Unit 5

Strategic Context of CSR

LH 6
Course Content:

 Strategic CSR
 Firms’ environmental context,
 The five driving forces of CSR- growing affluence, sustainability,
globalization, free flow of information, development of corporate
conscience
 morale principle of CSR
Theoretical Background of strategic CSR

 Different Thoughts regarding CSR provide the guideline in managing strategic CSR to create
corporate value with competitive advantages.
 Friedman (1962) argued 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
engages in open and free competition, without deception or fraud."
 shareholders advance capital to a company's account and corporate managers who are
supposed to spend corporate funds only in ways that have been authorized by the
shareholders.
 On the contrary, the next popular view is that companies have a duty to create value for
customers, suppliers, employees, communities, and investors.
 Strategic CSR respects the stakeholder and ecology for the betterment of stockholders.
Cont…
 Carroll (1979) argued that "the social responsibility of business encompasses the
economic, legal, ethical, and discretionary expectations that society has of
organizations at a given point in time."
 Different intergovernmental organizations adopted triple bottom line approach of
CSR explaining the responsibilities toward people, planet, and profit which was
introduced in 1994 by Elkington.
 CSR theories can also be seen as normative theories of business ethics since
executives and managers of a corporation should take decisions according to the
"right" theory and they must always keep in mind that what a corporation's role
ought to be.
 Some scholars have suggested three forms of CSR to understand corporation's role.
 Ethical CSR
 Altruistic CSR, and
 Strategic CSR
Cont…
 Ethical CSR,
 Morally mandatory, and goes beyond fulfilling a firm's economic and legal obligations, to its
responsibilities to avoid or minimize harms or social injuries, even if the business might not benefit
from this.
 Related to the obligation to do what is right, just, and fair.
 Altruistic CSR,
 Optional, and it is an unselfish concern for other people's happiness and welfare rather than just for
oneself.
 Carroll's discretionary domain of CSR addresses the altruistic view.
 Suggests for voluntarily donating time and/or money towards certain groups of stakeholders, even
if that action sacrifices part of the business profitability.
Cont..
 Strategic CSR,
 CSR is good both for business and society. "Win-Win" is entertainingly associated with the
strategic context of CSR.
 The main notion of CSR can be much more than a cost, or a constraint, or a charitable deed.
 Instead it can be a source of opportunity, innovation, and competitive advantage.
 Many companies are using CSR as one of the strategic tools to differentiate themselves and
their products.
 Similarly, Marketing and communication executives perceive CSR, a good approach for
attaining corporate goals.
Strategic CSR

 Modern approach of business management.

 The core idea of strategic CSR, a source of competitive advantage and thus profit.
 Considered as unique marketing tools.
 Facilitate for Value Creation.
 Incorporates a commitment to meet the needs and demands of the firm’s broad
range of stakeholders.
 All about conducting business in a responsible manner.
 Involves incorporating their perspective into the strategic planning process of the
firm in ways that optimize value.
 Many companies are running CSR initiatives as customers, employees, executives
and shareholders pay concern on it.
 CSR Approach by different companies:

 Some companies approach on climate change, setting goals to limit and mitigate their
carbon footprint.
 Involving in visible social initiatives and charitable giving, highlighting their involvement in
local and global communities.
 Also, involve to reduce costs, minimize risks, create new business opportunities, and
enhance relationships with customers and suppliers Which are the basics of strategic
CSR.
Characteristics of strategic CSR

Operations-driven
Compliance-driven, and
Customer-driven.
Operations-Driven CSR strategy

 Concerned on strategic and innovative actions to enhance

the performance and reputation.
 Urge suppliers to employ sustainable manufacturing
techniques, practice the prescribed labor standards, and
comply with human rights and environmental protection
requirements.
 Aims to gain competitive advantage through socially
responsible supply chain management.
Compliance-driven CSR strategy
 Focuses on achieving high levels of compliance with legal
requirements, including environment, health, and safety (EHS)
program.
 Provides framework for managing risks, manufacturing safe
products, and according to compliance of stakeholders’ interest.
 Promotes forward-thinking programs to ensure environmental
compliance and integrates EHS into its business strategy to create
a healthy and safe workplace.
 Reducing the number of violations, waste generation, energy
consumption, greenhouse gas emissions are the major targets of
compliance-driven CSR strategy.
Customer-driven CSR strategy
 The CSR initiatives are prominently directed toward and
driven by customer and community attitudes and
perspectives.
 Put considerable emphasis on philanthropy and
community involvement.
 firm actively communicates commitment towards health
and strengthen the community through strong internal and
external marketing effort.
 also promotes environmental and social initiatives that is
geared toward sustaining community.
 Firm’s Environmental Context
 Every firms operates in a distinctive environment.
 Symbiotic Relationship between business and environment as its influence
each other.
 Therefore, the effectiveness of an organization depends largely on firm’s
capacity to manage its business, specifically the strategic management,
responding ever-changing environment.
 Environment => A collection of all individuals, entities and other factors
which may or may not be under the control of the organization but affects its
performance, profitability, growth and even survival.
Firm’s Environmental Context...

