the effect of corporate social responsibility on company’s financial performance

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the effect of corporate social responsibility on company’s financial performance

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THE EFFECT OF CORPORATE SOCIAL RESPONSIBILITY ON COMPANY’S FINANCIAL PERFORMANCE “A case study of NamTrieu Company" BY NGUYEN HAI MINH Graduation Project Submitted to the Department of Business Studies, HELP University College, in Partial Fulfillment of the Requirements for the Degree of Bachelor of Business (Accounting) Hons Otc 2010 Declaration of Originality and Word Count DECLARATION I declare that this graduation project is based on my original work except for quotations and citation which 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 Word Count: 10,845 words Nguyen Hai Minh Date Abstract THE EFFECT OF CORPORATE SOCIAL RESPONSIBILITY ON COMPANY’S FINANCIAL PERFORMANCE “A case study of NamTrieu Company" BY NGUYEN HAI MINH Oct 2010 Supervisor: Dr Le Van Lien Globalization and the rapid advancement of technology offer many opportunities for economic development and social, especially with developing countries such as Vietnam Globalization also brings serious challenges such as financial crises, insecurity, and poverty Settlement of social problems is the condition for stability and economic development In business, too, the development of a business is always accompanied by Corporate Social Responsibility that business must address concerns The successful implementation of social responsibility particularly as businesses becomes more meaningful in the current period of integration when Vietnam became an official member of the World Trade Organization Table of contents Chapter 1: INTRODUCTION 1.1 Research Background ………………………………………… … ……… 1.1.2 CSR in the world…………………………………………………………….1 1.1.3 CSR in Vietnam……………………………… ……….…………………5 1.2 Reason for Future Research………………………………………………10 1.2.1 Objectives of Research………………………………………….……… 10 1.2.2 Structure of Research…………………………………………………….10 CHAPTER 2: LITERATURE REVIEW 2.1 The overview of CSR ………………………………………………… 12 2.2 CSR motivates Financial Performance……………………………………19 CHAPTER 3: RESEARCH METHODOLOGY 3.1 Overview………………………………………………………………………25 3.2 Sphere of Research…………………………………………………….………25 3.3 Data collection…………………………………………………………………26 3.4 Research method 27 3.5 Sampling ………………………………………………………………………28 3.6 Hypothesis…………………………………………………………………… 28 CHAPTER 4: RESULT ANALYSIS 4.1 The employees of Nam Trieu Company appreciate the company‟s CSR implementation…………………………………………………………………… 30 4.1.1 Figures and general discussions …………………………………….… … 30 4.2 There is a significant positive relationship between CSR and financial decision making………………………………………………………………… ………….37 4.2.1 Figures and general discussions…………………………………….……… 37 CHAPTER 5: CONCLUSIONS AND RECOMMEDATIONS 5.1 Conclusion………………………………………………………………… …43 5.2 Recommendations…………………………………………………….…… …44 5.3 Limitations………………………………………………………………… …46 REFERENCE…………………………………………………………………… 47 APPENDIX…………………………………………………………………………50 List of Figures and Tables Exhibit 1: 10 Principles of UN Global Compact …………………………………….4 Exhibit 2: Carroll‟s pyramid……………………………………………………… 17 Table 1: Question – Result analysis……………………………………………….31 Exhibit 3: Question – Result analysis………….……………………… ……… 32 Table 3: Question – Result analysis………………………………… ………… 33 Table 3: Question – Result analysis……………………………… …………… 34 Exhibit 4: Question – Result analysis………………………… ……………… 37 Table 4: Question – Result analysis…………………………… ……………… 38 Table 5: Question – Result analysis……………………………… …………… 39 Table 6: Question – Result analysis……………………………………………… 32 List of Abbreviations  CSR  Corporate Social Responsibility  RI  Responsible Investment  IR  Investor Relations  WTO  World Trade Organization  VCCI  Viet Nam Chamber of Commerce and Industry  SME  Small and medium enterprises  PR  Public Relations CHAPTER 1: INTRODUCTION 1.1 Research Background 1.1.2 CSR in the world The increasing globalization has made persons, goods and capital move quickly around the world and facilitating access to information and communication A progressively larger amount of trade and investment from the world developed many countries and one third of world trade internal money is transferred by companies This change in the international arena has created many new opportunities and capabilities as well as new challenges Recognizing the interest of consumer worldwide development of production methods, working conditions and environmental impacts, there is a growing demand of combined CSR strategy with the company‟s production On worldwide, there are many large companies paying a lot of money to become an ideal business model, and to be accountable to society such as Best Buy with the application of product recycling program or Starbucks, the coffee companies are present across the corner of the planet, has embarked on a series of community activities Evian, the famous French mineral water, distributes products in the water bottle-friendly environment To Search engine Google Company, in Googleplex headquarters, the employees are treated like a very precious asset General Electric use $ billion annually to research new technologies to protect the environment Deputy Head of Public Relations of Best Buy, Prahl Paul has stated that "We just feel we will succeed in the marketplace if we take social responsibility." In many corporate, CSR report often accompany with the annual report In developed countries, the cost of social responsibility for the research and development accounts for more than the cost to a charity, although the cost of philanthropy is not small In addition to