Taming Trojan Horses: Identifying and Mitigating Corporate Social Responsibility Risks

Organizations are exposed to increasing pressures from their constituents to integrate corporate social responsibility (CSR) principles into their ongoing business practices. But accepting new and potentially open-ended commitments is not a harmless exercise, and companies may well expose themselves to serious risks when embracing such principles. To identify these risks, we conducted two naturalistic studies: one exploratory, the other corroborative. The results show that CSR adoption is associated with at least seven different business risks, ranging from failing strategy implementation to legitimacy destruction. To alleviate these risks, we discuss a set of managerial mitigation strategies that have the potential to realign companies’ CSR activities with their strategic objectives. Keywords corporate social responsibility - corporate social responsibility risks - managerial implications - mitigation strategies - strategy implementation - Trojan horses Pursey Heugens is an Associate Professor of Organization Theory in the Department of Business-Society Management at RSM Erasmus University. He received his PhD from the same school. His research interests span positive and normative theories of organizaton, including bureaucracy theory, neo-institutional theory, contractualist business ethics, and virtue ethics. Nikolay Dentchev is an independent research fellow at Ghent University, Belgium, and a project coordinator at the corporate venturing department of Fortis Group (Fortis Venturing). He holds a Ph.D. in business economics from Ghent University. His current research is related to entrepreneurship, instrumental stakeholder theory, and management challenges of corporate social responsibility

Global Sustainability Under Uncertainty: How Do Multinationals Craft Regulatory Policies?

Multinational corporations are increasingly mindful of the significance of sustainability transitions and the need for operations that are energy efficient and environmentally sound. Achieving sustainability under conditions of uncertainty entails the involvement of multiple stakeholders in initiating and carrying outsustainability-focused initiatives. Using longitudinal analysis of Royal Dutch Shell’s sustainability policies, we developed an integrated model to elucidate how uncertainty influences sustainability policies in the specific context of multinational corporations (hereinafter – MNCs). We identified three phases in theevolution of Shell’s sustainability innovation: a self-reflective phase (2000–2003) characterized by intense pressure from climate advocacy groups, an investment phase (2004–2006) for which the MNC attempted to rise to the waste disposal and pollution challenge through renewable sources of energy, and a reorganization phase (2007–2010) to streamline operations. We also uncovered themes that influence how regulatory policies are crafted: responding positively to the “community’s voice”, risk spreading through joint ventures, revenue transparency for government accountability and reporting innovation that confronts hard truths. The practical implications are outlined

INTEGRATING CORPORATE SOCIAL RESPONSIBILITY IN BUSINESS MODELS

The literature on strategic integration of corporate social responsibility (CSR) in business models is still underdeveloped. We therefore borrow from the theory on strategic management to organize this contribution according to the process of strategic management. After a review of the few strategic CSR approaches, an explorative case-study methodology is adopted to study the management of a CSR proxy, viz. Health Safety and Environment (HSE), in a multinational company in the petrochemicals. This study provides insight into what actions a company takes at every stage of CSR management, into the strategic logic of these actions, and into the different challenges the company faces. Overall, we can argue that CSR management is a challenging task for practitioners and has a strategic relevance for their firms.business models, corporate social responsibility, qualitative research, strategic management process.

TO WHAT EXTENT IS BUSINESS AND SOCIETY LITERATURE IDEALISTIC?

This paper focuses on the general concern that theories on the social responsibility of business have not much practical value. We discuss the central theses of mainstream themes in the business and society literature – corporate social responsibility, corporate social responsiveness, social issues, corporate social performance, stakeholder management, corporate citizenship, business ethics, sustainable development, and corporate sustainability – and evaluate their descriptive accuracy, normative validity and instrumental power. A great deal of the literature views corporate contribution to social and environmental issues from a moral perspective. Such moral prescription widens the expectational gap between theories and practice. If business and society literature is to have any practical value, our theorizing should make sense to businesses. It therefore needs to reflect, at least partially, the practitioners’ concerns with social responsibility. Hence research questions with practical relevance should be posed, and methods adopted from empirical inquiry, focusing on well-defined problems. Although the empirical method is advocated here, we do not plead for its enforcement on colleagues who might consider it inappropriate. Yet, we do appeal to normative theorists to ponder whether their prescriptions to business can be realistically implemented.business and society, corporate social responsibility, corporate social performance, integrated approach, theory building

A strategic perspective on stakeholder management

The purpose of this paper is to contribute to an instrumental argumentation of stakeholder theory by discussing stakeholder theory from a strategic perspective. Our analysis does not use moral or ethical arguments in order to provide a purely instrumental rationale for stakeholder management. Such a rationale appears feasible, as companies are resource dependent on their stakeholders. This argument was articulated earlier in the stakeholder management literature, but it was deemed only appropriate for the so-called primary stakeholders. Secondary stakeholders deserve, in our opinion, instrumental managerial attention as well as a consequence of stakeholder dynamics and of cognitive limitations of managers

Toward stakeholder responsibility and stakeholder motivation: Systemic and holistic perspectives on corporate sustainability*

Scholars in corporate sustainability have widely used negative examples of industrial accidents and poor (social and environmental) corporate performance to illustrate that companies have a significant impact on the alarming social and environmental developments. Besides, the extreme ecocentic management view on sustainability leaves the impression that full responsibility for sustainability, i.e. responsibility for the solution of existing social and environmental problems, should be awarded to business. However, we show that, in general, responsibilities are characterized by systemic interdependence, holism, subjectivism, and dynamics. In the context of sustainability, these four characteristics imply that awarding full responsibility to business is inappropriate. Organizations and all their stakeholders are responsible for sustainability. As this indicates the necessity for joint efforts to advance sustainable development, we attempt to integrate the responsibilities for sustainability of organizations, scientists, consumers, and policy makers. Overall, we believe that views on corporate sustainability should be perceived as an “alarm bell,” which managers need to consider in the process of stakeholder motivation in order to secure the organizational survival.

