HELP­ING EX­EC­U­TIVES RE­SPOND TO CSR DE­MANDS

OR­GAN­I­SA­TIONS CAN PAY A HEAVY PRICE IF THEY DON'T RE­SPOND TO SO­CIAL AND EN­VI­RON­MEN­TAL DE­MANDS; AT THE SAME TIME, RE­SPOND­ING CAN BE COSTLY.

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Or­gan­i­sa­tions can pay a heavy price if they don't re­spond to so­cial and en­vi­ron­men­tal de­mands; at the same time, re­spond­ing can be costly.

Com­pa­nies face in­creas­ing pres­sures re­lated to their so­cial prac­tices and en­vi­ron­men­tal poli­cies. But what makes some firms re­spond ap­pro­pri­ately to these pres­sures and oth­ers less so?

We can iden­tify what causes firms to re­spond and em­brace en­vi­ron­men­tal and so­cial is­sues. To in­crease the ac­tion taken by firms, they must un­der­stand is­sue salience, be more will­ing to ex­per­i­ment around ways to re­duce the per­ceived cost of re­source mobilisation, and in­te­grate more in­cen­tives to in­crease the cost of in­ac­tion.

To in­crease the num­ber of firms who take sub­stan­tial ac­tion, we need to mag­nify the net ben­e­fits of ac­tion by re­ward­ing them in eco­nomic and fi­nan­cial mar­ket en­vi­ron­ments. So, in in­vest­ment de­ci­sions com­ple­men­tary per­for­mance in­di­ca­tors should be in­cluded and the ben­e­fits of act­ing in favour of sus­tain­abil­ity at the same cost should be clear.

NGOs and pub­lic policy should work to­wards de­sign­ing rules and reg­u­la­tions that en­able firms to use ex­ist­ing re­sources for ac­tions aligned with sus­tain­able de­vel­op­ment (such as through tax cred­its) and im­ple­ment mech­a­nisms that re­duce the cost of ac­quir­ing nec­es­sary re­sources (such as through sub­si­dies or co-fi­nanc­ing). These mea­sures will in­crease a firm's per­ceived net ben­e­fit of ac­tion and the like­li­hood of sub­stan­tial ac­tion.

Method­ol­ogy

Rodolphe Du­rand, Pro­fes­sor of Strat­egy and Busi­ness Policy, HEC Paris, and his

co-au­thors de­vel­oped a model to help un­der­stand when and how or­gan­i­sa­tions re­spond to nor­ma­tive and moral de­mands, such as those that in­volve Corporate So­cial Re­spon­si­bil­ity. They looked at how decision-mak­ers in a firm weigh up the ben­e­fit of tack­ling an is­sue and the cost of not act­ing as a func­tion of how salient the is­sue seems. A firm's will­ing­ness and abil­ity to re­spond to pres­sures don't al­ways match, hence the vari­a­tion in re­sponses be­tween dif­fer­ent firms and in­ter­nally be­tween de­part­ments.

There is ben­e­fit in ac­tion and some­times in in­ac­tion. Putting them­selves in the shoes of decision-mak­ers, Du­rand and his coau­thors iden­ti­fied two main fac­tors that in­flu­ence how an or­gan­i­sa­tion will re­spond to is­sues: Fac­tor 1 - Ben­e­fit per­ceived in tack­ling the is­sue

Fac­tor 2 - Con­se­quences of ig­nor­ing the is­sue and fail­ing to act

Both fac­tors vary with the im­por­tance or salience of an is­sue.

Let's take two firms: A and B. Firm A doesn't con­sider the en­vi­ron­men­tal ‘cleanup' of a pro­duc­tion process as salient: it's seen as a mis­use of re­sources, with no costs as­so­ci­ated with in­ac­tion. On the other hand, Firm B's di­rec­tors see is­sue saliency and a net ben­e­fit in the clean-up. Firms A and B thus re­spond dif­fer­ently to the same is­sue in terms of de­grees of when the cost of en­gag­ing re­sources be­comes ex­ces­sive. How­ever, Du­rand notes that when it comes to de­grees of salience, there is a point at which the cost of en­gag­ing re­sources be­comes too ex­ces­sive for any firm to act, and thus they do so ei­ther sym­bol­i­cally or not at all.

