CSR AS A STRATEGIC FILTER

Chapter -04
 CSR As A Strategic Filter
 In a free society, all organizations exist to meet societal needs in some form, or they eventually go away. No
publicly traded company, government, or nonprofit initially sets out to do harm. Yet, as demonstrated in the first
three chapters of Strategic CSR, harm is certainly one possible outcome from day-to-day actions. In the case
of for-profit firms, these often-unintended consequences spring not from the organization’s goals themselves,
but from the methods or strategies deployed to pursue these goals. As a result, it is important to understand
the strategic context of CSR.
 In fulfilling their mission and vision, organizations face constraints on their methods and results. The economics
of survival, for example, requires each entity to produce the results that generate the sources of income they
require to operate— donations for nonprofits, taxes for governments, or profits for firms. At the same time,
these results must be attained by methods that are acceptable to the larger society.
 When these issues involve for-profits, CSR helps firms balance the methods they use and the results they seek. It
does this by ensuring that profit-seeking businesses plan and operate from the perspective of multiple
stakeholders.
 The exact issues that any firm is likely to face at any given time are impossible to predict. What is constant and
can be applied by any firm in any situation, however, is that a strategic lens offers the best viewpoint through
which to study CSR.
 CSR + A STRATEGIC LENS

 Both CSR and strategy are concerned primarily with the firm’s relationship to the
context in which it operates. Whereas strategy addresses how the firm competes in
the marketplace (its operational context), CSR considers the firm’s impact on relevant
stakeholders (its societal context).
 Strategic CSR represents the intersection of the two. Thus, in order to implement a
strategic CSR perspective throughout operations, it is essential that executives
understand the interdependent relationships among a firm, its strategy, and its
stakeholders that define the firm’s environment and constrain its capacity to act.
 As illustrated in Figure 4.1, a firm’s vision, mission, strategy, and tactics are limited by
three kinds of constraints—resource constraints, internal policy constraints, and
environmental constraints. First, a significant limitation on the firm’s ability to act is its
access to resources and capabilities—the human, social, and financial capital that
determine what the firm is able to do.
 A second constraint is the firm’s internal policies that shape the culture of the
organization by requiring and forbidding specific actions. These policies, however, are
internally enforced and can be changed relatively easily by management (a flexibility
that is indicated in Figure 4.1 by the dashed line).
CSR + A STRATEGIC LENS (Cont.)
 CSR + A STRATEGIC LENS (Cont.)

 Finally, an organization’s environmental constraints are generated by a complex interaction of

sociocultural, legal, and stakeholder factors, together with the influence of markets and
technology. These forces further limit the firm’s freedom to act by shaping the context in
which the firm implements tactics to pursue its strategic goals that, in turn, enable it to
perform its mission and strive toward its vision. Compounding the complexity of integrating
CSR into the vision-mission-strategy-tactics linkages, therefore, is the ever-changing
expectations of society.
 As a result of this complexity, a sole focus on the linkage among vision, mission, strategy, and
tactics is insufficient to achieve the firm’s goals. Not only is such a narrow focus insufficient,
however, but it also represents potential danger. Tactical and strategic actions necessary to
achieve the mission (and, thus, the vision) must be evaluated by first passing through a CSR
Filter. The CSR Filter assesses management’s planned actions by considering the impact of
day-to-day tactical decisions and longer-term strategies on the organization’s constituents. A
tactical or strategic decision that runs counter to stakeholder interests can undermine the
firm’s sustainable competitive advantage. At the extreme, such violations may even force the
firm into bankruptcy.
 THE CSR FILTER
 Strategy formulation links the firm’s strengths with opportunities in its environment. The
strategic decision-making process faces limitations, however, which are presented in
Figure 4.2.
 First, a feasible strategy is limited by the firm’s vision and mission, which are
determined by the leadership. A plane manufacturer, such as Boeing or Airbus, is
unlikely to make cars and trucks because these activities do not achieve its vision and
mission, which is to make jet-powered, commercial planes.
 Second, the strategy is further limited by a firm’s structure and competencies—
organizational characteristics and competitive actions that aid the firm and set it apart
from competitors. Boeing and Airbus, for example, which undoubtedly could make cars
and trucks if they wanted, lack other resources, such as the network of dealerships
necessary to sell cars and trucks nationwide.
