Virtual Learning Resource Centre

Corporate social responsibility and globalisation: An action plan for business

by Jacqueline Cramer, Greenleaf Publishing, 2006.

Abstract

Business in a globalised world is no longer only about profit. Companies that operate globally are increasingly being called to account over their social responsibilities to the workforce, local communities and the environment. This book, based on the experience of 20 Dutch companies, provides an action plan for implementing corporate social responsibility (CSR) in an international context. It shows how firms can take action to balance the three “pillars” of CSR: people, planet and profit. CSR is important, not just for multinational firms, but also for small and medium-sized enterprises operating in increasingly internationalised supply chains.

(Reviewed by Kevin Barham in March 2007)

(These book reviews offer a commentary on some aspects of the contribution the authors are making to management thinking. Neither Ashridge nor the reviewers necessarily agree with the authors’ views and the authors of the books are not responsible for any errors that may have crept in.

We aim to give enough information to enable readers to decide whether a book fits their particular concerns and, if so, to buy it. There is no substitute for reading the whole book and our reviews are no replacement for this. They can give only a broad indication of the value of a book and inevitably miss much of its richness and depth of argument. Nevertheless, we aim to open a window on to some of the benefits awaiting readers of management literature.)

The three pillars of corporate social responsibility

Corporate behaviour around the globe is under scrutiny as never before. The erosion of trust in business fuelled by all too frequent scandals, and the dynamics of a networked society in which corporate misdemeanours (perceived or otherwise) can rebound around the world in seconds, have given rise to a new threat to companies. “Reputational risk” is the failure to manage the firm’s reputation in a way that is consistent with its goals and values.

As the author of this book shows very clearly, business in a globalised world can no longer concern itself only with profit. Firms must also demonstrate corporate social responsibility (CSR) wherever they operate internationally. Companies with global operations are increasingly being called to account over their social responsibilities to the workforce, to local communities and to the environment. Companies that take these responsibilities seriously are faced, however, with a variety of problems and dilemmas. For example:

How can they navigate tensions between observing international rules of conduct and responding to specific local cultural circumstances?
How can they ensure social responsibility in the product chains in which they operate?
And how can they best contribute to the local economy of developing countries?

This book, in trying to answer these questions, is aimed at companies wishing to be socially responsible with respect to their international activities but who are not sure how to go about it. It offers concrete guidelines, step-by-step plans and practical examples based on the experiences of 20 Dutch companies, large, medium and small, who took part in a 3-year programme entitled “Corporate Social Responsibility in an International Context” organised by CSR Netherlands, a foundation which promotes corporate social responsibility and is funded by the Dutch government. The book provides an action plan that enables companies of all sizes to manage risk and identify opportunities for engaging in a socially responsible fashion wherever they operate abroad.

The author, Jacqueline Cramer, is a Dutch consultant and university professor in “sustainable entrepreneurship” who works with some of the largest Dutch firms on these issues. She is in no doubt that, if firms ignore their social responsibilities, they may suffer in a very real way; if firms are publicly criticised because of poor working conditions, environmental damage or violations of human rights, their sales may be endangered and their employees demotivated.

Some firms have turned this threat into an opportunity and now present themselves as socially responsible organisations. According to the author, firms that embrace the concept of corporate social responsibility don’t wait until the government imposes particular rules or laws. They look ahead and identify which environmental and social measures they are able or willing to take, trying to find a responsible balance between the three “pillars” of CSR:

People – social well-being
Planet – ecological quality
Profit – economic prosperity.

The choices firms make about the appropriate balance between these three depend on their vision or business strategy but they must also take account of what the outside world asks of them. This will create dilemmas and the firm must know how to deal with them.

The book is notable for showing that CSR in an international context is not only high on the agenda of the large, multinational firms that we traditionally associate with international business. As a result of economic globalisation, smaller firms are also becoming more involved in a network of international suppliers and customers, within which they will be held accountable for their activities and impact on society and the environment. The book is therefore of particular interest for two groups of companies:

Firms with branches in foreign countries and which are confronted with differences in culture, morals and law concerning social and environmental policies. They have to steer between internationally accepted guidelines and standards and what is accepted locally.
Firms that wish to be socially responsible in the international product chains in which they operate. They are faced with the question of how to organise this “chain responsibility” and who they must involve in it.

