Csr of Strategic Relevance in Today's World

CHAPTER 1

WHAT IS CSR? eople create organizations to leverage their collective resources in pursuit of common goals. As organizations pursue these goals, they interact with others inside a larger context called society. Based on their purpose, organizations can be classified as for-profits, governments, or nonprofits. At a minimum, for-profits seek gain for their owners; governments exist to define the rules and structures of society within which all organizations must operate; and nonprofits (sometimes called NGOs—nongovernmental organizations) emerge to do social good when the political will or the profit motive is insufficient to address society’s needs. Aggregated across society, each of these different organizations represents a powerful mobilization of resources. In the United States, for example, more than 595,000 social workers are employed largely outside the public sector—many in the nonprofit community and medical organizations—filling needs not met by either government or the private sector.1 Society exists, therefore, as a mix of these different organizational forms. Each performs different roles, but each also depends on the others to provide the complete patchwork of exchange interactions (products and services, financial and social capital, etc.) that constitute a well-functioning society. Whether called corporations, companies, businesses, proprietorships, or firms, for example, for-profit organizations also interact with government, trade unions, suppliers, NGOs, and other groups in the communities in which they operate, in both positive and negative ways. Each of these groups or actors, therefore, can claim to have a stake in the operations of the firm. Some benefit more, some are involved more directly, and others can be harmed by the firm’s actions, but all are connected in some way to what the firm does on a day-to-day basis. R. Edward Freeman defined these actors or groups as a firm’s stakeholders. His definition reflects the broad reach

References: 1. U.S. Department of Labor, Bureau of Labor Statistics, “Occupational Outlook Handbook, 2008–09 Edition,” http://stats.bls.gov/oco/ocos060.htm#emply 2. Post, Preston, and Sachs provide an alternative, narrower, definition of a firm’s stakeholder that ties the group or actor more directly to the firm’s operations: “The stakeholders in a firm are individuals and constituencies that contribute, either voluntarily or involuntarily, to its wealth-creating capacity and activities, and who are therefore its potential beneficiaries and/or risk bearers.” In “Managing the Extended Enterprise: The New Stakeholder View,” California Management Review, Vol. 45, No.1, Fall 2002, p. 8. 3. R. Edward Freeman, Strategic Management: A Stakeholder Approach, Pitman, 1984, p. 46. 4. Libby Brooks, “Power to the People,” The Guardian, December 20, 2002, http://www.guardian .co.uk/world/2002/dec/20/debtrelief.development 5. John Micklethwait & Adrian Wooldridge, The Company: A Short History of a Revolutionary Idea, Modern Library, 2003, p. 8. 6. Milton Friedman, “The Social Responsibility of Business is to Increase its Profits,” New York Times Magazine, September 13, 1970. 7. Of course, this debate continues today. For one example of a debate that was hosted by a skeptical source but includes different perspectives from the Rainforest Action Network to G.E., see “Corporate Social Responsibility: Good Citizenship or Investor Rip-off?” Big Issues: The Journal Report, Wall Street Journal, January 9, 2006, p. R6. 8. Charles Handy, “What’s a Business For?” Harvard Business Review, December 2002, p. 54. 