The Effect between UN Global Compact, CSR and Business Performance of Multinational Companies in Taiwan

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(1)The Effect between UN Global Compact, CSR and Business Performance of Multinational Companies in Taiwan. by Nguyen Linh. A Thesis Submitted to the Graduate Faculty in Partial Fulfilment of the Requirement for the Degree of. MASTER OF BUSINESS ADMINISTRATION Major: International Human Resource Development. Advisor: Tony Cheng-Ping Shih Ph.D.. National Taiwan Normal University Taipei, Taiwan April, 2014.

(2) ACKNOWLEDGEMENT “Everything happens for a reason.” Britney Spears. The decision to study in Taiwan is one of the best choices I ever made. During my journey, I learned a lot and I will always cherish this experience. Firstly, I cannot express enough thanks to my advisor, Dr. Tony Cheng-Ping Shih. You are the best professor! I promise I will make a difference. Secondly, I want to thank my parents and baby sister for their endless support (financial of course). Without the best mom, the best dad and the best sister, I cannot be the best. Yes. Thank you. My deepest gratitude is also due to the members of the committee, Dr. Pai-Po Lee and Dr. Steven Lai, and the director of our program, Dr. Vera Chang. Without their knowledge and assistance, this study would not have been successful. I would also like to thank Dr. Jane Lin, Dr. Rosa Yeh, and Dr. Ted Tsai. Thank you very much for your lectures and your help during my study at National Taiwan Normal University. Thank you to Team Shi: Easan, Louis and Dian. Without you guys, I would have struggled, been lonely, and cried all day long. Especially Dian, you helped me a lot; you are the only person I will lend money if you ask me (please don’t ask now though, I’m poor). Thanks to all the people at our great IHRD department. Without your help and companionship, I don’t know what I would have done. Lastly, I want to thank the Taiwanese government and Taipei Economic and Cultural office in Prague for giving me this great opportunity. If I forgot someone, sorry, but you are not that important or I’ve developed Early-onset Alzheimer’s. .

(3) ABSTRACT Corporate Social Responsibility (CSR) is nowadays an important issue for multinational companies. Many initiatives have been developed to support and help to nourish CSR, but only few has been successful. The United Nation Global Compact (UNGC) stands out because it is the world’s largest corporate sustainability initiative. The importance of behaving in a corporate socially responsible manner has increased over the years, but the reality has always been a matter of debate. With the inclusion of CSR companies are questioning whether CSR have effect on their performance and how to improve their CSR. There are almost non-existent empirical evaluations of the contribution of UNGC to CSR strategies and to firm’s performance. This study aims to fill this knowledge gap by analyzing the relationship between UNGC and CSR and to examine the relationship between CSR and Business Performance. System Equation Model named GCSR was developed to achieve the objective of this study by using Smart PLS software. 154 samples were obtained from employees working in multinational companies. The findings indicated that UNGC have a positive significant relationship towards CSR; in which CSR also have a significant positive effect on Business Performance. The dominant factor for UNGC is Environmental principle and the first priority for CSR is Vision, values and strategy. For Business performance, the Performance from customer perspective has the highest influence. Practical implications and suggestions were also proposed in order to improve the UNGC and CSR. Keywords: corporate social responsibility, global compact, business performance, multinational companies . i.

(4) TABLE OF CONTENTS ABSTRACT ........................................................................................................ i TABLE OF CONTENTS ................................................................................... ii LIST OF TABLES ............................................................................................ iv LIST OF FIGURES .............................................................................................v CHAPTER I INTRODUCTION ........................................................................1 Background of the Study ............................................................................................ 1 Purposes of the Study ................................................................................................ 4 Questions of the Study .............................................................................................. 5 Significance of the Study .......................................................................................... 5 Delimitations and Limitations .................................................................................... 8 Definition of Terms .................................................................................................... 8. CHAPTER II LITERATURE REVIEW ..........................................................11 CSR – The Definition ............................................................................................... 11 CSR and Strategic Management............................................................................... 13 Adaptation and Discussion Regarding the CSR Concept......................................... 18 CSR and Performance .............................................................................................. 20 CSR and Balance Score Card ................................................................................... 23 United Nation Global Compact ................................................................................ 25. CHAPTER III RESEARCH METHODOLOGY .............................................27 Research Framework ................................................................................................ 27 Research Procedure .................................................................................................. 28 Research Method ...................................................................................................... 30 Instrument Development .......................................................................................... 31 Descriptive Statistics ................................................................................................ 37 Statistical Analysis ................................................................................................... 37. CHAPTER IV. DESCRIPTIVE STATISTICS AND PILOT STUDY. FINDINGS ........................................................................................................39 Sample Characteristics ............................................................................................. 39. ii.

(5) Descriptive Analysis of Questionnaire Items ........................................................... 41 Pilot Study ................................................................................................................ 46. CHAPTER V MAIN STUDY FINDINGS ......................................................56 Correlations Analysis ............................................................................................... 56 Validity and Reliability Analysis ............................................................................. 58 Partial Least Square (PLS) Analysis ........................................................................ 60 PLS Findings Discussion.......................................................................................... 70. CHAPTER VI CONCLUSIONS AND RECOMMENDATIONS ..................72 Research Conclusions............................................................................................... 72 Research Recommendations ..................................................................................... 75 Recommendations for Future Research.................................................................... 76. REFERENCES ..................................................................................................77 APPENDIX A: QUESTIONNAIRE ITEMS SOURCES UNGC ....................88 APPENDIX B: QUESTIONNAIRE ITEMS SOURCES CSR ........................95 APPENDIX C: QUESTIONNAIRE (CHINESE AND ENGLISH) ................98 APPENDIX D: PLS RESULTS .....................................................................111. iii.

(6) LIST OF TABLES Table 2.1 Key Terms Related to Corporate Social Responsibility………................. 12 Table 2.2 Summary of CSR Studies: Correlation to CFP………………………….. 23 Table 3.1 Reliability Types……………………………………………………….… 35 Table 3.2 Validity of Instrument………………………………………………….... 36 Table 4.1 Sample Characteristics Based on Demographic Variables (N=154)…..... 39 Table 4.2 UNGC by Likert Scale, Mean, and Standard Deviation (N=154)…….... 41 Table 4.3 CSR by Likert Scale, Mean, and Standard Deviation (N=154)………… 43 Table 4.4 Business performance by Likert Scale, Mean, and Standard Deviation (N=154)……………………………………………………………………………. 45 Table 4.5 KMO and Bartlett’s Test of Sphericity Values (Pilot Test-Before Dropping Items)………………………………………………………………………………. 47. Table 4.6 KMO and Bartlett’s Test of Sphericity Values (Pilot Test-After Dropping Items)………………………………………………………………………………. 48 Table 4.7 EFA: Factor Loadings (Pilot Test, N=37)………………………………. 49 Table 4.8 Reliability test (Pilot Test, N=37)………………………………………. 51 Table 4.9 Reasons for Dropping Items ……………………………………………. 52 Table 4.10 PLS Hypotheses Testing Results (Pilot Study, N=37)………...………. 53 Table 4.11 PLS Loadings (Pilot Study, N=37)………...……………………….…. 54 Table 5.1 Correlation Analysis (Pilot Study, N=154)………...………..……….…. 57 Table 5.2 KMO and Bartlett’s Test of Sphericity Values (Main Study N=154)…... 58. Table 5.3 Cronbach’s Alpha results for all dimensions (Main Study N=154)…….. 58 Table 5.4 Cronbach’s Alpha results for all variables (Main Study N=154)……….. 59. Table 5.5 Measurement Model Results (Main Study N=154)………….…………. 61 Table 5.6 PLS Loadings (Main Study N=154)………….…………………………. 61 Table 5.7 PLS Path Analysis Results (Main Study N=154)………….……………. 62 Table 5.8 Research Hypotheses Results (Main Study N=154)……………………. 64 Table 5.9 PLS Path Analysis Results (IT industry N=51)………….……………... 65 Table 5.10 PLS Loadings (IT industry N=51)………….…………………………. 66 Table 5.11 PLS Path Analysis Results (other industries N=103)……..………….... 68. Table 5.12 PLS Loadings (other industries N=103)………….………...………….. 68. iv.

