Corporate social responsibility in the financial services industry

This paper argues that when firms in financial services engage in corporate social responsibility (CSR) it is primarily for strategic motives rather than moral motives. Furthermore, it also emphasizes on the impact that CSR activities may have on financial institutions, in Mauritius and determine what type of motives are behind these initiatives. To be able to analyse these effects, which are quantitative in nature, a stratified sampling survey has been used targeting Banks known in Mauritius. The results of the study demonstrate that although CSR is said to be aiming the welfare of society, it is being used as a tool to attract customers and achieve financial performance, to be eligible in the eyes of stakeholders.

Keywords: Corporate Social Responsibility, Financial Services, Reputation, Mauritius


What is Corporate Social Responsibility?

Corporate social responsibility is a phenomenon, where various organisations find means to improve the society or community around them. Even though there is no single meaning of CSR, Carroll and Buchholtz (2000) offer this definition;

“Corporate social responsibilities encompasses the economic, legal, ethical and philanthropic expectations placed on organization by society at a given point in time” This concept was established by the four-part model of corporate social responsibility proposed by Archie Carroll (1979), and which was refined in later publications (Carroll,1991;Carroll and Buchholtz, 2000).

However, CSR is not only a way to undertake socio-economic challenges but also a way to legitimise the existence of organisations. As Burke and Logsdon (1996) advocated, CSR can be a strategic means for organisations to get benefits by giving them visibility in the society. It is known that the purpose of using CSR is not of profit making nature but in fact, to create a bond with members of the society. Nevertheless, it can be advantageous for an organisation since it helps the latter to make itself known of the public and eventually have an impact on its financial performances (Sen and Bhattacharya, 2001). According to Waddock and Graves (1997) CSR positively affects profitability and at the same time profitability has a positive impact on CSR.

Moreover, another definition of CSR can be the concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis (Commission of the European Communities’ Green Paper, 2001).

Why Banks undertake Corporate Social Responsibility?

The widespread of adoption of corporate social responsibility in the banking industry implies that the public perceive the industry as to be socially responsible. Financial companies and specifically banks undertake corporate social responsibility on two basis.

First some banks adopt social initiatives since they benefit from those initiatives and they become more profit motives. This view is reinforced by (Cannon, 1992, p.33) who stated that « business only contributes fully to a society if it is efficient, profitable and socially responsible. Similarly, (Wood, 1991) stated that « the basic idea of corporate social responsibility is that business and society are interwoven rather than two distinct entities ».

Another view is that banks undertake corporate social responsibility programs for the betterment and welfare of the society that is based on moral perspective. To this regard, (Holmes,1976 ;Moir.2001,p.23) cited in his study of executive attitude to social responsibility, found that the strongest response was that « in addition to make profit, business helps to solve social problem whether or not business helps to create those problems even if there is probably no short-run or long-run profit potential.

As interest in the study of corporate social responsibility expanded over years, many studies have as to why firms engage in activities or programs that benefit the society. Their researches reveal that managers are motivated by moral as well as strategic considerations. It is difficult to determine whether corporate social responsibility is guided by moral values or whether they are profit motives (Graffland and Van de Ven, 2006). Strategic motives are the reasons that compel financial services to engage in corporate social responsibility. These motives include factors such as profitability of the company, instrumental motives and institutional motives as named by (Hahn and Scheermesser, 2006). The instrumental motives are similar to the legitimacy theory and institutional theory shares the same view as stakeholder theory. The second reason why business might engage in corporate social responsibility is the moral motives.

The strategic perspective

Several researches have shown that managers in countries around the globe perceive strong strategic reasons for engaging in corporate social responsibility (Davis, 1973). These are classified into instrumental motives and institutional motives (Hahn and Scheermesser, 2006). Instrumental motives are managerial belief that engaging in corporate social responsibility can maximise profit through production of goods and services that society demands. In the context of financial services, customers demand are « security, access, liquidity, interest and social responsibility » (Reifner, 1997). At the same time managers also believe that shareholders value can be maximised by taking part in corporate social responsibility (Tudway and Pascal.2006).

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Proponents of corporate social responsibility argue that it is in the self interest of business to undertake various forms of corporate social responsibility and reduce corporate risk (Baker, 2006). Therefore social initiatives help in strengthening corporate reputation of the company. In his 1973 article, Keith Davis outlined « social goals are now a top priority with members of the public, so the firm which wishes to capture a favorable public image will have to show that it also supports these social goals ». In times of crisis or threat, corporate social responsibilities provide « reputation insurance » that can secure financial services profitability. Reputation in banking industry is referred as an intangible asset that can increase product or service demand and reduce costs (Fombrun, 1996). Thus one of the key strategic motives for engaging in corporate social responsibility is the organisation image and reputation.

