15 Sustainable Value Creation

As discussed in Chapter 1, “After more than half a century of research and debate, there is not a single widely
accepted definition of CSR.” Although there is no commonly agreed-upon definition, however, there has
been a common purpose to all of the work generated in the name of CSR: “to broaden the obligations of firms
to include more than financial considerations.”1 The field of CSR and business ethics has long focused on the
ends of business, presenting profit as a corrupting influence on behavior. The result has been a lot of wasted
energy and many premature pronouncements. As Howard Bowen claimed optimistically in his 1953 book
Social Responsibilities of the Businessman:

The day of plunder, human exploitation, and financial chicanery by private businessmen has largely
passed. And the day when profit maximization was the sole criterion of business success is rapidly
fading. We are entering an era when private business will be judged solely in terms of its
demonstrable contribution to the general welfare.2

Urging firms to “include more than financial considerations” as part of their business model is not the purpose
of strategic CSR. Instead, this textbook refocuses the CSR debate on the way business is conducted.
Demanding that managers expand the goals of the firm suggests a problem with the ends of capitalism (i.e.,
profit). In contrast, the underlying principles of strategic CSR suggest that any problem with capitalism, as
currently practiced, is with the means. The pursuit of profit (the best measure we have of long-term value
added) is not the problem; it is the methods by which profit is sought that can be problematic. In short, it is
not what firms do but how they do it that matters. When rules are broken, costs are externalized, and key
stakeholders ignored (or worse, abused), value is broadly diminished. While some firms may benefit from such
practices in the short term, the costs are borne by society as a whole.3

As such, strategic CSR represents an extension of the CSR debate, redefining our understanding of this
complex topic. It is related to, but is fundamentally different from, concepts such as sustainability and business
ethics. While CSR has become associated with philanthropy, sustainability focuses on resource utilization and
ecological preservation, and business ethics constructs normative prescriptions of right and wrong, strategic
CSR is a practical management philosophy that is grounded in the day-to-day operations of the firm.

The nature of business is changing as globalization intensifies and the room for error shrinks. Firms that fail
to deliver are quickly replaced, as indicated by the average life span of a Fortune 500 company, which “has
fallen from 75 years in the 1930s to perhaps just 15 years today.”4 Strategic CSR stands as an antidote to these
forces. It draws on what we know about economic exchange and human psychology to explain how markets
work and how value is created. Understanding these processes allows managers to build a sustainable
competitive advantage for the firm. That is, in a dynamic business environment with rules that are defined by
the collective decisions of the firm’s stakeholders, value is optimized when stakeholders convey and enforce
their needs. Within such an environment, it is in the firm’s best interests to respond to those stimuli. These

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economic and social exchanges are therefore interactions that form around the collective set of values prevalent
in society at any point in time. It is the degree of fit with these values that determines directly the success or
failure of any given for-profit firm.

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Values, Morals, and Business Ethics
The purpose of this book is to build a compelling argument for firms to integrate CSR into their strategic
planning and day-to-day operations. To do this, it is essential that they be open to collaborative relationships
with their primary constituents. In other words, a stakeholder perspective is an integral part of a
comprehensive, strategic approach to CSR. Firms will differ on which stakeholders should be prioritized, an
ordering that will shift from issue to issue. What is important though, is that firms are aware of their
stakeholders’ interests and account for them when making decisions. To the extent that managers consider
and consult with stakeholders before making decisions, the ability of the firm to create value for those groups
increases.

Adopting a stakeholder perspective, however, is something that is easy to say but difficult to do. By definition,
the interests and demands of stakeholders will evolve and conflict. As such, firms will not be able to please all
stakeholders all the time. Adapting its strategic planning process with the goal of trying to do so, however,
helps the firm make better decisions, while insulating it from potential threats. The goal should be to engage
with stakeholders whenever possible and minimize the danger of stakeholder disillusionment. Not many
companies do this well, but what effective firms have in common is a genuine commitment to the process.
Defining characteristics of such firms include an organizational culture and set of values that are more
inclusive than exclusive and a view of profit as the outcome of a process by which value is created for a broad
range of stakeholders—in other words, progressive management. In short, they are businesses that are moral
and ethical.

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Business Ethics Versus CSR Versus Strategic CSR
Business ethics traditionally differs from CSR in two important ways. First, while CSR tends to take more of a macro perspective
and evaluates the extent to which firm behavior affects society as a whole, business ethics focuses on more micro issues, such as
individual behavior and decision making. Second, while CSR is often externally focused and tied more closely to functions such as

marketing, business ethics focuses internally on creating an ethical environment and has its roots in legal compliance.5

Strategic CSR bridges both the macro and the micro, the external and the internal, to present a comprehensive management
philosophy of the firm across all stakeholders.

