Corporate Social Responsibility & International Development

Bara, Claudia

Corporate Social Responsibility & International Development

BWL - Unternehmensführung, Management, Organisation

Zusammenfassung

Inhaltsangabe:Introduction:
Global changes of the worldwide economy and free markets offer many business opportunities and advantages for multinational corporations (MNC), but also a lot of social challenges and ecological threats. In the last decades many scandals hit various industries for different casualities, for instance the oil industry for several oil spills, the mining industry for colaboration with corrupt governments and exposing workers to unsafe labor conditions, the clothing industry for exploiting employees or using child labor in sweatshops, the toy industry and other industries for importing tainted and unsecure products from China. As corporations have reaped the benefits of globalization and international trade, they are now, more than ever, demanded to take responsibility for the consequences resulting from their business activities.
Due to the risk of a damaged reputation, loosing consumers and hence decreasing profits and as a result of public criticism, more and more corporations are pushed to change their business strategy in a way that fosters sustainable development. As the business world becomes smaller and more transparent, an increasing number of corporations are embracing Corporate Social Responsibility (CSR) to demonstrate their stewardship. CSR is a concept that demands corporations to adress the economic, social and environmental impacts of their global operations while generating profits. The idea of CSR has become a concept that is growing in its importance and it is not only endorsed by corporations and organizations but also by individual consumer and governments.
Henry Ford quoted once If there is any one secret of success, it lies in the ability to get the other persons point of view and see things form that persons angle as well as from your own. This statement shows that companies striving to be economically successful are also demanded to consider the interests of all its multiple stakeholders. As corporations are gaining an increasing power and have an enourmous impact on the society in industrialized and developing countries, they are expected to respond to the societal demands and ecological concerns of all those who are affected by a companys business practices.
The aim of this paper is to give a detailed overview of CSR with all its components and its implementation process into the overall business strategy. It analyzes the role corporations play or should play in fostering sustainable […]

Leseprobe

Inhaltsverzeichnis

Claudia Bara

Corporate Social Responsibility & International Development

ISBN: 978-3-8366-4091-6

Herstellung: Diplomica® Verlag GmbH, Hamburg, 2010

Zugl. Hochschule Heilbronn, Heilbronn, Deutschland, Diplomarbeit, 2008

Dieses Werk ist urheberrechtlich geschützt. Die dadurch begründeten Rechte,

insbesondere die der Übersetzung, des Nachdrucks, des Vortrags, der Entnahme von

Abbildungen und Tabellen, der Funksendung, der Mikroverfilmung oder der

Vervielfältigung auf anderen Wegen und der Speicherung in Datenverarbeitungsanlagen,

bleiben, auch bei nur auszugsweiser Verwertung, vorbehalten. Eine Vervielfältigung

dieses Werkes oder von Teilen dieses Werkes ist auch im Einzelfall nur in den Grenzen

der gesetzlichen Bestimmungen des Urheberrechtsgesetzes der Bundesrepublik

Deutschland in der jeweils geltenden Fassung zulässig. Sie ist grundsätzlich

vergütungspflichtig. Zuwiderhandlungen unterliegen den Strafbestimmungen des

Urheberrechtes.

Die Wiedergabe von Gebrauchsnamen, Handelsnamen, Warenbezeichnungen usw. in

diesem Werk berechtigt auch ohne besondere Kennzeichnung nicht zu der Annahme,

dass solche Namen im Sinne der Warenzeichen- und Markenschutz-Gesetzgebung als frei

zu betrachten wären und daher von jedermann benutzt werden dürften.

Die Informationen in diesem Werk wurden mit Sorgfalt erarbeitet. Dennoch können

Fehler nicht vollständig ausgeschlossen werden und der Verlag, die Autoren oder

Übersetzer übernehmen keine juristische Verantwortung oder irgendeine Haftung für evtl.

verbliebene fehlerhafte Angaben und deren Folgen.

http://www.diplomica.de, Hamburg 2010

Table of Contents

Table of Contents... I

Table of Illustrations ... II

List of Abbreviations ...III

Introduction

...1

Shareholder Value vs. Stakeholder Value

...3

Corporate Social Responsibility

...6

3.1

The Evolution of CSR...6

3.2

Trends in the Global Economy ...12

3.3

Main Issues of CSR ...17

3.3.1

Corporate Governance ...17

3.3.2

Stakeholder Management ...18

3.3.3

Competitive Advantage ...22

3.3.4

Marketplace ...26

3.3.5

Workplace ...28

3.3.6

Environment...34

3.4

The Strategy Context of CSR ...39

3.4.1

CSR Implementation Process ...39

3.4.2

CSR as a Public Relations Strategy ...48

3.4.3

Corporate Social Initiatives ...51

The Importance of CSR for International Development

...65

4.1

CSR A useful concept for poverty reduction? ...66

4.1.1

The Supply Side...67

4.1.2

The Demand Side...70

4.1.3

The Government Side ...72

4.2

The importance of PPP ...74

Critiques of CSR

...79

Conclusion

...86

Appendices... IV

Appendix 1: Different Charts ... IV

Appendix 2: International Organizations promoting CSR ...X

Appendix 3: International CSR Instruments and Initiatives...XIII

Appendix 4: International CSR Standards...XV

Appendix 5: International CSR Rating Institutions... XVII

References...XVIII

Table of Illustrations

Table 1:

Shareholder vs. Stakeholder Value Perspektive ...4

Table 2:

Historical Development of CSR ...7

Table 3:

CSR Implementation Process ...40

Table 4:

The Reactive-Accommodative-Defensive-Proactive Scale...49

Table 5:

Practical Ways for Engaging in PPP...76

Table 6:

CSR-related Benefits, Opportunities, Critiques and Barriers ...87

Figure 1:

Caroll's CSR Pyramid ...8

Figure 2:

Corporate Social Performance Model...9

Figure 3:

Triple Bottom Line since 1990 ...11

Figure 4:

A Stakeholder View of the Firm...19

Figure 5:

The Four Elements of Competitive Context ...22

Figure 6:

Environmental Loads of Product Life-Cycle-Assessment...37

Figure 7:

Environmental Life-Cycle-Assessment Tool...38

Illustrations in Apendix 1

Chart 1:

Pressure Waves 1961-2001...IV

Chart 2:

Globalisation Score...IV

Chart 3:

Contributions to Real GDP Growth... V

Chart 4:

GDP Growth in High-income and Developing countries... V

Chart 5:

Regional Share of Manufactured Exports...VI

Chart 6:

Key Eco-labelling Schemes ...VI

Chart 7:

Preference for an Environmentally Responsible Company... VII

Chart 8:

Toshiba Group's CSR Management Structure ... VII

Chart 9:

Vodafone's Partnership with The National Autistic Society (NAS) ... VIII

Chart 10:

2007 BOEING Corporate Cash Contributions by Focus Areas ... VIII

Chart 11:

Structure of Typical Supply Chains... VIII

Chart 12:

SME Contribution to Employment and GDP (median values)...IX

Chart 13:

FDI and ODA flows to Developing Countries, 1990-2004 ...IX

III

List of Abbreviations

AA1000

AccountAbility 1000

Amnesty International

ASPI

Advanced Sustainable Performance Indices

BAA

British Airports Authority

British Standard

BSR

Business for Social Responsibility

CEO

Chief Executive Officer

Corporate Governance

CO2

Carbon dioxide

CRM

Cause-Related Marketing

CSD

Corporate Social Development

CSO

Civil Society Organization

CSP

Corporate Social Performance

CSR

Corporate Social Responsibility

DVD

Digital Versatile Disc

ECPI

E.Capital Partners Indices

EMAS

Eco-Management and Audit Scheme

EMS

Environmental Management System

EPA

Environmental Protection Agency

EPZ

Export Processing Zone

ETI

Ethical Trading Initiative

FDI

Foreign Direct Investments

FLA

Fair Labor Association

FLO

Fairtrade Labelling Organization

FTSE

Financial Times Stock Exchange

GATT

General Agreements on Tariffs and Trade

GCCI

Global Corporate Citizenship Initiatives

GRI

Global Reporting Initiatives

GTZ

Deutsche Gesellschaft für Technische Zusammenarbeit

Human Ressources

ICLS

ILO Core Labor Standards

ILO

International Labor Organization

IPCC

Intergovernmental Panel on Climate Change

ISO

International Organization for Standarization

LCA

Life-Cycle-Assessment

Millenium Ecosystem Assessment

MDG

Millenium Development Goals

MEAs

Multilateral Environmental Agreements

MNC

Multinational Corporation

NAS

The National Autistic Society

NGO

Non-governmental organizations

ODA

Oficial Development Assistance

OECD

Organisation for Economic Co-operation and Development

OPEC

Organization of the Petroleum Exporting Countries

PPP

Public Private Partnership

Public Relations

SA8000

Social Acountability 8000

SAI

Social Accountability International

SMART

Specific, Measurable, Achievable, Realistic, Time-bound

SME

Small and Medium sized Enterprise

SME

Small and Medium-Sized Entreprises

SOC

Standards of Conduct

SRI

Socially Responsible Investing

SWOT

Strength, Weaknesses, Opportunities, Threats

TBL

Triple Bottom Line

TME

Toyota Motor Europe

TOP

The Olympic Partner

TUI

Touristik Union International

United Kingdom

United Nations

UNFCCC

United Nations Climate Change Conference

UNIDO

United Nations Industrial Development Organization

United States

WEF

World Economic Forum

WEO

World Environmental Organization

WTO

World Trade Organization

Introduction

1 Introduction

Global changes of the worldwide economy and free markets offer many business

opportunities and advantages for multinational corporations (MNC), but also a lot of social

challenges and ecological threats. In the last decades many scandals hit various industries

for different casualities, for instance the oil industry for several oil spills, the mining

industry for colaboration with corrupt governments and exposing workers to unsafe labor

conditions, the clothing industry for exploiting employees or using child labor in

sweatshops, the toy industry and other industries for importing tainted and unsecure

products from China.

As corporations have reaped the benefits of globalization and

international trade, they are now, more than ever, demanded to take responsibility for the

consequences resulting from their business activities.

Due to the risk of a damaged reputation, loosing consumers and hence decreasing profits

and as a result of public criticism, more and more corporations are pushed to change their

business strategy in a way that fosters sustainable development. As the business world

becomes smaller and more transparent, an increasing number of corporations are

embracing Corporate Social Responsibility (CSR) to demonstrate their stewardship. CSR

is a concept that demands corporations to adress the economic, social and environmental

impacts of their global operations while generating profits. The idea of CSR has become a

concept that is growing in its importance and it is not only endorsed by corporations and

organizations but also by individual consumer and governments.

Henry Ford quoted once "If there is any one secret of success, it lies in the ability to get the

other person's point of view and see things form that person's angle as well as from your

own."

This statement shows that companies striving to be economically successful are

also demanded to consider the interests of all its multiple stakeholders. As corporations are

gaining an increasing power and have an enourmous impact on the society in industrialized

and developing countries, they are expected to respond to the societal demands and

ecological concerns of all those who are affected by a company's business practices.

The aim of this paper is to give a detailed overview of CSR with all its components and its

implementation process into the overall business strategy. It analyzes the role corporations

play or should play in fostering sustainable development and improve the welfare of the

Franklin, D., 2008. Corporate Social Responsibility: A stitch in time. The Economist. Available

from: http://www.economist.com/specialreports/displaystory.cfm?story_id=10491043

csrnetwork: What is CSR? Available from: http://www.csrnetwork.com/csr.asp

Thinkexist.com: Henry Ford quotes. Available from: http://thinkexist.com/quotes/henry_ford/

Introduction

community where they operate. In the latter case, the focus will be on how CSR activities

can be linked to international development and how they help to address the biggest

challenge of the 21

century to eradicate poverty.

Chapter 2 describes the relation between corporations with its stakeholder versus its

shareholders. Shareholders are at the same time stakeholders who have a stake in a

company, but they have different interests in a corporation. This could lead to potential

conflicts between short-term shareholders' expectations and long-term stakeholders'

interests. An appropriate Corporate Governance (CG) practice is necessary to address these

conflicts and to conciliate the interests of corporations' key stakeholders. CSR is seen as a

corporation's obligation to respond to all stakeholders' expectations - not just to those of

shareholders.

To give a more detailed understanding of CSR, Chapter 3 outlines the historical evolution

of corporate ethics and shows recent global economic trends that led to the fact that CSR

has become so important in the 21

century. Furthermore, this chapter represents the main

issues of CSR and the incorporation of this concept into the strategic management process.

