Project RESPONSE: Results and Insights “Understanding and Responding to Societal Demands on Corporate Responsibility” Kiev, Ukraine 6 th June, 2008

Project RESPONSE: Results and Insights

“Understanding and Responding to Societal Demands on

Corporate Responsibility”

Kiev, Ukraine6th June, 2008

Collaborative Effort

• IBM

• Johnson & Johnson

• Microsoft

• Shell

• Unilever

• European Academy of Business In Society (EABIS)

• Zollo, Berchicci, Casanova, Crilly, Hansen, Schneider, Sloan- INSEAD

• Neergaard, Hockerts Pedersen - Copenhagen Bus. School (CBS)

• Perrini, Minoja, Tencati, Pogutz – Bocconi Univ.

• Gasparski, Lewicka - Leon Kozminski Academy

• Hackl, Reinhold -Impact

• Henri-Claude de Bettignies – INSEAD

• Tom Dunfee – Wharton

• Ed Freeman – U. of Virginia

• Bruce Kogut – INSEAD

• Eric Orts – Wharton

• Peter Pruzan – CBS

• David Vogel - Berkeley

• Jim Walsh – U. of Michigan

Academic Members

BusinessAdvisory Board

Academic Advisory Board

Funded with a generous grant by the European Commission’s 6th Framework Program

1.1 M euros EU funding over 3 years + 320K euros private 1.1 M euros EU funding over 3 years + 320K euros private

20 multinationals from Europe and US20 multinationals from Europe and US

427 interviews (210 senior managers, 217 stakeholders) 427 interviews (210 senior managers, 217 stakeholders)

1,100 managers surveyed in 9 companies, 8 pending1,100 managers surveyed in 9 companies, 8 pending

93 managers in 4 CSR learning experiments 93 managers in 4 CSR learning experiments

21 academics, 5 Ph.D. students and 5 RAs in 5 European 21 academics, 5 Ph.D. students and 5 RAs in 5 European and 4 US schools (incl. Advisory Board)and 4 US schools (incl. Advisory Board)

RESPONSE: Breadth + DepthRESPONSE: Breadth + Depth

Research QuestionsResearch Questions

• What do managers What do managers understandunderstand as their as their company’s responsibilities towards society?company’s responsibilities towards society?

• How does that How does that differdiffer from stakeholders’ beliefs? from stakeholders’ beliefs?

• What What factorsfactors explain the difference? explain the difference?

• What factors explain socially responsible What factors explain socially responsible behavior in managers? behavior in managers?

• How effective are different How effective are different trainingtraining approaches? approaches?

What is New in RESPONSE?What is New in RESPONSE?Expanding the Scope of CR InvestigationExpanding the Scope of CR Investigation

Individual

Organisation

Internal changeExternal change

Orientation towards Focus on

DEBATE &RESEARCH

TODAY

FOCUS ofRESPONSE

Research MethodologiesResearch Methodologies

Case comparison studyCase comparison study 19 large multinationals19 large multinationals In In matchedmatched pairs/triads pairs/triads 8 sectors8 sectors 3 regions3 regions For each company:For each company:

11 managers interviewed 11 managers interviewed

12 stakeholders12 stakeholders ““Fact finding” field workFact finding” field work

In selected companies:In selected companies: Web-survey of random Web-survey of random

sample of managerssample of managers

Learning ExperimentsLearning Experiments 4 large multinationals4 large multinationals Diverse managerial rolesDiverse managerial roles 3 types of intervention:3 types of intervention:

Executive educationExecutive education Meditation coachingMeditation coaching Relaxation techniquesRelaxation techniques

Random group allocationRandom group allocation Pre-post training surveyPre-post training survey

4 decision scenarios4 decision scenarios Standard psychology testsStandard psychology tests

