CHAPTER 3

CSR WITHIN THE FRAMEWORK OF CORPORATE GOVERNANCE & IN

VARIOUS BUSINESS AREAS

1. Practices of CSR and Business Typologies

The existing research on how CSR practices influence corporate performance indicates the that
the concept itself appears to be controversial (Margolis & Walsh, 2003); some scholars argue
that social responsibility creates extra profits and company value, others indicate solely negative
outcomes (the corporations just lose money on socially responsible behaviour), while the third
say results may be both. The majority of researchers agree that outcomes of socially responsible
corporate behaviour are both context based and firm specific (Barnett, 2007). In case of
developing countries and transit economies both the concept of social responsibility and its
perception appear different: “The rationale for focusing on CSR in developing countries as
distinct from CSR in the developed world is fourfold:

1) developing countries represent the most rapidly expanding economies, and hence
the most lucrative growth markets for business,
2) developing countries are where the social and environmental crises are usually most
acutely felt in the world,
3) developing countries are where globalization, economic growth, investment, and
business activity are likely to have the most dramatic social and environmental
impacts (both positive and negative),
4) developing countries present a distinctive set of CSR agenda challenges which are
collectively quite different to those faced in the developed world.” (Viser, 2012).

Hence, in case of developing countries, institutionally underdeveloped countries and transit

economies one should take into consideration the context and existing perception of CSR in
order to understand the forms it takes within the framework of social governance. According to
Crotty’s findings (2011), a number of researchers indicate that traditional CSR practices do not
allow to achieve required outcomes if the institutions are not fully developed (Devinney, 2009).

For example, in case of insecure property rights, companies are less likely to be socially
responsible. Yet, when they are forced to do so (for instance, by the need to fulfil Millennium
goals), they simply limit to minimum the amount of resources that could be spent for the sake
of CSR (thus faking it rather than implementing) – due to extreme uncertainty in corporate
future development. This idea can be found in the works of Alon et al. (2010), who indicates
that relation-based and clan-based societies are much less likely to focus on social responsibility
than formal institutions-based societies, from which the concept of CSR has emerged. This
means one has to first consider the setting for corporate governance and then to assess the
quality and outcomes of CSR.

Crotty (2011) identifies three types of such specific CSR practices:

1) regular CSR practices, which are being implemented even if

necessary pre-requisites are absent,
2) ‘forced’ projects, when a company is forced to implement certain
socially responsible behaviour though it is not included in its strategy
and is not a part of regular corporate governance,
3) ‘city formations’ when the corporate management does not have any
choice but to be socially responsible as they appear to be the only
1|Page
 taxpayer in the city or county, and in order to continue operations
there the corporation has to be enrolled in socially efficient practices.

OECD (2008) have revealed a few important incentives for CSR concept implementation. Two
are dominant among them: the need to access global financial market (and it is nowadays
relatively hard to gain access to foreign investments if the company does not incorporate
socially responsible practices in corporate governing) and aiming to go public (again, road
shows would appear inefficient if the company cannot present socially responsible governance).
From this point of view, CSR is mainly driven by international companies and is partly a
consequent part of globalization process, which has proven that for international companies
CSR leads to increasing profitability. Same conclusions one can find in the works of Fifka &
Pobizhan (2014): “CSR has been fostered by the influx of Western business concepts, but the
understanding and practice of CSR is predominantly determined by the country's institutional
environment”.

Yet, this approach appears to be only a part of the story. On the contrast to globalization roots
of CSR, one can see that socially responsible practices appear also on the other side of the world,
in underdeveloped emerging economies, and become a solution for both social and economic
problems, such as poverty reduction (Yunus, 2008). In this opposite case, socially responsible
behaviours appear indigenously, representing extra entrepreneurial opportunity (originally
coming from the bottom of pyramid, but not necessarily). As the ideas behind social
responsibility implementation are controversial, one can draw on a map of social responsibility
in corporate governance, created along the line of grid model by Blake and Mouton (1964).

Figure 1.1. Socially responsible business typology model

0;9 9;9

Non-profits Social
businesses
Strength of regulation and control

Importance of social efficiency

Socially responsible
organizations

Friedmanite
(Friedman, 1970)
Inefficient organizations
organizations
0;0 9;0

Importance of economic efficiency

The positioning of the company on a grid matrix that appear in Figure 1.1 is determined on a
scale from 0 to 9, where 0 stands for the type of efficiency which is totally unimportant within
2|Page
the framework of company’s corporate governance’ and 9 stands for an extremely important
type of efficiency within the framework of company’s corporate governance’. The two extremes
here are organizations as described by Friedman (absolute ignorance of company’s social
efficiency), that is mapped at the maximum of 9;0 on the matrix. The other extreme point is
represented by the non- profit organization, for which economic efficiency is not the main issue
of governance (though usually they do have restrictions on economic efficiency) – which can
be found at the point 0;9 on the presented map.

