Franchising as a Strategy for Small Business Growth

Franchising as a Strategy for Small Business Growth This paper is an investigation into whether franchising is as effective a method of expansion for a small business as it is for larger more established businesses. To test this theory a case study of two businesses was prepared, Interlink Express and the Cornish Oggy Oggy Pasty Shop. The case studies on the organisations were compiled from the information on their web sites. Both organisations are a member of the British Franchise Association. These case studies were compared to the literature on the topic. Through researching the topic one factor was revealed as being a major issue in franchising, this was the brand. Both the organisations that were studied are successful within their markets in the UK, and therefore proved to be good examples of franchising. The organisations had different motives for using this method for growth. The paper concludes that with the right brand, small business can be just as successful at franchising for expansion as their larger counterparts. Introduction This paper will investigate whether franchising is as effective a method of expansion for a small business as it is for larger more established businesses. There are many different methods that organisations can use to expand; some of these involve raising large amounts of capital, which is not always an viable option for the smaller business. Businesses whether large or small, must plan what their future needs will be, to move forward. Strategy is the direction and scope of an organisation over the long term: which achieves advantage for the organisation. The strategy answers both the questions where do you want to go? and how do you want to get there? Incorrect or too few resources is a major factor of failure for an organisation’s strategy (Mullins L 2005). Once an organisation has developed its strategy, it can then review the methods open to it for growth. Growth can be achieved by direct expansion, mergers with similar firms, franchising or diversification. Some companies choose to grow, not by developing in the conventional way, but by granting a license to others to sell their product or service. There are clear advantages to this, the market is tested, and larger well-established franchise operations will have national advertising campaigns and a solid trading name (Price, S. 1997). Franchising is basically the permission given by one person, the franchisor, to another person, the franchisee, to use the franchisors trade name, trade marks and business system, in return for an initial payment and further regular payments. In relation to any other small business, franchising has proved to be successful, with 96% of units still operating profitable businesses 5 years down the line. To test the theory on expansion and franchising a case study approach was chosen. Both organisations operate within the UK in different market sectors. The small business that was studied is the Cornish Oggy Oggy Pasty Shop, a local organisation from Cornwall; this organisation is expanding by franchising alone. The larger organisation chosen is Interlink Express; this organisation is well established and has its roots in other countries, therefore it is only their UK operation that was studied. Within the UK it has utilised franchising to successfully expand their operation. The backbone of the paper is the literature review. This discusses contemporary theory on organisational strategy, expansion methods and focuses on franchising within the UK. A lot of articles are written for the USA markets, these were not used as they had little relevance towards the UK. Franchises operations are apparent on every high street in the UK. One of the most important factors is the brand name. This what attracts and retains the customer therefore is it viable for a small business to franchise. The importance of the brand became apparent whilst researching this paper. Kotler (2000) described a brand as a â€Å"name, term, symbol, or design (or a combination of them) which is intended to signify the goods or services of the seller or groups of sellers and to differentiate them from those of the competitors† This brand is a valuable asset to all organisations when franchising. Although, the brand name is often not as strong with a small business as it is with their larger counterparts. Franchising originated from the USA, with major players such as McDonald entering the UK market. Franchising for the individual as a small business underwent massive growth in the UK until 2000. This growth has slowed down, but there are still plenty of opportunities for businesses to expand. This paper concludes that given the right small business, expansion is possible though franchising. This franchising must be controlled to uphold the organisation’s ethos, and the brand they trade with. This chapter discusses the research methods used for the project and the justification for the choice of methods. It discusses methods that were not used, with justification of why they were not included. Included is a critique of methods selected, and with hindsight identifies any changes that would have enhanced the research. This paper evaluates the growth in franchising in the UK, and whether this method of expansion is viable for small and large organisations. Selection of the topic was stimulated and formed out of awareness of the many franchised outlets. On nearly every high street there are numerous fast food outlets, which are franchised, more and more businesses are using this model to expand. The nature of the research was discussed with colleagues and fellow students this not only added practical ideas and suggestions, it opened new avenues of thought. This was the discussed with lecturers sounding out ideas, gauging opinions and clarifying the question. The research topic was still wide; therefore other methods were used to form the research question. Focusing in on the question was obtained by employing relevance trees, narrowing the research area. This gave direction to the research, although with reviewing the literature this changed several times (Buzan, J. 1995). Next, a research proposal was compiled, with the benefit of organising ideas and setting a time-scale for research. Theoretically, the proposal would highlight any difficulties with the research question and access to data. Creating a time-scale would focus on targets and meet deadlines in the completion of the paper. The literature review, discussing theories and ideas that exist on the topic formed the foundation of the paper. The findings from the research are then tested on theories for validity (Saunders, M. et al 1997). The literature review was challenging, there is very little research in books that focuses on small businesses and franchising. Journals and newspaper articles were the backbone for the review, together with Internet sites and reports. A lot published articles are written for the American Market, although they can give useful information, they refer to the American market (Saunders, M. et al 1997). Tertiary data sources, such as library catalogues and indexes were used to scan for secondary data. This produced journals and newspaper articles, and Internet addresses. With the amount of literature, it took time to sort out relevant material to the research. Narrowing down the search Bell’s (1993) six point’s parameters was applied. Applying key words that were identified in the first search produced relevant and up-to-date material (Bell, J.1993). A limitation on the literature search was the amount of time to read all articles and books on the subject. Whilst reviewing the literature references to other publications were followed and reviewed. Bells checklist on identifying the relevance of literature found was a practical method to reduce the amount of reading (Bell, J. 1993). To compare two organisations it was decided to do case studies. The organisations chosen both offer franchising in the UK, actively promoting it on their web sites. The case studies of organisations will be reviewed and compared to the literature. The small organisation is expanding though franchising, the larger international organisation uses franchising as part of its overall strategy. These organisations have both applied the franchising business model to their expansion strategy. These organisations were selected from the British Franchise Association web site. Other methods of data collection were considered and rejected. Interviewing owners of franchises would not have revealed the overall organisational strategy, and the success of their expansion methods. The idea of Focus groups would have offered free flowing information; this could have been facilitated with discussion led by the researcher. This method was rejected due to the limited contacts within the chosen organisations; this also it could have been considered unethical to place pressure on their goodwill. The majority of information on their strategies is readily available on the organisations web sites. This information proved valuable when compiling the case studies. This section of the paper will discuss current theory on franchising and fundamental management theory. It discusses choices that are open to organisations when deciding on a strategy, for both small and large organisations. This section will focus on franchising in the UK; this information will be then compared to the case studies. Organisational strategy is the pattern of decisions that determines and reveals to stakeholders the organisations intent; this is achieved through their objectives, purposes, and goals. The organisation identifies where they strategically want to be, and introduces policies and procedures which put in place to achieve these goals. When the strategy is formulated, it will allocate the resources based on its relative internal competencies and shortcomings, and predictable changes in the environment. Strategies are developed at the top level of management, with instructions to the lower levels of management to implement them. Johnson Scholes (1997) concluded â€Å"strategic intent is the desired future state of the organisation†¦which seeks to focus the energies of the members of the organisation (Johnson J Scholes K 1997:15). All organisations require strategic plans to move them forward; some are needed to overcome specific problems within the organisation or the market place. These are long term management decisions that are aimed to place the organisation where the members have decide will be the most strategic place for them. It is the matching of the organisation to the environment; this will lead to â€Å"strategic fit† This is the ideal environment for the organisation to operate within (Reader, A 1998). Managerial decisions are made to identify what is required to implement the new strategy. Are new resources are required? I.e. property, finance or employees, then the risk should be assessed for its long-term value to the organisation. Strategies should not only be considered on how they will affect existing resource capabilities, but also if needed new resources and how they will be controlled. The costs to the organisation should be weighed against the long-term gains, and if needed it can be reviewed, accessed and amended accordingly (G, Johnson K, Scholes, 1997). Therefore strategic decisions will affect the operational level of an organisation, which needs to be in tune with long term goals of the organisation. This factor is important in decision-making; firstly if the operational level is not in line with the strategic level this can cause conflict and jeopardise the strategy, secondly it is at the operational of an organisation that the real strategy is achieved. Procedures and policies should be constantly reviewed, to ensure correct implementation of the strategy (G, Johnson K, Scholes, 1997). Strategy is the direction and scope of an organisation over the long term: which achieves advantage for the organisation through its configuration of resources within a changing environment, to meet needs of the markets and fulfil stakeholder expectations. The strategy answers both the questions where do you want to go? and how do you want to get there? The first question is answered when the goals are set; the second is answered when the strategies are planned. The traditional approach basically focused on the first question although equal importance should be given to both questions. Incorrect or