CSR –
Corporate or Consumer Social R esponsibility?
Master Thesis
Copenhagen Business School, 2017
Supervisor: Jan Michael Bauer Hand-‐in date: 15th May 2017 Number of Characters: 219.819 Number of Pages: 101
Asger Bjerre-‐Nielsen
Tina S. Ebbesen
Acknowledgement
In the process of writing this thesis, there are a few people we would like to thank for their help in realising this thesis.
First of all, we would like to thank our supervisor, Jan Michael Bauer, for his help and guidance throughout this process. We are grateful for your support from start to finish.
Secondly, we would like to thank friends and family for never stop listening, asking questions and endless hours of constructive sparring.
Finally, we would like to thank each other for helping and assisting one another towards a greater end. It’s been a pleasure.
Executive summary
Dette speciale har forsøgt at afdække forholdet mellem udviklingen i informationsteknologien og virksomheders dedikation til CSR-‐løfter.
Med samfundets stigende efterspørgsel efter virksomheders engagement i bæredygtig forretning, der går udover de juridiske forpligtigelser, har udviklingen inden for
informationsteknologi ligeledes givet den moderne forbruger mere magt til at kommunikere med virksomheder og dele information om virksomheder på internettet. For at imødekomme de stigende forventninger finder virksomheder hele tiden nye, bæredygtige tiltag, men ofte formår virksomheder ikke at leve op til det, de selv lover. Dette karakteriseres som
greenwashing.
For at undersøge om informationsteknologiens udvikling har haft indflydelse
på virksomheders CSR initiativer, samt hvorledes virksomheder håndtere en CSR skandale, har vi inddraget en komparativ analyse af fire globale virksomheder fra fire forskellige industrier.
For at skabe et teoretisk fundament for CSR har det været relevant at gå i dybden med konceptets udvikling gennem de seneste årtier. Specialet vil derfor inddrage teorier fra flere teoretikere med udgangspunkt i Friedman fra 1970 og frem til Visser og Porter og Kramer fra 2011.
For at danne et mere holistisk billede af informationsteknologiens udvikling og betydning er opgavens fire virksomheder bevidst valgt ud fra, hvornår deres respektive skandaler fandt sted for dermed at kunne afgøre, om informationsteknologi har fået en større betydning for både kunder og virksomheder.
Disse fire virksomheder er:
• Nike
• Coca-‐Cola
• Apple
• Volkswagen
På baggrund af analysen har vi forsøgsvis konkluderet, at virksomhedernes skandale har fungeret som katalysator for en mere langsigtet CSR strategi. Tidligere har dette dog ikke været lig med nye og forbedrede intentioner. Der er en tendens til, at det økonomiske aspekt af CSR stadig er mest dominerende i virksomheders beslutninger vedrørende CSR. Omvendt kan der også argumenteres for, at forbrugeres købsvaner spiller en lige så stor rolle i det samlede puslespil, der ofte leder til greenwashing. Til trods for at forbrugere er blevet mere informerede formår forbrugere ikke at straffe virksomheder på længere sigt, og dermed forsvinder incitamentet til greenwashing ikke for virksomhederne.
Vores metodiske tilgang til specialet er baseret på socialkonstruktivisme og hermeneutisk læring og bygger hovedsagligt på sekundær data fra de forskellige virksomheders
årsrapporter, hjemmesider og internetartikler.