For the type of corporate governance known as social enterprises, both social and economic
efficiency are equally important, which makes this approach somewhat different from
traditional CSR which tries to combine both social and economic efficiency, yet one can be
more important than the other. The smallest difference in the suggested model can be seen when
social businesses (9;9 at the maximum point) and socially responsible organizations
(approximately 6;9) are compared. Yet, the model distinguishes traditional CSR and social
enterprises, and for the latter social efficiency appears to be extremely important while the social
effects should not be neglected during organizational crisis. For socially responsible companies,
cutting costs in a manner that neglects social efficiency is acceptable, especially in the case
when such actions are core of the project to ensure the company’s survival, whereas a social
entrepreneur would not even consider such an opportunity as the social effect is a core of
company’s business model.

Literature widely discusses the role of institutions in the development of social entrepreneurship
(Dacin et al., 2010; Estrin et al., 2013, Mair & Marti, 2009, Sud et al., 2009). This determines
the relevance and influence of the institutions for the trends of social entrepreneurship
development where social business models develop and flourish under the institutional settings
they were set for (Dacin et al., 2010) and thus question the ability of social entrepreneurs to
provide solutions to society’s pressing social challenges (Sud et al., 2009).

The authors of the present research share the findings of Sud et al. (2009) who sees social
business as a special approach towards ensuring social and economic development, when
existing entrepreneurial opportunities were ignored by conventional entrepreneurs (Yunus,
2008). The understanding within the framework of the present research is based on the work of
Dacin et al. (2010), who acknowledged that social entrepreneurship emerges as a response to
significant socio economic, cultural or environmental issues (Dacin et al., 2010).

Empirical research offers a similar perspective by noting a higher probability of social

entrepreneurship activity in developing countries as a response to the oversights attributable to
political agendas and weaknesses found in the country’s government (Terjesen et al., 2011). In
such contexts, failure of social market develops a new opportunity for the social entrepreneur
(Austin et al., 2006) who hence creates social value from this opportunity (Urbano et al., 2010).
Yet, though these arguments are quite intuitive, they were not supported by certain empirical
studies in existing literature.

For example, Stephan et al. (2014) reports that the revenue-generating social business is only
strongly associated with government activities in the field and the rule of law, and these features
can rarely be found in the developing countries with weak institutions – and yet quite a number
of social businesses are being established there. The Global Entrepreneurship monitor (GEM)
report finds that equally high levels of social entrepreneurship activity can be found in the US,
Iceland and Finland (countries associated with a high level of institutional development) as in
Argentina, Colombia or Uganda (which are associated with underdeveloped institutions).

To resolve the revealed contradiction, existing research suggests an approach to define how
3|Page
institutions influence organizations with a social mission. This includes (1) formal and informal
institutions that influence (by means of measuring the share of formal institutions in economic
environment of a social entrepreneur) and (2) the average level of regulatory control and rule of
law (as a measure for strength of formal institutions). The matrix mapping social business onto
these two axes can be found in Figure 1.2.

Figure 1.2. Matrix of businesses with social mission on immature state of the key market

0;9 9;9

Informal social
Strength of regulation and control

business Non-profits

Social Socially
entrepreneurship responsible
organizations

0;0 9;0
Share of formal institutions

This matrix allows seeing that low formal institution development drives CSR out of corporate
governance practices, as the company is usually unable to use the outcomes for its prosperity.
Instead in institutionally underdeveloped economies social entrepreneurship arises, filling out
institutional gap and replacing traditional CSR.

The mapping presented in Figure 1.2 above is applied from the social business creation and
development perspective because social businesses, as case studies indicate, appear in
underdeveloped markets. Once they reach maturity, social businesses may remain in the field
in which they were created, but in many cases CSR practices may appear in a given field.

As Figure 1.2 indicates, social businesses emerge within contexts in which informal institutions
experience relatively low levels of regulation and control, which may result from both laissez-
faire and weak state practices. This type is marked as 0;0 on the matrix. The level of regulation
reflects the government’s attitude toward market failure, where, if regulatory control is high,
this indicates that the government only considers solutions that involve the state. Examples of
this approach include Belarus, the Democratic Republic of Korea, and the Russian Federation,
which impose strict regulations on any emerging social activities.

A low level of regulation indicates that the government supports state-free solutions to social
problems. Examples of this approach include Bangladesh, Uganda and Argentina. A
quantitative analysis conducted using data from the Economic Freedom Index used to measure
4|Page
the level of state regulation Heritage Foundation (2009) and the SEA rate (Terjesen et al., 2011)
indicated that there is a positive Spearman correlation between these parameters 0(ρ= 0.318,
significant at 0.05 level), which supports the approach of mapping social entrepreneurship with
respect to the level of government regulation.

The second parameter, the prevalence of formal institutions, indicates that there are approaches
available for solving social issues, and these are used by either not-for- profits or socially
responsible organizations. Social businesses emerge to close the gap resulting from
underdeveloped formal institutions, and in many cases, as indicated by Yunus (2008), support
the creation and implementation of new institutions. In this case, social entrepreneurship seeks
to fill the oversight created by market failure, in accordance with theory (Bator, 1958), and
might indicate the need to develop certain institutions to solve the issue. Once the issue is
solved, the market becomes characterized by greater control and/ or the prevalence of formal
institutions with new social entrepreneurs rarely appearing in this new market.

