Strategic CSR: Defining, Frameworks & Systems

1.24.07MBA 292C-1Professor McElhaney

Tonight

Projects & teams

Current Events…abound

Continuing to Unbundle CSR

Systems & Frameworks of CSR

Key learnings

And the Teams Are….

Brown Forman Melissa, Joe

Del Monte Daniel, Sarah

Dow Nicholas, Roni, [Cristin]

Driscolls David, Yang-Yang

eBay Jeff, Iris

Fulcrum Michael P., Steven

Grizzlies Academy Adrian, Michael T., Michael

A. HP (enviro. phil.)

Pedro, Jason Grupo Nueva

Lorin, Margo

And the Teams Are….

Intel (education) Hans, Akif

Levi Strauss Shirin, Brooke

Lori Bonn Design Jennifer, Wiam

OSH Emily, Matt

Wells Fargo Theresa, Elizabeth S.

William Sonoma (energy) Annabelle, Elizabeth L.

Within 24 Hours….

Introduce team to liaison (send resumes, excitement with project, etc.)

Set scoping meeting/ call

Begin to refine scope Shape, change, enhance, elevate, whittle Assert control of scope, liaison approves

Have Social & Environmental Issues in Business Hit Mainstream?

Current Events?

Current Events 10 Companies Urge U.S. Congress to Establish Climate Change

LegislationAccording to The New York Times, 10 companies and four environmental organizations have come together to form the U.S. Climate Action Partnership (USCAP) that calls on the U.S. Congress to set clear caps on greenhouse gas emissions and a reduction of such gases by up to 15 percent in the next 15 years

Companies include: Alcoa Inc., BP, Caterpillar, Inc., Duke Energy Corp., Du Pont, Florida Power & Light Co., General Electric Co., Lehman Brothers, PG&E Corp., and PNM Resources, Inc.

Environmental groups include: Environmental Defense, the Natural Resources Defense Council, the Pew Center of Global Climate Change and the World Resources Institute

USCAP developed a set of principles, rather than model legislation, that seeks a cap-and-trade system and a gradual reduction of carbon dioxide emissions-- "Call for Action" www.us-cap.org/ClimateReport.pdf

Current Events

List of Best U.S. Companies for LGBT Employees Unveiled by U.S. equality group Human Rights Campaign (HRC)

According to 365Gay.com, 142 companies earned a perfect score this year, compared to 101 in 2006.

Companies earn points for the kinds of benefits they offer LGBT employees as well as how inclusive their anti-discrimination policy is.

The full list is available at www.hrc.org/placestowork

Current Events

Marks & Spencer Unveils U.S. $395 Million Environmental Strategy

Includes goals under five categories: climate change, waste, raw materials, fair trade and healthy living

Specific goals include: stop sending waste to landfills; making U.K. and Irish operations carbon neutral by 2012; sourcing only recycled or Forest Stewardship Council-certified wood, free-range poultry and Marine Stewardship Council-certified fish; and tripling organic food sales

M&S chief executive Stuart Rose says, "We believe a responsible business can be a profitable business. We are calling this 'Plan A' because there is no 'Plan B.”

Unbundling and Defining Strategic

CSR

Two Examples

Whirlpool

Tide http://www.tide.com/en_US/cleanstart/video_journal.jsp

Strategic & Focused

Internal & External CSR

Supply Chain

Environment

Transparency

Human Rights

Stakeholder Engagement

Privacy

Marketplace

Community Involvement/ Investment

GovernanceMission, Vision, Values

Ethics

Diversity

Health & Wellness

Dependent Care

Downsizing & Layoffs

Privacy (employee)

Work Life Balance

Job Satisfaction

Compensation/ Benefits

Philanthropy

Socio-political Issues

Reporting

Accountability

RESPONSIBILITYINCREASING

IN IMPORTANCE

RESPONSIBILITYINCREASING

IN IMPORTANCE

GOVERNMENTS

GOVERNMENTS

MARKET/ GROWTH OPPORTUNITIES

MARKET/ GROWTH OPPORTUNITIES

CONSUMERS CONSUMERS

COMPETITIONCOMPETITION

INVESTORS/ANALYSTSINVESTORS/ANALYSTS EMPLOYEESEMPLOYEES

Drivers for CSR

SOCIAL AND ENVIRONMENTAL

NON-GOVERNMENTAL

ORGANIZATIONS (NGOs)

