Corporate Social Responsibility1
Corporate social responsibility (CSR) has gained more interest in the past decade, however it is not a new idea; it dates back to the 1930s, said Eric Orts of the University of Pennsylvania. Just before World War II, German industrialist Walter Rathenau claimed that business corporations had become very large and that they had grown to be a significant part of the society. According to Rathenau, even though fundamentally a corporation’s intent is the pursuit of private interests and profits for owners of the company, they are increasingly bearing the marks of an undertaking and, to an increasing degree, have been serving the public interest (Kessler, 1930). Further, philosophers John Dewey and James H. Tufts, in their book Ethics (1908), raised the concept that it is not sufficient to view companies as purely economic machines and that companies should be involved in public duty as well.
SUSTAINABILITY AND CORPORATE SOCIAL RESPONSIBILITY
CSR is not a static concept—it is a moving, evolving target, said Norine Kennedy of the U.S. Council on International Business. According to Kennedy, there is no solid definition of CSR; however, it is not a replacement for the governmental role and responsibility in meeting challenges of sustainable development.
Sustainable development within business promotion is expanding rapidly in several directions. Some interpret corporate responsibility to mean what companies should do above the call of law; others think it should be legally mandated at
the national or international level; others, again, take the position that it is already here and we are already doing it, said Kennedy.
The scope of corporate responsibility varies country by country, region by region, interest group by interest group. At a minimum, it includes environmental issues but it also takes on social, ethical, governance, health, and other issues. Potentially, it is a very broad concept to cover, and it is a challenge for the business community.
Millennium Development Goals
As a follow-up from the world summit on sustainable development in Johannesburg in 2000, the United Nations developed Millennium Development Goals (MDGs) with the implications for corporate responsibility, environmental, and health issues. One hundred ninety-one UN member states endorsed the Millennium Declaration. There are 18 MDGs grouped around eight goals, most of them having 15–20 objectives.
The main notion of MDGs is that it is not just governments, but also other interest groups in society that are expected now to carry out the commitments. It is clear in the international arena that companies are increasingly expected and, in some cases, required to take on roles and responsibilities that are traditionally those of governments. Today’s world and its markets are globalized, and the international impacts are unmistakable, said Kennedy. What happens internationally matters to companies in the United States. There’s not a one-size-fits-all solution for corporate responsibility, which makes it quite a challenge as we are looking for an internationally-agreed-upon approach.
There are several references to health-related issues in MDGs, such as reduction of the mortality rate of children under 5 years by two-thirds, reduction of maternal mortality by three-quarters, and attempting to decrease the incidence of human immunodeficiency virus (HIV)/acquired immunodeficiency syndrome (AIDS), malaria, and other major diseases. Other health-related issues targeted in MDGs are safe drinking water and concern for slum dwellers’ health. Finally, under the heading of a global partnership for development, there are two points: (1) access to medicines in cooperation with pharmaceutical companies and the private sector, and (2) make available benefits of new technologies, especially information and communications technology.
Another CSR incentive called the World Summit on Sustainable Development focuses on implementation and execution that is synchronous with the finance and trade negotiations of Monterey and Doha. According to the WTO, the November 2001 declaration of the Fourth Ministerial Conference in Doha, Qatar, provides the mandate for negotiations on a range of subjects, and other work including issues concerning the implementation of the present agreements (WTO, 2004). At the Summit on Financing for Development in Monterey, Mexico, delegates from participating nations pledged new resources for development
and to adopt the policies needed to ensure that these resources are well used. In Monterey, President Bush underscored the link between good governance, good policies, and human well-being when he put forward his concept of the millennium challenge account, noted Kennedy. This new type of assistance will go only to developing nations that are governed wisely and fairly, are strongly committed to investing in health and education, and that follow sound economic policies that encourage entrepreneurs and spur growth. Because of the World Summit on Sustainable Development, the UN becomes even more open to nongovernmental organizations (NGOs) and business. Therefore businesses now have the opportunity to be more engaged in UN discussions and bring forward business experts and practitioners who are involved in partnerships, noted Kennedy. It is also a challenge to businesses how to measure and report business performance in corporate responsibility and other areas where they have been active as members of the business community.
