The CSR Newsletters are a freely-available resource generated as a dynamic complement to the textbook, Strategic Corporate Social Responsibility: Sustainable Value Creation.

To sign-up to receive the CSR Newsletters regularly during the fall and spring academic semesters, e-mail author David Chandler at david.chandler@ucdenver.edu


Wednesday, February 29, 2012

Strategic CSR - Business Schools

The article in the first url below provides evidence that philanthropy courses are becoming increasingly popular in business schools:

Today, dozens of MBA and undergraduate programs teach philanthropy as an academic subject, exposing students to both the art and science of giving. … The topic appeals to business students because many may wish to serve eventually on the boards of nonprofits or become philanthropists themselves, professors at those schools say. According to the Aspen Institute’s most recent Grey Pinstripes report, a biannual survey of business school education, 36 of the world’s business schools now offer philanthropy-related courses.

The article in the second url below, however, questions the career value of these courses. In particular, it contains some interesting statistics about recent MBA graduates from programs specializing in social entrepreneurship or nonprofit management. The article suggests that, while such programs are popular, they are not necessarily leading to careers in the nonprofit sector for these students after graduation:

Despite the fact that students sign up en masse for social-entrepreneurship classes, intern at nonprofits and participate in charitable extracurricular activities, fewer than 5% of graduates from many top business schools take jobs in nonprofit organizations right out of school, with some institutions placing just 1% or 2% in the field. Even the Yale School of Management, which has built a reputation for creating nonprofit managers, sent just 9% of its class into that sector this year.

While, on the face of it, it looks like MBAs “aren't doing much "good" upon graduation,” the reality might tell a different story:

Schools say that plenty of students are going on to do good works, just not in traditional nonprofit jobs. Instead, many students opt for social-responsibility positions at Fortune 500 companies or working at for-profit enterprises that explicitly address energy-access or economic-development issues.

The main reason offered to explain these apparently contradictory trends (more nonprofit courses, but fewer nonprofit careers) is that nonprofits do not offer MBAs the same career opportunities or long term job security as more traditional, larger firms. In addition, of course, the pay and benefits are lower and many of these students carry significant student loans with them on graduation:

More than two-thirds of M.B.A.s graduated with loans in 2008, the latest year available, with cumulative undergraduate and graduate debt totaling $41,676. … Nine percent of students from Yale's class of 2011 entered non-profit jobs, with an average salary of just below $80,000, while the average starting salary for consulting jobs—where 23% of the class landed—topped $120,000.

Overall, two patterns are clear from the two articles:
  1. Students are increasingly taking social responsibility-related concerns into account when deciding their career paths.
  2. The boundaries between for-profit and nonprofit enterprises are becoming less and less distinct, with traditional organizations altering their operations and newer social entrepreneur start-ups increasingly using for-profit methods to pursue broader social goals:
Though 3% of 2011 [Harvard] graduates accepted jobs in the nonprofit and government sectors, … others are pursuing private-sector jobs that address global poverty, supply-chain issues and environmental or sustainability concerns, or other social needs.

Take care
David


Instructor Teaching Site: http://www.sagepub.com/strategiccsr/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/


Philanthropy Gains Eager Followers in B-Schools
MBA and undergraduate courses on philanthropy are proliferating as interest grows among a generation of B-school idealists
By Alison Damast
August 17, 2011
or

Grads Do ‘Good’ for a Profit
By Melissa Korn
December 1, 2011
The Wall Street Journal
B12

Monday, February 27, 2012

Strategic CSR - Adam Smith

The article in the url below by Jeffrey Sachs critiques Adam Smith’s concept of the ‘invisible hand’ (“self-interest, operating through markets, leads to the common good”). While the invisible hand works in principle, Sachs argues, in terms of maximizing social welfare:

“… the paradox of self-interest breaks down when stretched too far.

In particular, Sachs identifies four ways in which “Self-interest promotes competition, the division of labor, and innovation, but fails to support the common good”:

First, self-interest fails when market competition breaks down. Second, self-interest can easily turn into socially unacceptable inequality. Third, self-interest leaves future generations at the mercy of today’s generation. Fourth, self-interest leaves our fragile mental apparatus, evolved for the African savannah, at the mercy of Madison Avenue. Today there is evidence of both hopelessly addictive consumerism and brain numbing cultural forces.

