The thesis I wish to present as an interpretative proposal on the relationship ...
Corporate Social Responsibility (CSR) represents a step forward in the ethical.
Corporate Social Responsibility and Business Ethics An Interpretative Proposal
José Luis Fernández Fernández Javier Benjumea Chair of Ethics for Business and Economics Universidad Pontificia Comillas (Madrid)
1. Ethics, Social Responsibility and Business Model A new phantom seems to be haunting the business scene hand in hand with economic globalisation, namely the phenomenon of Corporate Social Responsibility (CSR). And while this phenomenon is being analysed and interpreted in a host of different ways (a number of them overtly critical and controversial) a three-fold reality is also revealed that is of great interest to the careful observer and concerns how the debate is growing and generating a far from ingenious state of opinion thanks to the mass media; how, in parallel, many companies (albeit it for different reasons and motives) are attempting to respond to this new climate and the demands it brings; finally, how measures and precautions are being taken at an institutional level, be it stemming from individual initiatives or the political will shown by governments and public administrations. The discipline of Business Ethics (BE) itself has grown rapidly over the last twenty or thirty years and not just at an academic level but also, and this is important to emphasize here, in the area of the management of companies and organisations. The recent accounting scandals and the much-talked-about cases of bad governance over the last few years have focused attention back onto the significance of the moral dimension of economic activity and the ethical imperative in business management, that is to say whether we really bet on strategies that go beyond obtaining the maximum profits in the short term in a bid to ensure the sustainable development of the system as a whole in the long term. The thesis I wish to present as an interpretative proposal on the relationship between Business Ethics (BE) and Corporate Social Responsibility (CSR) can be described in the following terms: 1st.- Corporate Social Responsibility (CSR) represents a step forward in the ethical process towards the never fully realized teleological business perfection, the utopian and never-ending search for excellence, which is substantiated, among other things, by optimizing -better than maximising- economic gains; restructuring in order to enhance organisational efficiency; delivering more and better value for society as a whole; developing human capital and contributing to the creation of a more human, just and supportive society. 2nd.- As the business model that corresponds to the paradigm of “normal” science it is still not very receptive to these new realities, there is a pressing need for a review in
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order to create a new scenario in which CSR and BE constitute an essential part of business strategy. That, in parallel, represents the key to understanding the raison d’ être of any company that wishes to be successful and competitive as well as enjoy the necessary social legitimisation, acting in the role of co-protagonist.
2. A new playing field The world has undergone far-reaching change affecting all the main areas of human life in society (political, cultural, social, religious, ecological and, of course, especially economic too). This can be seen as the result of the development of communication and information technologies, the widespread implementation of liberalisation policies during the eighties and especially the aftermath of the collapse of the Communist regimes in the nineties. Although things had already taken this new course at the beginning of the seventies, following the first oil crisis, there is no doubt about the fact that the abovementioned factors accelerated such process and led to the current global economic climate, where the way in which business is done (as well as the composition and management of companies) is “new” or dramatically different from that we have known up to now. This new situation is not only different the previous one but also inevitable (despite the controversy and protests that could be voiced in many quarters). Moreover, it sheds light on business and discloses grey areas both at the same time: an ambivalence that lies in the hitherto undreamed of opportunities and vistas of progress coupled with equally formidable risks. We are faced with economic risks, for instance the exploitation and greater dependency of poor countries; environmental ones such as pollution, waste of energy resources, greenhouse effect, damage to the ozone layer; cultural ones typified by undesired homogenisation and the imposition of external models; as well as important social risks such as the inequality gap broadening even further, including in advanced countries. Thus, the main course of action open to us is to adopt a critical and proactive approach to the phenomenon, in order to try to leverage the opportunities, overcoming the obstacles and dealing with the certain dangers that face us should we fail to act together with the necessary care and with a sense of responsibility. If all of us (individuals, governments, the civil society and, of course, companies) fail to act and do so according to the following: first, according to our means, our share of power and our margin of manoeuvre; second, in proportion to our specific responsibilities and third, with the firm conviction fuelled by the sense of hope and moral force we are capable of summoning to our aid. In this respect we can observe a shift in attitudes and values in public opinion as people become more aware of issues such as ecological problems or the social impact of business activity, discriminatory employment practices, underdevelopment, the violation of human rights. Such changes place pressure on companies and the environment companies compete in is transformed as a result, especially in the following areas: increased regulatory pressure, change in consumer market demand guidelines and reassessment of the investment criteria in the financial markets. As an upshot of this process companies gradually seek to integrate, not without difficulty, CSR requirements into their strategies, policies and everyday practices. Nonetheless,
