Organisations in Context (MANG6199): Corporate Social Responsibility (CSR)

Dr Denise Baden CSR session 11th October 2011

Who am I?
Denise Baden
E-mail: dab@soton.ac.uk
Tel:(02380) 598966 Room 4025 Management building (2)

Background in social psychology, with a special interest in business ethics.

Learning Objectives
Having successfully completed this unit you will be able to understand:
The changing nature of the business environment the relevance of stakeholder theory and the role and importance of CSR in 21st Century organisations. the changing role and expectations of business in society. how CSR is being practiced in various organisations.

the strategic significance of CSR for business.

Plan of Session

CSR different approaches and definitions

Stakeholder model Externalities

Sustainable Development
Cross-sector partnering What is happening now future trends Ian Gearing from National Grid how they are integrating CSR into their business practices

What does CSR mean for you?

Take a couple of minutes to write it down

Discuss with a partner and come up with a common statement

Are there any common themes?

Voluntary
Internalising managing externalities e.g.. pollution, calculate social and economic cost of relocation or downsizing and include these in any cost-benefit analyses. Multi-stakeholder orientation Alignment of social and economic responsibilities Practices and values Beyond philanthropy Triple Bottom Line
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Philanthropic Responsibilities Be a good corporate citizen: contribute resources to the community; improve quality of life. Ethical Responsibilities Be Ethical, obligation to do what is right, just and fair. Avoid harm Legal Responsibilities: Obey the law: Law is societys codification of right & wrong. Play by the rules of the game. Economic Responsibilities Be Profitable

Carrolls Pyramid of CSR

Source: Carroll (1991)

What kinds of activities come under CSR?

Philanthropic activities
e.g. cause-related marketing, donations, employee volunteering, sponsorship Ethical Business practices E.g. fair working conditions, responsible marketing, ethical supply chain, responsible environmental practices, reduce carbon footprint

Wider context of CSR

What is the role of business in society?

Legitimacy is a generalized perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and definitions (Suchman, 1995,)
Different countries have different perspectives

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Drivers for CSR

External
Sustainable development Climate change, global warming Globalisation Diminished role of government, greater power of corporations Growing gap between rich and poor

CSR is part of a larger transformation in the relations between government, business and civil society
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Recent hot topics

Textile miles Food miles Excessive packaging Pollution Globalisation Deforestation Poverty Fairtrade / labelling Climate change Corruption
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27,312 miles in total

Recent hot topics

Textile miles Food miles Excessive packaging Pollution Globalisation Deforestation Poverty Fairtrade / labelling Climate change Corruption
The Independent (23/01/2007)

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Recent hot topics

Textile miles Food miles Excessive packaging Pollution Globalisation Deforestation Poverty Fairtrade / labelling Climate change Corruption

MSC Napoli
(BBC News, 23/01/2007)

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Whose responsibility?
New rulers of the world (54 mins)
http://freedocumentaries.org/film.php?id=175 Pineapples: Luxury fruit at what price? (20 mins) http://www.guardian.co.uk/environment/video/2010/o ct/01/pineapple-trade-costa-rica The Dark Side of Chocolate (46 mins) http://www.cultureunplugged.com/documentary/watc h-online/festival/play/4809/The-Dark-Side-ofChocolate
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Whose responsibility
Sweatshops, hazardous working conditions, slave labour
Whose responsibility? Government? Business? Consumers? If business is it the local suppliers or the MNCs? What are the difficulties/arguments for assigning responsibility to a particular group? Discuss in your groups for a few minutes and be prepared to vote.

Question?
What is the purpose of business?
In your groups see if you can come up with a consensus.
How has this changed over time? How will it change? Who should business managers be responsible to?

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Shareholder v Stakeholder theory

Concept of business social responsibility has long history 1970s and 1980s - Milton Friedman declared that the only purpose of business is to increase its profits, and that any expenditure on social causes is theft from the shareholders. 1984 Freeman proposes Stakeholder theory business is responsible to a wide range of stakeholders, not just its shareholders.
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Friedmans Shareholder Model Shareholders

The Board
The Manager
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Discussion
What objections can you think of to the shareholder view of the firm?

