Social Responsibility: Who's Got it Right and Who Hasn't?

Only 3% of 4,238 business executives surveyed by McKinsey believed that their companies were doing a good job of being socially responsible (cited in Glavas and Piderit, 2009, p.54). “There are four domains of corporate social responsibility (CSR): economic, legal, ethical and philanthropic. The basic idea of CSR is that business and society are interwoven rather than distinct entities; therefore, society has certain expectations for appropriate business behaviour and outcomes, (Lee, Fairhurst and Wesley, 2009, p.141-142).

CSR is becoming a ‘hot’ topic of research and debate, yet is there more talk than action - are organisations really trying to become socially responsible or simply playing to their audiences?

Marjorie Kelly and Allen White highlight how some organisations are changing their fundamental design to embrace the effective principles of CSR and site the examples of Novo Nordisk, Organic Valley, and the John Lewis Partnership.

These organisations have evolved to integrate business principles with social responsibility; Novo Nodisk, for example, is a multi-million dollar pharmaceutical company, with a turnover in excess of $7 billion, based in Denmark that is owned by a foundation whose primary aim is to find a cure for diabetes. Organic Valley, in the US, with a turnover in excess of $300 million, has established a co-operative that is owned by the 1,200 farmers who produce the organic products; and the John Lewis Partnership in the UK, with a turnover in excess of $9 billion, is a 100% owned by its employees, and its stated purpose is ‘serving the happiness of its employees,’ (Kelly and White, 2009, p.25).

Yet at the other extreme you have organisations like BHP-Billiton who often rank high in formal CSR surveys (such as the Global Reporting Initiative) but aren’t similarly supported by many environmental/sustainability groups, because of their perceived impact on the environment.

Timothy Devinney (2009) highlights a more complex problem with L’Oreal, a company that engages in limited animal testing, but who owns the Body Shop, which of course actively promotes its animal-friendly orientation. Devinney raises the question; “is society not better off with a schizophrenic L’Oreal rather than no Body Shop at all?” (p.45); yet what does this say about an organisations commitment to CSR and where does it leave the consumer. By supporting the Body Shop, like it or not, the consumer is supporting L’Oreal that engages in animal testing.

At Nike and Proctor & Gamble (P&G), “social and environmental considerations are deeply embedded in decision making; where corporate responsibility is one of Nike’s nine strategic goals. At Nissan North America, 99% of the staff have gone through green training to gain understanding and sustainability awareness, which the company views as integral for acceptance of CSR initiatives”, (Epstein, Buhovac and Yuthas, 2010, p.44-45).

However, what seems to be clear is that most organisations are moving too slowly in embracing the true values of CSR and are now able to blame the current global recession, for their slow progress in this important area.

In a 2009 report, Lee, Fairhurst and Wesley, confirm that many organisations and researchers are confident that “there is a positive relationship between CSR activities and corporate performance citing that often the costs are small while the benefits are potentially high.” They cite research from Waddock and Graves in 1997; Margolis and Walsh in 2001; and Price Waterhouse Coopers in 2004, that confirm that CSR positively influences profitability, through factors including, improved customer loyalty and employee job-satisfaction, (2009, p.144).

So let’s hope more organisations make corporate social responsibility a strategic priority in the months ahead.

References

Devinney, T.M. (2009). Is the Socially Responsible Corporation a Myth? The Good, the Bad, and the Ugly of Corporate Social Responsibility. Academy of Management Perspectives, Vol. 23 Issue 2, p. 44-56.

Epstein, M.J., Buhovac, A.J. and Yuthas, K. (2010). Implementing Sustainability. The Role of Leadership and Organisational Culture. Strategic Finance, Vol. 91, Issue 10, p.41-47.

Glavas, A. and Piderit, S.K. (2009). How Does Doing Good Matter? Effects of Corporate Citizenship on Employees. Journal of Corporate Citizenship, Issue 36, p.51-70.

