Business and Society:Corporate Social Responsibility

Professor Alexander SettlesFaculty of Management, State University – Higher School of Economics

What is Corporate (Social) Responsibility (CSR)?

Definitions and Terms Corporate social performance Corporate social responsibility Social Capital Corporate responsibility Business Ethics Socially responsible investing Business Ethics Human Capital Corporate Citizenship Corporate Accountability Sustainability Sustainable Development

What is Corporate Social Responsibility (CR)?

Internal Business Ethics Human resource / personnel

management Labor standards of suppliers

External Social – local and global Environmental

Responsibilities of Business

Economic

(must do)

Legal

(have to do)

Ethical

(Should Do)

Discretionary

(Might Do)

Milton Friedman’s Traditional View of Business Responsibility

“There is one and only on social responsibility of business – to use its resources and engage in activities designed to increase profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” (1970)

Economic

Ethical

Legal

Ethical

CSR Components

Business Ethics Environment Rule of Law – Anti-Corruption Labor Market Conditions Environmental Risks Social/Political Risks Corporate Governance Risks

Frameworks - Triple Bottom Line

(a) Economic bottom line. Although main emphasis is on financial performance, this often refers not only to profit but to the philosophies behind a company's strategy or behavior, the sustainability of its businesses and its 'human capital'.

(b) Environmental bottom line. The impact of its products or operations on the environment, plus the nature of its emissions and waste and how it is dealing with them.

(c) Social bottom line. How it approaches issues such as ethnic and gender diversity, working hours and wages, staff security and its contribution to community services or facilities.

WBI Framework

WBI: CR as an Integrated Approach

A comprehensive set of policies, practices and programs

Integrated into business operations, supply chains, decision making processes

Includes responsibility for current and past actions as well as future impacts

Issues vary by company size, sector, and location

UN Approach: Global Compact

Human RightsPrinciple 1: Businesses should support and respect the

protection of internationally proclaimed human rights; and Principle 2: make sure that they are not complicit in human

rights abuses. Labour StandardsPrinciple 3: Businesses should uphold the 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; and Principle 6: the elimination of discrimination in respect of

employment and occupation.

UN Global Compact

EnvironmentPrinciple 7: Businesses should support a precautionary

approach to environmental challenges; Principle 8: undertake initiatives to promote greater

environmental responsibility; and Principle 9: encourage the development and diffusion

of environmentally friendly technologies Anti-CorruptionPrinciple 10: Businesses should work against all forms

of corruption, including extortion and bribery.

Russian Firms in the Global Compact – Joined

Analytmarketing Joint Stock Company, 2001/06/21 Intersputnik International Organisation of Space, Communications

Technology Hardware & Electrical Equipment, 2003/01/03 Iteren, Professional, Scientific and Technical Services, 2004/05/11 Joint Stock Company Foreign Trade Association, 2002/03/22 JSC "Murmanelectrosviaz", Telecommunication, 2002/06/27 JSC ALTEN, Construction Materials 2005/06/21 Kirov State Air Enterprise, Aerospace & Aviation 2002/03/22 Moscow City Telephone Network, Telecommunication 2002/06/27 MTK Companies Group, Telecommunication 2002/06/27 Murmanelectroviaz Telecommunication 2002/06/27 Nefteyugansk United Airline Transportation Company, Aerospace &

Aviation 2002/03/22 Russian Aluminium Joint Stock Company, Metals & Mining 2002/03/27 Sistema JSFC 2002/08/31 Svyazinvest JSC, Telecommunication 2002/06/27

Russian Firms in the Global Compact – Joined and submitted COP

CJSC ARM Group Enterprises, Utilities 2004/05/26

Interros, Finance & Insurance 2001/10/22

Volga-Dnepr Airlines, Aerospace & Aviation 2000/11/14

Yukos Oil, Oil & Gas 2001/08/15

US Corporate Responsibility

CSR / Corporate Social Performance has existed in some form for more than 25 years in the U.S.

