INFLUENCE OF CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE ON CORPORATE GOVERNANCE AND COMPANY PERFORMANCE

INFLUENCE OF CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE ON CORPORATE GOVERNANCE AND COMPANY PERFORMANCE BY DINH THI BICH NGOC E0600095 Graduation Project Submitted to the Department of Business Studies, HELP University College, in Partial Fulfilment of the Requirements for the Degree of Bachelor of Business (Accounting) Hons April, 2011 Declaration of Originality and Word count DECLARATION I here by declare that this graduation project is based on my original work except for quotations and citation that have been duly acknowledged I also declare that it has not been previously or concurrently submitted for any other courses/degrees at HELP University College or other institutions The word Count is 10,027 words Dinh Thi Bich Ngoc April, 2011 - Page II - Acknowledgements This project would not have been made possible without the assistance, support and encouragement of many people I wish to take this opportunity to thank all the people who have helped me during the time of completing the dissertation Firstly, I would like to express my deep gratitude to my supervisor at the Vietnam Commercial University (VCU) He has kindly helped me and supported me all the way through For that, I am very grateful I also would like to express my thanks to Ms Sumathi and Ms Shenba at Help University College, who initiated the project and give so much instruction and support Secondly, I am thankful to my family and my friends, for their support and encouragement In addition, a huge thank for all managers, accountants, personnel who sacrificed theirs time to answers my questionnaire DINH THI BICH NGOC - Page III - ABSTRACT INFLUENCE OF CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE ON CORPORATE GOVERNANCE AND COMPANY PERFORMANCE BY DINH THI BICH NGOC APRIL, 2011 Supervisor: PHAM DUC HIEU Corporate Social Responsibility (CSR) has become an inescapable priority for business leaders all over the world Governments, activists and the media demand companies to take into account the social consequences of their actions There is a large and growing community of international, regional and national organizations working on sustainable development issues, both in the public and private sectors Enterprises are trying on their strategic, tactical and operational levels to identify the appropriate ways in order to meet society’s demands, at the same time achieve company performance objectives This research first sets a definition of CSR from a different point of views and then this study focuses on the influence of CSR disclosure on corporate governance and company performance - Page IV - Table of Contents Declaration of Originality and Word count II Acknowledgements III ABSTRACT IV Table of Figures VII List of Abbreviations VIII Chapter : INTRODUCTION 1.1 Research background .1 1.2 Research question 1.2.1 CSR in developed countries 1.2.2 CSR in Asia 1.2.3 CSR in Vietnam 1.2.4 Research statement .6 1.3 Research structure Chapter : 2.1 LITERATURE REVIEW Definition of CSR 2.1.1 The Classical View 2.1.2 The Modern View 2.2 Tools, standards and reporting for CSR 2.2.1 Standards and tools 2.2.1 Source of reporting .11 2.3 Related Theory 12 2.3.1 Carroll’s theory 12 2.3.2 Stakeholder theory .15 2.3.3 Agency theory 17 2.4 Corporate governance and corporate performance 19 2.4.1 Definition of Corporate Governance 19 2.4.2 Corporate performance and performance criteria 19 2.5 Relationship between CSR practices and disclosure and Corporate governance and corporate performance 19 2.5.1 CSR practices and disclosure and Corporate Governance 20 2.5.2 CSR practices and disclosure and Corporate Performance 20 - Page V - 2.6 Hypothesis development .23 2.6.1 CSR is the same as business ethics 23 2.6.2 CSR is positively associated with corporate governance 24 2.6.3 CSR practices and disclosure can influence Corporate Performance in a very different level 24 Chapter : 3.1 RESEARCH METHODOLOGY 26 Research method 26 3.1.1 Quantitative methodology 26 3.1.2 Qualitative methodology 26 3.2 Data source 27 3.2.1 Secondary data 27 3.2.2 Primary data .27 3.3 Research tool 27 3.3.1 Internet tool 27 3.3.2 Questionnaire .28 Chapter : 4.1 FINDING AND DISCUSSION 29 Questionnaire Results 29 4.1.1 Personal Information 29 4.1.2 CSR Questionnaire .31 4.2 Interview results 38 4.2.1 CSR and business ethics 38 4.2.2 Motivation of business toward CSR 39 4.2.3 How to encourage the business to implement more CSR projects .40 Chapter : 5.1 CONCLUSION 41 Implications 41 5.1.1 Implications for the Vietnamese Government 41 5.1.1 Implications for the enterprises 41 5.2 Conclusion .42 Bibliography 43 APPENDIX 45 - Page VI - Table of Figures Figure 1: Example definitions of CSR Figure 2: Social Responsibility Categories (Carroll, 1979) 13 Figure 3: The Pyramid of Corporate Social Responsibility (Carroll, 1991) 13 Figure 4: Stakeholder theory diagram 16 Figure 5: Agency Theory Overview 18 Figure 6: Respondents’ Age 29 Figure 7: What is your business category? 