Social responsibility practices are mapped in Figure 1.2 and show the extreme, at 9;0, and
emerge in contexts in which institutions are well-developed while the level of regulation is
relatively low. In this case, socially responsible practices appear best suited to address a social
mission: developed institutions facilitate companies’ efforts to provide social services, while
the relatively low level of regulation allows such organizations to be proposed without needing
register as a special type of organization. The latter is located, at the extreme point, at 9;9, where
both institutions are developed and government regulation is strong.

In this case social services, tend to primarily be provided by non-profits, in keeping with
existing legal requirements regarding provision of social services. In some cases, these two
types of organizations serve as platforms for the improvement of existing institutions to better
achieve the social mission, but their activities rarely produce incentives for the creation of new
formal institutions which is the opposite of the case of social business development, where
formal institutions arise in response to challenges created by this type of business.

Finally, informal social practices appear when informal institutions prevail and regulation is
strong, mapped at 0;9 shown at the extreme point of Figure 1.2. In this case, social businesses
experience issues at the creation stage because regulatory procedures do not permit the official
registration of these types of businesses, as they fall outside the existing legal frameworks and
the government refuses to develop new ones or change existing regulation. In this context,
literature indicates that informal enterprises will emerge (de Soto, 2000) and this is also the case
for enterprises with a social mission. This quadrant is the only one that indicates limited
potential for institutional change in the field of social businesses, as in the other three quadrants,
either the improvement of existing formal institutions or the development of new ones matching
societal needs can be expected.

The other significant characteristic distinguishing social entrepreneurship in terms of key

entrepreneurial intention was suggested by Yunus (2008) and represents a concern for the
client’s dignity. Most studies overlook this issue and instead regard social business as
enterprises providing solutions to social problems while remaining sustainable; this internal
sustainability is instead regarded as the major difference. However, within the framework of the
present research a focus on dignity is understood as a key feature of social entrepreneurship
where its mission is not only to generate a social effect but also to respect the client and provide
them with a platform to feel respected. Social business opportunities may be identified if this
issue is taken into consideration. This assertion is illustrated in Figure 1.3.

The key features of social businesses, as the figure indicates, are dignity orientation and
5|Page
efficiency orientation. The extreme Friedmanite organizations are concerned with goal
achievement and efficiency, are balanced by achieving both the desired result (as goal-oriented
enterprises) and the efficient use of resources (Friedman, 1970). Socially responsible
organizations and not-for-profits are efficacy oriented in terms of achieving their social goals
but are not concerned with achieving high levels of efficiency – primarily because the funds
used to achieve their social goals come from external sources (for non-profits, grants and
charitable donations and, for socially responsible businesses, earnings from the businesses’
main activities).

However, these latter two types differ with respect to considering the feelings of the clients
receiving social services. In the case of not-for-profits, it appears logical for these organizations
to simply distribute goods and services among those who require them. Yet this approach may
create dependency on such assistance when the recipients do not search for a sustainable
solution but instead rely on charity programmes to support themselves and thus lose their sense
of dignity (Yunus, 2008). Socially responsible businesses rarely adopt such a position in relation
to their clients. An analysis of best practices such as Pampers’ (2006) ‘One pack – one vaccine’
reveals that the clients of socially responsible companies are provided with a sense of belonging
and dignity – they feel involved in solving an important social problem while socially
responsible businesses can behave similarly to not-for-profits toward those who receive their
assistance. Social entrepreneurs lie at the other extreme: they combine a dignity orientation in
client treatment with an efficiency orientation in resource treatment, in accordance with Dees
(2001) findings.

This combination of theoretical orientations is important for improving the current state of
knowledge regarding social entrepreneurship, as it demonstrates that sustainability is achievable
even when solving major social problems. This type of approach allows social entrepreneurs to
attain a solution that is efficient from a resource use perspective and from a value creation
perspective. This finding resolves the contradiction outlined by Friedman (1970) that social
responsibility does not need to be funded by other activities, as it should involve different
business models based on social market opportunities.

First, the existence of profitable social businesses resolves Friedman’s (1970) dilemma between
engaging in socially responsible behaviour and maintaining high profits, as social entrepreneurs
acquire profits by achieving a social mission. Thus the present research provides a different
view and solution to Friedmanite dilemma than the one suggested by Porter and Cramer (2011).
The present research implies that the dilemma is solved because an entrepreneur can find social
opportunities leading to profitability which are not due to shared value creation. The basis for
such activity, as outlined by Yunus (2008), is that conventional entrepreneurs overlook market
opportunities because they are obscured by the opportunities’ social nature.

Although social businesses currently present a relatively lower level of profitability than
conventional firms do, there is a greater number of market opportunities in the social business
sector, and thus social entrepreneurship is becoming increasingly attractive, even for venture
capitalists. An example of this trend is Coursera’s success in raising venture capital despite the
lack of sufficient clarity in the business model where the idea’s high potential was sufficient to
attract investors. Thus, conventional entrepreneurs and existing enterprises should consider
social market opportunities as a means of business development, which contrasts with
Friedman’s position of ignoring social mission opportunities as a priori unprofitable, and this
serves as a basis for shared value creation as the key concept in future economic development
(Porter & Cramer, 2011).