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Counter-Arguments
Many challenge the supremacy given to shareholders rights

"Whom and what is a business for? (Handy 2002)

The purpose of a business is not just to make a profit, but instead to make a profit so that it can do something more or better. To assume that profit is the only goal is to mistake the means for the end. The idea that those who provide the financial backing are the company's rightful owners is outdated. Today, the value of a company is determined largely by its intellectual property, brands, patents, and skills of its workforce.

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 Ghoshal (2006) challenges Friedmans assertion that managers job is to maximise shareholder value.
Shareholders have no ownership rights on the assets of the company, which are owned by the company itself as a legal person The notion of actual ownership of the company is simply not compatible with the responsibility avoidance of limited liability If value creation is achieved by combining the resources of both employees and shareholders, why should the value distribution favour only the latter?

Many theorists argue that employees should be treated as a value rather than a cost.
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Stakeholder view of the firm

Corporations are not just managed in the interests of their stockholders alone, there is a whole range of groups, or stakeholders that have a legitimate interest in the corporation as well.

A stakeholder in an organization is any group or individual who can affect or is affected by the achievement of the organizations objectives. (Edward Freeman, 1984).

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Stakeholder Model
Shareholders Customers Communities

The Board
Suppliers Other Managers

The Manager
Competitors
Employees Governments
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Stakeholder Management
Key tool for ethical management
The first step is a Stakeholder Analysis is to assess the Influence and Importance of each individual Stakeholder.
Influence is defined as the extent to which a stakeholder is able to affect the organisation. Influence is a measure of the power of the stakeholder. Importance/legitimacy is defined as the extent to which a stakeholders problems, needs and interests are affected by the organisations activities.

Primary Stakeholders are both important and influential, Secondary stakeholders are either important or influential.
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Class Exercise
In your groups, draw up a list of your companys stakeholders.
Distinguish between primary and secondary

Which ones have most power?

Which ones have most legitimacy?

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 How Business is affected by its environment

CSR how business affects environment. externalities

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Many see CSR as being about a company taking responsibility for its externalities

externality of an economic transaction is an impact on a party that is not directly involved in the transaction. What are the some externalities?

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CSR: taking responsibility for externalities

Externalities: consequences of production born by society
Global warming has been ranked as the #1 externality of all economic activity in the magnitude of potential harms and yet remains unmitigated. Systemic Risk e.g. risks to the overall economy arising from the risks which the banking system takes, i.e. the private costs of banking failure may be smaller than the social costs (regulation)

Pollution by industries harming plants, animals, and humans.

Over-fishing:example of a common property resource, sometimes referred to as the Tragedy of the Commons A business may purposely under fund one part of their business, e.g. pension funds, in order to push the costs onto someone else, creating an externality. Here the cost is that of providing minimum social welfare or retirement income. The cost of the storing nuclear waste for 1,000 years is not included in the cost of the electricity the nuclear plant produces. The third party here is the next several hundred generations.

GROUP exercise
What are the externalities of your organisation?

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Figure 6.3

Corporate social responsibility pyramid

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Source: After Carroll 1991

Table 6.1

Stakeholder responsibility matrix

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Source: After Carroll 1991

An application of the stakeholder responsibility matrix to a small clothing manufacturer

Table 6.2

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Group exercise
Each group should choose the organisation they are doing for their assignment and consider what the main social and environmental impacts of their business practices?
What are the positive impacts? What are the negative impacts? It may be helpful to list your organisations negative externalities, and who they impact.

Which stakeholders are negatively impacted, and how can you address these impacts?
How can you increase positive impact?
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How well can you manage your stakeholders?

Have a go at an online activity that requires you to balance stakeholders interests.
Note down the percentage of approval you get from your stakeholders, and the average approval rating. Make a note of your results - highest score gets a prize. http://www.btplc.com/Responsiblebusiness/Ourstory/Inte ractivegames/BetterBusinessDilemmas/flash/index.htm

Reasons to consider stakeholders

Why would a company choose to address these issues?
Why might you personally as a manager want to?

