Corporate Social Responsibility Policy of Multi-National Corporations - Essay Example

CORPORATE SOCIAL RESPONSIBILITY POLICY OF MNCs: THE DEFINING PARAMETERS Survey, quantitative and qualitative analysis of available literature on CSR policy of MNCs Introduction If the contemporary business trends were made the yardstick, it would not be an exaggeration to state that business communities have become more homogenous. Multi National Corporations (MNCs) serve as perfect instances of this shift. MNCs are investing in major parts of the world. The boundaries are melting. The channels of communication have become open. Globalization is the norm. But amidst this entire happening, there is a serious concern. The concern overshadows the race towards more finances, profit and success. The concern is the 'greater common good' or in a more formal jargon, 'Corporate Social Responsibility'. World Business Council for Sustainable Development defines Corporate Social Responsibility (CSR) as "The continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large." The European Commission advocates that CSR not only means fulfilling legal expectations, but also going beyond compliance and investing more into human capital, environment and relations with stakeholders." The need for Multi National Corporations to adopt Corporate Social Responsibility and implement it in spirit is immense in the current business scenario. The competition and corporate warfare in the business environment not only makes their focus very self-centered, but also robs them off all the attention they need to provide in the social context. It is this mad race, which needs to be controlled. It is because competition can catalyze the de-structuring of the social edifice based on values, morals and a sense of social responsibility. There have been grave losses to the environment, people and their lives as more and more MNCs are diversifying their areas and reach of operation. It is this concern that triggers a major thought process to streamline this chaos. Some method in this madness can only creep in if these big corporations begin to understand their role in a larger and more responsible perspective. The gamut of this perspective should not just limit to the stakeholders alone, but involve the society as a whole. Survey of literature There have been many researches and studies on the concept of 'Corporate Social Responsibility'. There are many schools of thought on the subject. Some studies call CSR as an extension of the brand-building effort of the companies, while others attach a serious functional connotation to the concept. The Green Paper (2001) by the Commission of the European Communities identifies two main dimensions of CSR. One is the internal dimension that relates to the internal functions and processes of a company. The external dimension involves the external stakeholders. Several research-based studies have discussed the concept of 'Corporate Social Responsibility'. The different schools of thought explain it based on different experiences and consequences. One school of thought emphasizes on the model of collective action. According to Jarusri Jiravistakul of the Kenan Institute, who conducted studies on the collective action/institution model and its implementation in Thailand, Egypt and Indonesia the concept of CSR has succeeded in terms of business practices, environmental management and capacity development. This particular perspective talks about the operations of business enterprises as they affect a wide spectrum. The resources they make use of are not limited to those of the proprietors and the impact of their operations is felt by so many people who are in no way connected to them. They affect the shareholders, the suppliers of resources, the consumers, the local community and the society at large. George Goyder in The Future of Private Enterprise argues, "Industry in the twentieth century can no linger be regarded as a private arrangement for enriching shareholders. It has become a joint enterprise where workers, management, consumers, locality, trade unions and government all play a part. If the system which we know by the name of private enterprises to continue, some way must be found to embrace many interests which go to make up industry in a common purpose". There has been a growing acceptance of the plea that business should be socially responsible in the sense that the business enterprise, which makes use of the resources of the society and depends on society for its functioning, should discharge its duties and responsibilities in enhancing the welfare of the society of which it is an integral part. Milton Friedman (Nobel economist) was a proponent of the view of corporate social responsibility. He argued that there is one and only one social responsibility of business- to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud. Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible. This is a fundamentally subversive doctrine." Friedman has also discusses how CSR has been critiqued by neo-liberal economists as an aberration from efficient market economics, introducing barriers to inimical to choice and enterprise and subsequently wealth creation. However, it is pertinent to make a note here that anti-globalization academicians view CSR as a defense mechanism driven by public relations and avoidance of more stringent regulations. A more contemporary view on the concept of CSR was put forth by George A. Steiner and John F. Steiner. According to them, a reasonable approach to Corporate Social Responsibility is as follows: 1. Each business must take into account the situation in which it finds itself in meeting stakeholder expectations. 2. Business is an economic entity and cannot jeopardize its profitability meeting social needs. 3. Business should recognize that in the long run, the general social good benefits everyone. 4. The social responsibility expected of a business is directly related to its social power to influence outcomes. 5. Social responsibility is related to the size of the company and to the industry it is in. 6. A business should tackle only those social problems where it has competence. 7. Business must assume its share of the social burden and be willing to absorb reasonable social costs. Some models have been designed to describe the evolution and extent of social orientation of business corporations. One of significant model among the many proposed is Archie B. Carroll's three-dimensional conceptual model of corporate performance. Carrol describes this three-dimensional perspective in the gamut of economic, legal, ethical and discretionary responsibilities. However, another academician William E. Halal's 'return-on-resources model of corporate performance' recognizes the fact that no corporate social posture would be value-free and this makes corporate social responsiveness a tremendously difficult task. This implies that a firm can only attempt to unite the diverse interests of various social groups subject to conflicting social issues. Therefore the concept of CSR takes a while to be implemented one, and two there are many barriers to its effective execution. But another model proposed by Ackerman tried to describe the development of social responsiveness of a company. Ackerman described it to be a three-stage process