The World Summit on Sustainable Development work program refers to corporate responsibility in the following four places:
Sustainable patterns of consumption and production that enhance corporate environmental and social responsibility and accountability through actions such as voluntary initiatives, standards, reporting, dialogue, financial institutions engagement, cleaner production initiatives
Sustainable development in a globalizing world that actively promotes full development and effective implementation of intergovernmental agreements, initiatives, partnerships, regulations, and continuous improvement in corporate practices in all countries
Health and sustainable development, a linkage between health and environmental protection, reduction of environmental health threats, access to health care services, safer technologies for drinking water and waste management, reduction of occupational injuries and illnesses, a link between public health promotion and reduction and elimination of HIV/AIDS, tuberculosis, and malaria, phasing-out of lead in gasoline and paint
Strengthening of institutional frameworks that promote corporate responsibility and accountability and exchanging of best practices
The Role of International Organizations in Promoting Corporate Social Responsibility
International organizations play a major role in promoting better governance, and better economic processes in general, said Kathryn Gordon of the Organization for Economic Cooperation and Development (OECD). The OECD has a very distinctive way, a consensus-based way, of promoting better governments—governance among its member countries. A consensus development at the OECD is based on soft law instruments, meaning nonbinding statements of
values and principles. To make these soft law instruments meaningful, OECD engages in consensus-based peer reviews about how these values and principles are implemented in different national policy contexts. The instruments provide guidance for both government and corporate responsibilities in the investment area. On the government responsibility side, the instruments express the core investment values of transparency, nondiscrimination between foreign and domestic investors, and investment protection. On the corporate responsibility side, the OECD Guidelines for Multinational Enterprises provide guidance for international business. It is a comprehensive code of conduct that covers such areas as environmental management, human rights, anticorruption, and supply chain management. The OECD guidelines implementation procedures involve a distinctive and unique combination of voluntary and binding elements. Observance by business of the guidelines is voluntary, but the OECD governments assign a binding commitment to promote the principles of the guidelines among multinational enterprises operating in, or from, their territories.
At a minimum, corporate social responsibility includes environmental issues, but it also takes on social, ethical, governance, health, and other issues.
Today’s businesses face multiple challenges in terms of corporate responsibility. Businesses have to keep up with the new initiatives on a wide range of fronts such as voluntary, regulatory, stakeholders, partnerships, and others. Credible and meaningful indicators of how companies are contributing to the quality of life and how they are implementing corporate responsibility can be challenging, said Kennedy. These challenges are occurring at the same time the concept of corporate responsibility is evolving in several different directions. She noted that one single approach or definition is not going to meet the various needs; given the number of contexts in which businesses work, it is appropriate and healthy to have different approaches. Businesses need to watch very carefully the codes of conduct and guidelines of the MDGs and the World Summit for Sustainable Development, to come forward to talk about what has to be done and how it is going to be delivered, and to continue to argue for the enabling frameworks for corporate responsibility at the international level, noted Kennedy.
Some discussion participants noted that CSR functions effectively when there is committed leadership in corporations. They noted that corporate leaders need to transform into leaders who will move corporate responsibility efforts forward. Business schools, where those leaders are educated, are in a position to influence the transformation. Additionally, society, shareholders, and employees
need to become more vocal about what they are expecting from business leadership, thus becoming a determining factor about what corporations are focusing on and what their objectives are, noted some participants.
CORPORATE SOCIAL RESPONSIBILITY IN THE CONTEXT OF REGULATION
According to Orts, CSR is an orientation to business enterprise that claims a company has more than just an economic duty to shareholders and owners of the company; it is also a social entity that entails moral obligations and imperatives that go beyond legal requirements and compliance.
