Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
uiopasdfghjklzxcvbnmqwertyuiopasd
fghjklzxcvbnmqwertyuiopasdfghjklzx
Global Corporate Social
cvbnmqwertyuiopasdfghjklzxcvbnmq
Responsibility
Masters of Business Administration
wertyuiopasdfghjklzxcvbnmqwertyui
International Business
opasdfghjklzxcvbnmqwertyuiopasdfg
hjklzxcvbnmqwertyuiopasdfghjklzxc
vbnmqwertyuiopasdfghjklzxcvbnmq
wertyuiopasdfghjklzxcvbnmqwertyui
opasdfghjklzxcvbnmqwertyuiopasdfg
hjklzxcvbnmqwertyuiopasdfghjklzxc
vbnmqwertyuiopasdfghjklzxcvbnmq
wertyuiopasdfghjklzxcvbnmqwertyui
opasdfghjklzxcvbnmqwertyuiopasdfg
hjklzxcvbnmrtyuiopasdfghjklzxcvbn
mqwertyuiopasdfghjklzxcvbnmqwert
yuiopasdfghjklzxcvbnmqwertyuiopas
dfghjklzxcvbnmqwertyuiopasdfghjklz
xcvbnmqwertyuiopasdfghjklzxcvbnm
qwertyuiopasdfghjklzxcvbnmqwerty
Semester IV
Amity University
Preface
With the ever changing environment of business, all barriers of national boundary have been
treaded over. In the present era, the world has emerged as a global village. The term global
has carved an edge over the term international. Though we use the terms international and
global interchangeably there exists a wide gap between the two. To successfully enhance
business opportunities and operations across borders, each organization should have a
strategic plan in place. The addition of Social Responsibility is the key to success of any
business. The globalization of business has lead to formulation of various ethics and codes
of conduct which play a major role in Global Corporate Social Responsibility.
This booklet contains all the principles, theories and models of Corporate Social
Responsibility with a global perspective.
The First chapter explores the concept and nature of Sustainable Development. The
Sustainable Development evolution and process is also discussed in detail. It also
encompasses the levels of Sustainability and their relevance in the Corporate Responsibility.
The Second Chapter gives the different approaches to Sustainable Development and helps in
easing the understanding of Sustainable Development.
The Third Chapter lays emphasis on the new aspects of Sustainability introduced in
Corporate responsibility.
The Fourth Chapter links Strategy of Business with Sustainability of Environment.
The Fifth Chapter looks into the understanding of Corporate Social Responsibility.
Corporate Social Responsibility which has become an irreplaceable part of doing business is
presented to develop an understanding regarding its concept, evolution and models used.
The Sixth Chapter lays down the Ethics and Values in Trade. It also emphasizes the
importance of Values in conducting Business.
The Seventh Chapter helps in developing an understanding towards correlating Corporate
Governance and Social Responsibility.
The Eight Chapter explores the Social Audit Process and use of ethics in International Trade.
The Ninth Chapter looks at the most important aspect of Managing Crisis, Triple Bottom
Line & Sustainability Reporting.
In the end heres hoping that this booklet is worth treasuring by the students and developing
an understanding towards Global Social Corporate Responsibility.
Global Corporate Social Responsibility
Page 2 of 496
Updated Syllabus
Course Objective:
The main purpose of this paper is to make the managers of tomorrow aware of the
imperative need to recognize and address the global environmental and social impacts of
their activities which, together with profits are popularly known as the triple bottom line
issues of Sustainable Development (SD).
The course reflects that investors are also showing growing concern not only on ecoefficiency, but in business ethics, corporate social responsibility and human rights, all
integral to the agenda of sustainable development which directly relates to competitive
advantage and corporate governance on a continuous basis.
Learning Outcomes:
At the end of the course, students will be able to:
Define new and emerging business opportunities and financial risks associated with
environmental quality, social justice and economic efficiency.
Discuss on how businesses need to manage their sustainability agenda as an integral part of
their competitive strategy and to get their various stakeholder groups onto the same
platform.
Examine shifts in responsibility for sustainability from self regulation to public regulation
and use new technology, soft innovation focusing on new forms of strategic thinking, new
styles of networked commerce, and radically new triple bottom line management systems.
Evaluate ways to meet such challenges proactively using tools such as self-regulatory
initiatives, voluntary standards, new accounting procedures, reporting and communication
processes etc., to remain globally competitive.
To assist businesses and concerned stakeholders in establishing and managing systems to
steer environmental, social and economic sustainability on a continuous basis.
The primary objective of this course is to impart a basic understanding of the social and
environmental sustainability challenges facing managers in todays world. The course seeks
to develop students critical capacities for self-reflection and action in relation to these
concepts. Course graduates will possess the understanding and experience to integrate
environmental and social sustainability with commercial and economic success. Lectures
and readings provide an overview of the critical literature in environmental and social issues,
the history of the sustainability movement, including the various social and economic
movement from which the current practices of sustainability in business and society grew,
and the key actors and the basic literature in the field. The course also addresses the global
Global Corporate Social Responsibility
Page 3 of 496
Course Contents
Module I: Introduction
Definitions, relevance and need for internalization of CSR & sustainability management for
corporations
Principles of Sustainable Management
Triple Bottom Line TBL/3BL: People, Planet, Profit : the social, environmental, and
financial accountability of businesses
Module II: Principles of Sustainable Management (SM)
Social and environmental sustainability challenges
Integration of SM with commercial and economic success
Current practices of sustainability in business
Global issues and major frameworks
Scientific foundations and economic principles
Module III: Strategic Corporate Social Responsibility
Bottom of The Pyramid: Social Responsibility or Market Opportunity
Corporate Strategy and CSR
What CSR Is and Is Not
A Moral Argument for CSR
A Rational Argument for CSR
An Economic Argument for CSR
Why is CSR Relevant Today
CSR: Do Stakeholders Care?
Module IV: The Strategic Context of CSR & its Implementation
The Strategic Lens: The E.S.C.S. Framework
Positive Brand Building
Crisis Management
CSR Business Plan of Action Short Term & Medium term
Implementation From a Strategic Perspective: Planning
Implementation From a Firm Perspective: Action
Module V: Managing Global Corporate Social Responsibility: Issues
Organizational Issues
Economic Issues
Societal Issues
Global Corporate Social Responsibility
Page 4 of 496
Page 5 of 496
INDEX
WHAT IS SUSTAINABLE DEVELOPMENT ...................................................................... 7
APPROACHES TO THE STUDY OF SUSTAINABLE DEVELOPMENT ....................... 23
SUSTAINABILITY: THE NEW PARADIGM .................................................................... 36
STRATEGY AND SOCIAL RESPONSIBILITY................................................................. 55
SOCIAL RESPONSIBILITIES OF BUSINESS ................................................................... 72
ETHICS AND VALUES ....................................................................................................... 86
CORPORATE GOVERNANCE AND CORPORATE SOCIAL RESPONSIBILITY ...... 100
SOCIAL AUDIT AND ETHICS IN INTERNATIONAL BUSINESS ................................ 128
CRISIS MANAGEMENT, TRIPLE BOTTOM LINE & SUSTAINABILITY REPORTING
.............................................................................................................................................. 156
CASE STUDY : ................................................................................................................... 215
BIBLIOGRAPHY ................................................................................................................ 246
Page 6 of 496
CHAPTER 1
WHAT IS SUSTAINABLE DEVELOPMENT
Structure
1.1 Introduction
Objectives
1.2 Meaning of Sustainability, Development and Sustainable Development
Critiques of Growth Model
Industrialisation
Urbanisation
Inequities
Resource Utilisation
1.3 Origins of Sustainable Development
1.4 Definitions of Sustainable Development (Dimensions and Concepts)
Sustainable and Non-sustainable Activities
1.5 Summary
1.1 INTRODUCTION
Sustainable development today it is the most politicised catchword of international
developmental conferences and programmes. What does it mean? We address this question
right in the beginning of the unit. You will discover that it is a multidimensional concept and
its interpretation and understanding is often content and context specific. Sustainable
development has emerged out of the fears of depleting natural resources and a subsequent
slowing or even closing down of much of the economic activities and production systems. It
is the result of rapacious misuse of earths precious and limited resource base by those few
who had a control over production systems. The concept has emerged as a broad framework
to debate and decide on desirable direction of change in social and economic systems,
policies, programmes and actions at the national, community or individual levels. It
developed in the 1960s when people became aware of the detrimental effects of
industrialisation on the environment. You need to understand the context in which it came
about to appreciate why it has become so important to all of us.
You must also recognise that sustainability offers long term planning for productive
techniques, industrial processes and equitable distribution policies for the exploitation of
resources, such as, to name a few, coal, oil and water. This planning ensures their longer life
span and a broader user base so that the greatest number of people may benefit out of it for
the longest possible time frame. The emergence of the idea of sustainability also strikes at
the indispensability of technological transformation towards energy saving devices, alternate
and non-conventional systems for providing comfort to citizens without bringing down their
quality of life. This has led to a total revolution in the way people and governments have
started thinking and designing their developmental programmes and projects. A new respect
has emerged for the grassroots governance which fuels growth by providing land, water and
forests that constitute the three basic inputs to any form of industrialisation. Thus sustainable
Global Corporate Social Responsibility
Page 7 of 496
development is also indicative of planning from below in contrast to the ivory tower
planning from top in which grassroots ecosystems were driven by technological systems.
As a result, the grassroots ecosystems started to wither away as they were not able to
manage and cleanse the high amount of effluent discharges, pollution and resource overuse.
In the next unit, we introduce the various parameters that characterise sustainable
development.
Objectives
After studying this unit, you should be able to:
explain the meaning and origin of the concept of sustainable development;
describe the fundamental principles of sustainable development; and
identify and analyse the indicators of unsustainable growth.
1.2 MEANING OF SUSTAINABILITY, DEVELOPMENT AND SUSTAINABLE
DEVELOPMENT
Nature provides human societies and economies with a complex life support system, air,
water, food and a suitable climate for survival. It also provides the physical resources that
are necessary for the sustenance of economies. Nature has supported and maintained life on
earth since times immemorial and should continue to do so in the future. This is known as
the sustainability of nature or ecosystems or environment.
However, we have been interfering with the sustainability of the natural systems through our
avaricious activities and if we continue on the same trajectory, not only the other life forms
but also the very existence of mankind is threatened. There are limits to natures capacity to
absorb impacts. Once alteration of natures initial state occurs, it cannot quickly revert back
to the initial state. Nature has a limited capacity to withstand rapid change. Thus, today, the
challenge before mankind is to determine the state in which we wish to live and to continue
living within the limits inherent in natures processes, within natures carrying capacity.
Sustainability
The term Sustainability has been defined variously, such as:
Sustainability refers to a process or state that can be maintained indefinitely.
Natural resources must be used in ways that do not create ecological debts by
overexploiting the carrying and productive capacity of the earth.
A minimum necessary condition for sustainability is the maintenance of the total
natural capital stock at or above the current level.
The term Sustainability is also used to demonstrate the temporal and the livelihood context
of development policies. The temporal context refers to the chronological perspective in
which communities maintain their cultural and economic integrity. The livelihood context of
development policies is the preservation of existing values which are under threat from
external economic forces leading to the collapse of a delicate natural resource balance. The
Strategy for Sustainable Living (1991) by International
Global Corporate Social Responsibility
Page 8 of 496
Union of Conservation of Nature and Natural Resources (IUCN) says that sustainable use
means use of an organism, ecosystem, or other renewable resource at a rate within its
capacity for renewal. The economist Herman Daly has offered specifications for
maintaining sustainability. He is of the opinion that:
Rates of use of renewable resources should not exceed regeneration rates.
Rates of use of non-renewable resources should not exceed rates of development of
renewable substitutes.
Rates of pollution emission should not exceed assimilative capacities of the
environment.
Development
The term Development means the social and economic improvement in a broad sense. It is
needed to create opportunities, prosperity and choices for all inhabitants of the world and it
must proceed in a way that leaves choices available for future generations also. It refers to a
holistic growth of the human and natural environment towards autonomy and freedom. It
indicates a growth pattern, which makes nations more decisive in their internal and external
environment.
Sustainable development
The concept of Sustainable development was envisaged to bring environmentalist ideas
into the central theme of economic development policy. It sought to modify the kind of
unsustainable development strategies that were being pursued. Sustainable development
combines the two terms of sustainability and development to indicate a pattern of growth,
which strengthens both the national capabilities to care for their people in relation to their
total relationship with the resources of the earth. The most widely used definition of
Sustainable Development was given by the Brundtland Commission in its report Our
Common Future (1987). It defined Sustainable development as development, which meets
the needs of the present without compromising the ability of future generations to meet
their own needs. Since then, several interpretations of Sustainable Development have
emerged, for example:
Improving the quality of human life while living within the carrying capacity of
supporting ecosystems.
Economic growth that provides fairness and opportunity for all the people, not just
the privileged few, without further destroying the worlds finite natural resources and
carrying capacity.
Sustainable development comprises of economic and social development that protect
and enhance the natural environment and social equity.
Thus, sustainable development focuses upon a relationship between humans and their
environment and indicates a warning that humans cannot push development, which is
against nature as in the end it is always the nature, which is going to win. Sustainable
Global Corporate Social Responsibility
Page 9 of 496
development encourages the conservation and preservation of natural resources and of the
environment and the management of energy, waste and transportation.
Fig.1.1: Various dimensions of sustainable development
Page 10 of 496
1. To maintain the standards of living of the largest number of people with equity and
justice. The consideration of Trans-boundary and cumulative impacts in decision-making
has to be realised.
2. To conserve and protect earths natural resources from misuse and wasteful consumption.
This demands respect for the land and its diversity as the foundation for healthy
communities.
3. To innovate new technology and scientific techniques, which work in unison with laws of
nature and are not opposed to it. There needs to be a consideration of sharing the risks and
benefits from developmental policies undertaken by different nations.
4. To respect diversity and involve local and indigenous communities for a more grassroots
oriented and relevant developmental policies. This would involve consideration of economic
viability, culture and environmental values, as policies and programmes are developed.
5. To decentralise governance institutions and make them more resilient, transparent and
accountable to people. They should have an open, inclusive and participative decisionmaking.
6. To plan international institutions, which recognise the requirements of poor nations and
support them to achieve their growth targets without destroying their natural wealth and
environment.
7. To seek peaceful coexistence of all nations of the world because only peace can allow
them space to innovate for the larger interests of humanity. This may demand honouring of
treaties and fiduciary obligations and international agreements.
Sustainable development is a value-based concept, which appeals to the universal themes of
mutual coexistence and respect for others. It is a continually evolving process bringing
together cultural, social, economic, environmental and political concerns. It is a desired
direction of change and provides a framework to decide developmental actions by nations,
communities and individuals.
1.2.1 Critiques of Growth Model
Industrialisation based on quantitative growth of mass production triggered off economic
development in developed countries. Non-sustainable development is seen as the failure of
growth-oriented policies, which focus only on quantitative production as against the
qualitative and holistic production benefiting people. Traditionally the growth of a nation
has been calculated in terms of Gross Domestic Product (GDP) and Gross National Product
(GNP), which do not indicate the fact that the nation is actually rich in culture and
progressive in human values. These indicators focus mainly on the tangible products and fail
to calculate the value of the intangibles such as pollution effect on health, value of the
forests, loss in terms of their animal and plant biodiversity and maintaining the ground water
recharge shed etc. Studies made since the last phase of the United Nations (UN)-declared
first development decade has shown that gross income growth is not always translated into
poverty reduction. By the end of the last century there were more than 1.3 billion people
living in developing countries who survived on less than US $ 1 a day with increasing
malnourishment, homelessness and deprivation. The growth model has not taken care of the
distribution of income in the world. As a result the poor have become poorer while the
Global Corporate Social Responsibility
Page 11 of 496
precious wealth has got locked up with the top 20% richest. Various forms of disparities
such as inequitable production, distribution and consumption have grown into massive
proportions making the poor people vulnerable to the policies framed by the few rich at the
top.
1.2.2 Industrialisation
The Industrial Revolution began in England sometime after the middle of the 18th century
and transformed Great Britain from a largely rural population making a living almost
entirely from agriculture to a town-centred society engaged increasingly in factory
manufacture. A series of inventions transformed the manufacture of cotton goods in England
and gave rise to a new mode of production the factory system.
During the years from 1750 to 1830, other branches of industry effected comparable
advances, and all these together, mutually reinforcing one another, made possible further
gains on an ever widening front.
The abundance and variety of innovations may be included under three principles:
1. The substitution of machines rapid, regular, precise, tirelessfor human skill and effort.
2. The substitution of inanimate for animate sources of power, in particular, the introduction
of engines for converting heat into work, thereby opening to man a new and abundant supply
of energy.
3. The use of new and far more abundant raw materials, in particular, the substitution of
mineral for vegetable or animal substances.
Other European nations underwent the same process soon thereafter, followed by others
during the 19th century, and still others (such as Russia and Japan) in the first half of the
20th century. The Industrial Revolution was no mere sequence of changes in industrial
techniques and production, but a social revolution with social causes as well as profound
social effects. The Industrial Revolution implied that man now had not only the opportunity
and the knowledge but also the physical means to completely subdue nature. But, while it
brought its blessings, there was also much misery. If we can thank the Industrial Revolution
for giving us internal combustion engines and laser guided radial arm saws, we can also
condemn it for the threatening effect it has had on social and ecological relationships.
The Industrial Revolution needed the resources, especially the raw materials, which were
concentrated mainly in the now poor nations. While the resources were extracted from the
Southern countries (presently the developing countries), the value addition was done mostly
in the Northern countries (presently the developed countries), thus creating an economic
imbalance. The colonisation process also was responsible for exploiting natural resources of
South for export, and established large monocultures and opened up a largely unexploited
domain. After independence, the newly established governments frequently paid more
attention to rapid economic development than to fair and equitable access to natural
resources.
From the 1950s onwards, Northern countries sought fast economic growth through statemanaged industrialisation plans that led to excessive resource use and waste. The legacy of
Global Corporate Social Responsibility
Page 12 of 496
these forms of industrial production in the former Soviet Union and Eastern Europe has not
only seen economic dislocation but also daunting environmental problems such as the death
of the Aral Sea, nuclear contamination, and high levels of air and water pollution. Since
1989, most such regimes have begun to move towards market-based systems of economic
organisation and economic liberalisation, often accompanied by democratisation. While
market systems have been inherently efficient at economic organisation, environmental costs
have traditionally been excluded from the decision-making process. This has allowed
unsustainable exploitation of natural resources as well as unsustainable demands on natural
pollution sinks, like the tropical rain forests.
In 1991 the annual product of the global economy was valued at $29,000 million, which
meant it produced, in just 17 days, the equivalent of the entire annual global product a
hundred years before. This has increased all forms of industrial activities such as energy
generation, transportation, mechanical equipments and chemicals in agriculture, waste and
effluent discharges and release of harmful and hazardous gases in the air. This has led to
high pollution levels and extinction of several species from the earth. The United Nations
Environment Programmes (UNEP) Red Data Book estimates that 25 percent of species are
about to face extinction as more than 100 species are becoming extinct everyday. Unmindful
industrialisation has also led to fatal accidents as seen in Bhopal, Chernobyl and Exxon
Valdez. Sustainable development, therefore, is a reaction to the threatening speed of
industrial activity undertaken by states, both rich and poor.
1.2.3 Urbanisation
The relation of urbanisation with industrialisation is very close. The expansion of
industrialisation has resulted in the expansion of cities. This has meant expansion into rural
lands that grow food and nurture cattle and village forests and provide several forms of
sustainable occupations to the communities in these areas. The spread of cities and industrial
towns on one hand leads to the loss of agricultural land including forest resources and
intense and unmanageable migration towards the cities on the other. The level of
urbanisation in India has increased from 25.4 percent in 1970 to 33.6 percent in 1990 and is
expected to rise to 57 percent by the year 2025.
Uncontrolled and unplanned expansion of towns and cities with large populations has
overwhelmed transport, communication, water supply, sanitation and energy systems
resulting in a growth of urban poor and unemployed population with precarious health
problems.
Page 13 of 496
Page 14 of 496
institutions. The key issues are how to add value to agriculture and cottage industries
produce at the production site itself as also how to provide welfare funding to institutions
catering to the poor children, destitute women and dalits who have remained marginalised
and reduce the gap between the haves and the have-nots that is increasing in the process of
economic globalisation.
1.2.5 Resource Utilisation
The four major resources of this earth, which are taken care of by every nation individually,
as well as through international agreements are land, water, air and forests. The
industrialised countries such as the G8 (United States [US], Japan, Germany, United
Kingdom, France, Italy, Canada and Russia), Organisation for Economic Cooperation and
Development (OECD) and European Union (EU) which have less than 23 percent of the
world population have been consuming resources that are several times more than that being
consumed by the whole of Asia, Latin America and Africa taken together.
Fig.1.3: A comparison of the populations and incomes of the developing countries and
the developed countries
The energy consumption of one US citizen is equal to more than 160 Tanzanians or 900
Nepalese. This affluence of the North has led to an irresponsible release of
chlorofluorocarbon (CFC) gas into the environment to the extent of 28 percent by US alone.
On the contrary the poor countries are so laden with debt that to repay the debt are forced to
over-extract their resources and sell it to the rich nations.
1.3 ORIGINS OF SUSTAINABLE DEVELOPMENT
The origins of the concept of sustainable development can be trac ed back to the 1960s
when, the writer and scientist Rachel Carson published her book The Silent Spring (1962).
Global Corporate Social Responsibility
Page 15 of 496
This book drew public attention to the destruction of wildlife by the use of pesticide DDT
(dichloro diphenyl trichloroethane). This work was a turning point in the understanding of
the interconnections among the environment, the economy and social well being. Gradually,
in this period, the fear of global environmental limits began to emerge. Soon after, the
animal population biologist Paul Ehrlich published the book Population Bomb (1968) on the
connection between human population, resource exploitation, and the environment. In 1969,
a non-profit organisation Friends of the Earth was formed which was dedicated to protecting
the environment from degradation and empowering citizens to have a voice in decisionmaking. The governments of the Northern countries began to recognise that the process of
industrial development was damaging the environment. For example, the Swedish
government had been concern ed about the damage caused to their lakes by acid rain.
This rain was a result of excessive pollution caused by the neighbouring industrialised states.
In 1971, the OECD council enacted a Polluter Pays principle where it said that those
(countries) causing pollution should pay the costs. The report, Limits to Growth (1972),
published by a group of young scientists (Club of Rome) from Massachusetts Institute of
Technology (MIT), immediately took the world by storm gaining enormous media coverage.
It predicte d dire consequences if growth was not slowed down.
The United Nations Conference on Human Environment (UNCHE) was organised in
Stockholm (1972). For the first time, the idea that the environment was a critical
development issue was placed on the international agenda. It led to the establishment of
United Nations Environment Programme (UNEP). The first director of UNEP, Maurice
Strong coined the term eco development which integrated development with environment
protection. Since then, many milestones have marked the journey towards sustainable
development.
The concept of Sustainable Society emerged at a study conference on Science and
Technology for Human Development, convened by the World Council of Churches (1974).
Interestingly, the concept did not deal with environmental conditions but started with the
principle of equitable distribution, which subsequently became the cornerstone of the
Brundtland Report in 1987. Sustainable Society also involved the concept of democratic
participation, which became important nearly twenty years later
at the Rio Earth Summit (1992).
Yet another term, Sustainable Development, emerged in the World Conservation Strategy
(WCS) (1980) published by the International Union of Conservation of Nature and Natural
Resources (IUCN) by two scholars, Eva Balfour, a soil scientist and Wek Jackson, a
geneticist from the International Institute for Environment and Development (IIED). During
the UN Conference on Environment and Development
(UNCED) in 1992 at Rio de Janeiro, the term broadened up into a full concept of
development bringing together government and non-governmental organisations (NGOs),
industrialists, scientists, community groups and grassroots organisations. It became one of
Page 16 of 496
the most important interdisciplinary concepts that swept through studies on environment,
economics, sociology, political science, life sciences and gender.
By 2000, the concept of sustainable development became firmly settled as a guiding
document in all international organisations. Since then the UN member states have been
publishing reports on the national status of sustainable development programmes and
strategies and submitting them to the specially created UN body called UN Commission for
Sustainable Development (CSD). The term is modified for different user groups as
sustainable human development, sustainable economic growth, sustainable socioeconomic development and sustainable local governance and very recently in 2004
Information Communication Technology (ICT) for sustainable development.
1.4 DEFINITIONS OF SUSTAINABLE DEVELOPMENT
(DIMENSIONS AND CONCEPTS)
Sustainable development was defined in the World Conservation Strategy report as the
integration of conservation and development to ensure that modifications to the planet do
indeed secure the survival and well being of all people. Development was defined as the
modification of the biosphere and the application of human, financial, living and non-living
resources to satisfy human needs and improve the quality of human life. Development could
prove to be a threat unless resources were conserved and so conservation of resources was
defined in the report as the management of human use of the biosphere so that it may yield
the greatest sustainable benefit to present generations while maintaining the potential to
meet the needs and aspirations of future generation. This phrase attracted attention in the
Brundtland Report.
The Brundtland Report: In 1983, the United Nations General Assembly set up the World
Commission on Environment and Development (WCED) with the Norwegian Prime
Minister Mrs Gro Harlem Brundtland as the Chairperson. The Commissions report was
published as Our Common Future (1987). The definition of sustainable development given
in this report contains within itself two key concepts:
1. The concept of needs, in particular, the essential needs of the worlds poor, to which
priority should be given.
2. The idea of limitations imposed by the state of technology and social organisations on the
environments ability to meet present and future needs.
The report emphasised that sustainable development is a matter of social equity within a
generation (intra-generational) and between generations (intergenerational). The
Commission stressed the importance of integration of environmental decisions into central
economic decision-making. It argued that a healthy environment was not possible in a world
marked by extreme poverty which forced people to practice environmentally destructive
activities for short term survival. Therefore it broadly stressed on economic growth. The
Brundtland Report was widely accepted as it was released at a time when a large ozone hole
was discovered over Antarctica (1985) and the Chernobyl nuclear accident occurred in 1986
that spread radioactive nuclear fallout across Europe.
Page 17 of 496
The Earth Summit: The direct consequence of the Brundtland Commis sions Report was
the UNCED held in Rio de Janeiro, popularly known as The Earth Summit. It was declared
in this conference that the right to development must be fulfilled so as to equitably meet
developmental and environmental needs of present and future generations. The results of
the Conference were the following documents:
The Framework Convention on Climate Change
The Convention on Biological Diversity
The Statement on Forest Principles
The Rio Declaration
Agenda 21
The Framework Convention on Climate Change (FCCC): The framework dealt with the
limits on the use of fossil fuels. It was inspired by the success of reaching an agreement of
the Montreal Protocol to reduce ozone depleting CFCs. The framework accepted that climate
change (due to green house gases) was a serious problem. It said that industrialised countries
should take the lead to reduce the carbon dioxide emissions to 1990 levels by 2000, while
there was no target for Southern countries.
The Convention on Biological Diversity (CBD): It affirmed that countries have sovereign
rights over biological resources in their territory which should be shared internationally on
mutually agreed terms. The terms included recognition of indigenous knowledge as
intellectual property.
The Statement on Forest Principles: Countries with tropical forests regarded the
international intervention on their forests as intolerable. So, this document was brought out
which emphasised national sovereignty over forests.
The Rio Declaration: This declaration had twenty seven principles. They emphasised
development, national sovereignty over natural resources and cooperation between states.
Scientific and technological innovations and environmental protection were the other issues
that were highlighted.
Agenda 21: It is a document consisting of five hundred pages. It has a bottom-up approach
and emphasises the role and participation of citizens, especially women, communities and
NGOs instead of large state and governmental institutions and projects. The role of market,
trade and business in bringing out sustainable development is emphasised. Agenda 21 also
brings out the importance of knowledge creating institutions. The implementation of Agenda
21 is overseen by the CSD, which meets annually for three weeks in New York.
The World Summit on Sustainable Development (WSSD): After ten years of UNCED,
the World Summit on Sustainable Development took place in Johannesburg in 2002. This
summit is also called Rio +10. Countries were urged to stop over fishing by 2015 and a new
Global Corporate Social Responsibility
Page 18 of 496
Page 19 of 496
environmental capability to support the largest number of people to the longest possible time
frame.
Page 20 of 496
Page 21 of 496
Page 22 of 496
CHAPTER 2
APPROACHES TO
DEVELOPMENT
THE
STUDY
OF
SUSTAINABLE
Structure
2.1 Introduction
Objectives
2.2 Positivist Approach
2.3 Multi-dimensional Approach
2.4 Eco-system Approach
2.5 Indigenous Views
2.6 Summary
2.1 INTRODUCTION
So far you have studied the concept of sustainable development and the various parameters
that delineate it. It is an established fact that the world has been advancing in an
unsustainable manner and most of our existing problems in society are directly linked to this
approach of wealth accumulation rather than of a comprehensive and integrative
development towards economic progress. Historically, economic development of nations
was measured in terms of Gross Domestic Product (GDP) and Gross National Product
(GNP). However, today, the overall development of a country is measured by Human
Development Index (HDI). The HDI is computed from, for example:
gross domestic production per capita, adjusted for local purchasing power
life expectancy at birth
adult literacy
the number of persons enrolled in educational institutions
Therefore, development has economic, social, environmental and institutional aspects.
Accordingly, the focus of sustainable development has also shifted from the purely
ecological perspective to include economic and social sustainability. The application of
these approaches would require interaction and adjustment with several spatial and temporal
levels of society. On the spatial front there are needs and challenges for the individual, a
local community like a family or a network and the wider extended community like the
national, regional and the global networks. On the temporal front it may require an
understanding of issues very close to individuals such as emotional linkages to certain
geographical areas, occupational skills based on local resources, material artefacts
appropriate to their life styles, patterns of interdependencies between communities and also
between generations. These attributes provide conceptual and ethical justifications for
survival and therefore of a sustainable development framework. The objectives of
developmental policies are expected to combine and balance these different dimensions with
Global Corporate Social Responsibility
Page 23 of 496
the political and administrative capability of the state. Approaches to the study of sustainable
development are to be understood in this context. In this unit, we discuss the different
approaches taken by the national and international fora towards the problem of achieving
sustainable development.
Objectives
After studying this unit, you should be able to:
discuss the different approaches being taken towards achieving sustainable
development; and
analyse the reasons for the failures of some of the earlier approaches.
2.2 POSITIVIST APPROACH
Conventional and classic economic development literature grossly ignores the demands of
sustainable development. The early founders of quantitative economics argued in favour of
the monetary approaches, known as the positivist approach. This approach centres on the
physical betterment of society through market calculations or calculating advancement in
terms of monetary gains. It leaves aside the issues of distribution and justice; even the
environmental assets are valued in purely monetary terms. However, as explained earlier,
many environmental assets are intangibles and they go unaccounted for in that approach.
Since what is unaccounted for tends to be used irresponsibly, these environmental resources
get ruthlessly destroyed by industrialising states.
Positivist approach promotes freedom of accumulation and is based primarily on making the
community as a whole as opulent as possible, irrespective of distributional disparities and
irrespective of what that wealth does to human lives. It is, of course, true that being affluent
can be among the most important contributory factors in generating a feeling of well-being,
and this approach to economic progress certainly cannot be criticised as being irrelevant to
achieve a better living. However, as it neglects crucial factors such as public care and social
organisation for the welfare of deprived and weaker sections, the approach is extremely
narrow and defective. Its overall thrust on wealth maximisation irrespective of distribution
allows accumulation of wealth and its appropriation by a few (rich becoming richer) and
marginalises the not so rich or weak individuals who would have, given the social and
institutional support and opportunities to work, done very well.
Page 24 of 496
Fig.2.1: Some features of the positivist approach and its possible consequences
The preoccupation with commodity production, opulence and financial success can be traced
in professional economics through several centuries, involving many leading economists as
well as businessmen and bureaucrats, who have preferred to concentrate more on the
characteristics of overall material success than on the deprivation and development of
human lives. Indeed, the dominant contemporary concern on such variables as per -capita
gross national product or national wealth is a continuation of the old opulence-oriented
approach. It is these Gross National Product (GNP) and Gross Domestic Product (GDP)
based approaches which have been opposed and argued to be misleading by approaches that
shift the focus to human development. Alternate indicators of the real prosperity of the world
have been proposed in the Human Development Report (HDR, 1990) of United Nations
Development Programme (UNDP).
Human Development Approaches: The two traditions of focusing respectively on
(1) human development, and (2) overall wealth and opulence can be seen as differing,
directly or indirectly, in two distinct respects. The first concerns divergences in the ultimate
objectives, and the second relates to differences in the effectiveness of distinct instruments
advocated for achieving the objectives.
Human development approach has conformed broadly to the line of reasoning enunciated by
Aristotle more than two millennia ago that wealth is evidently not the good we are seeking,
for it is merely useful and for the sake of something else.
How can we possibly give priority to the means of living, which is what treasures and wealth
are, over the ends of good and free human lives? While much of economic and financial
writing proceeds as if there is nothing beyond opulence with which we need be concerned,
the really interesting debates must relate to the instrumental effectiveness of overall wealth
and opulence in promoting those things for which wealth and opulence are sought.
This takes us to the second difference. Some have taken the view that while opulence is not
to be valued at all for its own sake, it still is the most important instrument in promoting the
more basic objectives, even the Aristotelian objective of rich and fulfilling lives. In other
words, opulence is an effective instrument rather than the goal. To take a prominent
Global Corporate Social Responsibility
Page 25 of 496
example, William Arthur Lewis, one of the leading modern development economists, did not
much doubt that the appropriate objective to pursue growth is increasing the range of
human choice and acknowledges the causal role of many factors in advancing the freedom
to choose. Nevertheless he concentrated specifically on the growth of output per head,
because it gives man greater control over his environment, and thereby increases his
freedom. Indeed, the assertion in his classic book: Our subject matter is growth and not
distribution reflects his faith in the instrumental efficacy of total growth.
This approach, however, has proved to be quite disputable in terms of the experiences
observed in the actual world. Many countries have grown fast without a commensurate
impact on living conditions, and more importantly, some countries have achieved high
quality of life despite relatively moderate growth of GNP or GDP per head.
It is certainly true that the higher the average income of a country, the more likely it is, given
other things, that it will tend to have a higher average life expectancy, lower infant and child
mortality rates, higher literacy, and in fact, a higher value of the HDI proposed in the Human
Development Report of UNDP. A number of countries conform to this pattern. However,
many countries, such as Sri Lanka, China, Jamaica, Costa Rica, and the state of Kerala in
India, have HDIs that are much higher than what would be expected on the basis of their
GNP. Therefore, rather than treating GDP per se as an instrument for achieving human
development, what is important is to look for the route through which economic growth
most effectively contributes to human development and to increased GNP.
Economic growth means not only an increase in private incomes, but also generating
resources that can be marshalled to improve social services (such as public health care,
epidemiological protection, basic education, safe drinking water, etc.). In some cases such
marshalling is effectively done, while in other cases, the fruits of economic growth are put to
little use of this kind. This can make a big difference to the outcome in terms of the
expansion of basic human capabilities. Similarly, while the expansion of private income
certainly is of instrumental importance in enhancing basic capabilities, the effectiveness and
sustainability of that impact depends much on the distribution of the newly generated
incomes.
In particular, a much larger and more sustainable impact is expected to occur if the rise in
average GNP per head is accompanied by a sharp reduction in the poverty of the worst off
people, rather than going in other directions. To what extent this will happen depends on a
variety of economic and social circumstances related to the employment-intensive nature of
techniques of production, the sharing of education and skills across the population, the
success of land reforms and the sharing of rural resources, and so on. Here again the
experiences of different countries and of different policy regimes have been quite divergent.
There is considerable evidence that the statistical correlation between GNP per head and
human development tends to work through the impact of GNP expansion on higher public
expenditure and lower poverty. The UNDP reports indicate that the connections are
seriously contingent, and much depends on how the fruits of economic growth are shared (in
Global Corporate Social Responsibility
Page 26 of 496
particular what the poor get) and how far the additional resources are used to support public
services (for example, public health services, which are particularly crucial in influencing
life expectancy).
Thus the opulence-oriented view of progress has little intrinsic merit and has a conditionally
important instrumental role, and that conditionality relates specifically to the features on
which the human development focuses. Thus, there is no basic flaw in regarding economic
growth and GNP to be very important, but this is an insufficient indicator of human
development. Its biggest impact comes through the expanded ability to undertake public
action to promote human development and resource management in an equitable manner. In
recognising the importance of economic growth as a means for human development, policies
have to focus upon the multidimensionality of the problem and challenges brought by a
resource scarce economy. In brief, the human development approach concentrates on the
capability of all humans to lead worthwhile lives as the object of importance that people
today and in the future would value.
2.3 MULTI-DIMENSIONAL APPROACH
Multidimensional approaches deal with the heterogeneous environmental and development
issues and means to calculate the intangibles in nature without the common denominator like
money. The approach recognises that any development which disturbs a local ecosystem can
adversely impact regions across geographical and political boundaries. The policy
orientation in multidimensional approach is that of level transfer mechanism to check the
environmental impact and anticipate measures for preventing any socio-economic crisis.
This approach is an attractive operational tool for studying Environmentally Sound and
Sustainable Development (ESSD). The level transfer mechanism involves the following
basic associated approaches that have to be taken into consideration to assess the impact
over society and natural resources.
1. Studying the economic bottom-line: This critically examines the conventional profit
bottom line approach of enterprise initiatives for example, business (industry and
commerce), industrial agriculture (agribusiness) and aquaculture. To avoid unconstrained
exploitation of environmental resources calls for example, for green development of land
cleared for development.
2. Corporate environmental responsibility: This is a demonstration of environmental
awareness in corporate partnerships. This is to develop ecoefficiency, environmental
management through regulatory mechanism to be complied by all corporates all over the
world such as ISO14000, environmental impact analysis (EIA), studying ecological
footprints etc.
3. Producer responsibility: Besides promoting amongst producers environmental
monitoring and industrial ecology, this may inspire environmental assessment,
bioregionalism, product stewardship and accountability structures.
Page 27 of 496
Page 28 of 496
Page 29 of 496
So far we have given you a bird's eye view of the dominant perspectives on sustainable
development. In the last section of this unit we acquaint you with the views of indigenous
communities on this issue.
2.5 INDIGENOUS VIEWS
Traditionally, the rights of communities over their habitat and ecological resources derived
from history, cultural traditions and conventions have provided them the means of
livelihood. It is important to note that many indigenous communities and aboriginal cultures
have long held that any decision taken by the community must be considered in the light of
its potential impact on seven generations. It is the same sentiment now being expressed in
the Brundtland definition of sustainable development.
Global Corporate Social Responsibility
Page 30 of 496
Page 31 of 496
Page 32 of 496
Page 33 of 496
5. The ecosystem approach calls for institutions to acquire basic characteristics called
a) uniformity
b) lethargy
c) centralisation
d) decisiveness
6. The Livelihoods Approach has been adopted by
a) Forests
b) NGOs
c) Industries
d) Schools
7. Poverty Reduction Strategies should
a) Have a comprehensive look at cross-sectoral determinants of poverty outcomes
b) provide the context for action by various development partners
Global Corporate Social Responsibility
Page 34 of 496
Earth Summit
UNDP
Industrial Summit
Environment upgradation
Page 35 of 496
CHAPTER-3
SUSTAINABILITY: THE NEW PARADIGM
Structure
3.1 Introduction
Objectives
3.2 Concept of Sustainability
3.3 Parameters of Sustainable Agriculture
Sustainability Indicators
Water
Socio-economic Factors
3.4 Approaches for Sustainable Agriculture
3.5 Summary
3.1 INTRODUCTION
The introduction of high yielding varieties in the developing countries required intensive use
of fertilizers and the past few decades witnessed remarkable increase in agricultural
productivity. The agro-technological innovations also brought about an element of resilience
in agriculture to ward off the threats of famines. The impact of Green Revolution in India on
mitigating hunger and on bringing an overall rural prosperity was so dramatic that India
emerged as a role model for many developing countries.
But success always has its costs, and Green Revolution has been no exception. Recent
evidences, though not always verifiable, support the adverse impact of excessive use of
agro-chemicals including fertilizers and water on the crop productivity, environment and
health of living beings. The productivity growth rates of major food crops like rice and
wheat have started stagnating, or even declining, in some intensively cultivated areas, thus
posing a threat to national food security.
Today agriculture in developing countries faces major problems such as depletion of soil
nutrients and water reserves, increased incidences of soil salinity and water-logging, decline
in factor productivity, resurgence of pests and diseases and increased environmental
pollution. Continuous diversion of prime agricultural lands to non-agricultural purposes and
fragmentation of farm holdings have further aggravated the problems. It is in fact due to
these pressing problems that sustainability of agricultural production systems and
environment has emerged as a serious concern.
The amount of food needed would keep increasing as we progress in time. Multiple crops
would need to be grown from the same land which implies increased mining of soil for plant
nutrients. We know that large amounts of plant nutrients are lost due to soil erosion. The
question is: Will the soils in South Asian Countries be able to sustain such heavy nutrient
mining? Deficiencies of several micronutrients are already showing up in large areas in these
countries. This is just one indicator of decreasing sustainability of our agricultural
production system. The sustainability of environment and other natural resources like water
is also being questioned by politicians, policy makers, researchers and the farmers
Global Corporate Social Responsibility
Page 36 of 496
Page 37 of 496
Fig.3.1: Sustainable agriculture should help in meeting food needs without degrading
the environment
Page 38 of 496
Janvry and Garcia (1988) emphasized the need for gender equity in sustainable agricultural
production systems. Thus from the viewpoint of developing countries, sustainable
agricultural production must:
meet the changing food, feed, fibre and fuel requirement of the nation,
assure adequate profit to the farmers,
conserve and, if possible, improve the natural resource base,
prevent the degradation of the environment,
discourage regional imbalances, and
encourage gender equity.
All these measures of sustainability are subjective rather than quantifiable concepts. Two
indices are commonly used to identify the practices which give maximum sustainable yield
or maximum sustainable income. These are Sustainable Yield Index (SYI) and
Sustainable Value Index (SVI).
Sustainable Yield Index (SYI)
SYI is defined as
where Y is the estimated average yield of a practice over years, is its estimated standard
deviation and Ymax is the observed maximum yield in the experiment. In calculating SYI, the
negative values of (Y ) should be takes as zero since yield is always a positive quantity.
With this premise, the index takes values between zero and unity. In this index, quantifies
the risk associated with the average performance Y of a treatment. When = 0 and Y =
Ymax, SYI = 1.
Sustainable Value Index (SVI)
In the case of cropping systems, since more than one crop is involved, the economic
assessment of these systems becomes important. In these situations, obtaining maximum
sustained level of income is more desirable. To asses these situations on the basis of
sustainable income, the index called Sustainable Value Index (SVI) is used. For arriving at
SVI, the monetary values of economic produce are used instead of yield values. On one end
of the spectrum are the developed countries with almost a zero growth rate of agricultural
production, and threatened with a problem of over-production of agriculture and
environmental degradation through industrialization and excessive use of agro-chemicals.
On the other end are developing countries like those of the South Asian Region with
population growth outstripping agricultural productivity growth. They need to produce more
and more food, fibre and fuel from less and less of land. At the same time they are facing the
ill effects of modern agricultural practices on the environment.
Page 39 of 496
Page 40 of 496
Page 41 of 496
than that in 1976-85; as a matter of fact, it was negative in Uttar Pradesh. Farmers in these 3
states have increased their fertilizer application rates over the years to obtain the same yield
and this indicates a general feeling of reduced PFP due to fertilizers.
Nutrient deficiencies in crop plants: Nutrient deficiencies are good sustainability
indicators, which if detected in time can save a crop and future prophylactic measures can
sustain production from that crop.
Disease and pest hazards: Disease and pest hazards can sometimes make an agricultural
production completely unsustainable unless ameliorative measures are immediately taken
up.
Soil sustainability indicators
The quality and health of soils determine agricultural sustainability and environmental
quality and as a consequence, plant, animal and human health.
Soil fertility: Soil fertility is an important SI and can be easily monitored.
Soil physical properties: Soil physical properties such as soil structure, bulk density,
hydraulic conductivity and infiltration rate affect agricultural production.
Soil ecology: Soil ecology can influence organic matter dynamics, nutrient cycling, soil
structure and aeration, and is an important SI.
Soil salinity and alkalinity: With increasing area under irrigation without adequate
drainage, salinity/alkalinity problem is on the increase and it is becoming a serious problem
in many areas of our country for sustained agricultural production.
Page 42 of 496
Fig.3.3: Soil and water conservation measures transform a field from (a) to (b).
3.3.2 Water
Agriculture is the biggest consumer of water worldwide. In Asia, it accounts for 86% of total
annual water withdrawal. Of all the crops, irrigated rice in particular is a heavy consumer of
water; it takes some 5,000 litres of water to produce 1 kg of rice. The general figures for rice
3
and wheat are 7,650 and 4,000 m /ha. Projections suggest that most Asian countries will
have severe water problems by the year 2025 (IRRI, 1995).
Water availability is an important index of sustainability of agriculture. In the rice-wheat
belt of northern India, there are reports of serious decline in ground water and its level is
receding fast. This is attributed to over-withdrawal of ground water. Such an agricultural
production system is definitely not sustainable and calls for immediate measures to change
it. In Unit 7, we discuss the issues related to water in detail.
3.3.3 Socio-economic Factors
Regional imbalance: Progress in agriculture has not been uniform in developing countries.
An example may be taken from India of irrigation as a natural resource and input. Data on
growth in irrigated area by 1966-67 and 1996-97 in different states of India shows that by
1996-97, the state of Punjab had 92.9% of its area under irrigation, followed by Haryana
(76.2%) and Uttar Pradesh (68.7%). On the other hand, Maharashtra had only 14.4% area
under irrigation by 1996-97 and the value for Karnataka was only 21.9%.
Although regional imbalances are unavoidable due to availability of water resources in a
region, they do create a problem for a uniform sustainable agricultural production in a given
country. The only option left is to develop different agricultural production systems for
different states/regions, depending upon their water and soil resources so that the differences
between money earned per hectare are minimized. The effort should be towards maximizing
per capita agricultural income so that near uniform living standards are attained, which is a
Herculean task for all developing nations and governments.
Gender equity: In several regions of these countries, hard manual labour in agriculture is
left for women, while they have little role in decision-making. However, with the progress in
womens education and opening of more and more job opportunities for them, this trend is
on the decline. This is a welcome change. Such changes in the social system will have a
definite bearing on agricultural production systems in rural areas of these countries,
hopefully towards betterment.
Global Corporate Social Responsibility
Page 43 of 496
As the perception of the term sustainability is not the same under all situations, the
parameters to define and measure sustainability of an agricultural system may also vary
according to local and national needs, food security scenario, socio-economic conditions of
the farmers and the quality of resources. A sustainable system is one with a non-negative
trend in a measured output. In other words, a system can be considered sustainable over a
defined period if the outputs do not decrease when inputs are not increased.
Some research efforts have been made to identify and evaluate efficient sustainability
parameters. Important indices that have emanated out of sporadic studies are given as under:
i) Partial factor productivity and total factor productivity;
ii) Agronomic or incremental efficiency of external inputs;
iii) Physiological or internal efficiency of external inputs;
iv) Soil quality index;
v) Sustainable yield index;
vi) Benefit-cost ratio;
vii) Soil organic matter levels; and
viii) Apparent nutrient balance sheets.
In fact, a single sustainability index that addresses productivity, resource utilization,
environmental aspects and economic viability is lacking, though the same may be of
immense practical significance. Unfortunately, sustainability has been used merely as a
fancy word by researchers, planners and policy makers. Sincere and continued efforts to
understand and evaluate sustainability of an agricultural system, management practices or
processes are scarce and sporadic.
Page 44 of 496
Page 45 of 496
Choice of crops and animal components of farming system: The sustainable agricultural
revolution may be triggered by shifting our mindset from a commodity-centred approach to
an entire cropping or farming system. The triple goals of more food, more income and more
livelihoods per hectare of land can be achieved provided suitable combinations of farming
system components (crops, animal husbandry, forestry, fisheries, poultry agro-industries) are
chosen and supported by resource based eco-technologies and farmers participatory
approach.
Genetic Diversity: Green revolution has led to genetic homogeneity with a greater genetic
vulnerability to biotic stresses. Therefore, there is a need of growing crop varieties with
different genetic constitutions in different agro-climatic zones. This will minimize the risk of
crop failure during the insect-pest and disease attack as well as during the adverse climatic
situations.
Integrated Nutrient Management (INM): INM is a principle and concept of using the
different sources of nutrients like organic manures, chemical fertilizers, biological nitrogen
fixation and other methods of nutrient saving in an optimum manner. Thus the productive
potential of the soil can be maintained over a long period of time without adverse effects on
the environment. INM also includes use of a suitable variety, optimum cultural management
and soil and water use for efficient and sustainable crop production.
The important components of INM are fertilizers, farmyard manure, compost, crop
residues, green manure, green leaf manure, rhizobium, blue green algae, phosphate
solubilizing bacteria and azolla.
The important steps for the adoption of INM are as follows:
i) a system approach for the management of nutrients should be followed so that input use
efficiency can be increased,
ii) the recommendation of fertilizers should be based on soil test values,
iii) agronomic practices like split application of fertilizers, use of coated and granulated
fertilizers, optimum combination of organic and inorganic sources of nutrients and right
method of fertilizer placement should be adopted,
iv) conjunctive use of farm waste should be made,
v) nutrient responsive varieties should be selected, and
vi) appropriate water management strategies considering the right moisture nutrient
interaction, should be used.
The basic concept underlying the principles of INM is the maintenance of and/or
improvement of soil-fertility for sustaining crop productivity on long-term basis. This may
be achieved through combined use of all possible sources of nutrition and their scientific
management for optimum growth; yield and quality of different crops in their cropping
systems in an integrated manner and in specific agro-ecological situations (recall Unit 2).
Organic materials were practically the only external source of nutrients to crops before the
introduction of inorganic fertilizers. As a result of the advent of quick acting chemical
Global Corporate Social Responsibility
Page 46 of 496
fertilizers, a stage has reached that the supplementary and complimentary role of organic
materials is being understood once again for sustainable agriculture and keeping the soil
health in order. With an ever increasing cost of chemical fertilizers and their contribution to
the degradation of the agricultural lands, it has been realized that organic materials such as
organic manures, crop-residues, green manures, bio fertilizers and legumes in rotation, will
have to be utilized judiciously to maintain and improve the soil fertility and productivity.
The manuring and recycling of various forms of residues has the advantage of converting the
animal and farm wastes into useful product for meeting nutrient requirement of crops,
besides maintaining the soil conditions and improving the overall ecological balance. As
most parts of the plant nutrients are required by animals and human beings, if not regulated
properly, enormous losses take place and substantial amount of nutrients are wasted.
Resource conservation and their regulated recycling for production is the option for
sustained living.
Page 47 of 496
But two basic questions remain unanswered while recommending integrated nutrient
management.
i) To what extent can INM replace commercial fertilizers on field scale?
In developing countries like India, most farmers are poor and marginal and may not afford to
go for a green manure crop at the cost of some economic crop in sequence. Animal manure
in huge quantities may not be available to effectively contribute to the nutrient needs of the
intensive cropping systems and that also when most of the cow dung is utilized as cakes to
meet the domestic needs of fuel.
ii) To what extent can the use of commercial fertilizers be reduced through INM
without any reduction in the targeted growth rate of food grain production to
accommodate the growing needs of the increasing population of the country?
It is widely felt that in the event of a heavy cut on fertilizer use, it will be difficult to meet
the growing food needs and no alternative will be left except bringing additional land under
cultivation and thereby again damaging or destroying the natural ecosystem.
Integrated Pest Management (IPM): IPM is a philosophy of controlling the pest in the
crop field (in the context of the associated environment) by utilizing all suitable techniques
and methods in as compatible a manner as possible and maintaining the pest population at
levels below those causing economic injury. It deals with the optimization of different pest
control practices and not the maximization of pest control in terms of overall economic,
social and environmental values.
Page 48 of 496
Page 49 of 496
Page 50 of 496
Remote sensing and other space satellite outputs are providing detailed geographic
information useful for land and other natural resource management.
Programmes for extension education and communication for farmers will certainly help
popularize the sustainable agricultural practices. A very important option in extension
techniques towards sustainable agriculture is Social Engineering which means influencing
the farmers attitude to make them aware about ecological production and economic
consequences of a technology and policy being adopted. This can make all the above
components successful at a farmers field level.
Decision Support System (DSS): The decision support systems (DSS) involving simulation
modelling comprises of studying simultaneously the soil-plant-environment continuum.
Once an appropriate model is developed and validated under a defined farming situation,
sustainability of a management practice or practices can be evaluated even without long term
experiments (LTEs) under similar situations. The data of existing LTEs can also be used for
deriving useful predictions and trends on sustainability of production systems. The weather
data, genetic coefficients of the crops and soil parameters as per requirements of the DSS
models usually suffice.
The major problem with this approach is that modelling of biological systems is still in its
infancy. Whichever models are developed, their success and reliability of simulation depend
on the quality and the amount of minimum data set generated to validate and run the models.
Nevertheless, there is a great scope to develop and improve the simulation models for their
use in sustainability analysis. Majority of the existing models are meant for simulation of
crop growth and nutrient dynamics in soil-plant system under given set of environmental
conditions. There should be an effort to include, if possible, an economics sub-routine in
existing models, or develop new models with capability to simulate economic viability
besides crop growth and other parameters.
We now summarise what you have studied in this unit.
3.5 SUMMARY
Sustainability of agriculture in developing countries is believed to be at stake for three
major reasons that emerged as a consequence of intensive farming:
excessive use of irrigation water,
replacement of rich diversity of traditional varieties with fewer high yielding
varieties, and
indiscriminate use of fertilizers and pesticides.
As the per capita availability of agricultural land in these countries is further shrinking,
sustainable agricultural productivity has to be thought about in terms of raising yield
levels until population stabilizes and malnutrition is alleviated. Here sustainable
productivity implies a reasonable level of production without harming the
ecosystem.
Page 51 of 496
Page 52 of 496
Page 53 of 496
Page 54 of 496
CHAPTER-4
STRATEGY AND SOCIAL RESPONSIBILITY
Objectives
After reading this unit you should be able to:
explain the meaning of Corporate Social Responsibility (CSR);
define and understand the scope of CSR for business;
explain CSR and its importance for business;
differentiate the philanthropic and the business integrated views of CSR;
know CSR and companies in India; and
explain measurement of CSR
Structure
4.1 Introduction
4.2 CSR and Historical Developments
4.3 Business Importance of CSR
4.4 CSR and Companies in India
4.5 The Measurement of CSR
4.6 Future of CSR
4.7 Summary
4.1
INTRODUCTION
Corporate social responsibility (CSR) is an evolving concept which is yet to command a
standard definition or a fully recognized set of criterion. With the given understanding that
businesses have a key role of job and wealth creation in society, CSR is generally
understood to be the way an organization achieves a balance between economic,
environmental, and social imperatives while they address the expectations of the
shareholders and the stakeholders. While businesses try to comply with laws and regulations
on social, environmental and economic objectives set by the legislations and legal
institutions, CSR is often understood as involving the private sector commitments and
activities those extend beyond this foundation of compliance with laws. In fact the key
feature of the concept is the way businesses engage or involve the shareholders, employees,
customers, suppliers, governments, nongovernmental organizations, international
organizations, and others into the organization.
CSR is generally seen as the business contribution to sustainable development which has
been defined as development that meets the present needs without compromising the ability
Global Corporate Social Responsibility
Page 55 of 496
of future generations to meet their own needs, and is generally understood as focusing on
how to achieve the integration of economic, environmental, and social imperatives. CSR
also overlaps and often is synonymous with many features of other related concepts such as
corporate sustainability, corporate accountability, corporate responsibility, corporate
citizenship, corporate stewardship, etc.
Today it is generally accepted that business firms have social responsibilities that extend
well beyond what in the past was commonly referred to simply as the business economic
function. In earlier times managers in most cases had only to concern themselves with the
economic results of their decisions. Today managers must also consider and weigh the legal,
ethical, moral and social impact and repercussions of each of their decisions.
4.2
Corporate Social responsibility has its roots of thinking in the twentieth century where the
theologians and the religious thinkers suggested the application of religious principles to
business activities. First was the principle of in which the wealthy and generous individuals
contributed to the resources for aiding the unfortunate. The next was the stewardship
principle, a biblical doctrine which requires business and wealthy individuals to see
themselves as stewards or caretakers not just of shareholders but
also of societys resources for the benefit of the society as a whole. Similarly different
authors see corporate social responsibility from different angles.
Although the topic rose to prominence in 1970s ( Caroll, 1979; Wratick and Cochran, 1985),
the first publication specifically on the field dates back to 1953, with Bowens social
responsibilities of the businessman. In this work Bowen argues that industry has an
obligation to pursue those policies and to make those decisions, or to follow those lines of
actions which are desirable in terms of the objectives and values of society (Bowen, 1953),
which means;
1. That businesses exist at the pleasure of society and that their behaviour and methods of
operation must fall within the guidelines set by society.
Businesses act as moral agents within society.
Wood (1991) expanded these ideas encapsulating them into three driving principles of
social responsibility , which are
Business is a social institution and thus obliged to use its power responsibility;
2. Businesses are responsible for the outcomes relating to their areas of involvement with
society; and
Page 56 of 496
3. Individual managers are moral agents who are obliged to exercise discretion in their
decision-making.
A growing number of scholars take the view that firms can no longer be seen purely as
private institutions but as social institutions instead. The benefits flowing from firms need to
be shared collectively. This thesis is similar to the stakeholders model
and claims that a firm is not responsible only to its shareholders but to all stakeholders
whose contribution is necessary for a firms success.
However Friedman differed from these and felt that the corporation is an economic
institution and thus should specialize in the economic sphere alone and the socially
responsible behaviour will be rectified by the market through profits.
Opinions differ in terms of the basis or scope of CSR and even the very definition of the
term. As a consequence different aspects of a firms operations can be seen to come under
its way. What can be conceived as social responsibility can range from simply
maximization of profits to satisfaction of stakeholders social needs or fulfillment of social
contractual obligations, achievement of a social equilibrium, etc. depending on the stance
taken. World Business Council for Sustainable Development in its publication Making
Good Business Sense by Lord Holme and Richard Watts define CSR as, Corporate Social
Responsibility is the continuing commitment by business to behave ethically and contribute
to economic development while improving the quality of life of the workforce and their
families as well as of the local community and society at large.
History
The view that a business can have obligations that extend beyond economic role is not new
in many respects. Throughout recorded history the roles of organizations producing goods
and services for the marketplace were frequently linked with and include political, social,
and/or military roles. For example, throughout the early evolutionary stages of company
development in England (where organizations such as the Hudson Bay Company and the
East India Company received broad mandates), there was a public policy understanding that
corporations were to help achieve societal objectives such as the exploration of colonial
territory, setting up settlements, providing transportation services, developing bank and
financial services, etc.
During the nineteenth century, the corporation as a business form of organization evolved
rapidly in the US. It took on a commercial form that spelled out responsibilities of the board
of directors and management to shareholders (i.e. fiduciary duty). In this later evolutionary
form, public policy frequently addressed specific social domains such as health and safety
for workers, consumer protection, labour practices, environmental protection, etc. Thus,
corporations responded to social responsibilities because they were obligated to be in
compliance with the law and public policy. They also responded voluntarily to market
Global Corporate Social Responsibility
Page 57 of 496
demands that reflected consumer morals and social tastes. By the mid-point of the twentieth
century, corporate social responsibility was being discussed in the US by business
management experts such as Peter Drucker and in business literatures CSR emerged and
continues to be a key business management, marketing, and accounting concern in the US,
Europe, Canada, and other nations.
Traditionally in the United States, CSR has been defined much more in terms of a
philanthropic model. Companies there made profits unhindered except by fulfilling their
duty to pay taxes. Then they donated a certain share of the profits to charitable causes. It is
seen as tainting the act for the company to receive any benefit from the giving. The first
generation of CSR this way showed how companies can be responsible in ways that do not
detract from and may contribute to commercial success. Corporate philanthropy is the
practice of companies of all sizes and sectors making charitable contributions to address a
variety of social, economic and other issues as part of an overall corporate citizenship
strategy.
The second generation is now developing where companies and whole industries see CSR as
an integral part of the long term business strategy. Now a days lot of companies are taking it
seriously for good of business. From a progressive business perspective, CSR usually
involves focusing on new opportunities as a way to respond to inter-related economic,
societal and environmental demands in the marketplace. Many firms believe that this focus
provides a clear competitive advantage and stimulates corporate innovation.
In the last decade, CSR and related concepts such as corporate citizenship and corporate
sustainability have expanded. This has perhaps occurred in response to new challenges such
as those emanating from increased globalization on the agenda of business managers as well
as for related stakeholder communities. It is now more a part of both the vocabulary and
agenda of academics, professionals, nongovernmental organizations, consumer groups,
employees, suppliers, shareholders, and investors.
A third generation of CSR is needed in order to make a significant contribution to
addressing poverty and environmental degradation. This will go beyond voluntary
approaches by individual companies and will involve leadership companies and
organizations influencing the market in which they operate and how it is regulated to remould whole markets towards sustainability.
4.3
Page 58 of 496
Page 59 of 496
strong financial performance and what kind of relationships exist. Today businesses are
becoming increasingly interested in the idea of the Triple Bottom Line (TBL). This idea
focuses not just on the economic value of the businesses that they may gain from acting in
certain way, but also on the value that they may accrue to the companys bottomline by
engaging in environmentally and socially beneficial practices. The three line represent the
economy, the environment and the society and are all dependent on each other. Whether
companies do actually take each line into account is difficult to measure as the arguments
surrounding financial benefits of the company from being socially responsive are not clear
cut. Although positive relationships have been found, there are several difficulties inherent
in measuring these linkages. One problem is that it is not clear whether social responsibility
leads to increased financial performance or whether better profits lead
to more funds being available to devote to CSR activities. The other issue is that profit is an
incomplete measure of social performance (Lantos 2001). Yet another is the difficulty of
developing a consistent set of measures that define CSR or CSP.
The following factors are taken into account for understanding the importance of CSR:
Globalization and the associated growth in competition
Increased size and influence of companies
War for talent, companies competing for expertise
Increased importance of intangible assets
Page 60 of 496
time, companies that make a public commitment to increase accountability and transparency
need to ensure that they have robust systems for implementation, lest the company risk
negative public backlash for failing to live up to its commitments.
Reduced Costs: The enhanced communication that is often part of corporate accountability
efforts can help build trust between companies and stakeholders, which can reduce costly
conflict and improve decision-making. Companies that proactively and effectively engage
shareholders and address their concerns can reduce the costs associated with shareholder
proposals. In addition, social and environmental reporting efforts can help identify the
effectiveness of various programmes and policies, often improving operating efficiencies
and reducing costs. Reporting information can also help identify priorities to ensure that
company is achieving the greatest possible impact with available resources.
Page 61 of 496
opportunity to resolve problems before they result in costly legal actions or negative public
exposure. Issues that might surface more quickly in an accountable company include:
environmental problems that could endanger public health, workplace discrimination or
harassment that could result in lawsuits, marketing practices that do not price products or
services equitably, or hiring practices that inadvertently give unfair advantage to certain
populations. Social and environmental auditing and reporting can also identify where
company practices may be in violation of government regulations or the standards or
expectations of key stakeholder groups.
Marketplace Advantages: Accountability can make entry and success in new markets
easier by helping establish direct relationships with keycustomers and business partners.
These relationships can contribute to innovation in product development or delivery, help
mitigate potential negative media coverage, and enhance market presence. Some companies
have used dialogue with stakeholders to help make decisions on overseas investments and
operations, or to overcome the challenges of operating in markets with different cultures,
laws, and languages. For example, Unilevers Indian subsidiary, Hindustan Lever, has
worked with local stakeholders to develop a new delivery system for laundry detergent in
Indian villages. The company was experiencing difficulty in selling its product until it was
suggested by stakeholders that the company package its product in single-use quantities that
would be affordable to local residents with limited disposable incomes.
Improved Overall Management: Many companies that have developed clear CSR
performance and accountability systems inside their organizations report experiencing an
improvement in their management practices overall. Increasingly, companies are finding
that the impact of systems designed to increase accountability for CSR performance is not
limited to the CSR realm, but can also impact performance in other areas as the culture of
the organization undergoes change. An analysis of Fortune 500 companies conducted at the
Boston College, Carroll School of Management found
that companies judged as treating their stakeholders well are rated by peers as also having
superior management.
Improved Organizational Effectiveness: The process of self-assessment and evaluation,
which is part of increasing accountability can have beneficial impact on company
operations. For example, social and environmental auditing and reporting give companies
the opportunity to assemble and assess more comprehensive information on operations and
impacts. This information can help coordinate and maximize efficiencies and collaborations
across departments, facilities, and business units. Through this process, companies compile
examples of successful programmes from various parts of their organizations and share the
learnings throughout the company, leading to more effective and efficient policies and
practices. Dialogue and partnerships with stakeholder groups can help companies build
skills and competencies, or align company operations with overarching mission and values.
Decreased Risk of Adverse Publicity: Accountable companies may be better prepared to
address the concerns of customers or other stakeholders who might otherwise take negative
Global Corporate Social Responsibility
Page 62 of 496
action on social issues. For example, by engaging in a dialogue with stakeholders about their
interests and concerns, and addressing those concerns in business implementation processes,
companies may be able to head off or minimize the impacts of boycotts organized by
consumer groups. Similarly,
companies that proactively address the concerns of shareholders can reduce the risk of
adverse publicity stemming from high-profile shareholder disputes.
CSR AND COMPANIES IN INDIA
In India, most of the work done by companies is still in nature of philanthropy. Consider
that of the six short listed companies for the Business World FICCI CSR award for year
2003, five ( Lupin, Canara Bank, Indal, Gujrat Ambuja and Wipro ) are involved in
community development work. This means building roads, running schools and hospitals,
creating income-generating schemes and similar projects . Only ITCs CSR its e-choupal
project and others has direct linkages with its business. This is understandable given that
many of the traditional development indicators life expectancy, infant and child mortality,
sanitation facilities and access to primary education are still abysmal for India. In fact
even the government expects Corporate India to participate in welfare programmes even
though it is a tacit admission that the state has failed to deliver even the most basic
amenities. But of late experts argue that as India gets integrated into the global economy,
companies should pick up projects that are business centric. The CSR initiatives should
become a part of the business process.
In an era of no free lunches , the attraction that the business centric model of CSR holds is
obvious. But if more Indian Companies are to adopt that, some other things , too, need to
change besides mindsets and developmental needs. The links between good CSR and good
business have to be established clearly. Sure even overseas there is still no way that the
capital markets reward good CSR practices directly or are willing to ovelook other flaws in
lieu of good CSR. But experience shows that substantial benefits do flow in different ways.
Research in West shows that investors are increasingly questioning companies on corporate
social practices and are allying with those that have high respect for CSR. In fact there is a
whole eco-system being built around this concept with outfits like Ethical Investment
Research Service, a U K based independent researcher of ethical, social and environmental
practices advising outfits like Goldman Sachs, J P Morgan, Redit Suisse, Merill Lynch and
Standard Life on CSR practices of companies. Moreover the likes of FTSE and Dow Jones
are coming up with indices such as the FTSE 4 Good and the DOW Jones Sustainability
World Index. The FTSE 4 Good is an index comprising stocks of companies with good
practices. To be a part of FTSE 4 good family of indices one need to apply to the FTSE 4
Good applications committee. In the absence of all these , its quite unlikely that CSR in
India will change from being more philanthropic to more business centric in the near future.
Yet such developments taking place worldwide and also because India is developing as back
office centre, movement towards business centric CSR models is possible.
Page 63 of 496
Taking clue from the Business World FICCI CSR Awards, still it is not clear how much
Indian companies invest in CSR but from the list of the companies that applied and evidence
on ground suggest that time has come and is important for large companies to enter into
business centric CSR models. However, considering India where so much is to be done, it
doesnt matter whether companies take business centric view or the philanthropic centric
view.
4.5
Briefly, CSR is measured following a systems model of a business into three levels:
Principles of social responsibility
Processes of social responsiveness
Outcomes as they relate to the firms societal relationships
Public responsibility concerns of the individual firm and its processes and outcomes
within the framework of its own principles.
Managerial discretion whereby managers and other organisational members are moral
actors. Within every domain of corporate social responsibility, they are obliged to
exercise such discretion as is available to them, towards socially responsible outcomes.
Level II
Page 64 of 496
successfully scan, interpret, and react to the business environment requires equally complex
mechanisms. Three elements are identified as basic elements of this level of the CSR model:
Business Environment Scanning: indicates the informational gathering arm of the
business and the transmission of the gathered information throughout the organization.
Having identified the motivating principles of a firm and having determined the
identities, relationships, and power of stakeholders, attempt then is to turn to the main
issues which concern stakeholders.
Level III Outcomes
The main focus of measurement is the third level of the CSR model. To determine if CSR
makes a difference, all of the stakeholders relevant to an issue or complex of issues must
be included in any assessment of performance. There are, again, three main categories:
Internal stakeholder effects those that affect stakeholders within the firm. An
examination of these might show how a corporate code of ethics affects the day to day
decision making of the firm with reference to social responsibility. Similarly, it can be
concerned with human resource policies such as the positive or negative effects of
corporate hiring and employee benefits practices.
External stakeholder effects concern the impact of corporate actions on persons or
groups outside the firm. This might involve such things as the negative effects of a
product recall, the positive effects of community related corporate philanthropy, or
assuming the natural environment as a stakeholder, the effects of toxic waste disposal.
External institutional effects refer to the effects upon the larger institution of business
rather than on any particular stakeholder group. For example several environmental
disasters made the public aware of the effect of business decisions on the general
public. This new awareness brought about pressure for environmental regulation which
then affected the entire institution of business rather than one specific firm.
Global Corporate Social Responsibility
Page 65 of 496
FUTURE OF CSR
Page 66 of 496
The business case will not be clear enough for companies to take up en masse, unless it is
legislated or there are other incentives.
CSR will not be on the publics radar screen and there wont be any clarity about what
CSR is and why it is important.
CSR will become too prescriptive and get labeled as needless red tape increasing the cost
of business.
Companies that once embraced CSR will lose interest and pursue other objectives.
Those engaged in CSR shift to minimal CSR activities, never moving beyond baseline
CSR.
Pressures on business to cater to shareholders at the expense of all other stakeholders will
continue if not increase; the imbalance of power will not change unless the membership on
company boards changes to include stakeholder interests or until government legislation is
brought to bear.
CSR optimists believe that the pessimists are only looking at the gap of where we are and
where we need to be, without acknowledging that mindset change takes time and
recognizing that the slow incorporation of these ideas is underway in business. They believe
that the disillusionment is a function of the hope for too much too quickly.
CSR optimists believe that:
In the future a significant number of companies will be convinced its in their strategic
interest to incorporate CSR substantively into their operations.
There is a crisis in industrial capitalism, which lacks in trust and social responsibility.
Therefore, a rethinking should be done to decide the role of companies in society.
Page 67 of 496
There will be pressure through competition for better CSR performance this will impact
on suppliers, etc.
There will be differentiation between different models and levels of CSR as a result of
continuous improvement and quality assurance.
CSR will advance, but it will advance inconsistently across sectors, depending on a
companys economic performance, economic downturns, competitiveness of the
market, etc.
Underlying structural drivers will impact large scale companies, such as the value of
knowledge workers and other intangible assets, driving companies to take different issues
into account.
We see only a few companies committed to CSR because we are at the beginning of a long
path on this journey; the shift toward sustainable capitalism is a long term trend and in 5 10
years only a few companies will be moving in this direction.
Increasingly businesses will see CSR as resulting in increased competitiveness and
profitability.
CSR is part of a search for a new social contract between business and society.
This new social contract will not necessarily be through the creation of a set of rules, but
about a new set of norms arrived at through experimentation.
In spite of the difference in views of social impact and degree of corporate commitment, the
majority of the optimists and the pessimists agree that 5 10 years from now CSR will
nonetheless become increasingly mainstream within business, even if not within the public
consciousness. CSR tools, resources, language all will become more aligned with business
norms and systems. CSR standards to greater or lesser effect will be part of business basics
and not an add-on.
4.7
SUMMARY
With the given understanding that businesses have a key role of job and wealth creation in
society, CSR is generally understood to be the way an organization achieves a balance
Global Corporate Social Responsibility
Page 68 of 496
between economic, environmental, and social imperatives while they address the
expectations of the shareholders and the stakeholders. Companies of late see CSR as an
integral part of the long term business strategy. Now a days lots of companies are taking it
seriously for good of business. Very briefly, the following strategic steps should be taken by
a firm to fulfill its social responsibility.
1) Assessment of economic and social impact
2) Assessment of social environment
3) Appraisal of the firms policies and practices
4) Formulating objectives and strategies
5) Developing operational plans and programmes
6) Monitoring social programmes
7) Summary of the outcomes and performance
Page 69 of 496
2.
a)
b)
c)
d)
3.
Principles of Social Responsibility consists of
a)
Legitimate concerns of business as a social institution and it frames the analytical
view of the interrelationship between business and society.
b)
Public responsibility concerns of the individual firm and its processes and outcomes
within the framework of its own principles.
c)
Managerial discretion whereby managers and other organisational members are
moral actors.
d)
All of the above
4.
a)
b)
c)
d)
5.
a)
b)
c)
d)
6.
The GRIs Sustainability Reporting Guidelines address a broad range of corporate
social responsibility issues related to an organizations
a)
economic performance
b)
environmental performance
c)
social performance
d)
All of the above
7.
a)
Page 70 of 496
b)
c)
d)
Economic problem
Political problem
Technical problem
8.
a)
b)
c)
d)
9.
The following strategic steps should be taken by a firm to fulfill its social
responsibility
a)
Assessment of economic and social impact
b)
Assessment of social environment
c)
Appraisal of the firms policies and practices
d)
All of the above
10.
a)
b)
c)
d)
maximization of profits
ensuring CSR
degrading the environment
ensuring political stability
Page 71 of 496
CHAPTER 5
SOCIAL RESPONSIBILITIES OF BUSINESS
Structure
5.0
Objectives
5.1
Introduction
5.2
Concept of Social Responsibility
5.3
Case for Social Responsibility of Business
5.4
Dimensions of Social Responsibilities
5.5
Social Responsibilities Reporting
5.6
Social Accounting
5.7
Approaches to Social Accounting and Reporting
5.8
Social Audit
5.9
Social Responsibilities of Business in India
5.1 0 Summary
5.11 Key Words
5.0 Objectives
After studying this Chapter you should be able to :
explain the concept of social responsibility;
enumerate the ground for adoption of the concept of social responsibility by
business;
state the various dimensions of responsibilities of business towards its various
stakeholders;
identify the significance of social performance reporting;
explain the concept of concepts of social accounting;
describe the approaches that can be adopted for social accounting and reporting;
explain the concept of social audit and its significance; and
outline the position of corporate social responsibility efforts in India.
5.1 INTRODUCTION
It is now widely recognized that the business not only involves pursuing economic grains, it
also has certain obligations to society which can be termed as social responsibilities of
business. In this chapter you will learn about the concept of social responsibility, its
significance, and the nature of social responsibilities to various stakeholders in business. In
this context, you will also learn about the need and nature of social reporting, the approaches
to social accounting and reporting, and the concept of social audit and its significance.
Global Corporate Social Responsibility
Page 72 of 496
Page 73 of 496
activities, there will be a curtailment in investments in the productive activities and for
higher productivity. Even if the companies have adequate resources to engage in socially
responsive programmes, large scale commitments in that respect is likely to lead to slower
growth in GNP. However, the modern writers - Peter Drucker, Melvin Anshen and others have put forward the case for social responsibilities of business on several grounds. The
following arguments are worth noting.
1. The case for social responsibilities of business rests primarily on the ground that
corporations are creatures of society and should, therefore, respond to the demands of
society. By virtue of being one of the leading groups in society, management of
corporations should ensure that public good becomes the private good of the enterprise. This
is because the actions of an enterprise have often a decisive impact on the social scene.
2. As an organization expands its activities, there is an increasing public interest in its
policies and actions. If such enterprises do not react to social demands, the society may
force them to do so through laws, or may not permit the enterprise to survive. To what extent
the quality of products of a company is reliable, to what extent it is able to fulfill the
expectations of owners, employers, consumers, community and the public at large, largely
determine the image of an enterprise which is very crucial for its survival and growth.
3. Any business activity involving society promotes or negates human values in some way.
Thus, business activity is not amoral. It is in the moral realm. Social responsibility or the
value issue of business is not a peripheral issue. This is because the market mechanism
cannot adequately arbiter business as a social system; economic considerations cannot be
viewed in isolation from social considerations, nor can it be viewed in isolation from a value
framework without endangering social values.
4. Economic efficiency is not the only kind of efficiency valued by society. Even if socially
responsive investment leads to reduced investment in technology and implies a restraint on
productivity and slower growth in GNP, it should be possible to derive a national measure of
social welfare parallel to GNP and of balance the two. There is more to the good life than
high and rising GNP, howsoever equitably shared", he says.
5. It needs to be realized that commitment to support socially responsive activities should be
profitable to business in the long run as it would help to maintain a favourable environment
for business, though with some reduction in profits, and, for society, with some traditional
goods and services reduced in supply. Sometimes, doubts are expressed about the
competence of managers to administer socially useful programmes. This cannot be regarded
as a handicap. Managers have responded to the challenge of advancing technology. With
the challenge of corporate social responsibility, there is every reason to expect that managers
will reorient their attitudes and priorities in the area of social performance and develop the
necessary capabilities.
