Social Responsibility Seals - Social Labels

Diploma Thesis, 2003

156 Pages

Free online reading



2.1.1. Brands
2.1.2. Trademarks
2.1.3. Certification marks and quality seals
2.1.4. Labels
2.1.5. Social Labels
2.2.1. Globalisation
2.2.2. International Free Trade
2.2.3. Unification
2.3.1. NPOs/NGOs/INGOs/ATOs/FTOs
2.3.2. TNCs/MNCs

3.1.1. The Classical View
3.1.2. The Socio-economic View
3.1.3. Business Ethics
3.1.4. Ethical Behaviour Moral development Moderators Improving ethical behaviour
3.2.1. Consumer activism
3.2.2. First Organisations
3.3.1. Minimum Labour Standards – "Ethical Trade" Universal Declaration of Human Rights
Article 23
Article 24
Article 25 ILO Conventions
3.3.2. Environmental standards / “Green Issues”
3.3.3. Development Issues / "Fair Trade"
3.3.4. Sustainability
3.3.5. Conclusion
3.4.1. The Market
3.4.2. Ethical Consumers
3.4.3. Consumer Motivation Costs Benefits

4.1.1. The Neoclassical Paradigm Forced and Child Labour The Right to Organise Market Failure
4.1.2. Quality and Productivity
4.1.3. Competitive Advantages and Protectionism Protectionism Global Competition Prisoners’ Dilemma National Labour Rights
4.1.4. Conclusion
4.2.1. Organisations National and Supranational Organisations. Global Public Policy Organisations.
- International Labor Organisation (ILO)
- World Trade Organisation (WTO)
- Trade unions - ICFTU
4.2.1. Global Policy Operational Deficit Participatory Deficit
4.3.1. Supporting Education and Awareness Raising
4.3.2. Facilitating Dialogue and Partnership
4.3.3. Sponsoring Annual Awards
4.3.4. Standard Setting
4.3.5. Public Procurement
4.3.6. Fiscal Incentives Reduced Tax for Ethical Products Increased Tax for Non-ethical Products
4.3.7. Trade Agreements – Social Clause
4.3.8. Establishing a Social Label

5.1.1. Export Markets.
5.1.2. Export vs. Domestic
5.2.1. What is a code of conduct/Definition
5.2.2. Why do companies restrain themselves?
5.2.3. Initiators
5.2.4. Contents of Codes of Conduct
5.2.5. Implementation and Monitoring Monitoring General Aspects.
5.3.1. General Aspects

6.1.1. Consumers Window and Mirror Effect
6.1.2. Companies
6.1.3. Sponsor of the label
Case Study - Labels in the Rug Industry
6.2.1. Labelling Products
6.2.2. Labelling Companies
6.2.3. Conclusion
6.3.1. Standard-Based Approach
6.3.2. Progress-Based Approach
6.3.3. Supply Chains
6.3.4. Conclusion
6.4.1. Internal and External Monitoring
6.4.2. Procedures and Sanctions
6.4.3. Financials
6.4.4. Limitations of Monitoring
6.4.5. What does “independent monitoring” mean?
6.4.6. SA8000 – Best practice monitoring
6.4.6. Summary

The Fairtrade Label guarantees
Fair trading relations, including:
Fair production conditions, including:
7.1.1. Process of Restructuring
7.1.2. International Fair trade Certification Mark Advantages Disadvantages Conclusion
7.2.1. Products
7.2.2. Criteria for social responsibility labels Consumers' concerns Business' concerns Beneficiaries' concerns
7.2.3. Conclusion
7.3.1. EPRG schema Ethnocentric Approach Polycentric Approach Regiocentric or Geocentric Approach
7.3.2. Future Developments / Outline Global (or Multilateral) Label Sector-specific Labels Ethical Brands
7.3.3. Conclusion



1 Introduction

1.1. Scope of research

Today we are able to benefit from almost open markets and increasing free trade all over the world, which leads to fierce competition on the world markets. The most obvious benefits conceivable are lower prices, a greater variety of goods and better quality. However, we must not forget the drawbacks of reduced regulation, or the price we have to pay for lower prices. The business process of transforming raw materials into final goods “produces“ many negative externalities, such as environmental damage and social exploitation. Therefore, we might begin to ask ourselves whether the benefits of market liberalisation really outweigh its costs. Since over-regulation of markets as well as a lack of regulation entail negative effects for people, societies and the environment (Heidel 2000: 3) it is clear that governing bodies will have to find the right degree of regulation to attain a social welfare maximum. Until this level is found, private efforts are necessary to alleviate negative burden caused by markets.

