Class 14: Corporate Social Responsibility

Flashcard maker : Lily Taylor
Why Engage in CSR?
1. Moral Imperative- Companies have a duty.
2. Sustainability – Importance of environmental and community stewardship.
3. License to operate – Companies need the support of stakeholders to do business.
4. Reputation – CSR can improve image, strengthen brand, boost morale, raise share price.
Corporate Social Responsibility
CSR: The Duty of a corporation to create wealth in ways that avoid harm to, protect or enhance societal assets.
-Merck and River Blindness example.
-Arguments from Left: CSR masks evil nature of business, solution = regulation. Right: CSR constrains the good nature of business, create more value with profits. solution: less regulations
CSR and Financial Performance
-Relationship b/w profits and CSR:
-Positive for 53%
-Mixed or no relationship for 42%.
-Negative for 5% of businesses.
-Complexity, different ways to measure CSR, performance.
Strong CSR companies vs weak CSR companies
Studies from Society for Human Resource Management.
-Employee moral 55% higher in strong CSR companies.
-Employee loyalty 38% higher
-Public image 43% higher
CSR Challenges for Companies
-High expectations from customers and activist groups.
-Government regulation increasingly mandates social responsibility.
-Few companies have a clear integrated framework for CSR activities. Instead a hodgepodge of activities unconnected to strategy.
More Challenges for CSR
-CSR is often thought in terms of public interest.
-Often measured in terms of input but rarely in terms of impact
-CSR reports vary widely and face measurement problems.
Creating Shared Value
-A change in mindset is needed. From tension between business and society to Interdependence between business and society.
-“Any business that pursues its ends at the expense of the society in which it operates will find its success to be illusory and ultimately temporary.”
“Flip side quote”
Shared Value; CSR-Performance Relationship
-Shared Value: Policies and operational practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates.
Going from CSR to CSV; CSR
-CSR: Value is doing good. Citizenship. Philanthropy, sustainability. Discretionary or in response to external pressure. Seperate from profit maximization. Agenda is determined by external reporting and by personal preferences.
Impact limited by corporate footprint and CSR budget.
Going from CSR to CSV; CSV
CSV: Value is economic and societal benefits relative to cost. Joint company and community value creation. Integral to competing. Integral to profit maximization. Agenda is company specific and internationally generated. Realigns the entire company budget.
Responsive CSR
-Acting as a good corporate citizen.
-Mitigating existing or anticipated adverse effects from business activities.
Strategic CSR
-Choosing a unique position.
-A small number of initiatives whose social and business benefits are large and distinctive.
Porter’s “Essential Test”
-“The essential test that should guide CSR is not whether a cause is worthy but whether it presents an opportunity to create shared value- that is, a meaningful benefit for society that is also valuable to the business.
Generic Social Issues
Social issues that are not significantly affected by a company’s operations nor materially affect its long-term competitiveness. (Strategic approach: Good citizenship/ Responsive CSR)
Value Chain Social Impacts
Social Issues that are significantly affected by a company’s activities in the ordinary course of business. (Strategic approach: Responsive when mitigating harm from value chain activities. Strategic CSR when transforming value chain activities to benefit society while reinforcing srategy)
Social Dimensions of Competitive Context
Social issues in the external environment that significantly affect the underlying drivers of a company’s competitiveness in the locations where it operates. (Strategic Approach: Strategic philanthropy that leverages capabilities to improve salient areas of competitive context)
Example of Porter’s “Essential Test” – Carbon Emissions
Carbon Emissions
-Generic for Bank of America
-Value chain for UPS
-Competitive Advantage and strategic for Toyota (eg Prius)
Examples of Creating Shared Value
-Microsoft’s Working Connections partnership with community colleges (IT workers).
-Nestle works with small farmers in India. (Nestle needs milk, invests in infrastructure)
-Tom’s giving away a pair of shoes? not so much
Business Responsibility – Sweatshops
-Contrasting Perspectives
Arguments for and against Sweatshops
-Against: Science of exploitation, making unreal profit margin.
-For: Nike offers dramatically poor people an opportunity to make any amount of money. Build up a desperate community and move on to the next one once their wages are too high.
-Ben Powell – Defending Sweatshops. Banning child labor means millions become starving and prostitutes. Workers still choose to work there meaning that it is much better than the alternatives of begging, prostitution, scavenging. Sweatshops ending depends on institutions that promote economic growth.
Nike Takes Action
-Code of conduct for suppliers.
-Publishes annual CSR report.
-Changed policies that would encourage exploitation.
…but still progress to be made.
Strategy and Society – weaknesses
-Michael Porter and Mark Kramer.
-The prevailing approaches to CSR are so disconnected from business that they obscure the opportunities for companies to benefit society.
-The vehemence of a stake holder group does not necessarily signify the importance of an issue to the company or to the world.
Strategy and Society – Justifications
Four Justifications for CSR:
1. Moral obligation
2. sustainability
3. License to operate (permission from stakeholder)
4. Reputation
All four share the same weakness: focus on the tension between business and society rather than on their interdependence.
Strategy and Society – Solution
-An affirmative corporate social agenda moves from mitigating harm to reinforcing corporate strategy through social progress.
-Both business decisions and social policies must follow the principle of shared value.
-Identifying the points of intersection of business of society: inside-out linkages is where a company impinges upon society through its operations.
-Outside-in linkages is when external social conditions influence corporations.
-choosing which social issues to address.
-Creating a social agenda
Strategy and Society 3
-Typically the more closely tied a social issue is to the company’s business, the greater the opportunity to leverage the firm’s resources – and benefit society.
-Whole Foods built it’s entire value proposition around social issues.
Strategy and Society 4
-Measuring stakeholder satisfaction has it backwards- Social impact needs to be measured.

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