International Corporate Social Responsibility: The Role of Corporations in the Economic Order of the 21st Century by Ramon Mullerat (Kluwer Law International) At present, Corporate Social Responsibility (CSR) for some may not be more than an attitude. Can it be more? What degree of commitment can we reasonably expect of corporations in the struggle to eradicate poverty, promote human rights, halt climate change, and reverse ongoing environmental destruction? It is not a question of power; more than half of the world's top 100 economies are corporations, not nation-states. Whatever can be done to 'fix' the world's problems, corporations are in the best position to do. That they should act accordingly does not seem unwarranted, and for more and more corporations CSR is in fact a stated objective.
In this impassioned work the well-known international lawyer Ramon Mullerat suggests that one of the root problems faced by CSR is one of definition. Various interested parties define the term differently, and their definitions clash. However, Dr Mullerat clearly shows in these pages that this very multiplicity of perspectives in fact enhances our ultimate comprehension of CSR. It is through an honest appreciation of the motivations and hopes behind each point of view - and of the nature of their conflict - that the way forward emerges. And as we examine these various perspectives, we inevitably come to a clear awareness of the role of corporations in the 21st century world order.
Although this book will attract any general reader concerned with the state of today's world, it is sure to be taken up and pondered by lawyers, business executives, investors, and officials in positions to engage productively with its many powerful insights and ideas.
Excerpt: Over the past decades, businesses, governments, academics, the media, and the remaining part of civil society alike have displayed incommensurable levels of interest and enthusiasm for the still vague and undefined concept of corporate social responsibility (`CSR'). So much so, that the economic activity of the twenty-first century cannot be understood without such concept. CSR has become a buzz word in the business world. Just try Google and you will get over six million `hits' and you will find over one million web-pages on CSR.
The reason for the CSR explosion can be found in the role corporations play in the new economic order and the enormous power and influence that they exercise in today's world. Out of the one hundred largest economies of the world today, fifty-one are corporations and only forty-nine are nation-states. These powers and influence are exacerbated by the economic globalization, deregulation and privatization, the communications revolution, the increased access to information, and the prevailing of material over spiritual values, not to mention the myriad of corporate scandals that have emerged at the outset of the twenty-first century. The new corporate role is at the same time the cause and the consequence of such power and influence.
For many centuries, corporations were seen as human enterprises exclusively to produce the goods and provide the services needed by any given society. Today, this concept is obsolete, since corporations' activities go beyond the production of goods and the provision of services to the exclusive interest of their owners, and society expects them to address major local and global issues. Winston Churchill used to say that the more power, the more responsibility.
It is not the first time that businessmen are called to fix the problems of this world in modern times. In the past century, when the world became crazy and almost annihilated itself in the two World Wars, it was not the politicians or the military who found the formula to eradicate wars and build a new peaceful Europe.
This book is not a scientific or academic text, it is for the general reader. It may probably contribute to few innovative ideas on the subject, since it is basically intended to facilitate a general knowledge of some aspects of this vast movement. When I put together this book, my intention has been to learn more than teach. The book's aim is basically informative of the multifarious issues encompassed under the concept of CSR and the opinions of some commentators, politicians, and businessmen who are preoccupied with this movement. This book is not totally original. In it, I have tried to summarize the diversified and coming-from-differentquarters opinions of politicians, businessmen, journalists, and other thinkers on the broad and still undefined field of CSR, together with my own ideas, that I have made public here and there, hoping that the reader will have the opportunity to judge for himself or herself on the different intellectual and practical opinions and options.
At the beginning of each chapter, I have selected some quotations and thoughts relating to this subject, and at the end, I have provided a bibliography, mainly of works that have fallen into my hands when writing, most of which I have followed, consulted, and/or quoted.
When the first draft of this book had been sent to the editor, the 2008 financial crisis, spearheaded by the Lehman Brothers collapse, had just started to develop, and therefore, this book does not take into consideration the development of the crisis, which undoubtedly will give some answers to the questions that CSR has raised.
