Corporate Social Responsibility. A way forward for business?


Bachelor Thesis, 2014
72 Pages, Grade: 19/20

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Table of contents

Introduction

I. INTRODUCTION TO THE CONCEPT OF CSR
1. CSR: origins, possible definitions & implications
2. Examples of socially responsible activities
2.1 Michelin Tyres
2.2 Ben & Jerry's shared value
2.3 McDonald's
3. The normalization & drivers of CSR

II. RECONCILING CSR AND THE PERFORMANCE OF THE FIRM: THE POTENTIAL BENEFITS OF CSR FOR BUSINESS
1. From a Supply Chain Standpoint
2. From a Marketing Standpoint - Consumer relations
2.1 Internal Consumer Responses
2.1.1 Consumer Satisfaction
2.1.2 Consumer Trust
2.1.3 Brand Commitment
2.2 Behavioral/ Marketing Outcomes
2.2.1 Attitudinal and Behavioral Loyalty.
2.2.2 Willingness to Pay Premium
2.3 Counter examples : negative CSR information and the impact on consumers
3. From a Human Capital Standpoint - Employee relations
3.1 Recruitment
3.2 Job Satisfaction, Productivity and Retention
4. From a Financial Standpoint - Investor relations

III. CONDITIONS FOR. SUCCESSFUL CSR : BESTPRACTICES
1. Product and Service Quality.
2. Understanding Stakeholder Expectations
3. Measuring CSR Impact
4. Raising Awareness through Communications
5. Creating Shared Value through Smart Partnering
6. Integration to Corporate Strategy

Conclusion & FuturePerspectives : Towards Conscious Capitalism

Bibliography

Introduction

« The business of business is business » - this was Milton Friedman's famous sentence written in a 1970 article1, which is representative of the view of business and its purpose in society at the time, in line with classical economic theories such as Adam Smith's invisible hand of the market. According to such a view, companies should simply focus on pursuing profits, which will eventually lead to greater social good, and is the basis for successful liberal capitalism. Following this then dominant logic, companies and their management strongly prioritized satisfying their shareholders and meeting financial targets on the short-term in order to create more shareholder value and higher share prices in short periods of time. CEOs at the end of the twentieth century such as Jack Welsh from General Electric and Roberto Goizueta from Coca-Cola, amongst others, were advocates of this logic.

Over three decades after Friedman's statement, however, corporate scandals have accumulated, while at the same time new information technology gave more and easier access to information about corporations and their acts to citizens, at any time and anywhere. In the midst of such scandals, the 2007 financial crisis, which still endures today, hit the world economies : it appeared to the public that pursuing profits at all costs, for the sake of generating ever higher revenues in the short-term, had actually led to highly questionable practices, and had a major negative impact on society in most countries around the world. From this point onwards, a shift seems to have occurred in people's minds (consumers, employees, managers, investors, and citizens for instance): the financial crisis was held as a proof that the purpose of business was notjust business (in the sense of profit maximization) at all cost. Several drivers of societal change, which explain this shift, have been identified : the loss of public trust towards large corporations due to past scandals, increased media and public pressures, along with increased consumer empowerment through new information and communication technologies allowing the public to share and gather information about companies in real-time wherever they are in the world ; as well as aggravated natural resources and a higher public concern for health2.

In this context, a fundamental question was being raised and is heavily being discussed today as one of the key topics of management thought and practice: what is the actual role of business in society, and what are its links with society? Is the role of business to purely do business without considering its environment, or does it go further than this, companies being accountable for the social and environmental impact of their actions?

