Why banks undertake corporate social responsibility ?

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The widespread of adoption of corporate social responsibility in the banking industry implies that the public perceive the industry as to be socially responsible. Financial companies and specifaclly banks undertakes corporate social responsibily on two basis.

First some banks adopt social initiatives since they benefit from those initiatives and they become more profit motives. This view is reinforced by ( Cannon,1992,p.33) who stated that «  business only contributes fully to a society if it is efficient,profitable and socially responsible. Similarly, (Wood,1991) stated that « the basic idea of corporate social reponsibility is that business and society are interwoven rather than two distinct entities »

Another view is that banks undertake corporte social reponsibility programs for the betterment and welfare of the society that is based on moral perspective. To this regard, (Holmes,1976 ;Moir.2001,p.23) cited in his study of executive attitude to social responsibility, found that the strongest reponse was that « in addition to make profit,business helps to solve social problem whether or not business helps to create those problems even if there is probably no short-run or long-run profit potential.

As interest in the study of corporate social responsibility expanded over years, many studies have as to why firms engage in activities or programs that benefit the society. Their researches reveals that managers are motivated by moral as well as strategic considerations. It is difficult to determine whether corporate social reponsibility are guided by moral values or whether they are profit motives ( Graffland and Van de Ven,2006). Strategic motives are the reasons that compels financial services to engage in corporate social responsibilty. These motives include factors such as profitability of the company, instrumental motives and institutional motives as named by ( Hahn and Scheermesser,2006). The instrumental motives is similar to the legitimacy theory and instituitional theory shares the same view as stakeholder theory. The second reson why business might engage in corporate social responsibility is the moral motives.

The strategic perspective

Several researches have shown that managers in countries around the globe perceive strong strategic reasons for engaging in corporate social responsibility(Davis,1973). These are classified into instrumental motives and institutional motives( Hahn and Scheermesser,2006). Instrumental motives are managerial belief that engaging in corporate social responsibility can maximise profit through production of goods and services that society demands. In the context of financial services,customers demand are « security,access,liquidity,interest and social reponsibility »(Reifner,1997). At the same time managers also believe that shareholders value can be maximised by taking part in corporate social responsibility (Tudway and Pascal.2006).

Proponents of corporate social responsibility argues that it is in the self interest of business to undertake various forms of corporate social responsibility and reduce corporate risk(Baker,2006). Therefore social initiatives help in strenghtening corporate reputation of the company. In his 1973 article, Keith Davis outlined « social goals are now a top priority with members of the public, so the firm which wishes to capture a favorable public image will have to show that it also support these social goals ». In times of crisis or threat, corporate social responsibilities provides « reputation insurance » that can secure financial services profitability. Reputation in banking industry is referred as an intangible asset that can increase product or service demand and reduce costs(Fombrun,1996). Thus one of the key strategic motives for engaging in corporate social responsibility is the organisation image and reputation.

Another strategic reason why financial services engages in corporate social responsibility is aruged by (Davis,1997,p.314) who stated that « the institution of business exist only because it performs valuable services for society…if business wishes to retain its present social role and social power,it must respond to society's needs and give society what it wants ». Based on this argument it can be said that in order to meet society's demand, business should be competitive.

Many studies have shown that financial services engages in corporate social responsibility due to institutional motives. These motives compels organisations to strenghten their corporate social responsibilities. Reasons that forces banks to undertake social initiatives are the pressure from the surroundings such as stakeholder groups(Aguilera et al,2007). Managers beliefs from researches is that responding to institutional pressures is important for preserving company image or acquiring goodwill among stakeholders (Aguilera et al,2007 ; Bansal and Roth,2000 ; Bertels and Peloza, 2006 ; Gardberg and fombrun,2006 ; Sen and Bhattacharya,2001). Pressure to engage in corporate social responsibility is often generated from the community itself. Others found that firms are compelled to participate in corporate social activities to match that of competitors im their industry(Believeau et al,1994 ; Peloza,2006).

Moral perspective

Moral motives to engage in corporate social responsibility implies that business has an ethical duty to « give back » to society. Although studies have demonstrated that firms engage in corporate social responsibility for strategic purposes(Kotler and lee,2005). Others believe that personal moral values and the desire to contribute positively to society for a better future can be powerful drivers of corporate social responsibility. The result from researches show that « doing the right thing » appears to be a stronger motive for engaging in corporate social responsibility than the benefits these activities can generate for the firm( Bertoin Antsl,1992 ; Hahn and Scheermesser,2006).

In a recent study of Dutch managers showed that beside the fact that social initiatives could improuve profitability, enhance reputation and strenghten employee motivation to the firm,they also share a strong desire « to make the world a better place »(Graafland and Van de Ven,2006). From another study,it has been demonstrated that many participants strongly believe that business has a duty to improve local communities and work for the betterment of the society without any personal benefit(Glaskiewicz and Colman,2006).

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