Corporate Social Responsibility

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3 Corporate Social Responsibility Dr Simeon Wanyama

Introduction Corporate Social Responsibility (CSR) is a concept that is under a lot of discussion. Various terms are used to describe this subject. These include: corporate citizenship, responsible business, sustainable responsible business, corporate social performance, corporate social entrepreneurship, corporate moral responsibility, socially responsible investing, corporate social investment, social entrepreneurship and corporate or business sustainability. Each of these terms brings out various aspects of CSR which complement one another. What is important is that firms should be involved with the community irrespective of the term used to describe CSR. This community mainly comprises external stakeholders. Internal CSR is normally termed people-management and care. The type of involvement depends on the firm’s understanding of CSR and the philosophy and values of the management of the various firms, as well as the circumstances in which those firms operate. CSR is inextricably linked to corporate governance and the way it is perceived by the specific company under consideration.


Corporate Social Responsibility


Definition of Corporate Social Responsibility Many definitions have been advanced to describe CSR. Here below is a sample of some of the definitions: CSR is ‘a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.’32

The Commission emphasised that businesses cannot have sustainable development without acting in a socially responsible manner. The Commission reaffirmed this definition in 2006 and in 2008 and stressed that CSR was to be perceived as a business contribution to the growth and jobs strategy of the European Union in its attempt to have sustainable development as reflected in The European Competitive Report of 2008. The Business for Social Responsibility defined CSR as operating a business in a manner that meets or exceeds the ethical, legal, commercial and public expectations that society has of business while the World Business Council for Sustainable Development defined it as ‘… 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.’ Bowen had earlier on in 1953 referred to CSR as the obligation ‘to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society.’33 Patricia Hewitt (US Secretary of State for Trade and Industry from 2001 to 2005) brought out this aspect of values when she stated that: ‘Corporate social responsibility is above all a matter of the values, culture and leadership of business.’ It is seen as an initiative 32

Commission of the European Communities (2001), Green Paper: Promoting a European Framework for Corporate Social Responsibility. Brussels, 18.7.2001 COM(2001) 366 final. (accessed 20th August 2013) 33 Isabelle Maignan and O.C Ferrell, ‘Corporate Social Responsibility and Marketing: An Integrative Framework,’ Journal of the Academy of Marketing Science 32 (2004): 3-19 at 4.


Corporate Governance in Uganda

undertaken by a company voluntarily as a contribution to the quality of life of both internal and external stakeholders of the company. The voluntary aspect does not exclude those areas where there are specific laws or regulations which subject companies to certain standards in order to preserve and foster the quality of life of the stakeholders. It is important to note that the components of CSR include economic, legal, ethical, social and environmental issues based upon the values of the company and the expectations of the society in which a company operates. The values of the company are largely influenced by the values of the founder(s) of the company and of its current senior management as well as the values of the community in which the company operates. This chapter will adopt a modified version of the definition given by the European Commission by describing CSR as: A concept whereby companies integrate economic, legal, ethical, social, cultural and environmental concerns in their business operations and in their interaction with their internal and external stakeholders either on a voluntary basis or in conformity with applicable laws, regulations and values in the community in which they operate.

Justification for Corporate Social Responsibility (CSR) The major justification for CSR is that the firm is a legal person who is a corporate citizen of a given society. Firms generally have more resources at their disposal than the ordinary citizens. These may be in the form of expertise, financial position and other resources which can be used to contribute to a better world. CSR arises from the rights and obligations of the firm as a citizen of society. This was recognised by US Supreme Court Justice Louis Brandeis in 1932 when he argued that, ‘The priviledge of engaging in such commerce in corporate form is one which the state may confer or may withhold as it sees fit.’34 Brandeis stressed that states should make sure that the privilege of the corporate structure was conferred only in those cases where it was 34

Robert A.G. Monks and Nell Minow, ‘Corporate Governance,’ (Oxford: Blackwell Publishing, 2001), p.7.

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consistent with public policy and welfare. These views provide a basis for considering the corporation as a citizen of the state in which it operates; it is a legal person operating in a community, having its own rights, priviledges and responsibilities. Like any other citizen, the corporation is expected to act in a socially responsible manner that complies with the norms of the society in which it operates. It is also important to note that the ethical values held by society, and most especially by the participants in the governance of companies, are likely to influence the way those participants exercise their duties, including their social responsibility. Like any other person, the firm will have its own philosophy and core values which guide it. These values go beyond the legal and regulatory requirements which are considered to be the minimum standards to be adhered to by all companies. The philosophy and values may reflect those of the owners and/or senior management of the company. These values will be the basis for concern for the ethical consequences of the company’s acts as they might affect the interests of other stakeholders. These values may guide the company in the responsible use of the economic, natural and human resources to ensure sustainability of those resources and to make sure that no harm is inflicted to humans and the natural environment. CSR is practiced in the context of the stakeholder theory which extends the scope of the corporate governance notion beyond the relationship between management and shareholders, to include other relevant parties that have an interest in the operations of corporations. The theory is premised on the concept of a company being a legal or artificial person that operates in a community, and on the view that ‘there should be some explicit recognition of the well being of other groups having a long-term association with the firm–and therefore an interest, or stake, in its long-term success.’35 Based upon this assumption, Letza et al., present the following description of corporate governance from a stakeholder perspective: 35

Kevin Keasey, Steve Thompson and Mike Wright, eds., ‘Corporate Governance: Economic, Management and Financial Issues,’ Oxford: (Oxford University Press, 1997).


