CHAPTER 2

ELEMENTS AND DIMENSIONS OF CSR: CSR AS A VALUE DRIVER

1. Theory and Issues in CSR

After reflecting on the historical developments and contemporary interpretations of the concept
of CSR the point has been reached where the structure of the phenomenon in question, that is,
its dimensions and/ or elements have to be discussed. Traditionally, companies have had one
responsibility: to make a profit. But the concept of corporate social responsibility holds that
companies should be responsible to more than just their owners. Corporate social responsibility
holds that there are multiple dimensions that should affect a company's actions, although it is
important to note that these dimensions can vary from industry to industry and they are
dependent on conceptions of the CSR itself. Thus, in general, the various theories of CSR could
be classified in four groups: instrumental theories, political theories, integrative theories and
ethical theories (Garriga & Melé, 2004). Based on these theories, CSR is perceived as a
consequence of how the relationship between business and society is understood (Table 1.1).

Table 1.1. Theories and issues in CSR

Theories of CSR Issues of CSR

Instrumental Maximization of shareholder value as the supreme criterion for

theories, in which evaluating specific corporate social activities
the corporation is Social investments in a competitive context
seen only as an
instrument of wealth
creation, and its Natural resource-based view of the firm and dynamic capabilities.
social activities as a This approach maintains that the ability of a firm to perform better
tool to achieve than its competitors depends on the unique interplay of human,
economic results; organizational, and physical resources over time
increasing profit is
the only social
responsibility of Disruptive innovation - products or services that do not have the
business same capabilities and qualities as those being used by customers in
the mainstream markets and thus can be introduced only for new or
less demanding applications among non-traditional customers, with
low-cost production and adapted to local needs

Cause related marketing, aimed principally at boosting company

revenues and sales or enhancing customer relationships by
associating the brand with the ethical or social responsibility
dimension

Political theories in Corporate constitutionalism – business is a social institution and it

which the social must use power responsibly; the equation of social power
power of corporation responsibility has to be understood through the functional role of
is emphasized, business and managers.
specifically in its
relationship with

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Society and its Integrative social contract theory - takes into account the socio-
cultural context and also to integrate empirical and normative aspects
Responsibility in the
of management.
political arena
associated with this
power. This leads the Social responsibilities come from consent on two levels: a
corporation to accept theoretical macrosocial contract appealing to all rational
social duties and rights contractors, and a real microsocial contract by members of
or participate in numerous localized communities Corporate citizenship theories and
certain social approaches on ‘corporate citizenship’ are focused on rights,
cooperation responsibilities and possible partnerships of business in societ

Integrative theories Issues management. In this approach it is crucial to consider the

which consider that gap between what the organization’s relevant publics expect its
business ought to performance to be and the organization’s actual performance
integrate social Principle of public responsibility. According to this view, if
demands. They business adhered to the standards of performance in law and the
usually argue that existing public policy process, then it would be judged acceptably
business depends on responsive in terms of social expectations Stakeholder
society for its management is oriented towards ‘stakeholders’ or people who
continuity and growth affect or are affected by corporate policies and practices.
and even for the Stakeholder management tries to integrate groups with a stake in
existence of business the firm into managerial decision making Corporate social
itself performance includes a search for social legitimacy, with processes
for giving appropriate responses: environmental assessment,
stakeholder management and issues management, and outcomes of
corporate behaviour including social impacts, social programmes
and social policies

Ethical theories Normative stakeholder theory. Following this theory, a socially

understand that the responsible firm requires simultaneous attention to the legitimate
relationship between interests of all appropriate stakeholders and has to balance such a
business and society multiplicity of interests and not only the interests of the firm’s
is embedded with stockholders
ethical values. This
leads to a vision of
CSR from an ethical Human-rights-based approaches for corporate responsibility have
perspective and as a been proposed. One of them is the UN Global Compact, which
consequence, firms includes nine principles in the areas of human rights, labour and the
ought to accept social environment. Corporate sustainability is a custom-made process
responsibilities as an and each organization should choose its own specific ambition and
ethical obligation approach regarding corporate sustainability. This should meet the
above any other organization’s aims and intentions, and be aligned with the
consideration organization strategy, as an appropriate response to the
circumstances in which the organization operate. The common
good approach holds the common good of society as the referential
value for CSR. This approach maintains that business, as with any
other social group or individual in society, has to contribute to the
common good, because it is a part of society

