Abstract

Over the last four decades, the pressure on organizations to engage in CSR has increased. Being socially responsible involves costs and therefore it should benefit the business and improve sustainability. This study seeks to investigate the influence of corporate social responsibility (CSR) on financial performance of Small and Medium-Sized Enterprises in Cameroon. Specifically, the study sought to examined the effects of philanthropic CSR activities, Ethical CSR activities and Environmental CSR activities on financial performance of SMEs in Cameroon.

To achieved these objectives the study employed a descriptive survey design to sampled 150 correspondents of SMEs using a structure-questionnaire. The study findings revealed that philanthropic CSR activities carried out by SMEs in Cameroon, affect their financial performance. It was also revealed that SMEs engagement in Ethical CSR activities also recorded an increase in financial performance. The study further revealed that Environmental CSR activities of SMEs have a significant effect on their financial performance. Overall, it was concluded that SMEs engaged in philanthropic CSR activities, Ethical CSR activities and Environmental CSR activities had an increase in ROA, ROE, ROI, and increase in sales of volumes. Based on the findings, it was suggested that the Cameroon government should provide incentives (tax incentives) to SMEs that are engaged in CSR activities, this will help encourage SMEs to be engaged more in CSR practices.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Before the early 20th century, company performance has been measured quantitatively. Management of much multinationals see performance as a function of return on capital employed, return on equity, profitability, liquidity, turnover and many more. However, as the intensity of competition increases at both the firm and industry levels, companies have shifted from quantitative performance to being qualitative in response to shareholders’ wealth.

In addition, through the introduction of forces affecting companies’ performance and the strategic choice of a company to achieve its goals and objectives, companies have decided to adopt strategies such as low pricing strategy, product differentiation and focus strategy. The outcome of this is the increase in market share and market growth rate of the company. This is one of the easiest ways a company can achieve competitive advantage over its competitors.

Moreover, why companies may have tried to utilise its internal strengths to achieve an increased market  share, return on capital employed, increased size, these companies need also manage the opportunities in the external environment and ensure that they give back to the society they belong. This is the only way a company may have good relationship within the society it belongs and have smooth operations. This relationship may be defined as a result of good corporate social responsibility. As the issue of sustainable development becomes more important, Corporate Social Responsibility (CSR) becomes an element that addresses these issues and therefore it becomes more vital in the daily operations of financial institution in the banking industry. According to (Pranjali, 2011), the World Business Council for Sustainable Development (WBCSD) describes CSR as a contribution to sustainable economic development; It is said that there is no way to avoid paying serious attention to corporate social responsibility: the costs of failing are simply too high. There are countless win opportunities waiting to be discovered: every activity in a firm’s value chain overlaps in some way with social factors, everything from how an organisation buys or procuress to how an organisation does it research, yet very few companies have thought about this. The goal is to leverage a company’s unique capabilities in supporting social causes, and improve your competitive context at the same time. The job of today’s leaders is to stop being defensive and start thinking systematically about corporate responsibility according to (Porter, 2005) who says successful executive or leaders know that CSR is inevitable and their long term success is based on continued good relationship with the society.

In general, it is said that a company needs to be responsible for all the action they do, ethically and socially. It is necessary to check the effect of the organisation on the social welfare and environment. CSR can also be defined as the sense of responsibility of the organisation towards social environment and community. It helps to understand that what actually company is doing with their profits and how they are affecting the society. As with the growing factor in the economy and advancement in business strategies the organisations are not only accountable to share holder but also to the stake holders such as supplier consumer employees and community, It is basically a partnership between the business corporations and socially active groups for the purpose of society development and community growth.

The emerging perspective on corporate social responsibility is not to emphasis on shareholder perspective by maximisation of profit but is to focus on stake holders view point (employees, customer, supplier, management and community) and for their welfare. In real sense the corporate socially responsibility is the coalition of business operation with social standards.

Nowadays the business corporations and organisations are more interactive with the societies than ever before. CSR is an integral part of the business corporations as it not only provides support to beat the business competitor but also provide help to grow the business in the society. So, by focusing on the financial success and community growth, the company can increase it performance rapidly as compare to their competitors.

According to researchers and authors, talking about ethics is crucial to the development of a business and nowadays ethics got huge attention in the numbers of books published in last 2 decade. Individual efforts and government efforts are not enough to bring change in the Society. But with the increasing esteem and popularity of CSR more and more companies are playing an important role in growing societal values and community development regarding environmental policies, human rights and business ethics. So now companies are paying equal attention on the social and environmental focus as well as financial performance. Some companies are operating CSR much more than their lots of business opponents. As the companies practicing CSR, build good reputation in the market and attract more job seekers and costumers, which lead to increase in organisational performance (Viswesvaranet al., 1998). On the other side then, by practicing CSR, the company get successful in increasing the customer loyalty, job satisfaction and business performance.

