The Corporate Environment 2005

Corporate Social Responsibility

Hilary Collins Hilary Collins

Today’s Reality ?

• Normal Capitalism:You have two cows and buy a bull. Your herd multiplies and the

economy grows. You sell the bull and retire.

• Enron Capitalism:You have two cows. You sell three of them to your publicly listed

corporation, using letters of credit opened by your brother in-law at the bank. You then execute a debt/equity swap associated general offer so that you get all four cows back; with tax exemption for five cows. The milk rights of the six cows are transferred via an intermediary to a Cayman Islands company, secretly owned by your chief financial officer, who sells the rights for all seven cows back to your listed corporation. Your annual report states that your corporation owns eight cows, with an option on six more.

From this

To this…..?

From this

To this…?

From this

To this…?

From this

To this…?

From this

To this…?

And on the subject of Fat Cats…….

What are your views ?

• Look at the statements on the wall around the room.

• Choose a statement that you think most closely reflects your view and place your ‘post-it’ with your name on it there.

What is a company for ?

• Wealth creation for shareholders and company owners

• Wealth creation for society

Stereotypes of Organizations’ Ethical

Stances • Short term share holder interests

– Ethics are the responsibility of the government to impose on organizations: otherwise they have free reign

• Longer-term shareholder interests– Sustainability argument that accepts the need to

engage with some stakeholders and consider long term interests

• Multiple stakeholder obligations– Triple bottom line accounting, more pluralistic

approach where stakeholders have a legitimate role in the strategy of the organization

• Shaper of society – The purpose of the organization is to have an

impact on society and financial considerations are secondary

Johnson & Scholes 2002

What do CEOs think they are judged on ?

• Survey (2002) of 1 600 CEOs in 33 countries– 94% ranked earnings for owners– 87% cash flow– 85% their corporate strategy– 85% workforce retention– 84% customer base – 82% brand

• Although they see CSR as important, they don’t feel judged on it

• The most important opinions are– Institutional Investors, Analysts, Rating

Agencies, Employees.

What do CEOs think they are judged on ?

• Survey (2003) of 409 CEOs in 43 countries– 79% agreed CSR activity was crucial

• What is driving it ?– Concern with image 79%– Concern with brand 69%– Improved shareholder value 63%– Other external stakeholders 26%

What do you think

• Spend the next half hour working by yourself to craft a personal statement of what you think the responsibility of organizations and their managers (i.e. YOU) ought to be and how far this should extend– Be specific what is not part in the remit of

organizations to consider and what is.– Be personal, include what you as a manager feel

is part of your responsibility and what is not.

What is CSR ?

• It is ‘Triple Bottom Line’ accounting– Financial performance– Physical environment performance– CSR performance

Institute of Social and Ethical Accountability Also adopted by Shell as their philosophy.

What is CSR ?

• It is – “the ways in which an organization

exceeds the minimum obligations to stakeholders specified through regulation and corporate governance”

Johnson & Scholes (2002 p.220)

It is“a fast growing and highly controversial area where it is easy to take an extreme position and much more difficult to hold a balanced and pragmatic line”

Garrat (2003)

What is CSR ?

Historical Reflection

Adam Smith: The Wealth of Nations.• His concern was with the creation of wealth

but also its distribution in society for good.

• In the late 1700s he was concerned that corporations presented a potential risk to society in terms of unlimited: life, size, power,

licence.

Bob Garratt: Thin on Top 2003 p12.

“Many businesses have not made the intellectual connection between the demands of their share and stakeholders and those individuals who have the power of sanction over boards actions through social legislation. If anything, boards have turned their backs and so created some stupidly perverse reward systems, especially for executives. We have over praised celebrity CEOs and over rewarded the clever boys of financial engineering….Baffled board directors, owners, and the public retreat into an ignorant silence.

“In good times both the cream and the scum rise to the top. Very few people are willing to blow a warning whistle when everyone seems to be winning in a rising market. When the market turns and the cream curdles, however, the scum becomes only too obvious. What looked to the public like marvellously engineered marble palaces turn out to be two-dimensional lath and canvas film sets, loosely held together with creative EBITDA accounting. It is only after the downturn that most directors and senior executives began to realise the difference between

being clever and being wise - and by then it is too late.”

                    

     

Various bodies

                FTSE4Good Index

         

Is there a base line agreed at least ?

• Some argue yes – Waddock et al 2002

– Employment issues• Training, working conditions, IR, child labour

– Ecological stability– Anti-corruption

• Some argue no– Some charities have spoken out against

codes and the diluting impact they’ll have

To Regulate or Not to regulate: that is the

question• In some scenarios, overall economic

development needs a phase of stereotype 1, before it can move to stereotypes 2 and 3 that are more inclusive.

• Universal legislation may not therefore be appropriate to all economic contexts and will inhibit overall CSR activity

To Regulate or Not to regulate: that is the

question• Regulation will lead to dumbing

down of criteria for organizations and the overall level of CSR activity will drop.

• Self regulation is therefore the most effective.

To Regulate or Not to regulate: that is the

question• The competitive environment will

resolve the issue• If society wants greater

responsibility they will speak with their buying power

• Free market mechanisms

To Regulate or Not to regulate: that is the

question• Corporates have not got a great track

record in self –regulation • Accountability needs to extend beyond

its current network and that is unlikely to happen voluntarily

• Don’t forget that without transparency and regulation, Corporates can also lobby ‘buy’ governmental opinion leaving the electorate almost entirely out of the loop

To Regulate or Not to regulate: that is the

question• There is insufficient information or

alternative for consumers to make a free choice: how free is the free market

• Oligopolies often collude to protect themselves from any form of societal pressure.

• Codes are ineffective if reporting is not required.

