Corporate Social Responsibility (CSR)Implementation In Lebanon: A Causal

Recursive System

Abdulrazzak Charbaji, Ph.DProfessor of Applied Statistics and

Research Methods

www.charbaji.com

LebanonArea : 10,400 sq km

about 0.7 times the size of Connecticutland: 10,230 sq km

water: 170 sq km

border countries: Israel 79 km, Syria 375 km

Population 3,727,703 (July 2003 est.)

http://www.heritage.org/research/features/index/downloads.html

http://www.chaostan.com/legal.html

Lebanon. Mixture of French Civil Law and Ottoman Civil Law. 2.95.America and Switzerland both score 1.9. Russia and Albania are both 3.65, and Cuba, Laos and North Korea are the worst in the world, with 5.0.

http://www.ciesin.columbia.edu/indicators/ESI/rank.html

Environmental Sustainability Index

2002 RankingsRank Country ESI 1  Finland  73 106  Lebanon  43.8  142  Kuwait  23.9 

The purpose of this paper is

To look closely at the CSR  issue and to

check if  Lebanese firms are  involved

in corporate social responsibility

DEFINING CORPORATE SOCIAL RESPONSIBILITY

A review of related literature reveals that the definition of CSR

remains a problematic issue

At one extreme Frankental believes  that CSR

is ambiguous and indefinable term.,

which can mean any thing to anybody (Frankental, 2001).

At the other extreme   We find

 a motivational definitionthat argues that CSR  is the fulfillment

of a firm's self-actualization needs  (Tuzzolino and Armandi , 1981)

The legitimacy of CSR relates to fundamental and crucial

questions as to why do corporations exist?

Should corporations be concerned with social performance as well as economic results? If so, • what is meant to be “socially responsible”? •Should economic performance be sacrificed for social performance? •To whom does business owe

“responsibilities’? •What kinds of activities and programs should CSR include? • And to what extent should social

responsibility activities consume the company’s resources?

Carroll (1979) suggested that corporations have four responsibilities to fulfill:

•Economic, •Legal,•Ethical, and •Philanthropic

Ethical responsibilities derive their source of authority from religious convictions, moral traditions, and human rights commitments. Business’ social responsibility was to maximize profits, subject to the constraints of the law. (Carroll, 2001)

Novak (1996) defined seven responsibilities. These are to: 1. Satisfy customers2. Earn a fair return on the funds entrusted to the corporation by its investors;3. Create new wealth, 4. Create and maintain new jobs;5. Giving people the sense that their economic conditions can improve;6. Promote innovation; and7. Diversify the economic interest of citizens so to prevent the domination of the majority.

The Effect of CSR

on Firm's Performance

previous empirical research has produced varied results

• Some studies have argued for a positive relation (Moskowitz, 1972; Parket & Eibert, 1975).  

• Whereas others have concluded that CSR has negative effects

(Aupperle, Carroll, & Hatfield, 1985;  Vance, 1975)

REVIEW OF BASIC CSR THEORIES IN FINANCIAL

ECONOMICS

The Property Rights Theory Rule

Business only has an economic responsibility to make a profit while

obeying the law.

It implies that devotion of corporate resources to social

causes is contrary to an implied contract with investors to maximize their

profits.

The Social Institution Theory

Public welfare is the primary concern

Firms should provide employment opportunities for everyone, improve the

environment, and promote worldwide justice even if it comes at the expense of

profits

The Contractual Theory of the Firm

A moderate and relatively recent view

which now dominates

the thinking in financial economics

and that of public law

Company’s assets are provided by many groups

including shareholders, such as employees, customers, suppliers, and

the like, and so the company arises from the property

rights and the right of contract

of every corporate constituency, not just stockholders

Corporate Social Responsibility in Lebanon

CSR is in its infancy stage in Lebanon

& There is a scarcity

of applied  research into CSR  in Lebanon

Lebanon’s Prime Minister Rafik Hariri

wrote an article in which he notes that taking

environmental issues seriously means that people are striving

for a better quality of life

The Lebanese government Tackled environmetal issues

such as:

•Establishing an Environment Ministry, •Passing a clean – air Act,•Adopting a nation wild reforestation scheme, and •Including integrated environmental management in its policy statement.

