Responsibility: The New Business Imperative

Author(s): Sandra A. Waddock, Charles Bodwell, Samuel B. Graves

Reviewed work(s):
Source: The Academy of Management Executive (1993-2005), Vol. 16, No. 2, Theme: Achieving
Competitive Advantage (May, 2002), pp. 132-148
Published by: Academy of Management
Stable URL: http://www.jstor.org/stable/4165848 .
Accessed: 28/12/2011 00:11
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .
http://www.jstor.org/page/info/about/policies/terms.jsp
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of
content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms
of scholarship. For more information about JSTOR, please contact support@jstor.org.
Academy of Management is collaborating with JSTOR to digitize, preserve and extend access to The Academy
of Management Executive (1993-2005).
http://www.jstor.org
?
Academy of Management Executive, 2002, Vol. 16, No. 2
Responsibility: T h e new
business imperative
Sandra A. Waddock, Ch arles Bodw ell, and Samuel B. Graves*
Executive Summary
Businesses today are experiencing profound pressures to reform and improve
stakeh older-related practices and th eir impacts on stakeh olders and th e natural
environment-in sh ort, to manage responsibly asw ell asprofitably. Pressures for
expanding th e emph asis on profitsto managing responsibly derive from th ree general
sources: primary stakeh olders such asow ners, employees, customers, and suppliers;
secondary stakeh olders such asnon-governmental organizations (NGOs), activists,
communities, and governments; and general societal trendsand institutional forces.
T h e latter include a proliferation of "best of" rankings, th e steady emergence and
development of global principles and standards th at are raising public expectations
about corporate responsibility, and new reporting initiatives emph asizing th e so-
called triple bottom lines of economic, social, and environmental performance.
T o respond to th ese pressures, many multinational corporations (MNCs) in particular
are developing w h at w e h ave called total responsibility management (T RM) systems
approach es formanaging th eir responsibilities to stakeh olders and th e natural
environment. In th isarticle w e outline th e dominant pressures push ing th e evolution of
total responsibility management and present a managerial framew ork th at h igh ligh ts th e
th ree main components of T RM approach es-inspiration (vision), integration, and
improvement/innovation-w ith th e indicators inh erent to a responsibility measurement
approach .
* a . . .. . . . ................. . . .-. . . . .-. X -- . e e ev v v v vv v v v v v * -. . -. . e e e .. . . . * X X ............v . . * . ..- * - . .. v v . . . . X X X X X- - - --
A w ide range of stakeh olders ispush ing compa-
nies to respond in a more responsible w ay to th e
numerous pressures th at today's organizations
face.' One source of pressures is primary stake-
h olders,2 such as ow ners, employees, customers,
and suppliers, w h o can be view ed asbeing on th e
'inside' of th e company. Anoth er source of pres-
sures is secondary stakeh olders including non-
governmental organizations (NGOs), activists,
communities, and governments w h o are also seek-
ing greater corporate responsibility. A th ird source
of pressures isgeneral social trends and institu-
tional expectations, reflected in th e proliferation of
"best of" rankings, th e steady emergence of global
principles and standards th at define expected
levels of corporate responsibility, and new initia-
tives to publicly report th e triple bottom lines for
measuring economic, social, and environmental
performance. T h isarticle arguesth at companies are
responding to th e pressures for accepting greater
corporate responsibility by developing systemic ap-
proach es to managing th e balancing of all th ese
responsibilities. We term th e recognition and inte-
gration of th ese triple-bottom-line performance ex-
pectations total responsibility management orT RM.
T h e pressures on multinationals to developT RM
h ave been grow ing th rough out th e 1990s. In th e
early part of th e last decade, numerous expos6s of
exploitative labor practices in global supply ch ains
pressured multinational brands and retailers to
adopt corporate codes of conduct. Later in th e de-
cade, stakeh older pressures-and social-institution
expectations-increased furth er, driving firmsto not
only introduce codesof conduct but also to pressure
th eir suppliers to adopt th ese codes. T h e pressures
h ave increased w ith th e recent fall of Enron and th e
renew ed calls forgreater corporate integrity.
*T h e responsibility foropinions expressed in th isarticle rests
solely w ith th e auth ors, and publication does not constitute an
endorsement of th ose opinions by Boston College orth e Inter-
national Labour Office.
132
2002 Waddock, Bodw ell, and Graves 133
Because of th ese pressures and th e current at-
tention to corporate integrity, many companies
may find th at being recognized for responsible
business practices embedded in w h at w e call total
responsibility management, orT RM,3 becomes th e
new business imperative. We believe total respon-
sibility management can be a significant source of
competitive advantage forth ose companies taking
th e lead.
We believe total responsibility
management can be a significant
source of competitive advantage for
th ose companies taking th e lead.
In developing th isargument, w e offer th e anal-
ogy to th e quality management movement of th e
late 1970sand early 1980s. Wh en it began, U.S.
companies w ere generally indifferent to quality,
but it became a competitive imperative by th e end
of th e century. In th e same w ay, th e stakeh older
and institutional pressures th at companies are ex-
periencing today are putting increasing emph asis
on responsibility management, as a competitive
imperative.4 T o illustrate th e total responsibility
management evolution, w e provide data from a
study of leading-edge consumer companies th at
are institutionalizing responsibility visions, inte-
grating th em into strategies and practices, and
developing measurement systems th at promote
improvement and learning.
Pressures on Companies forResponsible Practice
T h e stakeh older pressures framew ork (see Fig-
ure 1) h igh ligh ts th e key demands facing compa-
nies today to be more responsible. Pressures come
from th ree major sources: 1) primary stakeh olders,
such as ow ners, employees, customers, and sup-
pliers; 2) secondary stakeh olders, including NGOs
and activists, local communities, and govern-
ments, and 3) generalized institutional orsocietal
pressures such asth e emergence of "best of" rank-
ings, global standards and principles, and report-
ing initiatives focusing on multiple bottom lines
rath er th an th e traditional financial bottom line
alone.
Pressures from Primary Stakeh olders
Four particular primary stakeh older groups are
pressuring companies to adopt responsibility-
management approach es: ow ners, employees,
customers, and suppliers.
Pressures from Investors (Ow ners)
Investors naturally desire a reasonable return on
th eir investments th rough profits, increases in
sh are value, company grow th , and market poten-
tial. Performance pressures are a normal part of
corporate life; h ow ever, th ere are some grow ing
investor pressures th at are expanding th e defini-
tion of corporate responsibility.
Social Investing T h e social investment move-
ment represents a significant source of pressures
by investors and potential investors on companies
to manage all of th e corporation's responsibilities.
By 2001, th e amount of money invested in socially
screened equities of one sort or anoth er h ad
passed th e $2.03 trillion mark w ith one out of every
eigh t professionally managed investment dollars
being part of a socially responsible portfolio.5 T h e
long-h eld assumptions in th e financial community
regarding a trade-off betw een returnsand respon-
sible investment practices do not appear to h old up
under examination.
For example, th e DSI (Domini Social Index, a
socially screened index created to track against
oth er non-screened indexes) h as generally outper-
formed th e S&P 500 on a total-return basis and on a
risk-adjusted basis since itsinception in May 1990,
alth ough it trailed th e S&P 500 during 2000.6 Fur-
th er, academic studies in finance and economics
journals h ave consistently found eith er positive or
neutral performance differences betw een socially
screened and unscreened investments.7 T h ese
studies suggest th at social investing h asfew neg-
ative consequences (at least over time) and th ere
may be positive financial benefits.8
T h e Link betw een Financial Performance and
Responsibility Significant evidence from a large
and grow ing body of academic research suggests
at minimum a neutral, and quite likely a positive,
relationsh ip betw een responsible corporate prac-
tices and corporate financial performance.9 So
clear is th is link th at th e auth ors of one recent
meta-study concluded th at since th e evidence sup-
porting th e positive-or, minimally, neutral-rela-
tionsh ipissignificant, it istime forsch olars to turn
attention to new research questions.'0 Indeed re-
search ers h ave concluded th at companies' reputa-
tions and financial performance can be enh anced
th rough attention to th e quality of managing th eir
day-to-day operations, orw h at th ese auth ors sim-
ply call "good management"; th at is, th ere islittle
difference betw een managing for responsibility
and managing w ell.''
