When an organization goes international it will be confronted with new and potentially unique standards of legal and ethical conduct. More specifically a company needs to look at the relationship between business and society. International business is conducted through international trade agreements, parent country laws, and host country regulation of foreign enterprises. In practice however, these rules and guidelines differ seriously between different countries as companies can abuse these differences to gain more profit. For example, environmental regulation is weaker in many countries around the world than in Europe or the United States. (Marketing book) In such a situation the multinational European or American company is confronted with the choice between lowering the cost, no matter the damage to the environment, or to protect the environment. Environmental aspects form only one element of the relationship between the company and society. Other examples of misconduct by the company in order to maximize profits are: child labour, no respect for human rights, bad working conditions, production of dangerous products, destruction of animal habitats, … (movie melissa) In fact, a lot of these activities are strictly legal and officially these companies don’t do anything wrong. But the world has changed. Stakeholders and especially customers are more aware of how companies behave themselves. Companies need to achieve “Corporate Sustainability” by aligning their activities with the stakeholder expectations. (PWC) The media and internet are the main reasons of the increased awareness. Important players within this process are NGO's. An NGO is defined as:
“…group whose stated purpose is the promotion of environmental and or social goals”
(Bendell,2000,p.16) zie boek intb
To go on with environmental issues, Greenpeace forms a multinational NGO that scrutinizes companies that damage the environment. (boek int b) Customers have more power than ever. They receive information via the media and they can organise themselves over the internet. This results in pressures and even boycotts of companies that misconduct in their point of view. Because of this, shareholders also put pressure on the companies to prevent a loss of sales and eventually a loss of profit.(article cabrera). This is called shareholder activism.
Recently companies reacted on this evolution in order to conserve their image. They are now hoping to get good press instead of bad press by investing in social issues. A lot of companies voluntary signed declarations of good conduct and most of them publish an annual CSR-report on their website to convince shareholders of their good intentions. Economic theories that state that a company just has to focus on maximizing profits have become dated.
II) Definition CSR
"Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large"
(Holme & Watts, Making Good Business Sense, WBCSD, 2000)
The following illustration can be used to place CSR within the culture of a company.
Nowadays it is important that companies consider the following two aspects of their activities. First of all, the quality of their management and second the impact of the operations on society. These aspects are represented in the illustration as the inner and outer circle. The company is pressured by multiple parties to take the outer circle into consideration. One of these parties for example are the NGO’s that focus on the environment. When companies take into account social and environmental issues besides their financial issues we can speak of “Corporate Citizenship”. (Zadek S., “The Civil Corporation”, Earthscan,
Instruments to manage companies in a responsible way are for example: Ethical Auditing & Accounting, Social Reporting and Sustainable Development.
The Centre for Corporate Citizenship (Boston College, website?) defines the essence of “Corporate Citizenship” through four elements:
1) Minimize harm: This means minimizing the negative impact on all stakeholders (employees, customers, shareholders, society, nature,…)
2) Maximize benefit: Not only financial benefits for the shareholders, but benefits for all stakeholders
3) Be accountable and responsive to stakeholders
4) Support strong financial results: Returning profit to shareholders is an obligation to society
In general we can speak of five main CSR topics:
- Human Righ
- Employee rights
- Environmental protection
- Community involvement
- Supplier relations
(Holme & Watts Making Good Business Sense, WBCSD, 2000, p.10)
Because of the increased pressure of stakeholders, multinational firms need to take a new role in promoting social and environmental objectives. Companies that have a global brand are in, our current media focused society, very sensitive for social issues. The downfall of Arthur Andersen is an example of how something that goes wrong in one part of the world can destroy your entire global operations (article Cabrerra). But there still exists two main reasons why companies object to their new social roles:
- The only purpose of business is to make profit; and they should not pursue other objectives
· Ethical considerations are different between countries, and companies are facing the dilemma to which national ethical system to follow.
