Evolution of CSR Around The Globe: Any Lessons for Pakistan?

CSR has been around for some time although the social responsibility of business was not widely considered to be a significant problem from Adam Smith’s time to the Great Depression. But since the 1930s, and increasingly since the 1960s, social responsibility has become ‘an important issue not only for business but in the theory and practice of law, politics and economics2’. Yet, it was probably only after the fall of the Berlin Wall as attention turned from the success of capitalism compared to communism (or, at least, the USSR version of it) that the rise of large corporations came under the microscope. Undoubtedly, when the struggle was against communism, the way of life portrayed in the West fuelled by its larger corporations escaped analysis. As creaks began to appear, most notably the lip service played by Shell to Human Rights in Nigeria and later the collapse of Enron, CSR and its close relatives (corporate citizenship, sustainability, business ethics etc.) became prominent – the case today.

1. What could be the next evolution of CSR?

There is little doubt that the lack of responsibility in markets has led to today’s current financial turmoil and recession in most international markets. The private sector has taken a huge blow but there is agreement that no-one wants too much control by Governments although the exact division of public and privately provided goods is one of the greatest economic debates of today. CSR does provide many of the elements of a solution but its ideas were largely ignored by many of the big financial players to date, and has led to increased public sector involvement in the governance of corporations. As Thomas Friedman noted in the New York Times3: “This financial meltdown involved a broad national breakdown in personal responsibility, government regulation and financial ethics….That’s how we got here – a near total breakdown of responsibility at every link in our financial chain, and now we either bail out the people who brought us here or risk a total systemic crash.”

However, if you adhere to the theories of Adam Smith you may disagree about a larger role for the public sector. Smith argued more than 200 years ago that the general welfare was better served by people pursuing their enligh-tened self-interest than by misguided attempts to serve society.

Note that CSR is a strategic approach to managing a com-pany, not simply an add-on4. CSR encompasses all stakeholders of a company not just a few. CSR is concerned with treating the stakeholders of a corporate body ethically and in a responsible manner5. Yet, others misleadingly define CSR to be simply philanthropy or, perhaps worse, as sacrificing profits in the social interest. This is wrong: the central point is how profits are made, NOT profits per se. Yet today, companies have lurched more and more against CSR as exemplified by their seeming move to embrace ‘corporate sustainability’ or ‘corporate
citizenship’. This is aided and abetted by the ‘think-tanks’ of change such as the consultancy Sustainability or The Global Reporting Initiative. If either embrace the tenets of strategic CSR then perhaps we should worry less. But it does appear that those who embrace the last two ‘phrases’ have lurched either toward more environmentalism (sustainability) or more commu-nity involvement either at home or abroad (citizenship). These points are exemplified in Globescan and Sustainability’s 2009 Survey of Sustainability which focuses on climate change6. They list a number of urgent sustainability issues which could easily have been drawn up in 1970 after the celebrated report, and book, by Denis Meadows et- al The Limits to Growth!

The Game’s Still in the Name: CSR

This not to imply that the Globescan report has little interest to CSR since the issue of environmental sustainability is a key area of CSR discussion. My worry is that a focus on future concerns might lessen the focus on current and past concerns of which widespread poverty (mentioned by Globescan, to be fair) has been with us for far too long.

Curiously, the increased need for ‘responsibility’ comes at a time of a perceived tiredness with the concept of CSR. The rush into CSR in the 1990s was led mainly by environmentalists who had seen a useful concept to use in a world that eagerly and continually searches for new concepts. Further, when CSR is defined as ‘treating the stakeholders of a company in an ethically responsible manner’ it provides a powerful systems tool to managing a company.

But the problem with CSR has not been about what it means, when carefully defined, but the combination of the words corporate, social, responsible. Of course corporations are responsible, some would argue, because they could not otherwise survive an irresponsible company would soon have its wings clipped. Many companies have had their wings clipped because of irresponsible behaviour (Shell, Nike, Gap, Exxon, BP, Parmalat, Fanny Mae etc) and some have been disemboweled (Enron, Bear Sterns, Lehman Brothers, Worldcom etc).