This paper will focus on one specific private market tool or mechanism, viz social labels, to promote private social responsibility. It will try to provide suggestions on how to optimise this market mechanism to promote minimum workers‘ rights and working standards on a global basis, mainly in underdeveloped countries. This is not supposed to mean that social labels are only useful for labour issues, but since they are the most recent development in the history of social labelling and since dealing with all aspects would go beyond the scope of this research, this paper will focus on minimum workers’ rights. Nevertheless, the results of this paper will also be based on experiences from fair trade or environmental labels and the unification process within these labels. It is this process of unification that will be our next focus: This paper will examine the feasibility of one global super label. It will also show why this is important and how this can be achieved by using market forces. To begin with, I would like to quote a very inspiring statement from the homepage of

the International Labour Organisation: "Universal and lasting peace can be established only if it is based on social justice" (ILO 2002)

Two things can be observed today; on the one hand, since business environments are becoming increasingly competitive, companies try to merge or at least to co-operate on a very large scale, which means that multinationals today are often bigger economic entities than many countries in the world. On the other hand, (multinational) companies operate their businesses all over the world, trying to acquire input factors where they are least expensive.

These two facts give us two very important insights: first, that very powerful economic units operate on the world markets and second that they locate their production where it is cheapest, irrespective of where the location chosen is situated. Frequently, companies choose such locations in developing countries where the cost of labour are very low and where governments do not have the power to stand up against these companies. This shows that counter-measures, too, have to be unified and co-ordinated globally if some sort of equilibrium is to established.

The protests staged around the latest economic summits, like the WTO meetings, the World Economic Forums and G7 meetings show that economic, political as well as civil power has to be pooled, in order to achieve social welfare on a global basis. Therefore, it is a clear fact that when trying to solve a problem concerning large parts of the world, forces will have to be unified.

1.2. Aim of the paper

The key focus of this thesis is the probability of the creation of one universal and global social label using minimum labour standards as a starting point. This thesis will therefore highlight the idea of social responsibility and show what is commonly understood under this term, what NGOs, public bodies and consumers are doing to promote this concept and what kind of framework will be most favourable to the launching of this label. Since creating such a label is not a one-off event, but represents a long-term continuous process of co-operation between many different

parties, the aim of this paper is not to produce an all-in tool for abolishing workers’ exploitation, but to deliver a concrete idea, that might possibly serve as an impulse for the relevant organisations and persons. I hope that the result of this paper will be one more step towards better working conditions in the third world.

1.3. Structure of paper

The following figure 1.3. shows you how the key point of our interest will be approached.

Abbildung in dieser Leseprobe nicht enthalten

Figure 1.3.

Chapter 2, which follows the introduction, is devoted to the definition and clarification of important concepts used to describe the environment in which agents fighting for global social responsibility operate and which are important when it comes to creating a useful tool to accomplish this mission. Therefore, it will be briefly explained what is, for the purpose of this paper, to be understood under the terms seals, branding, trade marks and labels in Section 1. Then I will focus on the terms globalisation, free trade and unification in Section 2, and on the various

players within the globalised economy, because it is crucial to understand how and why business units make their decisions in this highly competitive environment. Finally it will be stressed why organisation culture is important in this context and how organisations, especially Non-governmental organisations tend to behave in different situations.

To be able to analyse different tools to promote social responsibility the understanding of what this term means, what concepts it implies, and its history, is of importance. Then, more specifically, the aspects which are included in this concept and what kind of market can be found for this idea. Chapter 3 will deal with these issues. In Chapter 4, the focus will be on minimum workers’ rights and the attempt to outline the different tools available. In that chapter, we will concentrate on public policy tools. The various problems policy nowadays encounters when trying to regulate the environment will be elaborated as well as the tools which are available for this purpose. Chapter 5 will focus on private market tools. I will try to show how market mechanisms can be used as a regulative instrument. The focus will be on consumer boycotts, information raising initiatives, codes of conduct and, finally, social labels. In this chapter, social labels will only be briefly explained.

A thorough discussion of the chances and problems associated with social labels will follow in Chapter 6, where the way they work will be explained by concentrating on such issues as standards, monitoring, financing, and performance appraisal. In Chapter 7, I will try to answer the ultimate question of this paper, namely whether one global social responsibility seal, or social label, can be feasible and successful. For this purpose I will use a case study and empirical data. The results of this study will be useful for developing critical variables of success and mapping out the ideal environment for social labels. On the basis of this information, the existing conditions of the world economy will be matched against this ideal. The results of this comparison will be able provide the most feasible concept of a global social label and to offer an outlook into the future development of social labels.

1.4. Information sourcing

In the process of information sourcing, I focused on scientific publications, documents, newspaper articles, and reports published by various organisations working in this field. Many of these documents, such as annual reports, brochures and pamphlets were available on the Internet. Other information was readily given to me by representatives of the organisations involved. Although, I have to say that much of this information from the latter source has to be treated with care, since homepages of activist groups are often full of polemic and disinformation.

After I had been able to create a rather comprehensive picture of the situation, I started to exchange e-mails and to conduct personal interviews with people of the social responsibility movement. A semi-structured interview conducted with Mag. Christian Mücke, a Clean Clothes Campaign (CCC) Austria representative, was very helpful, providing me with information about practical experiences. My final suggestions at the end of this paper are based on case studies of already existing social labels and empirical data.

