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that CSR is positively related to better finan- cial performance (profitability) and this rela- tionship is statistically significant. The Royal. Dutch Shell Plc is chosen ...
Corporate Reputation Review

Volume 14 Number 4

The Relationship Between Corporate Social Responsibility and Profitability: The Case of Royal Dutch Shell Plc Innocent Ekatah Tax Adviser HMRC, UK Liverpool Hope University, Liverpool, UK Martin Samy Leeds Business School, Leeds Metropolitan University, Leeds, UK Roberta Bampton Leeds Metropolitan University, Leeds, UK Abdel Halabi Monash University, Melbourne, Victoria, Australia The University for the Witwatersrand, Ruimsig, Johannesburg, South Africa

ABSTRACT

The field of corporate social responsibility (CSR) has grown exponentially in the last decade. Nevertheless, there remains a protracted debate about the legitimacy and value of corporate responses to CSR concerns. This study explored whether CSR is linked to profitability. This study bases its measurement of CSR on content analysis of the annual reports of Royal Dutch Shell Plc. This research used a case study approach and analysed data from several key performance indicators reported in Royal Dutch Shell Plc’s sustainability report and annual account over a 5-year period; 2001–2005. Results indicate that socially responsible corporate performance can be associated with profitability. Although this study did not explore the direction of the causal connections, nevertheless, the findings indicate that CSR is positively related to better financial performance (profitability) and this relationship is statistically significant. The Royal Dutch Shell Plc is chosen as it is a global energy and petrochemical company, operating

in more than 145 countries and employing approximately 119,000 people (Shell, 2005). Royal Dutch Shell is one of the biggest in the oil sector and also listed as the third top company in the world. As Shell is a well-known international corporation, the perceptions of its CSR are an important indicator for not only the public at large, but also senior management of the corporation. Literature review has revealed that this kind of CSR studies involving Shell Plc is unique. This original contribution to case study analysis highlights the point that every company has to be looked at separate angles. Corporate Reputation Review (2011) 14, 249–261. doi:10.1057/crr.2011.22 KEYWORDS: CSR; perceptions; performance

indicators; Royal Dutch Shell INTRODUCTION

The field of corporate social responsibility (CSR) has grown exponentially in the last decade. Nevertheless, there remains a

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protracted debate about the legitimacy and value of corporate responses to CSR concerns. There are different views of the role of the firm in society and disagreement as to whether wealth maximisation should be the sole goal of a corporation (Tsoutsoura, 2004). Friedman (1970) for instance stated that in a free society, ‘there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud’. This viewpoint seems outdated today, and more businesses are aware of the importance of being a good corporate citizen, and acting socially responsible. An increasing number of shareholders, analysts, regulators, activists, labour unions, employees, community organisations and news media are asking companies to be accountable for an ever-changing set of CSR issues. There is increasing demand for transparency and growing expectations that corporations measure, report and continuously improve their social, environmental and economic performance. Can being socially responsible also benefit the businesses profits? This is the issue to be explored in this case study. Using extensive data over a period of 5 years, this study explores and tests the sign of the relationship between CSR and profitability with regards to CSR practises and policies of Royal Dutch Shell Plc. The Royal Dutch Shell Plc is chosen as it is a global energy and petrochemical company, operating in more than 145 countries and employing approximately 119,000 people (Shell, 2005). Royal Dutch Shell are one of the biggest in the oil sector and also listed as the third top company in the world (Fortune Global 500, 2006). The data set includes extracts from the annual reports and sustainability reports and covers the years 2001–2005. The relationship is tested by using simple statistical trend analysis.

