The True Value of CSR

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1 The True Value of CSR

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3 The True Value of CSR Corporate Identity and Stakeholder Perceptions Edited by Barbara Fryzel

4 Selection and editorial content Barbara Fryzel 2015 Individual chapters Respective authors 2015 Foreword Stefano Zamagni 2015 Softcover reprint of the hardcover 1st edition All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6 10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act First published 2015 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number , of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin s Press LLC, 175 Fifth Avenue, New York, NY Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave and Macmillan are registered trademarks in the United States, the United Kingdom, Europe and other countries ISBN ISBN (ebook) DOI / This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data The true value of CSR : corporate identity and stakeholder perceptions / [edited by] Barbara Fryzel. pages cm 1. Social responsibility of business. 2. Corporate image. I. Fryzel, Barbara. HD60.T dc

5 Contents List of Figures List of Tables Foreword Stefano Zamagni Preface and Acknowledgements Notes on Contributors vii viii ix x xiv Part I The Meaning of Responsibility in Organizations: Some Reflections 1 CSR: What Does It Mean? 3 Rafael Alvira 2 Corporate Social Responsibility: Some Clarifications and Questions 15 Leszek Balcerowicz 3 CSR: Between Management Strategy and a New Paradigm of Thought 29 Janina Filek 4 The Stakeholder Organization Theory and its Systemic Foundation Revisited 49 Wojciech W. Gasparski Part II A Market for CSR: Forming Identities and Behaviours 5 Identity, Responsibility and Corporate Personhood 65 Paul Griseri 6 Dimensions of CSR Identity 83 Nina Seppala and Barbara Fryzel 7 The Social Construction of CSR s Identity in Management Consulting 105 Stephanos Avakian v

6 vi Contents 8 The Relationship between CSR Communication and Corporate Reputation in the Credit Lending Process: A Qualitative Study Based on Italian Banks 129 Rita Lamboglia and Giuseppe D Onza Part III Capitalist Economy and CSR: Contradictions and Inconsistencies? 9 Fraud, Corruption and CSR: Hands-on Account of a Fraud Investigator 149 Mariusz Witalis 10 Corporate Social Responsibility, Inequality and Corporate Governance 163 Peter Abell, Ofer Engel and Henry P. Wynn 11 Actions Speak Louder than Words: Competitive Conduct vs. CSR Policy 175 A. Vindelyn Smith-Hillman 12 The Capitalist Economy and CSR: Contradictions and Inconsistencies: From CSR to Business in Development 194 Peter Davis 13 Regulatory Roadblocks to Environmental Sustainability 211 László Fekete 14 The Dichotomy of Values vs. Rules in Anti-Corruption Law 231 Jean-Pierre Méan Part IV Responsible Business and Behavioural Patterns 15 Business and Society: Collective and Individual Corporate Social Responsibility 247 Richard Pettinger 16 Standards: A Behavioural Approach to Management 264 Richard Pettinger 17 How Can Neuroeconomics Unravel CSR? 280 Jang Woo Park Index 295

7 List of Figures 6.1 Code frequencies The devil s triangle Unethical practices seen in organizations Compliance perceptions gap Four phases in companies decision-making processes The trust game Decision Maker 1 v. Decision Maker vii

8 List of Tables 6.1 Factor loading matrix Path estimates and Cronbach s alpha Eigenvalues and percentages of variance explained Interviewees, job roles and indicative client CSR projects First and second order analysis Characteristics of the banks analysed Rank of global agri-food companies by value of food and drink sales Oxfam Behind the Brands rank of MNCs Stages of maturity of CSR activity Market share of top three retailers across EU member states (%) Evidence of MNC anti-competitive conduct Measurement methods for the three groups in the trust game 284 viii

9 Foreword This book is an intellectually provocative contribution that forces the reader to think. It fulfils two important functions. On the one hand, it brings new persuasive arguments to match the many critiques levied against CSR by those sceptics who denounce the danger that socially responsible behaviours can conceal a trade-off between moral and social commitments. In other words, the danger is that cynical managers can use corporate philanthropy to mask the absence of moral scruples. On the other hand, the authors of this rich volume explain why, with the development of globalization, the question of CSR has exploded onto the scene and they endeavour to propose viable ways of implementing CSR at the level of praxis. Economics is inextricably a part of ethics, since humans are not aloof islands of exchange; rather, they live, work and thrive in social settings. They have innovative dispositions for self, for others, and against others, which serve useful functions, yet whose claims must be internally adjudicated by moral agents. It follows that understanding individual and social conceptions of right and wrong is essential for the CSR problematic. The present book offers a persuasive answer to the question of why the firm should act in a socially responsible way, if no canon of instrumental rationality exists that justifies that behaviour. Barbara Fryzel must be credited for having put together the contributions of scholars with a plurality of cultural backgrounds. The final outcome of her effort is a well-written, jargon-free book that will capture the attention of anyone seriously interested in the future of our market capitalism. It is an encouragement to help build a better world, and to help the economy to serve the common good. Stefano Zamagni Professor of Economics, University of Bologna Adjunct Professor of Public Sector Economics Johns Hopkins University, SAIS Europe ix

