International Journal of Quality & Reliability Management 24:7 Quality Management and CSR 9781846635632, 9781846635625

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30/07/2007

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ISSN 0265-671X

Volume 24 Number 7 2007

International Journal of

Quality & Reliability Management Quality management and CSR Guest Editors: Shirley-Ann Hazlett, Rodney McAdam and Amrik Sohal

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International Journal of

ISSN 0265-671X

Quality & Reliability Management

Volume 24 Number 7 2007

Quality management and CSR Guest Editors Shirley-Ann Hazlett, Rodney McAdam and Amrik Sohal

Access this journal online _________________________

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Editorial advisory board __________________________

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Guest editorial ___________________________________

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From quality management to socially responsible organisations: the case for CSR Shirley-Ann Hazlett, Rodney McAdam and Lisa Murray _______________

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Towards a third generation of quality management: searching for a theoretical re-conceptualisation of contemporary organisations based on the notions of stakeholders and transactivity David Foster and Jan Jonker _____________________________________

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TQM and CSR nexus Abby Ghobadian, David Gallear and Michael Hopkins _________________

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CSR performance: driven by TQM implementation, size, sector? Andrew Robson and Ed Mitchell __________________________________

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CONTENTS

CONTENTS continued

A critical look on quality through CSR lenses: key challenges stemming from the development of ISO 26000 Pavel Castka and Michaela A. Balzarova ___________________________

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Corporate governance as a critical element for driving excellence in corporate social responsibility Arash Shahin and Mohamed Zairi ________________________________

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The 2007 Emerald/EFMD Outstanding Doctoral Research Awards _________________________________

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EDITORIAL ADVISORY BOARD Quality Dr J. Angeli Higher Technical Institute, Mechanical and Marine Engineering Department, Nicosia, Cyprus

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Professor T.C. Edwin Cheng Department of Logistics, The Hong Kong Polytechnic University, Hong Kong Dr K.S. Chin Associate Professor, Department of Manufacturing and Engineering Management, City University of Hong Kong, Hong Kong Professor J.J. Dahlgaard Linko¨ping University, Sweden Professor Barrie Dale Manchester Business School, UK Dr A.V. Feigenbaum, President General Systems Co. Inc., Pittsfield, MA 01201, USA Professor Fiorenzo Franceschini Politecnico di Torino, Torino, Italy

Dr Jaideep G. Motwani Grand Valley State University, Grand Rapids, MI 49504-5495, USA Dr Naoto Sasaki Hamamatsu University, Japan Dr Hongyi Sun Department of Manufacturing Engineering and Engineering Management, City University of Hong Kong, Kowloon, Hong Kong Dr A. van der Wiele Erasmus University, Faculty of Economics, Rotterdam, The Netherlands Professor A.J. Wilkinson Loughborough University Business School, UK Professor Mohamed A. Youssef School of Business, Norfolk State University, Virginia, USA Professor Mohamed Zairi University of Bradford Management Centre, Bradford, UK

Professor Suresh K. Goyal DSMIS Department, Concordia University, Montreal, Quebec, Canada Professor A. Gunasekaran Department of Management, University of Massachusetts, North Dartmouth, MA 02747-2300, USA Dr Robert A. (Bob) Hunt Director, Centre for Management Innovation and Technology (CMIT), Macquarie Graduate School of Management, Macquarie University, NSW, Australia

Reliability

Ramesh Konda Director, Corporate Quality Systems, Seagate Technology, Milpitas, CA 95035, USA

Professor Abdul Raouf Institute of Management and Technology, Pakistan

Professor A.R. Martinez Lorente Faculty of Business Science, Polytechnic University of Cartagena, Cartagena, Spain

International Journal of Quality & Reliability Management Vol. 24 No. 7, 2007 p. 664 # Emerald Group Publishing Limited 0265-671X

Professor J. Kontoleon Department of Electrical Engineering, University of Thessaloniki, Greece Dr Marco Meniconi University of Bradford, UK Professor Krishna B. Misra RAMS Consultants, India

Professor Bin Srinidhi City University of Hong Kong, Kowloon Tong, Hong Kong

Guest editorial Overview to the Special Issue This Special Issue focuses on the growing interest in the role of business in society. The term Corporate Social Responsibility (CSR) is often used as an umbrella term to encapsulate this. However, despite its roots in the theoretical literature tracing back to the 1930s and its practice dating back further still, our understanding of the reach, impact and value of CSR remains poorly understood and often contradictory. This special issue is an attempt to explore the potential and actual synergies between CSR and quality management as a means of broadening our understanding of CSR.

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Introduction: what is CSR? Few would disagree that we are in the midst of a global debate about the role of business in society and the role of society in business, although many issues remain unresolved. Bowen(1953), often referred to as the “Father of Corporate Social Responsibility”, presented one of the first definitions of CSR: . . . it (CSR) refers to the obligations of businessmen to pursue those policies, to make those decisions, or follow those lines of action which are desirable in terms of the objectives and values of our society (p. 6).

However, there is no single authoritative definition of CSR, a view that is reiterated in all of the papers in this special issue. In their paper, Shahin and Zairi suggest that, “the concept of CSR is a fuzzy one with unclear boundaries and debatable legitimacy”. Moreover, Hazlett et al., in their paper, remind us that CSR has been variously defined as a term, a concept, a process, a theory, and an activity or set of activities, serving to confuse rather than enlighten the situation. In addition, terms such as corporate citizenship, cause-related marketing, philanthropy, good governance, ethics, environmentalism and latterly sustainability are all taken as pseudonyms for social responsibility, despite the many subtle and not-so subtle differences between them. As a result, a number of strands in both research and practice have emerged which are by no means in collision with one another, yet neither are they wholly consistent or fully integrated. Perhaps Carroll (1994, p. 14) best sums up the state of CSR in the following quote: . . . it is an eclectic field with loose boundaries, multiple memberships, and differing training/perspectives; broadly rather than narrowly focused; multidisciplinary; wide breadth; brings in a wide range of literature; and interdisciplinary.

Looking towards quality management In their paper, Foster and Jonker assert that a generational change has occurred in quality management. They suggest that we are entering a third generation where notions of transparency, accountability and (social) responsibility are blending into the The Guest Editors trust that readers will find the papers included in this Special Issue both interesting and useful. They would like to take this opportunity to thank all the reviewers for their detailed feedback and insightful observations.

International Journal of Quality & Reliability Management Vol. 24 No. 7, 2007 pp. 665-668 q Emerald Group Publishing Limited 0265-671X DOI 10.1108/02656710710774656

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body of knowledge regarding quality management. They explore the ways in which organisations engage with the broader society in which they operate and develop a theoretical understanding of this growing engagement. Their paper demonstrates that transactivity provides a link between the changing concept of quality management and the increasingly significant importance of stakeholders. In doing so, they demonstrate that a transformed concept of quality management is emerging in which society plays an essential part. This paper provides an excellent starting point for the other papers in this special issue and suggests that looking to more established literatures, in particular, quality management, provides a strong foundation on which to build CSR. The relationship between ethics and quality management and ethics and CSR cannot be ignored. This is addressed in several of the papers. For example, Hazlett et al., discuss the similar and strong ethical underpinnings of both quality management and CSR. In their paper, Ghobadian et al., suggest that this ethical bias partially manifests itself as concern for organisations’ human resources as well as concern for environment and society at large. Shahin and Zairi, in their paper, take this one step further and suggest that CSR and its derivatives are almost synonymous with the emerging effort to determine the meaning of “ethical business”. CSR like TQM impinges on all facets of the business (McAdam and Leonard, 2003) and thus it is suggested that CSR has much to learn from the implementation issues of quality management. Clearly if the two concepts have a great deal in common then TQM with its greater penetration in organisations of all shapes and sizes can act as a catalyst for developing CSR within the organisation. This view is explored in more detail in several of the papers in this Special Issue (see for example Ghobadian et al., Robson and Mitchell et al.). McAdam and Leonard (2003) argue that TQM has “a foundational similarity to CSR” (p. 38) in that it has an ethical anchor considered essential for CSR development, a view also shared by Vinten (1998). This congruity suggests that CSR could possibly be incorporated into organisations more effectively and in shorter timescales by using existing TQM organisational change conduits and processes (Vinten, 1998). Using these existing conduits, compromises neither the underlying principles of CSR nor TQM. In their paper, Ghobadian et al., explore the similarities and differences between TQM and CSR. Moreover, the paper considers the implications of these similarities and differences for the future development of both concepts. They suggest that both share similar philosophical roots, that there is a substantial overlap between both the values, which underpin each of the concepts, and in the elements of the two concepts, and that the expected outcomes of both show significant similarities. Despite these similarities, they caution that implementation of TQM will not necessarily result in CSR, and assert that it is important to recognise the specific needs of CSR and include them as an explicit part of TQM. Robson and Mitchell, in their paper, discuss the findings from their research which measures the extent to which the level of TQM adoption and/or the levels of operational performance, have impacted on the corresponding levels of external business performance relating to CSR factors. Based on data collected from 556 organisations in the North East of England they conclude that organisations are becoming more aware of the effect of the CSR practice and performance relationship and detect a “limited but significant impact” of TQM implementation on external CSR performance. In a related vein, Hazlett et al., present preliminary empirical findings

from quality award winning organisations in Northern Ireland. They conclude that although there is plenty of evidence demonstrating the sincerity and willingness of each of the organisations to engage in CSR related activates and behaviours, there is no real sense that this is managed strategically and thus there are concerns about the longevity of CSR. In extending the CSR agenda, ISO have examined the applicability of developing a standards-based approach, which will culminate in ISO 26000 due to be launched in 2008. This issue is explored in more depth in Castka and Balzarova’s paper. They map the key challenges that quality management faces in order to meet the demands of CSR and discuss synergies (and divergences) between quality management (and ISO quality management and environmental management standards) and CSR as they emerged during the process of ISO 26000 development. They argue that the quality field can significantly contribute to the deployment and uptake of the CSR agenda yet needs to reinvent and rejuvenate itself in key areas such as management systems; integration of strategy, operations, technology, CSR and quality; incorporation of corporate governance; and improvements in third-party certification and internal auditing practices. Rather than adopting a standardised approach to the integration and diffusion of CSR, Shahin and Zairi, in their paper, suggest that if we enhance our understanding of corporate governance then we may be in a stronger position to deliver on the CSR agenda. They demonstrate models of corporate governance and the associated elements affecting CSR. Their paper reflects that corporate governance encompasses different internal and external factors, by which management of organisations are influenced. This is also compatible with the new corporate community models, in which investors; the public, customers, employees and associated corporations have a mutual impact on management. The paper suggests that organizations should audit their CG capabilities towards CSR, based on a proposed questionnaire in order to drive excellence in CSR. Thus, whilst there is evidence to suggest that the elements of quality management and CSR overlap to a significant extent, there are differences. CSR will not simply happen just because an organisation has adopted quality management; CSR must be addressed explicitly. In other words, TQM can be used as a vehicle for expediting the diffusion of CSR. However, this is unlikely to occur by accident and it is important to integrate the CSR concept with TQM and ensure that elements of CSR are explicitly addressed. It should be possible to develop a CSR methodology based on TQM models, which can assess both the ethical foundation and the organisational improvement aspects of CSR, a view reiterated in the literature by Kok et al. (2001). Thus it is possible to continually make progress on the “quality journey” (Dale and Lascelles, 1997). Concluding remarks The debate and discussion (as evidenced in these papers) is a useful and almost necessary step in more clearly understanding the role, impact and value of CSR. In much the same way as other management theories, principles and practices followed a trajectory from idea to acceptance the same seems true for CSR. The papers in this special issue are designed to facilitate a dialogue about the role of business in society and the impact and effectiveness of quality management as a conduit for advancing the CSR debate at both theoretical and practitioner levels. Whilst the papers in this Special Issue are not suggesting that CSR can only become successfully embedded via TQM and QM frameworks, they all allude, to a greater or

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lesser extent, that there is an intuitive appeal and clear parallels and overlaps between TQM and CSR. However, taking on board the comments of McAdam and Leonard (2003) there is a need for broader and deeper studies to see if organisations can retain a balanced approach to CSR in relation to other factors, such as adverse market and financial conditions and less developed TQM systems. And thus, reminiscent of earlier debates on quality management and knowledge management there is much more evolution and revolution to come in CSR. These papers represent an important starting point in stimulating this debate. Shirley-Ann Hazlett, Rodney McAdam and Amrik Sohal References Bowen, H.R. (1953), Social Responsibilities of the Businessman, Harper & Brothers, New York, NY. Carroll, A.B. (1994), “Social issues in management research”, Business and Society, Vol. 33 No. 1, pp. 5-29. Dale, B. and Lascelles, D. (1997), “Total quality management adoption: revisiting the levels”, The TQM Magazine, Vol. 9 No. 6, pp. 418-28. Kok, P., van der Wiele, A. and McKenna, R. (2001), “A corporate social responsibility audit within a quality management framework”, Journal of Business Ethics, Vol. 31 No. 4, pp. 285-97. McAdam, R. and Leonard, D. (2003), “Corporate social responsibility in a total quality management context: opportunities for sustainable growth”, Corporate Governance, Vol. 3 No. 4, pp. 36-45. Vinten, G. (1998), “Putting ethics into quality”, The TQM Magazine, Vol. 10 No. 2, pp. 89-94. About the authors Shirley-Ann Hazlett is lecturer in the School of Management and Economics at Queen’s University. She teaches modules at both undergraduate and postgraduate levels in Business Ethics and Corporate Social Responsibility. She has spent several years in industry and as an industrial sponsored lecturer focusing specifically on quality management and business improvement. She has published numerous journal articles and conference papers examining the broad areas of TQM and ISO 9000, Knowledge Management and Corporate Social Responsibility. She is a senior assessor for the Northern Ireland Quality Awards, and Information Officer for the newly created BAM Special Interest Group (SIG) on CSR. Shirley-Ann Hazlett is the corresponding author and can be contacted at: [email protected] Rodney McAdam is Professor in Innovation Management at the Faculty of Business and Management, University of Ulster. Rodney has recently received The Distinguished Research Fellowship Award from the University of Ulster. He has a large number of publications (150 þ ) in the area of Knowledge, Innovation, Quality Management, and Business Improvement. He is a regular conference speaker at international conferences and supervises a number of PhD students in the area of Knowledge, Quality and organisational change management. He has extensive consulting experience in leading public and private sector organisations throughout the UK and Europe. Before joining the university he worked in the aerospace industry. Amrik Sohal is Professor in the Department of Management, and Associate Dean of Research Development in the Faculty of Business and Economics, at Monash University, Australia. He is also the Director of the Australian Supply Chain Management Research Unit. He has received research grants from the State and Federal Governments, the Australian Research Council and Monash University. He has authored or co-authored over 100 papers published in refereed journals, as well as three books and a number of chapters contributed to books. He is a member of the Editorial Board of a number of journals in the area of quality management, technology management, and operations management.

The current issue and full text archive of this journal is available at www.emeraldinsight.com/0265-671X.htm

From quality management to socially responsible organisations: the case for CSR Shirley-Ann Hazlett

The case for CSR

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Queen’s University, Belfast, Northern Ireland

Rodney McAdam University of Ulster, Jordanstown Campus, Newtownabbey, Northern Ireland, and

Lisa Murray Queen’s University, Belfast, Northern Ireland Abstract Purpose – The purpose of this paper is to focus on the growing interest of the role of business in society, commonly referred to as CSR. Historically CSR can be traced back to the 1950s, although in very recent times there has been a virtual explosion of interest in its use and applicability in organisations. However, there are many unresolved issues, most notably in terms of how CSR should or can be implemented and embedded in an organisation. This paper therefore seeks to explore the relationship and potential synergies between quality management and CSR. Design/methodology/approach – The qualitative exploratory study in this paper represents the first stage of an ongoing research programme, and is based on an in-depth analysis of quality award submission documentation from six case organisations that have recently been recognised as winners in relation to their quest for business improvement. Findings – The paper finds that substantial evidence from each of the case organisations demonstrates the breadth and depth of activities in which they are engaging under the broad headings of workplace, environment, social impact, and economic impact. However, whilst there is no doubting the sincerity of the actions, the approaches and activities, a strategic focus on CSR is still very much in its infancy. Research limitations/implications – In this paper there is a paucity of empirical research examining how existing management tools, techniques and methodologies can be used to further the CSR debate. This paper represents an important first step in redressing this imbalance. Practical implications – The paper suggests that the quality management and business excellence frameworks can offer a strong foundation from which to develop CSR strategies, behaviours and activities in an organisation. Originality/value – This paper represents an important first step in understanding how and where CSR “fits” into an organisation and potentially how existing quality methodologies, tools and frameworks can be used to aid the implementation of CSR. Keywords Social responsibility, Quality management, Ethics Paper type Research paper

The authors would like to acknowledge the ongoing support from the Centre for Competitiveness, Northern Ireland. An earlier version of this paper was presented at the 7th International Research Conference on Quality, Innovation and Knowledge Management, Kuala Lumpur, 16-18 February 2005.

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Introduction Although the concept of Corporate Social Responsibility (CSR) has existed for decades, it is only in recent years that the number of organisations engaging in such behaviours and activities has increased markedly (McWilliams et al., 2006; Stainer and Stainer, 2003; McIntosh et al., 2003). Pryce (2002) suggests that, the current focus, is driven by five forces: customer pressure, changes in business procurement, government legislation and pressure, the rise of socially responsible investment, and the changing expectations of employees (p. 140). However, despite the significant interest that CSR has generated, a number of issues have not yet been satisfactorily addressed. Whilst the rhetoric encourages organisations to aspire to be more socially responsible, there is not a sufficiently explicit or detailed description of what it is they should be aiming for, nor is there a well developed or convincing body of literature that can clearly articulate the value to organisations of engaging in such behaviours (Van Marrewiijk, 2003). Indeed, much of the current interest in CSR centres on the need to engage in such behaviours as a matter of course but there is none, or very little, consideration of the incidence and types of initiatives that are seen in practice, or of why CSR initiatives are undertaken in some organisations and not in others. As a result, the meaning of CSR and the issues surrounding it remain clouded for many organisations (Webley, 2001; McWilliams et al., 2006). This paper presents the findings from an ongoing research programme dedicated to addressing these issues; in particular, the motivations for engaging in CSR behaviours, CSR and its relationship with other management philosophies (in particular, quality management), and the impact of CSR practices in organisations are developed further. Drawing on exploratory research conducted with businesses in Northern Ireland, this paper suggests that whilst corporations have generally recognised a responsibility to society, the implementation of this is much more problematic.

Towards a definition of CSR There is no one accepted definition of CSR (McWilliams et al., 2006; Amalric and Hauser, 2005; Brooks et al., 2004; Angelidis and Ibrahim, 2004). As a result, it has been defined, inter alia, as a term (Frankental, 2001); a concept (De Bruijn et al., 2004); a process (Hemingway and Maclagan, 2004); a theory (McWilliams and Siegel, 2001), whilst others claim it is simply an activity or set of activities (Husted, 2003; Joyner and Payne, 2002; Lantos, 2001). In addition, terms such as corporate citizenship, strategic philanthropy, corporate social responsiveness, and latterly good governance, environmentalism and sustainability are all used interchangeably to refer to the broad relationship that an organisation has with society. Stormer (2003), p. 284) reasons that, “business is part of society . . . neither can exist without the other”. A similar view is shared by Mikkila (2003) who also suggests, “that society has certain expectations regarding appropriate business behaviour and outcomes” (p. 79). The debate is further complicated by whether CSR is an organisational obligation or more voluntary in nature. Kok et al. (2001, p. 288), for example, advocate that CSR is: . . . the obligation of the firm to use its resources in ways to benefit society, through committed participation as a member of society, taking into account the society at large, and improving welfare of society at large independent of direct gains of the company.

However, there are others who strongly hold that CSR should be voluntary in nature (see, for example, Oketch, 2004). This is also addressed in the European Commission’s Green Paper on CSR (2001), where CSR is defined as:

The case for CSR

. . . a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.

Whilst these definitions do shed some light on CSR, Beltratti (2005) warns that current definitions are, “too general and far from theory” (p. 377), and thus limited in their effectiveness. In addition, both McWilliams et al. (2006) and Lockett et al. (2006) acknowledge that CSR lacks a dominant paradigm, hampering further development in the field and making it difficult to overcome concerns that CSR is little more than the latest management fad. As a result, from a practitioner perspective, the inconsistent and ambiguous terminology serves to confuse rather than enlighten and, from an academic perspective, the lack of consistency makes it difficult to compare results across studies and hampers our ability to understand the implications of CSR activity (McWilliams et al., 2006; Gobbels, 2002). Indeed, McWilliams et al. (2006) suggest that having a “good” definition of CSR, with a common terminology, would aid us in modelling the role of organisational culture and leadership in determining the importance of CSR within an organisation. Further, as Hopkins (2003) reminds us: . . . without a common language we do not really know that our dialogue with companies is being heard and interpreted in a consistent way (p. 125).

However, an “exact” definition of CSR may remain elusive, (Snider et al., 2003) since beliefs and attitudes regarding its nature and scope tend to fluctuate with the relevant issues of the day (Pinkston and Carroll, 1996). One certainty is that: . . . corporate responsibility is more than simply the “do good” stuff . . . fluff is not enough (Waddock, 2003, p. 114).

Relationships between CSR and quality management Notwithstanding these definitional difficulties, Diaz (2004) warns that if CSR is to become a win:win situation for both the organisation and society then, at present, two significant pieces are missing. The first is that CSR must be comprehensive, and secondly, CSR must be genuine as an impact-management strategy at the core of the business. To address these issues and to ensure that the full potential of CSR is realised it is important to look to more established bodies of literature for guidance and potential assimilation. Indeed, there are many obvious parallels between the development of CSR and the development of quality management as both a theoretical concept and management tool and clear synergies that can be derived. The word “quality”, in a global marketplace, suggests an inclusive approach for embracing major stakeholders, such as customers, employees, investors and society (Gentili et al., 2003). Perhaps, rather unsurprisingly then, terms such as ethics and social responsibility abound in the language of quality management (Jacques, 1999): “quality lives in symbiosis with ethics” (Sciarelli, 2002, p. 111). As McAdam and Leonard (2003), citing Moir (2001), assert, ethics in business is not merely philanthropy but an essential foundation upon which businesses are founded and through which business improvement can be achieved and better communities developed. Thus, they suggest

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that there is an onus on both practitioners and researchers to ensure that the ethical basis of quality is not overlooked and that quality management takes a leadership role in promoting ethical business practice, a view also reiterated by Svensson and Wood (2005). The evidence suggests that quality management and TQM can be used to develop an ethically sensitive corporate culture (Ahmed and Machold, 2004). Similarly, many definitions of CSR, Beltratti (2005) reminds us, stress the “equivalence between CSR and ethics” (p. 377). Indeed, Berenbein (2006) suggests that few distinguish between CSR and ethics when it comes to determining what it means for an organisation to be ethical. In a related vein, McAdam and Leonard (2003), drawing on the work of Wood (1991), suggest that two key perspectives have emerged within the broad remit of CSR. First, CSR can be defined in terms of legitimate ethics or acceptable ethical behaviour in current society at large. From this perspective, CSR is found to have a strong “ethical anchor”, where it is concerned with attitudes towards ethical considerations and fulfilment of moral obligations to society (Nakano, 1999). Second, CSR can be viewed from an instrumentalist perspective where it is concerned with activities that facilitate ethical behaviour and enable management to reach a balanced position in relation to the stakeholders’ voice (Carroll, 1999; McAdam and Leonard, 2003; Ahmed and Machold, 2004). This dualist definition has “considerable congruence” (McAdam and Leonard, 2003, p. 44) with quality management and is reminiscent of earlier work by Donaldson and Preston (1995) who stress the moral and ethical dimensions of CSR as well as the business case. Thus, Mizaur (1993) cited in Gentili et al. (2003) suggests that ethics, CSR, and quality are similar concepts in that they mean “doing the right things right” a view also shared by Zwetsloot (2003) and Waddock and Bodwell (2002). Further, CSR has a “strong affinity with the founding principles of quality management” through ethics, values-based governance, and respect for people (Leonard and McAdam, 2003, p. 27). The philosophies of, for example, Deming, Crosby, and Juran all lay testament to this. Crosby discusses the importance of integrity; Juran speaks of a system of values, beliefs, and behaviours that are necessary for organizational success. Ishikawa, 1985 (translated by Lu, 1985) makes a particularly strong statement on behalf of CSR when he asserts that, “the first concern of a company is the happiness of the people connected to it. If the people do not feel happy, that company does not deserve to exist”. In a related vein, Jacques (1999) asserts that “for many people, the tremendous appeal of quality is the opportunity to do good – to improve the workplace, to raise standards of living and to achieve excellence”. This same assertion also applies to organisations as they begin their CSR journey. This all implies that CSR could be a natural progression for those organisations that have already begun their “quality journey”. This concept of the quality journey (Dale and Lascelles, 1997) is portrayed as having an overall element of continuous improvement where organisations both develop and use quality management in an increasingly complex and sophisticated manner; in many respects progressing from quality assurance, through TQM to business excellence and now, socially responsible business. Indeed, the popularity of TQM means that nearly all operations have been exposed to some degree to strategic quality improvement programmes, which have been increasingly geared to the CSR arena through the issues of trust and reputation (Gentili et al., 2003, p. 243). Consequently, the principled basis of quality is one of the key factors that identify it as a key influence in CSR (McAdam and Leonard, 2003). Further, McAdam and Leonard (2003) suggest that these “ethical anchors” do not detract from

profit seeking motives, rather they emphasise sustainable performance through valuing people and the environment. The right thing for business and the right thing ethically are not incommensurate. Thus, these philosophies, which are at the heart of quality management, can influence and guide the formation of organisational values and ultimately the corporate vision and mission. They form the foundation of quality and, in turn, quality forms a stronger foundation for CSR to take hold. By way of conclusion, quality management is already well grounded within business and management theory and practice, and is recognised as having a strong ethical focus while contributing significantly to the achievement of organisational goals. McAdam and Leonard (2003) argue that TQM has “a foundational similarity to CSR” (p. 38) in that it has an ethical anchor considered essential for CSR development, a view also shared by Vinten (1998). This congruity suggests that CSR could possibly be incorporated into organisations more effectively and in shorter timescales by using existing quality management conduits (models and methodologies) and processes (Vinten, 1998; Kok et al., 2001) without undermining either the principles of CSR or quality management. The remainder of this paper examines the behaviours and activities of those organisations that have recently won quality awards, and thus have a strong foundation on which to build CSR. In addition, it will explore the extent to which these organisations engage in CSR, and whether and how such behaviours and / or activities are formerly integrated into their overall corporate strategy. Methodology The current qualitative exploratory study represents the first stage of a longer-term research project, and is based on an in-depth analysis of quality award submission documentation from six case organisations that have recently been recognised as winners in relation to their quest for business improvement. Case study research is deemed most appropriate in researching a topic that is still in its infancy. Further, the exploratory nature of the study and the “how” and “what” research questions are suited to case study analysis (Eisenhardt, 1989). To deepen and enrich the potential findings from the study, a multiple case study design was adopted as suggested by Yin (2003). This sample is opportunistic in nature, selected on the basis of perceived relevance and access, with no attempt being made to ensure statistical representativeness. The purpose at this stage is to identify common themes, areas of convergence and divergence and to facilitate additional interviews and in-depth case studies, as well as to enhance our understanding and refinement of the topic. Despite the absence of a universal definition, De Colle and Gonella (2003) suggest that it is possible to identify two broad approaches to CSR: internally focused approaches dealing with strategy, mission, values, culture and desired business behaviour; and externally focused approaches dealing with social, or external stakeholder issues. Thus, using the parameters established by the European Commission’s Green Paper on CSR (2001), International Organisation for Standardisation Strategic Advisory Group on Corporate Social Responsibility, 2002), strategic advisory group on CSR and Business in the Community’s scope for CSR, CSR activities within the case organisations were classified under four main areas: (1) Environment. (2) Workplace.

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(3) Social impact. (4) Economic impact. Of the six case studies, Case study 1 is a public sector organisation with 11,000 staff based in various locations, Case studies 2 and 3 are small, “not-for-profit” organisations. Case study 2 consists of both paid and volunteering staff (around 200 staff in total); whilst Case study 3 employs around 45 employees in two separate locations. Case study 4 is a Non-Departmental Public Body (NPDB), with 200 permanent staff and 300 temporary staff employed at peak times. Case studies 5 and 6 are manufacturing organisations; Case study 5 employs around 100 people in various locations, and Case study 6 employs approximately 300 people in various locations. Presented in Table I is evidence indicative of each of the four broad areas. The evidence presented in Table I suggests that the two broad approaches identified by De Colle and Gonella, 2003 are evident in all of the case study organisations. However, the evidence seems to be much more convincing in relation to internally focused approaches, particularly in relation to people management and development. All but one of the organisations have Investors in People accreditation, many have proactive mechanisms to elicit and respond to suggestions, comments and complaints from employees, and all of the organisations have a range of “benefits” to reward and recognise staff including performance-related-pay, enhanced health and well-being packages, augmented pension plans as well as informal social gatherings and events. Clearly, the public sector organisations are somewhat more limited in what they can do to reward and recognise staff, although the evidence suggests that their approaches are nonetheless effective. During an assessment visit in one of the organisations, an Investors in People assessor commented that “staff feel valued and considered they contributed towards the success of the organisation”. Findings from a staff satisfaction questionnaire in another of the organisations demonstrate that 90 percent of all employees “feel their opinions are valued, respected and given due consideration” with 85 percent acknowledging that “people are commended for the quality of their output”. Values such as trust, empowerment, and responsibility have resonance with both quality management and CSR, and were evident in all of the case study organisations. Waddock (2003) further suggests that real corporate responsibility is based on integrity. Indeed, two of the case studies mention integrity as an explicit corporate value, as evidenced in the following excerpt: The organisation has “founded a culture of honesty, integrity and quality as its guiding principles” . . . “This culture was seen as a real strength and one, which gave the business a distinct competitive advantage”.

For the other case studies, the role of integrity is more implicit than explicit in their mission statements and guiding principles, and has been commented favourably by a range of stakeholders. For example, one organisation included the following excerpt from a letter as evidence: . . . are outstanding in terms of the integrity it offers, its professionalism and its willingness to engage as a partner in a supportive, two-way relationship.