30 Figure 8: You are aware of the term Corporate Social Responsibility 31 Figure 9: It is obvious to have practical applications of CSR within a company 32 Figure 10: You are aware of the term “Business ethics” 33 Figure 11: CSR is the same as “Business ethics” 33 Figure 12: You are aware of the term “Corporate Governance” 34 Figure 13: Difference of CSR and Corporate Governance 35 Figure 14: CSR disclosure influences “Corporate Governance” 35 Figure 15: CSR disclosure influences corporate performance 36 Figure 16: Your Company sets out specific objectives for the entire CSR perimeter 37 Figure 17: Your Company is motive to adopt CSR practices 38 - Page VII - List of Abbreviations CSR Corporate Social Responsibility GRI Global Reporting Initiative CG Corporate governance SI Sustainability investing TBL Triple Bottom Line WBCSD World Business Council for Sustainable Development WTO World Trade Organization NGOs Non-Government Organizations UNEP United Nations Environment Programme CERES Coalition for Environmentally Responsible Economies - Page VIII - Chapter : INTRODUCTION 1.1 Research background On every continent, in one form or another, CSR is practiced for decades CSR practice can be carried out in various forms, such as: building kindergartens or schools for children; supporting community or social activities… CSR was born in the United States about thirty years ago It then has been spreading to Europe, where it was refined Large multinationals have sometimes also transplanted their production units located in other continents These new forms are characterized by an image that the company carries on itself At first, it raises the question about possible nuisances that the process leads to the community In a second step, it raises the question of how it might contribute actively to the wellbeing of society at large, not only to its staff And in this second stage, it develops creativity that goes well beyond traditional charity Companies use CSR approach to take social and environmental influences of their business into account to implement best performs possible and therefore contribute to the improvement of environmental and social protection This approach gives out a combination of economic, social responsibility as well as environmental responsibility It has become a real and developed movement all over the world If you search for the phrase on Google in English, not yet in other language, you will find more than 80 million results In about ten thousands of studies, books, articles, forums, websites of Non-Government Organizations (NGOs), business, consulting, and government, there are many discussions about CSR Companies can gain many benefits through the CSR commitment They can improve their image, leading to increase in sales, making investment procedures more conveniently Besides, CSR also contribute to improve employees’ attitude through various programme such as energy saving… - Page - 1.2 Research question 1.2.1 CSR in developed countries In many developed countries, especially in the U.S and European countries, CSR isn’t a strange term Nowadays in these countries, consumers pay attention not to product quality, but also to how those products are made? Do the doings harm environment, to health and community? That’s why consumers make a lot of activities to protect their attentions as well as the environment We are talking about the boycott movements against companies who use child labour (like Gap or Nike); producing fringe foods, soft drink with carbonates or has bad working conditions, etc.… Under pressures from the society, large companies have integrated CSR in their business strategy either in short or long term strategy They implemented thousands actions; such as saving energy, using recycled materials, reducing carbon emissions, or some donation as school building, sufferers help of natural disasters Many enterprises contribute moneys to establish research centres on diseases in developing countries (especial AIDS vaccines) There are some important corporation who are very actives in these doing as TNT, Google, Bayer, Gap, Toyota, Intel, Unilever, Coca-Cola, Sony, Samsung, GE, Nokia, HSBC, BP… The most notable case is the one of Dr Muhammad Yunus of Grameen Bank who has provided microcredit to 6,6 million people, of which 97% are poor women in Bangladesh to borrow money to their life He was awarded the Nobel Peace Prize in 2006 The “One Percent Club” in the U.S collects the enterprises that