Corporate Social Responsibility: A Global View

Theoretical literature on corporate social responsibility (CSR) is quite vast in comparison to studies on its global practices. The literature available on this is still in its nascent stages. Evidence on global practices of CSR has emerged in literature relatively late. Moreover, most studies available cover the practices of CSR in the US, UK and Europe. Under the European Union‘s Sixth Framework programme1, a research project called ‗The Rhetoric and Realities in CSR‘ studied the CSR practices in selected sectors of European countries. Apart from this, studies have focused on comparative analysis of CSR practices in the US, UK, Europe and Asia. These comparisons are based on legal, institutional and political framework. CSR and Growth of International Business Trade is considered to be the vehicle of growth, a concept that emerged from the Classical Theory of Trade propounded by Adam Smith and David Ricardo. The benefits of trade lie in increased income, productivity, employment generation and, hence, improved welfare. In the age of neo-liberalism, international institutions like the International Monetary

1 The Sixth Framework Programme, or FP6, is the European Community Framework Programme for Research, Technological Development and Demonstration. It is a collection of the actions at EU level to fund and promote research.

Fund (IMF), World Bank and the World Trade Organization (WTO) have triggered the growth of emerging economics through trade. The economies of these countries are now integrated as a single global economy. The establishment and growth of Multinational Corporations (MNCs) have also generated growth and employment in various developing economics. On the downside, however, it has led to the exploitation of these economies. This trend is more pronounced in the area of environmental concerns. The generally weak environmental regimes in these countries allow the MNCs to function without proper environmental safeguards. The WTO, IMF and World Bank have introduced economic liberalization to the emerging economies, so these economies can gain access to global markets. However, developed countries wield enough power to influence the WTO to create obstacles in the way of market access for developing nations. The developing economies, too, have become aware of the exploitation of labour and environment at the hands of MNCs. Moreover, global environmental threats like global warming and climate change have raised worldwide concerns and pushed the idea of sustainable development. In this situation, MNCs based in developing countries have started following

but also helps them avoid public accusations of exploitation of labour and environment at the hands of NGOs, local media and the public. Institutional arrangements through the WTO‘s trade-related norms on child labour and environment have also been major drivers of CSR.

There has been increasing democratization of the developing world since the 1980s. The General Agreement on Tariffs and Trade (GATT) was converted into a global institutional arrangement in the form of the WTO in 1994. The role of the IMF and World Bank was also enhanced through conditionality and structural reforms in the process of financial the developing economies. The changing geopolitics due to the fall of the communism in Eastern Europe further reinforced the process of transition towards democracy. This kind of political and market transition required social rehabilitation. Issues related to poverty, balanced growth and sustainable living received increasing importance in the world economy. One of the outcomes of these developments was the formulation of the Millennium Development Goals.2 This led to the emergence of another issue-provision of global public goods (GPGs)3 such as human rights, anti-corruption policies, anti-poverty programmes and environmental programmes. The governments of different countries are expected to provide global public goods in association with international bodies like the UN, World Bank, IMF and the Organization for Economic Co-operation and Development (OECD). NGOs also play a major role in providing the global public services as supplied by these international institutions. A major issue with regard to the provision of GPGs lies in their definition and their separation from national public goods (NPGs). When the issue of poverty is raised, it becomes a country-specific issue, so any policy and funds for poverty eradication at the national level becomes a domestic public good. Thus, any global public good follows not only the properties of non-excludability and non-rivalry,4 but it must

2 MDGs-adopted by world leaders in 2000 and set to be achieved by 2015 3 Public goods are considered global when they have universal benefits, covering multiple groups of countries and all populations (http://web.worldbank.org/) 4 Public goods are commodities for which the cost of extending the service to an additional person is zero and for which it is impossible or expensive to exclude individuals from enjoying. In other words, public goods have the two key properties of non-rivalry and non-excludability. Non-rivalry denotes that the consumption of the public good by one person does not reduce the quantity available for consumption by another person. Non-excludability means that no person can be excluded from benefiting from or being affected by the public good (or can only be excluded at a very high exclusion cost). (Source: http://nordhaus.econ.yale.edu/PASandGPG.pdf)

across the borders is a global good. Similarly, the World Bank‘s Vulnerability Fund and Global Food Response Programme are public goods to tackle external problems like the global financial meltdown of 2008. While providing any global public service, international institutions often face the following challenges: 1. Distinguishing global public goods from national public goods 2. Financing the governments of different countries for supplying the global public goods and services 3. Governing the facilities of Public Services through NGOs 4. Governing the facilities of Public Services through CSR initiatives of the companies 5. Evaluating and assessing the provision of Public Services through CSR programmes, by standardizing the reports of companies, following a system of proper accountability. This accounting system should focus more on the outcome rather than output.

