IBSE: BUSS 5034

Topic 10
Strategizing with Corporate Social Responsibility

Dr Sunil Savur

University of South Australia Australia’s University of Enterprise

University of South Australia
Australia’s University of Enterprise
Health & safety

• Maintain social distancing (1.5 m) during face to face classes all the time

• Use the hand sanitiser station before entering and after exiting from the
classroom

• Use appropriate PPE (masks, gloves) where social distancing is not

possible

• Follow instructions provided by your lecturer/tutor

• Do not attend classes if you are unwell and contact the lecturer/tutor and
course coordinator
 The Ebola Challenge
Ebola – known for 4 decades – yet no effective vaccine or medicines

First reported: 1976 in Sudan & Zaire

Between 1976 & 2013: 24 outbreaks, 1716 cases

2014: 15,000 cases, 6,000 deaths - spread to 6 countries

Treatment – indirect: pain, nausea, fever, & anxiety

Throughout, silence from Pharmaceutical

industry
DG of WHO: “profit-driven industry does not invest in products for markets that cannot pay”
“ no compelling business case”
“ if successful, would benefit certain countries, but would not be profitable”

Oct 2014: GSK Nov 2014: Merck jumped in for R&D

Why until recently had Pharma industry been reluctant to find a
cure for Ebola?

What motivated them to jump on to the “Ebola Bandwagon”?

Did they really want to solve a major public health problem

around the world or just want to earn kudos for Corporate Social
Responsibility (CSR)?
Learning objectives
• The Stakeholder’s view of the firm

• Applying the Strategy Tripod to CSR

• Strategies that firm’s employ for CSR

• Debates and extensions

• The Savvy Strategist

University of South Australia

Australia’s University of Enterprise
 A Stakeholder View of the Firm (1 of 2)
• Stakeholder: “Any group or individual who can affect or is affected by the
achievement of the organization’s objectives”

• Goal for CSR (Corporate Social Responsibility) is global sustainability, defined

as the ability “to meet the needs of the present without compromising the ability
of future generations to meet their needs”

• Drivers related to urgency of sustainability

• Rising population, poverty, and inequity
• NGOs (nongovernmental organizations) and other civil society stakeholders
have begun monitoring and, in some cases, enforcing social and
environmental standards
• Industrialization Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 A Stakeholder View of the Firm (2 of 2)

• Primary and secondary stakeholder groups

• Primary stakeholder groups: Those on whom the firm relies for
survival and prosperity

• Secondary stakeholder groups: Those who influence or affect, or

are influenced or affected by, the corporation, but they are not
engaged in transactions with the corporation and are not
essential for its survival
Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 A Stakeholder View of the Firm – a debate
• The CSR debate centers on the nature of the firm in society. Why does the firm
exist?
• One side of the debate argues that “the social responsibility of business is to
increase its profits”
• Advocates of shareholder capitalism argue that if firms attempt to attain social
goals, such as providing employment and social welfare, managers will lose
their focus on profit maximization (socialism)
• CSR advocates argue that a free market system that takes the pursuit of self-
interest and profit as its guiding light may fail to constrain itself, resulting in
greed, excesses, and abuses
• CSR advocates argue that all stakeholders have an equal right to bargain for a
“fair deal” Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
A Stakeholder View of the Firm

Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia
Australia’s University of Enterprise
 Discussion

• Pharmaceutical companies around the world spent

much of 2020 working to find a vaccine to fight against
Covid-19.

• List the primary and secondary stakeholders who place

demands on these pharmaceutical companies.

Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 Managers: A unique group of Stakeholders

• The free market and CSR camps agree

• Not to rock the capitalistic boat

• On the central role of managers

• Managers, as a stakeholder group, are uniquely positioned at the

center of all stakeholder relationships; therefore, it is important to
understand how they make decisions concerning CSR

Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 A Comprehensive Model of CSR

Copyright © 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
• Principal-Agent Relationship Principal-Agent Conflicts
• Example: The relationship between shareholders and professional managers

• Agency Theory

• Because the interests of principals and agents do not completely overlap, there will
inherently be principal-agent conflicts, which result in agency costs

• Conflicts persist because of information asymmetries between principals and agents

(agents always know more about their tasks than principals)

• Reducing Agency Problems

• While it is possible to reduce information asymmetries and minimize agency problems,

it probably is not realistic to expect to completely eliminate such problems
Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 Rivalry among Competitors

• Mutual Interdependence
• Reliance on old ways of doing business allows competitors to
resist higher CSR standards

• Increases in the Number of Rivals

• Competition based on CSR is lower when there are a small
number of players determined to resist

Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 Threat of Potential Entry
• First mover experience in pollution control technologies
can create entry barriers
• Effectiveness as entry barriers for two pollution control
technologies—pollution prevention and pollution reduction—is not
equal

• The technologies creating the most effective entry barriers are

proactive, pollution prevention—not end-of-pipe, pollution reduction

Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 Bargaining Power of Suppliers/Buyers
• If socially and environmentally conscious suppliers provide
unique, differentiated products with few or no substitutes,
their bargaining power is likely to be substantial
• CSR conscious buyers can extract concessions
• Individual buyers – Shell’s North Sea platform fiasco