Table of content
PART I ... 8
1.1 INTRODUCTION ... 8
1.2 PROBLEM IDENTIFICATION ... 9
1.3 PROBLEM STATEMENT AND RESEARCH QUESTION ... 12
1.4 DELIMITATIONS ... 12
1.5 METHODOLOGY ... 13
1.6 PURPOSE AND TARGET GROUP ... 13
1.7 STRUCTURE ... 14
PART II ... 16
2. THEORY SECTION ... 16
2.1 CORPORATE SOCIAL RESPONSIBILITY ... 16
2.1.2 The economic aspect ... 16
2.1.3 Stakeholder theory ... 17
2.1.4 The CSR pyramid ... 18
2.1.5 Incorporated CSR ... 20
2.1.6 Strategic investment ... 21
2.2 CODES OF CONDUCT ... 22
2.3 GREENWASHING ... 23
2.4 BENEFITS OF CSR ... 27
2.4.1 Employee turnover/satisfaction ... 30
2.4.2 Customer Satisfaction ... 32
2.4.3 Reputation and image ... 33
2.4.4 Financial Performance ... 36
2.5 DRAWBACKS OF CSR ... 38
2.6 CSR 2.0 ... 41
2.7 WHAT ROLE DOES INFORMATION TECHNOLOGY HAVE IN THIS? ... 44
2.8 CONSUMER SOCIAL RESPONSIBILITY ... 49
2.8.1 The ethical consumer ... 50
2.8.2 Consumer purchase intentions ... 51
2.8.3 Consumer behaviour ... 53
2.8.4 Geographic responsibility ... 54
PART III ... 56
3.1 METHODOLOGICAL APPROACH ... 56
3.2 SCIENTIFIC METHOD ... 56
3.3 DEDUCTIVE AND INDUCTIVE APPROACH ... 57
3.4 THEORETICAL FOUNDATION ... 58
3.5 CASE STUDIES ... 58
3.6 COMPANY CASES ... 59
3.6.1 Nike ... 59
3.6.2 Coca-‐Cola ... 60
3.6.3 Apple ... 60
3.6.4 Volkswagen ... 61
3.7 VALIDITY OF FINDINGS ... 61
3.8 ANALYSIS ... 62
PART IV ... 63
4.1 ANALYSIS ... 63
4.2 CSR POLICY PRIOR TO THE SCANDAL ... 64
4.2.1 Nike ... 64
4.2.2 Coca-‐Cola ... 66
4.1.1.3 Apple ... 67
4.1.1.4 Volkswagen ... 68
4.3 SCANDALS ... 71
4.3.1 Asian sweatshops ... 71
4.3.2 Water pollution and pesticides ... 72
4.3.3 Factory suicides ... 73
4.3.4 Dieselgate ... 74
4.4 ROLE OF INFORMATION TECHNOLOGY ... 76
4.4.1 Investigative journalism ... 78
4.4.2 Transition to web 2.0 ... 80
4.4.3 Fast growing web 2.0 ... 81
4.4.4 A far-‐reaching matrix structure ... 83
4.5 CONSUMER IMPACT ... 85
4.5.1 Protests and boycotts ... 86
4.5.2 Public protest and governmental intervention ... 87
4.5.3 Damaged reputation ... 89
4.5.4 Falling share prices ... 90
4.6 NEW CSR AND CORPORATE IMPACT ... 93
4.6.1 Introducing corporate CSR ... 94
4.6.2 Going beyond addressed issues ... 95
4.6.3 Codes of conduct and safety nets ... 97
4.6.4 Reinventing brand and strategy ... 99
PART V ... 102
5.1 DISCUSSION ... 102
5.1.1 Long term CSR ... 102
5.1.2 Geographic factor ... 103
5.1.3 Consumer or corporate social responsibility ... 104
5.1.4 Time for CSR 2.5? ... 105
5.1.5 Suggestions for further research ... 107
5.2 CONCLUSION ... 108
PART VI ... 111
BIBLIOGRAPHY ... 111
List of figures and tables
Figure 1 The interrelation between companies, the public, and IT of own making
Figure 2 Weber’s monetary value of CSR (2008) Figure 3 Carroll’s CSR pyramid (1991)
Figure 4 Matten & Moon’s explicit and implicit CSR compared (2005) Figure 5 Weber’s matrix of CSR benefits (2008)
Figure 6 Galbreath & Shum’s CSR investments impact on financial performance (2012) Figure 7 Visser’s ideas of CSR (2011)
Figure 8 Visser’s differences between web 1.0 and web 2.0 (2011)
Figure 9 Carrington et al.’s Intention-‐behaviour mediation and moderation model (2010) Table 10 Net sales from Apple’s annual report 2011
Table 11 Figures from Volkswagen annual report 2014, 2015, and 2016 Table 12 Net sales from Apple’s annual report 2016
Part I
1.1 Introduction
The notion of Corporate Social Responsibility (CSR) has grown significantly during the last decades both in businesses and society. Nevertheless, it is only within recent decades that the concept has received considerable focus due to corporate behaviour and particularly corporate misbehaviour. Especially, events such as the BP oil spills and environmental disasters have caused massive media attacks and NGO activism. Another significant scandal is Nestlé and their abuse of water resources in the state of California (US), which led the company to be the target of multiple boycotts and protests. Despite their massive influence and the media coverage they have received, these two CSR scandals only represent the tip of the iceberg of revealed scandals. Nevertheless, the incidents have raised a substantial concern to whether companies conduct their business in a responsible manner and whether the current approach to CSR is correct. Decreasing trust has become a major challenge for corporations and companies as their reputation plays a considerable role for future success and competitive advantage.
