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their immediate short-term interests, while others consistently adopt wider and longer-term views based on the principle of sustainable development. Some are anti-business, confrontational and suspicious of every new initiative taken by private enterprise, while others recognize common interests and the need to negotiate, compromise and seek solutions that benefit everyone. This is, after all, how societies are structured and function. It is normal that there is not a single uniform view and concept of what is economically and socially feasible, beneficial and necessary. Practical solutions have to be negotiated, developed by a democratic process, adopted by agreement, recommended to stakeholders, and revised and renegotiated when conditions change.

Thus, to move from being a noble theoretical principle to a practical operational concept, corporate responsibility needs an effective societal and institutional environment, which helps to define it, determine its specific characteristics and measures, harmonize approaches, build consensus, promote new concepts, negotiate what needs to be negotiated, enforce what needs to be enforced, and control implementation. Developing this environment, together with a public policy that encourages a greater sense of social responsibility, is as important as enhancing the recognition of the social roles of business among managers, entrepreneurs and investors.

23.2 Current concepts and trends

The driving forces

Over recent decades, the concept and practice of corporate social responsibility or citizenship have been influenced by a series of related developments, which have brought the issue to the forefront.

Government retrenchment. An extremely important driver of the current concept of corporate citizenship is government retrenchment. The fall of the communist and command-economy systems was followed by a commercial explosion, and new policies such as reduced tariffs within and between nations, putting a strain on the public purse. At the same time, mature democracies around the world face a situation in which more and more public funds are tied to non-discretionary (mandatory) support programmes (health, unemployment, etc.) leaving fewer resources to address increasingly complex social problems in education, social exclusion, digital divide, and safety. As businesses thrive, they are increasingly expected to engage in solving societal problems, and to focus their considerable resources on filling the gaps left by government retrenchment. Countries with no tradition of corporate philanthropy or volunteerism are thus beginning to embrace such concepts.

Globalization and the economic power of business. Improved technology (such as global telecommunications and inexpensive transport), opening of national economies, dynamic global capital markets, and access to low-cost labour are among the factors creating truly global enterprises. Transnational

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firms now produce, source and sell their goods around the world. Their operations in many cases touch literally every part of the world, and affect the well-being of a wide spectrum of stakeholders – both positively and negatively

– across the globe. Owing to their economic and financial power they are very strong players, able to mobilize, invest and transfer resources in excess of the GNP of many States.

The intensifying backlash and activism against business practices connected with globalization underscore the growing dissatisfaction with corporate power and behaviour. Protesters have raised questions concerning corporate practices towards the environment, human rights, payment of livable wages, sourcing policies, and destruction of the cultural infrastructure or internationally uncompetitive local industries and agriculture, to name a few.

Crises. A number of prominent crises have focused the attention of the world on corporate behaviour. The explosion of the Union Carbide plant in Bhopal, India, in 1985 led to stringent guidelines for environmental, health and safety standards along with new efforts to promote communication and transparency, such as Responsible Care and further reporting requirements demanded by governments around the world. The Exxon Valdez oil spill heightened the call for environmental management and reporting, and led to coalitions such as the CEREs Principles.2 Shell’s experiences in Nigeria and the North Sea have demonstrated the power of activism and the “court of public opinion”, leading a number of companies to take more seriously their relationships with non-governmental organizations (NGOs) and community activists. In some cases a crisis is both inevitable and necessary – as long as there is no crisis, warnings are not taken seriously and neither the businesses involved nor the regulators are willing to act.

Incentives. While the threat of the “stick” looms large, the size of the “carrot” encouraging socially responsible behaviour in the corporate world has grown as well. This new perspective sees corporate citizenship as supporting the corporate value chain. Evidence is growing that corporate citizenship may be an important differentiator in the minds of consumers and employees. “Reputational capital” appears to be gaining more and more credence in financial markets. Built on a foundation of trust rather than image, reputation is influenced significantly by the attitudes of key stakeholders towards companies. A reputation as a good corporate citizen is viewed more and more as an important asset in risk management. This is particularly relevant for companies and industries that find their “licence to operate” becoming more influenced by grassroots organizations and stakeholders. Finally, a more radical revolution is occurring as leading companies re-examine their business models. Environmental responsibility is being recast as efficient manufacturing. Traditionally excluded markets in low-income and minority communities and least developed countries are increasingly viewed as the last commercial frontier. Another facet of this revolution is the proliferation and fast growth of socially screened mutual funds, which include or exclude firms on the basis of social performance criteria.

