MBA 292T.1122 February 2009

Professor Kellie A. McElhaney

Morning:◦ Welcome & intros◦ CSR in the News◦ Defining CSR◦ CSR Frameworks & Systems

Afternoon◦ CSR Reporting & Communications◦ CSR Cases◦ CSR Strategy Development Assignment◦ Personal SR Strategy Assignment

Surprising survivors: Corporate do-gooders◦ As companies cut costs, social responsibility may seem like an easy

target. But many big names are sticking with the program.

◦ Tough season for Intel. Its stock price slipped 42% in 2008 and its fourth-quarter numbers were poor, with net income off 90% from a year earlier. Days before releasing its fourth-quarter results, the company launched the Small Things Challenge, a commitment of up to $300,000 to education and development in countries like Afghanistan, Cambodia, Haiti and Uganda in partnership with non-profit groups Kiva.org and Save the Children.

◦ "You can't save your way out of recession - you have to invest your way out," Intel chairman Craig Barrett told Fortune. "We look at our CSR activities in pretty much the same way: you can't just do them in good times and then just forget about them in bad times and hope to get any results."

Surprising survivors: Corporate do-gooders

Starbucks' stock lost more than half its value in 2008. CEO Howard Schultz responded quickly, outlining more than $400 million in cost reductions for 2009.

There was one area that escaped relatively unscathed: corporate responsibility. While Starbucks will cut some undisclosed costs, it recently launched a (Product) RED card to benefit African HIV and AIDS programs and plans to become the world's largest purchaser of fair trade coffee this year, among other efforts.

◦ Short-term thinking in a recession can lead to the "false belief that investments in people and training can wait; that corporate social responsibility can be put on the back burner," Schultz wrote in a November essay in the Huffington Post. "Now is a time to invest, truly and authentically, in our people, in our corporate responsibility and in our communities. The argument - and opportunity - for companies to do this has never been more compelling."

Wal-Mart Mexico Inaugurates Largest Sun-Operated Photovoltaic Installation in Latin America

◦ Solar panels will generate 20% of the store's energy requirements for a full year

◦ 1,056 solar panels were installed on the roof of Bodega Aurrera Aguascalientes

◦ 140 tons of CO2 emissions will be eliminated

◦ In 2005, Wal-Mart Mexico committed to the following sustainability efforts: 100% renewable energy sources by 2025 Zero water discharges by 2025 25% increase in eco-friendly items by 2012 Zero waste by 2025

One Year On, Clorox's Green Works Dominates Market

◦ Clorox's green gamble appears to be paying off: A year after the company launched its Green Works line of natural cleaning products, the brand has established itself as a leader in the category, capturing 42% market share.

Times Square Advertisers Turn to Wind Power

◦ Thirty of the Times Square's iconic lighted billboards - including Coca-Cola's long-running red sign - have shifted to 100% wind power.

Coca-Cola Enterprises Boosts Commitment to Sustainability with Launch of Largest Hybrid Electric Delivery Trucks in North America

◦ Coca-Cola Enterprises (NYSE: CCE) Chairman and Chief Executive Officer John F. Brock announced the deployment of the largest hybrid electric delivery trucks in North America

◦ CCE plans to deploy 185 hybrid electric trucks across the United States and Canada in 2009, bringing their total number of hybrid electric delivery trucks to 327, the largest such fleet in North America

Starbucks and Service

In celebration of Martin Luther King Jr. Day and the Inauguration, Americans are being encouraged to volunteer. Inspired by this effort and as part of the Starbucks(tm) Shared Planet(tm) commitment to communities, beginning January 21, Starbucks is teaming up with HandsOn Network for the "I'm In!" campaign

http://pledge5.starbucks.com/

"I'm In" invites our customers to pledge five hours to volunteer and connects them with projects in their communities. Our goal is to have one million hours pledged by January 25.

Offering a free cup of tall brewed coffee to anyone who fills out a pledge card to celebrate this call for service

Has been on sabbatical for a year

Wrote a book (see required reading)

Consulted

Got told she looked like Sarah Palin

Got a tattoo

Worked in Haiti

And is excited to be back in the classroom!

Recovering banker since 1992

University of Michigan (Ross) 1993-2002

Professor at UC Berkeley since 2002

Founding Director, Center for Responsible Business

Ranked #1 in world by Financial Times in 2008; Ranked #2 in country by WSJ in 2006 & 2007

Extensive Corporate consulting: Gap, HP, Nokia, Erste Bank, eBay, Navigant, McDonalds, Blue Cross, Statoil, Nvidia, Kimberly Clark, Twitter

Research focus areas: Strategies of CSR; Branding & CSR; Diversity & CSR

Book called Just Good Business out in Fall 2008

Name?

