Agenda

The Rise of CSR Royal Dutch/Shell vs Greenpeace Stakeholder Analysis Strategic CSR
FTMBA Strategic Management
Lecture 3: Strategic Context: Business strategy and society
By Dr. Brad MacKay, Senior Lecturer in Strategy
______________ 2011 MacKay

Scenario Planning Case Exercise and Discussion: Apple Inc.

Learning Outcomes

The Rise of CSR

The emergence of a global economy;

To become familiar with the rise of CSR and its impact on corporate strategy. To understand what strategic practices give rise to CSR controversies. To develop knowledge of how strategy and CSR can become mutually reinforcing rather than mutually exclusive practices To direct attention towards scenario approaches for understanding strategic uncertainties.

NGOs attempt to check the power of MNCs

Linkages between political and economic institutions

UN climate change negotiations

Developments in global communications

NGOs are able to harness the power of ICT to take-on much larger institutions. It is a semiotic world. Symbols and images are powerful.

The rise of Corporate Social Responsibility

Managers have a duty to both the corporation's shareholders and "individuals and constituencies that contribute, either voluntarily or involuntarily, to [a company's] wealth-creating-capacity and activities, and who are therefore its potential beneficiaries and/or risk bearers. Post et al. 2002.
Source: Bendell, Jem. 2000. Introduction. In Terms for Endearment: Business, NGOs and Sustainable Development. (Sheffield: Greenleaf). And J.E, Post, L,E, Preston and S, Sachs, "Managing the Extended Enterprise: The New Stakeholder View," California Management Review 45, no. 1 (fall 2002): 5-28.

CSR Controversies
Nike faced an extensive consumer boycott after the New York Times and other media outlets reported abusive labor practices at some of its Indonesian suppliers in the early 1990s; RD/S decision to sink the Brent Spar, an obsolete oil rig, in the North Sea led to Greenpeace protests in 1995 and to international headlines; Rio Tinto faced controversy with its Madagascar mine; Pfizer and the pharma industry discovered that they were expected to respond to the AIDS pandemic in Africa even though it was far removed from their primary product lines and markets; McDonalds and the fast-food and packaged food industries are now being held responsible for obesity and poor nutrition.

Royal Dutch/Shell: The Brent Spar Controversy

1991 Royal/Dutch Shell took the decision to decommission the Brent Spar Oil Platform; Feb. 1995 the UK Government granted a licence; 30th of April Greenpeace occupied the Brent Spar platform;
Massive media attention; The occupation coincided with the fourth North Sea Conference (Environmental Ministers adopted a motion again Shells plans); Faced major protests, particularly in Germany where petrol sales declined; June 20th Shell backed down.
Source: Haridimos Tsoukas. 1999. David and Goliath in the Risk Society. Making Sense of the conflict between Shell and Greenpeace in the North Sea. Organization. 6(3): 499-528.

The Brent Spar Controversy Contd

3 Year BPEO Study (Best Practical Environmental Option)
On the grounds of reduced technical risk; the reduced safety risk to the workforce; the insignificant environmental impact; and the total cost (46 million, tax deductible, on-shore disposal vs 11.6 North Sea disposal. [in the deep ocean] animal life is sparse, and only loosely connected to the main food chain. True, the buoy would have crushed some deep-sea inhabitants when it hit the bottom; the cloud of sediment raised by the impact would have smothered others. Yet, having been stripped of most of its contents (including light bulbs) by Shell, the Brent Spar contains only small quantities of pollutants: a residue of oil; perhaps 100 tonnes of sludge; some heavy metals; and some radioactive salts. In the still depths the pollutants might well have leaked out only slowly, perhaps too slowly to kill many more animals. The level of radioactivity would have been equivalent to what youre exposed to in any city with granite buildings ~ says Alasdair McIntyre of Aberdeen University
Source: Haridimos Tsoukas. 1999. David and Goliath in the Risk Society. Making Sense of the conflict between Shell and Greenpeace in the North Sea. Organization. 6(3): 499-528. Source: The Economist 24th June 1995: pp. 110-111 110-

The option also would save the UK government significant funds in tax revenues.

