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

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Strategic Corporate Social Responsibility 3eDavid Chandler and William B. Werther, Jr.1SECTIONIITEACHINGRESOURCES BYCHAPTERPart I: Overview and IntentSection IIof this Instructor’s Manualprovides “Faculty Notes and Discussion” bychapter, concluding with answers to the end-of-chapter “Questions for Discussion and Review.”We begin with the overview of Part IofStrategic Corporate Social Responsibility, whichhighlights the scope of corporate social responsibility (CSR).Chapter 1identifies the different viewpoints of CSR and then shows why CSR is ofgrowing concern to business students and leaders. Though businesses are economic entities thatexist to further the financial interests of their owners,thisis not their sole concern. Without thebalance of a multi-stakeholder approach, firms can become exploitive, anti-social, and corrupt—losing legitimacy and their ability to pursue theowners’economic goals over the long term.Arguments for and against CSR are presented along with trends that are propelling CSR to agreater prominence in corporate and strategic thinking.Chapter 2puts CSR into a strategic context by explaining resource and industryperspectives on strategy. Then the chapter turns to the stakeholder perspective and the need toidentify and prioritize them.In particular, this chapter presents the stakeholder model aroundwhich the book is structured.The remainder of the chapter looks at integrating strategy and CSR,creating a strategic CSR perspective that is needed for long term sustainability.Chapter 3asksthe provocative question, “How much does CSR matter?” Who isresponsiblefor CSR? The organization? Stakeholders? To create a contrast around this question,the viewsof Milton Friedman and Charles Handy are presented. This discussion is followed byan extended look at Walmart,its varying impact on different constituents, and its tentative stepsin relation to CSR.Chapter 4introduces the idea of strategy through a strategic lens. The chapter argues thatstrategy is likely to be both more effective and more sustainable if strategy passes through a CSRfilter that better attunes the firm to its environment and its constituents. Then, the driving social-technologicaland economic forces behind the growing importance of CSR are discussed.

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Strategic Corporate Social Responsibility 3eDavid Chandler and William B. Werther, Jr.2Chapter 5emphasizes the integration of CSR into both strategy and,ultimately,theculture of the organization. This cultural integration creates a sustainable CSR perspectivethrough the firm. The bulk of the chapter then addresses the implementation of CSR in the shortto medium term and in the long-run.CHAPTER1WHAT ISCSR?FACULTYNOTES ANDDISCUSSIONOrganizations are the collective structures used by people to pursue common goals. Ingeneral, these organizations come in three broad forms: Businesses, governments, and nonprofits(or Non-governmentalOrganizations, NGOs). Businesses exist to pursue profit with the intentionof making theirowners wealthy; governments (at least in democratic societies) respond to thewill of their citizens; and, nonprofits or NGOs meet the needs of people in society when theprofit motive of business or the political will of government is lacking.Though organizations are not legally compelled to be “socially responsible”—even ifsociety could agree on a universal definition—societal expectations become embodied intradition, laws, agency interpretations, and court rulings that form a set of expectations. Thus, wearrive at two central questions of concern to CSR:•What is the relationship between a business and the societies within which itoperates?•What responsibilities do businesses owe society to self-regulate their actions inpursuit of profit?These questions growinimportance as businesses grow in importance tosociety.Ultimately, it is business organizations that provide the most basic necessities of societalsurvival, including much of the wealth thatfunds government and nonprofitactivities. Because

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Strategic Corporate Social Responsibility 3eDavid Chandler and William B. Werther, Jr.3of this broad reaching impact of business corporations, CSR has emerged as a study to betterunderstand the answers to the above questions.Simply put, the narrow view suggests that businesses are only obligated to create wealthfor their owners. A broader view expects them to create wealth for owners,but to do so in waysthat are deemed acceptable tosociety.CSR covers the relationship betweencorporations(orother large organizations) and thesocietieswith which they interact.The social responsibility of business encompasses the economic, legal, ethical, anddiscretionary expectations that society has of organizations at a given point in time.1Archie B. Carroll, 1979CSR is, therefore, a fluid concept. Importantly, it is both a means and an end. It is anintegral element of the firm’s strategy, a way of maintaining its legitimacy in the larger societyby bringing stakeholder concerns to the foreground. At the same time, a firm’s CSR reflects howwell itisable to navigate stakeholder concerns while implementing its business model. CSRmeans valuing the inter-dependent relationships that exist among businesses, their stakeholdergroups, the economic system, and the communities within which they exist. CSR is a means ofdiscussing the obligations a business has to its immediate society; a way of proposing policyideas on how those obligations can be met; as well as a tool by which the mutual benefits formeeting those obligations can be identified. Simply put, CSR addresses a company’srelationships with its stakeholders.Corporate Strategy and CSRCSR is (or,at least,should be) an integral part ofanorganization’s strategy. Strategicplans and their implementation must past through a CSR Filter to understand the likely impact onmultiple stakeholders. Otherwise, reputation, legal, financial, or other consequences may impede,even undermine the organization’s plans. And, when perceived violations of societalexpectations occur—even when corporate actions are “legally permissible”—actions against the1Archie B. Carroll, ‘A Three-Dimensional Conceptual Model of Corporate Performance,’Academy of ManagementReview, 1979, Vol. 4, No. 4, p500.

