Beyond philanthropy: corporate social responsibility in the Nigerian insurance industry

The Authors

Musa Obalola, University of Lagos, Lagos, Nigeria

Abstract

Purpose – The purpose of this paper is to show that given the dearth of literature on how firms in the African continent have embraced and practiced corporate social responsibility (CSR), this study contributes to the CSR literature by examining managers' perceptions about CSR, structural changes to enhance, its implementation, and the pattern of current CSR actions in Nigeria.

Design/methodology/approach – The study used quantitative approach and collected primary data through a three-part structured questionnaire, from insurance firms operating in Nigeria. The 67 responses received were analysed descriptively and the results presented.

Findings – The overall results indicate a strong support for social responsibility and the translation of this support into action through involvement in some community based projects. Evidence from the study also suggests that social responsibility is still largely perceived as a philanthropic gesture.

Research limitations/implications – The study only covers insurance firms operating in Lagos state. Furthermore, only one response represents the view of a firm, hence the need to exercise caution in generalizing the results.

Practical implications – Since the results suggest the readiness of the Nigerian insurance firms to go beyond the traditional view of profit and shareholders' wealth maximization, there must be a consistency between this posture and their actions.

Originality/value – The study provides an insight into perceptions about corporate social responsibility in the insurance industry, in a developing country and in Africa, which to the best knowledge of the author, have not been done before.

Article Type:

Research paper

Keyword(s):

Corporate social responsibility; Philanthropy; Insurance; Nigeria.

Journal:

Social Responsibility Journal

Volume:

Number:

Year:

2008

pp:

538-548

Copyright ©

Emerald Group Publishing Limited

ISSN:

1747-1117

Introduction

Corporate Social Responsibility (CSR) continues to be one of the most debated management philosophies. The notion of a firm's societal obligation, which the concept connotes, is quite popular among academics and business practitioners, resulting in a plethora of literature, ranging from conceptual definition and meaning to strategic importance. It has now become a global fashion, with firms of various sizes competing to be seen as been socially responsible. Whilst the literature is robust about how firms in the West, Europe, and Asia have translated this core management philosophy into practice, little is however known about how firms in the African continent have responded to this management concept.

It is this dearth of literature on the African experience that the present study contributes to by examining:

the perceptions of managers in the Nigeria insurance industry about CSR;
structural changes to enhance its implementation; and
the pattern of current CSR performance.

The study does not purport to measure any aspect of CSR, but rather to describe managerial response, and the way this response has been translated into action. The relevance for this study can be found in the strategic position of Nigeria as the most populous African nation, with huge investment potentials, and her prominence as one of the leading player in the international market, albeit her mineral resources and crude oil. More so, the country has, in recent times, witnessed inflow of investments through the economic reforms of successive governments and relative political stability which the country enjoys compared with other African Countries. These make it expedient for a body of knowledge on CSR to be documented to enhance the understanding of international investors about one of the business environment issues, which can have serious impact on firm's performance and success.

To therefore accomplish the objectives above, the remaining part of the study is organised as follows:

conceptual definitions of CSR to give various understandings of the subject area;
review of theories through which the concept has been viewed;
restatement of research objectives and methodology;
presentation, analysis of data, and results; and
discussions and implications of findings, and conclusion.

Conceptual meaning of corporate social responsibility

Like many of management and social science concepts, corporate social responsibility is fraught with definitional problems, which makes it difficult for a uniform platform to assess firms' responsiveness to it. On this plethora of definitions, Crowther and Jatana (2005) argue that social responsibility is in vogue at the moment but as a concept, it remains vague and means different things to different people, (see also Votaw and Louche, 1973; Preston and Post, 1975; Makower, 1994).

Bowen (1953), one of the early contributors on the concept, conceived corporate social responsibility as business policies and decisions, which give values to the society.

Another early proponent of social responsibility, Frederick (1960), defines social responsibility as the use of society's resources; economic and human, in such a way that the whole society derives maximum benefits beyond the corporate entities and their owners.

