Accepted Manuscript

Well-governed responsibility spurs performance

Muzhar Javed, Muhammad Amir Rashid, Ghulam Hussain

PII: S0959-6526(17)31733-X

DOI: 10.1016/j.jclepro.2017.08.018

Reference: JCLP 10272

To appear in: Journal of Cleaner Production

Received Date: 06 April 2017

Revised Date: 10 July 2017

Accepted Date: 03 August 2017

Please cite this article as: Muzhar Javed, Muhammad Amir Rashid, Ghulam Hussain, Well-
governed responsibility spurs performance, Journal of Cleaner Production (2017), doi: 10.1016/j.
jclepro.2017.08.018

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 ACCEPTED MANUSCRIPT

Authors’ Affiliations

First Author:
Mr. Muzhar Javed
Assistant Professor
COMSATS Institute of Information Technology, Sahiwal.
mazhar@ciitsahiwal.edu.pk

Second Author:
Dr. Muhammad Amir Rashid
Associate Professor
COMSATS Institute of Information Technology, Lahore.

Third Author:
Dr. Ghulam Hussain
Assistant Professor
COMSATS Institute of Information Technology, Lahore.
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Manuscript

Well-governed responsibility spurs performance

Abstract: The mixed and inconsistent findings on the relationship between corporate social
responsibility and organizational performance (CSR-OP) have exposed the universal approach as
weak. Scholars have argued that not all CSR initiatives (including environment) all the time can
be rewarded and have suggested the use of moderating variables to control the ambiguity
surrounding CSR-OP relationship. Researchers viewed strong corporate governance (CG) as an
important condition for reaping CSR benefits.
This study tests the direct effect of aggregate and segregated CSR on organizations' financial and
non-financial performance. Moreover, it also investigates the moderating effects of corporate
governance on the relationship between CSR and organizational financial and non-financial
performance. Data in this study were collected from managers of public listed companies in
Pakistan's manufacturing sector, and 179 valid responses were analyzed. Structural model results
regarding the direct effects of aggregated and segregated CSR reveal that CSR significantly and
positively influences organizational financial and non-financial performance. However, CSR is a
better predictor of non-financial performance like reputation. Employees are observed as the most
influential stakeholder in leveraging performance and the environment as the least influential
stakeholder in Pakistan. Stakeholders' perspective of CSR creates a win-win for organizations and
their disparate stakeholders.
The findings reveal that corporate governance significantly and positively influences both
organizations' financial and non-financial performance but CG has a stronger influence on
financial part. Moreover, moderation results reflected that strong CG strengthens the CSR-
performance link and vice versa. So organizations need to have strong governance for optimizing
CSR benefits. This study contributes to contingency perspective of CSR-performance relationship.

Keywords: Corporate Social Responsibility, Corporate Governance, Organizational Performance,

Financial Performance, Non-financial Performance
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Introduction

Midst growing awareness of sustainability issues and the public good, corporate social
responsibility (CSR) has assumed special significance for business organizations. Globalization
has brought about a real change in the dynamics of modern business practices and has persuaded
organizations to revisit their roles and responsibilities (Scherer & Palazzo, 2011). Pressure from
disparate stakeholders has also encouraged organizations to put CSR on their agendas (Campbell,
2007). The quest for potential benefits has been a prime motive for organizations that choose to
undertake socially responsible initiatives (Branco & Rodrigues, 2006). Branco and Rodrigues
(2006) argued that the idea that maximizing shareholders’ value is antithetical to promoting the
public good is losing ground, and CSR is becoming an opportunity for prompting organizational
performance (OP). Therefore, organizations are increasingly inclined to perform more than their
customary role and to accept CSR as a mainstream activity.

Bowen’s (1953) revelation that “the obligations of businessmen to pursue those policies,
to make those decisions or to follow those lines of action which are desirable in terms of the
objective and values of our society” increased the significance of CSR dramatically and renewed
the interest of academia and other stakeholders in it. A stream of studies has explored the
association between CSR and organizational performance in various countries at various times.
The results of the studies conducted are varied and conflicting (Margolis et al., 2009; Orlitzky et
al., 2003). Researchers have pointed out several reasons for inconsistent findings in previous work,
including neglecting contingency factors (Elsayed & Paton, 2005; Margolis & Walsh, 2003),
measurement errors (Graves & Waddock, 1999), model misspecification (McWilliams & Siegel,
2000), undersized and multi-industry samples (Godfrey & Hatch, 2007; Lockett et al., 2006), using
single CSR dimension (Ullmann 1985), elusive, and wide-ranging operationalization of variables
(Van Beurden & Gossling, 2008; Wu, 2006). For example, omitting important contingency
variables resulted in biased findings, as it overestimated the impact of CSR on OP (McWilliams
& Siegel, 2000; Margolis & Walsh, 2003).

Hence, researchers have suggested applying the contingency approach to determine the
CSR-OP relationship, rather than exploring a universal link between the two constructs. Several
factors could influence the CSR-OP link (Rowley & Berman, 2000). Incorporating moderators
into the analysis can help to establish conditions in which CSR can have financial benefits (Branco
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& Rodriguez, 2006) and control the ambiguity surrounding the CSR-OP relationship (Barnett,
2007; Branco & Rodriguez, 2006; Carroll & Shabana, 2010; Galbreath & Shum, 2012; Javed et
al., 2016; Margolis & Walsh, 2003; Margolis et al., 2009; Orlitzky et al., 2003; Rowley & Berman,
2000; Wagner, 2010). Consequently, the CSR-OP relationship is far from well-established and
remains a line of inquiry (Lu et al., 2014; Surroca et al., 2010).

Good governance is an important element in determining the CSR-OP relationship, as good

governance is considered to be a necessary pillar for sustainable CSR (Elkington, 2006; Jamali et
al., 2008). It is difficult to understand a firm’s CSR strategy without understanding its governance
background (Devinney et al., 2013). The earlier research focused on the CSR-OP link (Perrini et
al., 2009; Waddock & Graves, 1997) but did not take into account the role of corporate governance
(CG). Therefore, researchers have suggested that future research link CSR, governance factors,
and performance and using CG as a moderator in the CSR-OP relationship (Filatotchev et al.,
2014).

Moreover, research on CSR in the Pakistani business context is limited (Ehsan & Kaleem, 2012).
Researchers have asked for exploration of CSR’s influence on OP in developing economies
(Ameer & Othman, 2012) and in specific single-country settings (Martínez-Ferrero & Frías-
Aceituno, 2013). Since contextualizing the CSR-OP nexus in a specific community is a fertile
research topic that can produce substantial theoretical and practical value (Lu et al., 2014), this
research studies the CSR-OP link in the context of Pakistan, a country with unique social, cultural,
economic, and political dynamics.

A few studies have explored the CSR-OP relationship using the contingency approach
Grewatsch & Kleindienst, 2015; Javed et al., 2016), but they have overlooked the important factor
of governance. Therefore, this study tests the influence of aggregate and segregate measures of
CSR on financial and non-financial performance moderated by RL and CG.

