MBA 292T February 2009 Professor Kellie A. McElhaney

 Morning: ◦ Welcome & intros ◦ CSR in the News ◦ Defining CSR ◦ CSR Frameworks & Systems  Afternoon ◦ CSR Reporting & Communications ◦ CSR Cases ◦ CSR Strategy Development Assignment ◦ Personal SR Strategy Assignment

 Surprising survivors: Corporate do-gooders ◦ As companies cut costs, social responsibility may seem like an easy target. But many big names are sticking with the program. ◦ Tough season for Intel. Its stock price slipped 42% in 2008 and its fourth- quarter numbers were poor, with net income off 90% from a year earlier. Days before releasing its fourth-quarter results, the company launched the Small Things Challenge, a commitment of up to $300,000 to education and development in countries like Afghanistan, Cambodia, Haiti and Uganda in partnership with non-profit groups Kiva.org and Save the Children. ◦ "You can't save your way out of recession - you have to invest your way out," Intel chairman Craig Barrett told Fortune. "We look at our CSR activities in pretty much the same way: you can't just do them in good times and then just forget about them in bad times and hope to get any results."

 Surprising survivors: Corporate do-gooders  Starbucks' stock lost more than half its value in CEO Howard Schultz responded quickly, outlining more than $400 million in cost reductions for  There was one area that escaped relatively unscathed: corporate responsibility. While Starbucks will cut some undisclosed costs, it recently launched a (Product) RED card to benefit African HIV and AIDS programs and plans to become the world's largest purchaser of fair trade coffee this year, among other efforts. ◦ Short-term thinking in a recession can lead to the "false belief that investments in people and training can wait; that corporate social responsibility can be put on the back burner," Schultz wrote in a November essay in the Huffington Post. "Now is a time to invest, truly and authentically, in our people, in our corporate responsibility and in our communities. The argument - and opportunity - for companies to do this has never been more compelling."

 Wal-Mart Mexico Inaugurates Largest Sun-Operated Photovoltaic Installation in Latin America ◦ Solar panels will generate 20% of the store's energy requirements for a full year ◦ 1,056 solar panels were installed on the roof of Bodega Aurrera Aguascalientes ◦ 140 tons of CO2 emissions will be eliminated ◦ In 2005, Wal-Mart Mexico committed to the following sustainability efforts:  100% renewable energy sources by 2025  Zero water discharges by 2025  25% increase in eco-friendly items by 2012  Zero waste by 2025

 One Year On, Clorox's Green Works Dominates Market ◦ Clorox's green gamble appears to be paying off: A year after the company launched its Green Works line of natural cleaning products, the brand has established itself as a leader in the category, capturing 42% market share.launched its Green Works line

 Times Square Advertisers Turn to Wind Power ◦ Thirty of the Times Square's iconic lighted billboards - including Coca-Cola's long-running red sign - have shifted to 100% wind power.

 Coca-Cola Enterprises Boosts Commitment to Sustainability with Launch of Largest Hybrid Electric Delivery Trucks in North America ◦ Coca-Cola Enterprises (NYSE: CCE) Chairman and Chief Executive Officer John F. Brock announced the deployment of the largest hybrid electric delivery trucks in North America ◦ CCE plans to deploy 185 hybrid electric trucks across the United States and Canada in 2009, bringing their total number of hybrid electric delivery trucks to 327, the largest such fleet in North America

 Starbucks and Service Starbucks and Service  In celebration of Martin Luther King Jr. Day and the Inauguration, Americans are being encouraged to volunteer. Inspired by this effort and as part of the Starbucks(tm) Shared Planet(tm) commitment to communities, beginning January 21, Starbucks is teaming up with HandsOn Network for the "I'm In!" campaign  "I'm In" invites our customers to pledge five hours to volunteer and connects them with projects in their communities. Our goal is to have one million hours pledged by January 25.  Offering a free cup of tall brewed coffee to anyone who fills out a pledge card to celebrate this call for service

 Has been on sabbatical for a year  Wrote a book (see required reading)  Consulted  Got told she looked like Sarah Palin  Got a tattoo  Worked in Haiti  And is excited to be back in the classroom!

 Recovering banker since 1992  University of Michigan (Ross)  Professor at UC Berkeley since 2002  Founding Director, Center for Responsible Business  Ranked #1 in world by Financial Times in 2008; Ranked #2 in country by WSJ in 2006 & 2007  Extensive Corporate consulting: Gap, HP, Nokia, Erste Bank, eBay, Navigant, McDonalds, Blue Cross, Statoil, Nvidia, Kimberly Clark, Twitter  Research focus areas: Strategies of CSR; Branding & CSR; Diversity & CSR  Book called Just Good Business out in Fall 2008

 Name?  Occupation?  Why did you take this course?  What’s your passion?

