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Corporate Social Responsibility

Corporate Social Responsibility and the theories it generates from

Diploma Thesis 2008 116 Pages

Business economics - Business Management, Corporate Governance

Excerpt

Table of Contents

I Declaration

II Motivation

1 Corporate Social Responsibility
1.1 Definition
1.2 History
1.3 Corporate Social Responsibility in Austria
1.4 “Implicit” and “Explicit” Corporate Social Responsibility
1.5 The Two Pillars of CSR
1.6 Prominence of CSR
1.7 Why to Behave in Socially Responsible Ways?
1.7.1 Motivation for CSR
1.7.2 Advantages of CSR
1.8 Limits of CSR

2 Organizations
2.1 What is an Organization?
2.2 Natural Adaptation: Herbert Spencer

3 Strategy
3.1 Mintzberg
3.2 Social Responsibility in Strategy
3.2.1 Drivers of Implementation
3.2.2 Intstrumental and Intrinsic CSR
3.2.3 Comparison Between the Instrumental and Intrinsic Form of CSR to Explicit and Implicit CSR
3.3 Image and Reputation

4 Theories Behind CSR
4.1 Theory of Contingency
4.2 Theory of Consistency
4.3 Congruency and Culture - 7-S Framework McKinsey
McKinsey’s 7-S Framework
4.3.1 Objective and Application
4.3.2 Hard S
4.3.3 Soft S

5 Values and Attitudes
5.1 The Role of Personal Values and their Impact on our Behaviour
5.1.1 Universal Values
5.1.2 Personal Values
5.2 Values and Organizational Behaviour
5.2.1 Value Systems
5.2.2 The Impact of Values on Organizations
5.2.3 Example of BDO Stoy Hayward

6 Change on Values and Consumer Behaviour
6.1 From Material to Post Material Values
6.2 Maslow’s Hierarchy of Needs
6.3 Herzberg’s Motivational Theory
6.4 Maslow, Herzberg and CSR today

7 Stakeholder Theory
7.1 Definition
7.2 Stakeholder-Perspectives
7.2.1 Inside-Out Perspective
7.2.2 Outside-In Perspective
7.3 Importance of Stakeholders
7.4 Three Approaches of Stakeholder Theory
7.5 Shareholder Value vs. Stakeholder Value

8 Institutionalized Organizations
8.1 Isomorphism
8.1.1 Does Isomorphism Legitimate?
8.1.2 Practical Examples: Shell and Nike
8.2 Importance of Ethics and Social Responsibility for Organizational Effectiveness
8.3 Institutionalism and Corporate Socially Responsible Behaviour

9 Corporate Culture
9.1 Definition
9.2 Applied Levels of Corporate Culture
9.3 Consequences of a Strong Corporate Culture
9.3.1 Strong and Weak Cultures
9.3.2 Corporate Identity
9.4 Benefits and Positive Effects
9.5 Corporate Culture - The Key to Success?

10 Discussion

11 Case Study Palfinger
11.1 Introduction to the Company
11.2 External Activities
11.3 Background
11.4 Palfinger’s Solidarity Network
11.4.1 Why to Act in a Socially Responsible Way?
11.4.2 Why Focusing on the Solidarity Network?
11.4.3 Intention
11.4.4 Palfinger’s Solidarity Network under the Aspect of Institutionalism
11.5 Corporate Culture of Palfinger
11.5.1 Palfinger’s Core Values
11.5.2 Palfinger’s Values Management
11.5.3 Explicit or Implicit CSR?
11.6 The Role of Stakeholders at Palfinger
11.7 Conclusion

III Literature

IV Sources from the Internet

V Table of Figures

II Motivation

Today, ethics gain more and more importance in our economy and the often-heard statement “ Global capitalism, local values ” underlines the trend to make money with the help of local values. From that aspect, capitalism does not seem to appear that ignoring and barbarous but shows us that in deed that human values and ethical standards are anchored in the acting of huge, successful multinational concerns.

The role of values in that case is crucial as they affect our everyday life. Everything we do and the way we think is guided by values which we got communicated from our families, people that seem to be important for us or from institutions that accompanied us for a period of our life. Values and behaviour are some kind of indicators that form generations and decades.

When talking about values and ethics, the upcoming importance of corporate socially responsible behaviour in form of CSR projects can not be disregarded. It is definitively the buzzword of the early 21st business century. Nearly every huge company has to face corporate social responsibility activities in order to behave in a way its customers and society in general want them to. So the role of external pressure should not be underestimated. As an actual example, I want to mention the cooperation of the nappies producer Pampers and Unicef, the children funds of the United Nations. Consumer advertising provides that with every bought package of nappies from Pampers, one dose of tetanus inoculation can be offered to a poor child.

