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Corporate Social Responsibility Aradhna Malik (PhD) Assistant Professor VGSOM, IIT Kharagpur What is CSR?  What is CSR? (Werther & Chandler, 2010) Three words, corporate, social, responsibility “A view of the corporation and its role in society...

Corporate Social Responsibility Aradhna Malik (PhD) Assistant Professor VGSOM, IIT Kharagpur What is CSR?  What is CSR? (Werther & Chandler, 2010) Three words, corporate, social, responsibility “A view of the corporation and its role in society that assumes a responsibility among firms to pursue goals in addition to profit maximization & a responsibility among a firm’s stakeholders to hold the firm accountable for its actions.”  Corporate philanthropy Philanthropy (Oxford English Dictionary): “The practice of helping people in need” Corporate philanthropy: The desire of profit making organizations to help people in need or promote welfare of people in need.  Strategic corporate philanthropy (Michael Porter & Mark Kramer in Werther & Chandler, 2010) “The acid test of good corporate philanthropy is whether the desired social change is so beneficial to the company that the organization would pursue the change even if no one ever knew about it.” A balance between the “… ends of economic viability and the means of being socially responsible.”  The CSR Pyramid (Carroll, 1991, in Schwartz & Carroll, 2003) Be a good citizen Desired Philanthropic Be ethical Expected Ethical Required Obey the law Legal Required Be profitable Economic  The CSR Hierarchy (Carroll, 1991, in Werther & Chandler, 2010) Discretionary Responsibilities Ethical Responsibilities Legal Responsibilities Economic Responsibilities  The CSR Hierarchy (Contd.) (Carroll, 1991, in Werther & Chandler, 2010) Economic responsibility: “…to produce an acceptable return on its owners’ investments” Legal responsibility: “… a duty to act within the legal framework drawn up by the government & judiciary” Ethical responsibility: “… to do no harm to its stakeholders & within its operating environment” Discretionary responsibility: “… proactive, strategic behaviors that can benefit the firm & society, or both”  The culture & context (Werther & Chandler, 2010) Rich and poor societies: Who can afford what Individualistic and collectivistic cultures: Different needs, different priorities, different agendas for CSR  A moral argument for CSR (Werther & Chandler, 2010) The existence of an organization and the expectations of the community and wider society it functions in.  The iron law of social responsibility (Davis & Blomstrom, 1966, in Werther & Chandler, 2010) “In a democratic society, power is taken away from those who abuse it.”  CSR and profits (Werther & Chandler, 2010) “While CSR does not increase profits, higher profits lead to greater CSR.”  Why is CSR important? (Werther & Chandler, 2010) Growing affluence Ecological sustainability Globalization The free flow of information The public image of an organization Thank You Theories of CSR  Legitimacy Theory (Fernando & Lawrence 2014) The society gives organizations their resources. So, the organizations are expected to fulfil the expectations of the society they function in “Organizations can only continue to exist if the society in which they are based perceives the organization to be operating to a value system that is commensurate with the society’s own value system.” (Gray et al., 2010, in Fernando & Lawrence, 2014)  How do organizations legitimize their operations? (Fernando & Lawrence, 2014) “To educate relevant stakeholders about their actual performance”: Reporting Change the perceptions of the relevant stakeholders about the underlying issue without changing the organization’s behavior”: Public impression management “Distract or manipulate the attention away from the issue of concern and seek to divert the attention to a favorable issue”: CSR Activities and advertising “Seek to change external expectations about the organization’s performance”  Limitations of Legitimacy Theory (Gray et al., 2010, in Fernando & Lawrence, 2014) Legitimacy gap: Dynamic nature of the expectations of the society versus organizational objectives Legitimization threats: Unexpected occurrences affecting the organization’s reputation, such as a financial threat, major accident, scandal, etc. Vagueness regarding disclosure: If and why and how much should organizations disclose  Stakeholder Theory (Fernando & Lawrence, 2014) “… the management of an organization is expected to perform its accountability towards its stakeholders by undertaking activities deemed important by its stakeholders, and by reporting information”  Who are stakeholders? (Florea & Florea, 2013) “Stakeholders are the persons, institutions, organizations, formal & non formal groups which are interested or can be affected or which could influence the company decisions or actions.” (Freeman, 1980, in Florea & Florea, 2013) 21  Types of stakeholders (Florea & Florea, 2013) Based on involvement: “Internal stakeholders have a range of interests in the different parts of the company [or organization or community] and its activities.” “External stakeholders are individuals, companies or groups outside the companies which are influenced or could influence company [or organization or community] decisions and activities.”  Types of stakeholders (Contd.) (Florea & Florea, 2013) Based on how they are influenced by decisions/ actions “Primary stakeholders are the people or groups which are directly affected, in a positive or negative way, by a strategy, decision or action of a company, organization [or community].” “Secondary stakeholders are people or groups that are indirectly affected, either positively or negatively by a company [or organization or community] decision or action.” “Key stakeholders play an important role in [the] decision making process & also in its implementation because they are involved in company management or financing [or management & financing of the organization or community], [e.g.] policy makers, officials, important professionals or community personalities having a strong position or influence.” 23  Types of stakeholders (Contd.) (Florea & Florea, 2013) Based on the amount of power and influence they have: “Promoters have both great interest in the decision & the power to help make it successful (or to fail it)” “Defenders have a vested interest & can voice their support in the community, but have little actual power to influence the decision in any way.” “Latents have not particular interest or involvement in the decision, but have the power to influence it greatly if they become interested.” “Apathetics have little interest & little power, & may not even know the decision exists.”  Perspectives of stakeholder theory (Fernando & Lawrence, 2014) Ethical perspective: “Irrespective of the stakeholder power, all the stakeholders have the same right to be treated fairly by an organization.” “”Managers of an organization are expected to manage the business for the benefit of all stakeholders, regardless of whether management of stakeholders leads to improved financial performance.” Limitation: very difficult to manage different and contradictory interests of stakeholders  Perspectives of stakeholder theory (Contd.) (Fernando & Lawrence, 2014) Managerial perspective: “ an organization is expected to be accountable to its economically powerful stakeholders.” The more powerful or critical the stakeholder, the more accountable the organization is to her or him. Challenge: Deciding the priority list  Institutional theory (Fernando & Lawrence, 2014) Social acceptance “Institutional theory views organizations as operating within a social framework of norms, values, & taken-for-granted assumptions about what constitutes appropriate or acceptable economic behavior.”  Dimensions of institutional theory (Fernando & Lawrence, 2014) Isomorphism: “A constraining process that forces one unit in a population to resemble other units that face the same set of environmental conditions.” Coercive isomorphism: Pressure from people and institutions that matter Mimetic isomorphism: Copying others’ practices when one fails to do something unique on one’s own Normative isomorphism: Doing good just like everyone else…  Dimensions of institutional theory (Contd.) (Fernando & Lawrence, 2014) Decoupling: “… situation in which the formal organizational structure or practice is separate and distinct from actual organizational practice.” Social and environmental disclosures help construct an image of the organization that may or may not match the real image.  Theoretical Framework (Fernando & Lawrence, 2014) Convergent predictions Convergent motivations Integrated of organizational of CSR practice Theories behavior & motivations 1. An organization seeks 1. To legitimize the business or Legitimacy survivability & stability of organization (legitimacy its business motive) Theory 2. To perform accountability to 2. An organization seeks the organization’s legitimacy of its business stakeholders, sometimes based on the extent of the 3. An organization tries to be stakeholders’ power Stakeholder accountable to its (accountability motive) Theory stakeholders 3. To conform to social norms & 4. An organization tries to beliefs those are largely conform to procedures & imposed on an organization, structures of other which ultimately leads to organizations which are homogeneity in organizations Institutional in the same field (isomorphic within a particular Theory motive) organizational field Thank You Corporate Social Responsibility Aradhna Malik (PhD) Assistant Professor VGSOM, IIT Kharagpur Theories of CSR (Contd.) (Garriga & Mele, 2004)  Broad categories of theories (Garriga & Mele, 2004) Instrumental theories Political theories Integrative theories Ethical theories  Instrumental theories (Garriga & Mele, 2004) “The corporation is an instrument for wealth creation & this is its sole social responsibility “Any supposed social activity is accepted if, and only if, it is consistent with wealth creation: “CSR is a mere means to the end of profits.”  