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Strategic Corporate Social Responsibility 3eDavid Chandler and William B. Werther, Jr.4firm may range from legislative or court actions (think of the Standard Oil Trust) to protests fromGreenpeace or other activist groups.What CSR Is and Is NotCSR embraces the range of economic, legal, ethical,and discretionary actions andobligations that directly or indirectly affect the future economic performance of the firm (seeFigure 1.1). Carrollsuggestsa hierarchy wherein discretionary issues that appear abusive maybecome ethical considerations. Allowed to continue long enough or over a large enough numberof potential claimants and ethical issues may become legal ones. At the extreme, this hierarchyof CSR issues can eventually lead to economic impact, whether by formal societal restraints(such as laws or regulations)or less formal consumer boycotts.Legal compliance is a necessary minimum condition for CSR. But, legal compliance doesnot assure that the firm’s actions will be seen as ethical or proper. Often, actions that werelegal—even socially tolerated—may become unacceptable, even illegal,in a different time orplace. For example, consider the history of race-or gender-based discrimination. Both werewidely accepted by society (though certainly not by those affected!) in the 1940s and 1950s. But,with the greater political activism of later years, these widespread practices were increasinglyseen as unethical, until eventually they became illegal through legislative actions and courtinterpretations.The Evolution of CSRCSR is not a new or sudden phenomenon. Early writings in the Middle East and China atthe dawn of written history report standards, expectations, and rules for commerce. Consumerboycotts appeared in England, for example, in the 1790s in response to slave-harvested sugar,actions deemed unacceptable by segments of society. Even today, one can hardly pick up anewspaperwithoutreadingabout some CSR-related complaint about businesses, ranging fromthe serious ecological damage of oil spills to more mundane matters.TEACHING NOTE:It may be a useful exercise to ask students to identify currentissues from local newspapers,theWall Street Journal, or other business periodicals as thebasis of a classroom discussion that illustrates the timeliness and immediacy of CSR.

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Strategic Corporate Social Responsibility 3eDavid Chandler and William B. Werther, Jr.5In the United States,The Alien Tort Claims Actallowsforeign nationals to sue in U.S.courts for the overseas actions of U.S. firms or their partners. This 1789 law is being used to tryand hold U.S. firms accountable for the actions of others, as when a U.S. firm partners with aforeign firm that violates human rights. Thus, what may be legal—even encouraged—in onecountry, may bring legal repercussions in another.The Cultural and Contextual AssumptionsDemocracy and economics are two major variables that influence CSR. Democracy is,perhaps, obvious. People in North Korea, Cuba, or other repressive, non-democratic societieshave little recourse to protest the CSR-related actions of organizations, domestic or foreign. Evenin democratic societies, the demands of CSR may beconstrained by economic reality. Richsocieties can afford to “tax” themselves with demands for clean air, for example, even if theresult is that automobiles cost hundreds of dollars more than they would without clear airdevices. In poor societies,however,even though people value clean air, the imposition of clean-air rules may mean the lossof jobs, especially among marginal firms that lack the resources tocomply with CSR concerns that evolve from ethical to legal.A Moral Argument for CSRCSR emerges from theinteraction and interdependence between for-profits and society. Itis shaped by individual and societal standards of morality, ethics, and values that definecontemporary views of human rights and social justice. Thus, to what extent does a businesshave an obligation to re-pay the debt it owes society for its continued business success?On the one hand, it can be argued that business success depends on the society thatprovides the infrastructure, employees, consumers, and other elements that are central to success.On the other hand, if a business must fully reflectsocietal costs, it may not be able to compete—especially with firms in other societies that may be able to externalize their costs (such asdumping unfiltered pollution intolocal waterways).TEACHING NOTE: It may be useful to ask students to discuss the moral argument in theform of “pros” and “cons” surrounding this issue.

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

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

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Strategic Corporate Social Responsibility 3eDavid Chandler and William B. Werther, Jr.8Strategic Corporate Social Responsibilityexpounds the economic argument in favor ofCSR. We believe it is the clearest of thefour(ethical,moral, rational, and economic) argumentssupporting CSR. In summary, the economic argument contains all the factors explaining whyCSR isof strategicimportancefor businesses today.Why is CSR Important?Increasingly, society is becoming better informed and more socially aware ofwhat firms are doing. Businesses, especially those that survive and prosper directly fromconsumers, risk their success and brand name when acting in ways that are not seen as sociallyappropriate.What would be the impact on Coca-Cola, for example, if the employees in itsMinute Maid orange juice division were seen as exploited by poor wages or working conditions?Why is CSRIncreasinglyRelevant Today?A variety of forces are heightening interest in CSR. Among these are increased affluence,ecological sustainability, globalization,the free flow of information(social media), andbrands.Affluence means choices. Citizens of wealthy countries can make choices based onconsiderations that are more varied and complex than simple survival and economics.Ecologicalsustainability matters, from both the reality of a shared planet and the public’s perceptions of afirm’s commitment to thehealth and well-being of the communities in which it operates—especially since more people identify themselves as supportingecological concerns than eithermajor political party in the United States.And, of course, firms that do obvious ecologicaldamage are increasingly penalized by high profile protests fromactivistgroups such asGreenpeace, which have become particularlyadeptat gaining mediaattention.Globalizationincreasingly strips down geographical and cultural barriers, so that actions in one place (even iflegal and proper)are subject to evaluationfrom the perspective of multiple cultures, laws, andsocietal expectations. Globalization combined with the ever increasingly free flow ofinformation, further underscores the “shrinking planet” metaphor. Actions and practices in onelocalecan jumpacross the globe. Perhaps nowhere is the impact of CSR more obvious thanwhen it comes to brands. The equity built up from customeruse, advertising, and other image-shaping actions represents an often-huge investment and an important “asset” to the firm.

