Developments in Supply Chain Management: Mandating compliance for CSR in the supply chain – RIP CSR?

Hot topic seminar, University of Portsmouth, 29th October 2008

Dr. Ian Harwood

Lecturer in ManagementSchool of Management, University of SouthamptonRoom 3019, Building 2, Highfield, Southampton, SO17 1BJEmail: iah@soton.ac.uk, Tel: 023 8059 7789, Fax: 023 8059 3844

2

Beijing, China – Oct. 22, 2008“Wal-Mart Announces Global Responsible Sourcing Initiative at China Summit”

• At the Summit, Wal-Mart laid out a series of requirements for companies who want to do business with Wal-Mart, including:

– Required demonstration of compliance with environmental laws and regulations

– Partner with suppliers to improve energy efficiency and use fewer natural resources

– Higher standards of product safety and quality

– Greater transparency and ownership

http://walmartstores.com/FactsNews/NewsRoom/8696.aspx

3

Hot topic for discussion

• Reputation risk and supply chain management

• What is the impact of mandating CSR compliance along the supply chain?

4

Public

GovernmentBusiness

Political influenceTaxationLegislation

Adapted from Carroll & Buchholtz (2006)

Political processVoting rightsInterest groupsContributions

Lobbying

Purchase powerRegulationsTaxationLegislation

Purchase powerShareholdingInterest groupsBoycottsProtests

AdvertisingMarketingPublic Relations

Key influences

5

Corporate Social Responsibility Terminology

• 20 different terms uncovered (so far)

• Numerous terms exist for CSR in supply:

– Green Supply Chain Management (Srivastava, 2007)

– Environmental Purchasing (Carter et al, 2000)

– Purchasing Social Responsibility (Carter, 2005)

– Ethical Sourcing (Roberts, 2003)

– Socially Responsible Purchasing (Maignan et al, 2002)…

6

Definitions• Corporate Social Responsibility (CSR) is regarded as:

– “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis” (European Commission, 2001, p.8).

– “a commitment to improve community well-being through discretionary business practices and contributions of corporate resources” (Kotler and Lee, 2005, p.3)

– “voluntary corporate commitment to exceed explicit and implicit obligations imposed on a company by society’s expectations of conventional corporate behaviour” (Falck & Heblich, 2006)

Economic

Legal

EthicalDiscretionary

Make a profit

Obey the law

Do what is right, avoid harmContribute to community, be philanthropic

Friedmanite view

Source: Adapted from Carroll (1979)

CSR

7

Examples of CSR1. Fund staff for voluntary work2. Support fresh water schemes3. Pass on your technology4. Look after employee health5. Encourage customers to raise

funds6. Campaign sponsorship7. Set up a charity8. Recycle office supplies9. Support a conservation scheme10. Cycle to work11. Cut delivery miles 12. Work with local producers

13. Spread the word in schools14. Help people with disabilities15. Set your staff a challenge16. Share your facilities17. Tap into eco-friendly workers18. Purchase from sustainable

stocks19. Protect wildlife20. Serve Fairtrade21. Reward greener customers22. Use ‘green’ suppliers23. Educate your clients & staff25. Plant a tree26. Reduce carbon footprint

Source: adapted from Mullen (2008)

8

• ‘Embedding Corporate Responsibility into Procurement: a force field analysis’ (Harwood, I.A. & Humby, S.)

• Explanatory cross-case analysis (Yin, 2003): 9 organisations– Public (3) and private (6) mix– Mainly services rather than manufacturing– Utilities, media, pharmaceuticals, communications,

construction, and central government departments and agencies.

• Semi-structured interviews with senior managers (procurement or CSR).

Study 1: A snapshot of progress

9

Findings• Wide range of levels in CSR activities and understanding.

• 5 case organisations were accommodative towards CSR, the others wanted to proactively get involved in CSR (Maignan, et al., 2002).

• Minimal integration between ‘mainstream’ (VFM) activities and CSR-related initiatives.

• Specific concerns and issues:

1) Vocabulary 4) Integration2) Measurement and data integrity 5) Data sharing3) Risk Management 6) Motivation and Perception

10

Embedding CR further in supply

• “Our outward image is good but internally we still have major challenges in changing the mind set of many procurement people”

• “We only look one step down the supply chain – it wasn’t thought important or possible to go beyond the immediate supplier”

• Assuming CSR is a ‘good thing’ (Carter et al, 2000; Carter, 2005) – how can CSR be further embedded into the procurement function?