Source: Garriga & Mele (2004)

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2. Components of CSR

In general, in all theories of CSR, discussed above, there are three main focal aspects: meeting
objectives that produce long-term profits, (2) using business power in a responsible way, (3)
integrating social demand. Carroll (1991) suggests that the social responsibility of an
organization can be divided into four components: economic, legal, ethical, and philanthropic
responsibilities. The four components could be depicted as a pyramid.

The lower level of the pyramid consists of the economic responsibilities, that is business affairs
(profit making) in each given society. Companies should be motivated by profit and put the
company's business in hand of consumers, investors and other stakeholders. Enterprises are
aware that their survival in today’s market depends on sacrifice short-term profits due to the
positive effects in the future, which satisfy the owners and managers, not just as they used to
maximize profits. Still, the customer’s satisfaction and loyalty, as well as fair employee
treatment are important factors (Gonzalez-Rodrıguez, 2015). This dimension provides the
economic indicators on the direct and indirect economic impact on communities through
spending power and economic impact through business process; outsourcing, knowledge,
innovation, social investments in employees and consumers; and taxes, tax incentives, wages,
pensions and other benefits paid to employees. At the same time, rules and regulations are set
for the business to operate within certain limits.

Meeting these rules constitutes the legal responsibilities of the business. Legal dimension of
CSR entails the compliance to the legal requirements and regulations. Many ethical and
economic issues go to court or legislative debates, since the legislative acts set rules for
responsible businesses activities. The legislative acts can be divided into laws that regulate
competition, consumer protection laws, environmental laws and laws that promote safety and
fairness. Nevertheless, these acts do not cover the full range of business responsibility towards
the society. It happens for particular reasons: (1) laws can’t cover all possible issues and topics
that have arisen and will arise in business transactions (for example, privacy issues in digital
marketing, genetically modified foods, etc.; (2) the laws often act belatedly in relation to new
developments; (3) there is always possibility of the personal interests and political motivation
behind the certain legislative acts (Carroll et al., 2018).

The third layer of the pyramid comprises the ethical responsibilities. Ethical dimension of CSR
refers to behaviours and activities that are permitted or prohibited by organization members,
community, society, even if they are not codified by law. Due to the fact that the laws are the
essential, but often not sufficient aspect, the ethical dimension adds the missing value and
normativity aspects. Ethical responsibilities embody the full scope of norms, standards, values,
and expectations that reflect what consumers, employees, shareholders, and the community
regard as fair, just, and consistent with respect for or protection of stakeholders’ moral rights.

Philanthropic responsibilities reflect current expectations of business by the public. The nature
of these activities are voluntary or discretionary, guided only by business’s desire to engage in
social activities that are not mandated, not required by law, and not generally expected of
business in an ethical sense. Such activities might include corporate giving, product and service
donations, employee volunteerism, community development, and any other kind of voluntary
use of the organization’s resources and its employees with the community or other stakeholders.
In sum, we can conclude that, first, the philanthropic dimension improves quality of live.
Second, these responsibilities reduce the size of government involvement in charity offering
help to people with legitimate needs. Third, the philanthropic responsibilities increase the staff
leadership ability. Fourthly, the philanthropic dimension builds the staff moral principles. All
four dimensions of this model can be summarized in the following table (Table 1.2).
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The four-part definition of CSR provides the structure or framework within which to identify
and situate the different expectations that society has of business. Criticism of Carroll’s
pyramid. A number of scholars have criticized the classical Carroll’s model due to its
obsoleteness and lack of important aspects. Thus, Crane and others (2004) argue the model does
not address conflicting obligations and how culture manifests itself. Different responsibilities
play a different role in various countries due to religious and historic traditions Visser (2006),
on his turn, applied Carroll’s model to the African context and noted that, just like in the
European case, different layers of the model had varying significance.

