Examining Corporate Social Responsibility As A Risk Management Strategy

Examining Corporate Social Responsibility As A Risk Management Strategy

Abstract

This study investigated the impact of corporate social responsibility practices on risk management of mining firm in Nigeria. The study used generalized least square multiple regression to analyze the secondary data extracted from the annual reports and accounts of Jobayo mining firm, Ibadan. for the period of ten years from 2006 to 2016. The study found that environmental management, and customer services have a positive and significant impact on the risk management of mining firms. The study also found that corporate community development influences the risk management of the firms positively and insignificantly. In view of the findings, the study concluded that, though environmental management is having a negative effect, the firm’s engagement in environmental management could be of corporate strategic relevance as not all investment can be a risk management strategy. Also, the study recommended among others that the management of Jobayo mining firm, should patronize more of strategic CSR activities in order to be more credible which can improve their reputation since the application of CSR varies by industry.

Chapter One

Introduction

1.1 Background of the Study

Recent developments have shown that firms are increasingly subjected to complex and everchanging demands in their operating environment. Such demands can pose significant risks to the survival of businesses especially when the firm does not have a robust risk management strategy to respond to changes in its operating environment. As a result, firms are increasingly developing capacities to understand and strategically respond to any risks that they may be exposed to in their operating environments (Zadek, 2007). Among the several strategic options available to firms is the development of capacities in learning and 43 understanding the needs and concerns of their stakeholders (Bowie and Dunfee, 2002; Castells, 1996).

CSR offers such a platform through which stakeholders’ expectations are addressed, and associated business risks are minimised (Kurucz et al., 2008). There are several business risks that firms can avoid and sustainably manage by pursuing CSR (Husted, 2005; Reinhardt 1995:48; ). Such risks can include: risks of reputational damage (Orlitzky and Benjamin, 2001; Wright and Rwabizambuga, 2006); risk of litigation and strict regulatory regime (Orlitzky, 2008:121), social risks (Kiljian, 2005; Samskin and Lawrence, 2005 & 2007; Rosen et al., 2003); risks of legitimacy loss (Suchman, 1995) and risks of fraud. Orlitzky and Benjamin (2001) examined the relationship between a firm’s social performance and exposure to reputational risks in the stock markets. They found that firms with better social performance were significantly able to achieve a rise in the stock prices as a result of their positive reputations as socially responsible firms (p.388). For public companies, the ability to minimise social and environmental risks through CSR can send strong market signals (to socially aware investors) that can have a remarkable impact on share prices (Vogel, 2005; Zadek, 2007).

Firms that operate in global supply chains are exposed to risks of reputational damage that usually attract stakeholder activism (Millington, 2008). Such risks are particularly common in western companies, which are increasingly outsourcing production to developing countries’ producers – the majority of which do not embrace minimum social and environmental standards in the production processes (Barrientos and Gorman, 2007).

As Millington (2008) notes, western firms that do not manage their supply chains in accordance with the minimum ethical standards are at an increased risk of not only attracting consumer boycotts, but are also at risk of attracting shareholder activism and strong government regulations. 44 Clearly, firms that operate in global supply chains can reduce such risks by embracing sound ethical practices within their supply chains (Jenkins, 2001; Tallontire, 2007). Such actions and pressure on the southern suppliers can been achieved by collectively or unilaterally developing and enforcing compliance with various standards and codes for these southern suppliers (Barrientos and Gorman, 2007)

1.2 Problem Statement

Despite its noted prevalence, company perceptions of risk and their application remain under-explored in the literature. Studies regularly note but rarely interrogate risk, with most adopting the industry’s own generic language of ‘social risk’. One study which sought to interrogate risk noted that “a key challenge of exploring the mining industry’s application of social risk assessment is the paucity of empirical studies on this topic” and drew on published material to fill this gap (Kemp et al., 2016, p. 22). This useful analysis stops short of mapping the linkages between risk thinking and CSR in the industry. In this paper I use interview data to analyse how mining companies framed a range of pressures and processes as different types of risk and positioned CSR activities as the central strategic response to them

1.3 Research Questions

1. To what extent does Environmental management affect the risk management in mining firms in Nigeria?
2. What is the effect of Community development on risk management in mining firms in Nigeria?
3. To what extent does employee relation affect risk management in mining firms in Nigeria?