too few resources is a major factor of failure for an organisation’s strategy (Mullins L 2005). A portfolio analysis will review the current position of the organisations products within the chosen markets. Ansoff (1987) developed a product growth matrix, which reviews current products and their markets; this will also highlight new markets that entry to can be considered. Ansoff considered reviewing the portfolio â€Å"as only one part of the equation for a successful strategy† To formulate a successful strategy more than one review of their current position will clearly identify any problematic areas. The greater the information gathered the greater the chance of success of a new strategy (Ansoff (1987) cited in Groucutt, J. et al 2004:212). Organisations need to continually review their strategic position, and then decide how and when to grow. Robbins (1995) defined growth (expansion) as improvement in operation of an organisation, including in general measurements, such as more revenue, increase staffing and market share. Growth can be achieved by direct expansion, mergers with similar firms, franchising or diversification (Robbins, S 1995). The traditional growth moves for organisations are acquisitions, mergers, international expansion, or price increases, these it is argued have largely run out of steam. Therefore for most organisations pursuing new growth opportunities should be the number-one priority. Growth moves fall along a spectrum, ranging from traditional product innovation ie. improving features and brand extensions to longer-term strategies such as taking core capabilities to new markets. Managing new growth requires an active feedback loop of constantly monitoring the progress of each initiative, its changing probability of success, and its shifting risk profile (Burnes, B. 2000) Mergers and acquisitions were an enormous factor of the 1990s growth, as MA activity grew sevenfold from 1994 to 1999. But acquisitions rarely produce new value and sometimes lead to disaster. International markets, are often viewed as a rich field for growth, in reality they hold little opportunity for future sustained gains in many industries. Markets in Western Europe and Japan are as competitive and mature as in the United States. And emerging markets, are characterized by weak consumer and industrial purchasing power, inefficient distribution channels, and protectionist laws that favour local players (Burnes, B. 2000) Mergers combine two or more companies into a single corporation. In business, a merger is achieved when a company purchases the property of other firms, thus absorbing them into one corporate structure that retains its original identity. This differs from a consolidation, in which several concerns are dissolved in order to form a completely new company, or a takeover, which is a purchase of a company against its will. In a merger the purchaser may make an outright payment in cash or in company stock, or may decide on some other arrangement such as the exchange of bonds. The purchaser then acquires the assets and liabilities of the other firms. When two companies directly competing with each other merge, it is horizontal integration; when suppliers and customers merge, the process is vertical integration (Johnson, G Scholes J 2004). Growth through price increases worked over the past decade in industries such as airlines, chemicals, financial services, and consumer products, as underlying demand was bolstered by the 1990s economic expansion. But in all of these industries, companies have run out of room to push through reflexive price increases as demand has slackened and competition has intensified (Johnson, G Scholes J 2004). For a small set of companies new growth is not an immediate concern, as their current growth strategies remain robust. But for most organisations pursuing new growth opportunities is the number-one priority. Today most products, even complex ones such as PCs or airplanes, are largely undifferentiated in terms of performance; so improved product functionality offers little. Fortunately, in most industries a wide range of higher-order customer needs is go unmet. These needs involve the broader economic issues surrounding the product rather than the strictly functional needs met by the product itself (Burnes, B. 2000). Growth moves fall along a spectrum of categories, ranging from traditional product innovation moves such as improving features and brand extensions to longer-term strategies such as taking core capabilities to new markets. Most companies tend to over-invest in areas they are familiar with and have well-established processes and systems (Johnson, G Scholes J 2004). Over the past two decades, the franchising industry has experienced a phase of renewed expansion and continued growth, the advent of new forms of franchising has further added to this growth. Globalisation accounted for much of franchising expansion between the 1960s and the 1980s, new industry segments, such as funeral homes and car repair garages, have been adopting franchising as a means to conduct business based on its standardisation promise. The expansion of older industry segments into non-traditional sites, such as airports, colleges, and hospitals, has allowed for another push in the growth of franchise systems. Through all of these developments, a major portion of the more recent growth can be attributed to the emergence of franchise owners who own more than the traditional single outlet (Grà ¼nhagen, M and Dorsch, M 2003). Brands A valuable asset to all organisations, is the brand name of the product, this is then a vital component when franchising. Kotler (2000) described a brand as a â€Å"name, term, symbol, or design (or a combination of them) which is intended to signify the goods or services of the seller or groups of sellers and to differentiate them from those of the competitors† (Kotler (2000) cited in Groucutt, J et al 2004:275). The brand is part of the products tangible features, it is the verbal and physical clues that help the consumer identify what they want and to influence choice (Groucutt, J et al 2004). The actual word â€Å"brand† is derived from a Norse word which means to â€Å"burn†. It is assumed that this means to imprint ideas or symbols on a product. This then gives the product identification and leaves a lasting mark on the consumer (Groucutt, J et al 2004). Because product features are easily imitated brands have been considered a marketers major tool for creating product differentiation. Even when differentiation based on product characteristics is possible, often consumers do not feel motivated or able to analyse them in adequate depth. Therefore the combination of brand name and brand significance has become a core competitive asset in an ever-growing number of contexts. Brands incite beliefs, evoke emotions and prompt behaviours (Aaker, D. (1991) cited in Kotler, P Gertner, D. 2002:249). Once a brand is established it requires nurturing, to bring out the full potential and add value to the organisation. Kashani (1999) believes that powerful brands are built over time through a conscious management effort. This is achieved through strategic decision-making and appropriate actions. All brands â€Å"need to be based on values and attributes that are permanent and, purposeful and fundamental to its strategy† (Kashani (1999) cited in Groucutt, J et al 2004:285). Therefore by creating such values in an organisation it will provide direction and a future for the brand. A brand with strong â€Å"brand equity† is a valuable asset to an organisation. This asset is difficult to measure; although it has emerged as key strategic asset. A powerful brand enjoys a high level of consumer awareness and loyalty, with the organisation benefiting from lower marketing costs relative to revenues. Consumers expect more outlets to carry strong brands; therefore the organisation has more leverage when bargaining with retailers. This all adds to the â€Å"brands equity†, which needs to be managed by the organisation (Kotler, P. et al 2005). This brand asset management is a concept that is closely related to positioning, since certain brands are central to a companys current and future performance. They need to be managed, enhanced and protected as assets. This allows brand names like Coca-Cola, Sony, Intel and Disney to extend into new product categories, and produce product variants and services (Kotler, P. 2004). What is Franchising? The term franchising has been used to describe many different forms of business relationships, including licensing, distributor and agency arrangements. The more popular use of the term has arisen from the development of what is called business format franchising. Business format franchising is the granting of a license by one person (the franchisor) to another (the franchisee), which entitles the franchisee to trade under the trade mark/trade name of the franchisor and to make use of an entire package, comprising all the elements necessary to establish a previously untrained person in the business and to run it with continual assistance on a pre determined basis (Kotler, P, et al 2005). The principle is simple; some companies choose to grow, not by developing in the conventional way, but by granting a license to others to sell their product or service. There are clear advantages to this, the market is tested, and larger well-established franchise operations will have national advertising campaigns and a solid trading name Some franchisors can also help secure funding and discounted bulk buy supplies for outlets when you are in operation (Price, S. 1997). Each business outlet is owned and operated by the franchisee; however, the franchisor retains control over the way in which products and services that are marketed and sold, and controls the quality and standards of the business. The franchisor will receive an initial fee from the franchisee, payable at the outset, together with on-going management service fees, usually based on a percentage of annual turnover or mark-ups on supplies. In return, the franchisor has an obligation to support the franchise network, notably with training, product development, advertising, promotional activities and with a specialist range of management services (Kotler, P, et al 2005). Franchising is essentially the permission given by one person, the franchisor, to another person, the franchisee, to use the franchisors trade name, trade marks and business system, in return for an initial payment and further regular payments. In a UK franchise industry currently worth  £9.1 billion and comprising 718 franchised units (Nat West UK British Franchise Association Annual Survey of Franchising 2004). In relation to any other small business, franchising has proved to be successful, with 96% of units still operating profitable businesses 5 years down the line. Only 66% of small firms survive the first 3 years (Small Business Service Report 2005). There is (some) evidence to suggest that franchises are less likely to fail than other types of small business organisations (Small Business Service Report 2005). A franchise is defined as a long-term, continuing business relationship in which for a consideration, the franchisor grants to the franchisee a licensed right, subject to agreed requirements and restrictions, to conduct business utilising the trade and/or service marks of the franchisor and also provides to the franchisee advice and assistance in organising, merchandising, and managing the business conducted to the licensee (Price, S. 1997). The franchisor develops a special product, service, or system and gains national recognition. The franchisor then grants a right or license to small, independent businessmen throughout the country to merchandise this service or product under the national trademark and in accordance with a proven, successful format. This increases the franchisors exposure for more national business and gives the franchisee a greater chance for success in a given field with a smaller amount of capital investment (Price, S. 1997) Code of Ethics for Franchising The UK Code of Ethical Conduct in franchising takes as its foundation the Code developed by the European Franchise Federation. In adopting the Code, the Federation recognised that national requirements may necessitate certain other clauses or provisions and delegated responsibility for the presentation and implementation of the Code in their own country to individual member National Franchise Associations. The