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while this new awareness is still around, it will be hard to stop the phenomenon of CSR from moving forward. And as it seems that citizens in advanced countries are increasingly demanding, we could say, without risk of contradiction, that CSR is here to stay; hence it should not be treated as just another sign of the times or fashion but as a new competitive weapon, a challenge for innovation, a call for companies and other organisations in civil society to design robust strategies. Nonetheless, when it comes to defining what Corporate Social Responsibility means we are bound to come across different levels of maturity as regards motives and level of commitment from the various companies. However, this can all have a positive impact, especially in adverse conditions, albeit some ideas lack sufficient depth to warrant longterm survival. It is reasonable to expect that for some companies Social Responsibility practices represent little more than a marketing ploy (without judging the motives involved). Nevertheless there is no reason to believe that all companies are motivated by such narrow reasons. Many (albeit based on pure egotism) strive to be alert and grease the organisational machinery well in order to react properly and deal with the potential new demands or questions put to them by society. Other clearly more proactive companies, and arguably more concerned about laying a stable foundation on which to grow, will seek to win the trust of society and make a strong reputation for themselves by integrating Social Responsibility into their strategies, policies and day-to-day business practices. Although we should not belittle any advance in this respect, there is no doubt that those companies that depend on more robust criteria, as described in the last instance, are the best. Notwithstanding we should never overlook the obvious, namely that the first and most direct way that a company exercises its Social Responsibility is by being a more profitable and –real- better company (a creator and distributor of value and economic wealth, creator of jobs, provider of goods and services). This is the hardcore of business and it is the most genuine exponent of a company’s contribution to society and the common good.
3. The Institutional Framework of Corporate Social Responsibility Although some would subscribe to Milton Friedman’s thesis that a company’s sole social responsibility is to make as much money as possible, thereby maximising the financial value for the owners and shareholders, providing that it always plays by the rules, all the signs suggest that in the capitalism of today (influenced by globalisation and communication and information technologies) this is no longer going to be enough. And this is especially true because consumers and even private and institutional investors are simply not going to allow it. On the one hand, they are much more and better informed about the modus operandi of companies; and on the other, they have gained more power and are beginning to make vigorously new demand, that cannot be overlooked by companies (both large and small) without incurring a serious risk in the medium term as regards the viability of the business itself. In my opinion, the proposals and initiatives worthy of note that are described in this section on “the institutional framework of CSR” stem, at least in part, in a good way, from this new sensibility.
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3.1. The Caux Round Table Principles for Business The Caux Round Table (CRT) was founded in 1986 with a view to reducing the tensions in international trade, promote constructive economic and social relations among member countries and identify the role that companies should play to promote peace and international stability. The CRT principles for business are rooted in two basic ethical ideals which come from two different cultural traditions: the Japanese concept of “kyosei” which means “living and working together for the common good” and the call for “human dignity” which has a Western Christian complexion. The following principles are developed based on these two values: 1. The responsibility of companies: above and beyond the shareholders towards all those involved in their business. 2. The social and economic impact of companies: towards innovation, fairness and a global community. 3. The conduct of companies: above and beyond legal requirements, towards a sense of trust. 4. Respect for legality. 5. Support for multilateral trade. 6. Respect for the environment. 7. Prevention of illegal operations. These principles are proposed as guidelines for companies to develop, compare, test and assess their own principles and implement them on a daily basis. 3.2. OECD Guidelines for Multinational Companies Back in 1976, the Organisation for Economic Cooperation and Development (OECD) first issued its guidelines for multinational companies. However, a sweeping revision was performed in the year 2000 in the light of the needs of the new global economy. The revised set of guidelines established a firm foundation and put forward clear values on which operations could be based. Although these guidelines are legally non-binding and do not replace legislation of any nature, they do send an important message to multinational companies inasmuch as they represent recommendations from the thirtythree governments that make up the OECD. The guidelines can be summarised as follows: 1. They represent principles and responsible business conduct standards of voluntary use, in all cases compatible with legal imperatives. 