The other important feature is the role and position of social entrepreneurship in improving the
6|Page
institutional environment. Dacin et al. (2010) has stated that social entrepreneurs are eager to
provide creative solutions to overcome environmental barriers, thus they rarely reject the idea
of business attributable to underdeveloped environment. In line with the results of the present
analysis, they noted that social entrepreneurship activity is likely to occur in absence of formal
institutions in order to fill the oversight between the existing environment and social needs. In
this case, conventional entrepreneurs would seek a solution within the framework of existing
institutions which is the approach followed by socially responsible businesses and not-for-
profits. Whereas social entrepreneurs would develop a platform for new institutions that may
subsequently be made formal (see Yunus, 2008, for examples).

Figure 1.3. Dignity/efficiency types of business matrix

0;9 9;9

Socially Social
responsible businesses
organizations
Client treatment

Friedmanite
Non-profits organizations

0;0 9;0
Efficacy orientation Efficiency orientation Resources treatment

Although social entrepreneurship business models cannot currently be implemented in certain

contexts (see Dacin et al.’s (2010) criticism of the Aravind Eye Clinic business model in the US
institutional environment), these models appear to offer more sustainable solutions to numerous
social problems than current governmental and non-profit practices do. Therefore, institutions,
and not social business models, might provide a more meaningful area of change. Consequently,
conventional entrepreneurs may use social businesses’ as the approach to identify solutions to
their business issues that might appear solvable in a modified institutional environment where
such initiatives could gain support in both social and economic markets as being more efficient.
Yet, the majority of researchers agree that social enterprises and CSR practices can be
considered the same research object, the difference lies in the field of heavier focus of corporate
governance whether it considers economic outcome a consequence of fulfilling social needs
(social business) or vice versa (CSR).

2. Developing CSR Measuring Tool to Ensure Quality Corporate Governance

Based on this positioning, one needs a measuring instrument for CSR evaluation within a
7|Page
company. Such an assessment of CSR practices for a variety of companies seems possible if
one can use a specific tool, which would combine both existing theoretical frameworks and
existing society perception. Moreover, such tool yet had to be developed. Based on the data
from legal entities, the researchers had developed several CSR measuring instruments, one of
which is described below.

To evaluate the data for this research, researchers have developed list of indicators on the basis
of correlation analysis results, which included 22 indicators originally used by researchers and
6 more suggested the experts in interviews. The analysis had proven the following indicators to
be significant: “(a) share of rejected goods and services on the basis of their poor quality,
Pearson correlation equals -0.6112; (b) the share of corruptive costs in total costs (approximate
estimation), Pearson correlation equals -0.5684; (c) the share of labour contract violations of
total employee interaction, Pearson correlation equals -0.5106; (d) the share of properly
proceeded reclamations, Pearson correlation equals + 0.6984; (e) the share of deals done on
terms of pre-payment, Pearson correlation equals -0.8173” (Svirina & Khadiullina, 2014).

Table 1.1. CSR assessment tool

Indicator CSR performance quality

Outstanding Excellent Good Averag Poor Very poor
e
The share of 0-0,5% 0,5- 4% 4-7% 7-15% 15-25% >25%
goods and
services
rejected
because of
poor quality
The share of <1% 1-4% 4.01- 9.01- 17.01-35% >35%
corruption- 9% 17%
based costs
in total costs
The share 0-0.1% 0.11-1% 1.01- 4.01- 7.01-10% >10%
of labour 4% 7%
contracts’
violations
The share of >99.7% 98-99,7% 90- 80- 60-79.9% <60%
reclamations 97.9% 89.9%
proceeded
according to
existing
procedure
The share of <0.5% 0.5-5% 5.01- 15.01- 25.01-40% >40%
pre-paid 15% 25%
deals
Source: Svirina & Khadiullina (2014)

Existing research is somewhat controversial when it comes to an issue of CSR relation to

company performance (Henriques, 2003); so for the study described below CSR seen as a set
of socially responsible activities, which are performed by the enterprise despite they are not
legally required. This leads to a double meaning situation – on the one hand such activity means

8|Page
additional costs for the company, but in the long run can provide higher customer appreciation
resulting in increased sales. The final list of significant criteria with their ranges, built in
accordance with the above stated CSR definition, is in Table 1.1 above.

For each type of performance within the CSR concept, each performance type was assigned a
number of points, when ‘outstanding’ means 8 points, ‘excellent’ – 5 points, ‘good’ – 4 points,
‘average’ – 3 points, ‘poor’ – 2 points and ‘very poor’ – 1 point. Henceforth the maximum
amount of points enterprise’s management can get for organizational culture development
(without outstanding performance) is 20 points. For CSR a company can get maximum 25
points without providing outstanding management performance.

Correlation of defined CSR level and the EBITDA of the studied enterprises is shown in Table
1.2. This correlation is in line with mainstream research findings and outlines a strong positive
correlation between the quality of CSR (viewed as special managerial function), and the
EBITDA of studied enterprises.