1. Alignment Matters 1. Alignment Matters

2. Mind the Gap2. Mind the Gap

3. Moving Targets, Sharpen Aim3. Moving Targets, Sharpen Aim

4. Corporate Social Innovation4. Corporate Social Innovation

5. From the Inside-Out5. From the Inside-Out

6. Reinventing Stakeholder Engagement6. Reinventing Stakeholder Engagement

7. Developing Responsible Managers7. Developing Responsible Managers

Insights from The Research Insights from The Research

Alignment of MindsetsAlignment of Mindsets

““the degree to which managers and their the degree to which managers and their stakeholders frame their thinking about stakeholders frame their thinking about corporate social responsibility in similar corporate social responsibility in similar ways”ways”

Hypothesis: The greater the alignment Hypothesis: The greater the alignment between a firm’s managers and its between a firm’s managers and its stakeholders, the greater its social stakeholders, the greater its social performance performance

Dimensions of AlignmentDimensions of Alignment

Cognitive gap typeCognitive gap type MeasurementMeasurement MeaningMeaning

Gap 1: Gap 1: Stakeholder Stakeholder identificationidentification

Order in which interviewees Order in which interviewees mention stakeholders mention stakeholders

Salience of Salience of stakeholdersstakeholders

Gap 2: Gap 2: Risk rankingRisk ranking

Ranking of stakeholders Ranking of stakeholders based on their perceived based on their perceived impact on the companyimpact on the company

Perceived ‘risk’ Perceived ‘risk’ posed by posed by stakeholders stakeholders

Gap 3: Gap 3: Responsibility Responsibility rankingranking

Ranking of stakeholders Ranking of stakeholders based on the perceived based on the perceived impact the company has on impact the company has on themthem

Perceived Perceived responsibility responsibility toward toward stakeholdersstakeholders

Gap 4: Gap 4: Perceptions of Perceptions of Corporate Social Corporate Social Performance (CSP)Performance (CSP)

Level of social performance Level of social performance as judged by intervieweesas judged by interviewees

Perceptions of CSPPerceptions of CSP

Alignment Matters for Social Performance!Alignment Matters for Social Performance!

Across all dimensions, the highest social performers have greater cognitive

alignment (i.e. smaller gaps) with their stakeholders.

Manager-stakeholder average gaps

0%5%

10%15%20%25%30%35%40%

Companies w ith low er social performance

Companies w ith higher social performance

1. Alignment Matters1. Alignment Matters








How do managers’ and stakeholders’ How do managers’ and stakeholders’ differ in their framing of social differ in their framing of social

responsibility?responsibility?

The Issue GapThe Issue Gap

0%

10%

20%

30%

40%50%

60%

70%

80%

90%

100%

Do no harm

Do good

Prevalent managerial understanding of CSR

is avoiding harm.

Stakeholders are more likely to define

CSR in terms of doing good.

Narrow, firm-centric scope of

responsibility

Broader, societal scope of

responsibility

“Fair play in society towards employees,

towards environment. Meet the law.” (Manager,

chemicals)

“Creating programs to help communities in education, health

care and environmental

protection.” (Stakeholder,

pharma)

“Corporations need to position

themselves as responsible

corporate citizens on the world stage – at

the risk of taking positions not widely

shared in the business

community.” (Stakeholder, natural

resources)

“CSR is doing well in one's own business, having in mind the

stakeholders” (Manager, banking)

Cognitive Framing of the Cognitive Framing of the Scope of CSRScope of CSR

Scope and Depth of CSR Scope and Depth of CSR PerspectivesPerspectives

Firm ViewFirm View Stakeholder ViewStakeholder View World ViewWorld View

Shallow Shallow Compliance and Compliance and risk risk management management (reputation)(reputation)

Shareholders, Shareholders, employees, employees, customerscustomers

Industry-specific global Industry-specific global issues (e.g. health for issues (e.g. health for pharma)pharma)

Deep Deep Moral duty (give Moral duty (give back to back to society), society), ethical ethical boundariesboundaries

Suppliers, partners, Suppliers, partners, government, government, communities, communities, NGOs, unions, NGOs, unions, SRAs, mediaSRAs, media

MDGs, climate change, MDGs, climate change, hunger, health, hunger, health, poverty, education, poverty, education, human rightshuman rights

Frequency of CSR issues in managers’ responsesFrequency of CSR issues in managers’ responsesFrequency of CSR issues in stakeholders’ responses

64% 20% 15%35% 32% 34%

64%

35%

49%

51%









What effect does the business What effect does the business environment have on alignment?environment have on alignment?