Royal Dutch/Shell: The Nigerian Controvery

Movement for the survival of the Ogoni People (MOSOP)
On the face of it, it seemed a massively uneven contest. The Royal Dutch/Shell Group had global sales of 84.3 bn last year. It employs 106,000 people in more than 100 countries. Greenpeace had a global income of $131 m last year, some 0.001 percent of Shells. It employs about 1,000 people and has offices in 30 countries.
Protested about Shells operations in the Ogoni region; Protested over environmental degradation, oil spills etc. Little revenue from Shells operations in the Ogoni region was making it back to local communities; Shell withdrew from the Ogoni region in 1993; In November of 1995, the Nigerian government executed the chief Shell critic, writer and prominent Ogoni leader Ken Saro-Wiwa and eight others; Anti-Shell protests erupted all over the world.

Source: The Independent June 21st 1995: Davids Great Victory Over Goliath

Impact on Shell
Shell is undergoing fundamental change We have learned the hard way that we must listen, engage and respond to our stakeholder groups ~ Sir Mark Moody-Stuart, chairman of the Committee of Managing Directors Shell engaged in dialogue with a number of stakeholders. Shells statement of general business principals was amended to include human rights and sustainable development; A Social Responsibility Committee was established at the highest echelons. Changed Shells expansion strategy; Shell made a foray into renewable energies

Stakeholder Mapping
Owners Government International Financial Institutions

Suppliers Buyers Firm Local Community Trade Unions International Organizations Employees
Source: Mellahi, K. Frynas, G. Finlay, P. 2005. Global Business Management. P. 108.

NGOs

Royal/Dutch Shell Stakeholders

Share Registrars Solicitors Individual Investors Brokers Banks International Financial Institutions Auditors Finance Institutional Investors

Stakeholder mapping: the power/interest matrix

Level of interest
Low High

Accountants Export Credit Agency Human Resources Technology Procurement Analysts Current Employees Future Employees Human Resource Management Consultants High Universities and Research Institutions

IT Service Trade Support Associations Providers Services Advertising/PR Agencies External Affairs Political Lobbyists Sponsored Cultural Inst.

Low A B

Minimal effort Keep informed

Power
C Keep satisfied D Key players

NGOs Environmental Political Risks And Community Analysts Relations Government Consultants

Source: Mellahi, K. Frynas, G. and Finlay, P. 2005. Global Strategic Management.

Source: Johnson, Scholes and Whittington. 2004. Fundamentals of Strategy. And Mendelow, 1991Proceedings of the Second International Conference on Information Systems. Cambridge

Stakeholder Analysis Limitations

LIMITATIONS In the volatile and quickly changing business environment, managers cannot be sure about either stakeholders or their demands; Stakeholders can change their demands; Stakeholder analysis only works if you have perfect information (I.e. is Greenpeace or another group planning a campaign?) ALTERNATIVES An alternative is to focus on issues that may become a threat to an organization (I.e. is there a public debate happening about a specific issue?); Develop Early Warning Systems (EAS) for scanning the business environment.
Consumer research on trends; Systematic information-gathering; Information dissemination in the firm;

CSR and Strategic Learning

1. Defensive: Its not our job to fix it;
Royal Dutch/Shell denied responsibility for the emissions of its products;

2. Compliance: Well just do what we have to;

Nestl was criticised for its infant formula in Africa and changed its marketing strategy;

3. Managerial: Its the business stupid;

Nike agreed on global standards AND changed its procurement incentives that encouraged buyers to secure bonuses by circumventing code compliance to hit targets;

4. Strategic: It gives us competitive advantage;

Automobile companies like Toyota know their future depends on producing environmentally friendly automobiles;

5. Civil: We need to make sure everyone does it;

Alcohol producers like Diageo know that if the whole sector doesnt promote responsible drinking, governments will legislate more restrictive practices
Source: Quoted in Mellahi et al. 2005. Global Strategic Management. Oxford Source: Zadek, S. 2004. The path to corporate responsibility. HBR. December.

Mapping Organisational Learning

Opportunity Green Zone Civil Strategic Managerial Compliant Defensive RDS Risky Red Zone Latent Emerging Consolidating Institutionalized Toyota Diageo

Strategic Learning

Nike Nestl

Issue Maturity
Source: Zadek, S. 2004. The path to corporate responsibility. HBR. December.

