Good Governance & Corporate Social Responsibility:

CSR as a Strategic Filter

Effective strategy results in providing businesses with a competitive advantage. For this to be sustained,
however, the tactics used to implement the strategy must be acceptable to the firm’s collective set of
stakeholders. In order to implement a strategic CSR perspective throughout operations, it is essential
that executives understand the interdependent relationships among a firm, its strategy, and its
stakeholders that define the firm’s environment and constrain its capacity to act.

A firm’s vision, mission, strategy, and tactics are broadly constrained in three ways—resource
constraints, policy constraints, and environmental constraints. First, a significant limitation on the firm’s
capacity to act is its access to resources and capabilities—the human, social, and financial capital that
determine the firm’s productive parameters. A second constraint is the firm’s internal policies, which
shape its culture by requiring and forbidding specific actions. Finally, a firm’s external environmental
constraints are generated by a complex interaction of sociocultural, legal, and other external factors,
such as the influence of markets and technology. These factors further limit the firm’s freedom to act by
shaping the context in which it implements tactics to pursue its strategic goals, which, in turn, enable it
to perform its mission and strive toward its vision. Given the stakes, any tactical and strategic actions
necessary to achieve the mission (and, thus, the vision) must first be passed through a CSR filter. The
CSR filter assesses management’s planned actions by considering their impact on the firm’s broad range
of constituents. The formulation of firm strategy occurs most effectively when it is run through a CSR
filter. The CSR filter is a conceptual screen through which strategic and tactical decisions are evaluated
for their impact on the firm’s various stakeholders.

Central to the strategic argument for CSR is the notion that firms that best reflect the current needs of
their stakeholders and anticipate how those needs will evolve over time will be more successful in the
marketplace over the medium to long term. This principle, however, rests on the assumption that there
is a market for CSR. That is, it assumes the firm’s stakeholders are willing to reward the behavior they
want to see from the firm (the CSR price premium) and punish non-CSR behavior when it is exposed
(CSR market abuse).

Corporate success assumes that strategy matches internal competencies with the external environment,
within the constraints of mission and vision. The implementation of strategy, however, rests upon
corporate operations being successful. To improve overall performance, therefore, leaders create
strategic objectives that aim to strengthen these corporate operations. The strategic objectives,
however, must be viewed as strategic imperatives that enhance the firm’s CSR goals; otherwise, the
tactics and strategies may cause resistance among stakeholders. To achieve these strategic objectives
that meet the firm’s strategic imperatives, key players must undertake strategic initiatives in the form of
action-oriented projects.