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Strategic Corporate Social Responsibility: Stakeholders, Globalization, and Sustainable Value Creation Third Edition Solution Manual

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    Strategic Corporate Social Responsibility 3e David Chandler and William B. Werther, Jr. 1 S ECTION II T EACHING R ESOURCES BY C HAPTER Part I: Overview and Intent Section II of this Instructor’s Manual provides “Faculty Notes and Discussion” by chapter, concluding with answers to the end - of - chapter “Questions for Discussion and Review.” We begin with the overview of Part I of Strategic Corporate Social Responsibility , which highlights the scope of corporate social r esponsibility (CSR). Chapter 1 identifies the different viewpoints of CSR and then shows why CSR is of growing concern to business students and leaders. Though businesses are economic entities that exist to further the fina ncial interests of their owners, this is not their sole concern. Without the balance of a multi - stakeholder approach, firms can become exploitive, anti - social, and corrupt — losing legitimacy and their ability to pursue the owners’ economic goals over the long term. Arguments for and against CSR are presented along with trends that are propelling CSR to a greater prominence in c orporate and strategic thinking . Chapter 2 puts CSR into a strategic context by explaining resource and industry perspectives on strategy. Then the chapter turns to the stakeholder perspective and the need to identify and prioritize them. In particular, this chapter presents the stakeholder model around which the book is structured. The remainder of the chapter looks at integrating strategy and CSR, creating a strategic CSR perspective that is needed for long term sustainability. Chapter 3 asks the provocative question , “How much does CSR matter?” Who is responsib le for CSR? The organization? Stakeholders? To create a contrast around this question , the view s of Milton Friedman and Charles Handy are presented. This discussion is follo wed by an extended look at Walm art , its varying impact on different constituents , and its tentative steps in relation to CSR . Chapter 4 introduces the idea of strategy through a strategic lens. The chapter argues that strategy is likely to be both more effective and more sustainable if strategy passes through a CSR filter that better attunes the firm to its environment and its constituents. Then, t he driving social - technological and economic forces behind the growing importance of CSR are discussed.

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    Strategic Corporate Social Responsibility 3e David Chandler and William B. Werther, Jr. 2 Chapter 5 emphasizes the integration of CSR into both strategy and , ultimately , the culture of the organization. This cultural integration creates a sustainable CSR perspective through the firm. The bulk of the chapter then addresses the implementation of CSR in the short to m edium term and in the long - run. C HAPTER 1 W HAT IS CSR? F ACULTY N OTES AND D ISCUSSION Organizations are the collective structures used by people to pursue common goals. In general, these organizations come in three broad forms: Businesses, governments, and nonprofits (or Non - g overnment al Organizations, NGOs). Businesses exist to pursue profit with the intention of making the ir owners wealthy; governments (at least in democratic societies) respond to the will of their citizens; and, nonprofits or NGOs meet the needs of people in society when the profit motive of business or the political will of government is lacking. Though organizations are not legally compelled to be “socially responsible” — even if society could agree on a universal definition — societal expectations become embodied in tradition, laws, agency interpretations, and court rulings that form a set of expectations. Thus, we arrive at two central questions of concern to CSR: • What is the relationship between a business and the societies within which it operates ? • What responsibilities do businesses owe society to self - regulate their actions in pursuit of profit? These questions grow in importance as businesses grow in importance to society. Ultimately, it is business organizations that provide the most basic necessities of societal survival, including much of the wealth th at funds government and nonprofit activities . Because

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    Strategic Corporate Social Responsibility 3e David Chandler and William B. Werther, Jr. 3 of this broad reaching impact of business corporations, CSR has emerged as a study to better understand the answers to the above questions. Simply put, the narrow view suggests that businesses are only obligated to create wealth for their owners. A broader view expects them to create wealth for owners , but to do so in wa ys that are deemed acceptable to society. CSR covers the relationship between corporations (or other large organizations) and the societies with which they interact. The social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time. 1 Archie B. Carroll, 1979 CSR is, therefore, a fluid concept. Importantly, it is both a means and an end. It is an integral element of the firm’s strategy, a way of maintaining its legitimacy in the larger society by bringing stakeholder concerns to the foreground. At the same time, a firm’s CSR reflects how well it is able to navigate stakeholder concerns while implementing its business model. CSR means valuing the inter - dependent relationships that exist among businesses, their stakeholder groups, the economic system, and the communities within which they exist. CSR is a means of discussing the obligations a business has to its immediate society; a way of proposing policy ideas on how those obligations can be met; as well as a tool by which the mutual benefits for meeting those obligations can be identified. Simply put, CSR addresses a company’s relationships with its stakeholders. Corporate Strategy and CSR CSR is (or , at least , should be) an integral part of an organization ’ s strategy. Strategic plans and their implementation must past through a CSR Filter to understand the likely impact on multiple stakeholders. Otherwise, reputation, legal, financial, or other consequences may impede, even undermine the organization ’ s plans. And, when perceived violations of societal expectations occur — even when corporate actions are “legally permissible” — actions against the 1 Archie B. Carroll, ‘A Three - Dimensional Conceptual Model of Corporate Performance,’ Academy of Management Review , 1979, Vol. 4, No. 4, p500.

