Research Methods Student Number: 21202244

Tutor: Sharif Sheriff

Module Code: BA70020E

2014

2014

Source: ( Adapted from Google, 2014)

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Table of Contents ABSTRACT ..................................................................................................................................................... 2

1. INTRODUCTION ...................................................................................................................................... 2

2. LITERATURE REVIEW ................................................................................................................................ 3

3. RESEARCH QUESTION .............................................................................................................................. 5

4. METHODOLOGY ..................................................................................................................................... 6

4.1. METHOD OF DATA COLLECTION ............................................................................................................. 6

4.2. THE QUESTIONNAIRE DESIGN ................................................................................................................ 7

5. DATA ANALYSIS ...................................................................................................................................... 7

6. LIMITATION ........................................................................................................................................... 8

TIMESCALE .................................................................................................................................................... 9

ACRONYMS ................................................................................................................................................... 9

BIBLIOGRAPHY ............................................................................................................................................. 10

APPENDIX.................................................................................................................................................... 12

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The voice of the stakeholder – customer attitudes to the role of CSR in the UK Banking Sector since the financial crisis (2007)

ABSTRACT

In the light of the recent financial crisis, the practices of Corporate Social Responsibility (CSR) have

come to the fore in media reports and academic debates especially in the banking sector. In this

context, the goal of this research is twofold. First, it seeks to examine the impact of the financial

crisis on the implications of CSR activities in relation to stakeholders’ expectations in the financial

services industry, specifically the UK banking sector. This involves investigating whether, since the

financial crisis, banks in the UK need to rethink their societal roles to align with key stakeholders’

expectations. Second, it can help banking managers to understand what should be done

for the benefit of their stakeholders and their own business sustainability. The above

will be researched via a web-based questionnaire and CSR models will be analysed to answer the

research question.

Keywords: Global Financial Crisis, Corporate Social Responsibility, Stakeholder model, Shareholder model, CSR pyramid, Triple Bottom Line

1. INTRODUCTION

History shows that the most serious recessions are those that involve the financial sector, include

a large number of countries and affect the core of the global system. The coming year, 2014, is

supposed to be the one in which the global economy finally sorts out its problems (Elliott, 2013).

Conversely, the UK banking industry is suffering from some recent failures, including ‘PPI and

interest rate swap mis-selling and the fixing of the LIBOR interest rate’ (Bennett, 2013). Lloyds’

£28m fine for mistreating retail customers is seen as the UK largest ever. This came from a flawed

incentive scheme which, interestingly, was introduced in 2010 long after the bank’s rescue by the

UK taxpayer (Masters, 2014). This raises concerns regarding the CSR activities that were

undertaken in the post financial crisis by banks that contributed to such failures.

Although the notion of CSR emerged in the 1950s, yet, there is no strong consensus of either its

definition or scope. Nevertheless, with the variation in CSR definitions, CSR can considered insofar

as an umbrella term that captures the various ways of thinking in which business defines and

manages its relationships with society and acts in accordance with them (Klara, 2011).

Substantial academic research has focused on core aspects of CSR concerning the determinants of

social responsible behaviour, the relationship between financial and social performance, social

reporting and stakeholder engagement. Although some researchers have also unfolded some CSR

issues in the banking sector, the research in this field is still in its infancy (Perrini, 2005). Thus, the

aim of this research is to contribute to the CSR bank literature and pinpoint the CSR activities that

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address the stakeholders’ expectations post financial crisis and how these activities influence the

customers’ behavioural perception.

The next section includes a review of literature on the subject. This is followed by an outline of

problem statement, research question and the development of the proposed hypotheses. The

penultimate section depicts the research methodology and data analysis. Finally, the limitation of

the study is presented.

2. LITERATURE REVIEW

Many are holding banks, at least partly, responsible for the recent FC (financial crisis), albeit in the

context of extreme short-termism and market manipulations. Such irresponsible business

behaviours have drawn the attention to the concept of CSR which its core approach has been

argued to reflect the business ethics and attributes towards society (Herzig & Moon, 2012).

The importance of CSR surged only since 1960s (Carroll & Shabana, 2010). This growing interest in

the field has served to extend the array of its definitions which contributed to cloud the CSR

literature with a proliferation of terms. Nevertheless, Visser (2010, cited in Sun et al, 2010), argues

that CSR 1 – referring to all other terms concerning CSR before 2007 – failed to prevent the FC and

thereof he presents a new model – CSR 2 – to replace CSR 1.

