Corporate Social Responsibility: Wisdom or Window-Dressing?

The scary economic developments of the past two years are contributing to a renaissance of discussion about “Corporate Social Responsibility,” and how it might have helped head off Wall Street’s precipitous failure. To explore that question, Truthout contributor William Fisher talked with Chip Pitts, one of the world’s leading authorities on the subject. In this interview, Prof. Pitts answers key questions. He believes that CSR, if “properly implemented, would have prevented the crisis.”

Former Chief Legal Officer of Nokia, Inc. and former Chair of Amnesty International USA, Prof. Pitts currently serves as President of the Bill of Rights Defense Committee and lectures on CSR and business/human rights at Stanford Law School and Oxford University. He is Advisor to the UN Global Compact and the Business and Human Rights Resource Center and has also advised the successful Business Leaders Initiative for Human Rights, among other global CSR initiatives. He is co-author and editor of the first systematic legal treatise on the subject, Corporate Social Responsibility: A Legal Analysis (the royalties for which all go to sustainability and human rights charities).

1.What is CSR? Is it more than charitable giving through the company foundation?

Believe it or not, CSR does not stand for “Corporate Scandal Response,” but for “Corporate Social Responsibility.” And, suspicions to the contrary notwithstanding, neither CSR nor “business ethics” is the oxymoron it may seem to be at first glance. There was a false suggestion (reaching its high point in a 2001 European Union “Green Paper”) that CSR was merely voluntary and thus “optional,” but this is now widely and rightly seen as a misleading diversion orchestrated by corporate lobbyists.

No corporation can be responsible without complying with law, so at a minimum, CSR of course begins with mandatory legal compliance: not just with local law, but (especially in developing countries where local law may be absent or unenforced) global human rights and environmental laws. But beyond that, CSR requires compliance with the highest global ethical standards, meaning that corporations must not only “do no harm,” but also “do what good they can.” This does not mean mere philanthropy -- charitable giving of some small percent of profits back to the community -- although a philanthropic impulse and philanthropy remains a (relatively minor) part of CSR.

CSR is responding to major structural drivers and expectations of investors, employees, NGOs, global media, governments, and society at large – stakeholders who will reward companies that “get it right” and punish those who get it wrong. As a result, CSR requires accountable and long-term sustainability: deeply integrated decision making that manages risk, seizes brand and employee recruitment and retention benefits, and drives the “triple bottom line” (people and the planet as well as profits) throughout the core business, so that corporations are not part of the problems experienced today (social and environmental externalities like climate change, pollution, human rights abuse, conflict and war) but instead are aligned with society and the expectations of all stakeholders to contribute to much-needed solutions.

“Sustainability doesn’t refer merely to profit-making sustainability, although some business executives have unfortunately started to use it perversely in that narrow sense, and doesn’t refer merely to environmental sustainability, but includes long-term, future-oriented social sustainability as well – of the systems that support all of us. An exciting CSR trend is thus corporate deployment of their core competencies – strategic thinking, marketing, logistics, inventory control, etc – in innovative public-private partnerships aimed at fighting HIV/AIDs, preserving scarce water resources, combating poverty, and achieving other public goods.

This “business case” for CSR is why it has held up so well during the financial and economic crisis of the last several years, as assessed by various independent sources. And this integration of CSR into the core business, and not unlimited campaign spending by fictional corporate persons granted “free speech rights” under the recent US Supreme Court Citizens United decision, is the true meaning of corporate citizenship (which properly understood and implemented should be synonymous with CSR).

2.Who uses CSR?

CSR is relevant to businesses of all sorts and sizes, although global corporations subject to tremendous stakeholder scrutiny and pressure (by NGOs such as Greenpeace and Amnesty International, governments, the global media, international organizations, and unions) have taken it up to a greater extent either as a result of various scandals or in order to achieve the various business benefits and proactively maintain their “social license to operate.” Small and medium enterprises (SMEs), though, have a tremendous economic impact, and form part of the supply chains of the larger global corporations – tens of thousands in Wal-Mart’s supply chain alone – and so can and must also implement CSR within their own spheres of influence.

