Multinational Pharmaceutical Compa

 Multinational Pharmaceutical Compa-­‐
nies and their approach to Integrating Corporate Social Responsibility into Business Strategy Bachelor Thesis submitted in fulfilment of the Degree Bachelor of Business Administration in Tourism and Hospitality Management Submitted to Dr. Ursula Christine Loisch Marthissa M. Maerz 0911550 Vienna, 9/10/2011 1 AFFIDAVIT I hereby affirm that this Bachelor Thesis represents my own written work and that I have used no sources and aids other than those indicated. All passages quoted from publications or paraphrased from these sources are properly cited and attributed. The thesis was not submitted in the same or in a substantially similar version, not even partially, to another examination board and was not published elsewhere. Date 2 Signature ABSTRACT Recent years have shown an explosion in academic literature regarding corporate social responsibil-­‐
ity (CSR). Several reasons have caused the rise of interest in the field of CSR, such as growing stake-­‐
holder concern and high media exposure. Focusing on the current developments of those initiatives, this study attempts to explore its foundations and underlying concepts. Based on the methodological approach of a qualitative content analysis including frequency counts, this paper sheds light on the impacts of CSR activities of large multinationals in the pharmaceutical industry. The industry was chosen for analysis as it enjoys a high percentage of return on sales (ROS) and return on equity (ROE), being one of the most profitable industries in the world. Inspired by Milton Friedman’s article, ‘The Social Responsibility of Business is to increase its Profits’, this thesis responds to the question whether and why firms in the pharmaceutical industry are in-­‐
cluding CSR in their business strategies. Most importantly, this paper identified whether their ap-­‐
proach is beneficial to both society and the firm. The background of this question comes from the prejudice that CSR might only be a promotional tool to attract shareholders. The research question centres on Carroll’s (1991) four-­‐part model, including four different layers of responsibilities, which together make up the concept of CSR. Annual reports have been analysed according to these respon-­‐
sibilities to show where the multinationals place their emphasis. The sample for empirical research has been chosen from four different pharmaceutical multination-­‐
als, all of which are listed in the Forbes List 2000, a list identifying global leading players according to their revenues and net income. The chosen sample includes two direct competitors amongst the American based healthcare providers, namely Pfizer Inc. and Johnson & Johnson and two Swiss con-­‐
tributors, specifically Novartis AG and Hoffmann-­‐ La Roche Ltd. The sample will not be representative for the whole market, but allows for significant and informative comparison between two leading pharmaceutical sectors and their approach to integrating CSR into business strategy. 3 KEYWORDS Business strategy, competitive advantage, corporate social responsibility, document analysis, fre-­‐
quency counts, multinationals, pharmaceutical industry, qualitative content analysis 4 LIST OF TABLES •
Table 1 The three measures of return for the pharmaceutical industry and for five other indus-­‐
tries, adapted from Heal (2008) •
Table 2 Gross domestic products in each of the seven study nations and the proportion attribut-­‐
able to pharmaceuticals, GDP data, OECD statistics, adapted from Chew at al. (1985) •
Table 3 Number of employees in the pharmaceutical industry in the seven study nations, OHE survey data, adapted from Chew et al. (1985) •
Table 4 Categorizing scheme based upon theoretical outlook •
Table 5 Comparison of discussed pharmaceutical firms •
Table 6 Outputs of Frequency Counts Pfizer Inc. from annual report 2010 •
Table 7 Outputs of Frequency Counts Johnson & Johnson from annual report 2010 •
Table 8 Outputs of Frequency Counts Novartis AG from annual report 2010 •
Table 9 Outputs of Frequency Counts Hoffmann-­‐ La Roche Ltd. from annual report 2010 •
Table 10 Top statements from annual reports 2010 5 LIST OF FIGURES •
Figure 1 Carroll’s 4-­‐part-­‐model of CSR: adapted from Carroll (1991) •
Figure 2 Varieties of CSR (The Economist Newspaper Ltd, 20/01/2005) •
Figure 3 The five Ps of strategy, adapted from Mintzberg (1987) •
Figure 4 Porter’s five forces framework, adapted from Porter (1980) •
Figure 5 Porter’s diamond framework, adapted from Porter, The Competitive Advantage of Na-­‐
tions (1990) •
Figure 6 Reputation and Corporate Responsibility – Questionnaire (Lewis, 2003) •
Figure 7 Reputation and Corporate Responsibility – Questionnaire (Lewis, 2003) •
Figure 8 Starbucks Goals and Progress 2010, adapted from Starbucks Global Responsibility Report (Starbucks, 2010) •
Figure 9 Total U.S Jobs supported by the Biopharmaceutical Sector in 2008, Archstone Consulting and R. L. Burns, adapted from PhRMA (2011) •
Figure 10 Johnson & Johnson statistics, the World's Most Admired Companies, Source: Haygroup and Fortune, adapted from CNN Money, money.cnn.com •
Figure 11 The process of qualitative data analysis, adapted from Denscombe (2007) •
Figure 12 Procedure in content analysis, adapted from Denscombe (2007) 6 GLOSSARY OF TERMS Different related terms in this field have led to confusion and misunderstanding. In order to avoid or overcome this problem, the glossary should provide the reader with necessary information and de-­‐
scription of used terms throughout the thesis together with a short layout of their concepts. CSR related terms are differentiated by strategic terms in the following two tables. CSR – T ERMINOLOGY, C ONCEPTS, D EFINITIONS : Business Citizenship: (also corporate citizenship, CC) can be explained by how the corporation defines its role in society and how it manages to engage with its community. The company can limit its en-­‐
gagement of CC to philanthropic actions or extend this through involving itself for example in gov-­‐
ernance or other actions that go beyond donations to charity (Waddell, 2000). Business Ethics: (also corporate ethics) is the idea that business task goes beyond increasing profits and behaving according to set moral standards by demonstrating responsibility not only to share-­‐
holders but also employees, customers and suppliers (Crane & Matten, 2007). Corporate Social Responsibility (CSR): draws on legal, ethical, and philanthropic expectations, which society has from business organizations (Crane & Matten, 2007) Ethics: is concerned with the study of moral issues and the application of standard rules that identify if a situation is right or wrong. Various ethical concepts and theories have been established in order to classify correct ethical behaviour (Crane & Matten, 2007). Multinationals: (MNCs) can be defined as the largest businesses contributing to world trade and in-­‐
vestment. Because of their growing power and large effect they have on economic development, there is a need for policy implementation and regulatory standards especially in times of rapid politi-­‐
cal change (Ahiakpor, 1990). Organizational Citizenship Behaviour (OCB): can be explained by the terms ‘altruism’ referring to a general helping and caring behaviour as well as a ‘generalized compliance’ with the company by the employee to promote efficient and effective work. Furthermore, there is a high correlation between job satisfaction and the variable of altruism. (Organ, 2006) Sustainability: ‘implies meeting the needs of the present without compromising the ability of future generations to meet their own needs’ (United Nations, Report on Environment and Development, 1987, p. 1) Transparency: companies are following the trend towards showing the public more comprehensive 7 and reliable information about their business, meaning government and all other stakeholders. They are engaging in a proactive approach to report their actions and are therefore are more likely to take the consequences of these in case of failure. This trend can also be applied to governmental and non-­‐
profit organizations. (Oliver, 2004) Triple Bottom Line: term encouraged by John Elkington, Director of the SustainAbility consultancy; or in other words ‘People, Planet, Profit’ referring to the social, environmental and economic way a company is trying to conduct its business. (Crane & Matten, 2007) Values: the term encompasses two different concepts. The first is referred to as the ‘global common values’, which are desirable or undesirable beliefs that are more or less shared between most cul-­‐
tures and originally derived from religion. The second concept is the one of ‘country cultural values’, referring to common beliefs within a specific group. (Ferrell et al., 2010) S TRATEGIC M EASURES – T ERMINOLOGY, C ONCEPTS, D EFINITIONS : Business Strategy: refers to the long-­‐term goals a company is able to achieve by taking specific ac-­‐
tions and deploying resources effectively (Chandler, 1962). Competitive Advantage: is an increasingly important topic and specifically addresses the firm. It is concerned with differentiation from competitors; reduction of uncertainty and value proposition across the whole product or service chain, meaning it also includes also suppliers. (Porter, 1998) Corporate Governance: can be referred to a system by which corporations are controlled by govern-­‐
ment. It is important to have a regulatory framework, so resources are used efficiently (economic level) and accountability and transparency are ensured to the public (social level). Governance sys-­‐
tems include a board of directors and an external auditor. (Clarke, 2008) Corporate Social Strategy: covers strategic meaning economic aspects of a business strategy with a focus on social welfare. According to Husted (2001) a corporate social strategy emphasizes on the realization of both social welfare and economic competitive advantage. Efficiency: can mainly be explained by the ratio of a company’s inputs measured against its outputs. There are a variety of efficiency ratios indicating how well a business is using its assets to generate profit. Common ratios include the return on capital employed (ROCE), which stresses labour efficien-­‐
cy but also ‘stock turnover’ giving an impression on how a company is managing its inventories. (Campbell, 2011) Globalization: Manfred Steger (2010) defines globalization as a concept inheriting an economic, polit-­‐
ical, cultural and ecological dimension. Furthermore, he argues that globalization might be the de-­‐
velopment and continuous process of transformation of social relations around the world. 8 TABLE OF CONTENTS 1 Introduction .......................................................................................................................... 11 1.1 Context and previous research .......................................................................................... 11 1.2 Research aims and structure ............................................................................................. 13 2 Corporate Social Responsibility ............................................................................................ 15 2.1 Historical development of corporate social responsibility ................................................ 15 2.2 Corporate Social Responsibility Theories .......................................................................... 16 2.3 Differentiation of CSR to related terms ............................................................................. 21 2.3.1 Business ethics and CSR ................................................................................................................ 21 2.3.2 Corporate citizenship .................................................................................................................... 22 3 Business Strategy .................................................................................................................. 24 3.1 Competitive advantage and strategy ................................................................................ 24 3.2 CSR as strategic competitive advantage ............................................................................ 28 3.3 CSR Measurement and Impact on Financial Performance ................................................ 32 4 Multinationals in the Pharmaceutical Industry .................................................................... 35 4.1 The Pharmaceutical Industry ............................................................................................. 35 4.2 Challenges for pharmaceutical businesses ........................................................................ 37 5 Consolidation ........................................................................................................................ 40 5.1 Relationship and connection ............................................................................................. 40 5.2 General relevance and author’s relevance ........................................................................ 41 6 Methodology ........................................................................................................................ 43 6.1 Qualitative and quantitative research methods ................................................................ 43 6.2 Qualitative research methods ........................................................................................... 43 6.3 Quality in qualitative research .......................................................................................... 44 6.4 Selection of methodology ................................................................................................. 45 6.5 Operationalization ............................................................................................................. 47 6.6 Sample ............................................................................................................................... 49 6.6.1 The American based health-­‐care providers .................................................................................. 49 6.6.2 The Swiss corporations ................................................................................................................. 51 6.7 Data Analysis and Results .................................................................................................. 52 6.7.1 6.7.2 6.7.3 6.7.4 Pfizer Inc. ...................................................................................................................................... 52 Johnson & Johnson ....................................................................................................................... 55 Novartis AG ................................................................................................................................... 57 Hoffmann-­‐La Roche Ltd. ............................................................................................................... 59 7 Discussion and Interpretation of Findings ............................................................................ 61 9 8 Conclusion ............................................................................................................................ 65 8.1 Summary ........................................................................................................................... 65 8.2 Contribution to knowledge ............................................................................................... 67 8.3 Limitations and Future research ........................................................................................ 68 9 Bibliography .......................................................................................................................... 69 10 1 INTRODUCTION In recent years the term corporate social responsibility (CSR) has gained prominence and multina-­‐
tionals are trying to integrate societal issues in their business strategies (Kotler & Lee, 2005). This task has become more complex given the development of technology and globalization, since expec-­‐
tations on how business firms should manage resources and their relationship to society and the environment have changed over the last decade. It is a fact that global companies manage enormous resources; hence they have an enormous re-­‐
sponsibility to carry. Above all, in times of financial instability and corruption, management of multi-­‐
nationals goes beyond operating in the interest of shareholders. It is business rather than the gov-­‐
ernment committing themselves to societal issues. Accountability and transparency have to be achieved to make sure stakeholders establish their trust in good times and do not branch off in bad times, as negative word-­‐of-­‐mouth and uncertainty will promote a negative image of the company. Thus, this paper reviews the concepts of CSR and its underlying theories in connection with multina-­‐
tionals’ business strategies. The primary question to answer is whether the integration of socially responsible practices within a business’ strategy is beneficial to the firm as well as to society. Multi-­‐
national companies in the pharmaceutical industry will be examined on their business strategies and approaches to strategic CSR in order to find the best practices. 1.1 Context and previous research Since CSR became an increasingly distinctive topic in the globalised world, researchers have tried to build a framework for defining and implementing this tool for businesses (Carroll, 1999). Several rea-­‐
sons have caused the rise of interest in the field of corporate responsibility. Increased awareness of corporate practices together with the rise in media exposure has led to growing expectations in this field. The public is becoming involved in scandals and disasters from which multinational companies sometimes fail to recover. According to Chryssides and Kaler (2005), trends such as Total Quality Management (TQM), which defines in advance the direction in which the business wants to go and ensures standards from relevant systems, have also led to a growing concern over socially responsi-­‐
ble actions. 11 In fact, the term dates back to the eighteenth century, whereas the current phrase emerged in the 1960s. An article by Milton Friedman, published in 1970 in the New York Times Magazine, led to an international stir because of his assertion that resolving social problems is a governmental task and not a business one. He further argues that a business executive’s primary responsibility is to care about shareholders and their interests and to act in accordance with the law, meaning he shall act in a way to satisfy them and not society at large. This article provoked problems because it stated that socially responsible actions could only occur at a cost to an organization, while the purpose of busi-­‐
ness is to increase profit in its shareholders’ interests. It was certainly not the only article to argue against CSR, but definitely one of the most prominent ones. In the late twentieth century Archie Carroll initially started to conceptualize CSR into a 4-­‐part-­‐model, which is still one of the most established models in contemporary literature. Carroll (1991) addressed a model, which integrates 4 different layers of corporate responsibilities. In the form of a hierarchy he states that starting at the bottom: economic, legal, ethical and philanthropic responsibilities have to be fulfilled in order to meet social responsibility. Further adaptations to the initial version were made and published up to the year 2000. Matten and Crane (2003) still suggest that corporate citizenship and responsibility are far more pro-­‐
found than the way companies currently adopting them. ‘Corporate ‘citizens’ normally assume their role only if it is in their self-­‐interest to do so. This leads to activities of CC that are often, but certainly not always, praiseworthy and for the benefit of society.’ (Matten & Crane, 2003, p.118) Nowadays, there is a need to critically reflect upon big businesses using CSR as a tool to influence profit margins as well as image and reputation. Companies are trying to change their reputation and their stake-­‐
