MNC’S AND THEIR MOTIVATION
BEHIND ADOPTING CSR PRACTICES:
Window-Dressing or Real Commitment?
Rinske Boersma BSc
1333674MASTER THESIS
RijksUniversiteit Groningen International Business & Management
ABSTRACT
CONTENTS
Abstract 2
I. Introduction 5
II. Literature review 8
III. Methodology 13
IV. Results 19
V. Discussion 29
VI. Conclusion 33
I. INTRODUCTION
According to O’Donovan (2002), the social contract between business and society demands that firms act in a socially responsible way. Firms more and more feel the need to satisfy their other stakeholders as well as their shareholders. It is argued that corporate social responsibility (CSR) has become a strategic necessity for firm’s long-term survival, fostering trust, knowledge from and about stakeholders and legitimacy (Perini et al., 2006). According to Hartman et al. (2007), CSR efforts can result in improving the political, social and economic environment of a firm.
One way in which firms communicate their intentions and ideas about CSR is through company websites and chapters on CSR in annual reports. Gray et al. define corporate social reporting as “the process of communicating the social and environmental effects of organization’s economic actions to particular interest groups within society and to society at large” (1996:3). Several papers report a surge in corporate social reporting (see for example: Whitehouse, 2006; Robertson & Nicholson, 1996; Esrock & Leichty, 2000). Part of the reason CSR is receiving more and more attention is a number of recent large business scandals (Snider et al., 2003; Smith, 2003), as well as a growing concern of the public for externalities of companies’ production processes, such as damage done to the environment.
Critics claim that the statements on CSR in annual reports or on company websites are no more than ‘window dressing’; that they in fact reveal no real commitment of firms to stakeholder value. According to Deetz (1992), companies only report on their CSR practices because these raports delude the audience with an aura of legitimacy or objectivity. According to others, however, statements made on websites do matter because they entail accountability (Snider et al., 2003; Coupland, 2005) and can be verified. This begs the question: are firms making these statements for financial purposes only, or are these firms actually committed in realizing objectives beyond profit-making (economic, social or environmental objectives)?
FDI gives MNCs bargaining power in their relations with their home and host countries; some MNCs have economic value that exceeds small countries’ GDP; and a lack of global governing institutions creates situations in which MNCs are not held accountable to anyone (Matten & Crane, 2005). According to Pralahad & Doz (1987), in earlier days, companies even viewed manipulating public policies in home and host countries as a competitive business skill.
Second, the study of the commitment of MNCs to CSR is interesting, because just as the power of MNCs has increased, so has the power of the public: the public has been mobilised due to, among other things, a growing presence and power of the media. Anti-globalists have also increased the attention of the public on CSR issues: “This helped forge a powerful public consensus that companies could and should contribute more to the sustainability of an economic system from which they drew significant benefit” (Detomasi, 2007: 323). Also, large global firms could be seen as predecessors and role models for smaller companies, which makes the behaviour of MNC’s interesting for predicting the future.
In order to asses the strength of the commitment of MNC’s to CSR, this thesis will examine company websites and/or annual reports from a number of large global businesses. The idea of examining company statements in annual reports etc. is not new (see for example: Robertson & Nicholson, 1996; Coupland, 2005). The added value of this thesis is that it will examine MNC’s: large global corporations who operate in a majority of the world’s countries, where other papers have only studied companies from a single country or region. As argued above, the examining of MNC’s is important. Snider et al. (2003) did examine both US and non-US firms, but they focused only on statements of intent, not on results of companies’ CSR policies and activities.
Measuring firm commitment towards CSR is a difficult issue. Without an in-depth case study it is hard to say with any certainty how strong a company really is committed to CSR or what their motivation is. On the other hand, using case studies prevents a researcher from examining larger numbers of companies in the same study, which is necessary for reasons of validity and generalizability. Since many in-depth case studies have already been done (see for example Coupland, 2006; Whitehouse, 2006), I chose using more firms with a less in-depth approach, despite the problems of objectivity, precision and level of detail.
In sum, the thesis aims at exploring the tension MNC’s experience between the efficiency demands coming from competition and the market, and the demands for a commitment to CSR coming from a firm’s stakeholders (as formulated by Baron, 2001). The extent to which CSR is present in modern-day MNC’s is not questioned. Research shows the amount of CSR is surging; just one example is a study by Esrock & Leichty (2000) who found that over 85 % of a sample of firms from the American Fortune 500 included information for at least two groups of stakeholders on their websites. The real question is: why are firms engaged in CSR activities? Are firms using CSR for window-dressing purposes only; showing only enough involvement with CSR to come across as a responsible firm, ultimately for profit-seeking or self-interest (a “public commitment”)? Or are they really committed to CSR; is it really at the heart of their businesses, do they have strong CSR practices and is their social performance verifiable (a “real commitment”)?
The main research question for this thesis is formulated as follows:
To what extent do large global firms commit to corporate social responsibility? Can the commitment of most large global firms be seen as a “real” commitment, or is it mostly a “public” commitment?
II. LITERATURE REVIEW
Corporate social responsibility (or CSR) can be defined as “the voluntary integration of economic, social and environmental objectives in the relationship with company stakeholder networks” (Perrini et al., 2006). There are many other definitions – all slightly different – as CSR is a concept with no universally accepted content or meaning (Whitehouse, 2006). Baron (2001), for example, defines only CSR actions that go beyond the letter and the spirit of what either the law or the market demands, as CSR. He argues that real CSR requires altruistic motives, which also means that firms merely reacting to what consumers demand, are not actually concerned with their social performance, but are acting out of self-interest. This definition is much more critical of firms implementing CSR practices.
Carroll (1999) identified four different types of responsibilities firms faced: the economic responsibility to be profitable, the legal obligation to obey the law; the ethical responsibility to respect stakeholders, and the philanthropic activities to support the wider community. These are also called the four components of CSR, and references to these four responsibilities can often be found in corporate publishings (Snider et al., 2003).
