ACC1125

Corporate Responsibility & Ethics

Unit 2: Corporate Responsibility

• Conceptual Corporate Responsibility

• Business focus of Corporate Responsibility

Slide 2
Conceptual Corporate Responsibility

• Why corporate responsibility

• World views of corporate responsibility
• Frameworks for understanding corporate responsibility
• Theories of corporate responsibility
• Cases for and against corporate responsibility

Slide 3
 Corporate Irresponsibility

10/08/2020 Slide 4
Why corporate responsibility?

Public Confidence in business

90%

80%

70%

60%1950

50%

40%

30% 1985 1987

1991 1998 2000
1973 1983 1986
20% 2004
1978
1981 2002
10%

0%

Frederick (2006, cited in Blowfield and Murray 2014, p.33) Slide 5

Why corporate responsibility?

• Why is there a lot of distrust of business?

• Is CR a good way to restore business’s
reputation?
• How could ‘distrust’ be factored into a
company’s business plan?

10/08/2020 Slide 6
 Reasons for declining trust

• Implication in activities deemed unfavourable by members

of society
• Human rights violation
• Polluting the environment
• Propping oppressive regimes
• Misinformation
• Deliberately harming customers

• Usual suspects were initially the first culprits

• Can you guess the industries?
Oil & Gas Tobacco Chemical Mining

• There is virtually no industry today that is viewed as ‘clean’ and/or free

from controversy. Can you think of any ‘clean’ industry?
10/08/2020 Slide 7
 Definition of CR

• “Corporations have a responsibility to those groups and individuals

that they can affect”
[http://lexicon.ft.com/Term?term=corporate-responsibility]

• “Corporate responsibility is concerned with the sustainability of an

organisation’s ethics over the long term. At its core, corporate
responsibility seeks to add value to an organisation's activities by
ensuring they have a positive impact on society, the environment
and the economy.”
[https://www.cipd.co.uk/knowledge/strategy/corporate-responsibility/factsheet]

• “duty and rational conduct expected of a corporation; accountability

of a corporation to a code of ethics and to established laws”
[http://www.dictionary.com/browse/corporate-responsibility]

10/08/2020 Slide 8
 Timeline of CR Blowfield and Murray (2014, p.43)

Decade 1930 1940 1950 1960 1970 1980 1990 2000

First corporate responsibility texts

New Deal and Welfare state
Nationalization (Europe), state enterprise (former
colonies Communist Bloc); post war consensus
Return of business and society debate

Shift from responsibility of leaders to responsibility of

companies
Debate about nature of responsibilities

Introduction of stakeholder theory

Corporate responsibility as a management practice

(e.g. corporate social responsiveness)
Environmental management

Corporate social performance

Stakeholder partnerships

Business and poverty

10/08/2020
Sustainability Slide 9
 Application of ‘CSR’

• ‘Corporate Social Responsibility (CSR)’ emerged around the 1970s

• Evidence of CSR activities by companies have existed long before:

– TATA Group have been involved in responsible business practices

for more than 100 years
– Cadbury has a legacy of social and ethical principles since the
1800s
• Companies today adopt a far more professional, coherent and
comprehensive approach in addressing CSR issues
• The ‘CSR movement’ has permeated across various type firms –
consultancies, activists, academics, standard setters, watchdogs,
auditors.
10/08/2020 Slide 10
 World views of corporate responsibility

Expedient/
enlightened Social Radical
self-interest ecologist feminist

Pristine Social Deep

capitalist contract Socialist ecologist

10/08/2020 Slide 11
 World views of corporate responsibility

• ‘Pristine capitalists’: liberal economic democratic approximation of

how the world should work. CSR for shareholder returns, profit and
economic efficiency
• ‘Expedient’: long-term economic stability requires wider social
responsibilities. This enlightened self-interest view accepts that the
current economic system generate unacceptable excess.
• ‘Proponents of social contract’: companies exist as part of societies
they operate. Mutual dependence and responsibility is necessary for
both parties to excel.
• ‘Social ecologist’: Environmental concerns and believe serious
problems will occur if organisation-environment interactions are not
checked
10/08/2020 Slide 12
 World views of corporate responsibility

• ‘Socialists’: capitalist structure causes more harm than good in society.