It highlights the importance of CSR communication and an effective Public Relation (PR)

strategy for creating awareness about a company's CSR activities. Additionally, the

different types of CSR programs also known as Corporate Social Initiatives are

elaborated that help to support and create public awareness about social causes.

Chapter 4 and 5 link CSR with international development and question corporations' role

in fostering development. Chapter 4 focuses on the impact corporations have on the poor in

developing countries and examines how CSR can help to create wealth and hence reduce

global poverty. It further shows how corporations can address development challenges

collectively by engaging in Public-Private Partnerships (PPP). It still exist a huge gap

between CSR activities in industrialized and developing countries, which implies an

additional challenge on promoting CSR standards on a national and international level. As

the concept of CSR is often questioned by critics and free marketeers, the last chapter

elaborates on the case against CSR and hightlights the different critic points that arise

when companies claim to be socially responsible. These criticism has to be addressed in

order to handle threats and opportunities in markets of great importance to organizations as

well as in areas where problems occur.

Shareholder Value vs. Stakeholder Value

According to the statement "the business of business is business" and "the social responsi-

bility of business is to increase its profit"

the economist Milton Friedman (1970) held the

view that the only dutie of a company is to maximize profits and to obey the law. Like the

pioneering economist Adam Smith, he argued that each individual or economic institution

should pursue its own self-interest which tends to also promote the common good of the

community as a whole. Adam Smith named this natural force `the invisible hand' of the

free market system, which would guide market participants to exchange goods and services

in a mutually beneficial way. Hence, values such as morality, responsibility, conscience

and accountability would be observed by the `invisible hand' of the market instead of

organizations themselves. However, the invisible hand seems to be nonexistent considering

the amoral behavior of MNCs such as Shell, Enron, Nike, Gap, etc. which were hit by bad

publicity because of their corporate misconduct. CSR is a valuable concept in ensuring that

the invisible hand acts, as intented, to produce the common good.

In today's business practices the only social mission of a corporation is no longer just to

maximize profits and to pursue its own self-interest, but to align its business operations

with the expectations of employees, customers, investors, suppliers, regulators,

government, special interest groups and the social community as a whole. Hence,

corporations are recognizing more and more how important it is to go beyond its profit

interests and to govern its businesses in the interest of everybody who has a stake in the

firm. This means corporations do not have only an obligation to maximize profits for their

shareholder, but also the responsibility to maximize the welfare of the stakeholders

involved in the business process.

In this case appropriate corporate governance should

combine profitability and responsibility, even if these two perspectives, the shareholder

value creation

perspective and the stakeholder welfare perspective, are partially

contradictory. The following table represents the main differences between these two

perspectives.

Friedmann, M., 1980. The Social Responsibility of Business is to Increase its Profits. New York Times

Magazine

. Available from: http://www.colorado.edu/studentgroups/libertarians/issues/

friedman-soc-resp-business.html

Goodpaster, K. E. and Mathews, J.B., 2003.Can a Corporation Have a Conscience? In: Harvard Business

Review on Corporate Responsibility

. Boston: Harvard Business School Publishing, pp. 141-142

Biscaccianti, A., 2003. Business ethics and profit: The impact of corporate social responsibility programms

on corporate strategic planning

. Available from: http://www.escdijon.com/download/fr/ceren/cahiers_5/

biscaccianti.pdf, p. 21

Grupta, V., Gollakota, K., Srinivasan, R., 2004. Business Policy and Strategic Management: Concepts and

Applications

. New Delhi: Prentice Hall of India, p. 497

Shareholder Value vs. Stakeholder Value

Table 1:

Shareholder vs. Stakeholder Value Perspektive

Source: Grupta, Gollakota and Srinivasan (2004, p.497)

From the shareholders perspective, corporations' short-term objective is to provide a high

financial return in order to increase share prices and create trust from investors. This

guarantees profitability and economic wealth for the corporation to survive and to grow.

Proponents of this perspective believe that spending money for social responsible activities

is more a matter of indviduals, society and government. They argue that maximizing the

corporate value and generating profits implicates automatically the maximization of wealth

for the society by providing jobs, producing high quality products and contributing to

economic growth.

This self-interested opinion was largely shared by corporate manage-

ment in the 19

and 20

century when the human factor was considered more as a cost

factor than as an important intellectual asset. The reason why a lot of companies did not

succeed was that they focused only on one single objective in business operations, namely

to maximize shareholder value. In the 21

century a company's long-term perfomance is

more and more based on the relationship with its key stakeholders and the competencies of

its workforce.

From the stakeholders point of view corporations are demanded to take responsibility for

their actions and to make contributions to the social welfare. In modern business

economies corporations are realizing how important it is to involve their key stakeholders

in the decision-making process. Satisfying stakeholder's expectations and increasing the

common wealth of the society creates a competitive advantage and help companies to be

successful on the long-run. Detractors of this perspective argue that the prime ojective of

companies is to survive. They criticize that firms spending money on philantropic activities

are wasting shareholder's money.

Value Based Management.net. Shareholder Value vs. Stakeholders. Available from:

http://www.valuebasedmanagement.net/faq_shareholder_stakeholder_perspective.html

Biscaccianti. Business ethics and profit: The impact of corporate social responsibility programms on

corporate strategic planning

, p. 18

Value Based Management.net: Shareholder Value vs. Stakeholders.

Shareholder Value vs. Stakeholder Value

However, as a result of recent corporate scandals, large shareholders are becoming more

concerned about corporation's business practices. Investors are more likely to invest in

companies with good corporate governance. This was the outcome of three surveys on

corporate governance conducted by McKinsey between 1999 and 2000. The aim of the

surveys was to detect how shareholders value corporate governance in Asia, Europe, the

US and Latin America. Although the importance of good corporate governance practices to

investors varies by country, more than 80 % of the investors questioned agreed that they

would pay more per share if companies are well-governed.

Consequently, what is the role of business in society? Indeed, the first and intrinsic role of

business is to maximize corporation's value for its shareholders. However, the maximation

of corporate value involves balancing shareholder's financial objectives with the joint-

interests of all other stakeholders by looking at long-term effectiveness instead of short-

term profitability. Thus shareholders get a higher financial return and companies can

ensure a long-term sustainable performance.

The chairman of Johnson & Johnson, David

Norton, confirmed this assertion and pointed out that the company had been engaging in

CSR activities for the last 25 years during which shareholders had earned a great financial

return.

