Rmit university company project
Transcript of Rmit university company project
Abstract
As a result of the GFC, many companies, especially financial institutions, are spending a substantial
amount of money on CSR reporting to gain stakeholders’ trust and confidence. The paper aims at
providing banks (Macquarie and Westpac) with a better understanding of the actual costs associated with
CSR reporting, and its perceived relationship with company performance, to help banks make informed
decisions in regard to CSR reporting. The paper is based mainly on primary data collected from an online
survey, as well as academic literature on CSR and company reports. Research discovered that companies
having 1,000-10,000 employees spend around $1,019,779 on CSR reporting, while companies having
10,000- 50,000 employees spend about $777,380 on CSR reporting annually. However, this figure may
change significantly depending on the industry background, company size, location, level of legal
requirements and degree of commitment to CSR, etc. As both Macquarie and Westpac fell into the
10,000-50,000 employee group, with no material additional expenses, they were expected to spend
roughly $777,380 p.a. on CSR reporting. However, as Westpac was much larger in size and more
committed to CSR, Westpac was expected to incur higher costs than Macquarie. Even though the costs of
CSR reporting were high, the research paper found out that there was a strong perception that CSR
reporting had positive influence on company performance among Australian companies.
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Table of Contents
1. Introduction................................................................................................................................................3
2. Literature Review.......................................................................................................................................3
2.1 CSR......................................................................................................................................................3
2.2 CSR Reports.........................................................................................................................................4
2.3 CSR reporting in the Australian banking industry...............................................................................4
2.5 Impact of CSR on company performance............................................................................................5
3. Methodology..............................................................................................................................................5
3.1 Research ethics.....................................................................................................................................5
3.2 Procedure and time frame....................................................................................................................5
3.3 Analysis plan........................................................................................................................................5
3.4 Validity and reliability.........................................................................................................................5
3.5 Assumptions.........................................................................................................................................5
3.6 Limitations...........................................................................................................................................5
4. Results........................................................................................................................................................5
4.1 Types of CSR reports used..................................................................................................................5
4.2 Hours spent on CSR reporting.............................................................................................................5
4.3 Allocation of human resource on CSR reporting.................................................................................5
4.4 Total Expense.......................................................................................................................................5
4.5 Perceived benefits of CSR reporting....................................................................................................5
5. Discussion..................................................................................................................................................5
5.1 CSR reporting......................................................................................................................................5
5.2 Main costs............................................................................................................................................5
5.3 Relationship between cost and size......................................................................................................5
5.4 Perceived benefits of CSR reporting....................................................................................................5
6. Conclusion.................................................................................................................................................5
7. References..................................................................................................................................................5
8. Appendices.................................................................................................................................................5
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1. Introduction
Between 2007 and 2010, the world economy experienced what was considered the worst global financial
crisis since the Great Depression in the 1930s. One of the underlying reasons behind the crisis was the
excessive risk taking from financial institutions. As a result, there has been growing interest on the social
responsibility aspect of organizations, especially those in the financial industry. Companies are using
corporate social responsibility (CSR) reports to communicate their commitment to all stakeholders to gain
trust and confidence. Some incur significant costs to have this message delivered. The paper aims at
providing banks with a better understanding of the actual costs associated with CSR reporting, and its
perceived relationship with company performance, to help banks make informed decisions in regards to
CSR reporting.
In particular, this research paper looks at Macquarie and Westpac, who are both global investment
banking and diversified financial service groups located in Australia. Macquarie is located in Sydney and
has 14,657 employees. They rely heavily on marketing to profitable firms to drive around $8,312 million
in revenue, with a net profit of approximately $1,050 million for the financial year ending on 31 st March
2010 (Company360 2011a). Westpac is also cited in Sydney, with 36,533 employees in total. They serve
around 10 million customers through more than 1,400 branches, driving annual revenue of around
$39,219 million, with a net profit of roughly $6,350 million for the financial year ending on 30 September
2010 (Company360 2011b). Both banks are very supportive of CSR, especially Westpac, as it even made
CSR one of its strategic priorities and earned the recognition of being Australia’s most socially
responsible company (Westpac 2010, p. 3).