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 Morals Versus Ethics

When we teach children not to steal, we are teaching them morality. When you have a conflict between two or more

things that morality requires, that’s when ethics steps up to the plate.6

An important question, therefore, is this: What drives a company to be ethical and moral? How should
stakeholders distinguish between actions that are genuine and those that are symbolic? After all, many of the
observable components of CSR (a CSR officer, code of conduct, CSR report, ethics training, etc.) ostensibly
can look the same in both cases. When stakeholders see that “95% of consumer products [labels contain] at
least one offense of ‘greenwashing,’”7 or that the firm’s CEO has been fired for dishonesty,8 or any number of
other transgressions that create news every day, how can they tell whether the event is representative of a
firm’s business practices or the exception to the rule in an otherwise well-run organization? In general, should
we assume that firms are ethical and that transgressions are rare, or that firms will try to get away with what
they can unless restrained by vigilant stakeholders?

Take a look at this list of corporate values: Communication. Respect. Integrity. Excellence. They
sound pretty good don’t they? Strong, concise, meaningful. Maybe they even resemble your own
company’s values. . . . If so, you should be nervous. These are the corporate values of Enron, as
stated in the company’s 2000 annual report. And as events have shown, they’re not meaningful;
they’re meaningless.9

At all levels, Enron’s approach to CSR was ill-defined and superficially championed. But many of its flaws are
present, to lesser extents, across all firms—an “obsession with profits and share prices, greed, lack of concern
for others and a penchant for breaking legal rules.”10 What drives this kind of behavior, and how can this
tendency in humans be countered? In general, the culture of the group is the aggregate of all the set of values
held by the individuals who make up the group. As such, the ethics and morals of an organization start with
the ethics and morals of the individual. Yet it is not clear how an individual’s values, morals, and ethical
standards translate to behavior in the workplace. Evidence suggests, for example, that many people who
consider themselves to be ethical are also highly capable of unethical behavior: “As much as we would like to
think that, put on the spot, we would do the right—and perhaps even heroic—thing, research has shown that
that usually isn’t true.”11 This applies particularly in the workplace:

When we are busy focused on common organizational goals, like quarterly earnings or sales quotas,
the ethical implications of important decisions can fade from our minds. Through the ethical
fading, we end up engaging in or condoning behavior that we would condemn if we were
consciously aware of it. The underlying psychology helps explain why ethical lapses in the corporate
world seem so pervasive and intractable.12

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This is important because students understand this and expect to be challenged by it throughout their careers:
“Fifty-two percent of MBA students say they expect to have to make decisions [at work] that conflict with
their values.”13 In response, the MBA Oath stands as a counterpoint to corporate wrongdoing and executive
excess. It reflects the desire to channel the power of the market and business for good—“to foment social good
and not just financial success. . . . to be a service to society.”14

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 The MBA Oath
The MBA Oath was started in 2009 by a group of Harvard business school students who wanted to develop a professional oath
similar to the Hippocratic Oath taken by medical professionals—“a voluntary pledge for graduating MBAs and current MBAs to

‘create value responsibly and ethically.’” The Oath requires students to pledge the following:15

As a business leader I recognize my role in society.

My purpose is to lead people and manage resources to create value that no single individual can create alone.
My decisions affect the well-being of individuals inside and outside my enterprise, today and tomorrow.

Therefore, I promise that:

I will manage my enterprise with loyalty and care, and will not advance my personal interests at the expense of my
enterprise or society.
I will understand and uphold, in letter and spirit, the laws and contracts governing my conduct and that of my
enterprise.
I will refrain from corruption, unfair competition, or business practices harmful to society.
I will protect the human rights and dignity of all people affected by my enterprise, and I will oppose discrimination
and exploitation.
I will protect the right of future generations to advance their standard of living and enjoy a healthy planet.
I will report the performance and risks of my enterprise accurately and honestly.
I will invest in developing myself and others, helping the management profession continue to advance and create
sustainable and inclusive prosperity.

In exercising my professional duties according to these principles, I recognize that my behavior must set an example of
integrity, eliciting trust and esteem from those I serve. I will remain accountable to my peers and to society for my actions
and for upholding these standards.

This oath I make freely, and upon my honor.

Companies need to understand the importance of a culture that is defined by a positive set of values. Such a
culture will ultimately differentiate firms that are serious about optimizing value creation from those that
adopt a narrower, short-term view of business. Increasingly, companies are being held to account by their
stakeholders for all aspects of operations. Those that attempt to circumvent responsibility with superficial
commitments to CSR therefore run the risk of exposure in our always-on, media-driven world. Different
firms and different industries have different CSR thresholds, but firms that avoid crossing their threshold by
adopting an effective CSR perspective stand a much better chance of long-term survival. Those firms that
ignore their threshold, like Enron, eventually are held accountable for their actions. Those firms that embrace
stakeholder relations and act with integrity via employees embedded in an organizational culture devoted to
pro-social change, however, will be rewarded in the marketplace.

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Creating Value
Strategic CSR delivers an operational and strategic advantage to the firm. As such, it is central to the goal of
value creation, which is the primary purpose of a firm’s top management. Strategic CSR represents an
enlightened approach to management that is a subtle tweak of our economic model, but with radical
implications. In essence, strategic CSR retains the focus on adding value that is emphasized by a traditional
bottom-line business model, but does so with a sensitivity to the needs and concerns of the firm’s broad range
of stakeholders. Equally important to implementing strategic CSR comprehensively, the focus of the firm has
to be on optimizing value over the long term by acting in areas in which it has expertise (related to core
operations).

