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CSR definitions

Corporate social responsibility is a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis. (European Commission, 2001)

The four kinds of social responsibilities constitute total CSR:

Economic responsibility: profitability, strong competitive position and efficient operation, within the constraints of the law – Legal responsibility.
Ethical responsibility: actions and practices that are not codified, but are nonetheless demanded by society. Honest and fair operation, preventing and minimising damage to stakeholders.
Philanthropic responsibility: charitable giving. (A.B.Carroll, 1991)

CSR is a form of business conduct that extends beyond compliance with the statutory requirements, and which a corporation undertakes voluntarily, judging this to be in its long-term interests. It is linked to the concept of sustainable growth: companies integrate economic, social and environmental impacts into their operation. Not an optional “supplement” to the core business profile, but a means of corporate governance. (Communication, 2002)

Managing the company’s impact on the stakeholders and the local community… a summing practice in the course of which the company is managing itself, fulfills its mission, operates according to its values, cooperates with its stakeholders, measures its impact and publishes a report of its activity. (Department of Trade and Industry, UK)

A stakeholder in a company is any group or individual who can affect or is affected by the achievement of the company’s objective. (Freeman, 1993)

The three main characteristics of stakeholders are what determine which of their interests the company takes into consideration:

  • Power – the ability to influence the company
  • Legitimacy – the type of legal or ethical claim
  • Urgency – how critical or time-sensitive the claim is (Mitchell)

Spotlight on CSR

The weakening of affluent countries has granted large corporations greater power and influence. At the end of the 20th century, governments of modern societies found themselves confronted with problems for which the solutions exceeded their capabilities. On one hand, the treatment of questions of sustainability of natural environment has significance beyond the government; on the other hand, it is coupled with a decrease in social well-being, making it an unpopular task.

In the 1980s and the beginning of the 1990s, moderate right wing governments came to power which emphasized the liberalization of the market. The power of trade unions lessened and large state-owned civil service companies were privatized. As a result, the economy with its growing influence simultaneously assumed numerous state roles, and with this, its scope of responsibility also increased. As part of globalization, companies spread their operations throughout the entire world while the reduced significance of national borders also decreased the government’s possibilities of influence and control.

Multinational companies located various activities in countries with weaker regulations. Consequently, they were confronted with numerous ethical questions for which there were no available generally accepted internal or external regulations. Or if such did exist within the company, then they were not implemented identically throughout the various areas. On top of this, in many cases, the practice of outsourcing initiated a race to the bottom in the group of underprivileged countries. Since territories were chosen where less factors hindering or impeding operations were to be found, such as high taxation, regulations on environmental protection and labour law regulations, the countries competed with each other to ensure the companies an appropriate environment. As a consequence, the dilemma of the accountability and control of the companies came to the fore. Another effect of globalization was the strengthening of civil organizations; they became international and were able to call public attention to numerous negative practices. As a result, several scandals surfaced at the end of the 1980s, causing the economy to be confronted with its own responsibility.

The 1980s saw the establishment of an initiative with socially responsible investments as its focus (SRI). The revolution is related to the boycott of foreign companies with operations in South Africa. The withdrawal of investments had its foundations in the principle that individuals did not wish to support the repressive apartheid system with their capital. Although the boycott ended in 1993, its effect proved to be enduring. In addition to the investments, several other social viewpoints were also taken into consideration.

At the beginning of the 1990s, it was revealed that Nike was exercising ethically objectionable practices in its Asian plants. Children were being employed in the factories, without consideration of employee or human rights. This scandal which exploded at the middle of the 1990s caused a 15% plunge in Nike shares. During this period when public attention began to be focused on child labour and the question of sweatshops violating human rights in underprivileged countries, it was not the given government who was forced to take measures, but the clothing companies involved, such as Nike, C&A, Disney, Marks & Spencer, Levi’s, etc. Since this scandal, Nike, as well as Reebok and Puma have introduced an ethical conduct codex with the goal of eliminating violations to human rights in the operations of their suppliers.

