Implementing Corporate Social Responsibility CSR in Saudi Firms 'Literature Review' chapter

Excerpt from 'Literature Review' chapter :

CSR in Saudi Firms

Corporate Social Responsibility

References to corporate social responsibility (CSR) reportedly occurred numerous times before the 1950s, however, in regard to CSR definitions, that particular decade birthed the "modern era." Carroll (1999) compliments the researcher's current study as it expands on the historical progression of CSR definitions. According to Carrol, Bowen initially defined the social responsibilities of businessmen; explaining that the concept relates to the obligations businessmen have to pursue particular policies, to make deliberate desirable decisions, "or to follow those lines of action which are desirable in terms of the objectives and values of our society" (Bowen as cited in Carroll, p. 270). During the 1960s, the "Iron Law of Responsibility," held that "social responsibilities of businessmen need to be commensurate with their social power" (Davis, as cited in Carroll, p. 271). Davis and others during this decade, however, did not include specific details regarding the firm's obligations.

Although definitions of CSR started to flourish during the 1970s, no succinct definition of the social responsibility construct evolved. Carroll attributes the following definition to Davis during this decade:

For purposes of this discussion it [CSR] refers to the firm's consideration of, and response to, issues beyond the narrow economic, technical, and legal requirements of the firm. It is the firm's obligation to evaluate in its decision-making process the effects of its decisions on the external social system in a manner that will accomplish social benefits along with the traditional economic gains which the firm seeks. (p. 313)

It means that social responsibility begins where the law ends. A firm is not being socially responsible if it merely complies with the minimum requirements of the law, because this is what any good citizen would do. (Davis, as cited in Carroll, p. 277)

Instead of more original definitions of CSR evolving during the 1980s, research related alternative thematic frameworks as well as more endeavors to measure and conduct research on CSR. Carroll summarized his definition during the 1990s as: "The CSR firm should strive to make a profit, obey the law, be ethical, and be a good corporate citizen" (p. 289). In the future, any new definitions or revisions of current definitions of CSR will likely evolve from the foundation researchers established through the past half century but will expand to embrace concerns of society as a stakeholder in the global arena.


Stakeholders do not perceive all corporate social responsibility (CSR) activities as equal, positive, or equally positive. People perceive corporate actions or the investments of the firm in corporate social responsibility (CSR) to be good or bad; positive or negative; favorable or unfavorable. In turn, these perceptions contribute to the creating the value of the firm. The study by Peloza and Shang (2011), similar to the study by this researcher, reviews the extant literature. While the researcher focuses on implementing CSR in Saudi firms, however, Peloza and Shang investigate particular CSR activities and outcomes previous research includes. These authors also integrate a number of ways the investment of CSR can augment value for consumer. As different individuals perceive the diverse range of socially responsible corporate behavior to portray "different things in different places to different people and at different times" (Peloza & Shang, p. 118). Consequently, corporations need to carefully consider how they utilize and implement the concept.

The unpredictable relationship between CSR and the firm's financial performance evolves from the diverse evaluations of various CSR activities or investments from both major and minor stakeholders. "CSR in the form of community or diversity programs provides insurance against negative events while CSR in the form of governance, employee relations or product relations does not" (Peloza & Shang, 2011, p. 118). In most areas of CSR, however, when the level surpasses a particular point, the investment may not improve consumer perceptions of value but instead prove destructive to the firm's financial performance.

Some managers invest in CSR activities to develop a social or environmental impact, while others solicit a financial return. Peloza and Shang (2011) stress that the potential for CSR to create firm value correlates with its ability to generate positive stakeholder relations for the firm. The firm's inclusion of CSR activities along with more traditional product attributes and benefits can boost the firm's overall value proposition.