Corporate Governance in Uganda In general, corporate governance is about the understanding and institutional arrangements for relationships among various economic actors and corporate participants who may have direct or indirect interests in a corporation, such as shareholders, directors/ managers, employees, creditors, suppliers, customers, local communities, government, and the public.36

This understanding of corporate governance assumes that there are long-term contracts and trust relationships between companies and stakeholders and highlights the role of business ethics in relating to stakeholders.37 To this end, the Code of Corporate Governance developed for South Eastern Europe in 2003 states that protecting stakeholder rights and developing value-enhancing relations with stakeholders is now widely accepted as being linked to performance, thus conforming to the pursuance of shareholders’ benefits. Followers of the stakeholder view may also link their CSR activities to social and development plans of the country and the goals and aspirations of people among whom they operate as part of their contribution to meeting the goals of the community in which they operate. The King III Code of Corporate Governance for South Africa recommends a stakeholder inclusive model and requires companies to adopt an integrated approach in their reporting on: how a company has, both positively and negatively, impacted on the economic life of the community in which it op erated during the year under review; and how the company intends to enhance those positive aspects and eradicate or ameliorate the negative aspects in the year ahead. This is contained in Section 9 of the Introduction and Background to the report under ‘Integrated Reporting.’ Section 6 of King III affirms this by stating that ‘the company is integral to society, particularly as a creator of wealth and employment.’ The same section further states that ‘Surveys have shown that while the first priority of stakeholders of a company is the quality of the company’s products or services, the second priority is the trust and confidence that the stakeholders 36

Steve Letza, Sun Xiuping and James Kirkbride, ‘Shareholding versus Stakeholding: A Critical Review of Corporate Governance’ in Corporate Governance: An International Review, Vol. 12, No. 3 (2004), pp. 134-43. 37 Ibid.

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have in the company.’ King III categorically states that companies should not ignore the legitimate interests and expectations of the stakeholders. Section 8 of King III highlights the fact that one of the key aspects of its report is ‘the concept of corporate citizenship which flows from the fact that the company is a person and should operate in a sustainable manner.’ This is further stressed in Section 9 under sustainability as follows: Because the company is so integral to society, it is considered as much a citizen of the country as is a natural person who has citizenship. It is expected that the company will be and will be seen to be a responsible citizen. This involves social, environmental and economic issues–the triple context in which companies in fact operate.

Currently there is a tendency among some thinkers to approach CSR from the perspective of ‘shared values.’ As corporate citizens of society, companies share a lot with the community. This includes the natural or ecological environment, the natural resources, concerns about the sustainable use of natural resources so that future generations are not deprived of those resources, the going concern of companies and the provision of products and services to the community, employment for the community and the development of the community which provides a market for the products and services of those companies. There is, therefore, a lot at stake for both companies and the community. CSR goes a long way to reassure the community that companies consider themselves to be part of the community and are concerned about matters that affect the community and its economic and social development. CSR may also be a strategic tool for the long-term sustainability of the company as it would be perceived as a socially responsible citizen that cares about the wellbeing of the community in which it operates. This essentially gives the company a license to operate in a given community. This particularly applies to companies that are involved in community development projects and the provision of products and services which are in line with the aspirations of the


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community. Such a relationship is likely to encourage the community to do more business with the company and to be supportive of the business activities of the firm. The fact that companies create jobs and recruit members of the society where they operate also makes them desirable citizens of the community. Job creation is an aspect of CSR. The Head of Corporate Affairs of Standard Chartered Bank Uganda had this to say about CSR: Corporate Social Responsibility is deeply embedded in Standard Chartered Bank’s every day operations. It is something our management, staff and customers are passionate about. It is of paramount importance for companies to behave responsibly especially for the business continuity in the long term. There is no company that can work in isolation from the community in which it operates. I personally believe that all managers should understand and learn to manage both the internal and external organisational environment as this is critical to the operations of every business.38

Some corporations that participate in CSR may have selfish motives such as improving or promoting the company’s image or profile and improving customer relations while others are genuinely interested in participating in the well being and development of the community in which they operate as good citizens. Whatever the case may be, it is assumed that corporate social responsibility will benefit some individuals in society. There may be additional benefits to the companies as the morale of their staff might be boosted when they are identified with a company that is socially responsible. The company and its staff might take pleasure in giving back to society which contributes to the achievement of its goals and objectives. Supporting the local community can, therefore, be mutually beneficial. In fact, some companies encourage their staff to undertake voluntary work for charities and other groups. Others encourage staff to contribute financially to such causes by topping up or giving an amount 38

This was in an email that Mr Herbert Zaake, Head of Corporate Affairs of Standard Chartered Bank sent to me on 24th March 2012. Mr Zaake was the Acting Managing Director at the time that he wrote to me.

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proportionate to what their employees donate to charitable causes. Pricewaterhouse Coopers accounting firm is such an example in Uganda.

Arguments against Corporate Social Responsibility The main case against CSR is based upon Milton Friedman’s argument that a corporation’s purpose is to maximise returns to its shareholders and not to have social responsibilities to society as a whole. Friedman stated the following regarding corporate social responsibility in his article that he published in The New York Times Magazine: When I hear businessmen speak eloquently about the ‘social responsibilities of business in a free enterprise system,’ I am reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his life. The businessmen believe that they are defending free enterprise when they declaim that business is not concerned ‘merely’ with profit but also with promoting desirable ‘social’ ends; that business has a ‘social conscience’ and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers. In fact they are or would be if they or anyone else took them seriously preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.39

Friedman believed that only people could have responsibilities and that a corporation could only have ‘artificial responsibilities’ since it was an ‘artificial person.’ His strong view was that ‘business’ as a whole could not be said to have responsibilities. He argued that corporate executives were agents of the owners of the companies and that the responsibility of these agents was to conduct the business in accordance with the desires of the owners of the company, which generally would be to make as much money as possible while conforming to the basic 39

Milton Friedman, ‘The Social Responsibility of Business is to Increase its Profits,’ in The New York Times Magazine (September 13, 1970).