The conflict of Shell Oil Company with the Nigerian Ogoni people also dates from the beginning of the 1990s. The company has been present in the country since the 1940s. The government possesses a majority of the ownership in the local company and depends strongly on its operations. Income accounts for approximately 80% of the revenue of which nothing is returned to the minority. The Ogoni people live in one of the richest oil regions of Nigeria. In 1990, a leader of the Ogonis founded the organization called MOSOP (Movement for the Survival of the Ogoni People), which served to call the attention of the public to the plight of affairs in Nigeria. On one hand, the company was accused of the fact that because of the federal income they provided, they could remain under the power of the repressive regime. On the other hand, the damaged oil pipelines and oil processing significantly pollute the environment in which they live and the company was not providing compensation for this.

The conflict took a turn in 1993 when the government retaliated with violence and the violation of human rights. The organization took nine directors into custody and sentenced them to death. Shortly before the execution, the company appealed to the mercy of the Nigerian President, but this proved to be too late and the leaders were executed in November 1995. International indignation reached overwhelming levels and everyone blamed the company. In this case, Shell did not accept the MOSOP organization as its own stakeholder and this resulted in a great loss of trust and damage to the firm’s favourable reputation.

Shell suffered yet another scandal in this period when the company wanted to rid itself of the North Sea oil platform called Brent Spar which had already proven inoperable. Years of research brought the conclusion that the safest solution would be for it to be submerged in the Atlantic Ocean. After lengthy negotiations, the government of the United Kingdom agreed to the operation. In spite of this, the Greenpeace organization found this solution unacceptable and began a campaign against the company. According to them, the platform contained so much dangerous material that enormous damage would be caused to the environment, proving this in detail by their own research results. The company, however, did not agree, for one, with the quantity of the chemical material content; in addition, they felt that the platform would be sunk to such a deep level that it would not affect the living environment in any manner. As soon as the company began the procedure, Greenpeace took drastic measures in which members occupied the platform, simultaneously summoning people to a boycott. The campaign was so successful that the company retreated and after wide-range consultation with various interest groups, the platform was transported to a Norwegian fjord where it was dissembled. Later examinations proved that Greenpeace had been mistaken and no support whatsoever could be found for their claims. But by that time, people had already lost trust in the credibility of the company.

The English division of Ford paid substantial damages in 1996 when a photograph of black workers in a corporate publication was so manipulated to give the impression that the employees were white. Likewise in 1999, the company was accused of brutal treatment of workers of certain other nationalities in their factory in Dagenhem. The company was forced to conceive a plan of action to abolish fundamental anti-racist attitudes. One would assume that today there would be no discrimination problems in the labour market, but it has remained one of the most sensitive and spotlighted questions of the past two decades. For example, in 2001, Coca-Cola was obliged to pay the largest compensation ever due to racial discrimination.

Worldcom, the second largest telecommunications company in the United States, declared bankruptcy in 2002, after which it was revealed that between 1999 and 2002 a profit of 9 billion US dollars had been falsely booked.

In 2002, the energy company Enron became the centre of attention when it came to light that their financial balance sheet had been falsified for several decades. The company was also accused of strengthening a culture of dishonesty within the walls of the company, which eventually led to the falsification. The scandal also served to ruin the independent auditing company, Arthur Andersen.

The year also saw the merger of Daimler-Benz with Chrysler, cited as a “merger of equals”. However, one year later, it was divulged that Chrysler was struggling with financial difficulties and the director of Daimler-Benz was forced to admit that they had never wanted the company as an equal partner. Similarly in 2002, GlaxoSmithKline was involved in a scandal after it was disclosed that despite the company’s bad performance, the managing director received an enormous pay rise.

The questionability of the neoclassical theory

The basis of neoclassical economics is an economy which is directed by a perfectly functioning free market. A prerequisite for this is for the person to be a rational, autonomous being, whose decisions are governed solely by the following of self-interests. From this point of view, rationality is the maximization of usefulness. In the course of the past century, this notion has been questioned by sociologists and economists alike. Neoclassical creation of theory is basically an ideal type, thus the conclusions drawn from that cannot be realistic either. It is enough for us to take a look at the economy of today and it will be revealed that the attributes of the perfect market are irrelevant. The fact that there is no superiority on either the side of supply or demand would imply that monopolies and cartels do not exist. Both buyers and sellers may enter the market freely and may leave it just as freely, whereby this is not true for employees. Obviously, not everyone is armed with complete information regarding the price of goods, their quantity and quality, to mention only a few attributes. The corporate scandals of the past ten years also exemplify that the manifestations of imperfection cannot be avoided by external interference, i.e. state intervention, either. Among other things, ethical questions in economy surface due to these irregularities.

