«CSR IN BANKING SECTOR A LITERATURE REVIEW AND NEW RESEARCH DIRECTIONS Tran, Yen Thi Hoang VNU University of Economics and Business, Vietnam ...»
International Journal of Economics, Commerce and Management
United Kingdom Vol. II, Issue 11, Nov 2014
http://ijecm.co.uk/ ISSN 2348 0386
CSR IN BANKING SECTOR
A LITERATURE REVIEW AND NEW RESEARCH DIRECTIONS
Tran, Yen Thi Hoang
VNU University of Economics and Business, Vietnam firstname.lastname@example.org Abstract Theoretical and empirical researches entirely addressed the issues of corporate social responsibility (CSR) since 1950s, and it is now gaining more importance, especially under the era of globalization and subsequent impacts of global financial crisis. As a result, by acknowledging CSR’s significance a majority of banks have undertaken social and environmental programs in order to benefit both itself and the society. This paper aims at providing a review of 84 quantitative and qualitative research on Corporate Social Management in banking sectors so as to identify 5 areas of emphasis of CSR research in the sectors. These issues are perception toward CSR, drivers, impacts, CSR practices, and CSR reports. Besides, this paper tries to draw the general picture of CSR practices in the banking secto rworldwide. By doing this, we raise the need for doing research in some emerging and missing issues that are derived from empirical practices. The new research direction proposed in this paper may help to develop a better understanding of CSR and encourage CSR implementation in banks.
Keywords: CSR, banking sectors, literature review, new research direction, CSR driver factor, CSR barriers
INTRODUCTIONIn the recent years the concept of Corporate Social Responsibility (CSR) is spreading very rapidly in the whole world and all the sectors including banking (Chaudhury et al., 2011; Das, 2012; Omur et al., 2012). This prevalence is because the fast pace of globalization and social development appeals to all corporations, big or small, local orinternation, to take their CSR into account by improving the social and environmental performance (Qi Lai, 2006). Besides, under destructive impacts of the global financial crisis and severe competitiveness in the financial Page 1 Licensed under Creative Common © Tran market, banking sector, one of the vulnerable one, plays a crucial role in facilitating the nation‟s economy and leading the nation to discharge CSR (Singh et al., 2013).
CSR differs from place to place, from industry to industry and over time (Richard Welford et al., 2007). Given the lack of consensus of CSR definition among academicians and practitioners (Abagial McWilliams et al., 2003), it is obvious that CSR can bring many advantages for the banking sector. The most important is to enhance banks‟ reputation and financial performance because, for bank, its reputation is a determining factor to retain old clients and attract new ones, which eventually enhances bank‟s financial status. Besides, if a bank pays attention to social responsibilities, the bank can get profits for themselves through better risk management, employee loyalty and higher reputation. Therefore, when bankstry to maximize their profit, they are now all aware that their profit earned is decided by their customers. Indeed, they are parts of society. As a result, they are supposed to become a social bank that fulfills their responsibility for the society.
Corporate Social Responsibility (CSR) in banks has become a worldwide demand. Now a days, by recognizing CSR, banks from all over the world endorse programs of educational, cultural, and environmental, as well as health initiatives. Besides, they implement sponsorship actions towards vulnerable groups and charitable nonprofit organizations (Persefoni Polychronidou et al., 2013). As a matter of fact, many studies have explored the status of CSR in banks. Besides, the areas of CSR drivers, impacts, and practice are relatively well researched topics. However, other issues of CSR barrier, CSR models in the bank and successful factors in banking sectors are still poorly indicated; thus, there is a strong need for more research on the important issues.
Research objectives Because CSR in the banking sector has been receiving inefficient attention regarding some mentioned issues, this paper intends to develop a literature review on CSR of banks in order to study main areas of research and present status of CRS in the banking sector. As a result, we can propose a conceptual framework of CRS in banking sectors.
In addition, the paper can explore the distinctions between CSR theoretical framework and the need raised from CSR practice within the banking services. Thankfully, the paper can propose the new research direction which aims at encouraging banks to undertake CSR and build effective CSR implementation.
Research structure Besides the introduction and methodology that mentions about the identification of the research and how to conduc tthis research, this paper includes two main parts. In this part, the paper aims to summarize some major areas addressed by previous CSR economists and practitioners. Subsequently, the paper discusses emerging issues that can be missed or poorly analyzed. As a result, we can propose new research directions that are compatible and useful for the recent status of banks. Finally, the paper concludes by giving practical implications of CSR research in banks.
METHODOLOGYIn this study, 84-refereed empirical and theoretical researches and articles relevant to CSR in the banking sector were reviewed and analyzed. In otherwords, we only use the secondary data collected through those articles and researches to analyze and make a literatu rereview of 5 main issues on CSR in banks. By comparing and contrasting prior results, we can summary all addressed issues regarding CSR in banks, suggesting some new concerns in future research.
Besides, it is important to note that as in a large number of studies, all the main concepts, and definitions in this paper are built on the stakeholder theory and model (L. Zu 2009).
DEFINITION AND THE MAIN CONCEPTS OF CSRA number of researchers, governments, international organizations and even community of firms have addressed the issues of CSR since 1950s. Despite numerous efforts to bring about a clearandunbiaseddefinition of CSR, there is stillsomeconfusion as how CSR should be definedand until then there hadbeen 37 definitions of CSR (Alexander Dahlsrud, 2006). It was because the concept itself is an uncertain and complex term of assorted meaning and different authors (Matten and Moon, 2005; Gokce Akdemir Omur et al., 2012).
The term “CSR” first officially appeared in the book “Social Responsibilities of the Businessmen” that was written by Bowen (1953). The concept CSR was referred to “the obligations of businessmen to pursue those policies, to make those policies, or to follow those lines of actions that are desirable in terms of the objectives and value of our society."
