Integration of CSR into Management Control Systems : A focus on the social and environmental pillars through four case studies within the food industry

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Linköping University | Department of Management and Engineering Bachelor Thesis in Business Administration, 15 credits | Atlantis Program Spring 2020 | ISRN-nummer: LIU-IEI-FIL-G--20/02244--SE

Integration of CSR into

Management Control

Systems

A focus on the social and environmental pillars

through four case studies within the food industry

Marine Courtot

Coline Laurier

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Preface

This thesis has been written as part of the Atlantis Program at Linköping University, Sweden. It has been carried out during Spring 2020 in order to complete our Bachelor in Business Administration.

This study has been accomplished thanks to the support and help of everybody involved in the project. We are very thankful to:

Aliaksei Kazlou, our supervisor, for his dedication and regular feedback to make us stay on the right track. Without his support, the thesis would not have been executed as smoothly as it has been.

Courtney Recht-Debreuille, French Director of the Atlantis program and Gunilla Söderberg Andersson, Swedish Director of the program, for the great opportunity to participate in the three-diploma program. We used the learnings from the Atlantis courses to enrich our research.

Olga Yttemyr, for introducing to us the course and setting the directives to be well organized. The interviewees, for their time and cooperation. Their answers and experiences allowed us to understand and analyze the concept of CSR.

Other Atlantis students, for their thoughtful comments each week on our progressive work and necessary advice to review some essential parts of our study.

Finally, our two proofreaders, for their constructive feedback and suggestions for improvement in the paper’s structure and writing.

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Abstract

The purpose of this research is to improve the understanding of the organizational role of CSR and more specifically the sustainable development implementation process into various companies’ Management Control Systems (MCS). It aims to determine crucial internal and external factors influencing the CSR integration and evaluate the role of controls carried out during this process.

To handle CSR complexity, a qualitative study has been conducted through five interviews among four companies from the food industry, more precisely, dairy, beverage, and catering fields. It gives us an insight into the social and environmental measures’ integration into the companies’ activities. To get an overview of the procedures for applying, following-up and controlling these initiatives and recognize CSR actors, we selected companies that differ in terms of size, strategy, and goals.

Overall, this paper provides contribution to the existing CSR implementation four-level model designed by Szczanowicz and Saniuk (2014). Building on the cases’ findings and the literature examined, a framework is proposed that provides the basis for the effective integration of CSR into MCS. In line with past research, the study finds how CSR integration process into MCS, that is into the planning, reporting, evaluation, and rewards systems, is influenced by six factors: legislation, consumers’ expectations, competition, organizational structure, corporate willingness to engage with stakeholders and managerial attitudes. Based on these key internal and external variables, two types of approaches towards sustainable development implementation are highlighted. The main contribution of this study is that it demonstrates that the approaches adopted by the company towards CSR, either proactive or reactive, will affect the effectiveness of the CSR measures and indicators integration into MCS. Significant findings regarding proactive companies’ behavior have been formulized as drivers for an effective CSR implementation and thus contribute to the model.

This framework is to be used by organizations willing to develop their sustainability commitment and respond to societal growing expectations. Managers and CEO should review the design of the MCS in order to better consider CSR.

Keywords: Corporate Social Responsibility, Management Control Systems, Integration,

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Table of Figures

Figure 1: The Pyramid of CSR (Carroll, 1991) ... 8

Figure 2: Stakeholder Theory (Freeman, 1983) ... 11

Figure 3: Triple Bottom Line (Elkington, 1994) ... 11

Figure 4: CSR Implementation Model by Szczanowicz and Saniuk (2014) ... 16

Figure 5: Deming's Cycle (1993) ... 19

Figure 6: CSR Consideration (Deloitte Global Human Capital Trends survey, 2018) ... 32

Figure 7: Food & Drink Industry Commitments by Issue (Lumina Intelligence’s Food & Drink Sustainability 2019 Global Progress Report, 2019) ... 33

Figure 8: Case Studies' Recapitulative Table (own source) ... 41

Figure 9: Factors Affecting the CSR Integration into MCS's Effectiveness (own source) ... 75

Figure 10: CSR Implementation Model (own source, improvements from the original model - Szczanowicz and Saniuk, 2014) ...78

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1 Introduction

1.1 Background

Over the last two decades, there has been a growing interest in Corporate Social Responsibility (CSR), which concept has been widely discussed in the literature, as going through changes in terms of both importance and significance (Carroll and Shabana, 2010: 86). CSR was first introduced in the twentieth century (Carroll, 1999) and is defined nowadays by the World Business Council for Sustainable Development (WBCSD, 1999) 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 community and society at large”. The concept of CSR is seen as multidimensional and is often divided into three categories: People, Planet and Profit, commonly designated at the Triple-Bottom Line. The “profit” category has been largely discussed, and financial gain from CSR activities has been widely researched (Friedman, 1970; Cornell and Shapiro, 1987; Sebastian Johansson et al., 2015; Shafat Maqbool, 2019). Therefore, this paper will focus on the social – People – and environmental – Planet – dimensions.

The idea that organizations have to adopt ethical corporate values and behavior has been substantially debated. In fact, companies are being heavily pressured by governments, Non-Governmental Organizations (NGOs) and the society to act more responsibly (Gond, Grubnic, Herzig, and Moon, 2012). In the food industry especially, the series of food scandals starting with the mad-cow disease in 1986 in the UK has significantly damaged the trust and confidence of consumers in food safety (Banati, 2011). This has considerably affected the image and reputation of firms (Shnayder et al, 2016). Beside the food scandals, the industry has dealt with strong ethical issues that go beyond economics, such as human health and quality of life (Poirier et al, 2016). In this context, organizations have adopted CSR strategies to communicate their values and demonstrate responsible behavior in order to avoid any consumer harm. They annually produce sustainability reports which review their CSR efforts (Shnayder et al, 2015).