Another example is McDonald’s. The 40 billion US-dollar concern continuously implements CSR programs but does not behave in a socially responsible way when talking about the firm’s employees and working conditions. Work at Mc Donald’s is low-skilled, hard and most of the time unrelenting, as one of the company mottos suggests: “… if there is time to lean there is time to clean” (Royle, 2005, p.45). Bad working conditions like underpayment and endless night shifts make Mc Donald’s to appear in another light in the minds of its employees and customers, after the motto “We sold them a dream and paid them as little as possible”.

If participating companies mean these activities really serious is often doubtful. Also the question if these activities really fit to the corporate culture of the organization stays unanswered. So organizations implement projects like that in order to be legitimated by society, but when we take a look behind the organization’s curtain, it can be recognized that the CSR activity is only a facade of legitimating.

Nevertheless, CSR is the buzzword of the 21st century and seems to become more and more fashionable term which is connected with a huge marketing strategy behind. But when we take a closer look on the meaning and concept of CSR behaviour, we recognize that it occurred as an advancement of lots of long-existing theories. In this thesis, I want to give an overview over the different theories CSR generates from to discuss its cornerstones of existence. In order to show how theses theories can be applied in an organizational context, the second part of my work is a case study focusing the multinational concern Palfinger in Austria.

1 Corporate Social Responsibility

1.1 Definition

The concept of corporate social responsibility does not excel in clarity. There is plenty of cross-national evidence that Corporate Social Responsibility (CSR) varies in terms of its underlying meanings and the issues to which it is addressed. From a growing body of literature, various meanings and interpretations of CSR emerge, making the definition not that easy. On the one hand side, the issue is a dynamic phenomenon (Caroll, 1999) which is internally highly complex and has open rules for application. (Matten & Moon, 2008). On the other hand side, it is an “umbrella term”, as the authors characterize it, which is overlapping with lots of synonymous (Matten & Moon, 2008, p.405) and is highly connected with terms such as corporate responsibility, corporate citizenship, accountability, transparency, triple bottom line management, sustainability and reputation management (Kokko, 2002).

Definitions range from improving relationships with stakeholders to a balance between people, planet and profit as well as being transparent or developing a clear policy on the basis of stakeholders’ requirements (Cramer, Jonker & van der Haijden, 2004). Additionally, various alternative terms and synonyms have appeared, such as corporate citizenship, sustainability, sustainable development or corporate responsiveness (Pater and Lierop, 2006).

Following Matten and Moon (2008), the main idea of CSR activities is the reflection of social imperatives and the social consequences of business success. So CSR and the synonymous behind it consist of clearly defined and articulated policies and practices of corporations that reflect business responsibility for some of the wider societal goods, whereas the precise manifestation and direction of responsibility lie at the discretion of the particular corporation.

The European Commission defines corporate social responsibility as enterprises’ contribution to sustainable development. In the field of cooperation, there are numerous examples of enterprises very closely engaged in sustainable development that apply very strict ethical codes to their regular options. Following de la Cuesta and Valor (2003), corporate social responsibility is the ethical and legal compromises and duties of the enterprise with their groups of interest. These mentioned compromises and duties come from the impacts of the enterprise’s activity over the social, labour, environmental and human rights ambits. Other researchers as Coors and Winegarden (2005) define corporate social responsibility as “the alignment of business operations with social values. (It) consists of integrating the interest of stakeholders- all of those affected by a company’s conduct- into the company’s business policies and actions” (Coors & Winegarden, 2005, p. 10).

The growing interest in the field of corporate social responsibility resulted in an increased production of papers and regulations both national and international organizations und institutions such as the European Commission, the United Nations, OECD and ILO. Also some rules occurred such as AA-1000 (Institute of Social Ethical Accountability) and SA-8000 (Council of Economic Priorities) (Carrasco, 2007).

1.2 History

To give a short overview affecting the history of CSR, it has to be mentioned that the explicit interest in CSR began to grow in the middle 1990s due to the consumer’s fall in trust in enterprises. Because of financial scandals and environmental conditions consumers mistrusted companies and human values moved towards post- materialism. From that time on, the new human values area began which is associated with solidarity, quality of life and consideration of the environment. Companies recognized that consumers not only require high quality products, but also demand certainty that the products and processes huge companies offer follow ethical standards. So the product itself was placed more in the background whereas the processes and the organizational behaviour in general came in the fore. Client satisfaction no longer ends with the quality of goods and services (Carrasco, 2007).

So we can see that even though CSR is becoming very popular, the idea behind it is not a new one. This can also be documented with the famous Scottish philosopher and economist, Adam Smith, who talked about what must be an ethical trader’s behaviour. Before Smith (1982) proposed his famous idea of the “invisible hand” in the Wealth of Nations in 1776, he had written about the necessity of maintaining ethical behaviour in order to maximize long term growth and showed that honourable behaviour has a commercial logic. In his Lectures of Jurisprudence (pp. 327-328), Smith presented his idea that “honesty is profitable”. As example, he explains that when a salesman makes a commercial deal, his goal is not to maximize the benefit as but to obtain a maximum of the total deal. So lying or cheating could make future deals decrease. So the search for self interest could be seen as a means for common well being.

