CSR

Corporations…

• are separate legal entities

• posses perpetual existence

• own its own assets

• are regarded as “artificial persons” in the eyes of the law

• are hypothetically “owned” by shareholders, but exist independently of them

• managers and directors have “fiduciary” responsibilities to protect investment of shareholders (principal-agent-problem)

• increasing environmental damage & awareness

• increasing scarcity of resources

• decline of welfare states

• increasing income disparity

• increasing number of scandals

• real people make the decisions in a firm

• companies do not have a conscience

• cannot feel moral obligation

• companies unlike citizens cannot vote

• a company is an artificial person that has to pay taxes, can sue and be sued

• a company has its own reputation and image

• inner structure & variables form its employees and influence their decision making

• articulates opinions and decisions

1. Stakeholder:

   • proposition that companies are responsible not only for maximizing profits, but also for recognizing the needs of such stakeholders

2. Areas of Responsibility:

   • acknowledge that they should be publicly accountable not only for their financial performance but also for their social and environmental record

3. Nature of Responsibility:

   • Operating a business in a manner that meets or exceeds the ethical, legal, commerical, and public expectations that society has of business

Business reasons:

• extra and more satisfied consumers

• employees might be more satisfied

• better reputation

• prevent negative legislative

• long-term investment in the busienss environment

Moral reasons:

• corporations are responsible for social problems and thus have to solve them

• corporations should use their power responsibly

• all activities of them have a social impact

• corporations rely on contributions of many stakeholders, not just shareholders

A concept whereby companies integrate social and environmental concerns in their business operations and in their interactions with their stakeholders on a voluntary basis

• Stakeholder

• Social

• Environmental

• Economic

• Voluntariness

Tata Group (IMI)

• Industrialization - community development

• Modernization - workplace and public community development

• Internationalization - stakeholder orientation in community, environment, marketplace, and workplace (CEMW)

Tata Group

• Industrialization: philantrophy, ownership transferred to charitable trusts (POTC)

• Modernization: 8-hours workday, provident fund 32 years ahead of government regulations, townships for employees (3 details)

• Internationalization: activities (VTDR) such as volunteering, training, disaster response: Climate Change Champions Programme (CCCP), water champions program (WCP), Tata index for Sustainable Human Development Taxonomy (TISHDT), Tata Sustainable Group (TSG) (7 details)

1. The social responsibility of business is to use wealth for soical ends (SRBW)

   • great wealth should be administered “for the common good … the man of wealth thus becoming a mere agent and trustee for his poorer brethren” (Andrew Carnegie)

2. CSR as a vehicle for wealth creation

   • “(Robert owen) argued that fair treatment of workers could result in a return equal to 50 percent to 100 percent on money invested”

3. CSR legitimizes business to society and government

   • “the continuing socio-institutional influences were, if anything, more important than those influencing the businessmen’s earlier lives” (Jonathan Boswell)

1. Society Actors

   • core context of CSR

   • societies have expectations and certain power over busienss, particularly concerning legitimacy

   • These expectations are sometimes conveyed directly to business but otherwise societies use governmental authority to regulate business

   • CSR issues, modes, and rationales (RIM) reflect the expectations that society make clear

2. Business Actors

   • main actor of CSR. While societal expectations shape CSR and its evaluation, business choices g ive it substance and shape

   • Business is in society where its effects are experienced by members of societies

   • The nature of business organization varies from the sole traderm through partnerships, SMEs, corporations, and MNCs, and the balance of these has also varied historically

3. Governmental Actor

   • Governments have been the key rule makers and institutional shapers for business responsibility

   • Governments have also made regulations that directly impact CSR (e.g., subsidies for CSR activities/ organizations)

   • Its role in shaping CSR goes back to the fundamental issue of its role in regulating the corporate from (e.g., ability of corporations to operate for profits)

   • National governments have mediated its spread within their own jurisdiction

• causes to which CSR is addressed

• reflects key items or underlying trends, governmental agendas, or refers to events

• CSR now reflects specific consumer and investor social preferences and includes core governance issues

• how CSR is enacted (foundations, corporate codes etc.)