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LITERATURE REVIEW

The history of CSR according to Holt and Wigginton (2002), stretches back to the late 50s and early 60s, which in USA was a period of new legislation regarding equal opportunities, consumer rights, occupational safety and environmental protection in which organisations responsibilities to the society was mapped out. Indeed today there is an increased pressure on organisations to act ethically and socially responsible, and there is increased pressure on many organisations to acknowledge their responsibility to society (Lamblin, 1997). Behaving in a socially responsible manner is increasingly seen as essential to the long-term survival of companies. An international survey conducted by PricewaterhouseCoopers in early 2002 found that nearly 70 percent of the global chief executives believed that addressing CSR was vital to their companies’ profitability (Simms, 2002). Previous Research

Perhaps the most investigated question, at least in management literature involving CSR has been its relationship with profitability and growth (Zahra & La Tour, 1987 cited in Cottril, 1990). Nevertheless, the absence of common conclusion is startling (Cottril, 1990). For over three decades, the study of the correlation between CSR performance and corporate financial performance has yielded contradictory results (Marom, 2006). According to Margolis and Walsh (2001), 122 published studies between 1971 and 2001 empirically examined the relationship between CSR and financial performance. Empirical studies of the relationship between CSR and financial performance comprise essentially two types. The first uses the event study methodology to assess the short-run financial impact (abnormal returns) when firms engage in either socially responsible or irresponsible acts. The results of these studies have been mixed. Wright and

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Ferris (1997 cited in Tsoutsoura, 2004) discovered a negative relationship; Posnikoff (1997 cited in Tsoutsoura, 2004) reported a positive relationship, whereas Welch and Wazzan (1999 cited in Tsoutsoura, 2004) found no relationship between CSR and financial performance. Other studies, discussed in McWilliams and Siegel (2000), are similarly inconsistent concerning the relationship between CSR and short-run financial returns. The second type of study examines the relationship between some measure of corporate social performance (CSP) and measures of long-term financial performance, by using accounting or financial measures of profitability. The studies have also produced mixed results. Cochran and Wood (1984), for example, located a positive correlation between social responsibility and accounting performance after controlling for the age of assets. Studies using measures of return based on the stock market also indicate diverse results. Vance (1975) refutes previous research by Moskowitz by extending the time period for analysis from 6 months to 3 years, thereby producing results that contradict Moskowitz and that indicate a negative CSP/Corporate Financial Performance relationship. However, Alexander and Bucholtz (1978) improved on Vance’s analysis by evaluating stock market performance of an identical group of stocks on a risk-adjusted basis, yielding an inconclusive result. On various occasions, the correlation has been found to be positive, negative or nonsignificant and with different causal directions. For example McGuire et al. (1988: 869) found out that financial performance in one period is positively related to CSR in a latter period: ‘firms with high performance and low risk will be better able to act in a socially responsible manner’. Also, Waddock and Graves (1997) found significant positive relationships between an index of CSP and performance measures, such as return on assets (ROA) in the following

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year. Similarly, Peters and Waterman (1982), and Freeman and Gilbert (1987), see the correlation as positively related. Bragdon and Marlin (1972) and Parker and Eibert (1975) could also be added to those finding positive correlations. Meanwhile, Aupperle et al. (1985), using perhaps the most sophisticated methodology, joined by O’Neil and Saunders (1988) and Alexander and Bucholtz (1978) have found there to be no relationship (Cottril, 1990). Yet another view, perhaps the most intuition pleasing, is put forth by Bowman and Haire (1975) who argue that the relationship is manifested by an inverted U-shaped curve, which states that more CSR to a point is good. Thereafter, using the language of economics, decreasing marginal returns set in. Generally profits initially rise with input, reach a peak and then decline. If the business and CSR domains are parallel, we should expect to find something similar to the inverted-U function. Sturdivant and Ginter (1977) also carried out a research that had same outcome as that carried out by Bowman and Haire (1975). Measurement of Profitability/Financial Performance

Although measuring profitability/financial performance is considered a simpler task, it also has its specific complications. Here, too, there is little consensus about which measurement instrument to apply. Many researchers use market measures (Alexander and Bucholtz, 1978; Vance, 1975), others put forth accounting measures (Waddock and Graves 1997; Cochran and Wood 1984) and some adopt both of these (McGuire et al., 1988). The two measures, which represent different perspectives of how to evaluate a firm’s financial performance, have different theoretical implications and each is subject to particular biases (McGuire et al., 1986a and b). The use of different measures, needless to say, complicates the comparison of the