Just as the attention of academics for CSR has surged, so has the attention of companies (Perini et al., 2006). More and more companies have extended their CSR efforts. But does the growing “popularity” of CSR represent a real commitment of firms to CSR or does it only represent a strategy to maintain or even increase profits?
Why would a firm adopt CSR practices?
attention for CSR from both academics and companies would suggest this argument is less and less heard.
The second reason why a firm would adopt CSR practices is that firms will eventually be faced with government action (public politics) if they do not meet the expectations of society when it comes to their social performance (private politics); this argument is based on avoiding threats or self-interest (Baron, 2001).
Third, it is argued that there is a reward in the marketplace for those firms that pay attention to CSR: firms that adopt CSR practices and pay more attention to their stakeholders would attract more customers: this argument evolves around profit-seeking and therefore also self-interest. Research so far has concluded that there is a positive relationship between CSR and corporate financial performance (see for example Mahon & Griffin, 1999). The financial benefits that can arise from CSR go beyond a higher turn-over or building a reputation to the development of valuable organizational capabilities (Sharma and Vredenburg, 1998). Similarly, Husted & Allen (2006) argue that strategically managed CSR is relevant to the performance of MNEs. To be more precise, commitment to CSR can give firms a greater insight into markets and lower social or political risks (Detomasi, 2007). Last, Perrini et al. (2006) argue that CSR can also help strengthen the loyalty of both customers and employees.
Levis (2006) names three internal mechanisms that may stimulate the adoption of CSR codes: first, company traditions and values of the members of the organization may be geared towards benefiting stakeholders and the wider society; second, CSR codes may be adopted to prevent damaging not only the company’s reputation but the reputation of the managers as well (to prevent personal exposure in the case of a scandal or uproar in the media); and third, CSR codes may be adopted in response to isomorphic and peer/partner pressures (pressures from competitors and business partners). Husted & Allen (2006) argue that these strong isomorphic pressures may hinder the firm in using CSR to their strategic benefit: instead of implementing CSR in a way that is beneficial to the firm, isomorphic pressures may cause firms to only focus on what kinds of CSR practices they are expected to implement.
motivated by profit-seeking may look very similar to a CSR code issued by a firm motivated by altruistic principles (Baron, 2001). The totality of CSR practices by these two companies, however, may not be similar at all: in the end, the firm implementing CSR practices out of financial interests alone may not actually benefit its stakeholders at all.
Why should CSR efforts be seen as mere window-dressing?
There are many authors who are highly sceptical of CSR practices as implemented by modern-day companies. First, most CSR practices by firms are self-monitored. Some firms publish CSR reports that can be verified and checked by the public, others have voluntarily become members of organizations enforcing certain CSR practices, but there are a lot of firms left who do neither of these things. Levis (2006) argues that self-monitored rules are inefficient without external controls. There are also authors who argue that disclosure of CSR-related information is no more than an instrument for companies to manipulate their stakeholders’ view of the company (Baron, 2001) and gain approval for their actions and their existance (legitimacy theory; see for example O’Donovan, 2002).
Second, CSR is often defined as evolving around benefiting society, but what is best for society is difficult to determine. Levis (2006) argues that although society is a true claimant, society in itself is a claimant without influence. Only certain individuals from society, organized in NGO’s, are influencers, and there is a disconnect between society at large and these NGO’s. Also, according to Baron (2001), speaking of society’s expectations raises a problem, because society consists of various individuals and groups who are very likely to have conflicting interests. Baron (2001) argues that the success of a boycott, for example, depends mostly on whether or not the issue at hand is salient enough to draw the attention of a sufficient number of members of the public.
On the other hand, a different problem with the research about the relationship between CSR and corporate financial performance is that it is difficult to say which one comes first (Baron, 2001): is a corporate financial performance caused by CSR or can CSR efforts be implemented because of a better corporate financial performance?
Baron (2001) argues that CSR practices from companies should not even be defined as CSR without the right motivation behind the practices (which would be a motivation of corporate social responsibility; not profit-seeking, self-interest or avoiding threats); and without actual proof of performance. He also argues that “assessing CSR through observed CSP should not be independent of motivation” (2001: 11).
Another sceptical argument is about the fact that the concept CSR is ambiguous in that there is no universally accepted definition, yet the concept is being used on a mass scale to implement policies (Whitehouse, 2006).
Relating the literature to the research
As argued by Baron (2001), only CSR efforts from companies with altruistic motivations should be termed actual CSR: he argues that in all other cases, companies cannot be trusted to really look out for the interests of the companies’ stakeholders. In other words, Baron considers the motivations behind CSR efforts to be equally as important as the extent of the CSR efforts, when evaluating the worth of CSR efforts to stakeholders. But the problem is: how can companies’ motivations for implementing CSR policies and practices be measured? I argue that it is this inability that lies at the heart of the debate between those who believe that present-day CSR policies and practices of companies reflect at least some desire to do good, and those who are highly sceptical of companies’ CSR efforts and claim it is no more than “window-dressing”; making the company look good.
verification. The “public commitment” of a company consists of all the activities and policies related to CSR that the company has publicly implemented. CSR reports publish results (“public commitment”) of CSR policies and activities; but they show no proof of “real commitment”, a focus on CSR at the heart of a company’s business orientation and the starting point of the company’s CSR policies and activities. In other words: a company can be publicly committed to CSR but not really committed (which some call “window-dressing”), if that company only implemented CSR practices and policies for financial reasons or for preventing for example bad publicity. In table 1, this reasoning is summarized: only altruistic or moral motivations for engaging in CSR are evidence of a “real commitment” to CSR. Companies with a moral or an altruistic reason will show a public commitment as well as a real commitment.
