>> And welcome back.
We're going to continue our discussion
of corporate social responsibility.
So we're going to continue our
discussion with the discussion
of leadership and business models.
Now, business models, you're
thinking, didn't we do models before?
Yes we did but this is a business
model, it's a little bit different.
Business models explain how we create value
by making and selling products in the market.
And there's two kinds of business models.
You've got --
traditional --
-- and progressive.
I have no idea why they call
them traditional and progressive
but anyhow -- no, that's not entirely true.
We're going to discuss why they're
called traditional and progressive.
So the traditional one is basically focusing on
almost like a compliance approach with ethics.
It embodies Adam Smith's original ideas, that
a business is most responsible when it complies
with the law and creates value, okay.
Now, the progressive business model is more
about in line with the CSR perspective,
so you create value by, of course, meeting
market demands but you are in some way filling
in gaps or achieving functions that
society and government normally cannot do
and therefore you are improving
society in some way.
So you're looking at business
as an actor for societal change.
And so of course there's kind of a whole
spectrum of responses to social demands.
On the one hand you've got
that narrow response, again,
that's more the traditional model:
obey the law, make some money.
Then you kind of have this well, we can obey
the law, we can respond to some pressures,
we have a stakeholder model
and we can take on some duties.
And then you have the really expansive
response and that's anticipating new demands,
altering behavior before there's any
sort of government or societal pressure,
really being a leader in the field of
responsibility and of course implementing CSR.
So how do you implement CSR?
That's a good question.
So, let me just point out something here.
You got -- you start out with CSR review --
Okay, then you proceed to CSR strategy --
-- then you move on to implementation --
-- and then you move on to
reporting and verification.
For those of you who have any experience with
Lean Six Sigma you're going to actually notice
that this process is very similar.
It's not really all that unique to CSR.
So the CSR review, that would be like your
defined phase as opposed to find and measure.
Your CSR strategy would be like your analyze.
Implementation would be like improve.
And this is your control phase.
You may see this referred to your
professional career as DMAIC --
-- define, measure, analyze,
improve and control, okay.
So, there's also kind of a
continuous feedback that goes on here.
Let's talk a little bit about that.
So CSR review, what does that mean?
Well, in order to do anything with CSR
you've got to know what are we doing already
in CSR and where do we want to go?
How do we define the problem and how
do we measure what we're already doing?
There's no reason to do anything with CSR
unless you already know what you're doing now.
That's important okay.
Just like in the define phase in Lean Six Sigma.
So with CSR implementation you start -- overall,
you assess your firm's current situation.
What are you doing now?
You discover the core values.
Basically, you look at your strategy and your
mission statement and decide what's important
to you as a firm, what are the
ethical principles you embrace?
And of course you talk to
stakeholders, internal and external.
Ask customers, suppliers,
shareholders, employees, hey,
what do you think is important in this firm?
You take all that information and you may come
up with or you may alter your mission statement;
that's a brief statement about the basic purpose
of a corporation, it's your mission statement.
Now, then you have to look at strategy.
I'm going to put a mission statement.
That's a key term.
And you have to look at the strategy
that you current have, your CSR strategy.
So you analyze what all that stuff
that you found during CSR review,
how does that fit into the
firm's current strategy?
That's the analyze.
Now, there are many, many
definitions of strategy.
I'm going to use the most widely
accepted definition of strategy,
not necessarily one specific to CSR because the
idea that strategy is a basic approach, method,
or plan, of achieving objective,
that tells you nothing, okay.
The most universally excepted
definition of strategy is --
and I'm even going to write this down --
-- the pursuit of competitive advantage.
I'll say this again because it's important.
Strategy is the pursuit of
competitive advantage, okay.
What does that mean?
It means that CSR should in some way tie
into your pursuit of competitive advantage.
And creating assured value certainly
does, as we're going to discuss in class.
But nonetheless, you have to ask, how
does our CSR and our goals and our values
and our missions tie in to our
pursuit of competitive advantage?
Because if you're doing anything that does
not directly contribute to the pursuit
of competitive advantage probably
you're doing something that detracts
from the pursuit of competitive advantage, okay.
So, just remember that.
So how does your CSR tie in
to your competitive advantage?
Now, once you decide how your CSR, your
mission, all your values and stuff,
tie in to your strategy, then it's
time to go ahead and implement.
So you first of all, start
off and basically reify
or make concrete your corporate
social responsibility.
You can implement a decision making structure.
You can implement bureaucratic structures.
You develop action plans, procedures, you
put them in memos, you distribute them to all
of the employees, and of course you
establish some sort of a performance target
and timeline for that accomplishment.
This is not unique to corporate
social responsibility
but these are generic strategy processes, okay.
So have to implement them.
Now, typically implementation
is done just like an improve.
What you do is you call a pilot process so you
say, well, I've got like a hundred things I want
to do with CSR but how bout I implement them one
at a time, see how our stakeholders react to it,
then adjust, fix that one step,
get all that kind of taken care of,
and then move on to step two, then
to step three, then to step four.
You don't dump some sort of a new
CSR, this new vision on employees.
It takes time for people to accept and
digest things so give it some time, okay.
These are not things that happen overnight.
Implementation is a step by step process.
Of course you can also set up
incentives, you know, just --
once you achieve a certain step then there's
some sort of incentive like you get a bonus
or you get praise or a high-5 or a little bit
of a lunch and this encourages the achievement
of targets and makes people accountable.
And hopefully it will take years.
You need to realign corporate
culture with strategic attempts.
Again, these are generic strategy
processes not unique to CSR.
