1. Introduction
Over the past two decades, the forces of economic globalization, political transformation and technological innovation have increased the global reach and influence of the private sector. The number of transnational corporations has almost doubled from 37,000 in 1990 to over 60,000 today, with some 800,000 foreign affiliates and millions of suppliers and distributors operating along their global value chains. This process has conferred new rights and created new business opportunities for global corporations and large national companies, while also exposing weaknesses in national and global governance structures. It has also resulted in new competitive pressures and risks, and led to increased demands for greater corporate responsibility, transparency and accountability.
As a result, today’s business leaders face a complex and often contradictory set of stakeholder expectations. They are being called on to engage with activists as well as analysts, to manage social and environmental risks as well as market risks, to be accountable for their non-financial as well as their financial performance, and to cooperate as well as to compete, often with non-traditional partners, focused on unfamiliar issues. They are under pressure from governments, consumers, trade unions, non-governmental organizations and a small but growing number of their investors, to demonstrate outstanding performance not only in terms of competitiveness and market growth, but also in their corporate governance and corporate citizenship.
In short, corporate executives are faced with a complex, unprecedented challenge: How can they continue to deliver shareholder value while also delivering, and demonstrating that they are delivering, societal value?
2. What is corporate citizenship?
The term ‘corporate citizenship’runs the risk of being all things to all people. But it does have some easily identifiable elements too. The basic idea is to understand business as part of society, contributing directly to the welfare of society, rather than somehow separate from it. Whereas in the past the baseline of good behaviour was ‘acting within the law’across the company’s operations, newer aspirations range from the maxim ‘do no harm’through to assessing ‘overall net impacts’. Companies need to go beyond simply obeying the law and making a competitive return for their shareholders if they are to respond to the challenge of citizenship.
Corporate citizenship invites companies to make strategic choices based on an understanding of the total impacts of their business in society. The practice of corporate citizenship involves a
focus on one or more of three main areas:
v the societal impacts that flow from basic business policy and practice (as managed and measured through various codes of conduct, ‘values statements’and company reports);
v the impacts that a company has up and down the value chain (e.g. when child labour is employed by its suppliers; or when end consumers dispose of its products in ways likely to harm the environment); and
v the impacts that come from the voluntary contributions that businesses make to communities affected by their operations (including charitable gifts, community investment and commercial initiatives in the community).
Management and communication tools such as the ‘social audit’, development of key performance indicators on corporate citizenship, ‘benchmarking’best practice across a variety of industries, and best practice on ‘cause-related marketing’have all grown up alongside these core elements of corporate citizenship. Codes of good conduct for companies abound, as do stamps or standards awarded by third parties, such as the Social Audit stamp of the Brazilian NGO IBASE, or the Social Accountability 8000 standard developed by the Council on Economic Priorities Accreditation Agency. The professionalization of environmental management has had an impact on the ‘new’tools of social management and accounting, accelerating the process of adaptation to the corporate citizenship agenda. But not all companies professing to be good ‘corporate citizens’choose to use all of these tools, and the current state of ‘corporate citizenship’varies from country to country.
3. What drives Corporate Citizenship in a Global Context?
The emergence of ‘corporate citizenship’as a guiding principle for business strategy has been driven by a number of changes in the business operating environment. The overall process of globalization
affects all businesses one way or another.
Globalization has given rise to unprecedented links between economies, cultures, individuals and groups. Technological advances such as the internet have transformed communications. When multinational corporations apply different standards at home from those in their overseas operations, the gaps are exposed to external scrutiny as never before. The result is that the corporate
citizenship debate has acquired an increasingly significant ‘international’ dimension, raising one of the most difficult sets of questions in the current policy and business agenda: where does the responsibility of companies end and the role of governments begin, and by what (and whose) standards should this be judged?
Economic liberalization and deregulation have seen a massive increase in the flow of capital, goods and services across borders, opening new markets to foreign investment. At the same time the gaps between rich and poor around the world have widened and the world’s population is growing rapidly.
As privatization proceeds apace around the world, companies are increasingly responsible for providing services that were public-sector responsibilities in the past; areas such as healthcare provision by private companies and liberalization of energy markets focus more attention on the role of companies in the place of governments. The role of the private sector in provision of technical assistance around the world has also increased as corporations have become more involved in providing funding for intergovernmental bodies and as contractors in the delivery of donor assistance programmes. The overall balance of public- and private sector responsibilities is changing.
Globalization has given rise to new demands on corporations to exercise their power responsibly. There is a popular perception that in some markets the economic power and influence of corporations is much greater than that of the incumbent government. Some international NGOs have focused in on this, giving rise to new demands that companies investing in politically unstable economies such as the Sudan should use their power to encourage host country governments to spend the revenue that their investments generate for social benefit – not to wage wars or benefit political elites.
