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12PromotingOrganizationalCitizenship.docx12 Promoting Organizational Citizenship
Chapter Preview
· Components of Organizational Citizenship
· Corporate Social Responsibility
· The Stages of Corporate Citizenship
· Promoting Organizational Citizenship
· Adopting a Stewardship Mindset
· Measuring Social Performance
In this chapter, we’ll look beyond the borders of our organizations to focus on the role that they should play in local and national communities. Our individual responsibility is to equip our groups to act as socially responsible citizens. The first section of the chapter describes what it means for an organization to act as a citizen. Section two outlines strategies for encouraging our organizations to play this role.
The Organization as Citizen
“From those to whom much has been given, much will be required.” That saying encapsulates the relationship between organizations and Western society over the past several decades. Organizations wield more power than ever before. The decline of the extended family, urbanization, industrialization, and other factors have increased our reliance on corporations, governments, schools, nonprofit agencies, and other institutions. At the same time, societal expectations of organizations have greatly expanded. We now demand that organizations, even for-profit entities, behave responsibly. As evidence of that fact, consider the following: 1
· Seventy-nine percent of Americans believe that businesses should support social causes; three quarters of business leaders say that the public should expect good citizenship from companies.
· A survey of citizens in 23 countries found that 90% of respondents wanted firms to focus on more than profits; another survey of online consumers from 60 nations revealed that 55% were willing to pay more for products and services provided by “socially responsible brands.”
· Sales of organic foods increased during a major global recession and are expected to continue to grow by over 9% a year for the foreseeable future.
· Over $3 trillion in U.S. assets are held in funds that only invest in companies that meet high environmental, social, and corporate governance standards. This is equivalent to the annual gross domestic product (GDP) of Canada and Brazil combined.
· America’s Most Admired Companies earn that label in part because they are concerned about the community and the environment.
· Watchdog groups regularly monitor the financial status and effectiveness of charities.
· Labor activists, disability advocates, environmentalists, and other groups are quick to bring suit against governments and businesses that don’t fulfill their social duties.
The term organizational citizenship best describes what society expects from businesses, governments, and nonprofits. Good citizens acknowledge their obligations to their communities. They use their influence to improve society. 2 Sandra Waddock offers this definition of outstanding corporate citizenship:
Leading corporate citizens are companies that live up to clear constructive visions and core values consistent with those of the broader societies within which they operate, respect the natural environment, and treat well the entire range of stakeholders who risk capital in, have an interest in, or are linked to the firm through primary and secondary impacts. . . They recognize they are responsible for their impacts and are willing to be held accountable for them. 3
Three components or elements are key to the practice organizational citizenship: (1) a stakeholder focus, (2) corporate social responsibility (CSR), and (3) sustainability.
Components of Organizational Citizenship
Stakeholder Focus
To function as citizens, organizations must first recognize that they have obligations to a variety of groups who have an interest or “stake” in their operations. The stakeholder framework first developed as an alternative way to define the relationship between large businesses and society but since has been extended to organizations of all types—partnerships, small businesses, governments, and nonprofits. 4 Traditionally, corporate executives were viewed as agents who acted on behalf of the company’s owners. According to this perspective (called agency theory), the manager’s primary ethical obligation is to promote the interests of stockholders. Companies that operate efficiently and profitably benefit the community through the creation of jobs and wealth as well as through higher tax revenues.
Stakeholder theorists challenge the notion that a manager’s sole moral duty is to company owners. 5 They note that the pursuit of corporate wealth doesn’t benefit everyone. When a major retailer like Walmart forces its suppliers to cut costs, for example, lots of groups suffer. Employees manufacturing the goods see their wages and benefits cut, and jobs are lost; local businesses and economies decline. Also, shareholders aren’t the only groups with an interest or stake in what the company does. Governments charter corporations based in part on the expectation that they will provide benefits to society. Governments invest in businesses by supplying them with cheap land, building access roads, and offering tax breaks.
Advocates of stakeholder theory argue that organizations of all kinds have an ethical obligation to “heed the needs, interests, and influence of those affected by their policies and operations.” 6 (See Ethics in Action 12.1 for a list of the possible stakeholders of one organization.) Drawing from Kant’s categorical imperative, some proponents believe that all stakeholders have intrinsic value. 7 It is wrong to use any group of people as a means to organizational ends. The interests of diverse stakeholder groups are valid and worthy of respect. Other supporters of this approach draw upon justice-as-fairness theory to emphasize that outside groups and individuals need to be treated fairly by the organization. 8 Still others believe that the stakeholder framework best reflects the feminist commitment to relationships. Feminists see corporations as webs of relationships with stakeholders, not as independent entities. 9 One final group adopts a communitarian perspective, which emphasizes the importance of serving the common good. They point out that serving stakeholders, not just stockholders, is more likely to promote cooperation and the development of networks that advance the overall good of society. 10
Recognizing the concerns of multiple stakeholders has strategic as well as ethical implications. Identifying the needs of stakeholders should be part of any major decision, like entering additional markets, establishing a new social service program, or changing an investment strategy. You will want to engage in stakeholder management in order to improve organizational performance at the same time that you respond to your moral responsibilities. Stakeholder management means answering five key questions: 11
1. Who are our stakeholders? Categorizing stakeholders can make it easier to answer this question. Those with an interest in the organization can be classified as primary or secondary stakeholders. Primary stakeholders—customers, investors, employees, suppliers—have a direct stake in the organization’s success or failure and thus exert significant influence. Their interests generally are given priority. Secondary stakeholders—social pressure groups, media, trade bodies—have an indirect stake in the organization. Accountability to these groups is therefore less.
2. What are our stakeholders’ stakes? As Ethics in Action 12.1 illustrates, stakeholder groups have different interests, concerns, and demands. Some of these stakes are more legitimate than others. Owners, for example, have a legal interest in a corporation, while suppliers do not. Further, some groups have more power than others. The board of trustees of a university system typically wields more power than the faculty or students.
3. What opportunities and challenges do our stakeholders present? Opportunities allow organizations to build cooperative, productive relationships with stakeholder groups. An inner-city church, for instance, might view other religious groups, local merchants, civic associations, and government agencies as potential allies in combating neighborhood blight. Challenges take the form of demands from groups who believe that the organization is at fault. These must be handled carefully, or they may result in significant damage. Home Depot faced such a challenge from the Rainforest Action Network. The retailer pulled old-growth lumber from the shelves after the environmental group threatened to picket if it did not.