Extension and Interpretation, which follows the European Code, has been adopted by the British Franchise Association, and agreed by the European Franchise Federation, for the application of the European Code of Ethics for Franchising by the British Franchise Association within the United Kingdom of Great Britain and Northern Ireland (www.thebfa.org). The European Franchise Federation, EFF, was constituted on 23rd September 1972. Its members are national franchise associations or federations established in Europe. The EFF also accepts affiliates, i.e. non-European franchise associations or federations, and other professional persons, interested in or concerned with franchising. Affiliates have no voting rights and cannot be appointed officers of the EFF (www.thebfa.org). The EFF also comprises a Legal Committee, composed of two lawyers from each national member association or federation and highly qualified in franchise matters. The EFF has, furthermore, installed a Franchise Arbitration Committee, which is at the disposal of parties preferring to submit their disputes to the latters determination. The evolution and the ever-growing importance of franchising in the EC economy as well as the EC Block Exemption Regulation for franchise agreements, entered into force on 1st February 1989, prompted the EFF to revise its existing Code of Ethics (www.thebfa.org). The motives differ between small and large organisations when they are using franchising for growth. Franchising is fast becoming one of the most popular entry mode strategies for international retail companies when moving into international markets. Though initially slow to respond to this practical phenomenon occurring in the international retailing domain, the academic community has also been gradually turning its attention to the nature of international franchising, in the context of retailer internationalisation (Quinn, B Alexander N 2002). Despite this increase in the practical use of franchising, academic attention has only recently been afforded to the nature of international franchising in the context of retailer internationalisation. Control is an issue of serious concern for international franchise companies. It is becoming a particularly important issue for international organisations as they continue to employ franchising as a mode of expansion in internationally diverse economies, and in locations geographically distant from the home market (Quinn, D Doherty A 2000). In terms of market entry mode strategies available to international retail companies, franchising has proved an increasingly popular mode of operation in recent times (Burt, 1993 cited in Quinn, D Doherty A 2000) Franchising has historically been a favoured mode of expansion among service sector companies, particularly the fast food restaurant business. However, a diverse range of retail companies has become aware of the advantages for international expansion, which the franchise strategy may bring. Therefore, the strategy has been adopted not only by niche retailers, for example, Benetton, Body Shop and Yves Rocher, but also other retailers such as Casino (France), GIB (Belgium) and UK variety stores Marks Spencer and BhS, where it has been employed as only one of a range of entry strategies (Quinn, D Doherty A 2000). Studies have identified how complex the expansion practiced in small busines is and how it can strategically gain a competitive advantage over a competitor. Although these studies have also conluded that expansion is often seen as peripheral to some small firms requirements. Research has found some small businesses use sophisticated marketing strategies and others use no form marketing (Klemz, B and Boshoff, C 2001) The small firm has always been viewed as the budding large firm, and Alfred Marshalls analogy of the young plant in the nursery seedbed is applicable today as it was in the nineteenth century, of course most of these tender young shoots are destined not to survive. Marketing of products and service can develop the business, increasing turnover and profit (Alfred Marshall cited in Day J 2000). Smaller firms share a number of characteristics differentiating them from larger organisations, that lead to marketing problems. These include, limited customer base, limited activity, fewere resourcrs, owner/managers marketing competency, no formalised planning and evolutionary marketing, and, innovation, niches and gaps. The relationship and affinity that many SME owners/managers have with their customer base has frequently been cited as an advantage. It is considered that the best strategy a small business can adopt is to fully appreciate and exploit any existing customer base, prior to attempting an expansion of this base (Klemz, B and Boshoff, C 2001) One argument with marketing in SME,s is that it differs from the larger organisation, it requires more intuitiveness, creativeness, networking is of higher importance and more about operating under extreme time pressure. Day J (2000) stated, â€Å"Encouraging small firms to act both intuitively and flexibly is not tantamount to condoning sloppy and careless thinking, nor equally, is it an excuse to impose rigid and conservative business school models on them† Therefore the smaller businesses require their own models to be based on (Day. J. 2000:1036) For these SME’s to reach international achievement, they not only have the appropriate product and strategy, but the decision makers must have the appropriate attitudes as well (Calof, 1994). It is these attitudes that determine how decision makers perceive the benefits, costs and risks of internationalisation (Calof (1994) cited in Chetty, S and Campbell-hunt.C 2003). These attitudes that will shape international decisions are based on the decision-makers past experiences (Chetty, S Campbell-hunt. C. 2003) Resources or the allocation of resources are a key factor to the success of any marketing strategy. There are a number of different theorisations of processes of development in a firms international operations. Cavusgil and Nevin, (1981) considered â€Å"internationalisation to be a gradual, sequential process through different stages, with the firm increasing its commitment to international operations as it proceeded through each stage† The most often used model is the Uppsala process model. It emphasises learning by focusing on market knowledge and commitment. To minimise risk and overcome uncertainty, it says that firms internationalise in a step-by-step process. As firms gain market knowledge they commit more resources to the market (Cavusgil and Nevin, (1981) cited in Chetty, S and Campbell-hunt,

Relationship Between CSR and FTSE 100 Companies

Relationship Between CSR and FTSE 100 Companies Chapter 1 INTRODUCTION In todays business world the phrase corporate social responsibility (CSR) has become a relevant and frequently discussed topic. By definition it is the non-profit activities engaged by a business concern that aids the society, economy and the environment. The World Business Council for Sustainable Development has defined CSR as â€Å"the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community, and the society at large.† (WBSCD, 2000) Modern business concerns place CSR in high priority. In the fifth global CEO survey conducted by PricewaterhouseCoopers World Economic Forum concluded that 70 per cent of chief executives around the world have the opinion that corporate social responsibility is fundamental in the process of profit making in the business. In the Western European region, 68 per cent of the big companies have joined the triple bottom-line performance namely the economic, social and environmental factors along with financial performance whereas in the United States, this figure is 41 per cent (PricewaterhouseCoopers/BSI Global Research Inc, 2002). However 80 per cent of the company managers in the US are of the opinion that CEOs status is a factor of major influence on corporate reputation, although interestingly this value is just 56 per cent in the UK. According to Business in the Community, more than 70 per cent of business leaders believe that incorporating responsible business activities makes busin ess concerns more competitive and profitable. (Hancock, 2006) 1.1 Why was this topic selected? If the topic doing research to find out if there is a relationship between corporate social responsibility (CSR) and the corporate financial performance (CFP) of a company is able to find out with positive outcome and relationship between the two, then it may be an eye opener to various entrepreneurs to the various financial benefits CSR can bring about to business. This is so especially in the medium and small scale industries, which are yet to fully utilise the CSR in their business routines. From a common person point of view, when large corporations and business concerns take part in community relief and environment friendly activities, it makes a whole lot of difference to the society and the environment. So it is greatly beneficial for humankind to explore and bring out to light the relationship between corporate social responsibility and the firms financial performance. 1.2 Background of CSR: Many of the ideals and customs of the corporate social responsibility have references dating back to the 19th century. But it was during the 1960s and 1970s in the United States that there was resurgence in the mindset of people towards this phenomenon. It was during this period that various modern policies of civil regulation were invented. This includes the social audits, social investment funds, voluntary codes of conduct, recognitions for social and environmental activities and more commonly the use of corporations as potential places for political activity. During that period there were many protests and demonstrations like the boycott of Dow Chemical in 1970. There was also a campus-led movement pressuring firms to retract from South Africa in the 1970s which was similar to the challenges faced by the corporations having investments in countries like Burma and Sudan. Since the 1990s many companies form America and Europe that have headquarters either in the United States or Europe have taken aboard some voluntary standards for employment states, environmental activities and also regarding human rights. These fresh measures have since then became standardised in many companies, corporations and other agencies. These new measures have been monitored and reported. These initiatives that were not heavily legal have since been the standard setter for what is known today as corporate social responsibility. Some of the fresh changes that were brought about by this civil regulation were: (1) A positive reduction in the amount of children hired for labour every year. A massive improvement in health and safety in various factories around the world which provide the large firms with products including shoes, clothes, toys, etc. (2) A cut down in the production of wood from endangered forests and animal habitats, which were used to manufacture furniture for United States and Europe. (3) Providing reasonable prices for some agricultural producers like coffee growers for their products. (4) A considerable decrease in the emission of greenhouse gases especially in the wake of the greenhouse effect. (5) A withdrawal of firms from Burma in the wake of the human rights abuse in that country. (6) Some more recent examples are the lowering of prices of drugs for AIDS and other diseases. After that companies have come forward and set examples of CSR initiatives for other companies to follow, even when there is no restriction on them in the countries concerned to limit their activities. For example Home Depots policies regarding environment have helped in the sustaining of some of the rainforests in the South America. The government of Chad cannot be trusted in handling their oil reserves properly. So ExxonMobils efforts to keep an eye on its royalty payments means that at least some of the money is not wasted. Indonesia does not have adequate policies to protect the environment. Therefore Chevron Texacos activities have protected the fragile ecosystem in Papa New Guinea. Having discussed that, it must also be said that the effectiveness of codes, such as the UN Global Compact, Voluntary Principle on Security and Human Rights, the Equator Principles, etc, are not very effective. The improvements are likely to happen, particularly if the monitoring and other measures are effectively carried out. One of the most