19/11/2022

Corporate Governance
and Sustainability
BMC 4201
Week 11/13
Topic 6: Corporate Social Responsibility
Dr William Murithi PhD. FHEA. CMBE
wmurithi@Strathmore.edu

Session Outline
1. Definition of Corporate Social Responsibility
2. The concept of Corporate Social Responsibility Vs.
Sustainability
3. Philosophies of Corporate Governance
4. CSR strategies and policies
5. The CSR competency framework.

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Equity Bank: 2018 Wings To Fly

Documentary

"To what extent do the interests

of business in the long run merge
with the interests of society?

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Corporate Social Responsibility

• Corporate Social Responsibility (CSR), is an organization’s
commitment to manage the social, environmental and
economic effects of its operations responsibly and in line
with public and stakeholder expectations (NWHSA, 2021).
• CSR refers to the obligations of the firm to society or,
more specifically, the firm’s stakeholders—those affected
by corporate policies and practices.
• CSR is strongly connected with the principles of
sustainability

Corporate Social Responsibility Vs.

Sustainability

Corporate Social Responsibility Corporate Sustainability

• Vision: Corporate Social
Responsibility (CSR) looks
backwards, reporting on what a
business has done, typically in the
last 12 months, to make a
contribution to society.
• Targets: CSR tends to target opinion
formers – politicians, pressure
groups, media.
• Sustainability looks forward,
planning the changes a business
might make to secure its future
(reducing waste, assuring supply
chains, developing new markets,
building its brand).
• Sustainability targets the whole
value chain – from suppliers to
operations to partners to end-
consumers.

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Corporate Social Responsibility Vs.

Sustainability

Corporate Social Responsibility Corporate Sustainability

• Business: CSR is becoming
about compliance.
• Management: CSR gets managed by
communications teams.
• Reward: CSR investment is
rewarded by politicians.
• Drive: CSR is driven by the need to
protect reputations in developed
markets.
• Sustainability is about business.
• Sustainability by operations and
marketing.
• Sustainability investment is
rewarded by the City
• Sustainability is driven by the need
to create opportunities in emerging
markets.

CSR Obligations

Economic Responsibility Ethical Responsibility Philanthropic responsibility

Legal Responsibility

• To make Money • To adhere to rules and
• Companies that don’t regulations
make profits are—in a • laws aren’t boundaries
modern market that enterprises skirt and
economy—doomed to cross over if the penalty is
perish. low; instead, responsible
organizations accept the
rules as a social good and
make good faith efforts to
obey not just the letter
but also the spirit of the
limits
• to do what’s right even
when not required by the
letter or spirit of the law
• it might not be the right
thing to do in terms of
pure profits, but from a
perspective that
values everyone’s welfare
as being valuable, the
measure could be
recommendable.
• to contribute to society’s
projects even when
they’re independent of
the particular business.
• public acts of generosity
represent a view that
businesses, like everyone
in the world, have some
obligation to support the
general welfare in ways
determined by the needs
of the surrounding
community.

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Characteristics of CSR
• It is not a new idea, the hype surrounding it today
notwithstanding.
• Although there is a clear difference between CSR stemming from a
desire to do good (the “normative case”) and CSR that reflects an
enlightened self-interest (the “business case”), a firm’s reasons for
engaging in CSR might reflect a mixture of these motivations.
• While there is substantial agreement that CSR is concerned with
the societal obligations of business, there is much less certainty
about the nature and scope of these obligations.

Some Questions -CSR

• Should firms be making a substantial commitment to CSR?

• More specifically, is there a requirement for some firms to
make a greater commitment to CSR, but not others?
• Does an increased requirement for some firms also
indicate the form that CSR should take?
• What other challenges need to be overcome in the
development and execution of CSR initiatives?

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Traditional Arguments for CSR

• Arguments advanced in support of CSR have long recognized
enlightened self-interest as well as beliefs about corporate good
citizenship and a beneficial social role of business.
• Paternalistic capitalism benefited from the improved living
conditions employees found in its factory towns.
• The modern corporation has benefited from CSR as a result of
avoiding or pre-empting legal or regulatory sanctions, eg DuPoint
• CSR also has benefited firms through direct or indirect economic
efficiencies- Starbucks Employees.

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However, added pressures for CSR

• Heightened Societal expectations- Globalization and

media reach due to increased technological advancement
–exposed corporate abuses.
• Democracy- “there is also a sense that people now
“matter” in places where—to those in power—they didn’t
matter.”
• A critical consideration for many firms is reputational risk,
heightened by the greater visibility and criticism of
corporate practices, particularly by NGOs.

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Is CSR a Normative or Business Case?

• Some firms may find that there is a compelling business case for
making a substantial commitment to CSR.
• For these firms, greater attention to CSR may even be inescapable
and the challenge is developing CSR initiatives consistent with a
strategic purpose, deciding on their form and scope, and
overcoming major potential obstacles to their implementation.
• For other firms, the business case may be less evident and the
case for greater attention to CSR must be made on normative
grounds.