The purpose of this report is to estimate the cost of CSR reporting incurred by major Australian banks and
discuss the perceived implications CSR has on banking performance. This research is prepared for Telstra
Corporation Limited.
2. Literature Review
2.1 CSR
Even though CSR is a widely recognized concept, there is no universally accepted definition of the term
(Okoye 2009; Wan Saiful 2006). Some definitions describe CSR very generally. For example, according
to McWilliams and Siegel (2001), CSR refers to the voluntary actions taken by firms that benefit society
in a way that is beyond the interest of the firm and the requirements of the laws. Another definition refers
to CSR as: “A commitment to improve community well-being through discretionary business practices
and contribution of corporate resources” (Philip & Nancy 2005, p. 3).
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On the other hand, some definitions focus on more specific aspects of CSR. According to Hond, Bakker
and Neegaard (2007), CSR has two major aspects: the moral and ethical aspect, and social and
environmental aspect. This research paper focuses more on the social and environment aspect of CSR.
According to the European Commission (2010), CSR refers to the social and environment concerns that
businesses voluntarily integrate in their interactions with their stakeholders.
2.2 CSR Reports
There are a wide range of reports that companies use to report their CSR: triple bottom-line reporting,
People, Planet and Profit reporting, National Greenhouse and Energy Reporting System (NGERS),
Carbon Disclosure Project (CDP), Energy Efficiency Opportunities (EEO), Environment and Resource
Efficiency Plans (EREP), etc. These reports can either be compulsory or voluntary, depending on the
company’s industry background, size, and location, etc. (Doig 2009).
2.3 CSR reporting in the Australian banking industry
According the Australian Bankers’ Association (2006), the Australian banking industry is one of the
leading industries in the area of CSR not only in Australia but also internationally. Many banks have
recognized very early that they have responsibilities towards not only shareholders but also to a broad
range of stakeholders. It is because while the effect Australian banks have on the environment may not be
very significant compared to other industries like mining or construction, their influence on Australian
social aspect is substantial (ABA 2006).
While some components of CSR reporting are compulsory for some industries in Australia, given the
initiatives taken by Australian banks in CSR reporting, they are currently not subject to any mandatory
requirements (ABA 2006). They are, however, under the governance of Corporation Act and ASX Listing
Rules. Under the ASX Listing Rule 3.1, companies are required to disclose any information that can be
reasonably expected to have material effect on the company share price (ASX 2005). According to the
Australian Bankers’ Association (2006), this requirement is likely to cover significant information
regarding to the social and environmental aspects of the company operations.
Thus, as Australian banks fulfill the requirements under the above regulators, they can make their own
decision about which aspect of CSR they want to report on. On the bright side, this empowers Australian
banks with the right and responsibilities to focus on what matters to their stakeholders the most (Sweeney
& Coughlan 2008). On the other hand, this leads to confusion and waste of resources as some of the CSR
reports companies use have some overlap and duplicate areas, which could have been avoided with a
clearer guideline of what companies are expected to report on (Doig 2009).
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2.4 Cost of preparing CSR Report
There is very limited research done of the actual cost of preparing CSR reports. Given that CSR is a
“context dependent concept” (Wan Saiful 2006, p. 182), it is very hard to determine the actual measures
of CSR. According to Rowan Barber (2010), some main costs related to CSR reporting are: notification
cost, education cost, permission cost, administrative cost, record keeping cost, enforcement cost, and
publication cost.
2.5 Impact of CSR on company performance
Similar to CSR’s definition, there is no universally accepted view on the impact CSR has on the company
performance. Many believe that CSR has positive influence on company performance. In particular, they
argue that companies who are socially responsible are likely to be financially successful (Kanji & Chopra
2010; Mackey, Mackey & Barney 2007). Not only does CSR help improve organizations’ profit, it also
helps improve company reputation (Mattila, Hanks & Kim 2010), market value (Mackey, Mackey &
Barney 2007), employee commitment (Brammer, Millington & Rayton 2007), and customer loyalty
(Maignan & Ferrell 2001), etc. While this impact may not be immediate, it may have significant effect on
the long term. On the other hand, some believe that engaging in CSR is very costly (Scholtens 2009); and
that there is no correlation or negative correlation between CSR and company performance (McWilliams
& Siegel 2001; Surroca, Tribó & Waddock 2010).
