An explorative study into the credibility-‐enhancing CSR strategies
that are employed by the Big Four audit corporations
STUDENT: STEFANIA DANIOLOS STUDENTNUMBER: 10675116
STUDY: MSC BUSINESS ADMINISTRATION (STRATEGY)
UNIVERSITY: UNIVERSITY OF AMSTERDAM, FACULTY OF BUSINESS ECONOMICS THESIS SUPERVISOR: LARS MORATIS
Table of Contents……….……..………….……… I
List of tables……….………..………….….. II
List of figures……….……. III
Abstract……….……….…………..…. IV
1. Introduction……….……….………...………..….…... 1
1.1 The Curious Case of Corporate Social Responsibility……….……….. 1
1.2 Research Question & Research Objectives……….………..……... 3
1.2 Scientific and Practical Relevance……….……... 4
1.3 Reader’s Guide……….……….……...…... 5
2. Contextualisation of Enhancing CSR Credibility……….………...….. 6
2.1 CSR – An ambiguous, complex concept………..….. 6
2.2 CSR Engagement Approaches……….……….… 7
2.3 CSR Motives……..……….………..………..……….…..….….. 9
2.4 CSR Development Stages..……….……….……….. 10
3. Enhancing CSR Credibility………..………...………...………..….…... 13
3.1 Relevance of Enhancing CSR credibility as a research subject..……….. 13
3.2 What defines the credibility of a CSR engagement?... ….. 16
3.3 Enhancing CSR Credibility by adhering to CSR Standards……….…... 18
3.4 Other Credibility-‐enhancing CSR Strategies………..……….... 21
3.4.1 Stakeholder Engagement……….….. 22 3.4.2 Stakeholder Dialogue……….….…. 23 3.4.3 Transparency……….………..….. 23 3.4.4 Third-‐Party Judgement……….………... 24 3.4.5 Association………..……….……… 25 3.4.6 Partnering………..………..… 26
3.4.7 Materiality or Focus………...……….. 26
3.5 Conceptual Model………..……….………….………….. 27
4.2 Description of the Big Four audit corporations………..….…... 30
5. Empirical Findings..……….…….……….….………. 32
5.1 Perceptions of the Credibility of CSR engagement………. 32
5.2 Credibility-‐enhancing CSR strategies in practice……….. 34
5.3 Contextual factors influencing the choice of strategies……….. 49
6. Discussion and Conclusion……….…….……….…………..…………....….. 54
6.1 Discussion……….….……….……….…….………..….. 54
6.2 Conclusion…………..……….……….……… 56
6.3 Limitations and recommendations for future research……...……… 57
I. References………..……….….………..………..……..….. 58
II. Appendices……….……..……….…….…... 62
Appendix A: Interview Protocol……….……..……….……... 62
Figure Description Page 1 The Pyramid of Corporate Social Responsibility
(Carrol, 1991)
8 2 Stages of Growth Model for Corporate Social Responsibility
(Ditlev-‐Simonson & Gottschalk, 2011)
12 3 Credibility Gap persists around companies’ CSR communications
(GlobeScan, 2013)
15 4 Credibility of CSR: The alignment of CSR activities and CSR claims
(Becker-‐Olsen et al., 2005)
17 5 Seven Credibility-‐Enhancing Strategies for CSR Engagement
Moratis, 2015).
22
6 Conceptual Model based on the theoretical framework 27
List of Tables
Table Description Page
1 The Ages and Stages of CSR (Visser, 2011)
11 2 Greenwashing Tactics
(Laufer, 2003)
14 3 Typology of Firms based on Environmental Performance and Communication
(Delmas & Burbano, 2011)
15 4 Prominent CSR Standards
Derived from Gilbert, Rasche & Waddock (2011) and Moratis & Widjaja (2014). 20 5 General facts about the Big Four audit corporations
Derived from annual reports of the corporations
31 6 Summary of empirical evidence on CSR engagement, CSR Motives
and CSR development of the Big Four corporations
50
As stakeholders are more aware of CSR and are valuing corporations that incorporate CSR into the business, corporations are massively engaging in CSR. Various corporations are actually conducting business in an environmentally, ethically and socially responsible manner; nevertheless, in reality a huge number of corporations are falsely claiming their CSR engagement in order to reap of the benefits of the so-‐called ‘green’ markets. In order for corporations to avoid the greenwashing label, to build corporate trust and to reduce stakeholder scepticism towards corporate CSR engagement, corporations should make their CSR engagement credible. Corporations can pursue multiple strategies to enhance the credibility of their CSR engagement and to validate and substantiate CSR claims. The main purpose of this research is to provide empirical evidence of the credibility-‐enhancing CSR strategies identified by Moratis (2015), by exploring the practical usage of these credibility-‐enhancing CSR strategies in the context of the Big Four audit corporations (PwC, EY, Deloitte, KPMG). An exploratory, qualitative research study is conducted by means of combining an academic literature review with empirical research.
