The Strategic Necessity of Corporate Social Responsibility

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Theme: Strategy: Strategic Planning and Deployment

The Strategic Necessity of Corporate Social Responsibility

Working Paper

Lisa Murray

PhD Student,

Queen’s University Belfast,

School of Management and Economics,

25 University Square,

Belfast,

BT7 1NN

Northern Ireland

Email: lmurray14@qub.ac.uk

Dr. Shirley-Ann Hazlett

Lecturer in Management,

Queen’s University Belfast,

School of Management and Economics,

25 University Square,

Belfast,

BT7 1NN

Northern Ireland

Email: s.hazlett@qub.ac.uk

Abstract:

The number of organisations engaging in Corporate Social Responsibility (CSR) has increased markedly in the past decade. More recently, organisations are being encouraged to approach and integrate CSR strategically. However, there is little practical guidance on how organisations should do this and what form strategic CSR should take in their organisation. Furthermore, strategic CSR remains conceptually weak in the literature, with little research already undertaken in the area. Drawing on exploratory research conducted in organisations in UK, this paper examines the current nature and future of strategic CSR in organisations. It is tentatively concluded that the majority of organisations have yet to fully implement and harness the potential benefits of strategic CSR. A 2x2 matrix, detailing the different ways in which organisations can define and implement CSR is proposed.

Authors’ Biographies

Lisa Murray is a second year PhD student exploring the relationship between strategy and corporate social responsibility in organisations. Her research interests include Corporate Social Responsibility, corporate strategy, RBV and organisational capabilities.

Shirley-Ann Hazlett is a lecturer in Management and has published numerous journal articles and conference papers examining the broad areas of TQM and ISO 9000, Knowledge Management and Corporate Social Responsibility. She is a senior assessor for the Northern Ireland Quality Awards.

Presentation Experience

Lisa has presented papers at both the Irish Academy of Management Conference 2005 and the 11th International Conference on ISO 9000 & TQM in Hong Kong, 2006.

The Strategic Necessity of Corporate Social Responsibility

Working Paper

Overview to the Paper

Although the concept of CSR has existed for decades, it is only in recent years that the number of organisations engaging in such behaviours and activities has increased markedly (McWilliams et al, 2006). As Bichard of the National Centre for Business and Sustainability suggests, businesses “increasingly realise that is a false economy not to consider the social aspect” of their activities (The Independent, March 21st, 2005). If they do so “it will eventually come back and bite…and there are likely to be financial consequences in that” (ibid). As a result, organisations are now engaging in a plethora of socially responsible activities ranging from preventing harmful emissions in the environment, to donating money to a needy cause or ensuring employees have an effective work-life balance. The focus of these activities varies widely; some are ad-hoc and reactive programmes whilst others are more proactive and of strategic benefit to the organisation (Joyner & Payne, 2002; McWilliams et al, 2006; Husted & de Jesus Salazar, 2006).

This paper explores our understanding of the term Corporate Social Responsibility (hereafter CSR), before explaining how and why it needs to be much more strategic in outlook, if it is to be assured of longevity and delivering real value to the organisation. The paper then presents preliminary findings from a long term research programme that evaluates how organisations can adopt a more strategic focus to CSR. These findings are drawn from a range of organisations in the UK, all of whom are engaged to varying degrees in CSR.

What is CSR?

Despite the significant amount of interest in CSR, a number of issues have not been satisfactorily addressed at either a theoretical or practical level. There is no universally accepted definition of CSR (Brooks, Williams & Thomas, 2004; Angelidis & Ibrahim, 2004; Van Marrewijk, 2003), so much so, that it has been defined, inter alia, as a term (Frankental, 2001); a concept (De Bruijn et al, 2004); a process (Hemingway & Maclagan, 2004); a theory (McWilliams & Siegel, 2001), whilst others claim it is simply an activity or set of activities (Husted, 2003; Joyner & Payne, 2002; Lantos, 2002). In addition, terms such as corporate citizenship, strategic philanthropy and corporate social responsiveness are used interchangeably to refer to the same thing; the relationship that a business has with society. From a practitioner perspective, this inconsistent use of terminology serves to confuse rather than enlighten.

The situation is further compounded by the lack of agreement surrounding the scope and reach of CSR and whether it should be perceived as an organisational obligation (Lantos, 2001), or something that is much more voluntary in nature (Jones, 1980). Some suggest that CSR should focus solely on those members or groups in society most in need; others argue that organisations should concentrate their attentions on helping only those groups in society favoured by their customers (Cornwell & Coote, 2005); and still others claim that all elements of society and the broader macro environment should be aided by the scope of an organisation’s CSR activities (Hemingway & Maclagan, 2004). The debate is equally confusing in relation to the benefits that an organisation should derive from such activities. Husted (2003), for example, asserts that CSR should only be undertaken if it impacts positively on the bottom line, whereas others maintain it is ‘truly unethical’ to seek profits from CSR (Frederick, 1994). Clearly then, Votaw’s (1973) comment that CSR, “means something, but not always the same thing, to everybody”, still has as much resonance today as it did thirty years ago.

