Drivers of Corporate Social Responsibility, Article Critique Example

Drivers of Corporate Social Responsibility: The Role of Formal Strategic Planning and Firm Culture By Jeremy Galbreath: An Article Critique

Introduction

Corporate Social Responsibility (CSR) can also be regarded as a corporate conscience. It can be defined as a self regulating mechanism whereby stakeholders monitor and ensure its compliance with the law, ethical standards, environmental standards and international norms. The goals of CSR are to embrace responsibility for the business actions and to encourage impact through its activities towards the environment, consumers, and employees and to the different communities. It aims to promote public interest by voluntarily eliminating practices that harm the public setting by advocating community growth and development. Jeremy Galbreath, in his article entitled Drivers of Corporate Social Responsibility: the Role of Formal Strategic Planning and Firm Culture aims to prove that firm culture is what influences the orientation towards the firm’s CSR and that formal strategic planning is a driver that creates it. By studying a sample of three thousand heterogeneous industries in Australia, Galbreath had found that that formal strategic planning effort is positively linked to CSR while a humanistic culture positively influences it.

Review of Related Literature

Based on the article’s literature review, the demands of CSR come from internal stakeholder’s which reflect the instrumental, relational and moral needs of the employees while the government serves as the external stakeholder’s that demands for the social legitimacy of the company (Galbreath, 2010). In order to address stakeholders, the process of formal strategic planning is used to assess their expectations. The strategic planning efforts of the firm should lead the necessary activities related to the CSR. Galbreath suggests that, according to Wood (1991), formal strategic planning is not the only internal factor that affects CSR because the cultural makeup of the firms is also considered an important driving factor. Gibson, Ivancevich and Donnelly (1991) define firm culture as the qualities of the firm that most likely influences its behavior while Schein (1984) considers that the collection of beliefs, values and assumptions that are held by the organization is what makes up its firm culture (Galbreath , 2010).

According to Galbreath ’s notes, since firm culture is what guides the behavior that will determine the organization’s quality of products and services, ethical standards in advertising and the treatment to customers and employees, then firm culture indeed plays a significant impact in the formation of the CSR (Galbreath , 2010). According to Wood (1991), there have been little to no empirical verification at all that would prove the conceptual linkages between the internal constructs of strategic planning and firm culture to CSR. Many scholars argue that the reason for this is because the emphasis has always been on the content of CSR activities thus neglecting the internal factors that actually shape and drive such activities (Galbreath, 2010).

This study of Galbreath aims to provide several important contributions to filling in the gaps in the literature. The study responds to the request of Wood and Campbell (2007) to investigate the impact that the variables have on the firm’s CSR, determine if formal strategic planning is positively linked to demonstrate CSR and prove that there is a significant relationship between cultural characteristics and CSR. Given this, two hypotheses were formulated: (1) there is a positive relationship between formal strategic planning and CSR and (2) humanistic culture plays a significant effect between formal strategic planning and CSR. The hypothesis of formal strategic planning was adopted by the author for two reasons.

Based on his literature review, it is assumed that formal strategic planning, based in a long history, is an important prerequisite of competent performance in CSR for the entire organization. The second reason is that Glister and Falshaw’s (1999) empirical evidences show that despite the arguments that believe in informal strategic planning as a more realistic and superior approach, most of the firms still rely on the formal strategic process. His paper argues that there are three ways in which formal strategic planning is linked to CSR. This is supported through the work of Ackerman (1975) Carroll and Hoy (1984), and also Fredrick (1994) states that an active and systematic monitoring and assessment of environmental conditions which are facilitated by utilizing analytic techniques is appropriate in order to actualize CSR. Thirdly, Wood (1991) suggests that the knowledge that is necessary to establish and attend to the demands of the stakeholder’s to CSR requires the coordination and input from the entire organization and not just from a single function.

In order to achieve this participation, scholars suggest that the formal strategic planning approach is effective in incorporating the participation from various functional areas in order to assimilate diverse functional needs into a general management standpoint. Several studies suggest that functional success is obtained by proper functional coverage confirming the perspective mentioned. Thirdly, another literature provided by Wood (1991) strongly argues that dealing with CSR and other environmental strategic issues is a complicated management challenge given the different interests of the stakeholders. This is the reason why a strategic planning effort should include high commitment of resources which Ramanujam et. al (1986) suggests includes financial, physical, and intangible inputs. Using multiple inputs is deemed to be necessary in the planning process and these inputs come from a variety of key personnel within and externally from the organization. The insight to customer needs and market trends is essential in order to create strategies that meet their social responsibilities and outside experts (consultants) bring in additional knowledge and experience that can provide additional information into issues affecting the firm stakeholders which have been missed by internal strategists. These literatures supports the facts that formal strategic planning efforts thoroughly asses interior and exterior environments, engage and use multiple stakeholder’s knowledge and commit resources into the process which it is to be expected that the planning will enable the firms to formulate responses that conclude in the demonstration of CSR.

The formulation of the second hypothesis can be supported by the literature of Prahalad and Bettis (1986) and Simons and Ingram (1997) state that, culture relates to social responsibility in such a way that the beliefs and values of the firm is what affects the decisions made by the organizational level. Studies based on the Organizational Culture Inventory suggest that a humanistic approach fosters the maintenance of pleasant relationships compared to a competitive culture. Therefore, the literature suggests that in organizations where there exists a humanistic culture, the members don’t only focus on their own needs and interests but they are also concerned for the needs and interests of others (Galbreath, 2010). That is why members who are part of organizations that adapt a humanistic culture are expected to strive to respond to the demands of the stakeholder’s in terms of CSR. The reviews of related literature included in the study gathered by Golberth from several researchers strongly support the formulation of his two hypotheses and the basis of his entire study as well.