More generally, companies comply with legal standards and regulations, qualified by M. Armstrong and Stephens (2008) as “hard” elements of CSR due to being imposed by laws, procedures, and structures. Companies often externally report those hard components to stakeholders. In fact, integrating these elements is a necessity, but there has been research showing the lack of consideration of those legal requirements and the divergence in terms of its outcomes, suggesting their superficiality (Yin and Schmeidler, 2009). They are rather

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used as a form of symbolic behavior, to increase external legitimacy without effectively implementing changes related to CSR inside their organization (Christmann and Taylor, 2006). However, the rise of a more stakeholder-centric governance approach (Shahzad et al, 2016) has led organizations to go beyond regulation and ethical requirements by integrating “soft” elements of CSR, such as managers’ values, employees’ commitment, etc. Soft components derive from the presence of people, their values, and attitudes (Robbins, 2001). Thus, they are informal, intangible and above all, voluntary, and they demonstrate the companies’ rising willingness to focus on and satisfy the needs and expectations of their stakeholders. The soft elements, which depend on individual and discretionary initiatives, are likely to contribute to the effectiveness of formal management systems and the internalization of CSR management standards and regulations. More precisely, they reduce the likelihood of a symbolic CSR implementation into Management Control Systems (MCS) (Testa et al, 2018). Nevertheless, the CSR performance depends on the integration of both hard and soft elements.

Traditionally, CSR has been linked to the achievement of financial goals (Lee, 2008), performance and profitability being the main social responsibility of a company (Friedman, 1970). The relationship between CSR and financial performance has been thoroughly studied, and it presents a lack of consensus. A majority of researchers argue that their relationship is positive. According to Cornell and Shapiro’s social impact hypothesis (1987), a socially responsible company will be able to lower its costs for implicit claims from stakeholders, and thus, achieve greater financial performance. Du (2007) also indicates that brands which differentiate through their CSR activities are more likely to be preferred by consumers, suggesting that CSR provides a source of competitive advantage. Consequently, CSR would represent an intangible asset for companies developing responsible activities (Surroca and al, 2010). Others indicate a negative relationship by CSR resulting in unnecessary additional costs, which creates an economic disadvantage for a responsible company and place it in a “strategically unfavorable position in comparison with its competitors” (Friedman, 1970). Finally, some theorists argue that there is no possible direct relation between the two as there are too many intervening variables (Ullmann, 1985). No common agreement regarding the effect of CSR when being implemented in a company has been found despite considerable attention given to the subject, suggesting an inadequate – or even absence of – control and monitoring for activities related to social and environmental matters.

Today, the rise of the stakeholder-view has led organizations to re-think their objectives by systematizing CSR implementation and engaging with key stakeholders around CSR (Dobele et al, 2014). Within this context, there is a need of clarifying the integration of CSR into

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Management Control Systems (MCS) to better internalize sustainable strategies and activities and respond to the society requirements.

1.2 Problem Statement

CSR is an ambiguous and evolving concept, which appears to challenge businesses and managers to interpret and integrate CSR internally. In fact, Friedman (1970) claimed that CSR is vague and foolish, whereas later authors argued that it provides a competitive advantage, that goes beyond the cost expansion of CSR (Porter and Kramer, 2006). To legitimize CSR and strengthen managers’ attitudes towards sustainable development, the literature has been focusing on the financial benefits of the CSR engagement. By studying its financial impact, the literature has shown that CSR should be viewed by companies as a strategic opportunity and a competitive tool, and not as an obligation only. Aligning both economic objectives, which are about profit maximization, and CSR on a strategic level promotes responsible behavior and commitment from managers towards CSR.

While most research on CSR tends to investigate the motivations for and consequences of CSR activities and its effect on performance, the analysis of the integration of CSR into MCS, originally based on financial measures, has been under-researched (Moore, 2013). Traditionally, CSR is not a management tool but more a moral duty (Zwetsloot, 2003), and to comply with social, ethical, and environmental norms, businesses need to prioritize their CSR contributions with the help of CSR processes. This suggests the need of guidance through a framework that breaks down CSR into manageable processes.

Few researches have focused on external reporting, as an extension of external financial reporting (Moir, 2001). Nevertheless, a limitation of such management tool is that, on the contrary to financial reports, there is no international obligation to produce CSR reports, and no standard has been established. Thus, companies can choose which information to externally communicate, and these data are often uncertain. Dowling and Pfeffer (1975) argued that the goal of CSR external reporting is linked to business image enhancement, suggesting its superficiality.

In such context, there is a need for studying more thoroughly the integration process of CSR within firms. Additionally, the role of MCS in supporting CSR strategies and activities within the company is under-studied (Gond et al, 2012). More particularly, factors affecting the integration of CSR into MCS are not included in the existing theoretical models. Gond et al (2012) states that CSR controls are peripheral and fail to reshape strategy since they are not integrated to the traditional MCS. Furthermore, Ledwidge (2007) argues that CSR is seen as

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complementary rather than integral to the organization’s core strategy, which indicates the lack of an efficient integration process.

Therefore, this thesis intends to address this limitation by analyzing how a company can effectively integrate CSR into its traditional MCS and identifying the factors intervening in that process. A better understanding of the implementation of CSR into MCS and the internal management control issues would improve the decision-making process, which would include ecological and social data as well as economic dimensions (Burritt and Schaltegger, 2010).

1.3 Research Purpose

The aim of this thesis is to examine deeply how CSR is integrated into traditional MCS and to identify the factors that could affect the effectiveness of the integration process. In other words, we want to assess both internal and external factors that could have an impact on the proper integration of CSR into MCS, either by positively or negatively influencing it. The purpose is therefore to go beyond superficial implementation of CSR and to analyze the CSR strategies and activities integration that leads to internal changes in the organization. The theory included in the literature review proposes a 4-level model illustrating the implementation of CSR into MCS, but it does not address the variations the implementation process can face because of identified variables. Thus, this paper will address this issue and intend to propose a new framework that could be applied more generally. We intend to provide knowledge about CSR integration into MCS so that companies can adopt effective strategies in times of ecological transition and CSR activities implementation. To some extent, this might contribute to enhancing internal processes and improving businesses behavior towards social and environmental issues.

