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Effectiveness of Corporate Social Responsibility: A Conceptual Framework

RUHIYATI IDAYU ABU TALIB

Abstract:

Corporate social responsibility (‘CSR’), a constant source of debate in the research of company laws, has attracted
wide attention from scholars and increasingly intensive studies have been made in the respect. This conceptual paper
aims to identify key variables that influence the variability of effectiveness of CSR to gain batter understanding of
the relationship between each variable with effectiveness of CSR. Therefore the aim of this concept paper is to
propose a conceptual framework for studying relationship between corporate culture, communication and local
culture in which charismatic leadership as the mediating factor for effectiveness of CSR.

Keywords: Effectiveness of CSR, Corporate Culture, Communication, Local Culture, Charismatic Leadership

Introduction

Corporate Social Responsibility (CSR) is a concept that has attracted a large number of debates worldwide and
acquires a new importance in global economy. Globalization and international trade has increase business
complexity and force the company for more open and transparent business practices that are based in ethical values
and respect for the community, employees, the environment, shareholders and other stakeholders to say the least. It
is designed to deliver sustainable value to society at large.

The modern era of social responsibility, however, may be marked by Howard R. Bowen’s 1953 publication of
Social Responsibility of the Businessman, considered by many to be the first definitive book on the subject. He said
that CSR means operating a business in a manner that meets or exceeds the ethical, legal, commercial and public
expectations that society has of business. The World Business Council for Sustainable Development (WBCSD)
defines CSR as ‘‘the commitment of business to contribute to sustainable economic development, working with
employees, their families and the local communities’’ (WBCSD, 2001). Hence the fundamental idea of CSR is that
business corporations have an obligation to work towards meeting the needs of a wider array of stakeholders
(Manuela, 2008; Jose´, 2009). Companies need to answer to two aspects of their operations, which is the quality of
their management - both in terms of people and processes (the inner circle) and secondly, the nature of, and quantity
of their impact on society in the various areas. Below illustration summarize the general accepted definitions of CSR
overall

Source: http://www.mallenbaker.net/csr/definition.php

CSR is not about how a firm spends money, but about how the firm makes money.CSR goes beyond compliance to
laws. There are no universal approaches to CSR. Companies are free to adopt what suits them. However, there are
some basic concepts that cut across all definitions and these should be considered in crafting company’s CSR
strategy.CSR is not about compliance or philanthropy or public relations. It often involves cultural transformation in
a company as it integrates CSR concepts into its operations and decision making. Vitally, CSR involves
communicating the company’s action to its stakeholders and encouraging their feedback. Orin Smith, former
president and CEO of Starbucks, said that his company not only made charitable contributions, but also built social
responsibility into the business model. In other words, being part of the community isn’t something the company
does; it’s something the company is.

Consumers are crucial for the success of corporate social responsibility (CSR). However, since CSR is a credence
quality which cannot be assessed by consumers directly, they rely on credible information to consider the social
responsibility of companies in their buying decisions. An important communicator of CSR information are
companies themselves.(Ulf, Ursula & Silja, 2006)

Moreover, while governments have traditionally assumed sole responsibility for the improvement of the living
conditions of the population, society’s needs have exceeded the capabilities of governments to fulfill them. In this
context, the spotlight is increasingly turning to focus on the role of business in society and progressive companies
are seeking to differentiate themselves through engagement in CSR.(Dima & Ramez, 2007).In his exploration of the
institutional determinants of social responsibility, Jones (1999) for example highlights the importance of the national
socio-cultural environment and the level of national economic development as important variables influencing CSR
understanding and practice.

Corporate social responsibility requires Corporate Social Leadership (Hilton, Gibbons, 2002).Leaders of the
company are charged with the responsibility of formulating corporate strategy and are often deeply involved in
promoting the image of their respective firms through social responsibility. Furthermore, they may dramatically
change the strategic direction of the firm, including decisions pertaining to CSR. (David, Donald & Mansuor, 2004).

