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Strategic Corporate Social Responsibility - 5e
Strategic Corporate Social Responsibility - 5e
Strategic Corporate Social Responsibility - 5e
5th Edition
1
2
Strategic Corporate Social
Responsibility
Sustainable Value Creation
5th Edition
David Chandler
University of Colorado Denver
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FOR INFORMATION:
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4
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Printed in the United States of America
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Brief Contents
1. List of Figures
2. Glossary
3. Preface: Fifth Edition
4. Plan of the Book
5. Supplementary Materials
6. Acknowledgments
7. PART I • CORPORATE SOCIAL RESPONSIBILITY
1. Chapter 1 • What Is CSR?
2. Chapter 2 • The Driving Forces of CSR
3. Case Study: Religion
8. PART II • A STAKEHOLDER PERSPECTIVE
1. Chapter 3 • Stakeholder Theory
2. Chapter 4 • Corporate Stakeholder Responsibility
3. Case Study: Capitalism
9. PART III • A LEGAL PERSPECTIVE
1. Chapter 5 • Corporate Rights and Responsibilities
2. Chapter 6 • Who Owns the Firm?
3. Case Study: Media
10. PART IV • A BEHAVIORAL PERSPECTIVE
1. Chapter 7 • Markets and Profit
2. Chapter 8 • Compliance and Accountability
3. Case Study: Investing
11. PART V • A STRATEGIC PERSPECTIVE
1. Chapter 9 • Strategy + CSR
2. Chapter 10 • Strategic CSR
3. Case Study: Supply Chain
12. PART VI • A SUSTAINABLE PERSPECTIVE
1. Chapter 11 • Sustainability
2. Chapter 12 • Sustainable Value Creation
3. Final Thoughts
13. Appendix • Implementing Strategic CSR
14. Notes
15. Index
16. About the Author
6
Detailed Contents
List of Figures
Glossary
CSR Terms
Strategy Terms
Preface: Fifth Edition
Why CSR Matters
CSR as Value Creation
Studying CSR
Plan of the Book
Content Chapters
Case Studies
Supplementary Materials
CSR Newsletter
Additional Online Support
Instructors
Students
Acknowledgments
PART I • CORPORATE SOCIAL RESPONSIBILITY
CHAPTER 1 • What Is CSR?
A New Definition of CSR
The Evolution of CSR
Foundations of CSR
An Ethical Argument for CSR
A Moral Argument for CSR
A Rational Argument for CSR
An Economic Argument for CSR
➨ STRATEGIC CSR DEBATE
Questions for Discussion and Review
CHAPTER 2 • The Driving Forces of CSR
Affluence
Inequality within Countries
Inequality among Countries
Sustainability
Globalization
Communication
Mobile Devices
7
Social Media
Brands
Brands with Attitude
➨ STRATEGIC CSR DEBATE
Questions for Discussion and Review
CASE STUDY: Religion
Religion and Capitalism
Islamic Finance
➨ STRATEGIC CSR DEBATE
Questions for Discussion and Review
NEXT STEPS
PART II • A STAKEHOLDER PERSPECTIVE
CHAPTER 3 • Stakeholder Theory
Stakeholder Definition
A New Definition
Stakeholder Prioritization
Organizational, Economic, and Societal Stakeholders
Evolving Issues
Prioritizing among Issues and Stakeholders
A Model of Stakeholder Management
➨ STRATEGIC CSR DEBATE
Questions for Discussion and Review
CHAPTER 4 • Corporate Stakeholder Responsibility
CSR: A Corporate Responsibility?
Milton Friedman vs. Charles Handy
CSR: A Stakeholder Responsibility?
Stakeholder Engagement
Caring Stakeholders
Informed Stakeholders
Transparent Stakeholders
Educated Stakeholders
Engaged Stakeholders
➨ STRATEGIC CSR DEBATE
Questions for Discussion and Review
CASE STUDY: Capitalism
The Financial Crisis
Moral Hazard
Global Capitalism
Occupy Wall Street
8
The Financial Crisis—Ten Years On
The Rise of Socialism?
➨ STRATEGIC CSR DEBATE
Questions for Discussion and Review
NEXT STEPS
PART III • A LEGAL PERSPECTIVE
CHAPTER 5 • Corporate Rights and Responsibilities
Corporate Rights
Citizens United
Corporate Responsibilities
Corporate Governance
Benefit Corporations
➨ STRATEGIC CSR DEBATE
Questions for Discussion and Review
CHAPTER 6 • Who Owns the Firm?
History of the Corporation
Limited Liability and the Stock Market
Shareholders Own Shares
A Legal Person
Business Judgment Rule
Fiduciary Duty
Dodge v. Ford
Stakeholders, Not Shareholders
➨ STRATEGIC CSR DEBATE
Questions for Discussion and Review
CASE STUDY: Media
CNN
Facebook
Fake News
Addiction
Privacy
➨ STRATEGIC CSR DEBATE
Questions for Discussion and Review
NEXT STEPS
PART IV • A BEHAVIORAL PERSPECTIVE
CHAPTER 7 • Markets and Profit
Markets
Stakeholders as Market Makers
Profit
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Economic Value + Social Value
Profit Optimization
Production Value and Consumption Value
Social Progress
The Next Billion
Unilever
➨ STRATEGIC CSR DEBATE
Questions for Discussion and Review
CHAPTER 8 • Compliance and Accountability
Voluntary vs. Mandatory
Self-Interest
Behavioral Economics
Nudges
Accountability
Defining CSR
Measuring CSR
CSR Reporting
Step 1: Standardizing CSR
Step 2: Certifying CSR
Step 3: Labeling CSR
CSR Pricing
Lifecycle Pricing
➨ STRATEGIC CSR DEBATE
Questions for Discussion and Review
CASE STUDY: Investing
Socially Responsible Investing
Environmental, Social, and Governance
Values-Based Funds
Sin Funds
Impact Investing
Social Impact Bonds
➨ STRATEGIC CSR DEBATE
Questions for Discussion and Review
NEXT STEPS
PART V • A STRATEGIC PERSPECTIVE
CHAPTER 9 • Strategy + CSR
Vision, Mission, Strategy, Tactics
Strategic Analysis
Resource Perspective
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Industry Perspective
Integrating CSR
Strategy Formulation
CSR Threshold
Strategy Implementation
CSR Filter
➨ STRATEGIC CSR DEBATE
Questions for Discussion and Review
CHAPTER 10 • Strategic CSR
Defining Strategic CSR
CSR Perspective
Core Operations
Stakeholder Perspective
Optimize Value
Medium to Long Term
Strategic CSR Is Not an Option
Not Philanthropy
Not Caring Capitalism
Not Sharing Value
Strategic CSR Is Business
➨ STRATEGIC CSR DEBATE
Questions for Discussion and Review
CASE STUDY: Supply Chain
An Ethical Supply Chain
Fair Trade
An Unethical Supply Chain
Apple
A Strategic Supply Chain
Starbucks
➨ STRATEGIC CSR DEBATE
Questions for Discussion and Review
NEXT STEPS
PART VI • A SUSTAINABLE PERSPECTIVE
CHAPTER 11 • Sustainability
Sustainable Development
COP21
COP24
Sustainability in Practice
Climate Change
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Resilience
Natural Capital
Stakeholders
Waste
e-Waste
Plastic
Beyond Sustainability
➨ STRATEGIC CSR DEBATE
Questions for Discussion and Review
CHAPTER 12 • Sustainable Value Creation
Values, Morals, and Business Ethics
Value Creation
Conscious Capitalism
Values-Based Business
Strategic CSR Is Good Business
➨ STRATEGIC CSR DEBATE
Questions for Discussion and Review
Final Thoughts
Appendix • Implementing CSR
Strategic Planning
Short- to Medium-Term Implementation
Executive Leadership
Board Support
CSR Officer
Vision, Mission, and Values
Performance
Integrated Reporting
Ethics Code and Training
Ethics Helpline
Medium- to Long-Term Implementation
Stakeholder Engagement
Marketing
Corporate Governance
Social Activism
The Socially Responsible Firm
Notes
Index
About the Author
12
List of Figures
Preface
Figure P.1 Bloom’s Taxonomy of Learning xxxii
Part I • Corporate Social Responsibility
Figure 1.1 The Corporate Social Responsibility Hierarchy 5
Figure 1.2 The Evolution of CSR 10
Figure 2.1 The Four Phases of Stakeholder Access to
Information 28
Figure 2.2 Globalization in Two Phases of Empowerment 30
Figure 2.3 The Free Flow of Information 31
Figure I.1 Religion in the United States (2001–2017) 41
Figure I.2 Religion in the United Kingdom (2001–2018) 42
Part II • A Stakeholder Perspective
Figure 3.1 Concentric Circles of Stakeholders 60
Figure 3.2 Analyzing Issues 65
Figure 3.3a Prioritizing among Issues 66
Figure 3.3b Prioritizing among Stakeholders 66
Figure 3.4 The Five Steps of Stakeholder Management 69
Figure 4.1a The Firm and Stakeholders as Independent Actors
81
Figure 4.1b The Firm and Stakeholders as Integrated Actors
81
Figure 4.2 The Strategic CSR Window of Opportunity 82
Figure 4.3 The CSR Sweet Spot vs. Danger Zone 85
Figure 4.4 The Honesty and Ethics of Business Executives
(1990–2017) 86
Figure 4.5 Willingness to Pay for CSR (2011–2014) 87
Figure 4.6 Stakeholder Responsibilities 93
Figure II.1 Fines Paid by US Banks (2010–2013) 101
Part III • A Legal Perspective
Figure 5.1 Rights, Responsibilities, and Self-Interest 113
Figure 5.2 S&P 500 Incorporations by State (US, 2016) 120
Figure 6.1 Primary vs. Secondary Markets for Securities 130
Figure 6.2 Shareholder Rights in the United States 134
Figure III.1 Hours Spent Online Daily (US, 2015) 154
Part IV • A Behavioral Perspective
Figure 7.1 The Four Levels of Global Income (2018) 173
13
Figure 7.2 Unilever—The Sustainability Leader (2018) 177
Figure 8.1 The Evolution of CSR Reporting 192
Figure 8.2 The Product Lifecycle 197
Figure IV.1 Timeline of SRI and Impact Investing 206
Figure IV.2 Global Growth of ESG-Themed ETFs (2011–
2017) 208
Figure IV.3 SIBs by Country (2017) 215
Part V • A Strategic Perspective
Figure 9.1 Porter’s Five Competitive Forces 226
Figure 9.2 The Business-Level CSR Threshold 233
Figure 9.3 Strategy Formulation vs. Strategy Implementation
234
Figure 9.4 Operational Constraints and the CSR Filter 235
Figure 10.1 Porter and Kramer’s Strategy and Society Model
242
Figure 10.2 The Difference between CSR and Strategic CSR
255
Figure 10.3 Mainstream CSR vs. Strategic CSR 256
Figure V.1 Fairtrade Retail Sales by Country (2017, €mn) 261
Figure V.2 Ripples of Responsibility across the Supply Chain
267
Part VI • A Sustainable Perspective
Figure 11.1 Sustainability vs. Strategic CSR 277
Figure 11.2 Total Carbon Emissions by Country (2015) 282
Figure 11.3 The Carbon Footprint of Tropicana Orange Juice
287
Figure 11.4 Total e-Waste in the United States 292
Figure 11.5 Annual Global Plastic Production (1950–2015)
294
Figure 12.1 Objective + Subjective Value 302
Figure 12.2 Strategic CSR + Value Creation 304
Figure 12.3 Strategic Decision Making in a Values-Based
Business 309
Appendix: Implementing Strategic CSR
Figure A.1 The Triple Bottom Line 329
Figure A.2 Lobbying Spending in the US (1998–2017) 333
Figure A.3 A Firm’s CSR Plan of Implementation 337
14
Glossary
Often, different terms are being used to mean similar things, yet heated
debates can sprout from semantic subtleties. In order to clarify some of
this confusion and provide a consistent vocabulary with which to read
this book, brief definitions of key concepts are provided in this glossary.
CSR Terms
These terms are discussed in the CSR literature (some more widely than
others) and referred to throughout this book.
15
Aspirational recycling: “People setting aside items for recycling
because they believe or hope they are recyclable, even when they
aren’t” (see Recycling).1
Attention economy: A business model that depends on the amount
of time spent with the product, such as an app, often underwritten
by advertising revenue.
Badvertising: Advertising, marketing, or PR activities by a firm
that promote socially irresponsible behavior, often generating a
backlash by stakeholders.
Balanced scorecard: A means of measuring the impact of a
business across multiple stakeholder groups.
B Corp: A certification awarded to firms that meet specific
standards of transparency and accountability set by the nonprofit B
Lab (http://www.bcorporation.net/).
Benefit corporation: A type of legal structure for businesses
(http://benefitcorp.net/) that is available only in those US states that
have passed benefit corporation legislation.
Behavioral biometrics: A collection of unique online behaviors,
gathered surreptitiously via a phone or keyboard, which can be used
to confirm an individual’s identity.2
Biodiversity: The variety of species alive on Earth.
Bottom of the pyramid: A concept introduced by C. K. Prahalad
and Stuart L. Hart that discusses the market potential for firms
among the poorest societies.3
Brand hijacking: When an antisocial or otherwise
offensive/peripheral group becomes associated with a firm’s
product or service, without the express permission of that firm.
Business citizenship: Socially oriented actions by firms designed
to demonstrate their role as constructive members of society.
Business ethics: The application of ethical theory to organizational
decision making.
Cap-and-trade: A market established to buy and sell the right to
emit carbon. It is underwritten by government-issued credits and is
designed to limit the total amount of carbon in the atmosphere.
Carbon budget: The amount of carbon that can safely be emitted,
by all countries combined, before the damage to the planet’s climate
becomes too severe.
Carbon capture: A range of technological innovations designed to
remove carbon from the Earth’s atmosphere.
16
Carbon footprint: A firm’s total emissions of carbon-related
greenhouse gases, often measured in terms of tons of carbon or
carbon dioxide (see Greenhouse gas).
Carbon insetting: A firm’s integration of sustainable practices
directly into the supply chain to take responsibility for its carbon
emissions (see Carbon offsetting).
Carbon intensity: A measure of a firm’s environmental impact that
is calculated by dividing carbon emissions by annual sales.
Carbonivore: An organization or technology that removes more
carbon from the air than it emits, “either storing it, turning it into a
useful product or recycling it.”4
Carbon negative emissions: The extraction from the atmosphere of
previously emitted carbon via technology such as solar
geoengineering.
Carbon-neutral: A state when a firm’s net carbon emissions are
zero. This is achieved by offsetting existing emissions with carbon
reduction efforts (see Net positive).
Carbon offsetting: A firm’s reduction of its carbon footprint by
paying for environmentally beneficial behavior by a third party (see
Carbon insetting).
Carbon trading: See Cap-and-trade.
Cash mob: A group of community members who use social media
to assemble at a given date and time to spend money in support of a
local business.
Cause-related marketing: Efforts to gain or retain customers by
tying purchases of a firm’s goods or services to the firm’s
philanthropy (see Advocacy advertising).
Circular economy: A means to reduce waste via greater efficiency
or by reuse, repair, or recycling (see Cradle-to-cradle).
Civic engagement: Efforts by a firm to improve a local community.
Clicktivism: A form of protest that is conducted online via social
media.
Climate change: The term used to describe the effect of human
economic activity on the planet’s atmosphere and weather systems.
Climate finance: Investments designed to generate carbon-neutral
outcomes.
Closed-loop recycling: Products recycled into the same product
(e.g., plastic bottles recycled into more plastic bottles)—retaining
quality, rather than downcycling, where quality deteriorates (see
Downcycling).
17
Closed-loop sourcing: Utilizing existing materials to create zero
waste (see Circular economy).
Coalitions: Collections of organizations, stakeholders, or
individuals who collaborate to achieve common goals.
Cobot: A robot that is designed to complement people at work,
rather than replace them—“a collaborative robot.”5
Compliance: Actions taken by firms to conform to existing laws
and regulations.
Conscious capitalism: An economic system based on four
principles that encourage the development of values-based
businesses: higher purpose, stakeholder orientation, conscious
leadership, and conscious culture (see Values-based business).
Conscious consumer: A customer “who considers the social,
environmental, ecological, and political impact of their boycott and
boycott actions.”6
Conspicuous virtue: Consumption intended to demonstrate not
wealth (“conspicuous consumption”) but “innate goodness.”7
Consumer activism: Efforts by customers to have their views
represented in company policies and decision making. Organized
activism is more likely referred to as a “consumer movement,”
which can advocate for more radical changes in consumer laws.
Consumer boycott: Customers who avoid specific industries,
firms, or products based on performance metrics or issues that they
value.
Consumer buycott: Customers who actively support specific
industries, firms, or products based on performance metrics or
issues that they value.
Corporate citizenship: See Business citizenship.
Corporate philanthropy: Contributions by firms that benefit
stakeholders and the community, often made through financial or
in-kind donations to nonprofit organizations.
Corporate responsibility: A term similar in meaning to CSR, but
preferred by some firms because it de-emphasizes the word social.
Corporate social opportunity: A perspective that emphasizes the
benefits to firms of adopting CSR, mitigating the perception of CSR
as a cost to business.8
Corporate social performance: The benefits to the firm (often
measured in traditional financial or accounting metrics) gained from
implementing CSR.
18
Corporate social responsibility (CSR): A responsibility among
firms to meet the needs of their stakeholders and a responsibility
among stakeholders to hold firms to account for their actions.
Corporate social responsiveness: Actions taken by a firm to
achieve its CSR goals in response to demands made by specific
stakeholder groups.
Corporate stakeholder responsibility: A responsibility among all
of a firm’s stakeholders to hold the firm to account for its actions by
rewarding behavior that meets expectations and punishing behavior
that does not meet expectations.
Corporate sustainability: Business operations that can be
continued over the long term without degrading the ecological
environment (see Sustainability).
Cradle-to-cradle: A concept introduced by William McDonough
that captures the zero-waste, closed-loop concept of the circular
economy (see Circular economy).9
CSR deficit: The difference in stakeholder value created between
what is theoretically possible and what is actually created by the
firm. The deficit can be calculated as an aggregate amount across all
stakeholders, or within each stakeholder group.
CSR Threshold: The point beyond which the need to be responsive
to a broader set of stakeholders becomes essential to the survival of
the firm and/or industry.
Deindustrialization: A process of industrial decline in one country,
often due to the outsourcing of production to another part of the
world.
Digital philanthropy: Donations to a charitable cause or disaster
relief made possible by Internet technology, often via mobile
devices.
Downcycling: A recycling process that reduces the quality of the
recycled material over time (see Recycling and Upcycling).
Eco-efficiency: An approach to business that is characterized by the
need to “do more with less” and popularized by the phrase “reduce,
reuse, recycle.”
Ecopreneur: An entrepreneur who utilizes for-profit business
practices to achieve environmental goals (see Social entrepreneur).
Ecosystem: A self-sustaining community.
Enlightened self-interest: The recognition that firms can operate in
a socially conscious manner without forsaking the economic goals
that lead to financial success.
19
Ethics: A guide to moral behavior based on social norms and
culturally embedded definitions of right and wrong.
E-waste: Toxic pollutants that are a byproduct of discarded
consumer electronic goods, such as televisions, computers, and
smartphones.
Extended producer responsibility: Ownership of a product and its
environmental consequences, up and down the supply chain.10
Externality: See Externality under “Strategy Terms.”
Fair trade: Trade in goods at prices above what market forces
would otherwise determine in order to ensure a living wage for the
producer (see Living wage).
Freecycling: A process by which items that are no longer needed
are donated to others who can put them to productive use (see
Recycling).
Garbology: The study of what humans throw away.11
Gig economy: A metaphor for the evolving nature of work that is
characterized by short-term, insecure gigs performed by self-
employed freelancers or micro-entrepreneurs and traded online (see
Sharing economy).12
Glass cliff: Similar to a glass ceiling, which constrains success, the
glass cliff is a “theory that holds that women are often placed in
positions of power when the situation is dire . . . and the likelihood
of success is low.”13
Global change: The combination of change to the climate and other
natural features of the planet, such as the soil and the sea (see
Climate change).
Global Compact: A United Nations–backed effort to convince
corporations to commit to multiple principles that address the
challenges of globalization.14
Globalization: The free flow of people, ideas, trade, and finance
around the world.
Global Reporting Initiative (GRI): A multi-stakeholder
organization designed to produce a universal measure of a firm’s
CSR efforts.
Global warming: See Climate change.
Glocalization: “Dealing with big global problems through myriad
small or individual actions.”15
Grassroots: A social movement that originates among individuals
and grows upward.
20
Greenhouse gas: A gas that pollutes the atmosphere by trapping
heat, causing average temperatures to rise (e.g., carbon dioxide; see
Carbon footprint).
Green noise: “Static caused by urgent, sometimes vexing or even
contradictory information [about the environment] played at too
high a volume for too long.”16
Greenwash: “The act of misleading consumers regarding the
environmental practices of a company or the environmental benefits
of a product or service”17 (see Pinkwash).
Gross National Happiness (GNH): An attempt, most advanced in
the Kingdom of Bhutan, to replace gross domestic product (GDP)
as the primary measure of an economy’s health and well-being.18
Human rights: Freedoms that are an integral element of what it is
to be human.19
Impact investing: A variety of investment tools (e.g., mutual
funds, low-interest loans, and bonds) that seek to solve social
problems not previously addressed by market forces. The
measurement of outcomes/impact is emphasized (see Social
finance).
Inclusive capitalism: The idea that “those with the power and the
means have a responsibility to help make society stronger and more
inclusive for those who don’t.”20
Individual social responsibility: The application of CSR concepts
to the individual.
Integrated reporting: The publication of a firm’s economic,
environmental, and social performance in a unified document (see
Triple bottom line).
Intrapreneurship: A combination of the terms innovation and
entrepreneur to capture innovative behavior within a large,
bureaucratic organization.
Iron Law of Social Responsibility: The axiom that those who use
power in ways society deems abusive will eventually lose their
ability to continue acting in that way.21
Islamic finance: An investment philosophy guided by sharia law,
which prohibits the investment of funds in firms that generate “the
majority of their income from the sale of alcohol, pork products,
pornography, gambling, military equipment or weapons.”22
Leanwashing: Advertising by food- or nutrition-related companies
that misleadingly suggests a product is healthy (e.g., using terms
21
such as natural on labels).
Lifecycle pricing: An economic model designed to minimize waste
by including the total costs of a product or service in the price that
is charged to the customer.
Living wage: A level of pay intended to meet an employee’s basic
living standards, above subsistence levels. A living wage, which is
culturally embedded, is usually set at a higher level than a minimum
wage, which is legally defined (see Fair trade).
LOHAS: An acronym that stands for “lifestyles of health and
sustainability.”
Microfinance: A range of personal financial services (e.g., loans,
accounts, insurance, and money transfers) provided on a smaller
scale to meet the specific needs of poorer consumers and structured
to encourage entrepreneurship (see Social finance).
Moral hazard: To take risk in search of personal benefit where the
consequences of that risk are not borne by the individual. The effect
is to privatize gains and socialize losses.
Natural capital: The stock of all resources that exist in the natural
environment.
Natural corporate management (NCM): A business philosophy
“based upon genetic, evolutionary, and neuroscience components
that underlie and help drive corporate management, including
behavior, organizational, and eco-environmental relationships.”23
Net positive: An effort by a firm to ensure that it draws on few or
no virgin natural resources in its operational processes (see Carbon-
neutral).
Nongovernmental organizations (NGOs): Organizations that
operate with a legal and accounting structure that allows them to
pursue political, environmental, and/or social goals without the need
to generate a profit (see Nonprofits).
Nonprofits: Nonprofits are similar to NGOs but often differ by
having a domestic, rather than an international, focus (see
Nongovernmental organizations).
Organic: A method of producing food without using pesticides,
chemical fertilizers, or other industrial aids; designed to promote
ecological balance and preserve biodiversity.
Pastorpreneur: A religious figure who applies business principles
to a church or related religious activity, or who applies religious
principles to a business.
22
Peak oil: The maximum possible production of oil, after which
output will decline.24
Philanthrocapitalism: An approach to philanthropy that seeks to
mirror common business practices—greater transparency and more
measurable outcomes.25
Philanthropreneur: An individual who donates to a specific
charitable organization or issue and actively intervenes in the
management of that donation.
Philanthropy: A donation made, by either an individual or an
organization, to a charity or charitable cause.
Pinkwash: “When a company promotes pink-ribboned products
and claims to care about breast cancer while also selling products
linked to disease or injury”26 (see Greenwash).
Planetary boundaries: The limits of the Earth within which human
life can exist.
Public policy: Government decisions aimed at establishing rules
and guidelines for action with the intent of providing benefit (or
preventing harm) to society.
Recycling: A process by which resources are reclaimed from
discarded materials and put to productive use (see Downcycling and
Upcycling).
Renewable energy: A source of energy that is non-carbon-based
(e.g., solar, wind, or tidal energy). Also referred to as alternative
energy or green energy.
Resilience: The ability of organisms and organizations to adapt to a
changing climate.
Responsibility: To be responsible for something is to be
accountable for it. If there is no consequence for doing (or not
doing) something, there is no responsibility. Stakeholders define a
firm’s responsibility by rewarding behavior they like and punishing
behavior they dislike.
Sharing economy: The peer-to-peer exchange of “shared assets”
that are owned by individuals, rather than firms, and rented for short
periods among an online community (see Gig economy).27
Shwopping: An exchange program by which customers trade in
used clothing (to be donated) for vouchers that can be used to
purchase new clothes.28
Slow money: An offshoot of the “slow food” movement that,
instead of focusing on local food, emphasizes impact investments in
23
local businesses.29
Social cost of carbon: The cost associated with emitting carbon
that accounts for all the consequences of the emissions; currently
estimated to be approximately $40 per ton.30
Social entrepreneur: An entrepreneur who applies for-profit
business practices to an issue that previously did not have a market-
based solution (see Ecopreneur).
Social finance: An approach to finance that emphasizes the social
return on an investment, measured by various criteria (e.g., ethical,
faith-based, and environmental), in addition to seeking to secure
financial returns for investors (see Impact investing).
Social innovation: An approach to business by which firms seek to
meet not only the technical needs of their customers, but also their
broader aspirations as citizens.
Social license: The ability of a firm to continue to operate due to
stakeholder approval of its activities.
Socially responsible investing (SRI): A portfolio investment
strategy that seeks returns by investing in firms or projects that
pursue ethical or values-based goals.
Social value: The benefit (or harm) of a firm’s activities in terms of
nonmonetary metrics, as defined by each of the firm’s stakeholders.
Sofapreneurs: Individuals who are able to earn money working at
home due to online connectivity as part of the gig economy (see Gig
economy).31
Stakeholder: An individual or organization that is affected by a
firm (either voluntarily or involuntarily) and possesses the capacity
and intent to affect the firm.
Strategic corporate social responsibility (strategic CSR): The
incorporation of a CSR perspective within a firm’s strategic
planning and core operations so that the firm is managed in the
interests of a broad set of stakeholders to optimize value over the
medium to long term.
Surveillance capitalism: An economic system populated by firms
with business models that rely on the collection of personal data,
often surreptitiously, to be sold to advertisers.
Sustainability: “Sustainable development is development that
meets the needs of the present without compromising the ability of
future generations to meet their own needs”32 (see Corporate
sustainability).
24
Sustainable Development Goals (SDGs): Seventeen goals and 169
targets introduced by the United Nations to replace the Millennium
Development Goals.33
Sweatshops: Factories that employ children or apply working
standards with little, if any, respect for their well-being. Conditions
are deemed to be unsafe and unfair, often in comparison to
minimum legal conditions established in more affluent societies.
Techlash: A political and social response to the dominance of the
largest technology firms intended to constrain their business: “It
will be the 21st-century equivalent of the antitrust era, with the tech
giants vilified as malevolent quasi-monopolists whose behavior is
weakening democracy, suppressing competition and destroying
jobs.”34
Transparency: The extent to which a firm’s decisions and
operating procedures are open or visible to its external stakeholders
(see Accountability).
Triple bottom line: An evaluation of the total business by
comprehensively assessing a firm’s financial, environmental, and
social performance (see Integrated reporting).
Upcycling: A recycling process that increases the quality of the
recycled material over time (see Recycling and Downcycling).
Values: Fundamental beliefs or principles, formed from an
individual’s morals and ethics, that guide behavior.
Values-based business: A for-profit firm that is founded on a
vision and mission defined by a strategic CSR perspective (see
Conscious capitalism).
Whistle-blower: An insider who alleges organizational misconduct
and communicates those allegations of wrongdoing outside the firm
to the media, prosecutors, or others.
Woke capitalism: The need for firms to align themselves with the
progressive values (and associated causes) of key stakeholders to be
successful in the marketplace.
Strategy Terms
The intersection between strategy and CSR is central to strategic CSR.
As such, in addition to the preceding CSR terms, there are a number of
specialized terms used throughout this book to describe a firm’s strategy
or strategic decision-making processes.
25
Agency: The ability of an individual to act with free will.
Agent: An individual appointed to act on someone else’s behalf
(see Principal).
Board of directors: The formal authority to which the CEO and
executives of the firm are ultimately responsible (see Corporate
governance).
Business: A process of economic exchange by which organizations
seek to generate profits by satisfying their stakeholders’ needs (see
Company).
Business-level strategy: The strategy of a specific business unit
within a firm, either differentiation or low-cost, that enables the
firm to build a sustainable competitive advantage (see Corporate-
level strategy, Differentiation, and Low-cost).
Capabilities: Actions that a firm can do, such as pay its bills, in
ways that add value to the production process.
Company (or corporation): A legal organizational form permitted
to engage in business. The word company comes from the Latin
word companio, the literal translation of which originally meant
“breaking bread together”35 (see Business).
Competencies: Actions a firm can do very well.
Competitive advantage: Competencies, resources, or structural
positioning that separate the firm from its competitors in the
marketplace (see Sustainable competitive advantage).
Core competence (or capability): The processes of the firm that it
not only does very well, but is so superior at performing that it is
difficult (or at least time-consuming) for other firms to match its
performance in this area.36
Core resource: An asset of the firm that is unique and difficult to
replicate.
Corporate governance: The structure and systems that serve to
hold the firm legally accountable (see Board of directors).
Corporate-level strategy: The strategy of the firm, including
which industries in which to compete and whether to enter into
partnerships with other firms via joint ventures, mergers, or
acquisitions (see Business-level strategy).
Creative destruction: A concept introduced by Joseph Schumpeter
to describe the process by which markets innovate—destroying the
old to create space for the new.
Differentiation: A business-level strategy firms use to distinguish
their products from those of other firms on the basis of some
26
component other than price (see Low-cost).
Economic value: The benefit (or harm) of a firm’s activities in
terms of monetary metrics, as defined by each of its stakeholders.
Externality: The effect of a transaction (either positive or negative)
on a third party not involved in the primary exchange (see
Internality).
Fiduciary: A legal responsibility of one party to another.
Firm: A business organization that marshals scarce and valuable
resources to produce a good or service that it then sells at a price
greater than its cost of production.
Five forces: A macro-level analysis of the competitive structure of
a firm’s industry (see Industry perspective).37
Governance: A system of checks and balances that shapes an
organization’s behavior.
Human capital: The skills and knowledge of people that enable
them to succeed in the workplace (see Social capital).
Industry perspective: An external perspective of the firm that
identifies the structure of the environment in which the firm
operates (in particular, its industry) as the main determinant of its
success (see Five forces and Resources perspective).
Internality: The “overlooked costs people inflict on their future
selves, such as when they smoke, or scoff so many sugary snacks
that their health suffers”38 (see Externality).
Lifestyle brand: A reputation built more on an appeal to
customers’ aspirational values.
Low-cost: A business-level strategy used by firms to distinguish
their products from the products of other firms on the basis of more
efficient operations (see Differentiation).
Market segmentation: A process of dividing up consumers into
groups with similar characteristics (often based on demographic
information).
Mission: A statement of what the firm is going to do to achieve its
vision. It addresses the types of activities the firm seeks to perform
(see Vision).
Net present value: The value today of an investment that will
mature in the future.
Offshoring: Relocating jobs to overseas countries in search of
lower labor costs.
Onshoring (or reshoring): Returning jobs closer to home in order
to create more flexible and responsive supply chains.
27
Operational effectiveness: “Performing similar activities better
than rivals perform them”39 (see Strategic positioning).
Opportunity cost: The benefit that would have been created if an
alternative course of action had been chosen.
Price premium: The amount of money that consumers are willing
to pay above cost (essentially, the profit on a product) for some
attainable value (perceived or real).
Principal: An individual (or group of individuals) who appoints
someone to act on his or her behalf (see Agent).
Profit: The residual value (positive or negative) of a firm’s
transactions after subtracting costs from revenues.
Prosumer: A consumer who improves the firm’s products by
providing information (e.g., completing surveys) or promotion (e.g.,
on social media).40
Resources perspective: An internal perspective of the firm that
identifies its resources, capabilities, and core competencies as the
main determinant of its sustainable competitive advantage (see
Industry perspective).
Social capital: The connections among people that enable them to
succeed in the workplace (see Human capital).
Strategic analysis: The process conducted by firms to analyze their
operational context (internal and external) as the basis for its
strategy (see Strategy formulation).
Strategic planning: The process (often annual) whereby a firm’s
executive team creates or reformulates plans for future operations
(see Strategy formulation).
Strategic positioning: “Performing different activities from rivals
or performing similar activities in different ways”41 (see
Operational effectiveness).
Strategy: The actions that the firm takes in order to build a
competitive advantage in the marketplace that can be sustained (see
Tactics).
Strategy formulation: The construction of a firm’s strategy,
usually done during regular planning sessions (often annually) by
the senior executives of the firm.
Strategy implementation: The application of a firm’s strategy in
practice, ideally done by all employees in the organization on a day-
to-day basis through regular operations.
Sunk cost: An investment of resources that cannot be reclaimed.
28
Supply chain: The linkages formed by relationships among
organizations that provide a firm with the materials necessary to
produce a product (see Value chain).
Sustainable competitive advantage: Competencies, resources, or
structural positioning that separate the firm from its competitors in
the marketplace over the medium to long term (see Competitive
advantage).
SWOT analysis: A tool used to identify a firm’s internal strengths
and weaknesses and its external opportunities and threats. The goal
is to match the firm’s strengths with its opportunities, understand its
weaknesses, and avoid any threats.
Tactics: Day-to-day management decisions made to implement a
firm’s strategy (see Strategy).
Value: The importance of something to somebody, determined by
the combination of its scarcity and an individual’s values, and often
expressed in monetary terms (see Values under “CSR Terms”).
Value chain: An analysis that identifies each value-adding stage of
the production process. This analysis can be applied within a firm
(value chain) or among firms (supply chain or value system).42
Value creation: The generation of a perceived benefit for an
individual or group, as defined by that individual or group.
Value system: Essentially the same as a firm’s supply chain (see
Value chain).
Vision: A statement designed to answer why the firm exists. It
identifies the needs it aspires to solve (see Mission).
VRIO: An acronym of the four characteristics a resource must
possess in order for it to be the source of a firm’s sustainable
competitive advantage: Is the resource Valuable? Is it Rare? Is it
costly to Imitate? Is the firm Organized to capture this potential
value?
29
Preface Fifth Edition
30
capture, and many more areas. Much of this discovery is driven by for-
profit firms, and even when sourced elsewhere, it is usually scaled and
brought to market by firms.5 The result is a stunning increase in wealth
and well-being worldwide:
The world is about 100 times wealthier than 200 years ago and,
contrary to popular belief, its wealth is more evenly
distributed. . . . The vast majority of poor Americans enjoy
luxuries unavailable to the Vanderbilts and Astors of 150 years
ago, such as electricity, air-conditioning and colour televisions.
Street hawkers in South Sudan have better mobile phones than
the brick that Gordon Gekko . . . flaunted in [the movie] Wall
Street in 1987.6
31
role of business in society? This question is existential. The answer will
determine our collective standard of living—today, tomorrow, and for
generations to come. It is also an outcome we can shape. The short
answer, of course, is that firms exist to create value. But it is how they
create value, and for whom, that matters. This is what makes CSR so
complex and ambiguous; it is also what makes CSR integral to the firm’s
strategy and day-to-day operations.
CSR is complicated further because firms are only one part of society.
Governments are crucial because they set the rules and parameters within
which society and businesses operate. In addition, nonprofit or
nongovernmental organizations (NGOs) exist to fill the gap where no
legislative or market-based solution currently exists—they reach into
areas of society where politics and profit often do not go. Nevertheless,
without the innovation that the market inspires, social and economic
progress declines, in time reducing our standard of living to some
primitive level. A simple thought experiment underscores this: Look
around you and subtract everything that was produced by a business.
What is left?
32
the resources to investigate this intensely complex topic. What makes
this exploration exciting and worthy of study is that CSR is ever present:
Jobs and job losses, financial bailouts and record profits, corruption and
scientific breakthroughs, pollution and technological innovations,
personal greed and corporate charity all spring from the relentless drive
for innovation in the pursuit of profit that we call business. As such, CSR
can be studied only at the heart of operations, where core competencies
mold the business strategies that enable firms to compete with each
other. And when they compete in the marketplace, CSR offers a
sustainable path between unbridled capitalism and rigidly regulated
economies. CSR helps managers optimize both the ends of profit and the
means of execution, with the goal of creating value for the firm’s broad
range of stakeholders.
While this book celebrates the positive role that for-profit firms play in
our lives, therefore, it also details how that role can be improved. It is an
endorsement of the profit motive and capitalism, but it argues that
competitive forces generate the greatest welfare when embedded in a
framework of values. Markets work best when all stakeholders act
according to their personal ethics and morals (whether as customers, or
33
employees, or any of the other roles we adopt daily). In other words, this
book advocates for evolution rather than revolution—it seeks to shape
what is practical and realizable, not wish for what is ideal and out of
reach. There is a reason why our economic system has evolved the way it
has. This book acknowledges this and, starting with what we know about
human psychology and economic exchange, builds a manifesto for
change that business leaders can embrace. It does so by offering a
strategic lens as the best perspective through which firms should
approach CSR because it is through strategic (re)formulation that
organizations adapt to their social, cultural, and competitive reality.
The goal is to avoid the harm that accompanies the worst corporate
transgressions and build success that can be sustained over generations.
In that sense, this book explains how firms can act to create value for
most of their stakeholders, most of the time, over the medium to long
term. In other words, this book presents a framework that places
stakeholder value creation at the center of the firm’s strategic planning
and day-to-day operations. To be clear—CSR is not an option; it is what
businesses do. Being able to respond efficiently and effectively to the
needs and demands of stakeholders (who have increasingly powerful
tools at their disposal to convey those needs and demands) is not only the
key to success in today’s global business environment—it is the key to
survival.
Talking about CSR in terms of value creation means that it becomes the
responsibility of the CEO and senior executives in the organization.
Value creation speaks to what is core about a firm, across functional
34
areas. While preconceived notions of CSR and sustainability may cause
some CEOs to prejudge or reject these ideas, value creation cannot be
avoided. In fact, it must be embraced. In order to rebut the idea of CSR
as a cost to business, supporting arguments must be embedded in
operational and strategic relevance. In the process, CSR moves from an
optional add-on to center stage—it is there because it involves all of the
firm’s stakeholders, internal and external. It is therefore incorrect to say
that firms can choose to do CSR or choose to ignore it. On the contrary,
all firms do CSR (they all create value); it is just that some do it better
than others.
Strategic CSR exists because this argument is not yet widely understood,
by either executives or business schools. CSR is too often ignored, partly
because, on the surface at least, it is more obvious in its absence. Value
created can be hard to measure, while harm inflicted is readily apparent
after the fact. The Deepwater Horizon oil spill in 2010, for example,
demonstrates the consequences for both the firm (“$61 billion in cleanup
costs, federal penalties and reparations to individuals and businesses”)7
and society (“killed 11 workers and released 3.2 million barrels of oil
into the Gulf of Mexico over almost three months”)8 when stakeholder
interests are ignored. Similarly, the devastating effects of the Financial
Crisis linger, as “frustration with a system that hasn’t produced a
satisfying recovery for tens of millions of Americans” breeds distrust and
resentment of essential economic, social, and political institutions.9 CSR
is not an abstract concept; it is real and resides at the center of almost
everything we do.
Studying CSR
What makes this book a unique tool for navigating this landscape is its
approach and underlying thesis: Exploration is the best method of
learning. For those who like to form their own opinions, Strategic CSR
offers a guided tour. It is designed to provoke via a series of questions,
examples, and case studies that guide the search for solutions.
Engagement with the material is central and essential. Using this
approach, the goal is to cover all of Bloom’s learning stages, from
remembering through creating (Figure P.1). In my own investigation, I
have found that there are no simple answers and few absolutes. CSR is
not a set of objective policies and practices; it is the creation of value, as
35
determined by the firm’s stakeholders. Rather than provide specific
answers, therefore, the goal here is to formulate the best questions that
consider a broad range of perspectives, provoke vibrant debate, and
encourage further research. While every topic cannot be covered, this
book provides a launching pad (via key concepts), along with the means
to explore (via additional sources and references).
Central to the pedagogy of this book, therefore, is the idea that it does
not dictate answers and solutions. Unlike most books about CSR, the
36
argument presented is more descriptive than normative—it seeks to
understand the world as it is, rather than assume it is something else; it
recognizes humans for what they are, rather than what we would wish
them to be. While there are certainly aspirational ideas, the goal here is
to draw on what we know about economics, sociology, and psychology
to understand how for-profit firms and economies (and, ultimately,
society) work. Once the argument is grounded in this reality, we can
begin to design the firms we would like to have. Without this grounding,
however, much of the CSR debate constitutes wishful thinking combined
with good intentions. Why is this distinction important? The difference
between dealing with reality as opposed to ideals is the difference
between good and bad solutions.
Good luck!
David Chandler
July 2019
P.S. I am British and currently live and work in the US. As such, it is
inevitable that my view of the world is skewed by the news, politics, and
37
values of the society in which I have spent so much time. Nevertheless,
having grown up in the UK and having spent many years living in Asia
(Hong Kong and Japan), my goal in this book is to present my ideas in a
way that appeals to the broadest audience. Wherever relevant, I try to
introduce examples from around the world and account for the cultural
differences of which I am aware.
38
Plan of the Book
Content Chapters
In Part I, the first two chapters of Strategic CSR lay the foundation for
the book. In particular, Chapter 1 defines CSR, providing detail about
where this subject came from and how it has evolved. In discussing this
history, four arguments for CSR are presented (ethical, moral, rational,
and economic), which cover the breadth of how this subject has
traditionally been taught. Chapter 2 builds on this foundation to discuss
the key drivers of CSR today—affluence, sustainability, globalization,
communication, and brands. As each driver has become a defining
characteristic of business, it increasingly alters stakeholder expectations
of the for-profit firm.
39
Part III is new to the fifth edition of Strategic CSR and presents a legal
perspective. Chapter 5 opens this discussion by investigating the
evolution of corporate rights and responsibilities (what the firm can do
and what it has to do) in the context of corporate governance. By
understanding this historical and legal framework, we better understand
firms’ motivations and guiding principles. Chapter 6 extends this
discussion by revealing the history of the corporation in order to
challenge the myth that prevents the widespread adoption of a
stakeholder perspective—that the fiduciary responsibility of managers
and directors is to operate the firm in the interests of its shareholders. In
the United States (and many other countries), this widespread belief is
not grounded in legal reality.
40
how a CSR Filter enables decision making as part of strategy
implementation. Chapter 10 extends this discussion by defining strategic
CSR in terms of its five foundational components—incorporating a
holistic CSR perspective within the firm’s strategic planning and core
operations so that the firm is managed in the interests of its broad set of
stakeholders to optimize value over the medium to long term.
Case Studies
The case studies that complete the first five parts of Strategic CSR reflect
the extent to which CSR affects all aspects of a firm’s operations. Part I
finishes with a discussion about the prominence of religion in society
and business, and the emergence of Islamic finance. The stakeholder
perspective in Part II is complemented with a case study that emerges
from the crisis of capitalism that occurred in the aftermath of the
Financial Crisis. The new Part III contains a case study that looks at our
evolving perceptions of the media (in particular, social media), and the
implications for privacy of the rise of firms such as Facebook. A case
study about social impact bonds (impact investing) rounds out Part IV,
illustrating how any aspect of business today can be understood through
41
the lens of a stakeholder perspective. And Part V is completed with the
case of a firm that implements strategic CSR effectively throughout its
supply chain—Starbucks.
Part VI concludes with some final thoughts. The guiding purpose of this
book is to ask the question What is the role of business in society? The
answer strategic CSR provides has profound implications for the way
we understand business, the way we conduct business, and, therefore, the
way that we teach business.
42
Supplementary Materials
CSR Newsletter
As a result of the dynamic nature of strategic CSR and the static nature
of this book, I write and distribute the CSR Newsletter throughout the
long fall and spring semesters. The goal is to provide up-to-date
examples taken from daily news sources that extend the case studies,
questions for debate, and online references provided throughout this text.
The topical themes covered in each issue of the Newsletter, together with
access to the complete library of past issues that are archived on my blog
(http://strategiccsr-sage.blogspot.com/), capture the breadth of the CSR
debate and provide an added dimension to classroom discussion and
student investigation into this complex subject.
Instructor Resources
Test bank
PowerPoint® slides
Lecture notes
Sample syllabi
Transition guide
Video and multimedia resources
Student Resources
43
eFlashcards
Video and multimedia resources
44
Acknowledgments
45
There were many other leaders in CSR, many of whom I do not know
personally, but whose work informed my own. In particular, I would like
to acknowledge the pioneering work of Howard Bowen of the University
of Iowa, Archie B. Carroll of the University of Georgia, Thomas
Donaldson and Thomas Dunfee at the University of Pennsylvania, R.
Edward Freeman of Virginia University, Stuart L. Hart of Cornell
University, Laura Pincus Hartman of Boston University, Andrew
Hoffman of the University of Michigan, Thomas M. Jones of the
University of Washington, Joshua Margolis of Harvard University, Jim
Post of Boston University, C. K. Prahalad of the University of Michigan,
Lynn Stout of Cornell University, and Sandra Waddock of Boston
College. Their work, along with the work of many other influential
scholars, provided the foundation of the field of CSR/business and
society to which this text aims to contribute.
SAGE Publishing and I are also indebted to the colleagues who kindly
agreed to review the fourth edition of Strategic CSR in preparation for
this edition: Terrence B. Dalton of the University of Akron, Michelle
Gee of the University of Wisconsin–Parkside, Marcel Minutolo of
Robert Morris University, John Tichenor of Stetson University, Mary
Williams of the University of Akron, and Cory Young of Ithaca College.
Additional valuable insights were provided by Mark A. Buchanan of
Boise State University. The constructive feedback of these colleagues
about the fourth edition ensured that the fifth edition is considerably
better than it otherwise would have been.
46
helped refine the framework that strategic CSR has become. I am
grateful to them all.
47
Part One Corporate Social Responsibility
Chapters 1 and 2 lay the foundation for this book by defining CSR and
related concepts, while outlining how this subject has evolved over time.
Chapter 1 provides core definitions, identifies the different arguments for
CSR (ethical, moral, rational, and economic), and shows why CSR is of
growing importance for firms, large and small. Chapter 2 then discusses
the five key drivers of CSR today—affluence, sustainability,
globalization, communication, and brands. As these drivers have become
defining characteristics of modern life, they have altered stakeholder
expectations of business. Though firms exist to generate a profit, they
can achieve this most effectively by broadening their perspective and
avoiding a self-defeating focus on the short term. Without an
understanding of the complex environment in which it is embedded, a
firm can become exploitive, antisocial, and corrupt, losing the societal
legitimacy that is necessary to remain viable over the medium to long
term.1
Part I finishes with a case study that discusses the relationship between
organized religion and capitalism. In particular, it focuses on the rise of
Islamic finance to examine how broad “non-business” factors, such as
religion, are increasingly influencing corporate decisions.
48
Chapter One What Is CSR?
49
has shifted—from the earliest view of the corporation as a legal entity
that exists at the behest of governments in the 19th century, to a narrower
focus on shareholder rights early in the 20th century, to the rise of
managerialism by mid-century, and back again in the 1970s and 1980s to
a distorted focus on shareholders due to the rise of agency theory.5 Since
then, as the expectations of business in society evolve, firms are again
adopting a broader stakeholder outlook, extending their perspective to
include the communities in which they operate and social issues about
which they feel passionate. As a result, managers are more likely to
recognize the interdependence between the firm and each of these
groups, leaving less room to ignore their separate and pressing concerns.
50
2. Does the firm have broader social responsibilities (beyond
making a profit)?
At the same time, CSR remains controversial. People who have thought
deeply about Why does a business exist? or What does profit represent?
do not agree on the answers. Do firms have obligations beyond the
benefits their economic success provides? In spite of the rising
importance of CSR, many still draw on the views of the Nobel Prize–
winning economist Milton Friedman to argue that society benefits most
when firms focus purely on financial success.9 Others look to the views
of business leaders who have argued for a broader perspective, such as
David Packard (cofounder of Hewlett-Packard):
51
This book navigates between these perspectives to outline a view of CSR
that recognizes both its strategic value to firms and the social benefit
such a perspective brings to the firm’s many stakeholders. The goal is to
present a comprehensive assessment of corporate social responsibility
that, on reflection, suggests that Friedman and Packard were not as far
apart as their respective proponents assume.
CSR
52
for example, Archie Carroll defined CSR in the following way: “The
social responsibility of business encompasses the economic, legal,
ethical, and discretionary expectations that society has of organizations
at a given point in time.”12
53
As a firm progresses toward the top of Carroll’s pyramid, its
responsibilities become more discretionary in nature. In Carroll’s
vision, a socially responsible firm encompasses all four responsibilities
within its culture, values, and day-to-day operations.
While useful, however, this typology is not rigid.14 One of the central
arguments of this book is that what was ethical or even discretionary in
Carroll’s model is becoming increasingly necessary due to the shifting
expectations placed on firms. Yesterday’s ethical responsibilities can
quickly become today’s economic and legal necessities. In order to
achieve its fundamental economic goals today, therefore, a firm must
incorporate a stakeholder perspective within its strategic outlook. As
societal expectations of the firm rise, the penalties imposed for perceived
behavior lapses will become prohibitive.
54
While these definitions may seem similar on the surface, the debate
around CSR is most apparent in the detail of implementation. The
potential danger is that, to the extent that CSR means different things to
different people (in reality), action can be ineffective or, at worst,
counterproductive:
55
and exists only as long as the society and the economy believe
that it does a necessary, useful, and productive job.20
As such, CSR covers an uneven blend of different issues that rise and fall
in importance from firm to firm over time. In other words, while the
stakeholders stay the same, the issues that motivate them change.
Whether the concern is wages, healthcare, or same-sex partner benefits,
for example, a firm’s employees are central to its success. A firm that
consistently ignores its employees’ legitimate claims is a firm that is
heading for bankruptcy. CSR is a vehicle for the firm to discuss its
stakeholder obligations (both internal and external) and a way of
developing the means to meet these obligations, as well as a tool to
identify the mutual benefits that result. Simply put, CSR encourages a
firm to manage its stakeholder relations because these ties are essential
to its success and, ultimately, its survival. Implementing CSR, therefore,
requires the firm to acknowledge:
56
fully embracing CSR and incorporating it within the firm’s strategic
planning process.
57
Within a few years, more than 300,000 Britons were
boycotting sugar, the major product of the British West Indian
slave plantations. Nearly 400,000 signed petitions to
Parliament demanding an end to the slave trade. . . . In 1792,
the House of Commons became the first national legislative
body in the world to vote to end the slave trade.28
More recently, early academic interest in the topic of CSR in the 1950s
was quickly followed by broader societal awareness that resulted in
pressure on firms to respond. In particular, books such as Silent Spring
(1962), Unsafe at Any Speed (1965), and The Feminine Mystique (1963)
were “credited with being catalysts for the environmental movement, the
consumer movement, and the feminist movement, respectively.”29 While
the extent to which these external forces influence corporate decisions
will vary, it is clear that CEOs have always faced pressure to conform to
societal expectations. What is notable today is how quickly such issues
emerge and diffuse. The experience of the late Ray Anderson, founder
and chairman of Interface Carpets,30 in relation to the environmental
practices of his company, is instructive:
58
Current examples of social activism in response to firms’ perceived lack
of responsibility are in this morning’s news and online social media.
Whether the response is government regulation of products that are
hazardous, consumer boycotts of firms that advocate overtly religious
principles, or NGO-led campaigns to eradicate sweatshops abroad,
societal concerns have become an increasingly relevant topic in
corporate boardrooms, business school classrooms, and family living
rooms. Figure 1.2 illustrates some of the key events that have defined the
progress of CSR over the centuries.
59
Malden Mills
60
company’s success.”34 In 1995, however, a fire destroyed the firm’s
main textile plant based in Lawrence, Massachusetts, an economically
deprived area in the north of the state. Feuerstein then had a decision to
make:
His decision to keep the factory open and continue meeting his
obligations to his employees when they needed him most was
applauded in the media:
But the increased demand for Polartec clothing wasn’t enough to offset
the debt he had built up waiting for the plant to be rebuilt: $100
million.38 This situation was compounded by an economic downturn,
as well as cheaper fleece alternatives flooding the market. Malden
Mills filed for bankruptcy protection in November 2001.39
61
The Polartec example demonstrates vividly the complexity of CSR.
While an imperfect measure of a firm’s success, profit is clearly
essential. If the goal is to create value, the firm needs to stay in business.
Would Malden Mills have avoided bankruptcy if it had initially fired half
its employees and relocated the factory elsewhere? What is the firm’s
responsibility to continue delivering a valued product to its customers,
and does this outweigh the firm’s duties to its employees? The answers
to these questions are difficult and will change depending on the issue at
hand. What is clear is that good intentions do not replace the need for an
effective business model, and no firm, whatever the motivation, can or
should indefinitely spend money it does not have. Which actions should
be pursued depend on many factors specific to the firm, its industry, and
the society in which it is based. Manufacturing offshore in a low-cost
environment, for example, remains a valid strategic decision, particularly
in an increasingly globalized world. This choice is strategic because it
can provide a competitive advantage for some firms (such as Apple),40
even while other firms (such as Zara)41 see strategic value in onshoring
operations due to rising costs and a shorter, more responsive supply
chain:
All business decisions have both economic and social consequences. The
trick to success is to manage the conflicting interests of stakeholders in
order to meet their ever-evolving needs and concerns. As societies
rethink the balance between economic and social progress, CSR will
continue to evolve in importance and complexity. And although this
complexity muddies the wealth-creating waters, an awareness of these
evolving expectations holds the potential to create a competitive
advantage for those firms that do it well. The previous examples indicate
that the cultural context in which the concept of social responsibility is
perceived and evaluated is crucial.
62
Different societies define the relationship between business and society
in different ways. Expectations spring from many factors, with wealthy
societies having greater resources and, perhaps, more demanding
expectations that emerge from the greater options wealth brings. The
reasoning is straightforward: In poor democracies, general well-being is
focused on the necessities of life—food, shelter, transportation,
education, medicine, social order, jobs, and so on. Luxuries, such as a
living wage or environmental regulations, add costs that may cause them
to be delayed. As societies advance, however, expectations change and
general well-being is redefined. A corresponding shift in the acceptable
level of response by firms quickly follows, as this example of air
pollution and public transportation in Chile indicates.
Santiago, Chile
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stakeholder groups are its employees and customers, without whose
support the business fails. Other constituents, however, from suppliers to
shareholders to the local community, also matter. Firms must satisfy
these core constituents if they hope to remain viable over the long term.
When the expectations of different stakeholders conflict, CSR enters a
gray area, and management has to negotiate among competing interests.
An important part of that conflict arises from different expectations,
which, in turn, reflect different approaches to CSR.
Foundations of CSR
Strategic CSR represents an argument for a firm’s economic interests,
where satisfying stakeholder needs is central to retaining societal
legitimacy (and achieving financial viability). Much debate (and
criticism) in the CSR community, however, springs from well-
intentioned parties who argue from perspectives that differ along
philosophical and ideological lines. Understanding these different
arguments (ethical, moral, rational, and economic), therefore, is essential
to comprehend the full breadth and depth of CSR.
64
ethics applies ethical principles that determine right and wrong actions to
day-to-day decision making. Underpinning each of these three core
components, of course, is the assumption that right and wrong can be
determined. This assumption glosses over the issue of whether ethical
values are relative or absolute. An ethical argument for CSR states that,
rather than being relative constructs (i.e., varying from individual to
individual and culture to culture), ethical values are absolute (i.e.,
inalienable rights that are consistent across cultures and applicable to all
humans). Absolute values are easily definable and, as such, exist as a
standard against which behavior can be assessed.
65
when the action is intended to produce the greatest net benefit
(or lowest net cost) to society when compared to all the other
alternatives.46
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A Moral Argument for CSR
Although profits are necessary for any business to survive, firms are able
to obtain those profits only because of the society in which they operate.
All of the firm’s stakeholders (even internal stakeholders, such as
employees) exist primarily as members of a society. Without that social
context, there is no marketplace in which firms can compete. CSR
emerges from this symbiotic relationship between business and society.
It is shaped by individual and societal standards of morality that define
contemporary views of right and wrong.49 As Howard Bowen said about
managers in his famous 1953 book:
Given this, to what extent is a firm obliged to repay the debt it owes
society for its opportunity to conduct business (and its continued
success)? That is, what moral responsibilities do firms possess in return
for the benefits society grants? Also, to what extent do the profits the
firm generates, the jobs it provides, and the taxes it pays meet those
obligations? As an academic study, CSR represents an organized
approach to answering these questions. As an applied discipline, it
represents the advantage to the firm of meeting its obligations as defined
by evolving societal expectations.
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Peter Drucker expresses this sentiment—that there is no moral
justification in pursuing profit alone—by suggesting that “profit for a
company is like oxygen for a person. If you don’t have enough of it,
you’re out of the game. But if you think your life is about breathing,
you’re really missing something.”51 Charles Handy similarly suggests
that firms have a moral obligation to move beyond a narrow focus on
profit:
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For many, a sole focus on money as the motivation for business is
dispiriting—“as vital as profit is, it seems insufficient to give people the
fulfillment they crave.”54 It follows that money is a social good that is
accompanied by a moral obligation to return to the collective a
percentage of the proceeds of economic gain earned on advantages
conferred by society to the firm. As Adam Smith55 wrote in The Wealth
of Nations:
At a deeper level, societies rest upon a cultural heritage that grows out of
a confluence of religion, traditions, and norms. This heritage gives rise to
a belief system that defines the boundaries of socially acceptable
behavior by participants. The moral argument for CSR claims that all
members of society have a responsibility to uphold these rules in the
interests of the common good.57
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to address issues voluntarily. Waiting for society to impose legally
mandated requirements and only then reacting allows firms to ignore
their ethical and moral obligations and concentrate on generating profits
in the short term; however, it also inevitably leads to strictures being
imposed that not only force compliance, but often do so in ways that the
firm may find neither preferable nor efficient.58
Worse, if the required actions are a complete surprise, or the firm needs
time to build a competency in the relevant area, compliance can be
extremely costly in terms of both immediate investment and longer-term
reputational damage. By ignoring the opportunity to influence the debate
in the short term through proactive behavior, a firm is more likely to find
its operations and strategy constrained over the long term. One need only
consider the evolution of affirmative action in the United States to see
this rationale in action.
Affirmative Action
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While lobbying to ensure that discrimination remains legal is
theoretically an option for firms, attempts to subvert societal consensus
around a particular issue represent an ethical and moral lapse that places
the firm’s legitimacy at risk. Instead, the rational argument advocates the
benefits of avoiding the inevitable confrontation.
The rational argument for CSR is summarized by the Iron Law of Social
Responsibility, which states: In a free society, discretionary abuse of
societal responsibilities leads, eventually, to mandated reprisals.60
Restated: In a democratic society, power is removed from those who
abuse it. The history of social and political uprisings—from Cromwell in
England, to the American and French Revolutions, to the overthrow of
the shah of Iran or the Communist government of the Soviet Union—
underscores the conclusion that those who abuse power or privilege sow
the seeds of their own destruction. Parallels exist in the business arena.
Financial scandals around the turn of this century at Enron, WorldCom,
Adelphia, HealthSouth, and other icons of US business provoked
discretion-limiting laws and rulings, such as the Sarbanes-Oxley Act
(2002). Similarly, the most recent Financial Crisis gave rise to the Dodd-
Frank Wall Street Reform and Consumer Protection Act, passed by the
US Congress in 2010.
The rational argument for CSR therefore underpins the idea that firms
voluntarily seek to meet the needs and concerns of their stakeholders.
Firms that wait until they are forced to comply may find that the costs of
doing so quickly become prohibitive. In the finance industry today, for
example, the global bank HSBC has announced that “nearly 25,000 of its
258,000 employees, almost 10%, work in compliance” and that
“compliance was a major driver in the 5% increase in operating expenses
reported.”61 Eventually, corporate transgressions result in heightened
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oversight that forces previously discretionary and ethical issues into the
legal arena.
72
operations with stakeholder values and expectations that are constantly
evolving.
This book expounds the economic argument for CSR. It is the strongest
of the four (ethical, moral, rational, and economic) arguments supporting
CSR, due partly to its reliance on what we know about human
psychology and economic theory. Rather than seeking to subvert patterns
of exchange that have evolved over centuries, the economic argument for
CSR operates at the intersection of the firm’s self-interest and the
broader well-being of society. Ultimately, indeed, there is no difference
between the two. If stakeholders are willing to reward the behavior they
seek from firms, then it is those firms’ best interests to provide
stakeholders with what they want. As long as this basic formula holds on
both sides, value will be optimized and distributed broadly across
society.67 Of course, what is simple to say is often difficult to put into
practice. This book exists to build a framework that firms can use to
address the complex process of listening to, and seeking to meet, the
conflicting interests of all their stakeholders.
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from the small percentage of the population that is aware and sufficiently
responsive to a progressive social agenda, translating this support into
economic success. It is a wonderful business, but its model is not one
that all businesses can emulate. Ben & Jerry’s is another example, as is
Patagonia. These are all great firms, but they will not introduce
meaningful change across the economy or globe. For that, we need to
rely on corporations that operate on a sufficiently large scale to make a
difference. In contrast, an economic argument for CSR seeks to build a
broad model for business that recognizes the limited application of moral
activism and, instead, searches for a standard that can be applied across
all for-profit firms. The result is an approach to business that highlights
the strategic benefits to the firm of seeking to create value for its
stakeholders, broadly defined.
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Chapter Two The Driving Forces of CSR
Affluence
Social issues tend to gain a foothold in societies that are more affluent—
societies where people have jobs, savings, and security, and can afford
the luxury of choosing between, for example, expensive sports cars that
pollute and expensive electric cars that do not. A poor society, in need of
inward investment and economic development, is simply looking to
provide basic transportation solutions to its population, so it is less likely
to enforce strict regulations and penalize firms that might otherwise take
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their business elsewhere. Consumers in developed societies, on the other
hand, have a higher standard of living and, as a consequence, expect
more from the firms whose products they buy.1
While affluence drives CSR, the concept of being better off is relative. In
other words, we judge our own wealth by comparing it to the wealth of
others—“people’s sense of well-being depends much more on their
relative purchasing power than on how much they spend in absolute
terms.”2 Although we can clearly measure affluence on an objective
scale (i.e., we know we are wealthier today than we were 100 years ago),
this relative measure matters to us.3 As globalization enables a greater
awareness of the living standards of people elsewhere, inequality is
rising as an issue (both within and among countries) and driving action.
John D. Rockefeller was the richest man the world had ever
seen. But for most of his adult life he didn’t have electric
lights, air conditioning, or sunglasses. And he never had
penicillin, sunscreen, or Advil. This is not ancient history: One
in twenty Americans were born before Rockefeller died.4
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from eating too little; more people die from old age than from infectious
diseases; and more people commit suicide than are killed by soldiers,
terrorists and criminals combined.”5 In spite of the unprecedented wealth
worldwide, however, it is not evenly distributed. And, as noted
previously, relative wealth is perceived to be as important as (if not more
important than) absolute wealth. As such, the increasingly apparent
discrepancies tend to create hostility rather than contentment:
What is important is for public policy to stop the trend from spiraling out
of control. The firm (or, more specifically, CSR) has a role to play in that
process. While growing affluence increases the demands societies place
on firms, decreasing affluence (e.g., during a recession) is also an
important driver of CSR.8 In particular, decreasing relative affluence (or
income/wealth inequality) greatly increases resentment among segments
of the population, which can lead to altered power balances within a
country. In the US, at least, data suggest that inequality has not been this
severe since the Great Depression and that this is shaping current
politics.9 Worse, evidence suggests the Internet and globalization are
aggravating this social bifurcation, rather than bridging it:
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The digital revolution is opening up a great divide between a
skilled and wealthy few and the rest of society. In the past new
technologies have usually raised wages by boosting
productivity, with the gains being split between skilled and
less-skilled workers, and between owners of capital, workers
and consumers. Now technology is empowering talented
individuals as never before and opening up yawning gaps
between the earnings of the skilled and the unskilled, capital-
owners and labour.10
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to enter the middle class (estimated to increase by “two or three billion
people” over the next 40 years,13 driven primarily by economic advances
in China and India),14 people expect more from the firms (often
multinationals) that operate locally. Naturally, all people want the same
living standards or, at least, the same opportunity to achieve those
standards. It is not clear, however, that people realize the limits they face
in seeking to progress along the same path as developed economies. This
applies to environmental damage (“Delhi has become the world’s most
polluted mega-city, supplanting Beijing”)15 but also to restricting
economic growth:
A look back at 2000 shows how much the world can change in
a [short period]. Back then, about 30 percent of people in
developing countries lived in extreme poverty, compared with
less than 15 percent today. Only 12 percent of people owned a
mobile phone; now, more than 60 percent do. Facebook . . .
hadn’t launched yet. These and other developments have
changed how consumers live, think, and shop—and the
changes are only going to accelerate.17
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In short, affluence leads to a more engaged civil society, which leads to
shifts in public attention to issues of concern. The pace at which societal
attitudes can evolve on issues that previously were thought to be
intractable has caught many firms unaware. In the US, for example,
issues as diverse as “interracial marriage, prohibition, women’s suffrage,
abortion, same-sex marriage, and recreational marijuana” show that the
country has moved from rejection to “widespread acceptance in a short
amount of time.”18 Firms need to understand this and adapt, particularly
on those issues that pose the gravest threat to their success and, in the
worst cases, their survival.
Sustainability
The impact of heightened affluence and changing societal expectations is
enhanced by a growing concern for the environment. When the Alaskan
pipeline was built in the 1970s, crews could drive on the hardened
permafrost year-round. Today, climate changes are causing the
permafrost to thaw at record rates,19 research reveals that almost 30
percent of the Arctic ice cap has melted since 1981,20 and shipping firms
anticipate a day in the not-too-distant future when they can regularly
transport goods between the Atlantic and Pacific oceans via the
previously impassable Northwest Passage.21
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The first billion people accumulated over a leisurely interval,
from the origins of humans hundreds of thousands of years ago
to the early 1800s. Adding the second took another 120 or so
years. Then, in the last 50 years, humanity more than doubled,
surging from three billion in 1959 to four billion in 1974, five
billion in 1987 and six billion in 1998. . . . The United Nations
Population Division anticipates 8 billion people by 2025, 9
billion by 2043 and 10 billion by 2083.24
The scale and pace of this population growth place an enormous strain
on the world’s resources (from fresh water to energy provision, to
affordable food, to the rare earths necessary to produce consumer
electronics), causing commentators like Paul Ehrlich to predict “a
collapse of global civilization.”25 This is because the world’s population
is not only becoming larger but also becoming more concentrated.
According to the United Nations, we recently became “a predominantly
urban species. . . . Having taken around 200,000 years to get to the
halfway mark, demographers reckon that three-quarters of humanity
could be city-dwelling by 2050.”26 As this concentration of humanity
increases, the natural environment will bear the brunt of the associated
resource depletion. In particular, climate change is an issue that has
gained visibility in recent years, peaking in the intergovernmental
commitment at the COP21 United Nations meeting in Paris in 2015 (see
Chapter 11), but being advanced more aggressively by cities, counties,
and states around the world.27 As a result of this heightened awareness,
sustainability will increasingly drive CSR. And firms that are perceived
to be indifferent to their environmental responsibilities will be punished
by stakeholders. The backlash against BP’s Deepwater Horizon disaster
in 2010 (“$61 billion in cleanup costs, federal penalties and reparations
to individuals and businesses”)28 is only the most prominent example of
the dangers firms face if they ignore the emerging consensus around the
need to act.
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The goal of the presentation is to remove the conflict over the science
behind climate change and global warming from the debate and,
instead, reduce the argument to one of risk management. In other
words, whether you believe in the science or not (and you should), the
dangers of not acting far outweigh any dangers associated with acting.
What is also clear is that internalizing the nature of the problem and the
extent of action necessary to effect meaningful change has implications
for our entire economic system. In particular, we need to be more
efficient in our resource utilization—extracting fewer raw materials and
recycling (ideally upcycling) a much higher percentage of the resources
we use.30 Because waste is inherent to GDP growth (our economic
model prefers us to replace our cars every three years rather than ten and
buy disposable products rather than ones we can reuse), and because the
supply of raw materials is finite, it is essential that we use resources
more effectively.31 Some CSR advocates see waste as a fault in our
economic model and call for a revolution. The argument presented in this
book, however, seeks evolution—reforming the current system to create
value broadly by integrating a CSR perspective into firm strategy and
throughout operations. But it is only by focusing on the system as a
whole that lasting change can occur.