 Third, whatever strategy the firm develops, it is enhanced by the CSR Filter, which
identifies the range of strategies that is preferred by constituents. Above all, Boeing and
Airbus must make planes in ways that do not harm their key stakeholders—their
communities, employees, flyers, and other groups. In other words, before a
competency-based strategy can be deployed, it must be developed within constraints
and evaluated through a CSR Filter to assess its impact on those groups that are essential
for the strategy to be a success.
THE CSR FILTER (Cont.)
 THE CSR FILTER (Cont.)
 There is an iterative relationship between the resulting strategy and organizational
design. While strategy shapes design, it is also true that the firm’s structure, roles, and
reporting relationships should be configured to facilitate strategy. The correct
organizational structure is a design that best supports effective execution of the
strategy. For many firms, that means a departmental hierarchy organized around
business units. In terms of implementing a CSR perspective throughout strategy and
operations, therefore, the structure presents an additional opportunity to instill
decisions made at the top (with a CSR Filter) throughout the organization.
 The connection between a firm’s internal strengths and its external opportunities is
driven by the strategic axiom that success depends on a position of competing from
strengths. For the strategist to connect strengths with opportunities in a globalizing
business environment requires an intimate understanding of both internal and external
factors. In order to remain competitive, therefore, it is essential for firms to employ a
CSR Filter in formulating and implementing their strategies. Figure 4.2 demonstrates
how the CSR Filter fits as an integral component of the strategy decision making
process. In order to better understand the role of the CSR Filter in a firm’s success,
however, it is important to investigate the complex interplay among a firm’s structure,
competencies, and strategy in relation to the CSR Filter and operating environment.
THE CSR FILTER (Cont.)
 Structure:
The structure (the organizational design) exists to support the strategy of the firm. What
architects say of a building, organization designers say of the firm’s structure —form follows
function. Thus, the right structure is the one that best supports the strategy. Because the
optimal design is firm-specific, however, structure varies from industry-to-industry, as well
as from company-to-company within an industry. When low-cost strategies are pursued, for
example, expertise is often concentrated into a functional organization design in which site
location, store construction oversight, information systems, warehousing, distribution, store
operations, and other similar activities are grouped together by their common functions
into specialized departments. This functional grouping seeks to enhance specific areas of
expertise and is scalable as the firm grows. The result is called a functional organization
design.
In the case of Walmart, different parts of the company might pursue different structural
designs. Support activities like accounting or finance, for example, may be grouped by
function at corporate headquarters. At the same time, because Walmart is spread across
many geographical areas, the store management oversight and distribution systems may be
organized along geographical lines, such as a northeastern warehouse division or overseas
store operations. At Nike, CSR is such an important function that it is built into the firm’s
structure in the form of a separate Corporate Responsibility department, headed by a vice
president.
THE CSR FILTER (Cont.)
Competencies
To facilitate an understanding of the firm’s ability to build a sustainable competitive advantage, a clear
distinction among capabilities, competencies, core resources, and core competencies is required:
Capabilities are actions that a firm can do, such as pay its bills, in ways that add value to the production
process.
Competencies are actions a firm can do very well.
Core resources are the assets of the firm that are unique and difficult to replicate.
Core competencies are the processes of the firm that it not only does very well but is so superior at
performing that it is difficult (or at least time consuming) for other firms to match its performance in this
area.
It is the combination of a firm’s core competencies (a valuable process, such as an efficient logistics
operation) together with its core resources (a valuable asset, such as its people, capital, or technology)
that form the foundation for a firm’s long term, sustainable competitive advantage.
For example, The source of Southwest’s long-running success in the passenger airline industry, when most
other airlines were losing significant amounts of money, for example, is the combination of its
organizational culture (a core resource) together with its ability to operate its planes on a significantly
more cost-effective basis, due to innovations such as its rapid turnaround time (a core competency).
Similarly, consider how Walmart is able to manage the flow of goods from suppliers, through its stores,
and on to its customers, often referred to as supply chain management.
THE CSR FILTER (Cont.)