According to the neoclassical theory, as long as the market is working properly, the following of the individual’s own self-interests brings good for society and desirable moral results. Therefore, this paradigm excludes from the very beginning the existence of ethical questions. The neoclassical theory examines both the economy and the market in themselves, isolated. Society, culture and politics are merely external entities. It would be much more productive if it did not exclude the effects of the various systems on each other or the embedded state of the economy.

In 1988, the American sociologist, Amitai Etzioni, outlined a new social economic theory in his book entitled “Moral Dimension”, which promoted the elevation of the ethical and sociological perspective in economics. The foundation of the isolation of the market is the “person in the community” (I & We) paradigm or the questionability of the individual as homo oeconomicus. According to Etzioni, it is impossible to examine this independently of the community as these are interdependent on each other. In the course of the decision of the individual, a balance is sought between self-interest, “hedonistic inclination” and the ethical expectations of the community. The community acts as a “reference frame” for the individual decisions, moderates possible conflicts and at the same time designates the limits of market competition. In addition to this, this social medium is also a fundamental condition for market operation.

Discussion with Friedman

In 1970, a notorious writing of Milton Friedman, Nobel Prize-winning economist, was published in the New York Times as reply to the headway made by economic ethics. The article, entitled “The Social Responsibility of Business is to Increase its Profit”, contains three hypotheses which rest on the neoclassical paradigm. It is worthwhile to examine these three separately.

  1. Prerequisite: only human beings can have moral responsibility. A corporation is not a human being, but a combination of individuals, which is why within a company, every individual is responsible for his/her own actions.
  2. The sole responsibility of managers is to act in the interest of the shareholders Any other goal is to be seen as betrayal, as “stealing” from the shareholders.
  3. Every social problem should belong not to the power of the corporate managers, but to the government. Firstly, managers are incapable of deciding what is in the interest of the greater society. Secondly, they have not been elected democratically in order to reach these social goals.

But what do economic ethics have to do with Friedman? Notwithstanding, what makes it possible for a corporation to act socially responsible?

  1. The following reply was given to Crane and Matten, as well as the first hypothesis of Goodpaster and Matthews: A corporation is independent of its members, not only legally, but also in its operations. On one hand, every organization has an internal decision-making structure at its disposal, which directs individual decisions towards the corporation’s accomplishment of its goals. Thus, most often a corporate decision may not be redirected back to the individual level. On the other hand, every corporation proclaims those values with which it demonstrates what is considered a good or bad decision within the corporation (organizational culture), and with this has a strong influence on individual moral decision-making and behaviour.
  2. The second hypothesis was responded to with the stakeholder theory of economic ethics, which claims that a corporation or manager is not merely responsible to the stockholders, but to every group in a certain relationship to the corporation. Two things legitimize the demands of the stakeholders. For one, the consideration of the stakeholders is also shown by the law, by which the interests are already protected to a certain extent (employees, consumers). The other is that the stakeholders are no longer owners in the strict sense of the word, making the dominant obligation towards them questionable. Stockholders often purchase stock of a corporation only for speculative reasons, and their chief interest is the increase in the price of stocks or their resultant short-range profit. Thus, it is questionable from an ethical standpoint whether in reality only their or principally their interests must be taken into consideration.
  3. The basic supposition of Friedman’s third hypothesis is that corporate managers are accountable solely to stockholders and for this reason may not fulfil political functions. The shift of power from the government to corporations has without a doubt caused numerous social problems to come under the scope of activities of businesses. Friedman’s third problem-raising is relevant from the standpoint that it draws attention to the question of corporate accountability. The various stakeholders of a company must be afforded the opportunity of requesting an account of the consequences of a corporation’s operations.

The history of the development of CSR in the USA

Although of the economic community has been dealing with its relationship to society for more than a century, the first scientific writings are from the 1950s. The first and often cited figure is the writer Howard R. Bowen, who is even considered the father of CSR. His work, published in 1953 and entitled “Social Responsibilities of the Businessman”, launched a modern phase in the literature on the topic. According to his definition, social responsibility meant that the businessman was obligated to strive for such viewpoints, to make such decisions and to behave in such a way which would be desirable in the sense of the goals and values of society.

