The Corporations’ Response to Globalisation Problems
Analogously to the central dissension of globalisation, a barrier divides the advocates of optionality (competition) from those of bindingness (regulation) in the dispute over corporate responsibility. Analogously to their positions, the two schools typically borrow the fear of a greater role of the government (pro-globalisation) or of the business sphere (alter-globalisation). Yet there are ever more professionals who strive to fathom the problems and propose practical solutions, collaborating with both schools .
Opposition to Regulation – Market Instruments
In the private sector, generally speaking, one would find but few advocates of increased state supervision, new regulations, more bureaucratic requirements in any given area, let alone increased taxation. The traditional entrepreneurial mistrust, for that matter, has its justification – the effectiveness of governmental measures and the honesty of intent of governmental official are indeed often questionable. Moreover, the state already regulates all areas of activity of private companies (employment, environment, social, anti-monopoly, and other legislation) to some extent and with some results.
Moreover still, entrepreneurs argue that they are subject to sufficient supervision by open economies and democratic societies without the legal state. Companies feel accountable primarily to two parties: (1) to their proprietors and investors, and (2) to their consumers.
Each employee reports primarily to their employer. That is also true of top managers (CEOs) of multinational corporations, who have to report on their work regularly to the corporation’s owners, shareholders, and investors. Although figures on the quarterly increase in the share prices, annual profits, or market share developments remain crucial to the financial markets of New York, London, Frankfurt, or Tokyo, the company’s good or bad reputation still plays a role. Especially a negative image due to the company’s irresponsible conduct may cause the share prices and profits to drop, threatening the company’s future.
The Influence of Consumers
The fierce competition in most industries empowers the consumers with a mighty weapon. Whenever they dislike the products, services, or conduct of a company, they may shop at the competitor. All misdemeanours can theoretically be aired in the media, which have a great impact on the consumer nowadays. Consumer groups or movements can then join their forces and boycott the misbehaving corporations. Numerous corporations (McDonald’s) and even entire industries (petrochemical) have shown factual shifts. In addition, the growing numbers of so-called conscious consumers give rise to new industries and market segments (organic food, ecological cosmetics) as well new business techniques (IKEA) and approaches (FairTrade). What the consumers buy or do not buy are the signals best understood for businesses.
The pressure of the financial community on the companies’ economic output is ever more crushing due to the competition on global capital markets. Companies whose economies do not grow have difficulties acquiring capital for their continued existence. Yet the attention in business circles is not only focused on shareholders, but also on the wider sphere of stakeholder, or players with any relation to the company. The multi-stakeholder, or participatory, approach, trying to include representatives of various interests and points of view, has become the incantation not only in corporate PR (public relations), but also at the governmental and intergovernmental levels.
The worsening problems with the AIDS epidemic, sanitation, climate change, or the growing digital gap between the North and the South, combined with the rather poor achievements of governments and international organisations, have in time led to a societal pressure, above all by civil society, on an active involvement of the business sphere in the solving of the most pressing problems of the humankind. Demands have also sprung up that the corporations produce not only private but also (global) public goods.
Numerous corporations and their associations have taken on activity in the field which came to be known as corporate responsibility, in attempts to accommodate the criticism and establish a better image for their work. Moreover, it became obvious that such efforts also had a ‘business case’, because corporations that are active in reflecting the social and environmental impacts of their work often do not lose the markets, but rather improve their positions. Among other things, such corporations are better able of predicting and managing risk.
Scope of Corporate Responsibility
Many corporations, however, provide public goods without professing any corporate responsibility: the reasons are pragmatic. In the poorest of the developing countries, above all, where the government has beat a retreat in most social areas (so-called fallen states), there is simply no-one else to provide their employees (families) with basic healthcare; or the population has no benefit from the revenues that should be going to the state treasury from the taxed corporation. Therefore, corporations such as Shell in the corrupted Nigeria prefer to invest the funds in public services themselves. In such cases, “business takes on the role of the state” (Hertzová, 2003:194).
It must not be overlooked, however, that for many companies and businesses this is not merely a pragmatic response to the urgent problems, but that they simply want to be involved in a good cause. This is mainly the case of the many philanthropists of the George Soros type. The individual concepts, instruments, and business plans differ, but the emphasis on optionality remains.