NETWORK PERSPECTIVE ON STAKEHOLDER MANAGEMENT: FACILITATING ENTREPRENEURS IN THE DISCOVERY OF OPPORTUNITIES

The problem of opportunity discovery is central in the entrepreneurial activity. Cognitive limitations determine the search and the analysis of information, and as a consequence constrain the identification for opportunities. Moreover, typical personal characteristics – locus of control, need for independence, and need for achievement – suggest that entrepreneurs would take a central position in their stakeholder environments and as a consequence fail to adapt the complexity of stakeholder relationships in their entrepreneurial activity. We approach this problem from a network perspective on stakeholder management. We propose a heuristic of stakeholder analysis, which requires two mappings of the entrepreneurial constituents. The first mapping focuses on current interactions between the entrepreneur and his/her stakeholders, while the second focuses on a specific issue and the stakeholders that constitute it. In effect, such a stakeholder analysis requires entrepreneurs to use the complexity of stakeholder relations in order to breach their cognitive limitations and thus facilitate them in the discovery of new opportunities. This has clear implications for the ethics and the activity of entrepreneurs, as we will argue.business ethics, entrepreneurship, network perspective, opportunity identification, stakeholder management

Reputation management: Sending the right signal to the right stakeholder

Corporate reputation is the result of a signaling activity (Shapiro, 1983), based on available information about a firms’ actions (Fombrun & Shanley, 1990, p. 234). Reputation is also a yardstick of the firm’s relative standing (Shenkar & Yuchtman-Yaar, 1997), routinely used by both internal and external stakeholders (Logsdon & Wood, 2002) when making firm related decisions. However, reputation is not only formed by the information signals sent by a firm or other information intermediaries (Fombrun & Shanley, 1990). Also the stakeholders’ perceptions and interpretations of the firm’s actions (Fombrun, 2001) form corporate reputations. These perceptions and interpretations then indicate how constituents understand the information signals sent by the firm (van Riel, 1997). Violina Rindova (1997) incorporates these two aspects (signals and perceptions) to explain the formation of reputation as ‘a cumulative outcome of ongoing creation between firms, constituents, and other actors in firms’ environments.’ (p. 189) This point of view implies at least a dyadic interaction between the firm and its stakeholder if we consider the case of a firm with only one stakeholder. In the case of a firm with more than one stakeholder, reputation is the result of a complex network of interactions between the firm and its stakeholders and among the stakeholders themselves. Under such conditions of structural and dynamic complexity of interactions some stakeholder groups may not fully or correctly understand and interpret the information signals. This complexity challenges the effectiveness of reputation management. Gardberg & Fombrun (2002) have recently published a study on nominations for the ‘best overall’ and the ‘worst overall’ corporate reputations in America and in Europe. Four findings in this study catch our attention.1 Firstly, no single firm was unanimously nominated for either best or worst reputation. Secondly, four companies received an almost equal number of nominations ‘best overall’ and ‘worst overall.’ Thirdly, strong mega brands were nominated for ‘worst overall’ due to major crises, and the observation that the concerned firms showed to be incapable of adjusting public perceptions after these crises. Fourthly, Microsoft and McDonalds received nominations predominantly for best corporate reputation in the USA, but both companies were nominated predominantly for worst reputations in the EU. This all does strongly suggest that some stakeholders ‘do not see the signal.’ Yet managers have to minimize sending information signals that remain unnoticed by stakeholders, as such practices contribute to generating more costs without any positive contribution to (potential) profits. This is also an important challenge for professional organizations (e.g. consultancy agencies) when advising companies on their communication strategies, since reputation management is apparently still in its infancy (Davies & Miles, 1998; Deephouse, 2002). Hence, an analysis on the antecedents of unnoticed signals will shed more light at the fundamentals of reputation management.This paper elaborates on the problem of not perceiving an information signal by a targeted recipient. The above-mentioned problems of corporate reputation receive no attention in the reputation management literature. Our contribution to the literature is the clarification and the analysis of these problems. Beginning with a strategic management perspective on corporate reputation, the paper emphasizes the fact that unnoticed information signals squander scarce resources. It then analyzes the information problems (Stiglitz, 2000) at the different levels of information efficiency (Fama, 1970). In this analysis, the value of corporate reputation as a strategic asset is evaluated at three different levels of information efficiency to conclude that reputation can contribute at any level to solve information related problems. Consequently, a more focused signaling strategy is suggested, arguing that effective reputation management is about sending the right signal to the right stakeholder. Finally, areas for future research are proposed.