Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien

Multinational Corporations and Corporate Social Responsibility

The New Responsibility of the Corporation Introduction to the Seminar CSR in China, SS 2007 Prof. Dr. Andreas Scherer Prof. Dr. Andreas Scherer IOU/University of Zurich

Whats the role of business in society?

The old school approach
By pursuing his own interest [the individual] promotes that of the society more effectually than when he really intends to promote it. Adam Smith, (1723-1790) Corporations are persons under the law deserving "equal protection." Supreme Court decision Santa Clara County v. the Southern
Pacific Railroad Corporation (1886)

What is good for General Motors is good for the country

Charles Wilson, CEO GM, 1952

The only social responsability of a company is to increase its profits and nothing else. Milton Friedman, Nobel prize winner 1970

Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien

Prof. Dr. Andreas Scherer IOU, University of Zurich

The mainstream neoliberal economic theory

(Milton Friedman)

1. Only human beings have a moral responsibility for their actions. 2. Managers responsibility is to act solely in the interest of shareholders, they are agents of their principal (= economic actor). 3. Social problems have to be solved by the state (= political actor). 4. Confronting corporations with social demands beyond profit maximization is a first step towards communism. 5. Managers who invest money in CSR steal the property of their principals and impose a kind of privat tax
Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien
Prof. Dr. Andreas Scherer IOU, University of Zurich

The social responsibility of the corporation is to increase its profits?

We adhere to the rules. If the government set up the rules, we adhere to them. It's like the tax code. No one expects you to pay more taxes than you owe. And so you're expected to interpret the rules and conduct your business in that fashion. Jeff Skilling, CFO Enron

Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien

Prof. Dr. Andreas Scherer IOU, University of Zurich

A definition of CSR

CSR is a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis Definition of the EU commission Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large
Definition of the World Business Council for Sustainable Development
Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien
Prof. Dr. Andreas Scherer IOU, University of Zurich

One step further: Old School CSR

Carrolls Pyramide of CSR

Be a good corporate citizen

Philanthropic

Desired

Be ethical

Ethical

Expected

Obey the law

Legal

Required

Be profitable

Economic

Required

Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien

Prof. Dr. Andreas Scherer IOU, University of Zurich

The changing expectations and the rising standards

Management without morality?

Bodo Schnabel: a cheat?

Frank Quattrone: an inside trader?

Thomas Haffa: a confidence trickser?

Dennis Kozlowski: a tax evader and thief?

Percy Barnevik: a greedy pensioner? Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien

Prof. Dr. Andreas Scherer IOU, University of Zurich

The changing expectations and the rising standards

Politics
Law Political Pressure

Economy

Political Pressure by Non-GovernmentalOrganizations (NGOs)

The power of politics shrinks.

Civil Society

Powerlessness creates distrust and people start to look after their interests on their own. = globalization from below (Giddens), subpolitics (Beck), paragovernmental activities (Dryzek)
Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien
Prof. Dr. Andreas Scherer IOU, University of Zurich

Lilliput against Gulliver

Corporations under NGO-pressure
January 2002: Der underwear-producer Triumph is forced by the activist group Clean Clothes Campaign to close its new production plant in Myanmar (former Burma).
... as already Pepsi, Reebok, BAT and Heineken.

Accusation: Triumph is a profiteer of the military dictatorship. Systematic violations of human rights.

Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien

Prof. Dr. Andreas Scherer IOU, University of Zurich

The naked organization

Hits 1 - 3: Nike`s official Homepages

Hits 4 - 6: Anti-Nike Websites

Rearch results from www.google.de, Nike, 20. February 2002

Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien

Prof. Dr. Andreas Scherer IOU, University of Zurich

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The new soft and hard law on the global playing field The rules of the game are changing
UN Global Compact (www.unglobalcompact.org) Initiative of the Secretary-General of the United Nations, Kofi A. Annan. He calls on companies to follow the principal guidelines in the domains of human rights, labor conditions and environmental issues. European Union (http://europa.eu.int/comm/employment_social/soc-dial/csr/) Green paper of the European Commission as a draft of general conditions for Europe on the social responsibility of companies. CSR Europe (ww.csreurope.org) CSR Europe is a company-network with the objective to promote profit, sustainable growth and social progress by anchoring CSR in the daily business. Global Reporting Initiative (www.globalreporting.org) Network of companies, NGOs, trade associations, UNEP, and CERES to develop general and global applicable guidelines for CSR reporting. SA Intern. (www.cepaa.org) Organization of companies and NGOs to establish the workplace standard SA 8000 which contains all relevant employee rights and allows a third party certification.

Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien

Prof. Dr. Andreas Scherer IOU, University of Zurich

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Corporations as political actors

Some empirical observations: Corporations start to behave as if they were political actors and assume genuine political responsibilities.

They engage in: - Public health - Education - Social security - Human rights protection - Fight against AIDS, malnutrition, illiteracy, homelessness - Promotion of peace and stability - Creation and self-enforcement of regulation - ...

Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien

Prof. Dr. Andreas Scherer IOU, University of Zurich

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Domains of Corporate Social Responsibility

The new corporate pragmatism
1. Self-Regulation
a. b. Siemens breaks Apartheid-laws in South Africa BP lauches a human rights initiative in cooperation with the US- and UKgovernments

2.

Participation in political discourses

a. b. Betapharm initiated a law for social medical aftercare that will enter the German Code of social law. BP takes a public position in favour of the Kyoto protocol

3.

Infrastructural investments
a. b. SAP supports research at universities C & A initiate and support orphanages, schools and vocational training in third world countries

Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien

Prof. Dr. Andreas Scherer IOU, University of Zurich

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The growing interest of business in CSR

Being trusted to meet societal expectations is essential for long-term profitability. Sir Mark Moody Stuart, CEO Anglo-American

While it might have been easy to lose track of our social and environmental goals under increased pressure to perform better financially, we have continued to sustain our progress. Cyrus F. Freidheim, CEO Chiquita

Auswchse der kurzfristigen Shareholder-Value-Orientierung werden wieder durch nachhaltiges Wirtschaften ersetzt Klaus-Peter Mller, CEO Commerzbank

Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien

Prof. Dr. Andreas Scherer IOU, University of Zurich

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Positive Impact of CSR on Business Performance A credible and consistent CSR management drives the corporate reputation and brand equity of a company and thereby supports the overall business success
Social Responsibility

Build stakeholder solidarity Gain market leadership Increase sales Drive business growth Earn investor confidence Attract/Secure talent
Prof. Dr. Andreas Scherer IOU, University of Zurich

Corporate Reputation

Source: Harris-Fombrun Reputation Quotient

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CSR The motivation behind the engagement

react to pressure/avoid pressure

Nike, Nestl, Shell, Orange, BAT, WestLB, Puma, Adidas, Gap, Tommy Hilfinger, Coca Cola, Karstadt

build reputation

Microsoft, SAP, UBS, Daimler Chrysler, Deutsche Bank, ratiopharm, McKinsey,

HP, BMW, BP, Migros, Unilever, Altana, Merck, Faber Castell, Starbucks, C & A, Bertelsmann, DM Markt, Novartis, Johnson & Johnson, Otto,

live corporate values

avoid CSR

Schlecker, Aldi, DeBeers, Unocal, Japan Tobacco,

Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien

Prof. Dr. Andreas Scherer IOU, University of Zurich

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CSR as a reaction to pressure

The Brent Spar Case
June 1995: Shell UK had the intention to sink the oil platform Brent Spar. A consumer boycott reduced the turnover of Shell service stations in Germany up to 50%. The reputation of the company has been damaged significantly.

A company can not win a battle against a coalition of NGOs, mass media, politicians and customers. More and more consumers are ready to consider a companys social and environmental engagement in their buying decisions. Legal is not legitimate.

Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien

Prof. Dr. Andreas Scherer IOU, University of Zurich

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CSR as reputation building

The Krombacher rain forest project
Joint initative with WWF organized in an independent foundation Rain forest project is the first environmental project launched by a corporation (in Germany) Sie geniessen, wir spenden Total donation up to June 2004: 2,3 Mio. Euro Advertising at 4000 sales points, radio promotion, inclusion of celebrities (Gnther Jauch, Steffi Graf), rain forest party sweeps Krombacher increased its sales in 2003 by 7.3% despite the difficult market context

Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien

Prof. Dr. Andreas Scherer IOU, University of Zurich

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CSR as a reaction to pressure

Analyzing the ethical risks of ones business

General Reputation Risks General Reputation Risks Torture Torture Disappearances Disappearances Harrassment of Human Harrassment of Human Rights Defenders Rights Defenders Denial of Freedom of Denial of Freedom of Assembly and Association Assembly and Association Forcible Relocation Forcible Relocation The example of the pharmaceutical Systematic Denial of Systematic Denial of Womens Rights and chemical industries Womens Rights Forced/Bonded Labor Forced/Bonded Labor Forced/Bonded Child Labor Forced/Bonded Child Labor Arbitrary Universitt Zrich Arbitrary Arrest and Arrest and IOU/Institut fr Organisation und Unternehmenstheorien Detention Detention

