Chapter 2: Corporate Social Responsibility: A literature review
2.7. CSR and Corporate strategy
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Vogel (2005:5) asserts that organisations do not always practise consistent moral behaviour and may behave better in some countries than in others depending on the local situation and expectations. Accordingly, Parson (1961) asserts that in a host country, an MNC may accept a particular theoretical position but make variations according to changing circumstances within the parameters of the fundamental structure. A juxtaposition of MNCs’ strategies at home and abroad is therefore important for a study such as this.
The contextualisation of theory into strategy offers guidance and meaning to CSR implementation.
These theories provide ideas and inspiration to CSR practitioners. The selected theory should resonate with the organisation’s vision and be responsible for its values and behaviour. The different approaches from these theories offer valuable arguments to explain and evaluate CSR strategy.
From these, an organisation is thus able to formulate and implement CSR strategies that are clear, focused and consistent. It is, however, difficult to validate the success of a particular theory in its entirety, but practitioners may find relevance in certain aspects of it. Regardless, these CSR theories strengthen the concept and outline the need for organisations to pay attention to extramural obligations.
Arguably, CSR theories share certain similar features and characteristics. These theories have similar objectives that is, to improve understanding and innovate approaches that will contribute to the better economic performance, environmental sustainability and social cohesion with all stakeholders. Importantly, only through an in-depth understanding of the available theories can an organisation fully appreciate its role within society and set up strategies that nurture the CSR activity to be implement.
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CSR encourages organisations to adopt new policies, strategies, and to innovate products, which result in social gains, increased revenue, expansion of markets as well as improved stakeholder confidence. The importance of CSR has been heightened by the advent of globalisation.
Globalisation has stimulated interest in CSR as MNCs have become more susceptible to social and ethical pressure in their operations and localities. MNCs that take CSR seriously may improve their reputation and operational efficiency while reducing their risk exposure and encouraging loyalty and innovation in the various locations in which they operate.
As mentioned before, there are many notable reasons why organisations participate in socially responsible initiatives: be it strategic, defensive or altruistic. When integrating CSR into corporate strategy, the organisation has a choice to make on how much attention it should give towards these initiatives, taking into cognisance its own primary function. It weighs its actions against its primary function and capabilities as well as considers the image that it hopes to exude. The latter is an important consideration because when organisations aggressively promote their CSR effort, stakeholders may become suspicious of what the organisation’s true motives behind the integration of CSR are (Du et al., 2010:9). Conversely, less effort is frowned upon as the organisation may be seen as uncaring and opportunistic.
Critics of CSR and its importance in corporate strategy argue that social responsibility initiatives have made organisations too risk aversive and redirected management time, effort and financial resources away from the organisation’s core economic mission. This argument however negates the fact that morality, ethics and subsequently social responsibility are engrained into the fabric of humanity and by extension into the organisations that we operate. It is upon this understanding that scholars distinguish between two drivers that motivate the formulation of corporate strategy and implementation of CSR. Organisations may be driven by extrinsic or intrinsic motivation towards CSR.
According to Muller and Kolk (2009:3) scholarly literature has distinctly categorised these drivers between “approaches that consider CSR to be extrinsically driven and those that are intrinsically driven”. These scholars realise the complexity of exploring a single variable that influence corporate CSR strategy and as such, categorising them into two distinct drivers gives logic to the investigation.
This has led scholars such as Looser and Wehrmeyer (2016:547) to suggest that CSR is either a commercial tool that is intrinsically or morally driven or based on extrinsic motivation.
2.7.1. Extrinsic motives
Extrinsic drivers of CSR are those attributes that strategically position an organisation to gain something back or avoid censure from the community in which it operates. According to Du et al.
(2007:226) the overall purpose of extrinsic or self-interested incentives is to increase the brand's own wellbeing, for example, increasing sales, profits or improving corporate image. Looser and Wehrmeyer (2016:547) add that “extrinsic CSR has a strategic purpose and goal in pursuit of a
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favourable commercial end”. The authors further contend that companies may achieve competitive advantage by strategic CSR participation through managing investor relations, building credibility, seeking win-win results (such as stakeholder engagement or charitable contributions to education), and reducing expense and risk through energy efficiency and environmentally sound manufacturing practices. Ultimately, by setting its CSR strategies based on extrinsic drivers, the organisation better positions itself in the market: ensuring a better reputation, differentiated image and increased profit (which are all considered self-interested motives).
Lougee and Wallace (2008:98) argue that when organisations are driven by extrinsic motives, their well-known reputation helps to ensure that they face less resistance than companies with poor CSR reputations when entering new markets. According to Forehand and Grier (as cited in Du et al.
2010:12), acknowledgement of extrinsic, firm serving motives in its CSR message will actually enhance the credibility of a company’s CSR communication and inhibit stakeholder scepticism, which underlies the potential boomerang effect of CSR communication. These opportunities are only possible because of the organisation’s overt CSR engagement.
It should be noted that extrinsic CSR is based on the communities’ or stakeholders’ view of the organisation’s initiative. Although its actions are often welcomed by stakeholders for developmental purposes, it is easily perceived as self-promotion and self-preservation. Stakeholders are aware that CSR is being used in order to achieve economic benefit for the organisation. Regardless, as Du et al. (2010:10) assert, there appears to be an increasing acceptance of extrinsic motives because as consumers come to understand more about CSR and organisational objectives, they are more inclined to embrace a win-win mindset which they see as beneficial to both parties.