Perhaps the problem is the word ‘social’ as companies may believe that this means socialism through the backdoor? Clearly, on first sight, it seems to exclude econo-mics and the environment. But then, do not Economics faculties in our main universities come under the heading of social science? And can we deal with environmental problems without their economic roots? Of course not!

I think we would all love a ‘new’ term that describes all that succinctly. CSR has survived because it, as I define it above, has concentrated minds on all key stake-holders and how they are treated by a company or entity. Yet, when people start saying goodbye to concepts without defining them, as many have done with CSR recently (for example, the overly dramatic ‘death’ of CSR in The Financial Times and an earlier critical piece in The Economist, subsequently reversed) perhaps these concepts have more mileage left in them? For instance, many have predicted the ‘death’ of GDP as a concept because the growth it purports to measure does not capture such things as ‘intangible’ assets, environmental protection and so on.

Companies, or at least some of them, are now delighted that new terms allow them to forget the stakeholder model that covers such knotty issues as corporate governance, employee layoffs, supply chain standards, customer concerns, corruption etc and allow them to concentrate on such things as ‘corporate sustainability’ (that is, long-term environmental issues) or ‘corporate responsibility’ (which is what they do already). A VP of Unilever, who looks after these issues, confirmed what I suspected: that many companies switched too quickly over to ‘sustainability’ issues and ignored the social and economic ones and he felt that a re-alignment towards ‘social responsibility’ was sorely needed7.

Now there is nothing wrong with being concerned with either of the latter two issues. A strategic approach to CSR includes both of these as part of its overall systems approach. So has CSR been rejected too soon? This may be so and the trend does seem to be along this path. On the other hand, the financial crisis which is still with us will demand increased responsibility…so look out for sustainable corporate responsibility or even a new CSR Corporate Sustainable Responsibility or some such phrase!

2. What can we expect from corporations? What will be their role?

According to my company’s own mail bag, CSR is still attracting interest across all markets – from China to Pakistan to Nigeria to Brazil – each with differing rationales. In a poll conducted by The Economist Intelligence Unit of 566 US based respondents at the end of 2008, 74 percent said that CSR can help increase profits. In fact, CSR is not expensive although the respondents did think that financial philanthropy would be reduced over the coming year.

An example illustrates simple, but powerful, applications of CSR. When the three CEOs of Ford, Chrysler and GM came to Washington DC at the end of 2008 to plead for a $US25billion bail out of their companies, the Senate committee was scandalized that the three CEOs each flew in their private jets from Chicago to DC. At a time of recession, socially responsible CEOs would, at least, have shared the same jet or, better still, traveled commercially!

Normally, an article written today on this topic would announce that we are in uncertain times and we don’t know how the future will unfold. But, in fact, the future is more certain than ever before, especially for CSR. The recent turmoil in markets shows a role for more stakeholder engagement and legislation in previously unregulated areas. Take Lehman Brothers for instance. They stated in their 2007 letter to their shareholders that “Strong corporate citizenship is a key element of our culture. We actively leverage our intellectual capital, network of global relationships, and financial strength to help address today’s critical social issues.”

But, as one commentator noted:
Lehman Brothers did not produce a CSR report, but they produced a philanthropy report. Even if they had gone further, it seems unlikely that the complex nature of how they created wealth would have been a feature’.

Although in the short-term future there is no doubt we shall see contraction in the private sector, but the growth area will certainly be an increased compliance for CSR and CSR will become more important as regulation for the ethical behaviour of companies becomes more and more important.

