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Corporate Social Responsibility (CSR). A Consumer’s Point of View John P. Efstratiou BA 1013/81 University of Macedonia (Greece) Business Administration Department Thessaloniki, November 2011

Abstract This article is an attempt to help consumers, i.e. non–experts, understand some core issues of Corporate Social Responsibility, and give them a few rough criteria to measure a company’s true commitment to CSR. The objective is to pinpoint the issues to be examined in order to avoid subtle misdirection, especially from advertisement, and answer the question : “How can someone tell if a company is really committed to CSR?”

Adam Smith, pioneer of Political Economy and father of Capitalism’s theoretical foundations, was a professor of Moral and Philosophy at the University of Glasgow, when he wrote The Theory of Moral Sentiments. In his later famous work that set the foundation of Capitalism, The Wealth of Nations, he stated that the free market represented : ...a “system of natural liberty” whose processes, checks and balances would constrain greed, selfishness and fraud - open commercial society encourages people to be well informed and industrious. .... The fear of losing reputation and customers restrains fraud and negligent indulgence...

Looking at today’s social and environmental problems of planetary proportions, one can only ponder that the statement has much to answer for. But the part of the direct correlation between a firm’s reputation and the number of it’s customers (and revenues) still remains valid. It is an extremely powerful relationship and business leaders are acutely aware of it. During the last two decades, corporate marketing efforts have switched focus from the products themselves to the companies behind them. After all, people in the information age become bored a lot more easily than a few years ago, and soon get tired of being served the same old products in new packages. The goal is to create what is called “customer loyalty” to the product’s brand name and/or the company itself. To get an idea of the order of magnitude on relevant corporate expenditures, one minute of prime—time television broadcast (for no more than a couple of weeks) in Greece (definitely a small market) is charged hundreds of thousands of Euros — advertising agency prices. And I’m talking about television because it is by far the media with the largest number of spectators. But corporations do not restrict themselves to TV, they use any form of communication as long as it shows signs of having some following. As a matter of fact, relying heavily on fundamental civil rights, and mainly on freedom of speech, large corporation’s golden boys feel free to sell anything to anyone they are in position to influence in any conceivable way without restrictions of any kind. Profit was, and still is, the name of the game for these golden boys, sometimes with daring results : 1

The ENRON Scandal The Enron scandal, revealed in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and the dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world. In addition to being the largest bankruptcy reorganization in American history at that time, Enron was attributed as the biggest audit failure. Enron was formed in 1985 by Kenneth Lay after merging Houston Natural Gas and InterNorth. Several years later, when Jeffrey Skilling was hired, he developed a staff of executives that, through the use of accounting loopholes, special purpose entities, and poor financial reporting, were able to hide billions in debt from failed deals and projects. Chief Financial Officer Andrew Fastow and other executives not only misled Enron’s board of directors and audit committee on high-risk accounting practices, but also pressured Andersen to ignore the issues. Shareholders lost nearly $11 billion when Enron’s stock price, which hit a high of US$90 per share in mid-2000, plummeted to less than $1 by the end of November 2001. The U.S. Securities and Exchange Commission (SEC) began an investigation, and rival Houston competitor Dynegy offered to purchase the company at a fire sale price. The deal fell through, and on December 2, 2001, Enron filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. Enron’s $63.4 billion in assets made it the largest corporate bankruptcy in U.S. history until WorldCom’s bankruptcy the following year. en.wikipedia.org/wiki/Enron_scandal

The ENRON scandal marked the end of almost total corporate freedom combined with relative impunity for its decision makers. It was one of the most severe blows against the supposed honesty of corporations and their commanding staff, whose astronomic wages and benefits earned them the nickname : golden boys. It made clear that enterprises, and especially their managers, are not a bunch of angels working for the general good of society, despite all their efforts to convince everyone to the opposite. Quite the contrary, they proved to be the worst kind of devils, fighting deviously and unscrupulously to get into people’s pockets. The implications are easy to come to : who wants to have any kind of transaction with known crooks? All great corporations got carried away by the ENRON scandal, which was not a singularity of the system anyway. Something had to be done. But even before the ENRON affair, there were some other trends pressing toward a more socially aware corporate behavior. It was the shareholders resolutions clause of the corporate law in the US, used by groups of shareholders attempting to impose some fair and morally right behavior on corporate activities. With respect to public companiesa in the United States, Shareholder resolutions are proposals submitted by shareholders for a vote at the company’s annual meeting. Typically, resolutions are opposed by the corporation’s management, hence the insistence for a vote. For publicly-held corporations in the United States, the submission and handling of resolutions is regulated by the Securities and Exchange Commission (SEC).Shareholders submit resolutions dealing primarily with corporate governance, such as executive compensation, or corporate social responsibility issues, such as global warming, labor relations, tobacco smoking, human rights, and animal welfare. Shareholder resolutions have been an important part of activist campaigns in several cases. For example, resolutions were effective at raising public awareness and thereby pressuring corporate management about investments in apartheid South Africa, nuclear power, and labor disputes. Given these results, resolutions have been spearheaded by several coordinating groups, including the AFL-CIO and the Interfaith Center on Corporate Responsibility. Governmental and labor union pension funds also have become involved in supporting and submitting shareholder resolutions. en.wikipedia.org/wiki/Shareholder_resolution a