CSR is being used today to establish good rapport with the public (Nolan et al., 2009). It is also used as preemption strategy by the corporations to save their skin from unforeseen risks and corporate scandals, possible environmental accidents, governmental rules and regulations, protect eyecatching profits, brand differentiation, and better relationship with employees based on volunteerism terms. Corporations today are much conscious to publish their CSR activities on their websites, sustainability reports and their advertising campaigns in order to get the sympathy of the customer.

CSR is also practiced because customers as well as governments today are demanding more ethical behaviours from organisations. In response, corporations are volunteering themselves to incorporate CSR as part of their business strategies, mission statement and values in multiple domains, respecting labour and environmental laws, while taking care of the contradictory interest of various stake holders (Kashyapet al.,2006).

In order for organisations to survive in the competitive marketing environment, they need to note that their long term survival partly depends on their ability to confront social and environmental issues by being socially responsible (Collier & Esteban, 2007). In recent years, research has revealed the importance of CSR and its significant impact on organisational performance (Dixon-Ogebechi et al., 2011). The concept, CSR, has been defined in different ways and by various scholars.

For instance, (Pitt, 2012) defined CRS in terms of three distinct constructs: environment CSR, external social CSR and internal social CSR. Environmental  CSR encompasses any action undertaken in order to promote environmental sustainability; external social CSR deals with initiative aimed at addressing the needs of individuals and communities while internal social CSR deals with issues such as the degree to which organisations address social asymmetries with regard to gender, race, sexual orientation and disability. Some scholars such as (Swaen and Chumitaz, (2002) and Guchait et al., (2012).view CSR as obligations that companies have to integrate environmental and social parameters into their modus operandi and long-term development policies. To this effect, Robins (2005) and Kraus (2008) opine that CSR is centred on the notion that the business sector should not only concentrate on profit oriented commercial activities but also play a noneconomic role in society. Given that research has shown that consumers have a favourable attitude towards companies that engage in CSR (Beckmann, 2012) and that CSR activities can create emotional bonds between consumers and organisations’ brands and products

CSR, an essential phenomenon, has over the years become a major concerning Western Europe and other countries of the world following the western model of development. The Western European nations responded positively to the debate, accepted and even implemented some of its own far reaching conclusion. The studies of Hibiki (2003) and Thomas et al. (2002) indicate that there is a positive relationship between corporate social responsibility and the profit level of a business while that of Williams and Siegel, (2000) found that there is no significant relationship between them. Each company differs in how it implements its corporate social responsibility, where this is the case. The difference depends on such factors as the specific company’s size, the particular industry involved, the firm’s business culture, stake holder, demand and how historically progressive the company is in engaging in corporate social responsibility/ activities. Some companies focus on a single area, which is regarded as where they have the highest impact or vulnerability.

Research by various scholars has shown that CSR has a significant impact on organisation’s economic and financial performance Luo and Bhattacharya, (2008) hence organisations are incorporating it in corporate management. Also, scholars such as Micuand Susanu (2010) have identified the economic benefits of an organisation’s CSR to include greater market share, high turnover and increase in consumers trust and loyalty. Craig (2012) investigated the impact that CSR has on perception of the reliability of a company’s product and concluded that organisations have responsibilities to more than just their shareholders.

Smith et al. (2010) studied customer perceptions of CSR and discovered consumers may make inferences about an organisation’s CSR performance on the basis of very limited information. Stawiski et al. (2010) opined that CSR is believed to result into increased corporate profitability because it is linked with more favourable corporate evaluations, increased purchase behaviour, higher customer satisfaction and market value of a firm and improves both customers’ and employees’ perception of the service. Industries such as the banking, insurance and telecommunication industries are generally perceived as corporate bodies and have an image of modern and clean business. Although, their direct social and environmental foot print is often relatively small, their role as market gatekeepers means that they can have substantial influence. CSR leaders in these sectors tend to be motivated by the strategic need to innovate in fast moving industries as well as the competitive “war for talent”.

CSR is a valuable way for companies to demonstrate their humanity whilst doing their part for society, the environment and their stakeholders. In the world, the people and organisations in it are becoming ever more interconnected and CSR is a way to actively manage those connections to benefit a company as well as those people, organisations and communities are connected via what they sell, who they hire, who they buy from and so on. With sustainable development being at the core of CSR, it makes sense for businesses to implement CSR strategies in their business plan not only for the planet, but moreover for the success of the business. (Anonymous, s.a).