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Drivers for CSR (from business)

Reputation risk: long term advantage reduce risk of incidents Shareholders e.g. ethical investments, pensions FTSE4Good, DJSI Customers: ethical market, ethical customers, avoid boycotts, supply chain pressure. Motivated employees, intrinsic motivation. Legitimacy preserve status quo (society aspect) Moral Capital
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Brand Value
Brand Value $71 million Book Value $14 million Market value $106 million

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The Research Findings (Orlitzky et al)

Bidirectional causality between CSP and CFP confirms the Good Management Theory (Virtuous Cycle of CSP/CFP)
CSP increases managerial competencies, organisational knowledge of the market and non-market environment, organisational responsive capabilities and thus organisational efficiency CSP helps the firm build a positive reputation and goodwill with stakeholders

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CFP operationalisations and association with CSP

Market based (i.e. stock market performance, market share growth) = medium CSP association Accounting based (i.e. return on equity, earnings) = high CSP association Perceptual measures of success = very high

Disclosures = Medium
Reputation Indexes = very high Social audits = high
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Criticisms of justifying CSR by reference to the business case

How can you measure intangible assets? How can you quantify risk? What time frame are you using? What about the moral (normative) argument? Notion of sufficient profit Different business organisational forms credit unions, social enterprises, co-operatives.

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Drivers for CSR from Society

Backlash against Shareholder model of firm Problem of externalities Growing gap between rich and poor Globalisation Diminished role of government, greater power of corporations Sustainable development Climate change, global warming

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Understanding sustainable development

Development that meets the needs of the present without compromising the ability of future generations to meet their own needs (Brundtland Commission, 1987).

Global warming and carbon management

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If everyone in the world were to consume natural resources and generate

CO2 at the rate we do in the UK, we'd need three planets to support us.
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Understanding sustainable development

The external drivers for change
Challenge 1 Population growth and demographic change Resource efficiency

Understanding sustainable development

The external drivers for change
Challenge 1 Population growth and demographic change Resource efficiency Challenge 2 Economic growth and energy challenge Carbon dependency

Understanding sustainable development

The external drivers for change
Challenge 1 Population growth and demographic change Resource efficiency Challenge 2 Economic growth and energy challenge Carbon dependency

Understanding sustainable development

The external drivers for change
Challenge 1 Population growth and demographic change Resource efficiency Challenge 2 Economic growth and energy challenge Carbon dependency

Challenge 3 Legislation and economic incentive

Behavioural science

The Sustainability Spectrum

Some examples
Interface carpets video of Ray Anderson

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CSR and NGOs

Earth Summit of 1992 called on governments, business and NGOs to work together to find ways of minimizing the environmental and social costs of economic growth.
1996, WWF-International launched a partnership with Unilever Corporation - led to The Marine Stewardship Council The Fairtrade Foundation worked with British companies to develop codes of practice. In 1998 British Petroleum allied itself with the Environmental Defense Fund.

Form of civil regulation

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CSR and NGOs

Business Responsibility for Sustainable Development (2000) Utting
highlights risk of business capture NGOs need to maintain distance to keep up pressure.

Changing the Game Leading corporations switch from defense to offense in solving global problems (2006) Kramer & Kania
argues that MNCs should go on offensive to tackle social problems and form partnerships with NGOs. Capitalising on convergence (2007) Austin et al. how businesses and NGOs are beginning to look alike.

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WWF Starting Point

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Activity: Effective partnering

In groups, discuss what would make a good partnership for your business:

Pick a target partner organisation e.g. NGO Where is value added? Is it the same for both parties? For each of the 3 areas write down where value is created from each partners perspective:
Social value Environmental value

Commercial value

Snapshot of current CSR/Sustainability activity

Some examples
Tesco Ireland introduce carbon labelling (Sept 2008) Speaking at the Environment Ireland Conference, Tesco CEO Tony Keohane said the labels would describe the carbon emissions involved in the entire life cycle of the product, including disposal.

