No. 2 - Social Responsibility Research Network

Transcript

2011 Number 2
ISSN 1759-5886
Social Responsibility Review
The Social Responsibility Research Network
www.socialresponsibility.biz
Inaugural issue…
Welcome to the first edition of Social Responsibility Review, the replacement to the
Newsletter. We still have news from the Network but we focus much more on
articles and current debates. And we have a new section for book reviews. So if you
have a new book about any aspect of social responsibility then send a copy and we
will arrange for it to be reviewed.
We hope you like the Review and think that it is an improvement. But we welcome
any comments and suggestions.
Another innovation is that sometimes we will have a guest editor for editions of the
Review. And of course we have a guest editor for this first issue. So we would like
to acknowledge Roshima Said and thank her for her hard working in making this
first issue so successful. So read it and enjoy…
Chairs of the Network:
Professor Dr. Güler Aras, Yildiz Technical University, Institute of Social Science, Yildiz
Besiktas 34349, Istanbul, TURKEY [email protected]
Professor Dr. David Crowther, De Montfort University, Leicester Business School, The
Gateway, Leicester LE1 9BH, UK [email protected]
Social Responsibility Review was formerly known as the Newsletter from the Social Responsibility
Research Network
2011 Number 2
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Guest Editorial:
Ethics and Corporate Social Responsibility: A Strategy to
Performance Sustainability
Roshima Said
The downfall of giant companies and corporate scandals have drawn attention many
business world especially shareholders and other stakeholders to give center of attentions
towards the issue of accountability, business ethical culture environment and adoption of
more socially responsible business practices. The practice of ethical behavior in business
has been going on since the origination of trade in all over the world. Companies that wish
to sustain and expand their financial performance in the future must concentrate or direct
their efforts towards corporate social responsibility (CSR) and business ethical culture
environment that benefit shareholders, society and environment at the same time.
Many studies showed that corporate social performance has a relationship between the
long and short run corporate financial performance (Cochran and Wood, 1984; Orlitzsky et
al. 2003; Tsoutsoura, 2004; Waddock and Graves‘, 1997). Tsoutsoura (2004) addressed a
question whether corporate social performance has an effect on financial performance and
his study showed that CSR is positively related to better financial performance and the
relationship is statistically significant, and it‘s supporting that socially responsible corporate
performance can be correlated with a series of bottom-line benefits. Company socially
irresponsible acts not only may have short term financial consequences and implications but
also can put the risk on long term firm‘s performance.
The conception of social responsibility is fundamentally is the ethical concept. The social
responsibility of the company is closely related to business ethics. Ethics usually deals with
the individual level, while CSR is associated with the organizational level. Ethics is believed
will have an effect to good business working environment that generate positive values like
trust and obligation to stakeholders, which is turn guarantees long term firm‘s performance.
Ethics is a set of moral values and principles which form the standards guiding the code of
conduct of individuals, organizations and professions. Ethics of individuals relate to a set of
values that guide the conduct and behaviour of individuals, enabling them to differentiate
between right and wrong, good and bad and between what should and can be done and
what should not and cannot be done.
In addition, ethics of organizations refers to guidelines in the conduct of duties of the
organization. These include adherence to the principles of honesty, competency,
trustworthiness, truthfulness, transparency, accountability and justice. It deals with internal
values of individuals that will create an organizational culture that shapes ethical decisions
towards corporate social responsibility and boost the firm‘s performance. Many countries
has established corporate accountability standard as to uphold good corporate integrity.
Ethical responsibilities include the general accountability to do what is right and to avoid
destruction. Ethics go beyond the legal code since business must not only be lawful but also
must be morally acceptable to all of the constituencies with whom it has dealing. The
philanthropic responsibilities involve the corporation‘s active participation in activities that
encourage human welfare such as donation of time and money to people, organizations or
communities. Failure to conduct them is not considered to be unethical but will affect the
company‘s reputation within the communities. Berrone, Surroca and Tribo (2005) revealed
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that the ethical behavior created positive social effects by providing greater satisfaction to
stakeholders and also play a significant role in the overall performance of the firm.
Corporate Social Responsibility (CSR) supports the Triple Bottom Line reporting which
emphasizes on economic, social and environmental bottom-lines wellness. CSR goes beyond
compliance laws. In order to emphasize CSR, it is important to evade a legalistic way of
thinking when considering CSR. CSR is not about compliance or philanthropy or public
relations, it often involves company‘s cultural transformation. To attain this cultural
transformation of the company, it needs top leaders and Board of Directors as people who
are responsible and ethical to overseeing the conduct of the company‘s business and
evaluate whether the business is being properly managed or not.
Companies can employ in CSR activities even while they are acting in unethical ways. The
collapsed of huge corporations such Enron, Tyco and Adelphia due to highly publicized
accounting scandals especially in the United States during 2000 to 2002 have tremendously
shaken the investor confidence in the integrity of the corporate financial reporting and the
issues of corporate governance. For example, the collapse of giant company Enron was a
supporter of community participation, but used off-balance-sheet partnerships to deceive
investors and eventually destroy the company. If a top manager is unethical person, then
he/she show a way or directions that others follow. When managers act unethically, human
resources can be disheartened, lose confidence in the organization, and even job turnover
rates will be higher. This will bring us to the issues of the influence of decent culture and
ethical top management towards organizational moral principles and ethical behaviors.
Boards of directors is representing the key player of an organization, that play a role as the
person who review the adequacy and integrity of the company‘s internal control systems
and management information systems, including systems for compliance with applicable
laws, regulations, rules, directives and guidelines and also as a person who govern the
organization by broad policies and objective, and enhancing the organization's public
image. That is the reason why we need leaders or top management who has ―socially
responsible‖ and ethical consideration to manage the company. CSR and ethical leadership
is the key factors to promote firm‘s performance among companies and organizations all
over the world. Vogelaar, & Soeters (2002) found that charismatic leaders are more
effective than less-charismatic leadership. Mackenzie (2004) argued that ethical norms offer
a powerful basis to solve corporate social responsibility problems. Similarly, Vitell and
Paolillo (2004) asserted that ethics and social responsibility ought to have an encouraging
effect on the organizational success.
The orientation of corporate social responsibility (CSR) and ethics are important factors in
contributing towards firm‘s bottom line performance which in turn to enhance brand image
and reputation, increased sales and customer loyalty and increased productivity and quality
which eventually contributes to the market value of the company.
References
Orlitzky,M., Schmidt, F.L. and Rynes, S.L. (2003). Corporate Social Performance: A Meta Analysis.
Organization Studies 24 (3), 403-441
Cochran, P.L. and Wood, R.A. (1984). Corporate Social Responsibility and Financial Performance. The
Academy of Management Journal, 27 (1), 42-56.
Tsoutsoura, M. (2004). Corporate Social Responsibility and Financial Performance. (2004). Center for
Responsible Business. Working Paper Series. Paper 7. Retrieved June 28, 2006, from
http://repositories.cdlib.org/crb/wps/7
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Waddock, S.A. & Graves, S.B. (1997). The corporate social performance-financial performance link. Strategic
Management Journal, 18 (4), 303-319.
Berrone, P., Surroca, J. & Tribó, J.A.(2005). Corporate Ethical Identity as determinant of firm performance: A
test of the mediating role of stakeholder satisfaction. Working Paper 05-31,Business Economics series
08. Retrieved December, 15, 2010, from
http://docubib.uc3m.es/WORKINGPAPERS/WB/wb053108.pdf
Vitell,S.J., Nwachukwu, S.L. & Barnes, J.H. (1993). The effects of culture on ethical decision-making: An
application of Hofstede’s Typology. Journal of business ethics, 12(10), 753-760.
Mackenzie, C. (2004). Ethical Norms as a Solution to Corporate Governance Problems. Journal of Corporate
Citizenship 15
Vogelaar, A.D.L.W & Soeters,J.L. (2002) Leadership effects on organizational climate and financial
performance: Local leadership effect in chain organizations . The Leadership Quarterly, Volume 13 (3),
June 2002, Pages 193-215
Roshima Said is based at Faculty of Accountancy, Universiti Teknologi MARA, Malaysia.
Contact e-mail: [email protected]
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The Social Responsibility Research Network Constitution
For each issue of the Review it is considered to be appropriate to print the constitution of
the Network. This was agreed at an open meeting during the 2005 conference in London.
But note that no Board has ever been elected. So volunteers are welcome…
The Social Responsibility Research Network (SRRNet) is a body of scholars who are
concerned with the Social Contract between all stakeholders in global society and
consequently with the socially responsible behaviour of organisations.
1. Mission
The mission of the SRRNet is to promote collaborative, cross-cultural and international
research on any aspect of its social responsibility agenda, to improve knowledge by such
research and to disseminate such research globally.
2. Strategy:
The strategy to accomplish the mission will be based on:
 The exchange of research through of its website;
 The promotion and organisation of a series of international research conferences, ideally
in various parts of the world and each under the leadership of a named individual;
 The production and dissemination of an academic journal;
 The production of such other publications as are deemed appropriate and for which
sufficient funds exist:
 The promotion and organisation of a series of international visits and collaborations
(depending upon funding) to work on special projects.
3. Organization
Membership of the network is open to anyone. It is a formally constituted organisation
governed by this constitution and managed by an elected / nominated board. The
management of the network will be delegated to this board, which will be supplemented by
a general meeting, open to all members, which will take place at each conference
organised. Membership of the board will consist of:
 One member elected at each general meeting, who will serve for 3 years;
 Each conference organiser, who will serve for 2 years prior to and 2 years subsequent
to the conference organised;
 The journal editor.
The board may also appoint additional members as deemed necessary, and from its
membership shall nominate a chair and a treasurer.
4. Financing
To achieve the mission, the SRRNet (via its board) will seek sources of funding and
sponsorship. Additionally it will receive funding via the conferences and the sale of
published material.
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Designing Economic Development Based on Cooperation1
Esther Ortiz-Martínez
Introduction
Nowadays the Region of Murcia in Spain is applying a regional economic plan designed for
the period 2007-2013. Due to the deep changes that the economic crisis has provoked in
the regional economy and knowing that it is necessary to count upon some competitive
advantages to cope with the effects of this crisis, the regional government is pushing
another planning initiative.
The final goals of our regional economic plan 2007-2013 are still the same in spite of the
deep change in the economical situation. Because the Region has to face with these
general challenges to cope with them. Although what is true is that the way to reach them
has changed considerably. The definitive plans have been redesigned and reinforced
through other new plans, such as HITOS 2020.
HITOS 2020 is from a short list of projects that are starting in a short span of time and that
will have an immediate effect on the economy and create employment, but which also must
be sustainable. This means that such projects can extend their positive effects over a
longer time period and can increase our productivity because of a lever effect all over our
economy. So, as important as the determination of the projects, is their implementation and
follow up.
The methodology used to define the list of projects, the HITOS 2020, is based on two
different mainstays: the participation tools in order to be able to count with the point of
view of everyone who wants to participate and the other analysis, regions benchmark and
megatrends.
The sum of both results is allowing us to determine these projects bearing in mind that the
mix of both methods is a guarantee of success. It was a successful tool in the previous
regional economic plan recognised by the European Commission among other different
organisations. Although the exercise now is completely different, we can apply what we
learned and improve upon it. So, this work can be an interesting example for practitioners,
policymakers, and researchers.
Every Persons Point Of View: The Participation Process
In the first step of determination of the projects that will be included in HITOS 2020 it has
been an important mainstay that the different ways all count, with the opinion of everyone
who wants to express a constructive opinion.
The participation process that has born in mind everyone‘s point of view is a way of
creating a harmonious society, because the results that count with a majority of the
opinions have a bigger probability of becoming a reality and a success. We have got the
experience of our previous regional economic plan and it is nice to check that when
everyone agrees all the efforts contribute to reach the same goals.
1
This paper was presented in one of the sessions of the 16th. World Productivity Congress, European
Productivity Conference that was held in November 2010 in Antalya, Turkey.
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The development of the internet and the new technologies allow us to obtain the point of
view of everyone who wants to participate in an easy way.
So, we have developed a web site www.hitos2020.es, in which is possible to give your
opinion through:
 a question with only three possible answers that is included in the main site of the web.
This question changes every week during the period of determination of the projects,
and when it is changed the results of the previous one are included in the participation
link of the web site.
 a questionnaire which is included in the participation link of the web site and has got
three questions with 17 sub questions and every one can be answered bearing in mind
5 different options of a Likert scale.
 a free mail that is included in the link of contact of the web site. It is possible to write
the suggestions that automatically are sent to a distribution list.
Figure 1.- Web site HITOS 2020
Through this web site we have received more than 200 opinions regarding the
determination of the projects.
Besides the web side HITOS 2020 has been included in Facebook, with more than 500
friends so far that are increasing everyday, where is established at every moment a
discussion channel about them, and where are included all the news.
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Figure 2.- HITOS 2020 in Facebook
It was also important to obtain the qualified opinion of organisms, institutions, professional
associations… and so on – this kind of collectives totally involved in the life of the Region –
and because of this we send by mail to this other public the questionnaire included for the
citizenship in the web site. Finally we have asked through this way to more than 200
collectives that represents a bigger number of individuals. For example, the professional
association of technical industrial engineers has sent the questionnaire to more than 326
engineers in the Region… and so on.
Apart from all of these previous initiatives there are other collectives which have
participated in a more active way, including HITOS 2020 in its discussion and organising
debate forums with the presence of the regional government too, in order to can obtain a
feedback from the meeting. This has been for example the ―Economy Circle in the Region
of Murcia‖, which developed a symposium about HITOS 2020 during a lunch, and more
than 10 collectives, including a association of neighbours of the Murcia city.
The last way of participation has been what has been called the ―Believing questionnaire‖.
It has been a personal interview based on a written questionnaire but not constrained by it.
More than 50 persons with a depth known of the Region has been interviewed, giving a
vision from so different points of views such as the financial world, or the journalist world.
So, the determination process of the projects HITOS 2020 is mainly based on cooperation
and interactions with individual citizens. This is an exercise of cooperation and sustainability
because it is also analysing the present to design the future and is taking into account all
who have something to say, bearing in mind the citizenship through these different ways of
participation and obtaining an enormous consensus in our Region. The mirror has seen the
experience obtained from the methodology used in the elaboration of the regional
development planning for the period 2007-2010 in my Region. This methodology has been
outlined by different organisms and institutions, such as the central government in Spain,
and even is being studied by the European Commission as a ―good practice‖ of governance.
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Besides Other Analysis: Regions Benchmark and Megatrends
Another previous analysis has been done to the determination of the projects included in
HITOS 2020: it has studied some regions around the world from which we can learn from
examples of success which can be applied in our Region, and also the worldwide
megatrends from which our Region can expect to obtain a competitive advantage via the
Regions Benchmark and Megatrends.
In order to be used as a benchmark the regions must show a list of ―signs of success‖:
GDP, and GDP per capita higher than the same in the Region of Murcia, important
competitive position, important growth, and high level of life, and also must be a leader
region in some sector worldwide. With these two filters the consulters ―Boston Consulting
Group‖ identified 34 regions around the world included in Figure 3. In this Figure they are
classified according to other two filters: the structural similarities with our Region, and the
degree of comparability of decision making power and autonomy with which counts the
regional government.
More
Irlanda
Victoria
(Australia)
Flandes
Massachussets
• Structural
Similarities with
the Region of
Murcia
• Demography
• Geography
• Economic
sectors
Baden-Wurttenberg
Florida
Baviera
Rhône-Alpes
Valencia
Québec
Israel
Dubai
Nordrhein Westfalen
Cataluña
Arve Valley California Tampere
San-Diego
La
Rioja
Upper Austria
Dinamarca Oslo-Stavanger Utrecht
Galicia
Greater London
Luxemburgo
East Sweden
Limburg
Île de France
Singapur
Hong Kong
Escocia
País Vasco
Cantabria
Madrid
Less
Different
Comparable
Decisory power and
autonomy
Figure 3.- Previous Benchmark Regions
So, finally has been deeply studied 7 regions as a benchmark and also 8 important
initiatives relevant for the Region of Murcia, included in Figure 4.
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Irlanda: Incentives to
engage foreign firms
Massachusetts:
Cooperación
Universidad-Empresa
10
Flandes: Port
services,
internationalitation, and
intermodality
País Vasco:
Development of
Technological parks
Limburg: Inter
regional cooperation
Bangalore: Design
and production of high
added value products
Baviera: Engagement
of innovative ideas
California: Gestión
del agua
Florida: Seniors
Communities and
solar energy
Hong Kong:
Development of the
port
La Rioja: the culture
of the wine
Valencia:
Turism, the port as a
trigger
Region
Initiative
Victoria: Water
Management,
education and
territorial balance
Baden Württemberg:
Competitive
improvement and
Public Private
Partnership
Israel: Water
management
Figure 4.- The final benchmarks
The institute of research consulting, ―Boston Consulting Group‖, was used to identify the
principal annual megatrends that are reshaping the global playing field. And so, with this
analysis they tried to forecast which ones are going to affect to the Region of Murcia in the
future, in order to count with them in the determination and design of the HITOS 2020.
BCG has identified 90 Mega trends that will shape the world
– to be included into the future analysis
Terra Trends
Demographics
• Aging Population
• Immigration/Ethnic diversity
• Increased role women
• Obesity and diet
(lifestyle illness)
Consumer Trends
• Trading up/down
• Sport & fitness
(leisure trends)
• Customization
• Organic
• Time compression-Multitasking
• Entertainment/celebrity
• Brand affinity
• Health and wellness
Mobility & Flows
• International trade
• Communications
• Transportation
• Infrastructure needs
• Human mobility
Closed vs. Opened Systems
• Intellectual Property
• New innovation models
• Human genome project
• Open source
Centralized vs. Distributed
• Urbanization
• Grid computing/Intelligence
Econo Trends
Economy & Employment
• Value Migration/Rise of services
• Outsourcing/Off-shoring
• Consolidation/M&A
• Productivity/Performance focus
• R&D/Innovation imperative
• War for Talent
• Commoditization
• New organizational structures
Financial flows/Investment
Instruments
• Capital flows to developing
countries
• Rise in alternative investment
vehicles (VC, hedge funds)
• Socially responsible investing
• Geographic distribution
Trading Blocks & Flows
• E-trade and e-commerce
• Regional trade blocs
Wealth Creation &
Dispersion
• Global divide/Wealth disparities
• Off-shore investing
• Creation of global elite
Globalization
• RDE challengers
• Rise of China
• Rise of India & new market
leaders
• Next Billion consumers
• Rising middle class
Tech Trends
Platforms & Connectivity
• Bandwidth
• IT communities and Web 2.0
• New media
• Networks
• Convergence
Technology Trends
• Nanotechnology
• New materials/substitutes
• Mobile electronic devices
• RFID and sensor networks
• Wireless communication
• Smart devices
• Internet Access
Life Sciences/ Healthcare
• Healthcare spending
• Biotech & proteomics
• Nutraceuticals/functional food
• R&D/Innovation challenge
• Provider & payer trends
Energy & Power
• Energy scarcity
• Alternative energy sources
• Sustainable forms of
transportation (e.g. fuel cell,
hybrid, electric)
Meta trends
Scarcity vs. Abundance
• Waste/waste management
services
• Water scarcity
Environmental crisis
• Green products & markets
• Global warming awareness
• Carbon credits
Contentment vs. Striving
• Religion
• Happiness
• Business of pleasure
• Psychotropic drugs
• New communities
Challenge of Governance
• Privatization
• Education & training focus
• Shorter leader cycles
• Multi-polar world
Risk & Security
• Insurance losses
• Failed states
• Identity theft
• Rise private security
• Counterfeit
• Rise natural disasters
• Global pandemic risk
Role of Business
• Greater transparency
Rise NGOs/non-profits
• CSR
• Extended enterprise
We will identify the key Megatrends relevant
Source: BCG
Xxxxx-xx/Footer
0
Figure 5.- Megatrends
The results of the analysis of Regions Benchmark and Megatrends were explained to the
public in two conferences that counted with a wide participation and that were reflected in
the regional media.
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Figure 6.- Megatrends conference in the regional newspapers
The List of Projects: REGIÓN DE MURCIA HITOS 2020
The final goal of the work is to obtain a short list of projects that can be started in a short
span of time and that will have an immediate effect on the economy and create
employment, but which also must be sustainable. This means that such projects can extend
their positive effects over a longer time period and can increase our productivity because of
a lever effect all over our economy. So, as important as the determination of the projects, is
their implementation and follow up. These projects can be shown as examples, because the
list is bigger. An even these ones can be seen as a draft, because the design and the
process of implementation step by step are reshaping and adapting them to the
circumstances. So, the interpretation of these following lines must be seen as a draft
summary of the main points of these examples with all the cautions.
So, we can highlight something about the following ones:
 Logistic activities and Cartagena Port
 Murcia in your second youth and integral tourism
 Murcia as a centre of sustainable energy
 Murcia as a benchmark in the efficient management of water
In the Region of Murcia we have an important port, Cartagena, that has to take advantage
of the development of the ports and associated to them, the logistic zones. Both spaces
tend to be linked in a closer way nowadays, in order to make easier the operations and to
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give a bigger added value to the movement of goods. In this sense it is important to finish
the Gorguel port, a new container port designed as an improvement of Cartagena port, in
order to count with a bigger space to be included in the maps of goods traffic, the
possibility of giving services to container-ships, that will be the ideal place to develop a
logistic zone with more than two millions of quadrate metres with an impact of about 180
Millions of euros and 2.250 new jobs in our Region. All that has to be linked to the potential
regional logistic, which is has got an important status in the national logistic.
The second project consists in the development of a long term stay tourism programme for
attracting rental tourists from the north of Europe and also the north of Spain. Now the
rental people are healthy and depending on the health status would be offered some
medical and assistance services. At the same time it is a way of showing the tourist
attractions of the Region and a way of selling the stock of building that can satisfy the
requirements to be included in this HITO. So, the Region counts with a sunny weather and
a wide leisure to offer in order to generate 40.000 jobs associated to this project and 1.250
