Science, Technology and Public Policy

1. Science, Technology and Public Policy 4. Innovation an Corporate Sustainability Strategies: „Corporate Social Responsibility (CSR)“ by David Vogel 21. November 2006 Presented by Flavia Godet & Mathias Sacher

2. Main questions • What does it mean to be a corporate social responsible or virtuous company? • Are companies becoming more virtuous? • Is there a market for virtue, is there a business case?

3. What does it mean to be a virtuous company? • Practices that improve the workplace and benefit society in ways that goes beyond what companies are legally required to do

4. 1. What does it mean to be a virtuous or company?Examples of Corporate social responsibility CSR • Nike Monitoring work conditions • Ikea Prohibits the employment of children • Starbucks Coffee from Fair Trade label • Shell Investments in developing countries • McDonald‘s No antibiotics in beef or chicken • Chiquita Environmental practices • Timberland Paid week off to work with local charities

5. 1. What does it mean to be a virtuous or company?Ambiguities surround the concept of CSR • Wal-Mart Low priced goods / Low wages • Monsanto Sustainable agriculture / Threat to public health • McDonald’s Environm. friendly packaging / mass production • BP Global change / Fossil fuels There is no consensus on what constitutes virtuous behavior Multidimensional nature of CSR Voluntary regulations can be welfare-distorting without adequate legal or social constraints

6. 1. What does it mean to be a virtuous or company?Reasons to behave more responsible or virtuously • Driving forces • Strategic reasons • Avoid state intervention • Profit boost by reducing costs and creating new markets • Defensive reasons • Threatened consumer boycotts • Pressure from socially responsible investors • Altruistic reasons • Values held by managers and employees • Public-spirited reasons • Challenges to a firm’s reputation by NGO’s • Demand for responsibly made products

7. 1. What does it mean to be a virtuous or company?Limits to social responsible behavior • Companies will engage in CSR only to the extent that it makes business sense • Costs of virtuous behavior must remain modest Limits the improvements in corporate social and environmental performance that voluntary regulation can produce CSR can reduce only some market failures (free riding)

8. Are companies becoming more virtuous? • During the 1960s and 1970s the principles of corporate social responsibility came alive in the United States • Around 1990 Great Britain became the new geographic centre of gravity of CSR European companies are now more engaged in corporate social responsibility than American firms Corporate social responsibility became an industry in itself

9. 2. Are companies becoming more virtuous?Conclusion • Especially since the 1990s European firms became more engaged in corporate social responsibility But CSR has to be understood as niche rather than a generic strategy But it makes only business sense for some firms in some areas under some circumstance

10. Is there a Business Case for Virtue? • Definition „Business Case“: A business case sets out the information needed to enable a manager to decide whether to support a proposed project, before significant resources are committed to its development. The core of the business case is an assessment of the costs and benefits of proceeding with a project.

11. 3. Is there a Business Case for Virtue?So, is There a Business Case for CSR? Observable claims & implementations of CSR: • Business ethics • Corporate citizenship • Environmental stewardship • Pollution control • Sustainable development • …

12. 3. Is there a Business Case for Virtue?Believes of Excutives concerning CSR • 2002 survey by PricewaterhouseCoopers: 70% of global chief executives believe that CSR is vital to their companies’ profitability. • A corporate report 2004: “If we aren’t good corporate citizens […] that take into account social and environmental responsibilities along with financial ones eventually our stock price, our profits and our entire business could suffer.” • A KPMG study of 350 firms: “More big multinational firms are seeing benefits of improving their environmental performance […] Firms are saving money and boosting share performance by taking a close look at how their operations impact the environment […] Companies see that they can make money as well.” → ”Doing well” and “doing good” have become more closely linked

13. 3. Is there a Business Case for Virtue?Empirical Evidences • Signal from thirty years of academic research: “Indication of a positive relationship between social performance and Financial performance must be treated with caution” → Although CSR may not make firms any less profitable, it is possible that some more responsible firms might even be more profitable if they where less responsible

14. 3. Is there a Business Case for Virtue?But Let’s be realistic! • Statistical evidences may be pointless an unnecessary because such studies purport to hold CSR to a standard to which no other business activity is subject! (example: advertising – profit) • Risk associated with CSR are no different than those associated with any other business strategy; sometimes in CSR make business sense and sometimes they do not. • Why should we expect investments in CSR to consistently create shareholder value when virtually no other business investments or strategies do so? • It is not necessary to find positive statistical evidence to claim some firms may benefit from being more responsible.

15. 3. Is there a Business Case for Virtue?Are Virtuous Firms Built to Last? • There are claims being responsible is a necessary condition for long-term business success but it’s striking that only a few responsible firms have been “built to last”, the list is short • Proponents of CSR assume that only the most responsible firms can or will survive in the long run, they believe that over time there will be more responsible ones – a kind of survival of the virtuous • There is a market or ecological niche for responsible firms. But there’s also one for the less virtuous ones. The sizes seem to stay the same at the moment.

16. 3. Is there a Business Case for Virtue?Conclusion • The belief that virtue pays is both attractive and influential It appeals to those who wish to make firms more responsible an to those want to manage, work and invest in virtuous enterprises • Unfortunately the claim that more responsible firms are more profitable finds little support in academic studies • It’s rather to suggest that any such claim must be more nuanced. CSR does make business sense for some firms in specific circumstances, more details follow in the book…

17. CSR Can Make Sense !!! There is a business case for virtue! Because: • It is possible to have better profits if a firm is into CSR. • It is possible to not have higher costs if a firm is into CSR. • But it has to be considered under what specific circumstances CSR can be beneficial.