Sustainable Intellectual Capital: The Inference of Corporate Social Responsibility within Intellectual Capital

Introduction

The transition from the industrial age, through the information age towards the knowledge age repositioned the approaches and strategies of the company in terms of its objectives to maintain a competitive advantage in order to ensure its high performance. The business strategy of any company wanting to be competitive on the market should be designed around the concepts of Intellectual Capital (IC) and Corporate Social Responsibility (CSR), with an increasingly decisive role in knowledge transfer of the biggest corporations. Advancing the research in these areas, the chapter integrates the two approaches, emphasizing the relationships between the components of intellectual capital and corporate social responsibility. The three dimensions of intellectual capital in terms of sustainability requirements are debated.

Sustainable development focus on how we use the natural resources and the processes by which they are transformed. It calls for a shift in the way the natural capital is managed and used as well as the process and mechanisms by which it can be maintained. Sustainable development requires that the needs of future generations are considered alongside those of today’s societies (UN, 1987). If capital stocks are not maintained, the flow of goods and services will decrease over time and the intergenerational aspect of sustainability will not be met. Different types of capital are used in combination to give rise to flows of goods and services and wealth creation. Forward-looking companies have realised that the value given by their intangibles ensure the broader understanding for business performance and company’s value. Rajdev (2010) observed that companies with almost no fixed assets in the traditional sense of the word were having their stocks more highly rated than many of the other companies. Nevertheless, knowledge is new engine of corporate development as demonstrated by successful companies, those that continually innovate, relying on new technologies and their employees’ skills and knowledge, rather than on traditional assets such as plants or machinery.

Conventional performance measures (such as sales, growth, and a good return to its owners) would not be a sufficient guide for strategic decision-making. Company’s management realises that these measures must be complemented to show the value actually created throughout its organisation. Intellectual capital has become the soft and intangible driver of a consistent market leadership, continuous growth in sales and the value creation for shareholders (Roos, 1998).

Companies are forced to seek new approaches for designing their global corporate strategy. They are increasingly opened to sustainability challenges by recognizing their social responsibilities, reducing environmental impact, ensuring against ethical compromises, creating corporate governance, and becoming more accountable to their stakeholders. At the same time, for many companies the most valuable productive assets are intangibles such as knowledge and business processes and these need to be better measured and managed. Sustainability and corporate social responsibility reporting are presently the determinants that push intangibles reporting forward. Meanwhile, intellectual capital, including human capital, organizational capital, and relational capital, represents a major component of intangibles.

Researchers are increasingly concerned to find and analyze the relationship between corporate performance on the one hand and Intellectual Capital (IC) or Corporate Social Responsibility (CSR), on the other. Many researchers have found relationships between a company’s value and performance and either Corporate Social Responsibility (CSR) or Intellectual Capital (IC). However, most CSR research is mainly related to its correlation or linkage with financial performance and is measured by conventional financial ratios and figures. What is usually left out is the inclusion of IC as a variable, which could be correlated to CSR (Razafindrambinina & Kariodimedjo, 2011). According to Barnett (2007) and McWilliams et al. (2006) intangibles play an important role in relation to the corporate social responsibility effects and these aspects interact and influence the company’s value (Hillman & Keim, 2001). In the same context, it is argued that users need information that is able to represent the company’s identity and image (Gioia, et al., 2000) at the same time in an abbreviated and understandable fashion. The reporting process comes as a solution to these needs.