• Corporate buyers – Nike requires its suppliers to be sweatshop-free

• Buyers in great difficulties can extract CSR concessions

Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 Threat of Substitutes
• If substitutes are superior to existing products and costs are
reasonable, they attract more customers
• Wind power, much more environmentally friendly than fossil-fuels and
safer than nuclear power, may have great potential

• Overall, the threat of substitutes requires firms to vigilantly

scan the larger environment, instead of narrowly focusing on
the focal industry
Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 Turning Threats into Opportunities
• Not all industries are equal nor are any industries immune
in terms of their exposure to CSR challenges
• Industries and firms may want to selectively but proactively
turn threats into opportunities
• Treating CSR as a cost or nuisance may underestimate strategic
business opportunities

• The most proactive managers are far-sighted to make their firm’s

CSR activities a source of differentiation as opposed to an additional
Adapted from Peng MW 2022, Global Strategy, Cengage
cost

University of South Australia

Australia’s University of Enterprise
 Resource-based considerations
• Value – Some CSR policies may not add to the firm’s value
• Rarity – CSR policies may not pay off if common
• Imitability – CSR that is embedded in people is harder to
imitate
• Organization – A firm needs to tie together CSR activities
• The CSR-economic performance puzzle: Does CSR
improve economic performance? Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 Value
• Large firms, especially MNEs, can apply their financial,
technological, and human resources toward a variety of
CSR causes
• Social issue participation (involvement in social causes not directly
related to managing primary shareholders) does not qualify as
value-adding activities and may actually reduce shareholder value

Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 Rarity
• If competitors also possess certain valuable resources and
capabilities, then the focal firm does not gain a competitive
advantage by having them
• Valuable but common resources and capabilities only provide
competitive parity

• Only valuable and rare resources and capabilities can provide focal
firms some competitive advantage

Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 Imitability
• Only valuable and rare resources and capabilities that are
hard-to-imitate can offer firms sustainable competitive
advantage
• CSR-related resources and capabilities deeply embedded in the
idiosyncratic managerial and employee skills and attitudes

• The socially complex way of CSR engagement is difficult to imitate

Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 Organization
• Complementary Assets
• Assets that, when combined with valuable, rare, and hard-to-imitate
resources and capabilities, enable a firm to fully utilize its CSR
potential

• Difficult to “fake it:” These assets should grow from more general
business strategies (e.g., differentiation)

Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 CSR Economic Performance Puzzle
• Why is there no conclusive evidence on a direct, positive
link between CSR and economic performance?
• Various studies produce different results
• Not every firm benefits from CSR

Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 Institution-Based Considerations
• Strategies

• Reactive strategy – Many cost-conscious manufacturers ignore CSR

• Defensive strategy – Argue against costs

• Accommodative strategy – CSR as a worthwhile endeavor

• Proactive strategy – Actively participate in policy discussions, build alliances

with stakeholders, and voluntarily go beyond what the regulations require

• Making strategic choices – A strategic menu of choices among reactive,

defensive, accommodative, and proactive strategies Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 Reactive Strategy
• Characterized by a lack of support by top management for CSR causes

• The need to accept CSR is neither internalized through cognitive

beliefs, nor does it result in any norms in practice, leaving only formal
regulatory pressures to compel firms into compliance

• CSR Movement

• Emerged in response to the blatant lack of responsiveness toward

CSR
Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 Defensive Strategy
• Focuses on regulatory compliance with only piecemeal involvement by
top management

• CSR issues are regarded as an added cost or nuisance

• Firms admit responsibility, but often fight it

• In the absence of informal normative and cognitive beliefs, it seems

that formal regulatory pressures are the only feasible way to push firms
ahead
Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 Accommodative Strategy
• From both normative and cognitive standpoints, it may become a
legitimate social obligation to accept responsibility and do all that is
required
• A negative view – Window dressing?
• An instrumental view – Another plot to make money?
• A positive view – Doing the right thing?
• Institution-based answer: All of the above

• From window dressing to self-motivated, better corporate citizens

Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 Proactive Strategy
• Proactive participation in regional, national, and international policy
discussions

• Alliances with stakeholder groups (e.g., NGOs)

• Alliances with NGOs: The key lies in identifying short-term,

manageable projects of mutual interests

• Voluntary activities beyond what is legally required

Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 Discussion
CSR can be an expensive investment the company makes. In some
cases, shareholder value may even decrease, yet companies continue to
do them.
Discuss your thoughts as to why companies would invest in CSR if it didn’t
add financial value, and why some companies take it a step further and
offer services for free (corporate philanthropy).

Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
Debates and extensions

• Reducing versus contributing toward income inequality.

• Domestic versus overseas social responsibility
• Active versus inactive engagement overseas
• Race to the bottom (“pollution haven”) versus race to the top

Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise
 The Savvy Strategist
• Managers may want to integrate CSR as part of the core activities of the firm—instead of
“faking it” and making cosmetic changes

• Managers need to pick CSR battles carefully

• Strategists need to understand the formal and informal rules of the game, anticipate
changes, and seek to shape such changes

• From a CSR perspective, we can revisit the four fundamental questions

• The globally ambiguous and different CSR standards, norms, and expectations cause
many managers to relegate CSR to the “backburner,” but they have responsibility to
safeguard and advance capitalism by building more humane, more inclusive, and fairer
firms
Adapted from Peng MW 2022, Global Strategy, Cengage

University of South Australia

Australia’s University of Enterprise