Corporate Social Performance in Emerging Markets

Sustainable Leadership in an Interdependent World

Zs�fia Lakatos

• Editore: Routledge
• Anno: 2017
• ISBN:
  9781351948463
• Edizione: 1
• Argomento: Business
• Categoria: Business General

When it comes to perceptions of what is a sustainable economy and how it may be realised, companies expanding into Central and Eastern European markets face the challenge of diverse people, attitudes and history. Corporate Social Performance in Emerging Markets provides an effective tool for companies to help them engage in CSR activities and become a responsible company in CEE countries such as Poland, Hungary, the Czech Republic, Slovakia, Croatia and Slovenia. It does this by enabling them to focus on the difference of stakeholders and their attitudes to those of Western Europe. The author, Zsófia Lakatos, provides a review of the major differences between the various CEE countries, supported by interview research from leading executives in some of the blue-chip companies already operating in the region.

PART I

Corporate Social Responsibility

1	What CSR Means, and Why Should We Bother with It?

My preferred definition of corporate responsibility is the following: Being a responsible company means never having to say you’re sorry. OK, I admit, I have lifted this somewhat distorted definition from the movie Love Story. But it seems apt given that, as a responsible individual, you should lead your operations in a way that means you never need to feel remorse for your actions or behaviour. When you are a leader of a company, this means you should never regret the impact of your actions on your fellow directors or shareholders as well as the people who work for you, buy your products, live in the vicinity of your production facilities or along your distribution channels. It also implies avoiding unsustainable impact or damage to our wider environment.

A SUSTAINABLE 1.6 EARTH

An alternative perspective on social responsibility – and the basis of the whole concept – is that of sustainability. The principle behind sustainability involves ensuring that we conserve resources for future generations.

The bad news is that, today, in the second decade of the twenty-first century, we are using more than one Earth. In other words, mankind is exploiting the planet’s resources at a rate that implies we would need 1.6 times the current Earth’s resources to support us. There is no need to be a maths scholar to understand the future implications of this.

WHAT IS THE ROLE OF CORPORATE RESPONSIBILITY IN ALL THIS?

Sustainability works on at least three levels: individual, corporate and national. The second level is the corporate level, and is expressed as corporate responsibility or corporate social responsibility (CSR). It is defined in the European Commission’s 2001 Green Paper as ‘a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis’.

Let’s examine this definition a little and pick out some of the concepts within it:

• Concept: CSR is not merely an action or a set of actions. It is a management model; a principle by which companies judge their everyday operations.

• Social and environmental: When examining the history of CSR, social concerns preceded environmental ones; this is probably why the concept was originally called corporate social responsibility. Environmental concerns are, for most of us, relatively recent; most companies have only been concerned about their impact on the environment for a few decades, and environmental concerns are stimulated by many companies’ apparent indifference to the natural world – just think back to environmental disasters, such as the Exxon-Valdez oil tanker accident in Alaska or the BP oils spill in the Gulf of Mexico. Green activist groups played, and continue to play, a major role in encouraging companies to integrate environmental policies into their operations and CSR policies.

• Stakeholders: The stakeholders of a company are those people on whom the company’s activities have an impact and those who have an impact on the company. This will be discussed in more detail later, but for now let’s just take General Electric (GE) as an example whose philosophy is: everybody is your stakeholder, starting from your employees, board of directors, shareholders, management, partners, suppliers, customers, consumers, the people who live near your plants, the government, politicians, trade unions and the media. To quote advertising guru David Ogilvy, ‘The customer isn’t a moron, she’s your wife.’ Stakeholders are not morons, aliens or faceless individuals; they are average people just like you or me.

• On a voluntary basis: There is a long and ongoing debate on whether CSR should be made mandatory for companies. Of course, elements of corporate responsibility (health and safety, environmental, product liability and so on) are regulated. The problem is that if companies are obliged by law to be ‘nice’, it is no longer a matter of responsibility (quite apart from the impossibility of defining ‘nice’ in legal terms). In the United States, compliance is usually considered part of CSR, whereas in Europe – or at least in CEE – many people regard compliance as a natural part of business culture. ‘Laws are made to be followed’, and companies do not get extra credit for following rules.

THE INVISIBLE HAND

Although there are no laws that oblige companies to be socially responsible, governments have a wide range of tools for making sure companies are ethical. Changes in this area are imminent: the European Union (EU) has established a set of guidelines for companies to follow and 2005 was named ‘the year of CSR’ in the EU.

