The Flipside of Corporate Social Responsibility (CSR)

Introducing Corporate Social Responsibility (CSR)

The United Nations states that at its broadest, Corporate Social Responsibility (CSR) can be defined as the overall contribution of business to sustaina­ble development (UNDESA, 2007). That being said, unmonitored corporate social responsibility threatens not only individual security but the world’s security at large. This paper will attempt to demonstrate that not only would our faith be misplaced in entrusting corporations with the security of the global economy, as the recent economic crisis has clearly demonstrated, but furthermore we cannot entrust corporations with the three basic S’s of human survivability, sustainability and security.

The main issue with which this paper deals is the role of government in the process of CSR Implementation, oversight, and utilization. Should corporate social responsibility really be left up to a corporation? Could such an attitude have negative implications on fragile growth in developing countries?

In the words of Mathew Bishop of The Economist: “The media and the public should start putting pressure back on governments to improve labor and social issues. In effect, we are letting government and politicians off the hook by pressuring the companies we work for and invest in to take on additional financial and social burdens" (Salls, 2004). The promise of government must be fully met. The case should not be made to focus on the role of business in promoting global prosperity and delivering positive social transformations, but instead on how good quality governance can bring about promising corporate and social Responsibility. This concept will be introduced as “Philanthro-Governance.”

Misconceptions of a Promising Truth

“Can we expect every decision made in one's self-interest, through market mechanisms, to result in the good for all? […] By promoting these instruments as substitutes for international governance institutions, the UN and OECD effectively undermine the ability of national governments to put forward a different approach.” Deborah Doane, Core Coalition (Fauset,2006)

The truth is, CSR has the potential to evolve into a promising tool for development, by evolving into Corporate Social Innovation;[i] a promising aspect despite the critiques. However, to set out and randomly “do good” in the world is an amusing predicament. Yes, of course states, corporations, and citizens should all take part in the quest to secure the three S’s. But, there remains a need for oversight and accountability. In her study titled “Corporate Social Responsibility – A guide for trade unionists,” Mather identifies this dilemma when she notes:

“The difference between the terms ‘responsibility’ and ‘accountability’ in English may be fine but it is important. ‘Accountability’ implies that corporations are answerable to the rest of society – their duties and our rights. By contrast, ‘responsibility’ suggests that it is enough for companies merely to assume this state for themselves. This is why many trade unionists prefer the term ‘corporate accountability’.” (Mather,2006)

A call for accountability is nothing new; The 2002 World Summit on Sustainable Development marked the crowning of CSR, while Friends of the Earth led calls for a Convention on Corporate Accountability (Fauset, 2006). It is difficult to imagine how CSR can deliver promises without accountability. Hence the question: Who should play such a role? The state, of course: it is the one institution that represents its electorate (society), is built upon a solid foundation, and demonstrates an established governance apparatus. In countries where this is not the case, global institutions can substitute.

Current legislation and international guidelines, especially those put in place to define the capacity and role of global trade organizations, make it very difficult to enforce CSR, or even attempt to endorse it. Given that CSR is a matter of a corporation’s will, carried out at a time and place of its choosing, it should be recognized then that not only do corporations lack the proper expertise to determine social needs, additionaly not every corporation has “good” intentions. Who sets the definition of what is good and what is bad? The concept as it applies to many private businesses is wholly profit-driven and carried out in self-interest, and when the opposite is true then it is a mere attempt to evade criticisms.(Mather,2006) In the words of Sir John Browne, Chief Executive, BP: “This is not a sudden discovery of moral virtue or a sense of guilt about past errors. It is about long-term self-interest – enlightened, I hope, but self-interest nonetheless”. Hence the question: Can we entrust such entities (private businesses) to act independently in pursuing sustainable development? Do we continue to pretend that CSR should be unmonitored, and like the business sector it too can regulate itself? The answer is no doubt politically twofold.

However, given that both prosperous business and good governance are needed for development and the fact that even governments can be held accountable to an extent wherein 1991 UN General Assembly declared itself in favor of humanitarian intervention without the request or consent of the state involved (Mathews, 2003). If the equation of humanitarianism and sustainable development is to be guided to its proper bearing, does that not justify the establishment of a global monitoring system of CSR that holds businesses accountable as well? Without such a system, the private sector (CSR) will continue to be an uncontrollable variable in an equation that is not in the liberty of withstanding continuous miscalculation; sustainable development, especially in underdeveloped countries, is vital to human survivability and the absence of a monitoring mechanism threatens progress.

