Organizational Performance Evidence from UAE Banking sector

Corporate Social Responsibility Practices and Organizational Performance: Evidence from UAE Banking sector
LITERATURE REVIEW
Introduction:
The concept of Corporate Social Responsibility is not a new one. CSR has come to be corporate strategic responsibility in the sense that it is a significant component of corporate international business strategies (Isaksson, Kiessling, and Harvey, 2014). In the present day, CSR is acknowledged as having the potential for not only differentiation but also positioning within the global marketplace. Furthermore, it is deemed to be a pivotal implement for a firm’s longstanding legality and profitability. Since its inception, CSR has advanced to become a strategy employed by firms to facilitate value addition in their reputation (Isaksson et al., 2014). Global corporations are presently challenged with more intricate interrelations and diversified interests from various stakeholders. It is not sufficient to solely care for consumers and suppliers, but rather also the parties that can, may and will be impacted by the operations and marketing activities of a corporation. The inference of this is that corporations need to apply a more extensive, more holistic market strategy that goes beyond customary territories in order to accomplish corporate objectives in a better manner. This chapter encompasses a literature review of corporate social responsibility and organizational performance.
Corporate Social Responsibility Activities in the Banking Sector:
CSR has become a progressively more significant concern in the present day business world. Notably, it is a business viewpoint encompassing an extensive variety of elements such as environmental safety, human rights, and welfare of employees and other stakeholders. Its fundamental objective is to facilitate business sustainability and this impacts all industries including the banking industry. Wong and Wong (2015) assert that there is a significant positive correlation between CSR performance and financial performance in banking industry. In addition, in order for a banking institution to be socially responsible, it is imperative to establish a mentality of risk management, business ethics and CSR through internal management of personnel and processes. It also encompasses, comprehending intricate financial products and services through internal management of staff and processes and external management of economic circumstances for the benefit of stakeholders and lastly safeguarding the rights of consumers with instituting channels for consumers to address grievances (Wong and Wong, 2015).
Operative CSR Management Structure (H1)
The study undertaken by Choi, Lee and Park (2013) demonstrates that the business group affiliations together with the ownership structure of an organization are significant factors in ascertaining the managerial incentives to engage in corporate social responsibility. The authors indicate that a largely concentrated ownership permits for the controlling party to carry out stronger discretionary control over the resources of a firm. As a result, the incentive to utilize CSR to support entrenchment of the controlling owner or manager ought to be greater in organizations with concentrated ownership. On the other hand, if there is an efficacious system in position for observing management decisions, the controlling party will not be capable to disguise its unscrupulous behaviors using CSR (Choi et al., 2013).
Top management support for CSR activities (H2)
Support from top-level management facilitates effective implementation of CSR activities. According to Swanson (2008), managers play the role of driving organizations in the direction towards responsible or irresponsible corporate social performance. This is in the sense that top-level management can steer their corporations to adjust into or overlook social concerns, reliant on whether or not they take part in and motivate value-inclusive organizational decision making procedures. Aspects that impact the potential for responsible leadership within organization comprise of external control in terms of public policy and stakeholder pressure in addition to internal control that is put forth by board of directors. In particular, Swanson (2008) emphasizes that it does not imply that middle level managers or lower level managers are immaterial to CSR but it is simply owing to the reason that their decision making discretion is significantly demarcated by top managers.
Corporate Governance activities and CSR adoption (H3)
Corporate governance is the way in which corporations are controlled and in which those culpable for the direction of the firm are liable to the stakeholders of the firm. It related to the creation of longstanding relationships with both internal and external consumers. CSR reporting has come to be a fundamental part of corporate governance concern for social responsibilities. According to Sharif and Rashid (2015), it is largely challenging to make a distinction between corporate governance and CSR in the global economic standpoint. Essentially, corporate governance is centered on the ethical norms and accountability. On the other hand, CSR encompasses the prevailing business practices taking care of socially responsible matters. In this manner, there is a positive correlation between CSR and corporate governance. According to Young and Thyil (2014), governance systems and their interrelations with CSR are shown as fluid based on the national and institutional framework, economic circumstance and industry impact. Some of the factors that are significant to the integration of CSR into governance comprise of the economic environment, regulation, national culture, national governance system, and industry impacts.
Taking into consideration the increasing significance linked to both CSR and corporate governance, Chan, Watson, and Woodliff (2013) examine the correlation between these two mechanisms employed by the firms to improve relations with stakeholders. The research outcomes of the study indicate an association between corporate governance quality and CSR disclosure in a firm’s annual reports and give the suggestion that, instead of obligating particular disclosures, regulators may be better assisted laying emphasis on corporate governance quality as a means of increasing CSR disclosures.
