Heliyon 7 (2021) e07672

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Heliyon

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Research article

How does organizational leadership contribute to the firm performance through social responsibility strategies?

Parvaneh Saeidi a,*, Lorenzo Adalid Armijos Robles b, Sayedeh Parastoo Saeidi a, María Isabel Vera Zamora c

a Facultad de Ciencias Administrativas y Econ�omicas, Universidad Tecnol�ogica Indoam�erica, Quito, Ecuador b Departamento de Ciencias Econ�omicas Administrativas y de Comercio, Universidad de las Fuerzas Armadas, ESPE, Quito, Ecuador c Facultad de Ciencias Administrativas, Universidad UTE, Quito, Ecuador

A R T I C L E I N F O

Keywords: Organizational leadership Corporate social responsibility Financial performance Non-financial performance Malaysia

* Corresponding author. E-mail address: [email protected] (P. S

https://doi.org/10.1016/j.heliyon.2021.e07672 Received 27 January 2021; Received in revised for 2405-8440/© 2021 Published by Elsevier Ltd. This

A B S T R A C T

Despite the wide-ranging studies on Corporate Social Responsibility (CSR), firm performance, and Organizational Leadership (OL), there have been only a few studies examining the inter-relationship between them. Accordingly, this investigation has tried to investigate how OL contributes to the firm's performance through the CSR strategies. It has an internal orientation to CSR motivations compared to the existing studies that mostly considered the external factors in implementing of CSR in firms; also, it has a comprehensive view toward the firm's performance by considering both financial and non-financial aspects of performance. It could be said that this study has tried to answer the question of whether or not CSR can be as a mediator between the OL and firm performance. Data collection was performed from 285 manufacturing and consumer products firms located in Malaysia during the four-month period of June–September of 2020. AMOS Structural Equation Modeling (AMOS-SEM) method was applied to analyze the model. Following the Baron and Kenny approach in testing the hypotheses, it was found that the relationships of OL and financial performance, as well as OL and non-financial performance were partially mediated by CSR. In addition, the non-financial performance was found as a full mediator between the OL and financial performance. Further, the results revealed two full mediated relationships in this way that non-financial performance was a full mediator variable between CSR and financial performance, as well as CSR and non- financial performance which were found as two multiple full mediators between OL and financial perfor- mance. The results help Malaysian managers to understand their current status, capabilities, strong points and weaknesses in leadership regarding to CSR. Moreover, due to the positive effects of CSR on both firm's financial and non-financial performance, CSR is recommended to be integrated in leadership style and the organizational strategies in order to having better performance.

1. Introduction

There are some environmental strategic plans applied by firms in order to lessen harmful effects of their activities on the natural envi- ronment, such as introducing a clean energy or reducing waste or reducing the energy consumption (Bansal and Roth, 2000; Walls et al., 2011). These kinds of environmental measures by firms and governments bring a higher level of environmental awareness among consumers so that offering environmentally friendly products has become a prior in- dicator among many customers in selecting a supplier (Zhang et al., 2020). This shifting from organizational-level activities to societal level initiatives have encouraged more companies to be environmentally

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m 1 June 2021; Accepted 23 Jul is an open access article under t

friendly and adopt environmental strategies (Shurrab et al., 2019b). This mutual impact between the society and firms shows that organizations with introducing and applying different environmental-social strategies unwantedly change the social awareness and expectations. since competitiveness and legitimacy indicators for firms are determined by the society according to their needs, willing and believes, companies should apply strategies that in addition to considering environmental issues, it also benefits the company's financial interests.

In this regards, corporate social responsibility (CSR) with its especial attitude towards the society and environment could be a great contri- bution to the firm's social legitimacy (Font et al., 2016; Palazzo and Scherer, 2006), because it allows the companies to improve their

y 2021 he CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).

P. Saeidi et al. Heliyon 7 (2021) e07672

relationship with consumers by generating more perceived value for consumers (Servera-Franc�es and Piqueras-Tom�as, 2019) that conse- quently would lead to having higher competitive advantages and greater financial benefits for firms (Garay and Font, 2012; Margolis and Walsh, 2003). This ability of CSR in connecting firms with the society has caused most of the researchers and practitioners lean towards studies on CSR and society as an external organizational factor.