Kelly, M. and White, A. (2009). From Corporate Responsibility to Corporate Design: Rethinking the Purpose of the Corporation. Journal of Corporate Citizenship, Spring, Issue 33, p.23-27.

Lee, M-Y., Fairhurst, A. and Wesley, S. (2009). Corporate Social Responsibility: A Review of the Top 100 US Retailers. Corporate Reputation Review, Vol. 12, Issue 2, p.140-158.

Service Loyalty Creates Customer Loyalty

An organisation’s “primary focus should not be to merely attract customers, but to obtain their loyalty and, thus, their patronage, not only for the present, but also for the long-term. While organisations attract their customers through their promise, the customer’s decision to purchase is founded on the trust that the firm will fulfil their needs,” (Kandampully, 1998, p.436).

In an era when customer service seems to be something that is sadly lacking for many – there are unique opportunities for organisations to gain market share and create a competitive advantage, through focusing, not only, on offering service but on the creation of customer loyalty as well.

Two of the basic theories in customer satisfaction include disappointment theory and prospect theory. The theories are based on the premise that our reaction to service; which can be described either as, disappointment, neutral or elation; is based on the service we receive in relation to our expectations. Disappointment theory states that, “the greater the disparity between outcome and expectations, the greater is the person’s disappointment or elation;” whereas prospect theory states that “the evaluation of satisfaction will display diminishing sensitivity. That is, marginal values of gains and losses decrease in size with increasing levels of satisfaction and dissatisfaction,” (Homburg et al, 2005, p.87).

Customer service is not just about exceeding your customer expectations on a consistent basis, (rather than a transaction specific event), but also about understanding and meeting their future needs and future expectations. This takes time and effort, and presupposes that your organisation already has the relationship with your customers, where you can engage with them to discuss and understand their future needs. As Kandampully mentions, “the primary objective of the service provider is identical to that of the tangible goods producer, i.e. to develop and provide offerings that satisfy customer needs, thereby ensuring their own economic survival”, (p.432).

Another advantage of offering superior service on a consistent basis is that research has shown that it can lead to the customer being willing to pay more for a product or service. Homburg, Koschate and Hoyer’s, 2005, research supports “the managerial belief that satisfied customers – those receiving higher quality service or who feel better about the product – are, in fact, willing to pay more for it and that the relationship is non-linear. The results suggest that the measurement and enhancement of customer service should focus on cumulative satisfaction rather than on transaction-specific satisfaction,” (p.94).

Focusing on service loyalty to create customer loyalty is either part of your organisations culture or it isn’t. A culture of service loyalty only exists and works in practice, when the whole organisation embraces and owns the principle and it becomes part of their daily routine in all interactions, both tangible and intangible, with existing or potential customers. The principle of service loyalty becomes part of the organisations ‘brand and image culture’ and brings with it a distinct competitive advantage.

As Kandampully states, “a customer’s loyalty and trust is gained by the service personnel’s commitment to seamless, consistent and superior service, which manifests itself, to the customer, as ‘service loyalty’. It is through service loyalty that an organisation achieves customer delight and customers’ honest participation (customer voice) in the relationship – this is, indeed, the key to continuous improvement and sustained superiority,” (1998, p.439)

References

Homburg, C., Koschate, N. and Hoyer, W.D. (2005). Do Satisfied Customers Really Pay More? A Study of the Relationship between Customer Satisfaction and Willingness to Pay. Journal of Marketing, Vol. 69, p.84-96.

Kandampully, J. (1998). Service quality to service loyalty. A relationship that goes beyond customer service. Total Quality Management, Vol. 9, No. 6, p.431-443.

Great Leaders Develop a Shared Vision

James Lucas states that, “we’ve got vision, but we just can’t see. That seems to be the situation in many companies. We can’t live without vision, although organisations do manage to extend their death throes for several years in a visionless state. And very often, we can’t live with vision either – at least not with the concepts that so often masquerade as a guide to the future. The vision statements of many organisations make their readers feel as if they are drowning in warm maple syrup” (1998, p.23).

