What is monsanto's mission statement

.Describe Monsanto's Pursuits In Each Of The 4 Types Of Social Responsibility. Research The Company Online To Update The Information Provided In The Case Study.

1.Describe Monsanto's pursuits in each of the 4 types of social responsibility. Research the company online to update the information provided in the case study.

2.Visit the Monsanto website to find information that is directed at 3 types of stakeholders: investors, employees, and customers. Describe the different types of information found and how it may be perceived by these different stakeholder groups.

3.Assume that you have been hired by Monsanto as a consultant. Using the Caux Round Table Principles for Business from table 12.2, page 450 from Chapter 12 make recommendations for the company based on each of the 7 principles to ensure Monsanto embraces a global approach to achieve corporate responsibility. Be specific in your recommendations with actionable items that Monsanto can implement

ness these phrases describe. In this chapter, we clarify some of the confusion that exists in the terminology that people use when they talk about expectations for business conduct. To this end, we begin by defining social responsibility.

competition and increasing media scrutiny, consumer activism, and government regulation, all types of organizations need to become adept at fulfilling these expectations. Like Huntsman, many companies are trying, with varying results, to meet the many economic, legal, ethical, and philanthropic responsibilities they now face. Satisfying the expectations of social responsibility is a never-ending process

of continuous improvement that requires leadership from top management, buy-in from employees, and good relationships across the community, industry, market, and government. Companies must properly plan, allocate, and use resources to satisfy the demands placed on them by investors, employees, customers, business partners, the government, the community, and others.

“The general population

believes that U.S. corporations owe

something to their workers and the communities

in which they operate, and

should sometimes sacrifice some profit to make

things better for their workers and

communities.”

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SOCIAL RESPONSIBILITY FRAMEWORK 5

In most societies, businesses are granted a license to operate and the right to exist through a combination of social and legal mechanisms. Businesses are expected to pay taxes, abide by laws and regulations, treat employees fairly, follow through on contracts, protect the natural environment, meet warranty obligations, and adhere to many other standards. Companies that continu- ously meet and exceed these standards are rewarded with customer satisfaction, employee dedication, investor loyalty, strong relationships in the community, and the time and energy to continue focusing on business-related concerns. Firms that fail to meet these responsibilities can face penalties, both formal and infor- mal, and may have their attention diverted away from core business issues. For example, a restaurant that delivers poor-quality food and shoddy service may be informally sanctioned by customers who decide to take their business elsewhere. These same customers often tell friends and family to avoid the restaurant, thus creating a spiral of effects that eventually shutters the restaurant’s doors. On the other hand, a large multinational corporation may be faced with protestors who use physical means to destroy or deface one of its retail stores. In this case, the company is not permanently harmed, but it must allocate resources to remodel the store and answer criticism.

Finally, a company engaged in deceptive practices may face formal investiga- tion by a government agency. This investigation could lead to legal charges and penalties, perhaps severe enough to significantly alter the company’s products and practices or close the business. For example, Conseco Inc., a large insurance and finance company, filed for Chapter 11 bankruptcy protection amid a federal investigation into its accounting prac- tices and investor lawsuits. Before the filing, Conseco reported $52.3 billion in assets, making its bankruptcy one of the largest in U.S. history. Although the firm eventually emerged from bankruptcy, investors and analysts continued to be critical of Conseco’s executive management and strategic direction. After a literal revolving door of executives, the company failed to file its annual report in a timely man- ner in 2009, prompting concerns about a looming second bankruptcy.3

Businesses today are expected to look beyond self-interest and recognize that they belong to a larger group, or society, that expects responsible partici- pation. Thus, if any group, society, or institution is to function, there must be a delicate interplay between rights (i.e., what people expect to get) and respon- sibilities (i.e., what people are expected to contribute) for the common good.

Social Responsibility

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6 CHAPTER 1

The adage “no man is an island” describes the relational and integrative nature of society. Although businesses are not human beings, they plan, develop goals, allocate resources, and act and behave purposefully. Thus, society grants them both benefits and responsibilities.

The term social responsibility came into widespread use in the business world during the 1970s, but there remains some confusion over the term’s exact mean- ing. Table 1.1 lists some of the different ways people commonly use the term to describe business responsibilities. Many of these characterizations have elements in common, such as focusing on the achievement of both corporate and social goals and recognizing the broad groups to which business has an obligation. Only the sixth characterization, which describes social responsibility as an oxymoron, is distinctly different from the others. This view of social responsibility, articu- lated in the famous economist Milton Friedman’s 1962 Capitalism and Freedom, asserts that business has one purpose, satisfying its investors or stockholders, and that any other considerations are outside its scope.4 Although this view still exists today, it has lost some credence as more and more companies have assumed the social responsibility orientation.5

Characterization Description

1. License to operate Social responsibility is a condition for doing business, and as with customer requirements, a fi rm should fi nd the most effi cient way to meet requirements from the government and other external groups.

2. Long-term business investment Like research and development, social responsibility is designed to improve the business environment for future progress.

3. Vehicle for achieving goals and reputation

Companies that focus on social responsibility will have stronger customer loyalty, more committed employees, better government relations, and ultimately, stronger reputations.

4. Activity to avoid exposure and risk

Responsible activities help companies avoid being singled out or exposed to unnecessary outsider intrusion.

5. Economic and constructive Companies should reinforce the economic foundation and viability of the communities in which they operate.

6. Relationship Business and society are interwoven and interdependent, rather than distinct entities.

7. Responsibility to stakeholders Management should act responsibly in its relationships with other stakeholders who have a legitimate interest in the business.

8. Oxymoron Companies are designed to increase shareholder wealth.

Sources: Archie Carroll, “A Three-Dimensional Conceptual Model of Corporate Social Performance,” Academy of Management Review 4 (1979): 497–505; Kim Davenport, “Corporate Citizenship: A Stakeholder Approach for Defining Corporate Social Performance and Identifying Measures for Assessing It,” Business and Society 39 (June 2000): 210–219; Lance Moir, “What Do We Mean by Social Responsibility?,” Corporate Governance: The International Journal for Effective Board Performance 1 (2001), 16–22.

