TideKleen Waste Management Inc. Scenario

Introduction

Within the context of the modern environment of business, corporate social responsibility (CSR) is increasingly noted as an important facet.  In fact, research is increasingly noting and exploring the relationship between corporate social responsibility and financial performance (Berete, 2011).  The link between socially responsible corporate behavior and positive financial performance has brought about the consideration of the factor of ‘social performance.’  Given that financial performance is improved upon through the application of CSR, it is important that strategies are pursued that support the implementation of CSR within the context of whatever environment is being considered.  Herein, three choices from which TideeKleenWaste Management Inc. (TK) has to choose in terms of strategic direction will be assessed from the perspective of CSR.  The most effective, ethically and financially, the solution will be selected through a consideration of the CSR-related characteristics and implications of the options.  As will be exhibited, opting for the most ethical option for an organization, whether it be by coercion or voluntaryism, often entails realizing the greater potential profitability. 

Case Summary

TK is faced with three substantial strategic choices which are of particular importance given that the company has encountered a financial downturn as of late.  The organization is split in terms of operations between newer facilities that are staffed by a small, mostly young and highly skilled workforce, and older facilities that are nearing their productive lifespans and preparing to be closed down permanently.  Within the older facilities, the workers are likewise older and approaching retirement, and in one, in particular, an ethical issue has arisen.  It has been discovered that despite having complied with industry and regulatory standards, a site of TK’s has been contaminated with toxic substances.  The contamination has resulted in a number of workers developing cancer due to exposure to the toxic substances, and an order from the Ministry of the Environment to engage in a costly clean-up of the site.  For TK to gain lost ground in terms of its green reputation the solutions leveled at the two key issues of clean-up and compensation for victims of the contamination must be optimized to generate the greatest financial and social returns.  

A Window of Analysis: Corporate Social Responsibility

The three choices available to TK will be explored through the framework of CSR.  Heeding the role of social responsibility in terms of business activity has been found to produce positive benefits throughout not only society but the businesses that engage in such activity.  Allouche and Larouche (2005) have proposed a positive synergy hypothesis.  Under this theory, higher levels of corporate social performance produce improvements in the financial performance of organizations.  The benefits realized through the improved social performance may then be applied to further socially responsible business activities, providing support and ongoing profitability for socially responsible behavior.  Given that TK is faced with the demands of injured employees due to the contamination, an increase in profitability through greater CSR activity would entail the production of funds through which the former employees’ financial demands may be provided for.  

The Slack Resource Hypothesis 

To determine the value and viability of the three options available to TK, the slack resources hypothesis will be applied to each of the three choices.  The slack resources hypothesis has been proposed by Makni, Francoeur, and Bellavance (2009) to describe the additional benefits that are realized through CSR activity.  Under the hypothesis, CSR activity produces improvements in financial performance, in turn generating a greater availability of slack resources.  TK is facing the emergence of substantial costs in terms of both clean-up of the contaminated site, in addition to the compensation required of employees, and thus greater resources would be particularly beneficial.    

Slack resources produced through CSR are then available to be invested in domains such as society, the environment, the community, and employee relations (Makni et al., 2009).  From the perspective of CSR research, oftentimes there are four main types of CSR theories proposed, those of instrumental theories, ethical theories, political theories, and integrative theories.  Herein, integrative theories will be applied, which are concerned with the incorporation of social concerns into the operations of a business, in concert with the application of ethical theories concerned with engaging inappropriate conduct that notes the link between society and business activity (Okoye, 2009).  Following is an analysis of the three options, applying CSR as an integrative theory to explore the CSR and financial implications of the choices available to TK to identify that which best supports the regaining of lost ground and maintenance of TK’s green reputation in addition to aligning the resources necessary to compensate the injured employees and to clean the contaminated site. 

Analysis

CSR is comprised of the policies, decisions, and actions of businesses that align with the goals and values that are present within a given society (Bowen, 1953).  According to Votaw (1972), CSR means legal responsibility or liability, socially responsible behavior from the perspective of ethics, charity, social consciousness, the imposition of higher standards of behavior on businesses as opposed to general societal members, and legitimacy in the context of maintaining belongingness or validity.  CSR exhibits the link between commerce and society (such as marketing to specific demographics) and exhibits how the actions of businesses affect society.  TK’s choices will not only impact investors of Halo, TK, and recent investor GSG, but the current and future employees of the organization, and society at large. 

Option A

Within the first option, TK is to be split into two corporations, TideKleen, and NewKleen (NK). TK would hold control of the older facilities and related assets, including the older workforce, clean-up costs, and employee compensation for cancer development, while NK would acquire all of the new equipment that is staffed by the younger workforce.  Under this particular plan, it is projected that TK would employ bankruptcy as a strategy through which debts may be avoided.  In the event the liabilities of the corporation exceed its assets, many creditors and debtors will not receive what is owed.  From a financial performance perspective, this is the best option. 