Backman (1975) considers social responsibility as other stated objectives by business, which are not directly related to economic, but rather address its negative externalities, improve employee's conditions and the societal quality of life.

Davis (1973) defines corporate social responsibility as the voluntary efforts by business to achieve a balance of economic goals and societal well being.

The World Business Council for Sustainable Development (WBCSD, 1998, p. 3) at its first dialogue in 1998 conceived CSR as the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the work force and their families as well as of the local community and society at large. More recently (WBSCD, 2000), the working group of the council convened series of global stakeholder dialogues and modified their earlier definition to include sustainable development.

Epstein (1987, p. 104), in his article on business ethics, corporate social responsibility and corporate social responsiveness”, conceives CSR as, relating primarily to achieving outcomes from organisational decisions concerning specific issues or problems which (by some normative standard) have beneficial rather than adverse effects upon pertinent stakeholders.

For this study, corporate social responsibility is seen as “encompassing the economic, the legal and ethical expectations that society has of organisation at a given point in time” (Schwartz and Carroll, 2003). This is based on the view that social responsibility should take a balanced view of economic, legal and ethical responsibility, resulting in a dual bottom line of economic and non-economic criteria (Lantos, 2001). While there are demands that business incorporate social issues into its core strategies, this study also recognises the present era, to a large extent, as that of capitalism, where standard of economic analysis is built on the assumption that human beings are still largely motivated by utility maximisation.

Theoretical framework

Since CSR is being viewed differently by contributors in the management literature, this section examines two major theories which appeared to have shaped their contributions.

The agency theory

Agency theory suggests the existence of a contract (Jensen and Meckling, 1976) and thus a fiduciary relationship between two people – the principal and the agent (Eisenhardt, 1989), for example, employer-employee, lawyer-client, shareholders-management, etc. The idea of agency theory, is to control the substantial goal conflicts between principals and agents, particularly where agents, by virtue of their positions, engage in opportunistic behaviour to the detriment of their principals (Fontrodona and Sison, 2006), who often find it difficult and expensive to verify the actions of their agents (Eisenhardt, 1989). The theory also mirrors the different attitudes of both the principal and the agent to risk, whereby the principal is risk neutral and the agent, risk-averse (Eisenhardt, 1989; Wiseman and Gomez-Mejia, 1998; Donaldson, 1961, Williamson, 1963).

From economic perspectives, Coase (1937, 1991) conceives the firm as a better coordination of production than the market, a view which appears contradictory to the view of classical economists on face value, but, on deeper reflection, reveals that the firm is noting other than an instrument for achieving economic efficiency, cost reduction, and thus wealth maximisation, which is the position of the classical economists (Fontrodona and Sison, 2006). Coase's (1937) thoughts were put in the right perspective by Ross (1973), and Jansen and Meckling, 1976, who explained cost reduction through agency relationship, whereby the agent (managers) owes legal and economic obligations to the principal (shareholders). Since incongruence of interests (which generates costs) is probable in this relationship, the agency theory was therefore established so that residual costs – agency costs, which are inimical to the principal's wealth maximisation, can be ameliorated or mitigated.

The economic perspective of the agency theory is based on a number of assumptions - that the firm is the nucleus of the contractual relationship between the principal and the agent, and it exists to maximise shareholder value; that the firm is owned by the shareholders, who seek after utility maximisation. On ethical ground, this perspective of agency theory reflects individualism and utilitarianism, where morality is only reasonable and acceptable, if it brings with it greater economic benefits (Bohren, 1998). On the basis of the agency theory therefore, managers (agents) would be acting contrary to the duties and responsibilities for which they have been employed if they engage in social responsibility, unless it can be shown that by so doing, shareholders' (principals') wealth are maximised. Whitehouse (2006, p. 291) brings to fore this agency position, when she presents the current company law position:

According to the ‘golden rule’ of UK company law, directors are under a duty to prioritise the interests of shareholders, synonymous with the pursuit of ‘profit maximisation’. Any attempt by a director, therefore, to prioritise the interests of groups other than the shareholders constitutes a breach of duty.

