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Chapter I Strategic Public Policy • ision for Corporate Social Responsibility

Chapter I

STRATEGIC PUBLIC POLICY VISION FOR CORPORATE SOCIAL RESPONSIBILITY

C H A P T E R OBJECTIVES

Chapter I Strategic Public Policy I 'ision for Corporate Social Responsibility

INTRODUCTION Government and Corporate Social Responsibility (GCSR). has made an impressive entry on the economic, business, political and social scene^ In the last decade, there were different terms used, such as; social action, socially responsible investment, management by values, corporate citizenship, business ethics, the triple bottom line, reputation, and so on. However, the diversity of terminologies is only the visible aspect of many initiatives, proposals, programs and experiences that share the same quality or respond to'the same types of actions. Certainly, the issue of quality and actions should still be continuously to be addressed. Thus, when we discuss about Government and Social Responsibility or Corporate Social Responsibility, we should make a distinction between three aspects, according to Albareda, Lozano, Marcuccio, Rocher and Yu:

After this chapter, you should be able to: • •

learn the definitions and applications of corporate social responsibility; and, understand and appreciate the CSR framework.

CONTENT OUTLINE • • • • • • 2

Introduction Corporate Social Responsibility Reference Framework CSR Where Do We Stand? Building the Nation as An Economic and Social space Managing Corporate Social Responsibility Why We Need Strategic Vision

Corporate Social Responsibility and Good Governance

1. Agenda:- the variety of practices, measures and proposals that come under the term CSR. 1

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In other words, we believe that the two dominant debates about CSR (the "what" and the "how") are unresolved, and that we will waste a great deal of energy unless we explore the "why", which can only be expressed through the business model and the social model that provide the framework for the CSR debate. This is why we insist that we must put an end to the fiction that the CSR debate is limited to the topic of whether it is accepted or not, and begin to realize that there may be - indeed there are several visions of the nature and the scope of CSR.

Corporate Social Responsibility and Good Governance

Chapter I Strategic Public Policy Vision for Corporate Social Responsibility

Chapter 1 Strategic Public Policy Vision for Corporate Social Responsibility

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4. The intensity of the nature to voluntariness, as opposed to the acceptance of regulation and government control 5. How the role of businesses is described locally and nationally 6. The role and the position of NGOs and civil society 7. The characteristics of the educational system and the values converged by it M ft .

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Chapter 3 Integration of Public Policies on Corporate Social Responsibility

Chapter 3 Integration of Public Policies on Corporate Social Responsibility

We have classified government policies and programs according to the rational model. From this perspective, the thematic and instrumental approach is totally integrated into a relational and strategic approach. These stages that we have gone through in our analysis enable us to identify clearly the fundamental aspects of the political debate on the development of CSR:

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1. The debate on the themes and instruments inherent in a CSR policy 2. The debate on which players should participate in the design of a CSR policy, how they should be involved in . their process and the interest of each o f them in the process •- -.-' 3. The debate on how CSR should he understood (and the policy that matches it best), considering the economic, social and cultural context of each country. - -;r.s.-..-i..S-".'•• °f government do not play a significant, part. 3$!!HPS|vS'r What is true of business also applies to farmers and -. workers in industry. a c t s

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- The development of moral responsibilities and sanctions tying- local and private business to large political communities quickened dramatically during the New Deal. Then and later the principles of economic rationality gave way to varying kinds of moral beliefs and values that were made part of the formal system of American government, ".enormous power is now exercised over private enterprise by.rclativcly new administrative bureaus and regulatory agencies. . ' .< ; , •Jfciul toward the development of government regulatory.agencies is quite recent is indicated by the fact I'" ', " . ^ f e . ' ^ ' y '"dependent administrative and regulatory agencies'"? j-iVatest power and influence i n Washington