2 Definitions

2.1 Brands, Labels and Seals

One of the major aspects of the buyer‘s decision-making process is information search (Kotler 1997: 238). During this phase, the potential consumer tries to gain as much information as possible to decide for a certain product or service. The amount of information required depends on the product or service involved. Therefore, producers try to provide their customers with this important information through labels, seals and brand image. This information must be delivered in a credible, digestible and attractive form capturing people’s attention (Zadek et al. 1998: 18). We will now examine three different ways of providing the consumer with this information visually: the brand, the label and the seal.

2.1.1. Brands

According to marketing guru Philip Kotler (1997: 343), a brand is "a name, term, symbol or design, or a combination of the three, which is intended to signify the goods or services of one seller or group of sellers and to differentiate them from those of competitors". This definition of the term brand can be further refined by distinguishing the terms brand name and brand mark. Brand name applies to the verbal part of the brand while brand mark is applied to the visual part. Consumers rely heavily on brand reputation and do not consider the range of information available to them on price and quality of goods. Therefore, marketing departments in all industries spend a lot of money to create brands with a good image.

2.1.2. Trademarks

According to the UK Patent Office, "a trademark is any sign which can distinguish the goods and services of one trader from those of another. A sign includes, for example, words, logos, pictures, or a combination of these." In addition, "a trade mark is used as a marketing tool so that customers can recognise the product of a

particular trader." (UK Patent Office Homepage 2002) This definition does not highlight the legal aspects of trademarks.

According to Kotler, a brand or part of a brand that is given legal protection means that the seller's exclusive rights to use the brand name or brand mark are protected. (Kotler 1997: 344)

2.1.3. rtification marks and quality seals

According to IPOS, "a certification mark is a sign used, or intended to be used, to distinguish goods and services dealt with or provided in the course of trade and which are certified by the proprietor of the certification mark in relation to origin, material, mode of manufacture of goods or performance of services, quality, accuracy or other characteristics from other goods or services dealt with or provided in the course of trade but which are not so certified. Unlike trade marks, certification marks may consist of signs or indications which may serve in trade to designate the geographical origin of the goods or services. Unlike trade marks, certification marks are also not registered in favour of persons who trade in the certified goods or services themselves. Instead, they are registered in favour of persons who are competent to certify a particular characteristic of the goods or services." (IPOS Homepage 2002)

A quality seal is a special certification mark intended to act as a proof of quality for the consumer. This quality seal can either be issued by the producer himself or be sponsored by an independent (the issues of independence will be thoroughly dealt with in Chapter 6.4) authority, which probably increases the degree of credibility. This is a major difference to trademarks that may also be used to distinguish goods and services from each other; but unlike certification marks trademarks tend to be issued by the producer itself. Obviously, it is difficult, if nit impossible to guarantee complete independence. But marketing managers know that credibility and authority of the information source may be more important than correct and factual information. (Zadek et al. 1998: 19)

Since a certification mark is sponsored by an independent authority, the certifying nature of this mark makes independent monitoring and inspection necessary. Without independent monitoring a certification mark might be simply regarded as a brand. A certification mark sponsored after independent monitoring is the basic idea behind social labels, which will be dealt with in the next section.

2.1.4. Labels

First, the term label can have different meanings. According to different dictionaries and thesauri, the term label can be used 1) to describe the physical process of attaching a tag or label to any product 2) to describe the tag attached to a good containing additional information about the product (production, content, quality…). The same term can also mean 3) brand, as a company’s name (i.e. music label) and

4) seal, as a certifying instrument. The term label as in social label is basically a combination of the points 2) and 4).

Caldwell’s (1996: 2) provides a more precise definition of labels: “Labels attempt to communicate and supplement information to consumers by means of a description of a product's characteristics or a declaration of a product's name brand”. Again, the stress lies on the fact that one sign or symbol is able to deliver huge amounts of information to the consumer. These definitions show that the concept of label itself does not include the idea of independent monitoring, which is an essential part of social labels.

2.1.5. Social Labels

“Social labels are words and symbols associated with products or organisations which seek to influence the economic decisions of one set of stakeholders by describing the impact of a business process on another group of stakeholders.” (Zadek et al 1998: 19) This definition by Zadek et al. simply widens the definitions of the term label by associating it with the provision of additional information about social impacts and effects on various stakeholders within the global business process. The ILO Governing Body offers another definition: “The term ‘social labelling’ has come to connote a means of communicating information through a physical label

about the social conditions surrounding the production of a product or rendering of a service.” (ILO 1998: Sec. 68)

All four types interact. They may appear on the same product or they may compete on different products. They may be issued by the producer or by an independent authority. Thus, since independence and credibility is going to be of great importance in this paper, I will try to show how social labels can raise their degree of independence and credibility. Labels can be independent in that their award is independent from other facts than those labelled or certified. When browsing the relevant literature, it can be seen that there is no clear indication as to whether a quality seal must necessarily be independent, or whether a label has to be issued by companies. Though it seems that the term brand is mostly used when it comes to business marketing and a quality seal is often understood as a proof of compliance with clearly defined quality standards. In current discussion about a seal certifying the compliance with social or environmental standards, the terms “social label” or “environmental (or eco) label” are usually used instead of certification marks.