Table 1.1 Characterizations of Social Responsibility

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We define social responsibility as the adoption by a business of a strategic focus for fulfilling the economic, legal, ethical, and philanthropic responsibilities expected of it by its stakeholders. This definition encompasses a wide range of objectives and activities, including both historical views of business and percep- tions that have emerged in the last decade. Let’s take a closer look at the parts of this definition.

Social Responsibility Applies to All Types of Businesses It is important to recognize that all types of businesses—small and large, sole proprietorships and partnerships, as well as large corporations—implement social responsibility initiatives to further their relationships with their custom- ers, their employees, and their community at large. For example, RunTex, a store in Austin, Texas, which sells athletic shoes, clothing, and accessories, donates used shoes (which customers have traded in for discounts on new shoes) to the community’s poor and homeless. The company also cosponsors walk/run events that generate funds for local and national social causes. Thus, the ideas advanced in this book are equally relevant and applicable across a broad spectrum of busi- ness firms.

Although the social responsibility efforts of large corporations usually receive the most attention, the activities of small businesses may have a greater impact on local communities.6 Owners of small businesses often serve as com- munity leaders, provide goods and services for customers in smaller markets that larger corporations are not interested in serving, create jobs, and donate resources to local community causes. Medium-sized businesses and their employees have similar roles and functions on both a local and a regional level. Although larger firms produce a substantial portion of the gross national output of the United States, small businesses employ about half of the private sector workforce and produce roughly half of the private sector output. In addition to these economic outcomes, small business presents an entrepre- neurial opportunity to many people, some of whom have been shut out of the traditional labor force. Women, minorities, and veterans are increasingly interested in self-employment and other forms of small business activity.7 It is vital that all businesses consider the relationships and expectations that our definition of social responsibility suggests.

Social Responsibility Adopts a Strategic Focus Social responsibility is not just an academic term; it involves action and mea- surement, or the “extent” to which a firm embraces the philosophy of social responsibility and then follows through with the implementation of initiatives. Our definition of social responsibility requires a formal commitment, or way of communicating the company’s social responsibility philosophy and commit- ment. For example, Herman Miller, a multinational provider of office, residential, and health-care furniture and services, crafted a statement that describes the company’s commitment to core values (shown in Figure 1.1). This statement declares Herman Miller’s philosophy and the way it will fulfill its responsibilities to its customers, its shareholders, its employees, the community, and the natural environment. Because this statement takes into account all of Herman Miller’s

social responsibility the adoptioon byy a buusineess oof a strategicc foccus for ffulfi llling the econommic, legal, ethical, andd philanthhroppic respponssibilitties expected off it bby itss stakkehoolderrs

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8 CHAPTER 1

constituents and applies directly to all of the company’s operations, products, markets, and business relationships, it demonstrates the company’s strategic focus on social responsibility. Other companies that embrace social responsibility have incorporated similar elements into their strategic communications, including mis- sion and vision statements, annual reports, and websites. For example, the website and annual report of the Shimizu Corporation of Japan highlight a companywide commitment to constructing high-quality buildings that create social and cultural value and are in harmony with the environment. The company refers to this com- mitment as “Total Eco-Construction.”8

In addition to a company’s verbal and written commitment to social respon- sibility, our definition requires action and results. To implement its social responsibility philosophy, Herman Miller has developed and implemented sev- eral corporate-wide strategic initiatives, including research on improving work furniture and environments, innovation in the area of ergonomically correct products, progressive employee development opportunities, and an environmen- tal stewardship program. These efforts have earned the company many accolades, such as being named the “Most Admired” furniture manufacturer in America by Fortune magazine, and a place on numerous prestigious lists, including Fortune magazine’s “100 Best Companies to Work for in America,” Forbes magazine’s “Platinum List” of America’s 400 best-managed large companies, Business Ethics magazine’s “100 Best Corporate Citizens,” Diversity Inc. magazine’s “Top 10 Corporations for Supplier Diversity,” the “2007 Wastewise Gold Achievement Award for Smart Packaging,” and The Progressive Investor’s “Sustainable Business Top 20.”9 As this example demonstrates, effective social responsibility requires both words and action.

If any such initiative is to have strategic importance, it must be fully valued and championed by top management. Executives must believe in and support the integration of constituent interests and economic, legal, ethical, and phil- anthropic responsibilities into every corporate decision. For example, company objectives for brand awareness and loyalty can be developed and measured from both a marketing and a social responsibility standpoint because researchers have documented a relationship between consumers’ perceptions of a firm’s social

Figure 1.1 Herman Miller Inc.’s Blueprint for Corporate Community

Source: “What We Believe,” Herman Miller, Inc., http://www.hermanmiller.com/About-Us/What-We-Believe, accessed July 9, 2009. Courtesy of Herman Miller, Inc.

Curiosity and Exploration•

Performance•

Engagement•

Design•

Relationships•

Inclusiveness•

A Better World•

Transparency•

Foundations•

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SOCIAL RESPONSIBILITY FRAMEWORK 9

responsibility and their intentions to purchase that company’s brands.10 Likewise, engineers can integrate consumers’ desires for reduced negative environmental impact in product designs, and marketers can ensure that a brand’s advertising campaign incorporates this product benefit. Finally, consumers’ desires for an environmentally sound product may stimulate a stronger company interest in assuming environmental leadership in all aspects of its operations. Home Depot, for example, responded to demands by consumers and environmentalists for environmentally friendly wood products by launching a new initiative that gives preference to wood products certified as having been harvested responsibly over those taken from endangered forests.11 With this action, the company, which has long touted its environmental principles, has chosen to take a leadership role in the campaign for environmental responsibility in the home-improvement indus- try. Although social responsibility depends on collaboration and coordination across many parts of the business and among its constituencies, it also produces effects throughout these same groups. We discuss some of these benefits in a later section of this chapter.

