Corporate Social Responsibility: Definition, Impact And Compliance

Mandatory CSR Integration into Multinational Business Models

Question:

Describe about the Corporate Social Responsibility.
 

Corporate Social Responsibility (CSR), according to Baker & Riddick, (2013), is a corporate self-regulation which majority of business houses, especially those working on multinational level, are required to integrate into their business model. Since this issue has become a mandatory requirement for majority of MNCs all over the world, there are many definitions about corporate social responsibility. The International Organization for Standardization through its ISO 26000: Guidance Standard on Social Responsibility which was published in 2010 says and I quote: “Social responsibility is the responsibility of an organisation for the impacts of its decisions and activities on society and the environment, through transparent and ethical behaviour that:

• Contributes to sustainable development, including the health and the welfare of society
• Takes into account the expectations of stakeholders
• Is in compliance with applicable law and consistent with international norms of behaviour, and
• Is integrated throughout the organization and practised in its relationships.” Unquote. 

Majority of business leaders, say Marchildon & McDowall, (2013), as well as management scholars have responded positively towards CSR but it is also an acknowledged fact there are still many business failures which are astonishing in size, impact and power among modern MNCs. This growth has emerged mainly because of the stepping aside of owners from the centre of control and leaving the control in the hands of modern management techniques, assert Marchildon & McDowall, (2013). Although these management techniques have created efficiencies, they have also led to the dilution of individualistic responsibility. Such instances in Australia of business failures, including the biggest corporate collapse of Australia in 2001 of HIH, have raised questions about the role of corporate accountability, as was seen in the case of machinations of James Hardie for avoiding liability payment to former workers for asbestos compensation. These cases have raised many questions about the nature of corporate responsibilities required in MNCs.

Now, majority of business leaders have started dealing with CSR through specialised business organisations, foremost being the Global Reporting Initiative, World Business Council for Sustainable Development and UN Global Compact. The areas from where expertise is being sought for improvising CSR management includes areas such as, ethics, management, communications, sociology, psychology, sustainability, public affairs, finance and accounting. Growing concern for attributing business failures to lack of CSR is drawing attention from national and cultural contexts, asserts Taylor, (2013). 

CSR has now become a global governance mechanism. Hence, says Giovanis, (2010), it becomes imperative to understand CSR from this perspective why it is useful for the civil society and why authorities are showing interest in CSR. The impact of CSR, as a governance mechanism at global level, also emerges from the twentieth century development of global institutions, such as the United Nations, The World Bank, the International Labour Organisation and the Organisation for Economic Cooperation and Development (OECD), which have resulted from the international treaties and agreements which have emerged due to initiatives taken by both, the governments as well as non-government organisations. These arrangements, arrived at by these institutions are being propagated to create an international order of compliance around pillars of democracy, having respect for human rights and ushering in a universal economic development, as per Basu, (2010). 

The rise of the concept of CSR among these institutions has grown because of the failures by governments in redressing poverty, abuse of human rights and the constant need of businesses assuring to provide equitable benefits because of liberalisation of trade on international level. This has given rise to such initiatives as the UN’s Bruntdland Commission, which has not only popularised the notion of sustainable development but has also ushered in over 300 different codes and guidelines for CSR compliance. Other important international coursework which is addressing the CSR issues is The Sustainable Development Goals by United Nations, asserts Fernando, (2010). 

The Definition of Corporate Social Responsibility

The purpose of these initiatives, according to Fernando, (2010), is to regulate or rather self-regulate the MNCs. These initiatives can also help in providing platforms to corporations for contributing towards increasing effectiveness and efficiency of governance environment at global level, as these corporations are uniquely equipped in contributing towards social capacity-building. The global governance views CSR as an economic necessity and consider it capable of creating public values also, as per Fernando, (2010). This approach is based on a long-term perspective for creating the economic and social values in the society. Hence, it requires a collaboration of strong and effective nature between governments, civil society and businesses in achieving this vision and the CSR goals within. 

Stakeholders have certain expectations from MNCs about the behaviour and responsibilities of these MNCs which go beyond the application of jobs, products and services. Hence, social responsibilities of businesses arise in the context of the corporate-stakeholder relationships. No two MNCs can have the same kind of responsibilities, as all have different services, products and strategies and different stakeholders and stakeholder interests as well as issues, similarly, there are many different international initiatives being promoted and each is attempting to provide a different solution to the question of social responsibility of businesses, and the two most important initiatives are the UN Global Compact and the Global Reporting Initiative, as per Mudra, (2014).