6. In large corporate enterprises, the shareholders have a passive role and are not involved in
most key decisions of the company. Even in directing the activities of company they have a
very limited role. Hence, it may be argued that shareholders cannot expect enterprise to be
run purely in their interest. They should rather be entitled to be the recipients of a stream of
profits as determined by management which, holding a central position, should be
responsible to, and equilibrate the claims of, all stakeholders, viz. the shareholders, the
Global Corporate Social Responsibility
Page 74 of 496
employees, the customers, the local community and the general public. On this premise, it
may be desirable to redefine the corporate concept and accept the position that directors hold
it in trust for the community.
Apart from the arguments put forward by management experts, there have been research
studies reflecting viewpoints of the executives of large US corporations, the large majority
of whom considered assuming social responsibilities to have been positively helpful to the
organisations and expected positive outcomes from social involvement of their firms by way
of corporate reputation or goodwill or strengthening the social systems in which the
corporation functions.
Commitments to social responsibilities have also been emphasized by many large companies
in India. For instance, the Cement Corporation of (CCI) has been to discharge its social
obligations in the areas of integrated rural development schemes and safeguarding of
environmental and ecological balance. The Indian Oil Corporation (IOC) has been
committed to avoid and control environmental pollution, improve the condition of scheduled
castes and scheduled tribes in pursuance of national policies, and to help acceleration of allround development of villages by providing assistance to educated unemployed to earn a
living. The Tata Iron and Steel Company (TISCO) has been in the forefront in this respect.
The company had launched a programme of community development and social welfare as
early as 1949 for the Adivasi population in and around Jamshedpuar. It also launched a rural
development programme in 1979 to raise the living standard in villages within a periphery of
1015- kms from Jamsehdpur. A number of eco-friendly companies have been identified in a
recent study.
These include, besides Tata Steel, other companies like Asian Brown
Bevaries (ABB), Coromondel Fertilizers, Indian Aluminum, Gujarat Ambuja Cements, etc.
5.4
DIMENSIONS OF SOCIAL RESPONSIBILITIES
As emphasised earlier, the responsibilities of managers cannot be limited to the owners only.
They have also to take into account the claims and expectations of other stakeholders and
adopt a balanced approach so as to best serve the community at large. Accordingly, social
responsibilities of business have to be considered with particular reference to its
responsibilities towards owners (shareholders), the employees, the consumers, the
government and the general public. Let us examine the nature of obligation of business
with respect to each of these groups.
Responsibility towards Shareholders (Owners)
The management of an enterprise (company) has the primary responsibility to assure a fair
and reasonable rate of return on capital and fair dividend to the owners (shareholders) as
investors and providers of risk capital. Investors generally expect a rate of return on capital
commensurate with the amount of risk involved in a particular field of activity. The rate of
return on investment in business is expected to be higher than interest on bank deposits and
may vary between 10% and 30%. Besides dividend, the shareholders of companies also
expect appreciation in the value of shares over time. This may be reflected in market
capitalisaton based on company's performance and management's track record. These are
recognized as legitimate expectations, and have to be met in order to ensure continuity and
growth of the business.
Responsibility towards Employees
Global Corporate Social Responsibility
Page 75 of 496
The nature of employer-employee relationship has undergone a sea-change over time. Gone
are the days of master-servant relationship. The new orientation of the relationship is linked
with the major issues of wages and salaries, supervisor-subordinate relationship and
employee welfare. The principles of adequacy, equity and human dignity are expected to be
the basis of management responsibility of providing fair wages to employees. In India,
wage fixation is governed by well-defined concepts of wages, fair wage and living wage.
The lower limit of fair wage is the minimum wage, while its upper limit maybe based on
the capacity of industry to pay, Management responsibility lies in fixing the actual wages
between the two limits with due consideration of (i) productivity of labour, (ii) prevailing
rates of wages in the same or neighbouring areas, (iii) the level of national income and its
distribution, and (iv) the place of the industry in the national economy.
Managerial remuneration including salaries and perquisites is generally linked
responsibility, risk-taking, initiative and skill. In actual practice, the maximum remuneration
depends upon nature and volume of business, productivity, production capacity installed,
etc. Under the Company Law, the maximum remuneration payable is fixed including
salaries and allowances, perquisites and commission, and it is linked with the paid capital
and profitability of the company. The amount payable when there is no profit or inadequate
profit is also laid down.
It is also the responsibility of management to maintain harmonious relationship between
managers and subordinates. This can be taken care of keeping in view the potential lapses on
the part of both management and employees. With regard to worker performance and
attitudes, management responsibility lies in taking the initiative in labour relations rather
than leaving it entirely to the labour union.
Provision of welfare amenities is also an important part of management responsibility
towards employees, like provision of satisfactory working conditions for safety, security,
health and hygiene, facilities, housing, canteen, leave and retirement benefits. Under the
Factories Act, the Employees Statement Insurance Act, 1948, and Employees
Provident
Fund and Miscellaneous Provisions Act, 1952, there are provisions whereby statutory duty is
cast on the employers to provide for many of these amenities. Provision of welfare amenities
cannot be viewed within the narrow limits of legal requirement as, in the long run, it also
enables management to secure and maintain a contented workforce for superior performance
in the interest of the company. For the same reason, management has the responsibility to
assess the training needs of employees and managers at all levels and arrange regular
training programmes for them so that they have the opportunities of developing their
potential abilities.
Responsibility towards Consumers
Competitive strategy of most business firms focuses on consumer satisfaction as the prime
objective. However, in a market economy, product markets are invariably characterized by
oligopoly or happen to be subject to monopolistic competition, while there are traders and
manufacturers who are on the lookout for creating artificial shortages of essential consumer
Global Corporate Social Responsibility
Page 76 of 496
goods. Besides, consumers are quite often victims of misleading advertisements, restrictive
trade practices, unethical and unfair trading, adulteration, sub-standard quality of products,
and deficiency of services. This happens because the market is not an effective arbiter in
those matters. There are a number of legal enactments aimed at protecting the consumer
against malpractices. The Consumer Protection Act, 1986 has provided for a three-tier
quasi judicial machinery for speedy redressal of consumer complaints and grievances. Even
then management of business firms are expected to anticipate the problems of consumers
and assume the responsibility of protecting consumer interests, in the long run interest of the
business itself. It is expected that management should desist from hoarding and profiteering
or creating artificial scarcity as also false and misleading ads. In particular, they are
expected to ensure adequate supply of goods to satisfy the needs of different customer
categories, the goods should be of standard quality and available at reasonable prices.
Customer services are expected to be provided by way of guidance, maintenance and advice.
Responsibility towards the Government
While it is necessary that corporate management in India should contribute to economic
growth by aligning with the national priorities and in conformity with the economic and
social policies of the State, there are several other aspects of the social responsibility of
management towards government. Business affairs should be conducted by companies as
law abiding citizen and taxes and other dues ought to be paid honestly as per rules. More
particularly, management should desist from corrupting public servants or the democratic
process for selfish ends, as also from attempts to buy political support by patronage or money.
Page 77 of 496
activities that have a social impact - the impact of corporate decisions on environmental
pollution, conservation of non-renewable resources, maintenance of public services, public
safety, health and hygiene, education and training and other social concerns. In this context,
there is another term used called 'social responsibility accounting which refers to
identification, measurement, recording and reporting, for internal and external use, the
relevant information relating to the social activities of an enterprise, social accounting is
viewed by many as an independent discipline aimed at measuring and reporting on the
activities of an entity in so far as they affect the society, and is, therefore, defined as the
process of "selecting firm level performance variables, measures and measurement
procedures, and systematically developing information useful for evaluating the firms social
performance to concerned social groups".
Page 78 of 496
benefits at the social discount rate to estimate their social net present value.
Another approach consists of measuring the worth of social investments by estimating the
'market worth' of expected benefits to be derived by the people affected. The assumption
here is that consumer preferences are most significant in the valuation of social goods and
services. For this purpose, a sample survey may have to be conducted to ascertain whether
the social activity is perceived by the affected population as a benefit or cost. The perceived
degree or amount of benefit or cost should then be the basis of calculating, in money terms,
the average unit cost or unit benefit per person.
The total cost and benefit should then be arrived at by multiplying the unit cost or benefit by
the number of persons affected by the social activity,
A third approach which may be adopted for measuring social performance consists of
developing 'social indicators' and measuring on that basis a firm's contribution to the quality
of life in different areas such as socially desirable profit earning, human asset values of the
organization, generating employment for backward and socially handicapped people, rural
upliftment, educational development, environmental improvement, quality of products and
services, etc. The limitations of the 'social indicator' approach are : (a) The indicators may be
selected arbitrarily and are often of a surrogate nature, particularly because there is no
comprehensive basis for selecting the indicators, and (b) Aggregation of contributions made
in different areas is difficult.
The concept of 'social goal accounting and reporting' is the basis of another approach which
does not suffer from the limitation of arbitrary selection of social indicators. It requires the
indicators to be related to the societal goals set by the company. Thus, the management is to
select their 'social market' by reference to their own analysis of the environment, and then
identify those areas of social activity they believe they can contribute effectively by
increasing benefits and reducing costs. The social report will then focus on the objectives of
a specific period, resources allocated, achievements made in the area, and problems, if any,
to be resolved. It may enable management to integrate financial reporting and social
reporting. Economic and social performance may be evaluated internally or externally so
that stakeholders are able to take a balanced view.
However, this approach involves an elaborate time-consuming process.
Yet another approach called 'integral welfare approach' suggests that social reporting be
carried out by way of a social profit and loss account and a social balance sheet. The social
profit and loss account is to include a list of producers' surplus and consumers' surplus as
also the positive and negative external effects of corporate activities and indicate the net
social benefits or net social costs. The social balance sheet, on the other hand, is to include
social assets and social debts. Since 1980, the Cement Corporation of India continues to
publish Social Income Statements with the Annual Reports, The format is more or less on
the lines suggested above. The Social Income Statement is divided into three parts : (i)
Social Benefits and Costs to Staff, (ii) Social Benefits and Costs to Community, and (iii)
Social Benefits and Costs to General Public.
Broadly on the same lines as above, but with a difference, is another approach to social
reporting based on the concept of 'socio-economic operating statement' which focuses on
"what a corporation has done for society on the one hand and what it has failed to do on the
Global Corporate Social Responsibility
Page 79 of 496
other". The socio-economic operating statement should be prepared along with the financial
statements of the company, should include all expenses incurred by the company voluntarily
for social causes, and offset against those expenses the costs of similar social welfare
activities which were brought to the attention of management but which the management
ignored.
5.8 SOCIAL AUDIT
Social audit refers to the process involving a retrospective review of the impact or
contribution of a company to the recognized social dimensions. It may be regarded as a tool
of the socially responsible company and undertaken by itself or an by independent agency
for the purpose of planning, control and accountability for its performance of the corporate
social activities. It may also involve attestation and authentication of the information so as to
reveal in true perspective, with greater accuracy and reliability, the performance details. It
has been pointed out that though social audits have been undertaken in a number of
countries, the subject has not yet attained the status of a science.
According to Clark G. Abt, the well-known exponent of social audit, "social audit, as far as
possible, should be approximated to an ordinary commercial audit". He has argued that
social audit should be based on a social balance sheet with a 'credit' side and a 'debit' side
('inputs' and 'outputs' or 'costs' and 'benefits'). This is because "the basic purpose of a
business corporation is to maximize the financial return earned on its financial investment.
To make rational investment decisions in the social area it is necessary to know what the
social returns are, and if we are to assess then) by the same measures as for financial
investment, these must be expressed in money terms". The concepts of "consumer's surplus"
and "shadow prices" may be used to measure inputs and outputs ('costs' and 'benefits'). If the
social balance sheet is prepared in money terms, the company may be able to invest more
efficiently in the social area on the basis of social audit report, and derive optimum results
by allocating the scarce social and financial resources among competing interests.
However, it is easier said than done. The externalities of social costs and benefits cannot be
amenable for treatment applying the tenets of traditional business accounting.
Like the market economy, business accounting focuses on the world of transactions, while
the problems which social accounting is expected to cover have become problems precisely
because they lie outside the world of transactions. Moreover, application of shadow prices
and consumers surplus may prove to be too costly with respect to social activities, if not
impossible.
It may be worthwhile to note that despite the above problems, social audit was carried out
for the Tata Iron and Steel Company (TISCO) by a Committee appointed in October, 1979
which submitted its report in 1980. The report was prepared following the 'socio economic
operating statement' model, though not exactly on the same lines. The Committee in its
report also pointed out certain inadequacies but observed that the social performance of the
company has been of a high order, and in its magnitude perhaps unparalleled in India.
5.9 SOCIAL RESPONSIBILITIES OF BUSINESS IN INDIA
The issue of social responsibilities of business has been gaining the attention of the business
community in India since early 60s. An international seminar on social responsibilities of
Global Corporate Social Responsibility
Page 80 of 496
business was held in New Delhi in 1965 where a declaration issued at the conclusion of the
seminar defined social responsibility of business as 'responsibilities to customers, workers,
shareholders and the community, and correlated it with Gandhian concept of trusteeship.
Another seminar was held in Kolkatta in 1966 which discussed the social responsibilities of
modern business. It formed a standing committee which set up a special study group
consisting of economists, sociologists, businessmen, representatives of accounting and
management professions, and representatives of chambers of commerce to prepare a set of
business norms for adoption by the business community. The Study Group had suggested
that the business must accept responsibility to the society and its various constituents as a
trustee. Its responsibilities extend beyond the business to the lives of the people and the
community. The businessman, therefore, should promote civic amenities and help create
better living conditions as well as help in making people law abiding, improve the
administration of municipal and industrial affairs, More than that, the businessmen are to set
up socially desirable standards of living for themselves, avoid ostentations, wasteful and
improvident expenditure in weddings, festivities and parties.
The above aspects apart, the social responsibilities of business in India also require
businessmen to give a fair deal to customers in terms of price and quality, ensure availability
of products, and avoid unfair trade practices, profiteering, hoarding, black marketing, etc.
They should not mislead the consumer and the community by untruthful and exaggerated
advertisements. Their responsibility towards employees is also defined scrupulously as to
promote co-operative spirit, provide fair wages and promotion, and pursue a progressive
labour policy. Similarly, their responsibility towards the state has been elaborated with
respect to payment of taxes and against buying political support and corrupting public
servants. The Sachar Committee (1978) which also went into the questions of social
responsibilities of companies observed that the social responsibility of business to the
community can no longer be scoffed at and that its acceptance must be reflected in the
disclosure of all information for the stakeholders. But more importantly, the business houses
are to contribute towards environmental protection, conservation of scare natural resources,
abatement of pollution, rural development and employment generation, and annex a social
report to director's report which should indicate and quantity in the responsibility aspects
which have been carried out by the company during the period. In fact, some companies, as
pointed out earlier, have already started including such information in their annual reports.
Let us, for example, look at the contributions of Asian paints, Glaxo Smith kline Pharma and
Satyam Computer Services based on their disclosures in their annual reports.
Asian Paints : It approaches corporate social responsibility from the perspective of being a
responsible corporate citizen. There has been a continuous effort to take up initiatives in
various quarters and ensure sufficient resources for the sustenance and continuity of the
same. The company has identified projects across all its manufacturing locations in the
country primarily in the areas of education, healthcare, and rain harvesting.
Glaxo SmithKline Pliarma : Corporate social responsibility continues to be an integral part
of GSK's business. It makes a contribution to society through medicine donations,
conducting healthcare awareness programmes and community development. The uniqueness
Global Corporate Social Responsibility
Page 81 of 496
of GSKs social initiatives lies in the development of self-reliance by tackling issues through
the involvement of the beneficiaries themselves. While selecting projects, priority is given to
those which contribute to healthcare, especially of women and children. New initiatives in
the field of education are an area of focus.
Satyam Computer Services : It has set up Satyam Foundation as company's arm to fulfill its
responsibility to society at large and serve the underprivileged in the urban area.
Headquartered in Hyderabad, the Foundation provides services in the areas of education,
healthcare livelihoods, environment, rehabilitation of destitute and alms seekers, AIDS
awareness, slum development and emergency /trauma care. Satyam Foundation is an
inclusive organisation working with governments, other NGOs and academic institutions.
It will not be out of place to also make a mention of ITC initiative in transforming the Indian
farmer into a progressive knowledge seeking citizen and linking him to consumers in local
and global markets through its e-choupal movement started in the year 2000 which has
covered 10,000 villages in 4 states so Far and keeps on adding five villages every day. In
addition, ITC has initiated programmes in the areas of social and farmer forestry, integrated
watershed development, economic empowerment of women, primary education, and EHS
efforts encompassing employee safety, energy and water conservation, and reduction in
GHG emissions. These initiatives are quite encouraging and establish the growing awareness
among Indian business units in respect of their social responsibilities and reporting their
contribution.
5.10 Summary
Social responsibility of business refers to the obligation of business enterprises to decide on
policies and plans of action in the social interest and for social good. It was realised that
economic considerations could not be viewed in isolation from social considerations and it
became necessary to assume responsibilities commensurate with the social power wielded
by the corporate enterprises.
Modern writers have put forward the case for social responsibilities of businesses on several
grounds. Besides, there have been research studies reflecting the viewpoints of corporate
executives that assuming social responsibilities have been positively helpful to organizations
and they expected positive outcomes from social involvement.
In the nature of things, social responsibilities of business have to be considered with
particular reference to responsibilities towards shareholders (owners), employees,
consumers, the Government, community and public at large.
Over the years, public opinion has been increasingly in favour of socially responsive
corporate management reporting their performance in the area of social activity for internal
and external use. In India, as in the US, social reporting as an integral part of director's
report is practiced by some companies, and the same is expected to grow in due course.
Social accounting is the systematic assessment and reporting on those aspects of a
company's activities that have a social impact. There are several approaches to the
assessment and reporting of the impact of social activities, viz., (i) valuation of social costs
and social benefits; (ii) measuring the worth of social investments by estimating the 'market
worth' of expected benefits to be derived by people; (iii) 'social indicators' approach; (iv)
Global Corporate Social Responsibility
Page 82 of 496
social goal accounting and reporting; (v) preparing a social profit and loss account and a
social balance sheet; and (vi) socio-economic operating statement.
Social audit refers to the process involving a retrospective review of the impact and
contribution of a company to the recognized social dimensions. According to Abt, it should
be carried out, as far as possible, on the same lines as the commercial audit. This is so
because to make rational investment decisions in the social area, it is necessary to know
what the social returns are.
5.11 KEY WORDS
Power-Responsibility Equation : Balancing responsibility with power.
Shadow Price : Shadow price of an input is the value of the input to the firm as opposed to
the market price which is paid for it.
Social Accounting : A systematic assessment and reporting on those aspects of company's
activities that have a social impact.
Social Audit : Review of the impact and contribution of a company to recognised social
dimensions.
Social Balance Sheet : It presents the social assets like organization, research, taxes paid,
and the social liabilities employee commitments, organizational liabilities, environmental
degradation, and consumption of pubic services paid for by taxes, the net of the two being
society's equity.
Social Discount Rate : The consumption rate of interest, i.e., the rate of interest to be
offered to an investor so as to induce him to forego an additional unit of present
consumption. Alternatively, it could be the rate at which the value of savings decline over
time.
Social Income Statement : It is an annual statement in which social benefits to employees,
community, consumers and the general public are added, and social costs to each
constituency are subtracted, in order to determine a net social income for the year.
Social Responsibility: Obligation to meet social needs.
Page 83 of 496
3.
a)
b)
c)
d)
4.
Social accounting is:
a)
the systematic assessment
that have a political impact
b)
the systematic assessment
that have an economic impact
c)
the systematic assessment
that have a technical impact
d)
the systematic assessment
that have a social impact
5.
a)
b)
c)
d)
6.
a)
b)
c)
d)
7.
Page 84 of 496
a)
b)
c)
d)
8.
Social audit refers to
a)
the process involving a retrospective review of the impact
company to the recognized political dimensions
b)
the process involving a retrospective review of the impact
company to the recognized technical dimensions
c)
the process involving a review of the impact of a company to
dimensions
d)
the process involving a retrospective review of the impact
company to the recognized economic dimensions
or contribution of a
or contribution of a
the recognized social
or contribution of a
9.
a)
b)
c)
d)
10.
Shadow price is
a)
b)
c)
d)
the value of the input to the firm as opposed to the market price which is paid for it.
the value of the output to the firm as opposed to the market price which is paid for it.
the value of the input to the firm same as the market price which is paid for it.
the value of the output to the firm same as the market price which is paid for it.
Page 85 of 496
CHAPTER 6
ETHICS AND VALUES
Objectives
After reading this unit you should be able to:
explain the meaning of business ethics;
understand the concept and scope of business ethics;
understand ethics and its relation to different stakeholders;
build the case for ethics in business and new dimensions in the changing
business paradigm;
discuss on ethics in market place and organizations external and internal
exchanges
debate towards the objections to bringing ethics into business
Structure
6.1 Introduction
6.2 Concept of Business Ethics
6.3 Scope of Ethics
6.4 Stakeholders and Ethics
6.5 Business and Ethics
6.6 Business Ethics and External Environment
6.7 Business Ethics and Internal Environment
6.8 Ethics and Business : Objections
6.9 Summary
6.1 INTRODUCTION
Every business has an ethical duty to each of its associates namely, owners or stockholders,
employees, customers, suppliers and the community at large. Each of these affect
organization and is affected by it. Each is a stakeholder in the enterprise with certain
expectations as to what the enterprise should do and how it should do it.
Business ethics is applied ethics. It is the application of our understanding of what is good
and right to that assortments of institutions, technologies, transactions, activities and pursuits
that we call business. Ethical behaviour is the best long term business strategy for company ,
however this does not mean that occasions may never arise when doing what is ethical will
prove costly to a company nor does it mean that ethical behaviour is always rewarded or that
unethical behaviour is always punished.
On the contrary, unethical behaviour sometimes pay off and the good sometimes lose.
Strategy means merely that over the long run and for most of the part, ethical behaviour can
give a company significant competitive advantages over companies that are not ethical.
Page 86 of 496
Page 87 of 496
Page 88 of 496
Page 89 of 496
which they operate. The questions that arise are for example, whether it is ethical for a
brewer of beer to advertise its products on TV, at slots when these ads are likely to be seen
by underage viewers or not? A companys community citizenship is ultimately demonstrated
by whether it refrains from acting in a manner contrary to the well being of society and by
the degree to which it supports community activities, encourages employees to participate in
community activities, handles the health and safety aspects of its operations, accepts
responsibility for overcoming environmental pollution, relates to regulatory bodies and
employee unions and exhibits high ethical standards.
6.5 BUSINESS AND ETHICS
One way to argue that ethics should be brought into business is simply by pointing out that,
ethics should govern all voluntary human activities and because business is a voluntary
human activity. The other way of looking at it is that business is a cooperative activity
whose very existence requires ethical behaviour. For example, any individual business will
collapse if all of its managers, employees and customers come to think that it is morally
permissible to steal from, lie to, or break their agreements with the company. Because no
business can exist entirely without ethics, the pursuit of business requires at least a minimal
adherence to ethics on the part of those involved in business.
Second, all businesses require a stable society to carry on their business dealings and the
stability of any society requires that its members adhere to some minimal standards of ethics.
Another persuasive way to argue that ethics should be brought into business is by showing
that ethical considerations are consistent with business pursuits in particular the pursuits of
profit. As we understand, TATA is renowned for its long standing ethical culture and yet it
is one of the most spectacularly profitable companies of all time.
The Changing Business Paradigm and Ethical Dilemmas
Most of the big corporate houses operate globally and maintain manufacturing, marketing,
service or administrative operations in many different host countries. With a worldwide
presence, these corporations draw capital, raw materials and human labour from wherever in
the world they are cheap, skilled and available, and assemble and market their products in
whatever nations offer manufacturing advantages and open markets. The fact that these
corporations operate in more than one country produces ethical dilemmas for their managers
than the managers of firms limited to a single country.
The reason to this is that the corporations have operations in more than one country, and the
ability to shift their operations out of any country that becomes inhospitable and relocate in
another country that offers it cheaper labour, less stringent laws or more favourable
treatment. This ability to shift the operations sometimes enables the multinationals to escape
the social controls that a single nation might attempt to impose on the multinational and can
allow the corporation to play one country against another. Environmental laws for example
which can ensure that domestic companies operate in responsible manner that a country
deems right for its people, may not be effective constraints on a corporation that can simply
move or threaten to move to a country without such laws. The managers therefore are
confronted with the dilemma of choosing between the economic needs and interests of their
business, on the one hand and the local needs and interests of their host country on the other
Global Corporate Social Responsibility
Page 90 of 496
hand. Another set of dilemmas is created since corporations operate plants in several
countries, it can sometimes transfer raw materials, goods and capital among its plants in
different countries at terms that enable it to escape taxes and fiscal obligations that
companies limited to a single nation must bear. Yet another group of dilemmas is faced by
multinationals because they operate in several countries they often have the opportunity to
transfer a new technology or set of products from a developed country into nations that are
less developed. The multinational wants to carry out the transfer of course because it
perceives an opportunity for profit and the host country wants and allows the transfer
because it perceives these technologies and products as key to its own development.
However, the transfer of technologies and products into a developing country can create
risks when the country is not ready to assimilate them.
Ethics in Market Place
Free markets are justified because they allocate resources and distribute commodities in
ways that are just, that maximize the economic utility of societys members and that respect
the freedom of choice of both buyers and sellers. These moral aspects of a market system
depend crucially on the competitive nature of the system. If firms join together and use their
combined power to fix prices, drive out competitors with unfair practices or earn
monopolistic profits at the expense of consumers, the market ceases to be competitive and
the results are injustice, a decline in social utility and a restriction of peoples freedom of
choice.
In a perfectly competitive free market conditions forces drive buyers and sellers towards the
so called point of equilibrium. In doing so they achieve three major moral values:
i) They lead buyers and sellers to exchange their goods in a way that is just,
ii) They maximize the utility of buyers and sellers by leading them to allocate, use and
distribute their goods with perfect efficiency, and
iii) they bring about these achievements in a way that respects buyers and sellers right of
consent.
Fairness is getting paid fully in return for what one contributes and it is this form of justice
that is achieved in perfectly competitive free markets. Perfectly competitive markets embody
capitalist justice because such markets necessarily converge on equilibrium point and the
equilibrium point is the one point at which buyers and sellers on an average receive the
value of what they contribute.
In a monopoly market situation, however conditions change as compared to perfectly
competitive market conditions particularly with respect to the number of buyers and sellers
and also the entry is not so easy. Unregulated monopoly markets fall short of the values of
capitalist justice and economic efficiency. The high prices the seller forces on a buyer in a
monopoly situation are unjust and these unjustly high prices are the source of the sellers,
excess profits. The high profits in a monopoly market indicate a shortage of goods. Other
firms are blocked entering the market, their resources cannot be used to make up the
shortages indicated by the high profits. Thus monopoly market results in a decline in the
efficiency with which it allocates and distributes goods.
Page 91 of 496
Oligopoly markets which are dominated by a few large firms are said to be highly
concentrated i.e. there are relatively small number of firms. It is relatively easy for the
managers of these firms to join forces and act as a unit. By explicitly or implicitly agreeing
to set their prices at the same levels and to restrict their output accordingly , the oligopolist
can function like a single giant firm. This uniting of force together can create barriers to
entry and result in the same high prices and low supply levels that are characteristics of a
monopoly markets. As a consequence oligopoly market, like monopolies can generate a
decline in social utility and can fail to respect basic economic freedom.
6.6 BUSINESS ETHICS AND EXTERNAL ENVIRONMENT
The process of producing goods forces businesses to engage in exchanges and interactions
with two main external environments the natural environment and a consumer
environment. Here you will understand the ethical issues raised by these exchanges and
interactions. The two basic problems related to the natural environment are pollution and
resource depleting. Several consumer issues, including product quality and advertising are
the probables related to consumer environment.
The External Environment
For centuries, business institutions were able to ignore their impact on the natural
environment, an indulgence created by a number of causes. First business was able to treat
air and water as free goods. However in todays context unless business recognize the
interrelationships and interdependencies of the ecological systems within which they operate
and unless they ensure that their activities will not seriously injure these systems we can not
hope to deal with the problem of pollution.
Environmental issues raise large and complicated ethical and technological questions for our
business society. What is the extent of the environmental damage produced by present and
projected industrial technology? How large a threat does this damage pose to our welfare?
What values we must give up to halt or slow such damage? Whose rights are violated by
pollution and who should be responsible of paying for the costs of polluting the
environment? How long will our natural resources last ? What obligations do firms have to
future generations to preserve the environment and conserve our resources?
Economists often distinguish between what it costs a manufacturer to make a product and
what the manufacturer of that product costs as a whole when a firm pollutes its environment
in any way, the firms private costs are always less than the total social costs involved. This
is a problem because when the private costs diverge from the social costs involved in its
manufacture, markets no longer price commodities accurately. Consequently they no longer
allocate resources efficiently. As a result the welfare of society declines. The remedy for the
external costs is to ensure that the costs of pollution are internalized that is they are
absorbed by the producer and take into account when determining the price of goods. In this
way goods will be accurately priced, market forces will provide the incentives that will
encourage producers to minimize external costs and some consumers will no longer end up
paying more than others for the same commodities.
Page 92 of 496
Page 93 of 496
communication technologies have given us the power to collect, manipulate and disseminate
personal information about consumers on a scale unprecedented in the history of the human
race. This new power over the collection, manipulation and dissemination of personal
information has enabled mass invasions in the privacy of consumers and has created the
potential for significant harms arising from mistaken or false information.
The purpose of rights is to enable the individual to pursue his or her significant interests and
to protect these interests from the intrusion of other individuals. It is also important because
it has several enabling functions. Privacy enables certain professional relationships to exist.
In so far as the relationships between doctor and patient, lawyer and client, and psychiatrist
and patient all require trust and confidentiality, they could not exist without privacy. It is
clear then that our interest in privacy is important enough to recognize it as a right that all
people have, including consumers. However this right must be balanced against the rights
and legitimate needs of others. For example, consumers benefit from having life insurance
available to them. However there are significant consumer benefits that businesses can
provide but they can provide only if there exists agencies that can collect information about
individuals and make that information available to businesses. Thus consumers rights to
privacy have to be balanced with these legitimate needs of businesses.
6.7 BUSINESS ETHICS AND INTERNAL ENVIRONMENT
The Internal Environment
The process of producing goods forces businesses not only to engage in external exchanges,
but also to coordinate the activities of the various internal constituencies that must be
brought together and organized into the processes of production. Employees must be hired
and organized, stockholders and creditors must be solicited and managerial talent must be
tapped. Inevitably conflicts arise within and between these internal constituencies as they
interact with each other and as they seek to distribute benefits among themselves. The
ethical issues raised by these internal conflicts fall into two broad areas of job discrimination
and the issue of conflicts between the individual and the organization. Although many more
women and minorities are entering formerly male-dominated jobs, they still face problems
that they would characterize as forms of discrimination. Experiences suggest that sexual
discrimination and racial discrimination are alive and they do create flutters in the
society. Regardless of the problems inherent in some of the arguments against
discrimination, it is clear that there are strong reasons for holding that discrimination is
wrong. It is consequently understandable that the law has gradually been changed to
conform to these moral requirements and that there has been a growing recognition of the
various ways in which discrimination in employment occurs. Among the practices now
widely recognized as discriminatory, few of them are recruitment practices, screening
practices, promotion practices and conditions of employment. Women as noted earlier are
victims of a particularly troublesome kind of discrimination that is both overt and coercive.
They are subject to sexual harassment. Many businesses are aware of these trends and have
undertaken programmes now to respond to the special needs of women and minorities.
However it should be clear in view of the future demographic trends that enlightened self
interest should also prompt business to give women and minorities a special hand. It is for
Global Corporate Social Responsibility
Page 94 of 496
these reasons that companies have instituted aggressive affirmative programmes aimed at
integrating large groups of minorities into their firms where they are provided with
education, job training, skills, counseling and other ssistance designed to enable them to
assimilate into workforce.
The employees main moral duty is to work toward the goals of the firm and avoid any
activities that might harm those goals. To be unethical, basically is to deviate from these
goals to serve ones own interest in ways that if illegal are counted as form of white collar
crime. There are several ways in which the employee might fail to live up to the duty to
pursue the goals of the firm. The employee might act on a conflict of interest, the
employee might steal from the firm or the employee might use his or her position as a
leverage to force illicit benefits out of others through extortion or commercial bribery.
The ethical issue of misusing proprietary information has become much more prominent in
the last decade as new information technologies have increasingly turned information into
a valuable asset to which employees have regular access. As information technologies
continue to develop, this issue will continue to grow in importance. Insider trading is also
unethical not merely because it is illegal but because it is claimed, the person who trades
or insider information in effect steals this information and thereby gains as unjust or unfair
advantage over the member of the general public.
In the course of performing a job an employee may discover that a corporation is doing
something that he or she believes is injurious to society. Indeed individuals inside a
corporation are usually the first to learn that the corporation is marketing unsafe products,
polluting the environment , suppressing health information or violating the law. Employees
with a sense of moral responsibility who find their company is injuring society in some way
will normally feel an obligation to get the company to stop its harmful activities and
consequently will often bring the matter to the attention of their superiors. Unfortunately if
the internal management of the company refuses to do anything about the matter , the
employee today has few other legal option available. In the absence of legal protections of
the employees right to freedom of conscience the practice of whistle blowing is discussed
and debated.
Whistle blowing is an attempt by a member or former member of an organization to disclose
wrongdoing in or by the organization. It can be internal or external. If the wrongdoing is
reported only to those higher in the organization it is internal whistle blowing. When the
wrongdoing is reported to external individuals or bodies such as government agencies,
newspapers or public interest groups, the whistle blowing is said to be external.
However it is for the ethical judgment to decide whether external whistle blowing is wrong
because employees have a contractual duty to be loyal to their employer and to keep all
aspects of the business confidential. When an employee accepts a job, the argument goes,
the employee implicitly agrees to keep all aspects of the business confidential and to single
mindedly pursue the best interests of the employer. The whistleblower violates this
agreement and thereby violates the rights of his or her
employer.
The last point to be mentioned here is the ethics of political tactics in organizations. Political
behaviour in an organization can easily become abusive. Political tactics can be used to
Global Corporate Social Responsibility
Page 95 of 496
advance private interests at the expense of organizational and group interests, they can be
manipulative and deceptive and they can seriously injure those who have little or no political
power or expertise. However political tactics can also put at the service of organizational and
social goals, they may sometimes be necessary to protect the powerless and they are
sometimes the only defense a person has against the manipulative and deceptive tactics of
others. The dilemma for the individual in an organization is knowing where the line lies that
separates morally legitimate and necessary political tactics from those that are unethical.
6.8 ETHICS AND BUSINESS : OBJECTIONS
People taking objections to bringing ethics into business argue that persons involved in
business should single mindedly pursue the financial interests of their firm and not side track
their energies or their firms resources into doing good works. Some argue that in perfectly
competitive free markets the pursuit of profit will by itself ensure that the members of
society are served in the most socially beneficial ways. However what experts like Manuel G
Velasquez argue is that often assumptions behind this argument like perfectly competitive
market situation do not exist.
Another argument is that business managers should single-mindedly pursue theinterests of
their firms and should ignore ethical considerations.
This argument finds its basis in loyal agents argument, which suggests that a manager
engaged in certain illegal or unethical conduct be excused because he did it not for himself
but to protect the interests of his company. However again the assumptions behind this
argument can be questioned on several grounds. The third kind of objection is that to be
ethical it is enough for business people merely to obey the law. Business ethics is essentially
obeying law. It is wrong however to see law and ethics as identical. It is true that some laws
require behaviour that is same as the behaviour required by our moral standards. However
law and morality do not always coincide. Some laws have nothing to do with morality
because they do not involve serious matters. These include dress codes, parking laws and
other laws covering similar matters.
Beyond these arguments for and against the role of ethics in business, discussions happen
whether ethical companies are more profitable than unethical ones. There are many different
ways of defining ethical, many different ways of measuring profits and the findings of
different studies remain inconclusive. However studies do suggest that by and large ethics
do not detract from profit and seems to contribute to profits.
6.9 SUMMARY
Business ethics is applied ethics. It is the application of our understanding of what is good
and right to those assortments of institutions, technologies, transactions, activities and
pursuits that we call business. Corporate issues in business ethics are ethical questions raised
about a particular company. These include questions about the morality of the activities,
policies, practices or organizational structure of an individual company taken as a whole.
Free markets are justified from ethical point of view because they allocate resources and
distribute commodities in ways that are just, that maximize the economic utility of societys
members and that respect the freedom of choice of both buyers and sellers.
Global Corporate Social Responsibility
Page 96 of 496
The duty to the customer arises out of expectations that attend the purchase of a good or
services. The questions which are discussed often are, should a seller voluntarily inform
consumers that its products contain ingredients that though officially approved for use are
suspected of having potentially harmful effect? The dilemma which arises is where does the
consumers duty to protect his or her own interests end and where does the manufacturers
duty to protect consumers interest begin?
The process of producing goods forces businesses not only to engage in external exchanges,
but also to coordinate the activities of the various internal constituencies that must be
brought together and organized into the processes of production. On the other hand, the
employees main moral duty is to work toward the goals of the firm and avoid any activities
that might harm those goals. To be unethical, basically is understood as to deviate from these
goals to serve ones own interest in ways that if illegal are counted as form of white collar
crime. Nevertheless with the emergence of concepts like whistle blowing employees with a
sense of moral responsibility who find their company is injuring society in some way find an
opportunity in stopping the company from its harmful activities.
Page 97 of 496
2.
a)
b)
c)
d)
Ethics investigate
birth
life
morality
politics
3.
a)
or evil
b)
c)
d)
4.
a)
b)
c)
d)
5.
a)
b)
c)
d)
6.
Systemic issues in business ethics are
a)
ethical questions raised about a particular company
b)
ethical questions raised about the economic, political, legal and other social systems
within which business operates
c)
ethical questions raised about a particular individual or particular individuals within a
company
d)
All of the above
7.
a)
b)
Page 98 of 496
9.
a)
b)
c)
d)
10.
a)
goals
b)
goals
c)
goals
d)
goals
to work toward the personal goals and avoid any activities that might harm those
to work toward the personal goals and invite any activities that might harm those
to work toward the goals of the firm and avoid any activities that might harm those
to work toward the goals of the firm and invite any activities that might harm those
Page 99 of 496
CHAPTER 7
CORPORATE GOVERNANCE AND CORPORATE SOCIAL
RESPONSIBILITY
Objectives
After reading the unit you should be able to:
Understand the meaning & scope of Corporate Governance, Social Responsibility &
Scope of Social Audit of PEs;
Appreciate the need and importance of Corporate Governance of Social Responsibility in
the changes Scenario; and
Discuss the Social Responsibility in PEs.
Structure
7.1
7.2
7.3
7.4
7.5
Social AuditIntroduction
7.6
7.7
7.8
7.9
Summary
7.1
its importance for the economic health of corporation and the welfare of society, in general.
However, the concept of corporate governance is defined in several ways because it
potentially covers the entire gamut of activities having direct or indirect influence on the
financial health of the corporate entities. As a result, different people have come up with
different definition, which basically reflect their special interests in the field. The best way to
define the concept is perhaps to list a few of the different definitions rather than mentioning
just one or two.
Definitions
Adolf Berle has defined social responsibility as the managers responsiveness to public
consensus
(www.bharatpetroleum.com).
Koontz and ODonnell have given the definition of social responsibility thus: The personal
obligation of the people as they act in their own interests to assure that the rights and
legitimate interests of others are not infringed
(Hindu business line, 1998).
Corporate Governance can be defined as a systematic process by which companies are
directed and controlled to enhance their wealth generating capacity. Since large corporations
employ vast quantum of societal resources, we believe that the governance process should
ensure that these companies are managed in a manner that meets stakeholders aspirations
and societal expectations.
(Chartered Secretary, Oct, 1997).
7.2
Board meetings should be held at least four times in a year with a maximum time gap of
four months between any two meetings.
The Board should set up a remuneration committee to determine the companys policy
on specific remuneration packages for executive directors.
A management discussion and analysis report should form part of the annual report to the
shareholders covering industry structure, opportunities and threats, segment wise or
product wise performance, outlook, and risks.
Companies should arrange to obtain certificates from their auditors regarding compliance
of corporate governance provisions and the certificates should be sent to stock
exchanges and all the shareholders.
As mentioned, these recommendations were incorporated in the listing agreement (Clause
49) and were sought to be implemented within a time frame of three years. Later, these
recommendations got statutory recognition when they were introduced a provisions in the
Companies (Amendment) Act, 2000.
Naresh Chandra Committee (2002)
Following the Enron fiasco and subsequent enactment of Sarbanes-Oxley Act in the US,
Government of India [Department of Company Affairs (DCA)] had set up another
committee to study corporate governance. This committee was formed under the
Global Corporate Social Responsibility
A close look at the amendments proposed in the Companies (Amendment) Bill, 2003
reveals that the changes proposed are based upon the recommendations of Naresh
Chandra Committee and Narayana Murthy Committee.
Hopefully, these recommendations when accepted in true spirit, should raise the standards of
corporate governance in Indian firms and make them attractive for domestic and global
capital and should form as base for further evolution of structure of corporate governance.
7.3
Public sector enterprises are generally autonomous bodies which are owned and managed
by the government and which provide goods or services for a price. The ownership of the
government extends to 51 percent, or more, in order to make it a public enterprise/entity.
Public enterprises are considered as important instruments for self-reliant economic growth.
They also help speed up economic growth, provide the required infrastructure, act as tools to
achieve various social objectives like better distribution of income, expansion of employees
employment opportunities, removal of regional imbalances, reducing concentration etc. From
a paltry Rs. 29 crore in 195152, with 29 PEs the investment in the central public sector went
up to well over Rs. 6,00,000 crores by 2000 with 240 PEs.
Public enterprises have been organized in many ways as distinct autonomous units, with
varying degrees of legal and operational independence. Where an autonomous legal entity is
established by an Act of Parliament or legislature, it is called public corporation or
statutory corporation. These are the principally chosen as instruments for the management
of nationalized industries. The other popular method followed is forming government
companies under the provisions of the Companies Act, 1956 (Sec. 617), in which not less
than 51 percent of the paid-up share capital he held by the central or the state governments,
or jointly by the central and state governments. A subsidiary of a government company is
also a government company.
The Board of Directors is the top management organ, and is responsible for implementing
the objectives of an enterprise. The board members are nominated by the shareholders, i.e.,
government. Under the normal pattern, it includes the Chairman-cum-Managing Director,
one or more full-time functional directors, officials representing and administrative ministry
of finance, and sometimes one or two other relate ministries, and lastly, one or two nonofficials, selected for their expertise and business experience. Under the trusteeship and
entrepreneurial functions concept, the board looks after its various categories of functions
establishment of basic policies including corporate strategies, decisions on major financial
matters, selection of key personnel, receiving working reports and, reviewing and passing
judgment upon them.
Global Corporate Social Responsibility
The functioning of PE boards has been subjected to criticism on various grounds. The
various practices followed, it is complained, do not facilitate the emergence of an
autonomous enterprise management with initiative and operating effectiveness, and yet be
responsible and responsive to the government guidelines and policies. The 40th Report of the
Committee on Public Undertaking (73-74) regretted that the performance of public
undertakings continues to be judged by a variety of vague objects and considerations. It
recommended government presenting a white paper which can set out the framework of
governments general, economic, financial and social strategy for public sector undertakings,
micro-objects both financial and economic of each public undertaking and their review,
and also qualification of their social objectives and obligations and the issue of government
directives in appropriate cases. The nomination of government officials, according to
experience, has also to be termed as superfluous and non-functional. The enterprises are also
facing problems as the government is not strictly adhering to the policy that all heads of
public enterprises will have a five-year tenure. This was accepted to improve the efficiency
of top management.
Obligation to the Public Sector Enterprise
a) The role of the executives is to assist the PSE to achieve its objectives as spelt out in
the charter constituting the setting up of the enterprise.
b) It is the obligation of every employee of the public sector administrative ministry to
uphold the Rule of Law and respect for human rights solely in the public interest while
making recommendations or exercising administrative authority. He or she must maintain the
highest standards of probity and integrity.
c) In relation to the general public, the employees in the PSE and administrative ministries
should conduct themselves in such a manner that the public feels that the decisions taken or
the recommendations made by them are objective and transparent and are not calculated to
promote improper gains for the political party in power or for themselves or for any third
party. This would be particularly significant so far as the customers of the public service are
concerned. This will apply also mutatis mutandis to the employee in the administrative
ministry concerned with the PSE.
d) Employees of the PSEs/administrative ministries should not seek to frustrate or
undermine the policies, decisions and action taken in the public interest by the management
decision. Where following the instruction of the superior authority would appear to conflict
with the exercise of impartial professional judgment or affect the efficient working of the
enterprises, he/she should set out points of disagreement clearly in writing to the superior
authority or seek explicit written instruction. This will apply also mutatis mutandis to the
employee in the administrative ministry concerned with the PSE.
Global Corporate Social Responsibility
e) Where an employee of the PSE has reasonable ground to believe that he or she is being
required by the superior authority to act in a manner which is illegal or against the prescribed
rules and regulations or if any legal infringement comes to his or her notice, he or she should
decline to implement the instruction, and would also have a right to bring the facts to the
notice of the Chairman / Managing Director of the enterprise or the Secretary of the
Administrative Ministry / the Cabinet Secretary to examine the issue carefully to concerned
employees in the administrative ministry.
Accountability and Responsiveness to the Public
a) Consistent with accountability to the superior officers and the ministers in accordance
with provisions governing PSE/administrative ministry, the employees in the public sector
should practice accountability to the people in terms of quality of service, timeliness,
courtesy, people orientation on readiness to encourage participation of and form partnership
with citizen groups, for responsive management.
b) Employees in the PSE/administrative ministry should be consistent, equitable and honest
in their treatment of the members of the public, with particular care for the weaker section of
society and should not even be or appear to be unfair or discriminatory. Decision in pursuit
of discretionary powers should be justifiable on the basis of non arbitrary and objective
criteria.
c) Employees in the PSE/administrative ministry should accept the obligation to recognize
and enforce customers right for speedy redressal of grievance and commit themselves to
provide services of declared quality and standard to customers.
d) Employment in the PSE/administrative ministry should respect the right of public to
information on all activities and transactions of the organizations except where they are
debarred in the public interest from releasing information by provisions of law or by valid
instructions.
Concern for Value of Public Assets and Funds
The employees in the PSE/administrative ministry should avoid wastage and extravagance
and ensure effective and efficient use of the public money within their control.
Public Accountability
For accountability in the case of central government enterprises, the appropriate legislature is
Parliament, and for state-owned enterprises, the respective state assemblies. The principle
followed here is, as Mr Appleby observes: Parliament performs quite admirably when it
debates the important questions of Policy. The wisdom of non individual is substitute for the
general wisdom of society, and the general judgment of society is more closely approximated
by a representative legislature than by any other entity.
PEs come in for parliamentary consideration through debates, short discussion, questions,
Committee on Pubic Undertakings, and also public inquiry recommendations made by COPU.
The feeling is that MPs are mostly interested in raising issues of topical nature and those
effecting their constituency / state and do not raise critical issues, such as the governments
failure to fulfil promises made in various policy statements, eg., Policy Statement of July
1991. The COPU examines the reports and accounts of PEs, examines the Management
Review and Responsibility
frequent and numerous. Quite often the appointment process gets bogged down because of
complaints with regard to integrity of the candidates being considered for the PEs boards.
There are also instances of spurious complaints lodged by competing candidates, thereby
necessitating vigilance inquiries. In many instances it is a hurdle race especially for
competent and clean candidates, who often prefer to remain out of the race if they attack
higher value to enjoying peace of mind.
7.3
The growth of large corporations with their professional managers has changed the nature of
society through its effect on competitive forces and the ownership of private property. With
their increases power in society, they are forced to concern themselves with the nature of
social responsibilities. Management must take decisions involving moral issues and must
adapt itself to the social forces that affect it. The idea of social responsibility of business is
based upon the concept that business is something more than a purely economic institution.
Public Enterprises operates within the precincts of the society. While its immediate society,
where it operates, provides its environment, material, manpower, market etc. the whole
global society provides for its global corporate citizenship and ensures its facilities in terms of
environment, market, perspectives, exposure to technology and integration with priorities in
the business scenario. The social responsibility of Public Enterprises consists of its
responsibility to its consumers and customers, its prospects, its immediate society
(community), its human resources (people), its society at large, ecological environment, the
Government, and its business environment. Social responsibility of business is not new to our
country. In the olden days, whenever there was a famine, the leading businessmen of the area
would literally throw open their godowns and their treasure chests to provide food and other
assistance to the needy. The history of every region of this country is replete with stories of
the magnificent manner in which businessmen rose to the occasion in times of calamity. Even
in ordinary times, it was the businessmen who looked after the welfare of the destitute, the
goshalas, wells and ponds wherever what was difficult to get, the pathashalas and so on. So
to accept social responsibility is no more than rededicating ourselves to the cherished values
in the field of business. Gandhiji reminded of these values when he propounded the theory of
trusteeship. India is a democratic welfare state. She wants to achieve welfare through
democratic means. Business organization, which fit in with such a specification, would have
a better scope to survive and grow here. In order to make them suitable for such a business
environment, they should foster a corporate objective of maximizing social benefit. This
must be considered as the social responsibility of business. It pertinently means that every
business enterprise has a responsibility to take care of the societys interest.
Though the fundamental purpose of Public Enterprises is to produce and distribute goods and
services in such a manner that income exceeds costs, society expects that business is
conducted in a socially responsible manner. Social responsibility embraces multitude of
Global Corporate Social Responsibility
internal and external relationships of the firm. Business enterprises, conscious of their social
responsibility, would seek to comply with the laws concerned with employment of women,
non-discrimination in employment, ecological effects of production, consumers, and
employee welfare, and in general they would think of the impact their action on the
community.
Social and ethical aspects of business impinge upon the choice of strategy. How societal
values and expectations after business and how a firm perceives its social and ethical
obligations are interactive in character and both of these may become constraints in strategy
formation. That how consumerism, occupational health and safety, product safety, concern for
environmental protection, nutritional issues, beliefs about ethics and morals and other for
environmental protection, nutritional issues, beliefs about ethics and morals and other similar
societal based factors impact upon the strategies have to accommodate these factors. Some
instances can be cited. Most of the Public and Private Enterprises adopted the villages for
development. Most of the Enterprises launched awareness camps about AIDS. Cigarette
manufacturers have reduced the tar and nicotine content of cigarettes. Food processors have
altered the use of preservatives in food products and have begun to promote nutritional
content and natural flavours.
The lending institutions have given up their overly concern with safety or security of money
advanced and are now more concentrating on the competence of the entrepreneurs and
commercial viability of the project. All these instances demonstrate how business has
adapted itself to changing social values and expectations.
Running the enterprise in a socially responsible manner implies that the activities of the
organizational are in tune with what is generally perceived as in the public interest. It also
implies that the firm responds positively to emerging societal priorities and balances the
interests of its various stakeholders. Further, it realizes the importance of being good
citizen in the community and makes social and ethical obligations an explicit and high
priority consideration in conducting its affairs.
Being socially responsible has a positive appeal. The organization improves its standing in
the public, which has the effect of enhancing its own performance opportunities. If the firms
ignore the changing priorities and expectations of society, the result could be greater public
criticism and more onerous regulation by government.
Concern for social responsibility has led to the development of (more or less) formal
procedures to monitor corporate compliance with changing demands. One such procedure is
social audit. It is also common knowledge these days that business has attempted through
advertising and public relations activity to explain and accentuate its consistency with various
social objectives. Recognition of the need for social responsibility has also led several large
enterprises to make intentional efforts to increase their sensitivity towards current and future
pressures for changes in social expectations.
7.4
In view of the ongoing controversy regarding whether or not a business has social
responsibility, it is not surprising to find a wide range of industry responses to the issue.
Business responses to social responsibility tend to fall within four categories: (i) Social
opposition, (ii) social obligation, (iii) social response, and (iv) social contribution.
Social opposition: This view is taken by the business which feel that they have no obligation
to society in which they operate. When they are caught for any offense, their immediate
responses is to try cover it up while denying it.
1.
Initially founded by far-sighted people who visibly set the firms moral tone.
2.
Stuck to the basics and produced only high quality goods and services for specific
market niches.
3.
Developed a public image that emphasized that commitment to quality and often used
non-traditional means to promote it.
4.
5.
6.
Encouraged all employees to become part of the shared mission through full worker
participation in decisions.
7.
Paid fairly and usually offered benefit packages exceeding the competition.
8.
9.
Constantly solicited feedback from customers on all subjects from product direction to
corporate donations.
10. Top managers possessed an extensive knowledge of current events and took a wideranging interest in affairs outside their business.
11. Offered donations in cash or services to people in need of help.
12. Took an active role in the operations of their local communities.
Global Corporate Social Responsibility
13. Deal with like minded businesses and encourage their employers to do the same.
14. Constantly look to the future but always pay attention to the past.
Towards Owners/Shareholders
Towards Employees
Towards Customers
Fair price
Planned Growth
Best Quality of
Work life
Effective
Communication
Succession
Planning
Development
Superior Quality
Superior Service
Towards Government
Towards Society
Payment of Taxes, Custom Employment without Discrimination
Duties etc
Towards Inter-Business
Fair Competition
Employment
Persons
Community Welfare
Business Morality
Maintaining Pollution free
Environment
Maintaining Ecological
Balance
to
Disadvantaged
Social Audit, which is a tool for evaluating, verifying and reporting the performance of the
firm in the sphere of social responsibility. It will help a socially conscious organization to
bring about greater strategic articulation and desirable modifications in its social policies and
programs. In this unit the term social audit is defined and the desirability of undertaking
social audit by a business enterprise is discussed. The various frameworks or methodologies
for conducting social audit are explained. The potential difficulties that could be faced by an
organization adopting social audit are discussed and critically evaluated. The status and the
state of art of social audit in relation to India is examined and analysed. Finally, what looks
like the future of social audit is explored.
Case1:
SOCIAL RESPONSIBILITY OF BUSINESS: BHARAT PETROLUEM
Introduction
Bharat Petroleum Corporation Limited (BPCL) is a downstream oil refining and marketing
company. The company has its network spread over all the four regions in India and is
represented in almost all markets. It caters to different petroleum sectors Liquefied
Petroleum Gas (LPG) and Kerosene for domestic consumption, automotive fuels and
lubricants for vehicles, and feedstock and fuels for industrial applications. The company also
manufacture petrochemicals like Benzene, Toluene, Linear Alkyl Benzene feedstock etc.
With a sales turnover of Rs. 25,650 crore and profits of Rs. 701.30 crore in
1999, BPCL is the 5th largest company by sales in India. Its strength lies in an efficient
refinery and strong distribution network, which has given it a 20% market share in petroleum
products in India. BPCL has a tie up with Shell Petroleum Co. of Netherlands to manufacture
and market Shell lubricants in India. In a major expansion move, BPCL is increasing its
refining capacity through 3 joint ventures and also adding on to its distribution strength by
laying a similar number of pipelines. BPCL is also planning a foray into petrochemicals
through a 1.8 million tonnes (mt) naphtha craker plant in Tamil Nadu for around Rs. 7,000
crore and this project is scheduled to go on stream by 2002.
Ecological Concern
BPCL has been continuously striving towards conservation and improvement of the
environment by adopting new technologies. In March 2003, BPCL introduced low lead MS
(with 0.15 gm of lead per liter) in the country. From April 1996, HSD with a maximum
sulphur content of 0.5% by weight, was introduced in the metro cities and in the Taj
Trapezium. From September 1996, HSD, with a maximum sulphur content of 0.25% by
weight, was introduced in the Taj Trapezium. To meet the requirement of HSD all over the
country with the revised specification of maximum sulphur content of 0.25% by weight, from
April 1999, facilities for Diesel Hydro De-sulphurisation are being put up in the refinery.
Distribution of other low sulphur fuels (which has maximum sulphur content of 1.8% by
weight) was started in the National capital region
from October 1996, which ended the use on High Sulphur FO and RFO. BPCL conducted
two advertising compaigns of behalf of the industry the first on the importance of LPG
conservation and the second on the introduction of low leaded petrol. On the pollution
control front, BPCL has set up a special sophisticated plant to meet the stringent standards set
by Minimum National Standards for Effluents from Oil Refineries (MINAS). BPCLs
emission standards are far more stringent than the limits laid down by the Pollution Control
Board. BPCL had also invested around Rs. 220 crore, in pollution abatement and energy
conservation systems.
Safety and Social Commitments.
Global Corporate Social Responsibility
Safety continued to be accorded the highest priority in BPCL both in refining and marketing
operations. In 2002-03, its refinery achieved 3 million man-hours without Lost Time Accident
(LTA) on one occasion and one million man-hours without LTA on two occasions. The
microprocessor based control system as its refinery monitors the operating conditions for
safety hazards and the refinery is divided into three separate areas as high risk, low risk and
medium risk. Each employee, irrespective of levels, is given fire-fighting training and mock
drills are carried out at quarterly intervals for different range fires. Employees are given
training on simulators so that they learn by committing mistakes on simulators and not in real
conditions. BPCLs Mumbai refinery has a Mutual Aid agreement along with the neighboring
9 industries for fighting major fires.
As a result of higher exposure to various safety awareness programs, there has been a
reduction of injuries in BPCLs refinery by 34% for its own employees, and 43% for
contractors employees, in 1996-97. Moreover the frequency of LTA has come down from
1.5% to 0.6% for its employees and from 5.6% to 1.7% for contractors employees. To
enhance safety performance, BPCL introduced safety by walk-around concept wherein
experienced officers were appointed as safety surveyors and safety sampling was done by
senior management staff. It also organized a safety symposium at its refinery in which
members from the oil industry, government bodies. Oil awareness on LPG safety, BPCL also
screened one-minute films on the safe handling of LPG, on popular TV channels.
BPCL sponsors many sporting events like Santosh Trophy, National Football Tournament,
and also coaching camps for youngsters. Lifeline Express was contributed to social welfare
a fully equipped train, which look the latest medical technology to remote villages of India.
The company has also adopted 11 Scheduled caste/Scheduled tribes villages under the
Component and Tribal sub-plan. The facilities provided by the company include community
centers, tube/borewells, educational support medical facilities, vocational guidance and
training to make villagers self-reliant and improve their standard of living.
Achievements
BPCL was adjudged the winner of the Oil Industry Safety Awards for its safety
performance being the best among all the LPG Marketing Organization in 1995-96 for the
fourth year in succession. BPCLs annual report for 1994-95 was selected by ICAI as the
best presented amongst the public sector/joint sector companies for the second year in
succession. The South Asian Federation of Accountants also adjudged the same as the
second best presented in the non-financial sector in the SAARC region. BPCL received ISO9002 certification from Bureau Veritas Quality International (BVQI) for 15 out of its 22
bottling plants. BPCL has also received ISO-9002 accreditation for its refinery, aviation
service stations at Mumbai, Delhi, Calcutta and Bangalore depots at Miraj and Mysore and
lubricants blending plant at Wadilube.
Case Study 2:
SOCIAL RESPONSIBILITY AFFLUENCE FROM EFFLUENTS
The Rashtriya Chemicals and Fertilizers Chembur plant is one of Bombays most well
known cases of industrial pollution. The company, in the face of sustained public pressure, is
making attempts to reduce environmental damage. When the World Bank instituted the
Industrial Pollution Control Project (IPCP). RCF was one of the first to approach IDBI. In
January 1993, RCF entered into an agreement with the financial institution for a DM 12.5
million (approximately, Rs. 45 crore) loan at 15.5 percent.
RCFs problem was its two ammonia plants. These plants have been score spot for the
company and have been shut down on more than one occasion. At the time the plants were
setup, it was not mandatory, to include cost of pollution control equipment in the project cost.
But as local residents started complaining about the pollution levels, RCF started looking for
alternatives.
There were modifications going on in both plants. RCF had to wait till these were complete to
be able to estimate the volume of pollutants that would require treatment. Finally a Ministry
of Environment notification in the late
1980s ordering them to clean up forced RCF into action.
In the process of manufacturing ammonia, certain gases are accumulated which need to be
removed by purging. Using cryogenic technology bought from a German firm, RCF decided
to set up a purge gas recovery plant, which would in the process of treating ane-rich fuel,
both of which can be sold commercially, thereby making pollution control not just pay for
itself but also generate additional resources. And at the end of the process, the plant
produces no effluents.
RCFs choice of technology is determined by financial considerations. They had three
options. In the first case, they could simply treat the ammonia, which is all they are required
to do under the regulations. Their internal rate of return (IRR) for just ammonia recovery
was an uneconomical 10.7 percent. Their second option was to choose ammonia and
synthetic gas recovery, for which the IRR was 27 percent. The final option, the one they
chose, includes the recovery of liquid argon and gives them an IRR of 46.3 per cent. Pay
back period is a brisk 26 months.
Whether RCF will actually earn its projected income is doubtful. Since the time the plant has
come up, argon prices have crashed due to excess capacity and intense competiters are
mainly the steel and automobile industry, which use argon for welding. RCF officials
however, say they are safe, because even recovery to synthetic gas stage gives them an IRR
of 27 percent, leaving RCF a comfortable profit margin.
Social Opposition: This view is taken by the business which feel that they have no
obligation to society in which they operate. When they are caught for any offense, their
Global Corporate Social Responsibility
Social audit has been variously defined. As it happens with any new management technique,
there is not yet any definition which has gained acceptance. Bauer and Fenn define Social
audit as a commitment to systematic assessment of and reporting of some meaningful
definable domain of a companys activities that have social impact. The authors emphasis
is on the assessment and reporting of corporate social programmes.
Dilley defines the social audit as investigation of an enterprises performance as a member
of the community in which it has its primary impact: such investigations consisting of the
preparation of an inventory of the socially relevant activities of the enterprise, qualification
(to the extent possible) of the social costs and benefits resulting from those activities and
compilation of the other quantitative information providing insight into the social
performance of the enterprise (Hindu Business Line,
1997). Dilleys definition highlights the making of an inventory of the socially relevant
activities and their quantification in terms of costs and benefits.
Caroll and Bailer, describe social auditing as a form of measurement. According to them
Social audit is a natural evolutionary step in the concern for operationalising corporate social
responsibilities and, in its essence, represents a managerial effort to develop a calculus for
gauging the firms socially oriented activities. That, it is an attempt to measure, monitor and
evaluate the organizations performance with respect to its social programmes and social
objectives (Chartered Secretary, Oct, 1997) Ahmed Belkaoui has attempted to collate the
definitions by Bauer and Fenn, and by Dilley. He states that Social Audit much like the
financial audit is an identification and examination of the activities of the firm in order to
assess, evaluate, measure and report their impact on the immediate social environment
(Reddy, 1999). The words in bold are important in this definition which require some
elaboration.
1. Identification assures a tracking down and inventory of all the firms activities having
potential impact on the firms environment identification will result in a definition of the social
dimensions of the firms activities in terms of social costs or social benefits depending on the
nature of their impact on the social environment.
2. Assessment and Evaluation imply the categorisation of the firms impact on its
environment as either positive social benefits or negative social costs.
4.
The second feature about social audit is that it can determine only what an organization is
doing in social areas, not the amount of social good that results from these activities. It is a
process audit rather than an audit for results.
Thirdly, social performance is difficult to audit because most of the results of social activities
occur beyond the companys gate and the company has no means of securing data on the
results. Even if data are available it is difficult to establish how many of them have occurred
due.
Table 7.2 Activities Covered by Social Audit
A. Ecology and Environmental Quality:
Clear-up of existing pollution
Design of processes to prevent pollution
Aesthetic improvements
Noise control
Dispersion of industry
Control of land use
Required recycling
B. Consumerism:
Truth in labeling, in advertising, and in all business activities
Product warranty and service
Control of harmful products
C. Community Needs:
Use of business expertise to solve community problems
Reduction of role of business in community power structure
Global Corporate Social Responsibility
D. Governmental Relations:
Restrictions on lobbying
Control of business in political action
Extensive new regulation of business
Restrictions on international operations
E.
Business Giving:
Financial support for artistic activities
Donations to education
Financial support for assorted charities
F.
G. Labour Relations:
Improvement of occupational health and safety
Prohibition of export of jobs through operations in nations with law labour costs.
Provision of day-care centres for children of working mothers
Expansion of employee rights
Control of pensions, especially vesting of pension rights
Impatience with authoritarian structures; demand for participation
H.
Shareholder Relations
Opening of boards of directors to members of public representing various interest
groups
Prohibitions of operations in nations with racist or colonial governments
Improvement of financial disclosure
Global Corporate Social Responsibility
I.
Economic Activities
Control of conglomerates
Breakup of giant industry
Restriction of patent use
iii) the government (for knowing about financial and statistical information for planning and
operating of those enterprises and initiating and administering financial and economic polices
and programmes at state and national levels
iv) trade unions, political leaders (require information for broad labour policy decisions, for
etc); and
v) environments (who need information regarding air and water pollution ecological
imbalances, depletion of resources and conservation of energy).
Disclosure of information should be thus financial and non-financial.
Financial Information
This includes the disclosure of financial position of the firm, the form of balance sheet, profit
and loss accounts, special accounts, audit reports. Such information is mainly disclosed in
quantitative form, such as income and expenditure of the company, sources and uses of funds,
details about assets and liabilities, working capital, new capital investment, outstanding
distribution of earnings, interest taxes
paid, liquidity position and incentives. Financial information reveals the true position of a
company regarding its liquidity and bankruptcy.
Non-Financial Information
This includes information relating to social performance, human resources, marketing
activities, business environment, production etc. Such information may be disclosed in
quantitative and qualitative terms, but the disclosure of information is to influence
profitability in the long run and to build the companys image.
Information on social performance generally includes various activities regarding employee
welfare, community work and involvement, social cultural programmes, role of company in
solving social problems of the area, programmes dealing with training and developing human
resources etc. Social programmes are specified in annual reports.
Information on human resources includes expenditure on recruitment, selection, training and
development of employees, facilities for self-development in organization, special provision
for development of hard-core unemployed persons, sponsoring executives for delivering
lectures in universities, educational institutions and for foreign training. Such information is
disclosed in the Directors Report and the Chairmans speech.
Information on marketing includes sales figures product-wise and plant-wise, cash
and credit sales, pricing and impact of competition on pricing, product innovations and
development, quality of product advertising and promotional efforts for distribution of the
products, selling commission traveling expenditure of marketing personnel, etc. Such
Global Corporate Social Responsibility
In India, the TISCO has been the first company to set up a Social Audit Committee for
conducting social audit of its work under the chairmanship of Justice S.P. Kotwal, and Prof.
Rajini Kothari and Prof. P.G. Mavalankar as members. This committee was entrusted with
the task of examining and reporting whether, and the extent to which, the TISCO has
fulfilled the objectives contained in Clause 3A of its Articles of Association regarding its
social and moral responsibilities to the consumers, employees, shareholders, and the local
community. The Committee opined, On an examination of all aspects, the company has
fulfilled its obligations to all concerned.
Started with TISCO the social audit has picked up. UTI, the premier financial institution has
also planned for a social audit. In the report for 1993-94, the chairman of UTI has declared
that to address the question as to what extent this unique organization has been able to fulfill
its responsibilities vis--vis its various publics and society at large. And independent social
audit committee of five eminent citizens has been setup.
7.8
Social audit provides cost data on social programmes so that management can relate
the data to budgets, available resources, company objectives, and projected benefits of
programmes.
5.
Social audit provides information for effective response to external claimants that
make demands on the organization. News know what a business is doing
in areas of their special interest, and a business needs to respond as effectively as possible.
The social audit shows a business where it is vulnerable to public pressure and where its
strengths lie.
7.9 SUMMARY
In recent times corporate governance and corporate social responsibility have become the
talk of the day. In almost all business organizations, this concept is now being used formally.
This has gained a wide recognition as it is important for the economic health of the
organization and the welfare of the society at large. Since early 90s recommendations of
different committees have been taken into consideration to understand the practical approach
to the concept of corporate governance.
Social responsibility in business or more popularly known as corporate social responsibility
means that the organization has to work in tune with the public interect. This comprises of
areas like social audit. This becomes a monitoring tool for the public enterprises so as to
enhance the efficiency of these enterprises.
3.
Which of the following is not a recommendation of the Birla Committee
a) Board meetings should be held at least one time in a year with a maximum time gap of
four months between any two meetings.
b)
The Board of directors of a company should have an optimum combination of
executive and non-executive directors with not less than 50% of the Board consisting of
non-executive directors
c)
The Board should set up a remuneration committee to determine the companys
policy on specific remuneration packages for executive directors
d)
The Board should set up a qualified and independent audit committee
4.
a)
b)
c)
d)
5.
a)
b)
c)
d)
6.
a)
b)
To be a public enterprise
Government should have no role
Government should have 51% ownership of shares
c)
d)
7.
Characteristics of a Socially responsible firm are:
a)
Stuck to the basics and produced only high quality goods and services for specific
market niches
b)
Firmly practiced the dual principles of self-management and decentralization
c)
Constantly solicited feedback from customers on all subjects from product direction
to corporate donations
d)
All of the above
8.
a)
b)
c)
d)
9.
a)
b)
c)
d)
10.
a)
b)
c)
d)
Community Uninvolvement
Depleted Resources
Environmental Contribution
Wastage Contributions
CHAPTER-8
SOCIAL AUDIT
BUSINESS
AND
ETHICS
IN
INTERNATIONAL
Objectives
After reading this unit you should be able to:
explain the meaning of social audit;
state the scope and objectives of social audit;
emphasise the need for social audit ;
identify different types of social audit;
highlight key developments in social transparency and reporting
Structure
8.1
Introduction
8.2
8.3
8.4
8.1 INTRODUCTION
The term social audit may be interpreted in several ways. As far as common understanding
goes, it is an essential assessment of how well a company has discharged its social
obligations. However experts see it as a systematic and comprehensive evaluation of an
organizations social performance which is interpreted as organizational efforts in
enriching the general welfare of the whole community and the whole society.
The need for social audit arises because of various reasons. In order to reach the objective of
enriching economic wealth for the shareholders, the firm do it at the cost of social and
environmental disorder. And since many would not take into account the social costs of such
negative implications, their prices do not reflect the real cost. The organizations do it more
because of competitive reasons. However if the larger interest of society is to be preserved,
there has to be some consideration for social good.
The company is expected to behave and function as a socially responsible member of the
society like any other individual. It cannot shun moral values nor can it ignore actual
compulsions. There is a need for some form of accountability on part of the management
which is not only limited to shareholder alone. In modern times, the objective of business
has to be the proper utilization of resources for the benefit of others. A profit may still be a
necessary part of the total picture but it should not be the only purpose. The company must
accept its obligation to be socially responsible and to work for the larger benefit of the
community.
Society expects businesses to share the fruits of progress and growth. Moreover, the social
concern by the organization proves to be an asset for them in the long run especially under
environmental distress because of the goodwill and the positive image earned all through
these years.
8.2
Social audit tries to make the traditional economic and technical values as two subsystems
within the larger social system. Social audit primarily tries to cover the following areas:
Global Corporate Social Responsibility
i)
Ethical Issues: They offer a basis for determining what is right and what is wrong in
terms of a given situation. Ethics is best understood when we cite examples relating to
unethical conduct. Few such examples can be price discrimination, unfair trade practices,
cheating customers, pirating employees ideas, leaving the job without observing job
contract.
ii) Equal opportunity: A second relevant social issue which comes under social audit is
the equity of treatment in employment and a fair justice system in the organization.
Employment decisions in an organization should be based on merit and ability and not on
the basis of arbitrary quotas based on gender, race or religion.
iii)
Quality of Work Life: Besides demands for safe, healthy and human work
environment people are seeking greater meaning in their lives. Greater responsibility,
growth, freedom and flexibility, fair reward system are few things which employees have
preference for. There is also a growing demand for employee assistance programmes
keeping in mind the present day stressful situations they are exposed to.
iv) Consumerism: Business has a special obligation towards the consumer as the
business exists to serve and satisfy the needs of the consumers. It is the principal duty of
business to make available to the consumer items of daily needs in the right quantity at a
right time, price and of the right quality. However many Indian products are not safe at all
and the consumers suffer at hands of corrupt, and dishonest corporate houses.
v) Environmental Protection: Growing water, air and environmental pollution by
various industries in recent times has led to a public outcry demanding environmental
protection at any cost.
8.3
One of the most significant developments in the field of corporate social responsibility
(CSR) over the past few years has been the growth in public expectations that companies not
only make commitments to CSR, but also develop systems to manage, implement and
systematically assess and report on progress relative to those commitments. Corporate
accountability encompasses the systems a company establishes to develop policies,
indicators, targets, and processes to manage the full range of its activities. The scope of
operations for which companies are expected to be accountable has increased dramatically
in recent years to include not only companies own performance but also that of business
partners and other actors throughout the companys value chain. The mechanism a company
uses to demonstrate accountability are varied and inevitably need to change and grow as a
company evolves, but effective systems for increasing accountability generally allow a
company to be inclusive, responsive, and engaged with its stakeholders.
Corporate accountability today spans emerging CSR issues like business ethics, diversity,
marketplace behaviour, governance, human rights, and labour rights as well as more and
Global Corporate Social Responsibility
more traditional areas of financial and environmental performance. Interest in the interrelationships between issues will also increase the complexity of the corporate
accountability debate; in many areas of the world, social issues are now in ascendance, and
these qualitative, complex issues are likely to be the ones against which companies find it
hardest to measure and verify performance.
Effective and accountable management systems help companies shape cultures that support
and reward CSR performance at all levels. As part of this effort, many companies are
working to increase accountability for CSR performance at the board level. This can lead to
changes in who serves on the board, how directors handle social and environmental issues,
and how the board manages itself and fulfills its responsibilities to investors and other
stakeholders. Companies are also seeking to build accountability for CSR performance at
the senior management level, in some cases by creating a dedicated position responsible for
broad oversight of a companys CSR activities. Finally, many companies are working to
integrate accountability for CSR performance into actions ranging from long-term planning
to everyday decision making, including rethinking processes for designing products and
services and changing practices used to hire, retain, reward, and promote employees.
Demand for increased corporate accountability today comes from all sectors. Evidence of
this is found in the increasing number of sustainability-related market indices and by
external demands for certification or labeling of certain products. Underpinning this demand
for increased corporate accountability is the expectation that companies can and should be
more transparent, which essentially means measuring, reporting on, and continuously
improving social, environmental, and economic performance. These increased demands are
in part a result of recent events that have contributed to erosion in the trust extended to
companies. Stakeholders now expect companies to provide access to information on impact
of their operations, to engage stakeholders in meaningful dialogue, and to be responsive to
particular concerns unearthed in the dialogue process. To increase the credibility of what is
disclosed, leadership companies are also investigating carefully the value of various types of
assurance that might support their reporting efforts.
Proliferation of Social and Environmental Reporting Standards: A variety of
organizations and initiatives are attempting to standardize social and environmental
reporting procedures to let stakeholders more easily compare companies performance
across facilities, sectors, and borders. Most noteworthy is the Global Reporting Initiative
(GRI), an international reporting standard for voluntary use by organizations reporting on
the economic, environmental, and social aspects of their activities, products, and services.
The GRI, convened by the Coalition for Environmentally Responsible Economies (CEREs)
in partnership with the United Nations Environment Programme, incorporates the active
participation of corporations, NGOs, accountancy organizations, business associations, and
other stakeholders from around the world into the ongoing development of the reporting
guidelines. Another example of a more local standard is one launched in Brazil by the Ethos
Institute for Social Responsibility which has produced a set of indicators to help companies
integrate CSR into their management practices and to track and monitor their progress. In
Global Corporate Social Responsibility
It tries to measure the effectiveness of those activities of the organization which are largely
taken up to meet certain social objectives. Corporate executives in this case try to examine
what they are doing and how they are doing. The method involves four steps:
i)
Find circumstances leading to the starting of the social audit programme
ii) List out goals of the social programme
iii) State how the organization is going to meet such goals
iv)
Qualitatively evaluate what is actually done as against what has been planned
2)
In this type, financial statements show conventional financial information plus information
regarding social activities. About associates a management consultancy firm proposed
that0020the balance sheet should show a list of social assets on one side and social
commitments, liabilities and equity on other side. The income statement should reveal social
benefits , social costs and the net social income provided by the company operations to the
staff community, general public and clients.
This approach has been criticized as many feel that it may create confusion of complicating
issues further and defying easy understanding.
3)
8.5
Shell publishes its 2002 sustainability report under the same cover as its 2002 financial
report. While many companies find that comprehensive reporting can satisfy many
stakeholders informational needs, there is considerable debate over the relationship
between reporting and actual changes in corporate behaviour. So, while sharing information
is an important first step in creating an accountable culture, stakeholders are now looking at
how the process of reporting creates change in company policies and practices.
Greater Government Regulation: Government regulators at all levels are calling on
companies to increase the quantity and quality of information they disclose to the public
about their practices and performance. On the whole, European governments have been
more active in advocating regulatory approaches than the U.S. government. For instance,
newly amended French legislation, called the Nouvelles Regulations Economiques (NRE),
require as of the beginning of 2003 that all companies listed on the French stock exchanges
to report to shareholders and stakeholders on a range of social and environmental issues.
Countries such as Denmark, Sweden, Norway, and the Netherlands also have enacted
legislation requiring specified companies to report on aspects of their social and
environmental performance.
Increased Stakeholder Activism: Many stakeholder groups are engaging companies more
directly, utilizing a wide range of tools, techniques, and technologies to bring their interests
to companies attention. These activists are also working to educate lawmakers, the media,
and the public about companies that are or are not deemed to be accountable. Among
the tactics being used by stakeholder groups are public information campaigns, public
protests, boycotts, and class-action lawsuits seeking action and redress for perceived
company misdeeds. At the same time, stakeholders are developing new strategies that
involve finding commonalities with other groups to create alliances that cross both
geographic boundaries as well as issuearea divides. In doing so, they are able to directly
engage companies with a much stronger voice and with a much broader agenda.
