MANAGEMENT IN WIDER ENVIRONMENT
Corporate social responsibility (CSR, also called corporate responsibility, corporate citizenship, and responsible business) is a concept whereby organizations consider the interests of society by taking responsibility for the impact of their activities on customers, suppliers, employees, shareholders, communities and other stakeholders, as well as the environment. This obligation is seen to extend beyond the statutory obligation to comply with legislation and sees organizations voluntarily taking further steps to improve the quality of life for employees and their families as well as for the local community and society at large.
The practice of CSR is subject to much debate and criticism. Proponents argue that there is a strong business case for CSR, in that corporations benefit in multiple ways by operating with a perspective broader and longer than their own immediate, short-term profits. Critics argue that CSR distracts from the fundamental economic role of businesses; others argue that it is nothing more than superficial window-dressing; still others argue that it is an attempt to pre-empt the role of governments as a watchdog over powerful multinational corporations.
Business ethics is a form of the art of applied ethics that examines ethical principles and moral or ethical problems that can arise in a business environment.
In the increasingly conscience-focused marketplaces of the 21st century, the demand for more ethical business processes and actions (known as ethicism) is increasing. Simultaneously, pressure is applied on industry to improve business ethics through new public initiatives and laws (e.g. higher UK road tax for higher-emission vehicles).
Business ethics can be both a normative and a descriptive discipline. As a corporate practice and a career specialization, the field is primarily normative. In academia, descriptive approaches are also taken. The range and quantity of business ethical issues reflects the degree to which business is perceived to be at odds with non-economic social values. Historically, interest in business ethics accelerated dramatically during the 1980s and 1990s, both within major corporations and within academia. For example, today most major corporate websites lay emphasis on commitment to promoting non-economic social values under a variety of headings (e.g. ethics codes, social responsibility charters). In some cases, corporations have re-branded their core values in the light of business ethical considerations (e.g. BP’s “beyond petroleum” environmental tilt).
The term CSR itself came in to common use in the early 1970s although it was seldom abbreviated. The term stakeholder, meaning those impacted by an organization’s activities, was used to describe corporate owners beyond shareholders from around 1989.
Some commentators have identified a difference between the Continental European and the Anglo-Saxon approaches to CSR. And even within Europe the discussion about CSR is very heterogeneous.
An approach for CSR that is becoming more widely accepted is community-based development projects, such as the Shell Foundation’s involvement in the Flower Valley, South Africa. Here they have set up an Early Learning Centre to help educate the community’s children, as well as develop new skills for the adults. Marks and Spencer is also active in this community through the building of a trade network with the community – guaranteeing regular fair trade purchases. Often alternative approaches to this is the establishment of education facilities for adults, as well as HIV/AIDS education programmes. The majority of these CSR projects are established in Africa. A more common approach of CSR is through the giving of aid to local organizations and impoverished communities in developing countries. Some organizations do not like this approach as it does not help build on the skills of the local people, whereas community-based development generally leads to more sustainable development.
Auditing and reporting
To demonstrate good business citizenship, firms can report in accordance with a number of CSR reporting guidelines or standards, including:
AccountAbility’s AA1000 standard, based on John Elkington’s triple bottom line (3BL) reporting
Global Reporting Initiative’s Sustainability Reporting Guidelines
Verite’s Monitoring Guidelines
Social Accountability International’s SA8000 standard
Green Globe Certification / Standard
The ISO 14000 environmental management standard
The United Nations Global Compact promotes companies reporting in the format of a Communication on Progress (COP). A COP report describes the company’s implementation of the Compact’s ten universal principles.
The United Nations Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) provides voluntary technical guidance on eco-efficiency indicators, corporate responsibility reporting and corporate governance disclosure.
The FTSE Group publishes the FTSE4Good Index, an evaluation of CSR performance of companies.
Some nations require CSR reporting, though agreement on meaningful measurements of social and environmental performance is difficult. Many companies now produce externally audited annual reports that cover Sustainable Development and CSR issues (“Triple Bottom Line Reports”), but the reports vary widely in format, style, and evaluation methodology (even within the same industry). Critics dismiss these reports as lip service, citing examples such as Enron’s yearly “Corporate Responsibility Annual Report” and tobacco corporations’ social reports.