4. What responsibilities does the firm have to its stakeholders? These include the economic, legal, ethical, and environmental factors described earlier.
5. What strategies or actions should management take to best handle stakeholder challenges and opportunities? Organizations can take the offensive or go on the defensive when dealing with stakeholders, decide to accommodate or negotiate, use one strategy or a combination of several, and so on. One consideration is the potential for cooperation or threat posed by a particular group. Typically, the best strategy is to become involved with groups that are currently supportive or could be cooperative in the future and to defend against those who pose a significant threat.
University of Virginia business professor Edward Freeman and his colleagues urge organizations to focus on creating value for all stakeholders. 12 Freeman believes that it is possible to simultaneously meet the needs of a variety of groups. For instance, companies are more likely to survive over the long term if they generate profits for owners and at the same time treat employees well, deal fairly with suppliers, and serve the community. Trade-offs—meeting the needs of one group at the expense of another—are inevitable but should not become standard operating procedure. Freeman is also convinced that businesses should take the initiative to engage all stakeholders in dialogue, including those who could be seen as a threat. It is not always possible to satisfy every critic, but opponents provide an alternative point of view. Understanding their concerns can open up new opportunities to generate value (e.g., enter new markets, meet unmet needs, reduce costs). Engaging with both primary and secondary stakeholders also provides information that can be used to better meet their needs.
In addition to managing ongoing relationships with stakeholders, organizations also need to identify and respond to changing social and ethical conditions. This process is called issues management. Ethical sensitivities and moral customs continually evolve. Smoking, which once was allowed nearly everywhere in this country, is now banned from many indoor public spaces, for instance. Same-sex marriages, which used to be banned, are now legal in many states.
Issues management is a function of public relations departments at a number of major corporations, though it can also be housed in other departments like legal, government relations, or quality assurance. SC Johnson credits its issues management program for the firm’s decision to eliminate fluorocarbons from aerosol sprays three years before federal regulations took effect. Sears noted the potential dangers of flammable nightwear early on and quickly removed these products before federal regulations were passed. 13 It would be wrong to make issues management solely the responsibility of public relations or another department, however. Companies skilled at issues management place individuals from a variety of functional areas on their issues management teams. 14 Then, too, all employees have a responsibility to be on the lookout for future trends through scanning and monitoring. In this context, scanning refers to surveying the environment to identify potential issues that might impact your organization. Surf the Web, monitor tweets, blogs, and YouTube, read a wide variety of issues-oriented print and online publications (The Nation, Huffington Post, The Standard, for example), track news sources and talk shows, and interact with stakeholder groups.
One model of the stages of issue development is shown in Self-Assessment 12.1 . You can monitor the progress of any issue using this format. Take the issue of global warming, for example. At first, only a few environmental groups were aware of this problem, and evidence of its existence was scarce. Next, the issue began to grab political and media attention, and some businesses began to take note. Currently, this concern appears to be moving from the consolidating to the institutionalized stage with increasing recognition of the ethical dimension of the problem. A number of nations have passed measures aimed at reducing greenhouse emissions, and businesses around the world have joined in the effort to combat global warming.
Once an issue has been identified, determine its significance and its likely impact. Evaluate the issue according to magnitude and probability. 15 Some issues have low probability and magnitude. They are not likely to affect the organization and, if they do, their effects will likely be minimal. These developments should be given low priority. Focus instead on issues with higher probability and magnitude. Create a list of these high-priority issues and develop strategies for responding to them. Failure to prepare can have disastrous effects. Beef producers underestimated how concerned U.S. residents are about food—and particularly meat—safety. When media reports surfaced that “pink slime” (officially known as “lean finely textured beef” made from meat scraps) was being used in hamburger, the meat industry stood by instead of promoting the safety of its products. (Lean finely textured beef has been tested over 7,000 times for the school lunch program and has never been linked to food-borne illness.) Activists then succeeded in getting fast food chains and supermarkets to pull meat with pink slime from menus and shelves and several Midwestern meat-processing plants closed as a result. 16
Ethics in Action 12.1 Organizational Stakeholders
SOURCE: From Sims, R. R., Ethics and Corporate Social Responsibility: Why Giants Fall; Copyright © 2003. Reprinted with permission of the Green wood Publishing Group, Inc
Self-Assessment 12.1
The Four Stages of Issue Maturity Scale
Pharmaceutical company Novo Nordisk created a scale to measure the maturity of societal issues and the public’s expectations surrounding the issues. An adaptation of the scale appears here.
Brainstorm three or four ethical issues that could pose a challenge to your college or university or your employer. Track each issue’s stage of development using the issue maturity scale. Determine how your school or employer should respond to each issue.
SOURCE: Zadek, S. (2004, December). The path to corporate responsibility, Harvard Business Review, p. 128. Used by permission.
Corporate Social Responsibility
Corporate social responsibility (CSR) describes the efforts of companies and other organizations to actively improve the welfare of society. Not everyone is supportive of such activities. Some follow the lead of economist Milton Friedman who argued that business should focus solely on making profits. 17 Managers who give to philanthropic causes are not only deciding how to spend the money of stockholders without their consent but they also lack the skills to effectively address social concerns. Dealing with social problems is best left to the government. Disciples of Friedman worry that if businesses are distracted from their primary goal, they will generate less economic activity, which will mean fewer jobs and lower tax revenues. In other words, society benefits more if business sticks to business. Others take issue with claims that CSR adds to the bottom line, noting that while some companies see higher profits from CSR activities, many others do not. Skeptics note that CSR can be used as a public relations “smokescreen,” enabling firms to burnish their images while still behaving unethically. Encouraging corporations to become more active in meeting social problems appears to further increase the influence of business, which already wields tremendous economic and political power. 18
CSR critics make some valid points. There is no guarantee that citizenship will lead to higher profits. Some firms employ CSR activities for public relations purposes only. We should be concerned about the amount of power wielded by multinational corporations (see Chapter 13 ). But the objections of CSR detractors fall short. Friedman seems to equate CSR with philanthropy. As we’ll see, CSR activities extend well beyond corporate giving, and many organizations (Timberland, Interface, Starbucks) build CSR into their corporate DNA. Governments, by themselves, have not always been able to effectively deal with social problems. While not every company benefits financially from being socially responsible, many do. 19 Participating in CSR activities can pay significant dividends. Studies reveal that engaging in social responsibility efforts improves a firm’s reputation while increasing customer loyalty and ratings of its products. Employees who work for socially responsible firms are more likely to identify with their employers, while getting along better with fellow workers. They perform better, stay with the company longer, and engage in more organizational citizenship behaviors. CSR also makes a company more attractive as a prospective employer. 20
From an ethical perspective, being a corporate citizen appears to be the right thing to do. CSR behaviors are altruistic, contribute to the common good, treat others with dignity, are just, and so on. Finally, as we noted at the beginning of the chapter, society expects more from its organizations than ever before. Corporations must be good citizens or risk being punished by investors and consumers alike.