Even though the two approaches differ in many ways, the interest of mayor stakeholders

including shareholders often converge as both have an interest that the company is thriving.

Corporations owe their existence to both, their investors (shareholders) and to the

community (stakeholders) in which they operate. Hence, long-term success in shareholder

value is best achieved by focusing on maximizing the value for multiple stakeholders.

Corporate Social Responsibility is a concept that focuses on the stakeholder's perspective

and more and more corporations incorporate this concept into their management strategy in

order to fulfill the expectations of their key stakeholders.

Coombes, P. and Watson, M., 2000. Three surveys on corporate governance. The McKinsey Quaterly.

Available from: http://www.mckinseyquarterly.com/Strategy/Strategic_Thinking/Three_surveys_on_

corporate_governance_965_abstrac

Dobbs, R., 2005. Managing value and performance. The McKinsey Quaterly. Available from:

http://www.mckinseyquarterly.com/Managing_value_and_performance_1595

Smith, H. (ed.), 2005. Shareholders versus stakeholders. Financial Times Mandate. Available from:

http://www.ftmandate.com/news/fullstory.php/aid/565/Shareholders_versus_stakeholders.html

Donaldson, T., 2005. Defining the value of doing good business. FT Mastering Corporate Governance.

Available from: http://www.ft.com/cms/s/2/748f21be-d377-11d9-ad4b-00000e2511c8,dwp_uuid=1d0ff

528-c86c-11d9- 87c9-00000e2511c8.html, p. 2

Kakabadse, N. K., Rozuel, C. and Davies, L.D.,. 2005. Corporate Social Responsibility and stakeholder

approach; Int. J. Business Governance and Ethics, Vol. 1, No. 4. In: Environmental Expert. Available from:

http://www.environmental-expert.com/resultEachArticlePDF.aspx?cid=6471&codi=6349, p. 278

Corporate Social Responsibility

3 Corporate Social Responsibility

The debate about the social responsibility of businesses towards society is not a new one.

However, global changes, economic trends, environmental concerns, rising societal

demands and other macroeconomic factors have shaped the corporate business landscape

in the last decades. This section contrasts the traditional approach to corporate

philanthropy with the new strategic approach to Corporate Social Responsibility and

identifies trends, threats and opportunities of the 21

century. The purpose is to give an

understanding of the nature of CSR with its main components and to provide a theoretical

CSR implementation framework for the strategic incorporation and communication of

corporate social initiatives.

3.1 The Evolution of CSR

The basic idea embedded in CSR arose already in the early mid-20

century, when

concerns about the economic, social and political power of emerging companies were

growing. As large companies had an enormous impact on the society, corporations were

held responsible for the effects of their business actions and were demanded to contribute

to a betterment of the social community. Corporate philanthropy had another meaning at

that time and referred to giving something back to the society as the well-being of a

corporation depends on the consumerism of the local people. The traditional approach to

corporate philanthropy consisted more of cash donations and corporate givings to various

community projects and foundations. Corporations supported specific causes which were

related to emerging social problems and contributions to social issues were less associated

with the core business.

The following table shows pivotal publications and trends, which influenced the

development of the CSR thinking. It portrays dominant themes and the overall obligation

of corporations to society since the mid-20

century.

Frederick, W. C., 2006. Corporation, be good!. Indianapolis: Dog Ear Publishing, pp.8-9

Corporate Social Responsibility

Table 2:

Historical Development of CSR

Source: adapted from Lee (2007 (Forthcoming), p. 35)

The theme of the responsibility of corporations towards society has largely been discussed

by many business executives, scholars, economists and other public interest groups. A

common understanding of several economists in capitalist societies in the mid-20 century

was that the only responsibility of corporations is to maximize profits for its investors.

However, Milton Friedman and other conservative economists, who were in favor of the

shareholder model, also argued that the pursuit of financial gains involves business

executives to operate conforme to laws and ethical rules regarding the surrounding society

and without engaging in deception or fraud.

The issue of corporate social responsibility suffered ups and downs from that time on (see

chart 1 in appendix 1). In the 1960s and early 1970s several governmental institutions,

non-governmental organizations and environmental and civil rights activist groups, such as

Greenpeace and Amnesty International, were created which imposed sustainable and

regulatory policies on business operations.

In the mid-1970s Preston and Post (1975)

pointed out that business and society mutually influence one another and that corporations

have the obligation to respond to social impacts.

Caroll (1991)

extended this approach by

demanding corporations to go beyond only economic and legal obligations, but to consider

ethical and discretionary (philantropic) responsibilities as well.

Donaldson. Defining the value of doing good business, p. 2

SustainAbility: Wave 1 60s and 70s: Birth of the Green Movement. Available from:

http://www.sustainability.com/insight/wave.asp?id=155

Lee E. Preston and J. E. Post, 1975. Private Management and Public Policy. Englewood Cliffs, New Jersey:

Prentice-Hall, p. 3

Carroll, A. B., 1991. The Pyramid of Corporate Social Responsibility: Toward the Moral

Management of Organizational Stakeholders. In: Business Horizons, 34(4), p.42

Corporate Social Responsibility

Figure 1:

Caroll's CSR Pyramid

Source: Caroll (1991, p.42)

According to Caroll, the fundamental responsibility business has to society, as earlier

agreed by several academics, is the economic obligation to generate profits, maximize

sales, minimize costs, etc. This is the foundation upon which all other obligations rest. At

the same time, corporations are demanded to follow the rules and to operate within the

legal framework of laws and regulations. The economic and legal responsibilities are

required social expectations by the society. Beyond that, corporations are demanded to

operate in a fair and just manner and to avoid harm to stakeholders. These ethical norms

are not required by law, but expected by the society. Finally, by using corporation's

resources in ways that contribute to the social betterment of the community, corporations

can demonstrate their commitment to society and act as good corporate citizen. The

decision-making to support social issues is more influenced by preferences of management

than a must-do obligation. Hence, as philantropic activities are voluntary activities, they

are not seen as responsibilities but rather as societal expectations.

In the 1980s and 1990s, due to political scandals, the first and the second oil crises as well

as other industrial disasters such as the Bhopal and the Chernobyl disaster, corporation's

responsibilities were brought into serious question. As corporate crimes and other

environmental catastrophes such as the devastating Exxon Valdez oil spill followed at the

Ibid.

Corporate Social Responsibility

end of the 1980s, big businesses were put into the spotlight of the entire world.