1.4 Research Questions

The study aims to answer the following questions:

- How do companies integrate CSR into Management Control Systems (MCS)? - Which factors affect the implementation of CSR into MCS’ effectiveness?

1.5 Scope of Research

The research context is bounded by sectoral specifications, as the thesis will focus on companies from small and medium-sized enterprises (SMEs) to large businesses from the food industry only. According to INSEE’s definition (2018), the business size is determined

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based on two criteria: the number of employees and the amount of revenues. Therefore, SMEs employ less than 250 individuals and have a turnover of less than €50 million, while large organizations employ more than 5000 workers and achieve a turnover of at least €1,5 billion. Different sizes of organizations will be examined, in order to get a better overview of the CSR implementation. However, the focus will be on the food-industry. Given its history regarding the management of CSR scandals and the high ethical expectations shaped by society, we have assumed that investigating this sector would be the most relevant for this thesis. Additionally, Shnayder et al (2016) identifies the characteristics of the food industry, which are the enormity of size and potential for growth (Plunkett Research estimated the global food and agricultural industry for 2018 at $8.7 trillion, an approximate 10% of the world’s GDP), the ongoing demand and the ethical issues it faces (regarding health, disease risk and quality of life). The author also suggests that the characteristics of the food industry could be applied to other large sectors, such as energy and pharmaceutical. This allows some level of generalization for our study.

Moreover, the thesis will be limited to four European companies and cases, having their headquarters in France and Switzerland, due to time and resource limitations. We assume that it will be sufficient to obtain in-depth and detailed answers and to identify factors affecting CSR implementation thanks to the different characteristics of each of the four companies. However, because the focus is on the European market, the results cannot be applied more generally on an international level. The study is carried out through interviews conducted with one employee from each organization. The interviewees are all in charge of CSR strategies and activities, even though they have different roles and positions within their respective company. Because of the restricted number of organizations, the outcomes of this research are specific and linked to each participant’s own experience with working with CSR and sustainability issues. This might be a limitation to the thesis, as the generalization factor can be questioned based on the sampling.

Finally, the paper studies the environmental and social aspects’ considerations and integration into the companies’ strategy and procedures. The third pillar of CSR, which is economic, will not be discussed here, as it has already been thoroughly studied in past research (Lee, 2008).

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2 Literature Review

The literature review chapter is divided into two sections. Firstly, the key terms of the subject are defined, and the research exploring the concept of CSR is further widely discussed. Secondly, an existing framework illustrating the CSR integration into MCS is examined.

2.1 Definition of key terms

2.1.1 Definition of CSR

CSR does not have the same meaning for everyone. According to the European Commission (2011), it refers to “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis”. The objective of CSR is to maximize the value creation for shareholders and stakeholders, by adopting a long-term strategy and innovative actions and simultaneously identifying and minimizing the potential unfavorable impacts by developing risk assessment and management in the whole supply chain.

This concept however faces modifications through time and with the global evolution. This is the reason why a myriad of authors from different eras have tried to establish in what consists CSR. Most of the time these definitions are presented following specific interests based on personal experiences and viewpoints. Several definitions will be cited hereinafter thanks to previous theoretical research, and a general and more concrete one will be formulated. This latter will be the basis of the theoretical framework. According to Aguinis and Glavas (2012), CSR can be defined as a “context-specific organizational actions and policies that take into account stakeholders’ expectations and the triple bottom line of economic, social and environmental performance”. For Davis (1973) CSR is the “firm’s consideration of and response to issues beyond the narrow economic, technical and legal requirements of the firm”. Carroll (1979) tried also to define CSR understanding as a “formulation and implementation of social goals and programs and the integration of ethical sensitivity by firms into all decision-making, policies and actions”.

In our research we are using a combination of the definitions above to create our own view of the concept. CSR will be interpreted as a socially responsible conduct of companies which integrates in the daily operations and decision-making processes ethical actions regarding the environment, the society and the human rights, including stakeholders’ interests beyond what is required by the law or the solely economic interests of the firm.

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Three approaches are used to define more precisely the concept of CSR: The pyramid of social responsibility (Carroll, 1991), the stakeholder’s view and the Triple Bottom Line (Elkington, 1994).

2.1.1.1 The Pyramid of Social Responsibility

The Pyramid of Social Responsibility (Carroll, 1991) is constituted of four responsibilities that are part of CSR and can help a company to identify its expected obligations to strictly follow the definition of CSR (Figure 1).

Figure 1: The Pyramid of CSR (Carroll, 1991)

The first responsibility in the pyramid is economic. The aim is to maximize profit for shareholders through operating what is the core activity of a company, that is, producing and selling goods and services required by customers and the society. It is in fact vital for the company to develop activities to survive. The economic matter is a primary concern as it is the foundation of a business and of potential future social and environmental investments. This economic responsibility can enable an organization to create a competitive advantage and attract more consumers. Novak (1996) defined several economic responsibilities towards stakeholders: shareholders want the highest possible return on their investments, employees want to be well paid for their work and customers want a fair price.

The second step of the pyramid is the legal responsibility. Companies are expected to act in alignment with current written laws and regulations transmitted by federal, states, and local communities under which businesses should operate. This applies for local, national but also international laws and regulations.

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The economic and legal components of the pyramid are considered by Carroll (1991) as the basics of CSR. In a shareholder approach, the principal ambition would be to maximize the organization’s profit, and social concerns would come after as an obligation requested by the government. In this view, the minimum social components would be completed since the first objective is to be profitable for the long-term shareholders’ interests (Van Marrewijk, 2003).

To act ethically is also an expected requirement for a company. It represents standards, norms, and expectations that customers, employees, shareholders, and the community see as fair even if there are not written in the law. It can thus be defined as implicit moral rules. Ethical responsibilities even if not imposed by the law are expected from ethical companies by the public and governments. After a lot of ethical scandals, this component has become a main preoccupation for companies, which have to act in a manner fairly beyond their legal responsibilities. Stakeholders have high expectations upon ethical concerns. In a stakeholder view, organizations do not only have responsibilities towards shareholders but also have to respect stakeholders’ interests which are essential for the corporate operations.

