Concept of corporate responsibility
When I first saw that corporate resonsibilty was a topic which I was studying, I expected it to be boring, however, I was pleasantly surprised. I found that the concept of corporate responsilbilty was not only interesting, but it is also increasingly relevant in today’s society. Although I feel that doing this work on the topic of regulations would be easier as I have attended more lectures on that topic, I think that the topic of corporate responsibilty would be more interesting to write about.
I hope I do not live to regret this decision! Corporate responsibility (CR) has various definitions. However, broadly speaking it covers the ways in which organisations manage their core business to add social, environmental and economic value in order to produce a positive, sustainable impact for both society and for the business itself. Health and safety in the workplace is an important Corporate responsibility issue.
Terms such as ‘corporate social responsibility’, ‘socially responsible business’, and ‘corporate citizenship’ all refer to this concept. CR is essentially about companies moving beyond a base of legal compliance to integrating socially responsible behaviour into their core values, recognising the sound business benefits in doing so. Since businesses and the challenges they face differ widely, government interventions need to be carefully considered, well-designed, and targeted to achieve their objective.
Companies, no matter what shape or size, have a considerable social, environmental and economic impact on the communities in which they operate. In today’s highly competitive economy the importance of ensuring ‘positive impact’ can be crucial to both corporate reputation and business success. Many companies are placing greater emphasis on the role that they can play as ‘responsible corporate citizens’ and accept and understand the importance of adopting a social, ethical and environmentally responsible approach to business activity.
By recognising their wider responsibilities, many now accept that that they are responsible and accountable to a wide range of stakeholders, including business partners, employees, customers, suppliers, community groups and opinion formers, not just shareholders. CR embraces the totality of this approach. The discipline has grown rapidly over recent years and has developed into a wide ranging practice which permeates all levels of business activity, affecting corporate governance, employee relations, supply chain and customer relationships, environmental management, community involvement as well as other key business operations.
Whilst traditions of corporate philanthropy date back to Victorian times, companies are now more than ever beginning to engage actively with community organisations and build meaningful relationships to meet both community needs and business objectives, and to address key social concerns. Businesses have woken up to the fact that if they want to maximise their profits in the medium to long-term, with healthy, well-skilled and well motivated stakeholders in and around their businesses, they need to take a more proactive approach.
CR and sustainable development is not a new name for redistribution of wealth, it is a forward thinking strategy that will ensure that the greatest number of people can benefit from the free-enterprise system. CR is big business. It is not just another passing trend, but is the direction which all successful 21st century businesses will have to take in order to survive in an age of globalisation. Only five years ago, the words “corporate responsibility” turned up around 50 company reports on an internet search engine.
Today, thousands of companies display their newly developed ethical codes and socially responsible projects at the click of a mouse. CR is a concept now familiar with the vast majority of companies. Whether it is in response to external pressures, from government, civil society or the public, or driven by an internal belief in the economic benefits of responsible business practices, many companies are now starting to take concrete steps to deal with social and environmental issues.
In addition, the rise of socially responsible investment and the growing interest amongst mainstream investors and pension funds in long-term sustainability has sent explicit signals to companies that their management and performance on CR is viewed by the financial community as a guide to future success. In a first step to responding to these external pressures, many companies have created a function within their business dedicated to CR. Initially this was acknowledged as a positive first phase in moving corporate responsibility into the mainstream of business.
However, recent thinking and discussion has been more ambivalent and departments focusing solely on CR have attracted criticism for making social and environmental issues appear the preserve of specialists outside of core business. Critics argue that whilst CR operates in specialist departments on the margins, it risks being a ‘built on’ addition to real business with no particular relevance to mainstream operations in, for example, strategy, marketing, finance and accounting, and human resources. (http://www. unido. org/userfiles/PuffK/CorporateSocialResponsibility.pdf)
Driven by demands for greater transparency and accountability, a key objective of these departments is often to communicate their company’s corporate values and responsible business practices to its stakeholders. However, by creating a specialist department that often deals more with the message rather than the content of corporate responsibility, critics claim that some companies have effectively created their own ‘Achilles Heel’: a very public but not always substantial declaration of their record on corporate responsibility.
For example, Smith and Cohon observe in the Financial Times that, “CR in most companies is in a ghetto: it is a marginalised and marginal activity, often left to a dedicated department with the task of getting the message out about a company’s good works. ” ( 3 Smith, C. and Cohon, C. ‘Good works in a corporate ghetto’, Financial Times, 08. 12. 2004, p. 21) CR and community involvement initiatives are increasingly having significant positive impact for many companies.
Aside from generating considerable public goodwill, evidence shows that CR can also assist companies to build links with public policy makers, aid innovation, involve, motive and retain employees, build corporate reputation and enhance competitiveness. Corporate community involvement can take the form of charitable donations, gifts in kind, employee volunteering initiatives and staff secondments. Many companies are also now developing sustainable and mutually beneficial partnerships with community and voluntary organisations working in a variety of fields, including education, regeneration, employment and homelessness.
In short, CR is now seen as an essential element of good business practice. Once governments look into the complexity of CR they seem to falter in making any specific requests from business. Instead, CR is often defined as a voluntary activity, over and above that required by legislation, by which companies deliver benefits to society either through good business practice or pure philanthropy. The problem is that the concept of CR is infinitely elastic. The more companies do in this area the more they are asked to do.