In the Australian banking industry, a recent research done by the Australian Centre of Corporate Social
Responsibility (Black et al. 2011a) has found that the financial sector has one of the highest CSR budget
compared to other industries, and spending on environment management is expected to increase
significantly in 2010/2011 (Black et al. 2011b). While Australian banks are spending a substantial amount
on CSR, Pomering and Dolnicar (2009) found that Australian consumers have low awareness of banks’
engagement in CSR, and suggested firms to better communicate their CSR effort to consumers to gain
consumers’ support and loyalty.
Overall, there have been many studies done on the CSR topic about its importance and its effects on
organizations. However, research on the actual cost of doing CSR is very limited. The paper aims at
finding out the costs of CSR reporting and their links to company performance. In particular, it aims at
answering the research questions: what are the actual costs of CSR reporting in the Australian banking
industry and what are the perceived effects of CSR reporting on banks’ performance?
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3. Methodology
The purpose of this paper is to identify answers for the questions: what are the actual costs related to CSR
reporting that Macquarie and Westpac incur, and what are the perceived implications of these costs on the
company performance? This research paper uses the positivist paradigm with linear-recursive reasoning
structure. According to Hallebone and Priest (2009, p. 186), the positivist paradigm is the research
paradigm that “epistemologically accesses an external, observable social reality via the human senses. Its
scientific method is structured, enabling replication, with aims of producing generalizations”. The logic of
inquiry used in the research paper is a combination of induction and deduction (Hallebone and Priest
2009, p.183). In particular, using the data collected, it generalized the characteristics of companies
according to their company size, and applied those general characteristics to it Macquarie and Westpac to
predict their characteristics.
The paper is based mainly on primary data collected from an online survey, as well as academic literature
on CSR and company reports. To collect primary data, a questionnaire was built. The questionnaire
consisted of 11 questions inquiring about both quantitative and qualitative aspects of CSR. Quantitative
data covered areas such as company size, total hours invested in preparing CSR reports by staff level,
staff level salary, and additional expenses incurred in preparing CSR reports. On the other hand,
qualitative data covered areas such as industry background, name of major CSR reports, and extra
financial benefits received in preparing CSR reports. The questionnaire is included in Appendix 3.
3.1 Research ethics
This research paper was completed in an ethical manner. Consent for primary data generation was
acquired by the report client from Telstra Corporation. The paper reports research data and literary
information in a valid manner.
3.2 Procedure and time frame
The questionnaire was constructed on Saturday December 4th 2010, and was available online from
December 4th 2010 to January 5th 2011. All responses were collected to analyze on January 6th 2011.
3.3 Analysis plan
There were 24 responses to the online questionnaire sent to a population of 50 members of the Australian
Sustainable Business Group. Out of the 24 responses collected, this paper analyzes the result from 20
responses only. It is because the research paper focuses on ASX200 while 4 of the responses came from
small size companies, which are not likely to be in the ASX200.
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The remaining 20 responses were divided into two groups depending on their size: 1,000-10,000 fulltime
equivalent employees and 10,000-50,000 fulltime equivalent employees. Data analyzed was divided into
quantitative and qualitative data. In terms of quantitative data, actual costs of preparing CSR reports were
calculated by adding salary expense and other expenses. As these expenses vary across companies, an
average was calculated. In terms of qualitative data, it was analyzed mainly by using mode method,
and/or by calculating the percentage of the repeated responses compared to the total responses.
3.4 Validity and reliability
The questionnaire was the result of several discussions among a group of 15 MBA students under the
supervision of one teacher. The questions were chosen from a range of popular questions under the same
topic, re-worded, typed and sent to Dr. Turlough. Dr. Turlough then re-assessed the content and the
validity of the questions, adjusted it and sent it to the Australian Sustainable Business Group in Sydney
and Melbourne. The participants were senior managers from large organizations, who were very
interested in finding out the results of the survey. The survey response rate was 48%.