• shift from CSR being entirely organized by the companies to reflecting shared organization with other actors

• Why companies engage in CSR

• combine principles and strategies

—> CSR is highly context dependent

1. Industrialization (Boots)

   • Issues: community, employee welfare, poverty, health, insurance

   • Rationale: social responsibility is to use wealth for social ends, health for the poor as a business model, and stakeholder orientation in the community as a business model

2. Modern corporation (Tata Group)

   • Issues: workplace and public community development

   • Rationale: workplace and public community development as a business model

3. Internationalization

   • Issues: shareholder orientation in community, environment, marketplace and workplace

   • Rationale: corporate social responsibility as a business model

—> there is no common definition

• However, definitions usually consider:

  • the stakeholders towards a company is responsible for

  • the areas of responsibility

  • the nature of responsibility a company has

• Stakeholder

• Environment

• Social

• Economic

• Voluntariness

—> Limitations of the model: applies well in Europe or US but for example in developing countries societies would prefer philanthropic responsibilities before economic

lowest layer:

• economic responsibilities - required by society and for business reasons (“be profitable”)

first layer:

• legal responsibilities - required by society and law (“Obey law, play by rules”)

second layer:

• Ethical Responsibilities - expected by society (“Do what’s right just and fair. Avoid harm”)

last layer:

• Philanthropic responsibilities - desired by society (“contribute resources to community, improve quality of life”)

• instrumental theories - achieving economic objectives through social activities

• political theories - responsible use of business power in political area

• integrative theories

• ethical theories

• maximization of shareholder value

  • long-term value maximization

    • (socially responsible investment strategies)

• strategies for competitive advantages

  • social investments in a competitive context

  • strategies for the bottom of the economic pyramid

  • strategies based on:

    • natural resource view (NRV) of the firm

    • dynamic capabilities (DC) of the firm

      • (e.g., people cant afford 2€ shampoo so they make it smaller and sell it for 1 €)

• cause-related marketing

  • altruistic activities are socially recognized and used as an instrument of marketing

    • (e.g., red iPhone - for each purchase 1% revenue for aids/HIV research or every purchase plant a tree)

• corporate constitutionalism

  • Businesses social responsibilities arise from the amount of social power that they have. In other words, “with great power, comes great responsibility” (Uncle Ben)

    • social responsibilities & business arise from the power they have

• integrative social contract theory

  • assumes that a social contract between business and society exists

    • assumes a contract between business and societies in order to receive the “OK” from society to do certain things they do (CSR)

• Corporate Citizenship

  • the firm is understood as being a citizen with certain involvement in the community

  • E.g., Sullivan Principles in south africa such as non segregation of races, and equal and fair employment

    • firm seen as a citizen with involvement in community things that are not enforced by law but are expected from a “good” citizen (Sullivan principles)

1. public responsibility

   • law and the existing public policy process are taken as a reference for social performance

2. Issues management

   • corporate processes of response to those social and political issues which may impact significantly upon it

3. Corporate social performance

   • searches for social legitimacy and processes to give appropriate responses to social issues

4. Stakeholder management

   • the business should recognize their responsibilities to all groups affected or can be affected by the business’ decision makin

   • maximizing shareholder values while taking into consideration stakeholder interest

   • balance the interests of the stakeholder of the firm

1. Stakeholder normative theory

   • considers fiduciary duties towards stakeholders of the firm

   • its application requires reference to some moral theory

2. universal gifts

   • frameworks based on human/labor rights and respect for the environment

3. sustainable development

   • aimed at achieving human development considering present and future generations

4. the common good

   • oriented towards the common good of society

• Since early 2000s, the disclosure on CSR has taken a strategic turn with an increasing number starting to embrace positive, productive, innovative, and value-creating aspects of CSR

• In the wake of corporate scandals – e.g., Enron (2001) or Volkswagen (2005) – and the global financial crisis (2008), the proposition that we can rely on the invisible hand of the market to secure beneficial outcomes for society does not seem very comforting to many

• already reached a point where it is no longer a matter of whether but only of how companies are to engage in CSR

• These conditions called for new, more accommodating economic approaches to CSR  in this context the strategic CSR emerged

• “Strategic CSR”: a matter of attributing an economic purpose or quality to responsibility, that is, a purpose or quality above and beyond doing good for the sake of doing good

—> being responsible and profitable

• In practice, information comprising the ‘business case argument’ is generally based on 5 key aspects of

  • Strategic fit

  • Options appraisal

  • Commercial aspects

  • Affordability

  • Achievability

• applying the capitalist model to adress issues in society (issues like hunger, environment, water, etc.)

