**1. Introduction**

Hoffman [1], in his historical study, concluded that the concept of corporate social responsibility (CSR) goes back to the 1920s. It has grown in recognition as exemplified by initiatives like the Global Reporting Initiative in 2002, and the more recent directive of the European parliament and Council of 2013 that require a CSR disclosure in annual financial reporting. However, in spite of the accelerating rise of the CSR concept in recent decades, and its popularity as a research topic, it has no exact definition to date and lacks a universally accepted framework [2–4].

Bowen [5] coined the first CSR definition. He emphasized that responsibility of corporates actions goes beyond their profit and loss statement. In 2001, two definitions were proposed by the European Commission's green paper: 1) "CSR is a concept whereby companies decide voluntarily to contribute to a better society and a cleaner environment", 2) "CSR is a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis" [6].

The lack of a clear-cut definition of CSR has resulted in a wide variation of its practical use [7]. Some managers view CSR as an obligation, some define it as a considered proactive behavior, and still others believe it is nothing more than a reactive action or simply charity [8, 9]. This divergence in managerial perceptions is partly due to the heterogeneous factors that influence CSR behavior and practices. These factors include globalization, governmental and inter-governmental bodies, advances in communication technologies, growing demand for more transparency on the policies companies are following in managing environmental and social issues, corporate governance, and finally the limitation of governments to regulate all aspects of CSR.

Mosgaller [10] states that the three pillars of performance (purpose, process, and people) are essential if CSR is to evolve from merely a passing fad to an integral part of organizational practice. The basic argument is that if CSR is to be a sustainable proposition, the purpose of CSR should be clear to employees, processes should be in place to implement CSR effectively and stakeholders should engage in and commit to the CSR practices implemented within their organizations. Trapp [11] stated that involving stakeholders in the decision to adopt CSR strategies would increase the benefits to a company. Tsourvakas and Yfantidou [12] found that "recent research indicates that there is a correlation between a company's CSR practices and stakeholder responses and attitudes towards that company". Barić [13] demonstrates that "the concept of corporate social responsibility has gone, in its several decades of existence, from the 'unnecessary dependency' phase to the 'critical business model phase'" (p. 133).

Although there is abundant research addressing CSR in the last decade, it would not be an exaggeration to state that confusion, measurement challenges, and transparency are only a few of the many problems facing the practice of CSR worldwide, [14]. It appears that there is no systematic implementation and/or adaptation of CSR practices, and as result, the effectiveness of these practices remains ambiguous at best. Recently published research shows that the measurement of CSR performance is a key objective especially to help funders and investors decisions [15].

Therefore, there is an urgent need to develop a robust system to measure corporate performance with respect to CSR, and this system must address all stakeholders' interests.

There is a clear need to formulate a systematic scientific methodology that will not only help corporations identify their social, environmental and economic responsibilities, but one that would also facilitate stakeholders in identifying and prioritizing which factors, in particular, effectively deliver these responsibilities in a transparent and measurable manner. Against this background, the aim of this research is to construct a comprehensive CSR index that reflects and represents the priorities of stakeholders and that can be utilized to evaluate their CSR performances against their own established CSR goals. The proposed index is illustrated by constructing a CSR index for the Services Sector in Saudi Arabia. The developed index is implemented to rank corporations in the services sector with respect to their CSR performance as prioritized by their stakeholders.

This paper contributes to the CSR literature by constructing a CSR index based on the Analytic Hierarchy Process (AHP). The AHP is a multi criteria decision making methodology was developed in the eighties by Thomas Saaty. Choosing the AHP methodology will ensure that stakeholder judgments are an integral part of the constructed index. The developed index is implemented to measure CSR performance in a business setting. An AHP-based CSR Index is developed for the Services Sector in Saudi Arabia to serve as a case study. The developed index is used to measure CSR performance in over forty corporations. The paper adds to the existing literature by providing insight into how the Saudi corporations perceive and practice CSR. The

*Measuring Corporate Social Responsibility Performance: A Comprehensive AHP Based Index DOI: http://dx.doi.org/10.5772/intechopen.94463*

paper concludes that a systematic usage of the developed AHP-based CSR index would facilitate corporations to adopt a more responsible and measurable behavior, while it offers government institutions the option to rank corporations in terms of their CSR practices in a scientific and transparent manner.

The following section sheds light on the emergence of CSR indices, Section 3 explains the methodology of constructing the proposed index and implementing it on forty Saudi corporate in the service sector. Section 4 will provide thorough analysis of the results. Section 5 indicates managerial implication of the proposed index followed by Conclusions and future research presented in Section 6.

### **2. Emergence of CSR index**

As previously discussed, there is a growing recognition by businesses that CSR is, and should be, an integral part of their strategic vision. On the one hand, this agenda is dictated by the greater society, which now demands that businesses be more socially responsible in their decisions and actions, and on the other hand, this focus is partly attributable to greater awareness on the part of the businesses themselves. Reflecting this trend, a number of international institutions set out to evaluate market performance of socially responsible firms that gave rise to the so-called CSR index and launched CSR as a new dimension to measure corporate value.

The CSR index is defined as a "management and benchmarking tool that enables companies to effectively measure, monitor, report and improve their impacts on society and the environment" [16]. Such evaluations have been particularly popular in international capital markets as institutions have sought to evaluate the value addition of CSR to the corporate value of firm's socially responsible investments (SRI). In 1999, the first CSR index in the world was created by the Dow Jones Stocks and Sustainability Asset Management Co, known as the Dow Jones Sustainability World Index (DJSI World), its aim is to value stock performance of socially responsible firms with reference to expectations of the greater society [17].

The subsequent rise of CSR indices has been fuelled by the observation that, on a global level, indices based on CSR or environmental, social, and governance (ESG) themes have outperformed the benchmark indices. Following the lead of the United States, many of the disclosure efforts and the related CSR indices that have emerged are from stock exchanges around the world as they attempt to establish a reflective market mechanism that assesses a firm's efforts in fulfilling its social responsibilities.

The DJSI World and CSR indices in other countries were examined with the intent to identify relevant dimensions and criteria that could be incorporated in constructing a scientific comprehensive CSR index to evaluate corporations in Saudi Arabia. A survey of the related literature reveals 22 CSR indices worldwide (see Appendix) and shows that construction of CSR indices is a relatively recent phenomenon. Furthermore, the literature suggests that most countries do not even have any form of informal government regulations to encourage CSR disclosure let alone any form of formalized index to monitor disclosure. The Middle East is not an exception, as only Egypt and Saudi Arabia support a CSR-based index. This is consistent with the CSR philosophy that is based on voluntarism.

In the absence of government regulations, a scientific based index is necessary to encourage organizations to engage in strategic and transparent CSR practices. Accordingly, the construction of a scientific based CSR index for the Saudi corporate world would not only add value to the CSR evaluation practices, but it would also set a precedent within Middle Eastern countries in particular.