The Flipside of Corporate Social Responsiblity

The international forum where trade agreements are negoti­ated is the WTO. People could be inclined to look to this forum to discuss CSR standards regarding trade.(Oldenziel et al., 2005) Unfortunately, current international institutions, more importantly those of them affiliated with business and development, are home to a wide set of outstanding issues, be it the WTO, UN, OECD, etc At a briefing by the Brookings Institution regarding Social Corporate Responsibility and Government, Susan Aaronson (Sr. Fellow, Kenan Institute at the University of North Carolina) notes: “The WTO is in my mind a wonderful institution, but WTO has provisions that allow governments to undermine their own labor laws to stimulate trade, for example. There are no rules governing how business behaves in conflict zones…” (Brookings, 2005) Furthermore, the WTO rules, such as the GATSii rules concerning standards and licenses limit the ability of governments to regulate the behavior of corporations (Oldenziel et al., 2005) [including social and environmental].

The effects of CSR in the developing world are usually a matter of literary presumptions and continuous debate; unfortunately, the fact is that as of this date, the world has not yet developed a proper means for measuring corporate compliance or an instrument for providing CSR oversight. As a result, MNCs may knowingly or unknowingly provide support and legitimacy to repressive regimes.(Goulbourne, 2003) CSR would create a sense of “things are getting better” despite the ineffectiveness of government; hence the positive outcome is short lived.  In the meanwhile, sustainable development on the long-run is jeopardized (Fig. A Appendix).  First, MNCs in the developing world are running away with vital resources absolutely crucial for the development of the country they operate in. Second, the funds destined for CSR projects are fractions of a corporation’s profit. Third, given that there is no universal standard of operation; CSR encourages vices in an already desperate developing world (undermining governance, corruption, etc). It is important to remember that democratic control over national policy is further weakened by the political clout of massive multinational corporations (MNCs), whose international sales often dwarf the Gross Domestic Products of their host countries …The 200 companies that own over one-fourth of the world's productive assets exert enormous political pressure on relatively weak states through legal and often illegal behavior (Pooley,1995).

With this taken into consideration, it becomes easier to see why advocating for CSR in the under-developed world is an issue worthy of our concern; this approach emboldens private businesses in these countries (which hardly ever have the interests of the whole population at heart) while further undermining the governance apparatus in these already weakened states. It would appear to be more realistic to encourage Philanthro-Governance instead; where social, environmental and economic policy can be drafted in a fashion to best suit all the players involved. However, the issue remains controversial (Fig.B Appendix) due to the fact that there is no concise understanding of what the impact of CSR is or will be in the future.

Literature suggesting that through CSR, MNCs could somehow save the world is too optimistic. Take the Tanzanian model: Tanzania typifies the sub-Saharan experience. It is among the poorest countries in the world, with its agricultural sector accounting for nearly 50% of GDP, 85% of export earnings, and 80% of the labor force. MNCs have little incentive to involve themselves in economies like these.(Dampier,2006) Given that the poorest nations in the world do not fall under the umbrella of “corporate interests”, it is difficult to see how MNCs or their CSR strategies can ever save the world. Peter Utting (2005), Deputy Director and CSR Research Co-coordinator, United Nations Research Institute for Social Development –UNRISD- argues that the CSR agenda can deal with some of the worst symptoms of maldevelopment, such as poor working conditions, pollution, and poor factory-community relations, but that it does not deal with the key political and economic mechanisms through which transnational companies undermine the development prospects of poor countries. (Broomhill, 2007) (Fig.C Appendix).

“Philanthro-Governence”: Critical to Sustainable Development

“In broad terms “The Market for Virtue” asks: “to what extent can companies self-regulate, change their social environmental policies without the threat and coercion of government regulation?” (Salls,2004) A key question that should have also been addressed is: How long can we afford to wait until we actually find out? It is here that “Philanthro-Governance” must step in. There are three main reasons why Philanthro-Governanceiii is critical to sustainable development.