Many studies have shown that financial services engage in corporate social responsibility due to institutional motives. These motives compel organisations to strengthen their corporate social responsibilities. Reasons that forces banks to undertake social initiatives are the pressure from the surroundings such as stakeholder groups (Aguilera et al, 2007). Managers beliefs from researches is that responding to institutional pressures is important for preserving company image or acquiring goodwill among stakeholders (Aguilera et al, 2007; Bansal and Roth, 2000; Bertels and Peloza, 2006; Gardberg and fombrun, 2006; Sen and Bhattacharya, 2001). Pressure to engage in corporate social responsibility is often generated from the community itself. Others found that firms are compelled to participate in corporate social activities to match that of competitors’ in their industry (Believeau et al, 1994; Peloza, 2006).

Moral perspective

Moral motives to engage in corporate social responsibility imply that business has an ethical duty to « give back » to society. Although studies have demonstrated that firms engage in corporate social responsibility for strategic purposes (Kotler and lee, 2005). Others believe that personal moral values and the desire to contribute positively to society for a better future can be powerful drivers of corporate social responsibility. The result from researches show that « doing the right thing » appears to be a stronger motive for engaging in corporate social responsibility than the benefits these activities can generate for the firm (Bertoin Antsl, 1992; Hahn and Scheermesser, 2006).

In a recent study of Dutch managers showed that beside the fact that social initiatives could improve profitability, enhance reputation and strengthen employee motivation to the firm, they also share a strong desire « to make the world a better place » (Graafland and Van de Ven, 2006). From another study, it has been demonstrated that many participants strongly believe that business has a duty to improve local communities and work for the betterment of the society without any personal benefit (Glaskiewicz and Colman, 2006).

Impacts of CSR on the success of financial services, based on 3 aspects:

1. 3.1 Corporate Social Responsibility and employee turnover

Studies have shown that potential employees are interested in the corporate social responsibility policies of a potential employer. An organisation with a good record for social responsibilities will attract and retain the best employees. Several researches also points out that retaining employees has positive consequences for firms’ financial performance and productivity (Huselid, 1995; Guthrie, 2001). It has also been shown in recent studies that firms that are proactively demonstrating corporate social responsibility are practiced to reduce employee turnover (Cropanzano et al, 2001a, b).

However the welfare of employees are positively affected in work environment that are perceived to be fair and just, such as in areas of job satisfaction and stress (Colquitt et al,2001). When firms engages in corporate social responsibility, it has a positive effect on organizational outcomes, such as lower employee absenteeism and higher level of employee commitment (Colquitt et al, 2001).This mean that employees who work for companies who take social initiatives tend to be highly motivated in their jobs, partly because they are working for the betterment of the society; and partly because their employers are treating them well.

Thus if an employee is highly motivated, the organisation tend to be more productive. As suggested by (Aguilera et al, 2007), corporate social responsibility care for the needs of employees thereby leading to lower turnover rates.

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1. 3.2 Corporate social responsibility and customer satisfaction

Customers have either a negative or positive perception of firm through the evaluation of fairness that is shown through their products or services offered (Fornnell et al, 1996). Customer satisfaction is in some form of evaluation through the services of the firm and is also an indicator of current, past and future performance of the business (Anderson et al, 2004). Therefore one of the objectives of a firm is to achieve high level of customer satisfaction and it is also an important focus of corporate strategy (Homburg et al, 2005).

Through many studies it has been found that customer satisfaction is linked to a firm’s profitability and an overall mechanism by which a firm can achieve loyalty among its customers (Anderson et al, 1997). In order to achieve high level of customer satisfaction firms may improve employee learning and competencies through investment in trainings (Rucci et al, 1998; Westbrook, 2000).

It has also been argued that customers seek value in the purchase or services they seek (Zeithaml, 1988). Moreover delivering quality products and meet the needs of customers is consistent with corporate social responsibility, particularly with respect to the economic responsibility (Carroll 1979 and Maignan et al, 1999). The last evidence that shows corporate social responsibility is positively associated with customer satisfaction is the ethical impacts on customer perceptions demonstrated by financial firm (Maignan, 2001). When honesty and fairness is reflected in an organisation, customers feel they are equitably treated. The issue of honesty and fairness and integrity is related to the ethical part of a firm’s social responsibilities, thus reflecting corporate social responsibility activities (Carroll, 1979).

1.3.3 Corporate social responsibility and reputation

A company with a positive reputation indicates that a firm is highly esteem or well regarded in customers or society perspective (Weiss et al, 1999). Reputation is defined as «  outsiders’ assessment about what organisation is, how well it meets its commitments and conforms to stakeholders’ expectation, and how effectively its overall performance fits with socio-political environment ». Reputation is an important factor for the success of a firm since it reflects how a given firm is compared to its competitors (Rao, 1994). Thus reputation is a key factor that a firm requires to build and sustain competitive advantage. Corporate social responsibilities are therefore predicted to a key factor by which firm can build its reputation.

1.4 Corporate Social Responsibility through Banks in Mauritius

Banks in Mauritius are constantly innovating concerning CSR, as it is commonly known that some banks have been funding educational projects and offering scholarships even long before CSR projects was launched by the government.