Whilst there are many varied activities, initiatives and behaviours that are externally focused, these seem to be more poorly thought through from a strategic perspective.

Donations to various charities through Not yet measured “Give-As-You-Earn” scheme Staff are members of various local voluntary organisations “With regard to the contribution to society, the Board has produced a policy aimed at promoting a culture of tolerance and respect for diversity within the organisation and the wider community” Have an excellent record in involving the community, developing links and establishing strong partnerships Donations to various charities through Not yet measured company events such as staff barbeques Staff are members of various local voluntary organisations facilitated through the organisation’s Volunteer Support Policy In 2002, formed a working party to improve organisation’s impact on the community as this was identified as an area for improvement in a 2001 assessment (continued)

Has Investors in People accreditation Seek to inspire, support and promote a culture that is people-centred, creative and innovative, committed to quality, accountable and corporate in outlook Offer a number of work-life balance schemes, such as job share, term time working, and family friendly scheme

Has Investors in People accreditation Champion inclusion and active citizenship to empower individuals to fulfil their potential, and a valued, challenged and committed workforce Family-friendly policies and flexible working patterns are introduced where possible

Case study Promotion of environmental education 1 Development and promotion of environmentally sound practice Energy conservation Reduction of waste Monitoring of discharges and emissions Aims to recycle and reuse materials where appropriate

Case study Developing an environmental policy 2 Currently benchmarking this policy with the practices of a range of organizations Recycling practices are ongoing Energy consumption is monitored Formed a working party to improve the company’s impact on society

(4) Economic impact

(3) Social impact

Four broad corporate social responsibility areas (2) Workplace

Case study no. (1) Environment

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Table I. Preliminary findings from case study organisations

Not yet Donations to various local charities measured through “Give-As-You-Earn” scheme and other social fundraising events Employee volunteering policy (80 percent of staff are involved) All employees, including leaders, are “encouraged to develop close links with society in its wider form” Identifies its impact of the community Not yet measured with respect to the “immediate”, “surrounding”, “local”, “national”, and “international” community Involvement through various initiatives including “Partners in Leaders” – a scheme that involves managers going into schools or working with business leaders to share knowledge and skills Chief Executive hosts customer and stakeholder lunches on a fortnightly basis. These are used as a “sounding-board to discuss organisational developments and initiatives as well as to take feedback on its products and services” (continued)

Has Investors in People accreditation Committed to enhancing work-life balance and has formalised a full range of related policies such as home-working, personalised or flexible hours, and facilitating job share arrangements Counselling service provided for members of staff Has Investors in People accreditation Flexible award scheme through the payments of honoraria All staff awarded an extra day’s annual leave in recognition of gaining ISO 9001 accreditation Have introduced Work-Life balance schemes, such as flexible working, parental leave and job sharing Provide employees with library facilities

Case study In 2000, adopted an organisation-wide 3 environmental policy Energy efficiency initiatives such as; recycling schemes, car sharing and environmentally sustainable purchasing Has championed a survey of N.I.’s top 200 companies and their environmental management

Case study Tries to reduce its consumption of 4 non-renewable resources Has reduced its spend on paper year on year from 1997/1998 “Discharges its environmental responsibilities with rigour” Endeavours to employ environmentally-friendly approaches in its operations

(4) Economic impact

(3) Social impact

Table I. (2) Workplace

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Case study no. (1) Environment

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Not yet Donates moneys to various charities measured and other local groups “It is a major objective of the business to behave as a good neighbour and care is taken to ensure that we are not perceived as a nuisance” “One of the things that the business does best is to listen and react to customer needs” Actively involved with all the local schools and colleges Involved in the community in which it Not yet operates, although they “do not actively measured seek perceptions of the public and government bodies” “We are committed to positively contributing to our local community” through education and training, such as work experience programmes for school children; through charitable and welfare provision, for example, Give-As-You-Earn scheme Policy and strategy are based on the needs and expectations of our stakeholders

Has Investors in People accreditation “We recognise that people are our single most important asset”

Wide range of training and management development opportunities A variety of formal and informal mechanisms to reward and recognise employees, such as company bonus scheme, full attendance awards, long service awards, dinners and pension schemes Core values include safety, teamwork, value and learning Created an employee morale process improvement team Staff social club

Case study Carried out its first environmental 5 impact audit in 1998 Has a waste management team to address environmental issues

Case study Have implemented an Environmental 6 Management System compliant with ISO 14001 Introduced segregation and recycling schemes Waste costs reduced by 42 percent between 1999 and 2001

(4) Economic impact

(3) Social impact

Four broad corporate social responsibility areas (2) Workplace

Case study no. (1) Environment

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Table I.

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All of the organisations acknowledge that they actively seek information and feedback from a wide variety of stakeholders (customers, government bodies, local community). However, it is less clear how this information is utilised, whether and how it influences policy and strategy, and how the organisation attempts to balance the competing and sometimes conflicting needs of some of the stakeholders. The focus on the environment is evident in all of the case organisations. As expected, the manufacturing organisations are further ahead of the service organisations. They have initiated environmental impact assessments, and one has implemented an Environmental Management systems accredited to ISO14001. All of the service organisations acknowledge that they are engaging in a range of activities designed to be “environmentally friendly”; these include energy conservation, reduction of waste, monitoring of discharges and emissions, and recycling activities. However, the general impression from all of the organisations is that environmental awareness is only noticeable after all other business activities have been completed. It is not yet an integral part of policy and strategy and only minimally integrated into business processes. There are a plethora of activities that all of the organisations engage in at a local community level. Inter alia, this is evidenced in the various fundraising activities for local charities (through Give-As-You-Earn Schemes, or staff social events, or “Dress Down Fridays”), attendance by both senior managers and employees at community-related events, as well as company personnel giving short talks to school children, other organisations or business gatherings. An organisational “CSR champion’ seems an inherently sensible idea (Hemingway and Maclagan, 2004; O’Dwyer, 2003; Maclagan, 1999) although it seems that in several cases the choice of the CSR activity at local level is very much dependent on the chief executive’s personal values and interests. Whilst employees have some input, this is minimal. Whilst there is no doubting the sincerity of the actions, the approaches and activities under the umbrella of CSR as manifested in the quality submission documentation a strategic focus on CSR is still very much in its infancy. While all of the organisations seem to be taking their responsibility to the community, environment and society seriously, at the moment each approach seems somewhat piecemeal, ad hoc and not clearly related back to policy and strategy. For example, one organisation admits that: . . . we do not actively seek perceptions of the public and government bodies.

Whilst another acknowledges that since virtually all of the employees live locally this enables the organisation “to understand and incorporate social factors” into its business practices. Although these organisations are deeply involved in philanthropic activities, the value of strategic CSR does not seem to have been recognised. This is perhaps not surprising given that research conducted by Carrigan(1997) found that 75 percent of firms acknowledged that they did not monitor their CSR work nor did they fully understand the value that is derived from engaging in such behaviour. Given that consistency of practice is often problematic (Reeves-Ellington, 1998), there are some concerns that without a clearer integration of CSR that once initial interest has waned that its longevity is less certain. As has been acknowledged in the literature, in much the same way as embedding quality management in an organisation takes time and often involves a culture change, the same is true for embedding CSR

(Brooks et al., 2004). Rather than identifying specific CSR processes it may be more beneficial for organisations to develop key business processes and then key CSR elements within those processes (Punter and Gangneux, 1998). Within the organisations this is easily identifiable for example in the sourcing of sustainable environmentally derived products from key suppliers as part of the supply process. Such approaches can thus present a strong business focus on CSR and thus provide a strong complement with the more ethical approach to CSR. Thus, as Moir (2001) suggests, this dual approach is more likely to sustain CSR activity and avoid polarised and unbalanced CSR efforts. Conclusions Drawing on exploratory research conducted into businesses in Northern Ireland, this paper acknowledges that whilst organisations have generally recognised a responsibility to society (Boatright, 2003), the implementation of this at a strategic level is much more problematic. To many, CSR remains “a vague and intangible term”, with “unclear boundaries” (Frankental, 2001; Lantos, 2001). Therefore, although the debate about CSR has continued to grow, we remain far from consensus on what it means and its value. Some organisations believe that CSR is nothing more than glossy reports and public relations ploys whilst others see it as something of a distraction. Some see it as a source of business opportunity and improved competitiveness, while others view it as simply good business practice. The evidence from the case study organisations suggests that they are engaging in CSR practices, but seem unsure of the value of doing so and thus their role and impact on society is perhaps not as strategic as it needs to be. There is substantial anecdotal evidence that this pattern is indicative of many organisations (Carrigan, 1997). Once the hype of CSR dies down, it is important that something is left. Whilst CSR can and should go far beyond philanthropy, allowing organisations to “manage responsibly as well as profitably” (Waddock et al., 2002, p. 132), it seems that in relation to the preliminary analysis a more concerted focus on the role of business in society is only now underway. Therefore, to better understand the impact and value of social responsibility, we need to develop a new perspective of the organisation- one that better reflects the changing role of business and society. Mindful of the fact that you cannot build a CSR system without a strong foundation, the role of quality management and business excellence frameworks become obvious hooks to embed these values and behaviours. As Gentili et al. (2003) assert a planned approach is of the essence; CSR can be advanced more rapidly if it can be incorporated into existing models and methodologies, rather than being viewed as a separate phenomenon. Therefore, integrating CSR into quality management frameworks, particularly in relation to policy and strategy, should help to ensure that CSR is something more than a passing fad. This places the quality profession at the forefront of CSR and represents a return to quality roots (Leonard and McAdam, 2003; Waddock and Bodwell, 2004). References Ahmed, P.K. and Machold, S. (2004), “The quality and ethics connection: toward virtuous organisations”, Total Quality Management and Business Excellence, Vol. 15 No. 4, p. 527. Amalric, F. and Hauser, J. (2005), “Economic drivers of corporate social responsibility activities”, Journal of Corporate Citizenship, Vol. 20, pp. 27-38.

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Angelidis, J. and Ibrahim, N. (2004), “An exploratory study of the impact of degree of religiousness upon an individual’s corporate social responsiveness orientation”, Journal of Business Ethics, Vol. 51 No. 2, pp. 119-28. Beltratti, A. (2005), “The complementarity between corporate governance and corporate social responsibility”, Geneva Papers on Risk and Insurance, Vol. 30 No. 3, p. 373. Berenbein, R.E. (2006), “Defining an organisation’s ethics brand”, Address Delivered to the Ethics and Compliance Conference: Putting it All Together, Vital Speeches of the Day, The Conference Board, New York, NY, 12 May, Vol. 72 No. 16/17, pp. 501-4. Boatright, J.R. (2003), Ethics and the Conduct of Business, 4th ed., Prentice Hall, Hemel Hempstead. Brooks, S., Williams, W. and Thomas, P. (2004), “CSR and strategic management: the prospects for converging discourses”, paper presented at the Inter-Disciplinary CSR Research Conference, 22-23 October. Carrigan, M. (1997), “The great corporate give-away – can marketing do good for the ‘do-gooders’?”, European Business Journal, Vol. 9 No. 4, pp. 40-7. Carroll, A.B. (1999), “Corporate social responsibility”, Business and Society, Vol. 38 No. 3, pp. 268-96. Dale, B. and Lascelles, D. (1997), “Total quality management adoption: revisiting the levels”, The TQM Magazine, Vol. 9 No. 6, pp. 418-28. De Bruijn, T., Fisscher, O., Nijhof, A. and Schoemaker, M. (2004), “Learning to be responsible: developing competencies for organisation-wide CSR”, paper presented at The Inter-Disciplinary CSR Research Conference, 22-23 October. De Colle, S. and Gonella, C. (2003), “Corporate social responsibility: the need for an integrated management framework”, International Journal of Business Performance Management, Vol. 5 Nos 2/3, pp. 199-212. Diaz, A. (2004), Forget TQM. Welcome CSR, available at: www.casianocommunications.com Donaldson, T. and Preston, L. (1995), “The stakeholder theory of the corporation: concepts, evidence and implications’”, Academy of Management Review, Vol. 20, pp. 65-91. Eisenhardt, K.M. (1989), “Building theories from case study research”, The Academy of Management Review, Vol. 14 No. 4, pp. 532-50. Frankental, P.G. (2001), “Corporate social responsibility”, Corporate Communications, Vol. 6 No. 1, pp. 18-24. Gentili, E., Stainer, A. and Stainer, L. (2003), “Ethical dimensions of total quality management”, International Journal of Business Performance Management, Vol. 5 Nos 2/3, pp. 237-44. Gobbels, M. (2002), “Reframing corporate social responsibility: the contemporary conception of a fuzzy notion”, in Van Marrewijk, M. (Ed.), Concepts and Definitions of CSR and Corporate Sustainability: Between Agency and Communion, Journal of Business Ethics, Vol. 44, pp. 95-105. Hemingway, C.A. and Maclagan, P.W. (2004), “Managers’ personal values as drivers of corporate social responsibility”, Journal of Business Ethics, Vol. 50 No. 1, p. 33. Hopkins, M. (2003), “The business case for CSR: where are we?”, International Journal of Business Performance Management, Vol. 5 Nos 2/3, pp. 125-40. Husted, B.W. (2003), “Governance choices for corporate social responsibility: to contribute, collaborate or internalize?”, Long Range Planning, Vol. 36, pp. 481-98. International Organisation for Standardisation Strategic Advisory Group on Corporate Social Responsibility (2002), Preliminary Working Definition of Organisational Social Responsibility, ISO/TMB AGCSR N4, Geneva.

Ishikawa, K. (1985), “What is total quality control?”, The Japanese Way, Prentice-Hall, Englewood Cliffs, NJ (trans. D.J. Lu). Jacques, M.L. (1999), “The call for quality: doing right things right”, Quality Progress, September, pp. 48-54. Joyner, B.E. and Payne, D. (2002), “A study of values, business ethics and corporate social responsibility”, Journal of Business Ethics, Vol. 41 No. 3, pp. 297-308. Kok, P.G., van der Wiele, T., McKenna, R. and Brown, A. (2001), “A corporate social responsibility audit within a quality management framework”, Journal of Business Ethics, Vol. 31 No. 4, pp. 285-97. Lantos, G.P.G. (2001), “The boundaries of strategic corporate social responsibility”, Journal of Consumer Marketing, Vol. 18 No. 7, pp. 595-630. Leonard, D. and McAdam, R. (2003), “Corporate social responsibility”, Quality Progress, Vol. 36 No. 10. Lockett, A., Moon, J. and Visser, W. (2006), “Corporate social responsibility in management research: focus, nature, salience and sources of influence”, Journal of Management Studies, Vol. 43 No. 1, pp. 115-35. McAdam, R. and Leonard, D. (2003), “Corporate social responsibility in a total quality management context: opportunities for sustainable growth”, Corporate Governance, Vol. 3 No. 4, pp. 36-45. McIntosh, M.R., Leipziger, T.D. and Coleman, G. (2003), Living Corporate Citizenship. Strategic Routes to Socially Responsible Business, Prentice-Hall, London. Maclagan, P. (1999), “Corporate social responsibility as a participative process”, Business Ethics: A European Review, Vol. 8 No. 1, pp. 43-9. McWilliams, A. and Siegel, D. (2001), “Corporate social responsibility: a theory of the firm perspective”, The Academy of Management Review, Vol. 16 No. 1. McWilliams, A., Siegel, D.S. and Wright, P.M. (2006), “Introduction – corporate social responsibility: strategic implications”, Journal of Management Studies, Vol. 26 No. 1, pp. 1-18. Mikkila, M. (2003), “Acceptability of operations as an indicator of corporate stakeholder performance”, Business Ethics: A European Review, Vol. 12 No. 1, pp. 78-87. Moir, L. (2001), “What do we mean by corporate social responsibility?”, Corporate Governance, Vol. 1 No. 2, pp. 16-22. Nakano, C. (1999), “Attempting to institutionalise ethics: case studies from Japan”, Journal of Business Ethics, Vol. 18 No. 4, pp. 335-43. O’Dwyer, B. (2003), “Conceptions of corporate social responsibility”, Accounting, Auditing & Accountability Journal, Vol. 16 No. 4, pp. 523-57. Oketch, M.O. (2004), “The corporate stake in social cohesion”, Corporate Governance, Vol. 4 No. 3, pp. 5-19. Pinkston, T. and Carroll, A. (1996), “A retrospective examination of CSR orientations: have they changed?”, Journal of Business Ethics, Vol. 15 No. 2, pp. 199-207. Pryce, V. (2002), “CSR – should it be the preserve of the usual suspects?”, Business Ethics: A European Review, Vol. 11 No. 2, pp. 140-2. Punter, L. and Gangneux, D. (1998), “Social accountability: the most recent element to ensure total quality management”, Journal of Total Quality Management, Vol. 9 No. 4, pp. 197-201. Reeves-Ellington, R. (1998), “Leadership for socially responsible organisations”, Leadership & Organization Development Journal, Vol. 19 No. 2, pp. 84-98.

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Towards a third generation of quality management Searching for a theoretical re-conceptualisation of contemporary organisations based on the notions of stakeholders and transactivity

Third generation of quality management 683

David Foster University of the Sunshine Coast, Maroochydore, Australia, and

Jan Jonker Radboud University, Nijmegen, The Netherlands Abstract Purpose – The purpose of this paper is to provide an analysis of the changes that have occurred in Quality Management to demonstrate that a generational change has occurred. It then seeks to establish a firm theoretical basis for the identified change. Design/methodology/approach – The paper is an analysis and critique of the quality management, stakeholder and management literature and is undertaken to identify emergent trends and themes. By questioning the basic assumptions underpinning the literature these trends and themes have been re-conceptualised into a model that the authors believe helps with interpretation and explanation. Findings – The findings in this paper are that the notion of quality, which has been around for more than a century, appears to be moving into a new phase. Having commenced as an object-oriented measurement and control device focusing on the quality of the output (of either a product or service), it has experienced a profound expansion and reorientation to now encompass the overall management of the organisation (TQM). This paper suggests that society is now entering a third generation where notions of transparency, accountability and (social) responsibility are blending into the body of knowledge regarding quality management. Research limitations/implications – The paper elaborates this idea further by exploring the way in which organisations engage with the broader society in which they operate. It also seeks to develop a theoretical understanding of that growing engagement. In doing this it uses the notion of transactivity, which underpins the connections between the organisation and its societal and business context. More importantly, it demonstrates how this notion provides a link between the changing concept of quality management and the increasingly significant notion of stakeholders. It finally aims to demonstrate that a transformed concept of quality management is emerging in which society plays a quintessential part. Originality/value – The paper provides a perspective on the quality movement that will help people to identify that the many disparate individual developments in the field are in fact part of a wider, fundamental change that has major implications and consequences. Keywords Stakeholder analysis, Quality management, Society Paper type Research paper

Introduction The notion of quality has dramatically evolved since its initial introduction when it focussed on object-oriented output measurement and subsequent control. This evolution

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was inevitable as the original concept was clarified and the procedures and processes adapted to changing organisational needs leading to an identifiable body of practices. It has also evolved in response to changing conceptions of the organisation itself, as long held fundamental assumptions and theories have been challenged and replaced. One significant example of this is the challenge made to the Friedmanite theory of the firm by those seeking to acknowledge a greater role for stakeholders (Key, 1999). The quality movement has responded by ensuring that certain stakeholder interests are incorporated into the quality management and business excellence models. Another significant change that has occurred is the recent attempt to develop quality thinking beyond a series of principles, procedures, methods and related models to become a comprehensive theory of organisational management. The main proponent of this (Foley, 2000, 2001, 2002) has attempted to incorporate the latest ideas on stakeholders into that theory. The work of Foley offers one of the exceptional efforts to turn a vast body of practices into a coherent body of knowledge thus leading to a mature contemporary theory of quality management. In response to this move, Foster (2005) sought to investigate in-depth the role that stakeholders play in organisational management in order to contribute to the development of the new theory of quality management. This looked again at some of the assumptions under-pinning the conceptualisation of organisations and linked the recent development of a stakeholder theory of the firm to Foley’s work. This paper focuses on the impact of the ideas above on the transformation of quality management itself and seeks to explore what their conceptual and theoretical meaning could be. It suggests that quality management is now entering a new “generation” where accountability and responsibility are being extended beyond the traditional organisational focus to encompass a wider societal and business context. This change in perspective is considered of such significance that this will lead to a third generation of quality management. A key feature of this third generation is the notion of transactivity, which underpins the connections between the organisation and its broader societal context. This notion provides a crucial link between the concept of quality management and the increasingly significant notion of corporate (social) responsibility (CSR). Towards a theory of quality management While the quality management movement still has a major contribution to make to organisational development and performance, the acknowledged lack of a theoretical framework has contributed to its marginalisation in the last decade. Some years ago Foley (2000) made the following point: For all its claims and myriad of descriptions, quality management is yet to be established as a theory of management, and find a place in the objective function of the contemporary business enterprise that it purports to assist (p. 87).

In subsequent papers Foley went on to develop a stakeholder theory of quality management based on a detailed analysis of the purpose of the firm (or business enterprise) and the rather crucial role that stakeholders play in the achievement of that purpose. There appears to be growing empirical evidence now available to substantiate the claim that the success (and indeed the long-term survival) of an organisation can be affected by the way in which management engages with stakeholders. This means that any theory concerned with quality management must look beyond the internal

operations of the organisation and consider the nature and management of its relationships with (all) relevant stakeholders. This lends support to Foley’s stakeholder theory of quality management that the long-term organisational success can only be accomplished if management acts “to optimise the quality of product and service to customers, subject to meeting the needs and expectations of non-customer stakeholders” (Foley, 2000, p. 89). In other words, quality management requires consideration of both customers (the traditional focus) and non-customer stakeholders. This will allow the on-going generation of shareholder value. This fundamental idea was modified and elaborated by Foster (2005) to include those organisations that are not focussed on the generation of profit. He argued that for this to become the basis of a theory of management regarding quality (one of Foley’s explicit objectives), it needs to apply to both public and private organisations and those that are not seeking to generate a profit or deliver a service. He investigated the value of Foley’s theory by taking the unusual approach of reviewing a situation where it did not apply. This demonstrated that the problems faced by the focal organisation (including an attempt to wind it up) arose at least partly because its management did not meet the needs and expectations of all stakeholders, concentrating instead solely on the customer. Having argued that a stakeholder theory of the organisation can incorporate all forms of organisations and not only the profit generating firm, he then generalised Foley’s definition of quality management to: “The long-term success of any organisation can be accomplished if management acts to optimise the achievement of organisational purpose, subject to meeting the needs and expectations of stakeholders” (Foster, 2005, p. 216). The stakeholder “theory” of quality management is essentially a statement of what a “quality” organisation would do[1]. While it is not a descriptive theory of the behaviour of all organisations, it should not be regarded simply as “normative” theory (what an organisation should do). The existence of these different organisational types does not mean that a specific theory is irrelevant or unsuitable. It simply demonstrates where it can be seen to apply. This makes it a more powerful predictive theory (i.e. successful organisations operate in this manner). Foster (2005) helped to confirm the validity of the theory by providing an example where an organisation did not behave as predicted and almost failed to meet the established measure of success – i.e. survival. Foster, building on the fundamental approach suggested by Foley, thus elaborated an emerging theory of organisational quality management one step further thus reinforcing the validity of a stakeholder approach. A third generation of quality? The stakeholder theory of quality management as presented above attempts to incorporate the necessity for management of a business enterprise to respond to the needs and expectations of increasingly diverse groups of stakeholders while still delivering shareholder value. Many of the principles and techniques of quality management have been concerned with the needs and expectations of particular groups that have been acknowledged for a long time to be part of the more traditional managerial model. These have traditionally been customers, and latterly included employees and suppliers (Freeman, 1984). The presented stakeholder theory of quality management suggests that relationships with other, more diverse, groups inside and outside the organisation can be explicitly considered and addressed in a more holistic manner while keeping a focus on the quality of outcomes.

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This stakeholder theory of quality management can be seen as being within the “quality family” as its foundations rest squarely on business processes. However, rather than it simply introducing an additional set of processes to under-pin the relationship between the organisation and its stakeholders, the theory requires fundamentally different types of processes that hitherto have not been part of normal business practice. These processes are not necessarily based on a commonality of interests or concerns or on an unequivocal outcome or objective. They are processes that must be capable of dealing with complex issues that are often ideologically based with problematic, indeterminate answers. These issues have been described as “wicked” (Coenen et al., 1998) or “messy” (Ackoff, 1999) problems for which solutions are neither clear nor agreed. These problems are not confined to those stakeholders that are traditionally viewed as external to the organisation. They may involve any or all stakeholders. This theory can therefore be seen as fundamentally different from quality models that have been outlined in the traditional quality literature (Oakland and Sohal, 1996; Bounds et al., 1994). Indeed, it is so different that it can be seen to represent an emerging third generation of quality that will gradually replace those that came earlier. Its focus is still on quality but is differentiated by the way quality is addressed. Moreover, for the first time it is grounded in an explicit theoretical framework. A preliminary list of the characteristics of this so-called third generation theory of quality management, and the way it differs from the previous conceptualisations, is outlined in Table I. While each characteristic may be debated individually, when considered as a whole the difference between the three “generations” becomes apparent. Conceptual challenges created by the third generation of quality management To better understand the third generation theory of quality management – including the pivotal role that it gives to stakeholders and the changing perceptions of organisations and their societal connections – requires a new perspective on “the firm”. It is argued here that our understanding of the phenomenon of stakeholders and their role in quality management is not helped by the retention of a traditional (Friedmanite) view of the firm. Such a view does not easily incorporate the role that stakeholders play in organisational behaviour and the contribution that stakeholder relations can make to ensure that organisations are embedded in the society in which they operate. Moreover, this traditional view is specific to the business enterprise. If a theory of quality management (the essence of the third generation) is to be of value it needs to refer to all forms of organisations, not simply those focussed on profit. Moving quality management beyond a strictly internal process orientation, the expanded concern for stakeholder’s needs and expectations raises the question of what these external relationships mean for the goal established for the organisation itself. Processes are designed for specific purposes or to achieve particular ends. The fact that they now seek to meet the needs and expectations of a broader range of stakeholders implies some degree of implicit or explicit responsibility to those groups or individuals. Rather fundamental issues raised here is that of the origins and nature of responsibility and the extent to which an organisation is responsible for stakeholders in the wider societal context? This also raises the question of how the organisation should act, given this responsibility. In developing his theory, Foley makes a distinction between the business aim and the business strategy with the former being identified as the

Culture

Irrelevant

Process Measurement Reactive Reliability Production Control Improvement Non-existent Non-existent (and/or) philanthropically Tools and techniques

Perspective on quality Focus Type of action Criterion for success Orientation Basic assumptions Change Stakeholder relationships Characteristic of engagement

Conceptual nature

First generation

Generations/characteristics Holistic Assessment Proactive Efficiency and effectiveness Processes Manageability Change Peripheral Deal-making (and/or) community involvement Techniques and methods and principles Unity of sameness

Second generation

Theory re “fit” of organisation and context Unity of diversity

Relational Understanding Engagement Accountability and transparency Relationships Inter-connectedness Transformation and transaction Embedded Complementarity and sensemaking

Third generation

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longer-term survival of the firm. Further development of the theory presented also necessitates additional reflection on what this means. At present, it tends to be a self-centred if not “egoistic” organisational concept where engagement with various stakeholders is seen as an instrumental necessity to achieve the objectives of one stakeholder type (being the shareholders or owners of the organisation). It is therefore important to understand survival and whether it should be characterised if not replaced by a more “inclusive ideal”. As the film titled “On the Beach” (filmed in Melbourne, Australia) demonstrated, what is the point of being the last survivor in a world that is utterly devastated? It goes without saying that the survival of the firm (or any organisation) will only be of value if it occurs within a societal context that retains positive features that make such survival worthwhile. Even the recipients of enormous wealth through business success would not really benefit if it had to be spent in the context of massive security, gated communities, environmental degradation, disease and pestilence. Engagement with stakeholders must be about linking the organisation to the wider society to ensure that society itself survives (Lepineux, 2005). In turn, this must be based on a realistic view of society including its complexity, diversity and contradictions. This third generation of quality management, with its emphasis on relationships, interconnectedness, etc. is goal achievement related, but only in so far as their achievement recognises the needs, expectations and contributions of those involved. Such stakeholder engagement is not driven by a self-centred strategy to overcome potential obstacles only perceived from the perspective of the focal organisation. Rather, it is undertaken in recognition that without the involvement of the various parties the longer-term quality of survival of the organisation itself is threatened. These points above are been made against a backdrop of a societal landscape that has changed dramatically over the past decades. There is now an established and growing concern about the environmental and social consequences of actions undertaken by organisations. They are questioned about their role and purpose and their actions are assessed in terms of “fit” within the societal context of which they are unmistakably part (Zadeck, 2001). Given their dominant economic and social impact, many believe they ought to have a central role in maintaining the “fabric” of society (Jonker, 2000). Terms such as “sustainability”, “corporate social responsibility” and “the global civil society”, are now commonly used in this context. They are indicative of changing views about the role and responsibilities of organisations in society. Taking a closer look at these changing views it can be stated that society is in the midst of a transformation without precedent. However the underlying drivers and concepts these changes are based upon, remain unclear. Instead what has become clear is that engagement with the wider society through a variety of stakeholders remains quintessential. The rest of the paper addresses these challenges and presents a theoretical framework within which the essential characteristics of this third generation of quality management can be located and understood. Fundamental to this is an understanding of the role of stakeholders in organisational behaviour. Organisational engagement with stakeholders The contemporary stakeholder literature can be traced back to the seminal work of Freeman (1984) who articulated a “Stakeholder Model” to replace the “Managerial Model” of the firm. The latter, which had served managers well for many years, focussed on the role of employees, suppliers, shareholders and customers. He drew

attention to the role of external stakeholders defined as “any group who can affect, or is affected by, the accomplishment of organisational purpose” (p. 25). He proposed a new conceptual model of the firm that had up to then incorporated only a limited number of groups or interests. This was more than the establishment of a simple model incorporating new groups. Rather, it was a call for real understanding of the needs and expectations of all stakeholders, taking into account their increasingly diverse and sophisticated ways of influencing firm behaviour and effectiveness. What Freeman did was to re-conceptualise the nature of the firm in order to encourage and legitimise new forms of managerial action necessary in the changing circumstances of the modern world. In the older “Managerial View of the Firm” the external environment was conceptualised as being anything that did not include the corporation itself, the owners, the suppliers and the customers. The proposed “Stakeholder View of the Firm” expanded the conceptual boundaries to incorporate other external parties. Instead of regarding them as external to the firm, Freeman suggested that they should be “integrated” into the firm in some way. While managers had developed ways of understanding and addressing the dynamics of the “traditional” stakeholders, he suggested that managers needed to develop this same understanding of those stakeholders that were previously perceived to be external to the firm. In making this suggestion he brought forward the idea that external actors where from now on also part of the (social) fabric of all actors related to the firm. This fundamental re-conceptualisation has lead to a transition in our thinking regarding the contemporary business enterprise (Lozano, 2005). The role of stakeholders has been the subject of an impressive amount of research since the seminal work by Freeman (1984). While he only sought to develop a general approach to strategic decision-making, it has subsequently become the basis of a new theory of the firm (Donaldson and Preston, 1995). This so-called “stakeholder theory of the firm” was originally proposed by Brenner and Cochran (1991) and subsequently developed by other scholars (see, for example, Brenner, 1993; Donaldson and Preston, 1995; and Jones, 1995). It has provided a framework for research in the “Business and Society” field (Carroll, 1989) and taken on the status of a “master theory in its own right” (Rowley, 1997, p. 889) by seeking to describe how organisations will operate under certain conditions. It is presented by many as an alternative theory of the firm, one that should replace the traditional Friedmanite economic theory of the firm (Andriof and Waddock, 2002). Given all the work done in this field one could easily get the impression that this valid stakeholder perspective on the business enterprise has led to the development of a solid theory. However, Key (1999) has suggested that although recognition of identifiable actors in the external environment is a valuable conceptual and strategic tool, it does not warrant the status of a theory, particularly one that seeks to be regarded as a new theory of the firm. In particular, it does not provide an adequate theoretical basis for explaining firm behaviour or the individual behaviour of internal or external actors. She suggests that what is missing is a methodology explaining the dynamics that link the firm to the stakeholders that are identified (Key, 1999). While the motivations of profit and efficiency may be what Freeman and subsequent scholars had in mind, these are not made explicit and could easily be replaced by alternatives such as Davis’ “Iron law of Responsibility” (Davis, 1973) or some normatively based social responsibility (Wood, 1991). When looking again at Foley’s “stakeholder theory of quality management” it is firmly based on the significant role that stakeholders play in the functioning and