He concludes:

For these reasons, successful capitalism has never rested on a moral base of self-interest, but rather on the practice of self-interest embedded within a larger set of values.

There is a lot going here. First of all, I am not convinced Sachs’ “four ways” are really four ways, but more likely two ways. The second seems to be an outcome of the first, and the third is not specific to capitalism—however we decide to organize things in this life, future generations will bear the consequences of those decisions.

It seems to me, however, that the conclusion Sachs draws from the ‘flaws’ he identifies in Adam Smith’s model is very important—the idea that capitalism can only ‘succeed’ when embedded in a larger value system. In other words, some form of individual restraint is crucial. In many societies, that value system is provided by religion. Without that or any other form of civilizing restraint, capitalism can degenerate into raw selfishness and deceit.

Later in the article, Sachs refers to Andrew Carnegie’s Gospel of Wealth, which I hadn’t read before and found fascinating. Here was Carnegie writing in June, 1889 (I wonder how he would have judged society today):

This, then, is held to be the duty of the man of Wealth: First, to set an example of modest, unostentatious living, shunning display or extravagance; to provide moderately for the legitimate wants of those dependent upon him; and after doing so to consider all surplus revenues which come to him simply as trust funds, which he is called upon to administer, and strictly bound as a matter of duty to administer in the manner which, in his judgment, is best calculated to produce the most beneficial results for the community--the man of wealth thus becoming the mere agent and trustee for his poorer brethren, bringing to their service his superior wisdom, experience and ability to administer, doing for them better than they would or could do for themselves.

This work, together with the reviews and excerpts I have been reading from Charles Murray’s excellent new book (Coming Apart: The State of White America (1960-2010) e.g.: http://online.wsj.com/article/SB10001424052970204301404577170733817181646.html), suggest systemic deficiencies with our dominant economic system that generate significant (and presumably, at some point, irreversible) social consequences.

Friday, February 24, 2012

Strategic CSR - Seven Social Sins

In my readings over the holiday, I came across Gandhi’s Seven Social Sins—seven things that he believed would destroy us as a civilized society:

·         Wealth Without Work
·         Pleasure Without Conscience
·         Knowledge Without Character
·         Commerce (Business) Without Morality (Ethics)
·         Science Without Humanity
·         Religion Without Sacrifice
·         Politics Without Principle

Some of these strike me as more pertinent today than others, but it is hard not to conclude that we are failing Gandhi’s test on multiple levels.

Many of these sins, of course, are directly relevant to the CSR debate. What I find most striking about the list is Gandhi’s emphasis on process, rather than outcome. Today, in contrast, we worry more about where we are, rather than how we got there. Just thinking through the implications of the first sin (wealth without work), for example, speaks volumes about the extent to which our values have shifted over time.

For additional insight and commentary on each of the social sins, see this extract from Steven Covey’s book ‘Principle Centered Leadership’: http://www.mkgandhi.org/mgmnt.htm

Wednesday, February 22, 2012

Strategic CSR - Apple

The article in the first url below comments on Apple’s release recently of its annual audit of suppliers. The highlights:
  • 62% weren't compliant with working-hours limits.
  • 32% weren't compliant with hazardous-substance management practices.
  • 35%failed to meet Apple's standards to prevent worker injuries.

I am trying to decide whether to be shocked at the numbers or applaud Apple for its honesty. The initial impression, however, is one of greater scope and detail in the report:

The report is the most comprehensive on the subject in Apple's history, based on 229 audits of factories that do work for the company, the world's second-largest by market capitalization. While Apple has occasionally divulged selected suppliers, the new list covers those 156 companies that represent 97% of its materials, manufacturing and assembly spending.

Historically, Apple has not had a reputation for CSR that matches its reputation for product innovation. Perhaps this will be one area in which Apple’s new CEO, Tim Cook, can improve on Steve Jobs’ performance at the firm. On the other hand, however, maybe not. Transparency is one thing; performance is something else and the article in the second url below provides more evidence of Apple’s tenuous relationship with CSR. In particular, the New York Times  investigation constitutes a detailed report on Apple’s supply chain in China. The article is long, but one quote is particularly revealing:

‘We’re trying really hard to make things better,’ said one former Apple executive. ‘But most people would still be really disturbed if they saw where their iPhone comes from.’