Until recent times, CSR has been seen as an additional business cost factor that made the financial equilibrium more difficult to maintain. Following that idea, Friedmann (1962) saw CSR as a “subversive doctrine” and he also mentioned that the sole responsibility of the business is to increment profit. This neoclassical idea put CSR into a more or less bad light. On the corporate level, CSR has been understood as a cost additional element and as a charge for the firm’s financial viability. But as other studies demonstrate, sustainability is a crucial factor with a positive influence on a company’s financial outcome (Garz, Volk & Gilles, 2002).

1.3 Corporate Social Responsibility in Austria

In Europe, the academic debate about CSR is relatively young and because of the implementation of CSR into management education, CSR tools have become widespread relatively recently (Matten & Moon, 2004). But while research provides rich descriptions of national and regional specifics of CSR, still the question remains how and why CSR differs among national settings. In this paper, the focus of CSR in Austria and German-speaking countries in particular is chosen, that’s why this question won’t be answered.

In 2002, the Austrian government passed the Austrian strategy of sustainability to postulate objectives and different approaches for sustainable future (www.nachhaltigkeitsstrategie.at/strategie.php3) . As a result, CSR came to the fore and became a major theme of public interest. With the end of 2002, the initiative “CSR Austria” was launched with the aim to strengthen the consciousness for CSR and to foster the dialogue between economy, state and society.

In 2003, the overall concept of CSR of the Austrian economy was published. In June 2005, “CSR Austria” and the “Austrian Business Council for Sustainable Development” were brought together and a central platform for sustainable and societal responsible acting in Austria was generated. “respACT Austria” and “NeSoVe” (Netzwerk Soziale Verantwortung) exist since spring 2006 (Konrad, 2006).

To anchor CSR in our heads, it has to be made „visible“. Also the idea of the exchange of experiences has to be offered. These functions achieve prizes for responsible acting like TRIGOS, which is awarded in Austria since 2003, ASRA, the Austrian Sustainability Reporting Award, TRIGOS Tirol on federal state level as well as several other regional initiatives (Konrad, 2006).

Especially the amount of print media and online magazines which proliferated rapidly in the last years like the Journal für Nachhaltigkeit and the Glocalist Magazine as well as the Glocalist Review and the respACT Austria news, establish the CSR theme in the heads of responsible persons and makes them to think about that issue as well as the Austrai CSR Day which was launched in 2006 by respect Austria. This year, the CSR Day took place for the second time.

Additional evidence for the extent on which Austria’s economy deals with the issue of CSR is on the one hand the fact that the Austrian chamber of commerce (WKO) has founded the working team “ARGE pro Ethik” and on the other hand the fact that not long ago, respACT Austria celebrated its 100th member.

1.4 “Implicit” and “Explicit” Corporate Social Responsibility

When having a look on the actual literature concerning CSR, the differentiation between explicit and implicit CSR catches the reader’s eye. Some companies use their socially responsible behaviour for marketing purposes and to attract the view of the public by denouncing their CSR strategies in media, on homepages etc. Other companies behave in a more quite way even if their responsible behaviour is much stronger. They have anchored their commitment toward CSR into their core values which is not obvious for the clients and do really live those ideologies. As we can see, different forms in behaviour affecting the exposure to CSR exist. Matten and Moon (2008) define Explicit CSR as “corporate policies that assume and articulate responsibility for some societal interests. They normally consist of voluntary programs and strategies by corporations that combine social and business value and address issues perceived as being part of the social responsibility of the company” (Matten & Moon, 2008, p. 409). Furthermore, the authors sate that explicit CSR may be responsive to stakeholder pressure. But it also may involve partnerships with governments and non-governmental organizations. Fact is that explicit CSR is connected with corporate discretion rather than it reflects either governmental authority or broader formal or informal institutions.

So companies practicing explicit CSR do that more or less because of public and image reasons. They promote their socially responsible behaviour to make money out of it. That is why their CSR commitment is articulated obviously.

On the other hand side, we read about the term Implicit CSR. By implicit CSR, the authors refer “to corporations’ role within the wider formal and informal institutions for society’s interests and concerns. Implicit CSR normally consists of values, norms and rules that result in (mandatory and customary) requirements for corporations to address stakeholder issues and that define proper obligations of corporate actors in collective rather than individual terms” (Matten & Moon, 2008, p. 409). In that case, CSR is anchored very deeply into the culture of a company. The interest in CSR can be found in the lived and postulated values and norms. Hereby, the idea of CSR seems to be more informal and with less pressure. Companies showing implicit CSR behaviour are supposed to do that not because of marketing and image reasons but because of conviction.

To sum up, the main difference between explicit and implicit CSR lies in the style CSR is communicated. Those companies practicing explicit CSR usually use the language of CSR when they communicate their policies and practices to heir stakeholders whereas companies practicing implicit CSR normally do not describe their activities in that way. At them, CSR is expressed much more in values and norms, so in a much more informal way. Implicit CSR can be seen as a kind of reaction or reflection on the company’s institutional environment. Lots of implicit CSR elements occur in a form of codified norms and rules or laws but are not described and named explicitly as CSR (Matten & Moon, 2008). Explicit CSR on he other hand is more a result of deliberate, voluntary and often strategic decision of a company (Porter & Kramer, 2006).

