MGMT 452 Corporate Social Responsibility Zeynep Gürhan-Canlı Social Responsibility Framework Chapter 1 February 17, 2010

Which corporations come to your mind when we refer to social responibility?

Social Responsibility Defined The adoption by a business of a strategic focus for fulfilling the economic, legal, ethical and philanthropic responsibilities expected by its stakeholders. Businesses should look beyond their self-interests and recognize that they belong to a larger group that expects responsible participation. Applies to all types of businesses, small or big.

Social Responsibility Defined (cont.) Adopts a strategic focus. Requires a formal commitment from top management. Communicated through mission and vision statements, annual reports, websites, and public relations. Requires action and results. Depends on collaboration and coordination across business and among constituencies. Large companies often create specific positions and departments to support social responsibility programs.

Social Responsibility Defined (cont.) Fulfills societal expectations. Provides a return on investment for owners. Obeys the law and regulatory agencies. Acts in a just, fair, and correct manner. Promotes human welfare and good will.

Pyramid of Responsibility

Stakeholders Those constituents who have a stake in or claim on some aspect of a company’s products, operations, markets, industry and outcomes. Stakeholders are important to companies that operate with a stakeholder orientation.

Social Responsibility Defined (cont.) Requires a stakeholder orientation. Customers Employees Investors Stockholders Suppliers Government Communities

Evolution of Social Responsibility: 1940s–1960s Economic dominance of corporations Total autonomy of top management 1950s–60s Few formal governance procedures restraining management actions Organizational charitable giving expanded (charities, arts, culture, and community) Laws are passed that require protection of the natural environment, safer products, promotion of equity, and supporting workplace diversity.

Evolution of Social Responsibility: 1970s–1980s World competition, bankruptcies, mergers and acquisitions 1980s Flatter organizations (downsizing) More business scandals Empowerment of lower-level employees Focus on profitability and economies of scale

Evolution of Social Responsibility: 1990s–2000s Less employee loyalty Increased “job hopping” Growth of temporary employment Greater interest in ethics and social responsibility 2000s Special interest groups, companies, human rights activists, and government strive to balance economic and social goals.

Global Nature of Social Responsibility Who determines social responsibility on a global scale? Host country? Home country? Outside organizations?

Managing Social Responsibility in Home and Host Markets

Benefits of Social Responsibility Greater trust with stakeholders Greater customer satisfaction Stronger employee commitment Stronger investor loyalty Greater profitability Countries with greater trust-based institutions foster a productivity-enhancing environment. Competitive processes are more efficient and effective.

Social Responsibility Builds Trust Trust is the glue that holds organizational relationships together. Low trust results in organizational decay and relationship deterioration. Political problems and inefficiency Most workers feel they can be trusted more than they can trust others.

Social Responsibility Builds Trust (cont.) All organizational members should share a sense of trust. Trust should exist between departments within a firm. An Ethics Resource Center study shows that 93% of employees who say trust is frequently evident in their organization report satisfaction with their employer.

Social Responsibility Strengthens Employee Commitment The greater a company’s dedication to employees, the greater the likelihood that employees will take care of the organization. Failure to care for employees results in lower loyalty and commitment. Employees’ perceptions are affected by: Safe working conditions, competitive salaries, and contractual fulfillment. Social programs, including work-family relationships, stock ownership, community service.

What happens when employee loyalty is breached? Quality is compromised. Service is compromised. Efficiency decreases.

Strengthening Employee Commitment Employee stock ownership plans (ESOPs) Rewards employees for contributing to and gaining from organizational success and allows them to gain from it. Employee-centered programs Health care Health clubs Child care Cafeteria benefits plans

Social Responsibility Improves Customer Satisfaction Focuses on customer satisfaction and strengthens trust. This is especially key in service organizations. Seventy percent of consumers in a Cone/Roper poll indicated they would switch to brands associated with a good cause if price and quality were equal.

What happens when consumer– organizational trust is breached? Seventy-five percent of consumers say they would avoid or refuse to buy from certain businesses. Consumers may avoid products from companies that treat their employees unfairly.

Social Responsibility Contributes to Investor Loyalty Investor relationships require dependability, trust, and commitment. Shareholders are concerned about ethics, social responsibility, and corporate reputation. Half of investors sell their stock within one year.

Social Responsibility Enhances Economic Performance Does business conduct relate to a nation’s overall economic conduct? Economic well-being is promoted by: Trust and a sense of community. Rigor in the ethical system. The exercise of authority within the society. Positive attitudes about work, innovation, savings, and profits.

Social Responsibility Model