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Abstract

Corporate Social Responsibility (CSR) and financial performance have long been studied and theorized to have a connection. A belief is that CSR can affect a company of businesses financial performance both positively and negatively. This study examined connections between good and bad CSR, and how they affected company finances. Research concluded that negative actions of CSR had financial impacts on companies such as Takata and BP, and positive actions of CSR had good financial impacts for companies such as Starbucks. Negative acts costed these companies losses worth billions of dollars, and rewarded companies with profits and expansion worth billions as well. Without a doubt companies should look into incorporating acts or programs of corporate social responsibility into their business plans.

Corporate Social Responsibility and Financial Performance

The purpose of a business is thought by most people to be to make a profit, or in larger companies it is to raise company value for stake and stockholders. Business Guru Alan Weiss defines a business as, The purpose of a business is to offer value (through products and/or services) to customers, who pay for the value with cash or equivalents. Minimally, the money received should fund the costs of operating the business as well as provide for the life needs of the proprietor (Weiss, 2013). However, in recent years many people have begun to slowly shift from the idea that sole purpose of a business is to only make a profit.

Corporate social responsibility is defined as,

Corporate Social Responsibility is a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders. CSR is generally understood as being the way through which a company achieves a balance of economic, environmental and social imperatives (Triple-Bottom-Line- Approach), while at the same time addressing the expectations of shareholders and stakeholders (Unido).

CSR has become very popular for companies to take part in or adjust to, as growing environmental and social concerns have become major issues the public has acted on.

This study and research of this topic is important because it can provide businesses with proof of correlation between CSR and their financial performance. It will also show businesses that are heavily interested in profit that bad CSR can hurt profits and potentially run them out of business, and good CSR can attract more customers which would improve sales and awareness.

Literature Review

Takata

In 2014, the Takata Airbag company issued a major recall for a total amount of 42 million vehicles in the United States alone. The airbags were filled with a cheap chemical called Ammonium Nitrate, that would cause the airbags to activate when not needed (Tabuchi & Boudette). Some automakers were also found at fault for collaborating with Takata as a class action lawsuit was already filed by victims and families of victims against Takata, but after documents arose that automakers knew of these faults a lawsuit was also filed against them. For example,

The filing by the plaintiffs says emails and internal documents turned over by Honda show that in 1999 and 2000, the automaker was intimately involved in developing a problematic propellant, or explosive, used in Takatas airbags. The propellant is housed in a steel container called the inflater, which in the Takata case can rupture, shooting metal fragments toward the cars driver or passengers (Tabuchi & Boudette).

This was a failure in CSR by Takata, by electing to use a cheap material to save on production costs, at the expense of the user which were drivers and passengers. As soon as this news came about Takata would suffer financially. Total costs which were settled in January of 2019 included a $1 billion payment to the U.S. Justice Department, a $25 million payment to U.S. regulators for wire fraud and data falsification, and $850 million to U.S. automakers for the costs of the recalls. The company also set aside funds ($125 million) to cover for lawsuits and settlements of people that were injured or dead because of the faulty airbags (Kiley, 2019). The company was originally set to go bankrupt but were able to make something out of it,

As the company has settled costs of recalls over the last several months, it has been readying the sale of its U.S. operation to Key Safety Systems, another airbag supplier, based in Michigan. Globally, before the recall came to light, Takata had a huge share of the airbag marketaround 20%. It is selling most of its assets worldwide to Key Safety for $1.6 billion (Kiley, 2019).

Due to failing in CSR, Takata will no longer be a profitable or existing company.

BP

Perhaps the biggest case of bad CSR in the past decade is the major BP oil spill. The spill began in April of 2010 when an explosion on their oil rig in the Gulf Coast caused the deaths of 11 workers. From April until May, BP claimed to have the spill under control and in fact stated that there was no oil leaking. By May it turned out that about one million gallons of oil per day was leaking into the Gulf Coast (Amadeo, 2019). The costs included,

On September 5, 2014, a federal judge ruled that BP was "grossly negligent." The company was fined a record $18 billion under the Clean Water Act. The court ruled that BP repeatedly cut corners to boost profits (Amadeo, 2019). Also, As of July 14, 2016, BP had spent $61.6 billion in court fees, penalties, and clean-up costs (Amadeo, 2019).

