Business Ethics and Corporate Social Responsibility: Time for Action Now

EFFECTIVE EXECUTIVE OCT.2009

STAYING ON TOP ALWAYS

Business Ethics and Corporate Social Responsibility: Time for Action Now

-- Kamal Singh

Tracing the CSR journey—its various stages—may help in assessing the stage at which a company is as it gets more involved with its responsibility towards its employees, the community at large, stakeholders, nation-building processes and the world as such.

Philanthropy has always been a part of the Indian value system. Whether at the individual level or the institutional level, it is seen as a `service' to society at large, and scriptures say that to be truly valuable it should be done with a `nishkam bhavna' (selfless service) and with no expectations of return or awards. In my religion (Sikhism) we were taught to give 10% of our earnings (`dasavaha') towards charity and religious purposes. This seemed a reasonable amount when one was earning a few hundred in the mid-1970s, but as earnings increased one often defaulted! I have a notion that the divine forces have a way of recovering this due share before the soul departs, so try not to get into this divine debt!

In India, educational institutions, hospitals and other institutions have been started by service minded industrialists such as Tatas, Birlas and the like. Hence, the idea of `corporate social responsibility' is not new. In addition to worker housing and welfare, philanthropy extended to a range of public and social buildings such as temples, shops, parks etc. While these could be linked to our traditional value systems, many industrial philanthropists also understood the relationship between long-term profitability and the health and welfare of the local communities where their businesses were located. However, it was not until the decades of 1960s and 1970s that formal corporate codes of conduct and environmental policies first appeared in response to changing social and legal scenarios. Some of the early corporate codes of conduct were general policy statements aimed at establishing broad ethical principles for employees. Others included more detailed guidelines on employee conduct in business situations and clear monitoring procedures. Formal environmental policies were largely a response to new regulatory demands.

In recent times, globalization has been one of the key drivers of corporate responsibility. Over the last two decades more awareness has been developed on the scope and range of business impacts through globalization, and more attention has been given to the social, environmental and ethical dimensions of business practice. The relaxing of trade barriers, emergence of global markets, increase in FDI in developing countries, benefit in difference in costs and regulations, and the growing mobility of production and labor are significant features of the globalization scenario that have enhanced the social and political power and influence of business worldwide. A wide range of stakeholders are making greater demands for corporate responsibility and transparency. Internet connectivity is enabling NGOs and activists to coordinate and network to monitor corporate activities across the globe. It would be relevant to say that globalization has granted businesses both global economic power and a new sense of global responsibility. No longer can issues of human rights and ecological abuses or poor labor practices and sweatshops or child labor be hidden from public gaze and accountability. Since the late 1990s, the idea of corporate responsibility has expanded to include the following, alongside traditional concerns such as philanthropy and legal compliance:

• Governance

Corporate governance is concerned with the relationship between business and society. Central to this concern are the questions like: who owns the company? Who benefits from its activities? To whom is the company accountable? How are directors appointed? One of the main issues in corporate governance is the company's strategic power structure and the role of a wider constituency of stakeholders in this structure.

• Stakeholders

It is defined as any group or individual who can affect, or is affected by the achievement of a corporation's purpose.

• Accountability

It encompasses the financial, social and environmental answerability to shareholders as well as others.

The CSR agenda now routinely includes questions about the environmental sustainability of business practices, the role of business in urban regeneration, the creation of healthy communities and ethical dilemmas such as child labor in the supply chain; bullying and sexual harassment at the workplace; and work-life balance issues.

Exhibit 1 gives opposing views to assess two different sets of arguments and counterarguments in relation to CSR. It may be appropriate at this point to include the four different `models' of CSR that have emerged (as India Today quoted from a TERI publication (2001) – "Altered Images" – of a report of a survey of 1212 persons polled in 5 cities: Chennai, Kolkata, Mumbai, New Delhi, on understanding and encouraging CSR in South Asia).

The essence of the stakeholder model was captured by David Wheeler and Maria Sillanpaa as follows: "The long term value of a company rests primarily on: the knowledge, abilities and commitment of its employees: and its relationships with investors, customers and other stakeholders. Loyal relationships are increasingly dependent upon how a company is perceived to create `added value' beyond the commercial transaction. Added value embraces issues like quality, service, care for people and natural environment and integrity. It is our belief that the future of the development of loyal, inclusive stakeholder relationships will become one of the most important determi-nants of commercial viability and business successes."

The report also pointed out that with companies facing increasing scrutiny in the global economy, the corporate responsibility agenda now includes a wide range of issues including provision of quality, safe products at fair prices; ethical business practices; fair employment policies; and environmental protection. Companies are expected to perform to a `triple bottom-line' of economic, social and environmental performance, with a greater demand for accountab-ility and transparency to society, for example, through reportage and stakeholder dialogue. This poll focused on four dimensions of corporate responsibility:

1. Worker health and safety

2. Community relations

3. Environmental sustainability

4. Accountability to stakeholders.

The conclusions of the poll were that with privatization and globalization, the philanthropic and statist models are gradually being complemented by the stakeholder model in India. For this to be successful, corporate responsibility must become an integral part of business strategy. Despite some encouraging signs, the poll revealed a number of areas where more progress is needed. These include:

• High expectations from companies are not yet matched by judgements about corporate social responsibility

• More trust is placed in the media and non-governmental organiza-tions than in the industry

• A greater role for non-govern mental organizations

• Gender discrimination is a real issue in the workplace

• Workers and the management have sharply diverging perceptions of working conditions.

