Corporate social Corporate social responsibility and reputationresponsibility and reputation

Spyros LioukasSpyros Lioukas

CSR IssuesCSR Issues

1. CSR Pyramid2. Stakeholder versus Shareholder approach3. CSR and Financial Performance4. CSR – Corporate Reputation link5. Stages of Corporate Social Responsiveness6. Crises7. Triple Bottom Line

What are the Responsibilities of the Corporation? Pyramid of CSR

Philanthropic ResponsibilitiesPhilanthropic ResponsibilitiesBe a good corporate citizen.

(Clean up your mess orContribute to stakeholder wealth?)

Ethical ResponsibilitiesEthical ResponsibilitiesBe ethical.

Legal ResponsibilitiesLegal ResponsibilitiesObey the law.

Economic ResponsibilitiesEconomic ResponsibilitiesBe profitable.

General Principles ofGeneral Principles ofSocial ResponsibilitySocial Responsibility

• Obey the law• Economic criteria are primary• Adverse social impacts must be corrected• Responsibility varies by company• Try to meet all legitimate stakeholder

needs

C5-S5

The Body ShopThe Body Shop

Is/was the body shop socially responsible?

http://www.myprimetime.com/misc/video/pm_roddick.shtml

Global Expectations of BusinessGlobal Expectations of Business

6%12%

16%

21% 10%

35%

Responsibility to broader society

Q: Most Important Factor when forming an impression of a company

Brand quality/ reputation

Labor practices

Source: www.pwcglobal.com and Global CSR Monitor 2001 - Environics, conducted among General Public in 20 countries

Don’t know

Economic contribution

Environmental practices

Using a Stakeholder FrameworkUsing a Stakeholder Framework

1. Descriptive Approach – This is how things are

2. Instrumental Approach – Given how things are, this is how we can use stakeholders to achieve profits

3. Normative Approach – This is how we should treat stakeholders

Stakeholder versus Shareholder Stakeholder versus Shareholder DebateDebate

1. Friedman – be profitable as long as you obey the law

2. Some Business and Society Scholars – Over the long term Businesses cannot remain profitable without engaging in CSR activities

3. Other Business and Society Scholars – Businesses have a number of obligations towards society

CSR and Financial PerformanceCSR and Financial Performance

Good CorporateSocial Performance

Perspective 1: CSP Drives the Relationship

Good Corporate Financial Performance

Good CorporateReputation

Good CorporateFinancialPerformance

Perspective 2: CFP Drives the Relationship

Good CorporateSocial Performance

Good CorporateReputation

Good CorporateSocial Performance

Perspective 3: Interactive Relationship Among CSP, CFP, and CR

Good CorporateFinancialPerformance

Good CorporateReputation

Corporate ReputationCorporate ReputationDefinitionDefinition

“Corporate Reputation is the overall estimation in which a particular company is held by its various constituents.”

(Fombrun, 1996)

Significance of Corporate Reputation from a Strategic Significance of Corporate Reputation from a Strategic Management PerspectiveManagement Perspective

$ Source of Sustainable Competitive Advantage– Reputation cannot be easily copied or imitated by

competitors (Dierickx & Cool, 1989; Itami, 1987; Hall, 1992, 1993)

– Reputation cannot be built by money alone (Itami, 1987)

– Command of Premium Prices– Simultaneous Multiple Uses

AMAC Fortune SurveyAMAC Fortune Survey• The AMAC survey, conducted yearly since 1984 by FORTUNE

magazine, tries to capture the dimensions of corporate reputation by surveying over 8,000 executives and industry analysts who are asked to rank the ten top companies in their industry along eight dimensions:– (1) quality of management– (2) quality of products or services– (3) innovativeness– (4) ability to attract, develop, and keep talented people – (5) long-term investment value– (6) financial soundness – (7) use of corporate assets– (8) community and environmental responsibility

1313

CSR & the business case (2010’s)

Source: 2012 Edelman Trust Barometer, May 2012

Reputation for Community and Environment Reputation for Community and Environment of Philip Morrisof Philip Morris

Industry ExecutivesIndustry Executives

0123456789

10

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

Source: Fortune AMAC Survey

What Happened here?

Multidimensionality refers to the fact that a business firm could be known as a good or bad performer on a number of issues

Characteristics of ReputationCharacteristics of Reputation• Innovation• Quality Producer• Good place to work in• Socially Responsible• Trustworthiness• Reliability• Credibility• ...• In all of these cases, one could say that a firm has a good

(or bad) reputation, but in reality one would be referring to different things.

Stakeholder specificity refers to the fact that various stakeholders could have different notions regarding the reputation of a business firm.

Perspectives of Corporate Perspectives of Corporate ReputationReputation

• Customers• Employees• General Public• Government Agencies• Activist Groups• Suppliers• Competitors• …..• All of these groups could have different perceptions,

opinions and emotions about a particular firm.

Corporate Reputation as a MatrixCorporate Reputation as a Matrix

Stakeholders Aspects

Customers Government Agencies

Employees ……

Financial Reputation

Social Responsibility

…….