3.5 Assumptions
A number of assumptions were made in analyzing the primary data collected. First, it was assumed that
all respondents answered the survey truthfully and their answers reflected what actually happened in the
companies. Secondly, it was assumed that the sample collected represented the population of the ASX200
companies. In addition, a number of assumptions were made to calculate the actual costs of CSR
reporting. These assumptions will be mentioned at the appropriate section.
3.6 Limitations
There were a number of limitations that hindered the efficiency and effectiveness of the data analysis as
well as the usefulness of the result. Firstly, there was a major change in the direction of the research
paper, which shifted the focus from secondary data to primary data. As the process of collecting primary
data was time-consuming, the time available to analyze primary data and prepare the research paper was
shortened. Secondly, although the responses collected came from a wide range of industry backgrounds,
none of them came from the banking industry, which is the industry this research paper focuses on. As a
result, it may not reflect the actual costs incurred by the banking industry. And finally, information about
the actual costs Macquarie and Westpac spent in preparing CSR reports are not readily available. Thus,
the costs were estimated, which may be significantly different from the actual costs.
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4. Results
After careful analysis of the data collected from the questionnaire, a number of significant findings were established.
4.1 Types of CSR reports used
According to our research, companies used a wide range of reports to communicate their CSR
commitment. While some of these reports may be compulsory, many are voluntary.
NGER
Annual Rep
ort
Board Rep
orting
Legal
Require
ment
Triple
Bottem Lin
eEE
O0%
20%
40%
60%
80% 79% 75% 75% 75%63% 63%
Popular CSR reports
Figure 1: Popular CSR Reports
Figure 1 shows the six most popular CSR reports used by companies in the sample population. The most
widely used environment report was NGER (79%), followed by environment section of annual report,
board reporting, and legal environmental requirements, each with 75%. Triple bottom line and EEO
reports were also very popular among the chose companies with 63% each.
Both Macquarie and Westpac used an annual report as a means of reporting their CSR. In particular,
Macquarie had Sustainability and Risk Management sections within their annual report (Macquarie 2010,
pp. 42-61), while Westpac had a separate Sustainability Report (Westpac 2010). Compared to Macquarie,
Westpac’s report on Sustainability was a lot more comprehensive. In addition, both Macquarie and
Westpac prepared Carbon Disclosure Project (CDP) report (CDP 2010a, 2010b) and National Greenhouse
and Energy Report (NGER) (CDP 2010c; GEDO 2010). In these reports, Macquarie and Westpac
measured and disclosed their greenhouse gas emissions and climate change strategies. Once again, the
information provided by Westpac in the CDP report and NGER was much more comprehensive than
Macquarie’s.
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4.2 Hours spent on CSR reporting
Our research shows that the number of hours spent on CSR varies according to company size and
company background. The industry spent most time reporting CSR is manufacturing. On average,
manufacturing companies spent 5,400 hours p.a. on CSR. On the other hand, the industry spent the least
time reporting is consulting services with just 80 hours p.a. This huge difference may be the result of
different legal requirement; different effects the company operations have on environment, or different
attitude towards protecting the environment, etc.
4.3 Allocation of human resource on CSR reporting
According to our research, the allocation of human resource on CSR reporting varied slightly between the
1,000-10,000 employee group and the 10,000-50,000 employee group (Appendix 1). However, as the
variation was insignificant, this paper looks at the average allocation of human resource between the two
groups.
6%
26%
53%
15%
Estimated Time Allocation
Directors/Executives
Middle/Senior Managers
Staff/Specialists
Contractors/Vendor/Suppliers
Figure 2: Estimated time allocation on CSR reporting
Figure 2 shows the estimated time allocation on CSR reporting for the entire sample population. As can
be seen, staff/specialists are the most heavily involved in the preparation of CSR report (53%), followed
by Middle/Senior Managers (26%). This indicates that the majority of the preparation for CSR reports is
done by staff and middle/senior managers (79%). Contractors/Vendor/Suppliers are quite involved in the
process of preparing CSR (15%) while Directors/Executives are the least involved in CSR reporting (6%).