The last pyramid responsibility is philanthropy. It is the component at the top of the pyramid which means that it is the most luxurious one, where companies are supposed to be good corporate citizens as expected by society. It refers to voluntary and discretionary acts towards programs and charities to promote human welfare and goodwill. These acts can be shown through devoting time or money to contribute to the well-being of a cause. It is important for the external image a company reflects in the society and can also be done without expecting anything in return.

In order to have a complete CSR, the whole range of business responsibilities should be covered in a hierarchal way. It starts from the economic and legal responsibilities, then develops the ethic and philanthropic aspects of a company that Carroll (1991) considers as the highest levels of responsibilities and not as the primary ones.

2.1.1.2 The Stakeholder’s View

Stakeholders are individuals or groups of people who can be affected by or who are able to affect the accomplishment of a corporation’s objectives (Freeman, 1983). They have a moral claim to participate in the decision-making process. They are considered as vital for a company’s existence and success and managers should pay higher attention to all of them.

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According to Smith (2003), the stakeholder theory is based on the fact that a business has to be careful of the effect of its acts on “all constituencies”.

The five cardinal stakeholders are shareholders, employees, customers, suppliers, and the community (Figure 2). A shareholder is a person or an institution that holds stocks in a company and expects return on investments. The higher risk they take the higher profit, growth and share prices they demand. They have the power to put pressure on the management as they own the company. The actions of shareholders influence corporate activities, how much they should sell and earn, how and where they will invest money, etc. An employee is a person achieving a specific type of work in a company in return for monetary and non-monetary compensations. A worker will contribute to the organization’s activities giving time, effort, skills, knowledge, ideas, loyalty and expect in return to be well-paid, to have a job security, non-monetary benefits, recognition, and career opportunities. This is called the psychological contract and play an important role in the CSR regarding the commitment of employees.

A customer is an individual or a business that purchases another company’s goods or services expecting a specific quality in return. Customers are important in CSR as they drive revenues for a business and set their expectations towards a company’s environmental engagement, social considerations, and fair actions. They have power over businesses as the market is highly competitive. The businesses will adapt in order to attract and retain them through advertisement, prices, quality but also social responsibilities.

A supplier is a person or a company providing goods or equipment to customers in return for a financial compensation. He or she acts as an intermediary between the manufacturer and the retailer, the communication in this relationship is important to keep good contact and ensure a long-term relationship. The company, to become involved in CSR with its supplier, has to choose them according to their level of social and environmental engagement. Finally, the community is a group of people living in a particular area and sharing common characteristics or interests. This group has members interacting with one another and with the environment. They are able to influence decisions of an organization with their critics. A company applying CSR is obliged to take the community as a whole into account.

In the stakeholder theory, the nature of these stakeholders, their values and their influence on decisions are relevant for predicting organizational behaviors and outcomes (Brenner and Cochran, 1991). Freeman includes other stakeholders such as creditors, public interest

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groups, competitors, and governmental bodies (Figure 2). For Blowfield & Murray (2008), the stakeholder is a vital part of CSR as it helps managers to understand to whom they are responsible. Moreover, stakeholders have a set of interests and expectations that need to be considered by businesses as it affects their activities. Smith (2003) claims that all groups should be considered even if it leads to a reduction of profitability. As a consequence, a stakeholder can influence an organization’s decisions but also can be affected by the actions of a company.

Figure 2: Stakeholder Theory (Freeman, 1983) 2.1.1.3 Triple Bottom Line

In 1987, the concept of the Triple Bottom Line (TBL) has been introduced in Brundtland Commission and named by John Elkington (1994). This theory is also well-known under the name of 3 P’s or three pillars. The TBL aims at structuring the three pillars for which a company should take responsibilities: Profit (economic), People (social) and Planet (environmental) (Figure 3). This theory is important to understand better the concept of sustainability. If one of these pillars is omitted, the CSR engagement is not complete and cannot last on the long-term.

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Profit is an essential element of a company’s activities in order to exist and develop in a competitive environment. CSR should not put at stake the profit of a company. A reasonable profit has to be won to provide value for shareholders. The latter own shares of the organization, they are thus owners of the company and without them its existence is jeopardized. To be socially responsible in the long-term, being profitable, saving costs and providing value to shareholders is a mandatory requirement. Without sufficient monetary value, the success of a firm is compromised and future investments in improving stakeholders’ standard of living would not be able to occur. Three aspects of the profit dimension are highlighted by Uddin et al (2008). The multiplier effect assesses the impact that a business has on its various stakeholders. The more individuals are reached by the company’s activities, the higher the multiplier effect will be. That is why creating more profit can benefit the surrounding actors. There are also taxes on profit that are then given to the government. A higher profit will enable the society to invest this money into responsible social activities for all citizens. Finally, a business has to keep its actions ethical to maintain a good image, reputation, and trust with its stakeholders.

People is the second pillar and covers all individuals affected by or who affect a firm’s activities which cannot exist without them. Employees, customers, and all participants in the process are interdependent with the business (Porter and Kramer, 2006). This implies that people should be respected and fairly treated to be retained. Uddin et al (2008) defined CSR regarding to customers and employees. First, customers buy goods and services from companies and care about their social responsibility engagement towards the society and environment as well as their ethical behavior. As Golaszewska-Kaczan (2009) demonstrated, “new consumers” are concerned about their purchases and give high importance to transparency. Their socially responsible opinion is crucial for companies as they decide to buy or not according to the business behavior. Second, the employees for whom the business environment and conditions of work are important factors. They need to feel respected and rewarded for their work. With a good salary, perspectives of career evolution and stimulating tasks that enable them to develop their competencies (Wieczorek-Szymanska, 2017), it will drive their motivation and contribution for the organization.

