Corporate Social Responsibility

1. Economic Profits Corporate Social Responsibility Environment Planet Social People Nathalie CRUTZEN HEC-Management School of the University of Liege (Belgium) ncrutzen@ulg.ac.be 1

2. "Sustainability has been our salvation" Ray Anderson, CEO of Interface flooring

3. "Sustainability represents the greatest opportunity for the next generation" Lee Scott, Former President and CEO of Walmart

4. Today's agenda • Student introductions • Online assignment • Symbols of CSR / sustainability • Readings: The Economist, Matten and Crane • Context • The case for and against CSR • Fundamental theories and concepts • Company examples • KLM • Starbucks • Wal-Mart • …

5. You! Your name, Where you're from and Something which characterizes you… which makes you distinctive

6. Pre-module assignment • Symbols of CSR / sustainability (Session 1) • Video / Film Clip on CSR / Sustainability (Session 4) • CSR heroes (Session 9) • NGO and NPO heroes (Session 3)

7. Sustainability report presentations • Begin on Friday 15 June. All presentations take place in the second half of class , after the break (10:45) • Friday 15 June – Siemens advocates and critics • Monday 18 June – Danone advocates and critics • Tuesday 19 June – GSK advocates and critics • Wednesday 20 June - Toyota advocates and critics • Format • Powerpoint, in English • Length of presentation: 20 mn. followed by 10 mn. Q/A session • In general, 20-25 slides • Each person in group should have a role in preparing and presenting. • Resources on Wiki • Links to sustainability report • Points for advocates to cover • Grading criteria / evaluation sheet • Good student examples from spring CSR module taught at ESC Rennes • Make it interesting - feel free to be creative! • Break up into groups for 15 mn. to introduce yourselves and schedule your preparation time. 7

8. Introductory video http://www.youtube.com/watch?v=GggyVO21hw8&feature=watch_response

9. Context Worldwide scandals and disasters (Ex. EnRON, B. Madoff; Exxon Valdez, BP oil spills; Nike, Gap) http://www.youtube.com/watch?v=MbjC9SMKClE http://www.youtube.com/watch?v=pkEYtsUkFRY Increasing transparency (Internet, NGOs)  “Firms are being WATCHED” The Financial Crisis (September 2008) and the related worldwide economic crisis !! Increasing awareness for global environmental and social challenges Pollution, water withdrawal, biodiversity, climate change, Poverty, health, fight for talents, etc. http://www.youtube.com/watch?v=a9I3Q6-ZSTI&feature=related http://www.youtube.com/watch?v=YsMw4TQ6DY4 9

10. Major Environmental Issues • Climate change • Energy • Water • Biodiversity and land use • Chemicals, toxics, heavy metals, nuclear waste • Air pollution • Waste management • Ozone depletion • Oceans and fisheries • Deforestation

11. Climate change • A primer by National Geographic http://www.youtube.com/watch?v=-MY-i_kdwe0 • Consequences • Hotter temperatures – 2003 Europe (what about 2011/2012?) – 26,000 deaths • Rising sea levels • Disrupted eco systems • Increased ocean temperatures and intensity of windstorms • Environmental refugees

12. Biodiversity • Biodiversity is the degree of variation of life forms within a given ecosystem, biome or an entire planet • Biodiversity is a measure of the health of ecosystems. Greater biodiversity implies greater health http://www.youtube.com/watch?v=V1VYmpTikgw • European Network for Biodiversity http://www.enbi.info/forums/enbi/index.php • Global Issues http://www.globalissues.org/issue/169/biodiversity

13. Social Issues • Aging of the population • Health • Poverty • Racism • Well-being • Stress • Local development • Etc.

14. SustainableDevelopment http://www.youtube.com/wat http://www.youtube.com/watch?v=FS7o4g5kzMM&feature=related ch?v=B5NiTN0chj0&feature=related

15. ContextSustainableDevelopment • If one wants to favour a sustainabledevelopment of the Society/World, need to considerthreecomplementary and interdependentpillars : • Economicdimension - creation of wealth for all thanks to a sustainable production and consumption • Environmental dimension – preservation and adequate management of naturalresources • Social dimension – equity and involvement of all social groups • Separately, each dimension does not contribute to an optimal development of the World.

