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Tue29Jul2014

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Corporate Social Responsibility : Background & Perspective

By John Samuel, Anil Saari

We live in an age in which companies equivalent in wealth to countries call the shots and control much of the earth's resources. Because corporates intervene in so many areas of social life, they must be responsible towards society and the environment. In India as in the rest of the world there is a growing realisation that capital markets and corporations are, after all, created by society and must therefore serve it, not merely profit from it. And that consumers and citizens' campaigns can make all the difference

Perspectives on corporate social responsibility / Why now?/
Types of corporate responsibility / Social action and citizens campaigns /
The corporate world adapts to changing forces / New social partnerships / The way forward

PERSPECTIVES ON CORPORATE SOCIAL RESPONSIBILITY

In the age of globalisation, corporations and business enterprises are no longer confined to the traditional boundaries of the nation-state. One of the key characteristics of globalisation is the spread of the market and the change in the mode of production. The centralised mode of production has given way to a highly decentralised mode of production spread across the world.

In the last 20 years, multinational corporations have played a key role in defining markets and influencing the behaviour of a large number of consumers. The rules of corporate governance have changed too. And there has been a range of reactions to this change. On the one hand globalisation and liberalisation have provided a great opportunity for corporations to be globally competitive by expanding their production-base and market share. On the other hand, the same situation poses a great challenge to the sustainability and viability of such mega-businesses, particularly in the context of the emerging discontent against multinational corporations in different parts of the world. Labourers, marginalised consumers, environmental activists and social activists have protested against the unprecedented predominance of multinational corporations.

The ongoing revolution in communication technology and the effectiveness of knowledge-based economies has created a new model of business and corporate governance. A growing awareness about the need for ecological sustainability and the New Economy framework, with an unprecedented stress on communication and image merchandising, have paved the way for a new generation of business leaders concerned about the responses of the community and the sustainability of the environment. It is in this context that we need to understand the new trends in corporate social responsibility.

There are three emerging perspectives that inform corporate social responsibility:

One, a business perspective that recognises the importance of 'reputation capital' for capturing and sustaining markets. Seen thus, corporate social responsibility is basically a new business strategy to reduce investment risks and maximise profits by taking all the key stake-holders into confidence. The proponents of this perspective often include corporate social responsibility in their advertising and social marketing initiatives.

The second is an eco-social perspective. The proponents of this perspective are the new generation of corporations and the new-economy entrepreneurs who created a tremendous amount of wealth in a relatively short span of time. They recognise the fact that social and environmental stability and sustainability are two important prerequisites for the sustainability of the market in the long run. They also recognise the fact that increasing poverty can lead to social and political instability. Such socio-political instability can, in turn, be detrimental to business, which operates from a variety of socio-political and cultural backgrounds.

Seen from the eco-social perspective, corporate social responsibility is both a value and a strategy to ensuring the sustainability of business. It is a value because it stresses the fact that business and markets are essentially aimed at the well-being of society. It is a strategy because it helps to reduce social tensions and facilitate markets.

For the new generation of corporate leaders, optimisation of profits is the key, rather than the maximisation of profit. Hence there is a shift from accountability to shareholders to accountability to stakeholders (including employees, consumers and affected communities). There is a growing realisation that long-term business success can only be achieved by companies that recognise that the economy is an "open subsystem of the earth's ecosystem, which is finite, non-growing and materially closed". (Herman E Daily in 'Sustainable Growth? No thank you' in The Case of the Global Economy, (Eds.) Jerry Mander, Edward Goldsmith; Sierra Book Club, 1996)

There is a third and growing perspective that shapes the new principles and practice of corporate social responsibility. This is a rights-based perspective on corporate responsibility. This perspective stresses that consumers, employees, affected communities and shareholders have a right to know about corporations and their business. Corporations are private initiatives, true, but increasingly they are becoming public institutions whose survival depends on the consumers who buy their products and shareholders who invest in their stocks. This perspective stresses accountability, transparency and social and environmental investment as the key aspects of corporate social responsibility.

WHY NOW?

The primary drive for ethical business and corporate social responsibility came from the USA and Europe in the '80s and '90s, from campaigns run by pressure groups such as Greenpeace and Friends of the Earth. Consumer boycotts, direct action, shareholder action, ethical shopping guides, ethical product labelling schemes, media campaigns and ethical competitors became increasingly effective in changing corporate perspectives.

