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Mainstream, Vol. XLVI, No 18

Social Compliance, Social Accountability and Corporate Social Responsibility

Tuesday 22 April 2008, by Abira Chatterjee

”I honestly believe that the winning companies of this century will be those who prove with their actions that they can be profitable and increase social value — companies that both do well and do good... Increasingly, shareowners, customers, partners and employees are going to vote with their feet — rewarding those companies that fuel social change through business. This is simply the new reality of business — one that we should and must embrace.”
—Carly Fiorina, Chairman and Chief Executive Officer, HP

The idea of responsible business behaviour is far from new. But since the 1990s, increasing concern over the impacts of economic globalisation has led to new demands for corporations to play a central role in efforts to eliminate poverty, achieve equitable and accountable systems of governance and ensure environmental security. In essence, the approach is to view business as part of society and to find ways to maximise the positive benefits that business endeavour can bring to human and environmental well-being whilst minimising the harmful impacts of irresponsible business. The agenda that has resulted from these concerns has variously been called ‘corporate citizenship’, ‘corporate social responsibility’ (CSR), ‘corporate accountability’ or simply ‘corporate responsibility’.

As we all know, Corporate Social Responsibility (CSR) is an expression used to describe what some see as a company’s obligation to be sensitive to the needs of all to take account not only of the financial/economic dimension in decision-making, but also the social and environmental consequences.

Sustainable Development

ONE of the most significant developments in the field of CSR over the past few years has been the growth in public expectations that the companies not only make commitments to its stakeholders in its business operations. The principle is closely linked with the imperative of ensuring that these operations are “sustainable”, that is, that CSR is recognised as not only necessary but also develop systems to manage implementation and systematically assess and report on progress relative to those commitments. Corporate accountability encompasses the systems a company establishes to develop policies, indicators, targets and processes to manage the full range of activities. The scope of operations for which companies are expected to be accountable has increased dramatically in recent years to include not only company’s own performance but also that of the business partners and other actors throughout the company’s value chain. The mechanisms a company uses to demonstrate accountability are varied and inevitably need to change and grow as a company evolves; at the same time effective systems for increasing accountability generally allow the company to be inclusive, responsive and engaged with its stakeholders.

Accountability in its basic sense implies render-ing of accounts and, by extension, indicate answer-ability to an external agency or group and, further, implies ensuring propriety, legality and safeguarding public interest in satisfaction of the expectations of the external agency or group. Social Accountability suggests accountability to the people; this is a core value in a democratic set-up. In a decentralised democracy the basic objec-tive is power to the people.

Corporate accountability today spans emerging CSR issues like business ethics, diversity, marketplace behaviour, governance, human rights and labour rights as well as more traditional areas of financial and environmental performance. Therefore, an increasing number of companies are reporting publicly on their social, environmental and ethical performance, both as a communication to stakeholders and as a management tool. However, as this practice has only become more widespread since the mid-1990s, there are as yet no standard formats to address the type of information companies choose to report, or how that information is collected, analysed and presented.

Effective and accountable management systems help companies shape cultures that support and reward CSR performance at all levels. As part of this effort, many companies are working to increase accountability for CSR performance at the Board level. This can lead to changes in who serves on the Board, how Directors handle social and environmental issues, and how the Board manages itself, and fulfils its responsibilities to investors and other stakeholders. Companies are also seeking to build accountability for CSR performance at the senior management level, in some cases by creating a dedicated position responsible for broad oversight of a company’s CSR activities. Finally, many companies are working to integrate accountability for CSR performance into actions ranging from long-term planning to everyday decision-making, including rethinking processes for designing products and services and changing practices used to hire, retain, reward, and promote employees.

The demand for increased corporate accountability today comes from all sectors. Evidence of this is found in the increasing number of sustainability-related market indices and by external demands for certification or labelling of certain products as, for example, old growth or child labour free. Underpinning this demand for increased corporate accountability is the expectation that companies can and should be more transparent, which essentially means measuring, reporting on, and continuously improving social, environmental, and economic performance. These increased demands are in part a result of recent events that have contributed to erosion in the trust extended to companies. Stakeholders now expect companies to provide access to information on impacts of their operations, to engage stakeholders in meaningful dialogue, and to be responsive to particular concerns unearthed in the dialogue process. To increase the credibility of what is disclosed, leadership companies are also investigating carefully the value of various types of assurance that might support their reporting efforts.