9. For a comprehensive review of the evolution of CSR as an academic discipline see Archie B. Carroll, “Corporate Social Responsibility: Evolution of a Definitional Construct,” Business and Society, Vol. 38, No. 3, September 1999, pp. 268–295. Also, traditional textbooks elaborate on these issues: see James E. Post et al., Business and Society: Corporate Strategy, Public Policy, Ethics, 10th edition, McGraw-Hill, 2002. Finally, William C. Frederick, Corporation Be Good! The Story of Corporate Social Responsibility, Dog Ear Publishing, 2006, offers a comprehensive timeline and discussion about the evolution of CSR. 10. Michael McComb, “Profit to Be Found in Companies That Care,” South China Morning Post, April 14, 2002, p. 5. 11. Ruth Lea, “Corporate Social Responsibility: IoD Member Opinion Survey,” The Institute of Directors, UK, November 2002, p. 10. 12. Archie B. Carroll, “A Three-Dimensional Conceptual Model of Corporate Performance,” Academy of Management Review, Vol. 4, No. 4, 1979, p. 500. 13. See Mark S. Schwartz and Archie B. Carroll, “Corporate Social Responsibility: A Three-domain Approach,” Business Ethics Quarterly, Vol. 13, 2003, pp. 503–530 for an update on Carroll’s pyramid of CSR. Instead of four levels of responsibility, Schwartz and Carroll divide a firm’s responsibilities into three domains—economic, legal, and ethical. These three overlapping domains result in seven “CSR categories,” or firm profiles, with the appropriate category determined by the firm’s orientation (i.e., the different emphases placed on each domain). 24— S T R A T E G I C C O R P O R A T E S O C I A L R E S P O N S I B I L I T Y 14. Archie B. Carroll, “The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders,” Business Horizons, July–August 1991. 15. In March 2007, the ECOA had 1,388 individual members and approximately 750 organizational members. Individual members are defined by the ECOA as “ethics and compliance professionals.” 16. It is worth noting, however, that actions that appear to be legally permissible may still result in lawsuits filed against firms, under obscure treaties and statutes, by innovative activists seeking to right actual or perceived wrongs. 17. “Just Good Business: A Special Report on Corporate Social Responsibility,” The Economist, January 19, 2008. 18. http://archive.greenpeace.org/comms/brent/brent.html. See also Alex Kirby, “Brent Spar’s long saga,” BBC News, November 25, 1998, http://news.bbc.co.uk/1/hi/sci/tech/218527.stm 19. Marc Gunther, “The Mosquito in the Tent: A Pesky Environmental Group Called the Rainforest Action Network is Getting Under the Skin of Corporate America,” Fortune Magazine, May 31, 2004, http://money.cnn.com/magazines/fortune/fortune_archive/2004/05/31/370717/index.htm 20. Michael Porter and Mark Kramer, “The Competitive Advantage of Corporate Philanthropy,” Harvard Business Review, Vol. 80, Issue 12, December 2002, p. 67. 21. Adrian Henriques, “Ten Things You Always Wanted to Know About CSR (But Were Afraid to Ask); Part One: A Brief History of Corporate Social Responsibility (CSR),” Ethical Corporation Magazine, May 26, 2003, http://www.ethicalcorp.com/content.asp?ContentID=594 22. Michael Arndt, “An Ode to ‘The Money-Spinner,’” BusinessWeek, March 24, 2003, pp. 22–23; review of The Company: A Short History of a Revolutionary Idea, by John Micklethwait and Adrian Wooldridge, Modern Library, 2003. 23. Adam Hochschild, “How the British Inspired Dr. King’s Dream,” New York Times, January 17, 2005, p. A21. 