Planet is the third pillar and corresponds to the environment. All organizations and stakeholders are responsible to take care of the environment and avoid negative impacts resulting from their behaviors and resource usage. To avoid all harm on the natural environment, a company has to pay attention to the production of its goods and services value chain from the raw material choice to the way of making these ones available to the end customers and how they will be used (Life cycle assessment). It also means being environmentally responsible when choosing intermediaries in the channel process avoiding

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all procedures that can damage the atmosphere. It comes by integrating social norms in the corporate culture to invite employees to have responsible behaviors. Uddin et al (2008) explain this through the environmental impact measurement using tools such as the ecological footprint to evaluate resources usage and availability and through the win-win situation in which the company gains at improving environmental actions by attracting more customers and finally develop a competitive advantage.

2.1.2 Definition of MCS

Management control is a systematic process by which an organization’s higher-level managers influence lower-level managers to implement the strategies of the company (Anthony et al, 2014). These strategies are implemented in order to increase the organization’s long-term performance according to financial and non-financial tools such as budgeting, transfer pricing, evaluation and rewards, allocation of responsibility centers and resources. Most of the time financial measures are frequently used.

Control plays a significant role in an organization. The systems can be formal: clear procedures, rules, and guidelines to explain the managerial requirements; and informal: unwritten processes to boost motivation and goal congruence. It enables to detect mistakes made and to correct variations in order to stick to the initial plan and minimize the deviations that could jeopardize the goals’ achievement. According to Lauden Cheyo (2015), control comprises three main activities: setting standards, measuring actual performance, and taking corrective actions. Control systems are necessary as they can be used as a foreseeing tool avoiding unfixable errors to be committed and to prevent potential recurrence. Management control systems pertain to frequent checking to see whether the actual performance resulting from the business efforts is in line with the predetermined standards or if immediate deeds need to be taken. These actions have the objective to use the current resources effectively and efficiently for the expected corporate outcomes’ completion.

The control systems are essential to reduce risks in a company as goals are not pursued blindly but with processes assessing and monitoring the evolution of goals’ realization. Issues can be noticed faster and turned into making the performance grow. Thanks to these systems, information flow and fill the communication gap between employees and the management which improves the awareness, confidence, and motivation of all (Belyh, 2018).

2.1.3 Definition of Embeddedness

Although it is not the purpose of the present document to explore the question of embeddedness, we will use the following notions “embedded CSR” and “degree of embeddedness”. The definition that we choose for the concept of embeddedness is in line

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with Granovetter’s conceptualization (1985), who develops it using Polanyi’s (1983). According to him, the economic action is embedded into the personal relationships’ networks. In other words, an enterprise is not only economic, but results also from concrete interactions between actors, closely liaised with the socio-political environment. Polanyi (1983) designates embeddedness as the inscription of the economy defined into social, cultural, and political rules which govern some forms of production and goods and services trading. Granovetter (1985) goes further by including economic actions into social networks, and he uses this notion of social networks in order to explain the institutional formation and evolution. He aims to avoid the “atomization” of actors, conceived in previous socialization conception (Hirschman, 1982; Wrong, 1961):

“Actors do not behave or decide as atoms outside a social context […]. Their attempts at purposive action are instead embedded in concrete, ongoing systems of social relations.” (Granovetter, 1985)

He also uses the argument of embeddedness to show the role of concrete personal relations and networks in generating trust and discouraging malfeasance. Actors indeed generally prefer to rely on transactions with reputable individuals rather than on generalized morality or institutional structures, to produce trust in economic life.

More generally, the notion of embeddedness provides evidence of the extent to which business relations are mixed up with social ones. This is the reason why we use this term when exploring the concept of CSR. In fact, William Sun (2013) views embedded CSR as an intrinsic value and inherent building block of business, and not as an add-on. CSR is embedded in the business organization, culture, governance, and strategy, which contrasts with the business ethics school of thoughts which considers that CSR is externally added and separately developed from the core business (Visser, 2010). This notion will thus be further discussed in the empirical sections.

2.2 The Four-Level Model

2.2.1 Presentation of the Model

The model, on which this study is based, is organized around four levels for the CSR implementation into MCS (Szczanowicz and Saniuk, 2014). Originally, the concept was designed especially for the needs of Small and Medium Enterprises (SMEs). In fact, there is a strong need to follow-up CSR integration, as these types of companies face several issues, related to the lack of financial resources as well as of knowledge about such concept. SMEs seem to have a poor awareness about CSR. They also indicate that implementing sustainable strategies would have a very insignificant impact on their local community and environment

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(Polska Agencja Rozwoju Przedsiębiorczości, 2013). In response to these limitations, Szczanowicz and Saniuk (2014) have designed a model which distinguishes the different levels of social and environmental responsibility. The CSR implementation model differentiates between responding to legal standards and basic ethical norms defined by society and highly committing towards CSR by involving stakeholders and integrating CSR into MCS. According to the authors, this model suits the needs of the SMEs: it provides more practical information for effectively integrating CSR into their core business and MCS than the existing guidelines and formal procedures for this sector. Nonetheless, we assume that it is applicable to all types of companies’ needs, from SMEs to large corporations as it provides structure for integrating CSR and enhancing sustainable behavior, whichever the size of the business. This is also because Szczanowicz and Saniuk’s model is based on the three levels of CSR defined by Carroll (1991) with the pyramid model, which was initially designed for large corporations. The CSR pyramid includes four responsibilities, which are the economic, legal, ethical and the philanthropic ones, as identified in part 2.1.1. Szczanowicz and Saniuk (2014) have used the legal, ethical, and philanthropic dimensions of Carroll’s pyramid, that is why we assume that their established model is suitable for companies from all sizes.

The two authors have used those three responsibilities to define the first three levels of their CSR implementation, and they have added one final level, which includes the Deming cycle and allows a better implementation into MCS. Therefore, their CSR implementation framework includes four levels (Figure 4), that will be discussed more thoroughly in the following sections. Moreover, the model implicitly suggests a few factors that will have an impact on the CSR integration into MCS’ effectiveness. More precisely, it includes the legislative context, societal expectations, and company’s relationship with stakeholders as playing a role on the CSR implementation. These factors will be examined further in the empirical chapter.

It is also important to mention that the first level must be fulfilled before passing to the second level, as well as the second one has to be completed to be able to start the third one, and so on. More generally, the fulfilment of the requirements of the lower level allows the shift to the higher level of responsibility.

