CSR Politics by Banks after the Financial Crisis
Thesis / Finance and Investing
CSR Politics by Banks after the Financial Crisis
Niewiadoma , Business Consultant, Poland
The project includes models for evaluation of CSR for banks taking into account the obligatory reporting needs of various stakeholder groups and the need of modern aspects of bank accounting. The postulated research is of fundamental character, since it aims to evaluate the present knowledge of CSR, as manifested in the areas of banking, finances, accounting and management, with the purpose of defining the framework of a new paradigm for banks in the 21st century..
The world’s banking sector has been developing very rapidly in the recent years. Its transformation was disturbed by the global financial and economic crisis; however, it is highly probable and necessary that the dynamics of its development should return to its pre-crisis level within several years. The number of financial institutions in the group of commercial and cooperative banks as well as the number of institutional and individual customers is growing. The analysis of the banking sector’s operations indicates new offer packages (i.e. the structures of banking product and service portfolios) that are dependent on time and place (traditional but also innovative ones, for example related to sustainable development, including other components of supervision, control, bank audit or whistleblowing requirements). The development of the financial market and domestic economy has undoubtedly resulted from changes in banking product offers. However, it is necessary to answer the following question: How should a proper border between liberalisation and tightening of the solutions in the theory and practice of bank accounting be determine in order to avoid corruption, bankruptcy and financial scandals on the national and international scale?
The research and studies in the field of accounting conducted so far, concerning the factors and considerations related to the CSR assessment and paradigms for the purposes of the financial sector and economic growth, included only their general preliminary and partial elements.
In the Author’s opinion, due to entering the phase of the modernistic trend of changes in bank accounting, a holistic overview of traditional economic paradigms ought to be conducted, with particular focus on their relation to CSR (Corporate Social Responsibility). The essence of paradigms, rules and principles that have been binding on banks for years should also be emphasised; for instance, the industrial organisation approach to banks, the incomplete information paradigm or a paradigm, or one according to which a bank is a risk management institution. The following function as the “golden rules of banking”: TBTF (“too big to fail”), TBTS (“too big to save”), deleveraging and bailout. Apart from that, the golden balance sheet rule and the golden financial rule need to be also borne in mind. It ought to be considered if in the 21st century, having real experience on the international scale, the emergent changes should not be embraced with an improved, up-to-date theory in order to train better qualified future managers, bankers and other specialists in the field of accounting, finance or strategic management, who would use a uniform economic language and terminology determined on the worlds’ level.
No new bank accounting paradigms have been clearly distinguished yet as specific effects of commercial and cooperative banks’ operation, which would include the information needs of external and internal recipients (e.g. for the purpose of supervision, control, audit and whistleblowing), the opportunities to use intellectual property or to cope with the changes in the financial and economic market (e.g. banking risk, scoring methods, sustainable development).
The general thesis of this study is the statement that banks should aim at improvement of CSR activities in order to increase their value, position and image as part of BOS in the long run for the purpose of homogenising the financial system. The implementation of this project will allow the identification of the influence that the changes in the international and national economy had on the new role of bank accounting as a multivariate and multilevel system determining the economic growth, which has not been examined in Polish literature to date. Defining the extent of impact that the evolution of bank accounting paradigms had on financial markets will support a more effective allocation of (public and private) funds connected with the possibility of short- and long-term operation of banks on the micro- and macroeconomic scale. From the viewpoint of commercial and cooperative banks separately, the relation between the change in the number of (individual and corporate) customers as a result of correct formulation of modernistic bank accounting paradigms, innovativeness of products and banking services and the increase in revenues on the global scale will be demonstrated. It can lead to a higher rate of change in the formal foundations of bank accounting (e.g. directives on Anti-Money Laundering/Combating the Financing of Terrorism, bank recommendations, internal directions and regulations), which will contribute to a higher level of comprehensibility of the information included in financial statements of Polish banks and its compatibility with analogous items in reports of other world’s member states’ banks. It is related to the possibility to improve the image of banks on financial markets and facilitates the reduction of the negative processes observed (e.g. money laundering, frauds, financial scandals connected with counterfeiting financial statements or “aggressive accounting”). It turns out that only a few banking sector institutions have elaborated clear and transparent regulations and support programmes for the purpose of counteracting negative phenomena in order to implement, for instance, the going concern principle and to fully serve the individual and corporate customers’ interests. The completed implementations of CSR strategies in specific banks should therefore be analysed and new proposals of schemes of introducing CSR activities to financial institutions, if they are not present there yet, need to be prepared in order to prevent possible mistakes. The consequence of these issues is also the analysis of the functioning sustainable development indicators, such as KSI, KPI or KRI and the development of new specialised metrics of changes arising from CSR.
Research problems can be formulated in questions: What transformations are economic paradigms subjected to in connection with the innovative approach to bank accounting in Poland? Is the preparation of CSR reports by banks related to actual finalisation of tasks facilitating the development of positive relations between the bank and its environment?
It is planned to create a map of stakeholders in relation with CSR and sustainable development for various banking sector entities. The systematically created map will comprise specified stakeholders and the list of all stakeholders needs to include: the level of the stakeholders’ interest in the bank, the level of the bank’s interest in the stakeholders, the stakeholders’ impact on the bank and the bank’s impact on the stakeholders.
The proposals of the applied communications tools should include:
A) Informing (passive communication)
B) Consulting stakeholders (obtaining feedback)
C) Engaging (direct dialogue with stakeholders)
D) Cooperating (the highest dialogue level, including various types of project partnerships or, in the highest stadium, entrusting a stakeholder with powers to manage a given area).
1. Banks expand their list of financial products and services in successive financial periods with customer demands and bank’s own strategic goals taken into consideration
2. The pursuit of banks’ strategic goals is related to the cross-product implementation technique (cross-selling)
3. Banks’ requirements are growing and stakeholders’ requirements are growing
4. Product information architecture is prepared by banks in a well-considered manner on the basis of experiences and expectations (e.g. eFQM Excellence Model – European Foundation for Quality Management or RADAR logic – Results – Approach – Deployment – Assessment and Refinement)
5. What is important in the current banks’ activities is proper values for corporate responsibility, that is: relation – competence – innovativeness.
1. Innovative banking products are related to implementing the idea of corporate social responsibility
2. Usefulness of economic information is not always quantifiable in connection with the bank’s financial success
3. Banks are focused on the final report with respect to corporate social responsibility rather than on informing stakeholders actively about the activities pursued within this scope
4. Low affordance of some banking products by customers affects the level of banking risk
5. Preparing a social report might facilitate the CSR management process in the bank
6. The perceived new significant variables, which determine banks’ environment, arouse the need to redefine the notion of success in business in the long run, with CSR taken into consideration
7. Systematic examination and appropriate quantification of CSR in relation with banking product offers is beneficial for both banks and bank stakeholders
Banks are open systems, where all economic operations are a consequence of the existing impact of the multi-dimensional environments (including economic, legal, demographic ones), in accordance with the dualistic theory of the organisation’s existence. Hence, banks’ activities, functions and tasks ought to be examined from the perspective of the economy but also from the angle of the society (as a social system), which is a point of departure for the multi-level analysis of corporate social responsibility. Banks are traditionally perceived as public trust institutions and therefore it is worth realising that all activities taken as part of CRS exert a significant impact on their image, reputation or standing in the financial system.
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