We need this book. We need better to understand and more to discover ways to reconcile private interest with the public good. James Madison in one of the Federalist Papers wrote that 'If men were angels, there would be no need for a government'. The same thought applies as well to markets and business. If all people were angels, markets would be perfect. However, we are not so. We need guidance in the formulation of corporate principles, standards of conduct, and concern for others in the corporate system. Such guidance does not come only from within markets but originates beyond them in culture and society. The concept of corporate social responsibility is the product of this admixture of business, culture and society. This book provides that guidance on Corporate Social Responsibility.
The years 2008 and 2009 are already part of fundamental economic history. We are going through the most dangerous period of economic disturbance since the Great Depression. The effect of these events is continuing — the cost of stimulus packages; reduced lending by banks; rising unemployment; substantial reductions of public services and increases in tax and so on. The effects on society everywhere are profound.
We now have three narratives underway — the economic, which occupies the front page every day; social, which is now underlined by unemployment and personal debt, and the moral — surely there is a better way for finance to operate we say to each other. These narratives overlap. Each deals with business and people in society. All are concerned with transparency, accountability, risk assessment and avoidance, and protecting the public good.
CSR is now more than ever a requirement of business and capitalism. It is so because it benefits business and it benefits the community. It does so throughout the world. The former pre-recession corporate indifference of some to CSR is no longer acceptable. The view that it is a fashionable ideal of do-gooders in civil
society is yesteryear. CSR now is part of our corporate and personal lives. We are probably entering a period in which we ought to drop the adjective 'social' and use the phrase 'corporate responsibility'. That better embraces the inevitable relationship between corporate governance, corporate responsibility to shareholders, the value chain and the community, and its integral value rather than a 'social' add-on. Most business thinkers know the value of corporate responsibility however described. My predecessors in the Caux Round Table formed it in 1986 as a group of businessmen. They included Frederick Phillips, then head of the Phillips company of the Netherlands; Olivier Giscard d'Estaing, the Vice President of INSEAD, and later Ryuzaburo Kaku, Chairman of Canon Inc. They came together in 1986 and over time advanced as businessmen the Western concept of human dignity and the Japanese virtue Kyosei 'living and working together for the common good'. This led in 1994 to the creation of the Caux Round Table Principles of Business and later the Principles for Government, and the proposed Principles for Non-Governmental Organizations. We are now in the stage not only of proclaiming these principles devised by business for business, but also ensuring that we have the practical means of applying them. Arcturus is our consultative programme within business designed to identify risk and successfully avoid it by good company practices right across the stakeholder terrain. It has been used by Nissan and is in a process of international development. In addition our director-training programme ensure that CSR is a daily practice of all aspects of business life.
Our example of how CSR can be developed for business is reflected by the multitude of examples in this book of how business, international organizations and civil society have advanced CSR in so many different and powerful ways. This, from within business and from within the community, demonstrates Kyosei — living and working together for the common good.
So the time is right for this work. Its enormous range of information and thinking redounds to the benefit of every reader in business and the community. The what, why and how of implementing CSR are comprehensively analysed in the many short and pithy chapters.
There could be no better an author for such a work than Ramon Mullerat. He is an eminent lawyer, a profound thinker and a man imbued with the concept of the common good.
Good business practices make for good business. George Washington expressed it eloquently 'There is no truth more thoroughly established than that there exists in the economy and course of nature an indissoluble union between virtue and happiness; between duty and advantage . . .
CSR is part of that truth. This book is the way for everyone to find out, to learn, to review, and to apply the thinking and information about corporate social responsibility.
CSR is above all a matter of the values, culture, and leadership of business. — Patricia Hewitt, UK Secretary of State for Trade and Industry
CSR is now in every reasonable chief executive agenda, not always at the top, but it is there. — Steve Hilton and Giles Gibbons'
We are not asking corporations to do something different from their normal business; we are asking them to do this normal business differently. — Kofi Annan, former UN Secretary General
THE SEVEN BLIND MICE AND CORPORATE SOCIAL RESPONSIBILITY (CSR)
A group of seven blind mice encountered an elephant. Someone asked: 'What does an elephant look like?' Like a pillar', said the mouse who had been grabbing the elephant by one of its legs; 'like a snake', said the one who had taken the tail; 'like a fan', said the one who had touched the ear; 'like a hose', said the one who had grabbed the trunk; and so on and so forth. With CSR something similar happens. CSR is a polyhedral figure. Each one of us looks at or prioritizes different planes or faces of it according to our particular background and optics: an economic theory, a legal rule, an ethical aspiration, a market tool, a management strategy, a risk management instrument, and so on and so forth.2 CSR is probably all of these at the same time.
