CHAPTER 12
STRATEGIZING WITH CORPORATE SOCIAL
RESPONSIBILITY
CHAPTER OUTLINE
I. OPENING CASE: Emerging Markets: The Ebola Challenge
A. Ebola has been a known virus for four decades, yet no effective vaccine or medicine has
yet been developed
1. Between 1976 and 2013, there were 24 outbreaks in Sub-Saharan Africa, with 1,716
cases
2. The 2014 outbreak, however, had 15,000 reported cases, 6,000 documented deaths,
and the first cases outside of Africa
a. The outbreak began in Guinea, Liberia, and Sierra Leone and quickly spread to
other West African countries
b. In September 2014, a Liberian man was diagnosed with Ebola while visiting
B. In the absence of effective vaccine or medicine, treatment was indirect
1. Treatment centered on early supportive care with rehydration and symptomatic
treatment
a. Management of pain, nausea, fever, and anxiety, as well as rehydration via the
oral or intravenous (IV) route
2. The two American nurses and six American health care workers who went to Africa
and came home with Ebola recovered after several weeks of treatment
3. By December 2014, ten Ebola cases had been treated in the United States and only
two resulted in death
C. Throughout the crisis, the initial silence of the pharmaceutical industry was conspicuous
1. The Director-General of the WHO criticized the industry for failing to develop a
vaccine for Ebola during the previous four decades, complaining that “a profit-driven
industry does not invest in products for markets that cannot pay”
2. Initially reluctant, some pharmaceutical firms jumped in
Chapter 12 Strategizing with Corporate Social Responsibility
3. However, progress was slow and funding tight
a. In November 2014, a U.S. giant, Merck, paid NewLink $50 million to buy the
rights to the vaccine and to expedite R&D, and the Canadian government retained
non-commercial rights to it
b. Also in November 2014, a French Big Pharma player Sanofi announced its
intention to work with industry partners to combat Ebola
4. ZMapp, an experimental drug developed by a small biopharmaceutical firm Mapp,
showed encouraging results but did not have FDA approval
D. Pharmaceutical firms were reluctant to spend the money to find a cure for Ebola because
even if successful, mostly African countries would benefit, which is not a typically
profitable market
2. Debates continued to rage
a. One side argued that pharmaceutical firms only focused on markets and products
from which they could profit
3. Some pharmaceutical firms jumped onto the “Ebola bandwagon” to earn kudos for
corporate social responsibility, knowing that profits for their efforts were unlikely
4. Others were simply driven by public pressure
5. How pharmaceutical firms manage their quest for the triple bottom line remains one
of the leading strategic challenges they face
II. A STAKEHOLDER VIEW OF THE FIRM
A stakeholder is “any group or individual who can affect or is affected by the achievement of
the organization’s objectives”
A. A Big Picture Perspective
1. Goal for CSR is global sustainability, defined as the ability “to meet the needs of the
present without compromising the ability of future generations to meet their needs”
Chapter 12 Strategizing with Corporate Social Responsibility
c. the negative impact of industrialization on the environment—global warming,
pollution, soil erosion, and deforestation
B. Primary and Secondary Stakeholder Groups
1. Primary stakeholder groups are defined as constituents on whom the firm relies for its
continuous survival and prosperity
pursue a more balanced set, called the triple bottom line
C. A Fundamental Debate
1. The CSR debate centers on the nature of the firm in society. Why does the firm exist?
2. One side of the debate argues that “the social responsibility of business is to increase
its profits, which leads to efficient capital and product markets.” Free market
advocates believe that the first and foremost stakeholder group is shareholders, whose
4. Few, if any, CSR advocates argue for a revival of socialism in the world. So the
whole debate takes place within the constraints of capitalism. The goal of the CSR
movement is a more humane capitalism, in which justice and fairness can be
addressed
5. CSR advocates argue that all stakeholders have an equal right to bargain for a “fair
deal.” Given stakeholders’ often conflicting demands, the very purpose of the firm,
instead of being a profit-maximizing entity, is argued to serve as a vehicle for
coordinating stakeholders’ interests
b. the frequent occurrence of natural disasters and human-initiated scandals
III. A COMPREHENSIVE MODEL OF CORPORATE SOCIAL RESPONSIBILITY
A. Industry-Based Considerations: The Five Forces Model
1. Rivalry among Competitors: The more concentrated an industry, the more likely that
competitors will recognize their mutual interdependence based on old ways of doing
business that are not up to the higher CSR standards
2. Threat of potential entry: How can incumbents raise entry barriers to deter potential
entrants?