SOCIAL AND ENVIRONMENTAL

NON-GOVERNMENTAL

ORGANIZATIONS (NGOs)

The Virtue MatrixDepicts the forces that generate CSR

FRONTIER(Intrinsic)

Strategic Structural

Choice Compliance

CIVIL FOUNDATION(instrumental)

+ society, + shareholders + society, - shareholders

Roger Martin, HBR, 2002

Is the Social Contract Evolving? Intensifying pressure of social & environmental

expectations Growing complexity of forces and increasing speed with

which they change

Ability of activists to mobilize public opinion

An emerging set of socio-political trends on public agenda

Expecting all businesses to be more Innovative

Ever-more-powerful stakeholders wielding wide influence.

“CEOs should be prepared to take the lead in socioeconomic debates that could alter the structure of their industries and the rule of engagement in the long run.” – McKinsey Quarterly1

CSR Drivers

E & Y, 2002

CSR Expectations of Companies v. Perceived Performance

Globescan, 2005

Trust in Non Profit Sector High, MNCs Low

Increased Sophistication & Reach of NGOs

http://www.themeatrix1.com/

http://www.thedetroitproject.com/ads/default.htm

Where Are Consumers on CSR? Americans are sending a message to business that good corporate

citizenship is a “must have” critical to business success in good times and bad. The leading brands in the GolinHarris CCI raise the bar on their performance as expectations rise.

An overwhelming two-thirds of Americans interviewed said: "’Doing well by doing good’ is a savvy business strategy. Good corporate

citizenship should be approached as an investment, asset and competitive advantage for business that contributes to the company's success.” (67%)

“Business should invest significantly more money, time, attention and resources in corporate citizenship than it does today.” (68%)

“Corporate citizenship should be considered an essential, high priority compared to other priorities companies face and manage in running a profitable, competitive and successful business.” (68%)

Reputation & HR Significant Drivers

BrandWho says social responsibility

is a big influence in their impressions of companies?

49%

Product PurchaseWho considers corporate citizenship when buying a

company’s product?

Product BoycottsHow many people would boycott a

product if they learned about negative citizenship practices?

79%

76%Employee Recruitment

Who considers social commitment when

choosing an employer?

77%

New markets are growingNew markets are growing

Intangibles Increasingly Affecting Shareholder Value

100%1% 1%1%3%3%3%

4%

6%22%

22%

34%

0%

20%

40%

60%

80%

100%

120%

Actual Financial

Performance

Innovation Community/ Culture

Famil-iarity

Shareholder Value

Explained

Historical Growth

Human Capital

Corporate Reputation

Expected Financial

Performance

Leader-ship

Aware-ness

JVs/ Alliances

Financial Non-Financial2004

Perc

en

tag

e Im

pact

Reputation & Trust MatterReputations are fragile

Johnson & Johnson Ranks No. 1 in National Corporate Reputation Survey for Seventh Consecutive Year

A strong one can go a long way

& can even earn a company a place at the policy table

Reputation & Consumer Trust

•Reputation is widely regarded as companies #1 intangible asset

•The % of a company’s value derived from intangible assets rose from 17% in 1981 to 71% in 1998

•In a 2006 KRC Research survey, 80% of global business executives surveyed believe that companies with strong CSR track records recover their reputations faster post-crisis than those with weaker records

“The general consensus was that most of the value firms received from CSR was in maintaining their reputations and proactively building a reservoir to protect against an unforeseen event.”

- John Peluza, Univ of Calgary CSR as Reputation Insurance

Shifts in Power

Country/CompanyGDP/Revenues ($ bil) Global 500 Rank

1. United States $7,783 N/A2. EEU 6,685 N/A3. Japan 4,812 N/A...

20. General Motors 176 121. Thailand 166 N/A22. Wal-Mart 166 223. Hong Kong 164 N/A24. Exxon 163 325. Ford Motor Company 162 4

Most Important Thing a Company Can Do to Be Seen as Socially Responsible

Source: Globescan 2006

Most Important Thing a Company Can Do to Be Seen as Socially Responsible

Operational Responsibilities: Risk

Fair employee treatment Not harming the environment Health & safety products & services Goods & services at lowest prices Responsible supply chain Same high standards wherever operate Increasing global stability