Transformational leadership can be distinguished between two components: (1) emotional, and (2) intellectual. For
emotional component, it can further break down into two factors of charisma and inspirational leadership (Bass,
1995).However, there is empirical lack of independent of the two factors (Bass, 1997; Lowe, Kroeck, and
Sivasubramaniam, 1996).Meanwhile, intellectual component is referred as intellectual stimulation (Bass,
1985).Accordingly, for the purposes above, I will simply examine a single, emotional factor referred to as
charismatic leadership.

Therefore the goal of this paper is to propose a conceptual framework to study the effectiveness of corporate social
responsibility with communication, corporate culture, and government environment as independent variable and
charismatic leadership as mediating factor.

Literature Review

The need for companies to undertake activity that might be regarded as socially responsible has been discussed in
the literature and has been a topic of academic study for decades (Heald, 1957, cited in Ullmann, 1985). Cannon
(1992) discusses the development of corporate social responsibility via the historical development of business
involvement leading to a post-war re-examination of the nature of the relationship between business, society and
government. He identifies that the primary role of business is to produce goods and services that society wants and
needs; however there is inter-dependence between business and society in the need for a stable environment with an
educated workforce. Cannon (1992) quotes Lord Sieff, the former chairman of Marks & Spencer “Business only
contributes fully to a society if it is efficient, profitable and socially responsible”. Likewise, Wood (1991) states that
“the basic idea of corporate social responsibility is that business and society are interwoven rather than distinct
entities.”

For some companies there will be focal areas or initiatives that do not apply. The important thing is that the
company uses the framework to identify its choice and priorities that make it work. We draw our employee from
society and so everything we do with our staff needs to be socially responsible, whether we are dealing with basic
human rights and gender issues. A quality work environment and health & safety are obvious consideration, as is the
way which, if the company believes in CSR, they will inculcate in the employee, the values which company
transforms into corporate culture. Company also must be able to articulate and communicate their commitment
within the organization and throughout the community. Each country has their own language, economy, social and
cultural conditions. These diversity and differences between countries compel company to assess their CSR
commitment so that it is in line with the country’s variety of interests and expectations. All this will only work if
there is charismatic leadership that is rooted in strong ethical values and have the ability to execute the plan and
strategic implementation regarding CSR.

Effectiveness of Corporate Social Responsibility (CSR)

Business and academic researchers have shown increasing levels of interest in Corporate Social Responsibility
(CSR) during recent years (Maignan,2002). From the decision-makers viewpoint, the effectiveness of a social
responsibility program rests heavily on a corporation’s ability to create links in the public consciousness between the
CSR activities of an organization and its performance to different stakeholders . CSR initiatives have experienced
unprecedented growth in the last few years (Barone et al., 2000). Companies are engaged in many types of social
responsibility activities, such as acts of responsibility towards the environment, treating employees fairly or
contributions to art and cultural programs in the community (Barone et al.,2000). However, as Brown and Dacin
(1997) quote, ‘‘companies do all these good things...but they do not know if they get anything out of it’’. The
benefits sought by companies considering, or in the process of implementing, a CSR initiative include: meeting
customer expectations; demonstrating commitment to environmental responsibility; improved environmental
performance; staying ahead of legislation; and increased employee motivation (Zairi and Peters, 2002).

There is no specific or general agreement on the best way for company to measure the effectiveness of their CSR.
Manuela (2006) suggested based on its CSR impact model, key performance index (KPI) for CSR focuses on 2
items, customers and employee with reputation as one of the important driver. Although these KPIs should be
assessed individually, they are interrelated. For example, high customer retention can positively influence brand
value and high employee motivation can influence the attractiveness of a company for future employees. Besides
that, company has to understand implementing CSR in global climate is similar with doing business globally.