AND ENVIRONMENTAL RESPONSIBILITIES

A survey of studies analyzing the CSR practices of some developed and developing countries is presented in this section. Williams and Aguilera (2008) made a comparative study of CSR in developed and developing countries from three perspectives- legal, institutional and corporate governance.

Though the legal perspective implies mandatory laws and compliance standards, the legal setup of actions may have different implications on CSR processes and implementation in different countries, particularly with respect to social expectations that are created by the legal set up5 The difference lies in the interaction between legal and institutional factors like NGO activism and government regulations based on the social expectations in different countries.6 Another aspect that creates a difference in the CSR implementation in various countries through the legal system is the importance given to CSR

5(McAdams and Nadler, 2005 6 Kargan et al., 2003

developing countries have promulgated laws in order to attract more foreign direct investments (FDIs). These are some examples of how legal perspectives have been crucial in driving CSR by companies globally.

INSTITUTIONAL ANALYSIS

The literature has addressed the comparative institutional analysis from the perspective of interaction between formal institutions, that is, laws and government policies, and the informal institutions such as social norms add ‗mental modes of analysis‘7 and organizations such as business entities, labour organizations and civil societies. This interaction facilitates a unique cultural and institutional framework for a company‘s CSR8. The study of Doh and Guay (2006) has explored the difference between the institutional environment in the European Union and the US. The differences are identified with respect to government policy-making, corporate strategies that affect government policy-making and NGO activism.

CORPORATE GOVERNANCE SYSTEM

CSR practices are highly influenced by the corporate governance system of a country. The Anglo-American outsider system, which involves the appointment of non-executive directors, differs from the insider system, which employs directors from within the company. This marks a clear difference in the understanding of shareholders versus stakeholders. This leads to a demarcation between the concepts of explicit and implicit CSR. Matten and Moon (2004) defines explicit CSR as the companies‘ voluntary CSR to address important social and economic issues as seen in the US. As the legal regulations with respect to CSR are less stringent in the US, social and economic issues like education, health and community development are more pronounced than employees‘ rights and environmental protection. On the contrary, the European system is based on implicit CSR through legal responsibilities. Thus, an important question raised by Matten and Moon (2004) is shareholder or stakeholder involvement and whether following an Anglo-American approach of corporate governance can effectively enhance CSR. The UK‘s policy of corporate governance is similar to the US policy of primacy of the shareholder‘s interests.9 Williams and Conley (2005) pointed out that the difference lies in legal and institutional factors which lead to market-based incentives. Legal factors of

7 Doh and Guay, 2006 8 Aguilera and Jackson, 2003; Ampbell, 2005; Ahlerling and Deakin, 2005 9Armour et al., 2003; Deaking, 2005

and insurance companies with longer time horizons for investment, and they differ from mutual funds investors‘ needs that dominate in the United States. Two other perspectives are discussed at length in literature-behavior of top management teams (TMT) towards CSR and consumer‘s attitude towards CSR. Though the first perspective has received more focus than the second one, both are equally important for effective CSR by companies.

ETHICAL VISIONS

This aspect is more effective in influencing CSR in countries like Spain, Turkey, Great Britian and the US10. It has been evident that a manager‘s own ethical vision and organizational culture play a significant role in influencing CSR. TMTs behave differently across countries and they are more influenced by national cultural norms11 Orpen (1987) in his study on managers‘ perceptions found that US managers hold a much more positive attitude towards CSR than their South African counterparts. Maignan and Ralston‘s (1999) study showed a difference in corporate communication towards CSR among organizations. The study by Waldman et al. (2006) on 561 firms in 15 countries in five continents showed higher scores for institutional collectivism in Britain and higher scores for power distance in China.

