The Royal Bank of Scotland, Corporate Social Responsibility and Brand Image Post-Financial Crisis Period

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Table of Contents

Chapter One. 4

1. Introduction. 4

1.1 Background Information. 4

1.2 Research Questions. 7

1.2.1 Aims of the Research Study. 8

1.2.2 Hypotheses. 8

1.3 Brief Company Profile. 8

Chapter Two. 9

2. Literature Review.. 9

2.1 Corporate Social Responsibility. 9

2.2 Corporate Social Responsibility in Royal Bank of Scotland. 14

Chapter Three. 20

3. Methodology. 20

3.1 Methodology Paradigm.. 20

3.2 Research Approach. 22

3.2.1 Relation to Theory. 24

3.3 Research Strategy. 25

3.4 Sample Collection. 26

3.3.1 Sample. 26

3.4.2 Sample Size. 27

3.5 Data Collection Method. 28

3.5.1 Primary Data. 28

3.5.2 Interview.. 28

3.5.3 Self-Completed Questionnaire. 29

3.6 Data Analysis/ Coding. 29

3.7 Validity and Reliability. 30

3.8 Recording Analysis and Interpretation. 30

Chapter Four 30

4. Results. 30

4.1 Discussion. 30

Chapter Five. 30

5.1 Conclusions. 30

5.2 Recommendations. 30

References List 31

Chapter One

1. Introduction

The topic of Corporate Social Responsibility was chosen due to its contemporary nature and its importance in the present day corporate world. The banking sector receives a credit crunch in 2008 and this led to its reexamination of its structures and policies. The public was made aware of the concept of CSR and this forced the UK Government to reupholster all its banking processes to critically evaluate the crisis and set forth procedures to prevent similar problems from occurring. Banking institutions play a major role in world economies especially capitalist economies (Barth, Caprio &Levine, 2006).

The effect of the financial crisis on banks therefore had a major impact on economies. The major sufferers of the crisis include banks such as the Royal Bank of Scotland. It was rendered almost insolvent because of the financial crisis. Government intervention was characterized in the bailout project undertaken by the British government, one of the biggest in British history. They took it upon them to help banks out of the crisis because they knew the importance of banking institutions to the economy (MacAskill & Menon, 2010).

1.1 Background Information

The financial sector suffered one of its worst nightmares of recent times when the 2008-2009 economic crises descended on the world economy. Among the most affected financial institutions were banks across the United States and Europe. Lending practices in a few banks that attracted uncontrolled risk considerations in mortgages and derivative securities brought almost the entire financial sector into the risk complexity that the crisis occasioned. In a matter of a few weeks, the industry that had caught the attention of every investor was crumbling as the financial institutions watched in disbelief and helplessness. Investors were loosing investment in billions of pounds with nobody willing to help in the spiraling disaster. Urgent help ad to be sought from major sources such as government funds which rescued a number of institutions that were staring at dissolution from the high magnitude shake up in the market (The Economist, 2010).

It is perhaps important to mention the events that transpired to the post crisis environment and period that the research focuses on. Without making the connectivity, it would make it increasingly remote for the corporate responsibility topic to have a lose meaning in the discourse. The 2008-2009 economic crisis or economic crunch mentioned throughout the discourse represents the economic hardship that the world economy dipped into from a number of improper transactions in the United States financial market. Due to the magnitude of the risks involved in the improper control practices over the direction that then US market was taking, it was soon experienced in the European market and sooner all over the world. The financial markets were involved in a risky lending business where investors would get cheap loans to finance investments and own homes without the usual complex procedures of obtaining financial assistance form banks. Banks came up with alternative investment securities that derived from other properties with the same risky feature across all the investments.

A network of properties and their derivatives grew in a lucrative manner such that foreign investors, largely from Europe had moved in to take advantage of this funding. Banks and other involved financial institutions took advantage to invest this risky money across the United States and Europe. This network meant that when it came crushing, nearly all the participating countries would be affected. Generally, the impact on the US dollar would neither be spared and as it came to happen, the entire world was affected in a certain way. Unable to meet their financial obligations, European and US banks and financial institutions involved in this lucrative but risky business were soon bearing the blunt with bankruptcy being the only short term solution. Governments had to play their protectionist roles in order to help civilians not to lose everything, having already lost a lot of investments in the risky business (MacInnis, 2009). Britain was not spared and had to chip in assistance in form of bail outs to major players in order to salvage something out of the huge mess that the financial industry had brought to the stable and unstable economies alike. This implies that the most difficult era of rebuilding the industry had to be ushered in urgently to avoid further negative performances occasioned by negative perceptions about the entire industry’s capacity to handle and protect investors.

