corporate social responsibility

The role of stakeholders and the increasing demands for Corporate

Social Responsibility

Vani Kaushal 2010

Corporate Social Responsibility (CSR)

Preliminary definitions of CSR

•The impact of a company’s actions on society

•Requires a manager to consider his acts in terms of a whole social system, and holds him responsible for the effects of his acts anywhere in that system

Definitions and Relationships• Corporate social responsibility (CSR) is the process

by which businesses negotiate their role in society • In the business world, ethics is the study of morally

appropriate behaviors and decisions, examining what "should be done”

• Although the two are linked in most firms, CSR activities are no guarantee of ethical behavior for instance, Companies can engage in CSR activities even while they are acting in unethical ways.

• For example, Enron was a champion of community involvement, but used off-balance-sheet partnerships to bilk investors and eventually ruin the company.

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Definitions• “Achieving commercial success in ways that honor ethical

values and respect people, communities and the natural environment.” Business for Social Responsibility

• Triple Bottom LineEconomic, Social, and Environmental responsibility“Quadruple” bottom line - some advocates add “Cultural”

• Used interchangeably with Corporate Social Responsibility Corporate Responsibility Corporate Citizenship”

• Doesn’t make a difference!

88% of opinion leaders believe

corporations have a duty to

stakeholders beyond profits. Edelman 2002

Survey

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Structure•What is Corporate Responsibility?

•Current Pressures

•Value and Corporate Responsibility

•The approach at Leading Companies

Recent Evidence of CSR Interest•An Internet search turns up 15,000 plus

response to “corporate citizenship”•Journals increasingly “rate” businesses

(and NGOs) on socially responsive criteria:▫Best place to work▫Most admired▫Best (and worst) corporate reputation

Reasons for CSR Activities•CSR activities are important to and even

expected by the public▫And they are easily monitored worldwide

•CSR activities help organizations hire and retain the people they want

•CSR activities contributes to business performance

Corporate Social Responsibility (CSR)Carroll’s Four Part Definition

•CSR encompasses the economic, legal, ethical and discretionary (philanthropic) expectations that society has of organizations at a given point in time

Corporate Social Responsibility (CSR)Carroll’s Four Part Definition

Understanding the Four Components

Responsibility

Societal Expectati

on

Examples

Economic Required Be profitable. Maximize sales, minimize costs, etc.

Legal Required Obey laws and regulations.

Ethical Expected Do what is right, fair and just.

Discretionary

Desired/Expected

Be a good corporate citizen.

Four-Part model of Corporate Social ResponsibilityType of Responsibility Societal Expectation Examples

Philanthropic

Ethical

Legal

Economic

DESIRED of business by society

EXPECTED of business by society

REQUIRED of business by society

REQUIRED of business by society

Corporate contributions.Programs supporting community/education.Community involvement/improvement; volunteerism

Avoid questionable practices.Respond to “spirit” of laws.Assume law is a floor behaviour; operate above minimum required by law.Assert ethical leadership.

Obey all laws; adhere to regulations.Environmental laws.Consumer laws.Laws affecting all employees. Obey Foreign Corrupt Practices Act. Fulfil all contractual obligations.

Be profitable.Maximise sales revenue.Minimize costs (administrative, production, marketing)Make wise strategic decisions.Be attentive to dividend policy

Source: Carroll (1979))

Pyramid of CSRPhilanthropic ResponsibilitiesBe a good corporate citizen.

Ethical ResponsibilitiesBe ethical.

Legal ResponsibilitiesObey the law.

Economic ResponsibilitiesBe profitable.

Maximize firm’s profits to the exclusion of all else

Balance profits and social objectives

Do what it takes to make a profit; skirt the law; fly below social radar

Fight social responsibility initiatives

Comply; do what is legally required

Integrate social objectives and business goals

Lead the industry and other businesses with best practices

Do more than required; e.g. engage in philanthropic giving

Articulate social value objectives

Corporate Social Responsibility

Spectrum of CSR

Good CSRPoor CSR• No employment• No concern for indirect effect

(land, water, air)• Destruction of agricultural land• Not willing to listen to other

stakeholders• Appropriate of land not being

compensated• Non compliance of rule of land

• Taking care of workers• Low dependence on non

renewable resources• High awareness about CSR

initiatives• Land compensation• Increased monitoring system

• Environment responsibility

What is corporate social responsibility?The traditional model

Social responsibility

Business

Philanthropy in response to appeals for help from society and social investment in projects of long-term importance to the company

This is the core activity of the company providing the goods and services society wants

The benefits of business• Investment• Jobs created• Taxes paid• Goods & Services• Technology transfer• Import substitution• Export earnings• Development of suppliers• Human Resources Development

What is corporate responsibility?The triple bottom line

Economic

Social

Environment

Social and Financial PerformanceA Multiple Bottom-Line Perspective

World-wide critical events and issues

• 1984 Union Carbide in Bhopal, India - environment• 1995 Shell in North Sea (Brent Spar) - environment • 1995 Shell in Nigeria (Ogoni) - distribution of

resources• 1996 BP in Colombia - security forces & complicity• 2000 Mars, Cadbury, Hershey, Ivory Coast - child labour• 2000 Chiquita, Del Monte etc., C. America - association• 2000 Adidas in Pakistan - child labour• 2002 Talisman in Sudan - complicity in repression• 2000s Nokia, Motorola, Congolese Coltan - forced labour• 2010 BP, Gulf of Mexico-Oil Spill