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    Strategic Corporate Social Responsibility 3e David Chandler and William B. Werther, Jr. 4 firm may range from legislative or court actions (think of the Standard Oil Trust) to protests from Greenpeace or other activist groups. What CSR Is and Is Not CSR embraces the range of economic, legal, ethical , and discretionary actions and obligations that directly or indirectly affect the future economic perform ance of the firm (see Figure 1.1 ). Carroll suggests a hierarchy wherein discretionary issues that appear abusive may become ethical considerations. Allowed to co ntinue long enough or over a larg e enough number of potential claimants and ethical issues may become legal ones. At the extreme, this hierarchy of CSR issues can eventually lead to economic impact, whether by formal societal restraints (such as laws or regulations) or less formal consumer boycotts. Legal compliance is a necessary minimum condition for CSR. But, legal compliance does not assure that the firm’s actions will be seen as ethical or proper. Often, actions that were legal — even socially tolerated — may become unacceptable, even illegal , in a different time or place. For example, consider the history of race - or gender - based discrimination. Both were widely accepted by society (though certainly not by those affected!) in the 1940s and 1950s. But, with the greater political activism of later years, these widespread practices were increasingly seen as unethical, until eventually they became illegal through legislative actions and court interpretations. The Evolution of CSR CSR is not a new or sudden phenomenon. Early writings in the Middle East and China at the dawn of written history report standards, expectations, and rules for commerce. Consumer boycotts appeared in England, for example, in the 1790s in response to slave - harvested sugar, actions deemed unacceptable by segments of society. Even today, one can hardly pick up a newspaper without read ing about some CSR - related complaint about businesses, ranging from the serious ecological damage of oil spills to more mundane matters. TEACHING NOTE : It may be a useful exercise to ask students to identify current issues from local newspapers, t he Wall Street Journal , or other business periodicals as the basis of a classroom discussion that illustrates the timeliness and immediacy of CSR .

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    Strategic Corporate Social Responsibility 3e David Chandler and William B. Werther, Jr. 5 In t he United States , The Alien Tort Claims Act allow s foreign nationals to sue in U.S. courts for the overseas actions of U.S. firms or their partners. This 1789 law is being used to try and hold U.S. firms accountable for the actions of others, as when a U.S. firm partners with a foreign firm that violates human rights. Thus, what may be legal — even encouraged — in one country, may bring legal repercussions in another. The Cultural and Contextual Assumptions Democracy and economics are two major variables that influence CSR. Democracy is, perhaps, obvious. People in North Korea, Cuba, or other repressive, non - democratic societies have lit tle recourse to protest the CSR - related actions of organizations, domestic or foreign. Even in democratic societies, the demands of CSR may be constrained by economic reality . Rich societies can afford to “tax” themselves with demands for clean air, for example, even if the result is that automobiles cost hundreds of dollars more than they would witho ut clear air devices. I n poor societies, however, even though people value clean air, the imposition of clean - air rules may mean the los s of jobs, especially among marginal firms that lack the resources to comply with CSR concerns that evolve from ethical to legal. A Moral Argument for CSR CSR emerges from the interaction and interdependence between for - profits and society. It is shaped by individual and societal standards of morality, ethics, and values that define contemporary views of human rights and social justice. Thus, to what extent does a business have an obligation to re - pay the debt it owes society for its continued business success? On the one hand, it can be argued that business success depends on the society that provides the infrastructure, employees, consumers, and other elements that are central to success. On the other hand, if a business m ust fully reflect societal costs, it may not be able to compete — especially with firms in other societies that may be able to externalize their costs (such as dumping unfiltered pollution in to local waterways). TEACHING NOTE : It may be useful to ask students to discuss the moral arg ument in the form of “pro s” and “cons” surrounding this issue.

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    Strategic Corporate Social Responsibility 3e David Chandler and William B. Werther, Jr. 6 TEACHING NOTE: Two questions from the text may be worth discussing at this juncture: • To w hat extent does a business have an obligation to re - pay the debt it owes society for its continued business success? • What responsibilities do businesses face in return for the benefits society grants? As an academic field , CSR represents an organized approach to answering these questions. As an applied discipline, it represents the extent to which businesses need to deliver on their societal obligations as defined by society. A Moral Argument for CSR CSR broadly represents the relationship between a company and the principles expected by the wider society within which it operates. It assumes businesses recognize that for - profit entities do not exist in a vacuum and that a large part of their success comes as much from actions that are congruent with societal values as from factors internal to the company. Because society’s contributions make businesses possible, those businesses have an obligation back to society to operate in ways that are deemed socially responsible and beneficial. Without the larger society, there would be no businesses. So, some argue that society has the right to define the terms of the relationships among its players. A Rational Argument for CSR As argued in the text: The loss of moral legitimacy can lead to the countervailing power of social activism, restrictive legislation, or other constraints on the firm’s freedom to pursue its economic and other interests. Violations of ethical and discretionary standards are not just inappropriate; they present a rational argument for CSR. Because societal sanctions — such as laws, fines, prohibitions, boycotts, or social activism — impact the firm’s strategic goals, efforts to comply with societal expectations are rational, regardless of moral