Additionally, the exploitation of regulatory differences by MNCs relocating their

operations in developing countries where governments attracted FDIs through imposing

less regulatory restrictions on multinational business practices, raised public criticism.

As a consequence, several new environmental, healthy and safety legislations, international

standards and guidelines were put through and corporations were more and more pressured

to change their business behavior and to demonstrate their social responsibility.

The concept of CSR was examined since then and a conceptual transition from the

corporation's obligation to contribute to social issues was shifted to a more action-oriented

managerial model. William Frederick (1978)

and Donna Wood (1994)

cited in Hopkins

(2007)

proposed a reorientation from being socially responsible to being socially

responsive in order to measure the performance of corporation's social contributions.

While corporate social responsibility emphasizes on the economic, legal, ethical and

discretionary obligations to society, corporate social responsiveness emphasizes on action

and responses to changing societal demands.

Figure 2:

Corporate Social Performance Model

Source:

Wartick and Wood (1998, p.17)

This new established CSP model focuses on the interface between the company and its

environment and integrates economic concerns into a social and environmental

SustainAbility. Wave 2 80s and mid-90s: The Market Rules. Available from:

http://www.sustainability.com/insight/wave.asp?id=156

Frederick, W.C., 1994. From CSR1 to CSR2: the maturing of business and society thought. Business and

Society, Vol. 33, No.2, pp.150-164

Wood, D.J., 1994. Business and Society. 2

edn. New York: HarperCollins

Hopkins, M., 2007. Corporate Social Responsibility & International Development. London: Earthscan, pp.

22- 23

Legitimacy

Public

Responsibility

Managerial

discretion

PRINCIPLES

of social

responsibility

Environmental

scanning

Stakeholder

management

Issues

management

PROCESSES

of social

responsiveness

OUTCOMES

of corporate

behavior

Social

impacts

Social

policies

Social

programs

Corporate Social Responsibility

performance framework. It is measured by three levels of interaction: the principles of

social responsibility of an organization, the process of social responsiveness and the

outcomes of corporate behavior

. In this connection, the principles of CSR define the

relationship between the company and the society. They are reflected in the value, mission

and vision statement of a company and involve legitimacy concerns, public responsibility

and managerial discretion. As mentioned above, the corporate social responsiveness is the

company's ability to respond to social needs of the business environment. For this purpose

it is necessary to scan the business environment, to establish and balance a good

relationship with stakeholders and to respond to social issues. The outcome of business

behavior is measured by the social impact of corporate actions on internal and external

stakeholders as well as on external institutions. According to the outcomes, social policies

and programs are forumlated that minimize a comany's negative impacts on their

stakeholder.

As the awareness of corporation's behavior was increasing in the 1990s and controversies

around companies such as Monsanto on genetically modified food, Shell on the

decommissioning and disposal of the Brent Spar, Nike by using child labor in low-wage

assembly factories overseas, raised the public concern, new terms such as sustainable

development and green consumersim were brought to the mainstream.

According to the

Organisation for Economic Co-operation and Development (OECD) "sustainable

development implies a broad view of human welfare, a long term perspecitve about the

consequences of today's activities, and global co-operation to reach viable solution"

. It

refers to tackling economic, social, environmental and governance issues of a globalized

economy.

From the 1990s to the present several economic, social and environmental trends have

shaped the debate about the social responsibility of corporations. The rising protest

movement against economic or `corporate' globalization, increasing concerns on climate

change and limitations of resources, new consumption patterns as well as changes in the

working environment are just some of the global trends that drove the rise of CSR (see also

3.2. Trends in the Global Economy). A new concept named the Triple Bottom Line (TBL)

with its focus on `people, planet and profit' was established to address these global

challenges. This model shows that business success is no longer just measured by the

Wartick, S. L. and Wood, D. J., 1998. International Business and Society. Massachussetts: Blackwell, p. 17

Henriques, A. and Richardson, J. (eds.), 2004. The Triple Bottom Line: does it all add up? London:

Earthscan, p.8

OECD. Sustainable Development . Available from:

http://www.oecd.org/topic/0,3373,en_2649_37425_1_1_1_1_37425,00.html

Corporate Social Responsibility

traditional financial performance but also on the basis of the social and environmental

performance. The Triple Bottom Line involves the economic, social and environmental

responsibilities of corporations. The correlation of corporate and societal interests has

become a key element for a good corporate reputation which is interrelated to the long-

term success of a business.

The following model encompasses the Triple Bottom Line

approach which is an integrated framework to achieve CSR and sustainable development.

Figure 3:

Triple Bottom Line since 1990

Source: adapted from Henriques and Richardson (2004, p. 8)

The years after the millenium was stigmatizised by several historical incidents such as the

fall of the Berlin Wall, the terrorist attack on America at the World Trade Center Towers,

the Iraq War, Israel's Wall on the West Bank and other occurences, which influenced the

globalization era. A new wave of terrorism, anti-globalization movements and calls for

anti-Americanism led to insurgences against trade injustice and exploitation causes by

people all over the world who were excluded from globalization benefits. As a result, a

World Social Forum (WSF) was established as a counterweight to the World Economic

Forum (WEF) opposing neo-liberal globalization. The WSF gives activists, NGOs and

other interested groups the opportunity to find alternative paths to address issues such as

sustainable development, social and economic justice (see also WSF in appendix 2).

In the last twenty years the idea of CSR has been shifted from the traditional approach of

fulfilling an obligation to a more strategic approach of selecting social initiatives that

Norman, W. and Mac Donald, C., 2003. Getting to the Bottom of Triple Bottom-Line. In: Business Ethics

Quaterly

. Available from http://www.businessethics.ca/3bl/triple-bottom-line.pdf, pp. 2-3

SustainAbility. Wave 3 Millenium: Globalisation Era. Available from:

http://www.sustainability.com/insight/wave.asp?id=156

Corporate Social Responsibility

support business objectives as well. Many corporations turned to a new model of corporate

giving and make long-term commitments to social issues that are related to core products

and business goals. CSR activities are embedded in the overall business strategy and

business units are involved in supporting issues.

Moreover, international organizations

such as the United Nations, Organisation for Economic Co-operation and Development

(OECD), International Labor Organization (ILO) and other private, public and nonprofit

organizations have contributed to the demand for greater social responsibility and

established guidelines for promoting CSR (see also International Organizations promoting

CSR in appendix 2). The visibility for efforts and the evaluation of outcomes of CSR

activities has become more important in the 21

century.

