Chapter 2

Social responsibility in the

corporate business environment
Why ethics matter?
 Corporate social responsibility
• corporate social responsibility is defined as an obligation of
the organisation to act in ways that serve both its own
interests and the interests of its many external
stakeholders.

• The organisation’s stakeholders comprise government,

competitors, shareholders, customers, employees, civil
society, suppliers, pressure groups and regulators

• In other words, stakeholders include anyone that can be

affected by the organisation
Multiple stakeholders in the environment of
organisations
 Corporate social responsibility
• Corporate social responsibility (CSR) is the general name given to the
desired behaviour of organisations in regard to financial,
environmental and social performance.

• The financial, environmental and social performance constitute the

“triple bottom line” or sustainability reporting.

• The “triple bottom line” concept compel companies to look at the

impact of their activities on society, the environment and even
human rights.

• The “quadruple bottom line” concept measure companies

performance covering results in terms of economic, social,
environmental and cultural factors.
 A shared-value approach of CSR

• A shared-value approach would mean that company’s look

after not only their employees, its customers and its
shareholders but the broader community as well.

• A win-win solution might be to delay production or

extraction until certain environmental concerns can be
addressed.

• Companies may be able to assist with the funding of

research on environmental assessment programs.
 CSR issues across the globe

• The Australian Financial Services Reform Act, 2002 requires

the seller or issuer of investment products to disclose to
potential investors

• “the extent to which labour standards or environmental,

social and ethical considerations are taken into account in
investment decisions”.

• In 2006, about a third of Australia’s top 500 companies

produced a triple bottom line report.
 CSR issues across the globe

• The G3 sustainability Reporting Guidelines, launched by the

Global Reporting Initiative in October, 2006 encourage
companies to report on their operations in accordance with the
guidelines, using eight (8) stated principles
• Materiality
• Stakeholder inclusiveness
• Sustainability context
• Completeness
• Balance accuracy
• Reliability
• Comparability
• Clarity and Timeliness
 CSR issues across the globe

• Increasing number of Australian companies, such as

Westpac, have realized reports indicating that they have
referred to and followed the guidelines.

• Multinational companies that have adopted guidelines

include Nokia, Procter & Gamble, General Motors and
Siemens.
 CSR issues across the globe

• Reputation Measurement (RM) is Melbourne-based company which

aims to rank corporations on their CSR performance known as the
Australian Good Reputation Index (later “RepuTex”).

• RupTex ranks companies from 1 to 100, on four categories:

1. Environmental impact
2. Corporate governance
3. Social impact
4. Workplace practices

• Companies are understandably sensitive about where they come in

the rankings. Because corporate reputation are perceived as an asset.
 CSR issues across the globe

• Launched in December 2017 at the One Planet Summit, Climate

Action 100+ attracted worldwide attention as one of key global
initiatives to tackle climate change.

• Climate Action 100+ is an investor initiative to ensure the

world’s largest corporate greenhouse gas emitters take
necessary action on climate change.

• The companies include 100 ‘systemically important emitters’,

accounting for two-thirds of annual global industrial emissions.
 CSR issues across the globe

• Climate Action 100+ is coordinated by five partner

organisations:
• Asia Investor Group on Climate Change (AIGCC);
• Ceres;
• Investor Group on Climate Change (IGCC);
• Institutional Investors Group on Climate Change (IIGCC)
• Principles for Responsible Investment (PRI).
 CSR issues across the globe

• Investor representatives from AustralianSuper, California

Public Employees’ Retirement System (CalPERS), HSBC
Global Asset Management, Ircantec and Manulife Asset
Management have helped to lead the design and
development of Climate Action 100+.

• The initiative is designed to implement the investor

commitment first set out in the Global Investor Statement
on Climate Change in the months leading up to the
adoption of the historic Paris Agreement in 2015.
 CSR issues across the globe

• “As institutional investors and consistent with our fiduciary duty to our
beneficiaries, we will work with the companies in which we invest to
ensure that they are minimising and disclosing the risks and maximizing
the opportunities presented by climate change and climate policy.”

• To date, more than 300 investors with more than USD $33 trillion in assets
under management have signed on to the initiative.

• Climate Action 100+ suggest that more investors are mobilising across
dozens of countries to drive corporate action on climate change.