A study by Tencati et al.(2004) shows a positive attitude towards CSR on the part of Italian companies and the lack
of public support and publicity on CSR as the main reported obstacles. Another study by Longo et al. (2005) in the
Italian context suggests that the majority (60%) of companies can be considered as socially responsible using a
stakeholder approach, noting obstacles relating to time and cost constraints. A similar study by Uhlaner et al. (2004)
suggests the usefulness of a mix of CSR perspectives (economic benefits, conformance to legal and ethical
expectations, and philanthropic/community involvement) as helpful in explaining variations in CSR orientations
amongst a sample of Dutch family firms. A study in the Spanish context similarly shows variation among firms,
with one cluster adhering to a philanthropic conception of responsibility (opting to maintain social involvement even
as it entails net costs to the company) and another adhering to a pure profit maximization view (de la Cruz Deniz
Deniz and Cabrera Suarez, 2005)

Management scholars have recently focused attention on instances when managers use CSR instrumentally. They
can promote CSR either for their own benefit (Friedman, 1970; Wright & Ferris, 1997), which follows from agency
theory, or to enhance firm profitability, based on a resource-based view (Russo & Fouts, 1997) or a theory of the
firm/strategic perspective (McWilliams & Siegel, 2001).Over the past 20 years, strategy researchers have devoted
considerable attention to top level managers and their effects on strategy formulation and firm performance. Upper
echelons theory is rooted in Child’s (1972) notion that top management’s decisions and choices influence firm
performance. Bass and Steidlmeier (1999) addressed leadership with moral values, suggesting that charismatic
leaders reach higher levels of moral development. Turner, Barling, Epitropaki, Butcher, and Milner (2002) recently
demonstrated an empirical relationship between transformational leadership and higher stages of moral development
according to the Kohlberg (1976) typology. (David, Donald, Mansour, 2004)

Predictors for Effectiveness of CSR

For company to effectively implement CSR, it has to answer these questions, responsibility for what and to whom
and who is calling for firms to be socially responsible? More importantly, how and who should execute it?

a) Corporate Culture
Corporate culture is made up of a set of tacit assumptions about how people think, feel and act. In other words, it's
the underlying values and norms that tell employees and managers "the way we do things around here." Although it
doesn't appear on a balance sheet, corporate culture is central to how well a company performs. Within every
organization there are also different subcultures, many leftover from prior acquisitions, which define day-to-day
behaviors and ultimately the performance of business units and corporate functions. Operating in silos, these
subcultures are typically not well understood by each other and therefore often work at cross purposes. It's this lack
of alignment that causes operational failures like the BP oil spill in the Gulf of Mexico or the reception problem
following the launch of Apple's iPhone 4.Corporate Culture comprises the attitudes, values, beliefs, norms and
customs of a company, defining the way it acts in all its business operations as well as toward its stakeholders. A
company's corporate culture is the result of an evolutionary process, being established throughout its history and
formed through its leaders' beliefs and attitudes. As such the culture of a company influences every step the
company takes and represents therefore its only instrument for survival. The question remains of how to translate
corporate culture into everyday business activities successfully.

Corporate Social Responsibility (CSR) as discuss above is the ongoing commitment by businesses to behave
ethically and contribute to economic development, while improving the quality of life of its employees and that of
the local community within which it operates as well as society at large.CSR in action is about capacity building for
sustainable livelihoods. It respects cultural differences and finds ways to communicate with employees, the
community and governments.

Nurturing a strong corporate culture which emphasizes Corporate Social Responsibility (CSR) values and
competencies is required to achieve the synergistic benefits. The employees of an organization occupy a central
place in developing such a culture which underlines CSR values and competencies.(Sharma.S, Sharma.J &
Devi.A,2009).Corporate culture, as the basis for all action, needs to be translated into everyday business processes
and operations. CSR therefore, represents the tools for implementing the company's corporate culture putting it into
practice.

b) Communication

At the most basic level, CSR programs allow a corporation to invest in sustaining communities, thereby supporting
its customers, engaging its employees and still creating revenue opportunities. Internally, these programs provide a
platform for developing creative content that has a compelling message, addresses key engagement needs by
evoking an emotional connection, and enhances companywide communication.