CSR efforts can take many different forms. To demonstrate the wide scope of CSR activities, I’ll describe three different typologies. The first typology is the CSR pyramid developed by Archie Carroll. 21 Economic responsibilities form the base of Carroll’s CSR Pyramid. Businesses have a duty to be profitable so they can provide goods and services, pay employees, and reward investors. If they go bankrupt, they cannot carry out the duties to follow. Legal responsibilities make up the next level of the CSR pyramid. Corporations and small businesses must obey employment laws, follow environmental regulations, honor contracts, make good on warranties and guarantees, and so on. However, the law only outlines minimum acceptable behavior. Legal regulations don’t cover all situations and what is legal is not always moral. As a result, corporations should move to the next stage of the pyramid—ethical responsibilities. They must live up to the ethical values and standards of society, which include being fair and just and doing the right thing. Philanthropic responsibilities are at the top of the CSR pyramid. At this level businesses voluntarily give back to the community through making contributions, donating goods and services, employee volunteerism, partnering with nonprofits (see Case Study 12.1 ), and other means.
A second classification system divides CSR activities according to the domain or area they are designed to impact. 22 According to this typology, CSR efforts address four domains:
· Human resources: The development of protection of people. For example: providing a safe work environment, fairly compensating workers, offering training opportunities, refusing to support organizations that engage in child labor or slavery.
· Community, cultural, and societal involvement and philanthropy. For example: respecting the culture and rights of indigenous people, obeying laws and regulations, giving back to the community through donations, foundations, and volunteerism.
· Environmental protection, waste reduction, and sustainability. For example: restoring biodiversity, eliminating waste, treating animals humanely, recycling, reducing energy and water use.
· Product, consumer, and service contributions and protections. For example: protecting consumers, using renewable materials in manufacturing, providing truthful information about the environmental impacts of products, buying in a socially responsible manner from minority, indigenous, and women-owned businesses.
A third approach ties CSR strategies to the particular stakeholder groups. 23 These are various CSR actions directed at six of the stakeholder groups identified earlier in the chapter.
SOURCE: Jamili, D. (2008). A stakeholder approach to corporate social responsibility: A fresh perspective into theory and practice. Journal of Business Ethics, 82, 213–231. Used by permission.
Case Study 12.1
Girl Scout Barbie
A number of large corporations partner with nonprofits by, for example, sponsoring such charity fund raising events as runs and golf tournaments. Other companies go further, establishing business partnerships or relationships with charities through product tie-ins. Susan G. Komen for the Cure has tie-ins with dozens of corporations, and its trademarked pink ribbon is displayed on Quilted Northern bathroom tissue, Vanity Fair paper napkins, and other household products. The American Heart Association’s heart check mark appears on Cheerios and other foods certified by the AHA as low in saturated fat and cholesterol. By partnering with charities, businesses hope to address social issues while, at the same time, enhancing their images by being connected to worthy organizations and causes. Charity partners not only benefit financially, but being associated with a corporate sponsor can also raise their profiles.
Some product tie-ins generate significant controversy. The partnership between toy maker Mattel and the Girl Scouts of the USA is a case in point. Mattel pledged $2 million to the Girl Scouts for the right to create tie-ins to its most popular product—the Barbie doll. Young scouts can now earn a lavender Barbie participation patch reading, “Be anything. Do everything.”; receive a Barbie-themed activity booklet; visit a Barbie website; and buy a Barbie doll in a scout uniform. Children’s advocacy groups immediately took issue with the collaboration, labeling it as an attempt to market to a vulnerable audience. They also argued that Barbie (a leggy blonde who maintains an hourglass figure even though she has been around for 55 years) encourages young women to define themselves through appearance and sexiness. They cite research suggesting that young girls exposed to Barbie are more dissatisfied with their bodies, wishing they were thinner. According Susan Linn, director of the Campaign for a Commercial-Free Childhood, wearing the Barbie patch turns the youngest scouts into “walking advertisements.” Further, “Holding Barbie, the quintessential fashion doll, up as a role model for Girl Scouts simultaneously sexualizes young girls, idealizes an impossible body type and undermines the Girl Scouts’ vital mission.” 1 Critics note that the Barbie/Scout website appears to trivialize women. It features an online game where players match clothes to women in a range of occupations, including an astronaut in pink boots and a female race car driver in stiletto heels.
Both the Scouts and Mattel vigorously defend Girl Scout Barbie. The Scout website declares: “The participation patch is designed to inspire the next generation of female leaders, encouraging girls to explore endless career possibilities through exciting new program activities.” 2 A spokesperson claims that both girls and their mothers associate the doll with such positive messages as “the outdoors, camping, giving back to the community.” 3 She cites the results of a study that found that over three-quarters of Scout mothers thought that the doll would help their daughters look into new opportunities and feel good about who they are. Mattel executives believe that Barbie and the Scouts are a good fit. According to the company’s senior vice-president for marketing in North America, “Aligning with the Girl Scouts mission, Barbie has inspired girl’s imaginations on their journey to self-discovery, allowing them to explore a world without limits.” 4
Discussion Probes
1. Is Mattel’s partnership with the Girl Scouts a good example of corporate social responsibility? Why or why not?
2. Who benefits more from this partnership—the Girl Scouts or Mattel? Who is at greatest risk?
3. What other examples of corporate–nonprofit product tie-ins can you identify? How do you respond to these products, their manufacturers, and the nonprofits associated with them?
4. Should the Girl Scouts end its partnership with Mattel? Why or why not?
5. What advice would you give to nonprofits who are considering product tie-ins with corporations? To the corporations who want to establish such partnerships?