holder’s perception. There are various reasons why a company might use CSR related activities. Morally, society gives a business the base for profit. It can be described as a reciprocal relationship, because business cannot make profit without society, whereas business should provide society with the reasonable return in a socially responsible way. Rationally, businesses should try to follow a con-­‐
trol strategy by designing and incorporating control points into the system and reacting appropriately in order to minimize company-­‐hazardous effects. Economically, the argument would be that CSR is of interest to the business because it enhances value and in turn maximizes appeal for stakeholders, which is in fact important to maintain the long-­‐term profitability of a company. (Werther & Chandler, 2011) Arguably, CSR tackles different parts of a business and reinforces relationships on a give-­‐and-­‐
take basis. In fact, it is claimed that both business strategy, meaning increasing revenue and satisfying share-­‐
holders’ needs, plus taking society into account, can be combined to achieve better results overall. 12 Carly Fiorina1 (2003) mentioned during the business for social responsibility annual conference that integrating society issues into business strategy, in a correct manner, would actually help the busi-­‐
ness to improve accountability and at the same time increase competitive advantage. In fact, the integration of CSR becomes increasingly important because most businesses operate in a global con-­‐
text, deal with diverse stakeholder groups and endeavour to establish distinguishable brands. (Jen-­‐
kins, 2005) Businesses are only likely to win in a continuously changing environment if they are able to fulfil the needs and wants of their stakeholders. (Werther & Chandler, 2011) Drawing on relevant literature and current practices of multinationals will then assist in revealing whether responsible practices can both enrich society and also add a benefit to the firm’s bottom line. 1.2 Research aims and structure The purpose of this thesis and its associated work is to research and study the foundations of CSR and relate this then to the global framework of multinational companies and their current practices. By looking at business strategies of pharmaceutical multinational companies, the author will be able to draw conclusions in regard to the importance, the potential benefits and the pitfalls of CSR. In addition, this paper aims at exploring the extent to which CSR strategies are currently implemented and if so which concrete actions are being taken to meet internal objectives. This will be possible by critically analysing the literature on 'socially responsible strategies' whilst comparing and contrasting different perceptions, namely from an economic, legal and ethical per-­‐
spective. Focusing on the critical evaluation of multinational companies, this paper will show how American and Swiss multinational pharmaceutical companies are implementing corporate social strategies and whether they are able to achieve competitive advantage through social actions. Four different countries as well as multinational companies and their respective practices will be exam-­‐
ined by using the approach of case study research and document analysis of company reports. The addressed markets are France, Germany, Poland and the United Kingdom. Based on the literature review and the research, possible approaches for better implementation and a discussion on the findings will be presented. 1
‘Carleton S. (Carly) Fiorina was president and chief executive officer of Hewlett-­‐Packard Company from 1999 to 2005. She served as chairman of the board from 2000 to 2005. Prior to joining HP, Fiorina spent nearly 20 years at AT&T and Lucent Technologies, where she held a number of senior leadership positions and directed Lucent's initial public offering and sub-­‐
sequent spin-­‐off from AT&T.’ (Hewlett Packard, 2011) 13 Chapters 1 and 2, aim to provide the context for this paper by reviewing literature on CSR and busi-­‐
ness strategy. Chapter 2 will deal more explicitly with providing definitions and identifying the histor-­‐
ical background of CSR and also categorize different trends affecting businesses on a CSR level. Fol-­‐
lowed by the most important CSR theories, concepts and models, Chapter 2 will also develop a work-­‐
ing concept of CSR to be used throughout the whole paper. Furthermore, the author will try to dif-­‐
ferentiate CSR between related terms to avoid confusion and false conclusions (Chapter 2.3). Chapter 3 will then deal with the basic understandings of business strategy (Chapter 3.1) and the contemporary issues businesses have to deal with when setting up their strategy (Chapter 3.2). Fur-­‐
thermore, the author will relate CSR to business strategy and try to come up with arguments for in-­‐
tegrating CSR into business strategy as well as trying to evaluate why many businesses are trying to neglect those issues. This will show if implementing CSR into business strategy can lead to competi-­‐
tive advantage. Chapter 4 identifies key players in the multinational pharmaceutical industry, where-­‐
as Chapter 5 will explore the relation of the three topics of CSR, business strategy and the pharma-­‐
ceutical industry and identify general relevance as well as the author’s personal relevance. After an overview on the understandings of CSR and business strategy and linking them together, the author places emphasis on real-­‐life examples of the global pharmaceutical companies. Chapter 6 includes the research methodology, namely information on the research process and the sample. By screening and analysing MNCs’ business and CSR the author will draw conclusions on the benefits and pitfalls of corporate social business strategies. Chapter 7 presents findings through qualitative content analysis and Chapter 8 will summarize major points and declare the contribution to knowledge made. To conclude, Chapter 8.3 will pinpoint sig-­‐
nificant limitations and address implications for stakeholders. 14 2 CORPORATE SOCIAL RESPONSIBILITY In order to identify the importance of CSR, it is necessary to briefly discuss the evolution of the term in relation to the role of business in society and its respective nature. Although the term is now well established, it is important to reveal its development and underlying concepts taking various defini-­‐
tions into account. 2.1 Historical development of corporate social responsibility CSR is a subject that has had to face a lot of criticism and controversy in recent years. Its rise to awareness in the 1990s and over the past decade illustrates that this is a relatively new field of aca-­‐
demic research. Hence, it is not surprising that conceptualization and definitions have still not reached a general consensus and that the impacts of the theme are still facing heated discussions. (Carroll, 1999) Discussions relating to the role of business in society date back to the late 1800s where businesses became concerned about employees and productivity, although at this time CSR was not addressed by name and very few cases of charitable donations can be found. CSR was rather referred to as so-­‐
cial responsibility (Carroll, 2008). The 1950s brought new developments, which Murphy (1978) classi-­‐
fies into different eras. He proposed differentiating time periods according to companies’ ways of thinking and operating, namely the ‘philanthropic era’, the ‘awareness era’, the ‘issue era’ and the ‘responsiveness era’. The first, identified as the ‘philanthropic era’, was mainly concerned with dona-­‐
tions and financial sacrifices to society, followed by fostered recognition for social issues, and de-­‐
scribed as the ‘awareness era’. In the 1970s, businesses began to respond to specific issues in society such as environmental pollution and discrimination of particular groups, which he decided to name the ‘issue era’. Finally, during the ‘responsiveness era’, businesses began to develop boards of direc-­‐
tors who were in charge of defining corporate ethics and performance measurement (Murphy, 1978, cited by Carroll, 2008), reflecting an increased awareness that business activity goes beyond econom-­‐
ics. In 1960 the trend arose towards a definition or formalization of CSR. Davis (1960) refers to ‘Busi-­‐
nessmen's decisions and actions taken for reasons at least partially beyond the firm's direct econom-­‐
ic or technical interest.’ He takes an example of an old employee whose productivity compared to his co-­‐workers is rather low but is still retained by the company due to moral obligations. 15 Moreover, in the 1980s most European and North American governments started to introduce legis-­‐
lation concerning specific issues such as the elimination of gender and race discrimination at the workplace. However, due to the accomplishment of introducing new legislations the interest in CSR was on the decline again. (Griseri & Seppala, 2010) During the 1990s, concern for CSR revived and was raised by various society groups, such as NGOs pressuring businesses to match their practices to the welfare of society and the environment. Fear-­‐
ing scandals and loss of image to the public, companies started to rethink their strategies and invest in philanthropic activities. (Matten et al., 2003) Most recently, CSR gained prominence because the question is no longer whether a company should recognize business actions in relation to its impact on society, but more profoundly what specific measures can be implemented to gain a strategic competitive advantage and raise social welfare at the same time. (Griseri & Seppala, 2010) Compa-­‐
nies started to think of CSR as a strategic tool to increase labour productivity, strengthen their mar-­‐
ket position and encourage customers to purchase their product. (Brooks et al., 2011) This chapter focused on the emergence of CSR and the position it has taken in today’s business prac-­‐
tices. In order to obtain a better understanding of the term, the next section will outline the existing definitions and concepts of CSR, since the term itself is still not linked to a universal definition. 2.2 Corporate Social Responsibility Theories As mentioned earlier in this paper, Carroll (1991) initially started to conceptualize CSR into a 4-­‐part-­‐
model. Figure 1 shows Carroll’s model, which integrates 4 different layers of corporate responsibili-­‐
ties. In the form of a hierarchy he states that starting at the bottom: economic, legal, ethical and philanthropic responsibilities have to be fulfilled to in order to meet social responsibility. (Carroll, 1991) 16 • Raises profit and social welfare Philanthropic Resp. Ethical Responsibilikes Legal Responsibilikes Economic Responsibilikes • Raises profit, reduces social welfare Good manage-­‐
ment Pernicious CSR Borrowed virtue Delusional CSR • Reduces profit, raises social welfare • Reduces profit and social welfare Figure 1 Carroll’s 4-­‐part-­‐model of CSR: adapted from Carroll (1991) Figure 2 Varieties of CSR (The Economist Newspaper Ltd, 20/01/2005) The economic principle is situated on the bottom line of the pyramid and represents the base for all other sections. It can be argued that this layer has to be fulfilled in order to build upon further re-­‐
sponsibilities. It relates in the first place to a business firms’ responsibility towards its shareholders and employees as well as to the firms’ obligation to produce quality products and services at a rea-­‐
sonable price. This layer of the pyramid is especially important in times of crisis, when a solid founda-­‐
tion is required. An evident example is the financial crisis in the early twentieth century, where mul-­‐
tinationals were not able to manage the risks involved in issuing a very high amount of loans and finally lost their control over their economic responsibility. (Crane & Matten, 2007) The legal responsibility refers to a set of given rules by law, whereby the firm must fulfil its legal obligations and comply with regulations on various levels. Pharmaceutical companies, for example, have to go through a set of guidelines in order for one of their products to reach the market. Ethical issues are not necessarily governed by legal restrictions and go even further than just behav-­‐
ing according to the rules of the state. Society usually defines or guides companies on their expecta-­‐
tions of ethical behaviour, although companies have to be aware of consumer’s expectations and their understanding of those expectations since wrong assumptions could lead to a reverse change in reputation. (Carroll, 1991) At the very top of the pyramid philanthropic responsibilities of corporations represent the last stage of achievement. Encompassing actions to improve quality of life together with promoting goodwill by supporting charitable incentives are incorporated at this stage of the model. In contrast to economic and legal responsibilities, which are either required by law or business partners, ethical behaviour 17 can be seen as an expectation by society. Philanthropic achievement goes even further and repre-­‐
sents society’s mere desires. (Carroll, 1991) The pyramid-­‐model of responsibilities represents a good overview of the expectations, which stake-­‐
holders place on a business and the areas that are included in CSR, yet, it ‘fails to predict or indicate priorities for managerial decision-­‐making’ (Griseri & Seppala, 2010, p.20). The linkage between CSR and how to implement it in the right ways is specifically important for this paper in order to come up with a working definition. Figure 2 shows a model adapted from The Economist Newspaper Ltd, 20/01/2005 presenting different ways of using CSR and addressing more intensively the issue of managerial decision-­‐making. It is basically a response to whether a company’s CSR policies improve the profit margin, i.e. the long-­‐term profitability of a business, or whether it improves social welfare, or both. This approach shows that CSR can be divided into two dimensions, namely profit and society, mean-­‐
ing improving or reducing social welfare as well as encouraging or discouraging profit. According to The Economist Newspaper Ltd, 20/01/2005, businesses, which are merely financially profitable, are also likely to raise social welfare at the same time. CSR would therefore not be the right description, because it refers more to ‘good management’. Successful management of a firm and a positive out-­‐
come for society reflects a ‘win-­‐win situation’, such as Marc Benioff experienced in his position as CEO of salesforce.com2. The company is providing online business services and combines CSR actively with the business strategy by offering flexible working options and encouraging employees to engage in charitable activities at the firm’s expense. It is a fact that employee satisfaction and performance relate directly to job design and the company’s long-­‐term profitability, since satisfied employees tend to be loyal employees. Employee loyalty or commitment is also highly related to an organizations culture and the employee’s identification with it. But ‘good management’ is hard to achieve and can easily turn into ‘borrowed virtue’, where social welfare may still arise, but the expense is simply too high to reinforce the cycle of revenue growth. ‘Borrowed virtue’ therefore refers to plain donations without actually caring about for example including employees in these donations to show that the business is really motivated and interested instead of only donating a sum of money to keep stake-­‐
holders quiet. But the article raises an important question, namely whether a manager being charitable can really be described as philanthropic, since he/she is spending shareholder’s money. ‘When Robin Hood 2
Salesforce.com provides business applications and solutions for various fields, such as customer relationship management (CRM) (http://wwwsalesforce.com/) 18 stole from the rich to give to the poor he was still stealing. He might have been a good corporate citi-­‐
zen, but he was still a bandit’ (The Economist Newspaper Ltd, 20/01/2005). Although a company’s net loss due to charity might be a poor CSR resolution, this case is still not the worst. In fact, the most uncomfortable outcomes are ‘delusional CSR’ and ‘pernicious CSR’, where companies are actually acting in opposition to the interests of society. ‘Delusional CSR’ reduces profits and social welfare at the same time and ‘merely goes through the motions, delivering no new resources to worthy causes, giving the firm's workers or customers no good reason to think more highly of it’ (The Economist Newspaper Ltd, 20/01/2005). Ameshi and Adi (2007) clarify the matrix of the publishing in the Economist by matching the different forms of CSR to religious characters. ‘Good management could be labelled ‘the saint’, as borrowed virtue – ‘the martyr’, while pernicious and delusional CSR could both be labelled ‘the hypocrite’ and ‘the sinner’ respectively.’ (Ameshi & Adi, 2007, p.9) The possibility of reducing social welfare and the link to religion illustrates the ethical responsibilities as shown in Figure 1. The wide nature of CSR (ethical-­‐, legal-­‐, economic issues) complicates achieving a unique definition. In order to clarify and avoid confusion, the next section will explain the most relevant terms in relation to CSR. According to Garriga and Melé (2004), the literature on CSR theories can be divided into four differ-­‐
ent areas, namely instrumental theories, political theories, integrative theories and ethical theories. The next pages will outline their differences and illustrate an example for each of them. Firstly, instrumental theories describe CSR as a mere ‘means to an end’ of profits, where companies use activities to achieve financial profitability. (Garriga & Mele, 2004) This relates to Friedman’s view, stating ‘the only one responsibility of business towards society is the maximization of profits to the shareholders within the legal framework and the ethical custom of the country’ (Friedman, 1970, p.32). Compared to the matrix in The Economist Newspaper Ltd, 20/01/2005 this belief could also refer to ‘good management’ by increasing social welfare (not always willingly) too, since ‘in certain conditions the satisfaction of these interests can contribute to maximizing the shareholder value’. (Garriga & Melè, 2004, p. 53) In the field of instrumental theories, two approaches are most com-­‐
mon: ‘Maximizing shareholder value’ which is rather short-­‐term oriented and developing ‘strategies for achieving competitive advantage’ with a focus on long-­‐term profit acquisition. Although both approaches do not explicitly exclude stakeholder’s interest, their main purpose is to achieve econom-­‐
ic objectives. The second theory section, political theories, focuses on political considerations concerning CSR poli-­‐
cies and the relationship between stakeholders and the firm in a political setting. The main ap-­‐
19 proaches are ‘Corporate Constitutionalism’ and ‘Corporate Citizenship’ which is a relatively new de-­‐
velopment in the field of CSR. More detailed, ‘Corporate Constitutionalism’ refers to a company’s possession of power and its use. (Garriga & Mele, 2004) Davis (1973) identifies two principles that explain the management of power, namely ‘the social power equation’ and ‘the iron law of responsi-­‐
bility’. According to Davis (1973) business can only exist due to society and therefore businesses should treat society in a responsible manner addressing their needs and wants correctly. For this reason, a firm’s social power defines its amount of social responsibility (Davis, 1973, cited by Garriga & Mele, 2004). In more detail, the ‘iron law of responsibility’ states that if a company fails to perform and address society’s needs and wants, it will lose social power and ‘other groups will eventually step in to assume those responsibilities’ (Davis, 1973, p.314). As much as ‘the authority of government derives from and is limited by a body of fundamental law’ (Fehrenbacher, 1989, p.1), business’ au-­‐
thority stems from and is limited by society. This explains why the theory is named ‘corporate consti-­‐