This new perception of business has impacted the way many companies, including the largest groups, are now managed and operate, and how they communicate with the public; it has also had repercussions on many graduate business schools which now offer Corporate Social Responsibility courses to their students, particularly in MBA classes. Initiatives to sensitize future business leaders to the impact of business on society have thus become more common ; the Council on Business & Society, created in2011 by Pierre Tapie, former dean of ESSEC, is a recent example of this: the goal was to encourage students, as future employees and managers, to « feel more and more concerned about societal issues, and be more conscious about the impact of their decisions »3 by investigating the links between responsibility and performance. The Council on Business & Society gathers leading management schools who share a common « broad view of the role of business in society »4

This relatively new phenomenon, referred to as corporate social responsibility or CSR, as an alternative to Friedman's shareholder-focused view mentioned above, has thus emerged and is gaining considerable momentum; that is to say that the traditional view according to which business and society are completely separate seems to no longer prevail, or, at least, is being more and more questioned. Since the crisis of 2007, and after several environmental scandals caused by companies such as Total or Nike, there seems to be broad expectations that businesses be responsible for their actions as companies are more and more blamed for creating social and environmental disruptions (and even demonized for doing so in extreme cases)5. The public now expects companies to behave in certain ways in relation to their environment - whereas up to then, the environment was more viewed as a tool, a resource to be used in order to achieve ever higher business and financial goals.

It now seems commonly accepted that business has a role to play in society, and should, if not contribute to its growth and well-being, at least strive to minimize the impact of its operations and negative externalities on society ; as such, companies are no longer considered as purely economical actors, but also as social institutions embedded in society. They are now increasingly being held accountable for their impact on the environment and society by the public, in the digital age where information about companies and their behavior is easily accessible by consumers, employees, NGOs and investors alike. Profit maximizing seems to no longer be the single priority ofbusiness.

As a proof of the growing phenomenon of corporate social responsibility and the importance given by management to it, all Fortune 500 companies have CSR policies in place. Companies now realize that their reputation hinges on their behavior towards society and their environment, and have taken on reactive approaches in the past to comply with expectations from the public, hence a great deal of cynicism among some when the topic of corporate social responsibility is discussed. Firms such as Nike were forced to respond to escalating public pressures and changing societal expectations following scandals about labor conditions and the employment of children, for example.

It seems that the traditional shareholder view supported by Milton Friedman has failed to produce long-term economic wealth and is now being increasingly rejected. What is more, companies now often communicate with the public about their corporate responsibility policies and efforts, and CSR seems to be viewed as an asset to achieve some sort of competitive advantage. We can ask ourselves: is this model viable, that is, is it possible to combine social responsibility of business on the one hand, and financial performance (remaining a key priority for any business) on the other hand? In other words, in particular in troubled economic times, can CSR have a positive effect on companies' bottom lines, and if so, what are the potential benefits for business and society, and which conditions should businessesfollow to benefitfrom CSR ?

This is the problematic we will try to provide answers to in this work, as the objective of this graduation thesis will be to establish clearer links between CSR and corporate performance,5 traditionally defined in terms of market value and profitability, by looking at four corporate dimensions through which CSR can create added value for businesses: the Supply Chain, Marketing/ Consumer relations, Human Capital / Employee relations, and Financial/Investor relations.

We will conclude by arguing that CSR is a considerable potential source of competitive advantage, by having a positive influence on the four dimensions mentioned above, so that companies should seek to conduct business in sustainable and socially responsible ways in a proactive approach, that is out of their own will, as opposed to being forced to react to public and media pressures.

Before discussing the possibilities of reconciling CSR and corporate performance, let us first introduce the concept of CSR itself, its origins, definitions and various implications.

I. INTRODUCTION TO THE CONCEPTOF CSR

1. CSR: origins, possible definitions & implications

The topic of CSR, also referred to as sustainability or simply corporate responsibility, has grown in importance both in the realms of academic research - since Clark's pioneering 1916 article6 later followed by the « father » of CSR, Bowen, in the 1950s7 - and more recently in the realm of corporate governance and management practice. This seems to have been spurred in part by the fact that companies are now perceived as more powerful than States (and, indeed, several have more financial means than entire national economies), and thus more able to solve societal issues, both in developed and developing countries8.

We now often see the term of CSR appearing in the media, it is extensively used by companies on their website and through their communication plans, and seems to be the fruit of a societal change in our modern society. The concept of corporate social responsibility, though, is not one that is straightforward to define, as there is no single, unified definition of CSR; however, two of its key principles can be outlined.

