Relevance of Corporate Social Responsibility in Risk Management in Construction Projects - Literature review Example

CHAPTER 2: LITERATURE REVIEW 2.1 Introduction According to (Hart 2003, p. 8), literature review provides a researcher with a means of getting to the frontiers of knowledge on a particular field of study. It is further argued that undertaking a comprehensive literature review is necessary for one to learn what has already been done by others in a particular field of study in order to develop a research project that contributes to knowledge in a particular field of study. In essence, literature review forms a foundation upon which all future works must be built. Jesson, Matheson and Lacey (2011, p. 34), observe that a good literature review is necessary since it performs a number of functions in a research. The most important one is that doing a good literature review gives originality and relevance to the topic of research. It identifies specific questions that have not been answered and problems that have not been solved in a particular field of knowledge (Jesson, Matheson & Lacey 2011, p. 38). The originality of a particular discussion can be derived from the fact that the research is either an extension of an already published research or a modification of an existing theory or methodology (Hart 2003, p. 11). This justifies the relevance of a particular research topic. Also, by offering a critical analysis of a number of published studies in a particular field of knowledge, a good literature review demonstrates awareness and deep understanding on the part of the researcher (Jesson, Matheson & Lacey 2011, p. 41). It demonstrates that a researcher has a good understanding of a wide range of research in theory and methodology which is related to the proposed topic of research. Further, doing a thorough review of literature enables the researcher to evaluate the choice of the dissertation topic against the general research already done in the area of choice (Dawidowicz 2010, p. 86). This process therefore creates a valuable bridge between the research being conducted and what has already been done by others. In this particular study, the literature review entails a thorough examination of all studies related to the following research topic: relevance of corporate social responsibility in risk management in construction projects. In doing this, the subject is split into four core areas as follows: one, the relationship between corporate social responsibility and risk management; two, the reaction of stakeholders on corporate social responsibility engagements; three, the effects of corporate social responsibility on the performance of construction projects and finally, relevance of the relationship between corporate social responsibilities in risk management in construction projects. A critical review of current studies relevant to this topic is presented in detail. In addition, this review explores various definitions of the concepts of risk management and corporate social responsibility as used at both the corporate and project level. It also examines several theories and approaches developed with respect to how corporate social responsibility is relevant to risk management in construction projects. 2.2 Effects of corporate social responsibility on project performance The level of project performance is determined by how well a particular project meets three basic classes of objectives: environmental considerations, social obligations and economic responsibilities (Boyd & Kimmet 2011; Doloi 2012; Sears, Sears & Clough 2010; Windell, Grafstrom & Gothberg 2009). These parameters form the basic triple bottom line approach which is extensively used in assessing the ecological, social and financial performance of a project. Therefore, successful projects are those that not only meet the expectations of people in their course of operation, but also more than that, are able to meet all requirements of environmental conservation as well as meeting the economic obligations of investors (Sears, Sears & Clough 2010, p. 66). Meeting the triple bottom line requirements for construction projects has its potential benefits. For instance, Boyd and Kimmet (2011, p. 6) observe that environmentally efficient buildings (and by extension construction projects) have several potential benefits in general. Such benefits include the following: improved working environments during the course of the project and as an end product, reduced operating costs of completed projects, reduced costs of maintaining facilities of the completed projects and finally, greater cost of capital after the project is complete. Other additional environmental benchmarks for construction projects include resource consumption, design and use of the complete projects and governance issues affecting the process of the project (Boyd & Kimmet 2011, p. 7). On the other hand, the Chartered Institute of Building, in its Code of Practice for Project Management for Construction and Development of 2010, proposes that construction projects should seek to not only avoid generating adverse effects to the environment through pollution but also to achieve a high degree of ease of use, accessibility and efficiency. This code of practice proposes that these conditions must be met in the course of a construction project before it is termed as having satisfied the environmental requirements under the triple bottom line concept (Chartered Institute of Building 2010, p. 4). Further, Griffith and Bhutto (2008, p. 573), in a study, state that many of the construction companies in the United Kingdom gauge the success of construction projects on whether they satisfy all the conditions in three different systems. The first one is a merged system in which construction projects seek to integrate environmental management systems with existing quality management systems. The second system involves an approach to construction projects that takes into