CSR Practices and its Impact on the Performance of Corporate Organizations in Developing Countries: Evidence from West Africa.

Chapter One

• Introduction

1.1       Background of the Study

No doubt Corporate Social Responsibility (CSR) no doubt is among the most complex, dynamic and challenging subjects that 21^st-century business leaders face. The subject of CSR is critical because businesses have before now had a well-defined economic and legal responsibilities (Rieschick, 2017). Lately, these responsibilities extend beyond those mentioned above to being responsible towards the society where the business operates. The transformation of companies into global institutions with the free flow of capital, goods and services across borders necessitate the extension of these new responsibilities. The pressure to play a more engaging role in making the world a better place to live in is shifting to private-sector companies. This shift is becausemost government-owned corporations in developing countries are undergoing privatization process. Moreover, governmentsare withdrawing from running enterprises. With this increasing pressure to assume responsibilities towards the society, private sector companies are obligated to show concern and see the need to utilize its power and resources to make a positive impact on the globe. To achieve this, private sector companies must pay attention to a complex web of stakeholders and relations. They must pursue strategies and policies that will help it comply with regulations and maintain a set of standards, build corporate reputation and get more customer loyalty which will eventually culminate into increasing profitability and overall attainment of organizational objectives. With this realization, companies adopted the term CSR as a management framework to address the overbearing social and environmental shackles bedevilling society. This term known as corporate social responsibility became relevant. CSR encompassed a perceived responsibility in areas such as the environmental concerns, community involvement, corporate governance, employee relations and other social performance dimensions. Although there is no consensus on the meaning of Corporate Social Responsibility, the term generally refer to a current commitment by business to behave ethically and to contribute to economic development while demonstrating respect for people, communities, the environment and society at large. In a nutshell, CSR ties the concept of global citizenship with environmental stewardship and sustainable development. Much of the research proceeding our understanding of CSR has concentrated on business-society relationships and dynamics in the developed economies and on awareness, determinants, practice and disclosure of CSR in developing countries. More recently there has been a sprouting interest in understanding the dynamics and peculiarities of CSR in emerging economies, vis-à-vis uncovering the relationships between CSR practices and organizational performance especially in the context of financial variables such as profitability. For example,Rieschick (2017); Akhalumeh, Odion, &Ohiokha, (2016); Yu-Shu, Chyi-Lin, &Althan-Uya(2015); Tilakasiri(2012); Babalola (2012) andJamali and Sidani,(2012).

Indeed, recent work seems to suggest that CSR formationin developing countries is directly determined by social and economic factorssurrounding an organization’s operations and the development priorities this creates (Rieschick, 2017). The research on awareness and practices of CSR accentuate in recent years with increasing attention to the potential influence of CSR practices on some corporate performance variables of the organization. (Onyishi, Amaeshi, Ugwu, &Enwereuzor, 2020; Rieschick 2017; Yu-Shu etal. 2015; Tilakasiri 2012). Hence, this study set out to investigate and examine CSR practices and their impact on the performance of a corporate organization in developing countries, drawing on evidence from West Africa.

Studies on CSR in developing countries is relatively in short supplywhen compared to developed countries. And most times, CSR studies in developing countries are only descriptive and are done on convenience. Empirical studies on CSR in developing countries focus mainly on the BRICS countries, i.e. Brazil, Rusia, India, China and South Africa. With a general lack of comparative standard information. Therefore, it is imperative to undertake further studies on CSR in developing countries at various levels of cooperation, especially at regional levels like in West Africa. In developed economies like the United States, the UK, and other economies of western Europe, CSR is deeply established, and tons of empirical studies by researchers have measured the relationship between CSR and financial performance of corporate organizations. There is a shortage of international research which surveys the impact of CSR practices on the performance of business organizations in developing countries, as compared with developed countries. Also, they need to provide business leaders in developing countries with reliable information on the effect of their CSR decisions on the financial performance of their company. There is also the need for a comparative study that will analyze CSR between continents (e.g. Africa, Latin America, Asia) and between regions within continents, e.g. (West Africa, East Africa, North Africa). It is essential to undertake more detailed studies on CSR at national and domestic levels in numerous developing countries that have had no CSR research papers published about them in reputable academic journals. Existing studies,e.g.  Jitmaneeroj (2018); Yusoff, Abdul-Jamal, &Darus (2016); Kiessling, Isaksson, & Yasar (2015); and Babalola (2012), show clearly that CSR in developing countries is a vibrant and fascinating area of enquiry. It is becoming ever more critical in CSR understanding and practice. And since it is deeply under-researched, it gives a fantastic opportunity for improving our knowledge and understanding of CSR.