2. Companies are advised to respect the laws of the countries where they operate and take into account multi-stakeholder interests. 3. Companies should supply appropriate, regular and reliable information pertaining to their operations, structure, management and financial situation. 4. Companies should respect the workers’ rights. 5. They should take into account the need to protect the environment, public health and safety, seeking to ensure sustainable development. 6. Corruption in any shape or form should be eradicated from their practices. 7. They should safeguard the interests of consumers. 8. They should carry out technological transfer and foster training, research and development. 9. Competition should be fair and restrictive practices should be avoided in this respect. 10. They should make a fair contribution by fulfilling their taxation obligations. 3.3. The Global Reporting Initiative The Global Reporting Initiative was set up in 1997, through the Coalition for Environmentally Responsible Economies (CERES). From 2002 onwards it became an
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independent institution, an official collaborator in the UN Environment Programme (UNEP) and one of the centres that cooperates within the framework of the United Nations Global Compact described below. The Global Reporting Initiative defines itself as “a multi-stakeholder institutional process” whose mission is to develop and disseminate universally applicable directives on sustainability reporting of voluntary use. Companies can elect to follow these guidelines when reporting on economic, social and environment aspects of their activities, products and services to the general public. The Global Reporting Initiative involves the active participation of representatives from the world of business and finance, as well as representatives from ecological, human rights and workers organisations and from research centres from all over the world.
3. 4. The United Nations Global Compact The UN Secretary General, Kofi Annan, proposed setting up an international corporate citizenship network called Global Compact in January 1999 and it was launched in New York on 26 July 2000. This initiative involves a network between companies, governments, civil society and the UN itself, centred on ten principles of voluntary observance, divided into four categories: Human Rights, Labour (freedom of association, abolition of compulsory labour and child labour, the elimination of discrimination), Environment (environmental responsibility) and Anti-corruption. The Compact aims to raise awareness among companies and encourage them to integrate the aforementioned principles into their strategies and operations thereby making them agents who can contribute to solving problems and facing the challenges posed by globalisation in the framework of an inclusive and sustainable economy. 3.5. A European Union CSR Policy Proposal The Lisbon Summit in the year 2000 placed a strategic objective of profound importance and broad economic and social significance on the Commission’s agenda: making the European Union into the most competitive, dynamic and cohesive knowledge-based economy in the world by 2010, with sustainable growth providing the foundation for more and better jobs and greater social cohesion. The most important landmarks since this date are shown in the table below: Lisbon Summit
2000
Nice Summit
2000
Guttenberg Summit
2001
Publication of the Green Paper
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Publication of “CSR: A Business Contribution to Sustainable Development” The European Multi-Stakeholder
2002 2002
Growth strategy, competitiveness and social cohesion by 2010 with special call to companies Social policy agenda: reference to the importance of CSR to meet the challenges posed by the new economy Sustainable development strategy Start of the European debate about CSR Definition of basic concepts Summary of the debate generated by the Green Paper First definition of the direction of the CSR strategy: transparency and convergence Extensive debate among all the agents
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CSR Forum
2004
Relaunch of the Lisbon agenda
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Definitive confirmation of the principle of voluntary basis of CSR Role of the EU, limited to guaranteeing an “enabling environment” Revamping the strategy Concentration on “Growth and employment” New guidelines for companies
We can observe two key elements in the EU approach to CSR policies and the debate surrounding this issue, namely the themes of regulation and convergence. On the first theme it is worth noting that the Commission opted for the middle ground of self-regulation and incentives. Although this does not prevent member states from adopting more specific legislative measures, providing they are aimed at achieving the goals on the CSR agenda, that is to say, to obligate, facilitate, collaborate and promote. These national differences with regard to public policy models represent the second major aspect of CSR in Europe. Although we do not seek to classify countries in a rigid sense, we can identify different approaches and outlooks placing the emphasis on the issues that show the individual characteristics of the various countries. In some member states the aspect of partnership is highlighted (Denmark, Finland, Sweden, the Netherlands); in others (Ireland, the United Kingdom), companies’ involvement in the community is more important; whereas issues concerning Corporate Citizenship and the search for sustainable development are stressed in Belgium, Luxembourg, Austria and Germany. Finally Italy, Greece, Portugal and Spain are currently engaged in the multistakeholder public debate and in the development process of CSR policies.