consideration all the social, environmental and economic requirements in a single management process. The third system entails integrating environmental management systems into an already established system of quality management (Griffith & Bhutto 2008, p. 567). Although the triple bottom line concept has been in wide usage, it is important to note that there also exist other criteria for evaluating the performance of construction projects (Martinuzzi et al. 2011, p. 5). The different factors that determine the success of construction projects include the following; one, research and innovation activities during the course of the project; two, the level of skills and qualifications of the workforce involved in the project; three, objectives of sustainable development; timely completion of projects and quality of work; innovation and corporate governance management in the course of the project; safety, training and education of all stakeholders and lastly, partnerships, team culture and efficiency in supply chain management (Martinuzzi et al. 2011, p. 6). These parameters incorporate different factors such as human, technical project matters and the external environment. Several authors have attempted to examine the effects of corporate social responsibility on the performance of construction projects. Many of these studies have focused on the premise that there exists a collinear relationship between corporate social responsibility and overall performance of construction projects (Doloi 2012; Emmitt & Gorse 2007; Jones, Comfort & Hillier 2006; Kytle & Ruggie 2005 and Smith 2003). In general, players in the construction industry, by virtue of the fact that the industry plays a key role in shaping the environment, social fabric and the economy of the world, are keen to communicate their corporate social responsibility initiatives to all stakeholders in the industry (Jones, Comfort & Hillier 2006, p. 164). For instance, it is observed that the construction industry is the leading industry in providing employment, having a direct and heavy influence on the use of natural resources (like water, land and the atmosphere) and whose activities have a direct influence on the lives of large sections of the population (Doloi, Haynes & Zhenzong n. d., p. 1; Kytle & Ruggie 2005, p. 11; Shoop 2011, p. 173). The stakeholders taken into consideration in this practice include the government, clients, employees and the general public. According to Jones, Comfort and Hillier (2006, p. 164), corporate social responsibility in the construction industry is focused on four main areas. First is how to attain sustainable use of natural resources in the environment without compromising effective use of the resources in the future. Second is how to create and maintain a culture of safety awareness and measures to safeguard health issues during the course of projects. Third is how to develop modern human resource management systems by instituting measures such as training, communication and engagement in the management systems of organisations. Fourth is how companies in the construction sector develop sustainable supply chain management systems in their operations and fifth is how businesses factor in the principles of ethical practices in their business operations. Also, Dainty, Moore and Murray (2006, p. 174), observe that the construction sector is in dire need of corporate social responsibility at both the corporate and project level. This is because of the fact that this industry has historically been associated with all manner of risks, business malpractices and being an important contributor to pollution. Such internal and external factors have made it necessary for players in the industry to embrace corporate social responsibility activities in order to portray the industry as a progressive sector in the global economy (Harris & McCaffer 2013, p. 366). Smith (2003, p. 255), states that the need for corporate social responsibility in the construction sector has been necessitated by a number of factors. First, there has been an increasing need to meet client expectations in the recent past. Empowered by government-led initiatives, many clients of construction services have demanded greater efficiency, cooperation and partnering in the course of construction projects. This view is shared by Kytle and Ruggie (2005, p. 3), who observe that many construction companies in the current world are faced by a highly empowered stakeholder force that holds such companies to account in the delivery of services. Further, the fact that the construction industry plays a vital role in the society (Jones, Comfort & Hillier 2006, p. 165) means that the need to deliver excellent public services is a huge responsibility to many construction companies, which requires careful use of corporate social responsibility initiatives in order to achieve the desired objectives. Also, changes in the global business environment have created an atmosphere in which construction projects are under sharp scrutiny from the public (Boyd & Kimmet 2005, p. 4). This has made it necessary for many companies in the construction sector to embrace corporate social responsibility initiatives in their programmes. Lastly, Smith (2003, p. 255), observes that globalisation and changes in the global financial and geographical arena have forced construction companies to adapt wide ranging changes in order to adapt to the situation. This evolution has however left many construction companies completely vulnerable to social and communal issues; hence the need to be sensitive to such issues. But vulnerability to societal and communal pressure is not the main factor that has led many firms to adopt sound corporate social responsibility programmes; Doloi (2012, p. 13), states that corporate social responsibility bears a strong effect on the social performance of construction projects. It is argued that the social performance of such projects is measurable based on three