outstanding obstacle standing in the way of these social changes is of course the cost factor. Many corporations do keep cost aside for these activities, but most of them have not found to be adequate. This is one of the reason researches have to be carried out that point to the connection between CSR and CFP, because CEOs and managers should be aware of the possibilities created by CSR on the firms reputation and financial activities. So that firms can spend more time and money on their CSR and hence create good value for them, their stakeholders and ultimately the society. Today even countries in the developing world have started to demand bet ter working conditions and environmental safety for their environment. In countries like India people have been protesting against big companies for their discrimination. For example there has been a recent outbreak of protests in India against soft drink manufacturer Coca Cola for their indiscriminate usage of underground water and also its contamination, since underground water is a major source of drinking water through wells in many parts of India. CSR is also a factor that is good for a society regardless of it being located in developed or underdeveloped countries. It is a universal phenomenon that is advantageous. This contributes to its popularity and prominence. Some countries practise CSR ideally in their manufacturing hubs located in developing and underdeveloped countries. Some others stick to bringing about local changes and prosperity. For example the constructing of a school, university or a hospital is considered as a valuable contribution to the society. The company benefits from these activities because they indeed sow the seeds for future graduates who may become skilled employees for them. Also environmental activities earn sympathy and support from local authorities who may reduce taxes and other duties for the company on the basis of their humanitarian concerns. Later on in the 1990s there were protest against companies like Nike and Shell, and since then the importance of CSR has grown significantly. In 2005 a search on Google for â€Å"corporate social responsibility† would yield 30000 sites. There are more the 15 million pages on the internet with address dimensions of CSR. This is including 100,000 pages based on corporate websites. In 2005 Amazon had more than 600 books on the subject. More than 1000 business concerns have created and adapted signed codes of conduct which clearly states their individual stand on issues such social, environmental, animal rights and human rights. The numbers of firms that issue reports on CSR initiatives have gone up to 2000 in the year 2005.in the country of United States there were more that 200 social mutual funds in 2005, and they saw their revenues increase tenfold over a span of 10 years. Global organizations, such as the United Nations, the European Union and the World Bank and the Organizat ion for Economic Cooperation and Development (OECD), vigorously endorse the phenomenon of CSR. These governing bodies regularly monitor, advice, and award the efforts and initiatives taken by the companies every year. In the last two decades various charitable organisations have also sprung up, which work together with companies, and aids in their activities. Previously CSR was used only to address internal business ethics and policies. Nowadays this narrow view of CSR has changed and evolved into a variety of issue. Today a companys social venture could include initiatives to uplift education, poverty, unemployment, animal rights and other basic needs for community development. Some companies pursue more specific goals like aids relief, cancer research, disability support etc. For example firms established in the automobile industry may come up with safety programmes for motorists. Today in many countries, households have the chance to invest their money in various non-monetary savings and investments. In many countries, which are listed in OECD (Organisation for Economic Co-operation and Development), special banks offer facilities in savings account where the customers are assured that the money will be used for environmental sustainability programmes, or to help some entrepreneurs, who find it hard to get money from other institutions. The target group for these investments have generally been women and minorities. Today the impact of CSR has grown so much that people even in countries like South Africa and Brazil has the opportunity to invest their savings in socially responsible initiatives that checks the CSR of the firms in which they invest (International Finance Corporation (IFC), 2003). Many companies contribute for the conservation of the environment by finding new methods for recycling and elimination of non-biodegradable compounds etc. Therefore modern businesses have realised the increasing acceptance of socially responsible companies in the minds of people, so much so that it has become a trend to undertake social initiatives by the business enterprises. 1.3 Reason for doing good: There are many opinions that reason the indulgence of business companies in non profit initiatives. But the commonplace one would be that the companies perform good activities because good things and image are preferred by the masses. The public argue that these activities impress the investors, business analysts, business partners and the potential customers. The whole picture will look good in the companys annual reports and maybe even the company may have some luck in the courtroom and the parliament. This ultimately gives a vital boost to the companys brand image and reputation. There are many distinct and underlying advantages for business concerns. The distinct advantages clearly give the business a boost in monetary terms, hence being a direct contributor to financial performance. The underlying advantages may not directly save money for business, but they indirectly become advantageous to the business and eventually bring about financial gains thereby affecting its performance. For example Chiquita a global leader in the manufacturing of bananas decided to follow an environment friendly approach which saved them more that $5 million in 2002 compared to the year 1997. The trick behind this was the implementation of smaller quantity of agrichemicals and the adoption of a paller recycling program which actually saved them more than $3 million a year. This however was only the tip of the iceberg. Chiquita had bigger, but much more discreet advantages, by adopting a more socially responsible image. The company which was previously a target of media backlash w as going through a period of damaged company reputation which was a threat to its business functioning. They turned this around with their environment friendly approach and activities. This change in policy also created a sense of pride among the employees and helped in developing a more open and clear communication with the media. These developments will ultimately increase the financial performance of the companies by ensuring their smooth functionality. A frequently referenced study is by the University of Southwestern Louisiana, called â€Å"the effect of published reports on unethical conduct on stock prices† confirmed that publicity about unethical corporate conduct reduces stock prices for a minimum period of six months. From a truly customers point of view, it can be said that in todays marketplace there are a lot of alternative choices for customers when deciding to by a product in the criteria of product, price and distribution channels. Researchers have shown that consumers base their purchase on reputed companies, that indulge in fair trade and other sustainable business practices including concerned about the society in which they operate, provided the price and quality of the products remains similar. As an example if a consumer had an option of two products that have similar qualities and price tags, the consumer would prefer the product that was produced by a ‘greener company (green being symbolic of the community welfare and environmental efforts of the company). 1.4 Aims of the project: This project aims to answer the following issues: 1) Is there a relationship between corporate social responsibility and financial performance of a company? In addition the relation between the size of a company and the CSR is observed. 2) If there is a relationship, is the relationship positive or negative? 3) Discuss the various relationships between corporate social responsibility and financial performance. (CSR is measured by the value taken from the Business in the Communitys Corporate Index ratings and CFP is measured by the changes in stock prices before and after being rated in the Index ratings). 4) Evaluate the relationship between CSR and CFP in the FTSE 100 companies. 1.5 Structure of the dissertation: The introduction part of this dissertation includes a description about the aims and objectives of the research and the reasons for choosing this topic. It also contains a brief insight into the background of CSR and some of the previous researches conducted on this topic. Chapter 2 discusses in detail the various studies and researches conducted on this topic from the period between 1977 until recent times. The literature review also tries to bring out various points of view of different researchers and lays the foundation for this study. Chapter 3 or the methodology section discusses the various modes of data collection used in this research to arrive at the appropriate conclusion. This research utilises the share prices of a sample of 20 companies in the FTSE-100 for representing CFP and also their comparative ratings in the BITCs Corporate Index ratings to show the value of CSR. Alternatively questionnaires were distributed to obtain some qualitative data. Then in chapter 4 comes the primary research section which uses first hand data available regarding the companies to try to find a solution to the questions imposed in this study. It also discusses the 2 styles of data collection namely positivist and phenomenological styles. Chapter 5 consists of the discussion and conclusion section to analyse and compare the previous information collected in literature review and primary data research to arrive at a final conclusion regarding the topic. The result maybe positive or negative, nevertheless a result should be arrived at as per the available information and also so that possible recommendations can be given for further references and studies. Chapter 2 LITERATURE REVIEW 2.1 Studies explaining the different aspects of CSR-CFP relationship: According to Peloza (2006), the CSR and CFP can be analyzed from four perspectives In the above figure show the conflicting side against the knack of CSR as a provider to the firms financial ambitions. The far left depicts the antagonists of CSR who are of the opinion that any money spend by the firm on CSR are a complete negation to the firms economic gains, whereas in the extreme right are the supporters of CSR who claims it as a supporter of the firms financial goals. In the vertical axis separates the above two different views of CSR on the basis of a long term and short term approach. The long term managerial viewpoint on CSR involves a longitudinal approach to the evaluation of the effect of social schemes and the short term is for a static, cross-sectional perspectives that directs more on immediate effect or do not openly consider the time aspect. There are various arguments against CSR that can be shown on the 1st quadrant. Margolis and Walsh projected three main categories of these objections to CSR on the basis that it clashes with the business financial motives. According to them one of the explanations that opponents of CSR give is that the firms benefit society more when they create maximum profits for their shareholders. Another opinion was that individual shareholders should be the deciders of investing in social initiatives; the firms should only focus on achieving maximum profits for its shareholders. Finally they express concern that many shareholders are not aware of the social initiatives of the firm and are not given opportunities to have their say in them. The antagonists claim that the firms may make wrong decisions regarding the allocation of resources for social responsibility and hence they are not eligible to perform it. In quick contrast to all this, quadrant 2 depicts the protagonists of CSR claiming that it helps in the realization of