Social Responsibility and Firm Performance:
A Case for Small Business
Introduction:
This paper discusses in the research proposal on the relationship of corporate social responsibility and firm performance. Specifically, the research will focus on investigating the impact of social responsibility on small business’ financial performance. In this proposal, the background, context and theme of the study are presented; the objectives of the study and the research statements are formulated. Here, vital concepts, questions and assumptions are stated. Finally, the scope and limitation of the study, methodology to be used and the significance of the research are discussed.
The impetus for undertaking this study stems primarily from the fact that corporate social responsibility as an area of scientific inquiry has received little attention in the popular and academic press during the last decade. Most researches and studies about the effect of social responsibility in business focus primarily on large-scale businesses.
In addition, the researcher sees the need for any business to fulfil a moral obligation to correct the social problems that beset society. At the same time, the researcher feels that much of the business community has not and is not adequately dealing with many of these social problems of concern. Moreover, it is important for small business managers to examine the possible effects of social responsibility on their firm performance.
Social responsibility is an area of concern that has existed since the early days of mankind. It is only in the last two decades, however, that greater attention has accorded to in this area. This has resulted in a growing interaction between the society, business, and the stakeholder such as the employees, stockholders, consumers, minorities, community neighbours, cultural groups, charitable organizations, labour unions, public interest groups and the likes. In the past, business has had to concern itself primarily with the economic results of its decisions; today, business must also consider and weigh the legal, ethical, moral, and social impact and repercussions of each of its decisions.
Purpose of the Study
Generally, the purpose of the research is to conduct a descriptive study on the impact of small business social responsibility on firm performance. This proposed study will detail the current theories and practices in corporate social responsibility and will attempt to present significant findings on its effect on firm performance. The study will also furnish discussions made by other authors regarding corporate social responsibility, small business and firm performance.
The primary objective of the study is to prove that social responsibility has a positive impact on small business financial performance. This will be done by conducting survey and interview, and by providing literatures on the relationship between social responsibility and firm performance. This research will cover 10 selected small businesses across London as the source of data and will be used for the analysis. Analysis shall be limited on the outcome of the survey that will be conducted and shall not be affected by previous surveys on the matter. The related literature will be used as a comparative tool to further highlight/contradict the outcome of this research.
Statement of the Problem
According to Stroup and Neubert (1987), the evolution of social responsibility has been from voluntary to mandatory (pressure from stakeholders to force certain desired social responses and actions, again at a cost to the business) to investments in the future (social responsibility becomes an investment that improves the long-term performance of a business). The result of this evolution is the realization of the corporations that they must evolve from doing good to doing better for their survival and competitive advantage (Stroup & Neubert, 1987). This social responsibility concept of “doing good to doing better,” means that social responsibility is and should be viewed as an investment that results in a long-run corporate profit and not a corporate expense.
Both the large-scale corporations and small businesses practice social responsibility to remain competitive in the marketplace and secure their position within that market. Corporations enjoy the publicity being given by the mass media through advertising. But the latter tends to be “out of sight and out of mind”. Because of their public visibility, economic power, and extensive involvement with numerous special interest groups, large corporations get greater social responsibility expectations while small business had limited economic muscle and managerial wherewithal.
Today, most people support companies becoming involved in social responsibility. Many arguments support the business involvement in social responsibility. It is in the interest of the business to become intimately involved in and to promote and improve the communities in which it does its business. It can and should improve the corporate and local image of the company. Moreover, it can and should improve the corporate and local image of the company.
The focus of this study is to establish relationship between social responsibility and firm performance. This researcher finds the necessity for a study that specifically tackles how a small business practices social responsibility. Specifically, this study intends to understand the effect of social responsibility on the financial performance of the firm by filling in gap between theory and research. Specifically, this study will try to answer the following queries:
1. How do small business’ contributions to charity affect its economic performance?
2. How does environmental awareness affect small business’ economic performance?
3. How does community outreach program affect small business’ economic performance?
LITERATURE REVIEW
The responsibility of firms was defined purely in economic terms. For example, Friedman (1990) considered maximization of shareholder wealth as the sole objective and responsibility of the well managed firm. Whatever resources were expended in the interests of social responsibility came at the expense of shareholders (Wartick & Cochran, 1985). Many criticisms have been levelled at this perspective and it seems safe to conclude that corporations are no longer viewed, even theoretically, as solely economic institutions (Sharfman, 1992). There appears to be a consensus that firms serve multiple constituencies and stakeholder groups whose memberships are overlapping and whose interests are interdependent (Nash, 1990). An understanding of such relationships may force firms to act in a socially responsible way regardless of their motivation (Sen, 1993).
