Corporate Social Responsibility and the Crisis of Globalization

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Three trends related to globalization are driving the rise of "corporate social responsibility": the rising
protest movement against economic globalization, the "war on terrorism" that began on September 11, and recent corporate scandals. The concept of "globalization" has multiple meanings. Corporations and their PR firms view globalization primarily in terms of the economic opportunities associated with opening local markets to international trade and investment. However, the "anti-globalization" movements which have arisen in response to corporate globalization are themselves global in scope. Activists from throughout the world shared information via the Internet during the "Battle of Seattle" in 1999, in which a broad range of environmental, labor and social activists challenged the World Trade Organization. The issues addressed by the topic of corporate social responsibility are also global. In March 2002, SustainAbility, a British corporation which encourages activists to dialogue with companies embroiled in environmental and human rights controversies, issued a report titled "Good News and Bad: The Media, Corporate Social Responsibility and Sustainable Development." The report, produced in cooperation with the Ketchum PR firm and the United Nations Environment Program, covered issues including "biodiversity, child labor, climate change, corporate social responsibility, endocrine disruptors, genetically modified foods, globalization, green politics, the growth of megacities, ozone depletion, recycling, renewable resources, socially responsible investing, sustainable forestry, and urban air quality." From the point of view of "anti-globalization" protestors, these issues demonstrate why corporations cannot be trusted to oversee the emerging new global order. From the point of view of corporate leaders, however, corporate social responsibility is important precisely as a vehicle for reassuring the public that corporate globalization is a good thing. According to Ketchum CEO Ray Kotcher, in fact, the lesson to take away from "Good News and Bad" is that the media needs to be "more socially responsible" by taking "a more active role in communicating the benefits of globalization."

The Bottom Line

Ketchum chairman David Drobis offered similar views at a November 2001 summit organized by the International Communications Consultancy Organization (ICCO). Drobis declared that the "new global imperative for public relations" was "confidence building to save globalization" by targeting three groups: "the private sector, non-governmental organizations and international institutions." One of the main sources of globalization, he said, is the view among activists that "international capitalism is nothing more than a byword for oppression, exploitation and injustice by rapacious multinationals. In their view, companies will stop at nothing to maximize profits even if it means degrading the environment, abusing workers, exploiting third-world markets and committing a host of other sins." Drobis called these "harsh and unfair claims" but added, "The problem is that companies have done little to disprove these allegations."

"Proving the business case is the surest way to erase perceptions that 'corporate social responsibility' is an empty PR bolt-on." --Ketchum Chairman David Drobis
The best way to disprove these allegations, Drobis said, was to demonstrate that there is a positive correlation between social responsibility and profitability--that, in other words, companies have no reason to behave badly, because the profit motive itself is driving them to behave well. "Proving the business case is the surest way to erase perceptions that 'corporate social responsibility' is an empty PR bolt-on," he said. A second way to build support for globalization, Drobis said, was to "build confidence with the second important group in this communications strategy: non-governmental organizations, many of whom are openly hostile toward the private sector." In fact, he said, "The NGO community has also become an important seal of approval for companies and brands. . . . Among the NGOs that are engaged in such partnerships: Greenpeace, the World Wildlife Fund, and the Forest Stewardship Council." But Drobis drew a distinction between NGOs "which are downright militant" and "the moderate, clearthinking NGOs, many of which have valid complaints about pressing social and economic issues related to globalization. These groups differ in many important respects from their more extreme, slogan-based counterparts. Most importantly, they are peace-abiding and believe in solutions, not slogans." As an example of a "moderate, clear-thinking NGO," he pointed to the World Wildlife Fund, which "is pursuing a vigorous and successful communications strategy" to achieve its goals. "These activities are our bread and butter," Drobis said, adding that ICCO members should be "working with NGOs or encouraging these groups to communicate more effectively."

corporate responsibility and globalization

From the Archives Posted on January 25, 2007 Topics: Globalization, Corporations Previously filed under: General Globalization A new business structure appears to be on the horizon as large corporations are now integrating activist demands into their business plans.