First, CSR is a voluntary effort going beyond legal requirements. CSR involvement reflects a company's «voluntary decision to integrate social and environmental concerns to their operations and their relationships with stakeholders »9, as defined by the European Commission; thus, CSR goes beyond simply complying to regulations in an attempt to minimizing public pressures on the company.

Secondly, from the same definition, CSR implies that companies consider their wider environment and recognize the impact of their activities on all stakeholders when taking decisions, which is based on the Stakeholder Theory as first conceptualized by Donaldson and Preston in 199510. Stakeholders are here defined as all people who are impacted by and/or can impact the company's operations, and thus have an interest in the company's activities; they include suppliers, employees, consumers and consumer associations, investors, governments and public organizations, NGOs, trade unions, the media and generally speaking, the public at large11. Moreover, stakeholders are critical to the survival of the firm, as they represent those groups without which a business could not survive. This part of the definition has later been highlighted by Freeman and Reed12, who have argued that organizations would not exist without the support of their stakeholders - thus, their interests should be considered when taking decisions that will most likely impact them either directly or indirectly.

The below, adapted from Donaldson and Preston's 1995 article13, shows the firm in relation to its various stakeholders, arrows in both directions indicating that there is a mutual influence and interdependence between the firm and each of the stakeholder groups. Since large corporations in particular have activities spread across different countries, they have a direct impact on citizens, local communities and other stakeholders across the world ; therefore, with public and media pressure along with real-time information, managers and business leaders are strongly encouraged to take actions that are aligned with the objectives and values of modern society, in an era where the public opinion is increasingly concerned about the effects that businesses, especially large companies, have on their environment; and where this opinion is more taken into account than before.

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CSR is thus strongly opposed to the shareholder view exposed by Friedman, according to which profit maximization and shareholder satisfaction are the only purposes of the firm (serving the interests of one stakeholder group only), by taking into account all stakeholders of a business in a pluralist and collaborative conception of the firm - which has other purposes than simply paying dividends to its shareholders. Shareholders become only a part of the organization's vision, along with all other stakeholder groups, seen as equally valuable. In short, Stakeholder Theory has broadened the scope of Shareholder Theory by adding all other stakeholder groups to the framework: CSR takes companies from creating value for shareholders only, with Economic Value Added being the key performance indicator, to adopting a broader and more collaborative approach to corporate governance14. The role of a company director is therefore to represent and serve, as an agent, the interests of all stakeholder groups15.

In the UK, testifying of this change, Section 172 of the 2006 Companies Act states that the duty of company managers and directors is to « promote the success of the company for its members (directors and shareholders), but also to have regard for other stakeholders such as employees, suppliers, customers and the environment», emphasizing «the impact of the company's operations on the community and the environment »16. The focus for company directors has shifted from looking solely at shareholders’ interests to include all other stakeholders in their decision-making.

CSR efforts can include many domains such as environmental pollution, representation of women and minorities or community development17, but CSR is articulated around three key dimensions, referred to as the Triple Bottom Line, a term coined by John Elkington in his 1999 book Cannibals with Forks: Triple Bottom Line of 21st Century Business18. This Triple Bottom Line consists of a combination of Legal, Economic and Social dimensions, also known as People, Planet, Profit; this is what the Council on Business & Society refers to as a having a « broad view » of the role ofbusiness within society19.

Essentially, a balance is to be stricken to satisfy all parties impacted by businesses, which exist within social and environmental contexts. CSR entices us to consider that, even though the different stakeholder groups might have some conflicting interests, on the whole, their interest can converge and thus should be treated in a holistic approach, unlike what was mainly being done until the financial crisis, as Edward Freeman explained in a recent interview with ESSEC20.

Quite similarly to the Triple Bottom Line concept, Carroll’s CSR pyramid separates several economic, legal, and ethical levels of corporate responsibility - companies have historically focused on economic and legal aspects first, and have turned to ethical aspects and paternalist behaviors recently, once they had secured strong economic foundations21: the idea is now to reconcile both business and societal goals.