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    Strategic Corporate Social Responsibility 3e David Chandler and William B. Werther, Jr. 7 arguments. Where compliance with moral expectations is based on highly subjective values, the rational argument rests on sanction avoidance. By not adopting a proactive (or at least accommodative) approach to fair treatment, businesses can find their behavior suddenly (and expensively) curtailed through legislation, judicial and agency interpretations, and penalties, because of a failure to interpret the evolving social and business environment. A Rational Argument for CSR CSR is a rational argument for businesses seeking to maximize their performance by minimizing restrictions on operations. In today’s globalizing world, where individuals and activist organizations feel empowered to enact change, CSR represents a means of anticipating and reflecting societal concerns to minimize operational and financial constraints on business. Ultimately, the Iron Law of Social Responsibility suggests that in a free society discretionary abuse of societal responsibilities leads, eventually, to mandated solutions. That is, in a democratic society , power is taken away from those who abuse it. An Economic Argument for CSR Summing the moral and rational arguments for CSR leads to an economic argument. To incorporate CSR into operations offers a potential point of differentiation and competitive market advantage upon which future success can be built, besides avoiding moral, legal, and other sanctions. An Economic Argument for CSR CSR is an argument of economic self - interest for business. CSR adds value because it allows companies to reflect the needs and concerns of their various stakeholder groups. By doing so, a company is more likely to retain its societal legitimacy and maximize its financial viability over the medium - to long term. Simply put, CSR is a way of matching corporate operations with societal values and expectations that are constantly evolving.

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    Strategic Corporate Social Responsibility 3e David Chandler and William B. Werther, Jr. 8 Strategic Corporate Social Responsibility expounds the economic argument in favor of CSR. We believe it is the clearest of the four ( ethical, moral, rational, and economic) arguments supporting CSR. In summary, the economic argument contains all the factors explaining why CSR is of strategic importan ce for businesses today. Why is CSR Important? Increasingly, society is becoming better informed and more socially aware of what firms are doing. Businesses, especially those that survive and pro s per directly from consumers, risk their success and brand name when acting in ways that are not seen as socially appropriate. What would be the impact on Coc a - Cola, for example, if the employees in its Minu te Maid orange juice division w ere seen as exploited by poor wages or working conditions? Why is CSR Increasingly Relevant Today? A variety of forces are heightening interest in CSR. Among these are increased affluence, ecological sustainability, globalization, the free flow of information (social media) , and brands . Affluence means choices. Citizens of wealthy countries can make choices based on considerations that are more varied and complex than simple survival and economics. Ecological sustainability matters, from both the reality of a shared planet and the public’s perceptions of a firm’s commitment to the health and well - being of the communities in which it operates — especially since more people identify themselves as support ing ecological concerns than either major political party in the United States. And, of course, firms that do obvious ecological damage are increasingly penalized by high profile protests from activist groups such as Greenpeace, which have become pa rticularly adept at gaining media attention. Globalization increasingly strips down geographical and cultural barriers, so that actions in one place (even if legal and proper) are subject to evaluation from the perspective of multiple cultures, laws, and societal expectations. Globalization combined with the ever increasingly free flow of information, further underscores the “shrinking planet” metaphor . A ctions and practices in one local e can jump across the globe. Perhaps nowhere is the impact of CSR more obvious than when it comes to brands. The equity built up from customer use , advertising, and other image - shaping actions represents an often - huge investment and an important “asset” to the firm.

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    Strategic Corporate Social Responsibility 3e David Chandler and William B. Werther, Jr. 9 Maltreatment of workers, defective products, and related problems can tarnish, even destroy, a brand and the investments made to create it. Perhaps most interesting, these trends are virtually certain to continue and will make attention to CSR increasingly i mportant for both consumers and corporations. Beyond Trends Admittedly, arguments against CSR exist. These will be explored in Chapter 3 , “ How Much Does CSR Matter?” But, first, we examine “Corporate Strategy: A Stakeholder Perspective” in Chapter 2.

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    Strategic Corporate Social Responsibility 3 e David Chandler and William B. Werther, Jr. 1 C HAPTER 2 S TRATEGY + CSR : A S TAKEHOLDER P ERSPECTIVE F ACULTY N OTES AND D ISCUSSION All organizations, like organisms, survive or perish depending on how they adapt to their environment. As discussed in C hapter 1, a firm’s s takeholder s are key elements of its environment. Strategy seeks a sustainable competitive advantage. Its success rests on matching t he organization ’s internal competencies with the demands of its external competitive environment. Central to both sides of the equation (the firm’s internal capabilities and its external environment) are the firm’s internal and external stakeholders . We argue that, while these perspectives contain important in sights into a firm’s ability to convert resources into a competitive advantage , a stakeholder perspective is better suited for firms trying to navigate the global business environment of the 21 st century. A stakeholder perspective enables firms to identify the multiple constituents in its environment that are affected by the firm’s operations, while also allow ing them to prioritize among those stakeholders’ often competing demands. By integrating a stakeholder/CSR perspective within strategic planning and day - to - day operations, firms are better prepare d to respond effectively to their stakeholders’ needs.

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    Strategic Corporate Social Responsibility 3 e David Chandler and William B. Werther, Jr. 2 W HAT IS S TRATEGY ? Insight comes from understanding the need in society that the business seeks to meet. That need, toward which the organization strives, forms the basis of its aspirations or vision . Ideally, an organization’s vision is an ennobling, articulated statement of what it seeks to do and become. A vision that ignores the larger role that a firm plays in society is likely to be neither nobl e nor sustainable. Vision statements must appeal to multiple stakeholders, including members of the organization (employees), its direct beneficiaries (owners), its economic partners (customers and suppliers ), and the larger community in which the organization operates (society, broadly defined) . From these aspirations, the firm’s mission identifies what the organization is going to do in order to attain its visio n. A food bank , for example, may have a vision of “ending hunger in the com munity” and a mission to “feed the poor.” The v ision identifies what the organization is striving toward, while the mission tells us what the organization is going to do to get there. Both these statements are constrained by what the firm’s stakeholders and society deem to be acceptable. A firm’s s trategy explains how the organization intends to achiev e its vision and mission. It defines the organization’s response to its competitive environment. At the corporate level, a firm’s strategy determines which businesses the firm will operate and whether it will enter into partnerships with other firms (via joint ventures, mergers, or acquisitions). Thus, a food bank may have a corporate level strategy of partnering with a government agency to enhance its access and distribution capabilities . At the level of the business unit, a firm’s strategy determines