The mid-'90s were the watershed years for the new consciousness in international corporate polity. This was the time when two prominent MNCs were compelled by 'ethical market forces' to re-orient their business attitudes. In 1995, Shell dumped its Brent Spar oil platform in the North Sea. Public agitation in Europe was so intense that in Germany sales fell by 70 per cent within a fortnight. Similarly, Nike, the shoe and apparel giant, ran aground thanks to a campaign against child labour and worker exploitation in many of the 700 factories across 40 countries where Nike worked with subcontractors. That prompted the company to set up a full-scale team under a Vice President, Corporate Responsibility in 1997.

In the early-'90s, Greenpeace commissioned a unit in eastern Germany to manufacture a CFC-free refrigerator. Within six months, mainstream manufacturers in Germany were manufacturing identical fridges.

It was in the post-war period that the character and nature of business began to change in the western world, with proprietary firms taking on corporate structures. By 1998, there were 45 registered MNCs and the income of the top 10 MNCs was higher than the GDP of over 50 countries.

In the changing political paradigm, the market has begun to play a crucial role in shaping the priorities and inclinations of the State and society. There was a subtle shift from a State-centred polity to a market-centred polity. In such a polity, fluctuations in the market influence State policies, and it is markets that increasingly define a State's boundaries of financial and social activity, particularly through the World Trade Organisation and powerful individual cartels and stock exchanges. A State's national economy is increasingly dependent on the financial capital market and the consumer market.

But we are now on the threshold of the second phase of the globalised economy. Other value additions have intervened in the world market. An opinion poll conducted on behalf of CSR Europe concluded that:

  1. Over half of those surveyed felt that businesses do not pay enough attention to their social responsibilities.
  2. Over one-quarter said that they had engaged in activities in the previous six months that either introduced ethics into actual consumer purchase decisions or else made such views known by other means.

A recent survey showed that 86 per cent of about 4,000 people aged 15 or older in Europe, expressed a preference for purchasing a product from a company 'engaged in activities to improve society' (Fleishman Hillard, 'Consumers Demand Companies with a Conscience', London). In the UK, the Co-operative Bank report on ethical consumerism recently found that consumers expect more, as citizens, from business corporations.

In the US, the San Francisco-based Business for Social Responsibility has been working since 1992 to help companies sustain their commercial success 'in ways that demonstrate respect for ethical values, people, communities and the environment' and it already has 1,400 member companies, including American Express, AT&T, Dupont, Ford, General Motors, Johnson and Johnson and Levi Strauss. "Even Wall Street has responded to this trend, with the Dow Jones launching a Sustainability Group Index (in October 1999). The SGI rates companies for their success in managing economic, environmental and social factors." (Rajni Bakshi , 'Corporate Angels', The Hindu)

The earlier mantra of 'maximising the medium-term earnings per share' has come under pressure from a wide range of stakeholders-employees, customers and general public affected in any way by the company's functioning. For instance, in 1999 the share price of Monsanto, the American bio-technology MNC, nose-dived due to public protests about its genetically modified products.

Since the corporate sector now controls so much of the earth's resources and because it intervenes in so many areas of social life, corporate entities must balance their right to grow with their responsibilities to society and to the environment. Because the financial capital market and business corporations are created by society and must, therefore, serve it , not merely profit from it.

CORPORATE RESPONSIBILITY: THE TYPOLOGY

Though the concept of corporate social responsibility has only recently been formulated, there is a long history in both the East and West of a commitment to social philanthropy, in the belief that the creation of wealth is primarily geared for social good. This aspect of ethical business in modern times can be traced back to 19th-century philanthropists like Robert Owen and the various Quaker-owned businesses. The Quakers "ran successful businesses, made money because they offered honest products and treated their people honestly, gave honest value for money, put back more than they took and told no lies." (Anita Roddick, KLM Herald magazine, August 1999)

Traditional corporate philosophy is only one of the three broad areas in which business companies can, and should, discharge their social responsibility. These three areas are:

  1. Traditional corporate philanthropy
  2. Corporate social responsibility, with a focus on sustainable development and attending to stakeholder priorities
  3. Ethical business

Traditional corporate philanthropy dates back to the 19th century and emerged out of a variety of factors, such as:

  1. Concern for the welfare of the immediate members of the corporate body: the staff and employees, and their families.
  2. Innovative contributions by visionary business leaders in quest of personal satisfaction, who built up philanthropic institutions out of their individual shares,
  3. The desire to establish a strategic relationship with the State or society led some corporate bodies to invest in the establishment of institutions that fulfil the specific requirements of the community,
  4. The establishment of trusts and foundations for tax benefits, which also support socially beneficial activities.