Keywords: Big Four audit corporations, corporate CSR engagement, credibility-‐enhancing CSR strategies, CSR credibility, Deloitte, EY, greenwashing, KPMG, PwC.
1.
INTRODUCTION
1.1 The Curious Case of Corporate Social Responsibility
During the last decade, the view on the role, purpose and responsibilities of business has transformed and improved radically. Formerly, the business environment was dominated by the shareholder approach, where corporations were mainly responsible for the wealth of shareholders and thus generating profits for the business (Smith, 1776; Schumpeter, 1942), and were social responsibility was the main task of governments (Friedman, 1962; Friedman, 1970; Jensen, 2002). The foundations of CSR emerged during the 1950s, where Bowen (1953) argued that corporations have more responsibilities rather than generating and maximizing profits; corporations should be conscious about their effects on society and should conduct business in an ethical, social and responsible manner. The shift from a shareholder view to a stakeholder view on business emerged with the research of Freeman (1984). Freeman (1984) highlighted the fact that all stakeholders should be taken into account in order to maximize overall firm performance; corporations that embraced a focus on the interest of shareholders as well as a focus on the interest of stakeholders, would achieve greater economic performance compared to corporations focusing solely on the shareholder’s interest (Carrol, 1979; Freeman, 1984; Pfarrer, 2010). More recent studies of Porter & Kramer (2006, 2011) have addressed the CSR concept from a more societal point of view, were corporations are seen as integral entities that have the responsibility to bring business and society back together, by means of reconnecting corporate performance (economic value) with social progress (societal value). This societal approach to CSR allows corporations to “rethink their position and act in terms of the complex society of which they are part of“ (Van Marrewijk, 2003).
Since these concepts were discussed in management literature, it created more awareness in today’s society by capturing the attention of governments, corporations, investors, communities, suppliers, laborers and consumers on global level. This awareness have caused huge pressures on the current business environment, where corporations are forced to anticipate and conduct business in an environmental, ethical, legal and social manner (Kramer & Porter, 2006). As a result of this and since stakeholders are valuing corporations that incorporate CSR into the
business; corporations are massively engaging in CSR in order to demonstrate it to the external environment (Comfort, Hiller & Jones; 2006). Research of several authors have indicated that CSR engagement could be favourable for a corporation’s image and reputation and consequently could lead to more profitable economic performances, by means of increased sales and market share, acquired brand differentiation and obtained cost stavings (Kotler & Lee, 2005; Comfort et al., 2006; Kramer & Porter, 2006; Gallego-‐Alvarez et al., 2008). Various corporations are actually conducting business in an environmentally, ethically and socially responsible manner; in reality a huge number of corporations are falsely claiming their CSR engagement in order to reap of the benefits of the so-‐called ‘green’ markets (Delmas & Burbano, 2011). Corporations that are falsely claiming their CSR engagement, are perceived to be misleading and are labeled as greenwashing corporations (Welford, 2005; Bazillier & Vauday, 2009). According to Delmas & Burbano (2011), “Greenwashing is the act of misleading consumers regarding the environmental practices of a company (firm-‐level greenwashing) or the environmental benefits of a product or service (product-‐ level greenwashing)”. The rising existence of corporations that are involved in greenwashing practices, by falsely stating their CSR engagement, have caused stakeholders to question corporate honesty and have caused a lack of trust and credibility of corporate CSR engagement in general (Laufer, 2003; Furlow, 2010; Elving, 2012; Finkelstein, 2013). The study of GlobeScan (2013) provided empirical evidence on the perceived lack of trust and credibility by stakeholders. Results of this research implied that only 38% of the respondents believed that corporations are honest about their CSR claims and viewed their CSR engagement as credible. Additionally, most respondents demonstrated that corporations engage in CSR to improve the corporate reputation. In order for corporations to avoid the greenwashing label, to build corporate trust and to reduce stakeholder scepticism towards corporate CSR engagement, corporations should first make their CSR engagement credible. While multiple research studies are conducted on the clarification, classification and conceptualization of the CSR concept, the topic of CSR credibility gained less scholarly attention (Moratis, 2015). However, the research study of Becker-‐Olsen, Cudmore & Hill (2005) provided valuable insights on CSR and consumer behaviour and results demonstrated that corporations need to acquire a certain alignment between the CSR objectives/claims and the CSR activities, in order for consumers to accept the CSR initiatives and
to evaluate them as credible. The study of Ramus and Montiel (2005) implied that corporations are perceived to be credible when the CSR engagement is in accordance with the actual CSR implementations. The research of Moratis (2015) indicated that corporations could employ multiple strategies to enhance the credibility of their CSR engagement. This scholar acknowledged the importance of legitimating CSR engagement, in order to increase the reputation and trustworthiness of corporations, and therefore identified several credibility-‐enhancing CSR strategies that corporation could pursue in order to obtain credibility of their CSR engagement and to substantiate CSR claims. Even though the concepts of CSR credibility and enhancing CSR credibility gained less scholarly attention, valuable insights in these concepts are provided. What is mainly unexplored is the practical manifestation of the credibility-‐enhancing CSR standards identified by Moratis (2013); so identifying to what extent the credibility-‐enhancing CSR strategies are actually employed in practice. Additionally, the current literature on enhancing CSR credibility lacks empirical evidence that provide relevant insights from practices to add value to the current academic debate.