Industry-specific Reputation Industry-specific Reputation Risks Risks Access to drugs Access to drugs Intellectual Property Intellectual Property Rights Rights Clinical Tests Clinical Tests End-use of Products through End-use of Products through other parties other parties Indigenous Rights Indigenous Rights Contamination Contamination Process and Product Safety Process and Product Safety Employee Health and Employee Health and Safety Safety Prof. Dr. Andreas Scherer Environmental Protection Environmental Protection 19
IOU, University of Zurich

Human rights The key driver of the CSR debate

The ILO estimates that about 246 million children worldwide work under conditions that can be defined as the worst forms of child labor prostitution, mining and slave labor in Universitt Zrich Prof. Dr. Andreas Scherer different industries. IOU/Institut fr Organisation und Unternehmenstheorien IOU, University of Zurich

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Mutilated workers in a world without social security

mutilated workers in China

Universitt Zrich According to the ILO 2 million work-related deaths occur annually, most of Andreas in Asia Prof. Dr. them Scherer IOU/Institut fr Organisation und Unternehmenstheorien
IOU, University of Zurich

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Mutilated workers in a world without social security

Tang Shuzhen erreichte Shenzhen am 12. Februar 2000. Sie war 18. Ihr erster Job fhrte an eine Maschine, mit der Kabelstrnge verdrillt wurden, eine sehr gefhrliche Maschine. Manchmal sprangen die Drhte wie Peitschen aus den Halterungen und schlugen tiefe Wunden, manchmal gerieten Mdchen mit den Haaren ins Rderwerk und verletzten sich schwer. Der Spiegel 6/2005

Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien

Prof. Dr. Andreas Scherer IOU, University of Zurich

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Slave labor
Anti-Slavery International estimates that virtually all of the chocolate sold in the United States contains at least some cocoa which was harvested by slaves. In the Ivory Coast, the West African nation that produces nearly half of the world's cocoa, boys as young as 9 are sold or tricked into slavery, and forced to perform the hot, hard labor of cocoa harvesting.

According to the ILO 20 million people worldwide are in bonded or slave labor
Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien
Prof. Dr. Andreas Scherer IOU, University of Zurich

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CSR as a value commitment

Hewlett-Packards engagement

HP started an initiative against toxic e-trash dumping in Guiyu, China. They support strict legislation that makes PC companies bear the costs of disposing of discarded computers

Focus of CSR engagement: e-inclusion Aim: Bridging the digital divide to the developing world , e.g. in India, South Africa HP initiates and orchestrates public private partnerships with NGOs, governments, citizens and other corporations Proactive engagement: Privacy as a key future issue of HP CSR
Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien
Prof. Dr. Andreas Scherer IOU, University of Zurich

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CSR as a value commitment

Ben & Jerrys The Pionieers of the CSR business
Icecream company founded by two old hippies in 1977 First social performance report in 1989 (third party validation included) 7.5 % of profit goes to charitable causes Early engagement in fair trade and bio 1988 a new non-profit initiative known as 1% For Peace, goal: to redirect 1% of the national defense budget to fund peace-promoting projects and activities.

Ben Jerry
Named for Grateful Dead guitarist Jerry Garcia

1990 introduction of Rainforest Crunch ice cream. Sales of the ice cream benefit rainforest preservation efforts 1990 introduction of Chocolate Fudge Brownie ice cream. The brownies come from a bakery that employs disadvantaged people from the local community. 2000: Bought by Unilever 2001 completes transition to Eco-Pint packaging
Prof. Dr. Andreas Scherer IOU, University of Zurich

Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien

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Chiquita: from a bad boy to a CSR leader

Starting Point: Notorious for human rights violations, environmental pollution and the collaboration with repressive regimes in the banana republics . A huge pressure on their brand and the attempt to hide their problematic behavior from the public and their markets was considered as a failure. 1997 new CEO, 1998 decision to change and implement a CSR strategy Result: Chiquita turned antagonistic stakeholder relations in collaborative ones Chiquita is applauded by its strongest critics Chiquita today is state of the art in CSR For leading European retailers Chiquita has become a preferred supplier Criteria of success: Supply chain and core business oriented approach Sensitivity vis--vis the societal environment Value orientation Top Management as driver and process-owner Engagement was not reduced while Chiquita filed for chapter 11 in 2001 Extreme transparency Adoption of the most critical standards developed by NGOs Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien

Prof. Dr. Andreas Scherer IOU, University of Zurich

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The CSR process at Chiquita

Create a problem-awareness at top management level Understand societal change Formulate core values

CSR at Chiquita
Formulate a CSR Vision Start a change process

Anchor change

Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien

Prof. Dr. Andreas Scherer IOU, University of Zurich

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Some voices from critical NGOs

The company began documenting everything that went on at their farms, from the number of trees planted to the number of accidents that occurred, to the number of pounds of pesticides sprayed, to the number of pesticides and other chemicals that they have eliminated through improved technology, improved practices and improved chemical compounds. Rainforest Alliance

Chiquita continues to impress. The transparency of its corporate responsibility reporting and the use of highly respected independent observers combined with some real progress on the ground is a track record which is unmatched in our work in Latin America. While the road is long, Chiquita has traveled far in a few short years. US Labor Education in the Americas Project
Prof. Dr. Andreas Scherer IOU, University of Zurich

Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien

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Nike: The Five Stages of Organizational Learning (Zadek HBR (Dec) 2005, p. 127)

Stage What organizations do?

Defensive Deny practices, outcomes, or responsibilities

Compliance Adopt a policybased compliance approach as a cost of doing business To mitigate the erosion of economic value in the medium term because of ongoing reputation and litigation risks

Managerial Embed the societal issue in their core management processes To mitigate the erosion of economic value in the medium term and to achieve longerterm gains by integrating responsible business practices into their daily operations

Strategic Integrate the societal issue into their core business strategies To enhance economic value in the long term and to gain firstmover advantage by aligning strategy and process innovations with the societal issue

Civil Promote broad industry participation in corporate responsibility To enhance long-term economic value by overcoming any first-mover disadvantages and to realize gains through collective action

Why they do it?

To defend against attacks to their reputation that in the short term could affect sales, recruitment, productivity, and the brand

Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien

Prof. Dr. Andreas Scherer IOU, University of Zurich

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The Four Stages of Issue Maturity (Zadek HBR (Dec) 2005, p. 128)

Stage

Characteristics Activist communities and NGOs are aware of the societal issue.

Latent

There is weak scientific or other hard evidence. The issue is largely ignored or dismissed by the business community There is political and media awareness of the societal issue.

Emerging

There is an emerging body of research, but data are still weak. Leading businesses experiment with approaches to dealing with the issue. There is an emerging body of business practices around the societal issue.

Consolidating

Sectorwide and issue-based voluntary initiatives are established. There is litigation and an increasing view of the need for legislation. Voluntary standards are developed, and collective action occurs. Legislation or business norms are established. The embedded practices become a normal part of a business-excellence model.

Institutionalized

Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien

Prof. Dr. Andreas Scherer IOU, University of Zurich

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The Civil-Learning Tool (vgl. Zadek HBR (Dec) 2005, p. 129)

Civil

Higher-Opportunity Zone

Strategic

Managerial

Compliance Risky Zone Defensive Latent Emerging Consolidating Institutionalized

Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien

Prof. Dr. Andreas Scherer IOU, University of Zurich

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Between marketing and commitment

Enron was regarded as state of the art in CSR Existing tools of analysis that analyze corporations from outside, can not differentiate between real CSR and bluewashing/greenwashing CSR All big corporations use more or less the same tools and methods in CSR The biggest criminals often have the largest CSR reports

How can we ever identify the good corporate citizens?

before
Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien

afterwards
Prof. Dr. Andreas Scherer IOU, University of Zurich

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Some examples of CSR misunderstandings

UPS (United Parcel Service) donates money for the alphabetization of illiterates and for the installation of kindergartens. McDonalds has established the Ronald McDonald foundation, helping ill children and their parents. The Mnchener Rck, a reinsurance company is donating huge amounts of money for helping the poor with a focus on homeless people. Philip Morris is probably the most philanthropic organization on the planet. Project example: They give money to projects against domestic violence.

What about the link between logistics/mileage and Kyoto?

What about obesity and the conditions in the slaughter houses?

What about human rights and environmental criteria in reinsurance decisions?

What about tobacco marketing to teenagers, what about child labor in the tobacco production?
Prof. Dr. Andreas Scherer IOU, University of Zurich

Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien

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Core questions for testing corporate commitment

1. 2.

Are they moving quickly enough? Are they committed to applying CSR values broadly across all aspects of their business? Have they drilled down to integrate these values into their corporate culture?

3.

CSR is a question of values and implementation

Universitt Zrich IOU/Institut fr Organisation und Unternehmenstheorien

Prof. Dr. Andreas Scherer IOU, University of Zurich

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