It is often pointed out that the turnover of the world’s largest companies is greater than the GNP of all but around 20 members of the United Nations. But individually even large companies account for only a fraction of global economic ouput: BP, Amoco and Arco together produce no more than 0.01%.
Globalization is not an entirely ‘neutral’ driver of corporate citizenship from a business perspective. Indeed, a powerful ‘backlash against globalization’ has now been set in motion, as witnessed by the public demonstrations surrounding recent World Trade Organization (WTO) and International Monetary Fund (IMF) meetings in Seattle and Washington.
Some proponents of corporate citizenship in the North see it as a way of countering the backlash against globalization – of reinvigorating the notion that trade and investment can bring overall social and environmental welfare gains. Encouragement of global corporate responsibility then becomes part of efforts to put ‘a human face on the global economy’.
One maxim seems to find resonance with all: that with power needs to come responsibility. Globalization, it is said, is transforming corporate responsibility from a choice into an imperative.6 But the extent of that responsibility remains a matter of hot debate.
4. Commitments to Corporate Citizenship
There are numerous examples of commitments towards corporate citizenship. Many of them involve not only the private sector, but also the public sector and civil society organizations.
v The Global Compact was proposed by the outgoing UN Secretary General, Kofi Annan, at Davos in January 1999. He called on business leaders to embrace and enact within their own corporate activities nine core principles derived from universally accepted agreements on human rights, labour and the environment. Today the Global Compact brings together several hundred companies, with some of the world’s leading trade union bodies, human rights and environmental organizations in a global learning forum, policy dialogues and variety of development projects. Companies engage in the initiative through the written support of their CEOs.
v Tackling global health issues: The World Economic Forum Global Health Initiative (GHI) is designed to foster greater private sector engagement in the global battle against HIV/AIDS, tuberculosis and malaria. In cooperation with the World Health Organization and UNAIDS, the GHI brings together businesses, NGOs, civil society and academic institutions in a partnership, focusing on corporate best practices, resource gaps, partnership opportunities, philanthropy and the role of business in advocacy. The Global Business Council on HIV/AIDS is an international group of business leaders dedicated to advocating for an increased business response to AIDS both in the workplace and in the community. The Global Alliance for Vaccines and Immunization (www.vaccinealliance.org) was officially launched in January 2000 at Davos, with a mission of combining public and private resources and competencies to support immunization activities. It is a coalition of governments, the WHO, UNICEF and the World Bank; philanthropic foundations; the International Federation of Pharmaceutical Manufacturers Associations (IFPMA); and technical and research institutes.
v Overcoming the digital divide: The ICT sector has engaged itself in a variety of policy dialogues and practical initiatives to bridge the ‘digital divide’ both within and between nations. Examples include: the G8 Digital Opportunity Task Force which consisted of leaders from the public, private and not-for-profit sectors; the UN’s multi-stakeholder ICT Task Force and the World Economic Forum’s Global Digital Divide Initiative. Business leaders are also supporting practical projects such as the Digital Partnership and Net Aid; and others such as those listed on the World Economic Forum website.
v Investing in sustainable development: This has been an area of immense focus. The International Chamber of Commerce and World Business Council for Sustainable Development have established Business Action for Sustainable Development as a network and platform to provide business input and partnership examples to the World Summit for Sustainable Development in 2002.
v Promoting good corporate governance: Business leaders are playing a role in several initiatives to promote good corporate governance. Examples include: The International Corporate Governance Network, pension funds and financial institutions with over $8 trillion in assets under management working towards global convergence on standards of governance; and business support for Transparency International to tackle corruption. Another aspect of good governance is the efforts to promote sustainability reporting such as the Global Reporting Initiative.
v Corporate citizenship at the sector level: The World Business Council for Sustainable Development and UNEP have played an important role in promoting sector-based initiatives for sustainable development in industries as diverse as mobility, cement, pulp and paper, information technology, banking and finance. Other examples include the E7 network of electricity companies; the International Hotels Environment Initiative; and the Global Mining Initiative.
v Supporting national development: At the national level business leaders are supporting initiatives focused on goals such as education, local enterprise and job creation, and rural development. Examples include: Philippine Business for Social Progress; the National Business Initiative in South Africa; Instituto Ethos in Brazil; Business in the Community in the UK; and Landcare in Australia.
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v Engaging Tomorrow’s Leaders: Today’s business leaders are supporting networks such as the World Economic Forum’s Global Leaders for Tomorrow, which consists of young leaders from the public and private sectors and civil society, and AIESEC, the world’s largest student-run organization to promote sustainable development and corporate citizenship. A small but growing number of business schools have started to invest in research and teaching in this area supported by some CEOs.