tutionalism'. Another approach, ‘corporate citizenship’, which will be explained in more detail in Chapter 2.3.2, refers to a framework that views the changes in recent years, which have caused the demand for businesses to reconceptualise their role in society. Globalization, advances in technology and the power of consumers to influence business events have shifted economic power from governments to multinationals. (Andriof and McIntosh, 2001) More power means more responsibility, so in other words citizenship represents a ‘device of new governance structures on an international and global level’ (Andriof and McIntosh, 2001, p. 12). Third, integrative theories relate to business duties towards society depending on time, situation, and ideals of society at this stage. This means that a business has no long-­‐term obligation of corpo-­‐
rate responsibility but has to adapt to changes in its environment. (Garriga and Mele, 2004) Moreo-­‐
ver, Ackerman (1973) discusses the theory of issues management, stating that societal concerns are changing over time and have to deal with a certain process of strategy or in his words ‘response pro-­‐
cess’ (Ackerman, 1973, p.96) which involves risk assessment and careful planning. This is quite rea-­‐
sonable, since a project cannot simply just be carried out, but requires planning and control for prob-­‐
lem identification. Furthermore, Mitchell (1999) explains that in the planning part of social responsi-­‐
bility management, stakeholder management is important in order to best integrate the demands of society. Garriga and Mele (2004) enforce a so-­‐called ‘stakeholder dialogue’ (Garriga and Mele, 2004, p. 59) in order to cater best for society’s needs and reveal issues that might not be obvious to the firm at first sight. Through integrating stakeholder management and reacting appropriately to changes in the environment, a company might then be able to best address CSR demands. 20 Lastly, there is the section of ethical theories, which includes the ‘stakeholder normative theory’ as well as the approach of ‘universal rights’. By introducing his publishing ‘Strategic Management, A Stakeholder Approach’, Freeman (1984) laid out the base for theoretical development, since he of-­‐
fered a novel way to approach societal challenges in a business environment. Donaldson and Preston (1995) tried to summarize the developments in theory, which followed Freeman’s approach. One of those was the ‘normative stakeholder theory’, which is basically linked to the moral obligations of a firm towards its stakeholders. Furthermore, Donaldson and Preston (1995) propose that stakehold-­‐
ers are measured by their ‘intrinsic value’, meaning ‘each group of stakeholders merits consideration for its own sake’ (Donaldson and Preston, 1995, p.67) After having discussed the different approach on what CSR might consist of, the researcher found that in all models four important factors are addressed, namely ‘philanthropy’, ‘ethics’, ‘politics’ and ‘economics’. The Commission of the European Communities (COM) (2002) proposes the following definition of CSR: ‘A concept whereby companies integrate social and environmental concern in their business operations and in their interaction with stakeholders on a voluntary basis’ (COM, 2001, p. 366). This definition appears to be suitable for this thesis, since it encompasses previously discussed dimensions and was found to be the definition with most frequency counts from Google concerning dimensions relating to CSR (Dahlsrud, 2006). After having summarized the most important theories related to CSR and presented a working defini-­‐
tion of CSR for this paper, Chapter 2.3 will deal with related terms for clarification purposes. 2.3 Differentiation of CSR to related terms ‘Numerous definitions of CSR have been proposed and often no clear definition is given, making theo-­‐
retical development and measurement difficult’ (McWilliams et al., 2006, p.3). Although this paper includes a glossary of terms, the following terms are explicitly relevant to the field of CSR. They re-­‐
quire an extended view in order to differentiate or perhaps link them to the relevant topic of CSR, because there is no strong consensus on a definition for CSR. 2.3.1 Business ethics and CSR CSR is of course also concerned about the ethical stance behind a business strategy, but it is im-­‐
portant that ethics is just one part of CSR, as outlined in Carroll’s four-­‐part model (Chapter 2.2, p.14). It is a well-­‐known fact that persuading others and doing good business is a result of clear justification and decision skills. Ethical behaviour may be relevant in any of those situations. Typically, ethical analysis involves the right code of conduct and is required when what is right is either unclear or 21 involves a conflict. According to Hartley (2005), there are some fields where it is not entirely certain if an action is ethical or not. This could be a controversial issue, on the one hand helping society while negatively influencing it at the same time: for example, more tourists travelling to a receiving coun-­‐
try and increasing pollution but in turn opening employment possibilities for the local community. Here for example, careful analysis and reason giving is necessary to determine appropriate action and to persuade others that it is justified. ‘By using the language of right and wrong, we have already identified that a situation is moral in na-­‐
ture.’ Morris (2004 cited by Crane & Matten, 2007, p.129) According to Crane & Matten (2006) a situation may be reviewed as moral in consideration of three factors: first, the decision on ‘right or wrong’ is considered moral when having an effect on other people; second, when the decision is built upon choice, meaning there is an option for an alternative; and third, if others consider the decision as ethical, regardless of your opinion in this context. Business ethics portrays ethical behaviour within the company, thereby mainly including a company culture with ethical codes. ‘Various scandals concerning undesirable business activities, such as the despoiling of rivers with industrial pollutants […] have highlighted the unethical way in which some firms have gone about their business’ (Crane, Matten, 2007, p.4). Sadler-­‐Smith (2012) uses Aristoteli-­‐
an tradition and Darwinian naturalism in order to argue that morality in business decisions involves a theory, which states that we are innately prepared to develop moral modules. That is to say, being ethical doesn’t need to mean that a business engages in philanthropic activities. CSR strategies have to comprise not only ethical behaviour, but also need to meet legal and economic, i.e. shareholder, responsibilities. 2.3.2 Corporate citizenship Corporate Citizenship (CC) is another term, which is highly related to CSR, as already introduced in the glossary. CC can be explained by how the corporation defines its role in society and how it man-­‐
ages to engage with its community. The company can limit its engagement of CC to philanthropic actions, or extend this through involving itself for example in governance or other actions, which go beyond donations to charity (Waddell, 2000). The term developed in the 1990s and initially only ad-­‐
dressed philanthropic actions of a business, however the emergence of a new term led to more con-­‐
fusion with the whole terminology. Basically, there are two different ways of applying ‘corporate citizenship’ to a business: (Griseri & Seppala, 2011) 22 One view of CC sees a company as an individual ‘citizen’ or more a local and global ‘actor’ in society depending on the size and the impacts it has on society. Moreover, this means the company has to take care of their rights and responsibilities alongside other ‘citizens’. Wood and Logsdon (2001) of-­‐
fered a more business-­‐related view of citizenship, namely ‘business citizenship’ where businesses operating in a global environment, should conform to the rules of every country they are operating in. The second approach involves the position of a company as a form of governmental actor taking the approach of providing citizenship rights. This means, the business-­‐related view of citizenship is ex-­‐
tended through the involvement in so-­‐called actions, which the government should usually be ac-­‐
countable for, going beyond donations to charity. An example would be supporting poor countries with the construction of educational and health facilities or fighting for the approval of political rights, or pressing the local governments to operate in a different way to open up new rights for citi-­‐
zens. (Griseri & Seppala, 2011) CC can be seen as focusing on citizens’ rights and responsibilities or ways of how companies might be able to control them by providing employees with a good working environment and respecting the rights of members of society. (Waddell, 2000) According to Matten and Crane (2005), there are three different views of CC, one of which is the limited view referring to philanthropy of the firm such as mere financial donations, which do not need to be related to the company’s activity. The equivalent view relates to the framework of Carroll (1991) and the four different layers of CSR, whereas the extended view of CC describes firms as participating in governmental roles and administrating politi-­‐
cal rights. (Scherer & Palazzo, 2010) All in all, corporate citizenship consists of two different views, either taking the responsibilities of a citizen in respect to other citizens or taking the responsibilities of a governmental actor. This chapter provided an overview of the related terms and the differentiation to CSR. The next chapter will focus on the identification of the term ‘business strategy’ and its composition in order to relate CSR to strategy. Further, the next section will try to find whether strategic CSR can serve as competitive advantage. 23 3 BUSINESS STRATEGY In order to identify the impacts of CSR on a firm’s business strategy, there is a need to take a closer look at the terms ‘strategy’, ‘business strategy’ and ‘competitive advantage’. Therefore, this chapter will focus on the main points of a business strategy, namely gaining competitive advantage through developing and planning an effective strategy. Moreover, Chapter 3.1 will identify the relationship between competitive advantage and strategy, leading to Chapter 3.2, which will deal with CSR as a factor of competitive advantage. Finally, Chapter 3.3 will focus on CSR measurement and the impacts of implementing CSR on the financial performance of a firm. 3.1 Competitive advantage and strategy Many scholars have covered the area of business strategy including economists (such as Porter), so-­‐
ciologists (like Mintzberg) but also consultants. (Cashian, 2007) Defining the term ‘strategy’ serves as a starting point in order to understand the concepts of a ‘business strategy’. Henry Mintzberg (1987) has therefore developed the ‘five Ps’ of strategy, since the term can be used in different ways, which makes it rather impossible to give one single explanation. Figure 3 shows the ‘five Ps’ bearing in mind that they should be used jointly in order to achieve the best overview. plan perspeckve ploy Strategy posikon in respect to others papern of behaviour Figure 3 The five Ps of strategy, adapted from Mintzberg (1987) ‘Planning’ is one of the first words one associates with a strategy, because a structure of what and when a business wants to achieve is often a useful start. As a business establishes different intended goals, one has to distinguish between short-­‐ and long-­‐term goals. Planning is often related to defin-­‐
24 ing internal skills and external threats by using a SWOT-­‐Analysis, PEST-­‐Analysis and other project management tools. (Campbell, 2002) Developing a ‘ploy’ refers to a short-­‐term strategy, where ob-­‐
jectives can easily be changed and can only be loosely defined, as for example in any sport strategy that is used to win a game. (Campbell, 2002) Moreover, a ploy can be defined as a ‘specific manoeu-­‐
ver intended to outwit an opponent or competitor’ (Mintzberg, 1998, p.14) ‘Pattern strategies’ refer to developing a strategy on the base of on-­‐going regular conduct, whereby the actual development of a strategy is often not realized because of an inherited pattern of actions. An analysis of core com-­‐
petences as well as a USP-­‐Analysis can be helpful in order to allocate resources effectively. (Camp-­‐
bell, 2002) ‘Positioning’ refers basically to a company placing itself in a specific field in the market and then trying to match the organizations resources in the best way to the target market within which it operates. This often includes a PEST-­‐Analysis, Porter’s Diamond Framework and Porter’s Five Forces in order to help gain or improve competitive advantage. (Sengubta, 2005) A ‘perspective strategy’ denotes changing the mentality or perhaps even culture of the organization and represents an entrepreneurial approach in achieving goals. This tactic is very visionary in nature and includes the whole organization. (Campbell, 2002) Although the five approaches to strategy appear to be very different in nature, it is important to con-­‐
sider objectives, expected results and the desired outcomes of a strategy. According to Cashian (2007), ‘all are concerned with process -­‐ either the process of decision-­‐making or the means by which profits are made and maintained’ (Cashian, 2007, p.8). This suggests that every strategy needs to be controlled by focusing on milestones and the line of development, because achieving the expected goal of a strategy requires process-­‐related monitoring of its life cycle. As Henry Mintzberg’s 5 Ps refer to a rather general perspective on strategy, a ‘business strategy’ is more about an organization’s long-­‐term plan and achievements in the future. An organization also often includes those goals it wants to achieve as well as their strategic aims and objectives in their mission statement. (Johnson et al., 2011) Alfred Chandler (1962) places emphasis on three compo-­‐
nents of strategy, namely the ‘long-­‐run goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources’ (Chandler, 1963, p.13). He argues that strategic objectives need to be rational and realistic. Once an organization has established and conceptualised those objectives, specific actions need to be taken in order to fulfil the mission. However, without the necessary different nature of resources or inputs (e.g. financial) the complete process would not be able to attain a desirable output. According to Campbell (2011) the development of a ‘business strategy’ is part of a framework con-­‐
sisting of a ‘strategic analysis’ of the firm, which assists in defining a ‘business strategy’ and can then be implemented and referred to as ‘strategic management’. The ‘strategic analysis’ can help by ana-­‐
25 lysing the business internally (processes, SWOT, stakeholders) and externally (macro-­‐ and microenvi-­‐
ronment, PEST-­‐Analysis) and will help in selecting core competences to define the best ‘business strategy’. The main purpose of a strategic analysis is to gain information regarding possible competi-­‐
tion and improve the companies’ own competitive advantage. (Campbell, 2011) This is of particular importance for this paper, since the focus is to identify whether CSR activities relating to business strategy improve a firm’s position in their competitive environment. Nowadays, growing competition makes it much harder to distinguish products and find outstanding performance features in a business. Achieving competitive advantage encompasses a ‘strategic fit’ between the organization and its environment. Michael Porter (1998) established a framework for analysing the competitive environment of a business, namely the ‘Five Forces’. Competitive ad-­‐
vantage can be seen as the overall logic goal of a business and goes hand in hand with its profitabil-­‐
ity. When a business is able to achieve a long-­‐term competitive advantage and retain higher profits than its competitors, it can in turn reinvest in business strategy to maintain this advantage. (Spulber, 2009) In order to keep this virtuous circle alive, businesses need to focus on one or more forces. Alt-­‐
hough they are all important, not all of them are particularly relevant due to changes in the environ-­‐
ment. (Campbell, 2011) Figure 4 illustrates the five elements of the framework. These are ‘industry rivalry’ and four directive forces, namely the ‘threat of potential entrants’, the ‘power of buyers’, the ‘threat of substitutes’ and the ‘power of suppliers’. ‘Industry rivalry’ explains the degree of competitiveness within the industry where a business is operating. The level of competition depends on the number and the market share of competitors, customers’ brand awareness and the prevailing price competition in the area. (Campbell, 2011) The ‘threat of entrants’ is subject to the start-­‐up costs in the market, customer’s retention and loyalty rate, legal regulations and the dominance of existing marketing channels. Fur-­‐
thermore, brand equity can play an important role when trying to keep a prevailing market position. The ‘threat of substitutes’ depends largely on customer loyalty and switching costs to another prod-­‐
uct, meaning the likelihood of customers swapping their brand if a new product of another producer with similar features enters the market. The third aspect, namely the ‘power of suppliers’ describes whether the firm is tied to work with one major supplier or many different suppliers. The fact of hav-­‐
ing only one major supplier available might not be the best decision, as the firm might be bound to a contract where the supplier can charge monopolistic prices. Further, whether or not there is only one major supplier available might relate to the scarcity of resources. Lastly, the accessibility of substitute products and the quantity of purchase by a customer will influence the degree of ‘power of buyers’. When buyer power is high this means that customers are determining the price, as there are many 26 suppliers and only one segment of buyers. Therefore it is likely that the power of buyers has an effect on a firm’s competitive advantage and profitability. (Campbell, 2011) Firm strategy, structure and rivalry Actual or potenkal entrants Material provider
s Compekkve rivalry Factor condikons Buyers Demand condikons Related and supporkng industries Subsktute products/
services Figure 4 Porter’s five forces framework, adapted from Porter (1980) Figure 5 Porter’s diamond framework, adapted from Porter (1990), The Competitive Advantage of Nations Porter and Kramer (2006) present a more general perspective of strategic CSR, suggesting that ‘effec-­‐
tive CSR requires an understanding of the social dimensions of the company’s competitive context’ (Porter & Kramer, 2006, p. 9) by using the so-­‐called ‘diamond framework’. Figure 5, which illustrates the ‘diamond framework’, helps in understanding the link between corporation and society and takes the viewpoint of an ‘outside-­‐in’ approach, showing the different external conditions that affect a company’s activity. Porter and Kramer (2006) address four key conditions that are important in order to improve value-­‐chain activities environmentally and economically. The first condition, the ‘context for firm strategy and rivalry’ defines the context in which a firm is operating by looking at specific regulations and policies governed by law. An example would be mar-­‐
ket entry regulations or policies, which hinder corruption and address the competition in a firm’s field, which motivates firms to look for unique ways to achieve customer attention and a best-­‐in-­‐field position. (Porter and Kramer, 2006) One of the current mechanisms could be annual reporting to-­‐
wards CSR activities of the firm. Moreover, customers’ purchasing behaviour is also an important determinant for a firm in order to strive for competitive advantage, which is described as ‘local demand conditions’ in the model. The authors give the example of consumers’ rise of awareness to more healthy and biological products, which causes companies to rethink and extend their product lines. It’s not just consumers who have a great influence on a company’s decision for strategy but also ‘related and supporting industries’, 27 such as local suppliers, which explains the company’s supplier relationship or the access to any avail-­‐