Motivations for engaging in CSR Public commitment Real commitment
Profit-seeking x
Avoiding threats x
Isomorphic pressures x
Moral (“do no harm”) x x
Ethical/altruistic (“do good”) x x
Table 1: Public commitment versus real commitment
The question remains: how to identify a firm’s motivation for engaging in CSR? After all, if a firm publishes an annual CSR report with verifiable results of the company’s CSR-related policies and activities, it is evidence that they are publicly committed to CSR, but it is not necessarily evidence that they are really committed to CSR. Only if the motivation behind publishing the CSR report in the first place is not profit-seeking, avoiding threats, or isomorphic pressures, can the CSR report be seen as evidence of a real commitment to CSR. This thesis will attempt to provide some method of measuring a firm’s “real commitment”, and therefore measuring the motivation behind companies’ CSR practices.
III. METHODOLOGY
Research method
The main question of this thesis is how strongly large global companies are committed to CSR practices. In the literature review, I concluded with a distinction between “real commitment” and “public commitment”. In order for me to answer the research question, I investigated both the extent of companies’ CSR efforts, and the motivation behind these CSR efforts. I used a sample of 30 large global companies, consisting of 10 companies from 3 different industries. I collected information on a number of indicators or factors that say something about the extent of a company’s CSR efforts and/or the motivation behind these efforts, including factors that are indicators of whether the company has a stakeholder orientation or a shareholder orientation. These factors were ultimately used to construct a “score” on companies’ commitment towards CSR: only a high score would arguably be evidence of a “real commitment” to CSR; a score in the middle range could be seen as evidence of a “public commitment”. The factors used in the score are discussed below.
Factors used in determining a company’s commitment
As argued earlier in this thesis, without extensive case studies, it is difficult to assess the extent of companies’ real commitments to CSR. When using a larger number of companies and in-depth case studies are too extensive, only publicly available and relatively easily determined “clues” can be collected. This creates a problem in identifying a company’s motivation for implementing CSR activities, since the best way of determining motivation would be to meet with the company’s people who are involved in the process. Since that was impossible in this study, the next best solution was to collect evidence on a number of indicators that are clues to the extent of and motivation behind companies’ real commitment towards CSR. I translated these clues into a score on commitment. The maximum number of points a company could score is 10. Next, the individual factors (not in order of importance) with the number of points that could be scored are presented.
company’s commitment to CSR, is that this is the first communication towards the public. All stakeholders of a firm – shareholders, employees, society at large, etcetera – see the same homepage. If a homepage includes information for shareholders but no information on CSR-related issues, it would suggest the company is not very stakeholder oriented. On the other hand, if a homepage included information for stakeholders but not for shareholders as a separate group of stakeholders, it would suggest the firm chooses to address all their stakeholders as one group, not putting the interests of shareholders separately or above the interests of other stakeholders.
Companies displaying CSR related information, but not IR (Investor Relations) information, scored 2 points. Companies displaying both CSR and IR related information scored 1 point. Companies displaying only IR related information scored 0 points. There were also homepages displaying neither CSR or IR related information, mostly in the industry “motor vehicles and parts”. Some firms opened with a sales site – displaying information on their products, not on the company itself – whereas other companies opened with a portal site – an empty site merely meant for separating customers from shareholders and future employees from students or reporters. These companies also scored 0 points, since this factor is about the first communication of companies towards all groups of stakeholders, and the idea behind a portal site or a sales site is to address the stakeholders separately from each other.
Second, I examined whether or not the company published an annual, publicly available report on their CSR efforts and policies, thereby making their CSR-related results verifiable. Robertson & Nicholson (1996) developed a scale to measure commitment of companies towards CSR, using statements on CSR from company websites. Their highest level of commitment in their scale, called “Implementation and Monitoring level”, included those firms that publicly set targets which are monitored or annual environmental reviews. In line with this, I reasoned that the existence of annual CSR reports with information on results obtained from CSR policies, is a useful clue to assess the extent of a firm’s commitment towards CSR. Companies with an annual report on CSR scored 1 point, companies that published no annual CSR reports scored 0 points.
shareholders, it would suggest that companies choose not to “advertise” their stakeholder orientation to their shareholders. If, that were so, the company scored 0 points; if the report contained references to CSR, the company scored 1 point.
Fourth, I examined whether or not the company’s annual report contained not only a reference to CSR in the introducing sections, but a whole section or chapter on CSR. This is especially interesting if the company also has a separate report on CSR. If a company published a CSR report, and included a section on CSR in it’s annual report, the company scored 2 points. If the company did not publish a CSR report but did include a chapter on CSR in it’s annual report, the company scored 1 point. If there was no chapter on CSR, the company scored 0 points.
Fifth, I looked at the CSR topics present on the company’s website. Were the topics relevant to the industry (for example, car safety or lower emissions in the “Motor vehicles & Parts” industry)? This relates to the difference between a “moral” motivation and an “altruistic” motivation (Fisher & Lovell, 2006): if a firm has a moral (or even a profit-seeking) motivation for implementing CSR policies, it would be expected that this firm would include only those topics on CSR that are relevant to the firm, or in other words, to the industry. If the company pays attention to topics that are not necessarily relevant to the company’s line of business (such as “environment” in the banking industry) it would suggest a motivation more towards “altruistic”, and in the argument of Baron (2001), suggestive of a real commitment to CSR. Therefore, companies with CSR topics not relevant to the industry scored 1 point; companies with strictly industry-specific topics scored 0 points. This factor is the reason that the sample consists of companies from three different industries.
1. Clearly shareholder oriented: when the firm’s mission/vision/purpose/business principles mentioned a focus on shareholder value. Sometimes other stakeholders (such as employees or society at large) were mentioned, but never to the extent that it was implied that those other groups of stakeholders were more important than or equally important as shareholders (score: 0 points);
2. Stakeholder and shareholder oriented: when the firm’s mission/vision/purpose/business principles showed a focus on both shareholder value and stakeholder value, or when there was no clear focus on either stakeholder value or shareholder value. Both groups belong in this category because both groups can be viewed as seeking a middle ground in satisfying shareholder interests in particular, and the interests of all stakeholders (score: 1 point);
3. Clearly stakeholder oriented: when the firm’s mission/vision/purpose/business principles mentioned a focus on stakeholder value, and shareholders were not mentioned. Only those with a clear stakeholder focus belong in this group (score: 2 points).
