Corporate social
responsibility and
reputation
Spyros Lioukas
CSR Issues
1.
2.
3.
4.
5.
6.
7.
CSR Pyramid
Stakeholder versus Shareholder approach
CSR and Financial Performance
CSR – Corporate Reputation link
Stages of Corporate Social Responsiveness
Crises
Triple Bottom Line
What are the Responsibilities of the
Corporation? Pyramid of CSR
Philanthropic Responsibilities
Be a good corporate citizen.
(Clean up your mess or
Contribute to stakeholder wealth?)
Ethical Responsibilities
Be ethical.
Legal Responsibilities
Obey the law.
Economic Responsibilities
Be profitable.
General Principles of
Social Responsibility
•
•
•
•
•
Obey the law
Economic criteria are primary
Adverse social impacts must be corrected
Responsibility varies by company
Try to meet all legitimate stakeholder
needs
C5-S5
The Body Shop
Is/was the body shop
socially responsible?
http://www.myprimetime.com/misc/video/pm_roddick.shtml
Global Expectations of Business
Q: Most Important Factor when forming an impression of a company
Don’t know
Environmental practices
6%
12%
Brand quality/ reputation
35%
Labor practices
16%
21%
Responsibility to broader society
10%
Economic contribution
Source: www.pwcglobal.com and Global CSR Monitor 2001 - Environics, conducted among
General Public in 20 countries
Using a Stakeholder Framework
1. Descriptive Approach – This is how
things are
2. Instrumental Approach – Given how
things are, this is how we can use
stakeholders to achieve profits
3. Normative Approach – This is how we
should treat stakeholders
Stakeholder versus Shareholder
Debate
1. Friedman – be profitable as long as you
obey the law
2. Some Business and Society Scholars –
Over the long term Businesses cannot
remain profitable without engaging in
CSR activities
3. Other Business and Society Scholars –
Businesses have a number of obligations
towards society
CSR and Financial Performance
Perspective 1: CSP Drives the Relationship
Good Corporate
Social Performance
Good Corporate
Financial
Performance
Good Corporate
Reputation
Perspective 2: CFP Drives the Relationship
Good Corporate
Financial
Performance
Good Corporate
Social
Performance
Good Corporate
Reputation
Perspective 3: Interactive Relationship Among CSP, CFP, and CR
Good Corporate
Social Performance
Good Corporate
Financial
Performance
Good Corporate
Reputation
Corporate Reputation
Definition
“Corporate Reputation is the overall
estimation in which a particular
company is held by its various
constituents.”
(Fombrun, 1996)
Significance of Corporate Reputation from a Strategic
Management Perspective
$ Source of Sustainable Competitive
Advantage
– Reputation cannot be easily copied or imitated by
competitors (Dierickx & Cool, 1989; Itami, 1987; Hall,
1992, 1993)
– Reputation cannot be built by money alone (Itami,
1987)
– Command of Premium Prices
– Simultaneous Multiple Uses
AMAC Fortune Survey
• The AMAC survey, conducted yearly since 1984 by
FORTUNE magazine, tries to capture the dimensions of
corporate reputation by surveying over 8,000 executives
and industry analysts who are asked to rank the ten top
companies in their industry along eight dimensions:
– (1) quality of management
–
–
–
–
–
–
–
(2) quality of products or services
(3) innovativeness
(4) ability to attract, develop, and keep talented people
(5) long-term investment value
(6) financial soundness
(7) use of corporate assets
(8) community and environmental responsibility
CSR & the business case (2010’s)
Source: 2012 Edelman Trust Barometer, May 2012
13
Reputation for Community and Environment
of Philip Morris
Industry Executives
10
9
8
7
6
5
4
3
2
1
0
What Happened here?
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
Source: Fortune AMAC Survey
Multidimensionality refers to the fact that
a business firm could be known as a
good or bad performer on a number of
issues
Characteristics of Reputation
•
•
•
•
•
•
•
•
•
Innovation
Quality Producer
Good place to work in
Socially Responsible
Trustworthiness
Reliability
Credibility
...
In all of these cases, one could say that a firm has
a good (or bad) reputation, but in reality one
would be referring to different things.
Stakeholder specificity refers to the fact
that various stakeholders could have
different notions regarding the
reputation of a business firm.
Perspectives of Corporate
Reputation
•
•
•
•
•
•
•
•
•
Customers
Employees
General Public
Government Agencies
Activist Groups
Suppliers
Competitors
…..
All of these groups could have different perceptions,
opinions and emotions about a particular firm.
Corporate Reputation as a Matrix
Stakeholders
Aspects
Financial
Reputation
Social
Responsibility
…….
