CSR and the management
of scandals, image
disasters, reputation from the
unethical behavior.
Patrizia Gazzola
Department of Economics
Insubria University – Varese – Italy
patrizia.gazzola@uninsubria.it
CREARES
CENTRE FOR RESEARCH ON BUSINESS
ETHICS
AND CORPORATE SOCIAL RESPONSIBILITY
Italy the boot shaped country
The region
3
The area of lakes
4
Varese
Villa Toeplitz
Conference and seminars, Insubria University
From the past to the present
“Someone is sitting in the shade
today because someone planted a
tree a long time”

(Warren Buffet)
From east to west from north to
south
Does the flap of a butterfly's wings
in Brazil set off a tornado in
Texas?

(Lorenz, 1972)
The convergence in the organizations
of multiple interests



The institutional goals of organizations derive
from the ultimate purpose of the participation
in the development of people forming the
organization community
1. Satisfaction of economic (salaries, etc.) and
non-economic (conditions of individual
development) needs of the workers involved in
the development of the organizations;
2. Meeting the expectations, especially
economic, of the shareholders.
3. Active participation in the economic and
social development of the country or countries
in which the organization operates.
Stakeholder map
Internal/external stakeholder
Near and far stakeholder
Direct and indirect stakeholder
Stakeholders in Westchester Probation
Service
Potential stakeholder: University of
Greenwich
The crise for an organization

a situation that causes negative or undesirable outcomes
for an organization

an event that ―suddenly occurs, demands quick reaction,
interferes with organizational performance, creates
uncertainty and stress, threatens the reputation, assets of
the organization, escalates in intensity, causes outsiders to
scrutinize the organization, and permanently alters the
organization
How to manage the crise?
 crisis
management is a critical function
for an organization, because failure in
managing a crisis can result in serious
harm to the stakeholders, losses for an
organization, or end its very existence.
What is the corporate reputation?
Corporate reputation defined as "overall estimation in
which a company is held by its constituents. A
corporate reputation represents the net affective or
emotional reaction - good bad, weak or strong - of
customers, investors, employees and general public to
the company's name".

(Fombrun, C. J.1996, p.9)
Why companies has to manage
the reputation?
“It takes 20 years to build a
reputation and five minutes to
ruin it. If you think about that,
you'll do things differently”

(Warren Buffet)
The more unfavourable the reputation,
the stronger its influence on stakeholders’
assessment.

People react more strongly to negative than to
positive information.

Some also find asymmetry in trust – unfavourable
events decrease trust far more than favourable events
increase.

Even judgements about objects with good and bad
characteristics are more heavily influenced by
negative data.
The role of social network
 Few
years ago it was difficult to receive
information about the social and
environmental situation.
 Now the informations are very fast
thanks to the social network like:
Facebook, Twiter, ecc.
 In 24 hours a news can go all the word
Nestlé: the exchange of Strategy
Nestlé



In March 2010, the environmental
organization Greenpeace has denounced Nestlé for using
palm oil used for the production of snacks.
After the complaint appeared on Facebook and Twitter
several protest groups who supported the Greenpeace
campaign against Nestle.

They try to remove a video from Youtube, but the
visiteur became in few hors 180.000

They decide to transform the risk in opportunity
Nestlé


The strategy followed by Nestlé was to not try to control
social media conversations but adjust their approach. First, to
deal with the damage of short, Nestlé has suspended supplies
of palm oil from the Indonesian company and requested a
meeting with Greenpeace in which he presented the details of
its new supply chain of palm oil.
Nestlé has also joined the Roundtable on Sustainable Palm Oil,
Nestlé had set up a “digital acceleration team” as part of
Nestlé’s efforts to monitor social media sentiment 24 hours a
day. When the team sees problems, the communications unit
co-ordinates the company’s engagement with the relevant
parties, such as suppliers, campaigners, governments and
consumers.
The Moncler scandal
A television programme accused Moncler down jacket
makers of using inhumane methods to pluck geese,
sending shares in the
Italian luxury outerwear
brand down as much as 6
percent.
Reputation Manager, an Italian
firm that measures brands' online
standing, said the show, called
Report, had triggered 4,300
tweets on Moncler between
Sunday night and Monday
morning, 88 percent of which
were negative
The Moncler strategy

Moncler has met the NGO for animals and ask help to
monitor more closely the supplier.