5. Progress of Corporate Citizenship in a Global Context
While the leadership challenge is especially apparent for executives in Europe and North America, it is also becoming a reality for many in Asia, Africa, the Middle East, and Latin America, especially those who aim to be global players – either doing business with or competing against the world’s top multinationals. Business leaders in each region are obviously influenced by different economic, social, cultural and political traditions, and different industry sectors face different types of corporate citizenship challenges. Despite these differences, the following trends in the concepts of corporate citizenship or corporate responsibility are common across geographic and sector boundaries:
1. From the corporate margins to the mainstream
2. From assertion to accountability
3. From paternalistic approaches to partnership
5.1. From the corporate margins to the mainstream
In leading companies, corporate citizenship is moving beyond the boundaries of legal compliance and traditional philanthropy to become a more central factor in determining corporate success and legitimacy, with implications for corporate strategy, governance and risk management.
There is now growing recognition that global corporate citizenship is essentially about how the company makes its profits, everywhere it operates, not simply what it does with these profits afterwards. It is about how the company operates in three key spheres of corporate influence.
§ First, in its core business operations – in the boardroom, in the workplace, in the marketplace and along the supply chain.
- Second, in its community investment and philanthropic activities.
- Third, in its engagement in public policy dialogue, advocacy and institution building.
In all three spheres of corporate influence, the challenge for leadership companies is two fold:-
First, aim to ‘do minimal harm’ in terms of minimizing negative economic impacts, bad labour conditions, corruption, human rights abuses and environmental degradation that may result from a company’s operations. This is a goal that calls for management strategies such as compliance – with internationally accepted norms, guidelines and standards, such as the OECD Guidelines for Multinational Corporations and the UN Global Compact, as well as with national laws and regulation – and control of social and environmental risks, liabilities and negative impacts.
Second, aim to ‘do positive good’ in terms of creating new value for both the business and its stakeholders in the countries and communities in which it operates. This can be achieved through strategic philanthropy and community investment, which harnesses the company’s core competencies, products and services, not only its philanthropic cheques. Examples include, ICT companies supporting community projects to tackle the digital divide, financial companies supporting microcredit initiatives, and professional services firms sharing management expertise with local community organizations. More strategic, are efforts by companies to create new business value through developing new products, processes and technologies, and in some cases even transforming their business models, to serve untapped social and environmental needs, or facilitate entry into underserved markets. Examples include developing new markets for carbon emissions trading, creating new environmental technologies, and producing more affordable access to essential services such as clean water, energy, food, housing and medicines for the estimated 3 billion people who live on less than $2 a day.
A taskforce of the World Economic Forum, consisting of a group of over 40 CEOs and chairmen from 16 countries and representing 18 industry sectors signed a joint statement on global corporate citizenship. They agreed that: “The greatest contribution that we can make to development is to do business in a manner that obeys the law, produces safe and cost effective products and services, creates jobs and wealth, supports training and technology cooperation, and reflects international standards and values in areas such as the environment, ethics, labour and human rights. To make every effort to enhance the positive multipliers of our activities and to minimize any negative impacts on people and the environment, everywhere we invest and operate. A key element of this is recognizing that the frameworks we adopt for being a responsible corporate citizen must move beyond philanthropy and be integrated into core business strategy and practice.”
5.2. From assertion to accountability
A second key trend at the heart of the emerging corporate citizenship agenda is the growth in demands by stakeholders, including shareholders, for corporations to demonstrate greater accountability and transparency – and to do so not only in terms of their financial accounts and statements, but also in terms of their wider social, economic and environmental impacts.
Gone are the days when consumers, investors and the general public trusted all the information they received from companies and were relatively undemanding on what this information should cover in terms of corporate performance. In part this trust has been squandered by the recent series of corporate ethics scandals and governance failures. It has also been affected by a combination of increased democratization and press freedom around the world, easier access to more information through the Internet, greater public awareness of global issues through the media, increased consumer choice and sophistication, and higher societal expectations of the private sector.
In response to these trends, leading companies are being called on to be more accountable and more transparent to more stakeholders on more issues and in more places than ever before. In the wake of corporate governance and ethics scandals, there have been demands for greater financial accountability and transparency, resulting in increased shareholder advocacy and new regulations, such as Sarbanes-Oxley in the United States. At the same time, certain governments and stock exchanges are also calling for greater public disclosure on environmental and social performance, in areas such as carbon emissions, product safety, occupational health and safety, training and diversity. There are also growing calls for greater transparency on private sector engagement with governments on issues such as lobbying, financing political campaigns, payment of taxes and receipts of public procurement contracts and incentives.
In all of these areas, business leaders are facing new and challenging questions in terms of what to be accountable for, who to be accountable to, and how to actually measure and report non-financial performance in practice.