Sh areh older Activism Anoth er ow ner/investor
groupexerting pressure forcorporate responsibil-
ity is sh areh older activists. In th e U.S., activist
134 Academy of Management Executive May
Primary Stakeh older Pressures
* Ow ners
* Demandsforefficiency/profitability Secondary Stakeh older Pressures
* Viability (sustainability) * NGOs/Activists
* Grow th of social investment * Demandsforbetterh uman
* Employees righ ts, laborrigh ts,
* Pay and benefits environmental performance
* Safety and h ealth * Communities
* Righ tsat w ork/global laborstandards * Neigh bor of ch oice
* Fair/eth ical treatment * Governments
* Customers * Demandsfortransparency
* Demands for'green' and 'eth ical' * Anti-corruption movement
products * Compliance w ith law sand
* 'No sw eatsh op' movement regulation
* Suppliers * Economic development
* Fairtrade/meet commitments
* Continued business
Enterprise
Social and Institutional Pressures
* Proliferation of 'best of' rankings
* Createsincentives to rank h igh to enh ance corporate
reputation
* Emergence of global principlesand standards
* Ch anging public expectations of companies
* T riple-bottom-line reporting/accountability
* Increased demands foraccountability
* Increased demandsfortransparency
* Emph asison financial, social and ecological
performance
FIGURE 1
Stakeh older and Societal Pressures on th e Development of T otal Responsibility Management (T RM)
Systems in Corporations
groups such as th e Investor Responsibility Re-
search Center (IRRC) provide interested investors
w ith impartial information about corporate prac-
tices. IRRC'sactivities are supplemented by sh are-
h older activism on th e part of institutional inves-
tors and groups like th e Interfaith Center on
Corporate Responsibility (ICCR), a coalition of 275
Protestant, Cath olic, and Jew ish institutional in-
vestors, w h o submit numerous sh areh older resolu-
tions on a range of important social issues annu-
ally. Among th e focuses of ICCR'sactivism are
sw eatsh ops and h uman righ ts abuses, ecological
issues such asglobal w arming, equal opportunity,
safety of genetically modified food, decreasing
military actions, and similar social issues. About
300 sh areh older resolutions are tracked annually
by IRRC, many of w h ich are w ith draw n before vot-
ing because activists w ork w ith management to
ch ange company policies.
T ransparency of Corporate Responsibility Data
T h e grow ing availability of data on corporate prac-
tices makes it easier to assess h ow companies
respond to th e many pressures to accept th e need
to manage responsibility asw h at th ey do ismore
2002 Waddock, Bodw ell, and Graves 135
visible. Among th e factors currently assessed are
labor issues, ecological issues, community issues,
and public controversies. T h at th ese internal prac-
tices are regularly evaluated by outside agencies
creates incentives for companies to monitor th eir
ow n beh aviors and controversial issues from
w ith in to avoid problems. Data and assessment
make for transparency, for, as th e old accounting
saw goes, w h at gets measured gets management
attention.
Proprietary data on corporate responsibility are
now gath ered and used by large institutional in-
vestors and social investment advisors, such as
T rillium, T IAA-CREF'sSocial Ch oice Fund, th e Do-
mini Fund, and Calvert, to name a few . In addition,
social research organizations, such asKinder, Ly-
denberg, Domini (KLD), systematically collect an-
nual data on specific stakeh older- and issue-
related practices of all th e largest firms(asof 2002,
data are being collected on th e Russell 3000 com-
panies). T h ese research h ouses sell th e informa-
tion and assessments to individual and institu-
tional investors, law firms, corporations, and oth er
institutions th at use it to h elpth eir clients make
investment decisions in line w ith th eir values. Fur-
th er, external assessments of corporate practices
related to corporate responsibility practice are un-
dertaken on most large, publicly h eld companies
globally by an emerging global netw ork of leading
social research organizations called SiRi, Sustain-
able Investment Research International Group,
representing 11 countries.'2
Pressures from Employees
Employee opinions about w h ere to w ork are th e
basis of potential competitive advantage, particu-
larly in an information- and know ledge-based
strategy era in w h ich continuing sh ortage of
h igh ly skilled and talented w orkers isexpected.
Employee perceptions about h ow a corporation
accepts and manages itsresponsibilities are often
part of employee decisions about w h ere to w ork.'3
Furth er, unions and related institutions, forexam-
ple, UNIT E (Union of Needletrades, Industrial and
T extile Employees), w ork w ith student activists to
put increased pressure on companies to reform
th eir labor practices to meet global labor stan-
dards. With numerous w atch dog groups looking
out for th e righ ts of employees, e.g., Sw eatsh op
Watch , companies ignore th eir ow n and th eir sup-
pliers' labor and employee practices at th eir repu-
tational peril.
Pressures from Customers
Customers are increasingly pressuring companies
to accept and manage th eir responsibilities
th rough th eir purch asing pow er.
Consumer pressure on corporate performance is
brough t to bear on corporations th rough , forexam-
ple, J. D. Pow er's consumer-oriented ratings of
products.
Customers are increasingly pressuring
companies to accept and manage th eir
responsibilities th rough th eir purch asing
pow er.
Some customers also say th at th ey base pur-
ch asing decisions on th eir perceptions of a compa-
ny'sresponsibility practices. Studies by th e mar-
keting firms Cone/Roper and Walker Research
both indicate th at customers are more likely to
purch ase products from companies th ey perceive
asacting responsibly.'4 Product and service qual-
ity are key ch aracteristics demanded by customers
today. For example, most European firmsrequire
th at suppliers meet ISO quality standards as a
condition of doing business. Quality in manufac-
turing and service delivery isaddressed th rough
th e U.S.'s prestigious annual Malcolm Baldrige
Aw ards, w h ich generate much positive publicity
for recipients. Aw ards and recognition for T RM
practices h ave been offered annually since 1987
th rough Corporate Conscience Aw ards now given
by Social Accountability International. T h ough th e
latter aw ards are not yet as prestigious as th e
Baldrige Aw ard, w inning companies do gain sig-
nificant positive public exposure th rough th e pub-
licity received.
Similarly, customers, as evidenced by reports
from Cone/Roper and Walker Research '5 noted
above, are becoming increasingly soph isticated
about and aw are of company practices. Better
availability of information about th e responsibility
practices of companies th at produce consumer
goods may w ell increase consumer pressures and
preferences in th e direction of more responsible
practices.
Pressures from Suppliers
One impact of globalization h as been to increase
th e number of supplier and distributor alliances,
making th e supplier an integral part of corporate
operations. T h e devolution of responsibility for
manufacturing to suppliers h as resulted in new
relationsh ips betw een h eadquarters and supplier
136 Academy of Management Executive May
companies, since both need to know w h at to expect
of each oth er. Pressures forT RM th rough out supply
ch ains h ave mounted in th e face of th e anti-glob-
alization movement. Indeed, abuses w ith in com-
pany supply ch ains h ave been th e target of numer-
ous negative media and w atch dog reports in
recent years.
Some industries, particularly consumer prod-
ucts, h ave been seriously affected by th e negative
publicity surrounding certain labor practices in
suppliers' facilities, especially w ith respect to th e
treatment of employees. Issues raised in recent
years h ave included ch ild labor, long w ork h ours
combined w ith low pay, abusive treatment of
w orkers, and poor w orking conditions, among oth -
ers. Companies in retail industries th at source
from developing nations h ave been h it h ard by
social and labor activism, low ratings in various
rankings and public opinion surveys, consumer
activism directed against th eir products, and
sh areh older activism on labor, h uman righ ts, and
ecological issues.
Pressures from Secondary Stakeh olders
In addition to pressures coming from primary stake-
h olders, companies face new sources of secondary
stakeh older pressures to act responsibly in th eircor-
porate practices. Of particular relevance are NGOs
and activists, communities, and governments.
NGOsand Activists
Non-governmental organizations (NGOs) and ac-
tivists, aided by th e global ease and transparency
of electronic communication, are sources of pres-
sure for total responsibility management. Global
activists and NGOsh ave emerged demanding th at
companies adh ere to h igh expectations regarding
labor standards, h uman righ ts standards, and na-
tional sovereignty. Additionally, activists protest
continued unfettered free trade and globalization
and h ave disrupted meetings of th e World T rade
Organization, World Economic Forum, World Bank,
and oth ers in recent years. T h e capacity of activ-
ists to mobilize th eir ow n resources, disseminate
negative information about companies, and take
concerted action against practices th ey find offen-
sive orproblematic h as never been greater.
Protesters are only one of many sources of stake-
h older pressure. Oth er secondary stakeh olders
h ave been energized to exert pressure partly be-
cause of th e impact of th e Weband partly because
of th e increasing soph istication of outsiders and
th e general public about th e impact th at corporate
practices h ave on corporate responsibilities. Envi-
ronmentalists consistently pressure companies for
better environmental management and more sus-
tainable practices. Information about toxic re-
leases and oth er ecological problems created by
corporate activities isincreasingly available. En-
vironmental activism is better informed th rough
television such as th e 2001 Bill Moyers television
special about th e ch emical industry's "T rade Se-
crets," w h ich indicated th at th e ch emical industry
knew th at certain of itsproducts w ere h armful to
both h uman beings and th e natural environment.