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Globalization
Increasingly, firms think globally. Operating in multiple countries and
cultures magnifies the complexity of business exponentially. There are
not only more laws and regulations to interpret, but also many more
social norms and cultural subtleties to navigate. In addition, the range of
stakeholder expectations to which multinational firms are held
accountable increases, as does the potential for conflict among
competing demands. While globalization has increased the potential for
efficiencies gained from operations across borders, it has also increased
the potential to be exposed on a global stage if a firm’s actions fail to
meet the needs and expectations of its stakeholders.
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community depends. As firms grew in size, began selling to ever more
distant markets, and started dividing operations across geographic
locations in order to increase efficiencies, Smith’s fundamental
assumption broke down. Firms were free to be bad employers in Vietnam
or polluters in China because they sold their products in the US or EU,
and there was no way for Western consumers to know the conditions
under which the products they were buying were made. Disgruntled
employees in Vietnam and local villagers in China were no threat to this
business model, especially when even the worst jobs in the factories of
multinational firms were often the best source of local jobs and
economic progress.
These ideas are expressed in Figure 2.1, via the four phases of
stakeholder access to information—from industrialization, to
internationalization, to globalization, to (most recently) digitization.
While globalization was driven by computers and the Internet, which
fostered the free flow of people and ideas worldwide in the late 20th
century, the current phase (digitization) is being driven by big data,
virtual reality, and artificial intelligence. Adam Smith lived in a simpler
time, when all information was local and kept firms honest.
Industrialization and international trade depressed stakeholder access to
information due to the increasing distances over which transactions were
conducted. Gradually due to globalization and more rapidly due to
digitization, however, access to information has returned to a micro
level. As technological innovation empowers individuals to
communicate and mobilize, the ability of firms to manipulate stakeholder
perceptions of their activities has decreased and will continue to do so.
84
Figure 2.1 The Four Phases of Stakeholder Access to Information
Discrimination
85
them. A firm operating in Europe and Saudi Arabia may well be
considered socially irresponsible and culturally insensitive if it applies
the same human resource policies across all operating locations. Yet if
women are treated differently in Saudi Arabia, criticisms may arise in
Europe or elsewhere.
86
In a world where our demand for Chinese-made sneakers
produces pollution that melts South America’s glaciers, in a
world where Greek tax-evasion can weaken the euro, threaten
the stability of Spanish banks and tank the Dow, our values and
ethical systems eventually have to be harmonized as much as
our markets. To put it differently, as it becomes harder to shield
yourself from the other guy’s irresponsibility, both he and you
had better become more responsible.52
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This self-feeding cycle of globalization suggests that CSR will
increasingly become a mainstay of strategic thinking for businesses,
especially global corporations.
Communication
Globalization demonstrates that the pace at which information spreads is
determined by communication technologies, which increasingly define
the environment in which firms operate. This information exchange has
risen to a level that is difficult to comprehend:
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To put this another way, it is estimated that “the ‘digital universe’ (the
data created and copied every year) will reach 180 zettabytes (180
followed by 21 zeros) in 2025.”54 This revolution is driven by
communication that is instant and global. It has ramifications not only
for the latest fashions but also for social movements, as popular unrest
can be spread as easily as trendy designs. In such an environment, to the
extent that a firm is out of touch with local concerns, it will face a
backlash from stakeholders. Similarly, those firms that adapt and appear
responsive to societal claims will be ever more successful. The growing
influence of the Internet makes sure that any lapses by firms are brought
rapidly, often instantaneously, to the attention of the worldwide public.
Scandal is news, and yesterday’s eyewitnesses are today armed with
video cameras and smartphones with sophisticated cameras and video
capability that were unimaginable only a decade ago:
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the Internet has “as many hyperlinks as the brain has synapses. . . . It is
already virtually impossible to turn the Internet off.”58 And second,
globalization has increased the influence of NGOs and other activist
groups because they, too, are benefiting from easily accessible and
affordable communications technologies. These tools empower NGOs by
enabling them to inform, attract, and mobilize geographically dispersed
individuals and consumer segments, helping ensure that socially
nefarious corporate activities are exposed worldwide. The combination
of empowering these two groups ensures that firms today are unable to
hide behind the fig leaves of superficial public relations campaigns:
Mobile Devices
Smartphones and other mobile devices are approaching ubiquity. They
are proliferating worldwide because they provide people with their
preferred means of accessing the Internet: wireless technology (text
messaging, blogs, and social media):60
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While a number of social ills have become associated with the use of
mobile devices, such as texting while driving,62 an increase in
emergency room visits by children of distracted parents,63 and
loneliness,64 these devices are also highly attractive because they make
life so convenient. So much so that “nearly half of American adults say
they could not live without their smartphones [and] young adults were
found to use their smartphones more than 80 times a day.”65
Increasingly, mobile devices are becoming the primary way we get our
news, access the Internet, and run many aspects of our lives.66
Mobile devices spread so quickly not only because they are convenient,
but also because the infrastructure necessary to support them (wireless
antennas) is much cheaper than the desktop computers and land
telephone lines that were the foundation of the Internet in developed
economies. Developing countries that struggle to provide the basic
infrastructure of society, therefore, nevertheless see the rapid diffusion of
mobile devices—India, for example, “has more mobile phones than
toilets.”67 This is particularly advantageous for e-commerce (which is
“expanding at an average rate of 20% a year”68 and, in China alone, is
now worth “$11trn in transactions, . . . twice the size of America’s credit-
and debit-card industry”69) and, in developing economies, for financial
transactions among populations that were previously “unbanked”:
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indispensable. In addition to transactions of goods, services, and money,
for example, the principal way in which mobile devices are connecting
people is via social media.
Social Media
As people access the Internet via their mobile devices, they are using
social media to exchange information. Social media is perhaps more
accurately described as “social technologies,” of which there are two
types—websites that “allow people to broadcast their ideas” (e.g.,
Twitter and its Chinese equivalent, Sina Weibo) and websites that allow
people to “form connections” (e.g., Facebook and its corporate
equivalent, LinkedIn).72 The amount of data these platforms distribute is
staggering, with Facebook registering 2.25 billion active users in 2018,
while “Twitter’s 320m monthly users send hundreds of millions of
tweets a day.”73 While much of this information is trite, some of it has
the power to drive revolutions.
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March 2006: The first tweet (“just setting up my twttr”), Jack
Dorsey, CEO of Twitter, @jack
June 2009: Iran’s Green Movement (#iranelection)
January 2011: Tunisia’s Jasmine Revolution (#jasminerevolution)
February 2011: Tahrir Square, Egypt (#Jan25 #Tahrir)
September 2011: Occupy Wall Street (#occupywallstreet)
July 2013: Black Lives Matter (#BlackLivesMatter)
August 2014: Ferguson, Missouri (#Ferguson)
January 2015: Oscar nominees (#OscarsSoWhite)
January 2017: Boycott Uber (#BoycottUber)
April 2017: Boycott United (#BoycottUnited)
October 2017: Me Too (#MeToo)
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In the two weeks after the 1989 Exxon Valdez oil spill in Prince
William Sound, in Alaska, Exxon’s shares dropped 3.9% but
quickly rebounded. In the two months after the Gulf of Mexico
oil spill in 2010, BP’s shares fell by half.77
The result is that more and more consumers are interacting with firms in
real time in ways that shape purchase decisions. Consumers are
informed, and just as they are willing to spread good news, they are also
willing to share their horror stories with millions of others.82
Consequently, firms have an even more precarious hold on their
reputations and need to be more responsive to stakeholders’ concerns in
order to protect them:
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While this growth in information and communication is clearly “shifting
power from a few Goliaths to many Davids,”84 it is less clear how fully
stakeholders will take advantage of these capabilities. For example,
while Change.org calls itself the “world’s leading platform for change,”
it is hard to know how firms should respond to the stakeholder concerns
that are registered there. If five thousand people sign an online petition,
what does that mean? Will they refuse to buy from that company
anymore? Will they protest at stores? And if so, so what? For a large
brand, five thousand people widely diffused is a small percentage of the
firm’s customers, and clicking a mouse is hardly an indication of
personal conviction or willingness to sacrifice on behalf of a cause.
Brands
All of these drivers of CSR overlap in terms of the importance of a firm’s
reputation and brand. Brands are a focal point of corporate success.
Firms try to establish popular brands in consumers’ minds because doing
so increases their competitive advantage, which results in higher sales
and margins—consumers are more likely to pay a premium for a brand
they know and trust. However, due to growing societal expectations,
combined with the complexity of business in a global environment and
the ability of stakeholders to spread missteps instantaneously to a global
audience, a firm’s reputation is increasingly precarious—hard to
establish and easy to lose. Brands therefore drive CSR because they raise
the stakes—those that are trusted by stakeholders will be more successful
in the market than those that are not:
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If you were to treat the world’s ten most valuable brands from
the past ten years . . . as a stock portfolio, it would have
outperformed the S&P 500 index by almost 75% and the
MSCI World index by more than 400%.85
Brands are integral to CSR because of the way they are built—based on
perceptions, ideals, and concepts that appeal to customers. In particular,
firms with lifestyle brands (which base more of their appeal on
aspirational values) need to live the ideals they promote. A CSR
perspective allows firms to match operations to stakeholder values at a
time when these values are constantly evolving. As such, brands are a
way for firms to communicate directly with their stakeholders in general,
but their customers in particular. Of course, this works only if the
narrative the firm seeks to build matches the mood of the moment, which
can shift quickly. Nevertheless, one of the firms that has done this most
effectively is Starbucks, driven by the values of Howard Schultz:
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Brands with Attitude
In recent years, however, the relationship between firms and their
stakeholders has changed, with increasing pressure for CEOs to take
stands on divisive social issues. This may be a result of the polarized,
partisan political environment in which we currently live, or it may be
because of growing affluence in the West. Either way, CEOs are being
forced to take positions on subjects they would have been free to ignore
previously:
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The campaign slogan was “Believe in something. Even if it means
sacrificing everything,” and the ads featured Colin Kaepernick, the ex–
San Francisco 49ers’ quarterback who has essentially been denied
employment by the NFL for his social activism:
98
Strategic CSR Debate
99
Case Study Religion
100
increase in the numbers of people reporting no religious affiliation. In
spite of this, and in contrast to voices of the past that claimed “the end of
Christian America,”5 it is also true to say that religion plays a larger role
in public life in the US than in many other developed countries. The
number of American adults who report that religion is a “very important”
influence in their life has remained consistently above 50 percent over
the past 35 years, registering a high of 61 percent in 1998 and 2003, but
declining to 51 percent (the lowest point recorded by Gallup) in the most
recent year for which data are available, 2017.6
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affiliation of the population is more readily available (the next Census is
due in 2021)—and it does not make easy reading for the Church of
England:
102
Sources: Office for National Statistics (UK), Census 2011,
December 11, 2012, http://www.ons.gov.uk/ons/rel/census/2011-
census/key-statistics-for-local-authorities-in-england-and-wales/rpt-
religion.html. Data for 2018 are from “Counting Religion in
Britain,” British Religion in Numbers, January 2018,
http://www.brin.ac.uk/2018/counting-religion-in-britain-january-
2018/.
As the firm’s CEO, Dan Cathy,15 has stated in the past in answer to a
question about Chick-fil-A’s “closed-on-Sunday” policy:16
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It was not an issue in 1946 when we opened up our first
restaurant. But as living standards changed and lifestyles
changed, people came to be more active on Sundays. . . .
We’ve had a track record that we were generating more
business in six days than the other tenants were generating in
seven [days]. . . . We intend to stay the course. . . . We know
that it might not be popular with everyone, but thank the Lord,
we live in a country where we can share our values and operate
on biblical principles.17
The fervor with which many people welcome a strong role for religion in
everyday life naturally extends into controversial political and social
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debates. As such, when the government oversteps the bounds of religious
liberty, the courts can intervene to reinstate constitutional rights. A high-
profile example occurred in the Supreme Court case Burwell v. Hobby
Lobby (573 U.S., 2014), in which the Court allowed closely held
companies based on religious convictions to exclude contraception from
employee health plans.23
While in the US, the sensitive nature of the religious debate means that
even a minor slight can have major ramifications, in the UK, it is a lack
of sensitivity to issues surrounding religion that tends to be the problem.
Previously, for example, British Airways (BA) has found itself in the
media spotlight for suspending an employee for wearing “a small
crucifix.” In an attempt to rebut accusations of “religious
discrimination,” BA parroted its “uniform policy,” looking somewhat
ridiculous in the process:
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Russia.31 The ensuing confrontations produce elevated complaints about
discrimination to bodies such as the Employment Opportunity
Commission (US) and the Equality and Human Rights Commission
(UK).32
In the United States, however, the role of religion in CSR also has its
lighter side, with commentators using humor to convey their message. A
good example of this was the “What Would Jesus Drive?” campaign,
organized and sponsored by the Evangelical Environmental Network, a
biblically orthodox Christian environmental organization, and intended
to reduce the environmental impact of SUVs, vans, and pickups on US
roads:
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America’s automobile industry to manufacture more fuel-
efficient vehicles. And we call upon Christians to drive them.
Because it’s about more than vehicles—it’s about values.35
Pope Francis has inserted himself into this discussion with his first
Apostolic Exhortation, Evangelii Gaudium (“The Joy of the Gospel,”
2013)38 and his encyclical on the environment, Laudato Si (“Be
Praised,” 2015)39 in which he was critical of what he sees as the
exploitative effects of capitalism. This continues a tradition within the
Catholic Church that stretches back to Pope Leo XIII’s encyclical Rerum
Novarum (“The Rights and Duties of Capital and Labor,” 1891),40 which
stated that “To misuse men as though they were things in the pursuit of
gain, or to value them solely for their physical powers—that is truly
shameful and inhuman.”41
Others are more willing to see the potential overlap between the
consequences of market economies and the goals of the majority of the
world’s religions. Responding to Pope Francis’s Laudato Si, for example,
David Brooks of The New York Times offers a more inspiring view of the
power of capitalism to deliver social progress:
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arrangements based on self-interest and competition are
inherently destructive. . . . You would never know from the
encyclical that we are living through the greatest reduction in
poverty in human history. A raw and rugged capitalism in Asia
has led, ironically, to a great expansion of the middle class and
great gains in human dignity. You would never know that in
many parts of the world, like the United States, the rivers and
skies are getting cleaner. The race for riches, ironically,
produces the wealth that can be used to clean the
environment.42
In the United States, “New England’s Puritan settlers brought with them
two ideas that have driven American society ever since: Calvinism and
capitalism.” As a result, many believe today that businesses are entitled
to the “same religious protections as people,”44 and companies are
pressured to accommodate religious diversity in the workplace:
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long as doing so won’t impose more than a minimal cost to
their business. . . . Accounting giant EY . . . has found success
in building an inclusive environment for its workers. The firm
has created “quiet rooms” at its New York headquarters and in
all of its Canadian offices, which are open to all employees to
take a quick break, to reflect, pray or even to take medication.
The company also includes major religious and cultural
holidays on its calendar to help set work schedules, as well as a
tip sheet that outlines dietary restrictions that should be
considered at meetings or events.45
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a government inquiry into banking standards that “coming from a
Christian point of view on human sinfulness and failure, the efficient
market system doesn’t work. . . . People don’t make rational decisions in
markets more than anywhere else.”51 Rather than being discouraged that
religion and finance are incompatible, however, Costa of UBS finds
plenty of support for his career choice in the Bible—in particular, in the
Islamic Finance
Evidence that the worlds of religion and finance are compatible (or, at
least, that the market is capable of adapting to religious needs when there
is sufficient potential profit at stake) can be seen in the rapid growth and
acceptance of faith-based mutual funds:
In some ways, therefore, religion and capitalism are well matched. This
is particularly true in the US, where capitalism is framed within a Judeo-
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Christian ethos and considered to be “a moral endeavor.”55 In addition,
there is always the money—with global populations of 2.2 billion
Christians56 and 2 billion Muslims,57 religion can be highly profitable.
The Muslim population in the US, for example, is predicted to expand to
8.1 million people by 2050 and already has “spending power . . . [of]
about $100 billion.”58 This has encouraged companies to release tailored
products that appeal to Muslims, such as halal food59 and “Islamic
fashion.”60
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How much interest is too much, of course, is a relative question that
varies among cultures and across time. As such, the topic of “how much
is enough” is open to debate:
The corrupting influence, of course, is money (or the pursuit of it), which
serves three essential purposes—it must be exchangeable, it must be
stable (retaining value over time), and it must be a measure of worth. In
different forms (“Tea, salt and cattle have all been used as money”),67
money has been used by human societies for millennia. While societies
in what is now western Turkey used gold and silver as a means of
exchange as far back as 650 BC, paper money began circulating in China
only around 1000 AD.68 As long as money has existed, however, there
has been antipathy toward those who control access to it:
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borrower. This risk fluctuates based on variables such as the size of the
loan, the likelihood of repayment, and competing demands for the funds.
In addition, however, there is an unspoken element of mutual trust—I
lend money to you because I trust that you will pay it back; I pay you
with this banknote because you trust that the Treasury will honor its face
value.
Financial Etymology
Bank: “This word originates from the old Italian word banco,
meaning table or bench, referring to how financiers once huddled
together to conduct transactions on tables.”71
Company: The word company comes from the Latin word
companio, the literal translation of which originally meant
“breaking bread together.”72
Credit: “The root of [the word] credit is credo, the Latin for ‘I
believe.’”73
Finance: This word “comes from the French finir (to end).”
Originally, money “was seen as a means to an end—a one-off
transaction to conclude a deal or create restitution for a wrong.
Only over the past few centuries has the money business turned
into an end in itself.”74
Money: This word comes from the Latin moneta, meaning “place
for coining money, mint; coined money, money, coinage,” from
Moneta, a title or surname of the Roman goddess Juno, in or near
whose temple money was coined.75
Risk: This term “derives from the Tuscan rischio, the amount
considered necessary to cover costs when lending money, i.e., a
euphemism for interest.”76
Salary: “Being so valuable, soldiers in the Roman army were
sometimes paid with salt instead of money. Their monthly
allowance was called ‘salarium’ (‘sal’ being the Latin word for
salt).”77
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Without trust, our economic system breaks down, as the most recent
Financial Crisis demonstrated only too clearly. Today, the global
economic system is underpinned by an interlocking financial system
founded on credit. While trust underpins this model, however, it is also
true that the profit incentive has distorted the relationship between lender
and borrower. Some commentators have gone as far as to argue that it
was “the legalization of usury” that was the cause of the financial
crisis.78 The root of the problem, according to this argument, is a 1978
US Supreme Court case that prevented Minnesota from enforcing strict
limits on the amount of interest charged on a credit card loan by an out-
of-state bank.79 In response, other states quickly repealed similar laws in
an attempt to prevent banks from relocating elsewhere, which led to the
situation today where banks and credit card companies have an incentive
to offer unlimited credit and charge high interest rates to customers who
are unable to repay the principal:
You know, if you are Mr. Potter in It’s a Wonderful Life and
can only get six percent, seven percent on your loan, you want
the loan to be repaid. Moral character is important. You want
to scrutinize everybody very carefully. But if you’re able to
charge 30 percent or, in a payday lender case, 200 or 300
percent, you don’t care so much. . . . In fact, you actually want
the loan not to be repaid. You want people to go into debt.80
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forced either to compromise their principles or to avoid modern finance
because of its conflict with their beliefs.
115
Even though the principles underpinning Islamic finance are drawn from
the 7th century, contemporary sharia-compliant instruments were first
developed in the 1960s.92 Since then, the size of the Islamic finance
market has grown exponentially, retuning “10 to 12 percent annually
over the past decade to hit $2 trillion.”93 One reason why growth
projections are so strong is because “at less than 1 percent, they remain
only a small fraction of global financial assets.”94
The rapid growth of the Islamic finance industry was initially fueled by
money from the expanding oil countries of the Persian Gulf,95 with
Western banks (such as Citigroup, HSBC, and Goldman Sachs) only
becoming interested once the potential market became apparent and
growing awareness prompted Muslim communities in the West to push
for change. Among Muslim countries, however, even though the Dubai
Islamic Bank was established in 1975 (“the world’s first Islamic
bank”),96 it is Malaysia that is credited with being the leading source of
expansion and product innovation.97 In 1983, the Malaysian government
passed an Islamic banking law and established Bank Islam, “which gave
out the nation’s first Islamic loans . . . more than a decade before Saudi
clerics followed suit.”98 In many ways,
In the West, Britain has worked hard to market itself as the “world centre
for the Islamic finance industry.”100 The UK, which has been completing
sharia-compliant transactions since the 1980s, “was the first European
Union member to adapt its fiscal legislation to place conventional and
Islamic finance on a level playing field”; opened “the first 100% Sharia-
compliant retail bank in a non-Muslim country, . . . the Islamic Bank of
Britain (IBB)”;101 and, in 2014, became the first country outside the
116
Muslim world to issue an Islamic bond.102 Along with a rapidly growing
market for Islamic finance comes a corresponding growth in
organizations seeking to cater to an Islamic clientele, including the FTSE
(which launched a series of Sharia-compliant indices, “fully certified as
Shariah-compliant”):103
117
In about 1220 a canonist named Hispanus proposed that,
although usury was prohibited, a lender could charge a fee if
his borrower was late in making repayment. The period
between the date on which the borrower should have repaid
and the date on which he did repay, Hispanus termed interesse,
literally that which “in between is.”111
This line of thought suggests the Islamic finance industry is merely the
latest evolution of financial products that are designed to conform to
strict limitations on the surface, but, in fact, generate “window-dressing
pseudo-Islamic financial instruments that [are] mathematically
equivalent to conventional debt and mortgage contracts.”112 This
critique suggests that, rather than remaining true to the principles of
Islamic finance, the industry today is “dominated by conventional
bankers . . . focused on ‘reverse engineering’ of conventional financial
products into their sharia-compliant counterparts.”113 Beyond blatant
symbolism, the main barrier to legitimacy seems to be that “Islamic
finance still lacks shared standards”:114
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1. What role does religion play in your life? Do you feel that the society
in which you live is becoming more or less religious? Is this good or
bad? Does it matter?
2. Search online for an image of the Atheist Bus Campaign’s
advertisements that ran on London buses (see also
https://humanism.org.uk/about/atheist-bus-campaign/). What is your
reaction? Do you find the buses to be provocative? Why or why not?
3. Are you interested in a career in finance? Would you have any
religious or moral concerns about working in the finance industry? Are
there any jobs or industries that you would avoid based on your
religious or moral values?
4. What is your reaction to the accusation that the Islamic finance
industry is generating “interest-bearing loan[s] in all but name”?116
From what you have learned in this case study, do you agree that
Islamic financial products are sharia-compliant?
5. Have a look at the full-page ad for the campaign “What Would Jesus
Drive?” (https://adage.com/images/random/jesus_ad.gif). What car
would Jesus drive? Why?
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Next Steps
Beyond defining CSR and identifying the five driving forces that propel
its importance to firms, it is necessary to demonstrate that a CSR
perspective can work in practice. It must allow firms to prosper, as well
as act as a conduit for stakeholder concerns. But how are firms supposed
to identify key stakeholders and prioritize among their competing
interests? Under what circumstances are stakeholders willing to engage
and impose their views on firms? In other words, to what extent are
stakeholders responsible for shaping corporate actions? And how should
firms begin to integrate a CSR perspective into their strategic planning
and day-to-day operations? The importance of stakeholder theory to the
arguments presented in this book is explored in Part II.
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Part Two A Stakeholder Perspective
121
Chapter Three Stakeholder Theory
Stakeholder Definition
While different definitions of what constitutes a stakeholder have
different emphases, they largely agree in terms of sentiment. Here are
three foundational examples:
Definitions of a Stakeholder
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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.
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groups who are depending on the firm in order to achieve their personal
goals and on whom the firm is depending for its existence.”9
Although the idea of the stakeholder has therefore been around for a
while, Freeman’s contribution has been pivotal for two main reasons:
First, he rendered the concept pragmatic in meaning and action for
managers, and second, he promoted the concept within the academic
community in general and the field of management in particular. As a
result, a stakeholder is today widely understood to be a group or
individual with a self-defined interest in the activities of the firm.10 In
line with this, a core component of the intellectual argument driving
strategic CSR is that it is in a firm’s best interests to meet the needs and
expectations of as broad an array of its stakeholders as possible.11
A New Definition
Although a general understanding of Who is a stakeholder? is now well
established in the academic field of management, the idea that “anyone
who wants to be” should be considered a stakeholder is less than helpful
from a manager’s perspective. In other words, while Freeman’s
definition is still the “most widely adopted of all definitions within high
quality management journals,”12 it is sufficiently broad to encompass
anyone who self-appoints themselves to the role. While expedient, this
flexibility is unlikely to reflect a firm’s priorities and, more importantly,
offers little guidance to managers who are trying to determine how to
allocate their attention and the firm’s scarce resources.
Stakeholder
124
In short, a stakeholder is any group or individual who has a stake (similar
to Freeman), but also who has the capacity and intent to act to promote
their interests (more specific than Freeman). This definition does exclude
non-acting entities (such as the environment or young children) as
official stakeholders, but it does not exclude them from the firm’s
concerns. It merely focuses the manager’s attention on the actors who
have the agency to affect the firm’s operations (in essence, the firm’s
meaningful stakeholders) and who will act on the behalf of those who are
unable to defend their own interests.14 As such, while this means that the
environment itself is not a stakeholder, for example, any actor who seeks
to represent the environment (e.g., Greenpeace) is included.
It is not that other animals or young children are not intelligent or do not
have interests; clearly, they do. What is important for a model focused on
helping managers make decisions, however, is that those actors are able
to understand and calculate their own interests, and then can advocate to
advance those interests. When that occurs, the actor becomes a
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stakeholder (from the manager’s perspective). When that is absent, there
are proxy stakeholders on whom the manager should focus.
With this general definition in place, the firm needs to sort these groups.
To do so and begin to understand the interests of its core stakeholders,
the firm may find it helpful to divide its constituents into three
categories: organizational stakeholders (internal to the firm) and
economic and societal stakeholders (external to the firm). Together, these
three kinds of stakeholders form a metaphorical concentric set of circles,
with the firm and its organizational stakeholders at the center of a larger
circle that signifies the firm’s economic stakeholders. Both of these
circles sit within the largest circle, which represents society and the
firm’s societal stakeholders. This model is presented in Figure 3.1.
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organization as a whole—they are most directly involved in producing
the products and services the firm offers and, therefore, should be its
primary concern.
Second are stakeholders that have an economic relationship with the firm
(economic stakeholders), examples of which include consumers,
shareholders,22 and competitors. Because the motivations of these
stakeholders are primarily economic, they interact with the firm at the
interface of the organization and its larger social environment. These
groups, therefore, not only affect the financial/economic welfare of the
firm, but also create bonds of accountability between the firm and its
operating context.
Third are the stakeholders that constitute the broader business and social
environment in which the firm operates (societal stakeholders).
Examples of such stakeholders include the media, government agencies
and regulators, and local communities. These societal stakeholders are
essential for the firm in terms of providing the legitimacy necessary for it
to survive over the medium to long term. Without the general consensus
that it is valued by its broader society, no organization can expect to
survive indefinitely.
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Finally, the three categories of stakeholders all sit within the larger
business context that is shaped by the five driving forces of CSR
(affluence, sustainability, globalization, communication, and brands),
which frame this model of concentric circles. A central argument of
strategic CSR is that the emergence of these forces in recent years has
changed the rules of the game for firms, causing a shift in control over
the flow of information from firms to their stakeholders (see Chapter 2).
Within this overall classification, all possible actors fit primarily into one
of the three stakeholder groups, although almost all stakeholders exist
simultaneously as multiple types23 with network ties among each of
them, as well as with the firm.24 A firm’s employees, for example, are
primarily organizational stakeholders; they are also likely occasional
customers of the firm, as well as members of the society in which it
operates. The NGO that campaigns against the firm, however, is only a
societal stakeholder, as it would be hypocritical for the organization or its
members to work for the firm or have an economic relationship with it,
given that they are protesting against some aspect of its business model.
Similarly, a firm’s customers are, first and foremost, economic
stakeholders; they are not organizational stakeholders, but they are part
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of the society in which the firm operates. They are also one of the
primary means by which the firm delivers its product and interacts with
its society. Without the economic interface, an organization loses its
mechanism of accountability and, therefore, its legitimacy over the long
term. This is true whether the organization is a business, government, or
nonprofit.
Stakeholder Prioritization
An effective stakeholder model must do more than merely identify a
firm’s stakeholders. Equally important, if the model is to be of practical
use, is the ability to prioritize among these stakeholders. In other words,
in addition to answering the question Who is a stakeholder?, another
challenge for managers in implementing stakeholder theory arises when
faced with the question When interests conflict, which stakeholders
should be prioritized? Stakeholder theory can be of true value to the
firm’s managers only when it accounts fully for the dynamic
environment in which business is conducted. To this end, stakeholder
theory has not been very useful in providing a road map to navigate
among the interests of the firm’s stakeholders, especially when they
129
conflict. There is a reason for this—it often complicates decisions,
considerably:
130
higher dividends and higher stock prices—every one of the
stakeholders wants more, they always want more.27
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The stakeholder approach sets forth a new conceptualization of
business, in which business is understood as a set of
relationships and management’s job is to help shape these
relationships. Business is about how customers, suppliers,
employees, financiers, communities, and managers interact to
create value, and there is no single formula for balancing or
prioritizing stakeholders. Creating that balance is part of what
management is all about, and it will be different for different
companies at different times.32
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central to its legitimacy and long-term validity, but is less immediately
related to day-to-day operations.33
Evolving Issues
Simon Zadek, founder and CEO of AccountAbility,35 has developed a
useful tool firms can use to evaluate which issues pose the greatest
potential opportunity and threat.36 First, Zadek identified the five stages
of learning firms go through when “developing a sense of corporate
responsibility”:37 defensive (to deny responsibility), compliance (to do
the minimum required), managerial (to begin integrating CSR into
practices), strategic (to embed CSR within the strategy-planning
process), and civil (to promote CSR practices industry-wide). Zadek
133
combines 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”:38 latent (awareness among activists only), emerging
(awareness seeps into the political and media communities),
consolidating (broader awareness is established), and institutionalized
(tangible reaction from powerful stakeholders). The range of possible
interactions of these five stages of learning and four stages of intensity is
presented in Figure 3.2.
134
Source: Zadek, “The Path to Corporate Responsibility,” Harvard
Business Review, December 2004, p. 129.
135
Figure 3.3b Prioritizing among Stakeholders
The Firm
The strategy of a for-profit firm should determine the industries in
which it operates and the products it produces. In addition, the firm
should have performance targets it deems both attainable and desirable
(e.g., percentage of market share or total sales). Together, the strategy
and performance targets determine the firm’s operational priorities,
which managers can use to gauge the relevance of any issue that arises.
136
The Issue
The key factor that arises with any issue is the extent to which it has
become established. As Zadek notes, the maximum risk arises when a
firm is defensive in relation to an institutionalized issue because it is
resisting a potential threat about which everyone agrees. In contrast,
those firms that promote the industry-wide adoption of standardized
practices in relation to an issue that is emerging (but not yet formalized
in law) stand to gain the optimal rewards for their efforts. Even better,
firms willing to take a bold stand on a contentious issue differentiate
themselves in the eyes of those stakeholders for whom the issue is
important.
The Stakeholder
Once a manager has established that an issue is both important and
relevant, the next step is to identify those stakeholders who are most
affected. It is these stakeholders who will likely demand action from
the firm in response to the issue. But different issues will resonate with
different stakeholders at different times. Rather than launch a prosocial
campaign after the fact designed to dilute media attention and mitigate
stakeholder action (such as a customer boycott), effective prioritization
allows firms to intervene to avoid some problems and solve others,
before confrontation occurs. The goal should be to “quantify how big
an issue it is and how rapidly it’s spreading and how influential the
people hollering are.”39 The firm can then formulate a proactive
response.
Once the three factors (firm, issue, and stakeholder) have been
considered independently, it is necessary for the manager to combine
them to determine the appropriate response. This is achieved by
considering the three factors in terms of the four axes in Figures 3.3a and
3.3b. The goal is to build a multistep process by which managers can
account for variance in (1) the strategic interests of the firm (across
issues), (2) the evolution of each issue, (3) the motivation of the
stakeholder to act, and (4) the potential operational impact of any such
action. The resulting analytical tools enable managers to decide how best
to prioritize stakeholder concerns and when to act. The key question in
Figure 3.3a is Where does an issue sit within the 2 × 2 matrix?, while the
key question in Figure 3.3b is Where does each stakeholder sit (from the
137
firm’s perspective, relative to all the other stakeholders) for the issue at
hand?
Once the manager has decided the strategic relevance of the issue and the
extent of its evolution throughout society (Figure 3.3a), it is then
essential to decide how stakeholder demands on the firm should be
prioritized (Figure 3.3b). Here, stakeholder motivation captures how
important the issue is to each stakeholder—in other words, how likely
that group is to act (the y-axis of Figure 3.3b). Operational impact
captures the extent to which a particular stakeholder group can affect
firm operations—in other words, the stakeholder’s ability to damage
reputation, diminish earnings, or demotivate employees (the x-axis of
Figure 3.3b). The three different shapes represent the three broad
stakeholder groups of Figure 3.1 (square = organizational; circle =
economic; triangle = societal), while the different sizes of each shape
represent the strategic relevance to the firm in terms of different factions
or interests within stakeholder groups. The media collectively is a
stakeholder group, for example, but that does not mean that The New
York Times and The Wall Street Journal have the same interests (or even
interests similar to those of TV stations, radio stations, or online outlets).
Within the broad set of stakeholder groups, therefore, different
subgroups will be of different importance to the firm, depending on the
issue at hand. The size of each shape reflects this additional layer of
prioritization. When there is variance across stakeholder groups (e.g.,
employees differ from customers), each group’s position can be plotted;
when there is variance within stakeholder groups (e.g., employees are
138
divided about an issue), stakeholder groups can be subdivided by size
according to their relative positions and plotted.
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Utilizing these five steps optimizes the practical value of a stakeholder
perspective for the firm. The resulting managerial stakeholder model is
presented in Figure 3.4.41
The primary value of this model is that it allows the firm to analyze the
interests of its broad set of stakeholders issue by issue (i.e., a single issue
and multiple stakeholders), but it can also be adapted to analyze how any
one stakeholder’s interests vary across issues (i.e., a single stakeholder
and multiple issues). For example, while the issue of Exxon’s stance on
climate change is one that a large number of its stakeholders will feel is
relevant to them, it is particularly relevant to Greenpeace. Having said
this, Greenpeace has a number of issues that it thinks are important, one
of which is Exxon’s stance on climate change. While Exxon can use
Figure 3.4 to analyze the issue of climate change in relation to all of its
stakeholders, it can also use it to analyze Greenpeace in terms of the
many issues that are important to the NGO and that affect its relationship
with Exxon.
140
other words, it aids decision making; it is not a substitute for decision
making. In reality, the firm should strive to create value for most of its
stakeholders, most of the time. Occasionally, this will require attending
to the needs of a neglected stakeholder group, even though it may not
feature prominently in Figure 3.3b.
141
effective stakeholder ties?
5. Using a real-life firm, list its stakeholders and use the model presented
in Figure 3.4 to prioritize their importance (from the firm’s
perspective).
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Chapter Four Corporate Stakeholder
Responsibility
The economic argument for CSR assumes that firms act most effectively
when they are incentivized to do so. It assumes that for-profit firms are
conservative—that they are more responsive to economic stimuli and are
less willing to initiate change when there is little evidence their actions
will be rewarded in the marketplace. Importantly, it assumes that a CSR
perspective optimizes value creation when the firm’s goals and society’s
expectations are aligned. 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 are more pressing. A
firm with unacceptable employment practices that are despised by
employees, for example, may not reap the negative consequences of its
actions if the jobs are vital to the well-being of the local community and
there are no good alternatives. By definition, the firm is creating some
value if it is offering the best jobs in the area. Should firms interpret the
lack of pushback against their actions as an invitation to uphold the
status quo without consideration for any broader concerns about their
operations?
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A more difficult question arises when a CSR perspective fails to align
the firm’s interests with those of its stakeholders—that is, when
stakeholder interests conflict. What happens when some stakeholders
demand socially irresponsible behavior? What should the firm do if
customers want to purchase a product that is not only bad for them (e.g.,
tobacco, alcohol, or fast food) but also bad for society (e.g., higher
healthcare costs)?1 What happens when customers’ primary concern is
the lowest price to the exclusion of all other concerns, such as factory
conditions, environmental pollution, or basic customer service?2 If firms
respond to such demands, are they being socially responsible, or does it
mean that CSR does not matter (or, at least, does not matter all of the
time)?
The focus of much of the CSR debate has been to urge firms to act 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 not act responsibly. In
fact, it is possible that firms are rewarded for not doing so. Unless a
firm’s business suffers as a result of its actions, should it be expected to
change? More specifically, who decides what is responsible behavior and
what is not?
144
In the United Kingdom, ethical consumerism data show that
although most consumers are concerned about environmental
or social issues, with 83 percent of consumers intending to act
ethically on a regular basis, only 18 percent of people act
ethically occasionally, while fewer than 5 percent of
consumers show consistent ethical and green purchasing
behaviors.3
Given this, who is at fault if firms do not act responsibly? Are firms
expected to incur costs their stakeholders will not pay for? Alternatively,
what would our economy look like if governments started passing
meaningful legislation and then actually enforced it, or the media held
firms to account, or customers began demanding minimum standards
from firms and took their custom elsewhere if the firms failed to
comply? It is likely that firms would change their practices and change
them quickly, or else they would go out of business. In the absence of
such stakeholder engagement, how can we expect firms to act
responsibly when stakeholders are unclear about what that means?
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did not understand them or appreciate the associated risks. Given the
AAA rating these securities were assigned by the credit-rating agencies
(in pursuit of corporate subscriptions), the industry continued to sell
these mortgages to a growing percentage of the population. With
insufficient oversight by regulators, these irresponsible actions
continued for years. When housing prices declined and mortgage
defaults soared, the consequences of actions by brokers, bankers,
credit-rating agencies, and Wall Street were widespread bankruptcies
and home foreclosures.
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reward are, essentially, the actions that they value. That does not mean
that other kinds of behavior should not be done—just that there is no
responsibility to do them . . . yet. It is up to stakeholders to define what
responsible behavior looks like in practice and for firms to respond:
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mainly on price), firms will quickly adapt. If customers are not willing to
pay this premium, is it in society’s best interests for firms to bear the
burden of producing such products at the risk of going bankrupt?
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On the surface, the positions taken by Friedman and Handy appear
irreconcilable. Indeed, Friedman seems to go out of his way to
antagonize CSR advocates by arguing that socially responsible behavior
is a waste of the firm’s resources, which he says “is why, in my book
Capitalism and Freedom, I have called [CSR] a ‘fundamentally
subversive doctrine’ in a free society.”12 But on closer analysis, how
different are the arguments, really? Incorporating a strategic CSR
perspective narrows the gap between these two commentators
considerably, as indicated by a comparison of two questions:
Rather than take the positions of Friedman and Handy at face value,
therefore, a more insightful interpretation of their arguments suggests
that, to the extent that it is in a firm’s interests to create value for its key
stakeholders, it should do so. From Handy’s perspective, this point is
easy to argue, but Friedman also recognizes this. He qualifies his
statement that a manager’s primary responsibility is to the shareholders,
who seek “to make as much money as possible,” by noting that this
pursuit must be tempered by “conforming to the basic rules of the
society, both those embodied in law and those embodied in ethical
custom.” In addition, a firm’s actions are acceptable only as long as it
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“engages in open and free competition without deception or fraud”13
[emphasis added]. Both points acknowledge that a firm cannot ignore the
consequences of its actions for a wider set of stakeholders. It is worth
quoting Archie Carroll at length on this point:
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actions of which they disapprove. Should regulators, for example, place
constraints on the issuing of loans in the finance industry? Should
employees demand higher wages from their employers in the fast-food
industry? Should consumers expect more responsible television
advertising by firms that make children’s products? Should firms
outsource only to contractors willing to sign codes of conduct to ensure
more responsible behavior throughout the supply chain?
The point is that, ultimately, firms do not define our societal values;
instead, they reflect them. Firms are very good at providing us with what
we actually want (rather than what we say we want).17 As such, all
stakeholders have an obligation to shape the society in which we want to
live and work. If society, collectively, decides that financial crises should
be avoided, then we must vote for politicians willing to pass the
legislation necessary to avoid them. Similarly, if society decides that it
does not want all of its jobs outsourced to low-cost economies, then we
must be willing to pay the higher prices that will result from keeping
those jobs at home. The responsibility is not solely with one group or
another; it is shared and collective—“we live in the house we all
build.”18
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EarthShare
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business case for CSR, we also must advocate for a corporate
stakeholder responsibility (the responsibility of stakeholders to hold a
firm to account).21 Both are essential to the extent that, without one, we
are unlikely to see enough of the other. Similarly, the more the latter
happens, the more it is in the firm’s interests to do the former.22
Consistently, for-profit firms have demonstrated that they are very good
at reacting to market forces and economic incentives, and that they are
not very good at either predicting consumer trends or shifting markets in
ways that counter demonstrated demand. An alternative focus for the
CSR community, therefore, is to shift attention from firms to their
stakeholders. In Chapter 1, CSR was defined as “a responsibility among
firms to meet the needs of their stakeholders and a responsibility among
stakeholders to hold firms to account for their actions.” In other words,
there is a responsibility of stakeholders to hold firms to account that is
equal to (if not more important than) the responsibility of firms to act
according to those expectations. This more balanced approach is
essential to generate meaningful change:
In essence, therefore, CSR is firms doing what society (the collective set
of stakeholders) wants the firms to do, while strategic CSR means doing
so in a way that creates a competitive advantage for the firm over the
medium to long term. In other words, if a particular stakeholder (either
an individual or a group) advocates for change, it does not necessarily
mean it is socially responsible for the firm to take this action. In fact, if
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the majority of stakeholders do not support the change, then it would be
socially irresponsible for the firm to do it (because society represents the
collective will of all stakeholders). Now, the change may still be in the
strategic interests of the firm if the call for change is made by a
particularly important stakeholder (such as a valued employee or
customer), but it is not socially responsible. But in order for stakeholders
to get what they want, they need to be honest about what it is they truly
want (different from what they say they want), combined with an
awareness that higher expectations often come with a higher cost.
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The full implications of the idea of corporate stakeholder responsibility
make apparent the difference between mainstream CSR and the new
definition of CSR presented in Chapter 1. The accompanying shift is
presented graphically in Figures 4.1a and 4.1b. CSR is often discussed in
terms of understanding how stakeholders react to firm actions. In other
words, the firm acts, and its stakeholders react. You have to think for
only a few minutes about the stakeholder model, however, to understand
this does not represent reality. Because managers, employees, and
directors are all stakeholders, the firm cannot be a separate thing. It is not
that the firm acts and then its stakeholders react, but that the firm’s
actions reflect the aggregate and concurrent effect of all its stakeholder
actions. The firm is constituted by its stakeholders—they are one and the
same.
Put another way, it is the environment in which the firm operates that
creates the boundary conditions that define what the pursuit of profit
means at any given point. The rules of the game determine what is
acceptable and unacceptable, and the firm responds. It is the collective
set of values of all of the firm’s stakeholders that makes these rules. The
firm’s goal continues to be profit and has always been, back to the
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earliest markets on the Silk Road; it is the rules that evolve over time and
vary from culture to culture. And it is the more astute managers, who
understand current conditions and also when the rules (written and
unwritten) have shifted, who can guide their firms to greater success.
They understand that abiding by those rules provides the firm with the
license that it requires to operate.28 But for this relationship to work, it is
essential that the rules be enforced by stakeholders. If the rules are
enforced, they will determine the outcome.
Stakeholder Engagement
Firms are designed to make a profit. They do so by giving us what we
want. As such, it is the firm’s stakeholders that define the parameters of
which actions are profitable and which are not. It would advance the
CSR cause considerably, therefore, if stakeholders were caring,
informed, transparent, and educated.
Caring Stakeholders
In order for CSR to be a stakeholder responsibility, stakeholders need to
care sufficiently to warrant corporate action. The argument in favor of
CSR presupposes there are benefits for a firm to be perceived as a net
contributor to the society in which it is based. At the very least, there
should be economic penalties for firms that act contrary to stakeholder
expectations. Managers already understand the benefits of being
perceived as a positive influence within a local community, as suggested
by advertising campaigns that highlight examples of corporate
philanthropy. The extent to which that perceived image differs from
societal expectations represents the potential for either an economic or a
social deficit, as depicted in Figure 4.2. These deficits suggest
misalignment between internal and external stakeholder expectations,
and what the firm delivers.
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A firm that is successfully implementing strategic CSR (represented by
the 45º line in Figure 4.2) is able to align the value its internal
stakeholders seek with the broader value that is sought by its various
external stakeholders. Typically, the value sought internally focuses on
growing profits, which benefit organizational stakeholders such as
employees. To be considered legitimate over the medium to long term,
however, the firm’s pursuit of profit should also provide value to the
firm’s external stakeholders, such as the local community in the form of
preserving local jobs or producing products that are safe to consume. The
range of firm behavior that generates value for both internal and external
stakeholders in sufficient quantities is termed the Strategic CSR Window
of Opportunity.
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external value is deficient to some degree, stakeholders have a basis
upon which to question the legitimacy of the firm as a valued member of
society.
would add less than one dollar to the price of a pair of blue
jeans. But despite responding to surveys that they care about
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ethics, shoppers refuse to pay more. In one study, only half of
customers chose a pair of socks marked “Good Working
Conditions” even when they were the same price as an
unmarked pair; only one quarter of customers paid for the
socks when they cost 50 percent more. Until the general public
acknowledges the true cost of consumption, the people inside
companies fighting for more responsible practices will be
waging an uphill battle.30
Informed Stakeholders
Stakeholders encourage more socially responsible behavior when they
represent rational or economic motives for the firm. Although this
advocacy often comes from customers, the media, investors, or other
external activists, internal advocates (including founders, leaders, and
employees) also have interests that need protecting. At issue is the
willingness to become informed and act.
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(https://www.tumblr.com/),35 which act as platforms to mobilize and act,
while BuyPartisan (http://buypartisan.com/) reveals patterns of political
donations by firms on a product-by-product basis. As a collective and
armed with the tools to mobilize, stakeholders have the power to shape
the society they say they want. This is particularly true for a group of
consumers that is as large as those who shop at Walmart every week:
Many CSR advocates have relied on the moral argument for their cause,
which boils down to the notion that businesses should act in a socially
responsible manner because it is the right thing to do. Values (such as
judgments of right and wrong) are subjective, however, and can be
subordinated within firms to profit, sales, or other bottom-line
considerations. Firms may wish or intend to act in a responsible manner
for a variety of reasons, but they are more likely to commit consistently
and wholeheartedly to such business practices if they are convinced of
the rational or economic benefits of doing so.
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This opportunity/risk tradeoff demonstrates the advantage to firms of
acting on stakeholder concerns, and the danger of procrastinating. Once
stakeholder impatience passes the point of retribution, the firm can be
heavily penalized for not responding to expressed concerns. Examples of
such retaliation include regulation by the government, boycotts by
consumers, investigations by the media, or strikes by employees. In
order for firms to act, however, stakeholders need to be informed and
convey their concerns clearly with genuine action that punishes firms
that do not listen or respond. Superficial protests or “pseudo-boycotts”
are likely to be ineffective.40 Stakeholder concerns become more evident
and measurable when key groups communicate their intent clearly to
firms.
Transparent Stakeholders
To the extent they reveal which issues are on the minds of stakeholders,
opinion surveys can serve as a useful tool. The message polls send,
however, may not always be clear. The Gallup “Annual Honesty and
Ethics Poll,” which rates “the honesty and ethics of workers in 21
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different professions,” for example, reveals that the public does not hold
business executives in very high esteem. As Figure 4.4 indicates, a
review of the results from 1990 to 2017 shows that the percentage of the
US public surveyed who rated business executives’ ethics as “high” or
“very high” never rose above 25 percent.41
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and the average job tenure of a Fortune 500 CEO has gone
from ten years in 2000 to five years today.44
Various surveys and reports over the years continue to tell us that
consumers care about CSR and are willing to pay more for more
responsible business practices. This sentiment is supported by the survey
data presented in Figure 4.5 (an online survey of more than 30,000
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people in 60 countries), which suggests not only that consumers care but
also that their willingness to pay is increasing. Unfortunately,
164
socially responsible is not a set of abstract standards (don’t pollute, don’t
outsource, pay your employees $15 per hour, etc.) but is defined by the
values of the firm’s collective set of stakeholders. In other words, for a
firm to be socially responsible means doing what society wants the firm
to do. Within this view of CSR, if society wants to destroy the planet,
then firms are being socially responsible if they give society what it
wants. Equally, if society wants firms to be environmentally conscious,
then protecting the planet is being socially responsible. The definition of
what is and is not socially responsible is not fixed, but is changing all the
time and up to stakeholders to determine. For example, 50 years ago,
wearing a fur coat was socially acceptable, but today it is not. There is
nothing absolutely right or wrong about wearing a fur coat—what has
changed is our attitudes toward it. As a result, what is considered
responsible behavior (in relation to fur coats) has also changed.
Educated Stakeholders
An indicator of hope for a future in which a CSR perspective becomes a
more prominent part of business (both in terms of managers’ awareness
and stakeholder demands) is the degree to which the subject is an
integral component of business education. To what extent, therefore, are
ethics and CSR classes entering the business school curriculum? This is
important because “more than 366,000 undergraduate business degrees
and 191,000 graduate business degrees” are granted annually in the US,
“more than any other type of undergrad or masters-level degree.”50
Worldwide, the numbers are much larger. In other words, it matters how
we educate our future corporate leaders. The concern is that business
schools are not currently teaching students what they need to know:
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Ethics in Practice
These findings match earlier research that reported prison parole boards
are more likely to grant parole to a prisoner immediately after a break
(e.g., for lunch or coffee). The explanation is that as the board members
became tired or hungry (and more irritable), their ability to evaluate
objectively is compromised. It turns out that humans are frustratingly
inconsistent when applying their ethical and moral values:
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In response, there is hope that business schools are beginning to take
ethics and CSR more seriously. The “Beyond Grey Pinstripes” biennial
survey by the Aspen Institute55 was an early promoter of such a best
practice, having been designed to measure progress among “full-time
MBA programs that are integrating issues of social and environmental
stewardship into curricula and research.” The organization’s final MBA
ranking assessed schools in four areas: relevant coursework, student
exposure, business impact, and faculty research, reporting that “the
percentage of schools surveyed that require students to take a course
dedicated to business and society issues has increased dramatically,”
from 34 percent in 2001 to 79 percent in the final ranking in 2011.56 Net
Impact is another example of progress. Its data suggest that “65% of
MBAs surveyed say they want to make a social or environmental
difference through their jobs,” while “70% of young Millennials . . . say
a company’s commitment to the community has an influence on their
decision to work there.”57 In support of this growing sentiment, Net
Impact, originally founded as Students for Responsible Business, boasts
a growing membership:
One factor fueling the rise in CSR courses at universities (reflected in the
Aspen Institute’s rankings) and the growth in activist organizations (such
as Net Impact) is PRME—the United Nations’ six Principles of
Responsible Management Education.59 With more than 720 global
signatories, “PRME has become the largest organised relationship
between the United Nations and management-related higher education
institutions.”60
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are more relevant to our capacities and mission. We will report
on progress to all our stakeholders and exchange effective
practices related to these principles with other academic
institutions.61
Is a Manager a Professional?
There are three main characteristics that define what it means to belong
to a profession:
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order to protect against the potential harm that can be caused by poorly
trained people doing those essential jobs, society sets very high
standards (a form of quality assurance) to minimize the risks. In return,
society offers the status of professional and grants a monopoly to
practice that particular job (and reap the rewards for doing so).
That is why managers are not professionals and the MBA is not the
certified gateway to becoming a manager that it could have been. That
is not to say we would have been better off if the manager was a true
professional, but it is important to understand that it is not. Of course,
this is not widely taught to business students, partly because it is not
widely understood in business schools, but partly also because it is
more prestigious for a college to be thought of as a professional school.
It is also important to know that things could have been very different:
This did not happen. But just because management is not a profession
does not mean that business students cannot carry themselves as
professionals. To do so, the MBA Oath (http://mbaoath.org/), created
by Harvard MBAs for graduating students, is a good start.67
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An M.B.A. education is no longer just about finance,
marketing, accounting and economics. As topics like sexual
harassment dominate the national conversation and chief
executives weigh in on the ethical and social issues of the day,
business schools around the country are hastily reshaping their
curriculums with case studies ripped straight from the
headlines.68
Engaged Stakeholders
The result of stakeholders who care, are more informed, are transparent,
and are better educated is that they are more engaged. An essential
aspect of this is a belief in something larger than the self. A willingness
to shape society (rather than be shaped by it) entails that we believe, at
some level, that the group (society) is more important than the
individual. Unfortunately, in recent decades, the trend has been in the
opposite direction:
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The role of materialism in our society and the way we identify with
consumption are both strongly connected with this sense of self-worth.70
Psychology research, for example, shows that “even a few words that
prime people to think of themselves as Consumers, result in more selfish
behaviour and attitudes and lower social and ecological motivation
levels.”71 Untrammeled consumption has consequences—environmental,
sociological, and psychological. If we see ourselves in society primarily
as individuals who exist solely to gain material advantage for ourselves,
we are all worse off. Instead, if we are engaged stakeholders, we are able
to shape the society that we say we seek. The responsibilities of each of a
firm’s stakeholders are outlined in Figure 4.6.72
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A holistic view of the organization and its interests (possible only with a
stakeholder perspective combined with the goal of medium- to long-term
viability) dictates that a CSR perspective should be central to a firm’s
strategic planning and implemented throughout operations. A
commonsense view of stakeholder interests, however, suggests an equal
investment in deciding what behavior by firms is responsible and seeking
to encourage more of that behavior by ensuring it is rewarded. In other
words, there is a synergistic relationship between a firm and its range of
stakeholders, which is reflected in a joint responsibility to generate
favorable outcomes. Whether those outcomes are tangible or intangible,
economic or social, responsibility is shared. CSR is not only a corporate
responsibility; it is also a stakeholder responsibility.
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Case Study Capitalism
This case views the global, capitalist economic system through the prism
of the 2007–2008 financial crisis (referred to here as the Financial
Crisis). More than a decade later, what more do we now know? How did
the crisis emerge, and what were its consequences (short- and long-
term)? What challenges does it present for capitalism today? What was
the role of social responsibility? And perhaps most importantly, what
changes does a strategic CSR perspective suggest moving forward?
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Essentially, the crisis resulted from the cumulative effects of multiple
bad decisions by many individuals who had lost their sense of
perspective.5 What was amazing at the time was “how so many people
could be so stupid . . . and self-destructive all at once”6 to produce “a
near total breakdown of responsibility at every link in our financial
chain.”7 The scale of negligence and culpability defies belief:8
How could the people who sold these [products] have been so
short-sightedly greedy? . . . How could the people who bought
them have been so foolish?9
At the height of the boom, the subprime mortgage industry in the United
States had clearly lost all sense of proportion. The result was higher
default rates and, as a consequence, higher rates of home repossessions:
Moral Hazard
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The Financial Crisis was driven by three main factors: first, the housing
market bubble, which was fueled by low interest rates and easy access to
mortgages (e.g., so-called “liar”13 or “ninja”14 loans); second, the
underpricing of risk, particularly by investors on Wall Street; and third,
the failure (or inability) of the regulatory infrastructure to police the
increasingly liquid global financial market. In other words, there is
plenty of blame to go around—from the individuals who sold mortgages
that had attractive commissions but were unlikely to be repaid, to the
firms that allowed these sales to continue because they were passing on
the risk, to the regulators who failed to oversee the markets it was their
responsibility to monitor, to the investors who developed complex
securities and other financial instruments that few people (including
themselves) fully understood. This culpability extends to the people who
failed to question whether it was wise to apply for 100 percent mortgages
on hugely inflated home prices with little or nothing down, purely on the
belief that house prices would continue to rise, and the confidence that,
either way, they would be able to refinance in a couple of years. All of
these decisions were made in an atmosphere of overdependence on the
market as the ultimate arbiter that relieved individual actors of personal
responsibility for many of their day-to-day decisions.
This faith in the market was misplaced because of its underlying rules,
which distorted the dynamic interplay of demand and supply. This
structure, put in place over decades by biased or ill-informed politicians
(who passed hastily constructed regulations) and shortsighted executives
(who were only too willing to forget any lessons learned from previous
recessions) enabled the crisis and inflamed it once it had started. In
essence, moral hazard was rife—the finance industry was essentially
rigged to fail. Over time, a system of incentives had been put in place
whereby the rewards to business were privatized (accrued directly to
individuals), while the risk was socialized (borne by the system through
financial institutions that were deemed too big and important to fail); this
represents, according to George Soros, the failure of a pure market
ideology:
Moral Hazard
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[Market] fundamentalists believe that markets tend towards
equilibrium and the common interest is best served by
allowing participants to pursue their self-interest. It is an
obvious misconception, because it was the intervention of the
authorities that prevented financial markets from breaking
down, not the markets themselves.15
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Global Capitalism
While the crisis was inherently the creation of the US financial markets
and regulators, for it to have the global reach it did required the buy-in of
the rest of the world. Everyone was happy to play along while the market
was going up. The resulting backlash against the status quo following the
crash, therefore, represents a challenge to the spread of globalization
shaped largely by US liberal capitalism (e.g., deregulation, free
international money flows, self-correcting markets, and the efficient
pursuit of profit in the form of shareholder returns):
This backlash began more than a decade ago, in the immediate aftermath
of the Financial Crisis, but continues to resonate today. What is not clear,
ultimately, is how effective or self-sustaining this critique will be and
whether, in conjunction with any shift in economic ideology, there will
be a corresponding shift in global political power. The dominant feature
of the US economic model prior to the crisis was an inherently unstable
combination of excessively low savings and excessively high borrowing.
This surplus of credit was being used to finance an unsustainable level of
consumption—unsustainable because the United States was consistently
spending more than it saved. That money had to come from somewhere,
and most of it came from China. As such, the only real, long-term
solution to the crisis is a rebalancing of demand and supply within the
global economy,21 which represents a shift in influence from the
borrower to the lender:
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global power. . . . The fact that [the meeting to discuss a global
response is] of the G-20 rather than the Group of Seven . . . is a
symbol of the decline of U.S. economic power exposed by the
crisis.22
The sense was that things had changed and US capitalism, as the driving
force behind globalization, is slowly losing its ability to shape the world:
The debate that has emerged within the CSR community regarding the
future shape of capitalism reflects this shift in the content and tone of
discussions about the global economic system. Thomas Friedman in The
New York Times, for example, highlights the intersection of the economic
and environmental crises:
In early 2009, articles with titles such as “Is Capitalism Working?”25 and
“The End of the Financial World as We Know It”26 began to appear in
respected outlets. This sense of seismic change was reinforced by a
series of articles in the Financial Times about the crisis and its
consequences for the economic order. The goal of the series, which was
titled the “Future of Capitalism,” was to assess the consequences of the
crisis, given that the “assumptions that prevailed since the 1980s
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embrace of the market now lie in shreds.” Representative of the debate
was this comment in the opening article in the series:
Combined with Bill Gates’s call for “creative capitalism”28 (2008) and
Muhammad Yunus’s book Creating a World Without Poverty29 (2009),
the sense at the time was of a point of “inflection”30 in the economic
history of our planet. While we might not have expected measurable
change immediately, the intellectual shift indicated that whatever shape
globalization took going forward, it would be different than it was before
the crisis.31
Along these lines, the evolving thoughts of Alan Greenspan, chair of the
US Federal Reserve from 1987 to 2006, on the self-policing role of
market forces is instructive. In 1963, Greenspan wrote that it would be
self-defeating (and, therefore, highly unlikely) for firms “to sell unsafe
food and drugs, fraudulent securities, and shoddy buildings. It is in the
self-interest of every businessman to have a reputation for honest
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dealings and a quality product.” By 2008, in testimony to the House
Committee on Oversight and Government Reform, however, Greenspan
admitted the error in this line of thought:
The six biggest U.S. banks, led by JPMorgan Chase & Co.
(JPM) and Bank of America Corp., have piled up $103 billion
in legal costs since the financial crisis, more than all dividends
paid to shareholders in the past five years. That’s the amount
allotted to lawyers and litigation, as well as for settling claims
about shoddy mortgages and foreclosures, according to data
compiled by Bloomberg. The sum, equivalent to spending $51
million a day, is enough to erase everything the banks earned
for 2012.37
While the legal costs associated with the Financial Crisis for the world’s
sixteen largest banks have been estimated to top £200 billion (perhaps
hitting $306 billion),38 Figure II.1 illustrates the extent of the fines paid
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by the six largest US banks. In the end, “JPMorgan and Bank of America
bore about 75 percent of the total costs.”39 In Bank of America’s case,
much of this total is attributed to its purchase of Countrywide—a
decision that “‘turned out to be the worst decision we ever made,’ said
one Bank of America director who had voted for the Countrywide
deal.”40 In total, since 2008, the bank “has paid monetary and non-
monetary fines and penalties of more than $91 billion . . . in some 51
settlements, including a record $16.65 billion to the Justice Department
and several states.”41 As an indication of its further fall from grace, in
2013 the bank was removed from the Dow Jones Industrial Average
index, along with Alcoa and Hewlett-Packard, to be replaced by
Goldman Sachs, Visa, and Nike.42
As such, the Financial Crisis refocused the debate on the personal ethics
of decision makers and the wisdom of fostering leaders willing to make
the best decisions in the long-term interests of their organizations and
stakeholders. Together with the debate about the implications of the
crisis for the global political power balance and the form of capitalism
that will drive globalization forward, the crisis injects an element of
urgency to achieving cross-cultural understanding in a complex global
business environment, where decisions taken by firms in one country
have implications that can reverberate around the world. In particular,
this crisis crystallizes a number of questions that highlight the
importance of CSR: What does it mean for society when widespread
business failure results in broad social and economic harm? How will
this affect the environment in which subsequent generations seek jobs
and launch the firms of the future? How will societal expectations of
these firms change (if at all), and how should the business community
respond? And essentially, what obligations do we have as individuals,
organizations, governments, or societies to avert similar crises in the
future?
181
Source: Saabira Chaudhuri, “U.S. Banks’ Legal Tab Is Poised to
Rise,” The Wall Street Journal, October 28, 2013,
http://www.wsj.com/articles/SB10001424052702304470504579163
810113326856/.
182
mercenary trading culture, which had little to do with
providing capital for companies, ostensibly its reason for
being. Post-Lehman, economic reality set in.45
Ten years after the end of the Financial Crisis, while those most closely
involved in the decisions taken at the time seek to reassure us that the
response was a success,46 others argue that little has changed:
In other words, the real danger is not that things are simply “unchanged,”
but that the situation is now much worse. By delaying many of the more
radical remedies that would help protect finance from itself, we have also
simply delayed the day of reckoning:
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attack could be even more severe and the medical techniques
that worked a decade ago may not be successful a second
time.50
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The longer we leave this, the harder it is going to become, and the more
painful the correction will be. In the meantime, the failure of capitalism
to solve the underlying issue of the fair distribution of wealth across
society has caused a vacuum that some are seeking to fill with more
radical (and less effective) alternatives.
Second, few individuals were ever held to account for the widespread
negligence and culpability that caused the Financial Crisis. Even though
white-collar crime is notoriously difficult to prosecute, it is still
astounding that of the 156 cases (criminal and civil) brought by the
federal government since 2009 against the ten largest US banks,
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and had a ruling in their case, six were found not liable or had
the case dismissed. That left a total of five bank employees at
any level against whom the government won a contested
case.56
The result of all this is that people have “lost faith in the system—not
only in the banks and mortgage lenders, but in capitalism itself.”62 This
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outcome has been building over many decades and multiple crises. In
some ways, the Financial Crisis did not create new problems; it merely
inflamed problems that were already there (“stagnant wages, widening
inequality, anger about immigration and, above all, a deep distrust of
elites and government”).63 The result has been “a wave of nationalism,
protectionism and populism in the West today.”64 The key question,
therefore, is whether these problems are an inevitable component of
capitalism or whether they are a function of a distorted implementation
of the current version. Either way, these frustrations have continued to
grow, in both scale and scope, and suggest the need for some kind of
change:
And if you don’t solve this problem, voters around the world
have demonstrated that they’re quite willing to destroy market
mechanisms to get the security they crave. They will trash free
trade, cut legal skilled immigration, attack modern finance and
choose state-run corporatism over dynamic free market
capitalism.65
In Britain, less than one in five people agree with the statement
that the next generation will be richer, safer and healthier than
the last. . . . Three-quarters of Britons now favour full
nationalisation of all utilities and rail infrastructure. Asked to
describe capitalism, people view it as “selfish,” “greedy” and
“corrupt.”68
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What is the effect of (1) the weakening of Western liberal democracy,69
(2) a loss of confidence in capitalism, and (3) the failure to distribute the
benefits of globalization more equitably? One possibility is that people
will begin to reconsider “the respective weighting . . . between the role of
markets and government, between the invisible hand and the visible
one.”70 A likely outcome of this discussion will be that the demands
placed on for-profit firms will shift in ways that favor the individual in
the short term over the group in the long term. Along these lines, the
specter of socialism is now being discussed as a solution to capitalism’s
worst failings. In the US, for example:
One problem with this narrative, however, is that the label “socialism” is
thrown around a lot in US political debate, without much agreement over
what it means:
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business to defend the global economic system that has historically
created so much wealth for so many.74 As noted in the Financial Times,
“capitalism requires legitimacy. It would thrive over the long term only if
it were seen to be on the side of the welfare of the nation’s citizens.”75
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does a better understanding of the Financial Crisis and its causes make
you more or less likely to vote in the future?
190
Next Steps
191
Part Three A Legal Perspective
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Chapter Five Corporate Rights and
Responsibilities
To put that another way, when Greenpeace demands that a firm decrease
its pollution of carbon emissions, it is really asking the firm to create
value in the way that Greenpeace defines value (i.e., less environmental
destruction). Similarly, when customers demand safer products, or when
employees demand better working conditions, or when suppliers demand
quicker payment cycles, or when the government demands compliance
with a law, each stakeholder is asking the organization to operate in a
way that the individual or group defines as value creating. If a customer
values a safe product, then the firm meets his or her needs when it
delivers that product. Equally, if an employee values better working
conditions, then the firm creates value for that person when it provides
that workplace, and so on. In each case, it is the stakeholder that defines
what value creation looks like. When the stakeholder actively seeks that
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value from the firm, the firm must decide whether to provide it, and the
stakeholders must decide whether they approve or disapprove of the
decision. By rewarding behavior stakeholders want and punishing
behavior they do not want, therefore, society (all stakeholders)
determines the extent to which any one firm is useful, because it has the
power to decide whether the firm continues to exist.
By asking the wrong questions (or, at least, framing the right questions
incorrectly), the traditional CSR debate focuses on objective outcomes
that particular individuals or groups believe should be achieved (e.g.,
Amazon must pay its employees a living wage; Exxon must not pollute).
This is essentially a normative approach—one that starts with a
predetermined outcome and then works out how to achieve it, but bases
the argument on benevolence. When the focus is instead on the fluid
process by which value is created for multiple stakeholders, however,
outcomes are not dogmatic—they are defined as different stakeholders
bring their interests to bear in a complex process of iterative negotiation.
This is essentially a descriptive approach—one that allows the outcome
to emerge and fluctuate (depending on what stakeholders value at a
given time), rather than imposing a fixed view about what should or
should not happen. It bases the argument on reality—a view of humans
as they are, not as we might wish them to be.
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stakeholders tell it to do (or go out of business), but it helps if the
message is consistent.
For-profit firms are the most efficient tools we have to deliver the social
progress that we seek. As such, understanding the framework of rights
and responsibilities within which these firms operate is central to
understanding strategic CSR. In particular, in contrast to much of the
CSR debate, which highlights the corporation’s responsibilities, it is
worth asking: What rights does the corporation have?
Corporate Rights
The corporation is the focus of much of the critical attention of CSR
advocates. It is the organization that is blamed for many of the ills
created by globalization and free trade. The attention reflects the high
profile of the corporation in modern society:
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Remember Adam Smith’s invisible hand? It is one of the most
repeated phrases in the business world. But business has
allowed society to forget a very simple fact: the hand that
connects markets and balances supply and demand is ours. We
are the people who put food on plates, books on shelves, music
in people’s ears and information online. We are the distributors
and we are the creators of wealth.2
Given all of this, to what extent is the corporation a positive factor in the
CSR debate? To what extent is business essential to achieving the agenda
sought by CSR advocates? And how can a corporation’s contribution to
society be measured and evaluated? This chapter argues that in order to
understand the social responsibilities of the corporation, it is also
important to understand the corporation’s rights. Another key component
of the CSR debate is the firm’s self-interest. To the extent that the
responsibilities expected of firms do not infringe upon their rights, yet
also align with their self-interest, the chance of introducing meaningful
change and building a more sustainable economic model increases. This
overlapping zone of meaningful change is captured in Figure 5.1.
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Citizens United
A corporation is a fictitious legal person that is endowed with many of
the characteristics of a human being. It can possess property; it can incur
debts; it can sue and be sued; and it can be criminally prosecuted, fined,
and, in theory, dissolved by the federal government. Under US law, the
Supreme Court has extended portions of the Bill of Rights to
corporations, even while it has been less stringent in imposing many of
the responsibilities of citizenship.
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organization to remain private (and, by definition, outside the control of
the state). In keeping with this precedent, the Court continued to
understand corporations as legal individuals, gradually increasing the
rights bestowed on them in line with constitutionally protected individual
rights:
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freedom of speech.8 In this case, the Court ruled explicitly that political
donations were free speech and, as such, were constitutionally protected
behavior. This applied whether the donations were made by individuals
or by organizations. This decision was followed shortly after in 1978 by
First National Bank of Boston v. Bellotti (435 U.S. 765, 1978), which
granted firms the right to donate money to political campaigns.9 It is
these decisions that laid the foundation many years later for the
controversial Citizens United v. Federal Election Commission (558 U.S.