The scale and nature of the benefits of CSR for an organization can vary depending on the nature of the enterprise, and are difficult to quantify, though there is a large body of literature exhorting business to adopt measures beyond financial ones (e.g., Deming’s Fourteen Points, balanced scorecards). Orlizty, Schmidt, and Rynes found a correlation between social/environmental performance and financial performance. However, businesses may not be looking at short-run financial returns when developing their CSR strategy.
The definition of CSR used within an organization can vary from the strict “stakeholder impacts” definition used by many CSR advocates and will often include charitable efforts and volunteering. CSR may be based within the human resources, business development or public relations departments of an organization, or may be given a separate unit reporting to the CEO or in some cases directly to the board. Some companies may implement CSR-type values without a clearly defined team or programme.
The business case for CSR within a company will likely rest on one or more of these arguments:
A CSR programme can be seen as an aid to recruitment and retention, particularly within the competitive graduate student market. Potential recruits often ask about a firm’s CSR policy during an interview, and having a comprehensive policy can give an advantage. CSR can also help to improve the perception of a company among its staff, particularly when staff can become involved through payroll giving, fundraising activities or community volunteering.
Managing risks is a central part of many corporate strategies. Reputations that take decades to build up can be ruined in hours through incidents such as corruption scandals or environmental accidents. These events can also draw unwanted attention from regulators, courts, governments and media. Building a genuine culture of ‘doing the right thing’ within a corporation can offset these risks.
In crowded marketplaces, companies strive for a unique selling proposition which can separate them from the competition in the minds of consumers. CSR can play a role in building customer loyalty based on distinctive ethical values. Several major brands, such as The Co-operative Group and The Body Shop are built on ethical values. Business service organizations can benefit too from building a reputation for integrity and best practice.
License to operate
Corporations are keen to avoid interference in their business through taxation or regulations. By taking substantive voluntary steps, they can persuade governments and the wider public that they are taking issues such as health and safety, diversity or the environment seriously, and so avoid intervention. This also applies to firms seeking to justify eye-catching profits and high levels of boardroom pay. Those operating away from their home country can make sure they stay welcome by being good corporate citizens with respect to labor standards and impacts on the environment.
CSR is entwined in the strategic planning process of many multinational organizations. The reasons or drive behind social responsibility towards human and environmental responsibility whether driven by ulterior motives, enlightened self-interest, or interests beyond the enterprise, is subject to much debate and criticism.
Some critics argue that corporations are fundamentally entities responsible for generating a product and/or service to gain profits to satisfy shareholders. Milton Friedman and others argue that there is no place for social responsibility as a business function. These critics point to the rule of corporate law that prohibits a corporation’s directors from any activity that would reduce profits.
Other critics argue that the practice cherry-picks the good activities a company is involved with and ignores the others, thus ‘greenwashing’ their image as a socially or environmentally responsible company. Still other critics argue that it inhibits free markets or seeks to pre-empt the role of governments in controlling the socially or environmentally damaging effects of corporations’ pursuit of self-interest.
Disputed business motives
Some critics believe that CSR programmes are often undertaken in an effort to distract the public from the ethical questions posed by their core operations. Examples of companies that have been accused of this motivation include British American Tobacco (BAT), which produces major CSR reports, and the petroleum giant BP, which is well-known for its high-profile advertising campaigns on environmental aspects of its operations.
Some CSR critics argue that the only reason corporations put in place social projects is for the commercial benefit they see in raising their reputation with the public or with government. They suggest a number of reasons why self-interested corporations, solely seeking to maximize profits, are unable to advance the interests of society as a whole. They point to examples where companies have spent a lot of time promoting CSR policies and commitment to Sustainable Development on the one hand, whilst damaging revelations about business practices emerge on the other.
For example, the McDonald’s Corporation has been criticized by CSR campaigners for unethical business practices and was the subject of a decision by Justice Roger Bell in the McLibel case which upheld claims regarding mistreatment of workers, misleading advertising, and unnecessary cruelty to animals. Similarly Shell has a much-publicized CSR policy and was a pioneer in triple bottom line reporting, but was involved in 2004 in a scandal over the misreporting of its oil reserves which seriously damaged its reputation and led to charges of hypocrisy. Since this has happened, the Shell Foundation has become involved in many projects across the world, including a partnership with Marks and Spencer (UK) in three flower and fruit growing communities across Africa.