At the same time, many stakeholders are becoming increasingly sophisticated in the type and quality of information they are demanding from companies. In an effort to meet these demands—as well as to strengthen the credibility of their social and environmental reports—some companies are choosing to have their reports externally verified. In doing so, the companies recognise that verification by a third party can add value to the overall social and environmental reporting process by enhancing relationships with stakeholders, improving business performance and decision-making, aligning practice with organisational values, and strengthening reputation risk management.

During the 1990s, calls for greater corporate social accountability by activists, non-governmental organisations (NGOs), governments and the general public increased, both in the United States and internationally. Additionally, increasing numbers of investors were found taking the companies’ social and environmental performance into account in their investment decisions.

The trends in environmental reporting have begun to be duplicated in social reporting.

The standards developed by non-corporate organisations provide targets against which social

performance may be measured. Guidelines also address how social performance can and should be reported. For example, SA8000, launched in 1997 by the Social Accountability International (formerly the Council on Economic Priorities Accreditation Agency) is an auditable standard specifically addressing labour and workplace conditions. The Global Reporting Initiative Sustainability Guidelines, revised in June 2000, provide a framework and principles for reporting on environmental, social and economic corporate performance. AA1000, a standard for the social reporting process, was developed by the Institute of Social and Ethical Accountability and publicly released in 1999.

During the late 1980s and 1990s, non-governmental organisations have been at the forefront of campaigns on social and environmental issues, becoming a powerful force in publicising a wide range of corporate social responsibility issues and also in pressuring companies to address them. Representing particular stakeholder issues, they have challenged corporate reporting of social and environmental performance and demanded independent monitoring of social issues, as well as audits of social and environmental reporting processes.

One of the most significant issues within the CSR agenda concerns the dynamic relationship between CSR and good public governance. The limits both to corporate accountability through law and to ‘voluntary’ CSR-related actions by businesses lie with the public good governance agenda. Legislation to deal with worst case instances of irresponsible behaviour and to set a minimum floor for business conduct will not work in the absence of effective drivers for business implementation and enforcement, whether they are market-based, or a result of enforcement through the state.

A number of initiatives have addressed different aspects of the relationship between good governance, CSR and corporate accountability. They include the OECD Guidelines for Multinational Enterprises, the UNDP High Level Commission on the Private Sector and Development, and the UN Global Compact/UNDP initiative of ‘growing sustainable business in least developed countries’. But there is still no comprehensive institutional setting or process within which to build understanding on the relationship between good governance, market-based corporate social responsibility, and corporate accountability.

The need is to implement social, ethical and environmental policy (commonly known as codes of conduct) through the development of objectives, programmes and mechanisms for monitoring social compliance performance.

One very important aspect of ensuring social accountability is establishing social compliance through continuous audit and monitoring. The demand for increased corporate accountability today comes from all sectors. Thus social accountability ensures transparency, reduces leakages, forces proper spending of funds, generates trust and peace, and creates demand led improvement in services. In a sense, it is a continuing audit and a constant check on malfeasance.

Social compliance is the end product of social accountability. Under social accountability, the civil society and stakeholders to be responsible towards the society they are operating in and to be accountable for the activities they are undertaking expect the big multinational companies to take active steps in thus regard. Throughout Europe and the US, the pressure groups have demanded that production and services sourced out to the developing or under developed countries due to cheap labour should not lead to environmental deterioration, exploitation and bad working conditions. The all-important consumers in these developed countries object to buying clothes or other products, which are produced under inhuman or sweatshop-like working conditions, using child labour, or forced labour, or by underpaid workers.

All this started in the early nineties and led to the emergence of issues like risk management in terms of responsibility towards the society. The most important component of compliance is legal compliance to the local labour and environmental laws as well as implementation of codes of conduct of the organisation in the vendor factories in countries like India, China, Vietnam, Cambodia, Pakistan, Bangladesh and so on. These codes basically comprise of labour standards, health and safety, local labour laws and environmental standards.

CSR : The Indian Scenario

WITH the retreat of the state in economic activity in India, the imperative for business to take up wider social responsibilities is growing. The situation is complex and India is facing a compounded set of corporate responsibility challenges. At all levels, there is a felt need for companies to graduate to strategic interventions in CSR, which at present in many cases remain ad hoc. There are many companies that may spend for long-term development. A sense of strategic direction is a vital component in an effective approach to corporate responsibility. Yet, for all these signs of progress, CSR in India has yet to realise its full potential. Individual and collaborative initiatives continue to be dominated by self-assertion rather than accountability. There is certainly no lack of CSR programmes and projects in India: what is absent, however, are clear metrics for evaluating their actual impact in improving social conditions.