In the code of ethics there was no reference to animal
protection. In the code of ethics was added a point in
paragraph number 6, just what the "respect for the
principles concerning the protection of the environment
and the animals."
Coca cola



A report issued by the Indian NGO Centre for Science and
Environment (CSE) in 2003 provided evidence of the presence
of pesticides, to a level exceeding European standards,25 in a
sample of a dozen Coca-Cola and PepsiCo beverages sold in
India.
The report gained ample public and media attention,
resulting in almost immediate effects on Coca-Cola revenues.
The strategy




Two years before the water conflict in India in 2003, CocaCola adopted the GRI Guidelines and started reporting on
sustainability.
By 2003, the company had already experienced a few CSRrelated conflicts in other parts of the world.
Coca-Cola gradually changed its strategy to include damagecontrol measures that addressed the Indian communities’
grievances. In 2008 the company published its first
environmental performance report on operations in India,
which covered activities from 2004 to 2007.
It also created the Coca-Cola India Foundation, Anandana,
which works with local communities and NGOs to address
local water problems.
Walmart

At the end of 2005, the Radio Canada programme Zone
Libre made public the news that Walmart was using child
labour at two factories in Bangladesh.89 Children aged
10-14 years old were found to be working in the factories
for less than $50 a month making products of the
Walmart brand for export to Canada.
The strategy



Walmart developed its first Code of Conduct (COC)
‘Standard for Suppliers’ in 1992,95 which mainly focuses
on quality standards for suppliers only. However,
Walmart’s first general report (‘Report on Ethical
Sourcing’96), which includes suppliers, customers and
associates, was generated in 2006. This report was
elaborated after the filing of the lawsuit by the female
employees in 2001 and the damaging campaigns and press
publications accusing Walmart’s suppliers in Bangladesh of
using child labour.
Walmart’s reporting culture was imitated by the rest of
the companies in the market. Nowadays, Walmart
has been qualified as a ‘global legislator’ in CSR policies.
The “Fraud Triangle”
Opportunities
Ability to execute plan
without being caught
Weak Board of Directors
Weak Internal Controls
Incentives/Pressures
Motivation or incentives to
commit fraud
Tight Debt Covenants
Unrealistic Analyst Expectations
Attitudes/Rationalizations
Justificaton of dishonest actions
Lack of a Code of Conduct
Disregard for Financial Reporting
Information to Assess Fraud Risks
Brainstorming
Inquiries
Analytical
Procedures
Fraud Risk
Factors
Identified Fraud Risks
Other Information
7 dimentions of the reputation
The link between
reputation and
CSR
Top ten Italian companies for CSR
reputation, 3 years
Top ten Italian companies for CSR
reputation 2014
Global reputation brand 2015
The italian
companies in the top
100
Ferrero
20°
Giorgio Armani 37°
Pirelli
38°
Barilla
46°
Lavazza
68°
Standard Ethics Italian Index
Brunello Cucinelli:
the humanistic enterprise



Cucinelli is an enterprise in which the orientation to
CSR is part of the genetic heritage of the company
from the beginning for the presence of a strongly
leadership sensitive to social and environmental issues
The ethical, humanist-inspired entrepreneurial model
places people at the center of the production process.
It encourages the creativity of each worker and
simultaneously develops within them a sense of
profound participation in the group's success and goals
CSR impacts

Generally companies start to engage in CSR
activities in order to respond to a demand of
the external stakeholders.

They also consider the positive effects of CSR
on reputation.

Sometimes they start to engage in CSR to
react to a scandal.
The role of CSR
the rule of CSR in the growing interdependence between
business and environment in times of uncertainty.
 the stakeholder engagement can give the plasticity to
the organization and the
 dynamic capability approach can create the
relationship of trust.
 They are the basis for face the uncertainty and transform
it in opportunity.

Dynamic capabilities
dynamic capabilities (Teece et al. 1997): the deeper
institutional ability to innovate, adapt, and compete in a
networked world of constant change and of complex
business "ecosystems.”
 dynamic capability approach emphasizes two aspects.
 it refers to shifting character of environment.
 it emphasizes the key strategic management in
appropriately adapting, integrating and reconfiguring
internal and external organizational skills, resources, and
functional competencies toward changing environment

CSR and strategy



The fundamental problem with CSR practice is that
companies usually don’t have a CSR strategy, but rather
numerous disparate CSR programs and initiatives.
A growing number of companies develop their CSR in
response to a variety of social, environmental and
economical pressures.
By planning out CSR as part of a corporate strategy,
organizations can ensure that profits and increasing
shareholder value don’t overshadow the need to behave
ethically to their stakeholders
5 stages of development of the CSR in
the strategy
The model of business strategy
The model of business strategy and the
dynamic capability
Conclusion
Unethical behaviour
can be very costly!
HANKS
FOR
T YOUR
ATTENTION!