Manifestation of Internal CSR on Employee Engagement: Mediating Role of Organizational Trust.
| Author | Soni, Deepali |
| Position | Corporate social responsibility |
Introduction
Corporate social responsibility (CSR) enables organizations to be distinguished from strategic perspectives (Rahim et al., 2011). New Companies Law, 2013 has mandated the submission of CSR reports and expenses for large and profitable commercial companies.
Werther and Chandler (2005) consider CSR as an essential element of the company's strategy and reflects the way a company delivers products or services to the markets. CSR not only focuses on the financial gains of a company, but also its impacts on various stakeholders, like employees, shareholders, suppliers, customers, communities and others (Ismail, 2009). Considering the impact on its various stakeholders, CSR can be classified into external and internal (Pietersz, 2011). External CSR is described as an initiative by the company that promotes its positive social and environmental impact, whereas, internal CSR focuses on companies' actions within the organization for the betterment of employees to improve their productivity.
One of the most significant ways to render CSR into the organization's performance is its positive influence on employees' job performances (Story & Neves, 2015). Employee engagement is considered to be an important indicator of employees' job performance (Bakker et. al., 2007). When employees are engaged in the workplace, they feel a strong association with their job roles physically, cognitively, and emotionally (Kahn, 1990). Majority of studies revealed a positive association between CSR and employee engagement (Glavas, 2016; Caligiuri et al., 2013; Lin et al., 2010). Most of them emphasized on the effect of CSR on community, society and other external stakeholders considering only its external aspect (Matten et al., 2003; Cornelius et al., 2008). Evidently, the internal stakeholders i.e. employees have received little attention, so far. Hence, a study on the impact of internal CSR (ICSR) on employee engagement would fill such a void. The current study also aims to advance the knowledge about the relationship between ICSR and employee engagement by examining the mediating effect of organizational trust. Organizational trust evolves through the social exchange of psychological, social and physical resources between two parties. ICSR facilitates this social exchange between employers and employees (Rousseau et al., 1998).
Earlier studies have also established a significant association between ICSR and organizational trust (Rupp et al, 2006; Chughtai and Buckley, 2008; Tertindi & Tyokyaa, 2014). Also, organizational trust is considered to be an effective influencer of employee engagement (Hough et al, 2015). The studies revealed that employees are more likely to be engaged when they have a higher level of trust in their organization. However, the mediating effect of organizational trust needs to be investigated in the relationship between ICSR and employee engagement, particularly in developing economies like India.
In recent years, the issue of employee engagement has gained momentum in the banking sector due to the increasing importance of human capital (Ghosh et al., 2014). Dale Carnegie (2014) surveyed the functional and emotional elements affecting employee engagement in the Banking Industry. The survey reported that 65% of employees are disengaged. Therefore, the present study attempts to explore the structural relationship of the three constructs viz. ICSR, organizational trust and employee engagement in the Indian banking sector.
The present study adds to the literature in many ways. Firstly, it introduces internal corporate social responsibility as an important driver of employee engagement at the workplace. Secondly, it incorporates organizational trust as a mediating variable in the relationship between ICSR and employee engagement. Thirdly, it responds to the calls for more research on the relationship between CSR and employee engagement in developing countries like India (Aguilera et al., 2007; Glavas & Piderit, 2009; Ali et al., 2010). Finally, the study offers useful implications by examining how banks can capitalize on their ICSR practices to develop organizational trust and enhance employee engagement.
Employee Engagement
In his ethnographic study, Kahn (1990) defined engagement as "the simultaneous employment and expression of a person's 'preferred self' in task behaviors that promote connections to work and to others, personal presence, and active full role performances". He posits that meaningfulness of job, safety at the workplace, and availability of resources are important in enhancing employee engagement. Later, Maslach and Leiter (1997) reinstated the concept of engagement as opposite of burnout and defined employee engagement as "a persistent positive affective state characterized by high levels of activation and pleasure".