AN ANALYSIS OF THE TERM
CSR is a term with three words. In order to better understand the entire term, it might be useful to analyse each of the three component words of the term.
CSR refers to corporations. CSR is an attitude of corporations, as an association of persons that is granted a charter recognizing it as a separate legal entity having its own rights, privileges, and liabilities distinct from those of its members.
CSR has many cultivators, but we must not forget that it refers predominantly to corporations. Activities adopted by individuals, non-governmental organizations (NGOs), or states can also be manifestations of social responsibility, but they are not properly CSR. That does not mean that the owners, directors, managers, employees, shareholders, and the rest of the stakeholders may not by themselves be involved in CSR, but CSR predominantly relates to corporations.
Antoine Meillet said once that every word has its story. 'Social' is one of these terms with a story. It is also an imprecise and evolving term with several meanings and senses. In a broad sense, 'social' means 'of or pertaining to human society'3 and at the same time 'noting or pertaining to activities designed to remedy or alleviate certain unfavourable conditions of life in a community especially among the poor' . Depending whether one takes the first meaning or the second, some CSR initiatives (e.g., environment protection) will or will not be included.
Although some refer to the CSR movement as 'social and environmental' ,5 as Stefanie Hiss6 pointed out, the term CSR is frequently interpreted or translated quite differently so that the 'social' of CSR comes to stand for environmental as well as social responsibility.
In the following pages, I use the term 'social' in its broader sense, encompassing not only poverty alleviation but also environment and human rights protection.
There are some terms that need to be separated and compared: 'responsibility', `accountability', and 'liability'. To be responsible means to be 'answerable or accountable, as for something within one's power, control, or management'' and 'having a capacity for moral decisions and therefore accountable' .
`Responsibility' is a delicate term, especially for jurists, because in the Latin languages, for instance, `responsabilidad' and `responsabilite encompass the other mentioned concepts.
As we will see, CSR is basically an attitude. It derives from an attitude to live, to work, to earn one's life, and to run a business. However, the concept is evolving from the answerability to the accountability notion, as we will discuss in subsequent chapters.
CSR AS A POLYHEDRAL FIGURE
Today, CSR is a polyhedral figure, that is, a figure with many faces or facets. Each observer looks at CSR as the face preferred or valued by him or her. That does not mean that the other faces do not exist or that they may not be preferred by other observers. An observer can contemplate CSR by looking not only at his or her preferred face but also at the other, for him or her, subordinate or comparable faces. That is why one is often confused and even disappointed by the difficulty in defining CSR, because there are so many faces of CSR and everyone enhances his or her preferred way of contemplation.
There are many complaints about the difficulty to clearly
CSR is or must be. I doubt that we can concur on a clear notion at the present time, because as it happens with other common concepts — democracy, justice, progress, rule of law — the concept of CSR is stretching to encompass a variety of conducts.
The Italian law professor Norberto Bobbio, in his book on the theory of law, states that when a new approach to observe a certain reality field appears, it almost always happens that the previous one is hastily condemned, as if it were not only different but wrong. As an effect of the common vice of all schools of thought to tend toward exclusivism, he says, it is ignored or it is deemed to be ignored that any field of reality can be considered from many viewpoints and that rather this multiplicity of focuses may help its better comprehension.
Companies may have several objectives when deciding to get involved in CSR. They do not follow the pattern of Shakespearean plays where each protagonist symbolizes one specific passion (love, jealousy, etc.). On the other hand, when cyclists enter a race, for instance, they may do so with different aims. One cyclist may enter the race because he likes it as a sport to make his body more flexible and healthy; another may do it for the fame of the desired victory and the trophy; while a third cyclist may do it for the economic prize involved in the race. It may well be that some cyclists want to achieve all three objectives at the same time, although each one of them establishes a different order of priority among the objectives.