The main criticism regards the fact that the model lacks descriptive clarity. Carroll justified his
hierarchy of responsibilities as an order of dependence and his empirical evidence implies yet
another rationale, namely that it reflects the relative perceived importance assigned by
managers. Quite similar criticism, i.e., regarding the hierarchical structure, is exercised by
Baden (2016), who suggested a different ranking of the dimensions due to the increasing role
business plays in the society (ethical, legal, economic and philanthropic responsibilities).
At the same time Nalband and Kelabi (2014) suggests that Carroll was trying to establish an
umbrella concept for the relationship between business and society, as the result he missed the
recent developments in the field of sustainability that integrates the social, economic and
environmental aspects. Despite this criticism, we can conclude that all misgivings of the model
is due to the changing economical environment, rather than the deficiency of the model itself.
In what follows we will discuss several more models of CSR.

Five-dimensional conceptual model. In the recent research literature, there are described two
new dimensions: volunteering dimension and stakeholder dimension, in addition to the
economic, social and environmental ones (Arsic et al., 2017; Dahlsrud, 2008; Slack, 2013).
These five dimensions can be characterized in the following way.

The economic dimension refers to the fact that companies should be motivated by profit and
put the company's business in hand of consumers, investors and other stakeholders.

The social dimension means being accountable for the social effects the company has on people
- even indirectly. The basic objective of social dimension is that corporations should work for
building up a better society as a whole and integrate social concerns in their business operations
and consider the full scope of their impacts on communities. The company reports about CSR
indicators is a current topic in recent years in the world and a growing number of researchers
are dealing with this matter. Responsibility for employees, their needs and state of health is
another important factor of this dimension, as well as the value which is generated through the
activities of the CSR.

The stakeholder dimension designates the need of companies to take responsibility for wider
group of direct and indirect collaborators. They must take in account the whole supply chain
and establish such level of collaboration that all unsustainable or socially irresponsible practices
are detected and prevented.

The environmental dimension means that business strategies should consider environmental
protection and also investments in CSR and environmental reporting should be above mandatory
(Wagner et al., 2002; Kolk, 2016) despite the fact that the interests of different groups regarding
environmental CSR are with significant level of variation.

The voluntariness dimension means overcoming the minimum of prescribed standards related
to product quality or safety, community support, support to charitable institutions, support to
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employees in social projects engagement through volunteering and establish corporate
foundations.

Ten-dimensional conceptual model. Summing up different models and interpretations,

Rahman (2011) creates a scale of ten most important dimensions of the CSR in the 21st century.
The 21st century is the era of the CSR industry: corporations either have special CSR
departments or they are outsourcing. Universities are holding CSR conferences and researcher
are contributing to the new literature in the CSR field; there are publishers, who are printing
CSR related books and journals; there are journalists, who are reporting on CSR issues in the
newspapers. Currently the main dimensions are the following:

1) obligations to the society;

2) stakeholder involvement;
3) improving the quality of life;
4) economic development;
5) ethical business practice;
6) compliance to the law;
7) voluntariness;
8) human rights;
9) protection of environment;
10) transparency & accountability.

Most of the dimensions have been discussed above, it is important to stress the importance of
the latter aspect, that is, the one of transparency: the publication of significant results of the
audit office, informing interested groups on the social impact, or social and environmental risk
generated by the organization, offering information in the manner and through the appropriate
and accessible channels, so that organizations ensure that their partners know and understand
the social impact caused by them and are therefore able to defend their rights and make informed
decisions.