In addition to corporate scandals, society has witnessed a market transition characterised by the growing degree of globalisation and privatisation. This has led to changes in the use of power and authority through the process of integration and interaction among companies, governments, and society. With the new dispersion of power and authority, companies have faced a broader range of issues and are thus more often being held responsible for an increasing amount of issues by more and more stakeholder groups. Previously, a company’s accountability mainly resided with the company itself and its shareholders, but today companies are accountable to a wide range of stakeholders. Not only are companies answering to more stakeholders, the amount of information available for consumers through both traditional and online media is increasing.
In the light of globalisation and the gradually increasing societal expectations of corporate responsibility, modern consumers have been put in a powerful position to share and impact corporate actions.
Since information is more easily available than ever and corporations’ every move can, almost instantaneously be put under scrutiny, it is difficult for corporations to hide their deeds and misdeeds and thus corporate transparency has become essential for companies.
1.2 Problem identification
It can be argued, based on the above, that companies still have not been able to outline a holistic approach to CSR, even though many large firms appear to be determent to do so. The concept of CSR has also become a subject of interest in society, as many stakeholders have high expectations to firms and their business ethics. Thus, CSR has developed into a concept that needs to create both profit and meet society’s demand.
Despite the lack of consistency in CSR literature, scholars are still highly determined to define the concept of CSR, as they continue to form new theories on the matter of financial and stakeholder value for companies and society (Visser, 2011).
Corporate Social Responsibility (CSR) was once seen from a purely economic point of view. In 1970, Milton Friedman stated, “The Social Responsibility of Business is to increase its Profit”
(Friedman, 1970). This famous statement revolved entirely around the business and its shareholders. Since then, the notion of CSR has been widely discussed among scholars, businesses, and society, as the definition has become an important aspect for all stakeholders to understand.
Since Friedman, various scholars have argued that companies should be able to obtain various benefits through CSR initiatives and Porter and Kramer have argued that companies can achieve competitive advantage through CSR (2006). Thus, improved financial performance should be obtainable through various channels of CSR investments i.e. increased motivation amongst employees, happier customers, and improved reputation. Galbreath and Shum (2012) argued in their study of 280 Australian companies that there is a link between these and improved financial performance.
As the external pressure has increased for companies, companies have been forced to perform well financially, while doing business in a responsible way and be a good corporate citizen. In search of the golden mean of doing good and being good, companies have tried various strategies of which many seem to have failed. Visser (2011) argues that the history of CSR practices can be divided into four ages: the age of greed, the age of philanthropy, the age of marketing, and the age of management. Finally, we are now heading into the fifth age of CSR called the age of responsibility. Since the age of greed, CSR has changed from being a strategic tool to be an incorporated part of businesses.
Furthermore, stakeholders have become empowered through the development of information technology and web 2.0 in the age of responsibility and are now, more than ever, able to challenge companies on their CSR initiatives. With the shift in power, corporate matters are no longer communicated in a one-‐way stream, with the company as the sender; the shift has changed to a two-‐way dimension (Ihator, 2001). Visser (2011) further argues that educated and networked stakeholders in time will expose companies who are continuing the out-‐dated CSR practices and withdraw their social license to operate.
What Visser refers to, as web 2.0 is just a part of what is recognized for having empowered modern consumers, but the idea about how knowledge leads to power, both for consumers and in other settings has long been an established argument. Foucault argued back in 1972, that consumers with more knowledge feel more powerful (Foucault, 1972).
Based on the assumption that CSR have the potential to create corporate benefits and sustain competitive advantage, it could be argued that good CSR practices are more important than ever, as it plays a significant role in how your corporate image is perceived, and if you fail to do business in a responsible way, the empowered consumer of today has the means and power to damage your company’s reputation (Etter & Fieseler, 2010).