People are also trying to enhance attention to core CSR concepts even within the informal or black-market sector (again, as ironic as that may seem), given its persistent importance especially in developing countries. Governments and international development and aid agencies are looking to forms of CSR in which companies join multi-stakeholder initiatives to help solve some of the world’s most significant problems. (This is the impetus behind the UN Global Compact, for example, or the International Labor Organization’s Better Work initiative). More broadly, CSR includes the increasingly convergent global norms of human rights and sustainable development – such as the human rights, environmental, and anti-corruption principles of the UN Global Compact -- that form the framework for our continued peaceful existence on the planet, so it is incumbent on all of us to support greater CSR, whether as employees of corporations, or consumers needing to make more ethical (e.g. fair trade) purchasing decisions. So if the question is “who uses it,” the answer should be: YOU – and all of us!

3.Do any companies have long histories and demonstrable achievements from their use of CSR?

The roots of CSR are deep in societies around the world, drawing on longstanding universal ethical norms such as the Golden Rule, and common sense notions of preserving the natural and other resources that sustain all of us (as well as the companies). Moreover, notions of CSR were “present at the inception” of the corporation. From the very inception of bodies corporate, such as the Roman societates, through medieval bodies corporate (universities, cities, guilds), and even chartered companies of the age of exploration, and the colonial companies and corporate churches, utilities, and charitable entities involved at the founding of the United States of America, corporations have generally had public as well as private purposes (although companies like the British and Dutch East Indies companies also caused great harm).

Modern corporations, too, which achieved key attributes of their current form (such as limited liability) in the 19th century, were often conceived with social purposes as well as private profit in mind. Thus, companies in England like Unilever (founded by Lord Leverhulme) and Cadbury chocolate company (conceived of by George Cadbury as having humanitarian purposes) have long-standing CSR traditions and demonstrable achievements that continue today – consider Unilever Hindustan’s Shakti program empowering female entrepreneurs – although these companies like other companies also have had CSR problems including serious issues pertaining to the labor conditions under which their products are manufactured.

In India, Tata similarly has a long tradition of investing in communities as well as occasional scandals, and in the United States the same could be said of companies such as Sears, whose founder Julius Rosenwald helped create 4-H programs and train farmers in agricultural techniques, and J.C. Penney, whose founding executives famously embraced positive values in ways that have been emulated by many companies today including Hewlett-Packard and Nokia. Ford is another example: it is prominent in environmental efforts today and was the birthplace of the doctrine of Fordism, whereby workers get paid enough to buy the products they make . . . but the company also has a dark history of complicity with forced labor in Nazi Germany and apartheid in South Africa, as well as with violent repression of unionists and political dissenters in Latin America. So even leading companies like Ford often have mixed records, at best, of compliance with CSR principles.

4.How about companies in the financial services sector? Any users here?

The financial sector is actually a place of great CSR activity in recent years, as initiatives like the United Nations Principles for Responsible Investment and the Equator Principles now cover trillions of dollars in investment money committed to take environmental and social factors into account in investment activities. The Equator Principles now cover the vast majority of project finance in the world, in yet another demonstration of how the most sophisticated investors now understand that so-called “non-financial” risks (relating to the environment or human rights) can have a tremendous impact in terms of the financial bottom line and so must be the subject of enhanced monitoring and reporting.

5.Could CSR have impacted the behavior of the “too big to fail” institutions that brought us to the brink of financial disaster?

Properly implemented, CSR indeed would have prevented the crisis, which at core was about the opposite of each of the seven principles in my most recent CSR book.

Instead of integrated decision-making that recognizes longer-term duties to the system – to society and the planet as well as for short-term profit -- we saw utter neglect of those duties. Instead of adequate attention to all stakeholders, we saw myopic and greedy focus on returns only to top executives, managers, and shareholders. Instead of transparency, we saw manipulation of corporate forms and opaque financial instruments such as derivatives and credit default swaps. Instead of consistent best practices and compliance with the highest global legal and ethical standards, we again saw evasive manipulation of loopholes. Instead of precautionary risk management, we saw systemic moral hazard. Instead of accountability, we saw offloading risk and responsibility onto a stream of other actors. And instead of attention to and investment in the community, we saw rapacious inattention to and plundering of communities.

The ultimate cause of the crisis was the ideological embrace of Milton Friedman’s warped but still dominant view that “the only social responsibility of business is to make a profit for its shareholders,” and until that socially and economically counterproductive -- and empirically, legally and ethically inaccurate -- view is corrected, we will continue to have the increasing and more intense crises of global capitalism that we have seen recur with ever greater frequency over the past forty years.

Sadly but clearly, the lessons have still not been learned. The crisis was not just a crisis of the financial sector, but one arising from an ill-informed and erroneous mindset that still infects businesses in general and requires correction.