Categorizing companies according to their business orientation is not at all an exact science; instead, there is a fair amount of subjectivity involved. For that reason, results from this part of the study are only meant as a broad indication of what the majority of firms say about their own business orientation. I included how the evidence for the business orientation was found: in the mission/vision/purpose/business principles sections, or CSR sections. I did not use annual reports or CSR reports for assessing a company’s business orientation. The reason is that I wanted to use only those statements that all stakeholders (including shareholders) read; to exclude the possibility that a company advertises a shareholder focus in it’s annual report and a stakeholder focus in it’s CSR report. Therefore, only information from the website was used. In a number of cases, I found no conclusive statements, in which case the companies belonged in the group “stakeholder and shareholder oriented”, as explained above.
course technically not a group of people, but I found that the environment was often seen as a stakeholder by the companies investigated. If a company mentioned 5, 6 or 7 of these groups as their stakeholders, that company scored 1 point. If a company mentioned 4 or even less groups as stakeholders, the company scored 0 points.
To summarize this section, table 2 displays all the information used to score the companies on their commitment to CSR.
Points scored if yes:
The homepage contained CSR information, but not IR information +2
The homepage contained both CSR and IR information +1
The homepage contained only IR information 0
The homepage contained neither CSR or IR information 0
The company publishes an annual, public CSR report +1
The company’s annual report contains references to CSR +1
The company’s annual report contains a section/chapter on CSR and
there is a separate CSR report +2
The company’s annual report contains a section/chapter on CSR but
there is no separate CSR report +1
There is no section/chapter on CSR in the company’s annual report 0
The company has CSR policies/activities that are not relevant to the
industry +1
The company has a clear stakeholder orientation +2
The company’s business orientation is unclear/ambiguous +1
The company has a clear shareholder orientation 0
The company mentioned 5, 6 or 7 groups as stakeholders +1
TOTAL: maximum number of points 10
Table 2: Assessment form used to score company’s commitment to CSR
This score is a score on “commitment” in general. That is because there are no factors that are easily determined and accessible and provide strong evidence of a “real commitment”. The factors in this study provide evidence of a “public commitment”, and because of that are only indicators of a real commitment of a firm: the factors here are no more than clues. Therefore, as explained above, only a very high score on commitment (8, 9 or 10 points) could point to a “real commitment” of a firm; a score in the middle range could be seen as evidence of a “public commitment”. Of course, a low score would mean the firm is not very committed to CSR at all.
Sample
In total, CSR efforts of 30 large global firms were examined. I looked at the first 100 companies of the 2006 Fortune Global 5001: a list with the largest global companies in the world in terms of revenues. From this list, I selected the three industries most present in the top 100: the Petroleum Refining industry, the Motor Vehicles & Parts industry, and the Banks: Commerical & Savings industry.
I selected the top 10 of each of these industries, which in the end resulted in a sample of 30 companies (please refer to table 3 on page 20 for a full list of all companies included in this research). For the Petroleum Refining industry, I ran into some trouble when some of the companies turned out to be state-owned, or having customers (end-consumers) in a single country (these companies are only global in that they trade their oil on the international markets to other businesses, not to end-consumers)2. I specifically needed public companies, with end-consumers in various countries. To end up with 10 firms, I had to use a firm outside the original top 100; SK is ranked as number 111 in the Fortune Global 500.
1
http://money.cnn.com/magazines/fortune/global500/2006/ (accessed: 08-07-2007)
2
As explained earlier, the reason for using three different industries were that this would give me the possibility to distinguish between altruistic motivations for implementing CSR practices and moral motivations. If a firm implements CSR practices for moral reasons only (“do no harm”; Fisher & Lovell, 2006), a firm would probably only be concerned with those topics that are relevant to the line of business of the company and therefore the industry, because those are the issues the firm is likely to affect. If a firm has altruistic motivations, the firm is more likely to go beyond the line of business and extend its CSR practices to topics not relevant to its industry. The question therefore was if there were industry differences in whether or not companies had CSR topics not relevant to the industry. A second interest was to see whether or not there were industry differences in commitment.
IV. RESULTS
Illustrative examples
In this section, I will first use a few companies from the sample as examples of how evidence was gathered. This section will also help to gain some insight into how companies handle the issue of CSR.
There were no companies scoring the full maximum of 10 points on commitment. Of the companies scoring 8 or 9 points, I will use Statoil, the number 8 on the list of companies, as an example. Statoil is a Norwegian company from the “Petroleum Refining” industry. It’s homepage3 contains a clear link to a section on Investor Relations, as well as a link to a section titled “Statoil and Sustainable Development 2006”, which not only displays information about Statoils long-term focus on a sustainable business, but also contains information for various stakeholders such as employees, the environment, and society at large. The company publishes an annual CSR report (called the “Sustainability Report”), including key performance figures such as carbon dioxide emissions and discharges of harmful chemicals. Further more, the company’s annual report contains not only references to CSR in the introducing sections of the report, but also separate sections on CSR, called “People and society” and “Environment”. In their report on sustainability, the company regards only 4 separate groups as stakeholders: employees, society/community, the
3
environment, and suppliers or business partners. The company has CSR policies that are not necessarily industry-specific: Statoil supports and partners with for example the Norwegian Red Cross and Amnesty International. Last but not least, is Statoil’s business orientation. Under the heading “Statoil in brief”, the following can be read4:
“We are one of the world’s most environmentally efficient producers and transporters of oil and gas. Our goal is to create value for our owners through profitable and safe operations and sustainable business development without causing harm to people or the environment.”
Statoil’s code of behaviour is called “We in Statoil”, and contains the following quotes5:
“Commitment to our values and our leadership approach, in words and actions, is not negotiable. We will build an even stronger Statoil, for the benefit of our people and our stakeholders. (…) Cause zero harm to people and the environment. Contribute to sustainable development and accept social responsibility. Respect the individual and continuously improve the working environment.”