3. What does CSR mean for emerging markets such as Pakistan?

An example is the case of Azerbaijan. It has already discovered that BP’s approach to CSR was very helpful in the construction of the Baku to Ceyhan pipeline. Not without controversy, but BP’s approach to wor-king with a key stakeholder – the communities adjacent to the pipeline’s route – has been, on balance, helpful. It claims to have spent USD 100 mn on CSI projects for communities in Azerbaijan, Georgia and Turkey.

As Lord Browne, the former CEO of BP once stated: I believe that our long-term future depends on our environmental and social performance. Excellence in operational performance generates financial returns, but enduring growth depends on something more – on being a responsible citizen in the world and earning the continuing support of customers, shareholders, local communities and other stakeholders.

Corporate Social Investment
To date, Azerbaijan companies, as many others in emerging markets, have focused upon Corporate Social Investment (CSI). This is welcome, but is only a part of an overall CSR strategy. The world’s successful and long-lived companies, as the famous book Built to Last showed, are those with a clear vision and those that encompass all stakeholders – management, owners, employees, shareholders as well as the external stakeholders customers, suppliers, the environment, and Govern-ment. These are the reasons that companies such as Coca Cola, IBM, General Electric, Tata and Sony, for instance, have been so successful over a long period of time.

China has become very interested in CSR according to CSR-Europe (A Brussels based CSR think-tank8). Citing Gefei Yin, Director and Vice-President of China WTO Tribune and the Development Center for Chinese CSR: “Despite the impact of the economic crisis, more and more Chinese enterprises are taking steps to integrate corporate social responsibility (CSR) into their business practices” he says. Further, according to a report by the GoldenBee Development Center for Chinese CSR, in 2008 there were in total 169 CSR reports published by Chinese enterprises. While, in 2009, up to mid-2009, the listed companies in Shanghai Stock Exchange and Shenzhen Stock Exchange had already issued more than 330 reports.

a. Responsible Competitiveness
Gefei Yin stated that there had been three major achievements in China. First, many enterprises were starting to move forward from a limited view of CSR that focused mainly towards looking at responsibility to stakeholders. Using the concept of ‘responsible competitiveness’ popularized by Simon Zadek9, means that enterprises help solve some social problems by using their professional advantages and finally increase their competitiveness.

b. Integrating CSR
Second, some leading enterprises already integrate CSR into their strategy. For example, Bao Steel has a CSR system, and publishes a Guide-line to Implement CSR from which it bases its action. With a comprehensive CSR roadmap, it presents its CSR concept systematically so as to integrate CSR into its daily operations.

Although Yin states that “CSR information disclosure is prominent through the establishment of CSR departments” it is probable that more sensitive issues such as rights, comprehensively treated in most western companies, are swept under the carpet.

c. Supply Chain Management
Third, the issue of supply chain management is being addressed given its importance for future exports to discerning foreign consumers. One technique being actively used is CSR-Europe’s own web portal10 that helps Chinese suppliers in impro-ving the capacity of their CSR performance. The portal promotes all the well-known supply chain issues such as health and safety, social dialogue, human rights, corruption, forced labour, child labour, collective bargaining, compensation, freedom of association, discrimination, environment and climate issues, working hours, health and safety. Yet, no data exist to see how, or whether, these issues have actually been addressed.

International Trade, CSR and China
Given the importance of China for international trade and as the holder of around USD 2 tn of USA debt, dealing with errant corporations in China is likely to be handled with kid gloves by Western Governments. A hopeful avenue is the reaction of consumers and how long they will tolerate abuses in the supply chain of goods coming from China. Clearly, China would like to avoid such reactions by careful manipulation of instruments such as the CSR portal. On the other hand, the CSR-Europe portal could promote international buyers’ capacity to find good Chinese suppliers. At the same time when they cooperate together, they can boost the build-up of a responsible supply chain. Through a better understanding the CSR implementation of Chinese
suppliers, international buyers can continuously optimize the concept and tools of CSR management in their supply chain.