Table 1.2. Correlation analysis of CSR level and EBITDA

CSR level EBITDA

CSR level Pearson 1 0.854**
correlation
N 132 132
EBITDA Pearson 0.854** 1
correlation
N 132 132
**. Correlation significant at 0.01
(Source: Svirina & Khadiullina, 2014)

3. Prediction Enterprise Management Quality Model regarding CSR Practice

To finalize the findings in the field, “correlation between management performance multiplier
has been estimated, which is done according to Equation 3; the resulting factor was chosen as
fulfilment of management plans (the average for tactical and strategic plans was taken), which
was estimated as a ratio of resources consumed to fulfil the plan to the amount of resources
planned for consuming, in % (where 100% meant consuming the same exact amount of
resources as it was planned, and amount less than 100% meant less resources were consumed
than the plan suggested). The correlation rate for 32 companies studied in this survey was
estimated at the level of - 0.6751 that means there is a strong negative correlation. The trend
line for the data has turned out to be polynomial” (Svirina & Khadiullina, 2014).

The level of R2 shows that management multiplier variation explains only 51.43% of
management plans fulfilment variation. But, this might be due to the fact that in this study only
two management functions have been examined to create a multiplier, and these functions were
not the basic ones (such as planning, organization or motivation), so if the amount of functions
examined was increased, the R2 would probably be higher. Other type of trends, such as
logarithmic, linear or exponential had shown lower levels of R2 (in all cases less than 46%),
and henceforth the polynomial trend has been chosen to explain the existing relationship
between management performance multiplier (which varied from 0 to 1) and management plans
fulfilment.

The prediction function for the level of management plans fulfilment in relation to management
9|Page
performance multiplier is presented in Equation 3, and it represents the sixth-order polynomial.
PFman = 205467 M6 – 642294M5 +799613M4 - 502920M3 + 167383M2 – 27821M +1994(3)

where
PFman – percentage of management plans fulfilment in terms of resources spent to achieve the
planned results, where 100% stands for a perfect fit with the original plan
M – management performance multiplier estimated according to Equation 3, from 0 to 1 (or
over 1 in case of outstanding management performance)

Thus in case of a low level performance multiplier which means that in case of mismanagement
the variation of management plans fulfilment is very high, which is due to the fact that
management does not have much influence on this process. As the multiplier gets higher, the
results become more consistent and get closer to the original plan. The prediction function from
Equation 3 can be used in order to pre-estimate possible deviations of the resource consumption
during implementation of the plan, which would result in more accurate planning.

The model for predicting EBITDA on the basis of CSR level, created using SPSS, estimated R2
for ANOVA model is 0.529. The coefficients for the model are presented in Table 4.3. This
particular model can be used to enhance the quality of measurement-based management of CSR
practices as the outcome of those is not always clear and concise, and in a few cases is not really
measurable. Though the integral level of CSR seems to predict only 52.9% of company
profitability variation, it is still a reliable managerial tool if the company wishes to assess
perspective CSR outcomes in terms of monetary units – though the research in this field is quite
controversial, it seems that in case of corporations CSR can be paid off at least in the strategic
perspective.

Table 1.3. ANOVA Model Coefficients

Model Non-standardized Standardized Т Value

coefficients coefficients
B Standard error Beta
Constant -0.011 0.004 -2,589 0.027
CSR level 0.002 0.000 0.854 5,187 0.000
Source: Svirina & Khadiullina (2014)

These results seem contradictory to some extend to regular perception of CSR. Usually CSR is
viewed a type of governmental responsibility which does not lead to increased interest in
company’s products. While the employees of socially responsible companies are likely to
appreciate CSR practices, resulting in their increased efficiency and in lower labour costs and
higher quality of company products.

Though the number of stimulus for CSR is smaller than the amount of obstacles, these practices
are gaining popularity, especially in local communities – and increased social responsibility is
starting to change societal perception.

Social business and CSR both consider the client’s dignity in areas in which it has not been
regarded as an important aspect of performance. Although there is contradictory evidence
regarding the relationship between CSR and increased firm performance (Roman et al., 1999),
a case analysis of social entrepreneurship practices reveals that social entrepreneurs provide a
higher level of human resource efficiency than conventional firms (Osberg, 2013). According
to Budd (2004), the issues of dignity and human performance are interrelated; the present
10 | P a g e
research indicates that issues concerning dignity are well- developed and fully identified by
social entrepreneurs – thus social business may be considered more efficient in human resources
implementation due to their greater attention to the issues of dignity. Social entrepreneurs may
explain the lack of consensus regarding socially responsible practices’ effects on company
performance in the pursuit of a social mission’s effects on the firm performance, if such issues
of dignity appear to be the basis for such a pursuit.

In other cases, having a social mission should not affect company performance. Thus,
conventional enterprises can increase the efficiency of their human resources by adopting a
dignity-based attitude toward clients, and social entrepreneurs may provide exemplary practices
in the field.