commit to spending minimum 1% of their profits for social work Other example: many enterprises in France, such as RATP (subway company), France Télécom (France Telecom) created many cultural funds to sponsor French Contemporary Art Other multinational companies created the Code of Conduct, in which they can indicate effectively nature principles applicable to their employees worldwide In the other hand, when companies involve in socially irresponsible activities, they are not on the right side of the law They will have to pay severely as consequence of making such crimes - Page - 4.1.2.3 You are aware of the term “Business ethics” Figure 10: You are aware of the term “Business ethics” A surprise result has come to this question; there is neither “disagree” nor “strongly disagree” A half of respondents said they are aware of “business ethics” 4.1.2.4 CSR is the same as “Business ethics” Figure 11: CSR is the same as “Business ethics” 36% of respondents answered that: sometime they couldn’t distinct CSR and Business ethics 30% said No and 30 said Yes (20% agree and 10% strongly agree) - Page 33 - 4.1.2.5 You are aware of the term “Corporate Governance” Figure 12: You are aware of the term “Corporate Governance” For this question, as we can see, mostly everyone knows “Corporate Governance”: 28% for agree and 44% for strongly agree But according to some interviews (in Vietnamese), I found that each of them has a different definition of this term Because of its own definition, which is fuzzy from root, it is really difficult to translate into a correct word Some people call it a “system of governance”; others call “conflict control” or else replace the word “system” by “mechanism” Perhaps it is the easiest way to understand Corporate Governance in the Vietnamese language - Page 34 - 4.1.2.6 Social responsibility shows “how to perform well” and corporate governance shows “How to become a good business” Figure 13: Difference of CSR and Corporate Governance 40% of respondents agree with my expression: Social responsibility shows “how to perform well” and corporate governance shows “How to become a good business” 4.1.2.7 By complying the rules of social responsibility, corporate governance will give benefits to the businesses Figure 14: CSR disclosure influences “Corporate Governance” Almost of respondents think that CSR will have a good influence on Corporate Governance by giving benefits to the business (29% agree and 27% strongly agree) - Page 35 - But some others (19%) didn’t agree According to them, CSR is really difficult to implement well, and it also has high cost 4.1.2.8 CSR disclosure influences corporate performance Figure 15: CSR disclosure influences corporate performance Almost everyone (42% agree and 36% strongly agree) knows the influence of CSR disclosure on Corporate Performance compare to 6% who didn’t acknowledge it - Page 36 - 4.1.2.9 Your company sets out specific objectives for the entire CSR perimeter Figure 16: Your Company sets out specific objectives for the entire CSR perimeter Most companies surveyed have defined objectives for CSR, which are most often quantified (target figure with a maturity) In the case of highly decentralized companies, the general objectives (purely qualitative or no-numeration but with a maturity) can be defined at the corporate level and level entities (business unit, company) involved These targets are mainly the field of environment (including reduction of water consumption and energy and reducing emissions), and of safety at work (rate of frequency of accidents) - Page 37 - 4.1.2.10 Your company is motive to adopt CSR practices Figure 17: Your Company is motive to adopt CSR practices 40% of respondents agree compare to 30% of them don’t agree 4.2 Interview results 4.2.1 CSR and business ethics Ethics and social responsibility - the burden or the basis of business success Seeing “business ethics” and “social responsibility” as an essential part of business strategy, businesses will feel more active and volunteer in the implementation Meanwhile, these problems are no longer a burden or an obligation but the source and basis of success Many opportunities and strategic interests will come when the business see “business ethics” and “social responsibility” as the central to the production and business activities Respect for “business ethics” and “social responsibility” of enterprises will bring mutual benefits for employees, customers, partners and communities These are the components crucial to the survival and development of all businesses Grace of successful implementation of “business ethics” and “social responsibility”, businesses will receive the loyal support and enthusiast from staff, customers and partners This is the most basic condition of all success Today, in