Groups of instrumental theories (Garriga & Mele, 2004) Maximising the shareholder value: “Any investment in social demands that would produce an increase of the shareholder value should be made, acting without deception & fraud” “In contrast, if the social demands only impose a cost on the company, they should be rejected.” “… the socio-economic objectives are completely separate from the economic objectives”  Groups of instrumental theories (Contd.) (Garriga & Mele, 2004) Strategies for achieving competitive advantage: “… focussed on how to allocate resources in order to achieve long-term social objectives & create a competitive advantage” Approaches: “Social investments in competitive contexts Natural resource-based view of the firm & its dynamic capabilities Strategies for the bottom of the economic pyramid”  Approaches to strategies for achieving competitive advantage (Contd.) (Garriga & Mele, 2004) Social investments in a competitive context: Philanthropic investments are perceived as having better social value than any other investment (Porter & Kramer, 2002, in Garriga & Mele, 2004) “When philanthropic activities are closer to a company’s mission, they create greater wealth than other kinds of donations.” (Burke & Lodgson, 1996, in Garriga & Mele, 2004) “… philanthropic investments by members of cluster, either individually or collectively, can have a powerful effect on the cluster competitiveness & the performance of all its constituents’ companies.” (Porter & Kramer, 2002, in Garriga & Mele, 2004)  Approaches to strategies for achieving competitive advantage (Contd.) (Garriga & Mele, 2004) Natural resource based view of the firm (RBV) & dynamic capabilities: RBV: “… the ability of a firm to perform better than its competitors depends on the unique interplay of human, organizational, & physical resources over time.” Resources for competitive advantage “… should be valuable, rare, and inimitable, and the organization must be organized to deploy these resources effectively”  Natural resource-based view of the firm & dynamic capabilities approach (Contd.) (Garriga & Mele, 2004) ‘Dynamic capabilities’ approach: “drivers behind the creation, evolution, & recombination of the resources into new sources of competitive advantage” “organizational & strategic routines by which managers acquire resources, modify them, integrate them, & recombine them to generate new value-creating strategies”  Natural resource-based view of the firm & dynamic capabilities approach (Contd.) (Garriga & Mele, 2004) Social & ethical capabilities include, “process of moral decision making process of perception, deliberation & responsiveness or capacity of adaptation development of proper relationships with the primary stakeholders: employees, customers, suppliers, & communities” Hart (1995): Strategic capabilities model: Interconnected capabilities: “pollution prevention, product stewardship, sustainable development” Critical resources: “Continuous improvement, stakeholder integration, & shared vision”  Approaches to strategies for achieving competitive advantage (Contd.) (Garriga & Mele, 2004) Strategies for the bottom of the economic pyramid: Strategies that can “serve the poor & simultaneously make profits” Disruptive innovations: “Products & services that do not have the same capabilities& conditions as those being used by customers in mainstream markets; as a result they can be introduced only for new or less demanding applications among non-traditional customers, with a low-cost production & adapted to the necessities of the population.” (Christensen & Overdorf, 2000; Christensen et al., 2001, in Garriga & Mele, 2004) e.g. a low cost basic cell phone  Groups of instrumental theories (Contd.) (Garriga & Mele, 2004) Cause related marketing : “… the process of formulating & implementing marketing activities that are characterized by an offer from the firm to contribute a specified amount to a designated cause when customers engage in revenue-providing exchanges that satisfy organizational & individual objectives.” (Varadarajan & Menon, 1988, in Garriga & Mele, 2004) Goal: “… to enhance company revenues & sales or customer relationship by building the brand through the acquisition of, & association with the ethical dimension or social responsibility dimension” “… seeks product differentiation by creating socially responsible attributes that affect company reputation.”  Political theories (Garriga & Mele, 2004) “… the social power of the corporation is emphasized, specifically in its relationship with society & its responsibility in the political arena associated with this power. This leads the corporation to accept social duties & rights or participate in certain social cooperation.”  Political theories (Contd.) (Garriga & Mele, 2004) Principles for managing social power (Davis, 1967, in Garriga & Mele, 2004): Social power equation: “… the social responsibilities of businessmen arise from the amount of social power that they have” Iron law of responsibility: “Whoever does not use his social power responsibly shall lose it.”  Corporate constitutionalism (Davis, 1967, in Garriga & Mele, 2004) “The constituency groups of corporations define conditions of the responsible use of power by corporations, “… and channel organizational power in a supportive way and to protect other interests against unreasonable organizational power.”  Groups of political theories (Garriga & Mele, 2004) Integrative social contract theory Corporate citizenship  Integrative social contract theory (Garriga & Mele, 2004) Donaldson & Dunfee (1994, 1999): Assumption of a social contract between the society and business “Social responsibilities come from consent” Macrosocial contract: “provides rules for any social contracting. These rules are called the ‘hyper-norms’; they ought to take precedence over other contracts.” Microsocial contract: “… show explicit or implicit agreements that are binding within an identified community, industry, companies or economic systems.” “generate ‘authentic norms’.” “… based on the attitudes & behaviors of the members of the norm- generating community and, in order to be legitimate, have to accord with the hyper-norms.”  Groups of political theories (Contd) (Garriga & Mele, 2004) Corporate citizenship: Profit making organizations are responsible citizens of the community they flourish in  Integrative theories (Garriga & Mele, 2004) “… consider that business ought to integrate social demands.” “… argue that business depends on society for its continuity & growth & even for the existence of business itself.” “… focused on the detection & scanning of, & response to, the social demands that achieve social legitimacy, greater social acceptance & prestige”  Groups of integrative theories (Garriga & Mele, 2004) Issues management The principle of public responsibility Stakeholder management Corporate social performance  Issues management (Garriga & Mele, 2004) “… the process by which the corporation can identify, evaluate & respond to those social & political issues which may impact significantly upon it.” Social responsiveness: action, the how of CSR  The principle of public responsibility (Garriga & Mele, 2004) “… public policy includes not only the literal text of law & regulation but also the broad pattern of social direction reflected in public opinion, emerging issues, formal legal requirements, & enforcement or implementation practices.” (Preson & Post, 1981, in Garriga & Mele, 2004) Scope of managerial responsibility: Primary: “… essential task of the firm, such as locating & establishing its facilities, procuring suppliers, engaging employees, carrying out its production functions, & marketing products.” Secondary: “… come as a consequence of the primary. e.g. career & earning opportunities for some individuals, etc.”  Ethical theories (Garriga & Mele, 2004) “… the relationship between business & society is embedded with ethical values.” “… firms ought to accept social responsibilities as an ethical obligation above any other consideration” Thank You Corporate Social Responsibility Aradhna Malik (PhD) Assistant Professor VGSOM, IIT Kharagpur Why CSR?  Approaches to CSR (Lee, 2011) Obstructionist strategy: Ignorance of social demands for greater responsibility: We do not care! Defensive strategy: Legal compliance only. We will do only as much as is required. Accommodative strategy: Legal compliance and stakeholder interests. We will do what is required and try to keep stakeholders happy. Proactive strategy: We will actively work for the welfare of the community whether or not we get noticed.  Approaches to CSR (Contd.) (Lee, 2011) Institutional pressure Stakeholder Weak Intense pressure Weak Obstructionist: Absence of Defensive: Institutional pressure external pressures without stakeholder support Intense Accommodative: Stakeholder Proactive: Synchrony in external pressure without institutional pressures legitimacy  Antecedents of CSR (Depending on conditions) (Campbell, 2007) Economic conditions Institutional conditions  Economic antecedents of CSR (Campbell, 2007) Corporations will be less likely to act in socially responsible ways when “they are experiencing relatively weak financial performance” “when they are operating in a relatively unhealthy economic environment where the possibility for near-term profitability is limited.” if there is either too much or too little competition.”  Institutional antecedents of CSR (Campbell, 2007) Corporations will be more likely to act in socially responsible ways if: The regulations and laws mandate it and the punishment for non-compliance is tangibly severe, especially if these compliance measures have been developed collaboratively “There is a system of well-organized & effective industrial self-regulation in place to ensure such behavior”  Institutional antecedents of CSR (Contd.) (Campbell, 2007) Corporations will be more likely to act in socially responsible ways if: “There are private, independent organizations, including NGOs, social movement organizations, institutional investors, & the press, in their environment, who monitor their behavior, & when necessary, mobilize to change it.” “They operate in an environment where normative calls for such behavior are institutionalized in important business publications, business school curricula, & other educational venues in which corporate managers participate.”  