the firms financial objectives. Various studies were conducted in relating to this quadrant. At first a value or positive CSR is paired with a firms performance indicator such as the stock price. Then a negative amount of CSR (for example harmful waste disposal) is paired with an amount of firms financial performance. The result in each of these cases was a positive relationship between the two. This is supported by a meta-analysis conducted by Orlitzky et. al in 2003 and other various studies conducted over the past 30 years, which generally discovered a positive connection between CSR and CFP. Also negative CSR has been associated with negative impacts on share prices. For example Shell Oil Company suffered a setback in share prices after an oil spill in 2001 in Nigeria. This is caused due to the negative CSR. A large number of researchers have favoured a short- te rm view of the time factor. They argue that majority of the firms expect to get positive returns on their investments in the same year. Former Chrysler CEO Bob Eaton once said that the organizations have a common goal of getting constant year-in and year-out profits from their companies in their portfolios. They do this because the shareholders everywhere follow a common rule: â€Å"if they are not satisfied, they sell† (Reich, 1998). According to Werbel and Wortman (2000) suggest that firms use these initiatives to temporarily ward off negative media coverage. However when we consider the ability of CSR to affect CFP in a bad way, several investigators are of the opinion in extending the short term perspective to a long term one. Taking the case of quadrant 3, even though the impact of environmental regulations on the business is only a limited one, still there would be a long term effect in the form of productivity slowdown Stavins (1994). Also there is an argument that when a firm takes up a social initiative, its competitors will start to match its actions and hence it will result in a competition which will prove to be costly and a subsequent decrease in profits. The researchers say that nowadays it has become a trend among big companies so much that every large companies are expected to do some investments in socially responsible activities by their customers; hence making it as a sort of tax. Nowadays researchers are beginning to consider CSR as complimentary to CFP taking into consideration the long term perspective as depicted in quadrant 4 in the According to the researchers the social objectives need not necessarily be in conflict to the economic objectives, but rather be a supplement to it. For example if a company funds a school or university in its locality, it actually paves the way for future employees that are well educated and support and develop the companys cause and also at the same time changing the social climate in the locality for the better. Another long term advantage that companies can muster by indulging in social responsibilities is the building up of reputation. A good reputation has always been associated with positive financial returns. Bhattacharya and Sen (2004) are of the idea that CSR builds a large pool of goodwill that firms can rely upon in times of crisis. Similarly McWilliams and Siegel (2001) say that positive CSR produces a reputation that a company is reliable and honest. 2.2 CSR in stakeholder theory: Stakeholder theory suggests that a company must not only try to meet the demands of its shareholders, but also those with the lesser explicit, or implicit claims (Gornell and Shapiro, 1987). Stakeholder theory also brings to light that implicit claims like product quality are actually less costly to a firm than the demands of its shareholders which are more explicit. The low social responsibility of the company may place doubt in the minds of its shareholders about the ability of the company to fulfill its implicit claims, and hence the shareholders may demand more explicit claims which may prove costly to the company. For example if the firms manage to evade from its environmental responsibilities (dumping of waste, usage of recyclable materials, etc), the government agencies and officials may impose strict regulations like duty, fines etc on the company. These circumstances may raise doubts in the minds of implicit stakeholders, who may question its efficiency. On the contrary soci ally responsible and environmentally friendly companies may be favored by the government and they might even get a reduction or exemption from certain taxes and duties on account of their actions. 2.3 CSR as insurance cover: Another important aspect that consolidates the positive relationship between CSR and the financial outcome of a company is the conceptualization of CSR as kind of insurance for the business which is especially helpful in the time of a crisis. CSR may help the company to create a good impression among the government authorities and helps the company to evade government impositions. This is difficult to evaluate when examining the relationship between CSR and financial performance, even though it indirectly affects the financial outcome. Davidson and Worrell (1992) advocated that the losses incurred by the firm due to a dent in their reputation is much higher than the physical costs incurred from actual event itself, such as product recall. Also in the same manner Blacconiere (1997) and his co-workers conducted various studies, and found out that firms with active environmental activities had a lower reduction in market value. A research carried out around the Seattle riots in 1999 against the WTO meetings came up with two conclusions. The research was conducted on 400 firms across a cross section of firms and found out that firstly there is a noticeable industry effect where companies with negative CSR ratings suffered incrementally over companies from neutral industries. They also concluded that once the industry effect has been removed, the positive outcome of the CSR ‘insurance is distinct. Specifically companies that had negative CSR had to undergo a stock market decline of double the times that of companies that were known for the CSR activities. Researchers have previously argued that firms with good name and status can overcome crises. For example is the Tylenol tampering in the 1980s, were Johnson Johnson suffered lesser economic problems, when compared with companies with bad reputation (Fombrun, et al. 1996). Fombrun (2001) also says that reputations have considerable concealed value that acts as a storage house of goodwill. During the time of crises they act to minimise the moral and financial damage to the company. Jones et al. (2000) have conducted a study taking taken a large number of companies to find out if their reputations can help them during a crisis. They discovered that firms in the better part of the Fortune Magazines annual survey of the ‘Most Admires Firms in America experienced lower market valuation losses in the stock market plunge that took place in 1983(SP 500 went down 7 per cent on that day), than the companies that were in lower part of Fortunes ratings. The capital in socially responsible investment funds have greatly increased in the last ten years. In 1990, only seven US firms issued their annual reports citing their social performance. But by 2004, 745 of these reports were release due to the increasing pressure on the corporate managers to do so. (corporateregister.com) These developments clearly brings to light not only the incremental profits by increasing sales, but also the capability of CSR to maintain sales and stock prices in the time of crisis. 2.4 Major studies done to evaluate CSR-CFP relationship: Researchers Sandra Waddock and Samuel Graves (1997) of Boston College made a study on two aspects of the topic: (1) Whether there is a positive or negative relationship between corporate social responsibility and financial performance of a company, or if no relationship exists at all between them. (2) If the exists a relationship then, whether the financial performance was due to the previous practises of CSR or if CSR was a succession as a result of high financial performance. Waddock and Graves (1997) utilised the data collected from and independent research organization. The data was collected of all the companies in the SP 500. The data was calculated for each companys CSR performance based on a rating scale that integrated eight important attributes of CSR namely environment performance, staff diversity, staff relations, community relations, product features, military contracts and involvement in South Africa. The above attributes were then ranked according to their relative significance. This scaling method involving eight aspects of community welfare solved the problem of measuring the largely diverse CSR activities, which was faced by previous researchers. Waddock and Graves studied the links between CSR and CFP of 469 firms during the year 1989 through 1990. The firms were from different sectors of business industries including hospitals, aerospace, mining, publishing and utilities. The study made use of different figures of finance like return on assets (ROA), return on sales (ROS) and return on equity (ROE). The analysing of data from two consecutive years meant that the duo researchers could test the slack resources theory, which tests if better CFP leads to a better CSR in the consecutive year. The theory which finds out if a good CSR leads to improved financial performance, was called the good management theory. This theory was studied with CSR data in the year 1990 and compared with the CFP figures of 1991, therefore with a time lag of one year. The following results were unearthed from the survey: (1) The slack resources theory was found to be true. CSR of the firms were increased by the precedent financial success of the firms. (2) The good management theory was also proved as fine CSR activities contributed to the firms financial performance when measured using ROS and ROA. They came to the conclusion that the correlation between CSR and CFP can be attributed to a virtuous circle, in which both of them are mutually correlated. It is difficult to predict whether the cycle starts with CSR or CFP, but it is evident in the investigation that they are mutually correlated. Meta-Analysis: A prominent study conducted by Marc Orlitzky and Frank L. Schmidt titled â€Å"Corporate Social and Financial Performance: A Meta-Analysis,† was awarded the Moskowitz Price by the Social Investment Forum. The aim of the study was to establish the relationship between corporate social responsibility and corporate social performance. The research was conducted by examining 52 studies that were published between 1972 and 1997, that contained a total of 33,878 observations. This Meta analysis utilises statistics to evaluate results of each different studies and adjust for the statistical errors. The Orlitzky Meta analysis concentrates on four major hypotheses: (1) In various industries and study contexts, CSR and CFP are normally positively linked. (2) Between CSR and CFP there is a bi-directional causality. (3) CSR is positively connected with CFP because of two reasons: (i) CSR boosts managerial proficiencies and organizational efficiency and supplies to knowledge about the companys political, technological, social, market, and other environments. (ii) A positive status and goodwill is created among the companys external stakeholders through CSR. (4) Most of the differences in results of some studies are due to statistical or methodological errors. The researchers then selected studies that carried out a quantitative assessment of the connection between CFP and CSR by taking into account at least one characteristic of firms economic performance, and met the given description of CSR. The CFP in this study is calculated by dividing into three forms namely accounting based, where accounting outcomes determine a firms efficiency; market-based where the investors returns are the determinant of market value and finally the survey results that shows the subjective estimates of a firms current position. While CSR is normally measured from CSR rating indexes, social audits, CSR disclosures and the organizations codes and values. The findings of the research were phenomenal. The researchers claimed that there exists a positive relationship between CSR and CFP across various industries and other study contexts. The following were their conclusions: (1) CSR had a stronger connection with CFP when using the accounting measures of analysis than when market-based measures where used. (2) Environmental development as CSR affects CFP of a company to a lesser extent when compared with other aspects of CSR. (3) The relation between CSR and CFP could be described as a virtuous circle in which a higher CFP motivates the companies to spend more on CSR, and a good spending on CSR will allow the firms to become more successful, hence increasing their CFP. The message of the research to the managers of companies were that money spend CSR is a good investment for the development of CFP. The research also found out that the managers use CSR as a tool for building reputation as previous studies have established that there is scope for reputation development through CSR. The disadva Relationship Between CSR and FTSE 100 Companies Relationship Between CSR and FTSE 100 Companies Chapter 1 INTRODUCTION In todays business world the phrase corporate social responsibility (CSR) has become a relevant and frequently discussed topic. By definition it is the non-profit activities engaged by a business concern that aids the society, economy and the environment. The World Business Council for Sustainable Development has defined CSR as â€Å"the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community, and the society at large.