CSR structure for Value creation: the adoption of corporate social responsibility by developing countries

Introduction

1. Inception of CSR and a brief history

Corporate Social Responsibility (CSR) the term might seem to be a recent phenomenon but a short literature review suggests that this term has evolved over few decades in the corporate world. The term through the same throughout, has evolved but in meaning from standing for charitable works by companies to taking responsibility of all its actions and incorporating CSR in the main business model. Globalization and free flow of information has ensured that CSR is influenced by global trends and international law. 1

1.1 1920s – 1950s 1

It is believed that CSR was invented by a debate between AA Berle and E Merrick Dodd over the role of managers. In 1953, CSR was conceptualized as a social obligation – the obligation ‘to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society’. Peter Drucker wrote a book ‘The Practice of Management’ where he described in detail CSR as a part of 8 key areas of business objectives.

1.2 1960s 1

There were a significant group of people who have actively written and described CSR and its features like Fredrick, Clarence C Walton, and Keith Davis et. al. This decade was a conscious effort to formalize and document all what CSR stood for in the corporate world. It was still believed that CSR is only giving back to the society in return of the gain which corporate make out of offering its products for a profit.

1.3 1970s 1

This was an era of debates and controversies, a big one created by Milton Friedman’s Minimalist view of corporate responsibility. He had a view that role of businesses is only to abide by the law of the land and engage in only profitable activities pertaining only to its line of business. This decade saw fierce opposition of this view by public, few corporate and organizations. US Committee for Economic Development in its paper of 2003, Wheeler and Haub described CSR being overlapping with jobs, products, economic profitability and growth, which is related to societal expectations and to activities aimed at improving the social environment of the firm.

1.4 1980s 1

By this decade the view of the corporate world started to become wider and wider and they accommodated more liberal views and meanings of what should CSR constitute. Alternative terms such as stake holder CSR, corporate social responsiveness and CSP (corporate social performance) came into picture. More focus was given on sustainable development and role of CSR in it.

1.5 1990s 1

By this decade enough research was done on CSR and related terms, and hence this was an era to build upon what existed and put them into practice. Business ethics, corporate citizenship and CSR thinking took roots right in the deepest corners of the organization and a top down implementation was taking place to ensure the company was up to the mark when it came to its CSR. As described by Thomas G. in his working paper, Swanson (1995) described three types of CSR

1) The Utilitarian perspective – instrument to achieve performance objectives

2) The negative duty approach – compulsory adoptions of social beneficial and responsible activities under the pressure from the society

3) The positive duty view – self motivated businesses, trying to do good to the society without losing focus on overall business objective

2. CSR in the 21st Century

Collapse of Enron, the James Hardie asbestos scandal in Australia and many others big and small scandals brought CSR in a never before limelight. Corporate and private enterprises are now no more seen as organizations run by a group of individuals, but are treated as a going concern and as an individual expected by the society to contribute to public good as much as any other citizen. People expect them to take the ownership of all the good, bad and ugly things happening by them and through their organization. Globalization, privatization and deregulation in developing countries have given immense power to corporate world and CSR is one way to ensure that the companies not only give back to society as a philanthropic act, but also as a duty with well defined rights, structure and accountability.

The world is becoming more and more integrated and the flow of information is seamless from companies, to the stake holders to general public. Availability of data is regarding activities of companies, legislations and governing rules is relatively easy and wide spread as compared to the era without ICTs (Information and Communications Technologies). This has led to emergence of new types of CSR, with companies recognizing that addressing the social aspect is an indispensable component of their business and crucial for achieving long term economical success. 1

In depth work was created to put CSR into perspective with the purpose, impact and the benefits of philanthropic CSR, risk management CSR and value creation CSR. The same

is beautifully described in the table below.

Fig 1: CSR structure for Value creation 32

Basic driver of CSR consists of

1)Values – of doing good to the society, nature and the environment in general

2)Strategy – of being more responsible towards the society and the environment and using that as a strategy towards growth and profits

3)Public pressure – consumers, media, govt., overseeing bodies and international organizations are constantly pressurizing companies to be more empathetic to the society and environment and more so urging them to do the right things.

Throughout history CSR has been a focus of discussion among public, government and only TNC (Trans National Corporations). Recently a gradual shift has been observed in participation of SME (Small and Medium Enterprise) segment in proactively engaging themselves in CSR activities.

3. CSR – components and rationale

3.1 Defining CSR

CSR is variously defined as

‘‘The continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large’’. (World Business Council for sustainable Development) 5

‘‘ Being socially responsible means not only fulfilling social expectations, but also going beyond compliance and investing more into human capital, the environment and relation with stake holders.’’ (The European commission) 6

Hence CSR is best looked not from just a social perspective or a business perspective. It needs a holistic approach and is much more than just social service by corporate. It effects the corporate, the profits, the business processes, the business ideology, the society, people at large and all stake holders including the environment.

3.2 Components of CSR

This section is an attempt to put CSR into a definitive structure as per the current meaning of CSR. As we have seen how the meaning and implication of CSR has changed over last few decades it is important to keep the structure flexible and keep updating it by including and excluding factors as per the existing demand of business and society.

Table 1 describes how CSR is changing from having a legal and binding form to a broad range stakeholder involvement model. From business perspective it is changing from pain alleviation to cost benefit and eventually to strategic alignment.

Focus of accountability

From

Legal and traditional stakeholders

to

Direct stakeholders, short term impacts

to

Broad range of stakeholders, long term impact

Business case

From

Pain alleviation

to

Cost benefit rationale

to

Strategic alignment

Level of engagement

From

Compliance with legal responsibilities

to

Harm minimization

to

Social value creation

Degree of influence

From

Market actions

to

Market remolding

to

Policy influence

Table 1 –The dimension of CSR4

3.2.1 Legal View – expanding focus of accountability

The question to ask is who are the stake holders in CSR and its implementation. Few decades ago CSR was only a legal binding with traditional stake holders like government, statutory organizations and legal bodies having regulatory powers. But this changed to involving the customers and the business partners as the stake holders in CSR and eventually what we see today is the more evolved form of CSR including almost everyone from share holders, public in general, management of the corporate, government, legal authorities and environment as a whole. CSR

3.2.2 Strategic business case

The thought by Milton Friedman’s Minimalist view of corporate responsibility started a never ending debate if business are meant only for profit and practicality of life, or does it owe anything to the society. But today things seen from the eye glass of CSR shows that principles, values and social responsibility can go hand in hand with profitability and business acumen.

Pain alleviation is used by organizations when they are under compulsion and pressure by the virtue of legal binding, public pressure or peer pressure. This is because the corporate is worried about its reputation and brand image under which it abides by the CSR. But if CSR looked deeper can lead to cost benefit. To quote a small example, more and more organizations, both SME and large organizations are taking part in ethical trading ensuring that the poor farmers who produce the raw materials get the required remuneration for their labor and hard work. The Sainsbury’s group is one of UKs largest retail chain who has taken part in the Ethical Trading Initiative (ETI) which covers the code and conduct of international labor market. Many of the retailers withdrew from this initiative bearing in mind the legal risk, but Sainsbury stuck to its word and came out with flying colors. It works closely with Oxfam (UK) the most significant Non governmental organization in ETI. 7 Hence this has lead to improvement not only in brand image but also lead to decrease in cost as more producers are willing to do business with Sainsbury’s for the reason of trust and belief. And eventually CSR can become a part of the core strategy of business. Indira Noyee, CEO of Pepsi Co. mentioned in one of her interview to NDTV ltd., India that Pepsi co. wants to eventually become a health food company. Company is constantly devising product range which has health benefits or at least it does not have any side effects, and hence you can see how CSR can eventually become the strategy for growth which people will embrace with both hands as eventually it is for their benefit and the overall good of the company. 8

Sustainability ltd. carried out a comprehensive research on how CSR is benefiting SMEs in developing countries and it concluded that there is a strong correlation between profitability and incorporation of CSR in business strategy. However it states that the profit is not in short term, and there might be significant investments to be made but eventually when looked in long run this is a better strategy. 9

Hence the three ways, in which organizations engage in business case, namely pain alleviation, cost benefit and strategic benefit the business in long run. But to achieve this the level of engagement needs to broaden by the corporate and hence the next point of discussion

3.2.3 Strengthening and broadening the engagement level

Any organization works in CSR by engaging with the local authorities, government and legal bodies at their level. It then engages to decrease the negativity of the society and managing the risk of reputation and finally engages in a positive manner to create value for the societythrough innovation, investment and overall environmental good.

Fig 2: Corporate engagement at different levels4

3.2.4 Widening degrees of influence

Why are companies always behind more and more growth, why is it always behind mastering best practices, huge profits and no. 1 position in marketThe answer possibly lies in expectations of people. At one side the social angle of CSR where people expect companies to give back to the society, but at the other end they want companies to do well on stock markets, have an impeccable balance sheet and make huge profits. Hence a change has to come everywhere if CSR were to be implemented for overall good of the society. Especially in case of SME, monopoly is rate, competition is driven by price and hence CSR is sidelined and no body wants to sacrifice its cost structure in order to do some good to society. Widening degrees of influence is all about how market influence CSR decision and how markets can be remold to understand that less profitability with worthwhile CSR ventures is better than doing nothing with huge profits sitting on the balance sheet. And finally this has to evolve to a stage where the policy can be influenced so that there no SME company in a conflict of better profitability and price war or of implementing CSR for long term benefits.