ensuring the quality of life for employees, environmental protection, and development of products that create benefits for consumers and the environment Many companies also built charity funds and contribute to the development of society and community Royall Dutch Shell established charity funds, including the construction of educational centers Early Learning Centre in South Africa to educate children and teach skills for adults World Bank and Merck pharmaceutical company has launched an initiative to raise the fund of U.S $ 50 million including the donation of Mectizan products to help 28 African countries eliminate disease The billionaire, along with the company's funds also contributed a lot to charity work like Bill Gates or Warren Buffet Consumers today are not only interested in product quality but also appreciate the way the company created the products whether the product is environmental friendly and safety In many countries, there are many community trends are trying to protect consumers such as boycott fringe foods aimed at companies producing fast food, fizzy drinks, Fairtrade trends (ensuring fair material price of product, safety working conditions in factories from the 3rd countries), avoiding to use of fur products, products of exploitative child labor by Nike and Gap and shopping with a Conscience Currently most companies have a Code of Conduct which emphasizes the issue of CSR thus it helps to improve the company image in the community and help companies improve sales In the survey by McKinsey in 2007, 84% of senior administrators wanted to give contribution to the community should for improving shareholder value, 16% said that making profit is the only goal When asking about the negative impacts that large companies can effect to the community, 65% replied that environmental pollution, 40% replied that put business interests than to human health, 30% answered companies are putting pressure on politicians1 Under pressure from society, most large companies have taken proactive CSR into their program activities in earnest Thousands of programs have been implemented, such as saving energy, reducing carbon emissions, using recycled materials, solar energy, civil architecture and environmental improvement of living water, literacy, school construction, relief victims of natural disasters, the establishment of funds and research center on AIDS Vaccines Some leading companies can be name at the forefront of these activities, such as TNT, Google, Intel, Unilever, Coca-Cola, GE, Nokia, HSBC, Levi Strauss, GlaxoSmithKline, Bayer, DuPont, Toyota, Sony, UTC, Samsungs According to Gingving USA Foundation, the amount of business to contribute to the social activities worldwide is up to 13.77 billion USD (2005) and nearly 1,000 companies are rated as good corporate citizens Especially in the case of Grameen Bank by TS, Muhammad Yunus has provided credit to 6.6 million people, 97% of them are poor women in Bangladesh borrowing money to improve their lives He was awarded the Nobel Peace Prize in 2006 In terms of state management, many countries have institutionalized CSR contents into the laws and regulations in many different forms On the wider scope, the efforts Manh Kim (2008), "Corporate citizen" on “Tuoi Tre” 10/12/2008 10 not affected at all The results of this questionnaire reflect the sense that the indirect benefits derived from the company's CSR activities Question The next question about impact of products and services is posed as following: “Do you believe that the implementation of CSR practices may positively influence products and services?” The options to answer this question are: “Very much, Moderately, Not at all, No opinion” Do you believe that the implementation of CSR practices on behalf of an enterprise can affect in a positive way the recipients of its products and services? Frequency Percentage Very much 10 55.56 Moderately 27.78 Not at all 11.11 No opinion 5.55 18 100 Total Based on this graph shows the rate of more than 85% believe that CSR activities affecting Financial performance at certain levels 11.11% said that activities of the company and its products are not affected by CSR activities The remaining approximately 6% did not express an opinion on this question 47 4.2.2 Evaluation CSR costs require a relatively large enterprise‟s resources, some small businesses not apply because they think it is a burden, it is a wrong thinking The investment in CSR will bring enormous efficiency It can be tangible, but also invisible It is an invisible in material and production efficiency that can not be seen but very precious for example generating beliefs of employees for businesses, creating employee engagement with business We find that labor force attracted the most attention in the CSR activities in Nam Trieu company This suggests that showed the company was fully aware of the role of SCR that affect the workforce With a business perspective, the managers were the ones that represent the company Decisions about their financial operations reflect the company's financial The managers choose to invest in human resources is also the way they invest in CSR They argue that CSR situation greatly affect the company's finance We can compare the sales of the company's board over the years Net profits of Nam Trieu Company over years (VND) 2007 Bonus and welfare funds Net income 245,900,000 1,053,365,000 2008 369,081,000 2009 543,974,000 1,667,953,000 2,754,987,000 The social welfare fund to reward and encourage staff to emulate production and retain top talent Good employees to dominate the competitive advantages for businesses directly affected by their enforcement activities to the business strategy of 48 the organization Business strategy is the key