Institutional antecedents of CSR (Contd.) (Campbell, 2007) Corporations will be more likely to act in socially responsible ways if: “They belong to trade or employer associations [that] are organized in ways that promote socially responsible behavior.” “They are engaged in institutionalized dialogue with unions, employees, community groups, investors, & other stakeholders.”  Antecedents of CSR based on level of involvement (Aguilera et al., 2007) Individual level Organizational level National level Transnational level  Individual level Antecedents of CSR (Aguilera et al., 2007) Based on a sense of perceived fairness by employees Instrumental motives: If the organization cares for the environment, it will care for them. So, they feel more in control. Relational motives: Belongingness: CSR fosters positive social relationships, which in turn lead to a feeling of belongingness Morality based motives: A need to do what is right  Individual antecedents of CSR (Contd.) (Aguilera et al., 2007) “Individual employees’ needs for control, for belongingness, and for a meaningful existence will lead them to push firms to engage in social change through CSR”  Organizational Level antecedents of CSR (Aguilera et al., 2007) “Internal and external organizational actors’ (Shareholders’, managers’, consumers’) shareholder interests, stakeholder interests, & stewardship interests will lead them to push firms to engage in social change through CSR.” “A downward hierarchical ordering of motives among insider organizational actors (i.e., Top Management Teams) will lead to stronger pressure on firms to engage in social change through CSR.” “An upward hierarchical ordering of motives among outsider organizational actors (i.e. consumers) will lead to stronger pressure on firms to engage in social change through CSR.”  Antecedents of CSR at the national level (Aguilera et al., 2007) Instrumental motives: Promotion of international competitiveness Relational motives: Promotion of social cohesion and social partnership between different strata of society and marginalized groups Moral motives: Collective responsibility to the betterment of society  Antecedents of CSR at the national level (Contd.) (Aguilera et al., 2007) “Governments’ interests in establishing competitive business environments, promoting social cohesion, & fostering collective responsibility for the betterment of society will lead them to push firms to engage in social change through CSR.” “A compensatory relationship of motives in governments will lead to stronger pressure on firms to engage in social change through CSR.”  Antecedents of CSR at the transnational level (Aguilera et al., 2007) Instrumental motives: Power to facilitate NGOs and social welfare groups Promotion of competitiveness among businesses Relational motives: Collaborative relationships among Inter Government Organizations (IGOs) Moral motives: Altruism: “…trying to make the world a better place to live in”  Antecedents of CSR at the transnational level (Contd.) (Aguilera et al., 2007) “NGOs need for power for alignments/ collaborations, & for altruism will lead them to push firms to engage in social change through CSR” “IGOs interests in promoting competition, social cohesion, & collective responsibility will lead them to push firms to engage in social change through CSR.” “The existence of a multiplicative relationship of motives among transnational actors will lead to stronger firm pressure to engage in social change through CSR, depending on the density & intensity of positive NGO, governmental, & intergovernmental action.”  CSR Motives at multiple levels of analysis (Aguilera et al., 2007) Transnational Motives Individual Organizational National Intergovernment Corporate al entities interest groups & NGOs Instrumental Need for control Shareholder interests Competitiveness Competitiveness Power (obtain (Short Term) scarce resources) Relational Need for Stakeholder interests Social cohesion Social cohesion Interest belongingness Legitimation/ alignment, collective identity collaboration & (long term) quasi-regulation Moral Need for Stewardship interests Collective Collective Altruism meaningful Higher-order values responsibility responsibility existence Interactions Upward Insider downward Compensatory Compensatory Multiplicative hierarchical hierarchical Outsider upward hierarchical  Why CSR? (Carroll & Shabana, 2010) “Reducing cost & risk Strengthening legitimacy & reputation Building competitive advantage Creating win-win situations through synergistic value creation” Thank You Corporate Social Responsibility Aradhna Malik (PhD) Assistant Professor VGSOM, IIT Kharagpur Evolution of CSR (Carroll, 1999)  1953: Howard R. Bowen Father of CSR Social Responsibilities of the Businessman: “… several hundred largest businesses were vital centers of power and decision making & that the actions of these firms touched the lives of citizens at many points.” “What responsibilities to society may businessmen reasonably be expected to assume?” “[Social responsibilities of businessmen refer] to the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives & values of our society.”  1960: Keith Davis Iron Law of Responsibility: “Social responsibilities of businessmen need to be commensurate with their social power.” “… the avoidance of social responsibility leads to gradual erosion of social power”  1963: Joseph McGuire Business and Society “The idea of social responsibilities supposes that the corporation has not only economic & legal obligations but also certain responsibilities to society which extend beyond these obligations.”  1967: Clarence C. Walton Corporate Social Responsibilities: “... The new concept of corporate social responsibility recognizes the intimacy of the relationships between the corporation and society and realizes that such relationships must be kept in mind by top managers as the corporation and the related groups pursue their respective goals.”  1971: Harold Johnson “A socially responsible firm is one whose managerial staff balances a multiplicity of interests. Instead of striving only for larger profits for its stakeholders, a responsible enterprise also takes into account employees, suppliers, dealers, local communities, & the nation.” “Social responsibility states that businesses carry out social programs to add profits to their organization.”  1971: Harold Johnson (Contd.) “Utility maximization […] the enterprise seeks multiple goals rather than only maximum profits.” “Lexicographic view of social responsibility […] stongly profit motivated firms may engage in socially responsible behavior. Once they attain their profit targets, they act as if social responsibility were an important goal – even though it isn’t.”  1971: Committee for Economic Development Social Responsibilities of Business Corporations “business functions by public consent and its basic purpose is to serve constructively the needs of society – to the satisfaction of society.”  1971: Committee for Economic Development (Contd.) Concentric circles definition of social responsibility: “Inner circle includes the clear-cut basic responsibilities for the efficient execution of the economic function – products, jobs & economic growth “Intermediate circle encompasses responsibility to exercise this economic function with a sensitive awareness of changing social values & priorities, e.g. fair treatment of employees, environmental concerns, etc.” “Outer circle outlines newly emerging and still amorphous responsibilities that business should assume to become more broadly involved in actively improving the social environment.”  1972: Manne & Wallich “To qualify as socially responsible action, a business expenditure or activity must be one for which the marginal returns to the corporation are less than the returns available from some alternative expenditure, must be purely voluntary, and must be an actual corporate expenditure rather than a conduit for individual largesse.” Purely voluntary expenditure vs. expenditure in response to social norms  1972: Prof. Wallich in Manne & Wallich Elements of the exercise of CSR: “Setting of objectives Decision whether to pursue given objectives Financing of these objectives”  1970s Increasing mention of Corporate Social Performance (CSP)  1973: Keith Davis “It is the firm’s obligation to evaluate in its decision-making process the effects of its decisions on the external social system in a manner that will accomplish social benefits along with the traditional economic gains which the firm seeks.” Moving beyond the law  1973: Eilbert & Parket Good neighborliness: “… not doing things that spoil the neighborhood” “… the voluntary assumption of the obligation to help solve neighborhood problems”  1974: Eells & Walton “… the corporate social responsibility movement represents a broad concern with business’s role in supporting & improving that social order”  1975: S. Prakash Sethi “Social obligation is corporate behavior ‘in response to market forces or legal constraints’.” “… social responsibility implies bringing corporate behavior up to a level where it is congruent with the prevailing social norms, values, & expectations of performance”  1975: Preston and Post Public responsibility: “… the scope of managerial responsibility is not unlimited, as the popular conception of ‘social responsibility’ might suggest, but specifically defined in terms of primary and secondary involvement areas.”  1976: H. Gordon Fitch “Corporate social responsibility is defined as the serious attempt to solve social problems caused wholly or in part by the corporation.” We take responsibility for our actions!  