He first formulated that social responsibility (SR), which he believed to bear important truths, should steer the economy in the future. Bowen also mentioned the interesting fact that in 1946, Fortune Magazine had begun asking business leaders their opinion on their social responsibility. Thus, this was the first era in which unequivocal emphasis was placed on the individuals, on the managers, as far as responsibility was concerned.

In the 1960s, writings endeavoured to define exactly what the concept of SR meant. Keith Davis became known through his views on the relationship between social responsibility and corporate power. He drew up the “Iron Law of Responsibility”, according to which the two should be in proportion to each other. According to SR, the businessman is concerned with those decisions and deeds which at least partially demonstrate the direct economic or technical interests of the company. He thought that a long and complicated reasoning would serve to prove that this behaviour would bring economic profit to the company in the long run. This concept became generally accepted in the 1970s and 1980s.

In this second period, the idea of social expectation, an attitude conducive to social-economic welfare and a definition introduced by a certain J.W. McGuire, was more precise than that of his predecessors. According to that, social responsibility presumes that corporations do not have merely economic and legal obligations to society, but also certain responsibilities over and above those obligations. Primarily, he stated what is to be understood under the term responsibility, such as the company’s interests in community welfare, education, politics and the “happiness” of its employees. He declared that a corporation must behave correctly, just as is the case for real citizens.

In the 1970s, the definitions became more and more precise, and two concepts closely related to CSR also appeared, corporate social responsiveness and corporate social performance. The first works came into existence which summarized and analyzed the various CSR concepts. At the beginning of the decade, several governmental organizations were founded, such as the Environmental Protection Agency, the Equal Employment Opportunity Commission and the Consumer Product Safety Commission, which only strengthened the development, as well as legitimizing employees, consumers and the environment as economic stakeholders.

The 1970s also marked the unfolding of the first great discussion between the supporters of the concept and their opponents, initiated by Friedman’s article. This was also the period in which dealings with the question began to grow empirically; an endeavour was made to describe the extent of responsibility by organizational changes. In 1979, “A Three-Dimensional Conceptual Model of Corporate Performance” by A. B. Carroll was published, featuring a definition which constitutes the basis for thoughts on CSR yet today. The term three dimensions refers to the fact that corporations should take three factors into consideration in order to reach appropriate social results. These are the following: they must have an established definition of CSR at their disposal; they must see through those social issues for which they are responsible (stakeholder review); and they must determine exactly their philosophy in reacting to these issues.

Fewer definitions were formulated in the 1980s; however, all the more research (operationalization of theories) and more and more alternative theories and models arose (corporate social reaction ability, stakeholder theory, economic ethics and corporate social performance), all of which were worked into the original CSR concept. Researchers began to be interested in the question of whether responsible corporations were also profitable ones or not. During this period, economic ethics were also dealt with in Europe for the first time. In 1985, Wartick & Cochran drew up their own CSR model, a continuation of Carroll’s earlier three-dimensions, in which the principles, procedures and processes were highlighted.

The 1990s were the continuation of the preceding ten years in every sense of the word. No new definitions came to be, but the CSR concept incorporated the aforementioned alternative theories and notions. In 1991, Donna J. Wood produced a comprehensive model, which included the concepts of Carroll and Wartick & Cochran. It not only provided theories, but also showed the way to practical achievement of these theories.

The United Nations Conference on Environment and Development, held in Rio de Janeiro in 1992, created a new conceptual frame for economic and social development. The topic of sustainable development and environmental awareness on an international level had a fundamental influence on the assumption of social responsibility by corporations. The conference contributed to the foundation of numerous global organizations, such as, for example, the World Economic Commission on Sustainable Development. A more practical definition of sustainable development is linked to the “triple bottom line” thoughts of Elkington. Among other things, the change sparked by the Rio Conference, the consideration of the dangers of global warming, resulted in approximately 200 countries’ signing the Kyoto Protocol in 1997, the goal of which was the reduction of the emission of greenhouse gases. These international events had an enormous influence on companies.

In the past eight years, two discussions contributed significantly to the spread and acceptance of the CSR concept. The first was triggered by David Henderson, former chief economist of the OECD, as well as Martin Wolf, associate editor and chief economics commentator of the Financial Times. In 2001, Henderson published “Misguided Virtue, False Notions of Corporate Social Responsibility”, in which he questioned sustainable development and social justice as accepted targets since their definitions were not sound and not based on consensus. In addition, he thought that economic and political regulations which came into force under these premises undermined the freedom of contract, depriving people of available opportunities. On May 16, 2001, Wolf published an indeed provocative article based on Henderson’s work, in which he claimed that social responsibility distorted the market by diverting the economy from its primary profit-making role.