The vision statement is often used more as a public relations statement than a ‘guiding light’ for the organisation. There is often a common theme amongst many organisations, large and small, that says our vision is to be the best at everything - we’re the best organisation that looks after our people and the community and our stakeholders; and our customers, and our suppliers, and the environment. There is no uniqueness, there is no ‘vision’ that the organisation can embrace and commit to. These are the statements that Lucas compares to ‘warm maple syrup’.

The leadership develops a vision with the organisation, (not in isolation behind boardroom doors). A company vision that creates a unique future state – a future state that all employees; can understand and relate to; get excited about and commit to; and see progress through their daily activities.

As James Kouzes and Barry Posner mention in their 2009 Harvard Business Review article, “the best way to lead people into the future is to connect with them deeply in the present. The only visions that take hold are shared visions – and you will create them only when you listen very, very carefully to others, appreciate their hopes, and attend to their needs. The best leaders are able to bring their people into the future because they engage in the oldest form of research: They observe the human condition” (p.21).

As Lucas points out “the fact is, every company does need a vision if it wants to go somewhere and be able to know when it has arrived. This need may seem less obvious in an autocratic organisation, where people do as they’re told and have very little idea of where the company is headed. But even the autocrat needs a blue print to follow while dictating the company into the future” (p.24).

Lucas highlights five reasons why organisations need a vision;

1) To guide us. A well constructed vision allows the organisation and its employees to prioritise activities and minimises the chances of conflicting agendas.

2) To remind us. The vision statement is there to remind the organisation where it is heading and why.

3) To inspire us. We are inspired by goals that we can relate to and that give purpose to our work - where we can measure our progress during the ‘journey’.

4) To control us. The vision statement not only gives purpose, but creates parameters to keep us on track (so that we don’t wander off the path).

5) To free us. “It’s hard to have a forward looking, high performance organisation when we don’t know who we are or what we want to become. The events of our past push us along with their inertia, to a chorus of ‘this is the way we’ve always done it’ in the past. A living vision pulls us loose from that mire and opens the door to a fresh future,” (Lucas, 1998, p.24).

The vision statement, if developed and communicated correctly, will create; a unique identity that the whole organisation are excited to be part of; a unique focus, on which the corporate strategy, goals and objectives can be built; and a company culture focused on ownership and not compliance

As Lucas concludes, “a vision statement will be worth more than the paper it’s printed on when it becomes a driving force and compels people to do something, change something, or become something. That means it must pass the ‘baloney test’ and get to the heart of the organisation, answering key questions about its competitive strengths. The statement also needs to be a ‘living’ document that incorporates the best of the organisation’s past into an ideal yet feasible view of the future. Only then will people do more that just buy into the image; they’ll actually own it” (p.25).

Maybe it’s time to get that vision statement down from the walls, blow the dust off and re-look at it again – in the process, turning your vision into your real, unique, statement of the future.

References

Kouzes, J.M. and Posner, B.Z. (2009). To Lead, Create a Shared Vision. Harvard Business Review, Vol. 87, Issue 1, p. 20-21.

Lucas, J.R. (1998). Anatomy of a vision statement. Management Review, Vol. 87, Issue 2, p. 22-26.

Should the CEO also be the Chairman? The Duality Debate

CEO duality exists when the CEO is simultaneously the chairman of the board and there are differing views on whether duality or independence is the correct method for strategic leadership. Chen, Kao, Tsao and Wu (2007) identified that “the examination of corporate governance can be divided into two aspects: the ownership structure and the leadership structure – for leadership structure, the main concerns are the board and CEO duality” (p.252).

Various surveys carried out between 1999 and 2005 show that in the United States between 60 and 80 percent of all major corporations have the same person act as both the CEO and chairman, whereas in British, Canadian, and Japanese companies only about 10 to 20 percent combine the role of CEO and chairman.