3.2 Trends in the Global Economy

Economic trends have changed the business world in the last couple of years and have had

an enormous impact on the development of the Triple Bottom Line regarding the economic,

social and environmental performance of corporations. The globalization and several

trends of global change led to an increasing interdependence of world economies and a

more transparent world, where business activities are watched and corporate reputation has

become very important for business success. An interminable good corporate reputation is

only maintained if companies incorporate sustainable practices into their strategy.

This

section analyzes the trends that have stimulated and influenced the acceptance of CSR

among corporations and the public.

Globalization

Market liberalization, international trade agreements, financial transfers and foreign direct

investments, world trade organizations and powerful multinational corporations have

accelerated the movement and exchange of cross-border commodities, services and the

flow of capital. The growing interaction between economies in the last years has brought

many positive but also negative aspects for the world's society. While economic

globalization creates new markets, economic growth, prosperity and democratic freedom,

it entails also a negative force of environmental degradation, exploitation of the developing

world and suppression of human rights.

Kotler, P. and Lee, N., 2005. Corporate Social Responsibility: Doing the Most Good for Your Company

and Your Cause

; New Jersey: Wiley, p. 9

Lee. Theory of Corporate Social Responsibility, p. 2

Keefe, J. F., 2002. Five Trends: The Rise of Corporate Reputation and CSR. CSRwire. Available from:

http://www.csrwire.com/page.cgi/5trends.html

Global Policy Forum. Globalization. Available from: http://www.globalpolicy.org/globaliz/index.htm

Corporate Social Responsibility

Rising disparities are to be seen in the share of countries in the world trade. 25 of 186

countries control together 80 % of the world trade, while 56 of the poorest developing

countries represent less than 0,01 %. Free trade transfer of goods and services are always

claimed by rich nations who benefit most from the boom of world trade while poor

countries often lack the access to free trade zones.

Alarming are also the numbers of

corporations that have gained enormous power by globally expanding their corporate

activities. According to a report by the Institute for Policy Studies in 2000, 51 of the 100

largest economies in the world are corporations and only 29 are countries. These facts are

based on a comparison of corporate sales and GDPs of countries. For example, the

corporate sales of Wal-Mart are bigger than the GDP of 161 countries including countries

like Israel, Poland and Greece. The top 200 corporations's combined sales are bigger than

the combined GDPs of 182 countries excluding the biggest 9 economies: United States,

Japan, Germany, France, Italy, the United Kingdom, Brazil, Canada, and China. These and

other findings by the report show the rise of global corporate power which represent rising

inequalities between those countries and corporations which benefit most from

globalization and those who are being left behind.

According to the Global Index 2007 (see chart 2 in appendix 1) established by the

consultancy A. T. Kearner and the Foreign Policy magazine, the most globalized countries

in the world are Singapure and Hong Kong.

The index is an assessment of how much or

how little countries are involved in globalization. The index represents 72 analyzed

countries which account for 97 % of the world's domestic product and 88 percent of the

world's population. The measurement is based on their economic integration, personal

contact, technological and political integration. The economic integration includes

international trade and FDI. The personal integration refers to personal contact dimension

via telephone calls, travelling and remittances. Technological integration measures the

connectivity by the number of internet users, hosts and secure servers. Political integration

includes the engagement in foreign aid, treaties, participation in international organizations

and peacekeeping. The ten countries least involved in globalization are Pakistan,

Bangladesh, Turkey, China, Brazil, Venezuela, Indonesia, Algeria, India and Iran.

Gresh, A. et all (eds.), 2006. Le Monde diplomatique, Atlas der Globalisierung. Berlin: taz Verlags- und

Vertriebs GmbH

Anderson, S. And Cavangh, J. 2000. Top 200: The Rise in Corporate Global Power. Corporate Watch,

Holding Corporations Accountable. Available from: http://www.corpwatch.org/article.php?id=377

The Economist. Small is beatiful, Oct. 24, 2007. Available from: http://www.economist.com/

research/articlesBySubject/displaystory.cfm?subjectid=423172&story_id=10015016

Foreign Policy. The Globalization Index 2007, Nov./Dec. 2007. Available from:

http://www.foreignpolicy.com/story/cms.php?story_id=3995

Corporate Social Responsibility

Technology advances and IT development

Technology transformation and IT development are driving forces for the fast globalization

of the world's economies. Technology's advances have emerged at a rapid pace and will

continue to innovate. Through the development of new technologies the costs of

transportation, communication, international trade and investment have diminished which

make it easier to overcome national boundaries and to handle large distances. Moreover,

advances in information and communication technologies grant access to isolated markets,

create new demands, provide marketing and distribution channels and help to bypass

intermediaries. Communication technologies and low-cost transportation technologies have

made coordination and organization of global production and the allocation of resources

possible.

For example, the BMW Group manufactures its different car models at 23 sites

in 12 countries on four continents. Technology advances and transformation has made such

global production possible.

As mentioned before, through the transformation of communication technology and the

establishment of accessible information infrastructure, people around the world have

access to relevant information and special knowledge concerning aspects of the economic

activity. There is an ongoing transition to a global information-driven and transparent

economy which enhances development and allows also poorer countries to participate in

the global economy. Especially via electronic communication over the internet and the

`World Wide Web', consumers, investors and other market participants can get quick

information at lower costs about business practices. They have therefore an increasing

power and influence on business behavior. Search engines such as `Google' and other

communication tools allow constituencies to gather information about companies'

performance and business practices. Purchasing decisions can be made not only according

to financial factors, but also according to social and environmental criteria, as activist

groups, NGOs and individuals have the possibility to scrutinize corporate behavior around

the world. Consequently, corporations are increasingly demanded to report openly about

their worldwide business operations.

