Corporate Social Responsibility (CSR)
Assignment Task:
Choose one firm operating in the energy sector and write a 2,500 word report critically
evaluating their strategic use of Corporate Social Responsibility (CSR) and the influence it
has on the strategic direction/objectives/choices of that particular firm.
The report should consider the following aspects:
?
The challenges and benefits of Corpo
rate Social Responsibility.
?
The strategic nature of Corporate Social Responsibility in the energy sector and the
way it can help firms achieve their strategic objectives and direction.
?
The importance of stakeholder management for projects in the energy sector
?
Appropriate energy related examples.(project samples that choosen oilsector emback upon
prensently, future or previous CSR projects)
?
Recommendations on how the chosen energy firm�s strategic use of Corporate Social Responsibility
(CSR) can be improved.
Abstract
The growing relevance of corporate social responsibility (CSR) in enhancing business
performance calls for firms to be actively involved in activities that promote social, economic
and environmental impact in communities that they work in. In the energy sector, CSR is
Corporate Social Responsibility
2
inevitable, given the overall image and perception of the industry; such that organizations
must demonstrate their commitment to environmental conservation. This is associated with
rewarding benefits including brand strength, enhanced financial performance and good
relations with stakeholders. While CSR may have profound impact on organizational
performance, it is also important to consider the challenges affecting CSR activities, so as to
determine how to address them. In this relation, the relevance of stakeholder management for
projects in the energy sector cannot be underestimated as it ensures that an organization
meets their expectations when executing CSR activities. This paper is a discussion of the
impact of corporate social responsibility in the energy sector; taking into consideration
Phillips 66, a Houston-based company as a case study for effective CSR.
Introduction
The relevance of corporate social responsibility (CSR) for contemporary
organizations is inevitable, given the value it brings to an organization’s portfolio. Corporate
social responsibility has been considered a compulsory undertaking for all organizations that
seek to flourish in the competitive business world (Marín, Rubio & Maya, 2012). Conclusive
researches have concluded that major stakeholders including customers, suppliers and
investors are more likely to associate and work with companies that practice CSR, as opposed
to companies with no CSR undertakings. Corporate social responsibility not only improves
Corporate Social Responsibility
3
an organization’s image but it also impacts on a company’s profitability and ensures a
streamlined relationship with local communities (Ogrean & Herciu, 2014). In the oil sector,
where a majority of activities are considered social and environmental risks, CSR is
particularly important as it demonstrates an organization’s commitment towards minimizing
potential harm resulting from its activities.
Phillips 66 has maintained steady performance in corporate social responsibility and
is considered among the top-performing companies in the energy sector, based on corporate
social responsibility. The company’s consistent use of corporate social responsibility has
ensured that it remains highly relevant in the communities it operates and also raised its
reputation to a significant extent. Phillip 66’s social responsibility is categorized into four
facets including the environment, the community, safety and occupational health and
sustainable development.
This paper is a discussion of the Phillip 66 in the context of corporate social
responsibility. It explores how the company’s strategic use of corporate social responsibility
and how it influences its strategic direction. This paper also examines the strategic nature of
CSR in the energy sector and the importance of stakeholder management for projects in the
energy sector. In addition, it provides recommendations for Phillips 66 on how its strategic
use of CSR can be enhanced.
Table of Contents
Abstract 1
Introduction 2
Discussion 4
Phillips 66 Background 4
Corporate Social Responsibility
4
Phillips corporate social responsibility and its influence on its strategic direction 4
Operational corporate responsibility 4
Economic responsibility 5
Social responsibility 5
Environmental responsibility 6
Impact of CSR on strategic direction 6
Challenges and benefits of corporate social responsibility 7
Benefits of CSR 7
Challenges of CSR 8
Strategic nature of CSR in the energy sector 10
Importance of stakeholder management for projects in the energy sector 11
Recommendations 12
References 14
Discussion
Phillips 66 Background
Headquartered in Houston Texas, the American multinational energy company,
Phillips 66’s history can be traced back to 1875. The company’s major milestone was the
formation of Conoco Phillips, out of a merger between Phillips Petroleum Company and
Conoco in 2002. In 2012, ConocoPhillips formed two stand-alone companies in their bid to
reposition, thus forming Phillips 66. Phillips 66 operates in the energy sector, as a diversified
manufacturing and logistics firm. Its major businesses include refining, chemicals, marketing,
Corporate Social Responsibility
5
transport of fuels and products. The company was listed on Fortune 500 as number 7 in 2015
and employs approximately 14,000 employees globally. As of 30 th June 2016, Phillips 66 was
worth $50 billion in terms of assets.