 About business strategy  Real-world, current, emergent  Fast-paced, packed in, like drinking from a fire hose  Taught using multiple methods  A unique learning experience  Experiential, hands-on, active  Something that will stay with you

 Typical b-school course with HBS cases  Traditional, straight-lecture, cut and dry, neatly packaged  For the close-minded or risk-averse  Good for passive non-participators in learning  For those who like to skip classes  For those attached to their lap tops, PDAs and cell phones

Philanthropy? Employee volunteerism? PR? Transparent reporting? Sponsorships? Workplace diversity? Human rights? Risk management? Sustainable development? Corporate governance? Business ethics? Employee treatment? Environmental impact? Safe products? Solving social problems? How would you define CSR?

 The “C” is the most important aspect  CSR is about making money  You can do well from doing good  You must talk about it  You can’t lead (consumers) with it (yet)  No company is 100% good or 100% bad

A business strategy that: ◦ Creates wealth ◦ Protects wealth It is about using the power of business to improve the world.

A Company Who Gets It: Whirlpool

Whirlpool & Habitat for Humanity  $25M commitment in 1999  Given $34M, plus 73,000 appliances to 36,000 homes  Pledged to give through 2011  Launched Building Blocks initiative in 2006, sending over 1000 employees & more volunteers to build an entire block  Was philanthropy; became a brand message ◦ “We make very large, very heavy metal machines, often with big motors. This puts a human face on what could be a very cold metal category.”  Sponsored Reba McEntire Habitat for Humanity Tour

Has Business Impact

Whirlpool’s Competencies/ Business Objectives Problem/ Solution Fit Employees Engaged/ Volunteering Multiple Year Commitment Cash Donations Product Donations Star Power Branding/ Communic. Deep Non-Profit Partnership

“What would it take for Wal-Mart to be that company, at our best, all the time? What if we used our size and resources to make this country and this earth an even better place for all of us: customers, associates, our children, and generations unborn?” - Lee Scott, CEO, October 2005 Another Company That Gets It

To be supplied 100% by renewable energy To create zero waste To sell products that sustain our resources and environment Wal-Mart’s Sustainability Goals

Supply Chain of the Future 2008: “The Company of the Future”

The Role of the Private Sector

2007 Company/Country Revenue (Fortune Magazine) GDP (World Bank) [millions, USD] 1 United States13,201,819 2 Japan4,340,133 3 Germany2,906,681 4 China2,668,071 5 United Kingdom…2,345, Exxon Mobil339, Poland338, Austria322, Wal-Mart Stores315, Norway310, Saudi Arabia309, Royal Dutch Shell306, Denmark275, BP267,600

Trust in business at all-time low (lower than post-Enron) Edelman Trust Barometer, 2009

The Challenges of our World

CSR Has Gone Mainstream

Defining CSR  Net Impact: ◦ Using the power of business to improve the world.  Business for Social Responsibility (BSR): ◦ Companies being able to be commercially successful in ways that demonstrate respect for ethical values, people, community, and the environment.  A Corporate Strategy Definition (McElhaney, 1998): ◦ A corporate strategy that is integrated with (1) core business objectives & (2) core competencies to create financial and social/environmental returns, and is embedded in corporate culture and day-to-day business operations.

Strategic CSR CSR Strategy must fit two things: ◦ Core business objectives:  Increase sales, penetrate new markets, engage employees, reduce operating expenses, improve reputation, protect brand, beat competitors ◦ Core competencies:  Technology, financial products &services, making markets, natural food, automobiles and transportation systems, travel & tourism.

Global Citizenship/ CSR/ Sustainability Employee Engagement Community Investment Philanthropy Government & Public Relations Governance & Ethics Environmental Footprint Supply Chain/ Sourcing Social/ Environmental Impact of Products & Services

A Typical Corporate Strategy Hewlett Packard, 2006

A Typical CSR Strategy Philanthropy NGO p’nerships Social/ environmental reporting Product give-aways Sponsorships Workplace diversity Human rights Employee volunteerism Cause marketing Corporate governance Business ethics Fair employee treatment Enviro management Safe products Community investment Supply Chain

A Lost Opportunity… …to utilize CSR as a powerful integrated business strategy, not an add on.

Spending (a little bit of) the (whole lot of) money that you make.

How you make (the whole lot of) money that you spend.

CSR is not about how you spend the money you make. It’s about how you make the money you spend.