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The different levels of corporate responsibility

This pyramidal representation adapted from Carroll’s work22 suggests that businesses must first be profitable, in other words fulfill their economic responsibilities, before engaging in other types of responsibility (in the same logic as Maslow’s pyramid of needs for humans, where people must first satisfy their physiological needs before looking for social belonging and a sense of realization). Thus, CSR is not to be confused with free-giving philanthropy, as profits (the economic responsibility of the firm) remain a priority. The economic responsibility, being essential for the survival of business, cannot be jeopardized in favor of the other dimensions. Freeman compares profits to the lungs of an organization, while CSR actions would be its heart: both are necessary for business to function in an optimized way23.

Now that large, modern corporations have stronger economic foundations than in the past and generally keep growing, they are able to act on the other levels of corporate responsibility; which als seems to explain why CSR is currently becoming such an increasingly popular concern. In other words, beyond classic economic responsibilities (being profitable, maximizing profits) and legal responsibilities enforced by law (obeying the law), companies also have ethical (avoiding harm and reducing negative externalities on the environment where they operate, promoting natural resources preservation) and social (being a good corporate citizen - improving quality of life in local communities where they operate) responsibilities.

As just mentioned, with CSR, companies still focus on traditional financial goals such as return on investment (Rol), margin and profitability and strive to reach such goals in order to ensure their survival and growth; unlike philanthropic actions, which do not consider the need for financial gains. However, in the concept of CSR as it appears today, financial goals are to be balanced with non-financial goals. Thus, Capron and Quairel-Lanoizelee have defined CSR as the way in which companies respond to social expectations by « introducing strategies, change and management processes, monitoring and evaluation tools including new concepts of (corporate) performance »24. Such new concepts are non-financial targets, for instance energy saving, waste reduction, sustainable production of goods or impact on local communities, to be leveraged with traditional financial ones. This implies a redefined concept of corporate performance, which was originally restricted to financial performance and data, to include broader, societal and environmental goals. Up until recently, it seems that most companies were viewing CSR efforts as secondary, not directly linked to their bottom line, and in some cases purely a way to respond to public pressures; this is now changing25.

To summarize, CSR implies that business leaders consider all stakeholders in their endeavor, and not only focus on delivering shareholder value at all cost - and at the detriment of other stakeholder groups and interests. The key idea behind CSR is that value created by the company should be shared, as equally as possible, between all stakeholders and split between the three realms of CSR (economic, social, and environmental) ; thus, the ultimate goal of CSR is for companies to strike a balance between business interests and the interests of society as a whole26, considering all stakeholders involved and creating environmental, societal, and economic value simultaneously. This somehow unconventional thinking would involve redefining or at least reconsidering purpose of business, and its place within society: implying that managers and people of all levels within organizations acknowledge that the end of business is also to serve society, not only to make profits for the sake of making profits, but to use these profits to share the value created with society. It would also imply that companies see themselves as part of an interdependent network including other actors and stakeholders - such as consumers, employees, suppliers and partners, investors, and citizens27.

On the whole, CSR has emerged from the realization that business and society and interrelated and interdependent entities: companies thus have a certain degree of responsibility towards society, and one needs the support of the other to survive and thrive, and vice-versa.

Now that we have introduced the concept of CSR and described its various implications, let us have a closer look at some examples of what is currently being done in terms of CSR, and how these examples relate to the Triple Bottom Line concept.

2. Examples of socially responsible activities

Most companies, in particular large organizations which already have strong economic foundations, now get involved in CSR in one way or another, and often communicate their efforts in the matter. By doing so, they contribute to building a new story for business, a new vision of its purpose in relation to society. Striking examples include companies such as Michelin Tyres, Ben & Jerry's, and, perhaps ironically it might seem, McDonald's.

