March 2003

Six Key Issues on Corporate Social Responsibility

At a recent Masterclass organized by MHC International Ltd (MHCi), participants from Nestlé, Unilever, Manpower, Reuters, Standard Life, UNICEF, UNCTAD and ILO raised six key questions about CSR:

1. How should CSR be treated in SMEs (Small and Medium Sized Enterprises)?

2. How could CSR be considered in country such as China?

3. How best to measure CSR?

4. What is the key benchmark for CSR?

5. Where does the social responsibility of a company stop?

6. What is the role of international organizations?

There is no quick answer to each of these questions but here, in brief, is an overview of each question with a summary of the response from the Masterclass. 

1. How should CSR be treated in SMEs (Small and Medium Sized Enterprises)? Research cited in SME Monthly feature based on interviews with managers and owners of small businesses suggested the main motivational factors for small businesses to be socially responsible were as follows:

• Learning for staff – new skills and competencies developed
• Improved culture – increased motivation and commitment of staff
• Reputation – enhancing the firms image locally
• Recruitment – links with potential recruits
• Productivity – gathering innovation for products and efficiencies
• Corporate responsibility – personal satisfaction from discharging wider responsibilities
• Customers – expanding the customer base

We also noted in our 2000 global report on CSR that small companies with less than 50 employees have, on average, lower scores than larger companies when ranked on our CSR CRITICSí scale (where zero is very bad and one is very good). What is particularly striking is that companies with ten to fifty employees have the worst record on CSR (0.46) on average, than all other size categories. This is probably because when a firm is very small then each individual is very aware of the business and the ethics involved. As a firm grows more problems develop. As a firm gets to be bigger and bigger then more stringent management controls are implemented leading to more control and awareness of ethical issues.

The most surprising result was the consistently poor scoring of companies with ten to fifty employees ñ the small to medium sized enterprises. Equally surprising is that medium sized companies with 50 to 1000 employees have almost identical behaviour patterns to large (i.e. over 1000 employees) companies. The main striking difference between these latter two groups is that the larger companies pay less heed to transparency of their Boards of Directors than the smaller companies ñ and this is true across all sizes, on average.

But CSR should not pass SMEs by. What is required is a simple checklist for each SME that can be carried out within minutes since no SME has much time for complicated maneuvers outside of business itself. Some attempts have been made to create web based systems but, because of the large numbers of SMEs, only automatic audits can be carried out. A simple system is still awaited.

2. How could CSR be considered in country such as China? The question is much wider and that is how CSR can be considered in a developing country which may bend many rules in its moves to develop. There is much on CSR in developing countries including a chapter in my new book The Planetary Bargain: CSR Matters (Earthscan, London, May 2003). China, in particular, is a difficult nut to crack as many companies are only just emerging from the straightjacket of State control and social responsibility is seen, by many, as a continuance of State interference. Nevertheless, inroads are being made into Asia as ACCA has shown with two reporting awards ceremonies this year – the first time for both Malaysia and Singapore with Pakistan and Hong Kong following soon (see http://www.accaglobal.com/publications/as_index/)

3. How best to measure CSR? One of the biggest problems devisers of measurement systems face, just as the creators of codes of conduct or principles of behaviour do, is what conceptual basis to use. There is also a proliferation of terms ñ CSR, corporate citizenship, corporate sustainability, business ethics etc^[1]. ñ which makes focusing on CSR more difficult. A useful framework for thinking about codes of conduct is one which we at MHCi have been active in working on with companies and where we have developed a number of indicators. It is also multi-stakeholder in concept^[2]. In this conceptual model, the questions asked are whether the company does have a clear statement of principles, whether this is followed by a number of processes to implement these principles and what outputs can be measured. Thus CSR is measured following a business organization’s configuration into three levels: The Triple-P Approach to CSR: Level 1: Principles of social responsibility Level 2: Processes of social responsiveness Level 3: Products (or Outcomes) as they relate to the firm’s societal relationships These can then be further divided, naturally, into the principles, processes and outcomes for each stakeholder group. The GRi, for instance, uses this approach implicitly but tends to go too far with too many indicators. Which leads us into our next issue:

4. What is the key benchmark for CSR? What is the standard upon which companies pursuing CSR can base their own programme? The quick answer is that one does not, to date, exist. There have been many attempts but most stem from the environmental reporting framework: this is more established although not itself without problems. Indeed the current most mentioned benchmarking system in the field is the Global Reporting Initiative. It has gone a long way but many, including MHCi, think it is over heavy with unnecessary detail. Perhaps the best approach for any company wishing to check out where they are is to compare their work with some of the industry prize winners such as The Cooperative Bank, Shell and BT in the UK, Van City in Canada and, yes despite many criticisms, Nike in the USA.

5. Where does the social responsibility of a company stop? Again there is no easy answer. Should a socially responsible company expect all its suppliers small, medium and large to adhere to the same standards? What about the suppliers of suppliers? The latter is, again, of particular importance for companies using developing country suppliers which takes us back to the point above on developing countries. There is no easy solution to this issue and best practice is hard to find although B&Q the largest DIY retailer in the UK (parent company Kingfisher) has paved a way and is worth investigating.

6. What is the role of international organizations? International organizations coming under the umbrella of the United Nations have made several steps in the past few years to promote the CSR agenda. Models are hard to come by simply because the UN is a membership organization of just about all the countries in the world and therefore any agenda is a compromise of many views. For instance the UNís Global Compact is widely cited but only covers nine principles, a subset of all stakeholder concerns, and has been accused of lacking teeth. However, earlier this year, according to Ethical Performance, (see www.ethicalperformance.com) an interesting development is that companies that have signed the United Nations Global Compact but fail to meet its terms may face expulsion. Other UN organizations who now have work on CSR include ILO, World Bank, Inter-American Development Bank, UNCTAD, UNRISD, and UNICEF.

We hope that the quick overview above gives you either some new insight or food for thought on aspects of CSR. We shall be examining these questions in more detail as part in our forthcoming Masterclass in London, October 2003. Please contact enquiries@mhcinternational.com for more details.