By way of summary, there is not a well developed or convincing body of literature that can clearly articulate or evaluate the value to organisations of engaging in such behaviours and activities (van Marrewijk, 2003). In reality, much of the current interest in CSR seems to concentrate on the need to engage in such behaviours and activities as a matter of course, but there is none, or very little, accompanying description and explanation of the incidence and types of initiatives that are seen in practice, what it is that organisations should be aiming to achieve, or the benefits yielded in engaging in such behaviours and activities. Yet, in spite of these definitional and conceptual difficulties, there is a growing school of thought that suggests that by integrating CSR at both strategic and operational levels, organisations can have a positive impact on society and the environment, and at the same time enhance their own reputation, increase employee satisfaction, create customer loyalty, and improve profitability and competitiveness (Diaz, 2004; Velasquez, 2006). McIntosh et al. (2003) suggest that, “there is money to be made” from socially responsible business and that businesses will find that their best chance of “doing well” in business is by “doing good”. Given that the ultimate responsibility of an organisation is to its shareholders, Lantos (2001) believes that such strategic CSR is justifiable and should be applauded as it financially benefits the business through serving the society in extra-economic ways. Thus, both the academic and practitioner communities have begun to devote “greater attention to the strategic implications of corporate social responsibility (CSR)” (McWilliams et al, 2006: 2).

What is Strategic CSR?

Until recently, strategic CSR was defined as a “win: win” approach to social responsibility, whereby organisations demonstrate responsibility to society, and receive benefit in return (Lantos, 2001). McWilliams et al (2006) argue that CSR has several strategic implications for an organisation. Firstly, evidence has shown that CSR can help build and improve an organisation’s reputation (Fombrun & Shanley, 1990; MORI, 2004). Furthermore, it can help an organisation achieve a competitive advantage, as it is an organisational capability that is difficult to imitate and can thus offer the potential for sustained competitive advantage (Litz, 1996; Barney, 2001). Secondly, integrating CSR into the organisational strategy will help the organisation meet the increasing external demands for CSR, thus contributing to a greater strategic fit between the business and its environment. However, the relationship between strategy and CSR remains embryonic and is only now being explored in much greater detail (McWilliams et al, 2006; Marcus & Anderson, 2006). As a result there is a growing recognition that CSR should become fundamental to the way an organisation operates, as opposed to an ‘add on’.

Building on the work of Jonker and Schoemaker (2004), it is suggested that CSR can be integrated strategically throughout the organisation by becoming an organisational capability. Therefore, CSR should not just be apparent explicitly, for example, in organisational activities, reports, strategies, and mission statements, but is implicitly present in the organisation through employee attitudes, behaviours, decision-making and organisational culture (Jonker & Schoemaker, 2004). As a result, strategic CSR involves an organisation embedding CSR by harnessing its internal skills and strengths and using them in a way that will benefit both the organisation and its stakeholders. Given the embryonic nature of this field, this research proposes a working definition of strategic CSR:

‘…strategic CSR is embedded as a core competence that is integrated (both implicitly and explicitly) within the strategic planning cycle of the organisation, resulting in competitive and operational benefits for the organisation, as well as significant benefits for stakeholders’.

CSR in practice

Recent research by Hazlett et al, (2005) examined the nature of current CSR activities in a number of quality award winning organisations. The study found that whilst the organisations were actively engaging in CSR activities at an operational level, there seemed to be much less focus on the strategic implications. Indeed, the organisations seemed to approach CSR in an ad-hoc manner, failing to realise the potential value of strategic CSR. Perhaps, of greater concern was the fact that the organisations were unaware of what they gained or could gain from engaging in CSR.

There is substantial anecdotal evidence that this pattern is indicative of many organisations (Carrigan, 1997). Whilst organisations are being encouraged to engage in strategic CSR, there is little guidance on how to do so, and literature clearly establishing the link between CSR and strategy is scarce and often anecdotal. Waddock (2003: 14) stresses that “fluff is not enough”, and Vogel (2005) asserts that “you don’t do CSR, you are CSR”. How organisations get beyond ‘fluff’ to ‘being’ socially responsible is not fully addressed or understood. This gap in the literature needs to be tackled in order for practitioners and academics to gain a clearer understanding of the link between CSR and strategy, and how strategic CSR can be implemented in organisations. This may help CSR become more embedded in the organisation, thereby dispelling concerns that CSR is merely another ‘fad’ (Brooks et al, 2004).