1.2 Research Question & Research Objectives
The article of Moratis (2015) identified several strategies for enhancing the credibility of corporate CSR engagement that form the foundations of this research. Consequently, the main purpose of this research is to provide empirical evidence of the credibility-‐enhancing CSR strategies identified by Moratis (2015), by exploring the practical manifestations of these credibility-‐enhancing strategies in the context of the Big Four audit corporations. This research focuses on the Big Four audit corporations operating in the Netherlands, namely PwC, EY, Deloitte and KPMG. All four corporations established a prominent and outstanding position in the audit sector in the Netherlands; nevertheless these corporations are also the main players on global level. There is no scientific basis for the choice of these corporations; these corporations were chosen based on personal interest and personal motives. However, it must be acknowledged that it is quite interesting to see what strategies the Big Four audit corporations use in order to validate and substantiate their CSR engagement for the overall purpose of enhancing the credibility of their CSR engagement. Since all the four corporations established a credible reputation and are well
known for the independent verification, validation and assurance of financial statements (DeAngelo, 1981; Becker et al., 1998), it is noteworthy to examine if their CSR engagement and CSR claims are validated and substantiated in the same manner. This leads to the following research question; “What strategies do the Big Four audit corporations employ to enhance the credibility of their CSR engagement?”. To structure this research and to address the research question, several objectives were formulated. The first objective is to discuss the fundamentals of CSR and to examine the concept of CSR credibility, to provide an overview of academic literature and to provide a context for the initial research topic on enhancing CSR credibility. The second objective is to investigate what strategies are available to corporations for enhancing the credibility of corporate CSR engagement. A distinction is made between credibility-‐enhancing CSR strategies that are based on CSR standards and other credibility-‐enhancing CSR strategies identified by Moratis (2015). The third objective is to empirically examine what credibility-‐ enhancing CSR strategies are actually employed in practice by the big four audit corporations. The last objective is to empirically investigate what credibility-‐enhancing CSR strategies are perceived as most credible and legitimate, and can thereby be seen as most effective in practice, by the Big Four audit corporations. Additionally, it will be examined if certain contextual factors have an influence on the choice of credibility-‐enhancing strategies.
In order to find an answer to this exploratory study and to accomplish the formulated objectives, qualitative research is conducted by means of combining an academic literature review with empirical research. The first two objectives are realized by developing a theoretical framework, based on an extensive academic literature review. The last two objectives are realized by conducting empirical research, by taking interviews with the corporate sustainability managers of the Big Four audit corporations.
1.3 Scientific and Practical Relevance
The scientific relevance of this study lies in the fact that it provides valuable insights in a rarely investigated topics of CSR credibility and enhancing CSR credibility. Additionally, it provides an overview of all the credibility-‐enhancing CSR strategies that corporation can employ In order to
study, this study also has a practical relevance. What is mainly unexplored is the practical manifestation of credibility-‐enhancing CSR strategies; so the identification of credibility-‐enhancing strategies that are actually being employed by corporation. The purpose of this research is to provide empirical evidence on the identified credibility-‐enhancing CSR strategies. The empirical results of this research provide corporations with practical insights in how to make their CSR engagement credible and how to enhance the credibility of their CSR engagement. Additionally, it can help corporations in selecting credibility-‐enhancing strategies that are perceived as most credible, legitimate and effective in practice. Furthermore, it can similarly serve as a foundation to guide corporations in choosing appropriate strategies for specific types of CSR claims.