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rules of the society, both those embodied in law and those embodied in ethical custom. In his view, corporate social responsibility would imply that the agents were spending the money of the owners of the company, rather than their own, and that this would reduce the returns to the shareholders. He also argued that CSR could imply raising prices charged to customers and that this would mean spending the money of the customers. It could also mean paying employees lower salaries than they would otherwise get in order to meet the demands of CSR. Company executives would, therefore, not be acting in the best interests of the shareholders, the customers and the employees. He preferred the shareholders, customers and employees themselves to choose whether to participate in CSR directly or not and that the agents should not make these decisions for them. It was, therefore, not the responsibility of companies to be engaged in CSR. The corporate executives’ primary responsibility was to shareholders as enshrined in company laws worldwide. Opponents of CSR argue that there is no law that requires companies to exercise CSR except in cases where rights of other stakeholders are protected by law. All that a company needs to do, in their view, is to maximise the returns of the shareholders and to operate within the laws of a given country. Accountability, in this case, is limited to shareholders and management’s decisions are limited to the interests of the providers of capital. Management is not required to take into account the effects of their corporate decisions on the interests of other parties (Keasey et al., 1997) unless required to do so by law or regulation. CSR is considered to be the role of Government and not firms. Government can promote a better world by enacting appropriate laws and regulations to govern the conduct of companies so that they act in a socially responsible manner rather than leave it to companies to do so on a voluntary basis. Governments can also tax companies and carry out various activities that are in line with the strategic and developmental plans of the country. Some individuals doubt the motives of some of the companies which claim to be involved in CSR and look at it as mere advertisement or even superficial window-dressing as can be seen from the photo

Corporate Social Responsibility


opportunities and publicity accompanying such activities in the press so as to enhance their reputation as being caring and responsible citizens who are concerned about the needs of society. It has been postulated that some of the firms that publish CSR reports do so in order to cover up some of the unethical or harmful practices that their core operations are involved in. Such companies would be acting in a hypocritical manner. Some companies may use CSR as a strategic tactic to be accepted by the public in certain markets and to advertise themselves. There are those who even argue that CSR distracts companies from their fundamental economic role of maximising the wealth of shareholders and that consideration of ethical or moral issues can be expensive and is likely to interfere with the objective of maximising the wealth of shareholders.

Types of Corporate Social Responsibility This section looks at the different forms of CSR and how Ugandan companies are participating in CSR based upon the following categories:

Corporate Philanthropy Corporate philanthropy can take the form of charitable donations to groups of people, institutions or individuals. These donations can be in the form of money, equipment and other materials, or even staff time where the company has the expertise to assist others who need their input. Examples of these activities include donations to charitable organisations, schools, hospitals, scholarships for students who cannot afford to pay their school fees and sponsorships for needy people to receive medical attention. Also included under this aspect would be free legal aid to disadvantaged people, providing free technical advice at various levels and providing other voluntary services to those who need it. This may be carried out by organisations with a pool of expertise or by individuals who want to make a difference to others who are less priviledged than they are or who do not have the expertise that they require. A number of companies and other institutions who are involved in corporate philanthropy talk of ‘giving back’ to society. The companies acknowledge the fact that they are more priviledged


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than some members of society and that they have resources which some other people do not have. They, therefore, share their resources with the less advantaged as a form of charitable donations to those identified as being in need of help. Related to corporate philanthropy are employee volunteer programmes whereby employees volunteer to help out or participate in community activities. In Uganda we have had several instances of these including cleaning Mulago Hospital, various companies marking pedestrian crossings (zebra crossings) on roads and various musicians spending time with children in orphanages. This form of CSR may, however, be abused as illustrated by cases that include ‘latrinesize’ houses built for the elderly by a telecom giant and Christmas parties for street kids. Good cases include an Asian owned firm that regularly feeds disabled children in the Cheshire Home Katalemwa, while two others regularly supplement the patients’ diet in Mulago Hospital. One plausible explanation for this is to be found in their religious background, notably Hinduism, where charity is believed to bring bigger returns to business. The Institute of Public Certified Accountants and the Lions Club have also been assisting the children in this home in various ways. Some skeptics of CSR claim that most companies are involved in CSR because of what they expect to gain from it and question the motive of pure philanthropy. They believe that the major motive behind the practice is advertisement. Whereas this may be one of the objectives of such companies, CSR has tangible benefits to the beneficiaries of the charitable donations and to the community at large and is not to be looked down upon.