Chapter 4

The Corporate Image: An Express of Changing Responsibilitie

today, only two were in existence by 1900. During the next twenty years, only five new agencies were created. However, from 1920 to 1960 twenty-three large regulatory agencies were created, of these, ten appeared in the period of the New Deal. A recent example of this development at the national level is the appearance of the Committee on Government Contracts. This small, powerful committee reporting to the Vice-President is able to put pressure on private enterprise throughout the United States to expand job opportunities for minority groups. The government, as client and contractor for a substantial part of the business now being done in the United States, is in a strong position to exercise moral power and thus affect private economic practices. The Committee on Government Contracts exercises such power to force profit-making organizations to obey the moral rules and basic values of a democratic society. This would indicate that the modem corporation is now accepting moral responsibilities to its public even i f only because of pressures exercised by the government. The Congressional hearings of a few years ago investigating prices of drugs and the relations of drug manufacturers to pharmacologists and doctors produced a strong moral reaction that is still being felt. The manufacturers were charged with selling their goods to eel the highest profit attainable, an effort once considered noble, worthy, and the only one that should be allowed to operate in a free society. As a result of these hearings, the drug industry felt the disapproval of most Americans and feared legal developments. A l l that the market will bear is no longer all that the moral values of public opinion will bear. Government investigation informs public opinion and then acts as its moral agent.

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Corporate Social Responsibility and Good Governance

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Chapter 4

The Corporate Image: An Expression of Changing Responsibilities

Many politicians in recent years have urged today's businessmen to take a more active role in politics. They have been advised to do this by the Chairmen of both the Democratic and Republican National Committees, in talks before the American Management Association in New York. Said Democrat Paul M . Butler: While the businessman, like any other citizen, may shrink from or ignore politics, he does so at his own peril for politics will most certainly not ignore him. Too many of our businessmen, while contributing handsomely to various lobbying groups or political parties, have scorned personal participation in politics and dodged direct political responsibility. Senator Thurston B . Morton, as Chairman of the Republican National Committee, outlined the task even more specifically. His advice was summed up by Lee H. Bristol as follows: Men and women of the business community should not only in their own self-interest but in the interest of the country, participate more fully in party organization work at all levels. They should not hesitate to undertake such , often unglamorous but highly important political chores as doorbell ringing, poll-watching, and even soapbox orating. And above all, they should be both articulate and aggressive not only in helping to shape policies and programs which affect them directly as businessmen, but they should also take an intense interest in the broader problems which concern all citizens of the United States, It is a myth that the businessman who engages in politics automatically harms his own business

Chapter 4

The Corporate Image: An Expression of Changing Responsibilities

interests. That could happen only if a man sought to obtain special privileges for himself because of his political activities. Perhaps the modem corporation is accepting its responsibilities to its public primarily because it wants to continue in business and not ultimately become a part of the State. Managers and owners may feel that i f they misbehave, not only could they lose control of their corporations, but the corporations themselves could disappear becoming a part of the State. The important point is that corporations seem to respond to the power of public opinion, to the rapidly developing beliefs and values that Professor Berle feels lead them to economic and social responsibility.

4.6

THE CORPORATE IMAGE FOR T H E INVESTING C O M M U N I T Y

In referring to the financial community, we are talking about a vast public. The New York Stock Exchange, in its June 1962 study, estimated that there were seventeen million people in America owning shares in publicly held companies, that thirty-five million non-shareholders were on the verge of investing, and, finally, that some 120 million were indirect shareholders whose savings were invested for them in equity securities by a variety of financial institutions. Among important institutional investors currently are at least 239 commercial banks, 200 insurance companies, and 120 investment companies Also influencing investors are 1,855 advisory services registered with the SEC (as of July 31, 1961). 6,500 security analysts who are members of organized groups across the country, and financial magazines, rating services, business editors of national news and comment magazines, the business and

t •orptmilf Social Responsibility and Good Governance •Corporate Social Responsibility and Good Governance

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Chapter 4

The Corporate image: An Expression of Changing Responsibilities

The Corporate Image: An Expression of Changing Responsibilities

a favorable image to the financial public can be shown by an example. A well known company, financially solvent and with established lines of credit, can normally get its money at the prime rate of interest. If that rate is four per cent, a lesser-known company might be forced to pay five per cent. This one per cent difference on a S50 million loan means a saving of half a million dollars during the year. There is also strong evidence that a favorable image affects corporate finances in the following tangible ways 1) It improves the price-earnings ratio: 2) it increases the amount of equity capital available from the public; 3) it improves standing with investment funds: and 4) it creates a favorable climate for acquisitions.

financial newspapers, wire services, business columnists something over 500 outlets. The prime purpose of projecting a favorable image to the financial community is to inspire confidence in management policies, confidence that can result in a decision to invest It has been said that this means convincing the potential financers that a company is well run, progressive, and farsighted, with good prospects for continuous growth. It must be asked, however, what image in fact inspires such confidence. As in the case of any of the corporate "publics," an image may seek to offer assurance of broad, social responsibility or it may stress only a profit orientation. To evaluate the situation with respect to the financial community we must ask what benefits are sought from having a "favorable" image.