Given this array, CSR concept and interpretation are bound to by its application. To the

neoclassical economists, the only social responsibility of business is to increase its profits while

following legal rules (e.g. Friedman, 1970). However, according to Martin (2011 cited in Leavy,

2012), this shareholder maximization model would eventually destroy business and the efficiency

of markets. Hence, the key argument is that the malpractices of banks such RBS, Lloyds and Co-

operative indicate that the financial sector might be in jeopardy of this shareholder-capitalism

‘‘The only one responsibility of business towards society is the maximization of profits to the shareholders within the legal framework and the ethical custom of the country.”

“Creating a strong business and building a better world are not conflicting goals – they are both essential ingredients for long-term success”.

- Milton Friedman

- William Ford Executive Chairman, Ford Motor Company.

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which has been claimed to aggressively pursuing expansion and profits at all costs (Greenham,

2013).

In stark contrast is the stakeholder approach, whereby Freeman (1984) posits that firms owe a

duty to society rather than only to the shareholders. From this perspective, a firm has

responsibility towards many groups who are its stakeholders that affect and are affected by the

actions of the firm. Customers are considered eminent stakeholders for having direct effect on the

continuity of the firm (Blanpain et al, 2011). Arguably, CSR initiatives are those actions taken to

bridge firm and stakeholder expectations (May et al, 2007). Further, Porter and Kramer (2006

cited in Bouvain et al, 2012) elaborate that cultivating stakeholder approach in management

implies strategic CSR as a source of competitive advantage – reputational advantage. In the same

vein, it is claimed that firms with CSR adhere in practice to the expectations of its stakeholders

and create a positive image and a reputation as a socially responsible business that can influence

the customers’ behavioural perceptions towards this business (Tello & Yoon, 2009). In line with

this, some marketing studies by Sen and Bhattacharya (2001) reported that CSR activities can

positively affect consumer attitudes including customer loyalty and trust.

Notably, the function of banks incorporates societal thrust as it is embedded in its DNA whereby,

on one hand, they collect idle funds from individuals or business and, on the other hand, they

transform them into loanable capital (Lapavitsas, 2003). Hence, banks have a direct impact on the

society within the social, ethical and environmental considerations that are taken into account in

the investment decision making.

To shed light on the customers’ expectations, CSR pyramid and TBL (Triple Bottom Line) are

reviewed. Carrols’ pyramid of CSR (1979) – the most widely CSR cited model – illustrates the social

responsibility of businesses as the economic, legal, ethical, and philanthropic expectations that

firms are bound to towards stakeholders, at large. Carroll (1991) posits that the economic

responsibility refers to the fundamental responsibility of business to produce goods and services

that society wants and which it sells at a profit, thereof it is situated at the base of the pyramid for

all the subsequent responsibilities. At the same time, business is required to strictly obey the law.

Ethical responsibilities pertain to expectations that reflect a concern for stakeholders over and

beyond economic and legal expectations, while philanthropic responsibilities refers to voluntary

actions which a company assume even if there are no clear-cut societal expectations (Blowfield &

Murray, 2008).

The TBL of CSR advocated by John Elkington in 1994 contends that business creates value in

multiple dimensions (social and environmental as well as economic values). Further, he highlights

sustainability as an important goal for business ethics. The broader concept of economic

sustainability postulates that company’s attitude impacts the economic framework in which it is

embedded (Crane & Matten, 2010).

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The emerging of the new developed model CSR 2 as a result of the failure of CSR 1 and the recent failures in the banking sector formulates the assumption that there is a gap, which pertains to the difference between the current Banks’ CSR practices and the stakeholder current expectations. This leads to the second hypothesis:

•H01: There is a gap between the current CSR practices of the banks and current Customer-Stakeholders' expectations.

Recent studies claim that the company's preferred CSR activities - referred to as "CSR fit" - positively influence consumers' behavioural perceptions - a) trust and b) repeat patronage intentions (Sen and Bhattacharya, 2001). This formulates the following hypothesis:

• H02: CSR fit will have a positive impact on customer-stakeholders' behavioural perceptions.

Further, Roberts and Dowling (2002- cited in Bouvain et al, 2013) opine that CSR activities can result in high quality intangible assets such as reputation which can be regarded as a powerful competitive edge. Also, it is claimed that corporate reputation attracts customers, influences the behavioural perceptions - a) trust, and b) repeat patronage intention- and creates sustainable business (Bouvain et al, 2013) . This yields the following hypotheses:

• H03: CSR fit will lead to positive reputation of banks as socially responsible businesses in the marketplace.

• H04: Bank reputation as socially respobsible business will have a positive impact on customers' behavioural perceptions.

On the one hand, given the aforementioned financial strand, a heightened awareness of the importance of ethics and CSR in business practices has led banks to increase their CSR performance in order to regain the lost trust in businesses since the onset of this GFC in 2007 (Bouvain et al, 2013). In this view, as the assumption goes, banks might have rethought their CSR activities in the post-financial crisis to address the society expectations as a result of this crisis. On the other hand, some recent financial failures remain in flux into the UK banking sector. Hence, this study wants to investigate about this subject. In particular, the aim of the paper is to answer to the following research question:

Has the financial crisis been a wake-up call for CSR activities to resonate with customer stakeholders expectations to create sustainable business?

3. RESEARCH QUESTION

The Problem Statement

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4. METHODOLOGY

The research will follow a deductive approach, it has a positivist paradigm, whereby it seeks to

confirm or refute the research question through its data collection and analysis. In order to obtain

answers for the research question, a literature review was carried out in section 2.

The target population is bank customers resident in the UK. For this research, the planed sample

size is 200. To develop a homogeneous sample, the sampling units will be customers from one

bank, Barclays Plc where Snowball sampling will be employed to reach them. The snowball

sampling is a non-probability method that is typically used in situations where compiling a

complete list of sampling units is very difficult as banks do not give out such list of its customers.

Hence, it might not possible to use a Stratified random method to develop a representative

sample (Shiu et al, 2009).

The use of the online survey will help to reduce the social desirability biases inherent in the

Snowball method. In addition, to make the sample reasonably representative to have the same

distribution of characteristics as the population from which it is drawn, respondents will be from

various socioeconomic categories, from diverse ethnic backgrounds who are men and women

between 23 and 70 years. Choosing an age over 23 years was to ensure that all the participants

will be able to recall the crisis in 2007 during their adult years. Moreover, Snowball sampling has

been successfully used by some banking researchers (McDonald & Lai, 2011). Further, selecting

the bank on the basis of its position in FTSE4Good ranking, and being the 2nd largest British bank

(Market Consensus, 2013) will help to draw a big sample size.

4.1. METHOD OF DATA COLLECTION

In accordance with the positivist research paradigm, the data collection will be conducted via self-

administrated questionnaire distributed through email. The use of the Internet has been

associated with many positive implications such significantly reducing cost and providing a quick

reach to respondents as well as yielding a high response rate. The advantage of using such a

primary data collection is that information gained is more coherent with the research questions.

The questionnaire will be sent to the respondents after the approval of the supervisor.

Respondents will be presented with a statement that summarises the research objectives. They

will be guided to answer the questions anonymously and to complete the survey within two

weeks. A reminder will be sent one week after the first email to the ones that have not responded

yet. To incentivize them, they will be offered a gift voucher as a thank you on completion.

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4.2. THE QUESTIONNAIRE DESIGN

Initially, the survey will be pretested by sending it to a small convenience sample to provide

suggestions on the developed scales in an effort to enhance face validity. In essence, these

inappropriate items will be adjusted or deleted. Further, CFA (Confirmatory Factor Analysis) is

conducted via AMOS 19 to measure the reliability as well as the convergent and discriminant

validity of the constructs. Cronbach’s alpha is used to gauge the internal consistency of the

constructs. Also T-value and AVE (Average Variance Extracted) are employed to test convergent

validity (Choi & La, 2013). The measurement model will be checked for having a good fit. The

structural model and path analysis will also be checked.

The questionnaire will consist of closed-ended questions which relate to all of the research

objectives. For the demographic part, they will be multiple-choice questions. For the rest, they will

be in Likert scale format ranging from 1 (strongly disagree) to 5 (strongly agree). The survey is

designed over a number of sections separated over different Web pages. The instrument will be

programmed so that respondent cannot progress to the next page unless they answer all

questions. Skipping questions will not be allowed to avoid missing data. The questionnaire

encompasses 5 parts, one for demographic questions and the others will be value-based questions

which are all written in a simple style free from ambiguity. Many of these questions will be pre-

coded.

In an attempt to use SERVQUAL for H01, a 10-item measurement scale will be adapted from

Gournaris et al (2003 cited in Mandhachitara & Poolthong, 2009). It is extended from SERVQUAL

specifically for the banking industry. It also measures value for money, employee competence,

product innovativeness and bank’s reliability. The five-Likert scale will be carried out for these

questions as well.