6.Is CSR a top-down or a bottom-up practice?

CSR is both top-down and bottom-up. Premised on engagement with all stakeholders instead of only shareholders, CSR requires broad dialogue with workers, community members, and other elements of society in order to align the company with society. It also requires transparency so that investors, communities, and other stakeholders can hold companies accountable. But without commitment and “tone at the top” – with the CEO, board members, and top managers leading by example – CSR will not succeed.

7.How is CSR organized?
CSR starts with a commitment to “integrated decision-making” i.e. systemic thinking that sees the interrelationships between top global issues, stakeholders, corporate departments, and previously segregated roles of individuals (e.g. applying different principles in their corporate life than they do in their personal or spiritual lives). By obliterating prior boundaries that blocked alignment with society, CSR can expand corporate vision, transform the corporate mission, inform strategy, and motivate employees and all stakeholders to take the enterprise to the next level in ways that sustain resources for present and future generations. Stakeholder engagement is a key procedural plank for CSR, with greater transparency within the corporation and outwards toward society driving progress, enhanced risk management, and accountability for results.

8.How is CSR managed?

Sometimes companies segregate the CSR or Sustainability or Corporate Citizenship function in a separate department and expect that department to handle CSR issues in isolation – a recipe for CSR failure and enhanced rather than reduced risk. Other companies still consider CSR mainly a “public relations” exercise and relegate it to the PR or Communications function – also a red flag that the company may not truly understand CSR.

Indeed, while reaping brand benefits is a major driver for CSR, and critics are wrong to say that CSR is “merely” PR, overemphasizing PR above substance remains one of the common traps to be avoided by companies attempting to implement CSR. Real CSR has resulted in tangible benefits in terms of enhanced attention to human rights by extractive industries and reduced instances of child and forced labor in supply chains, but those achievements take hard work and not glossy brochures.

Because of the broad purview and authority of the legal function in many leading global businesses, and the fact that CSR begins with legal compliance, the Legal Department is often the focal point for CSR in many companies, working to ensure an integrated CSR approach. At other times, there is a dedicated CSR function with a Senior VP in charge who works closely with Legal and other business functions. But whether tied to Legal, or Public Affairs, or another function, and even if there are senior executives and dedicated CSR staff, the best companies realize that to be successful CSR must truly be integrated into the company’s vision, mission, strategy, and core business.

Otherwise you may have the CSR or PR department saying one thing, for example, while procurement does the opposite or a business unit leader creates pressures for human rights violations or environmental degradation in the supply chain by establishing targets at odds with responsible action. Performance incentives must be aligned with CSR commitments and metrics, so that executives and employees alike are evaluated in part on CSR targets and values as well as more traditional revenue and profit targets, reaping rewards for successful achievements and risking penalties up to and including termination for violation of CSR and ethical commitments.

A variety of new management tools ranging from online guides to human rights impact assessments (complementing the more traditional environmental risk assessments) now exist to help manage CSR in a responsible fashion and ensure it is not treated as a mere “add on.”

Environmental tools have been around quite awhile, but for the last several years there has also been a new UN Framework for Business and Human Rights that emphasizes the corporate responsibility to respect all human rights, starting with having an explicit policy to that effect but backed up with a variety of “due diligence” procedures ensuring integration, risk management, evaluation, and existence of effective remedies and grievance procedures. The UN Framework as well as many new tools to assist are catalogued by the London-based Business and Human Rights Resource Center (www.business-humanrights.org). These range from the Guide for Integrating Human Rights Into Business Management created by the Business Leaders Initiative for Human Rights in conjunction with the UN Global Compact and the Office of the High Commissioner for Human Rights, to various other management approaches to CSR issues, most of which revolve around traditional notions of planning, taking action, and checking on results as a feedback loop into renewed planning and action.

9.How is CSR evaluated?

CSR is evaluated both via internal audit and review mechanisms and a variety of external review, audit, and verification mechanisms, some of which are within the ambit of company influence and some of which are less subject to company control.

As an example of internal mechanisms, one leading company, General Electric, has a world-class internal audit team which goes far beyond the “green eyeshades” implication that the word “audit” suggests; the audit function there has historically served as a source for future corporate leaders as well as a critical check to ensure compliance with the spirit as well as the letter of the corporate code of conduct. GE also embeds CSR into its rigorous operational reviews. But in addition to such internal mechanisms, GE also participates in sustainability stock indexes such as the Dow Jones Sustainability Index, and is subject to other external review by various stakeholders. Of course, companies that do not adhere to CSR are also now subject to various sorts of market and legal pressures, ranging from protests and boycotts, to adverse media coverage, to enforcement actions by government agencies and litigation.

