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Corporate Social Responsibility in the Airline industry. An
investigation of CSR strategies and the influences of home-region
stakeholders.
Thesis Business Studies
Faculty of Economics and Business
Student name: Schaap, A.R. (6132146) Supervisor: dhr. D.J.H.M. van den Buuse Second supervisor: Dr. Ilhir Haxhi Academic year: 2014-2015
2 Statement of originality
This document is written by Student Alexander René Schaap who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
3 Abstract.
The primary purpose of this research is to identify CSR strategies of organizations and to examine the influence of salient stakeholders on CSR strategies of organizations within the home-region context. To examine this research question, this thesis 1) identifies the types of CSR activities stakeholders pressure organizations to engage in and 2) examines the relation between these CSR activities and the CSR strategy of organizations in the European home-region. Based on a multiple case study design, this study examines annual reports, CSR reports and other secondary sources of six organizations in the European airline industry. The analysis of this data revealed that organizations CSR strategies are focused on gaining legitimacy and to protect their image and reputation or to create value by integrating CSR into the heart of the business operations. The results provide mixed evidence that CSR strategies are linked to types of CSR activities and that salient stakeholders pressure organizations to engage in specific types of CSR activities.
Key words: Corporate social responsibility (CSR), CSR strategy, CSR activities, Stakeholder
4 Acknowledgments.
First, and most important I want to thank my supervisor Daniel van den Buuse for the pleasant and positive cooperation. His input, guidance and feedback during the past few months were of priceless value and gave me the opportunity to maintain the overview whilst writing my thesis. Second, I would like to thank my family and friends for not only the support they provided, but also for the great moments I experienced with them during my years as a student. Third, I would like to thank my manager at KLM, Arjan van de Bovenkamp who showed me the beauty of business life and the airline industry in particular.
5 Table of Contents.
1. Introduction……… 8
2. Theoretical Framework……….. 11
2.1. CSR………. 11
2.1.1. The evolution of the CSR concept………. 11
2.1.2. CSR activity typologies………. 13
2.1.3. CSR strategies……….... 15
2.1.4. Global integration vs. local adaption………. 17
2.2. Stakeholder theory………. 18
2.2.1. The evolution of stakeholder theory……….. 18
2.2.2. Stakeholder salience………...19 2.2.3. Stakeholder typologies………...21 2.2.4. Stakeholders and CSR………... 24 2.3. The EU as home-region……….. 25 2.3.1. European characteristics………... 26 2.3.2. Concluding remarks. ………. 27 3. Working propositions……….. 29 3.1. CSR strategy identification……… 29 3.2. Stakeholder pressures………. 31 3.3. Conclusion……….. 33 4. Methodology………... 35 4.1. Research philosophy……….. 35 4.1.1. Ontology. ……….. 35 4.1.2. Epistemology………. 36
4.2. Research strategy and design……….. 36
4.3. Case criteria and selection……….. 37
4.4. Data collection……… 40 4.5. Data analysis. ………. 41 4.6. Conclusion……….. 42 5. Results………. 43 5.1. Within-casa analysis………...… 43 5.1.1. Air France-KLM……… 43 5.1.2. British Airways……….. 48
6 5.1.3. Virgin Atlantic………. 52 5.1.4. Lufthansa………. 56 5.1.4. SAS……….. 60 5.1.6. Finnair……….. 64 5.2. Cross-case analysis………... 67 5.2.1. CSR strategies……….. 68
5.2.2. Primary stakeholder pressures………. 69
5.2.3. Secondary stakeholder pressures………. 71
5.3. Conclusion……… 72
6. Discussion………. 73
7. Conclusion……….... 76
7.1. Research limitations and future research………. 77
8. References………..78
9. Appendices……… 85
7 List of tables and figures
Tables.
Table 1. Overview working propositions………. 34
Table 2. Case descriptions……… 39
Table 3. Overview of sustainability reporting selected cases………...… 41
Table 4.1. Air France-KLM propositions 1b and 2b………. 44
Table 4.2. Air France-KLM proposition 3... 45
Table 4.3. Air France-KLM proposition 4……….47
Table 5.1. British Airways proposition 1a and 2a………..48
Table 5.2. British Airways proposition 3………..… 49
Table 5.3. British Airways proposition 4……….. 51
Table 6.1. Virgin Atlantic proposition 1b and 2b………. 52
Table 6.2. Virgin Atlantic proposition 3………... 53
Table 6.3. Virgin Atlantic proposition 4………... 54
Table 7.1. Lufthansa proposition 1b and 2b………. 56
Table 7.2. Lufthansa proposition 3………..…. 57
Table 7.3. Lufthansa proposition 4………...…… 58
Table 8.1. SAS proposition 1a and 2a………...……... 60
Table 8.2. SAS proposition 3………..….. 61
Table 8.3. SAS proposition 4………...…..63
Table 9.1. Finnair proposition 1a and 2a………..……. 64
Table 9.2. Finnair proposition 3………...…….. 65
Table 9.3. Finnair proposition 4………..………66
Table 10. Theme 1. Cross-case analysis………...……….. 69
Table 11. Theme 2. Cross-case analysis………..…………71
Table 12. Theme 3. Cross-case analysis………. 72
Table 13. Overall results of working propositions………..……… 75
Figures. Figure 1. Comparison of CR types………..……… 13
Figure 2. CSR strategies………..……… 16
8 1) Introduction.
Responsibility of organizations towards social and environmental issues has been going on a few decades (Carrol, 1991), and has gained a lot of political and academic attention (Barth & Wolff, 2009). Over the years, the concept of CSR has constantly changed. At first, the shareholder theory was dominant within the CSR concept. Important was the perspective of Friedman (1970) when he argued that the ‘only social responsibility of a firm is to increase its profits’. This implicated that the only responsibility, and reason of existence of a firm is to make profit. According to the shareholder perspective, companies should stick to the rules of the game, which implicates that social and environmental issues should be dealt with by the government. During the 1980’s, the perspective on CSR changed when the stakeholder view became more dominant. Freeman (1984) describes the stakeholder view by arguing that organizations have multiple responsibilities against multiple stakeholders of an organization. The stakeholders of a firm should be dealt with in order maximise the value created.
During this changing perspective of the firm, the concept of CSR developed, but there is still a lack of consensus around the definition of CSR. The lack of consensus is caused by several reasons. One example that describes the lack of consensus are the overlapping concepts around CSR in the literature. From the early a stage of ‘social responsibility’ (Bowen, 1953) and ‘corporate social responsiveness’ (Ackermann & Bauer, 1976), towards ‘corporate social performance’ (Carrol, 1979; Sethi, 1975; Swanson, 1995; Wood, 1991), ‘corporate sustainability’ (Roome, 1998; Atkinson, 2000; Sharma & Starik, 2002), ‘corporate citizenship’ (Marsden & Andriof, 1998; Warhurst, 2000) and the more recent ‘shared value’ (Porter & Kramer, 2011). Another example that creates for the lack of consensus around CSR is created by the cultural-institutional differences between countries. Where actions of corporations are CSR in one country can be legalised in other countries (Matten & Moon, 2007).