Shared Values As stated earlier in this chapter, companies are an integral part of the community in which they operate. They share the natural environment, the natural resources and concerns about the sustainable use of the resources. What affects the community also affects them as corporate citizens of society. Companies that are guided by shared values tend to link their CSR activities to the social and development plans of

Corporate Social Responsibility


the country and the goals and aspirations of the people amongst whom they operate because companies realise that they are part of the community and that the concerns of that community should also be part of their concerns since they are members of that community. CSR goes a long way to reassure the community that companies consider themselves to be part of the community and are concerned about matters that affect the community and its economic and social development. Companies depend upon the community to buy their products and services. CSR may also involve being proactive and participating in solving problems affecting the community by carrying out research and developing products that meet the needs of the community in the most efficient and effective manner. This can be in the form of coming up with better and appropriate technology to provide services at a lower cost and to ensure environmental sustainability. Examples of this are the invention of alternative sources of power such as solar power, bio-fuels and, in the case of developing countries, more fuel efficient stoves for cooking. Other cases could involve the provision of better education and health facilities for the community as part of the drive to develop the community. Such products not only contribute to the economic interests of the companies but also demonstrate concern for society and the natural environment. A family-owned Swedish firm, Verstergaard Frandsen, has focused its business on fighting malaria and water-borne diseases through nets and water treatment equipment. They make profits, but they invest these in further research for better technologies in malaria prevention and water treatment. Ugandan firms need to realise that CSR is a strong asset that is almost equivalent to brand quality. Also included in shared values is the fact that companies provide employment to members of the community and thus enhance the quality of life of these members by giving them more purchasing power. The members of the community are thus interested in the going concern of these companies because of the economic benefits that they get from employment and the goods and services that they receive from the companies.


Corporate Governance in Uganda

The same sentiments are expressed in the Code of Corporate Governance developed in 2003 for South Eastern Europe which states that protecting stakeholder rights and developing value-enhancing relations with stakeholders is now widely accepted as being linked to performance, thus conforming to the pursuance of shareholders’ benefits.

Economic Considerations The European Competitive Report of 2008 viewed CSR as a business contribution to the growth and jobs strategy and to sustainable development. The report was of the view that CSR could have an impact on a company’s cost structure, human resources, customer perspective, innovation, risk and reputation management, and financial performance. The US President’s Commission on Industrial Competitiveness arrived at the same conclusion when it stated that a firm could be competitive if it produced products or services of superior quality or lower costs than its domestic and international competitors. Producing products or services of superior quality or lower costs was perceived to be an aspect of CSR since it contributed to improving the quality of life of the stakeholders. Firms that adopt this stance try to integrate social and environmental concerns within their business operations as a competitive tool. CSR is also manifested in concerns about product functionality, safety, reliability and durability. The products have to address the functions for which they are required and ensure that they meet or excel customer demands and are fit for the intended purpose. The customers must be able to use the products safely without any undue harm to them. Safety features have, therefore to be looked into if a company is to be seen as a socially responsible corporate citizen who will inspire the trust and confidence of its stakeholders. The ability to recycle the products or their packaging materials is another feature that enhances the CSR aspects of a company. Obviously, no customer would be happy to buy a product that will break down easily or that will not function as required. Reliability and durability are, therefore, aspects of CSR for companies offering products and services to

Corporate Social Responsibility


stakeholders. This takes into account the quality of the services and products of the suppliers and fair treatment of customers. There have been some efforts by some individuals and organisations to come up with appropriate technology which can contribute to sustainable development and the preservation of the natural environment in Uganda. These efforts include charcoal stoves that minimise on the use of firewood and charcoal. There is also a drive to promote renewable energy in the form of solar power and biogas generated from animal and human waste. Energy saving bulbs have also been introduced to minimise the consumption of electricity. Related to the above concept of using CSR as a competitive tool is the growing trend towards socially responsible investment (SRI) in which investors try to integrate personal values and societal concerns with investment decisions. This concept highlights the importance of the values held by investors and top management of companies in exercising CSR and is sometimes referred to as ‘ethical investment.’ Factors such as the company’s record on human rights, child labour, impact of the company’s activities on the environment, and the nature of business are taken into account. Some investors would not invest in companies whose practices are considered to be going against the values espoused by the investors or to be violating laws, regulations and the principles of human rights. This also includes any products that are considered harmful to society such as tobacco, arms and ammunitions. Sustainable development is a big issue for some investors where development activities are not supposed to deplete the natural resources without replacing them. Sustainability is further extended to the relationship of companies with the stakeholders based upon the reputation of the companies. The support of the stakeholders and their desire to continue doing business with those companies is important. The idea of companies getting social license from the stakeholders is important in this respect. This license is derived from the fact that the community finds the activities of the companies socially responsible and acceptable. Respect for the values and customs and meeting the needs of the community are important aspects of CSR which portray


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companies as neighbors who care about the needs and concerns of the communities within which they operate.

Legal and Regulatory Concerns Complying with legal and regulatory provisions is a basic requirement of CSR although CSR may go beyond these on a voluntary basis. A company that does not comply with these requirements cannot claim to practice CSR. Some of these legal requirements are meant to protect the environment and other rights of stakeholders. Examples of such laws and regulations include the rights of consumers, employment laws, employees’ rights, safety standards in the work environment, environmental laws, tax laws and company laws. Laws that promote fair and equitable treatment of employees without discrimination based upon colour, race, religion, sex or any other factor are important when it comes to the internal stakeholders of the company. A controversial factor in the fair and equitable treatment of employees is when it comes to payment of employees for the same type of work, especially based upon gender and country of origin as there is a tendency to pay expatriate employees more than the nationals for people in similar positions. There has also been the issue of different pay for similar work based upon gender in some companies. Respecting laws that regulate fair competition with competitors are also important. Providing mechanisms which enable employees to air their grievances with procedures for conflict resolution are an important aspect of social responsibility towards employees.