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 Value Creation
The generation of a perceived benefit for an individual or group, as defined by that individual or group

This focus on long-term added value distributed across the firm’s broad range of stakeholders is the principal
difference between a traditional shareholder-focused business model and a strategic CSR model integrated
throughout operations. This shift in perspective (from short to long term, from narrow to broad value
creation) is relatively easy to envision, but much more difficult to implement firm-wide. Nevertheless, in a
global, online business environment with stakeholders empowered to reward behavior they support and punish
behavior they do not, strategic CSR offers the best approach to building a competitive advantage that is truly
sustainable. Strategic CSR, therefore, is as simple (and as complex) as conducting all aspects of business
operations in a responsible manner. It involves incorporating this perspective into the strategic planning
processes of the firm in ways that optimize value.

Strategic CSR focuses on evolution, not revolution. It encapsulates the way humans behave and the way
business is conducted. It does not alter the goals of the firm (profit, except to say that a short-term focus is
counterproductive), and it does not alter our understanding of fundamental economic theory (actors pursuing
their self-interest can optimize value, broadly defined). Instead, it alters the perspective from which
operational and strategic decisions are made. For example, do a firm’s managers believe they can optimize
performance by paying employees a minimum wage (because there is sufficient unemployment that, if one
person leaves, another can be hired), or do they believe performance can be optimized by paying employees a
living wage (because it raises morale and productivity, while decreasing turnover and the costs associated with
hiring replacement workers)? These two positions are substantively different approaches to business. Good
arguments can be made in defense of either position, but they are fundamentally different and therefore
represent a choice for managers. This is the arena in which strategic CSR operates. It is a progressive,
enlightened approach to management that places the interests of a wide range of stakeholders within the
firm’s strategic decision matrix.16

The essential difference between those firms that do strategic CSR well and those that do it poorly, therefore,
is a greater sensitivity to the needs and concerns of the firm’s broad range of stakeholders. This provides the
firm with an acute ability to understand when the (stakeholder-defined) rules that define the firm’s operating
environment have changed and a framework within which to apply that knowledge to the firm’s strategic
advantage. Those firms that can respond to (and, ideally, anticipate) change in a more genuine, authentic way
will find the associated benefits are sustained because the effort is more effective and valued.

A short-term focus, driven by quarterly earnings guidance to investors with little long-term interest in the
organization’s survival, is of little concern (and is most likely detrimental) to firms committed to
implementing strategic CSR. Similarly, while economic value and social value cover similar ground, the
overlap is not perfect. Externalities and transgressions are the result. Values help fill the gap and aid the

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strategic CSR decision-making process.17 To this end, the CSR filter is the tool the firm can use to apply its
values within its strategic plan and day-to-day operations to identify both opportunities and problems before
they arise. The result is that, rather than profit maximization with a short-term focus, profit optimization
emphasizes the importance of meeting the needs of these stakeholders over the medium to long term.

Strategic CSR, therefore, refines the economic system in which capitalism drives social and economic
progress. In short, strategic CSR equals value creation in today’s complex and dynamic business environment
—sustainable value creation. What does this mean in practice? Primarily, it means that those firms that “get”
strategic CSR will be able to create more value over a longer period of time than those firms that either do not
understand the strategic benefits of CSR for the firm or ignore it altogether. Firms best able to attain this level
of performance do so by orienting themselves around a set of values—beliefs, practices, and norms that appeal
to specific segments of society. In short, they implement a management philosophy that can be thought of as
capitalism with a conscience.

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Conscious Capitalism
The outcome of the implementation of strategic CSR, when extrapolated across a wide range of firms, is the
evolution18 of the dominant capitalist economic model. There is much to commend in the power of the
market to alleviate human poverty and suffering. It is essential to remember, for example, that “the percentage
of people in the world living on $1 a day has declined by 80 percent since the 1970s, adjusting for inflation.
That’s the greatest increase in human possibility in human history. The primary cause is globalized
capitalism.”19 Strategic CSR seeks to build on this model. Rather than focus narrowly on short-term
shareholder wealth, firms will exist to serve the needs and concerns of stakeholders, broadly defined, over the
medium to long term—a combination of the Most Ethical Companies20 and the Most Inspiring Companies.21
The idea that most closely maps onto what this might look in practice is conscious capitalism.

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 Conscious Capitalism
An emerging economic system that “builds on the foundations of Capitalism—voluntary exchange, entrepreneurship, competition,
freedom to trade and the rule of law. These are essential to a healthy functioning economy, as are other elements of Conscious

Capitalism including trust, compassion, collaboration and value creation.”22

Synonymous with strategic CSR, it is based on four principles that encourage the development of values-based businesses: higher
purpose, stakeholder interdependence, conscious leadership, and conscious culture.