Because of the need for coordination, a large company that is committed to social responsibility often creates specific positions or departments to spear- head the various components of its program. For example, Target, the national retailer, uses a decentralized approach to manage employee volunteerism. Each Target store has a “good neighbor captain” who coordinates employees’ efforts with a local charity or cause. The Sara Lee Corporation, whose brands include Bryan Meats, L’eggs, Coach, Kiwi, and Champion, has established an office of public responsibility to oversee its citizenship efforts.12 The Japanese firm TOTO Ltd., the world’s largest manufacturer of plumbing-related products, has created an explicit management structure for its social responsibility effort. TOTO’s new president recently initiated a focus on becoming an excellent, more vibrant, and dynamic company. The major theme linking these three areas is corporate social respon- sibility, TOTO style. Upon opening a luxury showroom in New York, a TOTO executive commented, “It will provide an educational environment where they . . . may learn more about TOTO, its progressive social and environmental philosophies and innovative products.” TOTO uses a variety of tools to communicate about its social responsibility efforts, including the following chart from a recent annual report (see Figure 1.2). In the table of contents page of the company’s annual report, CSR (corporate social respon- sibility) is listed as a key feature.13

A smaller firm may give an executive, perhaps in human resources or corporate communications, the additional task of over- seeing social responsibility. In a very small

“Social responsibility must be given the same planning time, priority, and management attention that is given to any other company initiative.”

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10 CHAPTER 1

Figure 1.2 TOTO Corporate Social Responsibility Committee Structure

Source: TOTO, “Annual Report 2008,” p. 17, http://www.toto.co.jp/en/ir/annual/pdf/annu2008.pdf, accessed May 5, 2009.

CSR Committee (with the president

as Chairman)

Society and Management

Supply Chain Management

HR Management

Social Contributions,

Global Harmony

Preservation of the Global Environment

Product Development

Packaging and Distribution

Energy Measures

Environmental Protection

Four Subcommittees Four SubcommitteesFour Subcommittees

Corporate Governance

Group Management

Risk Management

Compliance

Communications

Customer Satisfaction

(Business Office) CSR Promotion

Division

business, the owner is likely to make decisions regarding community involve- ment, ethical standards, philanthropy, and other areas. Regardless of the formal or informal nature of the structure, this department or executive should ensure that social responsibility initiatives are aligned with the company’s corporate culture, integrated with companywide goals and plans, fully communicated within and outside the company, and measured to determine their effectiveness and strategic impact. In sum, social responsibility must be given the same planning time, prior- ity, and management attention that is given to any other company initiative, such as continuous improvement, cost management, investor relations, research and development, human resources, or marketing research.

Social Responsibility Fulfills Society’s Expectations Another element of our definition of social responsibility involves society’s expectations of business conduct. Many people believe that businesses should

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SOCIAL RESPONSIBILITY FRAMEWORK 11

accept and abide by four types of responsibility: economic, legal, ethical, and philanthropic (see Figure 1.3). To varying degrees, the four types are required, expected, and/or desired by society.14

At the lowest level of the pyramid, businesses have a responsibility to be economically viable so that they can provide a return on investment for their owners, create jobs for the community, and contribute goods and services to the economy. The economy is influenced by the ways organizations relate to their stockholders, their customers, their employees, their suppliers, their competitors, their community, and even the natural environment. For example, in nations with corrupt businesses and industries, the negative effects often pervade the entire society. Transparency International, a German organization dedicated to curbing national and international corruption, conducts an annual survey on the effects of business and government corruption on a country’s economic growth and prospects. The organization reports that corruption reduces eco- nomic growth, inhibits foreign investment, and often channels investment and funds into “pet projects” that may create little benefit other than high returns to the corrupt decision makers. For example, many of the countries with the highest levels of perceived corruption also report the highest levels of poverty in the world. These countries include Somalia, Chad, Iraq, Haiti, Afghanistan, and Myanmar. Transparency International also notes that some relatively poor

Figure 1.3 Pyramid of Responsibility

Source: Reprinted with permission from Business Horizons 34 (July–August 1991): 42. Archie B. Carroll, “The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders.” Copyright © 1991 by the Board of Trustees of Indiana State University, Kelley School of Business.

Philanthropic Responsibilities

Ethical Responsibilities

Legal Responsibilities

Economic Responsibilities

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12 CHAPTER 1

counties, including Bulgaria, Colombia, and Estonia, have made positive strides in curbing corruption. However, Canada and Ireland have started to experience higher levels of perceived corruption, yet maintain relatively strong economies. The organization encourages governments, consumers, and nonprofit groups to take action in the fight against corruption (see Figure 1.4).15 Although business and society may be theoretically distinct, there are a host of practical impli- cations for the four levels of social responsibility, business, and its effects on society.

At the next level of the pyramid, companies are required to obey laws and regulations that specify the nature of responsible business conduct. Society enforces its expectations regarding the behavior of businesses through the legal system. If a business chooses to behave in a way that customers, special-interest groups, or other businesses perceive as irresponsible, these groups may ask their elected representatives to draft legislation to regulate the firm’s behavior, or they may sue the firm in a court of law in an effort to force it to “play by the rules.” For example, many businesses have complained that Microsoft Corporation effectively had a monopoly in the computer operating system and Web browser markets and that the company acted illegally to maintain this dominance. Their complaints were validated when a U.S. district judge ruled in a federal lawsuit that Microsoft had indeed used anticompetitive tactics to maintain its Windows monopoly in operating-system software and to attempt to dominate the Web browser market by illegally bundling its Internet Explorer Web browser into its Windows operating system. Microsoft, which vehemently denied the charges, appealed that decision. The election of George W. Bush and a court of appeal’s ruling to overturn the judge’s decision shifted the focus to settlement talks, away

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SOCIAL RESPONSIBILITY FRAMEWORK 13

from an earlier suggestion to break up the company. Microsoft began imple- menting the provisions of the antitrust settlement agreement in late 2002, including hiring a compliance officer.16