16. Sustainable Development Economic Profits Taxes paid ROI, sales Job creation Air & water quality Energy usage Waste treatment Environment Planet Social People Social: Diversity Labor practices Societal: Human rights, unemployment 16

17. What is CSR?Responsible management? 17

18. Corporate Social Responsibility (CSR) • !! False friend !! • Corporate? • Social? • Manydefinitions – not a generally-accepted one ! • Contribution of (individual) firms to the SustainableDevelopment of the Society • “(Voluntary) integration, by firms, of social and environmental concerns in their business operations and in their interaction with their stakeholders" (European Commission, 2003)  Sustainable and Responsible Businesses

19. What is CSR? Corporate social responsibility (CSR) is about how businesses align their values and behavior with the expectations and needs of stakeholders - customers and investors, but also employees, suppliers, communities, regulators, special interest groups and society as a whole (the public sphere). CSR demands that businesses manage the economic, socialand environmental impacts of their operations to maximize the benefits and minimize the downsides. CSR  "ESR" Environmental and Social Responsibility" Source: http://www.csrnetwork.com/csr.asp 19

20. Corporate Sustainability is a business approach that creates long-term shareholder value by embracing opportunitiesand managingrisksderiving from economic, environmental and social developments. Dow Jones Sustainability Index site 20

21. Corporate sustainability leaders, [responsible managers]achieve long-term shareholder value by gearing their strategiesand managementto harness the market's potential for sustainability products and serviceswhile at the same time successfully reducing and avoiding sustainability costs and risks. Dow Jones Sustainability Index site 21

22. Whatdoes CSR meanforthesecompanies? http://www.youtube.com/watch?v=P_zgtlW2TWY&lr=1 http://www.youtube.com/watch?v=Nly_OdvORQY http://www.youtube.com/watch?v=Is_HRAttonE&feature=related

23. Core/centralcharacteristicsof CSR (Crane et al., 2008) • Voluntary (beyond the law) • Managing “externalities” (side effects of economic behavior that are borne by others but, traditionally, that are not taken into account in a firm’s decision making process and not included in the market price for goods and services) • Multiple stakeholder orientation • Alignment of social and economic responsibilities • Practices and values • Beyond philanthropy (beyond largesse towards the less fortunate)

24. Historical development of CSREarly 20th century • Europe • Tendency to address social issues through governmental policies and collective actions • Paternalism of big business: housing, education, healthcare provided • France: Michelin tires, Godin (ovens) • England: Cadbury’s – Germany: Krupp • USA • “CSR is essentially a US idea” (“limited role” of the government) • Particularity of the US system (fairly unregulated markets for labor and capital, low levels of welfare state provision, etc.)  many social issues have traditionally been at the core of CSR. • Philanthropy (10X higher than in UK) (limited role of the government + tax incentives): from Carnegie and Rockefeller to Warren Buffet and Bill/Melinda Gates foundation • http://www.gatesfoundation.org/Pages/home.aspx • http://www.youtube.com/watch?v=7b51coOxZKo&list=PL7BD4E280453ECD7D&index=3&feature=plpp_video • http://www.youtube.com/watch?v=oyBVIcV6e5k 24

25. Forces for change • Civil Rights Movement(1950s and 60s, USA) • NGO activism (Greenpeace’s and Amnesty International’s boycotting campaigns) • Regulationsresulting from industrial catastrophes (Bhopal, Exxon Valdez) • Growing awareness of ecological issues: global warming, biodiversity. Rejection of materialism in late 1960s. • Historical divides enhanced by globalization and financial crises: North/South, social, rural/urban  precariousness, social exclusion 25

26. CSR boom starting in 1990s • Sustainable Development (SD) and CSR are became integratedby a growing number of companies of all sizes in different industries and in different countries • Fashionable phenomenon profound movement • Paul Hawken's Wiser Earth movement • 130,000 organizations working toward social and environmental justice. • The most advanced companies have put in place specific strategies, structures, action plans, and reporting tools • These participate in specialized networksto exchange good practices throughout their supply chains ripple effect in the entire industry. Ex. Cefic (European Chemical Industry Council) http://www.cefic.org/sustainability/Cefic-Sustainability-Report-2011-2012/ 26

