Corporate Social Responsibility

Agenda
Corporate Social Responsibility

Corporate Social Responsibility
Concepts, key issues, context
Key CSR drivers
Implications for enterprise
Implications for development
Dr. Anthony Miller
United Nations Conference on Trade and Development
[email protected]

Main Concepts of CSR
Social Contract (Donaldson, 1982; Donaldson and Dunfee, 1999) – There is a tacit social contract between the firm and society; the contract bestows certain rights in exchange for certain responsibilities.
Stakeholder Theory (Freeman, 1984) – A stakeholder is “any group or individual who can affect or is affected by the achievement of an organisation’s purpose.” Argues that it is in the company’s strategic interest to respect the interests of all its stakeholders.
CSR (Carrol, 1979)
Firms have responsibilities to societies including economic, legal, ethical and discretionary (or philanthropic).
- See also DeGeorge (1999) on the “Myth of the Amoral Firm”

Main Concepts of CSR
CSR = political economy
The rights and responsibilities assigned to private industry.

Key Issues in CSR
Labour rights:
child labour
forced labour
right to organise
safety and health
Environmental conditions
water & air emissions
climate change
Human rights
cooperation with paramilitary forces
complicity in extra-judicial killings
Poverty Alleviation
job creation
public revenues
skills and technology

Context Globally
Liberalisation of markets – reduction of the regulatory approach
Emergence of global giants, consolidation of market share
Development of the ‘embedded firm’ and the global value chain
Development of supplier networks in developing countries

Key drivers of CSR
Around the world
NGO Activism
Responsible investment
Litigation
Gov & IGO initiatives
Developing Countries
Foreign customers
Domestic consumers
FDI
Government & IGO

Key Drivers: NGO Activism
Facilitators: IT (esp Internet), media, low cost travel
Boycotts, brand damage, influence legislation, domino effect
e.g. Shell in Nigeria, Exxon in Cameroon, Sinopec in Sudan, Apparel Industry (Nike, Gap), GMO, Wood Products, etc.

Domino Effect in the US Wood Products Industry:
7 out of top 10 shift policy on old growth within 18 months

Key Drivers: Responsible Investment
Roots of: South Africa Apartheid Divestment
Significant size: US SRI = 2.3 trillion $ in 2005 or 10% of all professionally managed investments
Shareholder activism: shareholder resolutions; voting process
Influence corporate reporting and disclosure requirements
New rules on CSR reporting

Signatories will
1 …incorporate ESG issues into investment analysis and decision-making processes.
2 …be active owners and incorporate ESG issues into our ownership policies and practices.
3 …seek appropriate disclosure on ESG issues by the entities in which we invest.
4 …promote acceptance and implementation of the Principles within the investment industry.
5 …work together to enhance our effectiveness in implementing the Principles.
6 …each report on our activities and progress towards implementing the Principles.
Principles for Responsible Investment
www.unpri.org

Asset owners. Do you expect to implement ESG policies in your emerging market investments?
Investor opinion survey (IFC)

Foreign Direct Liability
Alien Tort Claims Act (ATCA): human rights, environmental rights
Unocal Burma
Coca-Cola Columbia
Rio Tinto Papau New Guinea
Del Monte Guatemala
The Gap Saipan
Shell Nigeria Other tools: RICO, False Advertising
E.g. Saipan ‘sweatshop’ cases; Katsky v. Nike
Key Drivers: Litigation
✔
$30,000,000 settlement

United Nations Initiatives
UN Global Compact
UN Principles for Responsible Investment
UNEP Equator Principles
ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy (MNE Declaration)
UNHCHR Business and Human Rights
UNODC Anti-corruption
UNCTAD Corporate Responsibility Reporting, World Investment Report

Implications for Enterprises
The Extended Firm
Regional Plants / JV Partners
Suppliers / Distributors
New social and product liability patterns
Development of Codes of Conduct and CSR reporting
Expanding sphere of influence
Application of Code of Conduct to value chain
CSR management: value chain management = compliance management
CSR Drivers
Transnational Corporations

Implications for Enterprises:
TNC as an “organ of society”
“every individual and every organ of society [should] promote respect for these rights and freedoms and to secure their universal and effective recognition.” - UN International Declaration of Human Rights
International principles apply only to governments
International principles apply to governments and companies
It would be a strange tort system that imposed liability on state actors but not on those who conspired with them to perpetrate illegal acts through coercive use of state power. - 1997 Eastman Kodack Co. v. Kalvin
Trend in international law