Simon Zadek has beautifully described the development of CSR in three distinct stages or generations as he calls as follows 10

4. Generation approach to CSR

4.1 First generation

First generation CSR says the organizations can be responsible along with being commercially focused. This is the most simple form of CSR which became highly popular in 1990s whereby top management of organizations and corporate themselves donated huge sum of money to NGOs for good causes. This directly does not affect the business, but adds the reputation and improve the perception of the co. and the brand in a positive manner in eyes of all the stakeholders. People also term this as reputation protection strategy whereby the negative effects of business on society is tried to be overshadowed by donating money and getting media attention more than the harm done by those corporate / individuals.

4.2 Second generation

This has now developed where companies incorporate CSR in the core strategy for long term and take lead without any pressure form government or public. There are innumerable examples listed in the business case study to prove that this strategy works well for small, medium as well as large organizations alike. CEOs are seen as the torch bearers of such strategies and are often called ‘Citizen CEOs’, a coin termed by Elkington. 11

4.3 Third generation

Third type of CSR is what is needed really in today’s globalized and interconnected world, a global village in true sense. Still there are parts of civil society untouched by the benefits of the products and services the companies have to offer, or the philanthropic deeds done by them for societies benefit. CSR needs to be integrated in the network in such a way that it reaches the most unfortunate parts of the society, who need help the most in education, health, sanitation and basic amenities of water, food and electricity. Sustainability will play a major role and only those organizations which are sustainable in true sense will be able to make this possible.

All three phases of CSR can be described by use of a diagram, which shows how third generation of CSR can be used to achieve maximum societal benefits as well as maximum commercial benefit.

Dave Stangis, Vice president for CSR for Campbell’s spoke about 9 points which companies can use to start their march towards third generation CSR. Unlike past generations mentioned above which can be summed up in words like philanthropy and compliance, the differentiating factor according to him for corporate willing to incorporate CSR in their strategy will be the following nine points

Integrated into culture Integrated into your company’s innovation cycle Integrated into recruitment and leadership development Integrated into performance management and compensation systems Differentiate your company and be identifiable to employees, customers, suppliers and consumers Integral to your mission, values and strategies Reflect discipline and distinctions between “participation” and “demonstrated leadership” Provide strategic, policy and operational focus Leverage unique strengths and intellectual capital

Campbell’s has taken CSR to a new level by even engaging its media and marketing partners and adagencies with its mission and vision with CSR strategy. 12

Fig. 3: The Axis of strategic development 7

5. Argument against CSR

Of the innumerable articles and books written on CSR the words of Milton Friedman holds true even today that ‘the social responsibility of business is to generate profits’. Those words made such big impact that it was the headline of New York Times in 1970. 13. he went to clarify himself by writing ‘I have said that there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits, so long as it stays within the rule of the game, which is to say, engages in open and free competition without deception or fraud’.

On 16th May 2001, an article appeared in Financial Times London, about how CSR is holding back companies and hindering growth14. This article was based on a pamphlet by David Anderson, the then Chief economist of OECD which said that CSR is conducted mainly by activists, most of them who are critics of free market economy, growth and multi national companies. Eventually this leads to the birth of neo – corporatism and leads to companies making highly debatable environmental and political judgments. The end result is the corporate, the government and few NGO or activists groups promoting CSR becomes so powerful that their cartel itself becomes a power centre and threatens everything which ought to be the right way. Wolf concluded the article by saying ‘‘the role of well run companies is to make profits, not save the planet. Let them not make the error of confusing the two.’’ 14

An immediate response came from many individuals, groups and corporate, pro CSR, about the misguiding nature of the article. One notable argument against Wolf’s article came from Michael Hopkins, MHC international ltd. who stated that Wolf did not define CSR at the first place; one school of thought is treating the stake holders ethically. Stake holders can be internal – employees, or external – environment, people, other organizations and customers. Wolf implied that CSR leads to decrease in profits, but Hopkins argues that profits at what costNeeds to be looked into deeper. Wolf stated about triple bottom line, one that comprises of profits, environment and society and said that this is against the free market economy which considers only profit. But there are many examples stated by Hopkins about how a company can maintain a balance between all three and be successful for a long period of time. 14

CSR leads to increase in costs. True, but the supporters claim that the long term benefit to the society, environment and everybody eventually outweighs the cost. Not only the internal and external stake holders, but the company itself benefits by way of better reputation, loyal customers and better brand image leading to more business.

Keeping aside the argument of the 1970s, the rules of CSR are very dynamic and subject to change all the time. It is a process, which is evolving towards perfection, but what is perfect no body knows. Hence follow the best practice available and make the most of CSR is what experts suggest. It not only the external stakeholders like the environmentalist and poor countries who are evaluating company through the watch glass of CSR but the investors and employees are not behind. As the competition increase, talent pool becomes limited as compared to the demand for skilled labor; employees are ever choosier to see if the company values fit their own values. A reputed bank analyzed the clicks of their website and found that around 75% of its applicants who visited careers section, never failed to visit the CSR page and see what the ideology of the bank is when it comes to being socially responsible. Investors are slowly changing their attitude towards core profitability and slowly accepting companies with moderate profits but better CSR strategy, making them a value pick in long run.

The criticism for CSR actually helps to prevent two major side effects of CSR:

Imposing stringent standards which hinders value creation role of corporate and eventually lead to job loss, under investment and lack of services which widens the gap between developed and developing countries (UNIDO, 2002) Huge amount of criticism, pressure for change away from human rights violation, environmental abuse and cultural adulteration while doing little to actually improving things

To avoid these flaws to over power the benefits of CSR the business accountability process need to be

Based on legitimate and reasonable rules and legislation and the decision making body should include participation from organizations of developing countries Backed up by robust measurement, control and reporting methods. To effectively and efficiently measure the impact of CSR on environmental, social and economical areas. Flexible enough to allow business to create better value along with following CSR and best practices solve problems and develop opportunities.

Milton Friedman was right about mentioning to stick to the rules of the game, which is ‘profit’ for corporate, but he wouldn’t have imagined that the rules will evolve so quickly including such a vast range of issues which the corporate world is expected to address. There are many researches which indicate that doing CSR motivates staff, improves brand image and eventually increases profit. 13

6. Growth of CSR

Only by browsing the web for a mere hour will make one realize that CSR is not just one topic of discussion or a department with few people working in it, but it’s a full fledged mainstream strategic work involving attention of the top management of both big and small organizations. BiTC Omnibus survey on CSR attitudes proved that CSR is not a passing activity or just a fad of the philanthropic and activist world. CSR has gradually now shift from ‘nice thing to do’ to ‘good thing to do’ to ‘you should do’ till ‘we need to do’. Third generation CSR will see through this and lead us to a ‘will do’ attitude. 15

7. Trends in CSR

It is easy to find out first generation CSR deployed by companies and individuals alike, with little efforts you can find handful of companies involved in second generation CSR, but it is difficult to find a true example of third generation CSR. Especially in developed economies, the SME segment is wary of CSR as it is, and prefers to stick to first generation CSR at best. A study shows 95% of the companies are following first generation CSR, with only 5% involved in second generation CSR. This 5% is a ray of

hope that market is changing its attitude towards CSR to move in the right direction.

Fig. 4: The Generations of CSR distribution 4

8. Importance of CSR

Increase in number of companies reporting global environment reports and CSR activities and including them in the AGM and balance sheet. Over half of world largest companies produce global environment report as a part of CSR. 16

Increase in number of people who are interested in what the corporate are taking from the environment and society and what are they getting back in return in terms of value. Health and safety, equal opportunities, environment, bribery, racism, sexual assault at work place, glass ceiling effect, child labor, corruption are few issues cited by every two our of three individuals who took part in the survey. 17

Public pressure for CSR is increasing by day and companies are forced to take action as soon as possible, sometimes even when not possible. Like in the recent case of British petroleum that was held responsible for oil spill which took the natural balance of the Gulf of Mexico and many nearby areas went for a toss. 17 to 39 million gallons of crude oil was spilled, around 150 endangered species of sea turtles are feared extinct, entire east coast was damaged even effecting the west coast of Florida and a large number of people living in that area are now see the ill effects of the oil spill on their health. 18 Had BP followed strict CSR involvement in its corporate strategy it would have thought through the ill effects of such a disaster on the environment and possibly taken more steps to prevent itEstimated costs of clean up went up from $5 bn. To roughly $34 bn. When the US senators demanded BP to put $20 bn as a deposit. 19

9. Emerging Markets – Developing countries

There is a reason why now the term ‘emerging markets’ and ‘developing countries’ is used interchangeably, because developing countries are seeing a never before growth rate and are developing at a far better pace than western developed world. ‘Emerging markets’ was a term coined by IFC to describe those economies where international funds could buy securities but now it stands synonymous for developing countries.