Chapter 12 Strategizing with Corporate Social Responsibility
5. Threat of substitutes: If CSR companies have substitutes that are superior to existing
products and costs are reasonable, they may attract more customers
6. Turning threats into opportunities: Not all industries are equal in terms of their
exposure to CSR challenges but it may be possible to proactively turn threats into
opportunities
B. Resource-Based Considerations
1. Value: Some CSR policies may reduce the firm’s value especially when it engages
with social issue participation
C. Institution-Based Considerations
1. Regulatory pressures underpin formal institutions, whereas normative and cognitive
pressures underpin informal institutions
2. The response framework consists of four strategies:
a. Reactive Strategy: This is indicated by relatively little or no support by top
management of CSR causes
b. Defensive Strategy: This focuses on regulatory compliance; top management
involvement is piecemeal at best, and the general attitude is that CSR is an added
cost or nuisance
c. Accommodative Strategy: This is characterized by some support from top
managers, who may increasingly view CSR as a worthwhile endeavor
3. Making strategic choices: The typology specifies a strategic menu from which
different firms can choose among reactive, defensive, accommodative, and proactive
strategies
a. Currently, the number of proactive firms is still a minority
IV. DEBATES AND EXTENSIONS
A. Domestic versus Overseas Social Responsibility
1. Given that corporate resources are limited, devoting resources to overseas CSR often
means fewer resources will be devoted to domestic CSR
Chapter 12 Strategizing with Corporate Social Responsibility
4. The heart of the debate boils down to a fundamental point that frustrates CSR
advocates: In a capitalist society, it is shareholders whose interests are fiercely
safeguarded
5. CSR takes a back seat when managers are confronted with relentless pressures for
cost cutting and restructuring
B. Active versus Inactive CSR Engagement Overseas:
1. Active CSR engagement is increasingly expected of MNEs
2. MNEs that fail to do are often criticized by NGOs
C. Race to the Bottom (“Pollution Haven”) versus Race to the Top:
1. Two points of view can be discerned from this debate
2. One side argues that because of heavier environmental regulation in developed
economies, MNEs may have an incentive to shift pollution-intensive production to
developing countries with lower environmental standards
V. THE SAVVY STRATEGIST
A. First, given the increasingly inescapable responsibility to be good corporate citizens,
managers may want to integrate CSR as part of the core activities of the firm—instead of
“faking it” or making cosmetic changes
B. Second, savvy managers need to pick CSR battles carefully
C. Third, savvy strategists need to understand the formal and informal rules of the game,
Chapter 12 Strategizing with Corporate Social Responsibility
CHAPTER TWELVE – LECTURE NOTES AND TEACHING TIPS
SUMMARY OF THE OPENING CASE: Emerging Markets: The Ebola Challenge
The opening case considers how Ebola, a particularly virulent virus, was largely ignored in terms
of research and development by pharmaceutical companies until the 2014 outbreak. The large
number of cases and the spread of the virus to and treatment in Western countries appeared to
finally spur pharmaceutical companies into action.
Teaching Tip: Ask students to discuss whether they think it is reasonable to expect
pharmaceutical companies to expend scarce research dollars on a cure for a virus that, although
highly virulent, only affected a small number of people in a relatively small area of the world. If
students defend the pragmatism of the industry, ask them to consider how many lives could have
A STAKEHOLDER VIEW OF THE FIRM
Teaching Tip: Ask students to make up a list of firm stakeholders. A sample firm that most
everyone in the class is familiar with can be given as an example to help the students. For
example, a major pharmaceutical firm like Merck can be selected. It is likely that students will
name shareholders as a stakeholder, and perhaps some will mention the employees. The
instructor might point out that the physicians and patients (customers) represent a stakeholder
with a lot of interest in how Merck performs. Other stakeholders would include the regulatory
A Big Picture Perspective
A key goal for CSR is global sustainability, which is defined as the ability “to meet the needs of
the present without compromising the ability of future generations to meet their needs.”