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    Strategic Corporate Social Responsibility 3 e David Chandler and William B. Werther, Jr. 3 how the unit will differentiate its products from the products of its competitors. Thus, the food bank may have a strategy of using a mobile soup kitchen that can transport the food to where the poor live . A firm’s t actics are the day - to - day management decisions that implement the strategy. Tactics are the actions people in the organization take every day. As a result, tactics are flexible and can be altered more easily to reflect changes in operational context. Ultimately, however, the purpose of these day - to - day tactical actions i s to realize the firm’s strategy. A Firm’s Vision, Mission, Strategy, and Tactics • The vision answers why the organization exists. It identifies the needs the firm aspires to solve for others. • The mission states what the organization is going to do to achieve its vision. It addresses the types of activities the firm seeks to perform. • The strategy determines how the organization is going to undertake its mission. It sets forth the ways it will negoti ate its competitive environment in order to attain a sustainable advantage. • The tactics are the day - to - day management decisions made to implement the firm’s strategy. A ligning its vision, mission, strategy, and tactics gives direction to the firm and focus to its employees. As important as giving direction of the firm, this chain also informs the organization of what it will not do. The overall goal is to ensure that the strategy and tactics achieve the vision and mission of the firm.

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    Strategic Corporate Social Responsibility 3 e David Chandler and William B. Werther, Jr. 4 C OMPETING S TRATEGY P ERSPECTIVES Often, the strategy planning process begins with a SWOT analysis . A SWOT analysis is a tool that allows a firm to identify its internal Strengths and Weaknesses , while also analyzing the external Opportunities and Threats that are present in its environment. The goal of a firm’s strategy, the refore , is to recognize it s strengths and align them with the opportunities that are present in the environment , ensuring that the strategy and tactics remain consistent with its vision and mission . Weaknesses are addressed to the extent that they impair the strategy’s effectiveness, while threats in the environment are monitored and evaluated for their disruptive potential. Building on the foundation of the SWOT analysis, strategy is traditionally viewed from two competing perspectives. 1 Althoug h it is not clear that these perspectives enjoy empirical support, they are well established and commonly taught. The two competing perspectives draw on the two sides of the SWOT analysis — the internal strengths and weaknesses, and the external opportunities and threats. The resources perspective is an internal view of the firm that identifies its unique resources (e.g., highly skilled employees or monopoly access to valuable raw materials) and capabilities (e.g., effective research and development or efficient production processes) as the main determinant of a sustainable competitive advantage. Those firms that have the most valuable resources or most innovative c apabilities (collectively called competencies ) , will most likely produce the most valued products and services in the most efficient manner. As a result, these firms are able to build and sustain a competitive advantage over the competition.

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    Strategic Corporate Social Responsibility 3 e David Chandler and William B. Werther, Jr. 5 An alternative view is the industry perspective , which focuses, instead, on the company ’s immediate operational context . This external perspective of the firm identifies the structure of the environment in which i t operates (in particular, its industry) as the main determinant of its competitive advantage. Success in th e market, this perspective argues, is less to do with individual differences among firms and more to do with the competitive structure of the firm’s industry. To the extent that an industry is structured favorably (as in the case of a monopoly or through favorabl e government regulation) , the companies operating in that industry will enjoy greater profit potential than those firms that operat e in a more constrained industry environment. The tensions between these two perspectives form a central theoretical component of strategy thinking and, as such, merit further elaboration. T HE R ESOURCES P ERSPECTIVE The resources perspective is detailed in a 1990 Harvard Business Review article 2 by C.K. Prahalad and Gary Hamel , who then expanded on their ideas in a 1994 book . 3 The core idea that Prahalad and Hamel convey is the distinction between a firm that is built around a portfolio of business units and a firm that is built around a portfolio of core competencies . While separate business units encourage replication and inefficiencies, core competencies develop efficient systems that can be applied in multiple settings across business units and throughout the firm. Wal - Mart’s core competency of efficient distribution, for example, can be applied at all stages of its retail operations. Equally, Google’s core competency of writing sophisticated algorithms that allow the firm to pursue its mission to “organize the world’s information,” 4 can be applied to

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    Strategic Corporate Social Responsibility 3 e David Chandler and William B. Werther, Jr. 6 searching for products, images, academic papers, and many other topics. Moreover , core competencies can be built , given the correct set of circumstances . It is a firm’s set of core competencies that will differentiate it from its competition and allow it to sustain a competitive advantage: “In the short run, a company’s competitiveness derives from the price/performance attributes of current products. … In the long run, competitiveness derives from an ability to build, at lower cost and more speedily than competitors, the core competencies that spawn unanticipated products. The real sources of advantage are to be found in management’s ability to consolidate corporate - wide technologies and production skills into competencies that empower individ ual businesses to adapt quickly to changing opportunities.” 5 Limitations of the Resources Perspective There are two main limitations of the resources perspective. First, by focusing primarily on the internal characteristics of the firm, the resources perspective ignores much of the context in which the firm operates. Second, the resources perspective provides a description of the firm that is very deliberate and rational. The combination of these two limitations suggests that, while valuable, the resources perspective alone provides an incomplete understanding of strategy in today’s global business environment . T HE I NDUSTRY P ERSPECTIVE

