7/11/11 1 Welcome to CSR Masterclass Regents College July 11-12 th 2011 Instructor: Sean Flynn One 4 All CSR Managing Director MBA International Business MA International Non-governmental Organizations Introduce Yourself Name Occupation Nationality Why you choose to take the course? Key Terms Corporate Citizenship Social Responsibility Responsiveness Performance The CSR Concept Arguments For and Against Corporate Social Responsibility Corporate Social Responsiveness Corporate Social Performance (CSP) Nonacademic Research on CSP Social Performance and Financial Performance Socially Conscious or Ethical Investing Summary Outline The Evolving Idea of Social Responsibility The fundamental idea is that corporations have duties that go beyond carrying out their basic economic function in a lawful manner. Over time the doctrine has evolved to require more expansive action by companies largely because: Stakeholder groups have gained more power to impose their agendas The ethical and legal philosophies underlying it have matured Corporate social responsibility The duty of a corporation to create wealth in ways that avoid harm to, protect, or enhance societal assets. Social Responsibility in Classical Economic Theory Throughout American history, classical capitalism has been the basic inspiration for business. In this view, a business is socially responsible if it maximizes profits while operating within the law. The idea that markets harness low motives and work them into social progress has always attracted skeptics. Today the classical ideology still commands the economic landscape, but ethical theories of broader responsibility have worn down its prominences.
Transcript
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Welcome to CSR Masterclass
Regents College July 11-12th 2011
Instructor: Sean Flynn One 4 All CSR Managing Director MBA International Business MA International Non-governmental Organizations
Introduce Yourself
l Name l Occupation l Nationality l Why you choose to take the course?
Key Terms
l Corporate Citizenship l Social Responsibility l Responsiveness l Performance
l The CSR Concept l Arguments For and
Against Corporate Social Responsibility
l Corporate Social Responsiveness
l Corporate Social Performance (CSP)
Nonacademic Research on CSP
Social Performance and Financial Performance
Socially Conscious or Ethical Investing
Summary
Outline
The Evolving Idea of Social Responsibility
The fundamental idea is that corporations have duties that go beyond carrying out their basic economic function in a lawful manner.
Over time the doctrine has evolved to require more expansive action by companies largely because:
Stakeholder groups have gained more power to impose their agendas
The ethical and legal philosophies underlying it have matured
Corporate social responsibility The duty of a corporation to create wealth in ways that avoid harm to, protect, or enhance societal assets.
Social Responsibility in Classical Economic Theory
Throughout American history, classical capitalism has been the basic inspiration for business.
In this view, a business is socially responsible if it maximizes profits while operating within the law.
The idea that markets harness low motives and work them into social progress has always attracted skeptics.
Today the classical ideology still commands the economic landscape, but ethical theories of broader responsibility have worn down its prominences.
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The Early Charitable Impulse
Most colonial era businesses practiced frugality, yet charity was a coexisting virtue.
The wealthy endowed social causes as individuals, not through their companies.
Steven Girard changed the climate of education in the United States by bequeathing $6 million for a school to educate orphaned boys.
John D. Rockefeller systematically gave away $550 million over his lifetime.
Andrew Carnegie gave $350 million over his lifetime to causes that would elevate the culture of a society.
Carnegie believed fortunes should not be wasted by paying higher wages or giving gifts to poor people.
The Early Charitable Impulse (continued)
People such as Andrew Carnegie and Herbert Spencer believed in the doctrine of social Darwinism when it came to charity.
Social Darwinism held that charity interfered with the natural evolutionary process in which society shed its less fit to make way for the better adapted.
Additionally, courts consistently held charitable gifts to be ultra vires (beyond the law) because charters granted by states when corporations were formed did not expressly permit them.
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Social Responsibility in the Late Nineteenth and Early Twentieth Centuries
Giving, no matter how generous, was a narrow kind of social responsibility often unrelated to a company’s impacts on society.
During the Progressive era, three interrelated themes of broader responsibility emerged:
Managers were trustees Managers had an obligation to balance multiple
interests Many managers subscribed to the service principle
Social Responsibility in the Late Nineteenth and Early Twentieth Centuries (continued)
Henry Ford – touted citizenship but was ultimately unconcerned about the welfare of his employees.
General Robert E. Wood – believed in responsibility to customers, the public, employees, suppliers, and finally stockholders.