The existence of profitable social businesses resolves Friedman’s (1970) dilemma between
engaging in socially responsible behaviour and maintaining high profits, as social entrepreneurs
acquire profits by achieving a social mission. Thus this research provides a different view and
solution to Friedmanite dilemma than the one suggested by Porter and Cramer (2011). The
present research implies that the dilemma is solved because an entrepreneur can find social
opportunities leading to profitability which are not due to shared value creation. The basis for
such an activity, as outlined by Yunus (2008), is that conventional entrepreneurs overlook
market opportunities because they are obscured by the opportunities’ social nature.

Although social businesses currently present a relatively lower level of profitability than
conventional firms do, there is a greater number of market opportunities in the social business
sector, and thus social entrepreneurship is becoming increasingly attractive, even for venture
capitalists. An example of this trend is Coursera’s success in raising venture capital despite the
lack of sufficient clarity in the business model, where the idea’s high potential was sufficient to
attract investors. Thus, conventional entrepreneurs and existing enterprises should consider
social market opportunities as a means of business development, which contrasts with
Friedman’s position of ignoring social mission opportunities as a priori unprofitable, and this
serves as a basis for shared value creation as the key concept in future economic development
(Porter & Cramer, 2011).

The other important feature is the role and position of social entrepreneurship in improving the
institutional environment. Dacin et al. (2010) have stated that social entrepreneurs are eager to
provide creative solutions to overcome environmental barriers, thus they rarely reject the idea
of business attributable to underdeveloped environment. In line with the results of the present
analysis, they have noted that social entrepreneurship activity is likely to occur in absence of
formal institutions in order to fill the oversight between the existing environment and social
needs. In this case, conventional entrepreneurs would seek a solution within the framework of
existing institutions which is the approach followed by socially responsible businesses and not-
for-profits. Whereas social entrepreneurs would develop a platform for new institutions that
may subsequently be made formal (see Yunus, 2008, for examples).

Although social entrepreneurship business models cannot currently be implemented in certain

contexts (see Dacin et al.’s (2010), criticism of the Aravind Eye Clinic business model in the
US institutional environment), these models appear to offer more sustainable solutions to
numerous social problems than current governmental and non-profit practices do. Therefore,
institutions, and not social business models, might provide a more meaningful area of change.
Consequently, conventional entrepreneurs may use social businesses as an approach to identify
solutions to their business issues that might appear solvable in a modified institutional
environment where such initiatives could gain support in both social and economic markets as
being more efficient.
11 | P a g e
4. CSR Practices in Various Business Areas

The concept of CSR (CSR) may mean different things in different industries due to their specific
financial accountability requirements, as well as their relations with stakeholders. Thus, we
cannot say that human resource managers would view responsibilities in the same light as, for
example retailers or public relation specialists. In other words, in different industries and based
on company’s nature of activities, the relation social-financial performance may have different
levels of sensitivity to different dimensions of CSR (Shalchian et al., 2015). In this section, the
specific characteristics of CSR will be briefly discussed in the following areas: (1)
manufacturing and service industries, (2) retailing, (3) human resource management, (4) finance
and banking.

4.1. CSR in Manufacturing and Service Industries

One of the most important directions of CSR, in general, is building relations with local
communities, this pertains especially to production companies as they require the extensive and
highly developed infrastructure, and at the same time compliance with 6R principle – reduce,
reuse, recycle, recover, redesign, and remanufacture – pertaining to operation type, price,
quality, time, quantity, and cost (Stasiku- Piekarska & Wyrwicka, 2019). The latter aspect, in
particular, distinguishes CSR in manufacturing from the one in service industry. Other
significant aspects of the manufacturing industry CSR include the socially fair treatment of
employee and environmentally conscious thinking on all management levels from top to bottom
and vice versa.

In comparison to manufacturing industries service industries exhibit a few specific traits: (1)
the industry tends to be more labour intensive by in comparison to the manufacturing, at the
same time in many developing countries it supplies the majority of working spaces; (2)
technological development has changed the employment landscape overall, as a result, the
labour force has moved into the sphere of services, hence employee welfare has become a matter
of prime concern (Handayani et al., 2017).

On the other hand, regarding the manufacturing industry, we can speak about six key business
drivers, that, according to A. Troup (2018) make it possible to create employee-cantered CSR
strategies. These drivers are the following:

• Engagement of younger generation that is more ambitious, more technologically

educated, employee-cantered approach can create a space for their self-expression
in socially oriented activities.
• Nurturing young talents through training programs, grants, skills-based
volunteering opportunities expose young people to promising career possibilities
in manufacturing industry.
• Increase of productivity due to employee engagement and loyalty to the company.

• Community development through investing in the neighbourhood development

that can attract new employees and build company image and good reputation.
• Building collaborative and multi-dimensional partnerships with NGOs and
governmental agencies will facilitate company further development.
• Corporate citizenship involves organization’s understanding of internal and
external changes in order to be able to meet interests of its stakeholders and be
sustainable in long run.

12 | P a g e
CSR practices in the manufacturing industry are closely related to the environmental
management in the matters of providing raw materials, closed production cycle, recycling, use
of environmental friendly materials, green innovation, etc. In these cases, CSR is needed as an
ethical and moral obligation of the company in reduction of negative impacts of the company.

