CORPORATE SOCIAL RESPONSIBILITY
(MGMT 334)
Department of Business Administration
Eastern Mediterranean University
Spring 2016-17
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4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
Introduction
The CSR Threshold
Where Do Firms Stand Today?
CSR Business Plan of Action – Short Term
CSR Business Plan of Action – Medium Term
Overview of Implementation
Implementation From a Strategic Perspective:
Planning
Implementation From a Firm Perspective: Action
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4.1
Introduction
• This chapter provides insights as to what a firm must do to integrate
strategic CSR into the organization’s culture and actions.
• That is, when and how does a company become more socially
responsible?
• We address the when by focusing on the CSR threshold, a tipping
point that triggers firms to move toward strategic CSR.
• Then we turn to the how by outlining the design, timing, and
implementation of strategic CSR, introducing the necessary
corporate infrastructure and key policy ideas.
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4.2
The CSR Threshold
• The decision of when to implement a CSR policy is
compounded by why, where, how, and by whom it should be
implemented.
• The industry context complicates things further because of the
varied stages of acceptance of CSR by different competitors.
• Although the value of an effective CSR policy within specific
industries and companies is becoming increasingly accepted,
the point at which such a policy becomes ripe for
implementation varies.
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• It varies with many factors, including:
•
•
•
•
the industry,
the current business environment,
the CEO’s attitude toward CSR, and
other factors.
• Companies can pursue an effective CSR policy for either offensive
or defensive reasons.
• The innovative, proactive CEO who is convinced of the intrinsic
value of CSR sees it as an opportunity that can maximize
company capabilities and identify new competitive advantages.
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Examples:
• Reduction of energy cost by innovative building design and
recycling policies.
• Raise of morale and increase in retention through employee
volunteer programs which reduce training cost.
• Companies with a progressive and innovative mind-set capable of
designing and implementing effective CSR policies see benefits,
ranging from being an attractive employer (helping retention and
recruitment) to greater acceptance among government agencies and
social activists.
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• On the defensive side, CSR still has value for a company, primarily
by avoiding criticism and other attacks on the firm or its
offerings.
• In this instance, CSR acts like a brand insurance policy,
minimizing or offsetting stakeholder disillusionment in response
to perceived lapses in CSR.
Either approach assumes an up-front investment in creating CSR
policies; however, when to introduce CSR into the strategic
process depends on the driving force behind its implementation.
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• For those managers convinced of the potential benefits of strategic
CSR, there is no time like the present. Innovative ideas and
policies that maximize market opportunities, minimize costs, and
increase productivity can produce immediate benefits.
• For managers yet to be persuaded of the argument for CSR and
reluctant to invest up front for potential future gains, however, the
temptation exists to look around at industry competitors and delay
as long as possible.
• Worse, cynical managers might see CSR as merely a public
relations exercise or, worse still, postpone hard CSR choices by
assuming they can avoid outlays for health insurance – a risky, if
not foolhardy, approach.
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• Neverthless, a crises point can arise. Once reached, and stakeholder
backlash becomes sufficient to warrant the introduction of a
reactionary CSR policy, it may be too late.
Summary:
• Firms introduce CSR for different reasons.
• Implementing CSR proactively throughout the firm generates the
business benefits listed above and may yield additional benefits
associated with first-mover status.
• The genuine implementation of CSR, whether for offensive or
defensive reasons, generates the insurance-like benefits, which
render CSR lapses less damaging if committed due to factors
outside the firm’s control.
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• Whatever the motivation, however, there is a CSR threshold in
every industry that acts as a last-resort, CSR point of no return.
• The sooner the CSR is introduced, the less likely a firm is to cross
this “tipping point,” which varies for each company (depending on
whether it is the market leader or a small player) and within each
industry (some industries are more suspectical to stakeholder
backlash than others).
• The variable nature of this CSR threshold suggests why some
companies perceive CSR to be of greater or lesser importance to
their particular organization.
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Question:
Why different companies and industries have different CSR
thresholds for different reasons?
Answer:
The business-level strategy a company pursues is key to
answering this question.
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The CSR Threshold – Variations Between Companies
• Analyzing a company’s business-level strategy reveals how it
distinguishes itself in the marketplace.
• Its value proposition is captured in its strategy and attracts
stakeholder groups, particularly customers.