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survival of the firm. However, in its conceptualisation Foley relies on the traditional Friedmanite theory of the firm. This places stakeholders in a position of bounded influence, where the achievement of purpose is restrained by the consideration of stakeholder needs and expectations. Perhaps the emerging stakeholder theory of the firm may provide a better theoretical framework for a stakeholder theory of quality management by focussing on the complexity of the multiple relationships between all stakeholders rather than on the primacy of one. This may also provide an opportunity to extend the focus beyond that of the profit-driven corporation to include all organisations. The next section takes up this challenge by looking at the assumptions underpinning the theory as presented. It then develops an alternative that reflects other – equally valid – assumptions leading to an ontological perspective. Towards a theory of the organisation What is needed is the further development of a contemporary theory of the firm that is consistent with the view of the stakeholder perspective as espoused above. This would help us to better understand both the nature of the organisation and how it fits into the broader societal framework. To be of value to the quality management movement, such a theory should be concerned with all forms of organisations, not only those seeking to make a profit. The position being developed here recognises the “business enterprise” as being one form of organisation with particular objectives and consequential behaviour. Much of the extant literature views “the firm” as a distinct phenomenon that is different in both kind and nature from other forms of organisations. Other scholars use the terms “the firm”, “the business enterprise” and “the organisation” interchangeably, as though they refer to the same phenomenon (Brenner, 1993). It is suggested here that it is more appropriate to regard the firm as one type of organisation with motivation and purposes that explain the exhibited pattern of behaviour within a broader framework applicable to all organisations. Despite their different purposes, their essential characteristics are the same as all other organisations. Therefore, what is required is a contemporary “theory of the organisation” one that is applicable to all types of organisations, including those that engage in the generation of profit. The firm may be the most dominant form of organisation in the modern world (Jonker, 2000), but it is still an organisation albeit with particular purposes. If neoclassical theory is placed within this framework then the firm can be viewed as one form of organisation seeking to maximise the wealth of the owners by evaluating decisions using a rational, utility maximising choice process (Brenner, 1993). This is encapsulated in Milton Friedman’s view of the firm as a set of assets of the shareholders for whom the board of directors and executives are simply agents (Ambler and Wilson, 1995). The main aim of these agents is to increase the value of the shareholder assets (Hamilton and Clark, 1996). Other types of organisations may have different purposes (such as community development) and different ownership structures, but their features and basic operations are similar[2]. As noted already, many authors have attempted to develop alternative approaches towards the firm based on a stakeholder perspective. What follows here is a further attempt, yet this time within a broader framework wherein the proposed theory relates to all forms of organisations, not simply those driven by profit. The focus is on the organisational phenomenon itself, not on the objective it seeks to achieve. This solves the distinction between public and private organisations. Organisations are indeed

different, but only with regard to their primary purpose, not their general characteristics. This is equivalent to making an attempt to conceptualise human beings irrespective of their disparate personal objectives in life. The work by Key (1999) provides an excellent starting point. She suggests that: “central to a new theory of the firm is an understanding of the reciprocal contractual rights and duties that organisations have with different stakeholders. Many of these contracts are clearly outlined as legal ones such as those with employees and suppliers. Relationships with consumers, communities and others are also guided by legal standards such as tort law or regulation and thus may be considered ‘social’ contracts that are potentially enforceable in court” (p. 325). The basic proposition in this theory is that the firm is essentially a “nexus of contracts”. Importantly, this view does not require any reference to ownership or the primacy of one of the parties involved in this nexus. Key (1999) suggests that firm behaviour (choice processes) with regard to stakeholders is motivated by the economic benefits derived by honouring their contractual duties to those parties. Understanding the origin and nature of these contractual duties is in turn based on two theoretical approaches. The first is the role of transaction costs between parties that determines which contracts are negotiated within the firm and which are outsourced (Coase, 1937). According to this theory, management decides to produce a product or service if the coordination and process costs are less than the price of the product in the market. If it costs more to produce the product, the firm purchases it from the market at a price (transaction costs). Hence, dealing with external groups is driven by the rationality of cost relativities associated with production versus purchase. It is “these contractual relationships which determine the behaviour of the firm across the entirety of its operations” (Key, 1999). These contractual relationships are essentially stakeholder relationships, which, according to this theory, are driven by economic considerations. The second theory that Key regards as providing a foundation for a stakeholder theory of the firm is “Integrated Social Contract Theory” (Donaldson and Dunfee, 1994). This takes a broader view of a contract as a “social contract”. A social contract builds on the legal and moral concept of reciprocal rights and duties between parties and between the organisation and broader society. These duties and rights may be guided by both corporate law and social norms regarding the duties owed by parties to each other. This adds a normative dimension to decision-making. The relationships that “firms” have with stakeholders are driven by these deontological forces of “duties” and “rights”. While Key’s views have merit, firm behaviour is still primarily explained in terms of the economic consequences of decisions. However, both within and beyond the business enterprise the singular focus on economic criteria for decision making appears to be less significant than she suggests (Cope and Kalantzis, 1997; Etzioni, 1988). Alternatively, there is very little evidence that behaviour is the result of deontological forces. It is suggested that there is a need to revisit this “contractual” perspective to provide an alternative explanation of organisational behaviour, including behaviour in the business enterprise. The aim is to provide a different theory of the organisation that may help our understanding of organisational behaviour vis-a`-vis stakeholders in terms of the nexus of multilateral contracts. The basic proposition is that the firm can be interpreted as a particular expression of the more general perspective that an organisation is a resource conversion phenomenon exhibiting a pattern of interaction worked out by

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self-interested participants through negotiated and tentative agreement on lines of behaviour in order to achieve collective goals (after Cyert and March, 1963; Keeley, 1980). The organisation’s existence or raison d’eˆtre is to achieve collectively agreed goals, and its success relies on its ability to attract and satisfy enough participants willing and able to cooperate in mutually beneficial exchange (Chaffee, 1985). So if the organisation seeks to achieve something it must engage with the participants in the process. This “something” could be profit, the delivery of a service within budget, community development, health, social cohesion or any one of a myriad of different things. The use of the term “participants” is both deliberate and significant. It is used in preference to the term “members” which has connotations for the nature of the relationship within the organisation. A participant is anyone (or any entity) who interacts in a system of behaviour – this could include managers, workers, shareholders, suppliers, customers, lawyers, tax collectors, and even regulatory agencies (Cyert and March, 1963). The organisation operates through transactions among participants for benefits generated by their collective action. These transactions can range in type from the very informal to the formal contract. A crucial notion here is transaction. If the result of cooperation is not mutually beneficial, participants can withdraw their involvement and support. So in the long run the continuity of the firm is only safeguarded by the quality of its transactions. Managing – or even better: organising – these transactions in a mutually beneficial way changes the self-centred perspective of the firm and thus places an emphasis on the quality of transactions leading to the notion of transactivity. In line with accepted conceptualisations of theory, there is also a requirement to identify decision processes that drive the relationships within this “coalition of self-interested parties”. In the vast literature on the business enterprise the dominant process is that of bounded economic rationality in which the objective of minimising transaction costs is paramount (Coase, 1937; Foley, 1999; Hensler, 2002). Brenner (1993) has identified the limitations and difficulties associated with adopting this view. In particular, it tends to ignore the fact that organisational decisions and actions are often the result of “political processes, bargaining processes, and power games within organisations” (Schwenk, 1988, p. 51). The influence that the various participants have over the situation (the nexus of contracts) is affected by their inputs to the decision-making process. Schwenk (1988) suggests that their influence is at least partly based on their control of resources needed to achieve the goals established for the organisation. These could include such resources as finances, information, knowledge, capital or even support. One can thus see the decision process “not in terms of problem, search and choice, but rather in terms of activation of individuals and units, mobilisation of others into a coalition, negotiations with other units and coalitions, and compromise, accommodation, or consensus to reach final choice” (Bass, 1983, p. 100; cited in Brenner, 1993). In terms of the motivation for those involved in the choice processes, Jensen and Meckling (1976) have identified several schools of thought to explain behaviour of individuals in organisations. Of these, the so-called Resourceful, Evaluative, Maximizing Model (REMM) is seen as the most appropriate here. According to Hensler (2002), this model is based on a series of assumptions: . Individuals care and can evaluate. . Individual wants are unlimited.

. .

Individuals are maximisers. The individual is resourceful.

Those involved in the decision-making processes are therefore seen as resourceful, purposive individuals who coalesce as groups to achieve their self-interests. They are not driven by entirely economic ends (such as minimising transaction costs and maximising profits), social ends (such as social constraints or demands) or psychological need (such as safety), but some (individual or group-wise) changing combination of all. This combination is driven by cues derived from a variety of sources depending on the local situation and the specific context. Moreover, any choice made is temporary and can change when the cues or the participants change. This conceptualisation clarifies the crucial role of stakeholders in constructing and maintaining organisations. The whole organisation is perceived as a dynamic nexus of contracts composed of stakeholders with different needs and expectations that change over time. These stakeholders could interact through the market (and therefore remain totally independent) or within the boundaries of an organisation. This removes the distinction between internal and external stakeholders as the distinction is artificial and depends on where the (temporary) boundary of the phenomenon we call an organisation is located. As will be shown later, the need to identify a boundary reflects a particular (organismic) view of an organisation. The assumption that participants are mainly driven by self-interest is, of course, controversial. Recognising that Andriof and Waddock, 2002 warning that any attempt to make assumptions about human behaviour would be “heroic”, some reference needs to be made to this issue. What is being suggested is not at all related to the assumption of rational self-interest that underpins economic theory. Self-interest is being used here in the sense of making decisions on the basis of what one considers (within the limit’s of bounded knowledge and understanding) to be in one’s best interests in terms of longer-term survival in all its forms[3]. Most arguments against self-interest as a motivating force are presented within the context of the market or see it in terms of individualism as a western concept that ignores the dominant community perspective observable in other cultures. For example, Cope and Kalantzis (1997)) strong criticism of the role of self-interest as a motivating force is an example of the former. They claim, “according to market logic, economic life is a series of transactions in which participants maximise self-interest” (p. 281). They also suggest that enthusiasts of the market-perspective are supposed to claim that the . . . “core of human motivation is individual will, and that ego and self-interest drive human activity” (p. 234). As a counterforce they present a view that the market is a “system of social reflexivity, an instance of culture in the most profound human sense. The market . . . not only involves seeing (an individual phenomenon), but observing other people seeing and observing other people observing (a reflexive, cultural process). Decisions are made on the basis of an assessment of how other people are likely to see us and our wares” (p. 234). This however, does not deny self-interest in the process; it simply places the notion of self-interest within a broader reflexive, interconnected cultural framework. Similarly, while different cultures live by a more communitarian philosophy, the sense of self and its interests seem to remain fundamental to interdependent group membership. This leads to the conclusion that the existence of individual interests is indeed the basis of interdependency.

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Give the self-evident observation that some organisations do have boundaries, the next question becomes why do these self-interested parties come together within some kind of structural and administrative arrangement that we call an organisation? Following Key (1999) the Transaction Cost Economics can be used to explain that organisations exist to economise on the marketing or transaction costs in the market (Coase, 1937). The boundaries of the organisation are determined by the trade-off between transaction and production costs within the organisation and across the market (Williamson and Winter, 1991). Transaction costs are particularly important because of the presence of bounded rationality and opportunism. In this view, the interested parties come together within the boundaries of an organisation for reasons of minimising exchange costs. The internalisation of a market transaction that results in a reduction in the transaction costs greater than the costs of hierarchical authority, leads to greater efficiencies (Williamson and Winter, 1991). Since transactions could be considered as the fundament for the raison d’eˆtre of an organisation handling these with the highest possible efficiency might lead to a greater satisfaction of the various stakeholders involved. Doing this in an environment that is structured in a certain way leads to a higher degree of successful transactions. One could therefore state that that is the reason why organisations exist. Penrose (1959) provides an alternative explanation of why organisations exist. According to her, the functional-hierarchical organisation does not exist to align incentives and reduce opportunism but rather to generate production economies through the on-going proximity of interacting and interdependent human resources (Pitelis and Wahl, 1998). Only through the administrative setting of an organisation can the necessary cohesion to develop and retain knowledge be guaranteed. She calls the retention of this knowledge as “knowledge capital”: “The cohesive character that an administrative organisation imparts to the activities of the people operating within it provides the justification for separating for analytical purposes such a group from all other groups” (Penrose, 1959, quoted in Pitelis and Wahl, 1998, p. 256).

Referring specifically to corporations, Penrose argues that competitive differences between firms are due to the “socially complex and tacit knowledge” that is built up through experience as an operating entity. This form of knowledge is quite different to “objective” knowledge and is not tradeable in the spot market. It is based on experience and on-going learning through the interaction and experience of those involved. Hence, the administrative framework provided by an organisation enables the capturing of this form of knowledge and the production economies that result. As a result the transactions that go on in the marketplace are replicated within the organisation whose boundaries are explained by either transaction cost reductions or production economies derived from on-going internal relationships. In reality, the existence of the administrative boundaries around the firm, while explainable through the arguments outlined above, are less significant than the relationships that may cross those boundaries (Harrison and St John, 1996). The corporate walls and boardroom do not define the organisation and make it distinct and separated from society as in the neo-classical view. The boundaries are significant from certain perspectives (e.g. determining legal obligations) but are themselves subject to change and should not be seen as establishing a barrier between the organisation and society (Andriof et al., 2002). The implications of the view developed here are as follows. It acknowledges that the motivation of interested parties for involvement in an organisation is self-interest in all

its forms, including economic. The focus of the outlined theory of the organisation is on the involvement of those parties, which in Freeman’s terminology can be regarded as stakeholders. Some of these parties may be within the administrative structure we call an organisation; others may remain outside but still have a considerable stake in the organisation in different respects. Even those that can be located within the administrative boundaries, also exist in another capacity within that social context (shareholders may also be customers, customers also can be members of NGOs, NGOs can take a stock-interest in companies, etc.). All these stakeholders have variable needs and expectations, some of which are addressed through their involvement leading either to individual or collective action. From the perspective of management, in order to achieve certain outcomes from this action, they must transact with the various parties (stakeholders) including those who have ownership rights (shareholders). It would be a token of bad managerial self-interest only to focus on the last ones. Transactions take various forms and are based on far more than legal or economic power. The notion of a social contract based on (historic) rights and duties as well as changing normative views play an important role in that respect. The classical view that management can just “order” something to occur, or for the parties to do what they say, does not fit in this conceptualisation. It has been demonstrated that indeed this does not occur in practice (Hardy and Clegg, 1998; Blau, 1964; Coch and French, 1948). The proposed conceptualisation of the contemporary organisation as a nexus of contracts based on self-interest and fundamental interconnectedness helps to understand why. A principal management focus therefore becomes the processes in which transactions occur to achieve the goals of the organisation and at the same time of the other parties involved. This we have labelled transactivity. Assumptions underpinning the conceptualisation The view of organisations presented here is based on a number of assumptions. First, the organisation is recognised as a social artefact, not a product of nature. “People create them. People make them what they are, and people might have chosen to make them differently” (Donaldson and Dunfee, 1994, p. 257). As Penrose (1959, pp. 9-10) stated so eloquently almost 50 years ago: “A firm is by no means an unambiguous clear-cut entity; it is not an observable object physically separable from other objects, and it is difficult to define except with reference to what it does or what is done within it”. Organisational reality is therefore socially constructed. The organisation is a social artefact constructed and defined through a process of social interchange between participants and the collective goals that are being sought through this interchange. This assumption is of particular interest as the way one conceptualises an organisation directly influences the nature of any theory that is developed to explain organisational behaviour (Morgan, 1968; Lozano, 2005). The literature would suggest that there are now two predominant ways of conceptualising organisations: as an organism or as a social collective[4]. These conceptualisations are best exemplified through their influence on the way the goals of the organisation are perceived. If an organisation is viewed as a “biological entity”, it is usually perceived as having collective welfare over and above the welfare of it’s individual participants (Keeley, 1980). In the case of the firm, this is regarded as “survival” that is ensured by generating profit (Foley, 1999). When an organisation is viewed as a social collective (as is the case here), the idea of an organisation having aims and interests of its own is

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brought into question. Keeley (1980) has argued convincingly that while organisations may have many properties, welfare-entailing properties (defined as goals, needs, interests, etc) are not among them. He argues that the “purpose as well as the binding element of social organisation is the satisfaction of diverse individual interests; and collective welfare, to the extent that the term is meaningful at all, is a direct function of individual welfares” (Keeley, 1980, p. 343). Organisations do have goals; but these are goals for the organisation not of the organisation. The goals for the organisation are derived from the participants and may or may not be commonly held. Often they reflect the views of powerful groups in the relationship. In the case of the firm, these may be the goals of the shareholders who may seek greater returns on their investment. However, common views and understandings can be negotiated to become the basis of newly established contractual relationships. Moreover, Keeley (1980) argues that the social contract view of the organisation is still consistent with a systems perspective that exhibits regulative and synergistic properties. Such systems of human interaction can also produce consequences of organisation “behaviour”, including such things as goods, services, profits, pollution, growth and survival. The rejection of organismic properties does not imply that organisations have no properties of their own or that they are simply aggregates of individuals. The consequences are more than the result of individual action; they result from the interaction of the participants. The fact that there are “consequences” suggests a need to take account of the needs and expectations of those involved in this interaction. A final assumption that needs clarification is what it means for the firm to be regarded as the property of the shareholders, and whether this bestows a special position on them. The traditional neo-classical view of the firm justifies the dominance of shareholder interests on the basis that the firm is their property. However, this view of property as a commodity is outdated. Deck (1994), like Donaldson and Preston (1995), argues that property needs to be re-conceptualised as an entitlement to a number of “rights”: “. . . ownership is not an absolute principle adhering to capital. Rather, what we understand by ownership is a ‘bundle of rights’ relating to capital” (Donaldson and Dunfee, 1994, p. 109). Ownership of an organisation (in most cases a business enterprise or firm) does not mean incontrovertible control and benefits. Instead, it means that owners have certain rights and expectations that stand alongside the rights and expectations of other participants. Indeed Handy (1999) suggests that those who own the business enterprise can be viewed as the providers of finance “with financial privileges proportional to the risks they run” (p. 353). The stakeholder theory of the organisation developed here therefore sees shareholders as one of the many “participants” in the nexus of contracts. They have interests and perspectives that are important but by no means the only ones that will determine outcomes. Blending it all together Where do we go from here? What we have tried to provide are the theoretical building blocks that lead to an emerging theory of the contemporary organisation. It is based on the fundamental idea that this organisation is “constructed” around a nexus of contracts in which a variety of stakeholders are involved including shareholders. All participants in the (inter) organisational arrangements may therefore be considered stakeholders. In the past decades the focus has been primarily on “internal” stakeholders (employers, suppliers, customers and shareholders). The growth and

recognition of the number of (external) stakeholders has increased management complexity by the need to consider their views and expectations. Adopting a contractual view of organisations as a social collective helps to understand the crucial role all types of stakeholders play in organisational strategic thinking and decision-making and the fact that the distinction between internal and external stakeholders is artificial and affected by many considerations. Basically, stakeholders potentially have the power to influence the behaviour of the organisation. Some, more than others, may play a central role in the complex relationships that ensue. Each is motivated by self-interest, which is moderated by the need to work with other participants to produce the outcomes sought through collective action. If this need for the involvement of others were non-existent then they would not be involved and not contract. Collective (self-)interest is not exclusively seen within rational-economic parameters but may include the social, the cultural and the environmental. Nor is it seen as being the same as “selfishness”. The latter implies achieving one’s ends at the expense of others rather than in the milieu of others. Self-interest exists within a milieu of mutually related self-interests, not a framework of mutually destructive selfishness. As noted by Freeman (1984), managers have to deal with the complexity of economic, formal and political power and influence used variously by different types of stakeholders in diverse situations. Management is about designing and implementing strategic processes and controlling systems (Hensler, 2002) in order to satisfy needs and expectations of various stakeholders. Those with responsibility for managing this “nexus of contracts” (executives and senior managers) operate within the context of multiple interests and expectations. Managers can be seen as “interest balancers” and are judged by their ability to satisfy the needs and expectations of participants within the constraints of achieving the goals for the organisation. Managers, as one of the coalition of participants, play a leading role in negotiating with other participants to establish both objectives for the organisation and the strategies to achieve those objectives. However, this “negotiation” is not simply at their discretion. When decisions are made that are either not supported by other participants, or the needs and expectations of those participants are either not considered or ignored, then some form of conflict will arise. Given the complexity, the (potentially) conflicting interest and the changing nature of needs and expectations, it is no wonder that such conflict arises. This is exacerbated by the fact that it is literally impossible for any organisation to totally satisfy all needs and expectations of all participants or stakeholders. If it would aim at that kind of satisfaction it would simply cease to exist. Figure 1 is a schematic diagram designed to visually represent the proposed Stakeholder Theory of the Organisation. It demonstrates the complexity of the conceptualisation with all the participants overlapping and each individual group having a role and existence that transcends beyond that of the organisation. For example, the participants labelled “shareholders” may also be variously “customers”, “suppliers” and even members of various “conservation groups”. Alternatively, they may also be “shareholders” in yet another organisation. The organisation itself is essentially represented by the Board and Management Group and is indicated by a broken line reflecting the temporary nature of the boundary. The most important feature is the fact that the roles and activities of the various participants overlap, rather than their location vis-a`-vis the boundary. The Management Group is responsible for ensuring that the “nexus of contracts” continues to function to achieve organisational goals.

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Figure 1. A schematic model illustrating the proposed stakeholder theory of the organisation

The conceptualisation is quite different to the “hub-and-spoke” model that is usually associated with stakeholder literature and reflects the complexity of the situation and the linkages that each group, individually and collectively, has with the broader society of which it is a part. While this cannot be shown on a two-dimensional diagram of this type, this cluster of participants sits within a very complex cluster of clusters. It is not meant, to be seen as an isolated nucleus, floating in an abstract disconnected world.

Implications As noted above, Foley’s stakeholder theory of quality management, which we have argued represents a third generation of quality management, emphasises the role that stakeholders play in influencing the long-term survival of the business enterprise. In his theory, while the focus of management is on the products and services for customers (outputs of the firm), this is undertaken with consideration for the needs and expectations of non-customer stakeholders. Instead of the choice processes being driven by only one of these stakeholders (the shareholders), the views of a range of stakeholders become significant. This paper has sought to demonstrate that this is very similar to the so-called “stakeholder theory of the firm” which also recognises the role of stakeholders in the behaviour of all types of organisations. Moreover, it has established that such a theory makes even more sense when alternative under-pinning assumptions are explored.

The assumptions underpinning this perspective include that organisational reality is socially constructed. The organisation is a social artefact defined through processes of social interchange between participants. This is manifested as a “nexus of contracts”. This perspective also has implications for the relationships between the interested parties. As with most contractual arrangements, the relationship itself, the objectives established and the consequences that ensue are socially constructed. Chaffee (1985) – among others – has described any resultant strategy for the organisation as “frames of reference” that provide a mechanism for continued agreement and participation. Those frames are plural because these cannot be enforced as an agreement with all on a single interpretation. As different participants have different perspectives on the organisation, its goals, other stakeholders and the environment at large, the mutual construction of social reality will impact on their support for transactions in the organisation (as shown by Rahman, 2003). The implication of this is that management is no longer a matter of adapting the organisation to the ever-changing external reality, even if this reality is conceptualised in terms of stakeholders. This leads to the observation that the classical theory about organisational “fit” needs either to be revised fundamentally or may even have become obsolete. To date, the external environment has often been regarded as an exogenous entity that imposes constraints on opportunities for strategic action. Such action requires the isolated manager to navigate obstacles in hostile terrain in order to achieve egoistic success. To create the proper fit can thus be regarded as a constant managerial battle one has to win but also can loose. The proposed conceptualisation suggests that the environment, of which the organisation is a part, is no longer faceless, nor intractable (Andriof and Waddock, 2002). Rather, it is composed of stakeholders that organisations need to engage with in order to create the domain in which they operate. According to Lepineux (2005) the essential characteristic of this domain is social cohesiveness that is an essential requirement for business operations. The achievement of this and other positive characteristics of the domain involves active engagement through symbolic actions and communication on the one hand, and mutual projects and business on the other, all leading to the satisfaction of various, changeable and sometimes conflicting needs and expectations represented by an array of variable stakeholders. Managers – as one of the stakeholders – acting in the “nexus of contracts” – need to engage with the complex social reality in which they are embedded. Conventional managerial wisdom to think in terms of markets is in this respect more of a hindrance given the opaqueness of what “belongs” to the organisation and its (social) environment. Part of this new engagement involves the active construction of reality itself beyond the notion of the marketplace and contributing to the social capital and cohesion on which any organisation thrives. The emphasis therefore is on the attitudinal and cognitive complexity of the engagement with diverse stakeholders. Realising this fundamental re-conceptualisation in terms of concepts, methods and techniques could indeed be seen as the organisational challenge for the decades ahead. Conclusions This paper has suggested that quality management has moved into a third generation that is fundamentally different to what has come before. This inter-generational change is based on a greater understanding of the role that stakeholders play in organisational behaviour and survival. To support this the paper has introduced and

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elaborated an alternative conceptualisation of the organisation based on a stakeholder perspective. This is a particularly complex perspective that involves an understanding of the diverse socially constructed nature of reality. What has not been addressed is a discussion of the “world-view” on which this conceptualisation is based. Organisations, including the firm, can only exist within a societal framework; they depend on that framework. Therefore there is also an urgent need to understand the way that the organisation, as understood through the theory being proposed here, fits into that society. There is no debate that society itself is in the midst of a transition. The previously mentioned social contract on which many societies have been so well established is under attack. Social capital and cohesion are as a result in decline. This development in turn requires an analysis of society itself thus raising the issues of what we understand to be a society, its basics institutions, norms and codes of conduct. This issue goes well beyond the scope of this paper. It was argued that for organisations the proposed theory implies a need to assess actions in terms of “fit” within the societal context of which they are unmistakably part. At a more fundamental level it reflects an increasing focus on the contribution of organisations to society. We are not driven to look at this because of purpose but because they are a social phenomenon that exists within a wider societal framework. The very contributors to the on-going performance of the organisation are themselves part of a broader phenomenon we call society, making the situation very complex, reflexive and ever changing. Developing ways to engage in this system appropriately will not be easy for organisations that have been used to “managing” stakeholders on their own terms (Andriof et al., 2002). It is likely that this will lead to new perspectives on societal arrangements. This transformation process will be unavoidably political and may possibly require new rules for society. Organisations, including business enterprises, will not be able to avoid confronting the issues and concerns of the broader society. This does not mean that all organisations will suddenly become concerned about alleviating poverty, addressing world peace or promoting community development. Rather, it suggests that in achieving agreement on strategic direction and its implementation, managers will have to recognise the societal framework within which they operate and the way in which their multiple stakeholders in turn perceive and engage within that framework (Andriof and Waddock, 2002). This adds great complexity to the role of managers who may have previously felt that these issues and concerns were not relevant to the achievement of their organisational goals. Developing a stance and perspective in this matter might lead to better understanding of what is temporarily called “corporate social responsibility”. Besides some marginal remarks with respect to the nature of responsibility we have neither addressed this issue here since it would require a theoretical elaboration in its own right. Once again this goes well beyond the scope of this paper. Before wrapping up it needs to be emphasised that business is not the whole of life or a substitute for family, school, club or church. Unless this is made explicit there is a danger, as Mahoney (1990) has observed, of overloading business with social expectations to such an extent that it would hamper its profit-making activities, which remain its raison d’eˆtre (Jonker, 2003). However, in so far as the survival of these profit-making activities requires a society in which to operate, involvement in societal issues through stakeholder engagement is both self-serving and appropriate. Future-oriented quality management will therefore require engagement in the current social and political debate and influencing it by taking responsible action. The

“political” nor the “social” will no longer be seen in negative terms but as part and parcel of the reality of organisational life. Notes 1. This is like clarifying how a “healthy” body would function. Not everyone we look at would have such a healthy body but that does not negate the value of developing a “theory of the healthy body”. As such it is more an instrumentalist rather than a descriptive or normative theory. 2. Druker recognizes differences but these are actually quite trivial. 3. Note that Freeman and Phillips (2002) provide a valuable discussion of self-interest and its role in stakeholder theory. However, they equate self-interest with being selfish and contrast it with altruism. The meaning of self-interest as it is used here is more in line with what Freeman and Gilbert (1988) call “personal projects”. 4. In the past, an alternative conceptualisation was of the organisation as a machine (Taylor, 1911). This has been largely discredited and will be ignored. References Ackoff, R.L. (1999), “On learning and systems that facilitate it”, Reflections, Vol. 1 No. 1, repr. from the Center for Quality of Management, Cambridge, MA, pp. 14-24. Ambler, T. and Wilson, A. (1995), “Problems of stakeholder theory”, Business Ethics, Vol. 4 No. 1, pp. 30-5. Andriof, J. and Waddock, S. (2002), “Unfolding stakeholder engagement”, in Andriof, J., Waddock, S., Husted, B. and Rahman, S.S. (Eds), Unfolding Stakeholder Thinking, Vol. 1: Theory Responsibility and Engagement, Greenleaf Publishing, Sheffield. Andriof, J., Waddock, S., Husted, B. and Rahman, S.S. (2002), Unfolding Stakeholder Thinking, Vol 1: Theory Responsibility and Engagement, Greenleaf Publishing, Sheffield. Bass, B. (1983), Organizational Decision Making, Irwin, Homewood, IL. Blau, P. (1964), Exchange and Power in Social Life, Wiley, New York, NY. Bounds, G., Yorks, L., Adams, M. and Ranney, G. (1994), Total Quality Management: Toward the Emerging Paradigm, McGraw-Hill, New York, NY. Brenner, S.N. (1993), “The stakeholder theory of the firm and organisational decision-making: some propositions and a model”, Proceedings of 4th Annual Meeting of the International Association for Business and Society, San Diego, CA. Brenner, S.N. and Cochran, P.L. (1991), “The stakeholder theory of the firm: implications for business and society theory and research”, Proceedings of 2nd Annual Meeting of International Association for Business and Society, Sundance, UT. Carroll, A.B. (1989), Business and Society: Ethics and Stakeholder Management, South-Western, Cincinnati, OH. Chaffee, E.L. (1985), “Three models of strategy”, Academy of Management Review, Vol. 10 No. 1, pp. 89-98. Coase, R.H. (1937), “The nature of the firm”, Economica, Vol. 4, pp. 386-405. Coch, L. and French, J.R.P. (1948), “Overcoming resistance to change”, Human Relations, Vol. 1, pp. 512-32. Coenen, F.H.J.M., Huitema, D. and O’Toole, L.J. (1998), Participation and the Quality of Environmental Decision-making, Kluwer Academic Publishers, Dordrecht. Cope, B. and Kalantzis, M. (1997), Productive Diversity, Pluto Press, Annandale, VA.