Such w idely available public information intensi-
fies pressures on companies to implement prac-
tices th at are environmentally responsible.
Environmentalists consistently pressure
companies forbetter environmental
management and more sustainable
practices.
Communities and Governments
Communities and even nations, many of w h ich
h ave been in a competitive battle w ith oth er com-
munities, provinces, or states for businesses, are
beginning to become aw are of th e negative conse-
quences of eroding tax bases and lack of company
commitment to a locale. Companies may increas-
ingly find it necessary to act as-and become-
"neigh bors of ch oice,"'6 living upto h igh standards
of excellence w ith respect to th eir communities.'7
T h ese standards for community excellence can
provide a process meth odology fordeveloping cor-
porate involvement. Similar in many respects to
th e processes involved in quality management,
standards of community-involvement excellence
enable companies to bench mark th eir ow n prac-
tices against th ose of oth er companies.
Social and Institutional Pressures and T rends
A number of institutional developments h ave led
to pressures forresponsibility management, creat-
ing a need for greater transparency of and ac-
countability for corporate impacts. T h ese pres-
suresh ave become even more urgent in th e face of
Enron'scollapse, in part because despite Enron's
active assertion of environmental, h uman righ ts,
and climate-ch ange policies, th eir actual practices
and financial condition w ere impenetrable.
Current institutional pressures for total respon-
sibility management derive from:1) th e visibility
and attention given to th e proliferation of "best of"
rankings, 2) a grow ing array of principles and
2002 Waddock, Bodw ell, and Graves 137
global standards promulgated by major inter-
national bodies, and 3) related reporting and
accountability initiatives th at expand corporate
responsibility from only an economic focus to th e
triple bottom line. T h ese institutional pressures
create grow ing demands for transparency and
accountability.
Ratings, Rankings, Research , Aw ards
A major source of pressure on companies' stake-
h older-related performance (orcorporate responsi-
bility) is th e numerous ratings and ranking
sch emes th at h ave emerged in recent years, as
w ell ash igh ly visible aw ards forbest practice. In
contrast to traditional corporate rankings th at
h ave largely evaluated companies on financial cri-
teria, size, and grow th rate (e.g., th e Fortune 500),
ratings and rankings now regularly evaluate com-
panies' performance w ith respect to th eir treat-
ment of a w h ole variety of different stakeh olders
and issues. For example, Business Eth ics maga-
zine'sannual 100 Best Corporate Citizens ranking,
w h ich uses th e KLD data discussed above, gains
considerable attention.18
A major source of pressure on companies'
stakeh older-related performance (or
corporate responsibility) isth e numerous
ratings and ranking sch emes th at h ave
emerged in recent years.
Fortune magazine's w idely recognized "For-
tune's Most Admired Companies" h as been rank-
ing companies on multiple criteria oth er th an fi-
nancial since th e early 1980s. T h e "most admired"
list isperh aps th e best know n and most prominent
of th e corporate rankings, but it isfarfrom th e only
one to w h ich corporate leaders pay attention. Em-
ployee issues are covered, e.g., in Working Women
magazine, w h ich publish es th e "Best Companies
for Working Women" rankings, and Fortune also
publish es an annual ranking of "Best Companies to
Work For." T h ese rankingsare complemented by (or
compete w ith ) BusinessWeek's "Best Companies for
Work and Family" ranking and oth er rankings th at
monitor corporate practices relevant to specific
groups of employees, such as minorities. Manage-
ment quality iscovered by Fortune'srating, asw ell
asby Industry Week's"100 Most Admired" company
ratings. Furth er, global rankings of businesses on
multiple criteria can be found in Fortune's"Global
Most Admired" rankings and th e "FarEastern Eco-
nomic 200" ratnking.'9
Oth er reputational rankings include, Asian Busi-
ness's, "Asia's Most Admired Companies," Man-
agement T oday's"Britain'sMost Admired Compa-
nies," and th e Financial T imes' "Europe's Most
Admired Companies."20
Emerging Global Standards
Global standards and principles are anoth er
source of institutional pressures. T h e UN'sGlobal
Compact represents one prominent example.
Draw n from internationally agreed to principles
focusing on h uman righ ts, labor, and th e environ-
ment,2' th e Global Compact isan effort to promote
values-based practices in global corporations.
T h e Global Compact principles are only one set
of w h at h as become a virtual flood of new stan-
dards w h ich business is expected to meet (see
T able 1 for a selective sampling of current stan-
dards, principles, and codes of business conduct).
For example, th e Business and Social Initiatives
(BASI) database put togeth er by th e International
Labour Office lists over 400 different initiatives
related to codes of conduct, principles, and stan-
dards, most of w h ich w ere developed since public
T able 1
A Selected Sample of Emerging Standards,
Codes, and Principles
Environmental Principles and Standards
CERES (Coalition forEnvironmentally Responsible
Economies) Principles
ISO 14000 and 14001
Responsible Care Principles
Labor Standards and Principles
International Labour Organization's (ILO) Fundamental
Principles
ILO Conventions
ILO'sT ripartite Declaration of Principles Concerning
Multinational Enterprises and Social Policy
Fair Labor Association Guidelines
Human Righ ts Standards and Principles
UN Declaration on Human Righ ts and th e Environment
UN International Convention on Economic, Social and
Cultural Righ ts
General Business Principles and Standards and Standard-
Setting Bodies
T h e UN'sGlobal Compact
OECD Guidelines forMultinational Enterprises
American Apparel Manufacturers Association
Caux Principles
Clarkson Principles forStakeh older Management
Anti-Corruption Conventions
OECD 1997 Convention on Combating Bribery of Foreign
Officials in International Business T ransactions
T ransparency International Core Principles and Integrity
System
138 Academy of Management Executive May
attention began to focus on th is issue during th e
1990s.22
Wh at is clear from th is proliferation of stan-
dards, including internal codes of conduct gener-
ated by individual companies,23 isth at th ere are
certain baseline expectations orresponsibilities to
w h ich companies are increasingly expected to ad-
h ere by a w ide range of stakeh olders. Codes re-
lated to corporate social policy generally encom-
pass employment issues, training, w orking
conditions, industrial relations (including freedom
of association and th e righ t to organize and bar-
gain collectively), and ch ild labor, asw ell asecol-
ogy and sustainability, not to mention anti-corrup-
tion measures.24 As Kolk, van T ilder, & Carlijn
point out, h ow ever, codes are merely a starting
point for dialogue betw een companies and th eir
numerous stakeh olders.25 Furth er, codes of any
sort, w h eth er internally or externally generated,
w ill be respected and credible only w h en th ey are
consistently reported. Public reporting of corporate
activities provides th e transparency necessary for
codes to be implemented and monitored.
T h ere are certain baseline expectations
orresponsibilities to w h ich companies
are increasingly expected to adh ere by a
w ide range of stakeh olders.
Reporting and Accountability Initiatives
Demands for improved triple-bottom-line perfor-
mance represent th e last societal or institutional
source of pressure to be discussed. T h e triple bottom
line, pioneered by th e Institute of Social and Eth ical
AccountAbility,26 emph asizes th at companies are re-
sponsible formultiple impactson society, w ith asso-
ciated bottom lines. Standards, principles, and codes
are only useful if th ey are implemented and to th e
extent th at companies can assure stakeh olders th at
th ey are living upto th em. T o establish credibility
w ith stakeh olders, particularly w ith activists and
critics, some companies are beginning to engage in
more transparent reporting practices, many of w h ich
are now emerging from international multi-stake-
h older coalitions.
Perh aps th e most important reporting and ac-
countability initiative, w h ich islinked to th e imple-
mentation of both standardsand codes, isth e Global
Reporting Initiative orGRI. Asof th isw riting, more
th an 1,000 organizations oroth er participants h ave
joined th e GRI, representing 35 countries. T h e domi-
nant focusof GRI isto developand disseminate a
multi-stakeh older, global consultation process
based on principles of transparency and inclusive-
ness, found in GRI's "Sustainability Reporting
Guidelines."27 By creating generally accepted report-
ing standards, GRI h opes to diminish some of th e
current confusion about w h at standards are appro-
priate to meet stakeh older expectations and to detail
h ow corporate performance w ith respect to emerging
stakeh older demands and standards sh ould be met.
Creating generally accepted standards iscritical as
one study indicates th at some 54% of th e w orld's
largest companies now disclose some type of social
and environmental information on th eir w ebsites.28
In contrast to th e Global Compact and oth er stan-
dards w h ich focus on w h at isto be ach ieved, th e
major th rust of GRI isto elevate th e comparability
and credibility of w h at isactually being done by
companies in meeting th eirstakeh older and ecolog-
ical responsibilities.
