1. Chris Marquis American Chamber of Commerce – Shanghai April 10, 2012 Corporate Social Responsibility and Competitive Advantage Copyright © President & Fellows of Harvard College.

2. Why DO Corporations Engage in Corporate Social Responsibility? 1. Out of the goodness of their heart? 2. Because they are forced to (e.g. by the government)? 3. Because it is good for their business? 4. Because it is good for society? 5. Because other companies do? 6. To help their leaders personal connections?

3. 1. Out of the goodness of their heart? 2. Because they are forced to (e.g. by the government)? 3. Because it is good for their business! 4. Because it is good for society? 5. Because other companies do? 6. To help their leaders personal connections? Why SHOULD Corporations Engage in Corporate Social Responsibility?

4. Suppliers Government Employees Customers Investors Community & Civil Society Changing the External Environment COMPANY Strategic Philanthropy Improved stakeholder relationships can lead to: Cost reduction Revenue enhancement Increased market value Improved competitive conditions Three types of CSR strategies: Strategic philanthropy Internal process reengineering Changing the external environment Ways of Connecting Business and Social Value Reengineering Internal Processes

5. An Example 5 Year, US$100,000,000 program to “educate and support (10,000) women who run small and medium-sized enterprises in emerging economies by providing them with management and business training.” Question: Does this program make business sense for Goldman Sachs? And if so, how?

6. Suppliers Government Employees Customers Investors Community & Civil Society Employees: Who does GS lose employees to? How much does it cost to replace GS banker? COMPANY What is the Logic? Goldman Sachs and Key Stakeholders

7. Suppliers Government Employees Customers Investors Community & Civil Society Employees: Who does GS lose employees to? How much does it cost to replace GS banker? Suppliers: Who supplies GS talent? COMPANY What is the Logic? Goldman Sachs and Key Stakeholders

8. Suppliers Government Employees Customers Investors Community & Civil Society Employees: Who does GS lose employees to? How much does it cost to replace GS banker? Suppliers: Who supplies GS talent? Customers: The idea of economic value through investing in women? COMPANY What is the Logic? Goldman Sachs and Key Stakeholders

9. Suppliers Government Employees Customers Investors Community & Civil Society Employees: Who does GS lose employees to? How much does it cost to replace GS banker? Suppliers: Who supplies GS talent? Customers: The idea of economic value through investing in women? Governments: Who is buying GS services in emerging markets? What do they care about? COMPANY What is the Logic? Goldman Sachs and Key Stakeholders

10. Some Important Questions (for Goldman Sachs and any CSR Initiative) 1. Why focus on the issue of educating women entrepreneurs?  What is it that nominates this as a priority for attention?  What reliable guide to social value affirms the importance of this project? 2. What makes Goldman Sachs the right organization to undertake this?  Unique assets allow them to do it more effectively?  Aligned with their core competencies?  They see the importance and others don’t?  “Business Case” for this works better for them than others? 3. What factors and design are necessary for Goldman Sachs execute the program really well?

11. Lots of Academic Research to Back Up (Potential) Connection Employee Impacts  Socially responsible firms have easier access to quality workforce (Greening & Turban, 2000)  Companies’ corporate social performance is related positively to their reputations and to their attractiveness as employers (Greening and Turban 1997)  Firms awarded family friendly status have abnormal stock price gains (Jones & Murrell, 2001) Customer Impacts  Customer loyalty consistently shows high correlation to sales growth and profitability (Lim 2010)  86% Americans in a survey stated that if the quality and price of a product were equal, they would be likely to switch brands in order to help support a cause (2004 Cone Corporate Citizenship Study) Investor Impacts  Firms adopting a stringent global environmental standard have higher market values than firms defaulting to less stringent host country standards (Dowell, Hart and Yeung 2000)  A company’s CSR activities create goodwill among shareholders when the company suffers a negative reputation event (Godfrey, Merrill, and Hansen 2009)  Oldest SRI Index, the FTSE KLD 400 (previously Domini 400 social index), had returns of 9.51% (1990 – 2009), compared to 8.66% for the S&P 500 (Social Investment Forum 2010)  SRI investments performed as well as or better than non-SRI investments over half the time in studies ranging from 1963 to 2004 (Mercer and UNEP Finance Initiative 2007)

12. Why Do (and Should) Corporations Engage in CSR? 1. Out of the goodness of their heart? 2. Because they are forced to (e.g. by the government)? 3. Because it is good for their business? 4. Because it is good for society? 5. Because other companies do? 6. To help their leaders personal connections? Are the factors that drive CSR in China different than in other countries?

13. Some Key Dimensions of Present and Future CSR Terrain in China 1. Government(s) as the key stakeholder  “Unlike in the US or Europe, in China, it is the government who currently sits at the top of the CSR pyramid” (ChinaCSR.com, 2009).  E.g. “Harmonious Society” priorities reflected in 11th and 12th 5 Year Plans 2. The development of civil society mechanisms as a big opportunity for CSR  General publics (employees and consumers) – Philanthropy and reputation  Investors – Increasing accountability and transparency  Communities – Developing NGO infrastructure 3. NGO infrastructure issues  Are key partners for corporations for CSR service delivery (and there is a gap in China)  Challenges include: Difficult to establish; Governmental approval needed; Development of grassroots civil society; Culture of voluntarism; Lack of resources and expertise to scale

14. Research Projects on Corporate CSR and Environmentalism in China Corporate Social Responsibility  Accounting to the Public: Internet Activism and Corporate Social Responsiveness in Emerging Markets. (Strategic Management Journal)  Swire Beverages: Implementing CSR in China (HBS Case Study) Sustainability and Corporate Transparency  Sustainability Reporting in China: Symbol or Substance? (Working Paper)  State Grid: Corporate Social Responsibility (HBS Case Study)  COSCO: Implementing Sustainability (HBS Case Study) Environmental Policy and Implementation  Regulatory Uncertainty and Corporate Responses to Environmental Protection in China (California Management Review)  China Greentech Initiative (HBS Case Study) Environmental Entrepreneurship  China Environment Fund: Doing Well by Doing Good (HBS Case Study)  Chairman Zhang and Broad Group: Growth Dilemmas (HBS Case Study)

15. Chris Marquis cmarquis@hbs.edu Thank you! Copyright © President & Fellows of Harvard College.