1979: Abbott & Monsen Social Involvement Disclosure (SID) Scale: 28 issues categorized under Environment Equal opportunity Personnel Community involvement Products Other Measured by the number of times they were mentioned  1979: Archie B. Carroll “For managers to engage in Corporate Social Performance, they needed to have: “A basic definition of CSR An understanding/ enumeration of the issues for which a social responsibility existed (or in modern terms, stakeholders to whom the firm had a responsibility, relationship, or dependency), A specification of the philosophy of responsiveness to the issues”  1980: Thomas M. Jones CSR is a process not an outcome CSR, when engaged in as a process of decision making, should constitute CSR behavior  1983: Rich Strand Systems paradigm of organizational social responsibility, responsiveness, and responses How social policies and activities within the organization are affected by the organization and the outer environment, and in turn affect the activities within and outside the environment  1983: Archie B. Carroll Four constituent parts of CSR: Economic Legal Ethical Voluntary or philanthropic  1985: Wartrick & Cochran Corporate Social Performance Model: Principles: Corporate Social Responsibilities Processes: Corporate Social Responsiveness Policies: Social issues management  1991: Archie B. Carroll CSR Pyramid “The CSR firm should strive to make a profit, obey the law, be ethical, and be a good corporate citizen” Thank You Corporate Social Responsibility Aradhna Malik (PhD) Assistant Professor VGSOM, IIT Kharagpur CSR: Global Timeline (Katsoulakos, 2004)  1946 – 1958: Fair Trade (http://wfto.com/about-us/history-wfto/history-fair-trade) 1946: Self Help Crafts began buying needlework from Puerto Rico 1958: First formal Fair Trade shop opened in USA  1960 OECD (Organization for Economic Cooperation & Development) created in Paris (came into force on 30/09/61) to: “achieve the highest sustainable economic growth & employment & a rising standard of living in Member countries, while maintaining financial stability, & thus to contribute to the development of the world economy “contribute to sound economic expansion in Member as well as non member countries in the process of economic development” “contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international obligations”  1961: George Goyder The Responsible Company First mention of social auditing: “… a social audit can act as both a useful management tool & offer stakeholders a platform for challenging & influencing companies”  1961: World Wildlife Fund WWF created at Morges, Switzerland  1962: Rachel Carson Silent Spring, by Penguin Books: http://www.rachelcarson.org/SilentSpring.aspx “... bringing together research on toxicology, ecology, & epidemiology to suggest that agricultural pesticides are building to catastrophic levels.”  1966 International Covenant on Economic, Social & Cultural Rights (ICESCR) adopted by the UN (http://www.ohchr.org/Documents/ProfessionalInterest/cescr.pdf): Part 1: Right to self determination: People are free to “determine their political status and freely pursue their economic, social and cultural development”, and dispose off their natural wealth, and the State has a responsibility to facilitate this Part 2: Right to be recognized without discrimination Part 3: Rights to fair and respectful treatment at work, and the responsibility of organizations to facilitate the balancing of work and personal life of their employees  1968: Club of Rome “…commissioned a study […] to model and analyze the dynamic interactions between industrial production, population, environmental damage, food consumption & natural resource usage.” – published as Limits to Growth in 1972 (https://www.clubofrome.org/report/the-limits-to-growth/)  1969: UNESCO “Provided a forum Conference for Rational Use & Conservation of Biosphere for early discussions of the concept of ecologically sustainable development.”  1969: US Congress Passed the National Environmental Policy Act (NEPA) creating the first national agency for environmental protection (EPA) (https://www.epa.gov/nepa)  1969: Commonwealth Arbitration Commission “Adopted the principle of equal pay for equal work regardless of gender” (http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/ Browse_by_Topic/employmentlaw/Historyemploymentlaw)  1970 “The first Earth Day was held as a national awareness campaign on the environment. An estimated 20 million (2 crore) people participated in peaceful demonstrations all across the USA.”  1971 “Man and Biosphere program founded by UNESCO (http://www.unesco.org/new/en/natural-sciences/environment/ecological- sciences/man-and-biosphere-programme/) Henderson Poverty Index developed in Australia In France, companies with more than 300 employees required by law to produce an employee report: The Bilan Social.”  1970s “Germany engaged in the social model of corporate management Council on Economic Priorities and others in USA began to rate companies publicly on their social & environmental performance” “United Nation’s Code of Conduct for Transnational Corporations was an early attempt to define principles of CSR for businesses in terms of ethics, product standards, competition, marketing, & disclosure of information.”  1972 “United Nations Conference on the Human Environment considered the need for a common outlook and for common principles to inspire & guide the peoples of the world in the preservation and enhancement of the human environment” United Nations Environment Program established  1972 Nordhaus and Tobin: Is growth obsolete? Article in Economic Research: Retrospect and Prospect, Volume 5 – developed the Measure of Economic Welfare as an alternative to crude GDP as a measure of economic progress (http://www.nber.org/chapters/c7620.pdf)  1974 “Rowland & Molina release a seminal work on Chloro Fluoro Carbons in Nature magazine calculating that if use of CGC gases is to continue at an unaltered rate, the ozone layer will be depleted soon.”  1979: Tata Steel Chairman asks “audit committee to report on ‘whether, and the extent to which the company has fulfilled the objectives … regarding the social and moral objectives” Advertisements: “We also make steel” https://www.youtube.com/watch?v=qYBkbYaCUuw https://www.youtube.com/watch?v=Iw4CQIeWGHo https://www.youtube.com/watch?v=AnXUJXApoNc  1980: International Union for the Conservation of Nature “World Conservation Strategy released by IUCN as ‘the modification of the biosphere & the application of human, financial, living & non- living resources to satisfy human needs & improve the quality of human life’.” (https://portals.iucn.org/library/efiles/documents/ wcs-004.pdf)  1982 “Business in the Community is founded by UK based business organizations focussed on CSR” http://www.bitc.org.uk/  1984 Edward Freeman: Strategic Management: A Stakeholder Approach: Classic textbook integrating CSR with mainstream management theory  1986: USA “Toxics Release Inventory established under the Emergency Planning and Community Right to Know Act” https://www.epa.gov/toxics-release-inventory- tri-program  1987: United Nations “Brundtland Commission appointed by the United Nations to study the connection between development & the environment publishes report: ‘Our Common Future’. The report introduces the term ‘sustainable development’ defining it as ‘development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” http://www.un-documents.net/our-common- future.pdf  1988 “The Co-Operatives UK publishes its first Social Report” Ben & Jerry’s in USA produces its first Social Performance Assessments”  1989: UK Profs. David Pearce, Anil Markandya & Edward Barbier: Blueprint for a Green Economy. Earthscan Publishers “Introduction of the concept of natural capital and definition of sustainable development as non- declining per capita human well-being over time.”  1989: Netherlands (http://wfto.com/about-us/history-wfto) International Federation of Alternative Trade established (IFAT) 1993: “… aim of IFAT was to ‘improve living conditions for the poor’ through ‘promoting fair trade internally/ externally’ with the ‘anticipated result’ of ‘a higher level of trust and cooperative among members thus achieving the aim of IFAT’. ”  1991 “IUCN/UNEP/WWF publish “Caring for the Earth: 2nd World Conservation Strategy’ focussing on ‘sustainable society’, ‘sustainable living’, & ‘sustainability’ itself”  1992: USA Business for Social Reponsibility founded https://www.bsr.org/en/  1994 “European Universities Charter for Sustainable Development agreed to promoting University education for the training of decision-makers & teachers, oriented towards sustainable development & fostering environmentally aware attitudes, skills & behavior patterns, as well as a sense of ethical responsibility.” Currently adopted as Copernicus Guidelines by United Nations Economic Commission for Europe (UNECE): http://www.unece.org/fileadmin/DAM/env/esd/informati on/COPERNICUS%20Guidelines.pdf  1994: INSEAD (Institut Européen d'Administration des Affaires)/ European Institute of Business Administration) France Caux Round Table Principles for Business adopted: “The CRT Principles for Business articulate a comprehensive set of ethical norms for businesses operating internationally or across multiple cultures. ” http://www.cauxroundtable.org/index.cfm?