The second argument had to do with the economic magazine, The Economist, in which an article from January 2005 caused an unbelievable stir. Economic, scientific and civil representatives were all lined up to defend the CSR concept. The underlying thought of the article was that although it wanted to amend capitalism, CSR basically did not understand its operations. A corporation’s sole social contribution is the assurance of profit, and corporate contributions are donations with the money of others. The similarity to Friedman’s thoughts is not difficult to discern. As in the establishment of every theory, it is equally important in the case of the CSR concept that there be sceptics who question its relevance. By this means, the concept becomes more polished of its own accord.

Stakeholders

Stockholders and Investors

Shareholders are not owners in the strictest sense of the word; thus, the obligation to them is also less. Shareholders’ rights are restricted, but the manager is still required to present them with a report on the economic role of the company. This relationship is frequently full of conflict since the possible contradiction between profit-making and theories often clash here.

Shareholders first appear as investors on the corporation’s horizon. The corporation’s points of focus are significantly influenced by what viewpoints investors take into consideration when they decide on the investment of capital. Of course, investors look for a company operating successfully which will bring them return in the long run. But what guarantees long-term success? The Nike scandal of the mid-1990s caused a 15% plunge in stock prices. The managing director of Worldcom was sentenced to 25 years in prison and the damages caused by him to the company and thus to the stockholders reached 7 billion dollars. Investors demand some kind of insurance and expect new conditions in the interest of reducing their risks. If a company is in possession of elaborate CSR politics and experience, thus paying attention to those questions which in many cases are the cause of corporate scandals, it is a competitive advantage on the investment market.

Similarly to corporations, in the case of investors, the question of responsibility also arises. In the 1980s, an initiative was established, the focus of which was socially responsible investments (SRI). This movement is tied to the boycott of foreign companies operating in South Africa. The withdrawal of investments was based on the principle that individuals did not wish to support the repressive apartheid system with their capital. Although the boycott ended in 1993, its effects proved to be enduring. In addition to the investments, several other social viewpoints were also taken into consideration.

The corporate scandals of the past five years reflect consistently that a company which focuses solely on the interests of the stockholders does not always operate perfectly. The greatest problem in this area is that stockholders are incapable of seeing completely through managerial practice. Since the Enron case, economic life has placed serious emphasis on the creation of good corporate governance and the increase in transparency.

Employees

From many points of view, employees are also stakeholders in a corporation. First of all, they are the human resources, and secondly, in many cases they themselves represent the firm to the consumers. Thirdly, they are the ones who are affected by the consequences of corporate decisions. The relationship between workers and company is regulated by a contract. However, there are also “hidden prices” which must be paid by both sides. When employees begin employment with a company, they commit themselves at the same time and also invest human resources (moving house, taking courses), and after lengthy employment, they depend more and more on the employer (special knowledge). At the same time, the corporation may not inspect the worker’s each and every activity and thus cannot be completely certain that the worker has the company’s best interest in mind. At the same time, when someone is hired, it has not yet been ascertained whether the investment will pay off.

Employers’ rights are varied and include well determined territories. It is worth it to examine these one by one since it is in this area that ethical problems originate, and research work is based on them.

The first such right is equal opportunity, or the assurance that individuals from the labour market or from within the company be treated equally during the hiring process. We would think that the problem of discrimination would not be a factor on the human resources market since this has been one of the most sensitive questions of the past two decades and one which has been in the spotlight. However, in the past several years, we have been confronted with cases in which corporations have not paid sufficient attention to the problem. These days, various examinations have been dedicated primarily to working women in upper to middle management and the proportion of the different nationalities of workers.

The next right which corporations should treat is the employee’s right to a private life. This covers ensuring an appropriate ratio of work to private life, answering questions about the monitoring of employees, for example checking the employee’s electronic mail, internet usage and telephone conversations, observation by video camera or health-related issues or drug testing. There have been numerous initiatives introduced regarding appropriate balance between work and private life, such as the “sabbatical” or working at home. The granting of appropriate procedures to employees in the fields of promotions, disciplinary procedures and dismissal have received great emphasis.