Contrast this approach with the approach taken by Nike reported in the article in the third url below:

In April 2005, Nike surprised the business community by suddenly releasing its global database of nearly 750 factories worldwide. No laws presently require a company to disclose the identity of its factories or suppliers within global supply chains. Yet, between the early 1990s and 2005, Nike went from denying responsibility for inhumane conditions in its factories to leading other companies in full disclosure — a strategic shift that illustrates how a firm can leverage increased transparency to mitigate risk and add value to the business.


Note: Last weekend (http://www.nytimes.com/2012/02/20/technology/pressures-drive-change-at-chinas-electronics-giant-foxconn.html), Foxconn (Apple’s main supplier in China) announced plans to significantly improve working conditions at its factories by increasing wages and reducing hours. If it happens, this is important given that:

Foxconn, with 1.2 million Chinese employees, is one of China’s largest employers. It assembles an estimated 40 percent of the smartphones, computers and other electronic gadgets sold around the world. Foxconn’s decisions set standards other manufacturers must compete with.

The most important point made in the article, however, brought the focus back to where it ultimately resides—with the end consumers:

For that system to genuinely change, Foxconn, its competitors and their clients — which include Apple, Hewlett-Packard, Dell and the world’s other large electronics firms — must convince consumers in America and elsewhere that improving factories to benefit workers is worth the higher prices of goods.

Take care
David


Instructor Teaching Site: http://www.sagepub.com/strategiccsr/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/


Apple Navigates China Maze
By Jessica E. Vascellaro and Owen Fletcher
The Wall Street Journal
January 14-15, 2012
pB1

In China, Human Costs Are Built Into an iPad
By Charles Duhigg and David Barboza
The New York Times
January 26, 2012
pA1, B10-B11.

just do it: how nike turned disclosure into an opportunity
By Bushra Tobah and the NBS team
Network for Business Sustainability
January 23, 2012

Monday, February 20, 2012

Strategic CSR - Chipotle

The article in the url below discusses the background to Chipotle’s first national ad campaign. The ad has been running online and in movie theaters for several months and aired on TV for the first time during last weekend’s Grammy’s broadcast in the U.S.:

When Chipotle Mexican Grill, the fast-food marketer, began thinking about ways to promote improvements to the country’s food supply, it decided to skip the graphic photos of jampacked chicken coops and other unsettling farm practices. Instead, Chipotle took a more upbeat approach, creating an animated film with puppets to show a family farmer switching first to factory farming, then back to the sustainable approach of turning animals out to pasture.


Although Chipotle has had a mixed record in the press recently (see: http://www.reuters.com/article/2011/04/13/us-chipotle-idUSTRE73C0P220110413), I like the ad because of its positive message on an issue (food health and safety) that still doesn’t get as much as attention as it should:

Chipotle … devised its marketing approach based on its own research, which it said showed that 75 percent of its 800,000 daily customers came for the taste, value and convenience of its food. Those are positive reasons, but expected for any food franchise that wants to be successful. So to get customers more passionately involved, the company decided it “needed to have a general, higher-level message and to tell the story in a more approachable way,” said Mark Crumpacker, Chipotle’s chief marketing officer. … Chipotle believed it had the right message already in its emphasis on more natural food. The company had shifted to more naturally grown produce and to beef, pork and chicken produced without antibiotics. It then set a goal of trying to make its customers more aware of sustainable ways to farm.

The music (a Willie Nelson cover of the Coldplay song, The Scientist) is pretty good, too!

Friday, February 17, 2012

Strategic CSR - Milton Friedman

As you know from Chapter 3 of the second edition (Milton Friedman vs. Charles Handy, pp.55-57), I consider Milton Friedman to be a friend of strategic CSR.

While he was clearly very good at using inflammatory rhetoric to maximize the attention paid to his arguments, the logic underlying those arguments is fascinating to watch:


He had a first-rate mind, was a brilliant showman, and is someone I would have loved to have met.

