2. Implementing Social Responsibility Chapter 6 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. This chapter: Discusses key elements of managing for social responsibility, including leadership; mission statements; issues management; alignment of structure, culture, and processes; and auditing and reporting. Discusses corporate philanthropy.

3. The Chad-Cameroon Pipeline Project Opening Case In 1974 an exploratory Exxon well hit oil in a remote desert in Chad. In the mid-1990s Exxon formed a joint venture with two other energy giants to build a 660-mile pipeline across Chad, through Cameroon, and out to an offshore tanker facility. Environmental and human rights groups attempted to stop the pipeline. Groups pressured Exxon to submit its plans to the World Bank to approve and oversee. McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-3

4. The Chad-Cameroon Pipeline Project Opening Case (continued) Even with guidelines in place Chads President bought weapons with the first profits and dealt harshly with critics. Subsequent construction was marred by: Spread of HIV-AIDS along the pipeline route Rural migration to constructions areas and inflation Constant dust from unpaved roads around project sites McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-4 Few companies have guidelines like those used by the pipeline consortium. However, many firms attempt to define a social mission and then use a range of actions and management tools to carry it out.

5. Managing the Social Response – Leadership Top management sets the tone for a companys social response. A few companies have been founded by progressive visionaries who make social responsibility central to their business model. Progressive business models are rare. Although based on traditional business models, some companies have cultures emphasizing voluntary social responsibility in one or more dimensions because of the influence of founders. McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-5

6. Sources of Pressure for Social Responsibility McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-6

7. A Spectrum of Responses to Social Demands McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-7

8. Mission Statements The best mission statements: Define the business Differentiate it from competitors Explain relationships with stakeholders Focus energy on critical activities and goals McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-8

9. Mission Statements (continued) Most corporate mission statements emphasize product quality, markets served, and profitability. Companies often state additional purposes, for instance, protecting the environment or improving society. Ideally, mission statements should be based on an effort to discover or shape core values that can then be articulated in writing. McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-9

10. Managing Social Issues A relevant social issue is a matter of dispute arising from corporate behavior and its impact on social institutions or social problems. The earlier that such issues are detected, the easier it is to maneuver and adjust to them. McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-10 Issues management The use of methods to detect, classify, analyze, track and prioritize social issues in the corporate environment.

11. The Issue Life Cycle McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-11

12. The Life Cycle of Issues Methods to analyze issues: Intuitive search Scenarios The probability/impact matrix Stakeholder engagement McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-12

13. Alignment of Structure, Culture, and Processes If the organization structure, culture, and processes of a company are misaligned with the social goals in its mission statement, those goals will be slighted. Many companies create elements of formal structure to provide leadership for social responsibility. Corporate culture must be aligned with formal incentives. Strong efforts at coordination are needed in very large corporations. McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-13

14. Corporate Social Reporting Corporate social reporting is the practice of assessing and publishing information about social performance. A 1974 survey found that 76 percent of 284 large companies did some form of social auditing. In the late 1990s voluntary social reporting again emerged as a useful tool for companies to address stakeholders. McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-14 Social audit An assessment of the social impacts of a corporation on society.

15. Corporate Social Reporting (continued) The leading effort to create a new auditing and reporting format is the Global Reporting Initiative (GRI). In the late 1990s, the GRI published guidelines for reporting on the triple bottom line, a calculation of corporate economic, environmental, and social performance. The GRI standards are voluntary with a transcending requirement for transparency. Two major concerns: Measuring social performance is difficult. Firms are reluctant to invite criticism. McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-15

16. Corporate Philanthropy Large philanthropic contributions by American companies are a relatively recent phenomenon. Until about 50 years ago courts held that corporate funds belonged to shareholders; therefore, managers had no right to give away money, even for noble motives. The first major break from narrow legal restrictions on corporate giving was the Revenue Act of 1935, which allowed charitable contributions to be deducted from taxable earnings up to 5 percent of net profits before taxes (raised to 10 percent in 1981.) McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-16

17. Patterns and Magnitudes of Corporate Giving Charitable giving is now a standard dimension of corporate social responsibility. The basic motives for corporate giving are: Response to pressure Belief that it will bring monetary profit Desire for reputational gain Altruism Corporate philanthropy is only a small part of overall private philanthropy in the U.S. and only a tiny portion of overall welfare spending. McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-17

18. Fortunes in Action Historically, wealthy entrepreneurs contributed large sums separately from their companies to traditional educational, medical, and humanitarian causes. Notable givers: Stephen Girard John Jacob Astor John D. Rockefeller Andrew Carnegie Bill Gates Gordon Moore George Soros McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-18

19. Strategic Philanthropy As corporations gained experience with philanthropy, many concluded that the traditional approach of diffuse giving to myriad worthy causes was noble but flawed. Many firms decided to change their philosophy of giving from one of pure generosity to one that aligned charity with commercial objectives. Not everyone approves of strategic philanthropy. McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-19

20. Cause-Related Marketing Cause-related marketing is a marketing method linking a corporation or brand to a social cause so that both benefit. Corporations realize that if their brand is connected to a social cause or charity, this appeals to the conscience of a consumer. Cause-related marketing raises big sums of money for worthy causes but its mixture of altruism and self- interest attracts criticism. McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-20

21. Concluding Observations If a corporation announces aspirations to be socially responsible, it must follow up with the hard work of building those aspirations into its operations. Corporate philanthropy, while not a management method, is a long-standing way of implementing social responsibility. Recently, corporations have shifted from a tradition of altruistic giving to a new style of philanthropy that aligns with business strategy. Some critics attack this approach as too self-interested. Strategic philanthropy may be a promising development because it injects thinking about corporate social responsibility into the strategic mainstream. McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. 6-21