Commission of European Communities Green Paper Promoting a European framework for

Corporate Social Responsibility (COM, 2001) is the policy document that delineates specific
(internal and external) aspects of CSR. CSR extends beyond the corporation and involves a
wide range of stakeholders in addition to employees and shareholders: business partners and
suppliers, customers, public authorities and NGOs representing local communities, as well as
the environment. The internal and external dimensions according to this document have been
summarised in the table (Table 2.1).

Table 2.1. Understanding the Four Components of CSR

Type of Societal Explanations

Responsibility Expectation
Economic REQUIRED of Be profitable. Maximize sales, minimize costs. Make
responsibility business by sound strategic decisions. Be attentive to dividend
society policy. Provide investors with adequate and attractive
returns on their investments
Legal REQUIRED of Obey all laws, adhere to all regulations.
responsibility business by Environmental and consumer laws. Laws protecting
society employees. Fulfil all contractual obligations. Honour
warranties and guarantees.

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 Ethical EXPECTED of Obey all laws, adhere to all regulations.
responsibility business by Environmental and consumer laws. Laws protecting
society employees. Fulfil all contractual obligations. Honour
warranties and guarantees
Philanthropic DESIRED/EXPE Be a good corporate citizen. Give back. Make
responsibility CTED corporate contributions. Provide programmes
of business by supporting community—education, health or human
society services, culture and arts, and civic.
Provide for community betterment. Engage in
volunteerism
Source: Carroll et al. (2018)

3. Dimensions of CSR

CSR is a concept that denotates company’s decision to contribute to a better society on the
voluntary grounds. At present, the increasing number of countries recognize the significance
and value of CSR both for the company (creating the competitive advantage) and stakeholders
(all parties involved and impacted by the actions of the company).

Table 3.1. Internal and external dimensions of CSR (Source: COM, 2001)

Internal dimensions of CSR

Human resource Lifelong learning, empowerment of employees, better information

management throughout the company, better balance between work, family, and
leisure, greater work force diversity, equal pay and career prospects for
women, profit sharing and share ownership schemes, and concern for
employability as well as job security.

Responsible recruitment practices, involving in particular non-

discriminatory practices, could facilitate the recruitment of people from
ethnic minorities, older workers, women and the long-term unemployed
and people at disadvantage.

Contributing to a better definition of training needs through close

partnership with local actors who design education and training
programmes; supporting the transition from school to work for young
people, for example by providing apprenticeship places; valuing learning,
in particular in the Accreditation of Prior and Experiential Learning
(APEL); and providing an environment which encourages lifelong
learning by all employees.

Health and The trend of outsourcing work to contractors and suppliers makes
safety at work companies more dependent on the safety and health performance of their
contractors, especially those who are working within their own premises
Additional ways of promoting health and safety, by using them as a
criteria in procuring products and services from other companies and as
a marketing element for promoting their products or services
Occupational safety and health criteria have been included to varying

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 degrees into existing certification schemes and labelling schemes for
products and equipment.

Adaptation to Restructuring in a socially responsible manner means to balance and take

change into consideration the interests and concerns of all those who are affected
by the changes and decisions. This process should seek to safeguard
employees’ rights and enable them to undergo vocational retraining where
necessary, to modernise production tools and processes in order to
develop onsite activities, to mobilise public and private financing and to
establish procedures for information, dialogue, cooperation and
partnership.

By engaging in local development and active labour market strategies

through involvement in local employment and/or social inclusion
partnerships, companies can lessen the social and local impact of large
scale restructuring.

Management of Reducing the consumption of resources or reducing polluting emissions

environmental and waste. Integrated Product Policy (IPP) is founded on the
impacts and consideration of products’ impacts throughout their life cycle, and
natural involves business and other stakeholders in dialogue to find the most
resources cost-effective approach.

Opportunities associated with improved environmental performance.

The European Eco-Efficiency Initiative (EEEI), an initiative of the
World Business Council for Sustainable Development and the European
Partners for the Environment in partnership with the European
Commission

External dimensions of CSR

Local Integration of companies in their local setting. Companies contribute to

Communities their communities, especially to local communities, by providing jobs,
wages and benefits, and tax revenues. On the other hand, companies
depend on the health, stability, and prosperity of the communities in
which they operate. Interaction with local physical environment,
avoidance of pollution, attracting of labour force, environmental
education.

