Corporate Social Responsibility (CSR) is a process that has been driven by globalization, deregulation and privatisation. For Trans National Corporations (TNCs) it is an outcome of public pressure arising from their operations in developing countries in relation to human rights, environmental pollution and labour issues. CSR is now being discussed and debated in the public policy sphere – the UK has a Minister for Corporate Social Responsibility.
To date, CSR has been a Northern phenomenon in terms of its language and strategy. However, according to a UNIDO study expected later this month, entitled Corporate Social Responsibility: Implications for Small and Medium Enterprises in Developing Countries, "there is an abundance of evidence that silent CSR is thriving in developing countries, albeit under a different name and with a different approach. There are some concerns that CSR has not focused enough on addressing issues of poverty, but the emergence of new partnerships with aid agencies, the UN and NGOs offers the opportunity to refocus that approach. In particular the role of business associations, both mainstream and those from the CSR movement, have an important part to play in creating a multiplier effect.
In his foreword to the study, UNIDO Director- General Carlos Magariños, says "It would seem to me that it is the task of the UN system to turn CSR from a Northern preoccupation into a truly global agenda; from a potential dividing force into a unifying framework for development. Generating wealth in a manner that is socially and environmentally responsible, and thus sustainable, must be a common goal of the international community". The Director- General also refers to a question the study holds as central to the future of CSR in the developing countries: "Is there a business case for smaller companies to adopt good CSR practices"?
Corporate Social Responsibility is an increasingly important part of the business environment. The past twenty years have seen a radical change in the relationship between business and society. Key drivers of this change have been the globalization of trade, the increased size and influence of companies, the repositioning of government and the rise in strategic importance of stakeholder relationships, knowledge and brand reputation. The relationship between companies and civil society organisations has moved on from paternalistic philanthropy to a re-examination of the roles, rights and responsibilities of business in society. Corporate Social Responsibility (CSR), defined in terms of the responsiveness of businesses to stakeholders legal, ethical, social and environmental expectations, is one outcome of these developments.
CSR has generally been a pragmatic response to consumer and civil society pressures. These have mainly been focused on Trans-National Corporations (TNCs) serving Northern markets but often operating in Southern countries. Accusations by governments and civil society alike, of environmental pollution, human rights abuses, and exploitation of labour in supply chains, has pressured companies into becoming more environmentally and socially responsible. However, companies have quickly recognised the strategic value of being more responsible and are beginning to align products and business relationships, in particular through their supply chains, accordingly.
CSR is not a replacement for the rightful role of democratic governments to set regulatory frameworks for the benefit of society. The polarisation of the debate as to whether voluntary or regulatory approaches are the most effective way to improve social and environmental performance is misplaced. It is more useful to understand when and how different approaches can create business and societal benefits. Often the two go hand in hand, as is the case with labour standards where both voluntary and regulatory approaches (codes of conduct, independent monitoring, and legislation) are in place. The key is to understand how they work together.
Ensuring that CSR supports, and does not undermine, SME development in developing countries is crucial to meeting its goal of improving the impact of business on society. SMEs are essential to the path out of poverty for many developing countries. If CSR demands are protectionist, culturally inappropriate or unreasonably bureaucratic the net effect will be to undermine livelihoods in the South. On the other hand the SME sector must not be allowed to become a loophole in which polluting, exploitative industries flourish. However, support for SME development can be an important part of the CSR commitment of big companies, and improvements in social and environmental impact can go hand in hand with improvements in quality and management.
CSR has focused around hot spots: key issues, sectors and regions that drive forward developments in CSR at different times. CSR developments have been concentrated in industries that involve high health or environmental risks, activities covered by high levels of regulation, and industries that provide essential services or lifestyle products. The issue focus has moved from bribery and corruption to environmental stewardship to social issues such as labour standards and human rights. Current emerging issues include product responsibility, responsible downsizing and corporate influence on public policy. Civil society and consumer campaigns and media attention have focused attention on major national and international brand names, however international standards are increasingly being developed to provide a global framework for CSR and overall sustainability management.
CSR must be underpinned by a strong business case that links social and environmental responsibility with financial success. Business benefits include, operational cost savings through environmental efficiency measures; enhanced reputation through positive responses to stakeholder concerns; increased ability to recruit and retain staff; sharper anticipation and management of risk; and improved capacity to learn and innovate. However these business benefits will not be significant for all companies. For each company the business case needs to be carefully developed according to the product, industry, and/or service in question.