element of business success Having the right strategy, the likelihood of success was 50% However, some Vietnamese enterprises have been falling in recent crisis on business strategy by having a reality rate is good employee resignation to the company to make foreign firms are rising trend This situation lasts will reduce the competitive advantages of enterprises when Vietnam by serious human resource assets are lost, the enterprises that lose large sources of intelligence Businesses will not be able to make the business strategy Once a business is no longer able to work out an effective business strategy, the inevitable can not overcome these enterprises have a good business strategy because of their position and power more powerful And the business will fail is the inevitable consequence We can see this fund continuously increases in the years 2007, 2008 and 2009 Indicators of net sales in 2007, 2008 and 2009 also increased continuously It shows that companies have to spend more to care for the staff Therefore, annual net profits of the company's rise year over year 49 CHAPTER 5: CONCLUSION RECOMMEDATION 5.1 Conclusion In recent years, the term CSR have been used in many companies, especially in key export enterprises such as textiles, footwear, seafood CSR is not simply the responsibility of businesses with employees that higher that, it is the investment channel, an effective tool for business advantage This study, the researcher gives some example to depict current CSR situation Few facts about the CSR is too small, but well enough to visualize the importance of this issue for the world In Vietnam, the issue of CSR is not too new, but new does not mean too old The CSR of business is inevitable problems associated with doing business in developed countries, while in Vietnam, most businesses only made by binding or charity care head of the enterprise We also look at the positive relationship between CSR and financial performance in the case study of Nam Trieu Company as the motivation of investing in Labour Force Investing in Labour Force is one of important factors in CSR Labour Force plays an important role to decide the strength of competition for business because that is the position and strength of the business 50 5.2 Recommendations As Labour force is a competitive factor of Nam Trieu company, the few suggestions below may help company develope the labor force better while improving the performance of CSR Mounting staff and CSR The employees often know little about the CSR efforts implemented by their own business For example, there is a few employees know what companies are doing to reduce waste disposal or pollution in the workplace Because they not know so they not care and not appreciate what businesses are doing Such enterprises have missed a good opportunity to "internal marketing" with employees, enhance the value of the implementing CSR Clearly businesses need to strengthen the channels using inside information to help employees understand and be proud that his company not only knew each maximizing profits But information is not enough Enterprises need to get people more involved in CSR programs for example: that can be as simple as making plans not throw the paper with garbage to help protect the environment, organize the employees involved cleaning beach sea plants, the organizations plant trees, clean up the workplace; furniture company for employees participating in reforestation projects; food companies to visit, gifts to schools, orphanages 51 If such programs become a regular activity of the enterprise, they will help Nam Trieu promoting the spirit, conscious and proud of CSR, to cement the ties between employees and the business together Learn and implement CSR expectations of staff Social responsibility and business ethics not only issues related to outward issues to meet the requirements of society, the authorities and customers, but also to see the staff as a key mind We can not say a firm is "moral" if only the company only polish its image by the wave of social work, charity programs, when inside is filled with the scandals of his employees CSR needs to be done first with the staff and should start with basic things such as create good working conditions and reduce harmful, heat, insurance and medical social worker One more Progress step, Nam Trieu needs to conduct research and segmentation of the staff and worker‟s needs to respond better Just likes they research and market segment customers CSR because the same problem as health insurance, but employees may have different needs, different men and women, different age children, is different than single family Businesses will create a clear difference in the labor market and keep tighter if employees know how to understand and meet their needs in a concrete and detailed Empowered to actively implement CSR staff 52 The best way to add CSR and staff to meet the needs of the segment should be letting to the employee and the proposed implementation of CSR programs, for example staff may recommend the implementation of any social activity, or negotiate of what contracts for medical insurance appropriately Of course, that autonomy must be within the framework of rules and Nam Trieu‟s funds But when the employee have sovereign, they will find themselves really is an important part of the business, will see the business as well as their own and will be proud of, linked with business and want to stay longer perform together with the company 5.3 Limitations The first limitation is due to lacking of time, the researchers could not have a larger sample of employees to interview Using more than annual financial report may increase the credibility of the research The second is limitation is the graduation