Despite all articles, no consensus has been reached on the definition of CSR. Barth & Wolff (2009, p.5) argue that a mainstream definition is used in Europe and provided by the European Commission (2001, p. 6); ‘a concept whereby companies integrate social and environmental concerns in their business operations and in their interactions with stakeholders on a voluntary basis.’ And Mcwilliam, Siegel and Wright (2006, p.1) define CSR as ‘situations where the firm goes beyond compliance and engages in voluntary actions that appear to further some social good, beyond the interests of the firm and that which is required by law’. Both definitions emphasize the voluntary nature of CSR, but provide no insight in how companies deal with these sort of problems. The different perceptions of CSR become even more complex
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as influences of stakeholders and stakeholder salience are included (Husted & Allen, 2006). Multiple governments, NGO’s, (international) customers, shareholders and employees are all stakeholders MNE’s have to deal with. MNE’s should respond to the pressures of salient stakeholders (Husted & Allen, 2006) and the salience of stakeholders differs per each MNE. Stakeholder salience can be determined by analysing the power, legitimacy and urgency of stakeholders. Stakeholder salience is used to develop CSR activities in cooperation with stakeholders (Mitchell, Agle & Wood, 1997). Cultural aspects and differences of stakeholders make the role of stakeholders even more complex for MNE’s (Kampf, 2007). Although including salient stakeholders in CSR activities is very complex, Du, Bhattacharya & Sen (2010) argue that there can be an advantage created through CSR activities, but a key challenge is to communicate effectively towards the salient stakeholders of an organisation.
Organizations face a high pressure for transparency due to their global nature and activities and clear communication is therefore very important (Kolk & Pinkse, 2010; Du et al., 2010). CSR activities of a firm are usually communicated through official documents such as corporate responsibility reporting or press releases (Du et al., 2010, p. 13). Due to the high pressure on MNE’s to publicize CSR reports, the adoption of corporate responsibility reporting among the 250 largest corporations worldwide is 93% (KPMG survey of corporate responsibility reporting, 2013). Corporate responsibility reporting as a way to communicate the CSR activities of MNE’s are very standardized (Kolk, 2003; Kolk & Pinkse, 2010) and usually based upon the triple bottom line; economic, social and environmental (Milne & Gray, 2013). While corporate responsibility reporting is usually very standardized, CSR is usually linked to specific regions due to the different influences of stakeholders (Kolk et al., 2010, p.16). The regional difference can be described through the influence of the home country on the CSR practices and differences between CSR practices of foreign subsidiaries (Muller, 2006).
A critique to the theory on sustainability reporting is that there is little room for the actual content and explanation of CSR activities. There is no explanation for influences of stakeholders and their origin (Kleine & von Hauff, 2009). From this perspective it is clear that there is a relationship between the influence of stakeholders on CSR activities of a MNE and between home-country specific factors on the CSR activities of a MNE. Although there is some literature describing and recognizing the role of stakeholders in corporate responsibility communication (Du et al., 2010), and the role of home-country culture (Kampf, 2007) the influence of stakeholders on the content of CSR activities within the same industry remains undiscussed. This leads to a gap in the literature on the influences of home-country salient stakeholders on the CSR activities of a firm and the way corporations express this Furthermore,
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this gap in the literature should be addressed by analysing several MNE with different home-countries to define which salient stakeholders are most influential on MNE’s CSR activities.
Research question: ‘What is the effect of salient home-region based stakeholders on an organizations CSR strategy’.
This research aims to explore the influence of salient regional stakeholders on the CSR activities of MNE’s by focussing on airlines and their market of origin, the European Union. The industry is estimated to be responsible for 2% of all man-made carbon emissions. Which makes the industry relevant within this topic due to its high impact on the environmental, and for social issues and due to the high levels of employment (IATA Annual report, 2014). Furthermore, the high level of competitiveness in the airline industry make the industry vulnerable to stakeholder influences. From an internal as well as an external stakeholder perspective airlines engage in CSR activities (Lynes & Andrachuck, 2008; Cowper-smith & Groisbois, 2011), which makes the stakeholder perspective and the influence of CSR strategies even more interesting and complex.
The findings of this research will expose different influences and best practices in CSR strategies in the airline industry. By providing insight in current CSR strategies, airline managers can develop the most effective future CSR strategies and rethink the current position of the company. Beside home-region stakeholders influences there are more possible factors like the CEO norms and beliefs, institutional influences, corporate culture and size that could influence the CSR strategies. Although shortly described, a lack of time and resources restrains this research to take the other factors into account.
The research will focus on CSR strategies within the airline industry and the influences of home-region salient stakeholders. The following section will provide an overview of the theory on stakeholders, CSR and stakeholders characteristics within the home-region. Thereafter the working propositions will be introduced, followed by a chapter of methodology and research design. The following chapter will discuss the analysis and collection of the data. Then, the research findings are presented case by case and in a cross-case analysis. At last, a discussion of the findings and conclusions, recommendations for further research will be provided.
11 2) Theoretical Framework.
The theoretical framework presents the main theories on the topics of CSR, stakeholders and home-region. The CSR theory will be analysed through an analysis of the general literature, a discussion focussing on characteristics of CSR activities and CSR strategies will follow. Second, stakeholder theory will be discussed through stakeholder identification, stakeholder salience and linking the theory to CSR. Third, the home-country effect on CSR strategies, and the home country stakeholder approach will be discussed before making a conclusion in which all theories will be linked. The chapter concludes with some final remarks.
2.1) CSR.
The responsibilities of companies toward the society or environment have been broadly discussed in the literature for decades (Aguinis & Glavas, 2012). CSR is a concept which has evolved over the past few decades and definitions of CSR are very different while at the mean time very similar (Dahlsrud, 2008). For a better understanding of CSR and the evolution of the concept, the main CSR literature of the past decades will be discussed. During this first part of the discussion the focus will be on the concept of the firm and the evolving relationship with CSR. The second part discusses which types of CSR companies use to deal with their social and environmental responsibilities. The third part focuses on the integration of CSR into an organization’s strategy.
2,1,1) The evolution of the CSR concept.
The evolution of the concept of CSR is strongly related to the perception and responsibilities of the organization. The first time when the term social responsibility of a firm was mentioned, has been decades ago (Berle, 1931; Bowen, 1953; Davis, 1960; Dodd, 1932; Frederick, 1960). From one perspective, the organization’s only responsibility is to make profits while others argue that organizations have more responsibilities than making profits (Friedman, 1970; Freeman, 1984; Dacin, Dacin & Matear, 2010; Cohen & Winn, 2007). The concept of the multi responsible firm was widely criticized in an article by Friedman (1970) in which he argues that the corporate responsibility of a firm is to make profits. All other responsibilities should not be dealt with by the organization but are the responsibility of the government. This view on organizations is known as the shareholder perspective and found support by adherents of the Chicago school in business literature.
