Is your firm fulfilling its social responsibility?

Intangible assets like corporate reputation are gradually gaining importance in the increasingly globalized business world. 

Corporate reputation is defined as ‘the overall impression reflecting the perception of a collective stakeholder group’. 

One of the possible ways in which a company can improve its reputation among senior-level executives, in general, is through corporate philanthropy. Corporate philanthropy is a part of corporate social responsibility. The European Commission has defined CSR as ‘a concept whereby companies integrate social and environmental concerns in their business operations and in their interactions with their stakeholders on a voluntary basis’ (European Commission, 2001, p. 8). 

Relationship between CSR and a firm’s success─

CSR performance has been positively associated with markers of a firm’s success, such as

  • Financial performance
  • Customer trust
  • Customer buying behaviour
  • Stakeholder trust
  • Employee satisfaction
  • Firm attractiveness
CSR performance is a strong indicator of a firm’s sustainable success.

However, despite increasing interest, most of the research on CSR has focused on the direct relationship between CSR and business outcomes.

Types of CSR:

1. Ethical CSR focuses on justice and fairness in practices grounded in moral principles.

2. Strategic CSR focuses on catering to social services with some profit orientation for the firm.

3. Philanthropic CSR, the third type, mainly focuses on giving back to society without expecting anything in return.

CSR Activities and Trust

Trust refers to a relationship as well as an affect and is defined as a relationship in which one party has confidence in an exchange partner’s reliability and integrity (Morgan & Hunt, 1994). Integrity, fairness, and benevolence have been found to be the necessary ingredients for building trust. 

Trust is developed based on the assessment of organizations’ ethics and values. CSR activities create positive perceptions by sending positive signals to employees about the company’s ethics and values. 

The evidence that different groups of employees have different levels of trust and images of the employer indicates that employees evaluate the CSR activities of their employer from different perspectives. Therefore, organizations need to consider a bundle of CSR activities rather than focusing on a single initiative, which might hold minimal value for a majority of the employees. 

The Indian Companies Act (2013) has mandated organizations to spend 2 percent of their profit on CSR activities. The act will be applicable to approximately 6,000 companies, which will in turn generate a total corpus of `20,000 crores (about 200 billion) per year for spending on CSR. 

─Taken from Perceived CSR and Corporate Reputation: The Mediating Role of Employee Trust in Vikalpa: The Journal for Decision Makers