EXAMINING CORPORATE SOCIAL RESPONSIBILITY AS A RISK MANAGEMENT STRATEGY

EXAMINING CORPORATE SOCIAL RESPONSIBILITY AS A RISK MANAGEMENT STRATEGY

CHAPTER ONE

INTRODUCTION

1.1Background 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 Purpose of the study

The purpose of this study is to examine the impact of corporate social responsibility as a risk management strategy, using mining industry as a case study. Specifically the study objectives are:

1 determine the corporate social responsibility on overall organizational performance

2. Asses the relationship between corporate social responsibility and risk management

3 determine the impact of corporate social responsibility on risk management

1. 1. 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. 1. Study hypothesis

The study hypothesis is:

Ho: There is no significant relationship between corporate social responsibility and mining firm risk management in Nigeria

H1: There is significant relationship between corporate social responsibility and mining firm risk management in Nigeria.

1. 1. 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. 1. 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. 1. 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.