Strategy
Walmart’s vision is to offer the best customer value in retailing, which gives rise to a mission of
delivering groceries and other consumer products efficiently. That vision and mission are
attained by a strategy of passing on cost savings to customers by continually seeking to roll back
the firm’s “everyday low prices.” In turn, that strategy is built upon core resources and core
competencies, which are the competitive weapons with which Walmart competes. Ultimately,
how Walmart folds its resources and competencies into a strategy that it deploys in relation to
stakeholders determines the extent to which those stakeholders view Walmart as a valued
partner and a socially responsible company.
Business strategy: The strategy of a specific business unit within a firm that enables it to
differentiate its products from the products of other firms on the basis of price or other factors
(such as superior technology).
Whether businesses compete on cost, differentiation, or a focused strategy that embraces
either cost or differentiation (or both), strategy strives to add customer focused value as a
means of gaining a sustainable competitive advantage.
THE CSR FILTER (Cont.)

CSR Filter
Competencies molded into a strategy and supported by an efficient structure are
necessary minimum conditions for success—but, increasingly, more is required. It
is vital that firms also consider the stakeholder implications of their strategy and
operations. The CSR Filter is a conceptual screen through which strategic and
tactical decisions are evaluated for their impact on the firm’s various
stakeholders. Here, the intent is to take a viable strategy and make it optimal
for the environment in which the strategy must be executed—even clever
strategies can fail if they are perceived to be socially irresponsible. The CSR
Filter therefore injects additional considerations into the decision mix, providing
market opportunities and avoiding potential threats by encapsulating an
understanding of the needs and concerns of the firm’s major stakeholder groups.
Together, these stakeholders form the larger context in which the firm operates
and seeks to implement its tactics, strategy, mission, and vision.
THE CSR FILTER (Cont.)
CSR Filter
 THE CSR FILTER (Cont.)
Environment
 Customers, competitors, economics, technology, government, sociocultural factors, and other forces all drive
changes in the firm’s operating environment. Often, these changes are gradual and imperceptible to all but
the keenest observers. But, over time, their cumulative and interactive effects redefine the competitive
environment and determine what organizational strategies and actions are deemed to be socially acceptable.
 When the competitive environment demands a change in strategy, the existing resources and competencies
of the firm may no longer be sufficient. If Walmart is seen as exploiting its low-paid workers, for example, the
accompanying negative publicity may eventually harm its image. This can cause customers to shop elsewhere
or cause communities to deny Walmart’s applications for zoning variances needed to build or remodel
stores. Evolving societal expectations require constant innovation of the firm’s core resources and
competencies, in areas such as public relations, advertising, and human resource management.
 When environmental changes like these or others occur, leaders face a make or buy decision. Should the
needed competencies be developed internally (make) or acquired from others outside the firm (buy)?
Historically, many large businesses like Walmart have had the resources to develop the needed competencies
internally through hiring and training. Today, the external environment is changing so rapidly that firms often
buy the needed skills from others because the speed of execution is critical. If the decision makers decide to
buy the necessary resources or competencies, leaders then face a second decision—whether to bring the
needed skills within the organizational structure or to outsource them via contractual relationships with
suppliers. When the activity is seen as a core resource or competency (e.g., managing inventory at Walmart
or product design at firms like Apple or Nike ), most companies capture that activity within the structure of
the firm to strengthen this vital component of their strategic advantage. If the activity is seen as peripheral,
such as manufacturing sneakers or calculating and printing payroll checks, the firm will often outsource it for
convenience or efficiency (even though, as the Nike example above indicates, this decision can also carry
danger to the brand).
THE CSR FILTER (Cont.)
 Either way, a business’s structure and strategy must adapt in the face of a dynamic
environment that is driven by constantly-evolving societal expectations. As Professor Archie
Carroll observed, this evolution of what is socially expected of organizations typically
migrates from discretionary to ethical to mandatory (legal and economic).
 Once society determines that a particular form of behavior has become unacceptable, the
perceived abuse can lead to a legally-mandated correction, such as the Equal Pay Act.
Consequently, the range of socially acceptable employment policies used to facilitate
competitive strategies has changed greatly in the last half century as societies evolve.
Similar changes can be identified with regard to environmental pollution, product safety
standards, financial record keeping, and scores of other previously discretionary behaviors.
Once discretionary issues evolve into legal constraints, meeting societal expectations
becomes an absolute requirement that is enforced by criminal or civil sanctions.