Social responsibility, in one form or another, has been on the minds of American business for over 100 years. In the late nineteenth century, US pharmaceutical companies established codes of conduct that stressed their need to serve public health while making profits. In 1977, the Reverend Leon Sullivan proposed a human rights code later expanded into the Global Sullivan Principles of Social Responsibilityfor companies doing business in South Africa. By the 1980s, over one hundred mutual funds and investment funds were screening investments for human rights or environmental records.
Big corporations are increasingly being looked at to make socially responsible But the current idea of social activists telling large corporations how to run their businesses - and companies decisions. listening is much newer. Nevertheless, responding to the demands of activists over issues of corporate social responsibility (CSR) has today become integral to the way many large businesses operate. In March 2002, Starbuck's vice-president of corporate social responsibility told The Financial Times, "Activists play a vital and vibrant role in our continued growth and evaluation of who we are as a company." And, as the following examples show, Starbuck's is not alone.

The idea of social activists telling large corporations how to run their businesses - and companies listening - is something new.

Following criticism of its labor practices in El Salvador and elsewhere, Gap established a Code of Vendor Conduct for its contract manufacturers and hired 80 compliance officers to oversee labor, health and safety issues in its contract operations around the world.

After Shell Oil was spotlighted trying to sink an oil platform in the North Atlantic in 1996, and then accused of ecological and labor abuses in Nigeria, the company began reporting on its global social and environmental efforts. It also initiated $50 million in annual social investments in Nigeria. Nike, targeted over its use of child labor, contributed $7.7 million dollars to the International Youth Foundation to found the Global Alliance for Workers and Communities to monitor labor conditions in its contract factories overseas. In response to outside criticism, Chiquita Brands obtained independent certification for its 119 banana farms in Central and South America, and upgraded its operations to reduce the use of chemicals. Although activist groups only have the resources to target selected issues and companies, momentum seems to be on their side, with the result that life is rapidly becoming more difficult for companies that try to duck corporate social responsibility

issues. But is there an alternative, and if so, what is it? Corporate Social Responsibility CSR advocates maintain that businesses should assume the major role in making the world a better place. In general CSR activists ask corporations to adopt socially responsible policies on labor, environmental and human rights issues, but there may also be special interest demands, e.g., animal rights, women's rights, technology transfer, rainforest conservation, etc., that a company may be called upon to address. Who gets targeted over CSR and why? Debates over corporate social responsibility have taken place on the streets of major cities around the world and in countless board rooms in the developed world. Antiglobal activists, calling for greater social responsibility on the part of multinational corporations, have waged campaigns aimed at changing the nature of international business, and in so doing have forced not a few transnationals to their knees. But some companies seem more likely to be targeted than others. Why? In March 2002, Ronnie Cummins, the director of the US Organic Consumers Association, told The Financial Times his organization had targeted Starbuck's Coffee over issues related to social responsibility because "they're the only big coffee company in the world that pretends to be socially responsible." Several days earlier, the same news source reported that activist groups had targeted Nike because (1) it had large profit margins and could presumably pay higher wages, (2) because it had been one of the first companies to move its operations overseas, and (3) because it was a market leader. And in April 2002, McDonald's CEO and chairman Jack Greenberg, suggested his company had been targeted because "people looking to create publicity for their point of view will attack brands like McDonald's because [they are] more visible." Corporate social responsibility advocates maintain As Greenberg suggests, many less visible companies have that businesses should escaped criticism. In some of these cases, the reasons assume the major role probably have much to do with their products being less in making the world a prominent in the marketplace than hamburgers or sneakers. better place. But there may be another reason. According to activist Naomi Klein (author of No Logo), the whole point of the antiglobal movement is to change the prevailing economic model, not reform companies one at a time. Says Klein, "It's totally unviable from an activist's point of view to just have a movement that is just targeting company after company after company. Companies are being used as entry points to the debate about what sort of economic model makes sense." A New Economic Model