Increased Shareholder Engagement: Company shareholders, both individuals and
institutions, have become increasingly vocal and aggressive in pressing companies to be
more accountable. Activist shareholders call for increased accountability have included
resolutions promoting greater disclosure of environmental and social impacts, increased
transparency in board actions and decisions, and requisitions for company commitments to
abide by internationally accepted social and environmental principles. Whereas resolutions
over the past few years often called for company endorsement of specific standards such
as SA8000, the CEREs Principles or the UN Global Compact resolutions today most
often use more general language on adhering to the highest and best social and
environmental standards appropriate to the company so as to have broader/greater
shareholder appeal. In addition, shareholder activists are pushing for public disclosure of
companies voting guidelines as well as proxy votes by mutual funds. For instance, the U.S.
Securities and Exchange Commission recently approved regulation that will require mutual
funds to disclose how they vote on shareholder resolutions, a move that was strongly
supported by shareholder activists. Many companies continue to engage shareholders at
Global Corporate Social Responsibility
annual meetings or through the resolution process, a mechanism that shareholders use to
access management on issues of concern. However, some companies now meet directly with
shareholder activists and institutional investors in settings other than the annual meeting.
Some companies have developed staff positions or departments responsible for addressing
shareholder concerns on social and environmental issues.
The Growth of Information Technology: The Internet has provided companies and those
seeking greater corporate accountability an unprecedented ability to share and exchange
information both accurate and inaccurate on a large scale. Given the largely
unregulated nature of this form of communication, many companies are finding that they
need to monitor and engage more actively in the information being disseminated. A number
of companies now use the Internet to report proactively on their social and environmental
activities. Increasingly, companies are using the Internet not only as a place to electronically
post information originally developed for print, but also taking advantage of the medium to
provide more periodic, interactive, and in-depth information about their performance. The
Internet also allows companies to receive feedback from stakeholders on the information
they are sharing. Some companies are finding that they can dilute or eliminate the impacts
of negative, Internet-driven campaigns by engaging activists and other stakeholders directly,
helping to ensure the information they receive is as accurate as possible. At the same time, a
variety of non-governmental organizations, government entities, and for-profit enterprises
have established Internet sites that provide detailed information about companies
environmental performance, philanthropy, and other social impacts, in some cases on a
facility-by-facility basis. Another growing use of the Internet is to allow shareholders to
vote their proxies online, potentially enhancing the ability of activist institutions and
individuals to mobilize fellow shareholders in order to influence company policy.
Increased Media Attention: Corporate social responsibility, and accountability more
broadly, have become topics of increased media attention and scrutiny, both in the business
press and the mainstream media. A number of publications now feature regular articles on
such accountability-related issues as board diversity and independence, CEO compensation,
board performance evaluation practices, and company responses to shareholder concerns.
Media attention has forced companies to examine, and in some cases revise, their policies
and practices on a range of CSR issues. For example, in a case that is poised to set a
significant precedent in the area of corporate transparency, the U.S. Supreme Court has
agreed to hear a case against Nike, in which the company is accused of falsifying
commercial speech in defense of the working conditions at its supplier factories overseas.
Allegations against the companys overseas labour practices have received significant media
attention over the past decade, leading to Nikes assertion that the company should be
constitutionally protected to defend itself and highlight the human rights strides it has made.
Roughly 30 news organizations, including ABC, CBS, NBC and top newspaper chains as
well as organized labour and groups such as the American Civil Liberties Union, argued in
court filings that reporters will not be able to get company executives to talk freely about the
safety of products, racial discrimination or environmental concerns about their industry,
because of the fear of future lawsuits if the case against Nike should be upheld.
Global Corporate Social Responsibility
dilemma refers to permitting or not tobacco companies to advertise. Not allowing them to
advertise, restricts their freedom of speech and obstructs their ability to do business.
Examples of such dilemmas are numerous. The common thread running in all ethical
dilemmas is the conflict between rights of two or more stakeholders. The number of
potential ethical dilemmas increases for a manager with increase in number of stakeholders.
Ethical lapse on part of a manager occurs when he makes an unethical decision. While
ethical dilemma arises due to unresolved interpretations of ethical issues, the ethical lapse is
associated with cases of unethical behaviour. Thus the desire of a tobacco company to
advertise is an ethical dilemma; the decision of a top manager to profit from inside
information is an act of ethical lapse.
8.7 APPROACHES TO ETHICAL MANAGEMENT
Identifying Ethical Pressures
An organisations decision of pursuing ethical management practices, must be a proactive
stance and such practices must be pursued with diligence and persistence. To realise this aim
there is a need to recognise various ethical pressures on managers that lead to ethical
dilemmas and in some cases make ethical behaviour seem attractive. Such an approach is
likely to instill a sense of ethical decision making in managers.
The ethical pressure on managers is likely to result from such sources as organisational
goals, personal goals, competition, uniformity and fear. The managers may be under
pressure to meet their organisations goals, such as to sell a certain number of products. Such
pressures may lead managers to choose course of action that may be less ethical but helps in
better short-term performance. Ethical organisations recognise that responsible decision
making should consider factors beyond immediate goals and encourage managers to ask
ethical questions while taking decisions.
Personal goals, just as organisational goals, can distort the decision making process. For
example, a salesman wanting to outsell other salesmen so that he can be promoted to the
post of sales manager might be tempted to overstate a products benefit to increase the
volume of sale. In other situations for similar reasons, an employee might claim other
employees work as his own or put pressure on other employees to lower their performance.
As the personal performance has impact on compensation and promotions, ambitious
employees are likely to take recourse to unethical behaviour, Increasing competition has
visible impact on personal and organisational behaviour. The competitors are likely to
overstep ethical boundaries. For example, the level of competition is very high in computer
industry and therefore getting to market generally with advanced products can be crucial to
success. This has led some companies to announce products well before they exist. The idea
is to pre-empt the market or beat the competitors. Such practice can mislead customers and
can cause financial damages to firms who are left wanting for products that arrive late or not
at all.
Individuals are under peer group pressure to act in confirming ways, both on jobs and other
situations, throughout their lives. Sometimes there is a group norm, say among production
line workers, that is unhealthy. Thus, if the group feels that the prescribed safety tests are
tedious, there would be pressure on the workers of the group to skip the test. However, some
comfort can be taken from the fact that the pressure to conform, in order to be accepted by
peers can also lead to ethical behaviour if the group norm warrants it. Many fears,
particularly the fear to loose ones job may make employees to take unethical decisions. A
site supervisor, working for a building contractor, under instruction to use sub-standard
material has to choose between cheating the customer or finding a new job. If there is
shortage of jobs and supervisor has a family to support, the pressure to act unethically is
really great.
8.9
Many philosophical and management theorists have provided frameworks that can be used
by managers to face ethical dilemmas. Using these frameworks, managers can analyse the
issues involved and use plausible criteria for making decisions. However it must be noted
that just as the ethical issues are not easy to formulate, the decisions made using the
suggested frameworks are also not unambiguous. Though the suggested tools may not
enable us to have a single right answer to ethical dilemmas, they lead to answers which
appear more right, more just or more fair than it is possible to have without them.
Normative philosophy which is concerned with the study of proper thought and conduct or
how people should behave stands at the root of principles ued for ethical analysis. The two
normative framework commonly used by managers are utilitarian theories and
deontology or formalism Some other frameworks for resolving ethical dilemmas such as
Eternal Law, Distributive Justice, Personal Liberty have been discussed subsequently.
Utilitarianism: This is a preferred approach in North America and is widely used in
management literature on ethical decision making. This approach is based on the premise
that ethical decision making has a pay-off so that the prosperity of a company is assumed to
be related to its ethical behaviour. According to the utilitarian theory, a decision is judged to
be ethical on the basis of its perceived outcomes. In its original form, the theory was based
on the prospect of greatest good for the greatest number of people. Following this approach,
a government could follow a policy believing that the outcome would benefit greatest
number of people (even at the expense of minority). Similarly a company could take
decision to retrench a minority of workers to make the factory more cost effective so that
majority of workers benefit who would remain in employment.
The cost-benefit analysis which looks at decisions from the point of view of total costs, the
financial and social and total benefits is a modern day derivative of this theory. Pollution
control, related to environmental protection, could be decided using this approach. The
benefit to community through pollution control is compared to cost involved in the effort.
To the extent that the decisions are made looking into future, both the future costs and future
benefits, the utilitarianism tends to be a forward-looking philosophy. There are many
problems associated with this school of thought. The first issue raised is the question of
justice. It is argued how far it is justifiable to prosecute a minority in the interest of majority.
Global Corporate Social Responsibility
The democratic systems, whether practiced at national level or the organisational level, are
also based on utilitarianism.
The utilitarianism principle has been also criticised on the question of subjective benefits.
Thus people have subjective notion of benefits occurring to them and there is also the
possibility of manipulating the preference i.e. people could be persuaded to believe that they
enjoy more benefits from a decision then is actually the reality. An example of this would be
the case where a manager, when negotiating with another manager, sells a decision using
manipulative technique to magnify the benefits available to the opposite party.
Formalism or Deontology: This approach is based on universal moral principles and is
independent of wants and needs. The decision is not based on its expected result but on the
consideration whether it is right. The spirit of formalism is captured by Kants principle of
categorical imperative which implies that everyone should act to ensure that others would
reach similar decisions in similar circumstances. It follows that formalism is established
through shared understanding. Thus everybody understands the principle of right or wrong
that you are applying, at least within your organisation or in your culture, As decisions
taken, following this approach, are based on historically formulated principles they tend to
be backward looking in their perspective. Such approach to decision making can lead to
bureaucratic practice of insistence on rules for decisions and actions and thereby leading to
dogmatism. Further, it also tends to ignore individualism.
Utilitarianism and Formalism Illustrations of Contrast: These two important
approaches differ in their perspectives while facing ethical decision making situations. Some
examples of these differences are listed below.
a) While describing a business executives action, the utilitarian sees it from the perspective
of its being good or bad but the formalist views it from the angle of being right or wrong.
b) For a utilitarian the consideration behind an ethical decision is exectives needs, wants
and desires, however, for a formalist it is the question of the executives conscience,
c) For a utilitarian the solutions to ethical problems are not easily definable, it is exactly
opposite as far as the formalist is concerned.
d) The telling of lies is considered wrong by both, but for different reasons. For an utilitarian
speaking lies is wrong because it can lead to attendant problems, in the formalist views it is
wrong because it is not correct for anybody to lie.
e) The role of law is viewed differently, It is the belief of utilitarian that through benevolent
legislation, everybodys life can be improved but for the formalists it is important to apply
law fairly and impartially.
Cultural Preferences for Decision Principles: It has been observed that individuals from
different cultures have marked preference for one or other decision principles. The literature
on international negotiation often refer to the styles of Russian negotiators who more often
appeal to overriding normative principles during negotiations than negotiators from other
countries. The same holds good for cultural differences in decision making in other
situations.
Empathy: Apart from various frameworks to resolve ethical dilemmas, practising empathy
can provide managers vital insights into the likely consequences of their decisions. By
Global Corporate Social Responsibility
considering the feelings of all those that are likely to be directly and adversely affected by
their decisions, the managers will develop empathy that can be used to temper their ethical
decisions.
Institutionalising Ethical Organisations Behaviour
An ethical organisational culture can be introduced and nurtured by managers that
emphasises the importance of ethical considerations. The move towards an ethical
atmosphere must start at the top of the organisation, led by personal influence of top
managers. The way the CEO and other executives exercise moral judgement can have more
impact on an organisation than any written policy.
The other approaches that can instill ethical principles in an organisation include standards
of ethics, training in ethics-related issues, ethics committee, ombudsman ship and ethical
codes. Ethical standards are the guidelines of moral conduct in a given profession or group.
Companies try to maintain ethical standards through administering honesty test and
conducting background investigation while recruiting. Others require their potential
employees to read and sign their agreement to the organisations values and ethical
standards. Code of ethics is a formal statement of the organisations values, ethical
principles and ethical rules. It is probably the most visible sign of an organisations ethical
philosophy. The ethical codes should not be too vague or too detailed. To be effective, it
must clearly state basic principles and expectations, must focus on potential ethical
dilemmas that employees may encounter, must be communicated to all employees and must
be enforced.
Another way to institutionalise ethical behaviour is to provide ethics training that may start
at the time of employment at which employees read and sign the companys code of ethics.
One way to make the training pragmatic is by focussing on case studies of hypothetical
ethical questions based on interviews of companys managers. There should be any attempt
to provide solutions to the cases but use them only as base for discussing ethical issues.
Organisations have also tried Ombudsmanship-an informal review process that provides an
indirect, nonthreatening means of obtaining a response from senior management about an
ethical conflict. Such a system may help the younger managers on sticky career issues,
organisational difficulties and ethical issues. It can also serve as organisational conscience
and may also investigate complaints about unethical behaviour. Finally it may point out
potential ethical lapes or dilemmas to top management. Employees resort to whistleblowing or public disclosure of illegal, unethical or harmful practices of their organisations
when they are convinced that unethical practices cant be halted even when managements
attention has been drawn to it. While whistle-blowers get protection in specific situations in
some countries, it has high costs, both for the employees and organisations. Some
organisations have standing committees of the board of directors to consider ethical aspects
of companys policies and practices, assuring the employees and other stakeholdersabout top
managements commitment to ethical behaviour; others have established internal audit
committees to monitor organisational ethics.
8.10 ETHICS AND INTERNATIONAL MANAGEMENT
Before the managerial dilemmas faced by the international managers are considered a
general model of ethical analysis of management decision is taken up It helps to understand
the various factors affecting the managerial decisions across cultures
Ethical Analysis of Management Decisions: Hosmer has suggested a model for ethical
analysis of management decisions that is helpful in analysing the ethical dilemmas of
international managers. Look at Figure 9.1 which shows the model for ethical analysis.
Before giving thought to the other factors of the model and to appreciate the multifaceted
nature of managerial dilemmas, consider the elements of content of managerial dilemma.
This has been done in the context of a one-country problem related to human resources.
The HR problem posed by Hosmer relates to employee drug testing issue of a company that
faces the problem of low productivity and low quality. It is suspected that it is due to drug
and alcohol abuse. The testing for chemical depending is an invasion of personal privacy and
the test does not always give accurate result. The management has information that less than
20 per cent of the workforce uses drugs and alcohol. However, if the test is carried out, the
other 80 per cent will also have to go through the indignity of tests. The managerial dilemma
is whether to go for drug test or not.
Content of managerial dilemma. Hosmer model has financial, legal, organizational, social
and personal aspects as parts of content of managerial dilemma. In the HR example these
refer to the following.
The financial content refers to financial benefits and costs in solving the drug problem. The
organizations tend to give more weight to this aspect in their decisions. The legal content is
concerned with any legislation, which permits or prevents the type of drug testing proposed.
There is always a possibility of compensation claims, as a result of test that may have
financial implications. The organisational consequences of the drug testing can be both
positive and negative. It may lead to better working environment once the problem is solved
and also more job security due to improved efficiency in production. However, on the
negative side, there is the possibility of low morale as a result of the action.
The implication of the proposed action on the wider society is the domain of social content
of the managerial dilemma. On the plus side the testing may enhance the competitive
position of the company and it may also enhance its reputation in the locality. However, if a
society considers individuals privacy important, there can be negative implications in the
community as a result of charges of invasion of privacy. The managers while taking
decisions are also concerned with the result of their actions on their careers. There is also the
possibility of loosing their jobs if something goes wrong. This constitutes the personal
content of the managerial dilemma.
The issues discussed under the content of the managerial dilemma above clearly shows that
the approach followed by Homer is utilitarian because the action is judged in the light of its
outcome. Apart from the content of managerial dilemmas, the model has other elements such
as moral standards of behaviour, the ethical system of belief.
Moral Standards of Behaviour: This occurs in the model prior to the consideration of the
dilemmas facing the decision-maker. We use moral standards of behaviour to judge our
behaviour and that of others. It is important to note that these tend to be subjective,
imprecise and varies between the individuals. They are also likely to vary from one situation
to another as is evident in our attitude towards lying.
8.11
The seeds of our moral standards of behaviour can be traced back to our ethical systems of
belief. They provide guiding principles of our decision making. Hosmer identifies five such
systems of belief in decision making, of which utilitarianism and formalism has been already
discussed. The following summary gives, in brief, the nature and the problems associated
with various systems of belief.
(a) Eternal Law: The religious teachings reveal the moral standards and these standards are
eternal law to which we should adhere. However, multiple interpretation of the law creates
problem.
(b) Utilitarian Theory: The perceived outcome of the action provides standards. Following
this approach, it is easy to justify immoral acts by referring to the benefits to the majority at
the expense of a minority.
(c) Universal Theory (Formalism): In this case standards are derived from intent of the
decision according to universal principles. The problem in this approach arises from the
concept of universality and who judges the morality of principles.
(d) Distributive Justice: A single value of justice, namely that everyone should act towards
the more equitable distribution of benefits provides the basis for moral standards. It is
believed that this will lead to social cooperation. However, the social cooperation may or
may not occur when this decision making rule is followed.
(e) Personal Liberty: The principle of liberty, in this case, is the single basis of moral
standard. It is implied that everyone should act to secure greater freedom of choice,
promoting market exchange and social productivity. The implicit assumption in this
approach is that market system leads to productivity.
The moral standards of behaviours in the Hosmer s model, is determined by the above
discussed ethical believe systems together with cultural experiences and the prevailing social
and economic system. The managers resolve their ethical dilemmas in the context of their
moral standards of behaviour.
When the managers operate in global science, they are likely to face different national
cultures where there is preference for different belief systems. There is also possibility that
the belief system of the home country is incompatible with that of host country. In such a
situation a utilitarian approach (a pragmatic approach) has been found to be useful while
dealing with ethical issues. The examples of ethical issues in international decision making
include dealing with corporate bribery, acceptable level of pollution and attitude towards the
destruction of rain forest, etc.
8.12 FOREIGN CORRUPT PRACTICES ACT OF USA
After many glaring cases of business bribing government officials in other countries caine to
light, US government passed the Foreign Comipt Practices Act (FCPA) in 1977 which was
Global Corporate Social Responsibility
practices, least it damages their reputation and image. In giving shape to their marketing
practices, they not only take into consideration the commercial imperatives but also the
expectations of host and home country. The public relations departments of many MNCs
take pains to manage the potentially damaging situations. The firms would like to act much
before the media or the government forces it to do so. In addition they also want to be
perceived by their customers to be ethical. Two instances of proactive behaviour of firms in
international trade are given: (i) The Tylenol drug was withdrawn by Johnson and Johnson
after seven deaths was attributed to it in Chicago in 1982, The cost of damage control at
$100 million was quite high, even when the loss future sales was not counted. (ii) Perrier
withdrew all their bottled water from all countries around the world when presence of
benzene was detected in Canada in 1990. This resulted in incurring of a cost of $140 million
but quick action kept its image of provider ofpure product untarnished, even when the risk
of ill effect was negligible.
8.13.1 Ethical v/s Unethical Activities
Even when there is proactive behaviour on parts of many MNCs in their marketing practices,
some of their activities have been debated regarding their ethical nature. While many issues
have been raised in this debate, major ones having a bearing on international trade are listed
below.
i) Selling Products Less in Demand in Home Countries: After products reach maturity or
face decline in demand due to their particular stage in product life cycles in developed
markets, there is pressure on firms to sell them in the markets of less developed countries
(LDC). Such is the case about tobacco products. It is experiencing decline in consumption
in USA and Europe due increased awareness about its potential bad effects. In addition,
there is increased competition among producers. Many tobacco companies to retain their
profitability are targeting the
LDC markets where smokers are not fully aware of the risk of smoking. Such a move is
open to question regarding its ethical nature.
ii) Selling Prohibited Products in LDC Markets: In some cases drugs and chemicals
prohibited in developed countries, due to their harmful effects, are being sold in LDC
countries. This has been justified as not necessarily exploitative Take the case of DDT It is
known to contaminate ground but it is also only known counter to malaria bearing
mosquitoes and therefore benefits of its use in a LDC, where malaria is rampant, far
outweigh its cost Similar arguments have been also advanced in respect to many drugs and
veterinary products, withdrawn from developed country markets due to their side effects, as
still useful to LDCs who cannot afford the high priced developed substitutes, now in use in
developed countries.
iii) Selling Products Likely to be Misused Products developed to be used in an
environment may be used incorrectly by consumers due to changed circumstances, lack of
knowledge or scarcity of resources If such misuse can be foreseen, marketing of such
products is unethical. One such case was marketing of milk powder by Nestle in LDCs. The
company was not fully mindful of its implications for the mothers and the babies, in
situation of Lack of clean water, money and training. Investigations of some pressure groups
have revealed the following.
Nestle was guilty of misrepresentation and for its efforts to change the indigenous behaviour
to detriment of populations health. Its distribution of promotional samples in hospitals led
to mothers milk to dry up and that in turn forced the use of companys milk powder.
Company continued their practice even when being aware that mothers lacked resources to
purchase milk powder and thus a situation was reached where children suffered from
malnutrition.
The Nestle episode led to its seven years global boycott. Arising from this, UN also came
out with a new guideline on the issue.
iv) Restrictive Trade Policies: Restrictive trade policies adopted by certain governments
have been labelled as unethical by other governments and companies in international trade.
The relative closeness of Japanese market has been attributed to many historical and cultural
factors (such as Japanese consumers having tradition of purchasing locally produced goods
that is perceived to be superior) but also due to protectionist policies pursued by the
government there. There have been high import tariff and non-tariff barriers for wide range
of products.
v) Dumping: Dumping occurs when goods produced in one country are offered for sale, in
large quantity, at very low price, in international markets. Such trade has been regarded as
questionable. Reasons behind such trade include state subsidies, debt write-offs and high
exit barriers of a particular industry (e.g. steel, shipbuilding and aircraft manufacturing).
Such trade leads to hurting of business and jobs in one country by state-supported, nonviable jobs in another country. A case of supporting non-viable jobs is evident in many
national air-carriers, which are subsidised even when there is substantial over-capacity in the
industry.
Some have argued that imports by developed countries of cheap goods from LDC, which
have labour and other material cost advantages and low cost production methods, such as
shoes from Eastern Europe and clothes from Pacific Rim countries, has led to loss of
thousands of jobs in those industries in importing countries. It is acknowledged, however,
that the consumers in western countries benefit from low priced products and exporting
countries get much-needed foreign exchange.
vi) Counterfeiting: This growing problem relate to firms violating the patent and copyright
of another firm, usually in case of luxury products. The product copies are normally
produced in LDCs. This leads to creation of jobs in copying countries, mostly LDCs, and
consumers, particularly in developed countries, have opportunity of purchasing a copy of a
luxury product at very low price. However, the producers of original products claim that this
practice leads to diminishing value for their products, whose image has been built through
large investment. There are many that hold that the concept of counterfeiting and the
violation of intellectual property right appear to be a Western and ethnocentric view of
ethics. If such right exists than China should get royalty for noodles, compass and ice cream.
There is a counterpart of this international marketing ethical issue in domestic marketing,
The private label category of fast-moving consumer goods can be also regarded as
Global Corporate Social Responsibility
i) Need to respect laws and regulations of the host countries and do nothing to compromise
with the health and safety of consumers. US laws on product liability, a big litigation issue,
is an extreme case that affects the development of new products. especially the
pharmaceuticals. Such legislation makes small firms reluctant to export to USA due to
prohilitive cost of litigation.
ii) Firms should not exploit the weakness in legislation in host countries such as selling
products in these markets that are banned elsewhere.
iii)The firms can be proactive and assist the governments in preventing marketing of unsafe
products. However, the close relationship developed by firm with the local government,
should not be misused such as gaining competitive advantage through adaptation of
companys product specification, taking advantage of local lack of expertise in a particular
area.
8.14
There has been increasing debate among the academics, local activist, and managers about
the ideal relationship between the organisation and society. Two issues have predominantly
emerged: an organisations responsibility for its activities that affect society, both positively
and negatively and about the extent of responsibility that should be born by an organisation
to solve social problems.
Social Responsibility can be examined at four levels: Economic, Legal, Ethical and
Discretionary First, for all for-profit business, an organisation has economic responsibility
to produce products and services needed by people and sell them at profit. Peter Druker
advises organisations not to undertake social actions that are economically unviable or act as
distraction in achieving a minimally acceptable profit level. Economist Milton Freedman,
who advocates that business s only social responsibility is to maximize profits holds an
extreme view. The non-economic activity, not only robs shareholders of their due but also
distracts managers from their profit-making goals. It has been also argued that business
managers are not experienced in solving social problem and their involvement in such
activities may conflict with their ordinary business activities.
For an organisation to pursue its activities within the bonds of laws and regulations are its
second responsibility and are termed as legal responsibility. The laws and regulations of a
society do not cover all the possible actions that an organisation and its managers are called
upon to undertake. In their various activities spanning from labeling to employment
practices, they may have to choose among two or more courses of action, all of them legal.
The choice is not based, then, on the consideration of legality, but on the basis of their
rightness. Deciding which is right and basing decisions and actions on this consideration
represents an organisations third responsibility. This has been termed as ethical
responsibility.
There are yet other type of social responsibilities that are purely voluntary and guided by
individual judgment and choice. They can be placed in the final and fourth category of
Global Corporate Social Responsibility
welfare. The resources for the purpose need not have to be large. Encouraging and providing
time off for managers and employees to do volunteer work for hospitals, health care centres
and engage in other welfare and developmental activities can also support such activities.
Organisations have also shown interest in their social responsibility in education. It is not
just to be charitable or generate positive publicity, but to survive. They have contributed in
efforts to improve preschool, primary, secondary and vocational education.
Many organisations direct their social responsibility efforts towards upholding the cause for
human rights. Reebok International, the athletic shoe manufacturer, has promoted the
activities of Amnesty International. The right to freedom of expression is a part of its
corporate philosophy. It has also instituted annual awards for young men and women who
raise awareness of human rights and freedom of expression.
Some organisations have focussed on natural environment as their area of social
responsibility. The important issues of this area include ecology, conservation of natural
resources, protection of endangered species and responsible waste disposal. In many cases
buyers purchase decision is based on a companys environmental reputation. This has
forced organisations to support recycling efforts, to contribute towards waste reduction and
to actively use biodegradable material. Thus Apple computer uses brown cardboard as a
packing material, in place of white cardboard, to avoid the bleaching agent. Many
organisations are capitalising on consumer concern for the environment by marketing
environmentally friendly products.
Many socially responsible organisations exhibit great concern for the rights of their
consumers. For this they take great pains to ensure high quality, safety and truthful
advertising. The Gillette company has a Vice President of product integrity to protect
consumer interest. In addition to quality control measures employed during production, it
maintains a big team of managers to double-check the companys products. It also has
medical evaluation laboratories where scientists focus on ill effects of new Gillette products
and check for any allergic reactions to shampoos and its other products. The firms
obsession with effectiveness and quality goes beyond meeting the legal minimum
requirement and costs a lot of money. However, it believes that a satisfied consumer is a
Loyal consumer and its efforts are worthwhile.
Businesses are also keen to support cultured events as a form of social responsibility. It
promotes the positive image of their company. Further, support for arts may also help the
company to reach out to a generally upscale audience.
8.14.2 Approaches to Social Responsibility
Continuum of Social Responsibility. The stance taken by organisations towards their social
responsibility can be categorised in one of four ways: opposition, obligation, responsiveness
and contribution to social responsibility. These categories from a continuum; the lowest
level responsibility is shown by firms who must be forced to comply with legal and ethical
standards. The highest level is occupied by the firms that actively look for ways to help
stakeholders, above and beyond what is expected of them. The lower middle position is
occupied by organisations that meet their social obligation by voluntarily confirming with
Global Corporate Social Responsibility
the legal and ethical standards but go no further. Next to them on the continuum of social
responsibility are organisations that choose to respond to stakeholders needs by assuming
obligations beyond their legal and economic responsibilities
Social Audit Organisations concerned with keeping their social responsibility at the
forefront of their strategy employ the tool of social audit. It provides them a systematic
evaluation and reporting of their current performance in various areas of social responsibility
The common components of social audit include the stakeholders audit which focuses on
interest of its stakeholders and the organisational response, safety audit which is concerned
with controlling and eliminating work-related hazards, and the environmental audit which
identifies the potential risks to the natural environment, evaluates a organisations efforts in
the area and also comes out with potential solutions. A growing number of organisations are
publicising their social audit reports to bnderline their concern for social responsibility.
8.14.3 Institutionalising Social Responsibility
To help to institutionalise socially responsible behaviour, organisations are setting up a
separate Public Affairs Department to serve as a link between them and the key stakeholders
such as customers, government agencies and the media. This department undertakes
functions such as identifying social issues, forecasting social trends, analysing the social
environment, keeping management aware with such information and developing
programmes to meet the needs of specific external stockholder groups.
Other methods of institutionalising social responsibility include the following:
Advocacy: Supporting a particular cause through financial, material and human resource
backing.
Partnership: Cooperating with special interest groups, such as environmental groups, to seek
mutually acceptable solutions to social problems.
Philanthropy: Gifting money, time, goods or services to charitable, humanitarian or
educational institutions.
Executive Loan: Allowing their executives to take leave of absence and assume
management positions in non-profit organisations for short duration.
Cause.Related Marketing: Offering to contribute a specified ai nunt to a designated cause
when customers buy the companys goods or services. In 1983 American Express donated
one cent from its every card purchase to help refurbish the State of Liberty. It raised $1.7
million for the Statue.
8.15 SUMMARY
i)
Ethical systems of belief refers to the closeness of managerial decisions and actions
with codes of moral standards that try to distinguish right from wrong Ethical decision
making is viewed differently because people from different cultures analyse their ethical
dilemmas differently. At the heart of analysis of such dilemmas is the cultures moral code
of behaviour which is affected by cultural experiences, ethical belief systems and economic
and social situations The cultures ethical system of belief includes; utilitarian, deontology,
eternal law, distributive justice and personal liberty.
In international trade, proper understanding of ethical practices becomes essential
A
number of practices have been termed as unethical Some of such practices include selling
products in less developed countries which are less in demand in developed countries,
selling products in less developed countries which have been prohibited in developed
countries, selling products which are likely to be misused due to the differences in
environment, restrictive trade practices of some governments dumping, counterfeiting, grey
marketing etc Apart from conforming to the general ethical behaviour, Multinational
corporations should also follow the code of ethics for International Marketing.
Besides ethics, social responsibility of business is another important area of concern for the
international marketer. Organisations have also obligations to the society beyond pursuing
organisational goals and should take actions that benefit society as well. These obligations
fall into four categories: economic, legal, ethical and discretionary. The motivation to
undertake social responsibility range from pure self-interest to enlightened self-interest and
to pure altruism Organisations are affected by a number of stakeholder groups The major
groups include customers and constituents, employees and unions, suppliers, competitors,
lenders, shareholders and owners, governments, special interest groups and local
communities In order to perform better, the organisations should be socially responsive.
KEY WORDS
Corporate Accountability
Spans emerging CSR issues like business ethics, diversity, marketplace behaviour,
governance, human rights, and labour rights as well as more traditional areas of financial
and environmental performance.
Comprehensive Audit
It tries to measure, verify and evaluate the total performance of the organization including
its social responsibility activities.
Partial Social Audit
In this case, the company undertakes to measure a specific aspect of its social performance (
e.g. environment, energy, human resources) because it considers that aspect to be very
important.
Global Corporate Social Responsibility
Social Audit
It is an essential assessment of how well a company has discharged its social obligations.
Social Process Audit
It tries to measure the effectiveness of those activities of the organization which are largely
taken up to meet certain social objectives.
3.
a)
b)
c)
d)
4.
Social Process Audit involves the following steps
a)
State how the organization is going to meet goals, Find circumstances leading to the
starting of the social audit programme, List out goals,
Qualitatively evaluate what is
actually done as against what has been planned
b)
Find circumstances leading to the starting of the social audit programme, List out
goals, State how the organization is going to meet such goals, Qualitatively evaluate what
is actually done as against what has been planned
c)
List out goals, Find circumstances leading to the starting of the social audit
programme, State how the organization is going to meet such goals, Qualitatively evaluate
what is actually done as against what has been planned
d)
Qualitatively evaluate what is actually done as against what has been planned, Find
circumstances leading to the starting of the social audit programme, List out goals, State
how the organization is going to meet such goals,
5.
Ethics refers to
a)
b)
c)
d)
6.
a)
b)
c)
d)
7.
a)
b)
c)
d)
Counterfeiting refers to
printing money
stealing money
violating the patent and copyright of another firm
All of the above
8.
Grey marketing refers to
a)
selling grey coloured products
b)
goods are imported and sold through market distribution channels not authorised by
the manufacturer
c)
Selling bad quality products
d)
Selling same type of products
9.
a)
b)
c)
d)
10.
a)
measure, verify and evaluate the total performance of the organization including its
profitability activities
b)
measure, verify and evaluate the total performance of the organization including its
technical activities
c)
measure, verify and evaluate the total performance of the organization including its
economic activities
d)
measure, verify and evaluate the total performance of the organization including its
social responsibility activities
CHAPTER-9
CRISIS MANAGEMENT, TRIPLE
SUSTAINABILITY REPORTING
BOTTOM
LINE
&
Crisis management is the art of making decisions to head off or mitigate the effects of such
an event, often while the event itself is unfolding. This often means making decisions about
your institutions future while you are under stress and while you lack key pieces of
information.
What is usually called crisis management should be best understood as part of a broad
continuum of activities as follows:
Planning: Planning relates to getting your institution in the best position to react to, and
recover from, an emergency.
Incident Response: Incident responses are the processes that you have put into place to
ensure that your institution reacts properly and orderly to an incident as it occurs. Examples
of incident response include:
Evacuation after a called-in bomb threats.
Denial of entry to suspicious persons.
Calling for medical help when a child is injured in your school.
Crisis Management: Crisis Management is the management and coordination of your
institutions responses to an incident that threatens to harm, or has harmed, your institutions
people, structures, ability to operate, valuables and/or reputation. It takes into account your
planning and automatic incident response, but must also dynamically deal with situations as
they unfold, often in unpredictable ways.
Business Continuity: Business continuity relates to those steps necessary to restore your
institution to normal functioning.
As will be discussed in detail below, a great deal of crisis management occurs before a crisis
begins: it is about planning and preparing.
9.2 The Crisis Management Continuum:
Planning
Introduction
As mentioned above, planning relates to getting your institution in the best position to react
to, and recover from, a crisis. Planning for a crisis is discussed in some detail throughout this
manual. For example, the chapter on explosive threats helps you consider what is necessary
Global Corporate Social Responsibility
There is no science in creating such a plan and the institutions leadership should think about
the kinds of incidents they would want to know about immediately. These may include, but
are not limited to:
1. Security threats (e.g., bomb threats)
2. Allegations that may expose the institution to legal liability or embarrassment
3. Allegations that an employee or lay volunteer is acting in a manner that is inconsistent
with the institutions best interests, such as misuse of an institutions resources
4. Any inconsistency between expected and actual bank balances
5. Requests for information that is inappropriate (i.e., a request by an unknown person for an
employees home address)
6. Requests for information relating to the institutions security or infrastructure (i.e., a
request for information about where employees park or when the office is unoccupied)
7. Requests for donor information
8. Attempts to improperly access computer systems and/or hack an institutions Web site
9. All other contacts that concern the employee
10. All unusual events, including repeated hang-up phone calls, calls that contain sharp
disagreement with an institutions policy or practice, and visitors who concern the employee
The institutions leadership should create a reporting mechanism (e.g., a log) to maintain a
log of these and other incidents.
Of course, many of the above may be consistent with lawful and innocent behavior and a
good deal of judgment and discretion is required. Finally, this is not a complete list, and such
a list must be drawn up with your particular institutions situation in mind.
Management must work to create a culture where employees can communicate these
incidents to managements attention without fearing overreaction or any negative
consequences to the reporting employee (including feeling as if they are not being treated
seriously).
Creating a Crisis Team
A second key element of getting your institution in the best position to react to, and recover
from, an emergency relates to the creation of a crisis team that is ready to quickly come
together to help manage an institutions way through a crisis.
The senior manager of an institution should establish a mechanism for pulling together a
crisis team. She should:
1. Identify the key players who will be on a crisis management team, based on their
specialties, willingness to serve, and personalities
a. Example (large institution): Senior manager, Board Chair, Rabbi, Facilities Chair,
Principal, General Counsel, Information technology leadership, etc.
b. Example (small institution): Rabbi, Board Chair, two or three active and involved board
members, maintenance person
2. Identify the person (or people) authorized to bring the team together during a crisis (the
crisis team manager)
a. You may wish to designate this task to someone other than the most senior manager, as
locating and bringing the crisis team together may detract from the senior managers efforts
to deal with the crisis as it unfolds
b. You may wish to designate this task to someone other than Rabbi: he or she may be
obligated to attend to religious duties
3. The crisis team manager should be able to be reached 24/7. Similarly, the crisis manager
should be able to reach the members of his or her crisis team 24/7. Of course, this raises
issues relating to Shabbat and holidays with work restrictions.
The function and role of the crisis team is discussed in greater detail below. But, in short, the
crisis team will be responsible for restoring command, control and communications during
a crisis while gathering as much information as possible, so that the directives of the senior
manager can be well informed and effectively implemented.
In an effort to build cohesion and to work out any problems, the crisis team should practice
crisis management. One way to practice this is by working through scenarios during a socalled table-top exercise, in which team members work their way through a fictitious crisis.
9.3 The Crisis Management Continuum:
Incident Response
Incident response is the automatic process that an institution puts into place to ensure that
employees and systems react properly to an incident as it occurs. The more standard
procedures you can put into place, and on which you train your staff, the less likely you are
to encounter confusion and chaos when a crisis occurs.
Such automatic processes involve careful planning, and much of the manual has been
devoted to this topic.
The key point is the awareness that, during a crisis, you must recognize that the most senior
manager will likely not be the one who is triggering these responses. For example, a junior
staff person may find herself confronting the situation of an armed intruder or an
unidentified package and being forced to make a decision while more senior management
is elsewhere. While it would be preferable if the employee could consult a senior manager
about what to do during an emerging crisis, in reality, this employee may have to act
immediately for the safety of the entire organization and its constituents. Your planning
must be cognizant of this fact and should seek to appropriately empower such staff
personnel with the knowledge of when and how to act.
9.4 The Crisis Management Continuum:
Crisis Management
The psychology of crisis decision making
There are a few related schools of thought about crisis management:
1. In a crisis, a manager can do everything right using all available information and
the best possible judgment and the decision can still make matters worse.
This rule is perhaps most important and the most difficult. To the extent a manager can
recover from making a bad decision during a crisis, he or she has a hope of guiding the
institution forward. To the extent that the manager is incapable of personally and
psychologically recovering from making a bad decision, the manager will likely fail or
make things even worse than they have become.
2. A leader will never get perfect information during a crisis situation and leaders
will succeed only where they are capable of making a decision absent perfect
information.
If a manager is incapable of making a decision under conditions of grave uncertainty or
confusion, then it is unlikely that the manager will succeed in a crisis.
3. Decisions will be reviewed by hindsight.
It is a harsh reality that once a crisis has subsided, anyone not directly associated with the
decision making process (and perhaps some who were) will begin to critically examine
every decision the manager made. In some cases, as the dust settles, blame may be assigned,
lawsuits may be filed, and jobs may be lost.
Managers who are daunted by this prospect may become paralyzed or take perceived safer
decision paths that may make matters worse.
The Moment of Crisis
The Team
Upon the determination that a crisis has arisen, the senior manager should have her crisis
manager identify those members of the crisis team that will staff this crisis and then pull that
team together. In the meantime, she should focus her attention on managing the crisis.
A crisis team in action should have several features:
1. The crisis team manager will be in charge of the crisis team absent the senior
manager. To put it bluntly: if no one is the head of the team, no decisions will be made,
especially because people often resist assuming the risk of making decisions.
2. The crisis team manager will serve as key liaison between the organizational
leadership and the crisis team.
3. Crises are not the time for democratic decision making; they are not also the time for
autocracy. The crisis manager and the senior manager will need to hear the advice of their
crisis team and make decisions in light of but not necessarily deferring to those
recommendations.
Command, Control and Communications
As discussed, one key role of the crisis team is to ensure that the best information available
is received by management and that the orders, decisions and communications of the
organization are able to be shared with their intended audiences. This will allow
management to manage the crisis as effectively as possible, and can minimize the risk that
uninformed, dissident, or panicked voices will fill the vacuum.
To review some earlier discussions about command, control and communications in this
manual:
1. It is essential that a decision-maker be identified, that this person have the authority to act
and that the decisions can be effectively communicated to those who need to know.
a. during an emergency (they may be out sick or on vacation or even at lunch or away from
the office for a meeting). Thus, it is important to be able to quickly ascertain who is in
charge at any given point. Consider having a list of succession in the event of an
absence. This will enable an institution to quickly establish a clear chain of command in
light of the days staffing and attendance.
2. Consider establishing a command center, the place where decision-makers meet during an
emergency and establish command, control and communications. You may wish to have
Global Corporate Social Responsibility
building plans, contact information and other institution-specific critical information stored
at this location.
3.Have the means to communicate and be communicated with.
a. Know telephone numbers, fax numbers, and email addresses of key managers,
constituents and media contacts. Make sure that employees know how to reach the command
center to report information.
b. Have redundant communications systems. To the extent possible, being able to reach out
and be reached by more than one means may make the difference in a crisis. For instance,
during a blackout or similar emergency, SMS (texting) may work better on cell phones
than cell phone calls themselves.
Besides preventing what may be counterproductive or, worse, deadly confusion during an
incident, having an effective communication plan will also help you manage those outside of
the immediate incident, including those who need or want information, such as the media
and parents. Some thoughts, also discussed elsewhere in the manual:
1. Designate a single spokesperson for the institution. If it is necessary to have more than
one, it is essential that they carefully coordinate their message.
2. This spokesperson should be the sole contact point for the media, constituents and anyone
else who needs information from the institution.
3. Depending on the nature of the incident, especially if it involves children, the
spokesperson might direct constituents to a further contact point.
4. Information should be clear, factual, non-emotional and consistent with law enforcement
requirements.
5. The person designated to be your spokesperson should not have other, more important
duties to attend to during an incident and recovery. The spokespersons job is to convey
information. Therefore, consider how engaged in the emergency and follow-up any potential
spokesperson should be.
6. The media may be interested in your incident. They may also be the most effective way to
communicate important information to constituents. Depending on where you are, media
may be more or less receptive to becoming a conduit for relaying information. However, if
you do not wish to draw undue attention to the event, you may elect not to call the media.
However, media can find out about events without your calling them they monitor police
scanners and have other sources. Thus, though you may wish to avoid media attention, it is
sometimes inevitable.
7. When speaking to the media, be clear, direct and honest. Speak in short, declarative
sentences. (e.g., The facility will remain closed for the next two days.)
8. Craft your message before you are interviewed. Develop two or three key points and stick
to them: e.g., Everyone is safe, parents should call xxx-xxx-xxxx, The institution has
taken appropriate security measures, A lawsuit has been filed. In many cases, you can
answer any question with these concise, stock statements.
9. Speak to emergency officials about your message, if possible. This is especially true if a
crime has been committed. The police may wish you to help them keep certain facts quiet so
that they may determine if a subsequent incident is a copycat or not, and/or to ensure that an
ongoing investigation is not otherwise damaged.
10. You are under no obligation to answer media questions, but note that if a story is to run,
you may wish to contribute your point of view.
11. Practice.
Impact
As you gain more knowledge, assert more command, control and communications, your
ability to impact a situation should increase accordingly to a point. As time passes,
outside forces, including media, alternative voices, and other noise can interfere with your
ability to manage and have an impact on the situation. At the same time, your ability to keep
control and gather new information may degrade.
In short, the faster you can increase your ability to gain knowledge and establish
command, control and communications, the more time you will have to be influential.
9.5 The Crisis Management Continuum:
Business Continuity
Business continuity relates to those steps necessary to restore your institution to normal
functioning after a crisis.
Preparing for Disaster Recovery.
Disaster recovery is a critical part of post-incident work. Recovery is much easier if
preparation is done beforehand.
Some thoughts on preparing for disaster recovery:
1. Maintain off-site, current backups of critical data, vendor lists, employee, constituent and
donor contact lists, and other mission-critical information. This may entail someone taking a
disk home with them, but if the disk or data is lost, information may get into the wrong
hands. Backup security is vital.
2. Conduct an insurance review to ensure that insurance is adequate to cover all institutional
needs. Keep insurance records with backup information.
3. Explore legal aspects of recovery with the institutions attorney, including discussions as
to whether someone has the authority or can be designated with legal authority to take
emergency steps on behalf of the institution.
4. Plan for relocating students, patients, campers, seniors, and staff ahead of time before
disaster strikes.
5. Inventory everything that would cause the institution to cease operations if destroyed.
6. Review all existing service agreements and whether they include adequate post-disaster
service provisions and recovery assistance.
business entity should be used as a vehicle for coordinating stakeholder interests, instead of
maximizing shareholder (owner) profit.
9.8 The bottom lines
The triple bottom line is made up of "social, economic and environmental" the "people,
planet, profit" phrase was coined for Shell by Sustainability, influenced by 20th century
urbanist Patrick Geddes's notion of 'folk, work and place'.
"People, planet and profit" succinctly describes the triple bottom lines and the goal of
sustainability.
"People" (human capital) pertains to fair and beneficial business practices toward labour
and the community and region in which a corporation conducts its business. A TBL
company conceives a reciprocal social structure in which the well-being of corporate, labour
and other stakeholder interests are interdependent.
A triple bottom line enterprise seeks to benefit many constituencies, not exploit or endanger
any group of them. The "upstreaming" of a portion of profit from the marketing of finished
goods back to the original producer of raw materials, i.e., a farmer in fair trade agricultural
practice, is a common feature. In concrete terms, a TBL business would not use child labour
and monitor all contracted companies for child labour exploitation, would pay fair salaries to
its workers, would maintain a safe work environment and tolerable working hours, and
would not otherwise exploit a community or its labour force. A TBL business also typically
seeks to "give back" by contributing to the strength and growth of its community with such
things as health care and education. Quantifying this bottom line is relatively new,
problematic and often subjective. The Global Reporting Initiative (GRI) has developed
guidelines to enable corporations and NGOs alike to comparably report on the social impact
of a business.
"Planet" (natural capital) refers to sustainable environmental practices. A TBL company
endeavors to benefit the natural order as much as possible or at the least do no harm and
curtail environmental impact. A TBL endeavor reduces its ecological footprint by, among
other things, carefully managing its consumption of energy and non-renewables and
reducing manufacturing waste as well as rendering waste less toxic before disposing of it in
a safe and legal manner. "Cradle to grave" is uppermost in the thoughts of TBL
manufacturing businesses which typically conduct a life cycle assessment of products to
determine what the true environmental cost is from the growth and harvesting of raw
materials to manufacture to distribution to eventual disposal by the end user. A triple bottom
line company does not produce harmful or destructive products such as weapons, toxic
chemicals or batteries containing dangerous heavy metals for example.
Currently, the cost of disposing of non-degradable or toxic products is borne financially by
governments and environmentally by the residents near the disposal site and elsewhere. In
TBL thinking, an enterprise which produces and markets a product which will create a waste
Global Corporate Social Responsibility
problem should not be given a free ride by society. It would be more equitable for the
business which manufactures and sells a problematic product to bear part of the cost of its
ultimate disposal.
Ecologically destructive practices, such as overfishing or other endangering depletions of
resources are avoided by TBL companies. Often environmental sustainability is the more
profitable course for a business in the long run. Arguments that it costs more to be
environmentally sound are often specious when the course of the business is analyzed over a
period of time. Generally, sustainability reporting metrics are better quantified and
standardized for environmental issues than for social ones. A number of respected reporting
institutes and registries exist including the Global Reporting Initiative, CERES, Institute 4
Sustainability and others.
The eco bottom line is akin to the concept of Eco-capitalism.
"Profit" is the economic value created by the organisation after deducting the cost of all
inputs, including the cost of the capital tied up. It therefore differs from traditional
accounting definitions of profit. In the original concept, within a sustainability framework,
the "profit" aspect needs to be seen as the real economic benefit enjoyed by the host society.
It is the real economic impact the organization has on its economic environment. This is
often confused to be limited to the internal profit made by a company or organization (which
nevertheless remains an essential starting point for the computation). Therefore, an original
TBL approach cannot be interpreted as simply traditional corporate accounting profit plus
social and environmental impacts unless the "profits" of other entities are included as a
social benefits.
9.9 Arguments for
The following business-based arguments support the concept of TBL:
Reaching untapped market potential: TBL companies can find financially profitable
niches which were missed when money alone was the driving factor. Examples
include:
1. Adding ecotourism or geotourism to an already rich tourism market such as the
Dominican Republic
2. Developing profitable methods to assist existing NGOs with their missions such as
fundraising, reaching clients, or creating networking opportunities with multiple
NGOs
3. Providing products or services which benefit underserved populations and/or the
environment which are also financially profitable.
Adapting to new business sectors: Since many business opportunities are developing
in the realm of social entrepreneurialism, businesses hoping to reach this expanding
market must design themselves to be financially profitable, socially beneficial and
Global Corporate Social Responsibility
Advocacy for triple bottom line reforms is common in Green Parties. Some of the measures
undertaken in the European Union towards the Euro currency integration standardize the
reporting of ecological and social losses in such a way as to seem to endorse in principle the
notion of unified accounts, or unit of account, for these deficits.
9.10 Criticism
While many people agree with the importance of good social conditions and preservation of
the environment, there are also many who disagree with the triple bottom line as the way to
enhance these conditions. The main arguments against it are summarised below.
Division of labour is characteristic of rich societies and a major contributor to their
wealth. This leads to the view that organisations contribute most to the welfare of
society in all respects when they focus on what they do best: the baker exchanges his
loaves with the shoemaker rather than making his own shoes to the benefit of both
and by extension the whole of society. In the case of business the expertise is in
satisfying the needs of society and generating a value added surplus. Thus the triple
bottom line is thought to be harmful by diverting business attention away from its
core competency. Just as charitable organizations like the Red Cross would not be
expected to attend to environmental issues or pay a cash dividend, and Greenpeace
would not be expected to make a profit or succor the homeless, business should not
be expected to take on concerns outside its core expertise, provided the business
doesn't do obvious harm to people or the planet.
Effectiveness: It is observed that concern for social and environmental matters is rare
in poor societies (a hungry person would rather eat the whale than photograph it). As
a society becomes richer its citizens develop an increasing desire for a clean
environment and protected wildlife, and both the willingness and financial ability to
contribute to this and to a compassionate society. Support for the concept of the triple
bottom line itself is said to be an example of the choices available to the citizens of a
society made wealthy by businesses attending to business. Thus by unencumbered
attention to business alone, Adam Smith's Invisible Hand will ensure that business
contributes most effectively to the improvement of all areas of society, social and
environmental as well as economic.
Nationalism: Some countries adopt the view that they must look after their own
citizens first. This view is not confined to one sector of society, having support from
elements of business, labour unions, and politicians.
Libertarian: As it is possible for a socially responsible person to sincerely believe
that the triple bottom line is harmful to society, the libertarian view is that it would
be arrogant to force them to support a mechanism for the improvement of society
that may, or may not, be the best available. That is, those who would not force
Greenpeace and the Salvation Army to generate a profit should not force businesses
Global Corporate Social Responsibility
Indicators are used to measure performance. They are instrumental to bridging the gap
between a code of conduct and CSR practices. An indicator enables one to access if goals
are met . They also inform decisions as to strategies to take to achieve
GRI' s g3 Indicators
Domini
Corporate
Responsibly:
Benchmarks
Corporations
EMP
The
World
Bank
group
supplies these
suggested
Environmental
Management
Program
(EMP)
Indicators.
There is a
plethora
of
EMPs,
the
ISO
14001
family being
one of them.
For the most
part,
developing
indicators is
part of an
EMP.
Most
indicators are
like those in
the
link
provided
above:
quantitative
measurements
for levels of
chemicals or a
resource use.
Check the box
indicators can
also be a part
of an EMP.
Environmental
World Bank's
Page 169 of 496
Investments
Socially Responsible
Investment
(SRI)
represent a growing
section of the financial
market in American
and
Europe.
The
Indicators
specific
indicators are not
usually available to the
public. Other SRI
indicators
include
rating
organization
such as the Calvert
Fund and Dow Jones
Sustainability Index.
The
World
Development
Indicators are
a publication
of the World
Bank. They
provide
economic,
social
and
environmental
data
for
countries.
Indicators
include
the
CO2
emissions,
poverty rate,
internet use,
birth rates per
woman, and
the time it
takes to start a
business
In order for an indicator for the triple bottom line to be effective, it must tie the financial
impacts to a business' net income of CSR practices. This is because a business cannot stay in
business if it is not profitable in the long term.
Indicators that tie the amount of a resource reused, recycled or reduced to the cost savings
are effective because they enable a manager to measure how environmentally responsible
activities are also economically responsible.
Criteria
Adaptable
Current
Practices
GRI's g3
Benchmarks
Social
Venture
EMP
ILO
so
the
of
of EMPs, but
may not fit
with
all
Stakeholder
programs.
Continual
Improvement
overwhelming. yes/no
or
Some
quantifiable.
inapplicable to
all industries.
Can
use
indicators to
set
specific Specifically
and
included
measurable
goals
Includes
indicators
for activities
that would
add-value to
business
practices.
Yes,
Comprehensive
Coverage
of Yes, includes Yes, includes includes
Triple Bottom five aspects. many aspects. many
aspects.
Line
Detailed,
Detailed with
includes
sufficient
sector
specificity
supplements
Integrates
Financial
Impacts
of
Not directly
Social
and
Environmental
Practices
Detailed
in
coverage but
includes overly Detailed
broad
indicators
Not directly
Yes:
Could
become
Positioning for
international Does
Competitive
treaty, Used consider.
Advantage
by many, PR
tool
More
qualitative
Quantitative
than
and
enables
quantitative.
meaningful
Can be used
comparisons
in conjunction
with
Determined
with
Not
Implementation included
of EMP.
No:
only
labor
usually
covered.
Mixture of
Determined
broad and
with
very
Implementation detailed and
of EMP.
specific
conventions
Could integrate
Not directly if cost data is Not directly
available
Yes,
by
creating
not
markets and
economies
of scale.
Quantitative,
Emphasis on
but yes/no
qualitative or
emphasis
yes/no
may not be
measurements.
meaningful.
AA1000,
SA8000 or
other
stakeholder
group.
Could, if goal
is
beyond
compliance
with
regulations.
Could
by
creating
partnerships
with
potential
adversaries
No: must be
Determined
used with
with
other
Implementation program or
of EMP.
indicators
fashioned
Page 171 of 496
explanations
to
demonstrate
best practices
Conclusion: The GRI's g3 best fits the criteria for an effective indicator. It is also can be
used in conjunction with initiatives such as an EMP or the SA8000 and stakeholder
interactions. A manager would do to enrich the GRI's g3 indicators data about costs and
revenue or profits.
9.12 The Triple Bottom Line Explained:
The triple bottom line refers to a how a corporation deals with and reports on its impact and
behaviour in respect to people, planet and profit. It reflects a corporations greater
transparency and accountability in its public reporting, communication and disclosure in
regard to how the corporate entity performs in environmental, social and economic
dimensions. While there is no single universally accepted definition of TBL reporting, in a
sentence it can be defined as corporate communication with stakeholders that describes the
companys approach to managing economic, environmental and social social dimensions of
its activities.
It is also known as corporate social responsibility, though some prefer to use the word
sustainability as more encompassing, as they argue that responsibility emphasises the
benefits to social groups outside the business, whereas sustainability gives equal importance
to the benefits enjoyed by the corporation itself. Sustainable in this definition also refers to
development that must not reduce options open to future generations.
However, responsibility and sustainability are both used to refer to a companys obligations
to society at large.
The phrase ''corporate social responsibility'' (CSR) is used to describe why, when, and how
businesses manage their social, environmental, and economic aims and performance. It is an
expression of the belief that it is not enough for a company simply to profit its owners.
Rather, CSR holds that a company also must ensure that it does little or no harm to, and
preferably helps, its workers, the environment, and the communities in which it operates.
As such, CSR is a balancing act between the interests of a company's various ''stakeholders''
including shareowners, executives, employees, communities, and customers. It also is
referred to as ''good corporate citizenship'', ''compassionate capitalism'', and ''business
ethics''.
CSR has evolved in diverse ways for different companies, industries, and societies. In the
United States, Latin America and Southeast Asia, for example, much CSR involves
Global Corporate Social Responsibility
donations to social and artistic causes and other such acts of corporate philanthropy. In
Europe, where charity is regarded as a peripheral aspect of corporate operations, debate
about CSR has focused on the environmental and social impact of companies' business
functions.
The concept of the Triple bottom line was proposed by John Elkington, who suggests that
businesses need to measure their success not only by the traditional bottom line of financial
performance & profit, but also by their impact on the broader economy, the environment and
on the society in which they operate.
In conducting their businesses, companies use not only financial resources (investment
dollars, sales revenues), but also environmental resources (water, energy, raw materials) and
social resources (employees time and talents, infrastructure provided by govt agencies). His
argument was that a sustainable business out to be able to measure, document ad report a
positive return on investment across all three bottom lines, as well as showing the benefits
that stakeholders receive along the same three dimensions.
Basically, triple bottom line (TBL) reporting is meant to capture, describe and measure the
impact of the organisations activities on the world.
The triple bottom line exists as a kind of balanced scorecard that captures in numbers and
words the degree to which any company is or is not creating value for its shareholders and
society.
Economic (profit)
Environmental (planet)
Social (people)
Sales, profits return on investment Air quality Labour practices Taxes paid Water quality
Community impacts
Monetary flows Energy usage Human rights
Jobs created Waste produced Product responsibility
In terms of; People social justice,
Planet environmental issues
Profit economy prosperity.
Stakeholders could be: shareholders, investors, employees, customers, suppliers, the
community and government.
Global Corporate Social Responsibility
9.13 Benefits:
Enhancement of reputation and brand
Effective communication with stakeholders on one or more of TBL dimensions can play an
important role in manageing stakeholder perceptions and so protect and enhance corporate
reputation (look what happened to wheat board shares).
Securing a social licence to operate
This is kind of like reputation, an informal community and stakeholder support for the
organisations operations communities are likely to be more supportive of companies that
communicate openly & honestly about their performance in relation to environ, social &
economic factors.
Attraction and retention of high calibre employees
The publication of TBL information can play a role in positioning an employer as an
employer of choice, which can enhance employee loyalty, reduce turnover attract
knowledge/gold collar workers.
Reduced risk profile
When TBL reporting takes place a company shows its commitment to minimising risk in
times of increasing litigation, where due diligence can be established and a company
establishes risks, they can be better managed. In turn, this improves stakeholder relations
and makes it easier to attract investment capital and therefore positively affect the share
price.
Identification of potential cost savings
TBL reporting involves the collection, collation and analysis of data on resource and
material usage and the assessment of business processes. This can actually help a company
to better identify opportunities for cost savings through more efficient use of resources and
materials.
Increased scope for innovation
In the process of reporting on all aspects of TBL, a company may actually create new
innovations, e.g. trying to use less water, invent a grey water recycler.
Creation of a sound basis for stakeholder dialogue
Publication of TBL reporting creates a platform for engaging in dialogue with stakeholders.
Understanding stakeholder requirements and aligning them with business performance is
fundamental to business success.
Global Corporate Social Responsibility
9.14 Problems:
There is no universal method of measuring, so there are no social, environmental and ethical
equivalents of revenue, expenses, equity, assets, and liabilities.
There is not yet any way to accurately or completely describe consumer, community or
environmental benefits using a number.
In Australia companies self report and there is no mandatory auditing mechanism. Reports
from Bluescope steel, Orica, Caltex for example, were not audited but Westpacs was
audited by an independent specialist.
GRI warns that the decision to publish a TBL report actually has the potential to expose a
company to ADDITIONAL risk in relation to the reliability of the report if information is
lacking credibility, cannot be substantiated, there is a risk of reputation damage, erosion of
brand, negative media publicity and a general loss of stakeholder support and trust.
Independent verification provides the board and senior executives with assurance as to the
accuracy and reliability of reported statements and info and is the most effective way of
managing this potential risk.
Businesses are now global, so Phillip Morris owns food company Kraft as well as
manufacturing cigarettes. Alcoa working closely with communities in land care but also
heavily involved in mining non-renewable resources.
Hershey story, (nearly went under because they tried to sell out to Wrigley without getting
community support the community sabotaged it because of the social disruption it would
cause the community in terms of jobs, tourism, etc).
Sweetspot the common-ground shared by your business interests and the interests of the
public: the sweet spot is here the pursuit of profit seamlessly blends with the common good.
Eg. GE's creation of clean technology to carbon emissions. Addressing climate change
allowed them to sell over $1 billion worth of wind and natural gas turbines to china since
2003.
PepsiCo increased market share and supported healthier lifestyle habits by purchasing
Quaker oats.
Toyota created the hybrid gas/elec car the Prius, waiting lists are 16 months long and as
well as helping Toyota break into the big 3 car manufacturers in US, it is also good for the
environment
a textbook example of the sweet spot.
The Global Reporting Initiatives (GRI) vision is that reporting on economic, environmental,
and social performance by all organizations becomes as routine and comparable as financial
reporting. GRI accomplishes this vision by developing, continually improving, and building
capacity around the use of its Sustainability Reporting Framework.
An international network of thousands from business, civil society, labor, and professional
institutions created the content of the Reporting Framework in a consensus-seeking process.
The goal of sustainable development is to meet the needs of the present without
compromising the ability of future generations to meet their own needs.As key forces in
society, organizations of all kinds have an important role to play in achieving this goal. Yet
in this era of unprecedented economic growth, achieving this goal can seem more of an
aspiration than a reality. As economies globalize, new opportunities to generate prosperity
and quality of life are arising though trade, knowledge-sharing, and access to technology.
However, these opportunities are not always available for an ever-increasing human
population, and are accompanied by new risks to the stability of the environment. Statistics
demonstrating positive improvements in the lives of many people around the world are
counter-balanced by alarming information about the state of the environment and the
continuing burden of poverty and hunger on millions of people.
This contrast creates one of the most pressing dilemmas for the 21st century. One of the key
challenges of sustainable development is that it demands new and innovative choices and
ways of thinking. While developments in knowledge and technology are contributing to
economic development, they also have the potential to help resolve the risks and threats to
the sustainability of our social relations, environment, and economies. New knowledge and
innovations in technology, management, and public policy are challenging organizations to
make new choices in the way their operations, products, services, and activities impact the
Global Corporate Social Responsibility
earth, people, and economies. The urgency and magnitude of the risks and threats to our
collective sustainability, alongside increasing choice and opportunities, will make
transparency about economic, environmental, and social impacts a fundamental component
in effective stakeholder relations, investment decisions, and other market relations. To
support this expectation, and to communicate clearly and openly about sustainability, a
globally shared framework of concepts, consistent language, and metrics is required. It is the
Global Reporting Initiatives (GRI) mission to fulfil this need by providing a trusted and
credible framework for sustainability reporting that can be used by organizations of any size,
sector, or location.
Transparency about the sustainability of organizational activities is of interest to a diverse
range of stakeholders, including business, labor, non-governmental organizations, investors,
accountancy, and others. This is why GRI has relied on the collaboration of a large network
of experts from all of these stakeholder groups in consensus-seeking consultations. These
consultations, together with practical experience, have continuously improved the Reporting
Framework since GRIs founding in 1997. This multi-stakeholder approach to learning has
given the Reporting Framework the widespread credibility it enjoys with a range of
stakeholder groups.
9.16 The Purpose of a Sustainability Report
Sustainability reporting is the practice of measuring, disclosing, and being accountable to
internal and external stakeholders for organizational performance towards the goal of
sustainable development.
Sustainability reporting is a broad term considered synonymous with others used to
describe reporting on economic, environmental, and social impacts (e.g., triple bottom line,
corporate responsibility reporting, etc.).
A sustainability report should provide a balanced and reasonable representation of the
sustainability performance of a reporting organization including both positive and negative
contributions.
Sustainability reports based on the GRI Reporting Framework disclose outcomes and results
that occurred within the reporting period in the context of the organizations commitments,
strategy, and management approach. Reports can be used for the following purposes, among
others:
Benchmarking and assessing sustainability performance with respect to laws, norms,
codes, performance standards, and voluntary initiatives;
Demonstrating how the organization influences and is influenced by expectations about
sustainable development; and
Comparing performance within an organization and between different organizations over
time.
9.17 Orientation to the GRI Reporting Framework
All GRI Reporting Framework documents are developed using a process that seeks
consensus through dialogue between stakeholders from business, the investor community,
labor, civil society, accounting, academia, and others. All Reporting Framework documents
are subject to testing and continuous improvement.
The GRI Reporting Framework is intended to serve as a generally accepted framework for
reporting on an organizations economic, environmental, and social performance. It is
designed for use by organizations of any size, sector, or location. It takes into account the
practical considerations faced by a diverse range of organizations from small enterprises to
those with extensive and geographically dispersed operations.
The GRI Reporting Framework contains general and sector-specific content that has been
agreed by a wide range of stakeholders around the world to be generally applicable for
reporting an organizations sustainability performance.
9.18 The Sustainability Reporting Guidelines (the Guidelines) consist of Principles for
defining report content and ensuring the quality of reported information. It also includes
Standard Disclosures made up of Performance Indicators and other disclosure items, as well
as guidance on specific technical topics in reporting.
Indicator Protocols exist for each of the Performance Indicators contained in the
Guidelines. These Protocols provide definitions, compilation guidance, and other
information to assist report preparers and to ensure consistency in the interpretation of the
Performance Indicators. Users of the Guidelines should also use the Indicator Protocols.
Sector Supplements complement the Guidelines with interpretations and guidance on how
to apply the Guidelines in a given sector, and include sector-specific Performance Indicators.
Applicable Sector Supplements should be used in addition to the Guidelines rather than in
place of the Guidelines.
Technical Protocols are created to provide guidance on issues in reporting, such as setting
the report boundary.
Global Corporate Social Responsibility
They are designed to be used in conjunction with the Guidelines and Sector Supplements
and cover issues that face most organizations during the reporting process.
9.19 Orientation to the GRI Guidelines
The Sustainability Reporting Guidelines consist of Reporting Principles, Reporting
Guidance, and Standard Disclosures (including Performance Indicators). These elements are
considered to be of equal in weight and importance.
Part 1 Reporting Principles and Guidance
Three main elements of the reporting process are described in Part 1. To help determine
what to report on, this section covers the Reporting Principles of materiality, stakeholder
inclusiveness, sustainability context, and completeness, along with a brief set of tests for
each Principle. Application of these Principles with the Standard Disclosures determines the
topics and Indicators to be reported. This is followed by Principles of balance,
comparability, accuracy, timeliness, reliability, and clarity, along with tests that can be used
to help achieve the appropriate quality of the reported information. This section concludes
with guidance for reporting organizations on how to define the range of entities represented
by the report (also called the Report Boundary).
sector, or location. Reporting can take various forms, including web or print, stand alone or
combined with annual or financial reports.
The first step is to determine report content. Guidance for this is provided in Part 1. Some
organizations may choose to introduce reporting against the full GRI Reporting Framework
from the outset, while others may want to start with the most feasible and practical topics
first and phase in reporting on other topics over time. All reporting organizations should
describe the scope of their reporting and are encouraged to indicate their plans for expanding
their reporting over time.
9.20 GRI Application Levels
Upon finalization of their report, preparers should declare the level to which they have
applied the GRI Reporting Framework via the GRI Application Levels system. This
system aims to provide:
Report readers with clarity about the extent to which the GRI Guidelines and other
Reporting Framework elements have been applied in the preparation of a report.
Report preparers with a vision or path for incrementally expanding application of the
GRI Reporting Framework over time. Declaring an Application Level results in a clear
communication about which elements of the GRI Reporting Framework have been applied
in the preparation of a report. To meet the needs of new beginners, advanced reporters, and
those somewhere in between, there are three levels in the system. They are titled C, B, and
A, The reporting criteria found in each level reflects an increasing application or coverage of
the GRI Reporting Framework. An organization can self-declare a plus (+) at each level
(ex., C+, B+, A+) if they have utilized external assurance. An organization self-declares a
reporting level based on its own assessment of its report content against the criteria in the
GRI Application Levels.
In addition to the self declaration, reporting organizations can choose one or both of the
following options:
Have an assurance provider offer an opinion on the self-declaration.
Request that the GRI check the self-declaration.
For more information on Application Levels, and the complete criteria, see the GRI
Applications Level information pack available as an insert to this document, or found online
at www.globalreporting.org.
Request for notification of use
Organizations that have used the Guidelines and/or other elements of the GRI Reporting
Framework as the basis for their report are requested to notify the Global Reporting
Initiative upon its release. While notifying GRI, organizations can choose any or all of the
following options:
Simply notify the GRI of the report and provide hard and/or soft copy
Register their report in GRIs online database of reports
Request GRI check their self-declared Application Level.
Maximizing Report Value
Sustainability reporting is a living process and tool, and does not begin or end with a printed
or online publication. Reporting should fit into a broader process for setting organizational
strategy, implementing action plans, and assessing outcomes. Reporting enables a robust
Global Corporate Social Responsibility
varying degrees of comprehensiveness and detail that could be provided in a report. In some
cases, GRI guidance exists on the level of detail generally considered appropriate for a
specific Indicator. Overall, decisions on how to report data should be guided by the
importance of the information for assessing the performance of the organization, and
facilitating appropriate comparisons.
Reporting on material topics may involve disclosing information used by external
stakeholders that differs from the information used internally for day-to-day management
purposes. However, such information does indeed belong in a report, where it can inform
assessments or decision-making by stakeholders, or support engagement with stakeholders
that can result in actions that would significantly influence performance or address key
topics of stakeholder concern.
Global Corporate Social Responsibility
Tests
External Factors
In defining material topics, take into account external factors, including:
Main sustainability interests/topics and Indicators raised by stakeholders.
The main topics and future challenges for the sector reported by peers and competitors.
Relevant laws, regulations, international agreements, or voluntary agreements with
strategic significance to the organization and its stakeholders.
Reasonably estimable sustainability impacts, risks, or opportunities (e.g., global
warming, HIV-AIDS, poverty) identified through sound investigation by people with
recognized expertise, or by expert bodies with recognized credentials in the field.
Internal Factors
In defining material topics, take into account internal factors, including:
Key organizational values, policies, strategies, operational management systems, goals,
and targets.
The interests/expectations of stakeholders specifically invested in the success of the
organization (e.g., employees, shareholders, and suppliers).
Significant risks to the organization.
Critical factors for enabling organizational success.
The core competencies of the organization and the manner in which they can or could
contribute to sustainable development.
Prioritizing
The report prioritizes material topics and Indicators.
9.23 STAKEHOLDER INCLUSIVENESS
Definition: The reporting organization should identify its stakeholders and explain in the
report how it has responded to their reasonable expectations and interests.
Explanation: Stakeholders are defined as entities or individuals that can reasonably be
expected to be significantly affected by the organizations activities, products, and/or
services; and whose actions can reasonably be expected to affect the ability of the
organization to successfully implement its strategies and achieve its objectives. This
includes entities or individuals whose rights under law or international conventions provide
them with legitimate claims vis--vis the organization.
Stakeholders can include those who are invested in the organization (e.g., employees,
shareholders, suppliers) as well as those who are external to the organization (e.g.,
communities).
The reasonable expectations and interests of stakeholders are a key reference point for many
decisions in the preparation of a report, such as the scope, boundary, application of
Indicators, and assurance approach. However, not all of an organizations stakeholders will
use the report. This presents challenges in balancing the specific interests/expectations of
stakeholders who can reasonably be expected to use the report with broader expectations of
accountability to all stakeholders.
Global Corporate Social Responsibility
For some decisions, such as the report scope or boundary of a report, the reasonable
expectations and interests of a wide range of stakeholder will need to be considered. There
may be, for example, stakeholders who are unable to articulate their views on a report and
whose concerns are presented by proxies. There may also be stakeholders who choose not to
express views on reports because they rely on different means of communication and
engagement. The reasonable expectations and interests of these stakeholders should still be
acknowledged in decisions about the content of the report. However, other decisions, such as
the level of detail required to be useful to stakeholders, or expectations of different
stakeholders about what is required to achieve clarity, may require greater emphasis on those
who can reasonably be expected to use the report. It is important to document the processes
and approach taken in making these decisions.
Stakeholder engagement processes can serve as tools for understanding the reasonable
expectations and interests of stakeholders. Organizations typically initiate different types of
stakeholder engagement as part of their regular activities, which can provide useful inputs
for decisions on reporting. These may include, for example, stakeholder engagement for the
purpose of compliance with internationally-agreed standards, or informing ongoing
organizational/ business processes. In addition, stakeholder engagement may also be
implemented specifically to inform the report preparation process.
Organizations can also use other means such as the media, the scientific community, or
collaborative activities with peers and stakeholders. These means can help the organization
better understand stakeholders reasonable expectations and interests.
For a report to be assurable, the process of stakeholder engagement should be documented.
When stakeholder engagement processes are used for reporting purposes, they should be
based on systematic or generally accepted approaches, methodologies, or principles.
The overall approach should be sufficiently effective to ensure that stakeholders
information needs are properly understood. The reporting organization should document its
approach for defining which stakeholders it engaged with, how and when it engaged with
them, and how engagement has influenced the report content and the organizations
sustainability activities. These processes should be capable of identifying direct input from
stakeholders as well as legitimately established societal expectations. An organization may
encounter conflicting views or differing expectations among its stakeholders, and will need
to be able to explain how it balanced these in reaching its reporting decisions.
Failure to identify and engage with stakeholders is likely to result in reports that are not
suitable, and therefore not fully credible, to all stakeholders. In contrast, systematic
stakeholder engagement enhances stakeholder receptivity and the usefulness of the report.
Executed properly, it is likely to result in ongoing learning within the organization and by
external parties, as well as increase accountability to a range of stakeholders. Accountability
strengthens trust between the reporting organization and its stakeholders.
Trust, in turn, fortifies report credibility.
Tests:
The organization can describe the stakeholders to whom it considers itself accountable.
The report content draws upon the outcomes of stakeholder engagement processes used
by the organization in its ongoing activities, and as required by the legal and
institutional framework in which it operates.
The report content draws upon the outcomes of any stakeholder engagement processes
undertaken specifically for the report.
The stakeholder engagement processes that inform decisions about the report are
consistent with the scope and boundary of the report.
9.24 SUSTAINABILITY CONTEXT
Definition: The report should present the organizations performance in the wider context of
sustainability.
Explanation: Information on performance should be placed in context. The underlying
question of sustainability reporting is how an organization contributes, or aims to contribute
in the future, to the improvement or deterioration of economic, environmental, and social
conditions, developments, and trends at the local, regional, or global level.
Reporting only on trends in individual performance (or the efficiency of the organization)
will fail to respond to this underlying question. Reports should therefore seek to present
performance in relation to broader concepts of sustainability. This will involve discussing
the performance of the organization in the context of the limits and demands placed on
environmental or social resources at the sectoral, local, regional, or global level. For
example, this could mean that in addition to reporting on trends in eco-efficiency, an
organization might also present its absolute pollution loading in relation to the capacity of
the regional ecosystem to absorb the pollutant.
This concept is often most clearly articulated in the environmental arena in terms of global
limits on resource use and pollution levels. However, it can also be relevant with respect to
social and economic objectives such as national or international socio-economic and
sustainable development goals. For example, an organization could report on employee
wages and social benefit levels in relation to nation-wide minimum and median income
levels and the capacity of social safety nets to absorb those in poverty or those living close to
the poverty line. Organizations operating in a diverse range of locations, sizes, and sectors
will need to consider how to best frame their overall organizational performance in the
broader context of sustainability. This may require distinguishing between topics or factors
that drive global impacts (such as climate change) and those that have more regional or local
impacts (such as community development). Similarly, distinctions might need to be made
between trends or patterns of impacts across the range of operations versus contextualizing
performance location by location. The organizations own sustainability and business
strategy provides the context in which to discuss performance. The relationship between
sustainability and organizational strategy should be made clear, as should the context within
which performance is reported.
Tests:
The organization presents its understanding of sustainable development and draws on
objective and available information as well as measures of sustainable development for the
topics covered in the report.
Global Corporate Social Responsibility
as long as the basis for estimates is clearly disclosed and the limitations of the estimates are
clearly acknowledged.
Disclosing the nature and likelihood of such impacts, even if they may only materialize in
the future, is consistent with the goal of providing a balanced and reasonable representation
of the organizations economic, environmental, and social performance.
Tests:
The report was developed taking into account the entire chain of entities upstream and
downstream, and covers and prioritizes all information that should reasonably be
considered material on the basis of the principles of materiality, sustainability context,
and stakeholder inclusiveness.
The report includes all entities that meet the criteria of being subject to control or
significant influence of the reporting organization unless otherwise declared.
The information in the report includes all significant actions or events in the reporting
period, and reasonable estimates of significant future impacts of past events when those
impacts are reasonably foreseeable and may become unavoidable or irreversible.
The report does not omit relevant information that would influence or inform
stakeholder assessments or decisions, or that would reflect significant economic,
environmental, and social impacts.
9.26 Reporting Principles for Defining Quality
This section contains Principles that guide choices on ensuring the quality of reported
information, including its proper presentation. Decisions related to the process of preparing
information in a report should be consistent with these Principles. All of these Principles are
fundamental for effective transparency. The quality of information enables stakeholders to
make sound and reasonable assessments of performance, and take appropriate action.