Beyond the economic and legal dimensions of social responsibility, com- panies must decide what they consider to be just, fair, and right—the realm of business ethics. Business ethics refers to the principles and standards that guide behavior in the world of business. These principles are determined and expected by the public, government regulators, special-interest groups, consumers, industry, and individual organizations. The most basic of these principles have been codified into laws and regulations to require that compa- nies conduct themselves in ways that conform to society’s expectations. Many firms and industries have chosen to go beyond these basic laws in an effort to act responsibly. The Direct Selling Association (DSA), for example, has established a code of ethics that applies to all individual and company mem- bers of the association. Because direct selling, such as door-to-door selling, involves personal contact with consumers, many ethical issues can arise. For this reason, the DSA code directs the association’s members to go beyond legal standards of conduct in areas such as product representation, appropriate ways of contacting consumers, and warranties and guarantees. In addition, the DSA actively works with government agencies and consumer groups to ensure that ethical standards are pervasive in the direct-selling industry. The World Federation of Direct Selling Associations (WFDSA) also maintains two codes of conduct, one for dealing with consumers and the other for interac- tions within the industry, that provide guidance for direct sellers around the world in countries as diverse as Argentina, Canada, Finland, Taiwan, and Poland.17

At the top of the pyramid are philanthropic activities, which promote human welfare and goodwill. By making voluntary donations of money, time, and other resources, companies can contribute to their communities and society and improve the quality of life. For exam- ple, Hitachi, Ltd., of Tokyo, Japan, established the Hitachi Foundation, a nonprofit philanthropic organiza- tion that invests in increasing the well-being of underserved people and communities. This Japanese company recognizes the foundation as a “tool for helping the Hitachi corporation move from being a major Japanese corporation to being a major global citizen . . . by providing opportunities for Hitachi to interact with American communities on issues that cut across national boundaries, such as the increasing diversity and multicultur- alism of society, and to help Hitachi practice good corporate citizenship

Auto manufacturers are responding to environmental concerns by building electric cars, including Peugeot

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14 CHAPTER 1

with integrity.” With over two decades of existence and annual contributions of $4 million, the foundation is considered a pioneer of global social responsibility.18 Although Hitachi is not required to support the community, similar corporate actions are increasingly desired and expected by people around the world.

When the pyramid was first introduced, many people assumed that there was a natural progression from economic to philanthropic responsibilities, meaning that a firm had to be economically viable before it could properly consider the other three elements. Today, the pyramid is viewed in a more holistic fashion, with all four responsibilities seen as related and integrated, and this is the view we will use in this book.19 In fact, companies demonstrate varying degrees of social responsibility at different points in time. Figure 1.5 depicts the social responsibility continuum. Companies’ fulfillment of their economic, legal, ethical, and philan- thropic responsibilities can range from minimal to strategic. Firms that focus only on the expectations required by laws and contracts demonstrate minimal responsi- bility or a compliance orientation. Firms that take minimal responsibility view such activities as a “cost of doing business.” Some critics believe that pharmaceutical manufacturers take the minimal approach with respect to the advertising and sale of certain drugs. A recent situation involving two pain medicines known as Cox-2 inhibitors demonstrates this point. After safety concerns were expressed about Cox-2 inhibitors, Merck voluntarily withdrew Vioxx from the market while Pfizer began an advertising campaign focused on the safety record of Celebrex, a major competitor to Vioxx. The Food and Drug Administration soon advised Pfizer to discontinue the advertising. While Celebrex remained on the market, some critics assessed Merck’s decision to withdraw Vioxx as overreactionary. Combined, the two companies eventually settled over $5 billion in lawsuits over the aggressive consumer marketing of Cox-2 inhibitors, although Celebrex is still prescribed.20

Strategic responsibility is realized when a company has integrated a range of expectations, desires, and constituencies into its strategic direction and planning processes. In this case, an organization considers social responsibility an essen- tial component of its vision, mission, values, and practices. BT, formerly known as British Telecom, is communicating its commitment to strategic responsibility with the theme of “Responsible Business,” where BT is focused on tackling cli- mate change, helping create a more inclusive society, and enabling sustainable economic growth. BT has been reporting on its social responsibility activities for

Figure 1.5 Social Responsibility Continuum

Source: Based on ideas presented in Malcolm McIntosh, Deborah Leipziger, Keith Jones, and Gill Coleman, Corporate Citizenship: Successful Strategies for Responsible Companies (London: Financial Times Management, 2000); Linda S. Munilla and Morgan P. Miles, “The Corporate Social Responsibility Continuum as a Component of Stakeholder Theory,” Business and Society Review 110 (December 2005): 371–387.

Minimal

Economic and legal considerations focusing on contractual stakeholders

Strategic

Economic, legal, ethical, and philanthropic

considerations focusing on all stakeholders

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SOCIAL RESPONSIBILITY FRAMEWORK 15

fifteen years, which makes the company a leader in accountability disclosure. Finally, firms may operate outside the continuum by taking the approach that social responsibility is being forced by government, nongovernmental organiza- tions, consumer groups, and other stakeholders. In this case, any expenditures are considered a “tax” that occurs outside the firm’s strategic direction and resource allocation process. Executives with this philosophy often maintain that customers will be lost, employees will become dissatisfied, and other detrimental effects will occur because of forced social responsibility.21

In this book, we will give many examples of firms that are at different places along this continuum to show how the pursuit of social responsibility is never end- ing. For example, Coca-Cola, the world’s largest beverage firm, dropped out of the top ten in Fortune magazine’s annual list of “America’s Most Admired Companies” in 2000 and out of the top 100 in Business Ethics magazine’s annual list of “100 Best Corporate Citizens” in 2001. For a company that had spent years on both lists, this was disappointing, but perhaps it was not unexpected, as the company was planning to eliminate 6,000 jobs, was facing a racial discrimination lawsuit, was still recovering from a product contamination scare in Europe, and was trying to salvage its relationships with its bottlers. Then, in 2002, Coca-Cola scored highest in the beverage industry on Fortune magazine’s measure of social responsibility, and the Business Ethics magazine survey highlighted Coca-Cola’s relationships with stake- holders. By a few years later, Coca-Cola lost most of the gains it had experienced in the U.S. rankings but upheld a top-twenty-five ranking in Fortune magazine’s list of globally admired corporations. As with most multinational firms, Coca-Cola must continuously monitor a number of social responsibility issues and determine the most appropriate corporate response and action.22 Figure 1.6 outlines the complexity of managing corporate citizenship in both host and home country environments.