And then you have reporting and verification and
that basically involves you as a leader getting
out of your office and making sure that
managers are following your guidance
and your subordinates are
following your guidance.
Make sure that you have some at least
internal transparency of CSR and make sure
that you have some way of measuring your
progress towards your overall goals.
Remember, with CSR or any other strategic
process doers do but leaders check.
So you as a manager need to check and
make sure that CSR is being respected.
Now, of course we have this
global reporting initiative, GRI,
and that's one way to facilitate --
-- not only managers adhering to CSR but
can also enable people on the outside
to make sure the company is at least doing
what they're saying when it comes to CSR.
And of course the global reporting
initiative has this triple bottom line report
and that says, well, you know, you've
got this financial thing that we all know
from accounting class, and you've got,
you know, what is the social impact,
and you can probably measure
that in dollars and cents, maybe,
and then you've also got
the environmental piece.
Again, these are very hard things to measure.
So, you have a few things, a few terms
that you ought to be aware of with CSR.
You've got transparency, again, the state in
which a company, social strategy, structures
and processes are visible to
external examiners or observers.
Again, this makes very little
sense from a strategic angle
because imitation is the greatest
threat to competitive advantage.
So the more transparent you
are, the more you're going
to erode your own competitive
advantages typically.
However, some transparency can
provide comfort to consumers
and therefore result into
a competitive advantage.
It's a delicate game that you have to play.
Of course, there's sustainability
reporting; again, documentation on your --
how closely your corporate operations conform
to your goal of sustainable development.
Again, sustainable development, you have
economic growth yet there's no social
or environmental impact that's
harming future generations.
You've got your triple bottom line
and again, focusing on economic,
social and environmental performance.
And of course, assurance verification by audit
that your corporate sustainability
reporting is reliable and accurate.
Here are some of the costly errors in CSR.
Giving no coherent systematic thought to
CSR, just giving some money to something
and saying, man, we were responsible.
Well, you might have been
responsible in some vague social sense
but you aren't responsible as a company.
Any company that performs
any action with no coherent
or systematic thought probably has greater
issues than their simple CSR process.
Again, that's a general strategic comment.
They allow CSR to be reactive so when
government and society pressure them to engage
in corporate social responsibility then
they react and then they try to align
with their core competencies
and their business strategies.
That's a bad idea.
Any good business, whether it's CSR or not,
will anticipate market demands
before the market demands them
so that they can be a leader and a first mover.
Again, if you're a leading social responsibility
advocate others will always be struggling
to catch up to you.
You don't want to be the second or third mover.
Again, general strategic
comment not unique to CSR.
Some people also make CSR a
distinct strategic business unit
with very little central oversight.
Again, this is a general strategy comment.
If you are allowing certain strategic business
units to operate and take resources and money
and time and you're not getting any
oversight you probably have bigger problems
than your general CSR program.
And of course they don't get any sort
of credible reports for CSR actions
and stakeholders believe that some
sort of transparency test has failed.
Again, I would highlight
creative entrepreneurs get rich,
creative accountants go to
jail or they get in trouble.
You also have corporate philanthropy.
That's kind of an offshoot of CSR.
Generally speaking, from a
corporate treasury you give money,
property or work for the welfare of society.
One example that I know, in a previous job we
would go work in a homeless shelter on a weekend
and then return and we'd get
some extra hours off of work.
That wasn't a bad way to do it.
One thing that you want to think
about in corporate philanthropy,
generally speaking taxable, you can have a
charitable contribution to a charitable cause
and it can be deducted from your corporate
earnings up to 5% before net profits.
It's actually now 10% since 1981.
However, very few corporations even give more
than a couple percent towards charitable causes.
The overall majority of philanthropy
in the United States is done
through private philanthropy.
We also have strategic philanthropy which ties
in to our creating shared value discussion
which we're going to have in class.
Strategic philanthropy basically
means you're only giving to causes
that in some way benefit stakeholders,
and because it benefits stakeholders then
in theory you as a firm will benefit as well.
So, it's giving but giving in such a way that
aligns with overall commercial objectives.
Another example is cause marketing.
That's a form of strategic philanthropy
in which charitable contributions are
based on the purchases of a product.
So basically, if you buy this -- for every
cup of yogurt you buy we will donate 5 cents
to hungry children in country x. Now,
how many people actually buy these kinds
of things just in order to get the 5 cents?
I don't think the research is all that good.
You have some sort of bizarre mixture
of altruism and self interest.
I don't really know how effective it is.
I don't think there's a lot of research
that shows that it's all that effective
for either the corporation who engages
in cause marketing or for the consumer.
Generally speaking, when we look
at corporate social responsibility
as a form philanthropy this
is seen to be inefficient.
If you're just giving away money
to some random societal cause --
if you're just giving away money to some random
societal cause that can generally been seen
as a waste of stockholder money,
okay, of the corporate treasury.
And so, in theory, that leads to
a business that's less efficient
than possibly its competitors.
It seemed to be eroding from
competitive advantage.
That's why things like creating shared value
and strategic philanthropy are generally
seen to be a preferable approach.
More and more people also within corporations
are making social responsibility more
of an ordinary business function and
so therefore the people in charge
of charitable donations and funds are being
held at the same accountability standards
as our colleagues are in other
divisions of the company.
An finally, we have philanthrocapitalism,
an emerging form of philanthropy
that uses market forces to achieve results.
Great. So we have wrapped up our discussion
of corporate social responsibility.
In class, we're going to discuss a different
way of looking at it: creating shared value.
And so, once again, my name is Duncan Pelly.
I hope you found this lecture informative
and entertaining and we'll see you next time.