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Figure 4: CSR Implementation Model by Szczanowicz and Saniuk (2014)

2.2.2 Level One: Fulfilling Legal Requirements

The first level of CSR implementation corresponds to the fulfillment of legal obligations and the compliance with various federal, state, and local regulations. The society, and more precisely, the government, has established ground rules, that businesses must respect. These obligations are part of the “hard components” of CSR, as defined in Section 1.1 (Armstrong and Stephens, 2008). Legal requirements reflect the “codified ethics”, this means that they represent the obligatory fundamental norms and behaviors that the society has set, in comparison to the ones in the second level, which are non-mandatory.

An important limitation of the legal requirements is that they do not incorporate all basic behavior, that the society is expecting from the businesses. In fact, Carroll and Buchholtz (2008) identifies three reasons for which laws can be inadequate. Firstly, it is argued that legislation cannot cover all issues that the companies can encounter. This is partly because new challenges continuously emerge (for instance, in the food industry, there are new issues related to genetically modified food, the consumer’s growing interest for sustainable supply chain and blockchain, etc.) Secondly, laws become obsolete and outdated as new concepts and technologies arise. In addition, regulations are not frequently reviewed. Finally, because laws are established by a few specialists, they may not reflect the actual ethical needs but more personal and political interests.

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2.2.3 Level Two: Fulfilling Basic Ethical Norms

The second level refers to informal social expectations and the compliance of the company with ethical norms that are consistent with the CSR purpose. Ethical responsibilities are needed to balance laws that are essential, but not the most appropriate in some cases. The difference is that they do not represent obligations from the government and laws but are requirements from the society. Some processes, behaviors and actions are expected or banned by stakeholders, even though they are not codified by the legislation. One example of such basic and ethical norm is the SA8000 standard, which is also a “hard component” of CSR as it is recognized as a formal structure to adopt. This certified management standard is considered to be one of the most relevant standards (Sartor et al, 2016), as it is used to internalize business ethics within firms. It encourages companies to integrate management practices in line with the human rights norms (child labor, health and safety, discrimination, etc.). Therefore, this standard sets socially acceptable practices in the workplace, that are fundamental to social welfare. Such ethical norms and expectations are the basis for the creation of new laws. They reflect the new values that the stakeholders are demanding from the companies to embrace. Thus, they are continually evolving (Szczanowicz and Saniuk, 2014).

In fact, the society that sets these ethical norms includes both internal and external individuals of the businesses. More specifically, they are employees, shareholders, consumers, suppliers, and lenders, and they all assess what is fair and consistent with the respect of their own rights. At this level, a dialogue must be maintained with the society, to make sure to avoid all harm and undertake preventive (and in the worst cases corrective) actions.

The completion of the first two levels are necessary for a company to be perceived as socially responsible. These legal and ethical levels correspond to formal types of control, both including “hard components” of CSR. They must be fulfilled in order to start the next ones. If the business skips these first two levels and directly develops the third or fourth one, it might face embarrassment and failure (Szczanowicz and Saniuk, 2014).

2.2.4 Level Three: Involving Stakeholders

From this level, the activities linked to CSR must go beyond the basic expectations of stakeholders, and they aim at building competitive advantage by adopting several specific CSR actions. This third level considers more deeply the stakeholders, and its aim is to operationalize their engagement in CSR. The first step of this process is to identify key individuals, that have the greatest impact on the company’s competitiveness, as well as key relationships (Madsen and Ulhøi, 2001). One way to ensure the stakeholders’ engagement is

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to decide and select individuals which the organization will connect with. Mitchell et al (1997) argue that this selection should be based on power, legitimacy, and urgency. Additionally, there must be a continuous dialogue between the companies and the selected stakeholders in order to secure their interests in engaging towards CSR. This is supported by the AIDA model, standing for Awareness, Interest, Desire and Action (Russ and Kirkpatrick, 1982), which concedes the value of gaining individuals’ interest by adopting a two-way communication (Kitchen, 1993). Even though this model was originally developed in the marketing field, to understand the consumers’ purchasing process, it has also been applied to public relations to show the importance of securing stakeholders’ interests through communication that could then lead to behavioral changes. Therefore, by creating awareness and maintaining interest through a continuous dialogue, stakeholders are more likely to engage in CSR and act towards sustainable development.

This communication is crucial at all phases of implementation because it provides rich and meaningful information that the organization can use. It begins, as mentioned previously, at the planning phase, with the identification and selection of stakeholders and their respective needs. Knowing their expectations allows the company to assess what the right CSR practices to implement are. These practices should be a negotiation between what is essential for stakeholders and what is doable for the company. After the planning phase, stakeholders should engage and interact during the CSR implementation and evaluations stages. A way of assessing this performance and the effects of CSR should be defined from the beginning, at the planning phase, and all stakeholders involved in the process must be aware of the measurement criteria. Therefore, one possible way to assess the CSR progress and accomplishment is by using relevant KPIs (Key Performance Indicators). These indicators, by giving specific and pre-determined information, give a clear picture of the achievements and plans for the future and show the effectiveness of the CSR integration (Szczanowicz and Saniuk, 2014). In addition, to involve stakeholders more thoroughly, the latter can be invited to discuss CSR implementation and to exchange ideas, that would be reported to the organizational decision-making.

A key advantage of involving various stakeholders in the CSR integration process is that it provides more control for the company. Organizations can indeed more easily manage and persuade workers to acknowledge and contribute to CSR strategies and actions. However, this might be seen as industrialism and is criticized by the researcher Greenwood (2007). Therefore, the focus should mainly be on achieving results that develop stakeholder relationships and collaboration.

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Finally, this process results mostly into informal controls and includes “soft components” of CSR (Armstrong and Stephens, 2008). It is impacted by individual behavior and corporate culture. It is in fact assumed that managers’ and employees’ exemplary attitudes and commitment towards CSR are likely to strengthen the integration of CSR into MCS and to enhance the internalization of standards (Testa et al, 2018). Testa also argued that adopting responsible behaviors that are discretionary and not directly related to formal reward system improve the integration and performance of CSR.