Figure 1.6 Managing Social Responsibility in Home and Host Markets

Source: Naomi Gardberg and Charles Fombrun, “Corporate Citizenship: Creating Intangible Assets Across Institutional Environments,” Academy of Management Review 31 (April 2006): 329–336.

High

Level of citizenship expectations

in the host market

Low

3 Expansionists

Companies adopt citizenship profiles that are greater

than in their home market.

1 Minimalists

Companies adopt citizenship profiles that are at a

minimum at home and abroad.

Low

4 Activists

Companies adopt citizenship profiles that are active both

at home and abroad.

2 Reductionists

Companies adopt citizenship profiles that are lower than

in their home market.

High

Level of citizenship expectations in the home market

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16 CHAPTER 1

Social Responsibility Requires a Stakeholder Orientation The final element of our definition involves those to whom an organization is responsible, including customers, employees, investors and shareholders, suppliers, governments, communities, and many others. These constituents have a stake in, or claim on, some aspect of a company’s products, operations, markets, industry, and outcomes and thus are known as stakeholders. We explore the roles and expectations of stakeholders in Chapter 2. Companies that consider the diverse perspectives of these constituents in their daily operations and strategic planning are said to have a stakeholder orientation, meaning that they are focused on stakeholders’ concerns. Adopting this ori- entation is part of the social responsibility philosophy, which implies that business is fundamentally connected to other parts of society and must take responsibility for its effects in those areas. Table 1.2 examines the relation- ship between stakeholder perspectives and strategic, minimal/compliance, and forced responsibility.23

R. E. Freeman, one of the earliest writers on stakeholder theory, maintains that business and society are “interpenetrating systems,” in that each affects and is affected by the other.24 For example, Kingfisher, the operator of more than 600 home-improvement retail stores in Europe and Asia, developed a formal process for securing stakeholder input on a variety of issues, includ- ing child labor, fair wages, environmental impact, and equal opportunity. To develop a vision and key objectives in these areas, Kingfisher confers with sup- pliers, store managers, employees, customers, government representatives, and other relevant stakeholders. For example, the firm recently met with seventy suppliers in China to discuss factory working conditions and conducted focus groups in the United Kingdom to discover customers’ main social responsibil- ity concerns. Every quarter, Kingfisher’s eleven operating companies complete a 165-point questionnaire over the firm’s social responsibility focus areas, including product stewardship, energy management, sustainable operation,

supply chain management, equality and diversity, and community investment. Health and safety issues are handled by a separate function. The survey results enable Kingfisher to rate its progress on the six issues from (1) minimum action to (3) leadership position in the industry and community.25 Kingfisher largely strength- ened its dedication and efforts in the 1990s, when social responsibility and the requisite stakeholder orientation became more popu- lar and more generally accepted within the corporate community. Many events have led to this era of increasing accountability and responsibility.

stakeholders constituents that have a stake in, or claim on, some aspect of a company’s products, operations, markets, industry, and outcomes

“Business and society are

interpenetrating systems, in that each affects and

is affected by the other.”

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SOCIAL RESPONSIBILITY FRAMEWORK 17

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18 CHAPTER 1

DEVELOPMENT OF SOCIAL RESPONSIBILITY In 1959, Harvard economist Edward Mason asserted that business corporations are “the most important economic institutions.”26 His declaration implied that companies probably affect the community and society as much, or perhaps more, in social terms as in monetary, or financial, terms. For example, most businesses use advertising to convey messages that have an economic impact but also have a social meaning. As an extreme example, when Benetton decided to use convicted felons who had been given death sentences in an advertising campaign, many people were outraged. The Italian clothier had a history of using cutting-edge advertising to comment on social ideas and political issues, but some people felt that this campaign went too far. Other controversies surrounded campaigns that included photographs of a dead soldier’s bloody uniform, three human hearts, condoms, and victims of HIV/AIDS. Benetton’s original goal was to open a dialog on the controversial issue of the death penalty, but criticism of the campaign was rampant and at least one major retailer dropped its contract with Benetton as a result. While Benetton’s sales have continued to be challenged by other European clothiers, the retailer has diminished the shock value of its advertising. However, the company continues to focus on cultural and social issues through its adver- tising, often partnering with nonprofit organizations. Benetton has promoted a wide variety of causes, including protecting endangered species and reducing world hunger and poverty.27

Although most companies do not go to the extremes that Benetton does, companies do influence many aspects of our lives, from the workplace to the natural environment. This influence has led many people to conclude that com- panies’ actions should be designed to benefit employees, customers, business partners, and the community as well as shareholders. Social responsibility has become a benchmark for companies today.28 However, these expectations have changed over time. For example, the first corporations in the United States were granted charters by various state governments because they were needed to serve an important function in society, such as transportation, insurance, water, or banking services. In addition to serving as a “license to operate,” these charters specified the internal structure of these firms, allowing their actions to be more closely monitored.29 During this period, corporate charters were often granted for a limited period of time because many people, including legislators, feared the power that corporations could potentially wield. It was not until the mid-1800s that profit and responsibility to stockholders became major corporate goals.30

After World War II, as many large U.S. firms came to dominate the global economy, their actions inspired imitation in other nations. The definitive external characteristic of these firms was their economic dominance. Internally, they were marked by the virtually unlimited autonomy afforded to their top managers. This total discretion meant that these firms’ top managers had the luxury of not having to answer much for their actions.31 In the current business mind-set, such total autonomy would be viewed as a hindrance to social responsibility because there is no effective system of checks and balances. In Chapter 3, we elaborate on corporate governance, the process of control and accountability in organizations that is necessary for social responsibility.

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SOCIAL RESPONSIBILITY FRAMEWORK 19

In the 1950s, the 130 or so largest companies in the United States pro- vided more than half of the country’s manufacturing output. The top 500 firms accounted for almost two-thirds of the country’s nonagricultural economic activi- ty.32 United States productivity and technological advancements also dramatically outpaced those of global competitors, such as Japan and Western Europe. For example, the level of production in the United States was twice as high as that in Europe and quadruple that in Japan. The level of research and development carried out by U.S. corporations was also well ahead of overseas firms. For these reasons, the United States was perceived as setting a global standard for other nations to emulate.

