Corporate social responsibility becoming mainstream concept

Corporate social responsibility — the idea that organizations have an obligation to consider the interests of customers, employees, shareholders, communities and the environment — is becoming a mainstream concept. This is mostly due to an increased public awareness of global issues such as climate change, consumer product safety and rapid industrialization.

Corporate social responsibility (CSR) is a sweeping trend affecting organizations around the globe as various countries adopt CSR legislation. Canadian organizations looking to do business in the United States or European countries, including the United Kingdom, need to be aware of the different laws and their responsibilities.

U.S. history and legislation

In the past decade, American confidence in the ethics of big business was shaken by the financial scandals of corporate giants, including Enron and WorldCom. The Sarbanes-Oxley Act (SOX) was passed in 2002 and became known as the Corporate Responsibility Act. The goal was to institute a uniform system of corporate accountability and disclosure for U.S. public companies, which was firmly backed with compliance and audit procedures. Additionally, corporate officers became criminally responsible for their company’s financial reporting errors and subsequent U.S. sentencing guidelines have been established, creating a formula for corporate criminal fines.

While the SOX legislation created government regulation regarding corporate financial reporting, the requirements under federal securities law for companies to disclose environmental and social information are extremely limited and many companies don’t bother to comply.

However, a national survey of more than 500 business executives by Grant Thorton in 2007 found support for more government regulation relating to the environment, human rights and labour practices:

• 72 per cent believe the government should regulate companies for their effect on the environment

• 56 per cent say companies should be regulated for their effect on human rights and labour practices

• 70 per cent foresee increased government regulation for environmental responsibility in five years or less

• 68 per cent expect environmental responsibility reporting to be mandatory within the next three to five years, yet 55 per cent say they have no plans to do any kind of corporate responsibility reporting

• 62 per cent believe pressure to pursue corporate responsibility programs in the future will come chiefly from consumers (45 per cent) and investors (21 per cent)

• 46 per cent of manufacturers believe legislation and governmental policies ultimately drive corporate responsibility

• 64 per cent believe the HR department should take on social programs, 50 per cent say operations should be in charge of environmental initiatives and 57 per cent say finance should be responsible for economic responsibility programs.

CSR in Europe

The CSR movement has more mainstream acceptance in the U.K. and the rest of Europe than in the U.S.

In the realm of CSR, Britain has emerged as a leader. It advocates a shift in focus to long-term impacts on shareholder value and requires companies to recognize and report on the effects of the business on employees, suppliers, communities and the environment.

The origins of CSR in the U.K. can be traced back to the early 1980s when extreme economic conditions created high unemployment and poverty, resulting in numerous inner-city riots. In response to this unrest, the British government assumed the role of CSR driver and became one of the pioneers in adopting the concept of CSR and incorporating it within the framework of public policy.

In 1985, the U.K. Parliament enacted the Companies Act 1985, which defined the responsibilities of companies, directors and secretaries. In 2006, this act was superseded by the Companies Act 2006, which defines a code of conduct for directors related to responsible business behaviour and came into effect in October 2007. The act also gives shareholders enhanced rights allowing them to bring suits on behalf of a company if a director breaches his duties.

The British government expects businesses to take account of their economic, social and environmental impacts. To this end, the government has developed programs to facilitate business activity in CSR on general issues including: raising awareness, facilitating and promoting voluntary initiatives, capacity building, stakeholder engagement, funding streams, company transparency, fiscal incentives, soft regulation, international organizations and networks.

All these programs have been developed with the support of intermediary CSR organizations, which have acted as links in the dialogue among government, the private sector and civil society. In March 2000, the British government created the political position of Minister for Corporate Social Responsibility, whose main duty is to develop the government’s CSR strategy.

Global business leaders agreed that being known as a good corporate citizen also helps a company recover more easily in the aftermath of a crisis, according to the 2006 Weber Shandwick survey Safeguarding Reputation. The survey found more than seven in 10 global executives (73 per cent) think effectively communicating a company’s responsible programs and policies helps reclaim a lost reputation.

Other findings of the survey:

• To help recover reputation, companies should establish specific corporate responsibility policies and goals post-crisis, according to 75 per cent of North American respondents and 69 per cent of European respondents.

• Important factors that safeguard company reputation are good relationships with local communities with which it does business, according to 45 per cent of North American respondents and 45 per cent of European respondents, and reputation for corporate responsibility, according to 45 per cent of North Americans and 50 per cent of Europeans.

• In total, 79 per cent of executives believe a strong corporate responsibility record aids reputation recovery, with North Americans also at 79 per cent and Europeans at 78 per cent.

Beth Kniss is a career research consultant for human capital consulting firm Insala in Dallas. For more information, visit www.insala.com.