 More difficult to identify are issues not yet subject to legal mandates, but which may still
affect the firm. If leaders exercise discretionary authority to attain economic ends, but the
actions are perceived to be socially irresponsible,the consequences may damage the firm.
Such damage becomes evident in terms of lower sales, diminished employee recruitment
and retention, evaporating financial support from investors and markets, and a host of other
important relationships. What should a company do?
 THE CSR FILTER (Cont.)
 Strategic CSR bridges both the firm’s economic and societal contributions. Ultimately, stakeholders
have the right (even the responsibility) and the power to determine what is acceptable corporate
behavior. Although, it is also true that societies benefit greatly from the innovation that businesses
create in pursuit of profits. Nevertheless, in today’s global environment, businesses are expected to
pursue their strategies in ways that, at a minimum, do not harm others and, increasingly, are
expected to address and solve social problems. What makes this calculation so difficult for all
organizations is that, as societies become more affluent and interconnected, the definition of social
harm changes constantly.
 As such, in terms of CSR, we argue that very little is discretionary any more. Past perspectives that
viewed firms narrowly as profit engines have been altered beyond recognition both by
globalization and growing social affluence. Highly interconnected societies have more knowledge
and more choice, while wealthier societies have the resources to demand more responsible
behavior from their firms. Developed economies around the world, for example, uniformly demand
that car producers make safer and less polluting cars because they understand the implications of
unsafe and polluting cars and can afford to pay for technological innovation.
 In today’s globalizing world, we believe that shareholder value can be maximized over the long
term only if the firm addresses the needs of its primary stakeholder groups. Satisfying stakeholders
is most efficiently achieved by adopting a CSR perspective as part of strategic planning and
implementing that strategy throughout the day-to-day operations of the firm.
 THE FIVE DRIVING FORCES OF CSR
Affluence
CSR issues tend to gain a foothold in societies that are more affluent—societies where people have jobs, savings,
and security and can afford the luxury of choosing between, for example, low-cost cars that pollute and high-cost
hybrids that do not. As public opinion evolves and government regulation races to catch up, actions previously
thought of as discretionary often become legal obligations.
It would be shortsighted, however, to assume that CSR is only applicable where there is affluence. Serious
transgressions are always resisted by local stakeholders. As such, protests against international petroleum
companies occur when operating standards are construed as harmful to the immediate community. In Nigeria, for
example, residents in the Niger Delta continue to attack oil workers and sabotage equipment because the Nigerian
government is not distributing the oil wealth, while pollution and deforestation continue. Though Shell and other
companies comply with Nigerian law, they are being attacked (both at home and in Nigeria) by those who believe
the company is doing harm.
Such protests demonstrate that, increasingly, stakeholders living in affluent societies are willing to hold
multinational corporations to domestic standards in relation to their overseas activities in developing countries. As
a result of such domestic pressure, for example, Nike requires its subcontractors in developing nations to provide
wages and working conditions above the local norms. Even so, activists continue to take Nike to task, criticizing the
pay and conditions of its subcontractors because local standards often are well below those that prevail in its
home country, the United States. Other high-profile firms, such as Apple, have also become targets for
campaigners.
The idea that environmental concerns are mainly for the rich is still powerful and persistent. But the costs of
waiting for a clean-up are rising, under-mining the argument that poor countries cannot afford to go green.
The obvious conclusion is that competitive strategies must consider the ever shifting pattern of societal
expectations that become emboldened by the greater choices affluence affords societies.
 THE FIVE DRIVING FORCES OF CSR (Cont.)
Sustainability
The effects of growing affluence and the changes in societal expectations that accompany it are
enhanced by a growing concern for the resource constraints we are placing on the planet. These
constraints range from access to fresh water, to energy provision, to affordable food, to supplies of the
rare earths that are essential to produce cellphones, computers, and other vital products. These
resources, and many others, are being placed under increasing strain due to a fixed supply (we have
only one planet) and a rapidly growing demand.
Due to its rapid economic growth, “most of the world’s population increase in the next 40 years will be
in developing countries.” As such, the natural environment will continue to bear the brunt of this
resource depletion. In particular, climate change is an issue that has gained a great deal of visibility.
