Corporate Responsibility

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Paul A Argenti

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    Acknowledgements

    This book is dedicated to my late mother, Elenora M. Argenti, who taught me what responsibility is really all about.

    Preface

    This book stems from a decade of researching, teaching, and developing the field of study referred to throughout this text as corporate responsibility, or “CR.” Although the term itself is not new, the notion of it as a field of study for business schools as well as a function of management is more recent. In this introduction, I would like to talk more about why I became interested in this topic, what the book is all about, and why I think everyone needs to know more about this important and emerging discipline.

    Why Corporate Responsibility?

    I first became interested in corporate responsibility as an outgrowth of my career-long interest in corporate communication.1 In writing a case in cooperation with Starbucks focusing on their decision to sell fair trade coffee, I realized that many of the nongovernmental organizations (NGOs) attacking corporations were really looking at whether corporations were conducting their business and working with their value chain responsibly. My first article on this topic2 was presented at a conference hosted by California Management Review and Boston University that included professors working in the area of corporate responsibility from management, strategy, and communications. I immediately saw a corollary to my earlier work focusing on reputation. Here was an emerging area of study that crossed disciplines, was important to management, and, unlike the area of reputation, had as its focus making the world a better place.

    The next year, I developed an elective in Corporate Responsibility here at the Tuck School that initially relied on the work of colleagues at other schools and from other disciplines. The course was an immediate success with the MBA students, and a new area for me to work on after two decades of research primarily focused on corporate communication. I started to write cases for the course (most of which appear in this textbook), attend conferences, read the latest research, and meet with executives in the area, and soon became passionate about developing material to fuel the class. After feeling the same frustration that I had felt decades earlier around finding material for my Corporate Communication class, I realized that there was no text that could serve as the focus of my new course.

    That led me to a proposal for this book with SAGE. The result of over two years of work appears in this text.

    What Is This Book About?

    Chapter 1, “An Introduction to Corporate Responsibility,” serves as an introduction to the topic and includes a definition of the field as well as an argument for the importance of CR across fields and disciplines. In Chapter 1, we take a deep dive into the development of corporate responsibility since its inception. We argue that CR should be integrated fully into a company’s business strategy to ensure success in today’s global and transparent environment.

    The Starbucks case in Chapter 1 explains their decision to sell fair trade coffee and the culture of responsibility that comes hand in hand with that decision.

    Chapter 2, “The Business Case for CR,” explains why I believe a properly carried out corporate responsibility strategy makes both financial and moral sense. When awareness levels of environmental and social impact are considered, risk and cost are minimized. A well-executed CR strategy also leads to a stronger reputation, contributing to consumer spending and loyalty. CR is becoming imperative for companies that hope to remain competitive and currently relevant, but it is also important for retaining the attention of all stakeholders in a company, including executive leadership and board members, consumers, and governmental bodies.

    The Unilever case outlines the drastic sustainability efforts of a consumer goods company that seeks to double sales and halve its environmental impact by 2020.

    Chapter 3, “Environmental Responsibility,” describes the most familiar aspect of CR. An environmentally responsible company will hypothetically deliver for current stakeholders, while ensuring its existence for future stakeholders. In this chapter, we see how environmental responsibility has evolved over the past 50 years, why consumers should be wary of “greenwashing” as well as other sustainability/environmental ranking systems, and how a focus on sustainability is synonymous with innovation going into the next 50 years.

    The Wal-Mart case explains how Wal-Mart has pursued a proactive sustainability approach since the fall of 2005, and the challenges it has faced in keeping prices affordable while maintaining sustainability and environmental awareness.

    Chapter 4, “The Corporation’s Responsibility to Society: Human Rights and Labor Issues,” examines the corporation’s responsibility to its employees and the communities surrounding its operations. I explain that socially responsible business practices are not taken on because of regulation but rather because of the company’s interest in acting responsibly. Social responsibility includes awareness of sexual and racial discrimination, labor issues (especially in corporations with international labor), and the health and safety of employees.

    The Shell case describes two crises that the company faced as a result of its environmental and social impact, both at home and abroad.

    Chapter 5, “The Corporation’s Responsibility to Consumers,” explains how and why corporations are responsible to consumers: in their treatment of the surrounding community, but also in their products’ long-term health effects. I use the example of the food industry and the rapid increase in obesity over the past 50 years to illustrate this point, and make a similar argument for the healthcare and pharmaceutical industries.

    The McDonald’s case explores the various corporate social responsibility efforts that the company has pursued and delves into the motivation behind these decisions. Is McDonald’s actually interested in consumer health and safety or just trying to increase profits?

    Chapter 6, “Responsible Corporate Governance,” explains corporate governance’s role under the umbrella of corporate responsibility. The governance of a company’s operational practices and risk management, aimed to benefit its shareholders, has altered since the early 20th century. Through an investigation of corporate governance practices in crisis situations, I explain why this field will continue to adjust to a changing business world: one that focuses on corporate responsibility as part of the general business strategy.