A number of global voluntary efforts are underway to develop standards, guidelines and procedures for measuring and reporting on corporate social and environmental performance. These range from multi-sector alliances, such as the Global Reporting Initiative, which is developing guidelines and indicators for public reporting on sustainability performance, to sector-focused efforts such as the Extractive Industries Transparency Initiative, which focuses on public disclosure of payments to governments by oil and mining companies, the Fair Labour Association in the apparel sector, the Equator Principles for project Finance in the banking sector, and global framework agreements being negotiated between certain trade unions and global corporations. Growing numbers of Asian companies are engaging in these and other accountability initiatives.
5.3. From paternalistic approaches to partnerships
The third key trend in global corporate citizenship is a move away from more traditional, paternalistic attitudes that “the company and its senior executives knows best” to more genuine engagement, consultation and cooperation with key groups of stakeholders. There is growing recognition that the challenges we face, both as individual companies and nations and as a global community, are too great and too interdependent, and the resources for addressing these challenges too varied and too dispersed, for any one actor or sector to have all the solutions. New types of alliances between companies and other sectors, built on mutual respect and benefit, are becoming essential to both corporate success and societal progress.
The area of community investment offers a good example, where leading companies have moved away from traditional philanthropic approaches, focused on one way disbursement of charitable funds, to efforts aimed at engaging the core competencies of the company and building mutually beneficial partnerships between the company and non-profit or community organizations. Cisco Systems, for example, has been able to expand its Cisco Networking Academies program to over 10,000 academies in all 50 U.S. states and over 150 countries, working with partners ranging from the United Nations, the United States Agency for International Development and the Peace Corps, to local schools and nongovernmental organizations. In the Philippines, the Ayala Group has worked with Nokia, one of its key business partners, Pearson Education, the International Youth Foundation, the Department of Education, local authorities and parent-teachers associations to provide science materials to over 80 under-resourced schools. Just two of thousands of examples, through which companies, working in partnership with others, are providing education, training, and other opportunities to millions of young people and low-income communities around the world.
Some of the most interesting partnerships are in the form of strategic global or national alliances aimed at transforming not only individual corporate practices, but also influencing public policy frameworks and the broader enabling environment. National examples in Asia include the pioneering Philippines Business for Social Progress, the Thai Business Initiative for Rural Development and the Asia-Pacific Business Coalition Against HIV/AIDs.
In addition to community-level alliances between individual companies and nonprofit organizations, we are also witnessing the emergence of strategic global or national alliances aimed at transforming not only individual corporate practices, but also influencing public policy frameworks and the broader enabling environment. One example is the United Nations Global Compact, with over 2,000 corporate participants and some 30 national business networks, many of them from developing countries, working with UN agencies, trade unions and non-governmental organizations.
Through the power of collective action, the Global Compact seeks to advance responsible corporate citizenship so that business can be part of the solution to the challenges of globalization. It is a voluntary initiative with two objectives:
• Mainstream ten principles in the areas of environment, human rights, labour, and anti-corruption – all of which are based on international, intergovernmental agreements – into business activities and supply chains around the world;
• Catalyse business actions and partnerships in support of UN goals, especially the Millennium Development Goals.
Asian companies have been among the pioneers in supporting the Global Compact. In countries such as China, India, Indonesia, the Philippines, Thailand, South Korea and Australia, individual companies, stock exchanges, business associations and governments are starting to explore ways to implement the compact’s ten principles as core elements of sound business practice. In November 2005, the Chinese government will host a major Global Compact Summit, taking a vital leadership role at a time when global industrial capacity continues to shift to China and Chinese companies continue to increase their international investment and influence.
Concluding Remarks
Although local business conditions and cultures vary from country to country, the elements of what it takes to be a successful and sustainable business over the longer-term illustrate some common imperatives. Being a profitable, but also responsible corporate citizen is increasingly one of these imperatives. This requires business leaders to be committed to a set of clearly stated and publicly upheld values – underpinned by policies and standards that are applied everywhere the company operates, not only in its home market. It requires companies to have risk management systems and accountability structures in place to protect existing value, by minimizing any negative economic, social or environmental impacts and reputation damage arising from their business operations. It also requires companies to support learning, innovation and partnerships that help to create new value, by delivering new products and services that meet societal needs as well as creating shareholder value. And it calls for ongoing efforts to evaluate and measure progress and performance against each of these three areas.
In summary, regardless of industry sector or country, global corporate citizenship rests on four pillars: values; value protection; value creation; and evaluation. These four pillars not only underpin the long-term success and sustainability of individual companies, but are also a major factor in contributing to broader social and economic progress in the countries and communities in which these companies operate. Along with good governance on the part of governments, they offer one of our greatest hopes for a more prosperous, just and sustainable world.
Prof. Surinder Pal Singh
http://www.articlesbase.com/ethics-articles/the-concept-of-corporate-citizenship-in-a-global-environment-741210.html
– and founder Ray Kroc’s dictum – “None of us is as good as all of us” (quoted in Annual Report, 1989, p.