that begins with the top management recognizing the existence of a social problem that needs the company's attention and acknowledge s the company's policy towards it. The second stage is the study of the problem and giving suggestions for its redressal. The third and the final stage is the implementation of the social responsibility programme. Though there are varied perspectives of sociologists and academicians on the development and implementation of Corporate Social Responsibility, yet all of them seem unanimous in voicing the need for the same. Quantitative Empirical evidence MNCs are investing in almost all the areas of the world. Consequently, there is an ever-increasing risk of their entry into conflict-prone zones. There is also a risk of outbreak of violent conflict linked to certain corporate activities. As the concern about how companies interact with their political and social environments abroad is increasing, so is the concern to develop comprehensive Corporate Social Responsibility strategies. In the research paper, 'Impact Assessment Tools For Multinational Corporations', this has been discussed in detail. As MNCs invest in other areas, they tend to exploit all the resources to sustain, grow and gain profit. In fact, nation states and MNCs are two distinct regimes that operate in one global economy. Consequently their relationship is acrimonious. While the nation state looks forward to the well being of its people, the MNCs look forward to the interests of their shareholders without necessarily accepting the direct responsibility of their actions. This catalyzes the conflict situation between the duo. When the MNCs make headway into another country, all seems rosy. However, with time as they expand their operations problems do arise. A particular example of MNCs and the government being at loggerheads could be seen when MNCs invest in conflict-prone areas. Royal Dutch Shell in Nigeria and British Petroleum in Colombia suffered reputational damage because of the alleged impact of their security arrangements on local communities. Talisman Energy, a Canadian oil company in Sudan, has attracted adverse publicity because of its security co-operation with the field's co-owner, the Sudanese Government, which Amnesty International has accused of grave and systematic violation towards the population of that area. The following is the diagrammatic representation of various MNCs' investment in conflict zones. Qualitative Empirical Evidence A series of articles on corporate governance and corporate social responsibility appeared in The Ivy Business Journal (March/April, 2003). From discussing the nuances of corporate governance, they also shed light on how Corporate Social Responsibility was becoming a popular norm in most corporations. Though the articles did express serious doubts over CSR being another form of spin or public relations or 'greenwash' in some cases, it did cite certain relevant instances of effective implementation of CSR by some companies. The research discussed CSR as being run by three drivers. The first was the economics of reputation. This implied that CSR provided a company with brand image. Some companies were performing badly on account of human rights violation or irresponsibility towards the environment. Textile brand Gap and sports brand Nike suffered on the above grounds and saw a dip in their sales and profit. The second driver is the rapid growth of Social Responsibility Investment Funds (SRI). IN UK alone, these funds have increased by a factor of ten in the four years, 1997 to 2001.The third driver has been the blurring line between corporate governance and social responsibility and a growing political consensus on the issue. There has been a rise in shareholder activism i.e., the use of their voting rights as shareholders for better execution of CSR. In essence, CSR is emerging in more mature markets of Southern countries, and so far by passes countries where business case is less evident. Even in advanced developing countries, CSR has remained confined to some select companies and has not penetrated into the business policies of small and medium enterprises. According to World Bank there are about 1000 buyer codes that exist today and they are rapidly increasing. A study by the World Bank, 2003 have pointed out that duplication of codes disrupts or even prevents full implementation of social and environmental standards at the level of individual supplier. Moreover, inconsistent application of codes also creates a significant barrier to the implementation of CSR practices in global supply chains. Increasingly it is felt that the traditional top-down CSR strategies are not achieving improved CSR implementation and is not sustainable in the long run. Scope for future study Social responsibility and social responsiveness are here to stay and everyone must live with them. This does not mean that if there are parts of them with which one is not in full agreement that one should not try to do something to correct or modify them. The question is not really whether a company should become involved in social responsibility activity, but rather how deeply a company should become involved in social responsibility activity. Every company most certainly must obey all social responsibility-oriented laws and requirements. They must also have a minimum code of morals and ethics to which all of their employees must agree and adhere; otherwise, each employee will establish and operate under his or her own standards to the possible detriment of the company and society as a whole. 1. What does the notion of social responsibility entail How can it be measured Who are the stakeholders capable of carrying out the assessment 2. Are existing legal requirements are sufficient to ensure that acceptable minimum standards that are achieved by all companies 3. What additional initiatives can companies engage in, over and above legal minimum standards, and how can these be promoted 4. Which degree of transparency is needed to make the process credible How can managers of social funds include or exclude companies from the funds References Goyder, George (Oxford: Basil Blackwell, 1951), The Future of Private Enterprise: A study in responsibility Friedman, Milton, (University of Chicago Press 1962), Capitalism and Freedom Steiner, George A. and Steiner John F.(New York, Random House 1991), Business, Government and Society Goulbourne, Tricia (September, 2003), Impact Assessment Tools For Multinational Corporations, Retrieved on December 6, 2006, http://www.carleton.ca/cifp/ March/April, 2003, From corporate governance to social responsibility, The Ivy Business Journal Corporate Social Responsibility, Retrieved on December 6, 2006, http://www.questia.com Twose,Nigel and Cramer, Aron (2004, August 31), Corporate Social Responsibility Initiatives[Message 2], Message posted on http://rru.worldbank.org/Discussions/Discussion.aspx Carrol, Archie B., (Business Horizon, July-August 1991), 'The Pyramid of Corporate Social responsibility: Towards the Moral Management Organizational Stakeholders' Halal William E., ( California Management Review, 1977, No.4), 'A Return on Resource Model of Corporate Social Responsibility' Glueck, William F.(MC Graw -Hill Intl. Book Co., Auckland, 1972), Business Policy and Strategic Management Read More