(7) LIST OF FIGURES Figure 3.1 GCSR model…………………………………………………………… 27 Figure 3.2 Research procedure……………………………………………….......... 29 Figure 4.1 PLS structural model (pilot study, N=37).………… …………….......... 55 Figure 5.1 PLS structural model (main study, N=154).………… …………........... 63 Figure 5.2 PLS structural model (IT industry, N=51).…………………….............. 67. Figure 5.3 PLS structural model (other industries, N=103)……………….............. 69. v.

(8) CHAPTER I INTRODUCTION This chapter presents the study background, the purposes, the questions that frame the insight for the study and the research significance. The definitions of key terms are included in order to provide to the concerned readers a comprehensive focus of this entire research.. Background of the Study Corporate social responsibility (CSR) has received a great deal of attention in the past few decades in the business field. Nevertheless, the issue of the social responsibilities of business is not a new topic for academic research. Among the first scholars to perceived this issue was Adam Smith, who despite being represented as one of the main advocates of selfinterest in the economic literature, he developed a sound rational for the need of social responsibility by business and honesty in the market place in many of his books. In his Lectures on Jurisprudence (Smith, 1760), he argued that the goal of the salesman is not to obtain the maximum benefit in each deal, but rather to maximize the benefit deriving from the total deals. Not being honest may cause the number of deals to decrease therefore diminishing the salesman’s total benefit. In the Theory of Moral Sentiments (1759), later on Smith defends honesty in market place and need of “social responsibility.” It took more than 200 years later on when researchers in the field of management studies began to tackle the issue of a business’s social responsibilities in the 1950s, with the first definition of CSR generally attributed to Howard Bowen and his work Social responsibilities of the businessman (1953). In the following years, a number of scholars submitted different definitions of CSR but a widely accepted definition is still missing. The main reason for this dilemma is that the concept of CSR is very broad and inclusive and it is constantly evolving concept. For instance, over the time, the main focus of firms investing in socially responsible activities shifted from the improvement of the working conditions of employees to the investment on environmental and social issues. Johnson (1971) writes: “a socially responsible firm is one whose managerial staff balances a multiplicity of interests. Instead of striving only for larger profits for its stockholders, a responsible enterprise also take into account employees, suppliers, dealers, local communities, and the nation” (p.50). Jones argues: “Corporate social responsibility is the notion that corporations have an obligation to constituent groups in society other than stockholders and beyond that prescribed by law and union contract” (Jones, 1980, p. 59). Finally, Hopkins (2003) writes that “CSR is concerned with treating the stakeholders of the firm ethically or in a responsible manner. 1.

(9) ‘Ethically or responsible’ means treating stakeholders in a manner deemed acceptable in civilized societies” (p.1). In a research paper survey conducted by Deutsche Bank Climate Change Advisers (2012), all of the surveyed academic studies agree that companies with high ratings for CSR and environmental, social and governance factors have a lower cost of capital in terms of debt (loans and bonds) and equity. This shows that the market recognizes that these companies are lower risk than other companies and rewards them accordingly. This study also acclaim a correlation between financial performance of companies and what it perceives as advantageous environmental, social and governance strategies, at least over the medium (3-5 years) to long term (5-10 years). 89% of the examined studies shows that companies with high ratings for environmental, social and governance factors exhibit market-based outperformance, while 85% of the studies show these types of company’s exhibit accountingbased outperformance. Recent studies reported that 70% of international CEO’s believed CSR to be even vital to firm level profitability (Vogel, 2005). CSR as concept in the eyes of researchers is not a new topic, but with new business models and extreme competitiveness it found increased popularity among firms around the world (KPMG, 2011; Porter, 2008; Reid & Toffel, 2009). Companies found long-term interest to be socially responsible because it provides competitive advantages (KPMG, 2011). For example, by enhancing the societal environment in which firms exist, they contribute to the wealth development of that society and in the long-term, this increases their market size in the form of new customers (Carroll & Shabana, 2010; Drucker, 1984). Companies are tackling CSR, because it can increase recognition and improve their brand, their reputation and their financial performance (KPMG, 2011; Melo & Garrido-Morgado, 2012). In overall CSR is empirically supported to provide a direct and indirect impact on firm performance. Direct impact can appear in the form of positive financial performance, while indirect impact can be enhanced brand image or market reputation (Drucker, 1984; Harrison, Bosse, & Phillips, 2010; Moon & deLeon, 2007). CSR in academics is part of the strategic management field (Drucker, 1984; Mintzberg, 1983; Porter, 2008). Strategic management supports the alignment of firm level policies and strategic priorities thus are interrelated to CSR. So the strategic management concept entail a systematic analysis of internal and external factors associated with customers and the organization itself, it supports the design of optimal management practices. CSR research is not only limited to strategic management, but is using a specific theory perspective to assess firm level outcomes (performance). CSR. 2.

(10) related research could also address strategic intent and firm level choices regarding the enablement or operationalization of CSR. The current CSR landscape is complex and multi-faceted. There are now literally hundreds of private and open CSR initiatives. All of them share same goal and that is desire to help and enhance business organizations so they can make improvement of social and environmental conditions in the society. The United Nations Global Compact (UNGC) has perhaps done the most to promote CSR and sustainability topic in recent years. UNGC is now the largest CSR initiative in the world with 8,000 corporate signatories and 4,000 other stakeholders from 145 countries (UN, 2013). UNGC have either been developed or formally agreed by governments and received high-level recognition by governments at an international level. This research intends to examine the understanding of CSR for practitioners and scholars by investigating the topic from several perspectives. This research also responds to researchers call and focus on several aspects of the CSR and its effect (the customer, product). These claims are some of the reasons why researcher has chosen to address CSR in this thesis work.. 3.

(11) Purposes of the Study CSR has been one of the most used terminologies in business texts over the last decades. The importance of behaving in a socially responsible manner has increased over the years, but the reality has always been a matter of debate. Many of researchers tried to find an answer whether CSR have impact on firm’s performance and this is going on a regular basis since the 1960s. With the assumptions mentioned above, the purposes of this research are formulated as follows: 1. To analyze and examine the effect between UNGC and CSR. 2. To examine and analyze the effect between CSR and business performance. 3. To build an integrate model to measure the effect of UNGC and CSR on business performance (by using SEM with Smart PLS software).. 4.