These critics generally suggest that stronger government and international regulation, rather than voluntary measures, are necessary to ensure that companies behave in a socially responsible manner.
Other views from this perspective include:
Corporations really care little for the welfare of workers or the environment, and given the opportunity will move production to sweatshops in less well-regulated countries.
Companies do not pay the full costs of their impact. For example, the costs of cleaning pollution often fall on society in general. As a result profits of corporations are enhanced at the expense of social or ecological welfare.
Hindrance of free trade
These critics are generally supporters of Milton Friedman, who argued that a corporation’s principal purpose is to maximize returns to its shareholders, while obeying the laws of the countries within which it works. Friedman argued that only people can have responsibilities. Because of this, moderate critics suggest that CSR activity is most effective in achieving social or environmental outcomes when there is a direct link to profit. This approach to CSR requires that the resources applied to CSR activities must have at least as good a return as these resources could generate if applied anywhere else. This analysis drastically narrows the possible scope of CSR activities.
Critics who believe that CSR runs against capitalism would go further and say that improvements in health, longevity or infant mortality have been created by economic growth attributed to free enterprise. Investment in less developed countries contributes to the welfare of those societies, notwithstanding that these countries have fewer protections in place for workers. Failure to invest in these countries decreases the opportunity to increase social welfare.
Corporations may be influenced to adopt CSR practices by several drivers.
The rise in popularity of ethical consumerism over the last two decades can be linked to the rise of CSR. As global population increases, so does the pressure on limited natural resources required to meet rising consumer demand (Grace and Cohen 2005, 147). Industrialization in many developing countries is booming as a result of technology and globalization. Consumers are becoming more aware of the environmental and social implications of their day-to-day consumer decisions and are beginning to make purchasing decisions related to their environmental and ethical concerns. However, this practice is far from consistent or universal.
Globalization and market forces
As corporations pursue growth through globalization, they have encountered new challenges that impose limits to their growth and potential profits. Government regulations, tariffs, environmental restrictions and varying standards of what constitutes labor exploitation are problems that can cost organizations millions of dollars. Some view ethical issues as simply a costly hindrance. Some companies use CSR methodologies as a strategic tactic to gain public support for their presence in global markets. This helps hem sustain a competitive advantage by using their social contributions to provide a subconscious level of advertising.(Fry, etal, 1986, 105) Global competition places particular pressure on multinational corporations to examine not only their own labor practices, but those of their entire supply chain, from a CSR perspective.
Social awareness and education
The role among corporate stakeholders to work collectively to pressure corporations is changing. Shareholders and investors themselves, through socially responsible investing are exerting pressure on corporations to behave responsibly. Non-governmental organizations are also taking an increasing role, leveraging the power of the media and the Internet to increase their scrutiny and collective activism around corporate behavior. Through education and dialogue, the development of community in holding businesses responsible for their actions is growing (Roux 2007).
The rise of ethics training inside corporations, some of it required by government regulation, is another driver credited with changing the behavior and culture of corporations. The aim of such training is to help employees make ethical decisions when the answers are unclear. Tullberg believes that humans are built with the capacity to cheat and manipulate, a view taken from (Trivers 1971, 1985), hence the need for learning normative values and rules in human behavior (Tullberg 1996). The most direct benefit is reducing the likelihood of “dirty hands” (Grace and Cohen 2005), fines and damaged reputations for breaching laws or moral norms. Organizations also see secondary benefit in increasing employee loyalty and pride in the organization. Caterpillar and Best Buy are examples of organizations that have taken such steps (Thilmany 2007).
Government laws and regulation
Another driver of CSR is the role of independent mediators, particularly the government, in ensuring that corporations are prevented from harming the broader social good, including people and the environment. CSR critics such as Robert Reich argue that governments should set the agenda for social responsibility by the way of laws and regulation that will allow a business to conduct themselves responsibly.
