Week 8

Dr David Poole
Agenda
 Welcome
 Article of the week
 Enron – DVD and Case Study
 Corporate Social Responsibility – definition; benefits; research about
CSR and corporate performance; the regulation of CSR; Stewardship
and CSR
CSR – What is it?
 “Broadly, corporate social
responsibility (CSR) is about
corporate entities acting as good
corporate citizens.” (Tricker,
p.219)

 “At the core of CSR is the belief

that all stakeholders are
important to an organisation.”
(Psaros, p.269)
Benefits to the Firm for Adopting CSR
 Employee recruitment, motivation and retention – employees will be
attracted to organisations that practice CSR. Offering good working
conditions will lead to better employee performance and higher employee
productivity.

 Learning and innovation – by responding to environmental and societal risks

and turning these into business opportunities. Examples?

 Reputation management – companies operate in a “market of opinion” – the

judgements of customers, suppliers and the broader community. Companies
can win trust via their actions and build positive relationships.
Benefits to the Firm for Adopting CSR
 Risk profile and risk management – by better managing risk, companies can
strategise more effectively.

 Competitiveness and market positioning – draw customers from competitors

through positive perceptions and nature of offerings (eg. organic, free range,
sustainable)

 Investor relations and access to capital – research indicates that corporate

reputation is a key dimension of analysis of companies

 License to operate – poor CSR may lead to loss of license to operate – from
product boycotts to calls for deregistration
CSR and the Research
 A meta-analysis by Orlitzky et al (2003) – 30 years of research and 52
previous studies – high correlation between CSR and financial
performance

 2005 AMP study – 300 listed Australian companies over 10 years –

companies with a higher CSR rating outperformed counterparts by 3%
per annum

 Brine et al’s study for the Australian Treasury – 2005 study on ASX 300
using presence of CSR report as key variable – no observable difference
CSR and the Research
 SMH 2017 article asserts that CSR/ethical investment funds have grown by
400% plus during the last 3 years to $622 billion – investments in areas such
as healthcare and clean energy, avoiding industries such as coal, weapons,
gambling, tobacco, oil.

 Fund manager of “Australian Ethical” asserts 10% return averaged over 20

years, more than 3% higher than the market.

 A Responsible Investment Association exists – “Whether we’re talking about

Volkswagen and their emissions scandals or the way 7-Eleven has treated its
employees…examples like that have really sold the case to investors that this
stuff matters.”
CSR and the Research
 Psaros reports on a counter example. A study by Brammer et al (2005)
found that holding a portfolio of the weakest CSR firms provided the
GREATEST financial return on investments!

 Why? “Perhaps altruistic private or institutional investors are willing to

forgo returns in order to feel morally at ease with the stocks they
hold….Or that expenditure on CSR affects the bottom line negatively
and so the share prices of such firms are then further punished by the
financial markets over the longer term.”

 This research appears to be an “outlier”, however.

Regulatory Requirements for CSR
 Principle 7 of the ASX Corporate Governance Principles and
Recommendations:

 “When developing risk management policies the company should take into account
its legal obligations. A company should also consider the reasonable expectations
of its stakeholders. Stakeholders can include shareholders, employees, customers,
suppliers, creditors, consumers and the broader community in which the company
operates…Failure to consider the reasonable expectations of stakeholders can
threaten a company’s reputation and the success of its business operations.
Effective risk management involves considering factors which bear upon the
company’s continued good standing with its stakeholders.”
Stewardship models – Extending CSR(Heuer, 2010)
Dominion L’ship Environmentally Servant Leadership
responsive L’ship
Governance – Agency Focus on Shareholders Extend to current Intergenerational and
responsibility (Cuddy & and preserving company stakeholders (includes global equity
Pirie, 2007) assets shareholders)
Formal contractual Interdependnce of Informal contractual
authority by current shareholders and relationships, nature as
shareholders to stakeholders in firm primary stakeholder.
management business model
Stewardship definitions Private property is Commitment to do no Human duty to address
absolute right and harm to the natural environmental
guiding principle (Hart, environment (Hart 1997) sustainability (Pope Paul
2006) VI 1971)
No reciprocal Strategic Reciprocal r’ship with
responsibilities for interdependence with natural environment
preserving natural business model defines influenced by
environment (Pfeffer & reciprocity (Driscoll & intergenerational equity
Salancik, 1978) Starik, 2004) concerns (Barrett, 1997)
Stewardship Model cont.
Dominion L’ship
Compliance focus: fear of legal/
ethical problems (McCuddie &
Pirie, 20007)
Stewardship definitions Pursuit of self interest, allows for
exploitation of natural resources,
cont. secular focus
Sustainability strategies Risk reduction through
regulation compliance, reactive
(McCuddie & Pirie, 2007)
Environmental actions: reaction
to stakeholders pressure (Sharma
& Vrendenburg 1998)
Man’s dominion over creation
(Barrett, 1996)
Environmentally responsive
L’ship
Process improvement; life-cycle
analysis, closed- end loop
production (Hart 1997)
Broad current stakeholder
approach balances with profit
orientation, conservation of
natural resources improves
performance (McCuddie & Pirie,
2007)
Business logic for “going green”
largely operational and technical
(Hart 1997)
Economic and reputation
performance improved through
innovations in systems, process
cost reductions and r’ships with
stakeholders (Sharma &
Vrendenburg 1998)
Increasing importance of natural
environment (Driscoll & Starik,
2004)
Servant Leadership
Values focus integrates social
justice with environmental
sustainability (Pope Paul VI 1971)
Spiritual and secular focus
supports servanthood leadership
model; serve from bottom rather
than ruling from top (Stead et al.,
2004)
Economic and stewardship devt
supported by innovative
technology and related strategy
devt ( Hart 1997)
Concern for long-term inter-
temporal and interspatial
sustainability of natural
environment (McCuddie & Pirie,
2007)
Harvest rights aligned with
responsibilities for care and
nurture (Barrett, 1996)
Let’s Consider Some Examples
 https://www.woolworthsgroup.com.au/icms_docs/186036_woolworths-
group-corporate-responsibility-strategy-2020.pdf

 https://www.woolworthsgroup.com.au/icms_docs/189425_corporate-
responsibility-report-2017.pdf