Many people in society at large, and especially the business community, do not believe that CSR is a good idea. For example, Orts noted that Milton Friedman is famous for saying that we should not have CSR because the constraints should be given by the government, so a company should maximize profits as much as it can, and the law should provide it with constraint (Friedman, 1970). The proponents of this view of CSR dispute that there is a tension between economic arguments about the need for businesses, especially public corporations, to focus on the bottom line, namely, shareholder value. On the other hand, there are ethical arguments, and every particular company needs to identify its ethical obligations that are either going to be constraining or a part of its definition as a business. Orts noted that the American Law Institute in its principles of corporate governance suggested that the primary objective of a company is to make profits for shareholders, but it still has to follow the law even if it is not cost effective (American Law Institute, 1994).
According to Orts, Stanford University professor David Baron clarified the ethical argument for social responsibility by distinguishing between what he called CSR and corporate social performance. True CSR involves an allocation of a firm’s wealth toward some view of the public good motivated by normative, that is, ethical principles. Strategic CSR (or mere corporate social performance) involves actions that appear to be motivated by higher social purposes and are, in fact, motivated by profits, noted Orts. Extreme cases amount to simple deception or “greenwashing” (Baron, 2001). Therefore, when we talk about CSR in the context of environment and health, we are talking about true CSR, said Orts. Additionally, Orts quoted Paul Hawken’s book The Ecology of Commerce in which the author says that business is a primary participant in destroying the world, and if businesses continue as they are going, there is not going to be a wildlife preserve, wilderness, or indigenous culture left (Hawken, 1993).
Many companies today realize that they are responsible for the future of the world, and they no longer accept the maxim that the business of business is business only, noted Orts. Their new premise is: Corporations are the dominant
institutions on the planet today; therefore they have to help address social environmental issues that affect humankind. This premise is increasingly becoming the ethically driven view of many large multinational companies. Globalization of the world implicates the idea of global corporate citizenship in globally constituted civil society and brings in the need for clarity about how to enforce different regulations; to whom should the multinational company owe their loyalties—whether they should be an American company or a global company—and what would be a global company’s responsibilities in a broader civic sense. According to Orts, corporations are citizens of a global society and therefore owe a duty to participate in that general society.
Corporations are the dominant institutions on the planet today. Therefore, they have to help address social environmental issues that affect humankind.
Many governments in the world have basic capacity for addressing the complex societal challenges. Global problems such as global climate change, ozone layer depletion, biodiversity loss, depletion of fisheries and forests, hazardous waste, transportation disposal, migrating microbes, and invasive species, as well as local air and water pollution are global issues, and have a health component. Often it is not possible for individual governments to address them.
Legal Reform Strategies to Enhance Corporate Social Responsibility
We live in a very complex society in which the government is not going to be able to answer all the questions about what the standard rules are. Therefore, companies have to take a bigger role in this process and establish creative legal strategies, so called reflexive law, that go beyond the command-and-control approach, asserted Orts. Informational regulation in the form of mandatory disclosure of information similar to the toxic release inventory could also be used to enhance CSR. Environmental contracts are among other strategies that may help improve CSR. The idea of environmental contracts is that companies can have partnerships and work independently with NGOs or with other governments on specific issues. Laws could be passed to help promote this strategy. If a company made a contract about a specific issue, it might create more progressive and creative solutions to these problems than if it relied solely on the Environmental Protection Agency or the U.S. Congress, noted Orts.
Corporations may chose to be socially responsible and get involved in addressing certain social or health issues with precision and competence. However, these choices have to be made without losing sight of the fact that the primary interest for a company is an economic one, concluded Orts.
CORPORATE SOCIAL RESPONSIBILITY: ROLES OF GOVERNMENT, THE PRIVATE SECTOR, AND CIVIL SOCIETY
The Cause of Corporate Social Responsibility as a Phenomenon
The modern phenomenon of CSR is closely linked to that of globalization, stated Kernaghan Webb of Carleton University in Ottawa. Globalization increased movement of people, goods, ideas, and corporate activity across borders. In a globalized marketplace, the underlying premise is that organizations should behave with equal respect to people and the environment wherever they are. Advances in telecommunications (e.g., the introduction of the Internet), NGO activity, and media scrutiny mean that an organization’s activities can be critically tracked and followed more easily than ever before, regardless of their location. Because governments do not have the ability to fully address environmental and social problems on their own (particularly in developing countries), the idea that corporations should take on some of this responsibility has gained currency. In effect, CSR is largely a response to state incapacity, stated Webb.