able related firm. The fourth element of the model is given to ‘factor or input conditions’, which refers to the inputs and resources available to a business, such as infrastructure, capital and natural resources. From a CSR perspective input conditions might be sustainable options to infrastructure and training for employees to improve human resources. (Porter and Kramer, 2006) Operating ‘in ways that secure long-­‐term economic performance by avoiding short-­‐term behaviour that is socially detrimental or environmentally wasteful’ (Porter & Kramer, 2006, p.4) might enable companies to significantly improve the triple-­‐bottom line3. At any of those stages or conditions CSR might be able to generate competitive advantage. For example by the use of ‘sustainable natural resources’ relating to responsible input mechanisms, or the ‘transparency degree’ companies are showing their stakeholders in relation to the context of firm and rivalry. However, it is not possible for a business to address each condition. It is central to select them according to their relevance to the business in order to achieve and sustain competitive advantage. (Porter & Kramer, 2006) ‘Few, if any, competitive advantages can be sustained indefinitely, so the company must continually seek opportunities to create the most value.’ (Spulber, 2009, p.231) One possibility for a firm to gain competitive advantage, improve their reputation and reduce their operational cost might be to en-­‐
gage in socially responsible activities. Therefore, the next chapter involves a closer look at CSR activi-­‐
ties and their impact on a firm’s competitive advantage and potential benefits. 3.2 CSR as strategic competitive advantage In order to assess the importance of CSR for a company’s competitive advantage, it is necessary to understand how a business is implementing those issues or linking them to their strategy. In fact, doing good, when done in the right way, can have several strategic benefits. A wide range of possibil-­‐
ities exist showing social responsibility to the public. Therefore, a difference has to be made between ‘having a corporate social responsibility (CSR) strategy and adopting a strategic approach to CSR’ (Campbell, 2011, P.331). Having a CSR strategy ‘implies that certain fairly well defined and focused goals have been estab-­‐
lished for a giving program and that specifiable means have been identified to achieve those goals’ 3
Triple bottom line: The term originally developed in 1994 by John Elkington in the sense of financial and envi-­‐
ronmental performance covering later social and economic dimensions as well. A comparable approach can be the 3 P’s referring to the phrase ‘people, planet, profit’. (Visser et al., 2008) 28 (Post & Waddock, 1995, p.69) By using the term ‘giving program’, the authors refer to philanthropic activities of a firm to show their societal concern. Furthermore, this means that the company has learnt how to react to certain ethical issues and how to manage capital resources in relation to cer-­‐
tain stakeholders. However, this definition of a CSR strategy ‘may or may not be directly related to the enterprise’s own goals and strategy’ (Post & Waddock, 1995, p.69). This implies that the CSR strategy might relate to individual decisions made by powerful members and does not necessarily mean that it is the overall concern of the business. The authors give the example of a tobacco enter-­‐
prise sponsoring an arts event in order to obtain a certain public image. (Post & Waddock, 1995) Companies exist who are adopting a strategic approach to CSR. It is a much broader approach where ‘corporate resources that are given have meaning and impact on the firm as well as the community that receives those resources’ (Saiia et al., 2003, p.185) This explains that ‘strategic CSR’ relates to the overall thinking or mission of the firm and can be found in the outline of the company’s overall long-­‐
term strategy. In addition, ‘strategic’ explains that the business only engages in certain strategic ac-­‐
tions in relation to social and environmental behaviour, if it is also for the benefit of their sharehold-­‐
er’s (Campbell, 2011). Not only shareholders whose interest largely centres on the value of their stock will be affected. Companies introducing CSR as part of their overall mission can significantly influence stakeholder relations. Lewis (2003) illustrated that 44% of consumers indicated that they would favour a particular company when it shows a high degree of social responsibility. Figure 6 shows the growing trend of CSR among customers from 1998 to 2002, which represents a significant development in only four years. Figure 6 Reputation and Corporate Responsibility – Questionnaire (Lewis, 2003) 29 When employing CSR, it can have several strategic implications. It ‘should be considered as a form of strategic investment […] and can be viewed as a form of reputation building or maintenance’ (Mc Williams et al., 2005, p.7.). This means that through the engagement in CSR activities a business can manage its image or reputation and show its efforts to stakeholders. Stakeholders might include customers, employees, suppliers, the government and the local community. Furthermore, the au-­‐
thors are indicating that CSR might help to improve product differentiation and help the customer to identify their product due to the added value. When customers favour one product over a competi-­‐
tor’s one, this might then directly relate to the company’s bottom line. For example, a ‘sustainable’ heating system, such as pellet heating or solar panels is more sustainable to the environment than a gas-­‐heating systems but also cost-­‐saving in the long run. Thus, it is very reasonable that many cus-­‐
tomers prefer the sustainable version to the ‘normal’ one and might be willing to pay a premium price for it. Husted and Salazar (2006) conclude that a strategic approach to CSR can be beneficial to both society and the firm since social investment will result in greater social output. Furthermore, the authors state that CSR might help to differentiate products because of unique features, which will often go hand in hand with the possibility to charge a premium price and result in a greater eco-­‐
nomic output for the firm. Moreover, the authors suggest that costs may decrease for example be-­‐
cause of investment in human resources through on-­‐the-­‐job training resulting also in employee loyal-­‐
ty and greater productivity. (Husted and Salazar, 2006) ‘CSR is an opportunity to re-­‐configure the competitive landscape as well as to develop distinctive and dynamic resources and capabilities’ (Husted & Allen, 2007, p.605). The authors address the notion of ‘distinctiveness’, which suggests that CSR might be helpful in developing product differentiation. However, the authors state that CSR might not directly lead to competitive advantage without taking the right approaches and integrating it into strategic management. The study was based on Spanish MNE’s and their perception of key variables that lead to value creation and greater firm profitability. The authors concluded that key variables, (adapted from Burke and Logsdon, 1996), which should be addressed, are ‘visibility’, relating to image and reputation management of a firm, ‘appropriability’, related to stakeholder management and ‘voluntarism’, which refers to a company’s voluntary will to engage in socially responsible actions. (Husted & Allen, 2007) The key variable of ‘visibility’ relates to transparency and the communication of strategic responsible activities directed at the public. As most strategic benefit stems from communicating and promoting to customers, it is important to take a look at the relation between strategic CSR and advertising. Indeed, informing the customer about what is going on in the business is increasingly important. Lewis (2003) reported that in the UK 72% of customers wanted businesses to make efforts to show information regarding CSR activities. Figure 6 illustrates the results of the study in that customers 30 wish to be informed about on-­‐going CSR activities which helps them to value one product over an-­‐
other. Figure 7 Reputation and Corporate Responsibility – Questionnaire (Lewis, 2003) Furthermore, strategic CSR is only effective when it is meaningful and not simply used as a promo-­‐
tional tool (Carroll, 1999). Many multinationals, such as Starbucks, are now publishing information on CSR activities annually, as can be seen in Figure 6, Starbucks Global Responsibility Report. This gives more transparency to customers and could enhance their credibility. In Starbuck’s responsibility re-­‐
port, the company refers to responsible purchasing, community involvement, recycling, energy and water conservation and green building. By 2015 they want all of their coffee purchases to be audited and certified by an accredited body, such as Fair-­‐trade for example. This means Starbucks is adopting a strategic approach to CSR, since, as outlined before, CSR activities are included in the overall com-­‐
pany strategy and even in their mission statement4. One of their statements which the company includes in their profile is that ‘by 2015, all of [their] coffee will be grown using ethical trading and responsible growing practices’ (Starbucks, Company Profile, 2011, p.3) 4
Starbucks Mission Statement, Principle 1: ‘It has always been, and will always be, about quality. We’re pas-­‐
sionate about ethically sourcing the finest coffee beans […]’ (Starbucks, 2011) 31 Figure 8 Starbucks Goals and Progress 2010, adapted from Starbucks Global Responsibility Report (Starbucks, 2010) Publishing annual reports can be seen as one way of a communications strategy or brand manage-­‐
ment. (Lewis, 2003) But when communicating information to the customer, companies should be careful about the potential perceptions. They have to distinguish between offering ‘persuasive CSR-­‐
advertising and informative CSR advertising’ (McWilliams, 2005). By informing the customer about CSR activities without trying to be influential, a company might be able to raise quality perceptions of the brand and influence its brand image. With the combination of CSR and strategy a business might then be able to ‘use organizational core competencies and resources to address key stakeholders interests and to achieve both organizational and social benefits’ (McAlister and Ferrell, 2002, p. 690). But, Reinhardt (1998) argues that business-­‐
es having implemented CSR strategies might only be able to hold a ‘best-­‐in-­‐field’ position and make profits when keeping competitors’ possibility to replicate their strategy to a minimum. This might be hard to achieve, since CSR needs to be forwarded to stakeholders and is therefore relatively obvious and transparent. In order to identify whether CSR can have a positive impact on a firm’s profitability, the next chapter will focus on measurement approaches and correlations between CSR and financial performance. 3.3 CSR Measurement and Impact on Financial Performance There have been numerous further studies in trying to assess the relationship between CSR and fi-­‐
nancial performance of a company. (McWilliams & Siegel, 2000) One series of studies focused on the impact of CSR on short-­‐term financial performance of a firm with the conclusion that the two varia-­‐
bles are negatively correlated (Wright & Ferris, 1997), highly positively correlated (Posnikoff, 1997) and not correlated at all (Teoh et al., 1999). Clearly, the approaches to identify the impact of CSR did 32 not reach a general consensus. The other series focused on the long-­‐term impacts of CSR on a firm’s bottom line. Waddock and Graves (1997) for example, came to the conclusion that the two variables are positively related. However, McWilliams and Siegel (2000) argued that their approach on calcu-­‐
lating the correlation was not totally correct; reasoning that without the inclusion of research and development (R&D) factors the econometric modelling would be inadequate. By adding R&D factors to the actual equation of Waddock and Graves, the authors found that R&D was highly correlated with corporate social performance CSP and advertising. The measurement of CSP allows sharehold-­‐
ers and stakeholders to assess a company based on their socially responsible performance, which is basically a measure of CSR. (McWilliams & Siegel, 2000) CSP measurement can be used for ‘socially responsible investing (SRI) screens to select or avoid investing in firms according to their environ-­‐
mental and social preferences’ (Chatterji et al. 2009, Delmas and Doctori-­‐Blass 2010 cited by Chen & Delmas 2010).
MSCI is a company providing tools such as the environmental, social and governance (ESG) and CSP indices for investment decisions. Roughly 800 companies have been examined on 9 different factors of social responsiveness, which include among others employee relationships and indicators of envi-­‐
ronmental behaviour, and were then translated into a CSP value. (MSCI, 2011) Without the inclusion of R&D factors, ‘CSP was not a significant determinant of firm performance’ (McWilliams et al., 2005, p.17) In fact, the latter research shows that R&D is a significant part of most of the multinational pharmaceutical companies, since they have to ensure the quality of their product and try to develop new vaccines and pills against diseases. Further approaches to test the variable of ‘shareholder value’, which is associated to financial per-­‐
formance, in relation to the two variables of CSR, namely ‘stakeholder management’ and ‘social issue participation’, have been carried out by Hillmann & Keim (2001). By using the method of Mar-­‐
ket Value Added (MVA), which is calculated according to the following equation, ‘MVA = market val-­‐
ue – capital’ (Hillmann & Keim, 2001, p. 129), the authors discovered ‘that stakeholder management leads to improved shareholder value, while social issue participation is negatively associated with shareholder value’ (Hillmann & Keim, 2001, p.125). In other words, not every measure of CSR leads to increased shareholder value. The authors conclude that effective stakeholder management with pri-­‐
mary stakeholders may lead to shareholder value creation and further on to competitive advantage. As a base of their research approach they used the KLD index of social performance by MSCI. Besides the method of MVA in analysing those factors, the authors used traditional performance measures, such as the return on assets (ROA) and the return on equity (ROE). The ROA and the ROE are two of the most important measures of return, describing profits as a percentage of shareholder’s equity and profits as a percentage of total assets respectively (Heal, 2008). Table 1 shows the three 33 measures of return for six different industries including the pharmaceutical industry, which is one of the major players in terms of return on sales and return on equity. (Heal, 2008) Drugmakers Money Cen-­‐
Personal Aerospace (Major) ter Banks Computers Defense Automakers Semi-­‐
conductor Makers Return on 16.83% 16.48% 6.41% 4.13% 2.39% 13.45% on 22.43% 13.81% 35.18% 12.39% 9.73% 13.99% on 11.07% 1.09% 12.69% 4.16% 1.49% 9.84% sales Return equity Return assets Table 1 The three measures of return for the pharmaceutical industry and for five other industries, adapted from Heal (2008, p. 97) According to McGuire et al. (1988), corporate social responsibility has a positive effect on a firm’s financial performance according to a significant correlation based on the values of Fortune maga-­‐
zine’s annual survey results. Throughout their research they also measured the relationship between a risk variable and CSR. The authors conclude that ‘lack of social responsibility may expose a firm to significant additional risk from lawsuits and fines and may limit its strategic options’ (McGuire et al., 1988, p.868). This means that not only a significant correlation between firm profitability and CSR has been proven, but it is even more important to address the issue of what can happen if a firm doesn’t engage in CSR activities. It appears that CSR and firm financial performance are two mutually rein-­‐
forcing variables. To conclude, in general there is a trend towards a significant relationship between CSR measures and financial performance of a firm. What is interesting is that CSR implementation is negatively correlat-­‐
ed with firm financial performance, showing the importance of this variable, because if not pursued it can cause reputation damage and loss of brand image. (McGuire et al., 1988) The next chapter will focus on multinational pharmaceutical companies and their ways of implementing a strategic ap-­‐
proach to CSR. 34 4 MULTINATIONALS IN THE PHARMACEUTICAL INDUSTRY Multinational companies (MNCs) are able to affect the economy in an extensive way. The economic crisis in the years between 2007 and 2009 was one of the major reminders of how decisions of cor-­‐
porations can fail and influence society and the environment. First, this chapter will give an overview of the pharmaceutical industry itself; identify key players in the industry and outline major challenges in the sector. Second, this paper will focus on four different pharmaceutical companies based in the U.S. and Switzerland examined on their CSR activities as well as on their financial performance. 4.1 The Pharmaceutical Industry ‘Today, some 50,000 multinational enterprises and their 450,000 affiliates employ over 200 million people throughout the world’ (International Labour Organization (ILO), 2011, p.28). Multinational companies impose a high impact on employment and economic activity and are therefore able to change society and their environment in a tremendous way. The pharmaceutical sector is one of the most important due to its influence on human health and disease prevention and is ‘praised as one of the nation’s leading industrial sectors’ (Schweitzer, 1997, p.3). The VfA, an association of research-­‐
based pharmaceutical companies in Germany, concludes that the supply of medicines is considered to be an elementary component of everyday life, which is less likely to be affected by economic changes than other goods. (vfa, Statistics 2011) Further, they identified that apart from its resistant character, the industry is growing rapidly. The vfa statistics (2011) show that Spanish and American markets increased by 70 per cent in size within ten years from 2000 to 2010. The industry itself began to evolve in the 1930s in different countries amongst which the most pros-­‐
perous were the United States, the United Kingdom, Germany, France and Switzerland. (Chew et al., 1985) Chew et al. reported the importance of the sector in seven different OECD -­‐ (Organization for Economic Co-­‐operation and Development) countries, as listed in Table 2. Further, Table 2 shows the percentage increase of 0.83 to 1.02 of pharmaceutical output as a proportion of GDP in each host country from 1970 to 1982. 35 Table 2 Gross domestic products in each of the seven study nations and the proportion attributable to pharma-­‐
ceuticals, GDP data, OECD statistics, adapted from Chew at al. (1985, p. 8) The percentage increase of pharmaceutical output over the given time period in nearly every study nation shows the increasing importance of the industry. ‘The USA, with around 36 % [of global phar-­‐
maceutical sales], is still the world’s largest single market, followed by Europe and Japan’ (vfa, Statis-­‐
tics 2011, p. 44). Referring to employment figures, this means for example for the United States a larger employment spectrum than comparably in Switzerland. Table 3 shows the drastic rise in em-­‐
ployment, specifically for Japan and the United States. But it is noteworthy that ‘in addition to direct employment, pharmaceutical production also creates employment in supplier industries’ (Chew et al., 1985, p.13) According to PhRMA (Industry Profile, 2011, p.4), each employment position created in the U.S. pharmaceutical industry creates another 3.7 jobs, either indirect or induced, meaning relat-­‐