Involvement in community causes by means of provision of additional

vocational training places, assisting environmental charities, recruitment
of socially excluded people, provision of child-care facilities for
employees, partnerships with communities, sponsoring of local sports and
cultural events or donations to charitable activities. The development of
positive relations with the local community and thereby the accumulation
of social capital is particularly relevant for non- local companies

Business By working closely with business partners, companies can reduce

partners, complexity and costs and increase quality. In the long run building

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 suppliers and relationships may result in fair prices, terms and expectations along with
consumers quality and reliable delivery.

Companies should be aware that their social performance can be affected

as a result of the practices of their partners and suppliers throughout the
whole supply chain. The effect of corporate social responsibility activities
will not remain limited to the company itself, but will also touch upon their
economic partners.

Promoting entrepreneurial initiatives in the region of their location

Corporate venturing constitutes a further way for large companies to
facilitate the development of new innovative enterprises.

Applying the principle of design for all (making products and services
usable by as many people as possible including disabled consumers)

Human rights CSR has a strong human rights dimension, particularly in relation to
international operations and global supply chains Inclusion of corruption
clause.

Codes of conducts. Codes of conduct should be applied at every level of

the organisation and Production line. Full disclosure of information by
companies is important, including to local communities, as part of an
ongoing dialogue with them. Impact of a company’s activities on the
human rights of its workers and local communities extends beyond issues
of labour rights.

Global Pursuit the social responsibility internationally as well as in Europe,

Environmental encourage of better environmental performance throughout their supply
Concerns chain Participation in Global Compact.

4. CSR as Corporate Value Drivers

There has been significant interest and debate on the impact that a company’s investments in
Corporate Social Responsibility (CSR) practices and initiatives have on its market value. In this
chapter the relevance of CSR practices and initiatives for companies will be discussed. While a
number of research suggest that there is a positive link between the implementation of CSR
practices and firm value, still doubts continue to persist due to the impact of effect of
environmental factors such as the maturity of institutional systems and the efficiency of market
mechanisms present in different countries and the variability in the institutional usage of CSR
by firms. This chapter will discuss four sets of questions: (1) Value Driver Model; (2) CSR and
business performance; (3) Correlation of CSR and competitiveness of companies; (4) CSR as
value creator for consumers.

4.1. Value Driver Model

The Value Driver Model is a simple and direct approach companies can employ as key metrics
in accessing the financial impact of their CSR strategies. For many companies sustainable
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business strategies are already yielding tangible financial benefits. Employing the Value
Driver Model could be a first step on the path toward deepening investor interest in
sustainability as a source of business value, whereas for the companies seeking to increase their
financial increase the Value Driver Model can be used as motivational factor (Global Compact
Lead, 2013). Many companies are also changing the way they operate by executing strategies
that promote more efficient use of human and natural resources and thereby improve operating
results.

The Value Driver Model, described in the document “The value driver model. A tool for
communicating the business value of sustainability” (Global Compact Lead, 2013) takes into
account three key factors of the company performance:

1) Sustainability-advantaged growth (S/G) - measuring a company’s

revenue volume and growth rate in comparison to their predecessors
and/or competitors;
2) Sustainability-driven productivity (S/P) – measuring the financial
impact on a company’s cost structure;
3) Sustainability-related risk management (S/R) – measuring
performance over time, paying a special attention to the risk
assessment.

