Corporate Responsibility and Sustainable Development

Exploring the nexus of private and public interests

Lez Rayman-Bacchus, Philip Walsh

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781317540984
• Edition: 1
• Topic: Economics
• Subtopic: Sustainable Development
• Index: Economics

Corporate responsibility and sustainable development are two concepts that may be able to reconcile many of the big challenges facing the world; challenges such as tensions between respect for the natural environment, social justice, and economic development; the long view versus short-term imperatives and the competing priorities between developed and developing economies.

This book explores the gaps and overlaps between corporate responsibility and sustainable development. These concerns overlap because they implicate corporate practices, state development policy challenges, the concerns and priorities of non-governmental organisations, and the potential for innovative forms of organisation to address these challenges. This collection examines these questions in terms of tensions and interdependencies, between competing claims to resources, rights and responsibilities, strategy and governance, between public and private interest, and the implications for equity and the common good over the long term.

This is a valuable resource for researchers, lecturers, practitioners, postgraduate and final year undergraduates in business strategy, international business and international management, public sector policy and management, international development, political economy. It is also suitable for more specialist courses on sustainability, corporate responsibility, governance and international development.

Part I

Challenging corporate accountability

1 Corporate social responsibility and corporate accountability

A historical overview

Alexios Antypas, Magdalena Paszkiewicz and Stephen Stec

Introduction

From its beginnings in Europe’s early colonial ventures of the sixteenth century the multinational corporate form has been both powerful and controversial. Its power in facilitating international trade through the Dutch and British East India Companies was coupled with the excesses of colonialism, and since that time corporations operating outside of their home countries have been subject to debates about the tension between providing economic opportunities in host countries and extracting wealth and resources.

Indeed, the long history of the British East India Company is a prime example of how the limited liability of the owners of a joint stock company can set in motion a dynamic leading to human rights abuses and environmental degradation overseas, leading to movements for regulation at home (Robins, 2006). Even Adam Smith in The Wealth of Nations pointed to the East India Company to argue that the separation of ownership and management in joint stock companies invariably leads to reckless risk taking, especially abroad. Edmund Burke eventually led an impeachment proceeding in the British Parliament against the Company’s governor-general of Bengal, Warren Hastings, of whom he said:

Mr. Hastings’ government was one whole system of oppression, of robbery of individuals, of spoliation of the public, and of supersession of the whole system of the English government, in order to vest in the worst of the natives all the power that could possibly exist in any government; in order to defeat the ends which all governments ought, in common, to have in view. In the name of the Commons of England, I charge all this villainy upon Warren Hastings, in this last moment of my application to you.

(Burke, 1788)

The East India Company also demonstrates the preferred corporate approach to managing corporate excess – self-regulation. Years before Hastings’ impeachment, in 1764, the Company had developed a voluntary internal code of conduct in an attempt to head off more heavy-handed intervention by Parliament. Yet, the Company’s actions caused a famine in Bengal in 1770 that killed up to 10 million people.

To the frustration of Burke and the others who saw in him the symbol of unaccountable corporate power, Hastings was eventually acquitted in 1795. The East India Company continued to operate as a private enterprise, with little to no accountability to the public, until 1858 when it was nationalized. In 1874 its stock was liquidated and it ceased to function (Robins, 2006).

Critics such as Burke and Smith identified three essential flaws in the corporate structure: the impetus to dominate markets and create monopolies, the speculative behaviour of companies in which executives are not owners, and the absence of regulatory mechanisms to check abusive behaviours overseas (Robins, 2006). While many of the particular circumstances under which the East India Company arose and the means by which it operated differ from those of multinationals today – for instance, it employed a private army that directly conquered land and people – the basic structure and drivers of the multinational operating overseas remain similar.

As sustainability issues become more important to stakeholders and many corporations take on sustainability objectives, a growing body of research has examined the business case for corporate sustainability and the motives that corporations have for investing in socially and environmentally beneficial activities (Roca and Searcy, 2012). These studies originally focused on the relationship between a corporation’s social, environmental and financial performance, corporate management’s appreciation of sustainability and the ‘value-relevance’ of sustainability disclosures – that is to say, the effect on the bottom line (Othman and Ameer, 2009). Studies have consistently shown that corporate social responsibility (CSR) is fundamentally good for the financial health of business over the long run, providing social legitimacy, competitive advantages and legal security. A seminal study by KPMG, one of the large consulting firms, concluded that ‘Corporate responsibility reporting enhances financial value’ (KPMG, 2011). The Aviva Report, commissioned by a coalition of institutional investors and insurers to promote sustainability reporting, cited several industry studies establishing a direct relationship between sustainable business practices and longer-term financial success.