Many Indian business houses, private sector and public sector companies have undertaken major initiatives till date and have adopted several modes of practice related to CSR in India. Several innovative measures have also been adopted by companies towards the institutionalisation of CSR that includes CSR initiatives by Lupin, Cipla, Ranbaxy, NIIT, TCS, BPCL, and Ion Exchange.

To understand the current status of CSR in India, it is important first to map out the landscape and identify the main families of corporate responsibility. For long-established industrial dynasties, such as the Birlas and the Tatas, concepts of nation- building and trusteeship have been alive in their operations long before CSR become a popular cause. Alongside these are the leading Indian companies with strong international shareholdings, such as Hero Honda, HLL (Hindustan Lever Ltd), ITC, and Maruti Udyog, where local dynamics fuse with the business standards of the parent or partner. Another tradition emerges from the public sector enterprises, such as BHEL (Bharat Heavy Electricals Ltd), HDFC (Housing Development Finance Corporation), NTPC (National Thermal Power Corporation), and ONGC (Oil and Natural Gas Corporation), where social obligations remain an integral part of their business despite the march of privatisation. And then there is the new generation of enterprises that has surged on the back of knowledge based globalisation, such as Dr Reddy’s, Infosys, Ranbaxy, and Wipro, where less emphasis is on minimising negative impacts and more on maximising the positive spill-over effects of corporate development.

Making Corporatism accountable to CSR : Towards a Credible Image-building

IN recent years, intangible assets—company values, human and intellectual capital, reputation and brand equity—have become increasingly important to organisations. Companies that exhibit good corporate citizenship are likely to gain a competitive edge. Given below are just a few factors that are fast becoming the primary measures of an organisation’s credibility.

A) Reputation and Brand Enhancement

Company reputation and brand are greatly influenced by public perception. For example, in the largest global survey of the public’s expectations, the Millennium Poll on Corporate Social Responsibility documented that over 25,000 individuals across 23 countries on six continents revealed they form their impressions of companies by focusing on corporate citizenship and two out of three people want companies to go beyond making money and contribute to the broader societal goals. Increasingly, there are success stories that show companies are listening to the public.

Today, companies are also seeking avenues of public acknowledgment of their employer brand. For example, Business Ethics Corporate Social Responsibility Report publishes a list of the 100 best corporate citizens. Social scores regarding environment, community and customer relations, employee relationships, and diversity rank companies.

Another critical aspect of reputation and brand, as a CSR success factor, is the impact on a company’s sustainability—that is, the conditions or characteristics that support an organisation to continue its business, including environmental, social and economic aspects of the company. Ultimately, the environmental, social and economic health of a company transfers into dollars that either directly or indirectly affect reputation and brand, and thus the bottom line. For example, the public will likely favourably view a company whose product contributes to the safety of the environment. This may yield additional applications for employment or employee referrals, thus potentially lowering the time and cost per hire. The final CSR report card is directly linked to the company’s sustainability and consequently influences critical success factors such as reputation and brand.

B) Accountability and Transparency

Open, reliable and regular reporting of a company’s performance—known as accountability and transparency in CSR terminology—is quickly becoming a public issue and one that will need to be kept in the forefront. As a sign of the times, large companies are beginning to publish company information, once deemed as too sensitive to release, with expectations for their suppliers and their internal human resources practices. However, few companies give robust performance measures, with fewer yet being independently verified. The clothing industry, for example, has been criticised for how workers are treated in factories in their supply chain.

C) Risk Management

Managing investor confidence is another factor supporting the business case for CSR. Today, the financial community is examining the organisa-tions’ CSR report cards and their risk profile. The rapid rise of socially responsible investment illustrates that corporate citizenship is becoming a key measure that investors consider when aligning ethical concerns with publicly held corporations. For example, the Dow Jones Sustainability Indexes track the financial performance of the leading sustainability-driven companies worldwide, and the Domini Social Investments screen companies for corporate citizenship, diversity, employee relations, non-US impact, environmental responsibility and safe and useful products. In view of the increasing importance placed on socially responsible investment, this is an opportunity for HR leaders to consider programs, such as community events, that may generate investor confidence linking CSR initiatives to the bottom line.