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results of different studies. Accounting measures capture only historical aspects of firm performance (McGuire et al., 1986b). They are subject, moreover, to bias from managerial manipulation and differences in accounting procedures (Branch, 1983; Brilloff, 1972 cited in Tsoutsoura, 2004). Conversely, market measures are forward looking and focus on market performance. They are less susceptible to different accounting procedures and represent the investor’s evaluation of the ability of a firm to generate future economic earnings (McGuire et al., 1988). Stock-market-based measures of performance also yield obstacles (McGuire et al., 1986a). According to Ullmann (1985), for example, the use of market measures suggests that an investor’s valuation of firm’s performance is a proper performance measure (McGuire et al., 1988). CSR and Royal Dutch Shell Plc

The objectives of Shell companies are to engage efficiently, responsibly and profitably in the oil, gas, chemicals and other selected businesses and to participate in the search for and development of other sources of energy. Shell companies seek a high standard of performance and aim to maintain a longterm position in their respective competitive environments (Shell, 2002a, b). Shell companies recognise 5 areas of responsibility: To shareholders

To protect shareholders’ investment and provide an acceptable return. To customers

To win and maintain customers by developing and providing products and services that offer value in terms of price, quality, safety and environmental impact, which are supported by the requisite technological, environmental and commercial expertise. To employees

To respect the human rights of their employees, to provide their employees with

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good and safe conditions of work, and good and competitive terms and conditions of service, to promote the development and best use of human talent and equal opportunity employment, and to encourage the involvement of employees in the planning and direction of their work, and in the application of these Principles within their company. It is recognised that commercial success depends on the full commitment of all employees. To those with whom they do business

To seek mutually beneficial relationships with contractors, suppliers and in joint ventures and to promote the application of these principles in so doing. The ability to promote these principles effectively will be an important factor in the decision to enter into or remain in such relationships. To society

To conduct business as responsible corporate members of society, to observe the laws of the countries in which they operate, to express support for fundamental human rights in line with the legitimate role of business, and to give proper regard to health, safety and the environment consistent with their commitment to contribute to sustainable development. METHODOLOGY

The objective of this study is to analyse if there is a relationship between CSR and profitability. This study bases its measurement of CSR on content analysis of the annual reports of Royal Dutch Shell Plc. This method (content analysis) is similar to that used by Bowman and Haire (1975), but the difference is that this research uses a case study approach and would be analysing data from several key performance indicators reported in Royal Dutch Shell Plc’s sustainability report and annual account over a 5-year period; 2001–2005. According to Cochran and Wood (1984) ‘content analysis has two significant

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advantages. The first is, once the particular variables have been chosen (a subjective process), the procedure is relatively objective. Therefore the results are independent of the particular research. Second, because this technique is more mechanical, larger sample sizes are possible’. Data would be analysed using simple statistical tools from Microsoft Excel like tables and charts. An attempt would be made to develop an equation that can be used in drawing a relationship between CSR and profitability. This would be done by using the trendline analysis to get the linear correlation coefficient (R2). Variables

The variables that are tested for relationship between CSR and profitability are discussed below. Profitability variables

The profitability variables used in this research are (i) Revenue, (ii) Net Income (Profit) and (iii) Earnings per share. These are analysed against some key CSR performance indicators in the social and environmental areas of responsibility of Royal Dutch Shell Plc. CSR variables

The CSR variables chosen and used in the analysis of this research were carefully chosen in a way to represent some of the major key performance indicators, which have values attached to them and are quantifiable. The CSR variables are divided into Social and Environmental key performance indicators. Social KPI variables. Variables from some

social key performance indicator (KPI) applied for this analysis include; Total number of fatalities, percentage of women in supervisory/professional positions and total amount of social investment. Environmental KPI variables. Environ-

mental issues that are quantifiable are used

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in the analysis of this research in trying to answer the research questions. These environmental issues include; total Green House Gas emission, Number of spills and Total waste disposal. These figures are extracted from the sustainability reports of Royal Dutch Shell. From the analysis, 3 research questions are developed. Research Questions