The large volume of research focusing on the external stimuli in CSR implementation led to fewer studies done on the role of CSR and on the intra-organizational relationships. Accordingly, more research on CSR and internal organizational components have been called (Andrew and Max, 2007; Du et al., 2013; Kim and Thapa, 2018), especially in devel- oping countries. This is because, on the one hand they are significantly impacted by the environmental damages and climate changes and on the other hand, managers are being trained for CSR qualification as an advantage in managing a company (Ayala and Meier, 2017; L�opez-P�erez et al., 2017). In this regard, Rehmani and Khokhar (2018) have referred to the less attention on the role of CSR between the Organizational Leadership (OL) as an important influential internal factor and firm performance. Ismail et al. (2014) call leaders as the human resource development professionals who link the corporations and society. On the other hand, Mittal and Dhar (2016) refer to the important role of man- agers and leaders with a socially-oriented view in encouraging businesses to achieve their social aims and goals. In supplementary studies on CSR Groves and LaRocca (2011) reported that socially-oriented leadership brings changes and initiatives to an organization as a driver of CSR ap- plications. Or in another study by Hemingway and Maclagan (2004) the power of personal initiatives of manager about CSR in making a differ- ence in the performance of corporation has been highlighted.

These evidences show that human resource development is increas- ingly expected to play a facilitative role in sustainability of CSR (Garavan andMcGuire, 2010). However, Ismail et al. (2014) believe that the role of managers and leaders is very challenging; this is because, in making any decision or applying any strategy in the organization, expectations of both internal and external stakeholders should be met equally.

Despite the investigations in these allegations, there is still a paucity of research that investigate to what extent organizational leadership through CSR could generate desirable organizational outcomes. There- fore, the study of leadership's role (as an internal component) on the firm performance through CSR practices seems to be an interesting and useful research. A strong proof for this claim is the variety of scholars who have emphasized the lack of study on CSR and their abilities as a mediator between the OL and organizational outcomes (Du et al., 2013; Gar- cía-S�anchez et al., 2020; Rehmani and Khokhar, 2018; Williams and Seaman, 2016), particularly in developing countries such as Malaysia in which the importance of CSR programs has not been fully appreciated by the firms' managers (Abdul and Ibrahim, 2002; Ismail et al., 2014; Wong and Bustami, 2020). Accordingly, the purpose of this study is to answer this question that “How does a company leader contribute to the firm's performance through the social responsibility strategies?”.

Therefore, any study that could improve the performance of Malay- sian manufacturing companies is important (Rusli et al., 2012). The questionnaires were sent to the top and middle-level managers and leaders of industrial manufacturing and consumer products firms. All firms were randomly selected based on the list of registered corporations in Kuala Lumpur Stock Exchange (KLSE).

The combination of leadership and CSR in this big sector could significantly affect the creating of a socially responsible organizational culture and, providing a better image of the firms in the society in terms of being environmentally friendly that ultimately leads to the higher performance for firms (Saeidi et al., 2015). Additionally, the results of this research would enhance the knowledge and practices of socially oriented manufacturing business in Malaysia.

This study is divided into five sections. Section one introduces the topic with background and importance of the study. Sections two and three review the related literature and develop the research hypotheses

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while section four explains the research method applied. Section five deals with the presentation of the data, the analysis of the data and the testing of the hypotheses. Sections six and seven discus the results, with the conclusion, limitations of the study and the recommendations of the study.

2. Literature review of key concepts

2.1. Organizational leadership (OL) and organization

The leadership scholars have spent a considerable amount of time attempting to define their focal construct of study (Reiche et al., 2017). Nevertheless, some believe that in case of any agreement on the common definition of leadership, it would be better to be understood. 221 different definitions of leadership by Rost (1991) while, all 221 defini- tions say basically the same thing in which leadership is about one person make other people do something (Ciulla, 2020). This approves the important position and power of leadership in controlling the business actions with the aim of improving the organizational climate (Sal- as-Vallina et al., 2020; Walumbwa et al., 2017). Accordingly, it is crucial for each corporation to improve organizational leadership efficiency in order to bring effectiveness in the performance of an organization as a whole directly and indirectly (Arzubiaga et al., 2018; Moslehpour et al., 2019). In this regard, Hemingway and Maclagan (2004) have claimed that the strong moral character of leaders could be a great help to fasten this progress and growth. This view was supported by some scholars that believe the effectiveness of a company, its performance, as well as its success are closely associated with the leaders’ ethical attitude and their approach over a particular organization (Feng et al., 2019; Saha et al., 2020; Sarwar et al., 2020; Shafique et al., 2019).