Soon after the threat had subsided, investor and public confidence had to be sought in a number of ways by the financial institutions. Surviving the threat of bankruptcy was not enough to convince investors and the public that the dealings of these institutions were safe and sound in the wake of the instability that had been witnessed during and immediately after the crisis. Perhaps the investor confidence that had preceded the triggering of the economic crisis was an upper extreme that was destined to attract the opposite extreme in confidence levels during and after the crisis. While it remains the objective of any investment to find its best foot forward and stay in a good operation shape, regaining confidence in the eyes of the customers and the ever skeptical public opinion becomes a difficult environment to conduct business.

One of the easiest ways that banks and financial institutions could make their presence in the normalizing business environment was to mobilize resources towards enhancement of public view. One of the major reasons why public opinion matters can be found in the common adage to the effect that public opinion is an unruly horse for anyone to ride on. This unforgiving nature of the public was expected especially after the losses that the investors, most of which are members of the public, suffered without any assurances of normalcy in the financial sector. Having lost homes and jobs as a result of these events, waiting at the office for the same customers to return with more investment or for consultations was a gamble that a few would dare venture into. Improving the public image on the business was the most tenable business reorganization agenda that a sensitive financial institution would make (Werther & Chandler, 2006).

Assessing the nature of developments at the Royal Bank of Scotland particularly after the economic crisis with regard to corporate responsibility as a key internal strength to shake off negative impact of the economic crisis gives important insights on this corporate strategy. Alternatively, this essay does not only enable the reader to come to terms with the magnitude of CSR as a the strategy in occasions where public relations are affected and performance tainted with negative sentiments but also allows the reader to understand the financial industry and its connectivity to international transactions. This is because without creating such a link, it would be difficult in understanding the trickling effect of the crisis that began in the United States and ends up dragging a European financial player such as the Royal Bank of Scotland.

1.2 Research Questions

The main questions being addressed in this research study are:

1. What is the general public view of the Royal Bank of Scotland in terms of Corporate Social Responsibility?
2. How is the Royal Bank of Scotland committed to its meeting Corporate Social Responsibility?

• Is the culture of the Royal Bank of Scotland aligned with its CSR plans?

1. What is the effect of CSR on the profitability of the Royal Bank of Scotland?

1.2.1 Aims of the Research Study

1. To evaluate the performance of the Royal Bank of Scotland in terms of Corporate Social Responsibility.
2. To examine the performance of the Royal Bank of Scotland on its brand image in the post financial crisis period.

The aims will meet the following objectives:

1. To obtain and interpret secondary information on the Royal Bank of Scotland in terms of Corporate Social Responsibility.
2. To match interview responses to information obtained to validate public views on RBS’ CSR.

• To analyze the effect of CSR on the recent performance of RBS.

1. To compare available information and respondent’s views with regard to the bank’s CSR and brand image.

1.2.2 Hypotheses

1. A poor CSR by the RBS has occasioned a poor run of performance.
2. Brand image issues at RBS are partly to blame for its low CSR values.

1.3 Brief Company Profile

The Royal Bank of Scotland is an affiliate of Royal Bank of Scotland Group and provides banking services all over the United Kingdom together with Ulster Bank and Natwest. The bank has almost 700 branches all over the UK. It started out by obtaining funds for the Jacobite Rebellion and has since been well established.

The bank has recently been fined for competing with Barclays Bank in anti-competitive ways. The fine amounted to 28.58 million Pounds and is simply a fraction of the problem the bank faces and the unsociably responsive manner in which it has been acting since the financial crisis in 2008 (Montia, 2011). This paper therefore seeks to analyze the institution based on its activities in the past 3 years since the financial crisis and look at its Corporate Social Responsibility practices since. The aim is to analyze the effect on its brand image.