The purpose of this model is to offer a means of simplifying and highlighting such key impacts
and to make it easier for a wide spectrum of observers to evaluate sustainability as a noteworthy
source of value creation. The structure of the Value Driver Model is represented in the Figure
4.1. below.
Figure 4.1. Value Driver Models

Source: Global Compact Lead (2013)

Sustainability-advantaged revenue growth depends upon variations of the following four key
sub-components:

 Expanding market share based on enhanced demand for sustainability advantaged

products,
 Sales growth on the basis of brand reputation,
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  Creating and developing innovative sustainable products and services to meet
customer needs while diminishing the negative social and environmental impact,
 Implementing a long-term strategy and plan, along with the required investments,
to deliver sustainability-advantaged growth.

As a rule, investors want to know at least two essential facts about the company’s sustainability
advantaged revenue.

1) What is the current sustainability quality of revenue or the absolute percentage of

total sales accounted for by products or services designated as sustainability-
advantaged either by the company itself or by a reliable third party?
2) What is the company’s growth rate of sustainable products compared to the firm’s
overall growth rate?

The productivity factor consists of operational efficiency, human and reputation capital
management, and risks involved. This model allows seeing clearly the aspects of company’s
financial value and competitive advantages. The sustainability-driven productivity advantage is
rooted in three primary sources:

 Efficiency of operations resulting in cost savings and better use of natural

resources.
 Human resource management to reduce costs in attracting and retaining best
specialists, as well as increased worker productivity due to skills and safety
training, and inclusive and equitable work environments.
 Enhancement of product and service value on the basis of sustainable approach.

Like sustainability-advantaged growth and sustainability-driven productivity, sustainability-

related risk management provides investors with a few critical, measurable data points that
reflect management’s best assessment of exposure to risks that could imperil key business
objectives. The main risk factors to be taken into account are the following:

 Operational and regulatory risks – related to day-to-day business operations,

licencing, environmental impact (pollution and toxic emissions), operating
standards.
 Supply chain risks are related to supply of reliable, environmentally sound produce
and services according to company codes and international standards.
 Reputational risks – negative media coverage, negative legal judgements, etc., that
can be avoided by proactive policies and corporate communication (Global
Compact Lead, 2013).

5. CSR and business performance

During the last three decades, numerous theoretical and empirical research analysing and
discussing the existing relationship between CSR and company performance have been
published. In sum, in the theoretical literature there exist three main approaches regarding
relationship between CSR and business performance, they can be characterized as the negative,
the neutral and the positive ones (Maldonado- Guzman et al., 2016).

Researchers advocating the negative relationship state that implementation costs of CSR are too
high compared with the results obtained (Oh & Park, 2015; Lopez et al., 2007). Other group of
authors argues that the relationship between CSR and company performance is rather
insignificant on the basis that it is not clear whether this relationship exists at all (Curran &
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Moran, 2007; Garcia-Castro et al., 2010). Still, the majority of the researchers define that the
adoption of CSR activities carried out by companies allows them to increase their level of
performance (Mishra & Suar, 2010; Doh et al., 2010; Callan & Thomas, 2009). They admit that
there is a delicate interplay among different factors.

Business Performance can be characterized by attributes, for example, such as ‘well’ or ’poor’,
depending on the expectations of the individual analysing the data he or she has chosen to
examine in order to gain insight into the state the company is in at a given moment. In order to
understand the concept of business performance it is proposed to use the model developed by
Kaufman and Olaru (2012) (Figure 5.1).

Figure 5.1. Business Performance in Business Architecture

Source: Kaufman & Olaru (2012)

Figure 5.1 displays the Business Performance of a company in relation to its management,
business strategy and company´s processes. On one hand, there is a top- down relation –
Business performance must meet or exceed the expectations of the leadership. On the other
hand, the bottom-up relation shows the management if expectations are met and gives vital
information about necessary adjustments to the business processes that need to be made. The
figure shows that both, top-down and bottom-up are of the equal importance. They include
approaches such as Total Quality Management (TQM) and Management by- strategies.