Corporate social responsibility is qualitatively different from the traditional concept of corporate philanthropy. It acknowledges the debt that the corporation owes to the community within which it operates, as a stakeholder in corporate activity. It also defines the business corporation's partnership with social action groups in providing financial and other resources to support development plans, specially among disadvantaged communities.

The emerging perspective on corporate social responsibility focuses on responsibility towards stakeholders ( shareholders, employees, management, consumers and community) rather than on maximisation of profit for shareholders. There is also more stress on long-term sustainability of business and environment and the distribution of well-being.

There is an increasing recognition of the triple-bottomline: People, Planet and Profit. The triple-bottomline stresses the following:

  1. The stakeholders in a business are not just the company's shareholders
  2. Sustainable development and economic sustainability
  3. Corporate profits to be analysed in conjunction with social prosperity.

In the traditional paradigm, most corporate bodies viewed CSR as the extension of a financial input for a humanitarian cause. However, the contemporary context is more complex: "A company that undertakes activities aimed at communities (be they philanthropic, social investment or commercial initiatives) but does not comply with business basics cannot be termed socially responsible." (Harish Srivastava and Shankar Venkateswaran, The Business of Social Responsibility, Books for Change, Bangalore; 2000)

Ethical business is the more fundamental, emerging trend on the international scene. It focuses on specifics:

  • how a business is conceptualised,
  • how a business is operated,
  • the notion of fair profit.
  • In an ethical business the essential thrust is on social values and business is conducted in consonance with broader social values and the stakeholders' long-term interests.

    The new issue at hand is "how to reconnect the corporation to the social and community concerns it was originally intended to serve" (Jonathan Rowe, Reinventing the Corporation). Analyst Alan Reder shows, through documentation, that "marrying profits and humane, respectful management practices is no mere ideal" (In Pursuit of Principle and Profit: Business Success Through Social Responsibility).

    In I991, the company Patagonia Garments sought replacement materials, dropped 30 per cent of its clothing line and planned for a restricted growth of its operations, because an environmental audit of its products found that all its garments, including cotton clothing, cause pollution. Yvon Chouinard, the company's founder and president, defended the principle of restricted growth, saying, "We also committed ourselves to a lifespan of a hundred years. A company that intends to be around that long will live within its resources, care for its people, and do everything it can to satisfy its community of customers." Body Shop, the environmentally alert cosmetics company, and Ben and Jerry's Homemade Ice-cream are two other world-famous examples of ethical business.

    SOCIAL ACTION AND CITIZENS' CAMPAIGNS

    The relevance of social action and campaign interventions stems from the very growth of global corporations and major paradigm shifts in the polity. In a liberal democratic policy , citizens are supposed to define the boundaries of the State and the State in turn defined the boundaries of the market. A reverse pattern has now evolved: the market is increasingly defining the boundaries of the State's operations. From being a mediator of multiple societal interests, the State has been minimised into an arbitrator of risk and interest, primarily driven by market forces.

    It has been pointed out that "the triumph of economic globalisation has inspired a wave of techno-savvy investigative activists who are as globally minded as the corporations they track. This powerful form of activism reaches well beyond traditional trade unions." (Naomi Klein, the author of No Logo, 2000) In the last 20 years, social action interventions, boycotts and citizen campaigns have, however, brought a new player to the global market. Rob Harrison, co-editor of Ethical Consumer, UK, heard arms-trade manufacturers admit that "the four women who did 'criminal damage' to British Aerospace Hawk jets destined to help Indonesia's suppression of East Timor, achieved more in 10 minutes than 10 years of more conventional campaigning."

    In the mid-'90s, carefully planned citizens' campaigns brought RJR Nabisco to its knees at its annual general meeting, almost forcing the MNC to split its food and tobacco divisions. In the USA, and elsewhere, time seems to be running out for those who are content to maximise profits with minimal regard for the social, economic and environmental impact of their business.

    New forms of activism that are acting as a countervailing force to corporate brand domination and the diminution of public and private space are constantly emerging. One such is 'culture-jamming'. Culture-jamming baldly rejects the idea that marketing -- because it buys its way into our public spaces -- must be passively accepted as a one-way information flow.

    So, adbusting (using the mainstream media itself to strike at dominant marketing messages and send out alternative messages) is the perfect tool. "In one simple deft move you slap the giant on its back. We use the momentum of the enemy," says Kalle Lasn, editor, Adbusters magazine, Vancouver. For a growing number of young activists in the USA and Europe, adbusting is the appropriate tool with which to register disapproval of the multinational corporations that have "so aggressively stalked them as shoppers, and so unceremoniously dumped them as workers".

