R ESPONSIBLE L EADERSHIP

Importance of Responsible Leadership

In order to truly understand CSR‘s efficiency and role in modern society, one must also understand the leaders that develop the strategies. Currently, Stakeholders and stakeholder theory has already taken a new role in the modern business. Stakeholders can put a lot of pressure on businesses and essentially change the way a company conducts its CSR strategies.

(Porter and Kramer, 2006). With this added pressure, leadership has also taken a new role in organizations. Leadership is an essential requirement for every organization, company or group. Without leadership, a company will lack specific goals and direction needed for the organization‘s operation and success. With globalization and an ever-changing market, the responsibilities and expectations of leadership has changed and evolved. Leaders are no longer only responsible for the performance of the company, but are also responsible for their organization‘s impact on society and the environment around it. (Freeman, 1984; Maak and Pless, 2006). These added responsibilities for leaders have changed the roles of leaders. Maak and Pless state that the responsibilities of leaders have ―become more complex and multi-faceted, [expanding] from an internal leadership perspective to a broader world view, from a shareholder mindset to a stakeholder orientation with respect to the leadership mandate.‖ (2006)

A responsible leader should always be aware of his organization‘s impact on society both internal and external, not only out of moral obligation, legal reasons or reputation, but also for the sustainability of the company. (Porter and Kramer, 2006) Leaders should be aware of their impact on customers, employees, suppliers and every stakeholder, even competitors.

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This should not be limited only to the present, but also to future generations. Therefore a leader should not be focused on just one goal-- the company—but should be able to develop multiple roles, in order to ensure the sustainability of the company (Maak, 2006). These roles can be seen below in the ―Roles Theory of Leadership‖ figure. (Figure 6) Sustainability and focus on intergenerational equity should be a priority for the present in order to improve the future. This has been a major agenda for the past few decades. Rules and regulations pointing out basic human rights and organizational responsibilities have been establish by many conventions, one of the most famous being the United Nations Commission on Environment and Development held in Rio. (UNCED, 1992). Also, it appears that this not just a trend. This is the agenda and will be the agenda for the next decades to come. Leadership must be ready to rise for the ever growing demand of proactive corporate social responsibility.

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Figure 6- Roles theory of Leaders

CSR’s Role in Choosing CSR Strategies

This is very true in the short run; however, in the long run, a good CSR strategy can redefine a company‘s reputation. One example is when Wal-Mart‘s CEO Lee Scott made a choice to redefine Wal-Mart by focusing on CSR and responsible leadership. The multi-billion dollar, world retail giant, was suffering from a backlash of bad publicity due to its poor CSR practices linked to the environment and outsourcing problems. One case study that was conducted by Stanford University said that due to its poor reputation, 2%-8% of consumers

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had stopped shopping at the retail giant. (Denend & Plambeck, 2004). Due to these, and other such figures, in 2005 Lee Scott made his 21^st century leadership speech for Wal-Mart, which would implement a new ―sustainability‖ project that was focused on limiting waste products and energy, improving the quality of products improving employee conditions and leading the way for sustainability. (Scott, 2005) Wal-Mart‘s goal was to improve sustainability and become more ―green.‖ Skeptics initially claimed that it was ―green washed‖ tactics and that Wal-Mart was eager to improve its reputation and earn some goodwill from this strategy.

Wal-Mart knew that the results would not be seen right away. This was because after years of maintaining an ―unresponsive" CSR strategy, it would take some time to change the public opinion of the firm. At first, skeptics believed that Wal-Mart‘s decisions were based upon selfish goals. This was because many knew that due to Wal-Mart‘s scale, reducing waste and being more efficient reduces cost for its company, so it was actually using CSR as a way to cut cost. In this case, Heikkurinen would suggest that Wal-Mart was on the right track since company‘s should be willing and proactive in creating ―integrated and innovative approaches‖

in CSR (2010). So, regardless of Wal-Mart‘s reasons for change, they were on the right track, and in some cases CSR should be able to create ―win-win‖ situation for company and stakeholders. In the end Wal-Mart did benefit and the public opinion of Wal-Mart did change.

According to YouGov BrandIndex and the New York Times:

“In mid-2007, the earliest data available, Wal-Mart‟s score was about a negative 5 on a scale of negative 100 to positive 100, but it rose to the 20s in 2009.”

(brandindex) (Clifford, 2013)

This being said, it is important to understand that the larger a company is, the larger the impact of any action it takes. This is why Wal-Mart is a great example of how CSR can work

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for a company. Wal-Mart is the largest retail company in the world, so the actions it takes will have a much more noticeable effect on stakeholders and the environment. However this also means that leadership has a more difficult position. This is because as a firm grows, so does its impact on more stakeholders. For any business efficient resource management and the balancing the demands of shareholder/stakeholder is critical (Mehra, Smith , Dixon, &

Robertson, 2006), but for Wal-Mart this importance is magnified. With profit margins from 3-4% Wal-Mart has to use scale and efficiency resource management in order to make a profit.

However, SMEs also have the same problem. Being small and lacking available resources, proper resource management and weighing of stakeholder importance is crucial.

Implications for Leadership’s Role in Choosing an Appropriate CSR Strategy

As we can see, a company‘s choice of CSR strategies is very important. Based on long term goals for a company, it is better for a company to be proactive and leverage its CSR activities for the benefit of the company than it is for a company to be caught off guard and have to comply with an imposed government or societal demand for higher involvement and care of its stakeholders. (Munilla, 2005) So, essentially, in the long run, a comprehensive, multi-stakeholder focused CSR strategy can reduce risk and cost for a company. (Berman, Wicks, Kotha, & Jones, 1999)

This is why there is another interesting link between his 5 CSR motives and Maslow‘s Hierarchy. Though businesses are not people, they do have needs and these needs must be met before implementing more holistic CSR policies. As individuals strive for self-actualization, so do organizations strive for a sense of self-actualization or purpose, which is fulfilled by

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creating a completely balanced work environment through positive relationship with all of its stakeholders.

This is obvious for large corporations, which find themselves under constant public scrutiny. It is also an important argument for the implementations of healthy CSR practices for SMEs. Many people believe that SMEs should only focus on compliance to government laws and profitability. However, a company‘s psychology should be like an individual‘s psychology: ready to take the next step, always growing, and always striving for self-actualization. This is an important basis for the next section.

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