1920s and beyond, organized charities began forming to which corporations contributed:
Community Chest Red Cross Boy Scouts
1950–The Present
Contemporary understanding of corporate social responsibility formed during this period.
Social Responsibilities of the Businessman Dissenters to this theory were conservative economists
who claimed that business is most responsible when it makes money efficiently, not when it misapplies its energy to social projects.
1971 – Bold statement by the Committee for Economic Development outlining three concentric circles of responsibilities.
1981 – Statement on Corporate Responsibility from the Business Roundtable.
Corporate Social Responsibility (CSR)
Preliminary definitions of CSR l The impact of a company’s actions on
society l 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
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Corporate Social Responsibility (CSR)
Corporate Citizenship Concepts l Corporate social responsibility –
emphasizes obligation and accountability to society
l Corporate social responsiveness – emphasizes action, activity
l Corporate social performance – emphasizes outcomes, results
More Definitions
l CSR means addressing the legal, ethical, commercial and other expectations society has for business, and making decisions that fairly balance the claims of all key stakeholders. (Business for Social Responsibility)
l CSR is the continuing commitment by business to behave fairly and responsibly, contributing to economic development while improving the quality of life of workers, their families, the local community, and society at large. (European Commission's Green Paper).
Why CSR?
l To meet federal regulations l To meet public’s cries for ethical behavior l To provide an assurance to socially
responsible investors l To prevent unethical conduct which can
have serious reputation and financial costs
Consequences of Bad CSR
l Consider Martha Stewart, Enron, WorldCom etc. etc.
l In all cases, companies are suffering bad publicity
l – Others have to pay fines l Evidence that unethical behaviors hurt
companies in the long run
Critics of (CSR)
“CSR is nothing more but big business
cynical response to charges of greed and corruption indented to mollify those who say corporations have too much power.”
l What do you think??
Believers of CSR:
“CSR stands for dawning of a new era of capitalism, when business, government, and citizens join forces for greater good – to do something about water shortage, air pollution, and 1,2 billion people who live on less than a dollar a day.”
l What do you think??
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Other Arguments Against CSR
l Social issues are not the concerns of businesses – – Management’s role is to make as much money as
possible while conforming to the basic rules of society, both of those embodied by law and ethics
l Managers do not have the expertise to make social decisions – they are oriented towards finance and operations
l Business already have enough power – if given decision making power in the social domain, businesses will be given too much power
Why are businesses being criticized?
l Most Society is pluralistic -Prevents power being concentrated in the
hands of a few – There are diverse institutions pursuing
their own interests l Businesses have to satisfy all of the
autonomous groups l Businesses have to make all stakeholders
happy
Does it pay to be good?
Lets find out...
Business Importance of CSR:
l Improved Financial Performance
l Reduced Operating Costs
l Enhanced Brand Image and Reputation
l Increased Sales and Customer Loyalty
l Increased Productivity and Quality
l Increased Ability to Attract and Retain Employees
l Access to Capital
Improved Financial Performance
l A recent longitudinal Harvard University study has found that "stakeholder balanced" companies showed four times the growth rate and eight times employment growth when compared to companies that focused only on shareholders and profit maximization.
Enhanced Brand Image & Reputation
l A company considered socially responsible can benefit -both by its enhanced reputation with the public, as well as its reputation within the business community, increasing a company's ability to attract capital and trading partners. For example, a 1997 study by two Boston College management professors found that excellent employee, customer and community relations are more important than strong shareholder returns in earning corporations a place an Fortune magazine's annual "Most Admired Companies" list.
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Increased Sales and Customer Loyalty:
l A number of studies have suggested a large and growing market for the products and services of companies perceived to be socially responsible. While businesses must first satisfy customers' key buying criteria - such as price, quality, appearance, taste, availability, safety and convenience. Studies also show a growing desire to buy based on other value-based criteria, such as " sweatshop-free" and “child labor-free” clothing, products with smaller environmental impact, and absence of genetically modified materials or ingredients.
Increased Ability to Attract and Retain Employees
l Companies perceived to have strong CSR commitments often find it easier to recruit employees, particularly in tight labor markets. Retention levels may be higher too, resulting in a reduction in turnover and associated recruitment and training costs. Tight labor markets as well the trend toward multiple jobs for shorter periods of time are challenging companies to develop ways to generate a return on the consideration resources invested in recruiting, hiring, and training.
