This academic paper presents the influence of the corporate social responsibility (CSR) on the two aspects viz. Employee Organisation Engagement and Organisational Performance, some of the very important aspects for corporate sustainable growth and organisational development theory. Researchers are advising corporations to consider amount spent on CSR as investment than expenses. This paper tries to understand the employee’s perceptions towards CSR. Companies and organisations are always worried about high employee turnover, employee absenteeism and employee low motivation towards work and organization. If CSR has a positive impact on these characteristics of the employee, the organization can enhance their employee organizational commitment through involving themselves in social activities for instance identifying needs of the community and fulfilling them, working for better environment, involving in employee welfare, producing quality products for customers and complying with government rules and regulations and working within legal ambiance. All these activities significantly and positively influence employee commitment with organization and improve organizational performance.
Keywords: Corporate Social Responsibility; Employee Engagement; Organizational Performance.
Corporate Social Responsibility Influences Employee Commitment and Performance of the Organisation
Of the topics being discussed nowadays in Organisational Development area, Corporate Social Responsibility (CSR) is one having holistic and long-lasting impact. The concept of CSR responsibility is studied and viewed by various academicians with different parameters such as organisational performance, behaviour of the consumer, investor and employee, etc. The CSR was once seen as a characteristic of small, offbeat companies like Patagonia or The Body Shop, but it has moved firmly into the mainstream of organizational thinking and employee behaviour. (N. Daft, 2010)
The term is often used interchangeably with related concepts:
– corporate responsibility – corporate sustainability
– corporate sustainable development – corporate citizenship
Corporate Social Responsibility
The concept of corporate social responsibility (CSR) is, in a broad sense, an extension of ideas like managerial ethics and refers to an organisation’s obligation (particularly that of higher management) to make choices and act so that the organization contributes to the welfare and interest of all organizational stakeholders, such as employees, customers, shareholders, the community, and the broader society. Almost all the major companies are doing more than they were five years earlier to incorporate social responsibility issues into their core strategies. (N. Daft, 2010, Pg. 389)
Let’s look at some academic definitions of CSR. Actions of firms that contribute to social welfare, beyond what is required for profit maximization, are classified as Corporate Social Responsibility (CSR). (McWilliams, A. 2015, 12:1–4.)
The European Commission has defined CSR as- “the responsibility of enterprises for their impact on society”. Governments and public authorities can play a supporting role by introducing voluntary policy measures and, wherever required, complementary regulation. The European Commission (EC) believes that CSR is an important factor for the sustainability, competitiveness, and innovation of EU enterprises and the EU economy. It has multi-fold benefits for e.g. risk management, environmental impact, customer satisfaction, and HR management. CSR should be company led and companies can become socially responsible by:
· following the law;
· integrating social, environmental, ethical, consumer, and human rights concerns into their business strategy and operations.
Scope of CSR
Nowadays, CSR is not only an attribute of the commercial sector, but also an important characteristic in fields like government, public sector, and nongovernmental organizations, as well as in Intergovernmental Organizations such as the United Nations, the World Bank or the International Labour Organization. In the commercial sector, CSR is considered as a part of strategic planning for those companies that strive to be successful, that want to improve their reputation and especially those who want to be competitive. CSR is a competitive advantage for business, having as a source of intangible and human resources, and being executed by competences such as communication, management and corporate culture. (Dr. C. Eugine Franco, and G. Suguna, 2017)
Impact of CSR
Irrespective of the label, it can be understood that the meaning underlying CSR is based on the idea of creating “shared value”. The role of an organisation or a business, is to create value for its shareholders along with its employees, in such a way that it simultaneously creates value for society, maintaining itself in a win-win situation. A recent global survey of 1,122 corporate executives suggests CEOs perceived that businesses benefit from CSR because it increases attractiveness to potential and existing employees (Economist, 2008: 13). In the following sections, it is explained how CSR relates to employees, corporation’s main stakeholder groups (Donaldson & Preston, 1995; Freeman, 1984).
