No. 2 - Social Responsibility Research Network
Transcript
No. 2 - Social Responsibility Research Network
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 Social Responsibility Review 2011 Number 2 2 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 Social Responsibility Review 2011 Number 2 3 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 Social Responsibility Review 2011 Number 2 4 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] Social Responsibility Review 2011 Number 2 5 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. Social Responsibility Review 2011 Number 2 6 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. Social Responsibility Review 2011 Number 2 7 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. Social Responsibility Review 2011 Number 2 8 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. Social Responsibility Review 2011 Number 2 9 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. Social Responsibility Review 2011 Number 2 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. Social Responsibility Review 2011 Number 2 11 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 Social Responsibility Review 2011 Number 2 12 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 Social Responsibility Review 2011 Number 2 13 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] Social Responsibility Review 2011 Number 2 14 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 Social Responsibility Review 2011 Number 2 15 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 Social Responsibility Review 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 Social Responsibility Review 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 Social Responsibility Review 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 Social Responsibility Review 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 Social Responsibility Review 2011 Number 2 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 Social Responsibility Review 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 Social Responsibility Review 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 Social Responsibility Review 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 Social Responsibility Review 2011 Number 2 24 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. Social Responsibility Review 2011 Number 2 25 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)) Social Responsibility Review 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. Social Responsibility Review 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. Social Responsibility Review 2011 Number 2 28 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 Social Responsibility Review 2011 Number 2 29 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 Social Responsibility Review 2011 Number 2 30 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 Social Responsibility Review 2011 Number 2 31 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 Social Responsibility Review 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. Social Responsibility Review 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. Social Responsibility Review 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 Social Responsibility Review 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. Social Responsibility Review 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/ Social Responsibility Review 2011 Number 2 37 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. Social Responsibility Review 2011 Number 2 38 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. Social Responsibility Review 2011 Number 2 39 (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 Social Responsibility Review 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. Social Responsibility Review 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 Social Responsibility Review 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 Social Responsibility Review 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. References Andriof & Marsden (1998), http://www.brandchannel.com/papers_review.asp?ap_id=583 Basu (2010), CSR: Coming of Age In India, Bedi, R.V. and Bedi, N.V. (2006), Rural Marketing, Himalaya Publishing House Mumbai. Charunilam, Francis (2006), Social Responsibility of Business, Business Environment, Himalaya Publishing House, Mumbai. Desai Vasant (1976), Problems and prospects of small scale industries in India, p-14. Dogra, Balram and Ghuman, Karminder (2008), Rural Marketing, Mc Graw-Hill Publication, New York. Dsilva (2010), Corporate Social Responsibility in India - An Empirical Research, http://ezinearticles.com/?Corporate-Social-Responsibility-in-India---An-Empirical Research&id=1212688 Dutta, and Durgamohan (2007), Dutta kirti, Durgamohan, M. ―Corporate social strategy: Relevance and pertinence in the Indian context‖ iimtobu Gurgaon., http://www.iimtobu.ac.in Goel, Alok and Goel, Mridula (2008), Business Environment, V.K. (India) Publication, New Delhi. Gupta, N.S. (1975), Social Responsibility of Business, Indian Journal of Commerce., pp.20-21. Joshi, Rossy and Kapoor, Sngam (2006), Social Responsibility of Business, Business Environment, Kalyani Publishers, New Delhi. Kotler, Philip (2007), Marketing Management, 12th south Asian Edition, Dorling Kindersley (India) Pvt. Ltd., New Delhi. Logan, D (1997) Global Corporate Citizenship – Rationale