Research Methodology

The qualitative exploratory study represents the first stage of an ongoing research programme which examines strategic CSR in organisations. Data collection in the form of semi-structured interviews with policy makers, senior executives and decision makers in organisations was undertaken. The types of organisations ranged from large, public sector organisations, to small, family-owned organisations. The industries in which the organisations operated also varied, ranging from production oriented, such as construction, to service oriented, such as public relations. The sample is opportunistic in nature, selected on the basis of perceived relevance and access, with no attempt being made to ensure statistical representativeness. The purpose at this stage is merely to identify common themes and to facilitate interviews and more in-depth research in the form of case-studies, as well as the development, understanding and refinement of the topic.

Findings and analysis

The findings highlight many of the problems already identified in the literature, as well as presenting several interesting avenues for further research. Firstly, it was noted that all of the organisations were engaging in CSR activities to varying degrees. Using the Business in the Community’s CSR framework as guidance, an organisation’s CSR activities can be classified under four main headings: Community, Workplace, Environment and Marketplace [.uk]. All of the organisations undertook activities in each of these areas. However, the nature and intensity of the activities differed from organisation to organisation. More specifically, the extent to which socially responsible activities were integrated with the organisational strategy differed greatly between organisations. Some organisations have a specialised CSR department and a specific CSR strategy, others approached CSR on an ad-hoc basis, and a few organisations were unaware they were being socially responsible.

Upon further analysis, it emerged that each of the organisations, regardless of their approach, understood and were able to articulate the organisational benefits of strategic CSR. Increased employee motivation, competitiveness and customer loyalty were frequently cited as benefits of being socially responsible. However, the extent to which the organisations attempted to harness such benefits differed greatly. These differences appear to be due to the organisation’s attitudes and perceptions of CSR, and the role respondents believed that CSR should play in an organisation.

Some interviewees felt that although they may benefit from being socially responsible, organisations should not do so with the aim of benefiting; benefits, they suggested, should be perceived as a ‘bonus’. One interviewee claimed that:

“Getting something back just wouldn’t be a consideration… If you’re only doing it so someone can see you doing it, it’s not worth doing”

whilst another felt that organisations should not profit from being socially responsible:

“I have a problem with companies that are in business for profit being truly CSR companies… To me, a CSR company would be saying we broke even.”

Such organisations did not have a separate CSR policy or strategy. They did not attempt to benefit from being socially responsible. Instead of being something that can be used to increase competitiveness, CSR is perceived as an obligation for the organisation – something that they ‘owe’ to the community, given their power and impact on society. As a result, the socially responsible activities undertaken by these organisations tended to be highly altruistic rather than strategic in nature, with the organisations seemingly receiving little in return.

At the other end of the spectrum were those organisations who felt that CSR should be used as a tool to help the organisation achieve profits and increased competitiveness. The interviewees felt it made ‘business sense’ to attempt to ‘do well’ by ‘doing good’. For example, in the area of charitable contributions and sponsorship, one interviewee remarked

“You would be very, very unprofessional if you didn’t have it in line with your business strategy – very unprofessional. I would totally disagree with anybody who said they were doing it for the good of the people. That does not exist. You do it for a particular reason. You do it for business reasons.”

Another interviewee felt that organisations should not be ashamed to benefit from being socially responsible:

“…if it does help their business, why should they be anyway ashamed of it supporting their business? It’s a mutual benefit; it’s not only a benefit to them”.

Respondents from organisations which gave this type of response generally had a more strategic approach to CSR. Many of these organisations had a separate CSR strategy and knew what they wanted to gain from their socially responsible activities. Their choice of charities and socially responsible activities was closely linked with their area of business and customer preferences. CSR was viewed as a business opportunity for the organisation, offering numerous benefits. In some cases, it seemed like CSR was just another opportunity for the organisation to make more money. In one instance, the interviewee claimed that the organisation would not have been socially responsible if there was not such a strong business case behind it:

“One of the first things I did was review the business case. Because unless you’ve got a good business case… You can’t rely on doing it because it’s the right thing to do – not just that. You have to have a good business case”.

On occasions, the literature refers to this attitude as ‘unethical’, with critics claiming that organisations are using charities and groups in the community as a means to an end (McWilliams & Siegel, 2001). This approach to strategic CSR may, for example, result in the organisation only choosing those charities that result in the largest financial gain for the company, possibly neglecting those ‘controversial’ charities that may be in greater need (Saiia et al, 2003; Husted, 2003).