(12) Questions of the Study Deriving from the research purposes, the research questions are framed as follows: 1. Does UNGC (with variables anti-corruption, environment, labour and human rights) have effect on CSR (with variables vision, values and strategy, management systems, organization and processes, products and services, resource and environmental management, stakeholder management, communication and reporting)? 2. Does CSR (with variables vision, values and strategy, management systems, organization and processes, products and services, resource and environmental management, stakeholder management, communication and reporting) have effect on business performance (with variables (performance from financial perspective, performance from customer perspective, performance from internal business process perspective and performance from learning and growth perspective)? 3. What are the path parameter of UNGC on CSR and CSR on business performance and the total effect of this integrated model?. Significance of the Study Research in the CSR field is important for two main reasons. CSR has strategic management implications and can influence how society, stakeholders and firms interact (Porter & Kramer, 2006). It also has the potential to improve overall firm performance based on a number of direct and indirect benefits (KPMG, 2011; Orlitzky, Schmidt, & Rynes, 2003). Second, it is less researched how firms, both large and small, should properly tackle the topic of CSR. This is important, as CSR itself is becoming an important part of strategic management (Ziek, 2009). There are several reasons for this. The timing of CSR strategy can have a profound impact on results, that is, if a firm is rewarded or punished by the market for its behavior (Ramchander, Schwebach, & Staking, 2012). CSR needs to be communicated both internally and externally with clear communication goals (objectives). It also need to be communicated with consideration to new internet based communication tools in form of social networks such as Twitter or Facebook (KPMG, 2011). Researchers in last 50 years (Barnett & Salomon, 2006; McWilliams & Siegel, 2001) tried to explain the relationship between a firms CSR and corporate financial performance in numerous works, these studies in general have lack certain factors. Most of the empirical studies that were conducted did not care to control for intangible factors (e.g. R&D intensity) 5.

(13) that may influence a firm’s financial performance. In overall CSR is empirically supported to provide a direct and indirect impact on firm performance. Direct impact can appear in the form of positive financial performance, while indirect impact can be enhanced brand image or market reputation (Peter F Drucker, 1984; Harrison et al., 2010; Moon & DeLeon, 2007; S. A. Waddock & Graves, 1997; Wood, 2010). Stakeholders now in modern society are increasing level of awareness since there is increasing evidence of the negative impact of businesses on environment and society. These activities are mostly confined within the spheres of firms from the developed nations, but this paradigm also changes with globalization and higher anticipation from society. Majority of recent studies came out with propositions or models but did not make an attempt to develop testable hypotheses to find empirical support for the arguments put forward by the authors. This study aim to improve these shortcomings, also this research present a testable hypotheses and we provide a methodological framework that will use recent self-assessment data on corporate social responsibility and will try to pinpoint the role corporate social responsibility plays on whole firm performance. Research addressing CSR can take several avenues, for instance by using a specific theory perspective, or to assess firm level outcomes (performance). CSR related research could also address strategic intent and firm level choices regarding the enablement or operationalization of CSR. This research addresses some of these avenues and intends to enhance the understanding of CSR for practitioners by investigating the topic from a different perspective. Based on the stakeholder theory and the institutional theory, the researcher can hypothesize that there is positive relationship exists between socially responsible behavior and firm performance in the company (O’Reilly & Pfeffer, 2000; Waddock & Graves, 1997). This study assume that despite a significant increase in overall spending and number of activities geared towards socially responsible behavior, studies didn’t prove impact was not significant. An increased level of awareness among the consumers and more self-promotion by the companies who are engaging in socially responsible activities might improve the likelihood of finding a significant impact in future. CSR remains a vague term that covers many different activities, and as such, needs to be developed (Dahlsrud, 2008; KPMG, 2011; Maak, 2008). This problem is manifested by the definitions “a commitment to improve societal well-being through discretionary business practices and contributions of corporate resources” (Du, Bhattacharya, & Sen, 2010, p. 8) and “actions that enhance a firm’s competitiveness and reputation” (Hill, Griffiths, & Lim, 2007, p. 18). Studies on management and CSR have further looked at CEO duality, CEO 6.

(14) compensation and managerial control and less on how CSR is managed operatively (Walls, Berrone, & Phan, 2012). Another concern is that few studies explore the driving forces behind CSR among customers (Lee, 2008) or inter-organizational dynamics, for example interaction processes and procedures (Simpson, Power, & Samson, 2007). Instead, most CSR studies have been more interested in corporate financial performance. Since almost all of the studies that dealt with the relationship between CSR and firm performance focused on financial aspects, we aimed to find out whether CSR have affected organization performance in more than financial context. This research also aimed to tackle the strategy preposition of CSR for companies.. 7.

(15) Delimitations and Limitations Delimitations Delimitations of the study are the scope of the investigation in order to make research feasible. With this approach the study is delimited to Taiwan. Second, it is delimited to multinational companies in Taiwan. And lastly, this study will only explore the relationship among variables of UNGC, CSR and business performance.. Limitations The major limitations are: research is conducted only among the workers working for multinational companies who has established office in Taiwan; research results might not be generalized into other CSR research contexts; research data cover only one amount of time; and only one CSR measurement, one UNGC measurement and only one business performance measurement. With research scope mainly concerned about maximizing research robustness (based on survey data via questionnaires), this work can accept these limitations.. Definition of Terms CSR With the broad terminology in CSR field the researcher should at the first place explain that the distinction between CSR and corporate social performance, where is one of semantics, not one of substance, and that both terms “are often used interchangeably in empirical studies” (DB Climate Change Advisors, 2012, p. 5). CSR and corporate social performance similitude makes their comprehensive analysis a valuable reference for this research. Defining CSR, the authors distinguish between two schools of thought: One approach casts social performance as a multidimensional construct, encompassing a company‘s efforts to fulfill multiple responsibilities – economic, legal, ethical, and discretionary (Aupperle, Carroll, & Hatfield, 1985; Carroll & Shabana, 2010). A second approach casts social performance as a function of how a company treats its stakeholders (Clarkson, 1995). This research encompasses both approaches without distinction. Even if a common definition of CSR does not exist, it is possible to find at least two common features in the definitions of CSR both provided above and proposed by other 8.

(16) studies not cited here (Carroll, 1991; Khoury, Rostami, & Turnbull, 1999; McWilliams & Siegel, 2001). The first feature is that any action or investment by firms, in order to be considered CSR, must be voluntary. This means that firms investing in order to improve the working conditions of employees are not investing in CSR if law requires that improvement to be achieved. The second common feature is the centrality of the concept of stakeholders, defined as “any group or individual who can affect or is affected by the achievement of the organization’s objectives” (Freeman, 1984, p. 46).. Business Performance In this work the writer is using theoretical definition, where organizational performance depends on their achieved business objectives (Elenkov, 2002).. United Nations Global Compact In this research the researcher entail the UNGC and their ten universal principles: Human Rights Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and Principle 2: make sure that they are not complicit in human rights abuses. Labour Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; Principle 4: the elimination of all forms of forced and compulsory labour; Principle 5: the effective abolition of child labour; and Principle 6: the elimination of discrimination in respect of employment and occupation. Environment Principle 7: Businesses should support a precautionary approach to environmental challenges; Principle 8: undertake initiatives to promote greater environmental responsibility; and Principle 9: encourage the development and diffusion of environmentally friendly technologies. 9.