John Mackey, founder and co-CEO of Whole Foods Market, is the leading business proponent of conscious
capitalism.23 In his view,24 there are four main principles that define conscious capitalism: Higher Purpose
(“Why does the business exist?”), Stakeholder Interdependence (“the six major stakeholders are
interdependent and the business is managed . . . to optimize value creation for all of them”), Conscious
Leadership (“the quality and commitment of the leadership at all levels of the organization”), and Conscious
Culture (“This naturally evolves from the enterprise’s commitments to higher purpose, stakeholder
interdependence, and conscious leadership”).25 As such, conscious capitalism inhabits similar ground as
strategic CSR. As Mackey reaffirms, “While there is nothing wrong with making money, indeed it is
absolutely necessary for the enterprise to flourish; it is not by itself a very inspiring purpose for the
enterprise.”26 Instead, he argues that firms exist to solve problems using capitalist principles:

Conscious capitalism is not primarily about virtue or “doing good.” . . . Ordinary business exchanges
are inherently virtuous. Business creates value for all of its major stakeholders that are exchanging
with it and these acts of value creation are “good.” . . . I believe the argument can be successfully
made that ordinary business exchanges aggregated collectively are the greatest creator of value in the
entire world and that this value creation is the source of “business virtue.”27

The goal is to build companies that are ethical and responsible—organizations that are profitable because they
inspire the stakeholders with whom they interact:

“Consumers are not only feeling inspired by certain businesses, but are acting inspired by spending
more with these companies while evangelizing to others about their inspiring experience,” says
Terry Barber, chief inspiration officer for Performance Inspired. “We now see there is a validated set
of drivers to inspiration and when these drivers are activated, it elevates employee engagement that
shows up in the customer experience.”28

Practice suggests that “companies that abide by the tenets of conscious capitalism have generated handsome
returns for investors.” An investor in Starbucks the day it went public (June 26, 1992), for example, would
have received a return that “outperformed the S&P 500 by 1,944 percent” over the same time frame.29
Similarly, “in recent years [Patagonia] has doubled the size of its operations and tripled its profitability.” This
has occurred in spite of the company launching a marketing campaign that “tells customers not to buy its

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clothes.”30

Strategic CSR argues that success in today’s globalized business environment is correlated highly with ethical,
responsible, and inspiring behavior (to the extent that such behavior aligns with the collective values of the
firm’s stakeholders). Firms that respond to stakeholder needs and concerns in ways that win them over, and
continue to win them over in an ongoing, virtuous cycle of positive exchange, will be the firms that define the
21st century. An important component of a conscious capitalist system, therefore, is businesses that reflect the
system’s core principles—in other words, values-based businesses.

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Values-Based Business
Values-based businesses view CSR as an “opportunity,”31 rather than a cost. A genuine implementation of
strategic CSR throughout operations lays the groundwork for the construction of such firms. Values-based
businesses stand for something positive, something that both defines and unites the organization. Strategic
CSR provides a road map to achieving this goal.

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 Values-Based Business
A for-profit firm that is founded on a vision and mission defined by a strategic CSR perspective

Values are important because they are shared beliefs that “drive an organization’s culture and priorities and
provide a framework in which decisions are made.”32 They therefore form the backbone of the firm. They are
core to what the firm does and how it plans for the future. Based on principles similar to conscious capitalism,
a values-based business seeks to build an organization that reflects its stakeholders’ interests. In other words, a
firm that merely layers CSR and ethics on top of business as usual in evaluating performance

is a long way from the power of a genuinely values-led business. A genuine culture of values is based
on a community of people that understand what is expected of them, what is seen to be right
behaviour, and the responsibility they have to each other. As soon as you put money onto that, you
remove the essence of what makes these values—and turn it simply into a group of individuals being
personally rewarded to take actions that mimic those taken by those united by common values.33

As Peter Drucker noted, “profit for a company is like oxygen for a person. If you don’t have enough of it,
you’re out of the game. But if you think your life is about breathing, you’re really missing something.”
Throughout history, humans have sought a deeper meaning to life that financial success alone cannot
provide.34 That success has to reflect a sense of making a broader contribution in order to have meaning.
Values-based businesses speak to these needs:

With few exceptions . . . entrepreneurs who start successful businesses don’t do so to maximize
profits. Of course they want to make money, but that is not what drives most of them. They are
inspired to do something that they believe needs doing. The heroic story of free-enterprise
capitalism is one of entrepreneurs using their dreams and passion as fuel to create extraordinary
value for [all stakeholders].35

In essence, a values-based business looks like Patagonia, whose goal is to “find new measures of success that
do not depend on selling an ever increasing number of goods and services.”36 It is instructive to read about the
business philosophy of founder Yvon Chouínard:

He vowed to create products durable enough and timeless enough that people could replace them
less often, reducing waste. He put “The Footprint Chronicles” up on Patagonia’s website,
exhaustively cataloging the environmental damage done by his own company. He now takes
responsibility for every item Patagonia has ever made—promising either to replace it if the customer
is dissatisfied, repair it (for a reasonable fee), help resell it (Patagonia facilitates exchanges of used

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clothes on its website), or recycle it when at last it’s no longer wearable.37

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 Zappos’ Core Values38
As we grow as a company, it has become more and more important to explicitly define the core values from which we develop our
culture, our brand, and our business strategies. These are the ten core values that we live by:

1. Deliver WOW Through Service

2. Embrace and Drive Change
3. Create Fun and A Little Weirdness
4. Be Adventurous, Creative, and Open-Minded
5. Pursue Growth and Learning
6. Build Open and Honest Relationships With Communication
7. Build a Positive Team and Family Spirit
8. Do More With Less
9. Be Passionate and Determined
10. Be Humble