Corporate Reputation and CSR adoption (H4)
Corporations consider that building a solid and proper reputation is imperative for gaining legitimacy with regard to CSR actions and social values. Firms with high public profiles in the marketplace are more worried about building good social reputation with the aid of the involvement of the community in CSR activities (Sharif and Rashid, 2014). Implementation of CSR gives leads to an upsurge of a firm’s credibility, which in tandem with reputation provides a kind of insurance, referred to as reputational capital, in the event of less than optimal ethical conduct. When CSR activities are conveyed and understood, it can operate as a form of safeguard that generated reputational capital. In the case of any ill-fated actions that are in violation of the corporate reputation, accumulated reputational capital aids in the protection of the firm and makes it conceivable to detach the issue from the rest of the firm (Isaksson et al., 2014). Firms that carry out CSR activities and policies are likely to enhance their reputations and enhance consumer loyalty and assessments of products. Notably, CSR facilitates the improvement of a company’s reputation as well as goodwill with external stakeholders, which gives rise to increased financial performance (Aguinis and Glavas, 2012).
Organizational Performance:
There are numerous increasing predispositions in organizational performance. Nonetheless, this study seeks establish the correlation between CSR and organizational performance. In accordance to research conducted by Armstrong (2006), performance is defined in output terms as the accomplishment of objectives and the way in which such objectives are achieved. In a more wide-ranging explanation, Richard et al. (2009) emphasize that organizational performance take into consideration three distinct areas of organizational results, which include financial performance, shareholder return, and product market performance. Armstrong (2000) in a more expansive manner to points out that the insinuation of performance is a way of accomplishing improved and better outcomes from the organization as a whole or groups or individuals within it by understanding and managing performance with an accepted framework of predetermined goals, standards, and proficiency requirements. In general, performance can be perceived as the gathering of end outcomes of the work procedures and activities of an organization.
CSR activities and Banks’ Performance (H5)
There is a strong and positive correlation between CSR and bank performance. According to Wong and Wong (2015), there is a significant positive relationship between CSR and financial performance in the banking industry. The outlays of being socially responsible are overcome by enhancement in productivity or other corresponding financial performance indicators. The research conducted by Issakson et al. (2014) indicated that corporations implementing a strategic CSR had improved financial performance by giving the example of Swedbank. The research conducted by Aguinis and Glavas (2012) demonstrated that CSR enhances an organization’s reputation as well as goodwill with external stakeholders, which gave rise to increased financial performance. Choi and Wang (2009) investigated the impact of a firm’s relations with its non-financial stakeholders, encompassing its employees, consumers, suppliers, and communities, in the perseverance of both inferior and superior financial performance. The results of the study demonstrated that good and effective stakeholder relations not only facilitate an organization with superior financial performance to maintain its competitive edge for a more extensive period of time, but more significantly, also assist poorly performing organizations to recuperate from unfavorable positions much faster.
Corporate Reputation and Organizational Performance (H6)
Research indicates that there is a correlation between corporate reputation and organizational performance. According to Kim and Thapa (2018), CSR activities improve the corporate image and corporate reputation of an organization. These activities help in the enhancement of the firm’s relationship with its stakeholders with the adoption of socially responsible behaviors. These in turn may enable a firm to improve its economic consequences. Jones and Volpe (2010) conduct research on organizational identification, which delineates the comprehension of social identities by means of social networks. The outcomes of the study demonstrate that strong relationships moderate the correlation between organizational prestige and organizational identification. Aguinis and Glavas (2012) demonstrate that CSR activities aid in the improvement of an organization’s reputation in addition to goodwill with different external stakeholders such as consumers and suppliers. In turn, this is beneficial in ensuring that there is more business interaction with these stakeholders, which aids in increasing financial performance and organizational performance as a whole.
Research Model:Top Management Support
Operative Management Structure
CSR Activities Adoption
Corporate
Reputation
Organizational Performance
Corporate Governance
The diagram above illustrates the research model of the study. The core element of the model is the CSR activities and policies that are implemented by the corporation. The input that is placed into these CSR activities takes into account management from top-level management and also the operative management structure that is put in place for CSR. The output that is attained is improved reputation of the firm, which also gives rise to improved organizational performance as a whole. In the same manner, the CSR activities directly impact the organizational performance through increased financial performance.
References
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