One argument for increased social responsibility on the part of transnational companies is that because these companies have reaped the benefits of globalization, including privatization, deregulation, and freeing of international trade and investment flows, they should assume more of the burdens of social responsibility. As economist David Henderson wrote in Misguided Virtue: False Notions of Corporate Social Responsibility, "CSR is a radical doctrine. It embodies a new and wider conception of the role of private business and the way in which it should be conducted." As one would expect, there is a fundamental disagreement between free trade advocates and CSR activists about the nature of corporate social responsibility. Financial Times columnist Richard Donkin states the activist position when he says, "While profit is important I think that to say a company only exists to make profit is akin to saying that people exist to make blood. There has to be a higher purpose to corporate existence just as . . . there is to that of humanity." By contrast, economist Milton Friedman has argued that the social responsibility of business is simply to maximize the rate of return to the general shareholders, consistent with the law. The Cato Institute's chairman William A. Niskanen adds, "I suggest that a business has no responsibility to any other group, although it may serve the business objectives of some firms to be perceived to promote some social objective." Daniel T. Griswold, associate director of the Cato Institute's Center for Trade Policy Studies in Washington, D.C., elaborates on the free trade position: Corporations have a certain strength and that is providing goods and services that satisfy customers. . . [T]hat is their greatest social contribution. When corporations increase competition in an economy and provide not only goods and services but employment and other economic opportunities, they are making a tremendous contribution to the social welfare of that country. There is a fundamental disagreement between free trade advocates and corporate social responsibility activists about the nature of corporate social responsibility.

Free market economists frequently argue that global environmental and social standards do not address local differences between countries, and may in fact interfere with the development of poorer countries. Says Fred McMahon of Canada's Fraser Institute:

There are doubtless tens or even hundreds of thousands of people now worldwide who would be working and lifting themselves out of poverty were it not for the antiglobalists. Their activities have forced all too many people to remain in dire poverty when opportunity could have been possible. In spite of CSR's apparently radical nature, many corporate executives have argued that social responsibility is just a public relations exercise that companies sign up to because their competitors have. And some activists apparently agree. George Monbiot told The

Observer (London), "CSR is a public relations device designed to throw sand in our eyes." This view was seconded by Kelly Dent, program director of a labor rights nongovernment organization in Sri Lanka, who told The Observer, "Corporate responsibility has become a PR tool of transnational corporations to convince consumers it's OK to keep buying." Does CSR affect the bottom line? Some activists have argued that adopting CSR standards allows companies to build brand value by imbuing their brands with ideas, emotions and beliefs that appeal to consumers. And, they have argued, the cost of building brand value with social responsibility initiatives is usually cheaper than trying to achieve the same effect through advertising and public relations. But many corporate executives disagree. Ben Stimson, group head of a British broadcasting service, told Brand Strategy in 2002: I don't see any evidence in the short term that successful community programs increase sales. . . CSR is not so important for the immediate bottom-line impact as the longerterm positive effects on reputation. The Cato Institute's William A. Niskanen goes even further: I would not personally invest in any business that sacrifices the interests of its shareholders for some other objective [because] any dilution of the objectives of a business is likely to lead to behavior that does not serve any group very well. Seemingly in accord with Niskanen's position is the finding of one study that the stocks of companies that scored well on social and environmental issues did not always perform as well as well as others in the same industry. But other studies have suggested that consumers do respond to CSR indices. In 2002, The Financial Times cited surveys showing that 75 to 80 per cent of British consumers were inclined to reward companies for being "good corporate citizens," and 20 per cent were likely to punish the "bad-doers." "There are tens or even hundreds of thousands Role of Activists of people worldwide who would be lifting Most CSR activists appear to be motivated by a desire to rid themselves out of the world of social ills. But just what is the activist's role vis-- poverty were it not for vis business? Says Financial Times columnist Richard the antiglobalists," says Donkin: Fred McMahon of Canada's Fraser The activist is needed to translate public concern or Institute. opposition into action. Government is in a position to impose regulatory restraints. But neither of these activities would be so necessary if companies