Accordingly, some studies have started to investigate how businesses use communications to highlight their
commitment to CSR (e.g., Esrock and Leichty, 1998; Hooghiemstra, 2000). Highlighting to employees an
organization’s positive social contributions can be a powerful route for motivating and retaining committed and
productive employees. (Peter & Jenna, 2008). When CSR is integrated into communication at the planning phase,
company has a huge opportunity to develop a stronger connection between employees and brand values, driving
positive results toward the business strategy.

There is also some evidence that communicating about CSR internally is beneficial because – as with customers –
CSR improves employees’ perceptions of the company. When a company has CSR initiatives, employees are more
proud of and committed to the organization4. This is because our personal identities are partly tied up in the
companies that we work for. If my company is saving the world, I am too, so my association with the company
reflects positively on me and makes me feel good about the work I do for the company. Data from CCL’s World
Leadership Study also support this finding: employees’ perceptions of their organizations’ concern for community
and environment is linked to their level of organizational commitment.(Sarah., Jennifer, &William,2010)

Companies are driven to piece together their internal programs under larger themes because of financial and time
constraints. A simple communication vehicle can have a huge cultural impact and can enhance communication
strategy, reinforcing the possibility of leveraging the CSR message which will connect employees to each other and
to the company, helping company to achieve their objectives by building trust and an emotional relationship.

c) Local Culture
Practice has taught us that companies developing their policy with regard to corporate social responsibility must not
only take the sociocultural context into consideration, but they also need to pay attention to the social needs and
problems that exist in a certain country. For example, black empowerment and contributing to the fight against
AIDS are central themes in South Africa. The political–social situation in a country plays a large role in what is
expected from companies with regard to corporate social responsibility. (Greenleaf publishing,2006)

The challenge is for company to identify priorities and incentives that are meaningful in the local and national
context and to build on existing initiatives and capacities. There is a significant opportunity for company in
developing countries to harness current enthusiasm for “CSR” alongside key public policy goals and priorities to
encourage delivery of results in both respects.

Different businesses in different sectors inevitably put emphasis on different aspects of CSR. For example, a natural
resource business may emphasize community engagement, whereas, a retailer may focus on supply chain
management. Different societies around the world have varying expectations and cultures. This means that universal
codes – the “one-size-fits-all”– approach, may not provide the answer.(Richard&Phill, 2000)

d) Charismatic Leadership

The field of leadership has witnessed an infusion of theory that House and Aditya (1997) referred to as the neo-
charismatic paradigm. Specifically, the neo-charismatic paradigm stresses how exceptionally effective leaders
articulate visions that are based on strongly-held ideological values and powerful imagery, stimulate thinking that
fosters innovative solutions to major problems, and emphasize radical change and high performance expectations.
Further, they generate high degrees of follower confidence, intrinsic motivation, identity, trust and admiration in the
leader, and emotional appeal (Conger & Kanungo, 1998; Pawar & Eastman, 1997;Sashkin, 1988; Shamir, House, &
Arthur, 1993).

Leadership styles have generally evolved from autocratic, to more democratic, consultative, motivating, anticipative
leaders or a more permissive style characterized as laissez-fair. At the moment more moral and visionary leadership
styles seem to prevail, which is an indication of the growing attention of leaders towards the issue of corporate
social responsibilities. Transformational leadership concept was defined as exceptional leadership performance that
exists when leaders broaden and elevate the interests of their followers, when they generate awareness and
acceptance of the purposes and mission of the group, and when those leaders stir their followers to look beyond their
self-interest for the group benefit. (Bass, 1990).

