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CSR and Ethical Standards

A postal survey by Valentine and Fleischman (2007) of 313 business managers registered with a large professional research organization in the United States found that the positive relationship between perceived professional ethical standards and the believed importance of ethics and SR is mediated to a degree by perceptions of CSR. According to the researchers, the policy implication of this finding is that professions should develop ethical standards to encourage SR since these actions have been found to be associated with better employee ethical attitudes. For CSR to be implemented successfully,30 the whole organization and how it performs its activities first have to be considered. Second, it is important to have everyone actively participating in meeting the organization’s needs (Castka, Bamber, and Sharp 2005, iii).

The Impact of CSR: On Financial Performance

Concerning whether the motivation for CSR is profit or ethics (i.e., instrumental vs ethical), a Norwegian survey by Coop Norden31 found that CSR is neither one nor the other, but that these two motives are mutually linked. But what is the evidence that CSR positively impacts a company’s financial performance? Examination of the last 30 years reveals conflicting findings, but the weight of the evidence tips the scales in favor of a positive relationship (Ducassy 2013). In addition, Attig et al. (2013) have reported that credit rating agencies are inclined to award relatively high ratings to companies with good CSR. Finally, strong support for the view that companies that rate highly for sustainability perform significantly better than their counterparts that are low on sustainability was reported by Harvard Business School Researchers (Eccles, Ioannou, and Serafeim 2012) who examined a matched sample of 180 companies.

Finally, in considering the effects ofCSR on company’s performance, a relevant factor is innovation. In a theoretical paper on whether corporate responsibility and innovation are compatible or contradictory, Midttun (2007) of the Norwegian School of Management reported difficulties in assuming that the two concepts can easily be mutually supportive. As Midttun pointed out, a great deal of the literature on innovation is dynamic, which is in contrast to much of the corporate responsibility literature, which has been afforded a static interpretation. Consequently, Midttun proposed a dynamic reinterpretation of CSR in order to be more compatible with innovation.

Doubt has been cast on the weak relationship found by some researchers between CSR activities and corporate financial performance (profitability) (e.g., Margolis 2007; Orlitzky, Swanson, and Rynes 2003). Their argument is that since the middle of 2008 the financial crisis has affected companies that have integrated CSR in their culture as well as those that have not. Consequently, it is very difficult for researchers to ascertain the impact of CSR on profits because, as pointed out by Kemper and Martin (2010), the variations in profitability are too small for meaningful regression analysis. In addition, research into CSR and profitability has been criticized for using unreliable reputational measures (McWilliams, Siegel, and Wright 2006). A financial crisis and the fact that many firms have to divert philanthropy budgets to pay salaries and bonuses (Tharp 2009) means that firms would be well advised to use Martin’s (2002) Virtue Matrix, which identifies opportunities available to firms under a broad variety of conditions. It should be emphasized in this context that according to Martin, CSR uses the intrinsic capacity of a firm to improve the condition of the society in which it is operating as well as the environment, and it is not about redistributing the profits made by firms. Critiques of the relationship between CSR and performance notwithstanding, the weight of the empirical evidence documenting such a relationship should encourage the board of directors to go beyond simply paying lip service to sustainability, especially if a company’s customers are individual consumers, if it competes on the basis of brands and reputation, or if its operations involve extracting large quantities of natural resources (Eccles, Ioannou, and Serafeim 2012).

 
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