Companies with shares issued to the public. Usually traded in stock exchange markets.

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So far, capitalism has proven to be the most versatile and flexible of all large scale economic systems, showing an extreme capacity to patch up problems as they surface, while leaving the core of its foundations untouched. In this case, to overcome the tide of public resentment stemming from ENRON and its likes, corporations unearthed Corporate Social Responsibility. '

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Corporate Social Responsibility (CSR) is the deliberate inclusion of Public Interest as an important factor into corporate decision-making.This essentially means executing the core business of the company or firm, while simultaneously honoring a triple bottom line: people, planet, profit. Ideally, it is a mentality, spread throughout the organization, that generates self—regulating mechanisms inside its structure. Mechanisms driving to an organization’s outward behavior that complies actively with the spirit of law, prevailing ethical standards and international norms, disregarding strictly formal legality.

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What began as an attempt to soothe public discontent and rage, by trying to project images of corporations having such high moral standards as to voluntarily undercut profits in order to finance various charities, environmental, and humanistic action groups, soon became a powerful marketing weapon1 . Actually so powerful that it was soon followed by proclamations of self–imposed (organization’s) honest behavior in general. Words like a company’s culture, mission, vision, values,and ethic code of conduct entered the corporation’s stakeholder booklets, job descriptions, sales and procurement manuals, websites, and the everyday business jargon of managerial staff. In a few words, it now became a worldwide corporate trend (not only of large corporations) and as such it is hard to tell which company is sincere about its CSR commitments and which just “leapt in the wagon”. Which company really tries to honor the triad : people, planet, profits, and which one is only taking advantage of the trend to use some petty charity or environmental expenses as blazoning banners for marketing purposes and/or as cheap, lame excuses to charge premium prices to consumers? But why go into the trouble of examining which companies are truly committed to CSR? The reason lies in the fact that CSR committed companies must give some of their profits back to the world (which comprises the local) society, where their profits come from in the first place.The age old Latin adage for human transactions : do ut des (I give so as you give) still holds. Therefore, giving our consumer money to companies that give back some of their profits sounds perfectly reasonable. And, as in all transactions involving wealth exchange, honesty is not to be taken for granted. Since we know why, it’s time to tackle the problem of how. History, though a much more recent one, comes again to the rescue in the name of Brazil, a country which had one of (if not the) highest corruption and criminality records in the world. A little more than a decade ago, due to low wages poverty was so acute that people acquired the mentality of : “why kill myself a whole month for a miserable 100$ or 200$ if I can have them in a few seconds of gunpoint intimidation? And shoot them if they make any trouble!”. The issue became a matter not of misery any more, but of opportunity profit! There were even cases of mass graves, found in huge farms in the underdeveloped interior of the country, in attempts to hide slave labor practices used by “farmers” with private armies. Slave labor used in deforestation to produce charcoal (Brazil lacks mineral coal, indispensable for steel production), violent (and illegal of course) land appropriation in the process, and consequent use it for farming2 . Even the rich, the ones that exploited corruption to its full extent, found themselves having to live in heavily guarded ghettos, however golden, and in constant fear of violent criminal actions, in fact under a cloak of terror. Realizing that corruption was the main root of the problem, fighting it became a nationwide 1

The CSR issue, and more precisely the positive public perception of a firm’s attitude concerning CSR, is nowadays considered to give definite competitive advantage to a firm. 2 Slave shops are very common and in full swing even today. See http://www.pactonacional.com.br/ for some revealing details involving some globally renowned firms.