This forms more or less the view of Milton Friedman. Thirty five years ago he wrote the article “The Social Responsibility of Business Is to Increase Its Profits.” in the The New York Times Magazine (http://www.reason.com/0510/fe.mf.rethinking.shtml). He stated that there is only one social responsibility of business: to use its resources and energy in activities designed to increase its profits so long as it stays within the rules of the game. Friedman also argued that firms do not have the expertise to get into solving social problems. Specialized institutions such as government agencies or charities are in much better position to engage in social and environmental objectives. Even though, Friedman’s point of view is extreme, there are still people that support his ideas. For example, referring to oil companies, they stated that companies are not the right organizations for furthering moral causes, their strengths lie not in devotion to democracy and human rights but in finding, extracting, and distributing oil. Some managers also share the idea that CSR can damage the economic development of firms and nations, not only because business are forced to operate less efficiently, but also because new forms of interventionism arising out of the adoption of CSR, which include closer regulation, narrow the domain of competition and economic freedom.
4 CSR and Ethical conduct pays off
“Should firms spend money on improving their social and environmental performance?
Should companies take on CSR action based on moral grounds?
Is taking care of stakeholder groups an area of responsibility for companies or governments?
(EurActiv: http://www.euractiv.com/Article?tcmuri=tcm:29-117141-16&type=Analysis article: Social and environmental responsibility does pay off Published: Tuesday 8 April 2003)
We just looked at why some people think that CSR is bad for a company, but this only one side of the story. The purpose of this part is to show that international companies can also profit from being socially responsible. The focus doesn’t always have to be on sales and profits. Companies with a high corporate responsibility score are everyone’s interest and have a higher value in society. It gives a company a better public image. Also pressure groups play an important role in encouraging companies to expand CSR efforts. But that is not all, it also turns out to be more profitable for the company. There is a growing body of empirical studies which demonstrate that CSR has a positive impact on business economic performance, and that it is not harmful to shareholder value. (Towards an understanding of Corporate Social Responsibility: http://www.indianngos.com/corporate/l&t/csr1.htm )
Organizations that are socially responsible have a better image. This is because financial and business performance is not the key to getting good brand equity. They are important factors because they provide information about the internal health of the company, but the real reputation of the company comes from the way it behaves in terms of its responsibilities as a citizen and from her interaction with the rest of the world. The following chart shows that as many as 56 % people believe that a company's attitude towards its employees, environment etc. are more important than its quality or financial performance. (toward an…)
Source: MORI, 1999
Another important factor are the already explained pressure groups. As the result of pressures from customers, suppliers, employees, communities, investors, activist organizations and other stakeholders, companies have been encouraged to adopt or expand CSR efforts. After all, the corporation is an important actor in modern democracies. Companies, with an apparent lack of accountability to stakeholders affected by corporate activities have sparked intense controversy. Campaigns by consumers, shareholders and protestors focusing on individual acts of corporate irresponsibility, and on an agenda of globalization and business liberalization perceived as being driven by corporations, have without doubt had discernible impacts. (Toward an …)
From a growing number of studies it also became clear that CSR is not only good for the public image of the company but that it also has a positive influence on their financial performance.
The recent study by the Institute of Business Ethics (IBE) “Does Business Ethics pay?” researched if companies that display a clear commitment to ethical conduct outperform companies that do not display this ethical conduct. To achieve this they compared CSR with financial performance measures over a period of four years. They took between 41 and 86 UK companies from the FTSE 350, for which full and comparable company data was available for the years 1997-2001. Then they were divided into two groups: those companies who have had codes of ethics/conduct/principles for five years or more and those who explicitly said they did not have them. After that seven indicators were chosen - four of corporate financial performance [Market Value Added, Economic Value Added, Price Earnings Ratio and Return on Capital Employed] - and three of corporate responsibility [having a code of ethics, ratings for managing socio/ethical risks and being cited consistently in the annual list of Britain's Most Admired Companies].
As a result of this research it turned out that there is a positive relationship between CSR and financial performance. Some of the results are:
· Regarding financial performance, from three of the four measures of corporate value used in the study (EVA, MVA and P/E ratio) it was found that those companies in the sample with a code of ethics had, over the period 1997-2001, out performed a similar sized group who said they did not have a code.
- Companies with a code of ethics generated significantly more economic added value (EVA) and market added value (MVA) in the years 1997 - 2000, than those without codes.