Other firms are “going green through the back door”—innovating on sustainability issues to generate
operational efficiencies, without necessarily promoting these changes to consumers. As illustrated in
Chapter 3, for example, Walmart has become a market leader in issues related to sustainability, but
they do it primarily for supply chain efficiency, not increased market share.
In addition, firms like Levi’s (Better Cotton Initiative), Starbucks (C.A.F.E. Principles), Nike (Materials
Sustainability Index), and Home Depot (Forest Stewardship Council-certified wood) reinforce the
strategic value of being out ahead of an evolving issue. While there is much progress still to be made,
where stakeholder awareness of environmental sustainability issues is high, progressive firms in this
area can secure market share and competitive differentiation by being early innovators and adopters.
THE FIVE DRIVING FORCES OF CSR (Cont.)
Globalization
In Adam Smith’s view of the eighteenth century world, all competition was local—the vast
majority of products were produced and consumed within the same community. As a result,
Smith reasoned, it would be in producers’ self-interest to be honest because to do otherwise
would threaten the reputations and goodwill on which ongoing trading within their community
depends.
As businesses grew in size, began selling to ever more distant markets, and dividing operations
across geographic locations in order to minimize costs and maximize profits, Smith’s
fundamental assumption broke down. Firms were free to be bad employers in Vietnam or
polluters in China because they sold their products in the United States or Europe and there was
no way for Western consumers to know the conditions under which the products they were
buying were produced. Disgruntled employees in Vietnam and local villagers in China were no
threat to this business model, especially when even the worst jobs in the factories of multi-
national firms were often the best jobs available and generating much-needed local economic
progress.
As globalization progresses, however, information is communicated more Efficiently. As a result,
the world grows ever-smaller and societies are again approaching the conditions under which
Smith first suggested self-interest will effectively regulate action. Once again, “all business is
local,” with the Internet allowing any individual with a cellphone to broadcast what they
witness to anyone interested worldwide.
 THE FIVE DRIVING FORCES OF CSR (Cont.)
Globalization
These ideas are expressed graphically in Figure 4.3 in terms of the three
phases of stakeholder access to information—from industrialization, to
international trade, to globalization. Adam Smith lived in a simpler time,
when all information was local and kept firms honest. Due to the benefits
of globalization, however, a similar access to information at a micro level is
returning. As communication technology continues to innovate and power
over its control is increasingly devolved to individuals, the ability of firms
to manipulate stakeholder perceptions of their activities will decrease.
CSR is more relevant today than ever before because of globalization. In
terms of the relationship between corporations and their various
stakeholders, this process of globalization appears to be progressing
through two phases, as suggested by Figure 3.2 in Chapter 3.
This self-feeding cycle of globalization, triggering reactions that are met
with reformulated strategies and CSR policies, may well be leading to a
“tipping point”-the point of critical mass after which an idea or social
trend spreads wildly (like an epidemic) and becomes generally accepted
and widely implemented. CSR may well have reached its tipping point
largely due to globalization and will increasingly become a mainstay of
strategic thinking for businesses, especially global corporations.
 THE FIVE DRIVING FORCES OF CSR (Cont.)
Media
As presented in Figure 3.2 (Chapter 3), phase II of globalization suggests a shift in the balance
of power concerning control over the flow of information back toward stakeholders in general
and three important constituent groups in particular.
First, the Internet has greatly empowered individuals because of the access it provides to
greater amounts of information, particularly when an issue achieves a critical mass in the
media. Second, globalization has increased the influence of NGOs and other activist groups
because they, too, are benefiting from easily accessible and affordable communications
technologies. And third, new tools of communication and the demand for instantaneous
information have enhanced the power of media conglomerates. Media companies have
responded by increasing both their size and scope of operations. The combination of
empowering the three stakeholder groups ensures that corporations today are unable to hide
behind the fig leaves of superficial PR campaigns.
It is increasingly apparent that two trends will dominate this future Internet growth: First,
people will access the Internet via mobile devices (primarily cellphones and tablet computers);
and second, they will share information via social media sites (such as Facebook and Twitter)
The relationship between stakeholders and the growing pool of information and
communication is iterative (see Figure 4.5). As stakeholders gain access to larger amounts of
information and communicate this information among each other, so they build support for
particular issues and disseminate that information to other stakeholders.
THE FIVE DRIVING FORCES OF CSR (Cont.)
