Corporate Social Responsibility of the Private Commercial Banks in Bangladesh: Cultural Antecedents and Implications for the Stakeholders

Abstract

Corporate approach towards global markets is increasingly aiming not only at creating value to its owners but also at setting the stage for the development of a strong awareness towards social issues. The business professional, academicians, national and transnational organizations, and media are now propagating the growing affirmative contribution of companies in the society. However, in our academic community, the concept remains new, and therefore, the concept require rigorous seminal studies to validate it. The business case for CSR is concerned with the question: What do business community and organization get out of corporate social responsibility (CSR); that is, how they benefit substantially from engaging in CSR policies and practices? Although this stream of research has contributed a great deal of insight, there is still a limited understanding of whether and how CSR affects the bottom-line of the companies. Previous researchers have mostly discussed the impacts of CSR at a macro organizational level, focusing corporate outcome in a broad manner. And, most of the CSR studies conducted so far in the context of developed countries like, Western Europe, the USA, Australia, and Japan. The volume of CSR researches is very poor in the context of developing country like Bangladesh. So there is an avenue for analyzing the underlying process of CSR at the individual stakeholder level along with its cultural antecedents in order to understand how CSR evolve within an organization and how companies benefit substantially from engaging in CSR policies and practices through improved attitudes of the primary individual stakeholders like consumers and employees. Given that practical interest in CSR has outstripped the currently available research evidence, fundamental questions, like how it can be enhanced and how and why it benefits individuals and organizations, still require answers. This study attempts to examine CSR at the stakeholders’ perspective; with a focus on its cultural antecedents and potential strategic outcomes through improved customers’ and employees’ attitude. To attain the core objective efficiently, it’s broken down in to specific objectives. To understand the CSR phenomenon, an extensive literature review was conducted. CSR in Bangladesh is a new research area, as most of the literature favors developed and industrialized nations, and gives little empirical evidence and attention to the developing economies. This widespread review of literature justifies CSR research into banking sector in Bangladesh for theoretical, methodological, and contextual reasons; and lack of empirical evidence from Bangladesh. This study empirically tested relationships among antecedents and consequences of CSR in the bank setting in Bangladesh. In particular, this study provides theory-based empirical evidence regarding whether organizational culture affect banks CSR postures. This study also investigates how CSR directly and indirectly leads to corporate financial performance, employee attitude, and customer attitude. In accordance with the purpose and objectives of the study, 15 hypotheses were constructed based on several theories: stakeholder theory, social exchange theory, and business case for CSR proposition. To test the hypotheses, data were collected from 201 bank employees and 206 bank customers. The proposed relationships were examined by using hierarchical multiple regression and partial correlation. Results of hypothesis testing show that the accounting-based financial performance like, ROA and ROE change, in a less statistically significant manner than market-based financial performance like, Tobin’s Q in response to direct CSR expenditure increases and decreases. The results of the study expose that most private commercial banks in Bangladesh are dominated by a strong hierarchy culture. The findings show that private commercial banks in Bangladesh are very formalized and structured place, have a leadership style generally associated with a coordinator, an organizer, or an administrator, emphasize chain of command, emphasize stability and the ability to maintain control, and define success on the basis of efficient, reliable, and smooth operations. According to the employees’ perception, private commercial banks in Bangladesh are comparatively more aware of complying legal responsibilities than other aspects of CSR. The study findings suggest that organizational culture play an important role in achieving high level of CSR. This result underlines the positive organizational effects of clan culture and adds to previous investigations linking clan culture to high levels of employee morale and satisfaction, human resource development, and teamwork. This study also upholds relation between market orientation and CSR and brings to light another benefit of market culture beyond the accomplishment of superior value for the customer and superior business performance for the organization. As seen in this study, adhocracy culture type predicts only cumulative CSR not any distinct aspect of CSR. At last, no significant link has observed between hierarchy culture and CSR. This study provides an understanding that employees of the private commercial banks