The result is growing expectation that firms should be economically, environmentally, and socially responsible wherever they operate, even if government regulations are inadequate or poorly enforced. These expectations apply to small, medium-size, and large firms, and all sectors: pharmaceutical, mining, refineries, chemicals, and so on.
Efforts by many organizations are underway to develop flexible, practical, standardized CSR approaches for a global economy. Intergovernmental-level initiatives include the Global Compact, the International Labour Organization declarations, OECD guidelines, the World Bank, and others. Individual governments such as the United Kingdom are taking lead roles, as well. Other initiatives include investment, standards, industry, and those that are NGO-driven or faith-based. Although the initiatives indicate considerable engagement on this issue of CSR, there is considerable variability from one to the other in terms of the actual content, scope, comprehensiveness, interoperability, and take-up, said Webb
As a result, even efforts made in good faith may suffer in the confusing abundance of initiatives. The lack of standardization can discourage business from good behavior and it can also discourage consumers, investors, and governments from rewarding good behavior. Competing initiatives can slow down the momentum of the CSR movement, cautioned Webb.
Corporate Social Responsibility Initiatives and Law
Even though laws and international conventions have limitations, they will remain the foundation for environmental and social protections in our society, said Webb. In part, as a response to these limitations, the private sector and NGOs have developed CSR-oriented voluntary codes and standards as supplements. For
optimal effectiveness, governments need to stimulate and structure these various initiatives.
There are strengths and limitations to laws. The strengths are that command-and-control regulatory approaches articulate societal positions on important issues and are the products of democratically elected legislatures in democratic countries. The laws are enforced by specialized government agencies and backed up by the courts. Command-and-control approaches have made considerable progress in improving the lives of people around the world. However, they have expensive, protracted development and enforcement processes, as well as jurisdictional constraints on subject matter, approach, and scope, noted Webb. Developing countries are particularly vulnerable to inconsistent and inadequate implementation and enforcement, in large part because of the inadequate budgets in place to fund such activities. Another downside to conventional command and control regulatory approaches is a tendency toward very inflexible and formal approaches that can lead to adversarial and legalistic behavior—a “going by the book” attitude toward compliance. This tendency can impede the development of optimal solutions to particular public policy problems, said Webb.
Further, with technologies moving so quickly, the law system is frequently put in a situation where it is one or two steps behind, no matter how hard governments try to stay on top of issues, said Webb. If limitations at the domestic level are challenging, they are considerably more problematic at the international level. Even though international laws have contributed to a lot of progress and provide the international regime of human rights, environmental protection, worker protection, and commercial activity, issues such as national sovereignty and the reluctance of states to agree to participate in, ratify, or implement international laws, slows down greatly the effectiveness of international laws to address social and environmental problems. Also, the divide between developing and developed countries is a particularly intransigent challenge for the international community because there is very little enforcement capacity at the international level and within developing countries, said Webb.
There are many possible ways to address the aforesaid issues and challenges. The International Organization for Standardization (ISO)—a nongovernmental body, although governments and private sector and others participate in it—generated the ISO 14000 series of standards, in particular, 14001, an environmental management standard. The ISO approach is intended to supplement legal regimes. It does not work as well when there is no effective legal regime because a management system works optimally in conjunction with a set of legislative or regulatory obligations, said Webb.