Surveys indicate that “61% of consumers would buy a product from a socially responsible company or would switch retailers if cost and quality were equal”. And when defined in a holistic context, the perception of expense will be external to the firm with quantification of a shareholder or investor return on investment: “Social responsibility is defined as a framework of measurable corporate policies and procedures and resulting behaviour designed to benefit the workplace and, the individual, the organization, and the community…” Therefore, CSR is the foremost about obtaining better productivity and creativity returns. (Tai, Chuang, 2010)
To sum up, a company’s CSR involvement is suggested to have positive impacts on both internal (for e.g. employees) and external (for e.g. customers) stakeholders as CSR practices improve its business image, financial performance, cost reductions, and employee organizational commitment. Most importantly, external CSR programs tend to generate a much stronger organizational commitment, which will motivate employees to have better work performance, thus enhancing their productivity and job satisfactions. By practicing CSR externally, companies may reinforce the positive image to the public and their employees and establish better relationships with the government and local communities. Therefore, it is essential for companies to understand the idea of external CSR and choose those programs based on their business models and desired goals. (Chiang, 2010)
Organisations always look for employees who will do their best work to help the organisation achieve its goals and objectives. Employees, in turn, want satisfying jobs that are challenging and meaningful. A term that is used more and more to describe this win-win situation is an “engaged workforce”. While introducing the concept of employee engagement, it should be noted that much of the analysis, either explicitly or implicitly, is also applicable to attraction and retention of employees. There is a clear correlation between attraction, retention and engagement, and any effective strategy to attract and retain employees must be based on an understanding of engagement. (Gross, Holland, Whitepaper)
While there is no single, agreed-upon definition of employee engagement, there exists an agreement that employee engagement is more than just motivation or performance. Common contents found in most definitions include a commitment to and belief in the organization and its values along with willingness and ability to contribute ‘discretionary effort’ to help the organization succeed. In 1990, William Kahn of the Boston University School of Management defined the concept of work engagement as “the harnessing of organizational members’ selves to their work roles.” Many definitions also emphasize an emotional connection to the organization, a passion for work and feelings of hope about the future within the organization. Engaged employees also derive satisfaction from the success of the organization. For example, a recent article in the Harvard Business Review asserted that employees are motivated by jobs that challenge them and enable them to grow and learn, and that they are demoralized by jobs that are monotonous or provide little opportunity for growth and learning. An engagement matrix, developed by Prof. Riccardo Peccei, which includes two core elements of employee engagement: work engagement and organizational engagement. According to Prof. Peccei, an employee cannot be fully engaged in the absence of either of these elements. (Gross, Holland, Whitepaper)
Measuring Employee Engagement
The most common method of measuring employee engagement is through survey polls and questionnaires, which presents a potential problem. Research has shown that these methods, surveys and questionnaires, are better at measuring and evaluating attitudes and intentions than they are at predicting behaviour. Accordingly, it can be difficult to determine whether survey results are measuring engagement or the drivers or antecedents of engagement. Therefore, measuring the employee engagement is actually a difficult task.
Most efforts to measure work engagement have been through self-report surveys of individual workers. The resulting scores are then aggregated to measure engagement at the organizational level. Many companies now conduct employee opinion surveys to measure engagement.
Many consulting, and polling companies have developed proprietary survey tools and processes for measuring work engagement. For example, the Gallup Organization has developed a twelve-item Worker Engagement Index, which is designed to identify strong feelings of employee engagement and classifies employees as engaged, not engaged or actively disengaged.
A group of academic researchers developed the Utrecht Work Engagement Scale (UWES), a nine-item measurement tool that is based on more than two-dozen studies with data from over 14,000 employees in 10 different countries. The UWES is in the public domain and can be used without charge, if organizations using the tool agree not to charge a fee for its use and to share the raw data collected with the researchers. (Gross, Holland, Whitepaper)
Cost of Disengagement
Recent studies suggest that overall levels of employee engagement are very low, leading some to classify the situation as an “engagement crisis”. Towers Perrin’s 2007-2008 Global Workforce Study found that disengagement encompassed over 70% of the workforce and over 50% of management, which are significantly high numbers, if believed to be true.
