THE IMPACT OF CORPORATE SOCIAL RESPONSIBILITIES ON PROFITABILITY IN NIGERIA BANKING INDUSTRY
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Corporate Social Responsibility (CSR) as a concept entails the practice whereby corporate entities voluntarily integrate both social and environment upliftment in their business philosophy and operations. A business enterprise is primarily established to create value by producing goods and services which society demands. The notion of Corporate Society Responsibility (CSR) is one of ethical and moral issues surrounding corporate decision making and behaviour, thus weather a company should undertake cer¬tain activities or refrain from doing so because they are beneficial or harmful to society is a central question. Social issues deserve moral consideration of their own and should lead managers to consider the social impacts of corporate activities in decision making regardless of any stake¬holders’ pressures. However, some argument that the contri¬bution of concepts such as Corporate Society Responsibility (CSR) is just a reminder that the search for profit should be constrained by social considerations (Manuel and Lúcia, 2007) and increasingly Corporate Society Responsibility (CSR) is analysed as a source of competitive ad¬vantage and not as an end in itself (Bran¬co and Rodrigues, 2006).
Today, managers of Nigerian banks have found a need that the environment in which they operate should be provided for because their intermediate and macro environments have a direct impact on the attainment of the corporate goals, objectives and mission statement. The purpose of all profit-making organizations, and even the non-profit making organizations, is to maximize profit and in turn minimize cost, through optimal utilization of available resources to achieve the best results they are capable of. Profitability is an important factor to all banks, because it is one of the major purpose for which the banks are established.
Corporate Society Responsibility (CSR) involves a business identifying its stakeholder groups and incorporating their needs and values within the strategic and day-to-day decision-making process, thus a means of analyzing the inter-dependent relationships that exist between businesses the economic systems and the communities within which they are operating. Corporate Society Responsibility (CSR) is a means of discussing the extent of obligations a business has to its immediate society; a way of proposing policy ideas on how those obligations can be met; as well as a tool by which the benefits to a business for meeting those obligations can be identified (Corporate Society Responsibility Guide). Corporate Society Responsibility (CSR) is also referred to as ‘corporate’ or ‘business responsibility’, ‘corporate’ or ‘business citizenship’, ‘community relations’, ‘social responsibility’.
The Nigerian banks seek to conduct Corporate Society Responsibility (CSR) so that they meet there financial, social and environmental responsibilities in an aligned way, their financial, social and environment responsibilities in an aligned way. At its core, it is simply about having a set of values and behaviours that underpin its everyday activities, its transparency, its desire for fair dealings, its treatment of people, its attitudes towards and treatment of its customers and its links into the Community. As a result, the environmental aspect of Corporate Society Responsibility (CSR) is seen as the duty to cover the environmental implications of the company’s operations, products and facilities, eliminate waste and emissions, maximize the efficiency and productivity of its resources, reward for externalities and minimize unethical practices that might adversely affect the enjoyment of the country’s resources by future generations. In the emerging global economy, where the Internet, the news media and the information revolution shed light on business practices around the world, companies are more frequently judged on the basis of their environmental stewardship (CIBN). Partners in business and consumers want to know what is inside a company. This transparency of business practices means that for Nigerian banks, Corporate Society Responsibility (CSR) is no longer a luxury but a requirement.
Mazurkiewicz (2004) recognizes that concept has been developing since the early 1970s. There is no single, commonly accepted definition of “Corporate Social Responsibility” (CSR); there are different perceptions of the concept among the private sector, governments and civil society organizations. Depending on the perspective, Corporate Society Responsibility (CSR) may cover:
a) A company running its business responsibly in relation to internal stakeholders
(shareholders, employees, customers and suppliers);
b) The role of business in relationship to the state, the nationa, as well as to global
institutions or standards; and
c) Business performance as a responsible member of the society in which it operates and the
global community.
The first perspective includes ensuring good corporate governance, product responsibility, employment conditions, workers rights, training and education. The second includes corporate compliance with relevant legislation, and the company’s responsibility as a taxpayer, ensuring that the state can function effectively. The third perspective is multi-layered and may involve the company’s relations with the people and environment in the communities in which it operates, and those to which it transacts business. Too often, attaining Corporate Society Responsibility (CSR) is understood from the perspective of business generosity to community projects and charitable donations, but this fails to capture the most valuable contributions that a company has to make (Reyes 2002).
Simply, many companies have found that Corporate Society Responsibility (CSR) has often had a positive impact on corporate profits. Of all the topics related to corporate social responsibility, it is environmental initiatives that have produced, so far, the greatest amount of quantifiable data linking proactive companies with positive financial results. Business for Social Responsibility (BSR), for example, emphasizes that investment in Corporate Society Responsibility (CSR) has promoted product differentiation at the product and firm levels. Some firms now produce goods and services with attributes or characteristics that signal to the consumer that this particular company is concerned about certain social and environmental issues.