2.1 Michelin Tyres

Michelin Tyres has sought to develop good relationships with local communities in the countries in which it operates, both in Western and developing nations. These CSR activities involve the three key factors mentioned earlier: economic, social and environmental.

The company has been involved in CSR programs such as the Ouro Verde project in Brazil, where it has worked with a local rubber plantation cooperative to promote sustainable economic, environmental and societal development. The project consisted of the building of a housing estate, a study center, a family agriculture program and led to job creation in the concerned area28. This is an example of environmental and social CSR action.

In the USA, Michelin’s Development Programme provides low-interest rate loans for start­ups, small and medium-sized businesses in Carolina; the mission statement of this program is to « create quality sustainablejobs and promote economic growth » in the local community29. For instance, in 2010, Michelin has lent $400,000 in low-interest loans to six small businesses to encourage their own growth. With such actions, Michelin positions itself as a positive player in the national economy, the national government alone not always being able to support small businesses. This program is an example of an economic CSR action.

Another CSR-led initiative which took place in Thailand in 2010, was a community development campaign where employees had the chance to submit proposals to the company in order to improve the situation in their home towns. The goal was to give something back to the community, according to Chain Luerchai, president of the company’s branch in Thailand30. This project involved employees directly and their ideas could have a real impact on how money was spent by the company in various provinces. This was a way to motivate employees and create a work environment where people could actually make a difference ; this initiative tackled both social and economic aspects of CSR.

2.2 Ben & Jerry's shared value

Ben & Jerry's founder Jerry Greenfield emphasizes the importance of incorporating non- financial performance indicators alongside financial ones when evaluating the company's performance. These involve social audits carried out once a year, during which key areas of improvement with regards to recycling or waste and emission reduction are being investigated. Since 2005, the company uses cage-free eggs and fair trade ingredients such as coffee and chocolate to produce its ice creams and yogurts, and has managed to reduce its CO2 emissions per gallon of ice cream by a significant amount, thirty-two percent, since 20 0231. The company was among the first ones in this sector to use fair trade products, and its target is to have all of its products entirely made from fair trade certified ingredients by the end of this year.

The company also controls working conditions of their suppliers abroad, ensuring that fair trade standards are consistently met.

It is also engaged in community development, mainly through its Vermont Dairy Farm Sustainability Project in cooperation with the University of Vermont, USA, since 199932. The goal is to tackle critical farming issues such as water quality impact (avoiding erosion, nitrogen and phosphorus losses) and farm profitability by providing Vermont farmers with leading management practices (related to crop management for example) to secure economic growth along with environmental sustainability. This is done in collaboration across the agricultural industry, with feed suppliers and nutritionists for instance. Ben & Jerry's have implemented a similar program across Europe, called Caring Dairy, which measures and tracks dairy farms' performance based on eleven indicators such as nutrients, soil loss, animal welfare, water and energy waste, social/ human capital and pest management; as a result of such initiatives, farms are better managed and are able to reduce their excess nutrient supply, as well as their water impact, so that overall efficiency is improved while the environment is better preserved.

Thus, both economic and environmental goals are achieved. Ben & Jerry's then encourage farmers to improve on the eleven indicators by delivering tailored workshops and sharing best practices - for instance the focus based on past 2012 results will now be on social and human capital (working conditions) as well as pest management. The company also encourages farmers on the Caring Dairy program to reinvest money in the local economy, source goods locally and raise community awareness of the environment.

Ben & Jerry's communicate their efforts for a lower environmental footprint on their packaging and on their website. Jerry Greenfield defines the company as a « caring, community-based business »33 and argues that this precisely has made the company's profits grow. Thus, improving the taste of the products themselves is not the only objective, but their production is designed around limiting the company's societal and environmental impact, recognizing the central role that companies play in society.