Implications for Enterprises:
CSR Management
How do companies address socio-environmental & legal compliance issues?
Policies - Code of Conduct
Systems - Compliance Management
Reporting - Accounting and Reporting

CSR Management:
Systems approach
Sustainable business development does not come about of its own accord. Rather, commitment to sustainability demands that corporate processes be reliably controlled and that everyone's actions - in finance as much as in environmental and social areas - be coordinated. Prerequisites for this are binding guidelines, unambiguous corporate goals and a clear organizational structure.
- Deutsche Telekom

CSR Management:
Management structure
Example: Chiquita

CSR Management:
Plan, Do, Check, Act method
Plan
Consult stakeholders
Establish code of conduct Set targets
Do
Establish management systems and personnel
Promote code compliance
Check
Measure progress
Audit
Report
Act
Corrective action
Reform of systems

Code of Conduct:
Widespread adoption among TNCs
Adoption of…
More than half of the 100 largest firms by global revenue (Fortune Global 100)
More than a third of the 100 largest firms by foreign assets (UNCTAD WIR 100)
57% of all foreign assets
51% of all foreign sales
65% of all foreign employees
Codes found among all industrial sectors.
Source: OECD 1999 survey of 233 codes

Code of Conduct:
Issue emphasis varies by industry
Source: OECD 1999 survey of 233 codes

Code of Conduct:
Emerging consensus on key issues
Source: Conference Board 1999, Survey of 123 Codes

Code of Conduct:
Cascade effect
Source: OECD 1999 survey of 233 codes

Code of Conduct:
Cascade effect
Source: Conference Board 1999, Survey of 123 Codes

Sphere of Influence
Who – is to be influenced?

Sphere of Influence
What – issues are to be influenced?

Sphere of Influence
How – are those issues to be influenced?

Sphere of Influence
Example: Mattel
Who: suppliers, JVs and branch plants
What: OSH
How: focus on manufacturing processes, HR, factory design

CSR Management:
Governing the value chain

Compliance Management:
Management by certification
Introduced 1998
By 2005: 763 factories, 47 countries Introduced 1995
By 2002: 37,000 factories, 112 countries

Compliance Management:
Management by certification
ISO 26000: Social Responsibility
To be Introduced in 2009 or 2010
NOT a Management System (?)
NOT a Certifiable Standard (?)

Principles of SR
1. Ethical behaviour 2. Respect for rule of law 3. Respect for international norms of behaviour
4. Respect for and considering of stakeholder interests
5. Accountability 6. Transparency
7. Precautionary approach 8. Respect for human rights
Organizational Governance
Human Rights
Labour Practises
Environment
Fair operating practises
Consumer issues
Community & society development
Core Subjects
Implementing SR
7.2
Defining scope
7.5
Implementing in daily practise
7.7
Evaluating performance
7.8
Enhancing credibility
7.4
Integrating into organization
ISO 26000 Roadmap
7.3 Working With Stakeholders
7.3 Communicating

CSR Management:
Supply chain specific

CSR Management:
CSR reporting becomes ‘mainstream’
% of Large Firms Issuing a CSR Report
64%

CSR Management:
Emerging standards in CSR Reporting
Global Reporting Initiative (GRI)
A multi-stakeholder initiative
www.globalreporting.org
International Standards of Accounting and Reporting (ISAR)
A project of UNCTAD
www.unctad.org/isar

Implications for Development
CSR ‘cascade effect’ on members of the global value chain
labour conditions (e.g. OSH, right to organise, wages)
environmental controls
transfer of new management techniques
Compensation for weak legal environment in LDCs
Impact on economic development & national competitiveness???

Implications for Development:
CSR management
CSR performance among 100 emerging market enterprises
Source: UNCTAD, 2008

Implications for Development:
CSR management
CSR performance among 100 emerging market enterprises
Source: UNCTAD, 2008

Implications for Development:
CSR management
CSR performance among 100 emerging market enterprises
Source: UNCTAD, 2008

Implications for Development:
is CSR good for growth?
“…[CSR] is liable to hold back the development of poor countries through the suppression of employment opportunities within them.”
David Henderson
“[CSR]’s adoption would reduce competition and economic freedom, and undermine the market economy.”

Implications for Development:
Experiments in quantification
Does an increase in CSR correspond with an increase in labour costs?

Implications for Development:
Experiments in quantification
Does an increase in CSR correspond with a decrease in real GDP growth?