2.2.5 Level Four: Implementing CSR into MCS

The fourth and final level requires the integration of CSR values, procedures, and practices to business strategy, and thus the implementation of CSR into MCS. This integration is based on the Deming’s cycle, divided into four steps: Plan, Do, Check, Act (Figure 5). This method includes all economic, social, and environmental aspects of a firm.

Figure 5: Deming's Cycle (1993)

In the planning phase, the organization needs to conduct a CSR assessment (from what has been established during the previous levels), and based on this, it develops a CSR strategy, including long and short-term goals. This strategy, providing a sense of direction, a purpose and setting boundaries and focus areas should be communicated to internal and external stakeholders. Therefore, clear goals, a vision and guidelines should be set up in order to implement the process and propose CSR actions.

The second phase, which corresponds to “Do” and the third one, “Check” should then overlap, in order to develop and integrate the CSR commitments and actions previously planned, while continuously following up on them and reporting. To improve the CSR implementation within the firm, the latter should provide CSR training and consult affected stakeholders. In the second phase, senior and middle management play a crucial role (Raps, 2005) as their opinions influence others, through tone-at-the-top. They have a great responsibility and possess knowledge that must not be neglected during CSR implementation. In addition to assigning clear roles between managers and between workers, measurable targets should be

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set through KPIs. Practices should be regularly reviewed in phase three, “Check”. This is why the MCS play an important role, as sustainability measures must be integrated to the reporting and monitoring systems, in order to measure the effectiveness of CSR actions. Measuring progress is also a way to exclude risks with preventive actions or to take corrective measures. Heslin and Ochoa (2008) also suggest that progress, if successfully managed, should be rewarded, in order to increase working morale.

Finally, the fourth phase refers to “Act”, that is improving the in-place systems and the interactions of and engagement with stakeholders. After evaluating the performance, adjustments should be implemented if the outcomes are not the ones expected. Further, future opportunities should be assessed, through a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats). When one cycle is completed, the next cycle should start taking into consideration the decided variations and corrections that would improve the quality of the process (Hohnen, 2008).

During all four stages of the cycle, communication is particularly important (Szczanowicz and Saniuk, 2014). The organization must ensure an adequate transmission of information as well as a continuous dialogue with stakeholders. They must be recognized as fully-fledged members of the CSR team. Objectives, actions to undertake, KPIs and occurring changes must be communicated to them during the whole process.

2.2.6 Limitations of the Model

Several limitations can be identified in this actual model. Firstly, the two first levels relate to legal and ethical norms that are more symbolic rather than systematic. Even though fulfilling these two levels is necessary to be perceived as responsible and engaged, it does not provide any guarantee of substantial internal commitment to CSR and sustainability (Yin and Schmeidler, 2009). This is partly because their components do not require to be implemented into the formal MCS, but a simple adoption of a formal system. However, it was shown that formal systems create heterogenous outcomes in practice. They are more adopted as a form of representative behavior in order to increase their external legitimacy by externally reporting CSR commitments and actions.

Secondly, controls linked to sustainability are rarely interconnected with financial controls, so this has to be reshaped. As argued by Gond et al (2012), sustainable control systems are autonomous tools and are not integrated to the core strategy and controls. Therefore, they do not have any strong impact of the company’s actions and remain secondary, while financial measures and profitability-driven actions are primary. It is thus very important to consider this limitation and to identify the degree of integration of CSR into the core business.

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Interlinks must be drawn, as both financial and sustainable systems should go towards the same direction (Buhr and Gray, 2012).

Lastly, CSR measures are largely related to environmental aspects, and social ones tend to be less considered (Durden, 2008). Therefore, we should investigate the measurement and monitoring of both aspects within MCS, in an equal manner.

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3 Methodology

This chapter provides an overview of the methods and tools used to conduct the study. Choices regarding philosophy and approach are discussed, as well as methods for collecting and analyzing data. Lastly, reliability of data and ethical aspects are considered.

3.1 Research Philosophy

The research is based on understanding how CSR is integrated to traditional MCS and how this integration can be affected by internal and external factors. Two ontological positions can be adopted when conducting the collection of data: objectivism and constructionism (Bryman and Bell, 2011). Objectivism asserts that social phenomena and their meanings exist independently or separately from social actors. On the other hand, constructionism implies that social phenomena and their meanings are continually being accomplished by individuals and are in constant state of revision. In other words, a constructivism ontology means that the research and results are not considered as definitive and can still evolve through further research. New variables can also modify the context and the reality of a phenomenon (Bryman and Bell, 2011). The research philosophy in this thesis is thus based on constructive ontology. In fact, the research presents a version of social reality that is subject to fluctuations, with the understanding that findings and interviewees’ answers are subjective. Moreover, our empiric studies will be limited to a few interviews involving only several organizations. The study could not be developed on several years involving a myriad of participations and opinions enabling more precise results. As our study is limited by time and CSR actions in different companies and industries are constantly evolving according to external and internal factors, an objectivism ontology would not be accurate. Thanks to a constructivist perspective, our data collection and analysis of the results do not correspond to a unique and absolute correct path to follow therefore should not be taken at face value. On the contrary, they would remain open to discussion and debate, and additional information and knowledge in future projects would be welcome to enhance this research. Concerning the epistemology, positivism depicts the use of natural sciences to study social reality where only confirmed knowledge can be applied. Data collection is considered as credible if it comes from a sensory observable phenomenon and if the research purpose is to gather facts to generate hypotheses providing the basis for laws (inductivism, Bryman and Bell, 2011). In contrast to positivism, there is an epistemology of interpretivism which can be interpreted as a view respecting the dissimilarities of material and unmaterial of natural sciences considering the social action aspect. This study will not use a positivism epistemology as we are not using strict data with confirmed knowledge. Instead, we are

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utilizing various participants proceedings to interviews from whom results and viewpoints are discussed.