ed to suppliers or reinforced by employee spending. Total U.S. jobs supported by the biopharmaceu]cal sector in 2008: 3,095,000 Direct jobs 655,000 Indirect and induced jobs 2,440,000 Table 3 Number of employees in the pharmaceutical industry in Figure 9 Total U.S Jobs supported by the seven study nations, OHE survey data, adapted from Chew the Biopharmaceutical Sector in 2008, et al. (1985) Archstone Consulting and R. L. Burns, adapted from PhRMA (2011, p.4) 36 Besides pharmaceutical output, sales percentage and employment in the industry, it is important to take a look at the pricing of pharmaceuticals and the profits made or in other words the profitability of the sector. ‘Pricing of pharmaceuticals is perhaps the most controversial aspect of the industry’ (Schweitzer, 1997, p. 8). The author explains the cost of new product development and the process of entering an existing market. Schweitzer (1997) found that pricing of medicines is mostly related to prices of current existing products and to the demand for the product, which is highly dependent on brand awareness by a producer and consumers’ quality perceptions. Furthermore, producers are discriminating prices between high and low elasticity segments, such as health maintenance organi-­‐
zations (HMOs) and retail pharmacies correspondingly. Schweitzer (1997) concludes that demand is the most influencing factor for pricing decisions in this industry. The provided information indicates that the pharmaceutical industry is one of the most profitable. Profitable industries are often the most competitive, which is why firms are trying to maximize prof-­‐
its strategically. Launching new products has to be done in a strategic way, since the ‘burden imposed by regulatory compliance, the types of marketing and/or advertising activities permitted and the ex-­‐
posure to liability for safety or quality problems’ (OECD, 2008, p.12) can vary highly. This chapter has presented a brief industry description and will now try to identify why CSR is specifi-­‐
cally relevant to pharmaceutical multinationals. 4.2 Challenges for pharmaceutical businesses As previously identified, pharmaceutical multinationals enjoy a high percentage of return on sales (ROS) and return on equity (ROE) among industries such as the automobile and the computer indus-­‐
try. This might be because they are selling life-­‐saving medication and improving health and life ex-­‐
pectancy through researching and developing new pills and vaccines. (Heal, 2008) Being one of the most profitable industries and selling elementary products to human health seems to be quite ironic and makes the industry vulnerable for public attacks. According to a Harris Interactive poll of U.S. adults in 2005, the public perception of pharmaceutical companies is rapidly declining and only 15 % of the population have come to the conclusion that the industry can be trusted as opposed to 50 % in 1998. In comparison, banks, airlines and the computer industry enjoyed a satisfactory percentage of 50% in 2005 (Harris Interactive cited by The Economist Newspaper Ltd, 20/01/2005) showing the poor performance in relation to the U.S. population. (Heal, 2008) The ‘pharmaceutical industry has made a number of serious mistakes (…) from the perspective we have developed on corporate responsibility’ (Heal, 2008, p.100). The author stated the pricing situa-­‐
tion of HIV drugs in South Africa, data suppression of a medication relating to increased suicides and 37 constantly increasing prices of medication but also rendered credit to Merck’s medical donations to cure blindness in Africa. According to Esteban (2008), the industry has to overcome certain com-­‐
plaints and accusations by various stakeholders. Allegations of negligent animal testing, overpricing of medicines, but also complaints about cutting jobs and governmental pressure to amend costs are all some of the challenges the industry is currently facing. Further, the author states that the phar-­‐
maceutical sector has a very complex stakeholder network, which has to be managed appropriately. Stakeholders range from patients and public to government and media. As a result, the industry needs to concentrate on three issues, namely ‘transparency’ concerning on-­‐going activities and busi-­‐
ness reports, ‘people management’ to ensure satisfaction of employees especially in the latest cases of merging and acquisition of new firms, and the ‘control of environmental challenges’ which is mostly associated with the use of water resources and managing waste. (Esteban, 2008) In fact ‘people management’ has to be taken much more seriously in the industry. HayGroup, to-­‐
gether with FORTUNE magazine, conducted a world survey in order to identify the World's Most Ad-­‐
mired Companies 2011. The survey included about 15,000 top executives and directors as well as business analysts who rated the largest multinationals according to nine different criteria, such as social responsibility, innovativeness and financial soundness. In total 13 companies of the pharma-­‐
ceutical industry were included in the study. Interestingly, when looking at the top 50 of the list, only one pharmaceutical firm can be found, namely Johnson & Johnson. (Haygroup & Fortune, 2011) Fig-­‐
ure 10 shows the ratings of the firm within the pharmaceutical industry. Johnson & Johnson stats – Nine key attributes of reputation
Industry Rank
Innovation
8
People management
1
Use of corporate assets
2
Social responsibility
1
Quality of management
2
Financial soundness
1
Long-­‐term investment
1
Quality of products/services
5
Global competitiveness
2
Figure 10 Johnson & Johnson statistics, the World's Most Admired Companies, Source: Haygroup and Fortune (2011), adapted from CNN Money, money.cnn.com 38 The company reached remarkably high ranks for the attributes ‘people management’, ‘social respon-­‐
sibility’, ‘financial soundness’ and ‘long-­‐term investment’. Amongst others, Esteban (2008) highlight-­‐
ed that ‘people management’ is an important factor to sustain CSR and employee relationships. Therefore, it might not be a coincidence that the firm is rated best in related attributes. But in fact, ‘transparency’ in the field of CSR has made it extremely difficult for multinationals to achieve com-­‐
petitive advantage because of CSR. As mentioned earlier, CSR might chiefly help when trying to miti-­‐
gate risk as part of a risk assessment or when trying to maximize employee satisfaction. Bearing in mind that the most profitable pharmaceutical industries can be found in Switzerland and the United States, these are potentially the best candidates to invest in CSR activities and most likely to be in the limelight of industry related discussion. This chapter aimed at exploring the main structures of the pharmaceutical industry including key players and important facts. The following chapter is going to link all three themes and clarify their relationship together with the topics’ current as well as the author’s relevance. 39 5 CONSOLIDATION 5.1 Relationship and connection Chapters 1-­‐3 presented an overview on CSR, business strategy and the pharmaceutical industry. This chapter is going to highlight their relationship and connection. ‘It would be a challenge to find a re-­‐
cent annual report of any big international company that justifies the firm's existence merely in terms of profit’ (The Economist Newspaper Ltd, 20/01/2005). Clive Crook, interviewed in this section of the Economist argues that CSR has become a need for MNCs to deal with and can no longer be ignored. CSR is not a tool to distinguish oneself over another anymore but has become an obligation when trying to keep stakeholders interested. Nevertheless, ‘CSR is an opportunity to re-­‐configure the com-­‐
petitive landscape as well as to develop distinctive and dynamic resources and capabilities’ (Husted & Allen, 2007, p.605). Although CSR comes along with costs to the company, related activities can be of true long-­‐term advantage when it comes to stakeholder relationships whether this is about employ-­‐
ees, customers or suppliers. ‘It is suggested that for some firms (e.g., in the pharmaceutical and resource extraction industries) CSR may be a major influence on corporate strategy’ (Smith, 2003, Abstract). This is precisely why Smith states that CSR is highly associated to this sector. Smith mentions the industry’s rise to promi-­‐
nence due to large donations and contributions, such as Merck’s philanthropic actions to help cure river blindness in the developing world, Novartis attempt to treat leprosy and Pfizer’s engagement in research and development to resolve trachoma suffering. (Smith, 2003) The author indicates that CSR might not be directly related to the characteristics of the industry and highlights the unintelligi-­‐
bility of over-­‐pricing of life saving medicines. This reveals the contradictory nature of the pharmaceu-­‐
tical industry, praised for charitable donations on the one hand and needing to accept heavy criticism on inhibiting unrestrained access to medicines on the one hand. The nature of the industry makes it vulnerable for public attacks, which need to be mitigated by employing a CSR strategy, best at the core of the company’s business strategy. ‘Safeguarding the corporate reputation and brand image have become ever more important as markets have become more competitive and reputations and image have become more vulnerable’ (Smith, 2003, p.15) 40 5.2 General relevance and author’s relevance Why should one actually want to explore the relation of the three topics of CSR, business strategy and the pharmaceutical industry? This is probably the most important question and guides this paper to its general relevance as well as the author’s personal relevance. Firstly, it is important to notice that CSR is a topic that is nowadays more public than ever. ‘CSR has been one of the leading topics at recent World Economic Forum (WEF) meetings’ (Smith, 2003) As discussed in previous chapters, large corporations are in the limelight, which is why they have to deal with current topics such as CSR in order to avoid potential pitfalls. Businesses should see CSR as a conscious change towards the improvement of social welfare. John Mackey, the founder of Whole Foods Inc. states ‘that the enlightened corporation should try to create value for all of its constituen-­‐
cies’ and not solely think of the maximization of shareholder satisfaction (Reason Magazine, 10/2005). The reason why other stakeholders such as customers are satisfied and actually choose one brand over another can successfully be managed by rethinking business strategy and showing that the company is working towards a good cause. As examined in Chapter 3, CSR can directly add up to a company’s bottom line, when customers favour one product over another because of the added value enforced by CSR activities. Secondly, business leaders shouldn’t ignore the potential benefits of CSR for their company. Apart from mitigating the risk of social deterioration and the possibility to attract customers, CSR can help recruiting and motivating workforce. There is simply no better employer than one who truly cares about social welfare having employed the right incentives, such as the clothing brand Timberland. ‘Timberland has provided employees the opportunity to take significant amounts of paid time off to volunteer for social causes of their choosing’ (Sprinkle & Maines, 2010, p.447) There is the chance to create a company culture based on CSR, help stay employees motivated and avail of a long-­‐term opportunity such as employee loyalty. ‘For example, Starbuck’s employee turnover is said to be less than a third that of the average for the retail food industry’ (Smith, 2003, p. 14)
Further, CSR can also help reduce costs, such as packaging costs, when implemented in the right way. Sprinkle & Maines (2010) state that ‘Wal-­‐Mart reduced transportation costs by $3.5 million through one initiative to reduce packaging on toys’ (Sprinkle & Maines, 2010, p.447) Additionally, companies can benefit from potential tax exemptions and profit from externally initiated advertis-­‐
ing, when their approaches are worthy to report on (Sprinkle & Maines, 2010). Apart from global multinational firms and their interest in engaging in CSR activities, the author’s 41 interest stems from the given educational background. The possibility to participate in CSR related activities in an academic environment fostered the author’s concern for this booming topic. Further, Vienna, as the city rated best for quality of living in three consecutive years (Mercer, 2011), literally pushes an aspiring business student to reflect upon business decisions of large corporations and the way in which they handle stakeholder relationships. Since stakeholders shape the way in which large corporations present themselves, it is interesting to see whether companies are using CSR merely as a procedure to please stakeholders or actually believe CSR to be a long-­‐term advantage as well as a pioneer tool for redesigning business. Further, a good standard of quality of living is highly related to the country’s healthcare system, as governmental authorities are responsible for choosing appropri-­‐
ate pharmaceutical providers for different prescription medicines. According to the Federal Ministry of Health in Austria (BMG) ‘in 2009 a new-­‐born girl had a life expectancy of 82.9 years and a new-­‐
born boy of 77.4 years’ (BMG, 2010, p.2) High rates of life expectancy are definitely related to the health care system provided in a country. In Austria, the whole structure is centred on social insur-­‐
ance, which comes along with several benefits such as emergency care, physiotherapy and prescrip-­‐
tion medicines made available for all inhabitants regardless of their income (BMG, 2010). Compared to America, European citizens enjoy the financial support of the country’s government who defrays medicinal costs. American based health-­‐care providers find themselves more and more in a dilemma, because citizens simply can’t afford prescription drugs anymore. Hence, ‘for some corporations (e.g., in the mining and pharmaceutical industries) CSR may be unavoidable and it appears to have as-­‐
sumed strategic significance’ (Smith, 2003, p. 34) Through the strategic implementation of CSR at the core of a business strategy, customers can be assured to get the best products and might be more likely to pay a premium price for it. This chapter showed that CSR can present many potential benefits, but in order for it to become successfully implemented in business strategy, companies need to specify and address individual stakeholder needs and apply them to their strategic mission to ensure social welfare. The connec-­‐
tions between the given topics as well as their relevance and the origin of the author’s personal con-­‐
cern, make clear that CSR is definitely a topic that needs planning and research in order to integrate it best. The purpose of this thesis is now to explore pharmaceutical business strategies and their CSR execution, which is why it is now essential to proceed to the empirical part of this thesis. 42 6 METHODOLOGY Previous chapters have identified the theoretical outlook of this thesis, which is why it is now necessary to reflect upon how evidence will be collected to answer the primary research ques-­‐
tion. In addition, conclusions shall be made whether approaches of the different multinationals lead to competitive advantage within the industry. 6.1 Qualitative and quantitative research methods In order to proceed with the empirical section, it is important to distinguish between two clas-­‐
sifications of methods, namely quantitative and qualitative methods. The first ‘aim at cover-­‐
ing the phenomena under study in their frequencies or distribution and therefore work with big numbers of cases in data collection’ (Flick, 2011, p. 125). Further, quantitative methods are often concerned with statistical analyses and causal relationships whereas qualitative meth-­‐
ods allow for greater flexibility and work with interpretative analyses. For quantitative re-­‐
search, generalizations can be made in a statistical sense, whereas qualitative research will draw on generalizations in a theoretical sense. (Flick, 2011) The differences of qualitative and quantitative research can be shown on an example with the same setting. Suggesting, the in-­‐
tention is to gather data on customer satisfaction within a shopping centre. On one hand for example, this data can be obtained by posing questions to a specific target group, which can be answered freely and autonomously. Respondents would have the possibility to add specific reasoning to their individual statements. On the other hand, a quantitative approach would be to design a standardized questionnaire including rating scales from ‘totally unsatisfied’ to ‘totally satisfied’ allowing respondents to tick according to their sentiments. This approach would facilitate the comparison amongst respondents and allow for identifying variations as well as differences between diverse units within the targeted setting. (Bortz & Döring, 2006, p. 296) 6.2 Qualitative research methods For this thesis, the author found that it is most appropriate to choose qualitative over quanti-­‐
tative research. Before moving on to the explanation of the actual research method, this sec-­‐
tion will outline most important qualitative methods and their quality criteria. 43 Qualitative research serves as an umbrella term for principal methods such as interviews, ob-­‐
servation techniques or objective hermeneutics and nonreactive approaches (Bortz & Döring, 2006). Probably the most common method used in qualitative research is the design of inter-­‐
views, where qualitative research implies transcribing interviews or outputs of focus groups, a special form of interviewing more than one respondent at a time. Further, there exist observa-­‐
tion techniques, where the focus is mainly on displaying observed data, as used for in-­‐field ethnographic purposes. Lastly, nonreactive approaches include the analysis of documents, such as different types of text, files and photos. (Flick, 2007) These techniques have little to no effect on the organization or people examined, since there is no direct contact between the researcher and the ‘respondent’ as for example in an interview setting (Bortz & Döring, 2006). Interviews are most likely to be used when the researcher wants to get an insight about a spe-­‐
cific topic related to certain people and allow the respondent to tell his/her point of view (Flick, 2007). For the author’s own research question, interviews might be impractical, as the intended answer, of whether CSR within a business’ strategy leads to a corporate as well as a social benefit, might not be reliable from one single person representing a large multinational cooperation with about 100,000 employees. Further, participant observation will neither give sufficient information on the company’s CSR practices nor on the financial situation resulting out of those practices. A corporate report will give the financial information on whether CSR pays off to the company. Publications on CSR, such as mission statements and value descriptions, will indicate the de-­‐
gree of social benefit. Therefore, this thesis will be centred on the nonreactive approach of a document analysis, mainly focusing on annual company reports and published statements on CSR activities within the business. Before moving to an in-­‐depth analysis of the documentary analysis as a research method, as this is the primary technique used in this thesis, the next section will focus on the identification of the quality criteria of qualitative research methods. 6.3 Quality in qualitative research In general, there exist three quality criteria of both qualitative and quantitative methods, namely validity, reliability and objectivity. (Flick, 2007) According to Przyborski and Wohlrab-­‐
Sahr (2008), validity in terms of quantitative methods can be identified through so-­‐called pre-­‐
tests that measure for example the correlation between two variables. For qualitative re-­‐