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Cyert, R.M. and March, J.G. (1963), A Behavioral Theory of the Firm, Columbia University, New York, NY. Davis, K. (1973), “The case for and against business assumptions of social responsibilities”, Academy of Management Journal, Vol. 16, pp. 312-22. Deck, M. (1994), “Essay in the Toronto Conference: reflections on stakeholder theory”, Business and Society, Vol. 33 No. 1, pp. 108-10. Donaldson, T. and Dunfee, T. (1994), “Toward a unified conception of business ethics: integrative social contracts theory”, Academy of Management Review, Vol. 19 No. 2, pp. 252-84. Donaldson, T. and Preston, L.E. (1995), “The stakeholder theory of the corporation: concepts, evidence and implications”, Academy of Management Review, Vol. 20 No. 1, pp. 65-91. Etzioni, A. (1988), The Moral Dimension, Basic Books, New York, NY. Foley, K. (1999), What Is Quality Management?, Centre for Quality Management Research, RMIT University, Melbourne. Foley, K.J. (2000), “From quality management to organizational excellence: don’t throw the baby out with the bath water”, Multinational Alliance for the Advancement of Organisational Excellence, Proceedings of the 1st International Research Conference on Organisational Excellence in the Third Millennium, Estes Park, CO. Foley, K.J. (2001), “From quality management to organisation excellence: further thoughts on the contemporary business enterprise”, Proceedings of 2nd MAAOE International Conference, Versailles, pp. 197-214. Foster, D.J. (2005), “The dialogue of engagement: an enquiry into the role of stakeholders in quality management theory”, unpublished PhD thesis, Radboud University, Nijmegen. Foster, D. and Jonker, J. (2002), “Third generation quality management, change management”, Proceedings of the 7th International Conference on ISO 9000 and TQM, RMIT University, Melbourne. Freeman, R.E. (1984), Strategic Management: A Stakeholder Approach, Pitman, Boston, MA. Freeman, R.E. and Gilbert, D.R. (1988), Corporate Strategy and the Search for Ethics, Prentice-Hall, Englewood Cliffs, NJ. Freeman, R.E. and Phillips, R.A. (2002), “Stakeholder theory: a libertarian defense”, Business Ethics Quarterly, Vol. 12 No. 3, pp. 331-49. Hamilton, L. and Clark, T. (1996), “The stakeholder approach to the firm: a practical way forward or a theoretical flourish?”, Career Development International, Vol. 1/2, pp. 39-41. Handy, C. (1999), Understanding Organizations, Penguin, London. Hardy, C. and Clegg, S.R. (1998), “Some dare call it power”, in Clegg, S.R., Hardy, C. and Nord, W.R. (Eds), Handbook of Organizational Studies, Sage, London, pp. 622-41. Harrison, J.S. and St John, C.H. (1996), “Managing and partnering with external stakeholders”, Academy of Management Executive, Vol. 10 No. 2, pp. 46-60. Hensler, D. (2002), “Management (and change) is simple, just not easy, change management”, Proceedings of the 7th International Conference on ISO 9000 and TQM, RMIT University, Melbourne. Jensen, M.C. and Meckling, W.H. (1976), “Theory of the firm: managerial behaviour, agency cost and ownership structure”, Journal of Financial Economics, Vol. 3 No. 4, pp. 305-60. Jones, T.M. (1995), “Instrumental stakeholder theory: a synthesis of ethics and economics”, Academy of Management Review, Vol. 20, pp. 404-37. Jonker, J. (2000), “What has society got to do with it? Tracing the emerging third generation notion of quality”, Proceedings of the 6th ICIT Conference, Ayer, Scotland, pp. 428-33.

Jonker, J. (2003), “In search of society: redefining corporate social responsibility”, Organisational Theory and Business Strategies, Research in International Business and Finance, SI: Social Responsibility: Corporate Governance Issues, Vol. 17, pp. 423-41. Keeley, M. (1980), “Organizational analogy: a comparison of organismic and social contract models”, Administrative Science Quarterly, Vol. 25, pp. 337-62. Key, S. (1999), “Toward a new theory of the firm: a critique of ‘stakeholder’ theory”, Management Decision, Vol. 37 No. 4, pp. 317-28. Lepineux, F. (2005), “Stakeholder theory, society and social cohesion”, Corporate Governance, Vol. 5 No. 2, pp. 99-110. Lozano, J.M. (2005), “Towards the relational corporation: from managing stakeholder relationships to building stakeholder relationships (waiting for Copernicus)”, Corporate Governance, Vol. 5 No. 2, pp. 60-77. Morgan, G. (1968), Images of Organization, Sage, Beverly Hills, CA. Oakland, J.S. and Sohal, A.S. (1996), Total Quality Management: Text with Cases, Butterworth-Heinemann, Melbourne. Penrose, E.T. (1959), The Theory of the Growth of the Firm, Blackwell, Oxford. Pitelis, C.N. and Wahl, M.W. (1998), “Edith Penrose: pioneer of stakeholder theory”, Long Range Planning, Vol. 31 No. 2, pp. 252-61. Rowley, T.J. (1997), “Moving beyond didactic ties: a network theory of stakeholder influences”, Academy of Management Review, Vol. 22 No. 4, pp. 887-910. Schwenk, C.R. (1988), The Essence of Strategic Decision Making, Heath, Lexington, MA. Taylor, F.W. (1911), The Principles of Scientific Management, Harper Bros, New York, NY. Williamson, O.E. and Winter, S.G. (1991), The Nature of the Firm: Origins, Evolution and Development, Oxford University Press, Oxford. Wood, D.J. (1991), “Corporate social performance revisited”, Academy of Management Review, Vol. 16 No. 4, pp. 691-718. Zadeck, S. (2001), The Civil Corporation: The New Economy of Corporate Citizenship, Earthscan Publications Ltd, London. Further reading Foley, K.J. (1987), Report of the Committee of Review of Standards, Accreditation and Quality Control and Assurance, Department of Industry, Technology and Commerce, Canberra. Foley, K., Barton, R., Busteed, K., Hulbert, J. and Sprouster, J. (1997), Quality, Productivity and Competitiveness, Standards Australia, Strathfield. Corresponding author David Foster can be contacted at: [email protected]

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TQM and CSR nexus Abby Ghobadian and David Gallear Brunel University, Uxbridge, UK, and

Michael Hopkins

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MHC International Ltd, Geneva, Switzerland Abstract Purpose – The purpose of this paper is to explore the similarities and differences between Total Quality Management (TQM) and Corporate Social Responsibility (CSR). Moreover, the paper considers the implications of these similarities and differences for the future development of TQM and CSR. Design/methodology/approach – This paper is a structured discourse analysis which is used to systematically explore these two discursive subjects. Both concepts encompass discursive ideas and practices. Findings – The findings in the paper suggest that the two concepts share similar philosophical roots, that there is a substantial overlap between the elements of the two concepts, and that the ultimate expected outcome shows significant similarities. Despite these similarities, however, implementation of TQM will not necessarily result in CSR. Research limitations/implications – In this paper the findings lead to the conclusion that it is important to recognise the specific needs of CSR and include them as an implicit part of TQM. This conclusion has an important practical and descriptive theoretical implication and the extent to which CSR is diffused as a part of TQM depends on it. Practical implications – The paper highlights the need for the development of a descriptive theory, that is to say, the identification of the mechanism(s) through which elements of CSR could be developed and implemented alongside that of TQM. Originality/value – The paper sees that the question of the intersection between CSR and TQM has attracted the interest of other researchers. The majority of the previous work is normative. The contribution to this developing literature is made by adopting a systematic discursive approach using philosophy, elements of TQM/CSR process and outcomes as the framework for the analysis. Keywords Total quality management, Corporate social responsibility, Quality assurance Paper type Research paper

International Journal of Quality & Reliability Management Vol. 24 No. 7, 2007 pp. 704-721 q Emerald Group Publishing Limited 0265-671X DOI 10.1108/02656710710774683

Introduction The quality movement dates back to the 1920s (Coopers & Lybrand and EFQM, 1994-1995). For the first two decades the emphasis was on Quality Control and improving the process of technical inspection. The concept then evolved into Statistical Quality Control (SQC), Quality Assurance (QA), and Total Quality Management (TQM) (Garvin, 1988; Park-Dahlgaard, 1999). More recently in recognition of TQM’s wide ranging strategic impact on all facets of the organisation and well beyond that of product/service quality the term business excellence has replaced TQM. In this paper we use the two terms interchangeably. TQM is one of the most durable management innovations of the past three decades and it has been implemented world wide in service, manufacturing, private, public, large and small organisations (Ghobadian et al., 1998; Ghobadian and Gallear; 1996, 2001). Corporate Social Responsibility (CSR) on the other hand is a more recent phenomenon and dates back to the 1980s (Kok et al., 2001). However, CSR like TQM impinges on all facets of the business (McAdam and Leonard, 2003).

The issue that has interested scholars in the field of TQM and CSR is the degree of overlap between these two powerful and all embracing concepts. Clearly if the two concepts have a great deal in common then TQM with its greater penetration in organisations of all shapes and size can act as a key catalyst for developing CSR within the organisation (McAdam and Leonard, 2003). TQM is perceived as business friendly and compatible with the primary economic goal of business, namely maximisation of shareholders wealth (Ghobadian and Gallear, 1997), while it is possible for managers to reject CSR on the grounds that moral principles are incompatible with that of rational economic principles (Donaldson and Werhane, 1988; Ahmed and Machold, 2004). TQM successfully strikes a balance between profit seeking motives and doing the right thing in terms of respecting the interest of wider stakeholders (Ghobadian et al., 1998). Similarly CSR accepts the legitimacy of profit seeking motive, but it considers value-based behaviour – for example, valuing people and the environment – as the root to sustainable performance (Dalla Costa, 1998). Hence, TQM can play an important part in facilitating the wide penetration of CSR in a broad range of organisations. Both TQM and CSR like strategy are discursive subjects (Oswick et al., 2000). They both encompass discursive ideas, concepts and practices. The purpose of this paper is to use discourse analysis and develop discursive conceptualisation of the common features of TQM and CSR in order to establish whether or not the two concepts can be merged and/or diffused through the same channel utilising similar strategies. In short we aim to: . identify similarities and differences between the two concepts; and . establish what are the implications of these similarities and differences for the future development of TQM and CSR and if TQM can provide the channel for broad diffusion of CSR either as an integrated component of business excellence philosophy or as a diffusion model. The term discourse is used to describe a broad range of approaches to organisational analysis (Grant et al., 1998). Traditionally discourse was viewed as a form of spoken dialogue and in contrast to written “texts” (Sinclair and Coulthard, 1975). Today, however, it is widely accepted that discourse encompasses all forms of formal and informal spoken interaction, texts of all kinds, and a wide range of cultural artefacts (Gilbert and Mulkay, 1984; Potter and Wetherell, 1987; Hodge and Kress, 1988). Watson (1984, p. 113) defines discourse as “a connected set of statements, concepts, terms and expressions which constitutes a way of talking and writing about a particular issue, thus framing the way people understand and act with respect to that issue”. In its broader context, discourse analysis is a particular form of content analysis (Thietart et al., 2001; Neuendorf, 2002). According to Knights and Morgan (1991) discourse is concerned with exploring a set of ideas and practices which condition our ways of relating to, and acting upon, particular phenomenon. We rely on this definition of discourse because in this paper we are concerned with discursive concepts and practices that construct the TQM and CSR domain. These discursive concepts and practices contribute to the way organisations behave and the process of organising that they utilise. Thietart et al. (2001) suggest that discourse analysis relies on two main strategies for collecting data: structured (or a priori) and non structured. In this study we utilise the priori method because we are interested in examining if TQM and CSR domains overlap and in doing so we need to generate appropriate

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representation for each theme. This in turn requires selection of a set of concepts. According to Wood (1991), CSR comprises of two interrelated but distinct dimensions – ethical anchor and instrumental activity. The ethical anchor is concerned with attitude towards ethical considerations and fulfilment of moral obligations to the society (Wood, 1991). It is behaviour based on normative and ethical considerations and consideration of stakeholders’ satisfaction beyond that of owners of the organisation (Nakano, 1999). The instrumental dimension on the other hand is concerned with activities that facilitate ethical behaviour and enable management to reach a balanced position in relation to the stakeholders’ voice (Carroll, 1996; McAdam and Leonard, 2003; Ahmed and Machold, 2004). Hopkins (2005) added a third dimension to this mix, that of outcome. Ghobadian et al. (1998) used a framework based on three dimensions to analyse the concept of TQM. The three dimensions were: (1) Values. (2) Working methods. (3) Results. This is not too different from the framework proposed by Wood (1991) and Hopkins (2005). In this paper we adopt a three-dimensional framework consisting of: (1) Philosophy. (2) Elements of TQM/CSR process. (3) Outcomes. This is because we have adopted an instrumental approach as the bulk of the research on CSR and TQM is implicitly based on the instrumental perspective (Jawahar and McLaughlin, 2001; Ghobadian and Gallear, 2001). TQM Ghobadian and Gallear (1996, p. 95) carried out a wide ranging and systematic analysis of the TQM concept and offered the following definition: TQM is a structured attempt to re-focus the organisation’s behaviour, planning and working practices towards a culture which is employee driven, problem solving, stakeholder oriented, values integrity, and open and fear free. Furthermore, the organisation’s business practices are based on seeking continuous improvement, devolution of decision making, removal of functional barriers, eradication of sources of error, team working, honestly, and fact based decision making.

The validity of the above definition was tested as a part of the Delphi study reported by Gallear and Ghobadian (2004) and the results showed that it captured the meaning of TQM as it is practiced by its leading exponents. The above definition has an ethical underpinning whilst reconciling human behaviour/social systems with that of system concepts of management. It also combines concern for economic performance with concern for broader issues. Finally, it contains a strong element of responsibility. The following values underpin the TQM concept: . Convergence of the interests of employees, shareholders, customers, suppliers, and the wider society is an implicit aim (Kennerfalk and Klefsjo, 1995; Ghobadian et al., 1998; Prajogo and McDermott, 2005);

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Emphasis on individual, collective and system honesty and integrity (Ghobadian et al., 1998; Nelson Joseph et al., 1999; Wicks, 2001); Attaining stakeholder satisfaction is everyone’s number one priority (Ghobadian et al., 1998; Samson and Terziovski, 1999; Wicks, 2001; Prajogo and McDermott, 2005); People are considered to be the key internal guarantors of success (Klein et al., 1995; Ghobadian et al., 1998; Oakland, 2004); Management is responsible for creating an environment in which employees can perform to the best of their ability (Ghobadian et al., 1998; Ugboro and Obeng, 2000; Ho et al., 2001; Beer, 2003; Oakland, 2004; Prajogo and McDermott, 2005); The organisation is viewed as a chain of linked processes (Schonberger, 1994; Ghobadian et al., 1998; Samson and Terziovski, 1999; Wicks, 2001; Oakland, 2004; Prajogo and McDermott, 2005); The organisation pursues continuous improvement and not static optimization (Ghobadian et al., 1998; Samson and Terziovski, 1999; Wicks, 2001; McAdam and Bannister, 2001); The emphasis is on prevention rather than detection (Ghobadian et al., 1998; Oakland, 2004); Interaction between employees, customers and suppliers are encouraged (Ghobadian et al., 1998; Wicks, 2001; Mehra et al., 2001; McAdam and Bannister, 2001; Oakland, 2004); Fear is driven out of dealings within the organisation (Ghobadian and Gallear, 1996); Mistakes are treated as a learning opportunity and the system encourages and allows employers to take responsibility for their own activities within an agreed framework (Ghobadian et al., 1998; Nelson Joseph et al., 1999; Samson and Terziovski, 1999); The supplier relationship is based on continual interaction, information sharing and collaboration (Ghobadian et al., 1998; Dow et al., 1999; Samson and Terziovski, 1999; McAdam and Bannister, 2001); Mutual respect is the basis of all relationships (Ghobadian and Gallear, 1996); Decisions are based on fact rather than opinions and consensus rather than edicts (Ghobadian et al., 1998; Germain and Spears, 1999; McAdam and Bannister, 2001; Oakland, 2004; Prajogo and McDermott, 2005); Functional integration is actively pursued and encouraged (Schonberger, 1994; Ghobadian et al., 1998; McAdam and Bannister, 2001; Oakland, 2004); and Openness is encouraged and pursued within and outside the organisation (Powell, 1995; Ghobadian and Gallear, 1996; Nelson Joseph et al., 1999; Wicks, 2001; Mehra et al., 2001).

TQM is a revolutionary management philosophy that requires radical and pervasive change within the firm (Grant et al., 1994). The strength of TQM lies in successfully combining the scientific/system-oriented school of management with that of the human behaviour/social system school of management. It relies on systems, but unlike the

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scientific school of management, it does not assume that people will fit into system. Therefore, in designing structures and systems, human emotions and needs are taken into account. The human behaviour/social system school of management unlike the scientific school is based on the premise that employees are essentially honourable; therefore, correction is replaced by cooperation. Employees are allowed to take initiative and participate in the decision-making processes directly relevant to them and as such deviation from tightly defined rules does not result in sanction provided that there is no transgression against the organisational values. The organisation is viewed as a system of cultural interrelationships rather than a series of tasks, procedures and rules. The work of the quality gurus suggests a strong link between the quality movement ideals/concepts and ethical theory based on the virtue, equity, rights, and liberty conceptualisation of ethics. In their work Crosby, Deming, Duran, and Ishikawa emphasise the importance of commitment, integrity, participation, trust, honesty, ownership, and rewarding the effort of those directly and indirectly involved both within and outside the organisation (Ghobadian and Speller, 1994). Ishikawa (1985) stated that: I am an advocate of quality control based on belief in people’s goodness. If a person does not trust his subordinates and imposes strict control and frequent inspections, he cannot be a good manager. His control is based on the belief that people are by nature evil, and such a system does not work.

Similarly Taguchi (1986) argued that the cost of poor quality was a burden to the organisation concerned and the wider society. In his view waste depleted scarce resources jeopardising sustainable growth. According to the work of these gurus TQM values and upholds the highest virtues. The second dimension of our discursive analysis is the elements of TQM. These are the key instruments that enable an organisation to strive towards becoming a TQM organisation. These are: . Promotion of values and principles of TQM (Saraph et al., 1989; Powell, 1995; Ahire et al., 1996; Ghobadian et al., 1998; Wicks, 2001; Prajogo and McDermott, 2005); . Open and participative management style (Powell, 1995; Ahire et al., 1996; Ghobadian et al., 1998; Samson and Terziovski, 1999); . Focus on meeting the needs of customers, employees, society, and owners (Powell, 1995; Ahire et al., 1996; Ghobadian et al., 1998; Mehra et al., 2001; Prajogo and McDermott, 2005); . Delegation of authority and responsibility to the lowest level (Ahire et al., 1996; Ghobadian et al., 1998; Wicks, 2001); . Harnessing the creative capability of employees through active participation (Saraph et al., 1989; Ahire et al., 1996; Ghobadian et al., 1998; Prajogo and McDermott, 2005); . Openness in terms of sharing and communicating information widely (Saraph et al., 1989; Powell, 1995; Ahire et al., 1996; Ghobadian and Gallear, 1996); . Two way communication (Saraph et al., 1989; Ahire et al., 1996; Ghobadian et al., 1998; Samson and Terziovski, 1999);

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Human resource development (Klein et al., 1995; Powell, 1995; Ghobadian et al., 1998; Samson and Terziovski, 1999; Prajogo and McDermott, 2005); Continuous improvement and learning (Powell, 1995; Ahire et al., 1996; Ghobadian et al., 1998; Samson and Terziovski, 1999; Wicks, 2001); Teamwork (Klein et al., 1995; Ghobadian et al., 1998; Dow et al., 1999); Focus on process rather than task (Saraph et al., 1989; Ghobadian et al., 1998; Wicks, 2001; Prajogo and McDermott, 2005); Development of partnership with the key stakeholders (Powell, 1995; Ahire et al., 1996; Ghobadian et al., 1998; Dow et al., 1999; Mehra et al., 2001); Eradicating sources of error and designing systems that make it difficult to make mistakes (Powell, 1995; Ghobadian et al., 1998); and Empowerment of all employees to address problems and make decisions (Westbrook and Utley, 1995; Powell, 1995; Ghobadian et al., 1998; Nelson Joseph et al., 1999; Wicks, 2001; Prajogo and McDermott, 2005).

The evidence suggests that TQM can be used to develop an ethically sensitive corporate culture (Ahmed and Machold, 2004). Based on his experience as an MBQNA award assessor, Steeples (1994) detected a high level of correlation between ethics and quality apparent in both the company’s action and the action of its employees. This is not surprising because successful introduction and practice of TQM requires close attention to, and more often than not modification of, organisational culture (Gallear and Ghobadian, 2004). It is generally agreed that the culture of an organisation is a function of its values, beliefs and behavioural practices (Hofstede, 1984; O’Reilly and Chatman, 1996; McShane, 1998) and that the influence of culture on an organisation is powerful and pervasive (Golden, 1992; Detert et al., 2000). There is also broad agreement that total quality management (TQM) is a management paradigm that propagates certain values, behaviour and working methods (for example Dean and Bowen, 1994). We have discussed the values, behaviour and working methods propagated by TQM and at the heart of these lie integrity, commitment, honesty, openness, respect, participation, ownership, and meeting the needs of a diverse group of stakeholders. The resultant cultural change is particularly important because as Boisjoly (1993) noted, ethical misconduct is usually not because of individual transgression but often the result of cultural failures and system breakdown. The outcomes of introducing TQM are: . Improved financial performance (GAO (United States General Accounting Office), 1990; Wisner and Eakins, 1994; Coopers & Lybrand and EFQM, 1994-1995; Mohrman et al., 1995; Hendricks and Singhal, 1996; Ghobadian et al., 1998; Rahman, 2001); . Enhanced customer perceptions (GAO (United States General Accounting Office), 1990; Mohrman et al., 1995; Ghobadian et al., 1998; Rahman, 2001; Lagrosen and Lagrosen, 2005); . Improved operational performance (GAO (United States General Accounting Office), 1990; Mohrman et al., 1995; Ghobadian et al., 1998; Samson and Terziovski, 1999; Lagrosen and Lagrosen, 2005);

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Narrowing of the gap between individual and organisational goals; (Harber et al., 1993; Morrow, 1997; Ghobadian et al., 1998); Enhanced employee confidence (GAO (United States General Accounting Office), 1990; Coopers & Lybrand and EFQM, 1994-1995; Morrow, 1997; Ghobadian et al., 1998); Enhanced self worth (GAO (United States General Accounting Office), 1990; Harber et al., 1993; Coopers & Lybrand and EFQM, 1994-1995; Mohrman et al., 1995; Morrow, 1997; Ghobadian et al., 1998; Samson and Terziovski, 1999); Feeling more valued by the organisation (Harber et al., 1993; Mohrman et al., 1995; Morrow, 1997; Ghobadian et al., 1998; Lagrosen and Lagrosen, 2005); Enhanced focus on meeting the needs of the customers and other stakeholders (Harber et al., 1993; Coopers & Lybrand and EFQM, 1994-1995; Wood and Peccei, 1995; Morrow, 1997; Ghobadian et al., 1998; Samson and Terziovski, 1999); Greater involvement in the affairs of the organisation (Harber et al., 1993; Wood and Peccei, 1995; Morrow, 1997; Ghobadian et al., 1998); Embedding of continuous improvement and learning culture (Coopers & Lybrand and EFQM, 1994-1995; Ghobadian et al., 1998; Lagrosen and Lagrosen, 2005); Greater commitment (GAO (United States General Accounting Office), 1990; Harber et al., 1993; Morrow, 1997; Ghobadian et al., 1998; Lagrosen and Lagrosen, 2005); Greater confidence to engage in dialogue, identify problems, address problems and short comings (Harber et al., 1993; Ghobadian et al., 1998); and Facilitating and transformational human resource management style (Harber et al., 1993; Morrow, 1997; Ghobadian et al., 1998).

As can be seen from the above, a number of empirical studies have found benefits resulting from the introduction of TQM. For example, the United States General Accounting Office (GAO) (1990) study of 20 organisations that had implemented TQM revealed: superior financial performance; improved employee relations; improved operating procedures; and enhanced customer satisfaction. The improvement in the financial and operational performance resulting from TQM is critical to the likelihood of organisations behaving ethically according to Roth (1993). He argued that: companies that lack quality in their products, manufacturing processes, management systems’ and work environment can still be run ethically. Due to their lack of bottom-line success, however, the temptation to act unethically may, at times, be quite strong. An ongoing need will exist to monitor behaviour and to reinforce ethical standards. On the other hand, in companies that have mounted a truly comprehensive quality improvement process, ethical behaviour is automatically encouraged (Roth, 1993, p. 6).

CSR CSR is a relatively new management concept. Arguably one of the key reasons for the development of the concept was the lack of perceived balance between the power enjoyed by businesses and the responsibility exercised by them (Eberstadt, 1977).

Davis (1973, p. 312) offered the following succinct description “the firm’s consideration of, and response to, issues beyond the narrow economic, technical, and legal requirements of the firm to accomplish social benefits along with the traditional economic gains which the firm seeks”. The CSR concept is still developing and has not reached the maturity stage. It consists of a number of free standing and competing ideas that have not been sufficiently integrated into a broadly accepted and robust theory (Wood, 1991). In particular, there is an absence of consensus regarding the elements (steps) underpinning the processes of corporate social responsibility. Therefore, the analysis presented in this section is work in progress and subject to change as the CSR concept climbs the maturity curve. CSR is defined variously. For example, Frederick (1986) definition argued that fundamentally, corporations have an obligation to work for social betterment. Carroll (1979), p. 500) offered the following definition “the social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations that society has of organisations at a given point in time”. Another definition was offered by Ahmed and Machold (2004, p. 538): an ethical organisation is one that is able to reflect appropriately and evaluate its actions in the context of an ethical domain, within the process of organisational decision making. In attempting to do so, the organisation must grapple with the problem of multiple agency-constituency roles.

McWilliams and Siegel (2001) argued that pressure for CSR emanates from multiple stakeholder groups including customers, employees, suppliers, community groups, governments and institutional shareholders. They went on to offer the following definition of CSR: actions that appear to further some social goods, beyond the interests of the firm and that which is required by law (McWilliams and Siegel, 2001, p. 117).

This definition suggests that an organisation that embraces CSR will go beyond obeying the law or industry-wide codes of conduct, for example, avoiding age discrimination is not engaging in a social responsible act, to engage in a social responsible act an organisation must have a programme of actively promoting and seeking to employee senior citizens. In this paper we have adopted the following definition offered by Hopkins (2005, p. 214): CSR is concerned with treating the stakeholders of the firm ethically or in a socially responsible manner. Stakeholders exist both within a firm and outside. The aim of social responsibility is to create higher and higher standards of living, while preserving the profitability of the corporation, for its stakeholders both within and outside the corporation.

