Home Management Corporate Fraud and Corruption: A Holistic Approach to Preventing Financial Crises
The Impact of CSR: On Employees
Using a large and extensive sample, Jo and Harjoto (2012) found that companies’ engagement with the community, environment, diversity, and employees plays a significant role in enhancing corporate financial performance. However, meta-analyses of CSR and corporate financial performance indicate a weak positive relationship and explain little about specific linking mechanisms (Margolis 2007). Employees appear to be the intervening variable in this context. This would not be surprising because a French poll on CSR found that employees were seen as the most important stakeholder group to be considered in planning and implementing CSR (d’Humieres and Chauveau 2001, 183—193). Drawing on social identity theory,32 Gond et al. (2010) investigated whether CSR-driven attitudes (e.g., organizational trust) and behaviors can affect employees’ organizational performance. They found that CSR contributes to corporate financial performance by influencing employees’ behavior. This supports the finding that for CSR to positively impact a corporation’s financial performance, the emphasis placed on different aspects of CSR (environmental and financial sustainability and on employee relations) must be well integrated. The SOX Act of 2002 required public companies to have a code of conduct for top executives, and the following year both the New York Stock Exchange and NASDAQ required listed companies to adopt and disclose a “code of business conduct and ethics” applicable to all directors and employees. In 2004 the revised Federal Sentencing Guidelines in effect made a company’s code of conduct an inseparable part of a company’s culture. But what is the impact of a code of conduct on corporate culture? Research by LRN33 shows that a code of conduct positively impacts employees who feel that it makes the company a better place to work. Furthermore, available evidence suggests that by promoting an ethical organizational culture, companies can prevent unethical and illegal behavior (Stucke 2014, 792).
To unlock the CSR value, different aspects of CSR have to be balanced. As Ditlev-Simonsen (2010) found in Norway, introducing the term CSR into the corporate vocabulary does not necessarily reflect changes in corporate activities. In support of this, Vitaliano (2010) carried out a cross-sectional regression of 84 of Fortune magazine’s “100 Best Employers” against measures of CSR and many other control variables, such as annual wages and ethnic and gender composition of the labor force, that are known to correlate with staff turnover. He found that adoption of CSR business policies caused the firm to be rated as socially responsible and reduced the annual staff turnover rate by 20—30 percent. It was previously said that the positive relationship between CSR and a corporation’s financial performance should encourage even CEOs who are skeptical of CSR to embrace it. But does this make sense at a time of financial crisis?
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