(17) Anti-Corruption Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery. All the principles were drawn from the Universal Declaration of Human Rights (1948) and the International Labour Organization’s (ILO) Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy (1977), which companies are expected to adopt within their own areas of business.. 10.

(18) CHAPTER II LITERATURE REVIEW In this chapter we will explore the literature of CSR, its definition, adaptation and supporting and opposing arguments are then discussed. We further discuss the literature of CSR and its relations to performance. We will also try to explore different examples of CSR, its increasing popularity. In the last part we will look at literature discussing UN Global Compact.. CSR – The Definition Modern, globalize companies nowadays to be successful have to apply a broader market approach that extends outside its traditional realm to better serve firm objectives (Kang, 2009; López, Garcia, & Rodriguez, 2007). Customers are with modern technologies more informed and better organized, that creates demanding environment (Appiah-Adu & Singh, 1998). First definition of CSR in management is generally attributed to Brown (1953), but in other fields this issue was under scrutiny for example Adam Smith in his work The Theory of Moral Sentiments (1759) defends honesty in market place and need of. “social. responsibility.” There is no one specific definition of CSR, but most common literature is using definition: “firm actions designed to improve social or environmental conditions” (Mackey, Mackey, & Barney, 2007, p. 818; McWilliams & Siegel, 2001; S. A. Waddock & Graves, 1997). Some other scholars use definition where CSR is “a commitment to improve societal well-being through discretionary business practices and contributions of corporate resources” (Du et al., 2010, p. 8; Kotler & Lee, 2005). CSR typically have some norms that stakeholders see as just and fair and company cover activities that promote some aspect of human welfare (A. B. Carroll, 1991; KPMG, 2011). As stakeholders we can define as any group or individual who can affect or be affected by the achievement of a firm’s purpose (Freeman, 1984). Four Part Model of CSR published by A. Carroll in 1991 is one of the most mentioned models of CSR. Carroll views CSR as a multi-layered concept that can be distinguished into four aspects – economic, legal, ethical and philanthropic responsibilities. He presents the different responsibilities within a pyramid and the following definition (Crane & Matten, 2007, p. 49). The concept of CSR “encompasses the economic, legal, ethical, and philanthropic expectations placed on organizations by society at a given point in 11.

(19) time“ (Carroll & Shabana, 2010, p. 35). According to Carroll this four levels are long standing, but the ethical and philanthropic responsibilities are getting more impact over the last few years. Later discussion of definition entail that outcome of CSR is not only target for societal well-being, but organization should design business practices to achieve it (Mackey et al., 2007; McWilliams & Siegel, 2001; Waddock & Graves, 1997). This implies that ethical meaning of CSR has shifted more to be a strategic role and unit of analysis is more organization (instead of society). Hill, Ainscough, Shank, & Manullang (2007) in their work reflect that CSR has become strategic is “actions that enhance a firm’s competitiveness and reputation” (p. 6). Table 2.1 Key Terms Related to Corporate Social Responsibility Concept Name. Definition. Source. Corporate Social Business approach where economic, social, Responsibility environmental and ethical reasons have impact on company. Business is tackling this approach for mitigating risk, decreasing costs, and improving brand image and competitiveness. This approach can have a wide range of practices, including: corporate governance, employee relations, supply chain relationships, customer relationships, environmental management, philanthropy and community involvement.. Mercer, 2007. Corporate Social A business organization’s configuration of principles of Performance social responsibility processes of social responsiveness, and policies, programs, and observable outcomes as they relate to the firm’s societal relationships.. Wood, 1991, p. 693. Corporate Financial Performance. DB Climate Change Advisors, 2012, p.22. A term widely used within academia to refer to the financial or economic performance of a company. In general, academic studies have tended to focus on either financial accounting measures (for example, Return on Assets or Return on Equity) or economic measures (usually a company’s stock performance) to measure, rank and compare the CFP of different companies.. 12.

(20) Table 2.1 (continued) Concept Name. Definition. Source. Stakeholder. Individuals or organizations with an interest in the actions and impacts of an organization. That can be customers, suppliers, shareholders, employees, communities, members of special interest groups, non-governmental organizations, or regulators.. Mercer, 2007. Sustainability. Sustainability or sustainable development refers to the concept of meeting present needs without compromising the ability of future generations to meet their needs. It encompasses social welfare, protection of the environment, efficient use of natural resources and economic well-being.. Mercer, 2007. CSR and Strategic Management CSR has become widely popular research topic and the today literature is much more broader and include studies from corporate citizenship (Hemphill, 2004), volunteer work (Almeida, Lins, & Oliveira, 2005; Freitas & Ventura, 2004), the interaction between corporations and the community (Fonseca, Moori, & Alves, 2005; Sousa Filho, Wanderley, Gómez, & Farache, 2010), models of social and environmental management (Abreu, 2001; Pasa, 2004), corporate giving and philanthropy (Amato & Amato, 2007; Bruch & Walter, 2005), the institutionalization of CSR and the dissemination of information on CSR actions (Pollach, 2003; Wanderley, Lucian, Farache, & Sousa Filho, 2008). CSR in academics is part of the strategic management field (Drucker, 1984; Mintzberg, 1983; Porter, 2008). Strategic management supports the alignment of firm level policies and strategic priorities as result are interrelated to CSR. The strategic management concept supports the design of optimal management practices and involves a systematic analysis of internal and external factors associated with customers and the organization itself. The company in order to be efficient should look for promoting corporate changes with deep strategic implications that must be associated with business strategies (Coutinho & Macedo-Soares, 2002). Moratis & Cochius (2011) in their his study found out that managers have three core problems with CSR: they have: too little knowledge about the overall concept (38.6% of respondents), too little knowledge of the CSR implementation process (43.2% of respondents) and that 56.8% of the responding managers don’t have a clear action plan. 13.