CSR boundaries vary depending on different factors and mainly on the geographical area in which it is applied. In developing countries they tend to be drawn around alleviating poverty, that is, around the notion of sustainable livelihoods. This relates to what are essentially development issues — the provisions of energy, drinking water, health, or literacy. In other places, especially in Europe, North America, and some parts of Asia, they tend to be drawn around opportunity issues — the boost we can offer in terms of jobs, skills training, and education. There is also a halfway point between the two poles, which tends to appear in emerging or transitional societies. In these cases, transnational corporations (TNCs) can find themselves the catalyst for legal or conceptual reform, as was the case of BP in Russia during the second half of the 1990s or in Colombia in the mid-1990s.
An excellent summary of the different critical approaches to CSR was made by Ray Broomhill, who distinguished three schools of thought and practice, which he designated as the neo-liberal, the neo-Keynesian, and the radical:
(1) The neo-liberal approaches tend to see CSR as the adoption of a set of voluntary practices, uses, or guidelines initiated and driven by the corporation and share the view articulated by Milton Friedman (`there is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits'). As the neo-liberal journalist Janet Albrechsten put it:
the fundamental flaw with CSR and why it is a back step, is the underlying premise that capitalism and companies have something to be embarassed about, that they must justify their existence by going in search of some higher moral purpose . . . This shame-faced capitalism is an unfortunate development. The idea pushed by advocates that the pursuit of private profit is inconsitent with public good does not shack up ... How quickly we forget that Adam Smith knew a thing or two about human nature, she says. Smith pointed out that it is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own self-interest.
(2) The neo-Keynesian approaches, Broomhill added, utilize a wider definition that more clearly recognizes the active role of the corporation's stakeholders. CSR is generally defined as an approach adopted voluntarily by corporations and without external regulation by either stakeholders or the state. Neo-Keynesian discourse presents differences from the neo-liberal perspective firstly because there is a recognition that corporate behaviour can at times have negative impacts whether through market failure, corporate lack of awareness, or deliberate strategy, and secondly because its analysis is more inclined to entertain the idea of a positive role for the state in the development and regulation of practice.
(3) The radical political economy approaches take a more critical stance around CSR. Global corporations, Broomhill said, are seen as possessing enormous power that is often viewed ruthlessly in their own self-interest and frequently at the expense of society and the environment. Furthermore, radical political analysts not only are sceptical about the effectiveness of programmes but also are concerned that self-regulatory and voluntary policies are frequently deliberately designed by corporations to deflect attention away from external regulation and control of corporate behaviour and power and to disguise and legitimize other activities that are socially and environmentally destructive.
CSR's FOUR FACES
There is an intensive debate about the 'business case' for CSR. For some, it is just an ethical issue. For others, it is sound business practice of managing risks and exploiting opportunities, because if a business is actively managing its social and environmental impacts, they say, it is a good sign that it is a competitive sustainable business.
Saiful Wan Jan, following H. Mintzberg, stated that CSR can appear in various forms. The purest form is when CSR is practiced for its own sake. The firm expects nothing back from their CSR activities, and it becomes socially responsible because 'that is the noble way for a corporation to behave' or 'the good for the good'. A less pure form of CSR is when it is undertaken for 'enlightened self-interest', in which case firms undertake CSR with the belief that CSR pays. In Mintzberg's third form, CSR is seen as a sound investment. According to the `sound investment theory', socially responsible behaviours will be rewarded by the market. In the fourth form, CSR is practiced in order to avoid interference from external political influences. In this case, firms become socially responsible in order to prevent the authorities from forcing them to be so via legislation. Following Moore,15 he added that the use of CSR in the search of enhancing profitability is actually putting virtue at the service of avarice, since there is a tension between social and economic endeavours and, by becoming socially resposible, firms are actually working to ease this tension.
A prominent analysis of CSR philosophy has been already made by Archie Carroll, who referred to the 'four faces' of CSR. According to Carroll, for a definition of social responsibility to fully address the entire range of obligations a business has in society, it must embody the economic, legal, ethical, and philanthropic (also referred to as altruistic or humanitarian) categories or faces of business performance (the 'pyramid of CSR'). There is in addition a spiritual face.
(1) the economic face: To deliver good-quality products at fair prices is good for the profitability of the company. There is a tendency for managers to interpret wealth maximization in a constricted fashion consistent with the corporate goals of shareholders.
(2) the legal face: As physical persons, corporations must also
respect the law; or, as Geoffrey Lantos said, legal duties entail
complying with the law and playing by the rules. The law is the
minimum requirement for human cohabitation.