Hypothesis: The more stable the Hypothesis: The more stable the business environment, the greater the business environment, the greater the alignment between a firm’s managers alignment between a firm’s managers

and stakeholders and stakeholders

Environmental Dynamism Environmental Dynamism Enhances AlignmentEnhances Alignment

However, we found that alignment is associated However, we found that alignment is associated with:with:

HigherHigher levels of levels of stakeholders’ pressurestakeholders’ pressure IndustriesIndustries characterised by characterised by high levels of changehigh levels of change;; Regions Regions marked by marked by faster economic changefaster economic change; ; Corporate responsibility initiativesCorporate responsibility initiatives motivated by motivated by

an an innovation-driven business caseinnovation-driven business case; and; and Business strategiesBusiness strategies focused on focused on differentiation differentiation

and meeting complex customer requirements.and meeting complex customer requirements.

1. Alignment matters1. Alignment matters




5. From the inside-out5. From the inside-out




What is the business case forWhat is the business case for

social responsibility?social responsibility?

Does the business case matter?Does the business case matter?

The Business Case forThe Business Case forSocial ResponsibilitySocial Responsibility

Managers were asked to allocate 10 points Managers were asked to allocate 10 points in total among the following statements:in total among the following statements:

Corporate Responsibility …Corporate Responsibility …… … reduces firm reduces firm risksrisks

… … reduces costs and increases operating reduces costs and increases operating efficiencyefficiency

… … helps our firm to helps our firm to sell more sell more and at higher marginsand at higher margins

… … is a source for is a source for new marketnew market opportunities opportunities

0

5

10

15

20

25

30

35

40

Gap 1 Gap 2 Gap 3 Gap 4

High NMO

Low NMO

The Business Case forThe Business Case for Social Responsibility Social Responsibility

Firms that place greater emphasis on new market opportunities (NMO) have greater cognitive alignment

(i.e. smaller gaps) with their stakeholders…

… and have higher social performance (level of

stakeholder satisfaction)Stakeholder identification

Risk Responsibility Performance









To what extent is To what extent is

social responsibility integrated social responsibility integrated

into the firm?into the firm?

Does it matter?Does it matter?

InsightsInsights

CSR is rarely integrated in:CSR is rarely integrated in: Management development programsManagement development programs incentive systemsincentive systems Resource allocation (corporate growth) decisionsResource allocation (corporate growth) decisions Competitive strategy decisionsCompetitive strategy decisions

However, the extent of integration leads to:However, the extent of integration leads to: Better alignment of managers’mindsets with Better alignment of managers’mindsets with

stakeholders’stakeholders’ Higher levels of satisfaction of stakeholders (social Higher levels of satisfaction of stakeholders (social

performance)performance)









What effect does stakeholder What effect does stakeholder engagement have on alignment?engagement have on alignment?

Hypothesis: Stakeholder engagement Hypothesis: Stakeholder engagement drives alignment of mindsets drives alignment of mindsets

- - Enhances “sensing” stakeholder expectationsEnhances “sensing” stakeholder expectations

- Potentially influences managers’ behaviour- Potentially influences managers’ behaviour

Surprisingly, no clear link between Surprisingly, no clear link between stakeholder engagement and alignmentstakeholder engagement and alignment

0%

10%

20%

30%

40%

High Engagement 25% 31% 29% 8%

Low Engagement 25% 26% 36% 4%

Stakeholder Engagement Stakeholder Engagement and Alignmentand Alignment

Stakeholder identification Risk Responsibility Performance

InsightsInsights

1.1. Stakeholder engagement crucial but Stakeholder engagement crucial but not not enoughenough to achieve excellence in CSR to achieve excellence in CSR

2.2. Shift to more collaborative model Shift to more collaborative model geared geared towards internal changetowards internal change

3.3. Stakeholders have a responsibility to:Stakeholders have a responsibility to: Understand companies betterUnderstand companies better Help them (CSR group) drive internal change Help them (CSR group) drive internal change

processprocess









How can managers’ How can managers’ sensitivitysensitivity towards the social impact of their towards the social impact of their

decisions and actions be decisions and actions be enhanced?enhanced?