Phillips corporate social responsibility and its influence on its strategic direction
Phillips 66 strives to be an industry leader in corporate responsibility and has put in
place mechanisms designed to ensure that the company is socially responsible to its
stakeholders. The organization’s corporate social responsibility can be classified into four
major categories as follows.
Operational corporate responsibility
Phillips 66 seeks to maintain exceptional operation excellence by promoting safety
and reliability. Accordingly, process safety and personal safety are safeguarded to ensure that
its employees are protected from injury while at work and that its operations do not impact
negatively on the communities in which the company operates. The company’s main goal is
to lead the industry as the safest company by attaining zero injuries target and reducing its
environmental footprint.
Economic responsibility
Phillips 66 seeks to maintain the highest standards of governance and business ethics.
Through its policies and practices, including a code of ethics, the company ensures that it
fosters ethical conduct and that of its employees. Phillips 66 is also committed towards
enhancing health and safety within the organization and the community. In addition, the
company regularly supports civic and political undertakings aimed at improving community
performance.
Corporate Social Responsibility
6
Social responsibility
Phillips 66 invests significantly in the communities in which it operates in, besides
ensuring that its workplaces are healthy, safe and inclusive. The company is mainly active in
environmental sustainability, education and literacy, safety and preparedness and often
provides grants to promote these acts of philanthropy. Phillips 66 aims at improving
community resilience through education. In doing so, the company supports STEM (science,
technology, engineering and math) education, K-12 educational programs and other programs
that promote business, civic and financial literacy and understanding of the energy industry.
The company also strives to collaborate with higher learning institutions in which they recruit
in business and engineering.
With regard to the environment and sustainability, Phillips 66 is highly committed
towards wildlife conservation and environmental education. The company participates in
various wildlife and nature conservation projects. At the Humber Refinery for example, the
company has created Mayflower Wood, a 120-acre woodland that consists of native shrubs
and trees. Through staff volunteers, Mayflower Wood now consists of nature trails, picnic
areas, walkway for the local community and educational sign boards. In terms of safety and
preparedness, Phillips is actively involved in promoting safety and preparedness in
communities they operate in. Phillips 66 works with government agencies such as police, fire
departments, emergency management agencies and the American Red Cross to determine
community needs in terms of safety and preparedness. It then offers donations to facilitate the
required developments, such as, purchasing ambulances, providing technology for disaster
preparedness and supporting relief efforts. The company’s employees are also actively
involved as volunteers during disasters and in training communities on preparedness.
Corporate Social Responsibility
7
Phillips 66 values its transparency and accountability and therefore seeks to maintain
positive relations with the community. The company has community advisory panels in
almost all their refineries to promote effective relationships with the local community. The
goal is to ensure mutual respect and create trust through engaging the local community in the
refineries’ activities.
Environmental responsibility
Phillips 66 is committed to protecting the environment through the preservation of
resources and effective energy use. Phillips 66 invests highly in technology and research to
develop innovative products that reduce harm to the environment and also partners with
organizations and donates towards environmental conservation efforts.
Impact of CSR on strategic direction
Phillips 66 corporate social responsibility has earned the organization a worthwhile
reputation and can be singled out as one of the factors influencing its success. The company
enjoys fruitful relations with the community and has received various awards for its CSR
efforts. Examples include the unit gold awards for Occupational Health and Safety awarded
to the United Kingdom business, the Spokane Regional Clean Air Agency Award to five
terminals OSHA Voluntary protection recognition for most of its facilities (Phillips 66
website).
The motivation to promote environmental sustainability has led to the development of
a vibrant technology and research arm in the company. The company owns a Technology
Center that sits on 440 acres and has 44 buildings, one of the best in the industry (Phillips 66
website). It can therefore be established that the company’s CSR activities have created a
strategic niche in research, which Philips 66 can consider a great strength.