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While the time spent by contractors/vendor/suppliers represented only 15% of the total time spent on CSR
reporting, a significant number of companies were involving them in the CSR reporting process.
According to our research, 83% of companies in the 10,000-50,000 employee group used
contractors/vendor/suppliers in preparing CSR reports; while 77% of companies in the 1,000-10,000
employee group used contractors/vendor/suppliers in preparing CSR reports. This rate was quite high.
One of the reasons that may encourage companies to hire contractors in preparing CSR reports is
company size. As contractors are often specialized in their job, it might be easier and cheaper for the
companies to hire contractors to deal with CSR reporting, with the support from company employees. On
the other hand, companies may involve vendor/suppliers due to the interrelated relationship between the
company and its vendor/suppliers in preparing the CSR report.
4.4 Total Expense
Total expense is the sum of salary expense, overhead costs, professional development, production and
marketing, external consultants, and other expenses.
0
50000
100000
150000
200000
250000
300000
350000
400000Components of Total Expense
1,000-10,000 employee group 10,000-50,000 employee group
Figure 3: Components of total expense
Figure 3 shows the components of total expense for the two groups. Details on the actual cost of each
component are listed in Appendix 2. As can be seen, the distribution of costs was different between two
groups. This shows the diversity in how much companies spent on each category. There was no “rule” on
what to spend or how much to spend. Companies spent on what they found necessary.
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1,000-10,000 employee group
10,000-50,000 employee group
0
200000
400000
600000
800000
1000000Total Expense
Salary Overhead
Professional Development Production and Marketing
External Consultants Others
Figure 4: Total expense
On the other hand, companies having 10,000-50,000 fulltime equivalent employees spent an average of
$777,380 p.a. on CSR reporting. More than half of this total expense ($400,000) was to external
consultants for services like legal advice, auditing or verification. The second major expense group was
wages expense ($207,630). The remaining expenses went to overhead costs, professional development,
and production and marketing.
As there was very limited information on how much Macquarie and Westpac spent on CSR reporting, the
costs incurred needed to be estimated. As both Macquarie and Westpac fell into the 10,000-50,000
employee group, and on the assumption that they did not incur any material additional expenses, they
were expected to spend roughly $777,380 p.a. on CSR reporting. However, as Westpac was much larger
in size and more committed to CSR, Westpac was expected to incur higher costs than Macquarie.
4.5 Perceived benefits of CSR reporting
From our research, it can be seen that the costs of CSR reporting were not small. However, the majority
of the ASX200 still chose to report CSR due to the perceived extra benefits that they can gain such as
enhanced reputation, open new market opportunities, reduce risk, gain support from stakeholders,
especially from external customers and internal employees.
Figure 4 shows the total expense for
the two groups. According to our
research, companies having 1,000-
10,000 fulltime equivalent employees
spent an average of $1,019,779 p.a. on
CSR reporting. A third of this total
went to wages payment ($312,795)
while the other one-third went to other
expenses like software development
and licensing, support and training, and
travelling, etc. The remaining one-third
was divided among production and
marketing, external consultants,
overhead costs and professional
development.
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5. Discussion
5.1 CSR reporting
As discussed in the literature review section, the fact that there is no compulsory requirement in the
banking industry may make it a little confusing for companies as they do not know what they should
follow. In addition, as there are many CSR reports with similar reporting criteria available, the situation is
further complicated.
However, it is also true that the lack of compulsory requirements empowers banks with the freedom to
engage in CSR activities to the extent it sees fit. Between Macquarie and Westpac, it is clear that Westpac
invested more on CSR than Macquarie. It may be because Westpac is larger in size, has more customers
and employees, generates more profit, or simply because Westpac is more serious about its impact on
environment and society.
It would be beneficial if the Australian government or related agencies provide guidance (not compulsory
requirement) on CSR reporting. When the guidance is not available, banks should pay attention to which
reports other players in the industry are using, and avoid using reports with similar criteria.