In the 18th century, Benjamin Franklin claimed that leaders with doing right thing in an ethical way help society for the right reasons. Later, in the 19th century, some of the highly discussed scandals and frauds improved studies on behavior of business leadership and their effects on different aspects of firm performance (Badrinarayanan et al., 2019; Lin et al., 2020; Saha et al., 2020; Shafique et al., 2019). Following the success of research in the academic, companies also gradually started to redress their ethical misdemeanor to be more conscious about their social responsibility in the eyes of the society, as recently consumers would not let companies to be more careless about the environment and society health (Ahmad and Gao, 2018; Tu and Lu, 2016). Accordingly, scholars should give more clarification on the crucial role of leaders in organizations to improve the firm's performance by applying and strengthening different environmental and social practices in organiza- tions (Saha et al., 2020; Sharma et al., 2019). One of those practices could be CSR with a growing research interest in recent years as it tries to meet the stakeholders' ethical demand as well as economics goals of the or- ganization (Robinson et al., 2011). But how CSR could contribute the relationship between CL and firm performance is a question that is going to be answered in this study.

2.2. Corporate social responsibility

Though Corporate social responsibility (CSR) is not a fresh concept, it has never been more outstanding on the corporate program than today. The knowing root of CSR concept has a long and wide-ranging history. CSR was generated in 20th century, especially from the early 1950s up to the present time so that it has received a considerable attention among academicians as well as companies over the last few decades (Carrington et al., 2019; Carroll, 2008). Despite the great literature on CSR, no unique definition was emerged in the history of CSR. Therefore, the lack of clear conceptual boundaries and unique conceptualization took CSR to diverse definitions. However, the joint CSR contending definitions is that firms must meet the ethical expectations of society while planning their stra- tegies (Vukovi�c et al., 2020). Indeed, CSR answers to the uncertainties that business corporations have to copewith in terms of the social context

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of dynamic, global, and technological business arena in these days (Van Beurden and G€ossling, 2008). In another well-known and clearest conceptualization of CSR by Carroll (1979), CSR is a social responsibility of a business including the economic, legal, ethical, and discretionary expectations of society from the organizations at a given point of time. He already considered all aspects of CSR as it was argued by Turker (2009) that economic and ethical responsibilities should be considered together in addressing CSR; this is because financial interests are significant rea- sons for establishing a business, while corporate ethical behaviors are the main factors influencing the organizational surviving. Align with Carroll (1979), the current study has also considered the economic, legal, discretionary and ethical dimensions of CSR.

2.3. Performance of organizations

The performance of organization is regarded as one of the significant dependent variables that has been recently applied and researched in organizations, but with a vague and loosely outlined constructs (Richard et al., 2009). Accordingly, there is still no a comprehensive definition of firm performance in literature (Alosani et al., 2016). Organizational performance was reported a paradoxical concept based on Cameron (1986), because if it sounds good from one point of view, it might seem improper in another points of view. In terms of overall, the performance of organization could be a measurement tool to measure the effectiveness of organizational management and the way of delivering of values to its stakeholders and customers (Moulin, 2007). In the same vein, Barney (2001), believe that the performance of organizations aligns with the coordination of the assets and efforts toward a co-operation for achieving the goals of an organization.

As noted by Daft et al. (2010), organizational performance is the capability of a organization to effectively achieve its aims, strategy, goals and its resources. Similarly, Lahiri et al. (2012) reported that the capa- bility of organization to accomplish its plan by utilizing its resources effectively and efficiently presents its performance. In their study, Richard et al. (2009) claimed that the organizational success highly is depending on its performance, while taking the focus of managers, re- searchers and practitioners on performance is a significant parameter in the success of organization performance.

In this regard, Perotti and Suarez (2002) and Kaplan and Norton (2005) pointed out that performance is comparable to two factors, namely as financial (economy) and non-financial (efficiency and effec- tiveness of a particular activity or program). Accordingly, in order to determine the organizational performance, both financial and non-financial measures should be considered. Similarly, Hansen and Wernerfelt (1989) identified two essential factors of research that determine the organizational performance, one of which is based on the economic tradition focusing on the external market, features organiza- tion's sector, its position in themarket and its resources' quality, while the other factor focuses on the behavioral and sociological patterns, such as organizational culture, motivation, human resource policies, job design and leadership (Chien, 2004). In this regard, Nicholas (1998) and Kaplan and Norton (2005) claimed that just focusing on the financial criteria couldn't provide a correct view of the organizational performance as financial measurements have not reflected the real performance of the organization without clarifying its capability for maintaining profit(s) in future. Accordingly, non-financial measurements overcome the problems of financial measurements (Kristensen and Westlund, 2004).