1.4 Objectives of the Study

The main objective of this study is to assess the effect of CSR on the risk management of mining firms in Nigeria.

The specific objectives of the study are:

1. To examine the effect of Environmental management on the risk management of mining firms in Nigeria.
2. To examine the effect of Community development on the risk management of mining firms in Nigeria.
3. To determine the effect of Employee relation on the risk management of mining firms in Nigeria.

1.5 Hypotheses of the Study

H01: Environmental management has no significant effect on the risk management of mining firms in Nigeria

H02: Community development has no significant effect on the risk management of mining firms in Nigeria.

1.6 Significance of the Study

It is expected that this study will provide an indication of how the corporate social responsibility landscape looks like in Nigeria’s mining firming system since there are no significant differences in the structural and operational models in the various mining firms in Nigeria. More so, this study is important because it will add to the existing literature of mining firms CSR in particular on how socially responsible is the Nigerian mining firms in addressing the challenges of risk mangement.

The result of this research work will aid the Nigerian mining to evaluate their level of commitment to their corporate social responsibility objectives and functions in the light of their dependency on the environment as source of inputs and market for corporate outputs. It will also highlight the degree of neglect of government as a regulatory agent in the execution of its social responsibility duties.

1.7 Scope and Limitations of the Study

This study basically seeks to examine the impact of corporate social responsibility on mining firm risk management. This study is limited in scope to the mining firming industry in Nigeria from 2003 to 2013

1.8 Definition of Basic Terminologies

Corporate Social Responsibility (CSR):

Is a business process that a company adopts beyond its legal obligations in order to create added economic, social and environmental value to society and to minimize potential adverse effects from business activities, which includes interactions with suppliers, employees, consumers and communities in general. It also describes a company’s obligations to be accountable to all of its stakeholders in all its operations and activities. It is a concept describing a company’s obligations to be accountable to all of its stakeholders in all its operations and activities on a voluntary basis.

Social responsibility disclosure refers to the disclosure of information about companies’ interactions with society (Branco and Rodrigues, 2006). Due to informational asymmetry, disclosure of private information is imperative as it brings general gains in economic efficiency (Hossain and Reaz, 2007), and it is an important instrument in the dialog between business and society (Branco and Rodrigues, 2006). Generally transparency is an important aspect of good corporate governance practice and in relation to the mining firming sector.

1.9 Organisation of Study

The study is grouped into five chapters. This chapter being the first gives an introduction to the study. Chapter two gives a review of the related literature. Chapter three presents the research methodology; chapter four presents the data analysis as well as interpretation and discussion of the results. Chapter five gives a summary of findings and recommendations.

Chapter Five

Summary, Conclusion and Recommendations

5.1 Summary

In this study, the emphasis was given to the assessment of the “impact of corporate social responsibility practices on the risk management of mining firms in Nigeria”, using environmental management, community development, and return on asset as proxies for CSR practices and risk management respectively. Jobayo mining firm, Ibadan was used as a case study. The data was analysed using descriptive statistics and inferential statistics, that is, panel regression technique. The test of the formulated hypotheses of this study and the analysis of the data, led to the following major findings:

There is a strong negative and significant relationship between environmental management and risk management(return on asset) of mining firms in Nigeria. The relationship between community development and risk management (return on asset) of mining firms in Nigeria is also positive and significant.

The results also show that there is a negative and significant relationship between employee relations and the risk management (return on asset) of mining firms in Nigeria. The product quality and customer service a strong positive and significant relationship with the risk management (return on asset) of mining firms in Nigeria.

5.2 Conclusions

The environmental management negatively and significantly influences the risk management (return on asset) of mining firms in Nigeria, the firms that engage in high environmental management are likely to have low risk management while those that engage in low environmental management are likely to have higher risk management.

