Corporate Social Responsibility and Financial Performance in the Australian Context

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Corporate social responsibility and financial performance in the Australian context Matthew Brine, Rebecca Brown and Greg Hackett 1

The concept of social responsibility of corporations has engendered considerable interest in Australia in recent years. While previous research on the relationship between corporate social responsibility and financial performance has largely been based on international data, this paper examines the relationship between the adoption of corporate social responsibility and the financial performance of companies within Australia. A number of economic drivers for corporate social responsibility have been identified that may explain its voluntary adoption by companies. Our preliminary results revealed no statistically significant relationship between corporate social responsibility and financial performance; however, a number of opportunities for refining the research were identified.

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The authors are from Corporations and Financial Services Division, the Australian Treasury. This article has benefited from comments and suggestions provided by Geoff Miller and Jim Murphy. The views in this article are those of the authors and not necessarily those of the Australian Treasury. 47

Corporate social responsibility and financial performance in the Australian context

Introduction
There is currently a debate on the extent to which company directors and managers should consider social and environmental factors in commercial decision making. An approach to decision making that routinely encompasses these factors may be described as corporate social responsibility. A view is emerging that corporate social responsibility can contribute to the financial performance of a company. This approach, which has been described as the ‘enlightened shareholder approach’, suggests that corporate decision-makers must consider a range of social and environmental matters if they are to maximise long-term financial returns. This paper presents some preliminary findings about the relationship between the adoption of corporate social responsibility and the financial performance of Australian companies, and identifies opportunities for further quantitative research in this area.

Corporate social responsibility
While there is no universally accepted definition of corporate social responsibility, it is usually described in terms of a company considering, managing and balancing the economic, social and environmental impacts of its activities (PJC 2006). The notion of corporate social responsibility as a part of the core business operations of a company, rather than a separate ‘add on’, distinguishes it from corporate philanthropy which may be funded out of operations that are damaging to the communities in which business is conducted. The extent to which company directors and managers should consider social and environmental factors in making decisions, rather than focusing exclusively on maximising short-term accounting profit, has been the subject of much discussion in recent years. In Australia, the issue has been raised in the context of corporate donations following the 2004 Boxing Day Tsunami, the (eventual) decision by the James Hardie group to fund asbestos liabilities owed by former subsidiary companies, and most recently the findings of the Cole Royal Commission that the AWB may have engaged in unlawful conduct to secure export contracts to Iraq. International developments in corporate law have also played a part in promoting interest in this issue, for example the reformulation of directors’ duties in the United Kingdom

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Corporate social responsibility and financial performance in the Australian context

Companies Act 2006 to recognise more explicitly the ‘enlightened shareholder’ model of corporate governance. 2 In 2006, both the Parliamentary Joint Committee on Corporations and Financial Services and the Corporations and Markets Advisory Committee released reports examining the extent to...
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