GRI, like th e Global Compact and many oth er in-
itiatives, isvoluntary, w ith companies not required
to externally verify th eir reports. Among th e compa-
niesth at already acknow ledge being influenced by
th e GRI in issuing th eirow n versions of responsibil-
ity reportsare AT &T , Ford, Nissan, P&G, and Royal
Dutch /Sh ell. Furth er, some 32 corporationsh ave par-
ticipated in revising th e original GRI guidelines.29
T h e voluntary nature of th ese effortscauses dis-
tress to some critics, w h o seek external, more ob-
jective verification orcertification and monitoring
of corporate practices. T w o additional setsof stan-
dards h ave evolved w h ich , alth ough also volun-
tary, h ave external monitoring components. One of
th ese isSA 8000 orth e social accountability stan-
dards, w h ich are modeled on, monitored, and cer-
tified in a manner similar to th e ISO quality stan-
dards. SA 8000 focuses explicitly on supplier and
subcontractor relationsh ips and aims to h elpcom-
panies cope w ith th e visibility of apparel, foot-
w ear, and toy brands' sw eatsh op, ch ild labor, and
h uman righ ts ch allenges-ch allenges inh erent in
manufacturing in developing countries w ith less
effective regulatory and enforcement framew orks
and institutions.
AA 1000 isa similar set of standards aimed at
h elping companies improve th eir eth ical perfor-
mance and validity to outsiders. Issued by th e In-
stitute of Social and Eth ical AccountAbility, a
groupof about 400 businesses, academics, consult-
ants, and NGOs, th e AA 1000 standards build on SA
8000 and GRI to focusexplicitly on determining w h at
constitutes best practice w ith respect to accountabil-
ity, performance measurement, and evaluation.
Combining th ese reporting initiatives w ith ad-
vances in responsibility orsocial auditing,30 th ere is
clearly less opportunity forcompanies to claim th at
you can't metsure corporante responsibility effec-
2002 Waddock, Bodw ell, and Graves 139
tively." Responsibility auditing, typically undertaken
voluntarily by assessing internal functional areasin
a company such asemployee relations, community
relations, environmental management, and quality,
allow s a company to determine w ays of improving
itsow n internal practicesby becoming more respon-
sible.3' Anoth er form of social auditing, pioneered in
Great Britain by th e New Economics Foundation,
seeksth e opinion of a range of external stakeh olders
on th e company'sperformance asinput to itsinternal
assessments.32
In addition to th ese initiatives, competitive pres-
sures on large accounting firmsare causing th em
to sh ift th eir priorities tow ard more h olistic perfor-
mance assessment models th at encompass mea-
sures related to both different stakeh olders and
priorities oth er th an financial priorities. T h e large
accounting firmsand oth ers are now beginning to
develop auditing instruments like th e balanced
scorecard,33 KPMG's strategic systems audits,34
and th e Holistic Performance Model proposed by
Lew ellyn and Sillanpdd.35 Asth ese types of tools
formeasuring performance more broadly continue
to evolve, pressure on companies to use th ese tools
to report out to th eir stakeh olders islikely to con-
tinue to mount.
T h e T RM Approach
Demands th at companies adopt a set of values-
based operating principles, a code of conduct, ora
set of standards are likely to increase in th e future.
Asprimary and secondary stakeh olders gain ever-
greater ability to mobilize th eir ow n resources
against corporate practices th ey find objection-
able, a company's w illingness to monitor and re-
port out verifiable information on th e triple bottom
line to external stakeh olders islikely to become, as
quality h asalready done, th e sine qua non of com-
petitive advantage.
Demands th at companies adopt a set of
values-based operating principles, a
code of conduct, ora set of standards are
likely to increase in th e future.
Alth ough no company is immune to th e forces
h igh ligh ted above, ironically it isth e companies
w h ose reputations h ave been most sullied th at
h ave perh aps moved th e farth est to implement re-
sponsibility management systems and make th em
marginally transparent.36 Approach ing responsi-
bility th rough integrated management systems is
in th e early stalgesof development in most compa-
nies, but th e outlines of th is emerging approach
can be delineated in w h at w e h ave called total re-
sponsibility management (T RM), sketch ed below .37
T h e T RM approach is derived from a study of
emerging responsibility practices in international
brand companies. T h e research points to th e im-
portance of integrating responsibility into vision
and values, strategies and practices, and improve-
ment and learning systems.38 In implementing
th eir codes of conduct, many brand multinationals
are w orking increasingly closely w ith suppliers to
ensure th at suppliers meet th e standards embed-
ded in codes. Furth er, th ese multinationals are
joining orh elping to form organizations and initi-
atives like th e FairLaborAssociation (FLA), GRI, or
th e Global Compact, to assure th e credibility of
th eir report on th ese activities.
T h e research , qualitative in nature,39 h as in-
volved over a h undred interview s w ith managers
of multinational brand companies (MNCs) and
th eir suppliers. Research teams traveled to MNC
h eadquarters in th e United States and Europe, as
w ell as sourcing offices of MNCsin Asia. Senior
managers, line supervisors, and oth ersw ere inter-
view ed in Cambodia, Ch ina, Costa Rica, Poland,
Russia, Sri Lanka, T h ailand, T urkey and Vietnam.
T h e field research involved observation of factory-
level activities, w ith factory w alk-th rough s in
about th ree dozen factories in th e Asia region.
T h isresearch indicates th at companies respond in
a variety of w ays to th e pressures and forcesidenti-
fied earlier but th at th eirresponses bear commonal-
ties in th e development of responsibility manage-
ment systems. Responsibility management as it is
evolving in th ese companies isa systemic approach
to managing th e complete set of a company'srespon-
sibilities to itsstakeh olders and th e natural environ-
ment, similar in many respects to quality man-
agement. T RM approach es involve th ree major
processes: inspiration orinstitutionalizing a vision of
responsible practice th rough out th e enterprise, inte-
gration of responsibility into corporate strategies,
building h uman resource capacity, and manage-
ment systems, and improvement and innovation
th rough indicators th at measure responsibility and
learning from experiences (see Figure 2).40
Inspiration: T h e Responsibility Vision
A key element of a total responsibility management
(T RM) approach is ensuring th at responsibility is
built into th e corporate vision and associated values.
T opmanagement not only needs to make a serious
commitment to responsible practice and articulated
values, but also to ensure th at everyone in th e
140 Academy of Management Executive May
Secondary Stakeh olders
Primary Stakeh olders
t 4 0 t t S $40
---------
.' * # / Inspiration Integration
I
.
*''iEl*l /w X1|''
/ / / lmprovemenIt
t sz Z
~~~~~Innovation
t
. X ~~~Ow ners Employees ,
d \ ^ss ~Customers Suppliers .
... '+.Communities NGOs
,.44
,
..
, s.s
~GovernmPents . .
'.,. Social and
Institutional...,.,,.
.-"...
~~~* ,
FIGURE 2
An Integrated Model of T otal Responsibility Manalgement (T RM)
organization and its supply ch ain is aw are of
th at commitment and seeks to meet it. T h e re-
search indicates th at th e support of topmanage-
ment can strength en responsibility initiatives
and, conversely, th at th e lack of support can crip-
ple any progress on integrating responsibility
issues into corporate practices. In one example,
w e h eard h ow a public speech -stating clear
responsibility goals, supported by th e CEO'sin-
ternal actions-sent a message th at moved all
th e w ay th rough th e corporate supply ch ain. We
w ere told repeatedly h ow such support needs to
cascade th rough management, from th e top
dow n th rough corporate supply ch ains, backed
upby communication and training asw ell asth e
introduction of incentives th at support a respon-
sibility vision for th e company.
T o cope w ith th e need fora responsibility vision,
many companies h ave developed and are imple-
menting codes of conduct th at explicitly set out
th eir expectations forboth internal unitsand sup-
pliers. T h ese codes frequently serve asa baseline
for generally agreed standards like th ose of th e
ILO or, more recently, th e Global Compact, w ith
th e resulting statements expanding managerial
responsibility objectives from purely financial to
include social and environmental targets. Success-
ful institutionalization of a code of conduct de-
pends on a long-term commitment to systemic
ch ange, rath er th an a "once and done" memo from
management. Asth e manager quoted in Example
A indicates, implementing a code of conduct
th rough a supply ch ain requires a cascade effect of
commitment and action, dow nw ard from topman-
2002 Waddock, Bodw ell, and Graves 141
agement and outw ard to suppliers and manage-
ment teams.
Example A. Manager of Corporate Social Re-
sponsibility, Multinational Corporation (MNC),
Ch ina
With th e code, you need to h ave buy-in from
topmanagement. Know ing th at th e president
w as beh ind it got it into ourperformance ob-
jectives and made usroll it out w ith ourlead-
ersh ip partners [supplier managers]. We
started w ith th e leadersh ip partners; w e h ad
several people w h o traveled country to coun-
try explaining th e code and itsimpact.