Millions Euros of Gross Added Value. And also the Region is involved in a process of take
advantage of its good characteristics in order to offer different types of tourism, diversifying
the tourist offer to attract the maximum number of visitors.
Sustainable energy is linked to the use of energy in an optimal way in buildings and to the
success of the installation of hot water and heating obtained from solar energy. In this
sense our Region can add some funds to the ones offered by the central government to
push the installation of these equipments and to be at a first position in this field. At the
same time advantage must be taken of this situation to attract the production of these
equipments to the Region, so we can have here the integration of all the value chain, from
the production to the distribution. Beside this, other renewable energies will be enforced in
the Region, such as the use of the waste to obtain energy and the biomass. This project in
its two different sides is intensive in employment, and so can create about 7.200 jobs and
136 Millions Euros in the Region. Bearing also in mind that nowadays the Region is an
important centre of energy in Spain, in which has been developing all the industries that
has to do with the energy treatment and exportation.
Not enough is known about the efficiency in the water management in our Region, even
more important nowadays when water is a scarce commodity. Our history of lack of water
has caused us to take advantage of all the use of water, to not waste water, to save water
when at the same time the Region of Murcia is also known as the vegetable farm of
Europe, because of our fruits and vegetables which are exported all around the world. This
project is based on pointing out the importance of Murcia as a Region which manages its
water in an efficient way, and so, on trying to make Murcia a global benchmark in this
field. We must develop an appropriate communication strategy and to highlight our
technological knowledge through different steps such as awards, MBA and so on.
Conclusions
This work can be an interesting example for practitioners, policymakers, and/ or
researchers because the mix of participation and other methodology was a successful tool
in the previous regional economic plan, recognised by the European Commission and other
different organisations. Although now the exercise is another, completely different one, we
are applying what we learned, and improving upon it. In the first phase we have identified
four projects that have a direct impact in the economy and employment of the Region. The
economical situation makes necessary that at the same time these four projects must be
feasible because they do not need from public funds in order to be developed. We have
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started with the implementation of these projects, and they are becoming a reality day by
day.
Esther Ortiz-Martínez is Professor of Accounting at the University of Murcia, Spain. Currently
she is on secondment as Director General of Economic Planning for the Regional
Government of Murcia. She has been researching and writing about Corporate Social
Responsibility for some years. She will welcome comments at [email protected]
2011 Number 2
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Corporate Social Responsibility: Value and Strategic Intent
O. Igho Natufe
Introductory Remarks
This paper grapples with the concept of corporate social responsibility (CSR) in terms of its
value and strategic intent on the activities of corporations. It raises questions about CSR as
a tool in understanding the role of corporations in their engagement with society and the
environment. Based on our analysis, preliminary conclusions will be drawn that will inform
further research on the subject.
Over the past four decades CSR has increasingly been embraced by corporations as their
guiding principle in conducting their activities in a way that is supposed to be socially
responsible and environmentally sound. Though essentially self regulatory, CSR was
compelled by a combination of strongly inter-related imperatives vis-à-vis the production
process. The first is the response of trans-national corporations (TNCs) to the antiglobalization protests which underlines the self interest of corporations to enhance their
profit margins by positing themselves as believers in and promoters of sound environmental
protection policies. The second is anchored on the need to be a good corporate citizen and
a respecter of the values of the specific national environment where their activities are
based.
This paper is structured around four key issues that are critical to an understanding of CSR.
These are its (i) definition/measurement; (ii) motivation; (iii) viability; and (iv) variance.
How do we define and measure CSR? What is the motivation for CSR? How viable is CSR?
And to what extent is there a variance in the application of CSR across industries and
countries?
Definition & Measurement
Defining a concept is crucial for the articulation of the ideals inherent in it. More crucial is a
consensus on the definition. While CSR has attracted the imagination of business executives
and scholars, the absence of an acceptable definition limits our ability to measure its
activities and impacts. This phenomenon will be explored in this section.
While there is no universally accepted definition of CSR, there is however a consensus that
it implies a demonstration of certain responsible behaviour on the part of corporations
toward society and the environment. Four important international institutions have
underlined the imperatives for government and companies to adhere to the principles of
CSR. These are the World Business Council for Sustainable Development (WBCSD), the
Organization for Economic Cooperation and Development (OECD), the European
Commission (EC), and the Dow Jones Sustainability Indexes (DJSI).
Two major international organizations – the Business Council for Sustainable Development
and the World Industry Council for the Environment – merged to establish the WBCSD in
January 1995. The WBCSD is an association of currently 200 international companies drawn
from over 30 countries representing more than 20 industrial sectors. It defines CSR as the
―continuing commitment by business to behave ethically and contribute to economic
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development while improving the quality of life of the workers and their families as well as
the local community and society at large.‖2
In its internal debate on the concept of CSR, members of the WBCSD struggled with the
problems of clarity without losing the vital focus of the concept. The WBCSD sought a
conceptual framework that would remain loyal to its ―three fundamental and inseparable
pillar‖ of sustainable development: the generation of economic wealth, environmental
improvement, and social responsibility.3 It proposed a global strategic approach on how to
define its third pillar: CSR. According to the WBCSD, CSR defines what a company has to do
in order to win and enjoy the confidence of the community as it generates economic wealth
and responds to the dynamics of environmental improvement. It views CSR as a vital link
―to the long-term prosperity of companies as it provides the opportunity to demonstrate the
human face of business…‖ and underscores ―the value of creating practical partnerships
and dialogue between business, government, and organizations.‖4
The OECD has also been engaged in developing the concept of CSR. At its Ministerial
Meeting on June 27, 2000, it approved a set of Guidelines for Multinational Enterprises.5 In
the Guidelines, a set of ―voluntary principles and standards for responsible business conduct
consistent with applicable laws,‖ the OECD stressed the need for both governments and
companies to demonstrate their corporate responsibility by pursuing sound environmentally
friendly and socially based policies. The Guidelines are ―to ensure that the operations of
these enterprises are in harmony with government policies to strengthen the basis of
mutual confidence between enterprises and the societies in which they operate…and to
enhance the contribution to sustainable development made by multinational enterprises.‖
They also challenge multinational companies ―to implement best practice policies for
sustainable development that seek to ensure coherence between social, economic and
environmental objectives.‖6
The EC is another major player on CSR. According to the Commission for the European
Communities, CSR is ―a concept whereby companies integrate social and environmental
concerns in the business operations and in their interactions with their stakeholders on a
voluntary basis.‖7 Thus, as a ―voluntary‖ action, corporations are discharging their CSR
activities in the absence of a defined legislative mechanism of a state, irrespective of the
implications of those activities on the society.
Established on September 08, 1999, in Zurich, Switzerland, the DJSI is the first ―global
equity indexes that track the performance of the leading sustainability-driven companies
world-wide.‖ The DJSI includes 315 ―of the top sustainability companies in 24 countries.‖8
Companies qualify to be listed in the index if they satisfy the criteria of sustainability of the
DJSI. The sustainability performance of listed companies ―is assessed and scored on the
basis of an industry-specific questionnaire, the analysis of company policies and reports as
well as stakeholder relations.‖ Such companies must demonstrate their commitment to DJSI
2
See World Business Council for Sustainable Development, Meeting Changing Expectations: Corporate Social
Responsibility, Geneva, Switzerland, March 1999; corporate Social Responsibility: Making Good Business Sense,
Geneva, Switzerland, January, 2000.
3
See WBCSD, Corporate Social Responsibility: Making Good Business Sense.
4
Ibid., p.6
5
See, The OECD Guidelines for Multinational Enterprises, Paris, June 27, 2000.
6
Ibid., pp. 1-2.
7
As cited by Bistra Vassileva, ―Corporate Social Responsibility – Corporate Branding Relationship: An Empirical
Comparative Study,‖ http://www.mnmk.ro/documents/2009/2_Vasileva_Varna_FFF.pdf p.14
8
See,
http://www.sustainabilityindex.com/djsi_protected/djsi_world/components/SAM_DJSIWorld_Components.pdf
2011 Number 2
16
principles, which are: innovative technology, corporate governance,
shareholder relations, industrial leadership, and social well-being. Two of the principles that
are relevant to this paper are governance and society whose properties are respectively
sustainability
defined as ―corporate sustainability, based on the highest standards of corporate
governance including management responsibility, organizational capacity, corporate culture,
and stakeholder relations,‖ and the encouragement of ―lasting social well-being by their
appropriate and timely responses to rapid social change, evolving demographics, migratory
flows., shifting cultural patterns and the need for life-long learning and continuing
education.‖9 In demonstration of its commitment to its sustainability principles, the DJSI
decided to remove the British Petroleum (BP) oil company from the DJSI ―effective May 31,
2010,‖10 as a result of BP‘s oil spill in the Gulf of Mexico.
The above provides an insight into the concept of CSR as articulated by major international
organizations. Literature on CSR is dominated by business and management publications
postulating a business case rationale for CSR. As opined by Maria Gjølberg, a ―politicaleconomic analysis‖ of CSR ―is underdeveloped despite the fact that structural aspects are
crucial to understanding corporate motivation to engage in CSR.‖ 11 The absence of a
universally acceptable definition of CSR makes ―theoretical development and measurement
difficult.‖12
CSR has been used interchangeably to imply a ―business ethics,‖ ―corporate philanthropy,‖
and ―considered strictly as relating to environmental policy.‖ It has ―also been confused
with ‗corporate social performance and corporate citizenship.‘‖ This ―lack of consistency in
the use of the term CSR makes it difficult to compare results across studies, hampering our
ability to understand the implications of CSR activities.‖13 As is universally acknowledged,
corporations are established to maximize profits in the process of providing goods and
services to the society. Thus, corporations employ CSR as a strategic tool towards this end.
If, as postulated by Abagail McWilliams et al., the motivation of CSR ―is to serve society, at
the cost of profits, the action is socially responsible, but if the motivation is to serve the
bottom line, then the action is privately responsible.‖14 They argued: ―it is impossible to
measure what we cannot define, as long as we use different definitions, we will get
empirical results that cannot reliably be measured.‖15
Several authors, including Daniel Silberhorn and Richard C. Warren, also stress the difficulty
in constructing a CSR theoretical development due to the lack of its definitional consensus.
As a starting point in conducting a CSR research, they propose an exploration of ―how
corporations are themselves defining and interpreting CSR.‖16
The concept of voluntarism enshrined in the global perception of CSR renders its
applicability uneven and subject to the whims and caprices of respective corporations in
9
See, Press Release, Dow Jones Sustainability Group Index, Zurich, Switzerland, September 8, 1999, p.6..
See Press Release, Dow Jones Indexes, Zurich, June 1, 2010, http://www.sustainabilityindex.com/djsi_pdf/news/PressReleases/20100531_Statement%20BP%20Exclusion_Final.pdf
11
Maria Gjølberg, ―The Origin of Corporate Social Responsibility: Global forces or national legacies?‖ SocioEconomic Review, 7, 4, 2009, p.606.
12
Abagail McWilliams, Donald S. Siegel, and Patrick M. Wright, ―Corporate Social Responsibility: Strategic
Implications,‖ Rensselaer Working Papers in Economics, Number 0506, May 2005, Department of Economics,
Renssalaer Polytechnic Institute, Troy, N.Y., p. 3.
13
Ibid., p.12
14
Ibid., p.13
15
Ibid., p.16
16
Daniel Silberhorn and Richard C. Warren, ―Defining corporate social responsibility. A view from big companies
in Germany and the UK,‖ European Business Review, 19, 5, 2007,, p.353
10
2011 Number 2
17
respective countries. As argued by Michael Kerr, et al., in a research for the Conference
Board of Canada, ―there are strong indications that the interplay between the law and CSR
is likely to grow in response to the global economic crisis, as world leaders – including those
of the G20 – seek regulatory solutions to promote greater corporate responsibility within a
more sustainable global economic system.‖17 The search for ―regulatory solutions‖
underlines the inadequacy of the voluntary construct of CSR.
Motivation
Why do corporations spend billions of dollars on CSR? Does a corporation unilaterally adopt
CSR or is compelled by exogenous forces to adopt CSR?
Evidence reveals that corporations adopt CSR in response to internal and external pressures
anchored on the imperative of profit maximization and keeping pace with their competitors.
As argued by Leonardo Becchetti, Stefano Di Giacomo, and Damiano Pinnacchio,
corporations engage in CSR activities ―in order to minimize attrition with stakeholders.‖
CSR, they postulate, ―often originates not from an autonomous decision of managers, but
from external pressures from consumers or institutions.‖18 The series of anti-globalization
protests against TNCs and governments on trade practices was a catalyst in the adoption of
CSR by leading corporations.
The growth and economic power of TNCs coupled with the powerlessness of most states,
especially in the less developed economies, to regulate the TNCs influenced the antiglobalization movement of the last three decades. A global regulatory vacuum or a
―governance gap,‖ as it is depicted by Gjølberg, was exploited by TNCs as they establish
themselves in foreign countries. ―Thus, for commercial reasons, corporations need to
establish a new form of legitimacy and a social license to operate.‖ In its current form, CSR
emerged ―as a functional response to anti-globalization and anti-corporate sentiments‖
based on ―corporate enlightened self-interest.‖19
This ―enlightened self-interest‖ is
anchored on the imperative of protecting and promoting the reputation of corporations,
first, in the communities where they operate, and second, to mollify the anti-globalization
movement. This explains the huge investments of corporations on CSR activities over the
past four decades. As argued by Amir Barnea and Amir Rubin ―insiders (managers and large
blockholders) who are affiliated with the firm may want to over-invest in CSR for their
private benefit since it improves their reputations being good global citizen.‖20
As a strategy on business management CSR began to gain traction with corporations, when
corporate executives realized that they ―had to wrestle with how they balance their
commitments to the corporation‘s owners with their obligations to an ever-broadening
group of stakeholders who claim both legal and ethical rights.‖21 The management of this
balance remains a critical element in our understanding of CSR. Archie Carroll argued that
―four kinds of social responsibilities constitute total CSR: economic, legal, ethical, and
17
Michael Kerr, Richard Janda, Chip Pitts, and Jason MacLean, ―CSR: A Legal Analysis,‖ Corporate Social
Responsibility, The Conference Board of Canada, Review Spring 2010, Ottawa, p.2.
18
Leonardo Becchetti, Stefano Di Giacomo, Damiano Pinnacchio, ―Corporate Social Responsibility and corporate
performance: Evidence from a panel of US listed companies,‖ Centre for International Studies on Economic
Growth, Research Paper Series, Vol. 26, No. 78, December 2005, p.3
19
Maria Gjølberg. p.608.
20
Amir Barnea and Amir Rubin, ―Corporate Social Responsibility as a Conflict between Shareholders,‖ October
13, 2005, p. 1
21
Archie B. Carroll, ―The Pyramid of Corporate Social Responsibility: Towards Moral Management of
Organizational
Stakeholders,‖
Business
Horizons,
34,
July
–
August
1991,
http://wwwroham.sdsu.edu/faculty/dunnweb/rprnts.pyramidofcsr.pdf p.1
2011 Number 2
18
philanthropic‖ which he ―depicted as a pyramid.‖ In underlining the inter-relatedness of the
constituents of CSR, Carroll declared: ―All other business responsibilities are predicated
upon the economic responsibility of the firm, because without it the others become moot
considerations.‖22 He warned that the four components in the pyramid ―are not mutually
exclusive and are not intended to juxtapose a firm‘s economic responsibilities with its other
responsibilities.‖ The components ―are in a constant but dynamic tension with one another,‖
as the CSR firms ―strive to make a profit, obey the law, be ethical, and be a good corporate
citizen.‖23
A convergence of economic and non-economic determinants compels
corporations to adopt CSR.24
CSR has gradually expanded the role of private corporations into areas previously
considered to be under the jurisdiction of the state. As underlined by Gjølberg, these areas
include ―efforts to mitigate climate change, protect human rights and safeguard the
environment.‖25
Contending views on the adoption of CSR by corporations have polarized the debate on
motivation. While one group promotes and endorses CSR as a positive development in
business-stakeholder relationships, the other conceptualizes CSR as a well crafted slogan of
corporations to maximize their profit margins based on self-regulation. As aptly stated by
Peter Utting and José Carlos Margues, there is a ―need for a more nuanced empirically and
theoretically grounded understanding of the contemporary role of corporations in
governance and development and the potential and limits of CSR.‖26
Viability
This section discusses whether it pays to do good in business, as CSR has come to
represent in the perception of most people. There is no misunderstanding that the business
of business is to maximize profit for its shareholders. This has been the main driving force
of business form time immemorial. Thus, it is anticipated that any initiatives of a
corporation are geared to respect this business imperative, including initiatives and policies
that protect the environment and benefit the community. As stated by M. Jensen, ―200
years worth of work in economics and finance indicate that social welfare is maximized
when all firms in an economy maximize total firm value.‖27
The inappropriate actions of several top corporations over the past two decades have led
some analysts to question the viability of CSR. Consumer protest against corporations
breeching their social responsibilities is not only about the production process (e.g., child
labour in the case of Nike and Adidas), but about the lack of ethical and or moral principles
demonstrated by corporations in their business relationships with third parties. For instance,
companies dealing with South Africa during its apartheid regime fell under the harmer of
corporate social responsibility. The recent financial mismanagement of several top
corporations bordering on fraudulent practices has also heightened public criticism and
22
Ibid., p.4
Ibid., p.8
24
See, Julie Pirsch, Shruti Gupta, and Stacy Landreth Grau, ―A Framework for Understanding Corporate Social
Responsibility Programs as a Continuum: An Exploratory Study,‖ Journal of Business Ethics, 70, 2007, pp. 125140. Note p. 128.
25
Maria Gjølberg, p.605
26
Peter Utting and José Margues, ―Introduction: The Intellectual Crisis of CSR,‖ in Corporate Social
Responsibility and Regulatory Governance: Towards Inclusive Development?, edited by Peter Utting and José
Margues, United Nations Research Institute for Social Development, New York, N.Y., 2010, p. 5
27
See M. Jensen, ―Value maximization, stakeholder theory, and the corporate objective function,‖ Business
Ethics Quarterly, 12, 2002, pp. 235-250. Note p. 239.
23
2011 Number 2
19
negative perceptions of corporations and CSR. This position was strongly echoed by the
former chair of the UK Sustainable Development Commission, Jonathan Porritt, who
challenged the future of CSR as he ―noted that many of the companies that were guilty of
the most egregious financial mismanagement had stellar CSR policies.‖ Porritt argued that
the ―seductive pull of big money will always trump the platitudes of corporate
responsibility.‖28 This view re-echoes the position of critics who had questioned the weight
given to environmental protection vis-à-vis corporations‘ profitability in the debate on
sustainable development.
CSR remains an attractive idea for most corporations. But what seems lacking, however, is
a demonstrated commitment to its ideals. As noted above, from time immemorial, the
business of business is to maximize profits – by making more money. Thus, every action of
a corporation in respective of the components of Archie Carroll‘s pyramid is predicted on
the successful outcome of the economic component. The other three components – legal,
ethical, and philanthropy – are secondary considerations. In a 2008 biannual global Survey
of CEOs conducted by IBM, CSR was ―identified as one of the five key drivers of the
‗Enterprise of the Future.‘― However, ―the study found that while CEOs see significant
change ahead, they believe their organizations‘ ability to manage the change successfully
lags behind.‖29
In a study entitled ―Does it pay to be good?‘ Joshua D. Margolis, Hillary Anger Elfenbein,
and James P. Walsh examined the relationship between corporate social performance (CSP)
and corporate financial performance (CFP) in the activities of corporations. While they
cautioned that ―failure to invest in CSP can leave a company hampered,‖ they observed that
CSP did not ―systematically destroy shareholder value,‖ and that companies did ―not seem
to be richly rewarded for engaging in CSP.‖30 The authors used CSP in place of CSR. The
ambivalence regarding the significance of CSP (or CSR) in this study is suggestive. The
authors opined: ―Socially responsible corporate policies appear to be somewhat more likely
for companies that enjoy past financial success, but the presence of those policies does not
predict current or future financial success.‖31 According to Elfenbein and his colleagues, the
―past financial success‖ of a company significantly determines its decision to invest in CSP.
Thus, CSP is not considered a prime activity of a corporation, but rather as a place to invest
its surplus from its ―past financial success.‖ In an October 2009 survey of U.S. chief
executives, reported by David J. Vidal, it was found that ―eight-one percent of Business
Council respondents agree that business partnership will increasingly be judged by the
ability to create enterprises that are economically, socially, and environmentally
sustainable.‖32
While the strategic value of CSR to corporations is universally acknowledged, there is
concern, however, about the level of commitment demonstrated by corporations. The
―voluntary self-regulation‖ remains a major concern.33 As postulated by Alan C. Neal, there
is a perception that CSR provides a ―fig-leaf‖ for certain corporate entities. His research
28
Cited in The Conference Board of Canada, Review Spring 2010, Ottawa, p. 4
Ann Kemp, ―Rules of Thumb for CSR Professionals,‖ in Corporate Social Responsibility, The Conference Board
of Canada, Review Spring 2010, Ottawa, p. 7.
30
Joshua D. Margolis, Hillary Anger Elfenbein, and James P. Walsh, ―Does it pay to be good?‖ A Meta-analysis
and redirection of research on the relationship between corporate social and financial performance,‖ July 26,
2007, pp. 25 & 22.
31
Ibid., p. 23
32
David J. Vidal, ―Ready or Not: Companies and the Sustainability Tipping Point,‖ The Conference Board, New
York, N.Y., February 2010, p.4.
33
See, Alan C. Neal, ―Corporate Social Responsibility: Governance Gain or Laissez-Faire Fig leaf?‘, Comparative
Labour Law & Policy Journal, vol 29, 2008, p. 472.
29
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20
reveals that, ―in certain quarters, the incessant mantra of ‗CSR principles‘ meets with little
more than the cynical adjudication that‖ when a lie is repeated ―often enough it takes on
the quality of received wisdom.‖34
Both the Organization for Economic Cooperation and Development (OECD Principles of
Corporate Governance), and the European Commission (Implementing the Partnership for
Growth and Jobs: Making Europe a Pole of Excellence on Corporate Social Responsibility)
have taken proactive steps to inject some level of governance into CSR.35 They both stress
the importance of CSR in enhancing companies‘ sustainability and good corporate
citizenship vis-à-vis the communities where their operations are based, irrespective of the
countries. The European Union recently announced the establishment of a European
Alliance on CSR, a non-legal entity for large and small European companies. This is
designed to entrench CSR as a permanent culture in the activities of European companies.
Case studies published by the European Commission show considerable benefits of CSR to
European companies. The twenty-five companies that have adopted CSR principles
demonstrated ―clear benefits‖ as several of them reported ―increased sales or reduced
costs, but almost all of them stress the intangibles – their reputation has improved and with
it their relations with their local communities; their customers are more satisfied and more
loyal and, perhaps best of all, their employees are happier and better motivated.‖36
Irrespective of the claims of various corporations vis-à-vis the benefits of their CSR
activities, Alan Neal argues that ―doubts remain as to how sustainable many of the CSR
claims made by companies may turn out to be.‖ He opined:
―Leaving aside the temptation to ‗discount‘ some of these claims as over-optimistic or
exaggerated, one of the principal reasons for such uncertainty lies in the difficulty for
analysts to measure in meaningful terms the results of particular CSR initiatives – a problem
exacerbated by the fledging status of any methodology for undertaking such an evaluative
process.‖37
In a study sponsored by the United Nations Research Institute for Social Development,
critical comments were made about the status of CSR. It argued that CSR is based on a
―constructivist‖ premise that is ―concerned with filling governance gaps and fine-tuning
institutions, in particular through so-called voluntary institutions and ‗private regulation‘, in
an attempt to minimize certain perverse effects of economic liberalization that affected
workers, communities, consumers and the environment.‖ It argued that ―not only have
tangible advancements paled in comparison to the promise, but, in some respects, the
mainstream CSR agenda has also missed the mark in terms of the issues it has
prioritized.‖38
In a 2005 review of the works of various researchers on the relationship between CSR and
corporate financial performance, Becchetti et.al., categorized the literature into three
groups as represented in the table below.
34
Alan C. Neal, ibid., p. 463.
See Organization for Economic Cooperation and Development, OECD Principles of Corporate Governance,
OECD Publications Services, Paris, 1999; and Implementing the Partnership for Growth and Jobs: Making
Europe a Pole of Excellence on Corporate Social Responsibility, Communication from the Commission to the
European Parliament, the Council and the European Economic and Social Committee, Brussels, March 22, 2006.
36
As cited by Alan C. Neal, p. 469.
37
Neal, p. 469.
38
Peter Utting and José Margues, ―Introduction: the Intellectual Crisis of CSR, ― in Corporate Social
Responsibility and Regulatory Governance: Towards Inclusive Development?, pp. 1-2.
35
2011 Number 2
21
TABLE 1: RELATIONSHIP OF CSR TO FINANCIAL PERFORMANCE
Positive Relationship
■ The ―costs of having a high level of CSR are more than
compensated by benefit in employee morale and productivity.‖
■ CSR ―is positively associated with financial performance.‖
■ ―Positive synergies between corporate performance and good
stakeholders relationship.‖
■ CSR ―is positively associated with growth in sale.‖
■ Returns ―on sales are positively associated with CSR.‖
No Significant Relationship
Negative Relationship
■ ―No significant direction in the link between CSR and
corporate performance.‖
■ The ―financial performance of the Domini index constituents
is not significantly different from that of a control sample when
per capita R&D expenditure is cited.‖
■ Inconclusive correlation
■ Literature in the ―dominates a negative relationship between
CSR and corporate performance which is consistent with the
managerial opportunism hypothesis.‖
■ ―Manager reduce expenditures on social performance to
increase
short-term
profitability
and
their
personal
compensation, but, when financial performance is poor, they
direct attention by expenditures on social programs.‖
Each of the above perspectives is accurate, depending on the available data and financial
period being examined and measured. As noted by Becchetti et.al. the three groups ―do not
necessarily reflect mistakes or inaccuracies, but, most often, differences in perspectives.‖39
Bryan W. Husted and David B. Allen‘s research agrees with that of Leonardo Becchetti et.al.
that the relationship between CSR and corporate financial performance is inconclusive as
―some studies show a positive relationship between the two; others, a negative
relationship; and still others, no relationship.‖40 In their study of the effects of three CSR
variables on value creation among large Spanish companies, Husted and Allen identified the
following represented in the table below.
TABLE 2: EFFECTS OF CSR VARIABLES ON LARGE SPANISH COMPANIES
Effects
■ The ―effects to which several activities may
be observed by the firm‘s stakeholders,‖ may
―affect the reputation of the firm positively.‖
Appropriability
■ The ―ability of the firm to extract economic
benefits from a social project,‖ via ―product
differentiation.‖
Voluntarism
■ The ―sense in which social activities are
undertaken freely, because firms want to,
rather than as a result of legal constraints or
fiscal incentives.‖ Recognition that ―there is
something fundamentally different between
Variables
Visibility
39
Leonardo Becchetti, Stefano Di Giacomo, and Damiano Pinnacchio, Corporate Social Responsibility and
corporate performance: Evidence from a panel of US listed companies,‖ p.7
40
Bryan W. Husted and David B. Allen, ―Strategic Corporate Social Responsibility and Value Creation among
Large Firms: Lessons from the Spanish Experience,‖ Long Range Planning, Vol. 40 Issue 6, December 2007,
9.595
2011 Number 2
market activities
projects.‖41
22
and
non-market
CSR
All corporate activities, including CSR induced ones, ―may add value in the moment that
they reduce costs, create product differentiation, or move customers to buy from one firm
rather than another.‖ However, continued Husted and Allen, ―it is not a given that CSR
innovation will either produce competitive advantage or value creation.‖ Husted and Allen
contend that, while Spanish firms recognize the value of CSR and its potentials for value
creation ―they do not yet know how to re-orient non-market CSR projects toward value
creation.‖42
According to Husted and Allen, top managers of US, Spanish, German and British TNCs ―in
the pharmaceutical, banking and telecom industries‖ seem not to know ―when and how
non-market social activities can be converted into value-creation market activities.‖43 A
manager of British Petroleum, Graham Baxter even questioned ―whether CSR pays off.‖ He
stated: ―Through BP‘s 100-year history, maintaining a positive working relationship with
communities and broader society where we operate has been an important part of our
success…the ‗CSR Bubble‘ has become over-inflated which, at worst, tries to create a
parallel universe dangerously separate from business purpose and strategy.‖44
Evidence in the preceding paragraphs vividly demonstrates the inclusiveness of the
relationship between CSR and corporate financial performance. In most cases, the
investments in CSR activities derive from the profits of corporations‘ preceding financial
years which they elect to re-invest in social activities. Notwithstanding the above, we have
to note that firms can use their CSR activities to achieve a level of competitive advantage.
This is possible if a firm ―can prevent competitors from imitating its strategy,‖ but any such
preliminary ―advantages that might be gained by offering higher quality products are
eroded when competitive strategies are observable.‖ As postulated by McWilliams, Siegel
and Wright, firms can also ―use government regulation to impose CSR on rivals who do not
employ an appropriate technology, thus raising the costs of those rivals relative to the
initiating firm.‖45
Variance
Is there a variance in the application of CSR across countries and regions? The intrusion of
corporations into the sphere of public policy, generally considered as under the jurisdiction
of states, has opened up new frontiers in state-business and business-stakeholder
dynamics. How governments relate to private corporations operating within their
boundaries to a large extent determines the form and content of corporations‘ CSR
activities. Thus, as noted by Colin Crouch, the position of governments is vital, as ―many
governments have historically been responsive primarily to various business and political
elites and have not necessarily been exemplary guardians of the interests of a general
public or of the socially excluded poor.‖46 In less developed or transition economies, for
example, governments ―are in addition very dependent on inward investors for the real
41
Ibid., pp. 598-600
Ibid., p.605
43
Ibid., p.595
44
As cited in ibid.
45
McWilliams, Siegel, and Wright, ―Corporat4e Social Responsibility: Strategic Implications,‖ p.11
46
Colin Crouch, ―CSR and Changing Modes of Governance: Towards Corporate Noblesse Oblige?‖ in Corporate
Social Responsibility and Regulatory Governance: Towards Inclusive Development?, edited by Peter Utting and
José Margues, p.42.
42
2011 Number 2
23
wealth and opportunities that they bring,‖ a situation which places corporations in the role
of the ―old French aristocratic concept of noblesse oblige.‖ This compelled Crouch to pose a
question: ―Is CSR the noblesse oblige of transnational corporate elites?‖47
While Abagail McWilliams et.al, observed that ―business norms and standards, regulatory
frameworks, and stakeholder demand for CSR can vary substantially across nations,
regions, and lines of business,‖48 Silberhorn and Warren devoted their 2007 research paper
to a comparative analysis of the CSR activities of big companies in Germany and the United
Kingdom to study the variance of CSR in both countries. This study provides empirical
evidence on the variance of corporate behaviour based on the specificities of each country‘s
socio-economic and political institutions. They concluded that ―the organizations‘
perceptions of their social responsibilities changed internationally.‖49 This supported the
findings of I. Maignan and D. Ralston which reported variances across four countries.50
Silberhorn and Warren reviewed three motivating principles that determine how CSR is
understood in UK and German companies. These are:
1. ―performance considerations,‖
2. ―corporate values,‖ and
3. ―response to stakeholder pressures.‖51
German and British companies in the study ―favour the performance driven perspective
over the value-driven and stakeholder-driven ones.‖ While ―German and British companies
cite a variety of combinations, German companies offer a slightly more differentiated set of
motivations with more companies citing two or even three motivating principles.‖52 Though
there are insignificant differences in British and German companies‘ corporate behaviour
towards ―Transparency‖ and ―Sustainability,‖ a widening gulf exists in their behaviour
towards ―Accountability‖ and ―Responsiveness.‖ Only ―12 (60 per cent) German companies
mention Accountability and 13 (65 per cent) Responsiveness, as opposed to 19 (95 per
cent) and 18 (90 per cent), respectively, of the British.‖53
The research by Silberhorn and Warren concluded that ―the largest corporations are
projecting CSR as a comprehensive sustainable business strategy, based on transparency,
accountability and responsiveness, which recognizes the business-society interdependence
and constantly evolves in interactions between the company and its increasingly global
environment.‖54 While ―similarities between large German and British companies generally
support the observation that global companies act similarly in their development and
dissemination of CSR messages,‖ their slight differences buttress the ―argument that CSR
differs from country to country.‖ These differences are attributable to the ―different starting
point for CSR‖ in each country and the existing institutional structures of each politicaleconomic system.55
47
Ibid., pp. 42 & 39
Abagail McWilliams, Donald S. Siegel, and Patrick M. Wright, Corporate Social Responsibility: Strategic
Implications,‖ p. 3.
49
Silberhorn and Warren, ―Defining corporate social responsibility: A view from big companies in Germany and
the UK,‖ p. 353
50
See I. Maignan and D. Ralston, ―Corporate Social Responsibility in Europe and the US: Insights from
businesses‘ self presentations,‖ Journal of International Business Studies, 33, 3, 2002, pp. 497-514.
51
Silberhorn and Warren, p. 357.
52
Ibid.
53
Ibid., p. 361.
54
Ibid., pp. 367-368.
55
Ibid., pp. 368-369.
48
2011 Number 2
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As observed by Maria Gjølberg, CSR ―signals a new role for private actors in future national
and global governance‖ and posed two critically inter-related research questions: ―why are
companies from certain nations more eager to engage in CSR than others, and, why are
companies from some nations more able to succeed in their CSR efforts than others?‖56
The level of development of national institutions has significant impact on CSR behaviour
hence we ―cannot expect a uniform CSR performance across all nations;‖57 The CSR
performance index developed by Gjølberg demonstrate a significant variance across
advanced developed capitalist states. For example, while the United Kingdom, Australia,
Canada, the Netherlands, and the Nordic states are considered ―CSR leaders,‖ Ireland, the
United States, Portugal, Italy, and France, etc., are ―CSR laggards.‖58
Some jurisdictions have taken steps to legislate the CSR activities of companies under their
respective territories. For example, ―over 30 state jurisdictions‖ in the United States have
―enacted corporate constituency statues‖…that ―allow for the consideration of a broad
range of non-shareholder interests in corporate decision making.‖ Similarly a ―2006
Australian Parliamentary Inquiry also confirmed that the directors‘ duties entrenched in the
Australian Corporations Act 2001 should be interpreted to permit directors to take into
account the interests of stakeholders other than shareholders.‖59 Furthermore, the
government of the United Kingdom has taken the most significant action through its
Companies Act 2006 which requires company directors to consider ‗the likely consequences
of any decision in the long term,‘― by declaring that ―it will not be sufficient (for directors)
to pay lip service to (environmental and social matters) and, in many cases the directors
will need to take action to comply with this aspect of the duty.‖60
Concluding Remarks
The analysis in the preceding pages underlines a number of issues of concern to our study
of CSR. These are (i) the lack of an acceptable global definition of CSR; (ii) the pitfalls of
voluntary regulation; (iii) how to measure the benefits of CSR; and (iv) the variance of
corporate behaviour vis-à-vis CSR.
As noted in the preceding pages, the lack of a global definition of CSR hampers our ability
to measure the benefits of CSR across industries. This notwithstanding, what is clear is that
CSR is adopted by major corporations in their activities in regions and countries across the
globe. A way out of the definitional deficit is for us to use each corporation‘s definition to
measure its compliance with and potential variance of CSR in various countries.
The regulatory status of CSR also poses a critical question. Given the role of CSR in
corporations‘ activities, and its increasing support from governments, categorizing it as
voluntary on the part of corporations suggest the vacating of a key social policy plank by
governments. As noted above, the governments of Britain and Australia, as well as some
states in the United States, have taken proactive moves to inject government mandatory
regulation into CSR. This will definitely help to change the form and content of CSR.
O. Igho Natufe, Ph.D is Senior Policy Research Advisor at Natural Resources Canada,
Ottawa, Ontario, Canada. Comments are welcome at [email protected]
56
57
58
59
60
Maria Gjølberg, p.606
Ibid., pp. 609-623
Ibid., p.619.
The conference Board of Canada, Review Spring 2010, Ottawa, p. 3.
Ibid.
2011 Number 2
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Conflict Minerals and Corporate Transparency: New Hopes on
Extrajudicial Accountability on publicly traded Multinational Corporations
Joshua E. Kaller
Part I. Brief Introduction to the DRC
The Democratic Republic of Congo (DRC) is a country the size of Western Europe, but
enjoys very few of any civilized fruits. With little public infrastructure intact, floundering
state institutions, and levels of poverty that make it amongst one of the poorest countries
in the world, it is no wonder that is home to some of the greatest human tragedies that
have occurred in modern era.61 Congo is said to have suffered from nearly 3.5 million
conflict related deaths over the past ten years, possesses 2 million internally displaced
persons currently, and forecasts nearly 20 thousand rapes in the coming year.62 As of
December 15, 2010 the United Nations has issued orders to send an additional 900
peacekeepers, on top of the 19,000 already stationed in the region.63 The presence of
interethnic tensions and the absence of a strong central government has created a power
vacuum that is exploited by armed groups and other criminal actors that abuse the civilian
population and perpetuate a war economy through the taxing and stealing of minerals.64
Since the early 1990‘s eastern Congo has served has a home and refuge for foreign arm
groups who have utilized the relatively weak presence of the central government to
continue their militaristic regimes.65 Though it is reported that the number of military
crimes has decreased, there is still a substantial presence of militaristic forces of foreign
armed groups known as the Democratic Forces for the Liberation of Rwanda (FDLR), the
Lord‘s Resistance Army (LRA), and the Allied Democratic Forces (ADF-NALU), still continue
to exploit the eastern Congo population in to advance the personal interests of a small
subset of jungle tyrants and rulers. For this reason, the international community and the
American Congress have undertaken specific initiatives to bring light to one of the greatest
humanitarian crisis of our times.
Part II. Conflict Minerals Act: Congress Responds
On July 15, 2010, Congress officially passed the Dodd-Frank Wall Street reform bill, which
would usher in a new set of laws and regulations dealing with corporate operations.66 As
part of this bill, a law was tucked within it that related to corporate supply chains and its
responsibility of transparency. The provisions that outlined this new due diligence and
reporting was a remnant of the Congo Conflict Minerals Act of 2009. 67 This law was placed
into the Dodd-Frank bill as a reporting mechanism that would be coordinated and regulated
by the Securities and Exchange Commission.68 This bill outlines a series of important
61
Spyros Demetriou, Salamah Magnuson, Strengthening United States Foreign Policy in the Democratic Republic
of Congo, November 2010.
62
Id. at 20, 21.
63
Brian Latham, UN Sending 900 Congo Peacekeepers to Curb LRA Attacks, Dec. 16, 2010, available at
http://www.bloomberg.com/news/2010-12-16/un-to-send-900-extra-peacekeepers-to-congo-to-curb-lraattacks.html
64
Tristan McConnell, Congo Army Accused of Multiple Abuses, Dec. 14, 2010, available at
http://www.minnpost.com/globalpost/2010/12/14/24180/congo_army_accused_of_multiple_abuses.
65
Supra note 1 at 22.
66
Congo Conflict Minerals Act of 2009, S. 891, 111th Cong. (2009) (hereinafter CCMA). The CCMA was included
as part of the final Dodd-Frank Wall Street reform bill passed by Congress on July 15, 2010. See H.R. 4173
(2010) § 1502 (to be codified at 15 U.S.C. § 78m(p)).
67
68
Id.
H.R. 4173 (2010) § 1502 (to be codified at 15 U.S.C. § 78m(p))
2011 Number 2
26
requirements and demands on both corporations, but also the federal government to
provide assistance.69
Part A. Conflict Minerals Act: Corporate Disclosure
One of the first listed requirements within the legislation, corporations would have to list
disclose annually conflict minerals that are ―necessary to the functionality or production of a
product manufactured‖.70 The Conflict Minerals Provision defines the
term ―conflict mineral‖ as cassiterite71, columbite-tantalite72, gold73, wolframite74, or their
derivatives, or any other minerals or their derivatives determined by the Secretary of State
to be financing conflict in the DRC countries.75 According to Project Enough, the net income
from these four minerals totals nearly $184 million per year on average.76 These elements
are essential for the manufacturing of most electronics, and are some of the initial targets
for identification and due diligence under the new Conflict Minerals Act (CMA).
The disclosure requirement brings up significant points of contention. By utilizing a
simple reading of the statute, a requirement on companies who utilize conflict minerals in
their ―functionality‖ or ―production‖ of a product manufactured creates a wide net of
compliance. The uncertainty of this issue had brought companies like Walmart, Target, Best
Buy, and other electronics retailers to the door of the SEC to discuss their grievances with
the reporting requirement.77 Through their meetings with the SEC, they wanted to ensure
that they would be outside of the disclosure requirements for traditional electronic
manufacturers.78 However, Senator Richard Durbin (D., Ill) and Representative Jim
McDermott (D., Wash) had articulated in their submitted comments to SEC chairperson,
Mary L. Schapiro, that the standards are not meant for only traditional manufacturers.79 In
their letter to the SEC they stated explicitly their intent:
―While we were clear to exempt pure retailers from reporting, there are many retailers
that also engage in manufacturing. These retailers issue requirements for products to
be manufactured for them - including design, quality, product life expectancy, and so
69
70
71
See generally Id.
Id. at §2(B)
―Cassiterite is the metal ore that is most commonly used to produce tin, which is used in alloys, tin plating,
and solders for joining pipes and electronic circuits.‖ See Tin Statistics and Information, U.S. GEOLOGICAL
SURVEY. available at, http://minerals.usgs.gov/minerals/pubs/commodity/tin/.
72
―Columbite-tantalite is the metal ore from which tantalum is extracted. Tantalum is used in electronic
components, including mobile telephones, computers, video game consoles, and digital cameras, and as an alloy
for making carbide tools and jet engine components.‖ See Niobium (Columbium) and Tantalum Statistics and
Information,
U.S.
GEOLOGICAL
SURVEY,
available
at,
http://minerals.usgs.gov/minerals/pubs/commodity/niobium.
73
―Gold is used for making jewelry and, due to its superior electric conductivity and corrosion resistance, is also
used in electronic, communications, and aerospace equipment.‖ Gold Statistics and Information, U.S.
GEOLOGICAL SURVEY, available at, http://minerals.usgs.gov/minerals/pubs/commodity/gold.
74
―Wolframite is the metal ore that is used to produce tungsten, which is used for metal wires, electrodes, and
contacts in lighting, electronic, electrical, heating, and welding applications.‖ Tungsten Statistics and
Information,
U.S.
GEOLOGICAL
SURVEY,
available
at,
http://minerals.usgs.gov/minerals/pubs/commodity/tungsten.
75
Id. At §(e)(4)
76
Project Enough, A Comprehensive Approach to Congo‘s Conflict Minerals, April 2009.
77
Jessica Holzer, Retailers Fight to Escape ‗Conflict Minerals‘ Law, Wall Street Journal, Dec. 1, 2010, at
Business
Section,
available
at
http://proquest.umi.com.proxyau.wrlc.org/pqdweb?did=2202009061&sid=1&Fmt=3&clientId=31806&RQT=309
&VName=PQD.
78
Id.
79
Letter from Sen. Richard Durbin & Rep. Jim McDermott to Securities and Exchange Commissioner (Oct. 4,
2010),
available
at
http://www.sec.gov/comments/df-title-xv/specialized-disclosures/specializeddisclosures.shtml.
2011 Number 2
27
on. In our view, pure "white label" products, where retailers have no influence in their
manufacture, should not be subject to reporting. However, products that the retailer
contracts to be manufactured or for which the retailer issues unique product
requirements must be included. If retailers that contract the manufacture of goods or
influence product design are exempt from reporting, then a large, non-transparent use
of the black market for DRC conflict minerals would remain, directly subverting the
policy intention of the law.‖80
Sen. Durbin and Rep. McDermott, fathers of the legislation, understood that if there
were to be any loopholes within the law itself then multinationals who both act as retailers
and also as arms length manufacturers would skirt the laws. In so doing, there would be an
inability to create the type of pressure needed to influence the market for conflict minerals.
Durbin and McDermott were careful in adding the terms ―contracted to be manufactured‖ in
order to ensure that businesses that utilized complex supply chains would not be
considered outside of the legislation.81 If this were to be the case, the electronic
manufacturers or retailers would simply contract their way out of the problems by simply
looking to other manufacturing corporations that act outside of the judicial range of the
United States. By ensuring that corporations look deeply into their supply chain, it creates a
sense of global stewardship and responsibility, a practice rarely seen.
The legislation, though possessing uncertainties for interpretation, clearly outlines
other requirements for corporations within the legislation itself. One of the additional
requirements for companies that are to be regulated under this section of law must
articulate the efforts taken by their company to exercise the due diligence required to
demonstrate a chain of custody of the minerals.82 Along with the reported due diligence, an
audit of the report would be required by the private sector.83 This private sector audit will
have to meet standards set by the Comptroller General of the United States, guided by
rules set by the the Securities and Exchange Commission, all in consultation by the
Secretary of State.84
In addition to producing a privately audited report, the manufacturer must also
provide a description of the products manufactured or contracted to be manufactured,
describe the facilities used to process the minerals, the country of origin of the minerals,
and the efforts to determine the mine or the location of origin with the greatest possible
specificity.85 In looking deeper into this legislation, the drafters specifically were focused on
determining with the greatest specificity that money was not falling into the hands of the
paramilitary groups within the DRC.
Several initiatives have taken place in an attempt to determine the viability to track
minerals from mine to manufacturer. One such study that was accomplished was
undertaken by RESOLVE, a Washington, D.C. Based NGO that builds strong, enduring
solutions to environmental, social, and health challenges.86 In their report that articulated
that end-use companies cannot assert 100% sourcing certainty about individual metals or
the product as a whole without significant alterations and/or assurance mechanisms in their
80
Id.
Id. In their letter they explicitly state, ―Many companies use component parts from anyone of several
suppliers when assembling their products. This business model for supply chain management can help drive
down the price for parts through competition. Yet this business model also creates complexity, which has served
as a rationale for not requiring responsibility to date - and which has enabled the black market for conflict
minerals to grow. It is of paramount importance that this business model choice not be used as a rationale to
avoid reporting and transparency.‖ See Supra note 12.
82
H.R. 4173 (2010) supra note 2
83
Id.
84
Id.
85
Id. at § (1)(A)(ii)
81
86
RESOLVE, Tracing a Path Forward: A Study of the Challenges of the Supply Chain for Target Metals Used in
Electronics, April 2010.
2011 Number 2
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supply chains.87 The difficulty in looking into the very source of the mine entails a multitiered process that is often difficult to identify and even articulate. Industry partners lead by
the Global e-Sustainability Initiative and the Electronics Industry Citizenship Coalition have
articulated three major challenges for transparency at the mine level: 1) supply chains are
not transparent enough 2) they lack the capacity and accountability mechanisms to track
