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CSR & Development: an introduction to issues & institutions
• Context, concepts, key issues
• Emerging institutions in CSR
• Implications for firms
• Implications for development
Dr. Anthony MillerUnited Nations Conference on Trade and [email protected]
Main Concepts of CSR
Social Contract (Donaldson, 1982; Donaldson and Dunfee, 1999) – There is a tacit social contract between the firm and society; the contract bestows certain rights in exchange for certain responsibilities.
Stakeholder Theory (Freeman, 1984) – A stakeholder is “any group or individual who can affect or is affected by the achievement of an organisation’s purpose.” Argues that it is in the company’s strategic interest to respect the interests of all its stakeholders.
CSR (Carrol, 1979) Firms have responsibilities to societies including economic, legal,
ethical and discretionary (or philanthropic).- See also DeGeorge (1999) on the “Myth of the Amoral Firm”
2
Main Concepts of CSR
Milton Friedman
“…the doctrine of ‘social responsibility’ involves the acceptance of the socialist view that political mechanisms, not market mechanisms, are the appropriate way to determine the allocation of scarce resources to alternative uses.”
“…there is only one social responsibility for companies and that is to make as much money as possible…
…while conforming to the basic rules of society, both those embodied in law and those embodied in ethical custom.”
Main Concepts of CSR
“…[CSR] is liable to hold back the development of poor countries through the suppression of employment opportunities within them.”
David Henderson
“[CSR]’s adoption would reduce competition and economic freedom, and undermine the market economy.”
3
Main Concepts of CSR
CSR = political economy
The rights and responsibilities assigned to private
industry.
Context: Globalisation & the Imbedded Firm
• Liberalisation of markets – reduction of the regulatory approach
• Emergence of global giants, consolidation of market share
• Development of the ‘embedded firm’ and the global value chain– Development of supplier networks in developing
countries
4
Key Issues in CSR• Labour rights:
– child labour – forced labour – right to organise – safety and health
• Environmental conditions– water & air emissions– climate change
• Human rights– cooperation with paramilitary forces– complicity in extra-judicial killings
• Poverty Alleviation– unemployment– public revenues– skills and technology
Emerging Institutions in CSR
• NGO Activism
• SRI
• Litigation
• UN initiatives
5
NGO Activism
• The ‘Seattle Effect’
• Boycotts, brand damage, influence legislation, domino effect
• e.g. Shell in Nigeria, Exxon in Cameroon, Apparel Industry (Nike, Gap), GMO, Wood Products, etc.
• Facilitators: IT (espInternet), media, low cost travel
Domino Effect in the US Wood Products Industry: 7 out of top 10 shift policy on old growth within 18 months
5Payless CashwaysDec - 2000
484 LumberAug - 2000
2LowesAug - 2000
3MenardsJan - 2000
9WickesNov - 1999
6Home BaseNov - 1999
1Home DepotAug - 1999
Industry RankCompanyDate of Policy Shift
6
Socially Responsible Investing (SRI)• Roots of: South Africa Apartheid
Divestment
• Significant size: US SRI = 2.3 trillion $ in 2005 or 10% of all professionally managed investments
• Shareholder activism: shareholder resolutions; voting process
• Influence corporate reporting and disclosure requirements
• New rules on CSR reporting in the UK, France, Australia
Shareholder Activism at Exxon Mobile
0
1
2
3
4
5
6
7
2000 2001 2002 2003
No.
Res
olut
ions
File
d
0%
5%
10%
15%
20%
25%
Avg.
Vot
e in
Sup
port
CG CSR & X-over Vote CG Vote CSR & X-over
From 2000 to 2003, over 70% of shareholder resolutions filed at XOM were related to social & environmental issues.
7
Signatories will1 …incorporate ESG issues into investment analysis and
decision-making processes.2 …be active owners and incorporate ESG issues into our
ownership policies and practices.3 …seek appropriate disclosure on ESG issues by the entities in
which we invest.4 …promote acceptance and implementation of the Principles
within the investment industry.5 …work together to enhance our effectiveness in implementing
the Principles.6 …each report on our activities and progress towards
implementing the Principles.