T h e multinational corporation in th e example
h as been actively push ing its code of conduct
th rough its supply ch ain for several years. T h e
company sees th is as a never-ending task, simi-
lar to maintaining quality. Asresponsibility ob-
jectives ch ange, new suppliers are added, and
personnel ch ange, constant attention isneeded.
In th is process, th e actual code may be less im-
portant th an th e attitude of management; for in
th e w ords of one manager, "Codes do not ch ange
attitudes. T h ings can be ch anged th rough ch ang-
ing management attitudes, not th rough a piece
of paper on th e w all."
T h e institutionalization of responsibility isnot
dow nw ardly unidirectional and internal to th e
firm; rath er, it isa tw o-w ay street, dow n and up
w ith in th e firm and its suppliers. Institutional-
ization involves input from key stakeh olders in a
process of mutual learning and engagement. En-
gaging stakeh olders and getting th eir perspec-
tives on th e decisions th at th e company ismak-
ing, particularly decisions th at are likely to be
controversial, can be a h elpful w ay to avoid pos-
sible problems.
T h e institutionalization of responsibility
isnot dow nw ardly unidirectional and
internal to th e firm; rath er, it isa tw o-
w ay street, dow n and upw ith in th e firm
and itssuppliers.
One key primary stakeh older w h ose voice is
critical, albeit not frequently enough h eard until
problems develop, isth e employee. By engaging in
an active dialogue w ith w orkers, some multination-
alsh ave found th at th ey can forestall problems. With
supply ch ains increasingly stretch ing to developing
countries, matny lalrge firmsfind th aet th eir suppliers
are much less enligh tened about th e benefits inh er-
ent in employee involvement th an h eadquarters is.
Some suppliers use outdated practices promulgated
by expatriate managers w h o can take a militaristic,
old-sch ool attitude w ith little respect foremployees.
Leading firms, h ow ever, h ave learned th at th ere are
significant benefits to be gained by empow ering th e
w orkforce,41 asExample B suggests.
Example B. MNC Manufacturing Managers,
Ch ina
If I w asgoing to introduce CSR[corporate social
responsibility] to a company, I th ink first of all
you w ould need to communicate to w orkersin-
formation on th e company th ey are w orking at
[th e supplier] and information on th e company
th ey are supplying to [th e MNC], information on
w h at w e stand forand also w h at righ tsare, and
w h at th e obligations of th e company are. I
w ould also h ave a suggestion box.
T h e manager w ent on to provide an example-
admittedly based on th e use of suggestion boxes, a
tool of often limited effectiveness-of h ow dia-
logue can w ork to improve w orking conditions:
T h isfactory h asa month ly new sletter, and w e
put some of th e responses to th e letters
[placed in th e suggestion box] th ere. Also,
using a randomly selected groupof w orkers,
w e w ent on a tourof th e dorms. And th e w ork-
ers mentioned th at th e ligh ting during th e
day does not come on, and th at some of th em
migh t not be w orking during th e day and th at
th ey need ligh ts. So now th e electricity is
available at all times.
Oth er stakeh olders' points of view s, particularly
critical external stakeh olders, also need to be h eard
if th e company's responsibility commitments are to
be met. Among relevant external stakeh olders are
non-governmental organizations (NGOs), particu-
larly activists w h o raise critiques of corporate
beh aviors, governments, and consumers. Forexam-
ple, consumer-brand companies h ave been under
significant pressures from student groups in recent
yearsto meet ILO standards by avoiding ch ild labor
orabusive employment policies and implementing
th ird-party monitoring systems. T h is activism h as
push ed th e companies forw ard, demanding ch anges
th at w ould oth erw ise be slow to take place. Asone
supplier manager pointed out, "More NGOscoming
h ere w ill really ch ange th ings, but please don't men-
tion my ow n name h ere. T h ey w ill put pressure on
management. T h ismakesmanagers w orry about liv-
142 Academy of Management Executive May
ing conditions and th ingslike th at." Listening to ex-
ternal voicesand increasing dialogue w ith a variety
of stakeh olders can support a h ealth y reassessment
of an organization's vision of itself oritsmarkets, as
Example C illustrates, w ith th e example of one man-
ager w h o h ad to consider th e meaning of campus
proteststargeted at h iscompany's sector.
Example C. MNC Headquarters Managers
With th e student protests, w e h ad a real ch al-
lenge figuring out "if th e students are anti-
sw eatsh op, th en w h at are w e?" It took me
month s until I realized th at w e are too. T h ere
isno w ay th at policies th at abuse w orkersor
abrogate righ ts benefit companies in any
w ay, sh ape, orform.
Among th e first steps in implementing total re-
sponsibility management systems is articulating
clear corporate vision and values and engaging
stakeh olders to ensure th at appropriate inputsinto
th e company's policies and practices h ave been
h eard and, w h ere appropriate, incorporated into
th e company's values. Furth er, as th e last quote
suggests, meeting a fundamental level of founda-
tional values (based on th e global standards dis-
cussed above) is important for th e company to
avoid being criticized in th e first place. T opman-
agement, h aving made th e explicit commitment
to responsible practice, needs to clearly and re-
peatedly communicate th e vision to th e rest of
th e enterprise so th at total responsibility man-
agement can be integrated into corporate sys-
tems and practices.
T opmanagement, h aving made th e
explicit commitment to responsible
practice, needs to clearly and repeatedly
communicate th e vision to th e rest of th e
enterprise so th at total responsibility
management can be integrated into
corporate systems and practices.
A breakdow n in any of th ese steps can stopre-
sponsibility initiatives in th eir tracks. In one com-
pany studied, th e CEO included addressing social
issues in supply ch ains as one of h is company's
corporate strategic objectives, th en failed to men-
tion th is objective in h is annual talk w ith staff,
sending a clear message, w e w ere told, of th e low
importance h e placed on th isissue. Having a clear
vision and integrating it into strategic visions for
th e company is one step. Actually integrating
it into processes, asdiscussed below , th en h as to
follow .
Integration: Putting T RM into Practice
T h e next element in developing a T RM approach is
integrating th e responsibility vision into strate-
gies, practices, and measurement systems, th ereby
translating vision into reality. Example D from an
MNC manufacturing manager in Vietnam illus-
trates th e complexity of th is integration process.
T h e manager h igh ligh ts only th e communication
and training aspects of th e new corporate code,
w ith out even getting into w h at th is process en-
tailed foractual processes outside of training.
Example D. MNC Manager, Vietnam
Manufacturing managers in th e factories are
really businessmen. Before, th ey w orried
about prices and quality. T h ey rolled out th e
code to usand put usth rough extensive train-
ing, tw o to th ree days, and th en a pretty h ard
test. At th e same time, w e rolled it out to th e
factories, starting at th e topw ith th e general
managers, and again training, tests even,
th en w e h ad th em move it dow n. T h ey also
h ad to put labor-practice managers in place
togeth er w ith th eir w h ole supporting organi-
zation. It w as a h uge job.
Many firmsh ave found it beneficial to designate a
focal groupforensuring implementation of th e code
th rough training and skill development. Implemen-
tation of responsibility management today typically
involves a "responsibility assurance" manager of
some sort (analogous to th e early days of quality
management, w h en quality w asch ecked at th e end
of th e line). T oday's responsibility officer islike a
quality assurance officerw as, typically someone ex-
ternal to day-to-day operationsresponsible forassur-
ing responsible practice. Many companies today es-
tablish a 'department' responsible for assuring
responsibility rath er th an integrating responsibility
into th e jobsof all managers and w orkers. T h e duties
of th is corporate responsibility (CR) department
migh t include coordinating responsibility policy and
th e implementation of th e code, communicating pol-
iciesand practicesto stakeh olders, and maintaining
and adjusting th e code asnecessary over time.
T h ough integration of responsible practice into
operating practices isbeginning to occur, it isgen-
erally still outside th e operating responsibilities of
most managers and rests in th e h ands of th e CR
managers. Yet, asw ith quality, th e success of re-
sponsibility practices depends on integrartion at
2002 Waddock, Bodw ell, and Graves 143
th e operational level. In one case, w e h eard h ow a
firm realized th at design teams, requiring sh ort
sample-development times, w ere resulting in dra-
matic increases in w orking h ours, w ell beyond cor-
porate limits-yet th e design staff h ad no idea th ey
w ere causing w orkers in Asia to put in 80-h our
w eeks. Similar stories w ere told concerning th e
crucial rolesof purch asing, quality control, produc-
tion control, and oth ers.