Environmental organizations have taken a lead role in developing a number of international voluntary certification regimes that apply to the CSR area. For example, the Forest Stewardship Council initiative started by the World Wide Fund for Nature was a response to the fact that the international intergovernmental community could not come up with an international forest protection
convention. This type of response is a paradigm change for NGOs because they moved from being rule takers, participating in someone else’s processes, to taking the initiative themselves and realizing the power they have to do so. NGOs realized that they can have retailers as allies who can frequently act as surrogates for consumers, and they can require, on behalf of their customers, that their suppliers agree to the standard or will not get business from them. Businesses are seeking “social licenses,” meaning individual companies are developing environmental, worker, and community-oriented codes for business reasons. At the same time, communities are entering into “good neighbor” agreements with companies. For example, in the United States, coal companies are the subject of good neighbor agreements where community members are allowed to go into the plants to do inspections and to check the company’s records. Just like laws, the new developments have limitations. For example, in the United States the Responsible Care Program for chemical manufacturing sector seems like an effective industry-initiated voluntary initiative, yet 90 percent—not 100 percent—of the chemical industry and chemical producers in United States are involved in the program. In other words, because it is a voluntary program, there is no legal mechanism to require 100 percent industry participation. Primarily, the challenge with voluntary instruments lies in implementation and enforcement associated with conflicts of interest and transparency and accountability issues.
The new approaches should be applied as supplements to the laws, not as replacements for them, said Webb. In some cases, they may act as precursors, and sometimes industry asks that these voluntary initiatives become law.
As mentioned previously in this chapter, corporate social responsibility is not a new idea. It extends back to the late 1600s when Quakers were the first users of corporate social responsibility, said Webb. Even though they were interested in trust and ethical behavior, they found that there were strong business dividends for engaging in that behavior.
According to Webb, CSR can be described as attempts by businesses to balance and integrate their economic, social, and environmental responsibilities in a way that minimizes societal harm and optimizes societal benefit while providing wealth to business owners and shareholders. It includes, but is not limited to, philanthropy; it assumes compliance with law and is generally seen as a voluntary, non-mandated set of activities. The pressure for CSR is becoming stronger because businesses are realizing that failure to consider the interests of their workers, surrounding communities, civil society organizations, and customers can have negative consequences to their reputation, and it may have a negative legal and commercial effect. Businesses are realizing that working with stakeholders can have benefits, not only enhancing their legal license to operate in a community, but their social license to operate as well (in the sense of community acceptance).
Increasingly, in addition to governments using their legal pressures, customers, lenders, insurers, investors, and shareholders are providing additional pres-
sure for businesses to do the right thing. But it is very important to remember, cautioned Webb, that if businesses do not make money, they are not going to be able to engage in social responsibility; therefore, wealth creation does remain the main objective for business.
The Role of Governments in Corporate Social Responsibility
Today’s societal problems necessitate concerted efforts of government, the private sector, and civil society. CSR represents the private-sector contribution to the efforts, but it is not a panacea; there are limitations on governments, intergovernmental legal instruments, to be able to address problems voluntarily. Governments can structure and encourage CSR as a supplement to conventional approaches, and organizations like the ISO can play an important role as a bridge between laws, intergovernmental instruments, community expectations for substantive obligations, and reporting standards. ISO is just one piece of the puzzle, said Webb.
Government encouragement of CSR stems from the understanding that CSR activities can assist governments in meeting societal needs. A country or an industry sector can be negatively or positively affected by individual firms’ behavior. CSR can be a competitive advantage for a country. For example, the United Kingdom approach to CSR represents the most sophisticated model. It has realized the importance of CSR and has taken great effort to institute pension disclosure laws, support ethical trading initiatives, and encourage development of many other related initiatives, including those in the standards area. Among developing countries, Brazil is the CSR leader, using standards to encourage good business behavior.
The Role of the ISO Social Responsibility Standard
Webb suggested that ISO could play an important role in lessening industry confusion and increasing acceptance by developing a social responsibility standard. This would be a third-generation standard building on the management system standards that are already in place, and it would be a guidance document, not a specification document; that is, it would not be the subject of certification, but it still could build on existing approaches. Considering that there are more than 600,000 facilities around the world that have been certified to ISO 9001 or ISO 14001, ISO is well placed to develop a standard concerning operationalization of social responsibility ideas, said Webb. ISO seems to represent the most accepted international rule infrastructure. One hundred forty-five countries around the world—the majority of them are developing countries—participate in it. However, an ISO social responsibility standard would be only part of the solution, one piece of a puzzle, cautioned Webb. It would be one more additional element compatible with the existing initiatives and laws, concluded Webb.