BP showed an absolute terrible case of poor CSR. By trying to save brand reputation, costs, and expenses they ended up in-reversable damage to wildlife and the environment. The last financial impact was the effect of their stock value, The company's stock value had declined 34 percent since the April 20th explosion and wiped $96 billion in value (Amadeo, 2019).

Starbucks

Starbucks is a company that has implemented CSR into their business plan and model, which has allowed the company to not only be successful in the United States, but in many countries around the world as well. When Starbucks plans to enter a new market or simply expand, they look far into the locations people and culture, adjusting to not just business aspects, but to social ones as well. For example, Starbucks has had much recent success in China. In China there is a strong emphasis on family culture, and Starbucks adjusted to that by,

Starbucks fully understood this and made engaging parents a cornerstone of its people operations. Since 2012, Starbucks has hosted an annual Partner Family Forum, where its employees (whom the company calls partners) and their parents can learn together about the company and its future in China (Zakkour, 2017).

This was a great strategy to use and they made the people of China believe that they were not just there to hire workers and make profit like the Chinese perceive western companies to be, they showed that they cared about their culture. Starbucks eventually took it a step further and implemented the Starbucks China Parent Care Program, which provides health insurance for elder parents of employees (Zakkour, 2017). This has led to Starbucks having a rapid growth rate in China and tremendous financial success,

Starbucks' total store count in China increased by 16% year over year to 3,900 locations at the end of the third quarter. Comparable-store sales, meanwhile, rose 6%, with 2% coming from higher traffic (Tenebruso, 2019).

Although Starbucks does not have revenue specific numbers for China alone, in the China/Asia market they collected a total revenue of $1.29 billion for the first quarter of 2019 alone (Russell, 2019). Revenue will only increase as they further plan to expand and open more stores.

Presentation of Findings

The research I gathered shows that there are impacts on financial performance from the results of either good or bad CSR. Takata suffered major losses and completely lost their market share in the automobile airbag industry. The impact of negative CSR caused them to originally file for bankruptcy due to the heavy fines that they faced. By lying to automakers and customers and putting lives in danger, Takata lost all sense of trust and accountability, which would put any company out of business. Takata was lucky enough to find a buyer to purchase the assets that the company had remaining. BP also suffered greatly in their bad case of CSR. By hiding the major oil spill, it resulted in major effects to wildlife and the environment. They not only have the record for the largest oil spill ever, but also hold record fines and costs that totaled $61.6 billion (Amadeo, 2019). The company also suffered great loss in stock value when this incident occurred, hurting shareholders.

Starbucks yields great results from implementing CSR into their business plan and model. By implementing this into China they incorporated programs and practices that benefited and catered to the Chinese culture. By doing so Chinese customers support the companys expansion into their country and Starbucks continues to financially succeed and grow.

Conclusion

The research proves that bad CSR will have a negative financial effect on a company. Takata lost all its market share and had to liquidate and sell any remaining assets they had just to have some return on their business (Tabuchi & Boudette). Endangering the lives of people at the expense of making more profit is never something a company should do. BP did the same by hiding a major oil spill and hurting the lives of marine wildlife and the environment. Negative CSR acts such as these have an everlasting effect because people will never forget them, they were acts made to try and save the companys bottom line when it came to profits. Companies that embrace CSR such as Starbucks will always be viewed positively in the public eye and be able to establish a more stable business because of it. By acting right by the customer, the customer will return the favor and continue to give a company its business, if not more. Word of mouth and acts of righteousness spread quickly and will give positive publicity. The only information that could be added or searched for are surveys that can gather a perspective on just how important CSR is important to customers. Results from such surveys will be able to give businesses a more concrete answer and perhaps persuade them change their business plans to incorporate CSR.