1. Is there a relationship between increase in revenue in the last 5 years and CSR KPI of Royal Dutch Shell Plc. 2. Is there a relationship between increase in net-income and CSR KPI of Royal Dutch Shell Plc. 3. Is there a relationship between increase in EPS and CSR KPI of Royal Dutch Shell Plc. FINDINGS AND DISCUSSIONS

In this section, the tables and graphs used in the analysis of data collected are presented and used in analysing the research questions (Tables 1–3). RQ 1: Is there a relationship between increase in revenue in the last 5 years and CSR KPI of Royal Dutch Shell Plc? The first research question analyses whether there was a relationship between increase in revenue in the last 5 years and CSR KPI of Royal Dutch Shell Plc. From Table 2, it is noted that there was a steady increase in revenues through the 5-year period. The figures for the year 2001 was 12 percent of the total figures for the period analysed; for 2002, it was 15 percent, which is an increase of 3 percent from 2001; for 2003, it was 19 percent of the total figures, which is a 4 percent increase from the previous year; for 2004, it was 25 percent, which is an increase of 6 percent from the year before; and for 2005, it showed a 4 percent increase from the previous year’s

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Note: Spills for the Year 2001 was not calculated. Abbreviations: EPS: Earnings per share ($ Million); G/Diversity: Gender Diversity (Measured in Percentage %); S.I: Social Investment ($ Million); GHG: Green House gas Emission (Million Tonnes CO2 Equivalent); Spills: (measured in Thousand Tonnes); Waste Disposal: (measured in Thousand Tonnes).

897 1,028 1,064 925 972 N/C 1,180 1,095 1,027 973 103 106 112 112 105 122,453 163,453 198,362 266,386 306,731 2001 2002 2003 2004 2005

10,644 9,659 12,395 19,257 26,261

1.45 1.41 1.81 2.74 3.79

40 53 47 37 36

17.7 18.9 19.5 20.7 21.8

85 96 102 106 127

Spills GHG S.I ($ Million) G/Diversity % Fatalities

Social E.P.S Revenue

Net income

Table 2: Revenue

Year

Profitability Indicators ($ Million)

Table 1: Variable of Profitability and CSR Indicators of Social and Environmental

CSR Key Indicators

Environmental

Waste disposal

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Year

Revenue ($ Million)

Percentage

2001 2002 2003 2004 2005

122,453 163,453 198,623 266,386 306,731

12 15 19 25 29

figures. This increase in revenue can be attributed to the involvement in CSR activities by Royal Dutch Shell Plc. Although there are arguments by some proponents of CSR who say that Royal Dutch Shell Plc. is not living up to its promise of environmental and social responsibility. Friends of the Earth an international network of environmental organisations in a press release in 2004 stated that ‘the oil giant Shell, already under scrutiny for overstating its oil reserves, stands accused of polluting communities, damaging wildlife habitat and failing to live up to its promise of environmental and social responsibility’ (Omeje (2004)). Commenting on the 2004 annual general meeting of Royal Dutch Shell Plc., Friends of the Earth Executive director Tony Juniper said: Shell is currently under investigation for overstating its oil reserves, but this report shows the company has for many years been overstating its social and environmental performance. Unlike shareholders, the communities living next door to Shell have little or no rights of redress. Many suffer ill health, pollution and environmental damage as a result of Shell’s pursuits of profits. It is time the British Government legislated and gave communities the right to protection from such corporate abuse. And they must be compensated when abuse occurs (Friends of the Earth, 2004).

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Table 3: Relationship between Revenue and CSR KPI Table

Profitability Indicator ($ Million) Year

CSR Key Indicators

Revenue

Social Indicator Fatalities

2001 2002 2003 2004 2005

122,453 163,453 198,362 266,386 306,731

Environmental

G/Diversity S.I. % ($ Million)