Another perspective on organizations is called the stakeholder perspective (Freeman, 1984). According to the stakeholder perspective, organizations should manage the relationships
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with their stakeholders in order to create value. Although this implicates a wide variety of responsibilities for an organization, Freeman (1984) still argues that the primary responsibility of a firm is to make profits. From this perspective, stakeholders’ management, like CSR, is a way to deal with risks threatening the profitability of the firm. These risks are described by Banerjee (2008) as the relationship between CSR and corporate performance. This relationship can be broken down into four basic areas, covering nearly all reasons why corporations and managers would take on CSR initiatives: 1) Their impact on customers and demand. 2) Their impact on cost, productivity and efficiency. 3) Their impact on intangibles, innovation, and the duration of assets. 4) Their impact on risk.. However the perspective on the firm is still developing in academic literature and different kinds of business models arise,There are other, more recent, perspectives of the firm that try to integrate CSR into the core business of an organization. The rise of the social entrepreneur and sustainable entrepreneurship (Dacin et al., 2010; Cohen & Winn, 2007) are examples of these new business models.
Due to the constantly changing and evolving perspective of the firm and the relationship between CSR and firm perspectives, different perspectives on CSR have arised. This makes it hard to define one general definition of CSR, and is supported by the number of different definitions provided by the literature (Jackson & Hawker, 2001). In the light of this research, Dahlsrud (2008) conducted research in which five dimensions of CSR are developed to analyse and compare the differences and similarities of all different concepts of CSR. It was founded that most definitions were for the largest part congruent and that the confusion is not so much about the definitions, but how CSR is constructed in a specific context. Dahlsrud (2008) uses five dimensions to describe the overall characteristics of CSR definitions, which are Environmental, Social, Economic, Stakeholder and Voluntary. In most literature the essence of CSR has been described according to the ‘triple bottom line’, concerning Environmental, Social and Economic aspects. Crane & Matten (2007) converted this idea of CSR by describing the Triple P bottom line, which includes Planet, People and Profit.
When trying to grasp the concept of CSR, it becomes clear that there is no clear and single definition of CSR and even the theory describing the underlying concepts of CSR provide no singular model, although some overlap exists. Due to the fragmentation in the CSR literature, Aguinis and Glavas (2012) created an overview in which they organize CSR literature on the institutional level, the organizational level, and the individual level of analysis. The institutional level is described by Scott (1995) through three pillars: normative, cultural-cognitive, and regulative elements. This means that regulations, society, consumers and stakeholders (external to the firm) address CSR at the institutional level, while the organizational level focuses on
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internal stakeholders and the individual level focuses only on individuals.
It is difficult to define how organizations have to deal with these different descriptions and concepts of CSR, especially when they encounter influences from different levels. The next section will focus on types of CSR activities and how these match the strategy of organizations.
2,1,2) CSR activity typologies.
Organizations use CSR for various reasons. Engaging in CSR can lead to opportunities for increasing revenues by gaining better access to markets, differentiating products and selling pollution control technologies, as they can lead to opportunities for reducing costs through better risk management and relation with external stakeholders, reducing cost of materials, energy and services, reducing the cost of capital and the cost of labour (Ambec & Lanoie, 2008). Not only the responsibilities of an organization against CSR topics is important, but also the duties how managers handle these responsibilities (Windsor, 2006). This could implicate that the duties of organizations and it’s managers go beyond legal responsibilities (Blowfield & Frynas, 2005). The way organizations engage in CSR is a widely discussed topic in the business literature (e.g. Kourula & Halme, 2008; Lantos, 2001). Based on research on the relationship between NGO’s and corporations, Kourula & Halme (2008) identify three types of CSR (they argue that CSR and CR is interchangeable) typologies: Philanthropy, CR integration and CR innovation. These typologies are identified through how CSR activities are related to the core of the business (Porter & Kramer, 2006), target of responsibility actions and benefits expected from CSR activities (Zadek, 2004), see fig 1.
Fig 1. Source: Kourula & halme (2008).
Lantos (2001) describes three types of CSR activities; Ethical CSR, Altruistic CSR and Strategic CSR. These three types of CSR activities have overlapping characteristics with the CSR types of Kourula and Halme. (2008). It is important to differentiate types of CSR activities in order to analyse the influence of stakeholders on these activities. Ethical CSR is characterised
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as the most basic type of CSR. It goes beyond economic or legal responsibilities. Ethical CSR is about doing more than the law subscribes, as this is expected from businesses by members of the society. This type of CSR is described by Lantos as the mandatory minimum level an organization owes its constituencies (Lantos, 2001 p. 627). If a firm refuses to engage in ethical CSR, the stakeholders will increase their pressure on the organization until they comply with their demands. ‘Good ethics is good business’ (Lantos, 2001, p. 606) is the best sentence to explain the benefits of CSR for the organization. Compliant with the stakeholder perspective, having good ethics the organization can benefit a good reputation, and the risks of receiving a fine or suffering from bad publicity become limited through ethical CSR. Ethical CSR can be compared to the CR integration type of Kourula and Halme (2008). Both ethical CSR and CR integration are not close to an organization core business, but are focussed on legitimation reasons (DiMaggio & Powel, 1983; Porter and Kramer, 2006) or image improvements and other reputation impacts (Kourula & Halme, 2008). The most important characteristic of ethical CSR activities is the close integration to the organizations business. Altruistic CSR, as described by Lantos (2001) means ‘genuine optional caring, even at possible personal or organizational sacrifice’ (Lantos 2001 p. 608). Sponsorship, donations and other voluntary gifts are all examples of altruistic CSR. There is no direct relation between the business and the CSR activity. Therefore it is very hard for organizations to the choose a cause to support. Consumers are very critical and sceptical, and want to make sure the organization has no hidden motives. Organization can use this type of activities in order to boost their image or protect their reputations (Lantos, 2001). Whether it is good for businesses to engage in altruistic CSR depends on the perspective of the organization. Spending resources on altruistic goals undermines the economic process of the invisible hand (Lantos, 2001). What is described in the article of Lantos (2001) as altruistic CSR shows the same characteristics as Philanthropy as described by Kourula and Halme (2008). Both articles argue that philanthropy or altruistic CSR has the lowest expected benefit. For stakeholders it depends if they can benefit from altruistic CSR activities of organizations because of the philanthropic nature of these activities. A type of CSR activities that is relevant to all stakeholders are strategic CSR activities. Strategic CSR is aimed at integrating CSR into the heart of the business. This means that engaging in CSR is directly related to the profitability of an organization, which automatically implicates that engaging in CSR and profitability do not have to exclude each other, but can be complementary (Lantos, 2001; Kourula & Halme, 2008; Porter & Kramer, 2006, 2011). Kourula and Halme (2008) describe this type of CSR as CR Innovation, in which the organization develops a new type of products or service in which CSR is inseparably from this product or service. Within
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this type of CSR engaging the organizations objectives are very clear in contrast to the altruistic type of CSR. The main difference between strategic CSR and other types is that CSR is no longer used as a method to respond to external pressures from stakeholders, but is the core of the organization. This lead to a more beneficial outcome of CSR (Lantos, 2001; Kourula & Halme, 2008), this is also described as the typical win-win situation (Porter & Kramer, 2006; Cohen & Winn, 2007) in which engaging in CSR is a win for the organization, for the society and environment.