4. What will be the future role of Governments in CSR?

As can be seen in the previous paragraphs, the importance of China in the world economy led the Chinese Government to adopt CSR for its companies, none of whom operate independently from the State. Clearly this is to promote its export industry so as to curtail a possible international consumer reaction. This is a story that requires more in-depth cove-rage which, in turn, would require the sorts of data that the Chinese Government is reluctant to release. But, perhaps, CSR will be the ‘Trojan Horse’ in China that may lead to events outside the control of the Government Itself. Only time will tell.

In the Western world, change is in the air as responsibility issues of financial corporations coupled with increased concern of energy issues, mean that sustainability is the watchword for a while. Five years ago in 2004, the UK Government was one of the leaders in promoting CSR. It published a report CSR – a Government Update11 and appointed a Minister for CSR. However, with the move toward ‘Sustainability’ and an eloquent spokesman, Jonathan Porritt, made Chair of the Government’s Sustainable Development Commission – the balance has been toward the environment, carbon offsets and global warming. Nothing wrong with that but a Government suffering deep divisions because of an expense scandal is not best placed to promote CSR.

Meanwhile the EU contributed a fair amount of money at the CSR environment with, unfortunately, limited success. Its flagship
project on ‘stakeholder dialogue’ led to much talk but little action12. While the Government of Nations, the United Nations, bravely launched its Global Compact at the turn of the cen-tury, only to discover that the 5000 or companies who signed up for its ten principles wondered what they were doing there except to see and be seen13?

OECD and CSR
The, at one time better known institution than the UN, so-called ‘rich man’s club the OECD, discussed CSR at its financial ministers meeting in Lecce in June, in preparation for the July, 2009 Italian G8 summit. Some progress in words when two newish components appeared the finance minister’s ‘Lecce’ declaration whereby new business conduct principles might lead to a revision of the largely ineffectual (to-date) OECD Guidelines for Multinational Enterprises and that OECD Members, as well as Chile, Estonia, Israel and Slovenia, endorsed a ‘Green Growth’ Declaration. Although the Financial Times noted14 that Preparatory talks on another agenda item climate change held by senior diplomats of the 16-nation Major Economies Forum late on Tuesday dropped a reference in the draft communiqué to the goal of halving greenhouse gas omissions by 2050.

The ‘new’ business conduct principles in the so-called “the Lecce Framework”, has objectives to create a comprehensive framework, building on existing initiatives, to identify and fill regulatory gaps and foster the broad international consensus needed for rapid implementation. And it recognizes that there is a wide range of instruments, both exis-ting and under development, which have a common thread related to propriety, integrity and transparency and classifies them into five categories: corporate governance, market integrity, financial regulation and super-vision, tax cooperation, and transparency of macroeconomic policy and data.

Nothing particularly new there – although the use of the word ‘transparency’ has been weakened from its normal euphemism of anti-corruption, to only mean the transparency of macroeconomic policy and data.

Perhaps more interesting, in the OECD preparatory meeting was its mention of CSR for a rare moment, when they stated: “We consider that a renewed commitment to responsible business conduct will help to rebuild trust and confidence in markets. We firmly commit to the principles of propriety, integrity and transparency. Thus, we agree on the need to develop a set of common standards and processes regarding the conduct of international business and finance. For this purpose, we welcome the OECD work in relation to the Lecce Framework and a Global Charter for sustainable economic activity. We will continue to promote corporate social responsibility and welcome further consultation on the up-dating of the OECD Guidelines for Multinational Enterprises to increase their relevance and clarify private sector responsibilities.”

5. Concluding remarks

Main Street and Wall Street cannot be separated. If the captains of those financial companies, now in crisis or bankrupted, had acted more responsibly with a proper Corporate Social Responsibility strategy then their vessels would not have sunk nor would they be on the brink of foundering. Responsible business will be the new mantra.