- Companies with a code of ethics experienced far less P/E volatility over a four year period, than those without them. This suggests that they may be a more secure investment in the longer term. Other research has suggested that a stable P/E ratio tends to attract capital at below average cost; having a code may be said to be a significant indicator of consistent management.
- The indicator that showed a different result pattern to the others was Return on Capital Employed. No discernible difference was found in ROCE between those with or without a code for 1997-98. However, from 1999 to 2001 there was a clear (approximately 50%) increase in the average return of those with codes while those without a code fell during this period.
· The data also indicates that in the years 1997-2001, those with an explicit commitment to doing business ethically have produced profit/turnover ratios at 18% higher than those without a similar commitment.
We can conclude from this that larger UK companies with codes of ethics almost invariably outperform companies that do not display ethical conduct.
(IBE: institute of business ethics: http://www.ibe.org.uk/DBEPsumm.htmSimon Webley and Elise More WEBLEY, S. and MORE, E. Does Business Ethics pay?,London, 2003.Executive Summary)
This is not the only study that provided a positive relation. Another example is the work “Added values” from Imagination and Governance Consultancy Lintstock (Londen 2004). They also conducted research regarding this topic. To do so the authors took over 1,000 publicly listed companies from a range of different countries. They compared the more than 200 listed companies that are on the S&P 1200 and that use sophisticated CSR reporting methods against the remaining companies that don't. The areas on which the companies where compared, were: share price volatility, five-year revenue growth and five-year operating profit margins. It turned out that GRI users enjoy lower share price volatility on average, and higher operating profit margins despite slower revenue growth.
(IR on the net: http://www.ironthenet.com/newsarticle.asp?articleID=3430)
To go on, a research based on the 100 Best Corporate Citizens shows that it does pay of to be social responsible. The overall financial performance of the 2001 list of the 100 Best firms was significantly better than the remaining companies in the S&P 500, according to an analysis by Elizabeth A. Murphy and Curtis C. Verschoor. For their research they used the Business Week's ranking of firms by financial performance (based on factors like sales growth, profit growth, and return on equity).It turned out that the mean ranking of the 100 Best was more than 10 percentile points higher than the other firms. The 100 Best Corporate Citizens also had a significantly better reputation among corporate directors, security analysts, and senior executives. This was based on the 2001 Fortune magazine survey of most admired companies. Again, we conclude that good citizenship really does pay off on the bottom line. (toward an …)
Main concussion of this overview: Organizations that are socially responsible have a better image, a better customer retention and are able to consistently perform better than others, which don't take social responsibility seriously.
Over the past decade, more and more companies have recognized that CSR can be beneficial for them. This experience is bolstered by a growing number of empirical studies who confirm that being socially responsible pays of. On top off that they are encouraged by pressure groups. As a result, CSR has grown dramatically in recent years, with companies of all sizes and sectors developing innovative strategies. What follows are some examples of positives steps that have been taken toward CSR.
(Towards an …)
In 1999 the UN challenged business leaders to join the Global Compact, an international initiative to advance ten universal principles in the areas of human rights, labour, the environment, and anti-corruption. The participants are required to communicate with their stakeholders on an annual basis about progress in implementing the Global Compact principles. As of May 2005, 2028 companies from over 80 countries have joined the Global Compact. ( “Communicating Progress on Implementing the UN Global Compact Principles.” Business and the Environment. Von XVI, No 7, July 2005.)
