Chapter 12 Strategizing with Corporate Social Responsibility

Global Strategy 1e Michael Peng Global Strategy Mike W Peng c h a p t e r 12 Copyright © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly acc.

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be scanned, copied or duplicated, or posted to a publicly

accessible website, in whole or in part.

Outline

• A stakeholder view of the firm

• A comprehensive model of corporate social responsibility

• Debates and extensions

• The savvy strategist

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Corporate Social Responsibility

• The consideration of, and response to, issues

beyond the narrow economic, technical, and

legal requirements of the firm to accomplish

social benefits along with the traditional

economic gains which the firm seeks.

• Stakeholder: Any group or individual who can

affect or is affected by the achievement of the

firm’s objectives

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A Stakeholder View of the Firm

• A stakeholder is “any group or individual who can affect

or is affected by the achievement of the organization’s

objectives”

• Goal for CSR 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”

• Three drivers related to urgency of sustainability

monitoring and in some cases enforcing social and

environmental standards

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A Stakeholder View of the Firm

(cont’d)

• Primary and secondary stakeholder groups

 Primary stakeholder groups are those on whom the firm relies for survival and prosperity

 Secondary stakeholder groups are defined as

“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”

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A Stakeholder View of the Firm: A

Fundamental Debate

• The CSR debate centers on the nature of the

firm in society Why does the firm exist?

• One side of the debate argues the “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)

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A Stakeholder View of the Firm: A

Fundamental Debate (cont’d)

• 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”

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12–8

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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

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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

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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

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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

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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

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Turning Threats to 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

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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?

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The Question of 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

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The Question of 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

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The Question of 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, attitudes, and interpretations

of firms

 The socially complex way of CSR engagement

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The Question of 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)

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• Various studies produce different results

• Not every firm benefits from CSR

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Institution-Based Considerations

• 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

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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

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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

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Accommodative Strategy

• From both normative and cognitive standpoints, it may become a legitimate social obligation to accept

responsibility and do all that is required

• Institution-based answer: All of the above

corporate citizens

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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

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How the US chemical industry responds to environmental

pressures

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Debates and Extensions

• Domestic versus overseas social responsibility

employment to host countries and increases standards

of living there

pay the price for this expansion

• Active versus inactive engagement overseas: To what extent should an MNE use threats or its power to impose its values in a country?

• Race to the bottom (“pollution haven”) versus race to the top: Some companies may move to a country to escape environmental regulations

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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,

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