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The influence of activism and pressures for compliance. Since the 1960s, grassroots activists have achieved success in influencing industrial behaviour. In the United States, activists helped drive the introduction of landmark regulations around safety, the environment, and community reinvestment (regulating banks against discriminatory lending and investment practices). On a global level, the Sullivan Principles organized coalitions of diverse constituencies to discourage investment in South Africa under the former apartheid regime. This activism was the precursor of notable global efforts around labour standards, access to treatment for AIDS, and globalization. The exposure of sweatshop labour connected to major brands of consumer goods focused attention on corporate manufacturing, sourcing and labour practices. Improvements in telecommunications systems are playing a profound role in creating an inexpensive infrastructure to facilitate grassroots activism at the global level.

The increasing visibility and influence of civil society. Surveys from polling organizations such as MORI have found that the public trusts civil society organizations far more than corporations. The United Nations estimates that there are over 29,000 international NGOs, many of which have a significant voice in the discussion of the social role and responsibility of business.

Growing involvement of international organizations. Governmental and other official organizations, including the United Nations, the OECD, the ILO, the EU and others, have called for the active participation of business in social affairs and have led the agenda in defining socially responsible corporate behaviour (box 23.1):

●The United Nations has taken a global leadership role by championing the United Nations Global Compact, a set of voluntary corporate codes of conduct around labour, human rights and the environment, which also embodies recommendations developed by other international agencies. The United Nations Secretary-General has solicited the partnership of the private sector to solve the global HIV/AIDS crisis and to support economic and social development.

●The OECD3 has developed comprehensive Guidelines for multinational enterprises and several other instruments for corporate responsibility, including Corporate governance principles, Guidelines for electronic commerce and The bribery convention.

●The ILO4 has adopted the Declaration on Fundamental Principles and

Rights at Work and its Follow-up, the Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy and a number of international labour conventions and recommendations.

●The Commission of the European Communities published a green paper,

Promoting a European Framework for Corporate Social Responsibility, which placed the debate on corporate social responsibility in the wider framework of the Commission’s proposals for a European strategy for sustainable development.

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Box 23.1 International guidelines on socially responsible business

United Nations: The Global Compact (www.unglobalcompact.org)

The Global Compact derives from the Universal Declaration of Human Rights, the ILO’s Declaration of Fundamental Principles and Rights at Work and the Rio Principles on Environment and Development. It uses the power of transparency and dialogue to identify and disseminate good practices, and calls on world business to uphold nine universal principles:

Principle 1: Support and respect the protection of international human rights within their sphere of influence.

Principle 2: Make sure their own corporations are not complicit in human rights abuses.

Principle 3: Freedom of association and the effective recognition of the right to collective bargaining.

Principle 4: The elimination of all forms of forced and compulsory labour.

Principle 5: The effective abolition of child labour.

Principle 6: The elimination of discrimination in respect of employment and occupation.

Principle 7: Support a precautionary approach to environmental challenges.

Principle 8: Undertake initiatives to promote greater environmental responsibility.

Principle 9: Encourage the development and diffusion of environmentally friendly technologies.

OECD Guidelines for multinational enterprises (www.oecd.org/EN/document/0,,EN-document-187-5-no-27-24467-187,FF.html)

The OECD Guidelines are the only comprehensive though non-binding recommendations to enterprises on how to operate in harmony with government policies and societal expectations. They provide guidance on appropriate business conduct across the full range of enterprise activities. Although directly addressed to multinational companies, they are appropriate for all private, stateowned and mixed enterprises. They cover: general policies, disclosure, employment and industrial relations, environmental management, combating bribery, consumer interests, science and technology, competition, and taxation. Another OECD instrument, Principles of corporate governance, focuses on the rights and responsibilities of shareholders, and provides a number of suggestions on best practices, listing requirements and codes of conduct.

ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy (www.ilo.org/public/english/employment/multi/index.htm)

The Declaration contains recommendations that are universally applicable to all enterprises, employers’ and workers’ organizations, and governments. The principles offer guidelines to multinational companies, governments, and employers’ and workers’ organizations in areas such as general policies,

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employment, training, conditions of work and life, and industrial relations, including freedom of association and collective bargaining. Its provisions are reinforced by a number of International Labour Conventions and Recommendations which the social partners are urged to bear in mind and apply, to the greatest extent possible.

European Union: Green Paper on Promoting a European Framework for Corporate Social Responsibility (europa.eu.int/comm/off/green/index_en.htm)

The Green Paper published in July 2001 takes up the “triple bottom-line” concept and is intended to launch a debate on how best to combine business profitability with the twin concepts of sustainability and accountability. The paper reviews a wide range of conceptual and practical issues of corporate social responsibility within firms and towards society at large. It emphasizes a holistic approach, an encouraging policy environment and the need to fully instil social responsibility in business culture.

Global Reporting Initiative (GRI) Guidelines (www.globalreporting.org)

The GRI aims to create a reporting framework that will enable reporters to respond efficiently and consistently to stakeholder demands, benchmark their performance against similar enterprises, position themselves as proactive in managing their business and external relations, and strengthen their reputations in capital, labour and customer markets. The framework is: (1) a CEO statement describing key elements of the report; (2) an overview of the reporting organization; (3) executive summary and key indicators; (4) vision and strategy that integrate economic, environmental and social performance; (5) policies, organization, and management systems including a discussion of stakeholder engagement; (6) qualitative and quantitative indicators of an organization’s economic, environmental, and social performance. These should include both generally applicable indicators and organization-specific indicators for the three areas. Economic performance should include: profit, intangible assets, investments, wages and benefits, labour productivity, taxes, community development, suppliers, and products/services. Environmental performance should include: energy, materials, water, emissions/ effluents/wastes, transport, suppliers, products and services, land use/ biodiversity, and compliance. Social performance should include: workplace, human rights, suppliers, and products/services.

Note: All websites visited on 4 April 2002.

A key factor in favour of the codes and systems being established by the leading international agencies is that they represent the understanding, recognition, compromise and consensus reached by the key stakeholders internationally, regionally and nationally. Principles of corporate responsibility are likely to be more credible if they have been developed through a process of open consultation among leaders from business, workers, governments, civic society and academia.

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Awareness and private initiatives. Many important business corporations and organizations representing business circles have a greater awareness of the social role and impact of business and recognize the need to enhance its social responsibility. New organizations have been established for this purpose. A coalition of NGOs has created the Global Reporting Initiative (GRI).5 The Council on Economic Priorities has designed a Social Accountability system called SA8000. Business groups such as the Caux Roundtable have adopted their own sets of principles. Companies like Levi Strauss have designed codes of conduct that have been used as templates for their peers in industry. Codes of business or conduct focused on social issues and business ethics are used by many companies. Many private initiatives have their origin in academic institutions, business support groups and consultancies, which design tools to guide managers through the challenge of managing corporate citizenship. These include The Standards of Excellence developed by the Center for Corporate Citizenship at the Boston College in the United States, Business in the Community’s “Principles”, The Corporate Citizenship Company’s London Benchmarking Group, AccountAbility’s Social Audit, KPMG’s ethical audit, PricewaterhouseCoopers’ global sourcing audit, and a growing number of others.

Concepts and terminology

At its core, managing the social role and responsibility of business, or corporate citizenship, involves engaging, relating to and managing networks of stakeholders that include shareholders, customers, employees, suppliers, community/ social interests and environmental interests. A stakeholder is commonly defined as any individual, group, or interest than can influence, or is influenced by, the operations of a business. Other definitions try to distinguish the relative primacy of stakeholders by identifying the relative levels of risk that a stakeholder creates, or bears, from corporate activity.