Reporting Principles for Defining Quality BALANCE
Definition: The report should reflect positive and negative aspects of the organizations
performance to enable a reasoned assessment of overall performance.
Explanation: The overall presentation of the reports content should provide an unbiased
picture of the reporting organizations performance. The report should avoid selections,
omissions, or presentation formats that are reasonably likely to unduly or inappropriately
influence a decision or judgment by the report reader. The report should include both
favorable and unfavorable results, as well as topics that can influence the decisions of
stakeholders in proportion to their materiality. Reports should clearly distinguish between
factual presentation and the reporting organizations interpretation of information.
Tests:
The report discloses both favorable and unfavorable results and topics.
The information in the report is presented in a format that allows users to see positive
and negative trends in performance on a year-to-year basis.
The emphasis on the various topics in the report is proportionate to their relative
materiality.
9.27 COMPARABILITY
Definition: Issues and information should be selected, compiled, and reported consistently.
Reported information should be presented in a manner that enables stakeholders to analyze
changes in the organizations performance over time, and could support analysis relative to
other organizations.
Explanation: Comparability is necessary for evaluating performance. Stakeholders using
the report should be able to compare information reported on economic, environmental, and
social performance against the organizations past performance, its objectives, and, to the
degree possible, against the performance of other organizations. Consistency in reporting
allows internal and external parties to benchmark performance and assess progress as part of
rating activities, investment decisions, advocacy programs, and other activities.
Comparisons between organizations require sensitivity to factors such as differences in
organizational size, geographic influences, and other considerations that may affect the
relative performance of an organization.
Where necessary, report preparers should consider providing context that will help report
users understand the factors that may contribute to differences in performance between
organizations.
Maintaining consistency with the methods used to calculate data, with the layout of the
report, and with explaining the methods and assumptions used to prepare information, all
facilitates comparability over time. As the relative importance of topics to a given
organization and its stakeholders change over time, the content of reports will also evolve.
However, within the confines of the Principle of Materiality, organizations should aim for
consistency in their reports over time.
An organization should include total numbers (i.e., absolute data such as tons of waste) as
well as ratios (i.e., normalized data such as waste per unit of production) to enable analytical
comparisons.
When changes occur with the boundary, scope, length of the reporting period, or content
(including the design, definitions, and use of any Indicators in the report), reporting
organizations should, whenever practicable, restate current disclosures alongside historical
data (or vice versa). This ensures that information and comparisons are both reliable and
meaningful over time. Where such restatements are not provided, the report should explain
the reasons and implications for interpreting current disclosures.
Tests:
The report and the information contained within it can be compared on a year-to-year
basis.
The organizations performance can be compared with appropriate benchmarks.
Any significant variation between reporting periods in the boundary, scope, length of
reporting period, or information covered in the report can be identified and explained.
Where they are available, the report utilizes generally accepted protocols for compiling,
measuring, and presenting information, including the GRI Technical Protocols for Indicators
contained in the Guidelines.
The report uses GRI Sector Supplements, where available.
9.28 ACCURACY
Definition: The reported information should be sufficiently accurate and detailed for
stakeholders to assess the reporting organizations performance.
Explanation: Responses to economic, environmental, and social topics and Indicators can
be expressed in many different ways, ranging from qualitative responses to detailed
quantitative measurements.
The characteristics that determine accuracy vary according to the nature of the information
and the user of the information. For example, the accuracy of qualitative information is
largely determined by the degree of clarity, detail, and balance in presentation within the
appropriate Report Boundary. The accuracy of quantitative information, on the other hand,
may depend on the specific methods used to gather, compile, and analyze data. The specific
threshold of accuracy that is necessary will depend partly on the intended use of the
information. Certain decisions will require higher levels of accuracy in reported information
than others.
Tests:
The report indicates the data that has been measured.
The data measurement techniques and bases for calculations are adequately described,
and can be replicated with similar results.
The margin of error for quantitative data is not sufficient to substantially influence the
ability of stakeholders to reach appropriate and informed conclusions on performance.
The report indicates which data has been estimated and the underlying assumptions and
techniques used to produce the estimates, or where that information can be found.
Global Corporate Social Responsibility
The qualitative statements in the report are valid on the basis of other reported
information and other available evidence.
9.29 TIMELINESS
Definition: Reporting occurs on a regular schedule and information is available in time for
stakeholders to make informed decisions.
Explanation: The usefulness of information is closely tied to whether the timing of its
disclosure to stakeholders enables them to effectively integrate it into their decision-making.
The timing of release refers both to the regularity of reporting as well as its proximity to the
actual events described in the report.
Although a constant flow of information is desirable for meeting certain purposes, reporting
organizations should commit to regularly providing a consolidated disclosure of their
economic, environmental, and social performance at a single point in time. Consistency in
the frequency of reporting and the length of reporting periods is also necessary to ensure
comparability of information over time and accessibility of the report to stakeholders. It can
be of value for stakeholders if the schedules for sustainability reporting and financial
reporting are aligned. The organization should balance the need to provide information in a
timely manner with the importance of ensuring that the information is reliable.
Tests:
Information in the report has been disclosed while it is recent relative to the reporting
period.
The collection and publication of key performance information is aligned with the
sustainability reporting schedule.
The information in the report (including web based reports) clearly indicates the time
period to which it relates, when it will be updated, and when the last updates were made.
9.30 CLARITY
Definition: Information should be made available in a manner that is understandable and
accessible to stakeholders using the report.
Explanation: The report should present information in a way that is understandable,
accessible, and usable by the organizations range of stakeholders (whether in print form or
through other channels). A stakeholder should be able to find desired information without
unreasonable effort. Information should be presented in a manner that is comprehensible to
stakeholders who have a reasonable understanding of the organization and its activities.
Graphics and consolidated data tables can help make the information in the report accessible
and understandable. The level of aggregation of information can also affect the clarity of a
report if it is either significantly more or less detailed than stakeholders expect.
Tests:
The report contains the level of information required by stakeholders, but avoids
excessive and unnecessary detail.
Stakeholders can find the specific information they want without unreasonable eff ort
through tables of contents, maps, links, or other aids.
The report avoids technical terms, acronyms, jargon, or other content likely to be
unfamiliar to stakeholders, and should include explanations (where necessary) in the
relevant section or in a glossary.
The data and information in the report is available to stakeholders, including those with
particular accessibility needs (e.g., differing abilities, language, or technology).
9.31 RELIABILITY
Definition: Information and processes used in the preparation of a report should be
gathered, recorded, compiled, analyzed, and disclosed in a way that could be subject to
examination and that establishes the quality and materiality of the information.
Explanation: Stakeholders should have confidence that a report could be checked to
establish the veracity of its contents and the extent to which it has appropriately applied
Reporting Principles. The information and data included in a report should be supported by
internal controls or documentation that could be reviewed by individuals other than those
who prepared the report. Disclosures about performance that are not substantiated by
evidence should not appear in a sustainability report unless they represent material
information, and the report provides unambiguous explanations of any uncertainties
associated with the information. The decision-making processes underlying a report should
be documented in a manner that allows the basis of key decisions (such as processes for
determining the report content and boundary or stakeholder engagement) to be examined. In
designing information systems, reporting organizations should anticipate that the systems
could be examined as part of an external assurance process.
Tests:
The scope and extent of external assurance is identified.
The original source of the information in the report can be identified by the
organization.
Reliable evidence to support assumptions or complex calculations can be identified by
the organization.
Representation is available from the original data or information owners, attesting to its
accuracy within acceptable margins of error.
9.32 Reporting Guidance for Boundary Setting
In parallel with defining the content of a report, an organization must determine which
entities (e.g., subsidiaries and joint ventures) performance will be represented by the report.
The Sustainability Report Boundary should include the entities over which the reporting
organization exercises control or significant influence both in and through its relationships
with various entities upstream (e.g., supply chain) and downstream (e.g., distribution and
customers).
For the purpose of setting boundaries, the following definitions should apply:
Control: the power to govern the financial and operating policies of an enterprise so as to
obtain benefits from its activities.
Significant influence: the power to participate in the financial and operating policy
decisions of the entity but not the power to control those policies.
Global Corporate Social Responsibility
The guidance below on setting the Report Boundary pertains to the report as a whole as well
as setting the boundary for individual Performance Indicators.
Not all entities within the Report Boundary must be reported on in the same manner. The
approach to reporting on an entity will depend on a combination of the reporting
organizations control or influence over the entity, and whether the disclosure relates to
operational performance, management performance, or narrative/descriptive information.
The Report Boundary guidance is based on the recognition that different relationships
involve differing degrees of access to information and the ability to affect outcomes. For
example, operational information such as emissions data can be reliably compiled from
entities under the control of an organization, but may not be available for a joint venture or a
supplier. The Report Boundary guidance below sets minimum expectations for the inclusion
of entities upstream and downstream when reporting on Indicators and management
disclosures. However, an organization may determine that it is necessary to extend the
boundary for an Indicator(s) to include entities upstream or downstream.
Determining the significance of an entity when collecting information or considering the
extension of a boundary depends on the scale of its sustainability impacts. Entities with
significant impacts typically generate the greatest risk or opportunity for an organization and
its stakeholders, and therefore are the entities for which the organization is most likely to be
perceived as being accountable or responsible.
Reporting Guidance for Boundary Setting
A sustainability report should include in its boundary all entities that generate significant
sustainability impacts (actual and potential) and/or all entities over which the reporting
organization exercises control or significant influence with regard to financial and operating
policies and practices.
These entities can be included using either Indicators of operational performance,
Indicators of management performance, or narrative descriptions.
At a minimum, the reporting organization should include the following entities in its report
using these approaches:
Entities over which the organization exercises control should be covered by Indicators of
Operational Performance; and
Entities over which the organization exercises significant influence should be covered by
Disclosures on Management Approach.
The boundaries for narrative disclosures should include entities over which the
organization does not exercise control/significant influence, but which are associated with
key challenges for the organization because their impacts are significant
The report should cover all entities within its Report Boundary. In the process of preparing
its report, an organization may choose not to gather data on a particular entity or group of
entities within the defined boundary on the basis of efficiency as long as such a decision
does not substantively change the final result of a Disclosure or Indicator.
Part 2: Standard Disclosures
This section specifies the base content that should appear in a sustainability report, subject to
the guidance on determining content in Part 1 of the Guidelines.
There are three different types of disclosures contained in this section.
Strategy and Profile: Disclosures that set the overall context for understanding
organizational performance such as its strategy, profile, and governance.
Management Approach: Disclosures that cover how an organization addresses a given set
of topics in order to provide context for understanding performance in a specific area.
Performance Indicators: Indicators that elicit comparable information on the economic,
environmental, and social performance of the organization.
Reporting organizations are encouraged to follow this structure in compiling their reports,
however, other formats may be chosen.
Global Corporate Social Responsibility
9.33 Profile
1. Strategy and Analysis
This section is intended to provide a high-level, strategic view of the organizations
relationship to sustainability in order to provide context for subsequent and more detailed
reporting against other sections of the Guidelines. It may draw on information provided in
other parts of the report, but this section is intended to produce insight on strategic topics
rather than simply summarize the contents of the report. The strategy and analysis should
consist of the statement outlined in 1.1 and a concise narrative outlined in 1.2.
1.1 Statement from the most senior decision maker of the organization (e.g., CEO, chair, or
equivalent senior position) about the relevance of sustainability to the organization and its
strategy.
The statement should present the overall vision and strategy for the short-term, medium-term
(e.g., 3-5 years), and long-term, particularly with regard to managing the key challenges
associated with economic, environmental, and social performance.
The statement should include:
Strategic priorities and key topics for the short/ medium-term with regard to sustainability,
including respect for internationally agreed standards and how they relate to long-term
organizational strategy and success;
Broader trends (e.g., macroeconomic or political) affecting the organization and
influencing sustainability priorities;
Key events, achievements, and failures during the reporting period;
Views on performance with respect to targets;
Outlook on the organizations main challenges and targets for the next year and goals for
the coming 3-5 years; and
Other items pertaining to the organizations strategic approach.
1.2 Description of key impacts, risks, and opportunities.
The reporting organization should provide two concise narrative sections on key impacts,
risks, and opportunities.
Section One should focus on the organizations key impacts on sustainability and effects on
stakeholders, including rights as defined by national laws and relevant internationally agreed
standards. This should take into account the range of reasonable expectations and interests of
the organizations stakeholders. This section should include:
A description of the significant impacts the organization has on sustainability and
associated challenges and opportunities. This includes the effect on stakeholders rights as
defined by national laws and the expectations in internationally-agreed standards and norms;
An explanation of the approach to prioritizing these challenges and opportunities;
Key conclusions about progress in addressing these topics and related performance in the
reporting period. This includes an assessment of reasons for underperformance or over
performance; and
A description of the main processes in place to address performance and/or relevant
changes.
Section Two should focus on the impact of sustainability trends, risks, and opportunities on
the long-term prospects and financial performance of the organization. This should
concentrate specifically on information relevant to financial stakeholders or that could
become so in the future.
Section Two should include the following:
A description of the most important risks and opportunities for the organization arising
from sustainability trends;
Prioritization of key sustainability topics as risks and opportunities according to their
relevance for long-term organizational strategy, competitive position, qualitative, and (if
possible) quantitative financial value drivers;
Table(s) summarizing:
Targets, performance against targets, and lessons-learned for the current reporting period;
and
Targets for the next reporting period and mid-term objectives and goals (i.e., 3-5 years)
related to key risks and opportunities.
Concise description of governance mechanisms in place to specifically manage these risks
and opportunities, and identification of other related risks and opportunities.
Global Corporate Social Responsibility
State how the organization defines independent and non-executive. This element applies
only for organizations that have unitary board structures.
9.36.4 Mechanisms for shareholders and employees to provide recommendations or
direction to the highest governance body.
Include reference to processes regarding:
The use of shareholder resolutions or other mechanisms for enabling minority shareholders
to express opinions to the highest governance body; and
Informing and consulting employees about the working relationships with formal
representation bodies such as organization level work councils, and representation of
employees in the highest governance body.
Identify topics related to economic, environmental, and social performance raised through
these mechanisms during the reporting period.
9.36.5 Linkage between compensation for members of the highest governance body, senior
managers, and executives (including departure arrangements), and the organizations
performance (including social and environmental performance).
9.36.6 Processes in place for the highest governance body to ensure conflicts of interest are
avoided.
9.36.7 Process for determining the qualifications and expertise of the members of the highest
governance body for guiding the organizations strategy on economic, environmental, and
social topics.
9.36.8 Internally developed statements of mission or values, codes of conduct, and principles
relevant to economic, environmental, and social performance and the status of their
implementation.
Explain the degree to which these:
Are applied across the organization in different regions and department/units; and
Relate to internationally agreed standards.
9.36.9 Procedures of the highest governance body for overseeing the organizations
identification and management of economic, environmental, and social performance,
including relevant risks and opportunities, and adherence or compliance with internationally
agreed standards, codes of conduct, and principles.
9.36.10 Processes for evaluating the highest governance bodys own performance,
particularly with respect to economic, environmental, and social performance.
COMMITMENTS TO EXTERNAL INITIATIVES
9.36.11 Explanation of whether and how the precautionary approach or principle is
addressed by the organization.
Article 15 of the Rio Principles introduced the precautionary approach. A response to 4.11
could address the organizations approach to risk management in operational planning or the
development and introduction of new products.
9.36.12 Externally developed economic, environmental, and social charters, principles, or
other initiatives to which the organization subscribes or endorses.
9.36.13 Memberships in associations (such as industry associations) and/or
national/international advocacy organizations in which the organization:
Global Corporate Social Responsibility
Economic Performance;
Market Presence; and
Indirect Economic Impacts.
GOALS AND PERFORMANCE
Organization-wide goals regarding performance relevant to the Economic Aspects. Use
organization-specifi c Indicators (as needed in addition to the GRI Performance Indicators to
demonstrate the results of performance against goals.
POLICY
Brief, organization-wide policy (or policies) that defines the organizations overall
commitment relating to the Economic Aspects listed above, or state where this can be found
in the public domain (e.g., web link).
ADDITIONAL CONTEXTUAL INFORMATION
Additional relevant information required to understand organizational performance, such as:
Key successes and shortcomings;
Major organizational risks and opportunities;
Major changes in the reporting period to systems or structures to improve performance;
and
Key strategies for implementing policies or achieving performance.
Environmental
The environmental dimension of sustainability concerns an organizations impacts on living
and non-living natural systems, including ecosystems, land, air, and water. Environmental
Indicators cover performance related to inputs (e.g., material, energy, water) and outputs
(e.g., emissions, effluents, waste). In addition, they cover performance related to
biodiversity, environmental compliance, and other relevant information such as
environmental expenditure and the impacts of products and services.
Disclosure on Management Approach
Provide a concise disclosure on the Management Approach items outlined below with
reference to the following Environmental Aspects:
Materials;
Energy;
Water;
Biodiversity;
Emissions, Effluents, and Waste;
Products and Services;
Compliance;
Transport; and
Overall
GOALS AND PERFORMANCE
Organization-wide goals regarding performance relevant to the Environment Aspects.
Use organization-specific Indicators (as needed) in addition to the GRI Performance
Indicators to demonstrate the results of performance against goals.
POLICY
Brief, organization-wide policy (or policies) that defines the organizations overall
commitment related to the Environmental Aspects listed above or state where this can be
found in the public domain (e.g., web link).
ORGANIZATIONAL RESPONSIBILITY
The most senior position with operational responsibility for Environmental Aspects or
explain how operational responsibility is divided at the senior level for these Aspects. This
differs from Disclosure 4.1, which focuses on structures at the governance level.
TRAINING AND AWARENESS
Procedures related to training and raising awareness in relation to the Environmental
Aspects.
MONITORING AND FOLLOW-UP
Procedures related to monitoring and corrective and preventive actions, including those
related to the supply chain.
List of certifications for environment-related performance or certification systems, or other
approaches to auditing/verification for the reporting organization or its supply chain.
ADDITIONAL CONTEXTUAL INFORMATION
Additional relevant information required to understand organizational performance, such as:
Key successes and shortcomings;
Major organizational environmental risks and opportunities related to issues;
Major changes in the reporting period to systems or structures to improve performance;
and
Key strategies and procedures for implementing policies or achieving goals.
Social Performance Indicators
The social dimension of sustainability concerns the impacts an organization has on the social
systems within which it operates.
The GRI Social Performance Indicators identify key Performance Aspects surrounding labor
practices, human rights, society, and product responsibility.
Labor Practices and Decent Work
The specific Aspects under the category of Labor Practices are based on internationally
recognized universal standards, including:
United Nations Universal Declaration of Human Rights and its Protocols;
United Nations Convention: International Covenant on Civil and Political Rights;
United Nations Convention: International Covenant on Economic, Social, and Cultural
Rights;
ILO Declaration on Fundamental Principles and Rights at Work of 1998 (in particular the
eight core conventions of the ILO); and
The Vienna Declaration and Programme of Action.
The Labor Practices Indicators also draw upon the two instruments directly addressing the
social responsibilities of business enterprises: the ILO Tripartite Declaration Concerning
Multinational Enterprises and Social Policy, and the Organisation for Economic Cooperation
and Development (OECD) Guidelines for Multinational Enterprises.
Disclosure on Management Approach
Global Corporate Social Responsibility
Provide a concise disclosure on the following Management Approach items with reference
to the Labor Aspects listed below. The ILO Tripartite Declaration Concerning Multinational
Enterprises and Social Policy (in particular the eight core conventions of the ILO) and the
Organisation for Economic Co-operation and Development Guidelines for Multinational
Enterprises, should be the primary reference points.
Employment;
Labor/Management Relations;
Occupational Health and Safety;
Training and Education; and
Diversity and Equal Opportunity.
GOALS AND PERFORMANCE
Organizationwide goals regarding performance relevant to the Labor Aspects, indicating
their linkage to the internationally recognized universal standards.
Use organization-specific Indicators (as needed) in addition to the GRI Performance
Indicators to demonstrate the results of performance against goals.
POLICY
Brief, organization-wide policy (or policies) that defines the organizations overall
commitment related to the Labor Aspects, or state where this can be found in the public
domain (e.g., web link). Also reference their linkage to the international standards indicated
above.
ORGANIZATIONAL RESPONSIBILITY
The most senior position with operational responsibility for Labor Aspects or explain how
operational responsibility is divided at the senior level for these Aspects.
TRAINING AND AWARENESS
Procedures related to training and raising awareness in relation to the Labor Aspects.
MONITORING AND FOLLOW-UP
Procedures related to monitoring and corrective and preventive actions, including those
related to the supply chain.
List of certifications for labor-related performance or certification systems, or other
approaches to auditing/ verifying the reporting organization or its supply chain.
ADDITIONAL CONTEXTUAL INFORMATION
Additional relevant information required to understand organizational performance, such as:
Key successes and shortcomings;
Major organizational risks and opportunities;
Major changes in the reporting period to systems or structures to improve performance;
and
Key strategies and procedures for implementing policies or achieving goals.
Human Rights
Human Rights Performance Indicators require organizations to report on the extent to which
human rights are considered in investment and supplier/contractor selection practices.
Additionally, the Indicators cover employee and security forces training on human rights as
well as non-discrimination, freedom of association, child labor, indigenous rights, and forced
and compulsory labor.
Generally recognized human rights are defined by the following Conventions and
Declarations:
United Nations Universal Declaration of Human Rights and its Protocols;
United Nations Convention: International Covenant on Civil and Political Rights;
United Nations Convention: International Covenant on Economic, Social, and Cultural
Rights;
ILO Declaration on Fundamental Principles and Rights at Work of 1998 (in particular the
eight core conventions of the ILO); and
The Vienna Declaration and Programme of Action.
Disclosure on Management Approach
Provide a concise disclosure on the following Management Approach items with reference
to the Human Rights Aspects listed below. The ILO Tripartite Declaration Concerning
Multinational Enterprises and Social Policy (in particular the eight core conventions of the
ILO which consist of Conventions 100, 111, 87, 98, 138, 182, 20 and 1059), and the
Organisation for Economic Cooperation and Development Guidelines for Multinational
Enterprises should be the primary reference points.
Investment and Procurement Practices;
Non-discrimination;
Freedom of Association and Collective Bargaining;
Abolition of Child Labor;
Prevention of Forced and Compulsory Labor;
Complaints and Grievance Practices;
Security Practices; and
Indigenous Rights.
GOALS AND PERFORMANCE
Organization-wide goals regarding performance relevant to the Human Rights Aspects,
indicating their linkage to the international declarations and standards listed above.
Use organization-specific Indicators (as needed) in addition to the GRI Performance
Indicators to demonstrate the results of performance against goals.
POLICY
Brief, organization-wide policy (or policies) that defines the organizations overall
commitment to the Human Rights Aspects (including policies which may be reasonably
considered likely to affect the decision of employees to join a trade union or bargain
collectively), or state where this can be found in the public domain (e.g., web link). Also
reference their linkage to the international declarations and standards indicated above.
ORGANIZATIONAL RESPONSIBILITY
The most senior position with operational responsibility for Human Rights Aspects or
explain how operational responsibility is divided at the senior level for these Aspects. This
differs from Disclosure 4.1, which focuses on structures at the governance level.
TRAINING AND AWARENESS
Procedures related to training and raising awareness in relation to the Human Rights
Aspects.
Global Corporate Social Responsibility
Procedures related to monitoring and corrective and preventive actions, including those
related to the supply chain.
List of certifications for performance or certification systems, or other approaches to
auditing/verifying the reporting organization or its supply chain.
ADDITIONAL CONTEXTUAL INFORMATION
Additional relevant information required to understand organizational performance, such as:
Key successes and shortcomings;
Major organizational risks and opportunities;
Major changes in the reporting period to systems or structures to improve performance;
and
Key strategies and procedures for implementing policies or achieving goals.
Product Responsibility
Product Responsibility Performance Indicators address the aspects of a reporting
organizations products and services that directly affect customers, namely, health and
safety, information and labeling, marketing, and privacy.
These aspects are chiefly covered through disclosure on internal procedures and the extent to
which these procedures are not complied with.
Disclosure on Management Approach
Provide a concise disclosure on the following Management Approach items with reference
to the Product Responsibility Aspects:
Customer Health and Safety;
Product and Service Labeling;
Marketing Communications;
Customer Privacy; and
Compliance.
GOALS AND PERFORMANCE
Organization-wide goals regarding performance relevant to the Product Responsibility
Aspects. Use organization-specific Indicators (as needed) in addition to the GRI
Performance Indicators to demonstrate the results of performance against goals.
POLICY
Brief, organization-wide policy (or policies) that defines the organizations overall
commitment to the Product Responsibility Aspects, or state where this can be found
in the public domain (e.g., web link).
ORGANIZATIONAL RESPONSIBILITY
The most senior position with operational responsibility for Product Responsibility Aspects,
or explain how operational responsibility is divided at the senior level for Product
Responsibility Aspects. This differs from Disclosure 4.1, which focuses on structures at the
governance level.
TRAINING AND AWARENESS
Procedures related to training and raising awareness in relation to the Product Responsibility
Aspects.
MONITORING AND FOLLOW-UP
Procedures related to monitoring and corrective and preventive actions, including those
related to the supply chain.
List of certifications for product responsibility related performance or certification systems,
or other approaches to auditing/verifying the reporting organization or its supply chain.
ADDITIONAL CONTEXTUAL INFORMATION
Additional relevant information required to understand organizational performance, such as:
Key successes and shortcomings;
Major organizational risks and opportunities;
Major changes in the reporting period to systems or structures to improve performance;
and
Key strategies and procedures for implementing policies or achieving goals.
General Reporting Notes Data Gathering
FEASIBILITY ASSESSMENT
The process of defining report content will result in a set of topics and Indicators on which
the organization should report. However, practical challenges such as the availability of data,
the cost of gathering it, the confidentiality of information, privacy or other legal concerns,
the reliability of available information, and other factors, may result in a legitimate decision
not to disclose certain information. Where material information is omitted, the report should
clearly indicate this and the reasons why.
DATA AGGREGATION AND DISAGGREGATION
Reporting organizations will need to determine the level of aggregation at which to present
information.
This requires balancing the effort required against the added meaningfulness of information
reported on a disaggregated basis (e.g., country or site). Aggregation of information can
result in the loss of a significant amount of meaning, and can also fail to highlight
particularly strong or poor performance in specific areas.
On the other hand, unnecessary disaggregation of data can affect the ease of understanding
the information. Reporting organizations should disaggregate information to an appropriate
level using the principles and the guidance in the reporting Indicators.
Disaggregation may vary by Indicator, but will generally provide more insight than a single,
aggregated figure.
Report Form and Frequency
DEFINITION OF A SUSTAINABILITY REPORT
A sustainability report refers to a single, consolidated disclosure that provides a reasonable
and balanced presentation of performance over a fixed time period.
Stakeholders should be able to directly access all of the report information from a single
location, such as a GRI content index. Other publications should not be referenced as the
information source for a GRI Standard Disclosure Item (ex., a Performance Indicator) unless
the means for a stakeholder to directly access the information is provided (e.g., a link to a
specific web page or the page number of the corresponding publication). There is no
minimum length for a report using the GRI Framework as long as the organization has
properly applied the Guidelines and Framework documents it has chosen to use.
MEDIUM OF REPORTING
Global Corporate Social Responsibility
Electronic (e.g., CD-ROM) or web-based reporting and paper reports are appropriate media
for reporting. Organizations may choose to use a combination of web and paper-based
reports or use only one medium. For example, an organization may choose to provide a
detailed report on their website and provide an executive summary including their strategy
and analysis and performance information in paper form. The choice will likely depend on
the organizations decisions on its reporting period, its plans for updating content, the likely
users of the report, and other practical factors such as its distribution strategy. At least one
medium (web or paper) should provide users with access to the complete set of information
for the reporting period.
FREQUENCY OF REPORTING
Organizations should define a consistent and periodic cycle for issuing a report. For many
organizations, this will be an annual cycle, although some organizations choose to report
biannually. An organization may choose to update information on a regular basis between
the issuing of consolidated accounts of performance. This has advantages in terms of
providing stakeholders with more immediate access to information, but has disadvantages in
terms of comparability of information. However, organizations should still maintain a
predictable cycle in which all of the information that is reported covers a specific time
period. Reporting on economic, environmental, and social performance could coincide or be
integrated with other organizational reporting, such as annual financial statements.
Coordinated timing will reinforce the linkages between financial performance and economic,
environmental, and social performance.
UPDATING REPORT CONTENT
When preparing a new report, an organization may identify areas of information that have
not changed since the prior report (e.g., a policy that has not been amended). The
organization may choose to only update the topics and Indicators that have changed and to
re-publish the Disclosures that have not changed. For example, an organization may choose
to reproduce the information on policies that have not changed and only update its
Performance Indicators. The flexibility to take such an approach will depend in large part on
the organizations choice of reporting medium. Topics such as strategy and analysis and
Performance Indicators are likely to show changes each reporting period, while other topics
such as organizational profile or governance may change at a slower pace. Regardless of the
strategy used, the full set of applicable information for the reporting period should be
accessible in a single location
(either a paper or web-based document).
Assurance
CHOICES ON ASSURANCE
Organizations use a variety of approaches to enhance the credibility of their reports.
Organizations may have systems of internal controls in place, including internal audit
functions, as part of their processes for managing and reporting information. These internal
systems are important to the overall integrity and credibility of a report.
However, GRI recommends the use of external assurance for sustainability reports in
addition to any internal resources.
3.
People refers to
a)
increasing profits
b)
harming the environment
c)
fair and beneficial business practices toward labour and the community and region in
which a corporation conducts its business
d)
All of the above
4.
a)
b)
c)
d)
Planet refers to
Earth
sustainable environmental practices
Using non renewable resources
Polluting the environment
5.
Profit refers to
a)
Protecting environment
b)
giving higher salaries
c)
the economic value created by the organisation after deducting the cost of all inputs,
including the cost of the capital tied up
d)
None of the above
6.
Adding ecotourism or geotourism to an already rich tourism market such as the
Dominican Republic- is an example ofa)
Reaching untapped market potential
b)
misusing the environment
c)
Marketing the place to increase pollution
d)
increasing profits
7.
a)
b)
c)
d)
Division of Labour
effectiveness
Nationalism
All of the above
8.
a)
b)
c)
d)
9.
a)
b)
c)
d)
Benchmarking
Demonstrating
Comparing
All of the above
10.
a)
b)
c)
d)
Reporting Principles
Reporting Guidance
Standard Disclosures
All of the above
CHAPTER-10
CASE STUDY :
Theoretical framework
This following section includes a general and historical background of CSR. Consequently,
the concept of CSR is clarified in order to enable the reader to understand the meaning of
CSR. Furthermore, a presentation of CSR activities within service corporations will follow.
Finally, the relevant theories will be presented and discussed and later used to analyse the
empirical results in the next section.
10.1
During the years of discussion there have consistently been two essential questions that have
been debated:
1. Why might it be argued that corporations have social as well as financial
responsibilities?
2. What is the nature of these social responsibilities? (Crane et al, 2004, p. 41)
1. Social and financial responsibility
The traditional view of corporations objectives originates in shareholder value and
maximizing profits (Donaldson et al, 1995). However, currently it is accepted that the scope
of the corporation objective and its responsibilities is somewhat wider than merely
increasing profits. Furthermore, it has been debated that a corporation that employ CSR
activities, more likely has a long-term perspective. Consequently, such a corporation which
employs CSR activities might be rewarded with more contented customers and therefore
they will purchase products or services from that corporation to a higher extent. In addition,
this socially beneficial activity may attract employees that are committed to social responsibility
(Joyner & Payne, 2002). Moreover, one argument states that corporations are powerful
social factors that have a moral responsibility to solve social issues in the society (Crane et
al,
2004).
2. The nature of social responsibility
There are various terminologies used in order to explain the meaning of CSR and the
discussion has been going on half a century (Crane et al, 2004). Nevertheless, no theory has
yet established a unison framework or model, nor has any agreement been reached regarding
the terminology of CSR (Clarkson, 1995). Consequently, there are a lot of misconceptions,
and the discussion about the conduct of CSR is not yet entirely satisfactory. Blair (1995)
argues that the absence of theoretical rigor towards CSR constitute the reason to why CSR
has not yet been very successful. Consequently, there has not been enough clear guidance
for managers in order to prioritize and set policies within the organisation. Carroll (1979)
describes a wide spectra of different views regarding CSR e.g. profit maximization
(Friedman), beyond profit maximization (Davis, Backman), beyond economic as well as
legal requirements (McGuire) and a responsibility that concern social issues (Hay, Gray &
Gates). In order to bring forward some of the opinions regarding the views of CSR, a small
selection of views can be presented as following:
it refers to the obligations of businessman to pursue those policies, to make decisions, or to
follow those lines of action which are desirable in terms of the objectives and values of our
society
Bowen (1953) established one of the initial definitions of social responsibilities for
managers (recited in Carroll, 1999, p. 270). Furthermore, Carroll (1999) refers to Bowen as
the
Father of Corporate Social Responsibility.
there is one and only one social responsibility of business--to use its resources and engage
in activities designed to increase its profits so long as it stays within the rules of the game,
which is to say, engages in open and free competition without deception or fraud
The scholar explains his thoughts of CSR in the fundamentally subversive doctrine
(Friedman,
1970, p. 6). Friedman pragmatic point of view prevail that there is no real existence of CSR.
There have been various definitions of CSR including economic, legal and voluntary
activities. Although, one of the most used definitions is the one that Carroll (1991)
established through his model which is called the pyramid of corporate social responsibility.
This model could be seen as a ground pillar of what the authors believe CSR means today.
10.2
The European Commission define that CSR is voluntary apprehends the fact that a
corporation s CSR activities is separated from corporate accountability. The notion that
CSR is voluntary might result in a corporation neglecting their CSR risk management
strategies
which constitutes something that a corporation should have to consider (Ward, 2003).When
CSR risk management originates from decisions made of values which go beyond the law,
the management question becomes a discussion about business ethics. Business ethics can
be described as the outcome of the decisions that the employees within a corporation are
making. By examining the outcome of the decisions and asking the question whether the
decision is right or wrong, an employee can decide if the decision is ethical or not (Wise,
2006). The analysis whether a decision is right or wrong originates from the question if the
undertaking will be morally right or wrong and not if the undertaking is strategically right or
wrong (Crane et al, 2004).
One of the managerial difficulties consists of the mere fact that the definition of the term
morality differs between people. To overcome this problem the management often write
standards which are to be applied by the employees (Bonnedahl, Jensen & Sandstrm,
2007). By examining what kind of values, norms and believes that is of significance to the
stakeholders, that are affected by the corporations undertakings, the management can
apprehend a general idea of how to draft the corporation standards. This kind of research
will result in a substantial foundation from which the management can build an ethical
theory which gives them the underlying data to make ethical decisions (Crane et al, 2004).
An ethical decision theory is based upon an analysis which examines the outcome of the
action in terms of justification and result (Beauchamp & Norman, 2004).
Crane et al (2004) emphasize that CSR activities is a form of conduct that goes beyond what
the law demands and are more or less up to corporations to decide whether or not this ethical
behaviour should be implemented. As Figure 2 presents, there is a grey area which involves
behaviour which might be difficult to establish whether it is right or wrong business of
conduct. It is in this area which the conduct of CSR can be placed. Therefore, when
corporations conduct CSR activities it might be regarded as the right business ethical
behaviour but not demanded by the law (Crane et al, 2004).
10.3
The customers in high-income countries tend to demand more rigid involvement in CSR
activities. Furthermore, the agenda concerning CSR activities are often shaped by and
addressed to large corporations (Fox, Ward & Howard, 2002). Moreover, large corporations
have more resources with regard to time and money. They can therefore engage CSR
activities without negative impacts within the organisation. In addition, the image of large
corporations is to a larger extent scrutinized. With the higher profile follows an awareness
(EU Commission, 2002). Although, the discussion also needs to be moved towards the
SMEs since they, after all, represent 99 % of all corporations within the EU and therefore
affects stakeholders on a large scale (EU Commission, 2005). Finally, considering the
economical contribution of SME the discussion of SMEs involvement in CSR is
appropriate. A study from the EU Commission (2002), entail that 48 % amongst the very
small enterprises to 65 % and 70 % amongst the small and medium-sized enterprises of the
European SMEs are involved in social responsibilities.
Even though SMEs have different prerequisites there are no obstacles to conduct CSR
activities. However, it has to be pinpointed that SME s, with regard to CSR activities,
differs in engagement when compared to large corporations. In most SMEs the management
and ownership are controlled of the same person who consequently engages them as the
Global Corporate Social Responsibility
most important factor whether or not the corporation is involved with CSR activities. The
local commitment to the community and the stakeholders is usually strongly embedded.
Consequently, SMEs holds the local reputation as an important factor and therefore engage
in the communitys stability. Furthermore, SMEs often lack personnel, financial and time
resources and also affects by the economical conjuncture. Finally, SMEs frequently have a
more personal relationship with the stakeholders in order to build a trustworthy business
(EU Commission, 2002).
10.5
It is argued that service corporations need to be more proactive compared to other sectors.
Thus, it is important for service corporations to predict the requirements of the stakeholders.
In contrast, it is argued that manufacturing corporations has a higher degree of resemblance
regarding their managerial decisions about the conduct of CSR activities and therefore
enables more positive effects. Due to this effect, service corporations need to be aware of the
direct link with other corporations and therefore present their conduct of CSR activities as
genuine as possible and hopefully reach unanimity (Calabrese & Lancioni,
2008).
In Sweden, there are rules which regulate how a lawyer should act because of the position as
commission of trust. These exhaustive rules stipulate e.g. how a law firm should conduct its
business, how a law firm should set reimbursements, what moral standards a lawyer has to
follow, that a lawyer has to be independent towards the other party and consider the clients
best interest. To be able to control that the law firms and lawyers are following these
rules an organisation called Advokatsamfundet has the power to exclude a lawyer who is
in breach of the rules when practicing law, as a lawyer. Advokatsamfundet is therefore a
normative authority and all lawyers have to be members of Advokatsamfundet and they are
obligated to follow the standards set within the organisation (Wiklund, 1973).
There are, however, no obstacles for persons that are not lawyers to offer legal services.
Furthermore, there are no requirements of any particular education or experience. However,
these persons cannot call themselves lawyers. These jurists can instead label themselves as
business lawyers or corporate lawyers (Advokatsamfundet, 2009).
10.6
There is a limited amount of research concerning CSR activities and service corporations.
Although, an empirical study of 17 service corporations was conducted in Estonia, in order
to develop the hypotheses that the more extensively an organization engaged in CSR
activities, the less likely would task-orientation exceed relationship-orientation in this
organization and second, organizational culture in general would be stronger (Jaakson,
Vadi & Tamm, 2009). The result could however not strengthen or confirm the hypothesis
that a strong organisation plunge a higher conduct of CSR activities. It is in addition worth
to mention that, during the research, the primary focus was set on the main stakeholders:
managers and employees (Jaakson et al, 2009).
Another quantitative research was conducted in Italy and identified whether there is a
relationship between the commitment of CSR activities within banks and the satisfaction of
the stakeholders. On the one hand, the result of the research did not confirm that there exists
a relationship. But, on the other hand, the research demonstrated that implementing conduct
of CSR activities within banks strengthen the relationship towards the stakeholders. It can
therefore be argued that the banks are implementing CSR solely to develop the brand equity,
rather than trying to improve the relationship towards the stakeholders. Furthermore, through
the research result the conclusion could be drawn that the lesser degree of specified CSR
activities, the lesser degree of appreciation by the stakeholders (Calabrese et al, 2008).
10.7
The stakeholder theory is closely connected to CSR (Freeman, 1984). The stakeholder
theory identifies and explains towards whom corporations may have a responsibility.
Because of the progress of CSR it is not surprising that stakeholders demand more from the
corporations today (Weiss, 2006).
10.7.1 Primary stakeholders
Wheeler and Sillanp (1998) has divided primary stakeholders into the group of social
stakeholders such as investors (shareholders), employees and customers and the group of
non-social stakeholders which do not involve a human relationship such as the natural
environment and future generations.
The primary social stakeholders are directly affected by corporations activities regardless
whether they are positive or negative and therefore are influential (Carroll et al, 2003).
10.7.2 Secondary stakeholders
The same definition of social and non-social follows the secondary stakeholders. However,
the social stakeholders include e.g. governments and regulators and the non-social
stakeholders include environmental pressure groups and animal welfare organisations
(Carroll et al, 2003).
10.7.3 The stakeholder theory in general
The stakeholder theory emphasizes the relationship and responsibility with external groups,
unlike the focus of CSR that emphasizes the corporations responsibility other than
financial (Crane et al, 2004). The fundamental idea of the stakeholder theory advocates that
a frame of ethical principles towards the stakeholders may generate a competitive advantage.
Freeman (1984) explains the stakeholder theory as corporations have on the one hand
Global Corporate Social Responsibility
internal groups, investors, customers, employees and suppliers (see Figure 4). On the other
hand, corporations should also have responsibility towards the external groups, governments,
political groups, communities and trade associations (see Figure 4). Although this model is
only used as a model and is not to be seen as an extensive list of all stakeholders. The
stakeholders are external groups that have an interest or share in the corporation and
therefore are affected by the corporation and its policies, activities and procedures. The
interest does not necessarily have to be financial, but also physical or other implications.
Consequently, the stake-holder theory implicates a win-win situation and beneficial
results for all parties, if the corporations base their decisions on an ethical basis (see figure
4) However, it is difficult to be certain of an outcome such as a win-win situation (Weiss,
2006).
It has to be considered that different stakeholder has different degrees of interest within the
corporation. If corporations discriminate all stakeholders, when conducting CSR activities it
may damage their accountability. It may be argued that being accountable to all is being
accountable to none. If the conduct of CSR activities is not being directly addressed to e.g.
customers, that group of stakeholders may feel ignored and does not appreciate the
corporations CSR responsibilities. Furthermore, if there is any discrepancy between the CSR
policy and the conduct of CSR activities it may undermine the social and political view if
that particular corporation (Calabrese et al, 2008).
power to change the corporations strategy, (b) keep informed which are the stakeholders who
are satisfied as long as the corporation is giving them information about how the corporation
is conducting its business, (c) keep satisfied which are the stakeholders who has the power to
influence the corporations strategy but will not do so as long as they are happy, (d) key
players which are the stakeholders who are interested in the corporations strategies and who
has the power to influence these strategies (Johnson et al, 2008).
10.7.4 Triple Bottom Line
TBL is closely connected to CSR and foremost to the stakeholder theory since it concentrate
not only on the traditional economical value but also on the environmental and social value
(see figure 5), and was first coined by Elkington (1994). According to Elkington (1994),
corporations that only focus on profit could be seen as conducting business out of a shortterm perspective. The TBL approach, however, advocate on systems measuring the conduct
of social and environmental aspects and moreover, improving these aspects. Furthermore, the concept of the TBL appears to have had some success in articulating a
philosophy of sustainability in a language accessible to corporations and their
shareholders . In order to attain sustainability, one need to understand the meaning of the
economic bottom line. Nonetheless, it is challenging to understand the relationship between
the economical aspect and the social and environmental aspect. When creating a business
model which is based upon the view of the TBL it is important that managers can succeed in
finding ways in which the three dimensions creates a synergy with each other. Corporations
consider it hard to evaluate the outcome of a TBL based business model since there are no
concrete measuring systems which can determine exactly how the corporation is managing.
It is easier to measure how the company is managing economically. Another difficulty is that
managers are creating business models in which they are separating the three dimensions of
the TBL resulting in a system where one dimension prospers on behalf of another
(Henriques & Richardson, 2004).
TBL could be seemed as a necessity to attain sustainability and furthermore regarded as an
obligation for corporations in relation to the different stakeholders (Henriques et al, 2004).
10.8
Empirical findings
This section aims to present the empirical findings from the interviews. Initially, an
organisational presentation of the service corporations and the participants will be
presented. Thereafter the empirical findings which will be the foundation to the following
analysis will be presented.
Law Firm A Law Firm B Law firm C
Types of services
Employees
Location
Participant
Corporation A
Commercial law,
matters
trustee in bank-
Commericial law,
Commercial
legal education
4 (50) 3
20
1 (12)
Jnkping
Linkping
Stockholm
Junior barrister
Business lawyer
Corporate lawyer
All
legal
Jnkping
Junior
barrister
has its own business strategies separated from the group; the law firm can therefore be
regarded as a single entity.
Furthermore, the law firm has a vertical organisation which is the traditional organisation
within law firms. The law firm also has the ambition to grow and become one of the leading
commercial law firms.
10.8.2 Law firm B
Law firm B is located in Linkping and, in contrast to the traditional view, a horizontal
organisation is being used, mainly because there are three employees and only one business
lawyer that carry out the legal services (one business lawyer, one accountant and one
administrator).
10.8.3 Law firm C
Law firm C operates in Stockholm and has 20 employees, eight lawyers and 12 junior
barristers. The firm is owned by trade companies that are owned by the partners. Every
partner is working towards its own trade company but they all collaborate within the law
firm. The structure of and the way of collaboration is very complex.
10.8.4 Corporation A
The corporation is placed in Jnkping and operates on an international basis. The
corporation has a corporate lawyer who deals with day to day legal commercial and
noncommercial legal advice within the corporation. Because of the international operation
and many other national arrangements the corporation is in need of a full-time legal adviser.
At the corporate lawyers office there are however 12 employees, but as mentioned only one
jurist.
10.9
A initial clarification is needed since during the interviews additional data was retrieved but
it was attained without the fixed question and followed from the dialogue that characterized
the interviews.
Initially, a law firm has a special position in society since the law profession is considered to
be a commission of trust. As a result of the position as a commissionaire of trust, people that
are working within the field of the law need to have a higher ethical standard in comparison
to other professions. However, for the corporate lawyer it became more interesting
addressing issues regarding ethical vs. business decisions. Furthermore, since law firms
strictly constitute a service corporation the extent of the knowledge-based attributes of the
employees becomes more important. All the information stated in this chapter derives from
the conducted interviews.
Global Corporate Social Responsibility
In Sweden the law profession can be divided into two separate categories. The first category
can label themselves as lawyers that practice the law. To become a lawyer one will need to
be a member of Advokatsamfundet. Advokatsamfundet is a private organisation which has
the same influence as an authority, but for lawyers. As a member of Advokatsamfundet the
lawyer is obliged to follow the ethical standards which are stipulated by Advokatsamfundet.
If not, the lawyer is in breach with the ethical regulations and can be excluded from
practicing legal services as a lawyer. Consequently, since it is not voluntary to follow
Advokatsamfundets ethical regulations it is no longer a responsibility but an accountability.
The second type of law firm is driven by persons that cannot label themselves as lawyers but
as business lawyers. There is no practical difference but with the label of lawyer an
automatically guarantee follows of their legal knowledge. The actual difference is that
business lawyers are not members of Advokatsamfundet and therefore not obliged to follow
the ethical regulations stipulated by this private organisation.
Another type of jurist is lawyers who are working for a corporation (corporate lawyers) and
in conformity with the situation for business lawyers they are not obliged to follow the
ethical regulations stipulated by Advokatsamfundet.
Law firm A and C had partners who are members of Advokatsamfundet and these law firms
have implemented the ethical standards into their business strategy. Law firm B does not
have a partner who is a member of Advokatsamfundet and has therefore no obligation to
follow the internal regulations that has been established by Advokatsamfundet. Similar to
law firm B the corporate lawyer from corporation A does not have to follow the ethical
guidelines stipulated by Advokatsamfundet.
Since lawyers, business lawyers and corporate lawyers are considered to constitute a
commission of trust they are dependent on the goodwill of the customers, therefore all the
interviewed service corporations need to establish high ethical standards. Moreover, law
firm B has its own established ethical standards such as an environmental policy and a travel
policy.
Corporation A has a lot of different strategies on specific matters but nothing concrete
concerning CSR or other ethical matters. However, corporation A emphasized that they use
the competence within the corporation to address ethical issues. In addition, corporation A
tries to improve and develop the competence regarding ethical issues when such issues arise.
Hence, they have not set aside time for extra work concerning such issues.
10.10 Activities labelled as CSR
All the interviewed service corporations shared the meaning of CSR activities and
emphasized the importance of ethical behaviour within law firms. CSR activities was mainly
considered as a social responsibility. Although, an environmental perspective was also
Global Corporate Social Responsibility
believed to fit into the term. Law firm A has no real environmental policies but pointed out
that there is an unspoken policy of minor obligations such as trying to reduce the heavy load
of workpaper and to preferentially use low energy lights. Law firm C did not have any CSR
policies at all but they did have paper and glass recycling. In contrast, law firm B has an
explicit environmental/travel policy.
Furthermore, all the interviewed service corporations assent that the conduct of CSR
activities are basically voluntary activities but need to without to much economical load.
Neither of the interviewed service corporations had any special competence nor any
particular development of such activities. Although, it was pointed out that this was a
relatively new phenomena and they had adopted a pragmatic view of this the latest three or
four years. However, before law firm A were familiar with the term CSR they actually
addressed issues that could fit within the meaning, such as conducting voluntary and without
charge, mentorship with students. Law firm B were aware of the term when they sponsored a
project called hand in hand during the Christmas of 2005. Law firm C did not perform any
CSR activities within their business strategy but many of the employees used their
knowledge of the law in their spare time without charge e.g. board members of a sports
association. One national association that law firm C sponsored was Hem och Skola which
is a non profit organisation that is working with current issues and attempts to further
develop the situation in schools. The corporate lawyer argues that CSR activities is not a
new phenomena since jurists always in some extent been obliged to follow the ethical
guidelines in general and lawyers, members of Advokatsamfundet, in particular.
10.11 CSR strategy as value adding
Since CSR activities can be conducted in different forms the outcome can vary. CSR
activities can be divided as value adding to the firm s trademark and into costs which the
firm believes constitutes a good cause. Although, all the interviewed service corporations
emphasized that the bottom line is to earn profit, regardless of what the profits originates from,
consequently regardless of profits earned through direct legal services or profits earned
through goodwill and eventually a flow of more clients.
The interviewed service corporations emphasized that goodwill is essential when offering
legal services, it was argued that is was truly important for their business, all types of CSR
activities which create goodwill are beneficial for the firm.
Moreover, law firm A believes that a CSR strategy is beneficial for the law firm and that all
activities that can be connected to CSR establish a good forum to be seen in. According to
law firm A there is a shift in paradigm concerning how law firms are attracting customers. In
the past it has been considered to be inappropriate to market oneself. Nowadays, law firms
are beginning to use marketing strategies to attract customers. Thus, a CSR strategy can
create goodwill. The bottom line for the majority of the law firms is to earn profit, there is
no particular difference in comparison to other corporations. Otherwise there would not be
Global Corporate Social Responsibility
any law firms. To be able to earn profit it is important that the firm has a good reputation as
a gross product from goodwill. The CSR strategy of law firm A is partly originated from
Advokatsamfundets ethical standards. Consequently, it is of importance in their business to
always take the ethical approach.
Law firm C has not reflected upon the issue of CSR activities. According to the
representative of law firm C the reason for this is that their law firm is practising civil law.
As a result of the type of operation that their law firm is conducting there is no natural step
to take concerning CSR activities in the everyday practice. To be a successful law firm the
employees have to be professional towards their clients. A client hires the law firm for
specific reason. That reason is to get consultations about the law. By giving professional
consultation the law firm gains a good reputation. However, according to law firm C they
emphasized that it may be good to implement a CSR strategy, almost as marketing tool, if it
could be implemented into basic idea of their particular business conduct.
Law firm B conducts another approach towards its CSR strategy. Accordingly, there are
both costs and value adding involved in their CSR strategy. A similarity between the
activities connected to value adding and those that seem merely as a cost is that there should
be some transparency why these actions is undertaken and furthermore correlate with the
firms business strategy. Moreover, law firms have to take some responsibilities as a good
citizen of society. As a way of being a good citizen law firm B is educating the local branch
of the organisation women s aid in matters concerning family law. Furthermore, even
though this kind of activities results in aid to vulnerable groups, at the same time it is believed to be a good marketing tool that enables goodwill.
Corporation A believed that most of the money spent on CSR activities are associated with
value adding since it is necessary to conduct a business behaviour towards the client which
is seen as ethical. Furthermore, corporation A emphasized that an ethical behaviour
contributes to value adding and added that law firms/corporations with more resources
should take greater responsibility since the behaviour could be used as a competition
advantage.
During the interviews there was a dialogue concerning whether the CSR activities of law
firms/service corporations with legal expertise may differ compared to other sectors. Law
firm A and C stated that they are obligated by law to take a greater ethical responsibility
since they have to follow the standards that are set by Advokatsamfundet, other than that
they thought that it is the same for all types of corporations. Law firm C also explained that
to become a lawyer a person has to take courses and tests about ethical behaviour.
In contrast to the lawyers and business lawyers a corporate lawyer is usually hired for a
project and this project is often related to negotiation of an infringement or a problem
within a corporation and it is important for the corporate lawyer to honour the assignment.
Consequently, the ethical responsibility lies in the relationship between the corporate lawyer
and the principal.
Global Corporate Social Responsibility
Furthermore, all the interviewed service corporations agreed upon and pointed out that
CSR activities is a question about size and resources. All the interviewed service
corporations believed that MNE s with more resources can set aside both resources and
competence to questions concerning CSR activities. All the interviewed service corporations
believed that small businesses do not have enough resources to be able to prioritize CSR
activities. Law firm A also stated that it is going to expand their size and that the expansion
might lead to a better developed CSR strategy in the future. Law firm C did not see the
need of a CSR strategy but believed that MNE s where more well-aware concerning their
conduct of CSR activities. Even though corporation A mentioned that MNE s should take
greater responsibility they still believed that MNE s do not necessarily prioritize activities
connected to CSR.
Moreover, another perspective that needs to be illuminated is the notion that a segment of
lawyers have idealistic point of views and therefore per se commits a greater deal of ethical
behaviour.
10.12 Responsibility towards stakeholders
There are different kinds of stakeholders surrounding and affecting the interviewed service
corporations. Different stakeholders have different ways of affecting the interviewed service
corporations. Stakeholders that are directly affected by the law firms business conduct is
clients (customers), employees and the counterparts. Secondary stakeholders were
recognised as the government and Advokatsamfundet. A difference between law firm A and
C from Law firm B and Corporation A is that a new guideline from Advokatsamfundet will
have a great impact on law firm A and C while law firm B and corporation A has the
freedom to chose whether they want to follow the guidelines or not.
There are explicit rules stipulated by Advokatsamfundet which state in what way lawyers
should act in different situations, e.g. a law firm cannot represent two counterparts in the
same dispute. Regarding the conflict of interest the firm has to represent the client that the
firm has represented for a longer period of time compared to the other party. Regardless of
whether the other client is bigger, more interesting, more beneficial out of an economical
point of view, this rule applies. In sum, when the commercial perspective conflicts with the
ethical perspective, the latter should always be a priority. Moreover, there have been
situations when larger law firms have had several departments in the same building working
with different cases and areas. However, even though these situations had so called chinese
walls between the departments were no information could be conveyed, it was still not
appropriate or allowed to represent counterparts within the same firm even though that the
departments worked separately.
Corporation A identified their stakeholders as clients, credit agencies and employees. These
categories are directly affected by their conduct of business. However, corporation A also
Global Corporate Social Responsibility
identified the society as indirectly affected. Moreover, corporation A, stressed and discussed
the possibility of clients having enough influence to change the conduct of the corporation
since they are dependent on their clients. In addition, the corporate lawyer acknowledged
that the credit agencies could affect and change the business of conduct as the corporations
are depending of financial funding. Furthermore, a discussion thereby followed concerning
how, in the future, the society can change business conduct through regulations, maybe
through tax deductions for grants (e.g. grants for non-profit organisations).
Neither law firm A or C noticed any stakeholders which were trying to influence their law
firms regarding their conduct of CSR activities except Advokatsamfundet. The reason that
no stakeholders tries to influence the law firm A and C is according to them the nature of
how their law firms work. Since a law firm is a service corporation which deals with certain
types of questions it does not have an impact on society in the same way as a manufacturing
corporation. The client has the belief that the lawyer in any situation will represent the client
out of a fair conduct. Therefore, it is extra important for a lawyer to act fair in their line of
work.
Another aspect to take into consideration according to law firm A is the size of the firm.
Law firm A is a small law firm which infers that the demands and expectations of certain
stakeholders are relatively low in comparison to larger firms.
On the contrary, law firm B has stakeholders which demand that the law firm should have an
environment policy. Even though the stakeholders demanded that the law firm should have
an environmental policy the firm was of the notion that in the bottom line it was their own
decision. Consequently, law firm B experienced that they had stakeholders trying to
influence their conduct of CSR activities but the stakeholders were not solely strong to
influence them. Law firm B has however chosen to implement an environment policy since
they believe that its in accordance with there business.
Law firm A and B emphasized the importance of social and ethical responsibility. In relation
to the TBL these areas was regarded as a larger and more important area compared to the
environmental area. Although, this kind of voluntary activities cannot be to much load of the
economical perspective. Law firm C believed that the most important aspect is
professionalism towards the clients and their need. To be able to be professional, a lawyer
has to have high ethical standards which are in accordance with Advokatsamfundet
standards.
10.13 The future of CSR
There was a mutual belief between law firm A and B that CSR activities will increase with
time. Nowadays, it is more important to conduct good ethical business in order to comply
with the stakeholders awareness and demands. Furthermore, media contributes to a higher
degree of ethical business conduct. It is important to discuss CSR activities and try to adapt
to the development and also evaluate how it is conducted and furthermore how the activities
can be developed within the business strategy of law firm A and B.
The belief of law firm A and B is that CSR activities contributes to an increased
profitability. However, the firms emphasized that the conduct of CSR activities ought to
arise from a genuine perspective to contribute to the society, because all activities cannot be
measured in profitability. Hopefully, CSR activities will be conducted with idealistic reasons
and not because of profitability in the future.
Law firm C did not believe that CSR activities will become a more prioritized issue at their
firm because of the type of business that their law firm is conducting. However, the
representative of law firm C mentioned that other law firms might have another point of
view regarding the importance of CSR activities but the representative pointed out that the
general belief was that CSR activities will not increase with time in law firms.
The participant of corporation A believe that CSR activities can increase with time and
mainly concentrated the interview questions connected to the future of regulations. The
corporate lawyer sees an increased interest concerning CSR activities and believes that
some regulations will be stipulated concerning how certain corporations should conduct
CSR activities. However, the corporate lawyer also see the downside with regulations since
it will force corporations into a certain business conduct. An overhaul system will be
needed in this case to see to that corporations conduct the right business conduct and
the corporate lawyer also discussed the possibility of EU-regulations in the matter to integrate European cooperation and enable an international forum.
10.14 Analysis
This following section will analyse the empirical findings from the interviews and create a
link back to the theoretical framework.
The purpose of this thesis is to interview four legal jurists in order to explore how they
conduct CSR activities within their service corporation, with primary focus on SME law
firms. Throughout the analysis a short comparison is made towards earlier research
concerning manufacturing corporations in an attempt to enlighten potential differences
(question 6). In order to answer the purpose the following research questions needs to be
answered:
(1) Which activities can be labelled as CSR within the interviewed service corporations?
(2) What kind of difficulties do the interviewed service corporations experience with CSR
activities?
(3) How can CSR activities be used as value adding within the interviewed service
corporations?
(4) What kind of responsibility might the interviewed service corporations have towards its
stakeholders and why?
(5) How do the interviewed service corporations perceive the future regarding the conduct of
CSR activities?
(6) If and in that case how do CSR activities in the interviewed service corporations
differentiate in comparison to earlier research regarding manufacturing corporations?
10.14.1
To be able to answer the purpose the authors had to consider the intended meaning of CSR.
When considering the meaning of CSR one problem which occurred was that as there does
not exist a common definition of the meaning of CSR, which has lead to some ambiguity
concerning what kind of activities that can be regarded as CSR activities (Crane et al, 2004).
When evulating the CSR discussions by several scholars and deciding upon a
definition suitable for the purpose and the authors notion of CSR, the definition applied
by the EU Commission (2006) was chosen: a concept whereby companies integrate social
and environmental concerns in their business operations and in their interaction with their
stakeholders on a voluntary basis. Consequently, the authors notion of CSR is that such
activities are conducted on a voluntary basis. According to the EU Commission (2006) it
could also be stated that CSR activities begins where the law ends. During the interviews the
common impression of the interviewed service corporations was that CSR activities have to
be voluntary. If a CSR activity is regulated by law the paradigm shifts from responsibility to
accountability which result in that all corporations activities are conducted within the
essence of the law. Consequently, the empirical findings somewhat strengthens earlier
research such as Wise (2006) who argue that CSR activities begins where the law ends.
CSR activities is not a new concept with regards to the literature review, e.g. Carroll (1979)
stipulated the concept of the Pyramid of Corporate Social Responsibility. However,
through the empirical research the authors have come to the conclusion that CSR activities
seem to be a relatively new phenomenon within the interviewed service corporations.
Consequently, the interviewed service corporations seems not to have been affected by the
historical debate regarding CSR activities (Crane et al, 2004). Nonetheless, the interviewed
service corporations have conducted activities that can be compared to CSR activities
without the corporations necessarily viewing them as such activities or even recognising the
meaning of CSR. The conclusion to be drawn is that it might not be necessary to establish a
general guideline to be used within each of the interviewed service corporations in order for
them to conduct CSR activities. However, it might provide a more ethical business
Global Corporate Social Responsibility
lished within these service corporations. There is no earlier research on the matter and our
belief is that Advokatsamfundets standards cannot be seen as CSR activities, it should
instead be seen as an action which the firm is obligated to apply. Otherwise the law firm
runs the risk of being excluded from Advokatsamfundet. But as already mentioned,
Advokatsamfundets ethical standards contribute to corresponding and uniform behaviour
within service corporations, such as the law firms studied, should behave within their ethical
line of work.
10.14.2
A managerial difficulty according to Ward (2003) is that CSR activities can be neglected in
the CSR management since it is voluntary and Bonnedal et al (2007) argue that corporations
need to have a fixed plan which states what kind of CSR activities the firm should take part
in. Since CSR activities are voluntary a service corporation may choose to conduct a CSR
activity when an opportunity is given that is in accordance with the core business. Although,
the authors belief is that this is not a difficulty connected only to SME service corporations
but to all SME corporations which leads to a discussion about the corporation s size and resources.
MNE s often have more resources with regard to time and money, which leads to that the
agenda of CSR activities is often shaped by MNE s (Fox et al, 2002). They can therefore
engage CSR activities without negative impacts within the organisation. Since SMEs do not
have the same type of resources as the MNE s the SMEs CSR activities differs in engagement compared to large corporations (Williamson et al, 2006). The EU Commission
(2002) established that larger corporations have an opportunity to set aside competence
and resources and therefore it was argued that larger corporations have a greater ability to
conduct CSR activities.
The empirical research indicates that in one of the law firms (Law firm B) the management
and the ownership was connected to one person which lead to that all decisions
simultaneously was made by the management and the owner. Consequently, decisions was
made on a relatively subjective ground and probably in an attempt to aid the local
stakeholders. The authors consider these subjective grounds as a difficulty for the
interviewed SME service corporations since it seems that they not regularly have explicit
strategies covering every department. As mentioned, the interviewed service corporations
had some strategies but
we presume that they are not as extensive as in MNE s.
All the interviewed service corporations described their CSR activities as dependent of
resources. Additionally, they believed that all types of SMEs have the same type of
difficulties concerning CSR activities. In a small corporation with only a few employees the
economic capacity does not allow one person which deals solely or mainly with CSR issues.
It is also hard to allocate resources which can be used in CSR activities that does not, to a
high extent, affect the business operations. Law firm C is of the notion that CSR strategy
Global Corporate Social Responsibility
SME s. This is a subjective difficulty since one or a small amount of persons decide which
CSR activities that should be conducted. In contrast, larger corporations can have the
possibility to set aside certain resources. However, even if larger corporations have a greater
possibility to set aside resources and conduct CSR activities this do not automatically mean
that they actually do it. Another problem which were acknowledged when the service
corporations were interviewed was that the firms found it problematic to incorporate CSR
activities into their business conduct as a result of the type of services that they provided.
10.14.3
A well known CSR-concept is (TBL) which was coined by Elkington (1994). According to
Henriques et al, (2004) TBL examines how a corporation conduct its business in the terms of
economical value, environmental value and social value. By examine the corporation s
business conduct in relation to these three aspects it is possible to determine what kind of
CSR activity corporations are conducting. All the interviewed service corporations in the
empirical findings agreed that the economic aspect is the most essential part of the three
areas. When investigating how the firms conduct their business out of a social and
environmental point of view an interesting result occurred in the empirical findings.
The result of the empirical research was that the interviewed service corporations were more
interested in CSR activities that were connected to social values issues, rather than issues
that concern the environment. All of the answers concerning this matter were similar and
none of the interviewed service corporations expressed that the environment was the most
important issue to address. The authors belief is that the main reason for this is the type of
business that the interviewed service corporation are conducting. A service corporation, such
those in this study, provides its clients with advice and consultation instead of products. By
comparing the empirical data with a previous study made by Williamson et al
(2006) about CSR activities in manufacturing corporations the authors have come to the
conclusion that the interviewed corporations focused on the social aspect while the
manufacturing companies focused more at the environmental aspects. The result shows that
corporations choose to conduct CSR activities that are closely connected to their business.
Furthermore, the EU Commission (2002) and Williamson et al (2006) argues that CSR
activities in SME corporations are undertaken in order to improve the reputation building.
This conclusion is also applicable in relation to the interviewed service corporations. It can
therefore be argued that the reason for this is the dependence on their current customers.
MNE s, however, are not that dependent on their current customers to the same extent
since they have larger possibilities to attract new customers.
The main reason of why the interviewed service corporations considered social questions to
be more of interest was, according to the empirical findings, that those kind of questions
derives from directly how they conduct business. Furthermore, activities concerning social
values create goodwill. According to the interviewed corporations, reputation is of great
importance within their line of business. A jurist/law firm or service corporation with bad
Global Corporate Social Responsibility
reputation will not attract any clients and without clients there is no business. One way of
gaining a good reputation is for the corporation to conduct activities that create goodwill.
The advantage with conducting activities which are creating goodwill is that the local
society probably associates the corporation with something positive. In contrast, a
disadvantage is that the CSR activity which creates goodwill might cost more money than
what the activity will eventually bring in. One specific problem with activities which should
create goodwill is that goodwill is an intangible asset which is difficult to value. Therefore, it
might be argued that a social responsibility is not preferable to conduct since it is hard to
measure the actual value adding. When the interviewed service corporations is conducting a
CSR activity which is supposed to create goodwill it seems naturally that the activity focuses
on social values which lies within the competence or interest of those that are working at the
corporation.
The authors were surprised when the participant of law firm C explained that since the law
firm mainly focus on civil law they do not face CSR in there everyday practice. This seemed
as an excuse for not having a CSR strategy. There can not be any differences in how law
firm C conducts business from how the other interviewed corporations conduct their
businesses. However, the firm acknowledged that it may be beneficial for law firms to
perform CSR activities which may seem a bit contradictive. But the authors recognise that
certain law firms as those specialising in environmental law might be more willing to adapt
to CSR activities and it might also be easier for them as it is in line with their specialisation.
In sum, the interviewed service corporations expressed that CSR activities are beneficial for
law firms since they acquire goodwill which is fundamental for law firms (regardless of
whether Advokatsamfundets standards can be seen as CSR activities).
By examining the empirical findings in the light of the TBL the authors conclusion is that
when the interviewed service corporations conduct CSR activities they have a tendency to
enact in activities which lies within the frames of the corporation s business conduct. When
the service corporations makes a decision concerning which type of CSR activity it should
take part in the decision is based upon considerations concerning how well the activities
correlates with the corporation s business values.
Therefore, the author s view of how TBL can be seen is manifested in Figure 8, which is
based upon Carter et al (2008) model, and shows a framework of sustainable supply chain
management: moving towards a new theory. In the figure the authors have made a
comparison between manufacturing corporations and service corporations. Fairchild (2007)
argue that manufacturing corporations need to overlook how they can reduce polluting
activities. This result is strengthened by the results in the empirical study as the interviewed
service corporations focuses on social value instead of environmental values.
Manufacturing corporations
10.14.4
According to a study made by Graafland et al (2003) it seemed as the financial service sector
employs strategies are more connected to dialogue with stakeholders in attempt to stimulate
the awareness compared to the metal manufacturing that have fixed standards. Although,
this research was also conducted as a comparison between smaller firms and larger
corporations it therefore needs to be used with caution. However, the stakeholder theory
made by Freeman (1984) implicates that if corporations consider responsibility to its
stakeholders it implicates a win-win situation and beneficial results for all parties. Furthermore, through a research made by Calabrese et al (2008) it has been shown that a lesser
degree of specified CSR activities can lead to a lower degree of appreciation by the
stakeholders.
Global Corporate Social Responsibility
Every corporation has its primary and secondary stakeholders (Wheeler et al, 1998).
Therefore, it is interesting to discuss to what extent the corporations conduct its business in
accordance with the stakeholder theory and in respect of its responsibility to different
stakeholders. Through the empirical findings it can be concluded that the interviewed service
corporations do not have stakeholders that are powerful enough to affect their conduct of
business. Consequently, by using Johnson et al (2008) theory about the stakeholder map the
authors have come to the conclusion that most of the stakeholders of the interviewed
corporations can be considered as minimal effort stakeholders since the segment has a very
small interest in changing the corporations strategies and also have little power to change
the strategies.
The clients are the livelihood when it comes to the interviewed service corporations.
Therefore, these service corporations are dependent of the clients and their opinion of the
particular corporation. For the interviewed corporations it is fundamental to have satisfied
clients that can spread the word of their expertise regarding their services. Consequently,
these stakeholders can be regarded as the segment of keep satisfied because they might
have the power to influence the corporations strategy but will not do so as long as they are
pleased. The authors have come to conclusion that the interviewed service corporations do
not in the same way have the opportunity to attract customers as manufacturing corporations regarding e.g. prices which forces them to compete with the quality of their services.
Another stakeholder that differs from the others is Advokatsamfundet. The private
organisation of Advokatsamfundet can be considered as key players since they have the
power to
influence two of the interviewed corporations strategies. Moreover, they can steer the development of ethical behaviour but only for the members of Advokatsamfundet. Consequently, Figure 7 explains the differences regarding stakeholders between the two corporations that are members of Advokatsamfundet and the other two service corporations. The
model that the authors have used is the Stakeholder Theory of the Corporation: Concepts,
Evidence, and Implications by Donaldson et al (1995).
Members of Advokatsamfundet Nonmembers of Advokatsamfundet
Earlier research made by Calabrese et al (2008) argues that service corporations need to be
more proactive compared to other sectors. Thus, it is important for service corporations to
predict the requirements of the stakeholders. However, in contrast, the author s belief after
undertaking this research is that manufacturing corporations to a larger extent need to
consider its stakeholders. Hence, the authors belief is that manufacturing corporations
affects more stakeholders compared to SME service corporations because of the risk of their
byproducts affecting the environment. This fact creates a need for the corporation to consider
its suppliers, governmental regulations regarding environmental issues, safety aspects for
employees.
Nowadays, the environment is a current issue and media contributes to a public awareness
how manufacturing corporations should conduct their business. With time, the impact of
such stakeholders may even result in a larger awareness of the environment. At the same
time manufacturing corporations need to consider the social perspective as well.
Consequently, even though service corporations need to consider clients and, sometimes,
Advokatsamfundet they have a responsibility in contrast to being accountable to all is being
accountable to none (Calabrese et al, 2008). Regarding the environmental issues it can be
concluded from the empirical findings that the service corporations mainly deal with trivial
activities such as low energy lights.
(4) In contrast to earlier research the authors belief is that the interviewed service
corporations do not need to be more proactive in order predict the stakeholders requirements
in comparison to manufacturing corporations. Through the empirical
findings it seems as most of the service corporations stakeholders require a minimal effort in order to appreciate the business operations. However, since service
corporations that specialises in law have a position as commission of trust it can be argued
that they represent the society as a whole. However, this study does not aim to explore the
society as a whole but rather the stakeholders within the society. Furthermore, clients to the
interviewed service corporations as well as customers to manufacturing corporations, needs
to be satisfied in attempt to achieve goodwill and furthermore potential profits. However,
our belief is that manufacturing corporations need to attend environmental issues to a higher
degree since the sometimes have a by-product from their manufacturing process. In order to
keep the customers satisfied manufacturing corporations need to follow environmental
standards. Therefore, stakeholders demands a higher degree of effort from the manufacturing
corporations to be proactive. This may be as an consequence from the public awareness and
the current issue that the environment establish nowadays.
One significant difference between the interviewed service corporations was the standards
stipulated by Advokatsamfundet as a stakeholder. Meaning, that two of the interviewed
Global Corporate Social Responsibility
corporations (Law firm A and C) are obliged to follow the standards. The empirical findings
however imply that there is no practical difference between the interviewed corporations in
their conduct of ethical behaviour.
10.14.5
The representatives of law firm A and B and corporation A believed that the concept of CSR
is here to stay and that it will become more important in the future. The representatives had
also acknowledged that more and more people are starting to reflect about questions
concerning the area of CSR. The law firm C representative also believed that CSR is here to
stay but only in businesses which can incorporate CSR activities into their business
strategy. In addition, law firm C did not believe that the law firms CSR activities will
increase in a near future.
An interesting finding of this thesis is that the interviewed service corporations seem not
have the same pressure from stakeholders to conduct CSR activities as the manufacturing
corporations, contrary to previous research. The reason according to the authors is that the
service corporations do not have the same tangible effect on the stakeholders and therefore
the stakeholder does not pressure them in the same way. Consequently the authors conclude,
as from the findings of this thesis, that the interviewed service corporations will not, within a
near future, be obliged to conduct a more specified CSR strategy.
(5) As concluding remarks, the authors like to stress that it is most likely that the concept of
CSR will in the future further enhance. However, it is our belief that SME service
corporations will not be deemed to procure a larger social responsibility and therefore will
not be affected to the same extent as manufacturing corporations. This is because some
service corporations already have extensive standards how to conduct ethical activities, e.g.
certain law firms obligated to follow the rules stipulated by Advokatsamfundet. However, it
is possible that there may be a need of similar or identical set of standards stipulated for
other service corporations in the future.
10.15 Conclusion
This final section will present the authors conclusions
A SME service corporation is a corporation which provides knowledge based consultation.
Most of the earlier research within the area of CSR has focused on the CSR activities and
strategies of large manufacturing corporations. That is why this study aims to explore how
CSR activities are conducted within four service corporations with focus on SME law
firms.
Through the empirical findings it can be concluded that the interviewed service corporations
see CSR activities as an integration of voluntary social and environmental concerns in the
business operations. However, lawyers which are members of Advokatsamfundet have
Global Corporate Social Responsibility
to follow the ethical standards stipulated for lawyers. The authors belief is that these
activities cannot be considered as CSR activities in a strict meaning since it rather is an
accountability for lawyers. But these activities can be compared to CSR activities.
In contrast to earlier research, the authors belief is that the interviewed service
corporations do not need to be more proactive in order to predict the stakeholders
requirements compared to manufacturing corporations. Moreover, the authors belief is that
manufacturing companies need to attend environmental issues to a higher degree since they
sometimes
have a by-product from their manufacturing process. This conclusion is reached since earlier
research state that manufacturing corporations tend to focus their CSR activities towards
environmental questions. The authors belief is that manufacturing corporations has such an
impact on the surrounding environment that it affects stakeholders in a way which leads to
that the stakeholders demand certain kinds of business operations. On the contrary, the
interviewed service corporations do not affect stakeholders in environmental issues.
Therefore, stakeholders do not have the same expectations at these service corporations
whether they take part in environmental activities or not.
In contrast to manufacturing corporations which focuses on environmental questions, our
research implies that the interviewed service corporations focus their CSR activities towards
social questions that are closely connected to their core business. Moreover, the bottom line
for all corporations is to earn profits. Since the interviewed service corporations only offer
knowledge based services, the goodwill becomes essential. In order to attain goodwill thes
interviewed service corporations need to have high ethical standards and therefore all kind
of social responsibility (CSR) is preferable from a long term perspective. An essential
problem concerning a long term CSR strategy is however that the interviewed service
corporations find it complicated to make these activities fit into their business strategy.
Through our research it can be concluded that the interviewed SME service corporations
difficulties with CSR activities do not differ in particular from SME corporations in general
with regard to time and money. This conclusion has also been established through earlier
research and is therefore confirmed through this research.
Finally, the concept of CSR is here to stay. The authors believe that the conduct of CSR
activities will become more important in the future. However, the interviewed service
corporations might not be affected in the same way as other corporations since they already
have extensive ethical standards.
BIBLIOGRAPHY
1. Brundtland Commission Report (1987) World Commission on Environment and
Development, Our Common Future, Oxford University Press, Oxford.
2. Dresner, S. (2002) The Principles of Sustainability, Earthscan, London.
3. Hirsch, F. (1976) The Social Limits to Grow, Routledge, London.
4. Redclift, M. (1996) Wasted: Counting the Global Consumption, Earthscan, London.
5. Sustainable Development, Exploring the Contradictions, Methuen, London, 1987.
6. Reid, David (1995) Sustainable Development: An Introductory Guide. EarthScan,
London.
7. http://www.grida.no/geo2000/english/0027.htm
8. Human Development Report (1990) United Nations Development Program, Oxford
University Press.
9. Human Development Report (1994) United Nations Development Program, Oxford
University Press.
10. Omara, Ojungu P. H., and H. Peter. (1992) Resource Management in Developing
Countries, Longman Scientific and Technical Co., USA.