The figure below indicates the predicting factors defining the nature of CSR.

illustration not visible in this excerpt

Figure 1: Explicit and Implicit CSR

Matten & Moon, 2008, p.410

1.5 The Two Pillars of CSR

The Dutch Social Economic Council (SER) introduced a two pillar system, on which CSR activities are built. The first pillar refers to responsibility which means value creation by the organization across economic, social and environmental dimensions. The second pillar refers to responsiveness. In that sense, organizations must be receptive to stakeholders’ demands and maintain a degree of transparency towards them.

Another viewpoint of CSP stresses its procedural aspects. Matten (2004) developed the view corporate social responsiveness in order to identify how organizations respond to societal expectations. On the one hand, organizations can develop a reactive attitude towards society and ignore or deny any social responsibility activities. On the other hand, they might adopt a kind of proactive attitude to exceed current societal expectations. So the perspective of CSP is not very much concerned with the definition of how the organization interacts with societal groups and responds to their expectations. In general, one can say that responding to expectations, i.e. from its stakeholders, is indeed in the interest of organizations.

The CSR concept in general extends the traditional stakeholder paradigm. Following Pater and Lierop (2006), it argues that an exclusive focus on profit maximisation is too limited as it neglects the firm’s responsibilities towards other stakeholders.

1.6 Prominence of CSR

Corporate Social Responsibility has never been more prominent on the corporate agenda than nowadays. At recent World Economic Forum (WEF) meetings it has been one of the leading topics, as a report from the WEF observes. This assumes, that the three key pressures of “corporate competitiveness, corporate governance, and corporate citizenship, and the linkages between them, will play a crucial role in shaping the agenda for business leaders in the coming decade”. It continues:

“In the face of high levels of insecurity and poverty, the backlash against globalization and mistrust of big business, there is growing pressure on business leaders and their companies to deliver wider social value. This calls for effective management of the company’s wider impacts on and contributions to society, making appropriate use of the stakeholder engagement” (WEF, 2003, p.2)

According to authors such as Berthoin, Dierkes, MacMillan & Marz (2003), the issue of CSR has recently had three significant developments. Firstly, huge international organizations have launched CSR activities like the Global reporting Initiative (GRI) and the EU Green Paper in order to promote socially responsible behaviour and social reporting. Secondly, the concept of triple bottom line (TBL) was launched that organizations do not only focus the economic value they add with their actions but also the environmental and social value they add and destroy. The third development was the realization of investors that the value of their investment portfolio may fall if companies act in a socially irresponsible manner. Out of these three developments, we can infer that there is a growing need for companies to incorporate CSR into their strategy and everyday business behaviour.

The debate about CSR has shifted: it is no longer about whether to make substantial commitments toward CSR, but how?

1.7 Why to Behave in Socially Responsible Ways?

A case in point is that only little theoretical attention has been paid on the question why and when companies behave in social responsible ways (Rowley & Shawn, 2000; Ullmann, 1985). For instance, Williamson’s (1985) classical transaction costs approach rests on the assumption that individuals and the firms they run act in an opportunistically way. That means that they act with self-interest and guile whenever possible and, therefore, not always trustworthy. In that approach, corporate social behaviour is not mentioned. Hereby, the pursuit of profit plays the main role.

Ethics and social responsibility have become hot topics with great importance. Companies of all sizes strive to adopt codes of ethics, and most of them are also developing policies and structures that encourage ethical conduct. More and more, organizations get into trouble when failing to pay attention to ethical issues in their blind pursuit of making money. As examples, BASF AG from Germany and Hoffmann-LaRoche from Switzerland can be mentioned, two huge and multinational concerns that recently pleaded guilty because they didn’t behave in a socially responsible way. The two companies raised and fixed the prices for their vitamins which are used in nearly every American household and which are also added to bread, milk and breakfast cereals. For that, BASF AG will pay a $225 million fine, and Hoffmann-LaRoche has to pay $500 million, which is the largest federal criminal fine that was ever imposed on a company (Jones, 1995).

As we see, companies become more and more forced to behave in an ethical and social responsible way, otherwise they get punished. There are plenty of examples of firms that exhibited all sorts of socially irresponsible corporate behaviour because of the pursuit of profit. So deceiving customers and swindling investors as well as exploiting and even brutalizing employees, putting customers at risk and cheating the government were actions in doing, so Vogel, (1992). So we can see that many corporations do not act in a social responsible way.

But on the other hand, we find examples where companies put a special emphasis on social responsible behaviour. A growing number of multinational and national companies are on the way to demonstrate their commitment toward high standards and attitudes of ethics and social responsibility. In fact, some go to great lengths to do so, by giving money to charities, supporting community activities, treating their customers and workers decently and generally maintaining standards of honesty and integrity (Campbell, 2007).