Under the heading “Health, Safety and Environment”, Statoil states the following6:
“Statoil is building a world-class international oil and gas company. This requires that we are among the absolute front runners in health, safety and the environment (HSE). No other avenue is open. If the HSE responsibilities are not taken seriously, we will lose legitimacy, competitiveness and the licence to operate.”
From these quotes and statements, a clear stakeholder orientation be read. Statoil advertises itself as a company that keeps the interests of all stakeholders in mind. “Owners” are mentioned separately, but are not termed the most important group of stakeholders, neither is shareholder value put before stakeholder value.
4
Source: http://www.statoil.com (accessed: 09-09-2007)
5
Source: http://www.statoil.com/STATOILCOM/SVG00990.nsf/Attachments/vi_i_statoil/$FILE/We_in_ Statoil.pdf (accessed: 09-09-2007)
6
All in all, this company scored 8 points on the scale of commitment to CSR. One objective indication that Statoil is indeed a firm that keeps stakeholder interests in mind is the fact that the Dow Jones Sustainability Index ranked Statoil first among the world’s oil and gas companies, for the fourth year in a row7. In total, there were 10 companies scoring 8 or 9 points.
The company with the least amount of points on the commitment to CSR is number 23 on the list, Crédit Agricole, a French bank8. They only scored 2 points: one for having published an annual CSR report; the second for having a business orientation that is unclear (neither stakeholder oriented nor shareholder oriented). The section “About us” contains information on the organisation of the bank, as well as key financial figures and business activities, but there are no statements as to how the company sees its business orientation or purpose. Under the section “Sustainable Development”, the following can be read9:
“Crédit Agricole has always been involved in the great social and economic changes that have taken place in France. We have strived to take a long-term view of business development, while always maintaining a local presence. Now, the principles of sustainable development are being incorporated into the strategies and policies used by the members of our decentralised and dynamic Group.”
This statement, however, is far too vague to argue that the company has a stakeholder orientation at the heart of their business. Since no other defining statements could be found on the website (not relating to stakeholder value but also not relating to shareholder value), this company was assessed as a company with an unclear business orientation, based on the information from the website. When it comes to CSR activities that are not industry-related, the following quote would suggest that the company is active in community investment10:
“True to their origins and cooperative values - accountability, solidarity and grass-roots presence - the Crédit Agricole Regional Banks are deeply committed to the
7
Source: http://www.sustainability-indexes.com/07_htmle/indexes/djsiworld_supersectorleaders_07.html (accessed 09-09-2007)
8
Source: http://www.credit-agricole.fr/banking-:-account-bank-and-business-banking-171/index.html (accessed 10-09-2007). The homepage opens in French; therefore the site in English was used in the analysis.
future of their home areas and communities. Every year, they help to finance hundreds of projects spanning every aspect of everyday life. The 34,200 directors of the Local Banks form an army of volunteers who play a key role in local development by identifying and supporting the most meaningful efforts to strengthen the fabric of their communities. The most commonly supported initiatives include projects carried out by and for young people, as well as schemes involving sport, the arts and economic development.”
However, the website contained only information about activities by regional banks in France, not about community investments made in other countries, while Crédit Agricole is active in 60 countries11. Since this study is investigating MNC’s, and there was no further evidence suggesting community investments in countries apart from France, I concluded that this company has no CSR activities not relevant to the industry. An example of a relevant activity is Crédit Agricole’s involvement in preventing money laundering. When it comes to stakeholders, the company only addresses the society/community and the environment. All in all, this company does not seem to have a strong commitment to CSR.
So far, an example of a company with a clear stakeholder orientation, as well as an example of a company with an unclear orientation has been provided. An example of a company with both a shareholder and a stakeholder orientation is Exxon Mobil. From their “Guiding Principles”, the following statements can be found12:
“We are committed to enhancing the long-term value of the investment dollars entrusted to us by our shareholders. By running the business profitably and responsibly we expect our shareholders to be rewarded with superior returns. This commitment drives the management of our company. (…) We pledge to be a good corporate citizen in all the places we operate worldwide. We will maintain the highest ethical standards, obey all applicable laws and regulations, and respect local and national cultures. Above all other objectives, we are dedicated to running safe and environmentally responsible operations.”
11
Source: http://www.credit-agricole.fr/banking-:-account-bank-and-business-banking-171/index.html (accessed: 10-09-2007)
12
These statements are somewhat ambiguous: Exxon Mobil states on the one hand that it is shareholder value that is the priority, and on the other hand that safety and the environment is a priority above all other goals. Exxon Mobil therefore has both shareholder and stakeholder value as priority; that is why this company was assessed as having both a shareholder and a stakeholder orientation.
The only company assessed as having a shareholder orientation is BNP Paribas, which states in the section on their values13:
“BNP Paribas founds its corporate project on three commitments: toward its customers, BNP Paribas undertakes to give first priority to their satisfaction and to constantly improving the quality of their welcome and of the services offered; toward its shareholders, BNP Paribas undertakes to put value creation at the very heart of its options, and toward its employees; BNP Paribas undertakes to ensure a dynamic and stimulating management of careers and remuneration by developing employee share-ownership and promoting social dialogue.”
This statement shows that the company is focused on three separate groups of stakeholders: shareholders, customers and employees. But the statement also shows that the company does not focus on other groups of stakeholders (at least not in the mission statement; the CSR report from this company addresses the environment and the society). Also, both the interests of employees and the interests of customers can be seen as directly enhancing the interests of the shareholders. For these reasons, I assessed this company as having a shareholder orientation.
Statistics
Now that some examples have been given, this section will include the statistical summary of the results obtained. Table 3 includes a complete list of the results and the companies included in the sample.