By (at least roughly) equating the importance of these stakeholders, businesses manifest their citizenship by producing benefits along a “triple bottom line” for shareholders, society and the environment. This is no simple task. The problem starts with the fundamentals – what term is the most appropriate? There is a fair amount of debate regarding the merits of terms such as corporate citizenship, corporate responsibility (used by OECD), corporate social responsibility (used in the Green Paper of the EU), social responsibility of business, corporate social performance, business ethics, corporate social accountability, community relations, corporate community involvement, social investment, external relations, public affairs, corporate reputation, and others. The leading terms are corporate social responsibility, social responsibility of business and corporate citizenship. Those who employ these terms fall into separate camps that either equate their meanings, or distinguish them broadly.

The OECD, for example, stresses that “corporate responsibility involves the search for an effective ‘fit’ between businesses and the societies in which they

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operate. The notion of ‘fit’ recognizes the mutual dependence of business and society – a business sector cannot prosper if the society in which it operates is failing and a failing business sector inevitably detracts from general wellbeing.”6 The Center for Corporate Citizenship defines corporate citizenship as “the process by which companies act as economic and social assets to the communities they impact by integrating societal interests with other core business objectives”.7 Others use the “triple bottom-line” (shareholders– society–environment) concept. In contrast, institutions such as Warwick University and Business for Social Responsibility8 define corporate citizenship as both the performance and ethical obligations of business in a number of areas, including (but not limited to) human rights, community, labour relations, customers, shareholders, environment, suppliers, manufacturing, codes of conduct, philanthropy, marketing and ethics. Corporate citizenship is also defined by some as the manner in which a company manages complex relationships with a variety of key stakeholder groups. Others use rather narrow definitions such as involvement in community affairs.

This variety of terms and definitions for corporate citizenship creates some confusion. Constituencies advocate for their preferred terminology, while companies find themselves sorting through a variety of pitches from potential consultants that use the same language to describe different things, or different languages to describe the same thing.

In part because definitions are imprecise, the practice of corporate citizenship lacks the precision of other functions. Currently, several definitions and related advisory and other services are vying for the attention of corporate managers. Many overlap, but some are quite distinctive. Consultants generally advocate that their system is the most thorough, germane and measurable. With no clear base for judging what constitutes scope and excellence in corporate citizenship, it is very difficult for clients to judge competing approaches.

This diversity of approaches and denominations is likely to be with us for quite a while, and managers and consultants alike have to live with it. Anything that touches on the social role of business is value-laden, conceptually complex and difficult to translate into generally supported practical solutions. Many issues are controversial and solutions can only be found step by step, through negotiation and compromise. Recommendations and guidelines adopted by international agencies or other bodies provide a broad orientation, but in most cases there are no benchmarks or role models for particular situations.

The actual practice of many North American, Australian and British corporations tends to emphasize philanthropy and community involvement. This model leans heavily towards the concept of “mutual advantage”, also known as the “win–win”. The idea is that corporate involvement in social concerns should serve the greater good, while also supporting profitability.

In contrast, businesses in continental Europe are developing a broader concept of socially responsible behaviour that typically rests on the three pillars of labour relations, environmental responsibility, and human rights. In Europe, corporate citizenship concentrates on the practice and behaviour of the

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enterprise more than its contributions to social development. This model emphasizes transparency of corporate policies, decision-making and behaviour. It also calls for proactive initiatives to obtain the views and feedback of key stakeholders regarding the various dimensions of corporate citizenship. This model encourages businesses to design formal strategies and policies that balance profit maximization with stakeholder concerns. Developed economies in south-east Asia share a similar concept of citizenship, but emphasize in particular the firm’s relationship with its employees.

Less developed countries tend to place greater emphasis on the participation of multinational enterprises in solving problems of social development and welfare. At a local level, these countries are concerned with enterprise development, including certain aspects of citizenship – such as product reliability, customer service and corporate governance – that more advanced economies may take for granted.