Corporate Social Responsibility
8
Challenges and benefits of corporate social responsibility
As a company that is highly devoted to giving back to the community, Phillips 66 has
gained immensely from corporate social responsibility. However, it has also experienced a
considerable level of challenges as discussed below.
Benefits of CSR
Corporate social responsibility has been linked to increased financial performance
(Daszynska-Zygadlo, K, Slonski, T, & Zawadzki, 2016). This can be explained by the
enhanced reputation that results when a company engages in corporate social responsibility.
A good reputation tends to attract customers and reduces organizational-community friction;
thus promoting financial performance. In addition, corporate social responsibility is
considered a strategic approach in enhancing customer loyalty. According to Chernev & Blair
(2015), a company’s engagement in CSR can alter customers’ perception of its products, thus
improving its bottom-line. According to Phillips 66 website, their corporate social
responsibility activities have created a competitive niche for the company. This could be
explained by the trust relationship that the company enjoys with the communities in which it
works, which in turn improves customer loyalty and supplier confidence.
Corporate social responsibility has a significant impact on the brand strength.
Esmaeilpour & Barjoei (2016), note that CSR plays an impactful role in building a
company’s brand and corporate image. This is because CSR differentiates a company and
creates positive reputation among stakeholders, thus improving the image of the organization.
Phillips 66 enjoys a good reputation and considerable brand strength. The company was
ranked 7 th on Fortune 500 and 19 th on Fortune Global 500 in 2015. Phillips 66’s brand
strength can also be linked to its exceptional financial performance.
Corporate Social Responsibility
9
Corporate social responsibility is an opportunity for organizations to differentiate
themselves and develop a competitive edge. Organizations that engage in CSR are considered
more responsible and accountable, and consequently more reliable (Chernev & Blair, 2015).
This is what Phillips 66 aims at achieving, through engaging in activities that benefit the
community. In a world where CSR is considered a good gesture, companies that practice
CSR are more likely to be viewed more positively by customers, thus creating a competitive
edge.
Challenges of CSR
The major challenge of CSR is the high level expenditure that companies incur in
implementing various activities. This takes a significant proportion of a company’s profits
and could therefore impact its financial position to a great extent (Daszynska-Zygadlo,
Slonski & Zawadzki, 2016). Between 2012 and 2015, the Phillips 66 invested $71 million in
donations to charities and over $5.4 billion in refining environmental projects. This
represents a considerable proportion of the firm’s income, which in turn reduces its
profitability.
CSR is a continuous responsibility that a company must sustain in order to maintain
ethical behavior. Once a company embarks on CSR activities, it is naturally expected that it
will keep up with the trend of improving the livelihoods of the local community and its
employees. Phillips 66 has maintained its CSR trend over the years and withdrawing its
support to the community would be interpreted as though the company is no longer interested
in improving the welfare of the community.
Corporate social responsibility is often challenged by the negative perceptions
associated with CSR. According to Chernev & Blair (2015), the perception that organizations
Corporate Social Responsibility
10
that engage in CSR are motivated by self-interests and not moral undertone or the willingness
to impact the society, brings about trust issues. In other instances, CSR is only seen as a
means of meeting societal expectations or legal requirements. Morsing and Roepstorff (2015)
also note that CSR is increasingly being considered a political activity; as organizations using
CSR as a means to fulfil political duties. Currently, Phillips 66 funds political activities that
are considered important for community development. However, these may be
misinterpreted, leading to questions on whether Phillips 66 is just interested in creating
political influence.
While CSR is associated with higher customer loyalty, Habel et al (2016) notes that
the CSR’s ambivalent effect tends to affect customer perception on a company’s price
fairness. According to Habel et al, the customers may suspect that a company has increased
its markup for products in order to cover costs incurred in CSR. As a company that operates
in the energy sector, Phillips 66 is prone to such accusations. Customers believe that energy
prices are influenced by the level of expenditure incurred by companies, including CSR costs.
