Effective Leadership and Corporate Responsibility
Corporate social responsibility (CSR) is a growing area in the current business environment. Research evidence suggests that CSR helps a firm gain and sustain competitive advantage but leadership values, behaviors and style to implement CSR practices remain unclear. The research paper attempts to bring clarity to the role of leadership in CSR by exploring existing literature on CSR leadership to identify leadership values and styles linked to the successful implementation of CSR. The paper also examines the mechanisms through which CSR improves organizational financial performance. Literature indicates that CSR is a complex issue because achieving business sustainability requires balancing of economic, environmental and social system. CSR leadership requires leaders of extraordinary capabilities. Implementation of CSR practices requires leaders who can establish an ethical culture, think through complex problems, create stakeholders’ value and motivate employees to engage in a socially responsible behavior. Firms that integrate socially and environmentally responsible activities into their business processes can differentiate themselves from competitors, build a positive reputation with all stakeholders and strengthen their competitive position which in turn increases organizational performance.
Effective Leadership and Corporate Responsibility
Today’s businesses are integrating corporate social responsibility (CSR) to business strategy while focusing on the stakeholders’ needs to strengthen their competitive positioning and improve financial performance. CSR is relatively a growing area of interest for scholars. Much has been done to define CSR, but it remains a controversial concept due to its complex and ambiguous nature. Leaders face challenges in integrating CSR to business strategy due to its ambiguity. However, CSR has gained popularity because it signifies responsibility of companies to both external and internal stakeholders which ensures that businesses enjoy growth in profitability while engaging in activities that promote the well-being of the community. Organizations are experiencing pressure from the stakeholders to take into consideration their impact in the wider society. Marques-Mendes & Santos (2016) note that the level of engagement in CSR activities, respect to the natural environment and all stakeholders determine the capacity of companies to generate value and long-term success. The importance of CSR in business success is no longer a question. The current debate focuses on the leadership values that support the implementation of CSR initiatives. Leadership style shapes corporate responses to the stakeholders’ needs and thus it is an antecedent of CSR. Metcalf & Benn (2013) observe that studies of CSR in organizations have given little attention to the role of leaders in implementing CSR initiatives. Recently, a few studies focusing on leadership style, ethics and values associated with CSR have suggested some leadership values that can help an organization to implement CSR initiatives successfully. Groves & LaRocca (2012) point out that although literature in this area is scarce, transformation leadership styles leads to strategic CSR. Zhu, Sun & Leung (2014) argue that the implementation of CSR requires ethical leadership to ensure that leaders and their subordinate are accountable. Other studies have found that leadership styles that focus on the stakeholders’ values enhance CSR (Tian, Liu & Fan, 2015; Du et al., 2013). The disparate findings suggest that there are confusion and disagreement over the type of leadership style that supports CSR implementation which may create challenges in implementing CSR. The study examines the link between leadership and CSR and attempts to identify leadership values that lead to successful implementation of CSR. The paper argues that CSR is a complex issue because organizations are independent with economic, environmental and social systems and thus implementation of sustainability requires leaders who demonstrate high ethical standards, strong stakeholder values, and ability to motivate followers to change their value systems to promote social good which in turns lead to organization performance.
Corporate Social Responsibility
CSR has a long history, and it has received scholarly attention as stakeholders increasingly require organizations to address not only financial problems but also environmental and social issues. Organizations are increasingly adopting the concept of CSR due to unintended negative environmental, social and economic consequences (Chandler, 2015). The concept of CSR emerged in the 1960s after activist groups highlighted environmental exploitation by businesses (Millar, Hind & Magala, 2012). The idea of CSR has developed as a vague construct of normative behavior. Although CSR is a term of contested meaning, scholars agree that it is any investment or activity in which a firm engages in activities that are neither required by law nor mandatory (Afiff & Anantadjaya, 2013; Chandler, 2015; Agus Harjoto & Salas, 2017). CSR strategies are actions and investments implemented by an organization to achieve sustainable competitive advantages and add value to stakeholders including the entire society. CSR emphasizes incorporation of socially responsible behaviors into company’s decision making, processes and operations to enhance brand image. The integration of CSR into a business strategy is a value-driven process influenced by ideology, culture and values. The core beliefs that guide and shape organizational actions, expectations and goals play a crucial role in the implementation of CSR initiatives alongside organizational values and corporate culture.
Organizations operate in a wider system due to their interaction with social, economic and environmental systems. According to Metcalf & Benn (2013), CSR is a complex problem that requires concerted and sustained effort to achieve a balance between social, economic and ecological systems. Companies are related to multiple stakeholders with different expectations and demands. CSR strategies take into account the demands and expectations of all stakeholders. Felicio, Goncalves & da Conceicao Goncalves (2013) note that complex environmental forces compel organizations to pursue sustainability methods. Organizational leaders must help the firm to adapt to rapid changes in the business environment and new stakeholder demands. Stakeholders are interested in corporate behaviors, and they have ethical, legal and economic expectations. Companies are making efforts to implement practices that promote sustainability to create viable future due to growing concern about the long-term effects of climate change and environmental degradation. Biggemann, Williams & Kro (2014) argue that leaders must take a proactive approach in responding to stakeholders’ demands as opposed to a reactive approach. Stakeholder’s theory emphasizes the importance of aligning business practices with sustainable environmental needs and societal expectations. The theory claims that when a company seeks to meet demands of its shareholders only, its success is affected by other stakeholders including suppliers, employees and customers. A firm cannot meet the needs of its shareholders without meeting the needs of other stakeholders. The theory emphasizes the importance of adopting inclusive stakeholder approach in implementing CSR (Zhu, Sun & Leung, 2014). Inclusive stakeholders’ approach allows companies to maximize the wealth of the shareholder while increasing the value created.
Investment in CSR may be voluntary or forced. Camilleri (2017) describes the core domains of CSR: ethical, social, legal and economic responsibilities. The ethical responsibilities require a company to adhere to moral rules that define appropriate behaviors. It is voluntary since there are no laws that guide it but entail organizational behaviors that are expected by the stakeholders (Agus Harjoto & Salas, 2017 & Strand, 2014). It involves engagement in activities that are mandated by law to create value for the stakeholders. Motivation to engage in socially responsible activities may be influenced by internal factors which reveal an altruistic character influenced by environmental and social concern. The legal components emphasize that companies must obey laws in the country where they operate. Some business environment has strict regulations and company must comply with the legal framework and social rules to gain legitimacy. The economic responsibilities require businesses to make legitimate profits and pursue growth by selling products or services at fair prices. The profit motive has been linked with the CSR agenda. Some companies engage in CSR because they believe that the society and stakeholders will reward them. Chang, Chang & Chen (2017) note that companies that perceive CSR as a source of profit are prepared to address environmental and societal deficits while creating value for their business. CSR’s domain helps firms create value for the business and society by responding to stakeholders’ demands.
Leadership Styles Linked to CSR
Organizations face challenges in implementing CSR as part of their strategic choices to meet stakeholders’ needs and contribute to the development of the society. Leaders play a crucial role in selecting and implementing socially responsible practices. However, scholars have previously ignored the role of leadership in implementing CSR practices. Leaders are well-positioned to influence CSR initiatives, but empirical studies of CSR have failed to identify the most effective leadership style, values and behaviors in regard to CSR. Leaders’ values influence the motivation of subordinates to engage in responsible behavior...