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Strategic Corporate Social Responsibility 3eDavid Chandler and William B. Werther, Jr.9Maltreatment of workers, defective products, and related problems can tarnish, even destroy, abrand and the investments made to create it.Perhaps most interesting, these trends are virtually certain to continue andwillmakeattention to CSR increasingly important forboth consumers and corporations.Beyond TrendsAdmittedly, arguments against CSR exist. These will be explored in Chapter3, “HowMuch Does CSR Matter?” But, first, we examine “Corporate Strategy: A StakeholderPerspective” in Chapter 2.

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Strategic Corporate Social Responsibility3eDavid Chandler and William B. Werther, Jr.1CHAPTER2STRATEGY+CSR:ASTAKEHOLDERPERSPECTIVEFACULTYNOTES ANDDISCUSSIONAll organizations, like organisms, survive or perish depending on how theyadapt totheirenvironment.Asdiscussed in Chapter 1, a firm’s stakeholders are key elements ofitsenvironment.Strategy seeks a sustainablecompetitiveadvantage. Its success rests on matchingtheorganization’s internal competencieswith the demands of its external competitiveenvironment. Central toboth sides of the equation (the firm’s internal capabilities and itsexternal environment) are the firm’s internal and external stakeholders.We argue that,while these perspectives contain importantinsights into a firm’s ability toconvert resources into a competitive advantage, a stakeholder perspectiveis better suitedforfirms trying to navigatethe global business environment of the 21stcentury. A stakeholderperspectiveenables firms to identify the multiple constituents in its environment that are affectedby the firm’s operations, while also allowing them to prioritize among those stakeholders’oftencompeting demands.Byintegrating a stakeholder/CSR perspective withinstrategic planning andday-to-day operations,firms arebetter preparedtorespond effectivelyto their stakeholders’needs.

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Strategic Corporate Social Responsibility3eDavid Chandler and William B. Werther, Jr.2WHAT ISSTRATEGY?Insight comes from understanding the need in society that the business seeks to meet.That need, toward which the organization strives, forms the basis of its aspirations orvision.Ideally, an organization’s vision is an ennobling, articulated statement of what it seeks todoandbecome. A vision that ignores the larger role that a firm plays in society is likely to be neithernoblenor sustainable. Vision statements must appeal to multiple stakeholders, includingmembers of the organization (employees), its direct beneficiaries (owners),its economic partners(customersand suppliers),and the larger community in which the organization operates (society,broadly defined).From these aspirations, the firm’smissionidentifies what the organization is going to doin orderto attain its vision. Afood bank, for example,may haveavision of “ending hunger inthe community” and amission to “feed the poor.”The vision identifies what the organization isstriving toward,whilethe mission tells us what the organization is going to do to get there. Boththese statements are constrained by whatthe firm’sstakeholders andsociety deemto beacceptable.A firm’sstrategyexplains how the organizationintends toachieveits vision and mission.It defines the organization’s response to its competitive environment.At the corporate level, afirm’s strategy determines which businesses the firm will operate and whether it will enter intopartnerships with other firms (via joint ventures, mergers, or acquisitions). Thus, a food bankmay have a corporate level strategy of partnering with a government agency to enhance itsaccess and distribution capabilities.At the level of the business unit, a firm’s strategy determines

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Strategic Corporate Social Responsibility3eDavid Chandler and William B. Werther, Jr.3howthe unitwill differentiate its products from the products of its competitors. Thus, the foodbank may have a strategy of using a mobile soup kitchen that can transport the food to where thepoor live.A firm’stacticsare the day-to-day management decisions that implement the strategy.Tactics are the actions people in the organization take every day.As a result, tactics are flexibleand can be alteredmore easilyto reflect changes in operational context.Ultimately, however,thepurpose ofthese day-to-day tactical actions istorealizethe firm’s strategy.A Firm’s Vision, Mission, Strategy, and Tactics•Thevisionanswers why the organization exists. It identifies the needs the firmaspires to solve for others.•Themissionstates what the organization is going to do to achieve its vision. Itaddresses the types of activities the firm seeks to perform.•Thestrategydetermines how the organization is going to undertake its mission. Itsets forth the ways it will negotiate its competitive environment in order to attain asustainable advantage.•Thetacticsare the day-to-day management decisions made to implement the firm’sstrategy.Aligningitsvision, mission, strategy, and tactics gives direction to the firm and focus toits employees. As important as giving direction of the firm, thischainalso informs theorganization of what it willnotdo.Theoverallgoal is to ensure that the strategy and tacticsachievethe vision and mission of the firm.