1.4 Readers’ Guide
This thesis entails six chapters; together they will provide an elaborate view on the topic of this thesis and will provide an answer to the research question. The second chapter will provide an overview of insights into the existing literature on CSR, to demonstrate the context of the initial research topic. The third chapter will provide insights into the existing literature on the main concepts of CSR credibility, to legitimize the chosen research topic of enhancing CSR credibility. Additionally, the fourth chapter will discuss the research methodology that has shaped this research. The fifth chapter will demonstrate the empirical findings of this qualitative research study that provides relevant insights from practice that will add value to the current academic debate. Conclusively, a discussion and conclusion with limitations will be provided.
2.
CONTEXTUALISATION OF ENHANCING CSR CREDIBILITY
In order to answer the research question “What strategies do the Big Four audit corporations employ to enhance the credibility of their CSR engagement?” it is essential to provide academic insights in the literature on CSR. This subsequent section provides an overview of the most relevant views of prominent scholars on the evolution, clarification, classification and conceptualization of the CSR concept, to provide a context of the initial research topic on enhancing CSR credibility.
2.2 CSR – An ambiguous, complex concept
CSR is seen as a confusing and unclear topic, due to the numerous terminologies that have emerged over the years (Van Marrewijk, 2003). Various scholars have attempted to explain this global topic, in spite of this attempt no uniform definition, classification or conceptualization has developed (Okoyee, 2009; Moratis & Van der Veen, 2010). Gobbels (2002) and Dahlsrud (2008) even stated that a uniform definition cannot be developed, since CSR is ambiguous and is dependent on the perceptions and interpretations of individuals. Van Marrewijk (2003, 2008) indicated that, in order to comprehend the concept of CSR, a distinction must be made between CS and CSR. Whereas, CS is seen as “the ultimate goal: meeting the needs of the present without compromising the ability of future generations to meet their own needs” (Brundtland, WCED, 1987), CSR is defined as “a management approach that takes into consideration a set of indicators that maps the firm’s impact and reciprocal effects within the realm of its economic societal, and environmental existence” (Waldman, Kennet & Zilberg; 2007). Therefore, CSR can be seen as a step or tool to realize overall corporate sustainability, by integrating the Triple Bottom Line (People, Planet, Profit) into a corporate strategy (Elkington, 1994; Van der Rijt, Hoeken & Kardol, 2011). Instead of attempting to define CSR, Dahlsrud (2008) analyzed multiple definitions of CSR in order to identify mutual aspects of CSR. Results of this study indicated that no uniform definition could be produced; nevertheless five common dimensions of the CSR concept can be acknowledged, namely an environmental, social, economic, stakeholder and voluntariness dimension. Comparably, Rahman (2011) identified ten dimensions of CSR and stated that CSR
means having an obligation to society; involving stakeholders; improving the quality of life; conducting ethical business; abiding the laws; engaging in voluntary projects; secure human rights; protect the environment; provide transparency and accountability.
The International Organization for Standardization (2010) provided an international consensus on the meaning of CSR and defines CSR as the “responsibility of an organization for the impacts of its decisions and activities on society and the environment, through transparent and ethical behaviour that contributes to sustainable development, including health and the welfare of society; takes into account the expectations of stakeholders; is in compliance with applicable law and consistent with international norms of behaviour; and is integrated throughout the organization and practiced in its relationships”. In this study, the definition of CSR by ISO (2010) is seen as the most relevant, since it is viewed as a globally recognized explanation and entails all the identified dimensions of Dahslrud (2008) and Rahman (2011). Conclusively, there is no consensus among scholars to indicate a uniform definition of CSR since it is an ambiguous concept, however the central message of CSR is clear to most corporations (Russel, 2010; Shafiqur, 2011).
2.3 CSR Engagement Approaches
Corporations are facing huge pressures from the external environment, since stakeholders are more aware of CSR and are forcing corporations to incorporate CSR into the business (Kramer & Porter, 2006). Consequently, most corporations anticipate by massively engaging in CSR in order to demonstrate that business is conducted in an environment, ethical, legal and social manner (Comfort et al., 2006). However, the acknowledgement must be made that corporations vary in their CSR engagement approaches; how these corporations assess the importance of CSR and how they apply and implement CSR into their business. A number of scholars classified and conceptualized the CSR engagement approaches. The earlier work of Carrol (1991) demonstrated that corporations have 4 main responsibilities when conducting a sustainable business: economic responsibility, legal responsibility, ethical responsibility, and philanthropic responsibility (figure 1). The pyramid of Carrol (1991) reflects the different types of CSR engagement approaches; the higher you go in the pyramid, the higher the level of CSR engagement (Carrol, 1991).
Figure 1: The Pyramid of Corporate Social Responsibility (Carrol, 1991).