The Business Social Compliance Initiative (BSCI) is a program of European retail companies that was started by the Foreign Trade Association in 2002 to improve social performance in supplier countries trough uniform social standards. Their primary focus is not on the auditing process but on implementing recommended corrective actions and sustaining facility improvements. (“Think Locally; Act Globally: Developing common Codes of Conduct for International Supply Chains” Business and the Environment. Vol XVI, No. 9, sept. 2005)
The IT giants Hewlett-Packard, Dell and IBM were prompted to re-evaluate their CSR policies after an exposé about unsafe conditions at electronics manufacturing plants (January 2004). They collaborated whit other electronic manufacturers to develop a common electronic Industry (EI) Code of Conduct. This code was facilitated by Hewlett-Packard in October 2004 and covers labour and human rights, health and safety, environmental concerns, management systems, and ethics. (“Think Locally; Act Globally: Developing common Codes of Conduct for International Supply Chains” Business and the Environment. Vol XVI, No. 9, sept. 2005)
The Joint Initiative (Jo-In) on Corporate Accountability and Workers’ Rights is the first collaborative effort of the garment industry to clarify, simplify and unify supply chain EH&S and CSR standards. This spring, Adidas, Gap Inc., Gsus, Marks & Spencer, Nike, Otto Versand, Patagonia, and Puma signed on to the Jo-In as participants in a 30-month pilot project to test the implementation of a variety of conduct codes at garment factories in Turkey.(“Think Locally; Act Globally: Developing common Codes of Conduct for International Supply Chains” Business and the Environment. Vol XVI, No. 9, sept 2005 )
CSR Europe is a leading European business network for corporate social responsibility with over 60 leading multinational corporations as members. Since its inception in 1995 by the European Commission President Jacques Delors and leading European companies, the mission of CSR Europe has been to help companies integrate corporate social responsibility (CSR) into the way they do business. ( CSR Europe: http://www.csreurope.org/ )
The CSR Group is a consulting and communications firm that works with businesses and organizations to address issues of corporate social responsibility. They offer one-stop shopping for clients with diverse needs, utilizing a range of sophisticated tools and services, from stakeholder engagement to the development of complex strategies and management systems. Their services are delivered through a network of independent consultants and strategic partners. They serve clients from a diverse group of industries. Some examples of their clients are: Coca-Cola Africa Foundation, Capstone Turbine Inc., Electra Gold, Ltd, IBM Corporation, Taiwan International Medical Association, Ford Motor Company, Merck and Unilever.
(The CSR group: http://www.thecsrgroup.com/)
6 CSR and Cross Cultural Business Behaviour
6.1 National Differences and CSR
International business remains difficult even when companies decide to follow social or environmental objectives. For example, managers from different backgrounds have a different view on the same business issues. For managers in Hong Kong a survey (source) showed that taking credit for another person's work is the most unethical activity, whilst from Western managers the most unethical activity is bribing or acquiring competitor information. Despite globalization, when it comes to business, ethics issues between managers vary according their nationality.
One of the most popular ethical issue that is debated in international business is corruption. For example, the point of view of managers from one country where giving bribes to government officials is common and even sometimes is considered as a gift, vary widely from managers from another country where this is viewed as corruption. There are countries that have more tendencies for corruption, like Russia, where the tendency comes from its historical and polical factors. Also in countries like Nigeria and Indonesia corruption is a big issue, the German NGO Transparency International shows that these countries are ranked as the most corrupt countries in the world year after year and this by using their Corruption Perception Index. We can refer here to Schindler case with Silvio Napoli in India. From the moment he arrived he had to deal with bribery. Most of time this kind of bribery is normal and even necessary to get the things you need in time (Napoli case)
For these reasons, managers believe that business people should adapt to every country in where they are operating. When morality is relative to a particular culture or community this is called "cultural relativism”. Some managers believe that if paying a bribe is frequent in the host country, then they should follow the rules of this country. Not paying a bribe may damage business interests. For example, in the case of US, managers think that the Foreign Corrupt Practices Act of 1977; which prohibits
What cultural relativism suggests is that managers should not try to find morals in business but only follow the laws of the land where they are operating. For instance, an activist group in
6.2 Different definitions of CSR
Like we already mentioned, The World Business Council for Sustainable Development (WBCSD) defined CSR as
“The continuining commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society as a large.”
This definition of CSR was developed in 1998. In 2000 they analyzed the meaning of seven countries on this definition. This resulted into remarks because of local differences. We give these results and try to link them to specific cross cultural behaviour characteristics.
In Taiwan, it was suggested that the definition should include:
- Benefits for future generations (seen as a collectivist characteristic, as it there is a greater emphasis on caring for society than personal success)
- Environmental concerns (damage prevention and remediation characteristics, as they are cautious to the dangerous effects of business and development. There is also inner-orientation for the same reasons, as they do not want interfere with their environment)
In the
- Should include more emphasis on the role of the individual (individualism)
- Reflect the need for greater transparency (universalism)
- The term “economic development” does not adequately capture the breadth of the economic role of business in society.