It’s worth spending a moment reviewing the various theories that exist, where agency theory is the most dominant theoretical framework in corporate governance research. The popularity of this theory is likely due to two factors. First, it is an extremely simple theory, in which large corporations are reduced to two participants – managers and shareholders – and the interests of both are assumed to be both clear and consistent; and, secondly, the notion of human beings as self-interested and generally unwilling to sacrifice personal interests for the interests of others.

Other predominant theories include; the stewardship theory which describes executives and directors as frequently having interests that are exactly the same as those of the shareholders, and where the directors are good stewards of the corporate assets; the organisational life cycle theory states that complexity is the key determinant in respect of governance requirements as the organisation moves through the life cycle; the resource dependence theory, assumes that corporate boards will reflect the environment of the organisation and that the corporate directors, who are external to the organisation, will be chosen to maximise the provision of important resources; the social network theory emphasises the importance of network formation on reputation, trust, reciprocity and mutual independence; and the neo-institutional theory asserts the importance of normative frameworks and rules in guiding, constraining and empowering behaviour, arguing that board composition will be determined largely by prevailing institutional norms in the organisations industry sector.

In respect of the various theories it is worth noting as Lynall, Golden and Hillman (2003) contend, “it is not a matter of choosing one theoretical perspective over another but, rather, of identifying under which conditions each is more applicable” (p.419).

The strongest advocates of the joint duality structure have been the CEO’s themselves who don’t favour a separation of the CEO and chairperson roles. Ruigrok, Peck and Keller (2006) state that, “such clear cut leadership removes any ambiguity of accountability and responsibility for firm processes and outcomes. The advantages of clear leadership might be the most valuable in situations where a company has to overcome a crisis, as this situation requires fast decisions and clear strategic orientation” (p.1208), though this is disputed by other academics and researchers.

For example, Kang and Zardkoohi (2005) noted that “if duality is adopted because a powerful CEO imposes it on a board, then governance decisions are likely to favour self-serving behaviours of top executives rather than maximising shareholder wealth” (p.795); and Daily (1995) stated that “the central concern with the dual leadership structure is the power which this structure grants the CEO. A primary function of the board, monitoring the CEO, is impeded when the chairperson also serves as the CEO” (p.1046).

Epstein and Roy (2004) highlight that “many corporations have tried to improve the independence of their boards through ensuring that the board leadership is independent. This can be done through either a separation of the role of the CEO and chairman or by the appointment of a lead director. In both cases, the goal is to provide a board leader that is independent of all day-to-day corporate activities and is solely devoted to providing oversight and fulfilling a fiduciary duty to the shareholders” (p.9).

Recent major studies by Booze Allen Hamilton and Khaled Elsayed found that “the impact of CEO duality on corporate performance varies with industry context and corporate performance, which provides partial support for agency theory and stewardship theory. Their findings highlight that there is no one optimal board leadership structure and that CEO duality will benefit some firms while separation will be more advantageous for others. The findings also provide support for the conclusion of Finkelstein and D’Aveni (1994) that, when corporate performance is low, the board of directors is more likely to prefer CEO duality as a means of improving corporate performance” (Elsayed, K, 2007, p.2010).

It’s worth noting that current research is looking in more detail at the different variables that impact and influence the CEO-Chairman relationship, including the composition of the Board itself.

References

Brownbill, N. (2008). Exploring the Relationship between Strategic Leadership and Corporate Governance; presented at the 7th International Conference on Studying Leadership, Auckland, December 2008.

Chen, A., Kao, L., Tsao, M., and Wu, C. (2007). Building a corporate governance index from the perspectives of ownership and leadership for firms in Taiwan. Corporate Governance, Vol.15, No.2, p.251-261.

Daily, C.M. (1995). The relationship between board composition and leadership structure and bankruptcy reorganisation outcomes. Journal of Management, Vol.21, No.6, p.1041-1056.

Elsayed, K. (2007). Does CEO Duality Really Affect Corporate Performance? Corporate Governance, Vol.15, No.6, p.1203-1214.