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Observing international rules of conduct

The author begins by showing how the number of international rules of conduct with regard to corporate social responsibility has grown steadily since the Second World War and the onset of globalisation. Most sets of rules are not legally binding but they contain a moral obligation to act accordingly and can theoretically be disciplinarily enforced within a company if it so decides. The maze of rules can be confusing for managers so, to create some order, the author sets out a diagrammatic overview of the important guidelines and standards (covering human rights, labour rights, the environment, corruption, and the economy), and suggests a plan of action for addressing them. She recommends two steps in the action plan:

Make an initial assessment of the firm’s current situation regarding CSR in an international context using the OECD Guidelines for Multinational Companies. These cover general policies, disclosure of information, employment and industrial relations, the environment, the fight against bribery, consumer interests, science and technology, competition, and taxation. These can easily be transformed into a questionnaire which can be used to obtain the opinions of relevant people in the organisation (and why not appropriate outsiders too?). The firm can then determine policy priorities for international CSR and draw up a code of conduct.
To develop the policy priorities, firms should use theme-specific international guidelines and standards for CSR (e.g. human rights, labour rights, the environment, corruption, etc). An appendix sets out the main guidelines and standards for international corporate responsibility with their website addresses.

The different ways in which the action plan can be implemented is shown by case studies of three companies: Fugro (technical consultancy), Friesland Foods (dairy products), Royal Haskoning (engineering consultancy), and Koninklijke Wessanen (health foods). After turning the OECD guidelines into a questionnaire, most of the firms held a meeting before the questionnaire was sent out to explain its objective. The cases show that local managers around the world are sometimes reluctant to answer the questions as they see it as a form of “control” or they are afraid of making things public. Because they tend to be unfamiliar with the theme of corporate social responsibility and the OECD guidelines, the questionnaire needs to be simple. One firm chose not to produce a questionnaire but instead used the OECD guidelines as a topic of discussion for the management team.

The results of the questionnaire and the decision as to which CSR themes need more attention by the firm is often made in a meeting in which representatives from different parts of the company participate. The management team then determines the policy priorities for CSR but takes into account the expectations and demands of the most important stakeholders to avoid them questioning the choices later. A top-down approach is usually unavoidable when implementing CSR, says the author, so staying as close as possible to the organisation’s daily practice with any CSR policies or procedures that emerge is very important as it will increase support within the firm.

The code of conduct forms the core of the company’s policy with regard to CSR and is a useful means of beginning internal communication about the vision and the main features of the firm’s approach to CSR in an international context. Such internal communication is essential to ensure everybody in the organisation is familiar with the firm’s CSR approach and adheres to it.

The code of conduct also plays an important role in external communication of the firm’s CSR policy. The author points out that not all parts of the OECD guidelines or the theme-specific guidelines are equally relevant for every company, but if the firm chooses not to act on a particular aspect, it must justify that to the outside world to avoid criticism that it is wilfully ignoring certain issues.

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Tension between international rules and local circumstances

Applying international rules of conduct can cause tension because of cultural, social and legislative differences between countries. The author recommends that, in principle, companies should try to adopt the same policy throughout the world and use international agreements on CSR as a basis for that policy. She recognises that this is not always possible but feels the use of universal values is less problematical where fundamental human rights (such as abolishment of slavery, torture, etc) are concerned than for, say, employment and industrial relations. (China, for instance, legislates against free trade unions and collective bargaining).

Inevitably, dilemmas arise. Should you adopt a uniform approach based on universal principles or assume a “cultural-relativistic” approach and adapt to local circumstances? One problem is that, if a Western firm enforces its values too strongly, it might be accused of cultural imperialism. But conforming entirely to the local situation may transgress against international rules of conduct and bring it censure from the international community. Many firms are trying to deal with such tensions by drawing up their own internal rules for their people. As examples, the author presents case studies of Shell’s human rights policy, Heineken’s “integrity” policy, and the environmental policy of Thermphos (a chemicals company).

The experience of these firms shows that social themes, such as human rights and integrity, create more moral, culture-related dilemmas than the environmental theme. Free trade unions, discrimination and equal opportunities are among the particularly problematic areas where it is necessary to take local customs and circumstances into account. Despite such local pressures, some firms try to create some uniformity in policy. Shell and Heineken, for example, have introduced rules whereby they demand that local managers must indicate which dilemmas they face and how they wish to solve them. Through consultation between local management and the corporate centre, it is decided whether the proposed solutions are in keeping with the general policy. Shell and Heineken set a “bandwidth” to indicate the limits within which local management can act.

These firms also show that in giving external stakeholders a transparent view of the firm’s policy on social themes, it is not sufficient just to communicate the code of conduct. They must also provide outside stakeholders with insights into the procedures and regulations the company has established to support the internal decision-making processes. They must also communicate information on the bandwidth within which company branches can act on a certain CSR theme and the reasons for setting the limits.

