4th OECD World Forum“Measuring Well-Being for Development and Policy Making”
Georges BlancProfessor Emeritus HEC ParisResident professor FDC BrazilDelhi, October 2012
Business Strategies and Corporate Social Responsibility
Session parallel 1c : Business, jobs and well-being
Professor Georges Blanc 2012
Sustainability as a new enterprise strategic driver
The new objective of the firms issustainability,in its different dimensions :Economical (Profit)Ecological (Planet)Social (People)EthicalThis sustainability objective hasdirect strategic impactsin the company :On the business models: transformation of old models and development of new models: low energy consumption, no pesticides fibers, microfinance….On the corporate strategies: building of specific stakeholders policies sharing value with clients , suppliers, employees, local communities…On the management processes: new organizational processes, new indicators, diffusion of new values, new behavioral orientations…But for a capitalist firm, the key question is :does CSR pay?
3P’s+ESTRATEGIES ( = CSR)
Argumentsin favor ofCSRItis in business's long-term self-interest– enlightened self-interest– to be sociallyresponsible.A second argument in favor of CSR isthat it will ‘ward off governmentregulation’;business policieswithself-disciplined standardswill fulfillsociety'sexpectations.“Businesshas theresources,thusletbusinesstry” .Businesshas a reservoir ofmanagementtalents,functionalexpertiseandcapital; manyothers have tried and failed to solve social problems,thus businessshould be given thechance(Davis,1973)Pro-actingis better thanreacting: anticipating, planning andinitiatingis more practical and less costly than simply reacting tosocio-environmentalproblems once they haveexploded( Carroll &Bucholtz, 2007)Finally,businessshould engage in CSRbecause the public strongly supports it. Today, the publicbelievesthat, in addition to its pursuits of profits, business should be responsible to their workers, communities and other stakeholders, even if making things better for them requires companies to sacrifice some profits(Bernstein, 2000).
Professor Georges Blanc 2012
Arguments againstthe concept of CSR1-Milton Friedman(1962 )holdsthat,ifthe free market cannot solve the socialproblems, this does not fall uponbusiness, butupon government and legislationto do the job.2-Businessis not equipped to handlesocio-environmentalactivities.Managersare oriented towards finance and operations anddo not have the necessary expertise(social skills), to makeSociety orienteddecisions (Davis, 1973).3- CSR preoccupations willdilutebusinesses' primarypurpose: toadopt CSR would put business into fields ofactivitythat are unrelated to their‘proper aim’(Hayek, 1969).4-Businessalready has enough power, and so why should we place in its hands the opportunity towield additional power, such associalpower?5- Bypursuing CSR,business will make itself less competitive globally.This is a controversial question that we are going to examine in the next slides.
Professor Georges Blanc 2012
Isdoing goodprofitable at the end?
CSR investments represent to day between 10% and 20% of total investments in developedcountries :for what “return”?Does creatingvalue forevery stakeholderprevents fromshareholder valuemaximization?Do CSR actions have necessarily a cost which isnot compensated by their benefits?In the US, some Boards and CEOs have been sued by minority shareholders for making CSR decisions that reduce immediate profit. Shareholders value maximization is included in the US law. It is not the case in France, Germany and Japan for instance, where the legal mission o the firm is its own long range existence.But on the other side, many recent researches areshowingapositive economic return for companies CSR investments: investing in energy economies pays, selling shirts made of a cotton cultivated without pesticides pays, microfinance pays, reducing internal social tensions pays, developing projects with local communities pays….All is a matter of time lag :Does it needpatient capital?Or can we getimmediateprofit?
Professor Georges Blanc 2012
Georges Blanc 2012
1- SHAREHOLDER REVENUE MAXIMIZATION ORSTAKEHOLDERS VALUE OPTIMIZATION ?
Economic Outcomes
Cost ofCapital
Social/Ecological Outcomes
FinanceModel =Maximize shareholders value
Stakeholders model =Value should be distributed fairly between all stakeholders
Georges Blanc 2012
SHAREHOLDER REVENUE MAXIMIZATION ORSTAKEHOLDERS VALUE OPTIMIZATION
New social &ecologicalobjectives
Economic Outcomes
Cost ofCapital
Social/ecologicalOutcomes
FinanceModel
StakeholdersModel
Sustainability3Ps + EStrategies= higher economicoutcomes
Sustainability3Ps +E Strategies =Lower economic outcomes
A positive relationship through mediating variables
Customer satisfactionBrand Loyalty
SOCIAL PERFORMANCE
Employees satisfactionProductivity
Local communities satisfactionLocal supports
FINANCIAL PERFORMANCE(Margolis & Walsh-2007)
SUSTAINABLE ADVANTAGE( Porter & Kramer-2006- 2011)
X
Government and agencies satisfactionPublic support
Professor Georges Blanc 2012
CSR Indexes
More and more companies are now introducing CSR measures in their basic Balance Scorecard. Some companies include CSR objectives on the first line of the BSC, at the same level of priority than the final profit objectives.1st- TheKinder,Lydenberg, Domini (KLD) social performance index.TheKLD index covers corporate performance regarding environmental, social and governanceissues(KLD Research Analytics 2009). These issuesinclude:social issuesinclude community, diversity, employee relations, humanrights;governance issuesinclude reporting and structure;controversialbusiness issuesinclude abortion, adult entertainment, alcohol, contraceptives, firearms, gambling, military, nuclear power andtobacco.2nd- TheGlobal Reporting Initiative (GRI)Inaddition to economic and environmental indicators,theSustainabilityReporting Guidelines(Global Reporting Initiative, 2006) identifiesfour categoriesof social performance indicators:labor practices and decent work,humanrights,society,productresponsibility.NOTE :Theentry of a company into theKLD or the GRIindexhasa significant positive effect on its share value,as the deletion from the index has a strong negative effect on the share value.
Professor Georges Blanc 2012
Professor Georges Blanc 2012
A conclusion : revisitingcorporate strategy
A sustainable corporate strategy goes through the strategic management of each stakeholder:the shareholders;every actor of the value chain, upstream (suppliers) and downstream (from distributors to final consumers) and any other partner(allied) of the chain;the different categories ofemployees;the stakeholders from the environment : local communities, local activists;Government, public agencies and local authorities.Each stakeholder can be followed by a specific index measuring the value he receives.The basis of the relationships with the stakeholders aretrust, justice, and collaboration.The value created by the activity of the firm should be distributed in a “fair way” between the different stakeholders, that is should be perceived as equitable by everybody.Any “disequilibrium” in the value distribution will jeopardize the sustainability of the firm.
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