To recap, CSR activities define the engagement of an organization in CSR. Although we discussed whether or not CSR activities are integrated to the core of the business, and so are used in a strategic way, the strategy organizations choose to engage in CSR remains undiscussed. The next section will focus on the types of CSR strategies described in the literature. These types are used by organizations in order to gain the full potential of CSR engagement.
2,1,3) CSR strategies.
The types of strategies used by organizations are described in the literature by several authors, but is focussed mainly on creating a competitive advantage. E.g. Porter (1986) describes that organizations should adopt a low relative cost focus or a differentiation focus strategy to create a competitive advantage over other organizations. CSR can be part of both those strategies as CSR can lead to opportunities to increase revenues, and opportunities to decrease costs (Ambec & Lanoie, 2008). CSR as an integrated part of an organizations strategy is discussed by McWilliams, Siegel & Wright (2006) as they identify two strategic implications of CSR: 1) CSR is a form of strategic investment because it can be an integral part of an organizations business and corporate level business strategy, 2) CSR can generate a set of predictions regarding patterns of investment in CSR across firms and industries. The benefit of CSR can be accomplished by adjusting the organizations strategy towards the needs of the society. This is also described as the concept of ‘shared value’ in which value is described as the benefits relative to the costs of. This means that value is created through a interdependence and interaction between society and businesses (Porter & Kramer, 2011).
As described, the different strategies organizations can choose concerning the topic of CSR is plentiful (fig 2). CSR strategies can be focussed on 1): a full integration of CSR. In this case CSR is integrated in the core of the business model (Porter & Kramer, 2006; 2011) to create as much value as possible to gain a competitive advantage over the competitors by ‘doing what is desired’ (Van Tulder, van Wijk & Kolk, 2009). Or 2) a cost focussing strategy in which
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organizations engage CSR into their strategy to minimize their costs by ‘doing what is required’ (van Tulder et al., 2009). To create more overview in the conflicting views on how organization should develop their CSR strategy, van Tulder et al. (2009) developed a model in which they summarize all approaches in one model.
Fig 2. Source: van Tulder et al., (2009)
The in-active approach is typically based upon the thoughts of Friedman (1970) and his shareholder model. Characteristics of this approach that organizations focus on the inside and gain as much efficiencies as possible to gain the biggest competitive advantage. The focus on ‘doing things right’ refers to the responsibility of the organization as ablated by law (van Tulder et al., 2009, p. 401). In this strategy, CSR is referring to corporate self-responsibility and is used for utilitarian means only. The re-active type of strategy is just as the in-active type focussed on the efficiency of the firm. Additionally the re-active type focusses on ‘not making a mistake’, which lead to an outside in orientation in which the environment and primary stakeholders are closely managed and monitored. CSR can be interpreted as Corporate Social Responsiveness (van Tulder et al., 2009 p. 401). The active CSR approach is different than the re-active approach as it is defined as :‘an active approach to CSR is explicitly inspired by ethical values and virtues’. (p. 401). This means that an organization engages in social activities regardless of stakeholder pressures. By ‘doing the right thing’, these organizations are outside focussed and CSR is referred to as Corporate Social Responsibility. The focus in on engaging in CSR regardless of pressures, the ethical values are considered to be the most important. Compared to the active CSR approach, the pro-active approach can be considered an even more progressive CSR approach. ‘We speak of a pro-active CSR approach when an entrepreneur involves external stakeholders right at the beginning of an issue's life cycle. This pro-active CSR approach is characterised by interactive business practices, where an 'inside-out' and an
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'outside-in' orientation complement each other’ (van Tulder et al., 2009 p. 402).
These four types of CSR approaches allow for a clear segmentation between different strategies organization use as they meanwhile incorporate different thoughts upon the role of organizations in society. Although the profitability of CSR is not in focus within this research, it is important to highlight that there is no clear consensus about the profitability of engaging in CSR in the business literature. Barnet and Salomon (2012) discuss the relationship between social performance and financial performances. What they found was a U-shaped relationship between social performance and financial performance. Which indicates that when focussing on financial performance, both sides of the model of van Tulder et al., (2009), ‘corporate self-responsibility’ and ‘corporate societal self-responsibility’ could both be beneficial.
As mentioned before, CSR can generate a set of predictions regarding patterns of investment in CSR across firms and industries (McWilliams et al., 2006). These investment needs to be communicated towards a larger public and the society. The engagement of organizations in CSR is often communicated through the publication of CSR reports or press releases (Kolk & Pinkse, 2010; Du et al., 2010). The adoption rate of CSR reporting under large organization is very high (KPMG survey of corporate responsibility reporting, 2013). Furthermore, corporate responsibility reporting as a way to communicate the CSR activities of MNE’s are very standardized (Kolk, 2003; Kolk & Pinkse, 2010) and usually based upon the triple bottom line; economic, social and environmental (Milne & Gray, 2013).
Due to the absence of (international) governance structure, voluntary initiatives emerged to control whether organizations behave accountable, responsible, transparent and ecological sustainable (Waddock, 2008, p. 87). One of these initiatives that makes sure CSR reporting is guided by the rules and prescriptions is the Global Reporting Initiative (GRI). The standardization of CSR reporting leads to less variety between the reports of different organizations and therefore allows for a better comparison between organizations CSR strategy (Waddock, 2008).
2.1,4) Global integration vs. local adaption.
Organizations that are operating across borders and that engage in international markets need to consider various global and local pressures when developing their strategies. Engaging in CSR can be considered as a way to open new markets (Ambec & Lanoie, 2008; Yu & Choi, 2014), and CSR is gaining importance as a part of strategy development (Paton & Siegel, 2005) Considering the voluntary nature of CSR activities, an international context can be very complicated due to differences in legal issues (Muller, 2006).
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When discussing the topic of CSR strategies, organization have to make choices between developing a CSR strategy through global integration and develop the strategy centrally. Or a more decentralized local adaption strategy (Muller, 2006). In general it is assumed that developing a global strategy creates a greater efficiency, but can also create a lack of ownership and a reduced legitimacy at the local level. On the other hand, a local adaption strategy is adjusted to local needs and pressures, but has the risk of being fragmented and ad hoc (Muller, 2006). A dispersed strategy and a bad integration can lead to ineffective management of corporate environmental issues (Hoffman, 2000). Furthermore, there might be a different (stakeholder) expectation of an organization concerning CSR activities between home and host country.