In Ghana, people suggested that the definition should include:
- A global perspective which respects local culture (low-power distances, as there is a greater desire for more control over their affairs)
- Teaching employees skills and enabling communities to be self sufficient. Also try and empower people and give them more ownership (low-power distance as Ghanaians want more control over their affairs).
- Improving access to information (low-power distance)
- Building local capacity leaving a positive legacy (collectivist characteristics, as there is a greater emphasis on society)
- Filling-in when government falls short (low-power distance, collectivist)
- Partnerships, because CSR doesn’t develop in a vacuum. (collectivist)
In Thailand, people thought that it should include:
- The concept that the bigger the company, the greater the obligation. (high power distance, collectivism)
- The importance of environmental mitigation and prevention and the awareness of and change in people’s attitudes towards the environment (inner-orientation, as the environment is of great concern)
- The need for transparency (universalism)
- The importance of consumer protection (universalism)
- The relevance of youth and gender issues (particularism, as these groups would be given greater priority
In the
- determining the real needs of stakeholders
- defining ethical behaviour (universalism)
- partnerships
- a visionary and leading role
In
- all businesses, communities and stakeholders are responsible for sustainable development
- business should pursue high ethical standards both within their operations and within the broader community
In
- CSR should stress business commitment and sustainable economic development
- stakeholder participation was essential.
(Holme & Watts, Making Good Business Sense, WBCSD, 2000, p.9-10)
These elements prove that there is not just one right definition of corporate social responsibility but many.
6.3 Where is CSR considered important?
In same study by the WBCSD, they also analyse the importance of CSR on the business agenda. In Taiwan CSR was not high on the agenda. The companies consider getting a long-term commitment on CSR a task for the government. In the
Holme & Watts, Making Good Business Sense, WBCSD, 2000, p.9-10)
These are only a few country related views on CSR. In order to give a bigger picture of CSR in the world we constructed an extensive table of thirteen countries from four continents which you can find as an appendice. In this table we give for each country what CSR means, what the parties are that take initiatives in those countries and what the CSR topics in these countries are. Next to this description we give a country profile base on the book “Riding the Waves of Culture” of Trompenaars. We look at power distance, individualism index, masculinity-femininty and uncertainty avoidance. Some concussions that we can make are that countries with high individualism have better CSR practices. Also CSR tend to be better in most countries with low power distance.
Royal Dutch Shell is one of the largest multinational firms in the world. Despite of being such an important multinational company, its strategy had to change due to two events in 1995. This change was a result of actions of globally operating non-governmental organizations:
On
It is important to mention that Shell had a strongly support of The British government for its plans, but Greenpeace criticized Shell’s plan claiming that the Brent Spar contained harmful substances and advocated onshore disposal. Environmentalists are highly inner-orientated and feminist considering that it is very important to respect the environment around them, even at the expense of higher economic costs (which are more masculine traits). These groups tend to also be risk adverse and consider the need for greater rules and involvement to counterbalance the negative effects of business practices. As a result of failure to resolve this through legal matters demonstrators boarded the facility in the
After this crisis, Shell faced another criticism over its operations in the Ogoni area of
As a result of these two crises, Shell started a major transformation in the company. Sir Mark Moody Stuart; chairman of the committee of Managing Directors wrote:
“We have learned the hard way that we must listen, engage and respond to our stakeholders groups.” In 1996 Shell started its transformation. The first step was to initiate a project that it called “The Society's changing expectations project”, which was a sophisticated audit of the views of the company’s stakeholders. The second step was to go through The Shells group's statement of general business principles, which was revised to include statements in support of fundamental human rights and sustainable development. In order to complete its major transformation, Shells internal organization had to change too and Social Responsibility Committee was established at the highest corporate levels of the two parents companies. Another change was in the Company's strategies for expansion. Thanks to these transformations, nowadays Shell has become more outer oriented and an important global player in renewable energy. The company now owns wind farms and is involved in solar energy and hydrogen development.
Through the experience of Shell and the activist campaigns against this company there was a positive result, because this experience made managers of other companies to realize and re-evaluate the relationship between business and society. Some of the Shells mistakes in this both cases was to rely only on the British and Nigerian government and not to scan the wider external business environment for opportunities and threats. Shell's actions were legal, this is the reason why they though they were doing nothing wrong, but they didn’t take into account that new and important actors are emerging in the global business environment in order to re-evaluate company’s strategies.