D) The Talent War

With the anticipated skilled personnel shortage in the forthcoming years, the need for expertise and talent in CSR strategies will continue to be, very important. Correspondingly, CSR influences a company’s competitive advantage today through two key value drivers: 1) company reputation and brand; and 2) human capital. People have begun to contribute their roles to address both areas. For example, a positive CSR initiative was documented by an employee survey that illustrated the pride of employees regarding their company’s contribution to a local AIDS organisation.

Challenges in CSR and Social Accountability

THE business case for CSR is not necessarily a simple one. Among the challenges is the fact that the social and/or environmental impact differs across industries, complicated by the fact that the term CSR has different meanings to different industry sectors in different parts of the globe. Also, some may question if the message CEOs communicate about CSR is an add—on or part of company core business activities—or is it merely an insincere effort to boost public relations? In some organisations, CSR is still considered to mean compliance and philanthropy, although some large companies are now placing CSR in a more strategic framework.

Further, there is the question of how to measure CSR. One of the largest obstacles is lack of a rigorous, credible business case backed up by performance indicators and metrics that can be quantified and benchmarked. Further, investment in CSR is not yet being taken seriously by some organisations.

Not all organisations may have the resources (for example, funds, time, staff) to funnel into CSR initiatives. However, CSR programmes may not be expensive or require a significant time commitment. Organisations that are interested in CSR may choose to start with small projects that showcase their commitment to their workforce and the community. Social Work professionals with their professional knowledge and expertise can help address this challenge by considering different options and developing creative approaches to CSR to in the company.

Thus, it is at this point that the HR leadership, as the eyes and ears of the organisation, is key to the CSR equation. Social Work professionals as HR leaders have the expertise to manage programmes, policies and practices, to engage the organisation and its stakeholders (for example, owners, employees, management, customers, creditors, the government and other public organisations) in the value of CSR by focusing on communications, employee relations, health, safety and community relations to provide their organisations with a competitive advantage.

Besides, the greatest challenge to CSR and accountability are in three areas. First, companies have to decide to look at CSR and accountability as a core part of their business. Many more companies are looking at the world that way today than they were ten years ago, but it probably still is a minority opinion and so part of the challenge is simply about the political will on the part of companies to look at their impact through the prism of sustainability.

Secondly, there are two communities out there that exert immense influence on business across all sectors: consumers and financial institutions. Financial institutions have actually started to move significantly over the last couple of years—a very important development because it’s remaking the way markets work.

The third actor is the government, and we’ve lived through a generation where the market has been paramount, eclipsing the role of the government. Whether it’s through global trade agreements and the WTO or whether it’s their own enforcement of laws or “smart” regulation that looks at creating incentives to engage the business community as a partner, the government remains an incredibly significant actor and can be a net negative, net positive, or neutral in terms of influencing the kinds of decisions that businesses make.

Challenges to Social Compliance

THOUGH many multinational retailers can now boast of a Code of Conduct, only a few have been able to roll out a full scale and independent monitoring programme. The issues involve from finding resources to conflicts with short-term business objectives. On the other hand, most suppliers consider compliance programmes a new burden resulting in poor and untrustworthy partnership with their buyers when it comes to implementing the code of conduct.

External challenges include cultural diversity, understanding the local law and at times finding the local law, finding local language and dialect skills, finding local audit and monitoring professionals who are well conversant with the local issues, involving workers, local communities, NGOs and other stakeholders.

Where do We fit in?—Utilising Human Resources Strategically

VOLUNTARY initiatives are important—if companies agree that this is the correct way of proceeding they are more likely to comply. But self-regulation has its limits. Take the UN Global Compact to which 700 companies have signed up. But a number of NGOs have strongly criticised the Global Compact because they say the companies just use it to promote themselves as “good corporate citizens” without actually having to live up to their commitments, because the Compact entails no verification. But this is not enough and the Global Compact should support some mechanism of monitoring, for instance, by linking up with the Global Reporting Initiative, and should support initiatives for stronger corporate accountability on the human rights principles.

So, while voluntary initiatives can be useful, they have very clear limits. Even as the role and influence of companies has been increasing in our everyday lives, a concomitant system for ensuring their accountability has been missing, making companies, particularly MNCs, a special breed. They command authority but lack responsibility; they control vast resources but do not have sovereignty. They operate in a grey zone at the international level where rules are unclear and control is difficult. Arguably, they can do what they want and get away with it; or they can choose not to do what they ought to do because they have no clear legal obligation.