As a result, CSR is now a mainstay of business management. Sustainability reporting has substantially increased, from less than 50 non-financial reports produced in 1992, to current global corporate disclosure practices by 95 per cent of the 250 largest companies in the world (KPMG, 2011). Consequently, studies have shifted away from ‘debating whether or not corporate sustainability should be implemented to how it can be done in practice’ (Roca and Searcy, 2012). Recent decades have seen a proliferation of instruments aimed at setting standards for CSR that take a voluntary, industry-led, self-regulatory approach.

Nevertheless, this has not blunted calls for binding legal frameworks since casual observation suggests that voluntary instruments produce only mild incentives for corporations to moderate their behaviour while unethical practices can bring large short-term gains to shareholders. Moreover, voluntary measures are mainly adopted by high-profile companies worried about their public image, but more easily avoided by the tens of thousands lower profile multinationals that choose to operate unconstrained, including increasingly important corporate players from emerging economies such as China and India.

The 2012 UN Conference on Sustainable Development (‘Rio+20’) may have marked a turning point in this debate. While industry representatives forcefully brought forward a particular formula for soft reporting obligations (‘report or explain’), this approach did not gain traction at Rio. Meanwhile, civil society has renewed its calls for legally binding corporate accountability (CA) that no multinationals can evade. Following Rio+20, some governments, non-governmental organizations (NGOs) and investors are continuing to push for binding CA rules in the post-2015 global development agenda debate.

In this chapter we first distinguish between CSR and CA, arguing that while responsibility is assumed by corporations as a set of voluntary measures, accountability emerges out of the gaps left by CSR and imposes mandatory standards. We show how the voluntary CSR approach evolved over the twentieth and early twenty-first centuries, noting key milestones such as the World Summit on Sustainable Development and the creation of global initiatives such as the Global Compact and the Global Reporting Initiative. We further describe the shift towards an emphasis on reporting, specifically the limited ‘report or explain’ approach, which has lost the confidence of civil society. We argue that the discourse is shifting towards mandatory approaches, and that a global legal framework is needed.

CSR and CA distinguished

Contemporary approaches to CSR were begun in the 1950s following the post-war examinations of relationships between business, society and governments, and the promotion of obligations on corporations to work for ‘social betterment’ (Davis, 1960; Frederick, 1994; Othman and Ameer, 2009). These early writings focused on the ‘social conscience’ of managerial action and business activities (Carroll, 1999), with empirical research notably absent in the development of theories to analyse and explain CSR practices (Carroll, 1999; Moir, 2001).

This early work developed concepts such as ‘business ethics’ that extended to groups beyond a company’s shareholders, and the ‘social contract’ between business and society that recognized corporate moral obligations to society, in general. This notion found strong support in public opinion surveys in nations whose economies and societies were increasingly dominated by large enterprises (Carroll, 1999). Research studies at this time began to investigate the extent of corporate social engagement and the degree to which they took their greater social responsibilities seriously and how they implemented their social agendas, the type of CSR activities undertaken and the effects of these activities on corporate structures and budgets (Carroll, 1999).

The harnessing of the internet by stakeholder activists to help expose, monitor and challenge corporate wrongdoing (e.g., fraud, environmental harm, human rights abuses), alongside the ongoing expansion of foreign investment and the proliferation of international supply chains (globalization), has not only raised popular awareness but also stimulated the growth of organized movements intent on prodding corporations into demonstrating more socially responsible behaviour. In this chapter we will distinguish between CSR and CA. While CSR by and large is the corporate world’s preferred voluntary approach to addressing demands for more socially responsible action, CA uses a mix of instruments, including voluntary and especially regulatory and legal ones. The focus of CSR is on self-regulation, while the focus of CA is on legal accountability.

With the emergence of the discourse around sustainable development following the publication of the World Commission on Environment and Development’s report called ‘Our Common Future’ in 1987, the role of corporations in achieving sustainability became a globally discussed topic, drawing the attention of not only civil society but of corporate leaders themselves, who viewed it as both a threat and an opportunity (Moneva et al., 2006). The interaction between discourses on CSR and sustainable development produced the term ‘corporate sustainability’, still a variant of the voluntary CSR approach to achieving changes in business practices. CSR is now increasingly rebranded as corporate sustainability as voluntary social and environmental objectives and projects are increasingly integrated into business practices (Hohnen and Potts, 2007). Today, the terms ‘corporate social responsibility’ and corporate sustainability are often used interchangeably, despite divisions in academia on whether the concepts have the same meaning or remain subtly distinct (Roca and Searcy, 2012), with the concept of CSR often considered more representative of traditional notions of voluntary corporate philanthropy and social engagement (Correa-Ruiz and Moneva-Abadía, 2011).