11

• Positive environmental & social impacts• Potential cost savings• Benefits to company reputation (risk)• Increased market penetration• Staff performance increased through CSR• Enhancing supplier performance• Increasing interest in CSR• Up swell of public / customer opinion• Political drivers / trade offs• Increasing media / lobbyists activity• Compliance with standards / legislation /

regulation

Driving Forces (+) for CSR

12

• Cost of CSR / additional resources• Prioritising resources between competing CSR activities• Initiative overload (fads and fashion)• Cynicism / style over substance• Inertia / culture• ‘Not my problem’ syndrome• Limited success stories / sector specific• Limited reward mechanisms

Restraining Forces (-) against CSR

13

• Conflict between CSR and VFM in procurement decisions• Traditional procurement measurement systems• Competitive dynamics in a global environment• Problems over data integrity• Persistent stakeholder demands for profit• Uncertainty over what CSR entails

Restraining Forces (-) against CSR

14

Study 1: Summary & Conclusions

• Most focus on one element of CSR

• Many good examples… but also cynicism and confusion

• Key actions include:

1) Reduce cynicism & inertia 4) Challenge reward structures2) Increase data integrity 5) Investigate risk efficiency3) Increase awareness/training

15

Study 2: • ‘Attitudes of SME Owner/Managers Towards

Supply Chain Pressures to Engage in CSR’ (Baden, D.A.; Harwood, I.A., Woodward, D. & Knight, A.)

• Sample: EU definition of SMEs <250 employees, turnover <50 million Euros

• Mixed methods

– 25 exploratory interviews

– 103 responses to a survey

16

‘Have you had to satisfy customers on the following issues?’

– Health and Safety – 67% responded often/sometimes– Environmental issues – 55% responded often/sometimes– Employees/staff issues – 43% responded often/sometimes– Social/community issues – 35% responded

often/sometimes

• Environmental issues included:– Environmental policies, ISO14001, compliance with

WEEE, waste management and recycling policies.

• Social issues included:– Equal Opportunities, Investors in People, or SA8000.

17

Motivation to engage with CR• SME Owners/directors main driver of engagement with

CSR which supports research showing values of SME owners are more closely aligned with their business behaviour.

• Additional benefits for being environmentally responsible:– Increased reputation (87% said yes/probably)– Personal values (78% said yes/probably) – This supports view that intrinsic motivation is a key

driver towards responsible business.

18

Impact of increased compliance

• Most happy to comply with criteria (environmental 82%), (social 55%).

• Half indicated annoyance at extra bureaucracy

• Over a third thought it would be a pointless box-ticking exercise.

• A quarter would be put off tendering in future.

19

Do you think that imposed standards set a lower level of responsible behaviour than your organisation would set for itself?

0

5

10

15

20

25

30

35

40

45

no not sure yes

75%

20

The ceiling effect (Michael, 2006)

• SMEs believe voluntary effort to be the best way to encourage them to be more socially/environmentally responsible.

• Fairly neutral regarding the benefits of regulation, and supply chain pressure.

Level of environmental/social

activity

Imposed standard

21

Hot topic for discussion• Reputation risk and supply chain management

• What is the impact of mandating CSR compliance along the supply chain?

• Conviction vs compliance CSR… the ‘ceiling effect’

• If CSR actions are mandated in the supply chain… does it spell the end for CSR?

• Or… do we actually mean something other than CSR?

22

Acknowledgements

• ‘Embedding Corporate Responsibility into Procurement: a force field analysis’ (Harwood, I.A. & Humby, S.) – 2007 – The Achilles Group for funding

• ‘Attitudes of SME Owner/Managers Towards Supply Chain Pressures to Engage in CSR’ (Baden, D.A.; Harwood, I.A., Woodward, D. & Knight, A.) – 2008 – ESRC funded

• Next steps…

– ‘The resilience of corporate responsibility activities in the face of major organisational change’ (Harwood, I.A.; Humby, S.; James, K. & Chick, G.) – 2009?

23

Recent publications…• Baden, D.A., Harwood, I.A. and Woodward, D.G., (….) The effects of procurement

policies on ‘downstream’ Corporate Social Responsibility activity: Content-Analytic insights into the views and actions of SME owner/managers, International Small Business Journal, (submitted)

• Baden, D.A., Harwood, I.A. and Woodward, D.G. (2009), The effect of buyer pressure on suppliers in SMEs to demonstrate CSR practices: an added incentive or counter productive?, European Management Journal (in press)

• Harwood, I.A. and Humby, S. (2008). Embedding corporate responsibility into supply: a snapshot of progress, European Management Journal, Vol. 26(3), pp.166-174.

• Baden, D., Harwood, I.A., & Woodward, D. (2008), The impact of buyer pressure on SMEs to demonstrate CSR activities: evidence of the ceiling effect, EBEN-UK Conference, 1st-2nd April 2008, New Hall, University of Cambridge, UK.

• Baden, D., Harwood, I.A., & Woodward, D. (2008), The effect of supply chain drivers on SMEs’ motivation to engage with CSR activities: a psychological perspective, AIB-UK & Ireland Chapter Conference (AIB-UKI), 28-29th March 2008, University of Portsmouth, UK.

• Baden, D., Harwood, I.A. & Woodward, D. (2007) Attitudes of SME Owner/Managers Towards Supply Chain Pressures to Engage in CSR, British Academy of Management conference, 11-13th September 2007, University of Warwick, UK.

• Harwood, I.A. & Humby, S. (2007) Embedding Corporate Responsibility into procurement: a force field analysis, 16th Annual IPSERA Conference, 1-4 April 2007, University of Bath, UK.http://sotoncsrcommunity.wordpress.com/