Natural Resources, the Environment and Ecological Concerns Another area of CSR which is prominent in Uganda is the preservation of the natural environment. This effort is spearheaded by the National Environment Management Authority (NEMA) in order to promote sustainable development which is environmentally friendly. This effort has met challenges especially in preserving wetlands as some people still encroach on them with impunity and NEMA does not always appear to be in a position to enforce compliance with the legal and regulatory requirements. It is hoped that the efforts will bear more fruit if the legal framework is facilitated adequately to promote

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enforcement of the enacted laws and regulations. Some skeptics are of the view that concern for the natural environment may be intended to promote the brand visibility of companies involved in such activities. Although this may be the case, it can still be argued that there are some firms that are genuinely concerned about the natural environment and sustainable development. Concern about sustainable economic development is very topical nowadays. Stakeholders want a balance between development and sustainability as measured by the impact of development on the natural environment and the community, as well as the sustainable use of the natural resources to ensure that future generations will not be deprived of those resources. Monks and Minow highlight the need for concern about the natural environment when they state the following: Corporations do not just determine what goods and services are available in the marketplace, but, more than any other institution, corporations determine the quality of the air we breathe and the water we drink and even where we live.40

Uganda, for instance, has enacted a number of laws that are aimed at protecting the environment and the community.41 All these laws and regulations require various stakeholders, including companies, to act in a socially responsible manner and are aimed at protecting the natural environment and the community. However, there might be challenges in implementing some of them due to limited resources available to enforcement agencies as well as 40

Robert A.G. Monks and Nell Minow, ‘Corporate Governance,’ (Oxford: Blackwell Publishing, 2001), p.11. 41 The National Environment (Audit) Regulations, 2006; The National Environment (Noise Standards and Control) Regulations, 2003; The National Forestry and Tree Planting Act, 2003; The Mining Act, 2003; The National Environment (Minimum Standards for Management of Soil Quality) Regulations, 200; The National Environment (Management of Ozone Depleting Substances and Products) Regulations, 2001; The National Environment (Wetlands, River Banks and Lake Shores Management) Regulations, 2000; The National Environment (Hilly and Mountainous Area Management) Regulations, 2000; The National Environment (Standards for Discharge of Effluent into Water or on Land) Regulations, 1999; The National Environment (Waste Management) Regulations, 1999; and The Environmental Impact Assessment Regulations, 1998.


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the possibility of officers of these agencies being compromised by individuals and institutions that are violating what is stipulated in the laws and regulations governing the environment.

Ethical and Social Concerns This chapter takes the stakeholder view in discussing corporate social responsibility because this is in line with the African concept of society based upon strong social and cultural ties between members of the family, clan and tribe. African countries are struggling to extend this concept to embrace nationalism and Pan-Africanism. Being socially responsible to members of one’s family, clan or tribe has been one of the cardinal values of African culture. This concept is extended to companies and other institutions which operate within an African context as they are perceived to be integral to the community. Each community has expected norms of behaviour. Companies, like any other citizens, are expected to respect and follow these norms which form part of the ethical foundation of society and dictate what is ethically permissible. Examples of these may be laws against pollution and environmental degradation which are aimed at promoting sustainable development while protecting the natural environment and the rights of other stakeholders. Customers, for example, are becoming more aware of social, environmental and ethical aspects of corporate behaviour and try to ensure that the company supplying them is acting in a socially responsible manner. Examples of this include fair trade, organic products, the prohibition of child labour and the upholding of minimum human rights. Letza et al. note that shareholder interests are not independent of stakeholder interests, and vice-versa. There should, therefore, be mutual respect of each others’ interests based upon accepted norms of behavior.42 One of the topical issues that affects CSR in Uganda is corruption manifested in various ways, including: bribery, embezzlement of funds, uncompetitive employment of relatives and friends and not following the laid down procurement procedures. Uganda has various organisations to handle such cases but the effectiveness of these 42

Steve Letza, Sun Xiuping and James Kirkbride, ‘Shareholding versus Stakeholding: A Critical Review of Corporate Governance,’ in Corporate Governance: An International Review, Vol. 12, No. 3 (2004), pp. 134-43.

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organisations in stamping out corruption seems to be questionable. The Public Accounts Committee of Parliament, for instance, has made a lot of recommendations but follow up of these recommendations seems to be wanting and the affected people suspected of corruption continue to walk scot free. The Auditor General’s Office has also made various recommendations. Some of these have been followed up while others have not. Procurement seems to be an area that is prone to corruption. There is no known case that has been prosecuted in the last ten years for non-compliance with the procurement procedures. Not following procurement procedures does not appear to be a criminal offence in the current laws of Uganda. It is only if it can be proved that there was corruption or personal financial gain that a person who did not follow the laid down procedures can be successfully prosecuted. Corruption, therefore, remains a scourge in Uganda and impacts negatively on CSR since the resources lost through it could have been used to attend to society in critical areas such as health care and education. It should be noted that this applies mostly in the public sector but has an indirect knock on effect on the private sector since some members of the private sector are involved in corrupting or attempting to corrupt government officials through bribery and other illegal acts.

Social Entrepreneurship Namono defines social entrepreneurship as ‘a business model that seeks to make money through solving a problem in society.’43 She explains that social entrepreneurship arises out of identifying a challenge in society that one attempts to rectify in a way that creates sustainable income for that community. It drives change for the good of society. Namono identifies the following benefits of social entrepreneurship to society:44 t It transforms society through offering practical solutions to their problems; 43

Namono, Lydia, ‘It’s Batte’s Big Year,’ Daily Monitor, Thursday March 29, 2012. http:// 44 Ibid.