order to make customers and community prefer company's brand, firms present their companies fewer and fewer through products or services, but present achievements concerning - Page 38 - the implementation of “business ethics” and “social responsibility” by introducing company’s efforts to become a good boss, good partners, good citizenship and the good environment protector 4.2.2 Motivation of business toward CSR Many companies are interested in CSR practices and they are motive to adopt CSR within the company in order to ameliorate corporate performance with different reason such as: - Strengthen the positive image of the company (to reach new customers / retain existing) - Enhance the economy at a local level - Increase the revenue of the company - Increase the profit of the company - Improving relations with social partners - Increase employee motivation - Provide a better relationship with subcontractors / suppliers - Reduce the environmental footprint of business activities - Respond to requests from institutional partners - Cost Reduction But the others have claimed about the difficulties of implementing CSR in their company There are some main reasons to demotivate them: - There is no need - Do not know where to start - Lack of time and information - Lack of human resources, financial resources - Lack of tools technical skills - Lack of public support - Increased costs - We focus primarily on the economic sustainability of our business - These dimensions are not important for the company's activities - Conflict with the company's activities - Page 39 - 4.2.3 How to encourage the business to implement more CSR projects - Changes in legislations for tax relieves - Greater support from the national and local authorities - Better awareness of the benefits of such activities - Greater support from the media - More active NGO sector - More active business associations - Looking for support from the society and different organizations - Customers requiring such responsibility - Page 40 - Chapter : CONCLUSION 5.1 Implications 5.1.1 Implications for the Vietnamese Government Vietnamese Government has become interested in CSR so I think that the Government should seek to encourage enterprises to implement social responsibility Government should not directly intervene legally, but should encourage through the implementation of measures such as tax reduction and delay Vietnamese Government can try on implementation of communications, advertising profits For developed countries, it is very common way and it is now applied both in regional countries like Singapore, China Main TV stations, broadcasting in our country remain under state-ownership, so the government can direct them to spend a certain proportion of daily time for advertisements free for public target They should complete the state laws and the effectiveness of law enforcement Responsibilities outside the law (morality and charity), the voluntary mechanism should be encouraged because it is the interaction between business and society 5.1.1 Implications for the enterprises CSR can be applied to all industries, not only labour – intensive industries like textiles and footwear For Vietnamese enterprises, CSR is a great problem So they have to understand it and then find out how to put it into daily production and business activities To something like this, they need to make some changes in policies, salaries, including improving the factory environment or workplace CSR is important, not in a paper certificate but in the process of doing it If done correctly, enterprises will gain benefits In Vietnam, sometimes, enterprises get too serious about the certificate, but the certificate is meaningless if not performs strictly The biggest barrier for Vietnam enterprises, especially medium and small enterprises, in adopting CSR is not the funding but rather the commitment of the leadership In Vietnam, most of the implementation of CSR is passive when the purchaser is required, so some manufactures are feeling forced to perform CSR, but not fully understand the nature of it - Page 41 - 5.2 Conclusion In the long term, CSR is a tool to help Vietnam improving competitiveness These are important issues right now because the competition in a growing area that Vietnam can only archive if all three factors are done: quality, price and compliance with CSR standards CSR is an area where Vietnam can be more powerful than China In my opinion, for smaller countries like Vietnam and Cambodia, CSR is an important competitive tool - Page 42 - Bibliography Beardsell, J (2008) The influence of CSR disclosure on corporate governance and company performance Carroll, A (A three-dimensional conceptual model of corporate performance) A three-dimensional conceptual model of corporate