40 53 47 37 36

17.7 18.9 19.5 20.7 21.8

85 96 102 106 127

GHG

Spills

Waste disposal

103 106 112 112 105

N/C 1,180 1,095 1,027 973

897 1,028 1,064 925 972

Table 4: Relationship Between Increase in Revenue and CSR KPI Using the R 2

R2 Relationship

Gender diversity

Fatalities

Social investment

0.9903 + ve

0.3384 + ve

0.8988 + ve

Increase in revenue is one of the benefits of CSR as stated in Table 1. Using the trendline line (Table 4) to establish a relationship between revenue and the CSR KPI’s used in this research; it was found that a positive relationship exists between increase in revenue and CSR KPI. Also from the table it can be noted that there was a near perfect fit of the gender diversity and social investment curves while the fatalities, waste disposal, green house gas emission and spills curve have an almost abysmal fit. The Gender diversity variable shows the highest positive relationship of 99 percent. This degree of relationship strengthens the remarks of Evert Henkes, the Chief executive of Shell Chemicals Limited, on the role of women in business. He said:

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Green House Waste disposal Gas 0.1147 + ve

0.2165 + ve

Spills

0.2888 + ve

The reason why we must increase the number of women in boardrooms of business is that their absence makes our business less effective, less competitive and ultimately less successful than they should be. Shell is committed to diversity and inclusion in its broadest sense because it improves our business decision making; it makes us more attractive to our customers; helps us recruit staff. A wide range of actions is being taken to increase the number of women in senior roles meet demanding targets. This includes establishing diversity councils, reviewing HR systems and removing barriers to women’s fullest participation in the business. There is a commitment at the highest level to bringing about change through out the

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business to ensure that the women’s talents and contribution are fully listed (Shell, 2002a, b).

Others variables like fatalities, green house gas emission, waste disposal and spills do not show a very strong relationship. Fatalities showed a 33 percent degree of relationship, Green house Gas emission was 11 percent, Spills was 28 percent, whereas Waste disposal was less than 1 percent. These figures are expected, as the values for these variables are expected drop each year as measures are being taken to reduce these annually. They however show a positive relationship (Table 5).

From the above, it can be stated that Shells activities on Gender diversity has a direct bearing on its profitability, and hence their determination to achieve a target of 20 percent women in senior executive position by the year 2008, although it was on 9.9 percent in 2005. Closely following the Gender diversity on the degree of relationship is the Social investment variable, which is about 90 percent. Social investment historically have been looked on as philanthropy – doing good for its own sake – but Shell’s aim is to channel its resources towards those societal issues that are more or less directly related to their activities. From the figures on Table 2, it can be observed that there was a steady increase in the amount of money put into social investment by Shell and this clearly shows that this could be responsible for an increase in revenue as one of the benefits of CSR is increased profits.

RQ 2: Is there a relationship between increase in net-income and CSR KPI of Royal Dutch Shell Plc? The second research question analysed if there was a relationship between increase in Net- income and CSR KPI of Royal Dutch Shell Plc. Table 6 shows the trend of the Net-income of Royal Dutch Shell Plc. between the years 2001 and 2005. From the table, Net-income for 2001 was 14 percent of the total value for the period analysed. The year 2002 saw a drop in the Net-income value by 2 percent. This drop was as a result of the September 11 terrorist attacks on the US and the growing concerns for economic and political climate caused by the threat of terrorism. As a result of this, the downstream businesses faced some of the most difficult conditions on record. The year 2003, saw the Net-income of Royal Dutch Shell Plc. increase to 16 percent of the total figures for the period, which was a 4 percent increase from 2002.

Table 5: Net Income Table

Year

Net income ($ Million)

Percentage

2001 2002 2003 2004 2005

10,644 9,659 12,395 19,257 26,261

14 12 16 25 33

Table 6: Relationship Between Net Income and CSR KPI Using the R 2

R2 Relationship

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Gender diversity

Fatalities

Social investment

Green House Gas

Waste disposal

Spills

0.8596 + ve

0.5739 + ve

0.8498 + ve

0.0032 + ve

0.0483 + ve

0.0634 + ve

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Table 7: Earnings Per Share

Year

Earnings Per Share ($ Million)