To summarize, the literature describes different types of CSR strategies organizations use exploit the benefits of CSR. All types of strategies have their own flaws and benefits which means that question remains which type of strategy they should choose. Another important aspect of this research are the stakeholders of an organization. The influence of stakeholders is strongly related to the strategy of the firm (Ambec & Lanoie, 2008; Barnett, 2007). In the next section of the literature review the focus will be on stakeholder theory. What are the important stakeholders of an organization and how do we categorize all the stakeholders of on organization?
2.2) Stakeholder theory
2,2,1) The evolution of stakeholder theory.
The evolution of the CSR theory and literature has developed quite similar to the stakeholder theory. As discussed above, the idea of a multi-responsible firm was described long before Freeman (1984) defined the stakeholder perspective of an organization. Although Freeman (1984) argues that stakeholders should be managed in order to create value, his perspective of the organization was still comparable to the idea of Friedman (1970). According to Freeman (1984), and complementary with the shareholder perspective of Friedman (1970), the main purpose of the firms was still to make profits. From a stakeholder perspective of the organization, there is no difference between social and economic goals. The only focus is the survival of the firm (Lee, 2008). Stakeholders and stakeholder management are viewed as methods to gain competitive advantage, increase profits of the organization and secure its long term goals.
A stakeholder is defined as ‘a group or individual that could affect or can be affected by the achievement of the organizations objectives’. The definition of stakeholders provided by
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Freeman (1984) is very broad, which means that there is a large number of stakeholders. Therefore, this definition is part of the broad view on stakeholders (Mitchell, Agle & Wood, 1987) and is based upon the empirical reality that every stakeholder can affect the organization. Another perspective is the narrow view on stakeholders, which focuses more on the limited resources of organizations and the practical reality. The direct relevance to the firm economic interests is the main focus of narrow view on stakeholders (Mitchell et al., 1997 p. 857).
As Freeman (1984) argues, a firm should manage all its shareholders optimal to gain competitive advantage; it is impossible for managers to account for individual stakeholders. Especially managers working in large international firms, operating in global industries. This is why there is also critique on the stakeholder perspective of the firm. ‘Stakeholder theory argues that managers should take decisions so as to take account for the interest of all stakeholders in a firm’ (Jensen, 2001 p. 8). This is why Jensen (2001) argues that managers should focus on ‘value maximization’, as it accepts the maximization of the long run value of the firm while making trade-offs between stakeholders.
As the evolution and difficulties of stakeholder theory are discussed, in the next section a framework for identifying salient stakeholders will be discussed, and a typology of six salient stakeholders will be introduced before discussing individual salient stakeholder’s types. The integrative aspects of stakeholder theory and CSR will conclude this chapter.
2.2,2) Stakeholder salience
Corporations always have limited resources. In order to best manage the stakeholder interests, they need to prioritize these different interests. Managers prioritize stakeholders according to the salience of stakeholders. Salient stakeholders are important for this research as salient stakeholders have the capacity to influence the organizational engagement in CSR activities (Maigan & Ferrel, 2004). Mitchell et al. (1997) acknowledge the difficulties managers face when accounting for the needs of all stakeholders of the organization.
Research is conducted on the most influential stakeholders by Madsen & Ulhoi (2000). Based on previous research, they describe a model to differentiate between primary and secondary stakeholders. The first group is the primary stakeholders, who are stakeholders with a continuing and direct relation to the firm. Without these primary stakeholders, the firm cannot exist. These stakeholders include: shareholders, customers and employees. The second group represents the secondary stakeholders who ‘can be defined as those who in the past, present or future influence or might be influenced by the firm’s operations without being directly engaged in transactions with the firm in question and thus are not essential for its survival’ (Madsen &
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Ulhoi, 2000 p. 78). These stakeholders include the government, local communities and NGO’s. Within stakeholder theory, an organization can be seen as an actor in a network of relationships. Resources, both tangible and intangible, are being exchanged between actors of which an organization? is dependent. Frooman (1999) describes this as the resource dependency model. As one actor is dependent of the resources another actor possesses, the actor who holds the resources has a source of power over the other actor. This power can be used to put pressure on an organization, for instance on an organizations CSR strategy.
How to prioritize and identify salient stakeholders is described by Mitchell et al. (1997). In order to create overview in the stakeholder salience, a model is developed to identify these salient stakeholders. stakeholders can be categorized on intensity of three types of attributes: Power, Legitimacy and Urgency. (fig. 3)
Fig. 3. Source: (Mitchell et al., 1997)
Power is described and defined in many different articles. Mitchell et al. (1997, p. 865) use the definition of Salancik and Pfeffer (1974:3) and define power as: ‘the ability of those who possess power to bring about the outcomes they desire’. In which power is defined as a variable. Legitimacy is an attribute that is broadly discussed in the literature on the narrow stakeholder view as it deals with the practical reality of constrained resources. Legitimacy is also strongly related to power, but because legitimacy is usually based upon a societal system,
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there is a difference between these two attributes (Mitchell et al., 1997). Legitimacy is defined as ‘a generalized perception or assumption that the actions of an entity are desirable, proper or appropriate within some socially constructed system of norms, values, beliefs an definitions’ (Suchman, 1995, p. 574). Urgency is the factor that makes the identification of salient stakeholders dynamic. ‘Urgency takes place when 1) a relationship or claim is of a time sensitive nature and 2) when that relationship or claim is important or critical to the stakeholder’ (Mitchell et al., 1997 p. 867). Urgency is defined as: the degree to which stakeholder claims call for immediate attention (Mitchell et al., 1997). Combining these attributes (Power, Legitimacy and Urgency) leads eight different types of stakeholders, with a difference in stakeholder salience. Stakeholder salience is the degree to which managers give priority to competing stakeholder claims (Mitchell et al., 1997 p. 869). The more attributes (one, two or three) a stakeholder possesses, the more salient the stakeholder is.
On one hand, stakeholder theory gives no insight in how to prioritize between stakeholders (Freeman, 2001), while on the other hand economic theory provides an insight of limited resources, forcing managers to prioritize between different stakeholders of an organization. The model by Mitchell et al. (1997) helps to identify the source of salience of stakeholders, but does not provide any direct answer to the salience in reality. The next part of this research further discusses literature to provide an answer on what the biggest and most important stakeholders of an organization are when it comes to defining a CSR strategy. 2.2,3) Stakeholder typologies.
Mitchell et al. (1997) identified eight types of stakeholders with each a unique combination of attributes. At first there are the latent stakeholders. These low salience stakeholder types are shown in figure by at number 1 (Dormant), 2 (Discretionary) and 3 (Demanding) and possess one of the three attributes. The moderate salience stakeholder is characterised by possessing two of the three attributes and is called the expectant stakeholder, shown in the figure as number 4 (Dominant), 5 (Dangerous) and 6 (Dependent). The highly salience stakeholder is the stakeholder that possesses all three attributes. This type is called the definitive stakeholder (7) and is shown at the heart of the figure. The last type shown in the figure is called the non-stakeholder, and possesses no attributes at all.
