Corporate Governance and Corporate Social Responsibility Agenda

Definitions Importance (why) Corporate Social Responsibility, Sustainable Development and Sustainability Reports? Global Reporting Initiative (GRI) Guidelines and the United Nations Global Compact 2000 (UNGC) CSR Ethical Issues-The Four Stages Model Examples and Stages of Corporate Social Responsibility (Models by Roberts 2003, Zadek 2004) CSR Civil-learning tool (Zadek 2004) CSR Case Study-Nike Group work-Nike in Latvia

Definitions
Corporate Social Responsibility (CSR)(CSR)a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis. (European Commission) a strategy for demonstrating good faith, social legitimacy, and commitment that goes beyond the bottom line (Ruggie 2002 )

Global Warming Hoax part 2

Examples of Social Responsibility (CSR)

Building facilities that meet/exceed environmental safety, (e.g. energy conservation or waste recycling) Developing process improvements which reduce/eliminate hazardous waste, (e.g. limiting use of chemicals in farming) Discontinuing of harmful products Supplier selection based on adoption/adherence to environmental or code of conduct Selection of environmentally friendly packaging materials Full disclosure of environmentally safe materials used Providing employees with facilities/programs that support employee health and well-being (e.g. child day care, gym, sport facilities) Establishing guidelines/standards for marketing to children or vulnerable targets Protecting private information Providing access for disabled segment of population

Importance (Why) of Corporate Social Responsibility( CSR)?

Better Financial Results/Stock price Enhanced Brand Image/Reputation Increase in sales and customer loyalty Increased productivity and quality Increased employee retention and attraction Less Regulatory oversight Better Access to capital (sociably responsible investments) Healthy society/environment translates into recurring revenue/profits and consumption

Importance from humanistic perspective

so that the world is a better place to live in for ourselves, our children and their children So that EVERYONE and their CHILDREN have equal opportunity and access to food and necessities to live a decent life (Fairness/Justice principle) No life is insignificant

Big Pockets or SME

SME can do little things to make a difference, e.g. machine position, people arrange logically, etc.

My Goal
Develop a practical, real-life skill

What is a Sustainability Report?

Sustainability reporting is the practice of measuring, disclosing, and being accountable to internal and external stakeholders for organizational performance towards the goal of sustainable development.

Global Reporting Initiative (GRI)

What are GRI Guidelines?

is the Global Reporting Initiatives (GRI) provides a trusted and credible framework for sustainability reporting It can be compared to IAS or Generally Accepted Accounting Principles for financial statements

What is the Global Compact 2000 (UNGC)?

UN Global Compact is a policy platform and a practical framework for sustainability; direct business to TEN universal principles in the areas of human rights, labour, environment and anti-corruption.

Objective of Global Compact

Mainstream the ten principles in business activities around the world http://www.unglobalcompact.org

Why?Fairness/Ju stice
To help ensure that markets, commerce, technology and finance advance in ways that benefit economies and societies everywhere (i.e. gap between rich and poor should not widen and future of your children should be considered in decisions).

Stages of Corporate Social Responsibility (Models by Roberts 2003, Zadek 2004)

Stage 1 2 3 4 5

Zadek (2004) Defense Compliance

Roberts (2003) Negative

Ethics of Narcissus Responsible Director N/A

Managerial Strategic Advantage Civil

Dialogue w/vulnerable

The Five Stages of Organizational Learning

When it comes to developing a sense of corporate responsibility, organizations typically go through five stages as they move along the learning curve.

STAGE DEFENSIVE

WHAT ORGANIZATIONS DO Deny practices, outcomes, or responsibilities Adopt a policy-based compliance approach as a cost of doing business

WHY THEY DO IT To defend against attacks to their reputation that in the short term could affect sales, recruitment, productivity, and the brand To mitigate the erosion of economic value in the medium term because of ongoing reputation and litigation risks

COMPLIANCE

MANAGERIAL

Embed the societal issue To mitigate the erosion of economic value in their core in the medium term and to achieve longermanagement processes term gains by integrating responsible business practices into their daily operations Integrate the societal issue into their core business strategies Promote broad industry participation in corporate responsibility To enhance economic value in the long term and to gain first-mover advantage by aligning strategy and process innovations with the societal issue To enhance long-term economic value by overcoming any first-mover disadvantages and to realize gains through collective action

STRATEGIC

CIVIL

The Four Stages of Issue Maturity

Pharmaceutical company Novo Nordisk created a scale to measure the maturity of societal issues and the public's expectations around the issues. An adaptation of the scale appears below and can be used by any company facing any number of societal issues STAGE LATENT CHARACTERISTICS

Activist communities and NGOs are aware of the societal issue. There is weak scientific or other hard evidence. The issue is largely ignored or dismissed by the other business community

EMERGING

There is political and media awareness of the societal issue There is an emerging body of research, but data are still weak. Leading businesses experiment with approaches to dealing with the issue.

CONSOLIDATING

There is an emerging body of business practices around the societal issue Sectorwide and issue-based voluntary initiatives are established. There is litigation and an increasing view of the need for legislation. Voluntary standards are developed, and collective action occurs. Legislation or business norms are established. The embedded practices become a normal part of a business-excellence model.

