Corporate Social Responsible - Essay Example

The rise of the multinational corporation over the past four decades is a cause of consternation for some global citizens and source of wealth and hope for others. Multinational corporations are at their very heart entities that exist for the primary purpose of producing goods and offering services that meet the needs and want of consumers and offer a return on investment for investors. They are machines operated by groups of individuals for these purposes. Multinational corporations have, in and of themselves, no morals, no sense of ethics and no soul. The humans that make decisions guiding the corporation must supply these traits. But what happens when the desire for profits pressures leaders of transnational corporations to make decisions that harm workers, the environment and the governments of the nations where they operate? Who can hold the leaders of the multinational corporation or the entire corporate entity accountable for their actions? These are two questions that have been increasingly difficult to answer. Traditionally, there have only been two forces that corporate leaders needed to consider when making decisions for their corporations. The first force guiding corporate decisions is the marketplace. Changes in consumer preference (demand) and the fluctuating availability of goods and services (supply) guide decisions in the rational marketplace concerning wages, production and investment. The marketplace guides decisions concerning these micro and macro economic corporate choices, but it does not offer guidance on the need to preserve the environment, offer safe working conditions for employees and pay a living wage. These other concerns are based on the desire for all humans to be treated with respect and fairness in the workplace. It also concerns the preservation of public goods such as air, water and arable land. These concerns have traditionally been under the prevue of legislators and legislation. Legislation is the second direct force that can affect the decisions of multinational corporations. Laws designed to offer victims of corporate negligence relief, to protect the environment and workers, to abstain from participating in dishonest practices such as offering bribes or kickbacks and to pay and living wage to workers have been enacted all over the world to keep multinational corporations from exerting too much power over nations. These laws have treated multinational corporations as though they cannot be trusted to make correct moral decisions. They have proven necessary because of the many times multinational corporations have been exposed as participating in these destructive practices. Many feel that these two traditional checks to the power of these multinational corporations have proven to be insufficient in several ways. Controls that the market forces on corporations are purely economic and do not regulate how they treat the environment or workers. Legislatures in democracies are often notoriously slow at making laws; so multinational corporations may be able to operate without bounds for years. The real rising concern many have concerning multinational corporations is their global scope of operations. Some feel that these powerful corporations have actually become above the law in many states. They wield incredible economic influence in developing nations with promises of training, jobs and infrastructure improvements. In exchange, the corporations are in a position to pressure native governments to hold off on passing legislation harmful to the corporation’s fiscal bottom line. The threat of withdraw from a given nation places pressure on legislatures not to enact necessary legislation. Governments in the developing world need the prosperity promised by multinational corporations so they are willing to keep regulatory legislation at a minimum. In addition to the threat of withdraw, multinational corporations have the power to shop around the developing world to see which developing nation is willing to give them the best “deal”. This means that they will consider locating in the nation that is willing to offer the least restrictive regulatory environment. What this actually encourages is a race to the bottom for the developing nations vying for the attention and investment from the multinational corporation. A final reason some feel legislation no longer is a sufficient safeguard from the growing power of multinational corporations is because laws passed in one country can be ignored in another. Piecemeal legislation of individual states against a corporation that operates globally is not an effective way to change a corporate culture given to unethical decision-making. In recent years, a third type of organization has attempted to bring increasing pressure on multinational corporations in an effort to influence their decision-making. These groups fall under the umbrella name of civil society organizations. The most recognizable of these groups are referred to as Non Governmental Organizations (NGOs) and labor unions. Civil society organizations, in general, work to ensure that the rights of all citizens are respected regardless of race, gender and social status. Most have a focus on one particular aspect of society or the economy. Labor unions work to ensure living wages and safe working conditions for workers. NGOs focus on everything from human rights to environmental protection. Traditionally, civil society organizations focused on only their one small part of the puzzle. But with advances in technology and communications, like minded civil society organizations find themselves better able to combine forces to counteract the actions and influences of multinational corporations. These organizations, unlike the marketplace or even the legislatures of many countries, feel that corporations have a moral obligation to act in an ethical manner in all aspects of their decision-making processes. This concept is called Corporate Social Responsibility (CSR). CSR is not a new idea. Its presence in the corporate world closely mirrors the growth of influence of civil society organizations. Accidents resulting in deaths in the developing world for corporations from developed nations incensed many global citizens during the 1970’s and 1980’s. Most infamous among these tragedies was the toxic gas leak in Bhopal, India at a Union Carbide plant. This was by no means the only incident of the kind, but it seemed to encapsulate much of the anger that had been growing in developing nations towards the multinational corporations that had moved into their towns and cities. Other internationally branded corporations such as Nike were embarrassed when their use of “sweatshop” labor in developing nations was revealed. Recent dumping of toxic waste in western African nations by a Dutch conglomerate has highlighted the