The idea of businesses founded on values is not new. Adam Smith in the Theory of Moral Sentiments,39 for
example, “gave an account of morality resting on empathy and conscience” and, in the process, addressed the
great challenge of “how to order a society in which competition and ethical sensibility are combined.”40
Increasingly, firms are adopting these aims and using them to reform the way they conduct business:

As Walmart grew into the world’s largest retailer, its staff were subjected to a long list of dos and
don’ts covering every aspect of their work. Now the firm has decided that its rules-based culture is
too inflexible to cope with the challenges of globalisation and technological change, and is trying to
instill a “values-based” culture, in which employees can be trusted to do the right thing because they
know what the firm stands for.41

Unfortunately, values-based businesses remain rare. A survey conducted by the Boston Research Group aimed
at learning more about the governance and leadership cultures inside firms, found that “only 3% fell into the
category of ‘self-governance,’ in which everyone is guided by a ‘set of core principles and values that inspire
everyone to align around a company’s mission.’”42 Rectifying this paucity of values-based firms is central to
reinvigorating public support for capitalism, which has suffered in recent years as a series of CSR
transgressions have caused widespread economic harm.

Strategic CSR is about empowered stakeholders imposing their values on for-profit firms. While this occurs
already via market forces, these forces alone are insufficient. Jeffrey Sachs speaks to this debate by critiquing
Adam Smith’s concept of the invisible hand. He suggests that, while the invisible hand works in principle, “the
paradox of self-interest breaks down when stretched too far.” More specifically, “successful capitalism has
never rested on a moral base of self-interest, but rather on the practice of self-interest embedded within a
larger set of values.”43 The idea that capitalism succeeds when it is embedded in a larger value system is central
to strategic CSR. In other words, some form of individual restraint is crucial. In many societies, that value

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system is provided by religion. Without some form of civilizing restraint, as the 2007–2008 financial crisis
reminds us, unfettered capitalism can degenerate into raw selfishness and deceit.

Joseph Nye of Harvard University addresses something similar when he talks about the CEO as the “tri-sector
athlete”—a leader who is “good at private sector, public sector, social sector.”44 Such leaders are able to
motivate the firm’s stakeholders in terms that appeal across traditional dividing lines and draw on the multiple
resources these stakeholders bring in order to collectively achieve the firm’s goals. As such, the firm’s
employees are a core component of a values-based business. Firms such as Southwest Airlines45 and Johnson
& Johnson46 understand this. They place valuing their employees, both intrinsically and extrinsically, at the
heart of what the firm does and stands for, believing that satisfied employees are the core to a successful
business. As John Mackey puts it, “Happy team members results in happy customers, which results in happy
investors.”47

Figure 15.1 Strategic Decision Making in a Values-Based Business

Figure 15.1 presents the strategic decision-making model for a values-based business. While the core strategy
process remains the same (tactics inform the strategy, which serves to achieve the mission and vision), the
CSR filter ensures that stakeholder concerns are placed at the heart of the decision-making process.
Surrounding this core is a set of guiding values that define the organizational culture, structure its priorities,
and provide employees with a framework that they can use in day-to-day operations. It is the decisions that
employees make every day that, over time, reinforce the guiding values and redefine the firm—what it stands
for, what actions it takes, and, ultimately, whether it fails or survives and prospers.48

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 The Dark Side of CSR?
The challenge of a values-based approach to CSR is apparent when a firm proudly announces support for values with which you

disagree. The Economist49 raises a good example of this and, in the process, summarizes an important critique of the CSR debate:

Conservatives sceptical of the corporate social responsibility (CSR) movement have often charged that CSR is a stalking
horse for liberal causes that have failed to get traction through ordinary political channels. This charge finds some support,
I think, in the fact that few in the media seem to see Chick-fil-A’s Christian-influenced culture and business practices as
an example of CSR, though obviously it is. Doesn’t the demand that corporations act responsibly in the interests of society,
in ways other than profit-seeking, directly imply that corporate leaders who find same-sex marriage socially irresponsible
should do something or other to discourage it?

If we encourage a firm pledging to move to zero-waste manufacturing plants because the executives are concerned about climate
change, then we must also support a firm acting to prevent the widespread acceptance of same-sex marriage. Both are issues with
passionate advocates who believe the realization of their position will benefit society:

CSR, when married to norms of ethical consumption, will inevitably incite bouts of culture-war strife. CSR with honest
moral content . . . is a recipe for the politicisation of production and sales.

This textbook seeks to construct an economic argument for CSR, with a particular focus on operational relevance (applicable to the
zero-waste example above; less obvious in terms of same-sex marriage). Central to this framework is the idea that a firm seeking to
meet the needs and demands of its key stakeholders should advocate for the beliefs that are important to those stakeholders (whether
or not those beliefs are supported by the majority). Assuming the action advocated is not illegal, individual values differ and, as long
as there are sufficient numbers of people willing to demonstrate support for a position, then a firm can make an economic argument
for advocating on behalf of that position:

People can run their businesses according to whatever principles they prefer. It’s just stupid business for owners and
managers who want to sell their firm’s goods and services to people who don’t happen to share their morals or politics,
especially in cultures in which consumers are increasingly expected to vote with their wallets.

