Corporate Social Responsibility

Table of Contents

1  Introduction  2

2  Corporations and markets  2

2.1  Power of MNCs  2

2.2  Markets and globalisation  5

3  Defining corporate social responsibility  8

3.1  Corporate Citizenship  9

3.2  Stakeholder Theory  10

3.3  CSR and NGOs  11

3.4  CSR and governments  13

3.5  CSR and corporations  15

4  Arguments against and for corporate social responsibility  16

4.1  Arguments against CSR  16

4.2  Responses to these arguments  17

5  CSR at least  19

List of References................................................................................................ 22

1 Introduction

While countries negotiate the opening of borders for foreign investments and dropping trade barriers in favour of powerful, worldwide acting multinational corporation (MNCs), non-governmental organisations (NGOs) gather people and power for the disadvantaged people of these developments. Somehow the idea of a free, global market economy is not approved by everybody. The capitalistic paradigm seems to have an inbuilt error, the promise of wealth and welfare does not fulfil itself.

That is roughly the viewpoint of the supporters of the World Social Forum (World Economic Forum, 2005). Although a subjective point of view, the arguments are connected to this essay's main notion, corporate social responsibility. They lead to the questions why corporate social responsibility should have a right to exist, what proves its validity and what are the reasons for and against it?

The following text should provide in depth answer to that. To do that the scene needs to be set at first. This discussion is based upon the definitions of market economy and globalisation. An introduction to the characteristics of MNCs and the reasons why MNCs deserve a closer consideration in this discussion follows. Then corporate social responsibility (CSR) will be defined, its theoretical fundaments will be presented and it will be distinguished from Corporate Citizenship. This is followed by the arguments of its strongest adherents, non-governmental organisations, and an description of NGO-tactics to enforce CSR. The 'players' of CSR also include governments and, of course, corporations. Their involvement in and standpoint towards CSR will be presented. Nevertheless, strong arguments against CSR exist, too. But the responses to these arguments are also justifiable. After this insight into the existing conflict, a deeper consideration of the notion of ‘responsibility’ is undertaken, to clarify who can be made accountable, if an accountable subject exists at all. Finally, a short summary concludes the text outlining what CSR could mean at least, as a minimum.

2 Corporations and markets

2.1 Power of MNCs

"Of the 100 largest economies in the world, 51 are corporations; only 49 are countries (based on a comparison of corporate sales and country GDPs)" (Anderson & Cavanagh, 2000, p. 3). This statement clearly outlines the power of the world's largest multinational

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corporations 1 . Although it is questionable whether size reflects power and whether gross domestic product (GDP) and revenue are directly comparable 2 , it is nevertheless true, that

MNCs do have an immense impact on everyday life throughout the world.

Of the about 61.000 multinational companies only a few hundred are dominating forces (UNCTAD, 2004). The largest 1.000 of them create 80% of the world output (The Economist, 2000, cited in Gabel & Bruner, 2003), the largest 300 have control about 25% of the worlds productive assets (The Economist, 1993, cited in Gabel & Bruner, 2003). For the 500 multinationals that the Fortune Magazine annually chooses for its Fortune 500 index that means alone "$45 trillion in assets, $14 trillion in revenues, $667 billion in profits, and about

47 million employees in 2000" (Fortune Magazine, 2000, cited in Gabel & Bruner, 2003, p.

7). 3 Their products are part of our everyday life, as toothpaste, as television program or as

water out of the tab. It is undoubted to say that the multinational corporation is an important economic force in the world, with regards to the creation of wealth, the use of resources, employment, to the fulfilling human needs, contribution to society in form of taxes, environmental impacts, governance and technology (Gabel & Bruner, 2003).

This economic significance spreads out to other non-economic areas of life. Assuming that people spend most hours of a day working, the attitude towards employees and the values that guideline the employer-employee relationships are significant for the happiness of the average employee. Responsible for 3% of the world's workforce (UNCTAD, 1994, cited in Gabel & Bruner, 2003), 20%, if reduced about employment in the agricultural sector, and paying wages of $1.5 trillion (UNCTAD, 1999, cited in Gabel & Bruner, 2003), MNCs have a direct impact on the well-being of a considerable part of the world's industrial and service- oriented workforce, unregarded the impact on the indirectly effected ones.

Considering the billions in profit multinationals make, taxation becomes a big issue. Government tax revenues are the most important source of funds that could be reinvested in public health, social security, economic aid and salaries for governmental and administrative staff (Gabel & Bruner, 2003). That is why percentages around 4,6% that MNCs contribute to the U.S. government revenues up to 12,2% that they account for in Peru or 15,5% in Guatemala are significant quantities. If a company is lost as a taxpayer it could have delicate effects on the community.