Reduced Regulatory Oversight
l Companies that demonstrate that they are engaging in practices that satisfy and go beyond regulatory compliance requirements are being given less scrutiny and freer reign by both national and local government entities. In many cases, such companies are subject to fewer inspections and paperwork, and may be given preference or "fast-track" treatment when applying for operating permits, zoning variances or other forms of governmental permission.
Easier Access to Capital
l The Social Investment Forum reports that, in the U.S. In 1999, there is more than $2 trillion in assets under management in portfolios that use screens linked to ethics, the environment, and corporate social responsibility. It is clear that companies addressing ethical, social, and environmental responsibilities have rapidly growing access to capital that might not otherwise have been available.
CSR = SD ?
l Sustainable Development (SD) – in the spirit of the 1987 Brundtland report – is a framework in which not only environmental, but also economic and social indicators are interlinked
Corporate Social Responsibility (CSR)
Business Criticism/ Social Response Cycle Factors in the Societal Environment
Criticism of Business
Increased concern for the Social Environment
A Changed Social Contract
Business Assumption of Corporate Social Responsibility
Social Responsiveness, Social Performance, Corporate Citizenship
A More Satisfied Society
Fewer Factors Leading to Business Criticism
Increased Expectations Leading to More Criticism
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CSR: Just Good Business ?
l The Feelgood Factor n Philanthropic giving
n Donating to charitable causes n Helping other to help your self
n Emergency help
n Social Responsible Investing n Environmental matters and climate change
Corporate Social Responsibility (CSR)
Historical Perspective l Economic model – the invisible hand of
the marketplace protected societal interest
l Legal model – laws protected societal interests
Corporate Social Responsibility (CSR)
Historical Perspective l What was the main motivation?
– To keep government at arms length
Corporate Social Responsibility (CSR)
Evolving Viewpoints l CSR considers the impact of the
company’s actions on society (Bauer) l CSR requires decision makers to take
actions that protect and improve the welfare of society as a whole along with their own interests (Davis and Blomstrom)
Corporate Social Responsibility (CSR)
Evolving Viewpoints l CSR mandates that the corporation has
not only economic and legal obligations, but also certain responsibilities to society that extend beyond these obligations (McGuire)
Corporate Social Responsibility (CSR)
Evolving Viewpoints l CSR relates primarily to achieving outcomes
from organizational decisions concerning specific issues or problems, which by some normative standard have beneficial rather than adverse effects upon pertinent corporate stakeholders. The normative correctness of the products of corporate action have been the main focus of CSR (Epstein)
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Corporate Social Responsibility (CSR)
Carroll’s Four Part Definition l CSR encompasses the economic, legal,
ethical and discretionary (philanthropic) expectations that society has of organizations at a given point in time
Pyramid of CSR
Philanthropic Responsibilities Be a good corporate citizen.
Ethical Responsibilities
Be ethical.
Legal Responsibilities Obey the law.
Economic Responsibilities
Be profitable.
Modeling the context
l Premodern - Minimalist - Self Interested
l Modern - The social contract
l Postmodern - Stakeholder (management and stewardship)
Pre-modern
l TRADITIONAL ENTREPENEURIAL l Power goes to those who succeed in “the
jungle” l Authority resides in those with legitimacy–
size; wealth; longevity confers authority l Ethics based on individual responsibility
and programs minimized
Modern l COMMUNITY OF RATIONAL RULES i) BUREAUCRATIC ii) SCIENTIFIC MANAGEMENT iii) RELIANCE ON "EXPERTS" iv) COMPREHENSIVE RULES Power goes to those who make the rules. Relies on
expertise Authority goes to those who can enforce their rules Reach
for the top Ethics are based on “fairness’ and programs based on
rules
Postmodern
l COMMUNITY OF FLEETING EXCHANGES i) NEED TO INTERPRET ii) NEED TO BUILD CONSENSUS iii) LOOSE CONNECTIONS iv) SUSPICION OF AUTHORITY Power goes to those who can “make the deal” through
networking and can handle uncertainty Authority goes to those who see and can sell coalitions
and deals regardless of other levels of authority Ethics are situational; programs emerge to be responsive