performance The Academyof management review , 4(4), p 497-505 Carroll, A (1991) The pyramid of corporate social responsibility toward the moral management of organizational stakeholders Business Horizon , 34, p 39-48 Commission of the European Comunities (2006) Implementing the Partershp for Growth and Jobs: making europe a Pole of Excellence on Corporate Social Responsibility (Vol COM(2006) 136 final) Brussels Donaldson, T & Preston, L (1995) The stakeholder theory of the modern corporation: Concepts, evidence and implications Academy of Management Review Eisenhardt, M, K (1989) Agency theory: An assessment and review Academy of Management.the Academy of Management Review Freeman, E a (1983) Stockholders and stakeholders: A new perspective on corporate governance (Vol 15(3)) California Management Review Freeman, E (1984) Strategic management: A stakeholder approach Bostom: Pitman Publishing Fukada, S (2007) Corporate Social Responsibility in Vietnam: Current Practices, Outlook, and Challenges for Japanese Corporations Intellasia.Net (n.d.) Special office for Agenda 21 set up Retrieved from http://www.intellasia.net/news/articles/governance/111200707_printer.shtml Le Anh Cong (2010) Influence of Corporate Social Responsibility disclosure on corporate governance and company performance Milton, F (1970, Sep 13) The social responsibility of business is to increase its profits The New York Times Magazine - Page 43 - Nguyen Dinh Cung - Luu Minh Duc Trách nhiệ m xã họ ̂ i của doanh nghiẹ ̂ p CSR: mộ t số vấn đề lý luạ ̂ n yêu cầu đổi mới quản lý nhà nu ̛ ớc đối với CSR ở Việ t Nam Nguyen Hoang Anh (n.d.) Đạo đức kinh doanh Việt Nam - Thực giải pháp Nguyen Thi Thanh Huyen (2010) Influence of Corporate Social Responsibility disclosure on corporate governance and company performance in Vietnam Norman Wayne & McDonalds Chris (2003, March) Getting to the bottom of the “triple bottom line” Steven Brammer, Andrew Millington , Bruce Rayton (2005) The Contribution of Corporate Social Responsibility to Organisational Commitment Strategic Management : The Social Responsibilities Ideas (n.d.) Retrieved from http://www.introduction-to-management.24xls.com/en402 Trách nhiệm xã hội doanh nghiệp (CSR) (2009) Retrieved from http://www.bayvut.com.au/nh%E1%BB%8Bp-s%E1%BB%91ng/tr%C3%A1chnhi%E1%BB%87m-x%C3%A3-h%E1%BB%99i-c%E1%BB%A7-doanhnghi%E1%BB%87p-csr Tsoutsoura, M (March, 2004) Corporate Social Responsibility and Financial Performance Berkeley, California Undén, Charlotta (2007) Multinational Corporations and Spillovers in Vietnam Adding Corporate Social Responsibility - Page 44 - APPENDIX Influence of CSR disclosure on corporate governance and company performances Ladies and Gentlemen, you’re executives, managers, entrepreneurs, managers, buyers … of your company This message can be helpful for you and your firm Please take time to read it and answer to some questions of my survey, which is conducted as part of my Graduation project of Department of Business Studies, HELP University College The following questionnaire aims to gather information to compile the situation of CSR (sustainable development applied to the corporate world) in Vietnamese companies By offering 10 minutes to respond, you will be able to - Make a point on the status of your business - Alert your strategic thinking on current and future issues of your business Unless otherwise stated by you, the anonymity of the respondents companies is respected (By the way the tool cannot identify the person who completed the questionnaire) If you would like additional details of the questionnaire, don’t hesitate to contact me with the address mail: ngocbich142@gmail.com Thank you in advance for the attention you bring to this mail - Page 45 - Personal Information Age: What is your business category? Aeronautics-space-marine-defence Food Construction Builders Trade-Wholesale High-Tech - IT-Telecom Industry Health Services Tourism-Leisure Transportation Logistic Supply Chain Others Current position and Years holding current position: Questionnaire To what extent you agree with those statements? 5= strongly agree 4= agree, 3= neutral/no opinion, 2= disagree, 1= strongly disagree You are aware of the term “Corporate Social Responsibility” 2 It is obvious to have practical applications of CSR within a company 2 You are aware of the term “Business ethics” 4 CSR is the same as “Business ethics” 5 You are aware of the term “Corporate Governance” Social responsibility shows “how to perform well” and corporate governance shows “How to become a good business” - Page 46 - By complying the rules of social responsibility, corporate governance will give benefits to the businesses CSR disclosure influences corporate performance Your company sets out specific objectives for the entire CSR perimeter 10 Your company is motive to adopt CSR practices - Page 47 - [...]