Notes
1. Horovitz, B. (2014, March 6). Ad group slams Barbie tie-in with Girl Scouts. USA Today.
2. Landau, J. (2014, July 21). Girl Scouts continue plans for own Barbie doll despite objections. New York Daily News.
3. Horovitz (2014).
4. Horovitz (2014). Additional sources for this section are Associated Press (2014, March 6); Flam (2014); Hochman (2014); Winograd (2014).
Sustainability
As we saw in the previous section , treating the environment well is an important social responsibility. In fact, environmental care or sustainability serves as the primary standard or guideline for corporate citizenship in Europe and other parts of the world. Sustainability means preserving the natural environment while at the same time creating long-lasting economic and social value. Sustainable organizations want to meet their current needs, but they want to do so in a way that doesn’t reduce the ability of future generations to meet their needs. 24 They adopt a long-term perspective, hoping to create conditions that foster decades of economic health and social responsibility and assure the well-being of future generations. Corporate citizens reduce greenhouse gases and waste, develop environmentally friendly products, and so on. (One list of sustainable practices is found in Ethics in Action 12.2 .)
The need for sustainable business practices is great because the natural world is under assault, largely because of population growth. The world’s population is expected to grow from over 7 billion in 2012 to around 9.3 billion by 2050. 25 (By the end of the century Africa’s population is expected to triple.) More people means more air and water pollution, deforestation, flooding, climate change, water shortages, soil erosion, and species loss. (A quarter of all mammals and a third of all amphibians face extinction within the next 30 years.) Affluence also stresses the environment. As families around the world reach the middle class, they buy more consumer products and often change their diets. An estimated 80,000 new cars are hitting the roadways every day, and millions of Asian consumers are developing a taste for meat. A pound of beef takes 16 pounds of grain to produce; meat production demands lots of water, energy, and fertilizers while producing tons of animal waste.
Sustainability is a high standard that demands constant improvement. For instance, manufacturers seeking to boost their environmental records generally begin by transitioning from pollution control to pollution prevention. 26 Instead of cleaning up messes after they occur, they try to prevent them from happening in the first place by reducing smokestack emissions and waste. Such tactics can greatly reduce the costs of disposing of toxic substances. However, if manufacturers want to continue to improve, they shift their focus from minimizing pollution to considering all the possible environmental impacts over the life cycle of a product. They create goods that are easier to recover, recycle, or reuse. Xerox took this approach by taking parts from leased copiers and reconditioning them for use in new machines. If environmentally conscious organizations want to progress still further, they must invest in clean technology that is environmentally sustainable. Hybrid gas and electric cars are a step in this direction. So are BMW automobiles, which are built to be easier to disassemble when they leave the road for good.
While sustainability efforts can be expensive, more often than not they boost profits. Throwing away less translates into lower raw materials costs and disposal fees. Recycling parts, as in the case of Xerox, reduces costs yet further. Sustainable firms greatly reduce the risk of being sued or fined for environmental infractions like polluting rivers or producing toxic emissions. They enjoy better relationships with activists, local communities, and other stakeholder groups. Their corporate reputations or “brands” get a boost. Consumers and investors reward companies with good environmental records through purchases and investment. Those working for such firms are more committed to their organizations and more willing to put forth effort. Higher employee engagement, in turn, produces higher productivity and revenue.
Consultant Andrew Savitz describes how sustainability increased employee engagement and profit at one large restaurant chain. 27 While the chain’s customers weren’t too concerned about the environment, employees at this chain were. Company leaders created green teams of frontline employees and charged them with addressing the results of an environmental audit. Auditors found widespread waste. Some stores left their lights and appliances on 24 hours a day, many used excessive amounts of water, few had recycling or composting programs, and waste disposal costs were not tracked. The green teams reduced these wasteful practices, saving each restaurant $10,000 a year while heightening the level of employee engagement.
Ethics in Action 12.2 CERES Principles
CERES (a nonprofit organization dedicated to sustainability) published the following corporate environmental conduct principles right after the 1989 crash of the Exxon Valdez oil tanker that caused significant environmental damage in Alaska’s Prince William Sound. Companies that pledge to adhere to these principles also commit themselves to publicly reporting on their performance.
Protection of the Biosphere
We will reduce and make continual progress toward eliminating the release of any substance that may cause environmental damage to the air, water, or the earth and its inhabitants. We will safeguard all habitats affected by our operations and will protect open spaces and wilderness, while preserving biodiversity.
Sustainable Use of Natural Resources
We will make sustainable use of renewable natural resources, such as water, soils, and forests. We will conserve non-renewable natural resources through efficient use and careful planning.
Reduction and Disposal of Wastes
We will reduce and where possible eliminate waste through source reduction and recycling. All waste will be handled and disposed of through safe and responsible methods.
Energy Conservation
We will conserve energy and improve the energy efficiency of our internal operations and of the goods and services we sell. We will make every effort to use environmentally safe and sustainable energy sources.
Risk Reduction
We will strive to minimize the environmental, health and safety risks to our employees and the communities in which we operate through safe technologies, facilities and operating procedures, and by being prepared for emergencies.
Safe Products and Services
We will reduce and where possible eliminate the use, manufacture or sale of products and services that cause environmental damage or health or safety hazards. We will inform our customers of the environmental impacts of our products or services and try to correct unsafe use.
Environmental Restoration
We will promptly and responsibly correct conditions we have caused that endanger health, safety or the environment. To the extent feasible, we will redress injuries we have caused to persons or damage we have caused to the environment and will restore the environment.
Informing the Public
We will inform in a timely manner everyone who may be affected by conditions caused by our company that might endanger health, safety or the environment. We will regularly seek advice and counsel through dialogue with persons in communities near our facilities. We will not take any action against employees for reporting dangerous incidents or conditions to management or to appropriate authorities.
Management Commitment
We will implement these Principles and sustain a process that ensures the Board of Directors and Chief Executive Officer are fully informed about pertinent environmental issues and are fully responsible for environmental policy. In selecting our Board of Directors, we will consider demonstrated environmental commitment as a factor.
Audits and Reports
We will conduct an annual self-evaluation of our progress in implementing these Principles. We will support the timely creation of generally accepted environmental audit procedures. We will annually complete the Ceres Report, which will be made available to the public.
SOURCE: CERES. Retrieved from http://www.ceres.org/about-us/our-history/ceres-principles . Used by permission.