310) decision, which the Court decided in 2010.
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potential consequences. As with most rulings, there is the theory that
justifies it (which may be defendable) and the reality in implementation
(which may be subject to abuse). This decision allows corporations
greater freedom to finance political ads and individual candidates. The
consequences of the decision are projected to alter the face of political
campaigns; it is thought that increasing the amount of money in politics
will have direct consequences for the number of attack ads and favor
those candidates who support corporations. As such, it is clear that a
number of stakeholders, including shareholders, are concerned about the
uncertainty the case creates. In 2012 (a presidential election year), for
example, firms donated “$2.71 billion” to political candidates and
causes.13 More recently, shareholders of Nike have asked the firm to be
more transparent in its political activities and spending:
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society’s best interests to encourage healthy and wealthy corporations
because they bring many benefits. Equally important, however, is that
demand for a product is a necessary but insufficient condition for
survival over the medium to long term. On top of a healthy foundation of
an efficient organization and a profitable product, managers must aim
consistently to create value for the firm’s broad range of stakeholders.
The concept of corporate personhood enables this goal and is essential
for the fluid operation of a market economy (firms need to be able to
enter into contracts, to be able to sue and be sued, etc.). It is also not
clear how limited liability17 could exist without corporate personhood—
two innovations that have laid the foundation for the rapid growth and
prosperity achieved among developed economies:
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inconsistency in the Court’s decisions aggravates perceptions of bias and
blurs the balance between corporate rights and societal responsibilities.
In response, activist organizations, such as Move to Amend
(https://movetoamend.org/) and Reclaim Democracy
(http://reclaimdemocracy.org/), campaign in the United States for a
constitutional amendment to redress the imbalance. Some among the
Justices might be sympathetic. In his dissent to Citizens United, Justice
John Paul Stevens argued that “because companies are without feelings,
consciences or desires, they shouldn’t benefit from laws that protect
ordinary citizens.”22 Others see the value in affording corporations
rights, but would like to see some corresponding responsibilities
enforced with equal enthusiasm.
Corporate Responsibilities
In contrast to a corporation’s legal rights, what is its public purpose—its
responsibilities and obligations as determined by corporate law and
founding corporate charters? On this issue, there is apparently a strong
consensus:
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put shareholders’ interests above all others and no legal
authority to serve any other interests.25
In spite of the dispute over its legal foundation, and even though it is
now accepted that maximizing shareholder value is a myth (“rooted in
what’s known as agency theory, which was put forth by academic
economists in the 1970s”),27 it is a myth that has become firmly
entrenched among executives and directors. So much so that “one survey
revealed that nearly 80% of executives admit they would ‘take actions to
improve quarterly earnings at the expense of long-term value
creation.’”28 Not only is this position shocking to see in print, it stands in
stark contrast to why corporations were initially created, with public
purpose as a founding requirement. Early corporate charters were
granted by legislative bodies under strict rules—they were issued for a
limited period of time (the corporation would be wound up afterward)
and only for a specific task that was sanctioned by societal need (e.g.,
build a bridge over a river or construct a railroad):
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The early American states used chartered corporations,
endowed with special monopoly rights, to build some of the
vital infrastructure of the new country—universities (like
America’s oldest corporation, Harvard University, chartered in
1636), banks, churches, canals, municipalities, and roads.29
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to create value broadly, rather than narrowly. There seems to be no
impediment to innovation if the firm is recognized as existing at the
behest of society, in a mutually beneficial relationship. Along these lines,
the state government in Vermont is famous for creating the “Ben &
Jerry’s law” in the run-up to Unilever’s acquisition of the firm. The law
allowed the boards of directors of Vermont firms to consider factors in
addition to shareholder value when deciding whether to accept a
takeover offer:
What should a corporate charter look like, and what is the most
appropriate authority (federal vs. state government) to regulate this area
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of corporate law? What should the responsibilities of the firm be, and
what structure best achieves these outcomes?
Corporate Governance
Issues of corporate governance in the United States are currently
regulated under state, rather than federal, law.35 Those who support this
system argue that it encourages competition between states (to entice
businesses to incorporate within their state) and, therefore, produces
effective and efficient legislation. Critics rebut the benefits of interstate
competition, suggesting that the result is a race to the bottom as states
craft legislation to appease corporations. States want firms to incorporate
within their jurisdiction because of the lucrative fees and taxes they
receive for each registration, regardless of where the firm is
headquartered or employs the most people. Instead, “managers can go
jurisdiction-shopping, looking for the most advantageous set of laws,
since getting a corporate charter is easier than getting a driver’s
license.”36 Figure 5.2 demonstrates the extent to which Delaware is
favored for incorporation by large firms.
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Figure 5.2 S&P 500 Incorporations by State (US, 2016)
The problem with this competition to see which state can provide the
most accommodating business environment, of course, is that it de-
emphasizes firms’ responsibilities. With fewer legal constraints,
governments essentially are surrendering their oversight of firms—an
essential stakeholder function. As such, one possible area for reform
advocated by activists is for the federal government to control the
incorporation process. The authority to do so is invested in the federal
government under the Commerce Clause of the Constitution,45 and
would allow either Congress or the Securities and Exchange
207
Commission (SEC) to raise the bar for all corporations without having to
worry they would flee in protest to a state with weaker rules.46
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among stakeholder interests. For example, what happens if a firm moves
a plant to a more environmentally friendly facility but, in the process,
makes a number of workers in an economically deprived area of the
country unemployed? What would the consequences be if investors
began to sell their stock under these anti-investor policies in favor of
firms in more investor-friendly states or countries? Also, what would be
the proposed penalties for directors who fail the new test? Would they be
individually liable for any damage or stakeholder complaint that ensued?
In spite of these concerns, support for the idea that corporations should
be forced to register a public purpose that reflects a broader set of
responsibilities is growing.
Benefit Corporations
Becoming a benefit corporation expands the fiduciary responsibilities of
the executives and directors by committing the firm to meeting the needs
of a broad range of stakeholders:
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profit. This sustainability is an integral part of their value
proposition.
2. Accountability: Benefit corporations are committed to
considering the company’s impact on society and the
environment in order to create long-term sustainable
value for all stakeholders.
3. Transparency: Benefit corporations are required to report,
in most states annually and using a third party standard,
showing their progress towards achieving social and
environmental impact to their shareholders and in most
cases the wider public.53
While the need for the change in law to establish a new type of
organization (the benefit corporation) is disputed, there are clear
advantages for a firm that wants to signal more clearly to stakeholders
that it seeks to manage the firm in their broader interests. In essence,
doing so establishes new standards for transparency and accountability
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that become embedded throughout operations. The firm builds this
broader stakeholder perspective by instituting a structure that formalizes
the mission in quantifiable goals. As such, that mission is more protected
should the founder retire or the firm be bought by another firm. This
succession challenge tends to surface whenever a social enterprise is
taken over by a multinational, such as when Green & Black’s was sold to
Cadbury (now Kraft)57 and The Body Shop was sold to L’Oreal.58 As
noted previously, one of the primary benefits to Yvon Chouínard of
converting Patagonia into a benefit corporation is “that making a firm’s
social mission explicit in its legal structure makes it harder for a new
boss or owner to abandon it.”59 This asset would have been valuable for
Ben & Jerry’s (B Corp certified since 2012) during its sale to Unilever in
2000, which occurred “despite the objections of co-founder Ben Cohen
and some directors.”60
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Benefit corporation status is a type of legal structure for
businesses. It is not a certification, and it is available to firms
only in those states which have passed benefit corporation
legislation. To become a benefit corporation, a company must
incorporate as one in one of the states where it is available.
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reflected in the rise of other legal alternatives for corporate structures
that are based on similar goals:
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jurisdictions for the inclusion of a broader set of stakeholder interests in
management decisions, there is also considerable scope for legal
challenges to those actions, particularly where they can be considered to
have diminished firm profits. While establishing the firm as a benefit
corporation must mitigate such challenges to a degree, it is not clear
where that leaves regular corporations that have received B Corp
certification. As such, it will be interesting to see what happens when
this new organizational structure and expanded focus are challenged in
court. More broadly, B Lab’s goal is for the benefit corporation to
become a legitimate alternative to the current corporate focus on
shareholder value. As corporate charters are reformed, it is hoped the
changes will initiate widespread reform of the market economy:
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focus on public purpose. It does not necessarily follow that the
underlying structure is in need of reform; rather, our current
interpretation of those structures reflects skewed priorities. B Lab will
effect meaningful change through benefit corporations only if it is able to
persuade CEOs and executives not already predisposed to a CSR
perspective to change their organizational focus. Convincing firms like
Patagonia and Ben & Jerry’s (which are already examples of best
practice) to become benefit corporations will not save the planet! We will
know benefit corporations are here to stay when more intransigent firms
decide there is value in altering their foundational charter documents.
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Chapter Six Who Owns the Firm?
Who owns the publicly traded, limited liability corporation? Who owns
Apple? Who owns Walmart? And who owns McDonald’s? The question
of ownership is central to the CSR debate because, at present, most
executives and directors (and, for that matter, most business journalists
and business school professors) believe that these firms’ shareholders are
the owners. Influenced by agency theory, these officers believe they have
a fiduciary responsibility to operate the firm in the best interests of its
shareholders. Moreover, they believe that if they adopt a different focus,
they will be failing in their responsibilities and, perhaps equally
importantly, are likely to be sued. As such, this belief distorts the
decisions they make in ways that often are not in the firm’s best interests:
But, what if this belief is just that: a belief rather than a legal fact? If that
were true, then the belief could be changed to a different belief—a more
accurate interpretation of the law based on actual legislation and legal
precedent.2 If that were to happen, then executives would be relieved of
the responsibility to operate the firm in the narrow interest of its
shareholders and, instead, would be free to make decisions in the
interests of the firm’s wider set of stakeholders. Because the
consequences of this question (Who owns the firm?) are so dramatic, it is
worth dedicating a chapter of this book to addressing it. The answer
might surprise you.3
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up to rigorous analysis. The result allows the business case for CSR to
move beyond the normative to the strategic.
This iterative relationship stems from the origins of the corporation and
its evolution throughout history. In particular, it relates directly to the
introduction of limited liability in the mid-19th century.4 Prior to this
point, corporate charters were granted by the state as a privilege (rather
than a right) under strict conditions in terms of the projects that were to
be completed (e.g., building a bridge, canal, or railroad) and the length of
time the corporation was allowed to exist. Importantly, these projects
were determined on the basis of perceived societal need, rather than the
ability of the firm to make a profit:
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And when the specified project was completed, the corporation ceased to
exist. In short, the corporation existed at the pleasure of the state:6
As the law shifted to protect the interests of investors (who had little
direct knowledge of operations), executives shifted their focus; today,
they operate under the assumption that the firm’s primary obligation is
no longer to the state or society, but instead that it has a legal
218
responsibility to operate in the interests of its owners—its shareholders.
While this belief that shareholders own the firm is widely shared, there is
compelling evidence to suggest it is a social construction rather than a
legally defined fact:9
Understanding the true nature of the relationship between the firm and its
investors is therefore necessary to reorient firms to act in the interests of
all stakeholders. In short, it is essential in order to adopt strategic CSR
as the managing philosophy of a firm.
Today, on the surface, the relationship between the firm and its
shareholders appears unchanged. Many people believe that the primary
function of the stock market is for firms to raise the capital they need to
finance their business, and, indeed, when firms initially list their shares,
this transfer of funds from investor to entrepreneur occurs. In reality,
however, this transaction is only a minor part of the stock market’s
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function, which has evolved primarily into a forum for the subsequent
trading of those shares (rather than for their initial offering). This shift
represents the difference between a trade for which the firm receives
money (the initial listing) to one where it receives no money (a
subsequent trade between third-party investors). The differences between
the primary (initial public offering, or IPO) and secondary (stock
trading) markets for capital are explained in Figure 6.1.
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are a minority. In reality, most shareholders can express their opinions
about a firm’s management only by holding, buying, or selling shares.
Stock markets are neither efficient (in terms of money flows shaped by
complete and freely available information) nor public (in terms of equal
access). Stock markets have benefits (in terms of providing liquidity and
financial tools to save for retirement), but it is legitimate to question the
overall value they provide. This is especially true today, as the majority
of trades on the major exchanges are made by high-frequency algorithms
—computers running programs and holding positions for microseconds:
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are irrelevant, the volumes are enormous and . . . almost all of
it is done with borrowed money.13
Almost all of these stock trades are third-party transactions in which the
firm receives no capital. The overall effect is to drive a wedge between
the interests of the shareholder (return on investment) and the managers
of the firm (sustainable competitive advantage). As pools of assets are
increasingly managed by a concentrated number of massive investment
firms, this wedge grows larger. Take BlackRock, for example—it is part
of the “Big Three” (along with Vanguard and State Street), which is now
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“the largest shareholder in just over 40% of listed American firms,” and
is predicted to be “less than a decade away” from managing more than
$20 trillion.20 Firms such as BlackRock (the largest asset manager in the
world, with “more than $6trn of assets under management”),21 specialize
in what are known as passive investments, such as ETFs, which attempt
to mirror (rather than outperform) the performance of the markets while
minimizing fees to their clients.22 The traders who work for firms like
BlackRock therefore have little interest in the day-to-day management of
the firms in which they invest. By definition, traders that seek to mirror
market performance invest in proportion to the size of each firm in the
market, rather than caring necessarily whether Firm A performs better or
worse than Firm B. In other words, these traders care about the overall
performance of the market (because that is the benchmark they seek to
mimic)—whether they hold positions in Firm A or Firm B is less
important; they simply move assets from one firm to another in response
to macro movements in the market as a whole.
In response, some concede that while shareholders may not control the
firm, they still own it. But does ownership not encompass the ability to
control? It is very difficult to think of a definition of ownership that does
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not also include aspects of control or authority over the thing that is
owned. The Oxford English Dictionary, for example, defines ownership
as the “act, state, or right of possessing something,” with possession
defined as “the state of having, owning, or controlling something.”26 Yet
clearly, shareholders do not control the firm.
If you are out walking your dog, and your dog bites your neighbor, who
does your neighbor sue—you or your dog? Because the neighbor is not
likely to have any luck suing your dog, he or she sues you. You own the
dog and are therefore responsible for it.
224
are not free to withdraw the sum invested except for payments
through dividends, selling their shares, and other permitted
means.28
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resolutions at AGMs, “only certain kinds of shareholder votes—such as
for mergers or dissolutions—are typically binding. Most are purely
advisory.”35 Further, shareholders have the right to receive dividends,
but only as long as management is willing to issue them. In essence, the
only meaningful right that shareholders appear to have is the right to sell
their share to a third party at a time of their choosing (although this is
also dependent on there being a willing buyer at that time). These actual
shareholder rights (in comparison to the widely held beliefs about those
rights) are summarized in Figure 6.2.
A Legal Person
One of the great advantages of the corporate firm is that the organization
is recognized as an independent entity in the eyes of the law (i.e., it is a
legal person). As such, the firm, as an artificial person, has many of the
rights (although, as indicated in Chapter 5, fewer of the responsibilities)
of a human being, or natural person. It can own assets; it can sue and be
sued; it can enter into contracts; and, in the United States, it has the right
to freedom of speech (which it exercises by spending money). It is these
rights (the right to be sued, in particular) that allow investors in a firm to
have their legal liability limited to the extent of their financial
investment. In short, the firm is a legal creation that exists, by design,
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independently of all other actors, “and it is the corporation, not the
individual shareholders, that is liable for its debts.”37
In other words, the US Supreme Court has agreed with the argument that
corporations are legally similar to real people and, as such, enjoy similar
constitutionally protected rights.40 Appropriating the precedent that
individuals have a constitutional right to “due process,” corporate
lawyers argued over decades of case law that corporations, as legal
individuals, have that same right. The fact that the root of this legal
status lies in the Fourteenth Amendment, which was passed to prevent
the ownership of an individual by another individual, reinforces the idea
that the corporation is an independent legal entity.
227
anyone. As The Economist puts it, “the shareholder-value model has
conceptual as well as practical problems. Its proponents argue that
companies are owned by shareholders, when in fact they are ‘legal
persons’ that own themselves.”41
228
direction in UK law is clear; it is the board of directors who are the
higher authority:
229
As John Kay from the Financial Times wrote in a column titled
“Shareholders think they own the company—they are wrong,” in the UK
there is a clear duty of a director
If I own an object I can use it, or not use it, sell it, rent it, give
it to others, throw it away and appeal to the police if a thief
misappropriates it. And I must accept responsibility for its
misuse and admit the right of my creditors to take a lien on it.
But shares give their holders no right of possession and no
right of use. . . . They have no more right than other customers
to the services of the business they “own.” The company’s
actions are not their responsibility, and corporate assets cannot
be used to satisfy their debts. Shareholders do not have the
right to manage the company in which they hold an interest,
and even their right to appoint the people who do is largely
theoretical. They are entitled only to such part of the income as
the directors declare as dividends, and have no right to the
proceeds of the sale of corporate assets—except in the event of
the liquidation of the entire company, in which case they will
get what is left; not much, as a rule.55
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limited; in reality, their value lies largely in their resale price, achieved
via a transaction on a stock exchange based on third-party perceptions of
the firm’s future performance potential. As acknowledged, even by
shareholder advocates, “today, . . . there seems to be substantial
agreement among legal scholars and others in the academy that
shareholders do not own corporations.”58
Fiduciary Duty
This challenge to the idea of shareholders as the legal owners of the firm
is gradually being recognized. Perhaps more importantly, however, there
is weak legal precedent, in the US or elsewhere,59 for the idea that
managers and directors have a fiduciary responsibility to place
shareholder interests over the interests of other stakeholders:60
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Companies Act 2006, moreover, requires directors to act in the
way they consider, in good faith, would be most likely to
promote the long-term success of the company for the benefits
of its members as a whole, heeding the likely consequences of
their decisions on stakeholders such as customers, suppliers,
and community, not simply shareholders. The Law even allows
the board to put the interests of other stakeholders over and
above those of shareholders.62
If all of this is true, therefore, where did the idea that shareholders own
the firm and executives have a legal obligation to operate it in
shareholders’ interests come from?
Dodge v. Ford
The legal foundation for the belief in the primacy of shareholder interests
rests largely on a 1919 case decided by the Michigan Supreme Court—
Dodge v. Ford Motor Co.65
In the case, two brothers, John Francis Dodge and Horace Elgin Dodge
(who, together, owned 10% of Ford’s shares), sued Henry Ford because
of his decision to distribute surplus profit to customers in the form of
lower prices for his cars, rather than to shareholders in the form of a
dividend. Although the case was decided in favor of the Dodge brothers,
the decision itself has been misinterpreted as support for the idea that
managers or directors must operate the firm in the interests of its
shareholders. As Lynn Stout explains in her detailed analysis of the case,
contrary to widespread perceptions, this decision constitutes no such
legal precedent:
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Dodge v. Ford is . . . bad law, at least when cited for the
proposition that the corporate purpose is, or should be,
maximizing shareholder wealth. Dodge v. Ford is a
mistake, . . . a doctrinal oddity largely irrelevant to corporate
law and corporate practice. What is more, courts and
legislatures alike treat it as irrelevant. In the past thirty years,
the Delaware courts have cited Dodge v. Ford as authority in
only one unpublished case, and then not on the subject of
corporate purpose, but on another legal question entirely.66
Even among those who argue that Dodge v. Ford is a more meaningful
statement of legal precedent,69 there is a recognition of the absence of
support for a relationship that most people assume is legally defined and,
as such, compels a fiduciary responsibility.70 There is even precedent to
suggest that courts will favor the firm’s directors over shareholders when
investors are misled, basing investment decisions on the firm’s publicly
stated goals, even if those statements later turn out to be false.71 A lack
of competence or an honest mistake is not sufficient to override the
courts’ reluctance to interfere with the running of the firm. Unless it can
be proved that the directors acted dishonestly or with the intention to
deceive, the business will be allowed to rise or fall on the basis of its
managerial decisions—however inept. Although this issue has been
studied and debated by corporate legal scholars for decades, it is less
well known in business schools. This is important and should change:
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so we conducted a systematic analysis of a century’s worth of
legal theory and precedent. It turns out that the law provides a
surprisingly clear answer: Shareholders do not own the
corporation, which is an autonomous legal person. What’s
more, when directors go against shareholder wishes—even
when a loss in value is documented—courts side with directors
the vast majority of the time. Shareholders seem to get this.
They’ve tried to unseat directors through lawsuits just 24 times
in large corporations over the past 20 years; they’ve succeeded
only eight times. In short, directors are to a great extent
autonomous.72
CEOs on Shareholders
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“Reducing or even eliminating quarterly earnings guidance
won’t, by itself, eliminate all short-term performance
pressures that U.S. public companies currently face, but it
would be a step in the right direction.”73
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Pressures from shareholders to maximize results in the short term can be
expressed internally within the firm by either reducing long-term costs or
raising short-term incentives, “including lower expenditures on research
and development [R&D], an excessive focus on acquisitions rather than
organic growth, underinvestment in long-term projects, and the adoption
of executive remuneration structures that reward short rather than long-
term performance.”79 The counterproductive effects of running the firm
in the best interests of shareholders are apparent from the recent spike in
share buybacks and dividends that crowd out more strategic, long-term
investments:80
Such decisions create “the sense that executives are more interested in
short-term share-price performance than in the company’s long-term
health.”82
In the 1970s Britain, £10 out of every £100 of profit was paid
in dividends to shareholders. Today companies pay £70 out of
every £100.83
The overall effect is to skew the firm’s decision making. Why invest for
the long term, for example, when doing so will diminish the chance of
achieving the more immediate priority—short-term profits? Cutting
investments, such as R&D or compliance, has the desired effect of
increasing profits, which is then reflected in a higher share price. While
this immediate accounting profit pleases those investors who have a
short-term outlook, such actions constrain operations and increase risk
over the medium to long term.
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performance in the short term (the average tenure for an S&P 500 CEO
is about five years)84 or to preserve the organization for the foreseeable
future (ten, fifteen, twenty, or more years from now). The focus should
be on what Gus Levy, former senior partner of Goldman Sachs,
characterized as being “long-term greedy”85—the willingness to
privilege long-term value over short-term profits.
To achieve this, an important step is for firms to adopt policies that better
align executive remuneration with long-term performance drivers (such
as employee well-being or sustainability-related metrics).86 In addition, a
firm can de-emphasize short-term results by refusing to issue quarterly
earnings reports to shareholders (“over three quarters of companies still
issue such [earnings] guidance”)87 and, instead (as recommended by
Larry Fink, CEO of BlackRock), should “give shareholders a detailed
long-term plan for its business.”88 Above and beyond specific policy
solutions, the key is to deconstruct the idea there is a legal compulsion to
operate the firm in the interests of its shareholders. Once achieved, the
justification for favoring them over other stakeholders is removed (and,
with it, the cause of much of the short-term focus of our economic
system):
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however, then she is more likely to also care about the interests of the
firm’s partners, because if they do not value the exchange, it is less likely
that they will seek repeat business with the firm in the future.90
Amazon seems to have put the “long term” back into Anglo-
Saxon capitalism. At a time when Wall Street is obsessed by
quarterly results and share buy-backs, Amazon has made it
clear to shareholders that, given a choice between making a
profit and investing in new areas, it will always choose the
latter.93
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Delaware General Corporation Law,96 which says the principal of the
company is the firm’s board of directors, whose fiduciary responsibility
is to the organization (and no one else). This is also the basis for limited
liability. If you set up a corporation tomorrow, and you are the only
investor, and you are the only employee, you still do not own it. You
may have full control, but you do not own it. And you should not want to
own it. The fact that the company is an individual person that can own
assets and be sued in court is what prevents you from having full
liability. This is an essential cornerstone of our capitalist system.
Once managers understand they are free of this mythical obligation, they
can take a more expansive (and, in terms of the health of the
organization, more sustainable) approach to building relations with a
much broader range of stakeholders.97
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Case Study Media
The Internet magnifies this trend as, today, “some 93% of Americans get
news online.”3 This threatens traditional media (newspapers, in
particular, but also TV),4 decreases the time it takes information to reach
us, and amplifies its impact when it does. As a result, life is lived at a
hectic pace. If a newsworthy event occurs, we know about it almost
instantly. When a US Airways plane crash-landed in the Hudson River in
New York on January 15, 2009, for example, a passenger on the ferry
that went to rescue the passengers took a photo with his smartphone
(http://twitpic.com/135xa) and uploaded it instantly to Twitter, tweeting,
“There’s a plane in the Hudson. I’m on the ferry going to pick up the
people. Crazy.”5 Similarly, when United Airlines dragged a passenger
kicking and bloodied off flight UA3411 in Chicago on April 9, 2017,
video footage taken by fellow passengers spread rapidly
(https://youtu.be/VrDWY6C1178). This affects the media because the
channel that breaks the story tends to hold the viewers. And for the
media today, bad news is breaking news, which is good news and
entertainment:
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complicated world. The media have a lot to say and not much
time to say it. They also have to win audiences, so they
sensationalize and simplify. Stalin said that every death is a
tragedy; the death of a million, a mere statistic. That’s how the
media, albeit with different motives, work as well.6
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To what extent does the media have a responsibility to hold firms to
account? And, more pertinently, when the media themselves become
global corporations that shape both the news and our daily interactions,
what constitutes socially responsible behavior?
CNN
The media is an essential part of the democratic society in which we live.
Its role is to inform the public and hold those in power accountable to
those they are supposed to serve. In an age of information overload and
advertising revenue driven by page views, therefore, what information to
present and how to present it are central to the integrity of the industry.
The temptation to condense in order to capture people’s attention soon
leads to the need to entertain to keep them watching. Today, the news of
the world is conveyed in short segments, squeezed between the weather,
sports, and personal finance. The twenty-four-hour news cycle is a
mashup of voyeurism and reality TV, where a firm’s difficulties are
everyone else’s fascinating tidbits:
Companies have learnt the hard way that they live in a CNN
world, in which bad behavior in one country can be seized on
by local campaigners and beamed on the evening television
news to customers back home.11
CNN had been a failing venture until the 1991 Gulf War, when
it provided the only television coverage from inside Baghdad.
That exclusive was possible only because every other network
had pulled its correspondents to protect their lives. Tom
Johnson, CNN’s president at the time, wanted to do the same,
but [Ted] Turner told him: “I will take on myself the
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responsibility for anybody who is killed. I’ll take it off of you
if it’s on your conscience.”12
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to a drowned 3-year-old Syrian refugee,16 photos and video footage
personalize the story, introduce emotion, and simplify the complex
reality. The result is a twenty-four-hour news cycle of information
overload and “compassion fatigue.”17 The story the news media convey
is not always complete or accurate, but can be thought of more as
entertainment “packaged for ease of dissemination and consumption.”18
While CNN may have been the first global, twenty-four-hour network,
today, it is only one of many. From BBC World to Al Jazeera to Fox
News, cable news channels have reshaped the way we watch TV and
receive knowledge about the world. These media companies, however,
are only as good as the events they cover. It is perhaps not surprising,
therefore, that, in the same way that CNN rose to prominence during the
first Iraq war, the Financial Crisis enabled another cable network,
CNBC, to discover its identity:19
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actions, and to what extent does that involve making enemies, rather than
friends, with the powerful?
To the extent that we move away from impartial and accurate journalism
and move toward partisan advocacy, we lose something that is central to
a democratic society. An independent and objective media is something
that is relatively easy to lose, but very difficult to replace once it has
gone: “The biggest threat to an informed electorate isn’t so-called fake
news websites, but supposedly trustworthy media organizations that
present their political opinions as fact.”25 Inevitably, the media is
capable of writing only “a flawed first draft of history” as it unfolds.26
Yet, this first draft is an essential record. If, as suspected, the media
“doesn’t exist to deliver programs to viewers; it exists solely to deliver
audiences to advertisers,”27 then society is poorer and those in power
will be able to abuse their position with impunity. In order to hold the
powerful to account, however, the media requires support from society.
Unfortunately, more and more viewers want partisan opinion, rather than
rigorous facts. As a result, the news is packaged in an increasingly
partisan message that threatens channels like CNN28 (which at least
claims to be objective), and encourages channels with an agenda, such as
the “War on Christmas”:
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The abandonment of “the Fairness Doctrine”30 by the media ensures that
the truth and facts are subjective points of disagreement that are spun to
fit a political agenda, rather than reflect reality. The gap between fake
news and real news lies increasingly in the eyes of the beholder. As we
become more interconnected and words and images are shared more
freely, the ability to assert control is lost, and it may not come back. The
Internet is anarchic at heart. But as the line between news and
entertainment blurs, the way we understand world events and consume
the news is distorted. In the US, for example, “programmes such as The
Daily Show . . . have displaced news and documentary as the main way
in which young viewers learn about current events.”31
Facebook
Facebook is everywhere. Thanks to Facebook, social media is now an
indispensable fact of life. With 1.5 billion daily active users and 2.25
billion total accounts (and growing), Facebook’s influence on our daily
discourse cannot be overestimated:
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Facebook has grown into the global town square, it has had to
adapt to its own influence. . . . [In efforts to police its own
site,] the company shuts down more than a million user
accounts every day for violating Facebook’s community
standards. Even if only 1 percent of Facebook’s daily active
users misbehaved, it would still mean 13 million rule breakers,
about the number of people in Pennsylvania.32
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reputation is beginning to suffer, although this has not stopped its
growth:
1. Fake news: The extent to which social media sites are media
platforms that broadcast content or media publishers that distort that
content and public beliefs.
2. Addiction: The physical and mental effects of a tool that
discourages real human interaction and substantive exchange.
3. Privacy: The level of control we have over information about us
and our online activity that many believe should be private and
individually owned.
In all three cases, the potential for backlash is real. The extent to which
Facebook can manage these challenges will determine its ability to
remain central to our online lives.
Fake News
The pervasiveness of social media and its consequences raise ethics
questions that result from any scientific invention. How do we resolve
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moral dilemmas that emerge as new frontiers are crossed? To what extent
are scientists responsible for their innovation?
Although not as powerful as the atomic bomb, the role of social media in
the 21st century and the growing prevalence of fake news are potentially
as transformative. In many ways, fake news is not new, as rumor and
gossip have always been part of human life. And the media has always
been there to amplify the effects, with tabloid newspapers in the US, the
UK, Australia, and elsewhere making their living on the back of half-
truths, creative statistics, and invented myths, playing on the fears and
insecurities of their readers. In this vein, Facebook and Twitter are just
the latest iteration of a distasteful segment of the media. In other ways,
however, social media is new—a massive increase in reach and influence
due to the Internet, which has broken down barriers, enabling stories to
spread worldwide before the facts can be found to counter them.
While not writing the stories themselves, Facebook circulates them in its
powerful News Feed, which prioritizes specific stories according to our
interests and past viewing preferences.40 In other words, Facebook and
Twitter have emerged as new-age media firms with the potential for
much greater influence than their hardcopy predecessors. Their role in
shaping national elections, as well as their influence on human relations,
social etiquette, attention spans, and the twenty-four-hour news cycle, is
both fascinating and frightening to watch. This became particularly
apparent in the aftermath of the devastating mass shooting in Las Vegas
in 2017, when it emerged that fringe groups now regularly use social
media following such crises to advance their agendas.41
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stories near the top of the list. Facebook was also tricked into promoting
false stories about the shooting. In both cases, the firms blamed
“algorithm errors,” only increasing concern about the software that now
dominates our lives. It also emphasizes the speed at which groups
intending to create havoc can use these tools to their advantage,
suggesting the social media firms are not in as much control of their sites
as they would like us to believe. What is more, this is not a recent
phenomenon, but something that has plagued these services for many
years:
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relations with their stakeholders. For all of this to hold true, however, it
is essential that the information being circulated is accurate and reliable.
Clearly, Facebook, Twitter, and Google (among others) now understand
this and are responding.45 Of course, more socially responsible firms
would have done more to prevent this situation from occurring (with
such dire consequences) in the first place. At present, the broader
implications of not acting earlier are evident in discussions within the
UK government (and elsewhere) to regulate these firms as publishers,
“meaning they should be held responsible for the content and regulated
like traditional news providers.”46
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people to congregate in bubbles, ignorant of contrary views,”51 and we
like it when we read things online that confirm our preexisting beliefs. It
is also, however, because we like simplicity and reject complexity
—“things spread through social networks because they are appealing, not
because they are true.”52 And in the race for people’s attention, it is not
very close between fact and fiction:
Addiction
Notwithstanding the role we play in encouraging the spread of
misinformation online, it is arguable that since the Financial Crisis, the
banks have been replaced by big tech as the biggest threat to
contemporary capitalism, or even to the idea of a democratic society.
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This is due to the consequences of social media, a tool that has been
specifically designed to become integral to our lives. While a large part
of the appeal of social media is its convenience, social media firms also
go out of their way to make these tools (and the devices that we use to
access them) highly addictive:
It is not only the content of social media that is addictive, but the design
characteristics of the devices we use to access this content—“products
specifically designed to exploit addiction pathways in human
psychology.”61 Even the late Steve Jobs was aware of the potential
danger at some level. When asked whether his children like the iPad,
Jobs replied, “They haven’t used it. . . . We limit how much technology
our kids use.”62 By preying on our senses, developers have become
effective at lowering our resistance to the sights, sounds, and vibrations
of our mobile devices—so much so that, “depending on the study you
pick, smartphone-users touch their devices somewhere between twice a
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minute to once every seven minutes.”63 This means that “about half the
teens in a survey of 620 families . . . [feel] addicted to their smartphones.
Nearly 80% said they checked the phones more than hourly and felt the
need to respond instantly to messages.”64 Figure III.1 reports these data
for tweens (ages 8–12) and teens (ages 13–18).
Source: Adapted from Elizabeth Seay & Jeanne Whalen, “Is Screen
Time Bad for Children’s Mental Health?” The Wall Street Journal
Special Report: Big Issues, June 25, 2018, p. R6.
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Eighth graders who spend 10 or more hours a week on social
media are 56 percent more likely to say they are unhappy than
those who spend less time. [They also] increase their risk of
depression by 27 percent. Teens who spend three or more
hours a day on electronic devices are 35 percent more likely to
have a risk factor for suicide, like making a plan for how to do
it. Girls, especially hard hit, have experienced a 50 percent rise
in depressive symptoms.72
It seems that we are not very good at using social media in the benign
way originally intended. It is addictive by design and, as such, heightens
the partisan polarization that has become a feature of our politics and
discussion of the daily news.73 And this will only get worse as
technology begins to tap into the potential of artificial intelligence and
computer learning. Patents, already filed by Facebook, demonstrate the
extent to which the firm is exploring how to extract information (facial
recognition), predict life changes (social networks), and retain the
attention of the people who use its social media accounts (personality
characteristics).74 The goal is to encourage us to spend even more time
with our devices and social media accounts and less time interacting face
to face. The lasting social effects of this are unknown, but are unlikely to
be good:
It’s not only that heavy social media users are sadder. It’s not
only that online life seems to heighten painful comparisons and
both inflate and threaten the ego. It’s that heavy internet users
are much less likely to have contact with their proximate
neighbors to exchange favors and extend care. There’s
something big happening to the social structure of
neighborhoods.75
Privacy
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Due to the success of Facebook and other social media firms in getting
us to spend more time online and, in the process, submit large amounts
of personal data to be monetized, concerns are growing about the shifting
nature of individual privacy. The issue of online privacy is complex, but
revolves around our role as consumers of social media:
Many users think their feed shows everything that their friends
post. It doesn’t. Facebook runs its billion-plus users’ newsfeed
by a proprietary, ever-changing algorithm that decides what we
see. If Facebook didn’t have to control the feed to keep us on
the site longer and to inject ads into our stream, it could instead
offer us control over this algorithm.80
One radical solution for individuals to reassert control over their own
data involves blockchain technology.81 A more straightforward solution
is for the firms to pay users for their data,82 or for those users who do not
want to sacrifice control over their privacy to pay for ad-free content
with an amount equal to that generated by the online ads. The argument
against a fee-based service is why should the user pay for something they
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currently get for free, but this logic holds only if you discount the value
of the information the user currently provides in return. A broader
definition of value reframes the debate about the costs associated with
our use of social media.83
One fascinating aspect of the online world we have built for ourselves
is the issue of human death and virtual life:
The author of this quote raises this point because he had attended a
friend’s funeral and live-tweeted about it during the ceremony, which
some friends felt was inappropriate. More difficult, however, was the
fact that he continued to receive Facebook updates from his deceased
friend (his friend’s family had memorialized his Facebook page and
continued to send messages to it), so he struggled with the decision of
whether to unfriend his dead friend:
There are also issues around who owns a user’s social content
after he or she dies: Does Facebook own that person’s page
and status updates and photos, and if so, what duty do they
have to provide it to family members? What about iTunes?86
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Perhaps the more pertinent question is Why should we expect our
online world to be any more/less complicated than our offline world?
What is interesting, though, is the extent to which boundaries between
the two are becoming blurred.
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The law is specific about how firms must handle data and the efforts they
must take to protect people’s privacy and then correct any errors,
including potential fines:
In response to the growing pressure, the tech firms themselves are acting
to control the content that appears on their sites. Facebook is writing
software that will automatically remove offensive content and has hired
“more than 30,000” people to police dubious content.101 As a result, in
the first quarter of 2018 alone, “Facebook revealed that it deleted 865.8
million posts . . . the vast majority of which were spam, with a minority
of posts related to nudity, graphic violence, hate speech and terrorism.
Facebook also said it removed 583 million fake accounts in the same
period.”102 Similarly, Twitter “suspended nearly 300,000 accounts
globally” that were linked to terrorism, in only six months.103
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The work places a massive strain on those who have to look at the
content and evaluate it,104 with reports of PTSD among content
moderators.105 Moreover, while it may sound like progress, the danger
in asking for-profit firms to police themselves, the Internet, and our
information is that they will make bad decisions, with all the associated
implications for freedom of speech. In determining what constitutes
appropriate content, for example, “the army of contract workers
[Facebook] hires to review content” may well block good content along
with bad.106 But even if this power is wielded benignly, we are asking
these firms to perform an almost impossible job. Due to their size and
scope, even a small failure rate could be potentially devastating:
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In many respects, the scale of these problems simply reinforces how
central Facebook is to life today—so much so that some fear that
Facebook, like other tech giants, is too important to be held to account,
with Mark Zuckerberg described as “one of the most powerful unelected
people in the world.”111 While this may be true, due to its inability (or
unwillingness) to understand the implications of its own creation,
Facebook is now caught in an existential paradox. While the firm is
reluctant to call itself a media publisher, the only way it can diffuse the
torrent of criticism currently being aimed at it is to take full editorial
responsibility for the content that appears on its webpages. The danger
for the firm, if it cannot police itself, is that it will “be policed
externally.”112
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Next Steps
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Part Four A Behavioral Perspective
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Chapter Seven Markets and Profit
The perceived gap between a firm’s pursuit of profit and its social
responsibility is bridged by strategic CSR. By seeking to create value
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for all stakeholders, profitable firms optimize their contribution to
societal well-being. Market capitalism is the ideal mechanism by which
this complex economic progress occurs.2
Markets
The planet has a finite set of resources. Competitive markets (i.e.,
capitalism) exist to allocate those resources in the most efficient manner.
Capitalism is more successful than alternative means of ordering society
because it is particularly good at allocating those resources that are most
scarce (i.e., the ones that we value the most). For-profit firms, in
competition with each other, are the chief mechanism we have developed
to implement this allocation, and they do it more effectively than any
other organizational form.
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to include consumers in Patagonia’s vision of environmental
responsibility. An internal document articulated that reducing
Patagonia’s environmental footprint required a pledge from
both the company and its customers. The initiative thus
consisted of a mutual contract between the company and its
customers to “reduce, repair, reuse, and recycle” the apparel
that they consumed.3
Better than the Third World economies, and better than the
socialist economies, capitalism makes it possible for the vast
majority of the poor to break out of the prison of poverty; to
find opportunity; to discover full scope for their own personal
economic initiative. . . . Sound evidence for this proposition is
found in the migration patterns of the poor of the world. From
which countries do they emigrate, and to which countries do
they go? Overwhelmingly they flee from socialist and Third
World countries, and they line up at the doors of the capitalist
countries.6
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remains fundamentally intact. In short, if capitalism is no longer serving
our interests, it is because we are not using it correctly. More
specifically, we are sending firms the wrong signals, and those signals
relate directly to our collective values.
If, in contrast, we were willing to buy two T-shirts at $15 each, that
choice would have radical consequences that would revolutionize our
economy (fewer workers in the global apparel industry, but better
conditions and higher-quality T-shirts, for example). Just because we can
make T-shirts for $5 each does not mean that we have to—it is a choice
that we make. And when that choice is repeated for each of the “150bn
pieces of clothing [that] are made every year,”8 the consequences
quickly add up. It is essential to the ideas underpinning strategic CSR
that we understand that our consumption decisions (as all stakeholder
relations with the firm) represent our values in action. In supplying us
with $5 T-shirts, firms are merely responding to our demand for such
products.9 If we want the market to change, therefore, we are likely to be
more successful if we change the collective set of values that the market
reflects, rather than trying to change the centuries-old principles on
which the market and for-profit firms operate.
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tension among competing interests, with give and take on both sides, is a
more democratic distribution of the overall wealth embedded within that
system:
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interests of all stakeholders. As society’s interests evolve, the resulting
external pressures on firms increasingly reflect these shifts. As the
pressure to change rises, it becomes apparent to the manager that the
firm’s self-interest lies in conforming to these external expectations.
Similarly, as firms innovate, introducing new products and services that
shape how we live and interact, they challenge existing norms in ways
that alter future expectations. Understanding that all parties in our
economic system help motivate this virtuous cycle is essential to creating
an economic system that optimizes total value. Within this framework, a
transgression by a firm represents a failure of stakeholder oversight—a
breakdown in collective vigilance. Whether due to weak government or
media oversight, consumer ignorance, employee silence, or supplier
deceit, a transgression (which is a social assessment of right and wrong)
reflects the stakeholders’ failure to hold the firm to account. In other
words, the firm violates our collective determination of what constitutes
responsible behavior.
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stakeholder action), an effective and comprehensive form of corporate
stakeholder responsibility (see Chapter 4), in which all stakeholders act
to hold firms to account, will generate a market-based system of checks
and balances formed around multiple interests. This complex web acts as
a curb on unlimited power; it also provides unbounded opportunity for
the firm that is sufficiently progressive to meet and exceed its
stakeholders’ expectations. The ultimate effect will be to ensure that
capitalism is tailored toward broader societal interests, rather than
narrow individual or corporate interests.
Profit
A significant reason for the supremacy of market forces is the pivotal
role of profit:
I would amend that quote only to replace the narrow group, consumers,
with the much broader concept of stakeholders. If a society (the
collective group of all stakeholders) permits a firm to continue
operations, then it is acknowledging that the organization adds value—
that society is better off than if the organization did not exist. At present,
the best method we have of measuring that value is the profit the firm
generates.
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A firm’s profit represents its ability to sell a good or service at a higher
price than it costs to produce—the benefit of the transaction (“consumers
benefit from buying stuff, or else they would make it all themselves, and
producers benefit from selling, or else business wouldn’t be worth the
effort”).13 Production and consumption, however, are more than
technical decisions. They encapsulate the total value added by the firm.
This statement is core to the idea of strategic CSR, but exists in contrast
to the way that profit is discussed within the CSR community—as a
narrow measure of economic value and something that can detract from
social value. This representation of economic value and social value as
independent constructs demonstrates a misunderstanding of what profit
represents. In reality, economic value and social value are inseparable.14
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Conceptually, therefore, while it can be helpful to think of economic
value and social value as separate constructs, in reality, they are not
independent. On the contrary, they are highly correlated and are infused
in the firm’s decisions regarding production (e.g., Do we pollute the local
river, or not? Do we hire at the minimum wage or a living wage?) and
the consumer’s decisions regarding consumption (e.g., Do I buy from the
firm that produces domestically or the one that outsources overseas? Do
I pay the premium charged for a more environmentally friendly product
or purchase the cheaper, disposable product?). All of these production
and consumption decisions contain value-laden consequences that,
ultimately, determine the economic success of the firm:
To put this in more concrete terms: When I buy a product, I am not just
purchasing something to fulfill a technical function—I am buying
something that makes me happy, something that conveys my status,
something that boosts my self-esteem, and, yes, something that is
socially responsible (depending on the values I hold and the criteria I
prioritize). This is something we all know intuitively to be true. It is why
car companies like BMW and Mercedes exist—they produce a product
that does much more for the consumer than provide transport from point
A to point B.
In addition to this private, nontechnical value that is built into the price
the consumer pays for a good, there is also a component that relates to
the level of social value generated. If I buy a Toyota Prius, for example, I
pay a price premium over similar, nonhybrid cars because of the superior
technology built into the Prius’s engine and battery. While I get a private
benefit from this purchase in that I can now demonstrate to everyone
how environmentally conscious I am,17 there is also a significant public
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benefit in the reduced pollution that my car emits. The price premium I
am paying therefore represents a subsidy to society in that I am covering
the cost of improving the air quality—a positive externality from which
everyone benefits but is built into the price I pay. More specifically, by
providing this product that reduces environmental pollution, is Toyota
engaged in solving an economic problem (the demand for cars) or a
social problem (the need to transport people in a way that minimizes
damage to the environment)? The answer, of course, is “both.” And these
different types of value are captured in the profit (or loss) that Toyota
reports at the end of the year.
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problems have a market solution (and can be solved by a for-profit firm),
or whether a better solution can be provided by a nonprofit or
government agency.
In other words, given what we know, profit is the best measure we have
of the total value (economic, social, moral, etc.) created by a firm in a
market-based society. It is not perfect, but is the best measure we have.
An example of how to overcome its imperfections is to ensure all costs
are included in the price that is charged. This will be discussed in detail
in Chapter 8. Before we turn to that discussion, however, there is more to
consider about the role played by profit in terms of overall value
creation.
Profit Optimization
In the process of delivering value to its broad range of stakeholders, it is
essential that the firm generates a profit. Profit generation is, therefore,
also central to the concept of strategic CSR. Rather than challenge what
the firm does (make money), strategic CSR focuses more specifically
on how the firm does it (the hundreds and thousands of operational
decisions made every day). In the process, one of the goals of this book
is to change the debate around the role of the for-profit firm in society.
By challenging taken-for-granted assumptions about business and the
value it delivers, reform that will build a more sustainable economic
274
system becomes possible. One of the assumptions that must be
challenged in order to achieve this is the idea that firms pursue policies
and practices in order to maximize profit. First, this concept is not
possible; second, it is unhelpful.
275
In its place, strategic CSR calls for a focus on profit optimization.
Although equally impossible to prove definitively, profit optimization
better approximates the subjective nature of the decision-making process
—different people will use different values to determine what they
consider to be optimal. Moreover, while the idea of a maximum suggests
an absolute point (a definitive amount), an optimum suggests a more
relative state of existence. What is optimal for me may not be optimal for
you, but you cannot say the values by which I determine my optimum
are wrong—just that they differ from the values you use to determine
your optimum. As such, this rhetorical shift helps encourage a balance
among short-, medium-, and long-term decisions that create value across
the firm’s range of stakeholders.
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consumption of goods and services. The production component includes
incorporating costs that firms currently seek to externalize (such as the
pollution emitted during manufacturing), while the consumption
component includes incorporating costs that consumers currently seek to
avoid (such as the pollution emitted during consumption, e.g., driving a
car, and recycling, e.g., e-waste). If a marginal $1 spent on production
yields greater returns than the same $1 spent on consumption, it is in our
collective best interests to spend the $1 on improving production (and
vice versa).
Social Progress
The merging of the pursuit of profit and a CSR perspective within
corporate strategy renders a short-term, profit-only approach
increasingly untenable. Combined with the heightened pressure placed
on firms today to perform consistently over the medium to long term,
managers need to be as innovative and progressive as possible in
creating value for stakeholders. Understanding the firm’s potential
customers is central to this task. The firms that are the most creative in
this respect cast a broader net in search of customers to serve, including
in developing economies. For example, firms like Unilever and Citicorp
are creating new markets for their products as a result of innovation:
277
Unilever can now deliver ice cream in India for just two cents
a portion because it has rethought the technology of
refrigeration. Citicorp can now provide financial services to
people, also in India, who have only $25 to invest. . . . The
driving force is the need to serve neglected consumers. Profit
often comes from progress.25
278
individual philanthropy (and the focus provided by targets such as the
UN’s Sustainable Development Goals),28 much is due to the spread of
market forces. The economic development of China, in particular, has
resulted in tens of millions of people gaining some semblance of
economic prosperity:
279
Sources: The four levels are based on the work of Hans Rosling,
Factfulness: Ten Reasons We’re Wrong About the World—and Why
Things Are Better Than You Think, Flatiron Books, 2018. The
quotes come from Hilary Brueck, “Bill Gates says he now lumps
the world into 4 income groups,” Business Insider, April 5, 2018,
https://www.businessinsider.com/bill-gates-doesnt-like-the-term-
developing-countries-instead-he-lumps-the-the-world-into-4-
income-groups-2018-4.
280
living standards, “a new Starbucks opens in China every 15 hours,
adding to 3,000 already operating.”39 China’s economic revolution in the
last few decades gives a sense of the global potential, because “almost 3
billion people will enter the ranks of the middle classes by 2050—nearly
all in emerging economies. . . . Consumption in emerging countries could
account for almost two-thirds of the global total in 2050, a significant
increase from only about one-third today.”40
It is important to note that there are critics who question the size of the
market of the “next billion”),45 as well as the ability (and willingness) of
multinational corporations to provide products that add significant social
value.46 In the case of L’Oréal, for example, given some of the more
fundamental problems that face the poorest sections of India’s society, it
is hard to see how bringing cosmetics to the masses constitutes progress:
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addition, . . . claims about empowering people by providing
means for them to consume cannot be taken at face value. The
environmental impacts of changing consumption patterns also
need to be looked at. . . . And we need to assess, if more
foreign companies do come to serve lower income markets,
might they not displace local companies and increase the
resource drain from local economies?47
For decades, the main model of Third World aid has been the
obvious: Give stuff to poor people—be it hydroelectric dams,
surplus food or medical equipment. But Western countries
have poured some $1.5 trillion into such efforts over the last 60
years, and more than 1 billion people worldwide still live on
less than a dollar a day. . . . [Alternatively,] if you design a
useful product for a market . . . the target population is more
likely to actually want it and use it.48
Unilever
For-profit firms are the best hope for social progress because the
products they produce (in a competitive market) enable people to pursue
dreams and better their lives. A good example is mobile phones, which
are increasingly important in developing countries that lack landlines
because they empower people to communicate and conduct business.49
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Because these phones are so important, “people will skip a meal or
choose to walk instead of paying for a bus fare so that they can keep
their phone in credit.”50 For-profit firms meet the specific needs of these
consumers in ways that international aid cannot.51 And nowhere is this
more important than in the areas of personal hygiene and basic foods,
industries in which Unilever has long been dominant:
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children under five die from diarrhea and respiratory
infections. Teaching children to wash their hands is a way of
reducing this toll. The company sees opportunities to save lives
and sell soap.56
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measuring everything from how many fans, or scooters or cars people
own to how often they replace their toothbrushes.”65 This complements
the firm’s improvements in logistics, creating “a 45,000-strong army of
female entrepreneurs who sell its products in 100,000 villages in 15
Indian states,”66 who are also essential to success.
285
flowed from the pursuit of profit. Unilever is unique in embracing a
strategic CSR perspective more thoroughly than virtually any other
firm.69 Central to this is an understanding that the most socially
responsible firms are those that are profitable as a result of creating value
for all stakeholders, wherever they may be.
286
Chapter Eight Compliance and
Accountability
287
during the second year. Over all, sugary drink sales fell by 5.5
percent in 2014 compared with the year before, and by 9.7
percent in 2015 (again compared with 2013).5
In short, it is argued that the government has neither the resources nor
the capabilities to provide comprehensive oversight. Regulatory overkill
increases complexity, which generates additional compliance costs with
few (if any) improved outcomes. The Dodd-Frank Law passed in the
aftermath of the Financial Crisis, for example, contains “22,200 pages of
288
rules, it is equivalent to roughly 15 copies of War and Peace,” and
caused the annual compliance bill for the six largest banks in the US to
jump to “at least $70.2 billion.”9 But does this mean we should let the
market run wild?
289
that a system in which firms determine their own operating guidelines
would be ripe for abuse. It is not challenging to find examples of firms
that have sought to deceive their external stakeholders for private gain:
Self-Interest
The interesting question underlying the voluntary vs. mandatory debate
is the extent to which the pursuit of self-interest produces optimal
societal outcomes. Because altruism is difficult to legislate, humans
seem to be most motivated by actions that produce personal benefit in
return for broad value creation. This is the philosophy underpinning
290
neoclassical economics, but as we learned from Alan Greenspan in the
aftermath of the Financial Crisis, there are limits to this position.
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together, allow the pursuit of self-interest to lead to optimal outcomes
for society.
In the same way that classical economic theory models false assumptions
about rational man, the CSR and sustainability debate, for the most part,
models equally false assumptions about responsible man. Both are
misplaced perceptions of human behavior and motivations to act. It is
true that individuals act in terms of their self-interest, but it is a perceived
self-interest, rather than an actual self-interest. In other words, it is a self-
interest that is clouded by all the emotions, values, and misperceptions
that characterize human views of the world. In order to construct a more
sustainable economic model, therefore, we first have to better understand
individuals as they actually behave, rather than how we wish they would
behave. In the same way that we have behavioral finance and behavioral
economics, we need a behavioral model of CSR.21 In short, “economics
—a hugely influential approach to studying human societies—isn’t
worth all that much without first understanding what it means to be
human.”22
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Given the valid concerns that drive support for coercive government
intervention, together with the acknowledged costs that result from such
action, an essential alternative to the neoclassical economic perspective
is gaining influence. The study of behavioral economics draws on human
psychology to build models that better reflect actual human decision
making (rather than abstract assumptions or ideals); they deliver more
socially optimal outcomes by shaping behavior, yet retaining the
freedom to choose.
Behavioral Economics
While proponents of mandatory regulation to encourage CSR have
always focused on a mix of coercive incentives and strict punishments to
achieve the goals they seek, the pathway toward encouraging voluntary
behavior has been less clear. Research in this area suggests that using a
mix of economic and psychological tools is effective. While financial
incentives (economics) have always played a role, behavioral research
suggests that peer pressure (social psychology) can also help generate
socially optimal outcomes.
James Duesenberry23
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[Behavioral economists] predict and explain how people use
faulty logic in building a framework for making decisions.
Then they figure out how to make people behave properly by
inserting new triggers for better behavior.25
Nudges
The application of behavioral economics to public policy suggests that
subtle nudges can have dramatic effects. Nudges incorporate the
cognitive biases that shape our decisions (“leading us to misunderstand
the past, misconstrue the present and badly foresee the future”)26 into
policies that encourage optimal outcomes, while still retaining the
illusion of choice. In other words, “it is possible to steer people towards
better decisions by presenting choices in different ways.”27 And when
deployed intelligently, the results can be powerful. In one experiment in
the UK, for example, different versions of a letter were sent to people
who had not paid their vehicle taxes.28 For some, the letter
There are vast areas of public policy for which nudges can help achieve
the intended goals. In spite of the perception that most people in
developed economies pay their income taxes, for example, the reality is
that many do not. In the US, “the gap between what is owed and what is
paid is nearly $400 billion a year . . . and about £40 billion ($70 billion)
in Britain.”30 The key to improving compliance lies in the options
offered. The crucial question is What is the most effective way to produce
the desired outcome? Take the issue of obesity: Sometimes the best
approach is a consumption tax (e.g., “a per ounce tax on beverages with
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added sugar”),31 sometimes a ban (such as on excessive serving sizes32
or foods containing high levels of trans fat33), but sometimes motivating
people to make healthier choices can be as simple as improving access
and choice.
In order to understand how children choose which foods to eat for their
school lunches, for example, researchers studied selection behavior in
school cafeterias. What they found was that simply by placing the lower-
nutrition foods in harder-to-reach places (e.g., placing fresh milk at the
front of the counter and chocolate milk toward the back), they were able
to alter the selections made. Placing broccoli at the beginning of the food
line, for example, “increased the amount students purchased by 10
percent to 15 percent,” while encouraging the use of trays resulted in
higher vegetable consumption (“students without trays eat 21 percent
less salad but no less ice-cream”).34 A similar benefit was achieved by
researchers in supermarkets who used shopping carts with separate
sections for fruits, vegetables, and other groceries. They found that by
enlarging the sections for fruits and vegetables (by moving the dividers
in the cart), people bought more of those healthier foods.35 Of course,
the reverse psychology is employed by supermarkets that place chocolate
and candy near the checkouts so that children will pester their parents to
buy these items when they are most distracted and, therefore, least likely
to resist:36
295
When you renew your driver’s license, you have a chance to
enroll in an organ donation program. In countries like
Germany and the U.S., you have to check a box if you want to
opt in. Roughly 14 percent of people do. But . . . in other
countries, like Poland or France, you have to check a box if
you want to opt out. In these countries, more than 90 percent of
people participate.38
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1. All nudging should be transparent and never misleading.
2. It should be as easy as possible to opt out of the nudge.
3. There should be good reason to believe that the behavior being
encouraged will improve the welfare of those being nudged.
Accountability
An essential distinction about the definition of CSR presented in Chapter
1 is that the responsibility is bidirectional. Firms have a responsibility to
listen to their stakeholders, broadly defined, and meet their needs
wherever possible, but equally important (if not more so) is the
responsibility of the firm’s collective set of stakeholders to hold the firm
to account for its actions. In order for CSR to work, both sides have to
engage. That is, the argument underpinning strategic CSR assumes it is
only when a majority of firms understand the inherent self-interest in
seeking to create value broadly that meaningful change will occur. But
what is and is not in a firm’s self-interest is largely determined by its
stakeholders. By definition, behavior that is rewarded is behavior that
should be continued, while behavior that is punished is best avoided in
future.
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Defining CSR
In order to measure CSR, we first need to define it. But as with many
things related to CSR, this is easier said than done. As noted in the
glossary at the front of this book, consistent definitions, rhetoric, and
vocabulary remain elusive and fiercely debated:
In other words, in spite of a large and growing body of work that seeks to
understand a firm’s social responsibility, great confusion and
inconsistency remain. Far from the absence of possible definitions,
however, as the preceding quote implies, “the problem is rather that there
is an abundance of definitions, which are . . . often biased toward
specific interests and thus prevent the development and implementations
of the concept.”51 As a result, “the CSR literature remains highly
fragmented.”52 While there is broad agreement that firms have
something referred to as a social responsibility, there is little agreement
on what that responsibility looks like in practice.53 How can we argue
that CSR is important if we cannot agree what CSR is, or at least narrow
it down to a reasonable set of definitions?54 If CSR remains
idiosyncratic (different things to different people), then it loses its
essential meaning and ability to influence the way we structure the
economic order. We need clarification so that we can begin to measure
this complex concept.
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socially responsible)? If it is the former, then CSR is relatively easy to
define and measure. If it is the latter, however, then CSR is very
difficult even to conceptualize in all its many dimensions, let alone
measure accurately.
Measuring CSR
Unfortunately, because we have had difficulty defining CSR, we have
also not done a very good job of measuring CSR. As a result, we do not
have a good sense of what a firm’s holistic CSR profile looks like.
Although we have some intuitive sense of which firms are good and
which are bad (based on our individual knowledge, assumptions, and
values), we are presently unable to compare one firm to another reliably
across all aspects of operations (particularly if the firms operate in
different industries). There are two main reasons for this: First, there is
resistance among firms to the idea of greater transparency. Although
there are some legitimate competitive concerns about revealing sensitive
or proprietary information, firms resist transparency for the same reason
that stakeholders should seek it—behavior changes when individuals
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know they are being watched.55 The second reason, of course, is due to
the inherent difficulty of defining (let alone quantifying) something as
dynamic and varied as societal expectations. The challenge becomes
readily apparent with a quick thought experiment—consider how best to
quantify the impact of an individual firm on the environment:
Should a firm be responsible only for the costs incurred during the
production of its products, for example, or also for those incurred during
their consumption? Should automobile companies be held responsible
for the pollution caused by people driving cars or only for the pollution
involved in actually making the cars?58 What about smartphone
companies, where there is little cost to the environment during
consumption of the product but the potential for significant damage
during disposal? And what about the supply chain—where does one
firm’s responsibility begin and another’s end? Should a sports shoe firm
be responsible for the costs incurred during the manufacture of the shoe
(even when that process is completed by an independent contractor)?
What about the rubber that is used to make the soles—is that also the
sports shoe firm’s responsibility, or the responsibility of the contractor
300
who purchases the raw material, or of the plantation where the rubber
was harvested? There are no easy answers to these questions, which
relate only to the costs incurred by a firm. What about quantifying the
benefits the firm and its products provide, which raises a whole new set
of challenges? And, perhaps most importantly, how should the net effect
of these benefits and costs be calculated? How should different
components be weighted? Who even gets to decide these parameters?59
301
accurate is less important than whether any biases are known and applied
equally across all firms. So many of our measurements involve
subjective interpretations and assumptions, but are widely perceived as
objective statements of fact (e.g., think about how accountants measure
brand value or goodwill,64 or even the value of measuring the health of
the economy using GDP65). Placing values on the extinction of the blue
whale and the potential damage of an unrealized pharmaceutical
discovery will always involve some element of subjectivity and debate.
Nevertheless, there is a great deal of benefit in being able to construct a
relative and standardized measure of which firms add more or less value,
and giving that tool to those firms so that they can report progress to
stakeholders.
CSR Reporting
This pursuit of defining and measuring CSR is essential because the
question What is the role of business in society? is highly consequential.
Whether we are talking about environmental degradation or social
cohesion, wealth distribution or global free trade, the answer to this
question defines our immediate and future quality of existence. It
determines the society we live in and will pass on to future generations.
While some people believe it is impossible to conclude whether a firm is
socially responsible,66 the more essential question is relative. In other
words, it is important to identify the firms that are more or less
responsible than others, without needing to make definitive claims about
whether they are absolutely responsible or irresponsible. While
recognizing the difficulty in doing so, being able to identify the business
models that produce more responsible behavior is a challenge that is
inherently worth tackling. Yet the confusion that is sown by inconsistent
definitions, partial measures, and the multitude of labels and rating
systems that purport to reveal which products and which firms are green,
or ethical, or socially responsible serves only to undermine the good
intentions of all involved.
The challenge of answering the question What is the business case for
CSR? is related directly to our ability to agree on what we want firms to
do and to know whether they are actually doing it. Regarding a definition
of CSR, this book is dedicated to refining our understanding of this
complex topic in realistic terms. In terms of measuring CSR, there are
302
many organizations that are striving toward this task. The result is that
when we talk about a firm being accountable and measuring CSR as a
means to that end, we are really talking about three interlinked steps,
each of which needs to be clear and transparent if the system as a whole
is to be effective: standardizing, certifying, and labeling CSR.
Greenwash
303
we need to educate stakeholders to discriminate among these firms in
ways that reward those that best meet expectations.
But how can a firm be held accountable for its CSR actions in a way that
is objectively measurable, yet financially feasible? How can we develop
an accurate and consistent measure of CSR that allows stakeholders to
evaluate the social and environmental impact of different products and
firms, then compare them to other products and firms (i.e., compare
apples to oranges along common metrics)? A CSR report by a firm
provides some answers. A CSR audit, containing objective standards
assessed by an independent third party, provides additional information.
As suggested in Figure 8.1, CSR reports have evolved and today are
increasingly recognized as a critical tool for firms seeking to establish
CSR standards. They allow firms to set goals (helping establish
expectations externally and operating standards internally), measure
progress in relation to those goals, and remain accountable to
stakeholders by communicating progress. Shabana, Buchholtz, and
Carroll demonstrate that CSR reporting evolved in three stages: The first
stage, coerced reporting, developed in response to external pressure
following publicized transgressions, such as those experienced in the
1990s by Gap (whose 2003 Social Responsibility Report disclosed
vendor violations of the firm’s code of conduct) and Nike (whose 2004
Corporate Responsibility Report identified its complete list of worldwide
supplier factories). The second stage is opportunistic reporting, which
emerged among firms that saw the value in communicating directly with
stakeholders, such as Timberland (whose 2006 Our Footprint labeling
scheme detailed the environmental and social impact of production for
each of its products) and Stonyfield Farm (whose 2008 partnership with
Climate Counts measured carbon emissions).71 Finally, the third stage is
characterized as imitative reporting, which occurs as CSR reporting
becomes established because reports from firms in the first two stages
“create a critical mass . . . that reaches a threshold at which the benefits
of CSR reporting begin to outweigh any costs.”72
304
Source: Adapted from Kareem M. Shabana, Ann K. Buchholtz, &
Archie B. Carroll, “The Institutionalization of Corporate Social
Responsibility Reporting,” Business & Society, Vol. 56, Issue 8,
2017, pp. 1107–1135.
AccountAbility (https://www.accountability.org/)
B Impact Assessment (https://www.bcorporation.net/)
CDP (https://www.cdp.net/)
Ceres Principles (https://www.ceres.org/)
305
Corporate Human Rights Benchmark
(https://www.corporatebenchmark.org/)
Extractive Industries Transparency Initiative (https://eiti.org/)
Fair Labor Association (http://www.fairlabor.org/)
Global Impact Investing Rating System (http://b-
analytics.net/giirs-funds)
Global Reporting Initiative (https://www.globalreporting.org/)
Greenhouse Gas Protocol (https://www.ghgprotocol.org/)
Higg Index (https://apparelcoalition.org/the-higg-index/)
ILO Labour Standards (https://www.ilo.org/)
International Integrated Reporting Council
(http://integratedreporting.org/)
ISO 26000 (https://www.iso.org/iso-26000-social-
responsibility.html)
ISO 37001 (https://www.iso.org/iso-37001-anti-bribery-
management.html)
Natural Capital Protocol (https://naturalcapitalcoalition.org/)
OECD Responsible Business Conduct
(http://mneguidelines.oecd.org/)
Reporting 3.0 (https://reporting3.org/)
Social Accountability International (http://www.sa-intl.org/)
Sustainability Accounting Standards Board
(https://www.sasb.org/)
Sustainable Development Goals
(https://sustainabledevelopment.un.org/)
United Nations Global Compact
(https://www.unglobalcompact.org/)
UN Guiding Principles on Business and Human Rights
(https://www.business-humanrights.org/en/un-guiding-
principles/)
Universal Declaration of Human Rights
(http://www.un.org/en/universal-declaration-human-
rights/index.html)
306
to the point where “many countries now require [it], either by law or as a
condition of stock exchange listing.”76
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Step 2: Certifying CSR
The second step in the reporting process focuses on external validation.
When a firm’s CSR reporting is transparent, it allows external observers
to evaluate all aspects of the organization, its managers, and its policies.
Misleading reporting, however, if discovered, can have a negative impact
on external perceptions. The different reputations of BP and Exxon in the
past are instructive—while BP spent a lot of money rebranding itself as
“beyond petroleum,” Exxon drew criticism due to its CEO’s
longstanding denial of climate change.83 Nevertheless, as we discovered
with the 2010 Deepwater Horizon oil spill, performance outweighs
branding in terms of environmental impact:
In other words, although CSR reporting has come a long way in recent
years, it still suffers from the potential for greenwash and the lack of
authenticity that only an independent audit can provide. There is plenty
of cause for concern:
As such, as CSR measures move beyond the “triple bottom line” (which
captures performance on financial, environmental, and social metrics)86
and toward “integrated reporting” (detailed, objective, and verifiable
308
standards that allow comparisons among firms),87 the field of CSR
auditing/certification is also evolving, with new tools constantly being
developed to help stakeholders certify different firm operations. Ideally,
this process consists of specific independent actors (such as the NGOs
the Rainforest Alliance Network, Greenpeace, or the Forest Stewardship
Council) auditing and then certifying that particular products are being
produced and sourced in ways that meet established criteria.88 Where the
process is not too costly or time-consuming, firms are well aware of the
legitimacy benefits such certifications offer. That is why McDonald’s
announced it would partner with the Marine Stewardship Council (MSC)
“to show that the fish it serves is caught in an environmentally
sustainable manner,”89 while Sainsbury’s supermarket in the UK “is the
largest retailer of MSC certified fish in the UK and . . . the UK’s largest
retailer of RSPCA Freedom Food approved salmon.”90
This issue relates partly to trust and partly to awareness.93 That is, do
consumers (who, ultimately, are the reason for the certification) know the
label and the certifying organization behind it, do they understand what it
means, and do they support the goals the organization is trying to
achieve? In order for a Fairtrade certification to be useful, for example,
consumers, at a minimum, need to agree with the importance of ensuring
adequate pay and working conditions throughout the supply chain.
Because that will necessarily push up the final price to the consumer, it is
not clear that this is always true.
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Step 3: Labeling CSR
Beyond standards and certification, the third step in the reporting process
concerns the disclosure of goals and progress to external stakeholders (in
particular, consumers; CSR reports are usually aimed at investors). This
involves a product label of some sort, ideally accompanied by the logo of
a respected certifying auditor, which is either attached to the product or
advertised at the point of sale. The goal is to convey some sense of the
standards passed in order to earn the gold star, letter grade A, score of 5
out of 5, or whatever method is used to convey quality. Whole Foods
supermarket, for example, uses a color-coded stoplight scale to assess
and support sustainable seafood products:
Often, such scales are instigated at the initiative of a particular firm and
may or may not conform to industry standards (even if such standards
exist).95 With little oversight, the main problem with these labels is not
the absence of such measures but their proliferation. In terms of
environmental impact, for example, there are estimated to be “currently
at least 465 different ecolabels in use around the globe.”96 In North
America alone, there are at least 88 such ecolabels.97 Food products are
a particular area of confusion, with labels such as “natural”98 or
“humane”99 open to abuse because they are unregulated, while specific
foods, such as fish, are subject to inaccurate descriptions100 designed
either to obscure illegal fishing or justify a higher price for lower-quality
fish.101
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Moreover, there is only so much room on a product label. So, for
example, in response to a question about why Marks & Spencer (M&S)
is not advertising its use of certified sustainable palm oil, the firm’s
sustainable development manager replied, “We could also list the dairy,
cocoa, nutrition, soy, UK sourcing, factory standards, water-use, forestry,
pesticides, gluten-free, fairtrade. . . . You have to decide what is most
important to customers.”104 The result is chaos, rather than clarity.