A study prepared by the Mediterranean Environmental

Technical Assistance Program (METAP) and the UNDP

estimated the cost of environmental deterioration in Lebanon

at US $565 million per year, that is around 3.9% of GDP. It is

the most among other Arab countries covered by the assessment

Today, Sukleen , has 384 committed institutions

that are enrolled in environmental campaign

for resources and energy preservation This initiative is undertaken

to provide an outlet to the recycling community

HSBC is funding teacher – training

seminars

IDAL launched a new service on its website,

the “Investors Matching Service”, which aims at facilitating the creation of strategic

international – local partnership One of the main criteria

used in the evaluation include employment effort, environmental

soundness and social liability

The project aims to promoteenhanced the active participation of

UN volunteersbusiness and local communities. The project is composed of two

phases, an action research phase and a

partnership promotion and building phase

Action Research

• The action research phase includes:

A qualitative research study aimed at businesses to investigate why and how they become involved in development initiatives.

Partnership promotion and building

• The project offer individual companies tailor-made strategies that benefit both their firm and local communities. Various activities under the project include:

• Awareness through written, audio visual, and virtual media (web-site and e-mail list). Identification and formation of partnerships between various stakeholders including UNDP, other lead UN agencies, civil society, local community-based associations and NGOs, businesses, associations, chambers of commerce, universities, etc. Organisation of a national workshop to bring together businesses and development actors together for brainstorming, dialogue and joint action. Publications including reports, brochures, newsletters, case studies, and a guidebook on business-community relations. Formulation of Project Document/Joint Project Proposals with UNV/UNDP/UN Agencies/ New Academy of Business.

This year Go Green in Lebanon

is supported by UNDP and its projects

at the Ministries of Environment

and Agriculture along with the private sector

Schtroumpfa local restaurant chain

Is the initiator and co-manager of the ‘Go Green’ project. Its practices include partnering with educational institutes to raise environmental awareness; continuously recycling and using recyclable products; and organizing a wide range of activities mainly targeting youth including environmental contests, forums, seminars, etc

FTML- Cellis a subsidiary of France Telecom

worldwide group/Orange • The company applies strict rules and policies,

which prevent pollution and degradation of the landscape in setting up their network.

• in August 2000, the company launched a Childhood Protection support programs for children who are rejected, abused, exploited in their work environment, for whom education is not provided or who are at risk of delinquency.

Coca-Cola

• The company has supported the Lebanese community in various causes including the environment. Recently the company launched the Cedar Roots project, which included building the first cedar forest in the South of Lebanon (Jezzine).

Tetra Pak East Med

• Tetra Pak takes active measures to ensure that its activities and products are environmentally friendly

• Tetra Pak supports health and education through the development of the ‘Captain Mike’ school-feeding program that aims at providing better nourishment for children

To sum up, Even though CSR is becoming

a corporate goal in Lebanon the international indices about Lebanon

reveal that an imperative need exists for a project to identify

gaps and opportunities

in the provision

of sustainable development

The Research Questions are:

1. What are the major characteristics of the selected sample for the study?

2. How many dimensions underline the measuring instrument?

3. What are the direct and indirect effects of the explanatory variables

to the explained variation in the dependent variable?

The present study involved   a sample of 406

including managers, assistant managers,

directors, assistant directors

A Graphical Representation By Sector

57.4%22.7%

8.4%

11.6%

BankingDistribution

Construction

Manufacturing

Size of Firm

1.7%

64.0%

34.2%

Large Firms

Medium Firms

Small Firms

Does your company have a Mission Statement addressing economic goals?

74.1%

25.9%

yes

no

Does your company have a Mission Statement addressing environmental goal

21.9%

78.1%

yes

no

Does your company have a Mission Statement addressing Social goals?

33.5%

66.5%

yes

no

Does your organization issue a Corporate Social Responsibility Report?