According to Nicolas Ragodoo (2008), “Firms are actually combining CSR as a management strategy. 69% of enterprises are reported to be connecting in external social activities for the benefits of the broad community (MET, 2010). There is definitely a rising interest in social involvement on the part of the Business sector”. He also stated an example; “The Mauritius Commercial Bank (MCB), the leading Bank in Mauritius, has promised 1% of its profits before tax (RS 4 600 000) for social projects this year and Barclays Bank has committed RS 4 000 000 for the fight against AIDS. The Hotel industry, through its national body, has donated some RS 8 000 000 for community projects”

Furthermore Mauritius is rising as a Private Banking hub due to a well-developed financial system and the banking system is highly profitable and sound. Currently, there is 19 commercial banks operating in Mauritius and there is actually a growing concern in social involvement on the part of the banking sector. For instance, Barclays bank has as its flagship cause the fight against diabetes, given the high rate in our country. In 2006, Barclays Mauritius budgeted around RS 29 580 for 5 initiatives related to Diabetes prevention. For the World Diabetes Day in November 2007, Barclays Mauritius allocated the sum of RS 174 003 to the cause.

Moreover, Deutsche Bank Mauritius have included active contribution in both Art Mela, a project which promotes needy and handicapped children to express themselves in a different environment through art, it is also involve in the annual Mauritius Handisports which provides a platform for handicapped children to take part in track and field sports. In 2008, Deutsche bank supported the purchase of Christmas trees and gifts for the school celebration, known as ‘L’Arbre de Noël 2008’, for about around 1,200 children from the most deprived areas of the island. Deutsche Bank has also been the lead sponsor of the Deutsche Bank Mauritius 100km Cycle Tour for some years. In 2008 over 1,000 cyclists, comprising overseas professionals and amateur enthusiasts, took part. This event has an underlying charitable aim and 32 Deutsche Bank staff who took part in the Corporate Challenge not only completed the course in a respectable time but also raised a total of RS 700,000 for local charitable causes.

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Furthermore, The Hong Kong and Shanghai Banking Corporation (HSBC) believe that “support for primary and secondary education, in particular for underprivileged children, is vital to the future development and success of every country.” The HSBC Group has donated RS40 million to educational projects around the world in 2006 through the HSBC Global Education. Since 2007 HSBC Mauritius supports the Family Strengthening Programme (FSP) and has offered a number of outreach services, to 170 children and 96 adults in 62 families identified as being helpless, and these include;

Family visits

Counseling full-time social workers of the FSP

Educational support to kids and responsible parties

Food assistance

Psychological and medical support

In addition, Afrasia Bank through CSR has been supporting a number of humanitarian and charitable organisations and project in Mauritius mainly focused on sustainability of the society and the environment. The Bank is working closely with the Centre d’Evil of Bois Marchand a group which consist of children between 2 and 4 years old, whose family are squatters and living in extreme poverty. Thus, the bank provides these offsprings with pedagogical environment by getting them prepared for pre-primary and primary schools. Afrasia aims to “make a valuable contribution towards environmental protection through its use of resources, the transfer of knowledge to its staff and the public and the creation of products and clients services with a focus on environmental themes and sustainability.”

Hence financial firms are now increasingly incorporating CSR as a management strategy as it can make companies more innovative and build better relations with the communities in which they live.


2.1 Introduction

This chapter provides the methodology of the survey envisaged on the effect of CSR on promoting financial services. In this vein, it represents the crux of the study and it therefore, seeks to outline the key aspects before, during and after conducting of the survey. It offers a framework about how the research was carried out and elaborates on the questionnaire design and enumerates several limitations pertaining to the survey.

2.2 Methodology of survey for the collection of primary data

The adopted research method for this particular project was survey in terms of interviewing since it was seen as the best way for collecting, gathering and analyzing relevant, precise and unbiased information from our sample. It is principally a framework for the study used as a guideline in the collection and analyzing of the data. Research by survey involves the gathering of primary data by questioning respondents about their, attitudes, perceptions and expectations in this particular sector.

2.3 The questionnaire design

The questionnaire used for this survey comprises of 9 questions based on the strategic and moral motives which are; employee including the organization itself, customer and reputation based. A perception – choice model was used, yes/no questions, where yes represents agree and no represent disagree. At the very beginning of the questionnaire itself, instructions were given on the first part, and guests were assured that their answers are only for educational purpose

2.4 The Target population

We can say that it is difficult, if not impossible to be able to have the whole financial services population answering. It is also, a very time – consuming and expensive tasks therefore, we need to have a targeted sample, which is proportionate of our population. We have decided to choose Banks in Mauritius to conduct our interview. Not less than 19 Banks will be undergoing through this interview.

2.5 Data Collection

A formal interview will be chosen as a method of data collection with the banks’ staff and it will produce a rich and varied data set in an informal setting. All the 19 banks’ staff will undergo the same kind of questionnaire in order to produce a consistency in what we are conducting for our research. The data collection will be done during the hours of work so that to ease us in our interview and also it is the easiest way to get our response.

2.6 The Analysis Techniques

To analyze the data, the basic tool available and made use of is the SPSS for the compilation of the data obtained and illustrations of graphs. All the analyses were made by us and it helped us to reach our conclusions.

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