The Stages of Corporate Citizenship
Becoming an outstanding citizen doesn’t happen overnight. Scholars at Boston College’s Center for Corporate Leadership believe that organizational citizenship follows a developmental path. 28 Knowing your company’s stage of development can help you identify the challenges the group faces and set goals for going forward.
· Stage 1: Elementary. This is the lowest developmental stage. Companies at this stage don’t understand corporate citizenship. They are interested only in complying with laws and industry standards. Department heads make sure the company obeys the law to prevent harm to the group’s reputation. Nike was in this phase when it was first accused of abusive labor practices in the 1990s and claimed that it had no responsibility for the actions of its overseas contractors. Credibility is the primary challenge for elementary-level firms. Their reputations are particularly vulnerable to crises, such as when outside groups challenge their employment practices or treatment of the environment.
· Stage 2: Engaged. These organizations have “awakened” to the need for social responsibility. DuPont’s leaders, for example, determined that the company would move from complying with environmental regulations to actively seeking to win the public’s trust. Engaged companies adopt policies to lower the risk of lawsuits and reputational damage. These policies generally call for exceeding legal requirements for safety, environmental health, and employment. Engaged firms enter into two-way communication with stakeholders like community groups and NGOs. Corporate units begin to participate in CSR efforts. Developing capacity is the biggest challenge in this phase. The group must develop its ability to address a variety of needs, which can seem overwhelming.
· Stage 3: Innovative. Organizations in the innovative stage implement creative ways to improve and measure social performance. In this stage, leaders become even more involved in CSR, engage in dialogue with a greater variety of stakeholders, and develop new citizenship initiatives. In 2000, for example, Ford Motor Company developed a set of CSR principles after hosting a forum with company executives and citizenship experts, followed by discussions with employees. As an outcome of these conversations, the firm converted one of its aging plants into a highly efficient, environmentally friendly facility. Data collection is another important component of this phase. Innovative organizations monitor their social and environmental activities and may report the results to the public. (We’ll take a closer look at social audits in the next section of the chapter.) Creating coherence is the primary challenge for Stage 3 organizations. Managers typically work independently on citizenship initiatives, and these efforts are not tied to corporate strategy and culture. While innovative organizations compile data, they don’t make effective use of the information.
· Stage 4: Integrated. In this stage, organizations take a more unified approach to citizenship than their counterparts in Stage 3. They try to incorporate citizenship concerns throughout every level and unit of the firm, making CSR part of the business plan. Leaders set citizenship goals, create performance indicators, and then monitor how well they do. They report the findings of all social and environmental audits, even when they are not favorable. Integrated organizations—Henkel, Interface, Groupe Diageo, Danone—often have committees made up of senior executives or board members to oversee these efforts. Deepening commitment is the primary challenge in Stage 4. Maintaining and strengthening commitment to citizenship is difficult when tackling significant problems like neighborhood blight and poverty.
· Stage 5: Transformative. Companies like Ben & Jerry’s, The Body Shop, and Patagonia make citizenship central to their mission and reputation. Consumers buy their products in part because of their citizenship activities. Transformative organizations hope to create new markets by merging their social commitment with their business strategies. They are willing to lose money in the short term if there is the possibility of a significant social and economic payoff in the long term. Stage 5 organizations often have visionary leaders who, troubled by the world’s problems, are out to make it a better place. Firms in the transformative stage often partner with nonprofits, other businesses, and community groups to address these problems. Hewlett-Packard demonstrates how organizations can simultaneously meet social and financial goals. HP worked with other groups and organizations in India, South Africa, and Brazil to provide communication technology infrastructure that enables underserved residents to access the Web. This effort not only improved the lives of poor citizens in these areas but also gave HP an advantage in these markets. The challenge for transformative companies is to learn how to develop alliances with other organizations and to balance stockholder interests with social concerns. (See Case Study 12.3 for a closer look at a new kind of corporation that addresses the tension between profit and social responsibility.)
While Center for Corporate Citizenship researchers emphasize that top leaders are critical to the development of organizational citizenship, they also cite examples where lower-level leaders and followers led the way. At AMD, Petro-Canada, and Agilant, mid-level managers from a variety of departments—community affairs, corporate communication, environmental management—joined together to convince senior management of the importance of citizenship and to form coordinating committees. Unilever’s Asian food business employees encouraged the company to address nutritional needs in the region. As a result, the company launched a children’s nutrition program and implemented the campaign in conjunction with UNICEF and Indian nonprofit groups. 29
Promoting Organizational Citizenship
To move our organizations to a higher stage or level of citizenship development, two factors are critical: (1) taking on a stewardship mentality and (2) adopting strategies for measuring citizenship. We’ll conclude this chapter by taking a closer look at each of these elements.
Adopting a Stewardship Mindset
Organizational citizenship is founded in large part on a commitment to stewardship. Stewardship, as we noted in our discussion of servant leadership in Chapter 8 , means acting on behalf of others. Stewards seek to serve the interests of the organization and followers rather than pursuing selfish concerns. On an organizational level, stewardship theory operates on the premise that virtuous managers will meet the needs of internal and external groups and society as a whole. 30 By pursuing long-term organizational benefits or goals instead of short-term gain, stewards are better able to serve the needs of all stakeholders and the common good. They also keep in mind the interests of future generations by, for example, spending more on production now to reduce pollution in hopes of protecting future generations.
Several characteristics set organizational stewards apart from their organizational colleagues. First, they are intrinsically motivated. They seek such intangible rewards as personal growth, affiliation, achievement, and self-actualization rather than tangible rewards like bonuses and company cars. Second, stewards identify themselves with the goals, mission, and vision of their organizations. They take credit for the group’s success and shoulder the blame for its failure when it falls short. Third, stewards rely on personal power instead of on positional forms of power (see Chapter 5 ) to achieve their goals. Fourth, stewards demonstrate a high level of concern not only for the performance of the organization but also for employees, customers, and the disadvantaged.