10.What are the roles of Chair, Board, CEO, CFO, shareholders, employees, etc. in making CSR a company-wide practice?

The balance to be struck here is between an unmistakably honest and strong commitment and accountability “from the top” – the CEO and board and other “C-suite” executives – and the distributed leadership necessary for CSR to truly permeate the enterprise.

While the CEO is and should be ultimately accountable, and it usually makes sense to have rigorous supporting mechanisms such as a top executive specifically charged and focused on CSR issues, as well as a board-level committee dealing with matters of CSR, business ethics, and risk management, this should not be an excuse for avoiding similarly accountable leadership by other core business functions including the heads of business units and country leaders and the heads of critical functions such as manufacturing, procurement, logistics, quality control, legal, human resources, finance, and the like. Indeed, within their own “spheres of influence and activity” each employee and each participant in the enterprise’s extended value chain should know and be accountable for their CSR obligations. One fascinating development in recent years is how large companies like Wal-Mart or the major apparel brands are dramatically influencing behavior throughout their supply chains by requiring CSR compliance as a condition of being a supplier.

11. How do you make CSR part of the corporate culture?

As with the question of human rights and environmental compliance in society at large, this is in fact the most critical question. The law and market incentives are inherently limited – they can only go so far without risking counterproductive legal, practical, or market failures. So even though (as discussed above) CSR involves compliance with law and is also “enforced” through both positive and negative incentives, both practical experience and academic research indicate that it can all be fruitless unless the culture and values of the company support CSR and accountable results.

To hear some business leaders or business school academics discuss the subject, you may come away with the impression that virtually any values are acceptable and that a “values-based” company is simply one that has values – even if those values merely relate to short-term shareholder and management wealth maximization. This is wrong. Genuine leadership is inherently moral. So the values chosen matter tremendously, and they must be values aligned with society (including the most universal statement of human values in history, the Universal Declaration of Human Rights, as well as clear values of sustainability evidenced in global declarations like the Stockholm and Rio Declarations). Objective analysis of the corporate values and culture – both stated/explicit and tacit/actual – is thus crucial, and can be accomplished by a variety of techniques including employee and stakeholder surveys and interviews.

My Stanford Law School students are working with the UN Global Compact to survey corporate values and consider means of promoting the uptake of appropriate world-class CSR values (which takes on even greater importance as China and the other “BRIC” countries come online). Already, it is clear that one thing you don’t want to do is simply consider CSR to be a narrow “check the box” compliance function, which is calculated to miss issues, create rather than appropriately manage risks, and undermine the authentic CSR culture that derives from the right values implemented in the right fashion.

Instead, the best companies are increasingly having recourse to innovative techniques based on the latest scientific understandings of human nature and learning, including scenario planning and proactive brainstorming, experiential methods, multimedia, literature/stories, and even theater, all of which can be excellent ways to enhance employee abilities to truly listen to, understand, and respond to stakeholder perceptions, and even create new products, services, business models, and entirely new market opportunities as a result.

This article originally appeared in Truthout.org.

Pat Leahy’s Refugee Bill

By William Fisher

Immigrants-rights activists are virtually unanimous in their endorsement of proposed legislation that would change decades of U.S. asylum practices. But proponents of the legislation fear it may never find its way out of the U.S. Senate to the President’s desk.

Senator Patrick Leahy introduced the Refugee Protection Act of 2010 (S.3113) back in March. The objective of the bill is to “affirm the U.S. commitment to provide refuge to individuals fleeing persecution in their homelands.”

It helps restore protection to deserving individuals fleeing persecution and torture, who have been denied refuge under increasingly restrictive immigration laws and court decisions. The bill protects women and girls fleeing gender-based harms -- such as forced marriage, female genital cutting, honor killings, and domestic violence -- children seeking asylum on their own, traumatized or isolated refugees who are unable to file an application for asylum within one year of arrival to the U.S., and other vulnerable victims of persecution.

But Congress-watchers point out that “historically, major refugee and immigration reform bills have not moved through Congress the same year that they were introduced. In addition, the Senate calendar has been so choked with health care legislation and other “must pass” bill that the House of Representatives is now referring to the upper body as “the place where bills go to die.”