These important actors are the NGO’s (Non-government organizations). As we have already mentioned NGO’s are groups whose purpose is the promotion of environmental and or social goals. These organizations don’t have economic interests and are considered politically independent from government. NGO’s are often multinational and operate in many different countries, with complex structures and modern techniques with their strategies often global in scope. For example, Greenpeace, the organization that started the protest against Shell in the
(Sources: Jedrzej George Frynas, Oil in Nigeria; Conflict with litigation between oil companies and Village Communities (Munster: LIT, 2000); Tony Rice and Paula Owen, Decommissining the Brent Spar (New York: Spon, 1999); Richard Boele and Heike Fabig “Shell, Nigeria and the Ogoni”).
Nike is another example of a company with corporate social irresponsibility. Examining the Nike case of child labour in
Tradition of child labour in
The per-capita income in
Nike soccer balls
Nike is known for making its equipment in countries which are in the developing phase. They usually have very cheap labour, an authoritarian government and a lack of human rights appeal and union movement. In doing this Nike succeeds in making great margins on the cost of their workers, whom they have to pay only a couple of cents.
But Nike does not launch its production directly into such a developing country like 
Result
But in June 1996 the game was over. In Life magazine appeared an article about child labour in
(Sources)
Van de Velde, a Belgian women underwear corporate takes corporate social responsibility seriously into consideration. More specifically, they aim to find a balance between the interests of various stakeholders and their economic aspects of business on the one hand and the social, ethical, and environmental aspects on the other. Van de Velde gives high priority to the social aspects of employment, ensuring that its employees are given opportunities to develop themselves and their careers and that the environment is not hampered as a result of the company's activities.
Because of their responsible behaviour, Van De Velde received a lot of positive media attention. It also holds the SA8000 label for its Belgian, Tunesian and Hungarian sites. Their Chinese site holds a so called WRAP label which is similar to SA8000. SA8000 stands for Social Accountability 8000. The internationally recognised label was issued by the US based Social Accountability International. Among other things, the lbel is based on conventions of the International Labour Organisation, the Universal Declaration of Human Rights and the UN Convention on the Rights of the Child. The standard was drawn up in consultation with NGOs, collective industrial organisations, industry and labelling bodies. The label was awarded after a comprehensive social audit by the Swiss company SGS. The label guarantees the application of ethical values throughout the whole production chain and protects minimum working standards in the manufacture of a product or the provision of a service.
The main elements that are revised in the social audit are:
- no child labour,
- no forced labour,
- health and safety in the working environment,
- freedom of association and the right to collective bargaining,
- no discrimination, no disciplinary measures,
- respect for maximum working hours, respect for maximum working hours, monitoring of management systems
Van de Velde is conscious of its social role. This is expressed in a sustainable enterprise policy and has also resulted in a number of commitments undertaken by its directors (sources)
Corporate social reasonability in business is becoming more and more important for international companies. For many years corporate branding and internationalism has increased companies’ profits without too much scrutiny. However, there is a trend for larger companies to hold greater responsibilities, particularly as many feel that contemporary governments hold less influence in their daily affairs. This is partly to do with NGOs and the Internet helping to make consumers more aware and demanding of what they expect from companies when they purchase something. NGOs have filled the vacuum of governments’ perceived inability to interfere in global trading standards and most businesses unwillingness to change the status quo. As a result it has fallen on NGOs and consumers to be the arbiters of companies’ ethics and hold up a mirror to companies’ practices companies, such as Nike and Shell who were forced to reform their practices or face smaller profits as a result of negative publicity in the 1990s.
However, we must remember that there is no uniform definition to corporate social responsibility. Cultural factors and economic and political factors put different pressures on every country. Social irresponsibility occurs everywhere and on different levels. However, it has become easier to measure larger scale levels of irresponsibility with the increase in internationalism. The clash of cultures and economic and political priorities from global trade has resulted in new questions for companies, governments, civil society and consumers. However, the differing priorities from the world’s communities mean that there will be many answers, something which NGOs as well as businesses need to be aware of.
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