The issues surrounding government regulation pose several problems. Regulation in itself is unable to cover every aspect in detail of a corporation’s operations. This leads to burdensome legal processes bogged down in interpretations of the law and debatable grey areas (Sacconi 2004). General Electric is an example of a corporation that has failed to clean up the Hudson River after contaminating it with organic pollutants. The company continues to argue via the legal process on assignment of liability, while the cleanup remains stagnant. (Sullivan ; Schiafo 2005). The second issue is the financial burden that regulation can place on a nation’s economy. This view shared by Bulkeley, who cites as the Australian federal government’s actions to avoid compliance with the Kyoto Protocol in 1997, on the concerns of economic loss and national interest. The Australian government took the position that signing the Kyoto Pact would have caused more significant economic losses for Australia than for any other OECD nation (Bulkeley 2001, pg 436). Critics of CSR also point out those organizations pay taxes to government to ensure that society and the environment are not adversely affected by business activities.
Crises and their consequences
Often it takes a crisis to precipitate attention to CSR. One of the most active stands against environmental management is the CERES Principles that resulted after the Exxon Valdez incident in Alaska in 1989 (Grace and Cohen 2006). Other examples include the lead poisoning paint used by toy giant Mattel, which required a recall of millions of toys globally and caused the company to initiate new risk management and quality control processes. In another example, Magellan Metals in the West Australian town of Esperance was responsible for lead contamination killing thousands of birds in the area. The company had to cease business immediately and work with independent regulatory bodies to execute a cleanup.
A Case study
BACKGROUND OF HP
Global citizenship is HP’s comprehensive commitment to hold ourselves to a higher standard of integrity, transparency and accountability, helping us balance our values and business goals with our impact on society and the planet.
We have three priority areas: raising social and environmental standards in our supply chain, improving the energy efficiency of our operations and products to help combat climate change, and promoting product reuse and recycling. We also continue to focus on enriching the quality of life for people and communities around the world to be a force for positive and lasting change. Our efforts include supporting human and labor rights, making strategic social investments and protecting the privacy of customer and employee information.
HP is the largest information technology (IT) company in the world, and we recognize that our products and services, operations and conduct have impact that reaches far beyond our business. Fulfilling the responsibilities of leadership begins with holding ourselves to a higher standard. That means more than offering exceptional products and services. It includes conducting ourselves with integrity and building relationships based on transparency and trust. It is about enriching the prosperity of people and communities around the world. It compels us to minimize our impact on the planet while helping others reduce their own environmental footprint. And it depends on promoting the development and well-being of our employees. Taken together, striving to live up to a higher standard represents our companywide commitment to global citizenship.
Three overarching priorities guide our efforts: raising social and environmental standards in our supply chain, improving the energy efficiency of our operations and products to help mitigate climate change, and promoting product reuse and recycling. These priorities are helping drive new products, services and solutions to meet the diverse—and rapidly growing—needs and expectations of our customers.
Our global citizenship activities extend to other areas as well, including product accessibility; employee diversity, health, safety and wellness; privacy; and our investment in communities. The scope of our work—and the legacy of our contributions—reflect the strength of our commitment. If we continually meet our responsibilities as a corporate global citizen, we will succeed in our goal to be the leading IT Company in the world.
HP applies new thinking and ideas to create simple, valuable and trusted experiences for consumers, businesses and institutions. We are focused on delivering a portfolio of products and services that help our customers do what they want to do, wherever they are. Our work is guided by our long-established values and our seven company-wide objectives, which include a commitment to global citizenship. We make this commitment because it strengthens our business. Practicing good global citizenship helps differentiate HP, contributes to our ability to anticipate and meet customer expectations, enables us to respond to emerging marketing opportunities and ensures we remain competitive in an increasingly interdependent world economy.
HP employs approximately 172,000 diverse, talented people across most countries and markets in the world. We are committed to the Universal Declaration of Human Rights, and we value the health, safety, quality of life, productivity and privacy of all employees. HP wants to be known and recognized for ethical leadership. HP’s values are embodied in our Standards of Business Conduct, and guide each employee’s actions, behaviors and decisions—helping to build and maintain an industry-leading ethics and compliance culture. Furthermore, HP employees around the world contribute time, expertise, products and money—with HP matching resources—to support their local communities.
As the largest IT Company in the world, HP has the largest supply chain in our industry. Our suppliers must adhere to HP’s Supplier Code of Conduct. We provide training and support to help strengthen their capabilities and commitment to meeting the same ethical, labor and environmental standards we hold ourselves to. We also perform regular supplier audits to measure progress and identify areas for continued improvement. To increase the diversity of our supply chain we offer under-represented businesses equal opportunities to become HP suppliers and resellers.