The model of Madsen and Ulhoi (2000) provides a categorization of the primary stakeholders (shareholders, customers and employees) and secondary stakeholders (governments, local communities and NGO’s). The resource dependency theory of Frooman (1999) and the salient stakeholder model of Mitchell et al., (1997) provide the theoretical
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foundation for the identifying salient stakeholders and their source of power they can use to put pressure on organizations. Agle, Mitchell and Sonnenfeld (1999) performed empirical research on this topic. They proved that the attributes of power, legitimacy and urgency are all positively related to stakeholder salience of shareholders, employees, customers, government and communities. All six stakeholder types as identified by Madsen and Ulhoi (2000) have the ability to influence a firm (Agle et al., 1999) except for the influence of NGO’s as this group was left out of scope in the research. Because NGO’s exist to accomplish social or environmental goals, their primary activity is trying to influence organizations to engage in more ethical behaviour.
The next section will focus on the six stakeholder types described by Madsen and Ulhoi (2000). The salience (power, legitimacy and urgency) and claim to the CSR strategy of an organization will be discussed. Specific characteristics of these stakeholders concerning the home country effect will be discussed in chapter 2.3. The current section mainly focuses on the salience of the stakeholders as described in the literature.
Primary stakeholders: Shareholders, Customers and Employees.
Based on a purely economic and legal perspective of the firm, shareholders are the most important stakeholders of an organization since they technically own a part of the organization. There are the type of ‘definitive stakeholders’ (Mitchell et al., 1997) and hold a claim to the organization in power, legitimacy and power. As shareholders generally strive for making profit, their engagement in CSR will be to increase the organizations performance through CSR. The opportunities to decrease costs or increase revenues (Ambec & Lanoie, 2008) engagement in CSR can provide are motivations for shareholders to pressure organizations to develop a CSR strategy that increases the performance of the organization.
Customers are part of the traditional production function of an organization (Agle et al., 1999), but customers can have different characteristics for different organizations. At first we need to differentiate between organizations who engage in direct customer contact and those who do not. Customers are more salient stakeholders for organizations who engage in direct customer contact than organization who do not. For all organization however CSR can be important, because purchase intentions and consumer attitudes are influenced by CSR activities if consumers are aware of these initiatives (Pomering & Dolnicar, 2008). Second, there is a need to differentiate consumers and other business buyers. These buyers work for other organizations who themselves have to be compliant with their stakeholder pressures and requirements. Due to this phenomenon, CSR has become increasingly important to the buying
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relationship (Seuring & Müller, 2008). For salient customers, engaging in CSR is highly important, but organizations need to be careful that customers do not perceive CSR activities as organizational self-interest as this will harm the organization (Mohr, Webb & Harris, 2001).
On average, organizations which have a strong CSR policy are often better able to retain and attract employees (Turban & Greening, 1997). This is important because attracting new talent, stimulating loyalty and increasing motivation can partly explain the contribution of CSR to an organization’s competitive advantage (Branco & Rodrigues, 2006). Furthermore, CSR participation and association might improve the employee-company identification. A higher employee-company identification influences the employee commitment towards the organization. This means that good CSR performance can lead to a positive relationship between the organization and the employees (Kim, Lee, Lee & Kim, 2010) Employees are salient stakeholders because they possess ‘to greater or smaller extent’ (Rodrigo & Arenas, 2008 p. 266) all three attributes of the Mitchell et al. (1997) model.
Secondary stakeholders: governments, local communities and NGO’s.
At first thought it might seem strange that governments as stakeholders of organizations influence a CSR strategy due to the voluntary nature of CSR. However, governments are interested in CSR for five reasons (Stuerer, 2010). First, CSR can help to accomplish policy objectives on a voluntary nature. Haufler (2010 p. 29) notes that these objectives are not purely based on sustainability or environmental protection, but also on goals as development assistance or human development. Second, CSR is regarded as an attractive complement for hard law regulations if new regulations are not feasible or possible (Stuerer, 2010). Third, governments seek to play a more dominant role in defining the concept of CSR. Fourth, corporate governance is developing into a cooperation in which ‘the public role of private enterprises’ becomes increasingly important (Stuerer 2010, p 51). Fifth, CSR is redefining the roles of the public and the private sectors in which the government wants to play an active role.
For NGO’s, or non-governmental organizations, the objective is to make sure that organizations act in a responsible manner towards the environment and society. As Doh and Guay (2006 p. 52) state: ‘NGO’s seek to promote what they perceive as more ethical and socially responsible business practices’. Since the 1980’s onwards, NGO’s gained much power, and are now responsible for major changes in corporate behaviour and governance (Doh & Guay, 2006). There are different types of NGO’s. Some choose to cooperate with organizations, while others choose to confront organizations (Hoffman, 2009). In general, those who cooperate with corporations are usually the most salient. These NGO’s are most influential
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since they have the opportunity to take part in the CSR strategy and development discussion (Spar & La Mure, 2003). Local communities are highly important for organizations, although it is argued that this is becoming less important in a globalizing world (Marquis & Battilana, 2009). Local communities have the power to provide the licence to operate (Gunningham, Kagan & Thornton, 2004). A good CSR policy might help in obtaining this licence to operate. A few examples of CSR activities which support the local community, is the supporting of schools, recreational groups and philanthropic groups (Carrol, 1991).
2.2.4) Stakeholders and CSR.
Although the model of Mitchell et al. (1997) provides managers more insight in the analysis and priority of their stakeholders, it does not provide a categorization of different stakeholders in practice. Neither does it provide insight in the importance of stakeholders and their influence on CSR. This research focuses on salient stakeholders of a MNE in relation to home country effects. Therefore, this paper discusses how different types of stakeholders are related to the CSR policy of an organization.
The stakeholder theory fits perfectly into the concept of CSR (Jones, 1995). As the only focus is the survival of the firm, there is no difference between social and economic goals (Lee, 2008). For managers it is easier to account for the needs of individual stakeholders such as the government, customers, employees or any other stakeholder, than for the society as a whole (Lee, 2008). Numerous articles have described a part of the relationship between an organization’s stakeholders and CSR strategy (e.g: Yu & Choi, 2014; Barnett, 2007; Aguinis & Glavas, 2012; van Tulder et al., 2009). The relationship between stakeholders might work into two different ways (Mitchell et al., 1997). The first is the influence the organization has over the stakeholder. A very concrete example of this is given by the theoretical concept of ‘stakeholder influence capacity’ (Barnett, 2007). This concept is defined as ‘the ability of a firm to identify, act on, and profit from opportunities to improve stakeholder relationships through CSR’ (Barnett, 2007 p. 1306). Building on the foundations of Freeman (1984), Barnett (2007) acknowledges the importance of CSR for organizations by stating that CSR benefits stakeholder’s relationships which will lead to better performance of organizations.