In other words, the only danger for Chick-fil-A is that it is on the wrong side of a fast-moving social issue. Given the number of
people who showed up at the firm’s restaurants to support a buycott, however, it is clear that the company has stakeholder support
today:

Matters of moral truth aside, what’s the difference between buying a little social justice with your coffee and buying a little
Christian traditionalism with your chicken?

Unless we allow firms equally to support all issues that are important to their key stakeholders, we are being
hypocritical. Chick-fil-A’s position is consistent with prior positions the firm has adopted and is important to
many of the firm’s customers. As such, from a strategic CSR perspective, Chick-fil-A is a values-based
business.

Although managers increasingly understand the benefits of orienting their firm to a core set of values, the task
is harder if they seek to do so too late. If a change in values orientation comes in response to a transgression by
a firm or industry, stakeholders may dismiss the effort as superficial. In such cases, attempts to instill a values-
based culture face a higher hurdle for success. As such, in the aftermath of the 2012 LIBOR interest rate–

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fixing scandal (in which traders from a number of banks manipulated rates for personal gain),50 Barclays’
CEO Antony Jenkins told employees:

They should uphold the company’s new values or leave. . . . [He] said bonuses will now be based in
part on how employees and business units uphold five values [respect, integrity, service, excellence
and stewardship], rather than “just on what we deliver. . . .

“We must never again be in a position of rewarding people for making the bank money in a way
which is unethical or inconsistent with our values. . . .

“There might be some who don’t feel they can fully buy in to an approach which so squarely links
performance to the upholding of our values. . . .

“My message to those people is simple: Barclays is not the place for you. The rules have changed.”51

Of course, the extent to which the company is serious about this will only reveal itself over time. But as an
indication of genuine intent, it is essential to know how Barclays will measure adherence to these values and
how performance evaluation will translate into individual compensation.

The true test of any organizational culture, of course, is the firm’s reaction in the face of adversity or criticism.
One company that has proved to hold a genuine commitment to its core values is Starbucks, which in 2008
had to be rescued by its founder, Howard Schultz:

Our stock was in free fall. One day, I found myself on a phone call with one large institutional
shareholder. He addressed the longstanding health coverage for our employees, which at the time
cost $250 million. He said this would be the perfect time for Starbucks and me to cut health care. . .
. I tried to describe to him that the essence of the brand is humanity, and our culture is steeped in
two primary benefits that have defined who we are: comprehensive health-insurance coverage for
our people and equity in the form of stock options, which we give to anyone who works more than
20 hours a week. I told him, “This is a nonstarter at every level because you don’t understand the
essence of our company. After all these years, if you believe the financial crisis should change our
principles and core purpose, perhaps you should sell your stock. I’m not building a stock. I’m trying
to build a great, enduring company.” We are a performance-driven organization, but we have to lead
the company through the lens of humanity.52

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Ben & Jerry’s
Another good example of a values-based business is Ben & Jerry’s, which opened its first shop in Vermont in
1981 and went public in 1984.53 In building Ben & Jerry’s into a global brand, cofounders Ben Cohen and
Jerry Greenfield set out to redefine the concept of a concerned and responsive employer. An important step in
this process was codifying the firm’s founding principles in its groundbreaking Social & Environmental
Assessment Report—first commissioned in 1989. Ben & Jerry’s was the first major corporation to allow an
independent social audit of its business operations:

This social auditor recommended that the report be called a “Stakeholders Report” (the concept of
stakeholders existed but this was possibly the first-ever report to stakeholders) and that it be divided
into the major stakeholder categories: Communities, . . . Employees, Customers, Suppliers,
Investors. . . . B&J continued to issue annual social reports, rotating to different social auditors as
they sought to develop the concept.54

Ben & Jerry’s has continued to develop the concept of a firm that places its stakeholder concerns at the core of
its business model, a stance that is reflected in its mission statement.

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 Ben & Jerry’s Mission Statement55
Ben & Jerry’s operates on a three-part mission that aims to create linked prosperity for everyone that’s connected to our business:
suppliers, employees, farmers, franchisees, customers, and neighbors alike:

Our Product Mission drives us to make fantastic ice cream—for its own sake.
Our Economic Mission asks us to manage our Company for sustainable financial growth.
Our Social Mission compels us to use our Company in innovative ways to make the world a better place.