Ownership structure of promotes social hierarchies that drives
inequality and oppression
• ‘Radical feminists’: economic, social, political and business systems
are too masculine. Compassion, cooperation, love and reflection
should have a greater voice as opposed to the dominance of
aggression, competition, conflict and individualism
• ‘Deep ecologist’: humans do not have greater rights of existence than
any other form of life.

10/08/2020 Slide 13
 Characteristics of corporate responsibility

Voluntary

Beyond Managing
philanthropy externalities

CSR
Multi
Practices and
stakeholder
values
orientation

Social and
economic
alignment

10/08/2020 Slide 14
 Carroll’s four types of responsibility
(1979)

Desirable but discretionary acts that contribute to

Discretionary societal good (e.g. Philanthropy)

Ethical expectations of a company

Ethical Responsibility
(e.g. Acts necessary to maintain licence to operate)

Obligations to fulfil economic mission

Legal Responsibility within the confines of the law

Responsibility to produce
Economic Responsibility goods/services that society
wants at a profit

10/08/2020 Slide 15
Carroll (1979, cited in Blowfield and Murray 2014, p.17)
Triple bottom line

The phrase “The triple bottom line” was first coined in 1994 by John Elkington, the
founder of a British consultancy called SustainAbility.
His argument was that companies should
be preparing three different (and quite
separate) bottom lines.
1. the traditional measure of corporate
profit the “bottom line” of the profit
and loss account.
2. the bottom line of a company's
“people account”—a measure in
some shape or form of how socially
responsible an organisation has been
throughout its operations.
3. the bottom line of the company's
“planet” account—a measure of how
environmentally responsible it has
been. Slide 16
Triple bottom line

The triple bottom line (TBL)

consists of three Ps: profit,
people and planet. It aims to
measure the financial, social and
environmental performance of
the corporation over a period of
time.

Arguably, only a company that

produces a TBL is taking account
of the full cost involved in doing
business.

Slide 17
 Theories of corporate responsibility

• Legitimacy theory

• Institutional theory

• Stakeholder theory (next week)

10/08/2020 Slide 18
 Legitimacy theory

• Organisations seek to ensure they are perceived as operating

within the bounds and norms of their respective societies
• Legitimacy is a relative concept that is time and place
specific
• A resource on which organisations depend on for survival
Legitimacy – a status or condition
Legitimation – a process that leads to being recognized as
legitimate
• Society’s collective perception of an organisations’ legitimacy
is more important than the actual conduct of the
organisation
10/08/2020 Slide 19
 Social contract

• An implied contract that represents the norms and

expectations of the community in which an orgnisation
operates
• Societies own resources the companies need to run
operations. All organisations operates via social contract
• Survival and growth of organisations depend on constantly
meeting the twin test of legitimacy and relevance
Legitimacy – abiding by norms
Relevance – using resources to produce goods and
services that are wanted in society

10/08/2020 Slide 20
 Managing legitimacy and changing
societal expectations

• Communication is key to managing legitimacy

• In managing legitimacy, Lindblom (1993)
proposes that organization can seek to:
1. Educate and inform its relevant publics about actual changes in
performance that brings its activities more in line with society’s values
2. Change perception that relevant publics have on organisations’
performance but not change actual behavior
3. Manipulate perception by deflecting attention from the issue of concern
onto related issues through appealing to other achievements
4. Change external expectations of performance by demonstrating that
specific societal expectations are unreasonable
10/08/2020 Slide 21
 Legitimating strategies
An oil spill occurred in a remote area where a large oil & gas company is
operating. The company has some options in addressing the event. Match each
of the options with the correct legitimating strategy (educate and inform,
change stakeholder perception, manipulate attention away to other issue/s,
change external expectations)