distinct criteria: how the economic activities of different stakeholders in the project interact to lead to achievement of general objectives of the project, how the project is largely affected by the political orientations of the government or the local community and how the project affects the divergent and versatile cultural practices of the community. Whereas Doloi (2012, p. 14), examines social performance of construction projects on a wider scale of interaction with the external environment, Emmitt and Gorse (2007, p. 13) analyses the success of a project basing on the value of interaction within the different key participants in the course of the project. Since a construction project is always a complex task involving a high degree of multi-disciplinary interactions, its success largely depends on development and maintenance of good relational and task-based communication lines between all actors and decision-makers in the course of the project (Emmitt & Gorse 2007, p. 14). Such an approach can help ease many of the challenges faced by companies involved in large-scale construction projects, thus contributing to the general performance of the projects (Larcher 1998, p. 117). Dainty, Moore and Murray (2006, p. 179), state that since corporate social responsibility is an important indicator of performance organisations in the current business environment, there is need for construction companies to embrace it in order to portray a positive image both at the level of business as well as in implementing construction projects. It is argued that project managers can ensure a positive image of their projects, as well as that of the company, by developing and implementing strategies which demonstrate a sense of responsibility towards all the stakeholders involved in a project (Dainty, Moore & Murray 2006, p. 178). 2.3 Corporate social responsibility and risk management There exists a close relationship between corporate social responsibility and risk management (Hawkins 2009; Shoop 2011; Kytle & Ruggie 2005). This relationship extends from a theoretical basis of the interconnection between corporate social responsibility and risks, to a practical consideration of the role of corporate social responsibility in managing risks in the course of business operations as well as in managing projects. Generally, corporate social responsibility plays a key role in determining the performance of organisations and projects. Although risk management is an essential aspect of all business operations, the readiness of many corporations to disclose all the risks inherent in their operations to the stakeholders remains varied. According to the United Nations Environmental Programme Review of 2004 (cited by Hawkins 2009, p. 122), many organisations fail to disclose to investors all the information regarding the true risks that are highlighted in their sustainability reports. Information on a wide range of risks such as environmental, social and ethical impacts of the activities of the corporation does not reach all the stakeholders. According to the Corporation for European Communities (2008, p. 106) in the European Competitiveness Report of 2008, corporate social responsibility contributes to a number of social, environmental and economic policy objectives, which in turn affect the competitiveness of firms. It is further observed that corporate social responsibility has a positive influence on six different indicators and determinants of competitiveness. Indicators such as cost structure, human resources, client perspective, financial performance and risk management are key determinants of the level of co-competitiveness. This view is shared by (Shoop 2011, p. 194), who observes that a sound corporate behaviour policy must include comprehensive risk management policies. Such an approach to risk management assumes two critical dimensions. First is that risk management may focus on assessing and managing risks to human health or the surrounding environment from the activities of an ongoing or proposed project. The second dimension entails assessment and management of all risks which may affect the core operations and performance of a business. On a different level, Kytle and Ruggie (2005, p. 4), in a study, suggest that currently, corporate social responsibility forms an integral part of risk management at both the business and project level. This is because the current global environment, which is characterised by a global economy that is highly networked, highly empowered global stakeholders and continuous dynamic tension between and among stakeholders, has necessitated the evolution of corporate social responsibility into a tool that can be used to offer a valuable contribution to risk management programmes. It is further observed that corporate social responsibility is related to risk management in two ways: by providing intelligence about potential environmental, economic, social or technical risks and by providing an effective means of responding to the risks identified (Kytle & Ruggie 2005, p. 6). It is important to note that although this assessment focuses on the practice of global corporations in managing risks, this analysis is applicable in this study since many large scale construction projects are undertaken by multinational corporations. As well, the magnitude and complexity of such projects make it necessary that global stakeholders be brought in throughout the process of the project. Prandi (2011, p. 57), observes that corporate social responsibility has evolved into a tool that can be used effectively not only in the management of crises but also in post-conflict situations to create value in the society. In such an environment, social responsibility, as employed by corporations, bears three basic cornerstones: social, economic and environmental (Prandi 2011, p. 58). Corporations (and by extension, construction projects) face risks in three basic contexts: the existence of threats, vulnerabilities