A core principle for the company was embedded in its compensation policy. Specifically, no employee could
earn more than seven times the salary of the lowest paid worker.56 Similarly, other aspects of working for Ben
& Jerry’s, such as its benefits (e.g., on-site day care) and “no-layoff policy,” ensured the commitment and
loyalty of the firm’s employees:

If a position required revamping or removal, the employee holding the position would be transferred
to another position, with attention given to matching responsibilities and qualifications.57

As Ben & Jerry’s became more successful, it began to attract the attention of other firms. As people began to
worry about the prospect of a merger or acquisition, calls increased to protect the firm’s independence and its
stakeholder-centric approach to business. The Vermont State government responded by passing legislation
“allowing a company’s directors to reject a bid if ‘they deem it to be not in the best interests of employees,
suppliers, and the economy of the state.’”58 In Vermont, the law became known as the “Ben & Jerry’s law,”
which gave any firm’s directors the legal protection to reject a takeover offer “based on the best interests of the
State of Vermont,” even when that company “was offered a financial premium in a buyout situation.”59

In spite of this legislation, Ben & Jerry’s board agreed to a $326 million takeover by the corporate giant
Unilever in August 2000,60 although this occurred only after Unilever made significant concessions designed
to protect Ben & Jerry’s unique approach to business:

It agreed to let Ben & Jerry’s continue as a Vermont-chartered corporation, with Unilever as its sole
shareholder. This allows Ben & Jerry’s to retain an independent board of directors, and nine of that
board’s 11 members are appointed without any input from Unilever. This independent board exists
in perpetuity . . . and has the primary responsibility for “preserving and enhancing the objectives of
the historical social mission of the company as they may evolve.” . . . Unilever has primary
responsibility for the financial and operational aspects of the business. So Unilever does own Ben &
Jerry’s, but it does not completely control it.61

As such, although the takeover resulted in a short-term hit to the firm’s cult status among activists (e.g.,
Business Ethics dropped Ben & Jerry’s from its list of 100 Best Corporate Citizens in 2001, and the top-to-

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bottom compensation ratio, including benefits and bonuses, jumped to an average of 16:1 by 2001),62 today
the firm’s managers continue to reaffirm a strong activist message while claiming to run Ben & Jerry’s by
“leading with Progressive Values across our business.”63 In addition, the following message is relayed by Ben
& Jerry’s CEO to visitors at “the world-famous Ben & Jerry’s ice-cream factory” in Vermont:

Our commitment to social and economic justice and the environment is as important to us as
profitability. It’s our heritage. . . . This isn’t a short-term strategy to drive up sales. These are issues
that are important for our society to address.64

Still, the suspicion remains that things have changed and the firm’s commitment to its cofounders’ original
values is not as strong as it once was. This accusation is voiced by critics who say that the firm’s activist
message has become “just a slick Madison Avenue advertising gimmick to hike profits.”65 But, this position is
becoming harder to defend as Unilever emerges as one of the most progressive voices in the CSR debate. For
example, Ben & Jerry’s still prominently claims, “We have a progressive, nonpartisan Social Mission that seeks
to meet human needs and eliminate injustices in our local, national and international communities.”66 The
firm’s commitment to social justice and progressive politics appears as strong as ever:

Capitalism and the wealth it produces do not create opportunity for everyone equally. . . . We strive
to create economic opportunities for those who have been denied them and to advance new models
of economic justice that are sustainable and replicable. . . .

We strive to minimize our negative impact on the environment. . . .

We seek and support nonviolent ways to achieve peace and justice. We believe government
resources are more productively used in meeting human needs than in building and maintaining
weapons systems. . . .

We strive to show a deep respect for human beings inside and outside our company and for the
communities in which they live.67

While today Ben & Jerry’s is clearly a subsidiary of a large corporation (e.g., the emphasis immediately after
the acquisition was on Ben & Jerry’s being “Unilever legal”),68 it has benefitted from the discipline Unilever
has brought. Moreover, there is growing evidence to suggest that the influence is not all one way and that
Unilever has also learned some lessons from Ben & Jerry’s. For example, “Ben & Jerry’s was the first ice-cream
company in the world to use Fairtrade-certified ingredients in 2005; Unilever has a broader target of sourcing
all agricultural raw materials sustainably by 2020.”69 In addition,

the company supports marriage equality and campaign finance reform. And [in 2015] it introduced
a flavor, Save Our Swirled, intended to raise awareness about climate change. The label is illustrated
with cows perched atop melting icebergs, and Ben & Jerry’s is urging customers to lobby

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 government leaders to embrace clean-energy standards.70

Today, as part of Unilever’s efforts to push the boundaries in relation to CSR,71 it sees the value in allowing
Ben & Jerry’s to retain its broad stakeholder-focused, values-based business model. This is evident in Ben
Cohen’s involvement with the financing of Occupy Wall Street72 and when the firm “decided to celebrate the
legalization of gay marriage in the US by rechristening its Chubby Hubby ice-cream Hubby Hubby in
2009.”73 It was also evident in 2012 when Ben & Jerry’s announced it had become B Corp certified:

A quarter-century after pioneering the socially responsible business movement, Ben & Jerry’s is
throwing its support behind the growing B Corporation (B Corp) movement. . . . Ben & Jerry’s is
the first wholly-owned subsidiary to gain B Corp certification. The move was supported by Unilever
. . . as consistent with Ben & Jerry’s core values and mission and fully aligned with Unilever’s own
ambitious sustainability agenda.74

For Unilever and Ben & Jerry’s, basing their operating principles on a strategic CSR perspective is proving to
be central to their ability to survive and thrive in business today.

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Strategic CSR Is Good Business
Strategic CSR is good for the firm—good in that it is effective business, but good also in that it is ethical,
moral, and values based. Strategic CSR creates value for the firm’s broad range of stakeholders in a way that is
sustainable.