Three sets of drivers are related to the urgency of global sustainability in the twenty-first century:
rising levels of population and inequity, and stubbornly high levels of poverty in some countries.
Compared with the relatively eroded power of national governments in the wake of
globalization, NGOs and other civil society stakeholders—often emboldened by new technology
and societal wealth —have the ability to affect firms and their management, and impact
Chapter 12 Strategizing with Corporate Social Responsibility
Primary and Secondary Stakeholder Groups
Primary stakeholder groups are defined as constituents on whom the firm relies for its continuous
survival and prosperity. Shareholders, managers, employees, suppliers, and customers—together
with governments and communities whose laws and regulations must be obeyed and to whom
taxes and other obligations may be due—are typically considered as primary stakeholders.
Secondary stakeholder groups are defined as “those who influence or affect, or are influenced or
affected by, the corporation, but they are not engaged in transactions with the corporation and are
A Fundamental Debate
The CSR debate centers on the nature of the firm in society. Why does the firm exist? Most
people would intuitively answer: “To make money”—or as Milton Friedman, a University of
Chicago economist and Nobel laureate, eloquently suggested: “The business of business is
business.”
One side of the debate argues that “the social responsibility of business is to increase its profits,”
which is the title of Friedman’s influential article published in 1970. This free market school of
thought draws upon Adam Smith’s idea that pursuit of economic self-interest (within legal and
ethical bounds) leads to efficient markets.
Free market advocates believe that the first and foremost stakeholder group is shareholders,
whose interests managers have a fiduciary duty (required by law) to look after. This is
represented by the term “shareholder capitalism.”
Chapter 12 Strategizing with Corporate Social Responsibility
In 1980, the average American CEO was paid 40 times more than the average worker. The ratio
is now above 400. Although American society accepts a greater income inequality than many
other societies do, aggregate data of such widening inequality often stimulate calls for reforming
the “leaner and meaner” capitalism.
A second reason behind the rise of the CSR movement seems to be the waves of disasters and
scandals. For example, in 2010, BP made a huge mess in the Gulf of Mexico. In 2011, a
Japanese earthquake triggered the meltdown of the Fukushima nuclear power station. Not
surprisingly, new disasters and scandals often propel CSR to the forefront of public policy and
management discussions.
Managers as a stakeholder group are unique in that they are the only group positioned at the
center of all these relationships. Further, they make decisions on behalf of the firm that affect all
other stakeholders.
Teaching Tip: Professor John Kotter of the Harvard Business School in his 1994 book, The New
Rules, has likened the more globalized economy to opening up a previously friendly poker game
to new players, with new rules and much higher stakes. It is to be expected that there would be
some big winners in the newly competitive environment, be it individuals, firms, and nations,
much as there is today with the competitive televised poker tournaments in Las Vegas. But that
is not to argue that the economy is a zero-sum game; this is a logical fallacy that is sometimes
employed in this debate. Unlike a poker game, it is possible to have everyone win in an open,
global economy, though possibly some will lose in the short run.
A COMPREHENSIVE MODEL OF CORPORATE SOCIAL RESPONSIBILITY
Industry-Based Considerations – the Five Forces Model
Rivalry among Competitors
Chapter 12 Strategizing with Corporate Social Responsibility
Threat of Potential Entry
How can incumbents raise entry barriers to deter potential entrants? Some evidence suggests that
experience accumulated from being first movers in pollution-control technologies can create
entry barriers that favor incumbents.
Bargaining Power of Suppliers
If socially and environmentally conscious suppliers provide unique, differentiated products with
few or no substitutes, their bargaining power is likely to be substantial.