COUNTRIES

The CSR practices and principles of some European countries, along with that of the US, have been best captured through a content analysis approach by Maignan a Ralston (2002). They had shown that ‗a firm committed to CSR has principles and processes in place to minimize its negative impacts and maximize its positive impacts on selected stakeholder issues.‘ This hypothesis was developed based on the concepts prevailing in North America. However, the study was constrained by data limitations, and failed to address whether the concepts have transcended the boundary of North America and influenced the CSR processes of neighboring countries. Another difficulty was to find out whether the same CSR principles lead to similar initiatives in various countries. As far as the principles motivating CSR are concerned, this countrywide study devised three

10 Vitell and Paolillo, 2004 11 Hofstede, 1980, 2001; Schwartz, 1994; Triandis, 1995

1. Value-driven CSR is high in the US and the difference between the US and the other three European countries is significant. 2. Performance-driven CSR is high in the UK and the difference with the other countries is significant. 3. Stakeholder-driven CSR is found in equal number of companies in France (48.3 per cent), UK (24.2 per cent) and the Netherlands (41.7 per cent). The difference between European countries and the US is significant and fewer companies are motivated by stakeholders‘ needs in the US. 4. In the above case, community-driven and regulator-driven CSR are dominant in France. In understanding the processes of CSR, seven processes have been identified by the authors. With regard to philanthropic programmes, American and British companies have the maximum number of programmes related to philanthropy. ► Sponsorships: UK-based companies have been sponsoring different programmes, which is the second most common process of CSR implementation. ► Volunteerism: Employee volunteerism was found to be absent in the companies chosen in the study in France and the Netherlands while companies in US (47.1 per cent) and UK (35 per cent) were reported to use this process. The differences in countries are statistically significant. ► Code of ethics: Very few firms have synchronized a code of ethics as a process in CSR. UK (16.7 per cent) and US (18.9 per cent) firm still have code of ethics as a CSR process. ► Quality Programmes: French and UK-based companies claim to undertake quality-based CSR programmes. ► Health and safety programmes were the maximum in the UK. ► Management of environmental effects as part of CSR features in almost 50 per cent of the companies in the UK, whereas almost 25 per cent of the companies feature in other European countries. The study by Chappel and Moon (2005) in seven countries of Asia explored the following four research hypotheses: 1. CSR varies among Asian countries. 2. CSR in Asia is dependent on development. 3. The adoption of CSR in Asia will be enhanced by globalization. 4. National business systems structure the character of CSR of MNCs. The seven countries selected for the study were India, Indonesia, Singapore, Malaysia, South Korea, Thailand and the Philippines. The countries were selected on the basis of diverse demographic, economic, social and political profiles. The top 50 companies of each country with English language websites were selected for the analysis. However, data based on such website reporting has its limitations. CSR reporting in websites may either overstate or undermine the actual CSR practices. Despite this limitation, the authors have analyzed the above four hypotheses based on three stakeholder approaches: 1. Responsibility towards community 2. Socially responsible production processes 3. Employee relations The study concluded that CSR varies among countries in Asia. Relatively low level of CSR institutionalization was observed as most companies do not report their efforts in a dedicated manner. One of the views in the CSR theory is that CSR is detached from the political economy and is focused on business drives for CSR. Hence, most welfare states with coordinated market economies are likely to be strong CSR performers. There are certain patterns of CSR performance in Western Europe, such as: ► Socially responsible investment (SRI) analyses inclusive of the score on Dow Jones Sustainability Index (DJSI)12 and FTSE413 Good Index and the list of Global Hundred Most Sustainable Corporations

12 Launched in 1999, the Dow Jones Sustainability Indexes (DJSIs) are the first global indexes tracking the financial performance of the leading sustainability-driven companies worldwide. 13 The FTSE4 Good Index Series has been designed to objectively measure the performance of companies that meet globally recognized corporate responsibility standards.

► Industrial membership in CR communities that include member companies of the United Nations Global Compact (UNGC)14 and World Business Council for Sustainable Development (WBCSD). ► CSR reporting that includes industrial reporting according to the Global Reporting Initiatives (GRI)15 and KPMG Reporting Framework.