1.7.1 Motivation for CSR

As researchers have found out, corporate social responsibility in a comparative and cross-national context has again, as noted above, important institutional implications. Maignan and Ralston’s (2002) study of companies in France, the Netherlands, the United Kingdom and the United States of America examined public commitments to socially responsible behaviour of 100 firms. The researchers found out that firms reported three motivations for social responsible behaviour:

1.) Managers valued such behaviour in its own right,
2.) Managers believed that a behaviour like this enhanced the financial performance of their firms, and
3.) Stakeholders like community groups, customers, and regulators put pressure on firms to behave in social responsible ways.

Variations in nationally specific political, cultural, and other institutions may have been responsible for variations on the degree to which stakeholders can influence managers (Campbell, 2007).

1.7.2 Advantages of CSR

More often, the advantage of CSR activities is not directly measurable in a financial way. Direct and indirect advantages range from an increase in productivity and efficiency because of higher motivation and employee-loyalty leading to cost reduction because of decreasing employee turnover and absenteeism up to an improvement of the working climate (Hutter & Scheunemann, 2007).

Especially when talking about products with a minor difference in quality, a clean image and reputation of a company is very important. In that case, investing into the corporate culture implicates a direct gain in trust and image which leads to higher customer retention and strengthens both the market position and the competitive advantage. But an economic advantage can also result from an increasing attractiveness on financial markets because investors ask more and more for ethic assessments or rather directly by an increasing share price (Resel, 2003).

1.8 Limits of CSR

„CSR ist ein spannendes Thema - aber es ist wahrscheinlich nicht der Stein der Weisen, mit dem die Welt gerettet werden kann- Denn es stößt auch an seine Grenzen“ (Resel, 2003).

The term of social efficiency contains making corporate activities more and more social compatible to reduce costs at the same time. In general, a company continuously improves its activities in serving social benefits. But the question if a company also makes a contribution to the general inequality concerning the allocation of goods and services in the sense of social effectiveness can not be answered. It can be assumed, that the social efficiency can be improved with CSRactivities but the social effectiveness stays disregarded (Resel, 2003).

Furthermore, it seems to be illusory, that CSR should be done by all companies as long it is based on voluntariness, as Resel (2003) adds. So a voluntary selfcommitment of companies is not enough, there have to be clear instructions. It would make sense to introduce an obligated designation of the CSR level of several companies, as Hradecsni (2007) declares.

But in my opinion, it would not make sense to make detailed arrangements because they would hamper a company’s creativity and the ability to cooperate. These are two important characteristics for companies because they make them unique and help to distinguish from other organizations in consideration of the sustained competitive advantage companies wish to aim.

Having now talked about CSR in detail, still the question of its emerge remains. We know that some companies are really anxious to implement corporate socially responsible behaviour, while others do not. We also know that sometimes there comes pressure from outside requiring certain behaviour from an organization. Also the competitive advantage and image play certain roles when talking about that term. But to have a look on the theories that stand behind CSR and from which CSR arose, we have to start at the early beginning by having a look on what an organization really is.

2 Organizations

2.1 What is an Organization?

“Organizations are hard to see”- we often hear that when talking about that and their proper definition. But exactly that difficulty shows us how diverse and different organizations can be. Nearly no one is similar to another. Organizations are vague and abstract and may be scattered among several locations. We touch organizations in our every day live while don’t recognizing that most of the times. Organizations are embedded in everything we do. We were born in hospitals, have our birth records registered in a government agency, we are educated in schools and universities, borrow money from banks, buy the things we need in shops, go to doctors when we are ill and we and go for work to be able to afford our live. Nearly everything we do has to do with organizations and institutions. This became so usual, that we don’t even think about that. Indeed, organizations are so common that we take them for granted.

The definition of organizations I want to use in this thesis is as follows:

“Organizations are social entities that are goal directed, are designed as deliberately structured and coordinated activity systems, and are linked to the external environment” (Draft, 2001p. 12).

What we forget most of the times is that the key element of an organization is not a building or a set of policies and laws. Organizations are made up for people and their relationships with each other; they are highly interdependent end dynamic. An organization exists when human interaction takes place. People act with each other in order to perform essential functions that help reaching the goal of the organization. Also Human Resources gain more and more importance to be and stay competitive in a fast-changing environment and employees are seen as a crucial factor of economical success while managers tend to deliberately structure and coordinate their organizational resources to achieve its purpose and follow the defined strategy.

Another factor that confuses our recognition of firms are local boundaries. They are becoming more flexible and diffuse as companies face the need to respond quite quickly to changes coming from the external environment.

Having that in mind, we come to the conclusion that an organization cannot exist without interacting with customers, suppliers, competitors, and other elements of the external environment that are surrounding the corporation. Today, companies even tend to cooperate with their competitors and share information and technology for their mutual advantage because they recognize that cooperation with others often leads to more success than having only someone’s own success in mind (Draft, 2001).