Occupation?

Why did you take this course?

What’s your passion?

About business strategy

Real-world, current, emergent

Fast-paced, packed in, like drinking from a fire hose

Taught using multiple methods

A unique learning experience

Experiential, hands-on, active

Something that will stay with you

Typical b-school course with HBS cases

Traditional, straight-lecture, cut and dry, neatly packaged

For the close-minded or risk-averse

Good for passive non-participators in learning

For those who like to skip classes

For those attached to their lap tops, PDAs and cell phones

Philanthropy?

Employee volunteerism?

PR?

Transparent reporting?

Sponsorships?

Workplace diversity?

Human rights?

Risk management?

Sustainable development?

Corporate governance?

Business ethics?

Employee treatment?

Environmental impact?

Safe products? Solving socialproblems?

How would you define CSR?

The “C” is the most important aspect

CSR is about making money

You can do well from doing good

You must talk about it

You can’t lead (consumers) with it (yet)

No company is 100% good or 100% bad

A business strategy that:

◦ Creates wealth◦ Protects wealth

It is about using the power of business to improve the world.

$25M commitment in 1999

Given $34M, plus 73,000 appliances to 36,000 homes

Pledged to give through 2011

Launched Building Blocks initiative in 2006, sending over 1000 employees & more volunteers to build an entire block

Was philanthropy; became a brand message◦ “We make very large, very heavy metal machines, often with

big motors. This puts a human face on what could be a very cold metal category.”

Sponsored Reba McEntire Habitat for Humanity Tour

Another Company That Gets It

To be supplied 100% by renewable energy

To create zero waste

To sell products that sustain our resources and environment

Wal-Mart’s Sustainability Goals

Supply Chain of the Future

2008: “The Company of the Future”

The Role of the Private Sector

2007

  Company/Country

Revenue (Fortune Magazine)GDP (World Bank)

[millions, USD]

1 United States 13,201,819

2 Japan 4,340,133

3 Germany 2,906,681

4 China 2,668,071

5 United Kingdom… 2,345,015

22 Exxon Mobil 339,938

23 Poland 338,733

24 Austria 322,444

25 Wal-Mart Stores 315,654

26 Norway 310,960

27 Saudi Arabia 309,778

28 Royal Dutch Shell 306,731

29 Denmark 275,237

30 BP 267,600

Trust in business at all-time low (lower than post-Enron)

Edelman Trust Barometer, 2009

The Challenges of our World

Net Impact:◦ Using the power of business to improve the world.

Business for Social Responsibility (BSR): ◦ Companies being able to be commercially successful

in ways that demonstrate respect for ethical values, people, community, and the environment.

A Corporate Strategy Definition (McElhaney, 1998):◦ A corporate strategy that is integrated with (1) core

business objectives & (2) core competencies to create financial and social/environmental returns, and is embedded in corporate culture and day-to-day business operations.

CSR Strategy must fit two things:

◦Core business objectives: Increase sales, penetrate new markets, engage

employees, reduce operating expenses, improve reputation, protect brand, beat competitors

◦Core competencies: Technology, financial products &services, making

markets, natural food, automobiles and transportation systems, travel & tourism.

• Employee Engagement

• Community Investment

• Philanthropy

• Government & Public Relations

• Governance & Ethics

• Environmental Footprint

• Supply Chain/ Sourcing

• Social/ Environmental Impact of Products & Services

Hewlett Packard, 2006

Philanthropy

NGO p’nerships

Social/ environmental reporting

Product give-aways

Sponsorships

Workplace diversity

Human rightsEmployee volunteerism

Cause marketing

Corporate governance

Business ethics

Fair employee treatment

Enviro managementSafe products Community

investment

Supply Chain

…to utilize CSR as a powerful integrated business strategy, not an add on.

Spending (a little bit of) the (whole lot of) money that you make.

How you make (the whole lot of) money that you spend.

CSR is not about how you spend the money you make.

It’s about how you makethe money you spend.

Soci

al

Env

iron

men

tal

Eco

nom

ic

Triple Bottom Line

Economic

Triple

Bottom LineJ. Elkington, SustainAbility

Supply Chain

Environment

Transparency

Human Rights

Stakeholder Engagement

Privacy

Marketplace

Community Engagement & Investment

Governance

Mission, Vision, Values

Ethics

Diversity

Health & Wellness

Downsizing & Layoffs

Work Life Balance

Job Satisfaction

Compensation/ Benefits

Philanthropy

Socio-political Issues

Reporting

Accountability

Source: Globescan 2005

Source: 2006 Fleishman Hillard/National Consumers League study,

“Rethinking Corporate Social Responsibility”