The other way the stakeholder’s organization relationship can work is that of the stakeholder influencing the organization. As the perspective of Barnett is focussing from the company towards the stakeholders, other authors focus on the role of stakeholders and their pressure towards an organization’s CSR activities (Carrol, 1993; Starik, 1994; Brenner; 1995). Stakeholder pressure can force organizations to engage in CSR activities (Clarkson, 1995).
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Although some articles argue that there is a significant relationship between stakeholder pressures and CSR adoption (Henriques & Sadorsky, 1996; Jones &Wicks, 1999), others argue the opposite (Frondel, Horbach & Rennings, 2008). Clear about the relationship between stakeholders and CSR is that managers should distinguish between social and stakeholder issues. Organizations have to deal with stakeholder pressures when it concerns topics of CSR (Clarkson, 1995).
To summarize, stakeholder theory is closely linked to CSR and CSR strategy is somehow related to salient stakeholders. The last aspect of the research question, the home-country effect, will be discussed in the following part of the theoretical framework.
2.3) The EU as home-region.
International organizations have to choose whether they adapt their CSR strategy to foreign cultures and policies or that they choose to maintain their own culture and policy (Muller, 2006). Adjusting to the host region can create benefits through legitimacy reasons, but is costly and dispersed, making it difficult to manage (Muller, 2006; Hoffman, 2000). The opposite CSR strategy, described as a global integration strategy, is based upon the home-region cultures and policy. The home-region of organizations will always have its influence on the organizational culture and behaviour. The home-region will therefore always influence the strategic choices of an organization.
Because this research will focus on the effect of stakeholders on CSR strategies within a specific home-region, it is important to discuss the characteristics of the home region within the topics of CSR and stakeholder theory. In this research, the home region within focus is the European Union (EU). Although the EU is not a country, and has considerable, economic, institutional and legal differences in between different countries of the EU, there is a centrally organized legislation and regulation, which allows evaluating the EU as a whole. In order to avoid discussion between cultural differences between southern and northern Europe, this research will specifically focus on the northern part of Europe, including countries such as Germany, the Netherlands, the United Kingdom, France and the Scandinavian countries. Although this research acknowledges mature economic, institutional, legal and cultural differences between these countries , the northern part of Europe will be approached as one region due to the scope of this paper.
This part of the research first focuses on the home-region characteristics concerning CSR strategies and the stakeholder approach before integrating all topics of the theoretical framework in the concluding remarks.
26 2.3,1) European characteristics
The literature provides indications that European organizations are used to stakeholder involvement (van Tulder et al., 2009). There is a difference in CSR strategies between European organizations and organization operating in the US. European companies score high on a ‘active’ or ‘interactive’ CSR strategy, where US companies engage in more ‘reactive CSR strategies’. “This difference is not only caused by the national legal environment of both groups, but also by a different ethical orientation”. “The difference in approach between US and European companies is particularly remarkable, but could be largely explained for by the bigger involvement of stakeholders”. (van Tulder et al., 2009 p. 408). In part 2.2,3 the stakeholder typologies were discussed according to the primary and secondary identification of Madsen and Ulhoi (2000). As discussed, the salient primary and secondary stakeholders are important because they can influence and pressure organizations (Mitchell et al, 1997; Agle et al., 1999). The salient stakeholder identified, have their own characteristics and motivations within an European context. The next section will discuss the individual European stakeholders characteristics while focussing on the topic of CSR.
Shareholders, customers and employees.
There are differences between the average attitude towards CSR between European shareholders and shareholders in the US. European shareholders usually have a more long-term orientation than US shareholders. Shareholders with a longer-term perspective are more likely to see a organizations CSR behaviour as material for investments (Aguilera, Williams, Conley & Rupp, 2006). European customers (French and German) are on average more willing to support responsible businesses compared to customers in the US (Maigan, 2001). Although all customers in the research conducted were willing to make specific efforts to purchase from a responsible organization. Legal and ethical responsibilities are considered to be more important than economic performance responsibility under European customers (Maigan, 2001). European employees are in most countries represented through the presence of strong unions. The presence of unions represents the high number of profit-sharing schemes among European countries (Pendleton, Poutsma, Brewster & van Ommelen, 2002). Furthermore, Sottorio and Sánchez (2008) found significant differences between European and US companies in their social responsibility towards employees and customers. European organizations outperformed the US organizations.
27 Government, local communities and NGO’s.
When focussing on the EU and their policy on CSR, the European Commission has developed its own definition on CSR: ‘CSR is a concept whereby companies integrate social and environmental concerns in their interactions with stakeholders on a voluntary basis’ (European Commission, 2001). The European Commission is adding to this definition: ‘An increasing number of European companies are promoting their corporate social responsibility strategies as a response to a variety of social, environmental, and economic pressures’. (European Commission, 2001 p. 4). According to Stuerer (2010), the CSR definition and quote provided by the EU can be interpreted as ‘that organization don’t respond well towards these pressures they may in turn suffer from it economically’ (Stuerer, 2010 p. 53). Indicating that the EU does not see the stakeholder and shareholder model as conflicting approaches. Furthermore, the government has the task to make sure working conditions are safe, and good CSR can contribute to this cause. Moreover, within the EU, CSR is a major contributor to European employment (Jonker & Smitpeter, 2005). Sottorio and Sánchez (2008) also found that US companies outperformed the European organizations on taking their social responsibility towards the local community. Furthermore, developing the CSR strategy in cooperation and interaction with NGO’s leads to a higher change of developing an interaction CSR strategy (van Tulder et al., 2009). In Europe, NGO’s and other institutions like the government strongly influence the CSR strategies of organizations (Doh & Guay, 2006).
2.3,2) Concluding remarks.
After this chapter in which the theory of CSR, stakeholders and the home-country effect in Europe is discussed, the conclusion can be made that the theoretical building blocks of CSR, and stakeholders theory are strongly interlinked with each other and have their own European specifics (van Tulder et al., 2009; Stuerer, 2010; Madsen & Ulhoi, 2000; Barnett, 2007; Ambec & Lanoie, 2008; Yu & Choi, 2014).