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t It influences policy makers by turning their attention to issues affecting society and possibly tries to address them; t It offers creative ways to solve some of society’s pressing issues, giving them an edge over charity organisations; t It creates jobs in the process of offering workable solutions. Examples of social entrepreneurship could be the various microfinance institutions that are offering loans to people in rural areas, especially women, to help them develop businesses and uplift their standards of living.45 This gives these borrowers the purchasing power to buy more goods and services as well as to increase their capital base. The microfinance institutions also benefit by charging interest on the loans. Social entrepreneurship could also be linked to the concept of shared values which was discussed earlier. To this end, companies like Tullow Oil and Madhvani Group of Companies have given scholarships to promising students in view of developing knowledge and skills which these companies, as well as the community, could benefit from for their own development and the development of the country.

CSR for Internal Stakeholders Internal stakeholders consist of management and other employees of an institution. Good corporate governance requires all employers to comply with all the laws relating to employment in Uganda.46 The rights of employees are enshrined in Article 40 of The Constitution of Uganda 1995 which requires Parliament to enact laws: t To provide for the rights of persons to work under satisfactory, safe and healthy conditions; 45

Microfinance in Uganda seems to have been reduced to micro-credit where a defaulting borrower is followed and treated mercilessly. In S.E. Asia where it originated, microfinance is wholesome and integrates all aspects of community development. The role of microfinance in development needs to be revisited in Uganda. 46 The Constitution of Uganda, 1995 The Employment Act, 2006 The Occupational Safety and Health Act, 2006 The Labour Unions Act, 2006 The Labour Disputes (Arbitration and Settlement) Act, 2006 The Workers Compensation Act, 2000

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t To ensure equal payment for equal work without discrimination; and t To ensure that every worker is accorded rest and reasonable working hours and periods of holidays with pay, as well as remuneration for public holidays. The same Article 40 affirms that every person in Uganda has the right to practice his or her profession and to carry on any lawful occupation, trade or business. It also recognises the fact that every worker has a right to form or join a trade union of his or her choice for the promotion and protection of his or her economic and social interests as well as collective bargaining and representation. The Article also affirms that every worker has a right to withdraw his or her labour according to the law. The labour laws, however, have special conditions for withdrawing labour for essential services. Employers are required to accord women protection during pregnancy and after birth, in accordance with the law. The labour laws which were enacted make specific provisions to implement what the constitution of Uganda requires them to do. These laws form the basis of social responsibility towards the internal stakeholders in companies and other organisations and are to be understood as the minimum requirements which are backed by law. Companies can go further than just complying with what is provided for in the law by coming up with policies which show their concern and care for the internal stakeholders. One of the challenges in the treatment of employees is that Uganda does not yet have a law governing minimum wages to be paid to workers and some workers are exploited by being paid minimal wages which do not reflect fairness and equity and which do not enable them to earn a living wage.

Corporate Social Responsibility in Uganda Practically every company or organisation in Uganda wants to be perceived as being socially responsible. A number of companies in Uganda provide free medical care for their employees. They also provide other medical services such as HIV/AIDS testing and care for


Corporate Governance in Uganda

employees who are found to be infected. This care includes counselling of those individuals. Educational institutions such as Uganda Martyrs University make community engagement as one of their cardinal values and try to contribute to the development of their neighbors through this effort. Uganda Martyrs University, for instance, has an active community outreach project that engages members of the community so as to help them to improve their livelihoods through improved preventive health care services, training farmers in improved methods of crop and animal husbandry and acquiring and fostering good business skills for managing small businesses. Mbarara University of Science and Technology organises health clinics where its medical students go out to the rural areas to administer health care to people in those areas. Busitema University has been quite active in coming up with appropriate technology which can help farmers and other community members as their contribution to society. Community engagement is a CSR activity that benefits both the community and the University students and staff as these are able to learn a lot from the members of the community. It also fosters good neighbourliness and acceptance by the community. The following are other examples of companies in Uganda that are involved in CSR.

Madhvani Group of Companies This Group of Companies was founded by Muljibhai Prabhudas Madhvani (1894-1958) who believed that a company’s true wealth was actually its people.47 The Madhvani Group of Companies was established in 1914. Madhvani created an Education Trust in 1947 in collaboration with the Colonial Government that was in power at the time because he believed in the importance of education and culture. He believed that Uganda would develop through maintaining and promoting scientific and technical education among the people of Uganda. This Trust outlived him and has continued to be one of 47

The information in this section is derived from a magazine on Muljibhai Prabhudas Madhvani, MBE (18th May 1894–11th July 1958) which was published by the Madhvani Group of Companies.

Corporate Social Responsibility


the pillars of CSR in the Madhvani Group of Companies. He was convinced that education was at the root of personal fulfillment and national development. Madhvani was also very interested in the welfare of his employees and their families. The Trust funded schools, medical services, social clubs and libraries, among other things. This Educational Trust was eventually replaced by the Madhvani Foundation in 1965 which aimed at promoting the future prosperity of Uganda by providing scholarships to gifted students who could not afford to pay fees. The scholarship fund currently exceeds UGX 400 million(about USD 160,000) (annually. The Foundation awarded scholarships to 138 students from all over Uganda in the 2011/2012 academic year. The Madhvani Group has, therefore, made CSR part of its corporate culture which originated in the founder’s belief and values.48 More Ugandan companies need to establish similar CSR initiatives and foundations. The beneficiaries of the Madhvani Foundation scholarships formed an Alumni Association in 2010 and are actively involved in making contributions to the funds of the Foundation and in selecting students to be awarded the scholarships from the many applications that are received each year.

