Chapter 6 Implementing Social Responsibility This chapter:  Discusses the key elements of managing for social responsibility, including leadership, review, strategy, reporting, and verification.  Discusses corporate and strategic philanthropy. McGraw-Hill/Irwin© 2008 The McGraw-Hill Companies, Inc. All rights reserved

The Bill & Melinda Gates Foundation Opening Case  Bill Gates was a slender, intense boy with a messy room and a dazzling mind who often challenged his teachers in class.  He attended Harvard University, but left to pursue his fascination with computers.  At age 19, Gates founded Microsoft Corporation and twelve years later he was a billionaire.  He was energetic, independent, and confrontational and developed the reputation of a fanatical competitor willing to appropriate any technology and crush market rivals. McGraw-Hill/Irwin© 2008 The McGraw-Hill Companies, Inc. All rights reserved

The Bill & Melinda Gates Foundation Opening Case (continued)  Gates established the Bill & Melinda Gates Foundation, which has an endowment of $33 billion.  The foundation’s work is based on a two values:  All lives—no matter where they are being led—have equal value;  To whom much is given, much is expected.  The foundation has given out more than $13.4 billion. Gates follows a long tradition of wealthy entrepreneurs who have made fortunes, sometimes by compromising ethics, then later in life used their wealth for works of extraordinary benevolence.. McGraw-Hill/Irwin© 2008 The McGraw-Hill Companies, Inc. All rights reserved

Sources of Pressure for Social Responsibility McGraw-Hill/Irwin© 2008 The McGraw-Hill Companies, Inc. All rights reserved

Leadership and Business Models  Top management sets the tone for a company’s social response.  A traditional business model is one in which the central strategy is based on meeting market demands.  A progressive business model is one is which the central strategy is to meet market needs by mitigating social problems.  Although based on traditional business models, some companies have cultures emphasizing voluntary social responsibility in one or more dimensions because of the influence of founders. McGraw-Hill/Irwin© 2008 The McGraw-Hill Companies, Inc. All rights reserved

A Spectrum of Responses to Social Demands McGraw-Hill/Irwin© 2008 The McGraw-Hill Companies, Inc. All rights reserved

CSR Implementation: CSR Review  CSR implementation includes an assessment of the firm’s current situation and activities, discovery of the firm’s core values,and engagement of stakeholders.  A key source of values is the mission statement, a brief statement of the basic purpose of an organization.  Engagement has advantages:  Mapping helps identify sphere of influence.  Dialogue can review gaps between company performance and stakeholder expectations, provide important information, build trust, and lead to cooperative efforts. McGraw-Hill/Irwin© 2008 The McGraw-Hill Companies, Inc. All rights reserved

Insert Figure 6.4 here (Basic Stakeholder Map) McGraw-Hill/Irwin© 2008 The McGraw-Hill Companies, Inc. All rights reserved

CSR Implementation: CSR Strategy  A company defining its CSR strategy must first find an objective, or a vision of what it will achieve, then create a method for reaching it.  For large firms the task of setting priorities is complex because multiple, sometimes conflicting, stakeholder demands exist.  Border and Kramer suggests an “essential test” for the worthiness of any additional social initiative is to determine whether it produces a meaningful benefit for society that is also vital to the business. McGraw-Hill/Irwin© 2008 The McGraw-Hill Companies, Inc. All rights reserved

CSR Implementation  Steps for CSR implementation:  Create a CSR decision-making structure within the overall organization  Develop an action plan that sets forth a multitude of tasks that will bring the strategy to fruition  Establish performance targets and timelines for their accomplishment  Setup incentives to encourage achievement of goals and targets  Align corporate culture with strategic intent McGraw-Hill/Irwin© 2008 The McGraw-Hill Companies, Inc. All rights reserved

CSR Implementation: Reporting and Verification  Assessment and reporting create transparency and allows managers to evaluate corporate social performance and measure overall progress toward strategic goals.  In the last decade a new wave of social reporting has risen.  The leading effort to create a new reporting format is the Global Reporting Initiative (GRI)  GRI guidelines show performance on a triple bottom line of economic, social, and environmental results. McGraw-Hill/Irwin© 2008 The McGraw-Hill Companies, Inc. All rights reserved

Corporate Philanthropy  Large philanthropic contributions by American companies are a relatively recent phenomenon.  Until about 50 years ago courts held that corporate funds belonged to shareholders; therefore, managers had no right to give away money, even for noble motives.  The first major break from narrow legal restrictions on corporate giving was the Revenue Act of 1935, which allowed charitable contributions to be deducted from taxable earnings up to 5 percent of net profits before taxes (raised to 10 percent in 1981.) McGraw-Hill/Irwin© 2008 The McGraw-Hill Companies, Inc. All rights reserved

Patterns and Magnitudes of Corporate Giving  Charitable giving is now a traditional dimension of corporate social responsibility.  Corporate philanthropy is only a small part of overall private philanthropy in the U.S.  The basic motives for corporate giving are:  Response to pressure  Belief that it will bring monetary profit  Desire for reputational gain  Altruism McGraw-Hill/Irwin© 2008 The McGraw-Hill Companies, Inc. All rights reserved

Strategic Philanthropy  As corporations gained experience with philanthropy, many concluded that the traditional approach of diffuse giving to myriad worthy causes was noble but flawed.  Many firms decided to change their philosophy of giving from one of pure generosity to one that aligned charity with commercial objectives.  Strategic philanthropy is a form of corporate and three in which charitable activities reinforce strategic business goals  Not everyone approves of strategic philanthropy. McGraw-Hill/Irwin© 2008 The McGraw-Hill Companies, Inc. All rights reserved

Cause-Related Marketing  Cause-related marketing is a marketing method linking a corporation or brand to a social cause so that both benefit.  Corporations realize that if their brand is connected to a social cause or charity, this appeals to the conscience of a consumer.  Cause-related marketing raises big sums of money for worthy causes but its mixture of altruism and self-interest attracts criticism. McGraw-Hill/Irwin© 2008 The McGraw-Hill Companies, Inc. All rights reserved

New Forms of Philanthropy  Philanthropy can be inefficient compared with market-driven business activity.  An emerging approach seeks to increase productivity from charitable giving by bringing businesslike methods to the task.  These new approaches to philanthropy seek to solve global problems by correcting market failures and applying the tools of capitalism. McGraw-Hill/Irwin© 2008 The McGraw-Hill Companies, Inc. All rights reserved

Concluding Observations  If a corporation announces aspirations to be socially responsible, it must follow up with the hard work of building those aspirations into its operations.  Corporate philanthropy, while not a management method, is a long-standing way of implementing social responsibility.  Recently, corporations have shifted from a tradition of altruistic giving to a new style of philanthropy that aligns with business strategy.  Some critics attack this approach as too self-interested.  Strategic philanthropy may be a promising development because it injects thinking about corporate social responsibility into the strategic mainstream. McGraw-Hill/Irwin© 2008 The McGraw-Hill Companies, Inc. All rights reserved