CSR Pricing
Now that we have a grasp of the motivations underpinning human
behavior and understand the value of measurement tools in holding firms
to account, we can turn to pricing CSR. Although it is a lot more
complicated than this (simply trying to avoid double-counting is
incredibly difficult), the goal of pricing CSR is to account for all the
negative costs that firms often seek to externalize.105 By incorporating
(or internalizing) these costs, the true value of a product or service can
be captured in the final price charged to the consumer.
Lifecycle Pricing
This process is known as lifecycle pricing; it matters because “if prices
reflected all the costs, including ecological costs spread across
generations, the world would not face sustainability challenges, at least
in theory.”106 In the absence of these controls, businesses tend to
externalize costs they think they can get away with. The strain on the
environment, in particular, is horrific. For example, agriculture runoff
(farming byproducts, such as fertilizers, that drain into rivers and oceans)
causes “more than 550 dead zones across the world today,” killing large
swaths of marine life.107 At present, the total costs associated with these
byproducts of industrial agriculture are largely unknown (because no one
is counting) and unpaid (because no one is pricing them). Figure 8.2
311
offers a framework that can begin to correct this misallocation of
resources.
Figure 8.2 presents the six stages of the product lifecycle: Extract →
Process → Manufacture → Sell → Consume → Dispose. Between each
stage are transportation and storage, as well as inputs of energy,
materials, and other resources used in the processing that occurs before
and after the transition. Each stage also generates outputs, such as waste
materials and other forms of pollution. The closed-loop system indicates
a circular economy with as many materials recycled/upcycled as
possible.
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Attempts to price carbon reflect this process (preferably via a carbon
tax), while efforts to develop product-specific carbon footprints are a
means of implementation. Central is the ability to differentiate among
scope 1 (direct), scope 2 (indirect, energy), and scope 3 (indirect,
lifecycle) emissions.110 The goal is a global price (the social cost of
carbon),111 which can be included as a separate line item in firms’
integrated financial reports. Unfortunately, due to politics and “human
frailty,”112 such a solution remains “elegant in theory but tricky in
practice.”113 At best, progress is fragmented:
To their credit, a number of firms are not waiting for politicians to act,
already incorporating carbon pricing into their planning and budgeting
models. Sometimes this is driven by a genuine desire to account for all
costs incurred; other times it is to prepare for anticipated legislation that
must come at some point. Exxon, for example, applies a cost of “$80 a
tonne . . . when making investment decisions for 10 years,”115 while
Microsoft “charges all departments for every kilowatt-hour of dirty
energy they contract or air mile flown by executives, to help meet firm-
wide climate targets.”116 According to CDP, “a British watchdog, 607
[firms] now claim to use ‘internal carbon prices.’ . . . Another 782
companies say they will introduce similar measures within two
years.”117
Other firms are integrating broader lifecycle pricing into their decision
making. Patagonia is an excellent example with its Footprint
Chronicles,118 a comprehensive analysis of its entire supply chain.
Similarly, the inclusion of Extended Producer Responsibility (EPR)
standards into legislation worldwide helps ensure “manufacturers and
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[producers] are responsible for the products they make or sell, and any
associated packaging, when they become waste.”119 Such holistic
assessments are being used to price water,120 access to roads,121 even
human life.122 But perhaps the best example of a firm that has integrated
a lifecycle analysis comprehensively throughout operations is Interface,
a carpet manufacturer, whose inspirational founder and CEO, the late
Ray Anderson, explained his journey in terms of the seven (plus one)
faces of “Mount Sustainability”: (1) waste, (2) emissions, (3) energy, (4)
materials, (5) transportation, (6) culture, (7) market, and (8) social
equity.123 In Anderson’s vision, the mountain peak represents
sustainability, defined as “take nothing, do no harm.” In other words, his
goal was a cradle-to-cradle, closed-loop system with zero waste.124
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endangered species.”128 There is also the potential to cause more harm
than good:
Yet the first point can be applied to any product or service, while the
second point speaks to whether you trust the market to value scarce
resources—something history reveals it has done better than any other
mechanism we have devised. And because time is pressing, it might be
worth giving the market a shot—the effects could be dramatic.130 The
real price of a gallon of gasoline, after accounting for all costs and
removing all existing subsidies, for example, is estimated to be US$12–
$20.131 It is only by developing industry-wide standards within a
lifecycle pricing model that we will move closer to understanding the
holistic impact of our current economic system. What is not clear is the
extent to which consumers want this information and will act on it.132
What is without doubt is that, as a society, we need to act and act
quickly. We have created an economic system based on convenience and
waste—we spend money we do not have, on things we do not want, for
purposes that are unimportant.133 As a result, “the typical person
discards 4.5 pounds of stuff per day, [only] 1.5 pounds of which are
recycled.”134
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lifecycle pricing assessment is a means of removing distortions from the
market. Once more of a level playing field has been created (with all
benefits and costs incorporated into the price that we have to pay for a
product), then the market will determine the most appropriate allocation
of the resources available. Ultimately, “markets are truly free only when
everyone pays the full price for his or her actions. . . . That’s the most
fundamental of economics lessons and one any serious environmentalist
ought to heed.”136
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Case Study Investing
There are many reasons why an investor might buy shares—to save for
retirement, pay for a child’s college tuition, or buy in to the vision of a
star executive. Underpinning all these reasons, however, is an expected
return on the investment. When investors exit their position, they want to
have more money than when they opened it. Increasingly, they also want
to do that without compromising their values and ethical principles. As a
result, socially responsible investing (SRI), and in particular impact
investing,1 has become one of the most dynamic aspects of the complex
relationship between the firm and its investors. But it is also
controversial, with questions around definitions and measurement
clouding what exactly constitutes an ethical investment. Nevertheless,
the pace of growth alone implies this is an issue to which firms need to
respond. Investors are demanding greater transparency from firms and
are increasingly willing to discriminate in pursuit of responsible
investing strategies. As a 2018 JP Morgan report notes:
The global [SRI] market is now worth almost $23 trillion, with
around half of all assets managed in Europe and more than a
third in the U.S. The growth of ESG [(environmental, social,
and governance)] assets stateside is up over 200% from the
past decade and the popularity of ESG-themed Exchange-
Traded Funds (ETFs) has surged since 2016, with $11 billion
in assets under management (AUM) across 120 funds around
the world.2
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While proxy season has long been the domain of labor unions
and activist investors, . . . increasingly it is mutual funds and
other more tempered institutional shareholders who are
criticizing lavish pay packages and questioning corporate
governance. Emboldened by new regulations—and angered by
laggard stock performance and recent scandals—this new crop
of activists is voting down company policies and backing
proposals to reform corporate boards.6
Activist Investors
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decisions that do not meet these expectations.9 A good example is the
volume of shareholder resolutions being tabled at firms’ annual general
meetings (AGMs). While many of these proposals are coalescing around
a few major concerns (e.g., “transparency about political spending,
climate change, racial and gender diversity, and pay”),10 there are a
widening set of issues on which investors seek action:
Not only is the range of issues troubling activist investors increasing, but
so is the amount of shareholder support each resolution is receiving. It is
a trend that is prevalent across a broad range of issues and is becoming
much harder for large firms to dismiss. In 2016, for example, “23 of the
total 58 environmental-related proposals . . . got 26% of the vote,
compared with 16% support in 2015 and 14% in the 2006–2015 period.
Also, five environmental resolutions received at least 40% support, a
record number.”12
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Socially responsible investing (SRI)14 is not new, but it is growing
rapidly in line with societal pressures on firms for more socially
responsible behavior and as investors apply these same criteria to their
financial portfolios.15 While the mutual fund industry began offering
SRI products in the 1970s,16 in 2018, the SIF Foundation reported that
there is $12 trillion invested in SRI funds, “an increase of 38 percent
[from 2016]. This represents 26 percent . . . of the $46.6 trillion in total
US assets under professional management”:17
SRI Terms
As with the field of CSR, there are multiple SRI terms that mean
different things to different people. While there is considerable
overlap,19 there are also core differences:
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based or impact investing.
Microfinance: A range of personal financial services (e.g., loans,
accounts, insurance, and money transfers) provided on a smaller
scale to meet the specific needs of poorer communities and
structured to encourage entrepreneurship.
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Sources: “Sustainable Investing,” UBS, July 2013, pp. 4–5; Leslie
Norton, “In Defense of Social Purpose,” Barron’s: Investing with
Purpose, June 26, 2018, p. S3; and George Kell, “The Remarkable
Rise of ESG,” Forbes, July 11, 2018,
https://www.forbes.com/sites/georgkell/2018/07/11/the-remarkable-
rise-of-esg/.
While the publication of the UNPRI is a welcome step for the industry,
the danger of committing to performance that mimics the broader market
is that it forces a relaxation in terms of which firms are included. In other
words, it is difficult to have it both ways—either the makeup of firms in
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SRI funds is distinctive (and therefore will have returns that are different
from the market), or the makeup of firms mirrors the overall market
(with a corresponding rate of return, but with all the bad firms included).
The more the SRI industry claims to match the broader market, the
greater the suspicion that the filters being used are insufficient to
generate the social outcomes SRI investors seek.
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interest across industries. ESG funds, which focus on the environment
(mostly because “the ‘S’ in ESG” is so difficult to measure),32 should be
seen as a way to do that—one that is rapidly becoming a vibrant subset
of the SRI family:
Not only is ESG big, but it is growing rapidly, with a large proportion of
funds added only recently. Morningstar, for example, has a category of
ESG and sustainability funds “that now has 204 members with $77bn in
collective assets. The oldest fund in the Morningstar group dates back to
1971. But nearly half have been launched in the past three years.”34 By
2018, the total amount invested in ESG is an “18-fold increase” since
1995,35 with estimates that “53% of all assets managed in Europe and
38% in the U.S. incorporate ESG criteria.”36 One reason for this growth
is that many stock exchanges are “now mandating ESG disclosure for
listed companies or providing guidance on how to report on ESG
issues.”37 As the field becomes more legitimate, financial firms innovate
to compete for customers, especially in the area of passive funds, such as
ETFs.Figure IV.2 reports the dramatic rise in ESG-themed ETFs in the
US—a sector now valued at “$11 billion in assets under management
(AUM) across 120 funds.”38
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Source: “Sustainable Investing is Moving Mainstream,” JP Morgan,
April 20, 2018, https://www.jpmorgan.com/global/research/esg.
In spite of their growing popularity, one of the issues with ESG, as with
other areas of SRI (and CSR, in general), is definition and measurement,
with significant variance across funds. In the same way that CSR is
criticized for not developing a unified definition, SRI can mean whatever
someone wants it to mean,39 with the “absence of a standard
definition . . . cited as a reason for the proliferation of funds and other
vehicles that are labelled as socially responsible but which employ a
wide variety of investment strategies.”40 In addition, there are few
standardized measures, with firms having to contend with a myriad of
approaches. Just in terms of measuring social impact, which “could mean
nearly anything,”41 the dizzying range of possibilities are apparent:
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different measures. Companies seeking to respond to [external
monitors trying to assess their performance] faced a daunting
task: answering 763 questions for companies involved in food
and beverages; 698 for companies in extractive industries.42
One reason for this is that different monitoring firms place different
weights on the different ESG dimensions. Even the philosophical
question “Should a highly polluting company be able to offset that by
having great governance and treating workers well?” is challenging.46
The confusion, of course, generates different results for the same firm.
Comparing Exxon’s ESG score against four firms in different industries,
for example:
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Yet there are numerous examples of best practice that investors seek to
recognize. As such, funds are creating more sophisticated vehicles that
allow investors to invest according to their values.48 Rather than blunt
screens or broad metrics, funds are being created that target specific
goals, drawing on the range of financial tools (e.g., providing loans or
seed capital to startups or funding public policy initiatives). This latest
evolution ensures a more direct link between an investor’s values and the
desire to make an impact. The unifying characteristic, however, is an
appeal to an investor’s values.
Values-Based Funds
Values-based investing, which in its broadest definition includes
investments that align with political and religious beliefs, has existed
since the 1500s. In its modern form, ethical investing was introduced
during Prohibition “when churches encouraged investors to avoid
investments in alcohol, firearms, tobacco and other ‘sin’ stocks.”49 As an
extension of that, values-based funds can take many forms, utilizing the
range of finance tools, but are advertised as a more focused form of
impact investing than SRI. While there is still considerable debate about
the performance of these funds, it is clear they are becoming popular
with investors seeking more diverse investing opportunities.
Investment Motivations
There are three kinds of benefits that investors can receive from their
investments and that, as a result, motivate their decisions (consciously
or subconsciously):50
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One popular area of values-based investing is green bonds. These fixed-
income investments were first “issued by the World Bank in 2008”51 and
are designed to “tie the proceeds of bond issues to environmentally
friendly investments.”52 Although early demand for green bonds did not
match expectations,53 growth has since been rapid. By 2018, it was
estimated that “more than $170bn-worth are issued annually, . . . 2.5% of
global bond issuance,”54 and according to Mark Carney, the governor of
the Bank of England, they have “the potential of $500 billion a year”:55
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make money available to enterprises owned by women, focus on
employment for women or invest in companies that provide products and
services that help women.”66 Investment tools that appeal to women
make a lot of sense, given that “between 2010 and 2015 private wealth
held by women grew from $34trn to $51trn,” and “by 2020 they are
expected to hold $72trn, 32% of the total.”67 And the future looks bright,
as by mid-2017, “$901m was invested with a gender-lens mandate across
22 publicly traded products.”68 A typical fund is Barclays’ Women in
Leadership ETF (ticker WIL), which is “made up of U.S. companies
with a female chief executive or at least a 25% female board.” According
to research that supports the foundation of such tailored funds, “Fortune
500 firms with three or more female directors had an 84% better return
on sales and a 46% better return on equity.”69
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company performance, so their posts may be precarious.”75 If such a
firm (or fund) performs badly in the future, it may have nothing to do
with the female CEO and everything to do with the poorly performing
firm she inherited.76 Third, as with all sectors in the SRI field, the issues
of definition and measurement loom large, as there is still no effective
“measure of ‘moral compass.’”77 Finally, niche funds often struggle to
gain the critical mass necessary to compete. Strict faith-based funds, for
example, can find themselves pursuing conservative values “squarely at
odds with that of nearly all of corporate America,”78 particularly on
issues such as gender equality or access to birth control. For example, “a
few years ago, the firm FaithShares rolled out a whole suite of faith-
oriented products, only to shutter them when they did not acquire enough
traction.”79
Sin Funds
Sin funds invest in firms that are normally excluded by funds with ethical
filters, with the aim of providing superior returns to investors. A prime
example of this anti-values-based investing is USA Mutuals’ Vice Fund
(ticker VICEX), which first went on sale to the public in 2002,
advertising itself as a “socially irresponsible fund”:87
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Anecdotal evidence suggests there is reason to invest in sin stocks.
Partly, the returns are better because these industries tend to be mature
and do not have large costs associated with growth, but returns may also
be better because many of these products satisfy basic human needs
(“when the going gets tough, the tough go eating, smoking and
drinking”89) that are always in demand:
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are increasingly screening out securities tied to tobacco and weapons
production, cordoning off $4 trillion of investment assets from the two
industries.”94 And SRI continues to evolve. From blunt screens, to
various values, to measuring outcomes, impact investing moves beyond
rewarding good behavior to creating it.
Impact Investing
Impact investing is a term “coined at the Rockefeller Foundation a
decade ago to refer to market-based solutions to social problems.”95 As
such, impact investing differs from regular SRI or ESG investing in two
fundamental ways. First, it is not simply an investment vehicle to help
save for retirement with a clear conscience—impact investing actively
seeks to solve intractable social problems. In other words, while SRI is
based on the premise that investment dollars should do no harm, impact
investing is considered a failure unless good is done. And second, impact
investing is clear-eyed on how we will know when success has been
achieved. By focusing on measurable outcomes, impact investing seeks
to make a difference, partnering with organizations “that not only
measure and report their wider impact on society, but also hold
themselves accountable for delivering and increasing their positive
impact.”96
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Social Impact Bonds
Beyond the ability of values-based investing to affect firms by
encouraging more socially responsible behavior, SIBs (“payment-by-
results contracts that bring together socially motivated private finance
and social organisations to provide outsourced public services”)99
demonstrate the ability of values-based investing to affect public
policy:100
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difference in relapse rates between the two groups and is
capped at 13% annually over an eight-year period.104
In addition to the interest SIBs are generating in the UK,105 they are
growing in the US and in other countries worldwide. As a result, the
“current estimated cumulative size of the global ‘market’ for SIBs stands
at around $514 million (contracts)/$210 million (investment).”106
Interest in the United States first emerged in 2011, when “President
Obama earmarked $100 million for various pilot programs involving
SIBs in his 2012 budget proposal.”107 SIBs were first introduced in
Massachusetts, “to address recidivism rates among young people as well
as the chronically homeless,” and soon after in New York City, where
Goldman Sachs invested “$9.6 million for a SIB aimed at reducing
recidivism rates among young inmates at Rikers Island prison.”108
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children in Chicago, which will return $9,100 a child for each
year he or she avoids special education, . . . $2,900 for each
child deemed prepared for kindergarten and $750 for each
student who scores above the national average on the third-
grade reading test.111
And the more a firm like Goldman learns about SIBs, the better it will
become at selecting projects it thinks it can earn a return on. In addition
to its Chicago pre-K program, for example, the firm has invested in a
similar program in Utah, in which it funded early education costs for
children who were expected to require special education:
Since the first launch in the UK in 2010, there have now been sixty-one
SIBs introduced around the world (see Figure IV.3). Most of these are in
the UK and the US (although there are SIBs in thirteen other countries,
including the Netherlands, South Africa, Australia, and Israel), and most
are focused on social welfare and employment programs (with criminal
justice, education, and health-related programs making up much of the
rest).
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In spite of the growing popularity of SIBs, a number of challenges
remain in order for these “pay-for-success” programs to realize their
hoped-for potential: First is identifying which programs are suited to this
sort of financing. “A restricted choice of asset classes” and investment
opportunities continues to constrain growth.113 Second is how to
measure success. Many of the lead times on these types of projects are
long (which will not fit some investors’ timeframes for an expected
return), but they also deal with intractable social problems that do not
always lend themselves to easy measurement. This issue arose in the
Utah experiment, with Goldman’s claims to success having since been
questioned due to measurement concerns.114 Third is the higher set of
costs incurred due to third-party assessment, which is essential for rigor
but more costly “when compared to simply delivering the services
directly.”115 Fourth is the general concern that introducing financial
incentives into the public policy arena will distort behavior and increase
the potential for abuse, with individuals motivated to produce specific
outcomes and held accountable for doing so. Finally, there is the issue of
meaningful progress, with impact investing currently capturing only a
small slice of the investment market. For example, “at Goldman’s asset-
management arm, impact and ESG integrated investments combined
only make up $6.7bn out of a total of $1.35trn in assets under
management.”116
Not every SIB will work, but for champions of SIBs, that is OK.
Although the previously described SIB with Goldman failed to reduce
youth recidivism, and the investors lost their money, for example, “the
city declared the effort a success. It was: New York got to run a valuable
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experiment without shouldering the cost.”119 Ultimately, the complete
range of impact-investing vehicles discussed in this case (from SRI,
ESG, and values-based funds to, more recently, impact investing and
SIBs) demonstrates the potential social value of the finance sector,
something that has been less evident in recent years.120
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Next Steps
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Part Five A Strategic Perspective
Part V is completed with a detailed case study of the global supply chain,
highlighting a firm that implements strategic CSR throughout
operations—Starbucks.
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Chapter Nine Strategy + CSR
A Firm’s Strategy
“Strategy is about the ‘how.’ How do you move toward a desired end,
despite limited means and huge obstacles?”2
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environment. Conversely, if key constituents are ignored, a firm’s
strategy risks losing support—and possibly active resistance—with
potentially negative consequences for performance.
From these aspirations, the firm’s mission identifies what the firm will do
to attain its vision. A food bank, for example, may have a vision of
“ending hunger in its community” and a mission to “feed the poor.” An
automobile company may have a vision of “providing the best personal
transportation vehicles for society” and a mission of “making affordable,
efficient cars.” While the vision identifies what the firm is striving
toward, the mission tells us what it will do to get there. Both these
statements are constrained by the expectations of the firm’s stakeholders
(internal and external)—in other words, what they expect and are willing
to tolerate.
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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 is the set of actions the firm takes to achieve its
mission and build a competitive advantage in the marketplace that
can be sustained.
The tactics are the day-to-day management decisions made to
implement the firm’s strategy.
A firm’s strategy explains how the firm intends to achieve its vision and
mission. It defines the organization’s response to its competitive
environment. At the corporate level, a strategy determines the businesses
and industries in which 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, whereas a car manufacturer may have a
corporate-level strategy of securing multiple brands to gain exposure to
different market segments and minimize risk. At the level of the business
unit, a strategy determines how the firm will compete by differentiating
its products from those of its competitors. Thus, the food bank may have
a strategy of using a mobile soup kitchen to transport food to where the
poor live, whereas the car manufacturer may have a strategy of
producing cars with specific technical advantages over competitors’ cars.
Aligning its vision, mission, strategy, and tactics gives direction to the
firm and focus to its employees, but it is strategy that is essential. To
understand why, we must examine its three parts—strategic analysis,
strategy formulation, and strategy implementation. If strategy is the set
of actions the firm takes to build a sustainable competitive advantage,
strategic analysis is the process by which the internal
strengths/weaknesses and external opportunities/threats are identified,
strategy formulation is the selection of activities that enable the firm to
combine its strengths and opportunities, and strategy implementation is
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the practical application of that plan. All three are important for the firm
to succeed.
Strategic Analysis
Often, the strategy planning process begins with an analysis of the firm
and its competitive context. To do this, there is a wide array of tools and
concepts available to executives. At the most basic level, however, the
firm conducts a SWOT analysis—a tool that allows a firm to identify its
internal strengths and weaknesses, while also analyzing its external
opportunities and threats. On the basis of this analysis, the firm’s
strategy should exploit its strengths and align them with the opportunities
in the environment, ensuring that the strategy and tactics remain
consistent with its vision and mission. Internal weaknesses are addressed
to the extent that they impair effectiveness, while external threats are
monitored for their disruptive potential:
The resource 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 competencies (e.g., effective research or
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efficient production processes) as the main determinant of a competitive
advantage. Those firms that have the most valuable resources or most
innovative competencies will 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.
Core resources are the firm’s assets that are unique and difficult
to replicate.
Core competencies are the processes the firm not only does very
well, but is superior at than its competitors.
Resource Perspective
The resource perspective is detailed in a 1990 Harvard Business Review
article by C. K. Prahalad and Gary Hamel.4 The core idea is the
distinction between a firm built around a portfolio of business units and a
firm built around a portfolio of core competencies. While siloed business
units encourage functional replication and inefficiencies, core
competencies develop efficient systems that can be applied in multiple
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settings across business units and throughout the firm. Walmart’s core
competency of efficient logistics, for example, can be applied at all
stages of its retail operations. Equally, Google’s core competency of
writing sophisticated algorithms, which allows it to pursue its mission to
“organize the world’s information,”5 can be applied to searching for
products, images, academic papers, and many other topics. Moreover,
core competencies can be built, in theory at least. The resulting skills
differentiate the firm from its competition and allow it to sustain a
competitive advantage:
VRIO
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four questions that must be answered affirmatively for a resource to be
the source of a firm’s sustained competitive advantage:
In spite of its intuitive value, there are two main limitations of the
resource perspective. First, by focusing primarily on the internal
characteristics of the firm, the resource perspective de-emphasizes the
external context in which the firm operates. While the value of a
resource or capability is at least partly defined by its potential “to
neutralize [the firm’s] external threats or exploit its external
opportunities,” it is the resource/capability itself (an internal
characteristic of the firm) that is deemed to be the source of
profitability.10 It is highly likely, however, that the external context will
influence directly the firm’s ability to build core competencies and to
take advantage of those skills. As Southwest experienced in the
aftermath of the 9/11 terrorist attacks on America, the federal
government has an important voice in an airline’s ability to operate.11 By
not including context in the model and recognizing the potential
constraints it presents, therefore, the resource perspective provides an
incomplete description of the processes that generate the phenomenon
(core competencies) it is seeking to explain.
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(ranging from political infighting to inclement weather) that intervene to
prevent any intended goal from being realized.
Industry Perspective
The industry perspective is grounded theoretically in industrial
economics. Its main proponent is Michael Porter, whose five forces
model is a staple component of strategic management courses in business
schools around the world. Porter first outlined his ideas in a 1979
Harvard Business Review article.12 He later expanded on his initial ideas
by introducing a distinction between business- and corporate-level
strategies13 and the value chain.14 More recently, in a 2008 Harvard
Business Review article, Porter updated his five forces model to address
criticisms since its initial publication.15
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Source: Michael E. Porter, “How Competitive Forces Shape
Strategy,” Harvard Business Review, March/April 1979, p. 141.
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Threat of new entrants: Low. The barriers to entry in expertise,
government contracts, global distribution networks, and brand
recognition suggest Boeing and Airbus are unlikely to see any
serious competitors in this industry anytime soon.
Threat of substitutes: Low. While in theory, if costs rise too far,
passengers will seek alternatives to plane travel (e.g., cars, Skype
business calls), in reality, the number of airline passengers keeps
increasing (projected by the International Air Transport
Association [IATA] to reach 7.3 billion by 2034).17 Thus, there
will always be a demand for planes to carry them.
Industry rivalry: Medium. While there is some competition
among Boeing and Airbus for airline contracts, most of the
competitive burden (in terms of profits) is borne by the airlines
themselves. Also, due to the support they receive from their
national governments (the US and EU, respectively), both firms
will continue to earn sufficient profits to remain in business. The
main costs incurred as a result of competition are those related to
future aircraft model research and development.
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Threat of new entrants: High. In spite of low profits, it is
relatively common for new airlines to enter this industry. There is
added danger because new airlines are immediately competitive
due to the absence of legacy costs (e.g., pensions) and the
inefficiencies that diminish the profitability of more established
airlines.
Threat of substitutes: Low. This is another plus for the airlines. In
the US, alternative forms of travel over long distances (e.g.,
trains) are scarce. As a result, people have little choice but to
purchase the services that many airlines offer.
Industry rivalry: Medium. Due to lax antitrust oversight in recent
decades, consolidation has led to the dominance of four airlines,
while the introduction of bag check fees has increased revenues.
In spite of this, high fuel costs and the unwillingness of
passengers to pay for perks cap profitability.19
There are three main limitations inherent to the industry perspective that
also constrain our ability to understand a firm’s success or failure. First is
the presentation of business as a combative pursuit—a zero-sum game of
survival with a fixed pool of profit. This model teaches firms that their
relations with different stakeholders are confrontational and that, in order
to survive, a firm needs to dominate in a battle for relative supremacy.
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Integrating CSR
While the resource and industry perspectives are valuable conceptual
tools that provide insight into the firm and its operating context, it is also
clear that these two perspectives have their limits. Both are narrow in
application and exclude factors that intuitively contribute to a firm’s
strategy and, therefore, its success. In contrast, this book suggests that a
broader stakeholder perspective, which incorporates the total mix of
influences, expectations, and responsibilities firms face in their day-to-
day operations, is a better analytical tool to help firms craft a more
realistic strategy.
That the key proponents of both the resource and industry perspectives
implicitly recognize these limitations can be deduced from their
subsequent work. In two important respects, both Prahalad and Porter
have since published work that is an evolution of their original positions
—first, to integrate both the internal (resources) and external (industry)
perspectives and, second, to incorporate components of a broad
stakeholder perspective. This evolution of their ideas is apparent in the
late Prahalad’s most recent work detailing the business opportunity for
multinational firms in serving the large proportion of the world’s
population who live on less than $2,000 per year.21 This group of people
forms the bottom tier of the world’s population—described at the time as
“the bottom of the pyramid” (BOP).22 In contrast to many multinational
firms, Prahalad views these people as potential consumers who constitute
a vibrant market for those firms with sufficient creativity to deliver the
products and services they demand:
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Advantage of Corporate Philanthropy,”24 “Strategy & Society,”25 and
“Creating Shared Value”:26
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are strategic and socially responsible are defined for the firm by its
stakeholders. It is society that determines what is socially responsible
and, therefore, what is strategic.
Strategy Formulation
Once a firm understands its internal strengths and external opportunities,
it can set about building a strategy to optimize performance. A good
strategy is a blueprint for how the firm will operate and achieve its larger
goals; it also determines what the firm will not do. An accounting firm,
for example, will not build airplanes; more precisely, IKEA’s strategy
ensures it will not design custom-made furniture. A good strategy
enables the firm to know what it is and what it does, providing
executives and managers with a template against which decisions can be
made and performance evaluated. It is “a central, integrated, externally
oriented concept of how the business will achieve its objectives.”31
While the firm’s strategy is central to success, however, that does not
mean there is agreement on what constitutes a good strategy.
A Good Strategy
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A firm’s competitive strategy, therefore, influences not only operations,
but also priorities. It signals more than market positioning and includes
what the firm values and how it intends to respond to its stakeholders.
Although there are several typologies,35 a comprehensive strategy
suggests the need for a firm to answer these four questions:36
1. Where do we compete?
2. What unique value do we bring?
3. What resources/capabilities do we utilize?
4. How do we sustain our ability to provide that unique value?
Some frameworks add “staging and timing” to this list,37 while others
emphasize how a strategy can evolve from “planned” (what was
intended), to “emergent” (how it evolved), to “realized” (what it
eventually became).38 While these frameworks differ in emphases,
what they have in common is the idea that a firm’s strategy is big,
affecting all aspects of operations. This is not to say that strategy is
everything. A firm’s vision, mission, and tactics are not strategy. Many
of the tools used to analyze the firm and its environment are also not
strategy (they are merely tools on which a strategy is based). Similarly,
much of the firm’s operational structure (e.g., payroll) is not strategy.
Although it is not everything, strategy is essential—it is a view of the
whole business. In effect, the difference between a good strategy and a
bad strategy is success or failure in the marketplace.
CSR Threshold
The variable nature of the CSR Threshold (which can also ebb and flow
with changes in public perception and the media news cycle) suggests
why some firms perceive CSR to be of greater importance at different
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points in time. Still, why do different thresholds exist for different firms?
An important part of the answer lies in the firm’s business-level strategy
that, in very broad terms, can be divided into low-cost and
differentiation.
Business-Level Strategies
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Firms’ business-level strategies can be divided roughly into those that
pursue low costs and those that pursue differentiation:39
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Consider these distinctions in light of Figure 9.2. Walmart’s business-
level strategy probably raises its CSR Threshold; that is, the firm has
more CSR leeway and can “get away with” more because its value
proposition is based on a strategy of low cost. A Walmart shopper, for
example, is unlikely to be surprised to discover that the firm favors
products manufactured overseas by low-paid contract employees. For a
firm like The Body Shop, however, which has built its reputation and
customer base largely on the social justice issues it advocates (such as no
animal testing and fair trade), the CSR Threshold at which customers, the
media, and society react may be much lower. Thus, The Body Shop’s
stakeholders are likely to have a lower tolerance for perceived ethics
violations. In other words, a Body Shop customer would expect the firm
to live by the values that attracted him or her to the store in the first
place, which translates into a lower CSR Threshold for the firm. One
CSR error by The Body Shop, for example, may well be equal, in terms
of stakeholder backlash, to multiple CSR oversights by Walmart.
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As different companies move across the 2 × 2 in Figure 9.2 (in the
direction of the arrow) from cost- to differentiation-based strategies, the
CSR Threshold they face is likely to fall. That is, a business-level
strategy of differentiation is likely to make those firms more susceptible
to stakeholder backlash. This increases the importance of an effective
and well-implemented CSR perspective throughout the firm. A similar
tendency is visible when analyzing the industries and cultures in which
these firms operate. The CSR Threshold model suggests that the different
points at which CSR jumps onto the radar screens of executives varies as
a function of a host of factors. Best practice in response to this
uncertainty is a proactive approach that provides economic benefit to the
firm, as well as a means of avoiding, or at least minimizing, negative
publicity and backlash.
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firms to build a strategy that can be implemented effectively, they need
to account for the concerns of their stakeholders.
Strategy Implementation
In order to formulate a strategy, the firm engages in a somewhat abstract
process, producing a document on the assumption that all factors are
accounted for to some extent. Implementation, however, involves dealing
with reality—diffusing the strategy throughout the firm, with all the
complexities of human interaction that are necessary for everyone to
arrive “on the same page.”42 In other words, while strategy is normally
analyzed and formulated by small groups of executives or consultants,
perhaps annually, it is implemented by all the firm’s employees on a day-
to-day basis through regular operations. The most challenging aspect of
implementation, therefore, is aligning interests so that everyone shares
the same goals and is willing to work toward them. Although the
formulation of a firm’s strategy and its implementation are radically
different, in both cases, they involve four key steps (as indicated in
Figure 9.3).
Due to the complexities of reality, both within the firm and among its
competitors, strategy implementation is significantly more challenging
than strategy formulation. Moreover, implementation is also more
consequential, as what the firm does is always more important than what
it meant to do. Either way, for the firm to implement its strategy
successfully, it is essential to apply a CSR Filter to decision making,
enabling and protecting the firm in its pursuit of profit and long-term
viability.
CSR Filter
Figure 9.3 Strategy Formulation vs. Strategy Implementation
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As discussed previously, an effective strategy results in providing firms
with a competitive advantage. For this to be sustained, however, the
tactics used to implement the strategy (and the broader vision and
mission) must be acceptable to the firm’s collective set of stakeholders.
If they are not acceptable, any stakeholder can bring reprisals against the
firm that threaten its ability to operate, such as when the government
levies legal sanctions for polluting the air or water, the media publishes a
critical story, or the firm’s employees strike for better pay and working
conditions. Both strategy and CSR, therefore, are concerned primarily
with the firm and the context in which it operates. Whereas strategy
addresses how the firm competes, CSR considers the impact on relevant
stakeholders. Strategic CSR represents the intersection of the two. Thus,
in order to implement a CSR perspective throughout operations, it is
essential that executives understand the interdependent relationships
among a firm, its strategy, and its stakeholders that define the firm’s
environment and constrain its capacity to act.
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Figure 9.4 Operational Constraints and the CSR Filter
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Filter is to do so without any concern for the interest of the stakeholders
(internal and external) on which the firm depends for its ongoing
success.
First, the firm’s structure (the organizational design) exists to support the
strategy. What architects say of a building, organization designers say of
a firm’s structure—form follows function. Thus, the right structure is the
one that best supports the strategy. Because the optimal design is firm-
specific, structure varies from industry to industry, as well as from firm
to firm within an industry. When efficiency is the main concern,
expertise is concentrated in a functional design in which site location,
information systems, warehousing, distribution, store operations, and
related activities are grouped by their common functions in specialized
departments. This functional design enhances areas of expertise and is
scalable. In the case of a firm as large as Amazon, for example, different
divisions might pursue different structural designs. Support activities like
accounting or finance may be grouped by function at corporate
headquarters, while other areas might be structured geographically, such
as a northeast warehouse division. At Nike, CSR is such an important
element of strategy that it is built into the firm’s structure as a separate
Corporate Responsibility department, headed by a vice president.44
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Third, Amazon’s vision is to offer the best customer value in retailing,
which gives rise to a mission of delivering groceries and other consumer
products efficiently.46 That vision and mission are attained by a strategy
of passing on savings to customers by continually driving down costs. In
turn, that strategy is built on core resources and core competencies,
which are the competitive weapons with which Amazon competes.
Ultimately, how Amazon folds its resources and competencies into a
strategy determines the extent to which stakeholders view the firm as a
valued and reliable partner. Certainly, Amazon must hire and pay wages,
and do hundreds, even thousands, of other activities, but its competitive
advantage comes from its network of fulfillment centers, backed by an
unmatched ability to manage (robots) and deliver (drones) its inventory
in innovative ways.47 To this end, the firm’s resources and competencies
interact, reinforcing each other as experience enables the firm to refine
day-to-day operations. Without its efficient supply chain management,
Amazon would not be nearly as dominant as it is. But with these
resources and competencies, it creates a virtuous cycle in which the
firm’s lower prices attract more customers, which means greater
volumes, which leads to increased economies of scale and greater
leverage to demand lower prices from suppliers. The result is even lower
costs, which Amazon is committed to passing on to customers as lower
prices, which starts the virtuous cycle again.
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managing inventory at Amazon or designing products at Apple or Nike),
most firms retain control. If the activity is peripheral, such as
manufacturing apparel or processing payroll, the firm can outsource it
for convenience or efficiency. Either way, firms must continually adapt
in the face of a dynamic environment that is driven by constantly
evolving expectations.
Equal Pay
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conceptual screen through which strategic and tactical decisions are
evaluated for their impact on the firm’s stakeholders. Here, the intent is
to take a viable strategy and make it optimal for the environment in
which the strategy must be executed.
The examples presented throughout this book illustrate the many issues
encapsulated in the CSR Filter. Together, they provide insight into the
dynamic operating context of business that is driven by ever-changing
societal expectations. Although not all firms are able to create a business
strategy that is as effective as that of Amazon or Nike, all must strive to
construct a sustainable competitive advantage. A CSR Filter is central to
that effort.
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Questions for Discussion and Review
1. What does it mean for a firm to have a sustainable competitive
advantage? What is the best way for a firm to achieve this in business
today?
2. Outline the resource perspective. Identify a firm and its core
competency: How does that competency meet the three tests proposed
by Prahalad and Hamel that define it as a source of sustainable
competitive advantage for the firm?
3. Conduct a five forces analysis of the social media industry. Where do
we, the public who use social media products, fit? Are we consumers
or suppliers (or its workers)?
We often think of ourselves as consumers of Facebook, Google,
Instagram and other Internet services. In reality, we are also their
suppliers—or more accurately, their workers.51
4. What is the difference between a business-level strategy based on low
cost and a business-level strategy based on differentiation? How do
these different strategies affect a firm’s CSR Threshold?
5. If you were CEO of a firm, how would you apply a CSR Filter—what
form might it take? Can you think of a company that is successfully
utilizing a CSR Filter today?
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Chapter Ten Strategic CSR
The firm and its stakeholders are synonymous. The firm does not exist
independently of its stakeholders, who benefit tremendously from the
economic power of the for-profit firm to deliver societal progress. Firms
create this progress by solving problems—problems that have economic,
social, moral, and ethical components. By enforcing their expectations,
stakeholders ensure it is in a firm’s best interests to operate in ways that
are expected of it. That is how profit, the purpose of the firm, is
generated.
This synergistic relationship between the firm and its stakeholders is why
CSR is a key element of business strategy. In the words of The
Economist, CSR is “just good business.”1 Attending to stakeholder needs
is how the firm becomes profitable; it is how society progresses. In
contrast, a firm that ignores its stakeholders creates a severe threat. At
the beginning of the 20th century, for example, Standard Oil pressured
industry suppliers to treat its competitors unfairly in the eyes of society.
The result was a 1911 US Supreme Court case (221 U.S. 1, 1911) that
found Standard Oil in breach of the Sherman antitrust laws, forcing it to
break into separate companies.2 Today, similar calls are being made for
antitrust action against the powerful tech companies, Facebook, Google,
Apple, and Amazon—among the largest publicly traded companies in
the world.3
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legal, ethical, and discretionary issues directly related to operations. The
solutions to these issues, the large overlap where economic and social
value intersect, lie at the heart of any successful business strategy. This
approach is illustrated by “strategic corporate philanthropy,” but the
same logic can be applied to strategic CSR:
In defining strategic CSR, five components are essential: (1) that firms
incorporate a CSR perspective in their culture and strategic planning
process, (2) that any actions taken are directly related to core operations,
(3) that firms seek to understand and respond to the needs of their
stakeholders, (4) that they aim to optimize value created, and (5) that
they shift from a short-term perspective to managing relations with key
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stakeholders over the medium to long term. The combination of these
five components ensures the integration of CSR within the strategic
planning and day-to-day operations of the firm.
Strategic CSR
CSR Perspective
Essential to any definition of strategic CSR is that firms incorporate a
CSR perspective within their organizational culture and strategic
planning process.
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In the case of a retail clothing company that outsources production
overseas, for example, the issue of a living wage (as opposed to a
minimum wage) in the United States is a generic social issue—an issue
that is important and something on which the firm might take a position,
but that is not directly relevant to operations. The issue of a living wage
in a country in which the firm’s products are made, however, is a clear
example of a value chain social impact, an issue in which its operations
directly affect the local community. The prospect of government
legislation on this issue represents a social dimension of competitive
context for the firm, as it can potentially constrain operations.
Figure 10.1 illustrates how Porter and Kramer use the interactions among
social issues, firm operations, and environmental constraints to
distinguish between “responsive CSR” and “strategic CSR.” Responsive
CSR occurs when the firm engages with a generic social issue unrelated
to operations or structures its value chain to avoid any negative social
impacts. Strategic CSR, however, occurs when the organization seeks
actively to benefit society as a consequence of its value chain or
influence its competitive context through activities such as “strategic
philanthropy.”10 In Porter and Kramer’s framing, strategic CSR occurs
where there is a direct effect of a firm’s operations on society and vice
versa, allowing the firm to identify the issues and stakeholders it can
influence.
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Source: Adapted from Michael E. Porter & Mark R. Kramer,
“Strategy & Society,” Harvard Business Review, December 2006, p.
89.
Core Operations
The second component of strategic CSR states that any action a firm
takes should be directly related to its day-to-day operations.
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Stakeholder Perspective
The third component of strategic CSR is that firms incorporate a
stakeholder perspective in all decision making.
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Most shareholders can sell their stocks far more easily than
most employees can find another job. In every substantive
sense, employees of a company carry more risks than do the
shareholders. Also, their contributions of knowledge, skills,
and entrepreneurship are typically more important than the
contributions of capital by shareholders, a pure commodity that
is perhaps in excess supply.15
Optimize Value
The fourth component of strategic CSR is the drive to optimize (as
opposed to maximize) value, broadly defined.
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can achieve this balance, and spread the benefits and costs over all
stakeholders, we will be significantly closer to optimizing value for
society.
Walmart is often criticized for competing with other firms (as if that is
a bad thing). While a new Walmart undoubtedly causes economic
disruption, this has to be weighed against the jobs created, which offer
better potential for promotion and a stable career. Ultimately, however,
Walmart is successful only because its stakeholders support it. Walmart
is a large and complex organization that consists of millions of people
making decisions every day (many good, some bad). If we define
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social responsibility as something society values, there are few firms
that create as much value as Walmart.
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in things like new technology, worker training, factory
upgrades and R&D as public firms of similar size.28
The evolving role of shareholders has greatly strengthened the case for
firms to adopt a broader stakeholder approach. In particular, shares
today are perceived less and less as a long-term investment in a
company and more and more as a standalone, short-term speculation
for personal benefit. A distinction can be drawn, therefore, between
investors, who seek firms with a share price that reflects sound
economic fundamentals, and speculators, who gamble on firms based
on whether they think the share price will rise, irrespective of whether
it deserves to go up or is valued at a fair price.
This shift is indicated by the fact that “the average holding period for
shares in America and Britain has dropped from six years in 1950 to
less than six months today.”29 As John Bogle, founder of Vanguard,
puts it in his book The Clash of Cultures: Investment vs. Speculation,
“a culture of short-term speculation has run rampant.”30 The result is a
huge increase in both volume and turnover, an effect that has been
termed the “three-million-shares-per-second casino of Wall Street”:31
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microseconds, how should we think about the relationship between that
“shareholder” and the firm? The focus is increasingly away from the
overall health of the organization and toward protecting the dollar
investment of the individual. As The Economist puts it, “high-
frequency traders are not making decisions based on a company’s
future prospects; they are seeking to profit from tiny changes in price.
They might as well be trading baseball cards.”33
Increasingly, the idea that shareholders have the best interests of the
firm at heart is hard to defend, especially with the rise of exchange-
traded funds (ETFs) that further remove investors from oversight and
engagement. In today’s business environment, a broader stakeholder
perspective provides the stability necessary for managers to chart the
best course for the organization so that it remains a viable entity over
the medium to long term. This is in the interests of a company’s
investors, rather than those of its speculators.
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Altering this dynamic is complicated because “it turns out that nearly
everyone in the investment world plays a role in creating the challenges
companies face in setting their sights on the far horizon.”37 The focus is
less on the underlying value of a business and more on the pursuit of
shareholder returns. In response, some CEOs are seeking a longer-term
approach. Wendelin Wiedeking, a prior CEO of Porsche, for example,
argued for a broader perspective to strategic planning that shifts
executives’ attention beyond the demands of shareholders who “give
their money just once, whereas the employees work every day.”38
Similarly, firms such as Unilever, Coca-Cola, McDonald’s, and AT&T
have stopped releasing quarterly earnings reports because “they detract
from creating a sustainable company for the long term”:39
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average in the last two decades to 2000 to about 100 a year
since.44
The organization’s major project is the 10,000 Year Clock,45 which was
first proposed by computer scientist Daniel Hillis:
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to core operations. A short-term focus, driven by quarterly earnings
guidelines for investors with little at stake in the firm, has no value (and
is likely detrimental)46 to firms committed to implementing strategic
CSR.
Not Philanthropy
Strategic CSR is not about philanthropy; it is about day-to-day
operations.47 If any money is being spent by the firm in areas outside of
its expertise, it is likely not the most efficient use of that money. If,
however, the main justification for an expenditure is brand awareness,
and the firm feels there is value in being associated with a particular
charity or good cause (in other words, if the values underpinning the
cause align with those of the firm’s stakeholders), then that investment
should be made. But responsibility for it should be where it belongs, in
the marketing department. The marketing department contains experts
who know best how to manage the brand. Similarly, if there are other
business-related reasons for the firm to donate money or support a cause,
then responsibility for that decision should lie with the relevant
functional area—by being part of the firm’s core functions, the relevant
expertise can be applied for optimal effect.
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This is true primarily because corporate philanthropy is often inefficient
and ineffective. Take Toms Shoes, for example, which has long been
criticized for the effects its “buy one, give one” business model has on
the communities it intends to help:
What if corporate America were willing to take the more than $18 billion
it donates annually50 and, instead, invest it in what it does best—
operating its businesses?
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Strategic CSR is a managing philosophy that focuses on firms’ areas of
operational expertise and de-emphasizes actions for which either there is
no market solution or the firm is not well suited to deliver that
solution.52 That is how value is optimized over the medium to long term.
In other words, the focus of business remains the same; it is the way the
organization goes about achieving it that is different with a strategic
CSR perspective.
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out of the global economy. . . . It is a great form of creative
capitalism, because it takes the brainpower that makes life
better for the richest, and dedicates it to improving the lives of
everyone else.57
But in reality, how is a firm to decide which issue it should prioritize and
devote its most valuable resources to, if that decision is not based on
market forces? How much value is compromised because these “top
innovators” are working on a philanthropic problem (that may or may
not be suited to their particular set of skills) instead of one based on
supply and demand? Do firms need to calculate a certain level of
potential “social goodness” in advance? How would they do that? What
if it is not realized? None of these questions are addressed sufficiently,
with Gates weaving back and forth between an argument based on
market forces and one based on an appeal to the altruistic side of firms
and their stakeholders without offering any clear guidance as to how
priorities among competing claims should be set. As one supportive
commentator noted:
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Sure, let those who have become rich under capitalism try to
do good things for those who are still poor, as Mr. Gates has
admirably chosen to do. But a New-Age blend of market
incentives and feel-good recognition will not end poverty.
History has shown that profit-motivated capitalism is still the
best hope for the poor.60
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he won his Nobel Prize. Microfinance (and Grameen Bank) is effective
because it extends the market to consumers whose demand was thought
to be insufficient for traditional finance models and who were thus
ignored by mainstream financial institutions. All it took was a product
tailored to the specific needs of a specific segment of the market. While
the microfinance industry is grounded in business fundamentals,
however, the “drawback of social business is that it depends on the
kindness of strangers.”64
On the surface, Porter’s shared value and strategic CSR can appear to
produce similar behavior. The motivating force is different, however, and
this is important because it will lead to different outcomes in terms of the
venture’s ultimate success or failure. The difference comes down to the
focus of the firm and the relevance to core operations of the issue at
hand. Starbucks, for example, should not form partnerships with shade-
grown coffee farmers in Guatemala because it recognizes that those
farmers face an uncertain future with an insufficient welfare net to
support them if their businesses fail (a nonoperational goal). Instead,
Starbucks should do so because it needs to secure a stable supply of
high-quality coffee beans, and supporting these farmers in a sustainable
manner is the best way to guarantee that supply (an operational goal). In
other words, Starbucks should form stable, lasting partnerships with
these key suppliers not because it is seeking to fill a charitable guilt, but
because these farmers produce a raw material that is essential to its
business. This incentivizes Starbucks to protect the raw material in a
sustainable way, rather than ruthlessly exploit it. If those Guatemalan
farmers are not producing a product that is in demand (i.e., if the
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business logic for a relationship is not there), the argument that
Starbucks should get involved is difficult to make.
Ultimately, although for-profit firms can help with the first perspective
(caring capitalism), they are much better suited to the second perspective
(market capitalism). Ideally, governments and nonprofits should focus on
those problems that the market ignores or cannot solve. In contrast,
Porter and Kramer argue that charitable goals should be considered
equally with operational goals, and firms should utilize their expertise to
solve both kinds of problems—in other words, that they should become
less like for-profit firms and more like government agencies or nonprofit
organizations.66 While well-intentioned, this is not an effective plan for
“how to fix capitalism,” but a misunderstanding of what profit represents
and the purpose of for-profit firms in our society (and of the role that a
strategic CSR perspective brings in optimizing that purpose). As
suggested by other critics of these attempts to reinvent capitalism:67
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and all aspects of operations) and a firm that ignores strategic CSR,
therefore, is not whether it donates to charity, but how it operates the
core aspects of its business. There is a more responsible way to treat your
suppliers, to pay your employees, to comply with laws, and so on, and
there is a less responsible way of doing all these things. Those firms that
seek to carry out their operations in a responsible and sustainable manner
are creating more value for society than any amount of philanthropy can
achieve.
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In mainstream discussions of CSR, the for-profit firm is usually the
problem; in strategic CSR, however, it is the solution. Although firms
have committed great harm over time, they have also propelled society
forward and are largely responsible for our current standard of living. An
essential aspect of understanding this is realizing that firms merely
reflect the values of their collective set of stakeholders. Apple,
McDonald’s, Walmart, and Amazon are not sentient beings. They do not
act or think for themselves; stakeholders act and think in their name. As
such, if McDonald’s does something wrong, we need to blame
McDonald’s stakeholders; equally, if McDonald’s does something right,
it is because its stakeholders enabled it. McDonald’s (or any firm)
remains viable by meeting the needs and concerns of its stakeholders,
which is why the profit motive is central to strategic CSR (it represents
value creation), while it is alien to mainstream discussions of CSR (it is
perceived as destroying value). Similarly, mainstream CSR focuses on
peripheral activities (such as philanthropy), while strategic CSR focuses
on core operations (i.e., everything the firm does). Mainstream CSR
perceives value in terms of an objective set of activities (predetermined),
while strategic CSR understands that right and wrong are constantly
being redefined by society (all stakeholders). Finally, mainstream CSR
argues for the mandatory imposition of what a minority sees as ideal,
while strategic CSR understands that what is ideal is whatever society
wants at any particular time. These distinctions are not rhetorical or
subtle—they produce a fundamentally different view of the firm,
economy, and society that sets strategic CSR apart as a unique
framework in an otherwise overly crowded (and largely ineffective) field
of mainstream CSR. The extent of the foundational differences become
fully apparent in Figure 10.3.
The key for firms is to look to their stakeholders to define value as they
understand it, and then to go out and try to deliver that value. In other
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words, firms need to pay attention to whatever their stakeholders think is
important. So how do we measure what is important? Strategic CSR
argues that it is anything for which stakeholders are willing to hold the
firm to account (rewarding behavior they like and punishing behavior
they do not like). So if social inequality is something for which society
decides to hold firms to account, then firms absolutely need to pay
attention to this. If none of their stakeholders care about this topic (i.e.,
they do not hold the firm to account for it), however, then firms would be
silly to invest significant resources in addressing it (and will likely go
bankrupt as a result). The danger for firms comes when society shifts on
a particular issue (i.e., stakeholders did not use to value it, but suddenly
do). In those cases, firms that had previously ignored the issue are caught
with their values, policies, and practices out of alignment with the
society in which they are based. Effective managers are able to see these
shifts in societal values before they occur and make sure their firm is on
the “right side of history.” Ideally, the firm will have already established
a strong values-based culture that guides decision making and positions
it always slightly ahead of its constantly evolving stakeholders on
multiple issues of concern.
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tradeoffs and priority setting. Certainly, firms are either better or worse at
managing these relationships, and they draw the lines of key
stakeholders narrowly (at shareholders alone) or more broadly (in terms
of a wider group of constituents). Either way, however, strategic CSR is
not an option, it is the way that business is conducted in the 21st century.
Understanding and applying the principles detailed in this book will help
firms be more effective at implementing their strategies and managers be
more effective at building a sustainable organization by creating value
for all stakeholders.
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Case Study Supply Chain
The upside of globalization for firms is they are able to locate operations
in the region of the world that make the most business sense. These
decisions can be justified in terms of distribution logistics (proximity to
market) or simply efficiencies (lower costs and fewer regulations). This
mix of determining factors can generate unusual situations in which a
Ford Mustang is assembled using parts largely manufactured outside the
United States, while a Toyota Sienna is assembled in Indiana with 90
percent of its parts originating in the US and Canada.2 The evolution of
transportation technology has made outsourcing possible because it has
made it efficient—so much so that today, “sending a ton of iron ore
halfway around the world . . . costs only $10. For a $50 bottle of Scotch,
the cost is 15 cents.”3 But, of course, the longer a supply chain becomes,
the more complex it becomes—to the point where “a shirt imported to
the US from Hong Kong includes tasks of workers from as many as 10
countries.”4 As a result, “terms like ‘made in America’ or ‘made in
China’ are phasing out. The proper term . . . is ‘made in the world.’ More
products are designed everywhere, made everywhere and sold
everywhere.”5
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will include millions of new jobs.”6 But the downside of global supply
chains is not experienced solely by employees in the West. Reports of
poor working conditions and human rights abuses in overseas
sweatshops appear regularly in the media.7 And the worst abuses seem to
fall disproportionately on those least able to defend themselves: “The
International Labour Organization (ILO) estimates that there are 122m
economically active five to 14-year-olds in the Asia-Pacific region, with
44m of them in India, giving it the largest child workforce in the
world.”8
What effects have these rapid changes had on firms from a CSR
perspective? To what extent does operating in a foreign environment,
with different values and norms, render the corporation vulnerable to
cultural conflict?13 How does outsourcing affect firms that are seeking to
implement strategic CSR throughout the supply chain? To what extent
can an ethical supply chain, “from ethical purchasing through to proper
disposal of the end product,”14 be an asset for the firm and a force for
positive societal change?15 Similarly, to what extent is an unethical
supply chain punished by stakeholders who are based in a firm’s home
market and therefore judge news stories by local values and
expectations, rather than those of the foreign culture?16 Integrating CSR
throughout the supply chain is particularly challenging for multinational
corporations, which source their products in many countries, but need to
satisfy all stakeholders.
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Although much of strategic CSR is just good management that enables
firms to operate more efficiently and reduce costs, other aspects cost
money, at least in the short term. To operate in a socially responsible
manner means to operate ethically (as determined by stakeholders),
which is often neither easy nor cheap. Unfortunately, while consumers
often say they want to purchase from firms that are ethical and socially
responsible,17 it is not always clear that they are willing to pay the
associated price premium. Naturally, this uncertainty influences the
extent to which firms have an interest in operating an ethical supply
chain. In reality, is there value for the firm in securing products from
suppliers at prices that are fair, rather than at prices dictated by the
market?
Fair Trade
The fair trade movement began “in the Netherlands in the late 1980s as a
way to organize small farmers producing various commodities into
cooperatives and to improve their incomes by pressuring buyers to pay
guaranteed minimum prices”:18
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Fairtrade is represented in the UK by the Fairtrade Foundation,
a non-profit organisation and registered charity. It is also made
up of 20 other organisations across Europe, Japan, North
America, Mexico and Australia/New Zealand. Most
importantly it includes three networks of producer
organisations from Asia, Africa, Latin America and the
Caribbean, representing over 1.6 million farmers and
workers. . . . A global body called Fairtrade International
unites all these parts and watches over Fairtrade across the
world including setting the global standards and ensuring they
are followed properly.23
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Fair trade, therefore, is big business with a wide range of products driven
by market forces. In the UK alone, since the introduction of Fairtrade in
1994, the industry has grown to “over 4,500 Fairtrade products including
tea, coffee, cocoa, chocolate, bananas, sugar, cotton, gold, cut flowers,
wine and cosmetics.”27 Fairtrade International claims there are now
“more than 30,000 Fairtrade products on sale worldwide.”28 Figure V.1
presents data for all countries with at least €100mn fair trade retail sales
in 2017.
In spite of the speed at which the fair trade market has grown, it is
important to remember that the market segment to which such goods
appeal is limited. In general, “purchasing levels of green and ethically-
produced goods are linked to levels of affluence. For the majority of
consumers, price overrides ethical considerations as the key factor in
their decision-making,”29 as suggested by Figure V.1 (it is developed
countries where the most fair trade products are sold). Also, beyond
limited consumer support, there are four main criticisms of fair trade.
The first is that, as a pricing mechanism, fair trade distorts the market by
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encouraging the overproduction of goods that are economically
unsustainable—an argument that ignores the choice being exercised by
the willing consumers to whom such products are being sold:
There are many distortions in our market economies, not least of which
are government quotas and subsidies to favored industries, and tariffs
against competing economies. As such, the ultimate argument advanced
by economists against fair trade is in favor of free trade. Many
supporters of fair trade would prefer to see free trade, which they believe
would have a wider, quicker, and longer-lasting impact in favor of
farmers worldwide than any artificial designation of what may or may
not constitute fair trade.
There are over 600 labels in Britain alone. This has blurred the
definition of what qualifies as fair trade. Worse, there is little
evidence that fair trade has lifted many producers out of
poverty, not least because most of the organisations that are
certified tend to come from richer, more diversified developing
countries, such as Mexico and South Africa, rather than the
poorer ones that are mostly dependent on exporting one crop.
And why the focus on agricultural produce, when a booming
fair-trade manufacturing sector potentially would help far more
countries?31
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Related, the third criticism of fair trade suggests that because it appeals
to consumers’ better instincts and makes “shoppers feel good about
themselves and the food they are buying,”32 it is open to abuse by firms
that want to appear more socially responsible than they actually are. The
accusation is that supermarkets and other retailers use fair trade to
generate additional revenue, while passing on only a small amount of the
profit to the farmers who produced the raw materials.33 There is some
validity to this argument, with studies indicating that “between 10 per
cent and 25 per cent” of the price premium of an average fair trade
product reaches the farmer who produced the raw product,34 and this
amount may be so low that “only about 9 cents of the $3.10 cost of an
average fairly traded 100g bar of chocolate goes to Africa or a poor
country.”35 In response, while committing not to be “Fairtrade
profiteers,”36 firms note that one cause of the higher prices of fair trade
products is the initial costs involved in establishing a fair trade supply
chain. The idea of equitrade has also been floated as a way to offer a
more equitable distribution of the economic benefits of ethical retailing
“by carrying out the processing operations, where most of the profits are
made, in the poor countries themselves.”37
Finally, the fourth criticism of fair trade is that for consumers who want
to support specific causes, and for whom issues such as “food miles”38
are important, buying a local product is often more ethical and
sustainable than sourcing one from thousands of miles away. While this
is also true, making the best choice is a matter of prioritization. Whether,
for example, support for local farmers in the West adds more or less
social value than the same support for poor farmers in Africa is a
subjective judgment.
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moves not only extend to the firm, but also ripple out to other producers
and consumers throughout the industry.
While it is good to see Cadbury taking ownership of its supply chain and
imposing its own operational-specific standards, from the consumer’s
point of view, it is difficult to see how yet another ethical/environmental
standard is going to aid transparency and enable better consumption
decisions.42 As noted by the head of the Food Foundation, a UK think-
tank, “there is a risk that if every company has their own mark it will be
extremely difficult for consumers to determine which mark represents
the best, independently verified standard.”43 Already, “Nestlé and Barry
Callebaut each have their own company schemes, Cocoa Plan and Cocoa
Horizons.”44
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While it shocks [Westerners] to hear it, the central challenge in
the poorest countries is not that sweatshops exploit too many
people, but that they don’t exploit enough. Talk to those
families [who live and scavenge in a garbage] dump, and a job
in a sweatshop is a cherished dream, an escalator out of
poverty, the kind of gauzy if probably unrealistic ambition that
parents everywhere often have for their children.46
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And although the delay was partly to allow for child actors, “the United
States outlawed child labor only in 1938.”51
Of course, that is not to suggest that we should ignore abuses when they
arise—in order to address such concerns and promote transparency
throughout the supply chain, for example, the UK government passed the
Modern Slavery Act in 2015.52 But it is instructive to ask whether these
conditions are a necessary stage that economies progress through in
order to reach a more developed state. Critics say essentially that because
we know better today, those economies should be able to skip those
stages (and it is incumbent upon us to help them do that). While
developing countries will undoubtedly take less time to reach living
standards comparable to those of the developed world today, it is
unlikely the process is as simple as just willing ourselves there. The
ineffectiveness of much overseas aid indicates the challenges faced in
building modern institutions rapidly in underdeveloped societies. As
such, if those countries take another fifty years to evolve beyond today’s
standard of living, it will be an amazing achievement in a relatively short
period of time. But that is a difficult argument to convey to those who
demand reform today, even given the powerful inertial forces in place:
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for efforts to improve supply chain conditions and other companies have
followed its lead on corporate responsibility.”56
Apple
Although some firms are reconsidering the value to their business of
outsourcing, for others, outsourcing makes clear business sense. Apple is
one of these companies, and the iPhone is one of those products—it has a
highly complex supply chain:
One reason why outsourcing makes sense for Apple is that today, the
best consumer electronics goods are made in Asia (components) and
assembled in China. One company in particular does this bigger and
better than anyone else—Foxconn (also known as Hon Hai). It is “the
world’s largest contract manufacturer . . . the world champion of flexible
manufacturing.”60 In contrast, it is estimated that “assembling an iPhone
entirely in the U.S. out of U.S.-made components would add up to $100
to its cost.”61 As such, Apple, along with many other major consumer
electronics firms, relies on Foxconn. According to some reports, “about
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half of all consumer electronics sold in the world today are produced at
[Foxconn’s] mammoth factory campus in Shenzhen, China,”62 including
a large percentage of Apple’s iPhones and iPads (Foxconn factories have
been recorded as churning out “137,000 iPhones a day, or around 90 a
minute”).63 Not only is Foxconn able to make those products well, but it
is also able to make them extremely efficiently:
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In spite of the negative media coverage of Foxconn’s factory conditions,
two points are worth noting. First is the effect these stories have had on
perceptions of Apple—arguably, “they have not impacted Apple’s
reputation one jot,”76 which suggests they are not an issue for most of
the firm’s stakeholders. Second is the position of Foxconn’s employees,
many of whom moved to China’s big cities in pursuit of economic
progress. In response to Foxconn’s commitment to bring its overtime
rules in line with Chinese laws, “allowing workers to work no more than
nine hours of overtime a week,” and improve health and safety
conditions (which some fear will reduce margins and threaten jobs),
some employees pushed back. Interviews at Foxconn’s Shenzhen
campus revealed that “a majority” of employees “work 10 to 15 overtime
hours and would prefer more, having left their distant homes to make
money in this southern Chinese boomtown.”77
In acting to protect its reputation, Apple is merely the latest firm to learn
from the trial and error of earlier supply chain pioneers, such as Nike.
For these firms, their reputations and the values around which their
brands are built are core strategic assets that need to be protected. And in
some respects, the supply chain is more of a strategic issue for Apple,
given that supplier contracts are usually longer in the consumer
electronics industry than “the three-month terms common in the apparel
business.” This necessarily “gives Apple a much bigger stake in the
long-term success of Foxconn as a supplier, and makes it less attractive
to cut and run to a cheaper option.”78 In general, factory audits
conducted by independent third parties provide some protection against
these reputation threats, allowing multinationals to operate in low-cost
environments, local employees to benefit from their presence, and NGOs
to receive some assurance that the local employees are not being abused.
Best practice, pushed by firms such as Nike,79 Intel,80 and Levi’s81 (and
now Apple), dictates that firms should work with contractors as partners,
improving conditions when violations occur and severing ties only in
persistent cases.82
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that it raises a difficult question for CSR advocates: How far does a
firm’s responsibility extend across the supply chain?84
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GAP’s response appeared genuine, the more interesting question was the
extent to which it could (or should) have been expected to avoid this
problem. It appears that GAP’s vendor had subcontracted embroidery
work to a rural community center that had, in turn, subcontracted the
work to a smaller workshop in Delhi. “While auditing in factories is
relatively straightforward, checking conditions in the informal
workshops where hand embroidery is done is harder because large
contracts are often divided up among dozens of small workshops.”87
Distributors
Take the mining industry: Why are extraction firms not held to account
for the subsequent uses of the raw materials they take out of the
ground? While there has been some discussion of conflict
diamonds/minerals, responsibility for the supply chain appears to rest
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with the firm that sells the finished product, rather than the firm that
sold the component parts. In terms of e-waste, however: Why are we
willing to hold a firm like Dell responsible for recycling those parts of
the computer that are toxic (precious metals and minerals), but not the
firm that was responsible for extracting those metals and minerals and
selling them to Dell (and others)? It is not difficult to imagine a day
when we begin holding extraction firms responsible for the actions of
their customers. Given this, the progressive extraction firm that is
sensitive to its relationships with its stakeholders should act to
understand this issue and prevent future risk to its business.
Starbucks
Starbucks is one of the top five coffee buyers in the world;92 it operates
in 75 countries, has 238,000 employees, and “each week, roughly 90
million people pass through [one of its stores] somewhere on earth.”93
As a result, Starbucks has significant influence over its industry, but its
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actions have also drawn criticism. Among other things (including racial
profiling94 and failing to recycle the “4 billion paper cups” it uses every
year95), Starbucks has been accused of profiting at the expense of
growers, whose livelihoods depend on the fluctuating global market
price for coffee, which can fall below the cost of production:96
This is surprising because coffee is in high demand. It was not only the
first consumer product to be widely available as a Fairtrade-certified
product, but it is also one of the most popular. In the UK, for example,
“Fairtrade coffee accounts for nearly 25% of total coffee sales,”98 while
in 2017 in the US, fair trade coffee sales increased “24.5 percent.”99 As a
result of growing awareness of fair trade in general and the growing
popularity of fair trade coffee in particular, Starbucks has attracted a lot
of attention from campaigners seeking to increase the amount of fair
trade coffee the firm buys.
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Starbucks’ C.A.F.E. Practices
Product Quality: All coffee must meet our standards for high
quality.
Economic Accountability and Transparency: Economic
transparency is required. Suppliers must submit evidence of
payments made throughout the coffee supply chain to
demonstrate how much of the price that we pay for green coffee
gets to the farmer.
Social Responsibility: Measures evaluated by third-party verifiers
help protect the rights of workers and ensure safe, fair and
humane working and living conditions. Compliance with
minimum-wage requirements and prohibition of child and forced
labor is mandatory.
Environmental Leadership: Measures evaluated by third-party
verifiers help manage waste, protect water quality, conserve water
and energy, preserve biodiversity and reduce agrochemical use.
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“serve 100% of our coffee from sources supporting sustainable
production by 2020.”111 Similarly, in the UK, both Marks & Spencer and
McDonald’s have been sourcing all of the coffee they serve from fair
trade sources for more than a decade. Together with a growing number
of independent coffee shops, the competitive environment for Starbucks
has shifted significantly in recent years—largely, it must be said, due to
the market for quality coffee that they created.112 Starbucks’ response
has been aggressive:
Starbucks has opened more than 2,000 new cafes in the U.S. in
the last three years, contributing to what some analysts say is
an oversupply of coffee shops. With nearly 14,300 U.S.
locations, there are now more Starbucks than there are
McDonald’s in America.113
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So what is the strategic CSR argument for the attention Starbucks pays
to its supply chain? Does the firm pay its suppliers of high-quality,
shade-grown Arabica beans an above-market price because it feels
morally or ethically responsible for farmers who do not earn sufficient
wages in a country with an inadequate welfare safety net, or does it pay
those prices because it needs to secure a guaranteed supply of its most
essential raw material? Remember that for Starbucks, cheap coffee prices
represent a threat to its business—not because the firm enjoys paying
higher prices for its raw materials but because if coffee prices dip below
their cost of production, the small farmers who produce the high-quality
beans Starbucks needs are more likely to go out of business.118 It is
essential for Starbucks’ business model that this does not happen.
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2. What is a fair wage? What does fair mean?119 What is the lowest
hourly wage for which you would be willing to work? Think of some
of the jobs you have done—would you have worked harder if your pay
had been higher?
3. Is Apple a good company? Why or why not?
4. Before reading this case, did you know about Starbucks’ C.A.F.E.
Practices and the Fairtrade products the company sells? Does knowing
about these products make you more likely to shop there? Do you think
this effort is something the company should publicize?