Media
The result is that more and more consumers are researching firms and products online
before making purchase decisions. This technology offers stakeholders a means to hold
firms to account, but only if they seek to do so. What is not clear is how fully stakeholders
will take advantage of the information that is online.
But, as noted in Chapter 2, just because a stakeholder feels affected by a firm’s actions
does not compel the firm to respond to those concerns. Corporations moving to take the
initiative and meet the expectations of a broad range of stakeholders (while avoiding
confrontation) need to put in place clear and open channels of communication that allow
serious concerns to find their way through to the strategy and decision-making table. A
key component of this dialog can be partnering with NGOs (and other nonprofits) to
pursue projects of common concern. Both NGOs and consumers, with the help of the
media, use the free flow of information to spread knowledge and build coalitions.
Besides avoiding conflict, developing a dialog with stakeholders offers potential benefit
for firms. NGOs and nonprofits can help firms understand the rapidly evolving markets in
which they operate, help them stay in touch with target consumers, and contribute in
areas of product development.
In general, the firms most progressive in terms of CSR will be the ones that take external
pressure for more responsible behavior, ethics, transparency, and social involvement and
use it to re-vamp their strategic approach to business
THE FIVE DRIVING FORCES OF CSR (Cont.)
Brands
Brands today are a focal point of corporate success and should be protected by integrating a strategic CSR
perspective throughout the firm. Companies seek to establish strong brands because it increases their competitive
advantage. In particular, we have identified three benefits of CSR to brands: Positive brand building, Brand
insurance, and Crisis management.
 Positive Brand Building: Anita Roddick, founder of The Body Shop, long championed the power of an influential
global brand to enact meaningful social change. In doing so, she helped distinguish her business in the minds of
consumers, gaining a strategic advantage. Whether you agree with the stance that The Body Shop adopts on a
number of fair trade and other social issues, many consumers are drawn to purchase the company’s products
because of the positions it takes. Its fair trade stance helps differentiate the firm’s offerings and stands out in
the minds of consumers.
 Brand Insurance: Reflecting a socially responsible stance, George W. Merck, son of the pharmaceutical
company’s founder, announced, “Medicine is for the patients, not for the profits.” This ‘radical’ corporate vision
translates into an often cited example of the company donating the medicine Mectizan to combat the
devastating disease, river blindness. Merck manages the program with the World Health Organization and
other groups, and the effort is widely cited as a model of successful public-private partnerships. could be
argued that Merck’s actions bought a degree of insurance against attacks by social activists because of the
company’s up-front commitment to such a worthwhile, unselfish, and unprofitable cause. Perhaps this socially
responsible viewpoint has enabled Merck to enjoy a relatively free run from the activist criticism visited on
other pharmaceutical companies. The reputation it gained from this act has also been cited as a significant
reason for the company’s success in entering new markets, most notably Japan, where its socially responsible
reputation preceded it.
THE FIVE DRIVING FORCES OF CSR (Cont.)
Brands
 Crisis Management: Johnson & Johnson’s transparent handling of the Tylenol crisis in 1982 is widely
heralded as the model case in the area of crisis management. J&J went beyond what had
previously been expected of corporations in such situations, instigating a $100 million recall of 31
million bottles of the drug following a suspected poisoning incident. In acting the way it did, J&J
saved the Tylenol brand, enabling it to remain a strong revenue earner for the company to this day.
Brand value is critical to firms, whether on the local or global stage. Today, the value of the intangible
brand may even exceed the value of the firm’s tangible assets. The Coca-Cola brand, for example, is
worth significantly more than half of the company’s total market capitalization. And, CSR is important to
brands within a globalizing world because of the way brands are built: on perceptions, ideals, and
concepts that usually appeal to aspirational values. CSR is a means of matching corporate operations
with stakeholder values at a time when these values are constantly evolving. Given the large amount of
time, money, and effort companies invest in creating brands, a good CSR policy has become a vital
component of making it a success—an effective means of maximizing market appeal over the long
term. As such, it is essential that a firm is genuine in its marketing statements, particularly in terms of
implementing CSR throughout operations, in order for the full benefits to be realized.