CSR imposes new demands on SMEs in developing countries. Social and environmental standards are increasingly a precondition for doing business with TNCs. This takes the form of individual supply chain codes of conduct and sector wide certification systems. Market shifts can extend the impact of environmental and social concerns beyond those companies directly involved in trading with TNCs. This may happen through local competition, by strengthening mechanisms for ensuring compliance with local laws, by targeting investment, or through shifts in consumer demand.
Supporting enterprise development through long-term trading relationships and community investment is one of the most important ways that TNCs can contribute to the fight against poverty. Some TNCs are actively forming trading links and development partnerships, which help SMEs in developing countries gain access to markets, finance, training and infrastructure. Where CSR is related to trading relationships in this way it becomes difficult to differentiate between CSR and core business, however, the economic and social impacts of such strategies can go far beyond anything possible through social programmes. Community investment approaches can also help develop an enabling environment for entrepreneurship, by providing specific business development support, or more broadly, helping to create favourable conditions in which small businesses can grow and flourish.
There is a danger that CSR standards may undermine SMEs in developing countries. The key concern is that CSR standards will act as a protectionist mechanism for retaining jobs, trade and investment in developed countries. The focus of issues and standards often reflects the concerns and priorities of consumers in the North as well as prevailing technologies and best practise in the countries where they were developed. The burden of monitoring and certification itself can be a significant expense, effectively barring developing country SMEs from some markets. Lack of access to technology, environmentally friendly materials, credit, information and training, can act as barriers to social and environmental improvements for these SMEs. Even when they are able to make improvements, Southern SMEs lack the valuable direct relationships with Northern consumers, which would enable them to reap reputational benefits.
It is crucial to understand the basis for viable, appropriate small business responsibility. The lessons and approaches of CSR cannot be simply transferred to SMEs. Many of the concerns underlying calls for CSR do not apply to SMEs, which lack the power to influence governments, dictate standards, or move across national boundaries in search of lighter regulation. At the same time, many SMEs already practise some kind of silent social responsibility. SMEs generally have a greater understanding of local cultural and political contexts, more links with local civil society and a greater commitment to operating in a specific area. Family-owned companies in particular often exhibit strong ethical and philanthropic approaches. SMEs need to give a voice to their silent social and environmental responsibility.
Some SMEs will be able to build a strong business case for improving and demonstrating their social responsibility. Benefits might include better alignment with consumer concerns, partnership opportunities with TNCs, improvements in productivity and improved capacity for learning and innovation. However, these benefits will not be significant for every company. In the case of SMEs in developing countries, upgrading the quality of their technology, management, and marketing, are likely to be equally pressing concerns, which need to be addressed in parallel with social and environmental impacts. CSR boosterism in the form of donor led initiatives to promote SME-CSR would be misplaced except in industries and sectors where a clear business case can be demonstrated. In industries and sectors where a real business case is not yet apparent, it is more useful to work to strengthen the business case drivers. For example, it may be necessary for TNCs to provide incentives and support, in order to make compliance with stringent codes of conduct economically viable for their suppliers.
The United Nations has an important role in facilitating the development of TNC-SME relations to promote economic prosperity while improving social and environmental performance. Through multi-stakeholder partnerships promoted by framework initiatives like the UN Global Compact and individual agencies such as UNIDO, the UN is well placed to support local SMEs in their engagement with socially responsible business practices. It can do this in a number of ways: development of broader partnerships (many of which are already under way) between TNCs, business associations, and civil society organisations; engagement in public policy debates to develop a framework for including business in the development process; and by practicing accountability itself through its own management practices and ethical procurement.
CSR needs to be integrated in core business strategies if it is to survive global recession or insecurity. CSR has gained prominence against a backdrop of relative economic stability and growth. However, the trend of global economic cycles means that this pattern of growth will at some point slow down, and possibly go into recession. If any downturn is compounded by global insecurity as a result of increased political conflict, the further development of CSR may be seriously challenged. Where CSR is integrated within the core business strategy, it is likely to remain strong, whereas, CSR as a philanthropic add-on is vulnerable to cost cutting. Ultimately, the long-term success of CSR will be based on its ability to be positioned within the core of business strategy and development, thereby becoming part of business as usual.
Towards Small Business Responsibility
If CSR is truly going to become a strategic force in contributing to international development and eliminating the negative externalities of business, it must help to develop effective and viable approaches to Small Business Responsibility. It is crucial that:
CSR supports the role of SMEs in development, and does not serve as a tool to undermine and disadvantage them;
SMEs are not able to undercut universal CSR standards and become a blindspot in which exploitative and environmental destructive practises flourish.
Thus, the challenges are to reduce the barriers and threats while strengthening the opportunities and drivers in order to ensure that CSR has a wide and positive impact on SMEs.