Sources of CSR/CSP: Environmental regulation Foreign Corrupt Practices

outlawed Development of Socially

Responsible Investment community

Institutional investors place pressure on corporations

Employee retention and development are crucial for success

Corporate Citizenship – US approach

Good corporate citizenship; Provision for a safe and healthy workplace; Exemplary employment practices; Responsible environment protection and practices; Contribution to the overall growth and

development of the local economy; Implementation of activities that are compatible

with local science and technology policies Compliance with international, and local laws,

focusing on anti-corruption, anti-bribery and transparency.

Source: US Department of State

US CSR Activities

Business organizations The Business Council Business Roundtable The Conference Board

Investment screening Investor Responsibility Research Center Dow Jones Sustainability Indexes

Russian Approach

RSPP – Social Charter Economic and financial stability (pay

taxes) Quality of production (customers) Labor Relations Human rights Protect the environment Form local associations to work with

local stakeholders and government

Russian Approach

Measuring UNDP & Russian Association of

Manager’s Report “About the social investments in Russia in 2004”

AMR’s “Business and the social development of Russia: problems and prospects” 2006

Reporting Accountability Global Reporting Initiative (GRI)

Examples of Russian Reports

Alfa Bank British American Tobacco Russia JSC Gazprom JSC Lukoil Oil Company McDonald's Russia North-West Timber Company OJSC MMC Norilsk Nickel RAO UES RUSAL Sibneft (Gazprom Neft) YUKOS Oil Company PC

Corporate Responsibility as Firm Strategy Examples

Environmental concerns or fair trade concerns allow for companies to charge premium prices – Ben & Jerry’s Homemade Inc. and The Body Shop

Trustworthiness may generate enduring relationships with suppliers - Maytag

Corporate Responsibility as Firm Strategy Examples

Firms can attract outstanding employees that desire to work for a responsible firm – Procter & Gamble

They are more likely to attract capital infusions from investors who view reputable companies as desirable long-term investments - Rubbermaid

CSR and Risk Management

Protecting and enhancing reputation, brand equity and trust

Attracting, motivating and retaining talent Managing and mitigating risk Improving operational and cost efficiency Ensuring license to operate Developing new business opportunities –

new products and services, new markets, new alliances, new business models

Creating a more secure and prosperous operating environment

Sources of Social Risk

Social Risk Equation

Social Risk as Managed Strategic Risk

Evolution of Social Risks

Reputation, Corporate Responsibility, and Competitiveness

Does a socially responsible commitment by corporations improve the business climate?

What are the results from the US and other western countries?

The CCG has played a role in exposing the academic community to Corporate Governance practices and CSR issues

Corporate Social Reporting – Some of the Standards

Global Reporting Initiative AA1000 & AA1000SES – AccountAbility SA8000 SAI Business process standards

ISO 9000 "quality management” ISO 14000 "environmental management”

IAASB’s International Standard on Assurance Engagements

ISO 26000 “corporate social responsibility – published by 2008

Stakeholder Engagement Model

Engagement Questions for the Firm

What is the issue or problem? How complex is it? What is its scope? Who else has an interest in the

problem? What is working and not working in

the current approach? What would be accomplished by

engaging others in the dialogue?

Reporting Concepts

Determine information requirements for early sensing and reporting

Establish reporting protocols Reporting chain Reporting frequency (e.g., urgent vs. routine) Reporting templates

Create metrics that support: Measurement and assessment of risk impact Aggregation and prioritization (including common taxonomy) Meaningful and contextualized understanding of material risks

Develop protocols for early warning indicators for immediate reporting/action

Identify internal and external information sources Define reporting tools

Reporting Standards

Stakeholder Involvement Subject Area

Environmental Labor Transparency and Ethics

Industry Area Forestry Mining Oil and Gas Telecommunications Hospitality

Sustainability Reports

Understanding of a company’s economic, social, and environmental position What kind of company are we? What are the key issues for long term

financial growth and sustainability? What are the pressures on the company? How should the company be positioned?

Sustainability Reporting

Risks to the company – Defining the scope What are the risks? Who is evaluating the risks? How often?

Proactive versus Reactive Setting policies

Who sets the policies? What is the Board of Directors involvement?

Involving the company Involving stakeholders

Sustainability Reporting

Who is the audience? Employees Government Public Investors Stakeholders

What will be disclosed? Operational Issues

Information gathering and control systems Standard operating procedures Internal reporting Assurance