Citizenship Responsibilities: Opportunity

Helping reduce the rich-poor gap Reducing human rights abuses Solving social problems Preventing spread of disease Encouraging employee volunteerism Supporting progressive government

policies

Corporate Responsibilities

Operational v. Citizenship Responsibilities

Operational

Responsibilities

Risk Management/

Reputation Protection

Public will punish poor performers

Citizenship

Responsibilities

Differentiation

Opportunity/ Reputation Enhancer

Public will reward exceeders (but not as likely)

Operational vs Citizenship Responsibilities: Expectations by Country

Operational vs Citizenship Responsibilities: Changes in Expectation by Region

Trends: 2001-2005

Products Would Most Like to See Become More Responsible

Industry Performance

Source: Globescan 2006

Companies Are Doing a Good Job Building a Better Society

“Agree” vs “Disagree,” by Country,* 2005

Companies Are Doing a Good Job Building a Better Society

“Agree” vs “Disagree,” by Region* and North* vs South, 2005

Changing the Game

Shifting From Defensive to Offensive CSR

“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.”1

- Mark Kramer & John Kania, Changing the Game

BP: “Beyond Petroleum”Citigroup: Commits $100m to microfinanceGap: PRODUCT (RED)Interface: “Mission Zero”Stonyfield Farm: “Bid With Your Lid” Timberland: Partnership with City Year

Changing the Game

Risk Mitigation

Value Creation

Mitigate long term business risks

Improved Business Performance

Employee Relations

Competitive Advantage & Market Positioning

Build Stakeholder Trust

Reputation “Insurance”

Investor Relations

The Landscape of the Business Case for CSR

Implementing Strategic CSR

Stages of CSR: Plot Selves

Defensive Company faced with pain, criticism, reacts defensively

Compliance Cost of doing business, do just as much as need to

Managerial Moves CSR to core business managers & functions

Strategic Realigns strategy to use CSR as competitive advantage

Civil Need to involve all in sector, collective action

Stages of CSR

Civil

Strategic

Managerial

Compliance

Defensive

Current Trend

Historical FocusRisk Mitigation

Value Creation

SweetSpot

Implementing CSR

Make business case (relevance) Engage stakeholders (internal & external) Map potential vulnerabilities/ risks Develop CSR strategy Align with organizational culture/ change Monitor, measure, report Communicate to ALL stakeholder groups

Designing a CSR Structure: Big Picture

Build Senior Vision & Support Examine Current CSR Systems &

Activities Design a CSR Structure Implement CSR Management

Systems

Designing a CSR Structure: Nine Steps

Understand Drivers (internal & external) Identify Key CSR Issues Identify & Evaluate Stakeholders Identify Current Functions Supporting CSR Analyze Current CSR Systems, Culture Design CSR Structure Develop Effective Staffing Plan Create Cross-Functional System Match Budget to Best Framework

Implementing CSR

E & Y, 2002

A CSR Continuum

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: DonationGrants

Event sponsorshipCause-related

marketingEmployee

volunteerism

Joint-advocacyJoint-actionDeep partnershipsFinancing principles

Philanthropic Transactional IntegrativeGrowth stage:

Adapted from The Collaboration Challenge, James E. Austin

WO

RL

D

Transform multiple industries.

IND

US

TR

Y

Transform an industry. Take responsibility for our full impact (social, environmental, economic).

Take responsibility for adjacent industries.

Take responsibility for global conditions (climate change, global inter-dependence, etc.).

Be a beacon to others. Develop codes of conduct for the industry.

Build strong coalitions to effect and enforce them.

CO

MM

UN

ITY

Be a good neighbor. Innovate and demonstrate restorative business practices.

Influence the industry indirectly, by example.

Give something back.

Support local communities (corporate philan., direct programs, employee matching & volunt’ring.)

Reduce waste, consumption and emissions.

CO

MP

AN

Y

Run a good business.

Provide access to tools/ product.

Disaster relief.

COMPANY COMMUNITY INDUSTRY WORLD

CSR Landscape: Plot Goal

Build Stakeholder Trust

“an early awareness of the concerns of NGOs and stakeholders enables companies to join and shape the debate before it turns against them – or at least to prepare themselves for turbulence ahead.”

– McKinsey Quarterly1

Prioritizing CSR Actions: Corporate Expectations as Industry Reputation Drivers

2005

Key Learnings Today?