However, Visser (2011) also argues that CSR is flawed in three dominant areas and that these flaws have turned CSR into a PR tool, which in it self is completely inadequate to meet the increasing expectations of society as well as making up for the sometimes devastating impacts of multinational companies actions. Thus, CSR in its current form could be argued to be nothing more than a necessary mask of PR spins to cover up the real impact of global business
but retain the public image of doing good. The general term of company promises that do not translate into action, whether it be human rights, supplier control, or environmental impact, is referred to as greenwash.
Furthermore, several surveys (Futerra, 2005; Nielsen Company, 2014) show that the global community overall have green purchase intentions and wish to buy and contribute to the sustainable businesses by paying extra for their products and services. Studies on actual behaviour show however, that the good intentions rarely translate into actual purchases leaving companies that invest in sustainable efforts with little to show for it in terms of sales figures.
All in all, companies that only have the means to implement peripheral CSR may be facing an impossible task in meeting the increasing societal demands for responsible behaviour and create a profitable and sustainable business model. We argue that these factors contribute to greenwashing, where companies continue to make promises that are near impossible to keep.
The triad of problematic aspects has been illustrated in figure 1.
Figure 1 -‐ The interrelation between companies, the public, and information technology of own making
We therefore posit that the development in information technology and web 2.0 should have a substantial impact on how consumers perceive companies’ CSR practices and lead to a bigger negative financial impact for the implicated companies.
1.3 Problem statement and research question
The abovementioned illustrates that corporate engagement in CSR is changing, which is particularly evident in companies’ use of greenwashing in a globalised world. By making a comparative analysis of four company cases, this thesis will attempt to explore the interrelated concepts of CSR and greenwashing, information technology, and consumer intentions and behaviour, as they arguably all contribute to the problem. To study this problem statement, the following research question is proposed:
What are the implications of information technology for companies and consumers within CSR compliance?
1.4 Delimitations
Although this thesis is investigated with an international approach with primary focus on western companies, the problem identification mainly revolves around western tendencies. In line with this, the thesis does not examine similar cases from Asian based companies and their effect on western markets. This is not a deliberate choice, but a result of the information available of such cases. We recognize the fact that there are cultural and geographical differences that influence how CSR is implemented and evaluated around the world.
The financial aspect of the analysis is limited to peripheral numbers and figures. A common approach to measure the impact of CSR activities is regression analysis, but due to the limited time frame and the primary focus, this thesis is only based on the analysis of secondary data and does not contain any primary data. Furthermore, detailed financial information on the
specific business areas has not been available and thus the analysed figures and chosen to portray the impact in general terms.
The aspect of consumer behaviour is examined with relevance to CSR. While we believe that the struggle between consumers’ intention and behaviour is relevant for companies and their usage of greenwashing, the concepts of consumer intentions and behaviour will not be explained in depth as they are normally linked to the theory of psychology. The breadth of this theory is thus beyond the scope of this thesis.
Finally, this thesis mainly focuses on information technology’s role in the aftermath of scandal exposure and how it can be utilized by consumers to impact companies. However information technology arguably also plays a major role in the time before a company is exposed as consumers, employees and other stakeholders have a broad range of possibilities to monitor companies’ actions.
1.5 Methodology
Methodology relates to a theoretical analysis of the methods applied to a field study. In its essence, methodology refers to the discussion of methods i.e. practical hands-‐on steps for doing research such as defining the scope of a research project, defining a problem statement, selecting and collecting data and so forth. Hence methodology is not the set-‐up for providing solutions, i.e. like a method, it will offer an understanding of the chosen set of methods that can be applied to our specific case in the hope of answering our research question.
The methodology part will therefore be used in this thesis to cover the methods applied as well as presenting the four cases we have chosen to analyse and work with.
1.6 Purpose and target group
The purpose of this thesis is to present a theoretical discussion of CSR in regard information technology and companies’ ability to use greenwashing as a way to influence consumers to buy their products and services. By applying theory on CSR, information technology, and
consumer intentions and behaviour, this thesis will investigate whether the development in information technology contribute to more severe punishment of greenwashing and to what extent information technology can impact a company in the aftermath of a scandal.
Furthermore, the thesis will contribute to the debate on companies’ use of CSR and how companies respond to CSR scandals based on the influence of information technology.
Finally, since the thesis written by students from Copenhagen Business School, the thesis is primarily directed at CBS with emphasis on students, who are interested in learning more about the link between information technology and CSR.