24. http://www.triplepundit.com/pages/ray-anderson-ex.php. Excerpt from an interview with Ray Anderson that appeared in The Corporation, http://www.thecorporation.com/ 25. For a video update on Interface’s progress toward its “Mission Zero” project (http://www .interfaceflor.eu/internet/web.nsf/webpages/528_EN.html) and goal of “leaving zero footprint, by the year 2020,” see http://www.interfaceflor.eu/internet/web.nsf/webpages/58150_EN.html 26. Mark Maremont, “Authorities Probe Improper Backdating of Options—Practice Allows Executives to Bolster Their Stock Gains; A Highly Beneficial Pattern,” Wall Street Journal, November 11, 2005, p. A1, http://www.biz.uiowa.edu/faculty/elie/wsj1.htm and Charles Forelle and James Bandler, “The Perfect Payday—Some CEOs Reap Millions by Landing Stock Options When They Are Most Valuable; Luck—Or Something Else?” Wall Street Journal, March 18–19, 2006, p. A1, http://www .jpl.nasa.gov/news/news.cfm?release=2009-107 27. Paul Magnusson, “Making a Federal Case Out of Overseas Abuses,” BusinessWeek, November 25, 2002, p. 78. 28. Ibid. 29. Lisa Roner, “Unocal Settles Landmark Human Rights Suits,” Ethical Corporation Magazine, December 20, 2004, http://www.ethicalcorp.com/content.asp?ContentID=3312 30. Richard C. Paddock, “Chevron Cleared in Nigeria Shootings,” Los Angeles Times, December 2, 2008, http://articles.latimes.com/2008/dec/02/local/me-chevron2 31. For additional background information on Malden Mills, see Rebecca Leung, “The Mensch of Malden Mills,” 60 Minutes, CBS, July 6, 2003, http://www.cbsnews.com/stories/2003/07/03/60minutes/ main561656.shtml. See also Gretchen Morgenson, “GE Capital vs. the Small-Town Folk Hero,” New York Times, October 24, 2004, p. BU5. 32. Marianne Jennings, ”Seek Corporate Balance,” Miami Herald, September 1, 2002, p11L. 33. Roger Martin, “The Virtue Matrix,” Harvard Business Review, Vol. 80, No. 3, March 2002, pp. 68–75. 34. Marianne Jennings, “Seek Corporate Balance,” Miami Herald, September 1, 2002, p. 11L. Chapter 1: What Is CSR?— 25 35. Manuel G. Velasquez, Business Ethics: Concepts and Cases, 5th edition, Prentice Hall, 2002, pp. 122–123. 36. Mitchell Pacelle, “Can Mr. Feuerstein Save His Business One Last Time?” Wall Street Journal, May 9, 2003, pp. A1 and A6. 37. In spite of emerging from bankruptcy protection in 2004, the firm continued to struggle and filed for bankruptcy again in 2007. Today, the company continues to make its clothing under the brand name Polartec (http://www.polartec.com/). 38. “Just Good Business: A Special Report on Corporate Social Responsibility,” The Economist, January 19, 2008, p. 3. 39. Charles Handy, “What’s a Business For?” Harvard Business Review, December 2002, p. 54. 40. Design Thinking, “Peter Senge’s Necessary Revolution,” BusinessWeek, June 11, 2008, http://www.businessweek.com/innovate/content/jun2008/id20080611_566195.htm 41. Will Hutton, “The Body Politic Lies Bleeding,” The Observer, May 13, 2001, http://www .guardian.co.uk/politics/2001/may/13/election2001.uk6 42. Michael Skapinker, “How to Fill the Philanthropy-Shaped Hole,” Financial Times, January 27, 2009, p. 13. 43. Archie B. Carroll, “A Three-Dimensional Conceptual Model of Corporate Performance,” Academy of Management Review, Vol. 4, No. 4, 1979, p. 500. 44. Eliot Spitzer, “Strong Law Enforcement Is Good for the Economy,” Wall Street Journal, April 5, 2005, p. A18. 45. Keith Davis and Robert Blomstrom, Business and Its Environment, McGraw-Hill, 1966. See also Keith Davis, “The Case for and Against Business Assumption of Social Responsibilities,” Academy of Management Journal, Vol. 16, Issue 2, 1973, pp. 312–322. 46. Alan Murray, “Twelve Angry CEOs—The Ideal Enron Jury,” Wall Street Journal, February 15, 2006, p. A2. 47. Jonathan Birchall, “Business Fights for Tougher Rules on Emissions,” Financial Times, November 20, 2008, p. 4. 48. John Reed, “GM Joins ‘Green’ Coalition in the US,” Financial Times, May 9, 2007, p. 18. 49. Russell Gold and Ian Talley, “Exxon CEO Advocates Emissions Tax,” Wall Street Journal, January 9, 2009, p. B3. 