49.5%

50.5%

yes

no

My company adopted CSR environmental impact policy

.7%

16.5%

82.8%

Missing

yes

no

Reseaech and Development & Procurement Departments

are ISO 14001 certified

17.7%

82.3%

yes

no

Our company has a system in place to handle employees grivances

52.5%

47.5%

yes

no

Does your company have a system in Place

to handle employee grievances & complaints

71.2%

28.8%

yes

no

My company has code of ethics

53.7%

46.3%

yes

no

My company track customer satisfaction

82.0%

18.0%

yes

no

My company is involved in women empowerment

21.4%

78.6%

yes

no

My organization is involved

in awareness-raising campaigns on drug/alcol

10.1%

89.9%

yes

no

Findings of the Study

Factor Analysiswas ran on 217

valid cases without missing values out of 406 cases

KMO and Bartlett's Test

KMO measure of sampling adequacy (KMO = 0.650)

and the Bartlett test

of sphericity (B = 3608.464, p = .000) suggest that the data is suitable for

factor analysis

Factor extraction using oblique rotation

Returned a four-factor solution accounting for 81.906% of variance among the original twelve variables

two criteria were used:

1. Factor loading greater than 0.70,

2. Eigenvalues greater than 1.0

Factor 1 accounts for 30.5 %of the variance (Z4) could be called Environmental

Management. It includes high positive loadings for “My organization issue CSR report that include performance against benchmarks ” ; “My company adopted CSR environmental impact policy” and; “My company has environmental mission statement”

Factor 2 accounts for 25.28 %of the variance (Z3) could be called TQM practices. It is

a bipolar factor which includes negative high loading for “My company regularly track the satisfaction and/or complaints of customers” and; high positive loadings for “My organization is involved in minority and women employment”

Factor 3 accounts for 15.2 %of the variance (Z1) could be called Corporate Governance &

Organizational Policy.

It includes high positive loadings for “My company issue CSR Environmental report ”; “My organization issue CSR economic performance report”; “environmental guidelines for selecting suppliers”. And “My company uses employee performance appraisal systems that integrates compliance with code of conduct”

Factor 4 accounts for 10.89 % of the variance (Z2) could be called code of conduct.

It is a bipolar factor which includes high negative loading for “My company has code of ethics”; high negative loading for; “our company has a system in place to handle employees grievances” and high positive loading for “My company implement code of ethics”.

Using factor scores and the dependent variable

“Indicate the percentage of your company’s total shares held by

ethical, sustainable, or socially

responsible investors.” , multiple regression analysis is

conducted

The results of the regression analysis

is highly significant (p = .000)

R2 = 0.948, indicates that almost all of the

variancein the data is accounted for

by the model

Path Analysis

Decomposing the Correlation Coefficients

Z3 = P31 Z1 + P32 Z2 + RuZ4 = P41 Z1 + P42 Z2 + P43 Z3 + RwZ5 = P51 Z1 + P52 Z2 + P53 Z3 + P54 Z4 + Rv

r51 = P51+ P52P21 + P53P31 + P53P32P21 + P54P41 + P54P42P21 + P54P43P31 + P54P43P32P21

r52= P51P21+ P52 + P53P31P21 + P53P32 + P54P41P21 + P54P42 + P54P43P31P21 + P54P43P32

r53= P51P31+ P51P32P21 + P52P31P21 + P52P32 + P53 + P54P41 P31 + P54P41P32P21 + P54P42P331 P21 + P54P42P332 + P54P43

r54= P51P41+ P51P42P21 + P51P43P31 + P51P43 P32 P21+ P52P41 P21 + P52P42 + P52P43P31P21 + P52P43P32 + P53P41 P31+ P53P41P32P21 + P53P42P31 P21+ P53P42 P32+ P53P43 +P54

Conclusion

The true direct effect of Corporate Governance & Organizational Policy

on the percentage of company’s total shares held by ethical, sustainable,

or socially responsible investors is almost four times the simple relation

but the relation is decreased because of the indirect negative effects implying a more environmental concern

Suggested methodology to construct “CSR” Index

that aids in ranking countries

on “CSR” scale

•Construct a valid instrument that can be used in measuring “CSR” •Use factor analysis to obtain factor scores for different dimensions underlying the “CSR”

Obtain a grand total “CSR” score for each country in standardized score

•Use median standardizedas an index to rank countries on “CSR” scale