Finally, the status of the Leahy bill could change if The White House decides to introduce comprehensive immigration legislation during the current session of Congress.

Meanwhile, pro-immigration groups are lobbying senators to obtain more co-sponsors. Thus far, all are Democrats; getting two or three Republicans is one of the objectives of the White House, but immigration is one of the most predictable third rails of American politics, especially in a mid-term election year.

But if grassroots support were ever enough to get a bill through the Senate, Leahy’s legislation would have smooth sailing. It has been lavishly endorsed by more than 25 of the country’s leading immigration organizations.

One of the most respected, The Center for Gender and Refugee Studies at the University of California Hastings, said the legislation “makes critical reforms to our asylum laws and procedures, and helps bring the U.S. in line with its treaty obligations.”

Bill Frelick, director of Human Rights Watch's refugee policy program, told IPS, “The bill identifies the serious gaps and overly restrictive provisions in the US refugee and asylum system—the overly broad definition of terrorist activities for inadmissibility; the one-year filing deadline for asylum claims; disparate treatment of different nationality groups interdicted at sea; the lack of legal assistance for particularly vulnerable asylum seekers; the one-year delay in allowing refugees and asylees to adjust to lawful permanent resident status.”

In addition, he added, the legislation “confirms reforms that the Obama Administration appears to be trying to implement administratively, such as paroling from detention asylum seekers who establish a credible fear of persecution and promulgating regulations governing conditions of detention.”

The American Civil Liberties Union (ACLU) called on the Senate to swiftly pass the bill. “The Refugee Protection Act is a crucial step towards removing some of the obstacles that have prevented victims of persecution from obtaining refugee protection in the U.S.,” said Laura W. Murphy, Director of the ACLU Washington Legislative Office. “The Senate should take Senator Leahy’s lead and pass this bill as soon as possible.”

Amnesty International USA applauded Senator Leahy’s efforts, which it said would “reposition the US as a champion of refugee rights in the 21st century.”

"Thirty years ago this week, Congress passed landmark legislation that created important standards for America's response to refugees seeking our protection," said Human Rights First's Eleanor Acer. "In the decades since then, America has faltered in its commitment to the persecuted. Today, Senators Leahy and Levin have introduced legislation that will put our nation back on track and strengthen U.S. refugee protection laws so that they can once again reflect our values and commitments."

Leahy’s legislation includes provisions that would eliminate the one year asylum filing deadline that bars refugees with well-founded fears of persecution from asylum; remove barriers that prevent some asylum seekers from receiving prompt review by the immigration courts of detention decisions so that these asylum seekers are not subject to prolonged and arbitrary detention; clarify the "particular social group" basis and "nexus" requirements for asylum so that the asylum requests of vulnerable individuals, including women fleeing gender-based persecution and refugees persecuted for their sexual orientation, are adjudicated fairly and consistently; and protect refugees from inappropriate exclusion by refining the definitions of "terrorist activity" and "terrorist organization" so that our immigration laws target actual terrorists, as opposed to hurting thousands of legitimate refugees who are not guilty of any wrongdoing and pose no threat to American security.

The legislation has won the endorsement of the nation’s leading immigration advocates, including the U.S. Conference of Catholic Bishops, the International Rescue Committee, the National Immigration Forum, the American Immigration Association, the American Bar Association, and the U.S. Commission on International Religious Freedom.

The legislation would make several critical reforms to U.S. asylum laws. Notably, the bill clarifies definitions of what actions constitute “material support” to ensure that the innocent acts of asylum-seekers are not mislabeled as terrorist activities. The bill promotes efficient immigration proceedings by allowing the Attorney General to appoint immigration counsel where fair resolution or effective adjudication of proceedings would be served by appointment of counsel.

The bill also establishes a nationwide, secure “alternatives to detention” program, and institutes detention reforms to ensure access to counsel, medical care, religious practice and family contact visits. Finally, the bill restores judicial review to a fair and reasonable standard consistent with administrative law principles.

One of the cruelest ironies for people seeking protection in the US – many of whom have been detained and tortured at home – is that they are subject to mandatory detention as soon as they request “safety” here. Despite the fact that this law is in direct violation of obligations under the Refugee Convention, the US continues to use detention as a means to deter refugees from seeking asylum or to encourage them to abandon their asylum applications.