With this, different hypotheses regarding the relationship between social responsibility and corporate economic performance emerge. According to Ullmann (1985), a negative relationship between social responsibility and profitability is assumed when corporations are viewed as economic institutions. Using forced choice surveys to investigate the relationship between corporate responsibility and economic performance Aupperle, Carroll, and Hatfield (1985) do not indicate any relationship between CEO attitudes regarding social responsibility and corporate profitability.
However, others suggest a positive relationship between social responsibility and performance. Alexander and Buchholz (1978) and Metzger et al. (1993) contend that socially concerned management is likely to also possess the skills necessary to achieve superior financial performance. To an optimal level, social and economic performance are positively related. Beyond that, however, social performance and the commensurate resource allocations negatively affect economic performance (Ullmann, 1985).
Other studies also prove that social responsibility has positive effects on firm performance. In Moskowitz’s (1972) study, a positive correlation between social performance and stock price is revealed. Other work employing Moskowitz’s measures indicates only a weak positive relationship between social reputation and economic performance when controlling for the age of the firm’s assets (Cochran and Wood, 1984). Sturdivant and Ginter’s (1977) results show that executives of firms classified as “best” by Moskowitz exhibit more liberal social attitudes and that these attitudes are positively associated with both corporate social and economic performance.
Two research efforts used the Fortune reputation data to examine the corporate responsibility/performance relationship. McGuire, Sundgren and Schneeweis (1988) show that prior performance is more strongly related to social responsibility than subsequent performance. On the other hand, Simerly (1992) found that firms ranking high on corporate social responsibility had higher revenues than low ranking firms.
Clearly, the results of previous studies present inconsistent evidence regarding the relationship between corporate social and economic performance. It could be of the fact that the studies have employed widely disparate methodologies based on mostly subjective self-reports of responsible actions. In this regard, the present study will not attempt to measure social responsibility and firm performance. It will only focus on the determination of the impact of social responsibility on small business growth. The analysis will be based on survey which seeks to determine consumer perception on the small business. Managers of the 10 participating small companies will be interviewed. The researcher will attempt to gather sales data.
METHODOLOGY
Methods of Research to be Used
For this study, the descriptive research method will be utilized. In this method, it is possible that the study will be cheap and quick. It can also suggest unanticipated hypotheses. Nonetheless, this method will be very hard to rule out alternative explanations and especially infer causations. This descriptive type of research utilizes observations in the study. To illustrate the descriptive type of research, Creswell (1994) states that the descriptive method of research is to gather information about the present existing condition. The purpose of employing this method is to describe the nature of a situation, as it exists at the time of the study and to explore the cause/s of particular phenomena. The researcher opts to use this kind of research considering the desire of the researcher to obtain first hand data from the respondents.
This study will utilize two sources of research: primary and secondary. Primary research data will be obtained through this new research study. Questionnaire survey and focus group will be conducted. On the other hand, the secondary research data will be obtained from previous studies on the same topic.
This research will base its findings primarily through qualitative research method because it intends to find and build theories that will explain the relationship of one variable with another variable through qualitative elements in research. Through this method, qualitative elements that do not have standard measures such as behavior, attitudes, opinions, and beliefs will be analysed.
For this research design, the researcher will gather data, collate published studies from different local and foreign universities and articles from books and journals; and will make a content analysis of the collected documentary and verbal material. Afterwards, the researcher will summarize all the information, make a conclusion based on the hypotheses posited and provide insightful recommendations on corporate social responsibility.
For this study, a survey and interview will be conducted. The process will include identifying the general population for the survey, designing of the instrument (survey-questionnaire) and validation of the instrument. After the validation, the researcher will present the instrument to the supervisor for approval, before administering the instrument. Finally, with the help of a statistician, the researcher will make the statistical analysis. After gathering the results, a preliminary analysis of the results of the survey and focus group discussion will be conducted. Then the supervisor will check the preliminary analysis. Afterwards, the researcher will conduct detailed analysis of the results.
Respondents of the Study
The general population for this study will compose of small business consumers. The researcher will randomly select 20 customers from each of the 10 participating small firms. They will be surveyed and interviewed as to the realm of this study. They will be sent questionnaires pertaining to the topic. Their cooperation will be fervently sought after.