CrisesCrises

• Crises are complex situations• Appear by a “Triggering Event”• Financial, Reputational, and Legitimacy

Impacts• Numerous Stakeholders (Media,

Politicians, General public, Customers,…)

• Requires speedy managerial responses

Basic Crisis ModelBasic Crisis Model

TriggeringEvent

Stakeholders

Managers

Reputation and

Legitimacy

$

CrisisResolution

Examples of Crises/Triggering Examples of Crises/Triggering EventsEvents

• Exxon Valdez March 24, 1989– Exxon Valdez ran aground on Bligh Reef, 25 miles south of Valdez,

Alaska. During the period of the oil spill through August 1991, Exxon expended in excess of $2.1 billion for clean-up activities and reimbursements to the Federal, State and local governments for their expenses of response to the oil spill.

• Gulf of Mexico: oil spill• Coke fungicides and carbon dioxides leaks in cans in 1999

14 Million cases of soft drinks recalled: a $60 million charge

Comparison of the Reputational Comparison of the Reputational Recoveries of Exxon and UCRecoveries of Exxon and UCOverall Reputational Score Overall Reputational Score

70

75

80

85

90

95

100

105

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

ExxonU C

Source: AMAC Survey, FORTUNE Magazine.

Reputation Prior to Event = 100

Comparison of the Reputational Recoveries of Comparison of the Reputational Recoveries of Exxon and UC Reputational Score for the Exxon and UC Reputational Score for the

Community and the EnvironmentCommunity and the Environment

6065707580859095

100105

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

ExxonUC

Source: AMAC Survey, FORTUNE Magazine.

Reputation Prior to Event = 100

Organizational LegitimacyOrganizational Legitimacy

– Organizational legitimacy is the “generalized perception or assumption that the actions of an …[organization] are desirable, proper or appropriate within some socially constructed system of norms, values, beliefs, and definitions” (Suchman, 1995: 574).

– In other words, an organization is considered to be legitimate with a particular social group, if it complies with the group’s norms and values.

• Legitimacy allows access to external resources

• Legitimacy allows Survival

Reputation versus LegitimacyReputation versus Legitimacy• Main Similarity: Both refer to what

stakeholders within a social system think or feel about a business organization.

• Main Difference: Legitimacy - acceptability Reputation – excellenceIn other words, whereas corporate reputation refers to

the ‘favorability’ of a business organization within a social system, organizational legitimacy refers to the ‘acceptability.’

Reputation and LegitimacyReputation and Legitimacy

Reputation

Legitimacy

Crisis

Responding to CrisisResponding to Crisis

Exxon ValdezOn March 24, 1989, the Exxon Valdez ran aground off the coast of Valdez, Alaska, and released over 250,000 barrels of crude oil into the ocean. There was no loss of human life in this accident, but the environmental consequences were severe and many other species of wildlife decimated.

Ashland OilOn January 2, 1988 a 4million gallon storage tank near Pittsburg collapsed releasing 3.9 million gallons of diesel fuel into the surrounding area. Most of this oil spilled into the Monongahela River and threatened the drinking water supply of communities in Pennsylvania, Ohio end West Virginia. The oil was eventually contained but with a significant environmental impact.

Crises ManagementCrises Management

• Exxon Valdez– Exxon’s top mngt kept a low

profile and stayed out of the public’s eye for about a week after the accident

– The firm tried to shift the blame for the spill to the captain, and the blame for the delay in the clean up to the government and env. Groups

– Arrogance and lack of openness in dealing with the media

– Exxon’s involvement in the clean up was not adequate.

• Ashland Oil– The firm's mngt took

responsibility for the spill, was readily available to the press, committed resources and personnel to help the clean up efforts, and pledged to pay 'all reasonable costs'.

– The firm's CEO ordered an investigation, which eventually uncovered the firm's fault.

– Open and candid communication with the press, even when 'bad facts' were coming out.

Crisis: Impact/Probability MatrixCrisis: Impact/Probability Matrix

HighPriority

MediumPriority

LowPriority

High- - - - - - - - - - - - - --Impact on the Company- - - - - - - - - - - - - - - LowHigh

Probabilityof

Occurrence

Low

C6-S5Figure 6-4

Organizational VulnerabilitiesOrganizational Vulnerabilities

• Organizational Silos – Fragmented Information (i.e. months leading

to Sept. 11th)– Fragmented Responsibility and Narrow Focus

(i.e. Shell Case: Decentralized structure hindered them seeing problems that crossed national lines) (Note: Chair of German Shell heard about sinking from TV!)

Political VulnerabilitiesPolitical Vulnerabilities

• Imbalances of power internally– Particularly important during mobilization

phase• Lack of understanding of government

systems (i.e. response of European gov’t in Shell case)

The Triple Bottom LineThe Triple Bottom Line• The triple bottom line is a concept developed by

John Elkington, Chairman of SustainAbility, a world leader in sustainability consulting. It refers to the integrative measurement of a company's economic, environmental and social performance. – Financial accounting– Environmental accounting– Social and ethical accounting– Systems are being developed by several major

corporations

Gulf of Mexico questionsGulf of Mexico questions1. Why has BP become the subject of criticism and controversy?

2. What, if anything, should BP have done differently?

3. What is your appraisal of BP’s stated business principle of non involvement in political matters?

4. What advice would you give BP’s leadership going forward?

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