A World Bank report defines developing countries as those with Gross National Income (GNI) per capita of $9265 or less. They also classify economies as low income ($755 or less GNI per capita), middle income ($756 – $9265 or less GNI per capita) and high income ($9266 or more GNI per capita). The low and middle income countries are called developing countries. 20

Evolution of CSR in such economies is a topic of debate as there are contradictory views and data available. Evaluation of 7 Asian economies was carried out (Indonesia, India, Thailand, South Korea, Philippines, Malaysia and Singapore) and a conclusion was made that CSR in these economies was still in very juvenile stage and that necessary mechanism and procedures did not exists in corporate and governmental organizations other than a mere charitable outlook. One of the reason stated in the research was the lack of necessary legislations and appeal procedures for both general public, activist bodies and corporate unlike the case with North America and Europe. Mean value for these seven economies came out to be just 41% penetration of CSR as compared to 98% in developed nation like UK. However India stood at a mean score of 72% as compared to Indonesia at mere 24%.21

One of the reason for low penetration, apart from lack of proper legislation is community involvement only to the extent of philanthropic deeds by corporate, and the corporate strategy to implement CSR only at an absolutely necessary basis rather than a voluntary strategic basis. Unlike the EU and US, developing countries see CSR as a part of corporate philanthropy and help government superficially to fund, let alone execute social development strategies. Though there are exceptions in each economy which we shall look in detail later, most of the organizations look at CSR as a small, trivial part of the whole business aspect.

9.1 Methods of CSR reporting

Moon (2002) presented a paper where he describes three methods of CSR reporting namely ‘community involvement ’, ‘socially responsible production processes and ‘socially responsible employee relation’. Thought these does not cover all aspects of CSR like we saw in previous sections and is not exhaustive, it serves a good measuring scale to see how developing countries fare against developed. In developing countries the community involvement parameter is fully met in most of the organizations, but only at the philanthropic level. Rest of the two parameters is internal to the company and are often not incorporated in the strategy of the company or discussed with other stakeholders. The end result of the study showed that developing countries through strong on first method, lack vision and processes for CSR to achieve the second and third method of CSR reporting. 22

10. Unique Case of SME

Across the world CSR has been tried, tested, used and implemented by predominantly large companies who are so big that they can afford to have a different section on CSR working consciously on its growth and development. All eyes are always on what these large corporations are doing and hence they are under constant threat of their reputation and losing its market leadership. SME (Small and Medium Enterprises) are the ones which can make a real difference to CSR development because of the number of them present in developing countries and the business share which they have in developing countries. Hence it is worth having a closer look at them in relation to CSR.

10.1What is SME?

Small and Medium Enterprises (SME) are predominantly a large group of heterogeneous organizations which are either privately owned or the stake holders have a limited liability. Often they termed a SME based on their market capitalization or annual turnover. They include a wide variety of firms in field of manufacturing, service, handicraft, computer software, machining firms, agri business firms and even construction companies. Some are completely family owned and not much change when the management is taken over by the next generation, but few are dynamic growth oriented organizations who prefer to hire professionals and move towards better profitability and growth. 3

Definition of SME largely depends on the defining parameter, but it is important to note that every large company we see today was at some point in time a SME. Not many companies are directly born of the size of the national federal bank or proctor and gamble. Every company has a modest start, like Vodafone was a little co. from racal, Microsoft started from a garage and Google was just an idea with a bunch of youngsters who did it the way they wanted to. Face book, Hewlett Packard and even Volkswagen has very humble beginnings and hence its worth to study the SME segment as this is where the real jewels can be identified and grown. 3

Latin America has 80% of its market dominated by SMEs and government has drastically reduced red tape to ensure their growth. Except Argentina all other regions including the flagship economy Brazil and Mexico increased in size due to SMEs. Colombia’s chambers of commerce rose from an average of 20% in 2000 to 93% in 2002.

Asia and Africa also has a significant portion of its economy driven by SMEs.

A step deeper into the status of SMEs in the developing world indicates that even today these enterprises are serving small markets, with less productivity and poor quality. Technologically they are good but not as advanced as they can by with correct help from the government and funding from market. Apart from financing, technological help is a very big factor for development of SMEs which is evident from the proportion of funding given by IFC (International Finance Corporation, World Bank).

Fig 5: Support to SMEs in USD Millions – Technical and Financial assistance 3

10.2 Role of SME in economic development of the region

The government of the country cannot be entirely relied upon for creation of job and providing the citizens with equal opportunities to work. Private sector bears the most importance in such scenario and SMEs form a huge part of this private sector that create jobs and support the economy. SMEs make up around 90 percent of business world wide and about 50 percent of employment is due to SMEs 4. There is an array of data available on SME contribution but the following points tries to summarize if not state each of them in detail.

They act as the much needed building blocks to link government, public and other larger organizations. A country cannot operate with only gigantic companies catering to all people need. SMEs provide with vital services which big companies might not be interested in or are not as profitable to them. SMEs are starting point for any large organization to take birth and it is only through SMEs that the sprit of entrepreneurship is thriving and alive. SMEs deploy more labor and create more jobs than larger organizations. They are not technologically so advanced and hence they need more labor than bigger corporations. SMEs are key for a developing country to get converted from agriculture economy to an industrial economy Income distribution is equitable when SMEs are operating and this avoids concentration of money and resources in hands of handful of rich people. They are highly flexible, innovation driven and changes can be made at a much faster pace than larger organization due to which they are more adaptable and customizable.

10.3 Corporate Social Responsibility and SMEs

CSR is being implemented at a multiple stage in the SME segment via the government legislation, involvement of civil society organizations (CSO), TNCs and public involvement and self interest in general. There is a school of thought that the pressure created by the unison of the above mentioned bodies creates an unfair pressure on SME and that the net effect of this close monitoring will lead to a decrease in welfare of the society. But on the other hand, we have examples of how CSR has provided SMEs with greater market opportunities, reductions in costs and improving its marketability and profitability. It also leads to social benefits of education and health facilities where the SME operates and takes care of the local community support it via labor and other resources.

Hence it’s a debatable relationship of SME, CSR, government and society. It is very important that all the bodies involved in driving CSR forward understand the implications of the implementation of CSR and the pros and cons which we will see in the latter half of the report. It is important the CSR be implemented not because of compulsion of the legislation but by willingness to incorporate CSR as an integral part of the business model. Without the involvement of SME in the whole CSR approach, the developing countries and the SMEs themselves will stand to lose more than what they might gain by not implementing CSR and saving costs and efforts

11. The stake holder duo in CSR

There are two dimensions of CSR when looked from a perspective of the beneficiaries of CSR. Internal stakeholders, which include the employees, the company itself, all the parties involved with that company in business, suppliers and the top management themselves. It is worth to have a closer look at each parameter as below

Fig 6. Internal dimensions 31

11.1 Internal Stakeholders

11.1.1 HRM

This element includes employee relations, employee satisfaction, fair labor treatment, fair payout rules, improving work and family balance for employees, diversified workforce, profit sharing, equity stock options to be distributed fairly and fair recruitment policy. In context of developing countries, this component of CSR is most important due to the following factors

Lack of fast, effective and cheap judicial system due to which employees subject to racism, discrimination or neglect are unable to fight for themselves Availability of cheap labor in developing economies make companies less dependent on its employees and hence care less about HRM CSR component In developing economies, technological advancement and its use is not as widespread as in western countries. Coco cola co. in India has not invested heavily in vending machines, as it has done in EU, UK and USA because labor is cheap, people are not tech savvy and using that labor is cheaper for the company than making capital investment in vending machines. Almost 10% of sales in India happen through coke fountains where an individual manually dispenses coke and serves. Similarly in china an experiment was carried out to install vending machines, but with a human inside to dispense a bottle of coke called the push cart program. 23 11.1.2 Work safety and health measures

This has a very important role to play as this might be a question for life and death for vulnerable employees or people at risk. This factor has a direct impact on the productivity of the work force and hence affecting the profitability. Most of the developing nations have their policies in place for this factor, but companies need to be more proactive in forming internal processes and policies for an emergency to ensure the health of the employees are not put to risk in any instance. Companies like Unilever, Cipla Pharmaceutical and Coco cola ensure that not only them, but the companies related to them in the work environment also adhere to the strict standards of health and safety parameters. Since this factor is so important even without considering CSR, most companies in developing nations have well documented reporting structure, control measures and action plan in cases where care is needed.