• In turn, strategy has a direct impact on the CSR threshold for that
company within its industry.
value proposition: (in marketing) an innovation, service , or feature
intended to make a company or product attractive to customers.
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Competitive Advantage
Differentiation
Focused
Cost
Niche
Focused
Cost Leadership
Niche
Focused
Differentiation
Broad
Competitive Scope
Figure 4.1:
The Business-Level CSR
Threshold
Cost
Differentiation
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Let’s consider these comparisons using Figure 4.1:
• WalMart’s cost strategy probably raises the company’s CSR threshold;
that is it has more CSR leeway and can “get away with” more because
its value proposition is based on low cost. So, paying low wages to its
workers is not surprising for a Walmart customer.
• For Body Shop (which built its reputation and customer base on social
justice – e.g. no animal testing), the CSR threshold at which
customers, media, and society in general react may have a much lower
tipping point.
• Thus, The Body Shop’s stakeholders are more likely to have a lower
threshold of tolerance for perceived CSR violations.
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• As Figure 4.1 shows, business-level strategies can be divided
into those pursuing low costs and those pursuing
differentiation.
• The low-cost approach suggests an ability to deliver products
or services at a price below that of competitors.
• For example, Walmart gains its competitive advantage from
its “everyday low prices.”
• Differentiation strategies, however, seek to offer the customer
something unique, such as a luxury car from Rolls Royce.
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• The low-cost differentiation strategies can be further
categorized as either broad (e.g., wide product range) or
narrowly focused (e.g., pursuing only high-end cars, but not
SUVs, station vagons, or pickup trucks).
• As a result, Walmart has a scope of business that can be
labeled broad, while Rolls Royce’s offerings are focused.
• Overall, therefore, Rolls Royce’s business strategy offers a
differentiated products, focused on the niche market of
high-end cars, whereas Walmart’s strategy pursues cost
leadership (low costs) accross a broad base of customers.
• McDonald’s however seeks a focused strategy of low cost
(cheap food) and differentiation (fast service).
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• Whether a company pursues a cost- or differentiation-based
strategy shapes the firm’s CSR threshold (the point at which
CSR becomes obviously critical to strategic success).
• The most vulnerable strategy will be focused differentiation,
particularly for those products dependent on lifestyle
segmentation, such as products targeted at specific customers
based on their approach to life.
Example:
• Nike tries to associate its products with people who have a positive
and pysically active lifestyle.
• If Nike is seen as socially irresponsible by its target customers, they
are less likely to want to associate their lifestyle with these products.
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• Market segments, or niches, such as lifestyle brands, are
especially valuable to a company because they often rest more
heavily on subjective impressions (fashion) as opposed to
objective price and quality comparisons.
• Moreover, customers who associate the brand’s appeal with
their lifestyle are often willing to pay a greater premium for the
product.
• Yet, paradoxically, those able to pay this premium are precisely
those with the widest range of alternatives, backed by the
resources to make different choices.
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• Thus, a CSR-related failure that might inflict limited harm on
a firm relying on a broad, cost-based strategy could prove
significantly damaging to one reliant on a strategy of focused
differentiation.
• The petrolium industry offers another example. The nature of
this industry allows ExxonMobil to adopt a lower CSR profile
than either BP or Shell without penalty.
• This implies a higher CSR threshold for ExxonMobil because
it has both lower visibility among environmentalists and its
products are hardly differentiated from etiher BP’s or Shell’s.
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• As different companies range accross the Figure 4.1 (in the
direction of the shaded arrow) from cost- to differentiationbased strategies, the CSR threshold that they face is likely to
fall, making those firms more susceptible to stakeholder
backlash.
• This, therefore, increases the importance of an effective and
well-implemented CSR policy within the firm.
• A similar tendency is visible when analyzing the industries
within which these firms operate.
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The CSR Threshold – Variations Between Industries
• Different industries also evoke different stakeholder
emotions.
Example:
• A company operating within the apparel (clothing) industry
(with its reputation for sweatshop labor in developing
countries) may face a higher CSR threshold if it sells
unbranded clothing based on low cost.
• But the CSR threshold may drop dramatically for a company
using a focused diferentiation strategy that offers a “lifestyle
brand” aimed at well-to-do customers who have choices and
include more than just cost in their value calculations.
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• If a well-known fashion brand is seen as violating CSR
expectations, customers can quickly abandon the brand and
products by shopping elsewhere.
• But a large nonbranded producer, particularly one offering just
low-cost styles, may have a much higher threshold, simply
because the connection between product, brand, and customer
aspirations is weaker.
• By comparison, in the financal or banking industry (with
strategy of broad differentiation), the CSR threshold may be
relatively higher than for apparel.
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• Here, it may be harder for consumers to identify a victim or
accurately quantify the degree of harm caused by any CSR
violation.
• The issues that determine the CSR threshold for an industry
seem more complicated than those for individual compaies,
with specific industries being more vulnerable than others.
• Indeed, a number of industries have already passed their CSR
threshold, which has forced companies operating within those
industries to take significant corrective action.
Examples:
• fast-food industry talking about benefits of health foods.
• Tobacco companies warning against dangers of smoking in it
advertising campaigns.
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The CSR Threshold – Variations Between Cultures
• CRS threshold driven by different cultural expectations
among different societies complicate the picture.
Example:
• In USA, legal action determined the CSR thresholds for the tobacco and
fast-food industies.
• In Europe, it is NGO and nonprofit activism that has largely driven the
CSR agenda.
• In much of the developing world, however, the perception of
CSR revolves around issues of corporate philanthropy.
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• Given these differences, however, globalization and the free
flow of information help drive down CSR thresholds accross
the board and across cultures (reducing stakeholder tolerance
and increasing the chance of backlash) as the news media
expose corporate CSR lapses.
• This greater availability of information helps forge, for better
or worse, a more recognizable link between stakeholders and
the company or product.
• Furthermore, as levels of affluence and living standards rise
generally, the CSR threshold is likely to become lower.
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• The combination of globalization, rising living standards, and
media applications of first-world standards to developing world
operations suggest that an effective CSR policy, which prevents
CSR lapses and insulates against stakeholder backlash, is
increasingly advisable for all firms and will grow in importance
as these trends continue into the future.
• To provide business benefit to the firm and avoid or at least
minimize negative publicity and societal backlash, the best
practice is to implement a proactive CSR policy.
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4.3
CSR Business Plan of Action-Short Term
• The urgency with which CSR policies are implemented depends
on the perceived CSR threshold and the priority the issues holds
with the firm’s leaders.
• Implementation is integrating a stakeholder perspective into all
aspects of operations, thus protecting the investments
corporations make in their public image, investor confidence,
and brands.
• The eventual goal should be for CSR to form an inherent
component of a business’s culture, as reflected in its day-to-day
operations.
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The following steps offer an overview of how any corporation can
further the integration of CSR into its operational culture.
From the Top Down With Sincere Commitment
• The CEO must establish the necessary components of an
effective CSR policy and ensure that CSR is institutionalized
within the firm as a core component of day-to-day operating
practice.
• Ideally, the CEO will consider him/herself the chief CSR
officer.
• At a minimum, the CEO must remain in touch with the
effectiveness of the company’s CSR policy by receiving regular
updates, while granting a clear line of access to the top for the
CSR officer. This commitment from senior management is
crucial for effective implementation (see Enron case, page 70).
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CSR Officer
• Top-management support must be translated into tangible action.
• CSR needs both visibility and sponsorship within the
organization.
• Backing by the CEO equals sponsorship, and the creation of a
CSR officer position staffed by a company executive (and with a
direct reporting relationship to the board of directors) creates
visibility.
• The CSR officer defines, implements, and audits the company’s
CSR policies. This includes assisting with legal and regulatory
compliance, as well as compliance with discretionary
configurations (e.g., ISO standards – 9000 and 14000). It also
includes input to strategy formulation.
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• All these policies need an organizationwide perspective to
ensure effective implementation and dissemination of benefits
and goals.
• Ideally, the CSR officer must create awareness with a blend of
rewards and, where necessary, penalties to organizational
members who act in contrary ways.
• The CSR officer will need to develop contingency plans for the
unexpected emergence of CSR crises.
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CSR Position Statement
• All stakeholders (internal and external) need to understand the
firm’s CSR position and how that stance affects them.
• The value of a statement outlining the vision and mission for
the organization is part of the awareness process.