search, validity is the ‘question of whether the researchers see what they think they see’ (Flick, 2006, p. 371). In other words validity explains whether the researcher is actually researching what he/she identified beforehand. Validity also refers to the sample being measured and 44 whether the sample is representative for the research question. (Leedy, 1985, p.25) For quali-­‐
tative research ‘quality (…) is the result of efforts in planning, conducting and reporting’ (Flick, 2007, p. 67). These might reflect upon the accuracy of a paper and further leads on to the quality criteria of reliability. Reliability within a research method is then constituted if the re-­‐
searcher guarantees formal accuracy. Further, the criterion refers to the assumption that dif-­‐
ferent researchers of the exact given topic and circumstances using the same research method are likely to come to similar results (Denscombe, 2007). It is rather easy to measure reliability within a quantitative setting as statistical tests can be used, which is why reliability as a quality criterion in terms of qualitative research has triggered rather controversial reactions (Devers, 1999). When it comes to objectivity, Denscombe refers to ‘the extent to which qualitative research can produce findings that are free from the influence of the researcher(s) who conducted the enquiry’ (Denscombe, 2007, p.300). Procedures such as probing in interviews, additional com-­‐
ments on the context within document analysis and slight changes or reformulations in surveys can help to justify the quality criterion of objectivity (Denscombe, 2007). 6.4 Selection of methodology In order to apply theory to current practice relevant document analysis based on business strategies of pharmaceutical multinationals and the topic of CSR will be conducted. Documen-­‐
tary analysis is one of the many techniques being part of nonreactive approaches, meaning the researcher has no influence on the observed object whatsoever. Document analysis as a method to analyse organizations is taking a more and more important part in research (Bowen, 2009). By means of analysing officially published documents, the researcher wants to identify whether for example proposed mission and value statements fit together with the financial tributes to CSR published in a company’s annual report. ‘Official documents also function as institutionalized traces (…) to draw conclusions about the activities, intentions and ideas of their creators or the organizations they represented’ (Flick et al., 2004, p.284). This statement leads to the purpose of this thesis, namely to gain an insight into pharmaceutical companies activities and their socially responsible practices. Further, the use of already existing docu-­‐
ments is time saving and perfectly fits the research question. In fact, document analysis is be-­‐
coming more and more important since companies want to show transparency via publishing corporate reports on their webpage so these documents are easily accessible (Altheide et al., 2010) But, the researcher has to keep in mind that ‘texts and statistics have their own structure that is often strongly influenced by who produced them and for what purpose’ (Flick, 2011, 45 p.124). It is presumed that every company will present itself in the best light especially on their own public website and try to leave out potential questionable topics the business was or is involved in, which is why it is important to keep an overview about the context. In general, qualitative data is analysed by following five major steps, although their emphasis is subject to different methods used (Denscombe, 2007). The author proposes the following, visualized in Figure 11. This thesis will take these steps as a guideline and complement them with Denscombe’s (2007) suggestions for proceeding with content analysis as part of research-­‐
ing documents, visible in Figure 12. preparakon of the data Text faimiliarity of the data Categories interpretakon of the data (codes, categories, concepts) • choosing an appropriate sample of texts • developing relevant categories for analysing data • coding units in line with the categories Priorikes • counkng the frequency in which these units occur verificakon of the data Values presentakon of findings Ideas • idenkfying posikve and negakve statements • proximity of ideas within the text, logical associakon Figure 11 The process of qualitative data analysis, adapted from Denscombe (2007, p. 288) Figure 12 Procedure in content analysis, adapted from Denscombe (2007, p. 237-­‐238) Document analysis as a research method references data in by citing sentences or paragraphs to then systematize these extracts into categories established by theory (Labuschagne, 2003). In other words, cited material is categorized and so facilitates comparisons between docu-­‐
ments or in this case between different companies. Flick (2004) suggests the first approach to analysing qualitative data is ‘to search for relevant parts of the data and to analyse them by comparing them with other data and by naming or classifying them’ (Flick et al., 2004, p.284). For this case, in order to compare collected data from several pharmaceutical firms, there is the need to name or classify data into several sections to facilitate contrasting. Qualitative content analysis, a procedure for analysing written research material, suggests paraphrasing relevant texts for summarizing content, including information about the context for explaining content and searching for formal indices for structuring content (Flick, 2006). Particular weight is given on paraphrasing and summarizing the content, since ‘reduction of the information is 46 part of the analysis’ (Flick, 2011, p.129). Flick (2011) suggests establishing categories based on theoretical secondary research, in this case the literature review, and not based on the ob-­‐
served documents themselves. ‘The methodological core of content analysis is the category system used to classify the materials’ (Flick, 2011, p.134) reflecting the importance of estab-­‐
lishing this structure. Further, this thesis will use frequency counts as part of the content anal-­‐
ysis to identify whether a company is placing much emphasis on specific categories such as social welfare or revenue generation by counting respective words. Applied to this thesis, fre-­‐
quency counts together with direct quotes from annual reviews will provide the researcher with necessary information on potential effects on social welfare. ‘The assumption made is that the words that are mentioned most often are the words that reflect the greatest concerns’ (Stemler, 2001, p. 2). Words such as ‘environmental’ and ‘environment’ will fall together, since the researcher will search for ‘environment*’, whereby the asterisk indicates that all words matching at least this part will be considered for example for the respective category of ethical responsibilities. A prerequisite is however that the researcher considers only words for count-­‐
ing that match the description and meaning of the category. After having discussed the major points researchers have to follow when conducting a docu-­‐
ment analysis and content analysis including frequency counting, the researcher will now focus on establishing categories for the retrieval of results. 6.5 Operationalization In a research context, to ‘operationalize’ means to make the proposed theoretical outlook measurable by applying and testing the research question in its real setting (Flick, 2011) For this thesis, in order to gather insights from theoretical models, such as Carroll’s (1991) 4-­‐part model, it is necessary to clarify the dimensions of the four different parts given in the model which will be used as a categorizing scheme in terms of a content analysis of the companies’ business reports. The theoretical outlook of this thesis has placed high emphasis on the composition of CSR, namely economic-­‐, legal-­‐, ethical-­‐ and philanthropic responsibilities developed by Carroll (1991). All the categories together will lead to a good CSR implementation. This means, when a company scores in implementing all categories in their annual reviews to a maximum, that a good implementation is given and the possibility of increasing social welfare is high. Although Carroll (1991) provides a comprehensive and clear structure of what CSR should be made of, the author finds that the variable of strategic decision-­‐making in terms of the firm’s business 47 strategy is missing. As mentioned earlier in this paper, the 4-­‐part model of responsibilities rep-­‐
resents a good overview of the expectations, which stakeholders place on a business and the areas that are included in CSR, yet, it ‘fails to predict or indicate priorities for managerial deci-­‐
sion-­‐making’ (Griseri & Seppala, 2010, p.20). Managerial decision-­‐making implies that certain strategic variables are in place and defined. By the means of introducing this category the au-­‐
thor will try to find whether the company is stressing the fact of CSR as competitive advantage and if yes, how they are differentiating themselves from competitors by incorporating strate-­‐
gies. Table 4 gives an overview of the proposed categories and their sub items, established according to the theoretical base of this paper. Categories Sub-­‐categories (Identifiers) Carroll’s 4 part model (1991) Exemplar Phrases for frequency count 1. Philanthropic responsibilities Donations, provision of free medication for poor countries, Highest level of achieve-­‐
ment, represents socie-­‐
ty’s mere desires ‘voluntary’, ‘research emphasis’, ‘donations’ 2. Ethical responsibilities CSR as a social welfare indica-­‐
tor: GRI Index, employee rela-­‐
tionships, number of job cuts in the past 10 years, awards Could be split up in envi-­‐
ronmental and social responsibilities ‘environmental manage-­‐
ment’, ‘employee wel-­‐
fare’, ‘environmental concerns’ 3. Legal responsibilities Steps a company needs to go through to introduce a new product to the market Fulfilling legal obligations, complying with regula-­‐
tions on various levels ‘legal', 'regulation', 'intro-­‐
duce' 4. Strategic responsibilities CSR as part of business strategy: mission, vision, values, short term and long-­‐term goals from the annual report Not included in the mod-­‐
el, added by author ‘innovative', 'authentici-­‐
ty', 'transparency', 'unique', 'differentiate', 'competitive', 'strategic' CSR as competitive advantage: innovativeness, authenticity, transparency, progress in terms of acquisitions, uniqueness, differentiation from competi-­‐
tors, investments in R&D activi-­‐
ties 5. Economic responsibilities CSR and its impact on financial performance: ROE, ROI, pro-­‐
gress reports, profit and loss account statement, sales growth and revenue growth over past 3-­‐5 years Base for all other layers, ‘income', 'growth', 'earn-­‐
layer has to be fulfilled to ings', 'revenue' build upon further re-­‐
sponsibilities, relates to the firm’s responsibility towards its shareholders, employees and pricing decisions in the first place Table 4 Categorizing scheme based upon theoretical outlook 48 The chosen pharmaceutical companies, as identified in Chapter 6.7 will be examined according to their activities respective to the established sections, namely philanthropic-­‐, ethical-­‐, legal-­‐, strategic-­‐ and economic activities. Sub-­‐categories identified within each category relate to the theoretical outlook of this paper. A table with differences amongst the four pharmaceutical providers will be given in Chapter 7, full evidence on the results can be found in the respective statements in the appendix. The author will only focus on the most important aspects and differences of evidence, which will be directly quoted in the following Chapter 7. A brief discussion of the sample will be given in the next section. 6.6 Sample According to the Forbes List 2000 (Forbes.com, 2012) and their revenues listed in financial reports 2009, the leading global pharmaceutical players are Pfizer Ltd., Novartis AG, Merck & Co., Hoffmann-­‐LaRoche Ltd. and Johnson&Johnson only to name a few. This thesis will focus on the strategic approaches to CSR of Pfizer Ltd. and Johnson & Johnson, two American based health-­‐care providers, as well as Novartis AG and Hoffmann-­‐LaRoche Ltd., which are both Swiss corporations. These will be examined according to their values, CSR activities, business reports and financial measures. CSR can be evaluated by various ways of looking at a business, for example by identifying the company’s progress over the past few years, looking at new mer-­‐
gers or acquisitions and the rate of job cuts, employee satisfaction rates, differentiation of products, research and development activities, short-­‐ and long-­‐ term goals from the annual report as well as the company’s values and their implementation into every-­‐day business. In order to get an overview of the four different companies, the following section tries to eluci-­‐
date the companies’ profiles, development and position in the industry. 6.6.1 The American based health-­‐care providers Pfizer Inc. is one of the most important American pharmaceutical multinational corporations, having branches in 180 countries worldwide including the firm’s headquarter in New York. Chairman of the corporate board and chief executive officer to date is Ian Read. Pfizer Inc. produces key pharmaceutical products, such as Lipitor (for lowering blood cholesterol), Lyrica (against problems with the peripheral nervous system), Difulcan (treatment of fungal infec-­‐
tions), Zithromax (one of the world’s bestselling antibiotics), Viagra (treatment of erectile dys-­‐
function) and Celebrex (an inflammatory drug). Interestingly, Pfizer Inc. also engaged the ani-­‐
mal health care industry. (Pfizer Inc., 2012) In 1849, Charles Pfizer and Charles Erhart founded 49 the company and their development of citric acid raised its awareness. In 1906, sales figures nearly reached the $3 million label. Since then, Pfizer Inc. undertook a massive development including several milestones such as mergers and acquisitions of Warner-­‐Lambert, market leader in the UK for consumer healthcare, during the 1990’s and Pharmacia in 2003. Further, Pfizer Inc. started to focus more and more on research and development and built research laboratory facilities in Groton, Connecticut. (Pfizer Inc., 2012) More recently, Pfizer Inc. acquired Wyeth in 2009 for $ 68 billion, having the advantage of cost savings through combining operations but being disadvantaged by higher taxes. In the same year, Pfizer Inc. had to face lawsuits and being accused of illegal drug marketing for four of their products, such as pressuring doctors to increase sales of their products. Besides all accu-­‐
sations, Pfizer Inc. itself positions itself with nine different values, which are ‘collaboration’, ‘leadership’, ‘community’, ‘performance’, ‘customer focus’, ‘quality’, ‘innovation’, ‘respect for people’ and ‘integrity’. (Pfizer Inc., 2012) Johnson & Johnson was the only pharmaceutical firm listed in the top 50 of the World's Most Admired Companies according to a FORTUNE magazine and Haygroup survey. The firm was founded in 1886 and besides producing pharmaceuticals, it is nowadays the worlds’ leading manufacturer of medical devices and consumer packaged goods. Although a Harris Interactive poll of U.S. adults in 2005 showed that the public perception of pharmaceutical companies is rapidly declining, Johnson & Johnson managed to rank first in this global reputation survey for the seventh year in succession, leaving Coca Cola second and Google on the third place. As of other pharmaceutical companies, only Merck & Co. succeeded to be listed in the top 50, with a rather humiliating rank of 45. In 2010 however, Johnson & Johnson’s reputation started to struggle. The Washington Post reported that the company was accused by an Omnicare whis-­‐
tle-­‐blower of illegally enforcing doctors and pharmacies including Omnicare to use Johnson & Johnson products (Hilzenrath, 2010). At any rate, Johnson & Johnson tried to reject this accu-­‐
sation by confirming that all payments made to doctors and others were legal (Johnson & Johnson, 1997-­‐2010, Sustainability Report 2009) and emphasizing their credo that their ‘first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services’ (Johnson & Johnson, 1997-­‐2010, p.1, Company Credo). The company’s headquarter is located in New Brunswick, New Jersey. Chairman of the board and CEO of the firm is currently William Weldon managing a wide production line. (Johnson & Johnson, 2012) 50 6.6.2 The Swiss corporations Headquartered in Basel, Novartis AG has been formed out merging two companies, namely Ciba-­‐Geigy and Sandoz. The corporation focuses on healthcare, agribusiness and nutrition be-­‐
ing listed on the New York stock exchange as a joint stock company. In 2000, the company lists being one of the first corporations to sign the UN Global Compact, thereby agreeing to the ten principles regarding human rights and socially responsible policies. 2001, Novartis AG acquired a stake in Roche, which expanded to 33 % to date. One year after, Novartis AG invested in building biomedical research institutes and acquired with the generics company Lek. The ac-­‐
quisition period continues in 2005, by purchasing the generic pharmaceutical companies Hexal AG and Eon Labs, Inc. and is followed by building vaccine laboratories in 2008 to research ac-­‐
tive ingredients against life-­‐threatening diseases. In 2010, Novartis AG managed to merge with Alcon Inc., a leader in eye care provision. (Novartis AG, 2012) Presently, Novartis AG has a brand image of being a leader in pharmaceuticals and other consumer health products. Only recently Novartis AG achieved the award of ‘#3 Most Valuable Swiss Brand 2012 by Inter-­‐
brand/Bilanz with a brand value of CHF 6.8 billion’ (Interbrand AG, 2012) The survey from In-­‐
terbrand AG (2012) recommends Novartis’ high quality values and scores in reliability and trustworthiness. Further, the survey shows the firm’s strive for innovation and sustainability, trying to differentiate itself through constantly reviewing their portfolio as well as trying to acquire new segments to keep up a leading position in various fields and also learn from other company processes. Hoffmann-­‐La Roche Ltd. was founded by Fritz Hoffmann-­‐La Roche in 1896 and has ever since focused on innovation to foster quality and stakeholder satisfaction. Interbrand’s survey on the Most Valuable Swiss Brand 2012 leaves Roche in a very good position, namely on the se-­‐
cond place, beating its strongest national competitor Novartis AG. Interbrand AG (2012) stresses key issues such as quality through innovativeness and high amounts of investment floating in to R&D practices, for example their latest innovative skin cancer medicine Zelboraf. Amongst customers, Roche is constantly gaining reputation with products, such as Valium, Dormicum and Xenical. The only company Interbrand AG identified to be better in the ranking in terms of ‘value added’ is Nescafé run by NESTLÉ GmbH attracting customers in various age segments stressing their most important value, namely responsibility (Interbrand AG, 2012). 51 6.7 Data Analysis and Results This section will elucidate the findings of frequency counts and selected direct quotes of re-­‐
spective categories applied to each pharmaceutical company’s annual review of 2010. Con-­‐
cerning the structure, the researcher will approach the results as such this section will be split up according to the companies, including findings on each category, in order to get a better effect of comparison between the corporations. For the data analysis annual reviews 2010 of each pharmaceutical company have been used. The following Table 5 represents the compa-­‐
nies’ financial positions, which have been adapted from respective financial reports 2010. Company Country Total Reve-­‐