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goal. The central government, making heavy use of the Internet, created the Transparency Portal dedicated to making public all expenditures of the federal government3 . Another feature is the list of private companies that were punished, after final tribunal decisions, by the government for several reasons. The punished firm stays in the list, which also contains the names of the owners, for two years. The government also instituted the Office of the Comptroller General4 as a separate and autonomous ministry in charge of legality, public interest and transparency of expenses, with judiciary disciplinary powers. These measures try to take care of the public servant side of corruption acts. But corruption is a two–legged beast. The private sector side of it had to be taken care of too, otherwise the government efforts would be rendered useless. Under the growing awareness of the fact, a group of business owners and CEOs decided, in 1998 (before the ENRON scandal), to create the ETHOS Institute5 , to foster CSR as a general company practice (not only large ones) in the country. It is a non–profit public interest civic society, whose mission is to sensitize, help and mobilize enterprises to administrate their businesses in socially responsible ways. One of its most impressive nation wide actions was the creation, in collaboration with the World Labor Organization and Reporter do Brasil, of a Laundry List of companies involved in slave labor, based on data from the Labor Inspection Secretary of the Department of Labor, and released by the government. By itself the list is a little more than wishes, but ETHOS went forward to set up the National Agreement to Eradicate Slave Labor in Brazil, a covenant where signatory firms suspend “dirty” enterprises6 from their suppliers’s list, i.e. a regular boycott where it hurts most : revenues. Actually, firms associated to ETHOS Institute generally avoid doing business with companies acting unethically (like the ones in the list of the Transparency Portal), and this is their main leverage tool. To block the use of CSR for marketing purposes, the Institute does not issue certificates of any kind, nor allows the use of its banner, while association with it or following of its (severe) directives for CSR is completely voluntary. Despite its demanding CSR directives, in a little more than 10 years ETHOS’s associated firms account for more than 35% of Brazil’s GNP. Without going into the details of management tools issued or CSR auditing procedures, indexes and balance–sheets demanded by ETHOS, lets turn our attention to the general issues that must be attended to by small and medium enterprises (SMEs), in order to comply with its directives. Recognizing the limited resources available to SMEs, as compared to large corporations, ETHOS assembled an instructions manual especially designed for them. It consists of seven directives, but even before that the very first step, of utmost importance and before anything else, is to announce the intention to implement CSR to the employees and actively engage them to it, then : Adopt values and work with transparency Value employees and subcontracting collaborators Always do more for natural environment Involve partners and suppliers Protect customers and consumers Promote your community Commit to common good 3

It has categorized lists of all expenses,debt and money transfers the federal government has made, including its payroll (up to the President) and the list of all people receiving Bolsa Família (social aid for families) benefits and how much they have received. – http://www.portaltransparencia.gov.br/ 4 http://www.cgu.gov.br/CGU/ 5 http://www.ethos.org.br/ 6 And let’s be realistic about the protection of personal data : if they are not ashamed of doing it, are we to be ashamed of publicizing it?

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A (little) more elaborate description of these directives is given in the appendix. The important about them is that they are intended for implementation by medium and small businesses, and must be implemented altogether, not each one to the same degree as the others of course, but all of them nonetheless. Therefore, this list can be used as a thumb rule guide to check if a company’s CSR commitment is serious or not. Once more, these measures must be implemented together, all of them. A company taking care of one, or only some of them, is either trying to be “ in the league”, or using it for marketing purposes, especially if it is advertised. In any case the company (especially large ones) cannot be seriously committed to CSR because the size of the task is not an excuse, since the directives are for SMEs, and claims of ignorance are only declarations of incompetence. It is useful to compare the aforementioned directives with the ISO Standard 260007 for CSR list of core subjects to realize that they have focused on more or less the same issues: Organizational governance Human rights Labor practices Environment Fair operating practices Consumer issues Community involvement and development

Another important detail to note is that, against usual practice (on standards) and in line with ETHOS, ISO issues no CSR compliance certificates either. The obvious reason for this attitude is to make the use of CSR for advertising purposes, corroborated by the Institutes, impossible. This is enough proof for the argument that a company using CSR actions in its advertisings, is not honestly committed to CSR. Therefore, in order to examine a company’s honesty in its CSR commitment, consumers need only to check if (1) the employees are truly engaged in the process, (2) the company addresses all the seven core issues (which can abstractly be reduced to people and planet), and (3) the company avoids using it for marketing purposes, i.e. avoids bragging about it. In case of a negative response for any one of them, then the company’s truthful commitment to CSR is in serious doubt. Addendum : If there are still any doubts... From the European Centre for Monitoring Alcohol Marketing (EUCAM) 2009 report : Corporate Social Responsibility: the new marketing tool Trends in Alcohol Marketing