environmental impact multinational corporations can have in developing nations. All of these incidents over the past few decades have fueled the sense that multinational corporations are not socially responsible actors in the global economy. The need to implement CSR had suddenly become a matter of urgency in the corporate world. New terms such as sustainable development and triple bottom line began to be heard in boardrooms around the world (Slob, 2004). The first great push for CSR had arrived and surprisingly, it was largely coming from within corporations. Many multinational corporations began to feel that it was in their best economic interest to monitor themselves relative to CSR. Codes of conduct were adopted and published. Commitment and covenants were signed. Voluntarily reporting became all the rage among corporate executives. Much of this voluntary corporate reform culminated in the establishment of the United Nation’s global compact. The Global Compact is a document that offers ten principles in four different categories for multinational corporations to abide by. They voluntarily agree to follow these principles in all of their decision-making processes. The component parts of the global compact say multinational corporations will follow principles relating to Human Rights, Anti-corruption, Environment and Labor. All of the reporting in voluntary and there are no penalties if a corporation is found being out of compliance with the principles stated in the Global Compact. This fact is the greatest criticism of the Global Compact. Some have actually accused the Global Compact of being nothing more than a free public relations vehicle for the companies that sign on. They feel that it might actually get in the way of real reforms that have teeth and could prevent abuses by multinational corporations and an increase in CSR. Those in civil society organizations increasingly eye voluntary reporting by multinational corporations with suspicion. This is especially true due to several high profile scandals involving multinational corporations that were highly regarded relative to their implementation of CSR reforms. Siemens corporation was involved in a scandal involving the paying of bribes in order to obtain lucrative contracts in developing nations (Kauffman, 2008). The corporation negotiated a settlement that allowed them to admit no wrong doing, escape prosecution and continue to bid for work involving the World Bank, International Monetary fund and the United States government. All of this from a company with clearly adopted anti-corruption language in their CSR procedures. A second scandal involved BP. This petroleum company had begun to brand itself as a leader in CSR, especially relative to environmental concerns. Indeed, the CEO at one point was the only leader of an oil company to acknowledge the role burning fossil fuels plays in global climate change. This paragon of CSR was found to have neglected maintenance to its pipelines in Alaska, resulting in numerous leaks and environmental damage that is still being mitigated. Due to the growing mistrust of corporations and their ability to self-regulate, many in civil society organizations have been working to create a third viable check to the multinational corporations. Some toady view NGOs and labor unions as the “third sector” of the economy in addition to governments with their ability to legislate and the market. But putting this “third sector” into play in an effort to force multinational corporations to abide by strict CSR rules is much trickier than it seems. The fact is NGOs do not have the power to make corporations do anything. They must generate and build trust with citizens, other NGOs and even corporations if they are to accomplish their goals of implementing CSR reform. For civil society organizations the name of the game is influence, not power. Civil society organizations choose to use their influence in different ways to accomplish their goals. There are two basic types of strategies civil society organizations can adopt. One strategy is to engage with multinational corporations in an effort to open a dialogue. These organizations feel that it is best to work with the corporations in an effort to enact real change from within the corporation. The other approach is to confront the corporations by exposing their wrongdoing around the globe. This approach is also known as “naming and shaming” corporations in an effort to embarrass them into changing their corporate decision. Winston point out that no NGOs engage in only one type of strategy. Rather he says that most employ a number of strategies that form a spectrum of strategies from engagement to confrontation (2002). He suggests that the spectrum from most engaging and accommodating to most confrontational includes strategies such as dialogue, advocacy of social accounting and independent verification of schemes, shareholder resolutions, documentation of abuses and moral shaming, calls for boycotts, advocacy of selective purchasing laws, advocacy of governmental imposed sanctions and litigation seeking punitive damages. The efficacy of these various methods are debatable. Actions such as dialogue fall into the category of voluntary CSR initiatives such as joining the Global Compact or having the board of directors adopt language that projects CSR. The most engaging NGOs see these as a step in the right direction while others feel that they are window dressing. Engaging NGOs hold to the belief that companies heed to be encouraged incrementally to make changes. They are not willing or able to make broad sweeping changes to their business models. So joining the Global Compact is viewed by these NGOs as a positive step in the right direction. But even the very next strategy on the spectrum leaves the global Compact behind. Advocacy of social accounting and independent verification of corporate progress towards stated CSR goals is not a part of the Global Compact. It has proven to be effective in some industries such as textiles and garment manufacturing. NGOs partner with corporations to set broad standards and then agree that independent auditors will inspect the working conditions at factories to rate how well the corporations are complying with the agreed upon goals. This method has helped some corporations transition from sweatshop labor to employing individuals that are paid a living wage. Shareholder activism is a more confrontational but highly unsuccessful approach to getting corporations to adopt CSR rules. NGOs and other civil society organizations encourage shareholders in the corporation to organize in an effort to introduce resolutions at the annual shareholder meetings. An example of this occurred in the 1980’s when shareholders of Caltex pressured the corporation to divest in South Africa. No real change usually occurs as a result of