Chapter Two

2. Literature Review

This section will seek to justify this research study based on previous articles and books by other authors. The focus areas shall be; the Royal Bank of Scotland, Corporate Social Responsibility and brand image. What exactly is CSR? Is RBS socially responsible? What are some of its CSR activities? What has made RBS to be unsociably responsible? These answers will be addressed in grave detail, citing works from other writers and therefore forming solutions to the improvement of the brand image of the Royal Bank of Scotland.

2.1 Corporate Social Responsibility

Corporate Social Responsibility means the responsibility a firm has toward upholding ethical principles of society for the good of the community (Banerjee, 2007). It refers to the obligations that any company or firm has towards ensuring that it performs its duties ethically and with community welfare in mind and not just profit making. It came into play in the 1960’s when Multinational corporations began being formed. CSR can be broadly defined as any action b y and organization, corporate in nature that seeks to aid the society and community in which the organization is found (Barth & Wolff, 2009). The organization is assumed to be a member of the community and therefore should give back to it (Belanger, Franklin, Moschetti, Sultan & Olin, 2005).

Corporate Social Responsibility is a term that is used to describe the impact of a business’ activities on various persons other than shareholders and these are stakeholders (Freeman, 1984). The role an aim of CSR is to ensure that the effects of a business on these stakeholders, the general public, the consumers, the environment, communities and employees of the companies. It must be integrated into the business model and must therefore be taken very seriously by companies all over the world. It is extensively being taught in business schools because it is a fairly new concept. However, more and more complaints are arising as a result of the fact that it is not thought that in Europe especially the concept is taught in detail as it should (Matten & Moon, 2004). This is probably the reason why these students who later become heads of institutions such as banks do not properly integrate it into their business models which should be the case.

CSR has received different perceptions from different researchers. Some say it has a positive impact banking and business in general while to some it is negative. Others are just simply neutral. This could be as a result of flaws in the empirical analyses used by the researchers which give inconsistent results with different researchers (McWilliams & Siegel, 2000). The concept of CSR has evolved from its beginnings in the late 1950s and early 1960s. The 1970s saw numerous definitions being developed for the concept. In the 1980s there was developed research based on empirical evidence which has already be termed inconsistent because of the varied nature of the results. The term then diversified into other areas such as Corporate Social Performance. These new themes absolved the basics of CSR and took it as their own (Carroll, 1999).

Corporate Social Responsibility is fast becoming mandatory for most firms and has proven to be a very lucrative industry encompassing financial as well as environmental perspectives. More and more companies are aligning themselves with the concept and ensuring they are incorporated into their business models and processes. The message of CSR is spreading all over the world and enlightening all corners of it in. Globalization is one of the major reasons of the establishment of CSR. Globalization has facilitated multinational corporations and hence it has facilitated the development of the concept and it’s wide spread. One way of examining CSR is from the perspective that it is simply an organization’s way of devoting itself to a dynamic society and in this case this society demands CSR. Thus in orders to keep up with competitors who are already adopting the concept organizations are forced to follow the principles behind CSR.

A company, in order to succeed has to encompass both ethical principles and business reliability. Ethical principles applied without reliability in business and services will not work and vice versa. However in providing good services and also complying with ethical standards required by the society then a business can flourish and be able to succeed in its respective industry and beat competitors out of the way. CSR can be said to increase profitability by increasing customers but it also costs the company in terms of environmental compliance which leads companies to set forth expensive procedures. It also costs companies in terms of setting up departments for CSR and maintaining them as if they were any other department of importance such as customer service or accounting or even management (The Economist, 2008).

The most contested issue in CSR is the fact that it cannot be properly and adequately measured due to the measurement of social performance being a very complex issue (Broomhill, 2007). CSR requires of corporations and firms that they acknowledge the fact that they are accountable to the public for their financial performance; their social and environmental performance. The corporations should be able to promote the rights of individuals in their communities, democracy in their governments and improvement of the community in terms of economic development (Werther & Chandler, 2006).

The banking industry specifically has immense need for CSR as it involves the handling of works such as financial contracts which involve information unevenness and hence it is crucial that CSR practices are employed to ensure the drafting and implementation of these contracts are done so in the most ethical way possible. Regulators have been put in place to ensure that bankers and banking institutions are reputable and operate with trust. They thus ensure accountability and transparency in these institutions (Monette, Sullivan & DeJong, 2010).