5. Should a firm’s overseas operations be judged by the standards (legal,
economic, cultural, and moral) of the country in which it is operating
or by the standards of its domestic market? Is a firm responsible for its
supply chain? If so, how far does that responsibility extend—to
immediate suppliers, the suppliers’ suppliers, or beyond?
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Next Steps
Part V of this book details the relationship between strategy and CSR.
Analyzing and formulating strategy using the CSR Threshold, and
implementing it using a CSR Filter throughout operations, offers firms
the most effective means of navigating an increasingly complex global
business environment. This complexity makes formulating a strategy
difficult. In order for firms to receive the benefit of a strategic CSR
perspective, however, there needs to be an even greater emphasis on
implementation. Without the comprehensive and effective
implementation of its strategy, the firm’s ability to build a sustainable
competitive advantage will be severely constrained.
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Part Six A Sustainable Perspective
Part VI finishes with Final Thoughts that reflect on the guiding purpose
of this book, which is to ask the question What is the role of business in
society? The answer strategic CSR provides has profound implications
for the way we understand business, the way we conduct business, and,
therefore, the way that we teach business.
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Chapter Eleven Sustainability
Sustainable Development
The term sustainability was popularized by the United Nations (UN) in a
1987 report. Though officially named “Our Common Future,”2 the report
became known as the Brundtland Report after its main author, Gro
Harlem Brundtland—Norwegian prime minister and chair of the UN’s
World Commission on Environment and Development.
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notably followed by the Kyoto Protocol in 1997 and, in 2015, by COP21
in Paris—the 21st UN Conference on Climate Change since Rio. The
Brundtland Report was also prescient in framing the business case to
protect the environment. It therefore constituted a pivotal point in the
debate that has emerged around sustainability, in particular regarding the
role that society demands of for-profit firms:
One of the reasons the report’s definition has become so widely accepted
is that it is broad. This has the advantage of making it applicable to all
organizations, but also allows for varied interpretations. This is a
problem because what we need (and what the report intended to
motivate, back in 1987) is radical action if the planet’s climate and
biodiversity are going to be preserved as a means of supporting human
life.9 Whether we decide to act or not (and it is a choice), we can at least
not plead ignorance.10 We have known about the dangers of climate
change for a long time.
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The Planet
The world has warmed more than one degree Celsius since
the Industrial Revolution. The Paris climate agreement . . .
hoped to restrict warming to two degrees. The odds of
succeeding, according to a recent study based on current
emissions trends, are one in 20. If by some miracle we are
able to limit warming to two degrees, we will only have to
negotiate the extinction of the world’s tropical reefs, sea-level
rise of several meters and the abandonment of the Persian
Gulf. The climate scientist James Hansen has called two-
degree warming “a prescription for long-term disaster.”
Long-term disaster is now the best-case scenario. Three-
degree warming is a prescription for short-term disaster:
forests in the Arctic and the loss of most coastal cities. Robert
Watson, a former director of the United Nations
Intergovernmental Panel on Climate Change, has argued that
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three-degree warming is the realistic minimum. Four degrees:
Europe in permanent drought; vast areas of China, India and
Bangladesh claimed by desert; Polynesia swallowed by the
sea; the Colorado River thinned to a trickle; the American
Southwest largely uninhabitable. The prospect of a five-
degree warming has prompted some of the world’s leading
climate scientists to warn of the end of human civilization. Is
it a comfort or a curse, the knowledge that we could have
avoided all this?
COP21
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On the plus side, unlike the UN climate agreements in Rio and Kyoto,
COP21 covers all countries (rich and poor). While Kyoto “was ratified
by 35 countries covering just 12% of global emissions, 167 governments,
responsible for some 94% of emissions . . . submitted national targets to
cut emissions in the run-up to Paris.”15 By early 2019, “185 Parties have
ratified of 197 Parties to the Convention.”16 In addition, COP21
incorporated the more ambitious commitment to keep global temperature
increases below 1.5ºC (2.7ºF), seeking to reduce emissions to
“essentially zero by the latter half of this century.”17 In order to achieve
this, individual countries made specific commitments. The United States,
for example, pledged to reduce greenhouse gas emissions “26%–28%
below 2005 levels by 2025”; the EU committed to reductions “40%
below 1990 levels by 2030”; Mexico “has put in place the strongest
climate legislation of any developing country, . . . 40% below the current
trend line by 2030”; and China “promised by 2030 to reduce its carbon-
dioxide emissions, per unit of GDP, to at least 60% below 2005.”18
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In order to meet the UN’s estimate of the planet’s carbon budget that
limits the global temperature increase to 2ºC (3.6ºF)24—the amount of
carbon we can emit before climate change spirals out of control—it is
calculated that carbon emissions “have to peak well before 2030 and
should be eliminated as soon as possible after 2050.”25 Instead, they
continue to rise26—so much so that even if all the commitments agreed
to in Paris are implemented, “humanity will outspend its carbon budget
by 2040 at the latest.”27 Given this, an important component of the Paris
Agreement is 5-year reviews, when countries are expected to assess their
progress in light of the changing global climate and revise their targets
accordingly. The success of COP21 (and the future of the planet) relies
on this occurring; it also relies on subsequent UN Climate Change
Conferences to add effective measurement and enforcement mechanisms
to encourage continued progress and verify that such progress is being
made. This was the main purpose behind the UN’s 24th Conference on
Climate Change since Rio (COP24), which was held in Katowice,
Poland, in December 2018.
COP24
COP24 was held during a sense of crisis among climate scientists.
Everyone knew that what was agreed in Paris was insufficient; recent
evidence suggests we are nowhere near to even achieving that, which
means we are a very long way from where we need to be:
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Introduced by David Attenborough with the prospect of the “collapse of
civilization,”29 the goal for COP24’s “nearly 14,000 delegates from 195
countries”30 was to “hammer out a set of rules for the Paris climate
agreement” that will enable member countries to meet their
commitments, while encouraging them to go further.31 The resulting deal
contained four main parts:32
There is real concern and a sense that time is running out, but the hope is
that COP24 represents another step that at least maintains the process.
The worst outcome would have been no deal, which would have
jeopardized future talks. At the same time, however, it is no good
agreeing to keep on meeting if we never decide to take the action all
recognize as necessary. The next major step is the first five-year review
of Paris, where signatories will be asked to review and assess their
commitments in light of our ongoing understanding of climate change.
These talks will take place in 2020, when countries will be expected to
“come up with plans for cutting emissions drastically in order to avert a
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climate crisis that scientists say will cause greater economic, social and
natural disruption than anything in humanity’s history.”36
Sustainability in Practice
Given that nothing will change until substantive action is taken, what
does sustainability mean in practice for firms today—why should they
care? There are four main reasons why businesses should act: climate
change, resilience, natural capital, and stakeholders.
Climate Change
The first reason why sustainability is such an important issue for firms
today is that the climate is changing, fast. And it is clear that humans are
the main culprit.
The Anthropocene
While for-profit firms are a large driver of these changes, they are also
uniquely positioned to do something about them, in terms of both the
scale and speed required. If firms do not change the way they interact
with the natural environment, however, we will soon push Earth past its
known limits. As Thomas Friedman puts it, “The Earth Is Full. . . . We
are currently growing at a rate that is using up the Earth’s resources far
faster than they can be sustainably replenished.”38 Specifically, in order
to maintain our current resource consumption, we “need the equivalent
of 1.7 Earths”:39
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30 September. Ten years ago, 15 August. . . . On current
trends, [2019] could mark the first time, the planet’s budget is
busted in July.40
Given the unsustainable nature of our economic systems and the rapid
expansion of living standards, it is easy to appreciate how the individual
decisions we make every day (such as whether to turn on the air-
conditioning) aggregate to a planetary-wide problem. For example,
“America uses more electricity for cooling than Africa uses for
everything,”43 with one-third of that energy still generated using coal
power plants.44 That might be manageable, except that “in the next ten
years, as many air-conditioners will be installed around the world as
were put in between 1902 (when air-conditioning was invented) and
2005.”45 Figure 11.2 presents the cumulative effects of these decisions.
While countries like the US and regions like Europe were previously the
primary emitters of carbon, they are today joined by countries like China
and India as access to luxuries like air-conditioning spreads and their
carbon emissions grow at alarming rates.46
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Source: “Hotter than August,” The Economist, August 8, 2015, p.
22.
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To be clear, the science on climate change is not disputed. What is
disputed are the consequences of climate change, the potential to pass a
point of no return,51 and how to avoid the worst-case scenarios climate
models predict. In deciding how to respond, the challenge lies in valuing
future benefit against present-day cost. The inherent tradeoffs were
highlighted in the Stern report on climate change,52 which argued that
society must “value the welfare of all present and future citizens equally
and give no special preference to current voters.”53 The difficulty,
however, is how to account for unknowns such as technical innovation
(e.g., carbon capture)54 and the wealth of future generations and, as a
result, avoid exaggerating the immediate costs. In essence, “the problem
of weighting the present and the future equally is that there is a lot of
future. The number of future generations is potentially so large that small
but permanent benefit to them would justify great sacrifice now.”55
Getting the balance between current and future obligations correct is
crucial if we are to respond effectively. In the meantime, we must be
resilient.
Resilience
While it appears that our capacity for altruism toward future generations
is limited, perhaps we can act to save ourselves. The speed at which
climate change is occurring suggests we will see dramatic changes to the
environment in our lifetime. If so, sustainability represents a present-day
imperative. This raises the second reason why firms should be concerned
about sustainability: Climate change dramatically influences operations
today, so some form of adaptation (resilience)56 will be essential.
Resilience
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intentions” in its latest five-year plan.58 In terms of companies, you do
not have to be an oil firm to understand that a changing climate shifts the
parameters within which you operate. Whether that is the automobile
industry embracing “the disruptive impact of green energy” to develop
electric cars,59 farmers learning how to revitalize the soil via “carbon
farming,”60 or banks adjusting their lending practices to avoid funding
environmentally damaging projects,61 firms that respond to the concerns
of their stakeholders (ideally before they get to the point of protest) will
succeed, while firms that ignore those signals will fail. Recently, for
example, the fashion group Burberry announced it will no longer burn
unsold clothes at the end of the season:
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But action by companies is also essential, and no firm has demonstrated
as progressive an approach to transforming operations in response to
climate change (or the financial benefit of doing so) than Interface, the
world’s largest carpet-tile maker. Interface’s founder, the late Ray
Anderson, launched his attack on Mount Sustainability in the mid-1990s,
measuring progress using Eco-Metrics68 and developing processes such
as “plant-based carpeting.”69 After a decade, the value to the firm was
clear:
Natural Capital
While accounting for sustainability and adapting operations accordingly
is a means of managing risk, there are also positive reasons for firms to
act voluntarily before being forced to adapt. Doing so positions the firm
to reap any benefits associated with early mover status on an issue that is
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increasingly central to our survival. Rather than wait for the government
to impose restrictions, therefore, many firms are choosing to act now,
devising ways to account for the natural capital that their operations
consume.
Natural Capital
Our general disrespect for the value of the nature around us is evident
when we realize that humans, while only “0.01% of all life” on Earth,
“have destroyed 83% of wild mammals and half of plants.”77 The role
current generations play in this mass extinction is apparent when we
discover that “humanity has wiped out 60% of mammals, birds, fish and
reptiles since 1970.”78 Biodiversity is essential to life on Earth, including
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our life. Killing so many of our fellow inhabitants on this planet only
further endangers ourselves:
Calculating the value of this natural capital and incorporating these costs
into planning therefore constitutes the third reason for firms to care about
sustainability. It is important (and will only become more so) because, as
noted in Chapter 8, “if prices reflected all the costs, including ecological
costs spread across generations, the world would not face sustainability
challenges, at least in theory.”80 One of the earliest firms to adopt this
concept of “environmental profit and loss accounting”81 (EP&L) was
PUMA. The firm developed and first published an EP&L statement in
2011, in which it concluded its operations had an “impact of €51 million
resulting from land use, air pollution and waste along the value chain
added to previously announced €94 million for GHG emissions and
water consumption.”82 For those firms not willing to undertake the same
firm-wide process as PUMA, calculating a price for carbon for purposes
of internal budgeting is an important first step.83 According to the
Carbon Disclosure Project (CDP, https://www.cdp.net/), “more than
7,000 companies worldwide filed [environmental impact] reports for
2018, including more than 1,800 from the U.S.”84 More specifically,
“Disney and Microsoft [now] attach a ‘shadow price’ to their carbon
emissions; Colgate Palmolive and EcoLab . . . are trying to measure the
true cost of water; and Interface . . . puts a price on the natural capital
consumed by its carpet tiles”:85
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becoming the new normal for major multinationals, and in
2017 almost 1,400 companies were factoring an internal
carbon price into their business plans, representing an eight-
fold leap over four years.86
Similarly, Pepsi, together with the Carbon Trust,87 was an early adopter
of carbon footprints, calculating the impact of a half-gallon carton of its
Tropicana orange juice, each of which produces the “equivalent of 3.75
pounds of carbon dioxide.”88 It is notable that the majority of emissions
(60 percent) occur during production (as shown in Figure 11.3).
Similarly, Cadbury has found that “the famous glass and a half of milk
that goes into a Cadbury milk chocolate bar is responsible for 60% of the
product’s greenhouse gas emissions.”89 The value for firms in
conducting these exercises is therefore twofold—they prepare for the day
when there is a price placed on carbon (either by a tax or a cap-and-trade
market), but they also help firms compile the information they need to
better understand their value systems. These data allow them to identify
inefficiencies, differentiate between different kinds of pollution (e.g.,
direct scope 1 and indirect scope 2 emissions), and communicate that
information to stakeholders.
Stakeholders
The fourth reason for firms to care about sustainability is the likelihood
that stakeholder pressures to act will increase as the consensus about the
need to do something coalesces. Consumer behavior in particular is a
strong driver of corporate action and will have to change in order to
make any meaningful dent in our carbon emissions. As Goodyear
discovered, for example, 87 percent of the total CO2 emitted during the
life of one of its tires is attributed to after-sales use by customers (in
particular, each tire’s “rolling resistance”).90 Similarly, as Unilever
discovered in implementing its Sustainable Living Plan,91
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consumers, mostly through the energy-intensive process of
heating water (e.g., for tea bags or washing powder).92
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Note: The data refer to a 0.5-gallon carton of juice, which generates
3.75 lb (1.7 kg) of CO2.
As such, firms are beginning to anticipate the day when stakeholders will
demand greater accountability for their environmental performance.
General Motors, for example, has pledged to be “landfill-free,”93 and
Samsung has announced plans to invest $20 billion by 2020 because
“just as electronics defined swathes of the 20th century, the company
believes that green technology . . . will be central to the 21st.”94 For
firms like Unilever, “sustainability is now the key driver of
innovation”:95
There are four main reasons why firms should care about sustainability:
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An aspect of business that is inherent to all firms, as well as being
common to these four drivers of action on sustainability, is the need to
reduce waste. Accounting for climate change, adapting operations
accordingly, pricing natural capital, and responding to evolving
stakeholder expectations on this issue all help firms in this vital effort.
Waste
A central goal of this book is to restore faith in the corporation. For all its
faults, the corporation is best placed to deliver the goals that CSR
advocates support. While the government and nonprofits fill valuable
nonmarket roles, it is the corporation that has the ability to allocate
valuable and scarce resources in ways that encourage innovation and
optimize total value. Those corporations that embrace strategic CSR at
all levels of operation, seeking to engage stakeholders to meet their
needs and expectations, will create the most value over the medium to
long term. In terms of resource utilization, in the absence of dramatic
political action on a global basis, for-profit firms are, quite possibly, our
only hope, as argued by the president of the Environmental Defense
Fund:
If for-profit firms are going to lead the reform of our economic model, a
good place to start is the amount of waste that we generate—a central
driver of the global economy. For firms, the more you buy of their
products, the better they perform and the faster the economy grows. In
other words, mass consumption and quick turnover are essential.
Whether we need a product is less important than whether we want it.
And if we buy a product, the quicker we throw it away and buy another
one, the faster GDP rises. Restraint and conservation are not the point.
When you realize that Starbucks goes through “4 billion paper cups”
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every year,98 you understand that resolving to bring a reusable cup to the
store (even if you get all of your friends to do the same) pales in
comparison to the scale of the action required to make a difference.
Given the volume, the resources required to manage this waste are also
significant. In the US, “communities on average spend more money on
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waste management than on fire protection, parks and recreation, libraries
or schoolbooks.”101 And much of that waste is not really waste. Rather,
it is a byproduct of inefficiencies either during production (wasteful
processes) or consumption (unsold products). Worldwide, for example,
we discard “about 1.3 billion tons of food a year, or a third of all the food
that we grow,” which, in the US, amounts to “$160 billion” a year.102
This food waste is estimated to rise to 2.1 billion tons by 2030, or “66
tonnes per second.”103 It is estimated that “there is at least $20 billion in
valuable resources locked inside the materials buried in U.S. landfills
each year, if only we had the technology to recover it cost
effectively.”104
e-Waste
Within the casing that surrounds most consumer electronics products, the
metals, chemicals, and soldering that make up the components are
toxic.109 Many are also valuable, but the cost and effort of separating
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and recovering that value means it is often more effective either to throw
the products away or get someone to recycle them for us:
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process 38,000 electronic devices a day and maintains a staff of 250
people and “thousands of additional contractors” who are solely
dedicated to e-waste disposal at the firm’s 22 recycling plants
worldwide.117 The amount of heavy metals contained in all this waste
presents a serious problem for whoever has to clean it up. A television or
computer, for example, “can contain as much as eight pounds of lead, as
well as mercury, cadmium and other substances that are harmless when
part of a piece of equipment but a health risk when they reach a
landfill.”118
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Sources: EPA data from 2010. Quoted in Electronics TakeBack
Coalition, “Fact and Figures on E-Waste and Recycling,” June 25,
2014, p. 2.
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efforts are extensive and offer workers significant protection, but
enforcement can be problematic:
As landfills reach their limits and the dangers of e-waste become more
apparent, regulation designed to change consumer behavior and limit the
amount we throw away (or at least have it correctly recycled) is
essential. Even where state and local laws are proposed, however, there
is debate over whether costs should be borne by the individual (based on
the amount disposed), the company (based on the revenue generated), or
society (based on the idea that waste disposal is a public good). A
deposit on consumer electronics collected at the point of sale, with part
of the cost passed on to customers (higher prices), part borne by firms
(lower profits), and part passed on to the state (tax revenue), would at
least ensure the burden is shared. It would also reinforce the message
that the environmental problems we face will be solved only when we all
contribute.
Plastic
Plastic is wonderful. Invented in the early 20th century and
commercialized in the 1950s, it has become one of the most versatile
materials we use in almost every facet of our lives. It is useful primarily
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because it is cheap to manufacture from materials we have in abundance
(i.e., oil). As such, it is particularly useful in single-use applications,
which is convenient in households (e.g., bottled water) and critical in
hospitals (e.g., syringes and packaging), where hygiene is life and death.
And because it is so useful, we make a lot of the stuff: “Some 322 tons
of plastic were produced in 2015, and that number is expected to double
by 2025.”126 Another useful characteristic of plastic is that it is highly
durable. So durable, in fact, that we have trouble getting rid of it.
Plastic’s usefulness and versatility mean it is produced in large
quantities, but while in theory, it is recyclable, we do not seem to be very
good at recycling it. For example, since the 1950s
8.3bn tonnes has been created. That’s the weight of one billion
elephants. According to a groundbreaking study . . . just 9%
has been recycled, 12% incinerated and 79% has accumulated
in landfills or the wider environment.127
At this rate, by 2050, there will be “12 billion metric tons of plastic
waste . . . in landfills or the natural environment”128 and “more plastic
than fish by weight in the oceans.”129 To get a tangible sense of the
problem, it is instructive to know that Coca-Cola recently increased its
production of plastic bottles by “well over a billion” per year. That is,
increased its production by more than a billion, putting its annual total at
“110bn bottles.”130 While much of this plastic is buried in landfills
(which is bad enough), much ends up in our oceans, with severe
consequences for marine (and, thus, human) life.131 In the Great Pacific
Garbage Patch in the Pacific Ocean alone, there is estimated to be
“87,000 tons of plastic.”132 And as indicated by Figure 11.5, we are
adding to the total, with estimates of new plastic entering the oceans
starting at “8 million tons”133 a year: “Every minute, every single day,
the equivalent of a truckload of plastic enters our oceans. . . . Up to
12.7m tons of plastic end up in them every year.”134
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Source: Adapted from Carol Ryan, “Plastic Is Big Food’s Next
Headache,” The Wall Street Journal, December 31, 2018, p. B10.
So what are we doing about it? Well, not much. The EU has proposed
measures that were approved by the European Parliament in 2018 (and
are due to be introduced in 2021) to reduce single-use plastics and
“ensure they are fully recyclable by 2030”:135
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Beyond this, the largest campaign that gained traction among consumers
was against plastic bags, which are symptomatic of our general plastic
problem. In the US alone, “we go through 380 billion a year. An
estimated 5.2% get recycled; in landfills, they could last 1,000 years.
Bags are made from oil, and our bag habit costs us 1.6 billion gallons
each year.”137 When firms, cities, and countries began imposing small
taxes on plastic bags, however, consumer behavior quickly adapted.
When IKEA announced it would start charging for plastic bags, for
example, within six months, the policy “cut bag consumption in the
United States by more than 50%. . . . In the United Kingdom, the
policy . . . cut bag use by 95%.”138 Similarly, when the Irish government
passed the equivalent of a 33 cent tax on every plastic bag,139 the effect
on behavior was dramatic:
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The campaigns resulted in the promise of a national ban in the UK,144
pledges from Nestlé, Unilever, and Coca-Cola to make all “packaging
100% recyclable by 2025,”145 and a commitment by Starbucks to get rid
of straws by 2020 (“eliminating more than one billion straws a year”),146
and bans spreading across the US in the summer of 2018:
Yet given the scale of the environmental problem, our response seems
timid.148 What we need is a concerted effort that takes us beyond
sustainability.
Beyond Sustainability
Beyond solutions to specific problems, such as e-waste and plastic, this
book argues for systemwide change fueled by the value-creating capacity
of for-profit firms. It recognizes that the status quo is unstable, but also
recognizes the power of the market to innovate and overcome the most
intractable human problems. In short, we need a comprehensive
reassessment of our capitalist model, but one in which we retain what is
most effective about market forces to mobilize and allocate valuable and
scarce resources in ways that optimize total value. Firms like TerraCycle,
through its pledge to “eliminate the idea of waste,” demonstrate the
power of innovation and entrepreneurial spirit to generate change along
these lines.149 TerraCycle implements a stakeholder perspective
throughout all aspects of operations and strategic planning—in the
process, building “a $24 million business around the belief that
everything is recyclable.”150
Where the market fails to provide an adequate solution, firms must work
in tandem with government agencies and NGOs to identify best-practice
solutions. A point-of-sale tax, if applied equally across firms, for
example, would incentivize the creation of either more sustainable
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products or more efficient recycling processes. It is this concept of
systemwide sustainability that is essential—only by focusing on the
system as a whole can meaningful and sustainable change occur. And it
is only the largest corporations that can provide the scale needed, given
the extent of the change in behavior that is required.
Climate change has reached a point where only substantial action will
produce meaningful effects and help avert the catastrophic outcome we
are otherwise hurtling toward. In this light, while for-profit firms are the
main cause of the environmental mess we face, they are also the main
hope for a solution, and stakeholder pressure is the way to encourage the
necessary change. There is much work to do—both in terms of
production and consumption—in order to create a truly sustainable
economic system.
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Questions for Discussion and Review
1. Is sustainability an issue you consider in your purchase decisions?
Why or why not?
2. Have a look at this video: https://storyofstuff.org/movies/story-of-
stuff/. Does it change your answer to Question 1? How do you answer
the main question posed in the video: How can we make a linear
economic system more sustainable?
3. Is sustainability a high enough priority in business, politics, and society
today? Why, or why not? If not, what should be done to change that?
4. Have a look at Marks & Spencer’s (M&S’s) Plan A 152
(https://corporate.marksandspencer.com/plan-a). Do you sense this is a
genuine effort? More importantly, is it enough?
5. How can you minimize the amount of e-waste you produce? How
often do you upgrade your smartphone or computer? Is it fair that
workers in developing countries (including children) have to clean up
our e-waste?
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Chapter Twelve Sustainable Value
Creation
After many decades of much research and debate, “there is not a single
widely accepted definition of CSR.”1 In spite of this, the field has been
united in seeking “to broaden the obligations of firms to include more
than financial considerations.”2 Work done in the name of CSR and
business ethics has long targeted the ends of business, presenting profit
as a corrupting influence on behavior. The result has been a lot of wasted
energy and many premature pronouncements. As Howard Bowen
claimed optimistically in his 1953 book Social Responsibilities of the
Businessman:
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understanding of this complex topic. It is related to, but is fundamentally
different from, concepts such as CSR, sustainability, and business ethics.
While CSR has become associated with philanthropy, sustainability
focuses on resource utilization and ecological preservation, and business
ethics constructs normative prescriptions of right and wrong, strategic
CSR is a practical management philosophy that is grounded in the day-
to-day operations of the firm.
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Adopting a stakeholder perspective, however, is something that is easy to
say but difficult to do. By definition, the interests and demands of
stakeholders will evolve and conflict. As such, firms will not be able to
please all stakeholders all the time. Adapting its strategic planning
process with the goal of trying to do so, however, helps the firm make
better decisions, while insulating it from potential threats. The goal
should be to engage with stakeholders whenever possible and minimize
stakeholder disillusionment. Not many do this well, but what effective
firms share is a genuine commitment to the process. Defining
characteristics of such firms include an organizational culture and set of
values that are more inclusive than exclusive and a view of profit as the
outcome of a process by which value is created for a broad range of
stakeholders—in other words, progressive management. In short, they
are businesses that are moral and ethical.
Strategic CSR bridges both the macro and the micro, the external and
the internal, to present a comprehensive management philosophy of the
firm across all stakeholders.
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look the same in both cases. When stakeholders see that 95 percent of
product labels contain “at least one offense of greenwashing,”8 or that
the firm’s CEO has been fired for dishonesty,9 or any number of other
transgressions, how can they tell whether the event is representative of
the firm or the exception to the rule in an otherwise well-run
organization? Should we assume firms are ethical and transgressions are
rare, or that firms will try to get away with what they can unless
restrained by vigilant oversight?
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ethical fading, we end up engaging in or condoning behavior
that we would condemn if we were consciously aware of it.13
This total value will vary from person to person, based on two factors
—our different assessments of each value and the different weights we
apply to them. For example, if I buy a car, I can separate the value of
that car into its objective value (the ability to transport me from point A
to point B) and its subjective value (my need to limit emissions and
demonstrate my commitment to preserving the environment). Using
this calculation, I might buy a Toyota Prius. If my subjective value
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instead emphasized the need to demonstrate my wealth and status (with
the technical value remaining the same), then I might buy a Mercedes
E-class. If I cared primarily about the ability to move around, but
wanted to do so as reliably as possible (while retaining the car’s resale
value), however, I might buy a Honda Accord. It is because of this
variance that each industry can be segmented with products that appeal
to different consumers.
Value Creation
Strategic CSR delivers an operational and strategic advantage to the
firm. As such, it is central to the goal of value creation, which is the
firm’s primary purpose. Strategic CSR represents an enlightened
approach to management that is a subtle tweak of our economic model,
but with radical implications. In essence, strategic CSR retains the focus
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on adding value that is emphasized by a traditional bottom-line business
model, but does so with a sensitivity to the needs and concerns of the
firm’s broad range of stakeholders.
Value
Strategic CSR encapsulates the way humans behave and the way
business is conducted. It does not alter the goals of the firm (profit,
except to say that a short-term focus is counterproductive), and it does
not alter our understanding of fundamental economic theory (actors
pursuing their self-interest can optimize value, broadly defined). Instead,
it alters the perspective from which operational and strategic decisions
are made. For example, do a firm’s managers believe they can optimize
performance by paying employees a minimum wage (because there is
sufficient unemployment that, if one person leaves, another can be
hired), or do they believe performance can be optimized by paying
employees a living wage (because it raises morale and productivity,
while decreasing turnover and the costs of hiring replacement workers)?
These positions are substantively different approaches to business. Good
arguments can be made for either, but they are fundamentally different
and therefore represent a choice. This is the arena in which strategic
CSR operates. It is a progressive approach to management that places
the interests of a wide range of stakeholders within the firm’s strategic
decision matrix.18
The essential difference between firms that do strategic CSR well and
those that do it poorly, therefore, is a greater sensitivity to the interests of
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the firm’s stakeholders—today, tomorrow, and six months from now.
This provides the firm with an acute ability to understand when the
(stakeholder-defined) rules that define its operating environment have
changed and a framework with which to apply that knowledge to the
firm’s strategic advantage. Such changes are happening constantly, as
noted by David Brooks:
Figure 12.2 indicates how the firm’s managers strive to balance the
strategic interests of the firm with the interests of the firm’s stakeholders,
which overlap in the price that is charged for the product or service. This
determines the firm’s profit—the best measure we have of value created.
Strategic CSR, therefore, equals value creation in today’s dynamic
business environment—sustainable value creation. What does this mean
in practice? Primarily, it means that those firms that get strategic CSR
will create more value over a longer period than those firms that either
do not understand the strategic benefits of CSR or ignore them. Firms
able to attain this level of performance do so by orienting themselves
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around a set of values—beliefs, practices, and norms that appeal to
specific segments of society. In short, they implement a management
philosophy that has been expressed elsewhere in similar terms as
capitalism with a conscience.
Conscious Capitalism
The outcome of the implementation of strategic CSR, extrapolated
across firms, is the evolution21 of the dominant capitalist economic
model. There is much to commend in the power of the market to
alleviate human poverty and suffering. It is essential to remember that
“the percentage of people in the world living on $1 a day has declined by
80 percent since the 1970s . . . the greatest increase in human possibility
in human history. The primary cause is globalized capitalism.”22
Strategic CSR seeks to refine this model. Rather than focusing narrowly
on short-term shareholder wealth, firms exist to serve the needs of
stakeholders, broadly defined, over the medium to long term—a
combination of the Most Ethical Companies 23 and the Most Inspiring
Companies.24 The idea that most closely maps onto what this might look
like in practice is conscious capitalism.
Conscious Capitalism
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business to make a positive impact on the world. Conscious
businesses are galvanized by higher purposes that serve,
align, and integrate the interests of all their major
stakeholders.25
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[Patagonia] has doubled the size of its operations and tripled its
profitability.” This has occurred in spite of the firm launching a
marketing campaign that “tells customers not to buy its clothes.”32
Values-Based Business
A genuine implementation of strategic CSR throughout operations is the
basis for a values-based business. Such firms stand for something—
something positive that defines and unites the organization, and reflects
the values of the firm’s broad set of stakeholders.
Values-Based Business
Values are important because they are shared beliefs that “drive an
organization’s culture and priorities and provide a framework in which
decisions are made.”33 They therefore form the backbone of the firm.
They are core to what the firm does and how it plans for the future. A
values-based business “is based on a community of people that
understand what is expected of them, what is seen to be right behaviour,
and the responsibility they have to each other.”34 In other words, values
offer the progressive firm an alternative to bureaucracy as a way to
manage the organization:
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controlling threatens peoples’ personal sense of autonomy and
decreases their intrinsic motivation. It damages their self-
perception. One of the likely consequences of eroding attitudes
is a shift from consummate and voluntary co-operation to
perfunctory compliance.35
In this sense, values serve the same function, but as guidance and
inspiration (a sense of purpose and meaning), rather than control. As
such, values offer a hands-off way to manage the firm. Values can
become established within the organization only if the employees
internalize them. If this happens, the values (often imprinted by a
dynamic founder) inform and guide the way the employees act day to
day. So when they face a new situation and need to decide quickly, they
are more likely to ask, What would our founder do in the same situation?
Reducing bureaucracy and filling the void with values demonstrates a
level of trust that inspires loyalty among employees while improving the
quality of decisions made. In short, values imbue the firm with purpose.
As is often attributed to Peter Drucker, “profit for a company is like
oxygen for a person. If you don’t have enough of it, you’re out of the
game. But if you think your life is about breathing, you’re really missing
something.” Throughout history, humans have sought a deeper meaning
to life that financial success alone cannot provide.36 That success has to
reflect a sense of making a broader contribution. Values-based businesses
speak to these needs:
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They are inspired to do something that they believe needs
doing. The heroic story of free-enterprise capitalism is one of
entrepreneurs using their dreams and passion as fuel to create
extraordinary value for [all stakeholders].37
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6. Build Open and Honest Relationships With Communication
7. Build a Positive Team and Family Spirit
8. Do More With Less
9. Be Passionate and Determined
10. Be Humble
The idea of businesses founded on values is not new. Adam Smith in The
Theory of Moral Sentiments,44 for example, “gave an account of
morality resting on empathy and conscience” and, in the process,
addressed the great challenge of “how to order a society in which
competition and ethical sensibility are combined.”45 Increasingly, firms
are adopting these aims and using them to reform the way they conduct
business:
As Walmart grew into the world’s largest retailer, its staff were
subjected to a long list of dos and don’ts covering every aspect
of their work. Now the firm has decided that its rules-based
culture is too inflexible . . . and is trying to instill a “values-
based” culture, in which employees can be trusted to do the
right thing because they know what the firm stands for.46
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private sector, public sector, social sector.”48 Today, those same CEOs
are lauded as “culture warriors.”49 Such leaders are able to motivate the
firm’s stakeholders in ways that appeal across traditional dividing lines
to collectively achieve the firm’s goals. As such, the firm’s employees
are a core component of a values-based business. Firms such as
Southwest Airlines50 and Whole Foods understand this. They place
valuing their employees, both intrinsically and extrinsically, at the heart
of what the firm does and stands for, believing that satisfied employees
are the core to a successful business. As John Mackey puts it, “happy
team members results in happy customers, which results in happy
investors.”51
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The Economist 53 raises a good example of this and, in the process,
summarizes an important critique of the CSR debate:
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managers who want to sell their firm’s goods and services to
people who don’t happen to share their morals or politics,
especially in cultures in which consumers are increasingly
expected to vote with their wallets.56
Our stock was in free fall. One day, I found myself on a phone
call with one large institutional shareholder. He addressed the
longstanding health coverage for our employees, which at the
time cost $250 million. He said this would be the perfect time
for Starbucks and me to cut health care. . . . I tried to describe
to him that the essence of the brand is humanity, and our
culture is steeped in two primary benefits that have defined
who we are: comprehensive health-insurance coverage for our
people and equity in the form of stock options, which we give
to anyone who works more than 20 hours a week. I told him,
“This is a nonstarter at every level because you don’t
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understand the essence of our company. After all these years, if
you believe the financial crisis should change our principles
and core purpose, perhaps you should sell your stock. I’m not
building a stock. I’m trying to build a great, enduring
company.” We are a performance-driven organization, but we
have to lead the company through the lens of humanity.58
In preparing the report, Ben & Jerry’s was the first major corporation to
allow an independent social audit of its operations. Ever since, Ben &
Jerry’s has continued to develop the concept of a firm that places its
stakeholder concerns at the core of its business model—a stance that is
reflected in its “three-part mission that aims to create linked prosperity
for everyone that’s connected to our business: suppliers, employees,
farmers, franchisees, customers, and neighbors alike.”61
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Our Social Mission compels us to use our Company in innovative
ways to make the world a better place.
Unilever clearly sees the importance of allowing Ben & Jerry’s to retain
its broad stakeholder-focused, values-based business model. This is
evident in Ben Cohen’s involvement with the financing of Occupy Wall
Street66 and the firm’s decision “to celebrate the legalization of gay
marriage in the US by rechristening its Chubby Hubby ice-cream Hubby
Hubby.”67 It was also evident in 2012 when Ben & Jerry’s announced it
had become “the first wholly-owned subsidiary to gain B Corp
certification. The move was supported by Unilever . . . as consistent with
Ben & Jerry’s core values and mission and fully aligned with Unilever’s
own ambitious sustainability agenda.”68
For firms like Ben & Jerry’s and Unilever and Starbucks, basing their
operating principles on a strategic CSR perspective is central to their
ability to survive and thrive in business today.
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Strategic CSR Is Good Business
Strategic CSR is good for the firm—good in that it is effective business,
but good also in that it is ethical, moral, and values-based. Strategic
CSR creates value for the firm’s broad range of stakeholders in a way
that is sustainable.
As Howard Schultz notes, the business case for Starbucks operating with
a set of clearly defined, well-advertised principles is clear, both
internally (“we have successfully linked the percent of store partners in a
given store who think we’re living up to our values to the performance of
that store”) and externally (“Starbucks has found that more than a quarter
of the public opinion of its brand is based not on its store experience or
its coffee products, but on what customers think of Starbucks as an
institution”):
Firms cannot force their stakeholders to interact with them; they cannot
make their consumers buy their products, as long as they care about
something other than price or convenience. Similarly, firms cannot
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prevent the enactment of legislation, as long as politicians are willing to
prioritize governing over campaign contributions and lobbying pressures.
And firms cannot compel employees to work for low pay, as long as
workers have the skill set to demand higher pay and better conditions.
Each of these decisions is a values-based judgment made by one of the
firm’s stakeholders. Managers, therefore, need to understand the values
that underpin these decisions because they have operational
consequences. Those managers who understand the rules most
completely are best placed to succeed by aligning their firm’s actions
with the values of its stakeholders.
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In other words, if someone has a problem with Walmart, then, at some
level, they have a problem with American society because, clearly,
Walmart is giving America what it wants. While this may be a simple
statement that reflects a very complex reality, it also captures the
essence of how societies and economies work—we get the companies
we deserve (they reflect our collective set of values), just like we get
the politicians we deserve. While it might be better for Americans (and
the world) if they wanted something different, that is a subjective
perspective—it is also secondary.
Perhaps Apple is now the most socially responsible firm. The point is
that it is up to us, all of us as stakeholders, to hold firms to account for
the behavior we truly want them to demonstrate. We are all
(collectively) stakeholders who interact with firms in different ways—
as consumers, employees, journalists, regulators, suppliers, distributors,
and so on. If we truly value what a firm has to offer, we need to support
467
it; and if we support a firm, then we need to understand why that is—
what is the value proposition that we find so attractive? If we are going
to build a more sustainable economy/society, we first need to
acknowledge how the system works. Then, if we want to, we can
change it. The worst situation is to misunderstand the problems we
worry about. If we kid ourselves about the causes, we will not be able
to identify an effective solution and build something better.
In seeking to redefine the CSR debate, this book argues that how
business is conducted matters. Rather than obsess about what the firm
does (generate profits), strategic CSR focuses instead on how the firm
does it. In other words, framing the argument is key, and policies or
practices that lower costs and/or raise revenues over the medium to long
term are of primary importance (as determined by what stakeholders
value and are willing to reward/punish). In order to illustrate this, let’s
return to the debate between paying a living wage and a minimum wage:
Does a firm pay its employees a living wage because it feels that they
deserve something better, or does it pay them a living wage because it
understands that the investment raises morale and loyalty, raises
productivity, and decreases the recruitment and training costs that are
associated with higher turnover? As Paul Polman, CEO of Unilever,
frames it:
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Questions for Discussion and Review
1. What does it mean for an organization to be ethical? What is the
difference between an unethical act and an illegal act?
2. Have a look at the MBA Oath (http://mbaoath.org/). What do you
think? Is this something you could take? Is it something all business
students should take?
3. In your view, what does a values-based business look like? Think of an
example that you have seen or read about in the news: What do you
think would be different about working for a firm like that?
4. Look at Ben & Jerry’s values (https://www.benjerry.com/values/).
What do you think about the company’s Product Mission, Economic
Mission, and Social Mission? What about the social causes the firm
adopts? Does this information make you more or less likely to buy the
firm’s ice cream? Is this what a for-profit firm should be doing?
5. Watch this video: https://youtu.be/EseNAh9UwjI. Do you agree that
business is “a moral endeavor”?
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Final Thoughts
As such, this book addresses a question that is subtly different from the
question most CSR books seek to address. Rather than ask, What are the
social responsibilities of businesses?, this book asks, What is the role of
business in society? In other words, rather than trying to define the list of
responsibilities that firms supposedly must address, the concept of
strategic CSR seeks to identify how for-profit firms can create the most
value for the broadest section of society.
After many years of thinking about this issue, I have found that this
subtle distinction prompts a very different approach to understanding
how firms work and how they contribute to societal progress. Asking the
question What is the role of business in society? has profound
implications for the way we understand business, the way we conduct
business, and, therefore, the way that we teach business. Properly
understood and internalized, a strategic CSR perspective infuses
everything the firm does. As such, it has implications for every subject
taught in the business school. I teach strategic CSR in my strategic
management capstone class, but it can equally be incorporated into
courses dedicated to marketing, operations, finance, accounting, and so
on. Of course, it also is directly related to nonbusiness courses, such as
communications, law, and public policy.
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implementing the policies and practices necessary to create a sustainable
economic system. To progress, we must retain much of our current
economic system. It has been responsible for the incredible rise in living
standards that developed economies have experienced since the
Industrial Revolution. Clearly, however, it is not sustainable, so we need
to understand what is good about what we have, but also what needs to
change:
But what action and what change? Given that we live on a planet with a
finite amount of resources, scarcity is central to organizing life. Any
valuable resource, by definition, is scarce. Whether we are talking about
a talented employee, a bar of gold, or the rights to a classic movie, there
is never enough to go around for everyone who wants these things. As a
result, a key challenge for humanity is how best to allocate these
resources. In other words, how do we decide who gets what, or to what
use a particular resource is put?
Economic systems have evolved to solve this problem. But the problem
is complex, and the solution is not clear, which explains the large
majority of the disagreements that we see in our politics. This is what
politicians are arguing about when they debate a government subsidy, or
welfare provision, or lower taxes. The words change from society to
society, and from period to period, but the essence of the disagreement is
the same. In the West, we have largely solved the resource allocation
problem through the predominance of market forces. The relative
amounts of demand and supply for any given resource raise or decrease
its price, with the resulting level ensuring that the resource will go to
those who value it the most (in theory).2
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This system has lasted because it has served most of us well enough. But
it has become distorted and, as a result, is under threat. This has
happened for many reasons that are not fully or widely understood,
which means they are not adequately accounted for in the proposed
solutions. This is particularly true within the CSR community, where
there is a tendency to talk about human beings and societal organization
in idealistic, rather than realistic, terms. This distorts our understanding
of the function of firms and, as a result, our ability to reform existing
systems. In essence, if we do not understand the problem, any solution
we propose is likely to be misguided. Strategic CSR exists to rectify this
imbalance. By seeing the world as it actually works, rather than the way
we wish it would work (humans as they are, rather than as we wish they
were), we are able to propose realistic solutions that can move society
toward our desired ends.3
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shape those values. In other words, corporations reflect the
aggregated values of their collective set of stakeholders
(internal and external). To put this succinctly—it is not
Walmart that puts Mom & Pop stores out of business;
customers do that by choosing to shop at Walmart, employees
do it by choosing to work for Walmart, governments do it by
providing tax breaks for Walmart, and so on. . . . An extension
of this idea is that corporations are not the problem; they are
the solution. The for-profit firm is simply a tool that we have
devised to solve a specific problem—how to allocate scarce
and valuable resources. There is a finite set of resources
available to us. How to allocate these resources in a way that
produces optimal value for the majority is a problem that has
challenged humanity throughout its existence. The best
solution we have found to date is for-profit firms operating
within a market-based, democratic form of capitalism. Once
you understand firms are merely a tool, you understand that
they will do what we ask of them. If we ask them to pollute the
planet (as we are, at present), they will efficiently do that.
Equally, if we ask them to preserve the planet, they will find
the most efficient means of achieving that goal. They will do
what we want them to do—they reflect our collective set of
values.5
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to those expectations will always be in the firm’s economic self-interest.
Strategic CSR is not a passive philosophy, therefore; it is active. It is
also not agnostic; it is values-based. The result is a society that is shaped,
rather than one that forms. If stakeholders are motivated to change the
rules in a way that promotes value, broadly defined, then for-profit firms
are the best means we have of interpreting those evolving standards and
responding: They will do so more rapidly and efficiently than any other
organizational form in any other economic system.
Rather than provide solutions, therefore, this book seeks to ask the right
questions. The answers are up to us, all of us, individually and together.
Hopefully, reading this book will have given you some tools as you seek
to answer these questions in your own career. Good luck as you engage
in that struggle and seek to implement strategic CSR.
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Appendix Implementing Strategic CSR
Strategic Planning
The implementation of strategic CSR originates inside the firm. It is a
process by which leaders take stock of past performance, interpret the
shifting demands of stakeholders (internal and external), and prepare a
plan to meet those expectations moving forward.
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necessary resources. Typically, planning covers both the short and long
term, perspectives that can have very different meanings among
industries. For electric utilities, for example, the planning horizon might
stretch ten, fifteen, or more years into the future (given the complexity of
estimating future electricity demand and designing, permitting, and
building the capacity to produce and distribute electricity in a highly
regulated environment). In a consumer products firm, however, the long
term might be measured in months, from design to release and
obsolescence. A firm like Zara, the Spanish clothes retailer, for example,
has constructed a value chain that allows it to move from design to
production to display “in as little as two weeks”1 (much faster than the
industry average of several months), creating a new industry of “fast
fashion.”2
The process of planning formulates the firm’s future objectives. For this,
big-picture business goals (growth rates, market share, etc.) must be set.
These longer-term goals, which must account for the interests of the
firm’s stakeholders, must then be translated into realizable objectives for
each business unit and, within these units, for operating and support
groups—from production to finance to human resources. These specific,
shorter-term objectives must be both attainable and verifiable. Then, the
resources necessary to implement the objectives are allocated. The
unifying approach to resource allocation is the budget process, which is
usually done near the end of the fiscal or calendar year.
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investment), goals that are difficult to quantify (such as stakeholder
value) can be marginalized. The ease with which this can happen only
serves to emphasize the importance of adopting a methodical approach to
ensure uniform implementation of strategic CSR. The whole process,
which covers the three broad areas of supply chain, operations, and
consumption, can be summarized in two temporal stages: short- to
medium-term and medium- to long-term.
Executive Leadership
For implementation to be successful, the CEO must actively understand
and promote strategic CSR. That is, the CEO must understand she or he
does not have a legal obligation to operate the firm in the interests of its
shareholders and, instead, must make decisions in the best interests of
the organization itself, which suggests a broad stakeholder approach.
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ability to shape behavior should not be underestimated. Clearly,
however, a well-crafted position statement is not enough. Support for
strategic CSR by executives must be active, genuine, and reinforced on
a day-to-day basis to avoid accusations of “empty rhetoric.”4
In order to embed the concept of the CEO as the chief ethics officer,
some have suggested that a firm’s senior executives should take an oath
of office, swearing to
The difference between a CEO who gets strategic CSR and one who
does not is apparent by looking at progressive leaders, such as Paul
Polman (Unilever), Howard Schultz (Starbucks), and Yvon Chouínard
(Patagonia), who all understand that there is not only a legal imperative
to be responsible but also ethical, moral, rational, and economic
motivations. Sustainable businesses are operated over long-term horizons
(“to plan for resource scarcity and climate volatility and to lock in supply
chain resilience”);6 anything less will jeopardize operations and,
ultimately, the viability of the firm.
Board Support
While the investment of the CEO and the executive team is essential,
they are not the firm’s only leaders. The board of directors also has a
vital role to play in implementing strategic CSR. In many countries, the
legal obligations of directors are shifting toward greater responsibility
for the firm’s actions. In the United Kingdom, for example, common law
draws a distinction between the hands and brains of a company:
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A company [is like] the human body. It has a brain and nerve
centre which controls what it does. It also has hands which
hold the tools and act in accordance with directions from the
centre. Some of the people in the company are . . . hands to do
the work. . . . Others are directors and managers who represent
the directing mind and will of the company and control what it
does. The state of mind of those [officers] is the state of mind
of the company.7
Beyond the board, the heads of all divisions in the firm are also crucial to
the success of any policies. And for multinational companies that must
manage tensions between cultures, the country managers are central in
deciding which policies are based on core principles (standardized
throughout the firm) and which policies are subject to local
interpretation. In short, leadership from the middle is as important as
tone from the top.
CSR Officer
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To be effective, strategic CSR needs visibility and sponsorship. Backing
by the CEO equals sponsorship, and the creation of a CSR officer (or
equivalent)11 position, staffed by an executive who reports to the CEO
and/or board, equals visibility.12 While such positions are “booming,”13
it is essential that the reporting relationship is genuine. There is value in
reporting to the boss only if the boss is willing to listen and, even better,
seek your counsel on a regular basis. At companies like Starbucks14 and
Nike, CSR is a VP-level position with broad operational and strategic
influence. In Nike’s case, the VP for Sustainable Business and
Innovation reports to the board on a wide range of issues that include
“labor compliance, global community affairs, stakeholder engagement
and corporate responsibility strategic planning and business
integration.”15
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CSR officer should contribute to strategy formulation and be involved
with key operations committees. At Nike, the VP works with buying
departments to ensure that products are not only high-quality and on time
(traditional operations metrics) but also produced in line with the firm’s
broader stakeholder metrics.18 Operations is where the CSR officer can
make the most progress in fully integrating strategic CSR throughout all
aspects of the business.
Starbucks, for example, displays its mission (“to inspire and nurture the
human spirit—one person, one cup and one neighborhood at a time”)
prominently on its website, together with the core values that inspire it.
The statement is effective because, in addition to invoking the values the
firm wants to highlight, it clarifies that Starbucks sees itself in
partnership with its stakeholders (“our partners, our coffee and our
customers”), which the firm pledges to treat “with transparency, dignity
and respect.” It also states that the firm expects to hold “ourselves
accountable for results,” as it pursues its inspiring vision to be
“performance driven, through the lens of humanity.”23
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A CSR Vision Statement
All stakeholders (internal and external) need to understand the firm’s set
of values and how they affect them. The value of a statement outlining
the firm’s vision and mission is part of this awareness, as detailed in
Chapter 9, but it is only a beginning. Accountability needs to be
established and applied throughout the organization, leaders need to be
honest with all stakeholders about whether the firm is living up to those
values, and, most important, the publication of the statement needs to be
part of “an ongoing, transformational journey, not the conclusion of
one.”24 Salesforce, which exemplifies this approach (recently appointing
a “chief ethics and humane use officer . . . to develop a strategic
framework for the ethical and humane use of technology across
Salesforce”)25 takes its vision statement very seriously:
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Performance
Top management and board support, the creation of a senior CSR
position, and creating the firm’s vision and mission statements all
address a critical element in implementing strategic CSR—awareness.
Although the intent may be noble, however, “people do not do what you
expect, but what you inspect.”28 In other words, human nature suggests
that any professed values run the risk of being ignored unless they are
embedded in the firm’s compensation and incentive structure. If the goal
in implementing strategic CSR is to build a culture of trust and
excellence that respects stakeholders and empowers them to work toward
the firm’s success, incentives play a central role in achieving this.29
For example, early on, Southwest Airlines had a clause in its job contract
empowering employees to “do whatever it takes” to turn around a plane.
And when a problem arose, rather than look to an individual to blame,
the emphasis was on encouraging the team to avoid future occurrences.
Both policies suggest that Southwest trusts its employees to make good
decisions, which helps build a positive culture. Once this culture was
combined with the firm’s ability to operate its planes efficiently, success
for Southwest followed, at a time when most other airlines were losing
significant amounts of money. As a result, for many years, the firm’s
profitability was “unmatched by any airline in the world.”30
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however, is they can lead to unintended consequences—a difficult issue
for the CSR community.
Unintended Consequences
For example, during the 18th century, when the British government was
still shipping its criminals to Australia, sea captains were paid based on
the number of people they carried on their ships. What the government
found, however, was that many inmates were dying during the journey
—up to one-third in some instances. Neither taking a doctor onboard
for the journey nor raising the captains’ pay increased the number of
passengers who survived the trip. It wasn’t until the government began
paying captains based on the number of people who arrived in
Australia (rather than the number of people who left the UK) that
behavior changed and the survival rate greatly increased—to as high as
99 percent.34 A similar effect was evident in another example from
India:
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economic incentives. The dangers of unintended consequences are very
real.36
Integrated Reporting
Firm-wide risk audits, published and integrated with financial reports,
further awareness among stakeholders of a commitment to strategic
CSR. Environmental audits are now widely documented in annual
reports because investors have begun to demand greater accountability
on this issue, even leading to lawsuits.39 Indeed, such audits can be a
legal requirement where climate change constitutes a material business
risk.40 The value of communicating this information to investors is that
they understand the rationale for the firm’s actions. Past surveys suggest
that “few business leaders believed that their company’s share price
reflected its responsible business initiatives.”41 Better communication
with all stakeholders (investors, in particular) improves this situation.
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across 34 countries and 15 industry sectors concluded that nearly every
Global Fortune 250 (G250) company now reports its CR activity.”44
Reporting requirements will only become more stringent as governments
increasingly recognize that firms (a) incur various costs that are currently
externalized and (b) are reluctant to publish this information voluntarily.
For example, in the US, the SEC now
says all firms that file standardised annual reports must include
details of climate-change risks that are “material” to earnings.
The British government requires large quoted companies based
in Britain to disclose their carbon-dioxide emissions to
shareholders. And the European Union plans to make firms
with more than 500 employees publish environmental and
social data in their management accounts.45
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The operational advantages are clear, helping management understand
the value chain and highlighting potential transgressions before they are
disclosed in the media. These analyses also identify waste, thus making
cost savings possible.49 A step that is essential for validity is to have an
audit conducted, or at least verified, by an independent third party in the
same way that a firm verifies its financial reports.50 Objective
verification lends credence to the data, with industry standards being the
goal (e.g., see SASB, https://www.sasb.org/). According to Mallen
Baker, there are really only four questions that need to be addressed in a
CSR or sustainability report, with everything else being relegated to the
appendix:51
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Producing a report is one thing; ensuring that it is accurate, that it allows
external observers to understand what is going on, and that it enables
performance to be compared across firms and industries represents
another level of transparency altogether.
Enron . . . won a spot for three years on the list of the 100 Best
Companies to Work for in America. In 2000 it received six
environmental awards. It issued a triple bottom line report. It
had great policies on climate change, human rights and (yes
indeed) anti-corruption. Its CEO gave speeches at ethics
conferences and [issued] a statement of values emphasizing
“communication, respect, and integrity.” The company’s stock
was in many social investing mutual funds. . . . Enron fooled
us.54
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Enron’s Code of Ethics
In addition to having an ethics code for their own operations, firms must
be aware of what is happening throughout the value system. The
operations of suppliers, in particular, are a potential risk, especially when
key elements of production are outsourced. Firms rectify this risk by
asking suppliers (and, where appropriate, distributors) to sign codes of
conduct that adhere to the firm’s rules and norms as detailed in their
internal ethics codes.59 While this is widely practiced by firms today,
however, what is unclear is the extent of a firm’s responsibility
throughout its supply chain (see the case at the end of Part V). Supply
chain responsibility is an evolving but essential area of strategic CSR
because, at present, the profile of the brand, rather than the nature of the
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reported offense, seems to be the best predictor of media exposure in the
event of a supply chain issue.
Ethics Helpline
In addition to an ethics code and regular training for employees, a key
component of the continuous internal reinforcement necessary for
effective strategic CSR implementation is an anonymous feedback,
complaint, or whistle-blowing system (e.g., a toll-free telephone number
or e-mail “helpline”). This option should be available either internally or
via a third party for employees to report ethics transgressions and is a
requirement in the US following Sarbanes-Oxley (2002).60 The helpline
encourages the reporting of any compliance breeches (of policy,
regulation, or law), but can also be used for positive feedback from
employees, who are often best placed to evaluate the firm’s policies in
action (so these comments should be acted on if received). Using an
independent third party to monitor the helpline guarantees the protection
of employees’ identities, thus reducing the potential for retaliation,
which seems to be a common human reaction to a perceived threat:61
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blowers. While it is in the firm’s interest to learn about wrongdoing
before serious damage occurs,
Unless a firm is able to protect and even reward employees who are
willing to come forward and report transgressions, the firm will be
unable to fix the problems. Not only does such wrongdoing increase the
firm’s liability, therefore, it damages employee morale and, as a result,
performance. From a strategic CSR perspective, a firm’s employees are
its most important stakeholders—they determine the quality of the
product or service that is delivered to customers. Any firm that fails to
recognize this cannot claim to be implementing strategic CSR
effectively.
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Stakeholder Engagement
All large, publicly traded corporations have established investor relations
departments. They have become the norm because managers, particularly
in Western economies, perceive shareholders to be the firm’s primary
stakeholders. As a firm’s share price has become the key indicator of
success, keeping investors happy has become central to a CEO’s ability
to retain his or her job. The result has been an overly short-term focus in
decision making.68 As part of moving CSR to the center of a firm’s
strategic outlook, this two-way avenue of communication should be
expanded to include all stakeholders. One approach is to broaden the
focus of this department to become the stakeholder relations department,
ideally headed by a stakeholder relations officer.69
Lobbying
Good Bad
Proactive Reactive
Transparent Secretive
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three oil-industry groups together spend $115 million a year on
advocacy designed to ‘obstruct’ climate change policy,”71 as well as
the soda industry, where Coca-Cola and PepsiCo have spent “millions
to defeat public health legislation that would reduce Americans’ soda
intake.”72
As with all stakeholder engagement, the goal for the firm is to develop
close ties to all stakeholders. Rather than being caught unawares by a
viral campaign, a firm that has built relations based on trust over years
will benefit from an honest exchange of ideas and interests, and
hopefully avoid the worst conflicts. At the same time, the firm opens up
potential avenues to work together with stakeholders—whether on
product development or issues that can mitigate the worst effects of the
firm’s operations.
Marketing
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Strategic CSR that is genuine and substantive needs to be
communicated to the firm’s stakeholders. As such, a firm’s marketing
department is an important medium through which the firm can
communicate progress. But firms need to be careful, as this is a sensitive
area. Stakeholders soon come to interpret excessive self-promotion as
merely a cynical effort to greenwash—going through the motions to
receive the reputational benefits, but lacking substance. While avoiding
the impression of spin is crucial, it is also good business to convey to
stakeholders that their input is valued. More importantly, firms do not
want their identity defined by others in the media. The aim, therefore, is
to meet stakeholder expectations by matching promises with reality. In
particular, as the free flow of information shifts the balance of power in
an information age, firms need to develop the skills necessary to
communicate with stakeholders through the media of their choice. As
one of “the 36 Rules of Social Media,” firms should remember that,
increasingly, “your fans own your brand.”73 As has become all too
apparent, today, “information on a brand’s actions travel fast and brand
managers must work harder to ensure consistency of the brand’s values
along their supply chain.”74
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Corporate Governance
Corporate governance matters. It is the interface between the firm and its
shareholders. The board of directors advises the CEO on strategy and
major operational decisions; the board also acts in an oversight function,
incentivizing performance and guarding against failure. Effective
corporate governance is therefore central to the well-managed firm.
495
CSR, minimizes risk, and optimizes performance over the medium to
long term.
Social Activism
Social activism is a highly visible way for firms to establish an identity
that attracts stakeholders and fulfills the mission and vision. Both The
Body Shop and Ben & Jerry’s, however, found that activism alone is
insufficient to remain viable in the long run. In both cases, the founders
were forced to cede operational control to professional managers as their
firms grew in complexity.76 Social activism of any sort must support a
viable business. No firm can benefit any of its stakeholders if it is stuck
in bankruptcy court. Economic viability and legal compliance are
minimum conditions for survival. Although social activism may not be
sufficient to preserve a firm, however, it is increasingly central to
business and the role of the CEO—or, as The Economist puts it, the
“chief activist officer.”77 Although firms have always had to respond to
stakeholder demands, something is different today, both in the volume
and intensity of issues:
It seems that not only is activism increasingly a part of the job, but firms
are being asked to comment on highly contentious issues. Taking a
position allows the firm to consolidate support among key stakeholders;
the danger is, of course, that it alienates others. While these issues rise
and fall with the day’s news and the staying power of a tweet, stickier
examples include joining organizations such as the Roundtable on
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Sustainable Palm Oil (https://www.rspo.org/) or the Fair Labor
Association (http://www.fairlabor.org/). Done well, activism is a
competitive advantage for the firm; done poorly, it is a threat—as Elon
Musk continues to discover, tweet by tweet.79
For firms like Nike and other lifestyle brands, social activism helps align
their actions with the values of stakeholders. Advocacy may also serve as
a potential defense—a form of brand insurance.80 In order to retain the
support of stakeholders, however, anything the firm does must be
consistent with its vision and mission, and extend from the boardroom
and senior executives, via the CSR officer, throughout the firm.
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The Five Rs of Implementation
498
Each of these steps should be adhered to vigilantly. The way the firm’s
actions are received by those most affected by them indicates the success
of the process by which the genuine firm matches plans and intentions to
actions and results in implementation. The goal of strategic CSR is to
build a business that creates value for all its stakeholders—an important
step in that process is to enable a culture of integrity:
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Notes
Glossary
1. Livia Albeck-Ripka, “Your Recyclables Get Recycled, Right? Maybe,
or Maybe Not,” The New York Times, May 31, 2018, p. B1.
5. See “Your plastic pal who’s fun to be with,” The Economist, August
19, 2017, pp. 67–68.
500
11. See A. J. Weberman, My Life in Garbology, Amazon Digital
Services, 2011; and Edward Humes, Garbology: Our Dirty Love Affair
with Trash, Avery Publishing, 2012.
13. Katrin Bennhold, “Female Leaders May Face ‘Glass Cliff,’” The
New York Times, October 7, 2016, p. A2.
16. Alex William, “That Buzz in Your Ear May Be Green Noise,” The
New York Times, June 15, 2008,
http://www.nytimes.com/2008/06/15/fashion/15green.html.
21. Keith Davis, “The Case for and Against Business Assumption of
Social Responsibilities,” Academy of Management Journal, Vol. 16, No.
2, 1973, pp. 312–322.
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23. This concept was developed by William C. Frederick to capture his
belief that all business actions are products of natural evolutionary
processes. See Bill’s website at
http://www.williamcfrederick.com/business-nature.html and his book
Natural Corporate Management: From the Big Bang to Wall Street,
Greenleaf Publishing, 2012.
24. While the idea of peak oil is theoretically possible (there is a fixed
amount of resources on the planet), technological improvements
continue to allow energy companies to discover new reserves and
increase the yield of existing reserves. As such, the point of peak oil has
been wrongly predicted for many decades.
25. See John Fabian Will, “The New Rockefellers,” The Wall Street
Journal, October 17, 2016, p. A13.
31. See Sarah O’Connor, “Do not rely on ‘sofapreneurs’ to prop up the
economy,” Financial Times, March 16, 2016, p. 10.
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condition of the natural environment (http://www.un-
documents.net/wced-ocf.htm).
33. See “Transforming our world: The 2030 Agenda for Sustainable
Development,” United Nations,
https://sustainabledevelopment.un.org/post2015/transformingourworld
(accessed April 2019).
38. “The lives of others,” The Economist, August 19, 2017, p. 58.
Preface
1. In contrast to when I began the fifth edition of this book, I am
completing it at around the time of the fiftieth anniversary of the
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photograph that became known as “Earthrise”—the photograph of the
Earth, taken from space by the astronauts of NASA’s Apollo 8 mission
on Christmas Eve, 1968. “‘Earthrise’ did not start environmentalism, but
it became the movement’s icon, a gift of perspective at the end of a long,
dark year . . . a holiday present for the ages. Alas, it didn’t come with an
instruction manual; we’re still working on that” (in Dennis Overbye,
“Apollo 8’s Earthrise: The Shot Seen Round the World,” The New York
Times, December 25, 2018, p. D2). For all the harm that businesses
commit, it is important also to celebrate the beauty inherent in pursuing a
better world.
5. For example, “Almost every technology that makes the iPhone smart
was funded by government” (in Mariana Mazzucato, “A strong industrial
strategy has many benefits,” Financial Times, August 4, 2016, p. 9).
7. Editorial, “Mr. Zinke’s Risky Venture into Deep Water,” The New York
Times, January 9, 2018, p. A22.
8. Michael Amon & Tapan Panchal, “BP’s Gulf-spill Tab Hits $62
Billion,” The Wall Street Journal, July 15, 2016, p. B3.
504
https://www.bloomberg.com/news/articles/2018-08-30/the-biggest-
legacy-of-the-financial-crisis-is-the-trump-presidency.
Part I
1. In his well-known September 13, 1970, New York Times Magazine
article “The Social Responsibility of Business Is to Increase Its Profits,”
in which he declared CSR to be a “fundamentally subversive doctrine,”
Milton Friedman built part of his argument around the idea that “only
people can have responsibilities. . . . ‘Business’ as a whole cannot be
said to have responsibilities.” Putting aside the idea that a for-profit firm
in our society can have rights (which Friedman recognizes) but not
responsibilities (which Friedman dismisses), in this book the
organization is the actor of primary focus. As such, I will refer to firms
as entities that, for example, can “act in their own best interest.” While I
would prefer not to anthropomorphize firms, in order to discuss their
responsibilities, it is necessary to separate the collective (the company)
from the individuals who act on its behalf (executives, directors, and
employees).
Chapter 1
1. The potential for government to encourage CSR is indicated by the
UK government’s 2014 report Good for Business & Society: Government
Response to Call for Views on Corporate Responsibility
(https://www.gov.uk/government/uploads/system/uploads/attachment_da
ta/file/300265/bis-14-651-good-for-business-and-society-government-
response-to-call-for-views-on-corporate-responsibility.pdf) and by the
Canadian government’s decision to appoint an Ombudsperson for
Responsible Enterprise (http://www.international.gc.ca/trade-
agreements-accords-commerciaux/topics-domaines/other-autre/csr-
rse.aspx).
505
“fourth type” of organization, my sense is they are no different from a
for-profit. All companies exist to solve some social problem. In this
sense, a supermarket is as much a “social enterprise” as TOMS Shoes.
7. See Heather Wilde, “The Mistake that Cost United $1.4 Billion in One
Day (Twice) and What You Can Do to Avoid It,” Inc., April 17, 2017,
506
https://www.inc.com/heather-wilde/the-mistake-that-cost-united-airlines-
14-billion-in-one-day-twice-and-what-you-.html.
507
1979, p. 500.
508
https://www.theatlantic.com/business/archive/2014/04/why-making-
corporations-socially-responsible-is-so-darn-hard/360984/.
21. John Kay, “The left is still searching for a practical philosophy,”
Financial Times, May 5, 2010, p. 9.
22. It is worth reinforcing the idea that legally permissible actions may
still be morally or ethically objectionable to certain stakeholders.
23. “What’s the alternative?” The Economist, August 15, 2015, p. 75.
24. For the history of CSR “from the nineteenth century through World
War I in the United Kingdom, United States, Japan, India, and
Germany,” see Bryan W. Husted, “Corporate Social Responsibility
Practice from 1800–1914: Past Initiatives and Current Debates,”
Business Ethics Quarterly, Vol. 25, No. 1, January 2015, pp. 125–141.
25. Adrian Henriques, “Ten things you always wanted to know about
CSR (but were afraid to ask); Part One: A Brief History of Corporate
Social Responsibility (CSR),” Ethical Corporation, May 26, 2003.
28. Adam Hochschild, “How the British Inspired Dr. King’s Dream,”
The New York Times, January 17, 2005, p. A21.
509
June 2, 2017,
http://journals.sagepub.com/doi/10.1177/0007650316680038.
33. For additional information about Malden Mills, see Rebecca Leung,
“The Mensch of Malden Mills,” CBS 60 Minutes, July 6, 2003,
https://www.cbsnews.com/news/the-mensch-of-malden-mills/ and
Gretchen Morgenson, “GE Capital vs. the Small-Town Folk Hero,” The
New York Times, October 24, 2004, p. BU5.
38. Mitchell Pacelle, “Can Mr. Feuerstein Save His Business One Last
Time?” The Wall Street Journal, May 9, 2003, pp. A1, A6.
510
company continues to make its clothing under the brand name Polartec
(http://www.polartec.com/). For a similar story about a company that
maintained its commitment to its employees throughout a period of
economic hardship (maintaining a “record of not having fired an
employee for economic reasons in more than 80 years”), but emerged
successfully, see James Shotter, “Cutler who turned the Swiss army knife
into a global gadget,” Financial Times, June 8/9, 2013, p. 14.
40. Charles Duhigg & Keith Bradsher, “How the U.S. Lost Out on
iPhone Work,” The New York Times, January 21, 2012,
https://www.nytimes.com/2012/01/22/business/apple-america-and-a-
squeezed-middle-class.html.
41. Frank Worstall, “Offshoring and Onshoring: It’s All a Bit More
Complex Than You Think,” Forbes, March 21, 2012,
https://www.forbes.com/sites/timworstall/2012/03/21/ofshoring-and-
onshoring-its-all-a-bit-more-complex-than-you-think/.
42. “The third industrial revolution,” The Economist, April 21, 2012, p.
15.
44. Ibid.
45. For more information and debate about these different ethical
approaches, see Michael Sandel’s Harvard University undergraduate
course Justice. A series of videos relaying a semester of classes from the
course is online at http://justiceharvard.org/.
47. Ibid.
49. It is important to note that, while both morals and ethics deal with
aspects of right and wrong, what distinguishes them is the level of
511
analysis to which they apply. Specifically, “ethics refer to rules provided
by an external source, e.g., codes of conduct in workplaces or principles
in religion. Morals refer to an individual’s own principles regarding right
and wrong” (“Ethics vs. Morals,”
http://www.diffen.com/difference/Ethics_vs_Morals/, accessed April
2019).
53. Will Hutton, “The Body Politic Lies Bleeding,” The Observer, May
13, 2001,
http://www.guardian.co.uk/politics/2001/may/13/election2001.uk6.
55. Adam Smith published The Wealth of Nations in 1776, but it is his
book The Theory of Moral Sentiments (first published in 1759) that leads
many observers to describe Smith as a moral philosopher rather than an
economist. For example, see James R. Otteson, “Adam Smith: Moral
Philosopher,” Foundation for Economic Education, November 1, 2000,
https://fee.org/articles/adam-smith-moral-philosopher/.