The use of CSR within the Tobacco Industry Henriksen et al. investigated the effect of anti-tobacco campaigns by the tobacco industry and by a non-profit organization on intention to smoke and on attitudes towards the tobacco industry amongst youngsters aged 14-17 years (2). The results were striking. After having seen the ads, the groups did not differ on intention to smoke (the anti-smoking ad from the tobacco industry did not have a better or worse effect on intention to smoke than the anti-smoking ad from the non-profit organization). However, both groups did differ in attitudes towards the tobacco industry: the minors who had received an educational message or ad from a tobacco producer had become more positive towards the tobacco industry compared to the youngsters who had received the more neutral ad from the NGO. The authors concluded that education given by tobacco producers brings more harm than that it in fact has an preventive effect on smoking behaviour from youngsters. The results of this study plead for not letting tobacco prevention being executed by the tobacco industry itself. WHO about Corporate Social Responsibility (CSR) of the tobacco industry The WHO (World Health Organization) firmly cut down the CSR of the tobacco industry in the report “Tobacco industry and corporate responsibility… an inherent contradiction” (3). The reports writes about education by the industry: “Tactically, these programmes serve the purpose of creating the appearance that tobacco companies are proposing solutions for the problems they create. In reality they detract attention from proven, effective solutions – including price and tax increases.” 7

Launched in November 1, 2010. For details see http://www.ecologia.org/isosr/

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Appendix A

The ETHOS Institute seven CSR directives to SMEs

1. Adopt values and work with transparency Mission and Vision • Create and disclose a declaration of mission and vision Moral and Transparency • Identify and declare moral values with clarity Human Rights • Identify human rights relevant issues 2. Value employees and subcontracting collaborators Workplace • Commit to labor laws • Encourage ideas and comments Diversity • Incorporate diversity as an essential company value • Diversify in recruitment • Invest in training for all Sexual harassment • Implement and enforce a directive against this abuse • Forbid any vengeance acts against protesting victims and protect them, if necessary Professional development • Incentive and reward talent development • Include continued education and development of abilities as personal evaluation items Delegate power • Give autonomy and flexibility to employees, for the achievement of set goals Participative administration • Disclose information on the company’s financial performance Remuneration and incentives • Create a program of profit sharing Lay–offs • • • • •

Avoid them Identify other alternatives If unavoidable, do it with dignity Give value to the ones that remained Create an employee guide to the company.

Work and family • • • • • • • • •

Preserve the personal and family life of your employees Evaluate their necessities Inside your limits, be flexible Create a personal account of days off (free) Offer a variety of options Encourage healthy child–raising practices for your parent employees Support child adoption Help your employees take their children to school Create partnerships with other companies to offer child care and other social services to your employees • Create a “classified” page of nearby available resources, such as social and public services, banks, supermarkets etc, to distribute to your employees. And demand discounts for them.

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Health, well being and assurance • • • • • • • • •

Show solidarity to your employees in emergencies Demand flexibility for their health plans, if possible Promote regular check–ups Stimulate sports activities Eliminate smoking at the workplaces Stimulate participation in detox programs Promote healthy work habits Maintain good quality of air in workplaces Create a proper, healthy and self–esteem stimulating working environment

3. Always do more for natural environment Policy and operations • Define and respect environmental principles • Motivate employees to preserve nature • Establish an environmental purchase policy Minimize production residues • • • • •

Recycle as much as possible Reduce paper consumption Use recycled paper wherever possible Purchase recycled products Avoid residue producing products

Prevent pollution • Minimize use of toxic products • Promote safe disposal of toxic substances • Utilize non–toxic cleaning products Use energy and water efficiently • • • • • • • • • •

Set up an audit procedure for your energy consumption Use illumination smartly Manage energy efficiently Constantly look for alternative energy sources Stimulate work from home wherever possible Keep ambient conditioning equipment always well maintained and in good working condition Use cleaner vehicles by preference Eradicate water leakages Install water economizing devices Reduce water consumption in outdoor areas

Environmental project • Create a recycling system • Use environmentally sound construction techniques • Engage customers and suppliers into the recycling scheme 4. Involve partners and suppliers Partnerships • • • •

Communicate clearly what you expect from them Formalize a commitment concerning labor practices Monitor fulfillment of established rules Have in mind that a collaborative environment favors changes

5. Protect customers and consumers • • • • • •

Promote your product’s secure use responsibly Provide specific, correct and fair information Forbid the use of unethical commercial techniques Avoid “toxic” publicity Have an open ear for what customers and consumers say Look for alternative business opportunities to create products and services that would satisfy needs of special social groups, like minorities, children, invalidated or old people.

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6. Promote your community In General • • • • • • •

Identify problems and look for joint solutions Invest in the community Recruit from the community Install the enterprise in poor communities Increase awareness in your employees and mobilize them Adopt in full a specific community program Collaborate together with other enterprises

Charity • Donate part of your products of services Education • • • •

Support local schools Become a school’s partner Donate used up or redundant equipment Create stage transactions with a school

7. Commit to common good Political tendencies • Participate with transparency • Fight corruption Participation • Participate in local forums • Integrate in social actions

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