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Bring corporate giants to heel

Stephen Beer says we need to encourage all companies, not just well known ones, to behave conscientiously.

Most people want companies to behave responsibly.  We understand they have to make profits to thrive, but we want them to do so in a way that benefits society and the environment.  Most large companies recognise this and sign up to Corporate Social Responsibility, or CSR as it is generally known.  Yet while CSR has the potential to transform whole communities around the world, just encouraging companies to behave better is not enough.  The CSR movement needs to reform itself and Labour can do more to ensure our companies work for all.

We live in a global market and yet globalisation is a dirty word to many.  It conjures up images of large multinational companies oppressing the poor in developing countries and forcing us all to genuflect to their corporate images.  The big company is bad, goes the mantra of the globalisation protesters.

Of course, it is easy to oppose a caricature but caricatures are derived from some truth and the truth is that the corporate sector could behave more responsibly.  Our high street retailers, for example, should pay more attention to the working conditions in their suppliers the other side of the world.  Child labour, lack of union representation and poor working conditions – outrages the Left campaigned against during our own Industrial Revolution – are prevalent.  In response, large companies proclaim support for CSR.  In practice, this usually means writing a set of ethical business principles and promoting them within the corporation, publishing reports that disclose performance on environmental impact, community development and health and safety, and engaging with stakeholders.

The government supports CSR.  Our communities and environment can be transformed not only by legislation or by encouraging voluntary groups but also by harnessing the power of the corporate sector.  Some doubt that we can trust companies to behave responsibly without the persuasive power of new laws to encourage them.  In many cases the doubters are right but CSR can be made to work and we can all play a part.

There is no point in even discussing CSR unless we accept that most companies need to make a profit.  We must do more than pay lip service to this principle.  If profits are not made, companies go bust (or get taken over) and people lose the benefit of jobs, goods and services.  If companies are not profitable and so paying taxes, we will not be able to fund our public services.

Christian Aid, the development charity, created a few waves earlier this year with a report entitled ‘Behind the Mask – the real face of corporate social responsibility’.  The authors maintained that CSR is mere PR, a corporate gloss beneath which companies behave as they have always done.  Christian Aid presents three case studies: Shell is criticised for the quality of its community work and oil pipelines in Nigeria; BAT for the pesticides used by tobacco farmers in Kenya and Coca Cola for its use of the water supply in Kerala, India.  The charity concludes that “Voluntary CSR and self-imposed codes of conduct cannot, on their own, deliver accountability to [communities in developing countries]”.  In fact, despite its scepticism, the report does support CSR.  The criticisms are levelled at companies that do not follow their own ethical principles and governments that do not enforce regulations.

There is a danger that those pushing companies to behave responsibly form a sub-culture separate from the real world.  The CSR people in many companies are highly motivated and write large reports detailing their company record on various social, ethical and environmental criteria.  Development charities and the socially responsible investment (SRI) teams in the City investment houses read the reports.  The SRI analysts constantly apply pressure on companies to improve.

What is not generally recognised is that many CSR departments are fighting internal battles within their own companies to get their ideas recognised.  Talking to a head of CSR and later to his or her chief executive can be very revealing.  It is not a good sign if the boss does not understand your question about how the company is trying to be socially responsible.  Meanwhile, the City SRI analysts are fighting their own battles to be taken more seriously.  Often the same people move between working for charities and pressure groups, for company CSR departments and City SRI teams.  Numerous consultancies have sprung up to assist them.  Most of the time, a small group of people are simply spending time and money talking to each other and thereby ‘preaching to the converted’.  It is time for the whole CSR industry to think again and ask if it is working.

But we shouldn’t write off CSR.  No company is perfect and many are making genuine efforts to perform better.  Ironically for some, our two largest oil companies, BP and Shell, are leaders in this respect.  Shell was criticised when it made only a belated protest at the execution of Nigerian civil rights activist Ken Saro-Wiwa.  It revised its business principles and opened up to NGOs, investors and others about how it was conducting its business.  That open approach has made it more vulnerable to attacks like that from Christian Aid: it is easier to criticise Shell than other oil companies that are not so transparent.  CSR works when company directors genuinely embrace it.  If the board is indifferent, little will change.

There are measures the government can take to improve corporate responsibility.

We should strengthen corporate governance and disclosure.  Votes on executive pay should become binding.  Companies should be required to disclose their CSR policies in annual reports and standardised CSR reports should be mandatory for large firms.

If we want multinationals to behave in developing countries, we need to acknowledge that they need a more level playing field.  That means putting pressure on all companies, not just the well-known.  It means we have to get developing country governments to change their laws.  The Extractive Industries Trading Initiative, promoted by Tony Blair last year, is a good example of this.  Governments and companies were persuaded to sign up to an agreement to be more transparent about contract payments.  Now the challenge is to ensure they stick to it.

We should use the tax system as both carrot and stick.  Tax relief could be given for companies that meet key well-defined CSR criteria, such as having a socially audited supply chain or providing employees for time off for civic duties.  We should continue to raise taxation on pollution, offset by cuts in corporation tax.

Many people own shares through their pension funds and these owners need to be more proactive.  The government now requires pension funds to state their policy on ethical, social and environmental investment.  We should go a step further and require pension fund trustees to show how they have acted on their policies and engaged with companies.  The government should promote training in socially responsible investment for trustees.

This article previously appeared in Tribune magazine.
Stephen Beer, Friday 28 May 2004

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