Nevertheless, according to some researchers (Casado-Diaz et al., 2014, Kalaignamam et al.,

2013) CSR effect on performance is higher for services firms than for manufacturing companies
due to the specific nature of their services that includes face-to-face involvement with
customers. From the investors’ viewpoint it is more difficult to evaluate services company
performance based on the financial results only, therefore CSR activities that result in
accumulation of the so-called reputation capital gain a special significance in reducing their
perceived risks. While consumer goods can be easily checked regarding their quality standards,
there is a great variability in quality in the services industries. This make prospective customers
to look for additional information – company characteristics, activities in the society, public
exposure, etc. Individuals can use this information for uncertainty and risk reduction by proxi,
that is, customers may think, if the company is interested in the social well-being, it might, as
well, be interested in taking good care of its customers (Nicolau, 2008).

At the same time, service companies, on their part, are interested in spreading information to
existing and potential investors, as well as to customers, creating so-called ‘ŗeputation capital’
(defined as a public trust). Different social activities and ethical responsible practices thus gains
a paramount significance as they signal about company’s core values, employment policies,
attitude towards environment protection, etc. In addition to that, the reputation capital allows to
attract and retain skilled labour-force, to reduce investment risks.

4.2. CSR in Retailing

Although, in general, all the categories and characteristics of the CSR are applicable to the
sphere of retailing, there are some idiosyncratic features to be mentioned. Thus,
Anselmasson and U. Johansson (2007) distinguish three main attitude-based dimensions –
human responsibility (fair-trade), product responsibility (user-friendly information), and
environmental (eco-conscious actions, e.g., disposable packaging, etc.) responsibility. In
addition, we have to talk about the supply chains in retailing, since in the case of mega-retailers
(chain stores and chain operations) there exist a lot of social risks, such as child labour,
sweatshops, pollution, etc. Namely, the longer supply chain the greater risks are being involved.
The main CSR issues in the sphere of retailing can be defined:

• fair-trade, support of local producers, organic produce,

• protection of natural environment, energy use and waste reduction, recycling,
• product safety, distribution of eco-goods and local produce,
• ethical trading,
• employment policies and working conditions, health and safety at work,
discrimination, corruption, foreign labour,
• sustainability, corporate reputation,
• charity, philanthropy, support for local communities, social, educational and
environmental programmes,
• consumer loyalty and purchasing behaviour (Jones et al., 2007).

The specific role of retailer is determined by the fact that it assumes a middle position in-
between producer and consumer in the supply chain, therefore, it is important to consider the
role of CSR on the part of both producers and consumers. Thus if the production company
displays human rights violations it could (or rather would) spill over to perception of the retailer,
13 | P a g e
spoil its image, diminish consumer loyalty, thereby reducing the retailers’ performance in the
market. One of the most recent investigations in the field is the one conducted by H. Schramm-
Klein and others, entitled Retailer CSR is relevant to consumer behaviour (2016).

The authors have developed the conceptual model that can be described in the following way:
perceived CSR activities and perceived retailer attributes lead to the consumer loyalty and
eventually to the change in purchasing behaviour; the process itself is being influenced by the
CSR credibility and CSR orientation. In the result, the authors come to a conclusion that in the
sphere of retailing perception of the combined CSR activities and retailer’s attributes has a
greater impact on loyalty rather than purchasing behaviour. The study also reveals that most
consumers are not fully aware of the CSR activities, hence it is very important to inform existing
and potential consumers about company social activities, such as supporting charity, diversity
programs, employee support, environmentally conscious behaviour, fair trade, etc. In
consumers’ perception, there are two main aspects of retailers’ social initiatives – the
beneficiary of activity (i.e., what are the beneficiary profits) and the retailers’ input (i.e., how
much retailers invest into projects) (Herpen et al., 2003).

This means that the best way to relay information about retailers in order to increase consumer
loyalty is to speak about activities that both benefit society and require a high level of
contribution. T. Wagner and others (2008) in their research have tried to identify the critical
spheres of CSR in retailing, that is, the spheres that could be perceived as irresponsible by the
consumers. They have pinpointed fourteen risk aspects: societal rules, employee discrimination,
local working conditions, dishonesty, pricing policies, natural environment, employee benefits,
foreign labour, employee wages, local businesses, local employment, offensive material,
foreign
economies and sales practices. Paying a special attention to these aspects and foreseeing
possible negative effects can help retailers to build company reputation through trust of
consumers, producers and investors and, in the results enhance company’s financial
performance in the market.

4.3. CSR in Human Resource Management

Focus of the human resource management (HRM) is a ‘people’ side of organization

interpersonal relations, internal (with employees of a different level) and external (with
stakeholders) communication, all this entail a high involvement with ethical and social issues,
such as:
• discrimination (gender, age, racial, professional, etc.),
• lack or overselling of social benefits,
• unfair compensation systems,
• unsafe working conditions,
• pressuring employees to donate to different charities or to volunteer their time
against their true intentions,
• violations of employee rights, etc.