Thank you
Dr. Anthony Miller
United Nations Conference on Trade and Development
[email protected]

Corporate Social Responsibility

CSR
a) EMPHASIS ON FAIRNESS
b) HISTORICAL OVERVIEW
c) POLITICAL CONTINUUM:
stakeholder---------------------------------------------minimalist
[left] [right]

Isn’t this what we have laws for?
THE LAW IS NECESSARY BUT INSUFFICIENT
a) THE LAW IS REACTIVE
b) THE LAW IS SLOW
c) BUSINESS IS CHANGE-ORIENTED &
FASTER

Economic Responsibilities
Legal Responsibilities
Social Responsibilities
Ethical Responsibilities

In Context
Community in a pre-modern, modern and postmodern world
Or… why we expect more from business and how “the game is played”

Pre-modern
TRADITIONAL ENTREPENEURIAL
Power goes to those who succeed in “the jungle”
Authority resides in those with legitimacy– size; wealth; longevity confers authority
Ethics based on individual responsibility and programs minimized

Modern
COMMUNITY OF RATIONAL RULES
i) BUREAUCRATIC
ii) SCIENTIFIC MANAGEMENT
iii) RELIANCE ON "EXPERTS"
iv) COMPREHENSIVE RULES
Power goes to those who make the rules. Relies on expertise
Authority goes to those who can enforce their rules Reach for the top
Ethics are based on “fairness’ and programs based on rules

Postmodern
COMMUNITY OF FLEETING EXCHANGES
i) NEED TO INTERPRET
ii) NEED TO BUILD CONSENSUS
iii) LOOSE CONNECTIONS
iv) SUSPICION OF AUTHORITY
Power goes to those who can “make the deal” through networking and can handle uncertainty
Authority goes to those who see and can sell coalitions and deals regardless of other levels of authority
Ethics are situational; programs emerge to be responsive

Take a guess…
This is from the "Ottawa Citizen":
Can you imagine working for a company that has a little more than 300
employees, and has the following statistics:
30 have been accused of spousal abuse
9 have been arrested for fraud
24 have been accused of writing bad cheques
95 have directly or indirectly bankrupted at least 2 businesses
4 have done time for assault
55 cannot get a credit card due to bad credit
12 have been arrested on drug related charges
4 have been arrested for shoplifting
16 are currently defendants in lawsuits
62 have been arrested for drunk driving in the last year alone
Can you guess which organization this is?

CSR Models

The Case for the Minimalist

Minimalist CSR
a.k.a.- traditional stockholders model, fundamentalism, Libertarian
Friedman
PREMISES
-Shareholders 1st
-Obey the law
-Private vs Public [MINIMAL STATE]

Minimalist critiques of other models
THEY DISTRACT FROM PROFIT MOTIVE
THEY ARE SOCIALISTIC
"PUBLIC GOOD" IS SUSPECT

Self-interest
Defining “Me”

Self-Interested CSR
PREMISES
GOOD MOTIVES NOT ENOUGH
PROFITS & COMMUNITY
CULTIVATING PHILANTHROPY
REPUTATION

Critiques of other perspectives
MINIMALIST IS TOO RIGID
ALL OTHERS IGNORE PROFIT

Ford:
“we endeavor to become a leading contributor to a more sustainable world”…”The Ford Motor Company Fund supports many local and national programs to affect change, provide for those in need, and improve quality of life.”
“Are consumers, especially in North America, truly interested in and willing to pay for new technology?”
http://www.ford.com/en/ourCompany/corporateCitizenship/ourLearningJourney/strategicIssuesUpdate/climateChange.htm

Social Contract

SOCIAL CONTRACT CSR
PREMISES
CORPORATION AS "MORALPERSON"
IMPLICIT & EXPLICIT CONTRACT WITH SOCIETY
WITH POWER COMES RESPONSIBILITY

Critique of alternate
1ST 2 MODELS FOCUS TOO MUCH ON PROFIT

Example
LEAKY" CONDO PLAYERS LACKED A SENSE OF "IMPLICIT" CONTRACT WITH SOCIETY
… developers “put a lot of money into marble countertops and fancy kitchens because that’s what sells the product. And consequently they don’t spend a lot of time thinking about how it looks [and functions] from the outside. It’s designing inside out.”
http://www.myleakycondo.com/com020601.htm

Stakeholder Management

3 STAKEHOLDER GROUPS:
*PRIMARY [ECONOMIC]
*SECONDARY [SOCIO POLITICAL]
* TERTIARY [POWERLESS]

Critiques of alternatives
1ST 2 MODELS TOO PROFIT-FOCUSED
-S-C MODEL IS TOO VAGUE