were to build social and ethical concerns into their business aims. This is where activists must engage with business in order to establish some common purpose. Ultimately, Donkin sees activists acting as advisors to and partners with business. But Professor David Schmidtz of the University of Arizona feels there can be payoff to persistence by activists working from outside a company. Schmidtz stated: I do think corporations have consciences, and that they are responsive to activism. I think that they sometimes are less responsive than individuals, because they are more subject to psychological inertia. But beyond any prima facie goals, are there deeper motivations for CSR-linked antiglobal campaigns? Perhaps. An article in The Observer in 2003 suggested that the reason social responsibility campaigns had been taken up by the antiglobal movement was that by imposing environmental and social obligations on multinational firms, the diminished benefits of doing business offshore, e.g., cheap labor, loose environmental laws, profit repatriation and tax avoidance, might cause companies to remain at home. Activist-Corporate Alliances Following the 1999 Seattle World Trade Organization (WTO) protests, partnerships began springing up between activist groups, i.e., non-government organizations (NGOs), and companies. Activist groups that remained aloof from companies suffered criticism for being "old fashioned," and for not giving companies credit for being able to change for the better. Many companies for their part seemed eager to meet the NGOs at the bargaining table. McDonalds CEO Jack Greenberg said McDonald's wanted to work with the non-government organizations that were criticizing it, commenting "Some don't want to do that, and that's disappointing." Some activists have argued that adopting corporate social responsibility standards allows companies to build brand value by imbuing their brands with ideas, emotions and beliefs that appeal to consumers. Government Oversight Before the Seattle demonstrations of 1999, protests had been aimed either at companies for specific abuses, or at governments over their trade policies. In Seattle,

There was also motivation on the part of the activists to establish formal relations with companies because doing so allowed the activists to appear as though they were seeking solutions, rather than simply protesting. But many activists foresaw a danger that the corporations, as a funding source, would eventually take over the campaigns of the activist groups. In fact some environmental groups that have formed partnerships with multinationals have been criticized for taking moneyoften considerable amountsfrom the companies, raising questions about their objectivity.

however, it was the links between government and corporate policies that the demonstrators took aim at. Roger Cowe, writing in The Observer (London) in 2001, has noted the fuzziness of the boundary between government responsibility and corporate responsibility. Cowe feels that corporate boardrooms are a poor place to plan social policies, but says that as business allows itself to be drawn closer to government, it needs to accept criticism about social responsibility concerns that was irrelevant when the only corporate concern was making money. Assistant Professor Dara O'Rourke of the Massachusetts Institute of Technology envisions a new role for governments in monitoring CSR: The failure of traditional government regulation, and of even the ability of developing country governments to strictly enforce labor, environmental, and social policies, is what has motivated civil society actors to find new points of pressure over [multinational companies]. He foresees governments monitoring compliance to CSR standards, and making their findings available to the public sector. But the Cato Institute's Daniel T. Griswold is less eager to see more government control of private business. "The whole idea of globalization is that governments relinquish control over areas of economic life. To me, globalization isn't some independent phenomenon to be controlled and managed by governments. It is the result of governments getting out of the way of the peaceful normal commercial activities that people engage in across borders." Some foresee a greater role for international regulation. Says Steve Tibbett, campaigns and policy director of London-based War on Want, "I would say that the major progressive thinking in the UK and Europe on these issues is moving away from CSR and towards international regulation." The United Nations' Global Compact on The United Nations' Global Compact on corporate citizenship corporate citizenship is is one such international attempt to make globalization more an international stable by establishing a set of common values. Among the attempt to make areas covered by that document are human rights; freedom of globalization more association, child and forced labor and anti-discrimination; and stable by establishing environmental protection. Georg Kell, executive head of the a set of common Global Compact, told The Financial Times in February 2003, values. "The only hope we have is to make globalization work, as poverty is caused by too little globalization, not too much." But at least one activist group would prefer less international involvement. Barry Coates, director of the London-based World Development Movement, argues, "Much of our recent campaigning has been oriented towards preventing international agreements from restricting the rights of governments to undertake these regulatory

