BY DR ARIS LAM

Do customers really respond to banks that engage with corporate social responsibility? Dr Aris Lam found that CSR plays an essential part in building consumer trust.

The global banking crash in 2008 destroyed the reputation of some major financial institutions – and damaged the credibility of many more. Now a decade on, the impact and the fall-out are still being felt.
Millions of customers lost faith in the banks and did not trust them to be looking after their interest.

Against this backdrop, Dr Aris Lam, who chose to undertake her doctoral thesis at Heriot-Watt University in Edinburgh, decided to ask the question about whether corporate social responsibility (CSR) has a lasting impact in the banking industry.

With a background in marketing in banking and telecoms, she decided to look specifically at the three major Asian banks based in Hong Kong, the third largest financial centre in the world. She was determined to find out if corporate social responsibility and the good work that banks undertake indeed have a bearing on customer attitudes towards these banks.

Her fundamental question was ‘does corporate social responsibility contribute positively to customer attitudinal loyalty of the banks in Hong Kong?’

This was about a customer’s preference for a company and their intention to continue to buy from or increase business with that organisation. This is a seminal question for Hong Kong where 93% of its GDP is in the service industry with banking the largest single contributor (9.7%) and one of the fastest growing sectors, employing 99,081 people in 2014. In a city of 7.3 million, there are nearly 160 licensed banks, including 70 of the top 100 largest global banks.

Is CSR purely ‘green wash?’

Working with Professor Stephen Carter at Edinburgh Business School as her mentor and coach, and preparing to carry out her survey, she undertook a full study of the existing literature on corporate social responsibility. She identified that the term was a vague concept until after the Second World War.

“The first notable discussion of CSR was made by an American economist Howard R. Bowen (1953), who coined and defined the term Corporate Social Responsibility in his book 'Social Responsibilities of the Businessman', where he asked and discussed what responsibilities to society businessmen should assume," she wrote.

Since then there has been a host of studies of CSR to ascertain whether it does indeed bring shareholder value and increase profitability, or, more sceptically, whether it is purely ‘green wash’ and marketing spin that hides the sins of big business, and here she cited the recent Volkswagen diesel emissions scandal in 2015.

Nonetheless, more companies realise the strategic importance of CSR, among them many Fortune 500 companies. Based on data from 261 companies, including 62 of the largest 100 companies in the Fortune 500, charity contributions in 2013 amounted to more than $25 billion. Dr Lam’s literature survey pointed out that corporate social responsibility has many facets, often related to business practice, philanthropy and charitable work, consumer service, and it was certainly viewed as an important factor in building an oganisation’s reputation as a trusted brand and leading service.

“The global financial crisis and the subsequent Occupy Wall Street (OWS) movement have made the financial sector more concerned about CSR, with bank CEOs from around the world who were concerned about government regulations; and their customers who were concerned about corporate ethics and conducts. More organisations realised they need to ensure that their business practices do not have an adverse effect on the environment or on society at large," she reported.

Marathon not a sprint

In many senses, the banking collapse of 2008 exploded some of the positive views about CSR and showed that banks in trouble paid scant attention to their responsibility to customers and did not treat customers fairly in the aftermath of what was an unprecedented blow to the system.

Dr Lam began looking at three multinational banks that were all listed on the stock market and all issuing banks for Hong Kong dollars in the Chinese city. The banks, Hongkong and Shanghai Banking Corporation (HSBC), Standard Chartered Bank (SCB), and Bank of China (BoC), all have a range personal and business customers. She wanted to investigate the relationship between CSR and the perceived quality and trust and determine whether there was a link between this trust and brand loyalty.

Her work pointed out the research gap in this study of customers’ reaction to CSR initiatives by banks and financial organisations. It was also clear that corporate social responsibility in Hong Kong was not as well established as it was in Europe or the United States, where banks had been actively talking up their social responsibility.

“Empirical studies have also suggested that Asian companies were less focused on CSR activities that relate to internal business practices, such as equal opportunities and fair wage structure, and Hong Kong companies focused more on charity and community service and environmental protection with less emphasis on stakeholder engagement," she reported.

Her inquiry also made uncomfortable reading for the banks because her work showed that HSBC was either losing focus on its CSR strategies or unable to get the message across clearly to customers. Standard Chartered Bank, with half of the CSR resources of HSBC, showed similar levels of scoring.

“This indicated that SCB has utilised its CSR resources in an effective and efficient manner. The Hong Kong marathon, being the strategic philanthropic event that SCB has been organising for the past 20 years, has helped build up its CSR reputation.

“Hosting a full marathon in a congested city like Hong Kong, with over 70,000 runners, including elite and top runners from around the world, is an annual mega event for all the Hongkongers, as evidenced by its everincreasing number of participants, spectators and donations.

“It is a rare experience valued by HK residents, it cannot be easily imitated, nor is it substitutable with other sports events,"
said Dr Lam.

Interestingly, BOC customers consistently gave higher scores, even though BOC was putting the least amount of effort into CSR among the three banks in the study. This phenomenon could be explained by BOC’s customers who opened their accounts when at secondary school, as well as homemakers, and mainland immigrants and HK people who might be using the bank for business purposes.

One of the outcomes of the research, which involved interviewing different cohorts of customers, was to suggest that those on lower incomes were more inclined to trust their banking institution, and those on higher incomes were less likely to believe everything that the banks said about themselves.

Younger and middle-aged customers, semiskilled/unskilled labour and male customers appeared to be more lenient and positive towards companies’ CSR efforts and regular CSR communications should be maintained with them.

"Less powerful people in the community tend to be more trusting, and companies might want to make use of these characteristics to build better relationships with them and cross-sell different products to induce greater loyalty. Other customer groups (e.g. educated and working females, professionals, managers, entrepreneurs, etc.) might require more targeted CSR communications and initiatives to build a better CSR reputation," she said.

In referencing the Hong Kong marathon, she said the strategic philanthropic approach of Standard Chartered Bank has “contributed to the sustainable competitive advantage of the bank”.

She concluded that corporations are recommended to continue to beef up their CSR efforts because it makes a difference in customers’ purchasing decisions and referral decisions, and will determine whether customers will experience an emotional preference towards the brand.

Dr Lam’s research results showed that CSR has contributed positively to trust and loyalty and hence can improve company performance. The study closed some research gaps by providing greater understanding of the impact of CSR reputation on attitudinal loyalty, answering queries and creating insights for future theoretical model development.

“In the past three decades, empirical research was used to test the influence of CSR on loyalty and profitability, with most researchers confirming that CSR is conducive to loyalty and corporate financial performances, perhaps through building customer satisfaction, corporate reputation or competitive advantage,’’ she stated.

Dr Lam’s empirical study using a new model has taken the discussion to another level, providing valuable insights for all organisations seeking to link the needs of their various stakeholders with the requirements of the business.

Dr Aris Lam is a Senior Lecturer at the Hong Kong Polytechnic University School of Profession Education and Executive Development (SPEED). She gained her DBA from Heriot-Watt University in 2016.