Bank of Baroda (U) Ltd The Bank of Baroda 2010 Annual Report makes special mention of the CSR activities practiced by the bank during the year under review. The bank explains that it has been doing its bit towards helping the poor and downtrodden and other noble causes as a responsible corporate citizen of the country. Its donations during the year amounted to UGX 27.05 million (about USD 10,820). It mentions the following major causes that it contributed to during the year: t Uganda Revenue Authority–campaign for prevention of child abuse and trafficking; t Bududa District–relief for victims of the land slide; 48

Other notable founders of companies that initiated a corporate culture of CSR in their firms include Ford, Rockfeller, Gates and Carnegie who set up charitable foundations. Nobel is another notable founder who believed in promoting peace with the saying that he wanted to convert ‘swords into ploughshares’ in the effort to pursue global disarmament.


Corporate Governance in Uganda

t Heart operation for underprivileged children; t Uganda Bankers Association–fight against fraud and forgeries; t Donation for organising useful rehabilitation services for International Day for Disabilities; t Sports–sponsoring of Baroda Badminton Tournament.

Development Finance Company of Uganda (DFCU Bank) DFCU presents a good example of CSR for internal stakeholders. The Bank established an HIV/AIDS programme which has strong support from management and worked with the International Finance Corporation (IFC) to develop an HIV/AIDS policy for its employees. A copy of this policy is given to all its employees. The bank is also involved in educating its employees on HIV/AIDS and on how to prevent it. It provides care and treatment to those who are infected and affected. DFCU also has a community outreach programme whereby it supports the local community through a partnership with Hope Clinic Lukuli which offers in-patient and out-patient services to the local community. It has been involved in the fight against malaria and HIV/AIDS and provides counselling services as well as donating mosquito nets to the community.49

The New Vision Group A good example of shared values and innovating to address the needs of the community is the partnership entered into by the New Vision Group and Makerere University Faculty of Computing and IT in 2008. The New Vision Group was to support the Faculty’s ICT initiatives which would in turn develop a system that would automate the workflow procedures that were being monitored manually at New Vision. This initiative would help the Faculty to improve in innovation while providing a solution not only to The New Vision Group but also to other stakeholders in similar businesses.50 The New Vision Group also entered into an agreement with Bwindi Community Hospital in February 2012 to promote health 49 50 (Accessed on 22/02/2012) (Accessed on 22/02/2012).

Corporate Social Responsibility


awareness in 52 primary schools in Kanungu District in Uganda. Similar agreements had also been signed between Vision Group, Wateraid and the National Drug Authority and had begun bearing fruit and advancing society. 51 It can be argued that companies that were started as parastatal bodies, such as The Vision Group, have more obligations to Uganda beyond standard CSR. One cardinal role played by parastatals in countries like Kenya is nurturing indigenous corporate leaders, an area where Uganda is doing poorly. Vision Group therefore may want to benchmark Kenya’s Equity Bank in this respect. Besides its Wings to Fly Programme, Equity Bank is bankrolling Kenyan students in US and UK universities for studying to master the sophistications of the oil industry, thus managing the question of ‘Local Content’ even before the country begins to exploit their oil. A closer to home case is that of NWSC, whose new philosophy is now service delivery through cross-subsidisation: rural areas can access water at affordable cost through charging commercial rates in urban areas.

Stanbic Bank Uganda Ltd Stanbic Bank has a programme that supports its employees who are nearing retirement. It conducts practical and motivational tailored pre-retirement training courses to help them manage the transition from active employment into retirement.52 This is an example of CSR for internal stakeholders. Stanbic Bank has also been participating in the Uganda Government’s programme to develop agriculture by giving agricultural loans to groups of farmers in several districts in Eastern Uganda, including Kapchorwa, Budaka, Manafwa, Mbale and Pallisa. Farmers from Kapchorwa District used these loans and transformed 51 (accessed on 22/02/2012). 52 122andItemid=17 22/02/2012(accessed on 22/02/2012).


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the association that they had from a small smallholder farmers’ organisation into one of Uganda’s leading for-profit cooperatives with significant market share and several supply contracts with local and international marketing companies. The association focuses on the cultivation of barley, maize, wheat, sorghum and potatoes.53

Standard Chartered Bank Uganda Standard Chartered Bank has been involved in various community initiatives which it refers to as ‘investing in the communities in which they operate.’ These initiatives include: t Sponsoring operations to restore the sight of blind people both in urban and rural communities. This project started in 2003 and is run in partnership with Sight Savers. More than 10,000 people have had their sight restored through this programme. t Malaria prevention through distribution of insecticide-treated mosquito nets in partnership with the Church of Uganda and Coca Cola. This programme ran from 2006 to 2009 and targeted pregnant women, children under 5 years, people living with HIV/ AIDS, the elderly and the chronically sick. t Environmental protection through planting 200,000 indigenous species of trees in 2010 in the four regions of Uganda to preserve and restore biodiversity. This was done in partnership with Ecotrust. The bank also runs environmentally friendly practices such as the use of energy saving bulbs, efficient usage of water and prevention of leakages, recycling of paper and the use of environmentally friendly air conditioning units. t The Bank established the Global Clinton Initiative to educate 1,000,000 people between 2006 and 2010 and actually educated 1,600,000 during that period in order to raise awareness on the pandemic of HIV/AIDS. Standard Chartered Bank sees the following as some of the benefits accruing from CSR: attracting potential employees who want to be 53 (accessed on 22/02/2012).