Examples
CITIZENSBANK
SHELL

STAKEHOLDER STEWARDSHIP

Stakeholder Stewardship
PREMISES
-CARING FOR TERTIARY
-HELP NON-BENEFICIAL PARTIES
-HOLD IN TRUST
-ASPIRE TO HIGH IDEALS
*ALL OF THIS PRESUPPOSES TIME & MONEY

Critiques of alternate
-1ST 2 MODELS TOO PROFIT-FOCUSED
-S-C MODEL TOO VAGUE
STAKEHOLDER MODEL NOT AMBITIOUS ENOUGH

Example
Ben and Jerrys
“Ben & Jerry’s Head of Social Mission has returned from a two-week mission in Cote d’Ivoire and Mali on the subject of alleged child trafficking in West Africa”
http://www.benjerry.com

Issues of trust and change: Minimalist
Participants
Investors/ stockholders
Owners / managers
Change Issues
Hyper competition
globalization
Trust
Trust grows when performance meets expectation;
Distrust if fails to meet expectation

Issues of trust and change:
Self Interested Model
Participants
Program advocates
Owners / managers
Change Issues
Competition
Reputation enhancement
Trust
Trust grows when program advocates deliver enhanced corporate reputation;
Distrust if do not

Issues of trust and change:
Social Contract
Participants
Those with contracts with firm
Owners / managers
Change Issues
Need for flexibility
internationalization
Trust
Trust grows when keeps legal and social contracts over time;
Distrust if do willing to violate them

Issues of trust and change:
Stakeholder Management
Participants
Primary and secondary
Owners / managers
Change Issues
Information access to firm increases
Systems open to scrutiny
Trust
Trust grows when stakeholders feel included in decision making
Distrust if feel excluded

Issues of trust and change:
Stakeholder Stewardship
Participants
Spokespersons for tertiary
Owners / managers
Change Issues
Pressure to include tertiary
Worry about environment
Trust
Trust grows when firm willing to negotiate with spokespersons for tertiary
Distrust if feel excluded

Modeling the context
Premodern
Minimalist
Self Interested
Modern
The social contract
Postmodern
Stakeholder (management and stewardship)

Economic Responsibilities
Legal Responsibilities
Social Responsibilities
Ethical Responsibilities

1
Corporate Citizenship, Social Responsibility, Responsiveness,
and Performance
2

2
Chapter Two Objectives
Explain corporate social responsibility (CSR)
Provide business examples of CSR
Differentiate social responsibility and responsiveness
Explain corporate social performance (CSP)
Relate social performance to financial performance
Describe the socially conscious investing movement

The CSR Concept
Arguments For and Against Corporate Social Responsibility
Corporate Social Responsiveness
Corporate Social Performance (CSP)
Nonacademic Research on CSP
Social Performance and Financial Performance
Socially Conscious or Ethical Investing
Summary
Chapter Two Outline

Introduction to Chapter Two
The focus in this chapter is on corporate social responsibility, which involves responsibilities outside of making a profit and the key questions for corporations include:
Does business have a social responsibility?
If so, what is the extent and type of the responsibility?

Corporate Social Responsibility (CSR)
Preliminary definitions of CSR
The impact of a company’s actions on society
Requires a manager to consider his acts in terms of a whole social system, and holds him responsible for the effects of his acts anywhere in that system

Corporate Social Responsibility (CSR)
Corporate Citizenship Concepts
Corporate social responsibility – emphasizes obligation and accountability to society
Corporate social responsiveness – emphasizes action, activity
Corporate social performance – emphasizes outcomes, results

Corporate Social Responsibility (CSR)
Business Criticism/ Social Response Cycle
Factors in the Societal Environment
Criticism of Business
Increased concern
for the Social Environment
A Changed
Social Contract
Business Assumption of Corporate Social Responsibility
Social Responsiveness, Social Performance, Corporate Citizenship
A More Satisfied Society
Fewer Factors Leading
to Business Criticism
Increased Expectations Leading
to More Criticism
2-7

Corporate Social Responsibility (CSR)
Historical Perspective
Economic model – the invisible hand of the marketplace protected societal interest
Legal model – laws protected societal interests

Corporate Social Responsibility (CSR)
Historical Perspective
Modified the economic model
Philanthropy
Community obligations
Paternalism

Corporate Social Responsibility (CSR)
Historical Perspective
What was the main motivation?
To keep government at arms length