The Global Compact• Human Rights

▫ Human Rights within sphere of influence▫ Complicity with rights violations - repression & conflict

• Labour ▫ The right to collective bargaining & freedom of association ▫ Eliminate forced and compulsory labour▫ To effectively abolish child labour▫ To end discrimination in the workplace

• Environment▫ To support a precautionary approach to the environment▫ Promote greater environmental responsibility ▫ Encourage the diffusion of environmentally friendly technology

• Anti- Corruption▫ Work against all forms of corruption, including extortion and bribery

Who are the Stakeholders?Anyone who affects or is affected by an

organisationFreeman

•Primary stakeholders - those without whom org cannot survive▫shareholders, customers, employees

•Secondary▫community, environment, opinion formers

Clarkson

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Who’s Involved?•Responsibility to all Stakeholders

Shareholders, Investment Banks, AnalystsBoard of Directors, C-Suite, EmployeesCustomersEnvironmentSuppliers & PartnersCommunityNon-governmental organizations (NGO’s)

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What Are the Big Issues?•Climate change•Poverty•Water•HIV/AIDs et al (malaria)•Labor Practices•Community “License to Operate”•Transparency•Good Governance•Values-Driven Decision Making •Ethical Marketing Practices

Integrate CSR Globally•Incorporate values to make it part of an

articulated belief system

•Act worldwide on those values ▫Cause-related marketing▫Cause-based cross sector partnerships

•Engage with stakeholders▫Primary stakeholders▫Secondary stakeholders

Business Ethics Development •The cultural context influences organizational ethics•Top managers also influence ethics•The combined influence of culture and top

management influence organizational ethics and ethical behaviors

•If national practice is bribery, then most companies in that nation will use bribery.

•If a top manager is unethical, then he/she sets a lead that others follow.

•When managers behave unethically, employees can be demoralized, lose faith in the organization, and even leave their jobs. Others might follow-the-leader themselves and engage in unethical behaviors.

Ways Companies Integrate Ethics• Top management commitment in word

• Company codes of ethics• Supply chain codes• Develop, monitor, enforce ethical behavior• Some ways to do it are:-

▫ fundamental honesty and adherence to the law.▫ product safety and quality, workplace health and safety

precautions▫ employment practices▫ Fair practices in selling and marketing products or services▫ financial reporting▫ supplier relationships▫ Pricing, billing, and contracting▫ Trading in securities and/or use of insider information▫ security and political activities▫ environmental protection▫ intellectual property or use of proprietary information

(Business Roundtable, 1988).

Corporate Social Responsibility (CSR)Arguments Against

• Restricts the free market

goal of profit maximization

• Business is not equipped to

handle social activities

• Dilutes the primary aim of

business

• Limits the ability to compete

in a global marketplace

Corporate Social Responsibility (CSR)Arguments For

• Addresses social issues and allows business to be part of the solution

• Protects business self-interest

• Limits future government intervention

• Addresses issues by using business resources and expertise

• Addresses issues by being proactive

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CSR and Shareholder Activism Number of shareholder resolutions filed in 2006 demanding CSR reports: 22

Number in 2007: 38

General Electric – First company to dedicate IR staff to solely address non-financial issues.

Who Publishes CSR Reports?

29Just a Few You may Have Heard of…

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Driven by Expectations• Soaring expectations mean that

compliance is no longer enough▫ Compliance only gets you onto the playing field▫ Meeting high expectations for:

Mitigating harm Creating positive change

• Nike▫ “Yes, we do hold you responsible”

• Sustainability means forever▫ Meeting the needs of the present without

compromising the future

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The Business Case for CSR• Efficiencies - Reduction in Operating Costs• Financial Performance Improved

KLD Domini 400 Social Index – Applies exclusionary screens to the S&P 500. The index has outperformed the S&P 500 on a total return basis and on a risk-adjusted basis since its inception in May 1990.

• Access to Capital - through SRI and Institutional Investors

• Attract & Retain Top Talent 87% of Americans felt that their job loyalty would increase if

their company supported activities that improved society. Cone/Roper Report 1999

A company’s commitment to social issues is important when consumers decide where to work (77%) Cone Study, 2002

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The Business Case for CSR (cont.)• Enhanced Brand Image and Reputation

▫ 75% of [consumers] would give a CSR company the “benefit of the doubt” if they were subject of negative publicity. 2002 Edelman Survey

▫ In 2002, Americans are 30% more likely to switch from one brand to another if that brand is associated with a good cause. Cone's 2002 Corporate Citizenship Study

• Increased Customer Loyalty▫ If price and quality were equal, 76% of Americans would switch to

a brand, product, or service from a company committed to CSR. 2002 Edelman Survey

▫ One in five consumers will pay more for a product labeled as social, ethical or environmental. Cone/Roper Study, 2000

• Reduced Regulatory Oversight/Positive Public Policy

• Stakeholder Activism

Presentation to be followed by a case study.