and controls and countermeasures (Kytle & Ruggie 2005, p. 5). Also, Klemetti (2006, p. 14) categorises typical risks associated with construction projects under four basic classes: those that can be regarded as pure risks, risks associated with financial matters of the project, business risks and political or country risks. Another categorisation of risks faced in construction projects is that developed by Miller and Lensard (cited by Klemetti 2006, p. 16). This categorisation classifies risks under three classes: market risks (issues to do with demand, finances and supply), completion risks (technical, construction and operational matters, and finally, institutional risks (regulatory and matters to do with social acceptability of the project). Jardine (2007, p. 4), lists typical risks encountered in the process of a construction process as follows: risks that threaten the quality and safety of the construction, risks of cost management during the life cycle of the project, risks associated with the scope of the project and change management in the course of its life cycle, risks resulting from management of the people involved in the project, risks resulting from management of information related to the project, risks related to time management under the programme schedule and lastly, risks resulting from external influences. Further, Gajewska and Ropel (2011, p.23), identify a number of risks which are common in all projects regardless of their size and their state in the project life cycle. For instance, many construction projects face risks resulting from changes in design and scope along with timeframes for project completion. Changes in design bring with them the need for additional resources, time and cost. Also, projects face risks resulting from early completion. Insufficient planning and design problems lead to an increase in the overall cost of the project as well as poor quality of the end product. The risks are further categorised into the following clusters: project, technical, environmental, political and monetary (Gajewska & Ropel 2011, p. 25). However, Mousa (2005, p. 11), observes that there is little literature on identification of the causes of risks in the construction sector. Typical risks that occur in the course of a construction project include accidents and physical injuries to the individuals involved in the technical work, unforeseen conditions of the ground in the site of the project therefore causing delays, risks of losing contractors as a result of delays in the tendering process, unexpected rises in the costs of input materials and risks of failing to either comply with the design specifications of the project or delays in the completion of the project (Mousa 2005, p. 11). Many of these risks are a result of several factors whose existence threatens the attainment of the objectives of the project. For instance, Klemetti (2006, p. 16) identifies the presence of factors such as the social and economic role of the construction industry in the economy as potential causes of risks. Additionally, factors such as fragmentation of the construction industry, the ease of entry into the industry by new players, an over-capacitated market for construction products and unfamiliarity in terms of new geographical locations as well as changes in the personnel, as factors that threaten the attainment of project objectives in construction projects (Mousa 2005, p. 12). The relationship between corporate social responsibility and project risk management has received considerable examination. Literature reveals that corporate social responsibility can be an integral part of the risk management systems by corporations as well as in construction projects. Corporate social responsibility is an essential tool in the broader spectrum of risk management in construction projects (Jardine 2007, p. 8). Corporate social responsibility can be incorporated in the basic project risk assessment approaches practised by many corporations (Mousa 2005, p. 16). Since risk management systems entail a complex interplay of behavioural responses, the structure of the organisation involved and the level of technology in use which in turn shape the process of risk identification, analysis, response and final control, corporate social responsibility is an essential element for use in managing risks at both the corporate and project level. Corporate social responsibility is necessary when involving the input of different stakeholders during the process of managing identified risks (Gajewska & Ropel 2011, p. 26). On the other hand, Kytle and Ruggie (2005, p. 5), view corporate social responsibility as being itself a strategy of managing risks that both corporations and projects have to confront. It is stated that corporations can employ corporate social responsibility as a strategy of managing social risks and threats which result from the fact that many corporations in the construction sector operate under a highly globalised business environment (Kytle & Ruggie 2005, p. 5). This can be done by the use of a model that engages all the stakeholders of a corporation in the implementation and management of key processes. Corporate social responsibility can therefore be used as a vital tool of managing stakeholders by ensuring that they are engaged in making key decisions and are informed about them, that they are allowed to have an influence on decision-making processes through intelligence sharing and lastly, that they are involved in the actual process of formulating corporate decisions (Gajewska & Ropel 2011, p. 24). 