The CSR movement is cooperative, has industry backing and is soft and persuasive in its ethic and approach. The ISO 26000 set of standards, a voluntary certification scheme, exemplifies this movement. The standards define corporate social responsibility as the

responsibility of an organization for the impacts of its decisions and activities on society and the environment, through transparent and ethical behaviour that contributes to sustainable development, including health and the welfare of society; takes into account the expectations of stakeholders; is in compliance with applicable law and consistent with international norms of behaviour; and is integrated throughout the organization and practiced in its relationships.

(ISO 26000, 2010)

The ISO standards for CSR define seven core subjects and two fundamental practices. The core subjects are: organizational governance, human rights, labour practices, the environment, fair operating practices, consumer issues and community involvement and development. The two fundamental practices are stakeholder identification and engagement, and recognizing social responsibility.

Out of concern perhaps that the CSR field was becoming dominated by the voluntary corporate approach, NGOs began to claim new ground through the use of the term ‘corporate accountability’. The distinction is made, for example, in the 2005 briefing of Friends of the Earth, which defines CA in terms of governance, or the ability of those affected by a corporation to affect or control that corporation’s operations, while CSR involves the voluntary actions of companies to improve their social and environmental standards so as to reduce their negative impacts.

The CA movement has arisen to promote a harder, mandatory approach to corporate social and environmental obligations in comparison with the voluntary approach of CSR/corporate sustainability. If CSR was meant to create internal and cooperative mechanisms for ‘taming corporate capitalism and minimizing its perverse effects’ (Utting, 2008), the CA movement not only takes account of CSR’s ambiguous performance history, but begins with the basic axiomatic assumption that only harder approaches will minimize the ‘perverse effects’ of global corporate capitalism. Utting (2008: 965) delineates the differences between CSR and CA:

Conceptually and strategically there are several important differences. Whereas CSR is very much about voluntarism, in the dual sense of both individual agents taking action and voluntary initiatives, corporate accountability redirects attention to the question of corporate obligations, the role of public policy and law, the imposition of penalties in cases of non-compliance, the right of victims to seek redress, and imbalances in power relations.

Thus, CA generally has been used with reference to disclosure, transparency and corporate reporting practices, although it is also aligned with corporate governance and ethics principles in some instances. The CA movement embraces a wide array of tactics, including activism and contestation, using consumer and other market mechanisms to influence corporate behaviour, and steadily increasing standards and expectations through multi-stakeholder processes. But it has been the movement to introduce legal standards that has generated the most optimism and attention. The NGO sector has traditionally been the most active in promoting a legally binding instrument to regulate the behaviour of transnational corporations (TNCs) abroad. More recently, investors and insurers began to support CA as a means of predicting returns on investment and avoiding risk and exposure, recognizing that voluntary CSR alone will not get the job done.

Among the limitations of the voluntary approach is the relatively limited engagement of states, particularly the developing countries that are recipients of investment. It is not so much a case of the ‘fox guarding the henhouse’ in the absence of active exercise of regulatory oversight, although legitimate concerns may be raised on that account as well. More critically, the abdication of responsibility by regulatory authorities makes it impossible to measure the performance of states and also frustrates efforts to improve performance through dialogue and international assistance. Authorities in these countries are essentially given a ‘free pass’ from the self-regulated business community, meaning that capacities are not built to the extent that would be necessary to assist in implementation and enforcement of a legally binding regime. The lack of involvement by states also inhibits state-to-state exchange of experience and technical assistance.

Listed companies, moreover, which have been the focus of voluntary reporting initiatives, represent only a fraction of companies whose activities should give rise to reporting obligations. While UNCTAD estimates that approximately 4500 corporations are engaged in voluntary sustainability reporting, there are over 80,000 multinational corporations whose activities and performance must actually be r...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Figures and tables
• Notes on contributors
• Preface
• Introduction
• PART 1 Challenging corporate accountability
• PART 2 Community interests and responsibility
• PART 3 Reconciling stakeholder expectations
• PART 4 Effecting sustainable partnerships
• Index