Furthermore, Ben & Jerry’s CSR efforts are centered around three dimensions, which are closely related to the Triple Bottom Line as defined earlier; the Product Mission (manufacturing and distributing dairy products of the highest natural quality, in respect of the environment); the Social Mission (conducting business in ethical ways, that is not only limiting negative externalities of operations on communities but actually improving local standards of living and educating farmers with best practices); and, finally, the Economic Mission (ensuring profitability targets are met and growth for the future is secured, while rewarding employees). Thus, the Product Mission relates to the environment, by reducing the impact of corporate activities (environmental dimension), the Social Mission refers to society (social dimension), and the last one to the economic responsibility of the firm (economic dimension).

The company claims a business model built around creating « shared prosperity», by simultaneously delivering value for the environment, society and shareholders (combining environmental, societal, and economic value). Combining both CSR activities and profitability targets is what Porter and Kramer refer to as shared value (which Ben & Jerry's management called shared prosperity) : value which benefits both businesses and their wider environment, so that community and business development go hand in hand. Bowen had already expressed the view according to which social responsibility could be a way of solving economic problems, and help reach financial goals, as soon as in the 1950s34. According to the concept of shared value, societal progress improves the firm's own economic value and vice- versa ; there is reciprocity and interdependence between society and business, in other words, a more harmonious relationship between both is achieved.

2. 3 McDonald’s

McDonald's have also chosen to include CSR as part of their corporate governance, and have identified five core areas related to CSR: Nutritional Information, Supply Chain Sustainability, Environmental Responsibility, Employee Experience-Commitment, and Community Involvement, as represented below35. Going back to the Triple Bottom Line framework, Supply Chain Sustainability relates to both economic and environmental dimensions of CSR, while Employee Experience, Community Involvement and Nutritional Information are linked to the societal dimension. The company also uses a 3Es framework similar to the Triple Bottom Line: ethical, environmental and economic.

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Key actions of the company include, in terms of sustainability of the supply chain, adhering to agricultural standards named McDonald's Agricultural Assurance Programme - products receive accreditations for safety and quality of production methods, in order to ensure product traceability, quality, and to reduce unnecessary production costs (economic dimension). The concern with such standards, though, is that they are only an internal tool which is not verified by a third-party, more impartial, organization ; because of this, the company's integrity can be questioned by stakeholders here.

Moreover, McDonald's asks that its suppliers abide by a Supplier Code of Conduct, which seeks to guarantee that human rights, freedom of association, and anti-bribery policies are respected and effectively implemented in the workplace (social dimension). In 2010, ninety- five of the one thousand six hundred and two suppliers had agreed to it36, showing some room for improvement.

Most notably, the company puts a strong emphasis on reducing its carbon footprint and the impact of its packaging on the environment37: packaging is partially made from re-cycled material, and assessments to find new ways to reduce its weight - making it both more environmentally-friendly and cheaper to produce - are regularly carried out (in 2010, close to thirty percent of every packaging was made from re-cycled contents)38.

By providing consumers with nutritional information on what they eat, and attempting to increase the servings of fruits and vegetables per meal, McDonald's seems to be trying to reduce the negative impact of its food on consumers, which is particularly critical in a country like the USA where obesity is a big issue. Since 2006, the number of fruits or vegetables serving per meal has increased, and the product range has been broadened to include healthier, less caloric eating options, in partnership with the Alliance for a Healthier Generation, and in twenty different countries as part of a plan to be rolled out until 202039.

Finally, McDonald's use an environmental scorecard in order to keep track of all energy and water consumption at all of its branches, in order to spot potential areas of improvement, and reduce waste where possible. A similar scorecard is used by other companies such as Procter & Gamble40.

b. The normalization & drivers of CSR

Along with the trend of CSR comes the trend of social reporting: companies now communicate their CSR policies and efforts to their stakeholders, as they do with financial reporting for financial information and statements aimed primarily at shareholders. Companies can thus evaluate their performance beyond traditional financial indicators, and send a strong message to not only shareholders, but to other stakeholders such as consumers, suppliers and employees as well.