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    Strategic Corporate Social Responsibility 3 e David Chandler and William B. Werther, Jr. 7 The industry perspective is grounded theoretically in industrial economics. Its main proponent in the management literature is Michael Porter, who s e five forces model is a staple component of corporate strategy. Porter firs t outlined his ideas in a 1979 Harvard Business Review article. 6 Porter later published two books that expanded on his initial ideas by introducing a distinction between business and corporate level strategies 7 and the value chain. 8 More recently , in a 2008 Harvard Business Review article , Porter updated his five forces model to account for changes since the initial publication. 9 T he industry perspective focuses on t he firm’s operating environment ( in particular , its industry ) as the most important determinant of co mpetitive advantage . There are five competitive forces in Porter’s model (Figure 2.1): suppliers, buyers, new entrants, substitutes, and ind ustry rivalry. These five forces compet e for a fixed pool of resources and it is this competition that determines the ability of any individual firm to profit in the industry. As such, Porter envisions competition as a zero - sum game between these five forces and the focal fir m. The strength of each force i s measured relative to the strength of the focal firm. In other words, to the extent that any of the five force s grows in strength , this occurs to the detriment of the focal firm , which becomes relatively weaker . Limitations of the Industry P erspective There are three main limitations inherent within the industry perspective. First, is the presentation of business as a comba tive pursuit — a zero - sum game of survival. Second , the industry perspective presents a narrow view of the firm’s operating environment. Only five

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    Strategic Corporate Social Responsibility 3 e David Chandler and William B. Werther, Jr. 8 forces are included, which cover only three stakeholders — the firm’s buyers, suppliers, and competitors. This picture omits numerous stakeholders that have the potential to alter dramatically a company ’s competitive environment — such as the local community, the government, and other stakeholders . Third, the industry perspective fails to give sufficient recognition to differenc es in characteristics among companie s , which are likely to be predictive of their ability to thrive in a given environment . A holistic model of the firm in its environment that also recognizes the value of the firm’s resources and capabilities would provide a more comprehensive tool that firms can use to analyze their operating context (both internal and external conditions) and plan their strategy accordingly. W hile the resources and industry perspectives , therefore, are valuable tools that provide insight into the actions of businesse s , the situations in which they operate , and the potential to build a sustained comp etitive advantage, these two perspectives have their limits. Both are narrow in their application and exclude factors that intuitively contribute to a firm’s strategy and, therefore, its success. As such , they limit attention to the components of the larger context facing a company . More relevant to the argument presented in Strategic CSR is a broader perspective that incorporates the total mix of influences, expectations, and responsibilities that firms face in their day - to - day operations and that necessarily shape their strategies in response . In addition to the two traditional strategy perspectives, therefore, we propose a stakeholder perspective as a more complete tool to analyze a firm’s operating context and create the most appropriate strategic plan of action.

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    Strategic Corporate Social Responsibility 3 e David Chandler and William B. Werther, Jr. 9 A S TAKEHOLDER P ERSPECTIVE TEACHING NOTE: Her e , an open discussion can engage students in identifying and defining different stakeholders that affect an organization. Using the school or university as a relevant example can make a compelling argument. While d efinitions of what constitutes a stakeholder may differ in emphasis , with different groups included , 10 they largely agree in terms of sentiment . Here are three well - known examples: Definitions of a Stakeholder Stakeholders in an organization are the individuals and groups who are depending on the firm in order to achieve their personal goals and on whom the firm is depending for its existence. Eric Rhenman “A stakeholder in an organization is (by definition) any group or individual who can affect or is affected by the achievement of the organization’s objectives.” R. Edward Freeman 11 “The stakeholders in a firm are individuals and constituencies that contribute, either voluntarily or involuntarily, to its wealth - creating capacity and activities, and who are therefore its potential beneficiaries and/or risk bearers.” Post, Preston, and Sachs 12 A firm’s stakeholders can be divided into three separate groups: organizational stakeholders (internal to the firm) and economic and societal stakeholders (external to the firm). The firm’s economic stakeholders represent the interface between the organizational and

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    Strategic Corporate Social Responsibility 3 e David Chandler and William B. Werther, Jr. 10 so cietal stakeholders. The Environment as a Stakeholder There is an interesting debate whether the natural environment, as a non - independent actor, should be included as an identifiable stakeholder of the firm. P RIORITIZING S TAKEHOLDERS An effective stakeholder model, however , must do more than merely identify the company ’s stakeholders. Equally important , if the model is to be of use to firms in terms of implementation, is the ability to prioritize among the se stakeholders . This is particularly important when the interests of these stakeholders conflict , as they often do . The businesses most likely to succeed in today’s rapidly evolving global environment will be those best able to adapt to their dynamic environment by balanc ing the conflicting interests of multiple stakeholders. Integrating a stakeholder perspective into a strategic framework is designed to allow companies to resp ond to stakeholder demands in way s that maximize both economic and social value. Just because an individual or organization merits inclusion in a firm’s list of relevant stakeholders, however, does not compel the firm (either legally or logically) to comply with every demand that stakeholder make s . The concentric circles of organizational , economic, and societ al stakeholders presented in Figure 2.2 provide a rough guide to prioritization. By identifying its key stakeholders within each category, executives can prioritiz e the needs and interests of certain groups over others. In

