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STUDY GUIDE 25:

THE COMPLEX RELATIONSHIP BETWEEN
CORPORATE SOCIAL RESPONSIBILITY
AND ORGANIZATIONAL BEHAVIOR

The relationship between corporate social responsibility (CSR) and organizational behavior is complex. An examination of this
relationship yields two major perplexing conclusions:

1] Companies that engage in costly CSR programs are not necessarily "rewarded" in terms of increased market share. In fact, the opposite is true. As explained, British research shows that while around 30% of consumers claim to be "ethical" consumers, few services or products which make "ethical" claims have a market share greater than 3%. Most enjoy a market share between 1.5% and 3%. Thus it is clear that consumer purchase behavior is not influenced by corporations' CSR behavior. Consumers usually are incensed by and demonstrate against what they perceive to be irresponsible CSR behavior, but, in the main, are not willing to pay more for CSR goods and services.

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2] On the other hand, companies are "punished" if they do not implement a CSR program. The "punishment" takes the form of consumer boycotts. This happens to corporations periodically. The Nike case has become a classic example of this. In the Nike case, the sports footwear manufacturer several years ago was criticized for sweatshop conditions at its Asian contractors' factories. Nike initially dismissed the criticisms. It asserted that because it did not own its contractors' factories, workplace standards inside their factories were not Nike's responsibility. In the face of a worldwide boycott campaign by consumers and NGOs that Nike had "become synonymous with slave wages, forced overtime, and arbitrary worker abuse," Nike, in a remarkable reversal, stated that three Indonesian suppliers were to be terminated over workplace conditions and stated: "Good shoes come from good factories and good factories have good labor relations." Today, Nike continues to suffer attacks on its image. The extent of the boycott-related losses it sustained has prompted Nike to establish a special CSR division staffed with over 100 people and to invest heavily in independent third-party audits of its contractors, the results of which it agrees to publish even though they might be unfavorable.

Marketing experts like Michael Porter, Roger Martin and Henry Mintzberg have argued that corporations' acute fear of consumer backlash/boycott is reflected in the fact that the Dow Jones in 1999 introduced a Sustainability Index which lists the amount of investing in companies with a strong CSR record.

Porter, Martin and Mintzberg explain that companies are anxious to see themselves listed on the Sustainability Index for two reasons:

1] they are confident that a strong public commitment to CSR programs will generate strong investor interest;

2] they fear that they may be penalized by consumers, investors and others if they are perceived as companies which place their corporate profitability ahead of their CSR obligations.

3] Our third major conclusion was that the major issue facing global marketing managers is not whether to have a CSR program--but what kind of a CSR program to have. The objective is to develop a CSR program that increases the company's profitability while at the same time protecting it from consumer backlash.

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This is easier said than done. As we have seen, corporations have approached CSR in two major ways:

1] The Traditional Approach: Corporations contribute money to politically correct causes, get a good press out of it, and a tax deduction to boot.

2] The Transactional Approach: Corporations contribute their own products to improve the lot of disenfranchised people. This was the approach used by the pharmaceutical industry (Review class notes).

Historically, neither approach has worked in terms of enhancing a corporation's...
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