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A Systematic Approach to Measuring Corporate Social Responsibility

Submitted by:
Farishta Hellali

Submitted to:
Paul Caulfield

Date:
29/12/2012

Word count: 1,856

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Introduction
The issues of sustainability and concerns about corporate social responsibility are the issues of critical importance to business. Despite a considerable amount of interest in CSR, a number of issues have not been agreeably addressed at either theoretical or practical level. There is not one commonly agreed definition of CSR. It is defined as a term Ethics in action awards (2003), a concept Archie Carroll (1997), a commitment (Philip Kotler and Nancy Lee 2005) a principle Fredrick et al (1992) a process (Hemingway & Maclagan, 2004); a theory (McWilliams & Siegel, 2001, whilst other define it as actions or set of activities that improve and /or protect social interests (Lua and Bathcharya, 2009). Several other terms such as strategic philanthropy, corporate citizenship, corporate responsiveness, sustainability, and corporate social performance are used in a similar sense. This inconsistent use of terminologies most of the times leads to confusion.

The scope and nature of corporate social performance is defined by various researchers. For example, Carroll (1979) articulated that CSP is integration of three dimensions: (1) factors of CSR (2) Social issues that must be addressed (3) philosophy or mode of responsiveness. The weaknesses of Carrolls definition of CSP were addressed by Wartick and Cochran (1985). This is the first study of CSP that include different challenging perspectives Wartick & Cochran (1985). This study states that the social responsibilities of a business embody the economic, legal, ethical, and discretionary categories of business performance (Carroll 1979, p. 499). Many researchers suggest companies to identify the social issues, develop processes of response, and check the outcome. But unfortunately, none of them has offered to identify social issues that are specifically covered by CSP. CSP is further categorized into four subcomponents; i.e. social issues that are related to environmental, strategic governance, labor relations, and stakeholder management, (Foo. H, Hui M. Wang and Scott V 2012). In this article I present the study the various academic literatures surrounding CSR and CSP. The issue of CSP and its measurement is very important because there is very increasing interest around this issue, but very limited academic coverage of CSP measurement. The study starts

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with the difference between CSR and CSP. It further discusses the dimensions, challenges and measurement of CSP. In the discussion and conclusion part the different arguments of several authors are presented and based of literature review the recommendations are given.

The difference between CSR and CSP

AS the word CSP is sometimes interchangeably used to corporate responsiveness, whereas corporate responsiveness is interchangeably used to CSR. There has been a fair amount of confusion about the exact meaning of CSP. Luo and Bhattacharya discussed the differences of CRS and CSP in their 2009 article. CSR is related to but is different from CSP in many aspects. CRS refers to plans, programs and investments in responsible and/or sustainable business, whereas CSP refers to the assessment of the overall quality of the established programs and investments. CSR is one one-time investment in social welfare, while CSP is a regular study of a firms outcome of social activities. CSR is not based on any competition, while CSP is comparative to the competition in different kind of industries. CSP is the tool of measuring the corporate activities and historical. performance relative to competition, based on which stakeholders reward the firms for and it is linked to a firms financial performance. It seems easy for organizations to make statements about their investment in socially responsible project, and what they did and what are they doing, but actually they need to show the improvement in performance by year on year basis. In this way CSP can be an important measurement of organizational performance.

Dimensions of CSP
The first three dimensions that are addressed by Carroll (1979) are the1) the issues included in CSR (2) social issues involved (3) philosophy of social responsiveness. The CSR dimension of this

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model embodies three other dimensional aspects of CSR i.e. (1) economics aspects (2) social aspects (3) environmental and ecological aspects Dahlsrud, A., (2006). 1. Economic aspect of CSR.

