Tony Lloyd
Corporate social responsibility
The notion of Corporate Social Responsibility (CSR) has been taken up by pioneering corporations around the globe. It seems an irresistible tide, pulling in its wake business leaders, Trade Unions, Non-Government Organisations and academics. Against such a background of endeavour, what is the role of Governments to be?
The general principal must be that companies are responsible to their shareholders and are constrained to operate within the law of the countries in which they function. A growing number of companies are recognising that a corporate commitment to social responsibility makes them more attractive to their customers, their employees and ethical investors. There is, however, a sizeable gap between public expectations and what companies are actually doing. With some notable multi-national exceptions, the response of business to self regulation to date has been underwhelming, particularly in the United Kingdom. Despite the exhortations of the Prime Minister at a CBI gathering in 2000 to report on sustainable development policy voluntarily, only a fraction of FTSE 350 companies have so far responded. Executives must realise that the groundswell of support for CSR is tremendous. There is a danger that this lack of response will lead to overly burdensome regulation, forcing a rules-based approach that will do very little to improve matters. Corporations are extremely proficient at ticking boxes.
The issue is attracting some heavyweight attention. The United Nations has called upon business leaders to join a "global compact of shared values and principals", embracing issues from human rights to environmental responsibility. The European Union, in its Green Paper promoting a framework for CSR in Europe, urged companies to take up the "triple bottom line" approach, whereby companies voluntarily take on board social and environmental concerns besides their economic ones. The UK Government in its White Paper "Modernising Company Law" considers introducing mandatory reporting, but only in certain circumstances and only for companies of a certain size.
The UN, the EU and National Governments undoubtedly have a role to play in formulating ideas and providing guidance to business without resorting to overly prescriptive regulation. What business should recognise is that these institutions may be compelled to respond to pressure by legislating in order to force compliance, thereby satisfying the demand for immediate action.
The challenges these would-be regulators will face are staggering; CSR, as a concept, is open to a variety of interpretations. There is no universally accepted definition or measure of compliance; and yet enterprises around the world claim to have accepted its principles. Who decides whether the CSR policies of multi-national corporations interact with diverse global culture in an appropriate manner? Who measures the impact? What measures of success are to be employed? Who measures that success? Is CSR philosophy really embracing the concept of responsibility, or is it simply appeasing the pressure groups?
The only way of avoiding unwieldy, inconsistent and one-size-fits-all regulation is for business to show that it can tackle these issues itself. Only then will the absolute need for regulation be obviated. By taking this step, corporations will begin to counter mistrust of business in the 21st Century.
Business, however, is for profit; it is a necessary discipline of capitalism that companies should produce competitive returns for their shareholders. Implementing CSR policies - devising management targets, reporting practices and procedures, setting and implementing evaluation criteria, training staff, employing the relevant expertise - will impact upon a company's balance sheet and, ultimately, on profits.
For the corporate world to fully and actively engage in the CSR debate, it has to believe that adopting CSR policies will lead to improved profitability. Certainly, attracting the increasingly powerful ethical investment movement and the growing number of ethical consumers whose purchasing decisions are based on association of brand with ethical behaviour should provide considerable benefits.
Perhaps of more concern to the balance sheet of global companies will be the potential for an increase in extraterritorial litigation in the United States under the Alien Tort Claims Act. Litigating in the plaintiff-friendly jurisdictions of the US has already shown its potential for devastating companies, having contributed to the bankruptcy of virtually every asbestos producer in North America.
It is also worth noting that presently, in the UK, attempts are being made to introduce a Private Members Bill which will seek to allow foreign employees to sue UK-based multi-national enterprises in British courts in order to hold them accountable for their actions overseas.
In adopting behaviour compatible with CSR aspirations, business must not look at these responsibilities solely in terms of a company's interaction with community and environment. The key to sustaining business commitment to CSR lies at its heart – with its employees. Inculcating a culture of ethical practice, protecting employees through high standards of health and safety, introducing strict rules on corrupt practice for management and implementing the highest standards of training and consultation will engrain a commitment to CSR that will outlive the current fashionable enthusiasm.
What must be recognised by Governments and pressure groups however is that, regardless of whether consensus can be reached on what CSR truly means and whatever form regulation should take, there will always be limitations. What the corporate scandals of recent years have taught us is that painting the walls of a housing project for the homeless with one hand is no good if the other is dipping into the corporate till at the expense of investors and, ultimately, its people. Ethical practice – however it is defined - is not just about social and environmental responsibility – it is about honesty and integrity throughout business itself.