We choose this definition because it is pragmatic and acknowledges the importance of economic performance, it recognises that firms serve a broad range of stakeholders, and it highlights the importance of striking a balance between economic performance, meeting the stakeholders expectations, and responsibility towards society. CSR can only flourish if its protagonists recognise the importance of economic performance. As Drucker (1974) stated:

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. . . Business management must always, in every decision and action, put economic performance first. It can justify its existence and its authority only by the economic results it produces. A business or a management has failed if it fails to produce economic results.

One reason for the widespread diffusion of TQM was that it recognised the importance of economic performance and sought to provide values and develop a culture within which firms pursued economic performance. CSR equally can provide the context within which firms pursue economic performance. As Chester Barnard (1964) argued, it is the quality of cooperation around high ideals and adding value that ensures an organisation’s durability and success. The above definition of CSR, as well as other definitions of CSR, displays a strong ethical bias. This ethical bias partially manifests itself as concern for organisations’ human resources as well as concern for environment and society at large. It advocates responsibility. Our literature review suggests that the following values underpin the CSR concept: . Seeks to understand and meet the needs of stakeholders including that of customers, owners, employees, suppliers, and the society at large; . Integrity of individual and collective action; . Honour; . Fairness; . Respect; . Participation; and . Individual and collective responsibility to others. We contend that despite apparent differences in the definitions of TQM and CSR, due to the longer history and in depth development of the TQM concept, there is a significant overlap between the values that underpin the two concepts. The second dimension of our discursive analysis is the elements of the process of corporate social responsibility. This is crucial in enabling the firms to commence their CSR journey (Ahmed and Machold, 2004). This facet of the CSR concept is underdeveloped. In this paper we draw on the work of Ahmed and Machold (2004) who identified theories of ethics and used these theories to identify elements necessary to make the transformation towards a CSR organisation. The theories of ethics they deployed were: utilitarian; universal rights; distributive justice; individual liberty; and virtue theory. Table I depicts the elements identified by Ahmed and Machold (2004) and provides a brief description for each. The newness of CSR and low levels of diffusion means that there is less experience with implementing the elements of the processes of social responsibility. On the other hand some of these elements map on the elements of TQM, and therefore, they can be implemented as a part of the TQM processes. This will require some adjustment and re-think on the parts or the elements of TQM. There is less clarity as to the outcomes of CSR (Aupperle et al., 1985). A number of studies have reported a positive link between social responsibility and increased organizational commitment and individual satisfaction (Steers, 1977; Brooks, 1989), but not all (Vogel, 2005). Ahmed and Machold (2004) argued that the benefits of CSR were many but indirect. They went on to say that that evidence emerging from

Elements of CSR process

Brief description

Maxim of no-harm

This principle draws heavily upon the rights philosophy by demanding that the firm should not engage in any action that leads to harm. The harm principle applies equally to animate and non-animate objects, and therefore includes people as well as the environment and eco-system This principle draws on the liberty and informed choice theory by requiring the firm to exhibit openness in its activities. That is to say, full disclosure and provision of information to all parties so that they are able to take decisions that do not compromise their welfare This principle draws on distributive justice theory and requires that stakeholders’ interests are protected through visible and active participation in the decision-making process at all levels. The participation has to be meaningful rather than window dressing; otherwise the principle is abrogated This is derived from the theories of rights and justice and its aim is to ensure that there is perceived equity in the actions of business This principle is based on the utilitarian perspective and stresses the need to examine the benefits of an action, that is to say, if a certain act is carried out, who wins, who stays the same, and who loses from it? What are the gains and losses? Clearly, the aim here is to create the greatest amount of good for the greatest number of stakeholders affected by the action This is based on the virtue theory of ethics and requires integrity of action in all the forms of agency that constitute the firm This is based on the liberty theory of ethics by stressing the right of the individual freely to engage in or disengage from transactions with the firm This is primarily based on virtue and rights theories of ethics by focusing on protection and promotion of positive rights by the firm

Maxim of transparency

Maxim of voice

Maxim of equity Maxim of benefit

Maxim of integrity Maxim of liberty Maxim of care

Source: Adapted from Ahmed and Machold (2004)

Fortune’s annual “US Corporate Reputations Survey” suggests that the reputation measures correlate closely with financial performance indicators, including measures such as 10-year annual return to shareholders and stock market value. Waddock and Graves (1997) empirical research showed a positive association between corporate social performance and financial performance. The outcome of studies examining the link between CSR and financial performance is indeterminate with some studies identifying a positive link and other finding no link and in some cases a negative link (Donaldson and Preston, 1995; Griffin and Mahon, 1997; Jawahar and McLaughlin, 2001; McWilliams and Siegel, 2001). Zwetsloot (2003) argued that CSR results in “doing the right things” and this confers a wide range of benefits on the organisation. Similarly, Martin-Castilla (2002) argued that CSR serves the long-term interest of the firm by aligning the interest of the firm with that of its stakeholders.

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Table I. Elements of the process of social responsibility

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Summary and conclusions The interest in the nature of the relationship between TQM and CSR is long standing. Oppenheim and Przasnyski (1999) argued that the aim of the quality movement is to enable organisations to deliver high quality durable products and/or services, in the shortest possible time to market, at minimum cost, and in a manner that emphasises human dignity, work satisfaction and mutual and long-term loyalty between the organisation and its stakeholders, in particular its employees. As such TQM has a strong ethical dimension and advocates the importance of considering the interests of stakeholders as opposed to solely the interest of the owners. Hence, there is a strong similarity between TQM and CSR. Similarly, Vinten (1998) stated that the TQM concept intersects with the legitimate ethical and instrumental dimension of CSR. Wicks and Freeman (1998) share this sentiment and pointed out that TQM is driven by a set of interrelated concepts that simultaneously feature management practice and moral values. In its aim, TQM encompasses concepts and practices that strive to work for the benefit of all stakeholders. Moir (2001) argued that both TQM and CSR shared similar ethical anchors. Established models of business excellence/TQM such as the Baldrige Criteria for Performance Excellence, the European Foundation for Quality Management (EFQM) Excellence Model, the Australian Business Excellence Framework, and the Canadian Framework for Business Excellence all incorporate a social responsibility element and advocate management practices compatible with the ideals of CSR (Ghobadian and Woo, 1996; Martin-Castilla, 2002). TQM is further advanced in its use as a management tool for practitioners than CSR. Certainly the two areas of work proceed within companies with few, if any, links between the two. An area that would help to embed both concepts is at the individual employee level. Employees are encouraged to improve the quality of their work at every stage but the notion of employee social responsibility is left very much to individual choice. Yet each employee has a social responsibility to their immediate colleagues, managers, and own junior staff as well as what they do outside the company. At minimum company employee training needs to be improved to cover employee social responsibility but has not so far been considered, at least in the CSR literature. Clearly such an issue is crucial for future harmony and consequent increased productivity both within and outside companies. The majority of previous work examining the relationship between TQM and CSR adopted a descriptive approach. The contribution of this paper to the developing literature in this area lies in the adoption of a systematic approach to the analysis of the intersection between these two important concepts using a discursive approach. In this paper we build on the work of McAdam and Leonard (2003) and Ahmed and Machold (2004). The principal aim of this paper was to investigate similarities and differences between the two concepts. Our discursive analysis examined the three key facets of any management concept, namely the underlying philosophy; the elements of TQM/CSR process; and the outcomes. Table II depicts the summary of our findings. TQM and CSR have a common philosophical root and the values they espouse show significant overlap. The elements of TQM and CSR overlap to a significant extent but there are differences. In any case, where the elements are very similar their nuances are not exactly the same. Therefore, CSR will not simply happen because an organisation has TQM. To make it happen it is necessary to address the issue explicitly. Moreover,

Elements of the process

Philosophy

Openness in terms of sharing and communicating information widely Two-way communication Human resource development Continues improvement and learning

Transparency

Harness the creative capability of Voice employees through active participation

Benefit

Partially addresses the care maximum Partially addresses the no-harm maximum (continued)

The principal voice advocates effective participation and this element of TQM is concerned with delegation of both authority and responsibility to the lowest level possible TQM recognises the importance of giving voice to employees; its impact on harnessing the creative capability of the organisation These two elements address the same issue, namely full disclosure and provision of information

Voice

Focus on meeting the needs of customers, employees, society and owners Delegation of authority and responsibility to the lowest level

Many of TQM values coincide with values propagated by the virtue theory of ethics Equity is concerned with felt fairness and open and participative management style is predicated on fairness Like the CSR element this element of TQM is focused on meeting the needs of diverse range of stakeholders

Integrity

Promotion of values and principles of TQM Open and participative management style Equity

Anchored in ethical behaviour. It draws The two concepts share a great deal in common and mainly on the social system of thought from a philosophical standpoint of view the two concepts can operate in tandem with each other and to a lesser degree on human behaviour school

Anchored in ethical considerations human behaviour/social system schools of thought with system school of thought. Extends the horizon of the firm beyond economic performance

Comments

CSR

TQM

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Table II. Mapping of TQM and CSR philosophy, process elements and outcomes on one and other

Table II.

Outcomes

CSR

The benefits from TQM are broad and The impact can be broad but potentially The key output of both TQM and CSR is to indirect encourage the organisation to do the right things affect all facets of the organisation rather than to do things right including economic performance

Care

Liberty

Focus of this element of TQM is to empower or give employees voice Not explicitly addressed by a single element of TQM. However, it fits with the philosophy of TQM and indirectly part of several elements of TQM Addressed in narrow sense by some elements of TQM, for example, HR development, participation Addressed implicitly rather than explicitly by a number of TQM elements. For example, promotion of values of TQM, HR development, and openness

In this case to those that do business with the organisation Partially addresses the no-harm maximum

Comments

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Teamwork Focus on the process rather than task Development of partnership with key Voice stakeholders Eradicating sources of error and designing systems that make it difficult to make mistake Empowerment of all employees to Voice address problems and make decisions No-harm

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it is necessary to adjust the elements of TQM so that they consciously address facets of CSR. Furthermore, it is necessary to broaden the elements of TQM to explicitly include a number of CSR elements. The outcomes at individual level are not precisely the same. However, both TQM and CSR ultimately result in the organisation doing the right thing. Our analysis highlights the need for the development of a descriptive theory, that is to say, the identification of the mechanism(s) through which elements of CSR could be developed alongside that of TQM and implemented. The second aim of this paper was to assess the implication of the similarities and dissimilarities for the future development of the two concepts. The analysis presented above suggests that the TQM concept is both compatible with CSR and broad enough to accommodate the CSR concept. In other words, TQM can be used as a vehicle for expediting the diffusion of CSR. However, this is unlikely to occur by accident and it is important to integrate the CSR concept with TQM and ensure that elements of CSR are explicitly addressed. References Ahire, S., Golhar, D. and Waller, M.A. (1996), “Development and validation of TQM implementation constructs”, Decision Sciences, Vol. 27 No. 1, pp. 23-56. Ahmed, P.K. and Machold, S. (2004), “The quality and ethics connection: toward virtuous organizations”, Total Quality Management, Vol. 15 No. 4, pp. 527-45. Aupperle, W.F., Carroll, A.B. and Hatfield, J.D. (1985), “An empirical examination of the relationship between corporate social responsibility and profitability”, Academy of Management Journal, Vol. 28 No. 2, pp. 446-63. Barnard, C.I. (1964), The Functions of the Executive, Harvard University Press, Cambridge, MA. Beer, M. (2003), “Why total quality management programs do not persist: the role of management quality and implications for leading a TQM transformation”, Decision Sciences, Vol. 34 No. 4, pp. 623-42. Boisjoly, R.M. (1993), “Personal integrity and accountability”, Accounting Horizons, Vol. 7 No. 1, pp. 59-69. Brooks, L.J. (1989), “Corporate ethical performance: trends, forecasts and outlooks”, Journal of Business Ethics, Vol. 8 No. 1, pp. 31-8. Carroll, A.B. (1979), “A three-dimensional conceptual model of corporate social performance”, Academy of Management Review, Vol. 4 No. 4, pp. 497-505. Carroll, A.B. (1996), Business and Society: Ethical and Stakeholder Management, 3rd ed., Southwestern College Publishing, Cincinnati, OH. Coopers & Lybrand and EFQM (1994-1995), “Economic aspects of quality”, Panorama of EU Industry, Office for Official Publications of the European Communities, Brussels. Dalla Costa, J. (1998), The Ethical Imperative: Why Moral Leadership Is Good Business, Perseus Books, New York, NY. Davis, K. (1973), “The case for and against business assumption of social responsibilities”, Academy of Management Journal, Vol. 16 No. 2, pp. 312-32. Dean, J.W. Jr and Bowen, D.E. (1994), “Management theory and total quality: improving research and practice through theory development”, Academy of Management Review, Vol. 19 No. 3, pp. 392-418. Detert, J.R., Schroeder, R.G. and Mauriel, J.J. (2000), “A framework for linking culture and improvement initiatives in organizations”, Academy of Management Review, Vol. 25 No. 4, pp. 850-63.

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Thietart, R.-A. et al. (2001), Doing Management Research, Sage Publications, London. Ugboro, I.O. and Obeng, K. (2000), “Top management leadership, employee empowerment, job satisfaction, and customer satisfaction in TQM organizations: an empirical study”, Journal of Quality Management, Vol. 5 No. 2, pp. 247-72. Vinten, G. (1998), “Putting ethics in quality”, The TQM Magazine, Vol. 10 No. 2, pp. 89-94. Vogel, D.J. (2005), “Is there a market for virtue? The business case for corporate social responsibility”, California Management Review, Vol. 47 No. 4, pp. 19-45. Waddock, S. and Graves, S. (1997), “The corporate social performance-financial performance link”, Strategic Management Journal, Vol. 18 No. 4, pp. 303-19. Watson, T. (1984), In Search of Management, Routledge, London. Westbrook, J.D. and Utley, D.R. (1995), “TQM – the effect of culture on implementation”, Engineering Management Journal, Vol. 7 No. 2, pp. 31-4. Wicks, A.C. (2001), “The value dynamics of total quality management: ethics and the foundations of TQM”, Business Ethics Quarterly, Vol. 11 No. 3, pp. 501-36. Wicks, A.C. and Freeman, R.E. (1998), “Organization studies and the new pragmatism: positivism, anti-positivism, and the search for ethics”, Organization Science, Vol. 9 No. 2, pp. 123-40. Wisner, J.D. and Eakins, S.G. (1994), “A performance assessment of the US Baldrige Quality Award winners”, International Journal of Quality & Reliability Management, Vol. 11 No. 2, pp. 8-25. Wood, D. (1991), “Corporate social performance revisited”, Academy of Management Review, Vol. 16 No. 4, pp. 691-718. Wood, S. and Peccei, R. (1995), “Does total quality management make a difference to employee attitudes?”, Employee Relations, Vol. 17 No. 3, pp. 52-62. Zwetsloot, G.I.J.M. (2003), “From management systems to corporate social responsibility”, Journal of Business Ethics, Vol. 44 Nos 2/3, pp. 201-7. About the author Abby Ghobadian is Professor of Management at Brunel Business School. His research interests lie in examining the reasons for heterogeneous organisational performance and how organisational performance can be improved. He has examined the effect of a variety of management practices on performance and productivity of organisations including the use of new soft and hard technologies, quality, benchmarking, strategic planning, strategic thinking, and leadership. Abby Ghobadian is the corresponding author and can be contacted at: [email protected] David Gallear is Senior Lecturer in Operations Management at Brunel Business School. His research interests focus principally on total quality management and business excellence, supply chain management with a specific interest in supply chain purchasing strategy, and the link between operations strategy and performance. He has a developing interest in sustainability issues in supply chains. Michael Hopkins is CEO and Chairman of MHC International Ltd. This is a research and service company that specialises in social development issues for the public and private sectors alike. He is also a Professor at the Middlesex University Business School. He has published widely including The Planetary Bargain – Corporate Social Responsibility Matters and co-authored Corporate Social Responsibility: Is There a Business Case?

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CSR performance: driven by TQM implementation, size, sector?

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Andrew Robson and Ed Mitchell Newcastle Business School, Northumbria University, Newcastle upon Tyne, UK Abstract Purpose – The purpose of this paper is to consider organisational performance relating to “sustainability and inclusion” and to assess four related indicators across the manufacturing and service sectors both in absolute performance terms and by level of TQM implementation and organisational size. Design/methodology/approach – The paper is based on two empirical studies (manufacturing and service) undertaken in North Eastern England, involving the application of a self-assessed benchmarking tool. Data were collected from 128 manufacturers and 428 service organisations where performance measures relating to “sustainability and inclusion” were considered. Findings – The findings presented in this paper indicate the level of performance in “sustainability and inclusion”, together with the impact of size, world-class status and specific individual and aggregated TQM enablers for both sectors. Both manufacturing and service have some way to go in terms of their performance, whilst organisational size and world-class appear to influence attainment, as do certain individual and aggregated measures of business practice and internal performance. Research limitations/implications – The paper shows that further research may involve revisiting the participating organisations to identify the extent of any improvement in their performance relating to “sustainability and inclusion”. Practical implications – The results in this paper indicate the extent of the room for improvement within both manufacturing and service, but indicate how a greater level of TQM maturity and subsequent internal performance puts an individual organisation in a better position to a certain extent to do this. Originality/value – The findings in the paper are based on benchmarking data, where the implementation of certain TQM practices and measures of internal business performance have been measured alongside a limited number of measures relating to CSR performance across manufacturing and service as part of a wider regional study. Providing these data together has allowed the exploration of the association between the two sets of measures. .

Keywords Total quality management, Benchmarking, England Paper type Research paper

International Journal of Quality & Reliability Management Vol. 24 No. 7, 2007 pp. 722-737 q Emerald Group Publishing Limited 0265-671X DOI 10.1108/02656710710774692

Background to the study The findings presented in this paper make use of benchmarking data collected as part of two major studies that involved around 300 manufacturing companies and 450 service organisations located in the North East of England respectively (Prabhu et al., 2000a, b) using a tool called PILOT. PILOT represents a simplified version of the PROBE methodology that underpinned the range of “made in Europe” studies published in the late 1990s which considered best practice relating to both manufacturing and service (Hanson et al., 1994, 1996, Voss et al., 1997, 1998). The results that support this work refer to four specific performance measures from both North East of England studies that consider the participating organisations’

self-assessment of their performance relating to “sustainability and inclusion”. These four indicators are: (1) Strategy towards corporate social responsibility. (2) Involvement in the local community. (3) Emissions and hazards. (4) Sustainability. Whilst these measures are perhaps not extensive in the range of issues covered relating to corporate and social responsibility, they measure organisational performance relative to their location and community, thus considering performance criteria similar to those identified within the EFQM model in its section defined as “society and results” (EFQM, 1999). The data provided by these two studies and considered here provide an opportunity to measure the extent to which the level of TQM adoption and/or the levels of operational performance assessed using a range of individual and aggregate measures, have impacted on the corresponding levels of external business performance relating to factors defined within PILOT as “sustainability and inclusion”, which can be used as a measure of how the region’s organisations are performing with respect to Corporate Social Responsibility (CSR). Literature review Total Quality Management (TQM) has grown from being a strict, systematic, statistical methodology to an all-embracing philosophy of conceptual Business Excellence. The theory that underpins TQM is well documented and supported by considerable empirical evidence. Since the 1950s, practitioners and researchers have been describing the positive relationship between an organisation’s depth of deployment of TQM and the results achieved in terms of operational and financial performance. Deming (1982) and Schonberger (1986) pointed out the benefits of TQM in improving operational measures while Feigenbaum (1956, 1983) and Goldratt and Cox (1984) added the external key issues of competitive positioning, customer satisfaction and financial outcomes to the equation. Throughout the 1990s, various descriptive literature and underpinning empirical evidence emerged that identified the key features of world-class organisations (based on their levels of adoption of TQM) and significant relationships between these and the levels of competitive results achieved and sustained by them. Smith (1995) suggested that successful companies maintained their competitive advantage through holistic management of best practice. Large-scale studies (Womack et al., 1990; Womak and Jones, 1996; Hanson et al., 1994; Voss and Hanson, 1993; Voss et al., 1997; DTI, 1995, 1997; CBI, 1997) have categorised organisations based on the results achieved from the TQM practices that they have adopted. Hanson et al. (1994) proposed the hypothesis that “the adoption of best practice will lead to improved performance” and developed a conceptual world-class model that links TQM practices with operational and key business performance. Voss et al. (1996, 1997, 1998) tested the relationship between TQM and performance outcomes and showed that it appears to be generally valid across functions, sectors and sizes of organisations. These studies have also indicated that there is significant difference between leading (world-class) and lagging organisations attributed to depth of deployment of TQM.

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The most recent empirical research into the relationship between TQM deployment and company performance has continued to support strong correlation between TQM and results. The series of studies by Hendricks and Singhal (1996, 1997, 2000, 2001) and the combined European and British Quality Foundations’ joint study by the Centre of Quality Excellence at the University of Leicester (2005) have indicated that “the effective implementation of the principles of Business Excellence do make good economic sense”. Alongside the TQM philosophy, a number of organisations have developed frameworks for organisational excellence based on the principle that the enabling practice criteria relates to results achieved in operational and overall business performance. The Deming Framework, established in Japan in 1951, led to the more recent development of the two most prominent international frameworks that have become the highest known form of benchmarking methodology for TQM practices and achievement of results in modern business management. The Malcolm Baldrige National Quality Award Framework, created in 1987, is now used to assess companies for world-class levels of practice and performance results (NIST, 2002), whilst the European Foundation for Quality Management’s Excellence Model was developed in 1988 and is used by organisations to benchmark and improve their practices and competitive positioning. These TQM frameworks have been continuously developed and now include altruistic issues such as: corporate social responsibility and environmental responsibility as core values and concepts (Baldrige) or as a fundamental concept (EFQM). These issues are assessed as results criteria under the context of “stakeholders and society” and are driven from the models’ enabling TQM drivers in common with other operating and key performance criteria. Within the European Quality Award, there is a section looking at “Impact on society”, which considers two aspects of this process, a community’s perception at how the organisation meets its expectations and how the organisation impacts upon the society in which it is located (EFQM, 1999). This impact on society is measured from the perspective of performance, not the role of any explicit or implicit enablers that support this process. Given that the development of the various quality and excellence frameworks has resulted in the inclusion of measures relating to corporate and social responsibility alongside their more traditional measures relating to organisational practice and performance, consideration of the extent to which TQM adoption, as measured through practices implemented and results achieved, is associated with levels of social and environmental attainment external to the organisations can be measured. In the “Made in Europe 2” study, Hanson et al. (1996) identified the manufacturing leaders (based on the top 10 percent by score from implementing the EQA model) had a an average performance score relating “impact on society” comparable with their average performance scores for people satisfaction and customer satisfaction and marginally better than that relating to business results. However, these authors identified that the bottom 10 per cent of manufacturers had a comparatively lower mean performance score relating to “impact on society”, this having the joint lowest score of any of the enabler or result component measured through implementation of the model. Moreover, Hillman and Keim (2001) have tested the relationship between shareholder value, stakeholder management and social issue participation and found evidence that, while stakeholder management may lead to improved shareholder value,

social issue participation is negatively associated with shareholder value. These findings are interesting in that they challenge the core values and concepts of the Baldrige framework and the fundamental concept that forms one of the nine criteria of the EFQM model. Furthermore, a number of studies, including Moore (2001), identified the positive association between organisational size and the social/environmental performance, size being a factor which, alongside TQM implementation, may be a potential driver of CSR performance, whilst Cottrill (1990) identified differences in social performance between organisational sectors. Shareholder value and financial performance will not be considered here, the other organisational characteristics will be assessed within the study presented. Using empirical analysis based on the North East England regional studies, which have adopted a particular benchmarking tool, the paper wishes to identify the following: . The level of performance in absolute terms relating to a number of measures connected to sustainability and inclusion. . The extent to which level of performance relating to sustainability and inclusion is driven by TQM adoption and/or corresponding internal business performance. . The particular aspects of TQM adoption that places organisations in a better position to perform regarding their sustainability and inclusion. These aspects of TQM may relate to an organisation’s leadership and culture, the extent of its implementation of quality frameworks, its implementation of measurement systems or its internal levels of performance achieved. . The extent to which the ability to exhibit a certain level of sustainability and inclusion is dependent upon organisational size. . The extent to which differences exist between the manufacturing and service sector, as broad indicators of economic sector, with regard to the above. Method of research and empirical analysis The benchmarking data considered in this paper involved organisational self-assessment, with facilitator support and guidance and data analysis provided from external agencies (Robson and Yarrow, 2000), where 128 manufacturing companies and 428 service providers employed the benchmarking metric that included these additional measures. The data used scales from 1 to 5, and make use of recognisable manufacturing or service standards, representing for each variable a range of practice implementation or performance realised from the poorest levels to world-class, consistent across the various measurements included within the benchmarking tool employed. In the analysis to be presented in the next part of the paper, an acceptable level of performance is assumed to be a benchmark score of 3, i.e. the median point on the scales adopted (values significantly lower or higher than represent poor or good respective performance). A range of parametric tests have been undertaken to determine significant differences from this mean score of 3, together with tests for differences between groups. Statistically significant differences have been reported at the 5, 1 or 0.1 percent levels of significance. Equally, correlation analysis has been used to determine the level of significant association between various individual internal measures of practice or performance and the four measures of “sustainability and

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inclusion”. Additionally, these internal practices or performance measures have been aggregated to provide broad indicators of TQM implementation and internal attainments, which have subsequently been tested for any significance in association with the four external performance measures, in each case, significance has been recorded at the levels indicated previously. Differences in performance by specific sub-group (defined by TQM adoption/internal performance levels and size by number of employees) have been measured separately for manufacturing and service relating to the measures of “sustainability and inclusion”. These include differences in terms of world-class status (defined by the benchmarking scores relating to business practices and business and operational performance measures) and organisational size (defined by number of employees on site). In terms of the former, four groups have been identified – Potential Winners (high practice, high performance), Promising (high practice, low performance), Vulnerable (low practice, high performance) and Room for Improvement (low practice, low performance), with the low/high cut-off index being an aggregate index of 60 percent in each case. The organisational size bands have been defined as micro (20 or fewer staff), small (21-50), medium (51-200) and large (more than 250 staff on site). Whilst the primary aim of the two regional studies was not to focus on CSR attainment across the two sectors, by including these four measures relating to “sustainability and inclusion” within the benchmarking metric, opportunity was given to the researchers and participating organisations to assess the extent in absolute terms of CSR performance, alongside the impact of an organisation’s size and the extent to which they have implemented good organisational practices and/or realised high level of internal organisational performance have influenced this external attainment.

Findings from the benchmarking survey The findings presented here will consider the manufacturing sector, the service sector and a comparison between the two groups of organisations.

Manufacturing Overview The percentage of manufacturers scoring highly (i.e. 4 or 5) for each of the measures ranges between 13 and 28 percent, with the percentages scoring poorly (i.e. 1 or 2) is more typical for each measure, being between 35 and 45 percent, as suggested within Table I, with all four indicators having a mean score below 3 and apart from emissions and hazards (no significant difference) and strategy towards corporate social responsibility (5 percent level), these differences being statistically significant at the 0.1 percent level. There is consistency of performance between these measures, with significant positive association existing between each pair of variables, all at the 0.1 percent level of significance. Moreover, scores for each of the four performance measures are significantly inferior to the overall internal business performance for the sector, as seen in Table I.

Manufacturing respondents Variable Strategy towards corporate social responsibility Involvement in the local community Emissions and hazards Sustainability

Value (1-2 ¼ “poor”, 3 – “OK”, 4-5 ¼ “good”) 1-2 (%) 3 (%) 4-5 (%) Mean 38

34

28

Significant difference Significance from overall internal from mean score of 3 performance

2.764

( *)

( * * *) ( * * *) ( * *) ( * * *)

45

36

20

2.528

( * * *)

38 43

34 44

28 13

2.843 2.484

( * * *)

Notes: * Significant at 5 percent level; * * 1 percent level; * * * 0.1 percent level, () lower than

CSR performance

727 Table I. Profile of manufacturing PILOT scores

Impact of world-class status World-class status shows significant differences for each of the four performance indicators relating to “sustainability and inclusion”, as indicated within Table II. For each of the measures, manufacturers defined as PW/WC have averaged at least an acceptable level of external performance, with two measures displaying a mean significantly greater than 3 (both 5 percent level). The Promising manufacturers have shown an adequate level of performance across the measures albeit based on a small number of organisations, whilst the vulnerables and those with room for improvement have scored significantly lower across the piece in statistical terms. Moreover, no significant difference exists across any of the measures between the PW/WC and promising manufacturers implying those with high levels of TQM implementation (irrespective of internal performance) are more likely to perform relatively well in terms of external CSR. The level of performance recorded for the four measures is typically inferior in statistically significant terms compared with typical levels of internal business performance and this is especially case for the winning and vulnerable manufacturers, with both groups having achieved high levels of internal performance.

PW/WC Strategy towards corporate social responsibility Involvement in local community Emissions and hazards Sustainability Significant difference from overall internal performance Strategy towards corporate social responsibility Involvement in local community Emissions and hazards Sustainability

* *

( *) ( * * *) ( * * *)

Promising

Vulnerable

RFI/CDB

( * * *) ( * *) ( * *) ( * * *)

( * *) ( * * *) ( *) ( * * *)

( * * *) ( * * *) ( * * *) ( * * *)

( * *) ( * *)

Notes: * Significant at 5 percent level; * * 1 percent level; * * * 0.1 percent level, () lower than

Table II. Differences in manufacturing mean scores from 3.0 by WC status and with internal performance

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Impact of individual TQM enablers, internal performance and aggregated measures Table III gives an indication of the impact of specific, individual TQM enablers and individual internal performance measures on the level of CSR attainment across the manufacturing sector. These cover the areas of Organisation and Culture, Quality Practices and Organisational Results. From an organisation and culture perspective, there is a clear association between vision, strategy implementation and staff development and levels of external performance, whilst the level of quality practice implementation is also significantly associated. The profile relating to internal performance is less clear-cut, apart from associations involving performance relating to productivity and performance measurement and reporting.