1.7 Structure
This thesis is divided into five parts, which will guide the reader through our main points in the hope of providing an answer to our research question. Through PART I, the reader is given an insight to the subject of our thesis, thereby providing the reader with an understanding of the underlying assumptions, intentions, and the knowledge a reader can gain from reading this thesis.
PART II covers an exploration of the concept of corporate social responsibility based on 7 distinct views excluding a brief description of codes of conduct and a more comprehensive explanation of greenwashing and the benefits of CSR. The intention is to demonstrate that CSR continues to be a concept without a universal definition, which comprises many aspects.
Furthermore, theory within the concepts of information technology and consumer intention and. behaviour will be used to show how consumers can impact companies.
PART III describes the choice of methodology this thesis is based on. With both a deductive and inductive approach, this thesis seeks to examine the importance of the CSR concept in relation to information technology and consumer intention and. behaviour, in the hope of answering the research question.
PART IV analyses four chosen case companies with the intention to show how companies have used CSR prior and post to their CSR scandal. We will furthermore examine how the scandals were discovered and where they occurred in order to determine and analyse how information technology had an impact on each company’s irresponsible behaviour i.e. their financial performance and their image.
PART V covers a general discussion of CSR and more specifically where CSR is today. Despite the lack of a holistic CSR concept, companies continue to embrace the high demands coming from society, consumers, and stakeholders. A discussion of geographic distance and consumer
social responsibility is therefore added, as they are influential factors to CSR’s progression.
Part II
2. Theory section
The link between information technology and CSR is new to the academic field of study. The theory on this link is limited and there are only a few studies on their interrelation. One reason for this could be the immense development of information technology over the past decade. Information technology plays an important part in modern consumerism, as it empowers consumers to challenge companies on their CSR practices. In order to create a sufficient theoretical foundation for analysing information technology’s effect on companies’
ability to greenwash, this thesis will draw on theories in CSR and consumer behaviour.
2.1 Corporate Social Responsibility
There is no universal concept of corporate social responsibility. Theorists have through decades tried to give an explanation to what CSR means and what it should consist of. In order to explore in writing what CSR has become, we will identify some of the most influential theories available, focusing on the last 50 years. However, we recognize that the idea and practice of CSR has been obtainable for more than 50 years, and that these definitions have helped shape the theory and practice of today (Carroll, 1999).
2.1.2 The economic aspect
In 1970, Milton Friedman wrote an article for the New York Times Magazine in which he defined and argued that CSR is a matter of economic impact (Friedman, 1970). Friedman believed that “in a free enterprise, private-‐property system, a corporate executive is an employee of the owners of the business” (Friedman, 1970, p. 211) To elaborate on this, Friedman argued that corporate executives have a direct responsibility to their shareholders. This responsibility was to conduct the business in accordance with shareholders' desire to
enhance profitability and shareholder value, while working within the economic and legal obligations of CSR.
Figure 2 illustrates the economic aspect of CSR investments. Although Weber developed it many years after Friedman’s notion of CSR, it reflects his idea of what CSR initiatives represent as it only calculates the monetary value of an investment.
Figure 2: Weber’s monetary value of CSR (2008)
2.1.3 Stakeholder theory
In 1984, Ed Freeman introduced his theory known as the Stakeholder theory (1984). While Friedman’s definition had focused on the core value of increasing profit for shareholders, Freeman argued that all stakeholders’ needs should be met in order to increase financial value for all of them including the company. Freeman therefore believed that more responsibility should be added.
With shareholders no longer being the only stakeholder to consider, companies needed to draw attention to both individuals and groups such as employees, creditors, suppliers, governments, owners, unions, consumers, the public, and society. However, while Friedman and Freeman’s definition of what CSR should include differs, in the relation to whom exhibit responsibility is for, both theorists argued that the core of CSR should be the economic contribution of business society.
2.1.4 The CSR pyramid
In 1979, Carroll defined CSR as “the social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time” (Carroll, 1979, p. 500) and developed the concept further in 1991.
Contrary to the work of Friedman and Freemen, Archie Carroll argued that a company’s CSR responsibility should move beyond the economic aspect and address other aspects in order to embrace the entire range of a business’ responsibilities (Carroll, 1991).
In his published work from 1991, Carroll defined CSR in a broader perspective including four areas of CSR responsibilities. They are: economic responsibility, legal responsibility, ethical responsibility, and philanthropic responsibility.