At that point, the influence of the external environment and a company’s customers seems to be apparent. Obviously, environment and organization influence each other. So there is a kind of exchange between internal and external influences, ideas, flows etc. Having that and the fact that an organization is a diffuse construct in mind, we can determined that the whole CSR topic comes as an influence from outside into the organization as a result of the permanent adaptation between organization and environment.

2.2 Natural Adaptation: Herbert Spencer

Organizations are diffuse and dynamic systems that strive for adaptation to their environment to be competitive, as we have already heard before. In that case, similarities to Herbert Spencer come to my mind. Spencer’s statement “Survival of the fittest” which was first introduced in 1851 in his work “Social Statics” shows parallels to corporate socially responsible behaviour. Organizations are influenced by their environment. That’s why they try to adapt to the external circumstances in order to stay competitive what means survival on the global economic market.

If we compare organizations with organisms, we find the similarity to Spencer.

Are there great differences between organizations and organisms? Both are diffuse systems which are influenced by their environment, both consist of living creatures and both can’t survive without interaction. At that point, I want to compare organizations to organisms.

Herbert Spencer, considered as a Darwinist, coined the famous expression “Survival of the fittest” which is shorthand for a concept relating to competition for survival or predominance. With that statement Spencer wanted to express that the ones which are best adapted, have the best changes to survive, as it is described in the Stanford Encyclopedia of Philosphy (http://plato.stanfors.edu/entries/spencer).

Today, we know that Spencer’s phrase is not consistent with the actual theory of evolution anymore, because it is a common saying that any organism which is able to reproduce itself will survive as a species, and not just the fittest ones, as biology taught us. However, “survival of the fittest” remains in our ears, nearly every pupil gets to know that already at school.

When we think about CSR and the reasons why is implemented into companies, we can easily discover parallels. An organization, in our case compared to an organism, wants to adapt to its environment for several reasons. On the one hand side, the organization feels responsible for its stakeholders and wants to make them feel good. But also shareholders claim for attention and they want that their main interest, profit of the firm, is regarded. Both groups can put pressure on the company. So pressure is an external influence to which an organization tries to react. Also society as a whole influence organizations its point of views, moral standards, values and expectations towards corporate acting. On the other hand side, organizations and companies in particular are anxious to react on other external changes, for example laws, political issues or environmental ones. Summarized, organizations behave like organisms when they adapt to their environment to survive.

To set out from that point, I am tending to anticipate that CSR has its early roots already in Spencer’s Social Darwinism. Even if it is a biological theory, it can be compared with economy, as Spencer’s work shows by drawing parallels between his economic theories and Darwin’s biological ones. Spencer’s theory has to be regarded as an economical one, because “survival of the fittest” means not that only the strongest and corporally fittest survive having the most assertiveness, but those who are best adapted to their environment, those who are specialized and sensitized for external changes.

Let’s go back to biology and name an example everybody will understand: If we take the world of a butterfly, it is not to assume that the biggest and strongest butterfly will survive between its natural enemies. The difference is, that the best adapted butterfly will survive. For example the one whose wings are best adapted to the trunk trees, so he can’t be seen from its enemies.

It is the same with our topic, corporate social responsibility. If organizations refuse or forget to implement CSR into their strategy and general way of behaviour, they will be “eaten” by their competitors, as we can observe from media. Also society has no good impression from the company’s way of doing and mentality, and maybe as a result, clients will boycott their goods or services and switch to other suppliers. As we see, if CSR emerges as a trend and special need and want from society, as it is already now the case, organizations have to react sensitized and consider weather to implement or not. If they decide not to implement CSR, they have to be conscious about potential consequences.

3 Strategy

Having talked about organizations we now come to a very important aspect that is very tightly connected with the structure of an organization: its strategy. Alfred Chandler (1962) defined the term strategy as a kind of adoption of measures and resource allocations. With his thesis „Structure follows Strategy“, the author shows that the organizational culture always tries to adapt to its formulated strategy.

Today, the term strategy is generally defined as the way a corporation defines to reach its goals and to realize its mission. So strategic management is the process of making decisions to reach mission and goals and of how to choose and implement the proper corporate strategy. Because there are plenty of definitions concerning strategy, I have chosen the most common ones:

- Strategies are measures assuring the long-lasting profit of a company (Bea & Haas, 2001, p.50)
- Strategies are bunches of measures fort he planned goal achievement. (Speckbacher, 2003, p.4)

For the development of a solid corporate strategy it is important to observe and monitor the market with all its dynamics such as developments, chances and risks to be able to react in time. Again, we come upon the adaptation to the external environment. The intended reaction from a company is formulated in the corporate strategy giving the direction of the organization’s way of acting. With the help of a functioning risk management system like that, the accurately timed realignment of a company can be made much easier. Also the flexibility to react on certain external influences can be increased. (Hofmann, 2006, pp. 12)