T aking a T RM approach requiresreview ing prob-
lems faced in reach ing all responsibility objectives
and th e systems th at cause th em to persist. In th e
sectors research ed, some companies' CRmanagers
w ork closely w ith compliance officers, as w ell as
manufacturing and audit personnel, beginning th e
long-term process of integrating responsibility into
day-to-day operating practice. Example E illustrates
th e evolution of responsibility management in one
company in itsCh ina operations, w h ich isw ell along
in th e integration process.
Example E. MNC Manufacturing Manager,
Ch ina
We h ave a new structure h ere. Before [a man-
ufacturing manager] w asin ch arge of produc-
tion for all operations in th e country. It w as
too much . So since th en h e h andles produc-
tion at [supplier], and I h andle th ings h ere.
Before, development, commercialization, and
production w ere separate organizations, w ith
h im in ch arge of production in th is country,
someone else in ch arge of oth er functions in
anoth er. Implementing code w as under pro-
duction. Now it ismuch cleaner, w ith me in
ch arge h ere of both development/commercial-
ization/production and code.
Reasons given forkeeping responsibility manage-
ment less integrated in some companies resemble
reasons initially given forkeeping quality separate
from manufacturing:42 need forindependence, con-
flict avoidance, and th e need for different skills.
Furth er, implementation of responsible practices
th rough out factoriesand even into th e supply ch ain
(w h ere, perh aps, it iseven more important because
th at isw h ere many of th e issues h ave arisen), even
w h en th e integration process isin itsearly stages, is
an enormous task, asExample F indicates.
Example F. MNC Manufacturing Manager,
Vietnam
T h e first stepfor a new factory, just starting
w ith code, you h ave to organize a team. You
need a groupdedicated to th is. Second, you
h ave to make sure th at everybody understands
w h at th e code means. T h ird, you give seminars
on th e code to all th e w orkers. All th e new
employees h ave to attend a briefing on th e re-
quirements of th e code. Next, w e used th e code
guidelines and developed an action plan to
meet th e code. T h e factory develops th e action
plan th en w e [MNC factory level staff] review
and discuss it. T h en [th e national level CRteam
members] review it, and if th ey h ave points,
th en w e adjust it accordingly.
Again, similar to th e adoption of th e quality
management principles over th e last 20 years, th e
implementation of corporate responsibility objec-
tives across an organization and th rough itssup-
ply ch ain w ill be dependent on a systems ap-
proach to th e processes and practices. Aspointed
out in th e example below , th e use of ad h oc or
fire-figh ting approach es to responsibility manage-
ment issimply unw orkable. T h e infrastructure spe-
cifically dedicated to responsibility issues isusu-
ally too th in to deal w ith dynamic environments
w h ere suppliers are numerous.
T h e use of ad h oc orfire-figh ting
approach es to responsibility
management issimply unw orkable.
Example G. MNC CSRManufacturing Man-
ager, Headquarters
T h ere are h undreds of factories and h undreds
of th ousands of employees [in our supplier
firms], and w e are th e minority buyer in each
of th ese. If w e don't h ave a calendar, stan-
dards, and practices for w h en th ese stan-
dards are not met, th en w e w ould h ave a
disaster on our h ands. T o make th e manage-
ment of th is w h ole th ing effective over time,
you need a system.
T RM goes w ell beyond labor practices to oth er
systems w ith in th e company. T h e rew ard, informa-
tion, measurement, and reporting systems are par-
ticularly important in assuring th e integration of
responsibility into th e company's operations.
Linking measurement systems to th ose provid-
ing w orkers and management feedback to guide
decision-making iscentral both to quality and re-
sponsibility management, particularly if th e link-
age istied to some form of incentive. Asone man-
ager put it, "Wh en it ispart of th eir strategic plan
and people's futures are tied to it, and th eir perfor-
144 Academy of Management Executive May
mance level is linked to it, th en th ey w ill do it."
Doing th iseffectively means measuring responsi-
ble practices-and learning from w h at w as mea-
sured; th usth e th ird element of total responsibility
management isimproving and learning.
Improvement, Innovation, and Learning
T otal responsibility management w orksonly w h en
companies learn from w h at h as been done in th e
past and use th at learning to make improvements.
Learning requires new formsof measurement and
assessment th at not only transparently provide
feedback to external stakeh olders, w h o are in-
creasingly seeking information about corporate
activities, but also provide important internal in-
formation about performance to managers and em-
ployees. And credibility, reliability, and validity of
th ese data are enh anced w h en th e systems are
externally monitored, audited, and reported, along
lines suggested by th e Global Reporting Initiative
(GRI).
Asth e trends discussed in th e first part of th is
article h igh ligh t, communication of th e responsi-
bility of a company's practices th rough marketing,
public relations, investor relations, and community
relations systems isimportant if th e company isto
avoid problems. Communication w ith stakeh old-
ers is equally important for th e company's on-
going effortsto improve and, w h ere necessary, re-
mediate problems internally.
Indicators: T RM Measurement
Indicatorsare th e w ays in w h ich a company mea-
suresperformance and progress tow ard meeting its
responsibility goals. Alth ough indicators are criti-
cally important to th e improvement and innovation
process, th ey are also needed to assess th e inspira-
tion and integration processes, as Figure 2 illus-
trates. A necessary condition of th ese communica-
tions, particularly for th e many critical external
stakeh olders w h o seek to redress problems w ith
MNCs, is th at th e information communicated be
credible and reliable. T h ose requirements mean th at
companies implementing responsibility manage-
ment systems need measurement systems th at can
accommodate, at minimum, th e triple bottom linesof
economic, social, and environmental reporting.43 In-
deed, many companies in th e reputational spotligh t
are creating T RM reporting systems internally and
th en asking th eir suppliers to provide evidence th at
th ey too are meeting th eirresponsibilities.
Asw ith quality, indicators are needed at a vari-
ety of levels, in particular w h erever decisions need
to be made. In ourresearch , w e found examples of
responsibility indicators and potential, yet under-
utilized, indicators at all points in supply ch ains
and upand dow n corporate h ierarch ies. In facto-
ries, measurements linked to h ealth and safety
provided w orkers and management w ith informa-
tion on toxic vapors; in sourcing departments, pur-
ch asers sometimes h ad access to information on
compliance audits of suppliers; and w ith regard to
external reporting, some firmsh ave developed an-
nual social reports and/or actually allow ed th ird-
party auditing of various sorts.
Alth ough many multiple-bottom-line reporting
systems today are still internally audited and veri-
fied, th ere isintense pressure on companies to use
external auditorsand publish th e resultsof respon-
sibility audits. T h e pow er of transparency is, in fact,
practiced quite extensively in some of th e firmsstud-
ied, both in th eir ow n reporting and w ith th eir sup-
pliers. Indeed, some managers suggest, asth e com-
ment in Example H illustrates, th at a degree of
competition among suppliers can enh ance not only
responsible practices but also performance.
Example H. MNC Country Manager
We are starting a rating system and w e do let
th e companies [suppliers] know th at th is
could impact th eir getting business in th e fu-
ture. T h ere isa competition betw een th e sup-
pliers. OK, th is factory now h as a supermar-
ket. T h en th e oth ers feel pressure. And th ere
is close communication betw een factories.
T h ere h as to be an open spirit and a balance
of competition and sh aring. On EHS [environ-
mental, h ealth , and safety] w e don't w ant any
secrets. We just brough t all th e EHS manag-
ers[from suppliers] togeth er forth at reason.
T h ere isintense pressure on companies
to use external auditors and publish th e
results of responsibility audits.
Information, measurement, and rew ard systems
need to be integrated into reporting systems and
fed back to decision makers so th at th e data can
h elp improve practice. One manager, from an
MNC'sh eadquarters, says, "We only w ant informa-
tion th at h elps usto make decisions. T h erefore w e
don't need too many indicators-more important is
'Are th ey in compliance w ith our guidelines?'
rath er th an 'How much w ater do th ey use?' More
important is, w h at corrective action isneeded?"
And it isexactly because "w h at corrective action
isneeded?" ca[n be addressed only w ith adequate
2002 Waddock, Bodw ell, and Graves 145
information sh ared internally and used to make
management decisions-and th at satisfies th e de-
mands of external stakeh olders-th at T RM is
evolving. Additionally, many companies are mov-
ing tow ard external auditing, verification, and
monitoring systems, such asth ose emerging from
th e Global Reporting Initiative, because th ey need
to establish credibility and trust w ith th e critical
external actors discussed earlier, asth e follow ing
quotation from a MNC h eadquarters CRmanager
in Example I suggests.
Example I. MNC Headquarters CRManager
People don't trust us. We need to explain to
people, w e need to get external monitoring
going, th e [NGO initiative] w e just joined. T h e
most important forus[internally] isself-study
and monitoring. But for outside, th ey w ant
confirmation.
