Making Corporate Social Responsibility (CSR) Operable:

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Business and Society Review 111:2 137–163Making Corporate SocialResponsibility (CSR) Operable:How Companies TranslateStakeholder Dialogue inessBASR 0045-3609O2111BUSINESSriginal2006 sinessLtdReviewREVIEWEthics at Bentley CollegeESBEN RAHBEK PEDERSENDuring the last decade, an increasing number of scholarsand practitioners have adopted the discourse of corporatesocial responsibility (CSR). Academics and consultants singits praise in speeches, articles, conference papers, and books; companies formulate codes of conduct and report on the social andenvironmental impacts; and socially responsible investors placehuge amounts of money in socially responsible companies. Likewise,governments and international organizations increasingly integrateCSR in policy papers, and voluntary organizations take part indesigning and maintaining a wide range of social and environmentalmanagement standards, labeling schemes, and reporting systems.In other words, CSR has swept across the world and has becomeone of the buzzwords of the new millennium.In spite of its current popularity, however, CSR remains anambiguous and much debated construct. For instance, the properdimensions of a company’s social responsibilities and the relationship between corporate social performance (CSP) and financialperformance (FP) are still the subject of lively controversy.1 From amore practical perspective, CSR also remains difficult to operationalize.Esben Rahbek Pedersen is with the Copenhagen Business School (CBS), Solbjerg Plads 3,Frederiksberg, Denmark. 2006 Center for Business Ethics at Bentley College. Published by Blackwell Publishing,350 Main Street, Malden, MA 02148, USA, and 9600 Garsington Road, Oxford OX4 2DQ, UK.

138BUSINESS AND SOCIETY REVIEWAs David Grayson and Adrian Hodges correctly point out, there isstill a “considerable gap between the corporate CSR rhetoric andactual practice on the ground because of difficulties in making itoperational.”2 In consequence, companies are left with little guidancewhen they try to translate the abstract concept of CSR into practice.The purpose of this article is to analyze how companies actuallytranslate CSR into practice and to identify some of the factors thataffect the implementation process. However, before going into ananalysis of how companies make the abstract term of CSR operable,the article will briefly introduce the stakeholder approach to CSRand present three “filters” that may constrain companies’ ability toimplement stakeholder dialogue.CSR AND STAKEHOLDER THEORYDue to its eclectic nature, CSR has always attracted scholars from awide range of academic disciplines. In 1970, Alvar O. Elbing notedthat social responsibility has been approached philosophically,theologically, psychologically, sociologically, economically, andesthetically.3 However, in the last couple of decades, stakeholdertheory has increasingly become the common frame of referencewhen CSR is discussed. According to the stakeholder model, a company must be aware of and respond to the various demands of itsconstituents, including employees, customers, investors, suppliers,and the local community.4 Thus, it breaks with the notion that theshareholders are the only important constituents and that shareholder wealth is the only relevant criteria for evaluating companybehavior. One of the reasons is that the clear-cut distinction between“social” and “economic” does not hold up in reality.5 According tothe shareholder perspective, business is about economic and notsocial goals, and therefore companies should not be concerned withthe latter. In real-life situations, however, economic decisions alsohave social consequences (and vice versa) and hence the boundariesbetween the social and economic world become blurred.6 Moreover,even if it was possible to distinguish between the two, there wouldnot necessarily be any conflict between them. Authors have alsochallenged the dogma that profit maximization should be the onlycorporate goal and still others have argued that profit maximizationdoes not reflect real-life decision-making processes that always