Bargaining Power of Buyers
By leveraging their bargaining power, individual and corporate buyers interested in CSR may
extract substantial concessions from the focal firm. An example of the power of individual
consumers is the controversy regarding Shell’s 1995 decision to sink an oil platform in the North
Sea. This decision led to strong protests organized by Greenpeace in Germany, which caused an
11 percent drop in Shell gas station sales in one month. Such pressures forced Shell to reverse its
decision and dismantle the oil platform at great cost.
Threat of Substitutes
If substitutes are superior to existing products and costs are reasonable, they may attract more
customers. For example, wind power, which is much more environmentally friendly than fossil-
fuel sources of power (such as oil and coal) and safer than nuclear power, may have great
potential. It is true that at present, wind power requires heavy government subsidies in order to
become commercially viable. However, its future is likely to be promising, given the increasing
depletion of fossil fuel, the skyrocketing oil prices, and the growing awareness of the risks
associated with conventional technologies (such as the risk of terrorism at nuclear power plants).
Turning Threats to Opportunities
Taken together, the five forces framework suggests two lessons. First, it reinforces the important
Chapter 12 Strategizing with Corporate Social Responsibility
Resource-Based Considerations
Value
Do a firm’s CSR-related resources and capabilities add value? For many large firms, especially
Rarity
Only valuable and rare resources and capabilities can provide focal firms some advantage. For
example, both Home Depot and Lowe’s have NGOs such as the Forest Stewardship Council
certify that suppliers in Brazil, Indonesia, and Malaysia use only material from renewable
forests.
Imitability
Firms can only entertain some sustainable (not merely temporary) competitive advantage when
resources and capabilities are not only valuable and rare but also hard to imitate. At some firms,
Organization
Does the firm have the organizational capabilities to do a good job on CSR? Is the firm
The CSR Economic Performance Puzzle
The puzzle—and a source of frustration to CSR advocates—is why there is no conclusive
evidence of a direct, positive link between CSR and economic performance, such as profits and
shareholder returns. Although some studies indeed report a positive relationship, others find a
negative relationship, or none.
Institution-Based Considerations
Reactive Strategy
Many cost-conscious manufacturers simply turn a blind eye with an “out of sight, out of mind”
mentality. However, this blatant lack of responsiveness toward CSR has caused a huge backlash
throughout the world.
Chapter 12 Strategizing with Corporate Social Responsibility
Defensive Strategy
This focuses on regulatory compliance. Top management involvement is piecemeal at best, and
the general attitude is that CSR is an added cost or nuisance. Firms admit responsibility but often
fight it. After the establishment of the Environmental Protection Agency (EPA) in 1970, the U.S.
chemical industry resisted the EPA’s intrusion.
Accommodative Strategy
This strategy has some support from top managers, who may increasingly view CSR as a
Teaching Tip: CSR is not limited to Western firms. Also give an example of firms outside of the
U.S. to students. The content of these codes varies by individual firm, industry, and country. U.S.
codes of conduct tend to pay less attention to immediate production concerns and more attention
to secondary stakeholder issues, such as welfare of the community and environmental protection.
Continental European codes concentrate more on production activities, such as quality
management and limiting the environmental footprint of activities. British codes appear to be
relatively closer to their U.S. counterparts. In Hong Kong the codes focus narrowly on corruption
prevention, but pay less attention to broader CSR issues.
(1) Some argue that firms may not necessarily be sincere. This negative view suggests that given
the rising interest in CSR, firms may be compelled to appear to be sensitive to CSR by
impression management—in other words, “window dressing.” Many firms may chase fads by
following what others are doing while not having truly internalized the need to genuinely address
The institution-based view suggests that all three perspectives are probably valid. This is to be
expected given how institutional pressures work to instill value. Regardless of actual motive, the
fact that firms are embarking on some tangible CSR journey is encouraging, and indicates that
CSR’s legitimacy is rising on the organizational agenda.
(4) Even for firms adopting codes of conduct only for “window dressing” purposes, publicizing a
set of CSR criteria against which they can be judged opens doors for more scrutiny by concerned
stakeholders. These pressures are likely to encourage internal transformations that make these
firms more self-motivated, better corporate citizens. Thus, it probably is fair to say that Nike is a
more responsible corporate citizen in 2014 than it was in 1994.
