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Understanding and responding to societal demands on corporate responsibility

Final Report Summary - RESPONSE (Understanding and Responding to Societal Demands on Corporate Responsibility)

The research program proposed by the RESPONSE consortium aimed to study the nature of societal demands on business organisations' decisions and actions from a business strategy perspective.

Two are the overarching questions that needed to be addressed. First, what do companies understand as their responsibilities towards society, and how does that differ from the actual expectations from social actors? Two, how can companies cope with both rising societal demands on their activities and with a consequently wider gap between what they are prepared to contribute and what society expects from them?

The evidence base accumulated during the study consists of 427 interviews related to 19 companies in 8 sectors, selected through a matched pair / triad design aimed at maximising the similarity in product, geography, size and financial performance, while maximising the difference in social performance across companies within each pair / triad. For each company, a complex research protocol was executed, including a one day in-depth fact finding mission, around 11 interviews with senior executives and CSR managers, and 12 representatives of stakeholder organisations. With respect to the individual level of analysis, four randomized controlled experiments were conducted with the collaboration of four multinational companies, involving 93 managers based in 15 locations worldwide, with the pre- and post-training assessment conducted via a web-based questionnaire.

The key findings from the analysis of the collected data are the following:
1) The analysis demonstrated that there was a wide gap between managers' and stakeholders' understanding of what constitutes the company's social responsibilities. In particular, managers seemed to be tied to a fairly conservative view of corporate responsibility characterised primarily by refraining from negative impacts (do no harm), rather than a pro-active attempt to have a positive impact on society (do good). Moreover, managers exhibited a relatively narrow consciousness of their company's responsibility defined by the legal and moral boundaries, while stakeholders had a broader notion of an expanded enterprise including integrating the interests of wider stakeholders and society as a whole.
2) There was also evidence in support of the hypothesis related to the link between cognitive alignment and the perceptions of social performance, where the size of the gap (the lack of alignment) was associated with lower social performance.
3) The analysis produced evidence related to the influence of external factors on the degree of cognitive alignment, which included the following results: i) Industry dynamism: more dynamic industries (e.g. high-tech) were associated with better alignment. ii) Regional dynamism: more dynamic regions (e.g. Anglo-Saxon countries) were associated with better alignment. iii) Pressure from external actors: the larger the pressure, the higher the alignment.
4) The key internal factors influencing the degree of alignment were analysed and the results reported. In particular, the following dimensions could be used to distinguish the companies with higher cognitive alignment from the others: i) Business strategy: firms adopting a differentiation strategy were associated with higher alignment, compared to firms choosing to compete with a cost-minimisation strategy. ii) CSR initiatives: firms prioritising internal change initiatives to external stakeholder engagement processes showed higher cognitive alignment. iii) Motivation: firms motivated by an innovation-driven business case showed higher alignment compared to firms motivated by organisational values or other types of business case arguments.
5) The results of exploratory experiments on CSR training effectiveness demonstrated that: i) The standard executive education approach based on engaged discussions and case analyses did not seem to be able to help managers develop a higher sensitivity towards the social impact of their decisions and actions. ii) On the other hand, coaching programs based on introspection and meditation techniques, without any explicit discussion about CSR, exhibited a significant impact on both the probability to act in a socially responsible way and on the factors that influence that probability.

To drive social performance, executives and managers were advised to focus their attention on the following points:
- Recognise the existence, importance and consequences of the gap in understanding the nature of their company's social responsibility.
- Shift the focus of CSR activities from external engagement processes towards internal change initiatives aimed at adapting strategic and operating decision-making by developing capabilities and enhancing managerial sensitivities to the social and environmental implications of their decisions and actions.
- HR managers should consider re-designing internal and external training programs to go beyond awareness raising towards the development of social consciousness in managers and employees.
- CSR managers could strengthen their (hitherto peripheral) role within the company's power structure by forging an innovative type of partnership with external stakeholders aimed at identifying and supporting the internal change processes required for a successful integration of corporate responsibility principles in the operating activities and strategic decision-making processes.