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N r Indu st ry 14 C o m p a n y C o un tr y o f o ri g in P re se n ce C S R P re se n ce IR C S R re p o rt P re se n ce C S R in A nn .R ep . C h a p ter C S R in A nn . R ep . C S R n o t ind .s p ec . O ri en ta ti o n b a se d o n w eb si te E v id en ce o ri en ta ti o n 15 N u m b er o f st a k eh o ld er s C o mm it m en t
1 PR Exxon Mobil US yes yes yes yes no yes 2 Mission 6 6
2 PR Royal Dutch Shell Netherlands yes yes yes yes no yes 3 Mission 4 6
3 PR BP UK yes yes yes yes yes yes 2 Mission 6 8
4 PR Chevron US yes yes yes yes no yes 2 Mission 7 6
5 PR ConocoPhillips US yes yes yes yes no yes 3 Mission 7 7
6 PR Total France/Belgium yes yes yes yes yes yes 3 Mission 4 8
7 PR ENI Italy yes yes no yes yes yes 2 NDS 5 6
8 PR Statoil Norway yes yes yes yes yes yes 3 Mission 4 8
9 PR Petrobras Brazil yes yes yes yes yes yes 2 NDS 3 7
10 PR SK Korea yes yes no yes no yes 2 Mission 3 4
11 MVP General Motors US no yes yes yes no yes 2 NDS 6 5
12 MVP DaimlerChrysler Germany yes yes yes yes yes yes 2 NDS 4 7
13 MVP Toyota Motor Japan no no yes yes yes yes 3 Mission 6 8
14 MVP Ford Motor US yes no yes yes no yes 3 CSR 4 7
15 MVP Volkswagen Germany no no yes yes yes no 2 NDS 6 6
16 MVP Honda Motor Japan yes yes yes yes yes yes 2 NDS 6 8
17 MVP Nissan Motor Japan yes yes yes yes no yes 3 CSR 6 7
18 MVP Peugeot France no no yes yes yes yes 2 NDS 6 7
19 MVP BMW Germany no yes yes no no yes 2 Mission/CSR 6 4
20 MVP Fiat Italy no no yes yes yes yes 2 NDS 6 7
21 BCS Citigroup US yes yes yes yes no yes 2 Mission/NDS 5 6
22 BCS Fortis Belgium yes yes yes yes yes yes 3 Mission 5 9
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PR = Petroleum Refining industry; MVP = Motor Vehicles & Parts industry; BCS = Banking; Commercial & Savings industry.
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Mission = information on the company’s business orientation comes from the company’s
23 BCS Crédit Agricole France no yes yes no no no 2 NDS 2 2
24 BCS HSBC Holdings UK yes yes yes yes yes yes 3 Mission 7 9
25 BCS BNP Paribas France yes yes yes yes yes yes 1 Mission 6 7
26 BCS UBS Switzerland no yes yes yes yes yes 2 Mission 6 7
27 BCS Bank of America US no no yes yes no yes 2 NDS 5 5
28 BCS J.P. Morgan Chase & Co.
US yes yes yes yes yes yes 2 Mission 5 8
29 BCS Deutsche Bank Germany yes yes yes yes yes yes 3 Mission 5 9
30 BCS HBOS UK yes yes yes yes yes yes 2 CSR 6 8
Table 3: all companies used in the study (source: Fortune Global 500, 2006)
Table 4 shows information on which groups of stakeholders individual companies recognized: it also shows which group was mostly recognized (the environment) and which was hardly recognized as a stakeholder (the government). Stakeholders not included in this list (such as competitors) were not recognized at all by these 30 firms.
Indu st ry 16 C o m p a n y N u m b er o f st a k eh o ld er s E m p loy ee s C u st o m er s S o ci et y /C o mm un it y E n v ir o n m en t Sh a re h o ld er s B u si n ess P a rt n er s/ Supp li er s G ov er n m en t 1 PR Exxon Mobil 6 x x x x x x
2 PR Royal Dutch Shell 4 x x x x
3 PR BP 6 x x x x x x 4 PR Chevron 7 x x x x x x x 5 PR ConocoPhillips 7 x x x x x x x 6 PR Total 4 x x x x 7 PR ENI 5 x x x x x 8 PR Statoil 4 x x x x 9 PR Petrobras 3 x x x 10 PR SK 3 x x x 11 MVP General Motors 6 x x x x x x 16
12 MVP DaimlerChrysler 4 x x x x 13 MVP Toyota Motor 6 x x x x x x 14 MVP Ford Motor 4 x x x x 15 MVP Volkswagen 6 x x x x x x 16 MVP Honda Motor 6 x x x x x x 17 MVP Nissan Motor 6 x x x x x x 18 MVP Peugeot 6 x x x x x x 19 MVP BMW 6 x x x x x x 20 MVP Fiat 6 x x x x x x 21 BCS Citigroup 5 x x x x x 22 BCS Fortis 5 x x x x x 23 BCS Crédit Agricole 2 x x 24 BCS HSBC Holdings 7 x x x x x x x 25 BCS BNP Paribas 5 x x x x x 26 BCS UBS 6 x x x x x x 27 BCS Bank of America 5 x x x x x
28 BCS J.P. Morgan Chase & Co. 5 x x x x x
29 BCS Deutsche Bank 5 x x x x x
30 BCS HBOS 6 x x x x x x
Total: 27 26 29 30 23 20 4 Table 4: Groups of stakeholders recognized by the companies
First (and most important), there are the various scores on commitment to CSR. Table 5 includes the results obtained for this factor.
Points scored Number of companies Percentage of total
Real commitment 8, 9 or 10 points 10 33 %
Public commitment 5, 6 or 7 points 17 57 %
Low commitment 1, 2, 3 or 4 points 3 10 %
Table 5: Results on commitment and percentages
All in all, a large majority of 90 % showed at least public commitment, and 10 companies showed a public and a real commitment.
