EXAMINING CORPORATE SOCIAL RESPONSIBILITY AS A RISK MANAGEMENT STRATEGY
CHAPTER ONE
INTRODUCTION
1.1 Background of the study
Recent developments have shown that firms are increasingly subjected to complex and ever-changing 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
- Asses the relationship between corporate social responsibility and risk management
3 determine the impact of corporate social responsibility on risk management - 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 management.
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. 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. 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. 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. 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.
EXAMINING CORPORATE SOCIAL RESPONSIBILITY AS A RISK MANAGEMENT STRATEGY