27. Why bother with CSR? • To do what others do? • To save the planet? • To feel less guilty? • To do “something”? • To improve the company's reputation?  Several motivations : • Market reasons • Competitive reasons • Legal reasons • Marketing reasons • Real values

28. "Business only social responsibility is to maximize profits, within the limits of the law.A company ’s major contribution to general welfare is the efficient production of goods and services.Social action should be left up to concerned individuals and government agencies." "CSR is a fundamentally subversive doctrine". Not everyone agrees… Milton Friedman, American Nobel Economist, 1973 28

29. Friedman's arguments against CSR • The purpose of a business: maximize profits within the limits of the law • Only human beings – not corporations - have moral responsibility for their actions. • The manager is an agent serving the interests of his principal, those who own the corporation, and should • Act solely in the interest of the shareholder • Not spend shareholders' money at her/his discretion 29

30. Countering Friedman's arguments • At the time Friedman voiced opposition to CSR, his arguments could and did not take into account phenomena which occurred after the 1970s: • Globalization: the power and mobility of MNCs (+ scandals) • Increasing transparency (Internet) – firms are being watched ! • Governmental failure in the west, the collapse of communist block. • High unemployment • Environmental risks which • know no borders • have social, political and economic effects. • His arguments rest on assumptions about • The nature of the modern corporation • The role and capacity of governments 30

31. The case for CSR Henry Mintzberg, professor at McGill U., Montreal • Moral imperative of social responsiveness – companies should anticipate and prevent social problems • Enlightened self-interest: "it pays to manage people right" • Watson & Wyatt survey: link between HCI and share price • Examples: Whole Foods, Southwest Airlines • Sound governance avoids government regulation. • A firm's strategic decisions have economic, social, and political consequences • Renault's decision to outsource Clio production to Turkey • Dow's decision to sell napalm to the U.S. Army in Vietnam • Copper mining in Zambia • The Economist reading's case for CSR? 31

32. The “business” case for CSR 32

33. 4 classifications of CSR theories (Garriga and Melé in Crane et al., 2008) Instrumental theories Political theories Integrative theories Ethical theories 33

34. 1. Instrumental theories Focus: Achievement of economic objectives through social or environmental means / activities • Sees CSR as a strategic tool to create wealth • Assumes positive “CSR  financial performance” correlation • 3 approaches: • Maximize shareholder value • Strategies for achieving competitive advantage • Cause-related marketing 34

35. Instrumental theoriesB. Strategies for achieving competitive advantage • Resources  long-term objectives  competitive advantage • Example: Bottom of the (economic) pyramid or BOP strategy • Make profits by "serving" the poor class of 4 bn. consumers through disruptive innovations - products / services produced at a lower cost, with fewer capabilities, adapted to target • These innovations can improve social and economic conditions http://www.youtube.com/watch?v=79JOHMrs8m4 http://www.youtube.com/watch?v=CPnx6gLcfK4&feature=related • Examples: • Dacia Logan (Renault) in Romania, now in France • Tata India automobiles http://www.youtube.com/watch?v=3WB87eo_obU • Solar energy panels in African villages • Vodafone and Safaricom: M-Pesa – Mobile Phone Payment solution in Kenya http://www.youtube.com/watch?v=B6m3xb6T5kk • Grameen Bank : micro-credit and mobile phone service in remote areas http://www.youtube.com/watch?v=TPk2gRuIdj0&feature=relmfu 35

36. Instrumental theoriesC. Cause-related marketing • Altruistic activities used as a marketing instrument • Contribute to a designated cause in order to create a reputation for a firm as "reliable and honest"  Increased customer loyalty and revenues • "Enlightened self-interest" - linking the company to a charitable cause  win-win situation • One example: • Avon's breast cancer foundation 36

37. 2. Political theories Focus: Responsible use of business power in the politicalarena A. Corporate constitutionalism B. Corporate citizenship 37