in Bangladesh are moderately satisfied with their job, fairly involved in their job, and reasonably obliged to stay with their organization. According to results of regression analyses in this study, employees of socially responsible firms are likely to be satisfied with their job. But, the results of this study also found that concern of the social issues does not mediate the CSR–job satisfaction relationship. CSR was found to significantly affect job involvement of the employees in the private commercial banks in Bangladesh. Employees, who perceived their organizations as proactive in case of CSR, are prone to be identified with their jobs because they perceive the firm ensuring work environment. The results of this study also found that employees’ concern for social issues mediates the CSR-Job involvement relationship. According to the results in this study, members of socially proactive organizations likely to feel committed to their organization and to be supportive of its mission. CSR was found to significantly affect organizational commitments (affective, continuance, normative) of the employees in the private commercial banks in Bangladesh. Employees, who perceived their companies as proactive in case of CSR, are likely to be committed to their organization because they perceive the firm ensuring an environment designed to enhance workplace experience and working in a company whose goals go beyond the mere maximization of profit. Thus CSR is an excellent tool to motivate employees, to educate them about the organization, and to gain their patronage. Regression analysis shows that the concern for social issue by the employees of banks did not significantly moderate the relationship between the perceived CSR and dimensions of organizational commitment. According to the customers’ perception, private commercial banks in Bangladesh are most aware of complying legal responsibilities than other aspects of CSR. Alongside, philanthropic responsibilities ranked second among the dimensions of CSR. Ethical responsibilities have been being paid lowest attention by private commercial banks in Bangladesh. This study also presents a perceptive that customers of the private commercial banks in Bangladesh are reasonably satisfied with the products and fairly loyal to the brand and firm. Customers, who perceived their banks as social responsible entity, are likely to be satisfied with their services because they perceive the organization appealing to the multidimensionality of the customer as not only an economic being but also a member of a family, community, and country. As exposed in this research, satisfied customer typically cares for philanthropic responsibilities of their banks. Testing for control variables found that Service Quality and Access had significant effects on customer satisfaction. However, even if the effect of price was positive, it was insignificant. Regression analysis shows that the concern for social issue by the customers of banks did not significantly moderate the relationship between the perceived CSR and customer satisfaction. This study further indicates that proactive CSR is conducive of customer loyalty. Results of regression analyses show compelling support that the influence of CSR is quite strong on customer loyalty. Additionally, philanthropic and legal responsibilities were found to be the most important concern of loyal customers of the private commercial banks in Bangladesh. Testing for control variables found that customer satisfaction had significant effects on customer loyalty. This study triangulates the relationship between CSR and corporate financial performances. To test the hypothesized relationships, partial correlation analysis has conducted. Total Assets and Non-Performing Loans (NPL) of the banks have been used as control variables to subtract the extraneous effects. Results of the partial correlations point out that the sign of the link is positive. The findings designate that perceived CSR by different stakeholders is positively related to corporate financial performance and this relationship is statistically significant, triangulating, therefore, the notion that CSR can be associated with a series of accounting based and market based financial constructs of private commercial banks in Bangladesh. In this study, the relationship between individual stakeholders’ attitudes (job satisfaction, job involvement, organizational commitment, customer satisfaction, and customer loyalty) and corporate financial performance (CFP) has been examined through empirical analysis. Results show that, all stakeholder attitude variables were found partially and positively associated with corporate financial performances. Results of the partial correlations show that employee attitude have positive relationships with ROE. Results also show that employee attitude excluding continuance commitment have positive relationships with ROA. However, analyses in this study failed to find the anticipated positive relationship between employee attitude constructs and market-based indicator like Tobin’s Q. So, improved employee attitudes in the private commercial banks in Bangladesh resulted from proactive CSR initiatives: are found to be related to the enhanced level of accounting-based financial performance—measured in terms of ROA and ROE. Results of this study show that customer