Dynamic

Relative Complex

Far-
reaching Uncertain
Impact
Multi-
faceted
 Cont…

Dynamic: Changes continuously

Complex: Difficult to understand the relative influence of particular factor on
business operation.

Uncertain: no one cant predict what is going to happen in future.

Multi-faceted: perceive differently by different observers.
Far-reaching Impact: small change in environment has far-reaching effect on
organization.

Relative: relative to environment since it varies from one location to another.

Firm’s Environmental Context...

 Firm has no other option, but to respond and adapt

accordingly.
 If business executive possess a good understanding of
the business environment, they can easily recognize,
analyze and react to the forces that affect the firm.
 The success of the firms strategic move depends
exclusively on that understanding of the environment.
 The Five Driving Forces of CSR.

 Driving force denotes someone or something that has the power to make things
happen.
 Many factors that influence the decisions and policies of an organization.
 Five major trends that influence CSR are as follows:

Growing Affluence
Sustainability
Globalization
Free Flow of Information
Development of Corporate Conscience.
Growing Affluence

 Affluence simply means prosperity and a good standard of living.

 CSR becomes more relevant as economies grow and become stable.
 Stable work and security provide the luxury of choice and socially responsible activism.
 As wealth increases, spending tends to shift away from necessities to more discretionary
subjects.
 As a result, stakeholders may be endowed with respective social, environmental or
ethical preferences, which drives corporate houses spontaneously toward CSR
dimensions.
 Cont…
 Resulted the concern on negative environmental consequences such as massive
manufacturing of Carbon Dioxide, burning of fossil fuels like coal, petroleum and natural
gas, deforestation and destruction of rain forests.
 These consequences play an important role in driving force of CSR.
 Different studies suggest that firms whose financial performance is strong are more likely to
engage in socially responsible corporate behavior than firms whose financial performance
is weak.
 Due to media and intense public attention, big organizations are concerned to protect
and enhance their reputations.
 Often better-resourced and more able to invest in CSR.
 Thus, increasing affluence of enterprises may also be a driving force of CSR.
Sustainability
 The terms Sustainable and Sustainability refers as the approaches towards
improving our and coming generations’ way of life.
 Ecological sustainability is the belief that all humans must use resources wisely
and efficiently so that these resources never become exhausted or over
polluted.
 Some of the views regarding sustainability are:
 taking the long-term view of how our actions affect future generations and not depleting
resources or cause pollution at rates faster than the earth is able to renew them.
 Refers to the quality of not being harmful to the environment or depleting natural resources.
 A sustainable community is one that resembles a living system where all of the resources
(human, natural, and economic) are renewed and exist in balance for perpetuity.
 Cont…
 Corporate sustainability focuses on environmental and social impact of business actions
with the aim of long term existence.
 a process by which companies manage their financial, social and environmental risks,
obligations and opportunities with less impact on environment.
 Basically, sustainability involves developing long-lasting systems of business, ensuring
that these systems have a lesser impact on the natural environment.
 So, sustainability is becoming a driving force of CSR due to the following pressure of
different circumstances:
❖ Investors' interests in corporate sustainability
❖ Government regulations to protect natural environment
❖ Competitive situations of market
❖ Public and activists pressure
❖ Increasing cautious consumers and growing tendencies of ethical consumption
❖ Efforts of intergovernmental organization
 Cont…

 After the formation of UN Environment on 5 June 1972, governments of different countries

have passed several laws to protect the environment and created the governing bodies
to enforce and oversee these laws.
 In 1997, the Environment Protection Act has been enacted in Nepal.
 Such acts and different corresponding rules drive the business and other entities to act for
operating business in socially responsible manner.
 Businesses are being forced to look carefully at combining sustainability and good business
practice because of the public pressure and regulations.
 Globalization

 Refers to the integration of markets in the global economy.