In addition, this paper will adapt two elements of Carroll’s CSR framework which deal with ethical

and philanthropic dimensions besides the CSR activity for economic perspective from TBL. The CSR

activities – CSR fit – are further grouped into seven broad groups for analysis: service orientation,

stakeholder engagement, Community development, Volunteer Staff, charitable donations,

philanthropy and environment. The respondents will be asked to grade these activities using the

five-Likert scale. Further, the five Likert scale will be deployed to measure the respondent’s

behavioural perceptions (trust and repeat patronage intention). Last part of the survey is to score

the reputation of the bank as socially responsible and last question to score whether that is

related to their behavioural perceptions.

5. DATA ANALYSIS

Data analysis involves a series of stages: Data validation and preparation, testing hypothesis,

conducting analysis and evaluating findings. These stages incorporate turning a set of raw

numbers to some knowledge to answer the research question.

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Hence, the first stage is to clean the data by looking for mistakes and errors in the entering

process, treating these pieces of data as missing. The data entry involves the input of coded data

into SPSS to manipulate this data and further to transform it into useful information. The

demographic variables are measured by categorical scale while others are measured at metric

scale using summated rating (five-Likert scale). Using summated scales result in significant

reliability since the assurance that the different questions are measuring dimensions of the same

construct (Hair et al, 2007).

This Likert scale is an interval rather than an ordinal scale. The justification is that the breaks

between points on such scales are equal in magnitude hence it can be treated as intervals (Hair et

al, 2007).

Further, these variables will be coded by assigning numbers to them so that they can be entered.

Dummy variable coding will be used for greater flexibility in data analysis by assigning 0 to one of

the categories to be dealt as a dummy. An error detection technique will also be deployed to

minimize errors in the data entry.

A null hypothesis concerns a population parameter not the sample statistic. Thus, inferential

statistics is used to estimate the characteristics of the population, on the basis of sample data.

Based on this sample, null hypothesis can be rejected or the alternative hypothesis can be

accepted (Hair et al, 2007).

After developing the hypotheses and selecting an acceptable level of statistical significance, the

next step is to test the hypotheses. The choice of techniques depends on the number of variables,

scales of measurement and other considerations (Hair et al, 2007).

To summarize and describe the data obtained about the demographic of respondents, a

descriptive statistic such as percentage is used.

A multivariate data analysis is employed by using SEM which is a covariance- structural equation

model that involves the estimation of interrelated dependence relationships (see Appendix). Thus,

SEM will be developed via AMOS to test H02, 03, 04. The dependent – endogenous – variables in

this case are: H02a) Trust and H02b) Repeat patronage intention as well as Reputation for H03,

whereby CSR fit is the independent – predicator – variable. The latent variable cannot be

measured directly but by one or more indicators. The mediating effects of reputation are also

investigated. Bivariate analysis is employed to test H01 by using t-test which is applicable with

interval data (Shiu, 2009).

Finally, having undertaken the descriptive and inferential statistics, the findings will be presented

and conclusions will be drawn from these findings.

6. LIMITATION

While this study undertakes a primary research presenting an interactive approach, it exposes a

limitation because the focus is on one bank only due to limited resources.

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TIMESCALE

Month

Activity

January 2013 Handing out the research proposal to get guidance of the establishment of the dissertation basis is in the right path.

February 2013 The literature review for relevant work. Designing the questionnaire to later get the supervisor approval before testing it.

March 2013 Data analysis and comparison with literature from desk research

April 2013 Writing up of findings, and first draft

May 2013 Final draft

ACRONYMS

AVE Average Variance Extracted

CFA Confirmatory Factor Analysis

CSR Corporate Social Responsibility

FC Financial Crisis

GFC Global Financial Crisis

TBL Triple Bottom Line

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BIBLIOGRAPHY

Azhar , B. (2012) Why CSR: 12 Quotes to Help Build Your Argument [Accessed 17 Jan 2014]

http://www.gbsense.com/2012/01/12/why-csr-12-quotes-to-help-build-your-argument/

Bennett, A. (2013) Only One In Five Think Banks Are Well Run, After Majority Backed Banks In 1983

[Accessed on 29 Dec 2013] http://www.huffingtonpost.co.uk/2013/09/10/banks-trust-levels-

_n_3898587.html

Blanpain, R., Bromwich, W., Rymkevich, O. & Senatori, I. (2011) Rethinking Corporate Governance:

From Shareholder Value to Stakeholder Value, Kluwer Law International

Bouvain, P., Baumann, C. & Lundmark, E. (2012) Corporate social responsibility in financial services

A comparison of Chinese and East Asian banks vis-a`-vis American banks, International Journal of