Strategy towards corporate social Involvement in responsibility local community Organisation and culture Vision Shared vision Manufacturing strategy Employee involvement Job flexibility Benchmarking Human resource strategy Skills assessments Personal development needs Training and education Customer orientation Problem solving Quality practices Quality vision Quality processes Suppliers

Table III. Association between manufacturing PILOT questions and measures of CSR

Organisational results Customer satisfaction Market share Employee morale Inventory turns Cash flow Return on net assets Productivity Product costs Performance measurement and reporting

** *** *** **

Emissions and hazards

Sustainability

** *** *** **

** * *** **

*** *** *** **

*** ** ** *

*** *** *** ***

** *** *** * ** ** ** *** **

*** ** *

*** ** **

*** *

** **

*** *** **

* ** ***

*** *** **

*** *** *

* *

*** * ***

*

*

* * **

*** ** ***

*** ** ***

** ** ***

Notes: * Significant at 5 percent level; * * 1 percent level; * * * 0.1 percent level

Taking a holistic view on the impact of TQM implementation through aggregating the indicators into the broad areas listed above, the association between these aggregated indices and levels of performance are shown in Table IV. The aggregated scores representing each of the three areas shows moderately strong, but highly significant association with CSR performance, with the index relating to organisation and culture showing marginally the strongest association. This would suggest both practice implementation and internal performance have a positive association with external CSR performance, although the earlier results relating to world-class status would also suggest the marginally greater impact of enablers rather than internal attainment.

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Impact of size band Organisational size clearly plays a part in explaining differences in performance across these measures, with all four measures showing significant differences across manufacturing as indicated in Table V. Medium and large organisations have attained

Strategy towards corporate social responsibility

Involvement in local community

Emissions and hazards

Sustainability

Aggregated indices Organisation and culture Quality practices Organisational results

0.502 0.416 0.309

0.444 0.351 0.327

0.421 0.408 0.369

0.388 0.419 0.399

Aggregated indices Organisation and culture Quality practices Organisational results

*** *** ***

*** *** ***

*** *** ***

*** *** ***

Table IV. Associations between manufacturing PILOT indices and measures of CSR

Notes: * Significant at 5 percent level; * * 1 percent level; * * * 0.1 percent level

Strategy towards corporate social responsibility Involvement in local community Emissions and hazards Sustainability Significant difference from overall internal performance Strategy towards corporate social responsibility Involvement in local community Emissions and hazards Sustainability

Micro

Small

( *) ( * * *) ( *) ( * *)

( * *) ( * *) ( * * *) ( * * *)

( * *) ( * * *) ( * *) ( * * *)

( * * *) ( * *) ( * * *) ( * * *)

Medium

Large

( *)

Notes: * Significant at 5 percent level; * * 1 percent level; * * * 0.1 percent level; () lower than

( *)

Table V. Differences in manufacturing mean scores from 3.0 by size band and with internal performance

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an acceptable level of performance across the measures, whilst the performance for their micro and small counterparts is significantly lower. The extent of the significant difference between performance internal to the organisation and that relating to “sustainability and inclusion” becomes more apparent the smaller the manufacturer is, with limited significant differences for the medium and larger organisations.

730 Service Overview The service sector has a comparable profile to its manufacturing counterpart, with each performance measure relating to “sustainability and inclusion” having a mean score below 3, significant at the 0.1 percent level, as indicated within Table VI. The percentage of service organisations scoring highly for each of the measures ranges between 14 and 25 percent, with the percentage scoring poorly is again more typical, being between 29 and 45 percent across the four performance measures. Like the manufacturing sector, significant positive association exists between each pair of variables, all at the 0.1 percent level of significance, suggesting a similar consistency of performance level across the service sector. For each of the four measures, the level of CSR performance is significantly lower than that recorded for the overall levels of internal business performance, each at the 0.1 percent level of significance. Impact of world-class status World-class status highlights significant differences for each of the four performance indicators relating to “sustainability and inclusion”, as indicated within Table VII. Unlike the manufacturing sector, even the services defined as PW/WC or Promising have averaged poorly with regard to certain of these measures, whilst as earlier, the vulnerables and those with room for improvement have scored significantly lower than 3 on average for each measure. Apart from Strategy towards Corporate Social Responsibility where the PW/WC score higher (1 percent level), no significant difference exists across any of the measures between the PW/WC and Promising manufacturers, suggesting again that services with high levels of TQM implementation (irrespective of internal performance) are more likely to perform relatively well in terms of external CSR than their counterparts with poorer levels of

Service respondents Variable

Table VI. Profile of service PILOT scores

Strategy towards corporate social responsibility Involvement in the local community Emissions and hazards Sustainability

Value (1-2 ¼ “poor”, 3 – “OK”, 4-5 ¼ “good”) 1-2 (%) 3 (%) 4-5 (%) Mean

Significant difference Significance from overall internal from mean score of 3 performance

39

35

25

2.763

( * * *)

( * * *)

42

38

20

2.601

( * * *)

( * * *)

43 55

35 31

22 14

2.655 2.265

( * * *) ( * * *)

( * * *) ( * * *)

Notes: * Significant at 5 percent level; * * 1 percent level; * * * 0.1 percent level; () lower than

PW/WC Strategy towards corporate social responsibility Involvement in local community Emissions and hazards Sustainability Significant difference from overall internal performance Strategy towards corporate social responsibility Involvement in local community Emissions and hazards Sustainability

Promising

Vulnerable

RFI/CDB

( * *)

( * *) ( * *)

( * * *)

( * *) ( * * *)

( * * *) ( * * *)

( * *) ( * * *)

( * * *) ( * * *) ( * * *) ( * * *)

( * * *)

CSR performance

731 ( * * *) ( * * *) ( * * *) ( * * *)

( *) ( *)

( *) ( * *)

Notes: * Significant at 5 percent level; * * 1 percent level; * * * 0.1 percent level; () lower than

practice implementation. Like the manufacturing sector, the level of performance recorded for the four measures is typically inferior in statistically significant terms compared with typical levels of internal business performance and again, this is especially case for the winning and vulnerable service providers, who by definition have performed well with regard to the latter. Impact of individual TQM enablers, internal performance and aggregated measures Table VIII gives an indication of the impact of individual TQM enablers and internal performance indicators on the level of CSR attainment across the sector, covering Organisation and Culture, Service Quality and Delivery, Measurement of Service and Organisational Results. Organisational practices relating to skill and job training and education, employee involvement and listening to staff appear to have the most significant levels of association with CSR performance, as do a range of practices relating to service delivery and measurement. Apart from performance relating to Strategy towards Corporate Social Responsibility, the association between internal performance and CSR performance is non-significant, suggesting again that this external attainment is enabler rather results driven from within the service organisations. Table IX gives an indication of the association between external performance and the aggregated indices, based on the broad drivers listed above. Clearly the most significant drivers are practices relating to organisation and culture and service measurement, which are weak to moderately strong but highly significant in association. Impact of size band Organisational size again explains significant differences in performance across these measures, with all four measures showing significant differences across the service sector as indicated in Table X. Medium and large organisations have attained an acceptable level of performance across the measures, whilst the performance for their micro and small counterparts is significantly lower, giving a profile which is consistent with that displayed by the manufacturers. Similar to manufacturing, the extent of the significant difference between performance internal to the organisation and that relating to “sustainability and inclusion” becomes more apparent the smaller the

Table VII. Differences in service mean scores from 3.0 by WC status and with internal performance

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Strategy towards corporate social Involvement in responsibility local community Organisation and culture Leadership in developing service culture Shared vision and goals Customer orientation Quality values Recognition Skill and job training and education Employee involvement Listening to staff Teamwork penetration Service quality and delivery Problem-solving culture Quality mindset Quality procedures and framework Employee handling of service problem/failures Use of customer complaint data Workforce flexibility Measurement of service Non-value-adding activities Vision of service quality Visibility of service standards Benchmarks Performance measurement and reporting Customer satisfaction measurement

Table VIII. Association between service PILOT questions and measures of CSR

Organisational results Value (quality/price) Customer retention Level of customer satisfaction Market share (of primary service/line of business) Cash flow Overall productivity Return on net assets Production costs

* ***

Emissions and hazards

*

* ** **

**

**

Sustainability

* *** *** ** **

*

*** ** ** *

*** ***

** **

**

**

**

*

** ** **

*** **

** *

*

*** ***

** *

*** **

*** **

*** ***

***

*

***

***

***

*

**

**

*** * **

* ** * **

*

Notes: * Significant at 5 percent level; * * 1 percent level; * * 0.1 percent level

CSR performance Strategy towards corporate social Involvement in responsibility local community Aggregated indices Organisation and culture Service quality and delivery Measurement of service Organisational results Aggregated indices Organisation and culture Service quality and delivery Measurement of service Organisational results

Emissions and hazards

Sustainability

0.200 0.232

0.106 20.011

0.273 0.276

0.250 0.249

0.340 0.211

0.174 20.033

0.414 0.139

0.450 0.048

***

***

*** *

***

*** **

***

*** ***

***

Table IX. Associations between service PILOT indices and measures of CSR

Notes: * Significant at 5 percent level; * * 1 percent level; * * * 0.1 percent level

Strategy towards corporate social responsibility Involvement in local community Emissions and hazards Sustainability Significant difference from overall internal performance Strategy towards corporate social responsibility Involvement in local community Emissions and hazards Sustainability

Micro

Small

Medium

( * *) ( * *) ( * * *)

( * * *) ( * * *) ( * * *) ( * * *)

( *)

( * * *) ( * * *) ( * * *) ( * * *)

( * * *) ( * * *) ( * * *) ( * * *)

( * * *) ( *) ( *) ( * *)

733

Large

Notes: * Significant at 5 percent level; * * 1 percent level; * * * 0.1 percent level; () lower than

manufacturer is, with limited significant differences only for the larger services, the rest for medium sized organisations and smaller having a significantly inferior level of attainment relative to their internal performance. Comparisons between manufacturing and service sectors In comparison, neither sector leads overall with respect to any of these performance measures, where no significant difference exists in the mean performance for any of the four indicators between service and manufacturing. If equivalent sub-groups of manufacturers and service organisations are compared (i.e. PW/WC from each sector, micro vs. micro, etc.), only limited differences exist in terms of mean levels of performance.

Table X. Differences in service mean scores from 3.0 by size band and with internal performance

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In terms of World Class status, promising manufacturers perform better than their service counterparts with regard to Strategy towards Corporate Social Responsibility (1 percent level) and manufacturing leads amongst the PW/WC organisations in terms of Sustainability (5 percent level), whilst amongst those showing room for improvement, the service sector leads in terms of involvement in the local community (5 percent level). Regarding organisational size, amongst micro organisations, service leads manufacturing in terms of involvement in the local community (1 percent level), whilst large manufacturers lead service in terms of emissions and hazards (5 percent level). Implication of the results In absolute terms, both manufacturing and service sectors within the North East of England (relative to established world-class standards) are performing typically only poorly to adequately with respect to external CSR performance, with neither sector dominating in terms of performance. Moreover, compared with the UK measures relating to EFQM implementation (Hanson et al., 1996), the better organisations in terms of world-class status for the region are relatively under performing, as are the regions weaker organisations when comparison is made between the results presented in this paper and the UK attainment recorded in the 1996 study cited above. Apart from the larger organisations both in manufacturing and service, performance relating to “sustainability and inclusion” typically lags behind that relating to internal business performance and this is the case overall for each sector and also by world-class status group and organisational size, the large manufacturers and service providers apart. This suggests from the measures used in the benchmarking study, the most typical level of attainment across the region sees both its manufacturing and service organisations failing to view regional social responsibility as an appropriate objective, with no policies relating to involvement in the local community, whilst policies relating to emissions and hazards and sustainability do not extend beyond compliance with legal requirements. In short, organisations within both sectors have prioritised internal business performance over that relating to stakeholders in their closest environment. This North East of England study does highlight the existence of a number of key associations, where an organisation’s maturity in terms of implementing TQM practices and associated values and influences (be it in manufacturing and service), and the realisation of a corresponding high level of internal organisational performance, has led to a relatively positive performance in terms of external indicators relating to “sustainability and inclusion”. To a marginally greater extent, this is enabler rather than performance driven. The analysis indicates linkage to policy setting (shared vision, quality vision) and implementation through operational and human resource strategies being deployed in levels of practice relating to organisation and culture and quality concept, significant at individual enabler and recognisably stronger at an aggregated level of implementation. Perhaps even more clear-cut in both sectors is the association with organisational size, where the medium and large organisations are much more likely to attain at least an adequate level of performance relating to CSR, both in manufacturing and service. In terms of implication for organisations, this would suggest a limited, but significant impact of TQM implementation on external CSR performance. Combining

these findings, this would suggest that within the region’s manufacturing and service sectors, the winning organisations (in terms of TQM embedding and achieving organisational performance benefits) and those with larger numbers of employees on site are getting to the point of introducing ad hoc measures relating to regional social responsibility, encouraging local voluntary involvement amongst their employees and are seeking to extend performance relating to emissions and hazards and sustainability beyond legal minimums, although without fully embedding this within their relevant formal systems and processes. However, from an overall regional perspective this level of attainment from both the manufacturing and service sectors appears to be relatively low compared to that observed nationally. We conclude that this region’s organisations are becoming aware of the effect of the CSR practice and performance relationship. They appear to be at an awakening stage of CSR, mainly involving the ethical principles of avoiding harm or damage to their most immediate external stakeholders and working to legislative and regulatory requirements for economic, financial, health, safety and environmental issues. Using the results provided by this study, we cannot conclude categorically that the region’s CSR performance is driven by TQM, although the relevant levels of engagement in activities relating to the former are greater amongst those manufacturers and service providers who have higher levels of TQM adoption and who have attained better levels of internal business performance. However, approaches to CSR may be emerging in a similar way to that in which quality approaches developed towards the concept of Business Excellence. It may be following an evolutionary pattern similar to that in which “quality awareness” developed to TQM and Business Excellence. In maturing through phases from the “awakening” described above to total stakeholder nurturing and philanthropy, CSR may, in the future, establish its own place in the overall Business Excellence framework. One limitation of the study is the data is now at least five years old; so one question arises regarding the extent, if any, to which the region’s organisations have moved on in terms of their external performance. If opportunities arose, it would be useful to gauge the extent of enhancement in performance relating to CSR across both sectors as part of a longitudinal study, where manufacturing and service participants considered within this study could repeat the self-assessment to measure the extent to which their external performance as measured by these CSR-related indices has changed and moved to levels that extend beyond the ad-hoc or simple compliance to legal requirement. References CBI (1997), Fit for the Future: How Competitive Is UK Manufacturing?, CBI, London. Centre of Quality Excellence at the University of Leicester (2005), The Impact of the Effective Implementation of Organisational Excellence Strategies on Key Performance Results, Study Report for the European Foundation for Quality Management and the British Quality Foundation, Brussels/London. Cottrill, M. (1990), “Corporate social responsibility and the marketplace”, Journal of Business Ethics, Vol. 9, pp. 723-9. Deming, W.E. (1982), Out of the Crisis: Quality, Productivity and Competitive Positioning, Cambridge University Press, Cambridge.

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DTI (1995), Manufacturing Winners – Creating a World-class Manufacturing Base in the UK, DTI/TECs/DoEG, London. DTI (1997), Competitiveness – A Benchmark for Business, DTI, London. EFQM (1999), The EFQM Excellence Model, European Foundation for Quality Management, Brussels, available at: www.efqm.org

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Feigenbaum, A.V. (1956), “Total quality control”, Harvard Business Review, Vol. 34 No. 6, pp. 93-101. Feigenbaum, A.V. (1983), Total Quality Control, McGraw-Hill, New York, NY. Goldratt, E.M. and Cox, J. (1984), The Goal, Gower, Aldershot. Hanson, P., Voss, C.A., Blackmon, K. and Claxton, T. (1996), Made in Europe 2, An Anglo-German Design Study, IBM UK Ltd/London Business School, Warwick/London. Hanson, P., Voss, C.A., Blackmon, K. and Oak, B. (1994), Made in Europe, A Four Nations Best Practice Study, IBM UK/London Business School, Warwick/London. Hendricks, K.B. and Singhal, V.R. (1996), “Quality awards and the market value of the firm: an empirical investigation”, Management Science, Vol. 42 No. 3, pp. 415-36. Hendricks, K.B. and Singhal, V.R. (1997), “Does implementing an effective TQM programme actually improve operating performance? Empirical evidence from firms that have won quality awards”, Management Science, Vol. 43 No. 9, pp. 1258-74. Hendricks, K.B. and Singhal, V.R. (2000), The Impact of Total Quality Management (TQM) on Financial Performance: Evidence from Quality Award Winners, Georgia Institute of Technology, Atlanta, GA. Hendricks, K.B. and Singhal, V.R. (2001), “Firm characteristics, total quality management and financial performance”, Journal of Operations Management, Vol. 19, pp. 269-85. Hillman, A.J. and Keim, G.D. (2001), “Shareholder value, stakeholder management and social issues; what’s the bottom line?”, Strategic Management Journal, Vol. 22, pp. 125-39. Moore, G. (2001), “Corporate social and financial performance: an investigation in the UK supermarket industry”, Journal of Business Ethics, Vol. 34 Nos 3/4, pp. 299-315. NIST (2002), Malcolm Baldrige National Quality Award Criteria, US Department of Commerce, National Institute of Science and Technology, Gaithersburg, MD, available at: www. quality.nist.gov Prabhu, V.B., Robson, A., Yarrow, D.J., Appleby, A. and Mitchell, E. (2000a), Manufacturing Management in the North East of England: Are We Adopting Best Practice and Achieving World-Class Performance? An Analysis and Findings from 300 Companies, research report, University of Northumbria at Newcastle, Newcastle upon Tyne. Prabhu, V.B., Robson, A., Yarrow, D.J., Appleby, A. and Mitchell, E. (2000b), Service Operations Management in the North East of England: Are We Adopting Best Practice and Achieving World-Class Performance? An Analysis and Findings from 450 Organizations, research report, University of Northumbria at Newcastle, Newcastle upon Tyne. Robson, A. and Yarrow, D.J. (2000), “Getting to the facts: issues in data collection and consistency”, OR Insight, Vol. 13 No. 1, January-March, pp. 9-17. Schonberger, R.J. (1986), World Class Manufacturing, The Free Press, New York, NY. Smith, S. (1995), “World-class competitiveness”, Managing Service Quality, Vol. 5 No. 5, pp. 36-42. Voss, C. and Hanson, P. (1993), Made in Britain; The True State of Britain’s Manufacturing Industry, IBM UK Ltd/London Business School, Warwick/London.

Voss, C.A., Blackmon, K., Cagliano, R., Hanson, P. and Wilson, F. (1998), Made in Europe 3: The Small Company Study, IBM UK/London Business School/West London TEC, Warwick/London. Voss, C.A., Blackmon, K., Chase, R., Rose, B. and Roth, A.V. (1997), Achieving World Class Service: An Anglo-American Benchmark Comparison of Service Practice and Performance, Severn Trent, Birmingham. Womak, J.P. and Jones, D.T. (1996), Lean Thinking, Simon & Schuster, New York, NY. Womack, J.P., Jones, D.T. and Roos, D. (1990), The Machine that Changed the World, Macmillan, New York, NY. Corresponding author Andrew Robson can be contacted at: [email protected]

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A critical look on quality through CSR lenses Key challenges stemming from the development of ISO 26000

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Pavel Castka University of Canterbury, Christchurch, New Zealand, and

Michaela A. Balzarova Lincoln University, Christchurch, New Zealand Abstract Purpose – The purpose of this paper is to map the key challenges that quality management faces in order to meet the demands of CSR. The paper focuses on ISO 26000 – a newly emerging international standard for social responsibility – and discusses synergies (and divergences) between quality management (and ISO quality management and environmental management standards) and CSR as they emerged during the process of ISO 26000 development. Design/methodology/approach – This paper draws conclusions from the resolutions and working materials produced by ISO Committee on Consumer Policy, the Strategic Advisory Group on Social Responsibility and ISO/TMB/WG SR – a working group in charge of the development of ISO 26000. To add the quality management dimension to the discussion, the evidence is further expanded from the ISO documents by revealing the arguments posited by nominated experts during the development of ISO 26000. Findings – The paper finds that the quality field can significantly contribute to the deployment and uptake of the corporate social responsibility agenda yet needs to reinvent and rejuvenate in key areas such as management systems; integration of strategy, operations, technology, CSR and quality; incorporation of corporate governance; and improvements in third-party certification and internal auditing practices. Research limitations/implications – The research in the paper is limited to the linkages between quality management and CSR stemming from the development of ISO 26000. Other CSR standards and tools are not included. However, as ISO 26000 is a global initiative, this paper provides a view from the perspective of one of the most significant initiatives in recent years. Practical implications – The paper informs quality practitioners about the recent developments in international standardization of social responsibility and draws the linkages between quality management and corporate social responsibility that will enable them to adopt the CSR agenda and ISO 26000 in the future. Originality/value – This is one of the first papers that deals with the linkages and synergies between ISO 26000 and quality management. By doing so, key areas are also offered that practitioners and academics should further explore in order to demonstrate the contribution of quality management to CSR. Keywords Corporate governance, Corporate social responsibility, Quality management Paper type Research paper

International Journal of Quality & Reliability Management Vol. 24 No. 7, 2007 pp. 738-752 q Emerald Group Publishing Limited 0265-671X DOI 10.1108/02656710710774700

An earlier version of this paper was presented at the 11th International Conference on ISO 9000 and TQM (ICIT) held in Hong Kong (April 2005). This paper was the Best Paper Award in Sub-theme 2: ISO 9000, ISO 14000, etc. The authors further thank the Special Issue Guest Editors and two anonymous reviewers for their comments. This paper reflects the opinions of the authors and does not necessarily reflect those of ISO/TMB/WG Social Responsibility.

Introduction TQM, ISO 9000 and in fact the quality field as such, are facing yet other evolutionary challenges as the increasing number of scholars as well as practitioners assert the need for reinvention for the new millennium. Further trends are believed to encompass inclusion of virtue (Ahmed and Machold, 2004), corporate social responsibility (Waddock and Bodwell, 2004) and corporate governance (Liebesman, 2005). This trend is also present in the field of international standardization, where the quality field have left a significant footprint through ISO 9000. Indeed, the International Organization for Standardization (ISO) has identified “the crisis in trust with regard to corporate and public governance” and “urgency of a responsible approach to sustainable development” as new developments that are having – and will have – a significant impact on international standardization in the near future (ISO, 2003). Changing landscape – toward ISO 26000 Both areas mentioned in the “ISO Horizon 2010” document (ISO, 2003) – corporate governance and sustainable development – have enjoyed an increased attention from public as well as private sector. The corporate governance (CG) agenda has been under increased scrutiny because critical issues in corporate governance – such as established and sound systems of effective risk management and internal control – have not been met in many organisations (ICAEW, 1999). This triggered a development of a number of reports; such as Higgs (2003) report, Smith report (Smith, 2003); Turnbull report (ICAEW, 1999) and changes in legislation such as Sarbanes-Oxley Act (SOX, 2002). Similarly, corporate social responsibility (CSR) and sustainable development have seen a shift towards actual implementation. To facilitate this shift, a number of tools and national standards emerged over the last decade – such as GRI guidelines (GRI, 2002), the UN Global Compact, SA 8000 (see McIntosh, 2004, p. 54). CSR is quickly becoming a watchword for many boardrooms, major investors and other organisational stakeholders (Peddle and Rosam, 2004). Moreover, many quality practitioners and academics have been pointing out toward areas where quality management can contribute – seeing synergies between CSR and quality management and corporate governance and quality management and arguing for the integration of CSR and CG into business/quality management systems (Ledgard and Taylor, 2002; Robbins and Smith, 2000; Pige, 2002; Castka et al., 2004c). These recent developments have also hit the arena of international standardization and in 2004, the International Organization for Standardization (ISO) has announced that a new international standard for social responsibility – ISO 26000 – will be introduced in 2008 (ISO/TMB, 2004). Focus of this paper In this paper we review ISO 26000 standard and it development. Our aim is twofold. First, we aim to demonstrate synergies (and divergences) between quality management (and ISO quality management and environmental management standards) and CSR as they emerged during the process of ISO 26000 development. Second, we want to highlight key challenges that the quality management field faces in order to meet the demands of the CSR agenda and ISO 26000.

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The paper is organised in a following way. First, we explore the development of ISO 26000, in particular its shift from management systems standard approach (similar to ISO 9000 and ISO 140000) and discuss the scope and type of ISO 26000. This discussion allows us to draw the first parallels with quality management. Here we draw our findings from the resolutions and working materials produced by ISO Committee on Consumer Policy, the Strategic Advisory Group on Social Responsibility and the SR Working Group. To add the quality management dimension to our discussion, we further expand the evidence from the ISO documents by revealing the arguments posited by invited delegates to the ISO Conference on Social Responsibility and nominated experts of the SR Working Group during the development of ISO 26000. Even though these debates cannot be considered as official outcomes of the SR Working Group (and indeed many of these issues were not a subject to any resolution or consensus of the SR Working Group), this rich data brings further illumination on the issue of the contribution of quality management to the uptake of the social responsibility agenda, hence synergies between quality and CSR. We conclude our paper with a discussion on key challenges that the quality management field faces in order to meet the demands of CSR and ISO 26000. By doing this, we aim to further highlight these issues and stimulate future research in these areas. ISO 26000 – guidance standard on social responsibility In 2004, the International Organization for Standardization (ISO) announced a launch of a new standard – ISO 26000 international standard on social responsibility. The development process, initiated in 2005, is facilitated by ISO/TMB/WG SR (further referred to as the SR Working Group) that consists of about 300 nominated experts from 54 ISO member countries and 33 liaison organisations (as in April 2006), which represent six main stakeholder groups (Industry, Government, Consumer, Labour, Non Governmental Organisations and Service, Support, Research and Others; ISO/TMB/WG/SR, 2006). The SR Working Group is one of the biggest and most diverse working groups ever established by the International Organization for Standardization. Development of ISO 26000 is currently (June 2006) at the Design for Specification stage and the SR Working Group has agreed a structure for the standard (see Table I). Structure of ISO 26000 – International Standard on Social Responsibility (N49, 2005) (1) Introduction. The introduction should give information or commentary about the content of the guidance standard and the reasons prompting its preparation. The introduction should describe the purpose of the guidance standard in informative terms. (2) Scope. This section shall define the subject of the guidance standard, its coverage and the limits of its applicability. (3) Normative references. This section is for a list of documents, if any, which must be read in conjunction with the guidance standard. (4) Terms and definitions. This section will identify terms used in the guidance standard that require definition and provide such definitions.