I would like to emphasise that these definitions and the following definitions are useful for the purpose of this paper rather than being correct in an absolute sense.

2.2. Unification, Globalisation and Free Trade

2.2.1. Globalisation

Certainly each of the thousands of academic papers and books on globalisation written every year includes its own definition. This shows that globalisation has been a highly controversial topic for the last decade at least. Many see globalisation as a primarily economic phenomenon, which emerged after World War II; others believe that globalisation started after the first circumnavigation of the earth in the 16th century. A very thorough discussion of globalisation and its impacts is provided by the German sociologist Jürgen Habermas (1998:70).

Habermas states that technological progress has led to an improvement of communications and to low transport costs. This has triggered an economic integration process causing geographical expansion and an increase in international trade, globally linked capital markets, increased foreign direct investment, and rapidly growing exports of industrial goods from newly industrialised countries. This economic integration acts as an engine for a cross-border social, cultural and technological exchange. (Habermas 1998: 70)

2.2.2. International Free Trade

International free trade is the neo-classical economic paradigm which tries to reduce trade barriers of all kinds, as they are said to cause market imperfections. Here, you can find different interpretations of how free or open markets really should be, but in general, the underlying theory tries to prove that every restriction of trade leads to higher costs and lower quality, as competition is restrained. (Samuelson/Nordhaus 1996).

Therefore, many governments and international trade organisations have adopted a free trade policy on a global basis. The question of how and to what extent free trade influences economic integration is dealt with in the next section.

2.2.3. fication

Unification is a process, that happens when companies operating on a global basis try to maximise their profits by putting their production on a larger scale. This way unit costs can be decreased the larger the company gets. In global competition this is supposed to not only reduce unit costs and product differentiation, but also to create strong brand and market recognition. It is easily imaginable that a strong brand is a better means to achieve at a global marketing strategy than various different brands, although they might belong to the same enterprise and cover the same product. The latest example of such a process in telecommunication industry is the unification of several different national brands into the new brand "T-mobile". With respect to social labels, the process of unification can focus on two different levels.

First, social labels have recently been unified in that they try to include standards from different aspects of social responsibility. For example, labels that have originally focused on fair trade standards have included minimum labour or environmental standards. This form of unification aims at making social labels more comprehensive. Second, social labels can be unified globally by being joined together under one super label, which is the main aspect dealt within this paper. The Fair Trade Labelling Organisation (FLO) is involved in both forms of unifications. On the one hand, it was created as an umbrella organisation for several fair trade organisations in Europe, the United States, Canada and Japan. Although, only standards, monitoring and other operational aspects have been unified, soon also all the different labels will be replaced by a single label. On the other hand, the FLO is also a good example of how social labelling initiatives are trying to broaden their standards. This paper will analyse the experiences made by the FLO in Chapter 7

2.3. Organisations

Very often, the reader is confronted with abbreviations such as NGO, TNC, or FTO, and does not have a clear understanding of what these codes actually stand for. Therefore, I am going to define the various organisations acting in the global arena.

2.3.1. NPOs/NGOs/INGOs/ATOs/FTOs


Non-profit or not-for-profit organisations are, as the term already suggests, organisations which seek to achieve other goals than that of making profit. Examples of such organisations are private museums, sports associations, political parties, welfare associations, interest groups, etc. (Badelt 1997: 3) Another definition found on the homepage of the Education and Training Unit for Democracy and Development (ETU) states that "non-profit organisations do not exist to make a profit from the work of the organisation for the owners or members of the organisation. They exist to serve some public purpose rather than just serving the personal interests of the owners or members of the organisation. They exist for the benefit of the general public or specific sections of the public. If members receive payment or benefits, it is only in the form of a reasonable salary and benefits in return for the work that is done as an employee of the organisation. Any profit that is produced is used by the organisation to make a greater impact in terms of their public purpose." (ETU Homepage 2002)

The collectivity of all NPOs, called the non-profit sector, is becoming increasingly important every day, for they deal with many social issues that are not dealt with by companies or governments.


The World Bank defines NGOs or Non-governmental Organisations as "private organizations (sic) that pursue activities to relieve suffering, promote the interests of the poor, protect the environment, provide basic social services, or undertake community development" (World Bank: Operational Directive 14.70). According to the ETU, non-governmental organisations are organisations that are not part of government. This includes a wide group of organisations, from large charitable NGOs like Child Welfare to small community organisations like sports clubs or civics. This could, technically, cover private companies but, in practice, when we refer to NGOs, we mean only those non-governmental organisations that are non-profit as well.

Broadly, the term NGO can be applied to any non-profit organisation, which is independent from any governing body. NGOs are typically value-based organisations, which depend, in whole or in part, on charitable donations and voluntary service. Although the NGO sector has become increasingly professionalised over the last two decades, principles of altruism and voluntarism remain key defining characteristics (World Bank 2002)

The term INGO refers to International Non-governmental Organisations. This simply means that the definition of the NGO is applied on an international level. Of course, NGOs or INGOs vary enormously according to their purpose, philosophy and scope of activities

The meaning of both terms, NPO and NGO, are very similar, so for the purpose of the paper I will use the term NGO, whenever I refer to an NPO pursuing activities to relieve social and environmental damage.


