Corporate Social Responsibility. The case of Siemens and Gazprom

Term Paper 2010 22 Pages

Geography / Earth Science - Physical Geography, Geomorphology, Environmental Studies


Table of Contents

Executive Summary


1. Stakeholder Salience
1.1 The Stakeholder Salience Model
1.1.1 Stakeholder Salience Model Siemens/Gazprom

2. Responsible Business Initiatives
2.1 Responsible Business Initiatives of Siemens
2.2 Responsible Business Initiatives of Gazprom

3. Analysis and Classification of Business Aproaches
3.1 “CSR is Good for Business” Perspective
3.2 “Critical Development” Perspective

4. Conclusion


Executive Summary

Issues like climate change, human rights abuses and poverty dominate our media. Often blamed for responsibility for many of the world’s urgent problems, companies are increasingly expected to address them. The term “Corporate Social Responsibility” has therefore become synonymous for initiatives towards sustainable development.

This report was established to examine how far corporate social responsibility and sustainable development of multinational corporations has been practiced in recent years, specifically the German Siemens Group and Russia’s Gazprom which are the subjects of this investigation.

The paper first highlights some key issues of the stakeholder theory and stakeholder saliencemodel, which is then applied to determine the companies’ key stakeholders. The most importantones are analysed and compared in terms of power, legitimacy and urgency. Section two deals withthe evaluation of the companies’ responsible business approaches, pointing out the extent to whichthese have increased or decreased and the underlying reasons effecting change. The final sectionseeks to identify the substance of the described approaches by applying the Ponte et.al typologyand finally analysing them using the two contrasting perspectives “Good for Business” and “CriticalDevelopment”.

Findings in section one show that classifying and addressing stakeholders is fundamentally throughmanagerial perception and the variable constitutional contexts in which the companies are enacted.The results also reveal that Siemens has to deal cautiously with a wider group of stakeholders thanGazprom, due to the different constitutional situations in Germany and Russia. Gazprom is mostinfluenced by its main-stakeholder, the Russian Federation, whereas the power of other stakeholdergroups is relatively low.

The investigation of Siemens’s socially responsible business approaches in section two revealed that the increasing awareness of CSR in Germany and Siemens’s corruption affair were the main drivers intensifying their recent business approaches. CSR in Russia is still immature; consequently Gazprom’s initiatives are limited. However, CSR is expected to increase in Russia and Gazprom as a global player must pursue international standards.

Final section findings show Siemens’s recent business approaches apparently foster sustainable development, since they largely align with company business operations. However - apart from several CSR awards - reliable data supporting that argument is elusive. In contrast, Gazprom’s initiatives mostly fail to show substance, reinforced by its negative media image.

While CSR reporting and numerous CSR initiatives are undoubtedly “good for business”, this paper also questioned the positive contribution of CSR towards sustainable development. Having analysed the “critical development” perspective, findings show these initiatives often lack substance due to poor planning and omission of consensual definition for CSR.

The future of CSR is hard to predict. The report shows that business initiatives can benefit society,but also reveals that they often fail to meet societal expectations. In a neo-liberal market systemwhere shareholder values still override the world’s urgent problems, improvements towardssustainable development are difficult to realise. There are no statutory regulations, only those codesof practice that the companies voluntarily sign up for. Thus, it needs the pressure of governments,the UN and NGOs to support reforms that help companies to better address future initiativestowards sustainable development.


In recent years, climate change, human rights abuses and poverty have been widely discussed in our media. In this context, the term “corporate social responsibility” (CSR) has increasingly gained importance and global corporations have begun to intensify their CSR activities relating to areas such as environmental protection or human rights. (Kercher, 2007).

Among numerous definitions of CSR, the Business for Social Responsibility (Kottler & Lee, 2005, p.

3) argues that CSR can be seen as “operating a business in a manner that meets or exceeds the ethical, legal, commercial, and public expectations that society has of business.” In the past CSR initiatives were often regarded as benevolence, simply achieved through writing a cheque and “doing good” as conveniently possible. However, there has been a change towards long-term commitments to specific social issues and initiatives supporting business goals and objectives, referring to a firm’s relevant stakeholders (Kottler & Lee, 2005).

This report attempts to analyse the extent to which the two MNCs Siemens AG and OAO Gazprom carry out sustainable CSR to their stakeholders. Siemens, a global group in electronics and electrical engineering, is headquartered in Munich, Germany and employs about 427,000 people. The company operates in 190 countries, primarily in the industrial, energy and health care sectors (Datamonitor, 2009). Gazprom, headquartered in Moscow, Russia, is one the world’s largest gasproducing companies with approximately 457,000 employees. The enterprise operates Russia’s domestic gas pipeline network, delivering gas to countries across Central Asia and Europe, whereas Europe is the principal customer (Datamonitor, 2009).