Percentage

2001 2002 2003 2004 2005

1.45 1.41 1.81 2.74 3.79

13 13 16 24 34

The year 2004 saw the Net-income figures increasing to 25 percent and 2005 was 33 percent, which showed an increase of about 9 percent and 8 percent, respectively, from the previous years. From the trendline analysis in Table 7, a positive relationship could be seen to exist between increase in Net-income and CSR as all the R2 values are positive. This analysis clearly satisfies Condition 1, which states that If R2 > = 0, then a positive relationship exists. There is near perfect fit for the gender diversity and social investment curves. They show 85 percent degree of positive relationship, fatalities showed a 57 percent degree of positive relationship, while there was an abysmal fit for the green house gas emission, waste disposal and spills curve. Green house gas emission showed a less than 1 percent degree of relationship, Waste disposal had 4 percent relationship, whereas Spills had 6 percent degree of relationship. The abysmal fit is expected as the figures for these variables are not expected to increase over the years as an increase in these figures signifies something is amiss on the CSR activities of Royal Dutch Shell Plc. Arguably, Omeje (2004) unveiled a catalogue of misery from communities living next door to Shell’s operations around the world to include Shell’s failure to invest in technology in the Niger Delta, Nigeria, where Shell sources 10 percent of its oil and

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as a result 700 millions scf/d of gas being burnt off into the environment, an increase from the previous year, despite Shell’s commitment to end flaring by 2008, adding that gas flaring has become an everyday feature for communities in the Niger Delta. In addition, they reported that oil spills are also common with 9,900 barrels of oil spilt in 2003. Concluding, they said these oil spills are frequently left rather than cleaned up, hence contaminating farmland, water courses and fish supplies. This, however, casts a doubt on Shell’s claim of sustainable development and CSR practises. RQ 3: Is there a relationship between increase in EPS and CSR KPI of Royal Dutch Shell Plc? The last research question sought to establish a relationship between increase in Earnings per Share and CSR KPI’s of Royal Dutch Shell Plc. From Table 8 it is shown that there was steady increase in Earnings per Share despite a minimal drop in 2002 occasioned by the September 11, 2001 saga. The year 2001 and 2002 were 13 percent, respectively, of the total value of the figures analysed for the period. The year 2003 showed a 3 percent increase to 16 percent, 2004 was 24 percent, showing an increase of 8 percent, while 2005 was 34 percent, which showed an increase of 10 percent. Summarily a positive relationship exists between increase in Earnings per Share and CS. Also from Table 8, it can be observed that there is a near perfect fit on the Gender diversity and Social investment variable curves on the graph although there is an abysmal fit on the green house gas emission, waste disposal and spills curves. Fatalities showed a 53 percent degree of positive relationship, while Gender diversity and Social Investment showed about 88 percent degree positive relationship to Earnings per Share.

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Table 8: Relationship Between Earnings Per Share and CSR KPI Using the R 2

R2 Relationship

Gender diversity

Fatalities

Social investment

0.8854 + ve

0.5324 + ve

0.8795 + ve

Other variables like green house gas emission, waste disposal and spills do not show a very strong relationship but they show a positive relationship anyway. Green house gas emission showed a less than 1 percent relationship, Waste disposal was 3 percent and Spills was about 8 percent. Most studies focus on profits as a cause of CSR, but the focus on profits as a cause limits the potential for insight into the determinants of CSR for two reasons (McGuire et al., 1988). First, CSR and profits may share common causes. For example, high levels of market concentration might cause both CSR and profits. If CSR and profits are each related to a third variable, then further insight into the relationship between CSR and profit might be gained by studying the third variable (Beliveau et al., 1994). Second, CSR may be related to factors that share no relationship with profits. For example, the social orientation of powerful managers may have an impact on CSR (Aupperle et al., 1985). Arguments exist that support the view that firms that have solid financial performance have more resources available to invest in social performance domains such as employee relations, environmental concerns, or community relations. Financially strong companies can afford to invest in ways that have a more long-term strategic impact, such as providing services for the community and their employees. Those allocations may strategically link to better public image and improved relationships with the community in addition to an improved ability

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Green House Waste disposal Gas 0.0054 + ve