• Inform the public about implementing robust policy on spills and their
Change
readiness to act if any oil spill occurs but facility heads SH perception
have not been
instructed to change existing procedures.
Change external expectations
• Present a discussion that highlight risks of spills are mainly due to external
factors outside the company’s control
• Announce significant investment in Manipulate
schools, hospitals and
attention roads
away in local
to other issue/s
communities and emphasis how locals will benefit from the investment
Educate and inform
• Provide detailed account of the extent of the spill as well as measures being
10/08/2020
taken to repair and prevent future spills Slide 22
 Institutional theory

• Organisations follow ‘institutionalized’ processes that are accepted as

‘the way to do things’
• Isomorphism – constraining process that forces one unit in a population
to resemble other units that face the same set of environmental
conditions
– Normative – pressures arising from group norms to adopt particular
institutional practices
– Coercive – change processes to accepted practices because of pressure
from stakeholder upon which the organization is dependent
– Mimetic – emulate or improve upon the practices of other organisations
• Decoupling – formal practice is separate and distinct from actual
organisational practice
10/08/2020 Slide 23
 Case for corporate responsibility

• Modern corporation and role of governments

• Allow companies to maintain licence to operate
• Mitigate reputational risk
• Create safer communities
• Establish better and lasting relationship with stakeholders
• Avoid pressure
• Shareholder value
• Companies get to know more about themselves

10/08/2020 Slide 24
 Case against corporate responsibility

• Purpose of corporations
• Social responsibility moves in direct opposition of prioritising
profit
• Companies maximise profits through innovation and
opportunities, not commitment to social responsibility
endeavours
• Mixed track record of activism
• Not as effective as regulation

10/08/2020 Slide 25
 Context of corporate responsibility

• Public sector
• Civil society
• Global context
– Developed countries
– Developing countries
– Emerging economies
• Private sector
– Small firms
– Large firms – focus of the module

10/08/2020 Slide 26
Business Corporate Responsibility

Slide 27
Business Corporate Responsibility

• CSR strategy

• Business case of CSR

• CSR reporting

• Reporting framework

• Global Reporting Initiative

• Integrated Reporting

• Assurance

Slide 28
Why does CSR need a strategy?

• Considered as an add-on to ‘real’ business activities. Used:

– To present a responsible image
– As an operational tool (supplier code, recycling initiative)
• Increasing calls for a strategic approach to CSR because
companies:
– Produce CSR reports
– Support CSR activities – contribute to charities
– Audit supply chains

10/08/2020 Slide 29
 Usefulness of CSR strategy

“The prevailing approaches to CSR are so fragmented and so

disconnected from business and strategy so as to obscure
many of the greatest opportunities for companies to benefit
society. If, instead, corporations were to analyse their
prospects for social responsibility using the same frameworks
that guide their core business choices, they would discover
that CSR can be a source of opportunity, innovation and
competitive advantage.”
(Porter and Kramer, 2006)

10/08/2020 Slide 30
 CSR strategy

What aspects of the three strategic areas did companies capitalize in the
examples below? Opportunity, innovation and competitive advantage
• Unilever developed a hair conditioner using less water
Competitive advantage Innovation
• Ford’s EcoBoost engine that increases fuel efficiency and the introduction of
40 electric cars
Innovation Opportunity
• Netflix offer of 52 weeks paid parental leave

Opportunity
• Starbucks diversification pledge to hire 10,000 refugees in their workforce

Opportunity

10/08/2020 Slide 31
Areas of corporate
responsibility management
• How CR is defined and the comprehensiveness of the definition
(citizen concept)
• The purpose of the company’s corporate responsibility (strategic
intent)
• The support given by company managers (leadership)
• Day-to-day management of CR within the firm (structure)
• Responses to social, environmental and other relevant issues
(issues management)
• Managing relationships with key constituencies (stakeholder
relationships)
• Openness, transparency and disclosure about different aspects of
corporate responsibility performance (transparency)
10/08/2020 Slide 32
Examples of benefits

10/08/2020 Slide 33
Business Case of CSR

Create ‘shared value’ – resetting the boundaries of capitalism

• CR as a means of accepting underperformance or financial loss
(e.g. defending a company’s reputation)