Proactive Strategy
Chapter 12 Strategizing with Corporate Social Responsibility
First, proactive firms actively participate in regional, national, and international policy
discussions. Second, proactive firms often build alliances with stakeholder groups. For example,
many firms collaborate with NGOs. Third, proactive firms often engage in voluntary activities
that go beyond what the regulations require.
Making Strategic Choices
The typology of (1) reactive, (2) defensive, (3) accommodative, and (4) proactive strategies is an
interesting menu provided for different firms to choose from. At present, the number of proactive
firms is still probably a minority. While many firms are compelled to do something, a lot of CSR
activities probably are still “window dressing.” Only sustained pressures along regulatory,
normative, and cognitive dimensions may push and pull more firms to do more.
DEBATES AND EXTENSIONS
Domestic versus Overseas Social Responsibility
Expanding overseas, especially toward emerging economies, not only potentially increases
corporate profits and shareholder returns, but also provides employment to host countries,
increases standards of living there, and develops these economies, all of which have noble CSR
dimensions. However, often domestic employees and communities pay the price for this
expansion.
To the extent that few (or no) laid-off German employees would move to the neighboring Czech
Republic and Poland to seek work (and forget about moving to China, India, or South Africa),
most of them end up being social welfare recipients in Germany. Thus, one may argue that
MNEs shirk their CSR by increasing the social burdens of their home countries.
Although framed in a domestic versus overseas context, the heart of this debate boils down to the
foundational thorny point that frustrates CSR advocates: In a capitalist society, the
shareholders—otherwise known as capitalists—are the ones who matter at the end of the day.
When companies have enough resources, it would be nice to take care of domestic employees
and communities. However, when confronted with relentless pressures for cost cutting,
Teaching Tip: Economists have forcefully argued that globalization is nearly identical in
economic and labor market terms to automation. That is, automation enables a firm to do equal
work with less labor and reduced costs. Although many people used to be against automation,
Chapter 12 Strategizing with Corporate Social Responsibility
very few will demonstrate against automation today. Similarly, globalization allows a firm to
make the same product, for less money, by using cheaper foreign suppliers and locations.
Emerging studies are showing that displaced employees due to globalization find jobs in other
industries; sometimes in export-related firms, sometimes in businesses that benefit from the more
open global environment.
Source: The Economist. Survey: Globalization, September 27, 2001.
Active versus Inactive CSR Engagement Overseas
Active CSR engagement is now increasingly expected of MNEs. MNEs that fail to do so are
often criticized by NGOs. Consequently, the idea that MNEs should not interfere in the domestic
political affairs of the host country has been enshrined in a number of codes of MNE conduct.
However, CSR advocates have been emboldened by some MNEs’ actions during the apartheid
era in South Africa, when local laws required racial segregation of the workforce. While many
Race to the Bottom (“Pollution Haven”) versus Race to the Top
In global business, a controversial “pollution haven” debate has arisen. One side argues that
because of heavier environmental regulation in developed economies, MNEs may have an
incentive to shift pollution-intensive production to developing countries whose environmental
standards may be lower. To attract investment, developing countries may enter a “race to the
bottom” by lowering (or at least not tightening) environmental standards, and some may become
THE SAVVY STRATEGIST
Concerning CSR, the industry, resource, and institution-based views suggest clear implications
for action. First, given the increasingly inescapable responsibility to be good corporate citizens,
managers may want to integrate CSR as part of the core activities of the firm—instead of “faking
it” or making cosmetic changes. Many managers traditionally treat CSR as a nuisance, involving
regulation, added costs, and liability. Such an attitude may underestimate potential business
opportunities associated with CSR. Second, savvy managers need to pick CSR battles carefully.
The resource-based view suggests an important lesson, which is captured by Sun Tzu’s timeless
Chapter 12 Strategizing with Corporate Social Responsibility
For current and would-be strategists, once again, this chapter has suggested that the three leading
perspectives can help answer the four fundamental questions.
