Public Governance and Regulation of Private Corporate Social Responsibility

1. Public Governance and Regulation of Private Corporate Social Responsibility Manasakis Constantine, MBA, PhD Department of Political Science, Univ. of Crete Düsseldorf Institute for Competition Economics, Univ. of Düsseldorf

2. Case studies IT: http://www.benettongroup.com/sustainability/company-approach GB: http://www.onedestination.co.uk/ MT: http://www.airmalta.com/information/about/corporate-social-responsibility GR: http://www.titan.gr/en/corporate-social-responsibility/ UN: http://www.shiftproject.org/page/un-guiding-principles-business-and-human-rights

3. Some basics • Strategy is an organization’s process of defining its roadmap and making decisions on allocating its resources to pursue this strategy. • Strategic planning deals with three key questions: • “What do we do?” • “For whom do we do it?” • “How do we excel?”

4. Some basics • The key components of “strategic planning”: • Vision: Outlines what the organization wants to be in the long-term and how it wants the world in which it operates to be. • Mission: Defines the fundamental purpose of the organization, describing why it exists and what it does to achieve its vision - Answers the question: “Why do we exist?” • Values: Defines the culture and beliefs that are shared among the stakeholders of the organization. • Actions: Well-defined objectives and things to be done.

5. Levels of strategy • VISION: “What is the ideal position of the organization?” • MISSION: “How can the organization reach this ideal position?” • VALUES: “What motivates the organization?” • ACTIONS: “What are the goals that the organization must commit to, in order to reach this ideal position?”

6. The case of Microsoft

7. The case of Microsoft

8. The case of Microsoft

9. The case of Microsoft

10. Introducing Corporate Social Responsibility • Mainstream corporate practice (ECO101): The objective of each company is to maximize its profits. • Worldwide trend - Increasing number of firms: • Account for the social consequences of their activities, making considerable efforts to become, or at least to appear as, socially responsible. • Contribute to social and environmental objectives, through integrating CSR as an investment into their core business strategy - management - operations. • Since 1993, a KPMG's tri-annual survey suggests a steady growth in the number of firms with a CSR strategy, including well defined objectives. • KPMG (2008) reports that 80% of the top 250 companies of the Global Fortune 500 have a well-defined CSR strategy compared to 52% in 2005.

11. Introducing Corporate Social Responsibility • Mission: Companies signal to their various stakeholders that they are socially responsible. Stakeholders:Individuals, communities or organizations that affect, or are affected by, the operations of a company. Stakeholders may be internal (e.g. employees) or external (e.g. customers, suppliers, shareholders, financiers, the local community).

12. Defining Corporate Social Responsibility CSR: “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on voluntary basis” (European Commission, 2001) “Voluntary commitment to integrate social and environmental concerns…” has been highlighted in the definition of CSR by the World Business Council for Sustainable Development (1998): “CSR is the commitment of businesses to behave ethically and to contribute to sustainable economic development by working with all relevant stakeholders to improve their lives in ways that are good for business, the sustainable development agenda, and society at large”.

13. Types of CSR activities Two types: • Philanthropy oriented donations. • Investments in production technologies and business processes, along the value chain, in favor of the firm's stakeholders. (ii*) Firms care about their involvement in socially responsible actions (i.e., a “warm glow”), instead of donating to “intermediaries”.

14. CSR: The internal dimension I. Investments in human capital and health and safety (Complementary to legislation and control activities by public authorities). Equal pay and career prospects for women, concern for employability, job security, non-discriminatory hiring against social exclusion. II. Investments in environmental management of natural resources used in the production. Reducing the consumption of resources, reducing polluting emissions and waste, reducing energy and waste disposal bills, lowering input and de-pollution costs.

15. CSR: The external dimension Increasing number of companies: • Promotes CSR strategies, as a response to a variety of social, environmental and economic pressures. • Adopts codes of conduct covering working conditions, human rights and environmental aspects. • Objective: To improve the corporate image and reduce the risk of negative consumer reaction.