satisfaction and loyalty have positive relationships with ROE and Tobin’s Q. However, analyses in this study failed to find the anticipated positive relationship between customer attitude constructs and ROA. So, improved customer attitudes, resulted from upbeat CSR initiatives, predict accounting-based and market-based financial performances accordingly. Despite the volume of practical literature on the effects of CSR on stakeholders’ attitudes, very little academic research has tried to unravel the relationship mechanism explaining how CSR predicts outcome variables. By filling this gap, this study provides a valuable contribution to the literature on CSR in banking sector in a developing country. Though many studies were conducted to attempt to show the influence on corporate financial performance, the substantiation was considered to be somewhat questionable due to methodological issues which are not surprising given that it is almost impossible to prove the influence on profitability. There are so many other potential antecedents and moderators that could influence profit, that it is difficult to attribute the increase of profit to CSR. It is only now that a modified survey instrument was adapted to measure perceived CSR at the individual level, that the influence of CSR on individual stakeholders was studied. As a result, this is the first known study is completed with academic rigor that provides strong evidence that CSR can positively influence stakeholders’ attitudes in developing country like Bangladesh. Considering the findings provided in this study, a set of policy guidelines for the development of CSR posture and functioning of private commercial banks in Bangladesh have presented in this study. The empirical results suggest that CSR expenditure has a considerable impact on financial performance for banks listed in DSE. So, for the enhancement of financial performance the management of the banks in Bangladesh should ensure enough investment in diversified CSR activities. The study findings suggest that organizational culture play an important role in achieving high level of CSR and clan culture is found to be most conducive of proactive stance of CSR. So, management of the banks in Bangladesh should take the initiative to encourage teamwork, participation, trust, commitment, and cooperation within their organization to strengthen clan culture to foster CSR posture. To ensure improved employee attitudes of an organization like bank should take initiative to uphold employee perception regarding their CSR activities. To do this organization not only improve their CSR posture but also communicate the CSR activities through out the firm. This study presents a perceptive that, customers, who perceived their banks as social responsible entity, are likely to be satisfied with their services. Results of regression analyses also show compelling support that the influence of CSR is quite strong on customer loyalty. Therefore, to enhance customer satisfaction and loyalty, bank management should take the initiative to ensure proactive CSR as strategic tools for market establishment. Using empirical methods, the sign of the relationship between perceived corporate social responsibility and corporate financial performance has been tested. Hence, for the improvement of company bottom line, an organization should produce mechanism to boost up perceived CSR by different stakeholders like, employee and customers. This study evidently exhibits the potential strategic implications of improved stakeholders’ attitudes in the private commercial banks in Bangladesh. So, management of the private commercial banks in Bangladesh should provide an environment where CSR can boost up and eventually contribute to improve the individual stakeholders’ attitudes like, job satisfaction, job involvement, organizational commitment, customer satisfaction, and customer loyalty to confirm handsome corporate financial bottom line. On the whole, this study suggests that CSR is not just expenditure it is an investment. By investing diversified CSR activities management can reap competitive advantage in marketplace. By and large, this study constitutes a preliminary attempt at gaining a holistic understanding of CSR from stakeholder perspective. This empirical research suggests that complying social requirements does not come at the expense of performance levels. Instead, with actions undertaken to depict their obligation to meeting economic, legal, ethical, and philanthropic responsibilities, business may able to generate a presence of positive attitudes in both employees and customers. These findings highlight the business case for CSR and rationalize the stakeholder theory of business organization. Despite the efforts to provide a meaningful understanding and evaluation of CSR, the study is not without limitations. The study relied solely on the information provided by employees and customers in a survey. Thus, the findings may not generalize to other industrial contexts or other cultures; research in other settings or geographical areas might yield different results. Future research could address this caveat by relying on multi-informants research design. Surveys on social pressure group members, government agencies officials, and public stakeholders could be combined to obtain a better posture of organizational initiatives.