CSR is a type of self-regulatory business plan, with initiatives focusing on achieving economic, social and environmental benefits for all stakeholders involved (employees, consumers, investors and other groups). Its purpose is to encourage businesses to conduct their companies in an ethical manner and work towards having a more positive impact on society through ensuring sustainable growth. Sustainability is often mentioned with CSR and is usually associated with environmental sustainability. However, sustainability can also apply to many other aspects of a business including procurement, economic, hiring and training for example. CSR typically refers to lengths taken by businesses that go beyond what is deemed compulsory by law and ethical standards as stated by regulators and environmental associations. CSR can often result in short-term costs that do not lead to immediate economic gain for the company, however instead support and prioritise social and environmental progress. (Anonymous, s a)

Principles approach is helpful in that sense by focusing on the reasons CSR engagement within organisations and the stakeholder impacts caused (Wood’s, 1991). The stakeholder theory was put forward in 1980’s to explain interaction of enterprise with different stakeholders groups  with two  arguments, legal (explicit companies with some stakeholders) and economic (implicit companies) (Freeman & Reed, 1983). Wood (1991) added that responsibilities stretch beyond the legal and economic to include ethical and discretionary responsibilities. The main reason driving companies into implementing CSR can implicitly tell us which shareholder interests are these companies responding to. If the companies honour contracts with some stakeholder groups, they implicitly make choices that influence their financial performance. As a result of this, it let to the development of two explanations for decision making. Bamey (2001), Branco (2006) suggest sustainable competitive advantage can be gained from implementing CSR practices that cannot be initiated by competitors Hurtado et al., (2008). (Williamson, 2005) argue that CSR implementation makes business sense because it avoids higher cost from more formalised contractual compliance mechanisms.

The general trend of increase CSR engagement can also be found in Swedish companies, which often have a long history of active CSR engagement (Sweden, 2015). Sweden is regarded as a pioneer with the field and was in 2013 in the top of Robeco SAM’S country sustainability Ranking .The government has even appointed a CSR  ambassador to take responsibility  for  issues related to  sustainable trade and business.

In addition investors interest in social and environment issues is growing and this affect their investment decisions to a larger extent as they recognise the importance of CSR. It is also the case with Swedish investors too; as folksam has experienced that more customers now ask for social and environmental consideration in regard to investment decisions (FOLKSAM, 1213).

In the late 1880s at the introduction stage of industrialisation, it was broadly debated upon as to whether companies should take up social responsibilities (Carlsson & Akerstom, 2008),

There are also advocates of socially responsible companies who wanted to introduce some form of social business ethics with the aim of getting companies to assume social responsibilities. On the other hand, critics argued that companies should not be forced other by law or moral conventions (Carlsson & Akerstom, 2008). CSR has been popular in North Africa   for many years (Matten& Moon, 2008). Most recently, the concept has spread to Europe and has become trending for companies to engage in CSR (Jenkins, 2005). Following the inception of the concept of CSR in the United States by (Berler & Means, 1932).  And its later development by, CSR was seen as a tool to control the misuse of corporate power in bigger organisation and to redirect them to produce social goods. But all this efforts has been abused by company misconduct and financial scandals which have created a business environment of uncertainty and distrust in the market and among stakeholders (Harkonen, 2017).

Currently, it is imperative that businesses need to manage their relationship with society and surrounding environment so as to achieve and meet its core business objective which is profit maximisation.

According to the Zealand Ministry for Environment (sa) successful towns and cities are competitive, creative, thriving and innovative liveable and environmentally responsible. But it is not the case of Douala compared to cities like Johannesburg and Cape Town (South Africa), Nairobi (Kenya) Tunis (Tunisia), Kumasi (Ghana), Dar es Salaam (Tanzania) among others (Ojo, 2014) . However most  large companies in Cameroon such as CAM IRON, ALUCAM, MTN, Diageo, Rodeo, Perenco Nestle  and orange Cameroon has undertaken discretionary measure to improve the living conditions of local populations (Rampersal& Skinner, 2014) There are also  ten companies which have been identified in Cameroon as being socially responsible among these are; ENEO which is the hydro- electrical company in Cameroon, Guinness Cameroon SA (GCSA)  a brewing company , les societe’sAnonymes des Brasseries du Cameroon,  (SABC ORBC) another brewing company, ORANGE Cameroon which is telecommunication company and MTN Cameroon  which is another telecommunication corporation (Tita &Tanjong, 2017). The two authors in their research further found out that MTN ranks third among the ten leading socially responsible companies in Cameroon.

SMEs contribute to CSR and are connected with the economic, ecological and communal development of society. Therefore they are a part of CSR movement (Spence, 1999, Spenceet al.,2003). Developing nations have societal and ecological glitches; including labour and human rights issues and environmental pollution, if businesses are involved in CSR practice, they can decrease these social and ecological issues (Henderson, 2001). CSR is a strategic instrument that can be used to boost SMEs competitiveness through enhanced customer loyalty and satisfaction, higher motivation of workers and improved public fund access because of improved enterprise image and augmented sales (Mandi, 2009, Szabo, 2008). According to Park et al., (2014),CSR is a vital component in retaining a favourable firm reputation and is considered an essential strategic asset leading to a firm’s competitive advantage. CSR is seen as a good strategy for improving competitive power, financial performance and intangible assets.

