Social Responsibility in Business

 

A sustainable business effectively accounts for social responsibility. The apparent primary social responsibility of a business would be making profit. Corporate social responsibility (CSR) involves the balancing of social, economic and environmental components of the business while increasing stakeholder value. This is of instrumental value as it can be used to help business achieve and sustain successful performance. The relationship between a business and the society has been radicalized to a more ethical outlook that analyzes the greater impact of business on society. (Safwat 2015),

Deposit taking Savings and Credit Cooperative Organizations (SACCOs) have often faced stiff competition from commercial banks hence the need to come up with strategies and policies to earn member trust while creating a competitive advantage over commercial banks. Firms use CSR to create shared value for their stakeholders and to mitigate their adverse impacts (Crifo & Forget 2015). The marketplace has seen a significant growth in the demand for ethical behavior (Irune Gomez 2019). In order to ensure SACCO perpetuity CSR involving social, economic, ethical and environmental concerns for employees, customers, community, government and other stakeholders is adopted.

SACCOs, like other cooperative organizations, naturally support CSR as there exists a special link in essence. Cooperatives are viewed as socially responsible based on their principles and value such as self-help, self-responsibility, equality, concern for the community, economic participation among others. These principles and values have been adopted by International Cooperative Alliance (ICA) as they are consistent with the nature and functions of cooperatives.

CSR reporting has globally become a main tool through which organizations communicate their economic, social and environmental performance (Helena Maria-Araya, Fernando Polo-Garrido, Elies Segui-Mas 2019). This implies that CSR has greatly influenced business communication. The increasing significance of CSR has prompted governments to promote socially and ecologically responsible corporate practices in their national public policies. States like Canada and Denmark monitor CSR practices and have national policies that make it mandatory for companies to include information on CSR in their annual financial reports. International benchmark bodies such as ISO 26000 (CSR standard), OECD guidelines, ISO 14001 (EMS) and Global Reporting Initiative (GRI). CSR universally in cooperatives contributes to sustainable growth and development in areas where the corporation operates. In line with Sustainable development Goals (SDGs) of the United Nations, cooperatives help empower people and ensure inclusiveness and equality. Through CSR practices, cooperatives further help to meet urgent environmental and economic challenges. there is a shift from the traditional single bottom line to contemporary triple bottom line (TBL) which involves people, planet and profit firm performance measures (Bagh et al. 2017; Bremner 2016).

African countries, being majorly developing nations embrace CSR in cooperatives as this is in line with their common objective of sustainable development. CSR is considered as a way through which businesses make contributions to improve social, ethical and environmental conditions. CSR in cooperatives is also expected to aid in poverty alleviation.

The Kenyan government engage cooperatives as an implemented economic plan to enhance profits and ultimately development. In rural areas, SACCOs have been recognized as an important venture for mobilization of finances for progression in these regions where people live primarily from farming. There has however been a diversification of SACCOs in such a way that they are no longer only agriculture based. Now, cooperatives contribute to about 43% of the GDP in Kenya. CSR has been adopted by cooperatives to ensure sustainable growth over years.

Corporate Social Responsibility

CSR involves incurring short-term costs that do not provide an immediate financial benefit to the company, but instead promote positive social and environmental change to the immediate community. CSR is a concept pertaining an entity’s obligation to act in a way that benefits the society. It is a duty that every individual has to perform so as to maintain a balance between the economy and the ecosystems. In order for organization to be sustainable it must be financially secure, decrease its negative environmental impact and act in conformity with the expectations of society. Although the prime focus of business is generating profits, corporations can contribute to social and environmental goals by applying corporate social responsibility as a strategic line in their core business practices.

Financial Performance

Financial performance refers to a composite of an organization’s financial health, its ability and willingness to meet its long-term financial obligations as and when they fall due and its commitments to provide services in the foreseeable future. Financial health is measured by firm’s return on investment (ROI), return on assets (ROA) and return on equity (ROE)

Long-term objectives represent the results expected from pursuing certain strategies which represent actions to be taken to accomplish long-term objectives.

Statement of the Problem

Over past decades, a relationship between CSR and organizational profitability has been established. There exists an increased trend of Savings and Credit Cooperatives (SACCOs) providing information on social, environmental and economic aspects of their operations. Corporate social responsibility is a concept which has become dominant in any form of business reporting as it depicts how organization is committed to impact to the society. The subject concern also elicits a discussion on CSR practices through critical study of research literature.

According to Donna J. Wood (2015), in her research on organizational behavior, Corporate social performance constitutes a broad view of corporate responsibility unlike the narrow view focused on owner wealth. It involves a concept of principles and processes that organizations need for interactions with stakeholders as well as the outcomes and effects of these interactions. Organizations build healthy relationship with their stakeholders through interactions that in turn aid in ensuring reduced conflicts of interest as stakeholder interests are taken into consideration. Eliza Sharma (2019) in her book about CSR and Environmental Management explains that CSR can also be viewed as a gateway to integrate business with ethics for expansion beyond mere profit line. This means good organizational reputation that earns customer loyalty over years. In her organizational communication research, Rahul Mitra (2016) highlights environmental CSR practices under organizational sustainability. CSR therefore aids in providing prolonged organization existence by bringing forth a competitive advantage in the market.

These studies enlighten the close relationship between CSR and firm’s long run profitability. However, these studies have failed to tell how a firm’s financial performance would improve per shilling spent on CSR. Therefore, by failing to depict the effects that CSR has on a firm’s financial performance, there exists a knowledge gap and need for further research. This study is therefore aiming at filling this gap. The study attempts to analyze the positive effect of CSR on profitability by monitoring costs and diversifying risks across different projects in a bid to ultimately provide high returns.

Justification of the study

The study will be used by company executives to understand the importance of engaging in social activities and evaluating emerging social risks as an offshoot of their operating activities in a bid to dominate a significant market share. According to Cruz & Ramos (2015) CSR heightens the need for organizations to adopt policies that focus on the importance of minimizing or eliminating harmful practices meted on stakeholders. By understanding the effect of corporate social responsibility activities on financial Performance, investors can determine how to allocate their portfolio so as to maximize returns and thereafter change their assessment of companies' performance as a result of their ethical engagements. Analysts and academicians will find this study helpful in understanding the effect of CSR activities on a firm’s long-term financial performance.

Scope of the Study

The study focused on CSR impacts on deposit taking SACCOs in Kenya. This study investigated ways in which investing in the society affects business turnover and its consequent profitability. The study also summarized some of the descriptive information, as well as information from the historical record, in an attempt to describe the factors affecting financial performance of SACCOs in the region. Secondary data captured performance for 5 years (2013 to 2018)

Limitations of the Study

Limitations of the study includes issues related to confidentiality of some respondents who could not be willing to disclose some information relating to CSR due to the risk of benefitting rival firms. In order to counter this, the researcher will structure the questionnaires in a way that respects their confidentiality. The manager in charge of CSR may also be busy and could not allocate adequate time for the completion of questionnaires. The researcher will therefore do a follow up to ensure they are completed. In this study, CSR is measured in terms of monetary spending on social projects hence non-financial CSR projects may not be captured due to the difficulties involved in measurements. There therefore exists a possibility of different results if such aspects are taken into consideration.

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