The stakeholder theory

The idea of stakeholders' theory was first hinted by Johnson (1971) in his definition of CSR, where he conceives a socially responsible firm as being one who balances a multiplicity of interests, such that while striving for larger profits for its stockholders, it also takes into account, employees, suppliers, dealers, local communities and the nation. The theory was later developed by Freeman (1984) and thereafter refined by various authors (e.g. Freeman, 1994; Bowie, 1991; Evan and Freeman, 1988, 1994; Freeman and Evan, 1990; Freeman and Phillips, 2002 etc). Contrary to the proponents of the agency theory, Freeman (1984) posits that managers bear a fiduciary relationship to stakeholders, whom he defines as groups or individuals who can affect or are affected by the achievement of the organisation's objectives, such as stockholders, supplier, employees, customers and the local community. Donaldson and Preston (1995, p. 65) see stakeholders as having legitimate interests in the procedural and/or substantive aspects of corporate activity, whose interests must be considered on their own merits. Post et al. (2002, p. 8) contributed to the understanding of stakeholder theory, by their definition of the firm's stakeholders as individuals and constituencies that contribute to; either voluntary or involuntary, to wealth-creating capacity and activities, and who are therefore its potential beneficiaries and/or risk bearers.

Research on stakeholders' theory has generally focused on three areas – instrumental, normative and descriptive (Donaldson and Preston, 1995). These three areas overlap and are sometimes, difficult to delineate (Jones and Wicks, 1999; Driscoll and Crombie, 2001). The instrumental stakeholder shows the firm pursuing its interest, by managing its relationship with other stakeholder groups. Normative stakeholder addresses the moral duties of the firm's management towards its stakeholders while that of the descriptive stakeholder explains the actual behaviour of managers, firms and stakeholders.

Whilst the stakeholder theory, as developed by Freeman (1984) was instrumental in orientation, further works by Evan and Freeman (1993) and others have attempted to modify the theory to reflect normative orientation. The instrumental orientation sees business as managing the relationship between its stakeholders in order to improve the bottom line (see for example, Berman et al. 1999; Mitchell et al., 1997; Ogden and Watson, 1999). Scholars, who have looked at the theories and definition of CSR, have for this reason grouped stakeholder approach to CSR under the instrumental theories (Jensen, 2002; Husted and Allen, 2000; Porter and Kramer, 2002). Following Freeman (1994) declaration that normative core of ethical responsibility is required in order to point out to corporations, how they should be governed and the behaviour of its managers, a number of works (e.g. Bowie, 1991; Freeman, 1994; Phillips, 1997, 2003, Freeman and Phillips, 2003) have revisited the stakeholder theory to reflect different ethical theories, such as deontology, utilitarianism, virtue ethics, Rawlsian principles, Kantian ethical theory, doctrine of fair contract etc. The central argument of the normative approach to stakeholder theory is that stakeholder interests should not only be recognised for instrumental or strategic purposes, but also out of moral obligation.

Schools of thought on CSR

As fallouts of the agency and stakeholder theories, two distinct schools of thought appear to dominate the CSR literature on the question of whether or not firms should embrace CSR. The first group comprises those who think business responsibility does not go beyond making as much profit as possible for its shareholders while the second group uphold the belief that business owes responsibility to a wide range of groups in the society. The belief of the first group stems from the traditional neoclassical paradigm of the firm (Moir, 2001), a theory which reflects Adam Smith's notion of economic man, whose goal is to maximise the wealth of the firm, based on his contractual duties to the owners (Brenner and Cochran, 1991). This model of the firm has been further popularised by Friedman (1970), echoing Smith's view that business responsibility does not go beyond that of maximizing shareholders value or wealth. The CSR theory that upholds this view has also been regarded as the “stockholders model” (Bruno and Nichols, 1990). This model identified that, on the basis of the contractual agreement signed with the owners, management responsibility is a legal one, and it equates with ethical and social responsibility. This thought can be clearly seen in Friedman's (1970) declaration that, “there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rule of the game, which is to say, engages in open and free competition without deception and fraud”. The idea of legal responsibility as proposed by Friedman and his cohort has been flawed on the basis that the law and the legal system are plagued with a lot of imperfections. It is argued that the law can be violated with little possibility of being caught, and that when business is actually caught in the act, penalties and fines are often too small to serve as a deterrent, coupled with the fact that business has a way of influencing the legislative process of promulgating laws (Post, 2003a, 2003b).