The economic aspect most of the times is mistakenly considered synonymous with financial issues. However, the economic responsibility of a firm is not only being financially accountable, and showing their debts and employee figures in their CSR reports. The factor that makes up corporate economic responsibility should rather consider the direct and indirect impact that a business has on its on society and stakeholder.

a) The multiplier effect

The economic performance of a business has direct and indirect impacts on its stakeholders that include its employees, customers, government, suppliers, and the communities in which the business operates. For instance if a company pays good salaries, the employees purchase goods and services as well as pay taxes. These kinds of activities stimulate the service industry, government programs and the community activities. b) Contribution through taxes

A tax in law is a compulsory payment. Companies are major contributor to the welfare of the stakeholders affected by their operations. Tax payment has a significant economic impact. It has a great impact of the creation and distribution of wealth.

c) Avoiding illegal actions

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A good image of a company strengthens the trust relationship between the company and the local community where it operates. Some illegal activities are very destructive to the trust earned from the community surrounding the company. These actions should be avoided. Examples of such activities include briber, tax avoidance; and consideration of a few individuals for rewards and incentives only.

2. Social Aspects

According to this dimension of CSR social responsibility means being accountable for the social effect the company has on people even indirectly. This includes all stakeholders i.e. the people within the company, the customers, suppliers, the community, and other people in the supply chain of the company. Following are the key to social aspects of a business.

a) Responsibility towards Stakeholders: Customers, Employees, Community

Customer is always given the respect and attention in the business world. Being responsible to customers means maximizing the profits. There are several issues of social responsibility towards customers; which includes: the safety and durability of products / services; after sale service; attention to customer complaints; meeting the demand; fair standards of advertising and trading; and full and clear information to potential customers.

The social responsibility of a business goes beyond the terms and conditions of the formal contract of employment. Companies have to take care of all expectations of employees i.e. a good quality of working life. This includes a taking care of employees welfare and safety at work and maintaining employees motivation for work. Apart from

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this a good company treats employees fairly and provide them equal opportunities, regardless of gender, age, race, or religion.

Majority of a companys employees and customers come from the community it operates. Thus the health, stability, and prosperity of the community should be very important for the companies especially to the small size companies. To involve in community causes in a better way many companies go for volunteering acts which include: donations to charities, vocational trainings, sponsoring cultural events, helping educational centres, and partnering with communities in community welfare projects.

3. Environmental and Ecological Aspects

Environment is also one of the stakeholders of a business. Environment protection and sustainable development have been topics of discussion for decades, which is the longest discussion of all the CSR aspects. Business activities have different effects on environment. Usually these are negative effect occurring in natural environment because of business activities. Natural environment is disturbed by overuse of natural non-renewable resources of energy, climate change, pollution creation, deforestation, etc. To be better actor in environment protection companies should measure the environmental impact of their activities.

One instrument of measuring environmental impact is the material input per service unit (MIPS) calculations, which is done by dividing the amount of product or service causes to move during its entire life span by amount of amount of benefits it brings.

To better involve in environmentally responsible business a company should environmentally oriented mode of conduct. This includes the issues like cleaner production, involvement of stakeholders, health, quality, safety issues.

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The Challenges of measuring the CSP

There has been extensive amount of attention to corporate social performance which has made it an important performance metrics in business research. There are several factors that influence firms CSP. The issue of CSR is approached through CFP, and therefore the literatures cover whether CSP affects CFP (Griffin and Mahon, 1997; Simpson and Kohers, 2002; Margolis, Elfenbein & Walsh, 2007).

These studies limit the measurement of CSP only to CFP. Because CSP is multi dimensional in nature the one dimensional cannot represent the whole span of CSP construct. Many authors have discussed the challenges associated with measuring CSP (Carroll 1999, Wokutch and McKinney 1991). Still several dimensions are yet to be highlighted in studies on CSP constructs.

After reading several articles on CSP measure, I found out that there is no common consensus among writers of the issue, which is very challenging. Some studies determine a positive correlation between the two terms (Cornell and Shapiro, 1987), some determine negative correlation (Waddock and Graves, 1997; Charles-Henri and Stphane, 2002), while other determine no correlation between the two term CSP- CFP Ullmann (1985).