As presented in figure 3, the lowest layers must be addressed before the other layers can be considered. First, the economic responsibility states a business must serve the pressing needs of the organisation, before concerning itself with the next tier of the pyramid. Similar to the work of Friedman and Freeman, Carroll stated that the economic responsibility is the most important aspect in order to produce services and goods that consumers want and need. At
Figure 3 – Carroll’s CSR pyramid (1991).
some point this idea has transformed into a notion of maximizing one’s profit. This means that the other three components rely on the economic responsibility. Secondly, the legal responsibility refers to how a business is expected to operate within the laws and regulations of the countries in which it operates. To fulfil the “social contract” between the society and a company, companies should be able to pursue their mission of profit, without the necessity of stepping outside the framework of the law. Even though this is the second layer in the pyramid, it should be considered as coexisting with the economic responsibility.
Third, the ethical responsibility embodies those activities that are expected beyond the ethical norms about justice and fairness from the society. Companies achieve this when they act beyond the legal requirements of the industry and address the concerns of shareholders, employees, consumers, and society. For instant, protecting the environment and demanding human rights are examples of corporate obligations to do what is right and fair. Avoiding harm to the society, while having the ability to act right and fair are alternations of social values and can thus be seen as ethical responsibility. Nevertheless, these values and norms receive more and more attention as they reflect the increasing demands and expectations from society while representing the ethical effort to act beyond the requirements of the law.
Public debates are constantly focusing on ethical responsibilities and thus make it difficult for companies to deal with.
The final component, the philanthropic responsibility, refers to the business actions where companies can respond to expectations of the society in regards to being a good corporate citizen. It is through these actions that companies actively can engage in programs of goodwill in terms of promoting human welfare, financial education, make contributions to the community, and so forth. The main distinction between the ethical responsibilities and the philanthropic is that the philanthropic is not expected in a moral sense. This means that philanthropic actions are considered a voluntary choice even though society expects companies to provide it. However, it is not unethical if they do not provide the desired level.
This implies that while the fourth component creates value for a company’s stakeholders and the society, beyond what it legally and ethical expected, it is not as important to the other three components of social responsibility.
2.1.5 Incorporated CSR
Another aspect of what defines CSR can be found in Burke & Logsdon’s work from 1996. In contrast to previous definitions, these two scholars link CSR to the economic impact of a company from a different perspective (Burke & Logsdon, 1996). Instead of focusing only on the direct link between CSR initiatives and short-‐term profits, companies should focus on CSR programmes, which could “create strategic benefits for the company, even when they are not readily measureable as separate contributions to the bottom line” (Burke & Logsdon, 1996, p.
495). In order to create these CSR programmes, which can create strategic benefits for a company, five strategy dimensions are identified to help the assessment of value creations;
centrality, specificity, proactivity, voluntarism, and visibility.
First, centrality is a measurement of the closeness between a company’s CSR programmes, their objectives, and mission. This means that companies can yield future benefits, which transform into profit, if high centrality is found in a company’s programmes or actions.
Second, specificity is a company’s ability to capture the benefits of CSR programmes and can thereby create future competitive advantage to the firm. Third, proactivity is characterised as an important part of a company’s scanning and planning system. Being able to scan a market’s environment and anticipate change is highly valuable for companies. With the ability to recognise and adapt to changes more rapidly, companies would be better positioned to take advantage of opportunities or bring down potential threats. Forth, voluntarism is closely related to proactivity. This dimension focuses on the activities, which Carroll referred to as the ‘philanthropic responsibility’. These activities offer a payoff to social responsibility and strategy. The final dimension is visibility, which consists of a company’s ability to receive recognition from internal and external stakeholders.
Together these five dimensions help a company to create or attempt value in their current business activities. Implementing these five dimensions into one's core business strategy is a clear way to work responsibility into the on-‐going and future activities in which a company operates.
2.1.6 Strategic investment
Porter and Kramer believe that companies should focus more on the relation between strategy and society, in which companies can link competitive advantage with CSR (Porter &
Kramer, 2006).
Porter and Kramer believe that “if, instead, corporations were to analyze their prospects for social responsibility using the same frameworks that guide their core business choices, they would discover that CSR can be much more than a cost, a constraint, or a charitable deed – it can be a source of importunity, innovation, and competitive advantages” (Porter & Kramer, 2006, p.