The study by Hong and Andersen (2011) differs from that of the researcher's as it encompasses the global concept of the relationship between CSR and earnings management (EM) rather than focusing only on CSR and a specific geographical area like Saudi. Hong and Andersen assert that even though no agreement on the measurement of CSR exists in the extant literature, evidence suggests that that firms which employ CSR less likely manage earnings. These authors also find that as ethics, CSR, EM, and financial reporting quality constitute complex constructs; research could enhance understanding of these concepts by providing more refined measures in these realms.

For a firm to earn a reputable, responsible reputation, its corporate actions as well as its character must be consistent with Corporate Responsibility (CR). Hillenbrand, Money, and Pavelin (2011) use qualitative analysis of interviews and focus groups as well as include samples from key employees and customers to explore the meaning of CR and ways it may impact the firm's reputation. The stakeholder theory literature has regularly argued that CR can significantly help promote favorable relationships with primary stakeholder groups. If stakeholders perceive the firm's giving to evolve from an authentic consideration for social welfare, "philanthropy to a good cause will result in a reputational dividend, through an augmentation of the firms' moral reputation" (Hillenbrand, Money, & Pavelin, p. 4). Conversely, if stakeholders consider the firm's motivations to evolve out of an aspiration to ingratiate it with stakeholders; to deceptively attempt to appear to care about social welfare yet not actually caring; stakeholders view philanthropy as morally negative. Consequently, this practice harms the firm's reputation. When both the behavior of the firm and its character prove to be congruent, however, the stakeholders perceive the firm and its reputation in a positive manner.

The stakeholders' concept of CR proffers lessons firms could benefit from in their practice of reputation management. When stakeholders judge the firm's CR, they assess who the organizations are in terms of their character motivation and values as well as what the firm has done in the past. "To build successful reputations, firms therefore must address both of these criteria - to ensure that they are perceived, in simple language, to have behaved well and with good intentions" (Hillenbrand, Money, & Pavelin, p. 15). For a firm to achieve and/or retain a positive reputation in CSR, a firm must demonstrate competence in core business activities, sustain transparency, limit negative social impacts, and reveal good character. The firm must also be reliable, trustworthy and truthful as well as actually care about the wider society. Character judgments like these critically influence the determination of stakeholder perceptions of CR as well as CSR. .

Baldo (2009) examines whether the adhesion to CSR's philosophy practices, reflected in a firm's accountability and mission positively influence its governance and whether this influence proves more or less for SMEs or large-sized firms. This study differs from the present study as the researcher does not distinguish between firm sizes in Saudi in regard to CSR. Baldo asserts:

If it is true that the consideration of ethical principles in a business'choices and policies is particularly important for large businesses that are organised and run as public companies, then it is likewise true that in small and medium-sized businesses (SMEs), the dedication to, and articulation of, socially responsible management philosophies must reverberate directly across a plurality of "intangible" components." (Baldo, 2009, p. 1-2)

Some sources argue that CSR strategies may help firms obtain better resources, improve the quality of employees, enhance marketing products/services and potentially lead to the development of unexpected opportunities. "Better social performance may also function in similar ways as advertising does, by increasing overall demand for products and services and/or by reducing consumer price sensitivity" (Ioannou & Serafeim, 2010, p. 4). Positive social performance may also protect and enhance corporate reputation; potentially enhancing performance. Other sources contend, however, that enhanced social performance can increase a firm's costs and possibly contribute to the firm experiencing a disadvantage with competitors. The researcher's current study, similar to the one by Ioannou & Serafeim, contributes to management practice.

Various Countries

Zhang (2008) examines changes that have transpired in the concept and application of CSR in transitional China.since the start of market reform and identifies factors that affect CSR.

Our analysis indicates that the large SOE has been retreating from CSR on both social and economic fronts, however, in an environmental context, performance has been improving. Newer smaller firms, on the other hand, show better performance from an economic point-of-view, but have performed less well in terms of their social and environmental responsibilities. Since the large SOE's apparent improvement in environmental CSR may be partly attributed to its declining production levels, we conclude that the current performance…

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