Most of charismatic leadership definition is based largely on the work of Bass (1985), Conger & Kanungo (1998),
and House and colleagues (e.g., House & Shamir, 1993).Specifically, charisma is define as a relationship between
an individual (leader) and one or more followers based on leader behaviors combined with favorable attributions on
the part of followers. Key behaviors on the part of the leader include providing a sense of mission, articulating an
inspirational vision based on powerful imagery, values, and beliefs. Additional behaviors include demonstrating
determination when accomplishing goals and communicating high performance expectations. Favorable attribution
effects on the part of followers include the generation of confidence in the leader, making followers feel good in
his/her presence, and strong admiration or respect based on the leader’s accomplishments and the values and beliefs
that s/he espouses (Waldman & Yammarino, 1999). Although not referring to charisma specifically, Burns (1978)
originally advanced the argument that transformational leadership is tantamount to moral leadership, and that both
followers and leaders progress to higher levels of moral development as a result of such leadership. Turner, Barling,
Epitropaki, Butcher, and Milner (2002) recently demonstrated an empirical relationship between transformational
leadership and higher stages of moral development according to the Kohlberg (1976) typology.

Charismatic leaders use their values and standards to guide their actions and policies, and through their charismatic
appeal, persuade followers to do so as well. Charismatic leader can strengthens their appeal by presenting CSR-
related goals in terms of the values they represent. In turn, subsequent action toward the accomplishment of goals
becomes more meaningful for followers because such action is consistent with valued aspects of their self-concepts
(Shamir et al., 1993).
Propositions

From the preceding discussion, the following propositions are put forth:

Proposition 1: Corporate culture that is in line with company CSR positively affects the effectiveness of CSR.
Proposition 2: Communicate about company CSR strategy to employee and consumer positively affects the
effectiveness of CSR.
Proposition 3: A CSR that is in synchronize with local culture increase positively affects the effectiveness of
CSR
Proposition 4: Charismatic leadership will mediate the relationship between corporate culture, communication
and local culture

Conceptual Framework

The figure presents the conceptual model for effectiveness of corporate social responsibility. Corporate culture,
communication and local culture are the independent variables and the dependable variable is effectiveness of
corporate social responsibility. Charismatic leadership will be mediating variable between corporate culture,
communication and local culture.

Corporate Culture
Effectiveness of
Communication Charismatic Leadership Corporate Social
Responsibility
Local Culture

Underlying Theories

1. Maximization of Shareholder Value

This management principle, also known under value based management, states that management should first and
foremost consider the interests of shareholders in its business decisions. Any investment in social demands that
would produce an increase of the shareholder value should be made, acting without deception and fraud.(Elisabet &
Domenec,2004)

Creation of shareholder wealth, once considered the ultimate corporate objective and yardstick of organizational
value, is slowly becoming overshadowed by a broader conception of organizational success. (Peter & Jenna,2008).
However, a company is, first of all, an economic setup with making profits as its goal and it has the status of legal
entity with independent economic interests. When looking at the social responsibilities that a company should take,
those scholars in the economic circle and who are in favor of this opinion believe that corporate objectives lie in
creating good conditions of existence and sound development prospect for a company (Zang & Li,2007)

The conventional companies and company laws take individual principals (shareholders) as the starting point for
consideration, believing that the highest or the sole objective of a company is to achieve profits in order to maximize
the profits for shareholders. Whereas, CSR takes social principals as its starting point, believing that the objective of
a company should be of two dimensions. In addition to realizing the maximum profits for shareholders, companies
should also strive to maintain and upgrade social benefits. Of the two corporate objectives of achieving maximum
corporate profits and social benefits, any single one of the objectives will have to be put under restriction by the
other. Therefore, the objectives of making profits and of bringing social benefits are often found in strong tension.
Their respective objectives of maximization are realized under conditions of reciprocal interactions and a balance in
corporate objectives has also been maintained. Obviously, CSR is an amendment and complement to the
conventional principle of maximized profits for shareholders. And this amendment and complement does not reject
the principle of maximizing profits for shareholders (Lu Dai Fu, 2002).