... responsibilities Economic responsibilities Figure 2: Social Responsibility Categories (Carroll, 1979) In 1991, Carroll revisited his four-part definition of CSR and organized the notion of multiple corporate social responsibilities in a pyramid construct as per Figure below, which, from the perspective of academic research and literature, is “one of the most long-standing and widely cited definitions of. .. definition of social responsibility approach was established in 1953 with the publication of Howard Rothmann Bowen6’s book Social Responsibility of the Businessman” Bowen argued that public responsibility, social obligations, and business morality were synonyms words for social responsibility According to him, businessmen have obligation of following those policies or pursuing those lines of acts... responsibilities that society demands businesses to take for granted into four-part categories Each responsibility is one part of the total corporate social responsibility, providing us the complete definition 2.3.1.1 Economic Responsibilities The first and primary social responsibility of business is economic in nature Economic responsibility, expressed through performance and growth, is a prerequisite... motivation for enterprises is profit We cannot have a good and stable business without profit, and without understanding profit there is no way to understand profitability of a company Therefore, economic function must be always top priority The others must be based on corporate economic responsibility 2.3.1.2 Legal Responsibilities Put it simply, legal responsibility is an element of the “contract”... (reputational capital; workers productivity…) and social criteria (brand image, reputation…) 2.5 Relationship between CSR practices and disclosure and corporate governance and corporate performance Companies exist to create conditions so that people can make their business activities to create, generate income for the society and member of the companies More and more businesses consider social responsibility. .. fragmented visions, responsibilities and actions among quality professionals (standards), standby responsible or business intelligence responsible, risk managers, program managers of knowledge management, control of the structure of information systems organizations, lawyers, communicators, etc Organizing this type of program is very complex and requires coordination of unparalleled CSR responsibility. .. and the Coalition for Environmentally (CERES) Responsible established the Economies Global Reporting initiative The goal is to develop guidelines and standardization of norms for environmental and social reporting According to GRI’s vision, reporting on economic, environmental, and social performance by all organizations is a doing as usual and comparable as financial reporting There are now thousand... Corporate responsibility for their consumers by providing good and cheap goods - Corporate responsibility for their owners by guaranteeing profit and development - Corporate responsibility for creditors by paying off debt on time - Corporate responsibility for government and community by paying taxes, profits, fees legally and providing equal employment opportunities in order to improve social and political... overall system of values and principles that are integrated in business operations through management policies, institutions and decision-making activities Therefore, corporate social responsibility expressed directly through management policies and corporate governance 19 University of Indianapolis - Page 19 - 2.5.1 CSR practices and disclosure and Corporate Governance The good work of governance requires... qualities will lead the process decisions of the organization If business ethics relates to rules and regulations directing the decisions of individuals and organizations, social responsibility pays attention to the consequences of these decisions If business ethics reflected the wishes, expectations come from the inside; the social responsibility reflected the wishes, expectations from the outside - Page 23 ... http://www.intellasia.net/news/articles /governance/ 111200707_printer.shtml Le Anh Cong (2010) Influence of Corporate Social Responsibility disclosure on corporate governance and company performance Milton, F (1970, Sep 13) The social. .. and principals and by monitoring and controlling agents 2.4 Corporate governance and corporate performance 2.4.1 Definition of Corporate Governance Corporate governance is the set of processes,... disclosure and Corporate governance and corporate performance 19 2.5.1 CSR practices and disclosure and Corporate Governance 20 2.5.2 CSR practices and disclosure and Corporate Performance