The label on own-brand concentrated orange juice will explain that it took 260g of carbon dioxide equivalent per 250ml serving to make, compared to 360g for 100 per cent pure-squeezed orange juice. The label will explain that this is "because more energy is required to chill and transport 100 per cent pure juice than concentrated juice".
Detergent packaging will carry advice explaining that washing clothes at 30 degrees instead of 40 degrees can save 160g of CO2 per wash.

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Some examples
HP wins packaging challenge

HP introduced an innovative design for a model of its Pavilion Notebook that reduces product packaging by 97%, consequently cutting the number of trucks needed to deliver the computers by one-quarter. The new design replaces conventional protective shipping materials and boxes with a messenger bag made completely of recycled components, and was named the winner of Walmarts Home Entertainment Design Challenge.

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Some examples
Nokia earned the top ranking in Greenpeace Internationals newest edition of the Guide to Greener Electronics, released this week. Scoring 7 out of a perfect 10 points, the companys rise in the rankings was due mostly to its improved take-back programme for recycling electronics in India. Samsung followed with 5.3 points, scoring well on the guides criteria for tackling hazardous chemicals and e-waste.

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Some examples
Companies join Eco-Patent Commons Bosch, DuPont, and Xerox have joined the Eco-Patent Commons, an effort to put new technologies in the public domain sponsored by the World Business Council for Sustainable Development. Each company has pledge to publicly provide the patent for their environmentallyfriendly technologies, which include Xeroxs method for quickly removing hazardous waste from water and soil, DuPonts technology to convert non-recyclable plastics into fertilizer, and Boschs automotive technologies that reduce fuel consumption and emissions.

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Some examples
Asian carmakers behind on CO2 goals Overall, most car manufacturers are failing to live up to EU targets for improving fuel efficiency in the automotive industry, says a report from the European Federation for Transport and Environment. Several companies, however, like Germanys BMW, performed better than expected, lowering average fuel consumption of new cars by over 7%. Others, particularly Asian carmakers including Mazda, Nissan, and Suzuki lagged behind competitors, and will need to cut CO2 emissions by up to 25% to meet the EUs proposed goals by 2012.

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Some examples
Citis coal funding under fire Rainforest Action Network is plastering Citibank ATM machines with protest stickers to highlight the banks funding of coal-fired power plants. The environmental activists are using the stickers, which bear the slogan we fund global warming and show black smoke pouring from the two is in Citi, to deface the banks ATMs. The group is also targeting Bank of America.

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Some examples
IPADE, a local NGO, and Friends of the Earth Argentina have filed complaints with the governments of Argentina and the Netherlands against Shell saying it has violated the OECD Guidelines for Multinational Enterprises standards of responsible business conduct. The groups, backed by the National Environmental Authority of Argentina, say Shell has failed to provide environmental impact assessments, has withheld information about impacts and accidents, is extracting 18 million litres of water per hour from a local river without a permit, maintains undeclared high pressure petroleum containers, has visible petrol leaks and illegally stores toxic waste.

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Some examples from SMEs

Rapanui Clothing Ltd are manufacturers of organic, fair-trade Fashion Wear, which is manufactured in factories powered by renewable energy. http://www.the-sbp.co.uk/UploadedFiles/Rapanui.pdf

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Carbon Footprints
Carbon Footprints and advice:
Supply chain emissions focus of new project UK government initiative to analyze supplier emissions to help create more sustainable supply chains. Public government organizations are studying the carbon footprints within each of their supply chains.

2,000 suppliers were asked to submit their information last year.

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Carbon Trading
Overview of carbon trading
UK: Climate Change Bill, became law Carbon calculating software is coming on the market. Personal Carbon Trading Miliband plans carbon trading 'credit cards' for everyone

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What does the future hold?

Trend towards moving from CSR to sustainable development. Will carbon become the new currency? How far will the role of business in society change? Does the rise in CSR and SD mean just a fad or a new model for business? Will capitalism survive?