 A process of interaction and integration among the people, companies, and
governments of different nations driven by international trade and investment.
 Have effects on the environment, culture, political systems, economic development
and prosperity, and human physical well-being in societies around the world.
 Advanced economies have often moved their more dirty industries to other parts of
the world, where there are less stringent environmental and social standards. As a
result, these countries may be polluting on their behalf.
 A truly responsible company should maintain the same standards of environmental
protection anywhere it operates in the world.
 Cont…

 Global competition forces multinational corporations to examine not only their own
business practices but those of their entire supply chain from a CSR perspective.
 The process of globalization and CSR must go forward on a reciprocal basis.
 It is MNCs moral duty to show their proactive CSR behavior in action.
 Increased the potential responsibility to be exposed to global audience along with the
increase in business operation globally.
Free Flow of Information

 Easily accessible and affordable communication technology has radically changed

all the constituents of our society.
 The healthy relationship between business and society largely depends on the
interlinked free flow of information.
 the information system carries both opportunities and threats.
 Those inherent opportunities and threats are the fundamental reason behind the
socially responsible business behavior.
 No companies can longer hide the information these days.
 What companies do for either the good or the bad will be known almost
instantaneous.
 Feedback through social media is immediate, permanent, and extremely public.
 Cont…
 The reputation of corporations depends on what the media report about them
because the media are the main legitimate sources of information asymmetry
reduction for many stakeholders, who lack direct with the corporation.
 Studies showed that if firms demonstrate proactive social responsiveness, they receive
more favorable news reporting.
 So, there is a stronger relation between CSR and media favorability.
 The possibilities of disclosure by an employee (whistle blowing) to the public about
wrongdoing may also drive a company to act in socially responsible manner.
 Development of Corporate
Conscience
 Conscience is the sense or consciousness of the moral goodness of one's own conduct,
intentions, or character.
 One's conscience is said to be his inner sense of what is right and what is wrong.
 Conscience generates from intelligence, and feeling of responsibility comes afterward.
 Conscience and perceived moral principles are interrelated.
 Moral principles denote the principles of right and wrong that are accepted by an
individual or a social group.
 Conscience motivates us to act according to moral principles.
 Corporate conscience refers to the moral strength of corporate houses.
 Cont…

 The most important driving force of CSR is ultimately a corporate conscience as it is the
most pertinent internal driving forces of CSR.
 There is a greater role of changing social norms, human behavior, and other
environmental forces in the development of corporate conscience.
 Forces to behave in a certain manner in a given situation.
 Business people are increasingly getting aware about their social responsibility by the
day and they use CSR to enhance the corporate image or competitive advantage.
 Relative to the past, modern corporate houses are well acquainted with CSR and they
know about their responsibilities besides making the profit.
Moral Principles of CSR

 Principles are defined as general rules that can guide judgment across a wide variety
of situations.
 Morals are judgments, standards, and rules of conduct in the society.
 Moral principles indicate what agents (individuals or entity) morally ought to do or are
morally allowed doing.
 The major concerns is “What deserves to be promoted, praised, or approved; or
what deserves to be opposed, criticized, or disapproved”.
 Debates in normative thoughts regarding Morality such as:
 Consequentialism holds that acts are morally right or wrong to the degree that they
maximize good consequences.
 On the other hand Deontologists believe that there are constraints against certain actions
independent of their consequences such as injunctions not to break promises, not to lie,
and not to harm innocent others.
 The debate between these two schools of thoughts has generated a number of well-
known moral reasoning in applied fields.
 Cont….

 The CSR concept of Triple Bottom Line (3 Ps) can be linked with the moral principles as
follows:
1. People: It represents the corporate responsibility toward stakeholders or society. This
responsibility is closely associated with Utilitarianism (a form of consequentialism). Can
be linked with deontology.
2. Planet: It represents the corporate responsibility toward ecology. It is also closely
associated with Utilitarianism. It can also be connected with deontology in some
specific issues.
3. Profit: It represents the corporate responsibility toward stockholders. Profit making and
maximizing shareholders' wealth is an ultimate duty of corporate houses. closely
associated with responsibility, deontology plainly support to this CSR domain.
 Despite the different moral principles many companies today are routinely portrayed
as being "bad."
 many moral issues like exploiting consumers, avoiding taxes, disregard social and
environmental obligations, sweatshops, and egregiously paying their chief executives.
 These are against the moral principles and deserve to be opposed, criticized, or
disapproved.
 In contrast, nowadays most of the big companies pride themselves on their social
responsibility.
 Many companies like Johnson & Johnson, Philips, Standard Chartered, TATA, Unilever
etc., have a tab called 'social responsibility," 'support community' or 'sustainability' and
the like.
 In early days of capitalism, the proponents of this thought argued as the goal of the
business must be making profits without deception or fraud.
 For them, the moral principle of CSR was making the profit without deception or
fraud.
 This sort of principle has been changed when business was challenged by social
movements, ecological activists, and legislation.
 Business people know that 'being good by doing well' can also restore the public's
trust in business.
In Conclusion,
 Businesses are now familiar with a common sense morality, based on norms such as
'treat others as you would like to be treated, 'keep your promises,' 'be fair' and 'do
your best.
 Along with these good and ethical values like happiness, honesty, justice, charity,
courage, integrity, community, love, knowledge and freedom are fundamentally
linked with moral principles and considered as principles of morality.
Thank you.