So where does that leave us? Very much at the mercy of the market. Where commitment is wide, as in the case of the Global Compact, verification measures are absent. Some companies have adopted voluntary codes and verification out of self-interest but that is unlikely to win everyone over—and certainly not soon. Voluntarism at the companies can be a key component of our nation’s effort to address social woes—especially since the government’s social programmes show no sign of escaping budget pressures, political bickering, and bureaucratic inefficiency.

The role of the development professional would be to lead both the business operations and the team organisation to the future workforce development. Besides providing skilled competencies in community capacity building—social, economic and environmental, s/he would also provide assistance in strengthening the capacities of the existing civil society institutions in resource mobilisation and using social and human capital.

Social Workers as Future HR Leaders

WITH company reputation, viability and sometimes survival at stake, one of the critical roles of the HR leadership today is to spearhead the development and strategic implementation of the CSR throughout the organisation and promote sound corporate citizenship. As HR leaders, we can influence three primary standards of CSR—ethics, employment practices and community involvement—that relate either directly or indirectly to employees, customers and the local community, as outlined below. By considering these three CSR standards, HR leaders can then identify the CSR stage of their organisation before making decisions to develop and implement CSR initiatives.

• Ethics—Ethical standards and practices are developed and implemented in dealings with all company stakeholders. Commitment to ethical behaviour is widely communicated in an explicit statement and is rigorously upheld.

• Employment Practices—Human resource management practices promote personal and professional employee development, diversity at all levels and empowerment. Employees are valued partners, with the right to fair labour practices, competitive wages and benefits and a safe, harassment-free, family-friendly work environment.

• Community Involvement—The company fosters an open relationship that is sensitive to community culture and needs and plays a proactive, cooperative and collaborative role to make the community a better place to live and conduct business.

As HR leaders, a development professional can perform the following:
• Create a strong organisational culture around core company values.

• Scan the environment to identify potential threats (for example, competition for talent within the organisation’s industry sector).

• Build personal and professional capability of the workforce (for example, expand intellectual capital within the organisation and in collaboration with other organisations).

• Include ethical concerns in staff performance measures.
• Support participative decision-making.

• Ensure highest standards in workplace health and safety.

• Encourage active engagement in community activities.

Moving Forward with CSR—HR as a Change Agent

FOCUSING on company values, we as HR leaders can set the tone for an organisational culture that is open to and understands CSR. HR’s role as a change agent—grounded in mutual respect and open and honest communication—is essential to educate management and employees about including CSR when setting business goals and objectives. Three practical steps to promote change regarding CSR are to:

1) establish a workable stakeholder consultation process;

2) use the process to understand the local culture (for example, internal—the workforce—or external—the community) at all stages of implementing CSR;

3) create a sense of ownership between the staff who set up a project and those who implement it.

Beyond including CSR in the HR management system, our role as a change agent continues through keeping the CEO and other members of the senior management team informed of human capital initiatives, the status of community relations, measurements of employment activities and development of partnerships for CSR programmes, both inside and outside the organisation.

HR and Community Relations

ONE of the most visible CSR initiatives is in community relations. Strong community relations can have a positive impact on company reputation and brand. Through community programmes that highlight the company doing good work, we can link critical issues—decreasing turnover, savings on cost per hire and attracting talented individuals—to CSR and the bottom line. There are many other possibilities that HR leaders could explore to match both company and community needs (for example, cultural facilities for the community, recreational facilities for employees and their families, an educational project to help prepare tomorrow’s workforce).

What does the Future Hold?

THE impact of CSR is under close scrutiny. There are four primary areas of concern: 1) product responsibility; 2) strategies for sustainability; 3) the quality of CSR management; and 4) the future of CSR overall. Importantly, indications are that organisations will increasingly be held accountable for their actions. According to Pricewaterhouse Coopers, within the next 10 years the evaluation methods used by Wall Street analysts will include new matrices—social performance and intellectual capital—to more accurately assess the net worth of a company and one of the primary tests of how society will judge companies will be based on where corporations place their facilities, how they source goods and services and what economic impact they have on poor and disadvantaged communities. Companies will increasingly adopt a comprehensive view of corporate citizenship that includes the environment and community engagement. A proactive and perhaps controversial recommendation regarding human capital and emerging markets is that global corporations consider putting the world’s five billion or so poorest people at the heart of their profit-making strategies.

Therefore, with the growing importance of human capital as a success factor for today’s organisations, the role of HR leadership will become ever more critical in leading and educating organisations on the value of CSR and how best to carry out the strategic implementation of CSR policies and programmes in India and abroad.

REFERENCES

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