Shangquan, G., 2000. Economic Globalization: Trends, Risks and Risk prevention. Available from

http://www.un.org/esa/policy/devplan/cdp00p32.pdf, p. 1

BMW Group. Company Portrait: Strategy. Available from: http://www.bmwgroup.com/e/nav/index.

html?../0_0_www_bmwgroup_com/home/home.html&source=overview

Keefe. Five Trends: The Rise of Corporate Reputation and CSR. CSRwire

Corporate Social Responsibility

Developing and emerging economies

The rapid growth of developing countries, which are now defined as emerging economies,

play a crucial role in the globalized world. India, China, Brazil and Russia have become

large players in the global economy in the 21

century. Technological progress and a more

careful macroeconomic management have helped to increase productivity rates and real

income growth of these countries. Emerging economies represent the world's largest

potential markets in terms of demographic and economic importance. In demographic

terms, more than half of the world's population live in emerging economies and are

concentrated more and more in urban areas. Seven out of the ten largest cities are located

in emerging countries such as Mumbai, Shanghai, Moscow and Sao Paulo. The population

living in these cities is comparable to the population of some countries in their entirety. In

economic terms, these countries are driving up the economic output and are contributing to

world growth by a large extent (in terms of purchasing-power-parity; see chart 3 in

appendix 1). Emerging economies have become one of the major engine of global growth

and they continue to grow vigorously.

Not only emerging as such but also other developing countries play a much greater role in

the world economy. Growth of developing countries' output and trade including those of

emerging markets have accelerated in the last years and partly have offset the slowdowns

of high-income countries (see chart 4 in appendix 1). For example, the combined share of

manufactured exports from developing and emerging markets have almost doubled

between 1980 and 2006 (see chart 5 in appendix 1). Emerging and developing countries

did not only benefit from vigorous export growth, but also from rising domestic investment,

foreign direct investments and protfolio inflows.

However, the rapid growth of developing to emerging economies pose particular sustain-

ability challenges. These countries will need to assume also greater responsibilities in

terms of social and environmental issues. This might be difficult as issues such as poverty,

disparities in wealth, power and access, weak governance practices and corruption hinder

development of sustainable practices.

Nevertheless, since concerns about sustainability

issues and development are increasing among governments, costumers, investors and

European Central Bank, 2007. The growing importance of emerging economies in the globalized world and

its implications for international financial architecture

. Speech by Jean-Claude Trichet, President of the

ECB. Available from: http://www.ecb.eu/press/key/date/2007/html/sp071126_1.en.html

The World Bank, 2008. Global Economic Prospects 2008: Technology Diffusion in the Developing World.

Washington: World Bank Publications. Available from: http://siteresources.worldbank.org/INTGEP2008/

Resources/complete-report.pdf, p. 2

SustainAbility. Emerging Economies. Available from:

http://www.sustainability.com/consultingservices/emergingeconomies.asp

Corporate Social Responsibility

society, developing and emerging countries need to undestand the relevance of

sustainability tools and systems to address economic, social and environmental

development. This means that businesses in developing markets are also affected by

changing perceptions and expectations among the public about sustainability-related issues,

both on a national and international level. Developing and emerging market businesses

face growing risks and miss out opportunities if they do not pursue more sustainable

approaches in their business strategy.

Sustainability

Industrialization, global population growth and changes in the global economy have

implicated a global change in climate, a degradation of the environment and recurrent

climate-related disasters. Over the last 50 years the human factor and the industrial sector

have been the main culprits to climate change and global warming.

The United Nations Intergovernmental Panel on Climate Change (IPCC)

, an international

group of global warming experts, published a 2007 World Climate Report, which warned

about the consequences of global warming. The report covers climate trends, the world's

ability to adapt to global warming and it presents strategies for reducing carbon emissions.

Climate trends are temperature rising, increasingly severe weather (storms, precipitation,

droughts), melting and thawing of Greenland and Antarctic ice sheets, frozen ground,

mountain glaciers and snow resulting in rising sea levels. The global CO

emissions from

burning fossil fuels (oil, coal and gas) are the main cause for the increase in global

warming and greenhouse gases whose consequences are expected to affect countries

around the world, especially those who have done least to cause it. The impact of global

warming will have an incremental effect on the human health, agriculture practices,

endangered species and the human welfare. The degradation of ecosystem services will

grow significantly and will represent an impediment in achieving the UN Millennium

Development Goals by 2015 (see in appendix 3), unless there are some changes in policies

and business practices. The IPCC's recommended targets are that industrialized countries

should reduce its emissions by 25 to 40 % by 2020 and that the global emissions must be

cut by 50-85% by 2050.

SustainAbility, IFC and Ethos Institute, 2002. Developing Value: The business case for sustainability in

emerging markets

. London: SustainAbility Ltd. Available from: http://www.ifc.org/ifcext/enviro.nsf/

AttachmentsByTitle/p_DevelopingValue_full/$FILE/Developing_Value_full.pdf, p. 4

Intergovernmental Panel on Climate Change: Climate Change 2007. Available from:

http://www.ipcc.ch/ipccreports/index.htm

World Climate Report. World Climate Report. The Web's Longest-Running Climate Change Blog.

Available from: http://www.worldclimatereport.com/

Corporate Social Responsibility

Against this background, there is an urgent need to address ecological challenges and

climate change issues. It is against worrying impacts of climate change, that the corporate

sector, individuals and the government are urged to set targets to cut global emissions and

to contribute to a sustainable development. The 2007 World Climate Report calls all

developed and developing countries upon to take mitigation and adaptation measures and

to address global challenges such as deforestation, dissemination of technology and aid for

developing countries. However, the demand for sustainability varies among countries.

While European countries and Japan are ahead of America, China still lacks to address

sustainability issues although it is one of the main polluter and triggers massive emissions

resulting from its vastly growing economy.

3.3 Main Issues of CSR

The defined global trends and challenges in the previous section highlight the need to

encourage responsible business practices and sustainability to make globalization work for

all developing, emerging and industrialized nations. By developing a responsible

business strategy which benefits the company and the society, corporations can be part of

the solutions to some of these global challenges. Corporations cannot thrive on the long-

term unless the community in which they operate does. This section cites some examples

of that belief in action by presenting the main issues of CSR and the importance of

incorporating responsible business practices into the way corporations operate.

3.3.1 Corporate Governance

Corporate Governance (CG) is, according to the OECD, a system approach which

determines the way how corporations are governed and controlled. It defines the

relationship between corporate management and its multiple stakeholders including

shareholders. The Principles of Corporate Governance, a set of corporate governance

standards and guidelines, were developed by the OECD in conjuction with national

governments, other international organizations and the private sector in order to address

the rights and responsibility of company's management, its board of directors, shareholders

and other stakeholders. The principles are aimed at improving the legal, institutional and

regulatory framework for corporate governance.

Franklin, D., 2008. A change in climate. The Economist. Available from:

http://www.economist.com/specialreports/displaystory.cfm?story_id=10491154

OECD, 2004. The OECD Principles of Corporate Governance. OECD Policy Brief. France: OECD.