Another attempt was done by Van Marrewijk (2003), who similarly made a distinction between the different CSR engagement approaches by identifying five stages of corporate CSR engagement: compliance-‐driven, profit-‐driven, caring, synergistic and holistic corporate sustainability. Ultimately, corporations should aim to achieve the 5th holistic stage, where CSR is well addressed and fully integrated into all the facets of the corporation. Maon et al. (2010) implied that organizational culture is essential for the development of corporate CSR engagement, since corporations need to develop a CSR supportive and value-‐driven culture in order to successfully integrate CSR in to the corporation.
Van Tulder & Van der Zwart (2006) emphasized on the level of activeness of integrating CSR into the business and suggested four types of CSR engagement: in-‐active, re-‐active, active and pro/inter-‐active. The ‘in-‐active’ type suggests that the corporation is concerned with doing the right thing from an inside-‐in perspective, by complying with the law and by having a focus on economic responsibility. The ‘re-‐active’ type indicates that the corporation is concerned with not making any mistakes from an outside-‐in perspective, by monitoring the environment and by managing their primary stakeholders. The ‘active’ type implies that the corporation is concerned with doing the right things from an inside-‐out perspective, by realising the corporate objectives in a socially responsible manner. The ‘pro/inter-‐active’ type suggests that the corporation is concerned with doing the right things right from an in-‐outside-‐in/out perspective, by constantly
Philantropic
Ethic
Legal
Economic
involving stakeholders and by having a focus on maximizing social welfare (Van Tulder & Van der Zwart, 2006).
2.4 CSR Motives
Academic research indicated that corporations have different drivers that influence their CSR engagement (Porter & Kramer, 2006; Pfarrer, 2010); some corporations engage in CSR in order to avoid negative impacts and to reap of the economic benefits of the so-‐called ‘green’ markets, while other corporations engage in CSR in order to maximize economic welfare as well as social welfare (Furlow, 2009; Delmas & Burbano, 2011).
Graafland & Van der Duijn Schouten (2012) distinguished three motives that influence the CSR engagement of corporations: financial motives, ethical motives and altruistic motives. The financial motives where highlighted by these scholars, since engaging in CSR contributes to the long-‐term financial performance of corporations. Comfort et al. (2006) and Kotler & Lee (2005) similarly indicated that CSR engagement could be favourable for a corporation’s image and reputation and consequently could lead to more profitable economic performances. Kramer & Porter (2006) and Gallego-‐Alvarez et al. (2008) even implied that pursuing a long-‐term sustainable strategy could positively benefit corporations by means of increased sales and market share, due to improved corporate reputation; enhanced customer and employee engagement; acquired brand differentiation and obtained cost savings. Correspondingly, Margolis & Walsh (2003) and Orlitzky, Smidt & Rynes (2003) identified positive empirical relationships between corporate CSR engagement and increasing financial performance of corporations, nevertheless various scholars have also contested this relationship by demonstrating neutral and negative relationships between these variables (McWilliams & Siegel, 2001; Devinney, 2009; Visser 2011). Moreover, Graafland & Van der Duijn Schouten (2012) demonstrated that ethical motives could also be a driver for corporations to engage in CSR, since most corporations find it a moral duty to engage in CSR. At last, these scholars identified that corporations can also have altruistic motives, where corporations engage in CSR for the reason that “they enjoy helping others or want to contribute to the common good form a genuine concern of the well-‐being of others” (Graafland & Van der Duijn Schouten, 2012). Siegel (2009) demonstrated that engaging in CSR solely out of ethical and
altruistic motives are ruthless strategic decisions, since the main driver of engaging in CSR is to strengthen organisational strategic goals.
In comparison to the research of Graafland & Van der Duijn Schouten (2012), the earlier research of Husted & Salazar (2006) acknowledged an additional motive that drives corporations in engaging in in CSR, namely the pressure of the external environment. Husted & Salazar (2006) stated that CSR motives could be of a strategic nature (financial benefits), altruistic nature (moral obligations), or coercive nature (pressure of external environment). Decisively, the acknowledgement must be made that CSR motives of corporations are complex and difficult or even impossible to observe (Babiak & Trandafilova, 2011).