Alternative Trade Organisations and Fair Trade Organisations are not to be confused. FTOs evolved out of ATOs. Chapter 3 will provide more details about those two forms of organisations. At this stage of the paper, the differences between the two types will be ignored and their common characteristics emphasised. According to the EFTA, Alternative Trade Organisations or Fair Trade Organisations are organisations who have recognised that goods traded on the international market do not reflect the real cost of production, but are traded at the lowest price possible, regardless of human, social or ecological consequences. (EFTA 1998: 4) To improve this undesirable situation they adopted the policy of Fair Trade, which may comprise the following basic principles (Chapter 3 will be more exhaustive on this matter):

- Provide direct access to the Northern market for producers’ products, avoiding to the greatest possible extent middlemen and speculators;
- Pay a fair price that covers producers’ basic needs and costs of production, and leaves a margin for investment;
- Pay part of the price (40-50%) in advance so that producers avoid falling into debt;
- Establish long-term working relations and contracts with the producers

(Paulovic 2000: 12).

Usually, FTOs work with agricultural producers and artisan workers (Litrell/Dickson 1998). Using a network of 3000 “world shops” they try to bring fairly traded products to the European, North American and Japanese markets (Transfair 1994: 1). These FTOs are playing an important role in promoting social responsibility. Firstly, they educate their customers by informing them about living and working conditions

in developing countries (Paulovic 2000: 13) and secondly, they promote the idea of social labels by sponsoring Fair trade seals.

As the Michigan Comnet, an umbrella organisation for NGOs puts it: "alternative trade is a way of addressing the inequalities that small-scale farmers face, not through charity, but by using consumers' buying power to help producers help themselves." (Michigan Comnet Homepage 2002) Chapter 3 will discuss alternative and fair trade in greater detail.

2.3.2. TNCs/MNCs

Transnational corporations or multinational corporations are business units which have their procurement and sales markets spread all over the world, depending on where they can gain the highest profits. This has to lead to some sort of unification in the field of organisational culture.

For the purpose of this paper the marginal difference between TNCs and MNCs will be ignored as they basically mean the same thing, or as Gert Hofstede, an international management researcher, puts it:

“A multinational corporation (MNC) is a body that has an integrated philosophy encompassing domestic and global operations. The term is interchangeably used with multinational enterprise (MNE) or transnational corporation (TNC).” (Hofstede 1997: 21)

The following quotation from an UNRISD paper (United Nations Research Institute for Social Development), published by Peter Utting, shows why TNCs or MNCs are so important when it comes to promoting a framework of corporate social responsibility on the global market:

“Given their size and global reach TNCs have often been singled out rightly or wrongly as major culprits of unsustainable development. Today this sector comprises approximately 60,000 parent firms with over half a

million foreign affiliates, which in 1997 accounted for one third of world exports. The economic power of the largest TNCs is such that the revenues of just five corporations are more than double the combined GDP of the poorest 100 countries.” (Utting 1998: 28)

In view of the combined power of just 20 of the biggest TNCs, it is not surprising that “this power gives rise to social and environmental exploitation”. (Singh 2000: 2)

2.4. Marketing Management Philosophies

According to Kotler, there are five different marketing philosophies. Of all the marketing management philosophies, the societal marketing concept is the one with the greatest importance for this paper.

The Societal Marketing Concept holds that the organisations task is to determine the needs, wants, and interests of target markets and to deliver the desired satisfactions more effectively and efficiently than competitors in a way that preserves or enhances the consumers and the societies well being. (Kotler 1997: 21ff) Assuming that Kotler is right and that companies will eventually start to consider the society's well being, the relevance of this definition for this paper is that the initiative of social labels is based exactly on this marketing philosophy.

2.5. Organisational culture/behaviour

Icodeindia, a provider of MBA programmes, gives a very good overall definition of organisational culture:

“Organization culture is a collection of shared beliefs, values, rituals, stories, specialized language, and myths that fosters a feeling of community among the organization members. The culture of an organization is influenced by many different factors such as its history, ownership, size, use of technology, and the business environment in

which it operates and the people it employs. Cultures develop and change over time.” (Icodeindia Homepage 2002)

Since the 1980s, the concept of corporate culture as defined above has become increasingly important as a model for describing processes in corporate everyday life. Management literature suggests that different corporate cultures in companies of the same industry might make the difference between success and failure. Therefore, we have to take into account cultural differences between NGOs, governmental organisations, and MNCs.