2.4 Corporate social responsibility and stakeholders reactions In the construction sector, corporate social responsibility activities by companies in the construction sector is usually focused on four areas: the security and safety of the individuals directly involved in the technical work of the project, sustainability in the use of resources during the construction process, environmental considerations in the design and final use of buildings, and occupational health during the life cycle of the project (Rawlinson, Tuuli & Yong 2010, p. 178). Martinuzzi et al. (2011, p. 10), observe that corporate social responsibility initiatives of corporations in the construction sector should focus on setting a good example in the process of public procurement of goods and services, play a key role in the establishment and maintenance of benchmark standards, show leadership in the implementation of already established norms, and combat vices such as corruption, pollution and inefficiency in the construction processes. But according to Rawlinson, Tuuli and Yong (2010, p. 173), on many occasions, construction projects have been met by hostile and negative reactions from their primary stakeholders and the general public in equal measure. The construction sector is influenced by five types of stakeholders who play a key role in shaping the need for corporate social responsibility in the course of operations of companies involved in this sector (Shoop 2011, p. 188). These include: the property developer, the investing individuals, the future user of the complete product, the owner of the product and lastly, the general contractor of the entire process of the project (Martinuzzi et al. 2011, p. 11). Corporate social responsibility activities by corporations in the construction sector have a direct influence on a number of global stakeholders including government agencies, non-governmental organisations, philanthropic institutions, socio-political lobby groups and other community institutions representing diverse interests and levels of influence (Kytle & Ruggie 2005, p. 14; Shoop 2011, p. 189). Doloi, Haynes and Zhenzong (n. d., p. 6), observe that different categories of stakeholders in a construction project focus on different aspects of sustainability of the project. These interests may be political, cultural or economic. All institutional and individual players have different roles to play in the process of construction projects. For instance, the role of government agencies is to enforce all policies and recommendations related to the construction process. Government agencies also ensure that order is preserved in the sector and that the interests of the public are not compromised by those of the corporations involved in construction projects (Harris & McCaffer 2013, p. 388). Also, the civil society (represented by various non-governmental organisations and community based institutions), by acting as public watchdogs, ensure that the rights and privileges of the public are respected in the construction sector. This guarantees the wellbeing and good service delivery for the general public. Further, it is observed that corporations, by playing the role of being the innovators, delivering value to the shareholders and service delivery to the clients, are faced with the need of meeting competing expectations of these disparate stakeholders. These stakeholders often have different reactions to the corporate social responsibility initiatives implemented by the corporations in the course of running complex and time-consuming construction projects (Dainty, Moore & Murray 2006, p. 168). Since corporations operate in such a dynamic global business environment, they have to develop a systematic means of dealing with such challenges as they occur. As a result of increased public interest in business activities of global corporations (Hawkins 2009, p. 14), local communities as well as the wider global audiences judge the overall success of corporations basing on whether they meet sustainability goals or not, in addition to the other basic parameters of corporate success (Martinuzzi, et al. 2011, p. 9). Since the construction sector has a direct impact on natural resources like water, land and the atmosphere, construction activities that are perceived to amount to unsustainable use of such resources or to contribute to emission of greenhouse gases are considered as bearing negative effects on sustainable development. According to Tan, Robert and Morrison (n. d., p. 4), the expectations of stakeholders on the corporate social responsibility initiatives of a corporation can be categorised into three levels as follows: those expectations based on the past behaviour of the corporation, those based on an intermediate expectations of the corporation meeting minimum standards in its activities and those expectations that are based on the public estimation of the capacity of a firm to engage in corporate social responsibility activities. It is further stated that stakeholders, in forming these expectations, react to several activities of corporations such as perceptions about the resource capacity of particular corporations, the supportive external environment for a particular corporation, positive organisational culture, positive past behaviour by the corporation and public attitudes towards news covering the activities of particular corporations (Tan, Roberts & Morrison n. d., p. 5). Branco and Rodrigues (2007, p. 4), observe that different stakeholders exhibit varying reactions to corporate social responsibility initiatives. Since businesses are sensitive to the needs and interests of different individuals who are influenced by their actions, their attempts at maintaining good relations with these stakeholders are normally interpreted differently by different individuals. For instance, the decision-making process of a corporation may be politicised as a result allowing increased participation of different stakeholders having different interests, thus attempting to satisfy all the competing interests of the stakeholders (Branco & Rodrigues 2007, p. 8). In addition, Tan, Roberts and Morrison (n. d., p. 7), observe that many corporate social responsibility initiatives by corporations overlook the input of stakeholders such as the physical environment and potential victims of the negative environmental impacts