The remainder of the article consists of four sections. Following this introduction, the first
part discusses CSR in Pakistan and stakeholder perspective of CSR. Reviewing the literature,
theoretical framework is also developed in this section. The second section lays out the paper’s
methodology. The third section includes analysis and the findings, and the final section concludes
the study with its practical implications and suggestions for future research.
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CSR in Pakistan

Pakistan is a federal democratic republic and sixth most populated country in the world (Economic
Survey of Pakistan, 2015). Pakistan is strategically located at a point in South Asia where it serves
as a center of regional trade network with Central Asia, China, Middle East, and South Asian
countries including India. In addition, the country is also blessed with massive reserves of
untapped natural resources. Moreover, its large working-age population, provides it with
demographic dividends but also creates problems for policy makers in providing employment and
adequate social services to the living population (World Bank, 2015). However, currently
Pakistan’s economy is facing multiple challenges ranging from declining investments to weak
governance, mounting inflation, increasing unemployment, severe energy deficit and poor law and
order situation. These challenges have posed threats to country’s macro-economic stability and
development objectives (Asian Development Bank, 2015). All these factors have serious
implications for companies’ CSR policy in Pakistan and many companies are struggling to survive
rather than investing in CSR.
CSR is relatively a new phenomenon in Pakistan, however, interest in and awareness
regarding CSR is increasing progressively. In Pakistan, CSR is still a buzzword and corporations
do not know the its true philosophy. CSR is mystified it with philanthropic activities and workers’
rights (Waheed, 2005). CSR is not only about charity and other philanthropic activities, rather, it
is a commitment to a broad set of responsibilities to deliver shared value to disparate stakeholders.
Managers are not fully aware of CSR implications for their businesses (Khan, 2012; Waheed,
2005) and public is also not fully aware of corporations’ role in society so problem lies at both
ends.

In Pakistan, corporate sector has no CSR-specific law and it is practiced on voluntary basis.
However, in 2013, Securities and Exchange Commission of Pakistan (SECP) - regulator of
corporate sector issued CSR voluntary guidelines (SECP, 2013). Moreover, NGOs and other
pressure groups like CSR Association of Pakistan, Triple Bottom Line Pakistan, and Responsible
Business Initiative Pakistan are playing important role in promoting CSR. These organizations
provide a forum for stakeholders’ dialogue and are increasing awareness about CSR. Different
researchers observed that CSR performance of Pakistani corporations is not encouraging. Naeem
and Welford (2009) in their study reported that CSR is relatively underdeveloped in Pakistan
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however, they observed that public listed companies are comparatively good performers.
Similarly, Baughn et al. (2007) also observed low level of CSR in Pakistani corporations. Jeswani
et al. (2008) in their study noticed that 75 percent of Pakistani companies fall into the beginner
category. Moreover. they observed that Pakistani companies are facing challenges of insufficient
resources, lack of regulatory framework, and shortage of expertise which are making it difficult
for them to fulfill social responsibility.
MNCs, local public listed companies and SMEs are practicing CSR in Pakistan. Public
listed companies are the largest in number in Pakistan and are relatively well-aware of CSR
phenomenon. These companies are regulated under the Companies Ordinance of 1984, also adhere
to the listing regulations of the capital market, and produce CSR reports using the guidelines set
by the global reporting initiative (GRI). However, the extent to which the local businesses in
Pakistan embrace and practice CSR varies, depending largely on their managers’ values and beliefs
along with market, size and type of business. These companies are working for health, education,
poverty alleviation, sponsorships, infrastructure development, skill development, emergency relief
and rehabilitation services. Internally these companies are working for human resource
management systems, health and safety at workplace, and combating corruption. Their
contribution is recognized at different CSR forums.

MNCs are also actively involved in CSR initiatives to enhance their global visibility, transparency,
and reputation. Various external factors such as increased social activism, public demand, and
social legitimacy concerns are also motivating MNCs to engage in CSR. MNCs are contributing
in form of support for health and education, poverty alleviation, emergency relief, and
rehabilitation services, company-sponsored foundations for community welfare services, and
partnerships with NGOs to deliver social benefits to the local communities. Moreover, internally
these organizations are engaged in carbon reduction, optimization of water and energy usage,
waste management, sustainable procurement, and developing OHS at work.

CSR in SMEs is at infancy stage and these organizations are not paying due attention to CSR-
related issues like child labor, inadequate remuneration, and poor health and safety standards
(Bhutta, 2006). However, foreign buyers are expecting SMEs to adopt fair labor practices and
environmental stewardship to demonstrate commitment towards CSR. Yet, the SMEs have not
assumed CSR as an explicit strategy in response to the increasing social and environmental issues.
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However, predominantly, the existing focus of so-called CSR initiatives in SMEs in Pakistan is
driven by the fulfillment of economic and legal responsibilities. However, this is not to argue that
Pakistani SMEs completely restrain themselves form philanthropic and ethical responsibilities.
Cultural and moral values as well as religious beliefs have considerable influence on owners and
managers to participate in philanthropic and ethical responsibilities. By and large, market-driven
factors dominate the internal ethical and moral values of owner/managers regarding CSR
engagement in Pakistani SMEs.

Literature Review:

The academic discussion surrounding the sign, strength and significance concerning CSR
and organizational performance (OP) relationship is longstanding and divisive one. This section
provides a detailed review of literature on CSR-OP link along with other associated issues.
Practicing socially responsible activities are becoming inevitable and past decade has witnessed
an abnormal growth in organizations’ socially responsible initiatives globally. Organizations have
been striving for maximizing triple bottom line (TBL) benefits and researchers have been
exploring the nature of benefits from socially responsible activities (Tsoutsoura, 2004).

At different times, different researchers reviewed CSR and OP relationship of preceding

studies and found inconsistent and conflicting findings. Moskowitz (1972) and Bragdon and
Marlin (1972) first time tested CSR relationship with performance, with 17 other studies in the
same decade then there has been a steady stream of focused research to explore the relationship
between corporate social and financial performance, thirty (30) studies in the 1980s, sixty-eight
(68) studies in the 1990s and sixty-four (64) studies from 1993 to 2002 and so on.

Arlow and Gannon (1982) reported on 7 previous studies from 1975-1979 and found
inconclusive relationship between CSR and OP; Aupperle, Carroll and Hatfiel (1985) analyzed 9
empirical studies from 1972 to 1979 and observed that in five (5) studies, CSR and OP had a
positive association, in one (1) negative association and in remaining three (3) had no/inconclusive
association. Ullmann (1985) reviewed thirty-one (31) empirical studies of which thirteen (13) were
focused on social performance and financial performance link. Of these thirteen (13) studies, eight
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(8) studies observed positive, one (1) observed negative and remaining four (4) observed
inconclusive/no effect of CSR on OP. Pava and Krausz (1996) reviewed twenty-one (21) empirical
studies from 1972 to 1992 where twelve (12) studies witnessed positive association, one (1)
witnessed negative while eight (8) witnessed no relationship.