• CR as a driver of tangible financial gains

(e.g. improving the quality of the workforce)

• CR as an integral element of the company’s strategic approach to

long-term business performance
(e.g. by prompting a move away from dependence on non-
renewable natural resources)
• Evidence of managerial capture in CSR
10/08/2020 Slide 34
Measure of business performance
Business performance can be measured in various ways – access to capital,
licence to operate, innovation, customer attraction, shareholder value,
brand value, human capital. Match the operations with relevant
performance
Shareholder value
a. Changes in company’s stock price and divided
b. Ability to maintain competitive advantage through better products,
services and business models Innovation

c. Knowledge and skills of company’s employees that result in the ability to

attract, develop and retain workforce Human capital

d. Ability to attract and retain customers Customer attraction

e. Access to equity and debt Access to capital

f. Maintaining level of acceptance among stakeholders that allows effective
operation Licence to operate

g.10/08/2020
Value assigned to reputation Brand value Slide 35
Corporate responsibility reporting

• Reporting remains a key tool for communicating corporate

performance
• Mandatory to report financial performance
• Increasing pressure from stakeholders
• Companies can benefit from corporate responsibility
disclosure
– Annual reports
– Stand-alone reports
– Integrated reports
– Websites
10/08/2020 Slide 36
Corporate responsibility
reporting trend: growth

10/08/2020 Slide 37
Corporate responsibility
reporting trend: sector

10/08/2020 Slide 38
Corporate responsibility reporting
trend: countries

10/08/2020 Slide 39
Types of corporate responsibility
reports

Must watch!

Take notes and replay as much as you like.

https://www.youtube.com/watch?v=XLL54
_6Emog

10/08/2020 Slide 40
 Reporting frameworks

• AccountAbility AA1000APS

• Global Reporting Initiative

• Integrated reporting

10/08/2020 Slide 41
 AccountAbility’s AA1000AP

• In 2018, AccountAbility
published an updated
version of AA1000AP
(Accountability
Principles) that guide
companies to measure,
manage and report on
sustainability
performance.
• AccountAbility’s
standards priorities
stakeholder approach
in10/08/2020
performance Slide 42
AA1000AP

Assess the inclusivity, materiality and responsiveness of the statement

from WPP’s Sustainability report 2018
10/08/2020 Slide 43
Global Reporting Initiative (GRI)

• GRI is an independent international organization, based

in Amsterdam, that has pioneered sustainability
reporting since 1997. 

• The GRI Sustainability Reporting Standards are the first

and most widely adopted global standards for
sustainability reporting.

10/08/2020 Slide 44
Global Reporting Initiative (GRI)

10/08/2020 Slide 45
Global Reporting Initiative (GRI)

10/08/2020 Slide 46
10/08/2020 Slide 47
Integrated Reporting Framework

• In 2013, the International Integrated Reporting Framework (IIRC)

developed a framework for an integrated report
“An integrated report is a concise communication about how an
organization’s strategy, governance, performance and prospects, in the
context of its external environment, lead to the creation of value over
the short, medium and long term.”
• An integrated report benefits all stakeholders interested in an
organization’s ability to create value over time
• The ability of an organization to create value for itself is linked to the
value it creates for others.
• At the core of the organization is its business model, which draws on
various capitals as inputs and, through its business activities, converts
them to outputs
10/08/2020 Slide 48
Integrated reporting: the capitals

10/08/2020 Slide 49
 Integrated reporting: the capitals

1. Financial Capital – pool of funds for organisation to use in production of goods and
services. Obtained through financing (i.e. debt, equity, operational income or
investments)
2. Manufactured Capital – manufactured physical objects available to the organisation
for use of production of goods/services (i.e. buildings, equipment)
3. Intellectual Capital – Organisational, knowledge-based intangibles (i.e. intellectual
property such as patents, copyrights, etc. and “organisational capital” like
knowledge, systems, procedures and protocol)
4. Human Capital – people’s competencies, capabilities and experience and their
motivation to innovate
5. Social and Relationship Capital – institutions and relationships within and between
communities, groups of stakeholders and other networks, and the ability to share
information to enhance individual and collective well-being
6. Natural Capital – all renewable and non-renewable environmental resources and
processes that provide goods or services that support the past, current and future
prosperity of an organization. Natural capital allow all other capitals to exist
10/08/2020 Slide 50
 Integrated reporting trend