11.1.3 Adaption to change

Developing countries are a hot hub for mergers and acquisitions in corporate world. This inevitably leads to job losses, or technological changes in the company due to which the interests of the internal stake holders might be jeopardized. Hence it is important to restructure in a socially responsible manner. TATA Steel, one of the top 10 business groups in India acquired Corus Steel in Europe in 2009 and was very careful in downsizing the labor force for cost cutting and getting back the ailing co. in profit. 24

11.1.4 Management of Environmental impact

This is the most important and the oldest parameter of CSR which just cannot be ignored or taken lightly. In today’s globalized world run by the single most powerful resource called ‘oil’ it is of utmost important to think about the environment and global warming. Companies must remain conscious of their impact, carbon footprint, on the globe by the activity they engage in their business. Optimization of resource utilization, reduction in carbon emissions, reuse and recycle can reduce the environmental impact. Since developing nations are the biggest source of carbon emissions in the world, it is better for long term success of the country as a whole to take carbon emission levels seriously and act on it. 25

After internal, the External stakeholders involve customers, dealers, distributors, government, local authorities, civil bodies and common public. This dimension had three major divisions as follows

Fig 7. External source 31

11.2 External Stakeholders

11.2.1 Local communities

Developing countries is where more than half of the world’s populations reside, and hence most of the multinational companies flock there in search for business. This leads to a lot of foreign origin companies being established in those nations and the need for keeping positive relation with local community, local authority and the state and national government arises. TNCs cannot afford to exploit the resources of the nation, sell them their products and eventually siphon off the profits away from them. They will need to have a deeper understanding of the local community, the local flora and fauna and help to maintain the balance. Many TNCs have setup large manufacturing plants in rural areas of developing nations as they provide with cheap labor and hence cost efficient manufacturing. Whirl pool, a TNC in manufacturing of white goods saw that it was unable to sell its fully automatic machines in developing countries and hence it had to actually buy the obsolete technology which had disappeared from western world from Korea and sell semi automatic twin tub machines. 31

11.2.2 Business partners

They are the most important parameter from business perspective, but it surprising to know that even looking from the CSR point of view, it happens to be an important factor in external stake holders. Smaller companies who work with large TNCs would like to see the large company following CSR guidelines of the country and not exploiting the resources in their country. It is important to develop and manage healthy relations with business partners, local and international for long term growth. And since there are smaller companies who dedicatedly supply only to one big organization, will definitely be touched by the CSR practices which the large organization follows. This leads to a trickle down effect in the whole supply chain and leads to an overall positive outlook for business and society alike.

11.2.3 Human rights

This is by far the most debatable issue in many different subjects of study and can be viewed from many different perspectives. According to Robbins (2000), “Companies operating in countries where human rights are regularly violated may experience a climate of civil instability and corruption that makes for uneasy relations with government officials, employees, local communities and shareholders.” 26 Amnesty international always mentions that corporate have a direct responsibility to protect human rights and obligation to report any violations. They are urged to use their influence on govt., local bodies and general public to eradicate any differences and human rights violations if any as far as possible. The caux round table conference stated that companies have responsibility to respect human rights and civil liberties and respect the democratic nature of institution and promote it wherever they can.

In developing countries, TNCs are developing large infrastructure projects for betterment of that nation. But this leads to relocation of thousands of poor people, which needs to be handled with sensitivity. Firm needs to build confidence in the local community of the positive effects of the project and that their human right of land shall not be compromised. Companies must ensure that instances of forced labor, child labor or not providing with basic facilities to workers in their factories do not occur in their company. there are cases where nike, Addidas, Puma, Reebok etc were found to be involved in forced labor, paying minimal wages and exploiting the labor class in Indonesia, China and India among other countries which had a strong negative impact on the image and a long term dent in their top and bottom line. In 1984 Nike closed its last running factory for manufacturing shoes in USA which lead to loss of approx 65000 jobs in USA. In turn they did create employment in other developing countries but at the cost of exploiting them. Most shoe manufacturing labor workers are young, unmarried girls in Asian sub continent who are paid as low as $2.50 a day in Indonesia. Minimum wage to service in Indonesia is around $4 to $4.5 a day, and even then Nike is ignoring this statistic. More than 60% of labor of Nike lives in quarters provided by Nike. They are one storey barrack like buildings, dark, less ventilation and very poor sanitation facilities. Total of 350000 people work for Nike in Asia and there is nothing much Nike has done for its welfare as compared to what it can give the scale and profits of the company. Nike spends roughly $250 – $280 Million dollars a year on athletic sponsorships and media marketing, which suggest that Nike can, if they want, plunge into third generation CSR to give back to the society. 27. There are reports of Gulags or prison labor camps in many regions of china where they produce products for not wages and those products are sold locally or exported. 26building of a gas pipeline in Burma is an example of how big corporations are abusing the power of the local ruling people for its own good.

12. Hot issues in CSR in developing countries

12.1 Product responsibility

There is an increased in number of people and organizations fighting for the newly discovered consciousness of the quality and ethicalness of the product any company has to offer, let alone the way it treats its employee, society or environment. They include genetically modified food, AIDS drug testing, animal right, cigarettes and government policy on it, junk food and its effect on population etc. these issues are difficult to solve because they are ingrained in the core of the business for many organizations. Few companies are working on this and have realized the fact that first and second generation CSR will not help here and a more holistic view of the product they deal with has to be taken.

Cadbury in India was under tremendous fire when one of its factory vessels full of chocolate was found with worms in it. There was an immediate debate between FDA (Food and Drug Administration) and a fact find mission by Govt. of state. Cadbury’s tried to blame it on the storage by the retailers and stockiest, but immediate reaction was that the packaging was so weak for it to be infiltrated by worms. It was a serious breach of health and safety policy laid by government of India and so drastic was the retaliation by public and civil bodies that Cadbury had to redesign it poly flow packaging to reinstate trust in its products. There was a drop of 30% in sales in that quarter for Cadbury’s which was so acute an impact on the bottom line and the image of Cadbury’s that it launched a special media campaign within three months of the instance on national television saying that their products are top in quality and have been serving Indian markets for decades now. Bharat Puri, managing director, Cadbury’s India said, “While we’re talking about a few bars of the 30 million we sell every month – we believe that to be a responsible company, consumers need to have complete faith in products. So even if it calls for substantial investment and change, one must not let the consumers confidence erodes.” Whether this was proactive CSR or reactive CSR by Cadbury’s is best left to the experts, but this shows that CSR if not a core part of the business strategy can make or break you in matter of months, as in this small instance which risked taking the whole multi million company down to the dogs. 28

Brazil is known for its ‘Brazilian blowout’, a keratin hair straightening process which leaves you hair ever beautiful, straight and shiny. Keratin is a protein, and since hairs are made of protein, the authors of the article ‘Brazilian blowout gone bad and other chemical misdemeanors’ thought it would be safe to do this treatment. Within weeks the shine had long gone and customers suffered severe problems with their hair, nose, throat and eyes. Their research took them to discovering that actually the product used on their hair was not only keratin but many chemicals were included in it, the most harmful being formaldehyde. It was stressed that only ’11 out of the 10500 ingredients used in the cosmetic industry in Brazil are determined by the FDA to be fit to use in cosmetics. Skin is porous and hence the nicotine patch works by absorbing the nicotine and giving it to the blood. Similarly if such cosmetic products are used on skin, it might get in to the blood stream and cause cancer and many unidentifiable complications. Formaldehyde is a known carcinogen and this was a clear case of lapse of CSR on the part of the manufacturing company and the company which was selling the service of Brazilian blowout. 29

Why it is important that CSR be implemented across the globe with similar and preferably same standards is because in today’s globalized world, everything is interconnected and every single product is made of raw materials sources from different countries. Each country has its own laws, processes of manufacturing and processing and packaging it. Hence there can be a case of a lapse not because of faulty product, but because of a faulty part or ingredient. In June 2007, foreign tire sales inc. recalled all tires imported from china. The tyre had problem of tread separation which led to accidents and jeopardized lives of thousands on road. Nations largest recall was made by ford motor co. in the year 2000 as well with similar problems. In this instance Hangzhou Zhongce Rubber Co., of Hangzhou, China was left unaffected due to no rules and regulations of accountability or CSR in global transaction and that the co. is solely based in china and sold in foreign countries though third party dealers. 30

12.2 Sustainability

In the words of Sanjay Agarwal, a faculty at Indian Institute of Management (IIM-K), ‘In these turbulent times, when almost all corporate entities are searching for sustainable ways of doing business in globally connected societies, the book under review spells out the how and what of social responsibilities of corporate entities operating in India’ while talking about a recently published book. High level of use of non renewable sources, use of destructive technology for production and delivery of service, damaging the environment and hence endangering lives of thousands of species are few examples how greed of large organizations is endangering their own existence at the end of the day. To ensure that business run for long term, and are profitable, they need to be made sustainable at the first place. Management has to think long term, and in terms of worst case scenario and then act accordingly to create a sustainable business environment.34

As per Rosser (2010) the full definition reads: ‘CSR is a company’s commitment to take part in sustainable economic development in order to improve the quality of life and the

environment, benefiting the company itself, the local community and society in general.’

Hence the work the company is doing might be very good in all aspects, but if cannot be sustained on long term basis, this business can be actually deemed as wasting resources for short term gain. 35

A very different approach is taken by China in this case where it believes that if proper education is imparted to its citizens, sustainability will come naturally to an extent. Banks are encouraged to educate people on financial stability and decision, as well as create a micro lending initiative in rural areas. Agricultural firms are encouraged to train farmers and their families how best to cultivate for maximum productivity. If people are educated and trained properly by existing corporations to maximum extent possible, one the load of government will drastically decrease and two will lead to a much more sustainable development of the country.36

Brazil, already is a champion on production of sustainable hydropower and biofuel industries, is among the worlds greenest and most sustainable economies. 43% of its resources used are coming from renewable sources of energy, and hence it safe to assume that each corporate using resources to produce goods and service uses 43% of clean energy while delivering it. The size of investments for sustainable energy rose to $7.9 B in 2007, up from $0.5 Bn in 2005. The due credit goes to the government of Brazil which has approved regulatory framework for water, sanitation, waste management, renewable energy, public investment in infrastructure and sustainable GDP growth. Imagine if the corporate of Brazil join hands with the government, can actually turn the table for CSR management and sustainability question marks from everything. Brazil has a carbon credit market operating since 2005 where many companies have entered Brazil market with carbon credit certified projects like BRF Brazil Foods and NocaGerar, a JV between EcoSecurities and a Sao Paulo construction firm.