According to Towers Perrin, disengagement may manifest itself in many ways, including a lack of commitment to an organization’s goals, absenteeism, low performance, cynicism, low trust and chronic complaints of being overstressed. The engagement crisis also has significant financial implications. The estimated cost of replacing an employee ranges from one to three times his or her annual salary and the average company loses about $1 million with every 10 professional employees who leave. The Gallup organization estimates that disengaged employees cost U.S. employers between $250 and $350 billion a year. The implications of these human capital management problems are not lost on corporate leadership. According to a survey of over 600 CEOs conducted more than a decade ago, engaging employees was identified as one of the five most important challenges facing management. (Gross, Holland, Whitepaper)
Performance of the Organisation
Performance is a contextual concept associated with the phenomenon being studied (Hofer, 1983). In the context of organizational financial performance, performance is a measure of the change of the financial state of an organization, or the financial outcomes that results from management decisions and the execution of those decisions by members of the organization. Since the perception of these outcomes is contextual, the measures used to represent performance are selected based upon the circumstances of the organisations being observed. The measures selected represent the outcomes achieved, either good or bad. (Carton, 2004)
Organizational performance refers to how well an organization is doing to reach its vision, mission, and goals. Assessing organizational performance is a vital aspect of strategic management. Executives must know how well their organizations are performing to figure out what strategic changes, if any, to make. Performance is a very complex concept, however, and a lot of attention needs to be paid to how it is assessed. (http://open.lib.umn.edu/strategicmanagement/chapter/2-3-assessing-organizational-performance/ ). In general, the concept of organizational performance is based upon the idea that an organization is the voluntary association of productive assets, including human, physical, and capital resources, for the purpose of achieving a shared purpose (Alchian & Demsetz, 1972; Barney, 2001; Jensen & Meckling, 1976; Simon, 1976). Those providing the assets will only commit them to the organization so long as they are satisfied with the value they receive in exchange, relative to alternative uses of the assets. As a consequence, the essence of performance is the creation of value. So long as the value created by the use of the contributed assets is equal to or greater than the value expected by those contributing the assets, the assets will continue to be made available to the organization and the organization will continue to exist. Therefore, value creation, as defined by the resource provider, is the essential overall performance criteria for any organization. (Carton, 2004)
Organizational performance can be judged by many different constituencies, resulting in many different interpretations of “successful performance”. Each of these perspectives of organizational performance can be argued to be unique. Further, each organization has a unique set of circumstances, making performance measurement inherently situational (Cameron & Whetton, 1983). The nature of organizational performance and its measurement has been a topic for both scholars and practitioners since organizations were first formed. How to determine if the efforts of the organization are being put to their best use and are achieving the desired outcomes is at the heart of several disciplines. Accountants devote their attention to fairly presenting the historical financial performance of organizations, while the management disciplines focus on how to improve current and future organizational performance. The “Balanced Scorecard” approach developed by Kaplan (1984) combines both historical accounting perspectives as well as operational measures that capture information about expected future organizational performance. (Carton, 2004)
Making the connection
Companies are facing unprecedented pressure from many quarters – communities, regulators, non-governmental organizations, activists and socially responsible investors, among others – to behave as responsible corporate citizens. Companies that are forward-thinking are increasingly coming to terms with the fact that ignoring this pressure represents a significant risk while responding proactively presents an emerging opportunity. Studies have shown that employee engagement may lead to many positive business outcomes, including, among others, decreased absenteeism and turnover, increased customer satisfaction and loyalty, increased productivity and increased revenue growth. Furthermore, recent efforts to measure employee engagement have found consistently low levels of overall engagement. Finally, survey data and academic studies have also shown that CSR is an emerging and increasingly important driver of employee engagement. Accordingly, this report presents compelling evidence that an important opportunity rests with CSR’s potential to influence employee engagement and, consequently, the positive business outcomes that go along with an engaged workforce. Somewhat in contradiction to this evidence, other than a small number of high profile companies, organizations have generally failed to embrace the idea that CSR can be an important driver of employee engagement and not many companies are using this potentially powerful tool to attract, engage and retain employees. This represents an opportunity for forward-looking companies to get in front of this emerging issue instead of playing catch up after more and more companies grasp and exploit this opportunity. Based on the results of its Global Workforce Study, Towers Perrin stated a strong belief in the need for companies to embrace CSR: “… one thing is increasingly clear. It’s not a choice any longer. Your employees expect it, and your company needs it … it is in fact linked to how well your employees perform. In other words, CSR extends to the bottom line.” (Watson, 2008; Gross, Holland, Whitepaper)
Figure 1 Theoretical model connecting CSR with Employee Engagement and Organisational Performance (Dr. C. Eugine Franco, and G. Suguna, 2017)
The concept of corporate social responsibility is viewed by researchers with different variables including organizational performance, consumer behaviour, investor behaviour and employee behaviour. Moreover, researchers also focused on effects of the disclosure CSR on various stakeholders. This study introduces a model which combines CSR, employee organizational commitment and organizational performance. This is a unique study it combines variables in one model, the theoretical model of the study is presented in Figure 1. (Dr. C. Eugine Franco, and G. Suguna, 2017)
Researches proved that CSR supports employee organizational commitment, but not as much as employee job satisfaction, the goods deeds of corporations motivates employees to discuss with others outside organizations and feel a strong sense of belongingness with the organization proposed that to yield maximum benefits of CSR, employees should be involved in decision making regarding which actions should be undertaken relating to environment, community.