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CSR and SD at Crossroads

Recent Defra Report raises doubts that the small steps approach will be sufficient: the widening gulf between the cumulative impact of these behavioural changes and the scale of the challenges we confront is openly acknowledged. Unfortunately, it is now beyond serious dispute that a proportional response to climate change will entail fundamental shifts in both policy and lifestyles in the very short term. (WWF)

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 It is no use saying, We are doing our best. You have got to succeed in doing what is necessary. (Winston Churchill)
What would this mean for business?
Organisations are bequeathed with legitimacy to the extent in which their activities are congruent with the goals of the superordinate system (Parsons, 1960).

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Closed loop processes

Cradle to grave:
Responsibility to monitor every aspect of a product or programme through its entire life cycle; from design or acquisition to disposal (aka life cycle assessment)

Cradle to cradle:
seeks to create production techniques that waste free: all material inputs and outputs are seen either as technical or biological nutrients. Technical nutrients can be recycled or reused with no loss of quality and biological nutrients composted or consumed. By contrast cradle to grave refers to a company taking responsibility for the disposal of goods it has produced, but not necessarily putting products constituent components back into service. http://emf.s3.amazonaws.com/toolkit/The%20big%20idea.mp4
Ellen Macarthur introduces idea of the circular economy (8-9 mins)

Product stewardship
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Examples
http://www.youtube.com/watch?v=IPQ9x_Y2of4 Description of closed loop plus example of interface 6:15

http://www.youtube.com/watch?v=VO-oO7uULcc
William McDonough gives a must see presentation showing that if design is an indication of intention then we have only the worst of intentions for humanity, life and the planet. 9:55

http://www.youtube.com/watch?v=hDOHExtc7WY
Example of Nike using closed loop 5:23

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Environmental change toolkits

CERES Principles 21st century corporation: the CERES roadmap for sustainability; (on BB/books) Certification e.g. ISO14001 The Natural Step: 7 step sustainability framework promoting sustainable organisations with Swedens Natural Step (on BB/books)
Elimination of waste Elimination of harmful emissions Use only renewable energy Adopt closed loop processes Use of resource-efficient transportation Energising all stakeholders around the vision Redesign of commerce so that a service is sold that allows the company to retain ownership of the product to maximise resource productivity

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Designing a performance management system that supports ethical conduct

Assuming people focus on behaviour that is rewarded, dont just reward results and outcomes, reward how - how were those results achieved? Translate organisational values into metrics, for which employees are held accountable

E.g. American Express tied its performance appraisal system directly to its values and codes of conduct e.g. employees rate their managers in terms of items like:
Treats others with respect is fair and objective Actively listens and incorporates input from others Acts with integrity Inspires the trust of the team, is reliable and consistent Talks openly and honestly

These ratings are used in promotion and compensation decisions, so hard to get ahead if you dont score highly In addition American express provides training for managers to gain these skills More informal methods also work well e.g. simple praise

The Balanced Scorecard

Kaplan & Norton's (192) four steps form the Balanced Scorecard design process:
1. Translating the vision into operational goals;

2. Communicating the vision and link it to individual performance;

3. Business planning; index setting

4. Feedback and learning, and adjusting the strategy accordingly.

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Using the balanced scorecard to integrate sustainability goals

International Post Corporation Responsibility for climate change, carbon management and emissions is clearly defined for almost all participating posts, with many also having individual energy and carbon metrics in senior manager performance appraisals and performance-related pay schemes. Akzo Nobel uses the Dow Jones Sustainability Index as their benchmark of sustainability performance for the purpose of rewarding senior managers. SC Johnson link executive pay to a robust measure of how well product executives are doing at greening their product lines and packaging.
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Linking remuneration to CSR goals

What kinds of metrics can be used to measure non-financial performance? Potential for unintended consequences
E.g. gaming, misrepresentation

Solutions?

Read: Reward: Linking sustainability to pay, WBCSD, 2010 Sustainable remuneration: a guide for linking sustainable goals (BB/books)
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Reading List
Corporate Social Responsibility: Readings and Cases in a Global Context. Edited by Andrew Crane, Dirk Matten, Laura Spence. Routledge, 2008. In library under HD60 CRA
Blackboard lots of articles/links, relating to the course content. Read 2+ articles.

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Learning Log
How has the session on CSR affected your Personal objectives and career plan and aspirations?

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