Initially, the first section of this paper outlines the stakeholder salience theory and model, which is applied to exemplify Siemens and Gazprom stakeholders and their influence on the two companies. Section two is followed by a description of the companies’ responsible business approaches, pointing out the extent to which these have increased or decreased and the underlying reasons effecting change. Section three seeks to identify the substance of the described approaches by applying the Ponte et.al typology and finally analysing them using the two contrasting perspectives “Good for Business” and “Critical Development”.

1. Stakeholder Salience

Theory of stakeholder salience has gained broader acceptance and usage in the business environment and calls on companies to do business in a way that supports the needs and wants of certain stakeholders (O’Higgins & Morgan, 2006). In this context, Freeman (1984, p. 46) states “A stakeholder is any group or individual who can affect or is affected by the achievement of the organisation's objectives”. Thereby, it is useful to classify stakeholder groups through evaluation of their represented interests, the power they possess relevant to the organisation or whether they hinder or support the achievement of the company’s goals (W illiams & Lewis, 2008). This process is called stakeholder mapping.

1.1 The Stakeholder Salience Model

A popular model identifying stakeholders and the degree paid to them by managers is the “The Stakeholder Salience Model” (Mitchell et al., 1997). This model classifies seven types1 of stakeholder classes that emerge from various combinations of three attributes2:

- Power
- Legitimacy
- Urgency

Figure 1: Stakeholder Typology: One, Two, or Three Attributes Present

illustration not visible in this excerpt

1.1.1 Stakeholder salience Siemens/Gazprom

Mitchell et.al (1997) argue stakeholder classification is mainly based on managerial perception. However, the constitutional system in which the companies are enacted should also be considered (Amaeshi, 2007). So for instance, could the German coordinated market economy have a different influence on the power, legitimacy and urgency of stakeholders than the Russian post-communist economy, which is in transition to a market economy?

To discover who and what matters to companies, social or sustainability reports represent a prominent instrument highlighting the company’s commitments in terms of sustainable business practices and their accountability to various stakeholders (Amaeshi, 2007). There have latterly been an increased number of such documents, providing responsible and transparent business practices to stakeholders. According to KPMG, a survey of the Global Fortune Top 2503 companies illustrated that more than 80% now report on CSR (KPMG, 2008).

Stakeholder groups providing resources to the company essential for the companies’ survival, are usually addressed more frequently compared to stakeholder groups which do not directly affect the daily business life (van Nimwegen et.al, 2008).

According to Siemens’s sustainability report 2008, they address employees, customers,suppliers, investors, society, scientific community, government and NGOs as their keystakeholders (Siemens, 2008). Figure 2 provides a typology for stakeholder groups of Siemensin Germany. Further detailed discussion of some key stakeholder groups comparing the twocompanies will follow.

Figure 2: Stakeholder typology Siemens (Germany)

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Siemens argues “our employees are our most important stakeholders” (Siemens, 2008).Relations between managers and employees are based on consensus, confidence and trust -perceived as a viable resource and not as a cost. Legitimacy therefore, is evaluated as high.Furthermore, in Germany, law permits workers’ representatives in large companies seats onsupervisory boards. These representatives have various abilities of influence with companymanagement (Winkler, 2009). Therefore, employee power is high. Since workers’representatives can directly influence the management in terms of perceived problems, urgencytoo could be regarded as high, classifying employees as definitive stakeholders.

Siemens is embedded in a highly regulated business environment where government is regarded as a high power stakeholder having high legitimacy. According to Siemens, obeying law and legislation is its ultimate ambition (Siemens, 2008). Government claims require immediate attention, due to its high power and legitimacy thus, declaring it a def initive stakeholder (Winkler, 2009).

Siemens seeks to build long-lasting relationships with customers aligned with their needs and requirements (Siemens, 2008), which is resulting in a high legitimacy. Customers have consumer power since they can threaten the company’s survival by boycotting products from Siemens. As a legitimated and to some extent powerful stakeholder, the customer could also be regarded as an urgent stakeholder, whose claims are dealt with very quickly. This qualifies customers as definitive stakeholders.

Gazprom, has lately been including CSR references in annual reports. Since 1996, the company also publishes annual environmental reports addressing stockholders, partners, publicand social organisations as their stakeholders (Gazprom, 2008). However, compared toSiemens, the extent of addressing stakeholders is still relatively small and could be amended byadditional groups, such as NGOs or suppliers. Figure 3 provides a typology of Gazprom’sstakeholder groups.

Figure 3: Stakeholder typology Gazprom (Russia)

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Gazprom regards its employees as respected and honoured stakeholders giving them legitimacy. Unlike Siemens, Gazprom employees have no right of direct co-determination or representation on the supervisory board (Burkhardt, 2007). Therefore, employee power is somewhat limited. Consequently, urgency might be regarded as relatively low, classifying employees as discretionary stakeholders.

Gazprom is a state-owned company. The Russian government controls the company with a majority stake of over 50% (Datamonitor, 2009). Unquestionably, this stakeholder possesses all three attributes, resulting in a definitive stakeholder.