11. Redclift, M. (1987) Sustainable Development: Exploring the Contradictions, Methuen,
London, UK.
12. Robins, Nick. (1990) Managing the Environment: The Greening of European Business,
Business International, London.
13. Schmidheiny, Stephen. (1998) Changing Course: A Global Business Perspective on
Development and the Environment, The Massachusetts Institute of Technology Press,
London.
14. Singh, Amita. (2000) The Politics of Environment Administration, Galgotia, New Delhi.
15. World Commission on Environment and Development (1987) Our Common Future,
Oxford University Press, Oxford.
16. Worster, Donald. (1993) The Shaky Ground of Sustainability. In: Sachs and Wolfgang,
(ed) Global Ecology, ZED Books, Fernwood Publishing, Nova Scotia.
17. Adams, W.H., Bourn, N.A.D. and Hodge, I. (1992) Conservation in the wider country
side. Land Use Policy 41: 235-247.
18. FAO (1989) Sustainable Agricultural Production Implications for International
Agricultural Research. Research and Technology Paper 4, FAO, Rome, 152 p.
19. Giampietiro, M., Corretelli, G. and Pimentel, D. (1992) Agricultural analysis of
agricultural ecosystem management, human return and sustainability. Agricultural
Ecosystem & Environment 38: 219-244.
20. IRRI (1995) Water A Looking Crisis, International Rice Research Institute, Los
Banos, Philippines. pp. 90.
21. Janvry, A. de and Garcia, R. (1988) Rural poverty and environmental degradation in
Latin America: causes, effects and alternative solution. Paper presented at the
Global Corporate Social Responsibility
MBA-IB
Amity University
Global Corporate Social Responsibility
Ms.
Areej
Siddiqui
Aftab
Preface
With the ever changing environment of business, all barriers of national boundary have been
treaded over. In the present era, the world has emerged as a global village. The term global
has carved an edge over the term international. Though we use the terms international and
global interchangeably there exists a wide gap between the two. To successfully enhance
business opportunities and operations across borders, each organization should have a
strategic plan in place. The addition of Social Responsibility is the key to success of any
business. The globalization of business has lead to formulation of various ethics and codes
of conduct which play a major role in Global Corporate Social Responsibility.
This booklet contains all the principles, theories and models of Corporate Social
Responsibility with a global perspective.
The First chapter explores the concept and nature of Sustainable Development. The
Sustainable Development evolution and process is also discussed in detail. It also
encompasses the levels of Sustainability and their relevance in the Corporate Responsibility.
The Second Chapter gives the different approaches to Sustainable Development and helps in
easing the understanding of Sustainable Development.
The Third Chapter lays emphasis on the new aspects of Sustainability introduced in
Corporate responsibility.
The Fourth Chapter links Strategy of Business with Sustainability of Environment.
The Fifth Chapter looks into the understanding of Corporate Social Responsibility.
Corporate Social Responsibility which has become an irreplaceable part of doing business is
presented to develop an understanding regarding its concept, evolution and models used.
The Sixth Chapter lays down the Ethics and Values in Trade. It also emphasizes the
importance of Values in conducting Business.
The Seventh Chapter helps in developing an understanding towards correlating Corporate
Governance and Social Responsibility.
The Eight Chapter explores the Social Audit Process and use of ethics in International Trade.
The Ninth Chapter looks at the most important aspect of Managing Crisis, Triple Bottom
Line & Sustainability Reporting.
In the end heres hoping that this booklet is worth treasuring by the students and developing
an understanding towards Global Social Corporate Responsibility.
Global Corporate Social Responsibility
Updated Syllabus
Course Objective:
The main purpose of this paper is to make the managers of tomorrow aware of the
imperative need to recognize and address the global environmental and social impacts of
their activities which, together with profits are popularly known as the triple bottom line
issues of Sustainable Development (SD).
The course reflects that investors are also showing growing concern not only on ecoefficiency, but in business ethics, corporate social responsibility and human rights, all
integral to the agenda of sustainable development which directly relates to competitive
advantage and corporate governance on a continuous basis.
Learning Outcomes:
At the end of the course, students will be able to:
Define new and emerging business opportunities and financial risks associated with
environmental quality, social justice and economic efficiency.
Discuss on how businesses need to manage their sustainability agenda as an integral part of
their competitive strategy and to get their various stakeholder groups onto the same
platform.
Examine shifts in responsibility for sustainability from self regulation to public regulation
and use new technology, soft innovation focusing on new forms of strategic thinking, new
styles of networked commerce, and radically new triple bottom line management systems.
Evaluate ways to meet such challenges proactively using tools such as self-regulatory
initiatives, voluntary standards, new accounting procedures, reporting and communication
processes etc., to remain globally competitive.
To assist businesses and concerned stakeholders in establishing and managing systems to
steer environmental, social and economic sustainability on a continuous basis.
The primary objective of this course is to impart a basic understanding of the social and
environmental sustainability challenges facing managers in todays world. The course seeks
to develop students critical capacities for self-reflection and action in relation to these
concepts. Course graduates will possess the understanding and experience to integrate
environmental and social sustainability with commercial and economic success. Lectures
and readings provide an overview of the critical literature in environmental and social issues,
Global Corporate Social Responsibility
the history of the sustainability movement, including the various social and economic
movement from which the current practices of sustainability in business and society grew,
and the key actors and the basic literature in the field. The course also addresses the global
issues surrounding sustainable management and reviews the major frameworks of
sustainability that provide the scientific foundations and economic principles of how
sustainability can help managers to achieve natural competitive advantage.
Course Contents
Module I: Introduction
Definitions, relevance and need for internalization of CSR & sustainability management for
corporations
Principles of Sustainable Management
Triple Bottom Line TBL/3BL: People, Planet, Profit : the social, environmental, and
financial accountability of businesses
Module II: Principles of Sustainable Management (SM)
Social and environmental sustainability challenges
Integration of SM with commercial and economic success
Current practices of sustainability in business
Global issues and major frameworks
Scientific foundations and economic principles
Module III: Strategic Corporate Social Responsibility
Bottom of The Pyramid: Social Responsibility or Market Opportunity
Corporate Strategy and CSR
What CSR Is and Is Not
A Moral Argument for CSR
A Rational Argument for CSR
An Economic Argument for CSR
Why is CSR Relevant Today
CSR: Do Stakeholders Care?
Module IV: The Strategic Context of CSR & its Implementation
The Strategic Lens: The E.S.C.S. Framework
Positive Brand Building
Crisis Management
CSR Business Plan of Action Short Term & Medium term
Implementation From a Strategic Perspective: Planning
Implementation From a Firm Perspective: Action
Module V: Managing Global Corporate Social Responsibility: Issues
Global Corporate Social Responsibility
Organizational Issues
Economic Issues
Societal Issues
Module VI: Triple Bottom Line (TBL/3BL) the goal of sustainability
Definition
The Bottom Lines
Arguments in favor of the concept
Arguments against the concept
Legislation
Module VII: Monitoring and Reporting Systems
Energy, Environment and Social Audits
Sustainability Reporting
Text & References:
William B. Werther Jr.& David Chandler, Strategic Corporate Social responsibility
,Stakeholders in a Global Environment , SAGE Publications
References:
Kotler Philip & Nancy Lee, Corporate Social Responsibility: Doing the Most Good for
your company and your Cause, John Wiley & Sons, Inc.
C. K.Prahalad & Allen Hammond, Serving the Worlds Poor, Profitably, Harvard
Business Review, September 2002
Kotler P & Roberto EL, Social marketing. Strategies for changing public behavior. New
York, Free Press, 1989. xii,
Andreasen Alan R., Ethics in Social Marketing Georgetown university Press, 2001
Doppelt Bob , Leading Change toward Sustainability, A Change-Management Guide for
Business, Government and Civil Society, Greenleaf Publishing, 2003
Helpful Websites
www.beyondgreypinstripes.org
www.csrwire.com
www.ibef.org
www.rmes.ubc.ca
www.learningforsustainability.net
www.iisd.org/networks/manage
www.imd.ch/research/centers/csm/index.cfm
www.ibscdc.org
www.trst.com
INDEX
WHAT IS SUSTAINABLE DEVELOPMENT ...................................................................... 7
APPROACHES TO THE STUDY OF SUSTAINABLE DEVELOPMENT ....................... 23
SUSTAINABILITY: THE NEW PARADIGM .................................................................... 36
STRATEGY AND SOCIAL RESPONSIBILITY................................................................. 55
SOCIAL RESPONSIBILITIES OF BUSINESS ................................................................... 72
ETHICS AND VALUES ....................................................................................................... 86
CORPORATE GOVERNANCE AND CORPORATE SOCIAL RESPONSIBILITY ...... 100
SOCIAL AUDIT AND ETHICS IN INTERNATIONAL BUSINESS ................................ 128
CRISIS MANAGEMENT, TRIPLE BOTTOM LINE & SUSTAINABILITY REPORTING
.............................................................................................................................................. 156
CASE STUDY : ................................................................................................................... 215
BIBLIOGRAPHY ................................................................................................................ 246
CHAPTER 1
WHAT IS SUSTAINABLE DEVELOPMENT
Structure
1.1 Introduction
Objectives
1.2 Meaning of Sustainability, Development and Sustainable Development
Critiques of Growth Model
Industrialisation
Urbanisation
Inequities
Resource Utilisation
1.3 Origins of Sustainable Development
1.4 Definitions of Sustainable Development (Dimensions and Concepts)
Sustainable and Non-sustainable Activities
1.5 Summary
1.1 INTRODUCTION
Sustainable development today it is the most politicised catchword of international
developmental conferences and programmes. What does it mean? We address this question
right in the beginning of the unit. You will discover that it is a multidimensional concept and
its interpretation and understanding is often content and context specific. Sustainable
development has emerged out of the fears of depleting natural resources and a subsequent
slowing or even closing down of much of the economic activities and production systems. It
is the result of rapacious misuse of earths precious and limited resource base by those few
who had a control over production systems. The concept has emerged as a broad framework
to debate and decide on desirable direction of change in social and economic systems,
policies, programmes and actions at the national, community or individual levels. It
developed in the 1960s when people became aware of the detrimental effects of
industrialisation on the environment. You need to understand the context in which it came
about to appreciate why it has become so important to all of us.
You must also recognise that sustainability offers long term planning for productive
techniques, industrial processes and equitable distribution policies for the exploitation of
resources, such as, to name a few, coal, oil and water. This planning ensures their longer life
span and a broader user base so that the greatest number of people may benefit out of it for
the longest possible time frame. The emergence of the idea of sustainability also strikes at
the indispensability of technological transformation towards energy saving devices, alternate
and non-conventional systems for providing comfort to citizens without bringing down their
quality of life. This has led to a total revolution in the way people and governments have
started thinking and designing their developmental programmes and projects. A new respect
has emerged for the grassroots governance which fuels growth by providing land, water and
forests that constitute the three basic inputs to any form of industrialisation. Thus sustainable
Global Corporate Social Responsibility
development is also indicative of planning from below in contrast to the ivory tower
planning from top in which grassroots ecosystems were driven by technological systems.
As a result, the grassroots ecosystems started to wither away as they were not able to
manage and cleanse the high amount of effluent discharges, pollution and resource overuse.
In the next unit, we introduce the various parameters that characterise sustainable
development.
Objectives
After studying this unit, you should be able to:
explain the meaning and origin of the concept of sustainable development;
describe the fundamental principles of sustainable development; and
identify and analyse the indicators of unsustainable growth.
1.2 MEANING OF SUSTAINABILITY, DEVELOPMENT AND SUSTAINABLE
DEVELOPMENT
Nature provides human societies and economies with a complex life support system, air,
water, food and a suitable climate for survival. It also provides the physical resources that
are necessary for the sustenance of economies. Nature has supported and maintained life on
earth since times immemorial and should continue to do so in the future. This is known as
the sustainability of nature or ecosystems or environment.
However, we have been interfering with the sustainability of the natural systems through our
avaricious activities and if we continue on the same trajectory, not only the other life forms
but also the very existence of mankind is threatened. There are limits to natures capacity to
absorb impacts. Once alteration of natures initial state occurs, it cannot quickly revert back
to the initial state. Nature has a limited capacity to withstand rapid change. Thus, today, the
challenge before mankind is to determine the state in which we wish to live and to continue
living within the limits inherent in natures processes, within natures carrying capacity.
Sustainability
The term Sustainability has been defined variously, such as:
Sustainability refers to a process or state that can be maintained indefinitely.
Natural resources must be used in ways that do not create ecological debts by
overexploiting the carrying and productive capacity of the earth.
A minimum necessary condition for sustainability is the maintenance of the total
natural capital stock at or above the current level.
The term Sustainability is also used to demonstrate the temporal and the livelihood context
of development policies. The temporal context refers to the chronological perspective in
which communities maintain their cultural and economic integrity. The livelihood context of
development policies is the preservation of existing values which are under threat from
external economic forces leading to the collapse of a delicate natural resource balance. The
Strategy for Sustainable Living (1991) by International
Global Corporate Social Responsibility
Union of Conservation of Nature and Natural Resources (IUCN) says that sustainable use
means use of an organism, ecosystem, or other renewable resource at a rate within its
capacity for renewal. The economist Herman Daly has offered specifications for
maintaining sustainability. He is of the opinion that:
Rates of use of renewable resources should not exceed regeneration rates.
Rates of use of non-renewable resources should not exceed rates of development of
renewable substitutes.
Rates of pollution emission should not exceed assimilative capacities of the
environment.
Development
The term Development means the social and economic improvement in a broad sense. It is
needed to create opportunities, prosperity and choices for all inhabitants of the world and it
must proceed in a way that leaves choices available for future generations also. It refers to a
holistic growth of the human and natural environment towards autonomy and freedom. It
indicates a growth pattern, which makes nations more decisive in their internal and external
environment.
Sustainable development
The concept of Sustainable development was envisaged to bring environmentalist ideas
into the central theme of economic development policy. It sought to modify the kind of
unsustainable development strategies that were being pursued. Sustainable development
combines the two terms of sustainability and development to indicate a pattern of growth,
which strengthens both the national capabilities to care for their people in relation to their
total relationship with the resources of the earth. The most widely used definition of
Sustainable Development was given by the Brundtland Commission in its report Our
Common Future (1987). It defined Sustainable development as development, which meets
the needs of the present without compromising the ability of future generations to meet
their own needs. Since then, several interpretations of Sustainable Development have
emerged, for example:
Improving the quality of human life while living within the carrying capacity of
supporting ecosystems.
Economic growth that provides fairness and opportunity for all the people, not just
the privileged few, without further destroying the worlds finite natural resources and
carrying capacity.
Sustainable development comprises of economic and social development that protect
and enhance the natural environment and social equity.
Thus, sustainable development focuses upon a relationship between humans and their
environment and indicates a warning that humans cannot push development, which is
against nature as in the end it is always the nature, which is going to win. Sustainable
Global Corporate Social Responsibility
development encourages the conservation and preservation of natural resources and of the
environment and the management of energy, waste and transportation.
Fig.1.1: Various dimensions of sustainable development
1. To maintain the standards of living of the largest number of people with equity and
justice. The consideration of Trans-boundary and cumulative impacts in decision-making
has to be realised.
2. To conserve and protect earths natural resources from misuse and wasteful consumption.
This demands respect for the land and its diversity as the foundation for healthy
communities.
3. To innovate new technology and scientific techniques, which work in unison with laws of
nature and are not opposed to it. There needs to be a consideration of sharing the risks and
benefits from developmental policies undertaken by different nations.
4. To respect diversity and involve local and indigenous communities for a more grassroots
oriented and relevant developmental policies. This would involve consideration of economic
viability, culture and environmental values, as policies and programmes are developed.
5. To decentralise governance institutions and make them more resilient, transparent and
accountable to people. They should have an open, inclusive and participative decisionmaking.
6. To plan international institutions, which recognise the requirements of poor nations and
support them to achieve their growth targets without destroying their natural wealth and
environment.
7. To seek peaceful coexistence of all nations of the world because only peace can allow
them space to innovate for the larger interests of humanity. This may demand honouring of
treaties and fiduciary obligations and international agreements.
Sustainable development is a value-based concept, which appeals to the universal themes of
mutual coexistence and respect for others. It is a continually evolving process bringing
together cultural, social, economic, environmental and political concerns. It is a desired
direction of change and provides a framework to decide developmental actions by nations,
communities and individuals.
1.2.1 Critiques of Growth Model
Industrialisation based on quantitative growth of mass production triggered off economic
development in developed countries. Non-sustainable development is seen as the failure of
growth-oriented policies, which focus only on quantitative production as against the
qualitative and holistic production benefiting people. Traditionally the growth of a nation
has been calculated in terms of Gross Domestic Product (GDP) and Gross National Product
(GNP), which do not indicate the fact that the nation is actually rich in culture and
progressive in human values. These indicators focus mainly on the tangible products and fail
to calculate the value of the intangibles such as pollution effect on health, value of the
forests, loss in terms of their animal and plant biodiversity and maintaining the ground water
recharge shed etc. Studies made since the last phase of the United Nations (UN)-declared
first development decade has shown that gross income growth is not always translated into
poverty reduction. By the end of the last century there were more than 1.3 billion people
living in developing countries who survived on less than US $ 1 a day with increasing
malnourishment, homelessness and deprivation. The growth model has not taken care of the
distribution of income in the world. As a result the poor have become poorer while the
Global Corporate Social Responsibility
precious wealth has got locked up with the top 20% richest. Various forms of disparities
such as inequitable production, distribution and consumption have grown into massive
proportions making the poor people vulnerable to the policies framed by the few rich at the
top.
1.2.2 Industrialisation
The Industrial Revolution began in England sometime after the middle of the 18th century
and transformed Great Britain from a largely rural population making a living almost
entirely from agriculture to a town-centred society engaged increasingly in factory
manufacture. A series of inventions transformed the manufacture of cotton goods in England
and gave rise to a new mode of production the factory system.
During the years from 1750 to 1830, other branches of industry effected comparable
advances, and all these together, mutually reinforcing one another, made possible further
gains on an ever widening front.
The abundance and variety of innovations may be included under three principles:
1. The substitution of machines rapid, regular, precise, tirelessfor human skill and effort.
2. The substitution of inanimate for animate sources of power, in particular, the introduction
of engines for converting heat into work, thereby opening to man a new and abundant supply
of energy.
3. The use of new and far more abundant raw materials, in particular, the substitution of
mineral for vegetable or animal substances.
Other European nations underwent the same process soon thereafter, followed by others
during the 19th century, and still others (such as Russia and Japan) in the first half of the
20th century. The Industrial Revolution was no mere sequence of changes in industrial
techniques and production, but a social revolution with social causes as well as profound
social effects. The Industrial Revolution implied that man now had not only the opportunity
and the knowledge but also the physical means to completely subdue nature. But, while it
brought its blessings, there was also much misery. If we can thank the Industrial Revolution
for giving us internal combustion engines and laser guided radial arm saws, we can also
condemn it for the threatening effect it has had on social and ecological relationships.
The Industrial Revolution needed the resources, especially the raw materials, which were
concentrated mainly in the now poor nations. While the resources were extracted from the
Southern countries (presently the developing countries), the value addition was done mostly
in the Northern countries (presently the developed countries), thus creating an economic
imbalance. The colonisation process also was responsible for exploiting natural resources of
South for export, and established large monocultures and opened up a largely unexploited
domain. After independence, the newly established governments frequently paid more
attention to rapid economic development than to fair and equitable access to natural
resources.
From the 1950s onwards, Northern countries sought fast economic growth through statemanaged industrialisation plans that led to excessive resource use and waste. The legacy of
Global Corporate Social Responsibility
these forms of industrial production in the former Soviet Union and Eastern Europe has not
only seen economic dislocation but also daunting environmental problems such as the death
of the Aral Sea, nuclear contamination, and high levels of air and water pollution. Since
1989, most such regimes have begun to move towards market-based systems of economic
organisation and economic liberalisation, often accompanied by democratisation. While
market systems have been inherently efficient at economic organisation, environmental costs
have traditionally been excluded from the decision-making process. This has allowed
unsustainable exploitation of natural resources as well as unsustainable demands on natural
pollution sinks, like the tropical rain forests.
In 1991 the annual product of the global economy was valued at $29,000 million, which
meant it produced, in just 17 days, the equivalent of the entire annual global product a
hundred years before. This has increased all forms of industrial activities such as energy
generation, transportation, mechanical equipments and chemicals in agriculture, waste and
effluent discharges and release of harmful and hazardous gases in the air. This has led to
high pollution levels and extinction of several species from the earth. The United Nations
Environment Programmes (UNEP) Red Data Book estimates that 25 percent of species are
about to face extinction as more than 100 species are becoming extinct everyday. Unmindful
industrialisation has also led to fatal accidents as seen in Bhopal, Chernobyl and Exxon
Valdez. Sustainable development, therefore, is a reaction to the threatening speed of
industrial activity undertaken by states, both rich and poor.
1.2.3 Urbanisation
The relation of urbanisation with industrialisation is very close. The expansion of
industrialisation has resulted in the expansion of cities. This has meant expansion into rural
lands that grow food and nurture cattle and village forests and provide several forms of
sustainable occupations to the communities in these areas. The spread of cities and industrial
towns on one hand leads to the loss of agricultural land including forest resources and
intense and unmanageable migration towards the cities on the other. The level of
urbanisation in India has increased from 25.4 percent in 1970 to 33.6 percent in 1990 and is
expected to rise to 57 percent by the year 2025.
Uncontrolled and unplanned expansion of towns and cities with large populations has
overwhelmed transport, communication, water supply, sanitation and energy systems
resulting in a growth of urban poor and unemployed population with precarious health
problems.
institutions. The key issues are how to add value to agriculture and cottage industries
produce at the production site itself as also how to provide welfare funding to institutions
catering to the poor children, destitute women and dalits who have remained marginalised
and reduce the gap between the haves and the have-nots that is increasing in the process of
economic globalisation.
1.2.5 Resource Utilisation
The four major resources of this earth, which are taken care of by every nation individually,
as well as through international agreements are land, water, air and forests. The
industrialised countries such as the G8 (United States [US], Japan, Germany, United
Kingdom, France, Italy, Canada and Russia), Organisation for Economic Cooperation and
Development (OECD) and European Union (EU) which have less than 23 percent of the
world population have been consuming resources that are several times more than that being
consumed by the whole of Asia, Latin America and Africa taken together.
Fig.1.3: A comparison of the populations and incomes of the developing countries and
the developed countries
The energy consumption of one US citizen is equal to more than 160 Tanzanians or 900
Nepalese. This affluence of the North has led to an irresponsible release of
chlorofluorocarbon (CFC) gas into the environment to the extent of 28 percent by US alone.
On the contrary the poor countries are so laden with debt that to repay the debt are forced to
over-extract their resources and sell it to the rich nations.
1.3 ORIGINS OF SUSTAINABLE DEVELOPMENT
The origins of the concept of sustainable development can be trac ed back to the 1960s
when, the writer and scientist Rachel Carson published her book The Silent Spring (1962).
Global Corporate Social Responsibility
This book drew public attention to the destruction of wildlife by the use of pesticide DDT
(dichloro diphenyl trichloroethane). This work was a turning point in the understanding of
the interconnections among the environment, the economy and social well being. Gradually,
in this period, the fear of global environmental limits began to emerge. Soon after, the
animal population biologist Paul Ehrlich published the book Population Bomb (1968) on the
connection between human population, resource exploitation, and the environment. In 1969,
a non-profit organisation Friends of the Earth was formed which was dedicated to protecting
the environment from degradation and empowering citizens to have a voice in decisionmaking. The governments of the Northern countries began to recognise that the process of
industrial development was damaging the environment. For example, the Swedish
government had been concern ed about the damage caused to their lakes by acid rain.
This rain was a result of excessive pollution caused by the neighbouring industrialised states.
In 1971, the OECD council enacted a Polluter Pays principle where it said that those
(countries) causing pollution should pay the costs. The report, Limits to Growth (1972),
published by a group of young scientists (Club of Rome) from Massachusetts Institute of
Technology (MIT), immediately took the world by storm gaining enormous media coverage.
It predicte d dire consequences if growth was not slowed down.
The United Nations Conference on Human Environment (UNCHE) was organised in
Stockholm (1972). For the first time, the idea that the environment was a critical
development issue was placed on the international agenda. It led to the establishment of
United Nations Environment Programme (UNEP). The first director of UNEP, Maurice
Strong coined the term eco development which integrated development with environment
protection. Since then, many milestones have marked the journey towards sustainable
development.
The concept of Sustainable Society emerged at a study conference on Science and
Technology for Human Development, convened by the World Council of Churches (1974).
Interestingly, the concept did not deal with environmental conditions but started with the
principle of equitable distribution, which subsequently became the cornerstone of the
Brundtland Report in 1987. Sustainable Society also involved the concept of democratic
participation, which became important nearly twenty years later
at the Rio Earth Summit (1992).
Yet another term, Sustainable Development, emerged in the World Conservation Strategy
(WCS) (1980) published by the International Union of Conservation of Nature and Natural
Resources (IUCN) by two scholars, Eva Balfour, a soil scientist and Wek Jackson, a
geneticist from the International Institute for Environment and Development (IIED). During
the UN Conference on Environment and Development
(UNCED) in 1992 at Rio de Janeiro, the term broadened up into a full concept of
development bringing together government and non-governmental organisations (NGOs),
industrialists, scientists, community groups and grassroots organisations. It became one of
the most important interdisciplinary concepts that swept through studies on environment,
economics, sociology, political science, life sciences and gender.
By 2000, the concept of sustainable development became firmly settled as a guiding
document in all international organisations. Since then the UN member states have been
publishing reports on the national status of sustainable development programmes and
strategies and submitting them to the specially created UN body called UN Commission for
Sustainable Development (CSD). The term is modified for different user groups as
sustainable human development, sustainable economic growth, sustainable socioeconomic development and sustainable local governance and very recently in 2004
Information Communication Technology (ICT) for sustainable development.
1.4 DEFINITIONS OF SUSTAINABLE DEVELOPMENT
(DIMENSIONS AND CONCEPTS)
Sustainable development was defined in the World Conservation Strategy report as the
integration of conservation and development to ensure that modifications to the planet do
indeed secure the survival and well being of all people. Development was defined as the
modification of the biosphere and the application of human, financial, living and non-living
resources to satisfy human needs and improve the quality of human life. Development could
prove to be a threat unless resources were conserved and so conservation of resources was
defined in the report as the management of human use of the biosphere so that it may yield
the greatest sustainable benefit to present generations while maintaining the potential to
meet the needs and aspirations of future generation. This phrase attracted attention in the
Brundtland Report.
The Brundtland Report: In 1983, the United Nations General Assembly set up the World
Commission on Environment and Development (WCED) with the Norwegian Prime
Minister Mrs Gro Harlem Brundtland as the Chairperson. The Commissions report was
published as Our Common Future (1987). The definition of sustainable development given
in this report contains within itself two key concepts:
1. The concept of needs, in particular, the essential needs of the worlds poor, to which
priority should be given.
2. The idea of limitations imposed by the state of technology and social organisations on the
environments ability to meet present and future needs.
The report emphasised that sustainable development is a matter of social equity within a
generation (intra-generational) and between generations (intergenerational). The
Commission stressed the importance of integration of environmental decisions into central
economic decision-making. It argued that a healthy environment was not possible in a world
marked by extreme poverty which forced people to practice environmentally destructive
activities for short term survival. Therefore it broadly stressed on economic growth. The
Brundtland Report was widely accepted as it was released at a time when a large ozone hole
was discovered over Antarctica (1985) and the Chernobyl nuclear accident occurred in 1986
that spread radioactive nuclear fallout across Europe.
The Earth Summit: The direct consequence of the Brundtland Commis sions Report was
the UNCED held in Rio de Janeiro, popularly known as The Earth Summit. It was declared
in this conference that the right to development must be fulfilled so as to equitably meet
developmental and environmental needs of present and future generations. The results of
the Conference were the following documents:
The Framework Convention on Climate Change
The Convention on Biological Diversity
The Statement on Forest Principles
The Rio Declaration
Agenda 21
The Framework Convention on Climate Change (FCCC): The framework dealt with the
limits on the use of fossil fuels. It was inspired by the success of reaching an agreement of
the Montreal Protocol to reduce ozone depleting CFCs. The framework accepted that climate
change (due to green house gases) was a serious problem. It said that industrialised countries
should take the lead to reduce the carbon dioxide emissions to 1990 levels by 2000, while
there was no target for Southern countries.
The Convention on Biological Diversity (CBD): It affirmed that countries have sovereign
rights over biological resources in their territory which should be shared internationally on
mutually agreed terms. The terms included recognition of indigenous knowledge as
intellectual property.
The Statement on Forest Principles: Countries with tropical forests regarded the
international intervention on their forests as intolerable. So, this document was brought out
which emphasised national sovereignty over forests.
The Rio Declaration: This declaration had twenty seven principles. They emphasised
development, national sovereignty over natural resources and cooperation between states.
Scientific and technological innovations and environmental protection were the other issues
that were highlighted.
Agenda 21: It is a document consisting of five hundred pages. It has a bottom-up approach
and emphasises the role and participation of citizens, especially women, communities and
NGOs instead of large state and governmental institutions and projects. The role of market,
trade and business in bringing out sustainable development is emphasised. Agenda 21 also
brings out the importance of knowledge creating institutions. The implementation of Agenda
21 is overseen by the CSD, which meets annually for three weeks in New York.
The World Summit on Sustainable Development (WSSD): After ten years of UNCED,
the World Summit on Sustainable Development took place in Johannesburg in 2002. This
summit is also called Rio +10. Countries were urged to stop over fishing by 2015 and a new
Global Corporate Social Responsibility
environmental capability to support the largest number of people to the longest possible time
frame.
CHAPTER 2
APPROACHES TO
DEVELOPMENT
THE
STUDY
OF
SUSTAINABLE
Structure
2.1 Introduction
Objectives
2.2 Positivist Approach
2.3 Multi-dimensional Approach
2.4 Eco-system Approach
2.5 Indigenous Views
2.6 Summary
2.1 INTRODUCTION
So far you have studied the concept of sustainable development and the various parameters
that delineate it. It is an established fact that the world has been advancing in an
unsustainable manner and most of our existing problems in society are directly linked to this
approach of wealth accumulation rather than of a comprehensive and integrative
development towards economic progress. Historically, economic development of nations
was measured in terms of Gross Domestic Product (GDP) and Gross National Product
(GNP). However, today, the overall development of a country is measured by Human
Development Index (HDI). The HDI is computed from, for example:
gross domestic production per capita, adjusted for local purchasing power
life expectancy at birth
adult literacy
the number of persons enrolled in educational institutions
Therefore, development has economic, social, environmental and institutional aspects.
Accordingly, the focus of sustainable development has also shifted from the purely
ecological perspective to include economic and social sustainability. The application of
these approaches would require interaction and adjustment with several spatial and temporal
levels of society. On the spatial front there are needs and challenges for the individual, a
local community like a family or a network and the wider extended community like the
national, regional and the global networks. On the temporal front it may require an
understanding of issues very close to individuals such as emotional linkages to certain
geographical areas, occupational skills based on local resources, material artefacts
appropriate to their life styles, patterns of interdependencies between communities and also
between generations. These attributes provide conceptual and ethical justifications for
survival and therefore of a sustainable development framework. The objectives of
developmental policies are expected to combine and balance these different dimensions with
Global Corporate Social Responsibility
the political and administrative capability of the state. Approaches to the study of sustainable
development are to be understood in this context. In this unit, we discuss the different
approaches taken by the national and international fora towards the problem of achieving
sustainable development.
Objectives
After studying this unit, you should be able to:
discuss the different approaches being taken towards achieving sustainable
development; and
analyse the reasons for the failures of some of the earlier approaches.
2.2 POSITIVIST APPROACH
Conventional and classic economic development literature grossly ignores the demands of
sustainable development. The early founders of quantitative economics argued in favour of
the monetary approaches, known as the positivist approach. This approach centres on the
physical betterment of society through market calculations or calculating advancement in
terms of monetary gains. It leaves aside the issues of distribution and justice; even the
environmental assets are valued in purely monetary terms. However, as explained earlier,
many environmental assets are intangibles and they go unaccounted for in that approach.
Since what is unaccounted for tends to be used irresponsibly, these environmental resources
get ruthlessly destroyed by industrialising states.
Positivist approach promotes freedom of accumulation and is based primarily on making the
community as a whole as opulent as possible, irrespective of distributional disparities and
irrespective of what that wealth does to human lives. It is, of course, true that being affluent
can be among the most important contributory factors in generating a feeling of well-being,
and this approach to economic progress certainly cannot be criticised as being irrelevant to
achieve a better living. However, as it neglects crucial factors such as public care and social
organisation for the welfare of deprived and weaker sections, the approach is extremely
narrow and defective. Its overall thrust on wealth maximisation irrespective of distribution
allows accumulation of wealth and its appropriation by a few (rich becoming richer) and
marginalises the not so rich or weak individuals who would have, given the social and
institutional support and opportunities to work, done very well.
Fig.2.1: Some features of the positivist approach and its possible consequences
The preoccupation with commodity production, opulence and financial success can be traced
in professional economics through several centuries, involving many leading economists as
well as businessmen and bureaucrats, who have preferred to concentrate more on the
characteristics of overall material success than on the deprivation and development of
human lives. Indeed, the dominant contemporary concern on such variables as per -capita
gross national product or national wealth is a continuation of the old opulence-oriented
approach. It is these Gross National Product (GNP) and Gross Domestic Product (GDP)
based approaches which have been opposed and argued to be misleading by approaches that
shift the focus to human development. Alternate indicators of the real prosperity of the world
have been proposed in the Human Development Report (HDR, 1990) of United Nations
Development Programme (UNDP).
Human Development Approaches: The two traditions of focusing respectively on
(1) human development, and (2) overall wealth and opulence can be seen as differing,
directly or indirectly, in two distinct respects. The first concerns divergences in the ultimate
objectives, and the second relates to differences in the effectiveness of distinct instruments
advocated for achieving the objectives.
Human development approach has conformed broadly to the line of reasoning enunciated by
Aristotle more than two millennia ago that wealth is evidently not the good we are seeking,
for it is merely useful and for the sake of something else.
How can we possibly give priority to the means of living, which is what treasures and wealth
are, over the ends of good and free human lives? While much of economic and financial
writing proceeds as if there is nothing beyond opulence with which we need be concerned,
the really interesting debates must relate to the instrumental effectiveness of overall wealth
and opulence in promoting those things for which wealth and opulence are sought.
This takes us to the second difference. Some have taken the view that while opulence is not
to be valued at all for its own sake, it still is the most important instrument in promoting the
more basic objectives, even the Aristotelian objective of rich and fulfilling lives. In other
words, opulence is an effective instrument rather than the goal. To take a prominent
Global Corporate Social Responsibility
example, William Arthur Lewis, one of the leading modern development economists, did not
much doubt that the appropriate objective to pursue growth is increasing the range of
human choice and acknowledges the causal role of many factors in advancing the freedom
to choose. Nevertheless he concentrated specifically on the growth of output per head,
because it gives man greater control over his environment, and thereby increases his
freedom. Indeed, the assertion in his classic book: Our subject matter is growth and not
distribution reflects his faith in the instrumental efficacy of total growth.
This approach, however, has proved to be quite disputable in terms of the experiences
observed in the actual world. Many countries have grown fast without a commensurate
impact on living conditions, and more importantly, some countries have achieved high
quality of life despite relatively moderate growth of GNP or GDP per head.
It is certainly true that the higher the average income of a country, the more likely it is, given
other things, that it will tend to have a higher average life expectancy, lower infant and child
mortality rates, higher literacy, and in fact, a higher value of the HDI proposed in the Human
Development Report of UNDP. A number of countries conform to this pattern. However,
many countries, such as Sri Lanka, China, Jamaica, Costa Rica, and the state of Kerala in
India, have HDIs that are much higher than what would be expected on the basis of their
GNP. Therefore, rather than treating GDP per se as an instrument for achieving human
development, what is important is to look for the route through which economic growth
most effectively contributes to human development and to increased GNP.
Economic growth means not only an increase in private incomes, but also generating
resources that can be marshalled to improve social services (such as public health care,
epidemiological protection, basic education, safe drinking water, etc.). In some cases such
marshalling is effectively done, while in other cases, the fruits of economic growth are put to
little use of this kind. This can make a big difference to the outcome in terms of the
expansion of basic human capabilities. Similarly, while the expansion of private income
certainly is of instrumental importance in enhancing basic capabilities, the effectiveness and
sustainability of that impact depends much on the distribution of the newly generated
incomes.
In particular, a much larger and more sustainable impact is expected to occur if the rise in
average GNP per head is accompanied by a sharp reduction in the poverty of the worst off
people, rather than going in other directions. To what extent this will happen depends on a
variety of economic and social circumstances related to the employment-intensive nature of
techniques of production, the sharing of education and skills across the population, the
success of land reforms and the sharing of rural resources, and so on. Here again the
experiences of different countries and of different policy regimes have been quite divergent.
There is considerable evidence that the statistical correlation between GNP per head and
human development tends to work through the impact of GNP expansion on higher public
expenditure and lower poverty. The UNDP reports indicate that the connections are
seriously contingent, and much depends on how the fruits of economic growth are shared (in
Global Corporate Social Responsibility
particular what the poor get) and how far the additional resources are used to support public
services (for example, public health services, which are particularly crucial in influencing
life expectancy).
Thus the opulence-oriented view of progress has little intrinsic merit and has a conditionally
important instrumental role, and that conditionality relates specifically to the features on
which the human development focuses. Thus, there is no basic flaw in regarding economic
growth and GNP to be very important, but this is an insufficient indicator of human
development. Its biggest impact comes through the expanded ability to undertake public
action to promote human development and resource management in an equitable manner. In
recognising the importance of economic growth as a means for human development, policies
have to focus upon the multidimensionality of the problem and challenges brought by a
resource scarce economy. In brief, the human development approach concentrates on the
capability of all humans to lead worthwhile lives as the object of importance that people
today and in the future would value.
2.3 MULTI-DIMENSIONAL APPROACH
Multidimensional approaches deal with the heterogeneous environmental and development
issues and means to calculate the intangibles in nature without the common denominator like
money. The approach recognises that any development which disturbs a local ecosystem can
adversely impact regions across geographical and political boundaries. The policy
orientation in multidimensional approach is that of level transfer mechanism to check the
environmental impact and anticipate measures for preventing any socio-economic crisis.
This approach is an attractive operational tool for studying Environmentally Sound and
Sustainable Development (ESSD). The level transfer mechanism involves the following
basic associated approaches that have to be taken into consideration to assess the impact
over society and natural resources.
1. Studying the economic bottom-line: This critically examines the conventional profit
bottom line approach of enterprise initiatives for example, business (industry and
commerce), industrial agriculture (agribusiness) and aquaculture. To avoid unconstrained
exploitation of environmental resources calls for example, for green development of land
cleared for development.
2. Corporate environmental responsibility: This is a demonstration of environmental
awareness in corporate partnerships. This is to develop ecoefficiency, environmental
management through regulatory mechanism to be complied by all corporates all over the
world such as ISO14000, environmental impact analysis (EIA), studying ecological
footprints etc.
3. Producer responsibility: Besides promoting amongst producers environmental
monitoring and industrial ecology, this may inspire environmental assessment,
bioregionalism, product stewardship and accountability structures.
So far we have given you a bird's eye view of the dominant perspectives on sustainable
development. In the last section of this unit we acquaint you with the views of indigenous
communities on this issue.
2.5 INDIGENOUS VIEWS
Traditionally, the rights of communities over their habitat and ecological resources derived
from history, cultural traditions and conventions have provided them the means of
livelihood. It is important to note that many indigenous communities and aboriginal cultures
have long held that any decision taken by the community must be considered in the light of
its potential impact on seven generations. It is the same sentiment now being expressed in
the Brundtland definition of sustainable development.
Global Corporate Social Responsibility
15. The ecosystem approach calls for institutions to acquire basic characteristics called
e) uniformity
f) lethargy
g) centralisation
h) decisiveness
16. The Livelihoods Approach has been adopted by
e) Forests
f) NGOs
g) Industries
h) Schools
17. Poverty Reduction Strategies should
e) Have a comprehensive look at cross-sectoral determinants of poverty outcomes
f) provide the context for action by various development partners
Global Corporate Social Responsibility
Earth Summit
UNDP
Industrial Summit
Environment upgradation
CHAPTER-3
SUSTAINABILITY: THE NEW PARADIGM
Structure
3.1 Introduction
Objectives
3.2 Concept of Sustainability
3.3 Parameters of Sustainable Agriculture
Sustainability Indicators
Water
Socio-economic Factors
3.4 Approaches for Sustainable Agriculture
3.5 Summary
3.1 INTRODUCTION
The introduction of high yielding varieties in the developing countries required intensive use
of fertilizers and the past few decades witnessed remarkable increase in agricultural
productivity. The agro-technological innovations also brought about an element of resilience
in agriculture to ward off the threats of famines. The impact of Green Revolution in India on
mitigating hunger and on bringing an overall rural prosperity was so dramatic that India
emerged as a role model for many developing countries.
But success always has its costs, and Green Revolution has been no exception. Recent
evidences, though not always verifiable, support the adverse impact of excessive use of
agro-chemicals including fertilizers and water on the crop productivity, environment and
health of living beings. The productivity growth rates of major food crops like rice and
wheat have started stagnating, or even declining, in some intensively cultivated areas, thus
posing a threat to national food security.
Today agriculture in developing countries faces major problems such as depletion of soil
nutrients and water reserves, increased incidences of soil salinity and water-logging, decline
in factor productivity, resurgence of pests and diseases and increased environmental
pollution. Continuous diversion of prime agricultural lands to non-agricultural purposes and
fragmentation of farm holdings have further aggravated the problems. It is in fact due to
these pressing problems that sustainability of agricultural production systems and
environment has emerged as a serious concern.
The amount of food needed would keep increasing as we progress in time. Multiple crops
would need to be grown from the same land which implies increased mining of soil for plant
nutrients. We know that large amounts of plant nutrients are lost due to soil erosion. The
question is: Will the soils in South Asian Countries be able to sustain such heavy nutrient
mining? Deficiencies of several micronutrients are already showing up in large areas in these
countries. This is just one indicator of decreasing sustainability of our agricultural
production system. The sustainability of environment and other natural resources like water
is also being questioned by politicians, policy makers, researchers and the farmers
Global Corporate Social Responsibility
Fig.3.1: Sustainable agriculture should help in meeting food needs without degrading
the environment
Janvry and Garcia (1988) emphasized the need for gender equity in sustainable agricultural
production systems. Thus from the viewpoint of developing countries, sustainable
agricultural production must:
meet the changing food, feed, fibre and fuel requirement of the nation,
assure adequate profit to the farmers,
conserve and, if possible, improve the natural resource base,
prevent the degradation of the environment,
discourage regional imbalances, and
encourage gender equity.
All these measures of sustainability are subjective rather than quantifiable concepts. Two
indices are commonly used to identify the practices which give maximum sustainable yield
or maximum sustainable income. These are Sustainable Yield Index (SYI) and
Sustainable Value Index (SVI).
Sustainable Yield Index (SYI)
SYI is defined as
where Y is the estimated average yield of a practice over years, is its estimated standard
deviation and Ymax is the observed maximum yield in the experiment. In calculating SYI, the
negative values of (Y ) should be takes as zero since yield is always a positive quantity.
With this premise, the index takes values between zero and unity. In this index, quantifies
the risk associated with the average performance Y of a treatment. When = 0 and Y =
Ymax, SYI = 1.
Sustainable Value Index (SVI)
In the case of cropping systems, since more than one crop is involved, the economic
assessment of these systems becomes important. In these situations, obtaining maximum
sustained level of income is more desirable. To asses these situations on the basis of
sustainable income, the index called Sustainable Value Index (SVI) is used. For arriving at
SVI, the monetary values of economic produce are used instead of yield values. On one end
of the spectrum are the developed countries with almost a zero growth rate of agricultural
production, and threatened with a problem of over-production of agriculture and
environmental degradation through industrialization and excessive use of agro-chemicals.
On the other end are developing countries like those of the South Asian Region with
population growth outstripping agricultural productivity growth. They need to produce more
and more food, fibre and fuel from less and less of land. At the same time they are facing the
ill effects of modern agricultural practices on the environment.
than that in 1976-85; as a matter of fact, it was negative in Uttar Pradesh. Farmers in these 3
states have increased their fertilizer application rates over the years to obtain the same yield
and this indicates a general feeling of reduced PFP due to fertilizers.
Nutrient deficiencies in crop plants: Nutrient deficiencies are good sustainability
indicators, which if detected in time can save a crop and future prophylactic measures can
sustain production from that crop.
Disease and pest hazards: Disease and pest hazards can sometimes make an agricultural
production completely unsustainable unless ameliorative measures are immediately taken
up.
Soil sustainability indicators
The quality and health of soils determine agricultural sustainability and environmental
quality and as a consequence, plant, animal and human health.
Soil fertility: Soil fertility is an important SI and can be easily monitored.
Soil physical properties: Soil physical properties such as soil structure, bulk density,
hydraulic conductivity and infiltration rate affect agricultural production.
Soil ecology: Soil ecology can influence organic matter dynamics, nutrient cycling, soil
structure and aeration, and is an important SI.
Soil salinity and alkalinity: With increasing area under irrigation without adequate
drainage, salinity/alkalinity problem is on the increase and it is becoming a serious problem
in many areas of our country for sustained agricultural production.
Fig.3.3: Soil and water conservation measures transform a field from (a) to (b).
3.3.2 Water
Agriculture is the biggest consumer of water worldwide. In Asia, it accounts for 86% of total
annual water withdrawal. Of all the crops, irrigated rice in particular is a heavy consumer of
water; it takes some 5,000 litres of water to produce 1 kg of rice. The general figures for rice
3
and wheat are 7,650 and 4,000 m /ha. Projections suggest that most Asian countries will
have severe water problems by the year 2025 (IRRI, 1995).
Water availability is an important index of sustainability of agriculture. In the rice-wheat
belt of northern India, there are reports of serious decline in ground water and its level is
receding fast. This is attributed to over-withdrawal of ground water. Such an agricultural
production system is definitely not sustainable and calls for immediate measures to change
it. In Unit 7, we discuss the issues related to water in detail.
3.3.3 Socio-economic Factors
Regional imbalance: Progress in agriculture has not been uniform in developing countries.
An example may be taken from India of irrigation as a natural resource and input. Data on
growth in irrigated area by 1966-67 and 1996-97 in different states of India shows that by
1996-97, the state of Punjab had 92.9% of its area under irrigation, followed by Haryana
(76.2%) and Uttar Pradesh (68.7%). On the other hand, Maharashtra had only 14.4% area
under irrigation by 1996-97 and the value for Karnataka was only 21.9%.
Although regional imbalances are unavoidable due to availability of water resources in a
region, they do create a problem for a uniform sustainable agricultural production in a given
country. The only option left is to develop different agricultural production systems for
different states/regions, depending upon their water and soil resources so that the differences
between money earned per hectare are minimized. The effort should be towards maximizing
per capita agricultural income so that near uniform living standards are attained, which is a
Herculean task for all developing nations and governments.
Gender equity: In several regions of these countries, hard manual labour in agriculture is
left for women, while they have little role in decision-making. However, with the progress in
womens education and opening of more and more job opportunities for them, this trend is
on the decline. This is a welcome change. Such changes in the social system will have a
definite bearing on agricultural production systems in rural areas of these countries,
hopefully towards betterment.
Global Corporate Social Responsibility
As the perception of the term sustainability is not the same under all situations, the
parameters to define and measure sustainability of an agricultural system may also vary
according to local and national needs, food security scenario, socio-economic conditions of
the farmers and the quality of resources. A sustainable system is one with a non-negative
trend in a measured output. In other words, a system can be considered sustainable over a
defined period if the outputs do not decrease when inputs are not increased.
Some research efforts have been made to identify and evaluate efficient sustainability
parameters. Important indices that have emanated out of sporadic studies are given as under:
i) Partial factor productivity and total factor productivity;
ii) Agronomic or incremental efficiency of external inputs;
iii) Physiological or internal efficiency of external inputs;
iv) Soil quality index;
v) Sustainable yield index;
vi) Benefit-cost ratio;
vii) Soil organic matter levels; and
viii) Apparent nutrient balance sheets.
In fact, a single sustainability index that addresses productivity, resource utilization,
environmental aspects and economic viability is lacking, though the same may be of
immense practical significance. Unfortunately, sustainability has been used merely as a
fancy word by researchers, planners and policy makers. Sincere and continued efforts to
understand and evaluate sustainability of an agricultural system, management practices or
processes are scarce and sporadic.
Choice of crops and animal components of farming system: The sustainable agricultural
revolution may be triggered by shifting our mindset from a commodity-centred approach to
an entire cropping or farming system. The triple goals of more food, more income and more
livelihoods per hectare of land can be achieved provided suitable combinations of farming
system components (crops, animal husbandry, forestry, fisheries, poultry agro-industries) are
chosen and supported by resource based eco-technologies and farmers participatory
approach.
Genetic Diversity: Green revolution has led to genetic homogeneity with a greater genetic
vulnerability to biotic stresses. Therefore, there is a need of growing crop varieties with
different genetic constitutions in different agro-climatic zones. This will minimize the risk of
crop failure during the insect-pest and disease attack as well as during the adverse climatic
situations.
Integrated Nutrient Management (INM): INM is a principle and concept of using the
different sources of nutrients like organic manures, chemical fertilizers, biological nitrogen
fixation and other methods of nutrient saving in an optimum manner. Thus the productive
potential of the soil can be maintained over a long period of time without adverse effects on
the environment. INM also includes use of a suitable variety, optimum cultural management
and soil and water use for efficient and sustainable crop production.
The important components of INM are fertilizers, farmyard manure, compost, crop
residues, green manure, green leaf manure, rhizobium, blue green algae, phosphate
solubilizing bacteria and azolla.
The important steps for the adoption of INM are as follows:
i) a system approach for the management of nutrients should be followed so that input use
efficiency can be increased,
ii) the recommendation of fertilizers should be based on soil test values,
iii) agronomic practices like split application of fertilizers, use of coated and granulated
fertilizers, optimum combination of organic and inorganic sources of nutrients and right
method of fertilizer placement should be adopted,
iv) conjunctive use of farm waste should be made,
v) nutrient responsive varieties should be selected, and
vi) appropriate water management strategies considering the right moisture nutrient
interaction, should be used.
The basic concept underlying the principles of INM is the maintenance of and/or
improvement of soil-fertility for sustaining crop productivity on long-term basis. This may
be achieved through combined use of all possible sources of nutrition and their scientific
management for optimum growth; yield and quality of different crops in their cropping
systems in an integrated manner and in specific agro-ecological situations (recall Unit 2).
Organic materials were practically the only external source of nutrients to crops before the
introduction of inorganic fertilizers. As a result of the advent of quick acting chemical
Global Corporate Social Responsibility
fertilizers, a stage has reached that the supplementary and complimentary role of organic
materials is being understood once again for sustainable agriculture and keeping the soil
health in order. With an ever increasing cost of chemical fertilizers and their contribution to
the degradation of the agricultural lands, it has been realized that organic materials such as
organic manures, crop-residues, green manures, bio fertilizers and legumes in rotation, will
have to be utilized judiciously to maintain and improve the soil fertility and productivity.
The manuring and recycling of various forms of residues has the advantage of converting the
animal and farm wastes into useful product for meeting nutrient requirement of crops,
besides maintaining the soil conditions and improving the overall ecological balance. As
most parts of the plant nutrients are required by animals and human beings, if not regulated
properly, enormous losses take place and substantial amount of nutrients are wasted.
Resource conservation and their regulated recycling for production is the option for
sustained living.
But two basic questions remain unanswered while recommending integrated nutrient
management.
i) To what extent can INM replace commercial fertilizers on field scale?
In developing countries like India, most farmers are poor and marginal and may not afford to
go for a green manure crop at the cost of some economic crop in sequence. Animal manure
in huge quantities may not be available to effectively contribute to the nutrient needs of the
intensive cropping systems and that also when most of the cow dung is utilized as cakes to
meet the domestic needs of fuel.
ii) To what extent can the use of commercial fertilizers be reduced through INM
without any reduction in the targeted growth rate of food grain production to
accommodate the growing needs of the increasing population of the country?
It is widely felt that in the event of a heavy cut on fertilizer use, it will be difficult to meet
the growing food needs and no alternative will be left except bringing additional land under
cultivation and thereby again damaging or destroying the natural ecosystem.
Integrated Pest Management (IPM): IPM is a philosophy of controlling the pest in the
crop field (in the context of the associated environment) by utilizing all suitable techniques
and methods in as compatible a manner as possible and maintaining the pest population at
levels below those causing economic injury. It deals with the optimization of different pest
control practices and not the maximization of pest control in terms of overall economic,
social and environmental values.
Remote sensing and other space satellite outputs are providing detailed geographic
information useful for land and other natural resource management.
Programmes for extension education and communication for farmers will certainly help
popularize the sustainable agricultural practices. A very important option in extension
techniques towards sustainable agriculture is Social Engineering which means influencing
the farmers attitude to make them aware about ecological production and economic
consequences of a technology and policy being adopted. This can make all the above
components successful at a farmers field level.
Decision Support System (DSS): The decision support systems (DSS) involving simulation
modelling comprises of studying simultaneously the soil-plant-environment continuum.
Once an appropriate model is developed and validated under a defined farming situation,
sustainability of a management practice or practices can be evaluated even without long term
experiments (LTEs) under similar situations. The data of existing LTEs can also be used for
deriving useful predictions and trends on sustainability of production systems. The weather
data, genetic coefficients of the crops and soil parameters as per requirements of the DSS
models usually suffice.
The major problem with this approach is that modelling of biological systems is still in its
infancy. Whichever models are developed, their success and reliability of simulation depend
on the quality and the amount of minimum data set generated to validate and run the models.
Nevertheless, there is a great scope to develop and improve the simulation models for their
use in sustainability analysis. Majority of the existing models are meant for simulation of
crop growth and nutrient dynamics in soil-plant system under given set of environmental
conditions. There should be an effort to include, if possible, an economics sub-routine in
existing models, or develop new models with capability to simulate economic viability
besides crop growth and other parameters.
We now summarise what you have studied in this unit.
3.5 SUMMARY
Sustainability of agriculture in developing countries is believed to be at stake for three
major reasons that emerged as a consequence of intensive farming:
excessive use of irrigation water,
replacement of rich diversity of traditional varieties with fewer high yielding
varieties, and
indiscriminate use of fertilizers and pesticides.
As the per capita availability of agricultural land in these countries is further shrinking,
sustainable agricultural productivity has to be thought about in terms of raising yield
levels until population stabilizes and malnutrition is alleviated. Here sustainable
productivity implies a reasonable level of production without harming the
ecosystem.
CHAPTER-4
STRATEGY AND SOCIAL RESPONSIBILITY
Objectives
After reading this unit you should be able to:
explain the meaning of Corporate Social Responsibility (CSR);
define and understand the scope of CSR for business;
explain CSR and its importance for business;
differentiate the philanthropic and the business integrated views of CSR;
know CSR and companies in India; and
explain measurement of CSR
Structure
4.1 Introduction
4.2 CSR and Historical Developments
4.3 Business Importance of CSR
4.4 CSR and Companies in India
4.5 The Measurement of CSR
4.6 Future of CSR
4.7 Summary
4.1
INTRODUCTION
Corporate social responsibility (CSR) is an evolving concept which is yet to command a
standard definition or a fully recognized set of criterion. With the given understanding that
businesses have a key role of job and wealth creation in society, CSR is generally
understood to be the way an organization achieves a balance between economic,
environmental, and social imperatives while they address the expectations of the
shareholders and the stakeholders. While businesses try to comply with laws and regulations
on social, environmental and economic objectives set by the legislations and legal
institutions, CSR is often understood as involving the private sector commitments and
activities those extend beyond this foundation of compliance with laws. In fact the key
feature of the concept is the way businesses engage or involve the shareholders, employees,
customers, suppliers, governments, nongovernmental organizations, international
organizations, and others into the organization.
CSR is generally seen as the business contribution to sustainable development which has
been defined as development that meets the present needs without compromising the ability
Global Corporate Social Responsibility
of future generations to meet their own needs, and is generally understood as focusing on
how to achieve the integration of economic, environmental, and social imperatives. CSR
also overlaps and often is synonymous with many features of other related concepts such as
corporate sustainability, corporate accountability, corporate responsibility, corporate
citizenship, corporate stewardship, etc.
Today it is generally accepted that business firms have social responsibilities that extend
well beyond what in the past was commonly referred to simply as the business economic
function. In earlier times managers in most cases had only to concern themselves with the
economic results of their decisions. Today managers must also consider and weigh the legal,
ethical, moral and social impact and repercussions of each of their decisions.
4.2
Corporate Social responsibility has its roots of thinking in the twentieth century where the
theologians and the religious thinkers suggested the application of religious principles to
business activities. First was the principle of in which the wealthy and generous individuals
contributed to the resources for aiding the unfortunate. The next was the stewardship
principle, a biblical doctrine which requires business and wealthy individuals to see
themselves as stewards or caretakers not just of shareholders but
also of societys resources for the benefit of the society as a whole. Similarly different
authors see corporate social responsibility from different angles.
Although the topic rose to prominence in 1970s ( Caroll, 1979; Wratick and Cochran, 1985),
the first publication specifically on the field dates back to 1953, with Bowens social
responsibilities of the businessman. In this work Bowen argues that industry has an
obligation to pursue those policies and to make those decisions, or to follow those lines of
actions which are desirable in terms of the objectives and values of society (Bowen, 1953),
which means;
4. That businesses exist at the pleasure of society and that their behaviour and methods of
operation must fall within the guidelines set by society.
Businesses act as moral agents within society.
Wood (1991) expanded these ideas encapsulating them into three driving principles of
social responsibility , which are
Business is a social institution and thus obliged to use its power responsibility;
5. Businesses are responsible for the outcomes relating to their areas of involvement with
society; and
6. Individual managers are moral agents who are obliged to exercise discretion in their
decision-making.
A growing number of scholars take the view that firms can no longer be seen purely as
private institutions but as social institutions instead. The benefits flowing from firms need to
be shared collectively. This thesis is similar to the stakeholders model
and claims that a firm is not responsible only to its shareholders but to all stakeholders
whose contribution is necessary for a firms success.
However Friedman differed from these and felt that the corporation is an economic
institution and thus should specialize in the economic sphere alone and the socially
responsible behaviour will be rectified by the market through profits.
Opinions differ in terms of the basis or scope of CSR and even the very definition of the
term. As a consequence different aspects of a firms operations can be seen to come under
its way. What can be conceived as social responsibility can range from simply
maximization of profits to satisfaction of stakeholders social needs or fulfillment of social
contractual obligations, achievement of a social equilibrium, etc. depending on the stance
taken. World Business Council for Sustainable Development in its publication Making
Good Business Sense by Lord Holme and Richard Watts define CSR as, Corporate Social
Responsibility is the continuing commitment by business to behave ethically and contribute
to economic development while improving the quality of life of the workforce and their
families as well as of the local community and society at large.
History
The view that a business can have obligations that extend beyond economic role is not new
in many respects. Throughout recorded history the roles of organizations producing goods
and services for the marketplace were frequently linked with and include political, social,
and/or military roles. For example, throughout the early evolutionary stages of company
development in England (where organizations such as the Hudson Bay Company and the
East India Company received broad mandates), there was a public policy understanding that
corporations were to help achieve societal objectives such as the exploration of colonial
territory, setting up settlements, providing transportation services, developing bank and
financial services, etc.
During the nineteenth century, the corporation as a business form of organization evolved
rapidly in the US. It took on a commercial form that spelled out responsibilities of the board
of directors and management to shareholders (i.e. fiduciary duty). In this later evolutionary
form, public policy frequently addressed specific social domains such as health and safety
for workers, consumer protection, labour practices, environmental protection, etc. Thus,
corporations responded to social responsibilities because they were obligated to be in
compliance with the law and public policy. They also responded voluntarily to market
Global Corporate Social Responsibility
demands that reflected consumer morals and social tastes. By the mid-point of the twentieth
century, corporate social responsibility was being discussed in the US by business
management experts such as Peter Drucker and in business literatures CSR emerged and
continues to be a key business management, marketing, and accounting concern in the US,
Europe, Canada, and other nations.
Traditionally in the United States, CSR has been defined much more in terms of a
philanthropic model. Companies there made profits unhindered except by fulfilling their
duty to pay taxes. Then they donated a certain share of the profits to charitable causes. It is
seen as tainting the act for the company to receive any benefit from the giving. The first
generation of CSR this way showed how companies can be responsible in ways that do not
detract from and may contribute to commercial success. Corporate philanthropy is the
practice of companies of all sizes and sectors making charitable contributions to address a
variety of social, economic and other issues as part of an overall corporate citizenship
strategy.
The second generation is now developing where companies and whole industries see CSR as
an integral part of the long term business strategy. Now a days lot of companies are taking it
seriously for good of business. From a progressive business perspective, CSR usually
involves focusing on new opportunities as a way to respond to inter-related economic,
societal and environmental demands in the marketplace. Many firms believe that this focus
provides a clear competitive advantage and stimulates corporate innovation.
In the last decade, CSR and related concepts such as corporate citizenship and corporate
sustainability have expanded. This has perhaps occurred in response to new challenges such
as those emanating from increased globalization on the agenda of business managers as well
as for related stakeholder communities. It is now more a part of both the vocabulary and
agenda of academics, professionals, nongovernmental organizations, consumer groups,
employees, suppliers, shareholders, and investors.
A third generation of CSR is needed in order to make a significant contribution to
addressing poverty and environmental degradation. This will go beyond voluntary
approaches by individual companies and will involve leadership companies and
organizations influencing the market in which they operate and how it is regulated to remould whole markets towards sustainability.
4.3
strong financial performance and what kind of relationships exist. Today businesses are
becoming increasingly interested in the idea of the Triple Bottom Line (TBL). This idea
focuses not just on the economic value of the businesses that they may gain from acting in
certain way, but also on the value that they may accrue to the companys bottomline by
engaging in environmentally and socially beneficial practices. The three line represent the
economy, the environment and the society and are all dependent on each other. Whether
companies do actually take each line into account is difficult to measure as the arguments
surrounding financial benefits of the company from being socially responsive are not clear
cut. Although positive relationships have been found, there are several difficulties inherent
in measuring these linkages. One problem is that it is not clear whether social responsibility
leads to increased financial performance or whether better profits lead
to more funds being available to devote to CSR activities. The other issue is that profit is an
incomplete measure of social performance (Lantos 2001). Yet another is the difficulty of
developing a consistent set of measures that define CSR or CSP.
The following factors are taken into account for understanding the importance of CSR:
Globalization and the associated growth in competition
Increased size and influence of companies
War for talent, companies competing for expertise
Increased importance of intangible assets
time, companies that make a public commitment to increase accountability and transparency
need to ensure that they have robust systems for implementation, lest the company risk
negative public backlash for failing to live up to its commitments.
Reduced Costs: The enhanced communication that is often part of corporate accountability
efforts can help build trust between companies and stakeholders, which can reduce costly
conflict and improve decision-making. Companies that proactively and effectively engage
shareholders and address their concerns can reduce the costs associated with shareholder
proposals. In addition, social and environmental reporting efforts can help identify the
effectiveness of various programmes and policies, often improving operating efficiencies
and reducing costs. Reporting information can also help identify priorities to ensure that
company is achieving the greatest possible impact with available resources.
opportunity to resolve problems before they result in costly legal actions or negative public
exposure. Issues that might surface more quickly in an accountable company include:
environmental problems that could endanger public health, workplace discrimination or
harassment that could result in lawsuits, marketing practices that do not price products or
services equitably, or hiring practices that inadvertently give unfair advantage to certain
populations. Social and environmental auditing and reporting can also identify where
company practices may be in violation of government regulations or the standards or
expectations of key stakeholder groups.
Marketplace Advantages: Accountability can make entry and success in new markets
easier by helping establish direct relationships with keycustomers and business partners.
These relationships can contribute to innovation in product development or delivery, help
mitigate potential negative media coverage, and enhance market presence. Some companies
have used dialogue with stakeholders to help make decisions on overseas investments and
operations, or to overcome the challenges of operating in markets with different cultures,
laws, and languages. For example, Unilevers Indian subsidiary, Hindustan Lever, has
worked with local stakeholders to develop a new delivery system for laundry detergent in
Indian villages. The company was experiencing difficulty in selling its product until it was
suggested by stakeholders that the company package its product in single-use quantities that
would be affordable to local residents with limited disposable incomes.
Improved Overall Management: Many companies that have developed clear CSR
performance and accountability systems inside their organizations report experiencing an
improvement in their management practices overall. Increasingly, companies are finding
that the impact of systems designed to increase accountability for CSR performance is not
limited to the CSR realm, but can also impact performance in other areas as the culture of
the organization undergoes change. An analysis of Fortune 500 companies conducted at the
Boston College, Carroll School of Management found
that companies judged as treating their stakeholders well are rated by peers as also having
superior management.
Improved Organizational Effectiveness: The process of self-assessment and evaluation,
which is part of increasing accountability can have beneficial impact on company
operations. For example, social and environmental auditing and reporting give companies
the opportunity to assemble and assess more comprehensive information on operations and
impacts. This information can help coordinate and maximize efficiencies and collaborations
across departments, facilities, and business units. Through this process, companies compile
examples of successful programmes from various parts of their organizations and share the
learnings throughout the company, leading to more effective and efficient policies and
practices. Dialogue and partnerships with stakeholder groups can help companies build
skills and competencies, or align company operations with overarching mission and values.
Decreased Risk of Adverse Publicity: Accountable companies may be better prepared to
address the concerns of customers or other stakeholders who might otherwise take negative
Global Corporate Social Responsibility
action on social issues. For example, by engaging in a dialogue with stakeholders about their
interests and concerns, and addressing those concerns in business implementation processes,
companies may be able to head off or minimize the impacts of boycotts organized by
consumer groups. Similarly,
companies that proactively address the concerns of shareholders can reduce the risk of
adverse publicity stemming from high-profile shareholder disputes.
CSR AND COMPANIES IN INDIA
In India, most of the work done by companies is still in nature of philanthropy. Consider
that of the six short listed companies for the Business World FICCI CSR award for year
2003, five ( Lupin, Canara Bank, Indal, Gujrat Ambuja and Wipro ) are involved in
community development work. This means building roads, running schools and hospitals,
creating income-generating schemes and similar projects . Only ITCs CSR its e-choupal
project and others has direct linkages with its business. This is understandable given that
many of the traditional development indicators life expectancy, infant and child mortality,
sanitation facilities and access to primary education are still abysmal for India. In fact
even the government expects Corporate India to participate in welfare programmes even
though it is a tacit admission that the state has failed to deliver even the most basic
amenities. But of late experts argue that as India gets integrated into the global economy,
companies should pick up projects that are business centric. The CSR initiatives should
become a part of the business process.
In an era of no free lunches , the attraction that the business centric model of CSR holds is
obvious. But if more Indian Companies are to adopt that, some other things , too, need to
change besides mindsets and developmental needs. The links between good CSR and good
business have to be established clearly. Sure even overseas there is still no way that the
capital markets reward good CSR practices directly or are willing to ovelook other flaws in
lieu of good CSR. But experience shows that substantial benefits do flow in different ways.
Research in West shows that investors are increasingly questioning companies on corporate
social practices and are allying with those that have high respect for CSR. In fact there is a
whole eco-system being built around this concept with outfits like Ethical Investment
Research Service, a U K based independent researcher of ethical, social and environmental
practices advising outfits like Goldman Sachs, J P Morgan, Redit Suisse, Merill Lynch and
Standard Life on CSR practices of companies. Moreover the likes of FTSE and Dow Jones
are coming up with indices such as the FTSE 4 Good and the DOW Jones Sustainability
World Index. The FTSE 4 Good is an index comprising stocks of companies with good
practices. To be a part of FTSE 4 good family of indices one need to apply to the FTSE 4
Good applications committee. In the absence of all these , its quite unlikely that CSR in
India will change from being more philanthropic to more business centric in the near future.
Yet such developments taking place worldwide and also because India is developing as back
office centre, movement towards business centric CSR models is possible.
Taking clue from the Business World FICCI CSR Awards, still it is not clear how much
Indian companies invest in CSR but from the list of the companies that applied and evidence
on ground suggest that time has come and is important for large companies to enter into
business centric CSR models. However, considering India where so much is to be done, it
doesnt matter whether companies take business centric view or the philanthropic centric
view.
4.5
Briefly, CSR is measured following a systems model of a business into three levels:
Principles of social responsibility
Processes of social responsiveness
Outcomes as they relate to the firms societal relationships
Public responsibility concerns of the individual firm and its processes and outcomes
within the framework of its own principles.
Managerial discretion whereby managers and other organisational members are moral
actors. Within every domain of corporate social responsibility, they are obliged to
exercise such discretion as is available to them, towards socially responsible outcomes.
Level II
successfully scan, interpret, and react to the business environment requires equally complex
mechanisms. Three elements are identified as basic elements of this level of the CSR model:
Business Environment Scanning: indicates the informational gathering arm of the
business and the transmission of the gathered information throughout the organization.
Having identified the motivating principles of a firm and having determined the
identities, relationships, and power of stakeholders, attempt then is to turn to the main
issues which concern stakeholders.
Level III Outcomes
The main focus of measurement is the third level of the CSR model. To determine if CSR
makes a difference, all of the stakeholders relevant to an issue or complex of issues must
be included in any assessment of performance. There are, again, three main categories:
Internal stakeholder effects those that affect stakeholders within the firm. An
examination of these might show how a corporate code of ethics affects the day to day
decision making of the firm with reference to social responsibility. Similarly, it can be
concerned with human resource policies such as the positive or negative effects of
corporate hiring and employee benefits practices.
External stakeholder effects concern the impact of corporate actions on persons or
groups outside the firm. This might involve such things as the negative effects of a
product recall, the positive effects of community related corporate philanthropy, or
assuming the natural environment as a stakeholder, the effects of toxic waste disposal.
External institutional effects refer to the effects upon the larger institution of business
rather than on any particular stakeholder group. For example several environmental
disasters made the public aware of the effect of business decisions on the general
public. This new awareness brought about pressure for environmental regulation which
then affected the entire institution of business rather than one specific firm.
Global Corporate Social Responsibility
FUTURE OF CSR
The business case will not be clear enough for companies to take up en masse, unless it is
legislated or there are other incentives.
CSR will not be on the publics radar screen and there wont be any clarity about what
CSR is and why it is important.
CSR will become too prescriptive and get labeled as needless red tape increasing the cost
of business.
Companies that once embraced CSR will lose interest and pursue other objectives.
Those engaged in CSR shift to minimal CSR activities, never moving beyond baseline
CSR.
Pressures on business to cater to shareholders at the expense of all other stakeholders will
continue if not increase; the imbalance of power will not change unless the membership on
company boards changes to include stakeholder interests or until government legislation is
brought to bear.
CSR optimists believe that the pessimists are only looking at the gap of where we are and
where we need to be, without acknowledging that mindset change takes time and
recognizing that the slow incorporation of these ideas is underway in business. They believe
that the disillusionment is a function of the hope for too much too quickly.
CSR optimists believe that:
In the future a significant number of companies will be convinced its in their strategic
interest to incorporate CSR substantively into their operations.
There is a crisis in industrial capitalism, which lacks in trust and social responsibility.
Therefore, a rethinking should be done to decide the role of companies in society.
There will be pressure through competition for better CSR performance this will impact
on suppliers, etc.
There will be differentiation between different models and levels of CSR as a result of
continuous improvement and quality assurance.
CSR will advance, but it will advance inconsistently across sectors, depending on a
companys economic performance, economic downturns, competitiveness of the
market, etc.
Underlying structural drivers will impact large scale companies, such as the value of
knowledge workers and other intangible assets, driving companies to take different issues
into account.
We see only a few companies committed to CSR because we are at the beginning of a long
path on this journey; the shift toward sustainable capitalism is a long term trend and in 5 10
years only a few companies will be moving in this direction.
Increasingly businesses will see CSR as resulting in increased competitiveness and
profitability.
CSR is part of a search for a new social contract between business and society.
This new social contract will not necessarily be through the creation of a set of rules, but
about a new set of norms arrived at through experimentation.
In spite of the difference in views of social impact and degree of corporate commitment, the
majority of the optimists and the pessimists agree that 5 10 years from now CSR will
nonetheless become increasingly mainstream within business, even if not within the public
consciousness. CSR tools, resources, language all will become more aligned with business
norms and systems. CSR standards to greater or lesser effect will be part of business basics
and not an add-on.
4.7
SUMMARY
With the given understanding that businesses have a key role of job and wealth creation in
society, CSR is generally understood to be the way an organization achieves a balance
Global Corporate Social Responsibility
between economic, environmental, and social imperatives while they address the
expectations of the shareholders and the stakeholders. Companies of late see CSR as an
integral part of the long term business strategy. Now a days lots of companies are taking it
seriously for good of business. Very briefly, the following strategic steps should be taken by
a firm to fulfill its social responsibility.
1) Assessment of economic and social impact
2) Assessment of social environment
3) Appraisal of the firms policies and practices
4) Formulating objectives and strategies
5) Developing operational plans and programmes
6) Monitoring social programmes
7) Summary of the outcomes and performance
2.
a)
b)
c)
d)
3.
Principles of Social Responsibility consists of
a)
Legitimate concerns of business as a social institution and it frames the analytical
view of the interrelationship between business and society.
b)
Public responsibility concerns of the individual firm and its processes and outcomes
within the framework of its own principles.
c)
Managerial discretion whereby managers and other organisational members are
moral actors.
d)
All of the above
4.
a)
b)
c)
d)
5.
a)
b)
c)
d)
6.
The GRIs Sustainability Reporting Guidelines address a broad range of corporate
social responsibility issues related to an organizations
a)
economic performance
b)
environmental performance
c)
social performance
d)
All of the above
7.
a)
b)
c)
d)
Economic problem
Political problem
Technical problem
8.
a)
b)
c)
d)
9.
The following strategic steps should be taken by a firm to fulfill its social
responsibility
a)
Assessment of economic and social impact
b)
Assessment of social environment
c)
Appraisal of the firms policies and practices
d)
All of the above
10.
a)
b)
c)
d)
maximization of profits
ensuring CSR
degrading the environment
ensuring political stability
CHAPTER 5
SOCIAL RESPONSIBILITIES OF BUSINESS
Structure
5.0
Objectives
5.1
Introduction
5.2
Concept of Social Responsibility
5.3
Case for Social Responsibility of Business
5.4
Dimensions of Social Responsibilities
5.5
Social Responsibilities Reporting
5.6
Social Accounting
5.7
Approaches to Social Accounting and Reporting
5.8
Social Audit
5.9
Social Responsibilities of Business in India
5.1 0 Summary
5.11 Key Words
5.0 Objectives
After studying this Chapter you should be able to :
explain the concept of social responsibility;
enumerate the ground for adoption of the concept of social responsibility by
business;
state the various dimensions of responsibilities of business towards its various
stakeholders;
identify the significance of social performance reporting;
explain the concept of concepts of social accounting;
describe the approaches that can be adopted for social accounting and reporting;
explain the concept of social audit and its significance; and
outline the position of corporate social responsibility efforts in India.
5.1 INTRODUCTION
It is now widely recognized that the business not only involves pursuing economic grains, it
also has certain obligations to society which can be termed as social responsibilities of
business. In this chapter you will learn about the concept of social responsibility, its
significance, and the nature of social responsibilities to various stakeholders in business. In
this context, you will also learn about the need and nature of social reporting, the approaches
to social accounting and reporting, and the concept of social audit and its significance.
Global Corporate Social Responsibility
activities, there will be a curtailment in investments in the productive activities and for
higher productivity. Even if the companies have adequate resources to engage in socially
responsive programmes, large scale commitments in that respect is likely to lead to slower
growth in GNP. However, the modern writers - Peter Drucker, Melvin Anshen and others have put forward the case for social responsibilities of business on several grounds. The
following arguments are worth noting.
1. The case for social responsibilities of business rests primarily on the ground that
corporations are creatures of society and should, therefore, respond to the demands of
society. By virtue of being one of the leading groups in society, management of
corporations should ensure that public good becomes the private good of the enterprise. This
is because the actions of an enterprise have often a decisive impact on the social scene.
2. As an organization expands its activities, there is an increasing public interest in its
policies and actions. If such enterprises do not react to social demands, the society may
force them to do so through laws, or may not permit the enterprise to survive. To what extent
the quality of products of a company is reliable, to what extent it is able to fulfill the
expectations of owners, employers, consumers, community and the public at large, largely
determine the image of an enterprise which is very crucial for its survival and growth.
3. Any business activity involving society promotes or negates human values in some way.
Thus, business activity is not amoral. It is in the moral realm. Social responsibility or the
value issue of business is not a peripheral issue. This is because the market mechanism
cannot adequately arbiter business as a social system; economic considerations cannot be
viewed in isolation from social considerations, nor can it be viewed in isolation from a value
framework without endangering social values.
4. Economic efficiency is not the only kind of efficiency valued by society. Even if socially
responsive investment leads to reduced investment in technology and implies a restraint on
productivity and slower growth in GNP, it should be possible to derive a national measure of
social welfare parallel to GNP and of balance the two. There is more to the good life than
high and rising GNP, howsoever equitably shared", he says.