Covenantal relationships are critical to organizational stewardship. 31 Unlike traditional transactional contracts, which are based on exchanges between parties (labor for money, money for products), covenantal relationships are based on the commitment of parties to each other and on loyalty to shared values. The relational partners realize that they may not benefit from every decision but remain committed to the relationship. Covenants are directly tied to social responsibility. Covenantal relationships between workers and employers are more likely to develop in organizations that invest in social welfare. Employees are more likely to buy into the ideology of groups that promote community interests. Of course, establishing covenantal relationships can be difficult, particularly with those outside the organization. Nonetheless, if you place collective interests over selfish concerns, you are less tempted to engage in such ethical abuses as excessive executive compensation and lying to boost short-term profits. By acting as a steward, you are more likely to be a committed, productive organizational member who reaches out to help your colleagues and outsiders. You can promote stewardship in your organization as a whole through
· Sharing leadership responsibilities
· Building collaborative relationships
· Emphasizing shared values and a collective purpose
· Empowering workers
· Promoting a long-term orientation that benefits the next generation
· Helping members see their work as a calling
· Emphasizing collective interests
· Modeling other-focused behaviors
· Investing in employee development
· Promoting a sense of employee ownership 32
To determine if your employer has made efforts to develop a covenantal relationship with its workers, complete Self-Assessment 12.2 .
Self-Assessment 12.2
Covenantal Relationship Questionnaire
Part 1. Organizational Relationship With Employees
Rate each of the following items on the following scale.
1 = Strongly disagree, 2 = Disagree, 3 = Neither agree or disagree, 4 = Agree, 5 = Strongly agree
· My superior gives personal attention to subordinates who seem neglected.
· My superior delegates responsibilities to me to provide me with training opportunities.
· My superior treats each subordinate as an individual.
· My superior spends a lot of time coaching each individual subordinate who needs it.
· My superior gives newcomers lots of help.
Part 2. Company Identification
Rate each of the following items:
I think [your organization’s name] considers employees:1= much less important than sales and profits, 2 = less important than sales and profits, 3 = neither less nor more important than sales and profits, 4 = more important than sales and profits, 5 = much more important than sales and profits
How do you describe [your organization’s name] as a company to work for?: poor (1), just another place to work (2), fairly good (3), very good (4), couldn’t be much better (5)
From my experience, I feel [your organization’s name] probably treats its employees: poorly (1), somewhat poorly (2), fairly well (3), quite well (4), extremely well (5)
Scoring
Possible scores range from 8 to 40. The higher your score, the more you believe that you have a covenantal relationship with your employer. You can also compare your scores on both parts of the instrument to determine, for instance, if you have a strong sense of identification with your employer even though your superior doesn’t make an effort to build a strong relationship with you and other workers.
SOURCE: Van Dyne, L., Graham, J. W., & Dienesch, R. M. (1994). Organizational citizenship behavior: Construct redefinition, measurement and validation. Academy of Management Journal, 37, 765–802. Used by permission.
Measuring Social Performance
When it comes to organizational citizenship, “you get what you measure.” 33 As we noted in Chapter 10 , organizational members engage in those activities (in this case citizenship initiatives) that are measured and rewarded. The same is true of organizations as a whole. Companies recognized for their CSR activities or sustainability practices try to maintain those accolades. Survey results also reveal if organizations are reaching their goals and lay the groundwork for improvement. This data is not only critical to members but to stakeholder groups like socially conscious customers and investors who use this information when making buying and investment choices.
Financial statements don’t provide an accurate (total) picture of an organization’s performance because they ignore the group’s social impact and environmental performance. Proponents of CSR and sustainability argue that corporations need to be judged by a triple bottom line. 34 In addition to providing traditional financial data, companies should supply information on how well they are meeting their three social and environmental responsibilities: profit, people, and planet. The triple bottom line is measured in a variety of ways. A number of companies sponsor their self-audits, which are conducted by outside auditors. Starbucks’ annual “Global Responsibility Report” is one such example. This document addresses such topics as ethical sourcing, environmental impact, energy and water conservation, recycling, and community service. Self-audits are particularly prone to abuse, however. Firms may use them as public relations tools, limiting the analysis to just a few areas of strength or reporting only favorable findings. To be credible, such audits need to be complete and should be conducted and certified by an outside group, such as an accounting firm.
Standardized audits are gaining in popularity. Social Accountability 8000 is designed to measure labor practices at overseas suppliers. A firm must meet measurable, verifiable performance standards in nine areas to be certified. These standards forbid child labor, forced labor, coercion, discrimination, unlimited overtime, and substandard wages. 35 The Global Reporting Initiative, which has been adopted by such organizations as Baxter International, Canon, Deutsche Bank, and Ford Motor Company, is another popular measure. 36 This instrument examines three sets of performance indicators. Economic indicators look at an organization’s direct and indirect impacts on stakeholders and on local, national, and global economic systems. These include such elements as wages, pensions and benefits, payments to suppliers, taxes, and subsidies received. Environmental indicators reveal an organization’s impacts on natural systems. They cover energy, material and water use, greenhouse gases and waste generation, hazardous materials, recycling, pollution, and fines and penalties for environmental violations. Social indicators concern an organization’s influence on social systems and cluster around labor practices (diversity, health, and safety), human rights (child labor, for example), and other social issues (bribery and corruption, community relations).
Social or responsibility auditing has become a “mainstream business practice,” according to accounting firm KPMG, which regularly surveys corporate social responsibility reporting. 37 Seventy-one percent of the 4,100 largest global companies (and 93% of the largest 250 firms) it surveyed provide such information, and there have been dramatic increases in reporting rates in Asia and Latin America. However, social measurement still is plagued with a number of problems. 38 Standardized social performance instruments aren’t as universally accepted as financial audits. There are questions about who is qualified to conduct social audits, what they should cover, how data should be collected, who should have access to the results, and how to draw comparisons between organizations. Determining social and environmental impact is more difficult than determining profits and losses. According to KPMG, there is “much room for improvement,” with only one quarter of companies in its report scoring 80 or higher out of 100 on reporting quality. The accounting firm says that best CR (corporate reporting) reporting practices include the following:
· Strategy, risk, and opportunity. Include a careful assessment of the CSR risks and opportunities the business faces and what it is doing to respond to these factors.
· Materiality. Identify the social/environmental issues that have the greatest potential impact on a firm and its stakeholders. Outline how these dangers have been assessed, how stakeholders have been involved, and how this assessment impacts their reporting and management of these issues.
· Target and indicators. Use meaningful, measurable targets and indicators to measure progress and report on performance.
· Suppliers and the value chain. Explain the impacts of the firm’s supply chain and what happens to the products and services after they have been sold (and what the company is doing to decrease harmful impacts).
· Stakeholder engagement. Identify stakeholders, how the company engages with stakeholders, and how the company has responded to their feedback.
· Governance of CR. Spell out who is responsible for CR and how CR performance is linked to pay.
