Corporate
social
responsibility:
Why
bother?
Lars
Isaksson,
Tim
Kiessling,
Michael
Harvey
CorporateSocialResponsibility(CSR)isnotanewconcept, butunfortunately hasbeen defined inso many ways,it is oftenmisinterpreted.Infactit hashad40years toevolve fromasomewhatinfantconcepttoasuccessfulmanagerial toolto builda company’s reputation inthe global market arena.Corporatesocialresponsibilityhasbecomecorporate strategicresponsibility—animperativeelementofcorporate global business strategies. Many leaders, entrepreneurs, investors, executives and politicians now recognize CSR’s potential for differentiation and positioning in the global marketplace. In the 21st century, we find CSR to have a remarkableacceptanceamongpracticingmanagers;publicly tradedcorporationsespeciallylabelCSRanessentialtoolfor theirlong-termlegitimacyandprofitability.CSRhasmatured fromitsinfancy,becomingacorporatereputational adding-valuestrategyforfirms.
GLOBAL
ISSUES
I:
PLAYING
THE
MARKET
Theliability-of-foreignness is acommon problem for firms entering new markets. Companies expanding their opera-tionsbyenteringanewhostcountryfacescrutinybylocal competitorsandcustomers.LundinPetroleum isaSwedish resource-prospectingcorporationactiveinAfricaandformer SovietUnionsatelliteregions.Chiefexecutiveofficer(CEO) IanLundinsaidinaninterviewthatthereasontheyengagein CSRisthat:
Weviewourbusinessasnotonlyhavingapermittooperate inourmarketsbutasociallicensetooperate.Wefurther want tojointly understandourstakeholders toprevent misunderstandingsandmisperceptions.Assuch,wealign CSRtoreducebusinessrisk,tobuildourreputationandto achieveacompetitive advantagewhengovernments ap-proveourpermitapplications.Attheendoftheday,the stockholdersdependonustodotherightthingshortterm tomaximizereturnlongterm.Associetyevolvessodowe. Allbusinessispartnershipswiththesociety.
CompanieslikeLundinPetroleumdonotengageinCSRfor window-dressingpurposes.Theyhaveexperiencedfirst-hand thatCSRisamarketforcethatcanhavebothshort-runand long-runconsequences.Byassigningastrategicstatustothe conceptofcorporateresponsibility,theyascribeCSR intan-giblevaluewithlong-termbenefitsrelativetotheirmarket participants (investors, employees, customers and geogra-phical stakeholders affected by their business activities). Theythereforeallocatecorporateresourcestoensurethat theirCSReffortsresultinwin-winoutcomesforthecompany andthemarketenvironment.
GLOBAL
ISSUES
II:
WHISTLE
BLOWERS
Recently, whistle-blowers have surfaced suggesting that some firms have been causing environmental and ethical malfeasance. Organizations likeWikiLeaks have beenused tounveil‘‘wrongdoings’’bygovernments,corporationsand individuals.ThisalsofuelstheneedforCSRtobestrategic. Therecenttechnologyracehasrestructuredpeoples’ acces-sibility to, and usage of mobilecomputing. We have wit-nessedaradicalshiftinwhichmobiledeviceshaveshifted frommerediaryande-mailfunctionstobecominguniversal portals actively targeting social issues. The avalanche of smartphones,pen-tabletsandcloudcomputingapplications in combinationwith socialmedia likeFaceBook, LinkedIn, YouTubeetc.havenotonlymadeitextremelyeasyforanyone toreachmillionsofpeopleinsecondswithshameandblame storiesofsociallybadbehaviorsfromcorporations,butalso generatedacravingforit.Peopleofallages,socioeconomic backgrounds,race,religionandgeographyusesocialmedia to be seen, heard, accepted and possibly to provide an existential meaning. The enlightened,communicative and sometimes vitriolic consumer has been born. It is easy to envisiontheirexpectations:‘‘throwthemtothelions;’’‘‘the richandgreedyshouldnotescapepunishment;’’‘‘let’sgive themasseswhattheywant.’’Inmanycasesthere’sasincere urgetomaketheworldabetterplace,yetsometimesitis Availableonlineatwww.sciencedirect.com
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oftenjustindividual sensationseeking. Likedigital gladia-tors,enlightenedconsumerstodaytakeonpersonalcrusades relativetospecificfirmsiftheyperceiveacompanyas‘‘bad’’ (guiltyornot)inregardstoitsmarketplacebehavior.
When British Petroleum (BP) failed to safeguard their offshoredrillingactivitiesintheGulfofMexico,leadingto the2010oilspill,activistsintheU.K.punishedBPbyerecting barricades hinderingmotoristsfrom refuelingtheircarsat BP’sgasstations.WhenthefashioncompanyTommyHilfiger wasexposedaskeepingchildreninsweatshopandslave-like conditionsinBurma,activistsmanagedtohurttheirsales,as consumersabandonedwhattheyperceivedasan‘‘unethical brand.’’Whiletheguiltwascertaininthefirstcase,itwas notinthesecond.TommyHilfigerwasinnocent,astheywere victimized by counterfeit operations. The sweatshop belonged to a criminal network. Sometimes corporations gettheshameandblameevenwhentheyareinnocent.
Regardlessofexistinglevelsofmarketexposure, corpora-tionsriskbeingtargetedbyactivistsandarethereforebetter offwithsufficientportionsofreputationalarmorprotecting theirgood-standingandmarketlegitimacy.Itisbettertobe prepared(beingcredible)beforehandshouldthe‘‘troublehit the fan.’’ Even governments can be targeted. When the Frenchsecretservice, DGSE,hadtwoagents bombingand sinkingtheGreenpeacevesselRainbowWarriorinAuckland, NewZealand in 1985, to protect thevessel from entering French military nuclear test zones in the South Pacific, citizens of most European countries joined the protesting activistsandcondemnedtheFrenchgovernment.Thisledto a massive boycott of French produce — mostly wines — openingthemarketfortheAustralianandNewZealandwine producers.Whentheconsumersgotaccustomedtothe sub-stitute winesmost consumers never returned to purchase Frenchwine.Theestimated20percentannualdropinwine exportshasnotrecoveredsince—threedecadeslater.
CSR
AS
A
CONCEPT
Currently CSR is a corporate behavior and management philosophythatanincreasingnumberofcorporations world-widechoosetoadopt.Theunderlyingperspectivehas there-fore shifted toward a global perspective of strategic CSR instead ofa focuson aone-country/one-issue orientation. The typical and traditional set-up of a CSR program entails a corporation contributing some set of resources (usually people or money) for a socialimpact outside the normal scope of the company. In simple terms, they give money to some cause that is not part of their corporate tradingactivities.Somecorporationsallowtheiremployees to engageinsomevolunteer workwhilebeing paidbythe employer.Onesuch corporationistheAustralianbranchof PriceWaterhouseCoopers(PWC),whichin2010joinedforces with the NGO (non-governmental organization) Mission Australiatomentoryoungpeoplefromchallengedareasin management skills.This increases therecruitment pool of future topmanagers within PWC,educates theyoungsters participating in the program andattracts new customers. NewcustomersspecificallyselectedPWCastheirpartnerdue totheirreputationandcompositionofCSRactivities.Other corporationsengageintheprovisionofcleandrinkingwater inunder-developedAfricanvillages,wherethe environmen-talimprovementcontributestothewealthdevelopmentof
thatsociety.Bothexamplescanincreaseacompany’smarket sizeintheformofnewcustomerslong-term.
NumerouscorporationsinEurope,theUnitedStatesandin theAsia-Pacific region(forexampleMicrosoft,BMW,SONY, Toyota, Colgate-Palmolive, IKEA, Carlsberg and LEGO) are convincedthatCSRcanimprovetheirbrand,theirreputation and their financial performance. A study performed by PriceWaterhouseCoopers reported that as many as 70% of internationalCEO’sbelievedtheirCSReffortstobevitalto their firm level profitability, and KPMG’s 2012 report of CorporateResponsibilityechoedthesebeliefs.Theupdated 21stcenturyversionofCSR:‘‘CSR_v2.0’’,provides opportu-nitiesdemandingasincereapproachwhichinturnmustbe managedandimplementedstrategicallytobevaluable.
STRATEGIC
CSR
CSRisused to reinforcefirm corporatestrategyor togain somespecificbenefitintheglobalmarketplace.The phar-maceuticalcorporationsGlaxo-SmithKlineandAstra-Zeneca deploy CSR to support their long-term legitimacy, being dependentonanimalandhumaninvivoresearch.TheFMCG giantNestleusesCSRtoincreaseproductqualityandoutput fromtheirsuppliersbyeducatingsuppliers(farmers)inIndia. ThefirmsGAPInc.andOriFlameengageinCSRasameansto buildcredibilityof‘‘natural’’productswithaslow environ-mentalanduserimpactaspossible.Theindustrialglobaltool companySandvikengagesinCSRtoprotectthegroupfrom lawsuits,litigationandtodetectandfightcorruption.These companiesandthousandsofothercorporationstakea long-terminvestmentapproachtoCSR.TheyalsoviewCSRasa meansto createor increasesome competitiveadvantage, withtheultimateeffectofincreasingtheirperformance.
Whileexecutives for a long time have understood and acceptedthatbrandimagecanincreasefirmperformance, CSRnow shares thatrole. CSR also increases a company’s credibility,whichalongwith reputationprovidesaformof insurance(reputationalcapital)incaseofsub-optimal ethi-calbehavior.WhenTelenor(atoptenglobal telecommunica-tions company) in 2008 was targeted regarding workers’ safetynegligencebytheEuropeanmedia,theirshareprice decreased approximately 5 percent. A sub-contractor to theirsubsidiaryinBangladeshdisregardedcontractual agree-ments(regardingworkers’safety),leadingtofatalaccidents aroundtheiracidicgalvanizationpools.TheCEO,JonFredrik Baksaas,personallyvisited thefactoryinBangladeshtwice withhisauditexecutivestoensurethatasolidsolutionwas reinstated,audited andmanagedlong-term.Since Telenor hadastrongCSRreputationandimmediatelytookactionto rectifythesituation,thesharepricewasrestoredinafew weekstoitsformerlevel.Thebadpresswasconsidered‘‘out ofcharacter’’ forthe otherwise wellreputed corporation. Their prompt action was soon positively reported in the Europeanmediaandbymarketanalysts.
Globalcompaniesarenowchallengedwithmorecomplex interactionsanddiverseinterestsofmultiplestakeholders.It isnotenoughtolookaftercustomersorsuppliersalone,but alsothosewhocan,mightandwillbeaffectedbya corpora-tion’soperationsandmarketactivities.Itthereforeappears thatcompaniesneedtoapplyabroader,moreholisticmarket approachthatextendsoutsidetraditionalrealmstobetter
servecompanyobjectives.Intheprocess,firmswillalsoact intheirbestinterestsastheyengageinbuildingtacitvalue andfutureorientedcompetitiveadvantages.
GAP Inc. has created a CSR program called P.A.C.E. (PersonalAdvancementandCareerEnhancementProgram). Inthisprogram,GAPprovidestheirsuppliers’factoryworkers ‘‘lifeandworkskillseducation —inareassuch as commu-nications, decision-making, time and stress management, andhealthandnutrition—thatbenefitthembothathome andatwork.’’P.A.C.Ehasbeenagreatsuccess.Todaymore than5000 female factoryworkers from sixcountries have participatedin GAP’sstrategicCSR program.Oneof GAP’s largestvendor partners in India has found this innovative programtobesobeneficialthattheywillrollouttheP.A.C.E programtotheirentireworkforcecovering60,000workersin 34factories.
CSR
IN
THE
MARKETPLACE
Customers are today increasingly more organized, more informedandmore demandingthan earliergenerationsof managersencountered.Thesenewmarketpressuresdemand andreinforce that thecompanies’ overall strategy should embrace and implement CSR as a core business function. CorporationstodayoperationalizeCSRwithaspecificstrategic intention and communication resources to carefully craft andexecutetheCSRdeliverables,suchasGAPInc’sP.A.C.E program.Companies are including CSR in their strategy to obtainsomespecificbenefitinreturn.Atthemultinational telecomcompany Millicom,theconsultingfirm PriceWater-houseCoopers and the pharmaceutical giant Astra-Zeneca, CSRprogramsaresaidtobedirectlyresponsibleforincreasing theacquisitionandretainmentofcustomers.
While CSR can provide several potential opportunities, CSRcannotcreatethesepotentialbenefitswithoutstrategic alignment. Companies need to plan, organize, manage, implement,communicateandcontrolCSRinthesame fash-ionastheywouldanyotherstrategiccomponent.Companies mustsynchronizeandalignCSRwith theoverall company-levelobjectives.For CSRto besuccessful,afirmneedsto perform organizational adjustments, review structures of intra-departmental, and intra-stakeholder relationships andinstillanincentivizedsupport.Managerswhoare ignor-ingtheCSRpotentialwithoutstrategicunderstandingofCSR mightpostpone or neglect valuable CSR activities,savings andinvestments.Thiscanleadtoextensivefuturecostsifthe company islater condemned by stakeholders for violating somesociallyperceivedobligation.
The AustraliancompanyJames-Hardie (manufacturerof fibercementbuildingproducts)systematicallyignoredearly warnings regarding the severe health effects of asbestos, resultinginamulti-billiondollarclass-actionlawsuit.Amore recentexampleis the2010 Gulfof Mexico oilspill bythe British Petroleum companyBP. InEurope, offshore drilling companies are required to install mechanical locks (at $500,000 each) which prevent blowouts should the drill pipe malfunction at the seafloor. BP successfully lobbied theU.S.CongresstoexcludesuchprecautionsintheGulfof Mexico.Theinitialcostsavingsofapproximately$20million instead ledto BP being forced to allocate morethan $20 billiontomitigatewhatinitiallywasapreventabledamage.
BritishcompanyLonmin,aplatinumminingcompanyand metalproducer,also ignoredCSR implications.When their minersintheirMarikanamine,SouthAfrica,startedtostrike inAugust2012forbettercompensationandimproved work-ers’safetyinthedangerousplatinumextractionprocess,the companyorderedthelocalpolicetobreakupthestrikersby openingfireat them,killing34oftheiremployees. Atthe sametimetheirWebsitereads:
We’recommittedtozeroharmtopeopleandthe envir-onment...andwe’recommittedtointegrity,honestyand trust,beingethicalpeople.
Interestingly,likethecasewithTommyHilfiger,whohad to protectitself fromwrong doingdespitebeing innocent, anotherU.K-listedminer,Anglo-American,suspended opera-tionsatitsSouthAfricanplatinumminesonemonthlater.The officialreasonwasto‘‘protectthesafetyofouremployees’’ andnotto risk beingsmudged by badpress, wheremedia potentiallyassumeoneminingcompanybeingasbadasthe other. Anglo-Americanwanted to stay out of trouble that easily could have transferred from one industry player to another.CSR-derivedreputationalcapitalisanewcurrency toberecognizedandneedstobeappliedproactively.
SYSTEMATIC
CSR
APPROACH
In order to capitalize on CSR, firms must systematically analyze their current internal- and external orientation regardingtheircustomerprocesses.Amajorityofthefirms whosuccessfullycapitalizeonCSRhaveacustomer orienta-tionaligning theirdaily activities(internal set-up) toward customer satisfaction,customerpreferences andcustomer problem solving. Examples of external orientation include firmsadoptingalonger-termperspectivemonitoringchanges incustomerdemands,adjustingtheirvaluepropositionsto exceed customer expectations and predicting competitor behavior. They also coordinate and address strategic CSR at the upper management level (CSR committee, TMTor BoardofDirectors)andprioritizeregularassessmentoftheir CSReffortsby havingCSRas afixeditem on TMTmeeting agendas. It is therefore recommended to adopt an open-minded andgenuine assessment regarding ‘‘why,’’ ‘‘how’’ and‘‘what’’aparticularcompanyshouldincludeintheirCSR investmentbeforedeciding‘‘who’’shouldbeinthereceiving end.
The‘‘why’’isbestachievedbyansweringthequestions ‘‘whatmarketriskscanwemitigatewithastronger corpo-ratereputation?’or,‘‘whichopportunitiescanbecaptured withlargeamountofreputationalcapital?’’Theanswerto the‘‘how’’questionevolvesaroundassessingwhatcompany functionsanddepartmentsmustbeinvolvedtoresolvethe answers to the ‘‘why’’ questions. Once there’s a clear, understandablelink(thatalsocanbecommunicated intern-ally)betweenthe‘‘why’’andthe‘‘how,’’thecorporation canprogresswiththespecificsofastrategicallydesigned CSRprogram(the‘‘what’’andthe‘‘who’’). Thisapproach overcomesacommonhurdle,sincethecomprehensionand implementationofCSRisproblematicandcanbeanexercise inwastingvaluableresourcesbetterdeployedsomewhere else in the worst case. The latter is often the outcome when theCSR activitiesarenot alignedand interrelated.
CompaniesconsideringwhethertostartaCSRprogram,orto assesscurrentprogrameffectiveness,wouldinthiswayfind iteasiertocomprehendandimplementitinthefirstplace. CSRmustbebuiltasaclearconstructbasedonunderlying reasons in relation to corporate objectives and priorities. Without a precise definition of what a firm would like to achievewithitsCSRefforts,thewantedoutcomewillmost likely not arise. Itneeds a thorough alignmentand inter-relatednessbetween thecore business objectivesand the CSRdeliverables.Inother words,‘‘what’’CSRactivitiesto delivermustbebuiltupon‘‘why’’toengageinCSR,before wecandiscuss‘‘how’’andfor‘‘whom’’weshouldmakethe effort and allocate the necessary resources. Again, it is recommended that the CEOs and strategy executives approach corporate social responsibility (in unison with CSR managers) like any other managerial discipline (e.g. marketing, branding or R&D). Theseomnipresent business activitiesarealsotypicallyaddressedina ‘‘why-how-what-who’’ order, precisely like CSR should be addressed. It is importanttofocusonthestrategicintentbehindCSR engage-mentinordertoprovidethepracticingmanageraidinthe enablementandoperationalizationofCSR.
ToreapthepotentialbenefitsfromusingCSR,itmustbe alignedwiththefirmstrategy.Itisimportanttonotjustfocus onhistoricalthoughtthatconcentratedonimmediatedirect financialimpactandperformance,buttolong-termbenefits. Thetop-performingcorporationsstartstrategicCSRefforts with why should we implement CSR?’’The answer to that question is likely to clarifying the strategic intent behind engaginginCSR.
CSR
COMMUNICATION
ImplementationofCSRshouldbeholisticandincludeinternal and external communication to support the corporation’s strategic intent. When CSR activities are communicated and understood it can act as an insurance-likeprotection thatyieldsreputationalcapital.Intheeventofany unfortu-natenegativeactionsthatviolatethecorporatereputation, accumulatedreputationalcapitalhelpsto protectthe cor-poration andmakesit possibletodetach theproblem (for exampleanunethicalbehavior,anillegitimateactionoran accident) from the rest of the organization. In this way corporations experiencethatthemarketplaceallows them timetorespondtostakeholdersuspicionsoproblem resolu-tioncanbedealtwithonaprocess-,departmental-oreven individual level without harmto the entirecompany. The holistic approach considers multiple related concerns.For example, a company’s socially responsible purchasing cri-teriaarelikelytoaffecttheirvaluechaindecisions.
The timing of CSR communication is also an important issue, given that timing can have a profound impact on communicationgoals,thatis,ifafirmisrewardedor pun-ishedbythemarketforitsbehavior.Acorporation’sattention totimingissuesthereforeevolvesaroundwhetherthe com-munication objective should be event driven, and if so, whetheritshouldprecedemediaintention(beingproactive) or be releasedin response to mediaattention (a reactive approach). This makes CSR an issue that needs to be designed. Itbenefitsfrom,andpotentiallyrequires, inten-sive communication. One way corporations leverage CSR
communicationisbyusingmultiplecommunicationtoolslike socialmediaandWebsites(pull)incombinationwithannual reportsandpress-releases(push).
The Husqvarna Group (a global manufacturer of law-nmowers,gardenpowertools,chainsawsandoff-road motor-cycles), takes a standardized communication approach by following the recommendations provided by the Global ReportingInitiativeOrganization(GRI).GRI advocates eco-nomic,environmentalandsocialsustainabilitybyproviding membercompaniesandorganizations withareporting fra-meworkaspartofacompany’sgovernancereport.Whilethis is a standardized approach (design), it provides a release structure where the information is typically published in annual reports (timing). Another example is Royal Dutch Shell, which relies on social media (design) in real-time (timing) communication. Shell uses multiple social media tools (YouTube, Twitter, FaceBook, Linked In, Flickr and RSS)in addition toWebsite andannualreportsto engage with,learnfromandcollaboratewithindividualsorgroups; SocialmediaprovidesShelltheopportunity to continu-ously and immediately discover conversations for the purposeofenhancingandprotectingtheShellreputation andbrand.
Customercommunicationdecisionsincludewhethertobe holistic,how tocommunicateexternally,howto communi-cate with their employees (internal communication) and whethertocommunicate productrelatedCSRinformation. OnecompanywithaholisticapproachtowardCSRinitiatives and CSR communication is H&M (the largest fast-fashion company in the world with 104,000 employees and 2900 retail stores worldwide), where Helena Helmersson, the CSRdirectoroftheH&Mboard,reportsthatbeingthelargest buyer of cotton in the world demands such an approach. Annualsavingsof morethan 450 Megalitersin thedenim productionprocess(sustainabilityefforts),havingamajority ofmanagementpositionsoccupiedbyfemales(equalityand diversityefforts)andhavingeducated570,000supplier work-ersinBangladeshabouttheirworker’srights(social respon-sibility)hasoccurred.SCANIA(aglobalheavytrucksandbus manufacturer)iscommittedtocontinuouslyimprovinghow theyoperateandmanagetheirdownstreamimpacts, defin-ingambitiouslong-termgoalsandcuttingCO2intheirown useofsupplychaintransportation.Inadditionthey commu-nicatetheirobjectivesandresultsinternallyandexternally inaproactive(push)andreactive(pull)fashion(designand timing).SCANIA’sCEO,KaiWarn:
It’saboutmakingvehiclesthatareefficientlyproduced, cost-effectiveandsafetooperateand,tothegreatest degreepossible,recyclableattheendoftheirlifecycle. Acompanythatfocusesonproductrelated(specific)CSR information is DIAGEO (brand owner of Smirnoff, Johnny Walker,etc.).Sincewateristhemostcrucialingredientin anyoftheirproducts,DIAGEOisredesigningitsagricultural supplychain.InCameroon,Africa,theyareengagedinthe developmentofagrainsubstitute(sorghum)byworkingwith localfarmers,providingthemwithtrainingandsupport.The sorghumgrassneedslesswatertogrow,needslesswaterin thebrewingprocessandisknowntoimprovesoilqualityfor rotationalfoodstaples.Thissubstituteproductimproveslife
conditionsforthefarmers(suppliers),increasesthecapacity of small-scale farms (increased output)and provides cost savingsbysourcinglocallyinsteadofimportingrawmaterials totheregionalmarkets.
Corporations with high levels of CSR performance pay greater attention to the timing and design of their CSR communication.Theyfurtherrespondinmediainareactive andholisticfashiontargetingtheircustomers,productsand employees.Insummary,corporation’stodayuseinternaland externalCSRcommunicationtoinstillorganizational identi-fication and belonging among employees and customers. Employeesreportthey feel moresecurein theirjob roles and perform better, and increase the service levels to employers’CSRactivities.Inconclusion,strategicCSRholds thepotentialtoenticeallstakeholders,becomingan impor-tant part of corporate identity where communication is foundationaltoitssuccess.
CORPORATE
STRATEGIC
RESPONSIBILITY:
RECOMMENDATIONS
Wesupportedourresearchwithempiricalresearchfindings fromtheTop-100SocialResponsibilityIndexfromSweden, provided by NASDAQ-OMX and GES Investment Services covering 34 industries. Our research suggests that the top performing corporations’ reasons to engage in CSR evolve around selecting a specific strategic intent. The corporations engage in CSR to increase their reputation, toreducetheir marketrisk ortogaincompetitive advan-tagesinregardstocustomerattractionandretention.Cost savings, being an earlier reason to engage in CSR, has instead crossed over into the sustainability arena. The followingstrategicintentswere identified:costreduction benefits;risk reduction benefits;strengthenedreputation orothertypesofcompetitiveadvantagegains(forexample increasedemployeemotivationoraboveindustryaverage salesperformance).
CorporationswithastrategicCSRintentalsoengagedin moreCSRactivitiesandhadbetterfinancialperformance. ExamplesofcompanieswithhighCSRandhighperformance include ABB (industrial equipment), Ericsson (telecom), Swedbank(commercialbanking)andElectrolux(household durables/white-goods),whilecompanieswithweakerCSR performance(lowerranking)includeIntrumJustitia(debt collecting/outsourcing),Loomis(securityservices)and Kin-nevik (a multi-industry investment company). A specific example among the participating companies (given that themajority engagedin CSR to build theirreputation) is AF-Consulting.AFisamajormarket-leadingNordicenergy andutility consultancycompany. TheCSR manager,Alice Bah-Kunke, claimed their long-term investments in CSR-derived reputation led to attracting better talented employees (without paying higher than industry average salaries), led to faster recruitment process completion than prior to their CSR undertakings, and that the CSR reputationaidedinstaffretention,creatingastrongesprit decorps.They attributedtheircompetitive advantageof havingthemostcompetentconsultantengingeerstotheir reputation.
The importance these companies allocate to their CSR effortswasalsomanifestedinCSRrelateddecision-making.
TheCSRexecutivesdidnotsolelyhavethedecision-making authority,despitebeingexecutives(CSRismostlyan upper-management or an executive task in 67 percent of the companies).Onlyone-thirdofthese executiveshad auton-omousdecisionrights. The majorityofCSR decisionswere insteadmadebytop-managementteams(71percent)orthe CEO(49percent).Almosthalfofthecompaniesfurtherhad CSRasafixedtopicontheirtop-managementteam’s(TMT) meetingagendatomanifestitsimportance.Inregardstothe implementationandalignmentofCSR,abroadmajorityof thecorporationshadformalproceduresanddecision-making structures.Thedeliverableoutcomesandperceived oppor-tunitiesweretypicallyCSRactivitiesevolvingaroundwinning morecustomercontracts,increased customersatisfaction, and easier connection between their product and service offeringsandtheircustomers’preferences.Thecorporations werealsoperceivedbythemarketplaceasbetterpartnersto solvetheircustomers’problems.Overall,theyexperienced increasedattractionpowerregardingnewbusiness opportu-nities and in general conjectured to have reduced their overallmarketrisks.
MANAGERIAL
IMPLICATIONS
CSRisapromisingadditiontomanagerssoastoimprovetheir business through value-creation, survivability, and growth andimprovetheirperformance,asthemajorityof corpora-tionsapproachCSRopportunitiesstrategically.Insummary, werecommend:(1)determinewhatisthestrategicintentof CSR;(2)engageinCSRtogainaspecificbenefit;(3)approach CSR as an investment in intangible assets; (4) focus on a specific stakeholder category (ex. customers, suppliers, etc.); (5) decide how to communicate the CSR initiative; (6)lookforpositivespillovereffects;(7)besincerewithyour CSRengagement,and(8)designandmanagetheCSR deci-sion-makingprocess.
Thefirstimplicationarisesfromourfindingthat corpora-tions implementing CSR have a specific strategic intent. Mostlytheintentistogaincompetitiveadvantage,suchas improved relationship with customers, suppliers and employees, reduce market risks and improve reputation. When designing a CSR program, managers should assess whichofthefourappliedstrategicintentsbestsuitstheir currentmarketstanding(shortterm)andhowitrelatestoa predicted future market standing (long-term). That is, shouldCSRbeimplementedtosavesomecosts;toimprove orstrengthenthecompany’sreputation;toreducemarket risk or otherwise to support, enhance or create some competitiveadvantage?Oncethischoiceismadethe com-panycanmoreeasilydefinetheidealtargetstakeholderto support with specificCSR deliverables and in such a way better decide which CSR activities their program should entail.
Second,theevolutionarynotionofCSRtransformingfrom beingasocialconcept(acharitablecause)intoacorporate behavior and management philosophy, suggests strategic intent.FirmsshouldengageinCSRwithaselectedstrategic intentsothatsomespecificbenefitcanresultorbeextracted from it. In other words, it has transformed from being perceived as a cost into becoming a strategic investment in intangibleassets. Thismeans thatmanagers should not
alwaysexpectdistinctlyrelatedfinancialperformancegains immediately.Forinstance,improvedbrandimage,improved reputationandenhancedcustomerrelationshipscanalllead to positive financial results, yet sometimes bedifficult to codifyastheexactsourceoffinancialresults.Direct short-termfinancialimprovementsshouldthereforebeexcludedas areasontoembarkinCSR,sincestrategicCSRisatacitand long-termconceptandassuchdifficulttomeasureinterms ofshort-termquantifiableperformance.TheriskisthatCSR asanotherwisepromisingstrategiccomponentisabandoned intheexecutivesuiteduetodesignproblemsregardingits measure. Measurementdiscussionscanalso leadto imple-mentation of a CSR program that is measurable but not strategicoroptimalintheeyesofthecustomersor suppor-tive to the company’s objectives —strategic or financial. Other management functions, such as marketing and research and development (R&D), can also be difficult to quantifyintermsofROI(returnoninvestment).
Third,companiesnowviewCSRaspartofthecompany’s risk management and approache CSR like they approach other intangible investments. Companies are comparing CSR key performance indicators (KPIs) similarly to R&D, branding or corporate culture, where profitability is a consequenceoftheirdeploymentratherthanitsprecursor. The R&D concept is suitable since both CSR and R&D embraceactivitiesthat havelongleadtimes andembody willingness toexperiment —and potential abandonment. This view improves the company’s probability to turn a social problem into an economic opportunity. One such example is Microsoft’scommunity collegeeducation pro-gram targeting schools in less fortunate areas, which improves ITeducation and possibly increases theirfuture recruitmentpool.
Fourth,theinvestigation into corporatebehaviorin the globalmarketplaceregardingresourceallocationtowardCSR displaysanddemonstratesthatfirmsfocusonaspecific sta-keholdercategory. Sincemostfirmslackboththeresources andtheinteresttoattemptsatisfyingeverystakeholder cate-gory, they usually focuson customerexpectations ofgood behaviormanifestedbysuppliersupportprograms.Acustomer focusmakesemployeesfeelmoremotivatedtowardtheirdaily tasks.StockholderswillembracetheviewofCSRasan invest-ment,aslong-termperformanceisincreased.Also, institu-tional or ethical investors might further become more interested inthe company dueto strengthenedlegitimacy andreputation amongmarketanalysts.By engagingin CSR fromastrictlystrategicwin-win-winperspective(thatis,for thecompany,thestockholdersandtheCSRtargetstakeholder) companiesreportimprovedpreferenceoftheirproductsand servicesbytheircustomers.Asaresult,implementationof strategicCSRisanadditiontoothercomponentssupporting revenueandmarketsharegrowth.
Fifth, past research illustrates a direct relationship betweentheamountspentinmarketingdollars(forexample intheformofadvertising)andsalesrevenue;thisisnotthe caseforCSRmarketing.Themarketplacesimplyexpectsand demandsproduct-relatedmarketingandcommunicationto vouchforthevalueandqualityoftheproducts.Productand service related marketing is a highly proactive ‘‘push’’ approach to connect with existing and prospective custo-mers.Incontrast,tobestrategic,CSRmustbe‘‘hiddenbut easilyfound.’’IfacorporationmarketstheirCSReffortsin
the same fashion as their products and services, it is counterproductive and at best perceived as solely self-serving.Sub-optimally planned CSR communicationmight notbenefitthecorporationbutinsteadriskskepticismand cynicism among their customers and investors, which defeats the communication purpose. Instead, successful strategic CSR communication is made available (timing) ina reactiveand introverted fashion(design),wherethe marketingofacorporation’sCSReffortsshouldbe‘‘pulled’’ fromthecorporationbyinterestedparties.Incaseofmedia or activist attentionregarding some perceived less-than-favorablebehavior(true or not) CSR-related communica-tion should follow the event causing the disturbance insteadofpreceding it.Inotherwords,insuchsituations itispracticeamongtheCSRtop-performingcorporationsto launchCSR communicationin areactive andpre-emptive way.Notthattheyare‘‘sogood,’’butthattheywillnever behavebadly.
Sixth,corporationswithahighlevelofstrategicintent hadahighrankofCSRandhighperformance.Ahighranking ofCSRprovidesimportantpositivesideeffectsinaddition to the other potential benefits in the form of spillover effects. The creation of spillover effects emerges from the customers’ view that a reputable company is botha company of higher quality and a company that provides betterCSR.Thespillovereffectsaresharedbyboth exter-nalmarketparticipants(analysts,investors,customersand suppliers) and internal immediate stakeholders (employ-ees, managers and stockholders). High CSR corporations attract more talented employees without paying higher thanindustryaveragesalariesandcompletetheir recruit-mentprocessesfaster.
Seventh,acompanymayfacerepercussionsiftheyare insincere with CSR initiatives. Our survey suggested that companiesrequireasincereapproachtotheirCSR commit-ments and programs. Some corporations report that an employeewhobelievesheorsheisworkingforareputable company but finds the employer behaving irresponsibly, can feel betrayed and become upset or de-motivated. Thisinsinceritycanleadtolosingvaluablestaffmembers, disrupting group dynamics, increasing departmental frustration, confusionor even lost supplierand customer relationships.ManagerswhoelecttopursuetheCSR oppor-tunity are therefore recommended to engage in their CSRefforts with sincerity atthe operationallevel during implementation.
Finally,amajorityofthecorporationsassignCSR decision-makingtotheirtopmanagementteam(TMT),whichusually issupported by aCSR committee consisting of cross-func-tional staff members. In contrast, companies that had investedinadedicatedCSRexecutivereportedtoassigning himorherautonomousdecision-makinginonlyone-thirdof thecompanies.CSRwasastrategicinitiativefortheTMT,as CSRwasafixedtopicontheirmeetingagenda.The organiza-tional design for CSR responsibility should befor either a dedicatedCSRexecutive,ortosomeexistingmanager(for examplethevice president of strategyor brandingor the humanresourcesmanager)toensurethatsomeoneis respon-sibleandaccountableforCSRinitiatives.
Weconclude withrephrasingthefamouswordsofDavid Packard, founder of Hewlett-Packard Co., who reflected uponcustomerattractionandretention:‘‘Marketingistoo
importantto beleft tothe marketing department.’’CSR has become an imperative for firms that are competing globally,due to the easeandmovement of information— as good new travels quickly, and bad news even faster. CSR and strategy are intertwined, and to maximize the strategic CSR potential, an integrated approach will be required.Thisintangibleassetistooimportanttobeleftto
theCSRdepartment,butintegratedthroughoutthefirmand theirstrategy.
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BIBLIOGRAPHY
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LarsIsaksson(Ph.D.inmanagement,M.B.A.,andM.I.B.)isalecturerofstrategy,strategicmanagementand internationalbusinessintheSchoolofBusinessatBondUniversity,Australia.Hestudiesglobalbusinessstrategy andcorporatesocialresponsibility(CSR)inrelationtothestrategicmanagementfieldinmulti-nationalcompanies andtheeconomicsofCSR.Hisresearchfocusesontheeffectsofcorporatebehaviororcitizenship,andhow organizationscanimprovetheirperformancethroughreputationbuildingandstrategyderivedbrand-andmarket performance.PriortohisPh.D.,IsakssonworkedtenyearsintheglobalITarenaasasolutionsalesandmarketing managerprovidingsupplychainimprovementtechnologies(mobilecomputing,RFID)tocompaniessuchas Coca-Cola,ABB,Toyota,CarlsbergandIBM.Hisinternationalindustryexposurespansmorethanfiftycountriesin Europe,NorthandCentralAmerica,theMiddleEastandAsia-Pacific(Strategy&InternationalBusiness,Bond University,SchoolofBusiness,Robina4226,Queensland,Australia.Tel.:+610755953356;fax:+610432596404; e-mail:lisaksso@bond.edu.au).
TimKiesslinghasaC.P.A.,C.I.A.,andanM.B.A.infinanceandcompletedaPh.D.inmarketing/management with a concentrationin global businessstrategy from the University of Oklahoma. He has publishedover 30 articles in refereed journals such as the Journal of World Business, International Marketing Review, InternationalJournalofHumanResourceManagement,IJPDLM,OrganizationalDynamicsandJournalofBusiness Strategies.Hisresearchinterestsfocusonglobalstrategicmanagement,topmanagementteams,international
strategichumanresourcemanagementand mergersand acquisitions(BusinessStrategies,BilkentUniversity, Turkey;e-mail:kiessling@bilkent.edu.tk).
MichaelHarveyisDistinguishedChairofGlobalBusinessintheSchoolofBusinessAdministrationattheUniversity ofMississippi.Harveyhasbeenanactiveresearcherandconsultantforglobalorganizationsoverthelast30years (DistinguishedChairofGlobalBusiness,UniversityofMississippi,USA;GlobalBusiness,BondUniversity,Australia; e-mail:mharvey@bus.olemiss.edu).