responsibilities." Who determines the common good? Not everyone is ready to assign ad hoc activist groups the role of society's social conscience. In the worst case, some have argued, relinquishing the role of social conscience to special interest groupswhich may have no accountability to society or anyone elsecould ultimately lead to a sacrifice of individual freedom. And while Financial Times columnist Richard Donkin feels there is definitely a role for social activism in democratic societies, he points out that some popular movements in the past have been wrong. Adds Chris Fox, director of corporate relations of a major British multinational: Today's rapid reaction by a company in the face of well-meaning protest may, several decades later, be seen as an abrogation of responsibility by that business to stand up and argue for what it believed to be right at the time. Another problem with CSR demands has to do with ethnocentricity on the part of activists in developed western countries making demands that affect people in very different cultures. Says Daniel T. Griswold: There's a real disconnect between the diagnosis of the social activist in developed countries and the diagnosis from people who actually live in poor countries. They want access to rich country markets. They see that as their number one objective. A problem with corporate social responsibility demands has to do with ethnocentricity on the part of activists in developed western countries making demands that affect people in very different cultures.

(Update: Indeed, a 2003 survey by the Pew Research Center for the People and the Press revealed that the free market model has been embraced by people almost everywhere, whether in Eastern Europe, sub-Saharan Africa, the Middle East, or Asia. Majorities in 33 of the 44 nations surveyed feel that people are better off in a free-market economy, even if that leads to disparities in wealth and income. Despite the protests in recent years against globalization and America's role in fostering it, people are surprisingly accepting of the increased interconnectedness that defines globalization.)

And CSR campaigns can sometimes backfire. For example, forcing western ideas about labor standards on foreign countries has on occasion resulted in less overseas investment and fewer jobs. In the same way, raising alarmist concerns about the environment may place unreasonable demands on business. Even in the absence of unintended consequences, there is no guarantee that CSR standards will have their desired effect. Simon Caulkin, writing in The Observer in April 2002, cited the example of Enron as social responsibility gone amuck. While still

solvent, the energy giant made large contributions to the arts, sports and medicine, but those donations in retrospect seem only to have been intended to purchase reputation. Even assuming it is possible to reach an agreement on the desirability of CSR standards, there is still no fundamental agreement on what constitutes economic, social and environmental development. And monitoring compliance may pose special problems. As an example, The Financial Times in 2000 quoted McDonald's senior director for global social responsibility as saying that because social reporting was still in its infancy, there were no generally accepted auditing practices to check on such issues as respecting animal rights and practicing rainforest conservation. "Companies should resolve to run businesses they can be An Alternative to CSR proud of, and they ought to make sure that, In cases where US companies do commit egregious acts when challenged by overseas, what can or should be done? Can companies be activists, they will have held accountable by the public sector even in the absence of nothing to hide," says activist-imposed CSR standards? Consider the following philosopher David example. Schmidtz. In December 2000, The Washington Post published a series of articles alleging widespread patient abuse in Third World countries on the part of American pharmaceutical companies. By conducting their trials overseas, the pharmaceutical companies were able to circumvent normal FDA review of their drug trials. In one particularly disturbing case, a 10-year old Nigerian girl suffering from meningitis was kept on an experimental drug that was being tested long after her symptoms had begun to worsen, even though alternative treatments were readily available. The girl died after three days, but some suspect that her death could have been prevented had she been switched over to a conventional treatment. The Cato Institute's Daniel T. Griswold sees this case as one where it is necessary to take into account differences in attitudes in the developed and undeveloped countries. "It may be in the interest [of somebody in the undeveloped country] to participate in some sort of trial where it wouldn't be for somebody in a more developed country," says Griswold, who further notes that under those conditions it would be interfering with that individual's freedom for a group in a developed country to forbid the trial. Griswold also points out, however, that conducting such a trial might not be in the best interest of a company in terms of public relations back home. He says: It is an alternative for the home country governments to impose standards on the behavior of corporations based in that country, and put limits on their behavior in other countries. You can argue about the legality of that, the morality of that, but at the end of the day it's a constraint our political system has put on companies that are based here.

But the philosopher David Schmidtz would place some of the burden on corporations. Says Schmidtz: I think what multinational companies do in foreign companies should be done with more publicity, for better or worse. Companies should resolve to run businesses they can be proud of, and they ought to make sure that, when challenged by activists, they will have nothing to hide.