In Europe, the UK government has been a leader in influencing companies to operate in a sustainable way. In the early 2000s it appointed a minister for CSR who was tasked with promoting responsible business practices in the UK (the position was abolished in 2010). Other countries were quick to follow suit and, today, most of Western Europe deals seriously with sustainability at a governmental level. This includes influencing the corporate world, either directly or indirectly, to move towards CSR.

The European Union is taking the issue of CSR rather seriously accepting the so called New EU Strategy on CSR 2011–2014 in October of 2011 (http://europa.eu/rapid/press-release_MEMO-11-730_en.htm) and offering a more simple definition of Corporate Responsibility: “the responsibility of enterprises for their impacts on society”. In the Commission’s view, “companies should have a process in place to integrate social, environmental, ethical human rights and consumer concerns into their business operations and core strategy in close cooperation with their stakeholders.”

A new principle was introduced in the Harvard Business Review in the beginning of 2011 (http://www.waterhealth.com/sites/default/files/Harvard_Buiness_Review_Shared_Value.pdf), that of CSV: Creating Shared Value. This new concept has stirred up the CSR world and is leading into an improved understanding of responsibility. Simply put, CSV means that instead of a top-to-bottom approach, companies are re-inventing capitalism through innovation maximising a return on investment while creating value for stakeholders. This may sound a little complicated or futuristic, but it actually means that companies integrate stakeholders into their business decisions from the start and for example offer products and services that are responsible at the core. This is the future, the new way of economic success, that goes way beyond philanthropy and the planting of trees.

A LONG AND WINDING ROAD

From the future of responsibility, we jump a few centuries back as this next section covers the history of CSR. If you are a CSR expert, please feel free to jump to the beginning of Chapter 2. If not, do spend a few minutes understanding the factors that have shaped corporate responsibility and why there is an ongoing debate on its effectiveness, even today.

Where does CSR come from? The concept was born in the United States but the history of CSR officially started when someone who had power and influence made a point of denying its existence.

Before we get to this important moment, jump back to the eighteenth and nineteenth centuries when, during the Industrial Revolution, big companies were born along with the ideas of management and employee relations. Many decades passed before – mostly as a consequence of the British Parliament passing laws to improve the working conditions of people – the owners and managers of companies also realized that employees working in better circumstances perform better. When organizations like Cadbury acknowledged this they took the first steps to boosting efficiency by doing something good for their people – either by simple measures such as having bigger windows in factories or through personal philanthropy – and CSR started.

In the CEE countries, during the period of the socialist planned economy, companies were forced to operate day-care facilities for the children of employees and send them (parents and children alike) to summer camps and holidays. These amenities were an example of CSR, albeit hardly ‘on a voluntary basis’.

Let’s return to the influential man who denied CSR. In 1970, Nobel Prize-winning economist Milton Friedman published his famous article, ‘The social responsibility of business is to increase profits’. His principle today is generally known as ‘the business of business is business’.

Twelve years passed before a reply to Friedman’s article was given, by Kenneth Goodpaster and John B. Matthews. In their 1982 Harvard Business Review article they ask, and answer ‘yes’ to, the question: can a corporation have a conscience?

Almost 20 years later, the European Union’s Lisbon Strategy (an action and development plan for the European Union between 2000 and 2010) encouraged companies to become responsible and set an example through concrete sustainability action: 2005 was named the ‘Year of CSR’ by the European Council, the governing body of the EU, but it was also the year that the CSR movement faced its most challenging criticism. In January 2005, The Economist published an article entitled ‘The good company’, in which Clive Crook argued that CSR is just another marketing tool and that companies are prone to saying rather than actually doing anything about sustainability.

The negative opinion in The Economist article was reinforced by the financial crisis that erupted towards the end of 2008. During this crisis, CSR experts frequently faced the criticism that ‘had CSR and ethical business management been really effective and not just a communication tool, the financial crisis would have never happened’.

I believe this criticism is largely accurate. If the financial institutions that fuelled this crisis had been more responsible, the crisis would have never happened. It is simplistic, and yet if some of the banks that had given sub-prime mortgages had been responsible enough to not grant mortgage loans to people who would not be able to repay them, they would not have been faced with such a catastrophic loss of assets. The bigger question is whether it is really the banks’ responsibility to adopt a parental role towards their clients and protect them from themselves. I think that it is; and that this is where true CSR begins.