ESBEN RAHBEK PEDERSEN139features a “zone of discretion” that enables managers to addresssocial and environmental issues if they want to.7 Last but not least,some proponents of CSR simply argue that companies have responsibilities toward the stakeholders whether it pays off or not. Companiesdo not deserve to be in business if they do not act in accordancewith the dominant norms, rules, and values in society.8The stakeholder model has become one that best reflects themodern understanding of companies as integrated in, rather thanseparated from, the rest of society. However, despite the currentpopularity of both CSR and the stakeholder approach, there is stillno generally accepted definition of either “stakeholder” or “CSR.”With regard to the former, Freeman originally defined stakeholdersas “any group or individual who can affect or is affected by the achievement of the organization’s objectives.”9 Since then, almost everyaspect of the internal and external environment of the companyhas been integrated into a more and more devaluated definitionof stakeholders. This includes trees, starry nights, ecosystemprocesses, and future generations.10 With regard to the latter,there has never been and probably never will be consensus onthe definition of CSR. Actually, as early as 1960, Frederick calledfor a precise definition of CSR.11 In 1975, Preston and Post also criticized the absence of boundaries to CSR and suggested a redefinition of the concept to public responsibility so as to highlight theimportance of formal and informal institutions as guidelines andappraisal criteria for managerial responsibility.12 More recently, in2003, Snider, Hill, and Martin have argued that CSR is concernedwith the relationship between business and society, but that thenature of this relationship will always be subject to numerous interpretations and influenced by passing trends and fashions.13In summary, CSR means different things to different people atdifferent times, and new issues can easily be included in existingdefinitions. Moreover, the multiplicity of related concepts, such ascorporate citizenship, corporate accountability, sustainability, business ethics, triple bottom line, and philanthropy have undoubtedlycontributed to the confusion about the true nature of CSR.14 Thearticle will not make any Sisyphean attempt to reach an all-embracingdefinition of CSR. Instead, the article will adopt the view of van Marrewijk who broadly defines CSR as “company activities—voluntaryby definition—demonstrating the inclusion of social and environmental concerns in business operations and in interactions with

140BUSINESS AND SOCIETY REVIEWstakeholders.”15 It is outside the scope of the article to go into adetailed discussion of whether this definition is in accordance withother authors’ use of the term—and if so, how. The importantmatter is that the definition of CSR acknowledges the close ties tostakeholder theory and accepts the eclectic nature of CSR byrefraining from limiting itself to specific strategies, specific stakeholders, and/or specific social and environmental issues.PARTICIPATORY APPROACHES TO CSRAs indicated in the definition, the company’s interaction with various societal groups and individuals is an important part of CSR.Some even see the company’s engagement with stakeholders as theessence of CSR.16 Without relationships with the internal and externalconstituents, companies will find it difficult to grasp the fluctuatingnature of the values, attitudes, and behavior of their stakeholdersand respond accordingly. In consequence, terms like “participation,”“inclusion,” “voice,” “involvement,” “collaboration,” “partnerships,”and “engagement,” have always been common in CSR literature. Inthis article, I will use the term “stakeholder dialogue” to describethe involvement of stakeholders in the decision-making processesthat concern social and environmental issues.Stakeholder dialogue may assume a variety of forms—from information about the company’s conduct to an open dialogue on a widerange of issues—and the quality of the dialogue process differs significantly.17 The multifaceted nature of stakeholder dialogue implies thatit is necessary to have an analytical framework to evaluate how thecompany actually involves stakeholders in the decision-makingprocesses. Figure 1 outlines the different dimensions of stakeholderdialogue and the corresponding levels of engagement. The modelserves as a frame of reference for an appraisal of the extent to whichthe company’s stakeholder dialogue is either participatory andinclusive or hierarchal and exclusive. Inclusion. The identification and inclusion of stakeholders inthe dialogue is of crucial importance. If important stakeholdersare excluded from the decision-making process, the relevance ofand anticipated benefits from the dialogue will be limited. As aparticipatory ideal, the stakeholder dialogue should include the

ESBEN RAHBEK PEDERSEN141FIGURE 1 Stakeholder Dialogue: Levels of Engagement.Source: This figure is based on the work of Iris Marion Young18 and JacobTorfing.19important groups and individuals who affect and/or areaffected by the decision on the issue in question.20 However, aswill be discussed later, defining who is important and who isunimportant is neither a trivial nor a neutral task, and the participatory ideal of inclusion has to be combined with efficiencyconcerns. When the number of participants increases,efficiency is likely to decrease, because the task of coordinatingthe dialogue and reaching consensus becomes more challenging.21 Openness. The relevance of the stakeholder dialogue will belimited if the nature of the problems is taken for granted and ifthe consequences and alternatives are few and predeterminedby the company. A prerequisite for a participatory dialogue is openproblems/issues that allow stakeholders to make their ownjudgments and voice their opinions.22 If certain participants arefree to kill potentially controversial issues before or during thestakeholder dialogue, the level of engagement is limited.23 Tolerance. If some rationales or logics take precedence overothers, the dialogue will favor the stakeholders that hold thesepositions. For instance, if arguments based on “efficiency” and“profit” are considered to be more legitimate than argumentsreferring to “fairness” or “the public good,” the results of the