    The New York Stock Exchange executive compensation case examines the controversy surrounding executive compensation for the former chief executive and chairman of the NYSE, Richard Grasso. The case focuses on the sticky circumstances that can arise when a CEO also serves as chairman of the board of directors.

    Chapter 7, “Corporate Ethics,” analyzes the integration of ethics into corporate culture, the history and evolution of business ethics, how to create and maintain a valuable code of ethics for a corporation, and how ethics should trickle down from the top in corporate decision-making. I argue that ethics education should begin in schools but should remain an ongoing process within companies.

    The case in Chapter 7 focuses on a moral dilemma that a young MBA faces on the job as she is set to release a new product that may cause cancer.

    Chapter 8, “Corporate Philanthropy,” looks at the motivations behind and critiques of corporate philanthropy, the root of today’s field of CR. Motivations for corporate philanthropy are relatively obvious, including the public relations and employee retention benefits associated with it. However, critics often argue that corporate philanthropy programs are just a distraction from whatever negatives the company seeks to conceal. I argue that when a CP program is managed wisely, it can boost both social impact and the bottom-line contribution of the company.

    The Goldman Sachs corporate philanthropy case examines the firm’s strategic, yet philanthropic, decision to invest in small businesses after the 2008 financial crisis.

    Chapter 9, “Communicating Corporate Responsibility,” serves as an explanation for the importance of communicating CR efforts to stakeholders. Communication is a necessary portion of CR because it completes the circle of restoration of trust in business and creation of a positive corporate reputation. While I outline a strategic approach to CR communications efforts, including the necessity of authenticity, consistency, and transparency, I also take a closer look at the impact of technology in particular on communication strategy.

    The FIJI Water case in Chapter 9 looks at FIJI’s decision to join the Carbon Disclosure Project in 2005 and its other environmental initiatives since that time. It looks into the communication of these efforts and FIJI’s positioning of itself as a “green” corporation.

    Chapter 10, “Implementing a CR Strategy,” teaches you just that: how to execute and deliver on a strong CR strategy within a corporation. I describe a number of approaches that are currently being implemented, and then make my own argument for the best approach. This includes maintaining a strong definition of CR within the corporation, figuring out a strategy to rally employees behind this strategy, partnering with external parties that will help get the job done, and creating a robust system to measure progress and performance along the way.

    The Timberland case explains how Jeff Swartz, former CEO of Timberland, reacted to the economic downturn in 2008. He saw it as an opportunity to increase sales while maintaining current corporate social responsibility, or “CSR,” efforts and creating a socially responsible supply chain.

    Why Is Corporate Responsibility So Important Today?

    The responsibility of business has always been important to most of the corporation’s key stakeholders, but it has become much more important to everyone in this century. Why?

    First, most people, particularly in the United States, do not trust business to act responsibly. Polls show that most Americans felt that business did a good job of balancing profit and the public interest in the late 1960s; today, the number of people who feel that way has dropped to the lowest levels in history. Only about 10% of people would answer that question positively. This is the result of several crises since the turn of the century involving companies like Enron, Toyota, and BP.

    Second, as a result of government downsizing in the 1980s, people expect business and the free enterprise system to answer questions that were once the exclusive purview of government. Perhaps this was an unintended consequence of eliminating big government, but it is now a given that we expect companies to pick up some of that slack.

    Third, our deeper understanding and depth of knowledge about the inner workings of companies has given us greater insight into their business practices. Thanks to social media, the rise of NGOs, and more extensive reporting from traditional media, we know how much executives are paid, what their labor practices are like in developing nations, and how often they bribe local governments to create opportunities in new markets.

    Fourth, and perhaps most important of all, corporations have realized that developing a culture of “doing the right thing” is actually good for business. Research by prominent scholars like Michael Porter3 shows that companies focused on making the world a better place are more likely to be great companies for the long term.

    This book describes not only what is happening in the area of corporate responsibility, but also what companies can and should do to cultivate responsible behavior in all their practices. By seeing corporate responsibility as a much broader and strategic topic than just having a greater focus on the environment, corporations will be able to face the coming decades with strategies and tools that few companies in the world have at their fingertips.

    I am quite sure that the current interest in this topic is not a passing fancy or a flavor of the month. Indeed, responsible corporations are now looking for ways to differentiate themselves from other companies that are not in tune with the times. Once companies realize that responsible behavior is both what stakeholders now demand of their corporations and a way to differentiate themselves in the marketplace, we have the makings of a successful discipline and functional area.

    I hope you enjoy reading about this emerging area of study as much as I have enjoyed learning about and developing material for this book.

    Notes

    1. Argenti, P. A. (2013). Corporate communication (6th ed.). New York, NY: McGraw-Hill.

    2. Argenti, P. A. (2004, Fall). Collaborating with activists: How Starbucks works with NGOs. California Management Review, 47(1), 91–114.