Social Environmental Economic Triple Bottom Line Economic Triple Bottom Line J. Elkington, SustainAbility

Supply Chain Environment Transparency Human Rights Stakeholder Engagement Privacy Marketplace Community Engagement & Investment Governance Mission, Vision, Values Ethics Diversity Health & Wellness Downsizing & Layoffs Work Life Balance Job Satisfaction Compensation/ Benefits Philanthropy Socio-political Issues Reporting Accountability

Source: Globescan 2005

Source: 2006 Fleishman Hillard/National Consumers League study, “Rethinking Corporate Social Responsibility”

Current Trend Historical Focus Risk Mitigation Value Creation Sweet Spot

Framework #1: The Changing Social Contract Source: The McKinsey Quarterly, 2006

ECONOMIC SOCIAL “PEOPLE, PLANET, PROFIT” Framework #2: Triple Bottom Line ENVIRONMENTAL

Workplace Marketplace Environment Community  Employees  Retirees/alumni  Recruits Clients/customers Regulators/ legislators Investors Academics Suppliers Communities in which we live and work Not-for-profit and non- governmental organizations that support communities Physical environment Not-for-profit and non- governmental organizations that support the environment

SustainAbility, Executive Summary: The Changing Landscape of Liability, January 21, 2005

Use core assets in a positive way, to improve underlying business context Take a big-picture view Go beyond compliance Lift or stabilize reputation Prevent damage to reputation Forestall the negative use of core assets Focus on compliance and managing legal liability MINIMIZE RISK MAXIMIZE OPPORTUNITY

“The essential test that should guide CSR is not whether a cause is worthy but whether it presents an opportunity to create shared value – that is, a meaningful benefit for society that is also valuable to the business.” Source: Porter, Michael E. and Mark R. Kramer, “Strategy & Society: The Link Between Competitive Advantage and Corporate Social Responsibility,” Harvard Business Review, 2006 Generic Social Issues Social issues that are not significantly affected by a company’s operations nor materially affect its long-term competitiveness. Value Chain Social Impacts Social issues that are significantly affected by a company’s activities in the ordinary course of business. Social Dimensions of Competitive Context Social issues in the external environment that significantly affect the underlying drivers of a company’s competitiveness in the locations where it operates

Generic Social Issues Value Chain Social Impacts Social Dimensions of Competitive Context Good citizenship Responsive CSR Mitigating harm from value chain activities Strategic philanthropy that leverages capabilities to improve salient areas of competitive context Strategic CSR College Bound Transform value chain activities to benefit society while reinforcing strategy From Porter, Michael E. and Mark R. Kramer, “Strategy & Society: The Link Between Competitive Advantage and Corporate Social Responsibility,” Harvard Business Review, December 2006

“Offensive CSR can distinguish a company’s reputation but cannot protect it; defensive CSR can protect a reputation but cannot distinguish it. Both are necessary to succeed in today’s business climate.” - Kramer & Kania, Changing the Game

1. Understand drivers (internal & external) 2. Identify key CSR issues 3. Identify & evaluate stakeholders 4. Identify current functions supporting CSR 5. Analyze current CSR systems, culture 6. Design CSR structure 7. Develop effective staffing plan 8. Create cross-functional system 9. Match budget to best framework

Defensive ▫ “It’s not our job to fix that” ▫ Company faced with pain, criticism, reacts defensively Compliance ▫ “We’ll do just as much as we have to” ▫ Cost of doing business, do just as much as need to Managerial ▫ “It is the business” ▫ Moves CSR to core business managers & functions Strategic ▫ “It gives us a competitive edge” ▫ Realigns strategy to use CSR as competitive advantage Civil ▫ “We need to make sure everyone does it” ▫ Need to involve all in sector, collective action

Level of engagementLowHigh Importance to missionPeripheralStrategic Magnitude of resourcesSmallBig Scope of activitiesNarrowBroad Interaction levelSimpleIntensive Managerial complexityInfrequentComplex Strategic valueModestMajor EXAMPLES ACTIONS: Donation Grants Event sponsorship Cause-related marketing Employee volunteerism Joint-advocacy Joint-action Deep partnerships Financing principles Philanthropic Transactional Integrative Growth stage: Adapted from The Collaboration Challenge, James E. Austin

 What are the report's strengths & weaknesses? What are your specific recommendations for improvement?  Did the report change your opinion of this company?  Would the report change your likeliness to work for this company, or purchase their goods/ services as a consumer?  Based on the report, what do you think are the key issues for this industry and how well is this company addressing these issues? Also consider the following issues: ◦ Does/ how does the company define CSR? How evolved is the company’s view of CSR? ◦ How integrated is their CSR strategy? Is it aligned with core business objectives, core competencies? ◦ How sustainable is their CSR strategy? ◦ What are the metrics for success? How do they measure their CSR impact? ◦ Who seems to be the targeted audience(s)? Is this clear from the report? ◦ What are the opportunities associated with their CSR strategy? Risks? Strengths? Weaknesses?? ◦ From a pure document aspect, assess the strengths and weaknesses of the report?