First, why do firms differ in CSR activities? Firm differences can be found in:
(1) Industry structures
(2) Firm-specific capabilities
(3) Formal and informal institutional pressures
Second, how do firms behave in the CSR arena? Some are reactive and defensive, others are
accommodative, and still others are proactive. Cutting-edge firms often undertake voluntary
actions that go beyond formal, regulatory requirements.
Third, what determines a firm’s CSR scope? While industry structures, resource bases, and
Chapter 12 Strategizing with Corporate Social Responsibility
POSSIBLE ANSWERS TO CRITICAL DISCUSSION QUESTIONS
1. ON ETHICS: Between the two opposing views in terms of stakeholder capitalism (Chapter
12) and shareholder capitalism (Chapter 11), which view do you support? Why?
Answers will vary. Students should explicitly contrast what they see as the primary difference
2. ON ETHICS: Your CPA firm is organizing a one-day-long CSR activity using company
time, such as cleaning up a dirty road or picking up trash on the beach. A colleague tells you:
“This is so stupid. I already have so much unfinished work. Now to take a whole day away
from work? Come on! I don’t mind CSR. If the company is serious about CSR, why don’t
they donate one day of my earnings, which I am sure will be more than the value I can
generate by cleaning up the road or picking up trash? With that money, they can just hire
someone to do a better job than I would.” What are you going to say to her? (Your colleague
makes $146,000 a year and on a per-day basis she makes $400.)
Answers will vary. CSR initiatives reveal the values of a company and thus can participate in
the employee value proposition strategy. Further it humanizes the company—it depicts the
3. ON ETHICS: As CEO of a leading bank in Wall Street or the City of London, you have
decided to directly meet participants in the Occupy Wall Street movement or the Occupy
London movement, respectively. What will you say?
Answers will vary. The Occupy Movement is a protest movement battling against social and
economic inequalities. Its primary goal is to dismantle current economic structures and
Chapter 12 Strategizing with Corporate Social Responsibility
TOPICS FOR EXPANDED PROJECTS
1. ON ETHICS: In the landmark Dodge v. Ford case in 1919, the Michigan State Supreme
Court determined whether Henry Ford could withhold dividends from the Dodge brothers
(and other shareholders of the Ford Motor Company) to engage in what today would be
called CSR initiatives. With a resounding “No,” the court opined that “A business
organization is organized and carried on primarily for the profits of the stockholders.” If the
court in your country were to decide on this case in 2019, what do you think would be the
likely outcome?
Cognitively and normatively speaking, most people in the U.S., including judges, would not
question the right and responsibility of a firm to make some reasonable donations out of
2. ON ETHICS: Some argue that investing in emerging economies greatly facilitates the
economic development at the base of the global economic pyramid. Others contend that
moving jobs to low-cost countries not only abandons CSR for domestic employees and
communities in developed economies, but also exploits the poor in these countries and
destroys the environment. If you were (1) the CEO of an MNE headquartered in a developed
economy, (2) the leader of a labor union in the home country of the MNE mentioned here
that is losing a lot of jobs, and (3) the leader of an environmental NGO in the low-cost
country in which the MNE invests, how would you participate in this debate?
Answers might vary. As the CEO of an MNE, you would point to the jobs that your firm
created in the developing country, both directly and indirectly. You must also mention the
taxes paid to the local government and customs. Also relevant is the comparison of where
Chapter 12 Strategizing with Corporate Social Responsibility
3. ON ETHICS: Hypothetically, your MNE is the largest foreign investor in (1) Vietnam where
religious leaders are reportedly being prosecuted, or (2) Estonia where ethnic Russian
citizens are being discriminated against by law. As the country manager there, you are being
pressured by NGOs of all stripes to help the oppressed groups in these countries. But you
also understand that the host government could be upset if your firm is found to engage in
local political activities deemed inappropriate. These activities, which you personally find
distasteful, are not directly related to your operations. How should you proceed?
Answers will vary. You could try to develop some alliance with the NGOs to find a solution to
the problems. It will not be easy, but stonewalling the NGOs will likely hurt firm reputation,