2.5 CSR Development Stages
Various scholars have studied the differences of corporate CSR engagement and have attempted to conceptionalize these differences in terms of growth stages. Winn and Angell (2000) developed a ‘basic’ three-‐stage model of CSR and stated that CSR process goes from awareness to commitment to implementation. Castello & Lozano (2009) and Maon et al. (2010) correspondingly developed a basic model of CSR development phases, however it can be acknowledged that the contents are similar. Prominent research of Visser (2011) provided new insights and developed a more elaborated framework of CSR developed stages by emphasizing on the integration aspect of CSR. This scholar identified five economic periods of CSR with five complementary stages of CSR, namely: defensive CSR, charitable CSR, promotional CSR, strategic CSR and systemic CSR (table 1). Ultimately, corporations want to achieve the fourth or fifth CSR development stages. The ‘Strategic CSR’ stage illustrates corporations that embrace CSR by means of fully integrating CSR into the business strategy and by constantly measuring, auditing and improving the CSR engagement. The last stage ‘Systemic CSR’ is defined by pro-‐active behaviour to develop new CSR policies and to innovate current business models to fully implement CSR initiatives and practices into the corporation. Practically, these corporations ‘change the rules of the game’ and challenge social issues and problems by its source to increase overall welfare for human and society.
Table 1: The Ages and Stages of CSR (Visser, 2011).
Another attempt to conceptualize the CSR development stages was done by Ditlev-‐ Simonson & Gottschalk (2011). These scholars developed an extensive model CSR development stages and identified three initial CSR stages (first movers, doers and changers) with three follow-‐ up CSR stages (followers, reporters and responders). The results of this research implied that corporations could follow different paths and move contrarily through these stages, whereas the three initial stages involve more active CSR engagement compared to the passive CSR engagement of the three follow-‐up stages (figure 2). Corporations that are just starting to engage in CSR, by acting socially responsible and by developing CSR initiatives and practices in order to be more transparent, characterize the ‘first movers’ stage. The ‘Followers’ stage encloses corporations that “behave as other corporations do in the field of CSR” (Ditlev-‐Simonson & Gottschalk, 2011); these corporations view CSR as a method for legitimacy purposes. Corporations that are truly engaging in CSR and are actively searching for business improvements by means implementing CSR into the corporate business and by setting up measurable CSR programs and targets, describe the ‘Doers’ stage. The ‘Reporters’ stage is illustrated by a “CSR engagement that might look good from the outside” (Ditlev-‐Simonson & Gottschalk, 2011); corporations are actively reporting about their CSR engagement, but actually are passive in practice and are not that social responsible as they are claiming to be. The ‘Changers’ stage is characterized by corporations that are seen as leaders and innovators in the field of CSR engagement, where corporations are pro-‐ actively engaging with internal and external stakeholders to develop CSR policies and to change the current business environment. Corporations that respond to CSR regulations and initiatives
Economic Age Stage of CSR Modus Operandi Key Enabler Stakeholder Target
1. Greed Defensive Ad hoc Interventions Investments Shareholders, Government and Employees
2. Philanthropy Charitable Charitable Programmes Projects Communities
3. Marketing Promotional Public Relations Media General Public
4. Management Strategic Management Systems Codes Shareholders and NGOs/CSOs 5. Responsibility Systemic Business Models Products Regulators and Customers
developed by leading corporations describe the ‘Responders’ stage. These corporations are actively engaging in CSR on a high level, however can be seen as adapters to changes in the business environment.
Figure 2: Stages of Growth Model for Corporate Social Responsibility (Ditlev-‐Simonson & Gottschalk, 2011)
This section provided an overview of the most prominent academic literature on CSR (the concept of CSR; the CSR engagement approaches; the CSR motives; and the CSR development stages) with the purpose of contextualizing the initial research subject of CSR credibility. Conclusively, all the above discussed theoretical insights narrowed the gap in the literature of the clarification, classification and conceptualization of CSR, nevertheless it is still acknowledged that CSR is and will be an ambiguous and vague concept in the future, since it is bounded by perceptions and interpretations of individuals (Gobbels, 2002 & Dahlsrud, 2008). The contextual factors discussed in this section, will be used in the interview to explore if they have an influence on the choice of strategies of the Big Four audit corporations. However, no academic literature is found on this relationship and could therefore be seen as exploratory.
3
.
ENHANCING CSR CREDIBILITY
In order to answer the research question “What strategies do the Big Four audit corporations employ to enhance the credibility of their CSR engagement?” it is essential to investigate the concept of CSR credibility. Consequently, the subsequent section provides an overview of academic literature on enhancing CSR credibility; the relevance of enhancing CSR credibility as a research subject will be discussed, as well as a definition of CSR credibility will be delivered. Additionally, academic insights will be provided on the strategies that corporations can employ to enhance the credibility of corporate CSR engagement. The acknowledgement must be made that in comparison to the extensive research on CSR, the concept of CSR credibility gained less scholarly attention. For this reason this section provides limited yet valuable theoretical insights into the topic of enhancing CSR credibility.