Source: Porter, M. & Kramer, M. 2006, Strategy & Society, HBR, December. 77-92

Strategic CSR
Toyotas response to concerns over automobile emissions; Urbi, a Mexican construction company, prospers by building housing for disadvantaged buyers using novel financing vehicles such as flexible mortgage payments made through payroll deductions; Crdit Agricole, Frances largest bank, differentiats itself by offering specialized financial products related to the environment, such as financing packages for energy-saving home improvements and for audits to certify farms as organic; Microsofts Working Connections partnership with the American Association of Community Colleges (AACC) shares value by working with colleges to enhance education in IT; Nestl, for example, works directly with small farmers in developing countries to source the basic commodities, such as milk, coffee, and cocoa, on which much of its global business depends.
Source: Porter, M. & Kramer, M. 2006, Strategy & Society, HBR, December. 77-92

Strategic CSR and Transformation

1. Nike has moved beyond compliance to long-term strategy, looking at design and manufacturing decisions. They can save $700 million/year in wasted material in its shoes. By 2020 it aims for zero waste and toxic materials, also working with Partners DuPont, Dow Chemicals and BASF; 2. B&Q, the home retailer, measures tens of thousands of products against a list of social issues ranging from climate chain to supplier-chain working conditions to identify and take action on CSR risks; 3. GE, through its eco-imagination initiative, has reduced its own cost-base by over $100 million and improved efficiency, while providing solutions for other businesses. It also has lobbied for cap-and-trade carbon regulation to build certainty for the future; 4. Rio Tinto, establishing a mine in the only 10% of pristine environment left in Madagascar, works with government, NGOs and local communities to ensure social benefit and environmental sustainability measured against explicit targets; 5. Wal-Mart aims to eliminate all of its landfill waste by 2025 working with suppliers and being 100% fuelled by renewable energy. In 2008/2009 it reduced waste by 57%

But when it goes wrong

BP, under John Browne, developed an explicit code of CSR emphasising sustainable energy, climate change, local development and safety; 2005 An explosion at BPs Texas City oil refinery; James Baker led an independent investigation finding that their was a shortterm focus on decentralized management systems and entrepreneurial culture without establishing process safety as a core value across its refineries. BPs CSR stance had left it vulnerable when things went wrong. In January 2007 John Browne announced he would be stepping down 18 months early. Deepwater Horizon

Our commitment to responsibility has to be expressed not in words, but in the actions of the business, day in and day out, in every piece of activity and every aspect of behaviour

Scenarios deal with two worlds, the world of facts and the world of perceptions. They explore for facts but they aim at perceptions inside the heads of decision-makers. Their purpose is to gather and transform information of strategic significance into fresh perceptions. This transformation process is not trivial more often than not it does not happen. When it works, it is a creative experience that generates a heartfelt Aha! from your managers and leads to strategic insights beyond the minds previous reach. (Schwartz, 1991, p. 37).

Source: Schwartz, P. 1991. The Art of the Long-view. P. 37.

What are Scenarios?

Importance

From Forecasting to Scenarios: Timeframes

Short-term Forecasting High Futures Approach Accuracy Medium-term Long-term

Are Stories about how the world could evolve; Are not forecasts; Are built by different methods; Highlight key strategy/organisational issues NOW; Embrace uncertainty; Examine the roll out of critical business drivers.

Forecasting Space

Scenario Space

Deep Futures

Low

Scenario Planning Y+1 Y+X Distance into the Future

Adapted from: Van der Heijden, K. (1996). Scenarios. Wiley.

What are the primary forces that drive the unfolding future?
Political Economic Social Dynamics Technology

Scenarios from the Drivers

Important

Trend Analysis

Complexity Analysis

Forecasting Space (What drivers are predictable?)

Scenario Space (What drivers are uncertain?)

Ecology & Environment Legal, Ethics, & Values

GOVERNANCE

Some are Pre-Determined (certain) and will play out in any story we tell about the future. Some are Uncertain and need analysis for impact and criticality.

1. 2. 3.
Certain

1. 2. 3.
Uncertain

Scenarios-to-Strategy

Case: British Petroleum (BP)

Syndicate Group Discussion and Presentation Brief:

Scenario 2 Scenario 1

Scenario 3

On pages 4&5 of the case, it states: Browne asserted that BP had a responsibility to take action, and that the company would take specific measures, not only to reduce its greenhouse emissions, but also to fund scientific research, to take initiatives for joint implementation, to develop alternative fuels for the long term, and to contribute to the public policy debate in search of wider global answers to the problem. 1. Are these costly initiatives a sustainable corporate strategy in the long run? If you were a manager to approve these commitments, how would you weigh these investment in terms of tangible strategic benefits for the company? 3. Will this strategic CSR allow the company to gain competitive advantage in the long run? 4. What does the Deepwater Horizon spill change? 5. Your recommendations? 2.

Gaps?

Gaps?

Gaps?

Strategy & Resource Base