0.0316 + ve

Spills

0.0839 + ve

to attract more skilled employees. The desire to minimise risks of incurring financial liabilities through environmental or health and safety legislation can also result in companies becoming more socially responsible and initiating reporting (Ogrizek 2002). Smith (2002: 42) revealed that a survey conducted to identify the desirability and feasibility of CSR standard found that ‘consumers expect firms to meet high health and safety, worker, human rights, consumer protection, and environmental standards regardless of where their operations [were] located’. A survey conducted in 2002 by Marsteller in the UK in 2000 (Ogrizek, 2002) found that, for 89 percent of the respondents, presence of CSR would influence their buying decisions. Another 66 percent commented that the extent to which CSR was demonstrated would influence their view of companies in the future. A survey of consumer behaviour conducted by Environics in 2000 found that 42 percent of the North American consumers (Europe 25 percent, Latin America 23 percent, Africa 18 percent, Eurasia 10 percent and Asia 8 percent) would ‘punish companies for being socially irresponsible – either by boycotting products or by speaking critically about them to others’ (as cited in Ogrizek 2002). Perhaps in recognition of the increasing powerlessness of governments to influence major companies’ operations and decisions and their lack of willingness to interfere, activists are increasing the pressure for change. Companies that demonstrate social responsibility and account for their social and environmental impacts gain specific benefits as

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listed in Table 1, although not all can be quantified in monetary terms. Acting responsibly and being accountable for social and environmental impacts assists organisations in attracting and retaining the most talented people (Adams 2002; Bernhut 2002; Simms 2002). This is evident from the findings of a survey conducted by Hill & Knowlton’s Corporate Reputation Watch in Europe, the UK and the US (Knowlton 2002). The survey found that 88 percent of the British businesses believe that social responsibility will be more important in the future in recruiting and retaining employees (Simms 2002, Knowlton 2002). Large salaries, bonuses and termination packages paid to workers have had a negative impact on workforce morale and motivation and are unlikely to help the organisations attract and retain the best staff. Organisations that produce social and environmental reports develop better internal control systems and better decision-making and cost-savings, resulting in continuous improvements (Adams 2002). On the other hand, companies with financial problems usually allocate their resources in projects with shorter horizon. This theory is known as slack resources theory (Waddock and Graves, 1997). There are other arguments that propose that financial performance also depends on good or socially responsible performance. In the views of Waddock and Graves (1997), meeting stake holder expectations before they become problematic indicates a proactive attention to issues that otherwise might cause problems or litigation in the future. In addition, socially responsible companies have an enhanced brand image and a positive reputation among consumers; they also have the ability to attract more skilled employees and business partners. Socially responsible companies also have less risk of negative rare events. Companies that adopt CSR principles are more transparent and have less risk of bribery and

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corruption. In addition, they run less risk of having to recall defective product lines and pay heavy fines for excessive polluting. They also have less risk of negative rare events, which could damage their reputation, and cost millions in information and advertising campaigns or litigation. CONCLUSION

The findings to the research questions, shows that there is a positive relationship between CSR and profitability. This case study on Royal Dutch Shell Plc therefore has found a positive relationship between CSR and profitability that is similar to other studies. McGuire et al. (1988: 869), for example, also found that financial performance in one period is positively related to CSR in a latter period by stating ‘firms with high performance and low risk will be better able to act in a socially responsible manner’. Further, Waddock and Graves (1997) also found significant positive relationships between an index of CSP and performance measures, such as ROA in the following year, and other authors see the correlation as positively related (see Peters and Waterman 1982; Freeman and Gilbert, 1987; Bragdon and Marlin, 1972, and Parker and Eibert, 1975). There are a number of limitations of this study; however, these could be used to further research into the area. The study used only 1 company and the accounting reports over a limited time span. Further research could be done into other large petroleum companies over a longer and perhaps more recent times span. The paper used a commonly used definition of CSR to involve mainly discretionary activities of companies such as gender diversity, philanthropy or other voluntary activities undertaken (Holt and Wigginton (2002). However, corporate actions that evoke the severest criticism from society generally emanate from ‘negative externalities’ that are closely tied to a company’s core business operations. Since most corporations are unwilling or unable to

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