Corporate downsizing is one of the most legally regulated areas. The employee has the right to know when, how and why it may come to a dismissal. In spite of the extensive legal regulations, there have been numerous cases when employees were only informed of their employers’ plans to dismiss or reorganize through local and national media. In order to facilitate downsizing, many corporations conceive various outplacement strategies with which they facilitate the future welfare of the employee.

The employee’s right to corporate participation may appear as financial involvement or involvement in corporate operations. In this case, the financial element may cover partial ownership of the workers, meaning the possession of shares or share options. Participation in operations is managed within the framework of the trade unions or factory counsel.

The right to healthy and safe labour conditions has been one of the most emphasized questions since the beginnings of the industrial revolution. Companies are making great efforts to eliminate accidents at the workplace, although their prevention is not an easy task.

In addition, we must mention another three employee rights, those of freedom of speech, fair pay and the right to work. Social responsibility of large corporations beyond the aforementioned territories manifests itself in the security of abundant allocation. Support aimed at the retention of employees and the development of labour force quality contains among other things various forms of training and voluntary retirement and health insurance.

Although employees’ rights are more often than not regulated by law in Europe, we cannot omit the CSR territory here either. On one hand, laws vary from country to country; on the other hand, the elevation of various rights to a legal level is a continuous procedure which does not always cover every detail and reacts relatively slowly to changes in the world. In addition, the operation of the majority of large corporations in Europe has expanded to a global level; thus they are also active in an environment where regulation is still in its infancy.

Consumers

The relationship between company and consumers is bi-directional. On one hand, the consumer generates the demand, thus influencing the operation of the firm. On the other hand, the products and services offered by the company must meet certain general expectations, such as safety or appropriate provision of information. Recently, a third expectation has also appeared - that of health, which affects firms of the food industry, fast food restaurants and supermarkets. These expectations are based on the consumer right, which says that it is the obligation of the company to treat the consumer as a target in itself and not as the means for reaching a target.

Contact with consumers takes place through the sales and marketing channels of a company. The majority of ethical questions emerge in connection with the latter. Product safety and the appropriate operation of the target fall under the territory of product policy. Within the pricing policy, levying, displacement, deceptive pricing and price fixing are considered unethical.

The third area of marketing is promotion or advertising, which has been under constant crossfire for the past few decades. Advertisements are deceptive, establish artificial demand, maintain various social stereotypes and aim at target groups who are incapable of responsible decision-making (children), to name only a few of the problematic areas.

Consumer conduct, however, could also be the corporate stimulus of the CSR concept. Great attention has been paid in the past 10-15 years to ethical consumption. This way of thinking assumes that the individual pay attention to certain ethical points of view when purchasing and base his/her decisions on these factors. Insomuch as a company or its product does not satisfy these requirements, the purchaser looks for alternatives.

The boycott of Nike products in the 1990s caused serious damage to the company. According to N. C. Smith, consumer choices are a type of customer vote, which play a role in the social control of corporations. N. Hertz emphasizes that these consumers have greater power than political voters because companies are forced to react to them immediately. Ethical consumption is one level of cultural development in which the individual is genuinely capable of reaching certain targets. To this end, consumer society faces two problematic assumptions: consumption may increase because resources still exist, and the unlimited placement of waste and by-products causes enormous damage to the environment. The reduction of the amount of consumption is not a simple question since in many cases, consumer articles are simultaneously a part of our self-determination and our social status. Despite this, large corporations have provided various solutions with which the damaging effect of consumption may be reduced. Possible methods are product recycling, replacement by services, product sharing among customers or the reduction of demand.

Competitors

Ethical problems occurring between corporations rarely appear before the public. Often, competitors are not even mentioned as stakeholders, although advantages and disadvantages may originate from another corporation’s operation, just as in that of another stakeholder. In those cases, ethical questions arise when competition is too aggressive or inappropriate. In the former, a company resorts to impermissible means in relationship to another corporation in order to gain a competitive advantage. This category of aggressive policy includes such things as spying or other tricks like negative advertisement, deceit of customers, sabotage or the aforementioned displacement pricing. The latter is caused by the joining of several companies, resulting in significant power, such as, for example, in the case of cartels or when a company abuses its dominant situation.