Discussion and Conclusion

After reviewing the literatures that surround the term corporate social performance, I have found out that there is confusion on the meaning of CSR and CSP. Later while reading the studies on dimensions of CSP, I found out the dimensions of CSP covers the dimensions of CSR as well. The dimensions cover many factors while the measurement part does not deal with all those factors.

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The study on the measurement of CSP considers one dimension, and does not cover other dimensions i.e. social, philanthropic, economic, environmental etc. Thus it limits the

application and is not easy for interpretation in different context (Berman 1999). Research on stakeholder management show that there is no universally agreed upon weights of social or environmental issues exist for the different stakeholders in different situations, because stakeholders have dynamic attributes i.e. stakeholder expectations, perceptions, and preferences (Mitchell et al. 1997, Hillman and Keim 2001, Bird et al. 2007). The non financial CSP indicators of listed companies are weighed differently by Major social investment indexes (Chatterji and Levine 2006) Which makes the comparison of CSP of different companies difficult (Delqui (1997).

The literature review and my experience of evaluating the companys annual reports for corporate social performance have helped me develop my recommendations. I believe there is no perfect system of measuring CSP. After reviewing the annual CSR of IBM I agree to the view point of Cornell and Shapiro. It is clearly shown that the higher the CSP the higher is the CFP.

There is a positive correlation of CSP with many factors. For example the size of company, the larger the company the bigger is the investment in corporate activities. Thus I recommend a system of measurement which clearly determines all factors that impact the CSP of a company. Any system established for the measurement of CSP should be mutually agreed and followed by the listed companies.

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References

1. Carroll, A.B., 1979: A three-dimensional conceptual model of corporate performance, Academy of Management Review, 4 (4), 497-505. 2. Cornell B, Shapiro A (1987). Corporate stakeholders and corporate finance. Fin. Manage. 16: 5-14. 3. Charles-Henri D, Stphane T (2002). The Corporate Social Performance -Financial Performance Link: Evidence From France. Univ. ofBordeaux Dept. of Intl Accountting Working Paper. 02-01 4. Donna J. Wood (Jul-Aug., 1991), Toward Improving Corporate Social Performance, Business Horizon, Vol. 34, issue, 4. P. 66-73 5. Dahlsrud, A., (2006) How Corporate Social Responsibility is Defined: an Analysis of 37 Definitions, Corporate Social Responsibility and Environmental Management, Corp. Soc. Responsib. Environ. Mgmt. (in press) Published online in Wiley InterScience, (www.interscience.wiley.com) 6. Ethics in Action Awards. 2003. What is Corporate Social Responsibility?

http://www.ethicsinaction.com/whatiscsr/qanda.html [22 May 2003]. 7. Foo, H, Hui M. Wang, and Scott, V (June 2012), A Global Analysis of Corporate Social Performance: The effects of cultural and geographic environments. Journal of Business Ethics, Vol. 107 issue, 4. P. 423-433. 8. Griffin JJ, Mahon JF (1997). The Corporate Social Performance and Corporate Financial Performance Debate: Twenty-Five Years of Incomparable Research. Business and Society. 36: 5-31. 9. Hemingway, C.A. and Maclagan, P.W. (2004) Managers' Personal Values as Drivers of Corporate Social Responsibility, Journal of Business Ethics, 50(1), pp. 33. (http://www.jstor.org.ezp1.bath.ac.uk/stable/25123191?seq=1) 10. Kotler, P,. & Lee. N. (2005). Corporate social responsibility, doing the most good for your company and your cause. Hoboken,NJ: John Willey & sons

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11. Luo,X. and Battacharya, C.B (2009). The Debate over Doing Good: Corporate Social Performance, Strategic Marketing Levers, and Firm- Idiosyncratic Risk, Journal of Marketing; Vol.73, Issue 6, p. 198-213

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19. Waddock SA, Graves SB (1997). The corporate social performance financial performance link. Strategic Manage. J. 18(4): 303-319.

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