1.2       Statement of the Problem

Unlike the past, today’s successful organizations recognize the need to play a significant role as development partners with their host communities. Organization of all types operating in both developed and developing countries need to understand and address Corporate Social Responsibility as a vital concept in strategic management. Corporate Social Responsibility has progressively gained acceptance and prominence both as a business tool and as a contribution to social progress. CSR is so prominent that even during the global financial meltdown, its strategic importance continued unabated (Madden, Roth, and Dillon 2012). Major organizations in developed countries could not abandon their CSR activities (Dowling &Moran, 2012). Firms in developing countries are yet to display such genuine commitment to CSR practice. Although a growing number of companies in Nigeria and the Sub-Sahara African region are beginning to regard CSR as a strategic tool for growth, many do not (Rampersad& Skinner 2014). Yet some organizations in developing countries use CSR as a mere political term to brainwash members of society because they recognize that the community is becoming more sensitive to the corporation’s responsiveness to societal issues.

Sometimes these companies throw out the money in the form of donations and philanthropy, but most times, their actions are politically motivated, or they do so to avert inevitable consequences.  Lange and Washburn (2012) confirmed that counter-normative behaviour could lead to negative results for a firm such as lawsuits, financial losses through settlements and sales decline, or other costs associated with a negative reputation. Beyond these facts, the unwillingness of indigent organizations to genuinely commit to CSR practice or view it as a source of competitive advantage like their counterparts in developed countries suggests there could be some differences in awareness or perception of CSR across the divide. A pre-study review by the Author, of information bothering on CSR practice in developing countries, reveals there are levels of CSR acceptance in developing countries which constitutes a problem to a synchronized method. First, some business leaders perceive CSR as a mere best practice activity to gain endorsements for political purposes or otherwise. Leaders in this category intermittently give out cash donations the second category view CSR as an imposed external practice exported by mother companies of the western world. The other set of leaders understand their dual responsibility to make money for their organization and to interact ethically with the surrounding community. These crop of leaders understand that practising CSR is complex and requires organizational resources such as expertise, personnel, time, and money. The challenging question forleaders in this category is: how do we recover the funds invested through CSR? What is the impact of CSR practice on the company’s performance? The shortage of research studies which surveys the impact of CSR practices on the performance of business organizations in this part of the world constitutes a problem to both business and society. Some business leaders refrain from their responsibility to the community due to doubts and fear that they may encounter losses as there are no clears understanding of how social responsiveness affects their organization’s performance. Consequently, there is a need to undertake a study on this note to provide clear perspectives for business leaders. This present study, therefore, is set out to answer the questions below;

1.3       Objectives of the Study

The objective of thestudy is to examine the impact of corporate social responsibility (CSR) practices on performance of organizations with evidence from West Africa.

The specific objectives are to;

1. Determine the impact of community development & philanthropy on the performance of corporate organization in developing countries.
2. Examine the effect of reputation on the performance of corporate organizations in developing countries.

• Establish the effect of internationalization on the performance of corporate organizations in developing countries.

1. Assess the influence of environmental sensitivity on the performance of corporate organizations in developing countries.
2. Examine the influence of employee diversity on the performance of corporate organizations in developing countries.
3. Determine the effect of leadership ethics on performance of corporate organizations in developing countries.

1.4       Research Questions

This study intends to gather extensive understanding to answer the following questions:

1. To what extent does community development & philanthropy impact on the performance of corporate organization in developing countries?
2. How does reputation influence the performance of corporate organization in developing countries?

• What is the effect of internationalization on corporate performance in developing countries?

1. Does environmental sensitivity influence corporate performance of organizations in developing countries?
2. What is the influence of employee diversity on the performance of corporate organizations in developing countries?
3. To what extent does leadership ethics affect the performance of corporate organizations in developing countries?

1.5       Statement of Hypothesis

The following hypothesis were formulated for this study in null form are as follows:

Ho₁:     Community development & philanthropy does not significantly impact the performance of corporate organizations in developing countries.