Strategic nature of CSR in the energy sector
The energy sector is considered a sensitive industry due to the nature of its activities,
which are mostly associated with environmental degradation. There have been numerous
instances of oil spills, dangerous waste disposal and release of poisonous fumes from the
production of petroleum products; all which have raised concern over how responsible energy
companies are towards the environment and the communities they work in. Accordingly,
there is increasing pressure for organizations in the energy sector to be more socially
responsible by enhancing safety, promoting proper waste disposal and reducing their carbon
footprint (Marín, Rubi & Maya, 2012). Phillips 66 has invested significantly on
Corporate Social Responsibility
11
environmental conservation and clean energy, which explains why the firm has had limited
scandals, unlike others in the sector.
Given the strategic nature of CSR for energy firms, it is imperative that such firms
focus on engaging in activities that promote social responsibility. Iberdrola (2016) suggests
that firms in the energy sector should focus on climate change as a strategic area to consider
when conducting CSR. In this regard, sustainability is of great significance as it indicates an
organization’s commitment to environmental conservation. According to Iberdrola (2016),
firms need to pursue practices that address environmental and social concerns as these are the
most notable areas of concern. In the case of Iberdrola, the company aims at promoting
sustainability through its commitment to creating renewable sources energy. As a result, the
company has grown tremendously in the global arena and is currently leading among private
suppliers of wind energy in Mexico and a major producer in USA, UK and Brazil (Iberdrola,
2016). Similarly, Phillips 66 has strategically chosen environmental sustainability as its main
focus for CSR. The company’s goal is to provide environmentally friendly energy, which to a
great extent demonstrates the firm’s commitment to community welfare, economic and social
development.
Importance of stakeholder management for projects in the energy sector
Stakeholders play an imperative role in influencing the success of projects.
Accordingly, firms in the energy sector must devise stakeholder management plans, aimed at
ensuring that the needs and concerns of all stakeholders are taken into consideration during
project execution. Stakeholder management should be given priority for energy sector
projects based on the following rationale.
Corporate Social Responsibility
12
The first goal is to identify the potential stakeholders and consequently determine
their level of interest and extent of influence each stakeholder has on the project. This
includes determining what influences the view of stakeholders on the project (O’Riordan &
Zmuda, 2015). Such information is of great significance because it helps in shaping the firm’s
strategy and direction. Phillips 66 is currently battling a court battle over its plans for propane
and butane recovery, where the plan was to transport crude oil through rail (Sunflower
Alliance, 2016). This has faced considerable resistance from the community, environmental
organizations and other parties, over its expected impact on the environment through
increased harmful gas emission, rail explosion hazards. This shows the extent to which a
company must make considerations on stakeholders’ project perceptions before its execution.
When a firm is aware of the stakeholders’ interests and influence, it is possible to develop
strategies that address the needs of the stakeholders and avoid any instances where there
conflicts of interest arise. Further, it is possible to determine whether the expectations are
manageable. Pryke & Smyth (2012) notes that depending on the interest, influence and
expectations, different stakeholders need to be managed differently. This is an indication that
the Phillips 66 situation with the rail project may have been handled better to manage
stakeholders.
Stakeholder management promotes stakeholder engagement and provides an
opportunity for the firm to influence stakeholders. Stakeholder management guides the firm
on how to engage stakeholders in order to determine ways in which they can participate or
contribute to the project (Pryke & Smyth, 2012). Additionally, it provides guidelines on how
to influence stakeholders towards supporting the firm’s project. Effective identification of
stakeholders connected with the project plays a key role in determining who will be
responsible for engaging each stakeholder, depending on their influence on the project.
Corporate Social Responsibility
13
Stakeholder management ensures that there is reliable communication, such that the
firm information can be easily relayed between the firm and its stakeholders. A
communication management plan ensures that stakeholders can share their concerns with the
firm and thus reduces chances of friction and possible unrest. Phillips 66 does this by
ensuring that for every plant, there is a community advisory panel, which promotes
communication between the company and the community. The panel also ensures that
community concerns regarding the company’s activities are documented and presented to the
applicable authorities within the company.
Recommendations
Phillips 66 must focus more on tumbling its carbon footprint, given that this is a major
environmental concern. O’Riordan & Zmuda (2015) note that the most sustainable
organizations in the sector are those that work towards environmental conservation. While
Phillips 66 is already investing a considerable amount on such efforts, this should be further
elevated to create a considerable impact.