Balanced Scorecard (BSC) created by Kaplan and Norton (2005) is able to measure the performance by focusing on all organizational per- spectives, such as internal business perspectives, learning and growth perspectives, financial perspectives, customer perspectives and innova- tion. BSC has been considered as an efficient tool for solving the issues in measuring the performance (Hoque and James, 2000; Malina and Selto, 2001). In fact, BSC helps the managers for long-term strategy settings toward the performance management while they are focusing on all the aspects of performance to ensure the customer value(s) and

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accomplishing the goals of the organizations at the same time (Kaplan and Norton, 2005).

3. Hypothesis development

3.1. Leadership and firm performance

Leadership is a pivotal issue that affects the success and failure of every organization, country, and religious movement (Kocolowski, 2010). Managers are a relatively small group of the company with overall responsibilities for the entire organization (Wiengarten et al., 2017). Guadalupe et al. (2014) stated that leader is the inner circle that formulate, articulate and execute the strategic moves of the organization. Thus, it was claimed that leadership team is a reflection of a firm's organizational structure, as well as the governing body that sets the firm strategy, coordinates activities, and allocates the resources across the business units. Hendricks et al. (2015) introduced managers and leaders as a main driver of corporate strategy so that they are able to sends out a powerful signal to the firm's stakeholders about the firm's strategic importance in market. Menz (2012) mention that the most critical and strategic decisions in a company are typically made by its top managers team that, subsequently, lead to the organizational performance (Menz, 2012). In this regard, researchers attempted to evaluate the impact of leadership on different aspects of firm's performance, i.e. by analyzing the data of 264 Chinese firms, Wang et al. (2017) concluded that orga- nization leadership with three orientations of humane orientation, sus- tainability orientation and moderation orientation positively influence both the firm's financial and social performance. This positive finding broadly supported the work of other studies in this area. For instance, Menz (2012) who identified the socio, economic, and technological developmental outcomes of effective management teams' performance, or Geiger and North (2006) who found positive and strong effect of company leaders on a company's financial performance. Vitanova (2019) also found an economically and statistically significant positive influence of overconfidence leaders on the firm's performance.

Based on the social learning theory Barrick et al. (2015) claimed that leaders with customer orientation have more positive effect on the firm's performance. Atuahene-Gima and Ko (2001) also noted that leaders with customer orientation reflect the firm's strategy focusing on the market intelligence to serve customer needs. In the same vein, the results of data collected from 264 Chinese firms by Feng et al. (2019) showed that hu- mane leadership and moderation leadership help the firms to better leverage customer orientation for enhancing their performance. Indeed, they believed that meeting customer demand is highly significant task with the potential of positively or negatively affecting the organization's revenue and profitability levels (Chisambara, 2017) so that meeting customer demand has been introduced as a critical marketing require- ment for the firm's social logistics (Nimmy et al., 2019; Pelton et al., 2010).

The importance of meeting customer demand has been well acknowledged in the literature so that many scholars demonstrated the significant relationship between leadership with a focus on the customer orientation and the firm's performance (Feng et al., 2012, 2019; Fram- bach et al., 2016; Ziggers and Henseler, 2016). Mostly positive effect was found by them. For example, Ziggers and Henseler (2016) claimed that the main outcome of leadership with customer orientation is the customer satisfaction. Consequently, customer satisfaction finally leads to the higher competitive advantage and higher financial performance for firms that try to meet the customer's demands (Saeidi et al., 2015).