3.1 Relevance of Enhancing CSR Credibility as a research subject
As stakeholders are more aware of CSR and are valuing corporations that incorporate CSR into the business, corporations are massively engaging in CSR in order to demonstrate it to the external environment (Comfort, Hiller & Jones; 2006). Various corporations are actually conducting business in an environmentally, ethically and socially responsible manner; nevertheless, in reality a huge number of corporations are falsely claiming their CSR engagement in order to reap of the benefits of the so-‐called ‘green’ markets (Delmas & Burbano, 2011). As discussed in section 1.3, engaging in CSR could be favourable for a corporation’s image and reputation and consequently could lead to more profitable financial performances (Comfort et al, 2006; Kotler & Lee, 2005) Corporations that are over-‐communicating their CSR engagement, thus falsely claiming or unsubstantiating their CSR engagement, are perceived to be misleading and are labeled as greenwashing corporations (Welford, 2005; Bazillier & Vauday, 2009). According to Furlow (2009), “Greenwashing is the dissemination of false or incomplete information by an organization to present an environmentally responsible public image”. Delmas & Burbano (2011) acquired a more specific definition, where “Greenwashing is the act of misleading consumers regarding the environmental practices of a company (firm-‐level greenwashing) or the environmental benefits of a product or service (product-‐level greenwashing)”. Laufer (2003) acknowledged this concept and
distinguished three CSR communication tactics that are used by corporations to purposely engage in corporate greenwashing, by protecting the corporation against internal and external liabilities (table 2).
Internally Externally
Confusion
Flows naturally as a consequence of decentralized decision-‐making, and the practice of managerial winking.
Achieved by careful document control and strict limits on the flow of
information made available to regulators and prosecutors.
Fronting
Accomplished through the representations of retained counsel, compliance officers, ethics officers, and ethics committees.
Realized by subordinate scapegoating or reverse whistle blowing.
Posturing
Seeks to convince internal customers, as much as external stakeholders of the organization’s collective commitment to ethics.
Accomplished through active use of the corporation’s public affairs department, and if necessary, the retention of an outside public relations firm. Table 2: Greenwashing Tactics (Laufer, 2003).
Delmas & Burbano (2011) developed a framework to classify corporations into four categories: greenwashing firms, vocal green firms, silent brown firms and silent green firms (table 3). Where greenwashing corporations are characterized by poor environmental performance and positive communication about environmental performance, green corporations are characterized by rich environmental performance and positive communication about environmental performance. Ramus & Montiel (2005) researched corporate greenwashing from a different perspective by putting the emphasis on the actual CSR implementations. These scholars stated that corporations are labeled as greenwashers, when the CSR commitment is not in accordance with the actual CSR implementations. In practice, these corporations are trying to positively influence society with their CSR claims without executing and implementing this in reality.
Bad Environmental Performance Good Environmental Performance
Positive Communication about Environmental Performance
Greenwashing Firms
Vocal Green Firms
No Communication about Environmental Performance
Silent Brown Firms
Silent Green Firms
Table 3: Typology of Firms based on Environmental Performance and Communication (Delmas & Burbano, 2011).
The rising existence of corporations that are involved in greenwashing practices, by falsely stating their CSR engagement, have caused stakeholders to question corporate honesty and have caused a lack of trust and credibility of corporate CSR engagement in general (Laufer, 2003; Furlow, 2010; Elving, 2012; Finkelstein, 2013). This perceived lack of trust and credibility by stakeholders is confirmed by the ten-‐year study of GlobeScan on the perceived credibility of corporate CSR communications of ten countries (GlobeScan, Credibility gap persists around companies’ CSR communications, 2013).
The results of this study implied that merely 38% of the respondents believed that corporations are honest about their CSR claims and viewed their CSR engagement as credible, whereas 72% of the respondents stated that they are very interested in obtaining more information about the corporations’ CSR engagement (figure 3). Additional results demonstrated that the respondents perceive the CSR engagement of corporations as insincere, since the main driver of these corporations is to improve the corporate reputation. Nevertheless all these greenwashing practices results in decreasing levels of competitiveness (Mohr, Webb and Harris, 2001; Becker-‐ Olsen et al., 2005). In addition, Laufer (2003) pointed out that the “overuse and misuse of the green claims can saturate the market to the point that the greenness of the product may become meaningless to the consumer”. In order for corporations to avoid the greenwashing label, to build corporate trust and to reduce stakeholder scepticism towards corporate CSR engagement, corporations should make their CSR engagement credible. Corporations can pursue multiple strategies to enhance the credibility of their CSR engagement and to substantiate CSR claims; these strategies will be discussed in section 3.3. Before discussing these credibility-‐enhancing CSR strategies, the concept of CSR credibility will be defined first.