Bank Marketing, 31(6), 420-439

Blowfield, M. & Murray, A. (2008) Corporate Responsibility: A Critical Introduction, OUP Oxford

Carroll, A. & Shabana, K. (2010) The Business Case for Corporate Social Responsibility: A Review of

Concepts, Research and Practice, International Journal of Management Reviews, 12(1), 85-105

Choi, B. & La, S. (2012) The role of customer affection and trust in loyalty restoration after service

failure and recovery, The Service Industries Journal, 32(1), 105-125

Crane, A. & Matten, D. (2010) Business Ethics: Managing corporate citizenship and sustainability in

the age of globalization, OUP Oxford, 3ed

D'Anselmi, P. (2010) Values and Stakeholders in an Era of Social Responsibility: Cut-Throat

Competition?, Hampshire, UK: Palgrave,Macmillan

Elliot, L. (2013) It's been seven years since the financial crash. Have we readjusted? [Accessed on

29 Dec 2013] http://www.theguardian.com/business/2013/dec/29/seven-years-financial-crash-

readjusted

Fassin, Y. & Gosselin, D. (2011) The Collapse of a European Bank in the Financial Crisis: An Analysis

from Stakeholder and Ethical Perspectives, Journal of Business Ethics, 102(2), 169-191

Greenham, T. (2013) The Co-operative Bank bail-in means little – we need real mutual [Accessed

22 Jan, 2014] http://www.theguardian.com/commentisfree/2013/jun/17/co-operative-bank-bail-

in

Hair, J., Money, A., Samouel, P. & Page, M. (2007) Research Methods for Business, John Wiley &

Sons

Herzig, C. & Moon, J. (2012) Corporate Social Responsibility, the Financial Sector and Economic

Recession, International Centre for Corporate Social Responsibility, Nottingham University

Business School

Jensen, M. (2001) Value maximisation, stakeholder theory, and the corporate objective function,

European Financial Management, 7(3), 297-317

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Klára, P. (2011) The Impact of Recession on the Implementation of Corporate Social Responsibility

in Companies, Journal of Competitiveness, 1(2), 83-98

Lapavitsas, C. (2003) Social Foundations of Markets, Money and Credit, Routledge

Leavy, B. (2012) Getting back to what matters – creating long-term economic and social value,

Strategy & Leadership, 40(4), 12-20

Mandhachitara , R. & Poolthong, Y. (2009) A model of customer loyalty and corporate social responsibility, Journal of Services Marketing, 25(2), 122–133

Market Consensus (2013) Top 5 UK Banks | Ranking | Large British Banks [Accessed 23 Jan 2014]

http://www.marketconsensus.com/news/top-5-uk-banks-ranking-large-british-banks

Masters, B. (2014) Financial clean-up will require a lot more elbow grease [Accessed 21 Jan 2013]

http://www.ft.com/cms/s/0/6d23908a-6334-11e3-a87d-00144feabdc0.html#axzz2r03xsEvr

May, S. K., Cheney, G. & Roper, J. (2007) The Debate over Corporate Social Responsibility, Oxford

University Press

McDonald, L. & Lai, C. (2011) Impact of corporate social responsibility initiatives on Taiwanese

banking customers, International Journal of Bank Marketing, 29(1), 50-63

Perrini, F. (2005) Building a European Portrait of Corporate Social Responsibility Reporting,

European Management Journal, 23(6), 611-627

Preuss, L. (2010) Tax avoidance and corporate social responsibility: you can’t do both, or can you?,

Corporate Governance, 10(4), 365-374

Sen, S. & Bhattacharya, B. (2001) Does doing good always lead to doing better? Consumer

reactions to corporate social responsibility, Journal of Marketing Research, 38(2), 225-243

Shiu, E., Hair, J., Bush, R. & Ortinau, D. (2009) Marketing Research, McGaraw-Hill Higher Education

Stephens, P. (2013) Why Lloyds Banking Group PLC Could Be The Best Performing Bank In The Run-

Up To The General Election [Accessed 31 Dec 2013]

http://www.fool.co.uk/news/investing/2013/07/09/why-lloyds-banking-group-plc-could-be-the-best-

performing-bank-in-the-run-up-to-the-general-election.aspx

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the Global Financial Crisis (Critical Studies on Corporate Responsibility, Governance and

Sustainability, Volume 1), Emerald Group Publishing Limited, 3-19

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Greening Initiatives of Leading Global Brands, University of Massachusetts Lowell, Competition

Forum Vol. 7(2)

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APPENDIX

SEM model:

CSR fit

Trust

Reputation

Repeate patronage intention

H03