4. The emergence of a new business model In the light of the debate surrounding social responsibility, it is increasingly obvious that in this global economy it is not just products and services that are competing. Business models, visions and the understanding of management as whole are also engaging in open competition. The business model that seems to be on the horizon is that of an organisation that still has to be willing to realize its economic-financial goals in an increasingly complex and turbulent environment that grows more dynamic and competitive every day. A company strategically led in its search to deliver value and create wealth from the point of view of long-term management, in the search for sustainable development. In short, a company capable of tapping into the new social sensibilities, which knows how to manage nontangible assets in the right way as they are very likely to be more and more decisive in gaining the much sought after good corporate reputation and the absolutely essential social legitimisation. A new company, as described above, is going to need people with skills, management styles and leadership and with slightly different sensibilities than those that have made up the traditional profile of directors and managers, due to its very complexity and the host of reticulate connections that will have to be set up and managed in the future. Notwithstanding the main distinguishing characteristics of the emerging business model can be adumbrated as follows:
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1. Extended concept of the company base, in which the various stakeholders are identified and treated fairly; 2. Compliance with the law and readiness to go above and beyond legal requirements; 3. Strategic and overall vision of social responsibility of the Company; 4. Based on open, frank and transparent dialogue with all the interlocutors concerned; 5. Using the demanding Triple Bottom Line as the touchstone for assessing performance (in other words the way in which a company operates and is managed) and which involves reporting to stakeholders on the economic results (annual accounts, financial situation, management reports) together with the social achievements and environmental impacts during the financial year. 6. Search for sustainable profitability over time, as opposed to strategies focused exclusively on the short term; 7. With special attention paid to good Corporate Governance; 8. Seeking to realize the goal of “Corporate Citizenship” directed by the Common Good; 9. Based firmly on Ethics and the moral dimension of the company; 10. Locating individual persons in the central axis of the company.
5. Corporate Social Responsibility and Business Ethics: Scope and Connections The disciplines most directly related to the current CSR movement can be found first in the fields of Business Sciences and Business Administration and Management, second in Communication Sciences and third in approaches made from the disciplines of Philosophy, Sociology and the Humanities. However, Business Ethics is the area that has the most to offer in terms of making CSR more vigorous and obtaining more meaningful results in the future as regards scientific research and critical analysis that could be applied to CSR practice. For this reason, I believe it is useful to indicate how I think that convergence between Business Ethics and CSR has taken place; how interesting synergies can be expected from convergence and the mutual impact of both realities; and to what extent the two elements differ or are interrelated. Traditionally, when Faculties of Philosophy or other similar institutions talked about Ethics, they did so by either referring to the micro level of individual Ethics or the macro, more global level of economic, social or political Ethics. Those of us who studied in the seventies in such faculties have been trained in this intellectual climate and based on the assumptions implicit in this scheme it is possible to interpret many of the realities which we have had the opportunity to witness up to the present day. Thus, given that the world was divided into two separate models of society, politics and the economy, and that frameworks of relationships and appropriate mediations between the individual and the System seemed to lacking; what happened 7
was that, on the one hand, either ideological discourses were formulated that were unfeasible when it came to practical application, -regardless of the radical or revolutionary bias they betrayed-; or on the other, there was a withdrawal towards postmodern, fragmentary moral proposals, spawned by discontent and seeking anchorage in the subjective pole of reality, whose goals were aspects that relinquished any claim to being major objectives of social change. It is in this academic context (ethica docens), to which –by the way- a lived moral experience pertains, that concern for applied ethics (ethica utens) begins to gain ground (Professional Ethics, Bioethics etc., and most particularly, when Business Ethics burst onto to the scene). Although initially its focus was highly pragmatic (problem solving, management tool), it has forged the way to hitherto uncharted terrain: the ethics of organisations, reconciling the actions of individuals within the system. Ethics that go beyond a rushed extrapolation of which could be understood as necessary or advisable as regards the good conduct of the individual. And that do not simply