May 2003

CSR: An Evolving View of the Field

What we have learned – Where we stand.

This is our thirtieth Monthly Feature and we wanted an independent review of them. Al Straughan reflects on MHC International (MHCi) ideas and views as they have evolved since June 2000.

MHCi has been active in the field since 1994 and the Monthly Features continue to provide up-to-date information to companies and organisations and they have promoted feedback and dialogue; taken as a whole, site they are a picture of MHCi’s evolving view of the field ñ see full website references at foot of this article.

How does MHCi define Corporate Social Responsibility?

In 1994, viagra MHCi defined business as an economic, social and cultural organisation that operates within many relationships with the larger society and Corporate Social Performance as a business organization’s configuration of: principles of social responsibility, processes of social responsiveness, and observable outcomes as they relate to the firm’s societal relationships. While this definition still holds, research and interaction continue to augment it. The definition of CSR and “business” continues to evolve towards greater eclecticism that now includes sustainability. PricewaterhouseCoopers define corporate sustainability as aligning an organisation’s products and services with stakeholder expectations, thereby adding economic, environmental and social value. CSR and CSu seem to be two sides of the same coin – CSR defines the social responsibilities of a corporation that, if implemented, will lead to the corporation being sustained.

MHCi added Corporate Governance to the expanded definition of CSR and this proved to be prescient in light of the Enron scandal and others that followed it. The manner in which a company is governed will inevitably affect both its internal and external stakeholders for good or for bad. These issues alone demonstrate that CSR is not a “fad”.

Who are the appropriate targets for CSR?

To the public eye business, particularly TNCs, is the target for CSR, but organisations ranging from NGOs to international bodies such as the UN, the World Bank and the IMF must also treat their stakeholders in an ethical and responsible manner. While small and medium enterprises (SMEs) far outnumber large TNCs and many carry out cross-border trade. SMEs also can benefit from CSR: Learning for staff, Improved culture, Enhanced Reputation, Recruitment, Improved Productivity, Corporate responsibility, and an expanded Customer base.

Why should companies and organisations adopt CSR policies and programmes?

Business, especially business that operates across borders, has been in conflict for many years as to whether or not to install and implement CSR policies. Public concern over perceived corporate misdeed has given rise to numerous pressure groups that seek to push business toward a more socially responsible ethic. Business and its apologists argue that the “business of business” is to meet its fiduciary responsibilities towards its shareholders.

As early as 1994, MHCi adopted the term “stakeholders” to mean anyone, whether within a company or external to it, who is affected by any action taken by the company; they also include conceptual stakeholders such as the environment. This usage is now widespread in both research literature and corporate reports and publications.

MHCi have argued (and reported the arguments of others) that the ethical and socially responsible treatment of all stakeholders is not only desirable, but is increasingly a survival issue. The issue Corporate Manslaughter and an enlarged view of Duty of Care are an example of this. There are numerous recent cases of employees injured or killed through corporate negligence and governments around the world are reacting to these with legislation.

MHCi has strongly argued the economic case for CSR pointing out that research indicates that there is an economic premium to be gained through the effective implementation of CSR policies: stakeholders are positively affected by increases in product quality that occur due to CSR implementation and are willing to pay extra; and the company gains the premium due to the increased productivity emanating from a well-treated workforce. They have also demonstrated that firms experience an increase in intellectual capital from a commitment to CSR as staff gain additional skills and show increased loyalty through longer terms of service.

MHCi published research that described the CSR “J-curve”. It is hypothesises that share prices may well fall when a firm first publicly states its commitment to CSR. However, when CSR policies are actually implemented, the share price recovers to its original value. Furthermore, as the outputs of CSR programmes are published, the share price continues to rise beyond its original value.

MHCi further described the benefits of CSR on the towering problems of world poverty and terrorism. They believe that the synergistic issues of desperation and humiliation on the world stage breed the terrorism that threatens the peace and security of all nations. It is understood that fighting poverty cannot be the primary concern of business, but it makes good business sense to consider its potential work forces as well as the stability of the countries that either make or buy their goods and services.

TNCs are not major employers in global terms, but the available skills in a manpower pool affect the quality of output. It makes sense for companies to assist the education and training efforts of the countries that host their operations. Similarly, as poverty breeds instability and terrorism, companies must act in their own interest to further defeat poverty. Indonesia is a prime example of the extent to which instability born of desperation can turn away actual and potential investment and lay waste to years of effort.

MHCi sees the vast proliferation of codes and rules for ethical operation as a hindrance to the take-up of CSR. Some large corporations have committed to thousands of such codes. They recognize the importance of such moves as the Global Reporting Initiative and believe that a global effort is required to rationalize and simplify such codes and certainly according to industrial streams.