of a large-scale construction project. Sen, Bhattacharya and Korschun (2006, p. 3) differentiate between corporate action and corporate social responsibility. Whereas stakeholders judge corporate actions on the basis of the quality of products and services, the corporate social responsibility activities of corporations are judged by how committed a firm is to societal obligations. The reaction of the public towards the corporate social responsibility initiatives of a corporation entails loyalty to a corporation, beliefs and attitudes towards a particular initiative, identification with a particular corporation and lastly, response to the outcome of particular initiatives even during a crisis (Sen, Bhattacharya & Korschun 2006, p. 154). Also, the reaction of the public towards corporate social responsibility goes beyond the basic domain of being the consumers of the products of the company to being potential employees or investors of the corporation (Branco & Rodrigues 2007, p. 9). Therefore, the public responds to the corporate social responsibility initiatives of a corporation on the basis of being either primary consumers of the products, potential employees of the corporation or future shareholders in the corporation (Sen, Bhattacharya & Korschun 2006, p. 154). Transparency and complete involvement of all stakeholders by corporations has a direct correlation on positive public reactions in terms of attribution, identification, behaviours and validity checks with regard to the corporation. Additionally, there is need for corporations to focus on implementing strategies that seek to minimise negative public reactions while enhancing positive stakeholder reactions at the same time (Rawlinson, Tuuli & Yong 2010, p. 173). 2.6 Conclusion This chapter has discussed a detailed review of important literature related to how relevant corporate social responsibility is in managing risks in regard to construction projects. Different studies have indicated varying levels of relationship between corporate social responsibility and risk management in construction projects. For instance, many studies that have been reviewed indicate a positive correlation between corporate social responsibility and the final performance of a construction project. Although different stakeholders use different parameters to determine whether a project is successful or not, research indicates that integrating corporate social responsibility initiatives in the management of a project bears a positive impact on its successful completion. Also, as it has already been stated, different stakeholders base the performance of a project on different criteria. The common basis is the triple bottom line concept that measures the overall success of a project in regard to whether or not it meets the three basic objectives related to the environment, economic performance and social issues. In meeting all these requirements, corporations involved in the construction industry employ corporate social responsibility initiatives in order to enhance communication with different stakeholders involved in the project. The review of literature also indicates that there is a close relationship between corporate social responsibility and risk management; first at the business level and more specifically, at the project management level. Many studies have been done to categorise the typical types of risks that are associated with construction projects. Many of these categorisations place much emphasis on how particular threats interact with common corporate vulnerabilities common in corporations in the construction sector to result into real risks. Corporate social responsibility plays a key role in the process of managing risks during the process of implementing construction projects. For instance, it may be integrated in the entire process of risk management. Also, a successful use of corporate social responsibility by corporations involved in the construction industry acts as a standalone risk management strategy. This is because using such a strategy ensures that all the stakeholders involved in the project are fully engaged and involved in the process of managing potential and actual risks to the project. Finally, this review has examined literature on how different stakeholders react to corporate social responsibility initiatives by corporations, in general, and in the course of construction projects, in particular. The results have been varied. For instance, individuals will react to particular activities by a corporation basing on beliefs about a company’s internal resource capacity, value of products and perceived ability to handle crises in the event of their occurrence. Also, stakeholders react to such initiatives basing on how well a corporation has behaved in the past, its capacity to actually initiate corporate social responsibility initiatives and whether the corporation is viewed as being able to meet the minimum standards. The public reacts to corporate social responsibility activities basing on whether or not a construction project bears negative consequences on the natural environment. References Boyd, T & Kimmet, P 2011, “Triple bottom line approach to property performance evaluation”, School of Construction and Management and Property, QUT, Brisbane, viewed on 21 June 2013, Branco, M C & Rodrigues, L L 2007, “Positioning stakeholder theory within the debate on corporate social responsibility”, Electronic Journal of Business Ethics and Organization Studies, Vol. 12, Issue 1, pp. 5-15, viewed on 23 June 2013, Chartered Institute of Building 2010, Code of practice for project management for construction and development, John Wiley and Sons, Sussex. Dainty, A, Moore, D & Murray, M 2006, Communication in construction: Theory and practice, Taylor and Francis, New York. Dawidowicz, P 2010, Literature reviews made easy: A quick guide to success, Information Age Publishing, New York. 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