To comply with the law is undoubtedly the basic duty for corporations. However, the law is not, in the view of many, an intrinsic element of CSR, particularly for those who take the attitude of defining CSR as a voluntary self-imposed obligation, where state regulation does not apply to CSR sensu stricto.
(3) the ethical face: Ethical duties overcome the limitations of legal duties. They entail being moral, doing what is right, respecting peoples' moral rights, and avoiding harm or social injury. Ethical responsibilities are those policies, institutions, decisions, or practices that are either expected (positive duties) or prohibited (negative duties) by members of society, although they are not codified into law. They derive their source of authority from religious convictions, moral traditions, human principles, and human rights commitments.
(4) the altruistic face: Lantos said that Carroll's discretionary or philanthropic responsibility — 'giving back' time and money in the form of voluntary service, voluntary association, and voluntary giving — is where most of the controversy over the legitimacy of CSR lies.
(5) the spiritual face: This represents the most idealistic form of CSR. Martin Israel, a lecturer in pathology, said that 'the spiritual quest is a continuous act of faith, a faith that spiritual experience is the most real thing in human life'. According to this face, the company must engage in CSR's activities because the main objective of the company is the social one. Looking at this face, social welfare becomes the preferential purpose of the company. This is what Goyder called `conviction CSR'. In the purest laboratory form — he said — the spiritual facet of doing good for doing good radically excludes any other objective.
If being socially responsible means 'giving back' to society — said C. Jones —then, as soon as a firm starts to calculate the returns of being socially responsible, or as soon as a firm starts to strategize being ethical, this firm is actually not committing the act of giving. 'Giving, to be given, must exceed or interrupt the circle of economy' and must not be done with the expectation of being rewarded for it.
PREDOMINANTLY ACCEPTED BY BUSINESS
Today, the majority of corporations, particularly large corporations, accept the CSR doctrine, since generally they no longer see economic success as being necessarily in conflict with the protection of environmental and social objectives. These entities normally incorporate CSR into their strategic decisions.
One example is the positive reaction to UK trade minister Stephen Timms' request to the ePolitix.com Forum. Company and voluntary entity members manifested their belief in the CSR doctrine. The differences were in what they understand CSR to require, whether they stick to voluntary initiatives or they would accept some compulsory measures imposed by governments, and which multifarious CSR activities they are engaged in and the objectives they pursue with such initiatives.
In a position paper, the Union of Industrial and Employers' Confederations of Europe (UNICE) stressed that today European companies see themselves generally as an integral part of society, as they act in a socially responsible way, consider profits to be the main goal of the company but not its only raison d'être, and opt for long-term thinking on strategic decisions and investments.
CSR affects all kind of corporations, large and small, transnational and local, industrial and commercial, product manufacturers and service providers, in the most varied panoply of sectors. In addition to corporations themselves, CSR also affects a second circle of interested parties consisting of individuals and organizations who relate with the corporations in many different ways, including society at large.
The social aspect of human activities encompasses many facets of life. CSR, as indicated by its name, is basically about industrial, commercial, or services corporations. However, in a broader sense it covers also the activities of other entities, such as those of NGOs, professional organizations, cultural, and sporting associations. The two main areas of CSR are the welfare of the human being (social area) and the welfare of the planet (environment).The term 'social' is generally intended to cover both areas.
Traditionally, the issues, internal and external, covered by CSR were employee welfare, working conditions, green issues, and products. Today it has extended also to human rights, working practices, globalization practices, corporate power, environmental impact, community affairs, and effective stakeholder dialogue. There is a wider meaning of CSR, and the tendency today is to include a substantial number of new fields that previously where considered outside the CSR scope, for instance, actions sanctioned by criminal law, such as corruption and other reprehensible actions that corporations may incur.
Some aspects regulated by law are considered inside the CSR movement. A decision of the UK House of Lords, related to compensation payable to victims of asbestos-related illness and holding that where the victim worked for more than one employer, any damages owing must be proportionate to the time spent with each employer, was considered to have implications for this wider issue of CSR.
Finally, CSR's explosive effects have created 'social wages', 'social entrepreneurship', 'social investment', 'social products', 'social financing', and a lengthy list of additional 'social' issues.
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