The power of these large U.S. corporations was largely mirrored by the autonomy of their top managers.33 This autonomy could be characterized as “largely unchecked,” as most such managers had the authority to make whatever decisions they thought necessary. Because of the relative lack of global competi- tion and shareholder input during the 1950s and 1960s, there were few formal governance procedures to restrain management’s actions. However, this laxity permitted management to focus not just on profit margins but also on a wide vari- ety of discretionary activities, including charitable giving. Thus, it is interesting to note that although top managers’ actions were rarely questioned or scrutinized, these managers did use their company’s resources to address broader concerns than self-interest. Although the general public was sometimes suspicious of the power held by top managers in large corporations, it also recognized the gains it received from these corporations, such as better products, more choices, good employee salaries, and other such benefits. During this period, many corporations put money into their communities. Although these firms had high executive pay, organizational inefficiencies, high overhead costs, and various other problems, they were quick to share their gains. Employees in the lower echelons of these large corporations received substantially higher wages and better benefits than the national average. This practice has continued into the present; for example, what major automobile manufacturers pay their workers is 50 percent above the national average and 40 percent above the manufacturing national average.34

During the 1950s and 1960s, these companies provided other benefits that are often overlooked. Their contributions to charities, the arts, culture, and other community activities were often quite generous. They spent considerable sums of money on research that was more beneficial to the industry or to society than to the companies’ own profitability. For example, the lack of competition meant that companies had the profits to invest in higher-quality products for consumer and industrial use. Although the government passed laws that required compa- nies to take actions to protect the natural environment, make products safer, and promote equity and diversity in the workplace, many companies voluntarily adopted responsible practices and did not constantly fight government regula- tions and taxes. These corporations once provided many of the services that are now provided by the government in the United States. For example, during this period, the U.S. government spent less than the government of any other indus- trialized nation on such things as pensions and health benefits, as these were provided by companies rather than by the government.35 In the 1960s and 1970s, however, the business landscape changed.

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20 CHAPTER 1

Economic turmoil during the 1970s and 1980s almost eliminated the old corporations. Venerable firms that had dominated the economy in the 1950s and 1960s became extinct or ineffective as a result of bankruptcies, takeovers, or other threats, including high energy prices and an influx of foreign competi- tors. The stability experienced by the U.S. firms of mid-century dissolved. During the 1960s and 1970s, the Fortune 500 had a relatively low turnover of about 4 percent. By 1990, however, one-third of the companies in the Fortune 500 of 1980 had disappeared, primarily as a result of takeovers and bankruptcies. The threats and instability led companies to protect themselves from business cycles by becoming more focused on their core competencies and reducing their product diversity. To combat takeovers, many companies adopted flatter organizational hierarchies. Flatter organizations meant workforce reduction but also entailed increasing empowerment of lower-level employees.

Thus, the 1980s and 1990s brought a new focus on profitability and econ- omies of scale. Efficiency and productivity became the primary objectives of business. This fostered a wave of downsizing and restructuring that left some people and communities without financial security. Before 1970, large corpo- rations employed about one of every five Americans, but by the 1990s, they employed only one in ten. The familial relationship between employee and employer disappeared, and along with it went employee loyalty and company promises of lifetime employment. Companies slashed their payrolls to reduce costs, and employees changed jobs more often. Workforce reductions and “job hopping” were almost unheard of in the 1960s but had become commonplace two decades later. These trends made temporary employment and contract work the fastest-growing forms of employment throughout the 1990s.36

Along with these changes, top managers were stripped of their former free- dom. Competition heated up, and both consumers and stockholders grew more demanding. The increased competition led business managers to worry more and more about the bottom line and about protecting the company. Escalating use of the Internet provided unprecedented access to information about corporate deci- sions and conduct and fostered communication among once unconnected groups, furthering consumer awareness and shareholder activism. Consumer demands put more pressure on companies and their employees. The education and activ- ism of stockholders had top management fearing for their jobs. Throughout the last two decades of the twentieth century, legislators and regulators initiated more and more regulatory requirements every year. These factors resulted in dif- ficult trade-offs for management.

The benefits of the corporations of old were largely forgotten in the 1980s, but concern for corporate responsibilities was renewed in the 1990s. Partly as a result of business scandals and Wall Street excesses in the 1980s, many industries and companies decided to pursue and expect more responsible and respectable business practices. Many of these practices focused on creating value for stake- holders through more effective processes and decreased the narrow and sole emphasis on corporate profitability. At the same time, consumers and employees became less interested in making money for its own sake and turned toward intrinsic rewards and a more holistic approach to life and work.37 This resulted in increased interest in the development of human and intellectual capital; the

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SOCIAL RESPONSIBILITY FRAMEWORK 21

installation of corporate ethics programs; the development of programs to pro- mote employee volunteerism in the community, strategic philanthropy efforts, and trust in the workplace; and the initiation of a more open dialog between companies and their stakeholders.

Despite major advances in the 1990s, the sheer number of corporate scan- dals at the beginning of the twenty-first century prompted a new era of social responsibility. The downfall of Enron, WorldCom, and other corporate stalwarts caused regulators, former employees, investors, nongovernmental organizations, and ordinary citizens to question the role and integrity of big business and the underlying economic system. Federal legislators passed the Sarbanes-Oxley Act to overhaul securities laws and governance structures. The new Public Company Accounting Oversight Board was implemented to regulate the accounting and auditing profession. Harvey Pitt, the Securities and Exchange Commission chair, resigned after a series of gaffes reduced his ability to lead in turbulent times. America’s home-decorating guru, Martha Stewart, was indicted on charges related to the sale of ImClone stock. The ImClone CEO, Sam Waksal, lost his job amid insider trading and securities fraud charges and began serving a seven-year sen- tence in mid-2003. Newspapers, business magazines, and news websites devoted entire sections—often labeled as Corporate Scandal, Year of the Apology, or Year of the Scandal—to the trials and tribulations of executives, their companies and auditors, and stock analysts.