Pharmaceutical Net nues (USD R&D Income 2006 2010 (USD Employees 2010 millions) (USD millions) millions) USA 67,809 7,599 19,337 81,800 Johnson and USA 61,897 6,986 12,266 118,700 7,125 9,969 96,717 9,874 CHF 8,510 Pfizer Inc. Johnson Novartis AG Switzerland 53,324 Hoffmann-­‐La Switzerland 49,051 Roche Ltd. CHF (appr. 51,079) (appr. 10,282) CHF 80,080 (appr. 8,861) Table 5 Comparison of discussed pharmaceutical firms, adapted from company financial reports 2010 6.7.1 Pfizer Inc. Economic or profit-­‐driven responsibilities refer to a firm’s position in the industry according to their financial position. This category is the starting point of Carroll’s (1991) 4-­‐ part model and needs to be fulfilled in order to base other categories upon it. Table 5 tries to elucidate the companies’ positions in 2010. As visible in Table 5, Pfizer Inc. is the leader of the four firms in terms of total revenue and net income. The company currently employs 122,200 people. Its ‘revenues increased 36% in 2010 to $67.8 billion, compared to $50.0 billion in 2009’ (Pfizer Inc., 2010, financial statement, p.2). This increase was partly driven by the acquisition of Wyeth in 2009, as the firm restructured. The author added the category ‘strategic responsibilities’, as the model of Carroll (1991) was lacking a strategic approach to decision-­‐making. In fact, research and development is one of Pfizer’s key performance indicators, ‘designed to strengthen [their] engine for innovation, pro-­‐
52 vide a better mix of therapeutic approaches, deliver greater numbers of differentiated prod-­‐
ucts, yield a higher return on R&D investment, and build a culture focused more intensely on ownership and accountability’ (Pfizer Inc., 2010, annual report, p. 6). Although R&D activities provide a benefit for society, these have been classified as strategic responsibilities, since whether and how much the company is investing in R&D is surely strategic stroke. Another policy stroke is recognizing customer needs and wants through sufficient research, so the company ensures its position to ‘become an industry leader in emerging markets and remain competitively positioned in the mature European Union and U.S. markets’ (Pfizer Inc., 2010, annual report, p. 7). Emerging markets include for example Asia and the Middle East. Legal responsibilities refer to whether the companies mention information regarding the ful-­‐
filment of legal obligations and comply with regulations on various levels. The annual review 2010 of Pfizer Inc. didn’t focus much on legal responsibilities and information on handling laws and regulations. There is one statement incorporated: ‘we strive to ensure that all Pfizer prod-­‐
ucts are quality-­‐made, manufactured and distributed in compliance with applicable regula-­‐
tions, and available when needed by patients’ (Pfizer Inc., 2010, annual report, p. 19). Here, the reader is left without any particular evidence. Apart from regulation specifications, the com-­‐
pany focuses on strong quality assurance measures by ‘building quality into processes [...] as-­‐
suring that there are both standard operating procedures and redundant systems in place, and nurturing a culture of quality throughout the company’ (Pfizer Inc., 2010, annual report, p. 18). Ethical responsibilities identify a company’s approach towards social welfare, employee rela-­‐
tionships and ethical core values. Concerning the improvement of Pfizer Inc. as a workplace, the president and CEO Ian Read emphasises on happy employees, trying to make them aware that they are working for a good cause. Read tries to ‘encourage and maintain a culture where colleagues share their diverse ideas, take initiative, act with an entrepreneurial spirit, give their best each day and believe Pfizer is a great place to work’ (Pfizer Inc., 2010, annual report, p. 7). By building a culture of trust and focusing on an intelligent strategy of job enrichment by al-­‐
lowing employees to get involved and share their thoughts, he generates a workforce that feels comfortable at their workplace thereby reinforcing employee retention at the same time. ‘They have the opportunity to make a difference in the lives of millions of people while shaping the future of a world-­‐class organization’ (Pfizer Inc., 2010, annual report, p. 7). Employee moti-­‐
vation and productivity are seen as ‘intangible assets’, which are measured by continuous sur-­‐
veys ‘to assess and address colleague concerns and to compare Pfizer’s performance with that of other top employers’ (Pfizer Inc., 2010, annual report, p. 15). Surveys and online reporting 53 tools ensure anonymity amongst employees and help raise questionable topics that might have otherwise not been discovered. Pfizer Inc. addresses philanthropic activities, namely actions that go beyond ethical and legal concerns in one of their credos: ‘We will take the actions that maximize the value created by the business units so that the whole of Pfizer is greater than the sum of our individual parts’ (Pfizer Inc., 2010, annual report, p. 7). This holistic approach is indeed very important, since the company sees itself as the interaction of all departments and cannot be understood by considering only the company’s individual parts. This means the company is going beyond business practices, doing something for the benefit of society and the environment while in-­‐
cluding this opinion in their business strategy. Further, the company stresses the importance of gaining stakeholder respect through enhancing ‘credibility—doing what we say we will do, and integrity— doing the right things’ (Pfizer Inc., 2010, annual report, p. 7). As for integrity or ‘doing the right things’ the company has implemented a help-­‐platform Pfizer Helpful Answers, which ‘has helped nearly 6 million patients in the US get 48 million Pfizer prescriptions for free or at a savings’ (Pfizer Inc., 2010, annual report, p. 23). Also, the firm tries to be more sustain-­‐
able by reducing greenhouse gas emissions up to 2012. Impressively, Pfizer Inc. is also award-­‐
ing scholarships to veterinary students, thereby focusing on the future of the young generation and strategically thinking of these as potential new employees. Categories Phrases used for frequency count 1. Philanthropic responsibilities ‘research': 19, 'development': 15,'donate': 0, 'responsible': 4, 'free': 2 2. Ethical responsibilities 'environment': 16, 'employee’ or 'workforce': 0, 'encourage': 2, 'cul-­‐
ture': 9, 'impact': 11, 'colleagues': 15 3. Legal responsibilities ‘legal': 2, 'regulatory': 13 4. Strategic responsibilities ‘innovative': 15, 'authentic': 0, 'transparent': 0, 'unique':0 , 'differenti-­‐
ate': 4, 'competitive': 4, 'strategic': 19 5. Economic re-­‐
sponsibilities ‘income': 14, 'growth': 7, 'earnings': 8, 'profit': 2, 'price': 2 Actual counts Pfizer Inc. 40 53 15 42 33 Table 6 Outputs of Frequency Counts Pfizer Inc. All five researched categories indicate that the company is doing well socially while doing well economically, presuming good management is in place. This is definitely underpinned by their business strategy, namely combining strengths from all departments and ensuring good com-­‐
munication is in place, so that internal cooperation will deliver the best outcome. This is also 54 visible from the executed frequency counts, showing that Pfizer Inc. focuses most on ethical responsibilities, strategic responsibilities and philanthropic responsibilities. 6.7.2 Johnson & Johnson In the economic year 2010, Johnson & Johnson accounted $61.6 billion in sales, which repre-­‐
sented a decrease in 0.5% to the previous year caused by multiple factors such as product re-­‐
calls, economic slowdown and increased competition. Yet, as visible in Table 5 the company was able to keep its total revenue in the top league amongst its competition. Despite the de-­‐
cline in sales, the company proceeded to invest in R&D activities and continued to develop new products. To keep their position in the constantly changing business environment, the firm will ‘continuously review [their] business results and strategic choices, and focus on finan-­‐
cial stewardship’ (Johnson & Johnson, 2010, annual report, p. 29). Special concern is given to financial stewardship to achieve sustainable growth. Strategically, Johnson & Johnson launched new products, which address consumer wants by focusing on innovativeness and usability such as ‘JOHNSON’S® NATURAL® baby products and LISTERINE® ZERO™ mouthwash’ (Johnson & Johnson, 2010, annual report, p. 2). The company is concentrating on emerging markets in order to best cater the mass market. Emerging mar-­‐
kets include India and China, whereby the company wants to produce affordable products such as medical devices and pharmaceuticals focusing more on the needs of these countries. ‘The objective is superior outcomes for patients who may not have had access to such technol-­‐
ogies or products’ (Johnson & Johnson, 2010, annual report, p. 3). Surely, it is not only the eth-­‐
ical motivation, which strives the concentration on emerging markets, which is why the re-­‐
searcher considers this a strategic responsibility. Further, according to their review, the com-­‐
pany is aware of growing competition within the industry and needs to find ways to keep stakeholders interested. Concerning shareholders, the company places high emphasis on val-­‐
ues such as transparency and comprehensibility in their annual and financial reports, which is why they also present to shareholders regularly ‘to provide timely, comprehensive and under-­‐
standable information’ (Johnson & Johnson, 2010, annual report, p. 29). ‘In determining investment policies, strategies and goals, each committee or board considers factors including, local pension rules and regulations’ (Johnson & Johnson, 2010, annual report, p. 56). This phrase shows the company’s commitment to legal responsibilities, whereby John-­‐
son & Johnson requires each business unit to comply with their policy to ‘conduct its business 55 affairs with integrity and comply with the governing laws and regulations’ (Johnson & Johnson, 2010, annual report, p. 29). Despite the previously identified assurance that business activities need to comply with gov-­‐
erning regulations, the company’s ethical policy ‘We are not perfect; we will make mistakes. And when we do, we hold ourselves accountable to correct them’ (Johnson & Johnson, 2010, annual report, p. 5) makes their intentions clear. The company for example had to recall prod-­‐
ucts in 2010 because of safety issues, which negatively impacted their sales value. Besides fostering accountability, ‘the company sponsors various retirement and pension plans, includ-­‐
ing defined benefit, defined contribution and termination indemnity plans, which cover most employees worldwide’ (Johnson & Johnson, 2010, annual report, p. 39). This shows that em-­‐
ployee engagement and productivity will be rewarded, as the company thinks employee rela-­‐
tionships are important. The company includes a ranking for responsible behaviour, namely ‘first to patients and customers, then to our employees, our communities and our shareholders’ (Johnson & Johnson, 2010, annual report, p. 5). Johnson & Johnson also offers an interesting service, which is free to all pregnant women, namely ‘Text4baby offers free health information for expectant mothers and through a baby’s first year of life, easily accessible through cell phones’ (Johnson & Johnson, 2010, annual re-­‐
port, p. 24). This philanthropic activity provides an important customer segment with free in-­‐
formation and encourages the customer to stay in touch with the company, thereby reinforc-­‐
ing brand awareness and the possibilities to obtain important feedback. Further, the company declares that it ‘provided more than $4.3 billion in grants, product donations and patient assis-­‐
tance, touching lives around the world’ (Johnson & Johnson, 2010, annual report, p. 24) over a time period of ten years to date. Categories Phrases used for frequency count Actual counts Johnson and Johnson 1. Philanthropic responsibilities ‘research': 80, 'development': 87,'donate': 1, 'responsible': 22, 'free': 0 190 2. Ethical responsibilities 'environment': 12, 'employee’ or 'workforce': 62, 'encourage': 3, 'culture': 0, 'impact': 57, 'colleagues': 1 135 3. Legal responsibilities 4. Strategic responsibilities ‘legal': 11, 'regulatory': 30 5. Economic re-­‐
sponsibilities ‘income': 44, 'growth': 10, 'earnings': 8, 'profit': 10, 'price': 5 ‘innovative': 38, 'authentic': 0, 'transparent': 1, 'unique': 7 , 'differ-­‐
entiate': 2, 'competitive': 21, 'strategic': 24 41 93 77 Table 7 Outputs of Frequency Counts Johnson and Johnson Public 56 All in all, Table 7 shows the frequency counts in their annual review 2010, where the company stresses issues such as R&D and economic factors. This is also consistent with the ranking of Haygroup & Fortune (2011), where the company reached remarkably high ranks for the attrib-­‐
utes ‘financial soundness’ and ‘long-­‐term investment’. The frequencies of Johnson & Johnson in comparison to Pfizer Inc. appear to be of double length, which is reasonable since Johnson & Johnson provides a report with 80 pages including extracts from their financial statements as opposed to 28 pages with Pfizer Inc. 6.7.3 Novartis AG As mentioned earlier in this paper, Novartis AG has a brand image of being a leader in pharma-­‐
ceutical production and other consumer health products. The company successfully manages its product pipeline through rigorous investments in R&D activities, amounting to ‘USD 6.2 billion in core R&D, or 20.1% of net sales’ (Novartis AG, 2010, annual report, p. 138). Although the company has agribusiness and nutrition pipelines, the manufacturing of pharmaceuticals ‘is the largest contributor among the segments, accounting in 2010 for USD 30.6 billion, or 60.3%, of net sales and for USD 8.8 billion, or 72.3%, of operating income’ (Novartis AG, 2010, annual report, p. 158). In 2010, the company employed approximately 96,717 people as visible in Table 5. In order to sustain economic responsibilities, the company announced new product launches as well as consistent investments in market research and R&D. Strategically, Novartis AG is focusing on sustainable growth and risk management, seeing itself ‘to develop in a more stable way than several of our important competitors’ (Novartis AG, 2010, annual report, p. 8) The firm understands the challenges of a changing business envi-­‐
ronment and tries to satisfy both shareholders and stakeholders by incorporating a ‘strategy of focused diversification’ (Novartis AG, 2010, annual report, p. 8). Based on their strategy, No-­‐
vartis AG is differentiating itself from competitors by developing new products (also for emerg-­‐
ing markets), improving existing products and steadily investing in R&D. The company prevails against its competitors, stating that ‘in view of [their] sustainable success, it is not surprising that [their] strategy is imitated today’ (Novartis AG, 2010, annual report, p. 8) and ‘for several years Novartis has received more approvals for new medicines than competitors’ (Novartis AG, 2010, annual report, p. 9). These statements show their strong conviction in their business strategy, which can definitely help to win over stakeholders, as it seems the company has nothing to hide. 57 Reinforcing transparency, Novartis AG is constantly reviewing their processes and updating procedures according to regulatory issues. Targets to meet regulatory objectives are identified in their annual review such as providing stakeholders with transparent information. New products run through clinical studies to guarantee safety and effectiveness of the pharmaceu-­‐
tical product. Novartis AG’s business model is named ‘Arogya Parivar’ a Hindi expression meaning translated ‘healthy family’. With the use of this model the firm tries to ‘reach millions of patients in rural India with health education and affordable products – expanding access in a way that is both socially responsible and sustainable’ (Novartis AG, 2010, annual report, p. 78). Their ethical standpoint is crucial to the firm’s corporate culture, as ‘engaging with society to improve healthcare is integral to how Novartis operates’ (Novartis AG, 2010, annual report, p. 5). As for internal procedures, the company is undertaking improvements in business operations based on survey results of employed people worldwide. Further, Novartis AG is committed to em-­‐
ployee health, as ‘a ban on smoking had already been adopted by Novartis sites in many parts of the world’ (Novartis AG, 2010, annual report, p. 69) thereby also reinforcing their sustaina-­‐
ble and responsible strategy and influencing brand image. Further to ethical responsibilities, ‘Novartis provides fellowships for students working toward a master’s degree in clinical epidemiology at Stellenbosch University’ (Novartis AG, 2010, annual report, p. 68). Comparable to Pfizer Inc., the company sees the high potential of the young generation, both philanthropically and strategically. As a result, Novartis AG is praised in rank-­‐
ings on corporate citizenship or in Fortune magazine’s list of ‘World’s Most Admired Compa-­‐
nies’ (scoring # 3) in the pharmaceutical industry (Haygroup & Fortune, 2011). Categories Phrases used for frequency count Actual counts Johnson and Johnson 1. Philanthropic responsibilities ‘research': 150, 'development': 132,'donate': 6, 'responsible': 73, 'free': 2 363 2. Ethical responsibilities 'environment': 73, 'employee’ or 'workforce': 38 + 6, 'encourage': 19, 'culture': 20, 'impact': 69, 'colleagues': 4 229 3. Legal responsibilities 4. Strategic responsibilities ‘legal': 62, 'regulatory': 90 5. Economic re-­‐
sponsibilities ‘income': 145, 'growth': 162, 'earnings': 62, 'profit': 55, 'price': 95 152 ‘innovative': 83, 'authentic': 0, 'transparent': 6, 'unique': 4 , 'differ-­‐
entiate': 19, 'competitive': 53, 'strategic': 34 199 519 Table 8 Outputs of Frequency Counts Novartis AG 58 Summarizing, it can be said, that Novartis AG definitely aims for a strategic approach to CSR. The company identifies targets according to their long-­‐term strategy, keeping stakeholders updated with goals and deficiencies. 6.7.4 Hoffmann-­‐La Roche Ltd. As Interbrand’s 2012 survey on the Most Valuable Swiss Brand 2012 showed, Hoffmann-­‐La Roche Ltd. strikes against its strongest national competitor Novartis AG. Not only in terms of brand management, but also in terms of economic drivers, the company was able to increase core operating profit and net income in 2010. Concerning sales in various regions, sales in Ja-­‐
pan and Western Europe dropped around 3%, whereas sales in the United States rose 3% and international sales rose up to 7%. ‘Core Earnings per Share, a key indicator of underlying busi-­‐
ness performance, increased 10% in local currencies (4% in Swiss francs)’ (Hoffmann-­‐ La Roche Ltd., 2010, annual report, p. 5). The main focus of the company’s strategy is given to stakeholders, who will be included in the formulation of their business strategy so that priorities are set accordingly. This means stake-­‐
holders are able to bring in their thoughts on topics like CSR. Through the use of key perfor-­‐
mance indicators (KPIs) the company tries to break down business strategy into most im-­‐
portant deliverables and make sure they will be achieved throughout the year. Hoffmann-­‐ La Roche Ltd. was able to achieve the award of ‘‘Supersector Leader’ in healthcare for the second year running in the Dow Jones Sustainability Indexes (DJSI) in recognition of [their] commitment to sustainable practices’ (Hoffmann-­‐ La Roche Ltd., 2010, annual report, p. 6). Hoffmann-­‐ La Roche Ltd. mentions the increasing pressure of American and European regula-­‐
tors, as they ‘significantly raised the bar for approval of new products’ (Hoffmann-­‐ La Roche Ltd., 2010, annual report, p. 16). Therefore, clinical trials are in place ‘to demonstrate that new medicines are safe and effective and that diagnostic tests provide useful data’ (Hoffmann-­‐ La Roche Ltd., 2010, annual report, p. 109). An outstanding aspect of Hoffmann-­‐ La Roche Ltd. is their focus on female workforce in man-­‐
agement positions. In 2010, the company ‘increased percentage of women in key positions from 13% to 16%’ (Hoffmann-­‐ La Roche Ltd., 2010, annual report, p. 15). By valuing employee commitment through recognition and remuneration schemes, Hoffmann-­‐ La Roche Ltd. wants to ‘make sure that Roche remains an employer of choice’ (Hoffmann-­‐ La Roche Ltd., 2010, an-­‐