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Strategic Corporate Social Responsibility3eDavid Chandler and William B. Werther, Jr.4COMPETINGSTRATEGYPERSPECTIVESOften, the strategyplanningprocess begins with aSWOT analysis. A SWOT analysis is atool thatallowsafirm to identifyitsinternalStrengthsandWeaknesses, while also analyzingtheexternalOpportunitiesandThreatsthat arepresent in its environment. The goal of a firm’sstrategy, therefore, is torecognize its strengths and align them with the opportunities that arepresent in the environment, ensuring that the strategyand tactics remainconsistent withitsvisionand mission.Weaknesses are addressed to the extent that they impair the strategy’s effectiveness,while threats in the environment are monitored and evaluated for their disruptive potential.Building on the foundation of the SWOT analysis,strategyis traditionallyviewedfromtwocompeting perspectives.1Although it is not clear that theseperspectives enjoy empiricalsupport, they are well establishedandcommonlytaught.The two competing perspectives drawon the two sides of the SWOT analysis—theinternalstrengths and weaknesses, and theexternalopportunities and threats.Theresources perspectiveis an internalviewof the firm that identifiesitsuniqueresources(e.g., highly skilled employees or monopoly access to valuable rawmaterials)andcapabilities(e.g., effective research and development or efficient productionprocesses)as the main determinant ofa sustainablecompetitive advantage.Those firms that havethe most valuable resourcesor most innovative capabilities(collectively calledcompetencies),will most likely produce themost valuedproducts and services in the most efficient manner. Asa result, these firmsareable to build and sustain a competitive advantage over the competition.

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Strategic Corporate Social Responsibility3eDavid Chandler and William B. Werther, Jr.5An alternative viewistheindustry perspective,whichfocuses, instead, onthecompany’simmediate operational context.This external perspective of the firm identifies the structure of theenvironment in whichit operates (in particular, its industry) as the main determinant ofitscompetitive advantage.Success inthemarket, thisperspectiveargues, is less to do withindividual differences among firms and more to do with thecompetitivestructure of the firm’sindustry. To the extent that an industry is structured favorably(as inthe case ofa monopoly orthrough favorable governmentregulation),thecompaniesoperating in that industry willenjoygreaterprofitpotential thanthosefirmsthatoperatein a more constrained industry environment.The tensionsbetween these two perspectivesforma centraltheoretical component ofstrategy thinking and, as such, merit further elaboration.THERESOURCESPERSPECTIVEThe resources perspectiveisdetailedin a1990Harvard Business Reviewarticle2by C.K.Prahalad and Gary Hamel, whothen expanded on their ideas in a1994book.3The core idea thatPrahalad and Hamel convey is the distinction between a firm that is built around a portfolio ofbusiness units and a firm that is built around a portfolio ofcore competencies. While separatebusiness units encourage replication and inefficiencies, core competencies develop efficientsystems that can be applied in multiple settingsacross business unitsandthroughoutthe firm.Wal-Mart’s core competency of efficient distribution, for example, can be applied at all stagesofits retail operations. Equally,Google’s core competency ofwriting sophisticated algorithms thatallow the firm topursue its mission to“organize the world’s information,”4can be applied to

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Strategic Corporate Social Responsibility3eDavid Chandler and William B. Werther, Jr.6searching for products, images, academic papers, and many other topics.Moreover, corecompetencies can be built, given the correct set of circumstances. It is a firm’s set of corecompetencies that will differentiate it from its competition and allow it to sustain a competitiveadvantage:“In the short run, a company’s competitiveness derives from the price/performanceattributes of current products. … In the long run, competitiveness derives from an abilityto build, at lower cost and more speedily than competitors, the core competencies thatspawn unanticipated products. The real sources of advantage are to be found inmanagement’s ability to consolidatecorporate-widetechnologiesand production skillsinto competencies thatempower individual businesses toadaptquicklytochangingopportunities.”5Limitations of the Resources PerspectiveThere are two main limitations of the resources perspective. First, by focusing primarilyon the internal characteristics of the firm, the resources perspective ignores much of the contextin which the firm operates. Second, the resources perspective provides a description of the firmthat is very deliberate and rational.The combination of these two limitations suggests that, whilevaluable, the resources perspective aloneprovides an incomplete understandingofstrategyintoday’s global business environment.THEINDUSTRYPERSPECTIVE

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Strategic Corporate Social Responsibility3eDavid Chandler and William B. Werther, Jr.7The industry perspective is grounded theoretically in industrial economics. Its mainproponent in the management literature is Michael Porter, whosefive forces model is a staplecomponent ofcorporatestrategy. Porter first outlined his ideas in a1979Harvard BusinessReviewarticle.6Porter later published two books that expanded on his initial ideas by introducinga distinction between business and corporate level strategies7and the value chain.8Morerecently, in a 2008Harvard Business Reviewarticle, Porter updated his five forces model toaccount for changes since the initial publication.9The industry perspective focuses on the firm’s operating environment(in particular,itsindustry)as the most important determinant of competitive advantage. There are five competitiveforces inPorter’smodel (Figure 2.1): suppliers, buyers, new entrants, substitutes, and industryrivalry. These five forces competefor a fixed pool of resources and it is this competition thatdetermines the ability of any individual firm to profit in the industry. As such, Porter envisionscompetition as a zero-sum game between these fiveforcesand the focal firm. The strength ofeach force is measured relative to the strength of the focal firm. In other words, to the extent thatanyof the fiveforcesgrows in strength,thisoccursto the detriment of thefocalfirm,whichbecomes relatively weaker.Limitations of the Industry PerspectiveThere are three main limitations inherent within the industry perspective. First, is thepresentation of business as a combativepursuit—a zero-sum game of survival.Second,theindustry perspective presents a narrow view of the firm’soperatingenvironment. Only five