Epstein, M.J., and Roy, M-J. (2004). Improving the performance of corporate boards: Identifying and measuring the key drivers of success. Journal of General Management. Vol.29, No.3, p.1-23.

Kang, E. and Zardkoohi, A. (2005). Board leadership structure and firm performance. Corporate Governance, Vol.13, No.6, p.785-799.

Lynall, M.D., Golden, B.R., and Hillman, A.J. (2003). Board composition from adolescence to maturity: a multitheoretic view. Academy of management review, Vol.28, No.3, p.416-431.

Ruigrok, W., Peck, S.I., and Keller, H. (2006). Board characteristics and involvement in strategic decision making: Evidence from Swiss companies. Journal of Management Studies, 43:5, July, p.1201-1226.

Appraising the Performance Appraisal

Managed well, the performance appraisal can be a highly motivational event, reviewing performance and setting objectives for the period ahead, within a climate of mutual respect and active two-way communication – handled poorly it can be a very de-motivational event, sapping the energy and innovation out of the employee and negatively impacting the corporate culture and organisational performance. Unfortunately, even within the 21st century many highly effective human resource business principles still don’t get the attention they deserve and amongst them is the performance appraisal. Beatrice van der Heijden (2004), states that, “as performance evaluation systems are among the most important and applied human resource components of an organization, it is essential to investigate their qualities critically”, (p.493).

Organisations often forget that the performance appraisal links directly to; their corporate strategy and organisational performance; the development of the human resource at all levels within the organisation (including the link to succession planning); and has a direct impact on motivation and the corporate culture; and “it is important to differentiate between the application as a decision-making instrument and the application as a developmental tool. In the latter case the aim is to provide constructive feedback in a climate in which one's growth is fostered and there is room for improving one's weaknesses without immediate negative consequences”, (van der Hiejden, 2004, p.494).

A well developed appraisal system will always include a self-appraisal element, allowing employees to appraise themselves prior to the formal appraisal interview. This has been proved to be an extremely powerful approach to appraising performance and as Gary Roberts (2003) states “self-appraisals provide employees with the opportunity to systematically assess their performance. Studies indicate that self-appraisal increases employee participation and readiness for the appraisal interview, enhances overall satisfaction, increases perceived appraisal fairness and can reduce defensive behaviour if used for development purposes”, (p. 91).

Some basic guidelines for an effective performance appraisal include;

1) The performance appraisal should focus on agreed objectives for the period being assessed;

2) These objectives link to the strategic objectives of the organisation; and are defined through the employees accountabilities and key performance indicators;

3) Performance appraisals are most effective when there is a process of self-evaluation where; the employee appraises their own performance against their objectives; recommend the objectives to be appraised for the next assessment period; and identify what specific training and development they need to improve their performance for the period ahead;

4) Those conducting appraisals are ‘thoroughly’ trained in the appraisal system and appraisal skills (too many people are allowed to conduct appraisals without understanding the principles and skills required to conduct them fairly);

5) The appraisal system supports training and development; and the succession planning process;

6) Developed and implemented correctly the performance appraisal is a powerful tool for the development of the human resource, at all levels, and through linking performance, to objectives, to the corporate strategy, has a directly impact on the organisations future growth.

The performance appraisal is not a substitute for regular employee feedback and is a formal, well planned, periodic review; where there should be no surprises in respect of performance feedback. Issues around performance (from excellent to poor) must be recognised, managed and communicated to the person when it happens (and not months later).

So, it might be worth spending some time reviewing your current appraisal system and the skills of those involved; to identify areas where you can improve the process and in doing so improve the development and motivation of your human resource; and the performance and growth of your organisation.

References

Roberts, G. E. (2003). Employee Performance Appraisal System Participation: A Technique that Works. Public Personnel Management, Vol. 32, Issue 1, p.89-98.

van der Heijden, B. (2004). The value of subjectivity: problems and prospects for 360-degree appraisal systems. International Journal of Human Resource Management, Vol. 15, Issue 3, p.493-511