Civil

Strategic

Managerial

Compliance

Defensive

Current Trend

Historical FocusRisk Mitigation

Value Creation

SweetSpot

Framework #1: The Changing Social Contract

Source: The McKinsey Quarterly , 2006

ECONOMICECONOMICSOCIALSOCIAL

“PEOPLE, PLANET, PROFIT”

Framework #2: Triple Bottom Line

ENVIRONMENTALENVIRONMENTAL

Workplace

Marketplace

Environment

Community

Employees Retirees/alumni Recruits

• Clients/customers• Regulators/

legislators• Investors• Academics• Suppliers

• Communities in which we live and work

• Not-for-profit and non-governmental organizations that support communities• Physical environment

• Not-for-profit and non-governmental organizations that support the environment

SustainAbility, Executive Summary: The Changing Landscape of Liability, January 21, 2005

• Use core assets in a positive way, to improve underlying business context

• Take a big-picture view• Go beyond compliance• Lift or stabilize

reputation

• Prevent damage to reputation

• Forestall the negative use of core assets

• Focus on compliance and managing legal liability

MINIMIZE RISK

MAXIMIZEOPPORTUNITY

“The essential test that should guide CSR is not whether a cause is worthy but whether it presents an opportunity to create shared value – that is, a meaningful benefit for society that is also valuable to the business.”

Source: Porter, Michael E. and Mark R. Kramer, “Strategy & Society: The Link Between Competitive Advantage and Corporate Social Responsibility,” Harvard Business Review, 2006

Generic SocialIssues

Social issues that are not significantly affected by a company’s operationsnor materially affect its long-term competitiveness.

Value Chain SocialImpacts

Social issues that are significantly affected by a company’s activities in the ordinary course of business.

Social Dimensions of Competitive Context

Social issues in the external environment that significantly affect the underlying drivers of a company’s competitiveness in the locations where it operates

Generic SocialIssues

Value Chain SocialImpacts

Social Dimensions of Competitive Context

Good citizenship

Responsive CSR

Mitigating harm fromvalue chain activities

Strategic philanthropy that leverages capabilities to improve salient areas of competitive context

Strategic CSR

College Bound

Transform value chain activities to benefit society while reinforcing strategy

From Porter, Michael E. and Mark R. Kramer, “Strategy & Society: The Link Between Competitive Advantage and Corporate Social Responsibility,” Harvard Business Review, December 2006

“Offensive CSR can distinguish a company’s reputation but cannot protect it; defensive CSR can protect a reputation but cannot distinguish it. Both are necessary to succeed in today’s business climate.”

- Kramer & Kania, Changing the Game

1. Understand drivers (internal & external)2. Identify key CSR issues3. Identify & evaluate stakeholders4. Identify current functions supporting CSR5. Analyze current CSR systems, culture6. Design CSR structure7. Develop effective staffing plan8. Create cross-functional system9. Match budget to best framework

• Defensive▫ “It’s not our job to fix that”▫ Company faced with pain, criticism, reacts defensively

• Compliance▫ “We’ll do just as much as we have to”▫ Cost of doing business, do just as much as need to

• Managerial▫ “It is the business”▫ Moves CSR to core business managers & functions

• Strategic▫ “It gives us a competitive edge” ▫ Realigns strategy to use CSR as competitive advantage

• Civil ▫ “We need to make sure everyone does it”▫ Need to involve all in sector, collective action

Level of engagement Low High

Importance to mission Peripheral Strategic

Magnitude of resources Small Big

Scope of activities Narrow Broad

Interaction level Simple Intensive

Managerial complexity Infrequent Complex

Strategic value Modest Major

EXAMPLES ACTIONS: • Donation• Grants

• Event sponsorship• Cause-related marketing• Employee volunteerism

• Joint-advocacy• Joint-action• Deep partnerships• Financing principles

Philanthropic Transactional IntegrativeGrowth stage:

Adapted from The Collaboration Challenge, James E. Austin

What are the report's strengths & weaknesses? What are your specific recommendations for improvement?

Did the report change your opinion of this company? Would the report change your likeliness to work for this company, or

purchase their goods/ services as a consumer? Based on the report, what do you think are the key issues for this industry

and how well is this company addressing these issues? 

Also consider the following issues: 

◦ Does/ how does the company define CSR?  How evolved is the company’s view of CSR? ◦ How integrated is their CSR strategy?  Is it aligned with core business objectives, core

competencies?◦ How sustainable is their CSR strategy?◦ What are the metrics for success?  How do they measure their CSR impact?◦ Who seems to be the targeted audience(s)?  Is this clear from the report?◦ What are the opportunities associated with their CSR strategy?  Risks?  Strengths? 

Weaknesses??◦ From a pure document aspect, assess the strengths and weaknesses of the report?