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Strategic Corporate Social Responsibility3eDavid Chandler and William B. Werther, Jr.8forces are included, which cover only three stakeholders—the firm’s buyers, suppliers, andcompetitors. This picture omits numerous stakeholders that have the potential to alterdramatically acompany’s competitive environment—such as the local community,thegovernment, and other stakeholders.Third, the industry perspective fails togive sufficient recognition to differences incharacteristics among companies, which are likely to be predictive of their ability to thrive in agiven environment. Aholistic model of the firm in its environment that also recognizes the valueof the firm’s resources and capabilities would provide a more comprehensive tool that firms canuse to analyze their operating context (both internal and external conditions) and plan theirstrategy accordingly.While the resources and industry perspectives, therefore,arevaluabletools that provideinsight into the actions of businesses,the situations in which they operate, and the potentialtobuild a sustained competitive advantage,these two perspectives have their limits. Both arenarrow in their application and exclude factors that intuitively contribute to a firm’s strategy and,therefore, its success. As such, they limitattention to thecomponents of the larger context facingacompany.Morerelevantto the argument presented inStrategic CSRisa broader perspectivethatincorporatesthe total mix of influences, expectations, and responsibilities that firms face intheir day-to-day operationsand that necessarily shapetheirstrategies in response.In addition to thetwo traditional strategyperspectives, therefore, we propose astakeholder perspectiveas amorecomplete toolto analyzea firm’soperatingcontext and createthe most appropriate strategicplan of action.

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Strategic Corporate Social Responsibility3eDavid Chandler and William B. Werther, Jr.9ASTAKEHOLDERPERSPECTIVETEACHING NOTE:Here, an open discussion can engage students in identifying anddefining different stakeholders that affect an organization. Using the school or universityas a relevant example can make a compelling argument.While definitions ofwhat constitutes astakeholdermaydiffer in emphasis, with differentgroups included,10they largelyagreein terms ofsentiment. Here arethreewell-knownexamples:Definitionsof aStakeholderStakeholders in an organization are the individuals and groups who are depending onthe firm in order to achieve their personal goals and on whom the firm is depending forits existence.Eric Rhenman“A stakeholder in an organization is (by definition) any group or individual who canaffect or is affected by the achievement of the organization’s objectives.”R. Edward Freeman11“The stakeholders in a firm are individuals and constituencies that contribute, eithervoluntarily or involuntarily, to its wealth-creating capacity and activities, and who aretherefore its potential beneficiaries and/or risk bearers.”Post, Preston, and Sachs12Afirm’s stakeholderscan be dividedinto three separate groups: organizationalstakeholders (internal to the firm) and economic and societal stakeholders (external to the firm).The firm’s economic stakeholders represent the interface between the organizational and

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Strategic Corporate Social Responsibility3eDavid Chandler and William B. Werther, Jr.10societal stakeholders.The Environment as a StakeholderThere is an interesting debate whether the natural environment, as a non-independentactor, should be included as an identifiable stakeholder of the firm.PRIORITIZINGSTAKEHOLDERSAneffective stakeholder model,however, mustdo more thanmerely identify thecompany’sstakeholders. Equallyimportant, if themodel isto beof use to firmsin terms ofimplementation, isthe ability to prioritize among these stakeholders. This is particularlyimportant when the interests of these stakeholders conflict, as they often do.The businesses most likely to succeed in today’s rapidly evolving global environmentwill be those best abletoadapt to theirdynamic environmentbybalancingtheconflictinginterests ofmultiple stakeholders. Integrating a stakeholder perspective into a strategicframework is designed to allowcompaniesto respond to stakeholder demands inwaysthatmaximize both economic and social value. Just because an individual or organization meritsinclusion in a firm’s list of relevant stakeholders, however,does not compel thefirm (eitherlegally or logically) to comply with every demand that stakeholder makes.The concentric circles oforganizational, economic, and societal stakeholderspresented inFigure 2.2providea rough guide to prioritization. By identifying its key stakeholderswithineachcategory,executivescanprioritizethe needs and interests of certain groups over others. In

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Strategic Corporate Social Responsibility3eDavid Chandler and William B. Werther, Jr.11addition, we argue thatamongcategories, stakeholders decrease in importance to the firm thefurther theyare removedfrom coreoperations.In seeking to prioritize its stakeholders, however, a firm needs to keep two key points inmind:First, no organization can afford to ignore consistently the interests of animportantstakeholder and second, it is vital to remember that the relative importance of stakeholders willinevitably differ from firm-to-firm, from issue-to-issue, and from time-to-time.Simon Zadek, founder and CEO of AccountAbility (http://www.accountability21.net/)has developed a powerfultool that firms can use toevaluatewhich stakeholders and issues posethe greatest potential opportunity and danger.13First,Zadekidentifiedthe five stages of learningthat organizations go through “when it comes to developing a sense of corporateresponsibility”14—defensive (to deny responsibility), compliance (to do the minimum required),managerial (to begin integrating CSR into management practices), strategic (to embed CSRwithin the strategy planning process), and civil (to promote CSR practices industry-wide). Then,Zadek combined these five stages of learning withfour stages of intensity “to measure thematurity of societal issues and the public’s expectations around the issues”15—latent (awarenessamong activists only), emerging (awareness seeps into the political and media communities),consolidating (much broader awareness is established), and institutionalized (tangible reactionfrom powerful stakeholders).THEINTEGRATION OFSTRATEGY ANDCSR