Community development has positive relationship with return on asset but insignificantly affects the risk management of mining firms in Nigeria. Signifying that the return on assets of Jobayo mining firm is insignificantly affected by CSR practices directed at community development. CSR practices directed at communities in form of developmental projects have no ripple effect on the triple bottom line.

The risk management of the mining firms in Nigeria is negatively and significantly influenced by CSR activities to employee, implying that not all investment on employees yields better risk management.

5.3 Recommendations

In line with the conclusions of the study and for a continuous attainment of high risk management through CSR practices of mining firms in Nigeria, the following recommendations are proffered:

The management of the companies should prudently explore the use of debt financing to be invested in viable projects that would boost the share value of the companies in the stock market.

The result which indicates that the risk management of the mining firms is insignificantly affected by community development could be attributed to the inability of some of Jobayo mining firm to disclose more of its engagement to community regularly during the period under consideration. Therefore, management of the mining firms in Nigeria should ensure a regular disclosure of their activities directed at community development.

The study reveals that employee relation does not have any effect on the risk management of the firm. We therefore, recommend that management of Jobayo mining firm should be concerned with the expectations of their employees, be socially responsible as well as engaging in more proactive employee relations through more training, better working conditions, motivational packages, better health and safety policies and compliance to ISO26000, which will bring about efficiency and effectiveness in achieving both their personal and corporate objective.

The mining firms in Nigeria should improve on their product quality and customers service through providing qualitative and environmental friendly products, ensuring improve and organized customers‟ service which will build better and bigger brand names and improving their brand equity. Since product and customer CSR have a positive and significant effect on their risk management.

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Frequently Asked Questions

Is corporate social responsibility a strategy in the market?

In today’s world the business world is performing corporate social responsibility as a strategy in the market including social activity and responsibility through our environment.

Is the balance between public and private sector CSR and GRC normal?

On the surface, things appear normal. The status quo of the balance between the public sector and the private sector in regards to corporate social responsibility (CSR) and governance, risk and compliance (GRC) isn’t to everyone’s liking, but it is still a work in progress after a fashion. We are muddling through.

How can I make the most of my corporate social responsibility?

Make the most of your corporate social responsibility (CSR) actions by publicising them. Ensure that customers, suppliers and the local community know what you are doing. CSR lends itself to good news stories. Publicity like this can be a key part of using CSR to win contracts.

What are the new responsibilities of CSR and sustainability?

With growing awareness of the issues brought in by sustainability and CSR, a new range of responsibilities have come into view, ranging from looking further into sourcing (supply chain responsibility) to being responsible for the lifestyles of clients, not to mention future generations.

Is corporate social responsibility just for the private sector anymore?

Corporate Social Responsibility: It’s Not Just For the Private Sector Anymore! The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

Are state-run companies doing enough for corporate social responsibility?

Even though state-run companies had a five-year head start with respect to setting aside funds for corporate social responsibility (CSR) initiatives, they lagged behind their private sector peers in terms of the efficiency of spending on such efforts.

What are the benefits of CSR in the public sector?

According to a report issued by Halina Ward, Director, Corporate Responsibility for Environment and Development, International Institute for Environment and Development, some of the ancillary benefits of a public sector CSR include their ability to help inspire new strategies to address gaps in public sector capacity.

What is the difference between public and private sector charities?

Public charities like United Way and Community Foundations perform charitable work, while private foundations support public charities. Private foundations don’t solicit funds from the public. The Bill & Melinda Gates Foundation is an example of a private nonprofit. Individuals own private-sector businesses.

What is the relationship between CSR and sustainability?

Sustainability and Corporate Social Responsibility are as similar as a bun is to a burger. They belong together, yet are they not the same. Corporate Social Responsibility (CSR) and sustainability both focus on an organisation’s efforts to contribute positively to environmental and social impacts.

How to approach CSR in a sustainable manner?

Volvo takes a sustainable, long-term approach to CSR Capital Cambodia Staff Known as the human-centric truck company, Volvo Cambodia practices its corporate social responsibility (CSR) as a commitment to conduct business in a responsible manner, to take stakeholders’ perspectives into account and to create value for its business and society.