· Transparency and balance. Provide information on obstacles and failures as well as achievements.
Outside groups often conduct their own audits of an organization’s social performance. To make the Forbes list of the companies with the best CSR reputations, consumers must rate firms highly on such items as “______ is a good corporate citizen—it supports good causes and protects the environment”; “_____ is a responsibly-run company—it behaves ethically and is open and transparent in its business dealings”; and “______ is an appealing place to work—it treats its employees well.” (Microsoft, Walt Disney, Google, and BMW tied for the top spot in 2013). 39
Socially conscious mutual funds and other institutional investors rely on the Dow Jones Sustainability Index and other, similar indices when deciding whether or not companies meet their investment criteria. The Dow Jones Sustainability Index (DWSI) evaluates companies in various regions and industries according to such factors as corporate governance, climate change mitigation, labor practices, and risk management; evaluators reject firms that don’t operate in an ethical, responsible manner. Charities are also subject to external evaluation. Charity Navigator rates the performance of nonprofits based on these categories: (1) program expenses, (2) administration expenses, (3) fund-raising expenses, (4) fund-raising efficiency (the percentage of the budget spent on raising money), (5) primary revenue growth (the ability to sustain income over time), (6) program expenses growth (the ability to expand programs), (7) working capital (the ability to survive a short downturn in revenue), (8) accountability (willingness to explain actions to the public), and (9) transparency (willingness to share critical data with outsiders). 40
Third-party evaluations, like self-audits, are far from perfect. Oil producer BP qualified for the DWSI before it caused the massive oil spill in the Gulf of Mexico. The firm was quickly dropped from the index.
Chapter Takeaways
· In today’s society, organizations are expected to act as citizens who promote the welfare of society.
· Your organization has a moral obligation to respond to groups affected by its policies and operations. Engage in stakeholder management by responding to five questions: (1) Who are our stakeholders? (2) What are our stakeholders’ stakes? (3) What opportunities and challenges do our stakeholders present? (4) What responsibilities does the firm have to its stakeholders? (5) What strategies or actions should management take to best handle stakeholder challenges and opportunities?
· Whenever possible, seek to create value for all stakeholders, engaging in dialogue with supporters and critics alike. Track the progress of moral issues that might impact your organization. Develop strategies for addressing those trends with highest probability and magnitude.
· Corporate social responsibility (CSR) describes a corporation’s efforts to better society. These activities can be classified (1) according to levels of responsibility (economic, legal, ethical, philanthropic), (2) according to areas of impact (human resources; community, cultural, societal, philanthropic; environmental protection, waste reduction, and sustainability; product, consumer, and service contributions and protections), and (3) according to important stakeholder groups.
· Make sustainability—doing business in a way that preserves the natural environment while creating long-lasting economic and social value—an important organizational objective. Sustainability is a standard that demands constant improvement, but sustainability efforts can reduce costs, build better relationships with stakeholders, enhance the corporate reputation, and foster employee engagement.
· Determining your organization’s stage of citizenship development can help you identify challenges and set objectives. Elementary organizations, which are at the lowest stage of development, don’t understand corporate citizenship. Engaged organizations adopt social responsibility policies. Innovative organizations develop creative ways to improve and measure social performance. Integrated organizations incorporate citizenship into every operation. Transformative companies make citizenship central to their missions and reputations. Citizenship efforts can be spearheaded by front-line employees and middle managers as well as by top-level executives.
· Organizational citizenship rests largely on a commitment to stewardship. As an employee or manager, seek to meet the interests of the organization, followers, and external groups rather than your own needs. Seek to build covenantal relationships based on mutual commitments and shared values.
· Focus attention on organizational citizenship by auditing social and environmental performance in addition to financial performance (the triple bottom line). You can create your own audit or use a standardized one. External evaluators frequently measure the citizenship performance of companies and nonprofits in order to provide information to investors and donors.
Application Projects
1. In a group, identify the important stakeholders of your college or university. What ethical responsibilities does your institution have to each group?
2. Identify the ethical issue that could pose the greatest challenge to your college or university or employer based on Self-Assessment 12.1 . Share your conclusions in a small group. Then, together, generate a strategy for the issue members determine has the greatest likelihood and greatest magnitude for your organization.
3. Evaluate the sustainability efforts of your college or university. How well does your institution live up to the CERES Principles found in Ethics in Action 12.2 ? Write up your findings.
4. Create a list of sustainability practices you can adopt as an individual both at work (or school) and at home.
5. Discuss your scores on Self-Assessment 12.2 with a partner. Why do you think you do or do not have a covenantal relationship with your employer or organization? How can you encourage your organization to adopt a stewardship mind-set?
6. Compare and contrast two corporate social audits reports available online. What do you learn from examining these materials? Do they meet the standards set out in the chapter?
7. Create a case study based on an organization that you identify as a leading citizen. How is its citizenship reflected in its stakeholder focus, corporate social responsibility activities, and sustainability efforts? How does it report on its social and environmental activities? How is it rated by external agencies and why? As an alternate, select an organization and determine its stage of corporate citizenship development.
8. What can you do to help your organization become a better corporate citizen? Outline a strategy.
Case Study 12.2
The Public Benefit Corporation
Corporate officers, as we saw in Chapter 10 , serve the financial interests of stockholders. This fiduciary duty can come into conflict with other goals, like helping to improve the local school system or restoring the environment. Shareholders may argue that companies should focus less on corporate responsibility and more on the bottom line. For example, Costco, which pays it employees well and provides them with health insurance, is under constant pressure from Wall Street to pay workers less in order to increase profits and raise the stock price.
In recognition of the fact that many companies have other goals besides profit, Delaware, New York, California, and a number of other states have passed laws creating a new category of corporation called the public benefit corporation. Public benefit corporations (BCs) are for-profit entities that “create a material positive impact on society and the environment.” 1 Their social purposes are written into their corporate charters, which enables them to pursue social as well as financial objectives. To maintain their standing, BCs must file yearly reports on how well they are reaching their social or environmental goals. Alter Eco, Plum Organics, Method, and New Leaf Paper are some of the firms that have registered as public benefit corporations in Delaware. Yves Chouinard, founder of the Patagonia outdoor clothing company, was the first corporate leader to file under California’s public benefit corporation law. Patagonia is known for its strong environmental emphasis, giving 1% of sales to environmental causes, manufacturing recyclable clothing, funding a national park in Chile, and encouraging consumers to only purchase their products if they really need to do so. Chouinard registered the company as a BC because he feared that when he died, his successors might set aside the sustainability values and practices of the company in favor of higher financial returns.