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Strategic Corporate Social Responsibility3eDavid Chandler and William B. Werther, Jr.12Thatkey proponents of both the resources and industry perspectives implicitly recognizethe limitations of their earlier work can be deduced from theirmore recentpublications. In twoimportant respects, both Prahalad and Porterhaveevolvedtheir positions: First,tointegrate boththe internal (resources) and external (industry) perspectives, into one comprehensive vision;and,second, to incorporate components of CSR and, implicitly, a broader stakeholder perspective.Combining the Resources and Industry PerspectivesBoth Prahalad and Porter, therefore, talk expansively in their recent work and, in theprocess, come much closer tocombiningthe resources and industry perspectives.Prahalad, indiscussing the potential opportunity for firms at the BOP, recognizes that a change inenvironmental contextaltersthe potential of a fixed set of resources and capabilities. In addition,Porter andKramerincorporateboth “inside-out linkages” (a firm level perspective) and “outside-in linkages” (an environmental level perspective) within one view of the firm and its strategicenvironment that emphasizes “the interdependence between a company and society.”16IntegratingCSRConcerning the integration of CSR into their ideas, there is a strong theme runningthrough allof Prahalad and Porter’srecentwork. In addition to identifying new markets formulti-national corporations, Prahaladisclearly alsoconcerned with the social valuethattheefficient delivery of products and services canprovide to the developing world. In addition,

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Strategic Corporate Social Responsibility3eDavid Chandler and William B. Werther, Jr.13Porteris concernedabout the potentialsocial and economic value to the strategic decisionmaking process in firms.On the one hand, it is clear that CSR can be thought of as a core competence of the firm.On the other hand, however, CSR is alsoclearlya means to evaluate a firm’s externalenvironment in terms of its primary stakeholder groups—identifying the structural componentsof that environment that present the firms with a favorable opportunity to succeed.STRATEGICCSRThere are fourcomponents that are essential to definingstrategic CSR:First, that firmsincorporate a CSR perspective withintheirstrategic planningprocess; second, that any actionsthey take are directlyrelated to core operations; third, that they incorporate astakeholderperspective; and, fourth, that they shift from a short term perspective to managing the firm’sresources and relations with key stakeholders over the medium-to long term.Strategic CSR, therefore,is supported by four key pillars—a CSR perspective, the coreoperations of the firm, a stakeholder perspective, and medium-to long term planning. It is thecombination of these four pillars that is essential to the integration of CSR within the strategicplanning and day-to-day operations of the organization.A CSR PerspectiveEssential toany definition ofstrategic CSR isthat firms incorporate a CSR perspectivewithin their strategic planning process.

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Strategic Corporate Social Responsibility3eDavid Chandler and William B. Werther, Jr.14In outlining their ideas on how firms can incorporate a social dimension to their strategicdecision making, Porter and Kramer provide a three-tiered framework that forms a guide tohoworganizationscan prioritize among their stakeholders and the relevant social issues with whichthey are expected to deal.17The interaction between firms and issues of concern to the societiesin which they operate are divided into three levels of interaction:•“Generic social issues” (not directly related toa firm’soperations)•“Value chain social impacts” (the extent to whicha firm’soperations affect society)•“Social dimensions of competitive context” (the extent to which the environmentconstrainsa firm’soperations)Core OperationsA second component of strategic CSR is that anyactiona firmtakes isdirectly related toitscore operations.In short,the same action will differ in terms of whether it canbe classified asstrategic CSR, depending on the core expertise of the firm and the relevance of the issue to thefirm’svision and mission.Along similar lines,it makesa great deal ofsense fora computer company likeDell tooffer a computer recycling program.18Itmakesmuchless sense, however, for Dellto offer a“Plant a Treefor Me”programas a way for consumers to offset greenhouse gas emissionsproduced as a result of the production of their new computer.19Dell knows about computers andshould know how best to recycle them.Less obvious is Dell’sexpertise in relation to tree

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Strategic Corporate Social Responsibility3eDavid Chandler and William B. Werther, Jr.15planting—What trees to plant, where to plant them, orwhethertree planting is an efficient use ofthe firm’s resources or an effective means of combating climate change.A Stakeholder PerspectiveA third component of strategic CSR is that firms incorporate a stakeholder perspective. Abarrier to the implementation of a stakeholder perspective, however, is the primary emphasiscurrently givenby manycorporationsto the interests ofitsshareholders.As discussed above, an issue that is rarelyraisedin relation toastakeholder model is theissue of prioritization. It is fine for an organization to be able to identify its different stakeholdersand their different interests and demands, but the difficulty comes when those interests andexpectationsconflict. The most effective means of dealing withstakeholderconflict isprioritization. If a firm has two stakeholder groups whose demands conflict (i.e., the firm isunable to satisfy fully both stakeholders), it makes sense foritto respond more wholeheartedly tothe most important of the two, while attempting not to offend the other.Medium-toLongTermThe final, and most important,component of strategic CSR is the importance of a shiftfrom a short term perspectivewhenmanaging the firm’s resources andstakeholders’relationstoa medium or long-term perspective.Businesses must satisfy key groups among theirvariousconstituents if they hope toremain viablein today’s businesscontext.When the expectations of different stakeholders

