Management Perception of the impact of CSR compliance on the social and economic performance of Apparel Companies in Tamilnadu

Management Perception of the impact of CSR compliance on the social and economic performance of Apparel Companies in Tamilnadu Dr. S.Angammal Santhi, Associate Professor, National Institute of Fashion Technology, Bengaluru, India. E-mail: Angammal.s@nift.ac.in Abstract Corporate Social Responsibility is on the rise in India and Tamilnadu. Civil, society, consumers and others have increased the pressure on companies to adhere to social and environmental standards and this newly evolved regulatory standard of operations has an impact on the business in India. The purpose of the study is to explore the management perception of the socio-economic impact of Corporate Social Responsibility (CSR) practices in Apparel companies in Tamilnadu. The study is done with an effort to seek how CSR practices in Apparel companies attains business and economic benefits as well addresses the social issues in Small and Medium scale Enterprises manufacturing Ready Made Garments in Tamilnadu. A questionnaire based on the literature review was designed. Questions were asked under the heading of the management perception of companies complying to of CSR initiatives.the researcher for analyzing the data and drafting statistical conclusions to meet the objectives of the study has applied the following research tools. Factor Analysis, a multi variable tool has been used to reduce enormous number of variables and predominant factors of motivation,growth determinants, constraints and suggested measures. The findings have shown that majority of the company respondents evaluated themselves to be socially responsible, but the economic impact shows the contrary. The study reveals that this is due to extraneous factors also. As most of the drawbacks and with the impact of the external factor being time bound, with the continuation of the social endeavour and efforts taken by the companies in Tamilnadu, the social benefits can positively contribute to the sustainable development of the apparel companies in Tamilnadu. Key words: CSR, COC socially responsible investment, CSR initiative, Buyers, SME, issues, investment. 1

Quotes Proceedings of the International Symposium on Emerging Trends in Social Science Research Business social responsibility should not be coerced; it is a voluntary decision that the entrepreneurial leadership of every company must make on its own. 1. Introduction The paper discusses the situation prevailing in John Mackey (2010) SMEs manufacturing Ready Made Garments to get an understanding of the perception of the management in Apparel Companies.The management group s perception of CSR vary with their individual role but there is considerable common ground between them. Mummullage Sanjeewani (2010) quotes that management agrees that the best way to accomplish CSR would be through establishing sound employees welfare policies and producing good quality products and that CSR activities generate a favourable climate for their manufacturing activities. In line with the strong owner influence among the manufacturers as Ready Made Garments, their decisions as top managers largely determine how the businesses are run. Management s perception of the labour force is perhaps the single greatest barrier to compliance. Top managements view of the worker has a strong effect on their readiness to engage in CSR activities. The perception of modernising the business, seeing possibilities and being brave enough to try new methods is also of great importance to becoming more compliant. Competing on a rapidly changing global market demands, an open mind to changes and being able to accommodate new ideas from outside. A truly progressive top management would for example see that it is possible to maintain workers through effective motivation and incentive systems in order reap the competitive advantages of both a higher level of COC compliance as well as potentially better productivity and quality. The perception of the management is visible with their knowledge of their understanding of CSR summarized in the concept of the triple bottom line. Elkington (1997 cited in Adams et al 2004) offers a mechanism to contemporary corporations for thinking about the three bottom lines; economic prosperity, environmental quality and social equity. Normally, any company is concerned mainly with the financial bottom line, but there are two other bottom lines that should be considered, namely the social and the environmental bottom line. Implementation of good social and environmental practices will not survive in the long term if owners, managers, and supervisors along the supply chain are not convinced of the benefits of CSR. Indeed, the lack of ownership among factory managers in the apparel industry has resulted in half-hearted implementation of externally imposed codes of conduct. Oxfam (2004) discovered that, while managers made sure of zero child and forced labour, they gave priority 2