10/08/2020 Slide 51
Strategic report

• The Companies Act (Section 172) requires all medium, large companies
and qualifying partnerships to prepare a Strategic Report
• The purpose of the Strategic Report is to inform members of the
company and help them assess how the directors have performed
their duty under section 172 (duty to promote the success of the
company).
• Promote greater cohesiveness through improved linkage between
information within the sections and the rest of the annual report.
• Provide relevant information that is useful for making resource
allocation decisions and assessing the directors’ stewardship.
• Encourages disclosure of material financial and non-financial
information that is necessary for an understanding of the
development, performance, position or future prospects of the entity
10/08/2020 Slide 52
 UN Global Compact

• The largest sustainability initiative in the world.

• Call for companies to align operating strategies with their principles of
responsible business
• The principles were derived from the International Labour
Organisation’s Declaration of Fundamental Principles of Rights at Work

Human rights Labour Environment Anti-Corruption

1. Support 3. Freedom of 7. Challenges 10. Against

international association 8. Responsibility corruption,
human rights 4. Compulsory 9. Friendly extortion and
2. Avoid abuses labour technologies bribery
5. Child labour
6. discrimination

10/08/2020 Slide 53
Human rights
• The UN Guiding Principles on Business and
Human Rights set the expectation that companies
should identify and address human rights risks,
and track and communicate how effectively they
do so.

• This global standard is reflected in various areas of

UK Government policy and law.

• The UK Government’s 2013 National Action Plan

on business and human rights states that
companies should respect human rights wherever
they operate.

• Recent amendments to EU and domestic law now

place duties on companies related to disclosure
about how they manage their human rights
impacts.
10/08/2020 Slide 54
Human rights disclosure

10/08/2020 Slide 55
 Modern Slavery
The Modern Slavery Act 2015 requires boards to approve and publish an annual
slavery and human trafficking statement on their website where the business has a
turnover of £36 million or more and carries out any operations in the UK.

The statement may include information about:

• the organisation’s structure, business and supply chains
• policies in relation to slavery and human trafficking
• due diligence processes in relation to slavery and human trafficking in its business
and supply chains
• the parts of its business and supply chains where there is a risk of slavery and
human trafficking taking place, and the steps it has taken to assess and manage
that risk
• its effectiveness in ensuring that slavery and human trafficking is not taking place
in its business or supply chains, measured against such performance indicators as
it considers appropriate, and
• training about slavery and human trafficking available to its staff.
10/08/2020 Slide 56
EU non-financial reporting directive

Directive 2014/95/EU lays the rules on non-financial and diversity

disclosure
From 2018 onwards, companies (with more than 500 employees)
will have to publish reports on the policies they implement in
relation to:
• environmental protection
• social responsibility and treatment of employees
• respect for human rights
• anti-corruption and bribery matters
• supply chains
• diversity on company boards (in terms of age, gender,
educational and professional background)
10/08/2020 Slide 57
 Assurance
• According to the EU guideline on non-financial reporting
2017/C215, ‘information can be made fairer and more accurate
through independent external assurance’ (p.7)
• Adds credibility to corporate disclosures by checking compliance
with best practices, codes, guidelines and internal systems
• Check whether targets have been met
• Carried out by an external body
• Dominated by the big audit firms (PwC, Deloitte, EY, KPMG)
• Evidence that the practice supports ‘managerial capture’

10/08/2020 Slide 58
Assurance trend

10/08/2020 Slide 59
Summary

• Forms of corporate responsibility have been

increasing over recent decades
• Theoretical approaches aid its understanding
• Guidelines and frameworks exists to assist
companies in demonstrating responsibility of
their actions
• There are obvious positives but also areas of
concern

10/08/2020 Slide 60