Businesses today need to build a watertight brand with respect to all stakeholders. The attractiveness of
a company—whether as an employer, producer, buyer, supplier, or investment—is directly linked to the
strength of its brand. CSR affects all aspects of operations within a corporation because of the need to
consider the needs of constituent groups. Each area builds on all the others to create a composite
image of the firm and its brand in the eyes of its stakeholder groups, which has great market value.
THE MARKET FOR CSR
Central to the economic argument for CSR, therefore, is the notion that firms that best reflect the current needs
of their stakeholders and anticipate how those needs will evolve over time will be more successful in the
marketplace over the medium to long term.
CSR Price Premium
As demonstrated in Chapter 3, Walmart has found that adopting specific aspects of CSR (sustainability, in
particular) need not undermine the firm’s business model and can in fact enhance it. Walmart’s business
strategy relies on a core competence of minimizing costs and passing those savings on to customers. As such,
there is little evidence to suggest that Walmart would choose the socially responsible option in any situation
where that decision would lead to an increase in costs.
What happens, therefore, when CSR increases costs and firms are forced to pass those costs increases on to
their customers in the form of higher prices? As indicated earlier in this chapter, firms that seek to differentiate
their products on some feature other than low cost often charge a price premium for that product. Integrating a
long-term stakeholder perspective throughout the firm can lead to an increase in costs and a reduction in short-
term returns. What is also clear (as with most differentiated products), however, is that the market for these
offerings is limited. A quick scan of public opinion polls and media articles about consumers’ willingness to pay
for ethical or environmental products reveals that, in the U.S., “35 percent said they are willing to pay extra for a
green product, an increase from 27 percent in 2010 and 25 percent in 2009.”
They also reveal an important shift in consumer opinion regarding expectations of businesses regarding CSR. A
report in the UK, for example, notes that “only 22 percent of consumers around the world will pay more for ‘eco-
friendly’ products even though 83 percent believe it is ‘important for a company to have environmental
programs.” Increasingly, consumers expect firms to be expect sustainability as a baseline condition of business.
Increasingly, consumers expect firms to be doing CSR, but they also expect not to have to pay extra for those
activities.
THE MARKET FOR CSR (Cont.)
Firms should take two things away from this shift in market expectations regarding CSR.
First, those firms that are genuine in their approach to CSR should ensure they
understand the operational value that CSR offers. An important distinction, therefore, is
between those firms that perceive CSR to be a cost and those that perceive it to be an
opportunity. Until firms understand that CSR is an opportunity with operational value
above and beyond any potential short-term increase in sales, they have little chance of
successfully implementing CSR throughout operations (Walmart understands this,
although the firm’s application of CSR is still too narrow). This reflects a broader
stakeholder approach to CSR, rather than a narrow approach that focuses either on short-
term shareholder value or consumer interests.
Second, it is clear that part of the reason for the skepticism among consumers regarding
the value of CSR-related products is firms’ prior marketing approach to their CSR
activities. The combination of promises that were subsequently revealed to be misleading
and the proliferation of CSR-related product labels, scales, and ratings designed to
educate consumers about the socially responsible credentials of various firms and
products (although more often confusing them) has left consumers skeptical when they
are asked to pay the bill.
CSR MARKET ABUSE
The market for CSR is complicated by the potential for abuse. Stakeholders, in general,
and consumers, in particular, need to be vigilant. There is a gap between the
information about a product that is known to the firm and the information that the
consumer is willing and able to access about that product—in other words, “the
information asymmetry between manufacturers and the buying public about the real
social, health, and environmental impacts of consumer goods.”
As the number of groups and individuals interested in CSR grows, so does the amount of
information that is distributed by firms seeking to take advantage of consumer trends
and sympathies. Some of this information will be accurate, while some will be
misleading; some of the misleading information will be mistakenly so, while some will be
deliberate. Either way, the proliferation of information is confusing for the firm’s
external stakeholders. In the face of such a barrage, most consumers disengage.
Whether deliberate or accidental, therefore, the effect is negative. As CSR becomes
more profitable, the potential for greenwash increases:
Green-wash: the act of misleading consumers regarding the environmental practices
of a company or the environmental benefits of a product or service.