In order to track and evaluate companies' social responsibility efforts, a growing number of non-financial norms have appeared and rating agencies have specialized in extra-financial performance measurement41, as a result of the need for transparency and to show explicit results supporting companies' CSR statements. Research by KPMG has revealed that in 2000, six percent of the surveyed companies had CSR reporting initiatives in place, while in 2010, this figure rose to thirty-six percent, as it is becoming a priority for many companies. The primary purpose of such reporting was then to give an account for social performance, improve internal processes and to actively engage with stakeholders.42 A later 2011 KPMG survey revealed that a hundred percent of UK companies were already issuing reports on their CSR initiatives - close levels were reached in Japan, South Africa, France and Denmark to name a few43.

Companies use various norms in their social reporting, such as the following seven key norms, which the Global Reporting Initiative (GRI) from the International Integrated Reporting Committee (IIRC) proposes to harmonize44: the UN Global Compact Principles ; the Global Sullivan principles ; the ILO conventions on working conditions ; the OECD Guidelines for Multi National Enteprises; Social Accountability 8000; and ISO environmental and safety norms.

Taking the example of the UN Global Compact Principles, companies who have signed agree to align their operations with ten principles relating to human rights, labor, environment, and corruption. These core principles have been approved by over six thousand firms in a hundred and thirty-five countries today, when only two hundred companies had signed to them back in 200245 - which goes to show the growing trend of CSR reporting. By agreeing to such principles, companies take a formal step towards playing an active role in the development of local communities by raising local living standards, and, in a broader sense, encouraging human development by ensuring fundamental human rights are respected. As defined by the United Nations :

« The purpose of development is to offer people more options. One of their options is access to income - not as an end in itself but as a means to acquiring human well-being. But there are other options as well, including long life, knowledge, political freedom, personal security, community participation and guaranteed human rights »46.

The GRI proposes a reporting framework which assesses corporate performance using financial performance as an economic indicator, alongside environmental and social indicators such as environmental factors; labor practices and working conditions; human rights; and product responsibility47. It also measures stakeholder inclusiveness, that is the extent to which companies respond to their various stakeholder groups' demands and interests48, which, as mentioned before, is a corner stone of CSR.48

Such a variety of norms highlights the latent risk that too much audit, focusing on data and numbers for the sake of corporate rankings, might hide or prevent real actions to back the figures. Also, CSR reports, made internally by the company, though applying the principle of transparency, might not be perceived as genuine by the public, but as a way to exaggerate limited actions purely to enhance corporate reputation. It is arguable that managers can get overly concerned by what the public thinks about the company's behavior and engage in symbolic CSR efforts for public relations purposes only, without any real environmental or societal impact; this counter-phenomenon is called greenwashing. CSR is therefore sometimes viewed by some as a mere form of propaganda, used as a means for companies to justify themselves in the eyes of the public, which does not truly serve the interests of either society or business effectively49.

As it seems, CSR reporting is becoming the norm for business ; such increased reporting is due to the fact that companies appear more aware of the impact of CSR on their stakeholders, particularly on consumers, employees and investors. They thus hope to gain some form of advantage over industry peers50.

Indeed, reports from KPMG in2011 and Deloitte in2013 have highlighted several key drivers behind CSR initiatives and reporting. KPMG has found that the key drivers of such intense CSR reporting were related to brand reputation, ethical considerations, employee motivation, and innovation. Eighty percent of executives surveyed in the report thought that CSR was either a source of innovation or of new business opportunities51. According to Deloitte's 2013 Business Trend report52, the motives behind CSR involvement were again linked to corporate and brand reputation, regulatory control over operations, and meeting the now higher expectations of stakeholders and the public. CSR reporting is not only regarded as a legal obligation anymore, but as as a tool for competitive advantage, revealing a change of management perception. Taking the example of N100 companies for instance, KPMG research53 has shown that benefits from CSR reporting stemmed from two sources: direct cost savings, through sustainable production and supply chains, and reputational rents, achieved through stakeholder relations.

So how do the various stakeholders of a company react to its CSR information? How do businesses benefitfrom being socially responsible? Even though the effects of CSR often seem not clearly understood or identifiable, we shall see in the next part why businesses should actively engage in CSR and why it is now criticalfor the survival and growth of companies.