Responsibility: T h e New Imperative
We h ave argued in th isarticle th at companies today
face a grow ing array of stakeh older and oth er insti-
tutional pressures th at demand greater responsibil-
ity from th em. Just as companies respond strategi-
cally th rough th eir management systems to direct
competitive pressures, so th ey are finding it neces-
sary
to developmanagement systems th at respond
to th ese pressures forresponsibility in order to sat-
isfy th eir stakeh olders and actually build long-term
mutually interactive relationsh ips w ith th em. We be-
lieve th at positive stakeh older relationsh ips are th e
essence of real responsibility management ap-
proach es of th e sort described above.
We can distill out from th e pressures described
earlier th e actual demands to w h ich th e compa-
nies in th isstudy are responding. T h ese demands
seem to come dow n to a few concepts, simple to
articulate th ough perh aps more complex to enact
in practice:
Integrity:Stakeh olders demand th at compa-
niesbe h onest, firmly adh ere to th eir stated
codes and values, be h ealth y, w h ole, and
sound financially and in oth erw aysrelevant
to specific stakeh olders,4 and essentially
th at th e reality of company actions and im-
pactsmatch es company rh etoric.
Respect: Stakeh olders demand th at com-
panies' relationsh ips w ith different stake-
h olders are interactive, engaged, and take
into account different points of view in de-
cisions.
Standards: Stakeh olders demand th at artic-
ulated values be met in practice and, at min-
imum, th at a baseline of internationally
agreed values (e.g., around core issues like
labor/w orking conditions, h uman righ ts,
environmental h ealth , and integrity) are
ach ieved.
T ransparency: Stakeh olders demand com-
pany openness about company performance
on th e triple bottom line of economic, social,
and environmental impacts.45
Accountability: Stakeh olders demand th at
th e company acknow ledge itsimpacts and
take responsibility forth em.
Wh at all th ese demands require can be summed
upin one w ord: integrity. Corporate integrity is
w h at th e T RM approach es described above at-
tempt to ensure.
Wh at all th ese demands require can be
summed upin one w ord:integrity.
We h ave derived several ideas from ourresearch
th at can be used by managers interested in creat-
ing a T RM systems approach forth eir company:
1. Create a vision and related set of values th at
articulate th e company's core responsibilities
and relate th ose responsibilities to corporate
strategies. Values sh ould be aligned w ith base-
line global standards. Communicate th e vision
regularly and often so th at it becomes a sh ared
vision th rough out th e company and its supply
ch ain. For example, BP Amoco w as th e first oil
company to take seriously th e th reat of global
w arming, creating a vision foritself of becoming
a "green" energy company.
2. Engage all stakeh olders in continuing dialogue
to ensure th at th e company's values and actions
are in accord w ith society's and stakeh olders'
expectations. Get feedback and inputs on pos-
sible problem areas, and develop responsive
internal systems to nipproblems in th e bud,
avoid th em altogeth er, ortake advantage of new
opportunities th at emerge from th e stakeh older
engagement process. Asan illustration, in an
effort to avoid th e negative effects on itsrepu-
tation th at Royal Dutch /Sh ell suffered in th e
mid-1990s w h en it tried to dispose of th e Brent
Spar oil rig and raised th e ire of Greenpeace,
th e company h as developed extensive stake-
h older engatgement policies. By getting feed-
146 Academy of Management Executive May
back from stakeh olders before problems arise,
th e company h opes to better position itself for
th e future.46
3. Integrate th e T RM vision into corporate strate-
gies and management systems in w ays th at
build employee capacity to understand and take
responsibility for corporate impacts. Forexam-
ple, T imberland Corporation h as a long-stand-
ing corporate responsibility vision of "Pull on
your boots and make a difference." Wh en th e
company experienced a liquidity crisis in
th e mid-1990s, th e integration of th isvision into
th e daily life of th e company aspart of itsoper-
ating practices made it possible forCEO Jeffrey
Sw artz to state, "We got togeth er and figured out
h ow to deal w ith our problems."47
4. Become a learning organization48 by creating a
T RM system based on key performance indica-
tors th at measure improvements or h igh ligh t
problems th at can be fed back to relevant stake-
h olders to generate new learning, improve-
ments, and remediation. One company th at at-
tempts to do th is is th e energy company AES,
w h ich is "based on values from th e start," de-
centralizes decision making, and pays strict at-
tention to key performance indicators.49
Alth ough managing responsibility th rough T RM
migh t seem complex and new , most managers are
already familiar w ith th e basic processes on w h ich
T RM approach es rest th rough th eir experiences in
managing quality. Managing forquality and man-
aging forresponsibility both require systemic ap-
proach es to a long-term process of continual organ-
izational improvement based on a vision th at is
sh ared among relevant stakeh olders. T h e real dif-
ference betw een th e economic-results-only model
and th e modern T RM approach is th at T RM in-
cludes th e perspectives, needs, interests, and con-
cerns of th e multiple stakeh olders interested in
today'scorporate integrity and responsibility. T RM
provides a basis formeeting corporate responsibil-
ity in a w orld w h ere corporate integrity matters
more th an ever.
Acknow ledgments
Some of th e th inking forth isarticle isdraw n from th e first
auth or'sbook Leading Corporate Citizens:Vision, Values, Value-
Added (McGraw -Hill, 2002). Case examples and illustrations
are draw n from an on-going research program underth e direc-
tion of th e second auth orby th e Management and Corporate
Citizensh ipProgramme, International LabourOffice, Geneva,
Sw itzerland, in cooperation w ith th e CenterforCorporate Citi-
zensh ip. Research ersfrom th isprogram h ave interview ed over
150 managers, w orkers, and union representatives, visiting cor-
porate h eadquartersof numerousmultinationals, th eirpurch as-
ing offices and supplier factories in Cambodia, Ch ina, Sri
Lanka, T h ailand, T urkey, and Vietnam w h ere products are ac-
tually manufactured.
Endnotes
1
T h e classic reference isFreeman, R. E. 1984. Strategic man-
agement: A stakeh older approach . Boston:Pitman.
2
Clarkson, M. B. E. 1995. A stakeh older framew ork forana-
lyzing and evaluating corporate social performance. Academy
of Management Review , 20(1):92-117.
3Waddock, S., & Bodw ell, C. 2001. From T QM to T RM:T h e
emerging evolution of total responsibility management ap-
proach es. Journal of Corporate Citizens, in press.
4Evans, J. R., & Lindsay, W. M. 1999. T h e management and
control of quality. 4th ed. New York:West. See also Dah lgaard,
S. M. P. 1999. T h e evolutionary patterns of quality management:
Some reflections on th e quality movement. T otal Quality Man-
agement, 10(4 & 5), S473-S480; and Cole, R. E. 1998. Learning
from th e quality movement: Wh at did and didn't h appen and
w h y? California Management Review , 41(1):43-62.
5 Gravitz, A., et al. 2001 report on social responsible investing
trends in th e United States. Social Investment Forum Industry
Research Program, h ttp://w w w .socialinvest.orglareaslnew sl
2001-trends.h tm.
6 See KLD's w ebsite, at: h ttp://w w w .kld.comlsitenew s.
cgi?id 7.
7 Guerard, J. B., Jr. 1997. Isth ere a cost to being socially
responsible in investing? Journal of Investing, 6(2):11-18. See
also Angel, J. J., Rivoli, P. 1997. Doeseth ical investing impose a
cost upon th e firm? A th eoretical examination. Journal of Invest-
ing, 6(4):57-61; and Waddock, S., Graves, S. B., & Gorski, R. 2000.
Performance ch aracteristics of social and traditional invest-
ments. Journal of Investing, 9(2):27-38.
8
See also Sauer, D. A. 1997. T h e impact of social-responsibil-
ity screens on investment performance: Evidence from th e Do-
mini 400 Social Index and Domini Equity Mutual Fund. Review
of Financial Economics, 6(2):137-149; Diltz, J. D. 1995. T h e private
cost of socially responsible investing. Applied Financial Eco-
nomics, 5(2):69-78; Herremans, I. M., Akath aporn, P., & McInnes,
M. 1993. An investigation of corporate social responsibility rep-
utation and economic performance. Accounting, Organizations,
and Society, 18(7, 8):587-605; and Heinkel, R., Kraus, A., & Zech -
ner, J. 2001. T h e effect of green investment on corporate beh av-
ior. Journal of Financial and Quantitative Analysis, 36(4):431-
438.
9For example, see Griffin, J. J., & Mah on, J. F. 1997. T h e
corporate social performance and corporate financial perfor-
mance debate: T w enty-five years of incomparable research .
Business and Society, 36(1):5-31; Wood, D. J., & Jones, R. E. 1995.