Griffin and Mahon (1997) in their study scrutinized sixty-two (62) research results of fifty-
one (51) articles from 1972-1997 (stretched over 25 years) and identified thirty-three (33) positive
results, twenty (20) negative and nine (9) no or inconclusive. Roman, Hayibor and Agle, (1999)
had reservations on classification of research results by Griffin and Mahon and therefore they
reclassified these results into different categories by incorporating certain changes. This time table
includes forty-six (46) articles comprising fifty-one (51) research results. In thirty-two (32) studies,
CSR and OP were found positively correlated, five (5) were negatively associated and fourteen
(14) were inconclusively or not correlated.

Margolis and Walsh (2001) evaluated ninety-five (95) previous empirical studies since
1972 and found that majority of studies (55%) had a positive relationship, 4% had negative, 18%
had mixed and 22% had no relationship. Orlitzky, Schmidt and Rynes (2003) criticizing the
Margolis and Walsh's (2001) study labeling it as ‘vote-counting’ technique and declared the
findings as false and vague. Orlitzky et al. (2003) using meta-analysis technique assessed 52
studies from 1972-1997. This analysis suggested that CSR pays off financially, however,
operationalization of both constructs moderate this positive relationship.

In another study Margolis and Walsh (2003) reviewed 127 studies, between 1972 and 2002,
where CSR was treated as an independent variable predicting financial performance in 109 studies.
Among these, fifty-four (54) studies had a positive relationship, only seven (7) had negative
relationship, twenty-eight (28) reported non-significant relationship and remaining twenty (20)
reported mixed findings. Allouche and Laroche, (2005) reviewed eighty-two (82) studies of which
in sixty-four (64) studies, CSR was used as a determinant of corporate financial performance. Of
these eight-two (82), in seventy-five (75) studies CSR had a positive effect on FP and remaining
studies found a negative effect. Beurden and Gössling (2008) made an attempt to simplify a long
debate on CSR-OP relationship through a meta-analysis of previously published empirical studies.
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This analysis reflected that sixty-eight (68) percent of previous studies revealed a positive link,
twenty-six per cent (26%) observed no and only six per cent (6%) reflected a negative CSR-OP
connection.
Margolis et al. (2009) in their most comprehensive study from 1972 to 2007on review of
social and financial performance relationship. Using meta-analysis of 251 studies revealed that
fifty-nine per cent (59%) of studies had non-significant relationship, twenty-eight per cent (28%)
had positive relationship, and two per cent (2%) had a negative relationship. In the most recent
review of 84 studies by Lu, Chau, Wang & Pan (2014) from 2002 to 2011revealed that in thirty-
eight (38) studies, CSR is positively associated with OP, in six (6) CSR is negatively associated
and twenty-one (21) studies witnessed insignificant results and rest of studies fall in “other”
category of results.
Corporate governance is an important contingency in determining CSR-OP relationship.
In past decade, researchers have paid significant attention to investigate the benefits of corporate
governance for the organizations (Cheung et al., 2008). Numerous studies have discussed the
association between CG and organizational performance in developed nations (Bauer et al., 2008;
Black et al., 2006). Nevertheless, lesser number of studies have explored a link between corporate
governance and organizational performance in developing nations (Kajola, 2008; Lamport
Seetanahah & Sannassee, 2011). Empirical studies on CG-performance link have focused on
specific attributes like size of the board (Yasser, Entebang & Mansor, 2015), composition of the
board (Javid & Iqbal, 2006), different committees of the board (Ho, 2005) and leadership structure
(Heenetigala & Armstrong, 2011). Results on CG-performance relationship are varied and
inconsistent ranging from positive to negative and no. However, current review studies observed
that positive association dominates (Love, 2010).

CSR from stakeholders’ perspectives

Stakeholder theory originated from Freeman’s (1984) seminal work, “Strategic

Management: A stakeholder approach.” Stakeholder theory suggests that an organization’s
primary objective is to take care of its diverse stakeholders. It postulates that organizations cannot
satisfy shareholders without satisfying other kinds of stakeholders (Freeman, 1984; Foster &
Jonker, 2005), so an inclusive stakeholder approach can help organizations maximize shareholder
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wealth while also creating value for other stakeholders. Donaldson and Preston (1995) also
considered stakeholder theory as instrumental in establishing the link between stakeholder
management and OP (Donaldson & Preston, 1995). The instrumental approach postulates that
stakeholders’ interests are ways to achieve organizations’ economic goals and that taking care of
diverse stakeholders draws a positive response from stakeholders, which increases performance
(Donaldson & Preston, 1995).

Primary stakeholders are those stakeholders who are important for survival and success of
an organization (Freeman, 1984). Clarkson (1995) identified shareholders, customers, employees,
suppliers, community, and environment as primary stakeholders who have considerable influence
on organizations. Clarkson also elucidated that an organization’s survival and success depends
heavily on the satisfaction of its primary stakeholders. Organizations with close relationships to
primary stakeholders manage stakeholder-inflicted costs and leverage OP (Barney & Hansen,
1994).

In Pakistan, organizations are serving a set of stakeholders for their survival and success
ranging from shareholders, government, employees, suppliers, customers, community,
environment and others. In corporate settings, shareholders - being the owner have been the most
important stakeholders whereas community and environment have grabbed attention in recent
times. Employees and customers have also strong influence due to their functional value. However,
suppliers have been accorded least priority in Pakistani organizations.

Further, the effect of stakeholder-oriented CSR on OP can be explained with consumer

inference-making theory, signaling theory, and social identity theory. Consumer inference-making
theory suggests that, if an organization is perceived as being responsible to its various stakeholders,
consumers infer a positive view of its product(s) (Brown & Dacin, 1997). This positive inference
improves the organization’s image and draws consumers’ goodwill (Brown & Dacin, 1997;
Handelman & Arnold, 1999) which, in turn, influences their purchase behavior positively (Gildea,
1994; Owen & Scherer, 1993). Signaling theory (Boulding & Kirmani, 1993) posits that, when
buyers and sellers face information asymmetry, they look for signals that separate responsible
organizations from irresponsible organizations. Signaling theory suggests that an organization’s
CSR initiatives generate positive signals that improve the organization’s image (Basdeo et al.,
2006). Signaling theory is specifically instrumental in explaining how CSR affects an
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organization’s reputation (Walker, 2010). Social identity theory explains how membership in a
social organization, including the organization for which one works, influences one’s self-concept
(Ashforth & Mael, 1989). A good reputation influences an organization’s employees’ self-image.
In addition, both consumers (Aaker, 1994) and investors (Graves & Waddock, 1994) like to
associate themselves with responsible organizations.

Fig 1: Theoretical Framework

The contingency perspective of CSR supports the use of CG as moderating variables, as it
posits that there is a fit between CSR and contextual variables in attaining OP (Gerdin & Gerve,
2004). Barnett (2007) was of the view that it is naïve to think that CSR and OP will always be
related under all conditions, as numerous factors influence the relationship between CSR and OP,
so it is necessary to define where the relationship does not exist. Accordingly, CSR may positively
affect the organization’s financial performance in certain situations and adversely in other
situations. Situational contingencies help to clarify the relationship between CSR and OP. The
theoretical framework is presented in Fig 1.