1). From a strategic perspective, CSR could become a significant source of social progress if firms are able to apply its considerable expertise, resources, and insights to activities where society would gain benefits. One important aspect from these two scholars is that companies should not focus on the tension between business and society; they should rather focus on their interdependence. By using the value chain, a company can depict all their activities and find the social consequences of all its activities, thus creating threats and opportunities, but also identifying the positive and negative social impacts of these activities.
Companies who want to act responsibly need a healthy work environment. To lower internal costs of accidents, companies must create high value within education, safe working conditions, health care etc., to attract employees, create stakeholder value, and add long-‐term value to a company’s reputation. Addressing the competitive context can do this.
Of course, a company cannot focus on all areas within its wide range, which is why a company should identify areas with the greatest strategic value to benefit both society and its own competitiveness. Examples of competitive advantage could be found within inbound logistics like transportation and company emission impact on the environment, company operations of energy and water usage, company labour rights and safe working conditions, or within the relationships with co-‐companies, suppliers, NGO etc. Nonetheless, it’s important that companies continue to create shared value in their corporations to ensure mutual value is created for both the company and society. Should either a firm or the society receive more benefits compared to the other it could lead to dangerous terms, where potential damages could appear in the long-‐term prosperity for both.
Not only can corporate activities affect society, external factors also have the ability to influence corporations for better or worse. By analysing the environment companies operate within, companies are able to understand their competitive context. Through the context of rivalry, local demand conditions, related support industries, and inputs available to companies, firms can scan and determine the social influences on industry competitiveness (Porter & Kramer, 2006). Competitive context should therefore be looked upon from both perspectives, internal and external, hence both sides are equally able to create CSR initiatives.
Since strategic CSR requires both sides to work together, it is here the opportunities for creating shared value truly lie. “When value chain practices and investments in competitive context are fully integrated, CSR becomes hard to distinguish from the day-‐to-‐day business of the company” (Porter & Kramer, 2006, p. 12). Efforts in finding shared value will not only have the potential to impact economic and social development, it will change the way firms and society think about each other. Instead of thinking in terms of corporate social responsibility, companies, governments and NGO’s should start thinking about corporate social integration.
This could change the thinking in business dramatically, if companies started to perceive social responsibility as building shared value rather than using it as damage control or as a PR campaign.
2.2 Codes of conduct
The framework for codes of conduct is based on a written form dedicated to a company’s ethical decisions (thebalance.com). Codes of conduct consist of the standards and values within a company; hence it’s a collection of rules, values, principles, employee expectations, and company behaviour. Due to growing awareness of CSR initiatives, the growth in voluntary codes of conduct, the use of self-‐reporting on social and environmental practices, and in social and ethical investment funds have all increased (Patrizia, 2012).
As a result of no governmental regulations regarding CSR practices in the US, US companies use codes of conduct to mark their tendencies (Matten & Moon, 2008). By adding codes of conduct to one’s company activities, companies are given the ability to express individual remarkability and stand out from one’s competitors (Torres et al, 2012). Through published
statements such as annual reports and company websites, companies can use their codes of conduct to communicate with all stakeholder groups in order to inform them of their activities while being a good corporate citizen. Thus, companies are able to create value to the image they want their stakeholders to convey (Torres et al, 2012).
2.3 Greenwashing
As seen above, various theorists have attempted to define CSR. What it embraces and how it should be implemented is still to be determined. Nevertheless, while the definition of CSR continues to be ambiguous, greenwashing can be defined as: a company misalignments between communicated promises in CSR statements and companies’ actual behaviour.
As a result of increased pressure from stakeholders, the number of greenwashing discoveries should increased as well. Today, the range of business industries influenced by greenwashing is so big that the term has become common for several theorists.
While Xingqiang defines greenwashing as “selective disclosure of positive information about a company’s environmental or social performance, while withholding negative information on these dimensions” (Xingqiang, 2014, p. 548), other theorists have defined greenwashing as
“tactics that mislead consumers regarding the environmental practices of a company or the environmental benefits of a product or service” (Parguel et al, 2011, p 11; Chen & Chang, 2012, p. 489). Even though the two definitions are describing greenwashing differently, the meaning is similar. Originally, the idea behind greenwashing was that a company could brand their products or services as green, and thereby gain the benefits of being green, although they proceeded as usual. The scope of greenwash has since then broadened to cover social and ethical issues and does now refer to situations where companies communicate CSR initiatives and practices but fail to deliver on the CSR actions.