The banking sector has a lot of CSR on its hands and this has been due to the fact that banks have a very large impact on capital markets and money markets. This has also been as a result of the management of their business processes (Visser et al, 2010). Personal indebtedness is one area that has been widely expanding in CSR in banking institutions. Personal indebtedness is the ready aces to funds in form of credit and borrowing and is a culture that has recently been rising (21^st century). These issues were more recently brought to light by the sub-prime mortgage crisis (Visser et al, 2010).

Another quickly rising area of importance is the impact of the banking sector to the environment. The environment is a major component of today’s world and organizations in their activities must include environmental awareness. Some researchers have brushed off the concept as being significant only to more practical sectors such as the energy industry and related industries such as car and other manufacturing industries (Idowu & Filho, 2009). There should be a bridge between banking strategies, environmental strategies and sustainability in order for a bank to fully operate within its maximum potential and in accordance with CSR. There are generally two approaches that banking institutions take in their environmental strategies; development of financial products and environmental management strategies (Idowu &Filho, 2009).

Consumers form a critical part of CSR in the banking sector. This is in line with a survey done by Andrew Crane (Crane, 2008). The report reveals that advertising campaigns of major banking institutions such a Co-operative Bank, one of UK’s largest banks is centered on convincing consumers that they perform their processes ethically and responsibly. Their website reads “your money will never be invested in unethical organizations”. Other company captions include “we’re good with money” and “customer led, ethically guided”. These captions are all indicative of the company’s devotion to CSR. The company reportedly forewent a lot of money (10 million pounds to be exact) just to demonstrate its devotion to its customers and its ethical standards. The organization has proven its devotion to ethics in society which is more than can be said for Royal Bank of Scotland (Crane, 2008).

The question of whether multinational corporations are taking CSR seriously arises on analysis of countries in Africa and Asia which are seemingly being exploited for their resources against their better judgment because they are underdeveloped (Jamme, 2010). Despite most countries having attained independence over 50 years ago there are still countries being taken advantage of by MNCs. One of the major victims of CSR or lack thereof is the DRC.  It is a war torn country which has an abundance of minerals such as tantalum which is important to corporations such as Nokia and IBM. However it is quite obvious to see that the value of CSR to the Congolese community does not equal the amount being exploited by these corporations. Not all of these corporation are however sociably irresponsible; Google has been instrumental in giving back to the community amounting to 7 million dollars in projects targeting poverty, energy, health and the environment (Jamme, 2010).

2.2 Corporate Social Responsibility in Royal Bank of Scotland

The main driving force behind CSR activities in RBS is the Board of directors. The effects of CSR on RBS are; improved attitude of employees, consumers and investors toward the company, the company has moved up several positions in terms of indexes. The company focuses its CSR projects on education of students in the community, the arts, sports events and facilities, the environment, charity organizations, small scale businesses and agricultural ventures to promote agriculture (CSR Globe, 2005). The following are undertaken by means of implementation of projects that are directly under the RBS, sponsoring other projects whose intentions indicate good social responsible. The organization was also involved in volunteer programs by employees to personally help in projects such as clean up. The bank in 2005 contributed around 56.2 million in the community (CSR Globe, 2005). This was of course back in 2005 when the organization had not yet experienced the financial crunch of 2008.

CSR has since become a major issue for RBs and the following paragraphs will outline just exactly what went wrong and why. The financial crisis hit Europe and major world economies in the late 2000s and it specifically affected banking institutions in the UK in 2008. It has also been referred to as the global financial crisis (MacInnis, 2009). It has been termed as one of the most deadly international economic crises since the depression of the 1930s (MacInnis, 2009).  The reason for this awful condition that caused growing economies to stop dead in their tracks was the fact that the banking system’s liquidity in the US. The US being one of the greatest world economies spread this liquidity throughout the world causing securities relating to the US market to decline and thus economies to move backwards in terms of growth. The remedy to this was government intervention in the form of bail out. The various governments all over the world provided to their banking systems by providing banks with funds (MacInnis, 2009).