Millions of people use HP technology every day and issues related to global citizenship, such as the environment, privacy and human rights, are increasingly important to many of them. We continually interact with our customers to understand their needs and expectations, and design our products and services to be accessible to as many people as possible, including those with disabilities or age-related limitations. We look for opportunities throughout the entire life cycle of our products— from materials, manufacturing and packaging to shipping, use and disposal—to minimize their impact on the environment. We offer a wide range of reuse and recycling options, and have rigorous processes to ensure the protection and responsible use of customer information.
HP strives to be a force for positive and lasting change in the communities where we operate. We work with governments, the IT industry, investors, non-governmental organizations (NGOs) and other stakeholders and communities to understand the most urgent issues facing society and to shape public policies that support responsible global citizenship. In 2007, HP invested over $47 million in educational, economic development and environmental sustainability projects, bringing the total value of our social investment over the past five years to more than $262 million.
Developing CSR management skills
Most companies stress the importance of education and training of managers, employees, and other actors to promote CSR. The education system, at all levels, has a crucial role to play in the fostering of social responsibility in citizens, including those who are working – or will work – in the world of business or outside it. It can fulfill this role by enabling citizens to understand and appreciate social, environmental and ethical values and equipping them to take informed decisions. Education and training in the field of business administration have particular relevance to CSR in this context, and the encouragement of an effective dialogue between the worlds of business and education on this subject can contribute to the promotion of CSR principles and practices.
PROMOTING CONVERGENCE AND TRANSPARENCY OF CSR PRACTICES AND TOOLS
CSR relates to a very wide range of company activities. This is particularly the case when an enterprise operates in several countries and has to adapt its activities to the specific situations in these countries. This diversity has helped to create an impressive richness of voluntary enterprise initiatives, which often include innovative elements, but also implies challenges, namely the lack of transparency and comparability.
Transparency is a key element of the CSR debate as it helps businesses to improve their practices and behaviour; transparency also enables businesses and third parties to measure the results achieved4. CSR benchmarks against which the social and environmental performance of businesses can be measured and compared are useful to provide transparency and facilitate an effective and credible benchmarking. The interest in benchmarks has resulted in an increase of guidelines, principles and codes during the last decade. Not all of these tools are comparable in scope, intent, implementation or applicability to particular businesses, sectors or industries. They do not answer to the need for effective transparency about business social and environmental performance. As expectations for CSR become more defined, there is a need for a certain convergence of concepts, instruments, practices, which would increase transparency without stifling innovation, and would offer benefits to all parties. CSR benchmarks should build upon core values and take their starting point in international agreed instruments such as ILO core labour standards and OECD guidelines for multinational enterprises.
Several market-driven international multi-stakeholder initiatives are emerging, which work towards convergence and transparency in the area of CSR. Member states have taken various initiatives to promote them, in accordance with their respective approaches to CSR. The Commission wishes to do its part in facilitating convergence and transparency in the area of CSR, by facilitating the development, diffusion and acceptance of these international multi-stakeholder initiatives by enterprises and stakeholders.
Increased convergence and transparency would be desirable in the following fields:
(1) Codes of Conduct,
(2) Management standards
(3) Accounting, auditing and reporting
(5) Social responsible investment
The development of CSR reflects the growing expectations of the community and stakeholders of the evolving role of companies in society and the response of companies to growing environmental, social and economic pressures.
Corporate Social Responsibility is potentially wider in scope, implying an active role for private sector entities as “citizens”, having both rights and responsibilities. In addition to adopting the business policies of corporate social responsibility, corporate citizenship is geared, in particular to maximizing private sector contributions to social development without undermining business practices.
The concept of corporate social responsibility goes beyond focusing on compliance, responding to external scrutiny or simply minimizing negative impacts, thereby engaging the private sector in a more proactive way to actively search out and pursue ways to promote social development.
The Global Compact is an important part of these efforts. The Global Compact has become the world’s largest corporate citizenship initiative bringing together companies, government, labor and civil society on the conviction that business practices rooted in universal principles can help bring social and economic gains.
The Global Compact asks businesses to respect human rights, to ensure safe workplace conditions, environmental standards and to practice good corporate governance. This commitment in itself is a crucial component of how business can support the MDGs. Companies can play a vital role by promoting this set of universally agreed core values, and by minimizing the negative impacts of their own business operations.
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