16. Consumers’ response to CSR • Consumers perceive firms’ CSR activities as a “quality improvement” of the products. • Widespread evidence from manufacturing industries, tourism services and agricultural production suggests that consumers express a willingness to pay a premium for goods and services produced by SR firms. • SR Consumers: • Respond positively to the firms’ efforts for social responsibility. • Show strong preference for CSR related products, instead of buying products not connected to CSR that cost less and donating the rest of the money to a socially responsible cause.

17. Certifying CSR • The socially responsible attributes, attached to products through firms’ CSR activities, are classified as a credence good. • Search goods/services have features and characteristics that are evaluated before consumption. Examples: Cameras, new cars. • Experience goods/services have features and characteristics that can be evaluated only upon consumption. Examples: Used cars, healthcare services. • Credence goods/services have features and characteristics that cannot be evaluated even after consumption. Examples: The environmental impact of a good’s production process.

18. Certifying CSR • The socially responsible attributes, attached to products through firms’ CSR activities, are classified as a credence good. • Information-asymmetry problem: Once consumers have been convinced that a firm has undertaken the missioned CSR efforts, the firm has incentives to cheat them and avoid any spending on costly CSR activities. • There is need for an information disclosure mechanism that credibly signals the firms’ CSR efforts to consumers. Certification by a third party, verifying “the fulfillments of a firm to certain criteria or standards”, serves as such a mechanism.

19. Certifying CSR: Reporting and auditing Many companies are now issuing Social Responsibility Reports. KPMG (2008) reports that 80% of the top 250 companies of the Global Fortune 500 issue a certified CSR report compared to 52% in 2005. • Social Impact Assessment: Systematic analysis of the impact of a business project or operation on the social and cultural situation of affected communities. • Social report: A document communicating the findings of a social impact assessment.

20. Certifying CSR: Reporting and auditing For-profit private certifiers Ecocert [http://www.ecocert.com/en]: Certifies producers whose products fulfill some environmental criteria Scientific Certification Systems [http://www.scsglobalservices.com/]: Certifies issues in Forestry; Environment; Food and Agriculture Non-for-profit private certifier The Global Ecolabeling Network [http://www.globalecolabelling.net/]: Certifies environmental performance Public certifier Eco-Label [http://ec.europa.eu/environment/ecolabel/]: Certifies products and services with a reduced environmental impact throughout their life cycle Question: What is the optimal regulation of the certification market from a social welfare (market performance) point of view?

21. Socially responsible investments • Recently, SR investing has experienced a strong surge in popularity among mainstream investors. • Being recognized as a SR enterprise (listing in an ethical stock market index), can support the rating of a company and therefore entails concrete financial advantages. The recent rise of Socially Responsible Investment (SRI) and respective “ethical” indices (KLD Domini 400 Social Index, Dow Jones Sustainability Index, FTSE4Good Index) suggests that investors base their investment decisions not only on financial criteria but also on social performance criteria.

22. The economic impact of CSR • Direct effects: Positive direct results derive from a better working environment, which leads to a more committed and productive workforce or from efficient use of natural resources. • Indirect effects: Result from the growing attention of consumers and investors, which will increase their opportunities on the markets.

23. The economic impact of CSR: Evidence • Going beyond legal compliance contributes to a company’s competitiveness and profits. • Firms undertaking CSR activities perform better than those not undertaking. • A “doing well by doing good” strategy through their engagement in CSR activities. • “Being a good corporate citizen can also make a firm more profitable”.

24. Initiating a CSR strategy Interdependence between a company and society. Need to map: • Inside-out linkages: A company impinges upon society through its operations in the normal course of business. • Outside-in linkages: External social conditions influence corporations.