There is thus no single arbiter that in effect accredits the standards, objectives, benchmarks, criteria and even the basic concepts of corporate citizenship. With these differing perspectives, it is important for consultants and clients to understand how the field of practice has developed, where it may be going and what can be drawn from the various approaches. Being open to other approaches, even if they appear to be culturally strange and unpractical, and helping clients to aim at the same, is an essential quality of consultants in this field.

Problems faced by decision-makers in business

Currently, most managers are unequipped to handle the issues that corporate social responsibility encompasses. Most advanced management programmes have little or nothing in their curricula that would help managers begin to understand its dynamics. If such programmes do not address these considerations, then other business leaders with backgrounds in engineering, science, law, or other subjects can hardly be expected to have the training necessary to tackle social responsibility issues. In daily practice, managers often have to address issues of responsibility brought about by crises, external pressures, or new regulations, often outside the total business context. They act as a fire brigade to avoid further problems and the deepening of conflicts rather than being strategists and planners.

Managers generally find it difficult to keep abreast of new and revised recommendations, guidelines, codes, standards, reporting formats and other instruments aimed at promoting social responsibility of business. They are confused not only by terminology, as mentioned above, but also by overlapping initiatives, by the reluctance of some organizations to harmonize their concepts and coordinate or merge their instruments, and by the number of invitations to adopt new codes and meet new demands. They may appreciate that this reflects the state of the art, and the complexity of the issues, but a proliferation of competing codes and guidelines causes confusion, additional costs and inefficiencies, and often slows down practical action.

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Also, the globalizing vision of shareholder capitalism is somewhat in opposition to the idea of higher corporate social responsibility. This model dictates that a firm’s primary obligation is to satisfy the interests of its owners by maximizing the return on shareholder investments. In this regard, strict adherents of shareholder capitalism contend that corporate responsibility should encompass only activities that support shareholder wealth creation. Any activity that distracts from this aim is, by the logic of the shareholder model, unethical. Advocates of corporate citizenship therefore need to convince sceptics that there is in fact no contradiction between profit maximization and corporate responsibility, and that corporate citizenship is increasingly becoming necessary to achieve and maintain shareholder wealth. In contrast, it is argued by some that corporate citizenship is the process of maximization of stakeholder value. Advocates contend that by managing and building relationships with key stakeholders, everyone – including shareholders – benefits. Consultants therefore should be prepared in any engagement to demonstrate the concrete business value that corporate citizenship produces.

There will be instances in which consultants will work with sceptical managers for whom the business case is either highly intangible or essentially non-existent. Examples include situations in which the bottom line clearly argues for a company to leave a region, whatever the consequences to the local economy and the well-being of employees and their families. Companies may find that it is much cheaper to continue to use a highly polluting technology than to introduce a clean technology. Or they may feel that they need to subcontract to local suppliers with dubious ethical records in order to compete. While it may be possible for consultants to argue that such actions are ultimately unprofitable, at times the weight of evidence to the contrary may be formidable.

Managers who are aware of the social role and impact of their business may still hesitate between adopting a reactive or a proactive stance. Being reactive is often easier, especially if some issues have not been fully clarified or if the manager does not have the full understanding and support of the board of directors and shareholders on social responsibility issues. Action may thus be confined to responding to a specific requirement, pressure, threat, law, standard, inspection report or crisis. In this case, something has to be done and the Board cannot object. Conversely, a proactive approach will require vision, foresight, courage and risk-taking. It may involve thorough analysis, patient and persevering negotiation and excellent communication. It may give the company a new image and competitive edge. It may also be costly and difficult to sustain if a self-imposed standard is far ahead of the industry standard and a company could well continue without it in the given environment (typically anti-corruption initiatives and avoidance of conflicts of interest in some business cultures, or environment-sensitive behaviour in the absence of appropriate legislation and inspection).

International agencies and other leaders are unanimous in advocating a proactive approach to corporate social responsibility. By behaving proactively,

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