† (WBSCD, 2000) Modern business concerns place CSR in high priority. In the fifth global CEO survey conducted by PricewaterhouseCoopers World Economic Forum concluded that 70 per cent of chief executives around the world have the opinion that corporate social responsibility is fundamental in the process of profit making in the business. In the Western European region, 68 per cent of the big companies have joined the triple bottom-line performance namely the economic, social and environmental factors along with financial performance whereas in the United States, this figure is 41 per cent (PricewaterhouseCoopers/BSI Global Research Inc, 2002). However 80 per cent of the company managers in the US are of the opinion that CEOs status is a factor of major influence on corporate reputation, although interestingly this value is just 56 per cent in the UK. According to Business in the Community, more than 70 per cent of business leaders believe that incorporating responsible business activities makes busin ess concerns more competitive and profitable. (Hancock, 2006) 1.1 Why was this topic selected? If the topic doing research to find out if there is a relationship between corporate social responsibility (CSR) and the corporate financial performance (CFP) of a company is able to find out with positive outcome and relationship between the two, then it may be an eye opener to various entrepreneurs to the various financial benefits CSR can bring about to business. This is so especially in the medium and small scale industries, which are yet to fully utilise the CSR in their business routines. From a common person point of view, when large corporations and business concerns take part in community relief and environment friendly activities, it makes a whole lot of difference to the society and the environment. So it is greatly beneficial for humankind to explore and bring out to light the relationship between corporate social responsibility and the firms financial performance. 1.2 Background of CSR: Many of the ideals and customs of the corporate social responsibility have references dating back to the 19th century. But it was during the 1960s and 1970s in the United States that there was resurgence in the mindset of people towards this phenomenon. It was during this period that various modern policies of civil regulation were invented. This includes the social audits, social investment funds, voluntary codes of conduct, recognitions for social and environmental activities and more commonly the use of corporations as potential places for political activity. During that period there were many protests and demonstrations like the boycott of Dow Chemical in 1970. There was also a campus-led movement pressuring firms to retract from South Africa in the 1970s which was similar to the challenges faced by the corporations having investments in countries like Burma and Sudan. Since the 1990s many companies form America and Europe that have headquarters either in the United States or Europe have taken aboard some voluntary standards for employment states, environmental activities and also regarding human rights. These fresh measures have since then became standardised in many companies, corporations and other agencies. These new measures have been monitored and reported. These initiatives that were not heavily legal have since been the standard setter for what is known today as corporate social responsibility. Some of the fresh changes that were brought about by this civil regulation were: (1) A positive reduction in the amount of children hired for labour every year. A massive improvement in health and safety in various factories around the world which provide the large firms with products including shoes, clothes, toys, etc. (2) A cut down in the production of wood from endangered forests and animal habitats, which were used to manufacture furniture for United States and Europe. (3) Providing reasonable prices for some agricultural producers like coffee growers for their products. (4) A considerable decrease in the emission of greenhouse gases especially in the wake of the greenhouse effect. (5) A withdrawal of firms from Burma in the wake of the human rights abuse in that country. (6) Some more recent examples are the lowering of prices of drugs for AIDS and other diseases. After that companies have come forward and set examples of CSR initiatives for other companies to follow, even when there is no restriction on them in the countries concerned to limit their activities. For example Home Depots policies regarding environment have helped in the sustaining of some of the rainforests in the South America. The government of Chad cannot be trusted in handling their oil reserves properly. So ExxonMobils efforts to keep an eye on its royalty payments means that at least some of the money is not wasted. Indonesia does not have adequate policies to protect the environment. Therefore Chevron Texacos activities have protected the fragile ecosystem in Papa New Guinea. Having discussed that, it must also be said that the effectiveness of codes, such as the UN Global Compact, Voluntary Principle on Security and Human Rights, the Equator Principles, etc, are not very effective. The improvements are likely to happen, particularly if the monitoring and other measures are effectively carried out. One of the most outstanding obstacle standing in the way of these social changes is of course the cost factor. Many corporations do keep cost aside for these activities, but most of them have not found to be adequate. This is one of the reason researches have to be carried out that point to the connection between CSR and CFP, because CEOs and managers should be aware of the possibilities created by CSR on the firms reputation and financial activities. So that firms can spend more time and money on their CSR and hence create good value for them, their stakeholders and ultimately the society. Today even countries in the developing world have started to demand bet ter working conditions and environmental safety for their environment. In countries like India people have been protesting against big companies for their discrimination. For example there has been a recent outbreak of protests in India against soft drink manufacturer Coca Cola for their indiscriminate usage of underground water and also its contamination, since underground water is a major source of drinking water through wells in many parts of India. CSR is also a factor that is good for a society regardless of it being located in developed or underdeveloped countries. It is a universal phenomenon that is advantageous. This contributes to its popularity and prominence. Some countries practise CSR ideally in their manufacturing hubs located in developing and underdeveloped countries. Some others stick to bringing about local changes and prosperity. For example the constructing of a school, university or a hospital is considered as a valuable contribution to the society. The company benefits from these activities because they indeed sow the seeds for future graduates who may become skilled employees for them. Also environmental activities earn sympathy and support from local authorities who may reduce taxes and other duties for the company on the basis of their humanitarian concerns. Later on in the 1990s there were protest against companies like Nike and Shell, and since then the importance of CSR has grown significantly. In 2005 a search on Google for â€Å"corporate social responsibility† would yield 30000 sites. There are more the 15 million pages on the internet with address dimensions of CSR. This is including 100,000 pages based on corporate websites. In 2005 Amazon had more than 600 books on the subject. More than 1000 business concerns have created and adapted signed codes of conduct which clearly states their individual stand on issues such social, environmental, animal rights and human rights. The numbers of firms that issue reports on CSR initiatives have gone up to 2000 in the year 2005.in the country of United States there were more that 200 social mutual funds in 2005, and they saw their revenues increase tenfold over a span of 10 years. Global organizations, such as the United Nations, the European Union and the World Bank and the Organizat ion for Economic Cooperation and Development (OECD), vigorously endorse the phenomenon of CSR. These governing bodies regularly monitor, advice, and award the efforts and initiatives taken by the companies every year. In the last two decades various charitable organisations have also sprung up, which work together with companies, and aids in their activities. Previously CSR was used only to address internal business ethics and policies. Nowadays this narrow view of CSR has changed and evolved into a variety of issue. Today a companys social venture could include initiatives to uplift education, poverty, unemployment, animal rights and other basic needs for community development. Some companies pursue more specific goals like aids relief, cancer research, disability support etc. For example firms established in the automobile industry may come up with safety programmes for motorists. Today in many countries, households have the chance to invest their money in various non-monetary savings and investments. In many countries, which are listed in OECD (Organisation for Economic Co-operation and Development), special banks offer facilities in savings account where the customers are assured that the money will be used for environmental sustainability programmes, or to help some entrepreneurs, who find it hard to get money from other institutions. The target group for these investments have generally been women and minorities. Today the impact of CSR has grown so much that people even in countries like South Africa and Brazil has the opportunity to invest their savings in socially responsible initiatives that checks the CSR of the firms in which they invest (International Finance Corporation (IFC), 2003). Many companies contribute for the conservation of the environment by finding new methods for recycling and elimination of non-biodegradable compounds etc. Therefore modern businesses have realised the increasing acceptance of socially responsible companies in the minds of people, so much so that it has become a trend to undertake social initiatives by the business enterprises. 