MODELS OF CSR IN EUPORPE

Nordic Model: The Nordic model ranks at the top (except on the DJSI) scores the higher, followed by the Danish and Norwegian. These companies rank moderate to medium in GRI performance indicators. In terms of membership in the CR community, the Norwegian and Danish industries score the highest. In terms of management standards and ISO 14001, Swedish industry takes the lead, and the other countries are in the upper-medium position. Continental Model: In this model, the Netherlands, Sweden and, to some extent, Australia scores the highest with respect to the parameters, whereas Germany, France and Belgium (partly) are in the lower to medium range. Sweden has the highest SRI reporting and second DJSI rank. Reporting is also relatively higher in the Dutch industry. ISO 14001 is higher in Sweden. Mediterranean Model: Except for Spain, most countries are in the lower scores here. In respect of standards, the Spanish industry ranks very high.16

STATES, EUROPE AND RUSSIA

The US has the longest tradition in CSR, while in Europe, the concept of CSR has developed more recently (20-25 years ago). Recent developments have been driven by external factors leading to industry-society engagement in a variety of forms. In the 1980s, British CSR shifted to the explicit model due to the crises of governance. The government had a crisis of managing industrial relations, inflation and unemployment. Big business took certain CSR initiatives at this point of time, and evolved an

14 A global platform which convenes companies together with UN agencies, labour and civil society to support fundamental principles in the areas of human rights, labour, environment and anti-corruption (http://www.unglobalcompact.org/) 15 The Global Reporting Initiative (GRI) is a network-based organization that produces a comprehensive sustainability reporting framework that is widely used globally (http://www.globalreporting.org/). 16 Midttun, Gautesa and Gjolberg, 2006

communications are well organized (Matten and Moon, 2004). Russia In recent times, there has been visible improvement in the CSR scenario in Russia. However, there is a dearth of research literature. In some quarters, there is a lot of support and optimism for CSR, which leads to employee training, health insurance, etc. But other stakeholders are not being given a place of prominence in the CSR domain. Also perhaps, the concept of CSR is not well understood. Further, the state may have its own objective in introducing CSR activities. Nevertheless, the government has an important role to play because of the past legacy of the Soviet system. CSR in the European Union The Communication from the Commission concerning CSR, March 2006, introduces a new institutional arrangement in the form of the European Alliance for CSR, which aims to bring together European enterprises. The Advocacy Brief made the following recommendations: • Regulatory measures for corporate accountability • Measures to improve transparency • Recognition of credible and effective multi-stakeholder initiatives • Better implementation of international approaches • Research on sector and geographical violations of CSR principles • Inclusion of human rights, social and environmental issues in investment agreements. The European Coalition for Corporate Justice (ECCJ) represents a range of NGOs in Europe. The European Commission, however, did not introduce any new policies or principles.

17 A not-for-profit organization that helps member companies to transform communities by tackling key social and environmental issues. 18 The FTSE 100 Index is a share index of the 100 most highly capitalized UK companies listed on the Exchange. The index is maintained by the FTSE Group, an independent company jointly owned by the Financial Times and the London Stock Exchange.

been extensive. Several parties like the unions, employers‘ organizations and representatives of agriculture are participating in annual budget exercises. The people are concerned about the behavior of large corporations that have business abroad.19 Denmark: There was a social legislation in 1933 after which the state has been the main provider of social services in Denmark, which has a total population of 5 million. The world‘s first ethical accounting statement appeared from a Danish bank in 1989, which talked of social initiative. Norway: CSR is an outcome of the cultural ethos of Norway.20 Focus of Norway‘s social policy is a stakeholder dialogue, human rights, workforce diversity and sustainability. Germany: Strong trade unions, business associations, religion-based institutions, professional associations and chambers of commerce have evolved and implemented CSR. The country has engaged in environmental protection activities since the 1970s. Environmental legislation has been introduced, and green movements are active. The Green Party became a dominant factor in German politics. In 2002, the concept of sustainable development was introduced.