minerals; and 3) the on-the-ground capacity to differentiate sources to ensure that the
minerals derived from a proper source simply does not exist.88 Furthermore, some of the
greatest issues in trying to trace minerals arises from the mixing of the ore, the smelting
process, and the re-smelting or re-processing of metals.89 These stages of difficulty
elucidate the fact that not many provisions are currently in place for smelters to consider
where their minerals are sourced. The opportunity to leverage a global marketplace of
resource allows for smelters to shop for the lowest goods. Due to great complexity of the
supply chain process, even sourcing process can be a mystery for the refiner as well. In the
illustration below, a simplified map of the the supply chain for some of the minerals deriving
from the DRC is delineated.
90
In looking at the illustration of the graph, it outlines some of the materials
vulnerabilities. However, it does not articulate all the deeper nuances of the
taxation/exploitation regime that paramilitary groups exercise over the issue. Looking at
this illustration masks the impact and effect by the paramilitary groups. It must be realized
that the issue of violence occurring in Eastern Congo is the source of international attention
and contention. Since the early 1990‘s, paramilitary groups had continued to capitalize on
the weak presence of the state and control large geographic areas to sustain their
operations through the illegal exploitation of natural resources.91 The supply chain map
87
Id. at 3.
Id. at 4.
89
Id. at 13.
90
Id. at 18.
91
See supra note 1.
88
2011 Number 2
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provided by the OECD provides a deeper and more nuanced understanding of the possible
sources of danger
In the map above, a greater appreciation of where and how parties to the conflict
leverage their power and position in order to profit from the lucrative supply chain that
abounds. It is important to note that the §1502 legislation is mandating a due diligence
standard in order to prevent any further financial gain by the paramilitary groups present in
Eastern Congo. It is with great hopes that Congress initiated this legislation believing that
market pressures and investigation would lead to a remedy of the deeper governance
problems that exist within the DRC.
The next requirement imposed upon the businesses is to make the audit report
available for public viewing on their website.92 This information is created in order to meet
market disclosure requirements for corporations generally within the SEC governance
system. By forcing companies to disclose on their operations, in conjunction with SEC
penalties for failure for contributing to armed groups, it creates a governance system that
promotes transparency beyond all else. However, because the SEC has still yet to
determine any penalties for a failure to disclose or for knowingly contributing to arms
groups, a failure by the SEC to declaw the legislation would in effect undervalue the impact
of § 1502.
Part B. SEC Comments and Proposed Rules Generally
The previous section mentions some of the general requirements that were placed on
corporations through the legislation. After a period of open comments, on December 15,
2010 the SEC released its initial rule proposals for §1502.93 In a 113 page document, the
92
H.R. 4173 (2010) § (1)(E)
17 C.F.R. §§ 229, 249 (2010). Available at http://www.sec.gov/rules/proposed.shtml
93
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SEC filed a set of proposed rules that are open for comments until January 31, 2011. 94 In
it, the SEC reiterates many of the previously stated rules but provides deeper guidance
about how it will be implemented under SEC general rule making.
There is a three step process for companies to consider when dealing with §1502.95
The first step is for the company to consider whether it falls under the ―person‘s described‖.
The second step is for the person to do an inquiry whether its minerals originated in the
DRC or surrounding countries.96 The third step involves a greater due diligence report for
company that know that their minerals derived from the DRC, or cannot determine whether
or not their minerals came from the DRC. 97
a. Step one highlights: ―Person Described‖
The SEC finally articulated that ―person described‖ or subject to the clause itself consists of
― one (1) who is required to file reports under Sections 13(p)(1)(A), and (2) the conflict
minerals are necessary to the functionality or production of a product manufactured by
such person.‖ Section 13(p)(1)(A) notes that companies who ―manufacture‖ and ―contract
to manufacture‖ products should be held to the reporting requirements within §1502.98
According to recent statements, organizations like Walmart and Target will not be exempt
from the filing requirements.99 Accordingly, the SEC stated that the rules would apply
equally to issuers that manufacture products and issuers that contract for the
manufacturing or products over which they have any influence regarding the manufacturing
of those products.100 Furthermore, the regulation also would apply to issuers selling generic
products under their own brand name or a separate brand name that they have
established, ―regardless of whether those issuers have any influence over the
manufacturing specifications of those products, as long as an issuer has contracted with
another party to have the product manufactured specifically for that issuer.‖101 This
requirement exposes corporations, especially companies like Apple and Dell to investigate
contracts that extend into second and third tier suppliers. This language places a burden on
any company that contracts electronic products for their retail stores as well. This demand
will create extrajudicial implications, whereby international manufacturers will have to place
new pressures and inquiries to ascertain aspects of the §1502 legislation. In regions like
Asia, where human rights standards are not necessarily viewed with an equal lens as it is in
the west, there may be initial miscommunications between west and east relations. Yet, if
the companies in the east would like to procure the contracts, no information regarding due
diligence is any longer a possibility.
The SEC has opened requests for comments considering whether or not they should
define the term ―manufacture‖.102 Furthermore, the SEC requests comments on whether
they should apply a ―minimum level of influence, involvement, or control‖ before a
company would be subjected to the regulation.103 These questions are requests for industry
players to reveal the level and extent of impositions that will be imposed by them by
creating such a low threshold requirement.
There was also much consideration within the SEC whether or not to include
organizations that did not even file with SEC, thus questioning whether to give the
94
Id.
Id. at 9.
96
Id. at 10.
97
Id.
98
Id. at 17.
95
99
Jessica Holzer, SEC Proposes ‗Conflict Mineral‘ Report, Wall Street Journal, Dec. 16, 2010, B.9.
Supra note 28 at 20.
100
101
Id.
Id. at 20.
103
Id.
102
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legislation a broad interpretation.104In the end, the SEC concluded in this report that they
do not propose to extend the rules beyond companies that report to the SEC.105 The SEC
concluded by staying that ―our proposed rules would apply only to issuers that file reports
with the Commission under Section 13(a) or Section 15(d) of the Exchange Act.‖106 The
rules would apply to domestic companies, foreign private issuers, and smaller reporting
companies.107 Furthermore, a question arose whether mining issuers should be considered
manufacturers under the legislation. If this is the case, then mining companies that mine
conflict minerals or issuers that contract for the mining of conflict minerals would also be
subject to reporting if they meet the reporting requirements stated above.108 The SEC
quotes an NGO that articulated that the United States Controlled Substances Act109, includes
mining in the definition. If this standard is upheld, the mining parties would equally feel the
impact of the new due diligence requirements outlined by §1502.
It is important to note, however, that the SEC has requested explicitly for assistance
in determining a series of questions, which include (1) whether the rules should apply to all
issuers , or even more; (2) should there be an alternative approach to a ―person
described‖; (3) should the legislation exclude foreign private issuers and other smaller
companies because of the intense degree of due diligence requirements; and (4) does the
reporting requirement as proposed create too much of an unfair market competition if it
were not to apply to companies who do not issue reports with the SEC.110
Finally, the SEC articulates that it does not seek to define ―necessary to the
functionality or production‖ in a specific way. It mentions that any use of the material that
is ―intentionally included in a product‘s process and is necessary to that process‖ should be
considered ―necessary‖ respective of the regulation.111 However, the rules propose to set a
limit suggesting that there will be no need report on products that are created with tools
that contain conflict minerals.112 This rule is a common sense standard that looks to
regulate the meat of the issue, and not the potatoes.
b. Step Two Highlights: Determining Origins
If a company is required to report because it meets the ―person described‖ standard
outlined above, the SEC has guided companies on two points of the next step. Firstly, the
SEC provides guidance on the location of the disclosure within current SEC reporting
requirements. 113 Secondly, the SEC describes the varying degrees of diligence based on a
company‘s reasonableness to ascertain whether it uses minerals deriving from the DRC.114
On the first issue, the SEC wants to diminish the burden on companies that must
comport with §1502, and therefore have attempted to integrate the Dodd-Frank standards
104
17 C.F.R. §§ 229, 249 (2010) at 13.
Id. at 14.
106
―Section 13(a) requires issuers with classes of securities registered under Section 12 of the Exchange Act to
file periodic and other reports. 15 U.S.C. 78l. Section15(d) requires issuers with effective registration statements
under the Securities Act of 1933 (the ―Securities Act‖) to file reports similar to Section 13(a) for the fiscal year
within which such registration statement became effective. 15 U.S.C. 77a et seq. Therefore, if our proposed
rules did not include issuers required to file reports under Section 15(d), some issuers who file annual reports
may not otherwise be required to comply with our proposed conflict minerals rules.‖ Id. at 14 footnote 47.
107
Id. at 14.
108
Id. at 21.
109
21 U.S.C.A. 802(15), the United States Controlled Substances Act defines the term ―manufacture‖ as the
―production, preparation, propagation, compounding, or processing of a drug or other substance, either directly
or indirectly or by extraction from substances of natural origin‖. Id., at 21 footnote 62.
110
Id. at 16, 17
111
Id. at 24.
105
112
Id.
Id. at 29.
114
Id.
113
2011 Number 2
32
for conflict minerals within already used SEC disclosure forms.115 Furthermore, the SEC in
an effort not to bog down the investor, also requests that if a company is obligated to
report that it must file a separate, more extensive exhibit. 116 In their rules, however, they
propose that issuers who determine that its minerals did not originate in the DRC or any
surrounding counties based on a ―reasonable country of origin inquiry‖117, then it would not
need to provide any further disclosures.118 However, the Reasonable Inquiry standard will
not be specified by the SEC.119 In a rather permissive rule, it has allowed companies to
define for themselves what is and is not a reasonable inquiry. The SEC articulates that the
standard of reasonableness, however, will shift as standards, certifications, and processes
become more transparent as the industry tackles this issue120 This means that companies
may rely initially on refiners and smelters internal certifications and assurances that their
products do not contain DRC conflict minerals. If a company can articulate and ascertain
that it ―reasonably‖ can conclude that no DRC minerals are inside its products, then it
simply has to keep on record the supporting documents that validate that conclusion. 121
However, if a country knows that DRC conflict minerals are within its supply chain, or that it
cannot determine whether DRC conflict minerals are absent or present, then it must move
on to a heightened diligence standard articulated in step three.
c. Step Three Highlights: Conflict Minerals Report‘s Content and Due Diligence
According to the SEC proposed rules, an issuer who uses conflict minerals that knows either
originated in the DRC or cannot determine whether it originated in the DRC, must submit
the the Commission a Conflict Minerals Reports that includes ―a description of the measures
taken by the issuer to exercise due diligence on the source and chain of custody of its
conflict minerals, which measures ―shall include an independent private sector audit‖ of the
Conflict Minerals Report.‖122 The audit that is included must be certified. According to the
SEC, they are requiring issuers to include a certified independent private sector audit
conducted in accordance with the Comptroller General of the United States.123 What is
interesting to note is that according to the Government Accountability Office (GAO), no new
standards will need to be developed.124 Rather it states that GAO-07-731G would be
sufficient to address the private sector audit standards that must be followed in order to
meet the statute‘s requirements.125 Accordingly, the private sector audit will not be filed for
the purposes of Section 18 of the Securities and Exchange act of 1934, and thus not
subject to general rules of liability.126In addition to this this, the documents would only need
to be furnished to the SEC. However, if the SEC discovers or finds that an issuer‘s due
diligence process is unreliable, then it may be subject to liability for violations under the
Security and Exchange Act of 1934 Sections 13(a) or 15(d).127
115
Id. In the report is states,―Our proposed rules would require this disclosure in the existing Form 10-K, Form
20-F, or Form 40-F annual report because issuers are already required to file these reports so this approach
should be less burdensome than requiring a separate annual report to be filed.‖
116
117
118
119
Id.
Hereinafter referred to as Reasonable Inquiry.
Id. at 34.
Id.
Id. at
121
Id.
122
Id. at
123
Id.
124
Id. at
125
Id.
126
Id. at
127
Id.
120
38.
41.
footnote 101.
50.
2011 Number 2
33
In addition to the requirements for a certified audit, issuers would be required
describe their products that are not ―DRC conflict free,‖ the country of origin of those
conflict minerals, the facilities used to process those conflict minerals, and the efforts to
determine the mine or location of origin with the greatest possible specificity.128 This
language is not particularly different than what was simply stated in the statutory text
alone.
What is most interesting to note, however, is that the SEC has declined to propose
rules that dictate the standard for due diligence that issuers must use in making their
supply chain determinations.129 Instead, they request that issuers disclose the due diligence
standards, national or international, they used in their determinations to determine their
supply chain.130 Such standards that may be used are the Organization for Economic
Cooperation and Development (OECD) who have begun developing due diligence guidance
for conflict minerals supply chains.131 Other industry initiatives such as E-Tasc are being
pushed forward through industry players such as GeSI who are trying to promote an
industry wide peer accrediting system. Whether or not this system will meet the necessary
international standards will only be evinced through time.
What is certain to be said, however, that companies who cannot easily ascertain
through a simple reasonableness inquiry that they do not utilize minerals to create
necessary part or components of products, will be burdened to entertain and exercise a due
diligence process that is without specific definition, only subject to high expectations. Lastly,
this reporting process will be expected to be initiated starting April 2011.132 The first reports
will be expected to be deposited after the end of December 31, 2012 fiscal year.
In short, these proposed rules mark a victory for human rights compliance
standards, and a piercing into shield of corporate passivity regarding its global supply chain.
By companies being forced to reconcile its externalities, and bring consciousness, diligence,
and effort into their reporting process, this legislation may raise the initial steps for global
corporate supply chain standards that will seek to provide a regulatory framework over
multinational corporations that make impacts across the world.
Part III. Student Movement at American University: A history and Guidance
The purpose of this section is to provide a historical reference point about how American
University has made progressive steps to address the issue of conflict minerals in its
procurement policies, and to further outline what next steps will need to be taken in order
to establish a firm commitment to this policy. It is is with great hopes that this section not
only act as a reference, but as a guiding point for other activists around the nation and
community to implement a similar course of action on their campus. It is primarily because
of the limited means and methods that current litigation strategies provide for extrajudicial
corporate accountability, a larger consumer movement is necessary in order to place
market pressures on multinational manufacturers who are the largest consumer of the
natural minerals and resources deriving from the Democratic Republic of Congo. Through a
concentrated effort to create a social movement and a market movement, there may be
enough pressure to make corporations act more quickly in order to respond to the
legislation.
128
Id.
Id. at 53.
130
Id. at 54.
131
See Organization for Economic Cooperation and Development (the ―OECD‖), Draft Due Diligence Guidance
for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (2010), available at,
129
http://www.oecd.org/dataoecd/13/18/46068574.pdf.
132
See supra note 28 at 58.
2011 Number 2
34
The American University movement was first born from the collaborations three
student activists, representing three different organizations: Empower Congo, STAND, and
Ethical Circuit.133 Through the combined efforts of these organizations, the first and primary
step was to engage the student leadership at the undergraduate and graduate level. The
first method of doing this was to create a direct relationship with the Chief of Staff of the
undergraduate student body. It was through direct and consistent meeting with the Chief of
Staff that this team was able to coordinate undergraduate student senators as well as the
President of the undergraduate student body to allocate time and resources to this project.
Furthermore, a relationship was built with the Washington College of Law student president
and vice president. After each team member established ties with their core campus
leadership, a meeting was coordinated between the undergraduate and graduate
Presidents. At this meeting, a plan was drafted. In this plan, a time line for passing
legislation in both schools was discussed. Furthermore, targets within the school
administration was selected for meetings in order to promote a larger campus policy with
the weight of the university behind it.
Some of the primary targets for implementing a binding internal policy included the
Vice President of Campus Life, Gail Hanson134; Assistant Vice President and Chief
Information Officer, David Swartz135; Director of Procurement and Contracts, Brian Blair136;
and finally President of American University, Neil Kerwin. The goal is to engage each of
these leaders within university power spectrum in order to create buy and support from
both a top down and bottom up approach. Discussions have been had with Gail Hanson and
offhandedly with President Kerwin. Future meetings with these leaders are planned in the
Spring of 2011.
The student body, however, has already demonstrated support at the student
government levels. As of November 30, student government resolutions were passed at
both the undergraduate and graduate compasses.137 Due to the efforts of Empower Congo,
STAND, and Ethical Circuit, it was possible to create draft language that would articulate
the importance and need for the student body to promote and endorse this resolution. With
an overwhelming success, the resolution was passed in both senates.
The resolution language reads as follows:
―Whereas, the American University-Washington College of Law has a commitment to
social justice and responsibility; and,
Whereas, many minerals included in the production of electronic products come from
illegal trade by armed groups that perpetuate human rights violations in areas such as
the Congo; and,
Whereas, these "conflict minerals" include tin, tungsten, tantalum, and gold; and,
Whereas, companies with a sense of social responsibility have begun efforts to track
their supply chains to limit or eliminate the use of "conflict minerals" in their products;
and,
Whereas, American University has the capacity to address social problems through its
purchasing power; and,
133
The information that is being relayed in this section is derived primarily from the author‘s personal
experience with the matter.
134
http://www.american.edu/profiles/staff/gsher.cfm
135
http://www.american.edu/finance/Meet-the-Staff.cfm
136
http://www.american.edu/finance/controller/Procurement-and-Contracts.cfm
137
http://inews6.americanobserver.net/articles/school-resolution-urges-au-pursue-conflict-free-electronics
2011 Number 2
35
Therefore be it resolved, that the Washington College of Law Student Bar Association
supports American University and WCL in giving special priority to companies that
make efforts to track the supply chains of their minerals , including tin, tungsten,
tantalum and gold, when considering vendors for future electronic product purchases
to ensure the minerals come from conflict-free zones.
Furthermore, that the University will also commit itself to using standards and ratings
from reliable third party sources to determine which company satisfies these
requirements; and,
Be it further resolved, that the Undergraduate Senate supports a strong commitment
to purchasing products that have been certified as conflict free once commercially
available.‖138
This bill language was crafted with the recognition that there is a market difficulty in
discovering which product or company is actually most acutely sensitive to these issues.
The purpose of this bill was to provide an aspirational goal for university‘s to demonstrate
their intent to go conflict free, recognizing that conflict free products are simply not
available on the market place yet. Though certain companies are moving forward in their
recognition of this idea, it is still too early to demand any one institution to become
completely conflict free. For this reason, it was important to begin planting the seeds of
compliance and demand from the market level. Despite the importance of passing student
resolutions, this is only one of the first key steps.
Another strategic step is to leverage current standards and policies already in action
on campus. One of the best ways to determine this is by looking to the schools‘ strategic
goals and strategies. By leveraging rhetoric and language already embedded within the
school‘s vision and branding, it makes the task of integrating a new policy on purchasing an
easier sell to the administration.
The movement at American University, for example, has specifically targeted the
University Policy on Sustainable Purchasing.139 Enacted on January, 2010, this document
articulates American University‘s goal to ―Act on our values through social responsibility and
... an active pursuit of sustainability,‖ the purpose of this policy is to guide University
procurement in ways that advance social responsibility...‖140 The language of the resolution
already commits American University to engaging in socially responsible procurement
practices. Tying this current policy to awareness about conflict minerals in electronics would
be the easiest means and method to promote administrative support without double
loading the administration with the burden of engaging in an entire new policy approval
process. For this reason, it is recommended to any other campus activists to look into the
policy precedents already at play. If your university does not have anything like this in play,
then it is important to map out key players within your administration on who would be on
campus champions with you.
Finding champions is one of the key greatest steps to navigate a successful effort to
influence campus policy. It is important to recognize that internal and external pressures
are integral for proper pressures to be put in play. The key steps include finding champions
not just from faculty, but also from key staff within the administration across a wide variety
138
This resolution was passed in the Student Bar Association of the Washington College of Law on November
24, 2010 at 12:15 am by a unanimous senate of 15 to 0. The author of this language hereby grants free use
and right to utilize this bill language to be used in any other university of area of higher learning to promote a
conflict minerals sustainable purchasing policy on campus.
139
For exact language go to http://www.american.edu/finance/sustainability/Purchasing.cfm and click on
―sustainable purchasing policy‖. A pdf should be automatically downloaded to your computer.
140
Id.
2011 Number 2
36
of departments. By casting a wider net of influence, it is possible to demonstrate a broader
coalition of support.
One of the best methods of finding your champions may be through your
university‘s faculty senate. If your university possesses this governance structure, scouting
for champions within this pool of leaders may be crucial for building support from key social
stakeholders within your community. By finding a key leader here who can pass a faculty
resolution that echoes the undergraduate/graduate resolution, then you are articulating a
clear stream of buy in from bottom-up and middle-up approaches. This will be important as
you plan to implement the policy and have it recognized at the highest level by the board of
trustees. It is important to remember that the board of trustees are also a key group to
recognize as potential champions. The difficulty with this group of individuals is that they
mark the highest, most occupied, and most ambitious group of individuals. Getting access
to this group is a highly difficult and ambitious endeavor. And yet, if you happen to get a
direct connection and a compassionate ear to your cause, be sure to leverage this
opportunity to its maximum potential by allowing that person to create avenues and
introductions to other board members.
Finally, It is important to realize that the role of the activist is also as an educator.
For this reason, it is important to consider your role as not just an advocate, but also as a
teacher. In this capacity, the foremost important thing is to become informed about the
issues yourself. It is with great hopes that the previously aforementioned material will guide
you to more deeper resources that will aid your battle in promoting a conflict-free campus.
12 Step Process:

Self Educate

Find Peers

Outline your goals

Look into school procurement policies and practices

Find Champions

List your targets of advocacy

Plan for passing resolutions

Promote campus awareness

Have meetings with advocacy targets

Pass Resolutions

Implement Policies

Follow Up
Part IV. Conclusion: The Future for Electronics
What does the future of electronics manufacturing look like? It due time, the green
movement will begin to infiltrate into the electronics movement, which will place a new
added sense of corporate responsibility beyond the dimension of labor and employment
rights. The added due diligence standards set forth in §1502 are the first step in creating a
heightened sense of responsibility on the electronics industry in understanding one aspect
of its supply chain. But this is something only the beginning. The legislation is limited in one
sense that it only looks to one region, and only one subset of minerals. However, it fails to
articulate an expectation of mining and labor standards that govern and impact the rest of
an electronic products. Organizations like GoodElectronics141 and MakeITfair142 articulate the
need for responsible labor practices within the electronics industry. Just as Congress has
demonstrated the power and ability for corporations to be regulated domestically regarding
141
142
See http://goodelectronics.org/
See http://makeitfair.org/
2011 Number 2
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their impacts outside the territorial limits of the United States, so too can congress
articulate even deeper standards of compliance that look into the entire manufacturing
process. The §1502 legislation demonstrates that a new era in corporate compliance is
simply a matter of political will. If individuals and concerned citizens wanted to ensure that
their electronics met a certain minimum compliance of human right standards, then it can
be done.
A successful implementation of §1502 will demonstrate to nay sayers that not only
does Congress possess the power to restrict unregulated behaviors regarding consumer
products, but it may have an obligation to do so. As it can be seen, America‘s consumption
of consumer goods can have direct impacts overseas. As consumers and citizens allowing a
free wielding regime of corporate activity, we may be complicit in committing to acts that
violate fundamental natural rights and laws we all think valuable and necessary for human
life.
2011 Number 2
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Corporate Social Responsibility Initiatives in Rural India
Mahabir Narwal & B Ravikant
Abstract
Today CSR has become the buzzword. Corporates have started to spend on CSR. Many of
them are highlighting CSR expenditure in their balance sheet and going for social audit of
such expenditure to gain advantage. However, it will be interesting to see what kind of
social responsibilities are discharged by corporates in Rural India. The present study is
based on the websites survey. Only those corporates (28) which are discharging social
responsibility in rural India has been taken into consideration. The findings reveal that
health, education, community development and environmental marketing are the most
common CSR initiatives in rural India. Apart from these, the corporates are also involved in
other social responsibilities such as women and child development; art, culture & heritage
development; agriculture; and natural calamities.
Introduction
Business depends on the society for the needed inputs like money, men and skills. Business
also depends on the society for market where products may be sold to their buyers. Thus,
business depends on the society for existence, subsistence and encouragement. For
survival, a business must have relation with society. Being so much dependent, business
has definite responsibility towards society, this popularity called social responsibility.
CSR has been viewed as a relevant constraint to business and large number of
managers has assigned a high place for social responsibilities together with the targeted
profit. Bajaj auto running Smaj Seva Kendra at akrudi near pune since 1975. Larson and
turbo spends Rs. 5 crore, annually on social projects viz. health care, mother care, child
care, population control, etc. Tata steel doing a lot of activities e.g. welfare and running
community development since 1958, taking care of educational and vocational training,
needs of the underprivileged in and around Jamshedpur. Associated Cement Company
(ACC) doing something for medical care, rural development activities and environmental
conservation, etc. Gone are the days of making money somehow companies which are into
unethical practices are not going to last.
Basis of Corporate Social Responsibility
The bases of social responsibility are the social forces operating in every society. Whether it
is a capitalist or socialist society, the social forces are always there. These may not allow
the business to deviate from the course of social responsibility. These forces may wipe out
all such enterprises which prove contrary to social interests.
(1) Political Organization
To be specific, the political parties believing in social equality or social justice whether in
power or opposition shall not allow such forces to prosper which make the rich richer and
poor poorer. They have played a significant role in the emerging nations of Asia and Latin
America apart from the developed countries of the world.
(2) Social Institution
Among social Institutions, mention may be made of Islamic Law which prohibits earning by
interest. Similarity, both Christianity and Islam suggest compulsory contribution by every
one of a certain percentage of the income towards religious or other charitable purpose so
that the gap between the Haves and Have not may be reduced to the minimum. Any
institution supporting the cause of social inequality may not be tolerated by these forces.
2011 Number 2
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(3) Labour Unions
The institution of labour organization has also served the cause of social equality and social
justice through equitable distribution of income and wealth. The forces of collective
bargaining are a powerful instrument for correcting social disequilibrium.
(4) Social Consciousness
The cult of social awakening and social consciousness prevents the business to take undue
advantage out of scarcity. It may even compel the producers to maintain sufficient supply
at reasonable price.
(5) Modern Management
Modern management confined to professional management which separates management
from the owners of business is a great social force in itself. The absence of vested interests
makes their decisions socially responsible. Most of the professional managers are consulted
by the government. to provide impartial and rational advice as to the formulation of
national business and industrial policy.
Rural Market
Collin Cobuild Dictionary (2007) describes the word Rural as 'places for away from towns or
cities‘. From the sociology point of view rural is defined as a group of people who are
traditionalists in outlook, rooted in the land, and who resist change. However, the census of
India (2001) defines rural as that what is not urban. And urban is: All location within a
municipality/corporation, cantonment board or a notified town area committee.
Socially Responsible Campaign in Rural India
A new model is adopted by corporate world to build brands in the rural market.
Organizations are initiating social responsibility campaigns in the rural areas, which also
demonstrate the strength and the values that a brand depicts like ITC's Sunehra Kal (Better
Tomorrow), HUL's Vindhya Vally Project & Swasthya Chetna, Colgate's Project Jagruti, etc.
These campaigns generate valuable word of mouth publicity for the brand in the oral
collectivist culture of rural India, which the short ten-second commercial are not in a
position to do. These social obligations integrated with the marketing efforts of the
organization have given a new perspective to the application of marketing, known as Social
Marketing.
Initially this model looks as a very costly proposition if it has to be scaled up to
national level. Therefore, corporate entity has to see how it can involve other stakeholders
such as government and NGOs making it feasible, implemental and also cost effective. This
will allow the organization to scale up the campaign for a vast rural market without raising
the costs too much.
Corporate world needs to build a social responsibility campaign around the business
model of the organization and strengths and values that are depicted by the brand. Then
only the campaign can be useful to build brand in the rural areas. On account of brand
building benefits the organization will also be keen to scale up the campaign to a regional
or national level. But the brand that is being promoted through CSR campaign needs to
offer right product, price performance and good value proposition, which is acceptable to
the rural consumers. Then only the brand building effort will be of some use to take the
brand on top of preference in list of brands under consideration and register sales at cash
counter.
Review of Literature
Singh et al. (1980) observed that the corporate community in India has been under severe
criticism for its indifferent attitude towards the problem of the common man. Its actions by
2011 Number 2
40
and large have proved to be inappropriate to the solution of social problems. The findings
indicate that corporate actions are perceived to be predominantly pure profit maximizing
followed by calculative.
Andriof & Marsden (1998) opined that increased interest in CSR and corporate
community involvement can be traced to a few areas. Companies having being buffeted by
external pressures from nongovernmental organizations need to provide greater
transparency and accountability, especially in the areas of environmental impact and human
rights
Logan (1997) highlighted that consumers have become more sophisticated in their
purchasing and investment decisions, demanding greater accountability and transparency
about company activities. It led interest of corporates in CSR. McClure (2000) governments
approach to social policy and the provision of social services has placed an increasing
emphasis on collaboration with the corporate sector through alliances and partnerships.
That is why corporates are more interested in social responsibilities
Dutta and Durgamohan (2007) studied the CSR strategies and initiatives of various
selected Indian companies and found that organizations can incorporate corporate social
responsibility as a strategic move in their overall business strategy, thereby achieving better
all round performance. Dristee has been working with various organizations for reaching
out to rural masses, facilitating them with several required services.
Prasad (2008) observed that corporate companies like ITC have made farmer
development a vital part of its business strategy and made major efforts to improve the
livelihood standards of rural communities. Unilever is using micro enterprises to strategically
augment the penetration of consumer products in rural markets. IT companies like TCS and
Wipro have developed software to help teachers and children in schools across India to
further cause of education. The adult literacy software has been a significant factor in
reducing illiteracy in remote communities. Banks and insurance companies are targeting
migrant labourers and street vendors to help them through micro-credits and related
schemes.
Nihar and Ranjan (2009) observed that an innovative model is being implemented
by corporate world to build brands in the rural market. Organizations are instigating social
responsibility campaigns in the rural areas, which also exhibit the potencies and the values
that a brand illustrates. These campaigns create valuable words of mouth publicity for the
brand in the oral socialist culture of rural India, which the short ten second commercial
advertisements are not in a position to do. Corporate world needs to build a social
responsibility campaign around the business model of the organisation and strengths and
values that are depicted by the brand. Then only the campaign can be useful to build brand
in the rural areas.
Basu (2010) advocated that companies continue to rely on different models to
earmark its social expenditure, making it difficult to measure the overall impact. For
instance, the Steel Authority of India Ltd (SAIL), the country's largest steel company, spent
Rs100 crore on CSR last year; this was 2% of its profit after tax, exclusive of dividend tax.
Yet others, such as Tata Steel Ltd, which runs a 850-bed hospital and rural projects in 800
villages around Jamshedpur, spends an average of Rs150 crore as part of its annual
revenue expenditure.
Dsilva (2010) argued that companies must generate awareness to the various
stakeholders regarding its contribution to corporate social responsibility through its
affiliation with social cause through event management (Mumbai marathon events) &
company websites as it is directly related to increase in sales and brand loyalty. India being
a developing country with over 250 million strong middle class families has a large potential
for any marketer & at the same time it can support quiet a good number of causes which
benefits the society at large.
2011 Number 2
41
Research Problem
CSR has become the buzzword in today‘s era. Corporates are showing more interest in CSR.
Even one corporate is found to be involved in different CSR at a time. Over a period of time
customers are also giving due consideration to corporates discharging social responsibilities.
That is why, corporate are taking CSR seriously. Many are highlighting CSR expenditure in
their balance sheet and going for social audit of such expenditure to gain advantage. Now it
is common to see CSR activities on the corporates websites. However, it is also noticed that
corporates are discharging social responsibility where chances of earning profit or
recognition more. Generally it is observed that in comparison to urban area, rural area is
neglected. Therefore, it is interesting to see what kind of social responsibilities are
discharged by corporates in Rural India.
Objectiv
The objective is to study the CSR initiatives in Rural India.
Research Methodology
The present study is based on secondary data collected through websites survey. Only
those corporates (28) which are discharging social responsibilities in rural India has been
taken into consideration. The study is descriptive in nature. The data, thus, generated is
analyzed with the help of percentage.
Findings
It is evident from the Table, given below, that 53.57 percent of the companies are initiating
Health related activities for the welfare of rural areas. Health care, breast cancer awareness
programme, child health programme, HIV/AIDS awareness programme and hospitals are
initiated in this regard in rural India. Education (50 percent) is another important social
responsibility discharged by the corporates in rural India. Academic and education
programme, generation next (child education), community education, project siksha and
scholarships are some other social responsibilities discharged by corporates to spread
education among rural masses. Both of these Health and Education are pillar of social
infrastructure, provides base to any society for development. 50 percent of the corporates
are also focusing on community development where work for community welfare, youth
employability, community initiative, infrastructure development, trusts, and war soldier
development is done. The corporates have also initiated environmental marketing
programme to make the environment pollution free. Green procurement, forestry
programme, water procurement, special education, ecology, air & noise pollution and
education to children are some social projects in this regards. Apart from these, some other
CSR initiatives are Women and Child Development (17.86 percent) viz. child development,
woman empowerment, women marriage (widows) and standard of living of women; Art,
Culture & Heritage (14.26 percent) viz. promoting art and culture, and conservation of
heritage structure; Agriculture (10.71 percent) viz. farm facts, bio-fertilizer, seed
multiplication and krishi sevak. To overcome the Natural Calamities – safety, disaster
management, and grain bank kinds of CSR are discharged. Corporates are also working in
cattle care and companionship with animals for Live Stock Development. However, sports t
is the least concerned area by the corporates.
CSR Initiatives in Rural India
Sr. No.
1.
Initiatives
Frequency Percentage
Health
15
53.57
Activities




Health Care
Breast Cancer Awareness Programme
Child Health Programme
HIV/AIDS Awareness Programme
2.
2011 Number 2

Hospitals
50





Academic & Education Programme
Generation Next (child education)
Community Education
Project Siksha
Scholarships
50






Community welfare
Youth Employability
Community Initiative
Infrastructure Development
Trusts
War Soldier Development
42.86







Green Procurement
Forestry Programme
Water Procurement
Special Education
Ecology
Air & Noise Pollution
Education to Children
5
17.86




Child Development
Woman Empowerment
Women Marriage (Widows)
Standard of Living of Women
4
14.29


Promoting Art and Culture
Conservation of Heritage Structure.
3
10.71




Farm Facts
Bio-Fertilizer
Seed Multiplication
Krishi Sevak
Natural
Calamities
3
10.71



