Defining the Multidimensionality of CSR

CSR has received a great deal of attention in the management and business ethics literature. There is a long-standing disagreement regarding what CSR actually entails (McWilliams et al., 2006). A notable explanation of the concept among opponents of CSR is the definition by Friedman (1970), who claimed from the instrumental theoretical perspective that “the corporate social responsibility of business is to increase its profits”. Friedman (1970) argued that societal concerns are not businesses’ concerns and that the free market system should eventually decide on such matters. If the free economy is unable to handle such matters, then the government should decide on such matters. The remark by Friedman is

6 accepted in other circles. On the other hand, proponents of CSR, who advance the stakeholder, theory credited with Freeman (1984), argue that a firm’s boundary goes beyond the main stakeholders to include any group that is influenced by or can influence the firm to achieve its aims (cf. Frooman, 1997). Freeman (1984) noted that firms that engage in CSR may reduce stakeholders’ transactional costs. Several theoretical perspectives on CSR have emerged since the arguments by Friedman and Freeman. Among these perspectives are agency theory, stakeholder theory, competitive advantage theory, resource-based-view of the firm and institutional theory (Freeman, 1984). For instance, the resource-based view of the firm perspective was introduced by Wernerfelt (1984) and improved by Barney (1991) under the assumption that for some businesses, environmental social responsibilities can be seen as resources and capabilities that can result in sustainable competitive advantage (cf. McWilliams et al., 2006). In others words, in order to use efficiently, the main important inputs to generate the desired outputs in an organisation, management ought to tighten their stakeholder relationships. The framework was first theoretically applied to environmental CSR by Hart (1995) and empirically tested on firm level data by Russo and Fouts (1997) who observed that businesses that are highly environmentally and socially responsible had higher financial performance, which they claimed, agreed with the resource-based view.

A recent survey reported 37 definitions associated with CSR (Dahlsrud, 2008). One of the popular definitions is provided by Carroll. The author defined CSR in four parts as including “the economic, legal, ethical, and discretionary [later referred to as philanthropic] expectations that society has of organizations at a given point in time” (Carroll, 1979 p. 500 ; 1991 p. 283). This definition seems to be all-inclusive; it considers not only the social

7 dimension of CSR but also the economic dimension. McGuire (1963, p. 144) remarked that “the idea of social responsibilities supposes that the corporation has not only economic and legal obligations, but also certain responsibilities to society which extend beyond these obligations”. Wood (1991) defined CSR that makes it measurable. Wood (1991) viewed CSR as “configuration of principles of 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). Generally, CSR considers that businesses have both primary obligations to shareholders and secondary obligations to society.

A critical examination of the definitions of CSR points towards a social contract whereby firms are answerable to the demands and expectations of society. A number of authors have used the legitimacy theory to understand this idea of social contract embedded in the concept of CSR (Warren, 2003; McWilliams et al., 2006; Kuznetsov et al., 2009). Organisational legitimacy as explained by Suchman (1995) is a generalised view that, the actions of a (banking) firm are desirable, proper, or appropriate within some socially defined system of norms, values, beliefs, and definitions. The stakeholder theory examined previously integrates some of the building blocks of legitimacy by associating the profitability of businesses with the trust and respect firms receive from all other stakeholders since by social contract, firms and society are equal partners. It appears that Ghanaian banks engage in socially responsible activities in order to earn this trust from customers, government and the whole society.

Recently, Lundgren developed a dynamic microeconomic model of the firm that considers various CSR dimensions. The authors showed that profit-maximising firms undertake cost-

8 benefit analysis of CSR and then contribute towards CSR if stakeholders reward or pressure these firms to be socially responsible. For a literature survey on other constituents of CSR, the reader is referred to Joyner and Payne (2011), Dowell et al. (2002), Matten and Moon (2000), Paul and Siegel (2005), Chapple and Moon (2006) and Carroll and Shabana (2007). As aforementioned in the introductory chapter, consistent with McWilliams and Siegel (2001), this study considers CSR as voluntary actions by which banking firms go beyond compliance or the minimum legal requirements and engage in activities “that appear to further some social good, beyond the interests of the firm” (McWilliams and Siegel, 2001 p. 117). The aspect of CSR considered here in the banking industry concerns corporate philanthropy including charitable donations. In developing the theory of the firm in a dual- objective banking system, the author of this thesis has employed the resourced-based theory of the firm. In effect, a simple model is defined where two banks (in our case) generate the same products and services but one bank also generates a social aspect to the product which is valued by some customers and other stakeholders.

It should be noted that socially responsible banking is a multidimensional concept that evaluates different aspects of businesses. The management literature views CSR as a complex, broad, comprehensive construct (Brammer and Millington, 2008). This probably explains why there are several explanations to the concept. It also probably explains why there are debates about whether or not CSR has a positive effect on CFP. Clarkson (1995) indicated that the stakeholder theory can be employed to analyse the multidimensional view of CSR. In table 3.1, a broad list of what can be considered as inclusive of CSR is presented. The list is broad in the sense that it deals with many aspects of society including

9 trade, commerce, finance, sport, agriculture, services, education, industrialization, politics and human rights.

Table 3.1 Common dimensions of CSR evaluated by rating agencies

Product quality Wage and non wage benefits for firm employees Transparent business practices Occupational health and safety

Education improvement Improvement in staff quality of lives Agricultural improvement Human capital development

Environmental performance improvement Managerial compensation Health improvement Commitments to human rights

Poverty relief works Freedom of association and collective bargaining Sports improvement Human rights to equality of opportunity

Support toward cultural activities Abolition of child labour Support toward national events Prohibition of forced labour Charitable services and philanthropy Employee volunteer programmes Waste management Corporate citizenship/philanthropy Talent attraction and retention Corporate governance

Reduction in bribery and corruption Crisis and risk management