CSR and Organizational Performance

As different theoretical perspectives like consumer inference making, social identity and
signaling theory postulate that CSR positively influences organization’s financial and non-
financial performance. Moreover, meta-studies (Margolis et al., 2009; Orlitzky et al., 2003) have
also endorsed an overall positive association between the two constructs across countries and over
time, as have literature reviews (Lu et al., 2014; Margolis & Walsh, 2003).

The positive association endorses an instrumental orientation of CSR initiatives. An

instrumental orientation considers CSR to be a strategic tool for achieving an organization’s
economic objectives. The instrumental perspective claims that strengthened stakeholder
relationships are ancillary to superior OP. Other theorists have also argued that promoting
stakeholders’ interests spurs OP (Harrison & Wicks, 2013; Waddock & Graves, 1997). On the
other hand, organizations’ irresponsible behavior upsets their stakeholders, who react by
boycotting the organization (Donnell, 2013; Hayes & Pereira, 1990), limiting their purchases
(Olofsson & Soderholm, 2014; Sen & Bhattacharya, 2001), initiating legal action (Donnell, 2013;
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Greeno & Robinson, 1992), and spreading bad word-of-mouth (Antonetti & Maklan, 2016; Clair
et al., 1995). Hence, it is proposed:

H1: CSR toward primary stakeholders (shareholders, customers, employees, suppliers,

community, and environment) positively influences the organization’s financial and non-financial
performance.

Organizational Performance and CSR toward the Community

Community is one of organizations’ primary stakeholders, as their communities can help

them survive and succeed (Freeman & Reed, 1983). CSR toward the community usually includes
initiatives like health facilities, promotion of education, poverty control, and income generation.
CSR for community stakeholders typically takes the form of charity, community liaising, and
contributions to socio-economic development (Mishra & Suar, 2010). When organizations
undertake CSR initiatives for their communities, they earn a reputation for being socially
responsible (Husted, 2003; Saiedi et al., 2016). Researchers have also observed that, when
organizations invest in community initiatives, they gain a competitive advantage (Berman et al.,
1999; Saiedi et al., 2016). Community-related CSR initiatives also attract tax benefits, relaxed
regulations, and improved labor quality (Madueno, et al., 2016; Waddock & Graves, 1997). Hence,
it is hypothesized that:

H1a CSR toward the community positively influences the organization’s financial and non-
financial performance.

Organizational Performance and CSR toward the Environment

The environment as a stakeholder is gaining significance because of the life-threatening

changes in the global climate. Organizations across the world are facing institutional and
normative pressure to implement stringent environmental controls (Campbell, 2007), so many
organizations have started taking practical measures to protect the environment (Dixon-Flower et
al., 2013). With the growing importance of environmentally friendly processes, organizations have
realized the importance of practicing environmental stewardship in their long-term survival.
Empirical evidence has suggested that an organization’s effective and efficient environmental
management increases its market value (Grewatsch & Kleindienst, 2015; Klassen & McLaughlin,
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1996), reputation (Alvarez et al., 2001; Grewatsch & Kleindienst, 2015; Miles & Covin, 2000),
and OP (Dixon-Flower et al., 2013; Russo & Fouts, 1997). Moreover, meta-analytical studies on
environmental and financial performance has revealed a positive link between these two constructs
(Dixon-Flower et al., 2013; Orltizky et al., 2003). Hence, it is hypothesized that:

H1b: CSR toward the environment positively influences the organization’s financial and non-
financial performance.

Organizational Performance and CSR toward Employees

Employees are primary stakeholders for the organization (Freeman, 1984). CSR toward
employees helps to ensure the organization’s smooth functioning (Horisch, et al., 2016; Freeman
& Reed, 1983), but it goes beyond the terms and conditions of their employment contracts to
include initiatives like fair treatment in the workplace, personal and professional training,
supportive employment policies, progressive remuneration, and congenial working conditions
(Mullins, 2007). Proactive policies and practices toward employees reflect an organization’s
intention to address employees’ concerns, increases their productivity (Berman et al., 1999;
Mensah et al., 2017), increases OP (Koys, 2001; Yu, & Choi, 2014). Employees like to identify
themselves with socially responsible organizations (Bai & Chang, 2015; Dutton et al., 1994), and
studies have established that superior human resource management practices control employee
turnover and enhance organizational productivity, and consequently OP (Huselid, 1995; Mensah
et al., 2017; Youndt et al., 1996). Hence, it is hypothesized that:

H1c: CSR toward employees positively influences the organization’s financial and non-financial
performance.

Organizational Performance and CSR toward Customers

Customers are also an organization’s primary stakeholders (Freeman & Reed, 1983) and
are key to its survival. CSR initiatives toward customers include advertising standards, product
quality, customer health and safety, and the like (Mishra & Suar, 2010). CSR toward customers
creates value for an organization in several ways. Improving customers’ perception of an
organization helps to improve its performance (Waddock & Graves, 1997). Effective CSR policies
toward customers project the organization’s responsible behavior, which affects purchase behavior
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positively and improves OP as a result (Homburg, et al., 2013; Vahdati, et al., 2016; Berman et al.,
1999). If customers have positive perceptions regarding the quality of an organization’s product
and safety standards, sales performance improves (Chung, et al., 2015; Waddock & Graves, 1997),
which improves the bottom line. On the other hand, inferior product quality influences OP
adversely (De Toni et al., 2016; Landon & Smith, 1997). Hence, it is supposed that:

H1d: CSR toward customers positively influences the organization’s financial and non-financial
performance.

Organizational Performance and CSR toward Suppliers

Suppliers are often neglected stakeholders, yet they are important to organizational success
(Freeman, 1984) and are included in the list of organizations’ primary stakeholders (Freeman &
Reed, 1983). Suppliers have gained significance as organizations have begun to outsource some
of their core functions to suppliers (Govindan, et al., 2013; Prahalad & Hamel, 1990). CSR
initiatives toward suppliers include health and safety, timely payment, fair prices, and maintaining
long-term relationships (Spiller, 2000). If an organization protects its suppliers’ interests, it helps
organization to get quality inputs and to manufacture quality products (Rettab et al., 2009). CSR
toward suppliers also improves the organization’s reputation (Homburg, et al., 2013; Papasolomou
et al., 2005) and, thus, its performance. On the other hand, neglecting suppliers’ interests
negatively affects OP. Studies have found that organizations that take care of their suppliers see
increases in their financial and non-financial performance (Eltantawy, et al., 2009; Mishra & Suar,
2010). Hence, it is hypothesized that:

H1e: CSR toward suppliers positively influences the organization’s financial and non-financial
performance.