    The Internet has rapidly become the tool of choice for spreading information about multinationals around the world. For example, each day information about Nike flows freely via e-mail between the US National Labour Committee and Campaign for Labour Rights; the Dutch-based Clean Clothes Campaign; the Australian Fairwear Campaign and many others spread throughout the world.

    In a September 1997 press release, Nike dismissed its critics as 'fringe groups'. But by March 1998 it was ready to treat Nike's online critics with more respect. It introduced yet another package of labour reforms and admitted, "You make changes because it's the right thing to do. But obviously our actions have been accelerated because of the World Wide Web." ('Sites for Sore Consumers', Washington Post, March 29, 1998)

    The thing every company fears most "is becoming the target of a powerful single-issue campaign group. So, rather than wait for it to happen, managers are taking pre-emptive action in the form of environmental product development and labelling, or engaging in such ideas as codes of conduct and social audits." (Rob Harrison, 'Consumers can make all the difference', 2000)

    When this public resistance began taking shape in the western world in the mid-'90s, it seemed to be an activity precipitated by a group of protectionists. But, as connections have formed across national lines, a different agenda has taken hold, one that makes use of the communication networking and global reach- out. As a result of the successful campaigns and the ever-increasing solidarity between the media and international advocacy and campaign groups throughout the world, changes have been felt in corporate attitude, allowing social responsibility to be directed towards non-traditional stakeholders.

    These new attitudes have been induced jointly by campaigns, which publicised the need for supportive social action, and the media, which inspired these positions and generated consumer awareness. Thus campaigning, the media and consumers formed a partnership that led to the introduction of environmental protection as part of the factors that determine company success. More recently, other corporate elements of social responsibility, such as labour practices -- and, more specifically, child labour -- underwent similar processes.

    THE CORPORATE WORLD ADAPTS TO CHANGING FORCES

    The major MNCs have, in part, reacted positively to the new attitudes which have redefined the paradigms of social values and have thus redefined the norms of business. They had to take cognisance of the new forces in the consumer market, where the consumer-citizen is metamorphosing (albeit gradually in countries like India) into a citizen-consumer.

    The major corporations have also realised that Cause Marketing, development partnerships and environmental concerns make good business sense -- particularly in terms of recycling materials, employee satisfaction and morale, building up reputational capital and as a distinctive brand marketing tool. The emergence and ascent of the e-economy post-1995, with an information-based technology with very little impact on the environment and projecting a white-collar workforce and neo-entrepreneurship, brought forth a new corporate leadership with a vision of its own, originating in many instances in morally-influenced middle class backgrounds.

    Under pressure from multiple social forces, the State has formulated new consumer rights and environment conservation legislations. In India, for instance, we have the Consumer Protection Act, 1986.
    Another significant influence was the worldwide recognition of the Japanese business norm, which emphasises the quality circle concept in place of the traditional assemblyline concept. Employee welfare is now seen to be linked to productivity and employee identity has assumed a stakeholder role. "The companies that excel today are those that restructure themselves as adaptive, resilient, creative and sustainable -- as living companies with the capacity to learn and change." (W K Shireman, keynote address at the Asian Productivity Organisation's conference in Tokyo, April 2000)

    These companies are increasing their profits by continuous innovation. They turn waste into new products, leasing and remanufacturing billions of dollars of equipment that used to be thrown away, driving pollution and waste towards zero, and systematically eliminating products and even whole industries while continuing to provide the services that are actually wanted, said Shireman.

    The successful corporations of the 21st century are therefore focusing on continuous improvement. One example is Hewlett Packard, which leads the world in the provision of office equipment while retaining the in-the-garage creative entrepreneurship of its founders.

    NEW SOCIAL PARTNERSHIPS

    The leading companies have discovered that working together with non-profit and government organisations to solve social problems can give them new insights and approaches to creating business opportunities as well. Solving community needs creates opportunities "to develop ideas and demonstrate business technologies, to find and serve new markets, and to solve longstanding business problems." (Rosabeth Moss Kanter notes in 'From Spare Change to Real Change: The Social Sector as a Beta Site for Business Innovation', Harvard Business Review)

    "A recent study survey provides the evidence indicating when and how corporate social responsibility created benefits for corporations. The study also mentions some examples of benefits cited in the areas of marketing, shareholder value, human resources and innovation." (John Weiser-S ZadekIn ,'Conversations with Disbelievers', USA)