Gazprom produces about 90% of Russia’s gas with a monopoly on gas exports to Western andEastern Europe (Country Monitor, 2005). Customers possess the attribute of legitimacy, buthave little power or urgent claim, since Gazprom is the only gas distributor for Russiancustomers. However, this could change, since Gazprom considers raising prices, as a result oflacking liquidity, caused by the global recession. This might provoke the long-suffering Russianconsumer, leading to social unrest, threatening the government and consequently Gazprom(Daly, 2009).

At first glance, stakeholder groups of both companies look similar. However, we can see thatgroups embedded in different constitutional contexts are perceived differently by managers.

2. Responsible Business Initiatives

Companies are increasingly expected to address urgent global problems like climate change, human rights abuses and poverty. As a result CSR has become a business approach for addressing the social and environmental impact of company activities (Freynas, 2009). Siemens and Gazprom are both reporting on business approaches which align with the interests of the broader society. These approaches will be highlighted below.

2.1 Responsible Business Initiatives of Siemens

Siemens refers to their United Nations Global Compact4 membership, which reflects Siemens’scommitment in socially responsible business practices. These practices are highlighted intable1.

Table 1: Siemens: Socially Responsible Business Activities

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Source: Siemens, Sustainability Report 2008

Table 1 illustrates that Siemens has been involved in a number of CSR practices recently. Whenthe company first started to publish environmental reports in 1998, they were short and glossy,including only a limited amount of initiatives. In the last few years, in Germany, the awarenesson CSR practices has been increasingly gaining importance (Pattberg, 2008), particularly in sustainability, ecological and social issues (CSR Europe, 2009). Furthermore, NGOs in western countries have been aggressively putting pressure on MNCs, as a result of numerous corporatescandals, which have also alarmed a wider group of people (Littlechild, 2004). In 2006, Siemensitself was involved in Germany’s biggest corruption scandal leading to costs of €1.3 billion andan immense loss in reputation (Gow, 2008). Subsequently, the company dramatically increasedits CSR initiatives.

2.2 Responsible Business Initiatives of Gazprom

Gazprom’s socially responsible business approaches are listed in table two below.

Table 2: Gazprom: Socially Responsible Business Activities

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Source: Gazprom, Environmental and Annual Report 2008

In comparison, Gazprom is operating in a business environment where CSR practices have not yet assumed the significance of the West (Kuznetsov et.al, 2009). However, CSR is expected to gain future importance, since the Russian economy is global-oriented. Also, non-financial risks such as social conflicts or environmental sanctions are increasingly recognised as important factors for Russian companies (Kostin, 2007). Yet, only large companies - such as Gazprom -have realised that CSR and reporting on social issues could be strategically important to their businesses. Gazprom is one of the few Russian companies which have been providing separate environmental reports in recent years (Kostin, 2007). This might restore the company’s reputation, especially in an industry often linked with environmental pollution. Furthermore, Gazprom is getting closer to the level of international standards even when reports are still underdeveloped, compared to those of western companies.

3. Analysis and Classification of Business Approaches

In their social reports, both, Siemens and Gazprom highlight carrying out responsibility to their stakeholders. But, publishing a CSR report alone does not necessarily assume social responsibility (Banerjee, 2008). Whether a company is actually conducting socially responsible business is dependent on the broader society perception and not just talking about it.

This section is using the Ponte et al. typology to identify the substance of the above-mentioned initiatives of both companies. This framework is divided into four different categories:

- Ranking in corporate governance/CSR awards
- Negative press in the past
- Engaged/Disengaged CSR profile for its initiatives
- Engaged: the extent to which initiatives have direct impact on company operations
- Disengaged: the extent to which initiatives are weakly linked to company operations such as fund-raising or corporate philanthropy
- Proximate/Distant CSR profile for its initiatives
- Proximate: initiatives taking place within the corporation itself
- Distant: initiatives taking place in communities where the company, its suppliers or stakeholders are not present

(Ponte et al., 2009)


1 The lower salience classes (1, 2, 3) are defined as latent stakeholders, possessing only one of the three attributesand include dormant, discretionary and demanding stakeholders. The moderately classes (4, 5, 6) are defined asexpectant stakeholders, showing two of the three attributes, and include dominant, dependent and dangerousstakeholders. The stakeholders possessing all of the three attributes (7) are called definitive stakeholders (Mitchellet.al, 1997).

2 Power of the stakeholder relevant to the organisation; Legitimacy refers to socially accepted and expected structures or behaviours; Urgency or the degree to which stakeholder claims call for immediate attention (based on the stakeholder’s time-sensitivity and criticality)

3 The world’s largest corporations, available at: http://money.cnn.com/magazines/fortune/global500/2009/full_list/

4 Launched in 2000 by the United Nations and Kofi Annan, the Global Compact serves as collaboration between corporations, UN agencies, NGOs, labour organisations and civil society to support universal environmental and social principles. These principles are represented by ten principles related to Human Rights, Labour Standards, Environment and Anti-Corruption (Banerjee, 2009)


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Social Responsibility Corporate Human Clima Rights Domination Siemens Gazprom



Title: Corporate Social Responsibility. The case of Siemens and Gazprom