In order to correlate two phenomena, i.e., the ones of the Business performance and CSR, the
use of the EFQM Excellence model is being proposed. EFQM is an abbreviation of the non-
profit organization European Foundation for Quality Management and was founded in 1988.
The intent of establishing this foundation was to provide for a European version of an excellent
quality award based on the philosophy of Total Quality Management (Kaufman & Serban,
2011). Figure 5.2 shows the newest version of the model. In order to measure and compare
business performance, eight criteria have been set up by the EFQM and grouped into two main
categories: Enablers and Results. Enablers represent factors that help companies achieve their
desired results. On the results side, not only classical key results like market share and growth,
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turnover and profit are evaluated, but also soft factors like the impact of the business processes
on its own people, on the customers, and on society. This model helps companies to evaluate
their progress.

Figure 5.2. The EFQM 2010 model

Source: Kaufman & Serban (2011)

The EFQM model provides a framework for the measurement of CSR activities and their
influence on Business Performance, in the sense that the model provides guidelines regarding
how much weight should be given to different ‘enablers’ and ‘results’ criteria within the overall
performance measurement. One of the indicators to be measured, for example, is changes in
stakeholder satisfaction levels due to investments in CSR.

There is an extensive literature examining the relationship between the company’s financial
performance and its socially responsible activities. This body of work is clearly
transdisciplinary, with much of it published in accounting, management, and business ethics
journals, using methods that vary widely in approach and degree of sophistication. Some
investigations use just one measurement criterion, such as emissions reduction or charitable
donations, other research employ an aggregate measure or index of various CSR indicators.

There exists a theoretical model that views the relation through Corporate Social Performance
(CSP) and Corporate Financial Performance (CFP) prism. To be more specific, this causal
direction rests upon the theory that the firm’s investment in socially responsible behaviour, such
as pollution reduction efforts or energy-saving technologies, has a measurable effect on its
financial performance. According to Callan and others (2009), this model is represented by the
following general function:
CFPi = f(CSPi, X, Z),
where:

 CFPi is a measure of firm i’s financial performance,

 CSPi is a measure of firm i’s socially responsible performance,
 X is a vector of control variables, which includes firm i’s financial characteristics,
 Z is a vector of variables that identify the industry in which firm i operates.

Among the firm-level control factors are measures of firm size, risk, capital expenditures,
advertising expenditures, and investment in R & D. The authors admit that the industry
classifications influence the CSP-CFP relation as well. It has to be concluded though that there
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exists a time gap between the socially responsible performance and its effect on company
finances. Hence, the theoretical model expands to the following:

where:
 CFPit = f(CSPit-1, Sizeit, Capitalit, Riskit, RDit, Advit, Zit),
 CFPit is a measure of firm i’s financial performance in time period t,
 CSPit-1 is a measure of firm i’s socially responsible performance in time period t-1,
 Sizeit captures firm i’s corporate size in time period t,
 Capitalit is a measure of firm i’s capital spending in time period t,
 Riskit is a measure of firm i’s risk posture in time period t,
 RDit is a measure of firm i’s investment in R & D in time period t,
 Advit measures firm i’s spending on advertising in time period t,
 Zit is a vector of variables capturing the industry in which firm i operates in time
period t.

The established positive CSP-CFP relation proves that company’s social responsibility and
profitability goals are compatible, that is, company can financially measurably benefit, if social
activities are being recognized by the relevant stakeholders.

6. CSR and company’s competitive advantage

There are many attempts to define the relation between CSR and company competitiveness. The
impact of CSR on the competitive advantage may be divided into five different elements which
intersect one another: reputation and brand strengthening; more efficient operations; improved
financial performance; increase in sales and consumer loyalty and increased ability to attract
and retain high-quality employees (Ljuboevic et al., 2012).

Figure 6.1. The Four Elements of Competitive Context

Source: Porter & Kramer (2006)

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According to Porter and Kramer (2006), the competitive context can be divided into four broad
areas:

 The quantity and quality of available business inputs;

 Policies that protect intellectual property, ensure transparency, safeguard against
corruption, and encourage investment;
 The size and particularity of the local demand;
 The support industries and infrastructure.