Suppliers

The relationship between a company and its suppliers can be equally problematic. On an organizational level, a firm may abuse its power, favouring certain suppliers with better treatment, and conflicts of interest may also arise. On the individual level, such problems as accepting gifts or bribes may occur. At the same time, this relationship has another side, too, in which emphasis is placed on the company’s responsibility and ability to change. According to Crane and Matten, the load of the supply chain has a key role in motivating companies to reach their various social and environmental recognitions. In other words, if a large corporation expects from its firms that they operate similarly ethically or responsibly, or those will be excluded which do not meet these requirements, a procedure is initiated from which a firm cannot remove itself. This pressure spans the breadth of the country and is capable of procuring social changes the most quickly.

Another procedure which is more and more widely spread among large corporations is fair trade. This is based on a firm’s guaranteeing a fair price to the suppliers, in this case the producers, for their products, and a “fair trade” logo is added to that product. Among bearers of this logo are the cosmetic firm, Body Shop, and the coffee shop chain, Starbucks. This year, Nestlé has introduced its “fair trade” coffee on the British market and Kraft has a similar plan.

Civil society

The notion of civil society has become indeed popular in the past decade, as equally accepted as economic and governmental circles. Civil organizations are voluntary, non-profit organizations including trade unions, religious groups, university organizations, foundations, professional associations and other non-governmental organizations (NGOs). In many cases, it is not the corporation that decides which civil organizations it considers its stakeholders; on the other hand, serious long-range consequences may ensue by not considering a self-acclaimed group of stakeholders.

In the case of civil organizations, the questions of accountability and transparency arise again, just as with corporations. The fact that a great number of organizations have become global has resulted in a hierarchal apparatus in their own PR or financial departments. We cannot talk about a handful of enthusiastic volunteers anymore, but a worldwide organization with extensive inner regulations. They also have to take their stakeholders into consideration and they owe them responsibility. It is to be expected that they make their operations transparent in order to account for their activities to their stakeholders. However, the question arises how calculable their performance is, or with what means should the satisfaction of the recipients be measured. Moreover, the problem arises as to what extent civil organizations compromise and what kinds of deals they make in the course of their cooperation with corporations.

Government

The government appears as a corporate stakeholder on several levels. Both local municipalities and authorities, as well as the federal government, must be taken into consideration. Over them at the top level are bodies above the administration, such as the European Union, the United Nations and the OECD.

The stakeholders of these governments are bipolar. They are in part elected to represent the interests of the citizens, i.e., indirect stakeholders. In this case, their role is concentrated in economic regulation; i.e., they determine under which conditions the economy may operate in society. Secondly, they also appear as a separate entity, in which they place more emphasis on their own interests (for example re-election). From this standpoint, they are direct stakeholders and depend substantially on the economy and on economic growth.

Ethical questions surface when the economy tries to influence the government. One of the possible methods is lobbying, in which economic leaders venture to influence decision-making by use of information and persuasion, both directly and privately. Another method is party support, which often begets conflicts of interest. The overlap of positions, bribes or privatization all bring on ethical problems. The government plays an indeed large role in the manifestation of responsible behaviour of companies in society. Although CSR regulation is largely voluntary or occurs based on economic initiatives, governments can step forward with various motivating programs and guidelines. Some of these are, for example, the EU Green Book or the OECD guidelines referring to multinational corporations.

Environment

In the course of their operations, corporations inevitably use the resources of the environment and have an effect on them. The extent and form of this usage is extremely diverse; it is difficult to compare, for example, the environmental burden of a firm dealing with coal mining and that of a financial service. In the course of the development of corporate social responsibility, the tendency was visible that in the beginning, companies with expressly large environmental impact began dealing with CSR in an institutionalized, structured framework. It was observable in many cases that a company broadened its environmental report by adding social responsibility. Social responsibility was the “prerogative” of large polluters for a long time.

Of the three pillars of CSR, economy, society and environment, a firm striving for a responsible mode of operation and sustainability must keep the environment in mind, as well as the assessment of effects arising from the company’s activities and endeavours to minimize these effects.

In the interest of disclosing the actual impact, these effects must be analyzed circumspectly, looking beyond the direct effects, since the indirect impact is often significantly more substantial than the direct impact. The analysis is aided by a life cycle assessment, which is the analysis referring to the entire product chain.

It is necessary to examine every element of the environment, including land use, living world, natural living places, air quality, water usage, material usage, energy usage, waste formation and waste water origin.