Both (or unclear): 20 (67%)
In other words, the majority of firms examined either made statements concerning both shareholders and stakeholders (without either group being viewed as more important: 10 out of 20 firms) or made no defining statements (10 out of 20 firms). In that case, it can be reasoned these companies choose not to make a statement in order not to leave out the other group. This is in line with my expectations: it makes business sense to address both stakeholders in general and shareholders in particular, since both shareholders and the other stakeholders are important for a company.
Of the 30 firms examined, 28 published a publicly available, annual CSR report. In total 27 firms included a reference to CSR in their annual report. When it comes to CSR topics, no less than 28 firms had CSR topics that were not industry-specific. Most firms had some sort of “community investment” program: meaning that they sponsor and support various programs such as educational or health programs. Many of the firms also gave humanitarian aid to less-developed countries. Of the 30 firms, 21 showed CSR related issues on their homepage, at the very least a link to sections dedicated to CSR alone. All in all, the presence and extent of CSR activities among these 30 firms was found to be high.
Industry differences
In this section, the results per industry will be discussed. First, table 6 shows the average scores on commitment from the three different industries. The average scores are very similar, and they reveal no strong difference in commitment between the different industries. The banking industry seems to have a slightly higher commitment, but the company with the lowest commitment came from this industry. The ten companies with the highest scores (8 or 9 points) were equally distributed among the three different industries.
Average score on commitment
Petroleum Refining industry 6.6
Motor Vehicles & Parts industry 6.6
Banks: Commercial & Savings industry 7.0
There is also no real difference in business orientation: the one company with a clear shareholder orientation was from the Banks: Commercial & Savings industry, but this in itself is not very significant. The companies with a stakeholder orientation were almost equally divided among the three industries. There was no difference in the amount of companies with non industry-specific CSR efforts: the only two companies that only had CSR efforts relevant to their industry were in two different industries.
Of course, the most often mentioned CSR topics industry-specific topics did differ among the industries. For the Petroleum Refining industry, the most important CSR topics were the search for a way to fill the growing need for energy in a eco-friendly manner. Most sites displayed information on the expected growth in demand for energy, and on the most promising ways to generate eco-friendly energy (such as bio-fuels, etc.). The other two most important topics were “environment” (relating to policies for decreasing the damage to the environment that the companies in their daily operations may inflict), and general safety (for employees and the surrounding communities of daily operations).
In the Motor Vehicles & Parts industry, CSR topics included mostly “environment”, “safety”, and “community”. The environment topic relates to cleaner cars: environmental-friendly fuels (bio-fuels) or innovations regarding hybrid engines. Also policies regarding the decreasing of factory emissions were mentioned. “Safety” relates to safer cars and all innovations made in that area. For the Banks: Commercial & Savings industry, CSR topics included high quality-standards for financial practices (in other words; that the firm is precise and trustworthy in delivering financial services; customers should feel secure); “ethics”, and “community”. These last two terms were not often really defined. Some firms had environmental programmes: which mostly entails that the company implements programmes designed to ensure that the environment is not harmed during daily operations. It is interesting to see that the topic of environment – while so irrelevant for the business of banking – was so common in this industry. All in all, companies in the three different industries were very similar in the extent of their CSR efforts.
The last question that must be asked is: is it possible to say something about the relationship between the various factors used to determine the score on commitment? There are a few salient observations to be made. First, those companies with a clear stakeholder orientation all scored 6, 7, 8 or 9 points. This in itself is good, but the one company with a shareholder orientation scored 7 points as well. Second, of the four companies with only IR related information on their homepage (and not CSR related information), three had a low score on commitment (2, 4 and 5), which would be consistent, but the fourth had a relatively high score of 6. Third, there are the companies with both a CSR report and a chapter on CSR in the company’s annual report: eleven of the sixteen scored 7 or 8 points, but the remaining 5 scored 6 or even 5 points. Last, when looking a the number of stakeholder groups mentioned on the website, there are no discernable patterns. For example, the companies with a clear stakeholder orientation do not necessarily recognize more groups of stakeholders. All in all, although there is some consistency between the factors, this method of scoring companies on their commitment towards CSR would be more reliable if there was more consistency between the factors used.
V. DISCUSSION
Above, the results from the study were discussed. But how should these results actually be interpreted? This section will deal with a more thorough discussion of the results, including relating information found in this study to previous studies done in this area.
The commitment of firms to CSR
A possible explanation for the low number of firms with a shareholder focus may be that it is difficult to sell a shareholder focus (putting the interests of shareholders before the interests of the other stakeholders) to your customers. Coupland (2005) explains that for companies, one of the difficulties of the internet is that it is accessible to the entire public: the homepage is accessible to all different interest groups at once. This makes it much more difficult for companies to communicate with a single interest group (such as shareholders, customers, or societal groups), without other groups having access to the same information. In other words, a company cannot tell their shareholders that they have a shareholder focus and tell their customers they have a stakeholder focus at the same time; not without running the risk of being caught. This may also be a reason for the growth in corporate social reports: with a shareholder focus you only satisfy one of your stakeholder groups, whereas with a stakeholder approach, you can satisfy most (if not all) of your stakeholders. According to Crane & Matten (2005), European firms, more than US firms, have a multi-stakeholder approach on the assumption that satisfying all stakeholders will ultimately result in higher shareholder value and a satisfying social responsibility at the same time. This is consistent with the fact that 67% of companies tried to find a middle way in their business orientation: they either stated to have both the interests of their shareholders and the interests of their other stakeholders at heart, or they made no defining statements at all.
The importance of a “real commitment”
This study found that 10 of the 30 firms showed a “real” commitment to CSR. But is this number disappointing, or does it give hope for the future? The results from this study suggest that most of the largest global firms have a high public commitment to CSR. I agree to some extent with Baron (2001), who argues that CSR practices are only really CSR practices when the company is implementing them out of altruistic motives. A safe conclusion that can be drawn here – taking limitations to the method of measuring commitment in this study into account – is that companies at least seem to pay attention to their stakeholders, whether for the right reasons or not.
possibly detrimental to society is offset by the greater good of giving back to society. That suggests that, even though most firms may not have altruistic motives for implementing CSR practices, stakeholders are still served. Of course there is an important difference between doing it for the right reasons or doing it for the wrong reasons: Baron (2001) strikes a point in arguing that firms with altruistic motivations are more trustworthy than firms with profit-seeking motivations. Nevertheless, companies who try to satisfy their stakeholders’ interest out of self-interest are better for society than companies who do not try to satisfy their stakeholders’ interests at all.