10 Preface and Acknowledgements Over the past few decades the concept of corporate social responsibility (CSR) has developed into a powerful discourse in management and organization studies. In spite of the attention it receives from scholars and from other parties and in consequence from managers, we still find ourselves unable to answer beyond a reasonable doubt, whether and under what conditions it actually has any significance for producing a long-term and sustainable change in behaviours and markets at large. We are still amidst the discussion whether CSR really matters as a legitimate and potent tool to make a better world, that is, to dissolve economic inequalities and stimulate the private sector to work not only for profits for the privileged few but also towards fighting against economic and social exclusion in developing as well as developed countries. Should it be doing so at all? Or perhaps it is nothing more than yet another strategy for seducing consumers and investors and if so, does it bring the expected results or is it an unjustified waste of shareholders money? Recent advances in behavioural economics demonstrate that under specific conditions CSR can generate individual level outcomes such as brand loyalty and consumer company identification thus influencing purchase intent. Although most of this type of research is subject to various methodological limitations making its generalizability questionable, the evidence from organizational neuroscience indicates a strong affective bias and a limited rationality of decisions that people make in economic exchange relations, pointing to a potential vulnerability of individuals exposed to marketing strategies and various communications. At the same time, many stakeholders consider CSR to be an instrumental strategy rather than a genuine approach to business and more interestingly such instrumentality seems to be socially accepted. Having said that, we intend not to speak from any biased position, either explicitly in favour of CSR and the social duties of companies or against the idea that business should solve social problems. Given the growing scepticism about the genuine quality behind CSR, this book attempts to answer questions about the true value behind this concept and we approach it from the standpoint of truth seeking rather than finding justifications for any preconceived ideas. It is not a x

11 Preface and Acknowledgements xi classically academic book although many of our authors are academics renowned in their fields neither it is a classically scientific book, although a reader can find some empirical contributions in it. We also wish to share reflections often derived from many years of observation, teaching, researching and analysing the phenomena of co-existence of public and private, social and organizational and it is in this context, that we started a discussion resulting in this book. We present a collection of chapters, some of them critical in nature, but attempting not only to understand, explicitly or implicitly, why CSR fails but also to give a constructive view on how CSR could be legitimate and possible under market-capitalism conditions. The book includes theoretical, empirical and managerial, practice related contributions from authors coming from various fields such as philosophy, political science, law and economics both theoreticians and practitioners. Part I deals with The Meaning of Responsibility in Organizations. Some Reflections. The discussion about the reasons for the growing interest in CSR, which potentially are a confusion in the classical market state relation, where the market serves as an arena for private benefit and the state deals with social problems, and a difficulty in the relation between pure liberty and ethical behaviour (Raphael Alvira) meets with the analysis of potential economic consequences of the emotionally loaded CSR rhetoric, where the over-performance of companies on environmental regulations, while beneficial because of the reputation effect may result in serious social costs (Leszek Balcerowicz). The discussion of CSR as a myth, which develops as a consequence of the lack of a single governing principle and the vagueness of the concept in consequence, and the relevance of stakeholder theory for the CSR (Wojciech W. Gasparski) is complemented by theoretical work, which elaborates on the fact that the theoretical development of CSR thinking significantly exceeds the pace of its implementation in economic practice (Janina Filek). In Part II, A Market for CSR. Forming Identities and Behaviours, we analyse the implications of attributing personhood to businesses, and how it matters for the responsibility and identity of the firm, concluding that difficulties in drawing analogies between human identity and corporate identity leaves the latter concept potentially less important than the attention it receives (Paul Griseri). We counterbalance this point of view by an exploratory study, which considers the idea that as companies embed their strategies in a discourse about their supposed social obligations, CSR identity should be treated as a distinct form of organizational