    1. London-based Diageo plc reported that between 1994 and 1998, 22 cause-related marketing projects helped it raise $600,000 for causes while increasing sales of tracked brands by 17 per cent.
    2. . A recent study by Interbrand concluded that a full one-quarter of the world's total financial wealth is tied up in intangible assets such as reputation, brand equity, strategic positioning, alliances, knowledge and the like.
    3. Monsanto's experience in introducing genetically modified seeds dramatically illustrates the tremendous negative impact on stockholder value, brand equity, and reputation that can be caused when a company is perceived to be behaving in ways that are socially irresponsible.
    4. The National Leadership Council (Washington DC) analysed company-sponsored school-to-work programmes and found a positive return on investment in most of the companies studied. Programmes resulted in reduced recruitment costs, reduced training and supervision costs, reduced turnover, and higher productivity and promotion rates of school-to-work programme graduates.

    Nike provides a compelling case in point, "Nike suffered significant damage to its brand and its sales when it was exposed as having poor labour standards in its supply chain. Similarly, it has benefited by embracing the cause of improving labour standards in the supply chain, and by publicising its efforts to certify compliance with labour standards throughout its supply chain."

    The UN Global Compact, created by UN Secretary General Kofi Annan, also encourages partnerships between the business community and the United Nations that seek to incorporate, in organisational performance and markets, the Compact's nine principles covering human rights, labour standards and the environment (www.globalcompact.org).

    As we begin the 21st century, it has been pointed out that "the integration of social issues and business practices was not a passing fad of the 1990s, but rather the beginning of a fundamental shift in how the world's leading companies will use cause associations to position their organisations and brands for the future. Today's pioneers are turning a concern for causes into long-term brand equity." (John Weiser-S ZadekIn ,'Conversations with Disbelievers' , USA) Comprehensive social commitments at US companies such as The Home Depot, Tesco, Avon, Target and Timberland, "have become an integral part of conducting business and a core component of corporate reputation, brand personality and organisational identity. This is good news for corporations and non-profit organisations alike." In 1993, the first Cone/Roper study captured America's enthusiasm for the evolving trend of cause marketing. By the late-'90s, cause marketing had become a standard and widely-accepted business practice.

    According to the International Events Group, investment in cause programmes by US companies jumped more than 400 per cent from $125 million in 1990 to $545 million in 1998. Today, many of the world's largest companies are running comprehensive campaigns supported by substantial advertising and communications resources.

    Today's pioneers realise that it is no longer about being just loosely associated with a cause or partnering with a non-profit organisation -- it is now about integrating the concern and commitment for a cause into a core component of an organisation's business strategy.

    Cone Inc believes that there are several factors driving the dramatic surge of Cause Branding today:

    • Competition: marketers today need innovative and compelling ways to build brand character,
    • Women's and teens' buying power: More than other consumer groups, women and teens want to build relationships with the companies they shop at and the brands they buy,
    • Consumers demand responsibility: For example, in the USA, students continue to boycott university apparel made at sweatshops,
    • Internet: Companies are now more visible and more transparent,
    • Protection: Companies like McDonalds have built a goodwill bank over the years through community involvement, which protects them during rocky times.
    THE WAY FORWARD

    There is a need to develop a more coherent and ethically-driven discourse on corporate social responsibility. CSR is still sometimes seen as "green wash" to clean the sins of pollution, or "white wash" to provide a facelift to the company's public image. It is often seen as old wine in a new bottle -- just another trendy name for good old philanthropic initiatives by companies. There is need to move beyond such transitory illusions about corporate social responsibility.

    Corporate social responsibility offers a two-way street to companies, on the one hand stimulating innovative business and technological initiatives which would open up new avenues for company operations and focus on the prospect of touching new market zones.

    On the other hand, it would give a cleaner societal reputation and socially responsible identity to
    companies, involving the companies and their employees in the long-term process of positive social transition.

    A multiple discourse on the nature of corporate social responsibility and its diverse practices and possibilities is urgently needed in the country.

    • We can no longer be blinkered about the earth's resources, or ignore the fact that the economy is constructed on the foundation of natural resources.
    • Green-washing should go beyond tokenism to an imperative priority in industrial and technological futures.
    • The human rights perspective should be integrated in the very core of corporate social responsibility. The emerging role of civil society in governance cannot be wished away. Corporations are meant to derive profits out of services they provide to consumer-citizens and they must see themselves as private institutions for public good.
    • All public institutions need to be accountable to the people at large, specially in the context of health hazards, radiation, genetically modified food, the chemicalisation of the food processing industry and of agriculture.

    (Anil Saari Arora is a freelance journalist and documentary filmmaker based in Pune)