Thermphos indicates that, while worldwide standardisation of environmental policy is less prone to cultural differences, in practice it is sometimes limited by large differences in the level of technology between different production locations, and that climatic and soil differences or the presence or absence of certain natural resources may make regional differentiation necessary. The vision of the local manager and their personal leadership style are key to success, as is the position that the environment policy occupies within the organisational structure and the authority of the people responsible for it.

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CSR in different political cultures

The political-social situation in a country plays a large role in what is expected from foreign companies (e.g. black empowerment and the fight against AIDs are central issues in South Africa). Each country gives its own meaning to CSR depending on the urgency of certain social issues and the specific political and sociocultural context. The examples of Brazil and China show that, although both are rapidly developing economies, companies operating there have very different priorities with regard to CSR.

Case studies of ABN AMRO (banking), Pentascope (an organisational change consultancy), and Royal Wijma (timber trading), illustrate how they approach CSR in different countries. These cases confirm that a company must adapt its policy on CSR to the national needs and local customs in a country, taking into consideration the social problems and political context of that country. The three examples show that it is possible for a firm to do this without disregarding its own standards and values. They also indicate that it is important for companies to understand the local CSR priorities before they invest or enter into any business relationship in a particular country. To help them do so, the author provides a questionnaire for obtaining country-specific information with regard to CSR.

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“Chain responsibility” in an international context

The author’s insights into the involvement of SMEs in international product chains and the implications for their approach to CSR form a particularly original aspect of this book. As she points out, globalisation is making supply chains increasingly international in all sorts of industries. Developed countries are outsourcing an increasing proportion of their production to companies in low-wage countries and the danger is they will neglect social and environmental responsibility in those countries. As we know, certain companies have already been accused of using child labour or of working in countries that violate fundamental human rights.

To avoid such criticism, more and more firms feel the need to accept and act on their “chain responsibility” by urging other companies in the chain to observe international and local guidelines and standards. Given that smaller firms may lack the clout to make international partners agree to a more socially responsible approach, this is not a straightforward process. The firm has to ask itself how far along the chain its responsibility stretches and how, in practical terms, it can ensure that chain partners observe international guidelines and standards. To have any chance of succeeding, shaping chain responsibility demands a structured approach and the author provides a step-by-step plan, illustrated by company examples, to help firms implement it.

To indicate the range of industries drawn on by the author and the wide applicability of the suggested approach, the examples here include Banco Real (ABN AMRO subsidiary, Brazil), Agrofair (fruit importer), De Bijkendorf (retailer), Difrax (baby products), Merison (retailer), and Simon Lévelt (coffee supplier). The variables that will affect the approach to chain responsibility consist of the complexity of the chain in which the firm operates, the level of ambition among chain partners about reaching certain performance standards, the diversity of the product range, and the power of the company in the chain.

The steps recommended by the author are as follows:

Determine those parts of the product chain for which you can or want to take social responsibility, taking into account the complexity of the plan
Identify whether you focus in the product chain on a niche market (where you can immediately adopt high environmental and social standards) or a mainstream market (where a more gradual approach will be necessary)
Determine the degree of diversity in the product assortment
If you purchase a great diversity of products, develop a strategy to ensure your most important suppliers comply with your ethical code of conduct
If you are part of one or a limited number of product chains, consider whether you are able to impose standards on your suppliers or other companies in the chain. If you can do so, take the initiative to organise chain responsibility. If not, seek cooperation with an influential organisation or competitors in the same sector who can help organise chain responsibility

As the author makes clear, firms will meet various problems in implementing international chain responsibility. Often suppliers don’t understand the social or environmental requirements set by their customers. (Employees in Asian countries, for example, may want to work a great deal of overtime to earn extra money but this is counter to international standards which restrict overtime.) Checking whether suppliers comply with requirements is complicated. With a diverse product range it is impossible to monitor all products and firms may have to restrict themselves to monitoring products that give rise to risks or which are strategically important. Auditors can be hired but their training and competence vary and who pays for the cost of the audits and corrective actions is a tricky issue.

The author asserts that firms in international product chains need to adopt transparent communication policies to gain acceptance of the company’s approach by both internal and external stakeholders. Accordingly, she sets out guidelines for reporting on the compliance of suppliers and the way in which the organisation supports suppliers in conforming to the requirements it sets.

Despite her recommendations, the author has to acknowledge that in reality many companies that want to promote global chain responsibility cannot do so on their own as they lack sufficient power in the chain. They urgently need, she says, to combine forces within cross-sector or sector-specific initiatives, multi-stakeholder organisations or with a powerful customer in the chain.