2.7.2. Intrinsic motives
Intrinsic motives, on the other hand, are those that are perceived to have been initiated out of genuine concern for societal needs. Du et al. (2007:226) describe them as selfless motives whose ultimate goal is to do good and fulfil the organisation’s obligations to society. Intrinsic drivers are altruistic in nature and are driven by the organisation’s moral duty. As such, organisations that are intrinsically motivated towards CSR are therefore driven by ethical values and moral leadership.
Stakeholders feel connected to organisations that display intrinsic motivation towards CSR. This on its own is an unsolicited reputational benefit to the organisation. There is significant evidence that activities, even though intrinsically motivated, will have unexpected positive impacts on organisational performance. In fact, Bocquet et al. (2012:5) found that companies that implement CSR for intrinsic reasons gain a comparative edge, resulting in higher, long-term economic success than companies that adopt CSR for extrinsically driven motives. In this case, stakeholders believe that the organisation’s benevolent nature (based on its initiatives) is a true reflection of its values.
There is therefore a positive association with the organisation.
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In formulating CSR strategies, organisations should be honest and embrace the motives of their CSR activities. This is enshrined in the organisation’s vision, mission, values and culture and needs to be effectively communicated to all stakeholders. The organisation should also not shy away from articulating itself meaningfully if indeed its initiatives are driven by business (intrinsic) motives.
Intrinsically motivated organisations need to be more intelligent about how they communicate their CSR initiatives, ensuring that consumers credit such effort to intrinsic rather than extrinsic motives (Du et al., 2007:238). This is because, by virtue of their intrinsic nature, the organisation may not necessarily expect returns for their efforts. As such, smart communication methods may at least provide the community and other stakeholders with a view of some of the organisations’ CSR activities.
Du et al. (2010:12) cite Carrefour, a French retail MNC, as an example of an organisation that rationalises its environmental policies. The authors state that Carrefour recognises that “consumers are increasingly attentive to everything that has to do with safety and environmental health.
Safeguarding the environment is a criterion they will increasingly consider”. This statement illustrates that the organisation is cognisant of consumer expectations and is willing to actively ensure that its operations and products fulfil set standards.
Logsdon et al. (2006:54) found that expectations from society lead to responsibilities that are more compulsory in nature. This shows that the organisation’s motivation and already established CSR reputation, has a significant bearing on how the organisation is received. Muller and Kolk (2009:6) emphasise that this stakeholder pressure on MNCs from developed countries to exhibit high levels of responsibility would motivate them to embed higher effort within the host country especially if it is within the emerging markets.
As these MNCs come under pressure to be more socially responsible in their home countries, they are also encouraged to remain consistent through transmitting this pressure to their operations abroad. Muller and Kolk (2009:4) argue that “the context in which the firm operates (or from which it originates) determines its CSR both in level and content”.
Muller and Kolk (2009:4) suggest that “an international landscape of CSR exists based on national variations, with some countries considered high-CSR environments and others considered low-CSR environments”. They further note that research that has focused on emerging markets has shown that organisations demonstrate greater responsibility when subjected to extrinsic pressure such as global regulations, pressure from international trading partners or exposure to Western values. This demonstrates that the types of extrinsic pressures commonly associated with MNCs’ foreign trade and investment operations are believed to raise the bar of social responsibility in lower-CSR environments.
The choice of strategic direction, therefore, has a number of variables from which it is drawn. Both extrinsic and intrinsic drivers matter. However, there lies a school of thought that suggests that the
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choice between the two may not be exclusive or competing but rather interactive or complimentary.
Through this interactive perspective, the environment is viewed as a source of intelligence that helps the organisation determine its strategic direction as suggested by Lukas and Halt (2001). It is through total attentiveness and comprehension of this environmental information that the organisation may accurately formulate CSR strategies that are well-tailored or befitting its own beliefs, aspirations and goals. Thus, as Muller and Kolk (2009:10) assert, “there must be a fit between environmental pressures and firm-internal characteristics, including managers’ mental models and strategic intentions”.
Story and Neves (2015:4) argue that extrinsic CSR alone may backfire as a result of the cynicism it may bring regarding the possible lack of concern about the moral obligations of the organisation.
Their research concentrated on employees as internal stakeholders and concluded that CSR also influences performance especially when employees believe that the organisation’s initiatives are not only sincere but also strategically beneficial to the organisation (both intrinsically and extrinsically motivated).
The integration of CSR based on either or both drivers reflects the importance of the concept to business. In reality, the difference between extrinsic and intrinsic CSR may be hard to distinguish and may ultimately result in a cross over approach.
Understanding motivation will help policymakers make informed choices on how to persuade businesses to be more socially responsible. This helps build an understanding of how and why MNCs develop particular CSR strategies especially in host countries. Unfortunately, only the organisation knows whether the motivations for CSR are truly extrinsic or intrinsic. Regardless of the motivation, whether intrinsic or extrinsic, CSR is beneficial to an organisation’s image, corporate culture and financial outcomes amongst other benefits. These benefits must be explored further especially when evaluating the MNC’s position in a country that has implemented an indigenous policy.