Simple steps to sustainability
Corporate Responsibility in a Global Age
Lecture 1: From Babylon to Bhopal
Cranfield University, 24th November 2008
David Logan
Introduction
1.
Personal
2.
Corporate Citizenship
3.
A series of four lectures on the history, theory and practice of corporate social
responsibility in a global context
I.
History, political and economic context
II. Why CSR?
III. Managing CSR
IV. Into the future
1
Lecture 1: CSR from Babylon to Bhopal
• An historical perspective
• The global political and economic context today
• The definition and scope of CSR today
2
1: An historical perspective
An historical perspective
Babylon and beyond
“The definition of MNE accepted by the OECD and UNCTC, “an enterprise that engages in
foreign direct investment and owns or controls value-adding activities in more than one
country” (Dunning 1993. p 3) leads us to conclude that there were MNEs in ancient Assyria
around 2000 BC. Characteristics found in modern MNEs such as: hierarchical organization,
foreign employees, value-adding activities in multiple regions, common stock ownership,
resource and market seeking behavior, were present in these ancient firms. These early MNEs
successfully operated considerable business empires in multiple foreign locations from their
corporate headquarters in the capital of Ashur.”
Source: Karl Moore and David Lewis The first multinational: Assyria circa 2000
Management International Review Q2 1998
4
A historical perspective
Which company has been accused of
- Abuse of monopoly power
- “Fat Cat” pay
- The bribery of governments
- Abuse by security forces
- Marketing unsafe and socially unacceptable products?
5
Andrew Carnegie
Robert Bosch
6
J.D.R Tata
Cheong Fatt Tze
7
An historical perspective
The “Carnegie model” of corporate social responsibility
Philanthropy in response to appeals for
help from society and social investment
in projects of long-term importance to
the company
Social responsibility
The benefits of business:
Business
• Jobs created
• Taxes paid
• Goods & services
• Technology transfer
• Import substitution
• Export earnings
• Development of suppliers
• Human Resource Development
This is the core activity of the
company providing the goods
and services society wants in
order to make a profit
8
An historical perspective
Aspects of Victorian CSR that continue today
1. Values-based importance of family-owned business
2. The role of the ‘charismatic’ owner manager
3. Religion in the West
- Weber ‘Protestantism and capitalism’
- Catholic social teaching
- Moses Maimonides and Judaism
- Islam, the Holy Koran
- Other traditions need to be explored
Pragmatic concerns
4. Corporate ‘welfare states’ created to enable the workforce
5. Reputation and licence to operate
6. Multinationals as an expression of state power
9
An historical perspective
Bill Gates
Anita Roddick
10
An historical perspective
Lakshmi Mittal
Carlos Slim
11
An historical perspective
• Rejection of laissez-faire capitalism and Victorian paternalism and the first global economy
• Rise of ‘socialism’ around the world
- Russian Revolution 1917
- Indian Independence 1947
- Chinese Communist victory 1948
• 1978 Thatcher / Reagan revolution in the West
- Reduce the role of the state
- Reduce taxes
- Privatise / re-structure industry: BP, BT, British Steel, BA
- More freedom to business and market forces
• 1989 Berlin wall and the collapse of the communist/socialist project
• The rise of the second global economy
- Open markets and integrated supply chains
- Cheap transportation
- Instantaneous communications
- Integrated financial markets
12
An historical perspective
The foundations of CSR since the 1980s
• Continued contraction of the state
• More power to business brings more responsibility
• Growth of global multinationals
• The rise of the publicly traded joint stock company
• The development of professional management power
• Economic and social justice remain as issues – the impact of economic activity on the global
environment is new
• The 2008 financial crisis is the high tide mark of the Regan/Thatcher era
13
2: The global political and economic context today
The formal sectors of our global society
Government
For-profit
34%
60%
Not-for-profit
6%
Informal
Figures relates to share of US GDP 2000
15
Estimated share of the three formal sectors of German GDP
Government
For-profit
47%
49%
Non-profit
Informal
4%
Figures relate to approximate share of
Germany GDP in 2006
16
Estimated share of the three formal sectors of Indian GDP
Government
For-profit
30%
69%
Non-profit
1%
Informal
Figures relate to approximate share of Indian
GDP in 2006
17
Pressure group ‘politics’
1200000
1000000
800000
600000
Royal Society for the
Protection of Birds
400000
Labour Party members
200000
0
1965
1975
1985
1992
2002
2006
Source: The Economist; The Times
18
The triumph of capitalism?