1 A multinational corporation is a company whose business spans multiple nations. Usually the value chain is divided between locations in different countries, whereas the headquarter is centralised in the country of origin. 2 De Grauwe and Camerman suggest to compare a nation's value added (VA) and GDP, because "The GDP of a nation is the sum of the values added by each producer. It is not the sum of total sales of these producers" (2002, p. 3). But even if the comparison is carried out this way, the VA of every corporation still present between 25% and 35% of its sales.

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MNCs are driving forces, not only for the economy as a whole, but especially in terms of inventions, scientific and technological progress and innovation. Besides state-funded research and development, they are the only entities which can afford extensive R&D programmes. They have the resources to finance and exploit R&D in such scales, that the profit from the following (mass-)sales of the products exceed the costly investments. This is partly due to the fact that MNC can source necessary knowledge and equipment globally (Gabel & Bruner, 2003).

As globally acting enterprises multinationals are able to source capital worldwide as well. Because of their global position it is much easier for them to diversify risks globally what consequently leads to better conditions to raise capital. Like no others MNCs can send their capital around the world to allocate it where its most profitable use is expected. These corporate investments, known as foreign direct investments (FDI), often provide between 5 to 50% of a nation's GDP and therefore have an immense influence on taxes, employment and the nation's economic development (Gabel & Bruner, 2003). However, the power of multinationals has gained public attention and finally led to concerns.

Much of this concern stems from the fact that many modern multinational corporations have developed resources to such an extent that they are no longer answerable to any national government, [...] the corporation[s] can move quickly when challenge or opportunity strikes, [...] their agility, initiative, focused power, and access to capital and resources allow them to [...] influence the world on a scale and at a speed far beyond those of a nation-state and at a rate the world has never seen before (Gabel & Bruner, 2003, p. x).

The concerns might not always be justified and depend on the observer's worldview. Multinationals do also cause knowledge spillovers in less developed countries and provide new technologies to use natural resources and raw materials more efficiently and therefore more sustainable. But MNCs also harbour a negative potential.

MNCs "have developed an array of sophisticated methods for lowering their tax burden" (Gabel & Bruner, 2003, p. 124). The use of transfer pricing gives global operating firm the opportunity to shift profits in low- or no-tax tax havens. The advantage of exploiting different taxation systems between countries, leads to a competition between countries to attract capital inflows from company profits and, consequently, falling absolute tax contributions of MNCs (Gabel & Bruner, 2003).

Global capital flows do not only cause a highly efficient use of resources, they are also 3 All monetary figures in $ mean US-Dollar.

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very flexible in deposit and withdrawal. If $1.5 trillion are moved around the world daily, which only represent a small portion of the generally long-term oriented FDI, these short- time-investment still matter when they are a small portion of 20% or 30% of a nation's GDP. (United Nations Development and Human Rights Section, n.y., cited in Gabel & Bruner, 2003). Moreover "the sheer volume of these international flows can lead to tremendous repercussions" (Gabel & Bruner, 2003, p. 128) like it became apparent during the financial crisis in Asian in the late 1990s.

MNC-activities also affect national culture. Although new products, technologies and management styles can lead to a cultural enrichment, the power of the imposed advertising and mass production, of new roles and values can override other cultures and cause disintegration in an alien society.

As three out of the five largest companies of the world regarding sales are oil and gas producing and processing industries, multinationals are directly or indirectly responsible for a considerable part of the world's CO 2 emissions. Although multinationals often use better resource-saving and less polluting techniques than national corporations, especially in industries like mining, refining and smelting, an organisation-based lack of responsibility in this regard could have devastating consequences globally (Gabel & Bruner, 2003). Multinationals challenge the ability of sovereign nations to control corporate operations and impacts; they are just too large and too powerful (Boatright, 2003). Additionally, the poor enforcement of international law finally causes a legislative vacuum, that only self-imposed, -enforced and -monitored standards can fill, a risky undertaking. The public concern grows about the fact that company representatives due to the power they exert are not democratically elected, and, therefore do not represent society's interests. Thus, there is a lack of social and environmental responsibility on side of the multinational, but "social responsibility arises from social power" (Davis & Blomstrom, 1975a, cited in Boatright, 2003, p. 377 ) which MNCs undoubtedly possess. Even if self-imposed standards exist they are most likely addressed only to the corporation's interests and the 'stage' where the corporation acts, the marketplace.

2.2 Markets and globalisation

The marketplace, location where goods and services are exchanged, where prices represent the scarcity of resources and where supply meets demand, is based on individual choice. Agents as individuals or organisations sell and buy goods according to their needs and wants to achieve personal satisfaction. It is assumed that this 'satisfaction' is determined by

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