Organizational Performance and CSR toward Shareholders

Shareholders are primary organizational stakeholders (Freeman, 1984; Freeman & Reed,
1983) since the organization’s fundamental objective is to take care of its shareholders (Friedman,
1970; Jensen, 2000). Empirical evidence has suggested that, protecting its stockholders’ interests
yields superior returns on the capital employed (CLSA, 2000; Pham, et al., 2009), and
shareholders-focused CSR increases market value (Nemkumar, 2000; Noked, 2013). Studies have
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observed that taking care of shareholders increases both financial and non-financial performance
(Hahn, 2011; Mishra & Suar, 2010). Hence, it is expected that:

H1f: CSR toward shareholders positively influences the organization’s financial and non-financial
performance.

Corporate Governance and Organizational Performance

Good governance is a necessary pillar of sustainable CSR (Elkington, 2006; Jamali et al.,
2008). A few studies have observed no relationship or a negative relationship between CG and OP
(Lamport et al., 2011), but most have shown a positive association (Shan & McIver, 2011; Vo &
Phan, 2013). Brown and Caylor (2004) observed that well-governed organizations are more
profitable than those that are not well-governed. De Toledo (2007) tested the governance effect on
performance in Spanish companies and revealed a significant association between CG and OP.
Bauer et al. (2008) constructed an index of CG elements to examine the CG-OP link and found a
significant effect of these elements on stock prices.

Particular to Pakistan, Javid and Iqbal (2006) found a positive and significant effect of CG
on the OP of public, listed companies in Pakistan. Latif et al. (2013) used factors like board size
to investigate the effect of CG on the OP of sugar mills in Pakistan and found a significant positive
relationship. Hence, it is expected that:

H2: Corporate governance directly influences the organization’s financial and non-financial
performance.

Scholars have depicted good governance as the foundation of integrated CSR activities
(Jamali et al., 2008), arguing that an effective governance system should be in place if CSR is to
be sustained over the long run. Hancock (2005) argued that the CSR-OP relationship is contingent
on good governance, among other things. Scholars have viewed CSR as a core responsibility of
corporate boards and effective governance as a basic requirement for sustainable CSR (Elkington,
2006) and have argued that, when an organization is practicing good CG, then its CSR increases
OP more than it would have otherwise. Hence, it is proposed that:

H2a: Corporate governance moderates the relationship between CSR and the organization’s
financial and non-financial performance.
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Method:

This study uses deductive approach and quantitative method of research. In deductive approach,
existing theories are used to support hypothetical relationships. The researcher moves from a
general idea to a specific position by using deductive reasoning and proves assumptions and
hypotheses which are drawn from existing theories (Ritchie et al., 2013)

Regression analysis establishes causal linkages by assessing the nature and strength of relationship.
Quantitative method contains objectivity because it considers constructs, hypothesis and
synthesizes the study findings by using numerical values and describes the strength of association
between variables (Neill, 2007).

Sample and Data Collection

The population for this study consists of public listed companies in Pakistan’s
manufacturing sector. These organizations have more financial, human, and technological
resources than private companies, have greater awareness of CSR, and actively practice CSR
(Sajjad & Eweje, 2014). These companies are regulated under the Companies Ordinance of 1984
and also adhere to the listing regulations of the capital market. The SECP closely monitors the
workings of these organizations, having issued CSR Voluntary Guidelines 2013 to promote
responsible business conduct in these companies. These guidelines provide a framework for CSR
practices and encourage companies to work in collaboration with their stakeholders to execute a
socially responsible strategy (SECP, 2013).

The manufacturing sector in Pakistan included 361 public listed companies. This study
used primary data generated by means of a questionnaire. This data was collected for the year
2016-17 As CSR decisions are made by managers who are directly and closely involved in CSR
strategy, managers were chosen as informants (Mishra & Suar, 2010; Rettab et al., 2009; Saeidi et
al., 2014). Data on CG indicators was extracted from respondents’ organizations’ annual reports.
Questionnaires were mailed, posted or personally administered to the 361 organizations in
manufacturing sector. Each organization was provided with 5 questionnaires to get it filled from
more than one manager. Researcher requested managers to respond the questionnaire when they
find time and will be collected in a week.
 ACCEPTED MANUSCRIPT

Some managers returned filled questionnaires through mail during first week. After a
week, organizations were visited to collect the pending questionnaires. Some questionnaires were
received and some managers had not yet completed the questionnaire. They were reminded of
these questionnaires. After second week, managers were visited again and some more
questionnaires were received. Researcher gave a second reminder to those managers who had not
filled the questionnaires yet. This time, researcher also provided postal address to managers and
they were requested to send the filled questionnaires on this address.

Multiple responses were received from one particular organization as five questionnaires
were provided to each organization. These multiple responses received from one particular
organization were then averaged to make it one response. Out of 361 organizations, 213 filled
these questionnaires. Questionnaires from thirty-four organizations were found incomplete so
these questionnaires were not included in final analysis. Thus, researcher included valid responses
received from 179 organizations in analysis.

Measures

In addition to the demographics of managers and their respective organizations, data on

CSR toward various stakeholders, financial and non-financial performance were obtained through
the questionnaire. Measures of the constructs used in this study were adapted from earlier research.
Earlier research measured CSR with parameters that range from CSR disclosure (Anderson &
Frankle, 1980) to CSR rating and indices (Cavaco & Crifo, 2014; Griffin & Mahon, 1997; Preston
& O'Bannon, 1997; Soana, 2011) and perceptual measures (Aupperle et al., 1985; Chen & Wang,
2011; Huang & Lien, 2012; Mishra & Suar, 2010; Ruf et al., 2001). In this study, CSR is measured
using a scale developed by Spiller (2000) and used by several studies (Habisch et al., 2005; Jamali,
2008; Spiller, 2000).

OP is measured here using Hoque et al., (1997) Balanced Scorecard, as have many other
studies (e.g., Hoque & James, 2000; Mishra & Suar, 2010; Saeidi et al., 2014). Corporate
reputation is measured using a scale developed by Fomburn et al. (2000), which has also been used
by other studies (Rettab et al., 2009). So this study has used perceptual measures. Studies that use
perceptual measures tend to report a stronger CSR-OP relationship than do those that do not use
these measures (Wu, 2006).
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CG is measured by means of an index that uses several indicators selected from the Code
of Corporate Governance of 2012, which applies to public listed companies in Pakistan.
Researchers have measured CG by combining individual elements of CG into an index, rather than
using them independently (Almazan & Suarez, 2003; Baber, Kang, Liang, & Zhu, 2009).
Researchers have argued that board monitoring significantly affects the quality of CG (Gillan,
2006) as does an effective and independent board of directors (Coombes & Watson, 2000). A
strong board controls information asymmetry and mitigates agency issues through effective
monitoring. This study considers seven board variables: board size (Vo & Phan, 2013; Mande et
al., 2012; Stefanescue, 2014), board independence (Mande et al., 2012; Stefanescue, 2014), board
diversity (DeFond et al., 2005; Mande et al., 2012), board leadership (Adams et al., 2012; Lin,
2005), the size of board committees (Mande et al., 2012; Stefanescue, 2014), auditing
independence (Mande et al., 2012; Stefanescue, 2014), and compensation independence
(Stefanescue, 2014).