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    Strategic Corporate Social Responsibility 3 e David Chandler and William B. Werther, Jr. 11 addition, we argue that among categories, stakeholders decrease in importance to the firm the further they are removed fr om core operations. In seeking to prioritize its stakeholders, however, a firm needs to keep two key points in mind: First, no organization can afford to ignore consistently the interests of an important stakeholder and second, it is vital to remember that the relative importance of stakeholders will inevitably differ from firm - to - firm, from issue - to - issue, and from time - to - time. Simon Zadek, founder and CEO of AccountAbility ( http://www.accountability21.net/ ) has developed a powerful tool that firms can use to evaluate which stakeholders and issues pose the gr eatest potential opportunity and danger . 13 First, Zadek identified the five stages of learning that organizations go through “when it comes to developing a sense of corporat e responsibility” 14 — defensive (to deny responsibility), compliance (to do the minimum required), managerial (to begin integrating CSR into management practices), strategic (to embed CSR within the strategy planning process), and civil (to promo te CSR practices industry - wide). Then, Zadek combined these five stages of learning with four stages of intensity “to measure the maturity of societal issues and the public’s expectations around the issues” 15 — latent (awareness among activists only), emerging (awareness seeps into the political and media communities), consolidating (much broader awareness is established), and institutionalized (tangible reaction from powerful stakeholders). T HE I NTEGRATION OF S TRATEGY AND CSR

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    Strategic Corporate Social Responsibility 3 e David Chandler and William B. Werther, Jr. 12 Th at key proponents of both the resources and industry perspectives implicitly recognize the limitations of their earlier work can be deduced from their more recent publications . In two important respects, both Prahalad and Porter have ev olved their positions : F irst, to integrate both the internal (resources) and external (industry) perspectives, into one comprehensive vision ; and, second, to incorporate components of CSR and, implicitly, a broader stakeholder perspective. Combining the Resources and Industry Perspectives Both Prahalad and Porter, therefore, talk expansively in their recent work and, in the process, come much closer to combin ing the resources an d industry perspectives. Prahalad, in discussing the potential opportunity for firms at the BOP, recognizes that a change in environmental context alters the potential of a fixed set of resources and capabilities. In addition, Porter and Kramer incorporat e both “inside - out linkages” (a firm level perspective) and “outside - in linkages” (an environmental level perspective) within one view of the firm and its strategic environment that emphasizes “the interdependence between a company and society.” 16 Integrating CSR Concerning the integration of CSR into their ideas, there is a strong theme running through all of Prahalad and Porter’s recent work. In addition to identifying new markets for multi - national corporations, Prahalad is clearly also concerned with the social value that the efficient deliver y of products and services can provide to the developing world. In addition,

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    Strategic Corporate Social Responsibility 3 e David Chandler and William B. Werther, Jr. 13 Porter is concerned about the potential social and economic value to the strategic decision making process in firms . On the one hand, it is clear that CSR can be thought of as a core competence of the firm. On the other hand, however, CSR is also clearly a means to evaluate a firm’s external environment in terms of its primary stakeholder groups — identifying the structural components of that environment that present the firms with a favorable opportunity to succeed. S TRATEGIC CSR There are four components that are essential to defining strategic CSR : First, that firms i ncorporate a CSR perspective within their strategic planning process; second, that any actions they take are directly r elated to core operation s ; third, that they i ncorporate a stakeholder perspective; and, fourth, that they shift from a short term perspective to managing the firm’s resources and relations with key stakeholders over the medium - to long term. S trategic CSR , therefore, is supported by four key pillars — a CSR perspective, the core operations of the firm, a stakeholder perspective, and medium - to long term planning. It is the combination of these four pillars that is essential to the integration of CSR within the strategic planning and d ay - to - day operations of the organization . A CSR P erspective Essential to any definition of strategic CSR is that firms incorporate a CSR perspective within their strategic planning process .

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    Strategic Corporate Social Responsibility 3 e David Chandler and William B. Werther, Jr. 14 In outlining their ideas on how firms can incorporate a social dimension to their strategic decision making, Porter and Kramer provide a three - tiered framework that forms a guide to how organizations can prioritize among their stakeholders and the relevant social issues with which they are expected to deal . 17 The interaction between firms and issues of concern to the societies in which they operate are divided into three levels of interaction : • “Generic social issues” (not directly related to a firm’s operations) • “Value chain social impacts” (the extent to which a firm’s operations affect society) • “ Social dimensions of competitive context” (the extent to which the environment constrains a firm’s operations) Core O perations A second component of strategic CSR is that any action a firm take s is directly related to its core operations. In short, the same action will differ in terms of whether it can be classified as strategic CSR, depending on the core expertise of the firm and the relevance of the issue to the firm’s vision and mission. A long similar lines, it makes a great deal of sense for a computer company like Dell to offer a computer recycling program . 18 It make s much less sense , however, for Dell to offer a “Plant a T ree for Me” program as a way for consumers to offset greenhouse gas emissions produced as a result of the production of their new computer . 19 Dell knows about computers and should know how best to recycle them. Less obvious is Dell’s expertise in relation to tree