INSTITUTIONALIZED

Civil-learning tool (Zadek 2004)

CIVIL Higher Opportunity Zone

STRATEGIC

MANAGERIAL

COMPLIANCE DEFENSIVE
LATENT EMERGING CONSOLIDATING

Risky Zone
INSTITUTIONALIZED

 Typical Business model-Global Outsourcing highend consumer product (as opposed to value, Walmart) designed and marketed in Oregon ( inhouse and outsourced), USA, maximization of supply chain management with overseas production for low labor cost Less negotiating leverage for Nike and cannot compete with Walmart/Rimi/Maxima shoes/apparel on price/value (Customers care only about price, not labor problems in Asia)

Nike the company

Nike development
Defensive-early 1990s, we have one of the best corporate values, why dont you yell at others(Levi, Adidas,etc.? Problems in media Compliance-acknowledged labor codes and external audits to ensure codes were met Managerial-1996, created CRS compliance department of 80, hired auditors for 900 suppliers Still problems in media by 2000-

Nike Development

Non-compliance due to business approach Performance incentives to procurement based on quality, price, delivery times (encouraged evading code of conducts to hit target for bonus, forced overtime to hit delivery timing bonus) Strategic-Adjust business model to embrace CRS while mitigating first mover disadvantage. Suppliers graded-Procurement teams rewarded based on grade of suppliers Multistakeholder initiatives launched-Fair Labor Association(FLA) SA8000 standard(US), in UK, Ethical Trading Initiative(ETI) Both initiatives adhere to UN conventions for fair labor practices Nike recognized the need to expand its focus to entire sector and argued for regulated international labor standards

Nike and the Civil stage

Global Compact launch attendance by CEO Phil Knight in 2000 Knight proposed that all Nike competitors, suppliers would share the cost of regulation of global supply chains 2004, Nike gathered high-profile stakeholders from international labor, human rights, environmental movements, etc. to meet at its headquarters for dialogue

Nike Inc. Activist Issues- Low wages/poor working conditions

Nike=High profile for activists-Levi, LL Bean, Adidas, etc. same business model Search for low labor cost and no labor unions Local govt. collusion and repressive regimes (shift from Singapore, Taiwan, Korea, Hong Kong to China, Indonesia, Thailand, Vietnam) Note: Demographics-High unemployment (e.g. Indonesia) constrains wages, full-employment pushes up wages What is happening in Latvia with employment? Is this concept valid for Latvia?

Activists and Media claims vs. Nike arguments

Nikes wages are too low (1992-$1.03/day Indonesia,(1996$2.03/day) while farmer earned 5 times less. Minimum wage should be required Local govt. collusion with corporations and repressive regimes Immiserating-widening gap between rich and poor and increasing poverty and lower living standards Working and safety conditions should be improved and code of conduct developed and complied to for labor/recruitment of employees/etc.

Nike Economic Claims

Nike- entry-level wage in China higher than professor at Chinese University Imposing higher wages will remove low labor cost advantage of these countries and hurt employment Higher labor cost would result in less FDI and hence fewer jobs and less than fullemployment High unemployment would accelerate wage deflation Minimum wage in highly populated country would exclude unemployed and non-union workers Too high standard in working conditions would hurt the employees because of higher cost and reduced number of jobs and lower wage Higher wages would harm the unemployed by pushing up prices from increased demand from those who earn this higher wage

Scenario-Roleplay
Situation Nike has decided to open up a manufacturing plant in Latvia but is not sure which region, appropriate wage rates or benefits package. A Nike representative will meet with a representative member from the Latvian government and a social activist to negotiate a location, wage rate, and benefits package, conditions for employees and the local municipality. Aim- To increase awareness of business ethical issues from perspectives of various stakeholders keeping in mind the models presented.

Role play procedures

Select teams of 3 Roles-One member will represent Nike, another will represent the interest of the government and municipality, and the third member will represent an activist group concerned with Nikes practices of wage and labor conditions. ALL parties MUST agree with the wage rates to be paid, benefit package, factory location, conditions, benefits for employees and government/municipality benefits. Compare negotiated results with other groups and discuss

Lecture summary
Now we know more about CSR reports,GRI Guidelines, UNGC, Sustainability reports are and their purposes (maybe) Now we know more about Sustainable Development is and why it is important (maybe) Now we know more about some of the models used in Corporate Social Responsibility are and how it was applied to Nike (maybe)

Summary-Lessons learned
Corporations will more likely act if profits/stock price is affected; therefore, improved governance is needed to protect various stakeholders and address accountability issues. Models related to CSR can be considered a tool to identify or indicate market signals CSR models that seek shared-value solutions (win-win) and business strategy and incorporate the social dimension could result in a healthier society giving hope to future generations These CSR solutions should be focused, proactive, an socially integrated, but in harmony with core strategy Corporate Social Responsibility (CSR) can contribute to a prosperous economy by promoting job creation, investing capital, etc., but has limitations due to cost constraints Some corporations still view CSR as window dressing and a distraction from main business Other lesson: There are good people/corporations in this world who consider the consequences of their action upon the world their children will live in.

References
Global Compact. (2002) http://www.unglobalcompact.org Porter, M.&Kramer, (2002) Strategy and Society. Harvard Business Review. Zadek, P.(2004) The path to corporate responsibility. Harvard Business Review. Shaw, William H. (2003) Ethics at work. Vallance, Elizabeth (2003) Business Ethics at work. Fritzsche, David J.(1997) Business Ethics-A Global and Managerial Perspective

Questions
Is is ethical to use shareholders money to fund CSR? Does it give the greatest pleasure to the greatest number of people?

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