5. It needs to be realized that commitment to support socially responsive activities should be
profitable to business in the long run as it would help to maintain a favourable environment
for business, though with some reduction in profits, and, for society, with some traditional
goods and services reduced in supply. Sometimes, doubts are expressed about the
competence of managers to administer socially useful programmes. This cannot be regarded
as a handicap. Managers have responded to the challenge of advancing technology. With
the challenge of corporate social responsibility, there is every reason to expect that managers
will reorient their attitudes and priorities in the area of social performance and develop the
necessary capabilities.
6. In large corporate enterprises, the shareholders have a passive role and are not involved in
most key decisions of the company. Even in directing the activities of company they have a
very limited role. Hence, it may be argued that shareholders cannot expect enterprise to be
run purely in their interest. They should rather be entitled to be the recipients of a stream of
profits as determined by management which, holding a central position, should be
responsible to, and equilibrate the claims of, all stakeholders, viz. the shareholders, the
Global Corporate Social Responsibility
employees, the customers, the local community and the general public. On this premise, it
may be desirable to redefine the corporate concept and accept the position that directors hold
it in trust for the community.
Apart from the arguments put forward by management experts, there have been research
studies reflecting viewpoints of the executives of large US corporations, the large majority
of whom considered assuming social responsibilities to have been positively helpful to the
organisations and expected positive outcomes from social involvement of their firms by way
of corporate reputation or goodwill or strengthening the social systems in which the
corporation functions.
Commitments to social responsibilities have also been emphasized by many large companies
in India. For instance, the Cement Corporation of (CCI) has been to discharge its social
obligations in the areas of integrated rural development schemes and safeguarding of
environmental and ecological balance. The Indian Oil Corporation (IOC) has been
committed to avoid and control environmental pollution, improve the condition of scheduled
castes and scheduled tribes in pursuance of national policies, and to help acceleration of allround development of villages by providing assistance to educated unemployed to earn a
living. The Tata Iron and Steel Company (TISCO) has been in the forefront in this respect.
The company had launched a programme of community development and social welfare as
early as 1949 for the Adivasi population in and around Jamshedpuar. It also launched a rural
development programme in 1979 to raise the living standard in villages within a periphery of
1015- kms from Jamsehdpur. A number of eco-friendly companies have been identified in a
recent study.
These include, besides Tata Steel, other companies like Asian Brown
Bevaries (ABB), Coromondel Fertilizers, Indian Aluminum, Gujarat Ambuja Cements, etc.
5.4
DIMENSIONS OF SOCIAL RESPONSIBILITIES
As emphasised earlier, the responsibilities of managers cannot be limited to the owners only.
They have also to take into account the claims and expectations of other stakeholders and
adopt a balanced approach so as to best serve the community at large. Accordingly, social
responsibilities of business have to be considered with particular reference to its
responsibilities towards owners (shareholders), the employees, the consumers, the
government and the general public. Let us examine the nature of obligation of business
with respect to each of these groups.
Responsibility towards Shareholders (Owners)
The management of an enterprise (company) has the primary responsibility to assure a fair
and reasonable rate of return on capital and fair dividend to the owners (shareholders) as
investors and providers of risk capital. Investors generally expect a rate of return on capital
commensurate with the amount of risk involved in a particular field of activity. The rate of
return on investment in business is expected to be higher than interest on bank deposits and
may vary between 10% and 30%. Besides dividend, the shareholders of companies also
expect appreciation in the value of shares over time. This may be reflected in market
capitalisaton based on company's performance and management's track record. These are
recognized as legitimate expectations, and have to be met in order to ensure continuity and
growth of the business.
Responsibility towards Employees
Global Corporate Social Responsibility
The nature of employer-employee relationship has undergone a sea-change over time. Gone
are the days of master-servant relationship. The new orientation of the relationship is linked
with the major issues of wages and salaries, supervisor-subordinate relationship and
employee welfare. The principles of adequacy, equity and human dignity are expected to be
the basis of management responsibility of providing fair wages to employees. In India,
wage fixation is governed by well-defined concepts of wages, fair wage and living wage.
The lower limit of fair wage is the minimum wage, while its upper limit maybe based on
the capacity of industry to pay, Management responsibility lies in fixing the actual wages
between the two limits with due consideration of (i) productivity of labour, (ii) prevailing
rates of wages in the same or neighbouring areas, (iii) the level of national income and its
distribution, and (iv) the place of the industry in the national economy.
Managerial remuneration including salaries and perquisites is generally linked
responsibility, risk-taking, initiative and skill. In actual practice, the maximum remuneration
depends upon nature and volume of business, productivity, production capacity installed,
etc. Under the Company Law, the maximum remuneration payable is fixed including
salaries and allowances, perquisites and commission, and it is linked with the paid capital
and profitability of the company. The amount payable when there is no profit or inadequate
profit is also laid down.
It is also the responsibility of management to maintain harmonious relationship between
managers and subordinates. This can be taken care of keeping in view the potential lapses on
the part of both management and employees. With regard to worker performance and
attitudes, management responsibility lies in taking the initiative in labour relations rather
than leaving it entirely to the labour union.
Provision of welfare amenities is also an important part of management responsibility
towards employees, like provision of satisfactory working conditions for safety, security,
health and hygiene, facilities, housing, canteen, leave and retirement benefits. Under the
Factories Act, the Employees Statement Insurance Act, 1948, and Employees
Provident
Fund and Miscellaneous Provisions Act, 1952, there are provisions whereby statutory duty is
cast on the employers to provide for many of these amenities. Provision of welfare amenities
cannot be viewed within the narrow limits of legal requirement as, in the long run, it also
enables management to secure and maintain a contented workforce for superior performance
in the interest of the company. For the same reason, management has the responsibility to
assess the training needs of employees and managers at all levels and arrange regular
training programmes for them so that they have the opportunities of developing their
potential abilities.
Responsibility towards Consumers
Competitive strategy of most business firms focuses on consumer satisfaction as the prime
objective. However, in a market economy, product markets are invariably characterized by
oligopoly or happen to be subject to monopolistic competition, while there are traders and
manufacturers who are on the lookout for creating artificial shortages of essential consumer
Global Corporate Social Responsibility
goods. Besides, consumers are quite often victims of misleading advertisements, restrictive
trade practices, unethical and unfair trading, adulteration, sub-standard quality of products,
and deficiency of services. This happens because the market is not an effective arbiter in
those matters. There are a number of legal enactments aimed at protecting the consumer
against malpractices. The Consumer Protection Act, 1986 has provided for a three-tier
quasi judicial machinery for speedy redressal of consumer complaints and grievances. Even
then management of business firms are expected to anticipate the problems of consumers
and assume the responsibility of protecting consumer interests, in the long run interest of the
business itself. It is expected that management should desist from hoarding and profiteering
or creating artificial scarcity as also false and misleading ads. In particular, they are
expected to ensure adequate supply of goods to satisfy the needs of different customer
categories, the goods should be of standard quality and available at reasonable prices.
Customer services are expected to be provided by way of guidance, maintenance and advice.
Responsibility towards the Government
While it is necessary that corporate management in India should contribute to economic
growth by aligning with the national priorities and in conformity with the economic and
social policies of the State, there are several other aspects of the social responsibility of
management towards government. Business affairs should be conducted by companies as
law abiding citizen and taxes and other dues ought to be paid honestly as per rules. More
particularly, management should desist from corrupting public servants or the democratic
process for selfish ends, as also from attempts to buy political support by patronage or money.
activities that have a social impact - the impact of corporate decisions on environmental
pollution, conservation of non-renewable resources, maintenance of public services, public
safety, health and hygiene, education and training and other social concerns. In this context,
there is another term used called 'social responsibility accounting which refers to
identification, measurement, recording and reporting, for internal and external use, the
relevant information relating to the social activities of an enterprise, social accounting is
viewed by many as an independent discipline aimed at measuring and reporting on the
activities of an entity in so far as they affect the society, and is, therefore, defined as the
process of "selecting firm level performance variables, measures and measurement
procedures, and systematically developing information useful for evaluating the firms social
performance to concerned social groups".
benefits at the social discount rate to estimate their social net present value.
Another approach consists of measuring the worth of social investments by estimating the
'market worth' of expected benefits to be derived by the people affected. The assumption
here is that consumer preferences are most significant in the valuation of social goods and
services. For this purpose, a sample survey may have to be conducted to ascertain whether
the social activity is perceived by the affected population as a benefit or cost. The perceived
degree or amount of benefit or cost should then be the basis of calculating, in money terms,
the average unit cost or unit benefit per person.
The total cost and benefit should then be arrived at by multiplying the unit cost or benefit by
the number of persons affected by the social activity,
A third approach which may be adopted for measuring social performance consists of
developing 'social indicators' and measuring on that basis a firm's contribution to the quality
of life in different areas such as socially desirable profit earning, human asset values of the
organization, generating employment for backward and socially handicapped people, rural
upliftment, educational development, environmental improvement, quality of products and
services, etc. The limitations of the 'social indicator' approach are : (a) The indicators may be
selected arbitrarily and are often of a surrogate nature, particularly because there is no
comprehensive basis for selecting the indicators, and (b) Aggregation of contributions made
in different areas is difficult.
The concept of 'social goal accounting and reporting' is the basis of another approach which
does not suffer from the limitation of arbitrary selection of social indicators. It requires the
indicators to be related to the societal goals set by the company. Thus, the management is to
select their 'social market' by reference to their own analysis of the environment, and then
identify those areas of social activity they believe they can contribute effectively by
increasing benefits and reducing costs. The social report will then focus on the objectives of
a specific period, resources allocated, achievements made in the area, and problems, if any,
to be resolved. It may enable management to integrate financial reporting and social
reporting. Economic and social performance may be evaluated internally or externally so
that stakeholders are able to take a balanced view.
However, this approach involves an elaborate time-consuming process.
Yet another approach called 'integral welfare approach' suggests that social reporting be
carried out by way of a social profit and loss account and a social balance sheet. The social
profit and loss account is to include a list of producers' surplus and consumers' surplus as
also the positive and negative external effects of corporate activities and indicate the net
social benefits or net social costs. The social balance sheet, on the other hand, is to include
social assets and social debts. Since 1980, the Cement Corporation of India continues to
publish Social Income Statements with the Annual Reports, The format is more or less on
the lines suggested above. The Social Income Statement is divided into three parts : (i)
Social Benefits and Costs to Staff, (ii) Social Benefits and Costs to Community, and (iii)
Social Benefits and Costs to General Public.
Broadly on the same lines as above, but with a difference, is another approach to social
reporting based on the concept of 'socio-economic operating statement' which focuses on
"what a corporation has done for society on the one hand and what it has failed to do on the
Global Corporate Social Responsibility
other". The socio-economic operating statement should be prepared along with the financial
statements of the company, should include all expenses incurred by the company voluntarily
for social causes, and offset against those expenses the costs of similar social welfare
activities which were brought to the attention of management but which the management
ignored.
5.8 SOCIAL AUDIT
Social audit refers to the process involving a retrospective review of the impact or
contribution of a company to the recognized social dimensions. It may be regarded as a tool
of the socially responsible company and undertaken by itself or an by independent agency
for the purpose of planning, control and accountability for its performance of the corporate
social activities. It may also involve attestation and authentication of the information so as to
reveal in true perspective, with greater accuracy and reliability, the performance details. It
has been pointed out that though social audits have been undertaken in a number of
countries, the subject has not yet attained the status of a science.
According to Clark G. Abt, the well-known exponent of social audit, "social audit, as far as
possible, should be approximated to an ordinary commercial audit". He has argued that
social audit should be based on a social balance sheet with a 'credit' side and a 'debit' side
('inputs' and 'outputs' or 'costs' and 'benefits'). This is because "the basic purpose of a
business corporation is to maximize the financial return earned on its financial investment.
To make rational investment decisions in the social area it is necessary to know what the
social returns are, and if we are to assess then) by the same measures as for financial
investment, these must be expressed in money terms". The concepts of "consumer's surplus"
and "shadow prices" may be used to measure inputs and outputs ('costs' and 'benefits'). If the
social balance sheet is prepared in money terms, the company may be able to invest more
efficiently in the social area on the basis of social audit report, and derive optimum results
by allocating the scarce social and financial resources among competing interests.
However, it is easier said than done. The externalities of social costs and benefits cannot be
amenable for treatment applying the tenets of traditional business accounting.
Like the market economy, business accounting focuses on the world of transactions, while
the problems which social accounting is expected to cover have become problems precisely
because they lie outside the world of transactions. Moreover, application of shadow prices
and consumers surplus may prove to be too costly with respect to social activities, if not
impossible.
It may be worthwhile to note that despite the above problems, social audit was carried out
for the Tata Iron and Steel Company (TISCO) by a Committee appointed in October, 1979
which submitted its report in 1980. The report was prepared following the 'socio economic
operating statement' model, though not exactly on the same lines. The Committee in its
report also pointed out certain inadequacies but observed that the social performance of the
company has been of a high order, and in its magnitude perhaps unparalleled in India.
5.9 SOCIAL RESPONSIBILITIES OF BUSINESS IN INDIA
The issue of social responsibilities of business has been gaining the attention of the business
community in India since early 60s. An international seminar on social responsibilities of
Global Corporate Social Responsibility
business was held in New Delhi in 1965 where a declaration issued at the conclusion of the
seminar defined social responsibility of business as 'responsibilities to customers, workers,
shareholders and the community, and correlated it with Gandhian concept of trusteeship.
Another seminar was held in Kolkatta in 1966 which discussed the social responsibilities of
modern business. It formed a standing committee which set up a special study group
consisting of economists, sociologists, businessmen, representatives of accounting and
management professions, and representatives of chambers of commerce to prepare a set of
business norms for adoption by the business community. The Study Group had suggested
that the business must accept responsibility to the society and its various constituents as a
trustee. Its responsibilities extend beyond the business to the lives of the people and the
community. The businessman, therefore, should promote civic amenities and help create
better living conditions as well as help in making people law abiding, improve the
administration of municipal and industrial affairs, More than that, the businessmen are to set
up socially desirable standards of living for themselves, avoid ostentations, wasteful and
improvident expenditure in weddings, festivities and parties.
The above aspects apart, the social responsibilities of business in India also require
businessmen to give a fair deal to customers in terms of price and quality, ensure availability
of products, and avoid unfair trade practices, profiteering, hoarding, black marketing, etc.
They should not mislead the consumer and the community by untruthful and exaggerated
advertisements. Their responsibility towards employees is also defined scrupulously as to
promote co-operative spirit, provide fair wages and promotion, and pursue a progressive
labour policy. Similarly, their responsibility towards the state has been elaborated with
respect to payment of taxes and against buying political support and corrupting public
servants. The Sachar Committee (1978) which also went into the questions of social
responsibilities of companies observed that the social responsibility of business to the
community can no longer be scoffed at and that its acceptance must be reflected in the
disclosure of all information for the stakeholders. But more importantly, the business houses
are to contribute towards environmental protection, conservation of scare natural resources,
abatement of pollution, rural development and employment generation, and annex a social
report to director's report which should indicate and quantity in the responsibility aspects
which have been carried out by the company during the period. In fact, some companies, as
pointed out earlier, have already started including such information in their annual reports.
Let us, for example, look at the contributions of Asian paints, Glaxo Smith kline Pharma and
Satyam Computer Services based on their disclosures in their annual reports.
Asian Paints : It approaches corporate social responsibility from the perspective of being a
responsible corporate citizen. There has been a continuous effort to take up initiatives in
various quarters and ensure sufficient resources for the sustenance and continuity of the
same. The company has identified projects across all its manufacturing locations in the
country primarily in the areas of education, healthcare, and rain harvesting.
Glaxo SmithKline Pliarma : Corporate social responsibility continues to be an integral part
of GSK's business. It makes a contribution to society through medicine donations,
conducting healthcare awareness programmes and community development. The uniqueness
Global Corporate Social Responsibility
of GSKs social initiatives lies in the development of self-reliance by tackling issues through
the involvement of the beneficiaries themselves. While selecting projects, priority is given to
those which contribute to healthcare, especially of women and children. New initiatives in
the field of education are an area of focus.
Satyam Computer Services : It has set up Satyam Foundation as company's arm to fulfill its
responsibility to society at large and serve the underprivileged in the urban area.
Headquartered in Hyderabad, the Foundation provides services in the areas of education,
healthcare livelihoods, environment, rehabilitation of destitute and alms seekers, AIDS
awareness, slum development and emergency /trauma care. Satyam Foundation is an
inclusive organisation working with governments, other NGOs and academic institutions.
It will not be out of place to also make a mention of ITC initiative in transforming the Indian
farmer into a progressive knowledge seeking citizen and linking him to consumers in local
and global markets through its e-choupal movement started in the year 2000 which has
covered 10,000 villages in 4 states so Far and keeps on adding five villages every day. In
addition, ITC has initiated programmes in the areas of social and farmer forestry, integrated
watershed development, economic empowerment of women, primary education, and EHS
efforts encompassing employee safety, energy and water conservation, and reduction in
GHG emissions. These initiatives are quite encouraging and establish the growing awareness
among Indian business units in respect of their social responsibilities and reporting their
contribution.
5.10 Summary
Social responsibility of business refers to the obligation of business enterprises to decide on
policies and plans of action in the social interest and for social good. It was realised that
economic considerations could not be viewed in isolation from social considerations and it
became necessary to assume responsibilities commensurate with the social power wielded
by the corporate enterprises.
Modern writers have put forward the case for social responsibilities of businesses on several
grounds. Besides, there have been research studies reflecting the viewpoints of corporate
executives that assuming social responsibilities have been positively helpful to organizations
and they expected positive outcomes from social involvement.
In the nature of things, social responsibilities of business have to be considered with
particular reference to responsibilities towards shareholders (owners), employees,
consumers, the Government, community and public at large.
Over the years, public opinion has been increasingly in favour of socially responsive
corporate management reporting their performance in the area of social activity for internal
and external use. In India, as in the US, social reporting as an integral part of director's
report is practiced by some companies, and the same is expected to grow in due course.
Social accounting is the systematic assessment and reporting on those aspects of a
company's activities that have a social impact. There are several approaches to the
assessment and reporting of the impact of social activities, viz., (i) valuation of social costs
and social benefits; (ii) measuring the worth of social investments by estimating the 'market
worth' of expected benefits to be derived by people; (iii) 'social indicators' approach; (iv)
Global Corporate Social Responsibility
social goal accounting and reporting; (v) preparing a social profit and loss account and a
social balance sheet; and (vi) socio-economic operating statement.
Social audit refers to the process involving a retrospective review of the impact and
contribution of a company to the recognized social dimensions. According to Abt, it should
be carried out, as far as possible, on the same lines as the commercial audit. This is so
because to make rational investment decisions in the social area, it is necessary to know
what the social returns are.
5.11 KEY WORDS
Power-Responsibility Equation : Balancing responsibility with power.
Shadow Price : Shadow price of an input is the value of the input to the firm as opposed to
the market price which is paid for it.
Social Accounting : A systematic assessment and reporting on those aspects of company's
activities that have a social impact.
Social Audit : Review of the impact and contribution of a company to recognised social
dimensions.
Social Balance Sheet : It presents the social assets like organization, research, taxes paid,
and the social liabilities employee commitments, organizational liabilities, environmental
degradation, and consumption of pubic services paid for by taxes, the net of the two being
society's equity.
Social Discount Rate : The consumption rate of interest, i.e., the rate of interest to be
offered to an investor so as to induce him to forego an additional unit of present
consumption. Alternatively, it could be the rate at which the value of savings decline over
time.
Social Income Statement : It is an annual statement in which social benefits to employees,
community, consumers and the general public are added, and social costs to each
constituency are subtracted, in order to determine a net social income for the year.
Social Responsibility: Obligation to meet social needs.
3.
a)
b)
c)
d)
4.
Social accounting is:
a)
the systematic assessment
that have a political impact
b)
the systematic assessment
that have an economic impact
c)
the systematic assessment
that have a technical impact
d)
the systematic assessment
that have a social impact
5.
a)
b)
c)
d)
6.
a)
b)
c)
d)
7.
a)
b)
c)
d)
8.
Social audit refers to
a)
the process involving a retrospective review of the impact
company to the recognized political dimensions
b)
the process involving a retrospective review of the impact
company to the recognized technical dimensions
c)
the process involving a review of the impact of a company to
dimensions
d)
the process involving a retrospective review of the impact
company to the recognized economic dimensions
or contribution of a
or contribution of a
the recognized social
or contribution of a
9.
a)
b)
c)
d)
10.
Shadow price is
a)
b)
c)
d)
the value of the input to the firm as opposed to the market price which is paid for it.
the value of the output to the firm as opposed to the market price which is paid for it.
the value of the input to the firm same as the market price which is paid for it.
the value of the output to the firm same as the market price which is paid for it.
CHAPTER 6
ETHICS AND VALUES
Objectives
After reading this unit you should be able to:
explain the meaning of business ethics;
understand the concept and scope of business ethics;
understand ethics and its relation to different stakeholders;
build the case for ethics in business and new dimensions in the changing
business paradigm;
discuss on ethics in market place and organizations external and internal
exchanges
debate towards the objections to bringing ethics into business
Structure
6.1 Introduction
6.2 Concept of Business Ethics
6.3 Scope of Ethics
6.4 Stakeholders and Ethics
6.5 Business and Ethics
6.6 Business Ethics and External Environment
6.7 Business Ethics and Internal Environment
6.8 Ethics and Business : Objections
6.9 Summary
6.1 INTRODUCTION
Every business has an ethical duty to each of its associates namely, owners or stockholders,
employees, customers, suppliers and the community at large. Each of these affect
organization and is affected by it. Each is a stakeholder in the enterprise with certain
expectations as to what the enterprise should do and how it should do it.
Business ethics is applied ethics. It is the application of our understanding of what is good
and right to that assortments of institutions, technologies, transactions, activities and pursuits
that we call business. Ethical behaviour is the best long term business strategy for company ,
however this does not mean that occasions may never arise when doing what is ethical will
prove costly to a company nor does it mean that ethical behaviour is always rewarded or that
unethical behaviour is always punished.
On the contrary, unethical behaviour sometimes pay off and the good sometimes lose.
Strategy means merely that over the long run and for most of the part, ethical behaviour can
give a company significant competitive advantages over companies that are not ethical.
which they operate. The questions that arise are for example, whether it is ethical for a
brewer of beer to advertise its products on TV, at slots when these ads are likely to be seen
by underage viewers or not? A companys community citizenship is ultimately demonstrated
by whether it refrains from acting in a manner contrary to the well being of society and by
the degree to which it supports community activities, encourages employees to participate in
community activities, handles the health and safety aspects of its operations, accepts
responsibility for overcoming environmental pollution, relates to regulatory bodies and
employee unions and exhibits high ethical standards.
6.5 BUSINESS AND ETHICS
One way to argue that ethics should be brought into business is simply by pointing out that,
ethics should govern all voluntary human activities and because business is a voluntary
human activity. The other way of looking at it is that business is a cooperative activity
whose very existence requires ethical behaviour. For example, any individual business will
collapse if all of its managers, employees and customers come to think that it is morally
permissible to steal from, lie to, or break their agreements with the company. Because no
business can exist entirely without ethics, the pursuit of business requires at least a minimal
adherence to ethics on the part of those involved in business.
Second, all businesses require a stable society to carry on their business dealings and the
stability of any society requires that its members adhere to some minimal standards of ethics.
Another persuasive way to argue that ethics should be brought into business is by showing
that ethical considerations are consistent with business pursuits in particular the pursuits of
profit. As we understand, TATA is renowned for its long standing ethical culture and yet it
is one of the most spectacularly profitable companies of all time.
The Changing Business Paradigm and Ethical Dilemmas
Most of the big corporate houses operate globally and maintain manufacturing, marketing,
service or administrative operations in many different host countries. With a worldwide
presence, these corporations draw capital, raw materials and human labour from wherever in
the world they are cheap, skilled and available, and assemble and market their products in
whatever nations offer manufacturing advantages and open markets. The fact that these
corporations operate in more than one country produces ethical dilemmas for their managers
than the managers of firms limited to a single country.
The reason to this is that the corporations have operations in more than one country, and the
ability to shift their operations out of any country that becomes inhospitable and relocate in
another country that offers it cheaper labour, less stringent laws or more favourable
treatment. This ability to shift the operations sometimes enables the multinationals to escape
the social controls that a single nation might attempt to impose on the multinational and can
allow the corporation to play one country against another. Environmental laws for example
which can ensure that domestic companies operate in responsible manner that a country
deems right for its people, may not be effective constraints on a corporation that can simply
move or threaten to move to a country without such laws. The managers therefore are
confronted with the dilemma of choosing between the economic needs and interests of their
business, on the one hand and the local needs and interests of their host country on the other
Global Corporate Social Responsibility
hand. Another set of dilemmas is created since corporations operate plants in several
countries, it can sometimes transfer raw materials, goods and capital among its plants in
different countries at terms that enable it to escape taxes and fiscal obligations that
companies limited to a single nation must bear. Yet another group of dilemmas is faced by
multinationals because they operate in several countries they often have the opportunity to
transfer a new technology or set of products from a developed country into nations that are
less developed. The multinational wants to carry out the transfer of course because it
perceives an opportunity for profit and the host country wants and allows the transfer
because it perceives these technologies and products as key to its own development.
However, the transfer of technologies and products into a developing country can create
risks when the country is not ready to assimilate them.
Ethics in Market Place
Free markets are justified because they allocate resources and distribute commodities in
ways that are just, that maximize the economic utility of societys members and that respect
the freedom of choice of both buyers and sellers. These moral aspects of a market system
depend crucially on the competitive nature of the system. If firms join together and use their
combined power to fix prices, drive out competitors with unfair practices or earn
monopolistic profits at the expense of consumers, the market ceases to be competitive and
the results are injustice, a decline in social utility and a restriction of peoples freedom of
choice.
In a perfectly competitive free market conditions forces drive buyers and sellers towards the
so called point of equilibrium. In doing so they achieve three major moral values:
i) They lead buyers and sellers to exchange their goods in a way that is just,
ii) They maximize the utility of buyers and sellers by leading them to allocate, use and
distribute their goods with perfect efficiency, and
iii) they bring about these achievements in a way that respects buyers and sellers right of
consent.
Fairness is getting paid fully in return for what one contributes and it is this form of justice
that is achieved in perfectly competitive free markets. Perfectly competitive markets embody
capitalist justice because such markets necessarily converge on equilibrium point and the
equilibrium point is the one point at which buyers and sellers on an average receive the
value of what they contribute.
In a monopoly market situation, however conditions change as compared to perfectly
competitive market conditions particularly with respect to the number of buyers and sellers
and also the entry is not so easy. Unregulated monopoly markets fall short of the values of
capitalist justice and economic efficiency. The high prices the seller forces on a buyer in a
monopoly situation are unjust and these unjustly high prices are the source of the sellers,
excess profits. The high profits in a monopoly market indicate a shortage of goods. Other
firms are blocked entering the market, their resources cannot be used to make up the
shortages indicated by the high profits. Thus monopoly market results in a decline in the
efficiency with which it allocates and distributes goods.
Oligopoly markets which are dominated by a few large firms are said to be highly
concentrated i.e. there are relatively small number of firms. It is relatively easy for the
managers of these firms to join forces and act as a unit. By explicitly or implicitly agreeing
to set their prices at the same levels and to restrict their output accordingly , the oligopolist
can function like a single giant firm. This uniting of force together can create barriers to
entry and result in the same high prices and low supply levels that are characteristics of a
monopoly markets. As a consequence oligopoly market, like monopolies can generate a
decline in social utility and can fail to respect basic economic freedom.
6.6 BUSINESS ETHICS AND EXTERNAL ENVIRONMENT
The process of producing goods forces businesses to engage in exchanges and interactions
with two main external environments the natural environment and a consumer
environment. Here you will understand the ethical issues raised by these exchanges and
interactions. The two basic problems related to the natural environment are pollution and
resource depleting. Several consumer issues, including product quality and advertising are
the probables related to consumer environment.
The External Environment
For centuries, business institutions were able to ignore their impact on the natural
environment, an indulgence created by a number of causes. First business was able to treat
air and water as free goods. However in todays context unless business recognize the
interrelationships and interdependencies of the ecological systems within which they operate
and unless they ensure that their activities will not seriously injure these systems we can not
hope to deal with the problem of pollution.
Environmental issues raise large and complicated ethical and technological questions for our
business society. What is the extent of the environmental damage produced by present and
projected industrial technology? How large a threat does this damage pose to our welfare?
What values we must give up to halt or slow such damage? Whose rights are violated by
pollution and who should be responsible of paying for the costs of polluting the
environment? How long will our natural resources last ? What obligations do firms have to
future generations to preserve the environment and conserve our resources?
Economists often distinguish between what it costs a manufacturer to make a product and
what the manufacturer of that product costs as a whole when a firm pollutes its environment
in any way, the firms private costs are always less than the total social costs involved. This
is a problem because when the private costs diverge from the social costs involved in its
manufacture, markets no longer price commodities accurately. Consequently they no longer
allocate resources efficiently. As a result the welfare of society declines. The remedy for the
external costs is to ensure that the costs of pollution are internalized that is they are
absorbed by the producer and take into account when determining the price of goods. In this
way goods will be accurately priced, market forces will provide the incentives that will
encourage producers to minimize external costs and some consumers will no longer end up
paying more than others for the same commodities.
communication technologies have given us the power to collect, manipulate and disseminate
personal information about consumers on a scale unprecedented in the history of the human
race. This new power over the collection, manipulation and dissemination of personal
information has enabled mass invasions in the privacy of consumers and has created the
potential for significant harms arising from mistaken or false information.
The purpose of rights is to enable the individual to pursue his or her significant interests and
to protect these interests from the intrusion of other individuals. It is also important because
it has several enabling functions. Privacy enables certain professional relationships to exist.
In so far as the relationships between doctor and patient, lawyer and client, and psychiatrist
and patient all require trust and confidentiality, they could not exist without privacy. It is
clear then that our interest in privacy is important enough to recognize it as a right that all
people have, including consumers. However this right must be balanced against the rights
and legitimate needs of others. For example, consumers benefit from having life insurance
available to them. However there are significant consumer benefits that businesses can
provide but they can provide only if there exists agencies that can collect information about
individuals and make that information available to businesses. Thus consumers rights to
privacy have to be balanced with these legitimate needs of businesses.
6.7 BUSINESS ETHICS AND INTERNAL ENVIRONMENT
The Internal Environment
The process of producing goods forces businesses not only to engage in external exchanges,
but also to coordinate the activities of the various internal constituencies that must be
brought together and organized into the processes of production. Employees must be hired
and organized, stockholders and creditors must be solicited and managerial talent must be
tapped. Inevitably conflicts arise within and between these internal constituencies as they
interact with each other and as they seek to distribute benefits among themselves. The
ethical issues raised by these internal conflicts fall into two broad areas of job discrimination
and the issue of conflicts between the individual and the organization. Although many more
women and minorities are entering formerly male-dominated jobs, they still face problems
that they would characterize as forms of discrimination. Experiences suggest that sexual
discrimination and racial discrimination are alive and they do create flutters in the
society. Regardless of the problems inherent in some of the arguments against
discrimination, it is clear that there are strong reasons for holding that discrimination is
wrong. It is consequently understandable that the law has gradually been changed to
conform to these moral requirements and that there has been a growing recognition of the
various ways in which discrimination in employment occurs. Among the practices now
widely recognized as discriminatory, few of them are recruitment practices, screening
practices, promotion practices and conditions of employment. Women as noted earlier are
victims of a particularly troublesome kind of discrimination that is both overt and coercive.
They are subject to sexual harassment. Many businesses are aware of these trends and have
undertaken programmes now to respond to the special needs of women and minorities.
However it should be clear in view of the future demographic trends that enlightened self
interest should also prompt business to give women and minorities a special hand. It is for
Global Corporate Social Responsibility
these reasons that companies have instituted aggressive affirmative programmes aimed at
integrating large groups of minorities into their firms where they are provided with
education, job training, skills, counseling and other ssistance designed to enable them to
assimilate into workforce.
The employees main moral duty is to work toward the goals of the firm and avoid any
activities that might harm those goals. To be unethical, basically is to deviate from these
goals to serve ones own interest in ways that if illegal are counted as form of white collar
crime. There are several ways in which the employee might fail to live up to the duty to
pursue the goals of the firm. The employee might act on a conflict of interest, the
employee might steal from the firm or the employee might use his or her position as a
leverage to force illicit benefits out of others through extortion or commercial bribery.
The ethical issue of misusing proprietary information has become much more prominent in
the last decade as new information technologies have increasingly turned information into
a valuable asset to which employees have regular access. As information technologies
continue to develop, this issue will continue to grow in importance. Insider trading is also
unethical not merely because it is illegal but because it is claimed, the person who trades
or insider information in effect steals this information and thereby gains as unjust or unfair
advantage over the member of the general public.
In the course of performing a job an employee may discover that a corporation is doing
something that he or she believes is injurious to society. Indeed individuals inside a
corporation are usually the first to learn that the corporation is marketing unsafe products,
polluting the environment , suppressing health information or violating the law. Employees
with a sense of moral responsibility who find their company is injuring society in some way
will normally feel an obligation to get the company to stop its harmful activities and
consequently will often bring the matter to the attention of their superiors. Unfortunately if
the internal management of the company refuses to do anything about the matter , the
employee today has few other legal option available. In the absence of legal protections of
the employees right to freedom of conscience the practice of whistle blowing is discussed
and debated.
Whistle blowing is an attempt by a member or former member of an organization to disclose
wrongdoing in or by the organization. It can be internal or external. If the wrongdoing is
reported only to those higher in the organization it is internal whistle blowing. When the
wrongdoing is reported to external individuals or bodies such as government agencies,
newspapers or public interest groups, the whistle blowing is said to be external.
However it is for the ethical judgment to decide whether external whistle blowing is wrong
because employees have a contractual duty to be loyal to their employer and to keep all
aspects of the business confidential. When an employee accepts a job, the argument goes,
the employee implicitly agrees to keep all aspects of the business confidential and to single
mindedly pursue the best interests of the employer. The whistleblower violates this
agreement and thereby violates the rights of his or her
employer.
The last point to be mentioned here is the ethics of political tactics in organizations. Political
behaviour in an organization can easily become abusive. Political tactics can be used to
Global Corporate Social Responsibility
advance private interests at the expense of organizational and group interests, they can be
manipulative and deceptive and they can seriously injure those who have little or no political
power or expertise. However political tactics can also put at the service of organizational and
social goals, they may sometimes be necessary to protect the powerless and they are
sometimes the only defense a person has against the manipulative and deceptive tactics of
others. The dilemma for the individual in an organization is knowing where the line lies that
separates morally legitimate and necessary political tactics from those that are unethical.
6.8 ETHICS AND BUSINESS : OBJECTIONS
People taking objections to bringing ethics into business argue that persons involved in
business should single mindedly pursue the financial interests of their firm and not side track
their energies or their firms resources into doing good works. Some argue that in perfectly
competitive free markets the pursuit of profit will by itself ensure that the members of
society are served in the most socially beneficial ways. However what experts like Manuel G
Velasquez argue is that often assumptions behind this argument like perfectly competitive
market situation do not exist.
Another argument is that business managers should single-mindedly pursue theinterests of
their firms and should ignore ethical considerations.
This argument finds its basis in loyal agents argument, which suggests that a manager
engaged in certain illegal or unethical conduct be excused because he did it not for himself
but to protect the interests of his company. However again the assumptions behind this
argument can be questioned on several grounds. The third kind of objection is that to be
ethical it is enough for business people merely to obey the law. Business ethics is essentially
obeying law. It is wrong however to see law and ethics as identical. It is true that some laws
require behaviour that is same as the behaviour required by our moral standards. However
law and morality do not always coincide. Some laws have nothing to do with morality
because they do not involve serious matters. These include dress codes, parking laws and
other laws covering similar matters.
Beyond these arguments for and against the role of ethics in business, discussions happen
whether ethical companies are more profitable than unethical ones. There are many different
ways of defining ethical, many different ways of measuring profits and the findings of
different studies remain inconclusive. However studies do suggest that by and large ethics
do not detract from profit and seems to contribute to profits.
6.9 SUMMARY
Business ethics is applied ethics. It is the application of our understanding of what is good
and right to those assortments of institutions, technologies, transactions, activities and
pursuits that we call business. Corporate issues in business ethics are ethical questions raised
about a particular company. These include questions about the morality of the activities,
policies, practices or organizational structure of an individual company taken as a whole.
Free markets are justified from ethical point of view because they allocate resources and
distribute commodities in ways that are just, that maximize the economic utility of societys
members and that respect the freedom of choice of both buyers and sellers.
Global Corporate Social Responsibility
The duty to the customer arises out of expectations that attend the purchase of a good or
services. The questions which are discussed often are, should a seller voluntarily inform
consumers that its products contain ingredients that though officially approved for use are
suspected of having potentially harmful effect? The dilemma which arises is where does the
consumers duty to protect his or her own interests end and where does the manufacturers
duty to protect consumers interest begin?
The process of producing goods forces businesses not only to engage in external exchanges,
but also to coordinate the activities of the various internal constituencies that must be
brought together and organized into the processes of production. On the other hand, the
employees main moral duty is to work toward the goals of the firm and avoid any activities
that might harm those goals. To be unethical, basically is understood as to deviate from these
goals to serve ones own interest in ways that if illegal are counted as form of white collar
crime. Nevertheless with the emergence of concepts like whistle blowing employees with a
sense of moral responsibility who find their company is injuring society in some way find an
opportunity in stopping the company from its harmful activities.
2.
a)
b)
c)
d)
Ethics investigate
birth
life
morality
politics
3.
a)
or evil
b)
c)
d)
4.
a)
b)
c)
d)
5.
a)
b)
c)
d)
6.
Systemic issues in business ethics are
a)
ethical questions raised about a particular company
b)
ethical questions raised about the economic, political, legal and other social systems
within which business operates
c)
ethical questions raised about a particular individual or particular individuals within a
company
d)
All of the above
7.
a)
b)
9.
a)
b)
c)
d)
10.
a)
goals
b)
goals
c)
goals
d)
goals
to work toward the personal goals and avoid any activities that might harm those
to work toward the personal goals and invite any activities that might harm those
to work toward the goals of the firm and avoid any activities that might harm those
to work toward the goals of the firm and invite any activities that might harm those
CHAPTER 7
CORPORATE GOVERNANCE AND CORPORATE SOCIAL
RESPONSIBILITY
Objectives
After reading the unit you should be able to:
Understand the meaning & scope of Corporate Governance, Social Responsibility &
Scope of Social Audit of PEs;
Appreciate the need and importance of Corporate Governance of Social Responsibility in
the changes Scenario; and
Discuss the Social Responsibility in PEs.
Structure
7.1
7.2
7.3
7.4
7.5
Social AuditIntroduction
7.6
7.7
7.8
7.9
Summary
7.1
its importance for the economic health of corporation and the welfare of society, in general.
However, the concept of corporate governance is defined in several ways because it
potentially covers the entire gamut of activities having direct or indirect influence on the
financial health of the corporate entities. As a result, different people have come up with
different definition, which basically reflect their special interests in the field. The best way to
define the concept is perhaps to list a few of the different definitions rather than mentioning
just one or two.
Definitions
Adolf Berle has defined social responsibility as the managers responsiveness to public
consensus
(www.bharatpetroleum.com).
Koontz and ODonnell have given the definition of social responsibility thus: The personal
obligation of the people as they act in their own interests to assure that the rights and
legitimate interests of others are not infringed
(Hindu business line, 1998).
Corporate Governance can be defined as a systematic process by which companies are
directed and controlled to enhance their wealth generating capacity. Since large corporations
employ vast quantum of societal resources, we believe that the governance process should
ensure that these companies are managed in a manner that meets stakeholders aspirations
and societal expectations.
(Chartered Secretary, Oct, 1997).
7.2
Board meetings should be held at least four times in a year with a maximum time gap of
four months between any two meetings.
The Board should set up a remuneration committee to determine the companys policy
on specific remuneration packages for executive directors.
A management discussion and analysis report should form part of the annual report to the
shareholders covering industry structure, opportunities and threats, segment wise or
product wise performance, outlook, and risks.
Companies should arrange to obtain certificates from their auditors regarding compliance
of corporate governance provisions and the certificates should be sent to stock
exchanges and all the shareholders.
As mentioned, these recommendations were incorporated in the listing agreement (Clause
49) and were sought to be implemented within a time frame of three years. Later, these
recommendations got statutory recognition when they were introduced a provisions in the
Companies (Amendment) Act, 2000.
Naresh Chandra Committee (2002)
Following the Enron fiasco and subsequent enactment of Sarbanes-Oxley Act in the US,
Government of India [Department of Company Affairs (DCA)] had set up another
committee to study corporate governance. This committee was formed under the
Global Corporate Social Responsibility
A close look at the amendments proposed in the Companies (Amendment) Bill, 2003
reveals that the changes proposed are based upon the recommendations of Naresh
Chandra Committee and Narayana Murthy Committee.
Hopefully, these recommendations when accepted in true spirit, should raise the standards of
corporate governance in Indian firms and make them attractive for domestic and global
capital and should form as base for further evolution of structure of corporate governance.
7.3
Public sector enterprises are generally autonomous bodies which are owned and managed
by the government and which provide goods or services for a price. The ownership of the
government extends to 51 percent, or more, in order to make it a public enterprise/entity.
Public enterprises are considered as important instruments for self-reliant economic growth.
They also help speed up economic growth, provide the required infrastructure, act as tools to
achieve various social objectives like better distribution of income, expansion of employees
employment opportunities, removal of regional imbalances, reducing concentration etc. From
a paltry Rs. 29 crore in 195152, with 29 PEs the investment in the central public sector went
up to well over Rs. 6,00,000 crores by 2000 with 240 PEs.
Public enterprises have been organized in many ways as distinct autonomous units, with
varying degrees of legal and operational independence. Where an autonomous legal entity is
established by an Act of Parliament or legislature, it is called public corporation or
statutory corporation. These are the principally chosen as instruments for the management
of nationalized industries. The other popular method followed is forming government
companies under the provisions of the Companies Act, 1956 (Sec. 617), in which not less
than 51 percent of the paid-up share capital he held by the central or the state governments,
or jointly by the central and state governments. A subsidiary of a government company is
also a government company.
The Board of Directors is the top management organ, and is responsible for implementing
the objectives of an enterprise. The board members are nominated by the shareholders, i.e.,
government. Under the normal pattern, it includes the Chairman-cum-Managing Director,
one or more full-time functional directors, officials representing and administrative ministry
of finance, and sometimes one or two other relate ministries, and lastly, one or two nonofficials, selected for their expertise and business experience. Under the trusteeship and
entrepreneurial functions concept, the board looks after its various categories of functions
establishment of basic policies including corporate strategies, decisions on major financial
matters, selection of key personnel, receiving working reports and, reviewing and passing
judgment upon them.
Global Corporate Social Responsibility
The functioning of PE boards has been subjected to criticism on various grounds. The
various practices followed, it is complained, do not facilitate the emergence of an
autonomous enterprise management with initiative and operating effectiveness, and yet be
responsible and responsive to the government guidelines and policies. The 40th Report of the
Committee on Public Undertaking (73-74) regretted that the performance of public
undertakings continues to be judged by a variety of vague objects and considerations. It
recommended government presenting a white paper which can set out the framework of
governments general, economic, financial and social strategy for public sector undertakings,
micro-objects both financial and economic of each public undertaking and their review,
and also qualification of their social objectives and obligations and the issue of government
directives in appropriate cases. The nomination of government officials, according to
experience, has also to be termed as superfluous and non-functional. The enterprises are also
facing problems as the government is not strictly adhering to the policy that all heads of
public enterprises will have a five-year tenure. This was accepted to improve the efficiency
of top management.
Obligation to the Public Sector Enterprise
a) The role of the executives is to assist the PSE to achieve its objectives as spelt out in
the charter constituting the setting up of the enterprise.
b) It is the obligation of every employee of the public sector administrative ministry to
uphold the Rule of Law and respect for human rights solely in the public interest while
making recommendations or exercising administrative authority. He or she must maintain the
highest standards of probity and integrity.
c) In relation to the general public, the employees in the PSE and administrative ministries
should conduct themselves in such a manner that the public feels that the decisions taken or
the recommendations made by them are objective and transparent and are not calculated to
promote improper gains for the political party in power or for themselves or for any third
party. This would be particularly significant so far as the customers of the public service are
concerned. This will apply also mutatis mutandis to the employee in the administrative
ministry concerned with the PSE.
d) Employees of the PSEs/administrative ministries should not seek to frustrate or
undermine the policies, decisions and action taken in the public interest by the management
decision. Where following the instruction of the superior authority would appear to conflict
with the exercise of impartial professional judgment or affect the efficient working of the
enterprises, he/she should set out points of disagreement clearly in writing to the superior
authority or seek explicit written instruction. This will apply also mutatis mutandis to the
employee in the administrative ministry concerned with the PSE.
Global Corporate Social Responsibility
e) Where an employee of the PSE has reasonable ground to believe that he or she is being
required by the superior authority to act in a manner which is illegal or against the prescribed
rules and regulations or if any legal infringement comes to his or her notice, he or she should
decline to implement the instruction, and would also have a right to bring the facts to the
notice of the Chairman / Managing Director of the enterprise or the Secretary of the
Administrative Ministry / the Cabinet Secretary to examine the issue carefully to concerned
employees in the administrative ministry.
Accountability and Responsiveness to the Public
a) Consistent with accountability to the superior officers and the ministers in accordance
with provisions governing PSE/administrative ministry, the employees in the public sector
should practice accountability to the people in terms of quality of service, timeliness,
courtesy, people orientation on readiness to encourage participation of and form partnership
with citizen groups, for responsive management.
b) Employees in the PSE/administrative ministry should be consistent, equitable and honest
in their treatment of the members of the public, with particular care for the weaker section of
society and should not even be or appear to be unfair or discriminatory. Decision in pursuit
of discretionary powers should be justifiable on the basis of non arbitrary and objective
criteria.
c) Employees in the PSE/administrative ministry should accept the obligation to recognize
and enforce customers right for speedy redressal of grievance and commit themselves to
provide services of declared quality and standard to customers.
d) Employment in the PSE/administrative ministry should respect the right of public to
information on all activities and transactions of the organizations except where they are
debarred in the public interest from releasing information by provisions of law or by valid
instructions.
Concern for Value of Public Assets and Funds
The employees in the PSE/administrative ministry should avoid wastage and extravagance
and ensure effective and efficient use of the public money within their control.
Public Accountability
For accountability in the case of central government enterprises, the appropriate legislature is
Parliament, and for state-owned enterprises, the respective state assemblies. The principle
followed here is, as Mr Appleby observes: Parliament performs quite admirably when it
debates the important questions of Policy. The wisdom of non individual is substitute for the
general wisdom of society, and the general judgment of society is more closely approximated
by a representative legislature than by any other entity.
PEs come in for parliamentary consideration through debates, short discussion, questions,
Committee on Pubic Undertakings, and also public inquiry recommendations made by COPU.
The feeling is that MPs are mostly interested in raising issues of topical nature and those
effecting their constituency / state and do not raise critical issues, such as the governments
failure to fulfil promises made in various policy statements, eg., Policy Statement of July
1991. The COPU examines the reports and accounts of PEs, examines the Management
Review and Responsibility
frequent and numerous. Quite often the appointment process gets bogged down because of
complaints with regard to integrity of the candidates being considered for the PEs boards.
There are also instances of spurious complaints lodged by competing candidates, thereby
necessitating vigilance inquiries. In many instances it is a hurdle race especially for
competent and clean candidates, who often prefer to remain out of the race if they attack
higher value to enjoying peace of mind.
7.3
The growth of large corporations with their professional managers has changed the nature of
society through its effect on competitive forces and the ownership of private property. With
their increases power in society, they are forced to concern themselves with the nature of
social responsibilities. Management must take decisions involving moral issues and must
adapt itself to the social forces that affect it. The idea of social responsibility of business is
based upon the concept that business is something more than a purely economic institution.
Public Enterprises operates within the precincts of the society. While its immediate society,
where it operates, provides its environment, material, manpower, market etc. the whole
global society provides for its global corporate citizenship and ensures its facilities in terms of
environment, market, perspectives, exposure to technology and integration with priorities in
the business scenario. The social responsibility of Public Enterprises consists of its
responsibility to its consumers and customers, its prospects, its immediate society
(community), its human resources (people), its society at large, ecological environment, the
Government, and its business environment. Social responsibility of business is not new to our
country. In the olden days, whenever there was a famine, the leading businessmen of the area
would literally throw open their godowns and their treasure chests to provide food and other
assistance to the needy. The history of every region of this country is replete with stories of
the magnificent manner in which businessmen rose to the occasion in times of calamity. Even
in ordinary times, it was the businessmen who looked after the welfare of the destitute, the
goshalas, wells and ponds wherever what was difficult to get, the pathashalas and so on. So
to accept social responsibility is no more than rededicating ourselves to the cherished values
in the field of business. Gandhiji reminded of these values when he propounded the theory of
trusteeship. India is a democratic welfare state. She wants to achieve welfare through
democratic means. Business organization, which fit in with such a specification, would have
a better scope to survive and grow here. In order to make them suitable for such a business
environment, they should foster a corporate objective of maximizing social benefit. This
must be considered as the social responsibility of business. It pertinently means that every
business enterprise has a responsibility to take care of the societys interest.
Though the fundamental purpose of Public Enterprises is to produce and distribute goods and
services in such a manner that income exceeds costs, society expects that business is
conducted in a socially responsible manner. Social responsibility embraces multitude of
Global Corporate Social Responsibility
internal and external relationships of the firm. Business enterprises, conscious of their social
responsibility, would seek to comply with the laws concerned with employment of women,
non-discrimination in employment, ecological effects of production, consumers, and
employee welfare, and in general they would think of the impact their action on the
community.
Social and ethical aspects of business impinge upon the choice of strategy. How societal
values and expectations after business and how a firm perceives its social and ethical
obligations are interactive in character and both of these may become constraints in strategy
formation. That how consumerism, occupational health and safety, product safety, concern for
environmental protection, nutritional issues, beliefs about ethics and morals and other for
environmental protection, nutritional issues, beliefs about ethics and morals and other similar
societal based factors impact upon the strategies have to accommodate these factors. Some
instances can be cited. Most of the Public and Private Enterprises adopted the villages for
development. Most of the Enterprises launched awareness camps about AIDS. Cigarette
manufacturers have reduced the tar and nicotine content of cigarettes. Food processors have
altered the use of preservatives in food products and have begun to promote nutritional
content and natural flavours.
The lending institutions have given up their overly concern with safety or security of money
advanced and are now more concentrating on the competence of the entrepreneurs and
commercial viability of the project. All these instances demonstrate how business has
adapted itself to changing social values and expectations.
Running the enterprise in a socially responsible manner implies that the activities of the
organizational are in tune with what is generally perceived as in the public interest. It also
implies that the firm responds positively to emerging societal priorities and balances the
interests of its various stakeholders. Further, it realizes the importance of being good
citizen in the community and makes social and ethical obligations an explicit and high
priority consideration in conducting its affairs.
Being socially responsible has a positive appeal. The organization improves its standing in
the public, which has the effect of enhancing its own performance opportunities. If the firms
ignore the changing priorities and expectations of society, the result could be greater public
criticism and more onerous regulation by government.
Concern for social responsibility has led to the development of (more or less) formal
procedures to monitor corporate compliance with changing demands. One such procedure is
social audit. It is also common knowledge these days that business has attempted through
advertising and public relations activity to explain and accentuate its consistency with various
social objectives. Recognition of the need for social responsibility has also led several large
enterprises to make intentional efforts to increase their sensitivity towards current and future
pressures for changes in social expectations.
7.4
In view of the ongoing controversy regarding whether or not a business has social
responsibility, it is not surprising to find a wide range of industry responses to the issue.
Business responses to social responsibility tend to fall within four categories: (i) Social
opposition, (ii) social obligation, (iii) social response, and (iv) social contribution.
Social opposition: This view is taken by the business which feel that they have no obligation
to society in which they operate. When they are caught for any offense, their immediate
responses is to try cover it up while denying it.
1.
Initially founded by far-sighted people who visibly set the firms moral tone.
2.
Stuck to the basics and produced only high quality goods and services for specific
market niches.
3.
Developed a public image that emphasized that commitment to quality and often used
non-traditional means to promote it.
4.
5.
6.
Encouraged all employees to become part of the shared mission through full worker
participation in decisions.
7.
Paid fairly and usually offered benefit packages exceeding the competition.
8.
9.
Constantly solicited feedback from customers on all subjects from product direction to
corporate donations.
10. Top managers possessed an extensive knowledge of current events and took a wideranging interest in affairs outside their business.
11. Offered donations in cash or services to people in need of help.
12. Took an active role in the operations of their local communities.
Global Corporate Social Responsibility
13. Deal with like minded businesses and encourage their employers to do the same.
14. Constantly look to the future but always pay attention to the past.
Towards Owners/Shareholders
Towards Employees
Towards Customers
Fair price
Planned Growth
Best Quality of
Work life
Effective
Communication
Succession
Planning
Development
Superior Quality
Superior Service
Towards Government
Towards Society
Payment of Taxes, Custom Employment without Discrimination
Duties etc
Towards Inter-Business
Fair Competition
Employment
Persons
Community Welfare
Business Morality
Maintaining Pollution free
Environment
Maintaining Ecological
Balance
to
Disadvantaged
Social Audit, which is a tool for evaluating, verifying and reporting the performance of the
firm in the sphere of social responsibility. It will help a socially conscious organization to
bring about greater strategic articulation and desirable modifications in its social policies and
programs. In this unit the term social audit is defined and the desirability of undertaking
social audit by a business enterprise is discussed. The various frameworks or methodologies
for conducting social audit are explained. The potential difficulties that could be faced by an
organization adopting social audit are discussed and critically evaluated. The status and the
state of art of social audit in relation to India is examined and analysed. Finally, what looks
like the future of social audit is explored.
Case1:
SOCIAL RESPONSIBILITY OF BUSINESS: BHARAT PETROLUEM
Introduction
Bharat Petroleum Corporation Limited (BPCL) is a downstream oil refining and marketing
company. The company has its network spread over all the four regions in India and is
represented in almost all markets. It caters to different petroleum sectors Liquefied
Petroleum Gas (LPG) and Kerosene for domestic consumption, automotive fuels and
lubricants for vehicles, and feedstock and fuels for industrial applications. The company also
manufacture petrochemicals like Benzene, Toluene, Linear Alkyl Benzene feedstock etc.
With a sales turnover of Rs. 25,650 crore and profits of Rs. 701.30 crore in
1999, BPCL is the 5th largest company by sales in India. Its strength lies in an efficient
refinery and strong distribution network, which has given it a 20% market share in petroleum
products in India. BPCL has a tie up with Shell Petroleum Co. of Netherlands to manufacture
and market Shell lubricants in India. In a major expansion move, BPCL is increasing its
refining capacity through 3 joint ventures and also adding on to its distribution strength by
laying a similar number of pipelines. BPCL is also planning a foray into petrochemicals
through a 1.8 million tonnes (mt) naphtha craker plant in Tamil Nadu for around Rs. 7,000
crore and this project is scheduled to go on stream by 2002.
Ecological Concern
BPCL has been continuously striving towards conservation and improvement of the
environment by adopting new technologies. In March 2003, BPCL introduced low lead MS
(with 0.15 gm of lead per liter) in the country. From April 1996, HSD with a maximum
sulphur content of 0.5% by weight, was introduced in the metro cities and in the Taj
Trapezium. From September 1996, HSD, with a maximum sulphur content of 0.25% by
weight, was introduced in the Taj Trapezium. To meet the requirement of HSD all over the
country with the revised specification of maximum sulphur content of 0.25% by weight, from
April 1999, facilities for Diesel Hydro De-sulphurisation are being put up in the refinery.
Distribution of other low sulphur fuels (which has maximum sulphur content of 1.8% by
weight) was started in the National capital region
from October 1996, which ended the use on High Sulphur FO and RFO. BPCL conducted
two advertising compaigns of behalf of the industry the first on the importance of LPG
conservation and the second on the introduction of low leaded petrol. On the pollution
control front, BPCL has set up a special sophisticated plant to meet the stringent standards set
by Minimum National Standards for Effluents from Oil Refineries (MINAS). BPCLs
emission standards are far more stringent than the limits laid down by the Pollution Control
Board. BPCL had also invested around Rs. 220 crore, in pollution abatement and energy
conservation systems.
Safety and Social Commitments.
Global Corporate Social Responsibility
Safety continued to be accorded the highest priority in BPCL both in refining and marketing
operations. In 2002-03, its refinery achieved 3 million man-hours without Lost Time Accident
(LTA) on one occasion and one million man-hours without LTA on two occasions. The
microprocessor based control system as its refinery monitors the operating conditions for
safety hazards and the refinery is divided into three separate areas as high risk, low risk and
medium risk. Each employee, irrespective of levels, is given fire-fighting training and mock
drills are carried out at quarterly intervals for different range fires. Employees are given
training on simulators so that they learn by committing mistakes on simulators and not in real
conditions. BPCLs Mumbai refinery has a Mutual Aid agreement along with the neighboring
9 industries for fighting major fires.
As a result of higher exposure to various safety awareness programs, there has been a
reduction of injuries in BPCLs refinery by 34% for its own employees, and 43% for
contractors employees, in 1996-97. Moreover the frequency of LTA has come down from
1.5% to 0.6% for its employees and from 5.6% to 1.7% for contractors employees. To
enhance safety performance, BPCL introduced safety by walk-around concept wherein
experienced officers were appointed as safety surveyors and safety sampling was done by
senior management staff. It also organized a safety symposium at its refinery in which
members from the oil industry, government bodies. Oil awareness on LPG safety, BPCL also
screened one-minute films on the safe handling of LPG, on popular TV channels.
BPCL sponsors many sporting events like Santosh Trophy, National Football Tournament,
and also coaching camps for youngsters. Lifeline Express was contributed to social welfare
a fully equipped train, which look the latest medical technology to remote villages of India.
The company has also adopted 11 Scheduled caste/Scheduled tribes villages under the
Component and Tribal sub-plan. The facilities provided by the company include community
centers, tube/borewells, educational support medical facilities, vocational guidance and
training to make villagers self-reliant and improve their standard of living.
Achievements
BPCL was adjudged the winner of the Oil Industry Safety Awards for its safety
performance being the best among all the LPG Marketing Organization in 1995-96 for the
fourth year in succession. BPCLs annual report for 1994-95 was selected by ICAI as the
best presented amongst the public sector/joint sector companies for the second year in
succession. The South Asian Federation of Accountants also adjudged the same as the
second best presented in the non-financial sector in the SAARC region. BPCL received ISO9002 certification from Bureau Veritas Quality International (BVQI) for 15 out of its 22
bottling plants. BPCL has also received ISO-9002 accreditation for its refinery, aviation
service stations at Mumbai, Delhi, Calcutta and Bangalore depots at Miraj and Mysore and
lubricants blending plant at Wadilube.
Case Study 2:
SOCIAL RESPONSIBILITY AFFLUENCE FROM EFFLUENTS
The Rashtriya Chemicals and Fertilizers Chembur plant is one of Bombays most well
known cases of industrial pollution. The company, in the face of sustained public pressure, is
making attempts to reduce environmental damage. When the World Bank instituted the
Industrial Pollution Control Project (IPCP). RCF was one of the first to approach IDBI. In
January 1993, RCF entered into an agreement with the financial institution for a DM 12.5
million (approximately, Rs. 45 crore) loan at 15.5 percent.
RCFs problem was its two ammonia plants. These plants have been score spot for the
company and have been shut down on more than one occasion. At the time the plants were
setup, it was not mandatory, to include cost of pollution control equipment in the project cost.
But as local residents started complaining about the pollution levels, RCF started looking for
alternatives.
There were modifications going on in both plants. RCF had to wait till these were complete to
be able to estimate the volume of pollutants that would require treatment. Finally a Ministry
of Environment notification in the late
1980s ordering them to clean up forced RCF into action.
In the process of manufacturing ammonia, certain gases are accumulated which need to be
removed by purging. Using cryogenic technology bought from a German firm, RCF decided
to set up a purge gas recovery plant, which would in the process of treating ane-rich fuel,
both of which can be sold commercially, thereby making pollution control not just pay for
itself but also generate additional resources. And at the end of the process, the plant
produces no effluents.
RCFs choice of technology is determined by financial considerations. They had three
options. In the first case, they could simply treat the ammonia, which is all they are required
to do under the regulations. Their internal rate of return (IRR) for just ammonia recovery
was an uneconomical 10.7 percent. Their second option was to choose ammonia and
synthetic gas recovery, for which the IRR was 27 percent. The final option, the one they
chose, includes the recovery of liquid argon and gives them an IRR of 46.3 per cent. Pay
back period is a brisk 26 months.
Whether RCF will actually earn its projected income is doubtful. Since the time the plant has
come up, argon prices have crashed due to excess capacity and intense competiters are
mainly the steel and automobile industry, which use argon for welding. RCF officials
however, say they are safe, because even recovery to synthetic gas stage gives them an IRR
of 27 percent, leaving RCF a comfortable profit margin.
Social Opposition: This view is taken by the business which feel that they have no
obligation to society in which they operate. When they are caught for any offense, their
Global Corporate Social Responsibility
Social audit has been variously defined. As it happens with any new management technique,
there is not yet any definition which has gained acceptance. Bauer and Fenn define Social
audit as a commitment to systematic assessment of and reporting of some meaningful
definable domain of a companys activities that have social impact. The authors emphasis
is on the assessment and reporting of corporate social programmes.
Dilley defines the social audit as investigation of an enterprises performance as a member
of the community in which it has its primary impact: such investigations consisting of the
preparation of an inventory of the socially relevant activities of the enterprise, qualification
(to the extent possible) of the social costs and benefits resulting from those activities and
compilation of the other quantitative information providing insight into the social
performance of the enterprise (Hindu Business Line,
1997). Dilleys definition highlights the making of an inventory of the socially relevant
activities and their quantification in terms of costs and benefits.
Caroll and Bailer, describe social auditing as a form of measurement. According to them
Social audit is a natural evolutionary step in the concern for operationalising corporate social
responsibilities and, in its essence, represents a managerial effort to develop a calculus for
gauging the firms socially oriented activities. That, it is an attempt to measure, monitor and
evaluate the organizations performance with respect to its social programmes and social
objectives (Chartered Secretary, Oct, 1997) Ahmed Belkaoui has attempted to collate the
definitions by Bauer and Fenn, and by Dilley. He states that Social Audit much like the
financial audit is an identification and examination of the activities of the firm in order to
assess, evaluate, measure and report their impact on the immediate social environment
(Reddy, 1999). The words in bold are important in this definition which require some
elaboration.
1. Identification assures a tracking down and inventory of all the firms activities having
potential impact on the firms environment identification will result in a definition of the social
dimensions of the firms activities in terms of social costs or social benefits depending on the
nature of their impact on the social environment.
2. Assessment and Evaluation imply the categorisation of the firms impact on its
environment as either positive social benefits or negative social costs.
4.
The second feature about social audit is that it can determine only what an organization is
doing in social areas, not the amount of social good that results from these activities. It is a
process audit rather than an audit for results.
Thirdly, social performance is difficult to audit because most of the results of social activities
occur beyond the companys gate and the company has no means of securing data on the
results. Even if data are available it is difficult to establish how many of them have occurred
due.
Table 7.2 Activities Covered by Social Audit
A. Ecology and Environmental Quality:
Clear-up of existing pollution
Design of processes to prevent pollution
Aesthetic improvements
Noise control
Dispersion of industry
Control of land use
Required recycling
B. Consumerism:
Truth in labeling, in advertising, and in all business activities
Product warranty and service
Control of harmful products
C. Community Needs:
Use of business expertise to solve community problems
Reduction of role of business in community power structure
Global Corporate Social Responsibility
D. Governmental Relations:
Restrictions on lobbying
Control of business in political action
Extensive new regulation of business
Restrictions on international operations
E.
Business Giving:
Financial support for artistic activities
Donations to education
Financial support for assorted charities
F.
G. Labour Relations:
Improvement of occupational health and safety
Prohibition of export of jobs through operations in nations with law labour costs.
Provision of day-care centres for children of working mothers
Expansion of employee rights
Control of pensions, especially vesting of pension rights
Impatience with authoritarian structures; demand for participation
H.
Shareholder Relations
Opening of boards of directors to members of public representing various interest
groups
Prohibitions of operations in nations with racist or colonial governments
Improvement of financial disclosure
Global Corporate Social Responsibility
I.
Economic Activities
Control of conglomerates
Breakup of giant industry
Restriction of patent use
iii) the government (for knowing about financial and statistical information for planning and
operating of those enterprises and initiating and administering financial and economic polices
and programmes at state and national levels
iv) trade unions, political leaders (require information for broad labour policy decisions, for
etc); and
v) environments (who need information regarding air and water pollution ecological
imbalances, depletion of resources and conservation of energy).
Disclosure of information should be thus financial and non-financial.
Financial Information
This includes the disclosure of financial position of the firm, the form of balance sheet, profit
and loss accounts, special accounts, audit reports. Such information is mainly disclosed in
quantitative form, such as income and expenditure of the company, sources and uses of funds,
details about assets and liabilities, working capital, new capital investment, outstanding
distribution of earnings, interest taxes
paid, liquidity position and incentives. Financial information reveals the true position of a
company regarding its liquidity and bankruptcy.
Non-Financial Information
This includes information relating to social performance, human resources, marketing
activities, business environment, production etc. Such information may be disclosed in
quantitative and qualitative terms, but the disclosure of information is to influence
profitability in the long run and to build the companys image.
Information on social performance generally includes various activities regarding employee
welfare, community work and involvement, social cultural programmes, role of company in
solving social problems of the area, programmes dealing with training and developing human
resources etc. Social programmes are specified in annual reports.
Information on human resources includes expenditure on recruitment, selection, training and
development of employees, facilities for self-development in organization, special provision
for development of hard-core unemployed persons, sponsoring executives for delivering
lectures in universities, educational institutions and for foreign training. Such information is
disclosed in the Directors Report and the Chairmans speech.
Information on marketing includes sales figures product-wise and plant-wise, cash
and credit sales, pricing and impact of competition on pricing, product innovations and
development, quality of product advertising and promotional efforts for distribution of the
products, selling commission traveling expenditure of marketing personnel, etc. Such
Global Corporate Social Responsibility
In India, the TISCO has been the first company to set up a Social Audit Committee for
conducting social audit of its work under the chairmanship of Justice S.P. Kotwal, and Prof.
Rajini Kothari and Prof. P.G. Mavalankar as members. This committee was entrusted with
the task of examining and reporting whether, and the extent to which, the TISCO has
fulfilled the objectives contained in Clause 3A of its Articles of Association regarding its
social and moral responsibilities to the consumers, employees, shareholders, and the local
community. The Committee opined, On an examination of all aspects, the company has
fulfilled its obligations to all concerned.
Started with TISCO the social audit has picked up. UTI, the premier financial institution has
also planned for a social audit. In the report for 1993-94, the chairman of UTI has declared
that to address the question as to what extent this unique organization has been able to fulfill
its responsibilities vis--vis its various publics and society at large. And independent social
audit committee of five eminent citizens has been setup.
7.8
Social audit provides cost data on social programmes so that management can relate
the data to budgets, available resources, company objectives, and projected benefits of
programmes.
5.
Social audit provides information for effective response to external claimants that
make demands on the organization. News know what a business is doing
in areas of their special interest, and a business needs to respond as effectively as possible.
The social audit shows a business where it is vulnerable to public pressure and where its
strengths lie.
7.9 SUMMARY
In recent times corporate governance and corporate social responsibility have become the
talk of the day. In almost all business organizations, this concept is now being used formally.
This has gained a wide recognition as it is important for the economic health of the
organization and the welfare of the society at large. Since early 90s recommendations of
different committees have been taken into consideration to understand the practical approach
to the concept of corporate governance.
Social responsibility in business or more popularly known as corporate social responsibility
means that the organization has to work in tune with the public interect. This comprises of
areas like social audit. This becomes a monitoring tool for the public enterprises so as to
enhance the efficiency of these enterprises.
3.
Which of the following is not a recommendation of the Birla Committee
a) Board meetings should be held at least one time in a year with a maximum time gap of
four months between any two meetings.
b)
The Board of directors of a company should have an optimum combination of
executive and non-executive directors with not less than 50% of the Board consisting of
non-executive directors
c)
The Board should set up a remuneration committee to determine the companys
policy on specific remuneration packages for executive directors
d)
The Board should set up a qualified and independent audit committee
4.
a)
b)
c)
d)
5.
a)
b)
c)
d)
6.
a)
b)
To be a public enterprise
Government should have no role
Government should have 51% ownership of shares
c)
d)
7.
Characteristics of a Socially responsible firm are:
a)
Stuck to the basics and produced only high quality goods and services for specific
market niches
b)
Firmly practiced the dual principles of self-management and decentralization
c)
Constantly solicited feedback from customers on all subjects from product direction
to corporate donations
d)
All of the above
8.
a)
b)
c)
d)
9.
a)
b)
c)
d)
10.
a)
b)
c)
d)
Community Uninvolvement
Depleted Resources
Environmental Contribution
Wastage Contributions
CHAPTER-8
SOCIAL AUDIT
BUSINESS
AND
ETHICS
IN
INTERNATIONAL
Objectives
After reading this unit you should be able to:
explain the meaning of social audit;
state the scope and objectives of social audit;
emphasise the need for social audit ;
identify different types of social audit;
highlight key developments in social transparency and reporting
Structure
8.1
Introduction
8.2
8.3
8.4
8.1 INTRODUCTION
The term social audit may be interpreted in several ways. As far as common understanding
goes, it is an essential assessment of how well a company has discharged its social
obligations. However experts see it as a systematic and comprehensive evaluation of an
organizations social performance which is interpreted as organizational efforts in
enriching the general welfare of the whole community and the whole society.
The need for social audit arises because of various reasons. In order to reach the objective of
enriching economic wealth for the shareholders, the firm do it at the cost of social and
environmental disorder. And since many would not take into account the social costs of such
negative implications, their prices do not reflect the real cost. The organizations do it more
because of competitive reasons. However if the larger interest of society is to be preserved,
there has to be some consideration for social good.
The company is expected to behave and function as a socially responsible member of the
society like any other individual. It cannot shun moral values nor can it ignore actual
compulsions. There is a need for some form of accountability on part of the management
which is not only limited to shareholder alone. In modern times, the objective of business
has to be the proper utilization of resources for the benefit of others. A profit may still be a
necessary part of the total picture but it should not be the only purpose. The company must
accept its obligation to be socially responsible and to work for the larger benefit of the
community.
Society expects businesses to share the fruits of progress and growth. Moreover, the social
concern by the organization proves to be an asset for them in the long run especially under
environmental distress because of the goodwill and the positive image earned all through
these years.
8.2
Social audit tries to make the traditional economic and technical values as two subsystems
within the larger social system. Social audit primarily tries to cover the following areas:
Global Corporate Social Responsibility
i)
Ethical Issues: They offer a basis for determining what is right and what is wrong in
terms of a given situation. Ethics is best understood when we cite examples relating to
unethical conduct. Few such examples can be price discrimination, unfair trade practices,
cheating customers, pirating employees ideas, leaving the job without observing job
contract.
ii) Equal opportunity: A second relevant social issue which comes under social audit is
the equity of treatment in employment and a fair justice system in the organization.
Employment decisions in an organization should be based on merit and ability and not on
the basis of arbitrary quotas based on gender, race or religion.
iii)
Quality of Work Life: Besides demands for safe, healthy and human work
environment people are seeking greater meaning in their lives. Greater responsibility,
growth, freedom and flexibility, fair reward system are few things which employees have
preference for. There is also a growing demand for employee assistance programmes
keeping in mind the present day stressful situations they are exposed to.
iv) Consumerism: Business has a special obligation towards the consumer as the
business exists to serve and satisfy the needs of the consumers. It is the principal duty of
business to make available to the consumer items of daily needs in the right quantity at a
right time, price and of the right quality. However many Indian products are not safe at all
and the consumers suffer at hands of corrupt, and dishonest corporate houses.
v) Environmental Protection: Growing water, air and environmental pollution by
various industries in recent times has led to a public outcry demanding environmental
protection at any cost.
8.3
One of the most significant developments in the field of corporate social responsibility
(CSR) over the past few years has been the growth in public expectations that companies not
only make commitments to CSR, but also develop systems to manage, implement and
systematically assess and report on progress relative to those commitments. Corporate
accountability encompasses the systems a company establishes to develop policies,
indicators, targets, and processes to manage the full range of its activities. The scope of
operations for which companies are expected to be accountable has increased dramatically
in recent years to include not only companies own performance but also that of business
partners and other actors throughout the companys value chain. The mechanism a company
uses to demonstrate accountability are varied and inevitably need to change and grow as a
company evolves, but effective systems for increasing accountability generally allow a
company to be inclusive, responsive, and engaged with its stakeholders.
Corporate accountability today spans emerging CSR issues like business ethics, diversity,
marketplace behaviour, governance, human rights, and labour rights as well as more and
Global Corporate Social Responsibility
more traditional areas of financial and environmental performance. Interest in the interrelationships between issues will also increase the complexity of the corporate
accountability debate; in many areas of the world, social issues are now in ascendance, and
these qualitative, complex issues are likely to be the ones against which companies find it
hardest to measure and verify performance.
Effective and accountable management systems help companies shape cultures that support
and reward CSR performance at all levels. As part of this effort, many companies are
working to increase accountability for CSR performance at the board level. This can lead to
changes in who serves on the board, how directors handle social and environmental issues,
and how the board manages itself and fulfills its responsibilities to investors and other
stakeholders. Companies are also seeking to build accountability for CSR performance at
the senior management level, in some cases by creating a dedicated position responsible for
broad oversight of a companys CSR activities. Finally, many companies are working to
integrate accountability for CSR performance into actions ranging from long-term planning
to everyday decision making, including rethinking processes for designing products and
services and changing practices used to hire, retain, reward, and promote employees.
Demand for increased corporate accountability today comes from all sectors. Evidence of
this is found in the increasing number of sustainability-related market indices and by
external demands for certification or labeling of certain products. Underpinning this demand
for increased corporate accountability is the expectation that companies can and should be
more transparent, which essentially means measuring, reporting on, and continuously
improving social, environmental, and economic performance. These increased demands are
in part a result of recent events that have contributed to erosion in the trust extended to
companies. Stakeholders now expect companies to provide access to information on impact
of their operations, to engage stakeholders in meaningful dialogue, and to be responsive to
particular concerns unearthed in the dialogue process. To increase the credibility of what is
disclosed, leadership companies are also investigating carefully the value of various types of
assurance that might support their reporting efforts.
Proliferation of Social and Environmental Reporting Standards: A variety of
organizations and initiatives are attempting to standardize social and environmental
reporting procedures to let stakeholders more easily compare companies performance
across facilities, sectors, and borders. Most noteworthy is the Global Reporting Initiative
(GRI), an international reporting standard for voluntary use by organizations reporting on
the economic, environmental, and social aspects of their activities, products, and services.
The GRI, convened by the Coalition for Environmentally Responsible Economies (CEREs)
in partnership with the United Nations Environment Programme, incorporates the active
participation of corporations, NGOs, accountancy organizations, business associations, and
other stakeholders from around the world into the ongoing development of the reporting
guidelines. Another example of a more local standard is one launched in Brazil by the Ethos
Institute for Social Responsibility which has produced a set of indicators to help companies
integrate CSR into their management practices and to track and monitor their progress. In
Global Corporate Social Responsibility
It tries to measure the effectiveness of those activities of the organization which are largely
taken up to meet certain social objectives. Corporate executives in this case try to examine
what they are doing and how they are doing. The method involves four steps:
i)
Find circumstances leading to the starting of the social audit programme
ii) List out goals of the social programme
iii) State how the organization is going to meet such goals
iv)
Qualitatively evaluate what is actually done as against what has been planned
2)
In this type, financial statements show conventional financial information plus information
regarding social activities. About associates a management consultancy firm proposed
that0020the balance sheet should show a list of social assets on one side and social
commitments, liabilities and equity on other side. The income statement should reveal social
benefits , social costs and the net social income provided by the company operations to the
staff community, general public and clients.
This approach has been criticized as many feel that it may create confusion of complicating
issues further and defying easy understanding.
3)
8.5
Shell publishes its 2002 sustainability report under the same cover as its 2002 financial
report. While many companies find that comprehensive reporting can satisfy many
stakeholders informational needs, there is considerable debate over the relationship
between reporting and actual changes in corporate behaviour. So, while sharing information
is an important first step in creating an accountable culture, stakeholders are now looking at
how the process of reporting creates change in company policies and practices.
Greater Government Regulation: Government regulators at all levels are calling on
companies to increase the quantity and quality of information they disclose to the public
about their practices and performance. On the whole, European governments have been
more active in advocating regulatory approaches than the U.S. government. For instance,
newly amended French legislation, called the Nouvelles Regulations Economiques (NRE),
require as of the beginning of 2003 that all companies listed on the French stock exchanges
to report to shareholders and stakeholders on a range of social and environmental issues.
Countries such as Denmark, Sweden, Norway, and the Netherlands also have enacted
legislation requiring specified companies to report on aspects of their social and
environmental performance.
Increased Stakeholder Activism: Many stakeholder groups are engaging companies more
directly, utilizing a wide range of tools, techniques, and technologies to bring their interests
to companies attention. These activists are also working to educate lawmakers, the media,
and the public about companies that are or are not deemed to be accountable. Among
the tactics being used by stakeholder groups are public information campaigns, public
protests, boycotts, and class-action lawsuits seeking action and redress for perceived
company misdeeds. At the same time, stakeholders are developing new strategies that
involve finding commonalities with other groups to create alliances that cross both
geographic boundaries as well as issuearea divides. In doing so, they are able to directly
engage companies with a much stronger voice and with a much broader agenda.