Generally, positive environmental attitude rarely translate into concrete actions  (Mckeiver&Gadenne,2005Schaper, 2002 Tilley, 2000), with owners managers that are less financially oriented found less willing to adopt innovations(as those  related with CSR), whereas those willing to introduce CSR-CFP relationship, also finding that managers did not go beyond the basic common sense of cutting their water and energy cost, indicating a lack of clear  adequate knowledge about  environment management and their tendency to be a ‘’Politically corrected’’ in relation to CSR issues. SMEs enterprise lack resource which prevent from implementing proactive CSR practices because they can reduce their  profitability (Russo & Fouts,1997) with cost savings being  a less valid argument for small companies than for large corporations (Hillary, 2000 Revell and Blackbum, 2007). Which might lead to the assumption that the resource based view of the enterprise (Hart, 1995) may not be a useful explanatory model to understand SMEs.

1.2 Problem Statement         

In today’s dynamic business environment, corporate organisations are faced with the needs to impact positively on the host communities, by taking upon themselves certain responsibilities in order to increase their societal and environment influence. Organisations also included social and environmental concerns in business operations rather than focusing on profit making only. Organisations have developed a variety of strategies for dealing with this intersection of societal needs, the natural environment, and corresponding business imperatives with respect to how deeply and how well they are integrating social responsibility approaches into both strategy and daily operations worldwide.

Many organisations such as banks and some manufacturing companies in Cameroon are driven by the need to make more and more profits and that is the sole aim of every business. The general management problem this study addressed was the significant decision making challenges SMEs leaders’ face when engaging in CSR effort given their relatively limited resources. Leaders of SME are challenged to make the key decision of the amount and allocation of resources for social investment sarbults (2003) the specific management problem addressed was determine for Cameroon based SME firms whether the leadership decision of CSR investment approach is effective as represented by greater financial performance when operating in the SMES in Cameroon. Also adopting CSR principles involve cost these cost might be short term in nature or continuous outflows. Being socially responsible involves cost and therefore it should be beneficial to the business and improve sustainability.

A corporation could not continue a policy that constantly generates negative cash flows Orlitzky, Schmidt and   Reynes (2003) Therefore being socially responsible should have bottom line benefits in order to be sustainable. But in many cases, it seems that the time frame of cost and benefits can be out of alignment, because the costs are immediate and the benefits are not often related (king and lenox 2001)

Many studies on CSR have been conducted both locally and internationally but little research has focused on this issue. Even the existing empirical study has some inconsistencies in the results studying the effects of CSR on FP. Hayek (1969) rogues that adoption of CSR causes deviation from the company’s primary objective of increasing shareholders wealth, Henderson (2011) argues that adoption of CSR causes a threat to the prosperity of countries. He viewed as a cost that reduces economic freedom and competition. On the contrary Ofori (2014) viewed CSR as a firm’s strategic tool used to enhance their competitive advantage. Freeman (1984) also viewed CSR as an investment in stakeholders that would benefit the firms even in the future. Woods and Cochran (1984) concluded that there exist a correlation between CSR and financial performance waworuntu (2014) also found a positive correction between CSR and FP

There was another study in Kenya by Naiseka (2014) that found a link between CSR and financial performance not clear as firms are driven into CSR practices to meet legitimacy and shareholder demand. We also have wanjala (2011) who conducted a study on commercials banks in Kenya and established that profitability was one of the key factors influencing CSR activities in the surveyed commercial banks. A study by Kipruto (2014) on the other hand established that being socially responsible did not have any effect on performance of commercial banks in Kenya.

On the contrary a studied Nkaiwata (2011) that focused on the oil industry in Kenya establish that financial performance was a key factor in influencing CSR activities by firms in the Kenya oil sector. According to king and lenox, (2001) there is a close relationship between CSR and firms financial performance base on (environment health and education) but has failed to tell the impact that CSR activities has on a firms financial performance. There have been few studies in Cameroon on CSR and its effects on Corporate financial performance; this therefore create a proper avenue to fill the gap that other researcher have left. The study try’s to focus on effect of CSR on FP of firms in  Cameroon which then leads to the question what effect does CSR activities has on financial performance?

1.3 Research Questions

1.3.1 Principal research question

The main research question is to explain the effect of CSR on financial performance of SMEs in Cameroon.

1. 3. 2 Specific research questions

2. What is the effect of philanthropic CSR activities on the performance of SMEs in Cameroon?
3. What is the effect of ethical CSR activities on the performance of SMEs in Cameroon?
4. What is the effect of environmental CSR activities on the performance of SMEs in Cameroon?

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