SI422 – Strategy, Innovation & Global

Competition
Leibel
Session #20
José Carlos Marques Henry Mintzberg

Corporate Social Responsibility & Social Impact

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Agenda for today
■ Assignment #3
■ Corporate Social Responsibility (CSR) & Social Impact
• Marques & Mintzberg reading
• Tata Motors case
■ Consulting project tips
• Please, remember to set up a team meeting with me!
Assignment #3—Details & logistics
■ Due date: Apr-16
• Please submit on QuestromTools before beginning of class
■ Template posted on QuestromTools
■ Option to choose between the Global Strategy and the
Tech Strategy assignment
• Global Strategy—evaluate Netflix’s Global Expansion +
approach in a specific country of your choice
• Tech Strategy—example of a disruptive innovation (your
choice)
■ You are expected to do some online research
Where are we in the course?
1. Intro

Industry-Level
2. Industry Analysis
Sources
Firm
4. Competitive Dynamics
6. Advanced Topics
Economic
3. Competitive Positioning Profits
(P)

Firm-Level
5. Corporate Strategy Sources

7. Consulting Presentations
Corporate Social Responsibility (CSR)
& Social Impact
For an introduction to the topic, please watch the TEDx video “The social responsibility
of business,” by Alex Edmans [link here]
Readings:
■ Why Corporate Social Responsibility isn’t a piece of cake (J.C. Marques, H. Mintzberg)
■ Tata Motors (A): A History of Service in a New Era of Corporate Social Responsibility
(E-McCormick, N-C-Smith)
Class Preparation Questions
■ What is corporate social responsibility (CSR)? Is there a difference between corporate
social responsibility and corporate philanthropy (charitable giving)?
■ According to Marques and Mintzberg, what are the shortcomings of the
four common recipes for CSR?
■ How does CSR as defined by the India Companies Act 2013 differ from the way CSR is
generally defined and practiced by business?
■ Is mandating CSR (as in the India Companies Act 2013) a good idea? Why? Why Not?
■ Currently, Tata Motors is not profitable enough for the CSR provision to apply. Would
you recommend it continues to spend on CSR initiatives? Why? Why not?
Corporate Social Responsibility (CSR):
Definition and intro
■ “Corporate Social Responsibility (CSR) is a management
concept whereby companies integrate social and
environmental concerns in their business operations and
interactions with their stakeholders” (United Nations Industrial
Development Organization)
■ Two main views on CSR
• Normative – businesses are responsible toward society
• Instrumental—CSR improves a company’s bottom line (through
improved reputation, employee performance, customer loyalty, etc.)
■ Philanthropy vs. “strategic CSR”
• Strategic CSR generates shared value by addressing social and
environmental challenges
Should firms pursue profit or purpose? Intro
Evidence from research Alex Edmans

https://www.youtube.com/watch?v=Z5KZhm19EO0

■ Understanding corporate social responsibility (CSR)

(00:00-3:17)
■ The link between employees wellness and firm
profits (5:09-7:40)
■ Measuring CSR impact (12:40-13:30)
Marques & Mintzberg use some “cake”
analogies to share CSR thinking over time
1 “Let Them Eat Cake”
■
2 “Icing on the Cake”
■
3 “Everyone Earns a Slice of Cake”
■
4 “Having your Cake and Eating it Too”
■

José Carlos Marques Henry Mintzberg

1
“Let Them Eat Cake”
Milton Friedman questions CSR José Carlos Marques Henry Mintzberg

“The Social Responsibility of Business Is to Increase Its Profits”

■ 1976 Nobel Prize Winner in Economics
■ One of the most effective advocates of economic freedoms
and free enterprise

“There is one and only one responsibility of

business– to use its resources and engage
in activities designed to increase its profits
so long as it stays within the rules of the
game, which is to say, engages in open
and free competition without deception or
fraud.”

Reactions ??? Milton Friedman

2
“Icing on the Cake”
All superficial and no substance José Carlos Marques Henry Mintzberg

■ Public relations
■ Pronouncements by the CEO
■ “Greenwashing”
■ Philanthropic activity disconnected from business
operations
• NFL Breast Cancer drive?
• Boston area businesses donating $$ to Boston Children’s
Hospital?
■ Not much substance (or actual “cake”)
• BP’s “Beyond Petroleum” Campaign before major oil spill
• All perceptions on CSR and ethical indices came crashing
down
3
“Everyone earns a slice of cake”
R. Edward Freeman José Carlos Marques Henry Mintzberg

“A Stakeholder Theory of the Modern

Corporation”
■ Both the stockholders and stakeholders have a right
to demand certain actions from management…
■ Why???
■ Because each has a vested stake in the corporation
■ Because firms operate only with the implicit support
of all members of society
■ Can lead to “win win” opportunities…. “Having your
cake and eating it too”
 Stakeholder view of the corporation
(R. Edward Freeman)
Primary Stakeholders
(inner circle of five)
Government
■ Two types of stakeholder:
• Narrow definition - A
stakeholder includes those

Co
groups who are vital to

dia

mp
Communities Customers

Me
the survival and success of

eti
tor
the organization

s
• Wide definition - A The Firm
stakeholder includes any Financiers* Employees
group or individual who
can affect or is affected by
the corporation Sp ups
Suppliers o
ec
ia Gr
Secondary Stakeholders lI ate
nt c
(outer circle of five) er dvo
es A
tG er
ro um
* Financiers = any entity or person with a financial stake in up
the firm (e.g., shareholder, lender, etc.) s ons
Source: Managing for Stakeholders, R. Edward Freeman,
C
Figure 1 (adapted), p. 10, Darden Publishing, 2007.
4
“Having your Cake and Eating
it Too”– Win Win! José Carlos Marques Henry Mintzberg