PREMISES l -CARING FOR TERTIARY l -HELP NON-BENEFICIAL PARTIES l -HOLD IN TRUST l -ASPIRE TO HIGH IDEALS *ALL OF THIS PRESUPPOSES TIME & MONEY
Critiques of alternate
l -1ST 2 MODELS TOO PROFIT-FOCUSED
l -Social Contract MODEL TOO VAGUE
Corporate Social Responsibility (CSR)
CSR in Equation Form Is the Sum of:
Economic Responsibilities (Make a profit) Legal Responsibilities (Obey the law) Ethical Responsibilities (Be ethical) Philanthropic Responsibilities (Good corporate
citizen) CSR
Corporate Social Responsibility (CSR) Stakeholder View
Stakeholder Group Addressed and Affected
CSR Component
Owners Con- sumers
Employees Community Others
Economic 1 4 2 3 5
Legal 3 2 1 4 5
Ethical 4 1 2 3 5
Philanthropic 3 4 2 1 5
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Corporate Social Responsibility (CSR) Arguments Against
l Restricts the free market goal of profit maximization
l Business is not equipped to handle social activities
l Dilutes the primary aim of business
Increase business power
Limits the ability to compete in a global marketplace
Corporate Social Responsibility (CSR) Arguments For
l Addresses social issues business caused and allows business to be part of the solution
l Protects business self-interest
Limits future government intervention
Addresses issues by using business resources and expertise
Addresses issues by being proactive
Corporate Social Responsibility (CSR) Business Responsibilities in the 21st Century
l Demonstrate a commitment to society’s values and contribute to society’s social, environmental, and economic goals through action.
l Insulate society from the negative impacts of company operations, products and services.
l Share benefits of company activities with key stakeholders as well as with shareholders.
l Demonstrate that the company can make more money by doing the right thing.
Corporate Social Responsiveness
Evolving Viewpoints l Ackerman and Bauer’s action view l Sethi’s three stage schema l Frederick’s CSR1, CSR2, and CSR3
l Epstein’s process view
Corporate Social Performance Carroll’s CSP model integrates economic concerns into a social performance framework
Corporate Social Performance
Extensions and Reformulations l Wartick and Cochran’s extensions l Wood’s reformulations l Swanson’s Reorientation
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Corporate Social Performance Corporate Social Performance Nonacademic Research
l Fortune's ranking of most and least admired corporations
l Council on Economic Priorities Corporate Conscience Awards
l Business Ethics Magazine Awards l WalkerInformation’s Research on the
impact of social responsibility
Corporate Citizenship
Corporate citizenship embraces all the facets of corporate social responsibility, responsiveness and performance
Social and Financial Performance A Multiple Bottom-Line Perspective
Spectrum of CSR
Good CSR Poor 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
Socially Conscious or Ethical Investing
Social screening is a technique used to screen firms for investment purposes
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CSR Watchdogs … l CSR Watchdogs include Labor Unions,
Consumer Groups, Environmentalists, NGOs and all “Stakeholders” watching over their interest as opposed to “Shareholder value” only
CSR Auditing & Reporting Examples of emerging CSR standards include:
l AccountAbility’s AA1000 standard
(triple bottom line reporting) l Dow Jones Sustainability Index l FTSE Group’s FTSE 4Good index l Global Reporting Initiative (GRI) l ISO 26000 Social Responsibility Standardization l Social Accountability International’s
SA8000 standard l UN Global Compact
Selected Key Terms l Business for Social
Responsibility l Community obligations l Corporate Citizenship l Corporate social
responsibility Corporate social responsiveness
l Corporate social performance
Economic, legal, ethical and discretionary responsibilities
Paternalism
Philanthropy
Pyramid of CSR
Socially conscious investing
Optional Course Literature
-See Case Studies for evening reading
l Blowfield, Michael & Alan Murray (2008) Corporate Responsibility.
A Critical Introduction. Oxford: Oxford University Press.
l Devinney, Timothy (2009) “Is the Socially Responsible Corporation a Myth? The Good, the Bad, and the Ugly of Corporate Social Responsibility”, Academy of Management Perspectives, Vol. 23, No. 2, pp. 44-56.
l May, Steve, George Cheney & Juliet Roper eds. (2007) The Debate over
Corporate Social Responsibility. Oxford: Oxford University Press.l
l Boatright, John R. (2003) Ethics and the Conduct of Business. Upper Saddle River,
NJ: Prentice Hall. l Zadek, Simon (2001) The Civil Corporation. The New Economy of Corporate