Increased Shareholder Engagement: Company shareholders, both individuals and
institutions, have become increasingly vocal and aggressive in pressing companies to be
more accountable. Activist shareholders call for increased accountability have included
resolutions promoting greater disclosure of environmental and social impacts, increased
transparency in board actions and decisions, and requisitions for company commitments to
abide by internationally accepted social and environmental principles. Whereas resolutions
over the past few years often called for company endorsement of specific standards such
as SA8000, the CEREs Principles or the UN Global Compact resolutions today most
often use more general language on adhering to the highest and best social and
environmental standards appropriate to the company so as to have broader/greater
shareholder appeal. In addition, shareholder activists are pushing for public disclosure of
companies voting guidelines as well as proxy votes by mutual funds. For instance, the U.S.
Securities and Exchange Commission recently approved regulation that will require mutual
funds to disclose how they vote on shareholder resolutions, a move that was strongly
supported by shareholder activists. Many companies continue to engage shareholders at
Global Corporate Social Responsibility
annual meetings or through the resolution process, a mechanism that shareholders use to
access management on issues of concern. However, some companies now meet directly with
shareholder activists and institutional investors in settings other than the annual meeting.
Some companies have developed staff positions or departments responsible for addressing
shareholder concerns on social and environmental issues.
The Growth of Information Technology: The Internet has provided companies and those
seeking greater corporate accountability an unprecedented ability to share and exchange
information both accurate and inaccurate on a large scale. Given the largely
unregulated nature of this form of communication, many companies are finding that they
need to monitor and engage more actively in the information being disseminated. A number
of companies now use the Internet to report proactively on their social and environmental
activities. Increasingly, companies are using the Internet not only as a place to electronically
post information originally developed for print, but also taking advantage of the medium to
provide more periodic, interactive, and in-depth information about their performance. The
Internet also allows companies to receive feedback from stakeholders on the information
they are sharing. Some companies are finding that they can dilute or eliminate the impacts
of negative, Internet-driven campaigns by engaging activists and other stakeholders directly,
helping to ensure the information they receive is as accurate as possible. At the same time, a
variety of non-governmental organizations, government entities, and for-profit enterprises
have established Internet sites that provide detailed information about companies
environmental performance, philanthropy, and other social impacts, in some cases on a
facility-by-facility basis. Another growing use of the Internet is to allow shareholders to
vote their proxies online, potentially enhancing the ability of activist institutions and
individuals to mobilize fellow shareholders in order to influence company policy.
Increased Media Attention: Corporate social responsibility, and accountability more
broadly, have become topics of increased media attention and scrutiny, both in the business
press and the mainstream media. A number of publications now feature regular articles on
such accountability-related issues as board diversity and independence, CEO compensation,
board performance evaluation practices, and company responses to shareholder concerns.
Media attention has forced companies to examine, and in some cases revise, their policies
and practices on a range of CSR issues. For example, in a case that is poised to set a
significant precedent in the area of corporate transparency, the U.S. Supreme Court has
agreed to hear a case against Nike, in which the company is accused of falsifying
commercial speech in defense of the working conditions at its supplier factories overseas.
Allegations against the companys overseas labour practices have received significant media
attention over the past decade, leading to Nikes assertion that the company should be
constitutionally protected to defend itself and highlight the human rights strides it has made.
Roughly 30 news organizations, including ABC, CBS, NBC and top newspaper chains as
well as organized labour and groups such as the American Civil Liberties Union, argued in
court filings that reporters will not be able to get company executives to talk freely about the
safety of products, racial discrimination or environmental concerns about their industry,
because of the fear of future lawsuits if the case against Nike should be upheld.
Global Corporate Social Responsibility
dilemma refers to permitting or not tobacco companies to advertise. Not allowing them to
advertise, restricts their freedom of speech and obstructs their ability to do business.
Examples of such dilemmas are numerous. The common thread running in all ethical
dilemmas is the conflict between rights of two or more stakeholders. The number of
potential ethical dilemmas increases for a manager with increase in number of stakeholders.
Ethical lapse on part of a manager occurs when he makes an unethical decision. While
ethical dilemma arises due to unresolved interpretations of ethical issues, the ethical lapse is
associated with cases of unethical behaviour. Thus the desire of a tobacco company to
advertise is an ethical dilemma; the decision of a top manager to profit from inside
information is an act of ethical lapse.
8.7 APPROACHES TO ETHICAL MANAGEMENT
Identifying Ethical Pressures
An organisations decision of pursuing ethical management practices, must be a proactive
stance and such practices must be pursued with diligence and persistence. To realise this aim
there is a need to recognise various ethical pressures on managers that lead to ethical
dilemmas and in some cases make ethical behaviour seem attractive. Such an approach is
likely to instill a sense of ethical decision making in managers.
The ethical pressure on managers is likely to result from such sources as organisational
goals, personal goals, competition, uniformity and fear. The managers may be under
pressure to meet their organisations goals, such as to sell a certain number of products. Such
pressures may lead managers to choose course of action that may be less ethical but helps in
better short-term performance. Ethical organisations recognise that responsible decision
making should consider factors beyond immediate goals and encourage managers to ask
ethical questions while taking decisions.
Personal goals, just as organisational goals, can distort the decision making process. For
example, a salesman wanting to outsell other salesmen so that he can be promoted to the
post of sales manager might be tempted to overstate a products benefit to increase the
volume of sale. In other situations for similar reasons, an employee might claim other
employees work as his own or put pressure on other employees to lower their performance.
As the personal performance has impact on compensation and promotions, ambitious
employees are likely to take recourse to unethical behaviour, Increasing competition has
visible impact on personal and organisational behaviour. The competitors are likely to
overstep ethical boundaries. For example, the level of competition is very high in computer
industry and therefore getting to market generally with advanced products can be crucial to
success. This has led some companies to announce products well before they exist. The idea
is to pre-empt the market or beat the competitors. Such practice can mislead customers and
can cause financial damages to firms who are left wanting for products that arrive late or not
at all.
Individuals are under peer group pressure to act in confirming ways, both on jobs and other
situations, throughout their lives. Sometimes there is a group norm, say among production
line workers, that is unhealthy. Thus, if the group feels that the prescribed safety tests are
tedious, there would be pressure on the workers of the group to skip the test. However, some
comfort can be taken from the fact that the pressure to conform, in order to be accepted by
peers can also lead to ethical behaviour if the group norm warrants it. Many fears,
particularly the fear to loose ones job may make employees to take unethical decisions. A
site supervisor, working for a building contractor, under instruction to use sub-standard
material has to choose between cheating the customer or finding a new job. If there is
shortage of jobs and supervisor has a family to support, the pressure to act unethically is
really great.
8.9
Many philosophical and management theorists have provided frameworks that can be used
by managers to face ethical dilemmas. Using these frameworks, managers can analyse the
issues involved and use plausible criteria for making decisions. However it must be noted
that just as the ethical issues are not easy to formulate, the decisions made using the
suggested frameworks are also not unambiguous. Though the suggested tools may not
enable us to have a single right answer to ethical dilemmas, they lead to answers which
appear more right, more just or more fair than it is possible to have without them.
Normative philosophy which is concerned with the study of proper thought and conduct or
how people should behave stands at the root of principles ued for ethical analysis. The two
normative framework commonly used by managers are utilitarian theories and
deontology or formalism Some other frameworks for resolving ethical dilemmas such as
Eternal Law, Distributive Justice, Personal Liberty have been discussed subsequently.
Utilitarianism: This is a preferred approach in North America and is widely used in
management literature on ethical decision making. This approach is based on the premise
that ethical decision making has a pay-off so that the prosperity of a company is assumed to
be related to its ethical behaviour. According to the utilitarian theory, a decision is judged to
be ethical on the basis of its perceived outcomes. In its original form, the theory was based
on the prospect of greatest good for the greatest number of people. Following this approach,
a government could follow a policy believing that the outcome would benefit greatest
number of people (even at the expense of minority). Similarly a company could take
decision to retrench a minority of workers to make the factory more cost effective so that
majority of workers benefit who would remain in employment.
The cost-benefit analysis which looks at decisions from the point of view of total costs, the
financial and social and total benefits is a modern day derivative of this theory. Pollution
control, related to environmental protection, could be decided using this approach. The
benefit to community through pollution control is compared to cost involved in the effort.
To the extent that the decisions are made looking into future, both the future costs and future
benefits, the utilitarianism tends to be a forward-looking philosophy. There are many
problems associated with this school of thought. The first issue raised is the question of
justice. It is argued how far it is justifiable to prosecute a minority in the interest of majority.
Global Corporate Social Responsibility
The democratic systems, whether practiced at national level or the organisational level, are
also based on utilitarianism.
The utilitarianism principle has been also criticised on the question of subjective benefits.
Thus people have subjective notion of benefits occurring to them and there is also the
possibility of manipulating the preference i.e. people could be persuaded to believe that they
enjoy more benefits from a decision then is actually the reality. An example of this would be
the case where a manager, when negotiating with another manager, sells a decision using
manipulative technique to magnify the benefits available to the opposite party.
Formalism or Deontology: This approach is based on universal moral principles and is
independent of wants and needs. The decision is not based on its expected result but on the
consideration whether it is right. The spirit of formalism is captured by Kants principle of
categorical imperative which implies that everyone should act to ensure that others would
reach similar decisions in similar circumstances. It follows that formalism is established
through shared understanding. Thus everybody understands the principle of right or wrong
that you are applying, at least within your organisation or in your culture, As decisions
taken, following this approach, are based on historically formulated principles they tend to
be backward looking in their perspective. Such approach to decision making can lead to
bureaucratic practice of insistence on rules for decisions and actions and thereby leading to
dogmatism. Further, it also tends to ignore individualism.
Utilitarianism and Formalism Illustrations of Contrast: These two important
approaches differ in their perspectives while facing ethical decision making situations. Some
examples of these differences are listed below.
a) While describing a business executives action, the utilitarian sees it from the perspective
of its being good or bad but the formalist views it from the angle of being right or wrong.
b) For a utilitarian the consideration behind an ethical decision is exectives needs, wants
and desires, however, for a formalist it is the question of the executives conscience,
c) For a utilitarian the solutions to ethical problems are not easily definable, it is exactly
opposite as far as the formalist is concerned.
d) The telling of lies is considered wrong by both, but for different reasons. For an utilitarian
speaking lies is wrong because it can lead to attendant problems, in the formalist views it is
wrong because it is not correct for anybody to lie.
e) The role of law is viewed differently, It is the belief of utilitarian that through benevolent
legislation, everybodys life can be improved but for the formalists it is important to apply
law fairly and impartially.
Cultural Preferences for Decision Principles: It has been observed that individuals from
different cultures have marked preference for one or other decision principles. The literature
on international negotiation often refer to the styles of Russian negotiators who more often
appeal to overriding normative principles during negotiations than negotiators from other
countries. The same holds good for cultural differences in decision making in other
situations.
Empathy: Apart from various frameworks to resolve ethical dilemmas, practising empathy
can provide managers vital insights into the likely consequences of their decisions. By
Global Corporate Social Responsibility
considering the feelings of all those that are likely to be directly and adversely affected by
their decisions, the managers will develop empathy that can be used to temper their ethical
decisions.
Institutionalising Ethical Organisations Behaviour
An ethical organisational culture can be introduced and nurtured by managers that
emphasises the importance of ethical considerations. The move towards an ethical
atmosphere must start at the top of the organisation, led by personal influence of top
managers. The way the CEO and other executives exercise moral judgement can have more
impact on an organisation than any written policy.
The other approaches that can instill ethical principles in an organisation include standards
of ethics, training in ethics-related issues, ethics committee, ombudsman ship and ethical
codes. Ethical standards are the guidelines of moral conduct in a given profession or group.
Companies try to maintain ethical standards through administering honesty test and
conducting background investigation while recruiting. Others require their potential
employees to read and sign their agreement to the organisations values and ethical
standards. Code of ethics is a formal statement of the organisations values, ethical
principles and ethical rules. It is probably the most visible sign of an organisations ethical
philosophy. The ethical codes should not be too vague or too detailed. To be effective, it
must clearly state basic principles and expectations, must focus on potential ethical
dilemmas that employees may encounter, must be communicated to all employees and must
be enforced.
Another way to institutionalise ethical behaviour is to provide ethics training that may start
at the time of employment at which employees read and sign the companys code of ethics.
One way to make the training pragmatic is by focussing on case studies of hypothetical
ethical questions based on interviews of companys managers. There should be any attempt
to provide solutions to the cases but use them only as base for discussing ethical issues.
Organisations have also tried Ombudsmanship-an informal review process that provides an
indirect, nonthreatening means of obtaining a response from senior management about an
ethical conflict. Such a system may help the younger managers on sticky career issues,
organisational difficulties and ethical issues. It can also serve as organisational conscience
and may also investigate complaints about unethical behaviour. Finally it may point out
potential ethical lapes or dilemmas to top management. Employees resort to whistleblowing or public disclosure of illegal, unethical or harmful practices of their organisations
when they are convinced that unethical practices cant be halted even when managements
attention has been drawn to it. While whistle-blowers get protection in specific situations in
some countries, it has high costs, both for the employees and organisations. Some
organisations have standing committees of the board of directors to consider ethical aspects
of companys policies and practices, assuring the employees and other stakeholdersabout top
managements commitment to ethical behaviour; others have established internal audit
committees to monitor organisational ethics.
8.10 ETHICS AND INTERNATIONAL MANAGEMENT
Before the managerial dilemmas faced by the international managers are considered a
general model of ethical analysis of management decision is taken up It helps to understand
the various factors affecting the managerial decisions across cultures
Ethical Analysis of Management Decisions: Hosmer has suggested a model for ethical
analysis of management decisions that is helpful in analysing the ethical dilemmas of
international managers. Look at Figure 9.1 which shows the model for ethical analysis.
Before giving thought to the other factors of the model and to appreciate the multifaceted
nature of managerial dilemmas, consider the elements of content of managerial dilemma.
This has been done in the context of a one-country problem related to human resources.
The HR problem posed by Hosmer relates to employee drug testing issue of a company that
faces the problem of low productivity and low quality. It is suspected that it is due to drug
and alcohol abuse. The testing for chemical depending is an invasion of personal privacy and
the test does not always give accurate result. The management has information that less than
20 per cent of the workforce uses drugs and alcohol. However, if the test is carried out, the
other 80 per cent will also have to go through the indignity of tests. The managerial dilemma
is whether to go for drug test or not.
Content of managerial dilemma. Hosmer model has financial, legal, organizational, social
and personal aspects as parts of content of managerial dilemma. In the HR example these
refer to the following.
The financial content refers to financial benefits and costs in solving the drug problem. The
organizations tend to give more weight to this aspect in their decisions. The legal content is
concerned with any legislation, which permits or prevents the type of drug testing proposed.
There is always a possibility of compensation claims, as a result of test that may have
financial implications. The organisational consequences of the drug testing can be both
positive and negative. It may lead to better working environment once the problem is solved
and also more job security due to improved efficiency in production. However, on the
negative side, there is the possibility of low morale as a result of the action.
The implication of the proposed action on the wider society is the domain of social content
of the managerial dilemma. On the plus side the testing may enhance the competitive
position of the company and it may also enhance its reputation in the locality. However, if a
society considers individuals privacy important, there can be negative implications in the
community as a result of charges of invasion of privacy. The managers while taking
decisions are also concerned with the result of their actions on their careers. There is also the
possibility of loosing their jobs if something goes wrong. This constitutes the personal
content of the managerial dilemma.
The issues discussed under the content of the managerial dilemma above clearly shows that
the approach followed by Homer is utilitarian because the action is judged in the light of its
outcome. Apart from the content of managerial dilemmas, the model has other elements such
as moral standards of behaviour, the ethical system of belief.
Moral Standards of Behaviour: This occurs in the model prior to the consideration of the
dilemmas facing the decision-maker. We use moral standards of behaviour to judge our
behaviour and that of others. It is important to note that these tend to be subjective,
imprecise and varies between the individuals. They are also likely to vary from one situation
to another as is evident in our attitude towards lying.
8.11
The seeds of our moral standards of behaviour can be traced back to our ethical systems of
belief. They provide guiding principles of our decision making. Hosmer identifies five such
systems of belief in decision making, of which utilitarianism and formalism has been already
discussed. The following summary gives, in brief, the nature and the problems associated
with various systems of belief.
(a) Eternal Law: The religious teachings reveal the moral standards and these standards are
eternal law to which we should adhere. However, multiple interpretation of the law creates
problem.
(b) Utilitarian Theory: The perceived outcome of the action provides standards. Following
this approach, it is easy to justify immoral acts by referring to the benefits to the majority at
the expense of a minority.
(c) Universal Theory (Formalism): In this case standards are derived from intent of the
decision according to universal principles. The problem in this approach arises from the
concept of universality and who judges the morality of principles.
(d) Distributive Justice: A single value of justice, namely that everyone should act towards
the more equitable distribution of benefits provides the basis for moral standards. It is
believed that this will lead to social cooperation. However, the social cooperation may or
may not occur when this decision making rule is followed.
(e) Personal Liberty: The principle of liberty, in this case, is the single basis of moral
standard. It is implied that everyone should act to secure greater freedom of choice,
promoting market exchange and social productivity. The implicit assumption in this
approach is that market system leads to productivity.
The moral standards of behaviours in the Hosmer s model, is determined by the above
discussed ethical believe systems together with cultural experiences and the prevailing social
and economic system. The managers resolve their ethical dilemmas in the context of their
moral standards of behaviour.
When the managers operate in global science, they are likely to face different national
cultures where there is preference for different belief systems. There is also possibility that
the belief system of the home country is incompatible with that of host country. In such a
situation a utilitarian approach (a pragmatic approach) has been found to be useful while
dealing with ethical issues. The examples of ethical issues in international decision making
include dealing with corporate bribery, acceptable level of pollution and attitude towards the
destruction of rain forest, etc.
8.12 FOREIGN CORRUPT PRACTICES ACT OF USA
After many glaring cases of business bribing government officials in other countries caine to
light, US government passed the Foreign Comipt Practices Act (FCPA) in 1977 which was
Global Corporate Social Responsibility
practices, least it damages their reputation and image. In giving shape to their marketing
practices, they not only take into consideration the commercial imperatives but also the
expectations of host and home country. The public relations departments of many MNCs
take pains to manage the potentially damaging situations. The firms would like to act much
before the media or the government forces it to do so. In addition they also want to be
perceived by their customers to be ethical. Two instances of proactive behaviour of firms in
international trade are given: (i) The Tylenol drug was withdrawn by Johnson and Johnson
after seven deaths was attributed to it in Chicago in 1982, The cost of damage control at
$100 million was quite high, even when the loss future sales was not counted. (ii) Perrier
withdrew all their bottled water from all countries around the world when presence of
benzene was detected in Canada in 1990. This resulted in incurring of a cost of $140 million
but quick action kept its image of provider ofpure product untarnished, even when the risk
of ill effect was negligible.
8.13.1 Ethical v/s Unethical Activities
Even when there is proactive behaviour on parts of many MNCs in their marketing practices,
some of their activities have been debated regarding their ethical nature. While many issues
have been raised in this debate, major ones having a bearing on international trade are listed
below.
i) Selling Products Less in Demand in Home Countries: After products reach maturity or
face decline in demand due to their particular stage in product life cycles in developed
markets, there is pressure on firms to sell them in the markets of less developed countries
(LDC). Such is the case about tobacco products. It is experiencing decline in consumption
in USA and Europe due increased awareness about its potential bad effects. In addition,
there is increased competition among producers. Many tobacco companies to retain their
profitability are targeting the
LDC markets where smokers are not fully aware of the risk of smoking. Such a move is
open to question regarding its ethical nature.
ii) Selling Prohibited Products in LDC Markets: In some cases drugs and chemicals
prohibited in developed countries, due to their harmful effects, are being sold in LDC
countries. This has been justified as not necessarily exploitative Take the case of DDT It is
known to contaminate ground but it is also only known counter to malaria bearing
mosquitoes and therefore benefits of its use in a LDC, where malaria is rampant, far
outweigh its cost Similar arguments have been also advanced in respect to many drugs and
veterinary products, withdrawn from developed country markets due to their side effects, as
still useful to LDCs who cannot afford the high priced developed substitutes, now in use in
developed countries.
iii) Selling Products Likely to be Misused Products developed to be used in an
environment may be used incorrectly by consumers due to changed circumstances, lack of
knowledge or scarcity of resources If such misuse can be foreseen, marketing of such
products is unethical. One such case was marketing of milk powder by Nestle in LDCs. The
company was not fully mindful of its implications for the mothers and the babies, in
situation of Lack of clean water, money and training. Investigations of some pressure groups
have revealed the following.
Nestle was guilty of misrepresentation and for its efforts to change the indigenous behaviour
to detriment of populations health. Its distribution of promotional samples in hospitals led
to mothers milk to dry up and that in turn forced the use of companys milk powder.
Company continued their practice even when being aware that mothers lacked resources to
purchase milk powder and thus a situation was reached where children suffered from
malnutrition.
The Nestle episode led to its seven years global boycott. Arising from this, UN also came
out with a new guideline on the issue.
iv) Restrictive Trade Policies: Restrictive trade policies adopted by certain governments
have been labelled as unethical by other governments and companies in international trade.
The relative closeness of Japanese market has been attributed to many historical and cultural
factors (such as Japanese consumers having tradition of purchasing locally produced goods
that is perceived to be superior) but also due to protectionist policies pursued by the
government there. There have been high import tariff and non-tariff barriers for wide range
of products.
v) Dumping: Dumping occurs when goods produced in one country are offered for sale, in
large quantity, at very low price, in international markets. Such trade has been regarded as
questionable. Reasons behind such trade include state subsidies, debt write-offs and high
exit barriers of a particular industry (e.g. steel, shipbuilding and aircraft manufacturing).
Such trade leads to hurting of business and jobs in one country by state-supported, nonviable jobs in another country. A case of supporting non-viable jobs is evident in many
national air-carriers, which are subsidised even when there is substantial over-capacity in the
industry.
Some have argued that imports by developed countries of cheap goods from LDC, which
have labour and other material cost advantages and low cost production methods, such as
shoes from Eastern Europe and clothes from Pacific Rim countries, has led to loss of
thousands of jobs in those industries in importing countries. It is acknowledged, however,
that the consumers in western countries benefit from low priced products and exporting
countries get much-needed foreign exchange.
vi) Counterfeiting: This growing problem relate to firms violating the patent and copyright
of another firm, usually in case of luxury products. The product copies are normally
produced in LDCs. This leads to creation of jobs in copying countries, mostly LDCs, and
consumers, particularly in developed countries, have opportunity of purchasing a copy of a
luxury product at very low price. However, the producers of original products claim that this
practice leads to diminishing value for their products, whose image has been built through
large investment. There are many that hold that the concept of counterfeiting and the
violation of intellectual property right appear to be a Western and ethnocentric view of
ethics. If such right exists than China should get royalty for noodles, compass and ice cream.
There is a counterpart of this international marketing ethical issue in domestic marketing,
The private label category of fast-moving consumer goods can be also regarded as
Global Corporate Social Responsibility
i) Need to respect laws and regulations of the host countries and do nothing to compromise
with the health and safety of consumers. US laws on product liability, a big litigation issue,
is an extreme case that affects the development of new products. especially the
pharmaceuticals. Such legislation makes small firms reluctant to export to USA due to
prohilitive cost of litigation.
ii) Firms should not exploit the weakness in legislation in host countries such as selling
products in these markets that are banned elsewhere.
iii)The firms can be proactive and assist the governments in preventing marketing of unsafe
products. However, the close relationship developed by firm with the local government,
should not be misused such as gaining competitive advantage through adaptation of
companys product specification, taking advantage of local lack of expertise in a particular
area.
8.14
There has been increasing debate among the academics, local activist, and managers about
the ideal relationship between the organisation and society. Two issues have predominantly
emerged: an organisations responsibility for its activities that affect society, both positively
and negatively and about the extent of responsibility that should be born by an organisation
to solve social problems.
Social Responsibility can be examined at four levels: Economic, Legal, Ethical and
Discretionary First, for all for-profit business, an organisation has economic responsibility
to produce products and services needed by people and sell them at profit. Peter Druker
advises organisations not to undertake social actions that are economically unviable or act as
distraction in achieving a minimally acceptable profit level. Economist Milton Freedman,
who advocates that business s only social responsibility is to maximize profits holds an
extreme view. The non-economic activity, not only robs shareholders of their due but also
distracts managers from their profit-making goals. It has been also argued that business
managers are not experienced in solving social problem and their involvement in such
activities may conflict with their ordinary business activities.
For an organisation to pursue its activities within the bonds of laws and regulations are its
second responsibility and are termed as legal responsibility. The laws and regulations of a
society do not cover all the possible actions that an organisation and its managers are called
upon to undertake. In their various activities spanning from labeling to employment
practices, they may have to choose among two or more courses of action, all of them legal.
The choice is not based, then, on the consideration of legality, but on the basis of their
rightness. Deciding which is right and basing decisions and actions on this consideration
represents an organisations third responsibility. This has been termed as ethical
responsibility.
There are yet other type of social responsibilities that are purely voluntary and guided by
individual judgment and choice. They can be placed in the final and fourth category of
Global Corporate Social Responsibility
welfare. The resources for the purpose need not have to be large. Encouraging and providing
time off for managers and employees to do volunteer work for hospitals, health care centres
and engage in other welfare and developmental activities can also support such activities.
Organisations have also shown interest in their social responsibility in education. It is not
just to be charitable or generate positive publicity, but to survive. They have contributed in
efforts to improve preschool, primary, secondary and vocational education.
Many organisations direct their social responsibility efforts towards upholding the cause for
human rights. Reebok International, the athletic shoe manufacturer, has promoted the
activities of Amnesty International. The right to freedom of expression is a part of its
corporate philosophy. It has also instituted annual awards for young men and women who
raise awareness of human rights and freedom of expression.
Some organisations have focussed on natural environment as their area of social
responsibility. The important issues of this area include ecology, conservation of natural
resources, protection of endangered species and responsible waste disposal. In many cases
buyers purchase decision is based on a companys environmental reputation. This has
forced organisations to support recycling efforts, to contribute towards waste reduction and
to actively use biodegradable material. Thus Apple computer uses brown cardboard as a
packing material, in place of white cardboard, to avoid the bleaching agent. Many
organisations are capitalising on consumer concern for the environment by marketing
environmentally friendly products.
Many socially responsible organisations exhibit great concern for the rights of their
consumers. For this they take great pains to ensure high quality, safety and truthful
advertising. The Gillette company has a Vice President of product integrity to protect
consumer interest. In addition to quality control measures employed during production, it
maintains a big team of managers to double-check the companys products. It also has
medical evaluation laboratories where scientists focus on ill effects of new Gillette products
and check for any allergic reactions to shampoos and its other products. The firms
obsession with effectiveness and quality goes beyond meeting the legal minimum
requirement and costs a lot of money. However, it believes that a satisfied consumer is a
Loyal consumer and its efforts are worthwhile.
Businesses are also keen to support cultured events as a form of social responsibility. It
promotes the positive image of their company. Further, support for arts may also help the
company to reach out to a generally upscale audience.
8.14.2 Approaches to Social Responsibility
Continuum of Social Responsibility. The stance taken by organisations towards their social
responsibility can be categorised in one of four ways: opposition, obligation, responsiveness
and contribution to social responsibility. These categories from a continuum; the lowest
level responsibility is shown by firms who must be forced to comply with legal and ethical
standards. The highest level is occupied by the firms that actively look for ways to help
stakeholders, above and beyond what is expected of them. The lower middle position is
occupied by organisations that meet their social obligation by voluntarily confirming with
Global Corporate Social Responsibility
the legal and ethical standards but go no further. Next to them on the continuum of social
responsibility are organisations that choose to respond to stakeholders needs by assuming
obligations beyond their legal and economic responsibilities
Social Audit Organisations concerned with keeping their social responsibility at the
forefront of their strategy employ the tool of social audit. It provides them a systematic
evaluation and reporting of their current performance in various areas of social responsibility
The common components of social audit include the stakeholders audit which focuses on
interest of its stakeholders and the organisational response, safety audit which is concerned
with controlling and eliminating work-related hazards, and the environmental audit which
identifies the potential risks to the natural environment, evaluates a organisations efforts in
the area and also comes out with potential solutions. A growing number of organisations are
publicising their social audit reports to bnderline their concern for social responsibility.
8.14.3 Institutionalising Social Responsibility
To help to institutionalise socially responsible behaviour, organisations are setting up a
separate Public Affairs Department to serve as a link between them and the key stakeholders
such as customers, government agencies and the media. This department undertakes
functions such as identifying social issues, forecasting social trends, analysing the social
environment, keeping management aware with such information and developing
programmes to meet the needs of specific external stockholder groups.
Other methods of institutionalising social responsibility include the following:
Advocacy: Supporting a particular cause through financial, material and human resource
backing.
Partnership: Cooperating with special interest groups, such as environmental groups, to seek
mutually acceptable solutions to social problems.
Philanthropy: Gifting money, time, goods or services to charitable, humanitarian or
educational institutions.
Executive Loan: Allowing their executives to take leave of absence and assume
management positions in non-profit organisations for short duration.
Cause.Related Marketing: Offering to contribute a specified ai nunt to a designated cause
when customers buy the companys goods or services. In 1983 American Express donated
one cent from its every card purchase to help refurbish the State of Liberty. It raised $1.7
million for the Statue.
8.15 SUMMARY
i)
Ethical systems of belief refers to the closeness of managerial decisions and actions
with codes of moral standards that try to distinguish right from wrong Ethical decision
making is viewed differently because people from different cultures analyse their ethical
dilemmas differently. At the heart of analysis of such dilemmas is the cultures moral code
of behaviour which is affected by cultural experiences, ethical belief systems and economic
and social situations The cultures ethical system of belief includes; utilitarian, deontology,
eternal law, distributive justice and personal liberty.
In international trade, proper understanding of ethical practices becomes essential
A
number of practices have been termed as unethical Some of such practices include selling
products in less developed countries which are less in demand in developed countries,
selling products in less developed countries which have been prohibited in developed
countries, selling products which are likely to be misused due to the differences in
environment, restrictive trade practices of some governments dumping, counterfeiting, grey
marketing etc Apart from conforming to the general ethical behaviour, Multinational
corporations should also follow the code of ethics for International Marketing.
Besides ethics, social responsibility of business is another important area of concern for the
international marketer. Organisations have also obligations to the society beyond pursuing
organisational goals and should take actions that benefit society as well. These obligations
fall into four categories: economic, legal, ethical and discretionary. The motivation to
undertake social responsibility range from pure self-interest to enlightened self-interest and
to pure altruism Organisations are affected by a number of stakeholder groups The major
groups include customers and constituents, employees and unions, suppliers, competitors,
lenders, shareholders and owners, governments, special interest groups and local
communities In order to perform better, the organisations should be socially responsive.
KEY WORDS
Corporate Accountability
Spans emerging CSR issues like business ethics, diversity, marketplace behaviour,
governance, human rights, and labour rights as well as more traditional areas of financial
and environmental performance.
Comprehensive Audit
It tries to measure, verify and evaluate the total performance of the organization including
its social responsibility activities.
Partial Social Audit
In this case, the company undertakes to measure a specific aspect of its social performance (
e.g. environment, energy, human resources) because it considers that aspect to be very
important.
Global Corporate Social Responsibility
Social Audit
It is an essential assessment of how well a company has discharged its social obligations.
Social Process Audit
It tries to measure the effectiveness of those activities of the organization which are largely
taken up to meet certain social objectives.
3.
a)
b)
c)
d)
4.
Social Process Audit involves the following steps
a)
State how the organization is going to meet goals, Find circumstances leading to the
starting of the social audit programme, List out goals,
Qualitatively evaluate what is
actually done as against what has been planned
b)
Find circumstances leading to the starting of the social audit programme, List out
goals, State how the organization is going to meet such goals, Qualitatively evaluate what
is actually done as against what has been planned
c)
List out goals, Find circumstances leading to the starting of the social audit
programme, State how the organization is going to meet such goals, Qualitatively evaluate
what is actually done as against what has been planned
d)
Qualitatively evaluate what is actually done as against what has been planned, Find
circumstances leading to the starting of the social audit programme, List out goals, State
how the organization is going to meet such goals,
5.
Ethics refers to
a)
b)
c)
d)
6.
a)
b)
c)
d)
7.
a)
b)
c)
d)
Counterfeiting refers to
printing money
stealing money
violating the patent and copyright of another firm
All of the above
8.
Grey marketing refers to
a)
selling grey coloured products
b)
goods are imported and sold through market distribution channels not authorised by
the manufacturer
c)
Selling bad quality products
d)
Selling same type of products
9.
a)
b)
c)
d)
10.
a)
measure, verify and evaluate the total performance of the organization including its
profitability activities
b)
measure, verify and evaluate the total performance of the organization including its
technical activities
c)
measure, verify and evaluate the total performance of the organization including its
economic activities
d)
measure, verify and evaluate the total performance of the organization including its
social responsibility activities
CHAPTER-9
CRISIS MANAGEMENT, TRIPLE
SUSTAINABILITY REPORTING
BOTTOM
LINE
&
Crisis management is the art of making decisions to head off or mitigate the effects of such
an event, often while the event itself is unfolding. This often means making decisions about
your institutions future while you are under stress and while you lack key pieces of
information.
What is usually called crisis management should be best understood as part of a broad
continuum of activities as follows:
Planning: Planning relates to getting your institution in the best position to react to, and
recover from, an emergency.
Incident Response: Incident responses are the processes that you have put into place to
ensure that your institution reacts properly and orderly to an incident as it occurs. Examples
of incident response include:
Evacuation after a called-in bomb threats.
Denial of entry to suspicious persons.
Calling for medical help when a child is injured in your school.
Crisis Management: Crisis Management is the management and coordination of your
institutions responses to an incident that threatens to harm, or has harmed, your institutions
people, structures, ability to operate, valuables and/or reputation. It takes into account your
planning and automatic incident response, but must also dynamically deal with situations as
they unfold, often in unpredictable ways.
Business Continuity: Business continuity relates to those steps necessary to restore your
institution to normal functioning.
As will be discussed in detail below, a great deal of crisis management occurs before a crisis
begins: it is about planning and preparing.
9.2 The Crisis Management Continuum:
Planning
Introduction
As mentioned above, planning relates to getting your institution in the best position to react
to, and recover from, a crisis. Planning for a crisis is discussed in some detail throughout this
manual. For example, the chapter on explosive threats helps you consider what is necessary
Global Corporate Social Responsibility
There is no science in creating such a plan and the institutions leadership should think about
the kinds of incidents they would want to know about immediately. These may include, but
are not limited to:
1. Security threats (e.g., bomb threats)
2. Allegations that may expose the institution to legal liability or embarrassment
3. Allegations that an employee or lay volunteer is acting in a manner that is inconsistent
with the institutions best interests, such as misuse of an institutions resources
4. Any inconsistency between expected and actual bank balances
5. Requests for information that is inappropriate (i.e., a request by an unknown person for an
employees home address)
6. Requests for information relating to the institutions security or infrastructure (i.e., a
request for information about where employees park or when the office is unoccupied)
7. Requests for donor information
8. Attempts to improperly access computer systems and/or hack an institutions Web site
9. All other contacts that concern the employee
10. All unusual events, including repeated hang-up phone calls, calls that contain sharp
disagreement with an institutions policy or practice, and visitors who concern the employee
The institutions leadership should create a reporting mechanism (e.g., a log) to maintain a
log of these and other incidents.
Of course, many of the above may be consistent with lawful and innocent behavior and a
good deal of judgment and discretion is required. Finally, this is not a complete list, and such
a list must be drawn up with your particular institutions situation in mind.
Management must work to create a culture where employees can communicate these
incidents to managements attention without fearing overreaction or any negative
consequences to the reporting employee (including feeling as if they are not being treated
seriously).
Creating a Crisis Team
A second key element of getting your institution in the best position to react to, and recover
from, an emergency relates to the creation of a crisis team that is ready to quickly come
together to help manage an institutions way through a crisis.
The senior manager of an institution should establish a mechanism for pulling together a
crisis team. She should:
1. Identify the key players who will be on a crisis management team, based on their
specialties, willingness to serve, and personalities
a. Example (large institution): Senior manager, Board Chair, Rabbi, Facilities Chair,
Principal, General Counsel, Information technology leadership, etc.
b. Example (small institution): Rabbi, Board Chair, two or three active and involved board
members, maintenance person
2. Identify the person (or people) authorized to bring the team together during a crisis (the
crisis team manager)
a. You may wish to designate this task to someone other than the most senior manager, as
locating and bringing the crisis team together may detract from the senior managers efforts
to deal with the crisis as it unfolds
b. You may wish to designate this task to someone other than Rabbi: he or she may be
obligated to attend to religious duties
3. The crisis team manager should be able to be reached 24/7. Similarly, the crisis manager
should be able to reach the members of his or her crisis team 24/7. Of course, this raises
issues relating to Shabbat and holidays with work restrictions.
The function and role of the crisis team is discussed in greater detail below. But, in short, the
crisis team will be responsible for restoring command, control and communications during
a crisis while gathering as much information as possible, so that the directives of the senior
manager can be well informed and effectively implemented.
In an effort to build cohesion and to work out any problems, the crisis team should practice
crisis management. One way to practice this is by working through scenarios during a socalled table-top exercise, in which team members work their way through a fictitious crisis.
9.3 The Crisis Management Continuum:
Incident Response
Incident response is the automatic process that an institution puts into place to ensure that
employees and systems react properly to an incident as it occurs. The more standard
procedures you can put into place, and on which you train your staff, the less likely you are
to encounter confusion and chaos when a crisis occurs.
Such automatic processes involve careful planning, and much of the manual has been
devoted to this topic.
The key point is the awareness that, during a crisis, you must recognize that the most senior
manager will likely not be the one who is triggering these responses. For example, a junior
staff person may find herself confronting the situation of an armed intruder or an
unidentified package and being forced to make a decision while more senior management
is elsewhere. While it would be preferable if the employee could consult a senior manager
about what to do during an emerging crisis, in reality, this employee may have to act
immediately for the safety of the entire organization and its constituents. Your planning
must be cognizant of this fact and should seek to appropriately empower such staff
personnel with the knowledge of when and how to act.
9.4 The Crisis Management Continuum:
Crisis Management
The psychology of crisis decision making
There are a few related schools of thought about crisis management:
1. In a crisis, a manager can do everything right using all available information and
the best possible judgment and the decision can still make matters worse.
This rule is perhaps most important and the most difficult. To the extent a manager can
recover from making a bad decision during a crisis, he or she has a hope of guiding the
institution forward. To the extent that the manager is incapable of personally and
psychologically recovering from making a bad decision, the manager will likely fail or
make things even worse than they have become.
2. A leader will never get perfect information during a crisis situation and leaders
will succeed only where they are capable of making a decision absent perfect
information.
If a manager is incapable of making a decision under conditions of grave uncertainty or
confusion, then it is unlikely that the manager will succeed in a crisis.
3. Decisions will be reviewed by hindsight.
It is a harsh reality that once a crisis has subsided, anyone not directly associated with the
decision making process (and perhaps some who were) will begin to critically examine
every decision the manager made. In some cases, as the dust settles, blame may be assigned,
lawsuits may be filed, and jobs may be lost.
Managers who are daunted by this prospect may become paralyzed or take perceived safer
decision paths that may make matters worse.
The Moment of Crisis
The Team
Upon the determination that a crisis has arisen, the senior manager should have her crisis
manager identify those members of the crisis team that will staff this crisis and then pull that
team together. In the meantime, she should focus her attention on managing the crisis.
A crisis team in action should have several features:
1. The crisis team manager will be in charge of the crisis team absent the senior
manager. To put it bluntly: if no one is the head of the team, no decisions will be made,
especially because people often resist assuming the risk of making decisions.
2. The crisis team manager will serve as key liaison between the organizational
leadership and the crisis team.
3. Crises are not the time for democratic decision making; they are not also the time for
autocracy. The crisis manager and the senior manager will need to hear the advice of their
crisis team and make decisions in light of but not necessarily deferring to those
recommendations.
Command, Control and Communications
As discussed, one key role of the crisis team is to ensure that the best information available
is received by management and that the orders, decisions and communications of the
organization are able to be shared with their intended audiences. This will allow
management to manage the crisis as effectively as possible, and can minimize the risk that
uninformed, dissident, or panicked voices will fill the vacuum.
To review some earlier discussions about command, control and communications in this
manual:
1. It is essential that a decision-maker be identified, that this person have the authority to act
and that the decisions can be effectively communicated to those who need to know.
a. during an emergency (they may be out sick or on vacation or even at lunch or away from
the office for a meeting). Thus, it is important to be able to quickly ascertain who is in
charge at any given point. Consider having a list of succession in the event of an
absence. This will enable an institution to quickly establish a clear chain of command in
light of the days staffing and attendance.
2. Consider establishing a command center, the place where decision-makers meet during an
emergency and establish command, control and communications. You may wish to have
Global Corporate Social Responsibility
building plans, contact information and other institution-specific critical information stored
at this location.
3.Have the means to communicate and be communicated with.
a. Know telephone numbers, fax numbers, and email addresses of key managers,
constituents and media contacts. Make sure that employees know how to reach the command
center to report information.
b. Have redundant communications systems. To the extent possible, being able to reach out
and be reached by more than one means may make the difference in a crisis. For instance,
during a blackout or similar emergency, SMS (texting) may work better on cell phones
than cell phone calls themselves.
Besides preventing what may be counterproductive or, worse, deadly confusion during an
incident, having an effective communication plan will also help you manage those outside of
the immediate incident, including those who need or want information, such as the media
and parents. Some thoughts, also discussed elsewhere in the manual:
1. Designate a single spokesperson for the institution. If it is necessary to have more than
one, it is essential that they carefully coordinate their message.
2. This spokesperson should be the sole contact point for the media, constituents and anyone
else who needs information from the institution.
3. Depending on the nature of the incident, especially if it involves children, the
spokesperson might direct constituents to a further contact point.
4. Information should be clear, factual, non-emotional and consistent with law enforcement
requirements.
5. The person designated to be your spokesperson should not have other, more important
duties to attend to during an incident and recovery. The spokespersons job is to convey
information. Therefore, consider how engaged in the emergency and follow-up any potential
spokesperson should be.
6. The media may be interested in your incident. They may also be the most effective way to
communicate important information to constituents. Depending on where you are, media
may be more or less receptive to becoming a conduit for relaying information. However, if
you do not wish to draw undue attention to the event, you may elect not to call the media.
However, media can find out about events without your calling them they monitor police
scanners and have other sources. Thus, though you may wish to avoid media attention, it is
sometimes inevitable.
7. When speaking to the media, be clear, direct and honest. Speak in short, declarative
sentences. (e.g., The facility will remain closed for the next two days.)
8. Craft your message before you are interviewed. Develop two or three key points and stick
to them: e.g., Everyone is safe, parents should call xxx-xxx-xxxx, The institution has
taken appropriate security measures, A lawsuit has been filed. In many cases, you can
answer any question with these concise, stock statements.
9. Speak to emergency officials about your message, if possible. This is especially true if a
crime has been committed. The police may wish you to help them keep certain facts quiet so
that they may determine if a subsequent incident is a copycat or not, and/or to ensure that an
ongoing investigation is not otherwise damaged.
10. You are under no obligation to answer media questions, but note that if a story is to run,
you may wish to contribute your point of view.
11. Practice.
Impact
As you gain more knowledge, assert more command, control and communications, your
ability to impact a situation should increase accordingly to a point. As time passes,
outside forces, including media, alternative voices, and other noise can interfere with your
ability to manage and have an impact on the situation. At the same time, your ability to keep
control and gather new information may degrade.
In short, the faster you can increase your ability to gain knowledge and establish
command, control and communications, the more time you will have to be influential.
9.5 The Crisis Management Continuum:
Business Continuity
Business continuity relates to those steps necessary to restore your institution to normal
functioning after a crisis.
Preparing for Disaster Recovery.
Disaster recovery is a critical part of post-incident work. Recovery is much easier if
preparation is done beforehand.
Some thoughts on preparing for disaster recovery:
1. Maintain off-site, current backups of critical data, vendor lists, employee, constituent and
donor contact lists, and other mission-critical information. This may entail someone taking a
disk home with them, but if the disk or data is lost, information may get into the wrong
hands. Backup security is vital.
2. Conduct an insurance review to ensure that insurance is adequate to cover all institutional
needs. Keep insurance records with backup information.
3. Explore legal aspects of recovery with the institutions attorney, including discussions as
to whether someone has the authority or can be designated with legal authority to take
emergency steps on behalf of the institution.
4. Plan for relocating students, patients, campers, seniors, and staff ahead of time before
disaster strikes.
5. Inventory everything that would cause the institution to cease operations if destroyed.
6. Review all existing service agreements and whether they include adequate post-disaster
service provisions and recovery assistance.
business entity should be used as a vehicle for coordinating stakeholder interests, instead of
maximizing shareholder (owner) profit.
9.8 The bottom lines
The triple bottom line is made up of "social, economic and environmental" the "people,
planet, profit" phrase was coined for Shell by Sustainability, influenced by 20th century
urbanist Patrick Geddes's notion of 'folk, work and place'.
"People, planet and profit" succinctly describes the triple bottom lines and the goal of
sustainability.
"People" (human capital) pertains to fair and beneficial business practices toward labour
and the community and region in which a corporation conducts its business. A TBL
company conceives a reciprocal social structure in which the well-being of corporate, labour
and other stakeholder interests are interdependent.
A triple bottom line enterprise seeks to benefit many constituencies, not exploit or endanger
any group of them. The "upstreaming" of a portion of profit from the marketing of finished
goods back to the original producer of raw materials, i.e., a farmer in fair trade agricultural
practice, is a common feature. In concrete terms, a TBL business would not use child labour
and monitor all contracted companies for child labour exploitation, would pay fair salaries to
its workers, would maintain a safe work environment and tolerable working hours, and
would not otherwise exploit a community or its labour force. A TBL business also typically
seeks to "give back" by contributing to the strength and growth of its community with such
things as health care and education. Quantifying this bottom line is relatively new,
problematic and often subjective. The Global Reporting Initiative (GRI) has developed
guidelines to enable corporations and NGOs alike to comparably report on the social impact
of a business.
"Planet" (natural capital) refers to sustainable environmental practices. A TBL company
endeavors to benefit the natural order as much as possible or at the least do no harm and
curtail environmental impact. A TBL endeavor reduces its ecological footprint by, among
other things, carefully managing its consumption of energy and non-renewables and
reducing manufacturing waste as well as rendering waste less toxic before disposing of it in
a safe and legal manner. "Cradle to grave" is uppermost in the thoughts of TBL
manufacturing businesses which typically conduct a life cycle assessment of products to
determine what the true environmental cost is from the growth and harvesting of raw
materials to manufacture to distribution to eventual disposal by the end user. A triple bottom
line company does not produce harmful or destructive products such as weapons, toxic
chemicals or batteries containing dangerous heavy metals for example.
Currently, the cost of disposing of non-degradable or toxic products is borne financially by
governments and environmentally by the residents near the disposal site and elsewhere. In
TBL thinking, an enterprise which produces and markets a product which will create a waste
Global Corporate Social Responsibility
problem should not be given a free ride by society. It would be more equitable for the
business which manufactures and sells a problematic product to bear part of the cost of its
ultimate disposal.
Ecologically destructive practices, such as overfishing or other endangering depletions of
resources are avoided by TBL companies. Often environmental sustainability is the more
profitable course for a business in the long run. Arguments that it costs more to be
environmentally sound are often specious when the course of the business is analyzed over a
period of time. Generally, sustainability reporting metrics are better quantified and
standardized for environmental issues than for social ones. A number of respected reporting
institutes and registries exist including the Global Reporting Initiative, CERES, Institute 4
Sustainability and others.
The eco bottom line is akin to the concept of Eco-capitalism.
"Profit" is the economic value created by the organisation after deducting the cost of all
inputs, including the cost of the capital tied up. It therefore differs from traditional
accounting definitions of profit. In the original concept, within a sustainability framework,
the "profit" aspect needs to be seen as the real economic benefit enjoyed by the host society.
It is the real economic impact the organization has on its economic environment. This is
often confused to be limited to the internal profit made by a company or organization (which
nevertheless remains an essential starting point for the computation). Therefore, an original
TBL approach cannot be interpreted as simply traditional corporate accounting profit plus
social and environmental impacts unless the "profits" of other entities are included as a
social benefits.
9.9 Arguments for
The following business-based arguments support the concept of TBL:
Reaching untapped market potential: TBL companies can find financially profitable
niches which were missed when money alone was the driving factor. Examples
include:
4. Adding ecotourism or geotourism to an already rich tourism market such as the
Dominican Republic
5. Developing profitable methods to assist existing NGOs with their missions such as
fundraising, reaching clients, or creating networking opportunities with multiple
NGOs
6. Providing products or services which benefit underserved populations and/or the
environment which are also financially profitable.
Adapting to new business sectors: Since many business opportunities are developing
in the realm of social entrepreneurialism, businesses hoping to reach this expanding
market must design themselves to be financially profitable, socially beneficial and
Global Corporate Social Responsibility
Advocacy for triple bottom line reforms is common in Green Parties. Some of the measures
undertaken in the European Union towards the Euro currency integration standardize the
reporting of ecological and social losses in such a way as to seem to endorse in principle the
notion of unified accounts, or unit of account, for these deficits.
9.10 Criticism
While many people agree with the importance of good social conditions and preservation of
the environment, there are also many who disagree with the triple bottom line as the way to
enhance these conditions. The main arguments against it are summarised below.
Division of labour is characteristic of rich societies and a major contributor to their
wealth. This leads to the view that organisations contribute most to the welfare of
society in all respects when they focus on what they do best: the baker exchanges his
loaves with the shoemaker rather than making his own shoes to the benefit of both
and by extension the whole of society. In the case of business the expertise is in
satisfying the needs of society and generating a value added surplus. Thus the triple
bottom line is thought to be harmful by diverting business attention away from its
core competency. Just as charitable organizations like the Red Cross would not be
expected to attend to environmental issues or pay a cash dividend, and Greenpeace
would not be expected to make a profit or succor the homeless, business should not
be expected to take on concerns outside its core expertise, provided the business
doesn't do obvious harm to people or the planet.
Effectiveness: It is observed that concern for social and environmental matters is rare
in poor societies (a hungry person would rather eat the whale than photograph it). As
a society becomes richer its citizens develop an increasing desire for a clean
environment and protected wildlife, and both the willingness and financial ability to
contribute to this and to a compassionate society. Support for the concept of the triple
bottom line itself is said to be an example of the choices available to the citizens of a
society made wealthy by businesses attending to business. Thus by unencumbered
attention to business alone, Adam Smith's Invisible Hand will ensure that business
contributes most effectively to the improvement of all areas of society, social and
environmental as well as economic.
Nationalism: Some countries adopt the view that they must look after their own
citizens first. This view is not confined to one sector of society, having support from
elements of business, labour unions, and politicians.
Libertarian: As it is possible for a socially responsible person to sincerely believe
that the triple bottom line is harmful to society, the libertarian view is that it would
be arrogant to force them to support a mechanism for the improvement of society
that may, or may not, be the best available. That is, those who would not force
Greenpeace and the Salvation Army to generate a profit should not force businesses
Global Corporate Social Responsibility
Indicators are used to measure performance. They are instrumental to bridging the gap
between a code of conduct and CSR practices. An indicator enables one to access if goals
are met . They also inform decisions as to strategies to take to achieve
GRI' s g3 Indicators
Domini
Corporate
Responsibly:
Benchmarks
Corporations
EMP
The
World
Bank
group
supplies these
suggested
Environmental
Management
Program
(EMP)
Indicators.
There is a
plethora
of
EMPs,
the
ISO
14001
family being
one of them.
For the most
part,
developing
indicators is
part of an
EMP.
Most
indicators are
like those in
the
link
provided
above:
quantitative
measurements
for levels of
chemicals or a
resource use.
Check the box
indicators can
also be a part
of an EMP.
Environmental
World Bank's
Page 417 of 496
Investments
Socially Responsible
Investment
(SRI)
represent a growing
section of the financial
market in American
and
Europe.
The
Indicators
specific
indicators are not
usually available to the
public. Other SRI
indicators
include
rating
organization
such as the Calvert
Fund and Dow Jones
Sustainability Index.
The
World
Development
Indicators are
a publication
of the World
Bank. They
provide
economic,
social
and
environmental
data
for
countries.
Indicators
include
the
CO2
emissions,
poverty rate,
internet use,
birth rates per
woman, and
the time it
takes to start a
business
In order for an indicator for the triple bottom line to be effective, it must tie the financial
impacts to a business' net income of CSR practices. This is because a business cannot stay in
business if it is not profitable in the long term.
Indicators that tie the amount of a resource reused, recycled or reduced to the cost savings
are effective because they enable a manager to measure how environmentally responsible
activities are also economically responsible.
Criteria
Adaptable
Current
Practices
GRI's g3
Benchmarks
Social
Venture
EMP
ILO
so
the
of
of EMPs, but
may not fit
with
all
Stakeholder
programs.
Continual
Improvement
overwhelming. yes/no
or
Some
quantifiable.
inapplicable to
all industries.
Can
use
indicators to
set
specific Specifically
and
included
measurable
goals
Includes
indicators
for activities
that would
add-value to
business
practices.
Yes,
Comprehensive
Coverage
of Yes, includes Yes, includes includes
Triple Bottom five aspects. many aspects. many
aspects.
Line
Detailed,
Detailed with
includes
sufficient
sector
specificity
supplements
Integrates
Financial
Impacts
of
Not directly
Social
and
Environmental
Practices
Detailed
in
coverage but
includes overly Detailed
broad
indicators
Not directly
Yes:
Could
become
Positioning for
international Does
Competitive
treaty, Used consider.
Advantage
by many, PR
tool
More
qualitative
Quantitative
than
and
enables
quantitative.
meaningful
Can be used
comparisons
in conjunction
with
Determined
with
Not
Implementation included
of EMP.
No:
only
labor
usually
covered.
Mixture of
Determined
broad and
with
very
Implementation detailed and
of EMP.
specific
conventions
Could integrate
Not directly if cost data is Not directly
available
Yes,
by
creating
not
markets and
economies
of scale.
Quantitative,
Emphasis on
but yes/no
qualitative or
emphasis
yes/no
may not be
measurements.
meaningful.
AA1000,
SA8000 or
other
stakeholder
group.
Could, if goal
is
beyond
compliance
with
regulations.
Could
by
creating
partnerships
with
potential
adversaries
No: must be
Determined
used with
with
other
Implementation program or
of EMP.
indicators
fashioned
Page 419 of 496
explanations
to
demonstrate
best practices
Conclusion: The GRI's g3 best fits the criteria for an effective indicator. It is also can be
used in conjunction with initiatives such as an EMP or the SA8000 and stakeholder
interactions. A manager would do to enrich the GRI's g3 indicators data about costs and
revenue or profits.
9.12 The Triple Bottom Line Explained:
The triple bottom line refers to a how a corporation deals with and reports on its impact and
behaviour in respect to people, planet and profit. It reflects a corporations greater
transparency and accountability in its public reporting, communication and disclosure in
regard to how the corporate entity performs in environmental, social and economic
dimensions. While there is no single universally accepted definition of TBL reporting, in a
sentence it can be defined as corporate communication with stakeholders that describes the
companys approach to managing economic, environmental and social social dimensions of
its activities.
It is also known as corporate social responsibility, though some prefer to use the word
sustainability as more encompassing, as they argue that responsibility emphasises the
benefits to social groups outside the business, whereas sustainability gives equal importance
to the benefits enjoyed by the corporation itself. Sustainable in this definition also refers to
development that must not reduce options open to future generations.
However, responsibility and sustainability are both used to refer to a companys obligations
to society at large.
The phrase ''corporate social responsibility'' (CSR) is used to describe why, when, and how
businesses manage their social, environmental, and economic aims and performance. It is an
expression of the belief that it is not enough for a company simply to profit its owners.
Rather, CSR holds that a company also must ensure that it does little or no harm to, and
preferably helps, its workers, the environment, and the communities in which it operates.
As such, CSR is a balancing act between the interests of a company's various ''stakeholders''
including shareowners, executives, employees, communities, and customers. It also is
referred to as ''good corporate citizenship'', ''compassionate capitalism'', and ''business
ethics''.
CSR has evolved in diverse ways for different companies, industries, and societies. In the
United States, Latin America and Southeast Asia, for example, much CSR involves
Global Corporate Social Responsibility
donations to social and artistic causes and other such acts of corporate philanthropy. In
Europe, where charity is regarded as a peripheral aspect of corporate operations, debate
about CSR has focused on the environmental and social impact of companies' business
functions.
The concept of the Triple bottom line was proposed by John Elkington, who suggests that
businesses need to measure their success not only by the traditional bottom line of financial
performance & profit, but also by their impact on the broader economy, the environment and
on the society in which they operate.
In conducting their businesses, companies use not only financial resources (investment
dollars, sales revenues), but also environmental resources (water, energy, raw materials) and
social resources (employees time and talents, infrastructure provided by govt agencies). His
argument was that a sustainable business out to be able to measure, document ad report a
positive return on investment across all three bottom lines, as well as showing the benefits
that stakeholders receive along the same three dimensions.
Basically, triple bottom line (TBL) reporting is meant to capture, describe and measure the
impact of the organisations activities on the world.
The triple bottom line exists as a kind of balanced scorecard that captures in numbers and
words the degree to which any company is or is not creating value for its shareholders and
society.
Economic (profit)
Environmental (planet)
Social (people)
Sales, profits return on investment Air quality Labour practices Taxes paid Water quality
Community impacts
Monetary flows Energy usage Human rights
Jobs created Waste produced Product responsibility
In terms of; People social justice,
Planet environmental issues
Profit economy prosperity.
Stakeholders could be: shareholders, investors, employees, customers, suppliers, the
community and government.
Global Corporate Social Responsibility
9.13 Benefits:
Enhancement of reputation and brand
Effective communication with stakeholders on one or more of TBL dimensions can play an
important role in manageing stakeholder perceptions and so protect and enhance corporate
reputation (look what happened to wheat board shares).
Securing a social licence to operate
This is kind of like reputation, an informal community and stakeholder support for the
organisations operations communities are likely to be more supportive of companies that
communicate openly & honestly about their performance in relation to environ, social &
economic factors.
Attraction and retention of high calibre employees
The publication of TBL information can play a role in positioning an employer as an
employer of choice, which can enhance employee loyalty, reduce turnover attract
knowledge/gold collar workers.
Reduced risk profile
When TBL reporting takes place a company shows its commitment to minimising risk in
times of increasing litigation, where due diligence can be established and a company
establishes risks, they can be better managed. In turn, this improves stakeholder relations
and makes it easier to attract investment capital and therefore positively affect the share
price.
Identification of potential cost savings
TBL reporting involves the collection, collation and analysis of data on resource and
material usage and the assessment of business processes. This can actually help a company
to better identify opportunities for cost savings through more efficient use of resources and
materials.
Increased scope for innovation
In the process of reporting on all aspects of TBL, a company may actually create new
innovations, e.g. trying to use less water, invent a grey water recycler.
Creation of a sound basis for stakeholder dialogue
Publication of TBL reporting creates a platform for engaging in dialogue with stakeholders.
Understanding stakeholder requirements and aligning them with business performance is
fundamental to business success.
Global Corporate Social Responsibility
9.14 Problems:
There is no universal method of measuring, so there are no social, environmental and ethical
equivalents of revenue, expenses, equity, assets, and liabilities.
There is not yet any way to accurately or completely describe consumer, community or
environmental benefits using a number.
In Australia companies self report and there is no mandatory auditing mechanism. Reports
from Bluescope steel, Orica, Caltex for example, were not audited but Westpacs was
audited by an independent specialist.
GRI warns that the decision to publish a TBL report actually has the potential to expose a
company to ADDITIONAL risk in relation to the reliability of the report if information is
lacking credibility, cannot be substantiated, there is a risk of reputation damage, erosion of
brand, negative media publicity and a general loss of stakeholder support and trust.
Independent verification provides the board and senior executives with assurance as to the
accuracy and reliability of reported statements and info and is the most effective way of
managing this potential risk.
Businesses are now global, so Phillip Morris owns food company Kraft as well as
manufacturing cigarettes. Alcoa working closely with communities in land care but also
heavily involved in mining non-renewable resources.
Hershey story, (nearly went under because they tried to sell out to Wrigley without getting
community support the community sabotaged it because of the social disruption it would
cause the community in terms of jobs, tourism, etc).
Sweetspot the common-ground shared by your business interests and the interests of the
public: the sweet spot is here the pursuit of profit seamlessly blends with the common good.
Eg. GE's creation of clean technology to carbon emissions. Addressing climate change
allowed them to sell over $1 billion worth of wind and natural gas turbines to china since
2003.
PepsiCo increased market share and supported healthier lifestyle habits by purchasing
Quaker oats.
Toyota created the hybrid gas/elec car the Prius, waiting lists are 16 months long and as
well as helping Toyota break into the big 3 car manufacturers in US, it is also good for the
environment
a textbook example of the sweet spot.
The Global Reporting Initiatives (GRI) vision is that reporting on economic, environmental,
and social performance by all organizations becomes as routine and comparable as financial
reporting. GRI accomplishes this vision by developing, continually improving, and building
capacity around the use of its Sustainability Reporting Framework.
An international network of thousands from business, civil society, labor, and professional
institutions created the content of the Reporting Framework in a consensus-seeking process.
The goal of sustainable development is to meet the needs of the present without
compromising the ability of future generations to meet their own needs.As key forces in
society, organizations of all kinds have an important role to play in achieving this goal. Yet
in this era of unprecedented economic growth, achieving this goal can seem more of an
aspiration than a reality. As economies globalize, new opportunities to generate prosperity
and quality of life are arising though trade, knowledge-sharing, and access to technology.
However, these opportunities are not always available for an ever-increasing human
population, and are accompanied by new risks to the stability of the environment. Statistics
demonstrating positive improvements in the lives of many people around the world are
counter-balanced by alarming information about the state of the environment and the
continuing burden of poverty and hunger on millions of people.
This contrast creates one of the most pressing dilemmas for the 21st century. One of the key
challenges of sustainable development is that it demands new and innovative choices and
ways of thinking. While developments in knowledge and technology are contributing to
economic development, they also have the potential to help resolve the risks and threats to
the sustainability of our social relations, environment, and economies. New knowledge and
innovations in technology, management, and public policy are challenging organizations to
make new choices in the way their operations, products, services, and activities impact the
Global Corporate Social Responsibility
earth, people, and economies. The urgency and magnitude of the risks and threats to our
collective sustainability, alongside increasing choice and opportunities, will make
transparency about economic, environmental, and social impacts a fundamental component
in effective stakeholder relations, investment decisions, and other market relations. To
support this expectation, and to communicate clearly and openly about sustainability, a
globally shared framework of concepts, consistent language, and metrics is required. It is the
Global Reporting Initiatives (GRI) mission to fulfil this need by providing a trusted and
credible framework for sustainability reporting that can be used by organizations of any size,
sector, or location.
Transparency about the sustainability of organizational activities is of interest to a diverse
range of stakeholders, including business, labor, non-governmental organizations, investors,
accountancy, and others. This is why GRI has relied on the collaboration of a large network
of experts from all of these stakeholder groups in consensus-seeking consultations. These
consultations, together with practical experience, have continuously improved the Reporting
Framework since GRIs founding in 1997. This multi-stakeholder approach to learning has
given the Reporting Framework the widespread credibility it enjoys with a range of
stakeholder groups.
9.16 The Purpose of a Sustainability Report
Sustainability reporting is the practice of measuring, disclosing, and being accountable to
internal and external stakeholders for organizational performance towards the goal of
sustainable development.
Sustainability reporting is a broad term considered synonymous with others used to
describe reporting on economic, environmental, and social impacts (e.g., triple bottom line,
corporate responsibility reporting, etc.).
A sustainability report should provide a balanced and reasonable representation of the
sustainability performance of a reporting organization including both positive and negative
contributions.
Sustainability reports based on the GRI Reporting Framework disclose outcomes and results
that occurred within the reporting period in the context of the organizations commitments,
strategy, and management approach. Reports can be used for the following purposes, among
others:
Benchmarking and assessing sustainability performance with respect to laws, norms,
codes, performance standards, and voluntary initiatives;
Demonstrating how the organization influences and is influenced by expectations about
sustainable development; and
Comparing performance within an organization and between different organizations over
time.
9.17 Orientation to the GRI Reporting Framework
All GRI Reporting Framework documents are developed using a process that seeks
consensus through dialogue between stakeholders from business, the investor community,
labor, civil society, accounting, academia, and others. All Reporting Framework documents
are subject to testing and continuous improvement.
The GRI Reporting Framework is intended to serve as a generally accepted framework for
reporting on an organizations economic, environmental, and social performance. It is
designed for use by organizations of any size, sector, or location. It takes into account the
practical considerations faced by a diverse range of organizations from small enterprises to
those with extensive and geographically dispersed operations.
The GRI Reporting Framework contains general and sector-specific content that has been
agreed by a wide range of stakeholders around the world to be generally applicable for
reporting an organizations sustainability performance.
9.18 The Sustainability Reporting Guidelines (the Guidelines) consist of Principles for
defining report content and ensuring the quality of reported information. It also includes
Standard Disclosures made up of Performance Indicators and other disclosure items, as well
as guidance on specific technical topics in reporting.
Indicator Protocols exist for each of the Performance Indicators contained in the
Guidelines. These Protocols provide definitions, compilation guidance, and other
information to assist report preparers and to ensure consistency in the interpretation of the
Performance Indicators. Users of the Guidelines should also use the Indicator Protocols.
Sector Supplements complement the Guidelines with interpretations and guidance on how
to apply the Guidelines in a given sector, and include sector-specific Performance Indicators.
Applicable Sector Supplements should be used in addition to the Guidelines rather than in
place of the Guidelines.
Technical Protocols are created to provide guidance on issues in reporting, such as setting
the report boundary.
Global Corporate Social Responsibility
They are designed to be used in conjunction with the Guidelines and Sector Supplements
and cover issues that face most organizations during the reporting process.
9.19 Orientation to the GRI Guidelines
The Sustainability Reporting Guidelines consist of Reporting Principles, Reporting
Guidance, and Standard Disclosures (including Performance Indicators). These elements are
considered to be of equal in weight and importance.
Part 1 Reporting Principles and Guidance
Three main elements of the reporting process are described in Part 1. To help determine
what to report on, this section covers the Reporting Principles of materiality, stakeholder
inclusiveness, sustainability context, and completeness, along with a brief set of tests for
each Principle. Application of these Principles with the Standard Disclosures determines the
topics and Indicators to be reported. This is followed by Principles of balance,
comparability, accuracy, timeliness, reliability, and clarity, along with tests that can be used
to help achieve the appropriate quality of the reported information. This section concludes
with guidance for reporting organizations on how to define the range of entities represented
by the report (also called the Report Boundary).
sector, or location. Reporting can take various forms, including web or print, stand alone or
combined with annual or financial reports.
The first step is to determine report content. Guidance for this is provided in Part 1. Some
organizations may choose to introduce reporting against the full GRI Reporting Framework
from the outset, while others may want to start with the most feasible and practical topics
first and phase in reporting on other topics over time. All reporting organizations should
describe the scope of their reporting and are encouraged to indicate their plans for expanding
their reporting over time.
9.20 GRI Application Levels
Upon finalization of their report, preparers should declare the level to which they have
applied the GRI Reporting Framework via the GRI Application Levels system. This
system aims to provide:
Report readers with clarity about the extent to which the GRI Guidelines and other
Reporting Framework elements have been applied in the preparation of a report.
Report preparers with a vision or path for incrementally expanding application of the
GRI Reporting Framework over time. Declaring an Application Level results in a clear
communication about which elements of the GRI Reporting Framework have been applied
in the preparation of a report. To meet the needs of new beginners, advanced reporters, and
those somewhere in between, there are three levels in the system. They are titled C, B, and
A, The reporting criteria found in each level reflects an increasing application or coverage of
the GRI Reporting Framework. An organization can self-declare a plus (+) at each level
(ex., C+, B+, A+) if they have utilized external assurance. An organization self-declares a
reporting level based on its own assessment of its report content against the criteria in the
GRI Application Levels.
In addition to the self declaration, reporting organizations can choose one or both of the
following options:
Have an assurance provider offer an opinion on the self-declaration.
Request that the GRI check the self-declaration.
For more information on Application Levels, and the complete criteria, see the GRI
Applications Level information pack available as an insert to this document, or found online
at www.globalreporting.org.
Request for notification of use
Organizations that have used the Guidelines and/or other elements of the GRI Reporting
Framework as the basis for their report are requested to notify the Global Reporting
Initiative upon its release. While notifying GRI, organizations can choose any or all of the
following options:
Simply notify the GRI of the report and provide hard and/or soft copy
Register their report in GRIs online database of reports
Request GRI check their self-declared Application Level.
Maximizing Report Value
Sustainability reporting is a living process and tool, and does not begin or end with a printed
or online publication. Reporting should fit into a broader process for setting organizational
strategy, implementing action plans, and assessing outcomes. Reporting enables a robust
Global Corporate Social Responsibility
varying degrees of comprehensiveness and detail that could be provided in a report. In some
cases, GRI guidance exists on the level of detail generally considered appropriate for a
specific Indicator. Overall, decisions on how to report data should be guided by the
importance of the information for assessing the performance of the organization, and
facilitating appropriate comparisons.
Reporting on material topics may involve disclosing information used by external
stakeholders that differs from the information used internally for day-to-day management
purposes. However, such information does indeed belong in a report, where it can inform
assessments or decision-making by stakeholders, or support engagement with stakeholders
that can result in actions that would significantly influence performance or address key
topics of stakeholder concern.
Global Corporate Social Responsibility
Tests
External Factors
In defining material topics, take into account external factors, including:
Main sustainability interests/topics and Indicators raised by stakeholders.
The main topics and future challenges for the sector reported by peers and competitors.
Relevant laws, regulations, international agreements, or voluntary agreements with
strategic significance to the organization and its stakeholders.
Reasonably estimable sustainability impacts, risks, or opportunities (e.g., global
warming, HIV-AIDS, poverty) identified through sound investigation by people with
recognized expertise, or by expert bodies with recognized credentials in the field.
Internal Factors
In defining material topics, take into account internal factors, including:
Key organizational values, policies, strategies, operational management systems, goals,
and targets.
The interests/expectations of stakeholders specifically invested in the success of the
organization (e.g., employees, shareholders, and suppliers).
Significant risks to the organization.
Critical factors for enabling organizational success.
The core competencies of the organization and the manner in which they can or could
contribute to sustainable development.
Prioritizing
The report prioritizes material topics and Indicators.
9.23 STAKEHOLDER INCLUSIVENESS
Definition: The reporting organization should identify its stakeholders and explain in the
report how it has responded to their reasonable expectations and interests.
Explanation: Stakeholders are defined as entities or individuals that can reasonably be
expected to be significantly affected by the organizations activities, products, and/or
services; and whose actions can reasonably be expected to affect the ability of the
organization to successfully implement its strategies and achieve its objectives. This
includes entities or individuals whose rights under law or international conventions provide
them with legitimate claims vis--vis the organization.
Stakeholders can include those who are invested in the organization (e.g., employees,
shareholders, suppliers) as well as those who are external to the organization (e.g.,
communities).
The reasonable expectations and interests of stakeholders are a key reference point for many
decisions in the preparation of a report, such as the scope, boundary, application of
Indicators, and assurance approach. However, not all of an organizations stakeholders will
use the report. This presents challenges in balancing the specific interests/expectations of
stakeholders who can reasonably be expected to use the report with broader expectations of
accountability to all stakeholders.
Global Corporate Social Responsibility
For some decisions, such as the report scope or boundary of a report, the reasonable
expectations and interests of a wide range of stakeholder will need to be considered. There
may be, for example, stakeholders who are unable to articulate their views on a report and
whose concerns are presented by proxies. There may also be stakeholders who choose not to
express views on reports because they rely on different means of communication and
engagement. The reasonable expectations and interests of these stakeholders should still be
acknowledged in decisions about the content of the report. However, other decisions, such as
the level of detail required to be useful to stakeholders, or expectations of different
stakeholders about what is required to achieve clarity, may require greater emphasis on those
who can reasonably be expected to use the report. It is important to document the processes
and approach taken in making these decisions.
Stakeholder engagement processes can serve as tools for understanding the reasonable
expectations and interests of stakeholders. Organizations typically initiate different types of
stakeholder engagement as part of their regular activities, which can provide useful inputs
for decisions on reporting. These may include, for example, stakeholder engagement for the
purpose of compliance with internationally-agreed standards, or informing ongoing
organizational/ business processes. In addition, stakeholder engagement may also be
implemented specifically to inform the report preparation process.
Organizations can also use other means such as the media, the scientific community, or
collaborative activities with peers and stakeholders. These means can help the organization
better understand stakeholders reasonable expectations and interests.
For a report to be assurable, the process of stakeholder engagement should be documented.
When stakeholder engagement processes are used for reporting purposes, they should be
based on systematic or generally accepted approaches, methodologies, or principles.
The overall approach should be sufficiently effective to ensure that stakeholders
information needs are properly understood. The reporting organization should document its
approach for defining which stakeholders it engaged with, how and when it engaged with
them, and how engagement has influenced the report content and the organizations
sustainability activities. These processes should be capable of identifying direct input from
stakeholders as well as legitimately established societal expectations. An organization may
encounter conflicting views or differing expectations among its stakeholders, and will need
to be able to explain how it balanced these in reaching its reporting decisions.
Failure to identify and engage with stakeholders is likely to result in reports that are not
suitable, and therefore not fully credible, to all stakeholders. In contrast, systematic
stakeholder engagement enhances stakeholder receptivity and the usefulness of the report.
Executed properly, it is likely to result in ongoing learning within the organization and by
external parties, as well as increase accountability to a range of stakeholders. Accountability
strengthens trust between the reporting organization and its stakeholders.
Trust, in turn, fortifies report credibility.
Tests:
The organization can describe the stakeholders to whom it considers itself accountable.
The report content draws upon the outcomes of stakeholder engagement processes used
by the organization in its ongoing activities, and as required by the legal and
institutional framework in which it operates.
The report content draws upon the outcomes of any stakeholder engagement processes
undertaken specifically for the report.
The stakeholder engagement processes that inform decisions about the report are
consistent with the scope and boundary of the report.
9.24 SUSTAINABILITY CONTEXT
Definition: The report should present the organizations performance in the wider context of
sustainability.
Explanation: Information on performance should be placed in context. The underlying
question of sustainability reporting is how an organization contributes, or aims to contribute
in the future, to the improvement or deterioration of economic, environmental, and social
conditions, developments, and trends at the local, regional, or global level.
Reporting only on trends in individual performance (or the efficiency of the organization)
will fail to respond to this underlying question. Reports should therefore seek to present
performance in relation to broader concepts of sustainability. This will involve discussing
the performance of the organization in the context of the limits and demands placed on
environmental or social resources at the sectoral, local, regional, or global level. For
example, this could mean that in addition to reporting on trends in eco-efficiency, an
organization might also present its absolute pollution loading in relation to the capacity of
the regional ecosystem to absorb the pollutant.
This concept is often most clearly articulated in the environmental arena in terms of global
limits on resource use and pollution levels. However, it can also be relevant with respect to
social and economic objectives such as national or international socio-economic and
sustainable development goals. For example, an organization could report on employee
wages and social benefit levels in relation to nation-wide minimum and median income
levels and the capacity of social safety nets to absorb those in poverty or those living close to
the poverty line. Organizations operating in a diverse range of locations, sizes, and sectors
will need to consider how to best frame their overall organizational performance in the
broader context of sustainability. This may require distinguishing between topics or factors
that drive global impacts (such as climate change) and those that have more regional or local
impacts (such as community development). Similarly, distinctions might need to be made
between trends or patterns of impacts across the range of operations versus contextualizing
performance location by location. The organizations own sustainability and business
strategy provides the context in which to discuss performance. The relationship between
sustainability and organizational strategy should be made clear, as should the context within
which performance is reported.
Tests:
The organization presents its understanding of sustainable development and draws on
objective and available information as well as measures of sustainable development for the
topics covered in the report.
Global Corporate Social Responsibility
as long as the basis for estimates is clearly disclosed and the limitations of the estimates are
clearly acknowledged.
Disclosing the nature and likelihood of such impacts, even if they may only materialize in
the future, is consistent with the goal of providing a balanced and reasonable representation
of the organizations economic, environmental, and social performance.
Tests:
The report was developed taking into account the entire chain of entities upstream and
downstream, and covers and prioritizes all information that should reasonably be
considered material on the basis of the principles of materiality, sustainability context,
and stakeholder inclusiveness.
The report includes all entities that meet the criteria of being subject to control or
significant influence of the reporting organization unless otherwise declared.
The information in the report includes all significant actions or events in the reporting
period, and reasonable estimates of significant future impacts of past events when those
impacts are reasonably foreseeable and may become unavoidable or irreversible.
The report does not omit relevant information that would influence or inform
stakeholder assessments or decisions, or that would reflect significant economic,
environmental, and social impacts.
9.26 Reporting Principles for Defining Quality
This section contains Principles that guide choices on ensuring the quality of reported
information, including its proper presentation. Decisions related to the process of preparing
information in a report should be consistent with these Principles. All of these Principles are
fundamental for effective transparency. The quality of information enables stakeholders to
make sound and reasonable assessments of performance, and take appropriate action.
Reporting Principles for Defining Quality BALANCE
Definition: The report should reflect positive and negative aspects of the organizations
performance to enable a reasoned assessment of overall performance.