CSR MARKET ABUSE (CONT)

Greenwash measures the extent to which firms are willing to jump on the CSR bandwagon and
mislead consumers in the hope of financial gain. Research suggests that a significant percentage
of CSR product marketing claims are false or misleading. In 2010, for example, the environmental
marketing organization, Terrachoice, tested the veracity of the 12,061 environmental claims
made on the labels of 5,296 consumer products:
More than 95% of consumer products claiming to be green were found to commit at least one of
the “Sins of Greenwashing.” The accusation is that firms say the correct things, but do not
necessarily alter the way they do business.
For example, Big oil companies can talk all they want about reducing greenhouse emissions but
they are still drilling for hydrocarbons.
Moreover, as different groups push their own agendas and seek to have their CSR ranking, or their
fair trade certification, or their environmental sustainability policy established as the standard, so
CSR comes to mean different things to different people. While the market for CSR information and
practices takes time to identify which ideas will emerge as the standard, the potential for
confusion grows. Consumers, in particular, stand to be confused as different self-proclaimed
experts bombard them with more information.
To a certain extent, this confusion is unavoidable. Here, the CSR field is a victim of its own
success. If CSR wasn’t growing in popularity and acceptance, the issue of growing and
contradictory information would neither exist nor matter. The goal, however, should be for a firm
to have an honest and genuine conversation with its stakeholders about its CSR efforts.
STRATEGIC CSR
The Strategic CSR Model, presented in Figure 4.6, visually summarizes the relationship between CSR and
strategy. Corporate success assumes that strategy matches internal competencies with the external
environment (stakeholder expectations), within the constraints of mission and vision. The
implementation of strategy, however, rests upon corporate operations being successful. Finance,
accounting, human resources, and other operational aspects must be executed effectively if the strategy
is to be successful at matching competencies to market opportunities. To improve overall performance,
therefore, leaders create strategic objectives that aim to strengthen these corporate operations.
To ensure sufficient financial resources, for example, strategic objectives may be set for the accounting
department to accelerate the collection of accounts receivables. Or, marketing might be tasked with the
strategic objective of gaining five percent market share. These strategic objectives, however, must be
viewed as strategic (must do) imperatives that enhance the firm’s CSR goals; otherwise, the tactics and
strategies may cause resistance among stakeholders. To achieve these strategic objectives that meet the
firm’s strategic imperatives, key players must undertake strategic initiatives in the form of action-
oriented projects. The head of accounting, for example, might create a taskforce charged with a project
that identifies and tracks clients who are slow to pay their bills. A similar action-oriented taskforce might
also be created in marketing to evaluate the firm’s advertising as a first-step to gaining market share.
However these actor-oriented projects perform, they must do so by achieving strategic objectives in
ways that are consistent with the firm’s strategic CSR imperatives, otherwise larger threats to the
firm’s viability arise. As such, the firm’s strategic perspective is surrounded by a CSR Filter.
STRATEGIC CSR
Companies understand the value of being perceived as friendly neighbors and good corporate citizens.
Until now, however, managers have largely confined this concern to public relations departments
because they were able to control the information that shaped the public face of the corporation. Figure
3.2 (Chapter 3) and Figures 4.3 and 4.5 illustrate why this situation is changing as the momentum, in
terms of information control, swings away from companies and toward their various constituent groups.
As globalization progresses, the Internet and global media will further democratize and feed the
exchange of information in all free societies. Thus, strategic CSR represents substantive actions, the
results of which can flash around the world in an instant. Firms need to reflect the concerns of society
through genuine engagement. Ideally, progressive companies seek to stay ahead of these evolving
values and are able to meet new stakeholder demands as they arise. The balance of power and
influence is transferring from corporations to their stakeholders because of this shift in control of the
flow of information.
An effective and genuine CSR perspective, communicated broadly to stakeholders, allows firms to take
advantage of these changes and maximize their economic performance in an increasingly globalizing
world. Central to the practical impact of CSR, therefore, is the ability to persuade business leaders that
CSR offers strategic and, therefore, economic benefits. Firms can only maximize shareholder value in a
globalizing world by utilizing strategies that address the needs of key stakeholders. CSR, driven by
stakeholder theory, delivers these results. It is a means of allowing firms to analyze the total business
environment and formulate appropriate organizational strategies. It can protect the firm and its assets,
while also offering a point of competitive differentiation. When the business community perceives CSR as
more of an opportunity than a threat, CSR will receive greater attention from 21st century leaders.