The new world of corporate social responsibility

By John G. Ruggie, PhD

John G. Ruggie PhD

Whether it is their labor and manufacturing practices, or the environmental and social impact of their products and advertising, businesses are being held to task for practices that are contrary the values of society. Where did these expectations come from? In this article, which appeared in a briefer version in the Financial Times, Dr. John G. Ruggie, director of the Center for Business and Government at Harvard’s JFK School of Government, explains why companies are increasingly becoming targets of protest and how their policies should change to reflect this new reality. As assistant secretary general of the United Nations from 1997-2001, Ruggie helped Kofi Annan establish the UN Global Compact, a multi-stakeholder initiative to promote corporate social responsibility based on universal principles in human rights, labor standards and the environment.

A month ago Coca-Cola announced plans to spend up to $5 million a year for HIV/AIDS treatment of its African bottlers’ employees. Nonetheless, last week Coke faced a day of global protests for not doing enough to combat the pandemic in Africa.

Coke is not alone, and HIV/AIDS is not the only issue over which activists are successfully targeting companies that break no laws but stand accused of falling short of broader social norms and standards. Corporate leaders are bewildered and complain about not getting enough credit for doing the right thing.

Too many companies are failing to grasp the extent to which they are at the receiving end of a sharp escalation in social expectations about the role of corporations in society, at home and abroad. Corporate social responsibility is no longer merely about philanthropy. Nor is it really just about ethics as such. The new CSR concerns the fact that companies increasingly are held accountable not only to shareholders, but also to stakeholders, such as employees and suppliers, and to society at large. And the last of these has seen the most radical shift. Why has it occurred?

First, individual firms have made themselves, and in some instances their entire industries, targets by doing “bad” things in the past: think of Shell in Nigeria; Nike in Indonesia; the Exxon Valdez; Nestlé in relation to its breast milk substitutes; unsafe practices in the chemical industry symbolized by Union Carbide’s Bhopal disaster; upscale apparel retailers purchasing from sweatshop suppliers; unsustainable forestry practices by the timber industry causing massive floods; or the big pharmaceutical companies’ myopia on the pricing of HIV/AIDS drugs in poor countries.

Second, there is a widespread public perception that corporate rights have grown significantly over the past two decades, and that rules favoring global market expansion have become more robust and enforceable – intellectual property rights, for example, or dispute resolution procedures through the WTO. But rules that favor other valid social objectives, be they human rights, labor standards, environmental sustainability or global poverty reduction, lag behind. These perceived imbalances – and the underlying power asymmetries they reflect – provide additional social fuel to anti-corporate campaigns.

Yet a third reason is that the global corporate sector, ironically, has become trapped by its own success. We live in a world of proliferating problems without passports, as UN Secretary-General Kofi Annan calls them. But there is no government at the global level that can respond to them effectively, and our international institutions are too weak to fully compensate for this gap. At the national level governments often fail to tackle these problems because they lack the capacity or the political will.

In contrast, the corporate world has demonstrable global reach and capacity. It can make and act on decisions at a pace that neither governments nor intergovernmental agencies can match. And parts of it – especially such brand-sensitive companies as Coca-Cola – are vulnerable to external pressure. Society, therefore, has come to demand help from the corporate sector in coping with adversities that stem from governance gaps and governance failures, ranging from securing investments in community development to preventing conflicts and diseases. For example, the recent Johannesburg World Summit on Sustainable Development would have been an abject failure were it not for the many public-private partnerships it launched.

This new business environment poses profound challenges for corporate leaders, and few are well prepared for it. What can they do?

To begin with, corporate social and environmental reporting must become standard operating procedures. Corporations are social actors. Yet, according to a recent OECD survey, only one in five firms that have adopted codes of conduct share compliance information with the public. Far fewer participate in third party auditing of their social and environmental performance or employ third party reporting systems. Certification initiatives fare even less well: the much-heralded Forest Stewardship Council, for instance, covers at most five percent of the total acreage controlled by timber companies. As long as companies treat CSR as being marginal to corporate culture and management practices they will remain under attack and on the defensive. At the same time, companies that do make a serious effort to integrate these concerns, such as BP, become better equipped to absorb the effects of missteps or critical attacks.

This contrast suggests that analysts need to start paying attention to how firms manage CSR as one element of risk assessment. The investing public is entitled to know what a company is doing to manage these risks because they can affect stock values and have even led to corporate bankruptcies. Royal Dutch/Shell this year became the first company anywhere to combine its financial report and its social and environmental report, on the premise that investors should be fully apprised of its overall performance.

Better inventories of good practices and criteria for benchmarking performance are also required. The media often sensationalize instances of corporate misbehavior or simply repeat activists’ accusations. But even the most diligent journalist will not find many comprehensive and objective sources of information against which to compare the practices of any particular company. The research community needs to get involved more extensively in producing this information.

Finally, companies at the cutting edge of corporate social responsibility are discovering that the concept is highly elastic: the more they do the more is asked of them, and some leaders have begun to wonder if it has any boundaries at all. Ultimately, their only viable exit strategy is contributing to public sector capacity building where it is now lacking. This implies supporting a more balanced, and therefore more stable, system of global rulemaking. And it involves working with international agencies and governments in poor countries, enabling those countries to improve their provision of the social services that are now being pushed on companies.
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