56. Adam Smith, “An Inquiry into the Nature and Causes of the Wealth
of Nations,” Book V, Chapter 2, Part II (On Taxes), 1776. Quoted in Sam
Fleischacker, “Adam Smith vs. George Bush on Taxes,” Los Angeles
Times, January 22, 2001,
http://articles.latimes.com/2001/jan/22/local/me-15437/.
512
applied to military veterans, but more broadly defined as occurring as a
result of “being ordered to do something in a ‘high-stakes situation’ that
violates an individual’s deeply held beliefs about what is right.” In Aaron
Pratt Shepherd, “For Veterans, a Path to Healing ‘Moral Injury,’” The
New York Times, December 9, 2017,
https://www.nytimes.com/2017/12/09/opinion/for-veterans-a-path-to-
healing-moral-injury.html.
59. Eliot Spitzer, “Strong Law Enforcement Is Good for the Economy,”
The Wall Street Journal, April 5, 2005, p. A18.
60. Keith Davis & Robert Blomstrom, Business and Its Environment,
McGraw-Hill, 1966. See also Keith Davis, “The Case for and Against
Business Assumption of Social Responsibilities,” Academy of
Management Journal, Vol. 16, No. 2, 1973, pp. 312–322.
62. https://www.ceres.org/networks/ceres-policy-network.
513
predicting CSR. In other words, while CSR does not increase profits,
higher profits lead to greater CSR. One explanation for this failure to
establish a conclusive link between CSR and firm performance is that the
tools we use to measure CSR are not very good. While data and methods
are improving all the time, we have yet to identify a sufficiently
comprehensive means of measuring a firm’s CSR profile. In the absence
of such a measure, continuing to study whether CSR activities have
positive (or negative) correlations with performance seems difficult to
justify.
Chapter 2
1. It is often said that Millennials (or the current “younger generation”)
care more about CSR. In reality, they do not care more; they just care
about different things—a luxury afforded by the fact that previous
generations solved many of the problems Millennials no longer have to
worry about.
514
Vol. 45, No. 4, 1992, pp. 753–763) and productivity (e.g., Douglas M.
Cowherd & David I. Levine, “Product Quality and Pay Equity between
Lower-level Employees and Top Management: An Investigation of
Distributive Justice Theory,” Administrative Science Quarterly, Vol. 37,
No. 2, 1992, pp. 302–320).
9. For example, see Ray Dalio, “Our Biggest Economic, Social, and
Political Issue—The Two Economies: The Top 40% and the Bottom
60%,” Medium, October 23, 2017, https://medium.com/@zachwahls/our-
biggest-economic-social-and-political-issue-the-two-economies-the-top-
40-and-the-bottom-9e51ab9e5df.
10. “The third great wave,” The Economist Special Report: The World
Economy, October 4, 2014, p. 4.
11. For example, see “Nike Campaign,” Center for Communication &
Civic Engagement,
515
http://depts.washington.edu/ccce/polcommcampaigns/Nike.htm.
12. John Parker, “The world reshaped,” The Economist: The World in
2015, January 2015, p. 96.
13. “Shoots, greens and leaves,” The Economist, June 16, 2012, p. 68.
16. Brook Larmer, “What does it take for a developing country to stop
accepting pollution as the price of progress?” The New York Times
Magazine, January 28, 2018, p. 16.
17. George Will, “The Fourth Great Awakening,” The Bryan Times, June
1, 2000, p. 4.
18. Alex Tribou & Keith Collins, “This Is How Fast America Changes
Its Mind,” Bloomberg BusinessWeek, June 26, 2015,
http://www.bloomberg.com/graphics/2015-pace-of-social-change/.
20. See National Snow & Ice Data Center, August 15, 2018,
http://nsidc.org/arcticseaicenews/2018/08/approaching-autumn-pace-
slows/.
22. A good example of the planet’s ecological limits came in 2014, when
it was announced that the “Earth lost half its wildlife in the past four
decades. . . . Overall animal populations fell 52% between 1970 and
516
2010” (in Gautam Naik, “Study: Half of Wildlife Lost in 40 Years,” The
Wall Street Journal, October 1, 2014, p. A3).
23. Johan Rockström, “We have three chances to change the world for
the better in 2015,” The Guardian, April 14, 2015,
https://www.theguardian.com/sustainable-business/2015/apr/14/we-have-
three-chances-to-change-the-world-for-the-better-in-2015.
24. Joel E. Cohen, “7 Billion,” The New York Times, October 24, 2011, p.
A19.
26. “The joy of crowds,” The Economist, July 28, 2012, p. 73.
28. Editorial, “Mr. Zinke’s Risky Venture into Deep Water,” The New
York Times, January 9, 2018, p. A22.
31. See the following two articles for interesting discussions about the
central role of continuous growth in our economic models: Andrew
Marr, “Charles: right or wrong about science?” The Observer, May 21,
2000,
https://www.theguardian.com/theobserver/2000/may/21/focus.news, and
517
Steven Stoll, “Fear of fallowing: The specter of a no-growth world,”
Harper’s Magazine, March 2008, pp. 88–94.
32. https://www.starbucks.com/responsibility/environment.
33. https://www.unilever.com/sustainable-living/.
34. https://www.tesla.com/about.
36. Sophie Yeo, “General Motors, Disney, Shell and 1,200 other
companies are taking steps to fight climate change, report says,” The
Washington Post, September 12, 2017,
https://www.washingtonpost.com/news/energy-
environment/wp/2017/09/12/general-motors-disney-shell-and-1200-
other-companies-are-taking-steps-to-fight-climate-change-report-says/.
38. Irene Lacher, “In New Book, Professor Sees a ‘Mania’ in U.S. for
Possessions and Status,” The New York Times, March 12, 2005, p. A21.
39. For more information about Adam Smith, as well as examples of his
work (in particular, The Theory of Moral Sentiments), see
https://www.adamsmith.org/.
40. Alan Murray, “The End of Management,” The Wall Street Journal,
August 21–22, 2010, p. W3.
41. See the review of the book All Business Is Local by John Quelch &
Katherine Jocz in “Local heroes,” The Economist, January 14, 2012, p.
518
83.
42. Kai-Fu Lee, “Meet OMO Sapiens,” The Economist: The World in
2018, p. 125.
46. Siri Schubert & T. Christian Miller, “At Siemens, Bribery Was Just a
Line Item,” The New York Times, December 20, 2008,
https://www.nytimes.com/2008/12/21/business/worldbusiness/21siemens
.html.
47. Ben Quinn, “Ikea Apologises Over Removal of Women from Saudi
Arabia Catalogue,” The Guardian, October 2, 2012,
https://www.theguardian.com/world/2012/oct/02/ikea-apologises-
removing-women-saudi-arabia-catalogue.
48. Farhad Manjoo, “How Battling Brands Online Has Gained Urgency,
and Impact,” The New York Times, June 22, 2017, p. B7.
50. Nandlal Master, Lok Samiti, & Amit Srivastava, “India: Major
Protest Demands Coca-Cola Shut Down Plant,” GlobalResearch.ca,
April 8, 2008, http://www.globalresearch.ca/india-major-protest-
demands-coca-cola-shut-down-plant/8591.
51. “Google censors itself for China,” BBC News, January 25, 2006,
http://news.bbc.co.uk/2/hi/technology/4645596.stm.
53. Richard Ovenden, “The lost decades,” Financial Times: Life & Arts,
May 21/22, 2016, p. 8.
519
54. “Fuel of the future,” The Economist, May 6, 2017, p. 19.
56. Thomas L. Friedman, “The Virtual Mosque,” The New York Times,
June 17, 2009, p. A21.
58. Matt Ridley, “The Myth of Basic Science,” The Wall Street Journal,
October 24–25, 2015, p. C1.
59. William Gibson, “The Road to Oceania,” The New York Times, June
25, 2003, p. A27.
61. Josh Zumbrun and Tripp Mickle, “New iPhone Tests Economic
Theory,” The Wall Street Journal, September 18, 2017, p. A2.
62. Kyle Stock, “Texting Drivers Are Making American Roads Even
Worse,” Bloomberg Businessweek, April 10, 2018,
https://www.bloomberg.com/news/articles/2018-04-10/more-americans-
ignore-laws-barring-texting-and-driving.
63. Ben Worthen, “The Perils of Texting While Parenting,” The Wall
Street Journal, September 29–30, 2015, p. C1.
520
67. “India has more mobile phones than toilets: UN report,” The Daily
Telegraph, April 15, 2010,
https://www.telegraph.co.uk/news/worldnews/asia/india/7593567/India-
has-more-mobile-phones-than-toilets-UN-report.html.
69. “Ants in your pants,” The Economist, August 19, 2017, p. 57.
72. “Schumpeter: Too much buzz,” The Economist, December 31, 2011,
p. 50.
73. “Bits and ballots,” The Economist, March 26, 2016, p. 16.
75. Mike Isaac & Tiffany Hsu, “Uber, Mired in Corporate Scandals, Sees
Uptick in Bookings,” The New York Times, August 23, 2017,
https://www.nytimes.com/2017/08/23/technology/uber-mired-in-
corporate-scandals-sees-uptick-in-bookings.html.
77. “Beware the angry birds,” The Economist, October 11, 2014, p. 76.
79. “Schumpeter: Too much buzz,” The Economist, December 31, 2011,
p. 50.
521
80. Yasmin Crowther, “Swimming in social media’s fast changing tide,”
Ethical Corporation, August 22, 2012,
http://www.ethicalcorp.com/communications-reporting/swimming-
social-medias-fast-changing-tide.
81. “Boom and backlash,” The Economist, April 26, 2014, p. 61.
83. Kevin Roose, “Testing Limits of Power to the People,” The New York
Times, February 14, 2018, pp. B1, B4.
84. “Schumpeter: Too much buzz,” The Economist, December 31, 2011,
p. 50.
85. Martin Sorrell, “Taking the long view,” The Economist: The World in
2017, p. 124.
90. Mallen Baker, “Johnson & Johnson and Tylenol: Crisis Management
Case Study,” http://mallenbaker.net/article/clear-reflection/johnson-
johnson-and-tylenol-crisis-management-case-study.
91. Gary Silverman, “Big businesses aim to brew the right thing,”
Financial Times, March 21–22, 2015, p. 7.
92. Greg Ip, “In New Political Status Quo, Big Business Bucks the
Right,” The Wall Street Journal, August 16, 2017,
522
https://www.wsj.com/articles/in-new-political-status-quo-big-business-
bucks-the-right-1502899710.
95. Kevin Draper, Julie Creswell, & Sapna Maheshwari, “Take Big Risk
on an Activist? Nike Just Did It,” The New York Times, September 5,
2018, p. A1.
2. The most recent US Census data are from 2010. The next scheduled
Census is in 2020. The 2012 Statistical Abstract is the most recent
national estimate by the Census Bureau regarding religious affiliation.
4. Ibid.
7. “Lift every voice,” The Economist, May 4, 2012, p. 29. See also:
Frances Fitzgerald, The Evangelicals: The Struggle to Shape America,
523
Simon & Schuster, 2017.
8. Dalia Fahmy, “Americans are far more religious than adults in other
wealthy nations,” Pew Research, July 31, 2018,
http://www.pewresearch.org/fact-tank/2018/07/31/americans-are-far-
more-religious-than-adults-in-other-wealthy-nations/.
11. “This sceptic isle,” The Economist, August 13, 2016, p. 41.
12. Ibid. Similar trends are evident in the US, for example, with younger
generations of evangelicals being more progressive on social issues than
older generations and also a smaller percentage of the adult population.
See “A more moral minority,” The Economist, October 14, 2017, p. 28.
14. “Speak low if you speak God,” The Economist, August 4, 2012, p.
59. See also Hanna Rosin, “Religious Revival,” The New York Times
Book Review, April 26, 2009, p. 14; Laurie Goodstein, “More Atheists
Are Shouting It From Rooftops,” The New York Times, April 27, 2009, p.
A1; and Charles M. Blow, “Defecting to Faith,” The New York Times,
May 2, 2009, p. A14.
15. Chick-fil-A’s founder, Truett Cathy, died in 2014. See Julie Jargon &
Michael Calia, “Chicken, With a Helping of Religion,” The Wall Street
Journal, September 9, 2014, p. B2.
524
on Fast Feud,” The Wall Street Journal, August 4–5, 2012, p. A4; and
William McGurn, “The Chick-fil-A War Is Back On,” The Wall Street
Journal, September 25, 2012, p. A17.
20. See “High office, low church,” The Economist, April 13, 2013, p. 59.
21. “Growing disbelief,” The Economist, August 25, 2012, p. 23. This is
in spite of the fact that “the Constitution prohibits religious tests for
office.” In Annette Gordon-Reed & Peter S. Onuf, “Jefferson’s Bible
teaching,” The New York Times, July 4, 2017, p. A19.
22. “The right church,” The Economist, July 28, 2016, p. 23.
23. See “The Hobby Lobby hubbub,” The Economist, March 29, 2014, p.
28; “Believe it or not,” The Economist, July 5, 2014, p. 25; and “The
Hobby Lobby Case: Religious Freedom, Corporations and Individual
Rights,” Knowledge@Wharton, March 31, 2014,
http://knowledge.wharton.upenn.edu/article/hobby-lobby-case-religious-
freedom-corporations-individual-rights/.
525
25. James Blitz, “BA under fire over ban on employee’s crucifix,”
Financial Times, October 16, 2006, p. 3.
27. James Blitz, “BA under fire over ban on employee’s crucifix,”
Financial Times, October 16, 2006, p. 3.
28. “Veils harm equal rights – Harman,” BBC News, October 11, 2006,
http://news.bbc.co.uk/2/hi/uk_news/politics/6040016.stm.
29. Liam Stack, “Burqa Bans: Spreading from Europe to Canada,” The
New York Times, October 20, 2017, p. A4; Martin Selsoe Sorensen &
Megan Specia, “Denmark’s Ban on Face Veils Takes Effect,” The New
York Times, August 2, 2018, p. A5.
30. Vipal Monga, “Quebec Law on Facial Veils Fuels Debate,” The Wall
Street Journal, January 26, 2018, p. A16.
31. Ellen Barry, “Local Russian Hijab Ban Puts Muslims in Squeeze,”
The New York Times, March 19, 2013, p. A8.
32. “Faith in the workplace,” The Economist, April 12, 2014, p. 66, and
Melanie Trottman, “Religious-Discrimination Claims on the Rise,” The
Wall Street Journal, October 27, 2013,
https://www.wsj.com/articles/religiousdiscrimination-claims-on-the-rise-
1382916920.
33. See Liam Stack, “How the ‘War on Christmas’ was Created,” The
New York Times, December 19, 2016,
https://www.nytimes.com/2016/12/19/us/war-on-christmas-
controversy.html.
526
34. Liam Stack, “Starbucks is Criticized for its Holiday Cups. Yes,
Again,” The New York Times, November 20, 2017,
https://www.nytimes.com/2017/11/20/style/starbucks-gay-agenda.html.
38.
http://w2.vatican.va/content/francesco/en/apost_exhortations/documents/
papa-francesco_esortazione-ap_20131124_evangelii-gaudium.html.
39.
http://w2.vatican.va/content/francesco/en/encyclicals/documents/papa-
francesco_20150524_enciclica-laudato-si.html.
40. http://w2.vatican.va/content/leo-xiii/en/encyclicals/documents/hf_l-
xiii_enc_15051891_rerum-novarum.html.
42. David Brooks, “Fracking and the Franciscans,” The New York Times,
June 23, 2015, p. A23.
527
Wall Street Journal, May 6–7, 2017, p. C3 and “Luther: The stand,” The
Economist, November 4, 2017, pp. 41-46.
49. Ken Costa, God at Work: Living Every Day with Purpose,
Continuum Books, 2007.
50. Stefan Stern, “In the market for a messiah,” Financial Times,
September 6, 2007, p. 10.
51. Max Colchester, “British Banks Face Heat From on High,” The Wall
Street Journal, October 1, 2012, p. C1. See also: “Prosperity & Justice:
A Plan for the New Economy,” Institute for Public Policy Research,
September 5, 2018,
https://www.ippr.org/research/publications/prosperity-and-justice.
52. Stefan Stern, “In the market for a messiah,” Financial Times,
September 6, 2007, p. 10.
53. Rob Moll, “Doing God’s Work—At the Office,” The Wall Street
Journal, February 11, 2011, p. A11.
528
54. Lindsay Gellman, “Investing as a Religious Practice,” The Wall
Street Journal, November 3, 2013,
https://www.wsj.com/articles/investing-as-a-religious-practice-
1383238942.
55. Aryeh Spero, “What the Bible Teaches about Capitalism,” The Wall
Street Journal, January 30, 2012, p. A15. See also: “Business as a Moral
Endeavor,” https://youtu.be/EseNAh9UwjI.
56. “Prayers and playthings,” The Economist, July 14, 2012, p. 54.
57. Christina Caron & Maya Salam, “Macy’s Court Muslims with a New
Hijab Brand,” The New York Times, February 9, 2018, p. B5.
58. Ibid.
59. Jeff Green & Craig Giammona, “How Halal Food Became a $20
Billion Hit in America,” Bloomberg Businessweek, September 14, 2016,
https://www.bloomberg.com/news/articles/2016-09-14/america-loves-
muslim-food-so-much-for-a-clash-of-civilizations.
60. “Don’t say sexy,” The Economist, April 22, 2017, p. 42.
64. “Gold, God and forgiveness,” The Economist, December 17, 2011, p.
147.
66. “Cap and tirade,” The Economist, November 30, 2013, p. 70.
67. “On the origin of specie,” The Economist, August 18, 2012, p. 68.
529
68. Ibid.
71. Gillian Tett, “Language matters, the real meaning of Big Data,”
Financial Times, November 17/18, 2018, p. 8.
74. Gillian Tett, “Language matters, the real meaning of Big Data,”
Financial Times, November 17/18, 2018, p. 8.
76. “Gold, God and forgiveness,” The Economist, December 17, 2011, p.
147.
77. Wim Hordijk, “From Salt to Salary: Linguists Take a Page from
Science,” NPR, November 8, 2014,
https://www.npr.org/sections/13.7/2014/11/08/362478685/from-salt-to-
salary-linguists-take-a-page-from-science.
78. Robyn Blumner, “Road to ruin: Usury, greed and the paper
economy,” Chicago Tribune, in The Daily Yomiuri, March 31, 2009, p.
16.
530
te_debt_how/. See also Thomas Geoghegan, “Infinite debt,” Harper’s
Magazine, April 2009, https://harpers.org/archive/2009/04/infinite-debt/.
82. For a commentary of the relevance of CSR for Islam, see Asyraf
Wajdi Dusuki, “What Does Islam Say about Corporate Social
Responsibility?” Review of Islamic Economics, Vol. 12, No. 1, 2008, pp.
5–28.
85. For examples of the range of issues covered under the umbrella term
Islamic finance and to get a sense of how the industry has evolved, see
the Financial Times’ special report Islamic Finance, December 15, 2011,
http://im.ft-static.com/content/images/d1924118-2521-11e1-8bf9-
00144feabdc0.pdf.
89. Joanna Slater, “When Hedge Funds Meet Islamic Finance,” The Wall
Street Journal, August 9, 2007, p. A1.
531
91. Frederik Balfour, “Islamic Finance May Be On to Something,”
BusinessWeek, November 24, 2008, p. 88.
93. Yen Nee Lee, “Islamic finance is becoming so attractive that even
non-Muslims want in,” CNBC, December 19, 2017,
https://finance.yahoo.com/news/islamic-finance-becoming-attractive-
even-001849682.html.
94. Ibid.
95. Farhan Bokhari, Roula Khalaf, & Gillian Tett, “Booming Gulf gives
fillip to Islamic bonds,” Financial Times, July 11, 2006, p. 17.
96. Gillian Tett, “Make money, not war,” Financial Times, September 23
–24, 2006, p. WK2.
97. Chris Prystay, “Malaysia Seeks Role as Global Player after Nurturing
Islamic Bond Market,” The Wall Street Journal, August 9, 2006, p. C1.
100. Manu Mair & Mehreen Khan, “Britain to lead the world in Islamic
finance,” The Telegraph, February 26, 2015,
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/1143
5465/Britain-to-lead-the-world-in-Islamic-finance.html.
532
102. See Harry Wilson, “Britain to become first non-Muslim country to
launch sharia bond,” The Telegraph, October 29, 2013,
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/1041
0467/Britain-to-become-first-non-Muslim-country-to-launch-sharia-
bond.html.
104. Yen Nee Lee, “Islamic finance is becoming so attractive that even
non-Muslims want in,” CNBC, December 19, 2017,
https://finance.yahoo.com/news/islamic-finance-becoming-attractive-
even-001849682.html.
107. “Against the odds,” The Economist, August 26, 2017, p. 60.
110. For an example of how Islamic finance seeks to extend the range of
sharia-compliant instruments, see Sophia Grene, “Moves afoot to plug
gap in Islamic finance,” Financial Times FTfm, August 3, 2009, p. 3.
111. Tarek El Diwany, “How the banks are subverting Islam’s ban on
usury,” Financial Times, July 14, 2006, p. 11.
112. Andrew Ross Sorkin, “A Financial Mirage in the Desert,” The New
York Times, December 1, 2009, p. B1.
533
114. “Sukuk and see,” The Economist, January 6, 2018, p. 53.
116. Tarek El Diwany, “How the banks are subverting Islam’s ban on
usury,” Financial Times, July 14, 2006, p. 11.
Part II
1. Many commentators present a stakeholder perspective as an
alternative to a shareholder perspective. I believe that the shareholder
value vs. stakeholder value debate is a red herring. Because shareholders
are also stakeholders, a shareholder perspective is actually the same
thing as a stakeholder perspective narrowly focused on only one
stakeholder. The primacy of shareholders emerged out of a belief that US
law compelled a fiduciary duty among executives to the shareholder. For
an excellent argument debunking this myth, see Lynn Stout, The
Shareholder Value Myth: How Putting Shareholders First Harms
Investors, Corporations, and the Public, Berrett-Koehler Publishers,
2012. See also Part III.
Chapter 3
1. For a more complete discussion of the importance of approaching
CSR using a strategic lens, see Part V.
5. The earliest reference to the term stakeholder I have been able to find
in the academic management literature is to “an internal memorandum at
534
the Stanford Research Institute in 1963” (R. Edward Freeman & David
L. Reed, “Stockholders and Stakeholders: A New Perspective on
Corporate Governance,” California Management Review, 1983, p. 89).
In addition, Klaus Schwab claims to have “developed the ‘stakeholder’
theory for business” around 1970 (“A breakdown in our values,” The
Guardian, January 6, 2010,
https://www.theguardian.com/commentisfree/2010/jan/06/bankers-
bonuses-crisis-social-risk).
535
12. Samantha Miles, “Stakeholder: Essentially Contested or Just
Confused?” Journal of Business Ethics, 2012, p. 295.
14. David Barash, “What Makes Humans Exceptional?” The Wall Street
Journal, July 22–23, 2017, p. C5.
16. See Mark Starik, “Should Trees Have Managerial Standing? Toward
Stakeholder Status for Non-human Nature,” Journal of Business Ethics,
Vol. 14, No. 3, 1995, pp. 207–217 and, more recently, Anna-Catherine
Brigida, “Around the world, the environment is finally getting its day in
court,” PRI, April 24, 2018, https://www.pri.org/stories/2018-04-
24/around-world-environment-finally-getting-its-day-court and Julie
Turkewitz, “Plaintiff in Federal Lawsuit Over a Violation of Rights is the
Colorado River,” The New York Times, September 27, 2017, p. A14.
18. See Jon Mooallem, “Wildly Intelligent,” The New York Times Book
Review, May 1, 2016, p. 16 and Jeffrey Kluger, “Birdbrain is a
536
misnomer: New studies show birds’ remarkable cognitive skills,” Time,
August 21, 2017, p. 24.
19. For counter arguments, see “Try me a river,” The Economist, March
25, 2017, p. 34 and Mari Margil, “Our laws make slaves of nature. It’s
not just humans who need rights,” The Guardian, May 23, 2018,
https://www.theguardian.com/commentisfree/2018/may/23/laws-slaves-
nature-humans-rights-environment-amazon.
20. See the United Nations’ 1989/1990 Convention on the Rights of the
Child, https://www.ohchr.org/en/professionalinterest/pages/crc.aspx.
21. Eduardo Porter, “Electing to Ignore the Poorest of the Poor,” The
New York Times, November 18, 2015, p. B1.
23. The ability of stakeholders to segment their lives into their different
stakeholder roles has been used to explain the idea of “moral
muteness”—the idea that employees do not speak up when they see
something that, if they saw it as customers or members of society, they
would protest. The antidote to this is for each of us to see ourselves as “a
more unified whole.” In Maryam Kouchaki, “How Wells Fargo’s Fake
Accounts Scandal Got So Bad,” Fortune, September 15, 2016,
http://fortune.com/2016/09/15/wells-fargo-scandal/.
537
customer-centric company.” In “Beyond shopping,” The Economist
Special Report: E-Commerce, October 28, 2017, p. 5.
27. John Mackey, quoted in April Fulton, “Whole Foods Founder John
Mackey on Fascism and ‘Conscious Capitalism,’” NPR, January 16,
2013,
https://www.npr.org/sections/thesalt/2013/01/16/169413848/whole-
foods-founder-john-mackey-on-fascism-and-conscious-capitalism.
31. Hedrick Smith, “When Capitalists Cared,” The New York Times,
September 2, 2012, https://www.nytimes.com/2012/09/03/opinion/henry-
ford-when-capitalists-cared.html.
33. Implicit in this ordering is the idea that the collective set of
stakeholders is equal to society (i.e., the total population). In other
words, all stakeholders are people, and all people are a stakeholder in at
least one firm and, in reality, many firms under many different guises.
Therefore, the total set of all stakeholders is equal to society, broadly
defined. As a result, managing in the interests of stakeholders is
essentially the same as managing for society. This idea is fundamental to
the idea of strategic CSR.
35. http://www.accountability.org/.
538
36. Simon Zadek, “The Path to Corporate Responsibility,” Harvard
Business Review, December 2004, pp. 125–132.
40. Anne Lawrence suggests that there are four strategies managers can
employ to engage stakeholders: “wage a fight,” “withdraw,” “wait,” and
“work it out.” See Anne T. Lawrence, “Managing Disputes with
Nonmarket Stakeholders,” California Management Review, Vol. 53, No.
1, Fall 2010, pp. 90–113.
41. An early iteration of the model in Figure 3.4 was developed with the
assistance of Richard E. Wokutch, professor of management, and his
class of PhD students at the Pamplin College of Business at Virginia
Polytechnic Institute and State University.
Chapter 4
1. For example, see Mike Esterl, “PepsiCo Wants to Sell Healthy Food,
Consumers Want Chips,” The Wall Street Journal, December 11, 2016,
https://www.wsj.com/articles/pepsico-wants-to-sell-healthy-food-
consumers-want-chips-1481481896.
3. Deborah Doane, “The Myth of CSR: The problem with assuming that
companies can do well while also doing good is that markets don’t really
work that way,” Stanford Social Innovation Review, Fall 2005, p. 26.
539
5. “Unresolved,” The Economist, September 8, 2018, p. 22.
6. For example, see Stephen Gandel, “Jamie Dimon calls regulation un-
American, once again,” Fortune, January 14, 2015,
http://fortune.com/2015/01/14/jamie-dimon-financial-regulation/.
9. Ibid.
11. Ibid.
13. Ibid.
15. Ian Davis, “The biggest contract,” The Economist, May 28, 2005, p.
73.
16. For example, see Claire Zillman, “Here’s what a $15 per hour wage
means for fast food prices,” Fortune, July 30, 2015,
http://fortune.com/2015/07/30/15-per-hour-fast-food-prices/.
17. See Richard Conniff, “Why We Don’t Vote With Our Wallets,” The
New York Times, October 22, 2017, p. SR4.
540
18. EarthShare, “We Live in the House We All Build” [Advertisement],
Summer 2008. See Strategic CSR – Earthshare.org, http://strategiccsr-
sage.blogspot.com/2008/10/strategic-csr-earthshareorg.html.
19. Ibid.
23. Arthur C. Brooks, “The Trick to Being More Virtuous,” The New
York Times, November 27, 2014,
https://www.nytimes.com/2014/11/28/opinion/the-trick-to-being-more-
virtuous.html.
541
inventory-of-chinese-made-laminate-1466124423. For details of other
illegal practices by the firm, see Richard Conniff, “For Logging’s
Crimes, Tougher Punishment,” The New York Times, February 21, 2016,
p. SR4.
27. Bill Vlasic & Aaron M. Kessler, “It Took E.P.A. to Pressure VW to
Admit Fault,” The New York Times, September 22, 2015, p. A1.
29. Mark Bergen & Nico Grant, “Salesforce Staff Ask CEO to Revisit
Ties with Border Agency,” Bloomberg Businessweek, June 25, 2018,
https://www.bloomberg.com/news/articles/2018-06-25/salesforce-
employees-ask-ceo-to-revisit-ties-with-border-agency.
31. I define value in its broadest sense to encapsulate both economic and
social contributions to the common good. This includes the idea that
financial profit already incorporates much of the value to society added
by the pursuit of profit (at a minimum jobs, taxes, a product consumers
demand, etc., but also much more subtle and far-reaching value added).
It is inaccurate to say that firms that pursue profit do not also add social
value. Economic value and social value are closer to being synonymous
than being mutually exclusive. Defining value more broadly, however,
also recognizes there are externalities currently excluded from the
pricing mechanism that affect total value and are better captured by the
term social value.
542
33. Adam Bluestein, “You Sign, Companies Listen,” Fast Company
Magazine, September 2013, pp. 34, 36.
35. Valeriya Safronova, “Millennials Get a Cyber Voice,” The New York
Times, December 21, 2014, p. 12.
38. For a more detailed discussion about the CSR Threshold, see Chapter
9.
543
44. “Capitalism and its discontents,” The Economist, October 3, 2015, p.
71.
45. For an analysis of the awareness and importance of CSR to the public
and other corporate stakeholders, see Jenny Dawkins & Stewart Lewis,
“CSR in Stakeholder Expectations: And Their Implication for Company
Strategy,” Journal of Business Ethics, May 2003, Vol. 44, pp. 185–193:
“Over ten years of research at MORI has shown the increasing
prominence of corporate responsibility for a wide range of stakeholders,
from consumers and employees to legislators and investors. . . .
Traditionally, the factors that mattered most to consumers when forming
an opinion of a company were product quality, value for money and
financial performance. Now, across a worldwide sample of the public,
the most commonly mentioned factors relate to corporate responsibility
(e.g., treatment of employees, community involvement, ethical and
environmental issues).”
47. Ibid.
48. Ibid.
49. Khadeeja Safdar, “Nike Shows Boycotts Just Don’t Do It,” The Wall
Street Journal, September 17, 2018, p. B1.
50. Sally Blount, “Yes, the World Needs More MBAs. Here’s Why,”
Bloomberg Businessweek, May 13, 2014,
https://www.bloomberg.com/news/articles/2014-05-13/yes-the-world-
needs-more-mbas-dot-here-s-why.
51. Ibid.
52. Daniel Akst, “Ethics’ Afternoon Swoon,” The Wall Street Journal,
November 9–10, 2013, p. C4.
53. Ibid.
544
54. Ibid.
56. The Aspen Institute Business & Society Program, “Beyond Grey
Pinstripes 2011–2012: Preparing MBAs for Social and Environmental
Stewardship,” 2012, p. 1.
59. See also The 50+20 Vision, Management Education for the World,
http://grli.org/initiatives/the-5020-vision/. PRME is an initiative of the
UN Global Compact (https://www.unglobalcompact.org/).
62. https://sustainabledevelopment.un.org/sdgs.
63. http://www.unprme.org/how-to-engage/student-engagement.php
(accessed April 2019).
545
that time, however, business education has changed, and the role of
business schools has shifted more toward training students, rather than
educating them (see Rakesh Khurana, From Higher Aims to Hired
Hands: The Social Transformation of American Business Schools and
the Unfilled Promise of Management as a Profession, Princeton
University Press, 2010).
68. David Gelles & Claire Cain Miller, “Schools Teach MBAs Perils of
‘Bro’ Ethos,” The New York Times, December 26, 2017, p. A1.
69. “You are not special,” The Economist, May 23, 2015, p. 73.
71. Jon Alexander, “The ‘just go shopping’ message from advertisers has
a dangerous effect,” The Guardian, January 10, 2014,
https://www.theguardian.com/sustainable-business/behavioural-
insights/just-go-shopping-message-advertisers-dangerous-effect.
72. The table in Figure 4.6 was developed together with Tim Hart of the
University of Tulsa.
546
3. David Leonhardt, “We’re Spent,” The New York Times, July 17, 2011,
p. SR1.
6. David Brooks, “An Economy of Faith and Trust,” The New York
Times, January 16, 2009, p. A27.
9. John Kay, “What a carve up,” Financial Times, August 1, 2009, Life
& Arts, p. 12.
13. Liar loans were mortgages that were approved “without verifying
people’s finances” (in Matt Scully & Jody Shenn, “Liar Loans Redux:
They’re Back and Sneaking Into AAA Rated Bonds,” Bloomberg
Businessweek, September 8, 2015,
https://www.bloomberg.com/news/articles/2015-09-08/liar-loans-redux-
they-re-back-and-sneaking-into-aaa-rated-bonds.
547
14. “Ninja” is an acronym that stands for “no income, no job, and no
assets.” See “NINJA Loans,” Investopedia,
https://www.investopedia.com/terms/n/ninja-loan.asp (accessed April
2019).
16. While “from 1980 to 2006, the finance sector of the American
economy grew to 8.6% of GDP from 4.9%,” John Kay of the Financial
Times suggests this growth “contributes little, if anything, to the
betterment of lives and the efficiency of business.” Rather, highly paid
investors spend their time and creativity developing “algorithms for
computer trading in securities that exploit the weaknesses of other
algorithms for computerized trading in securities” (in Burton G. Malkiel,
“Trading Places,” The Wall Street Journal, September 24, 2015, p. A15).
17. Ibid.
19. Ibid.
21. This statement is complicated by the role of the US$ as the world’s
reserve currency, which limits the ability of the US to run a trade surplus.
Nevertheless, this does not alter the underlying dynamics of an economy
based on excessive consumption and inadequate savings rates.
22. Seumas Milne, “Leaders still aren’t facing up to scale of crisis,” The
Guardian, reprinted in The Daily Yomiuri, April 3, 2009, p. 17.
548
24. Thomas L. Friedman, “The Inflection Is Near?” The New York Times,
March 8, 2009, p. WK12.
26. Michael Lewis & David Einhorn, “The End of the Financial World
As We Know It,” The New York Times, January 4, 2009, p. WK9.
27. Martin Wolf, “Seeds of its own destruction,” Financial Times, March
9, 2009, p. 7.
30. Thomas L. Friedman, “The Inflection Is Near?” The New York Times,
March 8, 2009, p. WK12.
31. Skeptics, on the other hand, advise caution and suggest that talk of
reform is premature: “‘Capitalism with a conscience’ promised on the
sickbed may be quickly forgotten in recovery. Don’t imagine the stake is
through the neoliberal heart yet” (in Polly Toynbee, “Brown should
spend more to save young people,” The Times, reprinted in The Daily
Yomiuri, April 6, 2009, p. 8).
549
34. See Justin Fox, The Myth of the Rational Market, Harper Business,
2009, and Richard Thaler, “The price is not always right and markets can
be wrong,” Financial Times, August 5, 2009, p. 7.
36. Sheelah Kolhatkar, “Billions in Fines, but No Jail Time for Bank of
America,” Bloomberg Businessweek, March 27, 2014,
https://www.bloomberg.com/news/articles/2014-03-27/billions-in-fines-
but-no-jail-time-for-bank-of-america. In response to the criticism it
received for its failure to hold any individuals to account for the
Financial Crisis, in 2015 the US Department of Justice announced that in
the future when it prosecutes corporate crime, “it plans to focus on
prosecuting the actual individuals who commit corporate crime, no
matter how senior they may be within a company, rather than focusing
only on civil cases against the companies themselves” (in Sheelah
Kolhatkar, “The DOJ Is Finally Conceding It Prosecutes Corporate
Crime All Wrong,” Bloomberg BusinessWeek, September 10, 2015,
https://www.bloomberg.com/news/articles/2015-09-10/the-doj-is-finally-
conceding-it-prosecutes-corporate-crime-all-wrong). The Department of
Justice memo is available at
https://www.nytimes.com/interactive/2015/09/09/us/politics/document-
justice-dept-memo-on-corporate-wrongdoing.html.
37. Donal Griffin & Dakin Campbell, “U.S. Bank Legal Bills Exceed
$100 Billion,” Bloomberg BusinessWeek, August 28, 2013,
http://www.bloomberg.com/news/2013-08-28/u-s-bank-legal-bills-
exceed-100-billion.html. The total figure of $103 billion was later
revised upward to $107 billion just for settlements alone (i.e., excluding
legal fees).
39. Ibid.
550
41. William D. Cohen, “The Wrecking Crew,” Vanity Fair, April 2015,
p. 150.
42. William Alden, “Dow Index Replaces 3 of Its 30 Stocks,” The New
York Times, September 11, 2013, p. B7.
43. Editorial, “A decade after Lehman fell, the global economy is not
better. It’s worse,” The Guardian, September 16, 2018,
https://www.theguardian.com/business/2018/sep/16/lehman-decade-
after-fall-global-economy-not-better-worse.
44. Joe Nocera, “Two Days in September,” The New York Times,
September 15, 2012, p. A23.
45. Ibid.
48. For example, Claire Ballentine, “Wall Street Salaries Just Hit Their
Highest in a Decade,” Bloomberg Businessweek, September 17, 2018,
https://www.bloomberg.com/news/articles/2018-09-17/wall-street-
salaries-at-highest-in-decade-n-y-comptroller-says.
49. “The last crash, and the next,” The Economist, August 4, 2018, p. 71.
51. Larry Elliott, “Ten years after the financial crash, the timid left
should be full of regrets,” The Guardian, August 30, 2018,
https://www.theguardian.com/commentisfree/2018/aug/30/financial-
crash-capitalism-banking-crisis.
52. Joshua Green, “The Biggest Legacy of the Financial Crisis is the
Trump Presidency,” Bloomberg Businessweek, August 30, 2018,
https://www.bloomberg.com/news/articles/2018-08-30/the-biggest-
legacy-of-the-financial-crisis-is-the-trump-presidency.
551
53. John Plender, “Head rush,” Financial Times: Life & Arts, July 7/8,
2018, p. 8.
55. Ibid.
56. Jean Eaglesham & Anupreeta Das, “7 Years, 156 Cases, Few
Convictions,” The Wall Street Journal, May 26, 2016, p. C1.
57. For example, see Anna Isaac, “Subprime mortgages are back—A
decade after the fall of Lehman,” The Daily Telegraph, September 16,
2018, https://www.telegraph.co.uk/business/2018/09/16/subprime-
mortgages-back-decade-fall-lehman/.
58. Greg Ip, “The World Turned Upside Down,” The Wall Street Journal,
September 8–9, 2018, p. B4.
59. Matt Phillips & Karl Russell, “What Could Trigger the Next One,”
The New York Times, September 16, 2018, p. BU14.
60. M. H. Miller, “I Came of Age in the Recession. I’m Still Angry,” The
New York Times, September 16, 2018, p. SR3.
61. Ganesh Sitaraman, “Our Constitution Wasn’t Built for This,” The
New York Times, September 17, 2017, p. SR1.
63. Fareed Zakaria, “The Aftershocks,” The New York Times Book
Review, August 12, 2018, p. 1.
64. Ibid.
65. David Brooks, “The G.O.P. Health Care Crackup,” The New York
Times, March 10, 2017, p. A29.
552
66. Ben Steverman, “Get rid of capitalism? Millennials are ready to talk
about it,” Bloomberg Businessweek, November 6, 2017,
https://www.bloomberg.com/news/articles/2017-11-06/get-rid-of-
capitalism-millennials-are-ready-to-talk-about-it.
67. Clifton Leaf, “Aetna CEO: ‘Doing Nothing, in the Current Model of
Capitalism, Will Destroy Capitalism,’” Fortune, October 27, 2017,
http://fortune.com/2017/10/27/cvs-aetna-mark-bertolini-capitalism/.
69. See “Democracy’s retreat,” The Economist, June 16, 2018, pp. 50–
52.
71. Corey Robin, “The New Socialists,” The New York Times, August 26,
2018, p. SR1.
73. Quoted in Tom McCarthy, “Woke business: Have big brands found a
conscience or a just marketing ploy?” The Guardian, September 16,
2018, https://www.theguardian.com/us-news/2018/sep/16/woke-
business-nike-colin-kaepernick-levis-pepsi.
76. “Popular capitalism, take two,” The Economist, October 14, 2017, p.
50.
Part III
1. For example, see John Oliver, “Facebook,” Last Week Tonight,
September 23, 2018, https://youtu.be/OjPYmEZxACM.
553
Chapter 5
1. John Micklethwait & Adrian Wooldridge, “The Company: A Short
History of a Revolutionary Idea,” Modern Library, 2003, pp. xiv–xv.
7. Ibid.
9. “What’s the most important Supreme Court case no one’s ever heard
of?” The Atlantic, May 2013, p. 96.
11. While The New York Times argued that the Court’s current view of
corporate rights should not be expanded, for an alternative perspective
on the same case, see this op-ed article in The Wall Street Journal:
Theodore B. Olsen, “The Chance for a Free Speech Do-Over,”
September 7, 2009,
http://online.wsj.com/article/SB100014240529702035850045743932500
83568972.html.
554
12. Chief Justice John Marshall, Trustees of Dartmouth College v.
Woodward (17 U.S. 518, 1819).
14. Mara Lemos Stein, “Shareholders Push Nike for Greater Disclosure
on Political Spending,” The Wall Street Journal, September 20, 2018,
https://blogs.wsj.com/riskandcompliance/2018/09/20/shareholders-push-
nike-for-greater-disclosure-on-political-spending/.
19. Ibid.
20. Ibid.
21. “Corporations and the court,” The Economist, June 25, 2011, p. 75.
555
22. Martha C. White, “Idea of company-as-person originated in late 19th
century,” The Washington Post, January 31, 2010,
http://www.washingtonpost.com/wp-
dyn/content/article/2010/01/30/AR2010013000030.html.
23. Joel Bakan, The Corporation: The Pathological Pursuit of Profit and
Power, Free Press, 2004, p. 35.
24. Dodge v. Ford Motor Company, 204 Mich. 459, 170 N.W. 668
(1919).
25. Joel Bakan, The Corporation: The Pathological Pursuit of Profit and
Power, Free Press, 2004, p. 36.
26. Lynn Stout, The Shareholder Value Myth: How Putting Shareholders
First Harms Investors, Corporations, and the Public, Berrett-Koehler,
2012, pp. 3–4.
27. Joseph L. Bower & Lynn S. Paine, “The Error at the Heart of
Corporate Leadership: Most CEOs and Boards Believe Their Main Duty
Is to Maximize Shareholder Value. It’s Not,” Harvard Business Review,
May–June, 2017, p. 52.
28. Martin Sorrell, “Taking the long view,” The Economist: The World in
2017, p. 124.
32. Ibid.
33. James E. Austin & James Quinn, “Ben & Jerry’s: Preserving Mission
and Brand within Unilever,” Harvard Business School Case 9-306-037,
December 8, 2005, p. 5. See also John Tozzi, “New Legal Protections for
Social Entrepreneurs,” Bloomberg Businessweek, April 22, 2010,
556
https://www.bloomberg.com/news/articles/2010-04-22/new-legal-
protections-for-social-entrepreneursbusinessweek-business-news-stock-
market-and-financial-advice.
37. Ibid.
38. Leslie Wayne, “To Delaware, With Love,” The New York Times, July
1, 2012, p. 4.
557
43. Liz Hoffman, “Dole and Other Companies Sour on Delaware as
Corporate Haven,” The Wall Street Journal, August 2, 2015,
https://www.wsj.com/articles/dole-and-other-companies-sour-on-
delaware-as-corporate-haven-1438569507/.
45. Alex Marshall, “How to Get Business to Pay Its Share,” The New
York Times, May 4, 2012, p. A23.
46. Of course, with federal oversight of corporate law, the risk is that
firms incorporate overseas in those places with the most favorable tax
treatments. Even with the current favorable regulatory environment, this
is happening. See, for example, Vanessa Houlder, “The tax avoidance
story as a morality tale,” Financial Times, November 22, 2004, p. 7.
47. Tax avoidance refers to a reduction in tax liability via legal means,
while tax evasion refers to a criminal nonpayment of tax that is owed.
558
55. Danielle Sacks, “The Miracle Worker,” Fast Company Magazine,
December 2009/January 2010, pp. 122–123.
57. Craig Sams, “Why Kraft Must Keep Organic Cacao Farmers Sweet,”
The Guardian, January 20, 2005,
https://www.theguardian.com/environment/2010/jan/20/kraft-green-
black-cadbury-ethical.
58. David Teather, “Roddick Nets £130m from Body Shop Sale,” The
Guardian, March 17, 2006,
https://www.theguardian.com/business/2006/mar/18/highstreetretailers.re
tail.
60. Angus Loten, “With New Law, Profits Take a Back Seat,” The Wall
Street Journal, January 19, 2012,
https://www.wsj.com/articles/SB10001424052970203735304577168591
470161630.
64. “Choosing plan B,” The Economist, August 11, 2018, p. 52.
559
65. Jo Confino, “Ben & Jerry’s: Parent Companies Don’t Always Know
Best,” The Guardian, October 22, 2012,
https://www.theguardian.com/sustainable-business/ben-jerrys-b-
corporation-social-responsibilities.
66. For more about B Corp, see Marc Gunther, “Can B Corp be the next
Fair Trade for socially-minded corporations?” The Guardian, January 7,
2016, https://www.theguardian.com/sustainable-business/2016/jan/07/b-
corp-leed-fair-trade-certification-sustainability-lab-danone-group-black-
rock-unilever.
71. Toby Webb, “Alternative capitalism: What’s the big idea?” Ethical
Corporation, June 4, 2012, http://www.ethicalcorp.com/business-
strategy/alternative-capitalism-whats-big-idea.
72. Critiquing the need for benefit corporations should not detract from
the fundamental value of the B-Corp certification. It is essential for all
firms to analyze their operations as a test of CSR. The B Impact
Assessment is a valuable tool by which they can do this. A close reading
of corporate law, however, suggests that altering the firm’s legal form to
become a benefit corporation is at best symbolic. At worst, promoting
560
this entity as a cure for capitalism relieves regular corporations from the
responsibility of creating value for all their stakeholders.
Chapter 6
1. Jason Zweig, “Cutting Back on Corporate Disclosure Isn’t the
Answer,” The Wall Street Journal, August 18–19, 2018, p. B1.
3. The ideas presented and expanded upon in this chapter were first
published in David Chandler, Corporate Social Responsibility: A
Strategic Perspective, Business Expert Press, 2015.
561
accepted, limited liability gained its own legitimacy as an inducement to
investors to support entrepreneurs in the value creation process.
10. Martin Lipton & William Savitt, “The Many Myths of Lucian
Bebchuk,” Virginia Law Review, Vol. 93, No. 3, 2007, p. 754.
12. “Rise of the distorporation,” The Economist, October 26, 2013, p. 30.
562
13. Steven Pearlstein, “The robots-vs.-robots trading that has hijacked
the stock market,” The Washington Post, February 7, 2018,
https://www.washingtonpost.com/news/wonk/wp/2018/02/07/the-robots-
v-robots-trading-that-has-hijacked-the-stock-market/.
15. “Don’t limit the revolution,” The Economist, October 1, 2016, p. 66.
20. Rachel Evans, Sabrina Willmer, Nick Baker, & Brandon Kochkodin,
“BlackRock and Vanguard Are Less Than a Decade Away From
Managing $20 Trillion,” Bloomberg Businessweek, December 4, 2017,
https://www.bloomberg.com/news/features/2017-12-04/blackrock-and-
vanguard-s-20-trillion-future-is-closer-than-you-think.
563
21. Robin Wigglesworth, “A vast money machine splutters,” Financial
Times, October 21/22, 2018, p. 9. While BlackRock is the largest asset
manager in the world, Vanguard is “the largest U.S. provider of mutual
funds and exchange-traded funds by assets and the second-largest money
manager in the world.” In Sarah Krouse, “Vanguard ‘Just Getting
Started,’” The Wall Street Journal, January 5, 2018, p. B1.
22. See John Authers & Chris Newlands, “Taking over the markets,”
Financial Times, December 6, 2016, p. 9.
24. Paul Krugman, “Now That’s Rich,” The New York Times, May 9,
2014, p. A25.
28. Luh Luh Lan & Loizos Heracleous, “Rethinking Agency Theory:
The View from Law,” Academy of Management Review, Vol. 35, No. 2,
2010, p. 301.
29. And even this is more complicated than generally understood. See
Steven Davidoff Solomon, “Dole Case Illustrates Problems in
Shareholder System,” The New York Times, March 22, 2017, p. B4.
564
30. For related work that builds on the argument that the firm has
obligations to its stakeholders, broadly defined, see James E. Post, Lee E.
Preston, & Sybille Sachs, Redefining the Corporation: Stakeholder
Management and Organizational Wealth, Stanford Business Books,
2002, and Sybille Sachs & Edwin Ruhli, Stakeholders Matter: A New
Paradigm for Strategy in Society, Cambridge University Press, 2012.
33. In December 2015, Apple announced that its board of directors had
approved bylaws that “allow a shareholder, or a group of up to 20
shareholders, holding 3% of its shares continuously for three years to
include board nominees in the company’s annual proxy statement.” What
is interesting about this announcement is that even this incremental
advance in favor of shareholder democracy was treated as good news for
governance activists. In reality, the firm gave up very little because in
2019, owning 3% of Apple’s shares would constitute an investment of
$30 billion. Moreover, “the bylaw allows shareholders to nominate up to
20% of Apple’s directors. Apple’s board currently has eight members, so
shareholders could nominate one director.” That such a minor concession
by Apple should be heralded as a major advance indicates the sorry state
of shareholder democracy in the United States. See Scott Thurm, “Apple
Offers Proxy Access,” The Wall Street Journal, December 22, 2015,
https://www.wsj.com/articles/apple-inc-offers-proxy-access-
1450824690/.
35. Joann S. Lublin & Theo Francis, “Where Majority Doesn’t Rule,”
The Wall Street Journal, May 12, 2014, p. B8.
565
36. Eugene F. Fama, “Agency Problems and the Theory of the Firm,”
Journal of Political Economy, Vol. 88, 1980, p. 290.
37. Luh Luh Lan & Loizos Heracleous, “Rethinking Agency Theory:
The View from Law,” Academy of Management Review, Vol. 35, No. 2,
2010, p. 301.
39. “Friends in high places,” The Economist, March 10, 2018, p. 84.
“And what was particularly grotesque about this was that . . . 600,000
people were killed to get rights for people [as a result of the Civil War]
and then, with strokes of the pen over the next 30 years, judges applied
those rights to capital and property, while stripping them from people.”
See The Corporation, 2003, http://www.thecorporation.com/.
41. “The business of business,” The Economist, March 21, 2015, p. 62.
566
42. Jonathan R. Macey, “A Close Read of an Excellent Commentary on
Dodge v. Ford,” Virginia Law & Business Review, Vol. 3, No. 1, 2008, p.
180.
44. Joann S. Lublin & Theo Francis, “Where Majority Doesn’t Rule,”
The Wall Street Journal, May 12, 2014, p. B8.
45. Ibid.
48. Shareholders also have a claim to the residual of the firm when it
enters bankruptcy. As with many other so-called shareholder rights,
however, this claim reveals the nature of the legal relationship between
the firm and its investors, who must line up behind the firm’s
bondholders and all other creditors.
50. Dodge v. Ford Motor Co., 204 Mich. 459, 170 N.W. 668 (1919).
51. For additional insight into this case and why it has historically been
misinterpreted as support for the idea that the directors of a firm have a
567
fiduciary responsibility to maximize shareholder value, see Lynn A.
Stout, “Why We Should Stop Teaching Dodge v. Ford,” UCLA School
of Law, Law-Econ Research Paper No. 07-11, 2008.
52. Moreover, because investors are not one homogenous group with
similar goals, investment time frames, or values (they include pension
funds, day traders, and high-frequency computer algorithms), they
cannot approximate the legal or actual influence of a sole proprietor who
owns 100% of a firm’s shares (or even a majority owner).
54. John Kay, “Shareholders think they own the company—they are
wrong,” Financial Times, November 11, 2015, p. 9.
55. Ibid. See also Sumantra Ghoshal, “Bad Management Theories Are
Destroying Good Management Practices,” Academy of Management
Learning & Education, Vol. 4, No. 1, 2005, pp. 75–91.
56. For example, see Jacob M. Rose, “Corporate Directors and Social
Responsibility: Ethics versus Shareholder Value,” Journal of Business
Ethics, Vol. 73, No. 3, July 2007, pp. 319–331. This study reports that
“directors . . . sometimes make decisions that emphasize legal
defensibility at the expense of personal ethics and social responsibility.
Directors recognize the ethical and social implications of their decisions,
but they believe that current corporate law requires them to pursue legal
courses of action that maximize shareholder value” (p. 319).
57. In the business school, we are largely oblivious to this debate, which
is occurring in the academic corporate law community. For more
information, see https://themoderncorporation.wordpress.com/company-
law-memo/.
568
59. The corporate legal scholars at the Modern Corporation who
authored the statement “Fundamental rules of corporate law”
(https://themoderncorporation.wordpress.com/company-law-memo/)
argue that this absence of a fiduciary responsibility of directors is
“applicable in almost all jurisdictions.”
60. For a detailed examination of the legal foundation (or lack thereof)
for the idea that the primary fiduciary responsibility of the firm’s
executives and directors is to serve the interests of the firm’s
shareholders, see Lynn A. Stout, The Shareholder Value Myth: How
Putting Shareholders First Harms Investors, Corporations, and the
Public, Berrett-Koehler, 2002.
62. Luh Luh Lan & Loizos Heracleous, “Rethinking Agency Theory:
The View from Law,” Academy of Management Review, Vol. 35, No. 2,
2010, p. 300.
63. Equally silent are the company laws of the next four most important
states for US corporate law after Delaware: New York, California,
Illinois, and Pennsylvania. It is instructive that the law in each of these
five states fails to define the shareholders of the corporation as its
owners. Nevertheless, it is also correct to note that there is inconsistency
among all 50 states. As such, it seems fair to conclude that the essence of
ownership lies more in how corporate law is enforced and, in particular,
how it is enforced in Delaware. In other words, I argue it is how courts
interpret the relationship between the corporation and its shareholders in
reality that is the ultimate determinant of who legally owns the
corporation.
569
obligation is to maximize value for shareholders (see Revlon Inc. v.
MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, Del. 1986). Due to
the Fourteenth Amendment origins of corporate personhood, however,
when one firm acquires or merges with another firm, I believe it is not
ownership that changes, but control. In other words, by buying Firm B’s
shares, Firm A is essentially buying the right for its board to assume
control of Firm B. A firm can own assets (such as share certificates); it
cannot own another person. Labels such as merger or acquisition are
simply convenient rhetorical devices we have developed to simplify an
otherwise complex legal exchange of assets.
65. Dodge v. Ford Motor Company, 204 Mich. 459, 170 N.W. 668
(1919).
67. “Dodge v. Ford is best viewed as a case that deals not with directors’
duties to maximize shareholder wealth, but with controlling
shareholders’ duties not to oppress minority shareholders. The one
Delaware opinion that has cited Dodge v. Ford in the last thirty years,
Blackwell v. Nixon, cites it for just this proposition” (in Lynn A. Stout,
“Why We Should Stop Teaching Dodge v. Ford,” Virginia Law &
Business Review, Vol. 3, No. 1, 2008, p. 168).
570
frequency traders holding positions for microseconds, day traders, and
pension funds). He also bases his case on facts such as “only
stockholders get to elect directors” (p. 453), as if that depicts ownership,
without acknowledging that, in reality, shareholders vote on the
candidates nominated by management and that additional legal rights are
constrained because many votes (e.g., shareholder resolutions) are
nonbinding. Most damagingly, by undermining the idea of the direct
democracy model (which would at least be more consistent with the idea
of shareholders as owners) by arguing that “the best way to ensure that
corporations generate wealth for diversified stockholders is to give the
managers of corporations a strong hand to take risks and implement
business strategies without constant disruption by shifting stock market
sentiment,” Strine essentially reinforces Stout’s case that the courts tend
to favor management over shareholders in any dispute.
71. Floyd Norris, “Companies That Lie Increasingly Win in Court,” The
New York Times, March 21, 2014, p. B1.
72. Loizos Heracleous & Luh Luh Lan, “The Myth of Shareholder
Capitalism,” Harvard Business Review, April 2010, p. 24. See also Luh
Luh Lan & Loizos Heracleous, “Rethinking Agency Theory: The View
from Law,” Academy of Management Review, Vol. 35, No. 2, 2010, pp.
294–314.
74. Jessica Shankleman, “Tim Cook tells climate change sceptics to ditch
Apple shares,” The Guardian, March 3, 2014,
https://www.theguardian.com/environment/2014/mar/03/tim-cook-
climate-change-sceptics-ditch-apple-shares.
571
ba10-0000779fd2ac.
80. There are two ways a firm can redistribute profits to shareholders—
share buybacks or dividends. While both methods ultimately raise the
firm’s share price, buybacks raise it directly (by decreasing the number
of shares outstanding), while dividends do it indirectly (by making the
shares a more attractive investment).
572
http://www.purposeofcorporation.org/en/news/5009-infographic. See
also Mike Bird, Vipal Monga, & Aaron Kuriloff, “Dividends Eat Up
Bigger Slice of Company Profits,” The Wall Street Journal, August 19,
2016, p. A1.
84. Dan Marcec, “CEO Tenure Rates,” Harvard Law School Forum on
Corporate Governance and Financial Regulation, February 12, 2018,
https://corpgov.law.harvard.edu/2018/02/12/ceo-tenure-rates/.
85. “Reform school for bankers,” The Economist, October 5, 2013, p. 73.
86. It is worth emphasizing here that shareholder pressure is not the only
reason that firms focus on the short term. Executive compensation
packages that rely disproportionately on share price as an indicator of
firm performance (or contain large amounts in stock options) also have
the same effect. As noted by Robert Pozen of Harvard Business School,
“at present, most firms distribute case bonuses and stock grants on the
basis of the prior year’s results. This approach does encourage top
executives to favor short-term results over long-term growth” (in Robert
C. Pozen, “The Misdirected War on Corporate Short-Termism,” The Wall
Street Journal, May 19, 2014, https://www.corpgovuk.com/the-
misdirected-war-on-corporate-short-termism/).
88. Andrew Ross Sorkin, “Some Heresy on Wall Street: Look Past the
Quarter,” The New York Times, February 1, 2016,
https://www.nytimes.com/2016/02/02/business/dealbook/some-heresy-
on-wall-street-look-past-the-quarter.html.
573
90. In game theory, this concept of the likelihood of repeat or future
interactions has been termed the “shadow of the future.” See Robert
Axelrod, The Evolution of Cooperation, Basic Books, 1984.
91. See Elizabeth Rigby & Jenny Wiggins, “Unilever chief commits to
raising volumes,” Financial Times, May 7, 2009,
https://www.ft.com/content/d8c009a6-3a83-11de-8a2d-00144feabdc0.
93. “How far can Amazon go?” The Economist, June 21, 2014, p. 11. See
also Michael Corkery & Nick Wingfield, “Vast Patience in Amazon was
a Virtue for Investors,” The New York Times, February 5, 2018, p. B1.
95. Joseph L. Bower & Lynn S. Paine, “The Error at the Heart of
Corporate Leadership: Most CEOs and Boards Believe Their Main Duty
is to Maximize Shareholder Value. It’s Not,” Harvard Business Review,
May–June, 2017, p. 52.
574
to the principal-agent model—that shareholders are not the only group
that may provide specialized inputs into corporate production” (in
Margaret M. Blair & Lynn A. Stout, “A Team Production Theory of
Corporate Law,” Virginia Law Review, Vol. 85, No. 2, March 1999, pp.
249, 250).
3. Barry Lynn, “Google and Facebook are strangling the free press to
death. Democracy is the loser,” The Guardian, July 26, 2018,
https://www.theguardian.com/commentisfree/2018/jul/26/google-and-
facebook-are-strangling-the-free-press-to-death-democracy-is-the-loser.
5. https://twitter.com/jkrums/status/1121915133.
6. Mark Laity, “The Media: Part of the Problem or Part of the Solution?”
Kent Bulletin, The University of Kent at Canterbury, No. 42, Spring
2004, pp. 8–10, https://www.kent.ac.uk/alumni/pdf/kent42.pdf.
575
YouTube: The Latest News From Al Jazeera, in English,” The New York
Times, April 16, 2007, p. C5).
11. “Business ethics: Doing well by doing good,” The Economist, April
22, 2000, pp. 65–68.
13. Quoted in Mark Laity, “The Media: Part of the Problem or Part of the
Solution?” Kent Bulletin, The University of Kent at Canterbury, No. 42,
Spring 2004, pp. 8–10, https://www.kent.ac.uk/alumni/pdf/kent42.pdf.
16. Justin Moyer, “Aylan’s story: How desperation left a 3-year-old boy
washed up on a Turkish beach,” The Washington Post, September 3,
2015, https://www.washingtonpost.com/news/morning-
mix/wp/2015/09/03/a-desperate-refugee-family-a-capsized-boat-and-3-
year-old-dead-on-a-beach-in-turkey/.
18. U.S. Army General Tom Metz (quoted in Flat Earth News by Nick
Davies), quoted in John Mecklin, “Over the Horizon,” Miller-McCune,
June–July, 2008, p. 7.
576
19. Bill Carter, “With Rivals Ahead, Doubts for CNN’s Middle Road,”
The New York Times, April 27, 2009, p. B1.
20. Brian Stelter & Tim Arango, “Business News With Attitude,” The
New York Times, March 9, 2009, p. B6.
21. Bill Carter, “A Matrix of News Winners Buoys NBC,” The New York
Times, March 9, 2009, pp. B1, B6.
23. Nik Deogun, quoted in Brian Stelter, “Market Ills Give CNBC A
Bounce,” The New York Times, August 15, 2011, p. B1.
24. Clarence Page, “A mad comic vs. ‘Mad Money,’” Chicago Tribune,
in The Daily Yomiuri, March 24, 2009, p. 17.
25. Allysia Finley, “Scholars Get the Real Scoop on ‘Fake News,’” The
Wall Street Journal, January 8, 2018, p. A17. See also Jacey Fortin &
Jonah Engel Bromwich, “Sinclair Told Anchors to Recite Script on
Bias,” The New York Times, April 3, 2018, p. B3.
577
to round-the-clock propaganda.” In Mark Bowden, “Cronkite’s
‘Stalemate,’” The New York Times, February 27, 2018, p. A19.
31. John Lloyd, “Has satire lost its sting?” Financial Times: Life & Arts,
September 11/12, 2010, p. 19.
33. Kara Swisher, “The Internet Bill of Rights,” The New York Times,
October 7, 2018, p. SR9.
34. “Amazon’s ad-renaline rush,” The Economist, October 27, 2018, pp.
59–61.
36. “Taming the titans,” The Economist, January 20, 2018, p. 11.
37. Farhad Manjoo, “Why Big Tech, Even Now, Is as Big as Ever,” The
New York Times, August 2, 2018, p. B7.
38. Olivia Solon, “‘A grand illusion’: Seven days that shattered
Facebook’s facade,” The Guardian, March 24, 2018,
https://www.theguardian.com/technology/2018/mar/24/cambridge-
analytica-week-that-shattered-facebook-privacy.
39. Gregg Bloche, “Rogue Science on Trial,” The Los Angeles Times, in
The Daily Yomiuri, May 12, 2003, p. 13.
40. For a detailed analysis of how Facebook’s News Feed has evolved in
response to the intense public scrutiny the firm has faced, see Nicholas
Thompson & Fred Vogelstein, “Inside the Two Years that Shook
Facebook—and the World,” Wired, February 12, 2018,
https://www.wired.com/story/inside-facebook-mark-zuckerberg-2-years-
of-hell/.
42. Ibid.
578
43. See David D. Kirkpatrick, “Signs that Russia used Social Media to
Sway Brexit Vote,” The New York Times, November 16, 2017, p. A8 and
“Londongrad,” The Economist, November 25, 2017, pp. 52–53.
45. For example, see Nicholas Foulkes, “Lunch with the FT: Jony Ive,”
Financial Times Life & Arts, October 20/21, 2018, p. 3.
47. For example, see Nick Bilton, “Fake News is About to Get Even
Scarier than You Ever Dreamed,” Vanity Fair, January 26, 2017,
https://www.vanityfair.com/news/2017/01/fake-news-technology.
48. Sam Levin, “Is Facebook a publisher? In public it says no, but in
court it says yes,” The Guardian, July 3, 2018,
https://www.theguardian.com/technology/2018/jul/02/facebook-mark-
zuckerberg-platform-publisher-lawsuit. See also Glenn Harlan Reynolds,
“When Digital Platforms Become Censors,” The Wall Street Journal,
August 18–19, 2018, p. C4.
51. Emma Jacobs, “Fear and trembling in the digital age,” Financial
Times, February 17, 2017, p. 8.
53. Steve Lohr, “Why We’re Easily Seduced by False News,” The New
York Times, March 9, 2018, p. B1.
579
54. L. Gordon Crovitz, “Social Media, Weaponized,” The Wall Street
Journal, December 4, 2017, p. A15.
56. Emily Parker, “Silicon Valley Can’t Destroy Democracy without Our
Help,” The New York Times, November 3, 2017, p. A31.
57. David Brooks, “How Evil is Tech?” The New York Times, November
21, 2017, p. A25.
61. Farhad Manjoo, “Digital Addiction Stirs Worry Even in its Creators,”
The New York Times: State of the Internet, February 12, 2018, p. F6.
62. Steve Jobs, quoted in John Harris, “Take it from the insiders: Silicon
Valley is eating your soul,” The Guardian, January 1, 2018,
https://www.theguardian.com/commentisfree/2018/jan/01/silicon-valley-
eating-soul-google-facebook-tech.
65. Farhad Manjoo, “It’s Time for a Lot Less iPhone,” The New York
Times, January 18, 2018, pp. B1, B5.
580
66. Natasha Singer & Sapna Maheshwari, “Internet Safety, Taught by an
Internet Giant,” The New York Times, October 24, 2018, pp. B1, B2.
67. Kevin Roose, “How Did Data Sharing on Facebook Go from Feature
to Bug?” The New York Times, March 20, 2018, p. A18. See also Lesley
Stahl, “Aleksandr Kogan: The Link Between Cambridge Analytica and
Facebook,” CBS News 60 Minutes, September 2, 2018,
https://www.cbsnews.com/news/aleksandr-kogan-the-link-between-
cambridge-analytica-and-facebook-60-minutes/.
68. Eric Klinenberg, “Is Loneliness a Health Epidemic?” The New York
Times, February 11, 2018, p. SR8.
71. Abigail Shrier, “The Company That Loves Misery,” The Wall Street
Journal, April 12, 2018, p. A17.
72. David Brooks, “How Evil is Tech?” The New York Times, November
21, 2017, p. A25.
74. For example, see Sahil Chinoy, “Your Life, Patented by Facebook,”
The New York Times, June 24, 2018, p. SR2 and Natasha Singer,
“Facebook Pores over Its Prize Asset: Faces,” The New York Times, July
10, 2018, pp. B1–B2.
75. David Brooks, “The Blindness of Social Wealth,” The New York
Times, April 17, 2018, p. A23.
581
76. Casey Schwartz, “Save Us From Our Phones!” The New York Times,
August 16, 2018, p. D1.
77. Zeynep Tufekci, “What ‘Free’ Really Costs,” The New York Times,
June 4, 2015, p. A23.
78. Ibid.
79. Ibid.
80. Ibid.
81. See Steven Johnson, “Beyond the Bitcoin Bubble,” The New York
Times Magazine, January 21, 2018, pp. 36–41, 52–57. See also Nathaniel
Popper, “Tech’s Answer for Security: Blockchain,” The New York Times,
April 2, 2018, p. B1.
82. See Eduardo Porter, “Getting Tech Giants to Pay You for Your Data,”
The New York Times, March 7, 2018, p. B1.
83. Zeynep Tufekci, “What ‘Free’ Really Costs,” The New York Times,
June 4, 2015, p. A23.
84. Matthew Ingram, “Death and Facebook: Blurring the Line Between
Real and Virtual,” Bloomberg BusinessWeek, November 14, 2012,
https://www.bloomberg.com/news/articles/2012-11-14/death-and-
facebook-blurring-the-line-between-real-and-virtual.
85. Ibid.
86. Ibid.
88. “Big tech, big trouble,” The Economist, September 23, 2017, p. 63.
See also Kara Swisher, “The Education of Silicon Valley,” The New York
Times, August 3, 2018, p. A23.
90. Betsy Morris, “The New Tech Avengers,” The Wall Street Journal,
June 29, 2018, https://www.wsj.com/articles/the-new-tech-avengers-
582
1530285064.
91. David Chavern, “Protect the News from Google and Facebook,” The
Wall Street Journal, February 26, 2018, p. A17.
92. Paul Mozur, Mark Scott, & Mike Isaac, “Facebook is Navigating a
Global Power Struggle,” The New York Times, September 18, 2017, p.
A6.