■ If customers value your CSR initiatives, and it

boosts WTP (e.g., Patagonia, Toms shoes)
■ If your stakeholders value your CSR initiatives
• Employees
• Community/Government (and firm benefits follow)
• Suppliers
■ Or CSR results in cost savings (e.g., Body Shop
media attention avoided advertising spending)
A more skeptical view on CSR
Marques and Mintzberg José Carlos Marques Henry Mintzberg

■ There’s no a simple recipe for responsible corporate behavior

1. Market manipulations may be legal, and still harm society (e.g.,
subprime mortgage crisis)
2. Corporate philanthropy and other forms of “greenwashing” may not
cover corporate irresponsibility forever (e.g., British Petroleum
promoting its commitment to the environment before the Deepwater
Horizon disaster)
3. The stakeholder view holds corporations responsible towards employees,
customers, local communities, shareholders, etc., but does not say how
to prioritize among them
4. “Doing good by doing well” is an enticing proposition, but seldom
attainable—CSR is a niche strategy. Plus, irresponsible firms do well, too!
Suggestions to foster responsible
corporate behavior José Carlos Marques Henry Mintzberg

■ Nurture ethical behaviors among managers and employees

■ Trim down executive compensations and rethink ownership
models (e.g., family trusts, cooperatives)
■ Embrace government regulation
■ Limit corporate lobbying
■ Civil society, including NGOs, social movements, may be more
effective agents of change than governments and firms
■ Collective effort of government, corporations, and civil society
is most promising in building responsible societies
Tata Motors case:
Introduction
■ Tata Motors founded in 1945 to produce the first
locomotives ever built on the Indian continent
■ Part of a vast conglomerate which grew out of a trading
company founded by Jamsetji Tata in 1868
• more than 100 companies in seven business sectors:
communications and information technology, engineering,
materials, services, energy, consumer products, and chemicals
■ In 2016, Tata Group had revenues of $103.5 billion and
employed 660,000 people worldwide
■ 66% of Tata Group stocks owned by charitable trusts
■ Tata Motors spending on CSR had grown steadily – from
185 million rupees in 2014 to 258 million rupees in 2016
■ Experienced slowdown in profits for several years. In 2015,
net loss of 47 billion rupees ($712 million)
• One reason was the sales fiasco of the Nano, the “world’s cheapest
car” launched in 2008
The Company Act of 2013:
Background
■ Viewed as a solution to India’s poverty issues
• 224 million people living below the poverty line (on less than $1.90 per
day) as of 2016
■ Required large corporations in India to allocate at least 2% of
their average net profit for the last 3 years to corporate social
responsibility (CSR) activities
• First law in the World to establish mandatory corporate giving
• If company fails to spend on CSR, must disclose why in annual report
■ Applied to any company incorporated in India that has net
profit of 50 million rupees or more, or turnover of 10 billion
rupees or more, or net worth of 5 billion rupees or more
■ Companies should not direct their CSR spending to projects
that help their own businesses
The Company Act of 2013:
Implications for Tata Motors
■ Tata Motors not legally required to corporate giving
• Net loss at its domestic Indian unit in 2015 pushed it below the profit
threshold set by the Act
■ But Tata had long-standing commitment to CSR
• Adopted an eight-hour workday, maternity leave and worker pensions
long before they became the norm
• Helped less fortunate members of the community through healthcare
and education programs (with the Pratham Institute, it offered
professional training to 25,000 young people each year, many of
whom had dropped out of regular schools)
■ Should Tata motors keep spending in CSR when it’s losing
money?
Tata Motors case:
Team discussion
■ Discuss the following questions with your team :

1. Is the 2013 Company act effective in promoting CSR

among Indian Companies?
– Think how the OIT&T framework applies
– What would Marques and Mintzberg say?
2. Should TATA Motors keep sponsoring CSR
programs?
Will the 2013 Company act promote
CSR among Indian Companies?
■ NO!
• It’s just another corporate tax
• Philanthropy alone cannot solve systemic issues
• Firms will just “check the box” and do the bare minimum
• If companies cannot spend in areas related to their business,
the opportunity (“O” from OIT&T framework) is missing

■ YES!
• Most firms are unlike Tata and will do nothing without a law
• Firms have the option to partner with NGOs or donate the
money to a government fund
• It’s a great example of collective effort of government,
corporations, and civil society
Should TATA Motors keep sponsoring
CSR programs?
■ CSR integral to Tata’s belief system
■ Expectations towards Tata are high—keeping CSR
commitment will maintain brand value and corporate
reputation, pulling support will harm both beneficiaries
and Tata
■ It’s the moral/right thing to do
■ CSR initiatives make Tata act as a role model and
generate trusts/loyalty with employees and society
■ Training programs provide skilled labor to Tata, too
■ CSR not a significant financial burden when Tata
returns to profitability
Wrap-Ups & Takeaways
■ Should firms pursue profit or purpose?
■ The debate on CSR is still open
• There is some evidence that firms can do well by doing good (e.g., treating
their employees well)
• But philanthropy and greenwashing cannot solve systemic issues
■ Multi-party initiatives that involve governments, corporations
and civil society may be the most effective to foster a more
responsible society
For next time: Innovation strategy
(disruption) & Netflix
■ Reading: C-Christensen, “What Is Disruptive Innovation?”
[posted; link here]
■ Case: Netflix [in packet]

■ Class Preparation Questions

1. What are sustaining and disruptive technologies, according to
Christensen?
2. Why was Blockbuster unable to adapt to DVD by mail?
3. Why was Netflix better able to adapt to video-on-demand?
4. Did Netflix do the same jobs for consumers that Blockbuster
did? How did this evolve over time?