To Regulate or Not to regulate: that is the

question• Paradoxically……..if organizations are allowed to appear fair (at the most basic of levels) it will allow them access to impression management tactics that in fact increase the space for wrong doing

• Exploration of apology behaviour around whistle-blowing reveals…– If people attribute or perceive

stable/controllable/intentional stimuli to wrong-doing they judge misbehaviour harshly and will whistle blow and vice versa

– Explanations and excuses increase stable attribution

– Apologies increase unstable attribution.Gundlach, Douglas & Martinko, 2003

State of Play Now ?

• Definitions and mindsets of sustainable– Competitive advantage and short term– Economic, social and environmental equity

and long term

• Failure to institutionalize– Regulative burden

• Costly inefficient and address minimal risks

– Weak norms • Vast amounts of ambiguity e.g. Shell, Starbucks.

– Economic Mindset pervades • Free market, individualism

Source Material: Bansal.P. (2003)

   Attitude to the rights and

responsibilities of business

    

Attitude to business economic model

  Recognize requirements for business legitimacy

Any contribution to society beyond core business regarded as voluntaryPrivilege

long term sustainability

Partners Paternalists

Privilege immediate profitability

Players Privateers 

Can we sense any movement happening ?

Two ways to reflect on movement

• Who are the key players and how are they shifting ?– Stakeholders

• How are organizations adapting to the challenege – An illustration

Who are the key players ?????

• The organizations• Stakeholders

– Primary• Owners, employees, customers, supply chains

– Secondary • NGOs, activists, communities

– Tertiary • Generalized societal / institutional pressure

– Rankings, best of awards

• Governments• International governmental organizations

Primary Stakeholder Pressure

• Owners– Social investing is on the rise – Research starting to show fund performance

linkages

• Employees– Where and whom to work for – Challenge stimulation and well being at work

• Customers– Least active group.

• Lack of sufficently transparent information

• Suppliers

Secondary Stakeholder Pressure

• NGOs and Activists– Multiple bodies

• Communities and Governments– Multiple bodies little coherence

Tertiary Stakeholder Pressure

• Rankings– Multiple bodies making multiple

statements

• Global Standards– UN Global compact – OECD Guidelines for multi nationals – A flood of others

One organization’s example Forms of Stakeholder

Engagement• Advisory Panel for Social Responsibility• Staff Consultative Forum• Retailer Forum• Annual consultations with all stakeholders

– surveys and discussion groups.

• Cross-stakeholder seminars on major policy areas– under age sales– parental awareness campaign– ‘Game Design Protocol’

• Virtual stakeholder exchange

One organization’s example Stakeholder Engagement: key to

Sustainability

• Transparency and Accountability• Developing mature relationships • Managing tensions between

stakeholders• Defining appropriate decision options• Embedding integrity in business • Enhancing trust and reputation

But what really is the answer then ?

• The answer is there is no answer.

“Academics and practitioners have been striving for an agreed upon definition of CSR for 30 years” Carroll (1991)

• There is a responsibility for potential senior managers to work this out for themselves.

• This issue doesn’t look like its going away.

Ethics

• “The values determining the relationship between one person and another, the deep values that help hold a society together and are manifest through people’s behaviour toward each other” Garratt (2003)

Ethics • The age of individualism replacing

collective care and identity. • But, in post-modern reality, as

institutions fade, people have to craft their own morality – Who am I ?– How shall I live ?

• People need to work out their own set of applied ethics

• And managers need to do this whilst accepting that they have acquired some responsibility with that title

Educating the Barbarian Elite

“The education of managers must concern their reality: in other words, the practice of their craft, which is more art than science, akin often to acting in a play which they have plotted under certain direction towards an unknown conclusion. Their education must help them to understand their reality and if it is fiction, then like all fiction it must reveal its moral context.”

Anthony 1998 p.274: Management Education: Ethics versus Morality.

Managers : Victims or Villains ?

• Corporate Irresponsibility: America’s Newest Export. Lawrence Mitchell (2001)– Managers are victims of corporate USA– Two forces

• Legal & Normative Structures combined

– Normative shaped by ideal of LibertyLiberty • Freedom and Equality

– But prize freedom over equality• Individualism gone mad• Drives organizations to profit maximiation at all cost

– Legal is anthropomorphising organizations• Organizations ought not to have individual freedoms and

irresponsibilities• But organizations lack human qualities of empathy,

compassion, concern and conscience

Whose Disease ?

• Anglo-American view of capitalism• It is not the only view • Rhinish model of capitalism requires

organizations to serve social ends• But the Anglo-American model is

spreading rather than receding.• Exporting corporate irresponsibility

European or "Rhinish" capitalism - that is, French and German. One of the features of this other capitalism would be the effort to safeguard against market instability a basic set of rights and social benefits. Another characteristic would the ability of governments of negotiating, alongside labour unions and employers associations, agreements destined to reconcile salary improvement with currency stability and business rentability. The history of the last decades in North Atlantic is the history of the practical and ideological weakening of this so-called "Rhinish" alternative. Its techniques of social and economic stabilization ended up being seen as the sacrifice of the collective interest in growth and employment in benefit of a powerful minority of organized workers and protected enterprises. Its generosity in social spending as incompatible with realism and responsibility in public finances. And its defence of acquired labour rights is an onus on innovation and efficiency that impoverished many in order to benefit a few.

So there are private and personal and there are societal pressures involved here….

CSR is a fast growing and highly controversial area

where it is easy to take an extreme position and much more difficult to hold a balanced and

pragmatic line

What will your view be ?

The Beginning of Working it Out

• Taking responsibility for one’s own practice and stance as a manager.

• Case study work ‘E.N. Corporation’