ISO 9000

ISO 14000

Principles

Customer focus

Measurement, analysis and improvement Outside communication access for verification records Shares common management systems principles with ISO 9001

Management review

Quality management Environmental General description systems standard management systems standard Key Quality management Environmental policy elements system Management Planning responsibility Resource Implementation and management operation Product realization Checking

Standard

Auditing and reporting

Planning and implementation Control of suppliers/subcontractors and sub-suppliers Addressing concerns and taking corrective action

Requires companies to respect a set of ILO Conventions, United Nations Conventions and Universal Declaration of Human Rightsa

Accounting

Management review

Hierarchy of principlesb:

Stakeholder engagement

Embedding

International Standard on Social Responsibility

Accountability standard, for accounting, auditing and reporting Planning

Auditable standard for a third-party verification system Policy

(continued)

Clause 5 (currently under development) will specify substantive and process/attitude-related principles

The SR context in which all organisations operate SR principles relevant to organisations Guidance on core SR subjects/issues Guidance for organisations of implementing SR

ISO 26000

AA 1000

SA 8000

A critical look on quality through CSR lenses 741

Table I. A comparison of standards

Table I. ISO 14000

Meaningfulness of information Management of process on an ongoing basis

Inclusivity

SA 8000

Scope and nature of processes

Accountability

AA 1000

ISO 26000

Notes: aComplete list includes: ILO Conventions 29 and 105 (Forced and Bonded Labour); ILO Convention 87 (Freedom of Association); ILO Convention 98 (Right to Collective Bargaining); ILO Conventions 100 and 111 (Equal remuneration for male and female workers for work of equal value; Discrimination); ILO Convention 135 (Workers’ Representatives Convention); ILO Convention 138 and Recommendation 146 (Minimum Age and Recommendation); ILO Convention 155 and Recommendation 164 (Occupational Safety and Health); ILO Convention 159 (Vocational Rehabilitation and Employment/Disabled Persons); ILO Convention 177 (Home Work); ILO Convention 182 (Worst Forms of Child Labour); Universal Declaration of Human Rights; The United Nations Convention on the Rights of the Child; The United Nations Convention to Eliminate All Forms of Discrimination against Women; bA quality process of social and ethical accounting, auditing and reporting is governed by the principle of accountability. Organisational accountability is directly addressed by the inclusivity of the social and ethical accounting, auditing and reporting process. Stakeholder views are obtained through an engagement process that allows them to be accurately and fully expressed without fear or restriction. Inclusivity concerns the reflection at all stages of the process of the aspirations and needs of all stakeholder groups. Inclusivity requires the consideration of “voiceless” stakeholders including future generations and the environment. Inclusivity is supported by, and infuses the operational meaning of, the remaining AA 1000 principles. These can be divided into three broad groups, relating to: the scope and nature of the organisation’s process; the meaningfulness of information; and the management of the process on an ongoing basis

Systems approach to management Continual improvement Factual approach to decision making Mutually beneficial supplier relations

Leadership Involvement of people Process approach

ISO 9000

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Standard

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(5) The SR context in which all organisations operate. This section will provide the historical and contemporary contexts for SR. The section will also address questions arising out of the nature of the concept of SR. Relevant Stakeholder issues should be addressed in this section. (6) SR principles relevant to organisations. This section will identify a set of SR principles drawn from a variety of sources and provide guidance on these principles. Relevant stakeholder issues should be addressed in this section. (7) Guidance on core SR subjects/issues. This section will provide separate guidance on a range of core subjects/issues and relate them to organisations. Relevant stakeholder issues should be addressed in this section. (8) Guidance for organisations on implementing SR. This section will provide practical guidance on implementing and integrating SR in the organisation, including, for example, on policies, practices, approaches, issue identification, performance assessment, reporting and communication. Relevant stakeholder issues should be addressed in this section. (9) Guidance annexes. The guidance standard may include annexes if so desired. More importantly, the SR Working Group has taken some important decisions in terms of overall direction and type of ISO 26000 standard (ISO/TMB/WG/SR, 2006): . The document will be an International Standard providing guidance. . It will not be intended for third-party certification. . Throughout the standard, the verb form “should” will be used in preference to “shall”. . Only one standard will be developed. Here two important messages emerge. First, ISO 26000 takes a different approach in comparison to ISO 9000/ISO 14000. ISO 26000 is not designed as a management systems standard and third-party certification will not be offered. Second, ISO 26000 shifts its focus from the compliance-based standard – apart from a shift from third-party certification, ISO 26000 significantly changes its narrative (use of should/shall as mentioned above; use of more user-friendly language throughout the standard). In the following, we put these issues into a wider perspective. A shift from management systems standard to guidance standard A shift from management systems standard to guidance standard is a result of a long debate with all stakeholders involved in the development of ISO 26000. The question whether or not ISO 26000 should be designed as a management system standard was present in the discussion on the social responsibility standard since the first initiatives. In 2002, a report of ISO Committee on Consumer Policy suggested that a trio of ISO management standards – ISO 9001, ISO 14001 and ISO corporate responsibility management systems standards – would support business efforts to show that an organisation cares about quality, environment and the social effects of the production or activity (ISO/COPOLCO, 2002). Even though ISO COPOLCO advised to develop a management systems standard, it also acknowledged that several comments made during the circulation of its recommendations suggested that the option of guidance document or other ISO instruments (e.g. technical specification, workshop agreements,

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technical reports) might be preferable at this time (ISO/COPOLCO, 2002). Indeed, the Strategic Advisory Group on Social Responsibility, established in 2003 reviewed this issue once more and recommended a guidance document as a way forward (ISO/AG/SR, 2004a, b). This decision is captured in the key document “New Work Item Proposal” (ISO/TMB, 2004) – a starting point in the development of ISO 26000. The debate on the suitability of management systems approach revealed quite polarized viewpoints that nominated experts have (see Castka and Balzarova, 2005 for a detailed analysis of the initial stages in social responsibility standardization in 2004). Whilst the management systems approach was mainly promoted by nominated experts with quality background, it was opposed by other stakeholder groups such as NGOs and labour organisations. Here we can see a parallel that reflects the status quo of the quality field – a negative perception about “quality” in general and its contribution to today’s organisations and the general assumption that ISO 9000 means “quality” and ISO 9000 practices mean “quality practices”. Consequently, a management systems approach (such as ISO 9000 and ISO 14000) was seen as only partially suitable for the purposes of social responsibility. A shift from compliance and third-party certification Here again, the initial stages in the standardization of social responsibility supported the need for verification. ISO/COPOLCO (2002) stated that ISO corporate responsibility management systems standard “would constitute an internationally agreed-upon framework for operationalisation of corporate responsibility commitments, capable of producing verifiable, measurable outputs” and that firms could either self-declare compliance or seek certificates from authorised third parties. During the discussions, many nominated experts have strongly argued for, whilst others against, third-party certification. Overall, the consensus was that the current status of the verification industry is unsatisfactory. This industry was perceived as unreliable and inconsistent, which was seen as being too risky for the uptake – and gradual build up – of the social responsibility agenda and ISO 26000. Nevertheless, many nominated experts also expressed their belief that some form of verification will be necessary in the future. Discussion and implications – quality needs to reinvent Hence what does it mean for quality management? Are there any synergies between quality and CSR? Can quality management contribute to the uptake of CSR? In the following section we offer key areas that need further focus – from quality practitioners and academics alike. Beyond “management systems” approach In late 1980s standards bodies made a major breakthrough in management standardization by developing management systems standards (Uzumeri, 1997). This approach was adopted in areas ranging from quality to health and safety. Management systems standards, such as ISO 9000 and ISO 14000 became internationally used. However, gradually management systems approach have also caused an increased wave of criticism – from practitioners (Seddon, 2000) and academics (Hallstrom, 2000) – and ISO 26000s divergence from management systems approach could be viewed as a culmination of this criticism. Hence, have management systems still a role to play?

Our view is that they have – for several reasons. First, even the critics of management systems approach (Seddon, 2000) acknowledge that, in many cases, managers/consultants/auditors are to blame – rather than the approach as such. Indeed, management systems such as ISO 9000 are often used as a source of blame for rapid bureaucratization of organisations that add little value. Second, quality systems (such as ISO 9000) were always seen by quality gurus as the first stepping-stone toward business excellence. For instance, Ho and Fung (1994) argue for a natural progression from 5-S, through ISO 9000 to Business Excellence – allowing for the gradual uptake of quality practices. Similarly, ISO 9004 standard (in its Annex A), clearly promotes the notion of “performance maturity” and “self-assessment” – concepts typically linked with Business Excellence approaches. The CSR agenda suggests that organisations progress similarly with the uptake of the CSR agenda. For instance, Carroll (1979) describes four modes of social responsiveness (reaction, defence, accommodation, proaction). A similar approach is described in Wartick and Cochran (1985) and more recently in Zadek (2004). Zadek (2004) message is straightforward: companies do not become model citizens overnight, there is a path to follow. Indeed, research conducted in several industries suggests that the uptake of CSR at the beginning is rather chaotic as organisations firstly “make sense” of the meaning of SR in their organisations, supply chains and industries (Cramer et al., 2004). This was observed in many industries, i.e. in athletic footwear and clothing industry (Zadek, 2004), paper manufacturing industry (de Man and Burns, 2006) or consultancy industry (Castka et al., 2004b). Lessons from these studies demonstrate that management systems play an important part in this process as organisations strive to capture the basics and search for a communication mode in their supply chains. Here an extension of quality systems (such as ISO 9000) is a simple choice given the infrastructural convenience. For the quality field this implies the need to further continue with a progression from management system to more holistic excellence models of organisations. This is well captured in Zwetsloot (2003): . . . CSR is very likely to build on the management systems as well. From a CSR point of view, the existing generation of management systems with their focus on rational control ( ¼ doing things right) can only be of limited use in the development of CSR. However, the preventive rationalities of management systems are important. Values and the principle doing the right things is extremely relevant for CSR. This goes far beyond the present generation of ISO type management systems; opportunities stem from building on TQM approaches like the EFQM Business Excellence model.

Necessity to strengthen the strategy-quality-operations-technology-CSR axis Integration of operations, quality, strategy and technology is increasingly seen as a way to sustain competitive advantage of organisations and also a way to overcome disappointments with quality programs and standards (Hayes et al., 2005). Furthermore, developing and improving of these linkages can also help to strengthen the focus on doing right things right, as the strategic element here inevitably requires the involvement of top management and/or board of directors. This can be in contrast to current quality practice – at least in terms of ISO 9000 – where inarguably in many compliance-focused organisations, middle managers or specialised quality departments “deal” with certification. On the contrary, ISO 26000 strengthens

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the focus on wider stakeholder base, understanding of the context in which organisations operate and its translation into organisational settings – clearly a top management task. However, key questions remains whether and under what circumstances an organisation should engage in the CSR agenda. To enable this discussion McWilliams et al. (2006) distinguish strategic CSR, altruistic CSR and coerced CSR. Here again a parallel with quality management can be drawn – looking at the uptake of ISO 9000/ISO 14000 (Corbett and Kirsch, 2001; Delmas, 2002; Franceschini et al., 2004; Guler et al., 2002; King et al., 2005): some organisations implemented ISO 9000 for strategic reasons (i.e. market entry; signalling value to the market); other had altruistic motivations (i.e. CEO/investor “believing” in environmental issue hence promoting the implementation of ISO 14000) and yet others were forced by coercive mechanisms to get certified (i.e. small firms competing for contracts; necessity to join a particular supply chain, etc.). Even though this can appear as a loose parallel, the key is that management practices diffuse similarly and that we can see similar patterns with CSR. In any case (strategic, altruistic, coercive), organisations will inevitably balance their CSR programmes against profitability – in order to sustain their survival and here quality management literature argues for the use of business/quality management systems (Castka et al., 2004a; Rosam and Peddle, 2004). There are many examples in the literature relating to finding a balance between CSR and firm’s profitability and using CSR as a point of differentiation. For instance Peddle and Rosam (2004) argue that CSR is not different from quality – both searching for success through careful balance. McWilliams and Siegel (2001) argue for the balance between the demand for CSR and investment into CSR – through a cost-benefit analysis. Smith (2004) argues that firm’s social responsibility strategy should be unique despite the sameness of corporate reports on CSR. Hart (1995), applying the resource-based view of the firm for the investigation of environmental social responsibility, concluded that this can constitute a resource or capability that leads to a sustained competitive advantage. Finally, Porter and Kramer (2002) even suggest that an organisation should seek a competitive advantage though its philanthropic activities. This brings us to the initial point that the integration of strategy-quality-operations-technology-CSR is critical and we argue that quality management can contribute to CSR if an organisation clearly sees these linkages and can synergise and integrate its quality and CSR initiatives. Encompassing corporate governance, strengthening internal and external audits and control Recent scandals and bankruptcy in large corporations revealed huge gaps between boards of directors, executive management, internal control and organisational performance. The importance of internal control and audit is aggravated even more after accounting firms are being sued by shareholders for their inability to detect fraud (Schnatterly, 2001; Lerach, 2001) – since than the changes involved strengthening internal control in organisations (for instance SOX, 2002). At the same time, several authors proposed that quality and corporate governance (CG) should be dealt as inseparable areas. For instance, the CSR/CG framework published by British Standards Institution (Castka et al., 2004a) makes a significant contribution to this trend. This work offers organisations a framework for establishing, maintaining,

improving and documenting their CSR/CG management system. The authors assert that these concepts cannot be mutually exclusive but merge together, each offering a different yet complementary perspective on the activities of an organisation, to form a robust strategic business management tool. Liebesman (2004) strongly advocates that ISO 9000 and ISO 14000 can be used to reduce risks with compliance with the Sarbanes-Oxley act (SOX, 2002): Because of SOX, the CEOs and CFOs of public companies must certify their financial statements, and each year they must certify the effectiveness of their systems of internal controls mandated by the law. Top management needs to obtain better information about the effectiveness of their organizations. Quality and environmental people should be at the table when the internal financial auditors develop their reports to top management and the board of directors.

In the later work Liebesman (2005) asserts that ISO 9000 and ISO 14000 can be substituted be other quality framework, such as Malcolm Baldrige National Quality Award. Importantly, Liebesman (2005) further demonstrates one important outcome of the integration of CSR and CG with quality management: that this can be used as a vehicle to bring quality at the board level and rejuvenate quality programs in organisations. Research into white-collar crime (which is understood as any crime committed by business people or professionals in the course of occupation) reveals that the most effective mechanisms used to discover frauds are internal audits. Schnatterly (2001) reports that: . 59 percent of frauds are uncovered in organisations by internal controls (including internal auditor reviews); . 38 percent are uncovered through letters from customers; . 28 percent from anonymous sources; . 32 percent by accident; and . Only 3 percent are discovered by external auditor reviews. Indeed, internal audits make up an integral part of quality systems. ISO 9000 and ISO 14000 require thorough audit plan and management review. In any case, a “feedback” and “continuous improvement” are critical parts of the whole quality management philosophy. Here again, organisations can extent their audit activities to include and encompass elements of CSR. However, internal auditing practices are often criticised – as mechanisms that lead to compliance mentality (Karapetrovic, 1999) or adding little value to the running of organisations (Seddon, 2000). Similar arguments can be drawn in relation to third-party certification. Third-party certification is under increased attack and looking at the findings from the discovery of frauds (only 3 percent attributed to external auditors; Schnatterly, 2001), this should be of little surprise. Problems can be summarised in three areas. First, the critiques point at the commercial nature of the relationship between the certifier and the audited organization (Lal, 2004). This relationship can cause laxity and malpractice in ISO certification. Second, the competence of auditors is often questioned and they are seen as adding little value to organisations. Third, the accountability of the certification body to final customer and end user is marginal.

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Clearly, a profound change in third party verification practices is necessary. The efforts so far suggest that there is willingness for change and in fact some changes are in progress (Wade, 2002; Lal, 2004). The International Accreditation Forum (IAF) and ISO has attempted to address the criticism by revision of requirements for accreditation bodies that accredit conformity and for auditor competences yet IAF asserts that the profound changes will need more time (Feary, 2005). In the meanwhile, some accreditation bodies (UL, The HPA) have already challenged the management systems paradigm and offer new approaches to ISO management systems certification (HPO, 2006). Conclusion CSR has evolved tremendously over the last decade. Waddock and Bodwell (2004) suggest that the evolution of CSR and quality shows similar patterns: in the early days of quality movement managers questioned whether there was a business case for quality, quality was seen as a function and only later became an integral part of organisations, higher quality was seen as unrecoverable cost. Similar patterns can be traced in the CSR debate: is there a business case for CSR (Castka et al., 2004b)? How much should companies invest in their CSR (McWilliams and Siegel, 2001)? Our expectation is that CSR, similarly to quality, will become a cornerstone of future organisational activities. Current need to deal with CSR and Corporate Governance presents a tremendous opportunity for the quality movement and quality practitioners to add value to their organisations. Quality standards, excellence models and TQM principles can serve as platforms for implementation of CSR in organisations. There can be several starting points. In Table I, we have outlined various standards that can be used, namely ISO 9000, ISO 14000, SA 8000, AA 1000 and ISO 26000. In Table I, key elements and principles are compared. We envisage that organisations can naturally progress from building management systems (ISO 9000 and ISO 14000), introducing accountability principles (SA8000 and AA1000) toward building a stakeholder-focused organisation (ISO 26000). This does not necessarily mean that organisations should seek certification against these standards – these standards can be used as a benchmark and/or inspiration. Another pathway may be through excellence models. However, in any case the aim should be a full embedment of CSR into daily running of organisations (Castka et al., 2004b). The quality discourse can play an important role in the evolution of the CSR agenda and implementation of ISO 26000. Yet changes and improvements are necessary to rejuvenate the quality field. There is a need to stress the importance of a move beyond management systems and compliance paradigm and changing the negative perception about certified management systems and third-party certification. In our discussion, we have offered key areas that practitioners and academics should further explore in order to demonstrate the contribution of quality management to CSR. Glossary of terms Corporate Social Responsibility (CSR): “the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large (WBCSD, 1999)”. Many other definitions exist and also other terms are used –

such as corporate responsibility or social responsibility. The first committee in ISO that dealt with the CSR agenda – Consumer Policy Committee of ISO (ISO/COPOLCO, 2002) – used terms “corporate social responsibility” and “corporate responsibility” as approximately equivalent. ISO COPOLCO later decided to adopt the term “corporate responsibility”. After that, the Advisory Group on Social Responsibility (ISO/AG/SR, 2004a) initiated the use of the term “social responsibility”, which is also used in ISO 26000 (ISO/TMB, 2004) ISO/TMB/WG SR: multi-stakeholder working group charged with the development of ISO 26000; the SR Working Group is made up of experts nominated by ISO member bodies wishing to actively participate, internal ISO/IEC committee liaisons and external liaisons – open to any relevant international or broadly based regional organisation that wishes to participate in the work; ISO/TMB/WG SR is referred in the paper as “the SR Working Group” Nominated expert: a member of ISO/TMB/WG SR; each country may nominate up to six experts; as in April 2006 countries that nominated their experts include Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, China, Colombia, Costa Rica, Coˆte d’Ivoire, Czech Republic, Denmark, Finland, France, Germany, Ghana, Greece, India, Indonesia, Iran, Ireland, Israel, Italy, Jamaica, Japan, Republic of Korea, Kenya, Malaysia, Mauritius, Mexico, Morocco, The Netherlands, New Zealand, Norway, Nigeria, Panama, Philippines, Poland, Portugal, Russian Federation, Saint Lucia, Singapore, South Africa, Spain, Sweden, Switzerland, Thailand, Turkey, United Kingdom, the Uruguay, USA, Venezuela, Zimbabwe. Liaison organisations: organisations that participate in the development process; as in April 2006 following organisations are liaison members of ISO/TMB/WG SR and have nominated their experts: African Institute of Corporate Citizenship, Centre for Corporate Social Responsibility, Consumers International, European Commission, Ecologists Linked for Organizing Grassroots Initiatives and Action, Foundation and Ethical Investment Research Services Ltd., Ethos Institute, Forum Impresa, Global Reporting Initiative, Institute for Energy and Environment of the French speaking countries, International Chamber of Commerce, International Confederation of Free Trade Unions, International Council of Mining and Metals, International Federation of Standards Users, International Institute of Environment and Development, International Institute for Sustainable Development, International Labour Organization, Inter American CSR Network, International Organization of Employers, International Petroleum Industry Environmental Conservation Association, International Social and Environmental Accreditation and Labelling, Organisation for Economic Cooperation and Development, International Association of Oil and Gas Producers, Red Puentes, Social Accountability International, Transparency International, United Nation Division for Sustainable Development, United Nations Conference on Trade and Development, UN Global Compact, United Nations Industrial Development Organization, World Business Council on Sustainable Development, World Health Organization. References Ahmed, P.K. and Machold, S. (2004), “The quality and ethics connection: toward virtuous organizations”, Total Quality Management and Business Excellence, Vol. 15, pp. 527-45.

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Carroll, A.B. (1979), “A three-dimensional conceptual model of corporate performance”, Academy of Management Review, Vol. 4, pp. 497-505. Castka, P. and Balzarova, M. (2005), “ISO management system standards and social responsibility connection: (not quite) joined-up opinions of ISO’s stakeholders”, Total Quality Management and Business Excellence, Vol. 33, pp. 119-24. Castka, P., Bamber, C. and Sharp, J.M. (2004a), Implementing Effective Corporate Social Responsibility and Corporate Governance – A Framework, British Standards Institution, London. Castka, P., Balzarova, M., Bamber, C. and Sharp, J. (2004b), “How can SMEs effectively implement the CSR agenda? A UK case study perspective”, Corporate Social Responsibility and Environmental Management, Vol. 11, pp. 140-9. Castka, P., Bamber, C.J., Bamber, D.J. and Sharp, J.M. (2004c), “Integrating corporate social responsibility (CSR) into ISO management systems – in search of a feasible CSR management system framework”, The TQM Magazine, Vol. 16, pp. 216-24. Corbett, C. and Kirsch, D. (2001), “International diffusion of ISO 14000 certification”, Production and Operations Management, Vol. 10, pp. 327-42. Cramer, J., Jonker, J. and Heijden, A. (2004), “Making sense of corporate social responsibility”, Journal of Business Ethics, Vol. 55, pp. 215-22. de Man, R. and Burns, T.R. (2006), “Sustainability: supply chains, partner linkages, and new forms of self-regulation”, Human Systems Management, Vol. 25, pp. 1-12. Delmas, M.A. (2002), “The diffusion of environmental management standards in Europe and the United States: an institutional perspective”, Policy Sciences, Vol. 35, pp. 91-119. Feary, S. (2005), “Effective accreditation is essential for audit competence”, ISO Management Systems, Vol. 5, pp. 18-22. Franceschini, F., Galetto, M. and Gianni, G. (2004), “A new forecasting model for the diffusion of ISO 9000 standard certifications in European countries”, International Journal of Quality & Reliability Management, Vol. 21 No. 1, pp. 32-50. GRI (2002), Sustainability Reporting Guidelines, Global Reporting Initiative, Amsterdam. Guler, I., Guille´n, M. and Macpherson, J. (2002), “Global competition, institutions, and the diffusion of organizational practices: the international spread of ISO 9000 quality certificates”, Administrative Science Quarterly, Vol. 47, pp. 207-32. Hallstrom, T.K. (2000), “Organizing the process of standardization”, in Brunsson, N. (Ed.), A World of Standards, Oxford University Press, Oxford, pp. 85-99. Hart, S. (1995), “A natural resource-based view of the firm”, Academy of Management Review, Vol. 20, pp. 986-1014. Hayes, R., Pisano, G., Upton, D. and Wheelwright, S. (2005), Operations, Strategy, and Technology. Pursuing the Competitive Edge, Wiley, Hoboken, NJ. Higgs, D. (2003), Review of the Role and Effectiveness of Non-executive Directors, Department of Trade and Industry, London. Ho, S. and Fung, C. (1994), “Developing a TQM excellence model”, The TQM Magazine, Vol. 6, pp. 24-30. HPO (2006), ISO 9001:2000 Registration with the HPA, The HPO Group, Kettering, available at: www.the-hpo.com ICAEW (1999), Internal Control: Guidance for Directors on the Combined Code (Turnbull Report), Institute of Chartered Accountants in England and Wales, London.

ISO (2003), ISO Horizon 2010. Standards for a Sustainable World, International Organization for Standardization, Geneva. ISO/AG/SR (2004a), Working Report on Social Responsibility, ISO Advisory Group on Social Responsibility, International Organization for Standardization, Geneva. ISO/AG/SR (2004b), Recommendations to the ISO Technical Management Board, Document: ISO/TMB AG CSR N32, International Organization for Standardization, Geneva. ISO/COPOLCO (2002), The Desirability and Feasibility of ISO Corporate Social Responsibility Standards, Final report by the Consumer Protection in the Global Market Working Group of the ISO Consumer Policy Committee (COPOLCO), International Organization for Standardization, Geneva. ISO/TMB (2004), New Work Item Proposal – Social Responsibility, International Organization for Standardization, Geneva. ISO/TMB/WG/SR (2006), Participating in the Future: International Standard ISO 26000 on Social Responsibility, International Organization for Standardization, Geneva. Karapetrovic, S. (1999), “ISO 9000: the system emerging from the vicious circle of compliance”, The TQM Magazine, Vol. 11, pp. 111-20. King, A.A., Lenox, M.J. and Terlaak, A. (2005), “The strategic use of decentralized institutions: exploring certification with the ISO 14001 management standard”, Academy of Management Journal, Vol. 48, pp. 1091-114. Lal, H. (2004), “Re-engineering the ISO 9001:2000 certification process”, ISO Management Systems, Vol. 4, pp. 15-17. Ledgard, S. and Taylor, E. (2002), “A risk too far”, Quality World, Vol. 14, pp. 15-18. Lerach, W. (2001), “Achieving corporate governance enhancement through litigation”, paper presented at Council of Institutional Investors Spring Meeting, Washington, DC. Liebesman, S. (2004), “Quality practitioners and effective corporate governance”, Quality Progress, Vol. 37, pp. 74-6. Liebesman, S. (2005), “Mitigate SOX risk with ISO 9001 and 14001”, Quality Progress, Vol. 38, pp. 91-4. McIntosh, M. (2004), Raising a Ladder to the Moon. The Complexities of Corporate Social and Environmental Responsibilities, Palgrave Macmillan, New York, NY. McWilliams, A. and Siegel, D.S. (2001), “Corporate social responsibility: a theory of the firm perspective”, Academy of Management Review, Vol. 26, pp. 117-27. McWilliams, A., Siegel, D.S. and Wright, P.M. (2006), “Corporate social responsibility: strategic implications”, Journal of Management Studies, Vol. 43, pp. 1-18. N49 (2005), ISO Guidance Standard on Social Responsibility – ISO 26000, International Organization for Standardization, Geneva. Peddle, R. and Rosam, I. (2004), “Finding the balance”, Quality World, Vol. 16, pp. 18-26. Pige, B. (2002), “Stakeholder theory and corporate governance: the nature of the board information”, Management – Journal of Contemporary Management Issues, Vol. 7, pp. 1-17. Porter, M.E. and Kramer, M.R. (2002), “The competitive advantage of corporate philanthropy”, Harvard Business Review, Vol. 80, pp. 56-68. Robbins, M. and Smith, D. (2000), Managing Risk for Corporate Governance – PD 6668:2000, British Standards Institution, London. Rosam, I. and Peddle, R. (2004), Implementing Effective Corporate Social Responsibility and Corporate Governance – A Guide, British Standards Institution, London.

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Schnatterly, K. (2001), “Internal corporate governance as a source of firm value: the impact of internal governance on the incidence of white collar crime”, PhD thesis, University of Michigan, Dearborn, MI. Seddon, J. (2000), The Case against ISO 9000, Oak Tree Press, Dublin. Smith, C. (2004), “Corporate social responsibility: whether or how?”, California Management Review, Vol. 45, pp. 52-76. Smith, R. (2003), Audit Committees – The Combined Code Guidance, Financial Reporting Council Limited, London. SOX (2002), Sarbanes-Oxley Act, The Senate and House of Representatives of the United States of America, Washington DC. Uzumeri, M.V. (1997), “ISO 9000 and other metastandards: principles for management practice?”, The Academy of Management Executive, Vol. 11, pp. 21-36. Waddock, S. and Bodwell, C. (2004), “Managing responsibility: what can be learnt from the quality movement?”, California Management Review, Vol. 47, pp. 25-37. Wade, J. (2002), “Is ISO 9000 really a standard?”, ISO Management Systems, Vol. 2, pp. 127-9. Wartick, S.L. and Cochran, P.L. (1985), “The evolution of the corporate social performance model”, Academy of Management Review, Vol. 10, pp. 758-69. WBCSD (1999), Corporate Social Responsibility, World Business Council for Sustainable Development, Geneva. Zadek, S. (2004), “The path to corporate responsibility”, Harvard Business Review, Vol. 82, pp. 125-34. Zwetsloot, G.I.J.M. (2003), “From management systems to corporate social responsibility”, Journal of Business Ethics, Vol. 44, pp. 201-7. Corresponding author Pavel Castka can be contacted at: [email protected]

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Corporate governance as a critical element for driving excellence in corporate social responsibility Arash Shahin

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University of Isfahan, Isfahan, Iran, and

Mohamed Zairi University of Bradford, Bradford, UK Abstract Purpose – The purpose of this paper is to enhance understanding of corporate governance (CG) in delivering excellence in corporate social responsibility (CSR). Design/methodology/approach – The paper demonstrates models of CG and the associated elements affecting CSR. It addresses the integration of CSR into management systems through a framework as a process-based management system and studies the role of leadership style for socially responsible organizations. The paper develops a comprehensive questionnaire that enables organizations to audit their commitment to environment and social responsibility. Findings – The paper reflects that CG encompasses different internal and external factors, by which management of organizations are influenced. This is also compatible with the new corporate community models, in which investors, the public, customers, employees and associated corporations have a mutual impact on management. The leadership style is also found to play an important role in socially responsible organizations. In this respect, transformational leader seems to be more effective, compared with manager and transactional leader. The paper suggests that organizations should audit their CG capabilities towards CSR, based on a proposed questionnaire in order to drive excellence in CSR. Originality/value – The paper provides a comprehensive study to help understand key elements of CG and CSR and proposes a new questionnaire to organizations for assessing how far they are able to move towards socially responsible organizations. Keywords Corporate social responsibility, Corporate governance, Leadership Paper type Research paper

Introduction Today not only are firms expected to be virtuous, but also they are being called to practice “social responsibility” or “corporate citizenship” (Carroll, 2000b, p. 187). Unfortunately, too frequently marketers still focus solely on their products and markets while neglecting the social impact of their activities (Flores, 2001). Perhaps this is because the concept of CSR is a fuzzy one with unclear boundaries and debatable legitimacy. The central question confronting strategy today is how to discern and respond to the new rules of the game – those that are being set both by changing industry and market structure and the new basis for competition, and by higher public expectations of companies’ social and ethical performance. In retrospect from the vantage point of 2010, it may be only a slight exaggeration to say that ethics have come to be on a par with economics as the primary criterion for evaluating corporate performance – not

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because economic value has become less important, but because it is taken for granted, and ethical performance is not (Wilson, 2000). According to Wilson (2000), new rules of corporate conduct could be considered as: . Legitimacy. To earn and retain social legitimacy, the corporation must define its basic mission in terms of the social purpose it is designed to serve rather than as the maximization of profit. . Governance. The corporation must be thought of, managed, and governed more as a community of stakeholders and less as the property of investors. . Equity. The corporation must strive to achieve greater perceived fairness in the distribution of economic wealth and in its treatment of all stakeholder interests. . Environment. The corporation must integrate the practices of restorative economics and sustainable development into the mainstream of its business strategy. . Employment. The corporation must rewrite the social contract of work to reflect the values of the new workforce and increase both the effectiveness and loyalty of employees and the corporation. . Public/private-sector relationships. To ensure the success of the power shift, corporations must work closely with governments to achieve a viable and publicly accepted redefinition of the roles and responsibilities of the public and private sectors. . Ethics. The corporation must elevate and monitor the level of ethical performance in all its operations in order to build the trust that is the foundation of sound relationships with all stakeholder groups. CSR, CG, Corporate Sustainability (CS), Corporate Citizenship and Triple Bottom Line (TBL) are becoming synonymous with the emerging effort to determine the meaning of “ethical business”. However, even though the theory and models surrounding stakeholders management and social responsibility are abundant (Harrison and Freeman, 1999), the analysis of CSR is still in an embryonic stage and critical issues regarding frameworks, measurement, and empirical methods have not yet been resolved (Academy of Management, 2003). The purpose of this paper is to clarify the CSR concept and review the different viewpoints on the role of CG in society. This paper will offer suggestions on how CG could drive excellence in social responsibility, while recognizing that empirical research is needed for definitive answers to many. The aim of this paper is not to harangue practising managers about lack of social responsibility. Rather, it tries to demonstrate, as much as possible, what companies can do to become good corporate citizens. Corporate Social Responsibility (CSR) CSR has been defined as the duty of the organization to respect individuals’ rights and promote human welfare in its operations (Manakkalathil and Rudolf, 1995; Oppewal et al., 2006). Businesses not only have the economic responsibility of being profitable and the legal responsibility to follow the laws or ground rules that guide their ability to achieve their economic requirements, but they also have ethical responsibilities that include a range of societal norms, or standards (Carroll, 2000a).