Explanation: The overall presentation of the reports content should provide an unbiased
picture of the reporting organizations performance. The report should avoid selections,
omissions, or presentation formats that are reasonably likely to unduly or inappropriately
influence a decision or judgment by the report reader. The report should include both
favorable and unfavorable results, as well as topics that can influence the decisions of
stakeholders in proportion to their materiality. Reports should clearly distinguish between
factual presentation and the reporting organizations interpretation of information.
Tests:
The report discloses both favorable and unfavorable results and topics.
The information in the report is presented in a format that allows users to see positive
and negative trends in performance on a year-to-year basis.
The emphasis on the various topics in the report is proportionate to their relative
materiality.
9.27 COMPARABILITY
Definition: Issues and information should be selected, compiled, and reported consistently.
Reported information should be presented in a manner that enables stakeholders to analyze
changes in the organizations performance over time, and could support analysis relative to
other organizations.
Explanation: Comparability is necessary for evaluating performance. Stakeholders using
the report should be able to compare information reported on economic, environmental, and
social performance against the organizations past performance, its objectives, and, to the
degree possible, against the performance of other organizations. Consistency in reporting
allows internal and external parties to benchmark performance and assess progress as part of
rating activities, investment decisions, advocacy programs, and other activities.
Comparisons between organizations require sensitivity to factors such as differences in
organizational size, geographic influences, and other considerations that may affect the
relative performance of an organization.
Where necessary, report preparers should consider providing context that will help report
users understand the factors that may contribute to differences in performance between
organizations.
Maintaining consistency with the methods used to calculate data, with the layout of the
report, and with explaining the methods and assumptions used to prepare information, all
facilitates comparability over time. As the relative importance of topics to a given
organization and its stakeholders change over time, the content of reports will also evolve.
However, within the confines of the Principle of Materiality, organizations should aim for
consistency in their reports over time.
An organization should include total numbers (i.e., absolute data such as tons of waste) as
well as ratios (i.e., normalized data such as waste per unit of production) to enable analytical
comparisons.
When changes occur with the boundary, scope, length of the reporting period, or content
(including the design, definitions, and use of any Indicators in the report), reporting
organizations should, whenever practicable, restate current disclosures alongside historical
data (or vice versa). This ensures that information and comparisons are both reliable and
meaningful over time. Where such restatements are not provided, the report should explain
the reasons and implications for interpreting current disclosures.
Tests:
The report and the information contained within it can be compared on a year-to-year
basis.
The organizations performance can be compared with appropriate benchmarks.
Any significant variation between reporting periods in the boundary, scope, length of
reporting period, or information covered in the report can be identified and explained.
Where they are available, the report utilizes generally accepted protocols for compiling,
measuring, and presenting information, including the GRI Technical Protocols for Indicators
contained in the Guidelines.
The report uses GRI Sector Supplements, where available.
9.28 ACCURACY
Definition: The reported information should be sufficiently accurate and detailed for
stakeholders to assess the reporting organizations performance.
Explanation: Responses to economic, environmental, and social topics and Indicators can
be expressed in many different ways, ranging from qualitative responses to detailed
quantitative measurements.
The characteristics that determine accuracy vary according to the nature of the information
and the user of the information. For example, the accuracy of qualitative information is
largely determined by the degree of clarity, detail, and balance in presentation within the
appropriate Report Boundary. The accuracy of quantitative information, on the other hand,
may depend on the specific methods used to gather, compile, and analyze data. The specific
threshold of accuracy that is necessary will depend partly on the intended use of the
information. Certain decisions will require higher levels of accuracy in reported information
than others.
Tests:
The report indicates the data that has been measured.
The data measurement techniques and bases for calculations are adequately described,
and can be replicated with similar results.
The margin of error for quantitative data is not sufficient to substantially influence the
ability of stakeholders to reach appropriate and informed conclusions on performance.
The report indicates which data has been estimated and the underlying assumptions and
techniques used to produce the estimates, or where that information can be found.
Global Corporate Social Responsibility
The qualitative statements in the report are valid on the basis of other reported
information and other available evidence.
9.29 TIMELINESS
Definition: Reporting occurs on a regular schedule and information is available in time for
stakeholders to make informed decisions.
Explanation: The usefulness of information is closely tied to whether the timing of its
disclosure to stakeholders enables them to effectively integrate it into their decision-making.
The timing of release refers both to the regularity of reporting as well as its proximity to the
actual events described in the report.
Although a constant flow of information is desirable for meeting certain purposes, reporting
organizations should commit to regularly providing a consolidated disclosure of their
economic, environmental, and social performance at a single point in time. Consistency in
the frequency of reporting and the length of reporting periods is also necessary to ensure
comparability of information over time and accessibility of the report to stakeholders. It can
be of value for stakeholders if the schedules for sustainability reporting and financial
reporting are aligned. The organization should balance the need to provide information in a
timely manner with the importance of ensuring that the information is reliable.
Tests:
Information in the report has been disclosed while it is recent relative to the reporting
period.
The collection and publication of key performance information is aligned with the
sustainability reporting schedule.
The information in the report (including web based reports) clearly indicates the time
period to which it relates, when it will be updated, and when the last updates were made.
9.30 CLARITY
Definition: Information should be made available in a manner that is understandable and
accessible to stakeholders using the report.
Explanation: The report should present information in a way that is understandable,
accessible, and usable by the organizations range of stakeholders (whether in print form or
through other channels). A stakeholder should be able to find desired information without
unreasonable effort. Information should be presented in a manner that is comprehensible to
stakeholders who have a reasonable understanding of the organization and its activities.
Graphics and consolidated data tables can help make the information in the report accessible
and understandable. The level of aggregation of information can also affect the clarity of a
report if it is either significantly more or less detailed than stakeholders expect.
Tests:
The report contains the level of information required by stakeholders, but avoids
excessive and unnecessary detail.
Stakeholders can find the specific information they want without unreasonable eff ort
through tables of contents, maps, links, or other aids.
The report avoids technical terms, acronyms, jargon, or other content likely to be
unfamiliar to stakeholders, and should include explanations (where necessary) in the
relevant section or in a glossary.
The data and information in the report is available to stakeholders, including those with
particular accessibility needs (e.g., differing abilities, language, or technology).
9.31 RELIABILITY
Definition: Information and processes used in the preparation of a report should be
gathered, recorded, compiled, analyzed, and disclosed in a way that could be subject to
examination and that establishes the quality and materiality of the information.
Explanation: Stakeholders should have confidence that a report could be checked to
establish the veracity of its contents and the extent to which it has appropriately applied
Reporting Principles. The information and data included in a report should be supported by
internal controls or documentation that could be reviewed by individuals other than those
who prepared the report. Disclosures about performance that are not substantiated by
evidence should not appear in a sustainability report unless they represent material
information, and the report provides unambiguous explanations of any uncertainties
associated with the information. The decision-making processes underlying a report should
be documented in a manner that allows the basis of key decisions (such as processes for
determining the report content and boundary or stakeholder engagement) to be examined. In
designing information systems, reporting organizations should anticipate that the systems
could be examined as part of an external assurance process.
Tests:
The scope and extent of external assurance is identified.
The original source of the information in the report can be identified by the
organization.
Reliable evidence to support assumptions or complex calculations can be identified by
the organization.
Representation is available from the original data or information owners, attesting to its
accuracy within acceptable margins of error.
9.32 Reporting Guidance for Boundary Setting
In parallel with defining the content of a report, an organization must determine which
entities (e.g., subsidiaries and joint ventures) performance will be represented by the report.
The Sustainability Report Boundary should include the entities over which the reporting
organization exercises control or significant influence both in and through its relationships
with various entities upstream (e.g., supply chain) and downstream (e.g., distribution and
customers).
For the purpose of setting boundaries, the following definitions should apply:
Control: the power to govern the financial and operating policies of an enterprise so as to
obtain benefits from its activities.
Significant influence: the power to participate in the financial and operating policy
decisions of the entity but not the power to control those policies.
Global Corporate Social Responsibility
The guidance below on setting the Report Boundary pertains to the report as a whole as well
as setting the boundary for individual Performance Indicators.
Not all entities within the Report Boundary must be reported on in the same manner. The
approach to reporting on an entity will depend on a combination of the reporting
organizations control or influence over the entity, and whether the disclosure relates to
operational performance, management performance, or narrative/descriptive information.
The Report Boundary guidance is based on the recognition that different relationships
involve differing degrees of access to information and the ability to affect outcomes. For
example, operational information such as emissions data can be reliably compiled from
entities under the control of an organization, but may not be available for a joint venture or a
supplier. The Report Boundary guidance below sets minimum expectations for the inclusion
of entities upstream and downstream when reporting on Indicators and management
disclosures. However, an organization may determine that it is necessary to extend the
boundary for an Indicator(s) to include entities upstream or downstream.
Determining the significance of an entity when collecting information or considering the
extension of a boundary depends on the scale of its sustainability impacts. Entities with
significant impacts typically generate the greatest risk or opportunity for an organization and
its stakeholders, and therefore are the entities for which the organization is most likely to be
perceived as being accountable or responsible.
Reporting Guidance for Boundary Setting
A sustainability report should include in its boundary all entities that generate significant
sustainability impacts (actual and potential) and/or all entities over which the reporting
organization exercises control or significant influence with regard to financial and operating
policies and practices.
These entities can be included using either Indicators of operational performance,
Indicators of management performance, or narrative descriptions.
At a minimum, the reporting organization should include the following entities in its report
using these approaches:
Entities over which the organization exercises control should be covered by Indicators of
Operational Performance; and
Entities over which the organization exercises significant influence should be covered by
Disclosures on Management Approach.
The boundaries for narrative disclosures should include entities over which the
organization does not exercise control/significant influence, but which are associated with
key challenges for the organization because their impacts are significant
The report should cover all entities within its Report Boundary. In the process of preparing
its report, an organization may choose not to gather data on a particular entity or group of
entities within the defined boundary on the basis of efficiency as long as such a decision
does not substantively change the final result of a Disclosure or Indicator.
Part 2: Standard Disclosures
This section specifies the base content that should appear in a sustainability report, subject to
the guidance on determining content in Part 1 of the Guidelines.
There are three different types of disclosures contained in this section.
Strategy and Profile: Disclosures that set the overall context for understanding
organizational performance such as its strategy, profile, and governance.
Management Approach: Disclosures that cover how an organization addresses a given set
of topics in order to provide context for understanding performance in a specific area.
Performance Indicators: Indicators that elicit comparable information on the economic,
environmental, and social performance of the organization.
Reporting organizations are encouraged to follow this structure in compiling their reports,
however, other formats may be chosen.
Global Corporate Social Responsibility
9.33 Profile
1. Strategy and Analysis
This section is intended to provide a high-level, strategic view of the organizations
relationship to sustainability in order to provide context for subsequent and more detailed
reporting against other sections of the Guidelines. It may draw on information provided in
other parts of the report, but this section is intended to produce insight on strategic topics
rather than simply summarize the contents of the report. The strategy and analysis should
consist of the statement outlined in 1.1 and a concise narrative outlined in 1.2.
1.1 Statement from the most senior decision maker of the organization (e.g., CEO, chair, or
equivalent senior position) about the relevance of sustainability to the organization and its
strategy.
The statement should present the overall vision and strategy for the short-term, medium-term
(e.g., 3-5 years), and long-term, particularly with regard to managing the key challenges
associated with economic, environmental, and social performance.
The statement should include:
Strategic priorities and key topics for the short/ medium-term with regard to sustainability,
including respect for internationally agreed standards and how they relate to long-term
organizational strategy and success;
Broader trends (e.g., macroeconomic or political) affecting the organization and
influencing sustainability priorities;
Key events, achievements, and failures during the reporting period;
Views on performance with respect to targets;
Outlook on the organizations main challenges and targets for the next year and goals for
the coming 3-5 years; and
Other items pertaining to the organizations strategic approach.
1.2 Description of key impacts, risks, and opportunities.
The reporting organization should provide two concise narrative sections on key impacts,
risks, and opportunities.
Section One should focus on the organizations key impacts on sustainability and effects on
stakeholders, including rights as defined by national laws and relevant internationally agreed
standards. This should take into account the range of reasonable expectations and interests of
the organizations stakeholders. This section should include:
A description of the significant impacts the organization has on sustainability and
associated challenges and opportunities. This includes the effect on stakeholders rights as
defined by national laws and the expectations in internationally-agreed standards and norms;
An explanation of the approach to prioritizing these challenges and opportunities;
Key conclusions about progress in addressing these topics and related performance in the
reporting period. This includes an assessment of reasons for underperformance or over
performance; and
A description of the main processes in place to address performance and/or relevant
changes.
Section Two should focus on the impact of sustainability trends, risks, and opportunities on
the long-term prospects and financial performance of the organization. This should
concentrate specifically on information relevant to financial stakeholders or that could
become so in the future.
Section Two should include the following:
A description of the most important risks and opportunities for the organization arising
from sustainability trends;
Prioritization of key sustainability topics as risks and opportunities according to their
relevance for long-term organizational strategy, competitive position, qualitative, and (if
possible) quantitative financial value drivers;
Table(s) summarizing:
Targets, performance against targets, and lessons-learned for the current reporting period;
and
Targets for the next reporting period and mid-term objectives and goals (i.e., 3-5 years)
related to key risks and opportunities.
Concise description of governance mechanisms in place to specifically manage these risks
and opportunities, and identification of other related risks and opportunities.
Global Corporate Social Responsibility
State how the organization defines independent and non-executive. This element applies
only for organizations that have unitary board structures.
9.36.4 Mechanisms for shareholders and employees to provide recommendations or
direction to the highest governance body.
Include reference to processes regarding:
The use of shareholder resolutions or other mechanisms for enabling minority shareholders
to express opinions to the highest governance body; and
Informing and consulting employees about the working relationships with formal
representation bodies such as organization level work councils, and representation of
employees in the highest governance body.
Identify topics related to economic, environmental, and social performance raised through
these mechanisms during the reporting period.
9.36.5 Linkage between compensation for members of the highest governance body, senior
managers, and executives (including departure arrangements), and the organizations
performance (including social and environmental performance).
9.36.6 Processes in place for the highest governance body to ensure conflicts of interest are
avoided.
9.36.7 Process for determining the qualifications and expertise of the members of the highest
governance body for guiding the organizations strategy on economic, environmental, and
social topics.
9.36.8 Internally developed statements of mission or values, codes of conduct, and principles
relevant to economic, environmental, and social performance and the status of their
implementation.
Explain the degree to which these:
Are applied across the organization in different regions and department/units; and
Relate to internationally agreed standards.
9.36.9 Procedures of the highest governance body for overseeing the organizations
identification and management of economic, environmental, and social performance,
including relevant risks and opportunities, and adherence or compliance with internationally
agreed standards, codes of conduct, and principles.
9.36.10 Processes for evaluating the highest governance bodys own performance,
particularly with respect to economic, environmental, and social performance.
COMMITMENTS TO EXTERNAL INITIATIVES
9.36.11 Explanation of whether and how the precautionary approach or principle is
addressed by the organization.
Article 15 of the Rio Principles introduced the precautionary approach. A response to 4.11
could address the organizations approach to risk management in operational planning or the
development and introduction of new products.
9.36.12 Externally developed economic, environmental, and social charters, principles, or
other initiatives to which the organization subscribes or endorses.
9.36.13 Memberships in associations (such as industry associations) and/or
national/international advocacy organizations in which the organization:
Global Corporate Social Responsibility
Economic Performance;
Market Presence; and
Indirect Economic Impacts.
GOALS AND PERFORMANCE
Organization-wide goals regarding performance relevant to the Economic Aspects. Use
organization-specifi c Indicators (as needed in addition to the GRI Performance Indicators to
demonstrate the results of performance against goals.
POLICY
Brief, organization-wide policy (or policies) that defines the organizations overall
commitment relating to the Economic Aspects listed above, or state where this can be found
in the public domain (e.g., web link).
ADDITIONAL CONTEXTUAL INFORMATION
Additional relevant information required to understand organizational performance, such as:
Key successes and shortcomings;
Major organizational risks and opportunities;
Major changes in the reporting period to systems or structures to improve performance;
and
Key strategies for implementing policies or achieving performance.
Environmental
The environmental dimension of sustainability concerns an organizations impacts on living
and non-living natural systems, including ecosystems, land, air, and water. Environmental
Indicators cover performance related to inputs (e.g., material, energy, water) and outputs
(e.g., emissions, effluents, waste). In addition, they cover performance related to
biodiversity, environmental compliance, and other relevant information such as
environmental expenditure and the impacts of products and services.
Disclosure on Management Approach
Provide a concise disclosure on the Management Approach items outlined below with
reference to the following Environmental Aspects:
Materials;
Energy;
Water;
Biodiversity;
Emissions, Effluents, and Waste;
Products and Services;
Compliance;
Transport; and
Overall
GOALS AND PERFORMANCE
Organization-wide goals regarding performance relevant to the Environment Aspects.
Use organization-specific Indicators (as needed) in addition to the GRI Performance
Indicators to demonstrate the results of performance against goals.
POLICY
Brief, organization-wide policy (or policies) that defines the organizations overall
commitment related to the Environmental Aspects listed above or state where this can be
found in the public domain (e.g., web link).
ORGANIZATIONAL RESPONSIBILITY
The most senior position with operational responsibility for Environmental Aspects or
explain how operational responsibility is divided at the senior level for these Aspects. This
differs from Disclosure 4.1, which focuses on structures at the governance level.
TRAINING AND AWARENESS
Procedures related to training and raising awareness in relation to the Environmental
Aspects.
MONITORING AND FOLLOW-UP
Procedures related to monitoring and corrective and preventive actions, including those
related to the supply chain.
List of certifications for environment-related performance or certification systems, or other
approaches to auditing/verification for the reporting organization or its supply chain.
ADDITIONAL CONTEXTUAL INFORMATION
Additional relevant information required to understand organizational performance, such as:
Key successes and shortcomings;
Major organizational environmental risks and opportunities related to issues;
Major changes in the reporting period to systems or structures to improve performance;
and
Key strategies and procedures for implementing policies or achieving goals.
Social Performance Indicators
The social dimension of sustainability concerns the impacts an organization has on the social
systems within which it operates.
The GRI Social Performance Indicators identify key Performance Aspects surrounding labor
practices, human rights, society, and product responsibility.
Labor Practices and Decent Work
The specific Aspects under the category of Labor Practices are based on internationally
recognized universal standards, including:
United Nations Universal Declaration of Human Rights and its Protocols;
United Nations Convention: International Covenant on Civil and Political Rights;
United Nations Convention: International Covenant on Economic, Social, and Cultural
Rights;
ILO Declaration on Fundamental Principles and Rights at Work of 1998 (in particular the
eight core conventions of the ILO); and
The Vienna Declaration and Programme of Action.
The Labor Practices Indicators also draw upon the two instruments directly addressing the
social responsibilities of business enterprises: the ILO Tripartite Declaration Concerning
Multinational Enterprises and Social Policy, and the Organisation for Economic Cooperation
and Development (OECD) Guidelines for Multinational Enterprises.
Disclosure on Management Approach
Global Corporate Social Responsibility
Provide a concise disclosure on the following Management Approach items with reference
to the Labor Aspects listed below. The ILO Tripartite Declaration Concerning Multinational
Enterprises and Social Policy (in particular the eight core conventions of the ILO) and the
Organisation for Economic Co-operation and Development Guidelines for Multinational
Enterprises, should be the primary reference points.
Employment;
Labor/Management Relations;
Occupational Health and Safety;
Training and Education; and
Diversity and Equal Opportunity.
GOALS AND PERFORMANCE
Organizationwide goals regarding performance relevant to the Labor Aspects, indicating
their linkage to the internationally recognized universal standards.
Use organization-specific Indicators (as needed) in addition to the GRI Performance
Indicators to demonstrate the results of performance against goals.
POLICY
Brief, organization-wide policy (or policies) that defines the organizations overall
commitment related to the Labor Aspects, or state where this can be found in the public
domain (e.g., web link). Also reference their linkage to the international standards indicated
above.
ORGANIZATIONAL RESPONSIBILITY
The most senior position with operational responsibility for Labor Aspects or explain how
operational responsibility is divided at the senior level for these Aspects.
TRAINING AND AWARENESS
Procedures related to training and raising awareness in relation to the Labor Aspects.
MONITORING AND FOLLOW-UP
Procedures related to monitoring and corrective and preventive actions, including those
related to the supply chain.
List of certifications for labor-related performance or certification systems, or other
approaches to auditing/ verifying the reporting organization or its supply chain.
ADDITIONAL CONTEXTUAL INFORMATION
Additional relevant information required to understand organizational performance, such as:
Key successes and shortcomings;
Major organizational risks and opportunities;
Major changes in the reporting period to systems or structures to improve performance;
and
Key strategies and procedures for implementing policies or achieving goals.
Human Rights
Human Rights Performance Indicators require organizations to report on the extent to which
human rights are considered in investment and supplier/contractor selection practices.
Additionally, the Indicators cover employee and security forces training on human rights as
well as non-discrimination, freedom of association, child labor, indigenous rights, and forced
and compulsory labor.
Generally recognized human rights are defined by the following Conventions and
Declarations:
United Nations Universal Declaration of Human Rights and its Protocols;
United Nations Convention: International Covenant on Civil and Political Rights;
United Nations Convention: International Covenant on Economic, Social, and Cultural
Rights;
ILO Declaration on Fundamental Principles and Rights at Work of 1998 (in particular the
eight core conventions of the ILO); and
The Vienna Declaration and Programme of Action.
Disclosure on Management Approach
Provide a concise disclosure on the following Management Approach items with reference
to the Human Rights Aspects listed below. The ILO Tripartite Declaration Concerning
Multinational Enterprises and Social Policy (in particular the eight core conventions of the
ILO which consist of Conventions 100, 111, 87, 98, 138, 182, 20 and 1059), and the
Organisation for Economic Cooperation and Development Guidelines for Multinational
Enterprises should be the primary reference points.
Investment and Procurement Practices;
Non-discrimination;
Freedom of Association and Collective Bargaining;
Abolition of Child Labor;
Prevention of Forced and Compulsory Labor;
Complaints and Grievance Practices;
Security Practices; and
Indigenous Rights.
GOALS AND PERFORMANCE
Organization-wide goals regarding performance relevant to the Human Rights Aspects,
indicating their linkage to the international declarations and standards listed above.
Use organization-specific Indicators (as needed) in addition to the GRI Performance
Indicators to demonstrate the results of performance against goals.
POLICY
Brief, organization-wide policy (or policies) that defines the organizations overall
commitment to the Human Rights Aspects (including policies which may be reasonably
considered likely to affect the decision of employees to join a trade union or bargain
collectively), or state where this can be found in the public domain (e.g., web link). Also
reference their linkage to the international declarations and standards indicated above.
ORGANIZATIONAL RESPONSIBILITY
The most senior position with operational responsibility for Human Rights Aspects or
explain how operational responsibility is divided at the senior level for these Aspects. This
differs from Disclosure 4.1, which focuses on structures at the governance level.
TRAINING AND AWARENESS
Procedures related to training and raising awareness in relation to the Human Rights
Aspects.
Global Corporate Social Responsibility
Procedures related to monitoring and corrective and preventive actions, including those
related to the supply chain.
List of certifications for performance or certification systems, or other approaches to
auditing/verifying the reporting organization or its supply chain.
ADDITIONAL CONTEXTUAL INFORMATION
Additional relevant information required to understand organizational performance, such as:
Key successes and shortcomings;
Major organizational risks and opportunities;
Major changes in the reporting period to systems or structures to improve performance;
and
Key strategies and procedures for implementing policies or achieving goals.
Product Responsibility
Product Responsibility Performance Indicators address the aspects of a reporting
organizations products and services that directly affect customers, namely, health and
safety, information and labeling, marketing, and privacy.
These aspects are chiefly covered through disclosure on internal procedures and the extent to
which these procedures are not complied with.
Disclosure on Management Approach
Provide a concise disclosure on the following Management Approach items with reference
to the Product Responsibility Aspects:
Customer Health and Safety;
Product and Service Labeling;
Marketing Communications;
Customer Privacy; and
Compliance.
GOALS AND PERFORMANCE
Organization-wide goals regarding performance relevant to the Product Responsibility
Aspects. Use organization-specific Indicators (as needed) in addition to the GRI
Performance Indicators to demonstrate the results of performance against goals.
POLICY
Brief, organization-wide policy (or policies) that defines the organizations overall
commitment to the Product Responsibility Aspects, or state where this can be found
in the public domain (e.g., web link).
ORGANIZATIONAL RESPONSIBILITY
The most senior position with operational responsibility for Product Responsibility Aspects,
or explain how operational responsibility is divided at the senior level for Product
Responsibility Aspects. This differs from Disclosure 4.1, which focuses on structures at the
governance level.
TRAINING AND AWARENESS
Procedures related to training and raising awareness in relation to the Product Responsibility
Aspects.
MONITORING AND FOLLOW-UP
Procedures related to monitoring and corrective and preventive actions, including those
related to the supply chain.
List of certifications for product responsibility related performance or certification systems,
or other approaches to auditing/verifying the reporting organization or its supply chain.
ADDITIONAL CONTEXTUAL INFORMATION
Additional relevant information required to understand organizational performance, such as:
Key successes and shortcomings;
Major organizational risks and opportunities;
Major changes in the reporting period to systems or structures to improve performance;
and
Key strategies and procedures for implementing policies or achieving goals.
General Reporting Notes Data Gathering
FEASIBILITY ASSESSMENT
The process of defining report content will result in a set of topics and Indicators on which
the organization should report. However, practical challenges such as the availability of data,
the cost of gathering it, the confidentiality of information, privacy or other legal concerns,
the reliability of available information, and other factors, may result in a legitimate decision
not to disclose certain information. Where material information is omitted, the report should
clearly indicate this and the reasons why.
DATA AGGREGATION AND DISAGGREGATION
Reporting organizations will need to determine the level of aggregation at which to present
information.
This requires balancing the effort required against the added meaningfulness of information
reported on a disaggregated basis (e.g., country or site). Aggregation of information can
result in the loss of a significant amount of meaning, and can also fail to highlight
particularly strong or poor performance in specific areas.
On the other hand, unnecessary disaggregation of data can affect the ease of understanding
the information. Reporting organizations should disaggregate information to an appropriate
level using the principles and the guidance in the reporting Indicators.
Disaggregation may vary by Indicator, but will generally provide more insight than a single,
aggregated figure.
Report Form and Frequency
DEFINITION OF A SUSTAINABILITY REPORT
A sustainability report refers to a single, consolidated disclosure that provides a reasonable
and balanced presentation of performance over a fixed time period.
Stakeholders should be able to directly access all of the report information from a single
location, such as a GRI content index. Other publications should not be referenced as the
information source for a GRI Standard Disclosure Item (ex., a Performance Indicator) unless
the means for a stakeholder to directly access the information is provided (e.g., a link to a
specific web page or the page number of the corresponding publication). There is no
minimum length for a report using the GRI Framework as long as the organization has
properly applied the Guidelines and Framework documents it has chosen to use.
MEDIUM OF REPORTING
Global Corporate Social Responsibility
Electronic (e.g., CD-ROM) or web-based reporting and paper reports are appropriate media
for reporting. Organizations may choose to use a combination of web and paper-based
reports or use only one medium. For example, an organization may choose to provide a
detailed report on their website and provide an executive summary including their strategy
and analysis and performance information in paper form. The choice will likely depend on
the organizations decisions on its reporting period, its plans for updating content, the likely
users of the report, and other practical factors such as its distribution strategy. At least one
medium (web or paper) should provide users with access to the complete set of information
for the reporting period.
FREQUENCY OF REPORTING
Organizations should define a consistent and periodic cycle for issuing a report. For many
organizations, this will be an annual cycle, although some organizations choose to report
biannually. An organization may choose to update information on a regular basis between
the issuing of consolidated accounts of performance. This has advantages in terms of
providing stakeholders with more immediate access to information, but has disadvantages in
terms of comparability of information. However, organizations should still maintain a
predictable cycle in which all of the information that is reported covers a specific time
period. Reporting on economic, environmental, and social performance could coincide or be
integrated with other organizational reporting, such as annual financial statements.
Coordinated timing will reinforce the linkages between financial performance and economic,
environmental, and social performance.
UPDATING REPORT CONTENT
When preparing a new report, an organization may identify areas of information that have
not changed since the prior report (e.g., a policy that has not been amended). The
organization may choose to only update the topics and Indicators that have changed and to
re-publish the Disclosures that have not changed. For example, an organization may choose
to reproduce the information on policies that have not changed and only update its
Performance Indicators. The flexibility to take such an approach will depend in large part on
the organizations choice of reporting medium. Topics such as strategy and analysis and
Performance Indicators are likely to show changes each reporting period, while other topics
such as organizational profile or governance may change at a slower pace. Regardless of the
strategy used, the full set of applicable information for the reporting period should be
accessible in a single location
(either a paper or web-based document).
Assurance
CHOICES ON ASSURANCE
Organizations use a variety of approaches to enhance the credibility of their reports.
Organizations may have systems of internal controls in place, including internal audit
functions, as part of their processes for managing and reporting information. These internal
systems are important to the overall integrity and credibility of a report.
However, GRI recommends the use of external assurance for sustainability reports in
addition to any internal resources.
3.
People refers to
a)
increasing profits
b)
harming the environment
c)
fair and beneficial business practices toward labour and the community and region in
which a corporation conducts its business
d)
All of the above
4.
a)
b)
c)
d)
Planet refers to
Earth
sustainable environmental practices
Using non renewable resources
Polluting the environment
5.
Profit refers to
a)
Protecting environment
b)
giving higher salaries
c)
the economic value created by the organisation after deducting the cost of all inputs,
including the cost of the capital tied up
d)
None of the above
6.
Adding ecotourism or geotourism to an already rich tourism market such as the
Dominican Republic- is an example ofa)
Reaching untapped market potential
b)
misusing the environment
c)
Marketing the place to increase pollution
d)
increasing profits
7.
a)
b)
c)
d)
Division of Labour
effectiveness
Nationalism
All of the above
8.
a)
b)
c)
d)
9.
a)
b)
c)
d)
Benchmarking
Demonstrating
Comparing
All of the above
10.
a)
b)
c)
d)
Reporting Principles
Reporting Guidance
Standard Disclosures
All of the above
CHAPTER-10
CASE STUDY :
Theoretical framework
This following section includes a general and historical background of CSR. Consequently,
the concept of CSR is clarified in order to enable the reader to understand the meaning of
CSR. Furthermore, a presentation of CSR activities within service corporations will follow.
Finally, the relevant theories will be presented and discussed and later used to analyse the
empirical results in the next section.
10.1
During the years of discussion there have consistently been two essential questions that have
been debated:
1. Why might it be argued that corporations have social as well as financial
responsibilities?
2. What is the nature of these social responsibilities? (Crane et al, 2004, p. 41)
1. Social and financial responsibility
The traditional view of corporations objectives originates in shareholder value and
maximizing profits (Donaldson et al, 1995). However, currently it is accepted that the scope
of the corporation objective and its responsibilities is somewhat wider than merely
increasing profits. Furthermore, it has been debated that a corporation that employ CSR
activities, more likely has a long-term perspective. Consequently, such a corporation which
employs CSR activities might be rewarded with more contented customers and therefore
they will purchase products or services from that corporation to a higher extent. In addition,
this socially beneficial activity may attract employees that are committed to social responsibility
(Joyner & Payne, 2002). Moreover, one argument states that corporations are powerful
social factors that have a moral responsibility to solve social issues in the society (Crane et
al,
2004).
2. The nature of social responsibility
There are various terminologies used in order to explain the meaning of CSR and the
discussion has been going on half a century (Crane et al, 2004). Nevertheless, no theory has
yet established a unison framework or model, nor has any agreement been reached regarding
the terminology of CSR (Clarkson, 1995). Consequently, there are a lot of misconceptions,
and the discussion about the conduct of CSR is not yet entirely satisfactory. Blair (1995)
argues that the absence of theoretical rigor towards CSR constitute the reason to why CSR
has not yet been very successful. Consequently, there has not been enough clear guidance
for managers in order to prioritize and set policies within the organisation. Carroll (1979)
describes a wide spectra of different views regarding CSR e.g. profit maximization
(Friedman), beyond profit maximization (Davis, Backman), beyond economic as well as
legal requirements (McGuire) and a responsibility that concern social issues (Hay, Gray &
Gates). In order to bring forward some of the opinions regarding the views of CSR, a small
selection of views can be presented as following:
it refers to the obligations of businessman to pursue those policies, to make decisions, or to
follow those lines of action which are desirable in terms of the objectives and values of our
society
Bowen (1953) established one of the initial definitions of social responsibilities for
managers (recited in Carroll, 1999, p. 270). Furthermore, Carroll (1999) refers to Bowen as
the
Father of Corporate Social Responsibility.
there is one and only one social responsibility of business--to use its resources and engage
in activities designed to increase its profits so long as it stays within the rules of the game,
which is to say, engages in open and free competition without deception or fraud
The scholar explains his thoughts of CSR in the fundamentally subversive doctrine
(Friedman,
1970, p. 6). Friedman pragmatic point of view prevail that there is no real existence of CSR.
There have been various definitions of CSR including economic, legal and voluntary
activities. Although, one of the most used definitions is the one that Carroll (1991)
established through his model which is called the pyramid of corporate social responsibility.
This model could be seen as a ground pillar of what the authors believe CSR means today.
10.2
The European Commission define that CSR is voluntary apprehends the fact that a
corporation s CSR activities is separated from corporate accountability. The notion that CSR
is voluntary might result in a corporation neglecting their CSR risk management strategies
which constitutes something that a corporation should have to consider (Ward, 2003).When
CSR risk management originates from decisions made of values which go beyond the law,
the management question becomes a discussion about business ethics. Business ethics can be
described as the outcome of the decisions that the employees within a corporation are
making. By examining the outcome of the decisions and asking the question whether the
decision is right or wrong, an employee can decide if the decision is ethical or not (Wise,
2006). The analysis whether a decision is right or wrong originates from the question if the
undertaking will be morally right or wrong and not if the undertaking is strategically right or
wrong (Crane et al, 2004).
One of the managerial difficulties consists of the mere fact that the definition of the term
morality differs between people. To overcome this problem the management often write
standards which are to be applied by the employees (Bonnedahl, Jensen & Sandstrm,
2007). By examining what kind of values, norms and believes that is of significance to the
stakeholders, that are affected by the corporations undertakings, the management can
apprehend a general idea of how to draft the corporation standards. This kind of research will
result in a substantial foundation from which the management can build an ethical theory
which gives them the underlying data to make ethical decisions (Crane et al, 2004). An
ethical decision theory is based upon an analysis which examines the outcome of the action in
terms of justification and result (Beauchamp & Norman, 2004).
Crane et al (2004) emphasize that CSR activities is a form of conduct that goes beyond what
the law demands and are more or less up to corporations to decide whether or not this ethical
behaviour should be implemented. As Figure 2 presents, there is a grey area which involves
behaviour which might be difficult to establish whether it is right or wrong business of
conduct. It is in this area which the conduct of CSR can be placed. Therefore, when
corporations conduct CSR activities it might be regarded as the right business ethical
behaviour but not demanded by the law (Crane et al, 2004).
10.3
Edit Graafland, van de Ven & Stoffele (2003), Strategies and Instruments for
Organising CSR by Small and Large Businesses in the Netherlands. Journal of Business
Ethics, table IV , p 51
Comment of Figure 3: It seems as the financial service sector employ strategies more
connected to dialogue with stakeholders in attempt to stimulate the awareness compared to
the metal manufacturing that have fixed standards (Graafland et al, 2003).
Williamson et al (2006) employed a research where 31 SME manufacturing corporations in
the UK and their environmental activities were examined. The respondents explained that
environmental issues are costly and one manager said you have to weigh everything you use,
its money. The result from the study showed that 11 of the 31 corporations spent a lot of
time on environmental issues while 8 of the 11 corporations monitored the business
activities. Williamson et al (2006) argue that the result is not surprising considering it is a
free market and that activities connected to environmental issues is often expensive and
optional to some
extent. The conclusion from this study was that manufacturing SMEs will not go beyond
what the law demands when it comes to environmental issues but Williamson et al (2006)
argue that SMEs will not exceed regulatory standards because their market-based decisionmaking frames are incompatible with beyond compliance behaviour. Furthermore,
Williamson et al (2006) argues that the meaning of CSR is more reputation building for the
small corporations.
10.4
The customers in high-income countries tend to demand more rigid involvement in CSR
activities. Furthermore, the agenda concerning CSR activities are often shaped by and
addressed to large corporations (Fox, Ward & Howard, 2002). Moreover, large corporations
have more resources with regard to time and money. They can therefore engage CSR
activities without negative impacts within the organisation. In addition, the image of large
corporations is to a larger extent scrutinized. With the higher profile follows an awareness
(EU Commission, 2002). Although, the discussion also needs to be moved towards the
SMEs since they, after all, represent 99 % of all corporations within the EU and therefore
affects stakeholders on a large scale (EU Commission, 2005). Finally, considering the
economical contribution of SME the discussion of SMEs involvement in CSR is appropriate.
A study from the EU Commission (2002), entail that 48 % amongst the very small
enterprises to 65 % and 70 % amongst the small and medium-sized enterprises of the
European SMEs are involved in social responsibilities.
Even though SMEs have different prerequisites there are no obstacles to conduct CSR
activities. However, it has to be pinpointed that SME s, with regard to CSR activities, differs
in engagement when compared to large corporations. In most SMEs the management and
ownership are controlled of the same person who consequently engages them as the most
important factor whether or not the corporation is involved with CSR activities. The local
Global Corporate Social Responsibility
It is argued that service corporations need to be more proactive compared to other sectors.
Thus, it is important for service corporations to predict the requirements of the stakeholders.
In contrast, it is argued that manufacturing corporations has a higher degree of resemblance
regarding their managerial decisions about the conduct of CSR activities and therefore
enables more positive effects. Due to this effect, service corporations need to be aware of the
direct link with other corporations and therefore present their conduct of CSR activities as
genuine as possible and hopefully reach unanimity (Calabrese & Lancioni,
2008).
In Sweden, there are rules which regulate how a lawyer should act because of the position as
commission of trust. These exhaustive rules stipulate e.g. how a law firm should conduct its
business, how a law firm should set reimbursements, what moral standards a lawyer has to
follow, that a lawyer has to be independent towards the other party and consider the clients
best interest. To be able to control that the law firms and lawyers are following these
rules an organisation called Advokatsamfundet has the power to exclude a lawyer who is in
breach of the rules when practicing law, as a lawyer. Advokatsamfundet is therefore a
normative authority and all lawyers have to be members of Advokatsamfundet and they are
obligated to follow the standards set within the organisation (Wiklund, 1973).
There are, however, no obstacles for persons that are not lawyers to offer legal services.
Furthermore, there are no requirements of any particular education or experience. However,
these persons cannot call themselves lawyers. These jurists can instead label themselves as
business lawyers or corporate lawyers (Advokatsamfundet, 2009).
10.6
There is a limited amount of research concerning CSR activities and service corporations.
Although, an empirical study of 17 service corporations was conducted in Estonia, in order to
develop the hypotheses that the more extensively an organization engaged in CSR activities,
the less likely would task-orientation exceed relationship-orientation in this organization and
second, organizational culture in general would be stronger (Jaakson, Vadi & Tamm, 2009).
The result could however not strengthen or confirm the hypothesis that a strong organisation
plunge a higher conduct of CSR activities. It is in addition worth to mention that, during the
research, the primary focus was set on the main stakeholders: managers and employees
(Jaakson et al, 2009).
Global Corporate Social Responsibility
Another quantitative research was conducted in Italy and identified whether there is a
relationship between the commitment of CSR activities within banks and the satisfaction of
the stakeholders. On the one hand, the result of the research did not confirm that there exists a
relationship. But, on the other hand, the research demonstrated that implementing conduct of
CSR activities within banks strengthen the relationship towards the stakeholders. It can
therefore be argued that the banks are implementing CSR solely to develop the brand equity,
rather than trying to improve the relationship towards the stakeholders. Furthermore, through
the research result the conclusion could be drawn that the lesser degree of specified CSR
activities, the lesser degree of appreciation by the stakeholders (Calabrese et al, 2008).
10.7
The stakeholder theory is closely connected to CSR (Freeman, 1984). The stakeholder theory
identifies and explains towards whom corporations may have a responsibility. Because of the
progress of CSR it is not surprising that stakeholders demand more from the corporations
today (Weiss, 2006).
10.7.1 Primary stakeholders
Wheeler and Sillanp (1998) has divided primary stakeholders into the group of social
stakeholders such as investors (shareholders), employees and customers and the group of
non-social stakeholders which do not involve a human relationship such as the natural
environment and future generations.
The primary social stakeholders are directly affected by corporations activities regardless
whether they are positive or negative and therefore are influential (Carroll et al, 2003).
10.7.2 Secondary stakeholders
The same definition of social and non-social follows the secondary stakeholders. However,
the social stakeholders include e.g. governments and regulators and the non-social
stakeholders include environmental pressure groups and animal welfare organisations
(Carroll et al, 2003).
10.7.3 The stakeholder theory in general
The stakeholder theory emphasizes the relationship and responsibility with external groups,
unlike the focus of CSR that emphasizes the corporations responsibility other than financial
(Crane et al, 2004). The fundamental idea of the stakeholder theory advocates that a frame of
ethical principles towards the stakeholders may generate a competitive advantage. Freeman
(1984) explains the stakeholder theory as corporations have on the one hand internal groups,
investors, customers, employees and suppliers (see Figure 4). On the other hand, corporations
should also have responsibility towards the external groups, governments, political groups,
Global Corporate Social Responsibility
communities and trade associations (see Figure 4). Although this model is only used as a
model and is not to be seen as an extensive list of all stakeholders. The stakeholders are
external groups that have an interest or share in the corporation and therefore are affected by
the corporation and its policies, activities and procedures. The interest does not necessarily
have to be financial, but also physical or other implications. Consequently, the stake-holder
theory implicates a win-win situation and beneficial results for all parties, if the
corporations base their decisions on an ethical basis (see figure 4) However, it is difficult to
be certain of an outcome such as a win-win situation (Weiss, 2006).
It has to be considered that different stakeholder has different degrees of interest within the
corporation. If corporations discriminate all stakeholders, when conducting CSR activities it
may damage their accountability. It may be argued that being accountable to all is being
accountable to none. If the conduct of CSR activities is not being directly addressed to e.g.
customers, that group of stakeholders may feel ignored and does not appreciate the
corporations CSR responsibilities. Furthermore, if there is any discrepancy between the CSR
policy and the conduct of CSR activities it may undermine the social and political view if that
particular corporation (Calabrese et al, 2008).
influence the corporations strategy but will not do so as long as they are happy, (d) key
players which are the stakeholders who are interested in the corporations strategies and who
has the power to influence these strategies (Johnson et al, 2008).
10.7.4 Triple Bottom Line
TBL is closely connected to CSR and foremost to the stakeholder theory since it concentrate
not only on the traditional economical value but also on the environmental and social value
(see figure 5), and was first coined by Elkington (1994). According to Elkington (1994),
corporations that only focus on profit could be seen as conducting business out of a shortterm perspective. The TBL approach, however, advocate on systems measuring the conduct
of social and environmental aspects and moreover, improving these aspects. Furthermore, the concept of the TBL appears to have had some success in articulating a
philosophy of sustainability in a language accessible to corporations and their
shareholders . In order to attain sustainability, one need to understand the meaning of the
economic bottom line. Nonetheless, it is challenging to understand the relationship between
the economical aspect and the social and environmental aspect. When creating a business
model which is based upon the view of the TBL it is important that managers can succeed in
finding ways in which the three dimensions creates a synergy with each other. Corporations
consider it hard to evaluate the outcome of a TBL based business model since there are no
concrete measuring systems which can determine exactly how the corporation is managing. It
is easier to measure how the company is managing economically. Another difficulty is that
managers are creating business models in which they are separating the three dimensions of
the TBL resulting in a system where one dimension prospers on behalf of another (Henriques
& Richardson, 2004).
TBL could be seemed as a necessity to attain sustainability and furthermore regarded as an
obligation for corporations in relation to the different stakeholders (Henriques et al, 2004).
Edit Carter, Rogers (2008), A framework of sustainable supply chain management: moving
toward new theory, International Journal of Physical Distribution & Logistics Management,
Vol. 38, No. 5 fig. 1
10.8
Empirical findings
This section aims to present the empirical findings from the interviews. Initially, an
organisational presentation of the service corporations and the participants will be
presented. Thereafter the empirical findings which will be the foundation to the following
analysis will be presented.
Law Firm A Law Firm B Law firm C
Types of services
Employees
Location
Participant
Corporation A
Commercial law,
matters
trustee in bank-
Commericial law,
Commercial
legal education
4 (50) 3
20
1 (12)
Jnkping
Linkping
Stockholm
Junior barrister
Business lawyer
Corporate lawyer
All
legal
Jnkping
Junior
barrister
Furthermore, the law firm has a vertical organisation which is the traditional organisation
within law firms. The law firm also has the ambition to grow and become one of the leading
commercial law firms.
10.8.2 Law firm B
Law firm B is located in Linkping and, in contrast to the traditional view, a horizontal
organisation is being used, mainly because there are three employees and only one business
lawyer that carry out the legal services (one business lawyer, one accountant and one
administrator).
10.8.3 Law firm C
Law firm C operates in Stockholm and has 20 employees, eight lawyers and 12 junior
barristers. The firm is owned by trade companies that are owned by the partners. Every
partner is working towards its own trade company but they all collaborate within the law
firm. The structure of and the way of collaboration is very complex.
10.8.4 Corporation A
The corporation is placed in Jnkping and operates on an international basis. The
corporation has a corporate lawyer who deals with day to day legal commercial and
noncommercial legal advice within the corporation. Because of the international operation
and many other national arrangements the corporation is in need of a full-time legal adviser.
At the corporate lawyers office there are however 12 employees, but as mentioned only one
jurist.
10.9
A initial clarification is needed since during the interviews additional data was retrieved but it
was attained without the fixed question and followed from the dialogue that characterized the
interviews.
Initially, a law firm has a special position in society since the law profession is considered to
be a commission of trust. As a result of the position as a commissionaire of trust, people that
are working within the field of the law need to have a higher ethical standard in comparison
to other professions. However, for the corporate lawyer it became more interesting addressing
issues regarding ethical vs. business decisions. Furthermore, since law firms strictly
constitute a service corporation the extent of the knowledge-based attributes of the employees
becomes more important. All the information stated in this chapter derives from the
conducted interviews.
In Sweden the law profession can be divided into two separate categories. The first category
can label themselves as lawyers that practice the law. To become a lawyer one will need to be
a member of Advokatsamfundet. Advokatsamfundet is a private organisation which has the
same influence as an authority, but for lawyers. As a member of Advokatsamfundet the
lawyer is obliged to follow the ethical standards which are stipulated by Advokatsamfundet.
If not, the lawyer is in breach with the ethical regulations and can be excluded from
practicing legal services as a lawyer. Consequently, since it is not voluntary to follow
Advokatsamfundets ethical regulations it is no longer a responsibility but an accountability.
The second type of law firm is driven by persons that cannot label themselves as lawyers but
as business lawyers. There is no practical difference but with the label of lawyer an
automatically guarantee follows of their legal knowledge. The actual difference is that
business lawyers are not members of Advokatsamfundet and therefore not obliged to follow
the ethical regulations stipulated by this private organisation.
Another type of jurist is lawyers who are working for a corporation (corporate lawyers) and
in conformity with the situation for business lawyers they are not obliged to follow the ethical
regulations stipulated by Advokatsamfundet.
Law firm A and C had partners who are members of Advokatsamfundet and these law firms
have implemented the ethical standards into their business strategy. Law firm B does not
have a partner who is a member of Advokatsamfundet and has therefore no obligation to
follow the internal regulations that has been established by Advokatsamfundet. Similar to law
firm B the corporate lawyer from corporation A does not have to follow the ethical guidelines
stipulated by Advokatsamfundet.
Since lawyers, business lawyers and corporate lawyers are considered to constitute a
commission of trust they are dependent on the goodwill of the customers, therefore all the
interviewed service corporations need to establish high ethical standards. Moreover, law firm
B has its own established ethical standards such as an environmental policy and a travel
policy.
Corporation A has a lot of different strategies on specific matters but nothing concrete
concerning CSR or other ethical matters. However, corporation A emphasized that they use
the competence within the corporation to address ethical issues. In addition, corporation A
tries to improve and develop the competence regarding ethical issues when such issues arise.
Hence, they have not set aside time for extra work concerning such issues.
10.10 Activities labelled as CSR
All the interviewed service corporations shared the meaning of CSR activities and
emphasized the importance of ethical behaviour within law firms. CSR activities was mainly
considered as a social responsibility. Although, an environmental perspective was also
believed to fit into the term. Law firm A has no real environmental policies but pointed out
Global Corporate Social Responsibility
that there is an unspoken policy of minor obligations such as trying to reduce the heavy load
of workpaper and to preferentially use low energy lights. Law firm C did not have any CSR
policies at all but they did have paper and glass recycling. In contrast, law firm B has an
explicit environmental/travel policy.
Furthermore, all the interviewed service corporations assent that the conduct of CSR
activities are basically voluntary activities but need to without to much economical load.
Neither of the interviewed service corporations had any special competence nor any
particular development of such activities. Although, it was pointed out that this was a
relatively new phenomena and they had adopted a pragmatic view of this the latest three or
four years. However, before law firm A were familiar with the term CSR they actually
addressed issues that could fit within the meaning, such as conducting voluntary and without
charge, mentorship with students. Law firm B were aware of the term when they sponsored a
project called hand in hand during the Christmas of 2005. Law firm C did not perform any
CSR activities within their business strategy but many of the employees used their knowledge
of the law in their spare time without charge e.g. board members of a sports association. One
national association that law firm C sponsored was Hem och Skola which is a non profit
organisation that is working with current issues and attempts to further develop the situation
in schools. The corporate lawyer argues that CSR activities is not a new phenomena since
jurists always in some extent been obliged to follow the ethical guidelines in general and
lawyers, members of Advokatsamfundet, in particular.
10.11 CSR strategy as value adding
Since CSR activities can be conducted in different forms the outcome can vary. CSR
activities can be divided as value adding to the firm s trademark and into costs which the
firm believes constitutes a good cause. Although, all the interviewed service corporations emphasized that the bottom line is to earn profit, regardless of what the profits originates from,
consequently regardless of profits earned through direct legal services or profits earned
through goodwill and eventually a flow of more clients.
The interviewed service corporations emphasized that goodwill is essential when offering
legal services, it was argued that is was truly important for their business, all types of CSR
activities which create goodwill are beneficial for the firm.
Moreover, law firm A believes that a CSR strategy is beneficial for the law firm and that all
activities that can be connected to CSR establish a good forum to be seen in. According to
law firm A there is a shift in paradigm concerning how law firms are attracting customers. In
the past it has been considered to be inappropriate to market oneself. Nowadays, law firms
are beginning to use marketing strategies to attract customers. Thus, a CSR strategy can
create goodwill. The bottom line for the majority of the law firms is to earn profit, there is no
particular difference in comparison to other corporations. Otherwise there would not be any
law firms. To be able to earn profit it is important that the firm has a good reputation as a
gross product from goodwill. The CSR strategy of law firm A is partly originated from
Global Corporate Social Responsibility
CSR activities is a question about size and resources. All the interviewed service corporations
believed that MNE s with more resources can set aside both resources and competence to
questions concerning CSR activities. All the interviewed service corporations believed that small businesses do not have enough resources to be able to prioritize CSR
activities. Law firm A also stated that it is going to expand their size and that the expansion
might lead to a better developed CSR strategy in the future. Law firm C did not see the
need of a CSR strategy but believed that MNE s where more well-aware concerning their
conduct of CSR activities. Even though corporation A mentioned that MNE s should take
greater responsibility they still believed that MNE s do not necessarily prioritize activities
connected to CSR.
Moreover, another perspective that needs to be illuminated is the notion that a segment of
lawyers have idealistic point of views and therefore per se commits a greater deal of ethical
behaviour.
10.12 Responsibility towards stakeholders
There are different kinds of stakeholders surrounding and affecting the interviewed service
corporations. Different stakeholders have different ways of affecting the interviewed service
corporations. Stakeholders that are directly affected by the law firms business conduct is
clients (customers), employees and the counterparts. Secondary stakeholders were recognised
as the government and Advokatsamfundet. A difference between law firm A and C from Law
firm B and Corporation A is that a new guideline from Advokatsamfundet will have a great
impact on law firm A and C while law firm B and corporation A has the freedom to chose
whether they want to follow the guidelines or not.
There are explicit rules stipulated by Advokatsamfundet which state in what way lawyers
should act in different situations, e.g. a law firm cannot represent two counterparts in the
same dispute. Regarding the conflict of interest the firm has to represent the client that the
firm has represented for a longer period of time compared to the other party. Regardless of
whether the other client is bigger, more interesting, more beneficial out of an economical
point of view, this rule applies. In sum, when the commercial perspective conflicts with the
ethical perspective, the latter should always be a priority. Moreover, there have been
situations when larger law firms have had several departments in the same building working
with different cases and areas. However, even though these situations had so called chinese
walls between the departments were no information could be conveyed, it was still not
appropriate or allowed to represent counterparts within the same firm even though that the
departments worked separately.
Corporation A identified their stakeholders as clients, credit agencies and employees. These
categories are directly affected by their conduct of business. However, corporation A also
identified the society as indirectly affected. Moreover, corporation A, stressed and discussed
the possibility of clients having enough influence to change the conduct of the corporation
since they are dependent on their clients. In addition, the corporate lawyer acknowledged
Global Corporate Social Responsibility
that the credit agencies could affect and change the business of conduct as the corporations
are depending of financial funding. Furthermore, a discussion thereby followed concerning
how, in the future, the society can change business conduct through regulations, maybe
through tax deductions for grants (e.g. grants for non-profit organisations).
Neither law firm A or C noticed any stakeholders which were trying to influence their law
firms regarding their conduct of CSR activities except Advokatsamfundet. The reason that no
stakeholders tries to influence the law firm A and C is according to them the nature of how
their law firms work. Since a law firm is a service corporation which deals with certain types
of questions it does not have an impact on society in the same way as a manufacturing
corporation. The client has the belief that the lawyer in any situation will represent the client
out of a fair conduct. Therefore, it is extra important for a lawyer to act fair in their line of
work.
Another aspect to take into consideration according to law firm A is the size of the firm. Law
firm A is a small law firm which infers that the demands and expectations of certain
stakeholders are relatively low in comparison to larger firms.
On the contrary, law firm B has stakeholders which demand that the law firm should have an
environment policy. Even though the stakeholders demanded that the law firm should have an
environmental policy the firm was of the notion that in the bottom line it was their own
decision. Consequently, law firm B experienced that they had stakeholders trying to influence
their conduct of CSR activities but the stakeholders were not solely strong to influence them.
Law firm B has however chosen to implement an environment policy since they believe that
its in accordance with there business.
Law firm A and B emphasized the importance of social and ethical responsibility. In relation
to the TBL these areas was regarded as a larger and more important area compared to the
environmental area. Although, this kind of voluntary activities cannot be to much load of the
economical perspective. Law firm C believed that the most important aspect is
professionalism towards the clients and their need. To be able to be professional, a lawyer has
to have high ethical standards which are in accordance with Advokatsamfundet standards.
10.13 The future of CSR
There was a mutual belief between law firm A and B that CSR activities will increase with
time. Nowadays, it is more important to conduct good ethical business in order to comply
with the stakeholders awareness and demands. Furthermore, media contributes to a higher
degree of ethical business conduct. It is important to discuss CSR activities and try to adapt
to the development and also evaluate how it is conducted and furthermore how the activities
can be developed within the business strategy of law firm A and B.
The belief of law firm A and B is that CSR activities contributes to an increased profitability.
However, the firms emphasized that the conduct of CSR activities ought to arise from a
Global Corporate Social Responsibility
genuine perspective to contribute to the society, because all activities cannot be measured in
profitability. Hopefully, CSR activities will be conducted with idealistic reasons and not
because of profitability in the future.
Law firm C did not believe that CSR activities will become a more prioritized issue at their
firm because of the type of business that their law firm is conducting. However, the
representative of law firm C mentioned that other law firms might have another point of view
regarding the importance of CSR activities but the representative pointed out that the general
belief was that CSR activities will not increase with time in law firms.
The participant of corporation A believe that CSR activities can increase with time and
mainly concentrated the interview questions connected to the future of regulations. The
corporate lawyer sees an increased interest concerning CSR activities and believes that some
regulations will be stipulated concerning how certain corporations should conduct CSR
activities. However, the corporate lawyer also see the downside with regulations since it will
force corporations into a certain business conduct. An overhaul system will be
needed in this case to see to that corporations conduct the right business conduct and
the corporate lawyer also discussed the possibility of EU-regulations in the matter to integrate European cooperation and enable an international forum.
10.14 Analysis
This following section will analyse the empirical findings from the interviews and create a
link back to the theoretical framework.
The purpose of this thesis is to interview four legal jurists in order to explore how they
conduct CSR activities within their service corporation, with primary focus on SME law
firms. Throughout the analysis a short comparison is made towards earlier research
concerning manufacturing corporations in an attempt to enlighten potential differences
(question 6). In order to answer the purpose the following research questions needs to be
answered:
(1) Which activities can be labelled as CSR within the interviewed service corporations?
(2) What kind of difficulties do the interviewed service corporations experience with CSR
activities?
(3) How can CSR activities be used as value adding within the interviewed service
corporations?
(4) What kind of responsibility might the interviewed service corporations have towards its
stakeholders and why?
(5) How do the interviewed service corporations perceive the future regarding the conduct of
CSR activities?
(6) If and in that case how do CSR activities in the interviewed service corporations
differentiate in comparison to earlier research regarding manufacturing corporations?
10.14.1
To be able to answer the purpose the authors had to consider the intended meaning of CSR.
When considering the meaning of CSR one problem which occurred was that as there does
not exist a common definition of the meaning of CSR, which has lead to some ambiguity
concerning what kind of activities that can be regarded as CSR activities (Crane et al, 2004).
When evulating the CSR discussions by several scholars and deciding upon a
definition suitable for the purpose and the authors notion of CSR, the definition applied
by the EU Commission (2006) was chosen: a concept whereby companies integrate social
and environmental concerns in their business operations and in their interaction with their
stakeholders on a voluntary basis. Consequently, the authors notion of CSR is that such
activities are conducted on a voluntary basis. According to the EU Commission (2006) it
could also be stated that CSR activities begins where the law ends. During the interviews the
common impression of the interviewed service corporations was that CSR activities have to
be voluntary. If a CSR activity is regulated by law the paradigm shifts from responsibility to
accountability which result in that all corporations activities are conducted within the
essence of the law. Consequently, the empirical findings somewhat strengthens earlier
research such as Wise (2006) who argue that CSR activities begins where the law ends.
CSR activities is not a new concept with regards to the literature review, e.g. Carroll (1979)
stipulated the concept of the Pyramid of Corporate Social Responsibility. However,
through the empirical research the authors have come to the conclusion that CSR activities
seem to be a relatively new phenomenon within the interviewed service corporations.
Consequently, the interviewed service corporations seems not to have been affected by the
historical debate regarding CSR activities (Crane et al, 2004). Nonetheless, the interviewed
service corporations have conducted activities that can be compared to CSR activities without
the corporations necessarily viewing them as such activities or even recognising the meaning
of CSR. The conclusion to be drawn is that it might not be necessary to establish a general
guideline to be used within each of the interviewed service corporations in order for them to
conduct CSR activities. However, it might provide a more ethical business behaviour, in
accordance with what Bonnedahl et al (2007) argue concerning managerial difficulties and
morality.
According to earlier studies from the EU Commission (2002), SMEs use CSR activities to
build a trustworthy business in the local society. The empirical findings imply that some of
the interviewed service corporations used trustworthiness as an argument in relation to CSR.
Global Corporate Social Responsibility
The interviewed service corporations in the smaller cities were more active compared to the
law firm in Stockholm. As a result, law firm B engaged CSR activities which where
more transparent with the firm s business values. Law firm A also engaged activities which
was connected with the local community, e.g. the university in the city.
As mentioned by Wiklund (1973) Advokatsamfundet is a private organisation which by law
is given normative authority concerning which kind of ethical behaviour law firms should
conduct. To be able to practice law as a lawyer a person has to be a member of
Advokatsamfundet. The conclusion is that such a employee is obligated to follow
Advokatsamfundets standards as a result of the law. One might argue the ethical standards
stipulated by Advokatsamfundet should be considered as CSR activities because the
directions explain how the ethical behaviour should be conducted. On the contrary, it can be
also be argued that the standard is not voluntary and therefore the ethical standard cannot be
seen as CSR practice in accordance to definition set by the EU-commission (2006).
The authors point of view regarding the ethical standards of Advokatsamfundet is that
activities in accordance with these standards cannot be seen as CSR activities since it is not
conducted on a voluntary basis. However, the authors still believe that these set of standards
contributes to a corresponding and uniform behaviour for those law firms who must apply the
rules. Therefore, the standards may contribute to law firms acknowledging CSR activities and
eventually lead to law firms conducting CSR activities, i.e. voluntarily, which are not directly
connected to the set of rules from Advokatsamfundet.
Nevertheless, an interesting perspective which should be acknowledged is that law firms have
higher demands, due to the rules from Advokatsamfundet on their ethical activities and their
position as commission of trust, in comparison to manufacturing corporations.
This conclusion is however only applicable in relation to the law firms in the thesis case
study that has lawyers that are members of Advokatsamfundet. Business lawyers, however
have the same demands as manufacturing corporations, i.e. they do not have any additional
obligatory rules, but rather the ones chosen in their own strategy which is the conclusion
drawn by the authors through the case study. Through Figure 6, which Crane and Matten
(2004) established, the authors attempt to describe the relationship between ethics and the law
and how the regulations for ethical behaviour in certain law firms is extended in comparison
to the other studied service corporations.
Manufacturing corporations
Law firms
lished within these service corporations. There is no earlier research on the matter and our
belief is that Advokatsamfundets standards cannot be seen as CSR activities, it should instead
be seen as an action which the firm is obligated to apply. Otherwise the law firm runs the
risk of being excluded from Advokatsamfundet. But as already mentioned,
Advokatsamfundets ethical standards contribute to corresponding and uniform behaviour
within service corporations, such as the law firms studied, should behave within their ethical
line of work.
10.14.2
A managerial difficulty according to Ward (2003) is that CSR activities can be neglected in
the CSR management since it is voluntary and Bonnedal et al (2007) argue that corporations
need to have a fixed plan which states what kind of CSR activities the firm should take part
in. Since CSR activities are voluntary a service corporation may choose to conduct a CSR
activity when an opportunity is given that is in accordance with the core business. Although,
the authors belief is that this is not a difficulty connected only to SME service corporations
but to all SME corporations which leads to a discussion about the corporation s size and resources.
MNE s often have more resources with regard to time and money, which leads to that the
agenda of CSR activities is often shaped by MNE s (Fox et al, 2002). They can therefore
engage CSR activities without negative impacts within the organisation. Since SMEs do not
have the same type of resources as the MNE s the SMEs CSR activities differs in engagement compared to large corporations (Williamson et al, 2006). The EU Commission
(2002) established that larger corporations have an opportunity to set aside competence
and resources and therefore it was argued that larger corporations have a greater ability to
conduct CSR activities.
The empirical research indicates that in one of the law firms (Law firm B) the management
and the ownership was connected to one person which lead to that all decisions
simultaneously was made by the management and the owner. Consequently, decisions was
made on a relatively subjective ground and probably in an attempt to aid the local
stakeholders. The authors consider these subjective grounds as a difficulty for the interviewed
SME service corporations since it seems that they not regularly have explicit strategies
covering every department. As mentioned, the interviewed service corporations had some
strategies but
we presume that they are not as extensive as in MNE s.
All the interviewed service corporations described their CSR activities as dependent of
resources. Additionally, they believed that all types of SMEs have the same type of
difficulties concerning CSR activities. In a small corporation with only a few employees the
economic capacity does not allow one person which deals solely or mainly with CSR issues.
It is also hard to allocate resources which can be used in CSR activities that does not, to a
high extent, affect the business operations. Law firm C is of the notion that CSR strategy
Global Corporate Social Responsibility
SME s. This is a subjective difficulty since one or a small amount of persons decide which
CSR activities that should be conducted. In contrast, larger corporations can have the
possibility to set aside certain resources. However, even if larger corporations have a greater
possibility to set aside resources and conduct CSR activities this do not automatically mean
that they actually do it. Another problem which were acknowledged when the service
corporations were interviewed was that the firms found it problematic to incorporate CSR
activities into their business conduct as a result of the type of services that they provided.
10.14.3
A well known CSR-concept is (TBL) which was coined by Elkington (1994). According to
Henriques et al, (2004) TBL examines how a corporation conduct its business in the terms of
economical value, environmental value and social value. By examine the corporation s
business conduct in relation to these three aspects it is possible to determine what kind of
CSR activity corporations are conducting. All the interviewed service corporations in the
empirical findings agreed that the economic aspect is the most essential part of the three
areas. When investigating how the firms conduct their business out of a social and
environmental point of view an interesting result occurred in the empirical findings.
The result of the empirical research was that the interviewed service corporations were more
interested in CSR activities that were connected to social values issues, rather than issues that
concern the environment. All of the answers concerning this matter were similar and none of
the interviewed service corporations expressed that the environment was the most important
issue to address. The authors belief is that the main reason for this is the type of business that
the interviewed service corporation are conducting. A service corporation, such those in this
study, provides its clients with advice and consultation instead of products. By comparing the
empirical data with a previous study made by Williamson et al
(2006) about CSR activities in manufacturing corporations the authors have come to the
conclusion that the interviewed corporations focused on the social aspect while the
manufacturing companies focused more at the environmental aspects. The result shows that
corporations choose to conduct CSR activities that are closely connected to their business.
Furthermore, the EU Commission (2002) and Williamson et al (2006) argues that CSR
activities in SME corporations are undertaken in order to improve the reputation building.
This conclusion is also applicable in relation to the interviewed service corporations. It can
therefore be argued that the reason for this is the dependence on their current customers.
MNE s, however, are not that dependent on their current customers to the same extent
since they have larger possibilities to attract new customers.
The main reason of why the interviewed service corporations considered social questions to
be more of interest was, according to the empirical findings, that those kind of questions
derives from directly how they conduct business. Furthermore, activities concerning social
values create goodwill. According to the interviewed corporations, reputation is of great
importance within their line of business. A jurist/law firm or service corporation with bad
Global Corporate Social Responsibility
reputation will not attract any clients and without clients there is no business. One way of
gaining a good reputation is for the corporation to conduct activities that create goodwill. The
advantage with conducting activities which are creating goodwill is that the local society
probably associates the corporation with something positive. In contrast, a disadvantage is
that the CSR activity which creates goodwill might cost more money than what the activity
will eventually bring in. One specific problem with activities which should create goodwill is
that goodwill is an intangible asset which is difficult to value. Therefore, it might be argued
that a social responsibility is not preferable to conduct since it is hard to measure the actual
value adding. When the interviewed service corporations is conducting a CSR activity which
is supposed to create goodwill it seems naturally that the activity focuses on social values
which lies within the competence or interest of those that are working at the corporation.
The authors were surprised when the participant of law firm C explained that since the law
firm mainly focus on civil law they do not face CSR in there everyday practice. This seemed
as an excuse for not having a CSR strategy. There can not be any differences in how law firm
C conducts business from how the other interviewed corporations conduct their businesses.
However, the firm acknowledged that it may be beneficial for law firms to perform CSR
activities which may seem a bit contradictive. But the authors recognise that certain law firms
as those specialising in environmental law might be more willing to adapt to CSR activities
and it might also be easier for them as it is in line with their specialisation.
In sum, the interviewed service corporations expressed that CSR activities are beneficial for
law firms since they acquire goodwill which is fundamental for law firms (regardless of
whether Advokatsamfundets standards can be seen as CSR activities).
By examining the empirical findings in the light of the TBL the authors conclusion is that
when the interviewed service corporations conduct CSR activities they have a tendency to
enact in activities which lies within the frames of the corporation s business conduct. When
the service corporations makes a decision concerning which type of CSR activity it should
take part in the decision is based upon considerations concerning how well the activities
correlates with the corporation s business values.
Therefore, the author s view of how TBL can be seen is manifested in Figure 8, which is
based upon Carter et al (2008) model, and shows a framework of sustainable supply chain
management: moving towards a new theory. In the figure the authors have made a
comparison between manufacturing corporations and service corporations. Fairchild (2007)
argue that manufacturing corporations need to overlook how they can reduce polluting
activities. This result is strengthened by the results in the empirical study as the interviewed
service corporations focuses on social value instead of environmental values.
Manufacturing corporations
10.14.4
According to a study made by Graafland et al (2003) it seemed as the financial service sector
employs strategies are more connected to dialogue with stakeholders in attempt to stimulate
the awareness compared to the metal manufacturing that have fixed standards. Although, this
research was also conducted as a comparison between smaller firms and larger corporations it
therefore needs to be used with caution. However, the stakeholder theory made by Freeman
(1984) implicates that if corporations consider responsibility to its
stakeholders it implicates a win-win situation and beneficial results for all parties. Furthermore, through a research made by Calabrese et al (2008) it has been shown that a lesser
degree of specified CSR activities can lead to a lower degree of appreciation by the
stakeholders.
Every corporation has its primary and secondary stakeholders (Wheeler et al, 1998).
Therefore, it is interesting to discuss to what extent the corporations conduct its business in
accordance with the stakeholder theory and in respect of its responsibility to different
stakeholders. Through the empirical findings it can be concluded that the interviewed service
corporations do not have stakeholders that are powerful enough to affect their conduct of
business. Consequently, by using Johnson et al (2008) theory about the stakeholder map the
authors have come to the conclusion that most of the stakeholders of the interviewed
corporations can be considered as minimal effort stakeholders since the segment has a very
small interest in changing the corporations strategies and also have little power to change
the strategies.
The clients are the livelihood when it comes to the interviewed service corporations.
Therefore, these service corporations are dependent of the clients and their opinion of the
particular corporation. For the interviewed corporations it is fundamental to have satisfied
clients that can spread the word of their expertise regarding their services. Consequently,
these stakeholders can be regarded as the segment of keep satisfied because they might
have the power to influence the corporations strategy but will not do so as long as they are
pleased. The authors have come to conclusion that the interviewed service corporations do
not in the same way have the opportunity to attract customers as manufacturing corporations regarding e.g. prices which forces them to compete with the quality of their services.
Another stakeholder that differs from the others is Advokatsamfundet. The private
organisation of Advokatsamfundet can be considered as key players since they have the
power to
influence two of the interviewed corporations strategies. Moreover, they can steer the development of ethical behaviour but only for the members of Advokatsamfundet. Consequently, Figure 7 explains the differences regarding stakeholders between the two corporations that are members of Advokatsamfundet and the other two service corporations. The
model that the authors have used is the Stakeholder Theory of the Corporation: Concepts,
Evidence, and Implications by Donaldson et al (1995).
Members of Advokatsamfundet Nonmembers of Advokatsamfundet
One significant difference between the interviewed service corporations was the standards
stipulated by Advokatsamfundet as a stakeholder. Meaning, that two of the interviewed
corporations (Law firm A and C) are obliged to follow the standards. The empirical findings
however imply that there is no practical difference between the interviewed corporations in
their conduct of ethical behaviour.
10.14.5
The representatives of law firm A and B and corporation A believed that the concept of CSR
is here to stay and that it will become more important in the future. The representatives had
also acknowledged that more and more people are starting to reflect about questions
concerning the area of CSR. The law firm C representative also believed that CSR is here to
stay but only in businesses which can incorporate CSR activities into their business
strategy. In addition, law firm C did not believe that the law firms CSR activities will
increase in a near future.
An interesting finding of this thesis is that the interviewed service corporations seem not have
the same pressure from stakeholders to conduct CSR activities as the manufacturing
corporations, contrary to previous research. The reason according to the authors is that the
service corporations do not have the same tangible effect on the stakeholders and therefore
the stakeholder does not pressure them in the same way. Consequently the authors conclude,
as from the findings of this thesis, that the interviewed service corporations will not, within a
near future, be obliged to conduct a more specified CSR strategy.
(5) As concluding remarks, the authors like to stress that it is most likely that the concept of
CSR will in the future further enhance. However, it is our belief that SME service
corporations will not be deemed to procure a larger social responsibility and therefore will
not be affected to the same extent as manufacturing corporations. This is because some
service corporations already have extensive standards how to conduct ethical activities, e.g.
certain law firms obligated to follow the rules stipulated by Advokatsamfundet. However, it
is possible that there may be a need of similar or identical set of standards stipulated for other
service corporations in the future.
10.15 Conclusion
This final section will present the authors conclusions
A SME service corporation is a corporation which provides knowledge based consultation.
Most of the earlier research within the area of CSR has focused on the CSR activities and
strategies of large manufacturing corporations. That is why this study aims to explore how
CSR activities are conducted within four service corporations with focus on SME law firms.
Through the empirical findings it can be concluded that the interviewed service corporations
see CSR activities as an integration of voluntary social and environmental concerns in the
business operations. However, lawyers which are members of Advokatsamfundet have
to follow the ethical standards stipulated for lawyers. The authors belief is that these
activities cannot be considered as CSR activities in a strict meaning since it rather is an
accountability for lawyers. But these activities can be compared to CSR activities.
In contrast to earlier research, the authors belief is that the interviewed service corporations
do not need to be more proactive in order to predict the stakeholders requirements compared
to manufacturing corporations. Moreover, the authors belief is that manufacturing
companies need to attend environmental issues to a higher degree since they sometimes
have a by-product from their manufacturing process. This conclusion is reached since earlier
research state that manufacturing corporations tend to focus their CSR activities towards
environmental questions. The authors belief is that manufacturing corporations has such an
impact on the surrounding environment that it affects stakeholders in a way which leads to
that the stakeholders demand certain kinds of business operations. On the contrary, the
interviewed service corporations do not affect stakeholders in environmental issues.
Therefore, stakeholders do not have the same expectations at these service corporations
whether they take part in environmental activities or not.
In contrast to manufacturing corporations which focuses on environmental questions, our
research implies that the interviewed service corporations focus their CSR activities towards
social questions that are closely connected to their core business. Moreover, the bottom line
for all corporations is to earn profits. Since the interviewed service corporations only offer
knowledge based services, the goodwill becomes essential. In order to attain goodwill thes
interviewed service corporations need to have high ethical standards and therefore all kind of
social responsibility (CSR) is preferable from a long term perspective. An essential problem
concerning a long term CSR strategy is however that the interviewed service corporations
find it complicated to make these activities fit into their business strategy.
Through our research it can be concluded that the interviewed SME service corporations
difficulties with CSR activities do not differ in particular from SME corporations in general
with regard to time and money. This conclusion has also been established through earlier
research and is therefore confirmed through this research.
Finally, the concept of CSR is here to stay. The authors believe that the conduct of CSR
activities will become more important in the future. However, the interviewed service
corporations might not be affected in the same way as other corporations since they already
have extensive ethical standards.
BIBLIOGRAPHY
60. Brundtland Commission Report (1987) World Commission on Environment and
Development, Our Common Future, Oxford University Press, Oxford.
61. Dresner, S. (2002) The Principles of Sustainability, Earthscan, London.
62. Hirsch, F. (1976) The Social Limits to Grow, Routledge, London.
63. Redclift, M. (1996) Wasted: Counting the Global Consumption, Earthscan, London.
64. Sustainable Development, Exploring the Contradictions, Methuen, London, 1987.
65. Reid, David (1995) Sustainable Development: An Introductory Guide. EarthScan,
London.
66. http://www.grida.no/geo2000/english/0027.htm
67. Human Development Report (1990) United Nations Development Program, Oxford
University Press.
68. Human Development Report (1994) United Nations Development Program, Oxford
University Press.
69. Omara, Ojungu P. H., and H. Peter. (1992) Resource Management in Developing
Countries, Longman Scientific and Technical Co., USA.
70. Redclift, M. (1987) Sustainable Development: Exploring the Contradictions, Methuen,
London, UK.
71. Robins, Nick. (1990) Managing the Environment: The Greening of European Business,
Business International, London.
72. Schmidheiny, Stephen. (1998) Changing Course: A Global Business Perspective on
Development and the Environment, The Massachusetts Institute of Technology Press,
London.
73. Singh, Amita. (2000) The Politics of Environment Administration, Galgotia, New Delhi.
74. World Commission on Environment and Development (1987) Our Common Future,
Oxford University Press, Oxford.
75. Worster, Donald. (1993) The Shaky Ground of Sustainability. In: Sachs and Wolfgang,
(ed) Global Ecology, ZED Books, Fernwood Publishing, Nova Scotia.
76. Adams, W.H., Bourn, N.A.D. and Hodge, I. (1992) Conservation in the wider country
side. Land Use Policy 41: 235-247.
77. FAO (1989) Sustainable Agricultural Production Implications for International
Agricultural Research. Research and Technology Paper 4, FAO, Rome, 152 p.
78. Giampietiro, M., Corretelli, G. and Pimentel, D. (1992) Agricultural analysis of
agricultural ecosystem management, human return and sustainability. Agricultural
Ecosystem & Environment 38: 219-244.
79. IRRI (1995) Water A Looking Crisis, International Rice Research Institute, Los Banos,
Philippines. pp. 90.
80. Janvry, A. de and Garcia, R. (1988) Rural poverty and environmental degradation in
Latin America: causes, effects and alternative solution. Paper presented at the