Corporate Social Responsibility


identified with an institution that is socially responsible; promoting staff and customer loyalty; creating a sense of trust amongst the various stakeholders and helping the bank to excel even in tough times; recognition by various bodies such is the Corporate Social Responsibility Uganda Chapter, the National Environment Management Authority and World Vision as reflected in the awards given to the Bank.

National Insurance Corporation (NIC) NIC has been partnering with The Monitor Publications to improve literacy in primary schools and to provide revision material for the students. The concept of Newspapers in Education (NiE) was started by The Daily Monitor and has helped many primary school students/ pupils to improve in their performance. It is supplied to the students in the form of a pull-out inserted in the newspapers sold by the newspaper. The pull-out is itself supplied free of charge.54

Uganda Clays Ltd The 2009 Annual Report of Uganda Clays Ltd at page 8 states that ‘UCL believes strongly in giving back to communities in which it operates as this is in line with the company’s strategic objectives and vision’ The Report also states that UCL received the 2009 Kajjansi Rotary Club–Vocation Award in recognition of the company’s role in production of quality materials, alleviation of poverty through provision of employment opportunities to the people of Kajjansi and community development through provision of sanitation facilities to the community and their continued role in sensitising the community on Health issues/HIV awareness.

MTN Uganda Ltd 5 5 MTN set up a Foundation in 2007 to help not-for-profit projects that are community oriented. It partly partners with the public to fund these projects. In 2010, for instance, it organised a marathon 54 55 (accessed 23/02/2012). Information gathered from MTN press releases.


Corporate Governance in Uganda

in which around 20,000 people participated and raised UGX 230 million (about USD 92,000) Part of this money was handed to the Uganda Red Cross and the rest to a number of other partners to execute water projects around the country. Targeted areas included those where vulnerable people had no access to clean water and those that had internally displaced people. The 2011 MTN Marathon was aimed at raising money to provide clean and safe water to the people in Amuria District in eastern Uganda while the 2012 MTN Marathon raised more than UGX 300 million (USD 120,000) to provide clean and safe water to Bududa in eastern Uganda. MTN has also contributed to the field of education through infrastructural development by building and renovating classrooms, pit-latrines and water tanks. It has also provided furniture, foodstuffs, computers, textbooks and low-cost bandwidth to schools as part of its CSR. MTN has been an active player in the area of health by supporting some local health awareness causes which include: HIV/ AIDS awareness and prevention campaigns, Uganda Child Cancer Foundation, Hospice Africa Uganda, Malaria Consortium, and various activities in which the Red Cross is involved. MTN has also been supportive of arts and culture by sponsoring music and culture, sports, community development activities and protection of natural forest reserves through tree planting campaigns. In the line of innovation, MTN has been a leader in mobile money whereby people of all categories throughout the country are able to send and receive money without having the hustle of going to banks. This has changed the nature of transactions involved in making money available and has made it much easier for people to send money to others, including those in rural areas where there are no banks.

Conclusion This chapter discussed the concept and application of CSR generally and gave examples of Ugandan companies that are practicing CSR. It adopted the stakeholder approach and justified CSR as arising

Corporate Social Responsibility


from the fact that a corporation is a legal person who is a citizen of a particular community. Consequently, each firm has duties and responsibilities among which is being socially responsible to the members of the community in which a company operates as part of being a good citizen. The chapter also adopted the stance that CSR includes acting within the law of the country in which a company operates, giving back to the community through philanthropic activities, participating in the developmental programmes of the community and acting in an ethical manner based upon the values of the company. These values should be in conformity with the values and norms of the local community. Specifically, CSR can be in the form of philanthropy and giving back to society; shared values, including concern for the sustainable use of the natural environment; economic or commercial considerations; legal and regulatory considerations; natural environment and ecological concerns; ethical and social concerns; and CSR for internal stakeholders. The chapter also discussed the arguments for and against the practice of CSR by companies but concluded that by the nature of their legal status, companies are expected to be good members of the society in which they operate. It was also noted that CSR can enhance the objectives of companies that engage themselves in it and enable them to gain sustainable profitability. CSR also contributes towards environmental sustainability which is a major concern worldwide. CSR has to be practiced in the workplace, marketplace, the community and the environment. Companies are, therefore, expected to integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis so as to contribute to a better society and a cleaner environment. A central tenet of CSR is that it is voluntary and discretionary but this could be modified to include voluntary and legislated aspect of CSR in the Ugandan context. There are, however, a number of issues that need re-thinking in the Ugandan, and possibly the African, context. These mainly revolve around whether CSR should be left to be voluntary and at the discretion of corporations or whether


Corporate Governance in Uganda

government should take a more pro-active role and legislate more aspects of CSR. Government could also promote CSR by setting up tax friendly incentives that include tax deduction for expenditures on CSR. The minimum is for government to institute fiscal and other policies that promote CSR in firms operating in Uganda. Companies that are determined to be leaders in CSR could be given official recognition by appropriate organs of government and other entities such as the Institute of Corporate Governance of Uganda and the Institute of Certified Public Accountants of Uganda. A model that could be considered in Uganda is the public private partnership that is being promoted in local governments (LGs) and NGOs operating in the LGs. Under their memoranda of understanding, LGs and NGOs undertake participatory development planning, thus avoiding duplication of resources. If an NGO has a planned intervention in water and sanitation in the district, the LG does not budget for that, it only supplements where need arises. Corruption notwithstanding, CSR needs an approach involving public private partnerships at national level so that community needs can be addressed and the local community can participate in the development and social programmes that affect them.

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