142BUSINESS AND SOCIETY REVIEWdialogue will be known from the start. In order for the dialogueto be participatory, the stakeholders and the organization involvedmust be open-minded toward alternative and critical voicesthat may bring new ideas and insights to bear on the issues thatthe company is trying to solve.24 Empowerment. The level of engagement is affected by thedegree to which the stakeholders are able to affect the structure,process, and outcomes of the dialogue. Low levels of freedomand equality in the dialogue indicate low levels of commitmentand imbalances of power. For instance, if only some participantshave decision-making authority or if rules and proceduresfavor one participant over the others, the stakeholder dialoguemoves away from the participatory ideal. Transparency. In a “don’t tell me, show me” world, companiesare expected to disclose information to the stakeholders ontheir social performance.25 In order to improve the accountability, it has even been argued that the stakeholders should themselves take part in the companies’ social accounting andreporting activities.26 The degree of transparency is an important element in the stakeholder dialogue because neither theinvolved parties nor outsiders are able to hold the company (orthe stakeholders) accountable without access to informationabout the process and outcomes of the dialogue. For instance, ifthere is no information available on the implementation of thedecisions from the stakeholder dialogue, it is not possible toevaluate whether it has been a participatory approach to problemsolving or just a public relations exercise.LIMITATIONS OF CSRFigure 1 shows the wide spectrum of stakeholder engagement andis useful in evaluating real-life dialogue situations. The right-handside of the figure represents the most wide-ranging stakeholder dialogue, characterized as the “participatory ideal,” but this type of stakeholder engagement may not always be obtainable or even desirable.Likewise, the stakeholder dialogue in the left-hand side of the figuredoes not automatically indicate window-dressing companies withquestionable morals. In practice, stakeholder dialogue is likely to belocated somewhere between the two extremes because identification

ESBEN RAHBEK PEDERSEN143FIGURE 2 The Phases of Stakeholder Dialogue and Related FiltersSource: Inspired by the writings of Frank Olesen on strategic issues management.27of and communication with stakeholders is costly and timeconsuming, and because decision makers have to balance theseactivities with other priorities. In practice, therefore, stakeholderdialogue means simplifying the complex by focusing on a limitednumber of stakeholders, a limited number of issues, and by developing rules and procedures for the dialogue.Figure 2 illustrates how the stakeholder dialogue can be interpretedas a modeling process in three phases. Each phase has a “filter”that makes the stakeholder dialogue more operable, but also limits thebenefits that the company can expect to derive from the initiatives.Based on CSR literature and two case examples from the biotechbased Danish company Novozymes, the article focuses on howthese filters affect the operationalization of the stakeholder dialogue. The case analysis is based on an interpretation of interviewsmade at Novozymes and on secondary information about the twoexamples. The selection filter. Needless to say, stakeholder dialogue requiresparticipants. The selection filter is about the access to the dialogue