Nowadays, companies are facing increasingly competitive and un- certain markets along with a dynamic economic environment where market and customer demand are changing rapidly (Darvishmotevali et al., 2020). Accordingly, all the leaders and managers as the main decision-makers in different sections of organization need to be updated in identifying the customer and market demands. Therefore, in current challenging environments, by increasing environmentally sensitive

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consumers who are demanding sustainable and more environmentally friendly products and services, companies are forced to apply new environmental strategies (van de Haar and Hesseborn, 2020). One of those strategies is CSR, in which the companies consider not only their profitability and economic growth, but also the interests of society and environment by taking responsibility because of the social and environ- mental impacts of their activities (Tencati et al., 2020). This study is going to address “to what extend CSR as a mediator could contribute to the effect of leadership on the firm's performance”. Regarding the use of Baron and Kenny (1986) approach in this study to test the mediating effect of CSR, the direct effect of OL on the firm's performance should be initially tested for answering the mentioned question. Therefore, it was hypothesized that:

H1: Organizational leadership is significantly associated with financial performance. H2: Organizational leadership is significantly associated with non- financial performance.

Based on the applied approach, at the second step to answer the main hypotheses of this study, it is needed to evaluate the effects of CSR itself (as a mediator) on the firm's performance. Accordingly, the following section is going to explain the relationship between CSR and the firm's performance.

3.2. Corporate social responsibility and firm performance

CSR has recently become a competitive strategy for corporations to raise their profits by affecting the customer loyalty (Islam et al., 2021; Rahdari et al., 2020), positive society attitudes towards the company's brands (Calabrese et al., 2016), corporate reputation and customer satisfaction (Saeidi et al., 2015). Growing demand for initiatives in the social responsibilities of stakeholders as an obvious index to the corpo- rate world make the business leaders highlight the environmental and social issues in their business to achieve the ultimate customers' confi- dence and change the loyalty into a competitiveness. As the external main stakeholders of a company, customers pay attention to both their ethical and economical profits as in recent decades, consumers would not let companies be more careless about the environment and society health (Ahmad and Gao, 2018; Tu and Lu, 2016).

This new perceptual in the society has caused the organizations to be highly involved in ethical activities such as CSR initiatives (Reza et al., 2020). The association between the performance of a firm and CSR has been excessively researched (Creixans-Tenas et al., 2019; Islam et al., 2021). While some studies have investigated the direct impact of CSR on the performance of a firm (Agyemang Otuo and Ansong, 2017; Jang Soojeen et al., 2019; Karim et al., 2019; Yoon and Chung, 2018), others claimed that this association might be influenced by some other inter- vening parameters and involved other factors in their studies (Hasanudin et al., 2019; Saeidi et al., 2015). For example, using data gathered from the 3401 observations of the publicly traded firms in China (2009–2015) by Jia (2020) showed that CSR could improve the performance of the firm when its strategy emphasizes the value appropriation more than the value creation. Kim et al. (2018) in another study proposed that competitive action moderates the relationship between the performance of a firm and CSR. In the same year, Ting and Yin (2018) found that the excessive control rights of shareholders moderate the link between the performance of a firm and CSR. In a study which set out to determine the link between the value of a firm and CSR initiatives, Taylor et al. (2018) concluded the moderating impact of advertising intensity on that link.

In a comprehensive study of CSR and the firm's performance, Saeidi et al. (2015) found that the positive effect of CSR on the firm's perfor- mance is due to the positive effect that CSR has on competitive advan- tage, reputation and customer satisfaction. Accordingly, it could be concluded that the effect of CSR on firm's performance is both direct and indirect (Naseem et al., 2020).

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On the whole, the evidence from literature shows that much of the research on CSR and firm performance up to now has been carried out on the mutual effects of external factors (society) in establishing CSR. However, little attention has been paid to the role of CSR on internal organizational processes. So far, in this regard, some studies tried to determine the impact of CSR on the innovation (Briones Pe~nalver et al., 2018; Broadstock et al., 2019; Ji et al., 2020), employees' commitment and job satisfaction (Ahmad et al., 2020; Bouraoui et al., 2019; Ham- mouda and Junoh, 2019), but still there is much less information about the mutual effect of CSR and organizational leadership (OL) as an important influential internal factor on the firm's performance. This is while, the importance of leadership role in advancing the goals of the organization is known to all. In this context, it has been claimed that organizations with good leaders are more able to create a better envi- ronment that encourage all the members of the team to develop their skills so that they could contribute to the common project and vision of the company. But, to what extent this process is affected by CSR is still less known. Accordingly, the purpose of this investigation is to explore the relationship between leadership and the firm's performance by mediating the effect of CSR. According to the applied approach of Baron and Kenny (1986) to test the mediating effect, before testing the medi- ating effect and after testing the hypotheses (1) and (2), hypotheses (3–6) were formulated as below:

H3: Corporate social responsibility is significantly associated with fina