At the same time, the modern changing business environment causes shift in organizational
forms (e.g. partnerships, alliances, franchising, subcontracting, outsourcing, self-employment)
and power relations within and outside organizations. Trade unions, non-governmental
organizations, governmental agencies pay a special attention to companies’ responsibility to
just and fair treatment of their employees. These new employment relationships result in
unstable career patterns, work stress and exhaustion, and risk is shifted to the workers (Ryan &
Wessel, 2015; Stone & Deadrick, 2015). Taking into account this context, human resource
managers paly an instrumental role in helping their organization achieve its goals of becoming
14 | P a g e
a socially and environmentally responsible company – one which reduces its negative and
enhances its positive impacts on society and the environment. Due to its specific mediating role
(employers – employees, company – community) the HR department can ensure that there is an
equilibrium between information disclosed publicly and they ways company treats its
employees. In addition to that, the HR department can provide the management with the tools
and framework for creating an ethical working culture and adopting CSR programs proactively
(De Baldo, 2013). Let us briefly describe the main HR activities related to the CSR.

Implementation and encouragement of green practices involve assistance in environmental

waste reduction (closed-cycle production, industrial recycling, disposable packaging, etc.), as
well as promotion of green marketing strategies. The important thing is to keep both employees
and society informed about the company values and nature-conscious activities. On the
individual level green practices can mean working remotely from homes, carpooling, switching
off the electrical appliances after work hours, promotion of brown-bagging in the office to help
reduce fat and calories to live healthier lives and reduce packaging waste, too.

Fostering a Culture of CSR means fostering attitude of responsibility and sense of participation
and involvement in the CSR programs. Committed employees would enable friendly
competition and recognition programmes. Social and community connections – company ties
with local communities through the following activities:

• Company charitable programs accord to employee interests;

• Volunteering activities;
• Corporate sponsorship of community events;
• Encouraging employees to participate in walkathons, food banks,
and so forth.

The HR department, in most cases, is responsible for employee motivation, celebrating success,
praising individual and group initiatives (including the social ones). Of course, all these
programs require serious management involvement; the particular role of the HR department is
to be a vehicle of change and a channel of feed-back information.

4.4. CSR in Finance and Banking

It is of no surprise, that a great majority of people are affected by the activities of financial
organizations, be they employers, employees, investors, everyday people paying their bills,
taking out loans, etc. Characteristically, these are long-term multivalent relations that are of a
high social significance. In other words, irresponsible behaviour on organizations part affect
well-being of clients and of community in general, at the same time the financial sector is
influenced and affected by the indirect impacts of the environmental and social activities of its
clients. These impacts in many cases can outweigh the direct impacts, since they can result in
low ranking of country by the international financial institutions, for instance, World Bank,
European Investment Bank and others.

In the realm of consumer banking criticisms regarding social responsibilities are often related
to the facts of financial exclusion of the groups of people or misselling of financial services and
products to community, whereas as positive examples we can mention the financial support of
relatively poor consumers and would-be entrepreneurs. According to Kurtz (2008), CSR in the
financial sector refers to the inclusion of ethical, religious, social and/or environmental aspects
in investment decision processes – over and above considerations of financial risk and return.
Hence, the main aspects of CSR in the banking are risk management, protection of customers’
rights, complaint management, strengthening ethics, combating bribery and corruption (Viganò
15 | P a g e
& Nicolai, 2009; Yeung, 2011).

Applying the classical depiction of the CSR pyramid by A. B. Carroll (1991) it is possible to
describe CSR activities in the banking sector in the following way.

• Economic responsibility. This involves financial innovation – creating new

opportunities for customers, developing new products, applying risk management
and mediation of resources. Interaction with stakeholders has a crucial role in
determining these new products.
• Legal responsibility. Regulation is determined by statutes, and its aim is to
minimize risk and ensure safety and confidence in the financial system. This
involves also a compliance with the guidance of different supervisory institutions
and trade associations.
• Ethical responsibility. This type of responsibility is the most obvious in the
stakeholder dialogue regarding principles of integrity, fair conduct and
transparency. The ethical norms and responsibility of various parties are fixed in the
form of ethics codes (codes of voluntary ethical behaviour).
• Discretionary (philanthropic) responsibility. This responsibility is of a strictly
voluntary nature; still, it has become a common practice of the financial institution,
contributing to the welfare of the community, as well as to reputation (Decker &
Sale, 2009).

Bank clients expect secure products, satisfactory and correct information; employees expect
having safe workplace lacking discrimination (gender, age, racial, cultural, social and
professional); competitors, on their part, expect a fair competition in the market. Banks’
engagement in CSR activities indirectly ensure their competitive advantage – reflected in their
financial performance and reputation capital.

CONTROL QUESTIONS FOR DISCUSSION

1. What are the key features and key implications of CSR?

2. What relationship can one find between CSR and social business development and
institutional development?
3. How can one measure CSR within the framework of corporate governance?
4. What are the key concerns when a company develops CSR as a key action of
company’s competitive advantage?
5. How does the development of CSR and social business influence entrepreneurial
development?
6. What are perceptions and challenges for CSR in manufacturing?
7. What are perceptions and challenges for CSR in service industry?
8. What are the perceptions and challenges for corporate CSR in retail industry?
9. What are the perceptions and challenges for CSR in human resources management?
10. What are the perceptions and challenges for CSR in banking?

16 | P a g e