Stakeh older mismatch ing: A th eoretical problem in empirical
research on corporate social performance. T h e International
Journal of Organizational Analysis, 3(3):229-267; and Pava,
M. L., & Krausz, J. 1996. T h e association betw een corporate
social-responsibility and financial performance: T h e paradox of
social cost. Journal of Business Eth ics, 15:321-357.
10
In addition to academic papers cited in th e previous sec-
tion, see th e definitive study by Margolis, J. D., & J. P. 2001.
People and profits? T h e search fora link betw een a company's
social and financial performance. Mah w ah , NJ:Law rence Erl-
baum Associates; see also Misery loves companies: Sh areh old-
ers, sch olarsh ip, and society. University of Mich igan Business
Sch ool w orking paper, presented at th e Academy of Manage-
ment annual meeting, Wash ington, DC, 2001, by th e same
auth ors.
"
T w o studies th at take th isperspective are Waddock, S. A.,
& Graves, S. B. 1997. T h e corporate social performance-finan-
2002 Waddock, Bodw ell, and Graves 147
cial performance link. Strategic Management Journal, 18(4):303-
319; and Waddock & Graves. 1997. Quality of management and
quality of stakeh older relations: Are th ey synonymous? Busi-
ness and Society, 36(3):250-279.
12 See, for example, th e Sustainable Investment Research
International Groupat h ttp://sirigroup.org/ for a listing of th e
best-know n international bodies collecting data on corporate
responsibility.
13 Greening, D. W., & T urban, D. B. 2000. Corporate social
performance asa competitive advantage in attracting a quality
w orkforce. Business and Society, 39(3):254-280.
4 Cone, C., & Ph ares, L. Presentation submitted to th e Repu-
tation Management Conference, June 2002, by Cone/ConAgra
Foods. See also Cone, 1999, and Walker, 1994, cited in Roch lin,
S. A., & Ch ristoffer, B. 2000. Making th e business case: Deter-
mining th e value of corporate community involvement. Ch est-
nut Hill, MA:Boston College Center forCorporate Community
Relations.
15 Cone and Ph ares, cited above. See also Roch lin & Ch rist-
offer, op. cit.
6 Burke, E. M. 1999. Corporate community relations: T h e prin-
ciple of th e neigh bor of ch oice. Westw ood, CT :Praeger.
17 See th e Center for Corporate Community Relations. 2000.
Standards of excellence in corporate community involvement.
Ch estnut Hill, MA:Boston College.
8 Russo, M. V., & Fouts, P. A. 1997. A resource-based perspec-
tive on corporate environmental performance and profitability.
Academy of Management Journal, 40(3):534-559.
19
See h ttp://w w w .reputationmanagement.org.
20Fombrun, C. 1997. A summary of rankings and ratings:
Indices of social monitors. Corporate Reputation Review , 1(4):
Summary at h ttp:llw w w .reputations.orglsectionslranklrank.h tml.
21 T h e Global Compact's principles are derived from th e UN's
Universal Declaration of Human Righ ts, th e International La-
bour Organization's Declaration on Fundamental Principles
and Righ tsat Work, and th e Rio Principles on Environment and
Development.
22 See th e ILO'sBusiness and Social Initiatives database at
h ttp:/loracleO2.ilo.org/dyn/basi/VpiSearch .Main.
23 Kolk, A., van T ulder, R., & Carlijn Welters, C. 1999. Interna-
tional codes of conduct and corporate social responsibility: Can
transnational corporations regulate th emselves? T ransnational
Corporations, 8(1):143-179.
24
Ibid.
25
Ibid.
26
Elkington, J. 1998. Cannibals w ith forks:T h e triple bottom
line of sustainability. Gabriola Island, BC, Canada: New Soci-
ety Publish ers.
27 See h ttp://w w w .globalreporting.org/Guidelines/June2000/
June2000GuidelinesDow nload.h tm.
28Reported in Aaronson, S. A., & Reeves, J. 2002. T h e Euro-
pean response to public demands for global corporate respon-
sibility. England: National Policy Association.
29 Global Reporting Initiative, 2001, h ttp://w w w .globalreport-
ing.orgIindex.h tm.
30Waddock, S., & Smith , N. 2000. Corporate responsibility
audits: Doing w ell by doing good. Sloan Management Review ,
41(2):75-83.
31
See, forexample, h ttp:llw w w .smith obrien.com.
32
See w w w .new economics.org.
33Kaplan, R. S., & Norton, D. P. 1992. T h e balanced score-
card-Measures th at drive performance." Harvard Business Re-
view , 70(1):71-79.
34 Bell, T ., et al. 1997. Auditing organizations th rough a stra-
tegic lens: T h e KPMG business measurement process. KMPG
Peat Marw ick.
35Lew ellyn, P., & Sillanpa&, M. 2001. Holistic performance
model. Presented at th e International Association of Business in
Society annual meeting, March 2001, Sedona, AZ.
36 Stakeh older th eory suggests th at companies need to be
responsive to th e demands of multiple stakeh olders. See Free-
man, R. E. 1984. Strategic management: A stakeh older perspec-
tive. Boston:Pitman. Instrumental stakeh older th eory suggests
th at th ey w ill be more effective/successful if th ey do so, i.e.,
Jones, T . M. 1995. Instrumental stakeh older th eory:A synth esis
of eth ics and economics. Academy of Management Review ,
20(2):404-437.
37 Waddock & Bodw ell, in press, op. cit.
38
T h e quotes in th is section are from real but anonymous
companies. T h ey are part of an ongoing study into th e manner
in w h ich organizations implement corporate responsibility ob-
jectives. T h e research approach isa multiple-company (case)
review of th e management practices w ith in supply ch ains us-
ing an interview meth odology. Over 120 individuals in posi-
tions ranging from h eadquarters to employees in supply-
ch ain companies w ere interview ed. T h e research question
focused on understanding th e complex new management
systems and processes for managing responsibility th at are
emerging in th e global context. Interview s ranged from 40
minutes to th ree h ours (typically about an h our), and data
w ere th en content-analyzed follow ing Eisenh ardt's multiple-
case-study approach (see K. M. Eisenh ardt. 1989. Building
th eories from case study research . Academy of Management
Review , 14(4):532-550).
39 Yin, R. K. 1994. Case study research : Design and meth ods.
T h ousand Oaks, CA:Sage Publications.
40 See Waddock & Bodw ell, in press, for a more complete
discussion.
41 Forexample, Pfeffer, J., & Veiga, J. F. 1999. Putting people
first fororganizational success. T h e Academy of Management
Executive, 13(2):37-48.
42 Cole, R. E., 1998, op. cit.
43
Elkington, op. cit.
44
See Waddock, S. 2001. Integrity and mindfulness: Founda-
tionsof corporate citizensh ip. Journal of Corporate Citizensh ip,
1(1):25-37.
45 Elkington, op. cit.
46 Mirvis, P. H. 2000. T ransformation at Sh ell: Commerce and
citizensh ip. Business and Society Review , 105(1):63-84.
47 Waddock, S. 2001. How companies build social capital.
Reflections, 3(1):18-24, quoting J. Sw artz speech at Boston Col-
lege, October 26, 2000.
48 Senge, P. T h e fifth discipline. New York:Free Press, 1980.
49 Waterman, R. Values from th e start:Culture isstrategy at
th e AES Corporation. In Wh at America does righ t, posted at:
h ttp://w w w .aesc.com/culture/values/index.h tml See also Paine,
L. S. 1999. AES global values. Harvard Business Sch ool, #9-399-
136.
148 Academy of Management Executive May
Sandra Waddock isprofessor of
management in th e Carroll
Sch ool of Management at Bos-
ton College, w h ere sh e teach es
strategic management and so-
cial issues in management in
undergraduate, MBA, and exec-
utive programs. Her research
centers on inter-sector collabo-
ration and corporate responsi-
bility. Her latest book isLead-
ing Corporate Citizens: Vision,
Values, Value Added (McGraw -
Hill, 2002). Contact: w addock@
bc.edu.
Ch arles Bodw ell isa senior re-
search er of corporate citizen-
sh ipat th e International Labour
Organization. He h as also
w orked for IBM, Agfa, and
Sch lumberger. He h as an MBA
from McGill University and a
master's of international man-
agement from ESADE. His re-
search interests center on th e
linkages at th e factory level be-
tw een productivity, quality,
and labor practices. Contact:
f
I 1
bodw ell@ilo.org.
Samuel B. Graves is professor
in th e Carroll Sch ool of Man-
agement at Boston College
w h ere h e teach es statistics and
quantitative meth odsin th e MBA
and undergraduate programs.
His research interests include
corporate responsibility and cor-
_ porate decision models. He h as
publish ed w idely on th ese top-
ics, in journals including T h e
Academy of Management Jour-
nal and Business and Society.
K " Contact:samuel.graves@bc.edu.