Benefit corporations aren’t for everyone. The vast majority of companies will continue to focus on the bottom line and investors will continue to demand high returns. (Delaware law requires that existing publicly held corporations receive 90% stockholder approval before changing to BC status.) Some worry that managers will use the BC designation as cover for poor business decisions. Other observers are leery of the annual reporting requirement, arguing that measuring social progress is much more complex than tracking financial objectives. It may take years to demonstrate progress on social goals and there is no “one size fits all” standard that applies to all types of public benefit. Then, too, it is not clear what happens to companies that fail to meet their social objectives in a given year.
Since benefit corporations are a recent development, it remains to be seen how effective they will be in attracting investment and fulfilling their stated purposes. Nevertheless, proponents are optimistic, saying that BCs are the latest development in corporate social responsibility and should be attractive to the millennial generation, many of whom are social entrepreneurs who start businesses to meet social needs like restoring blighted neighborhoods and training unskilled workers. Delaware governor Jack Markell believes that benefit corporations will increase investment, “helping to build public trust in business, and becoming an attractive investment opportunity for the growing number of investors who increasingly want to make money and to make a difference.” 2
Discussion Probes
1. What advantages or disadvantages do you see in public benefit corporations?
2. Would you be more likely to purchase goods and services from public benefit corporations than traditional corporations? Why or why not?
3. Would you invest in a public benefit corporation even if it meant that you would earn significantly less? Would you invest in a mutual fund that only held socially responsible companies?
4. Are there certain companies or types of businesses you would never invest in? Why?
5. Do you think that annual reports will be enough to guarantee that benefit corporations fulfill their objective to create a “positive material impact on society and the environment?”
Notes
1. H. Martin (2012).
2. Markell (2013). Additional sources for this section are Burke and Bragg (2014); Cummings (2012); Gilbert (2013); Herdt (2012); Hiller (2013); Loewenstein (2013); Solnik (2012); Wright (2011); Young (2014).
Case Study 12.3
The Greening (or Greenwashing) of Walmart
Can the world’s largest company also be its most sustainable? Leaders at Walmart think so. Since 2006 Walmart has been engaged in an ambitious sustainability campaign. The company has pressured suppliers to reduce packaging (removing toilet roll cores and deodorant boxes, for example), set a goal of using 100% electricity from renewable sources, installed water conservation technologies in its stores, kept the vast majority of its waste out of landfills, and is well on its way to doubling its truck fleet’s fuel efficiency. In one particularly bold move, the firm instituted a sustainability index. Walmart rates suppliers on their environmental impact in a variety of product categories, from best to worst. For example, the index measures the amount of fertilizer, chemicals, and water used to produce ingredients for soup and beer. The performance of Walmart buyers is evaluated, in part, on how well their suppliers meet sustainability standards.
Some environmental groups like the Earth Defense Fund and Act Now have partnered with Walmart, recognizing that its efforts to go green can have a significant impact because of the company’s size and global reach. Walmart employs 2.2 million associates at 11,000 locations in 27 countries. In 2013, the multinational generated $473.1 billion in revenue. Its typical supercenter stocks 125,000–150,000 items.
Other environmentalists believe that Walmart is not going green but is engaged in “greenwashing.” In greenwashing, companies make deceptive claims about their environmental efforts that cover up or “greenwash” their true environmental records. They tout their sustainability programs while continuing to despoil the planet. General Electric has been accused, for instance, of spending $90 million advertising its Ecoimagination program while remaining one of the biggest polluters in the country and resisting efforts to make it clean up its waste sites.
Critics cite the following as evidence that Walmart is more about greenwashing than greening:
· Walmart derives less than 4% of its electricity from renewable sources despite its goal to reach 100%. Kohls and Whole Foods have already reached the 100% benchmark.
· The company relentlessly demands ever-lower prices from suppliers, who then supply shoddy products that wear out quickly, increasing the amount of stuff that ends up in landfills.
· Walmart’s emission of greenhouse gases actually increased between 2005 and 2010, making it one of the biggest polluters in the United States.
· Walmart continues to gobble up land for new stores. In most cases it develops land that was previously unoccupied, threatening wildlife and farm production. The company doesn’t hesitate to abandon stores when it decides to open larger supercenters close by.
· The firm regularly contributes to antienvironmental political candidates.
Is Walmart going green or merely greenwashing? Probably some of both. There is little doubt that the firm is committed to reducing waste and promoting more environmental sensitive practices in its stores and in its supply chain. However, at the same time, Walmart’s business model makes achieving its sustainability objectives nearly impossible. Rapid expansion overwhelms environmental progress. For example, even though it reduced CO2 emissions in existing stores, these savings were not enough to offset the CO2 contributed by its new stores. Walmart’s mission is to maintain its “Everyday Low Prices.” Company leaders won’t undertake some sustainability initiatives if the price is too high. The firm’s use of renewable energy lags, in part, because it believes available sources are too expensive. According to the Walmart Canada CEO, the company would only consider raising prices on a few sustainable products: “Would we put our prices up [across the board?] No. Our raison d’être is to save people money.”1
Walmart faces some tough choices when it comes to sustainability. Many of its efforts, like reducing fuel use and waste, are a natural fit for the firm because these initiatives help keep prices low and boost profits. However, more ambitious goals, like offering healthier food and recyclable small appliances and electronics, may mean higher prices and lower earnings. Company leaders will have to determine if they are willing to forgo short-term gains in order to leave the world a better place for generations to come.
Discussion Probes
1. What is your experience with Walmart? What is your impression of the company? Do you shop there?
2. Do you think that Walmart is a good corporate citizen? Why or why not?
3. Should environmental groups work with Walmart or against it?
4. Do you think Walmart’s business model makes it unlikely that it can become sustainable?
5. Is Walmart going green or greenwashing? Why?
SOURCE: Lambert (2010). Additional sources for this section are Cagle (2012); Fishman (2011); Gunther (2011, 2013); Institute for Local Self-Reliance (2012); Kewalramani and Sobelson (2012); Kurtzleben (2012); Mitchell (November 8, 2011; November 18, 2011; February 2, 2012); Sacks (2007); Sheppard (2013); Walmart (2014).