(21) Husted & Allen (2001) formulate new models of social strategy with use of business strategy tools and concepts. This new social corporate strategy is linked with four corporate elements: (a) structure of industry (Porter, 1986); (b) internal resources of the firm (Barney, 1991); (c) corporation ideologies and values; and (d) the relationship with stakeholders. All of these social objectives are closely related to corporate social performance, which has been defined as “the satisfaction of stakeholders’ expectations regarding the firm’s behavior as it relates to the firm’s societal relationships with those stakeholders” (Husted, 2000, p. 13) Carroll's CSR (1991) model can connect CSR strategy with overall responsibilities of organization from economic, legal, ethical and philanthropic point of view. Where legal responsibilities contains the engagement of civil and regulative part of responsibilities such as societal lobbying or voluntary regulations. Business is therefore expected to comply with the laws and regulations by which the measure can be set in short time relief operations or long-term co-operations (Mayerhofer, Grusch, & Mertzbach, 2008, p. 10). Companies engage in CSR in order to prevent potential disadvantages such as regulation from government, corporate consider governmental influence as a higher level of stakeholders (Roberts, 1992). Ethical responsibility according to Carroll “consists of society ́s general expectations over and above economic and legal expectations” (Carroll, 1991, p. 42). Ethical responsibilities include those activities and practices that are expected or prohibited by society even though they are not codified into law. Also organizations are required to take society ́s wider ethical expectations into account (Hennigfeld, Pohl, & Tolhurst, 2006, p. 7). The four components are discussed separately for illustration purposes, but they are not mutually exclusive. Carroll separate them so managers could get an idea of different types of responsibilities and to see the conflicts between components, such as a conflict between economic and the other three responsibilities as ―concern for profit versus ―concern for society (Carroll, 1991). Researchers claim that unplanned and insincere CSR could be counterproductive and risk negative connotations for their stakeholders (Carroll & Shabana, 2010; Ramchander et al., 2012; Wagner, Lutz, & Weitz, 2009). That’s why company should take a strategic approach if they want to benefit from their CSR efforts (Kelly & White, 2009; Luo & Bhattacharya, 2009) and they are advised to use the same decision framework as they do for any other strategic management decision (Porter & Kramer, 2006). For implementing these strategies CSR activities should be structured into observable social programs (targeting firm specific goals or needs), social impact (now popular energy saving programs) or in terms of social policies which act to guide organizational decision-making. Carroll and Shabana (2010) suggest categorizing CSR activities and their scope into one or more of the following: 14.

(22) 1. Cost and risk reduction 2. Strengthening legitimacy and reputation 3. Shaping competitive advantages 4. Creating win–win situations through mutual value creation We can distinguish firms CSR activities into: A, CSR internal – for example workplace have on-site child-care provision for employees, is re-cycling and implement internal environmental improvement programs, developing non-animal testing procedures (McWilliams & Siegel, 2001) B, CSR external - where workplace can be the support of local businesses, fighting deforestation and global heating, supporting minorities, implementing external environmental improvement programs or provides disaster relief. Strategic CSR activities that creates true value for the beneficiaries (support good cause for society) as well as enhance company’s business performance is seen as sustainable in the long run (Bruch & Walter, 2005). Also a strong commitment to social responsibility provides a set of values that is not easily imitable by competitors (Barney, 1991; O’Reilly & Pfeffer, 2000). Managerial interpretations of social and environmental issues affect the selection of social strategies (Bansal & Roth, 2000; Sharma, Pablo, & Vredenburg, 1999; Sharma, 2000). CSR have many opportunities for better performance of firms, but not only in outcome but also within organization. For example, improved human resources performance for the firm (Wieseke, Ahearne, Lam, & Dick, 2009). Research however point out that firms struggle to comprehend and implement CSR (Hill et al., 2007). The more firms integrate CSR into their corporate strategy the more they will be able to satisfy the demands of stakeholders (Ven & Jeurissen, 2005). Generally speaking the use of social strategy should have a positive impact on corporate social performance by reducing expectation gaps between the firm and its stakeholders, therefore increasing stakeholder satisfaction (Husted & Allen, 2001). Furthermore unrelated CSR activities undertaken by firms could be ineffective and inefficient (Drucker, 2001). These strategic CSR activities can help company to accomplish strategic business goals and organization should adopt this philosophy of integrating CSR into firm’s strategic perspective and operations (Werther & Chandler, 2006). Company with this in mind implement CSR into core businesses like eco-friendly performance, adherence of labour norms, prevention of human rights, abandonment of corruption in the own business 15.

(23) and for suppliers etc. Businesses are implementing these practices also because its now part of risk management, among other traditional risks as technological, economic and political risks (Kytle & Ruggie, 2005). Social risk contains areas of human rights, labor standards and environmental standard and sustainability. Reporting CSR practices have become a key management tool in risk management due to the growing complexity of global business (Kytle & Ruggie, 2005). On global level, these social risks can significantly affect cost, marketability, public and reputation perceptions, operations and supply. According to Du et al. (2010) CSR activities help firms to reduce operational costs, secure purchased inputs, smooth inbound / outbound logistics and/or contribute to the Marketing and sales function of the value chain. These CSR activities also helped in value addition of the support activities (like in procurement, manpower development etc). CSR activities could be done in such a way that the CSR activity formed part of the firm value chain by supporting either the primary activities or the support activities (Porter & Kramer, 2006). Companies participate in CSR in order to gain the several benefits as increased sales and market share - there is strong evidence that when customers make decisions of which product to buy they consider factors such as companies participation in CSR (Kotler & Lee, 2005). Others benefits are: improved brand positioning increased ability to attract, motivate and retain employees. This may occur only when product differentiation is under conditions where customers are willing to pay for social products, credible information about social products exists, and protection against imitators is available (McWilliams & Siegel, 2001). The availability of a product differentiation social strategy depends upon the existence of consumers sensitive to environmental and social issues and whose purchasing decisions are affected by corporate behavior in these areas (Paul, Zalka, Downes, Perry, & Friday, 1997). There is considerable evidence that firms innovate in response to social opportunities and threats (Kanter, 1999). Companies that adopt the CSR principles are more transparent and have less risk of bribery and corruption. They also have less risk of negative communication events, which damage their reputation and cost millions of dollars in information and advertising campaigns. However CSR adjustment, responsibilities, reporting can be a real challenge for firms (Kang, 2009). Idowu & Papasolomou (2007) sees as main motivation for companies for reporting the requirement from stakeholders. CSR reporting companies perceiving the practice as a process of legitimacy, on the other hand non-reporting companies tend to avoid this practice due to public skepticism from CSR reporting ( O’Dwyer , 2002).. 16.

(24) Barney (1991) states that the creation of competitive advantage occurs through the implementation of strategies that add value and create benefits for one company when another company fails to do so. Competitive advantage can be achieved through internal resources or a group of internal resources from the firm. Firms seeking to have competitive advantage now engage in CSR more and they consider CSR as a long term investment benefit (Carroll & Shabana, 2010; Kang, 2009; KPMG, 2011). For example organizational values are accepted as intangible resources that can result in competitive advantage (Barney, 1991). Ihlen, Bartlett, & May (2011) argues that some form of communication is needed and cannot be avoided, since silence on the matter of CSR is also a form of communication. With modern communication channels stakeholders wants to know more about the CSR effort done by companies and yet become skeptical if the companies commit too much time for communicating their CSR. Coombs & Holladay (2011) refer to it as “the CSR promotional communication dilemma.” Still, if companies communicate their CSR activities, they more likely attract critical stakeholder attention, because stakeholder expectations regarding CSR are a moving target and must be considered carefully on a frequent basis” (Morsing & Schultz, 2006, p. 323). Now firm’s CSR communication emphasis organization’s contribution in different social, environmental and economic activities (Du et al., 2010). This represents a strategy to alter the public’s perception about the legitimacy of the organization (Hooghiemstra, 2000).. One of the established ways of communication organization’s. activities is CSR reporting. CSR reports are more permanent feature of the business landscape (Perrini, 2005). Many of the environmental initiatives addressed in the CSR reports are designed to reduce energy use and waste generation and also reduced cost at the operational level (Gutiérrez & Jones, 2007). When it comes to environmental issues, CSR reporting are most active in polluting sectors such as electronics, pharmaceuticals, automotive, utilities, chemicals and gas and oil (Kolk, 2004), because environmental issues are considered to be crucial. Therefore companies are now greatly aware of external pressure toward environmental events such as pollutions or environmental disasters (O’Dwyer , 2002).. 17.