144BUSINESS AND SOCIETY REVIEW“arena.” Does a wide range of stakeholders participate in thedialogue or is it limited to a few privileged groups with whom thecompany already communicates? Companies are unlikely tohave the capacity to include all stakeholders in the dialogueand therefore a selection must be made—a selection that willhave consequences for the process and outcome of the dialogue.For instance, the composition of the stakeholders can have animpact on whether the issues raised in the dialogue arena areimportant and central or peripheral and uncontroversial. The interpretation filter. The interpretation filter concerns thetransformation of the multiple voices from the dialogue into a limited number of decisions. Stakeholder dialogue is a complicatedprocess and it may not be possible to come up with solutionsthat satisfy all stakeholders. Moreover, a number of factors canmake it difficult to reach results that capture the interests ofthe stakeholders in the dialogue. For instance, cliques and alliances may arise that are able to dominate the agenda, thevoices of some stakeholders may be overheard or misunderstood, latent conflicts may be suppressed, and problems mayremain unsolved. In other words, the interpretation filter meansthat intentionally or unintentionally the decisions ensuing fromthe dialogue may diverge from the interests of the stakeholders. The response filter. Finally, the response filter relates to theactivities that take place when the decisions move out of thedialogue arena. Local interpretations, changing environmentalconditions, conflicting interests, and organizational changes mayinfluence the way the results of the dialogue are implemented.The response filter represents the divergence between theobservable action and the intentions underlying the decisionsensuing from the stakeholder dialogue.CASE EXAMPLE: NOVOZYMESNovozymes is a biotech-based Danish company in the enzymesmarket. Enzymes for the industrial sector (textiles, pharmaceuticals, forestry, baking, brewing, etc.) constitute the most importantproduct category and account for 95% of Novozymes’ sales.28 In2004, Novozymes had revenue of approximately US 1,050 millionand a net profit of approximately US 140 million. The company

ESBEN RAHBEK PEDERSEN145employs some 4,000 persons and has production facilities inDenmark, Sweden, Switzerland, the United States, Brazil, and China.Novozymes became an independent company in 2000 after ademerger from Novo Nordisk. Although the company has only beenindependent for a mere five years, Novozymes already has beenengaged in a number of CSR activities, and its performance has notgone unnoticed. Novozymes has been ranked number one in theDow Jones Sustainability Indexes (DJSIs) (within its fields Biotechnology/Healthcare) for five years in a row, and for three years thecompany has been recognized by SustainableBusiness.com ontheir top 20 list of the world’s most sustainable business stocks.29Moreover, the company subscribes to and/or supports a number ofinternational initiatives, conventions, declarations, and standards(e.g., the UN Global Compact, the International Chamber of Commerce’s Charter for Sustainable Development, the UN Conventionon Biological Diversity, and the UN Universal Declaration of HumanRights). Novozymes’ achievements are documented in an integratedannual report that covers financial, social, and environmentalperformance. The annual report also includes information onNovozymes’ use of global reporting initiative indicators, progresswith regard to the Global Compact, and achievements of sustainability development targets.30 The form and content of the integratedannual report has been the subject of discussions with the users ofthe report, including employees, NGOs, media, and scientists.In terms of stakeholder dialogue, it is explicitly stated in the company’s values that Novozymes “shall seek an active dialogue withour stakeholders to help us develop and strengthen our business.”31Hence, throughout the years, Novozymes has been involved in anumber of projects and events that include dialogue with customers,suppliers, NGOs, and local communities.32 For instance, Novozymeshas regular meetings with the neighbors to the production sites andhas been actively involved in a number of research projects andknowledge-sharing activities.33 This article is primarily based onNovozymes’ involvement in two recent CSR projects: The “Purchasing with Decency” project. Novozymes has evaluatedkey suppliers on environmental performance for years. However,in 2003, the company launched the “purchasing with decency”project, which involved the development of a survey-based supplier self-evaluation on labor standards and human rights. The

146BUSINESS AND SOCIETY REVIEWevaluation is based on international conventions and principles,and covers issues such as freedom of association, health andsafety, child labor, nondiscrimination, and working hours. Theevaluation concerns all key suppliers of raw materials (corresponding to approximately 80% of the total raw material costs).34 The “Genius” project. Genius was a three-year (2001–2004) educational project launched by Novozymes, Novo Nordisk, and theDanish Society for Nature Conservation. The aim of the projectwas to stimulate classroom discussions among students aged14 to 18 around genetic engineering and the associated moraland ethical questions.35 The project resulted in a communication package including a website (www.geniusweb.dk), a magazine, a role-play card collection, and a TV show on the DanishNational Broadcast System.36 The communication packageincludes factual information on genetic engineering, a history ofimportant events in relation to this technology, and the attitudes and opinions of a wide range of stakeholders, includingschoolchildren, politicians, scientists, and NGOs. When theproject was finalized in 2003, all participants were invited to aseminar to evaluate the process and the results.The examples have not been chosen randomly. The “purchasingwith decency” project illustrates how Novozymes communicateswith its formal stakeholders (customers, distributors, suppliers,owners, employees), whereas the “genius” project is an example ofhow the company manages less formal stakeholder relationships.THE SELECTION FILTER: FROM THE TRIVIAL MANY TOTHE CRITICAL FEWTo use a metaphor by Linda Smircich and Charles Stubbart, it isdifficult to analyze the world’s oceans using a glass of water.37 However,this is the only option when our limited information-generatingcapabilities prevent us from grasping the actual complexity of theenvironment.38 These cognitive limitations also imply that the company has to develop a selection filter separating central stakeholdersfrom less important ones. Otherwise, the stakeholder dialogue wouldhave to include everyone and everything. The problem is that it isdifficult to find the right selection criteria to ensure that the company

