A study carried out by Walden University explores the relationship between the business culture of banks, CSR and financial performance
Corporate Social Responsibility (CSR) is an issue that requires close attention. CSR is an approach and series of behaviours that align the actions of a business with the world around it and is relevant to all production organisations. It can differ greatly depending on the type of business concerned and also applies to banks which are deemed – quite rightly – businesses like any other.
Links between CSR and banks are nevertheless more complex than those between CSR and other types of organisation. This makes “Corporate Social Responsibility and Financial Performance of Banks in the United States” by Waidi Alani Gbadamosi (Walden University) an enlightening read. The paper presents a study looking at the relationship between corporate social responsibility and the US banking system. In other words, it looks at how US banks, seen as businesses, behave and their CSR practices.
The work begins by examining the principles of CSR then moves on to look at evidence of them
in the US banking system. The survey was carried out on a sample of 71 US banks which provide publicly available ethical ratings, financial data, and stock market data.
The results were surprising in some respects. Contrary to expectations, Gbadamosi’s study showed no significant effect of social factors on accounting returns. The author explains that shareholders across the banking system perceive social activities as risky because of this and demand higher returns as a result. The study also showed that governance, diversity, and employee relations were positively related to accounting returns while product and community factors were negatively related to profits.
The conclusion to emerge, therefore, is that banks must be extremely careful in how they approach CSR and aim to strike the right balance between their social responsibility practices and their financial performance.
Corporate Social Responsibility and Financial Performance of Banks in the United States Waidi Alani Gbadamosi
Walden University, ScholarWorks, May 2016