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    Strategic Corporate Social Responsibility 3 e David Chandler and William B. Werther, Jr. 15 planting — W hat trees to plant , w here to plant them , or w hether tree planting is an efficient use of the firm’s resources or an effective means of combating climate cha nge. A Stakeholder P erspective A third component of strategic CSR is that firms incorporate a stakeholder perspective. A barrier to the implementation of a stakeholder perspective, however, is the primary emphasis currently given by many corporations to the interests of its shareholders. A s discussed above, a n issue that is rarely raised in relation to a stakeholder model is the issue of prioritization. It is fine for an organization to be able to identify its different stakeholders and their different interests and demands, but the difficulty comes when those interests and expectations conflict. The most effective means of dealing with stakeholder conflict is prioritization. If a firm has two stakeholder groups whose demands conflict (i.e., the firm is unable to satisfy fully both stakeholders), it makes sense for it to respond more wholeheartedly to the most important of the two, while attempting not to offend the other. Medium - to L ong Term The final , and most important, component of strategic CSR is the importance of a shift from a short term perspective when managing the firm’s resources and stakeholders’ relations to a medium or long - term perspective . Businesses must satisfy key groups among their various constituents if they hope to remain viable in today’s business context. When the expectations of different stakeholders

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    Strategic Corporate Social Responsibility 3 e David Chandler and William B. Werther, Jr. 16 conflict, organizations need to be able to balance the competing interests. An example of such conflict exists among different classes of investors who might have different definitions of what they consider to be an acceptable level of performance . A focus on short term results, often driven by those investors or other shareholders (such as the firm’s executives) w ho have no interest in the long term health or viability of the organization , can be hugely damaging to the organization and represents a relatively recent development in western capitalism. A S TAKEHOLDER P ERSPECTIVE IN A CTION Beyond the stakeholder model in this chapter, there are a number of contentious areas of debate within the CSR community. These debates lead to confusion regarding possible best - practice standards and difficulties for firms in implementation. As such, Chapter 3 will explore some on the a rguments against CSR (and the often unintended implications of progressive CSR applications) that are yet to be resolved. In the final two chapters of Part I, we will outline how firms integrate CSR into day - to - day operations. Chapter 4 puts CSR into strategic perspective and expands on the growing importance of CSR and its effect on firm strategy. Finally, C hapter 5 discuss es the i ssues that influence the implementation of CSR within a strategic decision - making framework of the firm .

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    Strategic Corporate Social Responsibility 3 e David Chandler and William B. Werther, Jr. 17 N OTES AND R EFERENCES 1 An alternative tool to analyze a firm’s strategy that emphasizes the importance of a comprehensive approach is the “Strategy Diamond.” This approach is detailed in an article by Donald C. Hambrick and James W. Fredrickson: ‘Are you sure you have a strategy?’ Academy of Management Executive , Vol.19, No.4, 2005, pp. 51 - 62. The strategy diamond contains five elements that cover the range of actions taken by firms to achieve their goals: arenas (the areas in which the firm will compete), vehicles (the ways in which the firm will achieve its goals), differentiators (the means by which the firm will differentiate itself from the competition), staging (the speed and order of implementation), and economic logic (the route to profitability). While the strategy diamond draws on existing knowledge, its value lies in combining this knowledge into a comprehensive tool to analyze a firm’s strategy — “an integrated overarching concept of how the business will achieve its objectives” (p51). 2 C.K. Prahalad & Gary Hamel, ‘The Core Competence of the Corporation,’ Harvard Business Review , May - June, 1990, pp. 79 - 91. 3 Gary Hamel & C.K. Prahalad, Competing for the Future , Harvard Business School Press, 1994. 4 “Google's mission is to organize the world's information and make it universally accessible and useful.” http://www.google.com/corporate/ 5 C.K. Prahalad & Gary Hamel, ‘The Core Competence of the Corporation,’ Harvard Business Review , May - June, 1990, p81. 6 Michael E. Porter, ‘How Competitive Forces Shape Strategy,’ Harvard Business Review , March/April, 1979, pp. 137 - 145. 7 Michael E. Porter, Competitive Strategy , The Free Press, 1980. 8 Michael E. Porter, Competitive Advantage , The Free Press, 1985. 9 Michael E. Porter, ‘The Five Competitive Forces That Shape Strategy,’ Harvard Business Review , January 2008, pp. 79 - 93. 10 See Rebecca Tuhus - Dubrow, ‘US: Sued by the forest,’ The Boston Globe , July 19, 2009, in CorpWatch, http://www.corpwatch.org/article.php?id=15413 for an interesting discussion about whether the ecological environment is an identifiable stakeholder of the firm with rights that are protected by law. 11 R. Edward Freeman, Strategic Management: A Stakeholder Approach , Pitman, 1984, p46. 12 James E. Post, Lee E. Preston, & Sybille Sachs , ‘Managing the Extended Enterprise: The New Stakeholder View,’ California Management Review , Vol.45, No.1, Fall 2002, p8. 13 Simon Zadek, ‘The Path to Corporate Responsibility,’ Harvard Business Review , December, 2004, pp. 125 - 132. 14 Simon Zadek, ‘The Path to Corporate Responsibility,’ Harvard Business Review , December, 2004, p127. 15 Simon Zadek, ‘The Path to Corporate Responsibility,’ Harvard Business Review , December, 2004, p128. 16 Michael E. Porter & Mark R. Kramer, ‘Strategy & Society,’ Harvard Business Review , December, 2006, p84. 17 Michael E. Porter & Mark R. Kramer, ‘Strategy & Society,’ Harvard Business Review , December, 2006, p85.

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    Strategic Corporate Social Responsibility 3 e David Chandler and William B. Werther, Jr. 18 18 http://www.dell.com/recycling/ . See also: ‘Dell Will Offer Free Recycling for its Computer Equipment,’ Wall Street Journal , June 29, 2006, pD3. 19 http://www.dell.com/content/topics/global.aspx/about_dell/values/environment/tree?c=us&l=en&s=corp . See also: ‘Dell unveils ‘plant a tree for me,’’ Financial Times , January 10, 2007, p17.