CSR has been around for more than two decades. During the latter half of twentieth century there arose the idea of the corporate social contract, which today underlies the CSR concept. Given the sometimes adverse effects of business decision making on society as well as corporate reliance on society, the notion of an implied corporate social contract was conceived by social and economic theorists. This contract spells out society’s expectations of business as well as (although much less discussed) business’s expectations of society (Bowie, 1983). There is no single authoritative definition of CSR (ISO COPOLCO, 2002). The CSR agenda seems to be a loosely defined umbrella embracing a vast number of concepts traditionally framed as environmental concerns, public relations, corporate philanthropy, human resource management and community relations. One of the most referred definitions is by World Business Council for Sustainable Development (WBCSD) (1999) that defines CSR as “the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large”. CSR means being a good steward of society’s economic and human resources (Journal of Consumer Marketing, 2001). In summary, CSR entails the obligation stemming from the implicit “social contract” between business and society for firms to be responsive to society’s long-run needs and wants, optimizing the positive effects and minimizing the negative effects of its actions on society.

Different types of CSR The notion that business has duties to society is firmly entrenched, although in the past several decades there has been a revolution in the way people view the relationship between business and society. Carroll (1979) and other researchers believe that we should judge corporations not just on their economic success, but also on non-economic criteria. Carroll (1979) proposed a popular four-part definition of CSR, suggesting that corporations have four responsibilities or “four faces” (Carroll, 2000b, p. 187) to fulfill to be good corporate citizens: economic, legal, ethical and philanthropic: (1) Economic responsibility. Economic responsibility is to be profitable for principals, by delivering a good quality product, at a fair price, is due to customers. (2) Legal responsibilities. Legal duties entail complying with the law and playing by the rules of the game. (3) Ethical responsibilities. Ethical duties overcome the limitations of legal duties. They entail being moral, doing what is right, just, and fair; respecting peoples’ moral rights; and avoiding harm or social injury as well as preventing harm caused by others (Smith and Quelch, 1993). (4) Philanthropic responsibility. Interest in doing good for society, regardless of its impact on the bottom line is what is called altruistic, humanitarian or philanthropic CSR. “giving back” time and money in the forms of voluntary service, voluntary association and voluntary giving – is where most of the controversy over the legitimacy of CSR lies.

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Figure 1. Corporate governance

Corporate Governance (CG) The definition of CG differs depending on one’s view of the world. Shleifer and Vishny (1997) define CG as the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment. Taking a broad perspective on the issues, Gillan and Starks (1998) define CG as the system of laws, rules, and factors that control operations at a company. Irrespective of the particular definition used, researchers often view CG mechanisms as falling into one of two groups: those internal to firms and those external to firms. Of course, firms are more than just boards, managers, shareholders, and debt holders. Figure 1 provides a comprehensive perspective of the firm and its CG. Figure 1 also depicts other participants in the corporate structure, including employees, suppliers, and customers. By incorporating the community in which firms operate, the political environment, laws and regulations, and more generally the markets in which firms are involved, Figure 1 also reflects a stakeholder perspective on the firm (Jensen, 2001). Over the years, CG has evolved from the traditional “profit-centered model” to the “social responsibility model”. The two models are illustrated schematically in Figure 2. These two models illustrate the fundamental conflict that prevails today in CG – the PCM and the SRM are mutually exclusive. Each focuses on an opposite half of the corporation’s domain, even though the economic and social aspects of business are closely interrelated. In short, governance is viewed as a zero sum game. Because the economic role of the firm is fundamental to its survival, profit often drives out social considerations. Because knowledge increases when shared, collaborative partnerships between management and stakeholders can be economically productive. Like all partnerships, stakeholder collaboration is a two-way, working relationship that combines the capabilities of partners for their mutual benefit. According to Halal (2000), the wealth-creating role of business arises directly out of integrating stakeholders into a productive whole – a “corporate community” (Figure 3). The corporate community model views the firm as a socioeconomic system in which wealth is created through stakeholder collaboration. Note that this is not done to be socially responsible, but because it is a competitive advantage.

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Figure 2. Evolution of corporate

Drew et al. (2006) identified five integrated elements that underpin a firm’s ability to manage risks, engage in effective CG, and implement new regulatory changes: Culture, Leadership, Alignment, Systems, and Structure. Referred to, for the sake of convenience, by the acronym CLASS, each element relates to the others. For example, organizational culture is shaped by leadership practices. Systems support organizational structure and shape its culture. Alignment ensures each element is harmonized with the others so that, for example, explicit cultural norms are reinforced by leadership, and systems reinforce the culture. No one element stands alone. As Figure 4 illustrates, each element positively reinforces the others and strengthens strategic risk management. After engaging in an examination process, board members can map organizational challenges against these elements, identify areas in need of improvement, and plan change management programs. Superior risk management programs and stronger firm governance capabilities result. The elements of CG addressed in Figure 4 could be considered as the core (i.e. management) of Figure 3 (i.e. corporate community model). Combining the models therefore represents the influence of CG on CSR or corporate community. CSR and financial performance Over the last three decades, the pressure on firms to engage in CSR has increased. Many managers have responded to these pressures, but many have resisted. Those who resist typically have invoked the trade-off between socially responsible behaviour and profitability. Management researchers have responded to this by attempting to

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Figure 3. The new perspective: corporate community model

Figure 4. Five elements of corporate governance to manage strategic risk

demonstrate the effect of CSR on profitability. The results of empirical studies of the relationship between CSR and profitability have been inconclusive, reporting positive, negative, and neutral results (McWilliams and Siegel, 2000). However, it is expectable that a CSR programme will cost the company money. By treating it as a business function in the same way as finance or supplies or marketing, the company can control those costs and cut its cloth to a compromise between the needs of the communities it serves and what it can afford. However, as Castka et al. (2004) emphasised, the purpose of CSR needs to be thoroughly considered and treated as any other investment. They supported the argument of McWilliams and Siegel (2001) that the core return on investment in CSR is finding the optimum level that balances the need for maximizing “profit from CSR” while satisfying the “demand for CSR” from multiple stakeholders (Figure 5). This balance is resolved in the framework by the stakeholder dialogue and assessment of their expectations and consequently by translation of these expectations into the strategic plan of the organisation.

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How to create social value: integrating CSR into management systems Nelson (1998) and Zairi (2000) proposed an approach based on three elements for building societal value added. Table I illustrates how this can be carried out. They argue that companies that have started to make real headway in the area of societal value-added tend to share four characteristics: (1) They rely on value-based transformational leadership (i.e. sponsor-headed by the CEO and reflected in the company’s vision/mission and value statements). (2) Cross-boundary learning (a commitment to learning, innovation and through networks and global partnerships). (3) Stakeholder linkages (mutual benefits through various modes of relationships). (4) Performance levers (use of a wide range of financial and non-financial performance measures, supported by auditing, verification, reporting and recognition systems). Castka et al. (2004) investigated the underlying issues that shape the development of CSR standard and provided a framework for organisations to establish, manage, improve and document a CSR management system. Their framework was based on process and systems thinking and analogous to ISO 9001:2000 adding significantly to existing definitive management frameworks. In order to translate the CSR agenda into organisational settings, there are currently several standards available. These standards deal with different aspects of the CSR agenda and offer (or are going to offer) a certification against specific requirements. Nevertheless, the reader should be aware

Figure 5. Key CSR equilibrium

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Approach

Example of area of application

Efficient and ethical pursuit of core business activities

Making environmentally and socially responsible decisions Investing in the responsible sourcing production, distribution by taking into account access to the poor Creating local jobs Paying taxes and royalties Implementing social human resource policies Adopting international accepted business standards Supporting technology co-operation

Social investment and philanthropy

Offering training programs to the community at large Running employee volunteering schemes for social or cause-related initiatives Business education projects Community health projects Sponsoring community development trusts Resource mobilisation and civic improvement

Contribution to the public policy debate

Tackling obstacles to private sector development and responsible foreign investment Contribution to social and environmental policies and frameworks in areas such as education, training, local economic development, employment and environmental management Supporting progress for good governance, including anti-corruption initiatives and human rights standards

760

Table I. Creating societal value-added: a proposed approach

Source: Zairi (2000)

that there is a proliferation of other tools, techniques and conventions available (for instance, Sigma GEMI, 2002; GRI, 2002; Sigma Project, 2001; International Labour Organization (ILO) Conventions). In pursuit of the development of ISO CSR system standard, ISO has established the “ISO Committee on consumer policy” (ISO/COPOLCO). ISO/COPOLCO has been carrying out a feasibility study on standards for CSR and facilitated a worldwide discussion of the possible role of standards in defining the elements of CSR (ISO Bulletin, 2002). The committee concluded that “ISO management system standards pertaining to CSR are both desirable and feasible, and would build on the existing ISO 9001 and ISO 14001 management system series” (ISO COPOLCO, 2002). Furthermore, it is advocated by ISO COPOLCO (2002) that the general plan-do-check-act approach of ISO quality and environmental management systems standards (policy, planning, implementation and operation, performance assessment, improvement, and management review) should act as a useful template for the new standard. On the top of this plan-do-check-act template, there is a set of key elements that could conceivably form the requirements of the CSR MSS: . Compliance with all rules and regulations of the jurisdiction in question and relevant international norms pertaining to the environmental, consumer, fair labour standards, human rights, and health and safety protection, as agreed upon through a meaningful stakeholder engagement process; . Processes for meaningful stakeholder engagement;

.

. . .

Development, implementation, and communication of corporate responsibility and corporate ethics policies, including those pertaining to anti-bribery and corruption; Training for socially responsible governance; Relations with communities, philanthropy, outreach and involvement; and Measurement and regular reporting to the full range of stakeholders and the general public.

Note that these components have been synthesised from the following reports: ISO COPOLCO (2002); Sigma Project (2001) and SII 10000 (IQNet, 2003). CSR framework Castka et al. (2004) proposed a useful framework, based on three major assumptions: (1) The CSR framework should be integrated into business systems, objectives, targets and performance measures. (2) The governance system, whose purpose is to control, provide resources, opportunities, strategic direction of the organisation and be held responsible for doing so, is an integral part of business hence CSR system. (3) Central to the CSR framework is the transformation of stakeholders’ needs and expectation into business strategy, where the organisation has to balance the need for CSR from their key stakeholders with entrepreneurship. The CSR framework was proposed to organisations to establish, manage, improve and document a CSR management system (Figure 6). This framework was designed as a process-based management system compatible with ISO 9001:2000 quality management system. Processes needed for the CSR management system include processes for management and board responsibilities, identification of stakeholders’ expectations, strategic planning, managing resources, processes and systems, measurement and analysis, managing change and continual improvement. This framework’s key is the transformation of stakeholders’ expectations into the operations of the organisations with continual monitoring of the impact. Thus, assessment will determine whether the organisation has satisfied its stakeholders or not. The only way to successfully address the complete spectrum of the CSR requirements is to look at the whole organisation and the way it carries out its activities. Leadership for socially responsible organizations Considering the evolution of CG, the type of leadership should be changed in order to make organizations more responsible for the requirements of society. In this respect, understanding differences between different types of managers/leaders becomes important. For instance, manager and transactional leader are comfortable in social spaces that call for social distance expressed in terms of boss/subordinate, teacher/follower; whereas the relationships between managers and transformational leaders are based on small to non-existent social distances. Managers work for transactional leaders but managers work with transformational leaders. When being task oriented, the manager consolidates, the transformational leader redefines, and the

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Figure 6. The CSR framework

transformational leader creates. When working with people, manager’s control, transactional leaders align, and transformational leaders liberate. Within the task and human interaction contexts, managers and transactional leaders are more comfortable with structure and constancy, whereas the transformational leader prefers less structure and greater ambiguity. Table II provides some key contrasts. Contrary to current beliefs that change leading to empowered social responsibility and ethical behavior always occur at the organization’s center in contexts reflecting change and uncertainty, socially responsible actions cluster at organizations’ margins. The diverse orientation of inspirational specialists requires them to inhabit different organizational realms and operate within different rules and roles. Transactional leaders work outward from an organizational centre. They are central to business

Table II. Manager, transactional and transformational leader personal metaphors

Thought Role Relations Activities Methods Focus

Manager

Transactional leader

Transformational leader

Dichotomous Boss Subordinate Consolidator Controller Task

Dichotomous Teacher Follower Transformer Aligner Organization

Holistic Learner Disciple Creator Liberator Community

Source: Reeves-Ellington (1998)

activities and occupy an official “icon” position of power, prestige, and authority within the business-focused organization. In this position, they provide contexts and focus on the business: ensuring profits, consolidating a centralizing hierarchy, and protecting the organization from external environmental intrusion (Thomas and Humphrey, 1994). In periods of stability and reasonable alignment between organizations and society, there is little challenge to the transactional leader. The transformational leader is marginalized or driven out of the business organization. Transformational leaders think of hierarchy in terms of the total society and its culture. They work from the margins of the three where each tangentially touches the other. Transformational leaders occupy themselves with options and opportunities to interact continuously and pragmatically with the wider environment. They necessarily mediate and interpret between systemic levels and often resist or reinterpret mandates and limitations imposed by outlying social systems. If imposed constraints cannot be avoided, successful transformational leaders creatively open the organization to reinterpret the dissonance and ambiguities with the larger systems under which they operate. Once open to these dissonances, they provide processes by which other organizational members can integrate into the wider environment, while maintaining their drive toward business objectives.

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Auditing organisational commitment to environment and social responsibility Zairi (2000) proposed a framework which was based on a distillation of best practices found to be inherent in world class organisations and can be used as a useful tool for assessing organisational effectiveness vis-a`-vis practices related to environment and community-based, socially-oriented practices. The framework is also a useful tool for drawing together action plans for improvement and can provide significant assistance in steering organisations towards world class status as far as social responsibility and environmental practices are concerned (see Table III).

Best practice application from MBNQA winners The organisation’s principal business activities include systems to analyse, anticipate and minimise public risk from hazards Indicators for risk areas are identified and monitored Continuous improvement strategies are used consistently, and progress is reviewed regularly The organisation considers the impact that its operations, products and services might have on society and considers those impacts in planning Employees at various levels in the organisation are encouraged to be involved in professional organisations, committees, task forces or other community activities Employees participate in a variety of professional, quality and business improvement associations Overall actual score (maximum ¼ 60)

Degrees of importancea

Degree of effectivenessb

1 2 3 4 5

1 2 3 4 5 6 7 8 9 10

1 2 3 4 5 1 2 3 4 5

1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

1 2 3 4 5

1 2 3 4 5 6 7 8 9 10

1 2 3 4 5

1 2 3 4 5 6 7 8 9 10

1 2 3 4 5

1 2 3 4 5 6 7 8 9 10

Table III. Best practices

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It is essential for companies to keep their own checklists of important social issues, which they can regularly update. A new checklist is proposed, which is presented in the Appendix. Although the checklist is not exhaustive, it could help the senior managers to gauge how far their company has to go to achieve the status CSR. In the following, a case study is presented to show how the auditing system works.

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Case study In order to show how the auditing system works, the questionnaires represented in Table III and the Appendix are compared and a new questionnaire is developed for which, it is attempted to include all questions as much as possible. The questions include the following items: . Systems and policies; . Indicators, monitoring and data recoding; . Continuous improvement; . Consideration of the impacts of organization’s activities on society; . Employee involvement; . Customer care and voluntary activities; . Relationships with government and environment; . Payments to employees; . Employee education and training; and . Up and down communications. The answers are considered to be given in a five-point Likert-type scale (1 ¼ ”strongly disagree”; 5 ¼ ”strongly agree”). The questionnaire is mailed to 200 managers of small to medium size manufacturing companies, located in Isfahan province in Iran in 2005, each with an area between 3,000 m 2 and 10,000 m 2. To increase the response rate, a summary of the purpose of research and authors’ previous research on the subject is offered to potential respondents. After a month, 67 questionnaires are returned (a response rate of 33.5 per cent). Of these, nine are eliminated as a result of inadequate data, leaving 58 questionnaires that are considered for data analysis. The profile of companies in the survey included 24 Carpet industries, 17 car spare parts producers, eight domestic furniture producers, five food industries, three textile industries, and one tile industry. One sample t-test with test value of 3 is used to investigate the status of CSR in the organizations under study. Table IV represents a summary of the results. Discussion and conclusions Considering the results of the case study, it is found that six items have meaningful differences from the test value (i.e. 3). Two of the six items are greater than three, which are employee involvement and employee education and training. It is important to note that currently many quality improvement programs are being implemented in Iran. For instance, 37 of the 58 companies in this research have certificates of ISO 9000. Also, currently most of the organizations are attempting to achieve quality awards, such as The European Quality Award (TEQA). Therefore, due to the requirements of such systems, most of the organizations in the study have implemented programs for the

Question

Mean

St. dev.

T-statistics

P-value

Corporate governance

1 2 3 4 5 6 7 8 9 10

1.810 2.500 3.000 2.914 3.379 1.4310 3.241 2.310 3.897 2.672

0.982 0.800 1.124 1.204 1.073 0.625 0.942 0.883 0.892 1.066

2 9.23 2 4.76 0.000 2 0.550 2.69 2 19.14 1.95 2 5.95 7.65 2 2.34

0.000 * 0.000 * 1.000 0.590 0.009 * 0.000 * 0.056 0.000 * 0.000 * 0.023 *

765

Note: *p , 0:05

empowerment of their employees, including employee involvement, education and training. Items such as systems and policies, indicators, monitoring and data recording, payments to employees and up and down communications have values less than the mean with great differences. This might be partly due to the weak support and commitment of top management. Also, the low level of payments to employees in some of the organizations is associated with many factors including the regulations of the ministry of work and economic factors such as the inflation rates in the country. It should be noted, not all companies qualified for quality management systems certificates, could maintain the standard and always this is a great challenge in such organizations; therefore, it seems that having the certificates in tern does not necessarily mean that the company has compatibility with all requirements of the standards, such as systems and policies, indicators, monitoring, etc. However, although the case study provides new perspective on how organizations could assess their capabilities to harness CG towards CSR, more research is needed to evaluate the questionnaire and its application in other organizations and areas. The basic cause of today’s continuing conflict between profitability and responsibility is that managers do not seem to understand that these two interests can be united. Stakeholder collaboration is now the key to creating economic wealth. In the new perspective, as emphasised in Figure 1 and Figure 6, stakeholder collaboration does more than gain resources and political support; it allows joint problem solving to increase the firm’s store of valuable knowledge. Future research needs to focus on the stakeholder assessment process and its translation into CSR objectives and policies. As it was addressed in Figure 6, adopting a process-based management systems approach as the foundation for a CSR management system will provide top management with a holistic view of the business that takes into consideration a single system approach to governance. This approach will provide management with internal control, clearly identify responsibility and will embed CSR in their organisation. This approach overcomes much of the criticism surrounding many current CSR systems approaches. The leadership style is also found to play an important role in socially responsible organizations. In this respect, transformational leader seems to be more effective, comparing with manager and transactional leader.

Table IV. Summary of the results of questionnaire

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CSR is a concept to run organisations profitably yet in a social and environmentally responsible way in order to achieve business sustainability and stakeholder satisfaction. The proposed checklists in this paper (Table III and the Appendix) by no means cover almost all issues of CSR. Although it seems a hard work, the pay-offs are generally worthwhile. It is important to note that no corporation is perfect, just as no person is perfect. In the modern business environment, however, society demands more and more that corporations be whiter than white in their behaviour. In this environment it is useless for a company to claim to be a good corporate citizen unless it is prepared to accept the need for CSR. Social responsibility must be built into the management structure and processes of the company so that, as far as possible, all social responsibility issues are foreseen, covered by corporate policy, and dealt with in a way that shows an understanding of the issues involved and a willingness to help solve societal problems. CG as a critical element for driving excellence in CSR can be a source of competitive advantage for firms in its own right. It is hoped that this article is a step towards such advantage, and that it stimulates further discussion and effective practice. References Academy of Management (2003), Corporate Social Responsibility, Call for papers for Special Issue of Journal of Management Studies, available at: http://apps. aomonline.org (accessed 27 October 2003). Bowie, N.E. (1983), “Changing the rules”, in Beauchamp, T.L. and Bowie, N.E. (Eds), Ethical Theory and Business, 2nd ed., Prentice-Hall, Englewood Cliffs, NJ. Carroll, A.B. (1979), “A three-dimensional model of corporate performance”, Academy of Management Review, Vol. 4, pp. 497-505. Carroll, A.B. (2000a), “Ethical challenges for business in the new millennium: corporate social responsibility and models of management morality”, Business Ethics Quarterly, Vol. 10 No. 1, pp. 33-42. Carroll, A.B. (2000b), “The four faces of corporate citizenship”, in Richardson, J.E. (Ed.), Business Ethics 00/01, Dushkin/McGraw-Hill, Guilford, CT, pp. 187-91. Castka, P., Bamber, C.J., Bamber, D.J. and Sharp, J.M. (2004), “Integrating corporate social responsibility (CSR) into ISO management systems – in search of a feasible CSR management system framework”, The TQM Magazine, Vol. 16 No. 3, pp. 216-24. Drew, S.A., Kelley, P.C. and Kendrick, T. (2006), “CLASS: five elements of corporate governance to manage strategic risk”, Business Horizons, Vol. 49, pp. 127-38. Flores, C.A. (2001), “Socially challenged: the corporate struggle with responsibility”, unpublished MBA student paper, Auburn University, Auburn, AL. GEMI (2002), Exploring Pathways to a Sustainable Enterprise: A Sustainable Development Planning Tool – User Guide, Global Environmental Management Initiative, Washington, DC, available at: www.gemi.org (accessed 24 November 2002). GRI (2002), Sustainability Reporting Guidelines, Global Reporting Initiative, London, available at: www.globalreporting.org (accessed 24 November 2002). Gillan, S.L. (2006), “Recent developments in corporate governance: an overview”, Journal of Corporate Finance, Vol. 12, pp. 381-402. Gillan, S.L. and Starks, L.T. (1998), “A survey of shareholder activism: motivation and empirical evidence”, Contemporary Finance Digest, Vol. 2 No. 3, pp. 10-34.

Halal, W.E. (2000), “Corporate community: a theory of the firm uniting profitability and responsibility”, Strategy & Leadership, Vol. 20 No. 2, pp. 10-16. Harrison, J.S. and Freeman, R.E. (1999), “Stakeholders, social responsibility, and performance: empirical evidence and theoretical perspectives”, Academy of Management Journal, Vol. 42 No. 5, pp. 479-85. IQNet (2003), Draft Israeli Standard IS 10000: Social Responsibility and Community Involvement, available at: www.newsletter.iqanet-certification.com/ed3/art11.htm (accessed 1 January 2003). ISO Bulletin (2002), “A daunting new challenge – are standards the right mechanism to advance corporate social responsibility?”, ISO Bulletin, July. ISO COPOLCO (2002), The Desirability and Feasibility of ISO Corporate Social Responsibility Standards, May, Final report by the Consumer Protection in the Global Market Working Group of the ISO Consumer Policy Committee (COPOLCO), Geneva. Jensen, M.C. (20012005), “Value maximization, stakeholder theory, and the corporate objective function”, in Chew, D.H. and Gillan, S.L. (Eds), Corporate Governance at the Crossroads: A Book of Readings, McGraw-Hill, New York, NY. Journal of Consumer Marketing (2001), Social Responsibility for Consumer Marketing Rractice, 24 January, Call for papers for special issue, Journal of Consumer Marketing, available at: www.literaticclub.co.uk/news/call18.html McWilliams, A. and Siegel, D. (2000), “Corporate social responsibility and financial performance: correlation or misspecification?”, Strategic Management Journal, Vol. 21 No. 5, pp. 603-9. McWilliams, A. and Siegel, D. (2001), “Corporate social responsibility: a theory of the firm perspective”, Academy of Management Review, Vol. 26 No. 1, pp. 117-27. Manakkalathil, J. and Rudolf, E. (1995), “Corporate social responsibility in a globalizing market”, SAM Advanced Management Journal, Vol. 47, pp. 29-32. Nelson, J. (1998), “Leadership companies in the twenty-first century: creating shareholder value and societal value”, Visions of Ethical Business, Financial Times Management, Vol. 1, October, pp. 21-6. Oppewal, H., Alexander, A. and Sullivan, P. (2006), “Consumer perceptions of corporate social responsibility in town shopping centres and their influence on shopping evaluations”, Journal of Retailing and Consumer Services, Vol. 13, pp. 261-74. Reeves-Ellington, R.H. (1998), “Leadership for socially responsible organizations”, Leadership & Organization Development Journal, Vol. 19 No. 2, pp. 97-105. Shleifer, A. and Vishny, R. (1997), “A survey of corporate governance”, Journal of Finance, Vol. 52, pp. 737-75. Sigma Project (2001), “The Sigma guidelines”, The SIGMA Project: Sustainability in Practice, pilot draft, The Sigma Project, London, May. Smith, N.C. and Quelch, J.A. (1993), Ethics in Marketing, Irwin, Homewood, IL. Thomas, N. and Humphrey, C. (1994), Shamanism, History, and the State, The University of Michigan Press, Ann Arbor, MI. Wilson, I. (2000), “The new rules: ethics, social responsibility and strategy”, Strategy & Leadership, Vol. 28 No. 3, pp. 12-16. World Business Council for Sustainable Development (WBCSD) (1999), Corporate Social Responsibility, WBCSD, Geneva. Zairi, M. (2000), “Social responsibility and impact on society”, The TQM Magazine, Vol. 12 No. 3, pp. 172-8.

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Appendix (1) Does your company have a social responsibility policy, or a comprehensive collection of policies that amount to the same thing? . Have you developed any products primarily because they meet a social rather than a commercial need? . Has your company obtained an outside view of its social responsibility performance? Do you know where it stands now? . Does it have a system to encourage managers to include social responsibility criteria in business decisions? Does that system work? . Does the company encourage its employees to participate in voluntary organizations? . Does your company realise the role of stakeholders in the continuous improving system of CSR? . How much have you developed knowledge in your organization towards CSR? (2) How much care does your company take in deciding who it should make charitable donations to? . Is giving policy and practice reviewed on a regular and continual basis? . Are the beneficiaries largely in areas of real social need? . When was the last time your company gave practical help rather than cash? (3) How many managers or other employees does your company have on full-time or part-time loan to a voluntary organization at the moment? . What does the company do to make it easier for employees to help voluntary organizations in a less formal way? . Do employees feel they are backed up by management if they wish to spend some time helping a charity? (4) Does your company regularly find itself in conflict with a local government authority, a residents’ association, or environmental pressure groups? If so, have you ever admitted that the fault might be yours? . When did you last ask people living near your plant or office building what they thought of your company and its activities? . When did you last give these people any information about what goes on behind the factory walls? . When did you last invite them to see what you do? . Has the company an effective liaison with local schools/hospitals? . What have you done to improve the general appearance, noise level, traffic nuisance, etc. of your premises? . What have you done to upgrade the immediate local environment? . Are there any industrial eyesores for which your company was responsible decades ago, but which have not been rehabilitated? . Would you be happy about the good-neighbourliness of your factory if you had to live next door to it? . Do you have a really efficient environmental control and protection system? Have you tested it to see that it does work? Does the company environmental supremo – if there is one – have the authority to impose his decisions over those of plant managers, or does corporate policy ensure compliance in some other way?

If you have had a programme of redundancies over the past five years, have you attempted to find alternative work for the people affected? . Has the company a programme of job creation to replace jobs lost to the community through redundancy? Would you say your relationships with government are (a) good, (b) tolerable, (c) awful? . What are you doing to improve them? . How about relationships with: . Consumers? . Stakeholders? . Third world countries? . Small suppliers? . Environmental and other pressure groups? . Multinational trade unions? . Human rights organizations? . Do you actually know what your relationship with each of these groups is? . What efforts have you made to find out? . When did you last invite a speaker from a pressure group to a management meeting? . Is there anyone at a senior level in the company who has the responsibility for championing the rights of consumers? Small suppliers? Does your company pay: better than average salaries and wages/about average/less than average, for the industry? . Does your company have: – A system of profit sharing? – A job enrichment programme? – A programme of employee participation? . Are these all taken seriously by both managers and employees? . Are you satisfied with your employee benefits programme? Are the employees satisfied with it? Is it really programmed to meet needs? Has your company a system to monitor the health dangers of every material that comes on to the premises? . Has its safety programme produced a steady annual reduction in accident figures? . Does it have a programme of ergonomic adaptation of workplaces? . Is it attempting to relieve the problems of corporate bigamy? . Does it have an active programme to promote employee physical fitness? . Does it have a rehabilitation programme for the disabled, the mentally ill? Drug addicts, and alcoholics in the workforce? How much is spent on employee education and training compared with maintenance of buildings and equipment? . How many CKOs do you have compared to your CEOs? . Is the company educating employees to be adaptable for a variety of positions? . What help does it give in general educational improvement for employees? . Is there a check to ensure that no one misses out on training and education? .

(5)

(6)

(7)

(8)

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Is there a career planning provision for all employees? Is there an outplacement scheme, where necessary? . Is there a pre-retirement course available to all? Does your company have a policy and programme to prevent and redress discrimination against? . Women? . Racial minorities? . The over-45s? . The physically handicapped? . The mentally rehabilitated? . Ex-offenders? . The obese? . Have you a monitoring procedure that tells you whether the anti-discrimination policies are working? Does the company retain any data about employees that are not a strict business necessity? . Do the employees know what data are recorded about them? . Can they check their accuracy and challenge what they believe to be inaccurate data? . Do you have blacklists or files of unsubstantiated personnel data? . Is there a corporate policy on who has access to personnel data? Is it followed? Are you satisfied with communications up, down, and horizontally? Is it open and well-used? . Do you have a system of briefings for lower-level employees? For middle managers? . Do lower and middle-level employees ever have the chance to quiz top management? . What do people on the shop floor think of top management? . Do you have an employee annual report? Have you been surprised by a revelation of illegal or immoral conduct in business by your company? . Have you analysed why it happened and taken measures to prevent recurrence? . Does the organizational climate encourage or discourage openness and constructive criticism? . Is the pressure to achieve financial results so strong that it can lead managers to compromise their principles? . Has any employee “blown the whistle” because he could not obtain adequate hearing within the company? Was he penalized for speaking out? What did the company learn from the experience? . What have you done to establish a tone of morality throughout the company? . .

(9)

770

(10)

(11)

(12)

Corresponding author Arash Shahin can be contacted at: [email protected] To purchase reprints of this article please e-mail: [email protected] Or visit our web site for further details: www.emeraldinsight.com/reprints