38. 2. Political theories Corporate citizenship http://www.youtube.com/watch?v=7bsMpShiOp0 • Definition: Companies acting responsibly (3 Ps), as citizens (ie. members of a community), toward the global and local communities • Corporations enter the area of citizenship at the point of government failure – "welfare state" crises and globalization • Deregulation process, decreasing costs + technological improvements have meant that some MNCs have more economic and social power than some governments • They can act as citizens  what are their rights, their responsibilities and the potential partnerships? • Example: Carrefour Brazil in 2008 collected 319 tons of clothing, water an food in response to torrential rains which left many people homeless • Forbes' rating of 100 top corporate citizens • Criteria: environmental impact, climate change, human rights, philanthropy, employee relations, financial performance and governance 38

40. 3. Integrative theories Focus: How business integrates social demands, as itdepends on society for its existence, continuity and growth (legitimacy, prestige) • Stakeholder management: responding to and balancing the interests of stakeholders – any person or group which affects or is affected by the firm  Tomorrow's topic (Session 2)! • Corporate social performance: Principles of CSR, Processes (stakeholder management, assessment, management) and Outcomes (social impacts) Example: Caroll's pyramid of social responsibility 40

41. 4. Ethical theories / approach to CSR Based on principles that express the "right thing" to do in order to achieve a "good society“ Anchored in moral philosophy theories Normative – "what should be" – as opposed to descriptive – "what is" Two approaches Universal rights Common good approach 41

42. 4. Ethical theories B. Common good approach • The common good is the supreme good of the society. A concept traditionally confined to philosophy, theology, and economics, more than management  Business has to contribute to the common good, because it is part of society.  Business should neither be harmful to nor a parasite on society, but purely a positive contributor to the well-being of the society • General categories of common goods: • Means of existence • Access to drinkable water • Basic alimentation • Energy • Habitat • Health • “Means” of co-existence between peoples • Freedom of information • Cultural diversity • Civil and political rights 42

43. Common goodMeans of existence issues Environmental • Climate change, protecting the biosphere • Ozone layer depletion • Pollution: air, water, noise • Access to water • Land use and pollution (chemicals, toxics, heavy metals, nuclear wastes) • Resource depletion • Oceans and fisheries  Biodiversity • Deforestation • Energy • The end of oil • Renewable energies: wind, solar, water, biomass,… Social issues • Poverty: the north-south divide • Economic development in emerging countries • Overpopulation • Inequality – growing in western countries "The Future We Want" - Improving the urban environment from "Force for Good" 43

44. SummaryCSR is good business • Improves reputation, brand image, and trust • Higher customer loyalty • Attraction and retention of top talent and employees • Benefit of doubt in crisis • Uncovers previously hidden commercial opportunities and potentially new markets • Reduces costs • Reduces risks: decreases vulnerability to misconduct & fines • Attracts investment capital 44

45. References Crane, A. & Matten, D. (2008), Corporate Social Responsibility: Readings and Cases in a Global Context. Routledge, 2008. Esty, D. C. & Winston, A. S. (2009), Green to Gold: How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage, John Wylie & Sons

46. Presentation of CSR Symbols

47. Discussion – Articles

48. “CSR is only relevant for large private sector companies” – Critically discuss and provide other examples

49. CSR in different organizational contexts CSR and the private sector Large corporations SME’s “20% of SMEs reported on their CSR as opposed to 62% of large businesses” (2003) CSR and the public sector Government still supply a lot of goods and services – Public sector organizations face similar claims, expectations – even more pronounced By definitions, “social aims” - run as “non-for-profit” organizations Particular impact on Society (eg. Quasi-monopolistic position) Roles Incorporating CSR in their values, strategy and operations Promoting CSR within their sphere of influence CSR and civil-society organizations

50. CSR in different regions of the worldIs CSR similar in various parts of the world (developed, developing or emerging countries)?Could you give some insights about CSR approaches/characteristics in your countries? Context, evolution, examples China, Colombia, Egypt, Finland, Germany, Greece, Lithuania, India, UK, US