The British Government followed suite and lent its banks, thereby nationalizing them. Some of the banking institutions which received funds were; Royal Bank of Scotland, HBOS and Lloyds TSB (Porter, Kirkup, Rayner and Swaine, 2008). The amount of tax payer’s funds received by the three banks totaled 37 billion pounds. It is important to emphasize on the fact that it was tax payer’s money that was being used to revive the banking sector; was the money well spent? The following paragraphs will enlighten us. Royal bank of Scotland received 20 billion in form of capital from the British tax payers. The implications were that tax payers would have 63 % ownership rights of the bank (Porter et al, 2008).It is interesting to note that in this new ownership then CEO Sir Fred Goodwin could not be tolerated and was set to resign (Porter et al, 2008). The government of Britain had done its part in recognition of the fact that a stable banking system meant a stable economy and thus the best interests of British citizens were assured.

What went wrong from here? Well the bank got slippery and started ignoring its responsibility towards shareholders, the public, the environment and stakeholders of its company (The Economist, 2010). The guardian reported that RBS was involved in tax avoidance schemes all over the world amounting to 500 million British pounds (Lawrence and Leigh, 2009). This laundering was done not just in the UK but through schemes all over the world. It is a shame and injustice to the British tax payers. The bank admittedly used very complicated international tax avoidance schemes to control 25 billion pounds which cost treasuries in the US and the UK close to 500 million pounds.

The Guardian reported the company’s increase in revenues of bankers by 950 million despite the fact that it had reported losses of 1.1 billion pounds (Treanor, 2011). There goes CSR out the door.  It is very important to note that the article stresses the fact that this is a bank that was bailed out the government. The CEO alone, Stephen Hester got a bonus of 2.04 million. The rest of around 100 bankers got more than 1 million pounds bonuses. However compared to 2008 when the company lost 24 billion pounds, the 3.6 billion loss in 2010 was not that much (Treanor, 2011). The reason for the decline was accredited to bad debt provisions which saw consumers moving to more varied rates as opposed to the standard version that was being offered by RBS.

Current CSR practices from the bank under its new management include focus on global citizenship and sustainability both simply just facets of CSR. The goals are hopefully going to help the company meet its CSR goals and improve the brand image. A statement from John Hourican is as follows, “We believe that through the business we do and through our investment in communities around the world, we are making a positive contribution” (RBS, 2010). The company website focuses on conducting international business services while focusing on the bigger picture which is economic, environmental and social impact. They claim that it is their role to partner with other stakeholders and make sure all issues of concern are taken care of. Some of their priorities in 2010 included:

1. Developing policy statements that are specific on sectors and are definitive of RBSs lending and investment approaches.
2. Expand the scope of their business services especially financial services.

• Focus on the better development of Environmental Champions Programme (RBS, 2010).

As more and more banks accept funding from government to restructure their capital structures, the better CSR becomes. This is because of the fact that such practices have implications on cultural implications of CSR and also the balance between legal obligations of the bank and their voluntary ethical responsibilities. According to a manager in Karachi, Pakistan, Nausheen Karamaly, the cultural practices of RBS breed a hub for creativity, professionalism, freedom to share ideas and openness. This is a very positive environment for progress (RBS, 2011).

However, yet another blow to the company’s reputation and image was made by Prime Minister, Gordon Brown who termed the management of the bank as being rubber-stamped. He said these defaming comments in light of the fact that the bank made revelations on the exclusion of the bank’s board by their independent directors of their intention to purchase sub-prime mortgages amounting to billions of pounds (Winnet, 2009). Such key management decision such as these should not be left out to key persons in a bank’s management. This revelation left not just the Prime Minister but British citizens in amazement of the workings of such a crucial institution. This has further caused the brand image of the company to plunge to the negative side. Such incidences could very well be the downfall of a large financial institution. However the fact that it is owned 70 % by shareholders keeps it in check as the government has to intervene to protect the stakes of tax payers and shareholders alike.

The careless and unethical actions of this bank have drastically affected the brand image of the bank. The exact figures and statistics will be gotten from the questionnaires and interviews that have been planned to be conducted in the methodology section. Their implications will be gotten from the data analysis section and recommendations to the bank will be made based on these observations and findings.  The importance of brand image is going to also be critically examined through using examples of better institutions which have adopted good methods of CSR thereby boosting the perception of the public on them. One such company is the American Express Bank which is an International bank.

This bank is an example of the extent that brand image can go to promote the position of bank. Such evidence will especially be of importance to the bank as current technological innovations have seen banking being taken to a global scale thereby increasing competitiveness. Brand image can singl.............