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Is CSR a Normative or Business Case?

“Some months ago, when the newly merged

GlaxoSmithKline was formed, I said that I did not want to be
head of a company that caters only to the rich. I made
access to medicines in poorer countries a priority and I take
this opportunity to renew that pledge. We have 110,000
people who go to work every morning because they are pro-
public health. We have to make a profit for our shareholders
but the primary objective of any policy put forward in the
industry is public health.” (Garnier, GSK)

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Is CSR a Normative or Business Case?

• “Consumers are demanding more than “‘product” from

their favorite brands. Employees are choosing to work for
companies with strong values. Shareholders are more
inclined to invest in businesses with outstanding
corporate reputations. Quite simply, being socially
responsible is not only the right thing to do; it can
distinguish a company from its industry peers.”
(Starbucks)

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Implications of CSR
1. Reputational Risks in Consumer Markets:
Examples
Consumer boycotts are becoming an epidemic for one
simple reason: they work.

• Stock Prices fall: Research has found that product

boycott announcements are associated with
significant negative stock market reactions.

• “Good shoes come from good factories and good

factories have good labor relations.”

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Implications of CSR
2. Reputational Risk in Labor and Equity Markets: Product
markets are not the only source of pressure, employees and
investors have concerns about company CSR practices as well as
consumers.
• In the labor market, some employees express a preference for
working for more socially responsible companies.
• Reputation is also important in equity markets: The Dow Jones
Sustainability Index (introduced in 1999) and FTSE4Good (2001),
list companies that meet socially responsible investing criteria.
• The growth in investing and listing of companies according to
social responsibility criteria has led to a substantial increase in
social and environmental reporting by firms.

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Implications of CSR
3. Dangers of Do-Gooding Executives:
• David Henderson and Ethan Kapstein, they suspect that
“do-gooding” executives are pursuing personal visions of a
better world using shareholders’ money and often with
insufficient regard for the likely effectiveness or possible ill-
consequences of their initiatives.
• Friedman claimed that “there is one and only one social
responsibility of business—to use its resources and engage
in activities designed to increase its profits so long as it stays
within the rules of the game, which is to say, engages in
open and free competition, without deception or fraud.

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CSR Theories

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1. Social Contract theory (Thomas

Donaldson):
• Social contract for business is founded on consent —that
corporations exist only through the cooperation and
commitment of society. This suggests an implicit
agreement between the corporation and society.
• The simplest form of the contract is to specify what
business needs from society and what, in turn, are its
obligations to society. This approach can be used to
ground the “license to operate” argument that the WEF
and others advance in support of CSR.

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2. The Triple Bottom line

• Instead of a single bottom

line associated with profit,
the TBL theory argues that
there should be two more:
people, and the planet. By
balancing people, planet,
and profit, it’s possible to
build a
moresustainable business
model and a circular firm.

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3. Stakeholders Theory (Edward

Freeman)
• Instead of starting with a business and looking out into the world to see what
ethical obligations are there, stakeholder theory starts in the world.
• It lists and describes those individuals and groups who will be affected by (or
affect) the company’s actions and asks,
– “What are their legitimate claims on the business?” “What rights do they
have with respect to the company’s actions?”
– “What kind of responsibilities and obligations can they justifiably impose
on a particular business?”
• Stakeholder theory affirms that those whose lives are touched by a
corporation hold a right and obligation to participate in directing it.

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What is ‘Corporate Sustainability’?

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Corporate Sustainability
• The term "corporate sustainability" describes a new corporate
management model. It can also fall under the broader term
"environmental social governance" (ESG)
• Corporate sustainability emphasizes growth and profitability
through intentional business practices in three areas of society.
Environmental, Social and Governance.
• The goal is to provide long-term value for stakeholders without
compromising people, the planet, or the economy.

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ESG Pillars

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UN Sustainable Development Goals

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The CSR competency framework

Awareness • The manager is aware of the role of the different players in society
and the contribution made by their own business.

Understanding • The manager recognises the trends in social and environmental issues
and how they impact on business performance.

Integration • The manager is actively involved in furthering a genuine concern for

social and environmental issues in the business.

Integration • The manager is responsible for management decisions that measure

and report on the social and environmental impact of the business.

Leadership • The manager develops business strategies that are in accordance and
beyond the legislative requirements and CSR standards.

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CSR Strategies

3. Aligning Community
1. Promoting Healthy
2. Designing Goals with Impact Goals with
and Inclusive
Measurable Impact- Business Practices-
Workplace Cultures-
Safaricom Foundation Uniliver –’Farewellto
Safaricom, Google
the forest’- Wildliftrust

4. Socially Responsible 5. Soliciting Feedback

Companies Leverage and Engagement to
Their Core Capabilities- Maximize Stakeholder
JetBlue Value-Nestle

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