(25) Adaptation and Discussion Regarding the CSR Concept As mentioned above with CSR concept a large number of firms worldwide is now relocate financial and other resources to undertake CSR activities that extend beyond regulatory requirements (Moon & DeLeon, 2007; Orlitzky et al., 2003). This adaptation is used as strategic response (Carroll & Shabana, 2010; Wood, 2010) to market and customer pressures by improving their ethical (responsible) behavior or environmental performance. Firms often seek this goal to increase their competitiveness (Moon & DeLeon, 2007) and prioritizing CSR is unavoidable for every business leader in every country (Porter & Kramer, 2006). PriceWaterhouseCooper survey from 2002 claim that “70% of global chief executives believe that CSR is vital to their company’s profitability” (Carroll & Shabana, 2010, p. 8). Various stakeholders, customers or activists, apply pressure on a firm to engage in a specific matter firm related or not when companies have become aware of potentially problematic issues. For company is important to recognize that certain issues can grow and become a concern to them if the importance escalates over time (Maak, 2008). CSR ideally are of purely external concerns to the firm. But sometimes actions to apply CSR are taken and driven for personal reasons, for example by the CEO (Adams, Licht, & Sagiv, 2011; Luo & Bhattacharya, 2009; Walls et al., 2012). One of the most profound economists Milton Friedman (1970) discussed that firms should focus on profit maximization for its shareholders, this classical economic argument against CSR also claims that firms should do so within the framework of the society’s norms. In his view social or environmental cases should be fulfilled by individuals through donations or by Governments via tax revenue and not by firms unless legislation pushed them. ). Drucker (1984) partially agreed with Friedman in that firms must first tend to profit, because without profit there are no funds available to engage in any type of CSR. But on the other hand Drucker disagrees that profit shall be the only social responsibility of a firm and stresses that CSR is important and must be addressed. For Drucker CSR activities are more likely turn a social problem into an economic opportunity and benefit to a firm if the CSR activities are long term and experimental (Drucker, 1984). CSR can provide economic wealth for the firm and to the society in form of productive capacity, human competence and job creation these factors can further decrease the risk of problems with third parties, media and government (Nielsen & Thomsen, 2011). Sustainable behavior requires firms to change their values and attitudes towards the use of environmental resources, people inside and outside their operations and perceiving their role in society in general. The explicit values are 18.

(26) captured by the concept of corporate ideology (Pettigrew, 1979), which is particularly relevant to the formulation of corporate social strategy (via Husted & Allen, 2001). Strategy, performance, and social responsibility is closely related to Corporate ideology because ideology affects the decisions made by managers based on their goals, objectives, and beliefs about how the world works (Simons & Ingram, 1997). These managerial values act as a frame for recognizing and evaluating the importance of social issues (Sharfman, Pinkston, & Sigerstad, 2000) and the salience of stakeholders (Agle, Mitchell, & Sonnenfeld, 1999). Corporations are expected to establish corporate code of conducts, which reflect these values and control corporate behavior at firm level (UN, 1987). Firms willing “to survive and prosper in a world of change will need to have strong ethical values and standards ... Successful global business will be those that integrate sustainable development, including social responsibility, into their business strategies.” (Ruston, 2002, p. 139 via Witt, 2012). Organizations are gaining organizational legitimacy through CSR. Suchman (1995) define legitimacy as “a generalized perception or assumption that the actions of an entity are desirable, proper or appropriate within some socially constructed system of norms, values, beliefs, and definitions” (p. 574). Suchman also argue that legitimacy and institutionalization are synonymous and phenomena to ensure that the existence of an organization is seen as natural and meaningful. It is essentially something what is coming within society, but its not unusual because organizations are embedded and operates in society. Sandra A. Waddock, Bodwell, & B. Graves (2002) suggested that total responsibility management is now getting higher; there has been significant increase in the appearance of rankings and certifications for CSR. CSR have been increasing in regulatory sector. For example all of world TOP 500 firms (and numerous others) have substantial CSR programs and they listed on their respective website. Firm specific examples are IKEA (retail), Ford (automobile industry), IBM (business software), Vodafone (telecommunications), Carlsberg (beverages) and Samsung (consumer electronics). For measuring CSR researchers used various methodologies to measure level of corporate social responsibility of the firms. They used pollution index (Fogler & Nutt, 1975), reputation index (Cochran & Wood, 1984), surveys (Aupperle et al., 1985) and content analysis (Abbott & Monsen, 1979). For survival of the organization, firms have to incorporate the practices and procedures that are institutionalized in the society. Meyer & Rowan (1977) in their work argues that by incorporating such practices, organizations improve the possibility to find themselves in zone of legitimacy for audience. Organizations are trying to include stakeholders to have and interest in the activities of firm, if they are in “zone of legitimacy” 19.

(27) they will have likely higher attention and level of approval from the audience (Zuckerman, 1999).. CSR and Performance The research of CSR and its connection to financial performance is one of the most widely debated fields of CSR, but yet still unanswered. According to Friedman (1970) managers investing in CSR are destroying shareholder value, but another prominent scholar Freeman (1984) oppose when he argue that firms are fostering their ability to gain and maintain a competitive advantage over time. Topic of CSR and its relation to Corporate financial performance (CFP) can be divided according to meta study of Margolis, Elfenbein, & Walsh (2007), to two categories. Margolis have conducted a research of 251 studies about CFP and they found that 109 used accounting measures like return on assets, return on equity. 156 papers used market measures like stock returns; market to book ratio and 14 papers used both methods. This study also concluded that 59% of reviewed papers found a no a non- statistically significant link between CSR (Margolis is using Corporate Social Performance terminology) and CFP, 28% found a statistically significant positive link, and 2% found a statistically significant negative link (10% did not report sample size and therefore were not tested for significance). Conclusion for this paper is that, the effect of CSR on CFP is small, positive and significant, which, they conclude, pleases neither proponents nor opponents of CSR. The authors’ also highlight the importance of demonstrating causality in CSR research, noting that measures of CSR temporally precede measures of CFP in only 36% of the studies they analyzed: surprisingly low if the aspiration has been to establish a sequential link. Margolis, et al., recommend that future scholars pursuing specific questions about the CSP-CFP relationship should seek greater precision in analyzing the empirical link between the two. McWilliams & Siegel (2001) recommend that researchers should implement other factors such as industry and size that may impact the CSR-CFP link. With economical crisis from 2008 and in the context of the Lehman Brothers bankruptcy, socially responsible firms’ stock price decreased less than non-socially responsible firms’, as measured by abnormal returns. For more transparent assessment of company, stakeholders can seek CSR as one of the indicator or information signals for corporate reputation with effect on CFP (Fombrun & Shanley, 1990). Firms with good relationship with their stakeholders can improve their ability to address and balance the 20.