1.3 Reason for doing good: There are many opinions that reason the indulgence of business companies in non profit initiatives. But the commonplace one would be that the companies perform good activities because good things and image are preferred by the masses. The public argue that these activities impress the investors, business analysts, business partners and the potential customers. The whole picture will look good in the companys annual reports and maybe even the company may have some luck in the courtroom and the parliament. This ultimately gives a vital boost to the companys brand image and reputation. There are many distinct and underlying advantages for business concerns. The distinct advantages clearly give the business a boost in monetary terms, hence being a direct contributor to financial performance. The underlying advantages may not directly save money for business, but they indirectly become advantageous to the business and eventually bring about financial gains thereby affecting its performance. For example Chiquita a global leader in the manufacturing of bananas decided to follow an environment friendly approach which saved them more that $5 million in 2002 compared to the year 1997. The trick behind this was the implementation of smaller quantity of agrichemicals and the adoption of a paller recycling program which actually saved them more than $3 million a year. This however was only the tip of the iceberg. Chiquita had bigger, but much more discreet advantages, by adopting a more socially responsible image. The company which was previously a target of media backlash w as going through a period of damaged company reputation which was a threat to its business functioning. They turned this around with their environment friendly approach and activities. This change in policy also created a sense of pride among the employees and helped in developing a more open and clear communication with the media. These developments will ultimately increase the financial performance of the companies by ensuring their smooth functionality. A frequently referenced study is by the University of Southwestern Louisiana, called â€Å"the effect of published reports on unethical conduct on stock prices† confirmed that publicity about unethical corporate conduct reduces stock prices for a minimum period of six months. From a truly customers point of view, it can be said that in todays marketplace there are a lot of alternative choices for customers when deciding to by a product in the criteria of product, price and distribution channels. Researchers have shown that consumers base their purchase on reputed companies, that indulge in fair trade and other sustainable business practices including concerned about the society in which they operate, provided the price and quality of the products remains similar. As an example if a consumer had an option of two products that have similar qualities and price tags, the consumer would prefer the product that was produced by a ‘greener company (green being symbolic of the community welfare and environmental efforts of the company). 1.4 Aims of the project: This project aims to answer the following issues: 1) Is there a relationship between corporate social responsibility and financial performance of a company? In addition the relation between the size of a company and the CSR is observed. 2) If there is a relationship, is the relationship positive or negative? 3) Discuss the various relationships between corporate social responsibility and financial performance. (CSR is measured by the value taken from the Business in the Communitys Corporate Index ratings and CFP is measured by the changes in stock prices before and after being rated in the Index ratings). 4) Evaluate the relationship between CSR and CFP in the FTSE 100 companies. 1.5 Structure of the dissertation: The introduction part of this dissertation includes a description about the aims and objectives of the research and the reasons for choosing this topic. It also contains a brief insight into the background of CSR and some of the previous researches conducted on this topic. Chapter 2 discusses in detail the various studies and researches conducted on this topic from the period between 1977 until recent times. The literature review also tries to bring out various points of view of different researchers and lays the foundation for this study. Chapter 3 or the methodology section discusses the various modes of data collection used in this research to arrive at the appropriate conclusion. This research utilises the share prices of a sample of 20 companies in the FTSE-100 for representing CFP and also their comparative ratings in the BITCs Corporate Index ratings to show the value of CSR. Alternatively questionnaires were distributed to obtain some qualitative data. Then in chapter 4 comes the primary research section which uses first hand data available regarding the companies to try to find a solution to the questions imposed in this study. It also discusses the 2 styles of data collection namely positivist and phenomenological styles. Chapter 5 consists of the discussion and conclusion section to analyse and compare the previous information collected in literature review and primary data research to arrive at a final conclusion regarding the topic. The result maybe positive or negative, nevertheless a result should be arrived at as per the available information and also so that possible recommendations can be given for further references and studies. Chapter 2 LITERATURE REVIEW 2.1 Studies explaining the different aspects of CSR-CFP relationship: According to Peloza (2006), the CSR and CFP can be analyzed from four perspectives In the above figure show the conflicting side against the knack of CSR as a provider to the firms financial ambitions. The far left depicts the antagonists of CSR who are of the opinion that any money spend by the firm on CSR are a complete negation to the firms economic gains, whereas in the extreme right are the supporters of CSR who claims it as a supporter of the firms financial goals. In the vertical axis separates the above two different views of CSR on the basis of a long term and short term approach. The long term managerial viewpoint on CSR involves a longitudinal approach to the evaluation of the effect of social schemes and the short term is for a static, cross-sectional perspectives that directs more on immediate effect or do not openly consider the time aspect. There are various arguments against CSR that can be shown on the 1st quadrant. Margolis and Walsh projected three main categories of these objections to CSR on the basis that it clashes with the business financial motives. According to them one of the explanations that opponents of CSR give is that the firms benefit society more when they create maximum profits for their shareholders. Another opinion was that individual shareholders should be the deciders of investing in social initiatives; the firms should only focus on achieving maximum profits for its shareholders. Finally they express concern that many shareholders are not aware of the social initiatives of the firm and are not given opportunities to have their say in them. The antagonists claim that the firms may make wrong decisions regarding the allocation of resources for social responsibility and hence they are not eligible to perform it. In quick contrast to all this, quadrant 2 depicts the protagonists of CSR claiming that it helps in the realization of the firms financial objectives. Various studies were conducted in relating to this quadrant. At first a value or positive CSR is paired with a firms performance indicator such as the stock price. Then a negative amount of CSR (for example harmful waste disposal) is paired with an amount of firms financial performance. The result in each of these cases was a positive relationship between the two. This is supported by a meta-analysis conducted by Orlitzky et. al in 2003 and other various studies conducted over the past 30 years, which generally discovered a positive connection between CSR and CFP. Also negative CSR has been associated with negative impacts on share prices. For example Shell Oil Company suffered a setback in share prices after an oil spill in 2001 in Nigeria. This is caused due to the negative CSR. A large number of researchers have favoured a short- te rm view of the time factor. They argue that majority of the firms expect to get positive returns on their investments in the same year. Former Chrysler CEO Bob Eaton once said that the organizations have a common goal of getting constant year-in and year-out profits from their companies in their portfolios. They do this because the shareholders everywhere follow a common rule: â€Å"if they are not satisfied, they sell† (Reich, 1998). According to Werbel and Wortman (2000) suggest that firms use these initiatives to temporarily ward off negative media coverage. However when we consider the ability of CSR to affect CFP in a bad way, several investigators are of the opinion in extending the short term perspective to a long term one. Taking the case of quadrant 3, even though the impact of environmental regulations on the business is only a limited one, still there would be a long term effect in the form of productivity slowdown Stavins (1994). Also there is an argument that when a firm takes up a social initiative, its competitors will start to match its actions and hence it will result in a competition which will prove to be costly and a subsequent decrease in profits. The researchers say that nowadays it has become a trend among big companies so much that every large companies are expected to do some investments in socially responsible activities by their customers; hence making it as a sort of tax. Nowadays researchers are beginning to consider CSR as complimentary to CFP taking into consideration the long term perspective as depicted in quadrant 4 in the According to the researchers the social objectives need not necessarily be in conflict to the economic objectives, but rather be a supplement to it. For example if a company funds a school or university in its locality, it actually paves the way for future employees that are well educated and support and develop the companys cause and also at the same time changing the social climate in the locality for the better. Another long term advantage that companies can muster by indulging in social responsibilities is the building up of reputation. A good reputation has always been associated with positive financial returns. Bhattacharya and Sen (2004) are of the idea that CSR builds a large pool of goodwill that firms can rely upon in times of crisis. Similarly McWilliams and Siegel (2001) say that positive CSR produces a reputation that a company is reliable and honest. 2.2 CSR in stakeholder theory: Stakeholder theory suggests that a company must not only try to meet the demands of its shareholders, but also those with the lesser explicit, or implicit claims (Gornell and Shapiro, 1987). Stakeholder theory also brings to light that implicit claims like product quality are actually less costly to a firm than the demands of its shareholders which are more explicit. The low social responsibility of the company may place doubt in the minds of its shareholders about the ability of the company to fulfill its implicit claims, and hence the shareholders may demand more explicit claims which may prove costly to the company. For example if the firms manage to evade from its environmental responsibilities (dumping of waste, usage of recyclable materials, etc), the government agencies and officials may impose strict regulations like duty, fines etc on the company. These circumstances may raise doubts in the minds of implicit stakeholders, who may question its efficiency. On the contrary soci ally responsible and environmentally friendly companies may be favored by the government and they might even get a reduction or exemption from certain taxes and duties on account of their actions. 