The other extreme in the CSR continuum, is the group that hold the belief that business responsibility goes beyond that of profit maximisation. While this group does not relegate the economic responsibility of the firm to the background, it argues that business must take into consideration the interests of other members of the society who may be affected by its activities, and therefore proposes a balance of interests among the constituent groups. Thus, contrary to shareholders' value maximisation, the adherents of this belief propose stakeholders' value maximisation, which is not inimical to profit maximisation.

On the above position, May (1995, p. 696.) argues:

Stockholders are important stakeholders in a company, but by no means the only one. Workers, customers, neighbours, and the public at large have in varying way a stake in its performance, sometimes indeed a larger stake than stockholder who may dart in and out of their investments more readily than workers and neighbours can disengage themselves from a company and its fortunes.

Methodology

The data for this research is based upon a-three page structured questionnaire sent by post and hand delivery to insurance companies operating in Lagos State. The rationale for selecting companies in Lagos State is that it is the former capital and the commercial nerve centre of the country with a high concentration of the companies operating in the industry. Of the 116 insurance firms operating in the industry 93 representing 80.2 percent are located in Lagos while the remaining 23 representing 19.8 percent are spread across the remaining 35 states and Abuja, the federal capital territory (NIA, 2001). Each of the firms was required to complete a copy of the questionnaire.

These firms are classified based on the type of business they underwrite. The approved classification by the regulating body, National Insurance Commission (NAICOM) is: “life”, “general” and “composite”. Life companies are those who specialize on life insurance, be it individual or group assurances. The general firms on the other hand transact businesses other than life assurance businesses, such as property and pecuniary insurance, motor insurance, marine and aviation etc. Those who licensed as composite firms transact both life and general business.

However, responses were not sought on the type of business these firms underwrite, because it is not anticipated that such classification would have any effect on the perception of the responding firms

The survey questionnaire was divided into four major parts. The first part deals with the position of the respondent in the organization. Five levels of position were provided for - president, chairman; vice-president or vice-chairman; director; manager and others. Table I summarizes the position of respondents in the organizations.

The second part comprises sets of arguments, usually proposed in favour of social responsibility, designed in a Likert-style format to assess the perception of individual firm in the industry and its support for social responsibility.

Part three looked at arguments usually advanced against involvement in social responsibility. The intent is to also assess the extent to which a responding firm does not consider social responsibility to be important and hence its resolve not to support social actions. The last part, which requires “yes” or “no” answers, considers series of general questions, ranging from mission statement, staff training to areas of social responsibility programme. The questions were intended to further probe into the perception of the firms, the structural changes and patterns of social responsibility involvement.

In all, 93 questionnaires, one per a firm were sent out, while 67 representing 72.04 percent were dully completed and returned.

Results

Analysis of respondent organizations

Though, five levels of position were provided for, the analysis indicates that majority of the respondents who completed the survey instrument on behalf of their organisations were clustered around the last two positions – “managers” and “others”. Of the 67 returned questionnaires, 3 (4.5 per cent) were missing. 44 (65.7 per cent) completed the survey as “manager” while 20 (29.9 per cent) respondents completed it as “others”. Though there was no information to show whether those who completed the survey as “manager” were first line managers or middle line managers, however by the understanding shown in completing the survey, one may tend to conclude that the respondents were either middle level managers or top managers. This indicates the high profile of the respondents and the extent to which the views expressed could be held to be representative of their organisations. More so these kinds of people have been described as member of elite; the influential, the prominent, and the well-informed people in an organisation (Marshall and Rossman, 1989).

Given the responses in Table II, the picture that emerges from Table III is expected, because the basic assumption underlying this study is that respondents, who score high in their supports for business assumption of CSR, would also score high in their responses against business assumption of CSR.