&menuid=28&parentid=2  1995 World Business Council for Sustainable Development (WBCSD) established with a view to “… provid[ing] business leadership as a catalyst for change toward sustainable development, & to promot[ing] the role of co- efficiency, innovation, & CSR” http://www.wbcsd.org/  1995: United Nations Framework on Climate Change (UNFCC) Conference of Parties (COP) constituted in Berlin, Germany Article 3.1: "The Parties should protect the climate system for the benefit of present and future generations of humankind, on the basis of equity and in accordance with their common but differentiated responsibilities and respective capabilities. Accordingly, the developed country Parties should take the lead in combating climate change and the adverse effects thereof;” (https://unfccc.int/resource/docs/cop1/07a01.pdf)  1996: Organization for Economic Cooperation & Development (OECD) “Introduced the concept of Environmentally Sustainable Transportation (EST)”  1996: European Commission 57 European companies got together and established CSR Europe “… to help companies achieve profitability, sustainable growth & human progress by placing CSR in the mainstream of business practice” http://www.csreurope.org/  1996: USA “… Social Accountability International (SAI) Advisory Board was created to establish a set of workplace standards in order to ‘define and verify implementation of ethical workplaces’.” Source: http://www.history.ucsb.edu/labor/sites/secure.lsit.ucsb.edu.hist.d7_labor/files/sitefiles/CSR_Re search_Files/SAI%20and%20SAAS%20Summary.pdf  1997: Framework Convention on Climate Change Kyoto Protocol negotiated: Clear directions regarding active measures to reduce in greenhouse gas emissions  1997: USA Social Accountability International launched the SA8000 standard to ensure accountability of social performance in the following areas: “Child Labor Forced or Compulsory Labor Health and Safety Freedom of Association and Right to Collective Bargaining Discrimination Disciplinary Practices Working Hours Remuneration Management System”  1997 John Elkington: Cannibals with Forks- The Triple Bottom Line of the 21st Century, Capstone Publishing Limited, Oxford Coined the term, ‘Triple Bottom Line’ Focussed on People, Planet & Profit Review of the book available at http://appli6.hec.fr/amo/Public/Files/Docs/148_en.p df  1997 “Global Reporting Initiative launched to develop Sustainability Reporting Guidelines” Focus on actively reducing greenhouse emissions, protecting natural habitats, especially of endangered species of flora & fauna reporting sustainability efforts in a systematic manner https://www.globalreporting.org/Information/about- gri/Pages/default.aspx  1999: UK Quality of Life Counts: Indicators for a Strategy for Sustainable Development for the UK: A Baseline Assessment. Update in 2004: http://www.nies.go.jp/db/sdidoc/qolc2004.pdf  1999 Paul Hawken, Amory Lovins, Hunter Lovins: Natural Capitalism: The Next Industrial Revolution  1999: US Global Sullivan Principles of CSR launched “The objectives of the Global Sullivan Principles are to support economic, social and political justice by companies where they do business; to support human rights and to encourage equal opportunity at all levels of employment, including racial and gender diversity on decision making committees and boards; to train and advance disadvantaged workers for technical, supervisory and management opportunities; and to assist with greater tolerance and understanding among peoples; thereby, helping to improve the quality of life for communities, workers and children with dignity and equality.” http://hrlibrary.umn.edu/links/sullivanprinciples.html  1999: UN Global Compact launched with a view to “… bring companies together with UN agencies, labor & civil society to support ten principles in the areas of human rights, labor & the environment” https://www.unglobalcompact.org/  1999: UK “UK Corporations Disclosure Legislation passed. The Turnbull Report on corporate governance added reputation, probity, & other non-financial risks to the necessary criteria for reporting risk to shareholders.”  1999 Meeting held in Bonn to discuss Kyoto Agreement and penalties associated with non- compliance  2000 “UK Pension Act amended to require the trustees of occupational pension schemes to disclose their policy on socially responsible investment in their Statement of Investment Principles”  2001: UK Launch of the FTSE4Good Index: Ethical investment stock market index  2002: UK “Business in the Community launches first Corporate Responsibility Index” http://www.bitc.org.uk/services/benchmarking/cr -index  2004 “There are over 60 Government initiatives of relevance for CSR. The UK Parliament has two all-party groups on corporate citizenship: The All-Party Parliamentary Group on CSR The All-Party Parliamentary Group on Socially Responsible Investment” Corporate Social Responsibility Aradhna Malik (PhD) Assistant Professor VGSOM, IIT Kharagpur CSR in India  Evolution of Indian CSR (Deo, 2017; Sundar, 2000, in Dhanesh, 2015) Phase 1 (1850 to 1914) Phase 2 (1910 to 1960) Phase 3 (1950 to 1990) Phase 4 (1980 onwards)  Pase 1 (1850 to1914) (Deo 2017; Sundar, 2000, in Dhanesh, 2015) Economic Phase: Industrialization What did the rulers do in the name of development?: Colonial time, extraction Corporate CSR: Dynastic charity  Phase 2 (1914-1947) (Deo, 2017; Sundar 2000, in Dhanesh, 2017) Economic Phase: Trade barriers What did the rulers do in the name of development?: Colonial time, exploitation Corporate CSR: Support freedom struggle  Phase 3 (1947-1960) (Deo, 2017; Sundar, 2000, in Dhanesh, 2017) Economic Phase: Socialism, protectionism What did the Government do for development?: Make five year plans Corporate CSR: Support new state; launch own rural initiatives  Phase 4 (1960-1990) (Deo, 2017; Sundar, 2000, in Dhanesh, 2015) Economic Phase: Heavy regulations What did the Government do for development?: Licensing, failed at development efforts Corporate CSR: Corporate trusts  Phase 5 (1991 to 2013) (Deo, 2017; Sundar 2000, in Dhanesh, 2015) Economic Phase: Liberalization What did the Government do for development?: Shrinking in production; expanding in social provision Corporate CSR: Family trusts, private-public partnerships, NGO sponsorship 2009 (Updated in 2011): Ministry of Corporate Affairs: National Voluntary Guidelines on Social, Environmental & Economic Responsibilities of Business  Phase 6 (2013 to Present) (Deo, 2017; Sundar, 2000, in Dhanesh, 2015) Economic Phase: Globalization What did the Government do for development?: Realized the need to manage inequality; New reforms to liberalize further Corporate CSR: Addition of 2% mandatory CSR spending to Companies Act  Models of social responsibility in India (Balasubramaniam et al., 2005, Arevalo & Aravind, 2011) Gandhian model/ Ethical model: “Voluntary commitment to public welfare based on ethical awareness of broad social needs Statist model/ Nehruvian model: “State-driven policies including state ownership & extensive corporate regulation & administration” Liberal model/ Friedman model: “Corporate responsibility primarily focused on owner objectives” Stakeholder/ Freeman model: “Stakeholder responsiveness which recognizes direct & indirect stakeholder interests”  Discussion points for forum On the course forum, please list and provide links to Indian organizations following these models of social responsibility through their outreach activities  CSR drivers in Indian organizations (Balasubramaniam et al., 2005) Genuine concern for the society “Concern for social improvement Ethics and values Need to care for society Belief in stewardship (Gandhian philosophy)”  CSR drivers in Indian organizations (Contd.) (Balasubramaniam et al., 2005) Profit: “Corporate reputation Employee & customer relations Stakeholder impact Responsiveness to local communities Legal compliance Strategic/ corporate planning at board level”  Discussion points for forum On the course forum, please list examples of Indian corporate organizations whose work highlights each of these focus areas, i.e. genuine concern and profits Thank You Corporate Social Responsibility Aradhna Malik (PhD) Assistant Professor VGSOM, IIT Kharagpur CSR in India (Contd.)  National Voluntary Guidelines (2011) (http://www.mca.gov.in/Ministry/latestnews/National_Voluntary_Guidelines_2011_12jul2011.pdf) Applicable to all businesses, irrespective of sector or size  Principles of NVG (http://www.mca.gov.in/Ministry/latestnews/National_Voluntary_Guidelines_2011_12jul2011.pdf) “Principle 1: Businesses should conduct & govern themselves with Ethics, Transparency & Accountability Principle 2: Businesses should provide goods & services that are safe & contribute to sustainability throughout their life cycle Principle 3: Businesses should promote the well-being of all employees Principle 4: Businesses should respect the interests of, & be responsive towards all stakeholders, especially those who are disadvantaged, vulnerable & marignalized.”  Principles of NVG (Contd.) (http://www.mca.gov.in/Ministry/latestnews/National_Voluntary_Guidelines_2011_12jul2011.pdf) “Principle 5: Businesses should respect & promote human rights Principle 6: Businesses should respect, protect, & make efforts to restore the environment Principle 7: Businesses, when engaged in influencing public & regulatory policy, should do so in a responsible manner Principle 8: Businesses should support inclusive growth & equitable development Principle 9: Businesses should engage with & provide value to their customers & consumers in a responsible manner  Principle 1: Businesses should conduct & govern themselves with Ethics, Transparency & Accountability Core elements: 1. “Businesses should develop governance structures, procedures, & practices that ensure ethical conduct at all levels; & promote the adoption of this principle across its value chain 2. Businesses should communicate transparently & assure access to information about their decisions that impact relevant stakeholders 3. Businesses should not engage in practices that are abusive, corrupt, or anti- competition 4. Businesses should truthfully discharge their responsibility on financial & other mandatory disclosures 5. Businesses should report on the status of their adoption of these Guidelines as suggested in the reporting framework of the NVG document 6. Businesses should avoid complicity with the actions of any third party that violates any of the principles contained in these guidelines.”  Principle 2: Businesses should provide goods & services that are safe & contribute to sustainability throughout their life cycle Core Elements: 1. “Businesses should assure safety & optimal resource use over the life-cycle of the product – from design to disposal - & ensure that everyone connected with it – designers, producers, value chain members, customers & recyclers are aware of their responsibilities 2. Businesses should raise the consumer’s awareness of their rights through education, product labelling, appropriate & helpful marketing communication, full details of contents & composition & promotion of safe usage & disposal of their products & services 3. In designing the product, businesses should ensure that the manufacturing processes & technologies required to produce it are resource efficient & sustainable.”  Core elements of Principle 2 (Contd.) 