Littrell and Dickons (1998) repeatedly observed the strength of commitment to mission across all levels of ATO personnel. However, they mentioned that ATO culture has been almost too strong, so that the result was cultural inflexibility rather than agility and adaptivity. This is not supposed to mean that commitment is not necessary in order to achieve the mission of the organisation, but they have frequently limited the exchange of ideas with other similar organisations. Perhaps these shared values and norms were taken to the extreme, isolating ATOs in their thinking and preventing them from pursuing a culture strategically appropriate to the changing environment. (Litrell/Dickons 1998: 311)

3 The Concept of (Corporate) Social Responsibility / Ethical Trade

This chapter explores, in detail, the concept and the critical factors around the tern corporate social responsibility. As you can see in the title of this chapter, the term corporate is put in parenthesis, for the terms corporate social responsibility and social responsibility are used almost interchangeably.

3.1. What is Social Responsibility?

Today managers are regularly faced with decisions that have a social responsibility dimension. They include pricing, employee relations, resource conservation, product quality and safety, and, of course, operations in countries that violate human rights. But what is meant by the term social responsibility?

To start with a fairly general definition:

“Social responsibility is the term given to policy decisions that are made by organisations that have an impact on society at large. Issues such as pollution, public policy, poverty, education, and the national health system are included in the term social responsibility. It is a strategic initiative established by the leadership of organisations to comply with legal requirements, ensure respect for people, communities, and the environment.” (CBS Homepage 2001)

This definition gives a good overview of what is meant when we say a company acts in a socially responsible way. According to Robbins and Coulter (1996), two American management professors, two opposing views of social responsibility, viz. the classical view and the socio-economic view, can be found in the current debate on this topic.

3.1.1. The Classical View

The most popular advocate of the classical view is Milton Friedman. He argues that most managers today are professional managers, which means that they do not own the businesses they run. This makes them employees, which means that they are primarily responsible to the stockholders and have to operate the business in the best interest of this stakeholder group. The stockholders‘ most important concern, of course, is financial return. Thus, the management’s only social responsibility is to maximise profits.

“According to Friedman, when managers decide on their own to spend their organization’s resources for the ‘social good’, they undermine the market mechanism. Someone must pay for this redistribution of assets. (Robbins/Coulter 1996: 145)

As for social responsibility in for-profit organisations, there is “only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it (...) engages in open and free competition without deception or fraud” (Friedman 1962: 133 quoted in Pucher 2000). These costs of allowing for social responsibility aspects add to the costs of doing business and either have to be passed on to the consumers or have to be absorbed by stockholders through a smaller profit margin. In Friedman’s view, social responsibility is properly executed by individuals, including the shareholders of “ruthlessly” efficient for- profit-organisations.

3.1.2. The Socio-economic View

On the other hand, the socio-economic position counters that society’s expectations of businesses have changed and that managers are not only responsible to the stockholders. This approach regards companies not just as economic institutions and believes that management’s social responsibility should go beyond making profits and include protecting and improving society’s welfare. Businesses have responsibility to a society that endorses their regulation through laws and regulations and supports them by buying their products and services.

One major flaw in the classical rationale is time frame. Supporters of the socio- economic view contend that in the longer run, managers should be concerned with maximising financial returns. To achieve that, they have to accept some social obligations and the costs that go with them. Nevertheless, the prospected future return is supposed to be higher.

In view of the present situation, a case for the socio-economic approach can be made. Modern business organisations are no longer merely economic institutions. They are becoming increasingly involved in their social, political, and legal environments, which they influence for their own good.

When dealing with corporate social responsibility it is also important to know how and why managers make their decisions from an ethical point of view. The term that is used in this context is called business ethics.

3.1.3. Business Ethics

According to the Center for Business Ethics and Social Responsibility (CBS)

“Business ethics refers to the value structure that guide individuals in the decision making process when they are faced with a dilemma of how to behave within their business or professional lifes. Usually the impact of that decision will be felt only in their immediate, organisational environment.” (CBS Homepage 2001)

Again, this rather general definition gives a broad understanding of what business ethics can be. Robbins and Coulter (1996) discuss this topic in greater detail, by contemplating managerial ethics from four different perspectives, viz: the utilitarian view, the rights view, the theory of justice view and the integrative social contract theory, which will be briefly outlined.

The utilitarian view of ethics, raised by the utilitarians, a classical economics school that emerged in the late 18th and the 19th century, states that decisions are, not surprisingly, made solely based on their outcomes or consequences. Two of their most popular representatives were John Stuart Mill and Jeremy Bentham. Utilitarianism stresses the importance of the greatest good for the greatest number and encourages efficiency and productivity, but it may ignore the rights of some stakeholders. It is assumed that most businesspeople subscribe to this view.

By contrast, the rights view respects and protects individual liberties and privileges including the right to privacy, freedom of conscience, free speech, and due process, this presenting obstacles to high productivity and efficiency.

Another ethical perspective is the theory of justice view. Here, managers impose rules fairly and impartially, protecting interests of stakeholders. However, this “can encourage a sense of entitlement that might make employees reduce risk taking, innovation, and productivity.” (Robbins/Coulter 1996:160)

The final perspective is the integrative social contract theory. This view proposes that decisions should be based on empirical factors of ‘what is’ and normative factors of ‘what should be’. “This view of business ethics differs from the other three in that it suggests managers need to look at existing ethical norms in industries and corporations in order to determine what is right and wrong.” (Robbins/Coulter 1996: 161)

These views give a very useful insight of what corporate social responsibility and business ethics can mean and which direction their interpretation can take. Exactly this is crucial when it comes to promoting social responsibility on the world markets, because different players in the global field have a different understanding of the two terms, which are often used in this debate. Now we are able to detect the source of conflict between ‘classical’ and ‘utilitarian’ business managers and ‘socio-economic’ and ‘justice theorist’ NGO activists arguing about ethical standards for the world economy.

