Going global

Wednesday, January 23, 2008

“The British brand of corporate responsibility is seen as the gold standard,” says Julia Cleverdon, chief executive of Business in the Community, which for 25 years has been championing the cause in Britain. And it is true that Britain, especially London, has been a hive of innovation in CSR since the mid-1990s, thanks to a creative cluster of think-tanks, NGOs, consultancies and inventive bosses. But according to Simon Zadek of AccountAbility, a think-tank that has been part of the cluster, this is also a repeat of a familiar British business story: superb innovation, poor implementation.

By contrast, when American firms get serious about CSR?Wal-Mart on sustainability, for example?the execution is generally impressive. The Japanese, for their part, see the roots of CSR in the traditions of Japanese business, such as shobaido (the way of doing business) and shonindo (the way of the merchant), and Japanese firms pay a lot of attention to the environment and to relations with local communities. The lead on CSR could even shift from the rich world to the big emerging markets, each with its own traditions and priorities.

For global companies this means that a one-size-fits-all approach to corporate responsibility may not work. What is right for Europe may not be appropriate for India. Such differences in priorities (see table 7) are bound to grow in importance as the BRIC countries?Brazil, Russia, India and China?and other emerging markets gain in economic clout and confidence.

Among the BRICs, Russian companies seem the least interested in the idea of corporate citizenship, but Brazil has a lively CSR scene. Some 1,300 companies are members of Instituto Ethos, a network of businesses committed to social responsibility. “We are developing a unique process in Brazil,” says Ethos’s founder, Oded Grajew. Ethos tries to influence public policy and corporate behaviour “to establish a socially responsible market”. A few Brazilian firms?such as Natura, a cosmetics company, and Aracruz, a pulp and paper producer?are widely known for their CSR efforts.

India has a long tradition of paternalistic philanthropy. Big family-owned firms such as Tata are particularly active in providing basic services, such as schools and health care, for local communities. For the rich, who have prospered as the economy has boomed in recent years, generous philanthropy is also a way of heading off a backlash against business. A broader culture of ensuring decent working conditions has been slow to spread.

One BRIC at a time

China has become the new frontier for the CSR industry. Ms Cleverdon says Chinese visitors are piling into her organisation’s London offices. Aron Cramer, the CEO of Business for Social Responsibility, a San Francisco-based lobby group, points out that his outfit has increased its representation in China from two to ten people over the past 18 months. Call Mr Zadek on his mobile phone and he answers in Beijing, where he is talking to Chinese think-tanks about CSR and trade policy.

It is still early days. For Chinese companies that serve the home market, the relentless focus on growth leaves little room for worrying about the niceties of corporate citizenship. And the lack of political freedom means there is no network of NGOs to persuade them to do more. Yet pressure to take corporate responsibility more seriously is nevertheless growing.

From above, the government is starting to make noises about environmental responsibilities. From outside come the codes and inspections of foreign investors and global companies that want to apply their ethical standards across their supply chain. And from within, Chinese companies that want to go global themselves are starting to realise that they will have to pay attention to CSR as part of their effort to gain acceptability and build their brand. It was a shock for China National Offshore Oil Corporation to see its plans to buy Unocal, a Californian oil firm, scuppered by American politicians; and, more recently, for PetroChina to find itself targeted by campaigners for disinvestment in Sudan.

The first signs of a fledgling corporate-responsibility industry are beginning to appear. A few Chinese companies have started to issue CSR reports (“beautiful books, not much inside,” says a Chinese critic). In Shanghai in October 2007, 13 foreign and domestic companies launched the Chinese Federation for Corporate Social Responsibility. These are baby steps, but the Chinese are quick learners.

“I would bet that within five years they’ll be deeply involved in the management of standards,” predicts Mr Zadek. “Then they’ll build their own, and they’ll become exporters of standards.” If so, China may in time begin to challenge Western ideas of CSR. Mr Cramer reckons that Chinese companies will want to redefine corporate responsibility in ways that suit their own priorities.

Competing models of CSR are already at work in Africa. Chinese investment is pouring in to secure access to raw materials needed for China’s turbocharged economy. The Chinese may show little interest in the rights of workers or opening a dialogue with “stakeholders”, but they build roads and other infrastructure. To some African leaders, this no-strings approach has its attractions. Western companies, under closer scrutiny from activists, have to be mindful of codes of behaviour and transparent reporting. Sometimes pressure from NGOs on Western companies has the perverse effect of forcing them out of countries such as Sudan in order to stop alleged complicity with government abuse?only to be replaced by Chinese or Indian companies that do not give a damn about human rights.

But NGOs can also be a conduit for corporate responsibility in emerging markets, working closely with business to reach what C.K. Prahalad of the University of Michigan’s Ross School of Business calls “the bottom of the pyramid”. There is a convergence of interests between NGOs trying to improve lives in poor communities and companies keen to reach consumers in markets with huge growth potential.

Many NGOs have moved beyond acting merely as watchdogs to co-operating with big companies on joint projects. And some, as Mr Prahalad and Jeb Brugmann, a sustainable-development specialist, noted last year in the Harvard Business Review, are setting up innovative joint businesses as an effective way of providing services and reaching consumers.

They point to examples such as BP’s arrangements with NGOs to distribute stoves in rural India and ABN AMRO’s collaboration on microfinance in Latin America with ACCION International, an NGO that is itself beginning to develop a multinational business. “CSR started as a way for companies to gather intelligence about NGOs and manage their reputations,” they write. “It has wound up providing them with the tools they need to pursue business opportunities in untapped markets.”

So will influence in CSR continue to trickle down from rich countries to poorer ones, or could it even be the other way round? Emerging countries might bridle at simply importing an agenda from the rich world, carrying echoes of colonialism. And as more investment flows to developed countries from Russia, China and the Middle East, this may colour attitudes in Western boardrooms too. How much will sovereign wealth funds care about corporate responsibility?

Amid so much uncertainty, multinational companies yearn for predictability and want to see the global playing field levelled, as they are so fond of saying. Yet they do not want intrusive rules either. When NGOs supported binding global norms for firms’ human-rights responsibilities, businesses objected and the effort collapsed. Instead, since 2005 John Ruggie, the UN secretary-general’s special adviser on business and human rights, has been carrying out a painstaking consultation with all the parties concerned.

Mr Ruggie is due to make his final recommendations in June. He says he wants “effective outcomes, not feelgood outcomes.” For governments, that may mean a reminder of their legal responsibility to protect human rights. For companies, it could mean further encouragement and greater accountability for the sort of “soft law”?such as voluntary codes and multi-stakeholder initiatives?that has helped to improve the behaviour of companies running into trouble for various abuses.

A forest of figleaves

Companies can select from an extensive menu of standards and guidelines to remain up to scratch, on human rights and much else. There are guidelines from the ILO and the OECD, as well as standards such as ISO 14001 (for the environment) and SA 8000 (for human rights). A very soft “guidance standard” on social responsibility, ISO 2600, is in the works.

A soft code that is proving popular is that of the UN’s Global Compact. To sign up, companies need only commit themselves to ten broad principles?such as promoting environmental responsibility and working against corruption?and report on their progress once a year. Yet the compact is toothless.

Continue Reading “Going global

Source: The Economist (link opens in a new window)