continue down the same road as the more or less vacuous discourse of the Systems Ethics. Finding the locus, the focus or the special acribeya for the discipline in the shape it could take in the future was not an easy task. In fact, there was a serious risk of returning to conceptual vacuity, to the domain of long words bereft of theoretical rigour, critical insight and any real application in operational praxis. Fortunately the current CSR movement, stemming from an array of contexts, accommodated in different ways, has served as the practical realization of the way in which the meso level that the company represents in society can and should contribute to both improving the system (now in the singular, feliciter regnante, in a global world) and humanising the world. This means finding the right coordinates for the CSR movement, which, as suggested above, then requires modifying the paradigm of understanding what a company is about, seeing it as a co-protagonist and as jointly responsible for the construction of a more just society. Business Ethics, above and beyond an empirical description of experiences and business cases, could serve the cause of CSR thanks to the methodological rigour and critical insights it offers. That said, we should clarify that Business Ethics and CSR issues are not interchangeable products at this juncture. But the borders dividing them are very sketchy. While to a certain extent Business Ethics has stimulated CSR in companies as regards social aspects, the CSR movement also makes a useful contribution to Business Ethics and gives it a push as regards common sense and operational possibilities to implement ethical goals. The ethical option underlies this process and it has three main complementary branches: the principle of institutional legitimacy, according to which, if the company systematically disappoints the expectations that society generates it could stand to lose the support of the latter; the principle of organisational responsibility, which underlines the fact that each company has to be answerable to society for the negative impacts that its actions could have on the environment, in a broad sense; and finally, which I will call here principle of professionalism and leadership of the directors. This last principle is becoming pivotal in Corporate Social Responsibility, as it serves to highlight the fact
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that behind any decision-making process there are always margins of freedom, which require moral reflection and choice based on specific ethical values.
6. Conclusion I suggest that the following interpretative proposals could help us to get closer to the heart of the matter in the case of CSR: 1. Concern for Corporate Social Responsibility is now on the agenda of many directors of a large number of companies. 2. The reason for this is not clear. And as it is never wise to judge intentions, as such judgements tend to reflect a subjective viewpoint rather than an objective diagnostic of a reality, thus an empirical research process (based on verifiable data that can shed some light on the interpretation of the process) would seem to suggest itself in order to guarantee an appropriate level of academic rigour. 3. Notwithstanding the above mentioned concern for Corporate Social Responsibility poses a major challenge, as it represents a more complex way of administering and managing companies and organisations, from which new demands emerge: transparency, multi-stakeholder dialogue, Triple Bottom Line. 4. However concern for what are seen as the distinguishing characteristics of Corporate Social Responsibility and good governance, may help to create a good corporate reputation, but it fails to guarantee ethically correct business performance. The Enron scandal is a case in point, as the company was highly praised for its performance in the field of Corporate Social Responsibility but good press over a number of years for “good citizenship”, of course, did not prevent the disastrous end from becoming public knowledge all over the world, painful as it is to recall. It also left a trail of cynicism, huge losses, bankruptcy and moral misery, not to mention the thousands of job losses and several jail sentences to boot. All because of a clear lack of ethics in the company management. 5. Hence it is not advisable to confuse Corporate Social Responsibility and Business Ethics, as clearly they are not synonymous. They belong to contiguous semantic fields, often tangential, but they are not interchangeable. 6. Corporate Social Responsibility is evidently a point of departure or rather a stop on route but not a destination; it is a way give the system a push to stimulate it to reach higher goals. It could provide the stable ground from which to advance the search for excellence and good economic and moral practice by companies. It could be interpreted, nevertheless, as a prerequisite, as a condition of possibility, as necessary but not sufficient, as something in the absence of which it is very difficult to act ethically or at least, more subtly, to stuff ethics into the insides of the company, into the DNA of the company, and into the daily business of the same. 7. It is, however, an advance we should welcome in the spirit of hope in the common task of building a more prosperous society and a more habitable world. And this in itself is good and highly laudable.
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