Not only are there differing interpretations of these terms (business ethics, social responsibility), but one can also find different terms used in this context. Some of the frequently employed expressions are Ethical Trade, Sound Sourcing, No-Sweat, Green Management, etc. These concepts basically aim into the same direction trying to let a greater number of stakeholders benefit from (global) economic activities. The terminology may differ due to the organisational background or to the preferred approach. The following sections will clarify these differences.

3.1.4. Ethical Behaviour

When talking about (corporate) social responsibility and business ethics, it is important to understand the factors that lead to ethical or unethical behaviour, because they are important in deciding whether management joins a social labelling scheme or not. Whether a manager acts ethically or not is the result of a complex interaction between the manager’s stage of moral development and several moderating variables including individual characteristics, the organisation’s structural design, the organisation’s culture, and the intensity of the ethical issue. (Dumaine 1992: 10 quoted in Robins/Coulter 1997)

Abbildung in dieser Leseprobe nicht enthalten

Figure 3.1. Based on Robbins/Coulter p.161

In Robbins and Coulter, (1996: 161) we find a very concise figure, which we find on page 26. According to Figure 3.1, the first step in this interaction is the ethical dilemma or the decision that has to be made. Then, several variables come into play. First, the moral development of the manager is critical to the outcome. Moral development

Substantial research confirms the existence of three levels of moral development, each being composed of two stages (Kohlberg 1981 et 1984 quoted in Robbins/Coulter 1996: 161). These three levels are called preconventional, conventional and principled. For our needs we will get by with a short description of the three levels and leave out the respective stages.

On the preconventional level, ethical decisions are exclusively influenced by personal interest and are made in terms of self-benefit, whereas on the conventional level, managers are influenced by the expectations of others. This reminds us of the sociologist roles theory, according to which the ultimate motivation for our actions is determined by the expectations from our environment. (AG Soziologie 1996: 25) These influences may include compliance with the law or the response of society. The last level is labelled principled. On this level individuals make a clear effort to define moral principles. Decision-making is influenced by these principles, which may or may not be in accordance with rules or laws of society.

Research on these stages, done by Weber (1990), allows us several conclusions.

“First, people proceed through the six stages in lockstep fashion. They gradually move up the ladder, stage by stage. Second, there is no guarantee of continued development. Therefore, development can stop at any stage. Third, the majority of adults are at stage 4 (conventional level!

– the author). They are limited to obeying the rules and will be predisposed to behave ethically.” (Weber 1990: pp. 687-702 quoted in Robbins/Coulter 1996: 162)

For instance, a conventional level manager is likely to make decisions that will receive peer approval or make him a good corporate citizen. Whereas a principled level manager is more likely to challenge organisational practices that he or she believes to be wrong. Moderators

Endowed with his or her personal moral skills, the manager or any other decision maker is confronted with situational variables. These variables, or moderators, have the final influence as to whether the manager behaves ethically or not and can be divided into: individual characteristics, structural variables, organisation’s culture, and issue intensity.

- Individual characteristics are determined by values, ego-strength, and locus of control, meaning the degree to which people believe that they control their own fate.
- Structural variables consist of, for example, design of organisation, rules and regulation, behaviour of superiors, performance appraisal systems, and reward systems.
- Organisational cultures are an important influence as a strong culture is more influential than a weak culture. High ethical standards can be expected from a culture, which is high in risk tolerance, control and conflict tolerance. See also 2.5.
- The last moderating variable is issue intensity, which aims at the importance of an ethical issue. It says that more intense issues prompt greater ethical behaviour.

From these theoretical definitions, we can get an idea of how complicated the variables that lead to ethical behaviour in organisations are. This input shows how difficult it may be to improve ethical behaviour. Nevertheless, this paper will try show what can be done to promote it. Improving ethical behaviour

As the purpose of this paper is to call for corporate ethical behaviour, we will focus briefly on what management itself can do to improve organisational ethical behaviour. Recently many corporations have introduced more or less comprehensive ethics programs, which have the potential to improve an organisation’s ethical climate. Factors that can affect an organisation’s ethical performance are not limited to, but include employee selection, codes of ethics, top management leadership, job goals, performance appraisal, ethics training, and formal protective mechanisms. (Robbins/Coulter 1996: 166-172)

Regarding employee selection it is important to eliminate ethically questionable applicants. Thus, personnel managers have to stop these people from entering the organisational system.

Favoured tools for improving ethical behaviour are codes of ethics. They are a “formal document that states an organization’s primary values and ethical rules it expects employees to follow.” (Robbins/Coulter 1996: 167) Codes of ethics should comprise factors such as that they should not be developed and applied in isolation, the importance of the code must consistently be reaffirmed, and those that break the code should consistently be disciplined.