Organizations choose low-cost or differentiation strategies to create more value (Porter, 1986). For both strategies, CSR is capable to create opportunities for organizations (Ambec & Lanoie, 2008). That is why organizations engage in CSR: to seize opportunities and to create value (Porter & Kramer, 2006, 2011; Ambec & Lanoie, 2008). The activities through which organization engage in CSR can be identified through the model of Lantos (2001), in which CSR activities can be ‘ethical’, ‘altruistic’ or ‘strategic’, but the bigger picture of an organizations CSR, the CSR strategy can be analysed through the model of van Tulder et al. (2009). Between the different types of CSR activities identified by Lantos (2001) and Kourula
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and Halme (2008), a logical comparison can be made to the CSR strategy model of van Tulder et al., (2009). As van Tulder et al. (2009) identified four types of CSR strategies organization use to engage in CSR; In-Active, Re-Active, Active and Pro/Inter-active. The question arises whether organizations choose to engage in CSR activities because this matches their CSR strategy, or the other way around. What is clear from the literature is that CSR strategies can be influenced by salient stakeholder pressures (Madsen & Ulhoi, 2000; van Tulder et al., 2009). Salient stakeholders are not only stakeholders with a claim to firm in the present. As both Mitchell et al. (1997) and Madsen and Ulhoi (2000) acknowledge, time is an important factor for the salience of stakeholders. Through the concept of urgency (Mitchell et al., 1997) and the acknowledgement of past, future and present claims of stakeholders (Madsen & Ulhoi, 2000) it becomes clear that the pressures of stakeholders are time-related. Furthermore, it seems logic that stakeholders push or pressure organizations to engage specific CSR activities, not strategies because CSR activities can be directly linked to a stakeholder’s goal or objectives. Furthermore it is important to acknowledge that not only stakeholders might influence an organizations CSR strategy, organizations engage in CSR in order to influence stakeholders gain more value. It is hard to argue that all stakeholders can influence a CSR strategy, or organizations try to influence every stakeholders. This research focusses only on salient stakeholders and how they influence organizations. The salience of stakeholders can be identified by analysing the power, legitimacy and urgency of the stakeholders (Mitchell et al., 1997). Madsen & Ulhoi, (2000), make a differentiation between primary stakeholders (shareholders, customer and employees) and secondary stakeholder group (governments, local communities and NGO’s). Both stakeholder groups, primary and secondary, have the ability to put pressure on an organization CSR strategy. All six stakeholder types as identified by Madsen & Ulhoi (2000) have the ability to influence a firm, but they will all have their own goals and objectives when influencing a firm to engage in CSR activities. This is why different stakeholders will probably pressure organizations to engage in different kinds of CSR activities.
As this research will focus on the salient home-region stakeholders and their effect on an organization CSR strategy, the European characteristics are important for this research. Europe has some very unique characteristics concerning CSR and stakeholder theory. The focus is on the stakeholder groups identified in the by Madsen & Ulhoi (2000). The literature provided some characteristics of Europe as a home-country in through which it became clear that CSR strategies are highly developed in Europe and that European organizations are more used to deal with towards stakeholder pressures (van Tulder et al., 2009; Doh & Guay, 2006; Stuerer, 2010).
29 3) Working propositions.
The previous chapter focussed on discussing the literature on CSR, stakeholder theory within a European context. It became clear that there is an interaction between stakeholders and organizations concerning topics of CSR. Stakeholders pressure for CSR activities which are part of the CSR strategy of organizations. Based on the building blocks of this chapter; CSR, stakeholder theory and the home-country effect, a number of eight working propositions will be introduced. As every working proposition represents a part of the research question, they can be considered as small components of the research question. Due to their smaller size it will become manageable to use the working propositions during the data analysis. Linking the working propositions together, the research question of this research will be addressed. Furthermore, this chapter will provide an overview of the working propositions and a conceptual research model will be presented.
3.1) CSR strategy identification.
As discussed, CSR has a voluntary nature and is related towards social, environmental and economic factors. Despite the voluntary nature of CSR, not engaging in CSR can seriously harm the organization (Banerjee, 2008). This is why an organization can use CSR as a defence towards stakeholder pressures. Porter (1986) described the cost focus or differentiating focus strategy of organization as the two possible solutions for organizations to accomplish a competitive advantage. Comparable to the cost-focus classification of Porter (1986), a defensive strategy can compared to the in-active, or re-active strategy as described in the model of van Tulder et al. (2009) because both types of strategy focus on the economic responsibility of the organization. Furthermore, both strategies look see the outside world as a given to which the organization needs to respond. Concerning an organizations CSR strategy typology, it is important to investigate the first proposition:
WP1a: An organization with a defensive (in-active + re-active) CSR strategy is driven by legitimation reasons and tries to defend its image or reputation.
Opposed to using CSR as a defence strategy as described by Banerjee (2008), other authors emphasize on the strategic opportunity a CSR strategy can provide (Ambec & Lanoie, 2008; Barlett, 2007) and the social and economic or wellfare it can create (Porter & Kramer, 2011; van Tulder et al., 2009) by integrating CSR activities into the core or the business operation. According to the literature this means that CSR is directly related to the profitability of the organization. Not only can CSR be used for strategic purposes, CSR can also contribute to the
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profitability of the firm (Lantos, 2001; Kourula & Halme, 2008). This offensive perspective of CSR can be compared to the differentiation focus described by Porter (1986). Van Tulder et al. (2009) described CSR strategies that integrate CSR into the core of the business while adding value as the active and pro-active strategies describe. In this research these two typologies will be described as offensive CSR strategies. The offensive strategies are used by organization to seize business opportunities as described by Ambec and Lanoie (2008). Strategic CSR activities are aimed at creating value or wellfare through CSR there is a possible benefit to accomplish for both the organizations objectives as the stakeholders objectives. Within the European context, where organizations are more used to stakeholder influence (van Tulder et al., 2009) and the stakeholders have pro-CSR characteristics as described in the literature (European Commission, 2001; Maigan, 2001; Stuerer; 2010; Doh & Guay, 2006). It is through that reason that the next working proposition is:
WP1b: An organization with an offensive (active + pro-active) CSR strategy tries to create value by integrating CSR into the business objectives.
Defining CSR strategies into offensive and defensive strategies makes it easier to understand the different purposes CSR is used for by organizations. However, the execution of the different strategies is done through the actual CSR activities performed by organizations. Lantos (2001), and Kourula & Halme (2008) both made a comparable model to identify and characterise CSR activities. In this research, the typology of Lantos (2001) will be used. Organizations use altruistic CSR activities to protect their image or to protect their reputation (Lantos, 2001). Altruistic CSR contain activities that are easy for organization to engage in because it is not related to their business operations. Ethical CSR activities are used by organizations to minimize their risks on receiving a fine, or suffering from bad publicity (Lantos, 2001). These motivations can be considered as part of defensive strategies because ethical CSR is expected within the society. Besides the use of ethical CSR for defensive motivations. Ethical CSR is also used in offensive strategies. In example; engaging in ethical CSR can gain legitimation for an organizations business operations (DiMaggio & Powel, 1983; Yu & Choi, 2014). Furthermore, like all types of CSR activities, ethical CSR activities can lead to defensive opportunities for reducing cost through better risk management and relations with external stakeholders, and opportunities to reduce the cost of capital and the cost of labour (Ambec & Lanoie, 2008). The model of Lantos (2001) and the description of the different characteristics of CSR activities have led to the following working proposition:
