Corporate Social Responsibility

Lesley Muir

25th January 2010

Role of Business

• Pure profit making – economic responsibility. Businesses obey the law but have lower ethical standards (Smith) – invisible hand

• Constrained profit making - Wealth for shareholders, obey the law and act ethically (Friedman)

• Socially aware – show sensitivity to stakeholders, be aware of possible harm

• Community service – use vast resources for social good – (social enterprise)

• One vs two way relationships in communication context

Firm is pure profit making – ANTI CSR

Firm as an instrument of social policy – PRO CSR

Win-win

Economic Role in Society• Operating models - Input-output vs. stakeholder models

– Financial gain, instrumental, one way into firm

– Financial and social, instrumental and normative, two-way relationships

• Novak (1996) key economic responsibilities:

– Satisfy customers: value

– Generate returns for investors

– Create wealth; and create and maintain jobs

– Generate upward mobility - sense of aspiration for future

– Promote innovation

– Avoid monopolistic situations which disadvantage customers

– Extra-legal social responsibilities:

• Communicate with stakeholders

• Establish community among employees

• Protect moral ecology i.e. advertise ethically

What is CSR?• Calculated philanthropy? – Philip Morris• Behaving in a way that meets the expectations for a

company in your industry and markets to better the interests of stakeholders broadly - Edelman

• CSR is about how companies manage their business processes to produce an overall positive impact on society – Mallen Baker BITC

• Management activity concerned with actively working to develop positive and sustainable business practices, minimising the impact of an organisation upon its environment – Labour Government

• The Economist – good management• Usually 3 focal points – environment, community and

employees

CSR in Practice

• Sustainability

• Community relations

• Issues management

• Cause-related marketing

• Employee engagament

• Employee volunteering

• Donations / sponsorship

Why is CSR significant?• Greater Access to Information

– more educated and informed publics – awareness of regulation– media globalisation – “the CNN world”– decline of public trust in big institutions

• Activism: anti-globalisation, anti-corporate – No Logo generation – Consumer pressure as a force for change – 51% talked about company behaviour to peers (Mori 2002)– 32% advised someone not to use a company for “irresponsible behaviour”– ¼ of people worldwide had “punished” a company for ‘unethical’ behaviour

Mori (1999)• Legitimacy gap between corporate behaviour and social expectations

– Boardroom corruption, environmental impacts, – Unethical practices

• Prevention of reputation damage– Rebuild trust, license to operate?– Obvious role for corporate communications

Crisis of Trust - 2005

• Growth of information society corresponded with decline in trust?

• “Democratisation” of trust– Edelman Trust Barometer - 10th year– Highly trusted groups today: NGOs, Internet blogs, “a person like

myself” - peer opinions “Kevin”, local and PSB media, traditional community figures, TV vs. other media forms, employees

– Credibility of peers rose from 22% in 2003 to 56% in 2005 – US and 33% in 2003 to 53% in 2005 - Europe

– Poorly trusted: government, international, commercial media, [US] companies (culture and values), institutions and authority

– Declining trust in corporations – linked to reputation

Trust Today• 2009 report - Jan 2010• Reached rock bottom levels - effects of economic crisis

– 4.5K global ABC consumers • 62% trust business less than year ago, governments are worse• Lower than after Enron and dot com crash• US worst decline - 38% “trust business to do what’s right” (down 20%,

~Europe - 36%)• 66% think business has responsibility to resolve global issues with

governments• aged 25-34 trust business more than older consumers

– Trust divide - Europe/US vs Asia• China/Indonesia/Brazil - average 69% trust business

– NGOs are most trusted institutions– Outside experts - doctors, academics - important allies to help

restore trust in business• US - 17% trust CEOs

– Media trust declined - TV coverage 36%, newspapers 34%

Restoring Trust

• Foundations to build trust– Consistency - transparency– Dialogue - mutual understanding– Time

• Public engagement strategy– 4 pillars: private sector diplomacy, mutual SR, shared

sacrifice, frequent communications

• Contributor not controller• Say and do as you say….

Diagram illustrating position of the win -win zone in mixed motive communication

1

Organisation’s Position

Public’s Position

WIN-WIN ZONE

MIXED MOTIVE (SYMMETRIC)

Organisation’s position dominates (strategic action)

Public’s position dominates (communicative action)

2

3 3

CSR Classification

Sk/der good

Firm’s good

Mandatory Optional

Strategic CSR

Ethical CSR

Altruistic CSR

Ethical Altruistic Strategic

Mandatory Optional – affirmative duties

Optional – need for targeted approach

Meeting social obligations

Outside scope of firm’s obligations

Enlightened self-interest

Beneficial for firm and society.

Nothing remarkable

Beneficial for society damaging for firm.

Rare

Beneficial for firm and society.

Minimise govt intervention

Minimum level of CSR

Unethical use of resources

Win win

Why do CSR?• Martin (2002) Virtue Matrix• Evaluate CR opportunities• Globalisation heightens CR anxieties – shifting frontiers

FRONTIER - INTRINSIC

CIVIC - INSTRUMENTAL

Structural e.g. P&G anti bribery

Compliance Choice i.e. workplace crèche

Strategic i.e. GSK Prudential

Should firms do CSR?• Ethical vs altruistic vs strategic?• Lantos (2002) only if PR driven - altruistic CSR only ethical for private firms• Porter and Kramer (2002) – strategic CSR can bring competitive advantage

– Channel activities to improve competitive context– Argue Friedman et al only right if philanthropy is “non-strategic” – Flawed by 2 implied assumptions that:

• Social and business objectives are always separate and distinct• Firms can contribute no greater benefit than individual donors

– P&K say improve competitive context improves long term profits plus diffuses critics in non-market groups.

– 4 elements of competitive context: • factor conditions e.g. Dreamworks• demand conditions e.g. Apple• context for strategy and rivalry e.g. Portman Group• clustering for related and supporting industries e.g. UK car manufacturers

– Cisco (factor improvement) vs Avon (cause related marketing)– Acid test for CSR – would you still do it anyway if no-one knew about it?

Values

Policies, procedures and

processes

Vision – org identity,

objectives etc

Objectives, stakeholder priorities, corporate competencies

CSR Prog CSR Drivers

S/h attitudes and behaviours

Business Outcomes

Social Outcomes

Reputation

Employee behaviour and motivations

Customers

Employees

Govt

NGOs

Community

Suppliers

Investors

Revenue

•Preference

•Retention

•Productivity

Cost

•Emp retention

•Red wastage

Risk

•Legitimacy

•Disaster

•Rev Volatility

Source: Knox and Maklan (2004)

Linking CSR to Business Outcomes

Criticisms of CSR• Highly complex and fraught with issues

– Main benefits are poorly evidenced as attitudes not behaviours

• L’Etang 2 main types – crisis and community– Moral frameworks uncritically applied

• Utilitarian (self interest) vs deontological (duty)• Distinguish truly “moral” CSR

– CSR just a tactic of PR for relationship development and image management

• Poorly communicated – non-standardised reporting• Lack of business integration to see benefits

– Outcomes vs actions

Evidence CSR Works

• Greater total shareholder returns– CR Index participants outperformed FTSE 350 between 2002-07

by up to 8% in TSR – (5 and 10% sig)

• Lower stock market volatility– Over 6 years, higher CR scores meant company better managed

social and environmental issues (5% sig)

• Dow Jones Sustainability Index 2008– +ve correlations plus significant impact on “cost of external

financing, return on capital, sales growth and fade rate of competitive advantage”

• Increased importance in boardrooms– 2002 – 13% CR on board vs 60% in 2007

• Source: Mori/BITC report 2008

Current issues in CSR

• CSR: Measuring the triple bottom line– How? – Schneitz & Epstein (2005) study – CSR had “insulating

effect”, creating a “reservoir of goodwill”

• Communication of CSR activities (Dawkins, 2004)– Communication is missing link – balance– Tailored communication approaches

• Attract employees, investment evaluations, consumer marketing

– Consider source and intensity• Employee communication – ambassadorial approaches• 88% expect to see CSR reporting

Is CSR still relevant?• FT - The hot air of CSR• BITC: how you do business is what counts

– Building mutual trust– Focus on values and culture– Sustainability – including business practices!– Governance and regulation

“Customers want to do business with those they trust; employees want to work for businesses whose values they share; local authorities want people as neighbours who do well so I think as we go through these very tough times one has to watch what business is doing and how it’s responding.”Dame Julia Cleverdon, Vice President, Business in the Community

Diagram illustrating position of the win -win zone in mixed motive communication

1

Organisation’s Position

Public’s Position

WIN-WIN ZONE

MIXED MOTIVE (SYMMETRIC)

Organisation’s position dominates (strategic action)

Public’s position dominates (communicative action)

2

3 3

Award Winning Case Studies

• Environment and Education

• Workplace Safety

• Health