19
New Internationalist
Media scrutiny
20
Approaches to CSR vary around the world
Key regional differences in CSR
Region
Brief summary of company approaches to CSR
Western Europe
Focus on total impact of business, relations with developing world and
environment, sustainability, good reporting and standardisation
USA and Canada
Philanthropy & major issues like diversity and HIV/AIDs with emerging
CSR/sustainability reporting
Former socialist countries e.g. China,
Russia
Seeking to re-define role of business in society – push to go global raise
challenges
S E Asia – India, Malaysia, Philippines
Mixed economies with mixed approach but established tradition led by need
and nation building
Latin America
Uncertainty about philanthropy and CSR but developing driven by need for
social cohesion
Middle East / Muslim world
Weak corporate section, strong culture of philanthropy, role of business
unsure, family companies dominate
Africa
Weak corporate sector, examples of engagement because it is hard to do
business without addressing social issues
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3: The definition and scope of CSR today
Definition and scope of CSR today
• Companies are the agents of the market system – they are corporate ‘citizens’ of our global society
• They have power and make choices about how to use it
• CSR/CR and sustainability all refer to the total impact of the business in the world
• Law and voluntary engagement are both relevant
• The scope of defining ‘responsible behaviour’ is very broad
23
The 3 aspects of responsible management
Sustainability
Taxes
Economic
Emissions
Environment
Recycling
Wages
Social
Diversity
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The 4 challenges of responsible management
3. Voluntary contributions
Investors
Employees
1. The impact of
operations
Customers
4. Corporate engagement
and reporting
Communities
The environment
Partners
Suppliers
Retailers
2. The value chain
25
1. Impact of operations on shareholders
Shareholders
return on investment / level of giving
Employees
pay and conditions / diversity / volunteering
Consumers
responsible advertising / cause marketing
Suppliers
technology transfer / community development
Government
taxes and job creation / support for education
Communities
plant closures / charitable gifts
Environment
eco-efficiency in manufacturing / recycling
26
2. CSR in the food industry value chain
Backward linkages
The company
Social responsibility
Child labour / Pay / Conditions /
Safety
Quality control
Raw materials
eg cocoa / quinine
Equal opportunities in
recruitment
Forward linkages
Traceability /
Safe handling
Advertising
to children
Manufacturing
Manufactured goods
and services
Quality control / other
policies e.g. HR &
community involvement
Retailers
Consumers
Environmental responsibility
Sustainable resources /
Pesticides / Compliance with law in
factories
Resource use,
emissions and
recycling
Refrigeration
Recycling
containers
27
Ref: The Corporate Citizenship Company
2. CSR in the food industry value chain
Estimated employment linked to Unilever
Indonesia value chain (2003)
Only 3,400 people work directly for Unilever
More than 300,000 people (FTEs) make their
livelihoods in UI’s value chain
More than half this employment is found in the
distribution and retail chain
28
3. The LBG model
(www.lbg-online.net)
29
Global Reporting
30
The triumph of the joint stock company and the professional manager
Stuart Rose
Jeffrey Immelt
31
The fate of the East India company
•
1757 Battle of Plassy – the company controls Bengal
•
1769 The Bengal Bubble – stock speculation in London
•
1770 The Bengal Famine – mass starvation and death
•
Adam Smith’s and Edmund Burke’s critique of the company
-
Monopoly is wrong
-
Joint stock companies create “negligence and confusion” by dividing ownership from control
-
Immoral behaviour follows from abuse of power
“The precise legal form embodied by the East India company may well have died, but its systems of
administration live on in the modern multinational… perhaps not as spectacular as the South Sea Bubble
of 1720, the company’s own Bengal Bubble still hears witness to the inherent propensity of the joint stock
company to managerial capture, insider trading, over-optimistic projections of future earnings and the
irrational exuberance of financial markets. The crash and share price implosion that followed revealed to
a stunned English establishment both the financial and human consequences of allowing corporations
free rein”
Source: The Corporation That Changed The World. Nick Robbins 2006
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Bhopal and beyond
•
•
December 1984 explosion of Union Carbides Bhopal plant
-
8,000 dead immediately – 10,000 since
-
120,000 injured – the world’s worst industrial accident
-
1989 $470m paid in compensation
-
Warren Anderson charged with “culpable homicide”
Exemplified the challenges of the new global economy
-
A “bottom of the pyramid” initiative
-
Which standards apply?
-
Which jurisdiction applies?
•
The site and management of the issue remain a mess today!
•
CSR in a global economy is more challenging than ever
•
-
Overall economic and financial model is vital
-
So is the behaviour of the individual agents – not companies
CSR is a vital element of the debate about human progress around the world
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Give us a ring
For further information please contact:
David Logan
Chairman and Co-founder
Corporate Citizenship
5th Floor, Holborn Gate
330 High Holborn
London WC1V 7QG
United Kingdom
T: +44 (0)20 7816 1616
E: david.logan@corporate-citizenship.com
W: www.corporate-citizenship.com