to fulfilling an order according to the requirements of time, cost and quality and had little patience for CSR policies regarding excessive working hours, forced over-time, and harassment of workers who attempt to form unions. The same is true of other industries where cost and time pressures are intense. However, Gus Romano 2010 remarks that many companies justify their lack of CSR investment by saying that there is no evidence that CSR investment generate shareholder value. The link between corporate social responsibility and firm performance has received considerable attention both from a managerial as well as from an academic perspective. However, establishing such a link with solid empirical evidence has been a rather elusive task because it is fundamentally a bidirectional question: Therefore there is a need of a study that analyses the impact of such CSR investment on the social and economic performance and also focusing on the environment as part of social compliance. From the review of literature reported above gives an overview of Apparel Industry in India covering the importance and growth of the industry in Tamilnadu and in particular the ready-made garment in India and in Tamilnadu. Some researchers have even explored the issues of Small and Medium Enterprises in Apparel Industry. The researcher is able to identify the benefits of Apparel Industry for engaging with CSR compliance through some published papers, articles and reports based on foreign countries research work and from national works. The perception of Management of CSR compliance was gathered from studies on literature review. Jong Keun Kim (2011) suggests that companies with excellent CSR activities are likely to show better relationship performance in terms of satisfaction, cooperation and communication. Akgeyik Teklin (2005) says that corporate social responsibility is a commitment by the company to manage its roles in a society in a responsible and sustainable manner. Today there is growing perception among enterprise that sustainable business success ans shareholder vale cannot be achieved solely through short term profits but by responsible behaviour. Sue Shipman (2003) Report describes that CSR is not simply about funds and expertise companies chose to invest in communities to help resolve social problems, although many companies do make contribution in this way.it is about the integrity with which a company governs itself, fulfills its mission, lives by its values, engages with its stakeholders and measures its impact and publicly reports on its activities. The working group recognized that the central need for CSR practice to be embedded firmly within all business practice so that responsible business progressively becomes just the way they do business in the UK. The group believes that popularizing CSR, getting more companies, both large and small to take up its practices and informing all sectors in changing practices requires a leap forward. 3

Lina Song (2008) published a paper that empirically investigates how Chinese executives and managers perceive and interprets corporate social responsibility to what extent firms productive characteristics influence mangers attitudes towards their CSR rating and whether their values in favour of CSR are positively correlated to form view of CSR and a willingness to participate in socially responsible activities Controlling certain variables, it is found that managers orientation is positively correlated with their CSR activities. Daniel Ofori (2006) His article reports the finding that though there is no legal framework for CSR in Ghana, companies are involved in various CSR activities like support for education, sponsorship of events, and cash donations. Managers and executives believe that it is important for their firms to be socially responsible and to be seen to be behaving ethically. The study also revealed that ethical of both individual managers and their firms are the major factors determining managers attitudes is good for corporate reputation. For the purpose of this discussion of understanding the management perception of CSR compliance and the actual impact of the CSR investment on social and economic performance,the paper delves on the management perception in three folds. Section I: Study of management perception with regard to considering CSR as an economic necessity. Section II: Explores the perception of Management about the impact of CSR on employees. Section III: Analysis the management perception about the link between CSR and the organisational functioning. Management Perception of CSR as an Economic Necessity World Business Council for sustainable Development defines Corporate Social Responsibility as 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 society at large. Table 1.1: KMO and Bartlett's Test for Management Perception of CSR as Economic Necessity Kaiser-Meyer-Olkin Measure of Sampling Adequacy..637 Bartlett's Test of Sphericity Approx. Chi-Square 21.760 Df 10 Sig..016 From the above table 1.1 it is found that KMO measure of sampling adequacy is.637 and Chi-square is 21.760 for 10 degrees of freedom. This induces to conclude that the Factor Analysis applied on the 5 variables on economic motivation form 94 respondents is just fairly justified. In fact it is ascertained that the spearhead of Normal Distribution or Gaussian s Distribution is perfectly formed for the sample response collected from the company. This 4

indicates that the factor segregated with the help of variable loading almost fits the normal distribution and reflects the characteristics factor of the population. Total Eigen Variance and its loading. Economic Necessity Table 1.2: Number of factors of Management Perception of CSR of Economic Necessity Initial Eigenvalues Extraction Sums of Squared Loadings Total % of Variance Cumulative % Total % of Variance Cumulative % EN 1 2.127 42.550 42.550 2.127 42.550 42.550 EN 2 1.191 23.820 66.370 1.191 23.820 66.370 EN 3.746 14.917 81.287 EN 4.502 10.039 91.326 EN 5.434 8.674 100.000 Extraction Method: Principal Component Analysis The total variance Table 1.2 explains that the 2 factors exhibits 63% of the total variance with 2 Eigen value 2.127 and 1.191. All the values are greater than one. This shows the existence of two major factors. Individually, these factors possess the variances i.e 42.55, and 23.80. Among these values the factor possesses the highest variance and the second factor has the smaller variance. This forces to conclude that the factor segregation is perfect and they can be named as mentioned below. Continuous Vari-Max Rotation The following consequences are obtained through continuous Vari-Max Rotation Table 1.3: Variable loading on factors of Management Perception of CSR on Economic Necessity Economic Necessity Component 1 2 EN 2 CSR is considered as a competitive advantage.794 EN 1 EN 5 EN 6 CSR has direct relation to the remarkable improvement in the firms performance Socially responsible activities could improve a firm s standing with investors Adoption of CSR activities in your organization is highly important from economic point of view EN 4 Contributing to community s programme and improving of local development would bring in firm s long run profitability. Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a. Rotation converged in 3 iterations..785.648.868.761 5