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Strategic Corporate Social Responsibility3eDavid Chandler and William B. Werther, Jr.16conflict,organizationsneed to be able to balance the competing interests. An example of suchconflict exists among different classes of investorswho might have different definitions of whatthey consider to be an acceptable level of performance.Afocus on short term results, oftendriven bythoseinvestorsor other shareholders (such as the firm’s executives)who have nointerest in the longterm health or viability of the organization,can be hugely damaging to theorganization and represents a relatively recent development in western capitalism.ASTAKEHOLDERPERSPECTIVE INACTIONBeyond thestakeholder model in this chapter, there are a number of contentious areas ofdebate within the CSR community. These debates lead to confusion regarding possible best-practice standards and difficulties for firms in implementation.As such,Chapter3 will exploresome on the argumentsagainstCSR (and the often unintended implications of progressive CSRapplications)that are yet to be resolved.In the final two chapters of Part I, we will outline how firms integrate CSR into day-to-day operations.Chapter 4puts CSR into strategic perspective and expands on the growingimportance of CSR anditseffecton firmstrategy.Finally, Chapter 5discussesthe issues thatinfluence the implementation of CSR within a strategic decision-making frameworkof the firm.

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Strategic Corporate Social Responsibility3eDavid Chandler and William B. Werther, Jr.17NOTESANDREFERENCES1An alternative tool to analyze a firm’s strategy that emphasizes the importance of a comprehensive approach is the“Strategy Diamond.” This approach is detailed in an article by Donald C. Hambrick and James W. Fredrickson: ‘Areyou sure you have a strategy?’Academy of Management Executive, Vol.19, No.4, 2005, pp. 51-62. The strategydiamond contains five elements that cover the range of actions taken by firms to achieve their goals: arenas (theareas in which the firm will compete), vehicles (the ways in which the firm will achieve its goals), differentiators(the means by which the firm will differentiate itself from the competition), staging (the speed and order ofimplementation), and economic logic (the route to profitability). While the strategy diamond draws on existingknowledge, its value lies in combining this knowledge into a comprehensive tool to analyze a firm’s strategy—“anintegrated overarching concept of how the business will achieve its objectives” (p51).2C.K. Prahalad & Gary Hamel, ‘The Core Competence of the Corporation,’Harvard Business Review, May-June,1990, pp. 79-91.3Gary Hamel & C.K. Prahalad,Competing for the Future, Harvard Business School Press, 1994.4“Google's mission is to organize the world's information and make it universally accessible and useful.”http://www.google.com/corporate/5C.K. Prahalad & Gary Hamel, ‘The Core Competence of the Corporation,’Harvard Business Review, May-June,1990, p81.6Michael E. Porter, ‘How Competitive Forces Shape Strategy,’Harvard Business Review, March/April, 1979, pp.137-145.7Michael E. Porter,Competitive Strategy, The Free Press, 1980.8Michael E. Porter,Competitive Advantage, The Free Press, 1985.9Michael E. Porter, ‘The Five Competitive Forces That Shape Strategy,’Harvard Business Review, January 2008,pp. 79-93.10SeeRebecca Tuhus-Dubrow,‘US: Sued by the forest,’The Boston Globe,July 19, 2009, in CorpWatch,http://www.corpwatch.org/article.php?id=15413for an interestingdiscussion about whether the ecologicalenvironment is an identifiable stakeholder of the firm with rights that are protected by law.11R. Edward Freeman,Strategic Management: A Stakeholder Approach, Pitman, 1984, p46.12James E. Post, Lee E. Preston, & Sybille Sachs, ‘Managing the Extended Enterprise: The New Stakeholder View,’California Management Review, Vol.45, No.1, Fall 2002, p8.13Simon Zadek, ‘The Path to Corporate Responsibility,’Harvard Business Review, December, 2004, pp. 125-132.14Simon Zadek, ‘The Path to Corporate Responsibility,’Harvard Business Review, December, 2004, p127.15Simon Zadek, ‘The Path to Corporate Responsibility,’Harvard Business Review, December, 2004, p128.16Michael E. Porter & Mark R. Kramer, ‘Strategy & Society,’Harvard Business Review, December, 2006, p84.17Michael E. Porter & Mark R. Kramer, ‘Strategy & Society,’Harvard Business Review, December, 2006, p85.

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Strategic Corporate Social Responsibility3eDavid Chandler and William B. Werther, Jr.1818http://www.dell.com/recycling/. See also: ‘Dell Will Offer Free Recycling for its Computer Equipment,’WallStreet Journal, June 29, 2006, pD3.19http://www.dell.com/content/topics/global.aspx/about_dell/values/environment/tree?c=us&l=en&s=corp. Seealso: ‘Dell unveils ‘plant a tree for me,’’Financial Times, January 10, 2007, p17.