Near the end of the first decade of the twenty-first century, the global economy slowed in the wake of numerous financial scandals and widespread corporate losses. Amidst growing resentment over executive pay, Wall Street maneuverings, Ponzi schemes, and government bailouts of failing firms, The Economist opined, “Another tough question will be what to do about those costly corporate-citizenship commitments that big firms have made in recent years. These commitments—such as Coca-Cola’s investments in water projects in developing countries—have lately been justified as a core part of long-term profit-maximising strategy. The coming year will test whether they really believe that.”38 Table 1.3 lists some of the “lessons learned” from the economic debacle of 2008 and 2009.

Mark Lilla, a professor at the University of Chicago, notes that perceptions of business and society often represent the confluence of the ideas of two decades, the 1960s and 1980s. From the 1960s, we gained a stronger interest in social issues and in how all parts of society can help prevent these issues from arising and resolve them when they do. The economic upheaval and excess of the 1980s alerted many people to the influence that companies have on society when the desire to make money profoundly dominates their activities.39 The economic growth and gains of the 1990s brought sharp reminders of the 1980s, involving both exorbitant execu- tive salaries and exorbitant executive personal wealth, which eventually took their toll on markets and companies.40 Events of the past and the scandalous start to the twenty-first century brought calls for a stronger balance between the global market economy and social responsibility, social justice, and cohesion. This is evi- dent on a global scale as special-interest groups, companies, human rights activists, and governments strive to balance worldwide economic growth and spending with social, environmental, technological, and cultural issues.

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22 CHAPTER 1

GLOBAL NATURE OF SOCIAL RESPONSIBILITY Although many forces have shaped the debate on social responsibility, the increasing globalization of business has made it an international concern. For example, as people around the world celebrated the year 2000, there was also a growing backlash against big business, particularly multinational corpora- tions. A wide variety of protests were held around the globe, but their common theme was criticism of the increasing power and scope of business. The corpo- rate scandals fortified this criticism and awoke even the staunchest of business advocates. Questions of corruption, environmental protection, fair wages, safe working conditions, and the income gap between rich and poor were posed. Many critics and protesters believe that global business involves exploitation of the working poor, destruction of the planet, and a rise in inequality.41 Ruy Teixeira, a pollster from the Century Foundation, says, “There’s a widespread sense of unfairness and distrust today, where people think companies are not quite playing by the rules.” Business Week weighed in with a cover story entitled

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SOCIAL RESPONSIBILITY FRAMEWORK 23

“Too Much Corporate Power?”42 A Gallup poll showed that Americans were highly distrustful of executives in large businesses. Thirty-eight percent felt that big business had become a threat to the U.S. future, and nearly 80 percent believed that execu- tives would take improper actions to benefit themselves.43 More recent polls indicate that trust is rebounding in certain countries, but companies are still vulnerable to the rami- fications of distrust.44 In an environment where consumers distrust business, greater regulation and lower brand loyalty are likely results. We discuss more of the relationship between social responsibility and business outcomes later in this chapter.

The globalization of business is fodder for many critics, who believe the movement is detrimental because it destroys the unique cultural elements of individual countries, concentrates power within developed nations and their corporations, abuses natural resources, and takes advantage of people in developing countries. Multinational corporations are perhaps most subject to criticism because of their size and scope. More than half of the world’s top 100 economies are not national economies at all; they are corporations like Wal-Mart and Royal Dutch Shell. For example, General Motor’s revenues are roughly the size of the combined revenues of Hungary, Ireland, and New Zealand. Table 1.4 lists the top fifty economies in the world, which includes a combination of countries and companies. Because of the economic and political power they potentially wield, the actions of large, multinational companies are under scru- tiny by many stakeholders. For example, a victims’ advocate group charged that Unocal, a large U.S.-based oil and gas exploration and production firm, knew that the government of Myanmar forced peasants to help build a pipeline for the company. Peasants who resisted the military government were tortured or killed. Unocal has denied knowing of the oppression but faced charges under a 1789 U.S. law called the Alien Tort Claims Act. The case was eventually settled for an undisclosed amount.45 Most allegations by anti-globalization protestors are not this extreme, but the issues are still of consequence. For example, the pharma- ceutical industry has long been criticized for excessive pricing, interference with clinical evaluations, some disregard for developing nations, and aggressive pro- motional practices. Critics have called on governments, as well as public health organizations, to influence the industry in changing some of its practices.46

Advocates of the global economy counter these allegations by pointing to increases in overall economic growth, new jobs, new and more effective products, and other positive effects of global business. Although these differences of opin- ion provide fuel for debate and discussion, the global economy probably, in the words of author John Dalla Costa, “holds much greater potential than its critics

“Although many forces have shaped the debate on social responsibility, the increasing globalization of business has made it an international concern.”

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24 CHAPTER 1

think, and much more disruption than its advocates admit. By definition, a global economy is as big as it can get. This means that the scale of both the opportunity and the consequences are at an apex.”47 In responding to this powerful situa- tion, companies around the world are increasingly implementing programs and practices that strive to achieve a balance between economic responsibilities and other social responsibilities. The Nestlé Company, a global foods manufacturer and marketer, published the Nestlé Corporate Business Principles in 1998 and revised them in 2002 and 2004. These principles serve as a management tool for decision making at Nestlé and have been translated into over forty languages. The updated principles are consistent with the United Nations’ Global Compact, an accord that covers environmental standards, human rights, and labor con- ditions.48 We explore the global context of social responsibility more fully in Chapter 12.