93. David Streitfeld, “Changing the World, but not Quite the Way They
Had Imagined,” The New York Times, October 13, 2017, p. A11. For
details about fines paid, see Adam Satariano & Jack Nicas, “E.U. Fines
Google $5.1 Billion in Android Antitrust Case,” The New York Times,
July 18, 2018, https://www.nytimes.com/2018/07/18/technology/google-
eu-android-fine.html. See also “Capitol punishment,” The Economist,
October 28, 2017, pp. 27–28 and “GrrrDPR,” The Economist, October 6,
2018, pp. 61–62.
95. Atossa Araxia Abrahamian, “We’re All Data Subjects,” The New
York Times, May 29, 2018, p. A23.
96. “The joys of data hygiene,” The Economist, April 7, 2018, pp. 53–54.
97. Nicole Kobie, “Could children one day sue parents for posting baby
pics on Facebook?” The Guardian, May 8, 2016,
https://www.theguardian.com/sustainable-
business/2016/may/08/children-sue-parents-facebook-post-baby-photos-
privacy.
98. Ibid.
99. Alissa J. Rubin & Elian Peltier, “France Forces Many Pupils to Put
Away their Phones,” The New York Times, September 21, 2018, p. A4.
100. “Feeling lucky?” The Economist, November 3, 2018, p. 56. See also
Paul Hannon & Nina Trentmann, “U.K. Plans to Introduce Digital Tax
on Tech Firms,” The Wall Street Journal, October 30, 2018, p. A9.
583
101. Deepa Seetharaman & Georgia Wells, “Facebook Starts Year in
Fixer-Upper Mode,” The Wall Street Journal, January 4, 2019, p. B3.
104. Lauren Weber & Deepa Seetharaman, “The Worst Job in Tech:
Keeping Facebook Clean,” The Wall Street Journal, December 28, 2017,
pp. A1, A8.
106. Farhad Manjoo, “Big Tech Is Drawing Lines. So Far, Very Fuzzy
Ones,” The New York Times, July 26, 2018, p. B6.
107. Editorial, “Hey, Facebook, Do Your Own Work,” The New York
Times, October 20, 2018, p. A24.
108. Editorial, “Can Facebook Be Cut Down to Size?” The New York
Times, June 6, 2018, p. A22.
109. Jim Rutenberg, “Waiting for Facebook to Share More,” The New
York Times, September 18, 2017, p. B1.
110. Farhad Manjoo, “How Mark Zuckerberg Became Too Big to Fail,”
The New York Times, November 1, 2018, p. B5.
111. Ibid.
113. David Brooks, “The Power of Human Touch,” The New York Times,
January 19, 2018, p. A25.
584
Chapter 7
1. John Mackey, “To Increase Jobs, Increase Economic Freedom,” The
Wall Street Journal, November 16, 2011, p. A17.
2. The ideas presented and expanded upon in the first two sections of this
chapter were first published in David Chandler, Corporate Social
Responsibility: A Strategic Perspective, Business Expert Press, 2014.
585
10. Howard R. Bowen, Social Responsibilities of the Businessman,
Harper & Brothers, 1953, p. 111.
11. Chad Bray, “BP to Take $1.7 Billion Charge Over Gulf of Mexico
Spill,” The New York Times, January 17, 2018, p. B2.
586
economists call a Veblen good—“a product that is valued and desirable
simply for being more expensive” (Eric Felten, “Fake Authenticity for
Sale,” The Wall Street Journal, January 28, 2011,
https://www.wsj.com/articles/SB10001424052748704268104576108200
922251310/). This concept of conspicuous consumption can be recast to
highlight the idea of conspicuous virtue—actions by consumers who “are
not seeking an outright demonstration of wealth. Instead, they consume
to demonstrate their innate goodness. They spend not to suggest the
deepness of their pockets but the deepness of their hearts” (Joseph Rago,
“Conspicuous Virtue and the Sustainable Sofa,” The Wall Street Journal,
March 23, 2007, p. W13.)
587
26. Nicholas Kristoff, “Why 2017 Was the Best Year in History,” The
New York Times, January 7, 2018, p. SR9.
27. Nicholas Kristoff, “2018 Was the Best Year in History!” The New
York Times, January 6, 2019, p. SR11.
30. Definitions of extreme poverty vary. The World Bank defines this
income group as people “living on less than $1.90 a day” and currently
estimates that the “global population living in extreme poverty has fallen
below 750 million for the first since [it] began collecting global statistics
in 1990, a decline of more than one billion people in the past 25 years”
(in Josh Zumbrun, “Share of the World’s Poorest Falls to 10%,” The Wall
Street Journal, September 20, 2018, p. A16).
32. The level of inequality in the world is worse than it was a decade ago
and is growing. See Eduardo Porter & Karl Russell, “It’s an Unequal
World. It Doesn’t Have to Be,” The New York Times, December 14,
2017, https://www.nytimes.com/interactive/2017/12/14/business/world-
inequality.html.
35. “Face Value: Profits and Poverty,” The Economist, August 21, 2004,
p. 54.
588
design and packaging, and distribution that the firms develop overseas:
“The same [BOP] logic is now being applied to the poorest Westerners
(there are 46m Americans living in poverty and almost 50m still without
health-care insurance)” (in “Gold-hunting in a frugal age,” The
Economist, December 15, 2012, p. 70). See also “The bottom of the
pyramid,” The Economist, June 25, 2011, p. 80.
37. “A market of 4 billion people,” The Daily Yomiuri, October 22, 2012,
p. 5.
39. “The elephant in the room,” The Economist, January 13, 2018, p. 21.
42. Vindu Goel, “IBM Makes a Big Bet on India,” The New York Times,
October 1, 2017, pp. BU1, BU5.
44. Preetika Rana, “L’Oreal Shrinks Packages in India,” The Wall Street
Journal, June 9, 2016, p. B6.
46. See “Will Corporations Really Help the World’s Poor?” CSRwire,
January 30, 2005, http://www.csrwire.com/press_releases/19946/, and
Mallen Baker, “Is there REALLY a fortune at the Bottom of the
Pyramid?” Mallenbaker.net, September 3, 2006,
http://mallenbaker.net/article/category/is-there-really-a-fortune-at-the-
bottom-of-the-pyramid/.
589
47. Lifeworth, “2004 Lifeworth Annual Review of Corporate
Responsibility,” 2005, p. 2.
48. Vince Besier, “Save the Poor. Sell Them Stuff. Cheap!” Miller-
McCune, May/June 2011, pp. 48–50.
50. “Vital for the poor,” The Economist, November 10, 2012, p. 52.
51. Howard Sharman, “Markets can work for development gain,” Ethical
Corporation, May 25, 2012, http://www.ethicalcorp.com/stakeholder-
engagement/view-middle-markets-can-work-development-gain.
52. Thomas Buckley & Matthew Campbell, “If Unilever Can’t Make
Feel-Good Capitalism Work, Who Can?” Bloomberg Businessweek,
August 30, 2017, https://www.bloomberg.com/news/features/2017-08-
31/if-unilever-can-t-make-feel-good-capitalism-work-who-can.
54. Cait Murphy, “The Hunt for Globalization That Works,” Fortune,
October 28, 2002,
http://archive.fortune.com/magazines/fortune/fortune_archive/2002/10/2
8/330941/index.htm.
590
57. Paul Polman became CEO of Unilever in 2009; he retired on
December 31, 2018. In “Paul Polman to retire; Alan Jope appointed as
successor,” Unilever press release, November 29, 2018,
https://www.unilever.com/news/press-releases/2018/unilever-ceo-
announcement.html.
60. “Since early 2009, when Mr Polman took over, emissions, water
usage and waste have fallen by 43%, 38% and 96% respectively” (in
“The parable of St Paul,” The Economist, September 2, 2017, p. 58).
However, “in May [2016], the company admitted it had no hope of
meeting its goal of halving its products’ environmental impact by 2020.
It pushed the date back to 2030” (in Michael Skapinker & Scheherazade
Daneshkhu, “Man on a mission,” Financial Times Life & Arts, October
1/2, 2016, p. 20).
61. “In search of good business,” The Economist, August 9, 2014, p. 56.
64. Ellen Byron, “Emerging Ambitions,” The Wall Street Journal, July
16, 2007, p. A1.
591
66. “Good business; nice beaches,” The Economist, May 19, 2012, p. 76.
67. See Jennifer Reingold, “Can P&G Make Money in Places Where
People Earn $2 a Day?” Fortune, January 17, 2011, pp. 86–91; Erik
Simanis, “At the Base of the Pyramid,” The Wall Street Journal, October
26, 2009, p. R7; and V. Kasturi Rangan, Michael Chu, & Djordjija
Petkoski, “The Globe: Segmenting the Base of the Pyramid,” Harvard
Business Review, June 2011, https://hbr.org/2011/06/the-globe-
segmenting-the-base-of-the-pyramid.
68. “Fighting for the next billion shoppers,” The Economist, June 30,
2012, p. 65.
69. For example, see Vivienne Walt, “Unilever CEO Paul Polman’s Plan
to Save the World,” Fortune, February 17, 2017,
http://fortune.com/2017/02/17/unilever-paul-polman-responsibility-
growth/.
Chapter 8
1. Sharon Begley, “Green Shopping Won’t Save the Planet,” Newsweek,
April 20, 2010, https://www.newsweek.com/green-shopping-wont-save-
planet-70373.
2. See “The taxes of sin,” The Economist, July 28, 2018, pp. 44–45.
592
140 million words of binding federal statutes and regulations, and states
and municipalities add several billion more” (Philip K. Howard,
“Starting Over with Regulation,” The Wall Street Journal, December 3–
4, 2011, p. C2).
8. Charles Murray, “Fifty Shades of Red,” The Wall Street Journal, May
9–10, 2015, p. C2.
11. Will Hutton, “Capitalism must put its house in order,” The Guardian,
November 24, 2002,
https://www.theguardian.com/politics/2002/nov/24/politicalcolumnists.g
uardiancolumnists.
14. “The taxes of sin,” The Economist, July 28, 2018, pp. 44–45.
17. Greg Ip, “A Less-Visible Role for the Fed Chief: Freeing Up
Markets,” The Wall Street Journal, November 19, 2004, pp. A1, A8.
18. Ibid.
593
19. Chris Lester, “Alan, like Atlas, shrugged,” The Kansas City Star,
November 4, 2008.
20. For example, David Brooks, “The Axis of Selfishness,” The New
York Times, June 2, 2017, p. A25.
21. In light of the rise of behavioral economics and the failure of the
economics profession to predict the Financial Crisis, there is a movement
to overhaul how economics is taught. See Rethinking Economics
(http://www.rethinkeconomics.org/). See also David Pilling, “Crash and
learn,” Financial Times, October 1/2, 2016, p. 18 and “Think again,” The
Economist, September 23, 2017, p. 70.
25. Doug Steiner, “Honesty That Benefits All,” The New York Times,
November 12, 2013, p. F10.
26. David A. Shaywitz, “How to Make Up Your Mind,” The Wall Street
Journal, September 12, 2018, p. A15.
27. “Nudge, nudge, think, think,” The Economist, March 24, 2012, p. 78.
29. “Nudge, nudge, think, think,” The Economist, March 24, 2012, p. 78.
31. Beth Terry, “Will a NYC Ban on Large Sugary Sodas Decrease
Obesity or Increase Plastic Waste?” My Plastic-Free Life, June 19, 2012,
594
https://myplasticfreelife.com/2012/06/will-a-nyc-ban-on-large-sugary-
sodas-decrease-obesity-or-increase-plastic-waste/.
33. Betsy McKay, “Dramatic Drop in Trans Fat in U.S. Adults,” The
Wall Street Journal, February 14, 2012, p. D5.
34. Brian Wansink, David R. Just, & Joe McKendry, “Lunch Line
Redesign,” The New York Times, October 22, 2010, p. A25.
36. Sean Poulter & Rosie Taylor, “Supermarkets are still tempting us
with sweets at the checkouts as they claim to be helping shoppers make
healthy choices,” The Daily Mail, October 24, 2012,
https://www.dailymail.co.uk/news/article-2222785/Supermarkets-
tempting-sweets-checkouts.html.
37. Nathaniel Popper, “Cash Control,” The New York Times Book
Review, January 8, 2017, p. 15.
38. David Brooks, “The Unexamined Society,” The New York Times,
July 8, 2011, p. A21.
40. Tim Harford, “The best way to combat bias,” Financial Times,
November 19/20, 2016, p. 18.
41. David A. Shaywitz, “Flirting with Disaster,” The Wall Street Journal,
April 3, 2018, p. A13.
595
43. Stefan Stern, “The secret factors that sway how you think and act,”
Financial Times, June 9, 2016, p. 10.
44. Yuval Harari, “Received Ideas,” The New York Times Book Review,
April 23, 2017, p. 15. See also Dhruv Khullar, “How Behavioral
Economics Can Produce Better Health Care,” The New York Times, April
13, 2017, https://www.nytimes.com/2017/04/13/upshot/answer-to-better-
health-care-behavioral-economics.html.
47. Rather than a new field of study (or even a new branch of
economics), Thaler has said that he sees behavioral economics more as a
return to economics’ “traditional roots in psychology and what Adam
Smith . . . called ‘moral sentiments’” (in James Guszcza, “The
importance of misbehaving: A conversation with Richard Thaler,”
Deloitte Review, Issue 18, January 25, 2016, pp. 57–69).
49. Richard H. Thaler, “The Power of Nudges, for Good and Bad,” The
New York Times, November 1, 2015, p. BU6.
596
52. Herman Aguinis & Ante Glavas, “What We Know and Don’t Know
about Corporate Social Responsibility: A Review and Research
Agenda,” Journal of Management, Vol. 38, No. 4, 2012, p. 933.
55. The introduction of body cameras for police officers reveals that in
California, “in the first year after the cameras were introduced, . . . the
number of complaints filed against officers fell by 88 percent compared
with the previous 12 months. Use of force by officer fell by almost 60
percent over the same period” (in Ian Lovett, “In California, a Champion
for Police Cameras,” The New York Times, August 21, 2013,
https://www.nytimes.com/2013/08/22/us/in-california-a-champion-for-
police-cameras.html).
56. Mallen Baker, “PUMA plucks numbers out of the CO2,” May 17,
2011, http://www.mallenbaker.net/csr/post.php?id=394 (no longer
available online).
57. “Scientists already talk of the dawning of a new geological age, the
Anthropocene, named because humans, or rather, the industrial
civilization they have created, have become the main factor driving the
evolution of Earth” (“Stopping a scorcher,” The Economist, November
23, 2013, p. 81).
58. Shell has committed to halve “its net carbon footprint . . . by 2050. . .
. Remarkably, its targets will cover not only emissions from its own
production of oil and gas, but from all cars, lorries, planes and factories
that eventually burn the stuff” (in “Staring down a barrel,” The
Economist, December 8, 2018, p. 64).
59. For a source on current knowledge about how to measure CSR, see
David Crowther & Linne Lauesen, Handbook of Research Methods in
Corporate Social Responsibility, Edward Elgar Publishing, 2017.
597
60. For details on studies analyzing the relationship between CSR and
firm performance, see Joshua D. Margolis & James P. Walsh, “Misery
Loves Companies: Rethinking Social Initiatives by Business,”
Administrative Science Quarterly, Vol. 48, No. 2, 2003, pp. 268–305;
Marc Orlitzky, Frank L. Schmidt, & Sara L. Rynes, “Corporate Social
and Financial Performance: A Meta-analysis,” Organization Studies, Vol.
24, No. 3, 2003, pp. 403–441; and Herman Aguinis & Ante Glavas,
“What We Know and Don’t Know About Corporate Social
Responsibility: A Review and Research Agenda,” Journal of
Management, Vol. 38, No. 4, 2012, pp. 932–968.
62. “In the thicket of it,” The Economist, July 30, 2016, p. 52.
65. Diane Coyle, “Dismal statistics,” The Wall Street Journal, February
5, 2018, p. A15.
598
https://www.theguardian.com/sustainable-
business/2016/aug/20/greenwashing-environmentalism-lies-companies.
69. John Schwartz, “Exxon Misled the Public on the Risks of Climate
Change, a Study Says,” The New York Times, August 24, 2017, p. B7.
70. Abha Bhattarai, “‘Not one drop’ of Poland Spring bottled water is
from a spring, lawsuit claims,” The Washington Post, August 22, 2017,
https://www.washingtonpost.com/news/business/wp/2017/08/22/not-one-
drop-of-poland-spring-bottled-water-is-from-a-spring-lawsuit-claims/.
77. See Tobias Webb, “Five reasons why you won’t be using GRI’s new
G4 guidelines any time soon,” Sustainability = Smart Business,
November 7, 2013, http://sustainablesmartbusiness.com/2013/11/five-
reasons-you-wont-be-using-gris-new/.
599
78. Mallen Baker, “Is the GRI’s new focus really a positive change in
direction?” Mallenbaker.net, June 10, 2015,
http://www.mallenbaker.net/csr/post.php?id=497 (no longer available
online).
80. Fernando Cevallos & Brian Mich, “ISO 37001 is here. Will it work?”
The FCPA Blog, October 17, 2016,
http://www.fcpablog.com/blog/2016/10/17/iso-37001-is-here-will-it-
work.html. See also https://www.iso.org/iso-37001-anti-bribery-
management.html.
600
86. See the discussion around integrated reporting in the Appendix:
Implementing Strategic CSR.
89. David Jolly, “An Ecolabel for McDonald’s Fish Fare,” The New York
Times, January 27, 2013,
https://green.blogs.nytimes.com/2013/01/27/an-ecolabel-for-mcdonalds-
fish-fare/.
90. Rebecca Smithers, “Britons want to buy sustainable fish but labels
leave us baffled,” The Guardian, May 24, 2010,
https://www.theguardian.com/environment/2010/may/24/sustainable-
fish-seafood-supermarkets-labels.
92. Casper van Vark, “Behind the label: can we trust certification to give
us fairer products?” The Guardian, March 10, 2016,
https://www.theguardian.com/sustainable-
business/2016/mar/10/fairtrade-labels-certification-rainforest-alliance.
93. The advance of technology will improve the ability of product labels
to convey information to consumers at the point of sale. For example, see
Isobel Thompson, “The smart label that wants to restyle your life,”
Financial Times Life & Arts, January 28/29, 2017, p. 4.
601
96. Mathew Wheeland, “Can a company ever claim to be making a better
world?” The Guardian, August 24, 2016,
https://www.theguardian.com/sustainable-
business/2016/aug/24/company-claim-better-world-net-positive-dell-
dow.
98. Serena Ng, “‘Natural’ Product Claims Can Be Murky,” The Wall
Street Journal, March 30, 2016, p. B1.
100. Larry Olmstad, “What’s That Fish on Your Plate?” The Wall Street
Journal, August 6–7, 2016, p. C3.
102. Amy Harmon, “What Will GMO Labels Tell Consumers?” The New
York Times, May 13, 2018, p. A19.
104. Tim Smedley, “If the palm oil industry waited for consumers to
care, sustainability would get nowhere,” The Guardian, October 26,
2015, https://www.theguardian.com/sustainable-
business/2015/oct/26/palm-oil-industry-consumer-understanding-
sustainability-cspo-packaging-marks-spencer-boots-ecover.
602
cost or benefit” (Oxford English Dictionary,
http://www.oed.com/view/Entry/66996). Although the externalities
referred to in popular discussion are mostly negative, externalities can
also be positive. For example, if I make an improvement in my house
that increases its value, I am also making the neighborhood more
attractive—something from which my neighbors benefit, even though
they did not contribute anything to the cost of improving my house. By
paying that cost myself, I am subsidizing a benefit that accrues to my
neighbors. Another example is buying a Toyota Prius, which is more
expensive than comparable cars (a cost to me), but which creates a
benefit for everyone else in terms of cleaner air.
107. Callum Roberts, “Industrial meat production is killing our seas. It’s
time to change our diets,” The Guardian, August 4, 2017,
https://www.theguardian.com/commentisfree/2017/aug/04/meat-
industry-gulf-mexico-dead-zones-pollution.
108. David Leonhardt, “The Battle over Taxing Soda,” The New York
Times, May 19, 2010, p. B1. For more information about Pigovian taxes,
see R. H. Coase, “The Problem of Social Cost,” The Journal of Law &
Economics, Vol. III, October 1960, pp. 1–44; and William J. Baumol,
“On Taxation and the Control of Externalities,” The American Economic
Review, Vol. 62, June 1972, pp. 307–322.
109. See the EcoDesign Strategy Wheel (Han Brezet & Carolien van
Hemel, EcoDesign: A Promising Approach to Sustainable Production
and Consumption, United Nations Environmental Program (UNEP),
1997). See also the Life Cycle Assessment (H. Scott Matthew, Chris T.
Hendrickson, & Deanna H. Matthews, Life Cycle Assessment,
https://www.lcatextbook.com/).
111. In 2015, the Obama administration “began estimating the social cost
of . . . emitting one metric ton of carbon dioxide . . . at $42” (in Gregg Ip,
“The Flawed Case Against Pricing Carbon,” The Wall Street Journal,
603
April 6, 2017, p. A2). See also Pilita Clark, “Calls mount for a global
carbon price but progress is slow,” Financial Times Special Report:
Morocco & COP 22, November 10, 2016, p. 2.
112. Ruth Scurr, “An Enlightened Friendship,” The Wall Street Journal,
November 4–5, 2017, p. C6.
113. “The lives of others,” The Economist, August 19, 2017, p. 59.
114. “When the levy breaks,” The Economist, August 18, 2018, p. 66.
117. Ibid.
121. “The price of jam,” The Economist, August 5, 2017, pp. 45–46.
604
See also Ray C. Anderson, “Good Greed,” GreenMoney Journal,
Summer 2010, https://greenmoneyjournal.com/good-greed-2-2/.
125. For more about the circular economy, see “Driving the circular
economy infographic,” The Guardian, May 13, 2013,
https://www.theguardian.com/sustainable-business/driving-circular-
economy-infographic and Edward Robinson, “‘Hollow words’: Why
there’ll be a fight over EU’s plan to deal with our waste,” The Guardian,
December 8, 2015, https://www.theguardian.com/sustainable-
business/2015/dec/08/hollow-words-fight-over-eu-waste-plans-circular-
economy.
605
130. For reference, see the Natural Capital Protocol
(https://naturalcapitalcoalition.org/natural-capital-protocol/) and the
related Social Capital Protocol
(https://www.wbcsd.org/Programs/People/Social-Impact/Social-and-
Human-Capital-Protocol/Resources/Social-Capital-Protocol).
132. For example, see Sam Ori, “Insights on Climate Change and Carbon
Pricing,” The Wall Street Journal Special Report: Big Issues, November
14, 2016, p. R8.
133. For a discussion about the limits of our current economic model
based on growth and consumption, see Tim Jackson, “New economic
model needed not relentless consumer demand,” The Guardian, January
17, 2013, https://www.theguardian.com/sustainable-business/blog/new-
economic-model-not-consumer-demand-capitalism.
134. Rob Walker, “Wasted Data,” The New York Times Magazine,
December 5, 2010, p. 20.
135. N. Gregory Mankiw, “Shifting the Tax Burden to Cut Carbon,” The
New York Times, September 6, 2015, p. BU6.
136. Gernot Wagner, “Going Green but Getting Nowhere,” The New
York Times, September 8, 2011, p. A25.
137. Richard Milne, “Skirting the boards,” Financial Times, June 15,
2009, p. 2.
139. Claire Zillman, “These Are the 12 Fortune 500 Companies With
Zero Women on Their Boards,” Fortune, May 22, 2018,
http://fortune.com/2018/05/22/fortune-500-companies-women-boards/.
606
Part IV Case Study
1. For more information about impact investing, see the Global Impact
Investing Network (GIIN), https://thegiin.org/. A similar organization
exists to support government policy in the UK—the Impact Investment
Network, http://www.impactinvestmentnetwork.com/. For a general
discussion about impact investing, together with example projects, see
“Happy returns,” The Economist, September 10, 2011, p. 84.
607
questions-netflix-poison-pill-20121105 and Myles Udland, “Carl Icahn:
Apple is worth $240 a share,” Business Insider, May 18, 2015,
https://www.businessinsider.com/carl-icahn-on-apple-share-price-2015-
5/.
10. “Voting with your pocket,” The Economist, April 14, 2018, p. 61.
11. Ibid.
12. Mara Lemos Stein, “The Case for Climate Risk Investing in Trump
Era,” The Wall Street Journal, March 31, 2017,
https://blogs.wsj.com/riskandcompliance/2017/03/31/the-morning-risk-
report-the-case-for-climate-risk-investing-in-trump-era/.
16. Chris Gay, “Are Bank Stocks ‘Responsible’?” The Wall Street
Journal, February 6, 2012, p. R6.
608
2018-executive-summary/.
19. Amy Domini, “Thoughts on Meaning and Mission: ESG, CSR and
SRI,” GreenMoney Journal, October 2016,
https://greenmoneyjournal.com/thoughts-on-meaning-and-mission-esg-
csr-and-sri/.
20. Kate Beioley, “Ethical funds reach record high in the UK,” Financial
Times, May 23, 2018, https://www.ft.com/content/91f79412-5dce-11e8-
ad91-e01af256df68.
22. Fan Cheuk Wan, “The rise of ESG investing in Asia,” The Business
Times, February 28, 2018, https://www.businesstimes.com.sg/hub/whos-
who-in-private-banking-2018/the-rise-of-esg-investing-in-asia.
25. Anne Tergesen, “Robots are Here Touting a Moral Compass,” The
Wall Street Journal, July 22–23, 2017, p. B4.
26. Anna Prior, “Investing with a Mission,” The Wall Street Journal, July
18–19, 2015, p. B7.
27. For example, see George Serafeim & Adam Seessel, “Does
Sustainable Investing Lead to Lower Returns?” Barron’s Special
Supplement: Investing with Purpose, June 26, 2018, p. S9.
29. Joe Nocera, “Well-Meaning but Misguided Stock Screens,” The New
York Times, April 7, 2007, p. B1.
609
30. See “ESG 101: What Is ESG Investing?” MSCI,
https://www.msci.com/esg-investing/.
31. “Not its own reward,” The Economist, September 23, 2017, p. 67.
32. Ibid.
33. George Kell, “The Remarkable Rise of ESG,” Forbes, July 11, 2018,
https://www.forbes.com/sites/georgkell/2018/07/11/the-remarkable-rise-
of-esg/.
34. Ibid.
37. George Kell, “The Remarkable Rise of ESG,” Forbes, July 11, 2018,
https://www.forbes.com/sites/georgkell/2018/07/11/the-remarkable-rise-
of-esg/.
39. Alex Davidson, “‘Do Good’ Investing Turns Corner,” The Wall Street
Journal Report: Investing in Funds & ETFs, January 11, 2016, p. R5.
41. Rob Lieber, “Why It’s So Hard to Invest With a Social Conscience,”
The New York Times, March 2, 2018,
https://www.nytimes.com/2018/03/02/your-money/why-its-so-hard-to-
invest-with-a-social-conscience.html.
42. “Not its own reward,” The Economist, September 23, 2017, p. 67.
43. Alex Davidson, “‘Do Good’ Investing Turns Corner,” The Wall Street
Journal Report: Investing in Funds & ETFs, January 11, 2016, p. R5.
610
44. “In the thicket of it,” The Economist, July 30, 2016, p. 52.
47. Ibid.
48. Another recent innovation has been to start divesting the stocks of
specific firms that do not reflect SRI values. Campaigns to divest fossil
fuel stocks organized by groups such as 350.org (https://350.org/) and the
C40 Climate Leadership Group (https://www.c40.org/) are perhaps the
most well known of such efforts. This idea has spread to avoid
investments in firms tied to factory farming (see Tom Levitt, “Factory
farming divestment: What you need to know,” The Guardian, March 3,
2016, https://www.theguardian.com/sustainable-
business/2016/mar/03/factory-farming-divestment-explain).
53. “A dull shade of green,” The Economist, October 29, 2012, p. 87. See
also Mike Cherney, “‘Green Bond’ Sales Struggle,” The Wall Street
Journal, June 25, 2015, p. C4.
611
56. “Bounding along,” The Economist, June 10, 2017, p. 73.
61. Mike Bird & Manju Dalal, “For Some Bonds, It’s Too Easy Being
Green,” The Wall Street Journal, August 20, 2018, p. B1.
62. Tim Gray, “Cutting Emissions While Earning Cash,” The New York
Times, January 14, 2018, p. BU11.
64. Aaron Pressman, “How Apple’s $1 billion bond could help the
planet,” Fortune, June 17, 2017, http://fortune.com/2017/06/13/apple-
second-green-bond/.
67. “The power of money,” The Economist, March 10, 2018, p. 71.
68. Ibid.
69. Daisy Maxey, “Men Had Their Chance; New Funds Bet on Women,”
The Wall Street Journal, August 4, 2014, p. R1.
612
70. David Oakley, “Vatican-backed index aims to meet demand for
ethical stocks,” Financial Times, April 27, 2010, p. 13.
74. Rachel Evans, “How Socially Responsible Investing Lost Its Soul,”
Bloomberg Businessweek, December 18, 2018,
https://www.bloomberg.com/news/articles/2018-12-18/exxon-great-
marlboros-awesome-how-esg-investing-lost-its-way.
75. Daisy Maxey, “Men Had Their Chance; New Funds Bet on Women,”
The Wall Street Journal, August 4, 2014, p. R1.
76. See also Andrew Ross Sorkin, “The Women of the S&P 500 and
Investor Activism,” The New York Times, February 10, 2015, p. B1.
79. Chris Taylor, “Gotta have faith: The rise of religious ETFs,” Reuters,
August 31, 2017, https://www.reuters.com/article/us-religion-etf/gotta-
have-faith-the-rise-of-religious-etfs-idUSKCN1BB2JI.
613
81. Blue bonds “fund sustainable fisheries and ocean management” (in
“Verdant and vibrant,” The Economist, December 1, 2018, p. 66).
82. “Your inflexible friend,” The Economist, October 8, 2016, pp. 55–56.
85. Andrew Ross Sorkin, “A Feel-Good Index Now Has a Fund,” The
New York Times, June 12, 2018, p. B2 and Marc Gunther, “How one
investment fund is tackling America’s ‘glaring inequality’ problem,” The
Guardian, May 16, 2016, https://www.theguardian.com/sustainable-
business/2016/may/16/investment-fund-inequality-america-poverty.
86. Anne Lowrey, “As Global Inequality Grows, Some Silicon Valley
Executives Think a Universal Income Will be the Answer—And the
Beta Test is Happening in Kenya,” The New York Times Magazine,
February 26, 2017, pp. 52–57.
90. Gerrard Cowan, “What’s Behind the Siren Call of Sin Stocks,” The
Wall Street Journal, February 8, 2016, p. R7.
614
92. Philip Delves Broughton, “Canny marketing makes cigarettes hot
property,” Financial Times, September 17/18, 2016, p. 11.
95. Stephen Foley & Adam Samson, “Blessed returns,” Financial Times,
June 17, 2016, p. 7.
96. Maria Lemos Stein, “U.K. Raises Game on Social Impact Investing,”
The Wall Street Journal, November 17, 2017,
https://blogs.wsj.com/riskandcompliance/2017/11/17/the-morning-risk-
report-u-k-raises-game-on-social-impact-investing-newsletter-draft/.
100. For more detail about SIBs, see “Social and Developmental Impact
Bonds (Results-Based Financing,” UNDP,
http://www.undp.org/content/sdfinance/en/home/solutions/social-
development-impact-bonds.html.
101. Luther Ragin Jr. & Tracy Palandjian, “Social Impact Bonds: Using
Impact Investment to Expand Effective Social Programs,” Federal
Reserve Bank of San Francisco, pp. 63–67.
102. David Leonhardt, “What Are Social-Impact Bonds?” The New York
Times, February 8, 2011,
615
https://economix.blogs.nytimes.com/2011/02/08/what-are-social-impact-
bonds/.
103. Caroline Preston, “Getting Back More Than a Warm Feeling,” The
New York Times, “Giving Special” section, November 9, 2012, p. F1.
108. “Social Impact Bonds: Can a Market Prescription Cure Social Ills?”
Knowledge@Wharton, September 12, 2012,
http://knowledge.wharton.upenn.edu/article/social-impact-bonds-can-a-
market-prescription-cure-social-ills/. See also David W. Chen, “Goldman
to Invest in City Prison Program, Reaping Profit If Recidivism Drops,”
The New York Times, August 2, 2012, p. A14.
109. “Being good pays,” The Economist, August 18, 2012, p. 28.
110. Eduardo Porter, “Wall St. Cash Meets Social Policy in City Jail,”
The New York Times, July 29, 2015, p. B1.
111. Ibid.
616
114. Nathaniel Popper, “Did Goldman Make the Grade?” The New York
Times, November 4, 2015, p. B1.
115. “Social Impact Bonds: Can a Market Prescription Cure Social Ills?”
Knowledge@Wharton, September 12, 2012,
http://knowledge.wharton.upenn.edu/article/social-impact-bonds-can-a-
market-prescription-cure-social-ills/.
120. For predictions about the future of SRI, see Lisa Woll, “Reflections
from a Field Builder: The Next 25 Years of Sustainable, Responsible and
Impact Investing,” GreenMoney Journal, September/October 2017,
https://greenmoneyjournal.com/reflections-from-a-field-builder-the-next-
25-years-of-sustainable-responsible-and-impact-investing/.
Chapter 9
1. Bruce D. Henderson, “The Origin of Strategy,” Harvard Business
Review, November–December 1989, pp. 134–143.
617
3. “Uneasy accommodation,” The Economist, September 30, 2017, p. 63.
618
13. Michael E. Porter, Competitive Strategy, The Free Press, 1980.
16. Two be more specific, the market for large jets (“140 to 400 seats and
a range of 3,500 to 8,000 miles”) is “dominated by Boeing and Airbus,”
while the market for smaller, regional jets (“40 to 90 seats”) is dominated
by the two airlines that could be considered competitors to Boeing and
Airbus, Bombardier (Canada) and Embraer (Brazil). There is much more
competition for mid-range planes (“100 to 150 seats”), which, due to
better materials and fuel efficiency technology, are now in greater
demand (in Steven Pearlstein, “Boeing and Airbus, the new super
duopoly,” The Washington Post, April 25, 2018,
https://www.washingtonpost.com/news/wonk/wp/2018/04/25/boeing-
and-airbus-the-new-super-duopoly/).
18. See James L. Heskett & W. Earl Sasser Jr., “Southwest Airlines: In a
Different World,” Harvard Business School case study 910419, April 22,
2010.
19. For more about competition in the airline industry, see John P.
Heimlich, “The Nature and Status of U.S. Airline Competition—Beyond
the ‘80 Percent’ Rhetoric,” Airlines for America, January 4, 2018,
http://airlines.org/blog/the-nature-and-status-of-u-s-airline-competition-
beyond-the-80-percent-rhetoric/.
20. Although not very convincing, to some extent, this issue is addressed
in Porter’s 2008 update of his original paper (“The Five Competitive
Forces That Shape Strategy,” Harvard Business Review, January 2008,
pp. 78–93) via the introduction of factors (as distinct from forces). The
original five forces structure remains intact, however, to the exclusion of
all other stakeholder relationships.
619
21. C. K. Prahalad & Allen Hammond, “Serving the World’s Poor,
Profitably,” Harvard Business Review, September 2002, pp. 48–58; and
C. K. Prahalad, The Fortune at the Bottom of the Pyramid: Eradicating
Poverty Through Profits, Wharton School Publishing, 2006.
22. The person most closely associated with continuing Prahalad’s BOP
work is Stuart L. Hart of Cornell University. For an overview of his ideas
and a list of publications, see http://www.stuartlhart.com/.
25. Michael E. Porter & Mark R. Kramer, “Strategy & Society,” Harvard
Business Review, December 2006, pp. 78–92.
27. Michael E. Porter & Mark R. Kramer, “Strategy & Society,” Harvard
Business Review, December 2006, p. 88.
30. I would like to thank Marta White of Georgia State University for
introducing this idea and allowing me to build on it for inclusion in this
chapter of Strategic CSR.
31. See Donald C. Hambrick & James W. Fredrickson: “Are you sure
you have a strategy?” Academy of Management Executive, Vol. 15, No.
4, 2001, p. 49.
620
33. Michael E. Porter, Competitive Strategy: Techniques for Analyzing
Industries and Competitors, Free Press, 1980, p. 34.
37. See Donald C. Hambrick & James W. Fredrickson: “Are you sure
you have a strategy?” Academy of Management Executive, Vol. 15, No.
4, 2001, pp. 48–59.
38. Henry Mintzberg & James A. Waters, “Of strategies, deliberate and
emergent,” Strategic Management Journal, Vol. 6, No. 3, 1985, pp. 257–
272.
621
41. Although there are disagreements as to which categorization best fits
different business models, what all these firms have in common is that
their strategies seek to provide customers with superior value. In drawing
these distinctions among firms, it is important to stress that the
distinction between low cost and differentiation, and between broad and
narrow, refers to a firm’s business-level strategies. As such, it is possible
for a firm to have different strategies across its business units. Apple’s
range of computers, for example, targets a narrower segment of the total
computer market (and the firm willingly exchanges high margins for
continued low market share), while its iPhones and iPads have a broader
scope.
43. The flipside of these “constraints” is the opportunity for the firm to
build a competitive advantage.
46. Since launching in 1995, Amazon’s mission has been “to be Earth’s
most customer-centric company, where customers can find and discover
622
anything they might want to buy online, and endeavors to offer its
customers the lowest possible prices.” See
https://www.amazon.jobs/en/working/working-amazon.
48. Louise Matsakis, “Why Amazon Really Raised Its Minimum Wage
to $15,” Wired, October 2, 2018, https://www.wired.com/story/why-
amazon-really-raised-minimum-wage/.
50. Same-sex partner employee benefits will likely be the next form of
discrimination to be corrected by legal mandate. Many progressive firms
today are proactively implementing such policies so as to avoid being
forcefully sanctioned by litigation as the tide of social acceptability
turns. See Kathryn Kranhold, “Groups for Gay Employees Are Gaining
Traction,” The Wall Street Journal, April 3, 2006, p. B3.
51. Eric A. Posner & E. Glen Weyl, “Want Our Personal Data? Pay for
It,” The Wall Street Journal, April 21–22, 2018, p. C3.
Chapter 10
1. “Just Good Business: A Special Report on Corporate Social
Responsibility,” The Economist, January 19, 2008.
2. See Standard Oil Co. of New Jersey v. United States (221 U.S. 1,
1911). Ironically, it was the proceeds from stock sales as a result of the
breakup of Standard Oil that gave John D. Rockefeller “a cash windfall
of unprecedented magnitude,” which he then used to begin the
Rockefeller Foundation. See Jonathan Lopez, “The Splendid Spoils of
Standard Oil,” The Wall Street Journal, November 20–21, 2010, p. C7.
623
google-antitrust-laws-gilded-age. See also “History’s biggest
companies,” The Economist, July 7, 2018, p. 56.
624
also “Dell Will Offer Free Recycling for Its Computer Equipment,” The
Wall Street Journal, June 29, 2006, p. D3.
13. Jack Welch, former CEO of GE, condemned firms’ primary focus on
shareholder value, even though he was closely associated with such a
focus during his time at GE, in a series of articles: first, in the Financial
Times (Francesco Guerrera, “Welch condemns share price focus,” March
12, 2009) and, second, in BusinessWeek (“Jack Welch Elaborates:
Shareholder Value,” March 16, 2009). In the Financial Times article,
Welch said, “On the face of it, shareholder value is the dumbest idea in
the world. . . . Your main constituencies are your employees, your
customers and your products.” In the BusinessWeek follow-up article,
Welch confirmed, “I was asked what I thought of ‘shareholder value as a
strategy.’ My response was that the question on its face was a dumb idea.
Shareholder value is an outcome—not a strategy.”
17. Although Johnson & Johnson’s response to the Tylenol crisis remains
a best-practice model for crisis management, there is evidence to suggest
that the firm has strayed from its core principles in recent years. See
“Patients versus Profits at Johnson & Johnson: Has the Company Lost Its
Way?” Knowledge@Wharton, February 15, 2012,
http://knowledge.wharton.upenn.edu/article/patients-versus-profits-at-
johnson-johnson-has-the-company-lost-its-way/; and Alex Nussbaum,
David Voreacos, & Greg Farrell, “Johnson & Johnson’s Quality
Catastrophe,” Bloomberg Businessweek, March 31, 2011,
625
https://www.bloomberg.com/news/articles/2011-03-31/johnson-and-
johnsons-quality-catastrophe.
23. Dan Myers, “10 Things You Didn’t Know About the Food at
Walmart,” The Daily Meal, May 1, 2017,
https://www.thedailymeal.com/eat/10-things-you-didnt-know-about-
food-walmart/.
24. Walmart reports that recent action by the firm “lifts average hourly
full-time [pay] rate to $13.38.” In “More Than One Million Walmart
Associates to Receive Pay Increase in 2016,” Walmart press release,
January 20, 2016, https://news.walmart.com/news-
archive/2016/01/20/more-than-one-million-walmart-associates-receive-
pay-increase-in-2016.
25. Ibid.
626
28. Rana Foroohar, “Too many businesses want a piece of the financial
action,” Financial Times, May 16, 2016, p. 9.
29. “A new contract for growth,” The Economist, August 15, 2015, p. 65.
31. Michael Powell & Danny Hakim, “The Lonely Redemption of a Wall
Street Critic,” The New York Times, September 16, 2012, p. 27.
32. Jeff Sommer, “A Mutual Fund Master, Too Worried to Rest,” The
New York Times, August 12, 2012, p. BU1.
33. “Wait a second,” The Economist [Editorial], August 11, 2012, p. 10.
34. It is important not to overstate this case. This a complex issue with
many contributing factors, not least of which is executive compensation
packages crammed with stock options that reinforce a disproportionate
focus on share price. Moreover, it is undoubtedly true that shareholders
and analysts play an important management oversight function (in many
cases, more effectively than directors). See “The story and the numbers,”
The Economist, October 31, 2015, p. 66.
36. Dominic Barton, “Capitalism for the Long Term,” Harvard Business
Review, Vol. 89, Issue 3, 2011, pp. 84–91. Also, “a frequently cited study
. . . found that 80 percent of chief financial officers were willing to cut
spending on research, development and marketing to hit short-term
financial targets” (in Nathaniel Popper, “Short-Termism,” The New York
Times Deal Book, November 5, 2015, p. F4).
37. Nathaniel Popper, “Short-Termism,” The New York Times Deal Book,
November 5, 2015, p. F4.
627
38. Richard Milne, “The jovial locust killer,” Financial Times,
November 1–2, 2008, p. 7.
40. Paul Ziobro & Serena Ng, “P&G Looks Into Its Own Guidance,” The
Wall Street Journal, June 12, 2013,
http://www.wsj.com/articles/SB100014241278873240495045785418908
94496194.
42. “A minute of your day,” The Economist, July 21, 2018, p. 52.
43. Peter Eavis, “Privately Public,” The New York Times Deal Book,
November 5, 2015, p. F19.
44. “Life in the public eye,” The Economist, April 22, 2017, p. 62.
45. See also, Leslie Hook, “Where time slows down,” Financial Times
Life & Arts, May 28/29, 2016, p. 2.
46. For examples, see Andrew Hill, “Real value looks past quarterly
reporting,” Financial Times, April 19, 2011, p. 10; Michael Skapinker,
“Banks will be judged by actions not words,” Financial Times, October
5, 2010, p. 13; and Andrew Ross Sorkin, “Do Stockholders Really Know
Best?” The New York Times, November 17, 2009, p. B1.
47. This is why the India government’s CSR law (which was passed in
2013 and is designed to compel all businesses to “give 2 per cent of their
net profits to corporate social responsibility projects”) is misguided (in
James Crabtree, “Take a closer look at the hand that gives,” Financial
Times, August 15, 2013, p. 8).
628
49. Graham McLaughlin, “Why brands should focus on social change,
not philanthropy,” The Guardian, January 17, 2014,
https://www.theguardian.com/sustainable-business/responsibility-good-
business-long-term.
50. Ibid.
51. Ibid.
52. For a warning about the dangers of a firm (or social enterprise)
utilizing altruism to solve problems, see Eliza Ronalds-Hannon & Kim
Bhasin, “Even Wall Street Couldn’t Protect Toms Shoes From Retail’s
Storm,” Bloomberg Businessweek, May 3, 2018,
https://www.bloomberg.com/news/articles/2018-05-03/even-wall-street-
couldn-t-protect-toms-shoes-from-retail-s-storm.
53. William Easterly, “How to Solve Global Poverty,” The Wall Street
Journal, October 3, 2017, p. A17.
629
57. Ibid.
58. Michael Kanellos, “On ‘creative capitalism,’ Gates gets it,” CNET,
January 25, 2008, https://www.cnet.com/news/on-creative-capitalism-
gates-gets-it/.
60. William R. Easterly, “Why Bill Gates Hates My Book,” The Wall
Street Journal, February 7, 2008, p. A18.
63. William Easterly, “How to Solve Global Poverty,” The Wall Street
Journal, October 3, 2017, p. A17.
64. Ibid.
67. For additional commentary on Porter and Kramer’s ideas, see Tobias
Webb, “Does Michael Porter understand sustainable business?”
Sustainability = Smart Business, January 21, 2011,
http://sustainablesmartbusiness.com/2011/01/does-michael-porter-
understand/.
630
68. Andrew Hill, “Society and the right kind of capitalism,” Financial
Times, February 22, 2011, p. 14.
7. For example, see Job Emont, “Bangladesh Still Grapples with Safety
Lapses,” The Wall Street Journal, March 30, 2018, p. B1.
631
http://www.ethicalcorp.com/content.asp?ContentID=4458 (no longer
available online); “Secrets, Lies, and Sweatshops,” BusinessWeek,
November 26, 2006, https://www.bloomberg.com/news/articles/2006-11-
26/secrets-lies-and-sweatshops; and Richard McGregor, “We must count
the true cost of cheap China,” Financial Times, August 2, 2007, p. 7.
11. Pia Catton, “Beware False Thrift,” The Wall Street Journal, June 23–
24, 2012, p. C10.
12. Not all firms are necessarily offshoring jobs. As firms learn more
about their supply chains and see advantages of spend and dexterity in
locating production close to market, some have begun to onshore (or
reshore) jobs. For more on this, see the Reshoring Initiative,
http://www.reshorenow.org/.
13. For an example of a firm caught in a culture clash, see the scandal
that erupted in 2012 following IKEA’s decision to delete photos of
women from its catalogs in Saudi Arabia (Reuters, “IKEA slammed for
female-free Saudi catalog,” The Daily Yomiuri, October 4, 2012, p. 1)—a
decision for which the firm apologized (Anna Molin, “IKEA Regrets
Cutting Women From Saudi Ad,” The Wall Street Journal, October 1,
2012,
https://www.wsj.com/articles/SB10000872396390444592404578030274
200387136).
14. Dale Neef, “Supply chain ethics: The devil is in the details,” Ethical
Corporation, April 14, 2005.
15. For example, see Kris Hudson & Wilawan Watcharasakwet, “The
New Wal-Mart Effect: Cleaner Thai Shrimp Farms,” The Wall Street
Journal, July 24, 2007, p. B1.
16. For example, see the debate around using forced labor to harvest
cotton: Thomas Grove, “Uzbekistan Steps Up Bid to End Forced Labor
in Cotton Fields,” The Wall Street Journal, December 18, 2018, p. A8.
632
businesses need to open up,” The Guardian, April 2, 2015,
https://www.theguardian.com/women-in-leadership/2015/apr/02/the-rise-
of-the-conscious-consumer-why-businesses-need-to-open-up).
20. Katy McLaughlin, “Is Your Grocery List Politically Correct?” The
Wall Street Journal, February 17, 2004, pp. D1, D2.
21. Tim Hunt, “Drinking an ethical cup of coffee: How easy is it?” The
Guardian, May 29, 2015, https://www.theguardian.com/sustainable-
business/2015/may/29/drinking-an-ethical-cup-of-coffee-how-easy-is-it.
22. “Working Together for Fair and Sustainable Trade: Annual Report
2017–2018,” Fairtrade International, p. 4,
https://www.fairtrade.net/fileadmin/user_upload/content/2009/about_us/a
nnual_reports/2017-18_FI_AnnualReport.pdf.
24. Andrew Stark, “The Price of Moral Purity,” The Wall Street Journal,
February 4, 2011, p. A13.
25. Ibid.
633
https://www.theguardian.com/global-development/2014/sep/03/global-
fair-trade-sales-reach-4-billion-following-15-per-cent-growth-2013. To
learn about fair trade gold, see “Introducing World’s First Fairtrade Gold
from Africa,” Fairtrade Foundation, September 21, 2017,
https://www.fairtrade.org.uk/Media-Centre/News/September-
2017/Introducing-worlds-first-Fairtrade-gold-from-Africa.
28. “Working Together for Fair and Sustainable Trade: Annual Report
2017–2018,” Fairtrade International, p. 11,
https://www.fairtrade.net/fileadmin/user_upload/content/2009/about_us/a
nnual_reports/2017-18_FI_AnnualReport.pdf.
29. Quote from the 2005 Green and Ethical Consumer Report (in
Poulomi Mrinal Saha, “Ethics Still Not Influencing UK Consumers,”
Ethical Corporation, March 15, 2005). See also Pat Auger, Timothy M.
Devinney, Jordan J. Louviere, & Paul F. Burke, “Do social product
features have value to consumers?” International Journal of Research in
Marketing, Vol. 25, Issue 3, 2008, pp. 183–191.
30. Michael Skapinker, “No markets were hurt in making this coffee,”
Financial Times, November 9, 2010, p. 11.
32. Katy McLaughlin, “Is Your Grocery List Politically Correct?” The
Wall Street Journal, February 17, 2004, pp. D1, D2.
34. Michael Skapinker, “No markets were hurt in making this coffee,”
Financial Times, November 9, 2010, p. 11.
35. John Vidal, “New choc on the bloc,” The Guardian, June 3, 2005,
https://www.theguardian.com/world/2005/jun/03/outlook.development.
634
36. Alan Beattie, “Follow the thread,” Financial Times, July 22–23,
2006, p. WK1.
37. Peter Heslam, “George and the Chocolate Factory,” The London
Institute for Contemporary Christianity, September 2005.
38. James E. McWilliams, “Food That Travels Well,” The New York
Times, August 6, 2007,
https://www.nytimes.com/2007/08/06/opinion/06mcwilliams.html;
Claudia H. Deutsch, “For Suppliers, the Pressure Is On,” The New York
Times, Special Section: Business of Green, November 7, 2007, p. 1.
39. Lucy Siegle, “Green & Black’s new bar shows Fairtrade is under
threat. But we still need it,” The Guardian, August 7, 2017,
https://www.theguardian.com/commentisfree/2017/aug/07/green-blacks-
fairtrade-problems-food-companies.
44. Ibid.
635
47. Roger Martin, “The Virtue Matrix,” Harvard Business Review,
March 2002, Vol. 80, No. 3, pp. 68–75.
48. For example, see Bob Herbert, “In America: Nike’s Boot Camps,”
The New York Times, March 31, 1997, p. A15.
49. Frank Wijen, “Banning child labour imposes naïve western ideals on
complex problems,” The Guardian, August 26, 2015,
https://www.theguardian.com/sustainable-business/2015/aug/26/ban-
child-labour-developing-countries-imposes-naive-western-ideals-
complex-problems.
51. Paul S. Adler, “The Environmental Crisis and Its Capitalist Roots:
Reading Naomi Klein with Karl Polanyi,” Administrative Science
Quarterly, Vol. 60, No. 2, 2015, p. NP19.
54. See Shelly Banjo, “Inside Nike’s Struggle to Balance Cost and
Worker Safety,” The Wall Street Journal, April 22, 2014, pp. A1, A12.
636
https://nbs.net/p/just-do-it-how-nike-turned-a-supply-chain-crisis-into-
89317efd-6359-468c-8435-e6eede6588de.
57. Alexandra Stevenson, “Quit China? It’s Not Going to be Easy,” The
New York Times, September 25, 2018, p. B7.
59. Greg Ip, “Don’t Oversell a U.S.-made iPhone,” The Wall Street
Journal, September 20, 2018, p. A2.
60. “When workers dream of a life beyond the factory gates,” The
Economist, December 15, 2012, p. 63.
62. Charles Isherwood, “Moral Issues Behind iPhone and Its Makers,”
The New York Times, October 18, 2012, p. C1. See also, “The great chain
of China,” The Economist, October 13, 2018, pp. 61–62 and Eva Dou,
“How the iPhone Built a City in China,” The Wall Street Journal, July 3,
2017, https://www.wsj.com/articles/how-the-iphone-built-a-city-in-
china-1499074203.
64. Charles Duhigg & Keith Bradsher, “How the U.S. Lost Out on
iPhone Work,” The New York Times, January 21, 2012,
https://www.nytimes.com/2012/01/22/business/apple-america-and-a-
squeezed-middle-class.html.
65. For insight into what it is like to work at the factory of an Apple
supplier, see Shai Oster, “Inside One of the World’s Most Secretive
637
iPhone Factories,” Bloomberg Businessweek, April 24, 2016,
https://www.bloomberg.com/news/features/2016-04-24/inside-one-of-
the-world-s-most-secretive-iphone-factories.
66. Charles Duhigg & David Barboza, “In China, the Human Costs That
Are Built Into an iPad,” The New York Times, January 26, 2012, pp. A1,
B10–B11.
68. Paul Mozur, “New Labor Attitudes Fed into China Riot,” The Wall
Street Journal, September 27, 2012, p. B1.
72. Tim Cook has also spoken publicly about corporations’ broader
responsibilities. See Andrew Ross Sorkin, “No Politician, Apple’s Chief
Says Step Up,” The New York Times, August 29, 2017, pp. B1, B3.
73. David Barboza & Charles Duhigg, “Pressure, Chinese and Foreign,
Drives Changes at Foxconn,” The New York Times, February 20, 2012, p.
B1.
74. Charles Duhigg & Nick Wingfield, “Apple, in Shift, Pushes an Audit
of Sites in China,” The New York Times, February 14, 2012, p. B6.
75. Loretta Chao, James T. Areddy, & Aries Poon, “Apple Pact to Ripple
across China,” The Wall Street Journal, March 31–April 1, 2012, p. B3.
638
76. Mallen Baker, “The tricky task of measuring a reputation,” Ethical
Corporation, February 27, 2012,
http://www.ethicalcorp.com/communications-reporting/tricky-task-
measuring-reputation.
77. Paul Mozur, “Foxconn Workers: Keep Our Overtime,” The Wall
Street Journal, December 18, 2012, p. B1.
78. Eduardo Porter, “Dividends in Pressing Apple over Labor,” The New
York Times, March 7, 2012, p. B5.
79. Mallen Baker, “Nike and child labor—How it went from laggard to
leader,” February 29, 2016, http://mallenbaker.net/article/clear-
reflection/nike-and-child-labour-how-it-went-from-laggard-to-leader.
80. Alexander C. Kaufman, “How Intel Eliminated War from Its Supply
Chain,” HuffPost, December 1, 2016,
https://www.huffingtonpost.com/entry/intel-conflict-free-
minerals_us_569520e5e4b05b3245da6ea7.
81. Erika Fry, “Can Levi’s Make Life Better for Garment Workers?”
Fortune, September 8, 2017, http://fortune.com/2017/09/08/levis-
change-the-world/.
82. For example, see Sean Ansett & Jeffrey Hantover, “Bangladesh
factory fires—The hidden dangers of subcontracting,” Ethical
Corporation, February 5, 2013, http://www.ethicalcorp.com/supply-
chains/bangladesh-factory-fires-hidden-dangers-subcontracting; and
Stephanie Kang, “Nike Cuts Ties With Pakistani Firm,” The Wall Street
Journal, November 21, 2006, p. B5.
83. Even for admired firms such as Ben & Jerry’s (owned by Unilever).
See Annelise Orleck, “How migrant workers took on Ben & Jerry’s—
and won a historic agreement,” The Guardian, February 25, 2018,
https://www.theguardian.com/us-news/2018/feb/25/ben-jerrys-migrant-
workers-dairy-farms.
84. While the CSR community continues to hold retailers responsible for
their supply chain, we seem less willing to apply the same standards to
firms further up the value system. If we hold GAP, Nike, and Walmart
responsible for the actions of firms far removed from them, closer to
639
source, we will one day surely hold extraction firms responsible for the
raw materials they produce.
87. Ibid.
90. https://news.starbucks.com/press-releases/howard-schultz-to-bid-
farewell-to-starbucks.
92. Schultz bought Starbucks in 1987 “when it had just six shops.” From
that point, he has built “a global empire of 20,000 stores in 63 countries
that now employs 200,000 people and serves 70 million customers a
week” (in Leslie Helm, “Caffeinating the World,” Delta Sky Magazine,
March 2014, p. 70).
94. Lisa Baertlein, “Starbucks to close 8,000 U.S. stores for one
afternoon for racial-bias training,” Reuters, April 17, 2018,
https://www.reuters.com/article/us-philadelphia-starbucks/starbucks-to-
close-8000-u-s-stores-for-one-afternoon-for-racial-bias-training-
idUSKBN1HO2UF.
640
95. Hayley Peterson, “Why Starbucks doesn’t recycle cups,” Business
Insider, April 7, 2014, https://www.businessinsider.com/why-starbucks-
doesnt-recycle-cups-2014-4.
96. Stanley Homes & Geri Smith, “For Coffee Growers, Not Even a
Whiff of Profits,” BusinessWeek, September 9, 2002, p. 110.
100. Starbuck’s policies regarding fair trade and ethical sourcing can be
found at https://www.starbucks.com/responsibility/sourcing/coffee.
641
105. To see how Starbucks’ efforts have influenced the coffee industry,
see Tim Hortons Coffee Partnership,
https://www.timhortons.com/us/en/corporate/coffee-partnership.php.
108. Julie Wernau & Robbie Whelan, “Low Coffee-Bean Prices Brew
Trouble for Farmers,” The Wall Street Journal, December 20, 2018, p.
B12. For a detailed description of the complexity of the coffee industry’s
supply chain, see A. J. Jacobs, “To Make a Cup of Coffee, It Takes More
Than a Village,” The Wall Street Journal, November 10–11, 2018, p. C3.
109. See Brad Stone, “The Empire of Excess,” The New York Times, July
4, 2008, p. C1; and Jenny Wiggins, “McDonald’s lays the ground to mug
Starbucks in Europe,” Financial Times, May 27, 2009, p. 13.
110. Mary Ann DiMascio, “Facts About Dunkin’ Donuts’ Fair Trade
Certified Espresso,” October 11, 2013,
https://news.dunkindonuts.com/blog/fair-trade-month:-facts-about-
dunkin-donuts-fair-trade-certifiedTM-espresso.
111. https://corporate.mcdonalds.com/corpmcd/scale-for-good/our-
food/coffee.html. McDonald’s, which serves 69 million people daily, has
partnered with the Rainforest Alliance to certify its coffee (see Marc
Gunther, “Coffee and the consumer: Can McDonald’s mainstream
sustainability?” The Guardian, September 24, 2013,
https://www.theguardian.com/sustainable-business/mcdonalds-coffee-
sustainability).
112. “There are now nearly 33,000 coffee shops in the U.S. . . . up 16%
from five years ago. . . . [This] is forecast to grow by just over 2% this
year,” suggesting saturation. In Julie Jargon, “Crunchtime for Coffee
Shops,” The Wall Street Journal, November 8, 2017, pp. B1, B2.
642
113. Julie Jargon, “Too Much Coffee? Starbucks Shops Outnumber
McDonald’s,” The Wall Street Journal, June 7, 2018,
https://www.wsj.com/articles/too-much-coffee-starbucks-shops-
outnumber-mcdonalds-1528372800.
116. Full-age ad, “Happy National Coffee Day,” The New York Times,
September 29, 2017, p. A24. See also
https://www.starbucks.com/responsibility/sourcing.
118. For example, see Emiko Terazong, “Low coffee profits threaten
supplies,” Financial Times, September 24/25, 2016, p. 15.
Chapter 11
1. See “The compelling case for global carbon pricing,” Financial Times,
June 2, 2015, p. 10; and Henry M. Paulson Jr., “The Coming Climate
Crash,” The New York Times, June 22, 2014, p. SR1.
643
3. Ibid, Chapter 2.
8. See also Pratima Bansal & Hee-Chan Song, “Similar But Not the
Same: Differentiating Corporate Sustainability from Corporate
Responsibility,” Academy of Management Annals, Vol. 11, Issue 1, 2017,
pp. 105–149.
9. See Adam Frank, “Earth Will Survive. We May Not,” The New York
Times, June 13, 2018, p. A25.
10. See Erle C. Ellis, “What Kind of Planet Do We Want?” The New York
Times, August 12, 2018, p. SR1 and Anthony Doerr, “We Were Warned,”
The New York Times, November 19, 2017, pp. SR4–5.
12. For more about the UN’s position on climate change (which it
describes as “the defining issue of our time”) and the work of the IPCC,
see http://www.un.org/en/sections/issues-depth/climate-change/.
644
https://www.nytimes.com/2018/10/07/climate/ipcc-climate-report-
2040.html. For details of the latest UN IPCC report, see
https://www.ipcc.ch/reports/.
15. Gabriele Steinhauser, “Big Divisions Haunt Climate Talks,” The Wall
Street Journal, November 24, 2015, p. A8.
19. Associated Press, “Nearly 200 nations adopt global climate pact at
COP21 in Paris,” The Japan News, December 15, 2015, p. 1.
21. This will not be easy, given that the Paris commitments, to be
implemented by 2030, are estimated to “cost the global economy at least
$1 trillion a year”—and this assumes efficient decision making and
execution (in Bjorn Lomborg, “A climate agreement powered by
645
hypocrisy,” The Japan News, December 20, 2015, p. 5). Another
impediment will be public opinion: “People in highly developed
countries view climate change as the tenth most important issue out of a
list of 16. . . . In poor countries—and indeed in the world as a whole—
climate change comes 16th out of 16” (in “Groupthink,” The Economist
Special Report: Climate Change, November 28, 2015, p. 6).
23. Ibid.
25. Chris Mooney, “Historic, yes. But the climate pact alone won’t solve
the problem,” The Washington Post, reprinted in The Japan News,
December 15, 2015, p. 10.
26. In 2018, for example, “U.S. carbon emissions rose 3.4%” (in Kris
Maher, “Emissions of Carbon Climb 3.4%,” The Wall Street Journal,
January 9, 2019, p. A3).
27. Oliver Geden, “The Dubious Carbon Budget,” The New York Times,
December 1, 2015, p. A25.
646
attenborough-collapse-civilisation-on-horizon-un-climate-summit.
Attenborough’s full speech: https://youtu.be/b6Vh-g0oZ9w.
30. “Not all hot air,” The Economist, December 22, 2018, p. 112.
31. Brad Plumer, “How New Climate Talks May Give Paris Accords
Some Teeth,” The New York Times, December 5, 2018, p. A8.
32. For a summary of the talks and resulting deal, see Fiona Harvey,
“What was agreed at COP24 in Poland and why did it take so long?” The
Guardian, December 16, 2018,
https://www.theguardian.com/environment/2018/dec/16/what-was-
agreed-at-cop24-in-poland-and-why-did-it-take-so-long.
33. At COP24, America, Saudi Arabia, Kuwait, and Russia (all major
oil-producing countries) sought “to weaken the statements’ language” in
support of the IPCC’s recent climate report, while Brazil “held up the
talks . . . around carbon trading markets” (in Brad Plumer, “Climate
Negotiations Reach an Overtime Deal to Keep Paris Pact Alive,” The
New York Times, December 15, 2018,
https://www.nytimes.com/2018/12/15/climate/cop24-katowice-climate-
summit.html).
34. Ibid.
35. Fiona Harvey, “UN climate accord ‘inadequate’ and lacks urgency,
experts warn,” The Guardian, December 16, 2018,
https://www.theguardian.com/environment/2018/dec/16/un-climate-
accord-inadequate-and-lacks-urgency-experts-warn.
36. Ibid.
37. For more detail, see “Dawn of a new epoch?” The Economist,
September 3, 2016, p. 69 and Damian Carrington, “The Anthropocene
epoch: Scientists declare dawn of human-influenced age,” The Guardian,
August 29, 2016,
https://www.theguardian.com/environment/2016/aug/29/declare-
anthropocene-epoch-experts-urge-geological-congress-human-impact-
earth.
647
38. Thomas L. Friedman, “The Earth Is Full,” The New York Times, June
8, 2011, p. A21.
40. Ibid.
41. Edith M. Lederer, “UN says world population will reach 9.8 billion
in 2050,” Phys.org, June 22, 2017, https://phys.org/news/2017-06-world-
population-billion.html.
44. Electricity sources in 2016: natural gas (33 percent), coal (32
percent), nuclear (19 percent), renewables (e.g., wind and solar, 8
percent), hydroelectric (6 percent), other (1 percent; in Jad Mouawad,
“Crusader in the Coal Mine,” The New York Times, May 1, 2016, p.
BU4).
45. “Rebirth of the cool,” The Economist, August 25, 2018, pp. 10–11.
47. Adam Frank, “Is a Climate Disaster Inevitable?” The New York
Times, January 18, 2015, p. SR6.
48. “Clear thinking needed,” The Economist, November 28, 2015, p. 11.
49. Justin Gillis, “Paris climate pact a step, if not a cure,” International
New York Times, December 14, 2015, p. 7.
648
51. See Somini Sengupta, “Climate Crisis Is Near Point of No Return,
U.N. Warns,” The New York Times, September 11, 2018, p. A6.
52. For background information about this report, see Stern Review on
the Economics of Climate Change, HM Treasury, 2006,
https://webarchive.nationalarchives.gov.uk/+tf_/http://www.hm-
treasury.gov.uk/sternreview_index.htm.
54. For more about the challenges and possibilities associated with
geoengineering, see “Sucking up carbon,” The Economist, November 18,
2017, pp. 11 (editorial), 20–22.
55. Ibid.
56. While it is important for firms to adapt to climate change, the rise of
resilience feels a little too much like giving up—letting for-profit firms
off the hook when, in reality, they are best placed to prevent (or at least
mitigate) the worst excesses of our changing environment. In other
words, resilience encourages an approach of “this is happening, so we
need to adapt,” rather than “we need to be doing all we can to prevent
this from becoming as bad as it can be.” As such, rather than resilience,
focusing on radically incorporating an understanding of carbon reduction
into current business models is closer to a strategic CSR perspective.
57. Andrew Zolli, “Learning to Bounce Back,” The New York Times,
November 2, 2012, https://www.nytimes.com/2012/11/03/opinion/forget-
sustainability-its-about-resilience.html.
58. “Raise the green lanterns,” The Economist, December 5, 2015, p. 43.
59. Pilita Clark, “The Big Green Bang,” Financial Times, May 19, 2017,
p. 8.
60. Moises Velasquez-Manoff, “Can Dirt Save the Earth?” The New York
Times Magazine, April 22, 2018, p. 30.
649
62. Matthew Dalton, “Burberry Disavows Burning,” The Wall Street
Journal, September 7, 2018, p. B2.
63. Steven E. Koonin, “Tough Realities of the Climate Talks,” The New
York Times, November 4, 2015, p. A27.
64. For example, see Michael R. Bloomberg & Jerry Brown, “Fixing the
Climate without Trump,” The New York Times, November 15, 2017, p.
A21. See also C40 Cities, https://www.c40.org/.
65. Franklyn Cater, “‘Chief Resilience Officers’ Could Help Cities Cope
with Calamity,” The Two-Way, National Public Radio, November 7,
2014, https://www.npr.org/sections/thetwo-
way/2014/11/07/362393636/chief-resilience-officers-could-help-cities-
cope-with-calamity/. See also 100 Resilient Cities,
http://www.100resilientcities.org/.
67. Brad Plumer, “Fighting Climate Change Outside the Paris Accord,”
The New York Times, September 21, 2017, p. A19.
72. Paul Vitello, “Ray Anderson, a Carpet Innovator, Dies at 77,” The
New York Times, August 11, 2011, p. B17.
650
73. Brad Plumer, “New U.N. Climate Report Says Put a High Price on
Carbon,” The New York Times, October 8, 2018,
https://www.nytimes.com/2018/10/08/climate/carbon-tax-united-nations-
report-nordhaus.html. While most work in this area suggests pricing the
right to emit a ton of carbon, other work suggests such a price should be
based on the cost of recapturing that ton of carbon. See “The power of
negative thinking,” The Economist, June 9, 2018, p. 69.
74. Chelsea Harvey, “The Great Barrier Reef is literally a treasure. It’s
worth $42 billion,” The Washington Post, June 26, 2017,
https://www.washingtonpost.com/news/energy-
environment/wp/2017/06/26/the-great-barrier-reef-is-literally-a-treasure-
its-worth-42-billion/.
75. “Greens meet geeks,” The Economist, August 4, 2018, p. 58. See also
Nathaniel Popper, “Powering Bitcoin,” The New York Times, January 22,
2018, p. B3. It has also been estimated that “the communications
industry could use 20% of all the world’s electricity by 2025.” In
“Tsunami of data,” The Guardian, December 11, 2017,
https://www.theguardian.com/environment/2017/dec/11/tsunami-of-data-
could-consume-fifth-global-electricity-by-2025.
77. Damian Carrington, “Humans just 0.01% of all life but have
destroyed 83% of wild mammals—study,” The Guardian, May 21, 2018,
https://www.theguardian.com/environment/2018/may/21/human-race-
just-001-of-all-life-but-has-destroyed-over-80-of-wild-mammals-study.
651
81. Marc Gunther, “Natural capital: Breakthrough or buzzword?” The
Guardian, March 6, 2014, https://www.theguardian.com/sustainable-
business/natural-capital-nature-conservancy-trucost-dow.
83. For an in-depth discussion of this issue, see Oliver Balch, “Carbon
accounting—Emissions disclosure stacking up,” Ethical Corporation,
July 21, 2009, http://www.ethicalcorp.com/business-strategy/carbon-
accounting-emissions-disclosure-stacking.
88. Andrew Martin, “How Green Is My Orange?” The New York Times,
January 22, 2009, p. B1.