In 2002, another survey conducted jointly by the British Council, UNDP, CII and PricewaterhouseCoopers, on perceptions, drivers and barriers for CSR in India, highlighted the following:

• Social responsibility is not the exclusive domain of government and `passive philanthropy' alone no longer constitutes CSR.

• A majority of respondents ranked ethical conduct, including compliance and transparency of business and nation-building amongst the definitions closest to their perception of CSR.

• Companies claimed that a desire to be a good corporate citizen and improved brand image drive CSR. Over 55% of the companies surveyed felt that the greatest enabling policy/regulatory matter was the provision of tax/duties/customs benefits.

• Most of the companies surveyed include social responsibility in the corporate strategy and identified the top four influencers on CSR strategy as: management, board and Employees, Shareholders and local communities.

• Absence of a clear linkage between CSR and financial success was identified as the principal barrier to CSR. Lack of mechanisms to measure, monitor, evaluate and report the impact of CSR initiatives is also seen as a major barrier.

• Only 38% of the respondents had earmarked resources for CSR as a priority but many companies saw a great future for earning profits through ethical conduct of business, complying with regula-tory requirements, with a greater emphasis on the protection of environment and employee health and safety.

• More than 90% of the respondents believed that investors shall demand greater transparency in disclosure of financial and non-financial information.

• In the light of the evolving agenda of CSR, mainstreaming of CSR in business schools can ensure that managers of the future are impart-ed appropriate skills and sensitivity.

The survey was based on responses from 102 companies ranging from small to medium to large enterprises that responded out of a total of 1000 who were approached. Some in-depth interviews were also held and the cases mentioned here are based on them.

Tracing the CSR journey—its various stages—may help in assessing the stage at which a company is as it gets more involved with its responsib-ility towards its employees, the commu-nity at large, stakeholders, nation-build-ing processes and the world as such (See Exhibit III).

Thus, the point to note is that in today's world, corporate social respons-ibility and stakeholder engagement are the key to business success and need to be incorporated at the strategy level, supported by the board and top management, as an integral part of the company operations. The supply chain needs to be studied carefully for compl-iance as well as labor practices and the company's own policies should be open to scrutiny. The 24x7 culture and the high rates of stress amongst the working population can be indicators to measure the work-life balance and appropriate action taken to make improvements internally. Sexual harassment at the workplace and other discriminatory practices need to be addressed. The views of stakeholders and media experts should also be considered to learn about issues of concern and codes of conduct developed and followed as good practices.

Case 1: Making a difference through collective coherent efforts: CSR at Tata Group

The Tata Council for Community Initiatives is an umbrella organization that imparts coherence to the initiatives of the group through the creation of a participatory network of Tata Group companies, each of which undertakes CSR initiatives in its own right. The emphasis is on volunteerism, contin-uous improvement, innovation, creati-vity and imbibing the "Tata Values" on community through integration with business plans.

CSR at Tata Steel is one of the `8' key business processes identified by the management and considered critical to "success as a corporation". CSR is no longer eternalized nor is it philanthropy, but an internalized process for which sub-processes have been established.

An important segment of Tata Steel's allocation from its CSR budget is towards the community and employees: "Jamshedpur and adjoining areas are integral to Tata Steel, we cannot alienate a part of ourselves and hope to succeed."

Case 2: Triple Bottom Line reporting by Aditya Birla Group

In view of the fact that the group has adopted a triple bottom line approach, the Business Director or the President (Business Group Head) is responsible for attainment of economic, social and environmental targets, which are then reported in separate sections of the annual report. Though there is no separate CSR policy or social policy, many of the group companies that are ISO 14001certified have environ-mental policies, objectives and targets. Most are signatories to the UN Global Compact, which is a UN CSR initiative. Aditya Birla Centre for Community Initiatives and Rural Development is the principal program-implementing agency. It has an Apex Team, which shoulders the responsibility of charting out a well-defined community-based rural development plan and an Implementation Team which ensures implementation through the various group companies and their Rural Development Cells.

Kamal Singh is former Head, Governance & Social Justice, Brirish Council India. She has extensive experience in developing collaborative partneships with key influencers and decision-makers in central/State governments, institutions, NGOs and international agencies in the areas of women's rights, child rights, governance, social justice, active citizenship and corporate social responsibility. She was awarded `MBE' by the UK government for her work in the fields of women's rights, child rights and public sector reforms. She is currently associated with Asian Centre for Organisation Research & Development (ACORD) on "Clean Yamuna Manch" to raise awareness on Yamuna river's polution levels in Delhi and promote public participation for change (see www.cleanyamu nariver.org). She is Adviser for Women's Resource & Advocacy Centre where she regularly conducts orientation workshops on sexual harassment at the workplace, and also performs in theatre productions for social change.