Safety
Disaster
Grain Bank.
Live
Stock
Development
3
10.71



Cattle care
Companionship With Animals
Live Stock Development
2
7.14


Sports Scholarship
Support to National Sports
Education
14
3.
Community
Development
14
4.
Environment
12
5.
Women & Child
Development
6.
Art, Culture &
Heritage
7.
Agriculture
8.
9.
10.
Sports
42
These findings highlight that corporates are involved in many CSR activities at a time,
indicating thereby their contribution to the rural development. From the above discussion it
is clear that corporates are discharging CSR in the area of Health, Education, Community
Development and Environmental marketing highlighting that corporates are eager to
develop social infrastructure in rural India. However, more CSR initiatives are required for
rural India.
Conclusion
Today corporates have initiated number of CSR activities for the development of rural India.
The most common CSR initiatives are health, education, community development and
environmental marketing. Apart from these, the corporates are also involved in women and
child development; art, culture & heritage; agriculture; natural calamities, etc. These
initiatives indicate that corporate are involved in discharging social responsibility in rural
India, but in comparison to urban a lot is required. Without the development of rural area
we cannot claim of a developed country. Therefore, corporates should discharge more
2011 Number 2
43
social responsibilities at grassroots level. Corporates are required to focus on development
of social infrastructure i.e. health and education for the overall development of rural India.
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http://www.godrej.com/Godrejnew/Godrejhome/OurCommitments/CorporateCare.html
http://www.hindustanpetrolum.com
http://www.hll.com/citizen_lever?index.asp
http://www.infosys.com/beyond_buisness/default.asp
http://www.iocl.com/Aboutus/corporatessocialresponsibility.aspx
2011 Number 2
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http://www.itcechaupal.com
http://www.kodak.com
http://www.marksspencer.com
http://www.pg-india .com/hp/socialres.htm
http://www.ridhisidhy .com
http://www.ril.com/html/aboutus/social_resp_comm_dev.html
http://www.samsung.com
http://www.tatachemical.com
http://www.tatasteel.com/corporatesustainability/social_responsibility.asp
http://www.tcs.com/about/corp_responsibility/Pages/default.aspx
http://www.ultratechcement.com
http://www.vidioconworld.com/global/social-commitment/philosophyindex.php
http://www.warnermusic.com
http://www.wiprocorporate.com/wiprocares-index.asp.htm
http://www.zuarichambal.com
Mahabir Narwal is Reader, Department of Commerce, Kurukshetra University Kurukshetra.
India. [email protected]
Mr. Ravikant is Research Scholar, Dept. of Commerce, Kurukshetra University Kurukshetra,
India. [email protected]
2011 Number 2
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Adopting Accrual Basis Accounting in Portuguese
Municipalities: A Study of the Principal Impacts of the Change
Maria da Conceição da Costa Marques
Abstract
The cash system was the basis of the accounting system of local councils for decades. With
the adoption of the (POCAL) Local Councils Official Accounting Plan, the councils came to
use the Accrual Accounting System where the information provided by both systems is
integrated. Both the information provided by the Balance Sheet and the Income Statement,
as well as the Cash Flows, has its specific benefits. The referred flows have advantages
therefore they are used in the majority of countries.
This paper aims to show the evolution of accounting in the Portuguese councils,
emphasizing the positive impact of the introduction of the accrual system in these
institutions.
Key words: public accounting; accrual basis; municipalities.
Introduction
The accounting system of Portuguese councils was, for many years, a Cash Basis
Accounting System. The Great majority of these public sector administration entities in
Portugal also used the Cash Basis System to record their accounting transactions.
In 1999 the Official Accounting Plan for the Local councils (POCAL), was approved
by Law-Decree No. 54-A/99, of 22 February. The plan covers all local councils. However
the new accounting system only came into practice from the 1st of May 2002, when all the
previous laws passed between 1983 and 1993 were revoked.
The new accounting system foresees a simplified system of organising the accounts
of local councils whose transactions are lower than € 1 716 400 (2009 values).
From 2002 till now, there has been a positive change in the accounting system of
Portuguese local councils, as a result of the efforts made by those entities in substituting
their technical qualified human resources, by another to meet the demands of their
stakeholders and the citizens.
The publication of the new Law of Local Finances in 2007 (Law No. 2/2007, of 15
January) requires local entities to render consolidated accounts, with legal certification of
accounts, providing thus a better credibility to the financial statements and also a powerful
management tool.
1. Evolution of Local Council Accounting
Article 3 of Law No. 1881, of 25 June, foresees the use of an accruals accounting system in
public sector accounting. However the lack of technical knowledge involved in its
application, together with the emphasis on payments and receipts, resulted in its
discontinuation. The approval of Law-Decree No. 34.332, of 7 December 1944, made cash
basis accounting compulsory. Subsequently with Law-Decree No. 243/79, of 25 July, the
accountancy of local councils became standardized with other public services. Meanwhile, a
Law-Decree No. 341/83, of 21 July was passed. This law aimed to improve the present
system and required the preparation approval and execution of an activity plan and a
functional classification of the expenses. In addition to this regulation the Regulation
Decree No. 92-C/84, of 28 December, enforced an accounting system in the local councils,
defined accounting standards and the execution of these, although still based in a cash
accounting system.
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However, the wide range of activity of the local councils was not compatible with
the information provided by the existing system. The financial management of the local
councils, which aimed to make it more efficient and efficacious caused increasingly more
concerns.
The approval of the Official Public Accounting Plan, with the Law-Decree (DL) No.
232/97, of 3 September, based on the accrual system, provided a fundamental and
modern tool for the public administration.
The Official Accounting Plan for Local Councils (POCAL) was approved by LawDecree No. 54-A/99, of 22 February, and alterations made by DL No. 315/2000, of 2
December and by DL No. 84-A/2002, of 5 April. This plan introduced a new accounting
system, which consolidated the Council administration and the reform of financial
administration and public accounts, while at the same time ensuring the standardization
and simplification of the new public accounting.
The POCAL is compulsory, with the main objective being the creation of conditions
for the integration of budgets, assets and costs in a modern accounting system, resulting in
a fundamental support document for local council management. At the same time a
simplified recording system for smaller entities with smaller financial transactions is set,
requiring only a budget accounting, recording just cash transactions, that is, payments and
receipts. This system excludes smaller local councils, from asset and cost accounting,
which is more demanding from a technical point of view.
The SATAPOCAL – Subgroup of Technical Support in the Application of POCAL, came into
being in 1999, by DL No. 4.839, of 22 February. Its implementation aimed at safeguarding
the standardized interpretation of local council‘s issues, as well as co-ordinating training.
2. THE POCAL: Introduction and Technical Aspects
2.1 Introduction
The Accounting system defined by the POCAL is an innovation for the local councils. It
defines budget and accounting principles, the expected rules and the valuation criteria, the
balance sheet and financial statement, and at the same time approves the normal
documents and statement of accounts.
As expected tools the following documents are defined: The great options and the
budget.
The budget forecasts the annual receipts and expenses that the local council
expects to receive and spend, respectively. The great options is a document which shows
the strategic development guidelines of the local council which includes the Pluri-anual
Investment Plan (PPI) and the most relevant activities of Council Management.
The PPI is for a period of four years. It covers all the projects and activities, to
achieve the set aims of the local council that require budget expenses paid from
investments.
The more Relevant Activity Plan is not part of the POCAL, therefore there is no
standard for its use or format. However, it can be seen as a management support
document, where the council records the activities or projects of particular interest,
although it includes different expenses than those from investments.
Regarding the documents showing the accounts, the POCAL includes the budget
maps, the annual execution of the Pluri-anual investment plan, the cash flow maps and the
addenda to the financial statements.
For the local councils to render accounts to the Accounts Court, the POCAL looks at:
 Balance Sheet;
 Income statements;
 Budget execution maps;
 Addenda to financial statements;
 Management Report.
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Regarding the accounts of the parish councils exempt from showing their accounts
the Accounts Court143, the following maps are required:
 Budget Control — Expenses;
 Budget Control — Income;
 Annual Execution of the Pluri-anual plan of investments;
 Treasury Transactions;
 Current accounts;
 Cash Flows;
 Loans;
 Other debts to third parties; and
 Type of Entity and the Management Report.
In the preparation of the provisional documents the principle of rational use of approved
provisions and efficient management of the treasury. According to these principles, costs
and expenses should be assessed for its economy, efficiency and efficacy.
The provisional documents include only the budget information; however the
documents for rendering accounts, include financial information (cash flows), economic
aspects of council management (income statement) and the assets (balance sheet).
The POCAL classifies the different documents as follows: functional classification,
economic classification and budget and asset classification.
The functional classification of the expenses provides information of the financial
commitment of the councils in the various areas, such as general autonomous, social,
economic and other functions.
The economic classification was approved by DL 26/2002, of 14 February and brings
together income, current expenses and capital.
As for the budget and assets accounts, the first is included in class 0 of the POCAL, and
the assets are in classes 1 to 8. Cost accounting is carried out in class 9, although it is not
defined.
2.2 Specifications and Technical Criteria
The POCAL includes class zero, whose basic aim is recording budget operations, with an
internal effect, that is, this class shows the management of expected receipts and expenses
and budget forecasts. Consequently the following are subject of accounting movements:
 Budget approval;
 Changes introduced in the expense and income provisions;
 Relevance
 Commitments
Account 25 – Debtors and creditors by the execution of the budget, together with economic
classification of the public receipts and expenses, emerges as the link between the budget
and assets phase and should be transacted whenever there are inflows or outflows of
money to and from the entity irrespective of it being the result of budget operations or not.
It is set in the POCAL that local councils only make provisions in risk situations and are
not a mere estimate of a fixed liability and its value should not exceed the needs.
According to the referred standard, the situations with associated risks are the ones
referring to, treasury applications, bad debts, depreciation of stock, obligations and
143
For local entities whose transactions are less than 5 000 times the índex 100 of the índex scale of the
general regime of the public service.
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commitments resulting from legal procedures in progress, work accidents and work related
diseases.
Making provisions for bad debts, should take into account debts outstanding for longer
than six months and whose risk of being a bad debt is duly justified. Recording
amortizations144, that is, depreciation, wear and tear or devaluation due to the use of the
asset. The POCAL defines fixed shares as the only method, that is, the division in equal
shares of the value of acquisition or production of an asset for a set number of years.
However, RISP – Register and Inventory of State Property, approved by decree 671/2000,
of 17 April proclaims that total amortization in the year of acquisition or production, is
possible for goods which are subject to depreciation in more than one fiscal year, and
whose unit value does not exceed 80% of the index of 100 of the salary scales of the
general career regime of the remuneration scheme of public service and reported in the
year of acquisition, provided it does not constitute the basis of the production process.
For intangible fixed assets acquired second hand, a different rate of amortization, can be
defined by the decision making body of the local council.
2.3 Internal Control System
So that the organization functions correctly the existence of an internal control system is
fundamental.
The POCAL establishes the implementation of the internal control system covering
the plan of the organization, policies, methods and control procedures as well as all the
other methods and procedures defined by the council authorities.
Regarding the aims of the methods and control procedures the following are defined:
 Safeguarding the legality and regularity of the financial documents and of the
accounting system
 Fulfilment of resolutions and decisions
 Safeguard assets
 Exactness, integrity and reliability of records and of the information
 Increasing the efficiency of the operations
 Adequate use of funds and fulfilment of legal limits
 Control of applications and information systems environment
 Transparency and competitiveness of public markets
 Regular recording of operations.
Regarding the approval and overseeing of the internal control system, it is recommended:
 Approval, functioning, overseeing and assessment of the internal control system of
the local councils by the executive board
 In the councils with municipal services, the executive boards establish specific
procedures
 Inspection by the executive board
 Remittance of the internal control standards to the inspection entities.
The methods and procedures of control are also mentioned. These should include the
identification of the parties, availability, third party accounts, stocks and fixed assets.
As a Basic condition, the entity must have separation of duties, a transaction control, and a
definition of authority, accountability and a methodical recording of the facts.
To achieve the objectives, the adequate environment is essential, such as: set
objectives and plans; solid organizational structure; effective and recorded procedures;
systems of authorization and recording; employee competence and integrity; supervision
144
System Accountancy Standard (SAS) uses the term ―depreciation‖ to the wear and tear on the fixed tangible
assets.
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and vigilance body. The internal control standard for each council should include the
referred aspects and others to be considered at the time.
The POCAL includes budgeting principles and accounting principles. The budget
principles are: the principle of independence, principle of periodicity, principle of unit,
principle of universality, principle of equilibrium, principle specification, principle of non
consignment and the principle of non compensation. The referred principles are identical to
those defined by Law Framework145, with the exception of the principle of independence
that is only applicable to the POCAL.
Regarding the accounting principles, the following are included: principle of
accounting entity, principle of continuity, principle of consistency, principle of specialization
(or of accruals), principle of historical cost, principle of prudence, principle of materiality
and principle of non compensation. In this scope, the POCAL did not deviate from the POCP
maintaining the same principles.
3. Cash Accounting / Accruals Accounting
Cash accounting and accrual accounting have an essential close link. Firstly it is important
to refer to some typical aspects of both.
The accounting principle of specialization or accrual derives from the English
expression ―accrual basis‖, which recommends that profits and costs146 are accounted for
when they occur, independently of receipt or payment of these transactions. Such principle
is clearly opposed to the cash accounting. The term also comes from the English
expression ―cash basis‖.
The said principal in the POCAL is explained as follows ―the profits and losses are
accounted for when they occur, independent of getting receipts or making payments, and
are shown in the financial statements in the period they occurred‖.
This principle is part of both the Official Accounting plan (POC)147, and also in the POCP and
the POCAL.
On an international level, the accrual principle is set, referring only one entity, as an
underlying presumption in the Framework for the Preparation and Presentation of Financial
Statements, or Conceptual Structure for the Preparation and Presentation of Financial
Statements approved by the International Accounting Standards Board (IASB).
Accrual accounting is generally accepted by the scientific committee, although its practical
application is somewhat difficult. However the essence of the principal of accruals
represents the dividing point between accountancy that merely records movements or
transactions immediately related to financial flows and the other more comprehensive that
besides these also records asset variations of other nature or with different origins, other
than financial flows.
One principle should not be privileged to the detriment of another or others;
however the principle of specialization or accrual has been the subject of particular
attention from the researchers, very often as a result of new situations emerging in
practice.
The application of accrual principle is related to the economic or productive view
associated to the transformation and incorporation of the various materials, labour, etc., to
obtain a final product (goods or service). It refers to expenses and income. The traditional
financial statements – Balance Sheet and Income Statement – are prepared based on
accruals (accrual basis), as mentioned previously totally opposed to a cash basis.
145
Law No. 91/2001, of 20 August and changes introduced by law No. 2/2002, of 28 August and Law No.
48/2004, of 24 August.
146
Presently Income and Expebnses in SNC.
147
Revoked by SNC.
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The treasury (or cash) refers to money receipts and payments of the entity. In
this respect the POCAL sets out a ―Cash Flows map‖ showing all the receipts and payments
done during this exercise separately, for both budgeted operations and cash transactions.
The map includes the management balances: past and for the next management separated
according to their origin (budgeted operations and cash operations). The budget income
and expenses will be registered separately in accordance with the information in the
budget. The map should also include the trade debtors, guarantees and securities.
The IPSAS 2 – Cash Flow statement148 (International Accountancy Standard for the
Public Sector) issued by IFAC (International Federation of Accountants) requires the entity
that prepares and presents the financial statements according to the regime of accrual
should also prepare the cash flow statement according to this Standard. These should be
shown as a part of the financial statements for each period.
According to the standard in question, the information regarding the cash flows of
an entity is useful in assisting users to forecast future cash flow needs of the entity, its
capability of managing future cash flows and acquire funds for the changes in the scope
and nature of its activities.
A statement of Cash Flow (SCF) is also a method for an entity to show the cash
inflow and out flow during the reported period. According to the IPSAS 2 an entity should
report the flows during the period classified as:
 Operational Activities;
 Investment Activities;
 Financing Activities.
Separating by activity provides information that allows users to assess the impact of those
activities on the financial position of the entity and the cash amounts and the cash
equivalents. This information can also be used to assess the relationship between those
activities.
The amount of net cash flows also shows the capability of the entity to maintain
their operational capacity, to refund shares, pay a dividend to its proprietor and make new
investments without the need of financing from external sources.
An entity should report the cash flow of operational activities using both the direct
method, which reports the main net receipts in cash and the gross payments in cash; and
the indirect method, through which the excess or deficit is adjusted by the effects of the
non-monetary transactions, or any deferments or accruals of past or future operational
Money receipts or payments, and credit items and expenses associated with cash flows of
investment or financing.
The cash flows map set in the POCAL, does not include recording by activities or the
alternative of preparation by methods. This makes it clear that for the study of liquidity, the
DFC is the most efficient report in the management of an entity.
Cash basis accountancy and accruals accountancy, is there a preference for one
over the other? One cannot say that the Balance Sheet and the Income Statement, from
the economic point of view, are in fact an alternative to the cash flow statement, based on
the treasury point of view, if this was so, it meant abandoning the latter. However, the
financial statements referred and the DFC are linked but do not exclude each other,
because both have their specific merits.
Thus, to analyse the evolution of the assets and understand its effective return, the
Balance Sheet and Income Statement, together provide, the adequate information in a
more efficient manner. For the financial analysis on a short term the DFC is better. However
we cannot omit overseeing the liquidity of the entity as it is as important as its return on
148
International Public Sector Accounting Satandards
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investment. Therefore both flows complement each other, and the reason for the general
use of both types of statements simultaneously in the majority of countries.
4. Rendering of Accounts
4.1 On an individual level
Rendering the accounts of the local councils is made to the accounts court, which approved
the Resolution No. 4/2001 - 2nd Section, published in Government Gazette No. 191, II
Series, of 2001.08.18. The documents to render accounts are the ones referred to in point
2.1 of this article, taking into consideration set exceptions for the simplified regime.
Executive Board of the local council prepares and approves the documents for rendering
accounts, to be submitted, for assessment and voting, to the decision making body. The
decision making body, on the proposal of the Executive Board, assesses and votes on
the accounts rendering documents in the session carried out in April each year.
4.2 Consolidated accounts
Regarding the accounts consolidation standards the POCAL says nothing. However the new
law on Local Finances, approved by Law 2/2007, of 15 January, demands the consolidation
of accounts in the councils with integral participation in businesses or municipal services. A
change of the POCAL to include the consolidation of accounts standards is expected.
Article 46 of the Law of Local Finances for the consolidation of accounts stipulates:
“1 – Without prejudice to the accounts rendering documents foreseen in the law,
the accounts of the local councils who have municipal services or all the capital in
municipal enterprises should include the consolidated accounts, showing the
consolidation of the Balance Sheet and the Income Statement with the respective
explanatory notes including the balance and financial flows between the entities
target of the consolidation and the map of the medium and long term consolidated
loans.
2 – The accounts procedure for consolidating the balance sheets of the councils and
municipal or inter municipal enterprises are the ones defined in the POCAL.‖
The consolidation of accounts makes it possible to make comparisons, based on
homogeneous ratios, between local councils with similar characteristics which have adopted
different management systems for the community service they provide. It is also possible
to analyse the evolution of the financial situation of the entity and permit the comparison
between the various local councils.
This also permits a better local democracy. In so far that the risk of control
distortion both legal and political, caused by the evolution of the types of management of
local public services seriously compromises the transparency of the process of allocating
public resources. It is necessary to find solutions that favour the transparency of the
political action. The aim is to start a group policy again. Thus the consolidated information
will be a guiding and control tool for the management of the different entities that make up
the local council.
The aim is also to measure the financial risks and improve the information provided
to the financial institutions. The consolidation of accounts permits the creditors, especially
institutions of credit: to measure the level of debt of the local council and the state of the
securities given, assuring of the refunding capacity of the local council, have a vision of the
total local group, benefitting in this manner from reliable and checkable information that
permitting the assessment of their risk.
Since it is not the POCAL requiring the preparation of consolidated accounts, but the
law on local finances, the alteration to that plan is expected soon. As a result of the recent
reform of the accountancy of the public sector, whose accounting standards are based in
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the international accounting standards, a similar situation is expect to occur in the public
sector, a situation which will be eventually, the principle reason for not altering the POCAL
For the effects of consolidation the concept of entity is very important. This is an
Anglo Saxon concept (reporting entity), which can be defined as that entity with users who
are interested in their financial statements, and in matters such as rendering of accounts
and decision taking (Benito e Bastida, 2007:4).
The IPSAS 6 defines the concept of the group in the public sector. Determines that the fact
the one entity controls the other in terms of issuing financial information, depends on the
analysis of the actual circumstance of the case and in the definition of the control, that is,
consider together the element of power with the element of outcome. The element of
power is the possibility of establishing, or approve, the directives on budget, financial or
operational policies of another entity, while the element outcome represents the possibility
that, controlling an entity, can benefit from its share in the other entity.
 Conditions of power:
The entity has the power to confirm the statutes or the internal regulation of another
entity. The entity has the power, as per statutes or current legislation, to designate, or
dismiss the majority of members of the other entity. The entity holds directly or indirectly
through the controlled entities the majority of votes of the other entity. The entity has the
power to select, or regulate the selection of the majority of the votes that are probably
selected at a general meeting of another entity. The entity holds the majority of voting
rights of another entity (where the assets are in the form of shares or any other similar
structure of capital).
 Conditions of outcome:
The entity has the power to demand the share of the assets of the other entity. The entity
has the power to dissolve the other entity and gain a significant level of residual benefits.
The specific norms of consolidation for the public sector are contained in the POCEducation, although it remains close to the current standards for the private sector.
Therefore regarding the accounting principles, the ones mentioned in the POC-E should be
used. As for the valuation criteria the ones in the other chapters of the POC-E should be
used. According to POC-E the methods set are the simple aggregation method, the integral
method and method of capital equity.
 The simple aggregation Method – consists in the addition of line by line of the
balances and the statement of results of public sector entities, the eliminated
transfer operations and subsidies made between the entities.
 The Integral consolidation Method – which consists of the integration in the balance
sheet and in the income statement of the consolidating entity of the respective
elements of the balance sheet and the Income statement of the consolidated
entities showing the rights o third parties, designated for this effect ―minority
interests‖.
 Method of capital equity – which consists in the substitution in the balance sheet of
the consolidated entity of the accounting value of the capital parts owned by it, by
the value proportionally corresponding in the own capitals of the participated entity.
According to Cravo et al (2001:445) the particularities of the Public Sector imply that,
besides the traditional methods of integral consolidation and asset equity (seen here as the
residual application), a faster method than the designated as Simple Aggregation Method‖
is acknowledged. The preparation of a consolidated Statement of Cash Flows is not
compulsory but is recommended.
5. System of Accounting Standards
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Although it is not the principal focus of this article, but related to it, is important to show
the recent reform in the accountancy of the public sector, approved by the Accounting
Standard System, (SNC) which revokes the POC.
The SNC is a consequence of the accounting modernization in the EU, and is
constituted by the following fundamental elements: Conceptual structure, basis for financial
statements, Models of financial statements, accounts codes, Accounting standards and of
financial reporting (NCRF), Accounting standards and of the financial reporting for small
entities (NCRF -PE).
The NCRF is the nucleus of the SNC, are adapted from the International Accounting
Standards adopted by the EU. Each one of them becomes a standardization tool where, in a
developed tool, the various techniques are prescribed and should be adopted in matters of
acknowledgement, measuring, presentation and divulging the economic and financial
realities of the entities.
There are some implications resulting from the implementation of the IAS/IFRS
and, consequently the NCRF, especially in the following aspects: intangibles, Goodwill,
Imparity, Costs and profits and extraordinary profits, recording by-products, provisions for
restructuring, additional statements, Map of changes in own capital etc.
As the need for the revision of the POCAL has been approached and since the said reform
in the private sector has occurred, the extension of the accounting standards in the public
sector is expected, possibly with the adopting of adapted standards from the IPSAS.
Conclusions
The traditional Accounting system of the local councils was based on the cash basis system.
The Official Accounting Plan for Local Councils (POCAL) was approved by Law-Decree No.
54-A/99, of 22 February, with changes introduced by DL No. 315/2000, of 2 December and
by DL No. 84-A/2002, of 5 April, through which a new accounting system is instituted,
which is consubstanciated in the council administration the reform of financial
administration and public accounts.
The accounting regime defined by the POCAL is very innovative for the local
councils. This plan foresees the implementation of an internal control system that covers
the organization plan, policies, methods and control procedures, as well as all the other
methods and procedures defined by the council authorities.
The Accrual accountancy is generally accepted by the scientific community. To
analyse the evolution of the assets and understand its effective return, the balance Sheet
and the Profit and Loss Statement provide the required information in a very efficient
manner. For the short term analysis the DFC is better.
The consolidation of the accounts in the sector will provide important gains for all
users of the accounting information, not just for assessing financial risk, but also in other
areas such as control and coordination of the different entities, amongst others.
Bibliography
Benito López, B. e Bastida Albaladejo, F. (2007). La consolidación de cuentas en las
entidades locales españolas: un estudio empírico. Revista Española de Financiación
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Oficial de Contabilidade das Autarquias Locais. Rei dos Livros, Lisboa.
Cravo, Domingos et al (2002). POC – Educação Explicado – Plano Oficial de Contabilidade
para o Sector da Educação (Regime Geral e Simplificado). Rei dos Livros. Lisboa.
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DL n.º 238/91, de 2 Julho – Aprova as normas de consolidação de contas.
DL nº 127/95, de 1 de Junho - Introduz alterações ao DL 238/91.
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DL nº 35/2005, de 17 de Fevereiro - Transpõe para a ordem jurídica interna a Directiva nº
2003/51/CE, do Parlamento Europeu e do Conselho, de 18 de Junho.
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Maria da Conceição da Costa Marques is PhD in Management, specializing in accountancy.
She is Auxiliary Professor of Instituto Superior de Contabilidade e Administração de Coimbra
E-mail: [email protected] / [email protected]
2011 Number 2
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Green Business Makes Good Business Sense
Shuchi Pahuja
In the past few decades, environmental crisis has become a global issue. People have
become increasingly concerned about the effects of global warming and resulting Global
Climate Change (GCC). It has been realized that an economic development without
environmental considerations can cause serious environmental damage, in turn, impairing
the quality of life of present and future generations. The emphasis now is on
environmentally sustainable industrial development which requires that values should be
created for customers, investors and environment in order to run a successful business
today and in future. The term sustainability was popularised by the Brundtland
Commission‘s 1987 report- Our Common Future.149 The aim of sustainability is to have
―development that meets the needs of the present without compromising the ability of
future generations to meet their own needs.‖ Thus, sustainability requires a delicate
balance between people, planet and profit.
Since late eighties, companies are under increasing legal and social pressures to be