project is not written in native language so there may be some writing errors and misunderstanding explanations although the researcher tried the best to check 53 REFERENCE Carroll Archie (1999), “Corporate social responsibility: evolution of a definitional construct”, Business & Society, Vol.38 (3), pp 268-295 Crane Andrew, Matten Dirk & Spence J Laura (2008), Corporate social responsibility- readings & cases in a global context, The Routledge, UK Friedman Milton (1970), “The social responsibility of business is to increase its profits”, The New York Times Magazine, Sep 13, 1970 McBarnet Doreen, Voiculescu Aurora, Campbell Tom Ed (2007), The New Corporate Social Accountability: Corporate Social Responsibility and the Law, Cambridge University Press, the UK McKinsey (2007), Assessing the impact of societal issues: A McKinsey Global Survey, www.mckinseyquarterly.com Norman Wayne & McDonalds Chris (2003), “Getting to the bottom of the “triple bottom line”, Business Ethics Quarterly, March, 2003 54 Herremans, I M., Akathaporn, P., & McInnes, M 1993 An investigation of corporate Social responsibility reputation and economic performance Accounting Organizations andSociety, 18(7/8): 587-604 Jensen, M C 1968 The performance of mutual funds in the period 1945-1968 Journal of 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Strategic Management Journal, 21: 603-609 55 Dickey, D.A., and Fuller, W.A (1979) Distribution of the Estimators for Autoregressive Time Series with a Unit Root, Journal of the American Statistical Association 431 Donaldson, T and Preston, L., 1995 The Stakeholder Theory of Corporation: Concept, Evidence and Implications, Academy of Management Review, 20, 65-91 Freeman, R E., 1984 Strategic Management: A Stakeholder Approach (Prentice Hall, Englewood Cliffs, NJ) Friedman, M., 1970 The Social Responsibility of Business Is to Increase its Profits”, New York Times Magazine, September 13, 122-126 Frooman, J., 1997 Socially irresponsible and illegal behaviour and shareholder wealth: A meta-analysis of event studies, Business and Society, 36, 221-249 Granger, C.W.J (1969) Investigating Causal Relations by Econometric Models and Cross-Spectral Methods, Econometrica, 37, 424-438 Lee, B., 1992 Causal Relations Among Stock Returns, Interest Rates, Real Activity, and Inflation, Journal of Finance 47:4, 1591 - 1604 McGuire, J.B., Sundgren, A., and Schneeweis, T., 1988 Corporate social responsibility and firm financial performance, Academy of Management Journal, 31, 854-872 56 Orlitzky, M., Schmidt, F.L., and Rynes, S.L., 2003 Corporate social and financial performance: A meta-analysis, Organization Studies, 24 (3), 403-441 Roman, R M., Hayibor, S., Agle, B (1999) "„The Relationship Between Social Financial Performance‟" Business Society 38: 109-125 Seiffwert, B., Morris, S A., and Bartkus, B R., 2004 Having, giving and getting: Sack Resources, Corporate Philanthropy, and Firm Financial Performance Business and Society, 43, 135 161 Draper, S (2000) Corporate Nirvana Is the Future Socially Responsible? London, Industrial Society Elkington, J (2001) The Chrysalis Economy How Citizen CEOs and Corporations canfuse values and value creation Oxford, Capstone EU Green Paper (2001), Promoting a European Framework for Corporate Social Responsibility Brussels, Commission of the European Communities Litow, S (2000), Corporate Citizenship Activities Supporting Reputation IBM, June MacGillivray, A & Doane, D (2001) Economic Sustainability: the business of staying inbusiness London, SIGMA 57 Mohan, A (2001) Corporate Citizenship: perspectives from India, Warwick Business School, Warwick http://www.csmworld.org/csrdoc/jcc2moha.pdf Moss-Kanter, R (1999) From Spare Change to Real Change The Social Sector as Beta Site for Business Innovation Harvard Business Review, pp 122-132, May-June 58 APPENDICES List of Questionnaires Had you ever heard the term Corporate Social Responsibility? - Yes - No Which of the following action your company has given to you? - Provide additional contributions to employees - Give equal employment opportunities - Provide training course to employees - Join the event of the local area - Organize the culture events - Encourage employees to voluntary activities When you took part in those actions as mentioned, how did you respond? - Very positively - Positively - Normally - Negatively 59 - Very negatively - No answer Do you want to be informed more information on CSR? - Yes - No Which of the following fields in CSR is the most important on CSR fields? - Labour Force - Market - Community - Nature Environment Does cost factor of financial have a negative impact on your decision to assume CSR actions? - Yes, the high cost will discourage CSR - Yes, it influences but it doesn‟t inhibit me - No, it doesn‟t have any impact - No opinion Is your CSR action influenced by indirect benefits? - Very much 60 - Considerably - Moderately - Inconsiderably - Scarcely - No opinion Do you believe that the implementation of CSR practices may positively influence products and services? - Very much - Moderately - Not at all - No opinion 61 ... threatens the social structure, but the damage to public health have done away up the concept of social responsibility of the business On the other hand, the response of the main associations, non-governmental... look at the financial situation of the company and the effects of CSR activities to financial operations of the company The researcher was provided financial reports of companies in the last... 4.1.2 Evaluation Regarding treatment personnel is one of the basic content of most CSR standards Accordingly, there is recognition that "one and only one social responsibility of business that

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