CORPORATE SOCIAL RESPONSIBILITY AND FIRM PERFORMANCE

CORPORATE SOCIAL RESPONSIBILITY AND FIRM PERFORMANCE

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

The nature and scope of responsibility has changed over time. The concept of Corporate Social Responsibility is a relatively new one. The phrase has only been used since the 1960s. But, while the economic, legal, ethical and discretionary expectations placed on organizations may differ, it is probably accurate to say that all societies at all points in time have had some degree of expectations that organizations would act responsibly by some definitions. (Achua, 2008).

In the eighteenth century, the great economist and philosopher, Adam Smith expressed the traditional or classical economic model of business. In essence, this model suggested that the needs and desires of the society could best be met by the unfettered interaction of individuals and organizations in the market place. By acting in a self interested manner individuals would produce and deliver goods and services that would earn them a profit, but also meet the needs of others. The view point expressed by Adam Smith over 200years ago, still forms the basis for free market economies in the twenty first century. However, even Smith recognized that the free market did not always perform perfectly and he stated that the free market place participants must be just and honest towards each other if the ideals of the free market are to be achieved. (Savage, 1994)

In the 1960s and 1970s, the civil rights movement, consumerism and environmentalism affected society’s expectation of business. Based on the general idea that those with greater power have great responsibilities, many called to the business world to be more productive in (1) ceasing to cause societal problems and (2) starting to participate in societal problems. Many