Project RESPONSE: Results and Insights “Understanding and Responding to Societal Demands on

1. Project RESPONSE: Results and Insights “Understanding and Responding to Societal Demands on Corporate Responsibility” Kiev, Ukraine 6th June, 2008

2. Collaborative Effort Academic Advisory Board Academic Members Business Advisory Board • Zollo, Berchicci, Casanova, Crilly, Hansen, Schneider, Sloan- INSEAD • Neergaard, Hockerts Pedersen - Copenhagen Bus. School (CBS) • Perrini, Minoja, Tencati, Pogutz – Bocconi Univ. • Gasparski, Lewicka - Leon Kozminski Academy • Hackl, Reinhold -Impact • Henri-Claude de Bettignies – INSEAD • Tom Dunfee – Wharton • Ed Freeman – U. of Virginia • Bruce Kogut – INSEAD • Eric Orts – Wharton • Peter Pruzan – CBS • David Vogel - Berkeley • Jim Walsh – U. of Michigan • IBM • Johnson & Johnson • Microsoft • Shell • Unilever • European Academy of Business In Society (EABIS) Funded with a generous grant by the European Commission’s 6th Framework Program

3. RESPONSE: Breadth + Depth • 1.1 M euros EU funding over 3 years + 320K euros private • 20 multinationals from Europe and US • 427 interviews (210 senior managers, 217 stakeholders) • 1,100 managers surveyed in 9 companies, 8 pending • 93 managers in 4 CSR learning experiments • 21 academics, 5 Ph.D. students and 5 RAs in 5 European and 4 US schools (incl. Advisory Board)

4. Research Questions • What do managers understand as their company’s responsibilities towards society? • How does that differ from stakeholders’ beliefs? • What factors explain the difference? • What factors explain socially responsible behavior in managers? • How effective are different training approaches?

5. What is New in RESPONSE?Expanding the Scope of CR Investigation Focus on Orientation towards External change Internal change FOCUS of RESPONSE Organisation DEBATE & RESEARCH TODAY Individual

6. Case comparison study 19 large multinationals In matched pairs/triads 8 sectors 3 regions For each company: 11 managers interviewed 12 stakeholders “Fact finding” field work In selected companies: Web-survey of random sample of managers Learning Experiments 4 large multinationals Diverse managerial roles 3 types of intervention: Executive education Meditation coaching Relaxation techniques Random group allocation Pre-post training survey 4 decision scenarios Standard psychology tests Research Methodologies

7. Insights from The Research

8. Alignment of Mindsets “the degree to which managers and their stakeholders frame their thinking about corporate social responsibility in similar ways” Hypothesis: The greater the alignment between a firm’s managers and its stakeholders, the greater its social performance

9. Dimensions of Alignment

10. Alignment Matters for Social Performance! Across all dimensions, the highest social performers have greater cognitive alignment (i.e. smaller gaps) with their stakeholders.

11. Insights from The Research

12. How do managers’ and stakeholders’ differ in their framing of social responsibility?

13. The Issue Gap Prevalent managerial understanding of CSR is avoiding harm. Stakeholders are more likely to define CSR in terms of doing good.

14. “Corporations need to position themselves as responsible corporate citizens on the world stage – at the risk of taking positions not widely shared in the business community.” (Stakeholder, natural resources) “Creating programs to help communities in education, health care and environmental protection.” (Stakeholder, pharma) “CSR is doing well in one's own business, having in mind the stakeholders” (Manager, banking) “Fair play in society towards employees, towards environment. Meet the law.” (Manager, chemicals) Cognitive Framing of the Scope of CSR Narrow, firm-centric scope of responsibility Broader, societal scope of responsibility

15. Scope and Depth of CSR Perspectives 64% 49% 35% 51% 64% 35% 20% 32% 15% 34% Frequency of CSR issues in stakeholders’ responses

16. Insights from The Research

17. What effect does the business environment have on alignment? Hypothesis: The more stable the business environment, the greater the alignment between a firm’s managers and stakeholders

18. Environmental Dynamism Enhances Alignment However, we found that alignment is associated with: • Higher levels of stakeholders’ pressure • Industries characterised by high levels of change; • Regions marked by faster economic change; • Corporate responsibility initiatives motivated by an innovation-driven business case; and • Business strategies focused on differentiation and meeting complex customer requirements.

19. Insights from The Research

20. What is the business case for social responsibility? Does the business case matter?

21. The Business Case forSocialResponsibility Managers were asked to allocate 10 points in total among the following statements: Corporate Responsibility … … reduces firm risks … reduces costs and increases operating efficiency … helps our firm to sell more and at higher margins … is a source for new market opportunities

22. The Business Case for Social Responsibility Firms that place greater emphasis on new market opportunities (NMO) have greater cognitive alignment (i.e. smaller gaps) with their stakeholders… … and have higher social performance (level of stakeholder satisfaction) Stakeholder identification Risk Responsibility Performance

23. Insights from The Research

24. To what extent is social responsibility integrated into the firm? Does it matter?

25. Insights CSR is rarely integrated in: Management development programs incentive systems Resource allocation (corporate growth) decisions Competitive strategy decisions However, the extent of integration leads to: Better alignment of managers’mindsets with stakeholders’ Higher levels of satisfaction of stakeholders (social performance)

26. Insights from The Research

27. Whateffectdoesstakeholderengagementhaveonalignment? • Hypothesis: Stakeholderengagement drives alignment of mindsets - Enhances “sensing” stakeholderexpectations - Potentiallyinfluences managers’ behaviour

28. Stakeholder Engagement and Alignment Stakeholder identification Risk Responsibility Performance Surprisingly, no clear link between stakeholder engagement and alignment

29. Insights Stakeholder engagement crucial but not enough to achieve excellence in CSR Shift to more collaborative model geared towards internal change Stakeholders have a responsibility to: Understand companies better Help them (CSR group) drive internal change process

30. Insights from The Research

31. How can managers’ sensitivity towards the social impact of their decisions and actions be enhanced?

32. Insights • Developing social consciousness in managers is possible… • Training approaches differ in effectiveness • Internal training fails to change managers’ behavior • Standard executive education - weak or no impact • Meditation-based coaching - positive impact on behavior and on psychological factors • Stress management techniques - unexpected efficacy, although not as strong as meditation • More research needed to probe these exploratory findings

33. Conclusions & Recommendations

34. Explaining Social Performance STEP 1: What factors characterize the best social performers across the 8 sectors studied?

35. Explaining Alignment of Mindsets STEP 2: What factors characterize the companies with the highest degree of alignment in mindsets?

36. Implications for Business Managers • Redefine the notion of CSR • Not only “Do No Harm”, but also “Do Good” • From “Firm-centric” to “World-centric” • From “their impact on us” to “our impact on them” • Reframe “Why” CSR • From risk/reputation to innovation • Rethink the CSR challenge: • What: from external engagement to internal change • Who: the CSR group as champion of internal change • With whom: the stakeholder groups as co-drivers

37. Implications for Stakeholders • Social Rating Agencies should: • assess CSR integration • evaluate the gap in mindsets • NGOs might need to: • Learn about the companies’ operations • Be skeptical about “engaging” companies • “Inner ring” stakeholders: from counterparts to partners with CSR group to drive: • the internal change process to mainstream CSR • at a later stage, the external initiatives to enhance social welfare