Codes of Conduct
Codes of conduct, or ethical codes, are the earliest form of declaring certain ethical values. Either a company makes its own code of conduct, or it joins an existing industry-wide or other interest-driven code that associates other companies. Ethical advertising and the Marketing Agencies Code of Conduct are hot topics in the Czech Republic.
The Global Compact is the best-known global code of conduct, signed by over 2000 global corporations upon the initiative of the UN Secretary General. Its nine general principles are supposed to define the limits of conduct for multinational corporations regarding their employees, child labour, environmental impacts, etc. Its effect so far is, however, somewhat debatable.
The Global Reporting Initiative (GRI) was made under the auspices of the Global Compact and the UN Environment Programme (UNEP), its mission being to promote and proliferate recommendations for globally applicable standards of sustainable corporate conduct. According to the SustainAbility think tank of London, such recommendations are used in the work of 750 organisations.
The OECD Guidelines for Multinational Enterprises, made in 1999 and revised in 2000, enjoy the status of an ethical code, as they represent mere recommendations to multinational companies registered in the 33 countries of the OECD (Organisation for Economic Co-operation and Development) or operating therein. Nonetheless, this is the only code of responsible corporate conduct approved by governments on a multilateral basis.
Ethical, Environmental and Social Audits
Ethical, environmental and social auditing is a more advanced form of corporate responsibility. Ethical auditing typically includes a social and environmental dimension, and vice versa. It is not a mere declaration, but concrete quantifiable indicators allowing to measure (improve, formalise) both internally and externally how a company adheres to its values. Specially appointed auditors then inspect not only the corporate accounts, but also the quality of management: objectively set standards for corporate conduct toward the employees, suppliers, customers, and environmental impacts of the business. The more comprehensive ethical audit is not yet as widespread as the environmental audit.
The Swiss company Covalence, for instance, offers a participatory database measuring a corporation’s ethical reputation (EthicalQuote) upon a set of 45 criteria. Those are divided into 4 categories (work conditions, production impacts, product impact, institutional influence), and build on existing treaties and standards within international law in the areas of human rights, development, and the environment.
Other Criteria for Activity Evaluation
These may include the widespread version of certification by the International Standardisation Organisation (ISO). Above all, the ISO 14000 and ISO 17000 certificates are certain marks of management quality and comparative advantages, but also certify a cautious attitude to the environment and to staff protection, respectively. Environmental Impact Assessment (EIA), becoming ever more widespread is a special case of preventive environmental auditing, which has often even been anchored in law.
As part of the integration of the sustainability concept into its trade policy, European Commission’s DG (Directorate General) Trade has since 1999 carried out a preliminary survey of the economic, social and environmental impacts of newly made trade agreements on a broad range of stakeholders. It has developed its own original method for Sustainability Impact Assessment (SIA). SIA does not represent a corporate response, but builds on similar motives, and defines significantly the settings in which the business activities of multinational corporations take place.
Corporate Responsibility (CR) Policies, Instruments and Reports
The special CR reports that corporations compile, or special sections of their annual reports concerning CR, are so far the most comprehensive instrument of corporate responsibility. They provide room for the introduction to the entire system: explanation of the central values and motives, the basic approach, specific instruments and policies applied by the corporation, and indicators that the corporation uses to measure its advances. The transparency and regularity of the reporting are then of prime interest.
Increasingly, corporations accept so-called integrated responsibility. The perception of management has changed over the past two decades. According to Heinz Rothermund (Forum 2000, 2003), former member of management at Shell, security or PR are no longer viewed as separate issues, but as each employee’s tasks. Although there may be a Corporate Responsibility Department within a company’s structure, CR is becoming increasingly part of the overall corporate management: by the spirit of the ISO certification requirements. This takes on such proportions that some even speak of a new business model.
Corporate accountability is dealt with academically e.g. by the European Institute for Business Ethics at Nyenrode University (http://www.nyenrode.nl/centers/eibe/index.cfm). SustainAbility (http://www.sustainability.com/about/index.asp) stands out among think tanks and consultant companies. Large consultant companies such as McKinsey or the former Great Five (KPMG) deal with the issue increasingly.
A New Discipline: Corporate Responsibility
Nowadays, the area of corporate responsibility constitutes a separate discipline. It is taught at universities, corporations pay for internal CR departments or external CR consultants, more and more NGOs and IGOs appear that focus on the topic. Last but not least, companies have begun to associate themselves in networks and projects with the primary objective of increasing their corporate responsibility. More about corporate responsibility