While some people may argue that this situation is perfectly justifiable, such an approach is not conducive to making CR a part of mainstream corporate life. It is clear that CR is a concern that is important to the public, shareholders, employees and consumers of many countries. People increasingly judge a company according to what it does and how it does it, not just what is says about itself. A number of well respected international opinion polls show that a significant proportion of the public believes that business does have wider responsibilities beyond simply making profits, paying taxes, creating jobs and staying inside the law.
At the instrumental level, business can and will exploit the huge potential of CR to deliver innovative solutions to business issues that can benefit both companies and the societies in which they operate. Action at this level is entirely consistent with the teachings of the market economy. Companies will reap benefits for themselves and their shareholders by delivering benefits to other members of society, especially their customers, employees and other business partners. For a long time companies have seen the financial gains that come from better environmental management.
Reducing energy consumption using few resources more efficiently can save organisations money and will benefit the planet. On the social side, BT recently announced the results of some very careful research that shows its CR activity has a positive effect on satisfaction levels among residential customers. (http://www. btplc. com/Thegroup/Companyprofile/Corporatesocialresponsibility/index. htm) This increased satisfaction among the company’s 19 million domestic customers has a direct impact on corporate reputation and I expect that this feeds through to better financial results.
At the instrumental level of CR it can be demonstrated that both business benefits and social gains are delivered through a win-win strategy. However, this essentially relies on the enlightened self-interest of business and it is doubtful if it will address some of the bigger issues facing society today. The UK company law reform has proposed a provision that would require listed companies to prepare an Operational and Financial Review (OFR) which should contain information about the performance of the company, not just in financial matters but also regarding social and environmental matters.
In Denmark, the reporting regulation on companies is a step ahead of the UK or France. A new corporate reporting act effective from 2002 provides that all Danish companies have to prepare OFRs in their annual report which give true and fair information to a wide range of stakeholders to inform their economic decisions about the company. This information also has to be audited. In the United States, there is also the Sarbanes-Oxley act ( http://fl1. findlaw. com/news. findlaw. com/hdocs/docs/gwbush/sarbanesoxley072302.
pdf) signed into law by President Bush in July 2002, which introduces stringent laws on corporate governance. Corporate governance is clearly on the agenda of European governments too, certainly in continental Europe many leading thinkers see this issue as central to the CR debate. This is in line with the tradition in many continental European countries where employees have a formal role in the governance of companies through mandatory representation on the supervisory boards.
More frequently, we are seeing issues of corporate governance being regulated by soft law, the production of codes, guidelines or recommendations rather than hard legislation. This type of soft law is becoming increasingly popular in relation to managing and reporting on CR issues. Often this approach promotes one particular issue and thereby many of these codes, guidelines and recommendations are competing with each other. This is confusing for companies and other stakeholders and therefore may be counterproductive, discouraging the take up of CR among the wider business community.
However, even if governments were to begin to reformulate their thinking on CR, some would argue that this might not be enough to address the difficult issues facing society today. These are the broader systemic economic, environmental and social questions of the 21st century, which were the main reasons for the UN hosting the World Summit on Sustainable Development in Johannesburg. (http://www. sustainable-development. gov. uk/international/wssd/index. htm) Certainly, the challenges are enormous.
For example, data from WWF shows that we are already consuming 30 per cent more than the earth’s biological productive capacity can cope with. This is happening when a huge proportion of the earth’s population is using minimal resources because of economic under development. There are a growing number of interesting dilemmas facing companies in this area. Very often, the challenges are posed in the following terms: “If you are not part of the solution, you are part of the problem. ” For example, car manufacturers continue to produce sports utility vehicles with powerful engines far beyond the requirements of everyday use.
These cars are environmentally damaging and are a potential hazard to other road users. However, manufacturers are simply responding to a competitive demand for such cars from customers. Only recently have some of the leading manufacturers begun to consider how they can reinvent their business to create the conditions by which they can solve customers’ needs for flexible transportation without incurring these external social and environmental costs. As a result, the debate about CR is moving into new areas and requiring companies to examine the very nature of business itself.
As business struggles with the complexities of understanding CR at the systemic level by rethinking its role, so too are governmental responsibilities changing. I think that the government needs to reinvent its role. Part of this would involve making legislation to create a normative framework that will ensure business behaviour delivers the desired outcomes to meet the systemic challenges facing societies. Governments should also work with business to create the incentives that will encourage companies to take further action at the instrumental level for the mutual benefit of business and society.
It is clear that simply labelling CR as an activity that takes place over and above legal requirements is a dangerous approach. Much more is required of both business and government if we are to address successfully the systemic economic, environmental and social challenges at the national, European and global level. Whilst researching my essay I came across a very useful website, detailing the work of HSE. HSE’s mission is to ensure that the risks to health and safety of workers are properly controlled.
In terms of Corporate responsibility, they work to encourage organisations to: improve management systems to reduce injuries and ill health; demonstrate the importance of health and safety issues at board level; and report publicly on health and safety issues within their organisation, including their performance against targets. This is one example of how the government is trying to raise awareness of CR issues and improve the current situation. The issue of health and safety and CR has been in the news recently as the conclusion of the investigation into BP’s Texas plant which killed 15 people in an accident several years ago.