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    Strategic Corporate Social Responsibility 3e David Chandler and William B. Werther, Jr. 1 C HAPTER 3 CSR: W HO S E R ESPONSIBILITY ? F ACULTY N OTES AND D ISCUSSION Whose responsibility is CSR? The term corporate social responsibility suggests that such behavior is the responsibility of corporations. But, where does the motivation for socially responsible behavior come from? Should corporations act responsibly because they are convinced of the moral argument for doing so (irrespective of the financial implications of their actions), or should they act responsibly because it is in their self - interest? What is the point of a firm acting socially responsibly, if its key stakeholders do not care or do not want to pay the price premium that is often associated with such actions? As the Malden Mills example in C hapter 1 indicates, the best of intentions do not help a firm’s stakeholders if the firm is bankrupt. The economic argument for CSR assumes that firms act most effectively when they are incentivized to do so. It assumes that organizations are conservative — that they are more responsive to external stimuli and are less willing to initiate change proactively when there is little evidence that their actions will be rewarded in the marketplace. Importantly, it assumes that CSR maximizes both economic and social value when the firm’s goals and society’s expectations are aligned. Chapters 1 and 2 present compelling strategic reasons for firms to integrate a CSR perspective throughout operations . Nevertheless, unprincipled behavior, even outright disregard for CSR, does not always have a direct and immediate impact. Sometimes stakeholders are willing to overlook socially irresponsible behavior because other issues a re more pressing. A firm with unacceptable employment practices th at are despised by employees, for example, may not reap the negative consequences of its actions if the jobs are vital to the wellbeing of the local community and there are no good alternatives . Should firms interpret the lack of push back against their actions as an invitation to uphold the status quo without consideration for the broader societal concerns about their operations?

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    Strategic Corporate Social Responsibility 3e David Chandler and William B. Werther, Jr. 2 A more difficult question arises when a CSR perspective fails to align the firm ’s interests with those of its stakeholders or the greater public good — i.e., when stakeholder interests conflict . W hat happens when stakeholder s demand no n - socially responsible behavior ? T he focus of much of the CSR debate has been to urge firms to act proactively out of a social or moral duty. The label CSR itself talks about the social responsibility of corporations, without understanding that, often, there are no meaningful consequences for firms that do n ot act responsibly and that, in contrast, they are often rewarded economically for not pursuing CSR . 1 Unless their business suffers a s a result of their actions, should firms be expec ted to change? D iscussion around the issue of CSR almost exclusively focuses on the responsibilities of business, while ignoring the responsibilities of stakeholders (consumers, in particular) to demand socially responsible action from firms. Anecdotal evidence suggests, for example, that c onsumers want the highest quality products at the lowest possible prices. If those products happen to coincide with an ethical message, then that is great, but consumers (on the whole) are willing to plead ignorance if it means gett ing their sneakers for $10 less. If, on the other hand, consumers began demanding specif ic minimum standards from firms and took their custom elsewhere if the firms failed to comply, those firms would be forced to change their practices and change them quickly . In the absence of such active consumerism, h ow can we expect businesses to introduce CSR when doing so means they have to try and interpret what consumers say they want — opinions that often contradict the criteria those same consumers use to make their purchase decisions? CSR: A Corporate Responsibility? The focus of much of the CSR debate (and captured by the term ‘corporate social responsibility ’) is the assumption that firms have a responsibility to pursue goals other than profit maximization. In particular, we propose the idea that the CSR community expects too much of firms; that firms react to change better than they initiate change and that, if society decides it wants greater social responsibility from firms, then perhaps it is a firm’s stakeholders (and their consumers, in particular) that have an equal, if not greater, responsibility to demand this behavior. More importantly, stakeholders need to demonstrate that they will support such

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    Strategic Corporate Social Responsibility 3e David Chandler and William B. Werther, Jr. 3 behavior. Firms that provide services that are not demanded by consumers will quickly go out of business. With CSR, as with many aspects of business, it does not pay firms to be too far ahead of the curve. Milton Friedman versus Charles Handy Two important articles on CSR frame this debate about the purpose of the firm. The first article was published in the New York Times Magazine in 1970 by the Nobel Prize winning economist, Milton Friedman — ‘The Social Responsibility of Business is to Increase its Profits. 2 I n the article, Friedman argues that profit, as a result of the actions of the firm, is an end in itself. He believes strongly that a firm need not have any additional justification for existing and that, in fact, social value is maximized when a firm focuses solely on pursuing its self - interest in attempting to maximize profit: “I share Adam Smith’s skepticism about the benefits that can be expected from “those who affected to trade for the public good.” … in a free society, … “there is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits.” 3 The second article is a 2002 Harvard Business Review article by the influential British management author and commentator, Charles Handy. 4 In contrast to Friedman, Handy presents a much broader view of the role of business in society. For Handy, it is not sufficient to justify a firm’s profits as an end in itself. For Handy, a business has to have a motivation other than merely making a profit in order to justify its existence — profit is merely a means to achieve a larger end. A firm should not remain in existence just because it is profitable, but because it is meeting a need that society as a whole values: “It is salutary to ask about any organization, “If it did not exist, would we invent it?” “Only if it could do something better or more useful than anyone else” would have to be the answer, and profit would be the means to that larger end.” 5

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