Wednesday, February 15, 2012

Strategic CSR - Coke vs. Pepsi

When push comes to shove, will meaningful reform to our current economic model come in the form of sacrifice or innovation?

Many CSR supporters advocate for sacrifice on the basis that current consumption patterns cannot be extrapolated to future projected economic growth (i.e., there are insufficient resources to enable the Chinese to consume like Americans). Given that it is unreasonable to deny broader prosperity to the Chinese, the sacrifice people argue, any increase in resource use in China needs to be offset by decreased resource use in America. The innovator people, in contrast, are comforted by the belief that CSR supporters’ worst fears (i.e., ecological collapse) will not likely occur and, even if they do, that we will have found a technical solution by then.

In reality, some combination of both sacrifice and innovation will likely be necessary, given current projections of future economic growth (rapid) and current rates of innovation (more measured).

The article in the url below provides evidence in support of the innovation camp. In particular, Coca-Cola and PepsiCo are competing to produce the first soda bottle to be made without plastic and using 100% plant materials:

Coke delivered the latest volley on Thursday, saying it plans to work with three companies that are developing competing technologies to make plastic from plants, with bottles rolling out to consumers in perhaps a few years. PepsiCo is aiming to beat that timeline and claim the 100 percent green label first. The company declared in March that it had cracked the code of the all-plant plastic bottle, and on Thursday, it said that it was on schedule to conduct a test next year that involved producing 200,000 bottles made from plant-only plastic.

The problem, however, is less technological capability, but the ability to scale-up to mass production in a cost-effective manner:

… despite dueling announcements claiming technological breakthroughs, consumers should not expect to see many all-plant bottles on store shelves any time soon. Neither company is confident enough in the technology to say when, or even if, they will be able to deliver on their environmental ambitions.

To date, Coke has been more aggressive in committing to public targets in terms of the materials used to make its bottles:

… in 2009 [Coke] began selling Dasani water in the United States in bottles made with up to 30 percent plant-based plastics. … the company said that by 2020 all of its plastic bottles would meet the 30 percent plant-based standard.

Pepsi’s competing investments in this area will hopefully extend the Coke vs. Pepsi rivalry to environmental sustainability. One area of concern is that growing the plant materials used in producing plastic-substitutes can itself be counter-productive. For example, environmentalists claim that:

[Growing crops for plastic] causes a lot of land conversion, it affects the price of food, it uses a lot of fertilizers.

In response to this issue:

Pepsi has said it will use agricultural waste products, such as corn husks, pine bark or orange peels, to make its plastic bottles. … Coke might use a variety of materials, including wastes and crops grown for plastic production.

Monday, February 13, 2012

Strategic CSR - Ethanol

The Wall Street Journal editorial in the url below contains some astonishing numbers. The editorial leads with a quote from George Bush’s 2006 State of the Union address in which he committed the U.S. to develop ethanol as an alternative fuel. It then proceeds to detail the consequences of this policy as implemented by Barack Obama. In addition to billions of dollars of subsidies:

… Mr. Bush assured the nation that by 2012 cars and trucks could be powered by cellulosic fuels from switch grass and other plant life. To launch this wonder-fuel industry, the feds under Mr. Bush and President Obama have pumped at least $1.5 billion of grants and loan subsidies to fledgling producers. Mr. Bush signed an energy bill in 2007 that established a tax credit of $1.01 per gallon produced.

In particular:

Most important, the Nancy Pelosi Congress passed and Mr. Bush signed a law imposing mandates on oil companies to blend cellulosic fuel into conventional gasoline. This guaranteed producers a market. In 2010 the mandate was 100 million barrels, rising to 250 million in 2011 and 500 million in 2012. By the end of this decade the requirements leap to 10.5 billion gallons a year.

In reality, performance has been underwhelming, to say the least:

When these mandates were established, no companies produced commercially viable cellulosic fuel. But the dream was: If you mandate and subsidize it, someone will build it. Guess what? Nobody has. Despite the taxpayer enticements, this year cellulosic fuel production won't be 250 million or even 25 million gallons. Last year the Environmental Protection Agency, which has the authority to revise the mandates, quietly reduced the 2011 requirement by 243.4 million gallons to a mere 6.6 million. Some critics suggest that even much of that 6.6 million isn't true cellulosic fuel. The EPA has already announced that the 2012 mandate of 500 million gallons is unattainable, so it is again expected to lower the mandate to fewer than 12 million gallons for next year.