Principles for Responsible Investmentwww.unpri.org
8
22%
25%
31%
34%
44%
47%
50%
50%
56%
69%
44%
31%
28%
31%
22%
28%
22%
25%
16%
6%
34%
44%
41%
34%
34%
25%
28%
25%
28%
25%
Climate Change
Health Issues
Human Rights
Environmental Management
Employee Relations
BEE and Gender Empowerment Issues
HIV/Aids
Infrastructure Development
Sustainability
Corporate Governance
Very Important Somewhat Important Not Important
Please indicate the extent to which you feel the following ESG issues are important in evaluating the likely performance of investments:
The Materiality of ESG Issues – Survey of Pension Funds (PRI)
70% 30%
18.5%
81.5%
0 10 20 30 40 50 60 70 80 90 100
No
Yes
Asset owners. Do you expect to implement ESG policies in your emerging market investments within the next 3 years?
Investor opinion survey (IFC)
9
• Foreign Direct Liability
• Alien Tort Claims Act (ATCA): human rights, environmental rights� Unocal Burma
� Coca-Cola Columbia
� Rio Tinto Papau New Guinea
� Del Monte Guatemala
� The Gap Saipan
� Shell Nigeria
• Other tools: RICO, False Advertising – E.g. Saipan ‘sweatshop’ cases; Katsky v. Nike
Litigation
$30,000,000 settlement
United Nations Initiatives• UN Global Compact• UN Principles for Responsible Investment• UNEP Equator Principles• ILO Tripartite Declaration of Principles
concerning Multinational Enterprises and Social Policy (MNE Declaration)
• UNHCHR Business and Human Rights• UNODC Anti-corruption• UNCTAD Corporate Responsibility
Reporting, World Investment Report
10
Emerging Governance Institutions:a mutually reinforcing set of institutions
Litigation
SRINational Govt& UN
NGO
TNC as an “organ of society”
“every individual and every organ of society [should] promote respect for these rights and freedoms and to secure their universal and effective recognition.” - UN International Declaration of Human Rights
International principles apply only to governments
International principles apply to governments andcompanies
It would be a strange tort system that imposed liability on state actors but not on those who conspired with them to perpetrate illegal acts through coercive use of state power. - 1997 Eastman Kodack Co. v. Kalvin
Trend in international law
11
Sphere of Influence
Who – is to be influenced?
Sphere of Influence
What – issues are to be influenced?
12
Sphere of Influence
How – are those issues to be influenced?
Sphere of InfluenceExample: Mattel
Who: suppliers, JVs and branch plants
What: OSH
How: focus on manufacturing processes, HR, factory design
13
Corporate Compliance Management: Governing the Global Value Chain
How do companies govern socio-environmental & legal compliance issues within their value chain?
• Code of Conduct
• Compliance Management
• Accounting and Reporting
Code of Conduct:Widespread adoption among TNCs
Adoption of…• More than half of the 100 largest firms by global revenue (Fortune Global 100)
• More than a third of the 100 largest firms by foreign assets (UNCTAD WIR 100)
• 57% of all foreign assets
• 51% of all foreign sales
• 65% of all foreign employees
Multi-Sector7% Technology
17%
Services20%Light Industry
17%
Heavy Industry 27%
Not Specified12%
Codes found among all industrial sectors.
Source: OECD 1999 survey of 233 codes
14
Code of Conduct:Issue emphasis varies by industry
0 20 40 60 80 100
Multi-Sector
Technology
Services
LightIndustry
HeavyIndustry
% of Codes addressing issue
Environment
Fair Employment &Labour RightsRule of Law
Fair Business Practices
Source: OECD 1999 survey of 233 codes
Code of Conduct:Emerging consensus on key issues
Source: Conference Board 1999, Survey of 123 Codes
0% 25% 50% 75% 100%
Human rights
Confidentiality of personal information
Community relations
Political activities
Workplace safety
Antitrust
Sexual harassment
Environment
Giving gifts
Discrimination / equal opportunity
Receiving gifts
Security of proprietary information
Conflict of interest
Bribery/improper payments
% of codes addressing issue
15
Code of Conduct:Cascade effect
82%
50%
34%
22%
0%
25%
50%
75%
100%
Company Contractors Sub-contractors
Customers
as %
of a
ll co
des
surv
eyed
Source: OECD 1999 survey of 233 codes
Code of Conduct:Cascade effect
Source: Conference Board 1999, Survey of 123 Codes
0% 10% 20% 30% 40% 50%
Nepotism
Child labor
Whistleblowing
Political activities
Human rights
Workplace safety
Sexual harassment
Discrimination / equal opportunity
Environment
Conflict of interest
Bribery/improper payments
Receiving gifts
Giving gifts
% of COE applying to JV partner or Supplier/Vendor
JV Partners Suppliers/ Vendors
16
Compliance Management:Systems approach
Sustainable business development does not come about of its own accord. Rather, commitment to sustainability demands that corporate processes be reliably controlled and that everyone's actions -in finance as much as in environmental and social areas - be coordinated. Prerequisites for this are binding guidelines, unambiguous corporate goals and a clear organizational structure.