Overall, the results of the survey suggest that the Nigerian insurance industry is quite aware of social responsibility and have strong affinity for it practice. Though, there were some indifferent responses to some of the scale items, these were however not significant enough to suggest otherwise.

In the part III of the survey, respondents were also prompted to give a “yes” or “no” answer to some general questions to further have an insight into the respondent's organisation commitment to social responsibility. When respondents were asked about their company statement and vision for social responsibility, the results indicate that all the organisations sampled have a vision and statement of social responsibility, code of ethics and have the code distributed to their employees. Only 56 (83.6 per cent) of the respondents however reported that employees were actually trained on the code. 49 or 73.1 percent of the sample survey also reported that their organisations have a manager in charge of ethics and social responsibility, which further suggests a positive support for social responsibility (see Table IV).

As shown by the analysis, 72 percent of the respondents reported that their companies do contribute to community projects. The respondent firms were mostly prominent in charity/philanthropic donation, while education came next (see Table V).

Despite the majority support for business assumption of social responsibility, only 26 (39 per cent) of the respondents reported that their companies have a formal way of showing their social responsible behaviour.

Discussion and conclusion

This study empirically examines the beliefs about corporate social responsibility in Nigeria, with special reference to the insurance industry. The choice of the insurance industry as a reference point is due to its strategic position in the economy, its susceptibility to ethical abuse (owing to its abstract nature), and the dearth of literature on the insurance sector's practice of CSR globally. Van den Berghe and Louche (2005), argues that while the insurance and the financial providers portend some positive externalities its negative externalities however are more conspicuous, subjecting it to a tougher scrutiny by the public. Some of these negative externalities include; false expectation and mis-selling, intransparent product pricing, and shifting of burden back to the insured (Van den Berghe and Louche, 2005, pp. 432-3). Raising the questions about the CSR of insurance companies and pension funds as institutional investors, Cassidy (2001) poses, “…are these interventionist owners of shares, who may simply be stewards of pension fund investments, empowered to act in disregard of employee considerations”?

Not only are the insurance companies and pension funds being pressurised to engage in CSR, they are also been urged to use their power as institutional investors to stimulate CSR and influence the ethical stance of companies (Van den Berghe and Louche, 2005).

While not measuring any aspect of social responsibility, the present study considers the pattern of current social involvement. The overall results indicate that the industry do have a strong support for social responsibility and have put this support into action through involvement in some community based projects. Despite this support, what emerges from the pattern of social involvement suggests that social responsibility is yet to reach the stage of its current understanding, meaning and practice in developed economies. This finding is also in agreement with that of Amaeshi et al. (2006), where the authors documented that social responsibility in Nigeria is still largely perceived as philanthropic and altruistic. This could be due to the fact that charitable contributions are visible and measurable (Campbell et al., 2002). The question, which might be worthy of further investigation is whether such donations are strategically driven or just arbitrary.

Notwithstanding the current practice as shown by the analysis, the results of this study also suggests the readiness of the insurance sector to go beyond the traditional view that the firm is only obligated to make profit or maximise shareholders' wealth. This posture could be used as a strategy to endear prospects to the insurance products and gain their confidence in the industry. A lot is particularly required on the ethical domain of CSR, because of the current perception of the industry. To a typical Nigerian, the insurance companies are only interested in collecting premium and do not care what happens thereafter. Probably, the need to improve the image and reputation of the industry could be the driving force for the current CSR engagement. As Whitehouse (2006) suggests, the impact of perceived public values on the activities of companies may be linked to corporate attitude towards CSR.

Table IPosition in the organisation

Table IIArgument for business assumption of CSR

Table IIIArgument against assumption of CSR

Table IVResponses on general questions about CSR

Table VArea of CSR involvement

References

Amaeshi, M.K., Adi, C.B., Ogbechie, C., Amao, O.O. (2006), "Corporate social responsibility in Nigeria: western mimicry or indigenous influences?", The Journal of Corporate Citizenship, Vol. 24 No.Winter, pp.83.