“Although an increasing number of corporations publish environmental, health, and safety reports, many are simply token effort – greenwashing – and few address the full range of social issues necessary to assess adequately a corporation’s behaviour” (Laufer, 2002, p. 253).
Some claim that the growing use of greenwashing represents a way for companies to boost their reputation without any costs (Laufer, 2013). As a result of the growing external pressure for more responsible behaviour, companies may feel obligated to implement CSR initiatives that create value for companies, their stakeholders and society in a responsible way (Porter &
Kramer, 2011). However, it is often difficult for both multinational companies (MNCs) as well as small and medium enterprises (SMEs) to properly implement these initiatives in a satisfying manner and thus the result may be limited to a PR stunt and greenwashing.
Through ethic codes and programs, companies believe they internally can design a company’s reputation. Unfortunately, many companies end up misleading consumers as they are not able to deliver on their promises and therefore give society false claims regarding their environmental impacts and practices (Nyilasy, 2013). Another reason why companies use greenwashing in their business practice could be differentiation (Xingqiang, 2014). By using greenwashing as an additional way to differentiate the company from its competitors, while answering to the environmental concerns, companies can increasingly add value to their stakeholders, the public, and society. Matten and Moon (2008) argue that companies have been using implicit CSR through their ethic codes and programs, since it refers to the wider formal and informal expectations. Nonetheless, the use of implicit CSR is a result of mandatory and customary requirements of a company’s values, norms, and rules, and they are made to address stakeholder issues and define the proper obligations of company actors.
Figure 4 shows two distinct approaches for implementing CSR into a company’s core business (Matten & Moon, 2008).
Figure 4 – Explicit and Implicit CSR compared
Explicit CSR Implicit CSR
Describes corporate activities that assume responsibility for the interests of society
Describes corporations’ role within the wider formal and informal institutions for society’s interests and concerns
Consists of voluntary corporate policies, programs, and strategies
Consists of values, norms, and rules that result in (often codified and mandatory) requirements for corporations
Incentives and opportunities are motivated by the perceived expectations of different stakeholders of the corporation
Motivated by the societal consensus on the legitimate expectations of the roles and contributions of all major groups in society, including corporations
Despite a long demonstration of using implicit CSR through corporate philanthropy (Carroll, 1991), Matten and Moon (2008) argue that there has been a shift in companies’ choice and explicit CSR has now taken the lead. Explicit CSR, as expressed in the figure above, refers to corporate voluntary policies that assume responsibility for the interest of society and responds to stakeholder pressure. It rests on corporate discretion rather than reflecting either formal or informal institutions or governmental authority. So instead of communicating through implicit CSR, companies should emphasize that explicit CSR has become the new management idea (Matten & Moon, 2008). By going beyond the complying of regulations, companies can actively react to stakeholder responses. However, explicit CSR should not be used as a less costly way to differentiate from competitors.
Chen and Chang (2012) claim that differentiation through greenwashing has become a popular way for companies to get ahead of their competitors as it makes companies look more environmentally friendly and concerned with their responsibility to society. Thus companies can enhance the trust of one particular stakeholder group i.e. customers. If companies were to spend large amount of money on market and green advertisement, without providing the full amount of capital it would take for companies to completely implement and follow their CSR standards, the financial benefits would be higher. The perceptions of making consumers believe that companies’ act as good citizens could increase customers’ favourable brand attitude and their purchase intentions (Nyilasy, 2013).
Furthermore, if stakeholders believe that companies are green, they are more willing to invest in the companies. However, should stakeholders discover that companies are implementing greenwashing in their business activities, also through their communication of CSR initiatives (Parguel et al, 2011), investors’ confidence is endangered and this may cause negative market reactions (Xingqiang, 2014) and potential reputation loss (Etter & Fieseler, 2010). Investors and consumers would like to be sure that their investments are supporting green companies and not companies who use greenwashing (Stecker, 2016).
Finally, the aspect of greenwashing can be found in developing countries such as China. Due to financial benefits, based on e.g. cheaper labour costs, companies are offshoring parts of their