BOTTOM LINES AND RED-ROOF HOUSES

Corporate responsibility over the years has become a quasi-science, supported by its own ocean of literature – including hundreds of theses on different aspects of responsibility, models and guidelines. My favourite model is the triple bottom line (TBL) model, otherwise known as the PPP model. TBL accounting means ‘expanding the traditional reporting framework to take into account ecological and social performance in addition to financial performance’. The phrase was coined by John Elkington in 1994 in his book Cannibals with Forks. The concept of TBL demands that a company’s responsibility lies with stakeholders rather than simply shareholders. Shareholder-oriented management implies a company operating with the sole intention of making a profit (remember Milton Friedman?), whereas a stakeholder-oriented approach means that other factors are taken into consideration, and a company has not one but three bottom lines, which are supposed to be equally important.

In the world of CSR, the three Ps stand for People, Planet and Performance (Profit).

• ‘Profit’ describes the economic value created by the organization after deducting the cost of all inputs. More sophisticated companies use the word ‘performance’ and this bottom line is also referred to as the ‘business pillar’ within the model. In simple terms, profit is the economic impact the organization has on its economic environment.

• ‘People’ includes the labour force, the local community and society as a whole. At one end of the scale, this P means over six billion people, and at the other it means the company’s stakeholders. The ‘people pillar’ also covers the strategies and activities a company develops to ensure and demonstrate social responsibility. Thus, a socially responsible company will not use child labour, will pay fair salaries to its workers, maintain a safe work environment and enable employees to reach a good work–life balance. In general, it will not exploit its workforce or the community and may well also give some of its profit back to society.

• ‘Planet’ refers to the environment and sustainable practices designed to protect it. A responsible company will try to avoid harm to the environment (true CSR leaders will try to have a positive impact on it) and reduce its carbon footprint. The carbon footprint is the estimated emissions of carbon dioxide (CO₂) and other greenhouse gases (GHGs) associated with a particular activity, and is measured in tons. (My own footprint, according to the WWF’s footprint calculator, is 17.22 tons per annum, which is above the average carbon footprint of a British person (10 tons per year) but less than the average carbon footprint of an American (20 tons annually)). If you want to calculate your own footprint, try it at http://footprint.wwf.org.uk/.

The ecological footprint of an organization is a measure of how much land and water area an individual/company/activity requires to produce all the resources it consumes and to absorb the waste it generates. The number is given in multiples of planets: my footprint is 3.14. This means that I am living as if we had 3.14 planets to support us.

As well as the TBL model, there are various other models and charts to describe CSR. My own personal model is called the House theory. According to this theory, CSR represents a house that has walls and a pitched roof (see Figure 1.1).

Figure 1.1 The house theory of CSR

The walls represent those elements of responsibility that are essential but are hard to communicate such as business ethics, work–life balance, equal opportunity, selective waste management and so on. The red roof is made up of elements that are more visible and easier to communicate such as philanthropy or charitable activities (including everything from painting a school fence to donating money to institutions to feeding the hungry to planting trees).

The problem is – and the majority of companies fall into this trap – that insubstantial walls will never support a solid roof. In other words, if a company runs CSR programmes for PR purposes and without a solid sustainability strategy and practice, then their veneer of responsibility is merely a sham, which will not support its own weight.

My favourite example of a business without solid walls is that of a multinational food company which spent a fortune on a campaign donating money to schools. The campaign was very attractive, schools received help and the campaign even generated good business results, thanks to some cause-related promotion. The main premises of the same company are in a remote place outside a major town. Employees travel to work either by car or by public transport. The bus stops 0.6 miles from the company’s headquarters. When the employees who use the bus reach the stop, they have to walk half a mile alongside a major road – at risk from cars and trucks passing by. The company never considered the idea of building a pavement to ensure the safety of their employees.

There is a growing vocabulary used to describe essentially empty social responsibility activities, including the terms green-washing and red-washing. Green-washing describes the activities of a company that attempts to communicate its operations or activities as being ‘green’ when they are not: either by portraying a non-environment-friendly activity as green or by communicating smaller green activities to obscure other more significant non-sustainable activities. One good example is the case of an airline that portrays itself as environmentally responsible by using recycled paper for onboard magazines or switching to electronic tickets. Don’t get me wrong: these are activities that deserve prai...

Indice dei contenuti

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Preface
• Acknowledgements
• About the Author
• PART I CORPORATE SOCIAL RESPONSIBILITY
• PART II CENTRAL EASTERN EUROPE: ITS HISTORY AND ITS PEOPLE
• PART III SUMMARY OF BOOK
• References
• Index