The considerations just listed suggest projection of a corporate image stressing a desire to make money and a capacity to make money. However, corporations must take into account not only what they expect of the financial community, but what the financial community expects of them, and, at least in recent years, the force of law requires them to include large elements of "responsibility" in their image. '

The following tangible benefits may be derived from securing favorable investor recognition: I'. A fair and accurate market appraisal of a company's business, industry position and prospects 2. Continuing stockholder support for management's long-range plan and policies 3. Improved public acceptance of newly issued securities 4. A preferred position w^ith respect to possible acquisitions 5. Prestige in trade, industry, and customer relations through an improved standing in the financial community ,

The "acceptance" by the corporation of its responsibilities to the financial community can best be seen in historical perspective. In 1939 Judge Pecora. who had been counsel to the Senate Committee on Banking Currency (1933-34) during its investigation of banking and security market practices, wrote the following concerning the results of the reforms: The old regime of unlimited license may he said to have definitely come to an end. The testimony had brought to light a shocking corruption in our -. banking system, a widespread repudiation'of oldfashioned standards of honest and fair dealing in

l "i a i ompany to grow and prosper, it needs money. Most corporations need to raise funds by borrowing or by Moulin," slo. I. or bond issues. The importance of projecting i oi punHi VIH ml Responsibility- and Good Governance

Chapter 4

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'Corporate Social Responsibility and Good Governance

Chapter 4 The Corporate Image: An Expression of Changing Responsibilities

Chapter 4

the creation and sale of securities, and a merciless exploitation of the vicious possibilities of intricate corporate chicanery. The public had been deeply aroused by the spectacle of cynical disregard of fiduciaiy duty n the part of many of its most respected leaders; of directors, who conveniently subordinated their official obligations to an avid pursuit of personal gain; of great banks, which combined the functions of a bank with those of a stock jobber, of supposedly impartial public markets for the sale of securities, actually operated as private clubs for the individual benefit of their members. According to Pecora, four statutes marked the beginning of a new era in the history of American finance, the Banking Act of 1933, the Securities Act of 1933, the Securities Exchange Act of 1934, and the Public Utility Holding Act of 1935. Pecora concluded that while all this legislation ^•-'represented progress, vigilance was necessary to maintain if B

•'•;;;..At the present time it is not unusual to hear the argument i that even under existing laws professional managers with little or no financial investment in the companies they run cannot be depended upon to fulfill the corporate , responsibility to the financial community. Some have said ^that "corporate democracy" is the answer. Lewis D , ''""^Qilbert, a leader of this movement, lays down the major planks of his platform in these terms: r

!'•' Moree democratic, better attended, regional and annual meetings. leetings. •'

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The ( orporale Image: An Expression of Changing Responsibilities

3. Strengthening of the SEC's proposal rule. 4. Equitable pensions, option control and executive compensation with reasonable ceilings and periodic shareholder review. 5. Cumulative voting to give the minority representation and the majority the benefit of the minority's criticism. 6. Preemptive rights to purchase new stock. 7. The elimination of the stagger system of electing board directors, 8. The election of auditors by shareholders. 9. The elimination of the millions of automatic, uninstructed proxy votes cast by fiduciaries for management. 10. The stipulation by SEC order of a maximum sum that can be spent in a proxy contest. 11. The nomination of independent directors through the company proxy statement, 12. Ownership of slock by directors in the companies on whose boards they sit 13. The election of qualified women to boards of directors, 14. Impartial and factual press reports on corporate affairs, 15. The right of a secret corporate ballot as inviolable in its privacy as a political vote. It is interesting to note that most of these suggestions call for reforms within each corporation, without additional legislative action. Since demands for legislative reform continue, it would appear that corporate leadership is under both public and private pressure to accept responsibility to security holders and other elements of the financial community.

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ihs'closiue of corporate financial affairs through piopn annual and post-meeting reports.

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