environment friendly. There are pressures of rising resource prices, reduction in availability
of natural resources, stringent environmental laws and regulations, and growing demands
from various concerned stakeholders to reduce adverse environmental impacts of business‘s
activities. Business and industry cannot ignore these mounting pressures for green
practices. They must respond to these concerns about environment by making efficient use
of scarce natural resources and by using cleaner production technologies.
Many
organizations have been compelled to redefine their products, processes and markets to
make them more environmental friendly and less resource consuming. The expectation
from a company today is that it should deliver strong returns to the shareholders and at the
same time promote the health of people on planet. It appears that green business is the
only survival and growth mantra for business these days.
In this scenario, an important question generally raised is - Can both the
environment and corporate coffers be green? Earlier the opinion was that greater attention
to environmental matters leads to an increase in costs and hence lower profits to business
organizations. But now it has been realized that all these goals are not contradictory to
each other, rather these are complementary. A business can maximize shareholder value
while at the same time deliver an environmental boost to the society as a whole. Ecoefficiency is not only beneficial for society but can also lead to resource savings, cut in
production costs and increase in profits for business in many ways. For example, reduction
in consumption of resources like water, energy or raw material leads to lower input costs.
Many environmental measures result in increased income also (like income from recycling
of paper or application of non-hazardous waste). There can be increase in sales due to
enhanced goodwill. Use of clean technologies has huge positive impact on health of the
workers which increases their productivity. Good environmental practices also reduce threat
of legal action and sometimes reduced tax liabilities. Besides numerous financial benefits,
environmental protection measures taken by a company also lead to uncountable nonmonetary gains to the society at large. Even these social benefits may lead to long-term
economic benefits to the company. In fact, going green makes good business sense and
this is one of the main reasons why people in developed countries are now more concerned
149
The definition of sustainability originally emphasized ecological sustainability, but now it has been expanded
to mean societal sustainability. The report suggested that equity, growth and environmental maintenance are
simultaneously possible and that each country is capable of achieving its full economic potential whilst at the
same time enhancing its resource base.
2011 Number 2
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about the environment.150 Companies are innovating in the realm of environmental policy to
encourage expansion of renewable energy and increased recycling because it pays to be
green.
Profits from environmental initiatives are not a thing of the future. Many companies
have already experienced how greening can be good for business. A growing wave of
companies in all the sectors like manufacturing, technology, power generation, oil and gas,
energy, retail etc. are embracing environmentally safe practices and saving hundreds of
millions of dollars. Corporate giants across the world have started following green practices
aimed at achieving a balance in the economic, environmental and social impact of the
company‘s business to benefit all its stakeholders. Companies like Dupont, General Electric
(GE), Wal Mart, Thermax are some examples of corporate innovators that use technological
advances to give them a huge leg on the competition. General Electric (GE) has emerged as
a powerful agent of market transformation, particularly on energy related issues. A few
years ago, GE adopted its eco-imagination initiative and now the company has noted – with
oil prices and other energy costs surging and with water scarcity concerns spreading, ecoefficiency makes even more sense to the investors than a few years ago. Now the company
is focusing on sale of its eco-imagination products including solar panels.151 Similarly,
Dupont also focuses on revenue, which comes from products that improve energy efficiency
and/or reduce green house gas emissions.152
From a small boiler maker company to a leader in energy and environment
solutions, Thermax‘s operations are getting greener day by day with a three-point
programme: Reduce, Reuse and Recycle. The company is not only initiating green activities
in-house but also helping its customers conserve energy. In a bid to leave a smaller carbon
footprint, the company took another three-point agenda: elimination, improvement and
innovation. It includes- eliminating and streamlining various manufacturing processes,
improving efficiency of current equipment and processes, and using innovative methods to
reduce carbon footprint. The company‘s saving from such activities was Rs.17 lakhs in
2006-07 that increased to 82 lakhs in 2008-09.153 Wal-Mart stores pushed forward with a
risky sustainability initiative at a time when its public image was suffering. But ultimately,
the company‘s rationale for going green was purely economic.154 In the recent past, the
company has taken various steps to improve its environment, e.g., working to be supplied
hundred percent by renewable energy, creating zero waste and selling products that sustain
natural resources and the environment. Sustainability 360 was created to help meet these
goals. 155 Through its efforts, Wal-Mart is showing that being an efficient and profitable
business and being a good steward of the environment go hand-in-hand.
Many cement, steel and fertilizer companies are developing guidelines for using
various waste products in factories instead of carbon fuels. Some companies are launching
mission zero programme which is an attempt to reach zero environmental footprint by
some target year. This approach will not only decrease the heavy output of carbon from
these industries but will also help these companies to manage their waste streams.
Computer equipment has historically been one of the most difficult and costly product to
safely dispose off. Dell through its ‗no computer should go to waste‘ recycling programme
150
Lagace M., Going Green Makes Good Business Sense, HBS, July15, 2002.
http://hbswk.hbs.edu/otem/3015.html. last accessed on Aug.12, 2010.
151
http://www.wbcsd.org/web/publications/external/scientific_americanDec06.pdf
152
http://www.sustainability.dupont.com
153
Business Standard, Dec.10, 2009, Source- http://www.businessstandard.com/india.
154
Lamonica
M.,
Go
Green
for
Money,
Not
Image.
http://www.greenbuildingfocus.com/default.aspx?id=1910
155
Walmart‘s
Global
Sustainability
Report,
2010.
http://walmartstores.com/sites/sustainabilityreport/2010/
Source:
Source:
Source:
2011 Number 2
57
allows customer to return any Dell-brand product back to company for free.156 Intel, HCL
Technologies, Nokia, Hewlett Packard, and Tulip are among others who have realized that
‗going green‘ is profitable business. Companies have found that steps to curb energy use
through efficiency gains not only cut their power bills but also often lead to overall gain in
productivity. The cornerstone of success of many companies these days has been Corporate
Social Responsibility. They continuously strive to create a safe working environment by
being responsive, caring and committed to various needs of the people and the planet.
They try to minimize hazardous waste generation and ensure its proper treatment and
disposal. Phasing out of PVC, ban on CFC, use of organic sugar farms, sustainable cotton
projects (SCP) are some of the examples of the collective power of market transformation
and use of business practices that are good for environment.
Even non-manufacturing organizations have started taking green initiatives. Various
colleges, universities, banks, insurance companies, and hospitals are using green practices
in their campuses. For example, Bank of America is proving that eco-friendly operations can
co-exist with business growth. Company has reduced paper use by 32 percent from 2000 to
2005. The bank runs an internal recycling programme that recycles 30,000 tons of paper
each year (saving approximately two lakh trees from cutting). 157 The University of Florida
hosts the Florida Institute of Sustainable Energy (FISE), the Water Institute, and Myriad
centers for environmental research, conservation, planning, design, policy and law.
Students, faculty and staff across campus are working hard to incorporate sustainability into
their personal and professional lives.158
In nutshell, to succeed a business must advance and remain competitive in their
respective markets, but this progress need not come at the expense of the environment.
Instead, companies can accomplish their objectives with green solutions and technologies
that support environmental conservation. The debate now is not regarding a choice
between generating profits and creating a less carbon intensive environment as it has been
realized that over a long period of time it pays to be green. Many big companies all over
the world have already started embracing the concept of ‗triple bottom line‖ with equal
weighing of three pillars of corporate sustainability namely, social, environmental and
economic factors. They are using green practices not because it is compulsory or because
it is the right thing to do, but because they want to reap the business benefits of going
green. The success stories of green businesses around the world have shown that it is
economically feasible and in fact, very sensible to do business in a sustainable,
environmentally friendly way.
Shuchi Pahuja is Associate Professor, PGDAV College, (University of Delhi), Nehru Nagar,
New Delhi 110065, India. e-mail: [email protected]
156
25 Companies That Are Going Green, http://www.businesspundit.com/25-big-companies-that-are-goinggreen/
157
http://environment.bankofamerica.com/
158
http://www.sustainability.ufl.edu/initiatives/
2011 Number 2
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Book Review: Reframing Corporate Social Responsibility: Lesson from the Global
Financial Crisis
Editors: William Sun, Jim Stewart and David Pollard.
Corporate social responsibility has been defined as caring for possible negative impact of
business on society, avoiding harm to other people and the public at large, meeting
increasing and changing social stakeholders‘ expectations, contributing resources to
communities and helping improve the quality of life in society. This is because the survival
and growth of any business depends on the support of stakeholders, such as customers,
suppliers, employees, government and communities involved in the business. However the
understanding of CSR is always dynamic, evolving and contextual rather than homeostatic,
mechanistic and context-free .Its meaning is subject to social conditions, traditions values,
cultures and political forces. Though CSR may have some converged principles across the
world such as universal human rights, the practical perception of CSR is always embedded
in societal context of place and time.
That global financial crisis was characterised by lack of corporate responsibility in
many aspects and that CSR issues are inseparable from institutional environments
surrounding business. The volume had understanding the role of CSR in the financial crisis,
looked on the nature of responsibility and the credit crunch. Simion Robinson developed
some conceptual clarity about the nature of responsibility which he categorized in three
terms-imputability, has a base on ideas, values and practices. Ideas must provide some
account of and justify it with values, which requires critical awareness of the cultural
context of values held. Whether it is narrative, worldview and myth around purpose and
value. While practice has to do with the effects of ones actions, and the connection
between oneself and another. The idea of responsibility deals with meaning, situation and
relation. The stress on critical discourse suggests that trust rests on the opportunity to test
out the thinking and practise of the leader. This is not about finding blame but rather
empowering an organisation and its members to take responsibility for their values and
practices. Accountability focuses usually in contract relationship; formal or informal. The
contract sets up the sense answerability to another. Giving an account to person or group
to ones thought and action which connect imputability to accountability. Liability goes
beyond accountability into the idea of concern for others. This is viewed in the past,
present and future.
Ralph Tench examined the contextual approach in understanding the financial crisis
and CSR. He noted that the key missing element in trust. Lack of trust can be seen by the
significant shift of social mood and cultural climate, which the role of CSR in the financial
crisis has made people to lost trust and faith in politics and business. The instability in the
social, political and cultural environment has affected the role of business in the society.
Although the financial crisis has created a new environment, managers have to respond to
it by taking strategic and refreshing approach to continue working with stakeholders
through openness and constructive dialogue.
Brain Jones looked at the role of government and ideology towards corporate social
irresponsibility. He focused on the role of government in relation to CSR and the 20072010financial crisis. He argued that the financial crisis was as a result of failure on
government. He advanced that neo-liberalism and market fundamentalism can be equated
to government irresponsibility and the move to free up markets gave rise to the financial
crises.
Alex Nunn viewed the performance management and the neo-liberal labour market
governance the case of UK. Alex suggested that from the wreckage of the financial crises
will emerge a stronger, differently shaped and more resilient form of capitalism, which will
be shaped by political, economical, social, technological imperative and demand of
stakeholders. The above can only be attained by the use of private sector management
2011 Number 2
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practices in the public sector. Performance management is used not just as a management
but as a governance tool. Setting ‗desirable‘ social outcomes and aligning public service
delivery to achieve these
William Sun and Lawrence Bellamy looked at who is responsible for the financial crisis? Its
lessons from a separate thesis who demonstrated that financial crisis was fuelled by the
separation thesis. Separation thesis is the separation of private interest and public interest,
the separation of economic interest and social interest and the separation of principal‘s
interest and the agent‘s interest.(Sun 2009).These separation have created fundamental
conflicts and dilemmas in capitalism which have proved difficult to resolve. There were
lessons to learn from the subprime mortgage and the financial crisis which included that
1) Business related reality is underpinned by a separation thesis, the tacit permission
or explicit encouragement of excessive self-interest and self- regulation would
inevitably trigger financial and economical crises.
2) If a political agenda takes over a business agenda to serve political and ideological
interest it reinforces separation thesis
3) The separation thesis justify the handover of power to professional managers to
mediate conflicting interest in the split business world and encourages strategic
business priority given to some specific stakeholders groups at the cost of others.
This gives rise to abuse of power, irresponsible lobbying, which makes the society
not to rely on managers who will not change their irresponsible behaviours to make
the world better and sustainable.
4) Separation thesis is only a social and ideological construct.
5) We should never abandon genuine hopes and beliefs for a better society and
business reality.
They conclude that, the failure of CSR is rooted in the separation thesis, unless
the separation thesis is reconstructed and replaced by a connection thesis.CSR is
often perceived as ethical values as what people think in their minds, as invisible
principles, as voluntary codes. This reflects and the prevalent belief that CSR exist
more in theory than practice, and its application into practice only deals with some
abstract values added to business, rather than concrete measures and engaged
models merged with business management. Hence, little attention has been paid to
how CSR is or should be institutionalised in codified rules and in corporate
governance practice.
The second theme examined in the volume is implication of CSR regulatory models and
managerial framework.
Robert J. Rhee discussed the legal issues of corporate governance raised by the
unique events surrounding the Bank of America-Merri Lynch merger in 2008.Rhee informs
that under American corporate law have both fiduciary duty and social obligation which
adequately provides corporate boards authority to assume broad principles of corporate
social responsibility, and that during public crisis this authority is specially recognised in the
enabling statutes of corporate law. (corporate law is founded on the principle of wealth
maximization)It broadens even further to pursue the public good in exigent circumstances.
Unlike what many people have believed in that the US pursues a shareholder value model,
the corporate laws have actually directed companies towards maximisation of social wealth
and welfare, rather than the narrow interest of shareholder profit. The shareholder value
model is outdated and was used in the 19th and early 20th century.
Tinke Lambooy shows that in Europe, the Dutch model has full CSR provisions in
corporate governance codes, which is very different from the ‗comply or explain‘ approach
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used in the United Kingdom. The Frijins code was published in 2008 but effective in 2009.It
advocates that management board and the supervisory boards should take account of the
interest of the various stakeholders, including CSR issues that are relevant to the
enterprise. It was stipulated that the two pillars on which good governance is founded and
essential conditions for stakeholder confidence are good entrepreneurship, which includes
integrity and transparency and effective supervision of their actions and accountability.
Since CSR promotes long term business plans, the internalisation of external costs, the
accountability of corporate conduct, stakeholder engagement and transparency of
environmental social and governance factors, it is in line with the Dutch concept. Its
concept is to satisfy the interest of multiple stakeholders and the society as a whole.
Colin Fisher looked on the when should companies voluntarily agree to stop doing things
that are legal and profitable but socially useless and would they ever? He developed a
debating schemes of two types. The questions are the virtue question and the objectivist
question.
Madoff perpetrated the biggest fraud in American history undetected for over a
decade; he was an extreme manipulator of social capital. Hence, Paul Manning discussed
the dark side of social capital, lessons from the Madoff case. He looked at the Madoff case
in two views the social capital and socio-economic perspective.
The third theme examined in the volume is the future of CSR a post –crisis agenda. We
have been living in the age of greed which can be seen in many levels whether individuals,
executives, banks, financial markets, corporate and capitalist greed. Hence, Wayne Visser
examined from the age of greed to the age of responsibility and concluded that the CSR 1.0
failure was as a result of greed. The purpose of business is to serve society, through the
provision of safe, high quality products and services that enhance our wellbeing. This does
not mean eroding our ecological and community life support system. This can be achieved
through the CSR 2.0
Hershey Friedman and Linda Weiser Friedman agreed that the current economic
path focuses on extreme materialism and overconsumption which leads to destruction.
They concluded that if sustainability, organizational social responsibility and happiness are
critical goals of our modern world, then voluntary simplicity is one path to the fulfilment of
the goal.
Justyna Beriniak - Woz´ny opines that CSR in developing countries must and will
develop, as international business corporation pays more and more attention to responsible
business processes and awareness of international society continues to grow. She
concluded that the success of the CSR model depends on active participation and
continuous dialog of key partners of the process.
The contributors to the themes are experts in academia who have address the
issues of the financial crisis. But the theme only considered only one developing country
which seems miss fit .However, the book is an interesting book which keeps the reader
fixed till the last page. It has met its target in the academic environment and I recommend
the book.
Eme Joel Efiong
De Montfort University, UK and University of Calabar. Nigeria
2011 Number 2
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Book review: The Business Case of Human Rights. An Evolving Agenda for
Corporate Social Responsibility
edited by Voiculescu, A. and Yanacopulos, H., 2011, Zed Books: London.
The purpose of the reviewed book is to address three main areas – human rights,
business and ethics – and to create a clearer and more comprehensive picture of where and
how they intersect. The chapters of the book invite the reader to take a critical approach in
identifying companies` responsibilities in the human rights context. This review will
summarize the most important ideas of each chapter, with special attention given to
original contributions of the authors. It will also analyse the book regarding its quality,
organization and innovativeness.
Summary of the book
In the first chapter, Voiculescu and Yanacopulos introduce human rights in business
context. Firstly, the authors define CSR from Carroll`s (1979) perspective, suggesting that it
should encompass social expectation placed on companies, including economic, legal,
ethical and philanthropic responsibilities. Secondly, in the light of globalisation across
economies, they highlight the increasing importance of human rights, in the view of
prestigious institutions: UN, OECD. The authors mention that the most prominent three
international documents that have human development in their core are the Universal
Declaration of Human Rights, the International Labour Organization` Declaration on
Fundamental Principles and Rights at Work and the Rio Declaration of the UN Conference
on Environmental and Development. Thirdly, the first chapter anticipates what are the most
relevant subjects discussed in the book.
Aiming to address one of the most debated issues of corporate social responsibility,
in Chapter 2 Voiculescu explores the challenging question of the corporate self-regulation
versus the international enforceable rules, in relation to human rights. By focusing her
exploration on the ILO, the OECD and the UN initiatives regarding human rights and social
responsibility, Voiculescu develops a comparative approach that outlines different points of
tension between a strong normative commitment, on one hand, and the voluntary
approach, on the other hand.
In Chapter 3, Harris investigates the tension between marketing and corporate
social responsibility with particular reference to branding and reputation management.
Marketing is seen as the interface between society and business, and while its primarily
target is to satisfy customers‘ needs, it also admits the interaction with other stakeholders
and society at large. After defining and introducing a marketing perspective, the author
depicts the nature and role of brands, brand identity and reputation, as well as the
importance of consolidating brand equity through corporate social responsibility.
In Chapter 4, Pangsapa and Smith argue that labour rights should be the core of
business ethics. The authors maintain that with the global recession that started in 2008,
there is an urgent and necessary call to transform labour standards into labour rights.
These two concepts are not mutually exclusive, but each has a specific role, the success of
one being dependent on the effectiveness of the other.
Slapper examines the dynamic link between ethical and legal dimensions of
corporate responsibilities, pointing out-in Chapter 5 – the ways in which law can intensify
social responsibilities and animate business compliance with human rights principles to have
a global effect. One important argument in the chapter is that criminal laws, dealing
specifically with corporate crime, can enhance corporate social responsibility activities of
many organizations. The British justice system is used as a basis for exemplification. The
author concludes that CSR and the commercial recognition of the human rights principles
can reach a goal mostly on a global basis.
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Chapter 6 analyses corporate social responsibility in pharmaceutical sector, with
emphasis on the fluctuation between the intellectual property rights owned by
pharmaceutical companies, the right to health and the access to basic medicine of poor
people. Bright and Muraguri acknowledge the accountability of pharmaceutical companies
to society, especially in sharing scientific advances and the initiatives undertaken by the
public and private sectors to advocate right to health. Considering the debate over human
rights and the legal institutional traditions, the authors maintain that a mixture of shaming,
competition and multilateral thinking can create opportunities for the industry to adapt to
change and to offer the ultimate right to life.
In Chapter 7, Yanacopulos brings into debate the role of foundations as actors of
change. At first, the author points out differences in types of foundations and ways in which
they relate to parent corporations` business values and mission. Then, the ways on how
foundations have been involved in philanthropy and human rights are explored. The author
concludes that the business ethics of profit, efficiency and sustainable development have
affected the ways in which long-lasting foundations and newest foundations operate, and
the relationship between other non-profit organizations.
In Chapter 8, Hatchard highlights the impact of business on human rights, by
exploring the connection between corporate practices and corruption and arguing that good
governance is an efficient way to combat transnational corruption. The author depicts the
international and domestic efforts to fight bribery of public officials through the use of
criminal law. In the end, there are described alternative and complimentary approaches to
break the link between corruption, bad governance and abuses of human rights such as:
encouraging countries to become parties to the UN Convention against Corruption and the
developing effective methods of enforcement.
In Chapter 9, Dietelhoff and Wolf analyse the direct and indirect case for corporate
governance contributions to peace and security in zones of conflict. The authors present
several types of corporate governance that can be expected from a great number of
transnational companies where the state fails to provide collective good or to protect
human rights and fundamental normative standards. They draw a general conclusion that
there could be a nascent new understanding of responsible engagement in the business
sector in conflict zones.
In Chapter 10, Amao aims to explore the link between business, ethics and human
rights from an emerging country perspective, using Nigeria as a case study. First, the
author delimitates corporate social responsibility theory and practice in international
context, and then makes suggestions on how business should respond to ethics and human
rights challenges by weighing up profit considerations against the social and environmental
impacts of corporate decisions.
In Chapter 11, the conditions that lead to human rights violations are analysed and
considered to be similar to those that generate environmental degradation and breaking of
labour standards. Academically, these concepts have been treated separately, but Smith
and Pangsapa explore the common ground between them and show the areas where they
coincide and how their mixed presence intensifies the negative effects of each. The authors
conclude that there are three reasons that stand as a prove to the connection between
human rights, environmental issues and labour standards: (1) where one abuse or violation
exists, other are more likely present, (2) political structures and company practices matter
when it comes to regulation or self-regulation to confront these problems, (3) campaigners,
activists and non-governmental organizations would fortify their effectiveness and efficiency
if they developed integrated strategies.
Structure
In terms of structure, the book is formed of 11 chapters. At the beginning of each chapter
the arguments for justifying the link between business, social responsibility and human
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rights are being introduced, and are very well synchronized with paragraphs that are used
to define and clarify main concepts. This makes the book very easy to follow and ideas are
raised in a logical manner. The argumentation is based on strong theoretical background,
with very recent references, which gives the book an accurate character. Also, the case
studies presented benefit the reader from the opportunity of a vivid framework, which leads
to a better understanding of the human rights area in the business context. All in all, the
argumentation, the case studies and theoretical delimitation are the basis for an adequate
achievement of the objectives presented in the first part of the book.
Content
Regarding the originality of the studied theme, the book is in tune with the growing
interest in human rights standards as ways to direct a globally operating market economy.
The authors explore new areas and approach the subject in manner that contributes to the
development of theory. This book could be the basis for further developments of methods
and models that can explain the synergy between business, ethics and human rights.
As for the quality of the book, the ideas are supported by strong arguments and
recent references. Also, the conclusions are logical and bring together the ideas sequentially
defined and clarified in the paragraphs of each chapter, to create a clear framework of
human rights in the corporate social responsibility agenda. However, the precision of the
conclusions could be highly measured by quantitative methods; therefore one suggestion
for the book would be the future integration of more advanced way to measure the relation
between the three concepts which can give more depth to the theoretical analysis.
Presentation, style, references
The book is very easy to follow, and can be read by both specialists in the field of
economics and law, as it presents a practical debate, without any complicated econometric
models. The book is rather theoretical in nature, exploring the connections between human
right, ethics and business. The expressions or arguments are clear and consistent and
sometimes accompanied by suggestive figures, charts or tables that help the reader to
connect with the information in a visual way.
The authors of the book quote relevant
and recent sources. The references for each chapter are reach and representative for the
subject.
To sum up, the book is based on strong theoretical arguments, which state from the
beginning their clear purpose and which relate to the current international debate of
development of human rights in business. The book concepts are defined and illustrated by
case studies or figures that are very helpful. This contributes to the literature by clarifying
some controversial aspects of human rights. The book is theoretical in nature, and one
suggestion would be a deeper analysis of the concepts by development of methods or
models to measure the synergy between business, ethics and human rights.
Georgiana F. Grigore
Bucharest Academy of Economic Studies, Romania
2011 Number 2
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News from the Network
10th International Conference on Corporate
Social Responsibility
18 – 20 May 2011
Loyola University New Orleans, USA
The 10th conference is always a bit special so for our 10th conference in this series
we will be visiting Mississippi, USA where the conference will be held in New
Orleans and hosted by Loyola University New Orleans. It will be organised by the
university in conjunction with the Social Responsibility Research Network (SRRNet).
This time we will be focusing on one of the most urgent issues of the present. So at
this conference there will be a focus on the theme of
CSR and Sustainability
If you have not yet decided to attend and meet your colleagues then there is still
time. Check the details at http://www.loyno.edu/csr-conference/.
We look forward to welcoming you in New Orleans.
Professor Dr Nicholas Capaldi
Conference Chair
Loyola University
USA
email: [email protected]
Professor Dr David Crowther
Chair of SRRNet
De Montfort University
UK
[email protected]
Professor Dr Güler Aras
Chair of SRRNet
Yildiz Technical University
Turkey
[email protected]
2011 Number 2
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11th International Conference on Corporate
Social Responsibility
8 – 10 May 2012
Lahti University of Applied Sciences, Finland
For our 11th conference in this series we will be visiting Finland where the conference will
be held in Lahti and hosted by Lahti University of Applied Sciences. It will be organised by
Faculty of Business Studies, Lahti University of Applied Sciences and in conjunction with the
Social Responsibility Research Network (SRRNet).
Call for Papers
As usual the conference is intended to be interdisciplinary and welcomes contributions from
anyone who has a perspective on this important issue. This time we will be focusing on one
of the most urgent issues of the present. So at this conference there will be a focus on the
theme of
CSR and Risk Management
In the CSR literature, Corporate Social Responsibility is often associated with the risk
management. In practice, CSR has become increasingly important part of the corporate risk
management. For example in The Ernst & Young Business Risk Report 2010, social
acceptance risk and CSR was mentioned as one of the top 10 risks for business. From
corporate risk management point of view, it is important that we do responsible things but
also that we do things responsibly. Thus the conference is not focused only on risks
associated with different CSR dimensions and activities but also CSR as a part of
responsible management, especially a part of responsible risk management. The key
question is not only how negative CSR impacts can be minimised but also how CSR
opportunities can be maximised and CSR used as a value enhancing concept. Additionally
there will be a special focus on the relationship between CSR, business ethics and
management related criminality.
Although the conference will be focused on CSR and Risk Management, papers addressing
all other areas of CSR are welcome. Thus papers are welcome on any topic related to this
broad theme and suggested topics for papers include:











Risks and different dimensions of CSR
Risks associated with CSR activities
CSR and business risks (e.g. compliance, financial, strategic and operational threats)
CSR and business ethics
Responsibility management
CSR and management systems
Reputation management and risk
Corporate governance and risk management
Risk assessment and management
Evaluating CSR activities
Risk communication, communicating CSR risks

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CSR reporting and risk management
Responsibility assurance and auditing
Risk of irresponsibility
Relationship between CSR and corporate performance
CSR and value creation
CSR and management related criminality (e.g. grey economy and corruption, whitecollar crime)
Offers to run workshops, symposia, poster sessions, themed tracks or alternative events are
especially welcome. Please contact Ulla Kotonen ([email protected]) with
suggestions.
Although preference will be given to full papers, abstracts of 200-500 words will also be
considered. All papers and abstracts should be sent by 10th January 2012 by email to
[email protected]. No more than 2 papers will be accepted from any author.
We will publish proceedings and full details concerning other publishing opportunities for
the papers presented at the conference will be provided during the conference.
Doctoral Colloquium
This year we will again be running a doctoral colloquium on one day of the conference. The
aim will be to give detailed feedback to doctoral researchers concerning their papers.
Feedback will be specific to each person and their research, and will be given by an
experienced academic in the field. The colloquium will be an integral part of the conference
and all delegates will be expected to participate fully in the conference but the sessions will
give extra time to presenters – to allow for discussion and formal feedback. This colloquium
will be organised by Professor Dr Güler Aras and abstracts of 200-500 words should be sent
by 10th January 2012 by email to [email protected]. In order to allow detailed feedback
full papers will be required in advance of the conference – full details will be given to
participants upon acceptance.
Following the tradition established at the 6th conference in Kuala Lumpur, a Young
Academician award will be made during this colloquium.
Venue of the Conference
The conference will be held in the Lahti University. The conference fee will be announced
later and will include accommodation, meals and conference materials. An optional
sightseeing tour will be organised at the end of the conference; full details will be available
later. We look forward to welcoming you to Finland in 2012 for the 11th conference in the
series.
Full and updated details can be found at the conference website:
www.davideacrowther.com/11csrhome.html
Dr Ulla Kotonen
Conference Chair
Lahti University
Finland
email: [email protected]
Professor Dr David Crowther
Chair of SRRNet
De Montfort University
UK
[email protected]
Professor Dr Güler Aras
Chair of SRRNet
Yildiz Technical University
Turkey
[email protected]
2011 Number 2
67
A periodic publication:
Discussion Papers in Social Responsibility
ISSN 1759-5894
These are refereed publications and are issued when available. There is a very quick
publication timescale after acceptance and this is an opportunity for early
publication of your research. Copyright continues to be held by the author so
subsequent publication in an academic journal is not a problem. It is an opportunity
to get feedback prior to submission to a journal as well as to boost your CV with an
early publication. When published it will be emailed to all members and also put on
our website – guaranteeing worldwide exposure of your research.
The latest publications are:
No 1001
Promoting sustainable consumption: the case of refrigerators
Shahla Seifi, Norzima Zulkifli & David Crowther
No 1002
Universities and Corporate Education: 21st Century Social Responsibility for
Developing Countries
B. Panduranga Narasimharao & P.R.R. Nair
No 1003
Tertiary Education Institutions for Corporate Education
Need and Relevance of Corporate education centres
B. Panduranga Narasimharao
You can find a copy on our website – www.socialresponsibility.biz
If you would like your work published like this then send a copy of your paper to
[email protected] stating that you would like it to be considered for the
Discussion Paper Series.
2011 Number 2
68
Social Responsibility Journal
Special Issue Call for Papers:
CSR in BRIC (Brazil, Russia, India, China) Countries
Corporate Social Responsibility (CSR) has emerged as a concept for business from within
developed, Western economies. Such economies are underpinned by functioning
institutions, where compliance with regulation is assumed. CSR is therefore based on the
assumption that firms will voluntarily engage in activity to address perceived responsibilities
outside the firm‘s legal and economic obligations.
Recently a number of scholars (Argandona and Hoivik, 2009; Devinney, 2009; Dobers,
2009; Dobers and Halme, 2009; Halme, et. al., 2009) have challenged the capacity of this
traditional CSR approach to take account of the different economic and institutional
arrangements found within developing, emerging and transition environments. In countries
where institutions are weak, where property rights are applied inconsistently, and the
enforcement of law is arbitrary, CSR may get a very different ‗twist‘ (Dobers and Halme,
2009, p 242).
These and other scholars have therefore called for CSR research to be more contextualised.
In addition, Western interpretations about what CSR is, and how it is enacted, need to be
broadened and challenged, to take account of different stages of economic development.
Without such contextualisation (Halme et. al, 2009), understandings regarding the type,
nature and robustness of the CSR being undertaken in non-western settings are likely to be
misinterpreted, or lost.
To date CSR research in emerging and transitioning countries has tended to focus on multinational companies ‗doing‘ CSR in emerging and/or developing contexts (Akpan, 2008;
Amaeshi and Amao, 2009; Hamann, 2006; Mishra and Suar, 2010), rather than on the CSR
activity of domestic firms. To address this gap, this special edition will encourage a broader
insight into the type, nature and scope of CSR within domestic firms within some of the
world‘s fastest growing economies.
The BRIC (Brazil, China, India and Russia) countries are respectively the 8th, 2nd, 11th and
12th largest economies in the world (World Bank, 2009). However, massive economic
growth over the last 20 year has come at the expense of environmental degradation,
institutional development and poor income distribution. India still has up to 60% of its
population living on less than 1$US per day (World Bank, 2010), Russia is ranked 154th out
of 178 countries for corruption (Transparency International 2010), whilst Brazil has some of
the highest levels of income inequality in the world (World CIA Report 2009). In addition,
China has no functioning democracy, and Russia has taken radical steps to curtail freedom
of the press and control civil society organisations since 2000.
Given these factors, the type, nature, scope and motivations for firms to engage in CSR in
the BRIC are likely to be different from other (Western) contexts. Outcomes for CSR in such
settings will assist in contextualising the field and offering new and different perspectives
on what CSR is and how it is enacted in settings beyond western, developed economies.
Papers are invited that address the theme of this issue within the BRIC. Important aspects
include:
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2011 Number 2
69
Motivators for CSR
The influence of MNC and globalisation on CSR
Sustainability and environmental management issues
Influence of social movements on CSR activity
Employee and human rights
Poverty alleviation
Corruption
Sustainable Development
Ethics and corporate behaviour including philanthropic activity
Reflections on contextualising CSR for non-western settings
The special issue will be published in 2012. The deadline for submission of full papers is
November 1st 2011 but early submission is encouraged.
Authors should submit their manuscripts electronically (preferably in Word format) to Jo at
[email protected]. The length of submitted paper should not exceed 10000 words
including all references, tables, figure, author bios, abstract and keywords, although in
some cases, involving mainly the reporting of qualitative data, longer manuscripts may be
accepted. All authors' details must be printed on a separate sheet and authors should not
be identified anywhere else in the article. A title of not more than eight words should be
provided. An abstract of no more than 250 words should accompany the paper along with 6
key words.
All papers will be subject to the normal blind refereeing process. Authors wishing to discuss
their paper prior to submission may contact either guest editor.
Guest Editors
Professor Jo Crotty
Professor of Strategy and CSR
Salford Business School
Manchester
[email protected]
Dr Sarah Marie Hall
Research Associate
Faculty of Humanities and Social Sciences
Keele University (Staffordshire) and Marches Energy Agency (Shrewsbury)
[email protected]
References
Akpan, W (2008) ‗Corporate Citizenship in Nigerian Petroleum Industry: A Beneficiary Perspective‘,
Development Southern Africa 25(5), 498-511
Amaeshi, K and Amao, O O (2009) ‗Corporate Social Responsibility in Transnational Spaces:
Exploring Influences of Varieties of Capitalism on Expressions of Corporate Codes of Conduct
in Nigeria‘, Journal of Business Ethics 86, 225-239
Argandona, A and Hoivik, H v W (2009) ‗Corporate Social Responsibility: One Size Does Not Fit All.
Collecting Evidence from Europe‘, Journal of Business Ethics 89, 221-234
Devinney, T M (2009) ‗Is the Socially Responsible Corporation a Myth? The Good, the Bad and the
Ugly of Corporate Social Responsibility‘, Academy of Management Perspectives 23(2), 44-56
2011 Number 2
70
Dobers, P and Halme, M (2009) ‗Corporate Social Responsibility and Developing Countries‘,
Corporate Social Responsibility and Environmental Management 16(2), 237-259
Dobers, P (2009) ‗Corporate Social Responsibility: Management and Methods‘, Corporate Social
Responsibility and Environmental Management, 16(4), 185-191
Hamann, R (2006) ‗Can Business Make Decisive Contributions to Development? Towards a Research
Agenda on Corporate Citizenship and Beyond‘, Development Southern Africa 23(2) 175-195
Mishra, S and Suar, D (2010) Does Corporate Social Responsibility Influence Firm Performance of
Indian Companies‟, Journal of Business Ethics, online 11 February
Transparency International (2010) http://transparency.org/policy_research/surveys_indices/cpi/2010
accessed 22nd March 2011
World
Bank
(2009)
http://siteresources.worldbank.org/DATASTATISTICS/Resources/GDP.pdf
accessed 22nd March, 2011
World Bank (2010) http://data.worldbank.org/indicator/SI.POV.DDAY/countries accessed 22nd March
2011
World CIA Report (2009) https://www.cia.gov/library/publications/the-world-factbook/geos/br.html
accessed 22nd March 2011
2011 Number 2
71
Social Responsibility Journal
An Emerald Journal
Call for Papers
Social Responsibility Journal, the official journal of the Social Responsibility Research
Network, is interdisciplinary in its scope and encourages submissions from any discipline
or any part of the world which addresses any element of the journal's aims. The journal
encompasses the full range of theoretical, methodological and substantive debates in the
area of social responsibility. Contributions which address the link between different
disciplines and / or implications for societal, organisational or individual behavior are
especially encouraged.
The journal publishes theoretical and empirical papers, speculative essays and review
articles. The journal also publishes special themed issues under the guidance of a guest
editor.
Social Responsibility Journal is a muliti-disiplinary journal which publishes paper from
many diverse disciplines with their implication for society, organisations and individuals
discussed. It publishes articles from an international authorship which allows the reader
to compare the impact of social responsibility across countries and cultures.
Coverage
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Accountability and accounting
Issues concerning sustainability
Economy and finance
Governance
Stakeholder interactions
Ecology and environment
Corporate activity and behaviour
Ethics and morality
Governmental and trans-governmental regulation
Globalisation and disintermediation
Individuals and corporate citizenship
Transparency and disclosure
Consumption and its consequences
Corporate and other forms of organization
For submission guidelines and abstracting & indexing go to the Journal website:
www.emeraldinsight.com/srj.htm
Editors:
Professor Dr. David Crowther, De Montfort University, UK [email protected]
Professor Dr. Güler Aras, Yildiz Technical University, Turkey [email protected]

No. 2 - Social Responsibility Research Network

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