We wanted to un­der­stand what makes some firms re­spond ap­pro­pri­ately to these nor­ma­tive pres­sures and oth­ers less so.

Con­form or com­ply

Du­rand and his co-au­thors mod­elled a vir­tual space cor­re­spond­ing to how or­gan­i­sa­tions re­spond de­pend­ing on is­sue salience. By po­si­tion­ing a firm some­where in the space, you can pre­dict how likely that firm will be to re­spond to a de­mand based on how its decision-mak­ers weigh up is­sue salience with the costs and ben­e­fits of ac­tion. In some cases, the ‘net ben­e­fit of ac­tion' leads to sub­stan­tial con­for­mity and a firm ac­tively sets a trend, en­gag­ing re­sources to pro­tect the en­vi­ron­ment or im­prove so­cial and eco­nomic as­pects. For ex­am­ple, in 2013, Star­bucks CEO Howard Schultz pub­licly sup­ported same-sex mar­riage be­fore it was le­galised in the US in 2016. Here, Star­bucks em­braced di­ver­sity, re­in­forc­ing the com­pany's open and lib­eral brand.

In cases where ac­tion is not seen to be ben­e­fi­cial, a firm may still en­gage re­sources to sub­stan­tively com­ply with ex­ist­ing norms and laws. For ex­am­ple, cli­mate change is as­so­ci­ated with an in­crease in the fre­quency and in­ten­sity of nat­u­ral dis­as­ters and in­sur­ance firms take this into ac­count when cal­cu­lat­ing risks. How­ever, many firms will sim­ply com­ply with reg­u­la­tions and won't go be­yond the ba­sic re­quire­ments to in­cor­po­rate cli­mate change risk be­cause, in this case, costs mount quickly.

The tightrope of in­ac­tion

If the costs of en­gag­ing re­sources out­weigh the ben­e­fits, a firm may sym­bol­i­cally com­ply or fail to com­ply. In 2016, Ap­ple re­fused to co­op­er­ate with the US govern­ment and did not un­lock the iPhone of a shooter in­volved in the San Bernardino at­tack. Here, in­ac­tion rep­re­sented a so­cial gain for Ap­ple at a rel­a­tively low cost – if the code-crack­ing sys­tem had ended up in the wrong hands it could have put Ap­ple's cus­tomers at risk.

How­ever, Du­rand notes that in­ac­tion can also be detri­men­tal to busi­ness. It took time for Google to take ac­tion against its em­ploy­ees who de­clared that male pro­gram­mers are su­pe­rior to fe­male pro­gram­mers. Con­sumers ob­jected and re­sponded by sham­ing the com­pany. Be­fore the scan­dal, Google was in­ac­tive, ig­nor­ing its so­cial re­spon­si­bil­ity to­wards gen­der di­ver­sity with­out see­ing any ill ef­fects. But the in­ci­dent height­ened con­sumer aware­ness, in­creas­ing its salience for Google decision-mak­ers.

Con­clu­sion

Our model can be used to com­pare firms or to look at de­part­ments within a firm. When com­par­ing the ac­tion of two firms, is­sue salience may dif­fer and, de­pend­ing on their re­spec­tive re­sources, ac­tion may be taken. This is also ap­pli­ca­ble to di­vi­sions of a firm, and so we see dif­fer­ent poli­cies adopted within a sin­gle or­gan­i­sa­tion. Over­all, the model helps us to re­alise that firms are not good or bad per se. There are rea­sons for in­ac­tion or sym­bolic ac­tion based on how salient the is­sue is per­ceived to be and the es­ti­mated gain in solv­ing it. The con­tent for this ar­ti­cle was provided by HEC Paris

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