In most developed countries, social responsibility involves stakeholder accountability and the economic, legal, ethical, and philanthropic dimensions dis- cussed earlier in the chapter. However, a key question for implementing social responsibility on a global scale is: “Who decides on these responsibilities?” Many

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SOCIAL RESPONSIBILITY FRAMEWORK 25

executives and managers face the challenge of doing business in diverse coun- tries while attempting to maintain their employers’ corporate culture and satisfy their expectations. Some companies have adopted an approach in which broad corporate standards can be adapted at a local level. For example, a corporate goal of demonstrating environmental leadership could be met in a number of different ways depending on local conditions and needs. The Compaq Computer Corporation, which merged with Hewlett-Packard in 2002, implemented its goal of environmental responsibility in different ways depending on the needs in vari- ous regions of the world. In North America, Compaq focused on recycling and reducing waste. In Latin America, corporate resources were devoted to wastewater treatment and cleanup of contaminated soil. Efforts in the firm’s Asia-Pacific divi- sion included the distribution of “green kits” to educate managers, employees, and other stakeholders about Compaq’s commitment to environmental leadership.49

Global social responsibility also involves the confluence of government, busi- ness, trade associations, and other groups. For example, countries that belong to the Asia-Pacific Economic Cooperation (APEC) are responsible for half the world’s annual production and trade volume. As APEC works to reduce trade barriers and tariffs, it has also developed meaningful projects in the areas of sustainable development, clean technologies, workplace safety, management of human resources, and the health of the marine environment. This powerful trade group has demonstrated that economic, social, and ethical concerns can be tack- led simultaneously.50 Like APEC, other trade groups are also exploring ways to enhance economic productivity within the context of legal, ethical, and philan- thropic responsibilities.

Another trend involves business leaders becoming “cosmopolitan citizens” by simultaneously harnessing their leadership skills, worldwide business connec- tions, access to funds, and beliefs about human and social rights. Bill Gates, the founder of Microsoft, is no longer active day-to-day in the company, as he and his wife spearhead the Bill and Melinda Gates Foundation to tackle AIDS, pov- erty, malaria, and the need for educational resources. Patrick Cescau of Unilever is leading the British food giant to establish sustainable and responsible business processes in developing countries. Celso Grecco, a former advertising executive in Brazil, founded the Social and Environmental Stock Exchange to meet the needs of investors and donors for transparency as they consider nonprofit needs and opportunities. Donors find and fund nonprofits through a website, which also includes extensive reporting and accountability for each nonprofit’s effectiveness and efficiency. These business leaders are acting as agents to ensure the economic promises of globalization are met with true concern for social and environmental considerations. In many cases, such efforts supplant those historically associated with government responsibility and programs.51

In sum, progressive global businesses and executives recognize the “shared bottom line” that results from the partnership among business, communities, government, customers, and the natural environment. In the Millennium Poll, a survey of more than 25,000 citizens in twenty-three countries, 66 percent of the respondents indicated that they want companies to go beyond their tradi- tional role of making a profit, paying taxes, and providing jobs. More than half the respondents said that they believe their national government and companies

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26 CHAPTER 1

should focus more on social and environmental goals than on economic goals in the first decade of the new millennium.52 This survey reiterates our philosophy that business is accountable to a variety of stakeholders and has a number of responsibilities. Thus, our concept of social responsibility is applicable to busi- nesses around the world, although adaptations of implementation and other details on the local level are definitely required. In companies around the world, there is also the recognition of the relationship between strategic social responsi- bility and benefits to society and organizational performance.

BENEFITS OF SOCIAL RESPONSIBILITY The importance of social responsibility initiatives in enhancing stakeholder rela- tionships, improving performance, and creating other benefits has been debated from many different perspectives.53 Many business managers view such programs as costly activities that provide rewards only to society at the expense of the bot- tom line. Another view holds that some costs of social responsibility cannot be recovered through improved performance. Although it is true that some aspects of social responsibility may not accrue directly to the bottom line, we believe that organizations benefit both directly and indirectly over the long run from these activities. Moreover, ample research evidence demonstrates that there are many rewards for companies that implement such programs.

Some of the specific rewards include increased efficiency in daily operations, greater employee commitment, higher product quality, improved decision mak- ing, increased customer loyalty, and improved financial performance. In short, companies that establish a reputation for trust, fairness, and integrity develop a valuable resource that fosters success, which then translates to greater finan- cial performance (see Figure 1.7). This section provides evidence that resources invested in social responsibility programs reap positive outcomes for organiza- tions and stakeholders.

Figure 1.7 The Role of Social Responsibility in Performance

Employee Commitment

Customer and Employee Trust

Investor Loyalty

Social Responsibility

Organizational Performance

Customer Satisfaction

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SOCIAL RESPONSIBILITY FRAMEWORK 27

Trust Trust is the glue that holds organizations together and allows them to focus on effi- ciency, productivity, and profits. According to Stephen R. Covey, author of The 7 Habits of Highly Effective People, “Trust lies at the very core of effective human interac- tions. Compelling trust is the highest form of human motivation. It brings out the very best in people, but it takes time and patience, and it doesn’t preclude the necessity to train and develop people so their competency can rise to that level of trust.” When trust is low, organizations decay and relationships deteriorate, resulting in infighting, playing politics within the organization, and general inefficiency. Employee commitment to the organization declines, product quality suffers, employee turnover skyrockets, and customers turn to more trustworthy competitors.54

In a trusting work environment, however, employees can reasonably expect to be treated with respect and consideration by both their peers and their supe- riors. They are also more willing to rely and act on the decisions and actions of their coworkers. Thus, trusting relationships between managers and their subordinates and between peers contribute to greater decision-making efficien- cies. Research by the Ethics Resource Center indicates that this trust is pivotal for supporting an ethical climate. Employees of an organization with a strong ethical culture are much more likely to report misconduct but are much less likely to observe misconduct than employees in firms with a weak ethical cul- ture.55 Figure 1.8 provides a model of ten key factors that affect how employees develop trust or distrust in the workplace. Three factors relate to the employee as the decision maker; the remaining seven factors reflect the specific work situ- ation that the employee experiences and evaluates.

Trust is also essential for a company to maintain positive long-term relation- ships with customers. A study by Cone-Roper reported that three of four consumers say they avoid or refuse to buy from certain businesses. Poor service was the num- ber one reason cited for refusing to buy, but business conduct was the second reason that consumers gave for avoiding specific companies.56 For example, after the Exxon Valdez oil spill in 1989, certain groups and individual citizens aggres- sively boycotted Exxon because of its response to the environmental disaster.

Customer Satisfaction The prevailing business philosophy about customer relationships is that a com- pany should strive to market products that satisfy customers’ needs through a coordinated effort that also allows the company to achieve its own objectives. It is well accepted that customer satisfaction is one of the most important factors for business success. Although companies must continue to develop and adapt

“Trust is the glue that holds organizations together and allows them to focus on efficiency, productivity, and profits.”