We controlled for two variables that have been reported to impact significantly the effects
of CSR on OP. First, past research provides evidence that the size of the firm has an impact on the
association between CSR and OP (Moore, 2001; Stanwick & Stanwick, 1998) because
stakeholders expect more social initiatives from large corporations than they do from small ones
(Drawbaugh, 2001; Klein, 1999). In addition, small firms are less able than their large counterparts
to communicate their CSR activities to external stakeholders. Therefore, we controlled for the size
of the firm, measured as the value of total assets. Second, the type of CSR activities firms engage
in depends on their industry sector (McGuire et al., 2003; Waddock and Graves, 1997). For
instance, firms in the oil sector are involved more in environmental issues, while firms in the food
industry are involved more in health and safety and community-related CSR activities. Further,
Kolk (2003) reported that industries differ in their propensity to engage in CSR initiatives.
Therefore, we controlled for industry sector. Firms were grouped into thirteen sectors: automobile
assembly, parts and accessories, cement, chemicals, engineering, fertilizers, food and personal
care, glass and ceramics, tobacco, leather, paper and board, pharmaceuticals, sugar and allied
industries, and textile sectors.

Validity and Reliability of Measurement Scales

 ACCEPTED MANUSCRIPT

Although we used established measures, we subjected the constructs used in this study to
standard testing to ensure that our constructs were reliable and valid (Ping, 2004; Slater et al.,
2006). Following the steps used by Slater et al. (2006), we analyzed the psychometric properties
of the constructs used in this study in confirmatory factor analysis (CFA) using AMOS Graphics
version 23. We also evaluated the fit of the measurement model by testing the constructs’
convergent validity. Commonly used techniques for testing the convergent validity are
standardized coefficients of regression (λ) and the constructs’ average variance extracted (AVE)
scores (Fornell & Larcker, 1981; Ping, 2004). To ensure convergent validity, it is recommended
that the standardized regression weight of indicators and the AVE of the construct be greater than
or equal to 0.50 (Hair et al., 2010).

Following the convergent analysis, we established discriminant validity by comparing the

square root of AVE for a construct with the paired correlation (Bove et al., 2009). If estimates of
the square root of AVE are greater than the paired correlation coefficients between the factors,
then discriminant validity is achieved (Hair et al., 2010). Table 3 presents the constructs’ square
of AVE and the paired correlations. When the square root of AVE is compared with paired
correlation, the results establish the discriminant validity of all the latent constructs in the data.
We assessed the construct reliability by calculating the composite reliability (CR) for each
construct. We used the procedures suggested by Fornell and Larcker (1981) to calculate the CR
index (CRI). The Cronbach’s alpha was also calculated for reliability purposes.

Table 1: Validity and Reliability Statistics

Fit of the Measurement Model

The model fit was evaluated using a two-index strategy that covers absolute and incremental fit
indices for ascertaining the model fit (Hu & Bentler, 1999). The comparative fit index (CFI), the
Tucker-Lewis index (TLI), the incremental fit index (IF), and the root mean square error of
approximation (RMSEA) index of all the constructs are presented in Table 2.

Table 2: Fit Indices

Analysis and Results

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This study used path analysis to test direct effect of aggregate and segregated CSR on
organizational financial and non-financial performance. Using structural model in AMOS, the
effect of aggregate and segregated CSR on financial and non-financial performance was estimated.
Likewise, with the help of structural model in AMOS, moderating effects of responsible leadership
and corporate governance between CSR-FP and CSR-NFP link was estimated. Aggregate CSR is
sum CSR initiatives undertaken for all the primary stakeholders and segregated CSR is CSR
initiatives for one particular stakeholders like employees (Mishra & Suar, 2010).

Table 3 presents the means, standard deviations, and correlations of the sets of variables.
Correlations between the dependent and independent variables are significantly correlated,
suggesting a potential causal association between the variables. In addition, correlation results (r
< 0.9) indicate that multi-collinearity between the independent variables (independent variable and
control variables) does not appear to be a serious problem.

Table 3: Correlation Statistics

We performed preliminary analyses to ensure there was no violation of the key assumptions. Table
4, which reports the results, shows that all performance measures are significantly associated with
CSR. We found support for all of our hypotheses: Aggregate CSR has a significant positive impact
on financial performance (B = 0.210, p < 0.01) and non-financial performance (B = 0.301, p <
0.01), and there is a significant and positive association between CSR toward various stakeholders
and financial and non-financial performance. The financial performance effect of CSR toward
stakeholders ranged from B= 0.195, p < 0.01 for CSR toward the environment to B= 0.316, p <
0.01 for CSR toward employees. The non-financial performance effect of CSR toward
stakeholders ranged from B= 0.251, p < 0.01 for CSR toward the environment to B= 0.341, p <
0.01 for CSR toward employees.

Table 4: CSR Effect on Performance

The findings regarding the direct effect of CG on organizations’ financial and non-financial
performance revealed that CG positively influences financial performance (γ= 0.113, p<.05) and that
it helps organizations improve their non-financial performance (γ= 0.104, p<.05). The effect of CG
on financial performance is stronger than the effect on non-financial performance.
 ACCEPTED MANUSCRIPT

The results presented in Table 6 show that the moderator effects of CG on the relationship between
CSR and financial and non-financial performance are statistically significant. CG moderates the
relationship between CSR and financial performance (γ= 0.096, p<.05) and that between CSR and
non-financial performance (γ= 0.060, p<.05) positively.

As for the robustness of the results, we tested the moderating effect of CG by splitting the sample
organizations into two groups also—organizations with strong CG and organizations with weak.

The results presented in Table 6 show the effects of CSR on financial and non-financial
performance in the strong CG and weak CG groups. CSR affected financial and non-financial
performance positively both in the weak CG group (γ= 0.159) and in the strong CG group (γ=
0.239) but the effect of CSR in the strong CG group is more pronounced than that in the weak CG
group, demonstrating the moderating effect of CG on financial performance and non-financial
performance.

Table 5: CG Effect on Performance

Discussion and Conclusion

This study explores the effect of aggregate and segregated CSR on organizations’ financial and
non-financial performance, moderated by RL and CG. The findings show that aggregate CSR
toward six primary stakeholders caused a surge in both financial and non-financial performance,
confirming the findings of earlier research (Mishra & Suar, 2010; Papasolomou et al., 2005).
Clarkson (1995) posited that primary stakeholders have higher influence on organizations than
other stakeholders do and elucidated that an organization’s survival and success depends largely
on primary stakeholders’ satisfaction. Clarkson contended that, if any of the primary stakeholders
stop playing their roles, their organizations cannot operate (Clarkson, 1995). Organizations that
are closely liaised with primary stakeholders manage stakeholder-inflicted costs and leverage OP
(Barney & Hansen, 1994). Researchers have observed that responding to primary stakeholders’
demands usually increases shareholders’ wealth (Barnett, 2016; Hillman & Keim, 2001).