12 xii Preface and Acknowledgements identity with the capacity to explain attitudes and behaviours (Seppala and Fryzel). Furthermore we propose a study on the role of consulting companies in fostering CSR and creating CSR policies for their clients, discussing how management consultancy firms penetrate the CSR market (Stephanos Avakian), followed by research on the relation between CSR communication and reputation in the Italian banking industry, which contributes to the statement that CSR has a strong value for corporations related to the reputational effect it produces (Rita Lamboglia and Giuseppe D Onza). We start Part III on Capitalist Economy and CSR: Contradictions and Inconsistencies? with a thought-provoking narrative of a fraud investigator giving his account of how CSR is abused in companies where serious fraud is detected and why it is the mindset rather than regulation and compliance, which is the key to true CSR (Mariusz Witalis). We look into the possibility of defending the CSR concept under market-capitalism conditions and propose that it could be done by extending the discussion to concerns about intra-corporate income distributions and furthermore towards the question as to whether the ownership of firms (capital- versus labour-owned) would be likely to have an impact upon CSR, particularly upon income distributions (Peter Abell, Ofer Engel and Henry P. Wynn). We follow with the analysis of inconsistency between MNCs competitive strategies and the terms of CSR and, based on empirical evidence, question to what extent public statements could be believed without supporting evidence (A. Vindelyn Smith-Hillman). We extend this line of thought, putting forward the idea that if CSR rhetoric is to become truly operational in practical terms, there is an important role for governments to play by engaging with the private sector (Peter Davis). A different level of inconsistencies between economic and political dynamics and CSR rationale is dealt with through the question of whether private self-regulatory initiatives of assessing and monitoring environmental performances, especially of large corporations, are an effective and proper substitute for mandatory multilateral environmental agreements and whether those in terms of global environmental outcomes can counterbalance the unwillingness of the majority of states to comply with a stringent international regulatory regime (László Fekete). We extend the perspective of the level of regulation towards the discussion addressing the advent of global anti-corruption efforts under the

13 Preface and Acknowledgements xiii aegis of fragmentary global regulation and equally fragmentary global ethics (Jean-Pierre Méan). We conclude with Part IV on Responsible Business and Behavioural Patterns, where we discuss potential future developments of CSR thinking in the context of a structured discussion on the role of business in society and a behavioural approach to CSR (Richard Pettinger). We back it up by introducing the rapidly growing field of neuroeconomics with its potential for explaining various ethical and CSR-related behaviours (Jang Woo Park). The diversity of the works presented is intended to tackle the problems of both the insufficient economic clarity of the CSR concept and the fragmentation of empirical evidence, which does not allow us to draw general conclusions about CSR s real effects. We do it through a range of theoretical approaches represented by the authors as well as through their different emotional stances towards the concept as some of them sympathize with a sceptical view while others see the concept as natural and legitimate. This book should, therefore, be looked upon as a platform of interdisciplinary discourse between theoreticians and practitioners. It is an indirect consequence of the research grant on CSR identity, its perceptions and outcomes, for which I am indebted to the National Science Centre, Poland, who financed the project (DEC-2012/05/B/HS4/02505). Barbara Fryzel

14 Notes on Contributors Peter Abell is Emeritus Professor at the London School Economics and an associate of Nuffield College Oxford. His interests lie in mathematical sociology, social networks, formal approaches to qualitative analysis (Bayesian narratives) and co-operative organizations. Rafael Alvira is Emeritus Professor in the Department of Philosophy, University of Navarra. He studied Philosophy and History at the Universities of Navarra and Madrid-Complutense and obtained his doctorate at the University of Madrid. He is the author of 14 books and more than 300 articles and has lectured widely in Europe and America. Stephanos Avakian is Senior Lecturer in OB&HRM at the University of Brighton, Business School. Over the past seven years he has conducted extensive research on the management consultancy industry. His areas of interest include the distribution of knowledge, the internationalization of industry and the facets of legitimation. Leszek Balcerowicz is Professor of Economics and Head of the Department of International Comparative Studies at Warsaw School of Economics. He is a former finance minister and deputy prime minister of Poland, and a former governor of the National Bank of Poland. Peter Davis is a political economist specializing in the impacts of the private sector in developing countries, specifically in fragile and conflictaffected states. His clients include the IFC, Asian Development Bank, the UK s Department for International Development, and the OECD. He was educated at the universities of Oxford and London. He is Visiting Research Fellow at Birkbeck, University of London, and his book Corporations, Global Governance and Post-Conflict Reconstruction was published in Giuseppe D Onza is Associate Professor of Risk Management at the University of Pisa, where he is Chairman of the MSc programme in Auditing and Internal Control. He has published articles in International Journal of Auditing, Managerial Auditing Journal, Public Management Review and Local Government Studies. Ofer Engel received his PhD in the Department of Management at the London School of Economics (LSE) for his work on the micro-foundations xiv