Equally important for the company’s CSR direction is a CSR
position statement. The develoment of an effective CSR position
statement:
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• Engages the organization’s key stakeholders to determine
their perspective.
• Helps map out a conflict resolution process that seeks
mutually beneficial solutions
• Involves the CEOs necessary endorsement and active
support
• Reinforces the importance of CSR through rewards and
sanctions
• Provides policies on how CSR is to be implemented on a
day-to-day basis
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Awareness Creation: Measurement and Rewards
• Collectively, top-management support, the creation of a senior
executive CSR position, and the elaboration of a CSR position
statement address a critical element in implementing CSR awareness.
• Many CSR violations arise from decision makers at different levels
of the organization sincerely trying to make good decisions for the
organization.
• Faced with a choice between a minor violation of company rules
about pollution, for example, or meting a key performace deadline,
a decision maker at any level of the firm might make a tradeoff
that results in a CSR backlash.
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Why?
• Because in most firms, rewards (e.g., pay, promotions,
bonuses) are based on performance results, not CSR
compliance.
• If an incentive is tied to meeting a goal and CSR is neither
measured nor rewarded, reasonable people inside the firm
conclude that CSR is of secondary importance, whether it is
or not.
Example: Third World subcontractors to Nike
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• Whether internal to the firm or subcontractors, rewards and
measures serve a fundamental role in changing the
organizational culture to one of greater sensitivity to CSR.
• The creation of rewards and measures, particularly if those
involved in applying CSR standards are involved in their
development, increases awareness of CSR and its profile within
the firm.
• Then, the reporting of CSR measures and assignment of
rewards further reinforce CSR as part of the firm’s strategy.
• These measures become part of the basis for auditing the firm’s
CSR performance.
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CSR Audit and Report
• A genuine organizationwide CSR audit, with published results,
furthers awareness among internal and external stakeholders.
For example:
• environmental audits results included in companies’ annual
reports; consumers demand accountability for the
environmental consequences of businesses’ actions.
• In general, poor countries often put economic needs ahead of
environmental controls. Why? Discuss.
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• As consumer and employee choice increase (related to increased
affluence), the willingness to accomodate undesirable behavior
decrease.
• Although many companies recognize the importance of being
held publicly accountable for the consequences of operations,
this realization does not always permeate the countless tactical
decisions made by employees throughout the firm.
• The result can be lapses in a firm’s CSR.
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Figure 4.3: A Broader Perspective: The CSR-Focused Triple Bottom Line
A Company’s Annual Report
Financial
CSR –
Focused
Strategic
Perspective
Environmental
Social
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Figure 3.4 suggests the entirety of the CSR auditing process.
A company wanting to be transparent and accountable with
respect to all of its stakeholders should seek to expand the scope
of its annual report to incorporate the “triple bottom line”:
in equal parts, a consideration of a company’s financial,
environmental, and social performance – all centered on a CSRfocused strategic perspective.
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CSR Ombudsman
• A key component of the continuous internal reinforcement
necessary for a CSR policy to remain effective is an
anonymous feedback – complaint - whistle-blowing procedure.
• This process should be available via a third party or CSR
ombudsman.
• A number of independent companies have emerged offering to
provide this service (often online) to firms wishing to contract
it out. (www.shareholder.com)
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• An independent third party performing this job is ideal
because it guarantees the protection of employees’
identities, which prevents retaliation from within the
organization.
• This infrastructure encourages the reporting of any
breeches of policy, particularly in terms of ethics
compliance, that would affect the company’s stated CSR
position.
• It should also encourage positive feedback in the form of
contributions and ideas from employees, who are often best
placed to evaluate the organization’s CSR policies in
action.
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CSR Framework – Organizational Structure
• In order for all these CSR elements to coalesce (come together to
form a mass) into an effective CSR policy that represents
stakeholder interests within strategic decision making process of
the firm, and organizational CSR framework is essential.
• The CSR effort must have visibility.
• Ideally, the day-to-day operationalization of CSR demands the
direct involvement of top management with board commitment
and oversight.
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• Evidence among firms of the growing importance of CSR
will be found when the board of directors puts CSR on the
same level as other key corporate governance issues, such as
the integrity of the firm’s financial information.
• Further, the access of the CSR officer to the CEO, with a
direct reporting relationship to the board of directors, suggests
further operational and symbolic support for CSR.