3.2 What defines the credibility of a CSR engagement?
Moratis (2015) indicated that the research on the clarification, classification and conceptualization of CSR credibility is rather scarce; nevertheless corporate credibility, a related concept, is extensively researched. Since corporate credibility is an element that influences the credibility of corporate CSR engagement, insights on this related will be provided. Keller (2006) defined corporate credibility as “the extent to which consumers believe that a firm can design and deliver products and services that satisfy customer needs and wants”. In practice, corporate credibility is often described as trust and is viewed as an element that influences corporate reputation (Mayer, Davis & Schoorman, 1995; Kazoleas & Teven, 2009). Mayer et al. (1995) similarly developed a framework that examined the foundations of corporate trust. This scholar identified three elements that influence corporate trust: ability (the extent to which a corporation is reliable and confident about its claims), benevolence (the extent to which a corporation is willing to meet the
needs of stakeholders in the environment) and integrity (the extent to which a corporation acts accurate and honest). Fombrun (1996) developed a conceptual model for corporate reputation and stated that corporate reputation is defined by four characteristics: responsibility, reliability, trustworthiness and credibility. This scholar claimed that the stronger these characteristics are; the better the corporate reputation will be. However the acknowledgement should be made that corporate reputation is dependent on the perceptions of stakeholders.
The first research study that addressed the CSR credibility concept is the research of Becker-‐Olsen et al. (2005). These scholars conducted an empirical study on CSR and consumer behaviour and results demonstrated that corporations need to acquire a certain alignment between the CSR objectives/claims and the CSR activities, in order for consumers to accept the CSR initiatives and to evaluate them as credible. Becker-‐Olsen et al. (2005) highlighted that CSR engagement is evaluated on the basis of three elements: CSR fit (similarity and fit of the corporate mission/goals and CSR initiatives), CSR motivation (engagement in CSR out of other-‐centered motives of profit-‐centered motives) and CSR timing (engagement in CSR as a reactive mode or proactive mode). According to Moratis (2015), this means that, “the credibility of CSR initiatives can be defined as the alignment of a company’s CSR claim and a company’s CSR activities” (figure 4).
Figure 4: Credibility of CSR: The alignment of CSR activities and CSR claims (Becker-‐Olsen et al., 2005).
In other words, corporations that fully integrate CSR, by means of establishing and integrating CSR into the corporate strategy, out of socially responsible motives and where the CSR claims are aligned with the CSR activities, are often seen as corporations that have credible CSR behaviours.
CSR Claims CSR Activities
This existing alignment between the corporations’ CSR objectives/claims and its CSR activities will create beneficial outcomes for corporations (Becker-‐Olsen et al., 2005). Decisively, corporations must demonstrate that their CSR engagement is explicitly in line with the actual CSR implementations, by communicating that their CSR initiatives and practices are really executed and implemented in practice (Delmas & Burbano, 2011; Moratis, 2015). The study of Ramus and Montiel (2005) implied that corporations are perceived to be credible when the CSR engagement is in accordance with the actual CSR implementations. The acknowledgment must be made that stakeholders may perceive difficulties when interpreting and evaluating the credibility of corporate CSR engagement, since most CSR activities and practices are hard or impossible to observe (Bae & Cameron, 2006; Terlaak, 2007; Elving, 2012). Due to this fact and the fact that CSR is an ambiguous concept that has an idiosyncratic nature, stakeholders are still using corporate reputation as a frame of reference when interpreting the CSR engagement of corporations, even though corporate reputation does not say anything about the credibility or sincereness of the CSR engagement of corporations (Moratis, 2015). In this study, CSR credibility is defined as the extent to which the CSR engagement is perceived to be reliable, trustworthy, and honest. All the discussed academic insights demonstrate that the perceived credibility of corporate CSR engagement is influenced by; the established corporate reputation (Fombrun, 1996), the alignment of CSR claims and CSR activities (Becker-‐Olsen et al., 2005), and the actual CSR implementation (Ramus & Montiel, 2005). To enhance the credibility of CSR engagement; to substantiate CSR claims; and to demonstrate CSR credibility towards stakeholders more easily, corporations can pursue multiple strategies.
3.3 Enhancing CSR Credibility by adhering to CSR Standards CSR standards are established to offer guidance to corporations to set up their CSR engagement and to direct corporations in obtaining sincere and credible CSR behaviour (Moratis, 2015). CSR standards are observed as the ultimate tool for corporations to recognize and identify CSR issues; to offer assistance on developing CSR initiatives and practices (programs); to provide methods to implement these CSR initiatives and practices; and to provide methods for maintaining CSR quality