4. “Businesses should regularly review & improve upon the process of new technology development, deployment & commercialization, incorporating social, ethical, & environmental considerations. 5. Businesses should recognize & respect the rights of people who may be owners of traditional knowledge, & other forms of intellectual property 6. Businesses should recognize that over-consumption results in unsustainable exploitation of our planet’s resources, & should therefore promote sustainable consumption, including recycling of resources.”  Principle 3: Businesses should promote the well-being of all employees Core Elements: 1. “Businesses should respect the right to freedom of association, participation, collective bargaining, & provide access to appropriate grievance redressal mechanisms 2. Businesses should provide & maintain equal opportunities at the time of recruitment as well as during the course of employment irrespective of caste, creed, gender, race, religion, disability, or sexual orientation 3. Businesses should not use child labor, forced labor, or any form of involuntary labor, paid or unpaid 4. Businesses should take cognizance of the work-life balance of its employees, especially that of women”  Core elements of Principle 3 (Contd.) 5. “Businesses should provide facilities for the wellbeing of its employees including those with special needs. They should ensure timely payment of fair living wages to meet basic needs & economic security of the employees. 6. Businesses should provide a workplace environment that is safe, hygienic, human, & which upholds the dignity of the employees. Business should communicate this provision to their employees & train them on a regular basis 7. Businesses should ensure continuous skill & competence upgrading of all employees by providing access to necessary learning opportunities, on an equal & non-discriminatory basis. They should promote employee morale & career development through enlightened human resource interventions. 8. Businesses should create systems & practices to ensure a harassment free workplace where employees feel safe & secure in discharging their responsibilities.”  Principle 4: Businesses should respect the interests of, & be responsive towards all stakeholders, especially those who are disadvantaged, vulnerable & marginalized.” Core Elements: 1. “Businesses should systematically identify their stakeholders, understand their concerns, define purpose & scope of engagement, & commit to engaging with them 2. Businesses should acknowledge, assume responsibility, & be transparent about the impact of their policies, decisions, product & services & associated operations on the stakeholders 3. Businesses should give special attention to stakeholders in areas that are underdeveloped 4. Businesses should resolve differences with stakeholders in a just, fair, & equitable manner”  Principle 5: Businesses should respect & promote human rights Core Elements: 1. “Businesses should understand the human rights content of the Constitution of India, national laws & policies, & the content of International Bill of Human Rights. Businesses should appreciate that human rights are inherent, universal, indivisible, & interdependent in nature. 2. Businesses should integrate respect for human rights in management systems, in particular through assessing & managing human rights impacts of operations, & ensuring all individuals impacted by the business have access to grievance mechanisms.  Core Elements of Principle 5 (Contd.) 3. “Businesses should recognize & respect the human rights of all relevant stakeholders & groups within & beyond the workplace, including that of communities, consumers & vulnerable & marginalized groups 4. Businesses should, within their sphere of influence, promote the awareness & realization of human rights across their value chain 5. Businesses should not be complicit with human rights abuses by a third party”  Principle 6: Businesses should respect, protect, & make efforts to restore the environment Core Elements 1. “Businesses should utilize natural & manmade resources in an optimal & responsible manner & ensure the sustainability of resources by reducing, reusing, recycling, & managing waste. 2. Businesses should take measures to check & prevent pollution. They should assess the environmental damage & bear the cost of pollution abatement with due regard to public interest. 3. Businesses should ensure that benefits arising out of access & commercialization of biological & other natural resources & associated traditional knowledge are shared equitably. 4. Businesses should continuously seek to improve their environmental performance by adopting cleaner production methods, promoting use of energy efficient & environment friendly technologies & use of renewable energy.  Principle 6: Businesses should respect, protect, & make efforts to restore the environment Core Elements 1. “Businesses should utilize natural & manmade resources in an optimal & responsible manner & ensure the sustainability of resources by reducing, reusing, recycling, & managing waste. 2. Businesses should take measures to check & prevent pollution. They should assess the environmental damage & bear the cost of pollution abatement with due regard to public interest. 3. Businesses should ensure that benefits arising out of access & commercialization of biological & other natural resources & associated traditional knowledge are shared equitably. 4. Businesses should continuously seek to improve their environmental performance by adopting cleaner production methods, promoting use of energy efficient & environment friendly technologies & use of renewable energy.  Core elements of Principle 6 (Contd.) 5. “Businesses should develop Environment Management Systems (EMS) & contingency plans & processes that help them in preventing, mitigating & controlling environmental damages & disasters, which may be caused due to their operations or that of a member of its value chain. 6. Businesses should report their environmental performance, including the assessment of potential environmental risks associated with their operations, to the stakeholders in a fair & transparent manner 7. Businesses should proactively persuade & support their value chain to adopt this principle.”  Principle 7: Businesses when engaged in influencing public & regulatory policy, should do so in a responsible manner Core Elements 1. “Businesses, while pursuing policy advocacy, must ensure that their advocacy positions are consistent with the Principles & Core Elements contained in these Guidelines. 2. To the extent possible, businesses should utilize the trade & industry chambers & associations & other such collective platforms to undertake such policy advocacy.”  Principle 8: Businesses should support inclusive growth & equitable development Core Elements 1. “Businesses should understand their impact on social & economic development, & respond through appropriate action to minimize the negative impacts. 2. Businesses should innovate & invest in products, technologies, & processes that promote the wellbeing of society. 3. Businesses should make efforts to complement & support the development priorities at local & national levels, & assure appropriate resettlement & rehabilitation of communities who have been displaced owing to their business operations. 4. Businesses operating in regions that are underdeveloped should be especially sensitive to local concerns.”  Principle 9: Businesses should engage with & provide value to their customers & consumers in a responsible manner Core Elements 1. “Businesses, while serving the needs of their customers, should take into account the overall well-being of the customers & that of society. 2. Businesses should ensure that they do not restrict the freedom of choice & free competition in any manner while designing, promoting, & selling their products. 3. Businesses should disclose all information truthfully & factually, through labelling & other means, including the risks to the individual, to society, & to the planet from the use of the products, so that the customers can exercise their freedom to consume in a responsible manner. Where required, businesses should also educate their customers on the safe & responsible usage of their products & services.”  Core Elements of Principle 9 (Contd.) 4. “Businesses should promote & advertise their products in ways that do not mislead or confuse the consumers or violate any of the principles in these Guidelines. 5. Businesses should exercise due care & caution while providing goods & services that result in over exploitation of natural resources or lead to excessive conspicuous consumption. 6. Businesses should provide adequate grievance handling mechanisms to address customer concerns & feedback.”  Indian Companies Act (2013) Chapter IX, Section 135: Corporate Social Responsibility: 1. CSR Committee 2. CSR Policy 1. Formulation 2. Public disclosure 3. “The Board of every company […] shall ensure that the company spends, in every financial year, at least 2%, of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its CSR policy: 1. Provided that the company shall give preference to the local area & areas around it where it operates, for spending the amount earmarked for CSR activities 2. Provided further if the company fails to spend such amount, the Board shall, in its report […] specify reasons for not spending the amount.”  Homework Please go through the Business Responsibility Reports of various organizations and spot examples of these principles and discuss them on the Forum. Thank You Corporate Social Responsibility Aradhna Malik (PhD) Assistant Professor VGSOM, IIT Kharagpur Stakeholders & CSR  Who are stakeholders? (Florea & Florea, 2013) “Stakeholders are the persons, institutions, organizations, formal & non formal groups which are interested or can be affected or which could influence the company decisions or actions.” (Freeman, 1980, in Florea & Florea, 2013) 193  Who are stakeholders? “… those groups without whose support the organization would cease to exist.” (Stanford Research Institute, 1963, in Donaldson & Preston, 1995) “… those who benefit from or are harmed by, & whose rights are violated or respected by, company actions. (Evan & Freeman, 1988, in Shin, 2011) “Participants in ‘the human process of joint value creation’.” (Freeman, 1994, in Shin, 2013) “… are or which could impact or be impacted by the firm/ organization.” (Brenner, 1995, in Shin, 2013)  Types of stakeholders (Florea & Florea, 2013) Based on involvement: “Internal stakeholders have a range of interests in the different parts of the company [or organization or community] and its activities.” “External stakeholders are individuals, companies or groups outside the companies which are influenced or could influence company [or organization or community] decisions and activities.”  Types of stakeholders (Contd.) (Florea & Florea, 2013) Based on how they are influenced by decisions/ actions “Primary stakeholders are the people or groups which are directly affected, in a positive or negative way, by a strategy, decision or action of a company, organization [or community].” “Secondary stakeholders are people or groups that are indirectly affected, either positively or negatively by a company [or organization or community] decision or action.” “Key stakeholders play an important role in [the] decision making process & also in its implementation because they are involved in company management or financing [or management & financing of the organization or community], [e.g.] policy makers, officials, important professionals or community personalities having a strong position or influence.” 196  Types of stakeholders (Contd.) (Florea & Florea, 2013) Based on the amount of power and influence they have: “Promoters have both great interest in the decision & the power to help make it successful (or to fail it)” “Defenders have a vested interest & can voice their support in the community, but have little actual power to influence the decision in any way.” “Latents have not particular interest or involvement in the decision, but have the power to influence it greatly if they become interested.” “Apathetics have little interest & little power, & may not even know the decision exists.”  The company & its stakeholders (Shin, 2013) On-line Info-System Providers Hardware Providers Software Providers Network Providers Service Website Corporate Citizen Community Community Member Shareholders Administration Creditors Government Supervision Laws & Regulations Employee Friendship Foreign Government Conflicts Relationship Non-Market Company Supplier Consumer Association Social activity groups Environmental Protection Market Retailer Internet Media Broadcast & TV Consumer Newspapers, Magazines Positive Opinions The Public Competitor Negative Opinions Industry & Business Associations Supportive Groups University, Research Institute Industry Associations On-line Consumer Info Broadcaster Online Regulation Online Competitor Formulator Online Stakeholders  Benefits demanded by stakeholders (Shin, 2013) Offline stakeholders: Shareholder: High investment returns, sustainable development Employee: Stable income, good corporate image, good benefits, congenial work environment, fair treatment, sustainable development Creditor: Capital recovery rate, capital recovery period, credit scope Supplier: Loan recovery rate, level of difficulty of access to raw materials, supply price Retailer: Supply assurance, commodity market conditions, adaptability of existing company facilities  Benefits demanded by stakeholders (Contd.) (Shin, 2013) Offline stakeholders (Contd.): Consumer: High quality goods, good service, low price, easy to use Competitor: Price level, conditions of commodity production & competitiveness Government: Require the company to abide by the law, timely & full payment of taxes Foreign Government: Protect the interests of domestic enterprises, access to foreign exchange earnings  Benefits demanded by stakeholders (Contd.) (Shin, 2013) Online stakeholders: Hardware provider: Company scale, commodity price Software provider: Company scale, commodity price, capital Network provider: Facilities to enhance speed, supply price, demand requirements Service website: The content the company demands, function, price  Benefits demanded by stakeholders (Contd.) (Shin, 2013) Offline stakeholders (Contd.): On-line consumer: Business to assure data security & personal privacy of the consumers, providing information truly, accurately, and in a timely manner, provide timely delivery of product, low cost Online regulation formulator: Internet [presence of the] company to abide by the law, protection of intellectual property rights Online competitor: Exchange business information, fair competition Information broadcaster: Timely & accurate broadcast abundant information How do stakeholders influence firm performance? (Frooman, 1999)  Resource Dependence Theory (Frooman, 1999) “… a firm’s need for resources provides opportunities for others to gain control over it.”  Why control resources? (Frooman, 1999) To convince/ persuade the firm to change some behavior  Resource control strategies (Frooman, 1999) Withholding strategies: “… determining whether a firm gets the resources” Stakeholder’s “… ability to articulate a credible threat of withdrawal.” (Pfeffer & Leon, 1977, in Frooman, 1999) Usage strategies: “… determining whether it can use the resources in the way it wants” “… attach[ing] conditions to the continued supply of that resource.”  Basis for resource control (Frooman, 1999) Withholding strategy: “Stakeholder is prepared to shut off the flow of resources”, implying that the stakeholder is able to “… simply walk away from the relationship with no harm to itself” -> “firm is unilaterally dependent on the stakeholder.” Major portion of the cost of changing behavior to be paid by firm Usage strategy: Stakeholder is not prepared to shut off the flow of resources. Mutual dependence between firm & stakeholder Cost of changing behavior to be shared by stakeholder & firm  Types of influence pathways (Frooman, 1999) Direct strategies: “…stakeholder itself manipulates flow of resources to the firm” Indirect strategies: Indirectly weakening the position of the firm by influencing others to take advantage of the firm’s vulnerabilities. e.g. “stakeholder informs a potential ally about: 1. “a firm’s behavior 2. why the stakeholder perceives that behavior to be undesirable 3. what the ally ought to do (i.e. initiate a resource strategy against the firm or a communication strategy directed at an ally of the ally)”  Typology of resource relationships (Frooman, 1999) Is the stakeholder dependent on the firm? Is the firm dependent on the stakeholder? No Yes No Low interdependence Firm power Yes Stakeholder power High interdependence Thank You Corporate Social Responsibility Aradhna Malik (PhD) Assistant Professor VGSOM, IIT Kharagpur  What is the stakeholder approach (Freeman & McVea, 2001) “… managers must formulate & implement processes which satisfy all & only those groups who have a stake in the business.”  Characteristics of the stakeholder approach (Freeman & McVea, 2001) “… intended to provide a single strategic framework, flexible enough to deal with environmental shifts without requiring managers to regularly adopt new strategic paradigms.” Strategic management process: “… actively plots a new direction for the firm & considers how the firm can affect the environment as well as how the environment may affect the firm.” Directed towards the survival of the firm, and in doing so “… direct[ing] a course for the firm not merely optimiz[ing] current output.”  Characteristics (Contd.) (Freeman & McVea, 2001) “… encourages management to develop strategies by looking out from the firm & identifying, & investing in, all the relationships that will ensure long-term success.” “… both a prescriptive & descriptive approach, rather than purely empirical & descriptive.” “… stakeholder relationships can be created & influenced, not just taken as given.”  Characteristics (Contd.) (Freeman & McVea, 2001) “… about concrete ‘names & faces’ for stakeholders rather than merely analyzing particular stakeholder roles.” Not the whole society, but specific stakeholders “… calls for an integrated approach to strategic decision making […] managers must find ways to satisfy multiple stakeholders simultaneously.”  Why pay so much attention to stakeholders? (Freeman & McVea, 2001) Normative theory: The definitions of right and wrong. “above & beyond the consequences of stakeholder management, is there a fundamental & moral requirement to adopt this style of management?” “… managers should make corporate decisions respecting stakeholders’ well being rather than treating them as means to a corporate end.” “… an ethics of care emphasizes the primacy of the network of relationships that create the business enterprise.”  Why pay so much attention to stakeholders? (Contd.) (Kochan & Rubenstein, 2000, in Freeman & McVea, 2001) “… stakeholder firms will emerge when the stakeholders hold critical assets, expose these assets to risk & have both influence & voice.” Along the lines of Frooman’s paper regarding influence exerted by stakeholders.  Managing stakeholders (Freeman & McVea, 2001) Buffering: “… aimed at containing the effects of stakeholders on the firm. Includes activities such as market research, public relations, & planning.” Bridging: “… involves forming strategic partnership […] requires recognizing common goals & lowering the barriers around the organization. Partnering is proactive & builds on interdependence.” Thank You Stakeholders & CSR (Clarkson, 1995)  Stakeholder issues vs. social issues (Clarkson, 1995) Identification of boundaries between stakeholders and the society in general “… necessary to distinguish between stakeholder issues & social issues because corporations & their managers manage relationships with their stakeholders & not with society.” “… necessary to conduct analysis at the appropriate level: institutional, organizational, or individual.” Analysis & evaluation of “… both, the social performance of a corporation & the performance of its managers in managing the corporation’s responsibilities to, & relationships with, its stakeholders.”  