Ho₂:     Firms reputation do not significantly affect the performance of corporate organizations in developing countries.

Ho₃:     Internationalization does not significantly affect the performance of corporate organizations in developing countries.

Ho₄:     Environmental sensitivity does not significantly influence the performance of corporate organizations in developing countries.

Ho₅:     Employee diversity has no significant effect on the performance of corporate organizations in developing countries.

Ho₆:     Leadership ethics has no significant effect on the performance of corporate organizations in developing countries.

1.6       Significance of the Study

The beneficiaries from the study include Researchers, Government, Business Managers  etc.

Researchers

This study is significant because it serves as an added contribution to the existing work of other authors. It discusses CSR and its impact on the performance of a business.  It goes further to examine the effects of CSR practices on the performance of corporate organizations with evidence from West Africa.

Government

Moreover, the growing discuss on CSR topics will lend credence to the question of how to evaluate social performance, and this will, in turn, stimulate the process of legislation on CSR. For businesses, CSR can be a source of opportunity, innovation, and competitive advantage. The societal relevance of CSR will not only increase but continue to take dramatic turns to exert more and more pressure on business until they realize the intrinsic need to align their activities with a set of standards of socially responsible behaviours or go extinct.

Business Managers

The result of study is expected to shows that the relationship between the CSR and corporate performance. It is going to be useful for managers in making a prudent and financial decision, and note the better ways to relate with employees, government agencies and other business stakeholders. It will also expand their knowledge on the research topic.

Employee, Communities, Investors and other Business Stakeholders

The findings in this study will rebound to the benefit of both society and business stakeholders because it focused on examining the impact of CSR practices on the performance of corporate organizations in developing countries. Secondly, the study will highlight the role managers plays on the implementation CSR practices to ensure organizational soundness.

1.7       Scope and Limitations of the Study

The study focusses to assess CSR Practices and its impact on the performance of corporate organizations in West Africa with emphasis on corporations in Nigeria.This provides particular understanding of organization’s responsibility to its stakeholders and the voluntary role it plays in more general questions of community welfare and the impact of such position on the organization’s performance. Therefore, the population sample will draw from publicly listed companiesin Nigeria.

The information that will be used in the study reflected companies’ ethical and social behavior and actions. It is worthy to note that this study will depend on the perception of respondents which will be measured over a longer period. The analysis of this study will be based on responses captured from the research questionnaire during a 2 month period in 2020 using the selected corporations.

Limitation as described by Palmer et al. (2015), limitations are areas over which the researcher have no control. For this study, a barrier would be a short time limit. The short time limit reduces the population sample to focus on publicly listed companies. A major expected limitation in this study involved the population which the sample will be drawn which may not reflect the true perception of the entire country on CSR. The availability and accuracy ofinformation for use in the methodology could be a limitation as information will be provided only through questionnaire responses and this information could be subjective and biased. The researcher will mitigated these by possibly verifying information from published articles.

1.8       Definition of Unfamiliar Terms

The following definitions provide definitive descriptions of unfamiliar terms used throughout the study.

Corporate Performance (CP): CP is the measure of a firm’s performance by activity level measured in divers dimension such as market share or customer loyalty. In financial terms it could be measured using accounting-based ratios such as net earnings, return on assets or return on equity.

Corporate Social Performance (CSP): CSP is a measure of a corporation’s CSR initiatives. No single standard of CSR exists, but efforts are compared with competitors and measured by indirect means.

Corporate Social Responsibility (CSR): CSR is the accepted term for activities corporate executives initiate that go above and beyond legal requirements. These nine initiatives attempt to enhance the company’s effect on environmental and social aspects of the society they serve.

Ethical Theory: Is a field study involving concepts of right and wrong behaviour.

Ethics: Actions of right or wrong, using moral principles and individual values toguide decision-making and actions.

Legitimacy: A generalized perception that the actions of an organization are desirable and appropriate within the socially accepted system of norms, values, and beliefs.

Stakeholder: Any person that can affect or is affected by the achievement of the firm’s goals.

Stakeholder Theory: Originated by Freeman (1984), the theory provides a conceptual framework for organizational management in which the interests of stakeholders can be satisfied simultaneously with the benefits of shareholders.