Survey Results (Gross, Holland, Whitepaper)
1. Kenexa Research Institute
Corporate Social Responsibility Efforts Are Recognised By Employees 2007
This 2007 study evaluated 1,000 U.K. workers’ perceptions of their organizations’ corporate social responsibility practices. The study followed up on earlier research by Kenexa that showed that actively participating in CSR efforts is related to higher employee engagement levels and more favourable views of senior management. The survey showed that working for an organization whose employees positively view corporate responsibility efforts has a significant, favourable impact on how they rate their pride in the organization, their overall satisfaction, their willingness to recommend it as a place to work and their intention to stay. (Sirota Survey Intelligence, 2007). This global survey of 1.6 million employees found that employees who have a favourable view of their organization’s CSR commitment are also positive about other factors important to its success, including:
• senior management’s integrity,
• senior management’s sense of direction,
• the company’s competitiveness in the marketplace,
• the company’s interest in employees’ well-being, and
• their engagement or pride in their organization.
Of those who are satisfied with their employer’s CSR commitment:
• 86% have high levels of engagement,
• 82% feel their organization is highly competitive in the marketplace,
• 75% feel their employer is interested in their well-being,
• 71% rate senior management as having high integrity, and
• 67% feel that senior management has a strong sense of direction.
As noted above, one of the most compelling statistics to emerge from the survey is the difference in attitude towards senior management in organizations that are seen as having a strong CSR commitment. Seven out of 10 employees in these organizations rated senior management as having high integrity compared with just one in five employees who were negative about their employer’s CSR record. Similarly, two-thirds of employees who are satisfied with their employer’s CSR commitment feel that senior management has a strong sense of direction compared to just 18% in less favourably viewed organizations.
Other important findings of this survey include-
· Working for an organization whose employees positively view corporate responsibility efforts has a significant, favourable impact on how they rate their pride in the organization, their overall satisfaction, their willingness to recommend it as a place to work and their intention to stay.
· When employees view their organization’s commitment to socially responsible behaviour more favourably, they also tend to have more positive attitudes in other areas that correlate with better performance, such as customer service and leadership from management.
2. According to IBM Global Business Services. Attaining sustainable growth through corporate social responsibility. Somers: IBM Corporation, 2008, 44% of young professionals said they would discount an employer with a bad reputation and nearly half said corporate social responsibility policies should be compulsory.
3. Another study survey TANDBERG and Ipsos MORI. Corporate Environmental Behavior and the Impact on Brand Values. 2007, 80% of respondents would prefer working for a company that has a good reputation for environmental responsibility. Interestingly, respondents were more concerned about working for an environmentally responsible company than purchasing from one.
4. Seven out of 10 employees in organizations that are viewed by employees as socially responsible rated senior management as having high integrity compared with just one in five employees who were negative about their employer’s CSR record. This was one of the key findings of Sirota Survey Intelligence. Corporate Social Responsibility Contributes To Bottom Line, Improves Worker Engagement And Customer Loyalty. (News Release) 2007.
5. Further, Towers Perrin. Towers Perrin Global Workforce Study. s.l.: Towers Perrin, 2007-2008 showed that CSR is the third most important driver of employee engagement overall, and an organization’s reputation for social responsibility is an important driver for both engagement and retention. A company’s reputation as a good employer ranks sixth as an attraction driver. Accordingly, “organizations with a reputation for CSR can take advantage of their status and strengthen their appeal as an attractive employer by making their commitment part of their value proposition for potential candidates.
Conclusion and Further Research
Organisations need to be aware of the pay-offs they can get from an investment in CSR, and it should be noted that a miraculous improvement in retention rates is not likely to be one of them. Immediate benefits might be few, it is likely that the importance of CSR will increase in years to come as people more interested with social and environmental effects of corporations and also there is no doubt that socially responsible activities will be present in the future in a business environment. Companies should have in mind, that in a competitive environment, not only customers but also business partners will want to know whether companies measure the carbon footprint, whether if they abuse the workforce, what they do well for the society, and to take this as key considerations when deciding with whom they co-operate. In the future, socially responsible behaviour will not represent only a competitive advantage, but a necessity.
The increasing relevance and interdependence between CSR and marketing also catches the eye and therefore, further study of the said topic will reveal helpful insights further into CSR and its influence on various aspects of an organisation.