Findings also show that CSR toward each of the primary stakeholders positively affects both
financial and non-financial performance. Employees were observed as the most influential
stakeholder and environment as the least influential, so employees are a major determinant of
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organizational success (Buzzelli, 1991) and their motivation has a greater effect on OP than does
that of any other group of stakeholders. Hart (1995) considered CSR a dynamic process that is
highly dependent on employees’ abilities, while Azzone et al. (1997) argued that employees are a
major part of an organization’s internal configuration, and their competencies strongly reflect on
OP.

Moreover, employees have a higher stake in organizational success because their economic
livelihood is at stake. Employees cannot easily switch jobs today, as they do not have diversified
portfolios of job interests (Post, 2003). When firms start their CSR efforts with internal
stakeholders, the financial returns will be superior because internal CSR is more in the company’s
span of control and because internal CSR activities directly impact performance (Basu & Palazzo,
2008; Carmeli et al., 2007; Cole et al., 2010; Roberts, 2003).

Each of the six types of stakeholders affected non-financial performance strongly, corroborating
the findings of earlier research (Mishra & Suar, 2010). The most immediate impact of stakeholder
response is reflected in non-financial performance, which then affects financial performance. If
this conversion process (governance) is effective, well-regulated, and monitored, the dividends
witnessed in non-financial performance will likely be fully converted into financial dividends. In
poorly governed firms, non-financial dividends would not be fully converted into financial
dividends. Consistent with the resource-based perspective (Barney & Clark, 2007), performance
in relation to CSR is contingent on leveraging non-financial indicators through strong CG.

The findings on the direct effect of CG on organizational financial and non-financial performance
reveal that CG positively influences organizations’ financial performance. These findings reflect
that sound governance at the organizational level helps organizations improve their performance.
These findings are consistent with the findings of earlier studies on the relationship between CG
and financial performance (Cheema & Din, 2013; Shan & McIver, 2011; Vo & Phan, 2013).
Unlike CSR and RL, CG influences the financial indicators of performance strongly. The results
show that CG significantly moderates and strengthens both the financial and the non-financial
perspectives of the CSR-OP relationship, so organizations that practice good CG see positive and
improved CSR-OP relationships. Therefore, CSR, complemented with strong CG, brings high
dividends for organizations and, according to this model, CG is one of CSR’s basic building blocks
(Jamali et al., 2008). This conception is also consistent with Elkington (2006), who views strong
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CG as a pillar of sustainable CSR, as the fundamental purpose of CG is to ensure that effective

implementation of corporate strategies in the best interests of stakeholders (Aguilera et al., 2008;
Castañer & Kavadis, 2013; Daily et al., 2003).

This study has important implications for the business organizations. This study will help business
managers in identifying how stakeholders’ management can contribute to superior organizational
performance. This study will help raise corporate governance standards in Pakistani organizations.
Moreover, it will also help leaders listen to all the relevant stakeholders, not only focusing on
shareholders.

Future Research Directions:

This research used organization-level CG as a moderator between CSR and OP, but future research
should test the effect of country-level governance on organization-level performance should also
be explored. Moreover, researchers should also investigate the moderating effect of some
leadership style like responsible leadership which is relevant leadership style for corporate social
responsibility. The present research was carried out in the manufacturing sector, so researchers
may want to investigate this relationship in a specific industry within the manufacturing sector in
future, to determine industry-specific outcomes. In future, researchers may investigate the CSR-
OP relationship in the service sector, which is a particularly vibrant and resilient sector in Pakistan.

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Figures and Tables

Corporate
Governance
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CSR Organizational
 Community Performance
 Employees  Financial
 Environment  Non-Financial
 Customers
 Suppliers
 Shareholders

Fig 1: Theoretical Framework

Table 1: Validity and Reliability Statistics

Construct AVE COR Range of loadings Cronbach Alpha

Community 49.5 0.894 0.604-0.758 0.870

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Environment 51.8 0.904 0.478-0.787 0.874

Employees 53.4 0.919 0.657-0.766 0.900

Customers 54.8 0.923 0.474-0.839 0.875

Suppliers 51.7 0.914 0.530-0.760 0.864

Shareholders 47.0 0.898 0.608-0.718 0.876

FP 73.2 0.891 0.829-0.894 0.891

NFP 60.5 0.852 0.621-0.869 0.954

AVE= Average Variance Extracted COR= Composite Reliability= FP=Financial Performance NFP= Non-financial
Performance

Table 2: Fit Indices

Construct IFI TLI CFI RMSEA

COM .934 .892 .931 .081

ENV .952 .911 .951 .085

EMP .960 .935 .959 .071

CUS .945 .910 .943 .075

SUP .901 .839 .897 .099

SHR .906 .848 .903 .099

NFP .914 .887 .912 .084

FP .905 .877 .904 .089

COM= Community ENV= Environment EMP= Employees CUS= Customers SUP= Suppliers SHR= Shareholders
FP=Financial Performance NFP= Non-financial Performance

Table 3: Correlation Statistics

1 2 3 4 5 6 7 8 9 10
1-IND
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2-Size -0.032
3-COM -0.261** -0.034 (0.677)
4-ENV -0.108 -0.127 0.445 (0.719)
5-EMP -0.074 -0.020 0.477** 0.561** (0.731)
6-CUS -0.125 0.072 0.447** 0.539** 0.613** (0.740)
7-SUP -0.102 0.019 0.467** 0.423** 0.541** 0.555** (0.719)
8-SHR -0.145 -0.054 0.492** 0.480** 0.596** 0.590** 0.481** (0.686)
9-FP -0.170* 0.025 0.378** 0.249** 0.399** 0.342** 0.328** 0.340** (0.855)
10-NFP -0.210** -0.022 0.463** 0.370** 0.493** 0.434** 0.462** 0.465** 0.512** (0.778)

Table 4: CSR Effect on Performance

Financial Performance

Predictors Estimate S.E C.R P R2

Aggregate CSR FP 0.210 0.058 3.476 ** 0.097

Community CSR FP 0.291 0.058 5.030 ** 0.149

Environment CSR FP 0.195 0.059 3.319 ** 0.085

Employees CSR FP 0.316 0.065 4.920 ** 0.108

Customers CSR FP 0.261 0.057 4.620 ** 0.133

Suppliers CSR FP 0.250 0.060 4.250 ** 0.126

Shareholders CSR FP 0.261 0.057 4.601 ** 0.132

Non-Financial Performance

Predictors Estimate S.E C.R P R2

Aggregate CSR NFP 0.301 0.049 6.149 ** 0.216

Community CSR NFP 0.310 0.049 6.360 ** 0.224

Environment CSR NFP 0.250 0.050 5.091 ** 0.169

Employees CSR NFP 0.341 0.047 7.484 ** 0.344

Customers CSR NFP 0.304 0.049 6.236 ** 0.218

Suppliers CSR NFP 0.321 0.048 6.783 ** 0.243

Shareholders CSR NFP 0.320 0.048 6.698 ** 0.239

S. E= Standard Deviation C. R=Critical Ratio CSR= Corporate Social Responsibility FP= Financial Performance
NFP= Non-financial Performance