Regardless of whether organisations had a CSR strategy, the majority of respondents admitted that CSR had yet to be fully integrated. One interviewee claimed that a CSR strategy was needed as a first step towards an organisation truly embedding CSR, as this helps all employees realise what socially responsible activities the organisation are undertaking, and what form CSR should take. However, even those organisations with a CSR strategy in place felt that CSR was yet to be fully embedded in the organisation. It was acknowledged that, in much the same way, as embedding quality management in an organisation takes time and often involves a culture change, the same is true for CSR (Brooks et al, 2004).

Interestingly, one organisation appeared to have embedded CSR, yet had done so without a particular CSR strategy or CSR focus. The interviewee claimed that,

“…there’s no file sitting on the shelf, but without a doubt, there is a firm understanding right across all of the managers responsible for each area. It’s filtered down to every employee here… The development of a CSR strategy would be null and void because there’s no need to do it. We have far more important business objectives than that. I do feel it’s totally taken care of.”

This may be explained by the fact that the same family had owned this small organisation for a long time and their values and expectations had filtered throughout the organisation. In time, their expectations and values became the way of behaving within the organisation. However, despite this, they were still failing to co-ordinate these behaviours in a way that could result in significant organisational benefits. This seemed to be the pattern for a number of the organisations. Despite all the interviewees being able to articulate the potential benefits to be gained from being socially responsible, not one organisation attempted to measure the impact or benefits of being socially responsible. This may not be surprising, given that Carrigan (1997) found that 75% of organisations failed to measure the impact of CSR on their organisation.

Given these findings, a 2x2 matrix can be used to illustrate the different ways in which organisations both define and implement CSR. This matrix is illustrated in Figure 1.

[pic]

Figure I - Proposed 2x2 CSR matrix

Drawing on analysis of the findings and evidence from the literature, the matrix argues that an organisation’s approach to CSR can fit into one of four quadrants. The axes represent how strategic and integrated the CSR activity is in the organisation, how ethical the activity is, the degree to which the organisation benefits from the activity and the degree to which stakeholders benefit from the activity.

This matrix illustrates how CSR can be strategically embedded in an organisation, or, conversely, of little or no significance. For example, some organisations have no regard for CSR at all. These could be termed ‘scandalous’ organisations and are positioned in Quadrant 1 in the 2x2 matrix. Whilst not being overtly unethical or irresponsible, they make no special effort to be ethical, or aid society in any form. This is becoming a dangerous way for organisations to behave in today’s marketplace (Oketch, 2004; The Economist, 22nd January, 2005), especially when consumers and society are demanding ethical and socially responsible behaviour more than ever, to the extent that socially responsible activities are playing a role in public opinions of an organisation (Bichard, The Independent, March 21st, 2005; Van de Ven & Jeurissen, 2005).

Other organisations, such as those identified in the results and analysis, are socially responsible in a way that results in society benefiting more than the organisation, because the CSR activity is not strategically integrated (altruistic CSR). Due to the lack of strategic planning and integration of CSR, the organisation cannot fully avail of the potential benefits (Lantos, 2001; Hemingway & Maclagan, 2004; Joyner & Payne, 2002).

On the other hand, some organisations are using CSR to primarily gain profits and exposure, as opposed to trying to do their best for society. ‘Enlightened’ CSR often results in greater gains for the organisation than society (Frederick, 1994; Saiia et al, 2003; O’Dwyer, 2003). Such organisations are highly strategic in their approach to CSR, but are often not behaving in a truly ethical manner.

As suggested by the literature, it is possible for an organisation to be socially responsible in a strategic way that results in significant gains for both the organisation and society (Brooks, Williams & Thomas, 2004; McWilliams et al, 2006; Husted & De Jesus Salazar, 2006). However, this research reveals that organisations have yet to reach this level of CSR.

Conclusions

The literature suggests that organisations can be socially responsible in ways that result in significant benefits for both the organisation and society. However, this research has demonstrated that organisations have yet to reach this stage of CSR maturity. Organisations continue to approach CSR in different ways and with different aims and despite being able to articulate the values of strategic CSR this has as yet not been achieved. There is weighty evidence that many approach CSR on an ad-hoc basis. Indeed, even those who have a specific CSR strategy, and in some cases, CSR departments, in place struggle with the value and impact of engaging in such activities. CSR has yet to be embedded throughout organisations in ways that allow it to become part of the way they do business. It is hoped that the 2x2 CSR matrix presented in this paper will be tested in greater detail in an attempt to gain a greater understanding of what form strategic CSR can take and how it can be embedded in an organisation. This will provide greater clarity and understanding of CSR in practice, the strategic implications it can have, and how CSR has the potential to become something of strategic importance to organisations as opposed to ‘add on’.

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(WIN:WIN)

Integration

(Win for society)

(Barely there)

(Win for org)

Strategic

focus

Unethical Ethical

Benefits to stakeholders

Altruistic

Scandal

Embedded

Enlightened

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