5.2 Main costs
Our findings suggest that there are three major costs associated with CSR reporting: external consultant
expense (legal advice, auditing, verification, etc.), wages expense, and software development and
licensing. The fact that companies involve external consultants heavily in the reporting process may hint
that CSR requirements are very complicated and it is more efficient and cost-effective for companies to
outsource. Yet, substantial employee time is devoted to CSR reporting even when external consultants are
involved. The fact that companies are spending a substantial amount in software development and
licensing indicates that CSR reporting is moving towards a computerized system where the data
collection is more efficient.
5.3 Relationship between cost and size
As can be seen from our results, companies in the 1,000-10,000 employees group spent more money on
CSR reporting than those in 10,000,-50,000 employees group ($1,019,779 vs. $777,380). Generally, it is
reasonable to expect that larger companies spend more money on CSR reporting given the size and
complexity. This indicates that there are other factors with significant influence on the cost of CSR
reporting, other than company size. For example, large companies may be more efficient in CSR
reporting.
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5.4 Perceived benefits of CSR reporting
While literature review shows mixed views in relation to CSR’s effect on company performance, our
result indicates very strong perception that CSR reporting has positive effect on company performance.
This is probably why Australia is ahead of other countries when it comes to CSR reporting.
According to our survey result, the perceived benefits of CSR range from enhancing reputation to gaining
support from stakeholders, especially external customer and internal employee. However, as discussed in
the literature review section, Australian consumers have little awareness of banks engaging in CSR. The
gap between companies’ perception and consumers’ perception identifies the area banks should work on.
Even though banks spend substantial amount of money on CSR, they may not be very effective in
communicating their CSR process with their stakeholders. Thus, in addition to CSR activities, banks
should pay more attention to the way CSR is reported to stakeholders. If banks can effectively tailor CSR
reporting in a way that gains stakeholders’ support, they will earn competitive advantage. However, banks
should be careful not to appear as simply using CSR as a means of advertising.
6. Conclusion
As a result of the GFC, many companies, especially financial institutions, are spending a substantial
amount of money on CSR reporting to gain stakeholders’ trust and confidence. This research paper aims
at estimating the actual costs of CSR reporting incurred by Macquarie and Westpac, and identifying the
perceived links between CSR reporting and banks’ performance.
The paper is based mainly on primary data collected from an online survey, as well as academic literature
on CSR and company reports. The research discovered that companies used a wide range of CSR reports.
Among the costs associated with CSR reporting, the three main types are external consultant expenses,
wages expense, and software development and licensing. From the data collected, companies having
1,000-10,000 employees spend around $1,019,779 on CSR reporting, while companies having 10,000-
50,000 employees spend about $777,380 on CSR reporting annually. However, this figure may change
significantly depending on the industry background, company size, location, level of legal requirements
and degree of commitment to CSR, etc. As both Macquarie and Westpac fell into the 10,000-50,000
employee group, with no material additional expenses, they were expected to spend roughly $777,380 p.a.
on CSR reporting. However, as Westpac was much larger in size and more committed to CSR, Westpac
was expected to incur higher costs than Macquarie. Even though the costs of CSR reporting were high,
the research paper found out that there was a strong perception that CSR reporting had positive influence
on company performance among Australian companies.
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8. Appendices
Appendix 1: Estimated time allocation on CSR reporting
Estimated time proportion10,000-50,000
employee group1,000-10,000
employee group AverageDirectors/Executives 6% 5% 6%Middle/Senior Managers 23% 29% 26%Staff/Specialists 59% 49% 53%Contractors/Vendor/Suppliers 12% 17% 15%
100% 100% 100%
Appendix 2: Total Expense
Expenses 10,000-50,000
employee group 1,000-10,000
employee groupSalary Expenses 207,630 312,795Overhead Costs 98,750 25,056Professional Development 18,500 24,429Production and Marketing 52,500 165,000External Consultants 400,000 95,000Other 0 397,500Total 777,380 1,019,779
Appendix 3: Survey Questionnaire
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