By contrast, Friedman (1970) saw CSR as its nature of conflict. The author added in the CSR concept that engaging in CSR was a problem or conflict between the interests of managers and shareholders. In otherwords, the managers tried to use CSR as a tool to further their own social, political, or career agendas at the expense of shareholders.
Following the stakeholder theory, Michael Hopkins (2003) stated that CSR was concerned with treating the internal and external stakeholders of the firm or in a socially
responsible manner. In otherwords, the wider aim of CSR was to create higher and higher standards of living while preserving the profitability of the corporation, for its stakeholders. By comparison, L.Zu (2009) briefly defined that: “CSR means companies integrate social and environmental concerns in their business operations and their interaction with their stakeholders on a voluntary basis."
Discussing the main components of CSR, Caroll (1979, 1997) gave birth to 4- part definition of CSR embedded in a conceptual model of Corporate Social Performance (CSP).
They were economic, legal, ethical, and discretionary expectations or voluntarism/ philanthropy that society has of organizations.By accepting the CSR 4-part definition of Carroll (1979), Frank Tuzzolino and Barry Armandi (1981) built a CSR‟s need hierarchy framework patterned after Maslow‟s (1954) need hierarchy. These authors depicted how a business have physiological, safety, affiliative, esteem, and self-actualization needs.
In addition, 4 dimensional model of Carroll, Alexander Dahlsrud (2006) concluded with five dimensions of CSR: The stakeholder dimension, thesocial dimension, The economic dimension, The voluntariness dimension, The environmental dimension. Among them, the environmental dimension received a significantly lower dimension ratio than the other dimensions where as stakeholder and social and economic dimensions received high attention, in descending order. Given diverse model of CSR, recently, CSR can be expressed by following core subjects and issues: Fair operating practices, The environment, Labour practices, Consumer issues, Community involvement and development, Organizational governance and Human rights (ISO 26000).
In general, CSR that is a broad category and differently is expressed upon point of view of the authors. The confusion is not about how CSR is defined but about how CSR is socially constructed in a specific context (Alexander Dahlsrud, 2006). Essentially, in modern society, it is important to note that the final goal of CSR is just to contribute to building a dynamic, competitive and cohesive economy based on knowledge (Persefoni Polychronidou et al., 2013).
In order to achieve this goal, firms should always bear in mind that they have to balance all relating people including employees, shareholders, suppliers, customers, and community.
MAIN AREAS OF CSR RESEARCHDrivers and determinant factors for CSR Two sets of drivers that might promote social responsibility actions within the firm are considered. In general, the forces shaping corporate sustainability and responsibility are national drivers and international drivers (Wayne Visser, 2008, Jones, 1999; Campbell, 2006).
National (orinternal) drivers mean pressures from within the country, including cultural tradition,
political reform, socio-economic priorities, governance gaps, crisis response and market access While international (or external) drivers based on global origin. They are international standardization, investment incentives, stakeholder activism and supplychain. Each of the above factors is addressed conceptually, empirically with respect to its likely future significance in promoting outcomes consistent with CSR (McKeiver & Gadenne, 2005).
National (orinternal) drivers Cultural tradition means CSR often draws strongly on deep-rooted indigenous cultural traditions of philanthropy, business ethics and community embeddedness. Cultural tradition might be actualized in a manner more or less than intended given thet ype of bank culture in place. Thus, bank culture is argued to moderate the relationship between strategic planning and CSR (Jeremy Galbreath, 2009).
Because CSR cannot be divorced from the socio-political policy reformprocess, which often drives business behavior towards integrating social and ethical issues, political reform is the driving force that influences on CSR activities.
CSR is often most directly shaped by the Socio-economic priorities in which banks operate and the development priorities this creates. We often consider CSR a way to plug the “governance gaps” left by weak, corrupt or under-resourced governments that fail to provide various social services adequately. The national business systems (Edwards, 2004; Matten and Moon, 2004), the government (Moon, 2004) or NGOs (Campbell, 2007), social network pressures (Burke et al., 1986; Burke and Logsdon, 1996), have a significant impact on bank‟s CSR initiatives. Sustainability at the operational level is a more complicated matter especially in developing countries were sometimes social criteria does not yet receive much consideration (Labuschagne et al., 2005).
The managers, employees, customers that can affectthe CRS decision of a bank sometimes take CSR as an act of crisis response. There are many researches that emphasize about the bank leaders‟ educational qualifications, family back ground and other personal affect CSR decisions. Naturally, managers‟ attitudes towards social and environmental issues can affect the culture and philosophy of the organization. Thus, it can be emphasized that CSR manager attitude toward engaging CSR is one of foremost determinants of bank‟s CSR initiative. Empirically, a few senior managers agreed organizations do try to reduce their employee turnover by providing a good salary, good career progress, and ensuring good working conditions (Md. Moazzem Hossain, 2013; Aguilera et al., 2007). If bank in developing countries trying to access markets in the developed world, they engage CSR to increase the reputation and trust from customers. Besides those internal drivers, others such as size of the
International (or external) drivers International standardization is a way to self-regulation but is important for firms to successfully carry out the CRS requirements and not only part of them in line with their interests (Christmann & Taylor, 2006; Gonzalez & Martinez, 2004). CSR codes, guidelines and standards are a key driver for companies wishing to operate as global players. Driving forces related to international standardization for undertaking CSR are pressure from global competition incentives, policy factors (laws and regulations) (Qi Lai, 2006) and competition and globalization (Korhonen, 2002, Matthew Haigh, Marc T. Jone). Besides, CSR is given an investment incentive by the trend of socially responsible investment (SRI), where funds are screened on ethical, social and environmental criteria.