First, Coherence; government has the much needed social expertise. How government can weigh in on this equation is a matter of further debate (Fig.D Appendix). To keep matters in perspective though, randomly carrying out CSR projects is an issue that many will take issue with. How are private companies supposed to evaluate and meet the needs of the communities they engage in? It is simply unrealistic. Different communities, like different countries, require different consideration. It simply does not make sense to engage in CSR that had to do with forestry in a country in desperate need of medication or vaccinations. This expertise, or rather “prioritization”, can be provided by the government through agencies set up to gather/deliver the necessary information to corporations and civilians alike interested in contributing to the betterment of society. While it is fair to say that CSR makes a positive contribution to the human rights of those working in TNCs, it is also fair to say that it only makes a difference to those few corporations targeted by consumers or who are already thinking ethically and responsibly. Other industries are not so well inclined. Such anomalies, and the piecemeal approach of the CSR movement, should alert global citizens to the need for a more systematic approach. (Kemp, 2001).

Secondly, corporations too fall under jurisdiction; the rule of law is critical to the equation of global development. David Vogel states: “The most effective strategy for reconciling private business goals and public social purposes remains what it has always been, namely effective government regulation… CSR should not be regarded as a long-term substitute for the rule of law.” (Holder et al, 2007) More importantly so, this especially applies to developing countries; CSR as a substitute to governance is an attitude that would only serve to undermine the already fragile governance apparatus and eventually inflict long-term repercussions. Critics are mistaken when they argue that CSR is a process of moving beyond being held locally accountable and rather engaging in development simply because it is a global responsibility. The latest economic crisis is a matter of global responsibility as well, yet it is the governments that attend to it. The economy had been entrusted to the private sector, and the ideology of self-regulation; our trip down the “global development lane” should not follow in the same foot-steps. Corporations must uphold social and environmental regulation administered by the government on behalf of the people in the country they operate in. In the battle for global sustainability and international development leadership is vital; it is hard to see who else can fill this role if not government. CSR and partnership approaches for LDCiv rural development must be seen in the complex context of the challenge of governance. Nationally, CSR and partnership efforts need to be rooted in a sound and maturing regulatory environment. Internationally, assistance is needed for building the regulatory capacity of LDC governments, while also continuing to explore how and when to combine voluntary incentives with regulatory approaches to CSR. (UN-OSAA, 2004)

Thirdly, Democratic Governancev enhances the legitimacy of government decisions in the eyes of the public, and it also creates a more stable and attractive climate for investment and makes economic development possible (Diamond,2004). Without such a climate, fewer and fewer corporations will be interested in investing in developing countries which most need development and CSR. 

Concluding Thoughts

“If businessmen do have a Social Responsibility other than making maximum profits for stakeholders, how are they to know what it is? Can self-selected private individuals decide what the social interest is? Can they decide how great a burden they are justified in placing on themselves or their stakeholders to serve a social interest?” (Miwa, 1999)

Until such questions are answered, we must acknowledge that we have yet to learn of CSR’s consequences and/or promises, or of its responsibility, for that matter. But owing to the state of the current global affairs, we must make sure that our venture into CSR would be a risk-free step in the right direction. Such a plan would have to encompass academics, alternatives, long-term perspectives, regulations, standards, etc. In that context, many of us would agree, we still have much ground to make up for.

As of now, there has not been a universal definition put in place, nor a means of accountability. For us to determine whether or not to champion the concept of CSR we should  develop basic tangible means to help us agree on where reality begins and fantasy ends. Until then, it should be recognized that there are two heads of the coin, and in the meantime there is an alternative, risk-free approach in Philanthro-Governance.

References

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Endnotes

i.) Corporate Social Innovation: the process of inventing, securing support for, and implementing novel solutions to social needs and problems […]dissolving boundaries and brokering a dialogue between the public, private, and nonprofit sectors. […] A novel solution to a social problem that is more effective, efficient, sustainable, or just than existing solutions and for which the value created accrues primarily to society as a whole rather than private individuals. (Phills Jr. et al., 2008)

ii.) GATS: General Agreement on Trade in Services

iii.) Philanthro- Governance: a system of oversight and accountability that holds all members of society accountable to the law, including corporations. An apparatus of regulations, codes, and philanthropy; where the government sets out to meet its promise to the people as the protector of their rights, freedoms, etc. More importantly it is a system of government that insures the betterment of its citizenry and safeguards critical pillars necessary to their development and survivability. Philanthro-governance extends on both the national and international arena.

iv.) LDCs : Least Developed Countries

v.) It is important to remember that Good governance does not necessarily, in every country, at every historical moment, require democracy. However, democracy provides an important instrument and incentive for good governance. (Diamond, 2004).