15 Notes on Contributors xv of social networks. Now at the Centre of Analysis for Time Series at the LSE, he studies the socio-economic dimensions of large scale district heating and cooling systems. László Fekete lectures at the Business Ethics Center, Corvinus University of Budapest. He studied history, economic history and sociology at Eötvös Loránd University of Budapest, the Friedrich-Schiller-Universität in Jena and State University of New York at Binghamton. He holds a PhD in philosophy. His research interests include the philosophical and ethical problems of the economy and society. Janina Filek is Head of the Department of Philosophy at the Cracow University of Economics. Her research interests include the relationship between philosophy and economics (philosophical assumptions of economic theory), social economy (social exclusion) and CSR. She has contributed numerous papers in the field of CSR. Barbara Fryzel is Associate Professor of Management at the Jagiellonian University where she heads the Organizational Behaviour Unit. She was an Honorary Research Fellow at University College London in She previously worked in various management roles for multinational corporations, British Petroleum among others. Her research interests are in ethical decision-making and CSR and its behavioural outcomes. Wojciech W. Gasparski is Professor Emeritus of the Institute of Philosophy and Sociology, Polish Academy of Sciences. His present position is the Chair in Business Ethics at Koźmiński University. He has published widely on human action theory (praxiology), general and design methodologies, business ethics, science studies and systems theory. He is Editor-in-chief of Praxiology: The International Annual of Practical Philosophy and Methodology. Paul Griseri is Academic Projects Manager at Middlesex University Business School, having worked in management education at a number of universities in London for over 25 years. He has published seven books, and currently is managing editor of the journal Philosophy of Management. Rita Lamboglia is a research fellow in Risk management at the University of Pisa (Italy). She teaches Internal Auditing at the MSc in Auditing and Internal Control offered by the Pisa University. She has published articles in journals including Accounting and Business Research.

16 xvi Notes on Contributors Jean-Pierre Méan is a lawyer with MCE Legal in Lausanne, Switzerland. He was formerly General Counsel of SGS, the Swiss inspection company, and Chief Compliance Officer of the European Bank for Development and Reconstruction. He chairs the Task Force of the International Chamber of Commerce which has issued the last edition of the ICC Rules on Combating Corruption in Jang Woo Park is a neuroeconomist whose specialization is in trust. He received his doctorate from Claremont Graduate University. He worked as a Research Associate in Osaka University and a post-doctoral fellow at the Shanghai Futures Exchange where he investigated investors behaviour. Currently, he is a Research Scientist at Skolkovo Institute of Science and Technology. Richard Pettinger is Principal Teaching Fellow (Reader) in Management Education at University College London, UK. He is the author of over 50 books and numerous papers on all aspects of management practice, development and education. He has worked in many different parts of the world. His research interests include professionalization of management, privatization and restructuring, and the effects of behavioural pressures on business decisions. Nina Seppala is Deputy Director at the Lincoln Business School, University of Lincoln. Previously, she worked for the United Nations and International Institute for Democracy and Electoral Assistance (IDEA) in the areas of democracy promotion and preventive diplomacy. She has also worked for University College London (as Director of Studies and Programme Director). Her research and teaching interests are in the areas of behavioural ethics, stress and corporate social responsibility. A. Vindelyn Smith-Hillman is the chief Economic Adviser at the Law Commission, having previously been an academic with lectureships at the Open University and the University of Northampton. Prior to that, she was a member of the UK Competition Appeal Tribunal and a senior economist at the Bank of Jamaica in Kingston, Jamaica. She is an assessor with the Government Economic Service and a journal reviewer on a number of economic and business journals. Mariusz Witalis is a partner leading the EY Fraud Investigation & Dispute Services practice in Poland and the Baltics. He has 17 years experience in investigating fraud in over 25 countries, mainly in Central and Eastern Europe. He is a Polish Statutory Auditor, Certified Internal Auditor and a Certified Fraud Examiner.

17 Notes on Contributors xvii Henry P. Wynn is Professor of Statistics at the London School of Economics and Chair of the Centre for the Analysis of Time Series. His research focuses on theoretical and applied statistics with application to social and industrial issues.