• Companies on the initiative’s focus list, have started to make progress

towards its goals.
 CSR issues across the globe

• In 2003, South Africa introduced legislation compelling

companies listed on the Johannesburg Stock Exchange to
publish social and environmental performance information.

• In 2006, about three quarters of the top 100 UK companies

published their triple bottom line details.
 CSR issues across the globe

• There are a number of internationally recognized frameworks

for CSR and sustainability reporting.

• The UN Global Compact

• Accountability 1000

• Social Accountability 8000

• International organisation for standardization (ISO)

 The UN Global Compact:
• Global Compact: a United Nations standard introduced in 1999 and
operational from 2000.

• It encourage businesses to support the protection of international

human rights, uphold freedom of association and recognize the right
to collective bargaining

• Uphold the elimination of forced and child labour, undertake

initiatives to promote the development and diffusion of
environmentally friendly technologies and greater environmental
responsibility (www.unglobalcompact.org)
 Principles of the UN Global Compact

Human rights

Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights
Principle 2: Businesses should make sure that they are not complicit in human rights abuses

Labour standards

Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining
Principle 4: Businesses should ensure the elimination of all forms of forced and compulsory labour
Principle 5: Businesses should ensure the effective abolition of child labour
Principle 6: Businesses should ensure the elimination of discrimination in respect of employment and occupation

Environment

Principle 7: Businesses should support a precautionary approach to environmental challenges

Principle 8: Businesses should undertake initiatives to promote greater environmental responsibility
Principle 9: Businesses should encourage the development and diffusion of environmentally friendly technologies

Anti-corruption

Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery
 Accountability 1000
• Accountability 1000: is established by the Institute of Social
and Ethical Accountability based in London.

• Accountability 1000 is a framework that organisations can

use to improve their ethical performance by defining goals
with internal and external auditing
(www.accountability21.net)
 Social Accountability 8000
• Social Accountability 8000 is a voluntary, universal
standard for companies to certify and audit their labour
practices and those of their suppliers and vendors in areas
such as:

• Child labour, forced labour, health and safety, free

association and collective bargaining, discrimination,
discipline, working hours, compensation, and
management systems. (www.sa-intl.org).
 International organisation for standardization (ISO)

• The International Organization for Standardization (ISO)

was established in 1947 and is the world’s largest
developer of voluntary international standards.

• In recognising the worldwide trend towards sustainability,

the organisation has now developed a number of
international ISO standards focusing on sustainability.

• These standards provide guidance, accountability,

certification and stakeholder assurance for organisations
that adopt the relevant standards.
 Major ISO Standards relevant to business
sustainability
Standards Focus Description

A standard to support the organisers of events of all

ISO 20121:2012 Event sustainability management systems
types in integrating sustainability with their activities.

A set of standards relating to aspects of environmental

management. Provides practical tools for organisations
ISO 14000 Environmental management
to control their impact on the environment and
constantly improve their environmental performance.

Guidance on how organisations can operate in a socially

ISO 26000:2010 Guidance on social responsibility
responsible way.

Standards to assist organisations to use energy more

ISO 50001:2011 Energy management efficiently, through the development of an energy
management system (EnMS).
 The classical view of CSR
• The classical view holds that management’s only responsibility in running
a business is to maximise profits.

• In other words — the business of business is business and the main

concern of management should always be to maximise shareholder value.

• This narrow ‘shareholder’ and ‘profit-driven’ model was supported by

Milton Friedman, a respected free market economist and Nobel Laureate.

• Friedman, argue that widening the interpretation of social responsibility

will undermine the economy by detracting from the basic mission of
business to earn profit for owners.
 Argument for and against CSR

Business create problems

The purpose of business is to
and should, therefore help
generate profit for owners
solve

Corporations are citizens in Involvement in social

our society programs gives business too
much power
Social
Business often has the responsibility
resources necessary to There is potential conflict of
solve problems interest

Business is a partner in our

society, along with the Business lacks the expertise to
gov’t and the general manage social programs
population
 Managing social responsibility
• Not all companies are alike and neither are their
approaches to CSR.

• At one extreme of the continuum is the organisation that

never considers the ethical nature of its decisions and tries
to hide its transgression.