ESBEN RAHBEK PEDERSEN147has considered all the important stakeholders. Therefore, it is notsurprising that the literature is packed with attempts to categorizestakeholders, each with a different perspective and/or with a specialemphasis on one or more stakeholder aspects.Distinctions have been made between for instance, primary/secondary, involved/affected, and voluntary/involuntary stakeholders.39Moreover, Mitchell et al.40 have introduced three criteria to evaluatestakeholders—urgency, power, and legitimacy—whereas Harrisonand St. John41 argue that the strategic importance of a stakeholderis determined by (a) the contribution to the environmental uncertainty, (b) the ability to reduce the environmental uncertainty, and(c) the strategic choices of the managers. Last but not least, theWorld Business Council for Sustainable Development has developeda matrix that distinguishes between the stakeholders’ influenceversus their level of interest.42Novozymes also uses different categorizations to sort their stakeholder relationships. Inspired by the literature, Novozymes distinguishes between internal (inside the organization) and externalstakeholders (outside the organization) as well as market (suppliers,customers, competitors, and business partners) and nonmarket(public authorities, NGOs, the media, neighbors) stakeholders. InNovozymes’ stakeholder mapping procedures, the stakeholders arealso evaluated on function, character, and present and future values.43The supplier evaluation also includes various categorizations ofsuppliers. When launching the Purchasing with Decency project,Novozymes made a distinction between direct suppliers (raw materials) and indirect suppliers. The new labor and human rightsissues were only included in the evaluation of direct suppliersbecause it was difficult to find a systematic approach to evaluatethe thousands of indirect suppliers. Moreover, Novozymes wantedto concentrate its efforts on the suppliers that the company had arealistic chance to influence. This is still the case. Furthermore, thesupplier evaluation distinguishes between old and new suppliers.Since 2004, all new suppliers of raw materials have been evaluatedon labor standards and human rights.44The selection criteria in the Genius project were much less formalized than the criteria in the Purchasing with Decency project. Thecommunication package included a wide range of the stakeholders’perspectives on genetic engineering, for example, the perspectives ofresearchers, NGOs, public authorities, politicians, and schoolchildren.

148BUSINESS AND SOCIETY REVIEWInstead of being the outcome of an intentional mapping procedure,the selection was determined by the stakeholders’ connection to theexisting Danish milieu of gene technology. In other words, thestakeholder selection was based on the network of the three partners. Novozymes, Novo Nordisk, and the Danish Society for NatureConservation were already engaged in an ongoing dialogue, and theother organizations and individuals participating in the project hadall been actively involved in the Danish discussions on genetic engineering. Only very few stakeholders did not want to participate ineither the magazine or on the Genius website. Some NGOs were notinterested because the concept—form, content, or partnering withbusiness—was not the way for them to get the message through.The examples show how a company separates the importantstakeholders from the less important ones in order to make thestakeholder dialogue operable. In conclusion, the translation ofthe stakeholder dialogue into practice requires a selection filter thatreduces the complexity of the environment and the stakeholderrelationships. From an academic point of view, this makes it virtually impossible for companies to meet the expectations of the moreidealistic CSR literature. The stakeholder dialogue will always beincomplete because the inclusion of certain groups and individualsin the dialogue means the exclusion of others.45 From a businesspoint of view, the drawback of the selection filter is that it puts eventhe most well-intentioned and socially responsible company at risksince critical voices will always be able to argue that the companyfailed to integrate the interests of all relevant stakeholders in adecision-making process. In other words, the company has to be careful when it makes claims about the inclusiveness of its stakeholderdialogue.THE INTERPRETATION FILTER: BALANCINGSTAKEHOLDER INTERESTSAs one of the characters notes in Jean Renoir’s movie “The Rules ofthe Game”: “The terrible thing about this world is that everybodyhas his reason.” One might add—from the company’s perspective—that the really terrible thing about the world is that everybody doesnot have the same reason. If everybody had the same perception ofthe environment, it would be easy to choose the right action. However,