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Strategic Corporate Social Responsibility 3eDavid Chandler and William B. Werther, Jr.1CHAPTER3CSR:WHOSERESPONSIBILITY?FACULTYNOTES ANDDISCUSSIONWhose responsibility is CSR? The termcorporate social responsibilitysuggests that suchbehavior is the responsibility of corporations. But, where does the motivation for sociallyresponsible behavior come from?Should corporations act responsibly because they are convinced of the moral argumentfor doing so (irrespective of the financial implications of their actions), or should they actresponsibly because it is in their self-interest? What is the point of a firm acting sociallyresponsibly, if its key stakeholders do not care or do not want to pay the price premium that isoften associated with such actions?As the Malden Mills example in Chapter 1 indicates, the bestof intentions do not help a firm’s stakeholders if the firm is bankrupt. The economic argumentfor CSR assumes that firms act most effectively when they are incentivized to do so. It assumesthat organizations are conservative—that they are more responsive to external stimuli and areless willing to initiate change proactively when there is little evidence that their actions will berewarded in the marketplace. Importantly, it assumes that CSR maximizes both economic andsocial value when the firm’s goals and society’s expectations are aligned.Chapters 1 and 2 presentcompellingstrategicreasons for firms tointegrate aCSRperspective throughout operations. Nevertheless, unprincipled behavior, even outright disregardfor CSR, does not always have a direct and immediate impact. Sometimes stakeholders arewilling to overlook sociallyirresponsiblebehavior because other issues are more pressing. Afirmwithunacceptable employmentpractices that are despised by employees, for example,maynot reap the negative consequences of its actionsifthe jobs are vital to the wellbeing of thelocalcommunityand there are no good alternatives.Should firms interpret the lack of push backagainst their actions as an invitation to uphold the status quo without consideration for thebroader societal concerns about their operations?

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Strategic Corporate Social Responsibility 3eDavid Chandler and William B. Werther, Jr.2A moredifficultquestionarises whenaCSRperspectivefails toalign the firm’s interestswiththose of itsstakeholdersor the greater public good—i.e., when stakeholder interestsconflict.What happens when stakeholders demandnon-socially responsiblebehavior?The focus of much of the CSRdebatehasbeen to urgefirms to act proactively out ofasocialor moralduty. The labelCSRitself talks about thesocial responsibilityof corporations,without understanding that, often, there are no meaningful consequences for firms that donot actresponsiblyand that, in contrast,they are often rewarded economically fornotpursuing CSR.1Unless their business suffers as a result of their actions,should firms be expected to change?Discussion around the issue of CSR almost exclusively focuses on the responsibilities ofbusiness, while ignoring the responsibilities of stakeholders (consumers, in particular) to demandsocially responsibleaction from firms.Anecdotal evidence suggests, for example, thatconsumers want the highest quality products at the lowest possible prices. If those productshappen to coincide with an ethical message, then that is great, but consumers (on the whole) arewilling to plead ignorance if it means getting their sneakers for $10 less.If, on the other hand, consumers began demanding specific minimum standards fromfirmsand took their custom elsewhere ifthe firmsfailed to comply,those firms would be forcedto change their practices and change themquickly.In the absence of such active consumerism,how can we expectbusinessestointroduce CSRwhen doing so means they have to try andinterpret what consumers say they want—opinionsthat often contradictthe criteria those sameconsumers use to make their purchase decisions?CSR: A Corporate Responsibility?The focus of much of the CSR debate (and captured by the term ‘corporate socialresponsibility’) is the assumption that firms have aresponsibilityto pursue goals other than profitmaximization. In particular, we propose the idea that the CSR community expects too much offirms; that firmsreactto change better than theyinitiatechange and that, if society decides itwants greater social responsibility from firms, then perhaps it is a firm’s stakeholders (and theirconsumers, in particular) that have an equal, if not greater,responsibilityto demand thisbehavior. More importantly, stakeholders need to demonstrate that they will support such

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Strategic Corporate Social Responsibility 3eDavid Chandler and William B. Werther, Jr.3behavior. Firms that provide services that are not demanded by consumers will quickly go out ofbusiness. With CSR, as with many aspects of business, it does not pay firms to be too far aheadof the curve.Milton Friedman versus Charles HandyTwo important articles on CSR frame this debate about thepurpose of thefirm. The firstarticle was published in theNew York Times Magazinein 1970 by the Nobel Prize winningeconomist, Milton Friedman—‘The Social Responsibility of Businessis to Increase its Profits.2In the article, Friedman argues that profit, as a result of the actions of the firm, is an end in itself.He believes strongly that a firm need not have any additional justification for existing and that, infact, social value is maximized when a firm focuses solely on pursuing its self-interest inattempting to maximize profit:“I share Adam Smith’s skepticism about the benefits that can be expected from “thosewho affected to trade for the public good.” … in a free society, … “there is one and onlyone social responsibility of business—to use its resources and engage in activitiesdesigned to increase its profits.”3The second article is a 2002Harvard Business Reviewarticle by the influential Britishmanagement author and commentator, Charles Handy.4In contrast to Friedman, Handy presentsa much broader view of the role of business in society. For Handy, it is not sufficient to justify afirm’s profits as an end in itself. For Handy, a business has to have a motivation other thanmerely making a profit in order to justify its existence—profit is merely a means to achieve alarger end. A firm should not remain in existence just because it is profitable, but because it ismeeting a need that societyas a wholevalues:“It is salutary to ask about any organization, “If it did not exist, would we invent it?”“Only if it could do something better or more useful than anyone else” would have to bethe answer, and profit would be the means to that larger end.”5

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