The major contribution towards defining employee engagement is given by Schaufeli et al. (2002). In contrast to the recommendation of Maslach and Leiter (1997), Schaufeli et al. (2002) defined employee engagement as "a positive, fulfilling work-related state of mind, characterized by vigor, dedication and absorption". Vigor is the energy level, persistence and mental endurance. Dedication refers to the state of mind and emotion reflecting meaningfulness, inspiration, eagerness, and pride, finally, absorption is being fully involved or immersed in one's job. The present study holds the definition of employee engagement given by Schaufeli et al. (2002) because it is widely adopted in many research studies across the globe in different contexts (Salanova & Schaufeli, 2008; Chung & Angeline, 2010, Petrou et al., 2012; Ferreira & Real de Oliveira, 2014).
Internal Corporate Social Responsibility
The World Business Council for Sustainable Development (WBCSD) stated that "CSR is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as the local community and society at large" (WBCSD, 2002). Werther and Chandler (2005) considered CSR as a far-reaching conception since companies are more than mere profit-making bodies and should work for society. Thus, CSR must be incorporated into operations of a company through a strategic perspective.
Although the scope of CSR remains controversial, several scholars suggested that a firm's CSR practices should focus on its multiple-stakeholders (Henriques & Sadorsky, 1999). Aguinis & Glavas (2012) also observed the role of multiple stakeholders in an organization and defined CSR as organizational actions that fulfil the expectations of stakeholders in economic, social and environmental performance. Thus, stakeholders are central to organizations' CSR. The literature classifies stakeholders as involuntary and voluntary (Clarkson, 1994); primary stakeholders and secondary stakeholders (Kakabadse et al., 2005), societal, external, and internal stakeholders (Werther & Chandler, 2006). The most preferred categorization in the extant literature of CSR is internal and external stakeholders, which will hold the approach of the present research. Thus, CSR can be classified as external and internal (Skudiene & Auruskeviciene, 2012). External CSR refers to companies' CSR actions directed towards external stakeholders which are outside its functional boundaries, such as public authorities, community, customers, business partners, suppliers, and NGOs (Al-bdour et al., 2010) whereas, internal CSR practices are directed towards internal stakeholders i.e. employees. These CSR practices aim at the well-being of employees physically and psychologically, especially in issues such as health and safety, training and participation, equal treatment at the workplace and work-life balance (Turker, 2009). The present study has embraced internal CSR being a less explored dimension as compared to the well-established research on its external counterpart (Low & Ong, 2015).
Many worldwide authorities and bodies have contributed to the development of the theoretical framework of internal CSR. In 1999, Social Accountability 8000 (SA8000) standard introduced by Corporate Social Accountability Management (CASM) to measure companies' performance in eight key areas, namely, collective bargaining, health and safety, child labor, disciplinary practices, free association and forced labor, discrimination, compensation and working hours. Global Report Initiative (GRI) in 2000 also issued guidelines for companies to report their sustainability initiatives and performance. It includes reporting of companies' environmental, social and economic performance. Concerning internal CSR, GRI suggests indicators for organizations, such as health & safety, training and development, management relations, workplace diversity and equal opportunity to grow. Likewise, European Commission published a Green Paper titled "Promoting a European Framework for CSR" in 2001 to encourage adoption of CSR practices that lead to non-discrimination, transparency of information, and continuation in providing training for the employees. Further, in 2006, ISO 26000 developed an International Standard named ISO 2600. These standards provide useful guidelines for companies in issues like human rights, employment relationships, social protection, working conditions, social dialogue, employee development and health & safety at workplace. This observation draws the attention of researchers and the public to the importance of ICSR practices focused on the well-being of employees.
The increasing importance of ICSR is also evident in several academic pieces of research (Welford, 2005; Turker, 2009). According to Wellford (2005), ICSR practices embrace equal opportunities, non-discrimination, vocational education, fair wages and human rights. Vives (2006) described ICSR as "socially and environmentally responsible behavior towards employees". ICSR focuses on employees' well-being, employees'...
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