25. Initiating a CSR strategy • Every company operates within a competitive context which can be divided into four broad areas: • The quantity and quality of available business inputs. • The rules and incentives that govern competition – antitrust policy, tax and investment subsidization framework. • The size and sophistication of local demand influenced by quality standards and consumer rights. • The local availability of supporting industries, such as service providers and machinery producers. • Any and all of these aspects of context can be opportunities for CSR initiatives.

26. Choosing which social issues to address • Each company must select issues that intersect with its particular business. • Generic social issuesmay be important to society but are: • neither significantly affected by the company’s operations. • nor influence the company’s long-term competitiveness. • Value chain social and environmental issuesare those that are significantly affected by the company’s activities in the ordinary course of business.

27. The EU political context • CSR is in line with the basic message of the Sustainable Development Strategy for Europe agreed at the Göteborg European Council (2001): The long-term, economic growth, social cohesion and environmental protection go hand in hand. • CSR contributes to the strategic goal of Europe 2020 Strategy for “...Sustainable growth, through a decisive move towards a low-carbon economy”.

28. The EU role for the promotion of CSR • Disseminate CSR best practices making them relevant to business practitioners, SMES of all sectors and industries, policy leaders, consumers, investors and the wider public. • Establish structured dialogue processes about CSR between companies and their various stakeholders on CSR. • Promote greater application of CSR principles through its policies and its presence in international fora.

29. A fresh start to the Lisbon agenda • Launching a Partnership for Growth and Jobs (February 2005) March 2005 Spring Council: the Commission recognized that CSR “can play a key role in contributing to sustainable development while enhancing Europe’s innovative potential and competitiveness”. • Renewing its Sustainable Development Strategy (December 2005) The Commission called “on the business leaders and other key stakeholders of Europe to engage in urgent reflection with political leaders on the medium- and long-term policies needed for sustainability and propose ambitious business responses which go beyond existing minimum legal requirements”.

30. A new definition of CSR (EC, 2011) • To fully meet their CSR, enterprises should have in place a process to integrate social, environmental, ethical, human rights and consumer concerns into their business operations and core strategy in close collaboration with their stakeholders, with the aim of: • Maximizing the creation of shared value for their owners/shareholders and for their other stakeholders and society at large. Adopt a long-term, strategic approach to CSR, and to explore the opportunities for developing innovative products, services and business models that contribute to societal wellbeing and lead to higher quality and more productive jobs. • Identifying, preventing and mitigating their possible adverse impacts. Carry out risk-based due diligence, including through their supply chains.

31. EC 2001 vs. EC 2011 EC 2001:CSR is a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on voluntary basis. EC 2011:To fully meet their CSR, enterprises should have in place a process to integrate social, environmental, ethical, human rights and consumer concerns into their business operations and core strategy in close collaboration with their stakeholders, with the aim of: • Maximizing the creation of shared value for their owners/shareholders and for their other stakeholders and society at large. • Identifying, preventing and mitigating their possible adverse impacts.

32. Theories mapping the roots of CSR 1./ Instrumental theories • A company is an instrument for wealth creation. • Maximizing the shareholders’ value is the core criterion to evaluate CSR activities. • Any CSR activity is accepted if, and only if, it is consistent with wealth creation. • Only the economic aspect of the interactions between business and society is considered. • Concern for profits does not exclude the interests of a firm’s stakeholders.

33. Theories mapping the roots of CSR 2./ Political theories • Focus on: • interactions between business and society • the power and position of business and its inherent responsibilities. • A sort of implicit social contract between business and society implies direct and indirect obligations of business towards society.

34. Theories mapping the roots of CSR 3./ Integrative theories • How business integrates social demands, arguing that business depends on society for its existence, continuity and growth. • Corporate management should take into account social demands, and integrate them in such a way that the business operates in accordance with social values.

35. Theories mapping the roots of CSR 4./ Ethical theories • Firms ought to accept social responsibilities contributing to achieve an ethical society. • Normative approach: The interests of all stakeholders are of intrinsic value, that is, each group of stakeholders merits subjective considerations for its own sake.