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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.
4
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
Page 5
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
20
Who’s Involved?•Responsibility to all Stakeholders
Shareholders, Investment Banks, AnalystsBoard of Directors, C-Suite, EmployeesCustomersEnvironmentSuppliers & PartnersCommunityNon-governmental organizations (NGO’s)
21
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
27
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…
30
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
31
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
32
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.