InsightsInsights

Developing social consciousness in managers is Developing social consciousness in managers is possible…possible…

Training Training approaches differapproaches differ in effectiveness in effectiveness Internal training fails to change managers’ behaviorInternal training fails to change managers’ behavior Standard executive education - weak or no impactStandard executive education - weak or no impact Meditation-based coaching - positive impact on Meditation-based coaching - positive impact on

behavior and on psychological factorsbehavior and on psychological factors Stress management techniques - unexpected efficacy, Stress management techniques - unexpected efficacy,

although not as strong as meditationalthough not as strong as meditation

More research needed to probe these exploratory More research needed to probe these exploratory findingsfindings

Conclusions & RecommendationsConclusions & Recommendations

Explaining Social PerformanceExplaining Social Performance

STRONG EVIDENCE SOME EVIDENCE NO CLEAR LINK

Stakeholder/management ALIGNMENT of mindsets

INTEGRATION of CSR in business processes

INTEGRATION of CSR in strategy-making

processes

LEADERSHIP commitment

CSR dept INFLUENCE

INTERNAL CHANGE

Business case based on INNOVATION

Organisational VALUES

Differentiation STRATEGY

HISTORY: CR at Founding

Statements of social COMMITMENTS

LENGTH of establishment of CSR

group in company

CSR consideration in staff performance

APPRAISAL

CSR REPORTING

Individual VALUES

Good GOVERNANCE

STAKEHOLDER ENGAGEMENT

CSR TRAINING

CSR performance METRICS

CSR consideration in INVESTMENT

decisions (too rare)

External PRESSURE (e.g. NGO attacks)

EXTERNAL initiatives

(philanthropy/PR)

Business CASE on risk, efficiency or

sales growth.

STEP 1: What factors characterize the best social performers across the 8 sectors studied?

Explaining Alignment of MindsetsExplaining Alignment of Mindsets

Possible factors Strong

evidence Some

evidence No clear

link

Innovation business case

Differentiation strategy

Integration of corporate responsibility

External pressure ***

Market dynamism ***

Influential CSR department

Strong industry norms ***

Stakeholder engagement

Leadership commitment

Strong organisational values

Value-based firm origins

*** = External factors

STEP 2: What factors characterize the companies with the highest degree of alignment in mindsets?

Implications for Business ManagersImplications for Business Managers

Redefine the notion of CSRRedefine the notion of CSR Not only “Do No Harm”, but also “Do Good”Not only “Do No Harm”, but also “Do Good” From “Firm-centric” to “World-centric”From “Firm-centric” to “World-centric” From “their impact on us” to “our impact on them”From “their impact on us” to “our impact on them”

Reframe “Why” CSRReframe “Why” CSR From risk/reputation to innovationFrom risk/reputation to innovation

Rethink the CSR challenge:Rethink the CSR challenge: WhatWhat: from external engagement to : from external engagement to internal changeinternal change Who:Who: the CSR group as champion of internal change the CSR group as champion of internal change With whomWith whom: the stakeholder groups as co-drivers: the stakeholder groups as co-drivers

Implications for StakeholdersImplications for Stakeholders

Social Rating Agencies should:Social Rating Agencies should: assess CSR assess CSR integrationintegration evaluate the evaluate the gapgap in mindsets in mindsets

NGOs might need to:NGOs might need to: LearnLearn about the companies’ operations about the companies’ operations Be Be skepticalskeptical about “engaging” companies about “engaging” companies

““Inner ring” stakeholders: from counterparts Inner ring” stakeholders: from counterparts to partners with CSR group to drive:to partners with CSR group to drive:

1.1. the the internal change processinternal change process to mainstream CSR to mainstream CSR2.2. at a later stage, the at a later stage, the external initiativesexternal initiatives to to

enhance social welfareenhance social welfare

Documents

Project RESPONSE: Results and Insights “Understanding and Responding to Societal Demands on Corporate Responsibility” Kiev, Ukraine 6 th June, 2008