12.3 CSR management / Governance

This is one of the most talked about topic at various forums, internet, internally in the country as well as outside. Developing countries have seen unprecedented growth over the last decade and their economies are thriving like never before. Businesses are growing huge, with number of employees in hundreds of thousands and turnover in billions, management is becoming a key issues. Specially when the topic of CSR, which is relatively new, less researched specially in developing countries and still under evolution is asked to be managed. Managing CSR and its various components is becoming an arduous task for organizations.

To tackle this, china has taken these issues hands on by appointing executive level CSR committee like all other corporate does in all other countries. But in addition to it, a mid level CSR position is created at each office, each manufacturing unit and each warehouse. This would be the key person who will be actually implementing things and reporting to the top management on regular basis. For example if the company has operations 4 cities in china, there will be four mid level managers to look after CSR initiatives and activities in their regions. This will ensure maximum accountability, easy communication between top management and CSR manager and the general public.

A Community Outreach Council (COC) is proposed to be established at each location in china for planning, execution and monitoring all CSR initiatives. COCs will contain employees at all levels and will try to involve local people in local projects. This will help the employees to relate more to the needs of their own community hence delivering better results. 36

12.4 Accountability

There have been many scams and many frauds throughout the world, directly or indirectly as a consequence of activities of corporate. Millions of people have been affected by this but for the fact that they are healthy and alive has given them one chance to restart and follow their quest for success. But Bhopal Gas Tragedy, which happened on Dec. 3, 1984, whereby a pesticide plant run by the then company called Union Carbide spilled out approx. 40 tons of poisonous deadly chemical called Methyl Isocynate quickly killing around 4000 people. The death toll gradually increased to 15000 over the next decade as per various government reports. It’s been 25 years now and still people in Bhopal city of India are taking to the streets to protest about no action on part of government of India and union carbide getting free very easily. There is no accountability in the company, the group of companies or the government of a disaster which is termed as world’s worst industrial disaster. Roughly half a million people were affected by this disaster due to contamination in air, water and food. Even today one can see the side effects and mutation which occurred in the growing generation due to this spillage. The Prime Minister of India, Mr. Manmohan Singh gave a statement recently stating ”The enormity of that tragedy of neglect still gnaws at our collective conscience, I reaffirm our government’s commitment to resolving issues of safe drinking water, expeditious cleanup of the site, continuation of medical research, and any other outstanding issues connected with the Bhopal gas tragedy,”. But when it comes to the corporate, it does not exist. Not literally, but because it was taken over by Dow Chemicals Co. in 2001. Dow has taken a stand that it does not owe anything to the public as the legal case was cleared in 1989 where it was settled between Union Carbide and government settled for $470 Million and all the responsibility was transferred to the state government of Madhya Pradesh, India. 37

In a very recent case of non accountability of a companies action was seen when Wikileaks cables were released where USA was shown to be pressurizing the Bangladesh Government for approving the 6000 hectares of an open coal mining project. This project is said to have a life of 36 years and roughly 16 million tons of coal can be extracted annually. But this is coming at the cost of relocation of 5000 people according to GCM (Global Coal Management Resources) formerly known as Asia Energy Corporation. But the government of Bangladesh severely contests those figures and an expert committee report in 2006 says roughly 130000 people will get directly affected.38 There will be severe water shortage for irrigation and hence food shortage as well. Secondly GCM says 2200 indigenous people will be replaced, however Bangladesh’s Jatiya Adivasi Parishad (National Indigenous Union) estimate that 50,000 people belonging to 23 different tribal groups would be evicted.3

12.5 Sustainability

Global reporting initiative and NYSE Euronext hosted a conference where who’s who of the CSR world participated and it came out that top 11 challenges for corporate in no particular order are

Doubt Liabilities Denial Resources Causality Lack of Global Standards Benchmarking Lack of comparative credibility Uncertainty Fear of the unknown Fear of the known

It these are given the much needed and long due attention, many problems can be solved.40

There are companies now revolving around providing service to make other companies more sustainable, because they believe at the end of the day, all the resources which the globe has to provide are absolutely finite and there is now two doubts about it. One such company called article 13 based in UK writes about sustainability as a whole reason for existence. When it comes to sustainability, the main question that it takes form into is a question of resource allocation. How much resource is the company using, can it reduce it, can it reuse it, can it make it more efficient and once it answers all these questions, it takes one step nearer to sustainability. Because it is the limited resources and sometimes lack of it which makes us discuss sustainability as hot topic in CSR.

Coco cola has been a pioneer in CSR in most parts of the worlds. It has got its share of criticism as well in many sectors in different parts of the world. It was awarded the coveted ‘Vishwakarma Award’ for its role in environment conservation, water stewardship and sustainability on world water day. It put in efforts in rain water harvesting in association with CIDC, a body by planning commission of India. Now that can be termed as a sustainable business or a strategy. coco cola needs waters as the largest ingredient in its plant, and steps taken to conserve water, rain water harvest and water saving techniques can go a long way in helping coco cola recover the costs incurred in these projects as well as make profit out of it.

Unlike other countries where governments encourage companies to do CSR and give a hand in improvement of society and make a better and sustainable place, China has taken a slightly different approach. China CSR Map (CCM) is a project launched with the help of Chinese govt., GIZ, Syn Tao and China Credit Information Service (CCIS) since 2006. the project introduction on their website goes on to describe its existence as “The CCM directory contains profiles on government, international organizations, enterprises, service providers, non-government organizations (NGOs), media, academic institutions and online resource providers. Our CSR definition consequently covers diverse fields, such as labor standards and supply chains, anti-corruption and transparency, environmental protection, health and safety, philanthropy, education, arts, women and children protection, social responsible investment (SRI), etc. Profile of organizations provides information on their background, summaries of relevant CSR activities, project partners and publications. Profile of practitioners provides their CSR background and experiences.” 41

Unimaginable and unrestrained growth seen my top 10 developing countries in past decade has lead to issues as well for them. China alone produces 14% of world’s carbon emissions. BRIC countries together account for roughly 25% of carbon emissions of the world. China had highest population on earth, and has only 7% of fresh water resources for its people 42. Samsung has used its sustainability report (2009) to describe the way it has dealt with these issues and tried to understand, comply and communicate business changes in operation and strategy to address China’s environmental crisis. Pepsi Co. is not far behind when it created its first State-of-art ‘Green Beverage’ Manufacturing plant in China which will roughly use 20% less resources for manufacturing the same thing. 43

As per the experts in the field of sustainability, affiliated with article 13, sustainability can be achieved by educating employees, innovating products and processes, changing corporate culture, coaching teams and groups to integrate sustainability and pushing legislations even for sustainability.

12.6Sustainability reporting

This is again a very pertinent and hot topic in ongoing times especially in developing countries because they are still discovering their true potential in terms of growth and CSR. This can be used interchangeably with the term CSR reporting and deals with ways and mean of reporting CSR initiatives, activities and results. This report is for all the internal as well as external stake holders alike. Reports typically cover social impact, environmental impact, cultural impact, economic impact on society, ethical performance review, carbon footprint, staff satisfaction, community investment etc. After many decades a phase has come once again when there is equal in interest in what is being reported as much as how it is being reported. There are multiple frameworks which can be utilized on its own or in conjunction with others to create a holistic CSR report. The most favored structure or framework is the one called Global Reporting Initiative (GRI), first used in 1990s, and now is called G3 and is the most recognized. It tries to incorporate multi stakeholders, multiple organizations, government and environment as well. Developing countries are well embracing this new framework but not as seriously as their financial reporting. 44

A survey conducted by GRI and KPMG for what the readers want in a CSR report, the top things which came out was hearing bad newsThis gave the readers a sense of confidence in the company for the fact that company is openly accepting the problems it is facing and hence is more prepared and ethical than those who do not directly report.

But the trend of reporting is in very nascent stage in developing economies as compared to the highest rate of EU. GRI has been adopted in South America and South Asian economies pretty well, and those of Japanese, French and Spanish companies are reporting CSR for long term and get them audited by third parties.44

12.7 Climate Change

We have seen a bit about global warming and climate change in light of CSR and the situation in developing countries. But why is Climate change a hot topic in CSR, especially in developing countriesIt is because more than 75% of the population lives in developing countries. They emit huge amount of green house gases (predominantly carbon dioxide) and hence they are the major threat to world environment stability. But this growth in driven by the thriving population which has buying power and the corporate which provides the public with the products to buy. Its is the end responsibility of both consumers and companies to realize that climate change is a big issues which can only be tackled by joining hands and correct CSR steps.