(28) claims of multiple stakeholders. This will help company to increase the ability to adapt to external demands and market changes. From this perspective, the managers working for socially responsible firms may increase their scanning skills and firms’ processes and information systems. This has a positive impact to ability of the organization to adapt to external changes. For example CSR can have impact on the human capital of the firm. This may be due to the fact that more socially responsible firms may increase the level of motivation of their managers and they may also attract better employees (Greening & Turban, 2000). Is CSR causing CFP or vice versa? The instrumental stakeholder theory argues that CSR is determining CFP. The investment of resources on socially responsible activities may depend on the availability of excess funds. (McGuire, Sundgren, & Schneeweis, 1988) With investing to CSR, the firm is facing to the question whether to invest their resources necessary for socially responsible activities or not. According to group of researchers and their “slack resources theory “ (Orlitzky et al., 2003; S. A. Waddock & Graves, 1997) the positive relationship between CSP and CFP may be due to higher financial performance causing higher investment to CSR and not vice versa. This issue is difficult to solve from an empirical perspective, and many of the papers around CSR point out that research can potentially suffer of the endogeneity. So is there financial value for a reputation for a CSR? Group of German researchers (Schnietz & Epstein, 2005)investigate this question in their work where they look at CSR and reputation during the crisis due to the failed 1999 Seattle WTO ministerial meeting. They find that “a reputation for social responsibility yielded tangible financial benefit during the crisis” (Schnietz & Epstein, 2005, p. 341). Other group of researchers (G. H. Jones, Jones, & Little, 2000) found out that the stock prices of companies with better reputations are more sustainable than those without such a reputation. Different point of view to relationship between CSR-CFP have group of researchers (Barney, 1991; Russo & Fouts, 1997) according to them, investments in CSR may help forms to develop new competencies, resources, and capabilities which are manifested in a firm’s culture, technology, structure, and human resources. Firms with higher CSR ratings may gather an easier access to capital, through the improvement of their relationships with bankers and investors. With measuring the relationship between CSR and CFP we should point out several challenging task. First of all, as it was already discussed in CSR review section, to find an adequate measure of CSR is a challenging task. There are empirical measures of social 21.

(29) performance (KLD, SAM Group), some companies are using questionnaires (e.g. Dow Jones Sustainability Index), surveys with consultation of experts (e.g. GlobeScan) and analysis of annual and sustainability reports and other information concerning the integration of corporate responsibility principles and practices published by the company (e.g. Fondation Guilé, Inrate), but with complexity of their construct nobody can get consistent results of CSR (Entine, 2003). As previously mentioned, the lack of precise and generally agreed definition of CSR make the difficulties in developing a consistent measurement system. This imply that more research would be needed in order to strengthen the reliability of such empirical measures, maybe through the implementation of case studies.. With. implementation of CSR researchers have to question the span of time necessary for an increase in CSP in improving CFP. According to studies on corporate reputation and CSR (Bhattacharya & Sen, 2004; Fombrun, Gardberg, & Barnett, 2000), CSR will impact CFP in the long term. Although to this date, there was not conducted empirical study deal with the issue of the CSR-CFP relationship employing different time frames by relying on previous literature results, in order to check’ robustness of long-term effect. The main construct they implement in order to justify the positive relationship between CSR and CFP is the “moral capital”, which is positively connected to CSP and acts like insurance. Surroca, Tribó, & Waddock (2010) in their article confirm that intangibles mediate the relationship between Corporate Responsibility Performance and CFP. “the insurance effect of CSR activities will be greater for firms with higher levels of intangible assets” (Godfrey, Merrill, & Hansen, 2009, p. 430). So the higher the proportion of intangible assets, the higher is possibility for losses. That creates higher potential for the insurance value of CSR.. 22.

(30) Table 2.2 Summary of CSR Studies: Correlation to CFP CSR Individual Academic Studies. Correlation of CSP to Higher CFP. No. of Studies. Date Range of Studies. Date Range of Samples. Security Studies Security Studies Security Studies. Positive Neutral Negative. 3 0 0. 2006-2011 N.A N.A. 1992-2010 N.A N.A. CSR Meta-Studies Meta-Studies Meta-Studies Meta-Studies. Positive Neutral Negative. 3 0 0. 2003-2008 N.A N.A. 1972-2007 N.A N.A. 23 9 2. 1991-2007 1991-2005 1997-2006. N.A N.A N.A. CSR Literature Review Literature Review Positive Literature Review Neutral Literature Review Negative Note. DB Climate Change Advisors, 2012, p. 45. CSR and Balance Score Card With notion of this research the researcher have to mention Balance Score Card (BSC) and its relation to CSR. The Balance Score Card is one of the most popular framework for assessing organizational performance. Kaplan & Norton (1996) with notion that companies are facing modified conditions of competition in the era of informationtechnology and global markets, in order to stay competitive need specific financial management and controlling systems. To better address the challenges of the information age, Kaplan and Norton developed the Balanced Scorecard to include such intangible aspects as customer satisfaction, processes quality and organizational development, alongside more “traditional" financial indicators. Important motivation for designing BSC was that most financial measures are directed backwards and they looked lagging indicators. To achieve future business success, authors claim, managers must increasingly resort to leading Key Performance Indicators related to aspects more difficult to translate in ‘hard’ financial terms. BSC is bringing, the potential benefit of investments in intangible assets therefore they will be more visible. With this notion, BSC should encourage all members of the firm to adopt a long-term view looking substantially beyond the next annual report. Kaplan and Norton design BSC to be open to more qualitative “soft facts” as well as its various dimensions have encouraged research towards the integration of ecological and social aspects into the core 23.

(31) management processes of a company. BSC should be tool for organizations (including those from the public and non-profit sector) to manage the demands of their relevant stakeholders and to translate strategies into action. This research has to mention that this instrument does not release companies from the definition of sustainability strategies. If a company wants to establish a BSC for corporate sustainability, social and business strategies must be done beforehand to the setting-up on corporate environment. The Balanced Scorecard could be helpful to bridge the gap between the strategic and the operating level, e.g. objectives and measures, of companies. The BSC as an instrument for performance measurement was further developed beyond its original conception into a strategic management concept. Managements are trying to address the problem of corporate contributions to sustainability in integrative way. Companies desire to improves all three dimensions of sustainability - economic, environmental and social (Figge, Hahn, Schaltegger, & Wagner, 2002). In a BSC all aspects are relevant for a achieving a competitive advantage. The relation between environmental, social and the economic success of the firm are value-based sin sustainability management. In summary, the Balanced Scorecard is being a management tool, comprising financial as well as non-financial KPIs and provides high potential concerning the management of corporate sustainability/CSR. There have been a number of different approaches to integrate sustainability measurement into the traditional BSC approach. With the further discussion about BSC, researchers point out that BSC still lacks measurements in the broader area of sustainability. (Figge et al., 2002) propose sustainability dimension to be added to the original four perspectives of BSC as a standalone perspective; or, the social and environmental aspects can be integrated into the original four perspective to develop a specific new scorecard system. German researchers (Bieker, Gminder, Hahn, & Wagner, 2001; Figge et al., 2002) for the new century introduced the term Sustainability Balanced Scorecard (SBSC). They put fifth perspective (social or environmental) to traditional 4 perspectives of BSC. The goal is to address the strategic orientation of the organization with sustainability management. According to their work SBSC could be useful to examine whether the organization has implemented sustainability management strategic goals, with relevant indicators and measurement procedures, and whether such management approaches reflect back on other financial and non-financial measurements (Bieker et al., 2001). In this work, researcher will not use SBSC approach for several reasons. First of all we should point out that this approach is still unproved in academic filed, where most of the 24.

