trust we build today A company’s commitment to operating in an CSR Asia Social economically, socially and environmentally enterprise sustainable manner while balancing the interests of diverse stakeholders Figure 1: Example definitions of CSR 2.2 Tools, standards and reporting for CSR Since the 1980s, pressure particularly by NGOs, the concepts of ethical finance, fair trade, and sustainable development had entered the debate in political forums. They have appealed to universities and research centres to conduct studies in order to develop tools to identify the level of corporate responsibility. 2.2.1 Standards and tools Standards and tools for quality and environment are well known. ISO (International Organization for Standardization9) has published ISO 9000 for quality management system and ISO 14000 for environmental management system. Two subcommittees Source: www.csr.gov.uk Ethical Corporation, 2005, Politics: A Chinese definition of CSR, 15 September 2005 9 ISO is an international standard-setting body composed of representatives from various national standards organizations 7 8 - Page 9 - of ISO, who are specialized in these standards, agreed on the method of implementation that facilitates enterprises to establish a common policy for both the whole quality and environment management system. In terms of human resource management, this issue is complicated as it is not a technical problem. Each country has different perspective: occupational safety is the responsibility of the individual or collective responsibility; the minimum benefit of employees about dignity and democracy is given by the employer voluntary or is prescribed by the state and collective bargaining. ISO working group on Social Responsibility (WGSR) has been widely consulted all partners. Only in 2007, there were 320 representatives from 55 countries and 26 international organizations attending the conference of WGSR. And on 1 November 2010, ISO 26000 is published. This standard specifies the integration of corporate responsibility, of governance and of ethic in a more enlarged way. This is not a certifiable standard, but a guide of suggestions for companies and organizations. Brief, here are the criteria hat can be use as the basis for certification of a business: - The standard of the International Labour Organization (ILO) - ISO 9001 for quality management system - ISO 14001 for environment management system: This standard aims to measure the impact of an undertaking on the environment. It is initiated in 1996 and revised in 2000. It takes into account the significant environmental aspects: emissions to air, discharges into water, soil contamination, waste management, use of raw materials and natural resources. - OHSAS 8001 for occupational safety Social Accountability Standard 8000 for human resource management: This standard was initiated by the Council on Economic Priorities. It concerns working conditions, prohibition of child labor, forced labor ... There are two types of engagement for business: certificate in case of compliance for the production, or membership status in case that criteria are respected for suppliers chains et for all production units. Also, there are some guidelines how to present a report on social responsibility as the Global Reporting Initiative (GRI), codes of conduct for companies (Global Compact) - Page 10 - or qualifications, or AA 1000 Assurance Standard of the Institute of Social and Ethical Accountability (ISEA). Moreover, various practical tools exist to facilitate the integration of these standards at different levels in companies. In general, standards began to emerge but are still few, not standardized and little used. 2.2.1 Source of reporting 2.2.1.1 Global Reporting Initiative10 In 1997, the United Nations Environment Programme (UNEP) and the Coalition for Environmentally (CERES) Responsible established the Economies Global Reporting initiative. The goal is to develop guidelines and standardization of norms for environmental and social reporting. According to GRI’s vision, reporting on economic, environmental, and social performance by all organizations is a doing as usual and comparable as financial reporting. There are now thousand of companies that participate in the GRI, a excel spreadsheet including list of these companies is available on the GRI website at, allowing the general public to view this information: http://www.globalreporting.org/ReportServices/GRIReportsList/ 2.2.1.2 Global Compact Launched in January 2000 at the World Economic Forum by Kofi Annan, the Global Compact is a code of conduct, which includes 10 principles that businesses should commit to. Without the numeration, two of these principles are about human rights, four about labour standards, three about environmental and the last about fight against corruption. 2.2.1.3 Socially responsible investing (SRI) CSR is sometimes linked to the concept of socially responsible investing11, which is also known as ethical investing. This concept describes strategy for investment, which demands to maximize both financial return and social good. 10 www.globalreporting.org/ - Page 11 - For some, the SRI is the same declination and speculative financial sustainability12. Investors who proclaim this process such as banks, financial institutions and other financial funds (retirement, employee savings, etc…) - usually define their own commitments to CSR with a dedicated CSR communication (cf. Report on the RARE 2006 banking sector). 2.2.1.4 Other source for CSR reporting SA800 Certification is the first international certification on social responsibility: Social Accountability International13. It is developed by the International human rights Premier Global organisation. Green Globe Certification is for the Sustainability – a programme for “benchmarking, certification and performance improvement”, based on Agenda 21 proposals from the 1992 Rio Earth Summit14 The FTSE 4 Good Index measures the performance of companies who meet globally recognised CSR standards15 2.3 Related Theory 2.3.1 Carroll’s theory Between many conceptions of responsibility, the first definition of CSR that I want to present is Carroll’s. This concept has been served as the framework of many Synthesis of responsible investment in the site PolitiquesSociales.net 2nd report Carayon September 2006 "On equal terms" 13 www.sa-intl.org 14 www.greenglobe.org 15 www.ftse.com/indices/FTSE4Good_Index_Series 11 12 - Page 12 -