Concerning the environment, in the case of large corporations, where the number of stakeholders is significant, results cannot only be reached by striving to reduce the effects, but it is equally important to take advantage of the opportunity to shape the approach of those concerned.

What does the corporation gain?

CSR

  • contributes to the long-term sustainability
  • improves the company’s standing, and helps to reinforce trust both externally and internally
  • strengthens employees’ loyalty, and boosts their innovative performance
  • reduces risks
  • facilitates positive market differentiation
  • helps to build new relations with the stakeholders.

Global initiatives

Today the number of international initiatives is almost countless, all with the goal of directing corporations or providing the tools with which companies can make their responsible operation measurable. Basically, the guidelines state a minimum of expectations.

These international principles can be categorized according to initiator (government, non-profit organization, economy) and size of territory covered. Thus we progress from the most general to those principles concentrated exclusively on businesses. Among universal guidelines, we may list the United Nations Universal Declaration of Human Rights and that of its labour organization, the ILO “A Tripartite Declaration of Principles”. These organizations also conceived guidelines to certain undesirable practices, such as corruption.

Regulation codices also exist for various branches of industry or products, such as, for example the World Health Organization (WHO) International Code of Marketing of Breast-milk Substitutes or the Ethical Trading Initiative (ETI), which determines standards for retail and wholesale businesses. Among the norms applicable to corporations, we may list the OECD Guidelines for Multinational Enterprises and the United Nations Global Compact initiative or the CAUX Round Table Economic Guidelines.

The initiatives may also be categorized according to which field is emphasized by the direction of the responsible corporation. Regarding employees, we may encounter employee satisfaction surveys, a list of “best workplaces” of economic magazines or newspapers or international codes, such as the aforementioned ILO and UN basic principles. In the area of environmental protection, the principles of appropriate environmental operation are defined by the CERES organization, among others.

The GRI (Global Reporting Initiative) is focussing on corporate social responsibility and sustainability reporting. The UNEP founded organization is a large multi-stakeholder network of thousands of experts, working in working groups.

GRI has pioneered the development of the world’s most widely used sustainability reporting framework, Reporting Framework. This framework provides guidance for organizations to disclosure their sustainability performance. It sets out the reporting principles guaranteeing the quality of the report and credibility of information. The cornerstone of the framework is the Sustainability Reporting Guidelines, defining the method of reporting, topics to be covered and information regarding company’s profile. The G3 Guidelines is the third version of the Guidelines and was published in 2006. More than 1500 companies adapts the Guidelines worldwide, consequently it has become th de facto global standard for reporting.

Performance indicators support introduction of economic, environmental and social performance. The two main types of the indicators ara: core and addtional indicators. Core indicators are intended to identify generally applicable indicators and are assumed to be material for most organizations. Additional indicators represent emerging practice or address topics that may be material only for some organizations, depending on sector, place of operation or size.

Sector Supplements respond to the limits of a one-size-fits-all approach by providing a complement to the core Guidelines. Sector Supplements are a unique set of sustainability issues faced by different sectors.

To meet the needs of new beginners, advanced reporters and those somewhere in between, there are three levels in the system. They are entitled, A, B and C, and reflects the application or coverage of the GRI reporting Framework. An organization can self-declare a + at each level if they have utilized external assurance.

AccountAbility works to promote accountability innovations for sustainable development. The organization is a global network of leading business, public and civil institutions working together. At the core of its work is the AA1000 Series of standardds based on the principles of inclusivity, materiality and responsiveness. The Series consists of the AccountAbility Principles Standard, Assurance Standard and Stakeholder Engagement Standard. AA1000 Stakeholder Engagement Standard is one of the most widely used guideline for exploring stakeholders and their responsive involvement.

ISO, the International Organization for Standardization, has launched the development of an International Standard providing guidelines for social responsibility (SR) in 2005. The guidance standard will be published in 2010 as ISO 26000 and voluntary to use. The objective is to produce a guidance document, written in plain language that is understandable and useable by non-specialists, and not a specification document intended for third party certification. The work is intended to add value to, and not replace existing inter-governmental agreements with relevance to social responsibility, such as the United Nations Universal Declaration of Human Rights and those adopted by the International Labour Organization (ILO).

Useful links

*Szilvia Mosonyi’s thesis is used in this part of the homepage.