Typical corporate & stakeholder issues (Clarkson, 1995) 1. Company: 1. Company history 2. Industry background 3. Organization structure 4. Economic performance 5. Competitive environment 6. Mission or purpose 7. Corporate codes 8. Stakeholder & social issues management systems  Typical corporate & stakeholder issues (Contd.) (Clarkson, 1995) 2. Employees 1. General policy 11. Dismissal & appeal 2. Benefits 12. Termination, layoff, & redundancy 3. Compensation & rewards 13. Retirement & termination counseling 4. Training & development 14. Employment equity & discrimination 5. Career planning 15. Women in management & on the board 6. Employee assistance 16. Day care & family accommodation program 7. Health promotion 17. Employee communication 8. Absenteeism & turnover 18. Occupational health & safety 9. Leaves of absence 19. Part-time, temporary, or contract employees 10. Relationships with unions 20. Other employee or human resource issues  Typical corporate & stakeholder issues (Contd.) (Clarkson, 1995) 3. Shareholders: 1. General policy 2. Shareholder communications & complaints 3. Shareholder advocacy 4. Shareholder rights 5. Other shareholder issues  Typical corporate & stakeholder issues (Contd.) (Clarkson, 1995) 4. Customers: 1. General policy 2. Customer communications 3. Product safety 4. Customer complaints 5. Special customer services 6. Other customer issues  Typical corporate & stakeholder issues (Contd.) (Clarkson, 1995) 5. Suppliers: 1. General policy 2. Relative power 3. Other supplier issues  Typical corporate & stakeholder issues (Contd.) (Clarkson, 1995) 6. Public stakeholders: 1. Public health, safety, & protection 2. Conservation of energy & materials 3. Environmental assessment of capital projects 4. Other environmental issues 5. Public policy involvement 6. Community relations 7. Social investment & donations  Difference between stakeholder & social issues (Clarkson, 1995) Social issue: Enactment of legislations or regulations developed over a period of time by a particular society (Municipal, state, or national) Stakeholder issue: No such legislation or regulation, but organization identifies it and considers it necessary  Groups of stakeholders (Clarkson, 1995) Primary Secondary  Primary stakeholder group (Clarkson, 1995) “… one without whose continuing participation the corporation cannot survive as a going concern “…typically comprised of shareholders & investors, employees, customers, & suppliers, together with what is defined as the public stakeholder group: the governments & communities that provide infrastructures & markets whos laws & regulations must be obeyed, & to whom taxes & other obligations must be due.” “high level of interdependence between the corporation & its primary stakeholder groups.”  Secondary stakeholder group (Clarkson, 1995) “… those who influence or affect, or are influenced or affected by the corporation, but they are not engaged in transactions with the corporation & are not essential for its survival.” e.g. media, special interest groups “… may be opposed to the policies or programs that a corporation has adopted to fulfill its responsibilities to, or to satisfy the needs & expectations of, its primary stakeholder groups.” Thank You Corporate Social Responsibility Aradhna Malik (PhD) Assistant Professor VGSOM, IIT Kharagpur Stakeholder theory perspectives  Bases for stakeholder theory “The very purpose of the firm is […] to serve as a vehicle for coordinating stakeholder interests.” (Evan & Freeman, 1993, in Donaldson & Preston, 1995) Based on Social Contract Theory: i.e. The expectations of the society that we live in are a result of the contract that binds us to that society. The context decides what the society expects us to do in exchange for letting us be a part of it.  Social contract, stakeholders & CSR (Secchi, 2007) “The analysis of corporation-stakeholder relations leads to the definition of hypernorms, macro- & micro-social contracts.” “Social responsibility is expressed through stakeholder relations & defines corporate existence.”  CSR Perspectives based on stakeholder-firm relationship (Secchi, 2007) Utilitarian Managerial Relational  Utilitarian perspective (Secchi, 2007) Social cost Functionalism  Managerial perspective (Secchi, 2007) Corporate social performance Social accountability, auditing, & reporting Social responsibility of multinationals  Relational perspective (Secchi, 2007) Business & society Stakeholder approach Corporate global citizenship Social contract theory  Facets of stakeholder theory Convergent stakeholder theory Divergent stakeholder theory: Proposal  Convergent stakeholder theory (Jones & Wicks, 1999) “Managerial maxim: Managers should strive to create & maintain mutually trusting & cooperative relationships with corporate stakeholders. Normative core: Relationships characterized by mutual trust & cooperation are morally desirable. Supporting instrumental theory: Firms whose managers establish & maintain mutually trusting & cooperative relationships with their stakeholders will achieve competitive advantage over those whose managers do not.”  Divergent stakeholder theory: Proposal (Freeman, 1999) Acknowledging that: “There is more than one way to be effective in stakeholder management.” “There is more than one vision for creating value or for what consequences count as valuable.” Requirement: Conversation encouraging divergent views & discarding views “… that are not useful, not simple, & that do not show us how it is possible to live better.”  Types of stakeholder theories (Freeman, 1999) “Descriptive stakeholder theory: Describe[s] how organizations manage or interact with stakeholders” “Normative stakeholder theory: Prescribe[s] how organizations ought to treat their stakeholders.” “Instrumental theory:[…] ‘If you want to maximize shareholder value, you should pay attention to key stakeholders’.”  What stakeholder theory is not (Phillips, Freeman & Wicks, 2003) “… an excuse for managerial opportunism” (Jensen, 2000; Marcoux, 2000; Sternberg,2000, in Phillips, Freeman & Wicks, 2003) Unable to “… provide a sufficiently specific objective function for the corporation” (Jensen, 2000, in Phillips, Freeman & Wicks, 2003) “… primarily concerned with distribution of financial outputs” (Marcoux, 2000, in Phillips, Freeman & Wicks, 2003) insistent on treating all stakeholders equally (Gioia, 1999; Marcoux, 2000; Sternberg, 2000, in Phillips, Freeman & Wicks, 2003)  What stakeholder theory is not (Contd.) (Phillips, Freeman & Wicks, 2003) Insistent on “… changes to current law” (Hendry, 2001 a, b; Van Buren, 2001, in Phillips, Freeman & Wicks, 2003) “… socialism, and refers to the entire economy” (Barnett, 1997; Hutton, 1995; Rustin, 1997, in Phillips, Freeman & Wicks, 2003) “… a comprehensive moral doctrine” (Orts & Strudler, 2000, in Phillips, Freeman & Wicks, 2003) Applicable only to corporations (Donaldson & Preston, 1995, in Phillips, Freeman & Wicks, 2003) Thank You Corporate Social Responsibility Aradhna Malik (PhD) Assistant Professor VGSOM, IIT Kharagpur Stakeholder theory in action  Steps in ethical decision making: PASCAL (Goodpaster, 1991) Perception Analysis Synthesis Choice Action Learning  PASCAL (Contd.) (Goodpaster, 1991) “Perception: Or fact gathering about the options available & their short & long-term implications. Analysis of these implications with specific attention to affected parties & to the decision- maker’s goals, objectives, values, responsibilities, etc. Synthesis of this structured information according to whatever fundamental priorities obtain in the mindset of the decision-maker.”  PASCAL (Contd.) (Goodpaster, 1991) “Choice among the available options based on the synthesis. Action or implementation of the chosen option through a series of specific requests to specific individuals or groups, resource allocation, incentives, controls, & feedback. Learning from the outcome of the decision, resulting in either reinforcement or modification (for future decisions) of the way in which the above steps have been taken.”  Stakeholder analysis (Goodpaster, 1991) Perception Analysis  Stakeholder synthesis (Goodpaster, 1991) “… offers a pattern or channel by which to move from stakeholder identification to a practical response or resolution.” Synthesis, Choice, Action & Learning from PASCAL  Strategic stakeholder synthesis (Goodpaster, 1991) “The essence of a strategic view of stakeholders is not that stakeholders are ignored, but that all but a special group (stockholders) are considered on the basis of their actual or potential influence on management’s central mission. The basic normative principle is fiduciary responsibility (organizational prudence) supplemented by legal compliance.”  Process of strategic stakeholder synthesis (Goodpaster, 1991) “… defining ethical behavior partly in terms of the nonstrategic decision-making values behind it.” “…recognizing that too much optimism about the correlation between strategic success & virtue runs the risk of tailoring the latter to suit the former.”  Multi-fiduciary stakeholder synthesis (Goodpaster, 1991) Balancing the (often conflicting) fiduciary needs of and commitments to multiple stakeholders of the organization: Where and how does one draw the line? Stakeholder paradox: It is the obligation of the managers to make money for investors/ shareholders. However, if the organization does that, it could be disadvantaging other stakeholders who are affected but may not have invested.  Stages of corporate moral development (Reidenback & Robin, 1991, in Iamandi, 2007) “Amoral organization Legalistic organization Responsive organization Emerging ethical organization Ethical organization”  Amoral organization (Reidenback & Robin, 1991, in Iamandi, 2007) ‘Win at all costs’ “Driven by greed & short term orientation” “It is ethical as long as we don’t get caught” “Ethical violations, when caught, are considered to be a cost of doing business.” “No meaningful code of ethics or other documentation”  Legalistic organization (Reidenback & Robin, 1991, in Iamandi, 2007) ‘Obey the law’ “Driven by concern for economic performance” “Uses damage control through public relations when social problems occur” ?