Case 3: CSR at ICICI

ICICI has a permanent and full-time group, the Social Initiatives Group (SIG), to concentrate on its development-related initiatives. Through the SIG, ICICI seeks to define and effectively fulfil its responsibilities as a corporate citizen. The group's involvement is not at the grassroots, though field visits, aimed at assessing need and facilitating dialogue, form an integral part of their work. SIG has an articulated mission and focussed and well-drawn plans.

India has been on the globalization route since the early 1990s but CSR has had a slower journey, which should gain momentum with time. Various CSR awards have been introduced in the country and many small, medium and large companies have had success stories to their credit making a difference in the lives of many people. However, it is 10 years since the UN announced its Global Compact at Davos when the (then) UN Secretary General urged world business leaders to "embrace and enact" CSR initiatives both in their individual and corporate practices and support appropriate public policies:

• The Universal Declaration of Human Rights

The UN Secretary-General asked world business to:

a. Support and respect the protection of international human rights within their sphere of influence; and

b. Make sure their own corporations are not complicit in human rights abuses.

• The International Labor Organization's Declaration on fundamental principles and rights at work

The UN asked world business to uphold:

a. Freedom of association and the effective recognition of the right to collective bargaining

b. The elimination of all forms of forced and compulsory labor

c. The effective abolition of child labor

d. The elimination of discrimination in respect of employment and occupation.

• The Rio Declaration of the UN Conference on Environment and Development (1992)

The UN asked world business to:

a. Support a precautionary approach to environmental challenges

b. Undertake initiatives to promote greater environmental responsibility

c. Encourage the development and diffusion of environmentally friendly technologies.

This kind of appeal for partnership sounds the way forward, but needs a lot of work from policy to practice, from monitoring to reporting, from transparency to accountability and compliance with agreed mechanisms. It is a challenge for companies today to go beyond compliance and invest more in "human" capital, the environment and the relations with stakeholders. This would increase a company's competitiveness. Going beyond basic legal obligations in the social area like training, working conditions, manage-ment-employee relations, can also have a direct impact on productivity. It opens a way for managing change and for reconciling social development with improved competitiveness. The internal dimension of CSR includes promoting the best practice in HRM, health and safety at work; adapting to change; and ensuring environmental protection and management. The external dimension of CSR extends beyond the doors of a company to the local community and involves a wide range of stakeholders including business partners, suppliers, customers, public authorities and NGOs plus the media. CSR has strong human rights dimensions – exploitation and abuse will be identified and reported and the company's brand and image will suffer. Companies and sectors are increasingly adopting codes of conduct covering working conditions, human rights and environmental aspects, in particular those of their sub-contractors and suppliers. Codes of conduct and other voluntary initiatives are not an alternatives to national and international laws, but complement these and promote higher standards for those who subscribe to them. The mission statements, code of conduct, reasons for company's existence, core values and responsibilities towards stakeholders need to be translated from strategies to action plans and day-to-day decisions. This will involve new partnerships, new ways of accounting, reporting and auditing, and codes such as:

• SA8000: A social accountability system tool designed for retailers, brand companies and other suppliers wanting `to assure just and decent working conditions in the supply chain' see www.sa8000.org

• AccountAbility (AA) 1000: an accountability standard developed by the London-based Institute of Social and Ethical AccountAbility.

• ISO 14000: A series of voluntary standards on environmental management tools and systems developed and maintained by the Geneva-based International Organization for Standardization (ISO). The ISO 14000 series include standards in areas such as environmental auditing, life cycle analysis and environmental performance evaluation.

In conclusion, I would say that CSR is on business agenda worldwide, but work needs to be done at both international and national levels. A framework of action presented by the Prince of Wales International Business Leaders Forum gives four key steps in this regard:

1. Provide leadership

Set the strategic direction and engage in the debate on the role of business in development.

2. Define what it means for your company

what are the key issues, stakeholders and spheres of influence which are relevant for corporate citizenship.

3. Make it happen

Develop and implement appropriate policies and procedures, engage in dialogue and partnership with key stakeholders.

4. Be transparent about it

Build confidence by communicating consistently with different stakeholders about the company's principles, policies and practices in a transparent manner, within the bounds of commercial confidentiality.

Worldwide, it is really action time. I would like to share what Mary Robinson (then) UN High Commissioner for Human Rights said at the start of this millenium:

"Twenty years ago, few companies had environmental policies. Today, the environment is unquestionably a mainstream business issue. So it should be with human rights. Having a strong human rights policy and a sound implementation strategy is about risk management and reputation assurance. Human Rights is a bottom line issue."

"The UN does not ask or expect business to assume the responsibilities of government. It does ask business to act in a responsible way in their sphere of activities..."

Today we're concerned about climate change, our carbon footprints and inequalities in the world – I think a lot can be changed by the values and practices adopted by business. Apart from improvement in environmental conditions for our future generations, quality of life for many can be improved. Those who help create wealth should have access and be a part of the prosperity so created. I think there rests the divine case for the `dasavaha'!