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The contribution of international companies to the economy of developing countries

The author examines the positive contribution that international companies can be expected to make to the local economy of developing countries. She dismisses the literature on globalisation as being too general and ideological to offer companies a concrete guide on how to act. She therefore draws on the practical experiences of a range of companies with branches in developing countries for guidance. (One or two of these, we should note, are not international firms but are actually local companies operating in their home market):

Friesland Foods – transfer of knowledge to dairy farmers in developing countries
Shell Foundation – sponsorship of development activities in poorer communities
Simon Lévelt – supporting coffee suppliers in developing countries
CEMEX – a Mexican cement company which set up a savings and credit system for poor people
Grameen Bank – microfinance lending in Bangladesh. (See the VLRC review of Banker to the poor by Muhammad Yunus, Grameen’s founder.)

The author says that international companies contribute to the local economy in many different ways. They support economic growth through taxation, employment, wages and reinvestment of profit in the local company. They also improve the physical infrastructure and communications and transfer scientific and technical knowledge.

In particular, the author believes that the most important challenge for international firms will be to take initiatives that support the poorest communities (the “bottom of the pyramid”, sometimes known as the “BOP”) in improving their economic position. This will create a new type of contribution to the local economy – improving the livelihood of the poorest communities by providing products and services adapted to their specific situation. In this way, fighting poverty, bolstering the local economy, and strengthening the economic position of the company go hand in hand.

But, as the author also notes, applying the BOP philosophy means a big mental change for international firms. In addition to fundamental technological changes, it requires deep empathy for the daily lives and activities of poor communities and for the challenges they face. But, if a company is successful in developing products and services that meet the needs of the 4-5 billion people at the BOP, it could be a major breakthrough in reducing the gap between rich and poor.

Two books recently reviewed on the VLRC – The fortune at the bottom of the pyramid by CK Prahalad and Capitalism at the crossroads by Stuart Hart – explore the question of the BOP in great depth. Prahalad, in particular, believes that there is a “fortune” waiting at the bottom of the pyramid for those international firms with the necessary imagination and commitment to engage with the people and communities there. The BOP philosophy, as expounded by Prahalad and Hart, goes beyond just providing products and services designed for the world’s poor, although that is an important part of the proposition. It also includes the notion that international firms could help to encourage mass entrepreneurship among the poor, thus greatly improving their livelihoods and standards of living. It is even suggested that it might fuel the next stage of world economic growth.

It is interesting to note that, while Prahalad and Hart, the two leading exponents of the BOP hypothesis, focus on the role that large multinational firms might play in engaging with the BOP, this book’s identification of the increasing involvement of small and medium-sized firms in international product chains implies that SME’s might too have a part to play in alleviating world poverty.

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The future of corporate social responsibility

How companies accept their corporate social responsibility in future will depend on developments that occur both locally and globally. To explore the future for CSR, the author presents four possible scenarios or “world-views” in which the attitude of businesses and stakeholders to CSR differs significantly. Each scenario depends on the degree to which the world goes global or regional (i.e. more local), and on the tension between pressures for efficiency or “solidarity” (concern for society and the environment), combined with the choice between free market or government coordination. The scenarios, briefly, are as follows:

“Global market” – a scenario characterised by globalisation, individualisation, self-interest, efficiency and strong economic growth. Ecological risks such as climate change are high. Business will have a defensive attitude in this scenario and CSR could go one of two ways: it may no longer play a role or companies could gain a positive reputation by improving their environmental performance and acting in accordance with legislation.
“Global solidarity” – CSR is a way of life for global firms in this scenario. The emphasis is on self-regulation by firms and partnerships and multi-stakeholder initiatives around the world. It is more difficult here for a company to make its name with regard to CSR.
“Safe region” – here, central concepts are conflict, survival and short-term security. Regional issues will be a central concern of multinational firms and CSR will be strongly oriented towards the local community. Companies will be mainly concerned with strengthening their local identity and reporting locally on local CSR initiatives.
“Caring region” – CSR is a theme highly valued in local societies and is a guiding principle for how companies act. Reporting on CSR will not be as important; sustainability will be integral to the production of local products.

The author does not speculate as to which is the more likely scenario to emerge, though it is hard to believe that concern about corporate social responsibility and its impact on reputational risk will diminish. If this concern does continue to grow, as we expect, the major challenge will be to integrate CSR more into the strategy and culture of international companies. Perhaps some of the Dutch firms in this study will show the way.

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