Corporate Social Responsibility (CSR)
Historical Perspective
From the 1950’s to the present the concept of CSR has gained considerable acceptance and the meaning has been broadened to include additional components

Corporate Social Responsibility (CSR)
Evolving Viewpoints
CSR considers the impact of the company’s actions on society (Bauer)
CSR requires decision makers to take actions that protect and improve the welfare of society as a whole along with their own interests (Davis and Blomstrom)

Corporate Social Responsibility (CSR)
Evolving Viewpoints
CSR mandates that the corporation has not only economic and legal obligations, but also certain responsibilities to society that extend beyond these obligations (McGuire)

Corporate Social Responsibility (CSR)
Evolving Viewpoints
CSR relates primarily to achieving outcomes from organizational decisions concerning specific issues or problems, which by some normative standard have beneficial rather than adverse effects upon pertinent corporate stakeholders. The normative correctness of the products of corporate action have been the main focus of CSR (Epstein)

Corporate Social Responsibility (CSR)
Carroll’s Four Part Definition
CSR encompasses the economic, legal, ethical and discretionary (philanthropic) expectations that society has of organizations at a given point in time

Corporate Social Responsibility (CSR)
Carroll’s Four Part Definition
Understanding the Four Components
Business and Society: Ethics and Stakeholder Management, 5E • Carroll & Buchholtz
Copyright ©2003 by South-Western, a division of Thomson Learning. All rights reserved
2-16

Pyramid of CSR
Philanthropic Responsibilities
Be a good corporate citizen.
Ethical Responsibilities
Be ethical.
Legal Responsibilities
Obey the law.
Economic Responsibilities
Be profitable.

Corporate Social Responsibility (CSR)
CSR in Equation Form Is the Sum of:
Economic Responsibilities (Make a profit)
Legal Responsibilities (Obey the law)
Ethical Responsibilities (Be ethical)
Philanthropic Responsibilities (Good corporate citizen)
CSR

Corporate Social Responsibility (CSR)

Corporate Social Responsibility (CSR)
Arguments Against
Restricts the free market goal of profit maximization
Business is not equipped to handle social activities
Dilutes the primary aim of business
Increase business power
Limits the ability to compete in a global marketplace

Corporate Social Responsibility (CSR)
Arguments For
Addresses social issues business caused and allows business to be part of the solution
Protects business self-interest
Limits future government intervention
Addresses issues by using business resources and expertise
Addresses issues by being proactive

Corporate Social Responsibility (CSR)
Business Responsibilities in the 21st Century
Demonstrate a commitment to society’s values and contribute to society’s social, environmental, and economic goals through action.
Insulate society from the negative impacts of company operations, products and services.
Share benefits of company activities with key stakeholders as well as with shareholders.
Demonstrate that the company can make more money by doing the right thing.

Corporate Social Responsiveness
Evolving Viewpoints
Ackerman and Bauer’s action view
Sethi’s three stage schema
Frederick’s CSR1, CSR2, and CSR3
Epstein’s process view

Corporate Social Performance
Carroll’s CSP model integrates economic concerns into a social performance framework

Corporate Social Performance
Extensions and Reformulations
Wartick and Cochran’s extensions
Wood’s reformulations
Swanson’s Reorientation

Corporate Social Performance

Corporate Social Performance
Nonacademic Research
Fortune's ranking of most and least admired corporations
Council on Economic Priorities Corporate Conscience Awards
Business Ethics Magazine Awards
WalkerInformation’s Research on the impact of social responsibility

Corporate Citizenship
Corporate citizenship embraces all the facets of corporate social responsibility, responsiveness and performance

Social—and Financial—Performance
Good Corporate
Social Performance
Perspective 1: CSP Drives the Relationship
Good Corporate
Financial
Performance
Good Corporate
Reputation
Good Corporate
Financial
Performance
Perspective 2: CFP Drives the Relationship
Good Corporate
Social
Performance
Good Corporate
Reputation
Good Corporate
Social Performance
Perspective 3: Interactive Relationship Among CSP, CFP, and CR
Good Corporate
Financial
Performance
Good Corporate
Reputation

Social and Financial Performance
A Multiple Bottom-Line Perspective

Socially Conscious or Ethical Investing
Social screening is a technique used to screen firms for investment purposes

Selected Key Terms
Business for Social Responsibility
Community obligations
Corporate Citizenship
Corporate social responsibility Corporate social responsiveness
Corporate social performance
Economic, legal, ethical and discretionary responsibilities
Paternalism
Philanthropy
Pyramid of CSR
Socially conscious investing