Corporate Social Responsibility in Nigeria Banking Sector would be aimed at addressing the peculiarity of the socio-economic development challenges of the country (e.g. poverty alleviation, health care provision, infrastructural development, education, etc) and would be informed by socio-cultural influences (e.g. communalism and charity). They might not necessarily reflect the popular western standard or expectations of Corporate Society Responsibility (CSR) (e.g. consumer protection, fair practice, green marketing, climate change concerns, socially responsible investments, etc). As a result of the effect of the global economic meltdown the Central Bank of Nigeria (CBN) regulatory policies on the banking activities which led to the recent replacement of some Nigerian banks’ Chief Executive Officers even after the 89 banks that had hitherto existed in Nigeria were reduced to 25 in 2006. While 76 of them merged into the 25 mega banks, 13 banks were liquidated as an outcome of the implementation of the N25 billion minimum capital base for banks, the first phase of the most extensive and intensive banking reforms in post-independence Nigeria. There is no doubt that Corporate Society Responsibility (CSR) is becoming indispensable, though involuntary, in the contemporary business world as societal needs are making it imperative for the corporate organisations to be sensitive to happenings in their environments, which ensure more understanding and good relationship between the organisation and the society where they exist, since Corporate Society Responsibility (CSR) contributes to the wellbeing of the citizenry (Osho 2008).
1.2 Statement of the Problem
With the new “competent and competitive players,” the Nigerian banking system is now driven by advanced competition brought about by globalization, deregulation of financial services, recent replacement of some banks’ Chief Executives, astronomical development in Information and Communication Technology (ICT), among others, to render services according to cost-benefit criteria. Banks in Nigeria perceive and practice Corporate Social Responsibility as a corporate philanthropy aimed at addressing socio-economic development challenges. What impact does this have on the profitability of the bank?
1.3 Research Question and /or Hypothesis
The following questions would be examined during the course of this study:
i) Does First Bank of Nigeria Plc embark on Corporate Social Responsibility?
ii) What impact doeds Corporate Social Responsibility have on the bank’s profitability?
iii) What challenges if any does Corporate Social Responsibility impose on the bank?
iv) Does Corporate Social Responsibility guarantee the customers’ confidence level and security of depositor’s fund?
v) Are there other benefits FBN PLC stands to gain aside profitability from the execution of Corporate Social Responsibility?
1.4 The Purpose of the Study
The main aim of this study to examine the impact Corporate Social Responsibility of First Bank of Nigeria PLC vis-à-vis its profitability. The study is essentially geared towards achieving the following objectives:
i) To examine Corporate Social Responsibility in relation to banks in Nigeria with FBN plc in focus.
ii) To evaluate the impact of Corporate Social Responsibility on the profitability of the Nigerian banking sector.
iii) To examine the challenges of Corporate Social Responsibility in the Nigerian banking sector.
iv) To investigate whether Corporate Social Responsibility guarantee customers’ confidence and security of depositor’s fund.
1.5 Scope of the Study
The study is focused on the headquarters of First Bank of Nigeria PLC. It critically examines what impact Corporate Social Responsibility has on the profitability of First Bank of Nigeria PLC.
1.6 Limitation of the Study
The major limiting factor of this research work is time constant, the staff who is to give the necessary information as to the impact of Corporate Social Responsibility in Nigeria Banking Industry is not always available.
1.7 The Significance of the Study
The study is expected to make contribution to knowledge in the following areas:
i) Provision of information about Corporate Social Responsibility to corporate institution especially the Nigerian banking sector.
ii) Provision of a fundamental material for scholarly discourse in management science relating to Corporate Social Responsibility.
iii) Assisting in providing information on the impact of Corporate Social Responsibility on the profitability of Nigerian banking sector.
iv) Provision of information on the challenges of Corporate Social Responsibility in the Nigerian banking sectors and recommendations.
v) Provision of reference points for future research on the topic under study.
1.8 Definition of Terms
In this study it will be significant to clarify conceptually the keyword used in the study, for better understanding of the research work.
i) Corporate Social Responsibility: –
It entails the practice whereby corporate entities voluntarily integrate both social and environment upliftment in their business philosophy and operations.
ii) Stakeholders: –
They are group of individuals who are affected or indirectly by organization pursuit of goals. There are two categories of stakeholders, internal stakeholders which owners, employees and stockholders and external stakeholders such as suppliers, competitors, public interest association, protest group and government agencies.
iii) Profit – making organization: –
Is an organization setup with a view of transitory businesses with the government or non-government organization mainly to make profit.
iv) Non- profit making organization: –
This is an organization that is charitable in order to better the lots of masses.