(32) works are based in German speaking countries. Other rationale for this approach is that it is difficult to distinguish a set of measurements that evaluate social and environmental performance only while not associated with other four perspectives. The SBSC approach experience increased difficulties, as social impacts are difficult to measure. In this work will use classical BSC approach for better implementing and measurement.. United Nation Global Compact Many multinational companies have their codes and initiatives guiding their approach to CSR. These CSR policies can be developed by several tools, one of the most used is the United Nations Global Compact (UNGC) which defined their mission as: “a strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the area of human rights, labour, environment and anticorruption.” UNGC launched in 2000, is also today considered to be the world’s largest voluntary corporate responsibility initiative with almost 8000 corporate signatories and it has grown successfully during the last few years in terms of the number of members. UN aim the UNGC as encompasses for ten universal principles, drawn from the Universal Declaration of Human Rights (1948) and the International Labour Organisation’s (ILO) Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy (1977), which companies are expected to adopt within their own areas of business. Principle 1 and 2 deals to human rights and urges businesses to support and respect international human rights and make sure their own corporations are not complicit in human rights abuses. Principles 3 to 6 deal with labour issues. Principles 7 to 9 are related with the environment and Principle 10 anti-corruption. This has an importance to provision of a global framework to promote sustainable growth and good citizenship through committed and creative corporate leadership (Accenture, 2013). This activity also attempts to specify in detail the principles that should inform corporate activity on a global scale. These values should be compromised by the traditional claims of cultural or ethical relativism, such as those made by Donaldson & Werhane (1988). Global Compact get involved into reporting practice by issuing regulations which help to translate the ten principles into practice. UN as “a central international forum capable of formalizing relationships between governments, business and non-governmental organizations as well as bringing together leading experts to further the field as a whole” (Cohen, 2001, p. 186) have the ability to 25.

(33) create these principles and in extent “encourages the corporation to maintain policies, processes and structures that are consistent with the company’s expressed mission and values across all relevant cultures.” (Logsdon & Wood, 2002, p. 95) Therefore the UNGC is consistent with the ‘global integrated’ approach towards international business. UN can with its greater network build much stronger forum including learning, dialogue, partnership projects and outreach (McIntosh, 2003, p. 180). For example learning network can “provide the raw material for a deeper understanding of how company policy, structure and practice are evolving with regard to the issues embraced by corporate citizenship.” (McIntosh, 2003, p. 181) One of the aims is to ‘fill a void beten regulatory regimes, at one end of the spectrum, and voluntary codes of industry, at the other’ (Global Compact Office, 2002). Model of voluntary or self-regulation was chosen to adopt a in a manner similar to the international codes of conduct that emerged during the 1970s, including the ILO’s (1977) Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy and the Organization for Economic Co-operation and Development’s (OECD, 1976) Declaration on International Investment and Multinational Enterprise (Broadhurst, 2000). With all the acclamation the researcher should say that UNGC have missed opportunity in some part. McIntosh (2003) conclude that phase one of the UNGC Learning Forum ‘is not encouraging’.. The voluntary approach adopted by the UN and its relationship with. transnational corporations has proven to be the main focus of considerable criticism. The reasons underlying this disappointing performance may be numerous but main criticism is about a few effective mechanisms are in place to ensure that companies comply with the UNGC principles; rather than being held to address and internalize all principles consistently, companies may pick and choose the principles and corporate activities they wish to deal with; UNGC does more to enhance the image and legitimacy of big business than to improve social and environmental standards. (Utting, 2002, p. 32) Nevertheless the partnership and active engagement between multi-levels of business, civil society and government, which the global compact creates, is unprecedented. UNGC renewed corporate interest in engaging with environmental and social regulatory issues (Hocking & Kelly, 2002). Researches pointed out that the level of country participation in the UN GC depends on a diversity of causes, such as the host country’s involvement in the international system (Knudsen, 2011; Rasche, 2012). The Global Compact helped to create a mass volume of awareness in CSR issues. Four core areas which The Global Compact help to focus on makes clear which standards business need to adhere to, even though its interpretation lies on company’s spheres of influence. 26.

(34) CHAPTER III RESEARCH METHODOLOGY This chapter outlines the research design and methodology. In this chapter we highlights the theory that supports the research and presents the research hypotheses derived from the research questions. This study will use quantitative approach as a means to measure the effect of independent variables towards dependent variables. It also provides a detailed description of the research questionnaire, research procedure as well as the approach for validation of the measurement instrument.. Research Framework The research framework GCSR (see figure 3.1.) was developed by Shih and Nguyen (2013) relying on the review of the literature discussed in chapter 2 and the research purposes. This research seeks to analyze the effect of UNGC on CSR and business performance. United Nations principles in UNGC have done the most to promote and help companies to encompass CSR and sustainability topic in companies, therefore the researcher assume that there is relationship between UNGC and CSR. Also theoretical and empirical studies suggested that CSR affect business performance (Barnett & Salomon, 2006; McWilliams & Siegel, 2001; Waddock & Graves, 1997; Wood, 2010). In addition, there is a common consensus among scholars and researchers that CSR have effect on financial performance but as discussed for this work, other aspect besides financial will serves as the research framework for this study. UNGC Human Rights Labour Environment Anti-Corruption. H1. CSR Vision, values and strategy Management systems, organization and processes Products and services Resource and environmental management Communication, Reporting Stakeholder management. Business Performance Performance from financial perspective Performance from customer perspective Performance from internal business process perspective Performance from learning and growth perspective. H2. Figure 3.1. GCSR model, developed by Cheng-Ping Shih and Linh Nguyen 27.

(35) Research Hypotheses On the bases of the research questions, the literature review, the research framework and Baron and Kenny (1986) guidelines for mediation testing, the research null-hypotheses are formulated as follow: Hypothesis1: Global Compact have no effect on CSR. Hypothesis2: CSR have no effect on Business Performance.. Research Procedure A review of the literature on CSR revealed several key topics commonly linked to UNGC and business performance. Further literature review has been carried out on the basis of the interests generated from these variables to determine the nature of their connections. The literature also revealed that many studies related to CSR and performance has been conducted on differential sector and countries, this has prompted this research to focus on multinational companies in Taiwan as an area for investigation. Even though that the topic was previously well researched; not all the constructs have been identified and described and theory have been selected from the literature and practice in order to build a good theoretical model. Moreover, the relationships among the constructs were also addressed so as to form a clear idea about the research objectives and frame the questions for the study and provide a comprehensive research framework. For order of research procedure see Figure 3.2.. 28.

(36) Research Motivation. Conduct Pilot Study. Review of Literature. Review of Instrument. Identify Problems. Data Collection. Identify Research Questions. Data Coding. and Hypothesis Data Analysis Developing Theoretical Framework Conclusion and Suggestions Developing Research Method Report Completion Developing of Instrument Final Defense Translation and Expert Review of instrument Revision Proposal Meeting Thesis Submission. Figure 3.2 Research procedure.. 29.