Table 5: CG Effect on Performance

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Variable Estimate S.E P R2

CG FP 0.113 0.049 * 0.043

CG NFP 0.104 0.051 * 0.119

CSR x CG FP 0.096 0.047 * 0.114

CSR x CG NFP 0.060 0.065 * 0.230

Strong CG

Variable Estimate S.E P R2

Strong CG FP 0.239 0.038 ** 0.500

Strong CG NFP 0.477 0.100 ** 0.238

Weak CG

Weak CG FP 0.159 0.032 ** 0.228

Weak CG NFP 0.257 0.082 ** 0.211

Appendix: A Questionnaire
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Organization Demographics:

Name of the organization_______________________________________________________

Industry/Sector: No. of Employees:

Respondent’s Profile:

Age: Gender:

Education: Experience: Years

Corporate Governance Information:

Number of directors on the Board: ___________________________________________

Number of non-executive directors on the Board: _______________________________

Number of independent directors on the Board: ________________________________

Chairman of the Board: Executive Director Non-Executive Director

Independent Director
Female director on the board Yes No
Are the Chairman and CEO same person Yes No
Members of Compensation Committee

Independent Director in Compensation Committee- Yes No

Members of Audit Committee
Independent Director in Auditing Committee Yes
No

Your opinion about your organization

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Corporate Social Responsibility

This section is intended to assess CSR performance. Please circle the number best represents your
answer where 1=Strongly Disagree, 2= Disagree, 3= Neutral, 4= Agree, 5= Strongly Agree

Key CSR Practices

Community

Generous financial donations 1 2 3 4 5

Innovative giving 1 2 3 4 5

Support for education and job training programs 1 2 3 4 5

Direct involvement in community projects and affairs 1 2 3 4 5

Community volunteer programs 1 2 3 4 5

Support for the local community 1 2 3 4 5

Campaigning for environmental and social change 1 2 3 4 5

An employee-led approach to philanthropy 1 2 3 4 5

Efficient and effective community activity 1 2 3 4 5

Disclosure of environmental and social performance 1 2 3 4 5

Environment

Environmental policies, organization and management 1 2 3 4 5

Materials policy of reduction, reuse and recycling 1 2 3 4 5

Monitoring and taking responsibility for releases to the environment 1 2 3 4 5

Waste management 1 2 3 4 5

Energy conservation 1 2 3 4 5

Effective emergency response 1 2 3 4 5

Public dialogue and disclosure 1 2 3 4 5

Product stewardship (Responsibility for environmental impact of product) 1 2 3 4 5

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Environmental requirements for suppliers 1 2 3 4 5

Environmental audits (Evaluation of compliance with environmental laws) 1 2 3 4 5

Employees

Fair remuneration 1 2 3 4 5

Effective communication 1 2 3 4 5

Learning and development opportunities 1 2 3 4 5

Fulfilling work 1 2 3 4 5

A healthy and safe work environment 1 2 3 4 5

Equal employment opportunities 1 2 3 4 5

Job security 1 2 3 4 5

Competent leadership 1 2 3 4 5

Community spirit 1 2 3 4 5

Social mission integration 1 2 3 4 5

Customers

Industry-leading quality program 1 2 3 4 5

Value for money (Does money paid receives value in form of product) 1 2 3 4 5

Truthful promotion 1 2 3 4 5

Full product disclosure 1 2 3 4 5

Leadership in research and development 1 2 3 4 5

Minimal packaging 1 2 3 4 5

Rapid and respectful responses to customer comments/concerns 1 2 3 4 5

Customer dialogue 1 2 3 4 5

Safe products 1 2 3 4 5

Environmentally and socially responsible product composition 1 2 3 4 5

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Suppliers

Develop and maintain long-term purchasing relationships 1 2 3 4 5

Clear expectations 1 2 3 4 5

Pay fair prices and bills according to terms agreed upon 1 2 3 4 5

Fair and competent handling of conflicts and disputes 1 2 3 4 5

Reliable anticipated purchasing requirements 1 2 3 4 5

Encouragement to provide innovative suggestions 1 2 3 4 5

Assist suppliers to improve their environmental/social performance 1 2 3 4 5

Utilize local suppliers 1 2 3 4 5

Sourcing from minority-owned suppliers 1 2 3 4 5

Inclusion of environmental/social criteria in the suppliers’ selection 1 2 3 4 5

Shareholders

Good rate of long term return to shareholders 1 2 3 4 5

Disseminate comprehensive and clear information 1 2 3 4 5

Encourage staff ownership of shares 1 2 3 4 5

Develop and build relationships with shareholders 1 2 3 4 5

Clear dividend policy and payment of appropriate dividends 1 2 3 4 5

Corporate governance issues are well managed 1 2 3 4 5

Access to company’s directors and senior managers 1 2 3 4 5

Annual reports provide a picture of company’s performance 1 2 3 4 5

Clear long-term business strategy 1 2 3 4 5

Open communication with financial community 1 2 3 4 5

Organizational Performance
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This section is intended to assess organizational performance. Please circle the number best
represents your answer where 1= not at all; 2= to a very little extent; 3= to some extent; 4= to a
considerable extent; 5= to a great extent.

Financial Perspective

Operating Income has increased 1 2 3 4 5

Sales Growth has increased 1 2 3 4 5

Return on Investment (RoI) has increased 1 2 3 4 5

Non-financial Performance
Efficiency and quality Indicators

Rate of material scrap loss has decreased 1 2 3 4 5

Labour efficiency has increased 1 2 3 4 5

Material efficiency has increased 1 2 3 4 5

Manufacturing time for a product has decreased 1 2 3 4 5

Ratio of good output to total output has increased 1 2 3 4 5

Percentage defective products shipped has decreased 1 2 3 4 5

Innovation Indicators

Number of new patents has increased 1 2 3 4 5

Number of new product has increased 1 2 3 4 5

Time-to-market new products has decreased 1 2 3 4 5

Customer Satisfaction Indicators

Market share has increased 1 2 3 4 5

On-time delivery has increased 1 2 3 4 5

Number of customer complaints have decreased 1 2 3 4 5

Survey of customer satisfaction is satisfactory 1 2 3 4 5

Percentage of shipments returned due to poor quality has decreased 1 2 3 4 5

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Length of cycle time from order to delivery has decreased 1 2 3 4 5

Warranty repair cost has decreased 1 2 3 4 5

Customer response time has decreased 1 2 3 4 5

Corporate Reputation

In general, our organization has a good reputation 1 2 3 4 5

We are widely acknowledged as a trust-worthy organization 1 2 3 4 5

This organization is known to sell high quality products and services 1 2 3 4 5

THANKS FOR YOUR COOPERATION

Table 5.1: Sample Characteristics-Type and Size of Participating Organizations

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Demographic Variable Number Percentage

Industry

Automobile assembler, parts and accessories 16 9

Cement 13 7

Chemical 15 8

Engineering 11 6

Fertilizer 05 3

Food and personal Care 13 7

Glass and Ceramics 06 4

Tobacco 02 1

Leather 03 2

Paper and Board 06 3

Pharmaceuticals 07 4

Sugar and allied industries 17 10

Textile 65 36