Corporate Social Responsibility

by Becky Toal and Veronica Broomes

The drivers for CSR

The drivers to implement CSR within organisational strategy vary across organisations, sectors and even geographic locations. Responsible business practice is driven both from within the organisation (internal stakeholders, such as employees) and from outside the organisation (external stakeholders, such as customers, suppliers and the local community). It is often pressure from external stakeholders that forces boards to take action on poor practices associated with the business.

It is easy to dodge our responsibilities, but we cannot dodge the consequences of dodging our responsibilities.

Josiah Charles Stamp, 1880-1941, former director of the Bank of England

The emergence and growth of ‘corporate social responsibility’ or ‘corporate responsibility’ since the mid-1990s has not happened by accident. A significant part has been played by a series of high-profile environmental incidents, including the Bhopal disaster in India in 1984, the nuclear reactor disaster in 1986 at Chernobyl (then in the USSR) and the largest oil spill ever to occur in the USA, when the tanker Exxon Valdez discharged millions of gallons of crude oil into Prince William Sound, in Alaska, in 1989. These preventable accidents, in combination with the collapse of large corporations, such as Enron, have led to a growing distrust of the business community on the part of the general public.

Society as a whole now expects a business to ‘prove’ its positioning on social, ethical and environmental matters – put simply, we don’t trust businesses that do not account for these impacts. This has spawned a huge increase in pressure from the public about the practices of businesses and a response from business in the form of increased non-financial reporting (CSR/sustainability reporting). This reporting of environmental and social impacts by a business contributes to a perception of transparency and helps establish an organisation’s CSR credentials.

Basic CSR drivers may differ between small and large businesses, but all arguably stem from the Three levels of Corporate Social Responsibility.

 

Basic drivers of CSR

The basic drivers of CSR consist of

  • Values: a value shift has taken place within businesses, as a result of which they now not only feel responsible for wealth creation, but also for social and environmental benefits
  • Strategy: being more socially and environmentally responsible is important for the strategic development of an organisation
  • Public pressure: pressure groups, consumers, media, the state and other public bodies are pressing organisations to become more socially responsible. organisations are often driven by one of the above, but see a shift into other spheres over time. In the main, it has been public pressure centred on three key areas that has driven the CSR agenda. These comprise the environment, labour standards and human rights.

Role of government in CSR and use of codes of practice

In the UK and other European countries, there is broad support for and encouragement of voluntary CSR. There has also been strong lobbying by those who see legislation as the only means to ensure compliance by businesses on social and environmental issues.

With legislation there is the risk that companies do only what is mandatory. On the other hand, if CSR is to be done on a voluntary basis, there must be a strong business case for it in terms of increasing business competitiveness.

For the foreseeable future, CSR is likely to remain a voluntary initiative, despite efforts by lobbying groups to persuade policy makers/government to make it mandatory. Within the broad definition of CSR, however, there are opportunities to drive a common agenda for the benefit of the organisation and shareholders/investors, employees, communities and other stakeholders. CSR, therefore, can be viewed as unstructured ‘soft’ intervention, in that it is voluntary and not directly regulated.

Leading UK group, Business in the Community, indicates that CSR means managing impacts within an organisation in order to add value and improve economic and social health.

The World Business Council for Sustainable Development, views CSR as a commitment by an organisation to act in an ethical manner and focus on economic development, while improving the quality of life of its employees, the local community and society as a whole.

Over the last decade, there has been much wider governmental and political interest in CSR and business behaviour, accompanied by attention from the media and NGOs. Much of the focus, however, has been on corporate governance. Calls for greater corporate governance have resulted in a rise in legislation in the UK, including the new Companies Act (2006), which requires that directors need to be aware of both the environmental and community impacts of their business operations and processes.

During the 1990s, a number of business-led initiatives in the UK addressed corporate governance. This culminated in the Combined Code of Corporate Governance, issued by the Hampel Committee. The 1999 Turnbull Report further expanded this code and provided guidance for directors on the internal control requirements of the code. The Turnbull Guidance involves directors in identifying and reviewing the risks faced by their businesses, introducing monitoring and control processes and reporting annually to shareholders on compliance.

Changing legislation and consumer pressure have driven the emergence of CSR. Smart companies of the future that want to have a leading edge over the competition will embed CSR strategy and policy, making this a part of their unique selling point. An example of this is huge success of the Innocent Drinks Company, set up in 1999, which ten years later was ready to go global, with Coca-Cola as a 20 per cent investor.

All of the above has meant that among the drivers that encourage companies to take CSR seriously are its perceived Benefits.