Customers
Government
Agencies
Employees
……
Crises
• Crises are complex situations
• Appear by a “Triggering Event”
• Financial, Reputational, and Legitimacy
Impacts
• Numerous Stakeholders (Media,
Politicians, General public,
Customers,…)
• Requires speedy managerial responses
Basic Crisis Model
Triggering
Event
Stakeholders
Reputation
and
Legitimacy
Crisis
Resolution
Managers
$
Examples of Crises/Triggering
Events
• Exxon Valdez March 24, 1989
–
Exxon Valdez ran aground on Bligh Reef, 25 miles south of Valdez,
Alaska. During the period of the oil spill through August 1991, Exxon
expended in excess of $2.1 billion for clean-up activities and
reimbursements to the Federal, State and local governments for
their expenses of response to the oil spill.
• Gulf of Mexico: oil spill
• Coke fungicides and carbon dioxides leaks in cans in 1999
14 Million cases of soft drinks recalled: a $60 million charge
Comparison of the Reputational
Recoveries of Exxon and UC
Overall Reputational Score
105 Reputation Prior to Event = 100
100
95
90
Exxon
UC
85
80
75
70
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
Source: AMAC Survey, FORTUNE Magazine.
Comparison of the Reputational Recoveries of
Exxon and UC Reputational Score for the
Community and the Environment
105
100
95
Reputation Prior to Event = 100
90
85
80
75
70
65
60
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
Source: AMAC Survey, FORTUNE Magazine.
Exxon
UC
Organizational Legitimacy
– Organizational legitimacy is the “generalized
perception or assumption that the actions of an
…[organization] are desirable, proper or appropriate
within some socially constructed system of norms,
values, beliefs, and definitions” (Suchman, 1995:
574).
– In other words, an organization is considered to be
legitimate with a particular social group, if it complies
with the group’s norms and values.
• Legitimacy allows access to external resources
• Legitimacy allows Survival
Reputation versus Legitimacy
• Main Similarity: Both refer to what
stakeholders within a social system think or
feel about a business organization.
• Main Difference:
Legitimacy - acceptability
Reputation – excellence
In other words, whereas corporate reputation refers to
the ‘favorability’ of a business organization within a
social system, organizational legitimacy refers to the
‘acceptability.’
Reputation and Legitimacy
Reputation
Legitimacy
Crisis
Responding to Crisis
Exxon Valdez
On March 24, 1989, the Exxon
Valdez ran aground off the
coast of Valdez, Alaska, and
released over 250,000 barrels
of crude oil into the ocean.
There was no loss of human
life in this accident, but the
environmental consequences
were severe and many other
species of wildlife decimated.
Ashland Oil
On January 2, 1988 a 4million
gallon storage tank near Pittsburg
collapsed releasing 3.9 million
gallons of diesel fuel into the
surrounding area. Most of this oil
spilled into the Monongahela
River and threatened the drinking
water supply of communities in
Pennsylvania, Ohio end West
Virginia. The oil was eventually
contained but with a significant
environmental impact.
Crises Management
• Exxon Valdez
– Exxon’s top mngt kept a low
profile and stayed out of the
public’s eye for about a week
after the accident
– The firm tried to shift the
blame for the spill to the
captain, and the blame for the
delay in the clean up to the
government and env. Groups
– Arrogance and lack of
openness in dealing with the
media
– Exxon’s involvement in the
clean up was not adequate.
• Ashland Oil
– The firm's mngt took
responsibility for the spill,
was readily available to the
press, committed resources
and personnel to help the
clean up efforts, and pledged
to pay 'all reasonable costs'.
– The firm's CEO ordered an
investigation, which
eventually uncovered the
firm's fault.
– Open and candid
communication with the
press, even when 'bad facts'
were coming out.
Figure 6-4
C6-S5
Crisis: Impact/Probability Matrix
High- - - - - - - - - - - - - --Impact on the Company- - - - - - - - - - - - - - - Low
High
Probability
of
Occurrence
Low
High
Priority
Medium
Priority
Low
Priority
Organizational Vulnerabilities
• Organizational Silos
– Fragmented Information (i.e. months leading
to Sept. 11th)
– Fragmented Responsibility and Narrow Focus
(i.e. Shell Case: Decentralized structure
hindered them seeing problems that crossed
national lines) (Note: Chair of German Shell
heard about sinking from TV!)
Political Vulnerabilities
• Imbalances of power internally
– Particularly important during mobilization
phase
• Lack of understanding of government
systems (i.e. response of European gov’t
in Shell case)
The Triple Bottom Line
• The triple bottom line is a concept developed by
John Elkington, Chairman of SustainAbility, a
world leader in sustainability consulting. It refers to
the integrative measurement of a company's
economic, environmental and social performance.
–
–
–
–
Financial accounting
Environmental accounting
Social and ethical accounting
Systems are being developed by several major
corporations
Gulf of Mexico questions
1.
Why has BP become the subject of criticism and controversy?
2.
What, if anything, should BP have done differently?
3.
What is your appraisal of BP’s stated business principle of non
involvement in political matters?
4.
What advice would you give BP’s leadership going forward?
Break