Regulation of MNCs to protect stakeholders’ interests
In theory, since there are no global governing institutions, large global companies should be quite powerful, also because of their size and resources. But this study shows a high public commitment of MNCs to CSR. Only 3 out of 30 firms had a low commitment. In other words, there must be a different reason why large global firms feel pressured to implement CSR practices. It could be that the threat of being exposed to the global media and global public is enough to partially offset the disadvantage of not having a global government. “The internet enables publics to reduce the ability of organizations to act as authoritative gatekeepers of information that stakeholders want” (Esrock & Leichty, 1999: 466). In other words, the public has become more powerful and less dependent on what companies have to say about their own performance. In turn this means companies have to be more open about their own performance, not only to avoid public exposure in the media, but also to seize the opportunity to advertise their company to the public: if they publish information on their CSR performance themselves, they have an opportunity to shape it anyway they want. That is clearly preferable to leaving it to the media or to interest groups.
In other words, MNC’s have something to gain from implementing CSR policies and having at least a public commitment to CSR. Apart from a Fortune Global 500 list, there is also a Fortune Global 100 Accountability list, including firms with the highest accountability scores17. Out of the 64 firms listed on the website, 58 firms were also ranked in the top 100 of the Fortune Global 500. The lowest of the remaining 6 firms was ranked as number 185 of the
17
Fortune Global 50018. This shows that most of the largest MNC’s are publicly committed to CSR.
When it comes to regulations for MNC’s, it is argued that self-monitored rules are not efficient (Levis, 2006). Levis concludes his article by stating that: “Actual implementation of CSR Codes would generate high costs. In the absence of a significant market premium to responsible companies that would compensate for CSR costs. […] We should not expect companies to lastingly incur these costs. […] Creating binding standards among all competitors in a same industry would address the conflict between socially responsible management and competitive behaviors”, (2006: 54). Nevertheless, without the ability to create these binding standards, self-regulation may be the best way of ensuring that large corporations act in ways beneficial to society. According to Detomasi (2007), there are only a few who would argue for the assertive regulations that would be needed to effectively control corporate actions, because public expenditures would be raised considerably. Detomasi explains that “an international governance system in the issue-area of CSR would require building all of the foundational elements of capacity, legitimacy, accountability, and enforcement” (2007:4). Detomasi also makes it clear that not having a formal international governance system does not mean there is no global governance; instead, it is put together by international organizations made up of individual national governments. And even if there were international regulations protecting the interest of stakeholders, it would still not mean that the stakeholders’ interests would automatically be satisfied: rules often create a “comply”-culture, causing firms to act only to the letter of the law, and not beyond (Baron, 2001). In sum, self-regulation seems to a certain extent efficient.
CSR in global firms
Last, I would like to take a look at possible country differences. Table 3 on page 24 includes the country of origin for all of the companies in the study. I found no significant differences between the thirteen different countries involved. For example, in the Petroleum Refining industry, where three companies originated from the US and five from the EU, companies were very similar in CSR topics concerning their companies, and levels of commitment to CSR. This is in line with Hill & Dhanda (2002) who argue that large global firms tend to for
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example use market management strategies very similar to one another despite having originated from different countries.
On the other hand, Hartman et al. (2007) examined statements on corporate social responsibility from 8 US-based and 8 EU-based companies, and found a difference between the motivation behind CSR: they concluded that US companies spoke about CSR in terms of economics while EU companies motivated their CSR activities more by sustainability terms (citizenship terms). Although this study may have had a greater level of detail, two limitations of this research, however, are that they employed a simple word count method and that the sample was quite small. Data from eight firms may not be enough to draw firm conclusions on either US companies or EU companies in general. Therefore, any conclusions on whether or not there are distinctive differences between firms from different countries (or regions in the world), should not be drawn without further research.
VI. CONCLUSION
The research objective of this thesis was to explore CSR practices and commitment to CSR practices in large global firms. The main question was: To what extent do large global firms commit to corporate social responsibility? Can the commitment of most large global firms be seen as a “real” commitment, or is it mostly a “public” commitment?
This study found a high public commitment among thirty firms from the top 100 list of largest companies worldwide. No less than 90% of firms was found to have implemented several CSR practices and pay great attention to CSR issues. When it comes to “real commitment”, 10 of the 30 firms were found to have CSR at the core of their business principles and orientation.
Although large global firms have themselves started to fill the gap of the missing global government, they are of course not governmental in that they are not accountable to the global public (Matten & Crane, 2005). Nevertheless, the fact that constructing the international institutions necessary for effectively controlling corporate actions would be too expensive and too extensive (Detomasi, 2007) and that large global companies have actively implemented and are monitoring CSR practices throughout their operations, lead me to conclude that self-regulation is the best alternative for now. Out of the 30 firms included in this study, no less than 28 published an annual CSR report, stating their performance on CSR. This is very positive. Companies may commit themselves even stronger to CSR if more evidence of the positive relationship between CSR and corporate financial performance is found.
Limitations
One major problem in the general study of CSR is that there is no universally accepted definition (Whitehouse, 2006). Both content and meaning of CSR is under heavy debate. Nevertheless, businesses have embraced the concept of CSR and are publishing reports and statements on their websites. It seems that although there is no formal definition, there is a shared idea on what corporate social responsibility should entail (Coupland, 2005), as evidenced by the similarities between CSR reports from different companies. Still, a universally accepted definition is needed to formalize and improve the quality of CSR efforts, and, as argued by Whitehouse (2006), to offer better guidance on the objectives companies should have or the means to reach those objectives.
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