Table 1.4: Factors of Management perception of CSR as an economic necessity Economic Necessity Variables The first factor consists of 3 variables which are given below Value EN 2 CSR is considered as a competitive advantage.794 EN 1 EN 5 CSR has direct relation to the remarkable improvement in the firms performance Socially responsible activities could improve a firm s standing with investors.785.648 The first factor can be coined as better economic prosperity a perception held by management of CSR practises in their companies The second factor consists of 2 variables given below EN 6 Adoption of CSR activities in your organization is highly important from.868 economic point of view EN 4 Contributing to community s programme and improving of local development would bring in firm s long run profitability..761 The second factor can be coined Business growth is enhanced. The management perceives that CSR practices helps to enhance the business growth of the company To conclude this section demonstrates that management does perceive that CSR practices brings about better economic and business growth of the company is enhanced and leads to prosperity. 1.1.2 Perception of Management about the Impact of CSR on Employees The benefits of CSR towards employees include various facilities, services and amenities provided to workers for improving their health, efficiency, economic betterment and social status. Welfare measures are in addition to regular wages and other economic benefits available to workers due to legal provisions and collective bargaining. Labor welfare schemes are flexible and ever-changing. New welfare measures are added to the existing ones from time to time. Welfare measures may be introduced by the employers, government, employees or by any social or charitable agency. The purpose of labor welfare is to bring about the development of the whole personality of the workers to make a better workforce. 6

Table 1.5: KMO and Bartlett's Test for Management perception about the impact of CSR on employees Kaiser-Meyer-Olkin Measure of Sampling Adequacy..640 Bartlett's Test of Sphericity Approx. Chi-Square 114.000 Df 45 Sig..000 From the above table 1.5 it is found that KMO measure of sampling adequacy is.640 and Chi-square is 114 for 45 degrees of freedom. This induces to conclude that the Factor Analysis applied on the 10 variables on economic motivation form 94 respondents is just fairly justified. In fact it is ascertained that the spearhead of Normal Distribution or Gaussian s Distribution is perfectly formed for the sample response collected from the company. This indicates that the factor segregated with the help of variable loading almost fits the normal distribution and reflects the characteristics factor of the population Total Eigen Variance and its loading The following Total Variance table 1.5 explains the formation of the number of factors out of the 10 variables Table 1.6: Number of factors of the Management Perception of the impact of CSR on the employees Management Perception of Impact of SCR on employees Total Initial Eigen values % of Variance Extraction Sums of Squared Loadings Cumulative % Total % of Variance Cumulative % PIE 1 3.531 35.314 35.314 3.531 35.314 35.314 PIE 2 2.054 20.538 55.852 2.054 20.538 55.852 PIE 3 1.059 10.591 66.443 1.059 10.591 66.443 PIE 4 1.000 9.998 76.441 PIE 5.743 7.427 83.869 PIE 6.670 6.697 90.565 PIE 7.323 3.233 93.798 PIE 8.282 2.819 96.617 PIE 9.237 2.368 98.985 PIE 10.102 1.015 100.000 Extraction Method: Principal Component Analysis. The total variance table 1.6 explains that the 3 factors exhibits 66% of the total variance with 3 Eigen values 3.531,2.054 and 1.059. All the values are greater than one. This shows the existence of three major factors. 7

Individually, these factors possess the variances i.e 35.314, 55.352 and 10.591. Among these values the first factor possesses the highest variance and the second factor has the smaller variance. This forces one to conclude that the factor segregation is perfect and they can be named as mentioned below. Continuous Vari-Max Rotation The following consequences are obtained through continuous Vari-Max Rotation. Table 1.7: Variable loading on the factors of Management Perception of the impact of CSR on the employees Impact on Component Employees 1 2 3 PIE 7 Employees health and welfare issues.897 PIE 10 Reduced Employee turnover.878 PIE 8 Gender issues have reduced.712 PIE 1 CSR affect employee- based indicators of effectiveness, such as absenteeism or turnover rates. PIE 6 Child Care is improved.815 PIE3 Employees safety issues.721 PIE 2 Workers are predominantly in favour of employers.570 PIE 9 Fair pay is followed.517 PIE 5 Employees health and welfare issues.803 PIE 4 Increase of employees efficiency.664.571 The result of the Vari-Max Rotation have given the following results Table 1.8: Factors of Management perception of CSR having an impact on employees Impact on Employees Variables Value The first factor consists of 4 variables which are given below PIE 7 Employees health and welfare issues.897 PIE 10 Reduced Employee turnover.878 PIE 8 Gender issues have reduced.712 PIE 1 CSR affect employee- based indicators of effectiveness, such as absenteeism or turnover rates..571 The first factor is coined as happier employees being perceived by management as an impact of CSR. The second factor consists of 4 variables are given below PIE 6 Child Care is improved.815 PIE3 Employees safety issues.721 PIE 2 Workers are predominantly in favour of employers.570 PIE 9 Fair pay is followed.517 The second factor is coined as welfare provided fairly as perceived by management that has an impact on employees The third factor consists of 2 variables 8

PIE 5 Employees health and welfare issues.803 PIE 4 Increase of employees efficiency.664 The third factor is coined as better performance of employees being perceived by management on account of CSR practices. The findings report that Management perception of CSR impact on employees is factorised into tree factor as happier employees, welfare to employees are provided fairly and that performance of employees re better. 1.1.3 Management Perception of the Link between CSR and the Organisational Functioning The companies work in a business function that readily identifies both the business benefits and the people benefits of fostering CSR alignment and integration. With CSR integrated company, the employee and business case benefits will be reaped, while leveraging community sustainability. To support the integration of CSR throughout the business strategy and operations, CSR needs to be built into the organization s business strategy and the CEO s performance goals, along with measurable objectives and regular performance reporting. CSR also needs to be a component across all senior manager performance plans, in order for it to flow to other levels of the organization. Table 1.9: KMO and Bartlett's Test for Management Perception of link between CSR and the organisational functioning Kaiser-Meyer-Olkin Measure of Sampling Adequacy..701 Bartlett's Test of Sphericity Approx. Chi-Square 46.550 Df 15 Sig..000 From the above table 1.9 it is found that KMO measure of sampling adequacy is.701 and Chi-square is 46.55 for 15 degrees of freedom. This induces to conclude that the Factor Analysis applied on the 6 variables on economic motivation form 94 respondents is just fairly justified. In fact it is ascertained that the spearhead of Normal Distribution or Gaussian s Distribution is perfectly formed for the sample response collected from the company. This indicates that the factor segregated with the help of variable loading almost fits the normal distribution and reflects the characteristics factor of the population Total Eigen Variance and its loading. Table 1.10: Number of factors of Management Perception of the link between CSR and the organizational functioning Initial Eigenvalues Extraction Sums of Squared Loadings Component % of % of Total Cumulative % Total Variance Variance Cumulative % AOI 1 2.714 45.236 45.236 2.714 45.236 45.236 AOI 2 1.138 18.967 64.204 1.138 18.967 64.204 AOI 3.949 15.820 80.024 9

AOI 4.582 9.692 89.716 AOI 5.363 6.045 95.761 AOI 6.254 4.239 100.000 Extraction Method: Principal Component Analysis The total variance Table 5.10 explains that the 2 factors exhibits 64% of the total variance with 2 Eigen values 2.714 and 1.138. All the values are greater than one. This shows the existence of two major factors. Individually, these factors possess the variances i.e 45.236 and 18.967. Among these values the first factor possesses the highest variance and the second factor has the smaller variance. This force to conclude that the factor segregation is perfect and they can be named as mentioned below. Continuous Vari-Max Rotation The following consequences are obtained through continuous Vari-Max Rotation. Table 1.11: Variable loading on the factors of Management Perception of the link between CSR and the organizational functioning Component AOI 2 AOI 1 AOI 3 AOI 5 AOI 4 Company needs to have a separate department dedicated for CSR All standards in every CSR initiatives that the company adopts are being strictly followed Special policies are required to be adopted to ensure CSR compliance Special policies are required to be adopted to ensure CSR compliance Your opinion about government making mandatory for corporates to earmark part of their profit for CSR initiatives 1 2 AOI 6 Legal regulation of CSR,improved the proper functions of the firm.894 a. Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization.Rotation converged in 3 iterations. Table 1.12: Management perception that there is a link between CSR and organisational functioning Motivation Variables Value The first factor consists of 5 variables which are given below AOI 2 Company needs to have a separate department dedicated for CSR.894 AOI 1 All standards in every CSR initiatives that the company adopts are.849 being strictly followed AOI 3 Special policies are required to be adopted to ensure CSR compliance.648 AOI 5 Special policies are required to be adopted to ensure CSR compliance.624 AOI 4 Your opinion about government making mandatory for corporates to earmark part of their profit for CSR initiatives.586.894.849.648.624.586 10

The first factor is coined as built into the company s functioning is perceived by management of the link between CSR and the organisation The second factor has 1 variable AOI 6 Company needs to have a separate department dedicated for CSR.894 The second variable is coined as functioning better with CSR legislation Done correctly, companies have enormous potential to affect change in their communities and the environment by investing in CSR initiatives. Managers need to be aware of what payoffs they can expect to get from an investment in CSR, and it should be noted that a miraculous improvement in retention rates is not likely to be one of them. Though immediate benefits might be few, it is likely that the importance of CSR will increase in years to come as people become interested in the social and environmental effects of corporations. Management who stay aware of CSR and the implications for their organisations will be able to make the most informed decisions. 11