shareholder activism, but what it does do is convey a sense of urgency about a particular topic to the board of directors. In the Caltex case, the resolution was introduced three different times, with a greater percentage of the vote agreeing with the resolution to divest each time. The growing use of “shaming and naming” to identify corporations and their lack of CSR is a major confrontational tool used by nearly all NGOs. Shedding light on the misdeeds of corporations is the sole reason for some organizations to exist. This method of confrontation is central to their stated purpose. Part of the appeal of this tactic for NGOs is the fact that it works. Multinational corporations are very protective of their corporate brands. They are anxious that no negative connotation be attached to their products. Shaming corporations has caused them to change labor practices, repair damage to the environment and admit to paying bribes and kickbacks. Naming and shaming in confrontational, but most NGOs see it as a necessary step with the ultimate outcome being increased engagement. For example, an NGO may identify a multinational corporation as a major polluter in developing nations. Once the corporation is shamed, they then work with them to establish CSR language in their corporate mission statement and then a scheme of independent monitoring to ensure compliance with the stated goals in the mission statement. It is important to note that all of these strategies employed by NGOs so far work to varying degrees because they take a business approach to their engagement. What this means is they identify what is most important to a multinational corporation and then try to convince them that adopting CSR a part of the corporations culture will in the end pay off financially. Paying a living wage will improve worker morale and productivity. Complying with international standards for proper disposal of hazardous waste will avoid shaming by NGOs and a tarnished corporate brand. By engaging in these activities, NGOs seek to convince corporations that CSR means good business now and profits in the future. The most confrontational strategies include selective purchasing laws, government imposed standards and litigation. Selective purchasing laws are viewed to be similar to the laws that prohibited trade with apartheid South Africa in the 1970’s and 1980’s. The Supreme Court of the United States, however, has deemed recent laws of this sort passed by individual states in America, unconstitutional. Some states were making laws restricting trade with regimes such as the military dictators in Myanmar. The Supreme Cord held that only the federal government could introduce such legislation. Government imposed standards, otherwise known as legislation is the objective of other NGOs. In essence, the NGO becomes a lobbyist organization as they work to convince legislators to vote or introduce measures that will force corporations to adopt CSR rules and adhere to them. The NGO Global Witness carried out one successful exercise in this strategy. They successfully lobbied the United States House of Representatives to pass a measure prohibiting the importation of uncut diamonds from nations that could not verify source of the diamond. This law was designed to dry up the funds that were fueling the civil wars in Sierra Leone, Liberia and Angola. These so-called blood diamonds were identified as the source of much misery in these nations. This legislation is viewed as a major victory for civil society organizations. A final method of forcing change in a multinational corporation is through litigation. Some NGOs have urged those harmed or displaced by multinational corporations to sue in court to obtain damages from the corporations. This process is risky because it opens the plaintiff open to harassment from government officials that may be in league with the corporations. Often, these suits are not brought until the plaintiffs are away from their native countries. This way suit can be brought with less chance of reprisal. Unfortunately, it also makes investigation of the claims more difficult, thus leading to a low percentage of success for the plaintiffs. NGOs and other civil society organizations have taken a leading role in trying to create “third sector” controls on corporate power. Some businesses seem willing to engage, but others feel that civil society organizations should simply mind their own business. They do not care to believe that there is a “third sector”. Instead, they see civil society organizations as nothing more than another potential layer of regulation (Johns, 2002). In business, regulation equals lost profits and lost freedom. But there is another argument against NGOs claiming the “third sector”. This stems from the philosophical belief that only democratically elected legislatures should impose any sort of regulation on corporations. NGOs are special interest groups, focusing on human rights, the environment or labor concerns. They are not beholden to the processes of a democracy that guide the actions of a legislature. Nor are they any more bound to act in an ethical manner than the corporations they claim to be policing. Some would argue that for this reason, the creation of a “third sector” is not in the best interest of a democratic society. Regardless of the philosophical differences between NGOs or about NGOs, the reality is that they are fast becoming a force to be reckoned with by multinational corporations. The days of consumers being willing to buy or use anything based solely on price are waning. The new consumerism demands information and is increasingly guided by conscience as well as preference. Civil society groups offer the information and the interface between citizens and multinational corporations in a way that the market and legislatures cannot. It appears as though the day of the civil society is beginning to dawn. Work Cited Johns, G., 2002. Corporate social responsibility or civil society regulation? (Online August 19 2002) http://www.ipa.org.au/news/301/corporate-social-responsibility-or-civil-society-regulation-/pg/3 [January 10, 2010]. Kauffman, D., 2008. Siemens and the illusion of CSR and codes of business integrity (Online December 16, 2008) http://thekaufmannpost.net/siemens-and-the-illusion-of-csr-and-corporate-integrity/ [January 8, 2010]. Slob, B., 2004. Civil society organizations and CSR: joining hands in Europe and Latin America. SOMO Research on Multinational Corporations, Amsterdam, 2004, SOMO: Amsterdam. Utting, P., 2007. Whose partnership for whose development?: corporate accountability in the UN system beyond Global Compact. Civil Society Hearing, New York City, July 4 2007, United Nations: New York. Winston, M., 2002. NGO strategies for promoting corporate social responsibilities. Ethics and International Affairs, 16, [2], pp. 71-87. Read More