INTERNATIONAL AGENCIES IN CSR

Towards the end of the previous century, multilateral agencies like the UN, the World Bank, International Finance Corporation (IFC), WTO, OECD and ILO have evolved guidelines for private as well as public enterprises to encourage them to adopt policies on CSR and sustainability. While in general, these guidelines, codes and standards apply to macro-economic and social contexts such as poverty alleviation, anti-corruption, social accountability, environmental performance, the individual enterprises both in developed and developing economies, depending upon the specific context of their operations, can adapt and implement these to achieve their particular sub-sets of objectives at micro level. The UN Declaration on Human Rights, the ILO social clauses, the OECD principles for multinationals, the World Bank strategy paper on the role of the private sector in economic and social development, and the IFC norms for financing large projects (performance standards), among others are some of the notable examples. Apart from the multilateral agencies evolving the guidelines, several private sector organizations, including industries (service as also manufacturing), have also contributed to the growing

19 Korhonen and Seppala, 2005 20 Williams, 2005

sector. These agencies seek to foster CSR by way of: ► Promotion and advocacy; ► Development of a conducive policy environment; ► Financial support; and ► Promoting compliance, reporting and accountability The multilateral agencies provide financial and technical support to all the players in the CSR field, especially the NGOs and other types of voluntary organizations since governments are already members of such agencies and civil society organizations partner with the agencies for a variety of social and sustainability projects.21 Department for International Development The Department for International Development (DFID), UK, is an arm of the Department of International Trade, UK. It is extensively engaged I formulating policies and practices related to sustainability in several parts of the world. DFID works towards making global society more effective. It undertakes activities such as tackling corruption, aid effectiveness, multilateral effectiveness, accountability, multilateral organization performance assessment, network, tools for multilateral effectiveness, international aid, transparency initiatives, information dissemination and electronic database and development of code of conduct. DFID promotes linkages between competition, corporate responsibility and pro-poor growth process. Multilateral Investment Guarantee Agency The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank Group which seeks to promote foreign direct investment (FDI) in developing countries to help support economic growth. It has issued policy on social and environmental sustainability, as also on disclosure of information. Just like the International Financial Corporation, MIGA has also formulated guidelines on sanction of various projects based on environmental risk. Accordingly, they have set some standards to categorize the projects into three groups – environmentally high-risk projects, medium-risk projects and low-risk projects.

21 Vives, 2004

role in bringing about social and environmental changes through trade. There are multilateral, bilateral, unilateral agreements, regional trading agreements, as well as fair trade agreements. The WTO has role in CSR-related causes. It also has explicit mechanisms on trade policy review and dispute settlement process. The North-South dialogue in the last decade22 had focused on various conflicting issues between the North and South. Among the specific measures of WTO, policies and agreements, certain agreements on sanitary and phyto-sanitary, textile and clothing, technical barriers to trade, anti-dumping, customs valuation, subsidies and countervailing measures and safeguards take a prominent place. Further, there are provisions for suitable and appropriate institutional arrangements, maritime transport, negotiation on movements of natural persons, negotiation on basic telecom services, trade and environment issues and preferential treatment for least developed countries. Social issues like exploitation of labour by MNCs in developing countries, and use of child labour are also addressed through non-trade restrictions and denying market access to those countries.

MULTILATERAL AGENCIES

Important sustainability initiatives are introduced by multilateral agencies such as the World Health Organization (WHO) International Labour Organization (ILO), Asian Development Bank (ADB), United Nations Industrial Development Organization (UNIDO), ICC, USAID, World Bank, United Nations Conference on Trade and Development (UNCTAD), in India. In the earlier analyses, we have covered the programmes of WTO with regard to sustainability.

CONCLUSIONS

The focus of this article was to present an overview of the global scenario with regard to the concepts and practices of CSR and sustainability measures, both by the respective country governments and the corporations. This gives a view on specific areas of government and market interventions in designing and implementing various programmes in the social sector in the developed, as well as developing economies. Promotion and implementation of CSR is must for the growth of Nation as well as for balancing economy.

22 Rio, Johannesburg, Seattle, Singapore, Hong Kong, Cancun, Doha and Geneva

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Research Scholar, Department of Commerce and Management, Maharaj Vinayak Global University, Jaipur