2. Integrative Social Contract Theory(ISCT)

Integrative Social Contracts Theory is a theory of business ethics originated by Thomas Donaldson and Thomas
Dunfee, and is heavily influenced by the social contracts theories of political philosophers such as Thomas Locke
and John Rawls. The goal of Integrative Social Contracts Theory is to provide a framework by which managerial
and business decisions can be made with respect to their impact on relevant communities, ethical norms and possible
universal moral standards. There are 3 combination being use in this theory which is ;

• Macrosocial Contract

Drawing on social contract theory, Integrative Social Contracts Theory posit that rational global
contractors--businesses, individuals and other economic actors--enter into a hypothetical contract
determining standards and norms. However, instead of politics and governance, this contract is concerned
with normative rules influencing economic and business affairs. These norms must not conflict too much
with divergent cultural or religious norms. While the hypothetical situation in this theory is that actors form
this contract knowingly, in reality this process is more likely to come about implicitly, as with social
contracts theory, where consent without coercion is the governing factor of whether or not a norm or value
is constitutive.

• Hypernorms

This term is used to refer to universal moral principles that are the limits of acceptable action. Hypernorms
are broad, foundational and encompass all actors everywhere, serving as an ultimate horizon determining
what is and is not ethical for human beings and business entities. For an action to be ethical under social
contracts theory it must align with such hypernorms.

• Microsocial Contracts

Microsocial contracts are less pervasive and less encompassing agreements reached between agents within
smaller business or economic communities--such as, but not limited to, individual industries--and exist as a
substratum of contracts existing under the Macrosocial contract. They produce norms that are governed by
a community's generally accepted norms and values. For them to be considered legitimate by Integrative
Social Contract Theory, they must not diverge from hypernorms determined in part by the Macrosocial
contract.

3. The Principle of Public Responsibility

Some authors have tried to give an appropriate content and substance to help and guide the firm’s responsibility by
limiting the scope of the corporate responsibility. Preston and Post (1975, 1981) criticized a responsiveness
approach and the purely process approach (Jones, 1980) as insufficient. Instead, they proposed ‘‘the principle of
public responsibility’’. They choose the term ‘‘public’’ rather than ‘‘social’’, to stress the importance of the public
process, rather than personal-morality views or narrow interest groups defining the scope of responsibilities.
According to Preston and Post an appropriate guideline for a legitimate managerial behavior is found within the
framework of relevant public policy. They added that ‘‘public policy includes not only the literal text of law and
regulation but also the broad pattern of social direction reflected in public opinion, emerging issues, formal legal
requirements and enforcement or implementation practices’’

4. Transformational Leadership
James MacGregor Burns(1978)first introduced the concept of transforming leadership in his descriptive research on
political leaders, but this term is now used in organizational psychology as well. According to Burns, transforming
leadership is a process in which "leaders and followers help each other to advance to a higher level of morale and
motivation". Burns related to the difficulty in differentiation between management and leadership and claimed that
the differences are in characteristics and behaviors. He established two concepts: "transforming leadership" and
"transactional leadership". According to Burns, the transforming approach creates significant change in the life of
people and organizations. It redesigns perceptions and values, and changes expectations and aspirations of
employees. Unlike in the transactional approach, it is not based on a "give and take" relationship, but on the leader's
personality, traits and ability to make a change through example, articulation of an energizing vision and challenging
goals. Transforming leaders are idealized in the sense that they are a moral exemplar of working towards the benefit
of the team, organization and/or community. Burns theorized that transforming and transactional leadership were
mutually exclusive styles.

Conclusion

Since the second half of the 20th century along debate on CSR has been taking place. It is undeniable that CSR has
becoming one of the norms in today corporate society. Therefore, for company to effectively integrate CSR it has to
start internally which is to make it as corporate culture. In order to do that, company must be able to communicate
their commitment clearly to employee and consumer. In the increasing global market, to effectively implement CSR
company needs to identify environment or local culture needs. What are the common theme and what action that
will be most effective if they are to implement CSR. The keys to make all these successful lies in charismatic leader.

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