3.1 Mintzberg

Strategies appear very capacious and can emerge and are seen from different perspectives. In order to present the different possibilities of strategy development, I want to mention Henry Mintzberg’s theory of the 5 Ps (1979, pp.22). Based on the idea, that formulated strategies are congruent with the external environment, Mintzberg defined these 5 strategies:

Plan - Strategy as a plan - future-oriented

Pattern - Strategy as pattern - past-oriented

Position - Strategy as position - positioning on the market - external view

Ploy - Strategy as ploy- to withstand competition

Perspective - Strategy as perspective showing how to reach the defined targetsinternal view

Regarding CSR implementation, two of these Ps can be applied. The first one, strategy as a plan, describes the way organizations want to behave in the future. Particularly concerning sustainability, as it is mentioned in the Austrian strategy of sustainability (www.nachhaltigkeitsstrategie.at/strategie.php3), has to be defined and planned in detail and therefore anchored into an organization’s strategy.

But also the P of Position is crucial. Every company has to position itself on the market to be competitive. Top-management has to make up its mind about how the company wants to be regarded from society. Plans about what the company stands for and what their core competencies and value-added for its clients are have to be made. So the external view is important for the success of a company. And to be appreciated and accepted by society, the internal as well as the external behaviour has to fit. Both sides are important for the positioning on the market. Concerning the internal processes, the products and services the organization offers and the way the corporate culture is lived, is decisive for the image and reputation as well as the external activities including public relations, external stakeholder-treatment and behaviour and appearance in general. CSR can both be implemented internal and external, as we will see later. That is why the positioning of a firm has to be named when incorporating corporate socially responsible behaviour.

3.2 Social Responsibility in Strategy

When talking about an organization’s structure and strategy, external dynamics and developments like CSR have to be regarded. When society claims for socially responsible behaviour, companies more or less have to react on that by incorporating CSR activities, otherwise they risk a boycott of their goods or services. Incorporation like this always happens by implementing such behaviour into the corporate strategy, that’s why the strategy of an organization is a central element of CSR.

If CSR is anchored into the corporate strategy, it is also communicated and articulated, and the management team is anxious that the employees follow the strategy and thus also show commitment to socially responsible behaviour. This is essential for the positioning and the future plans of a company, regarding the Ps of Mintzberg (1979).

3.2.1 Drivers of Implementation

Often, companies and their top management face huge hurdles when trying to turn their organization into a better corporate citizen. By undertaking costly initiatives, they often risk the erosion of their own competitive position when their rivals do not act in that way. And if they invite governmental oversights, they may be hampered by regulations imposing high costs without generating any social benefit (Martin, 2002).

Although there are many hurdles and impediments to the establishment of CSR activities, many companies have implemented CSR guidelines into their corporate strategy. But what are the drivers of establishing a corporate social strategy within a company? Do the company and the top management in particular face pressure from various groups of society? Most of the time, this question can be answered with yes, they do. Society and stakeholders might be concerned about the environmental issues, employees about their work-life-balance and the balancing act of family and work, political authorities for the tax based protection and shareholders and investors about the profits and the development of their shares, as Martin (2002) comes to the point.

3.2.2 Intstrumental and Intrinsic CSR

In general, the drivers for implementing a social responsible strategy within a company can be divided into two elements: drivers of instrumental and intrinsic forms.

The instrumental form pursuits the objection of enhancing the shareholder value. To create goodwill among the consumers in excess of their price taxes for example, social responsible behaviour might therefore be established. So a corporate virtue might be part of the company’s value position or it just simply keeps the company on the right side of the law (Martin, 2002).

Following the author, those instrumental drivers can be characterized as the civil foundation or the common law of society. Instrumental drivers represent the accumulation of customs and norms to which companies commit themselves by choice and laws as well as regulations. And they also represent the way companies are committed due to compliance. Under that point of view, we can make the connection to Mintzberg’s P of Position, which embodies the external view on the market.

The intrinsic form is characterized by the company’s own will. Top management implements a strategy because it thinks that it is the right thing to] do. In that case, CEOs feel the need to satisfy the firm’s stakeholders and to do something for their external environment and society in general. Those strategies benefit the stakeholders most of the times, but mainly at the shareholder’s expenses. Such intrinsic drivers are drivers that create real CSR behaviour (Martin, 2002). In my opinion, also this aspect is linked to the P of Position, because to position on the market, a company has to function inside. Only if the internal processes, the technical as well as the human ones, are coherent, a company can realize profit. So the internal coherence of an organization is crucial for its appearance and performance on the market.

3.2.3 Comparison Between the Instrumental and Intrinsic Form of CSR to Explicit and Implicit CSR

When we hear the differentiation between the instrumental and intrinsic form of CSR, certain parallels attract our attention. To give a short repetition about the most important facts, it has to be mentioned, that explicit CSR was defined by Matten and Moon (2008) as corporate activities assuming responsibility for the interest of society. The socially responsible actions companies undertake, consist of voluntary policies, programs and strategies and the motivation for that behaviour come from the perceived expectations from the company’s stakeholder.