There is a study which was first of its kind to reveal that plants have much more capacity to absorb CO2 and hence the global warming is not because of green house gases. But it was also mentioned that the capacity to absorb CO2 depends on availability of water. Hence the problem of water needs to be tackled first. But the amount of uncontrollable population growth the globe has seen, people are dying for basic needs like electricity and hence there are dams being built for generating electricity. These dams not only disrupt the water supply in hundreds of square miles of area, but also have an ecological impact. 44Hence this is a very sensitive topic and needs much more attention that the scope of this report allows.

A recent study on what FTSE250 companies are doing in arena of climate change and it was interesting report to see many different and innovative, but fairly easy and simple to implement methods are available. Still the numbers are low as only 12.4% of FTSE250 companies display information about climate change on their corporate website or in CSR reports. Developing countries needs to look at initiating small things at implementation level and start giving their contribution in the climate change issue. They need to take more part in global events on climate change like Carbon Disclosure Project in 2007, where only 17% of the FTSE250 companies responded with verifiable data.

The biggest challenge while tackling climate change is development and execution of clean energy. This can be solar energy, wind energy, tidal energy, and nuclear energy to an extent and geo thermal energy. Brazil has highest use of ethanol in its fuel consuming population using vehicles and public transport. It is rich in stock of sugar cane which is better than corn for producing ethanol. China is very actively working and promoting companies who are into manufacturing electric vehicles (EVs) and e vehicle infrastructure. This is much needed as china is world’s highest emitter of CO2 at 20% annually. China faces water scarcity with 20% of world’s population residing in a country with only 7% of fresh waters at their disposal. China has launched Top 1000 Energy Consuming Enterprises Program (2006 -2010) which focused on raising energy efficiency as it is these organizations which contribute to 33% of consumption of resources and 43% of Chinas emissions. But the way Chinese government has taken the problem of sustainability and climate change hands on, china is poised to become the leading manufacturer of clean energy technology for the rest of the world.

India on the other hand is still a little behind china in terms of providing better quality of life to its poor population. Worlds number two in population, some skeptics argues it can’t afford to invest in sustainable projects and should focus more on food, water, health and electricity problems for most of its population. But Indian government is planning to invest a total of $250 Billion by 2017 in promoting green business and sustainable business practices. 44

12.8 Labor exploitation

Since developing countries are the focus here, labor exploitation becomes a more pertinent point, as these countries are thriving because of its cheap labor and a small educated working class. Child labor, boded labor, working single young women and old dependent labor are always exploited and a strong intervention of government and NGOs is invariably required to stop it.

India is the largest market for child labor, right from domestic jobs till working in heavy metal industries children are subject to harsh working condition, with no health and safety rules and no consideration of him or her being 10 year old or so. There is an anti child labor law present in India now, but the media is reporting that this law is double edged sword which is making things worse for others. There are children who are working in retail and at restaurant who are losing jobs due to the strict rule of the government. Government on the other hand is an absolute failure to given education, home and family to orphans living on the streets of each and every city of India. Even use of children in advertisements or movies is under question and hence the rule is under attack from various different lobbies.

Nike, Reebok, Addidas all has their factories in Indonesia, China and India. There have been innumerable instances of poor working facility due which the companies have been subject to negative publicity. Not only labor, even in competitive markets like that of India, where financial service industry is growing faster than ever is having problems which CSR can address. Employees are put under tremendous stress of achieving targets and hence pushing the company closer to its own goal of achieving sales and profits. This has lead to so many urban life style diseases which is decreasing the overall quality of life. One example is ICICI Bank Ltd., which is the largest private bank in India, and had such fast growth in past one decade, but when the employees and customers are interviewed by a local channel in Mumbai city, they were not happy with the way ICICI Bank is aggressive in selling its products. 45

Ivory coast is among examples of child labor. Out of 200000 child laborers, around 12000 might be subject to human trafficking. They work in cocoa production fields and are paid a merger amount by the corporate for a full days work. Ivory coast produces half of the world’s cocoa, and you can imagine with coffee, chocolate and other products so popular across the world, ivory coast could be a much better place if it was paid its fair share. To tackle this problems companies like Ben and Jerry’s have been in fair trade since ages where a fair amount is paid to the raw material producer in developing country. 46

12.9 Social Exclusion

This is a rather unique and less discussed topic in CSR but well worth a mention in this thesis. This is an issue that impact both developed and developing countries alike, compounded by the phenomenon called globalization. Social exclusion happens when people do not have rights to basic things like water, food, land to live and irrigate and sanitation and health facilities, right to education, technology and basic minimum wage. Corporate world plays a major role in providing access to these basic human rights along with local government. Correct CSR strategy and its implementation will see through the stakeholders with these facilities and lead to a better society. United nation in its report in 2009 identifies the role of business in reducing social exclusion, poverty; divide between rich and poor and abuse of human rights. UDHR (Universal Declaration of Human Rights) was developed after the catastrophic World War II in 1948. This provides the common minimum global standard of the contract between the people and its government. Recently CSR has been incorporated in it by including the role of business leading society to a better state. UDHR supports the right to life, equality and fairness in all the dealing in the world, which automatically leads to CSR being a part of it. It prohibits slavery, torture in any form, pressure for work, freedom of movement and freedom of thought, conscience and religion on a broader scale. Traditionally corporate have been involved in defining and abiding by a small set of human rights as far as their businesses are concerned. Their role cannot be matched with that of the government and hence they are expected to respect human right rather than protect them. But there has been much work in this area to define and fabricate a blue print for businesses to consider human rights and avoid social exclusion in their corporate strategy. 4748

13. UNIDO and CSR in Developing countries

13.1 What is UNIDO?

United Nations Industrial Development Organization (UNIDO) is a specialized agency of the United Nations (UN) that promotes industrial development for reducing poverty, inclusive growth and globalization and environmental sustainability. Its long term objective is to achieve a sustainable, fair and just society which is equitable in terms of distribution of its resources, availability of equal opportunity and industrial development with CSR.

13.2 Study on CSR attitude in developing countries

UNIDO carried out this study in 2002 whereby it sent 60 questionnaires to developing countries organizations including Sri Lanka, India, Egypt, Indonesia, Nigeria, Pakistan Thailand etc. it got back 27 responses from various conglomerates, industry associations, individual businesses, TNCs and CSR consultancies. They all were spread across various different types of businesses to avoid any kind of bias in the study.

CSR is on the radar of all the organizations and they deemed it to be important (13) or very important (14) in their own sector. Respondents were asked to highlight key CSR issues in 5 areas as follows

Business principles (eg. Ethics, corruption, fraud etc.) Consumer issues (eg. Product safety, consumer rights, right to information etc.) Community issues (eg. Local environment, human rights etc.) Labor standards (eg. Freedom of association etc.) Environmental issues (eg. Climate change, pollution, energy efficiency etc.)

Transparency and accountability are major issues for majority (17 and 18 respectively) and political involvement being the least important (8). Responsible marketing was an important consumer issue, as misguiding the consumer had severe consequences on company’s image and business both. While job creation and community development was major issues in community category. Health and safety was the only parameter in labor standards which more than half of the respondents felt strongly about. Overall most important issues cited were pollution and waste (22).

They were then asked about their knowledge of happening around the world on CSR like the UN Global compact, supply chain labor standards, social and environmental accounting developments etc. 20 respondent felt CSR was a threat to their business smooth running. Few of them felt TNCs are a threat to SME of their country and segment.

Overall conclusion of the study as stated in the UNIDO report released in Vienna conference that there was an overall awareness of CSR. But the companies or organizations were not 100% convinced or clear about how CSR can help them and can CSR be ever incorporated in the overall business strategy of any organization. Main CSR issues seen by them are pollution and waste management, transparency and accountability. At the same time there is a general concern the way importance of CSR is increasing in the developing world, for it to become a barrier in the developing market. Overall they believe the CSR poses both threats and opportunities and needs heightened awareness levels with better management of conglomerates, industries and small businesses alike.4

14 Facilitators and Problem creators for CSR

After looking at the hot issues it is important to see the positive and negative factors influencing CSR because it’s only after knowing those one can take steps to tackle it. The table is divided into Hindering Issues, its examples followed by industry and product characteristics. Second part is facilitating issues with similar format.

CSR Hinderers

IssuesExamples Scientific and political conflict over best course of actionGenetically modified organisms (GMO); despotic regimes, Banking; Investments; Insurance and Media Impact not clearly linked to company actionsBanking; Investments; insurance; media Industry structure

No ‘household names’ involved in sectorDomestic services Fragmented industry dominated by SMEsFood; leather and other raw material Product characteristics

Industries where core business is seen as the problemTobacco, arms trade Good reputation with no apparent problemsDotcom, new media companies Product many steps removed from end consumerSMEs in manufacturing supply chain eg. Primary leather products CSR Facilitators

Issues Examples Health and Safety issues for workers and general publicUnion Carbide Gas tragedy, Coal mine workers in Bangladesh Environmental impact of business activitiesOil producing companies like British Petroleum and the oil spillage Social disruptionRelocation of thousands from Bangladesh due to xyx coal mine Human Right AbuseChild labor in garment industry in India and bad working/living conditions for labor class in Indonesia in Nike and other manufacturing units` Other high profile issuesAnimal rights and welfare, child labor ban in India Industry Structure

Small number of brands dominate the marketRetail, Food, Fashion, FMCG High level of regulationMining and chemicals and oil Ex government monopolies / public private partnershipsUtilities, telecom and building Highly visible productionMining and oil, agriculture Product characteristics

Emotion attachment, lifestyle and identity productsToys, clothing, sportswear, food and cosmetics Consumer brand identifiable at production stageToys, Clothing and sports wear Brand identity a major part of the product characteristic, consumer choice not based on technical details of productClothing and sportswear Essential public serviceFood, water, health Possibility of competitive advantage or product differentiationClothing, food and cosmetics

Table 2 – Factors hindering and facilitating CSR

14.1 Recommended CSR points for different industries

When you start breaking down a thing it becomes more and more simple. Since centuries our forefathers have used this strategy to create today’s world the way it is. This system should have some credibility and hence we are applying it to CSR to see how it fares when broken down by industries and regions. Looking from the point of view of industry would be interesting because each one has its own unique problems. Each industry has a unique contribution to the society and harms the society in a unique was, that is if it does. For example the technology and the internet industry seems to be the most harmless of all which does not really affect the way other industries like oil, mining or coal energy does. But there should be something these industries might leave as a stamp on mother earth. So the following is a small effort to see how each major sector is contributing to the benefits and side effects in the developing world.