Research Methodology

A sample of three thousand (3,000) Australian firms, one-thousand five hundred (1500) from the manufacturing sector and one-thousand five hundred (1500) from the services sector were used in the study. The firms were randomly selected but only the firms with 50 or more employees were included in order to ensure minimum operating structure. The instrument used to measure the CSR is the scales developed by Maignan and colleagues (Galbreath, 2010). Four correlated factors such as economic, ethical, legal and discretionary was measured with a Likert scale where 1= strongly disagree and 5= to strongly agree. Several previous studies have implemented a multidimensional perspective on the measurement of formal strategic planning. The adapted scales that consist of five dimensions – external orientation, internal orientation, functional coverage, resources provided in planning and analytical techniques were measured with a five-point Likert scale where 1= no emphasis and 5=very strong emphasis (Galbreath , 2010). The Organizational Culture Inventory was used to measure the humanistic culture of the firm using a five-point Likert scale where 1=strongly disagree and 5=strongly agree. All the instruments used to test strategic planning and humanistic culture has undergone rigorous development and has been already used in other previous studies to test multiple settings, thus implies that the research instruments both have strong validity and reliability.

Potential confounding effects were measured by control variables. The firm size was measured by the total number of employees, the firm age was measured by the number of years the company has been in service and the primary business activity was measured by a dummy variable where the participants were classified into manufacturing or services firms (Galbreath , 2010). The targeted informants were the organization’s CEO’s because according to the author, they have the appropriate perspective on strategy, extensive knowledge of the organization and have access to relevant information. However, in choosing one informant, there can be a likelihood of bias to occur. And also, since the data was obtained only through samples of Australian firms, the generalizability of the results is likely to be limited. Also, the study only focused on the characteristics of a formal strategic planning approach and only used five dimensions to operate the constructs which means that formal strategic implementation was not directly measured.

Analysis of Data

Confirmatory factor analysis (CFA) and hierarchical regression analysis was used to analyze and test the hypotheses. The CFA included the tests of the dimension of strategic planning, CSR and humanistic culture. The CFA was used to measure the overall goodness of fit in order to explore psychometric properties. The dimensions for formal strategic planning exceeded 0.90 on both the comparative fit index (CFI) and the goodness of fit index (GFI) which suggests a good fit. The planning dimensions scored below 0.08 which suggests that it is a good fit. For the CSR, a score of 0.94 was obtained in the CFI and 0.92 was obtained in the GFI which also suggests a good fit. Lastly, the humanistic culture the CFI and GFI measured 0.92 and 0.91 respectively which suggests a good fit. Statistical significance was measured by the hierarchical regression analysis. The results indicated that formal strategic planning with a frequency of 18.96 and an alpha coefficient of 0.000 and a R² of 0.40 suggests that it is significantly linked to CSR. The betas for the planning dimensions were significant while for the control variables, only the firm age was found significant. Humanistic culture was significant in an alpha coefficient of (p<0.001) with a regression score of 0.57. These findings suggest that humanistic culture has a positive significant effect on CSR.

Discussion

Given the results in the findings, formal strategic planning is positively linked to CSR. Based on the study, the firms who take a formal approach to strategic planning is most likely to develop rich insight into the demands for social responsibility that is why they facilitate the practice of a CSR. It is suggested by the study that the stakeholder’s, both internal and external, play a crucial role in the development of strategy therefore it is important to understand their needs. The orientation of the organization towards demonstrating CSR is highly affected by firm culture since what relate to social responsibility is the values, beliefs, and shared ways of doing things. The findings support the belief that culture is a phenomenon existing in organizational levels and it affects the firm’s strategies to CSR. For managerial implications, the common concern of the firm’s expenditure of effort in a formal planning effort without tangible results.

The research has able to counter this concern by demonstrating that formal strategic planning is positively associated to financial performance. The link is also strong in terms of formal strategic planning and CSR. This implies that firms who show that they take corporate citizenship seriously are more likely to develop activities that demonstrate good corporate behavior with the assistance of formal planning. The limitation to this result is that it only proves the link but not causality therefore it does not imply that organizations who follow an informal planning process demonstrates poor social citizenship and irresponsible corporate behavior (Galbreath, 2010).

Summary and Conclusion

Overall, the study of Jeremy Galbreath provided a clear logical flow and structure. The formulation of both his hypotheses was supported by the literature reviews from previous researchers who have done similar studies and the instruments he used in the study were reliable and valid. He explained his results in a manner that can be understood by even novice readers and he provided a thorough discussion in the later part. He also included appendices of the instruments and scales that he used in order to test his hypothesis and he clearly explained without bias the steps and processes he took in order to obtain his results. Although like other studies the research also has its own limitations. The study only focused on formal strategic planning and did not compare organizations that follow informal planning processes and also did not measure implementation. Given this, the results of the study must be taken into careful consideration and it cannot be implied that informal planning does not yield positive results. This can be a basis though for future research. Furthermore, the study only focused on Australian firms which limit its generalizability and the use of only the CEO as the key informant may arise to some concerns of bias. The motivation’s off top executive’s to attend and respond to stakeholder’s demands were not explored but the results that emerged in this area can serve as additional literature to further researchers who would want to explore and focus on the internal drivers of Corporate Social Responsibility.

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