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4.5
CSR Business Plan of Action – Medium Term
Beyond minimum start-up conditions for CSR, the organization must
seek to institutionalize and externalize the subsance of its CSR
policies.
Over the medium to long term, the organization should communicate
its perspective, while seeking feedabck from stakeholder groups to
make them feel both informed and involved.
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Stakeholder Involvement
• All large, publicly held corporations have well-developed investor
relations departments. Keeping investors (main stakeholders) happy
became a central issue for CEOs.
• This should be expanded to other stakeholders.
• One approach would be to change the focus of the investor relations
department to become the “stakeholder relations department.”
• The goal should be to develop relationships with all stakeholder
interests, including NGOs. External activists demand attention from
these stakeholder relation departments.
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Manage the Message
• Strategic CSR is more than mere public relations.
• Communicating a company’s CSR efforts to the outside world is a
sensitive area.
• Excessive self-promotion soon comes to be interpreted as a cynical
effort of going through the CSR motions only to receive the public
relations benefits.
• Avoiding the impression of spin is crucial; however, it is also
important to let stakeholders know that the company values their
input and interests.
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• The aim is to meet stakeholder expectations by matching promises
with reality.
• Examples of companies that have failed to take the lead in
determiing the public perception of their organization are many.
• Often the perception of a company in the public mind, once created,
is difficult to shift.
Example: Nike
• Because of the early lapses, the company continually finds itself
having to play catch-up, with some stakeholders refusing to grant
the company any concessions at all.
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Corporate Governance
Transparency and accountability have become the watchwords of
effective corporate governance, which also become a vital aspect of
an effective CSR policy.
Increased legal requirements reinforce this change in sentiment for all
but the most narrow-sighted of corporate boards.
However, equally important is the ability to move ahead of today’s
legal requirements and anticipate the legal expectations of tomorrow.
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4.6
Overview of Implementation
The primary CSR responsibility of the CEO is to actively support CSR
and the CSR officer.
The CSR officer’s role is to hold the company accountable to its own
CSR position statement.
The main method of achieving this is to conduct a substantive, annual
CSR audit of the company.
Such verifications is advised and may become necessary for firms that
have lost credibility because of past actions.
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4.6
Implementation from a Strategic Perspective: Planning
The implementation of CSR begins with the annual planning process.
Most firms undertake strategic planning usually on an annual basis.
The planning process seeks to identify targeted goals, strategies to
attain those goals, and an allocation of financial, human, and other
resources in pursuit of those goals.
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Long-range planning and goal setting begin early in the calender
(or fiscal) year of the firm.
Long-range has different meanings from one industry to another
(e.g., in electricity it is between 10 to 15 or more years)
The goal of long-range planning is to agree on the future
objectives the firm will seek.
In turn, business goals (growth rates, market share, and the like)
must be translated into realizable objectives for each business
unit and within these units for operating and support groups –
frm production to finance to human resource departments.
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Long-term goals and their strategies for attainment must then
be translated into more specific, short-term objectives.
Ideally, short term objectives are SMART:
•
•
•
•
•
Specific
Measurable
Action-oriented
Responsible
Time-targeted
Then, the resources necessary to implement these objectives are
allocated.
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4.7
Implementation from a Firm Perspective: Action
At the firm level, CSR is meaningless unless it is translated into action.
Public relations releases to the media, speeches to employees or
trade groups, or assertations of CSR in annual reports are not the end
goal of CSR, necessary as they may be to raise awareness within the
firm and the larger environment of stakeholders.
CSR must be operationally integrated into the firm’s day-to-day
activities.
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REVIEW QUESTIONS
1.
What is meant by the phrase “CSR as brand insurance?” Discuss.
2.
Why do some firms and industries have diferent “CSR thresholds” than others?
Explain in detail.
3.
What role do stakeholders play in establishing the level of the CSR threshold for a
particular firm or within a particular industry?
4.
Why is top-management support for CSR so critical? Can CSR be delegated? If so,
why and to whom?
5.
What elements should be present for a firm to change the organizational culture
toward a more CSR outlook? Which one do you think is the most important? Why?
6.
How does a firm avoid the perception that its CSR report is merely a public
relations-generating ideas? Does it matter whether the reasons behind an action
are genuine or cynical if the outcome is the same?
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