• "it’s about making money” & “understanding, by that, all the companies can have fundamental impacts on almost all the major issues in society”

• get capitalism working integral to addressing the problems of society

• rethinking how we practice capitalism, not only taking the money and spending it on something good

• not possible for all companies in all situations

• busienss model that leads to profits and simultaneously considers social and environmental issues

• The strategic CSR/CSV mindset is much better aligned with core competencies and the concrete strategic outlook and challenges of individual business, in their particular settings

• the shared value represents an internally driven, positive, and innovative mindset and therefore it has much better prospects of motivating corporate action and creating a lasting drive for development

• There is no need for radical transformation but for bold yet realistic visions of how we can move beyond the status quo with capitalism

• Legitimacy issues

  • CSV does not deal with fundamental, systemic problems of corporate philantrophy

• Value blindness and conceptual confusion

  • Porter and kramer argue that CSV is not about personal values and dismiss conventional CSR leading to unnecessary conceptual confusion

• measures of value and social impact

  • the lack of clarity and precision in the definition is also reflected in problems with the operationalization and measurement of the concept

• compliance and the big picture

  • by taking compliance for granted they underestimate the ongoing challenges involved in securing compliance in different social settings. They also fail to capture the big picture of CSR by not addressing how the broad accountability perspectivie of CSR can be aligned with more focused agenda of CSV

• Delivering on integration

  • porter & kramer fail to provide concrete recommendations on how integration is to be achieve in organizational and more holistic teams. As a result, shared value activities can be practiced by companies that are simultaneously involved in irresponsible acitivities

• Ruggie (2008) has proposed that we now live in a world characterised by “governance gaps… between the scope and impact of economic forces and actors, and the capacity of societies to manage their adverse consequences”

• The idea of ‘governance gaps’ has played a key role in the ‘political’ CSR literature because it suggests the need for multinational corporations to increasingly provide for a variety of (global) public goods (e.g., basic human rights; rules of governance) that have predominantly been associated with states.

• The notion of governance gaps, or ‘regulatory vacuums’ (e.g., Matten & Crane, 2005: 172), helps quickly reveal that MNC policies and practices are often not immediately subject to any sort of meaningful regulation or democratic legitimation.

• Not all goals have clear numerical targets

• Some goals are too ambitious

• “Top-down” initiative according to many developing countries

• Some elements of the MD are not included

• Little or no consideration given to their implications or feasibility at the regional/country level

• Biosphere (Environmental)

  • Goals 6, 13, 14, 15

• Society (Social Issues)

  • Goals 1, 2, 3, 4, 5, 7, 11, 16

• Economy (Prosperity)

  • Goals 8, 9, 10, 12

• Transversal dimension

  • Goal 17

Companies are an essential or at least an important driver for the SDGs. First of all, they have power, be it in money or influence. With that, they can make a big impact in their supply chain for more environmental products. Moreover, working conditions can be fair with fair wages, social aspects, and well-being.

—> Implement and report on the followed SDGs

Step 02: map value chain - identify main impact areas, identify positive & negative impacts, define priorities

Step 03: SMART Goals

Step 04: integrating has the potential to transform all aspects of core business

Step 05: continously to understand and meet stakeholder needs

• Legitimacy reasons - get legitimacy by stakeholders

• institutional reasons - companies are expected to provide information, more and more regulations for reporting, trend is that companies are becoming obligated to do it

• Companies face certain direct and indirect institutional pressures that impact companies’ values, norms, structures, governance methods, and sustainability reporting (VNSGS) (Jamali 2016; Spira & Page, 2010)

• CSR reporting practices signal investors that their companies have capabilities to fill institutional voids(Su et al., 2014).

• The company’s actions are proper, appropriate, or desirable (PAD) within some socially constructed system(SCS) of norms, values, beliefs, and definitions (NVB). (Suchman, 1985). CSR reporting practices can be considered to gain legitimacy.

• Different interest groups or persons affect and are affected by the practices of the company. (Freeman 1984). State, policy makers, and regulators can be considered a stakeholder.

• country-level: national culture

• industry level: media pressure, social & environmental impact, sector affiliation

• company level: company size, profitability, ownership structure

1.     Benefit:

• CSR reporting can increase the company’s legitimacy (generalised perception or assumption that the actions of an entity are desirable, proper, or appropriate).