Available from: http://www.oecd.org/dataoecd/41/32/33647763.pdf, p. 1

Corporate Social Responsibility

Good corporate governance integrates responsible business practices into all business units

of a corporation and ensures corporate fairness, transparency and accountability in their

operating procedures. The term of a social contract amongst the firm's stakeholder is used

to express the license to operate and the fiduciary duties of a firm to operate fairly and to

be accountable for business actions beyond legal requirements. Moreover, due to the

scarcity of natural ressources, corporate governance is there to encourage henceforth the

efficient use of ressources.

All in all, the aim of good CG is to balance the management of

resources with the interest of all stakeholders and to be a good corporate citizen. A good

corporate citizen means to obey the law, to operate ethically, to act responsible in day-to-

day transactions, to treat employees fairly, to be honest and fair to customers and suppliers,

to have a responsible marketing, to operate in an environmental friendly way and to get

involved in the community.

To give an example, the Coca-Cola Company has established its own standards and

principles on CG and ethics which defines the rights and responsibilities of the Board of

Directors towards its stakeholders. It covers among others: the board mission and director

responsibilities; director qualifications; determination of independent directors;

responsibilities of its seven committees (Audit, Compensation, Directors and CG,

Executive, Finance, Management Development & Public Issues and Diversity Review);

director compensation; board interaction with employees, officers and outside interested

parties. Moreover a cross-functional group of senior managers from the company and its

bottling partners was appointed to the Public Policy and Corporate Reputation Council

who deals with the upcoming threats and opportunities faced and manage the concept of

CSR.

3.3.2 Stakeholder Management

As large companies have gained an enormous power and its owners (shareholders) have

limited liabilities, it is the task of its management to control the operations and to deal with

the consequences arising out of economic activities. In this connection, the concept of CSR

is about managing upcoming social and environmental issues of business actions which

affect the surrounding society and the company's strategic decision making. This means

that large corporations are increasingly demanded to consider not only their own economic

Kakabadse, Rozuel and Davies. Corporate Social Responsibility and stakeholder approach, p. 284

Abrams, R., and Kleiner E., 2003. The successful Business Plan: Secrets and Strategies. 4

ED. Palo

Alto: The Planning Shop, pp. 212-213

The Coca-Cola Company, 2008. Investors, Corporate Governance. Available from: http://www.thecoca-

colacompany.com/investors/governance/index.html

Corporate Social Responsibility

goals, but also to respond to societal needs and rising expectations of interest groups. It is

the obligation of corporate management to identify the number of different groups or

people who are impacted by or can have an influence on their business and to conciliate

their own interests with those of their several constituencies. However, in order to define

which moral obligations business has towards its various publics, it is crucial to identify

who the internal and external stakeholders of the corporation are. Internal and external

stakeholders may have different interests in the firm but each of them can have an

enormous influence on the corporation's business behavior. Some stakeholders can be seen

as either internal or external stakeholders and some may be both such as employees and

investors.

The following figure shows main stakeholders of a firm.

Figure 4:

A Stakeholder View of the Firm

Source: adapted from Donaldson & Preston (1995, p. 69)

Internal stakeholders

Internal stakeholders are members of the business organization such as owners

(shareholders), managers, employees and their trade unions. They are all closely related to

the business success or failure. They might have different interests which they pursue, for

example, shareholders are expecting high dividends, managers are striving for growth and

thus for short-term profits, employees are seeking for higher wages and better working

conditions and trade unions act on behalf of the workforce. However, they all share

common interests in the long-term success and prosperity of the business as long-term

Recklies, D., 2001. Stakeholder Management: The Concept of Stakeholder Management. Themanager.org.

Available from: http://www.themanager.org/resources/Stakeholder%20Management.htm

Corporate Social Responsibility

profitability guarantees financial returns to shareholders, ensures the existence of the

company and hence secures employment.

The impact or power each of the internal stakeholders has on corporate decision making

and strategic goals may vary and depend on sources such as hierarchy, status, job position,

shareholders' equity, possession of knowledge and other factors. For instance, individual

shareholders have little influence on the company, even if they have a voting right in

annual shareholder meetings. However, shareholder groups can have an enormous

influence by threatening to sell shares, thus making the company vulnerable to takeovers.

Another exalmple is that employees can strike and hence stop production which will have

an imposing effect on protecting their interests. But still managers have the greatest power

as they are the ones who make the final decisions.

External stakeholders

External stakeholders are direct or indirect stakeholders

They are directly or indirectly

affected by business transactions. Both of them can exert external pressure on the

company's business behavior.

Direct stakeholders

are those stakeholders with whom the company has a close

relationship and whithout those the company could not exist or survive. These are beside

employees and investors also customers, suppliers, business partners and lenders of money.

Apart from caring about product quality, good services and good corporate reputation, they

might share common concerns about environmental and social consequences resulting

from business practices in home and host country. Each of them can exert a considerable

influence on responsible business practices, e.g. customers through boycotting products

and services, suppliers by stopping delivery of resources or refusing future credits, lenders

of money by refusing credits or charging high interest rates. Each of them might also care

about good corporate governance and corporate citizenship records.

Indirect stakeholders

are those who have a broader interest in or impact on responsible

business practices of corporations. They have an indirect relationsship with companies and

align societal concerns with corporation's actions. They are constituencies who play an

intermediary role such as government, media, international organizations, trade unions,

NGOs, environmentalists and other special interest groups. These stakeholders can have an

Ibid.

Tutor2u: Stakeholders: interests and power. Available from: http://tutor2u.net/business/strategy/

stakeholders-interests-and-power.html

Ibid.

Details

Seiten
Erscheinungsform: Originalausgabe
Jahr: 2008
ISBN (eBook): 9783836640916
DOI: 10.3239/9783836640916
Dateigröße: 1.6 MB
Sprache: Englisch
Institution / Hochschule: Hochschule Heilbronn, ehem. Fachhochschule Heilbronn – Wirtschaft II, Studiengang International Business - Intercultural Studies
Erscheinungsdatum: 2010 (Januar)
Note: 1,3
Schlagworte: corporate social responsibility international developement sustainable performance governance

Autor

Claudia Bara (Autor:in)

Corporate Social Responsibility & International Development

Zusammenfassung

Leseprobe

Inhaltsverzeichnis

Details

Autor

Claudia Bara (Autor:in)