and Strategies, Washington DC: The Hitatchi Foundation. http://www.anztsr.org.au/02conf/anztsrpapers/Zappala,%20Gianni%20&%20Cronin,%20Caitlin Macken, Julie (2002) ‗Trick or treat‘, BOSS Magazine, Australian Financial Review, October. http://www.anztsr.org.au/02conf/anztsrpapers/Zappala,%20Gianni%20&%20Cronin,%20Cai tlin Mahatmas Gandhi (1945), Small Scale and Cottage Industries in India, p-161. McClure, P. (2000) Participation Support for a More Equitable Society (Canberra: Reference Group on Welfare Reform). Nihar and Moharana (2009), CSR Campaign of Corporate Sectors: A Study on Rural Indiahttp://www.indianmba.com/Faculty_Column/FC986/fc986.html Prasad (2008), CSR Initiatives of Indian Companies A Study http://www.indianmba.com/Faculty_Column/FC955/fc955.html Saleem, Shaikh (2006), Social responsibility of Business, Business Environment, Dorling Kindersley (India) Pvt. Ltd., New Delhi. Singh, P.; Maggu, Ashok and Warrier, S.K. (1980), Corporate Social Responsibility and Expectation, Vikalpa, Vol.5, No.2, (http://03.indiatimes.com/csrinfo) Subha Rao, P. (1975), Social Responsibility of Business, Indian Journal of Commerce., pp.32-34. Valayudhan, Sanal Kumar (2006), Rural Marketing, Response Books-A Division of sage Publication India Pvt. Ltd., New Delhi. http://www.csrmonitor.in/features/3026-CSR-Coming-Age-India.html Websites http://www.accltd.com http://www.adityabirla.com/social_projects/overview.html http://www.avoncosmetics.com http://www.bharatpetrolieoum.com/corporate/csr.asp?from=corp http://www.cadbuary.com http://www.cenurytextind.com/socialact.asp http://www.citibank.com http://www.colget.com 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 Social Responsibility Review 2011 Number 2 44 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] Social Responsibility Review 2011 Number 2 45 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. Social Responsibility Review 2011 Number 2 46 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. Social Responsibility Review 2011 Number 2 47 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. Social Responsibility Review 2011 Number 2 48 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. Social Responsibility Review 2011 Number 2 49 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. Social Responsibility Review 2011 Number 2 50 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 Social Responsibility Review 2011 Number 2 51 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 Social Responsibility Review 2011 Number 2 52 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 Social Responsibility Review 2011 Number 2 53 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 y Contabilidad, Volume XXXVI, pp. 351-380. Carvalho, João B. C.; Fernandes, M. J., Teixeira, Ana (2006). POCAL comentado – Plano 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. Decreto-Lei nº 158/2009 – Aprova o Sistema de Normalização Contabilística. Decreto-lei nº 54-A/99 – Aprova o Plano Oficial de Contabilidade das Autarquias Locais. 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. Social Responsibility Review 2011 Number 2 54 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. International Accounting Standards Board, IASB (1989): Framework for the Preparation and Presentation of Financial Statements, Londres. Plano Oficial de Contabilidade, aprovado pelo Decreto-Lei nº 410/89, de 21 de Novembro, e posteriores alterações. Portaria 794/2000, de 20 de Setembro. Regulamento 1606/2002 do Parlamento Europeu e do Conselho de 19 de Julho de 2002. Regulamento 1725/2003 da Comissão Europeia de 21 de Setembro de 2003. Tribunal de Contas (2001). Instrução nº 4/2001, de 18 de Agosto. www.dgaa(SATAPOCAL).pt 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] Social Responsibility Review 2011 Number 2 55 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. Social Responsibility Review 2011 Number 2 56 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: Social Responsibility Review 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/ Social Responsibility Review 2011 Number 2 58 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 Social Responsibility Review 2011 Number 2 59 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 Social Responsibility Review 2011 Number 2 60 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 Social Responsibility Review 2011 Number 2 61 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. Social Responsibility Review 2011 Number 2 62 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 Social Responsibility Review 2011 Number 2 63 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 Social Responsibility Review 2011 Number 2 64 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] Social Responsibility Review 2011 Number 2 65 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 Social Responsibility Review 2011 Number 2 66 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] Social Responsibility Review 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. Social Responsibility Review 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: Social Responsibility Review 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 Social Responsibility Review 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 Social Responsibility Review 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 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]