Figure 6.1. above depicts the elements of the competitive context and social dimensions of the
external environment. The impact of social responsibility on company competitiveness varies
according to industry, company size and dislocation. However, it is recognized that each and
every company needs its social agenda in order to achieve social and economic benefits at the
same time.

7. CSR as value creator for consumers

Consumers typically evaluate the CSR actions of a company according to their own interests,
and priorities. Within this context, company social performance can be viewed as attitude to its
actions, rather than actions themselves. Moreover, manifestation of CSR is a key to
understanding how it affects consumers as simple investing in social activities does not have a
direct impact on consumer attitudes. One of the possible approaches in describing CSR as value
creator for consumers is through the concepts of consumption values, consumer satisfaction
and consumer loyalty. The consumption values fall into three main categories (Sheth et al.,
1992):

 Emotional values - consumer satisfaction from a purchase with a social or

environmental added value;
 Social values are deduced from purchases from companies active in CSR;
 Functional values – aspects of CSR that relate to the actual benefit the consumer
receives from the product or service.

Consumer satisfaction is a significant indicator of any company performance. Rana and others
(2014) define it as feeling or attitude of a consumer towards a product/service after it has been
used. It can be measured by the fact if consumer’s expectations have been met fully, partly or
not met at all. At the same time, social dimension that includes such aspects as responsible
attitude to environment and recycling, employment policies and participation in social projects
can strengthen company’s competitive power. A satisfied consumer will provide good
references that can encourage other customers to choose this particular company over any other
company (Irshad et al., 2017). It is possible to classify the description of customer satisfaction
in relation different marketing tasks (Figure 7.1).

Howard and Sheth (1969) admit that consumer satisfaction arises from of adequate or
inadequate award (the result of shopping). Emotional reaction has been described by Oliver
(2010) as combination of expectations and after-buying experiences. Engel and others (1993),
however, describe the aspect of alternatives (the chosen alternative meets or does not meet
customer expectations). Researchers have paid attention to the impact of CSR to customer
loyalty (Stanaland et al., 2011; Sindhu & Arif, 2017). These investigations demonstrate
theoretically and empirically that the ethical approach to business and commitment to CSR
activities have a significant impact on customer loyalty. Attraction of new customers to
businesses is significantly more expensive than retaining the existing ones, since the regular
consumers spend more, but cost less to the company itself.
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 Figure 7.1. Characteristics of consumer satisfaction approaches

Source: Linina et al., (2016)

The research in the field has demonstrated that the acquisition of new consumers costs 5-7 times
more than serving the existing consumers. The social initiatives can play a significant role in
this respect as they influence consumers’ attitude towards the particular company. The loyal
consumer exhibits the following characteristics: they are buying more and buying more often,
they maintain their loyalty in the case of price increase, they recommend brand/ store/ service
to other potential customers (Oliver, 2010). In order to show the impact of CSR on the consumer
satisfaction and consumer loyalty the conceptual model is the following (Figure 7.2).

Figure 3.6. Conceptual model of CSR impact on customer satisfaction and loyalty

CSR
Employment policy
Responsible attitude to
environment Customer satisfaction Customer loyalty
Participation in social
projects

The current model accentuates three aspects of CSR that are decisive in customer satisfaction
and loyalty formation, namely, the ones of employment policies and attitude to employees;
responsible attitude to environment; participation in socially oriented projects. In other words,
social activities of the company create an additional value, hence increase the consumer
satisfaction and creates the basis for loyalty.

CONTROL QUESTIONS AND QUESTIONS FOR INDIVIDUAL STUDIES

1. What are the key dimensions of CSR concept?
2. Which model of CSR dimensions seems to be the most rational one?
3. What should be reflected in a non-financial report of a company
regarding the CSR activities?
4. Do you agree that CSR-practices and the company’s orientation
towards CSR goals can be a driver for value creation? Provides some
arguments pro-/contra-
5. Based on the theory, provide examples of how different types of
CSR-related (environmental, social...) activities can contribute to the
value creation of a company.

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