Finally, MHCi has pointed out the growing move toward Socially Responsible Investment. This is still in its infancy and much is yet to be learned about how corporate publications can indicate a company’s commitment to CSR. Nonetheless, the existence of socially responsible investment mutual funds is a strong indicator of public interest. MHCi has made, and will continue to make, a strong case backed by research for the continuing adoption of the concepts of CSR.

How can CSR efforts be measured?

The measurement of the commitment to, the implementation of, and the outcomes from CSR in a company or organisation is absolutely necessary to the company and to the further spread of CSR. The company should want to know how its own efforts rank in comparison to other companies as a quantitative tool to convince its board of the wisdom of CSR investment and a way of communicating success to all of its stakeholders in a more objective format. MHCi has built its own approach to measurement ñ the 3P approach to CSR Measurement ñ based upon the work of Professor Donna Woods and this is briefly described as follows:

Level I: Principles of Social Responsibility. The level of application of these principles is institutional and is based on a firm’s basic obligations as a business organization. Its value is that it defines the institutional relationship between business and society, and specifies what is expected of any business. This level of the CSR model itself is all about the relationship between business and society.

Level II: Processes of Social Responsibility. Corporate social responsiveness is a business’s capacity to respond to social pressures. This suggests the ability of a business organisation to survive through adaptation to its business environment. To do so, it must know as much as possible about this business environment, be capable of analyzing its data, and must react to the results of this analysis. Nevertheless, the environment of business is not static; it is a complex and ever changing set of circumstances. This environment can be unchanged for decades, if not centuries, and then it falls apart and is reformed like a kaleidoscope with increasing rapidity. The ability to successfully scan, interpret, and react to the business environment requires equally complex mechanisms.

Level III: Outcomes or Products. The focus of measurement is the third level of the CSR model. To determine if “CSR makes a difference“, all of the stakeholders relevant to an issue or complex of issues must be included in any assessment of performance.

There is a fourth, generally silent level of measurement, the efficacy of the communication of the outcomes to a company or organisation’s stakeholder. Level III measures what was actually accomplished but if this is not “put over” to stakeholders in a believable way, much of the value of CSR to the organisation may be diminished. This is the hidden measure of CSR.

There is also a measurement model for immediate practical use in a “Self Rating Test” on the MHCi website and here is a sampling of the overall conclusions of a year ago:

• Evidence suggests that CSR is not improving over time, which is surprising given the supposedly increased interest in CSR issues over the past few years

• CSR is still viewed as essentially philanthropy

• Only 27% of companies produced a social report

• Companies that had a code of ethics did better on CSR than those without yet few produced a social report that suggests that many companies and institutions could better publicise the positive things they are doing through a social report.

• Only 35% of companies had a suppliers code of conduct

• Only 41% of companies applied an environmental code, yet 81% of companies said that they had a statement of the companyís mission & values (i.e. business principles or vision of corporate responsibility). This reduced to 65% when companies were asked if they had a code of ethics or code of business conduct. This further reduced to 57% when companies were asked whether the code had been distributed to employees and then only 40% of companies had trained their staff on their code.

• 71% of companies supported their community in some way

• 72% felt that their products were socially responsible

How does present or future legislation affect CSR efforts?

MHCi once believed that companies would voluntarily focus on CSR in response to the changing business environment; the Enron and World Com debacles would argue for more legislation. Business will continue to face the harsh fact that a continuance of such business ethics will only guarantee strong laws that could drive costs of operations above that required for profitability and sustainability.

CSR and Sports.

It would seem that sport should least need urging to adopt CSR. Nevertheless, response to MHCiís website self-rating test showed professional sport to have the lowest ranking of all respondents despite its worldwide popularity. Among the reasons for this low score are:

Poor transparency of operations, the lack of a code of ethics that has both been produced and distributed and read, the hint of corruption at the top, the lack of any initiative to prevent socially irresponsible use of its products and the absence of a social audit at any level of the game. One might also add the lack of measures to prevent hooliganism and racism amongst spectators. Professional sport – soccer in all of the world outside America, boxing, and baseball and (American) football – is a gigantic, hugely profitable transnational industry that generally fails to police itself and manages to avoid government regulation by the very nature of its cross-border business operation. Professional sport is a fertile field yet to be ploughed and seeded by CSR.

Conclusion.

MHCi’s Monthly Features will continue to present its own findings and those of other CSR professionals as a part of its developing approach to both the concepts and applications CSR. These applications lie at the heart of the services MHCi offers to companies and other organisations. Taking on CSR is costly and complex, but MHCi can guide companies and institutions through its concepts and processes and partner their own individual efforts. In the end, CSR efforts will be judged by what those efforts produce and how well the efforts are communicated to stakeholders.