The rail project resistance is an indication that Phillips 66 needs to revise its
stakeholder management approach. While the project was approved by the authorities, it is
clear that this did not appeal to the community; an indication that Phillips 66 should have
engaged stakeholders on their plans and thus ensure that they developed a sustainable
decision regarding the project. Such a project could cost the company considerably,
financially and in terms of reputation, hence the need to engage stakeholders in future
projects (Prykev& Smyth, 2012).
The CSR ambivalent effect presents a challenge for organizations that engage in CSR,
given that customers may be suspicious of a company’s pricing. In order to resolve this,
Corporate Social Responsibility
14
Habel, et al (2016) suggest that a company must utilize various communication strategies to
ensure that CSR engagement does not impact negatively on the perception on price fairness.
An example is communicating the CSR budget sources, which should ideally either come
from cost reduction strategies or proportion of the profit earned.
Phillips should work towards ISO 26000 certification in order to enhance its position
as a socially responsible corporate. The ISO 26000 certification recognizes a company’s
efforts in corporate social responsibility and provides a guide to assess and execute CSR
activities relevant for the company. This will result in increased recognition of the company’s
conservation efforts.
References
Chernev, A, & Blair, S 2015, ‘Doing Well by Doing Good: The Benevolent Halo of
Corporate Social Responsibility’, Journal Of Consumer Research, 41, 6, pp. 1412-
1425, Business Source Complete, EBSCOhost, viewed 15 November 2016. Retrieved
from web.a.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=fb659496-2268-4bd1-
80ad-a8e10fda1594%40sessionmgr4008&vid=0&hid=4104
Daszynska-Zygadlo, K, Slonski, T, & Zawadzki, B 2016, ‘The Market Value of CSR
Corporate Social Responsibility
15
Performance Across Sectors’, Engineering Economics, 27, 2, pp. 230-238, Business
Source Complete, EBSCOhost, viewed 14 November 2016.
Dorsman, A., Arslan-Ayaydin, O. & Karan, M. B 2016, Energy and Finance: Sustainability
in the Energy Industry, New York, Springer.
Esmaeilpour, M, & Barjoei, S 2016, ‘The Impact of Corporate Social Responsibility and
Image on Brand Equity’, Global Business & Management Research, 8, 3, pp. 55-66,
Business Source Complete, EBSCOhost, viewed 15 November 2016.
Habel, J., Schons, L. M., Alavi, S., & Wieseke, J. (2016). Warm Glow or Extra Charge? The
Ambivalent Effect of Corporate Social Responsibility Activities on Customers’
Perceived Price Fairness. Journal of Marketing, 80(1), 84-105.
Iberdrola 2016, A World Finance report: Corporate social responsibility in the energy sector,
Retrieved from reports.worldfinance.com/corporate-social-responsibility-in-the-
energy-sector/
Marín, L, Rubio, A, & Maya, S 2012, ‘Competitiveness as a Strategic Outcome of Corporate
Corporate Social Responsibility
16
Social Responsibility’, Corporate Social Responsibility & Environmental
Management, 19, 6, pp. 364-376, Business Source Complete, EBSCOhost, viewed 14
November 2016
Morsing, M, & Roepstorff, A 2015, ‘CSR as Corporate Political Activity: Observations on
IKEA’s CSR Identity-Image Dynamics’, Journal Of Business Ethics, 128, 2, pp. 395-
409, Business Source Complete, EBSCOhost, viewed 15 November 2016.
Ogrean, C, & Herciu, M 2014, ‘Arguments For Csr-Based Sustainable Competitiveness Of
Multinationals In Emerging Markets (Part I)’, Studies In Business & Economics, 9, 3,
pp. 57-67, Business Source Complete, EBSCOhost, viewed 14 November 2016.
O’Riordan, L. & Zmuda, P 2015, New Perspectives on Corporate Social Responsibility:
Locating the Missing Link, New York, Springer.
Pryke, S. & Smyth, H 2012, The Management of Complex Projects: A Relationship
Approach, New York, John Wiley & Sons.
Sunflower Alliance 2016, Workers & Greens v Phillips 66 & Contra Costa, Aug 30,