14.1.1 Telecom / IT / Banking and Insurance

For much part of the last 1990s mentioned sectors were considered to be clean business with not particular harm to the society. They were believed to be improving the living standards of the society by the way of technology and ancillary services. But the recent turmoil due to the credit crisis created by the sub prime crisis in US has brought banking and insurance under CSR radar. Telecom in India is now under a very strict supervision of government, telecom ministry, media and public due to the bandwidth allocation scan for thousands of crores of Rupees.

The way telecom companies are giving back to the society in developed countries is by ensuring that technology access is equal to all parts of the society, geographically spread and affordable by a common man. Banking sector is doing its bit by educating people about correct credit management, and helping them to restructure their debt to come out of it and start living an economically healthy life. 4

14.1.2 Food

Food is a basic necessity for existence, and super huge profits on this product have been a point of debate in media and public. The whole of western world is in shackles of junk food and there is a huge uprising in population about the harmful effects of processed food. Food industry is mixing so many chemicals to increase the shelf life of the product that it places the health of the consumer in jeopardy. Food is being imported and exported all over the world and there are only a few things which are purely local. This adds to the food miles and hence leads to carbon emission per unit of food we consume. So when we eat an apple which we buy for 2? a piece, we don’t know how much oil it has burnt or how much of plastic and water it consumer for processing it for bringing it to consumable levels.

Genetically modified food is again one big concern of health and environment activist and is compared to trying to be god and tampering with nature at an unimaginable scale. There is a very famous case of Monsanto (India) whereby it introduced BT cotton by getting into a cartel with government of India and had lead to huge effect on the local economy and environment. In addition to that the price charged by Monsanto was also unfair and not as per competitive open markets like in India.49 As a parallel move away from harmful pesticide and fertilizer infested food and highly processed fatty foods, people have graduated to organic food which is not

14.1.3 Mining / Oil

This is by far the most talked about sector where human rights have been violated since decades without any mention by any NGO or government organization. This was because in the industrialization age, they were of prime importance to give the much needed minerals and oil products for development. But today we are seeing the tremendous environmental impact they have on our ecology. They have now depleted the original sites for mining and now moving to wider sources including seabed extraction, with media attention, social awareness of its ecological impact, times are tough for this industry when it comes to CSR. This industry has so many environmental impact issues that it is very difficult to manage this business without triggering a response of some of the stakeholders. These factors are

Reclamation and Remediation Seepage and leakage of heavy metals in environment Air emission, Global warming and acid rain Land and water contamination Deforestation and erosion Effect on plant, animal and insect wild life and extinction of species Health and safety and emergency response Human rights abuses Land use conflicts, involuntary resettlement and indigenous people 4 These companies are so huge that their influence on government, politics and overall economy is huge; to quote an example Exxon Mobil had a turnover of more than 4 times Nigeria’s GDP and 100 times that of Chad. Shell has been hailed and criticized many times for its role in the global oil and extraction market. But since late 1990s shell has made serious commitment to sustainable development, as evident from the following comment Mark Moody Stuart in Shell’s People, Planet and Profits report, 1999 50, ‘far from being a drag on our performance, such a commitment help us understand the world better and improves our chances of success. Sustainable development is forward looking, embodies the notion of progress and encourages liberating new ways of interpreting the world. Our business can best thrive by enthusiastically embracing this agenda and providing energy and other products in line with society’s expectations for a sustainable future’. Shell in fact has done a better job that the Nigerian government themselves in bringing education, clinics, health and prosperity in remote locations near its plants.

This is one of the most organized sectors who have made codes and laws internationally to be followed when it comes to CSR, Human rights and other regional code of conducts.

14.1.4 Chemicals

Since decades now chemical industries have been at the hammering end of media, public and governments so much so that they were asked to ‘change or get legislated out’. Since there is no brand differentiation in chemical industry, and price and quality is everything companies prefer to do things at an industry level or at a conglomerate level rather than do it themselves. They are now realizing that following the ‘triple bottom line’ concept is not all that bad, especially in times when the focus for them is changing from highly polluting high turnover products, to high margin niche biotechnological products for better sustainability. BASF, Dow Chemicals and DuPont are world’s largest chemical companies operating alike in developed and developing economies and have been at the best and the worst phases in CSR at different times. Dow chemicals toped the chart on DOW Sustainability index and its public report has a clear cut section on CSR. BASF also engages with community through local council and community advisory panels. Bayer, BASF and the likes have signed the UN Global Compact. Larger companies like these have so much power to influence the government, policy makers that they can actually lead the society to a better phase by promoting less harming chemicals and more natural ingredients.51

14.1.5 Textiles / Apparels / Sports wear

Levis Strauss was the first company to have introduced supplier code of conduct and has left a model for others to follow. These codes of conduct were then followed by many organizations for vendor management and selection of vendor and ensuring that they stand true on test of a CSR review.

The brand is the dearest to all companies in this industry. Clothes are clothes at the end of the day, but it’s the brand which helps the customers to create awe around them due to the brand they are wearing, not so much for what they are wearing. Second reason for them to be extra careful with what they are doing to the society is because textiles are ranked top in creating water pollution, as well as the outsourcing in past decade or so has led to a new awakening about human rights and labor laws for them. Textile industry uses the toxic Azo dyes which have proven side effects on living beings. Oeko-Tex Standard scheme was developed as a certification to check the use of such dyes. Child labor is another big issue with names like TOPMAN in UK found to be using child labor to manufacture its garments in India.52 But CSR may sometimes lead to side effects on the society. There was a ban imposed on garments manufactured in Bangladesh through child labor by the USA ‘Harkin Bill’. This led to an immediate reaction from government of Bangladesh and they made child labor as illegal. Suddenly there were so many children without work, and with no social benefit structure in place, they were eventually led into prostitution, brick breaking and begging. Similar thing is happening this year in India where child labor has been banned and leading to problems. Hence CSR also has its own repercussion and an overall view needs to be taken.53

GAP Inc. has remained a pioneer in this sector in CSR in developing countries. It was the first to focus on improving the working conditions of sub contracting companies in South East Asia and Central America. Vendor code of conduct was developed and all of them were compelled to abide by it or lose business. Enough time and support was given to those vendors who could not comply, but did show and interest and zeal to make a difference. Management training programs are developed in Indonesia and Thailand factories to train managers to handle issues of sexual harassment, workplace morale, lack of supervisor’s communication skills etc. 54, 4

15. The findings

Corporate Social Responsibility has evolved from being thought of as a temporary fad in HR subject, to being tagged as corporate philanthropy and being discard to the present form of its utmost importance in overall company strategy. The journey of CSR to this stage has not been one of a very easy, smooth and seamless. Contribution right form the smallest of NGOs raising their voices against the injustice of corporate in their areas, till the larges and most powerful of the bodies like the United Nations has taken steps to ensure that the corporate are not given a freehand in using the resources of the society and never give back anything. Developing countries are seeing a tremendous growth and this is the right time when CSR can be applied at the roots and is a part of the growth strategy to make the business more profitable over long run and sustainable at its best.

Sustainability is one main core which is a global concern, and CSR is a very handy tool in ensuring that businesses are sustainable. Developing countries have unmanageable carbon emissions, huge population to feed and take care of their health and safety, but a limited resource. Hence it becomes imperative for them to invest in sustainable businesses and technologies to safeguard their future. By 2050 the population of the world is going to reach 9 Billion and the fast depleting oil resources are posing a very big question of whether this globe can sustain so much of just one species of concentrationOut of this, roughly 7.5 billion will be Asia and Africa which are anyways in a fragile stage of growing economy due to the internal problems of poverty they face. More than 2 billion people will migrate to cities in next 40 years making them hub of activity but at the same time difficult to sustain. Level of CO2 is 40% higher than just 200 years ago. Our world warmed 0.74 per cent degree C in last 100 years, mostly since 1970. Hence at some point the humankind will unargumentatively accept the scale of the problem and that the crisis we face is so severe and immense that massive action needs to be taken now.