50. Some of the most important research in the business management literature on the relationship between CSR and firm performance is being done by Joshua Margolis of Harvard Business School (see Joshua Margolis and James Walsh, “Misery Loves Companies: Rethinking Social Initiatives by Business,” Administrative Science Quarterly, Vol. 48, Issue No. 2, 2003, pp. 268–305; Joshua Margolis, Hillary Elfenbein, and James Walsh, “Does It Pay to Be Good? What a Metaanalysis of CSP and CFP Can (and Cannot) Tell Us,” Academy of Management Annual Meeting. Philadelphia, PA, 2007; and Joshua Margolis and Hillary Elfenbein, “Do Well by Doing Good? Don’t Count on It,” Harvard Business Review, Vol. 86, No. 1, 2008, pp. 19–20). Margolis’s main conclusion from his research is that, while there is little evidence that CSR predicts firm performance, there does seem to be evidence of the reverse relationship—firm performance predicting CSR. In other words, while CSR does not increase profits, higher profits lead to greater CSR. One explanation for this failure to establish a conclusive link between CSR and firm performance is that the tools we currently use to measure CSR are not very good. While data and methods are improving all the time, we are yet to identify a sufficiently comprehensive means of establishing a firm’s CSR profile. In the absence of such a measure, continuing to research whether or not such activities have positive (or negative) correlations with firm performance (creating a huge black box in the process) seems difficult to justify. Margolis’s response is to call on researchers to move beyond investigating the relationship between CSR and firm performance (or vice-versa) and, instead, focus on understanding how and why firms decide to act in relation to CSR—“understanding the mechanisms that connect CFP to CSP, rather than the reverse.” 26— S T R A T E G I C C O R P O R A T E S O C I A L R E S P O N S I B I L I T Y 51. Ritchie Lowry, “Capitalism with a Conscience: About Socially Responsible Investing,” http://www .goodmoney.com/qna.htm 52. Tara Kalwarski, “Numbers: Do-Good Investments Are Holding up Better,’ BusinessWeek, July 14 and 21, 2008, p. 15. 53. Ibid. 54. Andrew Likierman, “Stakeholder Dreams and Shareholder Realities,” Mastering Financial Management, Financial Times, June 16, 2006, p. 10. 55. Carly Fiorina, “A World of Change.” Quoted from a speech to the APEC CEO Summit in Shanghai, China, October 19, 2001, http://www.hp.com/hpinfo/execteam/speeches/fiorina/apec_01.html 56. For a more detailed discussion of these trends that are driving the relevance of CSR, see Chapter 5. 57. “Global Warming Puts the Arctic on Thin Ice,” Natural Resources Defense Council, November 22, 2005, http://www.nrdc.org/globalwarming/qthinice.asp 58. “New NASA Satellite Survey Reveals Dramatic Arctic Sea Ice Thinning,” Jet Propulsion Laboratory, NASA, July 7, 2009, http://www.jpl.nasa.gov/news/news.cfm?release=2009–107 59. “Images From the Exxon Valdez Oil Spill,” National Oceanic and Atmospheric Administration, March 7, 2001, http://response.restoration.noaa.gov/photos/exxon/exxon.html 60. “Farmers & Consumers Protest at Monsanto’s Headquarters in St. Louis,” Organic Consumers Association, August 19, 2000, http://www.organicconsumers.org/corp/monprotest.cfm 61. “Corporate Campaigns: Case Studies,” http://www.foe.co.uk/campaigns/economy/case_studies/ index.html, and “Success Stories,” http://www.foe.co.uk/campaigns/economy/success_stories/index.html 62. Thomas L. Friedman, “The Virtual Mosque,” New York Times, June 17, 2009, p. A21. 63. Robert A. Guth, “Sniffly Surfing: Google Unveils Flu-Bug Tracker,” Wall Street Journal, November 12, 2008, pD1, http://sec.online.wsj.com/article/SB122644309498518615.html; Miguel Helft, “Aches, a Sneeze, a Google Search,” New York Times, November 12, 2008, p. A1, http://www .nytimes.com/2008/11/12/technology/internet/12flu.html 64. Burt Helm, “Best Global Brands,” BusinessWeek, September 18, 2008, http://www.businessweek .com/magazine/content/08_39/b4101052097769.htm 65. Milton Friedman, Capitalism and Freedom, University of Chicago Press, 1962, p. 133.