These numbers (6.6 million instead of 250 million) present the argument against economic micro-managing by politicians. With suspect allegiances and swayed by the disproportionate influence of money in politics today, government should focus on setting the broad legal framework within which market forces determine the most efficient outcomes. Regulation is an important part of this responsibility, but predetermined economic outcomes is well-beyond the government’s capabilities or the country’s economic interests. This is a theme I have touched on in prior newsletters (see: FREE ‘free markets’), but if the government wants to encourage alternative fuels, the most efficient way is to make carbon more expensive (i.e., a carbon tax). If this tax is transparent and equitably applied across industries, then the market will quickly marshal resources to produce a competitive alternative that is economically feasible. It is impossible to predict in advance, however, what that alternative will be (no matter how much public money you throw at the problem).

Friday, February 10, 2012

Strategic CSR - Slavery

The article in the url below features a website designed to highlight the extent to which slavery is still a component of the supply chain of many products we take for granted (http://www.slaveryfootprint.org/). In particular, the website is designed to address one question:

Do you know how many slaves work on your behalf? While many people may assume the answer to that provocative and unsettling question is zero, the creators of a new Web site want to demonstrate how forced labor, especially overseas, is tantamount to slavery.

The goal of the website is two-fold: first, to raise awareness of this issue and second, to mobilize a response:

Ideally, they hope to get consumers engaged enough in the issue to do something about it, primarily hoping people demand that companies carefully audit supply chains to ensure, as best as they can determine, that no “slave labor” was used to manufacture its products.

Using a set of eleven questions, the website calculates the role forced labor plays in manufacturing the products you use (“the average is 55”). As you progress through the survey, the website also generates specific facts to reinforce its message:

There are at least 27 million slaves worldwide. That’s roughly the combined population of Australia and New Zealand. Crikey!

More information about the Slavery Footprint website is at: http://www.ethicalcorp.com/supply-chains/ngowatch-november-2011

Have a good weekend
David

Wednesday, February 8, 2012

Strategic CSR - Civilization

The article in the url below is a review of a book by Niall Ferguson, the Harvard history professor. In the book (titled ‘Civilization: The West and the Rest’), Ferguson details the characteristics of Western/European society that, in his opinion, allowed it to develop more rapidly than any other world region. The six, so-called “killer apps,” are:
  • Competition
  • Science
  • Legal property rights
  • Medicine
  • A consumer society
  • Work ethic

Where other societies have ‘civilized’ and caught-up with the West, Ferguson argues that it is due to emulation, rather than innovation:

Mr. Ferguson shows that the most successful non-Western polities are those that have “downloaded” the six apps. A the top of the class is Japan, whose Western-style armies prevailed over Russia in 1905 and whose politics and economics were rebuilt so effectively after the catastrophe of 1945. … Mr. Ferguson does not claim that the six-app software will work with all socio-cultural hardware. The list of “resterners” for whom the connection broke—or who managed only a partial download—is long. It includes the Ottoman Empire, imperial China, czarist Russia and, more recently, the shah’s Iran.

Reading Ferguson’s list made me wonder what the equivalent “apps” might be that will enable one culture or society (or, ultimately, all cultures and societies) to generate a socially-responsible economy. Ferguson makes no mention of moral or ethical development, or even a set of values that might make one economic system more ethical/socially responsible than another. Clearly the absence of these characteristics was no impediment to rapid economic growth!

If we are to move beyond a focus on economic growth alone to a more sustainable economy/society, however, someone is going to have to write that book, too.

Monday, February 6, 2012

Strategic CSR - Facebook

The articles in the two urls below comment on the lead up to last week’s announcement by Facebook’s of its upcoming IPO (expected in May and announced last Wednesday).

The goal of both articles was to influence the debate surrounding the firm’s route to market. While a ‘traditional’ IPO is most often chosen (i.e., relying on investment banks to guide the firm to market), both articles focus on the potential value of alternative models—value, that is, both to Facebook and in terms of broader reform of the financial market.