Instruments to be Used
To determine the relationship of corporate social responsibility and firm performance, the researcher will prepare a questionnaire and a set of guide questions for the focus group that will be asked to the intended respondents. The respondents will grade each statement in the survey-questionnaire using a Likert scale with a five-response scale wherein respondents will be given five response choices. The equivalent weights for the answers will be:
Range Interpretation
4.50 – 5.00 Strongly Agree
3.50 – 4.00 Agree
2.50 – 3.49 Uncertain
1.50 – 2.49 Disagree
0.00 – 1.49 Strongly Disagree
Validation of the Instrument
For validation purposes, the researcher will initially submit a sample of the set of survey questionnaires and after approval; the survey will be conducted to five respondents. After the questions were answered, the researcher will ask the respondents for any suggestions or any necessary corrections to ensure further improvement and validity of the instrument. The researcher will again examine the content of the interview questions to find out the reliability of the instrument. The researchers will exclude irrelevant questions and will change words that would be deemed difficult by the respondents, to much simpler terms.
Research Management
To carry out the overall aim the researcher will first examine small business in the United Kingdom. Then a review of related literature on the effect of corporate social responsibility on firm performance, and other relevant themes will be undertaken. Afterwards, the researcher will identify main issues and problems. The researcher will design the instrument to be used in survey and focus group discussion; it will be validated and approved by the supervisor. After the approval, the researcher will conduct the survey and focus group with the help of some friends. The researcher will make sure that the information given by the respondents and interviewees will be confidential. Finally, after the presentation and analysis of the data, the researcher will generate significant conclusions and insightful recommendations.
This study will be divided into five chapters. The first chapter will introduce the topic and the background of the problem. Chapter Two will discuss and review the available literature. Chapter Three will discuss the methods that will be used. Chapter Four will be the presentation and analysis of the results of the survey and interview. Finally, the Chapter Five will provide the conclusion and recommendation.
References:
Alexander, G. J., and Buchholz, R. A. (1978). Corporate Social Responsibility and Stock Market Performance. Academy of Management Journal, 21 (3): 479-486.
Aupperle, K. E., Carroll, A. B. and Hatfield, J. D. (1985). An Empirical Examination of the Relationship Between Corporate Social Responsibility and Profitability. Academy of Management Journal, 28(2) 446-463.
Cochran, P. L., and Wood, R. A. (1984). Corporate Social Responsibility and Financial Performance. Academy of Management Journal, 27 (1): 45-56.
Creswell, J.W. (1994) Research design. Qualitative and quantitative approaches. Thousand Oaks, California: Sage.
Friedman, M. (1990). The Adam Smith Address: The Suicidal Impulse of the Business Community. Business Economics, (January) 5-9.
Metzger, M., Dalton, D. R. and Hill, J. W. (1993). The Organization of Ethics and the Ethics of Organization: The Case for Expanded Organizational Ethics Audits. Business Ethics Quarterly, 3(1): 27-43.
Moskowitz, M. (1972). Choosing Socially Responsible Stocks. Business and Society Review, 1: 71-75.
McGuire, J. B., Sundgren, A. and Schneeweis, T. (1988). Corporate Social Responsibility and Firm Financial Performance. Academy of Management Journal, 31 (4): 854-872.
Nash, L. L. (1990). Good Intentions Aside: A Manager’s Guide to Resolving Ethical Problems. Boston, MA: Harvard Business School Press.
Sen, A. (1993). Does Business Ethics Make Economic Sense? Business Ethics Quarterly, 5(1): 45-54.
Sharfman, M. (1992). Changing Institutional Rules: The Evolution of Corporate Philanthropy 1983-1953. Paper presented at the National Academy of Management meetings, August 1992, Las Vegas, Nevada.
Simerly, R. L. (1992). Corporate Social Performance and Firm Financial Performance. Paper presented at the National Academy of Management meetings, August 1992, Las Vegas, Nevada.
Stroup, M. A. and Neubert, R. L. (1987). Doing Good, Doing Better: Two Views of Social Responsibility — The Evolution of Social Responsibility. Business Horizons, 30 (2).
Sturdivant, F. D., and Ginter, J. L. (1977). Corporate Social Responsiveness: Management Attitudes and Economic Performance. California Management Review, 19(3): 30-39.
Ullmann, A. (1985). Data in Search of a Theory: A Critical Examination of the Relationships Among Social Performance, Social Disclosure, and Economic Performance of American Firms. Academy of Management Review, 10(3): 540-557.
Wartick, S. L. and Cochran, P. L. (1985). The Evolution of the Corporate Social Performance Model. Academy of Management Review, 10(4): 758-769.
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