But all this can be stopped if

CSR is accepted by the businesses not as a compulsion or obligation but as a need for their own survival More and more countries take active part in controlling their consumption, trying to make business more sustainable rather than more profitable Mad rush for GDP growth will only take us down, rather focus on green technology and sustainability of current levels of food and water can take us a long way Courageous decision made now on CO2 emissions, population growth, consumption economies, global warming and rising sea levels can help developed and developing economies alike Justified use of nuclear power, wind, solar and tidal energy and the geothermal, natural gas and ethanol power used in conjunction with oil can put a full stop on the process of self extinction of human beings

16. Future of CSR in developing countries

The future for CSR in developing countries is more or less same as for developed countries, just the difference being the scale of implementation. There might be few companies at a first level of CSR in developed countries, where as major chunk of corporate world is in first level of CSR in developing countries. But the future is same for both and seems bright as per the current efforts put in by all internal and external stakeholders 55

It will become embedded: it will get embedded in the culture of the company, right form the business decision to its strategic moves it will be a part of the organizational capability. The term CSR will never disappear but the meaning of it will constantly evolve to involve more and more variables No need for an exit strategy: there will be no option to undo CSR activity, or exit out of it, because eventually there will be no company left without a CSR strategy and those without will not exist to do business Major inroads in developing countries: CSR will be more and more deep-rooted in developing countries as large corporations bring new changes, and SMEs follow them to ensure sustainability. Government support, media attention and public initiatives will lead to a sea change in the way business is done in developing countries. UN and third sector corporation: it is better to have a central controlling agency which is neutral to the activities of different countries and is more interested in global issues. United Nations will take up this key role along with the NGOs across the world, so called as third sector. Political leadership will catch-up: currently because most developing countries have less developed govt. sectors CSR is not as deep as in developed countries. The government will need to get modernized in terms of its view of future, in terms of technology and in terms of thinking green and sustainable. This will lead the developing countries through the tough times of managing a huge population with limited resources. Bibliography

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End notes

1 Thomas, Gail. (2006: 3-11). “Corporate Social Responsibility: A definition”. GSB

Working Paper no. 62 Margaret Nowak Graduate School of Business Curtin University of Technology. Print

2 Wheeler, D., Barry, C. and Freeman, Edward R. (2003). “Focusing on Value:

Reconciling Corporate Social Responsibility, Sustainability and a Stakeholder Approach in a Network World” Journal of General Management, Vol. 28 No. 3 California. Print.

3 Luckas, Edit. (2009: 4). “THE ECONOMIC ROLE OF SMES IN WORLD

ECONOMY, ESPECIALLY IN EUROPE” Institute of Business Sciences, University of Miskolc, 3515, Hungary. Print.

4 Raynard, P. and Forstater, M (2002). “CSR Implications for SME in Developing

countries” United Nations Industrial Development Organization, UNIDO. Print.

5 WBCSD, “Corporate Social Responsibility: Making good business sense”. WBCSD.

Washington. www.wbcsd.org Web. 25th April 2011

6 EU Green Paper (2001). “Promoting a European framework for corporate social

responsibility”. Commision of the European communities, Brussels. Print

7 Zadek, S with Raynard P. (2001). “The strategic dimension of corporate citizenship”.

Cambridge university business and environment program, Cambridge. Print.

8 Dutt, Barkha (Nov 2010) “NDTV Interview with Indra noyee”. New Delhi Television

Network. Web and Television. (http://www.ndtv.com/article/business/obama-now-a-pro-business-leader-indra-nooyi-to-ndtv-65159)

9 “Buried Treasure: Uncovering the Business Case for Corporate Sustainability Publisher

SustainAbility” Sustainability Limited (2001). Print and Web. (http://www.sustainability.com/library/buried-treasure Free)

10 Zadek, S. (2001). “The civil corporation: the new economy of corporate citizenship”

Earthscan, London. Web.

11 Elkington, J. (2001).“The chrysalis economy how citizen CEOs and corporations can

fuse values and value creation” Oxford University Press, capstone. Print.

12 Stangis, Dave. (June 2010). “Campbell’s third generation CSR strategies: 9 point you

can use” Cause Capitalism. Web. (http://causecapitalism.com/campbells-3rd-generation-csr-strategies-9-points-you-can-use/)

13 Cooper, Simon (n.d.) “CSR – Milton Friedman was right” Bath Consultancy Group.

Print.

14 “Alternative view of Corporate Social Responsibility: A dialogue with the financial

times” MHC International ltd. (May2001). Web. 23rd April 2011

(http://www.mhcinternational.com/corporate-social-responsibility/publications/alternative-view-of-corporate-social-responsibility-a-dialogue-with-the-financial-times.html)

15

“Business in the Community” Access Omnibus survey (1997) London. BitC. Print

16 “Developing CSR in UK Business and society” CSR network (2000) the global

reporters and DTI (2001). Print.

17 “Millennium Poll on CSR 23 countries and 6 continents” Environics international ltd.

(1999). Web. 20th April 2011

18 Buczynski, Beth. (2010). “Gulf oil spill: 10 horrifying facts you never wanted to

know” Care2 Make a difference. Web. 20th April 2011

19 Webb, T. and Pilkington, Ed (June 2010) “Gulf oil spill: BP faces $34bn in fines as

Senate smashes estimates Deepwater Horizon disaster costs for clean up and damages had been previously estimated at closer to $5bn” Guardian.co.uk. Web.

20 “Definition of Emerging Economies, Global Economic Prospects and the Developing

Countries” World Bank (2002). Web. 25th April 2011 (www.sustainability.com/ developing-value/definition-emerging.asp)

21 Chambers, E., Chapple, W., Moon ,J. & Sullivan, M. (n.d). “CSR in Asia: A seven

country study of CSR website reporting” University of Nottingham Web. 24th April 2011 (www.nottingham.ac.uk/business/ICCSR/09-2003.PDF)

22 Moon, J. (2002). ‘Corporate Social Responsibility: An Overview’. International

Directory of Corporate Philanthropy, London. Europa Publications. Print.

23 Benjamin, D., Brandt, L., Glewwe, P., & Guo, L. (2000). Markets, Human Capital, and

Inequality: Evidence from Rural China, No. 298 , Davidson institute Working Paper Series. Web. 24th April 2011 (http://eres.bus.umich.edu/docs/workpap-dav/wp298.pdf)

24 Kant, Krishna (2008) “Corus buy hauls Tata Steel next to Reliance” Economic Times,

Mumbai. Print.

25 Dixon, Patrick & Gorecki, Johan. (2010) “Sustainagility-How smart innovation and agile companies will help protect our future”. Kogan Page Ltd. Print

26 Robbins, N. (2000). “Position Paper on Emerging Markets and Human Rights”

Henderson Global Investors. Web. (www.ampcapital.com.au/_PDF/ adviser/sri/papers/Emerging_Markets.pdf)

27 Glenn, Tim. (n.d.) “Nike’s Cheap Labor” Campaign for Labor rights. Web. 1st May

2011 (http://www.clrlabor.org/alerts/1997/nikey001.html)

28 Vaid, Molshree (2006) “How Cadbury’s won the battle of worms”. Rediff

Communications. Web. 3rd May 2011 (http://www.rediff.com/money/2006/dec/24cad.htm)

29 “Brazilian blowout gone bad and other chemical misdemeanors” The American Society

for aesthetic plastic surgery (2011). Web. 24th April 2011 (http://www.surgery.org/consumers/plastic-surgery-news-briefs/brazilian-blowout-bad-chemical-misdemeanors-1031144)

30 Jeffrey Gold, “Importer told to recall Chinese tires”, AP, June 25, 2007, Wikipedia

31 Krishnan, S. and Balachandran, R. (n.d.), “Corporate Social Responsibility as a

determinant of market success: An exploratory analysis with special reference to MNCs in emerging markets”, IIM Kolkatta and NASMEI International Conference. Print.

32 Tauro (Oct 2010), “CSR structure for Value creation”. Wikipedia. Web. 15th April

2011

33 “2004 Annual review – Small Business Activities”, IFC, World Bank. Web. 23rd April

2011

34 Agarwal, Sanjay (2010). “Corporate Social Responsibility in India” Vikalpa Vol. 35

No. 4 Oct Dec 2010. Print.

35 Rosser, A. and Edwin, D. (2010). “The politics of corporate social responsibility in

Indonesia” The Pacific Review, Vol 23 No. 1. Print.

36 Gerson, Brett (2007) “CSR Best Practices – Companies that want to improve their

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37 The Associated Press (2009) “New York Times: Bhopal gas tragedy still haunting

locals after 25 years” International Accountability Project. Web. 29th April 2011. (http://www.accountabilityproject.org/article.php?id=498)

38 Hoshour, K. and Shearer, C (2011) “Energy at What CostProtests Against Forced

Eviction from US-Backed Coal Mine Continue in Bangladesh”.International Accountability Project. Web. 29th April 2011.(http://www.accountability

project.org/article.php?id=631)

39 “Bangladesh: Ban Coal Mine, Save Forests and Farms”, Cultural Survival. Web. 25th

April 2011. (http://www.culturalsurvival.org/take-action/bangladesh-ban-coal-mine-save-forests-and-farms)

40 Singh, Aman (2011). “11 Challenges for Corporate Social Responsibility” Forbes

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