In other words, stakeholder groups put pressure on organizations and force them in a certain way to incorporate CSR. In my opinion, we are talking here about an extrinsic motivation of the company. In that case, the company really adapts on its environment, and the idea of becoming active in a socially responsible way does not occur because of conviction. Also in the instrumental approach, CSR is not implemented because of conviction and the ideology of doing something good, but because of the enhancement of the shareholder value (Martin, 2002). Again, we are talking about external pressure. So in my eyes, explicit and instrumental forms of CSR can be compared with each other because their approaches and the ideas that stand behind are very similar.

It is the same when talking about similarities between intrinsic CSR and implicit CSR. To conjure up the most important facts, intrinsic CSR takes place because of conviction. Stakeholders do not have to put pressure on the company, because the company itself feels the need to support their stakeholders and do them something good. So the motivation comes out of an inner belief that it is the right thing (Martin, 2002).

Implicit CSR is quite similar. It consists of values, norms and rules which are really lived by the staff, what can be seen a certain embodiment of conviction. In addition to that, the organization as a whole in motivated by societal consensus (Matten & Moon, 2008).

Fact is, that organizations have two main motivations to implement corporate socially behaviour. The first motivation is because of external pressure and publicity, including marketing and image reasons. By that way, their CSR behaviour is announced in public, society takes notice about that and is satisfied. The second motivation is conviction. Hereby, organizations disregard the public when thinking about CSR activities. They do not care about the public opinion because they are convinced that they do something good. Often, such activities are not widely communicated, because they just happen inside the organization. These companies do not put lots of emphasis on CSR for marketing reasons; they do it because they want to see their stakeholders lucky. They want to give something in return. So the motivation is really an intrinsic one, there exist no external incentives to behave in a way like that.

3.3 Image and Reputation

As we all know, the consumers’ interest in environmental and social problems of consumer goods is rising. We watch TV and hear about child labour, poor working conditions, global warming and other defects in our social environment that surrounds us every day. Thus, consumers are no longer satisfied with the supposition of fair trade and any message of neglect can cause incurable mistrust.

My experience taught me, that in case of mistrusting customers, companies lose not only their clients, but also their image and reputation. Then, customers do not value and estimate the corporation any more. That can happen because of a bad quality of the products and services an organization offers, but also because of misbehaviour in society’s view. But companies absolutely need the trust and appreciation from the customer-side in order to bind their clients to their products. When customers have faith in a certain firm and their products and services, especially in the philosophy and mentality that stands behind, they stay customers over a long period of time and mostly, they are less sensitive concerning the price of the products because they are convinced that they buy excellent quality or at least they want to support and foster the behaviour of the company by showing commitment when buying their products. When a company has no image or a bad reputation, it is quite hard for its positioning on the market. In that case, it is nearly impossible to position itself, it will rather be positioned by society because of its defamation and reputation. This can be deadly for a company. But it can also be the other way round. New customers buy their products once and if these do not come up to their expectations, they will change their suppliers. In that case, there is no customer-binding and buyers switch from one to another supplier.

So the image and reputation is also important to campaign for new clients. Therefore, word-of-mouth recommendation is a method that should not be underestimated because it transfers image and a name of recognition. Therefore, we just have to take a closer look on ourselves: When we like a product, we recommend it to our friends and colleagues because we are satisfied and convinced of the good price or excellent quality. Normally, we trust in our friends’ or colleagues’ words, so we follow their commendation as well as our friends follow ours and try the products. For the company, this is a good possibility to gain new customers. But on the other side, it is also a good possibility to lose customers in case of not being satisfied.

When companies have a strong corporate culture where values and attitudes as well as efforts concerning CSR are deeply embedded and integrated in the every day behaviour, they also get the estimation and commitment of society. Having a look on ourselves, we require a good and comfortable working climate at our own working place and we want the company to pay attention to our needs and wishes. So by appreciating a company’s way of acting, also the products become more interesting for us than those from companies whose behaviour is not appreciated.

To sum up, image and reputation are crucial for the success of a company. On the one hand, a company can make sure that a good image is established by behaving in an intelligent and rationally way. But on the other hand side, the image and reputation is build by society and organizations sometimes have no influence on it. That is often the case when misunderstandings appear and media reports about that. Hereby, it is very difficult to adjust and correct the misunderstanding because what has once been in society’s heads can not be forgotten so fast.

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Details

Pages
116
Year
2008
ISBN (eBook)
9783656118879
ISBN (Book)
9783656118534
File size
2.8 MB
Language
English
Catalog Number
v188219
Institution / College
University of Linz – Institut für Internationales Management
Grade
2,0
Tags
Values CSR Palfinger strategy explicit and implicit CSR Theory of consistency Congruency and culture 7-S framework Attitudes Stakeholder Shareholder Institutionalized organizations Corporate culture Isomorphism sustainabiliy

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Title: Corporate Social Responsibility