The data analysed by the RESPONSE team also had specific implications for several categories of stakeholders:
- Social Rating Agencies (SRAs) could reflect on the results of this project to re-design their methodologies for the assessment of corporate social performance.
- Social pressure groups (NGOs) should also reflect on the need to invest in their knowledge and understanding of the internal operations and change processes in the companies they are dealing with. On the other hand, the data showed that their increasing scepticism towards corporations offering collaboration in external engagement initiatives, rather than in deep internal change processes, was somewhat justified.
- Other inner circle stakeholders (employees, customers, suppliers, financiers and communities) should be encouraged by the findings of the project to strengthen their voice and role as actors of internal operating processes within the corporations that they deal with, and avoid the wait and see, detached, attitude typical of transaction- rather than relationship-oriented processes.

In terms of the content of future research, the key indications could be summarised as follows:
- CSR Cognition. The results showed for the first time how important cognition was in explaining the characteristics of the CSR process as well as the quality of its outcomes. Future research could build on these initial findings to further study (a) how managerial and stakeholders' understanding about corporate responsibility can be measured and validated, (b) how it evolves over time, (c) how it shapes the way firms behave and (d) what outcomes it generates in terms of social and financial performance.
- CSR Integration. The integration of CSR principles and processes within operating routines and strategic decision-making was another area in which the RESPONSE data suggested future research should study in more depth.
- The Individual Level. RESPONSE highlighted in both theoretical and empirical terms the need to study CSR not only as an organisational process but in terms of individual behaviour. Future scholars could build on these initial insights to further the understanding of the factors explaining socially responsible behaviour in managers, as well as of the outcomes for the organisation and for society.
- Learning CSR. The last area where RESPONSE has broke new ground was in the assessment of learning processes at both the individual and organisational levels of analysis. Future scholars could make new inroads on this crucial quest to explain how firms develop competencies specific to the management of their social responsibilities.

A few key implications for policy-making institutions stemming from the results of the analysis ought to be carefully considered:
- Internal Change Processes. The definition of CSR introduced by the EU Commission's white paper in 2001 mentioned both the integration of CSR in the operations and the stakeholder engagement processes as constitutive elements of the concept itself. The application in business firms prioritised the stakeholder engagement component to the detriment of the integration objective. An important indication for future policy development could be, therefore, to invite enterprises to apply the definition of CSR to the full extent of its meaning and significance, focusing on the internal change processes necessary to realise the integration objectives. This could also help the alignment between the rhetoric (strongly developed in external stakeholder engagement initiatives) with the reality of concrete change in business conduct.
- The Role of Business Strategy. Given the importance of the company's choices in how to compete in product markets so as to increase the likelihood of alignment with stakeholder expectations, it was proposed to extend the definition of the concept of CSR to include its integration in the decision-making processes and outcomes that characterise and shape the way the company competes in the markets of choice. The definition of CSR could therefore be edited as follows: CSR is a concept whereby companies integrate social and environmental concerns in their strategic decision-making processes, in their business operations and in their interaction with their stakeholders on a voluntary basis.
- A New Role for the Partnership between Business and Society. Concerning the recent initiative by the EU Commission towards the establishment of a partnership between business and society to enhance the quality of their mutual understanding, of their multiple interactions and ultimately of both of their development and growth; the suggestion was to articulate and focus the concrete outcomes of the partnership on the facilitation of a profound change process inside both business corporations and their societal counterparts.
- A New Way to Conduct Research on Business and Society. Related to the previous point, RESPONSE also demonstrated a new way in which academic research could be conducted in this field. The cooperation between corporations, global stakeholders and scholars through all phases of the research yielded important results, despite the increased coordination costs, particularly in terms of achieving a fruitful balance between academic rigour and managerial relevance.