II. RECONCILING CSR AND THE PERFORMANCE OF THE FIRM: THE POTENTIAL BENEFITS OF CSR FOR BUSINESS

Companies now face increasing pressures from various stakeholder groups to perform well both financially (pressure from investors and the market), and in terms of meeting expectations of social responsibility (pressure from the media and the public at large).

In order to meet stakeholder expectations, managers now have to make decisions that go beyond legal requirements, and beyond their company's direct economic interests, to ultimately bring benefits to society while still generating profits.

We shall now see how CSR can be reconciled with corporate performance through direct and indirect effects. Indeed, CSR can impact the company's results indirectly by influencing three types of stakeholders - consumers, employees and investors54. It has been empirically proven that it can influence customers in their purchase intention or brand preference; prospective employees in their search for a job and current employees' performance; and potential investors in their investment decisions55. In fact, CSR can be regarded as a way of enhancing the company’s organizational reputation, in order to influence its stakeholders positively and reap significant rewards. CSR also has a direct impact on performance through sustainable supply chains.

In order to show how CSR can create value for organizations, let us first look at the direct costs savings potential of CSR, from a Supply Chain perspective, before diving into CSR's potential reputational rents in the laterparts.

1. From a Supply Chain Standpoint

The production methods of organizations have a critical impact on all three social, economic and environmental dimensions of CSR - and many companies have adopted the key principles of the lean supply chain philosophy, first implemented by Ford in the USA and Toyota Japan for the manufacturing of their cars56. Such a philosophy is not limited to the automotive industry and can be applied to organizations of various sizes and operating in different sectors, in order to make their operations more sustainable.

Sustainable Supply Chains represent the direct route to CSR value, increasing operational efficiency and reducing operating costs. This value can be created through the systematic elimination of unnecessary activities (muda, waste in Japanese) across the various supply chain activities. In order to do so, companies can use the following five principles of supply chain best practice, as outlined by Womack and Jones57 and further developed by more recent authors such as Hines et al58.

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The first step consists of identifying what creates value for the customer, and which activities do not add value from the customer's perspective ; then, companies can identify the operations required to design, order and produce the goods, highlighting waste in the different steps of the value chain; thirdly, operating methods and processes can be designed so that a continuous flow is created, with no under or over production, following the rate of demand and thus optimizing stock holding. The company produces what is being pulled by the customer, in a just-in-time approach. With such a flow, there is little waiting time, unnecessary inventory and waste. Finally, companies can continuously look for ways to improve their supply chains and removing further layers of waste, applying a Total Quality Management approach.

Benefits from sustainable supply chain management include product quality (measured by stock-outs, customer response time, percentage of on-time delivery, and product availability); efficiency in terms of utilization, productivity and cost reduction (measured by inventory levels, warehouse utilization, truck fill rates and cost of delivery); and finally, reliability of the supply chain and responsiveness to customer needs and market changes (measured by time to market, response time, order flexibility, tracking of the products and traceability). In environmental terms, organizational performance can be improved through reduced emissions, natural resources utilization, waste and material recycling (measured by C02 emission reductions, water and energy utilization, percentages of recycled packaging and materials, as well as reduction of obsolete inventory)59.

Taking the example of Kraft Food, the company has implemented a new tracking system in 2008, in order to identify and eliminate miles driven without any cargo (that is, excessive transportation, one of the key sources of waste and gas emissions60 ).

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1 Friedman, M. The social responsibility ofbusiness is to increase its profits. The New York Times Magazine. 13 September 1970.

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Title
Corporate Social Responsibility. A way forward for business?
Grade
19/20
Author
Year
2014
Pages
72
Catalog Number
V271271
ISBN (Book)
9783656622987
File size
946 KB
Language
English
Tags
corporate, social, responsibility
Quote paper
Clement Bourcart (Author), 2014, Corporate Social Responsibility. A way forward for business?, Munich, GRIN Verlag, https://www.grin.com/document/271271

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