Option A entails the isolation of the riskiest aspect of TK’s overall business.  Through the strategy of bankruptcy, the debts and liabilities of TK may ultimately be avoided, thereby precluding the realization of substantial costs in terms of employee compensation and clean-up.  In the event TK goes bankrupt, the responsibility for the clean-up would fall upon the community, and the compensation for injured employees goes uncovered.  While financially advantageous, this option would result in no CSR-related benefits, as it is socially irresponsible.  Utilizing bankruptcy as a strategy through which responsibility is to be avoided will deny TK of any potential benefits of socially responsible behavior, and preclude the realization of additional slack resources through which such investments may be justified.    

Option B

Under the second option, TK maintains ownership over all facilities under the same parent corporation, rather than breaking it off to isolate and ultimately eliminate the debt and liabilities of the older facilities and workforce.  Older facilities will be closed, with the expenses covered through a strategic alliance with Freedom Coast Ventures (FC) that is thought to be particularly profitable, with said profits offsetting the cost of the closure of the older facilities.  The business proposed by FC, however, entails substantial risk in terms of environmental and employee harm.  Workers and community members surrounding the proposed FC plant in Liberia would be exposed to toxic hazards that would bring rise to risks such as cancer or neurological impairment.  Like option A, this particular option has substantial profit potential. 

As noted in the case brief, the goal of TK is to optimize not only the profitability of the organization but also to regain its ‘green reputation’.  A reputation for being green and engaging in CSR is produced through socially responsible business decisions.  This particular decision is hugely irresponsible from a social perspective.  Not only are workers placed at risk, but also members of the surrounding community.  While the Liberian community and its members would be placed at risk, the profits generated are thought to be sufficient to cover the compensation for the injured employees of TK’s older facilities. To offset the contamination and effect of toxicity, a clean drinking water infrastructure and medical clinic are proposed to be built, thought to produce a greater positive output than the negative implications of operations.  This particular option is, in fact, detrimental to society, and this is the opposite of CSR and will do nothing to advance the reputation of TK or produce slack resources to justify CSR-related investments.  Offsetting harm to the community and the risk of cancer with the provision of a medical clinic to address the injuries caused by operations falls well short of a sufficiently ethical solution.   

Option C

The union associated with TK has strongly opposed both options A and B given the negative implications in terms of the workforce of TK, and FC in the event the Liberian plant was to be opened.  The union’s proposed solution entails the phasing out of older facilities while investing in the new facilities to build upon their capacity.  In the short-term investments would offset benefits, with the union offering a concession in terms of reducing wages to offset the short-term costs to realize the long-term benefits of improved working conditions.  Under this solution, TK would be capable of meeting all of its obligations, whether in terms of the environment, liability for injury, and other obligations.  Should option A or B not be taken, GSG noted that it may endeavor to gain control, and ultimately pursue option A, while Halo has expressed implicit support for C. GSC owns 25% while Halo owns 20%, and thus GSC would be incapable of gaining the majority and imposing its position.  

Recommendation

It is recommended to Halo that option C be pursued at all costs.  Option A is unethical and will result in the failure of TK to cover the injuries of employees or the environmental clean-up, thereby directly engaging in socially irresponsible behavior.  The Liberian proposal with FC entails the direct engagement of TK in injurious activity to not only the workers but the community.  Option C, while in the short-term is costly, will entail long-term improvements in TK’s green image, and financial performance.

References

Allouche, J., & Laroche, P. (2005). A meta-analytical investigation of the relationship - between corporate social and financial performance. NEOMA Business School. Retrieved from http://www.reims-ms.fr/agrh/docs/actesagrh/pdf-des-actes/2005allouche-laroche005.pdf

Berete, M. (2011). CSR and financial performance: The positive relationship. Germany: LAP Publishing

Bowen, H. R. (1953). Social responsibilities of the businessman. New York, NY: Harper & Brothers.

Makni, R., Francoeur, C., & Bellavance, F. (2009). Causality between corporate social performance and financial performance: evidence from Canadian firms. Journal of Business Ethics, 89(3), 409-422.

Okoye, A. (2009). Theorising corporate social responsibility as an essentially contested concept: Is a definition necessary? Journal of Business Ethics, 89(4), 613-627. doi:10.1007/s10551-008-0021-9

Votaw, D. (1972). Genius becomes rare: A comment on the doctrine of social responsibility pt. I. California Management Review, 15(2), 25-31.