nual report, p. 11). Recently, ‘Genentech voted Science magazine’s top employer for the eighth 59 time, Roche rose from 17th to 5th place’ (Hoffmann-­‐ La Roche Ltd., 2010, annual report, p. 15) showing the company’s concern for employee satisfaction. Concerning the environmental approach, the company ‘reduced [their] eco-­‐balance measure of total environmental impact by 10%, five years ahead of target’ (Hoffmann-­‐ La Roche Ltd., 2010, annual report, p. 15) although significant growth through acquisition has taken place. The firm tries to combat the negative aspects of a changing market environment by focusing on an ethical policy of employee engagement and environmental impact reduction. Philanthropically, Hoffmann-­‐La Roche Ltd. is showing engagement for various stakeholder groups, such as local communities in emerging countries, whereby the firm is involved in dona-­‐
tions to increase water cleanliness and monetary donations to help AIDS affected children. Further, the firm established an education programme, trying to support future researchers. Additionally, Hoffmann-­‐La Roche Ltd. is focusing on strategic relationships with non-­‐
governmental organisations, patronising initiatives such as a ‘project with the Chinese Ministry of Health to establish an organ donation system’ (Hoffmann-­‐ La Roche Ltd., 2010, annual re-­‐
port, p. 104). Categories Phrases used for frequency count Actual counts Johnson and Johnson 1. Philanthropic responsibilities ‘research': 110, 'development': 139,'donate': 9, 'responsible': 97, 'free': 7 362 2. Ethical responsibilities 'environment': 53, 'employee’ or 'workforce': 123, 'encourage': 6, 'culture': 9, 'impact': 46, 'colleagues': 4 241 3. Legal responsibilities 4. Strategic responsibilities ‘legal': 7, 'regulatory': 48 5. Economic re-­‐
sponsibilities ‘income': 13, 'growth': 110, 'earnings': 17, 'profit': 35, 'price': 40 ‘innovative': 53, 'authentic': 1, 'transparent': 5, 'unique': 6 , 'differ-­‐
entiate': 8, 'competitive': 15, 'strategic': 40 55 128 215 Table 9 Outputs of Frequency Counts Hoffmann-­‐ La Roche Ltd. As a result, the company’s ethical policy and their philanthropic strategy secure positive brand awareness and show commitment to various stakeholder groups. The company is following a detailed stakeholder plan, to ensure objectives are met. This procedure also allows stakehold-­‐
ers to raise concerns and formulate the business strategy mutually with the company. 60 7 DISCUSSION AND INTERPRETATION OF FINDINGS This chapter will evaluate the data obtained through qualitative content analysis and deal with the interpretation of finings according to prior established categories based on the 4-­‐part model (Carroll, 1991). Further, this chapter will elucidate major strengths and priorities of the four different pharmaceuticals, allowing for comparisons between them. An overall summary and a general assessment of the findings will be presented in Chapter 8. The first evaluated company, namely Pfizer Inc. provides the reader with a short and clear presentation of information about the company’s activities in 2010. The report is precise and stakeholder friendly in terms of readability and size. As mentioned earlier, Pfizer Inc. is the leader of the four observed firms in terms of total revenue and net income. In order to sustain their economic position, the company focuses on innovation and high investments in R&D. Further to the research question, R&D investments are highly beneficial to the firm and the society as the firm will profit in terms of revenue and society from newly invented pharmaceu-­‐
ticals, such as medication against AIDS or cancer. The firm gives weight to establishing and formulating a corporate culture of trust by allowing employees to get involved and foster job enrichment by sharing their thoughts. Although the theoretical outlook of this thesis suggested that it might be hard to achieve competitive advantage by the means of CSR, the author be-­‐
lieves that creating a culture where employees are willing to work can definitely be a differen-­‐
tiating factor and help to create competitive advantage. In fact, Laimbach (2006) found that employee satisfaction might be a driver of competitive advantage, as ‘there is a direct correla-­‐
tion between employee Fulfillment Satisfaction and job performance’ (Laimbach, 2006, p. 1). Further, Laimbach (2006) sees employee satisfaction as a sustainable factor of competitive advantage, since other variables such as downsizing and outsourcing might only give a tempo-­‐
rary advantageous position. All in all, Pfizer Inc. manages to integrate responsible practices into its business strategy, thereby leaving various stakeholder groups with a benefit from the company. Strengths are definitely the approach of a corporate culture, helping the company to maintain their competi-­‐
tive position not only in terms of economic drivers, but also in terms of employee satisfaction. By managing all of Carroll’s (1991) responsibilities successfully, the firm is serving as a role model for the overall industry, incorporating CSR as a common golden thread into their busi-­‐
61 ness strategy. This might be an indicator, why the company does well financially as well as socially. Johnson & Johnson provides the reader with an enormous amount of information in compari-­‐
son to the previously evaluated report of Pfizer Inc. The main part covers detailed description of financial statements, which is consistent with the ranking of Haygroup & Fortune (2011), where the company reached remarkably high ranks for the attributes ‘financial soundness’ and ‘long-­‐term investment’. ‘People management’ and ‘social responsibility’ represent two other variables that have been evaluated by Haygroup & Fortune (2011) to be outstanding concern-­‐
ing Johnson & Johnson. In this case, after thoroughly reviewing the business report of Johnson & Johnson, the author was not able to identify a holistic approach to CSR, as this was visible with Pfizer Inc. CSR is rather seen as a isolated part of the whole strategy. Therefore, the au-­‐
thor concludes that these two variables are not addressed appropriately in the annual report. The firm tries to meet stakeholder needs, but specifically ranks these according to a scale of importance, first customers, second employees, third communities and shareholders. Alt-­‐
hough it might be true for the company that they have identified some stakeholders to be more important, the wording seemed slightly inappropriate. To be true, focus should be given on satisfying all of these mutually, the author believes that there is a lack of strategic focus or a golden thread comparable to Pfizer Inc. Further, the company focuses on grants, product donations and patient assistance, but is lack-­‐
ing more detailed information on philanthropical activities, which is why the company should improve its presentation in its annual report, going beyond economic and ethical responsibili-­‐
ties. Concluding, it can be said that Johnson & Johnson might place shareholders on a third position regarding their priorities, leaving the reader in doubt why so much weight is given on financial statements and the financial soundness of the company within its report. Therefore, the author believes that philanthropy, as a category hasn’t been fulfilled to its potential. In fact, Johnson & Johnson conveys their meaning of CSR to be rather a measure of risk manage-­‐
ment than a strategic measure where both parties would profit most. Concerning the Swiss pharmaceutical providers, Novartis AG pushes its brand image through rigorous R&D investments amounting up to 20% of net sales. More importantly, the company is aware of its high-­‐class reputation and formulates this in its annual report. Interestingly, the emphasis of their strong position in their competitive set shows their confidence and causes readers to be affected by their positive ‘marketing’. This procedure can be explained by a psy-­‐
chological phenomenon, namely developing a cognitive bias. Saying and repeating goals or 62 good attributes is more likely to get you towards a good outcome, which in this case would be to convince stakeholders. Baron (2000) was researching the influence of cognitive and social factors in relation to entrepreneur’s success, finding that ‘successful entrepreneurs appear to think differently than other persons in several respects (e.g., they are less likely to engage in counterfactual thinking but more likely to show overconfidence in their judgments)’ (Baron, 2000, p. 15). Although this statement might hold for entrepreneurs, meaning people who en-­‐
gage in start-­‐ups through their innovative business ideas, the author believes this statement to be applicable to Novartis AG too. The company engages itself in an over-­‐confidential approach towards stakeholders, where there is no sign of ‘counterfactual thinking’ visible thereby man-­‐
aging to get the readers’ attention and evoking a positive attitude towards the company. In comparison, Johnson & Johnson already mention in their annual report that once they make mistakes, they will hold themselves accountable for them. This approach seems rather coun-­‐
terproductive, as it implies that the company will certainly make mistakes and doesn’t talk about risk management in the first place. As a result, in both cases the reader already gets two very different perceptions, whereby Novartis AG manages to change a person’s mind-­‐set by reading its annual report. All in all, the company manages to fulfil every layer of responsibilities scoring high in ethical management, namely by implementing surveys on employee satisfac-­‐
tion and fostering job enrichment. As for Hoffmann-­‐ La Roche Ltd., the structure of the annual report 2010 is quite similar to Novartis AG, as these are direct national competitors. The main focus is given to stakeholders, who will be included in the formulation of their business strategy so that priorities are set ac-­‐
cordingly. This strategic approach ensures that social welfare is met, while the company itself can focus on economic factors and engage in a negotiating process with stakeholders. Further, the company draws on an important factor, namely the focus on women in managerial posi-­‐
tions, which helps to raise brand perception and shows the company’s commitment to social problems. ‘Employer of choice’-­‐ Hoffmann-­‐ La Roche Ltd. wants to sustain competitive ad-­‐
vantage by manages its employee relationships through a remuneration strategy. The compa-­‐
ny is not only successfully managing ethical responsibilities, but also philanthropical activities by showing engagement for various stakeholder groups, such as local communities in emerg-­‐
ing countries, whereby the firm is involved in donations to increase water cleanliness and monetary donations to help AIDS affected children. The firm established an education pro-­‐
gramme, trying to support future researchers. Summarizing, the company draws on important aspects such as women in managerial positions and engagement in projects of emerging coun-­‐
63 tries. Stakeholders are kept in the communication loop to make sure transparency is the major strength of Hoffmann-­‐La Roche Ltd. 64 8 CONCLUSION The interpretation of the obtained results showed interesting differences between the compa-­‐
nies’ approach to implementing CSR into their business strategy. The following chapters will summarize major points (Chapter 8.1) and declare the contribution to knowledge made (Chap-­‐
ter 8.2). To conclude, Chapter 8.3 pinpoints significant limitations to the methodological ap-­‐
proach and determines implications for future research to be made. 8.1 Summary Smith (2003) tried to develop a definition of the right CSR strategy, which ‘should reflect the individual company’s mission and values—what it stands for—and thus be different from the CSR strategy of even its closest competitors’ (Smith, 2003, p.27). In times of high demand on transparency it might be hard to differentiate from competitors. However, the analysis showed that there are different approaches to CSR, where some factors might definitely help to achieve competitive advantage. In general, all four companies try to include CSR into their business strategy, but Pfizer Inc. seems to stand out in terms of identifying a common golden thread. The author believes that all five responsibilities have been met, resulting in benefits for the company and the society. A direct competitor in terms of the integration of CSR into business strategy might be Novartis AG, scoring with regards to their over-­‐confidentiality, managing to influence the reader’s per-­‐
ception, namely to believe and trust the goal of the company. Johnson & Johnson seem to be honest to their stakeholders, as their credo states that mistakes will happen, but the company will hold themselves accountable to correct them. The author believes that this might be the wrong approach to satisfying stakeholders, as it doesn’t indicate that the company will try to mitigate these mistakes. In comparison, Hoffmann-­‐ La Roche Ltd. strives to be the best em-­‐
ployer among those four by focusing on different groups, such as the minority of women in managerial positions and establishing a communication system with various stakeholders to ensure high levels of transparency. Table 10 shows the most important statements, which summarize the company’s attitude and approach to CSR. 65 Company Top statement annual report 2010 Pfizer Inc. ‘… so that the whole of Pfizer is greater than the sum of our individual parts’ (Pfizer Inc., 2010, annual report, p. 7) Johnson & Johnson ‘We are not perfect; we will make mistakes. And when we do, we hold our-­‐
selves accountable to correct them’ (Johnson & Johnson, 2010, annual re-­‐
port, p. 5) Novartis AG ‘… engaging with society to improve healthcare’ (Novartis AG, 2010, annual report, p. 5) Hoffmann-­‐ La Roche Ltd. ‘… making sure that Roche remains an employer of choice’ (Hoffmann-­‐ La Roche Ltd., 2010, annual report, p. 11) Table 10 Top statements from annual reports 2010 All four companies are incorporating CSR into their business strategies. The statements in Ta-­‐
ble 10 correspond to the ethical layer of responsibilities when compared to Carroll’s (1991) 4-­‐
part model. Pfizer Inc. and Hoffmann-­‐ La Roche Ltd. both focus on employee satisfaction, which seems to be one of the most important strategic variables in relation to CSR and might help to sustain competitive advantage in a challenging business environment. Carroll and Sha-­‐
bana (2010) identify that ‘by adopting certain CSR activities, a firm may be able to build strong relationships with its stakeholders and garner their support in the form of lower levels of em-­‐
ployee turnover, access to a higher talent pool, and customer loyalty’ (Carroll & Shabana, 2010, p. 102). Concerning the outcomes of this paper this means that stakeholder management and more specifically employee relationships are significant CSR variables when a company wants to sustain its competitive advantage and benefit from employee retention or skilled people who want to work for the company in consequence of their approach to CSR. Most importantly, companies have to see that there are different approaches to implementing CSR and might not give the anticipated results if implemented loosely. Pfizer Inc. gives a good example on how to integrate CSR holistically, meaning implementing CSR a common golden thread throughout the business’ strategy. 66 8.2 Contribution to knowledge Although CSR is nowadays a widely known issue, there are different approaches to implement-­‐
ing CSR. The definition of the right CSR strategy, which ‘should reflect the individual company’s mission and values—what it stands for—and thus be different from the CSR strategy of even its closest competitors’ (Smith, 2003, p.27), needs to be found through thoroughly reviewing and constantly adapting business strategy by including stakeholders in the formulation. From the given results, the researcher gained an insight into business practices of four leading pharmaceutical firms. Although some approaches tend to better than others within the indus-­‐
try, there is a general consensus on a strategic approach to CSR. However, the author identi-­‐
fied that CSR might not be a tool for differentiation if implemented loosely. Pfizer Inc. can be taken as a role model, adopting a strategic approach to CSR by showing strong concern for employee engagement. Pfizer Inc. is therefore able to take a favouring position and sustain its competitive advantage. In general, there is the trend to see CSR as a question of stakeholder management and risk mitigation. Most of the evaluated companies see CSR as a matter of stakeholder management, ensuring their objectives are met. Managers of large corporations have to be aware of the implications of integrating CSR into their business strategy. When having the right approach at hand, a firm might be able to signif-­‐
icantly differentiate itself from its competitors, fulfilling the needs of stakeholders at one hand and pursuing profit at the other. Within such a strategic approach to CSR, transparency and involvement throughout all departments should be embedded as an integral part and bal-­‐
anced approach between satisfying shareholders and stakeholders. Establishing key perfor-­‐
mance indicators (KPIs) and specific goals or milestones might help employees to identify with the company’s strategy. At its best, CSR is included in all company procedures through estab-­‐
lishing a certain corporate culture. In order to tackle the challenge of satisfying both share-­‐
holder and stakeholders, it is important for managers to focus on employee commitment, as ‘there is a direct correlation between employee Fulfillment Satisfaction and job performance’ (Laimbach, 2006, p. 1). 67 8.3 Limitations and Future research It is important to realize that CSR, if managed in a good way, can definitely lead to firm and social welfare at the same time. Although CSR has become very popular these days, there still is a need for a common approach to implement it into business strategy. There has to be more than one isolated part on CSR in the annual report, it should be integrated as a golden thread throughout the strategy. Although CSR is an issue being highly talked of, it is important to con-­‐
sider that ‘a best-­‐practice business model has not yet evolved’ (Esteban, 2008, p.78). This au-­‐
thor further mentions that most businesses that try to follow a strategic approach to CSR try to combine it with their Public Affairs department (Esteban, 2008). This approach would be best implemented by focusing on stakeholder relationships but internal departments at the same time. Concerning the research method used, ‘qualitative research is usually most effective when used as a multidisciplinary process, meaning by using at least two different procedures to verify results’ (Bowen, 2009, p. 27). For credibility purposes Bowen (2009) suggests to use interviews as a technique to probe and verify the results that were obtained. Thomas (2003) mentions ‘consistency checks’ by including another researcher into methodological procedure or ‘stake-­‐
holder checks’ by affected parties to ensure the credibility of the outcomes. ‘Stakeholder checks enhance the credibility of findings by allowing research participants and other people who may have a specific interest in the research to comment on or assess the research findings, interpretations, and conclusions’ (Thomas, 2003, p.7). All in all, the sample was not representative for the whole market, but allowed for significant and informative comparison between two leading pharmaceutical sectors and their approach to integrating CSR into business strategy. The author concludes that CSR should be implement-­‐
ed as a golden thread throughout business strategy, which so far has only been addressed by Pfizer Inc. experiencing the potential benefits of a well-­‐planned CSR strategy. Furthermore, on a global scale, there is definitely a need for establishing detailed guidelines on how to imple-­‐
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