The article in the first url below (from last December) focuses on the high-profile nature of Facebook’s IPO. This prominence, the author argues, will cause intense competition among investment banks to win the contract, which presented the opportunity for meaningful reform had Facebook chosen an alternative route to market. In particular, rather than pay unnecessary fees to an investment bank, the author argues that Facebook should have organized its own IPO:

Mr. Zuckerberg has two options: a traditional IPO, in which banks distribute shares to investors in exchange for a percentage of total proceeds; and the little-used ‘Dutch auction’ that cuts out the Wall Street middlemen by making the allocation of shares dependent on prices bid by each investor.

There are two main reasons why the author felt Facebook’s IPO suggests the possibility for an alternative to the traditional model. First, one of the main functions performed by investment banks in preparation for an IPO is to raise awareness of the firm. To say the least, ‘awareness’ is not a problem Facebook faces, which raises the question of how the banks will earn their expected commission from the launch:

By virtue of its size, business model and popularity, Facebook is the rare company that doesn't need Wall Street to go public. It should press home the advantage and blaze a trail for others to follow.

Second, with more than 800 million active users (200 million in the U.S.), Facebook is so big and such an important IPO that, by pursuing a different kind of model, the firm would have made a strong statement about the traditional IPO that may have resulted in reform:

The biggest difference between the two systems, apart from the lower fees paid by companies in auctions, is that when IPOs go Dutch, banks don't choose who gets shares, giving all investors a fair shake and avoiding potential conflicts of interests. This is particularly important for "hot" IPOs, like Facebook. Since these deals often record sharp rises in the first days of trading, there is a temptation for banks to dole out shares to their favorite investor clients, who stand to profit if they get in early.

The article in the second url below (from last week) reinforces the precedents of alternative IPO models that Facebook could have chosen to emulate:

Quirky, pioneering companies have long viewed the initial public offering process not only as a chance to raise money but also as an unparalleled PR opportunity—the ultimate expression of their values. In the 1980s ice cream makers Ben Cohen and Jerry Greenfield offered stock to their Vermont neighbors and to the local dairy farmers who were supplying them with milk. In 1995, Boston Beer, the maker of Samuel Adams, announced via ads on its bottles that any loyal drinker could buy into the company at $15 a share. Most famously, in 2004, Google tried to dilute the influence of the big investment banks and ran a so-called Dutch auction, letting prospective investors collectively set the price by submitting blind bids for shares.

Although the article recognizes that these different models have a varied success record, it claims that Facebook was well-positioned to learn from their past mistakes. And, seemingly more important than technical efficiency (IPO share prices are often underpriced, after all), was the potential for the firm’s decision to reform the system in a positive way. Given Facebook’s size and prominence, it was well-placed to buck the IPO trend. Instead:

Facebook appears to be preparing for an entirely conventional IPO, with none of the egalitarian aspirations that characterized those offbeat offerings of the past. By bringing in some of the country’s biggest and most recognizable banks to manage the IPO, Facebook has not only guaranteed those institutions a huge payday; it has also aligned itself with Wall Street at a time when public hostility toward the financial establishment is higher than ever.

Since Facebook’s announcement last week, I have seen other articles (such as this one in the Wall Street Journal, http://online.wsj.com/article/SB10001424052970203889904577200771850542822.html) bemoaning the missed opportunity by Facebook to advance the “democratization of the IPO”:

All this may explain one disappointment in Facebook's IPO filing, the company's apparent decision not to take advantage of an electronic platform that would let its U.S. members participate in the IPO via a Facebook app. The technology exists and has credible backers on Wall Street. The Securities and Exchange Commission has been consulted. Tens of millions of Facebookers might have enjoyed a front-row seat for one of capitalism's most hopeful spectacles, the public flotation of a young company.

Take care
David


Instructor Teaching Site: http://www.sagepub.com/strategiccsr/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/


Facebook’s $10 Billion Question
By Francesco Guerrera
December 13, 2011
The Wall Street Journal
Late Edition - Final
C1

Facebook, Wall Street: Friends with Benefits
With its long-awaited IPO filing, Facebook has revealed the identity of the partner that will define it for years to come
February 01, 2012
Bloomberg Businessweek