- Deutsche Telekom
Compliance Management:Management structure
Example: Chiquita
Board of Directors
President & CEO
Group Presidents
Chief Financial Officer
VP of Human Resources
General Counsel
Corporate Responsibility
Officer
Steering Committee
Audit Committee of Board
17
Compliance Management:Plan, Do, Check, Act method
Plan• Consult stakeholders
• Establish code of conduct
• Set targets
Do• Establish management systems and personnel
• Promote code compliance
Check• Measure progress
• Audit
• Report
Act• Corrective action
• Reform of systems
Compliance Management:Governing the value chain
18
Compliance Management:Management by certification
QS 9000 by Region
USA
Asia
Europe
S. America
Australia & S. Pacific
Sub-Saharan Africa
Middle East & N.
Africa
NAFTA (excl. USA)
• Introduced 1994
• By 2002: 24,000 factories, 70 countries
Compliance Management:Management by certification
ISO 14000 by Region
Europe
Far East
N. America
Aust./ New Zealand
S. America
Africa/ W. Asia
• Introduced 1998
• By 2005: 763 factories, 47 countries
• Introduced 1995
• By 2002: 37,000 factories, 112 countries
SA 8000 by Region
Asia
Europe
N. America
S. AmericaAfrica
19
Compliance Management:Management by certification
ISO 26000: Social Responsibility• To be Introduced in 2009 or 2010
• NOT a Management System (?)
• NOT a Certifiable Standard (?)
Principles of SR1. Ethical behaviour 2. Respect for rule of law 3. Respect for international norms of behaviour
4. Respect for and considering of stakeholder interests5. Accountability 6. Transparency
7. Precautionary approach 8. Respect for human rights
Organizational Governance
Hum
an R
ight
s
Labo
ur P
ract
ises
Envi
ronm
ent
Fair
ope
ratin
g pr
actis
es
Con
sum
er is
sues
Soci
al &
Eco
nom
ic
Dev
elop
men
t
Core Subjects Implementing SR
7.2 Defining scope
7.5Implementing in daily practise
7.7Evaluating performance
7.8Enhancing credibility
7.4 Integrating into organization
ISO 26000 Roadmap
7.3 Working With Stakeholders
7.3 Communicating
20
Compliance Management:Supply chain specific
Accounting and Reporting:CR reporting becomes ‘mainstream’
% of Large Firms Issuing a CSR Report
64%
21
Accounting and Reporting:Growth of report verification
% of CSR Reports with External Assurance Statement
30%
33%
Accounting and Reporting:Emerging standards
Global Reporting Initiative (GRI)A multi-stakeholder initiativewww.globalreporting.org
International Standards of Accounting and Reporting (ISAR)A project of UNCTADwww.unctad.org/isar
22
Implications for Development
• CSR ‘cascade effect’ on members of the global value chain– labour conditions (e.g. OSH, right to
organise, wages)– environmental controls– transfer of new management
techniques
• Compensation for weak legal environment in LDCs
• Impact on economic development & national competitiveness???
Implications for Development:Experiments in quantification
R2 = 0.6079
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
30 35 40 45 50 55 60 65 70 75 80
National Corporate Responsibility Index (2003 Score)
Labo
r Cos
t per
wor
ker i
n m
anuf
actu
ring
($ p
er y
ear,
1990
-199
4)
Indonesia Costa Rica
Does an increase in CSR correspond with an increase in labour costs?
23
Implications for Development:Experiments in quantification
Does an increase in CSR correspond with a decrease in real GDP growth?
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
30 35 40 45 50 55 60 65 70 75 80
National Corporate Responsibility Index (2003 Score)
Rea
l GD
P G
row
th A
vger
age
1991
-200
1
China
Turkey
New Zealand
Thailand
Russia
Ireland
Indonesia
Principles for Responsible Management Education