As Howard Schultz notes, the business case for Starbucks operating along a set of clearly defined, well-
advertised principles is clear, both internally (“We have successfully linked the percent of store partners in a
given store who think we’re living up to our values to the performance of that store”) and externally
(“Starbucks has found that more than a quarter of the public opinion of its brand is based not on its store
experience or its coffee products, but on what customers think of Starbucks as an institution”):

This is not altruistic; this is business. Values are a big part of both the balance sheet and the income
statements of Starbucks—it’s behind the performance. . . . You can’t attract and retain great people
if your sole purpose is to make money because people, especially young people, want a sense of
belonging—to be part of an organization they really believe is doing great work.75

Stakeholders have always shaped the rules by which businesses operate, consciously or otherwise, and they will
continue to do so. The questions that are essential for any manager to ask, therefore, are What are the rules
today? and What are they likely to be tomorrow? The rules are always changing, but the aggregate effect of
millions of people making millions of decisions every day determines the overall environment in which firms
must act.

Corporations cannot force consumers to buy their products, as long as consumers are willing to make their
purchase decisions based on something other than convenience or the lowest price. Similarly, corporations
cannot prevent the enactment of legislation, as long as politicians are willing to prioritize governing over
campaign contributions and lobbying pressures. And corporations cannot force employees to work for abusive
pay levels, as long as workers ensure they have the skill set to demand higher pay and better conditions. Each
of these decisions is a values-based judgment made by one of the firm’s stakeholders. Managers, therefore,
need to understand the values that underpin these decisions at any given point in time because they have
operational consequences for the firm. Those managers who understand the rules most completely are best
placed to help their firm succeed by aligning the firm’s actions with the underlying values of its stakeholders.

While we can define and discuss CSR at an objective, idealistic level, it is more helpful to do so at a subjective,
realistic level. If we talk about the social responsibility of a particular firm, for example, that literally means
behavior that is deemed by society to be responsible. In other words, what is responsible is defined by the firm’s
stakeholders (society in the aggregate). So as long as the firm defines it stakeholders broadly and acts on their
concerns, by definition it is being socially responsible. Of course, there are problems of interpretation,
prioritization, and conflicting interests (as discussed in Chapter 4), but as long as the firm seeks to create value
for its broad range of stakeholders, it will be meeting societal expectations. To understand whether the firm is

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doing this and as a way of implementing CSR, a firm instead should think in terms of value creation. Not only
does this concept operationalize CSR in a way that is useful, but it also brings CSR to the center of everything
the firm does. If CEOs set out to do anything every day, it is to create value. If strategic CSR equals value
creation, then it immediately becomes central to the CEO’s job.

In seeking to redefine the CSR debate, this textbook argues that how business is conducted matters. Rather
than obsess about what the firm does (generate profits), strategic CSR focuses instead on how the firm does
it. In other words, framing the argument is key, and policies or practices that lower costs and/or raise revenues
over the medium to long term are of primary importance. In order to illustrate this, let’s return to the debate
between paying a living wage and a minimum wage: Does a firm pay its employees a living wage because it
feels that they deserve something better, or does it pay them a living wage because it understands that the
investment raises morale and loyalty, raises productivity, and decreases the recruitment and training costs that
are associated with higher turnover? As Paul Polman, CEO of Unilever, frames it:

To pay a textile worker in Pakistan 11 cents an hour doesn’t make good business sense. . . . [Before I
became CEO,] we had a lot of contingent labour or we outsourced it and we looked at that as a cost
item but we had a tremendous amount of turnover. Now we pay more and we have greater loyalty,
more energy and higher productivity.76

To be sure, the philosophy of strategic CSR is demanding. It requires stakeholders to act in order to shape
society in their collective interests. It also requires firms to respond to these demands and, where possible, to
anticipate them. But again, as long as stakeholders are willing to enforce their values and beliefs, conforming
to those expectations is in the firm’s economic self-interest. Strategic CSR is not a passive philosophy;
therefore, it is proactive. The result is a society that is actively shaped, rather than one that passively forms. If
stakeholders are motivated to change the rules in a way that promotes value, broadly defined, then for-profit
firms are the best means we have of interpreting those new standards: They will respond more rapidly and
efficiently than any other organizational form in any other economic system.

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Strategic CSR Debate
Motion: Business is a moral endeavor.

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Questions for Discussion and Review
1. What makes one person more or less ethical than another? Where does that component of an
individual’s character come from?
2. What does it mean for an organization to be ethical? What is the difference between an unethical and an
illegal act?
3. In your view, what does a values-based business look like? Think of an example that you have seen or
read in the news: What do you think would be different about working for a firm like that?
4. Look at Ben & Jerry’s values (http://www.benjerry.com/values/). What do you think about the
company’s Product Mission, Economic Mission, and Social Mission? What about the social causes the firm
adopts? Does this information make you more or less likely to buy the company’s ice cream? Is this what
a for-profit company should be doing?
5. Watch this video: https://www.youtube.com/watch?v=EseNAh9UwjI. Do you agree that business is “a
moral endeavor”?

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