3.2 Research Approach

There are two main strategies for linking theory and research. The deductive study implies that theory drives the process of collecting data, and it aims at comparing findings with theories. More concretely, a hypothesis is raised based on the theory, and then, an empirical study is conducted to verify this hypothesis validating it or disapproving. Afterwards, the theoretical framework can be revised to be able to analyze the collected data in a more appropriate manner. On the contrary, the inductive approach consists of creating theoretical concepts from data and observations (Bryman and Bell, 2011). The deductive approach is mainly used for quantitative research, while the inductive is used for qualitative studies. Since the thesis uses the existing CSR implementation into MCS model which contains some flaws and might not be applicable to all organizations, depending on identified factors, an abductive approach seems to be the most appropriate for this research. Abduction aims at overcoming the limitations of both deductive and inductive approaches. It grounds social scientific accounts of social worlds in the perspectives and meanings of participants in those social worlds. As defined by Peirce (1960), abduction is the creation of new concepts relying on research data but based on theory. Therefore, the CSR four-level implementation model is adjusted according to some flaws we identify with both theory and real data. Thus, the new designed model better suits the implementation conditions in the food industry for various companies.

3.3 Research Method

In order to get a detailed analysis of the methods used and factors affecting CSR when being integrated to MCS, a qualitative study is the most suitable choice for this thesis. A qualitative research is defined as a research based on words, while a quantitative research is based on numerical data. We did not select a quantitative research for this study as the process is too precise and cannot fit the complexity of CSR that needs to be analyzed in a nondefinite way. Figures would have established a perfect truth and unique manner of perceiving and answering our questions, while a qualitative study would help on understanding variables around the CSR concept letting possible improvements and reflection in the future. In addition, detailed answers were required to get a deeper understanding of the CSR implementation into MCS. In a qualitative research, there is emphasis on interviewee’s perspectives, and the participants point of views is collected, rather than the ones of

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researchers as in quantitative studies (Bryman and Bell, 2011). Therefore, to collect data, qualitative interviews are conducted.

3.4 Sampling

This research firstly studies the sustainability reports of the companies selected. However, because external reporting is more a question of business image and do not always represent the reality and the CSR internalization within firms, interviews are performed with employees in charge of CSR management and projects to get a deeper understanding of the CSR implementation. To select the participants for this thesis, a purposive sampling approach is used as a strategy, but a snowball sampling can also be used. The goal of purposive sampling is to sample cases and participants that are relevant to the research questions (Bryman and Bell, 2011). At the same time, following a snowball sampling, valuable contacts are selected and used to obtain access to individuals having more knowledge about the topic and being more able to provide useful information to complete the research (Bryman and Bell, 2011). We use both the purposive sampling when we have access to specific contacts and the snowball sampling when choosing an individual in a company who can provide redirection towards a more knowledgeable person. The first contact is established via email. After explaining the purpose of the research, the employee, generally enrolled in the company’s CSR is asked whether he or she is interested in participating to this study. If the answer is positive, interviews are scheduled and conducted. Appropriate companies and individuals were selected in terms of three criteria: company’s size, type of industry and CSR engagement. Firstly, concerning the industry, all companies must be active in the food-industry as it is the sector which we are focusing our study on. As suggested in the background, firms from the food industry are strongly confronted to CSR challenges, and there is a need of acting responsibly to respond to consumers’ expectations. The food sector is very diverse and complex, it includes for instance agriculture, food processing, food service and distribution, grocery, food processing, etc. To entail different aspects of food industry, from production and processing to sale, we have interrogated food and beverage producers as well as a company providing food service and catering. Secondly, because we want to assess the size of the organizations as a potential variable affecting the effectiveness of the CSR integration into MCS, we have selected different size of companies. Thirdly, all interviewed companies must be conscious of the actual social and environmental stakes and act, more or less, towards sustainable development. They have to be aware of CSR, otherwise, it would be ineffective to investigate an organization that is not informed, or interested, by social and environmental challenges and is not acting, or trying to act, in a responsible way. Concerning the selection of the individuals being interviewed, the participants were all in charge of CSR or social and environmental aspects of their business

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more globally. Depending on the size of the company, some were directly responsible of CSR, acting as Sustainable Development Manager in large companies, while some others were high-level managers, in the case of small companies. This is because SMEs do not have the human or financial resources as well as not feeling the need of establishing a formal structure managing CSR only.

3.5 Data Collection

Our intention is to collect information through interviews. Since we chose a qualitative method for the subject of CSR, the primary data collected are planned interviews in different organizations. Conducting interviews is believed the best way to get honest and developed information as more in-depth details can be requested when an answer provided is vague. Due to limited time constraints and interviews are time consuming to prepare and analyze (Justesen and Meyers, 2011), we selected participants via sampling methods due to conducting a significant number of interviews proving challenging.

The main interview types in qualitative research are unstructured and semi-structured interview. Qualitative interviews tend to be flexible, with an aim of obtaining rich and detailed answers (Bryman and Bell, 2011). For this thesis, semi-structured interviews are conducted. Therefore, we used an interview guide (Appendix 1), which provided some structure, but unlisted questions may have been asked. This allowed the interview process to be flexible when appropriate and necessary (Kvale, 1996). Both authors are able to ask questions during the interviews and take notes. Before the interview, the interviewers present themselves, explain again the purpose of this meeting and clarify the method and ethical terms and conditions. Interviews are remotely performed since the interviewers are not in the same geographical area, and it would take additional time to physically get to each company located in different places. Each interview is recorded which prevents missing out any crucial information. We consequently have the possibility to listen repeatedly to these records for a more thorough post-examination of respondents’ answers. Interviewees were previously asked approval if the session could be recorded. Furthermore, to ensure credibility of information and good correspondence between findings and experiences, we have asked validation of respondents when necessary. The research is written in English, but interviews were performed in French, as it is the mother tongue of both interviewers and interviewees. Results are this way more developed and reliable as we can overcome the language barrier. At the beginning of the interview, the concept of CSR is introduced, and the first objective is to understand the company’s history and actual relationship with sustainable development. In addition, the organizational structure is defined, as we believe that it might be a factor for an effective integration of CSR into MCS. After these identifications, the next questions are

Integration of CSR into Management Control Systems : A focus on the social and environmental pillars through four case studies within the food industry