In 2010, therefore, where will CSR be going? First, industry in the recession will take a hard look at all their programmes. They will have to look, hard and rapidly, at the business case for CSR. Second, given the lack of responsibility among Western Sub-prime holders, banks and financial institutions…there will be a new move toward responsibility. Third, great hope arose over the election of Obama and despite increasing criticism of lack of action, his actions are still likely to increase, and encourage, the need for national, corporate, public and personal responsibility.

So what next for CSR? I suggest six points:

First, CSR can help. A major stakeholder of a firm is its employees. CSR does not imply that downsizing should be prevented, that would be absurd. What it does imply is that companies must make an effort to organize layoffs in a socially responsible manner. This could include early warning, counse-ling, re-training, temporary financial assistance etc. The tendency of US companies, for instance, to give immediate notice is both distressing and can be counter-productive once re-hiring starts again. There is no doubt that there is an unequal power between companies and employees. A company can recover, it has its own institutions such as banks willing to keep it going through hard times. A redundant employee has none of these advantages and is in a very weak position once he or she leaves the confines of an institution.

Second, CSR urges transparency of operations through socially responsible reporting of activities such as informing shareholders and staff about off-balance sheet holding of debts. Enron, for instance, may well have been in much better shape today if it had behaved in a socially responsible manner. Even though Enron was a lavish donor, Simon Caulkin of The Observer (Feb 3, 2002) regarded its CSR as a ‘fig leaf’ and ‘of a piece with Enron’s overall strategy’. In fact, CSR is an overall strategy for systematic management of all of a company’s stakeholders and should not be confined to its PR department!

Third, CSR has not been given as much prominence, especially in the USA, simply because of the legal framework under which most corporations operate. Robert Hinkley argues17, for the USA, that the law, in its current form, actually inhibits executives and corporations from being socially responsible because the law baldly states that the purpose of the corporation is to make money for its shareholders. Any deviation from that could leave the corporation open to a lawsuit. So Hinkley suggests simply adding a phrase on CSR to corporate law so as to enhance CSR. Law, he advocates, would then read something like Directors and officers have a duty to make money for shareholders, but not at the expense of the environment, human rights, the public safety, the communities in which the corporation operates or the dignity of its employees.

Fourth, CSR has a positive impact on the intangible assets of a company and investing in CSR is not simply a cost but also a market opportunity.

Fifth, CSR has a long-term affect on improving a company’s bottom line. There is a positive link between social and financial performance especially when looking at the increased relevance of intangible assets such as repu-tation and knowledge networks. These turn into a source of market value and competitive advantage. As Warren Buffet said, reputation takes years to obtain yet can be ruined in a minute.

Sixth, social responsibility is not confined to corporations. Institutions that have a major impact on the way we live are also expected to behave in a socially responsible manner NGOs and public institutions, as well as personal responsibility. Thus, for organizations caught in financial storms or off course due to the buffetings of the markets, CSR will, more and more, become part of their strategic planning. A true stakeholder focus crystallized around reworked values is crucial for these difficult times and will help responsible companies eventually sail into calmer, safer waters.

But, does the constant grappling with definitions and the many transgressions of corporations mean that CSR is ‘dead’ or that we are now moving into ‘Beyond CSR’ or ‘CSR 2.0’ as some commentators would have us believe? Anti CSR editors and those burying CSR might be tempted to take the catchier sound bite in that part of today’s negative world where it is easier to dispose than propose and announce the ‘End of CSR’: they might be advised to take a look at the evidence and note that there is still life in the concept.

Some commentators are trying to return us to the hopelessly out-of-date Milton Friedman view of business but the conclusion remains, that social responsibility has been, is and will continue to be crucial to the future prosperity and integrity of business wherever it takes place around the world.

Can, therefore, we call it what we like but still mean a robust strategic and systems approach to social responsibility? Perhaps a better expression will surface but so far none of the contenders sustainability, citizenship, business and society, ethical business have stuck long enough to focus minds.

CSR is not dead, simply there is what I call a ‘DEARTH of CSR’!

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