    3. Kramer, M. R., & Porter, M. E. (2011, January/February). Creating shared value. Harvard Business Review.

    Acknowledgments

    Without the help and support of the Tuck School at Dartmouth, I could not have written or conducted research for this book. Over the last decade, I have been given funds to write cases and conduct research as well as sabbatical time to work on the material in this book. I am particularly grateful to my colleagues and friends Paul Danos, Matt Slaughter, and Bob Hansen for their many years of support that are only now starting to pay dividends.

    Many executives have influenced my thinking about corporate responsibility as well, but none as much as the amazing Dailah Nihot at ING. Dailah is the first executive I met who really understood the power of corporate responsibility to make a difference in how an organization does business and then realizes the benefit of that approach. Over many meetings and visits between the Netherlands and the U.S., Dailah taught me more than what I read in books or articles.

    I am indebted as well to the hundreds of students I have taught at the Tuck School in my Corporate Responsibility course over the last seven years. They have tested and challenged these ideas in their fertile minds, which gave me the inspiration necessary to come up with new ways to think about corporate responsibility.

    Many researchers have also helped me with this project over the last two years, but I am particularly grateful to my incredible project manager and senior research associate, Kathleen O’Leary, for making this book come to life; without Kat, there would be no first edition of Corporate Responsibility. I also want to thank Nicole Bertucci for working so diligently to get the book ready for its final review over the past summer; Nicole turned this from a good book to a great one. I would also like to thank my daughter, Lauren Argenti, and Sara Glazer for working on the proposal and outline that ultimately turned into a real book. Their work over two and a half months started this project off on the right path.

    Several former students here at Tuck also contributed significantly to this book, especially Dafna Eshet, JJ Gantt, Kellie Ciofalo, Lauren Hirsch, and Taylor Cornwall. Georgia Aarons, who has been with me for several years on so many projects as my researcher, also put her talents to work on this book. And Jessica Osgood, my tireless assistant, contributed hours to making sure I stuck to deadlines and got the right drafts of chapters in to the right publisher, all the while cleaning up the mess we left behind.

    My thanks also go to the staff of SAGE Publications: Maggie Stanley, Katie Bierach, Nicole Mangona, Rachel Keith, and Bennie Clark Allen. This book was improved because of the advice and suggestions that reviewers have offered. These individuals include Benedict Uzochukwu, Virginia State University; Yezdi H. Godiwalla, University of Wisconsin–Whitewater; Holly Ott, Shippensburg University; Ellis Jones, Holy Cross College; Stephanie Jue, University of Texas at Austin; David W. Jordan, Slippery Rock University; Noema Santos, State College of Florida; Fidaa Shehada, Centennial College; Michelle Katchuck, University of Hawaii; Joseph Youchison, Benedictine University; Stephen Castle, Coventry University; and Edward Murphy, Northeastern University.

    Finally, I would like to thank my wife, Jennifer Kaye Argenti, for giving me the time, space, and support necessary to take a bunch of crazy ideas and turn them into a book. She is my biggest fan; I couldn’t do what I do without her.

    Paul A. Argenti Hanover, New Hampshire 2014

    The author would like to receive any comments or questions as well as corrections and suggestions for future editions of this text. Please email comments directly to: paul.argenti@dartmouth.edu.

    About the Author

    Professor Paul A. Argenti has taught management, corporate responsibility, and corporate communication, starting in 1977 at the Harvard Business School, from 1979 to 1981 at the Columbia Business School, and since 1981 as a faculty member at Dartmouth’s Tuck School of Business. He has also taught as a visiting professor at the International University of Japan, the Helsinki School of Economics, Erasmus University in the Netherlands, London Business School, and Singapore Management University. He currently serves as faculty director for Tuck’s Leadership and Strategic Impact Program, its Brand and Reputation programs, and its executive programs for Novartis, Hitachi, and SCTE. The seventh edition of Professor Argenti’s textbook, Corporate Communication, will be published in 2015. Argenti also coauthored (with Courtney Barnes) Digital Strategies for Powerful Corporate Communication, published in 2009. Some of his other books include Strategic Corporate Communication, published in 2007; The Power of Corporate Communication (coauthored with UCLA’s Janis Forman); and The Fast Forward MBA Pocket Reference (several editions). Professor Argenti has written and edited numerous articles for academic publications and practitioner journals, such as Harvard Business Review, California Management Review, and Sloan Management Review. Professor Argenti also blogs regularly for publications such as Harvard Business Review, the Washington Post, and U.S. News & World Report, and appears frequently on radio (NPR, APM) and television (CNBC, Fox Business), commenting on topics related to communications, reputation, and corporate responsibility. Professor Argenti is a Fulbright Scholar and a winner of the Pathfinder Award in 2007 from the Institute for Public Relations for the excellence of his research over a long career. The Ethisphere Institute also listed him as one of the most influential people in business ethics in 2014. He serves on the board of trustees for the Arthur W. Page Society and the Ethisphere Institute. He has also served on advisory boards to CEOs globally for a variety of companies. Finally, he has consulted and run training programs for executives at hundreds of companies over the last three decades, including General Electric, ING, Mitsui, Novartis, and Morgan Stanley. You can follow Professor Argenti on twitter at www.twitter.com/paulargenti.


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