• CSR reporting allows a company to measure and improve its CSR level.

• It is an effective method of stakeholder engagement.

• By disclosing social, environmental and governance information, enterprises often find that they can better identify and manage issues that influence their business success, including their financial success and strategy.

2.     Risks:

• It requires an ongoing stakeholder engagement to serve the company and its stakeholders.

• CSR reporting is anything but a simple and straightforward task, particularly if the company desires to do it well. It requires resources, including human resources, money, time, expertise, social networks, and human capital.

1. identify stakeholders

2. who of them will read the report?

3. for which information are they looking?

—> address the three P’s = Plant, People, Profit

Major detailed areas:

• strategy, risk, and opportunity

• materiality

• targets and indicators

• suppliers and the value chain

• stakeholder engagement

• governance of CSR

• Transparency and balance

• gather relevant issues (impact of…, impact on…)

• prioritize them based on relevance for stakeholders and impact on the comapy

• governance gaps - lack of intergovernmental regulations in some areas, MNCs often escape from national governments by moving their operations to a different country

• Heterogenous corporate practicies - standardizing commitment to social and environmental practices

• business in need of legitimacy - corporations looking for ways to legitimize activities

• changing NGO landscape - NGOs look for ways to partner with firms, NGOs have also gained knowledge on how to operate and develop standards

• Principle-based Standards

  • broadly defined guidelines

  • foundational values

  • use as a starting point for initiating CSR

  • e.g., UN Global compact

• Certification Standards

  • verified compliance

  • auditors assess a company

  • if you pass you are awarded with seal of approval

  • e.g., Forrest Stewardship council

• Reporting Standards

  • frameworks for disclosing information

  • e.g., Global Reporting Initiative

• Process Standards

  • give guidance on how to understand key terms

  • outline management processes

  • e.g., ISO guidelines

—> “better to live with bad standards, than to live without standards”

—> CSR - the more information public, the better for end-consumers - less information asymmetry (standards provide additional information, which leads to better decision making of customers possible

• multiplicity of standards

  • the coexistence of multiple CSR standards with a similar purpose is often seen as a challenge

  • it confuses suppliers and end consumers, rather than supporting them

  • standard setters differentiate themselves and hence coexist

• Lack of inclusiveness in Standard Development

  • while many CSR standards claim to be multi-stakeholder initiatives, in practice there are variations in terms of included stakeholders and their quality of their participation

  • some standards only “consult” stakeholders and hence do not involve them actively

• limits of certification

  • monitoring does not always ensure full compliance, many adopters opt for superficial implementation (i.e., decoupling of standards from everyday practice)

  • audits are often announced and the neutrality of auditors needs to be questioned

Social accounting is the voluntary process concerned with assessing and communicating organisational activities and impacts on social, ethical, and environmental issues relevant to stakeholders

—> no linear system, but circular

• Internal and external pressure

• Identifying risks

• Improved stakeholder management

• Enhanced accountability and transparency

• Perceived high costs

• Lack of standards

• Secrecy

• Insufficient information

• Inadequate information systems

• Unwillingness to disclose sensitive or confidential data

Both practical and moral reasons. Four main issues

• internal and external pressure

• identifying risks

• improved stakeholder management

• enhanced accountability and transparency

• inclusivity of information

• comparability

• completeness

• evolution of performance

• management policies & systems

• disclosure

• external verification

• continous improvment

Environmental management systems - the process through which organisations implement environemntal goals, policies, and responsibilities and ensure regular auditing and reporting of these approaches, beyond legal compliance

• GRI - Global reporting initiative

  • Mission: give transparency, dialogue about impacts

  • Why: GRI exists to help organizations be transparent and take responsibility for their impacts so that we can create a sustainable future

  • How: create global common language for organizations to report their impacts —> informed dialogue & decision-making

• SASB - Sustainability Accounting Standards Board

  • “Sustainability issues are business issues

  • independent standards setter led by nine-member standards board

  • follow rigorous, evidence-based market-informed process

  • maintain industry-specific standards for 79 industries in 11 sectors

  • designed for use in public, annual financial reports targeted to investors

  • guided by a strong conceptual framework grounded in financial materiality

  • operated under the auspices of the SASB Foundation a non-profit organization