652
90. David K. Woodyard, “Goodyear’s Commitment to Sustainability,”
Suppliers Partnership for the Environment, January 11, 2012,
http://www.supplierspartnership.org/members_only/Supplier%20Partner
ship%20GDYR%20Sustainability%20Overview%201-11-12.pdf.
92. “In search of good business,” The Economist, August 9, 2014, p. 56.
93. John Bradburn, “10 things General Motors learned about going
landfill-free,” GreenBiz.com, November 16, 2012,
https://www.greenbiz.com/blog/2012/11/16/10-things-general-motors-
learned-about-going-landfill-free/.
94. “The next big bet,” The Economist, October 1, 2011, p. 75.
97. Fred Krupp, “Capitalism will Solve the Climate Problem,” The Wall
Street Journal, July 23, 2018, p. A17.
99. “Cash for trash,” The Economist, September 29, 2018, p. 16.
101. Edward Humes, “Grappling With a Garbage Glut,” The Wall Street
Journal, April 14–15, 2012, p. C3.
653
https://www.nytimes.com/2017/12/12/climate/food-waste-
emissions.html.
103. Rebecca Ratcliffe, “Food waste: Alarming rise will see 66 tonnes
thrown away every second,” The Guardian, August 20, 2018,
https://www.theguardian.com/global-development/2018/aug/20/food-
waste-alarming-rise-will-see-66-tonnes-thrown-away-every-second.
104. Edward Humes, “Grappling With a Garbage Glut,” The Wall Street
Journal, April 14–15, 2012, p. C3.
107. See “A cadmium lining,” The Economist, January 26, 2013, p. 56.
111. For more data on e-waste, see Rick Leblanc, “E-Waste Recycling
Facts and Figures,” the balance small business, December 10, 2018,
654
https://www.thebalancesmb.com/e-waste-recycling-facts-and-figures-
2878189.
113. Ibid.
118. Laurie J. Flynn, “A State Says Makers Must Pay for Recycling PCs
and TVs,” The New York Times, March 25, 2006, p. B2.
121. David Murphy, “Toxic town,” South China Morning Post, June 7,
2005, p. A16.
655
122. “Tusks, skins and waste recycling,” The Economist, January 6,
2018, p. 29. Sweatshop conditions for recycling factories are not limited
to e-waste—they are also a feature of recycling in the textile industry.
See “Hanging by a thread,” The Economist, September 9, 2017, p. 64.
126. Annie Leonard, “Our plastic pollution crisis is too big for recycling
to fix,” The Guardian, June 9, 2018,
https://www.theguardian.com/commentisfree/2018/jun/09/recycling-
plastic-crisis-oceans-pollution-corporate-responsibility.
127. Lucy Siegle, “Yes, plastic is an eco nightmare. But it’s also tired,
old technology,” The Guardian, July 21, 2018,
https://www.theguardian.com/commentisfree/2018/jul/21/yes-plastic-is-
an-eco-nightmare-but-its-also-tired-old-technology.
128. Mike Ives, “On Thai Beach, Grim Symbol of the Rise in Plastic
Pollution,” The New York Times, June 5, 2018, p. A4.
129. Joseph Curtin, “Let’s Bag Plastic Bags,” The New York Times,
March 4, 2018, p. SR10.
131. As a result, 83 percent “of tap water samples from more than a
dozen nations . . . [are] contaminated with plastic fibres.” In Damian
Carrington, “Plastic fibres found in tap water around the world, study
reveals,” The Guardian, September 5, 2017,
656
https://www.theguardian.com/environment/2017/sep/06/plastic-fibres-
found-tap-water-around-world-study-reveals.
134. Annie Leonard, “Our plastic pollution crisis is too big for recycling
to fix,” The Guardian, June 9, 2018,
https://www.theguardian.com/commentisfree/2018/jun/09/recycling-
plastic-crisis-oceans-pollution-corporate-responsibility.
135. Joseph Curtin, “Let’s Bag Plastic Bags,” The New York Times,
March 4, 2018, p. SR10.
136. Milan Schreuer, “E.U. Proposes Plastics Ban to Cut Down Sea
Pollution,” The New York Times, May 29, 2018, p. A6.
138. Ibid.
139. “In 2002, Bangladesh became the first country to introduce a ban on
thin plastic bags” (in Dan Bilefsky, “British Begin Attack Aimed at a
Scourge of the Realm,” The New York Times, October 7, 2015, p. A4.
141. Ibid.
142. Joseph Curtin, “Let’s Bag Plastic Bags,” The New York Times,
March 4, 2018, p. SR10.
657
144. Harry Yorke, “Plastic straws to be banned within year,” The Daily
Telegraph, October 22, 2018, p. 1.
145. Carol Ryan, “Plastic Is Big Food’s Next Headache,” The Wall Street
Journal, December 31, 2018, p. B10.
147. Corinne Ramey & Bob Tita, “Plastic Straws Are Now Utensil Non
Grata,” The Wall Street Journal, August 8, 2018, p. A6.
149. For more information about TerraCycle and why its business model
is successful, see founder and CEO Tom Szaky, “Eliminating the Idea of
Waste,” March 7, 2013, https://youtu.be/LHqwd-LBp5c.
150. Stacie Sherman & Elise Young, “This Guy Makes Money off Your
Cigarette Butts and Flip-Flops,” Bloomberg Businessweek, November
27, 2017, https://www.bloomberg.com/news/features/2017-11-
27/terracycle-makes-money-off-your-recycled-cigarette-butts-and-flip-
flops.
151. Jason Clay, “How big brands can help save biodiversity,”
TedGlobal, July 2010,
https://www.ted.com/talks/jason_clay_how_big_brands_can_save_biodi
versity.
152. M&S is one of the largest retailers in the UK. It named its response
to climate change Plan A because the firm believes there is no Plan B—
that is, there is no alternative but to implement a sustainable business
model throughout operations.
658
Chapter 12
1. R. Edward Freeman, Jeffrey S. Harrison, Andrew C. Wicks, Bidhan L.
Parmar, & Simone de Colle, Stakeholder Theory: The State of the Art,
Cambridge University Press, 2010, p. 235.
2. Ibid, p. 235.
5. “When workers are owners,” The Economist, August 22, 2015, p. 56.
7. Ken Goodman, “The ethics of right and wrong,” The Miami Herald,
March 14, 2004, p. 3L.
11. Joel Bakan, The Corporation: The Pathological Pursuit of Profit and
Power, Free Press, 2004, quoted in Business Ethics Magazine, Spring
2004, p. 6.
12. Alina Tugend, “Doing the Ethical Thing May Be Right, but It Isn’t
Automatic,” The New York Times, November 19, 2011, p. B5.
659
13. Max H. Bazerman & Ann E. Tenbrunsel, “Stumbling Into Bad
Behavior,” The New York Times, April 21, 2011, p. A21.
14. “Where Will They Lead? MBA Student Attitudes about Business and
Society,” The Aspen Institute Center for Business Education, 2008, p. 7,
https://assets.aspeninstitute.org/content/uploads/files/content/docs/bsp/S
AS_PRINT_FINAL.PDF.
17. Melissa Korn, “B-School Mixes Faith, Finance,” The Wall Street
Journal, January 8, 2013, p. B9.
18. For additional discussion around the idea that strategic CSR
represents progressive management, see Thomas E. Graedel & Braden R.
Allenby, Industrial Ecology and Sustainable Engineering, Prentice Hall,
2009. The authors are industrial ecologists who argue that there is no
such thing as green management, only good management.
19. David Brooks, The Road to Character, Random House, 2016, p. 243.
660
again and again—whether it is government subsidies or tax breaks for a
particular kind of alternative energy or a new technical innovation that
interacts with some other factor (or is applied inappropriately) to
generate some unexpected outcome. In short, there is much that we do
not understand about the social and economic forces that drive human
behavior and the relationship between these forces and societal-level
outcomes. By definition, we can base future projections only on past
experience, and are constrained when we do so. When we propose
solutions, we envisage the benefits and fail (or are unable) to fully
understand all the risks. That does not mean that we should not try to
implement change, but it does imply we should be humble in attempts to
temper these highly evolved forces.
22. David Brooks, “Capitalism for the Masses,” The New York Times,
February 21, 2014, p. A23.
23. Jeff Kauflin, “The World’s Most Ethical Companies 2017,” Forbes,
March 14, 2017,
https://www.forbes.com/sites/jeffkauflin/2017/03/14/the-worlds-most-
ethical-companies-2017/.
26. See John Mackey & Raj Sisodia, Conscious Capitalism: Liberating
the Heroic Spirit of Business, Harvard Business Review Press, 2013.
27. There are other perspectives; see, for example, James O’Toole &
David Vogel, “Two and a Half Cheers for Conscious Capitalism,”
California Management Review, Vol. 53, No. 3, pp. 60–82.
661
31. Susan Berfield, “Will Investors Put the Lid on the Container Store’s
Generous Wages?” Bloomberg Businessweek, February 19, 2015,
https://www.bloomberg.com/news/articles/2015-02-19/container-store-
conscious-capitalism-and-the-perils-of-going-public.
32. Danielle Sacks, “Patagonia CEO Rose Marcario Fights the Fights
Worth Fighting,” Fast Company Magazine, February 2015, pp. 34–36.
For an example advertisement in its “Don’t Buy This Jacket” campaign,
see https://www.patagonia.com/blog/2011/11/dont-buy-this-jacket-black-
friday-and-the-new-york-times/ (accessed April 2019).
34. Mallen Baker, “Paying the market rate for morality?” Business
Respect—CSR Dispatches, No. 185, October 8, 2012 (no longer
available online).
37. Alan Murray, “Chicken Soup for a Davos Soul,” The Wall Street
Journal, January 17, 2013, p. A15.
662
39. Seth Stevenson, “America’s Most Unlikely Corporate Guru,” The
WSJ Magazine, April 26, 2012, p. 88. See also Patt Morrison, “Yvon
Chouínard: Capitalist cat,” Los Angeles Times, March 12, 2011,
http://articles.latimes.com/2011/mar/12/opinion/la-oe-morrison-
chouinard-031111.
44. Adam Smith published The Wealth of Nations in 1776, but it is The
Theory of Moral Sentiments (1759) that leads many observers to describe
Smith as a moral philosopher, rather than an economist. For example, see
James R. Otteson, “Adam Smith: Moral Philosopher,” Foundation for
Economic Education, November 1, 2000, https://fee.org/articles/adam-
smith-moral-philosopher/; and Adam Gopnik, “Market Man,” New
Yorker, October 18, 2010,
https://www.newyorker.com/magazine/2010/10/18/market-man.
45. David Willetts, “The invisible hand that binds us all,” Financial
Times, April 25, 2011, p. 8.
46. “The view from the top, and bottom,” The Economist, September 24,
2011, p. 76.
663
http://www.earth.columbia.edu/sitefiles/file/Sachs%20Writing/2012/Fina
ncialTimes_2012_SelfInterestWithoutMorals_01_18_12.pdf.
49. Aaron K. Chatterji, “When CEOs Are Culture Warriors,” The New
York Times, March 5, 2018, p. A27.
54. Ibid.
55. Ibid.
56. Ibid.
57. Ibid.
58. In “10 Conversations That Changed Our World: Starbucks Saves the
Modern Organization,” Fast Company Magazine, February 2013, p. 7. In
addition to healthcare and stock-based compensation, Starbucks partially
664
pays for its employees’ education (“From baristas to BA-ristas,” The
Economist, June 21, 2014, p. 63).
59. For a detailed history of Ben & Jerry’s, see James E. Austin & James
Quinn, “Ben & Jerry’s: Preserving Mission and Brand within Unilever”
[Harvard Business School case study 9-306-037], December 8, 2005.
60. Alice Marlin & John Tepper Marlin, “A Brief History of Social
Reporting,” Business Respect, Issue 51, March 9, 2003,
http://www.cityeconomist.com/images/A_brief_history_of_social_report
ing-2003.doc.
63. David Gelles, “Gobbled Up, but Still Doing Good for the World,”
The New York Times, August 23, 2015, p. BU3.
65. Stephen Moore, “Ice Cream Hangover,” The Wall Street Journal,
October 20, 2005, p. A15.
66. Venessa Wong, “Ben & Jerry’s Cohen Repos Occupy Wall Street’s
‘Batmobile,’” Bloomberg Businessweek, October 2, 2012,
https://www.bloomberg.com/news/articles/2012-10-02/ben-and-jerrys-
cohen-repos-occupy-wall-streets-batmobile.
69. Susan Berfield, “Will Investors Put the Lid on the Container Store’s
Generous Wages?” Bloomberg Businessweek, February 19, 2015,
665
https://www.bloomberg.com/news/articles/2015-02-19/container-store-
conscious-capitalism-and-the-perils-of-going-public.
70. Dan Myers, “10 Things You Didn’t Know About the Food at
Walmart,” The Daily Meal, May 1, 2017,
https://www.thedailymeal.com/eat/10-things-you-didnt-know-about-
food-walmart/.
Final Thoughts
1. Greg Ip, “For Business, a New Political Status Quo,” The Wall Street
Journal, August 17, 2017, p. A2.
2. For more on why classical economic theory can quickly break down,
see “Strategic CSR – Self-interest,” November 21, 2016,
http://strategiccsr-sage.blogspot.com/2016/11/strategic-csr-self-
interest.html.
666
Appendix
1. Kerry Capell, “Zara Thrives by Breaking All the Rules,” Bloomberg
BusinessWeek, October 8, 2008,
https://www.bloomberg.com/news/articles/2008-10-08/zara-thrives-by-
breaking-all-the-rules.
4. John Kay, “Weasel words have the teeth to kill great ventures,”
Financial Times, January 14, 2009, p. 9. See also “Strategic CSR –
Values,” September 20, 2016, http://strategiccsr-
sage.blogspot.com/2016/09/strategic-csr-values.html.
8. Mara Lemos Stein, “Boards Still Lack Grasp of Risk,” The Wall Street
Journal, January 25, 2017,
https://blogs.wsj.com/riskandcompliance/2017/01/25/the-morning-risk-
report-boards-still-lack-grasp-of-risk/.
667
https://blogs.wsj.com/riskandcompliance/2017/10/17/the-morning-risk-
report-compliance-clamors-for-more-board-training-newsletter-draft/.
10. Alina Dizik, “What Women Add to Boards,” The Wall Street Journal
Report: C-Suite Strategies, October 3, 2016, p. R2.
11. The title of this position varies considerably across firms and
includes corporate responsibility officer, sustainability officer, ethics and
compliance officer, or even chief customer officer (“The magic of good
service,” The Economist, September 22, 2012, p. 78). The important
point is that a position is created to focus on CSR-related issues and that
it has the substantive support of the CEO.
12. The lack of a defined career path for CSR officers has frustrated
those who support this position in firms. To this end, the Corporate
Responsibility Officers Association (CROA, now the 3BL Association)
has done some work cataloging the “Knowledge, Skills & Attributes” of
CSR officers (“CROA Releases Guidebook on Structuring and Staffing
Corporate Responsibility,” BusinessWire, March 10, 2011,
https://www.businesswire.com/news/home/20110310006135/en/). Others
have listed the skills required to do this job (Mallen Baker, “10 skills you
need to work in corporate social responsibility,” March 5, 2016,
http://mallenbaker.net/article/good-work/10-skills-you-need-to-work-in-
corporate-social-responsibility/).
668
https://blogs.wsj.com/riskandcompliance/2018/01/23/the-morning-risk-
report-survey-highlights-compliance-dangers/.
17. For more on this, see Ben DiPietro, “Rules Can Get in the Way of
Culture,” The Wall Street Journal, March 10, 2016,
https://blogs.wsj.com/riskandcompliance/2016/03/10/the-morning-risk-
report-rules-can-get-in-the-way-of-culture/ and Ben DiPietro, “Top
Ethics and Compliance Programs Emphasize Behavior,” The Wall Street
Journal, February 7, 2017,
https://blogs.wsj.com/riskandcompliance/2017/02/07/the-morning-risk-
report-top-ethics-and-compliance-programs-emphasize-behavior/. See
also Rosabeth Moss Kanter, “How Great Companies Think Differently,”
Harvard Business Review, November 2011, https://hbr.org/2011/11/how-
great-companies-think-differently.
21. Thomas A. Steward & Joyce E. Davis, “Why Value Statements Don’t
Work,” Fortune, June 10, 1996,
http://archive.fortune.com/magazines/fortune/fortune_archive/1996/06/1
0/213259/index.htm.
23. https://www.starbucks.com/about-us/company-information/mission-
statement (accessed April 2019).
669
24. Ron Carucci, “How Corporate Values Get Hijacked and Misused,”
Harvard Business Review, May 29, 2017, https://hbr.org/2017/05/how-
corporate-values-get-hijacked-and-misused.
25. Jena McGregor, “How tech workers are fueling a new employee
activism movement,” The Washington Post, December 13, 2018,
https://www.washingtonpost.com/business/2018/12/13/how-tech-
workers-are-fueling-new-employee-activism-movement/.
28. Lou Gerstner, “The Culture Ate Our Corporate Reputation,” The
Wall Street Journal, October 3, 2016, p. A17.
29. For a discussion of trust in business today, see Tim Harford, “Trust in
the age of Airbnb,” Financial Times Life & Arts, August 13/14, 2016, p.
15. For evidence that firms with cultures “reliant on trust and respect”
enjoy more success, see Ben DiPietro, “Values-based Culture Pays Off
for Companies,” The Wall Street Journal, March 8, 2017,
https://blogs.wsj.com/riskandcompliance/2017/03/08/the-morning-risk-
report-values-based-culture-pays-off-for-companies/.
31. Ben DiPietro, “Tech Use Raises Many Compliance Issues,” The Wall
Street Journal, March 5, 2015,
https://blogs.wsj.com/riskandcompliance/2015/03/05/the-morning-risk-
report-tech-use-raises-many-compliance-issues/. See also “Strategic CSR
– Amazon,” February 28, 2018, http://strategiccsr-
sage.blogspot.com/2018/02/strategic-csr-amazon.html.
32. Mara Lemos Stein, “U.K. Report Highlights Gender Issues,” The
Wall Street Journal, March 24, 2016,
https://blogs.wsj.com/riskandcompliance/2016/03/24/the-morning-risk-
report-u-k-report-highlights-gender-issues/.
670
33. “Green growth,” The Economist, September 17, 2011, p. 72.
34. David Kestenbaum, “Pop Quiz: How Do You Stop Sea Captains
From Killing Their Passengers?” NPR, September 10, 2010,
https://www.npr.org/sections/money/2010/09/09/129757852/pop-quiz-
how-do-you-stop-sea-captains-from-killing-their-passengers.
35. Tomasz Obloj, “Financial incentives and bonus schemes can spell
disaster for business,” The Guardian, December 11, 2013,
https://www.theguardian.com/sustainable-business/financial-incentives-
bonus-schemes-lloyds-fine.
671
39. Michael Slezak, “Commonwealth Bank shareholders sue over
inadequate disclosure of climate change risks,” The Guardian, August 7,
2017, https://www.theguardian.com/australia-
news/2017/aug/08/commonwealth-bank-shareholders-sue-over-
inadequate-disclosure-of-climate-change-risks.
672
48. The phrase triple bottom line was introduced in 1994 by John
Elkington of SustainAbility to capture corporate accounting across
social, environmental, and financial metrics (https://sustainability.com/).
52. Lynn Paine, Rohit Deshpandé, Joshua D. Margolis, & Kim Eric
Bettcher, “Up to Code: Does Your Company’s Conduct Meet World-
Class Standards?” Harvard Business Review, December 2005, p. 123.
53. Elizabeth Barber, “Fewer are behaving badly at work, survey finds.
What changed?” The Christian Science Monitor, February 25, 2014,
https://www.csmonitor.com/USA/Society/2014/0225/Fewer-are-
behaving-badly-at-work-survey-finds.-What-changed.
54. “The Next Step for CSR: Economic Democracy,” Business Ethics
Magazine, Summer 2002, p. 10.
57. Ibid.
673
59. Today, subcontractors to Nike must comply with employment
standards that dictate pay, rest breaks, overtime, and other working
conditions. These standards are enforced by regular inspections, with the
risk of a lost contract if broken, even if firms are in full compliance with
local laws and practices. For a long time, however, Nike’s production
demands contradicted the conditions outlined in its code of conduct for
suppliers. It is ineffective to stipulate specific low-cost and high-
production targets if, at the same time, a firm is asking its suppliers to
restrict employee overtime and pay living wages. Given such a choice,
many suppliers decided to meet Nike’s production demands at the
expense of working conditions in their factories. Once Nike realized the
counterproductive effects of these competing demands, it worked to
ensure its incentives for subcontractors accurately supported its strategic
CSR. For more, see Simon Zadek, “The Path to Corporate
Responsibility,” Harvard Business Review, December 2004, pp. 125–
132.
61. For example, see Stephen Dockery, “New U.K. Rules Encourage
Banking Whistle-blowers,” The Wall Street Journal, October 6, 2015,
https://blogs.wsj.com/riskandcompliance/2015/10/06/new-u-k-rules-
encourage-banking-whistleblowers/.
64. “Cross the boss,” The Economist, March 19, 2016, p. 70.
65. Stacey Cowley, “Wells Fargo Whistle-Blower Wins $5.4 Million and
His Job Back,” The New York Times, April 3, 2017,
674
https://www.nytimes.com/2017/04/03/business/04-wells-fargo-
whistleblower-fired-osha.html.
69. At Eskom, the nuclear power utility in Cape Town, South Africa, for
example, the firm has established the position of “stakeholder
management manager.”
71. Eric Roston, “Trying to Put a Price on Big Oil’s Climate Obstruction
Efforts,” Bloomberg Businessweek, April 7, 2016,
https://www.bloomberg.com/news/articles/2016-04-07/trying-to-put-a-
price-on-big-oil-s-climate-obstruction-efforts.
72. Anahad O’Connor, “Soda Giants Back, Then Lobby Against, Public
Health,” The New York Times, October 11, 2016, p. B2
73. Anjali Mullany, “What Your Social Media Consultant Should Tell
You,” Fast Company Magazine, September 2012, p. 73.
675
75. https://news.nike.com/.
77. “Chief activist officer,” The Economist, December 2, 2017, pp. 12–
13.
78. “America Inc gets woke,” The Economist, December 2, 2017, p. 53.
79. Glenn Fleischman, “Pedo, Private, and Pravda: How Elon Musk’s
Tweets Are Trouble for Tesla,” Fortune, September 4, 2018,
http://fortune.com/2018/08/29/elon-musk-twitter-tesla-stock-pedo-
private-pravda-tweet/.
81. Keith Darcy, “How Boards Can Raise the Bar on Ethics and
Compliance,” The Wall Street Journal, April 22, 2014,
https://deloitte.wsj.com/riskandcompliance/2014/04/22/keith-darcy-how-
boards-can-raise-the-bar-on-ethics-and-compliance/.
676
Index
Abrams, Frank, 57
AccountAbility, 64
Accountability
bidirectional, 186–187
corporate governance and, 335
defining CSR, 187–188
for financial crisis, 104, 361 (n36)
free markets and, 163–165, 165–166
price of CSR, 196–200
stakeholders’ role in, 163–165, 286–288, 325–326
Accountable Capitalism Act, 124
Activism, 8–9, 34, 83, 165, 203, 311–312, 335–336
See also Boycotts; Impact investments; Occupy Wall Street;
Social progress and profit
Activist investors, 130, 202–204
Addiction to media, 150, 153–155
Affirmative action, 17–18
Affluence, 12–13, 21–24, 104, 136
Agency theory of firms, 12, 130–131, 342 (n5)
AGM (annual general meeting), 134, 203
Airbus, 226–227, 236
Aircraft manufacturing analysis, 225–227, 226 (figure)
Alaskan pipeline, 24–25
Algorithms
for Google, 224
for news stories, 151
for stock trades, 131–132, 360 (n16)
Al Jazeera Arabic, 145, 147
Altruism, 181
See also Philanthropy
Amazon, 83, 142, 149, 174, 203, 236, 244, 314
American Apparel, 37
Anderson, Ray, 9, 198–199, 284
Annual general meeting (AGM), 134, 203
“Annual Honesty and Ethics Poll,” 86–87, 86 (figure)
Anthropocene, 281
677
Antitrust action, 240
Anti-values-based investments, 212
Apple
domestic pressure on, 23
green bonds issued by, 211
investing in cutting carbon emissions, 26
Jobs on technology and children, 153
market share, 149, 378 (n14)
strategy of, 231
supply chains, 265–266
sustainability issues, 291
value creation, 314
worth of brand, 36–37
See also Cook, Tim
ASEAN (Association of Southeast Asian Nations), 6
Aspen Institute, 90
Asset managers, 132
Association of Southeast Asian Nations (ASEAN), 6
AT&T, 128–129, 248
Atheist Bus Campaign, 45
Attenborough, David, 280
Automobile purchases, 168
678
Bentham, Jeremy, 14
Be Praised (Laudato Si), 45–46
Bergh, Chip, 105
“Beyond Grey Pinstripes” survey, 90
Biblically responsible investing (BRI), 211
BICEP (Business for Innovative Climate and Energy Policy), 18–19
Big data, 326
Bill and Melinda Gates Foundation, 173
B Impact Assessment, 192, 194
B Lab certification, 123–125, 194
BlackRock, 132, 142
Blair, Tony, 43
Blockchain technology, 155–156
Bloomberg Philanthropies, 214
Bloom’s taxonomy of learning, xxxii, xxxii (figure)
Board of directors, 136, 138–140, 323, 334–335, 364 (n35)
Body Shop, 38, 123, 231–232, 335
Boeing, 226–227, 236
Bogle, John, 247
Bottom of the pyramid (BOP), 228–229, 379 (n36)
Bowen, Howard, 15, 57, 298
Boycotts, 8, 34
See also Activism
BP, 25, 166, 189, 194, 236
Brands, 231, 249–251, 296–297
See also specific brands
BRI (biblically responsible investing), 211
Bristol-Myers, 203
British Airways, 44
Brooks, David, 45–46, 303
Brundtland Report, 276–277
Buchholtz, Ann K., 191, 192 (figure)
Buckley v. Valeo, 114
Buffett, Warren E., 140
Burberry, 283
Bureaucracy, 306–307
Burwell v. Hobby Lobby, 43–44
Business ethics, 299–300
Business for Innovative Climate and Energy Policy (BICEP), 18–19
Business judgment rule, 136–137, 138
679
Business-level strategy variation, 231–234, 233 (figure)
Business models, 19–20
Business school curriculum, 89–92, 359–360 (n65)
BuyPartisan, 84
680
Charity, 253–254
Charlestown Boot & Shoe Co. v. Dunsmore, 136
Chick-fil-A, 309–310
Chief ethics officer, 322
Chief executive officers (CEOs)
chief ethics officers, 322
concern for value creation, 313
opinions on shareholders, 140–141
pay for, 417 (n37)
short-term interests of, 246
tenure of, 141–142
tri-sector athletes as, 308
See also specific CEOs
Chief financial officers, 127
Children and the media, 153–155, 154 (figure)
Chile, 12–13
China, 33, 34, 174, 258, 265, 283, 290–293
Chobani, 307
Chouínard, Yvon, 122–123, 244, 269, 322
See also Patagonia
Christian Investment Forum, 211
Christian Right, 44–45
Circular economy, 199
Citibank, 96, 203
Citicorp, 172
Citigroup, 240
Citizens United v. Federal Election Commission, 113–116
Civil Rights Act, 46
The Clash of Cultures (Bogle), 247
Clay, Jason, 296
Climate Bonds Initiative, 211
Climate change
about, 25–26, 281–283, 282 (figure), 405 (n24)
analyzing issue of, 70
COP21, 278–280
COP24, 279, 280–281
importance of firms acting on, 296–297
natural capital, 284–286, 287 (figure)
reluctance to act on, 278, 346 (n8)
See also Sustainability
681
Clothing industry, 259
CNN, 145–148
Coca-Cola, 30, 248, 294, 295, 333
Code for Corporate Responsibility, 121
Code of ethics, 229–331
Coerced reports, 191–192, 192 (figure)
Coffee and fair trade, 260, 269
See also Starbucks
Cohen, Ben, 311
See also Ben & Jerry’s
Colgate-Palmolive Co., 248, 286
Commerce Clause of the Constitution, 121
Communication
digital universe of, 31–33
information flow, 31 (figure)
mobile devices, 33–34
trends in, 30 (figure), 31–36, 32 (figure)
See also Globalization; Media; Social media
Communications Decency Act, 156
Competencies, 223
Competition, Porter’s five forces of, 226–227, 226 (figure)
Competitive strategy, 230
Compliance
behavioral economics, 183–186
incentives, 84–85, 180, 326–327
legal responsibility, 5, 7, 323
self-interest, 181–183
voluntary vs. mandatory enforcement, 179–181, 184
See also Accountability; Economic argument for CSR;
Regulation
Computerized stock trades, 131–132
Computer recycling programs, 243
Conkling, Roscoe, 135
Conscious capitalism, 304–305
Consequentialist reasoning, 14
Conservation International, 270–271
Conspicuous virtue, 378 (n17)
Consumers
behavioral economics, 183–186
boycotts by, 8
682
conspicuous virtue, 378 (n17)
driving corporate action, 286
Facebook marketing to, 149
media’s oversight role, 78–80
movements by, 8–9, 34, 35–36
willingness to pay for CSR, 87–88, 87 (figure)
See also Activism; Communication; Price; Stakeholders
Consumption, 92, 170–171, 281–283, 321
Control vs. ownership, 132–133, 143
See also Ownership of corporations
Cook, Tim, 140, 266, 335–336
See also Apple
COP21 (21st Conference of the Parties), 278–280
COP24 (24th Conference of the Parties), 279, 280–281
Copwatch, 35
Core competencies, 223
Core resources, 223
Corporate charters, 128
Corporate rights/responsibilities
benefit corporations, 122–125
B Lab certification, 123–125
Citizens United, 113–116
corporate governance, 119–122, 334–335
CSR as corporate responsibility, 75–77
self-interest interacting with, 112, 113 (figure)
shareholder primacy, 117–119, 125, 136, 143
value creation, 110–111
See also Corporate social responsibility (CSR); Corporations;
Stakeholders
Corporate social responsibility (CSR)
critical and controversial nature of, 2–3, xxix–xxx
CSR officers, 323–324, 415 (n11)
CSR threshold, 230–234, 233 (figure), 302, 358 (n39)
defining, 4–8, 186
economic argument for, 19–20, 345 (n65)
evolution of, 8–13, 10 (figure), xxx–xxxi
Friedman vs. Handy debate, 75–77
hierarchy of, 5
moral argument for, 15–17
process and outcome nature of, 7
683
rational argument for, 17–19
strategic CSR comparison, 254–255, 255 (figure), 256 (figure),
298–299
subversiveness of, 76–77
sweet spot vs. danger zone, 85–86, 85 (figure)
See also CSR filter; Ethics; Measurement of CSR; Strategic
CSR; Strategy and CSR; Trends
Corporations
capabilities, 236–237
competencies, 236–237
personhood of, 113–116
resources, 236–237
socially responsible firms, 336, 337 (figure)
societal well-being advanced by, 127–128
stakeholder interdependence with, 304–305
structure of, 236
supporting CSR goals, 289
synergistic relationship with stakeholders, 240–241
value of, 111–112, 113 (figure)
See also Consumers; Ownership of corporations; Profit;
Stakeholders; Stock market; Supply chain management
Corpwatch, 35
Cosmetics market, 174–175
Costa, Ken, 47
Costco, 244
Cost leadership. See Low-cost business strategy
Countrywide, 100, 331
Creating a World Without Poverty (Yunus), 99
Creative capitalism, 251–252
Credit and interest, 48–50
CSR. See Corporate social responsibility (CSR)
CSR filter
constraints, 235–236, 235 (figure)
Enron, 236
importance of, 239, 241
Nike, 238–239
strategic implementation and, 234–235
value optimized with, 303–304, 304 (figure)
Cultural context of business, 12–13, 300–302, 324
Cultural relativism, 263–265
684
Culture of integrity, 338
Customers. See Consumers
685
Duke Energy, 19
Dunkin’ Donuts, 270–271
686
movement to protect, 8–9
recycling, 290–293, 295
stakeholder role of, 58–59
value-based funds for, 211–212
See also Impact investments; Sustainability
Environmental, social, and governance (ESG) funds, 204, 207–209,
208 (figure)
Environmental constraints, 235–236, 235 (figure)
Environmental Defense Fund, 289
Environmental profit and loss accounting, 199, 285–286
Environmental Protection Agency (EPA), 80, 180
EPR (Extended Producers Responsibility) standards, 198
Equal pay, 238
Equator Principles, 240
ESG (environmental, social, and governance) funds, 204, 207–209,
208 (figure)
Ethics
“Annual Honesty and Ethics Poll,” 86–87, 86 (figure)
argument for CSR, 5, 7–8, 13–15
biometrics, 326
business ethics vs. CSR vs. strategic CSR, 299–300
business school curriculum covering, 89–92
chief ethics officer, 322
codes and training, 329–331
conscious capitalism, 304–305
consumerism and, 73
CSR position, 324
ethical argument for CSR, 7–8
ethical supply chain, 259–263, 261 (figure)
helpline, 331–332
honesty in the morning, 89
implementation of strategic CSR and, 329–331
morals vs., 300–302, 344 (n49)
nudges, 184–186
price and, 83–84
unethical supply chain, 263–266
See also Fair trade; Value
Etymology of financial terms, 49–50
European Union
CSR definition, 6
687
Economy for the Common Good, 121–122
General Data Protection Regulation, 157
integrated reporting, 328
socially responsible investments waste management, 293–295
whistle-blowers, 331–332
See also specific EU countries
Evans, Dave, 47
E-waste, 290–293, 292 (figure)
Executives
“Annual Honesty and Ethics Poll,” 86–87, 86 (figure)
chief financial officers, 127
leadership of, 322
shareholders and, 371–372 (n78), 372 (n86)
See also Board of directors; Chief executive officers (CEOs)
Expressive benefits from investments, 210
Extended Producers Responsibility (EPR) standards, 198
Externalities, 385–386 (n105)
External validation. See Measurement of CSR
Extinction of species, 285
Extraction firms, 268
Extractive Industries Transparency Initiative, 192, 194
Exxon, 70, 191, 194, 209
ExxonMobil, 333, 336
EY company, 46
FAANGs, 27
Facebook
about, 34–36, 37, 148–150
addiction to, 153–155
news on, 148, 151–153
privacy and, 155–158
Fair Labor Association (FLA), 266
Fair trade, 259–263, 261 (figure), 269
Fairtrade Foundation, 260
Fairtrade International, 195, 260–261, 261 (figure)
Faith-based funds, 211–212
FaithShares, 212
Fake news, 148, 150–153
Fama, Eugene, 134
Feminist movement, 8–9
688
Feuerstein, Aaron, 11
See also Malden Mills
Fiduciary duties of managers and directors, 125, 342 (n8)
Financial Crisis (2007–2008)
about, 74
accountability and, 104, 361 (n36)
causes, 101–102
CNBC reporting on, 147
Countrywide and, 100, 331
decisions contributing to, 95–97
Dodd-Frank Act, 180, 323, 335
global capitalism, 97–99
moral hazard, 96–97
Occupy Wall Street, 99–101, 101 (figure)
results of, 74, 102–107
self-regulation and, 181–182
socialism, rise of, 105–107
Fink, Larry, 142
Firms. See Corporations
First National Bank of Boston v. Bellotti, 114
FLA (Fair Labor Association), 266
Flickr, 35
Food banks, 221–222
Food Foundation, 263
Food industries, 175–177
See also specific food companies
Ford, Henry, 136, 138–140
Foroohar, Rana, 103
For-profit organizations, 1
See also Corporations
Fourteenth Amendment, 135, 143, 370 (n64)
Foxconn, 265–266
Fox News, 44–45, 147
Francis, Pope, 45
Freeman, R. Edward, 56–58, 63
Free speech, 115–116
Free trade, 262
French legislation, 157
Freshfields Report, 125
Friedman, Milton, 4, 75–77, 118, 181, 281, 341 (n1)
689
Friedman, Thomas, 84, 98
Friedman vs. Handy debate, 75–77
690
sustainability efforts, 296
See also Compliance; Regulation; Stakeholders
Grameen Bank, 251–252
Great Barrier Reef, 285
Great Pacific Garbage Patch, 294
Great Recession. See Financial crisis (2007–2008)
Greed, 95–96, 142, 252, 300
Green & Black, 123
Green bonds, 210–211
Greenfield, Jerry, 311
See also Ben & Jerry’s
Greenpeace, 70, 110
Greenspan, Alan, 99–100, 181–182
Greenwash, 191, 194, 300, 334
GRI (Global Reporting Initiative), 192–194
Guess brand, 37
Gulf War (1991), 146
691
CSR officers, 323–324
engaged stakeholders, 332–334, 333 (figure)
ethics codes and training, 329–331
executive leadership support, 322
integrated reporting, 327–329, 329 (figure)
marketing, 334
medium- to long-term, 332–336
orienting vision and mission with values, 324–326
performance metrics, 326–327
planning, 320–321, 337 (figure)
social activism, 335–336
stakeholder engagement in, 321
steps for, 338
triple bottom line, 328, 329 (figure)
unintended consequences of incentives, 326–327, 412 (n21),
417 (n37)
value creation, 320–321
See also Supply chain management
Incentives, 84, 180, 326–327, 412 (n21), 417 (n37)
See also Economic argument for CSR; Regulation
Income inequality, 104
Incorporation process, 119–122, 120 (figure)
India, 33, 181, 258
Industry perspective, 222–225
Industry rivalry, 227
Inequality of living standards, 22–24
See also Affluence; Poverty
Information
digital currency, 145
stakeholders accessing, 27–30, 28 (figure), 84–86, 85 (figure)
See also Communication; Media
Initial public offerings, 129, 130 (figure)
Innovation, 324
Instagram privacy, 155
Integrated reporting, 327–329, 329 (figure)
Interbrand, 36–37
Interest and credit, 48–50
Interface Carpets, 9, 198–199, 284, 286
Interfaith Centre on Corporate Responsibility, 203–204
Intergovernmental Panel on Climate Change (IPCC), 278
692
International Committee of the Red Cross, 216
International Labour Organization (ILO), 258–259
Internet, 27, 168–169
See also Social media
Investments
activism trend, 202–204
long-term investors vs. short-term speculators, 246–248
motivations for, 210
See also Impact investments; Market capitalism; Socially
responsible investments (SRIs); Stock market
Invisible hand concept, 308
IPCC (Intergovernmental Panel on Climate Change), 278
iPhones, 265–266, 291
See also Apple
IPO (primary) markets, 129, 130 (figure)
Ireland’s recycling efforts, 295
Iron Law of Social Responsibility, 18, 335
Islamic Bank of Britain, 52
Islamic finance, 47–48, 50–53
Kaepernick, Colin, 38
Kant, Immanuel, 14
Kanter, Rosabeth Moss, 253
Kay, John, 137
Kelleher, Herb, 224, 244
Kellogg’s, 189
Keynes, John Maynard, 132
Kidder, Rushworth, 14
Kraft, 123
Kramer, Mark, 229, 241–243, 242 (figure), 253
Kyoto Protocol, 279
693
Laudato Si (“Be Praised,” 2015), 45–46
Lay, Kenneth, 330
Legal compliance and responsibility, 5, 7, 323
Legal personhood, 135
Legal responsibility and compliance, 5
Lehman Brothers, 101–102
Levi’s jeans, 105
Lifecycle assessment, 328
Lifecycle pricing, 197–200, 197 (figure)
Lifestyle brands, 232–233
Limited liability company (LLC), 128, 129–132, 133, 137, 366–367
(n4)
Living standards, inequality of, 22–24
Living wages, 170, 242, 250, 303, 314, 315
L.L. Bean, 88
LLC (limited liability company), 128, 129–132, 133, 137, 366–367
(n4)
Lobbyists as stakeholders, 332–333, 333 (figure)
“Local” business, 27–28, 28 (figure)
Long Now Foundation, 248–249
Long-term investors vs. short-term speculators, 246–248
L’Oreal, 123, 174–175
Los Angeles, California, 12–13
Low-cost business strategy, 231–234, 233 (figure)
Luxury goods, 231–232
694
product packaging, 174, 176–177
resource allocation problem, 317
stakeholder accountability and, 163–165, 165–166
Unilever example of social progress in, 175–177, 177 (figure)
value of, 162
Marks & Spencer (M&S), 196
Marshall, John, 115
Materialism, 92
Maximization of profit, 169–170
MBA Oath, 301
McDonald’s restaurants, 78, 195, 232, 248
Measurement of CSR
certification step, 194–195
challenges of, 188–190
costs, 188–189
definitions and, 187–190
importance of, 190
labeling step, 195–196
standardization step, 190–194, 192 (figure)
See also Price
Media
addiction to, 150, 153–155
CNN, 145–148
fake news vs. real news, 148
oversight role, 80
partisanship in, 147–148
privacy concerns, 150
responsibility of, 145
speed of news spreading, 144
See also Social media
Medium- and long-term perspectives, 246
Mercedes Benz, 231–232
Metrics for performance, 326
Microfinance, 205, 252
Microsoft, 83, 198, 251–252, 286
Minimum wages, 78, 111, 135, 170, 242, 265, 303, 314, 315
Mining industry, 268
Mission, 221, 324–326
Mobile devices, 32–34, 174–175
Modern Slavery Act, 264, 401 (n52)
695
Moneylenders, 48–49, 50–53
Moral argument for CSR, 15–17
Moral hazard, 96–97
Morals vs. ethics, 300–302, 344 (n49)
Morningstar, 207
Mortgage borrowing, 104
Mortgage crisis. See Financial Crisis (2007–2008)
Move to Amend, 116
MSCI KLD 400 Social Index, 207
MSC (Marine Stewardship Council), 195
Mutual trust in financial transactions, 49–50
696
See also Globalization
Offshore production. See Outsourcing
Oil industry, 333
See also specific oil companies
Oil spills, 25, 166, 194
Operations, implementing CSR through, 321
Oppenheimer, Robert, 150
Opportunistic reports, 191–192, 192 (figure)
Opportunity/risk tradeoff, 85–86, 85 (figure)
Optimization of value, 245–246
Organ donation programs, 185
Organizational classifications, 1–2
Organizational stakeholders, 59–61, 60 (figure), 63, 93 (figure)
OSHA (Occupational Safety and Health Administration), 180
Outsourcing, 11–12, 258–259, 264, 334
See also Globalization; Supply chain management
Oversight. See Regulation
Ownership of corporations
business judgment rule, 136–137
control vs., 133–134, 143
defined, 143
legal personhood, 135, 369 (n40)
possession vs. ownership, 132–133
shareholders and, 117, 127–129, 133–134, 138–140, 366 (n2),
371–372 (n78)
stakeholders vs. shareholders, 140–143
See also Impact investments
Oxfam International, 189
Packard, David, 4
Palihapitiya, Chamath, 153
Paris Agreement, 279–280
Partisanship, 147–148
Passenger airlines analysis, 225–227, 226 (figure)
Patagonia
benefit corporation, 122–123, 125
Product Lifestyle Initiative, 163, 198
stakeholders’ importance to, 244
supply chains, 269
value creation, 305, 313–314
697
PepsiCo, 189, 286, 333
Performance metrics, 326–327
Personal hygiene industries, 175–177
Personhood of corporations, 113–116, 135
Peterborough Prison, 214
Petroleum company, protests against, 23
Philanthropy, 82–83, 249–250, 398 (n66)
Pierce, Frank, 57
“Plant a Tree for Me” program, 243
Plastic waste, 293–296, 294 (figure)
Poland Spring, 191
Policy constraints, 235–236, 235 (figure)
Political campaign spending, 115
See also Citizens United v. Federal Election Commission
Pollution, 24
Polman, Paul, 140–141, 176, 268, 315, 322
See also Unilever
Population growth, 25, 281
Porsche, 248
Porter, Michael, 225–229, 226 (figure), 241–243, 242 (figure), 253
Possession vs. ownership, 132–133
Post, James E., 57
Poverty
caring capitalism and, 251–252
definitions of extreme poverty, 379 (n30)
different expectations of, 12–13
eradication of, 172–173, 173 (figure)
Power, abuse of, 18
Power of suppliers/buyers, 226–227
Practical ethics, 13–14
Prahalad, C. K., 223–224, 228–229
Preston, Lee E., 57
Price
costs of ethical firms, 259, 261
CSR and, 196–200
ethics and, 83–84
externalities, 385–386 (n105)
importance of, 72–73, 357 (n2)
lifecycle pricing, 197–200, 197 (figure)
natural resources, 285–286
698
social valuations leading to, 167–169
See also Fair trade
Primark, 264
Primary (IPO) markets, 129, 130 (figure)
Prince, Chuck, 96
Principles-based culture, 324
Principles for Responsible Investment (UNPRI), 205–207
Privacy, 115–116, 150, 155–158
Proactive behavior, 17–19
Production value, 170–171
Product Lifecycle Initiative, 163
Product packaging, 174, 176–177
Professional activists, 203
Profit
acceptability of pursuit of, 81
economic and social values, 167–169
economic hierarchy, 173–175, 173 (figure)
environmental profit and loss accounting, 199, 285–286
motivating, 169
moving beyond, 16
optimization of profit, 169–170, 303–304, 304 (figure)
optimization of value, 245–246
production and consumption value, 170–171
responsibility for CSR and, 75–77
role of business in maximizing, 166–167
strategic CSR and, 162
Unilever as sustainability leader, 175–177, 177 (figure)
value creation and, 299
See also Government; Markets (competitive)
Protests. See Activism
Public opinion, 146–147
Public purposes, 125
PUMA, 199, 285–286
Quakers, 46
Quarterly earnings reports, 142–143, 248
Ramadan sales, 48
Rational argument for CSR, 17–19
Rationality of firms, 225
699
Rational man assumption, 183, 185
Reclaim Democracy, 116
Recycling issues, 290–293, 295
Regulation
oversight and, 80
stakeholders calling for, 166
stock market as unregulated, 100
voluntary action vs., 284–285
waste management, 293
See also Carbon emissions; Compliance; Financial crisis (2007
–2008)
Relative affluence, 22–23
Religion
biblically responsible investing, 211
capitalism and, 45–47, 52
discrimination, 44, 350 (n26)
faith-based mutual funds, 47
Islamic finance, 47–48, 50–53, 353 (n92)
Quakers, 46
symbols of, 44
US and UK data, 40–45, 41 (figure), 42 (figure)
usury and, 48–49
Resilience, 283–284, 407 (n56)
Resource allocation problem, 317
Resource constraints, 235–236, 235 (figure)
Resource perspective, 222–225
Resources, 192, 194
Responsibility and ethics, 77–81, 81 (figure)
See also Profit
Responsible man assumption, 183
Responsive CSR comparison, 242–243, 242 (figure)
Retail clothing companies, 242
See also GAP; Patagonia
Retaliation, 331–332
Rikers Island prison, 214–215
Rockefeller, John D., 22
Rogers, Jim, 19
Rules-based and principles-based culture, 324
700
Sachs, Sybille, 57
Salaries. See Wages
Salesforce, 83
Samsung, 288
Sanders, Bernie, 124
Santa Clara County v. Southern Pacific Railroad, 114
Santiago, Chile, 12–13
Sarbanes-Oxley Act, 323, 331
Saro-Wiwa, Ken, 29
Saudi Arabia, 29
Schultz, Howard, 37, 244, 269, 310–311, 312, 322
See also Starbucks
Seafood products, 195–196
Secondary (stock) markets, 129, 130 (figure)
Securities and Exchange Commission, 328
Selection behavior, 184–186
Self-interest, 112, 113 (figure), 181–183
Selfishness, 182–183
Self-worth, 92
SerenityShares, 213
Seychelles, 121
Shabana, Kareem, 191, 192 (figure)
Shareholders
fiduciary duties, 138–140
ownership and, 127–129, 133–134, 366 (n2)
primacy of, 117–119, 125, 136, 143
rights of, 134, 134 (figure), 368 (n33), 369 (n48)
stakeholder perspective compared to, 243–244, 245, 354 (n1),
373–374 (n94)
value of, 396 (n13)
See also Stakeholders
Sharia, 50–53
Shell, 23, 26, 28–29
Short-term speculators, 246–248, 387–388 (n4)
SIBs (social impact bonds), 205, 214–216, 215 (figure)
Siemens, 29
Sina Weibo, 34
Sin funds, 212–213
Sin taxes, 179, 181
Smartphones, 32–34
701
Smith, Adam, 16, 27, 76, 185, 252, 308
Social desirability biases, 87
Social dimension of competitive context, 242
Social entrepreneurship, 252
Social & Environmental Assessment Report, 311
Social finance, 205
Social impact bonds (SIBs), 205, 214–216, 215 (figure)
Socialism, 103–106, 164
Socially responsible firms, 336, 337 (figure)
Socially responsible investments (SRIs)
definition and measurement, 208–209, 212
environmental, social, and governance, 204, 207–209, 208
(figure)
growth of, 19, 202, 204–205
impact investing, 206 (figure)
impact investments, 202, 205, 206 (figure), 213, 214–216, 215
(figure)
microfinance, 205
Principles for Responsible Investment, 205–207
sin funds, 212–213
social finance, 205
social impact bonds, 205, 214–216, 215 (figure)
terminology, 204–205
timeline, 206 (figure)
values-based funds, 210–212
Social media
about, 34–36
activism reported on, 9
fake news, 150–153
impact of, 29–30
privacy, 155–158
Tumblr.com, 84
Twitter, 34–36, 151–153, 155, 158
virtual life and death, 156
See also Facebook
Social progress and profit, 171–177, 173 (figure), 177 (figure)
Social Responsibilities of the Businessman (Bowen), 298
Social value of products/services, 169
Societal expectations, 74, 88
Societal stakeholders, 59–61, 60 (figure), 63–64, 93 (figure)
702
Soros, George, 97
Southeast Asia, 258
Southern Pacific Railroad, 114
Southwest Airlines, 223, 224–225, 244, 308, 326
The Spirit of Democratic Capitalism (Novak), 47
Sponsorship through CSR officers, 323–324
SRIs. See Socially responsible investments (SRIs)
Stakeholder prioritization
conflicting issues, 61–63
evaluating issues, 64–65, 65 (figure)
model of management, 68–70, 69 (figure)
shareholder issues, 244
stakeholder categories, 63–64
stakeholders and issues, 65–68, 66 (figure)
Zadek’s stages of learning/intensity, 64–68, 65 (figure)
Stakeholder relations department, 324
Stakeholders
acceptable behavior defined by, 182
accessing information, 27–30, 28 (figure)
accountability and, 163–165, 286–288, 325–326
broadening perspective of, 140–143
caring stakeholders, 82–84, 82 (figure)
categories of, 59–61, 60 (figure), 63–64, 66 (figure), 68
communication with, 327–329, 329 (figure), 334
competing interests of, 4
component of strategic CSR, 240–241, 243–244, 245
decision making and, 308–310, 309 (figure)
defined, 1–2, 56–59, 121, 341–342 (n4), 354 (n1), 355 (n10),
356 (n33)
demands from, 2
economic stakeholders, 59–61, 60 (figure), 63, 93 (figure), 356
–357 (n22)
educated stakeholders, 88–92
employees as most important, 332
engaged stakeholders, 92–93, 93 (figure), 299, 332–334, 333
(figure), 356 (n40)
expectations of, 17, 21–22
firms not held to account by, 165–166
identifying, 254–256
informed stakeholders, 84–86, 85 (figure)
703
management model of, 68–70, 69 (figure)
moral standards, 15–17
organizational stakeholders, 59–61, 60 (figure), 63, 93 (figure)
relationship with firms, 240–241, 304–305
reports to, 311
responsibilities of, 72–75, 77–81, 81 (figure), 93 (figure), 313–
315
societal stakeholders, 59–61, 60 (figure), 63–64, 93 (figure)
sustainability and, 286–288
transparent stakeholders, 86–88, 86 (figure)
values of, 254–256, 303–305, 318–319
See also Communication; Consumers; Cultural context of
business; Ownership of corporations; Religion; Shareholders;
Stakeholder prioritization; Strategic CSR
Standard Oil Company, 57, 240
Starbucks
core operations of, 253
CSR officer, 324
mission, 325
recycling efforts, 295
responding to stakeholders, 26
shareholders vs. stakeholders, 244
supply chains, 269–272
values of, 37, 305, 307, 310–311, 312
“War on Christmas” and, 44–45
State governments, 284
Stern report on climate change, 283
Stevens, John Paul, 116
Stitzer, Todd, 112
Stock market
computer algorithms for trading, 131–132
Dodd-Frank Act, 180, 323, 335
faith in, 96–97
initial public offerings, 129, 130 (figure)
limited liability companies and, 129–132
self-policing forces, 99–100
See also Financial crisis (2007–2008); Shareholders
Stonyfield Farm, 191
“Stop BEZOS” Act, 124
Stout, Lynn, 139
704
Stoxx Europe Christian Index, 211
Strategic corporate philanthropy, 240–241
Strategic CSR
about, 56–57, 79–81, 81 (figure)
core operations as component of, 243
CSR comparison, 235, 254–255, 255 (figure), 256 (figure),
298–299
CSR perspective in planning process, 241–243, 242 (figure)
defining, 186–188
good for business, 312–315
market capitalism, 251–252
marketing, 334
measuring, 187–190
medium- and long-term perspective, 246
“not caring capitalism” comparison, 251–252
“not philanthropy” comparison, 249–250
“not sharing value” comparison, 253–254
optimization of value, 245–246
responsive CSR comparison, 242–243, 242 (figure)
role of business in society and, 316
stakeholder perspective as component of, 243–244, 245, 304–
305
stakeholders and firms in synergistic relationship, 240–241
supply chain management and, 267–272, 267 (figure)
sustainability vs., 277 (figure)
value creation and, 302–304
window of opportunity, 82–84, 82 (figure)
See also Corporate social responsibility (CSR); Ethics;
Implementation of strategic CSR; Profit; Stakeholders;
Strategy and CSR; Value; Values-based business
Strategic relevance of issues, 67–68
Strategy and CSR
CSR threshold, 230–234, 233 (figure)
definitions, 221–222
industry perspective, 222–223, 225–228, 226 (figure)
integration of, 228–229
mission, 221
resource perspective, 222–225
strategic analysis, 222–229
strategy formulation, 222, 229–234, 234 (figure)
705
strategy implementation, 222, 234–238, 234 (figure), 235
(figure)
sustainable competitive advantage, 220
tactics, 222
vision, 221
See also CSR filter
Strategy diamond, 394 (n35)
Strategy formulation, 229–234, 234 (figure)
Strategy implementation, 234–238, 234 (figure), 235 (figure)
Straws, bans on, 295
Strengths, weaknesses, opportunities, threats (SWOT) analysis, 222
–223
See also Strategy and CSR
Student debt, 104
Subjective value, 301–302, 302 (figure)
Subprime mortgage industry, 95–96
See also Financial crisis (2007–2008)
Subversiveness of CSR, 76–77
Success. See Profit
Sugar boycott, 8
Supplementary materials, xxxvii
Supply chain management
Apple, 265–266
distributors of products, 268
ethics issues, 259–263, 261 (figure)
fair trade, 259–263, 261 (figure)
globalization and, 258–259
implementing CSR through, 321
Nike, 264–265
Starbucks, 269–272
strategic perspective of, 267–272, 267 (figure)
suppliers as risk in, 331
sustainability and, 296
unethical threats to, 263–266
value creation, 321
Sustainability
about, 24–26
Brundtland Report, 276–277
driving innovation, 288
economies founded on waste, 289–290
706
ESG behaviors, 209
e-waste, 290–293, 292 (figure)
market innovation, 296
natural capital, 284–287, 287 (figure)
plastic waste, 293–296, 294 (figure)
questions raised by, 276
reasons to care about, 288
reporting on, 328–329, 329 (figure)
resilience, need for, 283–284, 407 (n56)
stakeholders and, 286–288
Unilever example, 175–177, 177 (figure)
See also Climate change; Environment
Sustainability Accounting Standards Board (SASB), 193, 194
Sustainable competitive advantage, 220
Sweatshops, 264–265
SWOT (strengths, weaknesses, opportunities, threats) analysis, 222
–223
See also Strategy and CSR
Tactics, 222
Taxation
sin taxes, 179, 181
of sugary drinks, 179
vehicle tax letter, 184
Tea brands, 260
Team production theory, 373 (n97)
Technology
communications, 84
digital revolution, 23, 27–30, 28 (figure)
Internet, 27, 168–169
mobile devices, 32–34, 174–175
smartphones, 32–34
social bifurcation aggravated by YouTube, 35, 148
See also Facebook; Social media
10,000 Year Clock, 248–249
TerraCycle, 296
Tesla, 26
Thaler, Richard, 186
The Theory of Moral Sentiments (Smith), 308
Third World. See Developing nations
707
Threat of new entrants/substitutes, 226–227
Timberland, 191
Timeline of CSR, 10 (figure)
Tobacco industry, 212–213
Tom’s of Maine, 46
Toms Shoes, 250
Total value, 301–302, 302 (figure)
Toyota, 168
Transparency, 86–88, 86 (figure), 335
Transportation technology, 258
Trends
affluence, 12–13, 21–24, 104, 136
brands, 36–38
globalization, 26–29, 28 (figure)
sustainability, 24–26
See also Communication
Triple bottom line, 328, 329 (figure)
Tropicana Orange Juice, 287 (figure)
Trust, 49–50, 330
Trustees of Dartmouth College v. Woodward, 113–114, 115
Trust in financial transactions, 49–50
T-shirts, 164
Tumblr.com, 84
Turner, Ted, 146
21st Conference of the Parties (COP21), 278–280
24th Conference of the Parties (COP24), 279, 280–281
Twitter, 34–36, 151–153, 155, 158
UBS, 47
Unchartered corporations, 118
Unethical supply chain, 263–266
UNICEF, 176
Unilever, 26, 118–119, 140–141, 142, 240
acquiring Ben & Jerry’s, 311–312
markets for, 172, 175–177
quarterly earnings reports, 248
recycling efforts, 295, 380 (n60)
supply chains, 258, 267
Sustainable Living Plan, 286, 288
value creation, 315
708
Unintended consequences of incentives, 326–327, 412 (n21), 417
(n37)
United Arab Emirates, 53
United Kingdom
Behavioral Insights Team, 186
benevolent capitalism, 8
Cadbury Schweppes, 112, 123, 263, 286
CDP, 198
common law, 136
Community Interest Companies, 122
ethical consumerism, 73
Fairtrade Foundation, 260
Food Foundation, 263
integrated reporting, 327–328
Islamic finance industry center, 52
legislation, 157
Marks & Spencer, 196
Modern Slavery Act, 264
recycling efforts in, 295
religious affiliations, 41–42, 42 (figure), 46
Sainsbury’s supermarket, 195
social impact bonds, 214–216, 215 (figure)
unintended consequences of incentives, 326–327, 412 (n21)
vehicle tax letter, 184
whistle-blowers, 331–332
United Nations
Basel Convention, 293
Brundtland Report, 276–277
CSR definition, 6
Freshfields Report, 125
Intergovernmental Panel on Climate Change, 278
Principles for Responsible Investment, 205–207, 206 (figure)
Principles of Responsible Management Education, 90
reporting on world population, 25
Sustainable Development Goals, 90, 172, 213
UNPRI (Principles for Responsible Investment), 205–207
Urban density, 25
USA Mutuals’ Vice Fund, 212
Usury, 48–49
Utilitarian benefits from investments, 210
709
Value
consumption and, 164–165
CSR filter and, 303–304, 304 (figure)
defined, 358 (n31), 378 (n14)
firms as value-neutral, 88
optimizing, 245–246, 299
orienting with vision and mission, 324–326
profit and, 162
See also Ethics
Value chain social impacts, 242
Value creation
about, 253–254, xxxi
Amazon, 314
Apple, 314
Ben & Jerry’s, 311–312
business ethics and, 299–300
capitalism and, 298–299, 318–319
conscious capitalism, 304–305
cultural context of business, 300–302
morals vs. ethics, 300–302
objective value, 301–302, 302 (figure)
Patagonia, 313–314
profit and, 299
purpose of businesses, 80
social responsibility of stakeholders, 313–315
stakeholders and, 110–111, 303–305, 321
strategic CSR and, 253–254, 302–304, 320–321
subjective value, 301–302, 302 (figure)
total value, 301–302, 302 (figure)
Unilever, 315
values compared to, 301–302, 302 (figure)
Walmart, 313–314
See also Implementation of strategic CSR
Values-based business
about, 306–307, 412 (n20)
Chick-fil-A’s, 309–310
Chobani, 307
decision making and, 308, 309 (figure)
Starbucks, 307
Zappos, 307
710
See also Walmart
Values-based funds, 210–212
Verité, 418 (n50)
Virtual life, 156
Visibility through CSR officer, 323–324
Vision of businesses, 221, 324–326, 325
Volkswagen, 80, 189, 236
Voluntary action, 284–285
Voluntary proactive behavior, 17–19
VRIO analysis, 224
Wages
living wages, 170, 242, 250, 303, 314, 315
minimum wages, 78, 111, 135, 170, 242, 265, 303, 314, 315
pay for chief executive officers, 417 (n37)
relativity of, 345–346 (n3)
Walmart
core competency, 223–224
corporate actions, 84, 363 (n3)
generosity of, 250
negative publicity about, 112
stakeholder value, 244–245
strategy of, 231, 232
supply chain, 267
value creation, 313–314
Walton, Sam, 244
Warfare and media, 146
War on Christmas, 44–45, 148
Warren, Elizabeth, 124
Wealth distribution, 104
Wealth maximization, rule of, 136
The Wealth of Nations (Smith), 16
Welby, John, 47
Welby, Justin, 47
Welch, Jack, 141
Wells Fargo, 331
“What Would Jesus Drive” campaign, 45
Whistle-blowers, 331–332
Whole Foods Market, 62, 196, 232, 308
Wiedeking, Wendelin, 248
711
Williams, James, 155
“Woke business,” 105
Wolf, Martin, 97, 133–134
Women
board support from, 323
equal pay, 238
gender-lens investing, 211–212
World Bank, 173, 210
712
About the Author
David Chandler
(david.chandler@ucdenver.edu) is Associate Professor of
Management at the University of Colorado Denver Business
School. His research focuses on the dynamic interface between the
firm and its institutional environment. His research has been
published in Administrative Science Quarterly, Organization
Science, Academy of Management Review, Journal of Management,
and Strategic Organization. Additional related publications include
the book Corporate Social Responsibility: A Strategic Perspective
(Business Expert Press, 2014). He received his PhD in Management
from The University of Texas at Austin.
713
目录
List of Figures 13
Glossary 15
CSR Terms 15
Strategy Terms 25
Preface: Fifth Edition 30
Why CSR Matters 31
CSR as Value Creation 33
Studying CSR 35
Plan of the Book 39
Content Chapters 39
Case Studies 41
Supplementary Materials 43
CSR Newsletter 43
Additional Online Support 43
Instructors 43
Students 43
Acknowledgments 45
PART I • CORPORATE SOCIAL RESPONSIBILITY 48
CHAPTER 1 • What Is CSR? 49
A New Definition of CSR 52
The Evolution of CSR 57
Foundations of CSR 64
An Ethical Argument for CSR 64
A Moral Argument for CSR 67
A Rational Argument for CSR 69
An Economic Argument for CSR 72
➨ STRATEGIC CSR DEBATE 74
Questions for Discussion and Review 74
CHAPTER 2 • The Driving Forces of CSR 75
Affluence 75
714
Inequality within Countries 76
Inequality among Countries 78
Sustainability 80
Globalization 83
Communication 88
Mobile Devices 90
Social Media 92
Brands 95
Brands with Attitude 97
➨ STRATEGIC CSR DEBATE 98
Questions for Discussion and Review 99
CASE STUDY: Religion 100
Religion and Capitalism 107
Islamic Finance 110
➨ STRATEGIC CSR DEBATE 118
Questions for Discussion and Review 118
NEXT STEPS 120
PART II • A STAKEHOLDER PERSPECTIVE 121
CHAPTER 3 • Stakeholder Theory 122
Stakeholder Definition 122
A New Definition 124
Stakeholder Prioritization 129
Organizational, Economic, and Societal Stakeholders 132
Evolving Issues 133
Prioritizing among Issues and Stakeholders 135
A Model of Stakeholder Management 139
➨ STRATEGIC CSR DEBATE 141
Questions for Discussion and Review 141
CHAPTER 4 • Corporate Stakeholder Responsibility 143
CSR: A Corporate Responsibility? 147
Milton Friedman vs. Charles Handy 148
CSR: A Stakeholder Responsibility? 150
Stakeholder Engagement 156
Caring Stakeholders 156
715
Informed Stakeholders 159
Transparent Stakeholders 161
Educated Stakeholders 165
Engaged Stakeholders 170
➨ STRATEGIC CSR DEBATE 172
Questions for Discussion and Review 172
CASE STUDY: Capitalism 173
The Financial Crisis 173
Moral Hazard 174
Global Capitalism 177
Occupy Wall Street 179
The Financial Crisis—Ten Years On 182
The Rise of Socialism? 185
➨ STRATEGIC CSR DEBATE 189
Questions for Discussion and Review 189
NEXT STEPS 191
PART III • A LEGAL PERSPECTIVE 192
CHAPTER 5 • Corporate Rights and Responsibilities 193
Corporate Rights 195
Citizens United 197
Corporate Responsibilities 202
Corporate Governance 206
Benefit Corporations 209
➨ STRATEGIC CSR DEBATE 215
Questions for Discussion and Review 215
CHAPTER 6 • Who Owns the Firm? 216
History of the Corporation 217
Limited Liability and the Stock Market 219
Shareholders Own Shares 224
A Legal Person 226
Business Judgment Rule 228
Fiduciary Duty 231
Dodge v. Ford 232
716
Stakeholders, Not Shareholders 234
➨ STRATEGIC CSR DEBATE 239
Questions for Discussion and Review 239
CASE STUDY: Media 240
CNN 242
Facebook 246
Fake News 248
Addiction 252
Privacy 255
➨ STRATEGIC CSR DEBATE 261
Questions for Discussion and Review 261
NEXT STEPS 262
PART IV • A BEHAVIORAL PERSPECTIVE 263
CHAPTER 7 • Markets and Profit 264
Markets 265
Stakeholders as Market Makers 268
Profit 270
Economic Value + Social Value 271
Profit Optimization 274
Production Value and Consumption Value 276
Social Progress 277
The Next Billion 278
Unilever 282
➨ STRATEGIC CSR DEBATE 286
Questions for Discussion and Review 286
CHAPTER 8 • Compliance and Accountability 287
Voluntary vs. Mandatory 287
Self-Interest 290
Behavioral Economics 293
Nudges 294
Accountability 297
Defining CSR 298
Measuring CSR 299
CSR Reporting 302
717
Step 1: Standardizing CSR 303
Step 2: Certifying CSR 308
Step 3: Labeling CSR 310
CSR Pricing 311
Lifecycle Pricing 311
➨ STRATEGIC CSR DEBATE 316
Questions for Discussion and Review 316
CASE STUDY: Investing 318
Socially Responsible Investing 320
Environmental, Social, and Governance 324
Values-Based Funds 328
Sin Funds 331
Impact Investing 333
Social Impact Bonds 333
➨ STRATEGIC CSR DEBATE 338
Questions for Discussion and Review 338
NEXT STEPS 339
PART V • A STRATEGIC PERSPECTIVE 340
CHAPTER 9 • Strategy + CSR 341
Vision, Mission, Strategy, Tactics 342
Strategic Analysis 344
Resource Perspective 345
Industry Perspective 348
Integrating CSR 352
Strategy Formulation 354
CSR Threshold 355
Strategy Implementation 360
CSR Filter 360
➨ STRATEGIC CSR DEBATE 366
Questions for Discussion and Review 367
CHAPTER 10 • Strategic CSR 368
Defining Strategic CSR 369
CSR Perspective 370
718
Core Operations 372
Stakeholder Perspective 373
Optimize Value 374
Medium to Long Term 376
Strategic CSR Is Not an Option 381
Not Philanthropy 381
Not Caring Capitalism 383
Not Sharing Value 386
Strategic CSR Is Business 388
➨ STRATEGIC CSR DEBATE 391
Questions for Discussion and Review 391
CASE STUDY: Supply Chain 392
An Ethical Supply Chain 393
Fair Trade 394
An Unethical Supply Chain 399
Apple 402
A Strategic Supply Chain 404
Starbucks 407
➨ STRATEGIC CSR DEBATE 411
Questions for Discussion and Review 411
NEXT STEPS 413
PART VI • A SUSTAINABLE PERSPECTIVE 414
CHAPTER 11 • Sustainability 415
Sustainable Development 415
COP21 418
COP24 420
Sustainability in Practice 422
Climate Change 422
Resilience 425
Natural Capital 427
Stakeholders 430
Waste 433
e-Waste 435
Plastic 439
719
Beyond Sustainability 443
➨ STRATEGIC CSR DEBATE 444
Questions for Discussion and Review 444
CHAPTER 12 • Sustainable Value Creation 446
Values, Morals, and Business Ethics 447
Value Creation 451
Conscious Capitalism 454
Values-Based Business 456
Strategic CSR Is Good Business 465
➨ STRATEGIC CSR DEBATE 468
Questions for Discussion and Review 469
Final Thoughts 470
Appendix • Implementing CSR 475
Strategic Planning 475
Short- to Medium-Term Implementation 477
Executive Leadership 477
Board Support 478
CSR Officer 479
Vision, Mission, and Values 481
Performance 483
Integrated Reporting 485
Ethics Code and Training 488
Ethics Helpline 490
Medium- to Long-Term Implementation 491
Stakeholder Engagement 492
Marketing 493
Corporate Governance 495
Social Activism 496
The Socially Responsible Firm 497
Notes 500
Index 677
About the Author 713
720