• At the other extreme, an organisation that proactively

seeks to identify areas to help society.
 Social obstruction
• Companies that take the Social obstruction stance,
never consider the ethical nature of its decisions and
tries as much as possible to hide its wrongdoings.

• Deliberate ignorance and transgression of legal and

ethical responsibilities
 Social obligation
• Companies that takes the Social obligation
approach, does everything required of it, but no
more.

• Fulfillment of all legal and ethical requirements, and

nothing more.
 Social response
• Companies that adopts the Social response stance, meet its
social and legal obligations and sometimes going beyond
them (at a considerable expense) to make a positive
difference to the community.

• Fulfillment of legal and ethical requirements, with extra

contributions to the community.
 Social contribution
• Companies that adopts the Social contributions approach
proactively seeks to identify areas in which it can help
society.

• Fulfillment of legal and ethical requirements in conjunction

with proactive community assistance.
Strategies of CSR
 Managing social responsibility
• The demands for CSR are probably higher than they have ever
been, and there are pitfalls for managers who fail to adhere to
higher ethical standards as well as companies that seek to avoid
their legal obligations.

• Organisations need to develop their approach to CSR in the

same way as they develop their strategies concerning any other
corporate operations.

• They should view CSR as a major challenge that requires careful

planning, decision making, commitment and evaluation.
CSR Pitfalls
 Formal and informal dimensions of
managing CSR
• Legal Compliance: is the extent to which organisations
conforms to local, state, federal and international laws.

• In an organisation, the task of managing legal

compliance is usually delegated to the functional manager

• Although it remains the overall responsibility of the

board of directors and senior management.
 Formal and informal dimensions
of managing CSR
• Ethical compliance: the extent to which the members of an
organisation follow ethical (legal) standards of behaviour.

• Many organisations now provide training in this area and

have ethics committees responsible for approving operations
and research protocols as well as for developing code of
conduct and code of ethics.

• Such committees may also serve as peer review panels to

evaluate alleged ethical misconduct by an employee
 Formal and informal dimensions
of managing CSR
• Philanthropic giving: donations by an organisation of financial
or other resources to support charities or others worthy
recipients.

• Such giving require careful consideration and may involve long-

term relationships between a company and a charity that the
company perceives as important in society and as
complementary to the company’s mission.

• The company may wish to be represented in the charity’s

governance structure to consolidate this commitment.
 Informal dimensions
• Organisational leadership and culture and its support for
whistleblowers.

• Leadership practices set the standards for the behaviour

that the company is prepared to accept from its employees
and this often becomes the face of the company in the eyes
of the public.
 Evaluating social responsibility

• Any organisation that is about CSR must ensure its efforts

are having the desire effect.

• Many companies now require new employees to sign a

statement indicating their commitment to adhere to a
code of ethics or a code of conduct.

• Organisations also need to have an ethical checklist to

determine whether their corporate behavior is appropriate
to the challenge.
 Evaluating social responsibility

Did the company follow up immediately in a situation

of questionable ethical conduct?

Did it deal with the situation transparently or embark

on a cover-up?

Did it take corrective action?

 Evaluating social responsibility

• Some companies routinely undertake corporate social

audits, which are formal analyses of the effectiveness of
the company’s social performance.

• The audit is usually conducted by a task force of high-level

managers from within the company and require that:

1. The company clearly define its social goals

2. analyze the resources that it devotes to each goal
3. Determine how well it is achieving each goal.
 Evaluating social responsibility

• The results are then communicated throughout the company

and perhaps externally, to indicate the manner in which the
organisation is committing it resources.

• The general opinion is that CSR has arrived and is here to stay.

• There is a positive (though weak) link between companies CSR

and financial performance reported by the academic literature.

• The question is not about whether it is justified, but rather how

and to what it is applied.
 Evaluating social responsibility

• A formal assessment of corporate social performance might

include questions posed at these four levels.
1.Is the organisation’s economic responsibility met? Is it
profitable?
2.Is the organisation’s legal responsibility met? Does it obey
the law?
3.Is the organisation’s ethical responsibility met? Is it doing
the ‘right’ things?
4.Is the organisation’s discretionary responsibility met? Does
it contribute to the broader community?
• QUESTIONS!!!!!!!!!!!!!