2.3 CSR as insurance cover: Another important aspect that consolidates the positive relationship between CSR and the financial outcome of a company is the conceptualization of CSR as kind of insurance for the business which is especially helpful in the time of a crisis. CSR may help the company to create a good impression among the government authorities and helps the company to evade government impositions. This is difficult to evaluate when examining the relationship between CSR and financial performance, even though it indirectly affects the financial outcome. Davidson and Worrell (1992) advocated that the losses incurred by the firm due to a dent in their reputation is much higher than the physical costs incurred from actual event itself, such as product recall. Also in the same manner Blacconiere (1997) and his co-workers conducted various studies, and found out that firms with active environmental activities had a lower reduction in market value. A research carried out around the Seattle riots in 1999 against the WTO meetings came up with two conclusions. The research was conducted on 400 firms across a cross section of firms and found out that firstly there is a noticeable industry effect where companies with negative CSR ratings suffered incrementally over companies from neutral industries. They also concluded that once the industry effect has been removed, the positive outcome of the CSR ‘insurance is distinct. Specifically companies that had negative CSR had to undergo a stock market decline of double the times that of companies that were known for the CSR activities. Researchers have previously argued that firms with good name and status can overcome crises. For example is the Tylenol tampering in the 1980s, were Johnson Johnson suffered lesser economic problems, when compared with companies with bad reputation (Fombrun, et al. 1996). Fombrun (2001) also says that reputations have considerable concealed value that acts as a storage house of goodwill. During the time of crises they act to minimise the moral and financial damage to the company. Jones et al. (2000) have conducted a study taking taken a large number of companies to find out if their reputations can help them during a crisis. They discovered that firms in the better part of the Fortune Magazines annual survey of the ‘Most Admires Firms in America experienced lower market valuation losses in the stock market plunge that took place in 1983(SP 500 went down 7 per cent on that day), than the companies that were in lower part of Fortunes ratings. The capital in socially responsible investment funds have greatly increased in the last ten years. In 1990, only seven US firms issued their annual reports citing their social performance. But by 2004, 745 of these reports were release due to the increasing pressure on the corporate managers to do so. (corporateregister.com) These developments clearly brings to light not only the incremental profits by increasing sales, but also the capability of CSR to maintain sales and stock prices in the time of crisis. 2.4 Major studies done to evaluate CSR-CFP relationship: Researchers Sandra Waddock and Samuel Graves (1997) of Boston College made a study on two aspects of the topic: (1) Whether there is a positive or negative relationship between corporate social responsibility and financial performance of a company, or if no relationship exists at all between them. (2) If the exists a relationship then, whether the financial performance was due to the previous practises of CSR or if CSR was a succession as a result of high financial performance. Waddock and Graves (1997) utilised the data collected from and independent research organization. The data was collected of all the companies in the SP 500. The data was calculated for each companys CSR performance based on a rating scale that integrated eight important attributes of CSR namely environment performance, staff diversity, staff relations, community relations, product features, military contracts and involvement in South Africa. The above attributes were then ranked according to their relative significance. This scaling method involving eight aspects of community welfare solved the problem of measuring the largely diverse CSR activities, which was faced by previous researchers. Waddock and Graves studied the links between CSR and CFP of 469 firms during the year 1989 through 1990. The firms were from different sectors of business industries including hospitals, aerospace, mining, publishing and utilities. The study made use of different figures of finance like return on assets (ROA), return on sales (ROS) and return on equity (ROE). The analysing of data from two consecutive years meant that the duo researchers could test the slack resources theory, which tests if better CFP leads to a better CSR in the consecutive year. The theory which finds out if a good CSR leads to improved financial performance, was called the good management theory. This theory was studied with CSR data in the year 1990 and compared with the CFP figures of 1991, therefore with a time lag of one year. The following results were unearthed from the survey: (1) The slack resources theory was found to be true. CSR of the firms were increased by the precedent financial success of the firms. (2) The good management theory was also proved as fine CSR activities contributed to the firms financial performance when measured using ROS and ROA. They came to the conclusion that the correlation between CSR and CFP can be attributed to a virtuous circle, in which both of them are mutually correlated. It is difficult to predict whether the cycle starts with CSR or CFP, but it is evident in the investigation that they are mutually correlated. Meta-Analysis: A prominent study conducted by Marc Orlitzky and Frank L. Schmidt titled â€Å"Corporate Social and Financial Performance: A Meta-Analysis,† was awarded the Moskowitz Price by the Social Investment Forum. The aim of the study was to establish the relationship between corporate social responsibility and corporate social performance. The research was conducted by examining 52 studies that were published between 1972 and 1997, that contained a total of 33,878 observations. This Meta analysis utilises statistics to evaluate results of each different studies and adjust for the statistical errors. The Orlitzky Meta analysis concentrates on four major hypotheses: (1) In various industries and study contexts, CSR and CFP are normally positively linked. (2) Between CSR and CFP there is a bi-directional causality. (3) CSR is positively connected with CFP because of two reasons: (i) CSR boosts managerial proficiencies and organizational efficiency and supplies to knowledge about the companys political, technological, social, market, and other environments. (ii) A positive status and goodwill is created among the companys external stakeholders through CSR. (4) Most of the differences in results of some studies are due to statistical or methodological errors. The researchers then selected studies that carried out a quantitative assessment of the connection between CFP and CSR by taking into account at least one characteristic of firms economic performance, and met the given description of CSR. The CFP in this study is calculated by dividing into three forms namely accounting based, where accounting outcomes determine a firms efficiency; market-based where the investors returns are the determinant of market value and finally the survey results that shows the subjective estimates of a firms current position. While CSR is normally measured from CSR rating indexes, social audits, CSR disclosures and the organizations codes and values. The findings of the research were phenomenal. The researchers claimed that there exists a positive relationship between CSR and CFP across various industries and other study contexts. The following were their conclusions: (1) CSR had a stronger connection with CFP when using the accounting measures of analysis than when market-based measures where used. (2) Environmental development as CSR affects CFP of a company to a lesser extent when compared with other aspects of CSR. (3) The relation between CSR and CFP could be described as a virtuous circle in which a higher CFP motivates the companies to spend more on CSR, and a good spending on CSR will allow the firms to become more successful, hence increasing their CFP. The message of the research to the managers of companies were that money spend CSR is a good investment for the development of CFP. The research also found out that the managers use CSR as a tool for building reputation as previous studies have established that there is scope for reputation development through CSR. The disadva

The Human Genome Project Essay -- Genetics Science Papers

The Human Genome Project The Human Genome Project is one of the most widely discussed topics in genetics today. The United States human genome project began in 1990, when the $3 billion dollar project to map 3 billion DNA base pairs was announced.(4) When the initial funding was provided, it was anticipated that the project would require 15 years to complete and the target date for completion was 2005.(8) Recent technological advances have shortened that time period, and it is now estimated that the program will be complete by 2003.(1) The program now has been expanded to an international effort involving research facilities in France, Germany, Japan, the United Kingdom and the United States. There are also several private companies that are sequencing the genome also. The majority of the funding for the United States human genome project has come from the Department of Energy's (DOE) Office of Biological and Environmental Research and the National Institute of Health (NIH). The objective of the project is t o create a DNA sequence library for a representative sample of the human genome. Such a reference library would prove to be priceless from a research standpoint, as well as an applied perspective. This library will aid in the identification of specific mutations which cause a distinct disorder or disease. If the normal base pair can be inserted in place of the abnormal one, gene therapy could become a reality. Along with this new technology comes several problems, both technical and ethical. The ethical issues play a major role in the use and possible implications of this technology. A special committee was formed to evaluate these ethical issues and to make recommendations regarding them. This committee was given the tit... ... http://www.ornl.gov/hgmis/publicat/hgn/v10n1/04bacend.html 5. U.S. Dept. of Energy. Human Genome News. "Five years of Progress in the Human Genome Project", Obtained from the WWW 09/07/99: 12/95: http://www.ornl.gov/TechResources/Human_Genome/publicat/hgn/v7n3/04progre.html 6. UNESCO. The Gene Letter. "UNESCO Declaration on the Human Genome and Human Rights, July 1997", Obtained from the WWW 09/07/99:07/99: http://www.geneletter.org/0398/UNESCO.htm 7. U.S. Dept. of Energy. Human Genome Project: "Ethical, Legal and Social Issues (ELSI) of the Human Genome Project", Obtained from the WWW 08/31/99: 08/31/99: http://www.ornl.gov/TechResources/HumanGenome/resource/elsi.html 8. U.S. Dept. of Energy. Human Genome News. "U.S. HGP on Fast Track for Early Completion", Obtained from the WWW 8/31/99:2/1/99: http://www.ornl.gov/hgmis/publicat/hgn/v10n1/01goals.html

The Internet In Classrooms :: Teaching Education

The Internet In Classrooms How Advanced Technology Is Changing the Face of Education for Students and Teachers The first thing a college student typically does when he or she goes back to their dorm room or apartment is sit down at their computer and go online. They proceed to either, read their e-mail, check their online courses for new assignments, or go on one of the many communication websites or programs that are available currently to this generation. None of this would be possible without the readily available Internet access that we often take for granted. The Internet has proven not only useful for entertainment purposes, but has also dramatically changed the educational approach, for both students and educators, and the way knowledge is being obtained. Internet access in schools has experienced an extreme increase within the last decade. By the fall of the year 2000, 98% of the public schools throughout the United States reported to be connected to the Internet (NCES, 2000). This is a reported 63% increase since the year 1994. Also in 2000, the ratio of computers to students was one to six, an increase from the 1994 ratio of one computer for every eleven students (Mendels, 1999). Aside from having Internet access in school libraries and computer labs, the abundance in individual classrooms has dramatically increased. This allows for Internet learning to be more readily available to students on a daily basis. Statistically over 70% of schools have this access in at least one of their classrooms (Mendels, 1999). Many schools have made the decision to go high-tech and create their own web pages via the World Wide Web. This allows them to advertise themselves to the virtual community. There has, also, been a change in how the Internet is being accessed by the various school systems. Dial-up Internet access has often been replaced by the high speed or cable Internet. A large portion of the increased Internet use, accessibility, and popularity as an educational instrument in the classrooms has been aided by the â€Å"Education Rate Program†, also known as the E-Rate Program (NCES, 2000). As of 2001, $5.8 billion has been committed to the growth of Internet access through this single program alone. It was established in 1996, with the goal of making Internet access, service, and connections more readily available to schools at discounted rates, in both urban and rural settings.