ESBEN RAHBEK PEDERSEN149this is not always the case, and the company is often faced withmultiple and not necessarily compatible interests—not only betweendifferent stakeholder groups, but also between stakeholders fromthe same group.46 In consequence, misrepresentations and misinterpretations may occur when the interests of multiple stakeholdersare transformed into a limited number of decisions. The interpretation filter reflects the discrepancy between the decisions resultingfrom the stakeholder dialogue and the interests of the individualstakeholders.The difficulties stemming from multiple interests are well knownto Novozymes. The company has often had to balance the need forglobal standards with an adaptation to local conditions. In the Purchasing with Decency project, Novozymes chose a global approachto supplier evaluation. For instance, the company has translatedthe human and labor rights conventions into 20 specific questions,and even though a draft version of the new evaluation system wastested on five to six suppliers, the company must still be consideredas the prime mover in deciding what the stakeholders should discuss in the dialogue process.47 It is also evident from the fact that it isNovozymes that has designed the supplier evaluation proceduresand administers the survey results.In comparison, the Genius project is closer to the participatoryideals of stakeholder dialogue. Actually, one of the objectives was toallow a wide range of stakeholders to comment on gene technology,thus stimulating discussions among young people aged 14 to 18.48However, the decision-making authority was still concentratedbetween the three partners who were responsible for implementingthe project. For instance, the three partners made up the editorialboard of the magazine on genetic engineering, which gave them adecisive influence on the content. Not that the partners agreed oneverything. Even though the partners had agreed on the mainobjectives in a memorandum of understanding, there was some disagreement regarding the form and content of the project. Some ofthe important discussions concerned the trade-off between thetechnical/scientific and the ethical/political themes in the communication package. Moreover, there were some discussions aboutthe form of the articles for the magazine, as the usual approachesto communication of Novozymes and Novo Nordisk differedsignificantly from the approaches used by the Danish Society forNature Conservation.

150BUSINESS AND SOCIETY REVIEWSometimes, the CSR literature tends to view all stakeholders asequally important.49 In practice, however, there is always a trade-offbetween the desirability of integrating the interests of all stakeholders and the need to make efficient decisions. As Kaplan noted:“attempting to be everything for everyone virtually guarantees organizational ineffectiveness”.50 Since the stakeholder dialogue and theCSR in general are still viewed as voluntary activities, the trade-offis mostly made by the company, which brings a “shadow of hierarchy”to the dialogue process.51 Stakeholder engagement processes inevitablybecome more efficient, but less participatory, when a few stakeholders select the issues for dialogue and define the rules of the game.THE RESPONSE FILTER: TRANSFORMING DECISIONSINTO ACTIONSGiving voice to the stakeholders does not necessarily mean commitment to action. The response filter pertains to the differencebetween the decisions resulting from the stakeholder dialogue and theactual implementation of initiatives and their related impacts. Eventhough the decisions ensuing from the stakeholder dialogue may befairly representative of the stakeholders’ interests, it might still bedifficult to translate these decisions into action. For instance,implementation of the decisions might run into a number of technological, economic, and political barriers. Moreover, implementationis often delegated to persons who did not take part in the dialogue.Their interpretation of the decisions and the tasks that have to beperformed might differ from the ideas of the sta

translate CSR into practice and to identify some of the factors that affect the implementation process. However, before going into an analysis of how companies make the abstract term of CSR operable, the article will briefly introduce the stakeholder approach to CSR and presen

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