Markets thrive on information as it is their lifeblood. Hence, transparent disclosures are essential for ensuring that investors and stakeholders are able to take informed decisions. In this context, the present day financial reporting alone can no longer assist the investors in making accurate judgments about the performance of a company’s future prospects. Moreover, it also fails to keep the interested stakeholders informed and engaged with the company, says Mudra, (2014). In this context, the non-financial reporting not only allows managements to report their sustainability performance but also creates an impact on the stakeholders rather than giving them a partial picture through the financial statements. Hence, investors and stakeholders are increasingly appreciating the management’s effort of providing the sustainability information along with its financial information regarding such subjects as economic, social and environmental performance, asserts Keown et al, (2012). This helps the investors as well as the stakeholders in properly assessing the risk, measuring the performance, allocating financial capital and finally, in identifying market opportunities. Such information is being increasingly perceived by stakeholders and investors as essential for assessing the company’s values for getting a better and complete picture of the company’s financial health and risk resilience in the medium and long term perspective, as pre Keown et al, (2012). 

This is the reason behind the positive correlation between an increasing numbers of companies resorting to reporting on sustainability factors. This is also encouraging the introduction of a ‘Report or Explain Approach’ adopted by regulators across the globe. The International Survey of Corporate Responsibility Reporting, by KPMG in 2011, placed Australia at 23^rd position in the world but now it ranked 14^th in the 2008 edition of the same report by KPMG. This shows, as per Kurth, (2011), that countries who recently introduced the policies and regulations on sustainability reporting, are rising in the rankings. Such policies not only improve the accountability and transparency of the companies, it also ensures that there is greater preparedness of such economies towards their transition to a low-carbon and resource restricted economy, asserts Kurth, (2011). GRI has been advocating the use of informed policies for encouraging a sustainability reporting regime which should: 

• create a level playing field;
• make use of internationally recognized standards;
• allow flexibility but limits the administrative burden; and
• enhance good governance. 

For development of such informed policies, GRI also supports the tried and tested concepts, including the ‘Report or Explain’ which requires the companies to either report about their material sustainability impact or explain why they could not and about ‘materiality’, where the company is required to identify its most important economic, environmental and social impacts. Although financial values continue to be central to businesses and markets, it is becoming clear that sole focus on financial capital is resulting in a very narrow picture of the companies relating to the world around them, assert Homann, Koslowski & Luetge (ed.), (2013). 

Investors require a comparable and consistent data base which is relevant to the informed decisions taken about company’s performance and investment issues. The major hurdle comes when an appropriate information about sustainability is not available. This is the reason why the practice of reporting the non-financial information is becoming more main-stream amongst the MNCs. About 95% of the 250 large companies of the world are currently publishing their sustainability reports, as per Hay, Knechel & Willekens, (2014). Despite these efforts in making sustainability reporting mandatory, there are still more than 60,000 publicly traded companies which are not transparent about their sustainability performance information. Among the ASX listed companies, 85% of the top 20 companies are complying with the requirements but in totality only about 55% of the top ASX 200 comply with reporting on issues of sustainability. It has been observed that absence of sufficient disclosures about the company’s sustainability performance can make the investors of the company and other stakeholders unable in properly assessing the company’s material non-financial risks, opportunities and other associated valuation impacts, according to Hay, Knechel & Willekens, (2014). 

In this context, 2013 has seen a surge in sustainability and corporate reporting and the developments include:

• launching of the Global Reporting Initiative’s G4 Sustainability Reporting Guidelines
• the pending launch in December of the International Integrated Reporting Council’s Integrated Reporting Framework
• launching of amending Council Directives 78/660/EEC and 83/349/EEC by European Commission
• the United Nations Global Compact, GRI and the World Business Council for launching a Sustainable Development partnership for leading the businesses towards the pending Sustainable Development Goals
• the growing recognition for business coalition of The Economics of Ecosystems and Biodiversity (TEEB)

List of References 

Baker, H.K. and Riddick, L.A. 2013, International Finance: A Survey. OUP USA, Oxford. 

Basu, S.K. 2010, Fundamentals of Auditing. Pearson Education India, New Delhi. 

Davies, A. 2012, The Globalisation of Corporate Governance. Gower Publishing, Ltd., Surrey. 

Fernando, A.C. 2010, Business Ethics and Corporate Governance. Pearson Education India, New Delhi. 

Giovanis, E. 2010, A Research Examination of Covered-Uncovered Interest Rate Parity and the Purchase Power Parity (PPP) Hypothesis. GRIN Verlag, Norderstedt. 

Gomez, C. 2012, Auditing and Assurance: Theory and Practice. PHI Learning Pvt. Ltd., New Delhi.

Greuning, H., Scott, D. and Terblanche, S. 2011, International Financial Reporting Standards: A Practical Guide. World Bank Publications, Washington DC. 

Hay, D., Knechel, W.R. and Willekens, M. 2014, The Routledge Companion to Auditing. Routledge, Oxon.