The importance of top management leadership must not be underestimated since it sets the cultural tone by reward and punishment practices. In this context, it is far more important what management does than what it says. The next influential aspects are job goals. Job goals should be defined clearly and realistically in order to reduce ambiguity, because employees become distracted and confused by different sets of expectations. Such confusion will not contribute to a more ethical behaviour. Then, when willing to create an ethical conscience in an organisation, performance appraisal should be based on ethical standards. This should include formal protective mechanisms to protect employees who face ethical dilemmas and ethics training. Only ethics based appraisal, training, and rewarding will encourage personnel to behave ethically.

This list, of course, is not complete, but a combination of at least some of its parts implemented in a serious way could represent a first step to changing an organisation’s culture into an ethical one. This development will be necessary for the success of social labels. The next section will look at the roots of the social responsibility movement

3.2. History of the social responsibility movement

Business owners and managers have always had a classical or ‘the business of business is business‘ approach to their businesses, which has caused stakeholders to feel exploited in some way or another. Those stakeholders included ill-treated workers, communities harassed by environmental pollution resulting from the production process and consumers being denied the right of correct and factual information, fair prices, and good quality, to put it in a nutshell way, members of the society exposed to the negative external effects of economic activities.

3.2.1. Consumer activism

Since consumers have the right to do what they want with their money and unless they face a sellers‘ market, they have the greatest power to influence a company’s decision-making process. Therefore, it is not surprising that consumers have started to call for corporate social responsibility and to use their power.

The earliest form of consumer activism promoting social values other than profit maximisation were consumer boycotts. Laidler, Nelson, and Prittie, explain the origin of the term. The word is the surname of a notoriously severe rent collector of the Earl of Erne, Captain Charles Cunningham Boycott, of County Mayo, Ireland. (Laidler et al. 1977 quoted in Smith 1990: 145) In response to Boycott’s strict and inhumane behaviour, all workers held a meeting and agreed to cease all relations to Boycott and his family until he finally left Ireland. Of course, this was not the first boycott in history, but that is where the expression came from.

One particularly early use of this form of protest goes back to the year of 1327, when the citizens of Canterbury, England, imposed a consumer boycott on the Christ Church Monastery. This involved an agreement not to ‘buy, sell or exchange any drinks or victuals with the monastery‘. (Smith 1990: 145) The Boston Tea Party is another example of consumer action and boycotting of products by early American colonists and abolitionists in opposing the slave trade. (Smith 1990: 201)

Later, at the turn of the nineteenth century, trade unions in the US published “fair lists” of unionised companies, as an indirect way of boycotting non-unionised companies and companies with allegedly bad working conditions. Previously they published “unfair lists”, but these were made illegal in 1908 (Zadek et al. 1998: 23) From these early experiences with consumer activism, we can clearly see that one central issue of these initiatives has always been the protection of basic workers’ rights.

Before the 1960s, the issue of corporate social responsibility attracted little attention by the broader public. But this changed in the last century. The first wave of organised consumerism was triggered by rising prices at the beginning of the twentieth century and by publications about the conditions in the food-processing industry. The second one, in the mid 1930s during the Great Depression, was again caused by rising consumer prices and by several pharmaceutical scandals. But in the 1960s, when consumers were able to obtain more information, when products became more complicated and more dangerous and the population was generally displeased with American institutions, consumer actions became widely supported and better organised. The term ‘consumerism’ became popular. (Kotler 1997: 762)

Kotler (1997) characterises ‘consumerism’ as an organised movement of citizens and government institutions to strengthen buyer's rights and their power vis-à-vis sellers. (Kotler 1997: 762) Smith observes that businesses are beginning to see consumerism, or ‘the antithesis of marketing’, as an opportunity to gain customer satisfaction and states that “Consequently business now claims to practice consumerism”. (Smith 1990: 40) So the question is whether marketing managers are only trying to take the wind out of activist groups’ sails, or if they are sincerely interested in satisfying customers and walking the path of corporate social responsibility.

Later, different social and environmental issues became fashionable, for example CFC-free aerosols in the late 1980s, animal testing in the early 1990s and child labour in the late 1990s. (Zadek et al. 1998: 34) This short list shows that negative

externalities, especially ill treatment of workers, have always attracted the attention of different interest groups. During the last century, these issues became relevant for a growing public.

3.2.2. First Organisations

The first issue related to minimum workers’ rights and worker’s abuse was child labour. The International Labour Conference adopted the first of its many conventions concerning child labour at its very first session in 1919. However, that and those following up to1971 dealt with specific sectors or occupations. Then in 1973, it amended the Key Minimum Age Convention No.138, which remains the defining statement of child labour and its provisions are more general. (ILO 1997)

But there are also other international legal instruments, such as the Geneva Declaration on the Rights of the Child adopted 1924, the 1959 UN Declaration on the Rights of the Child and the1966 International Covenant on Economic, Social and Cultural Rights. (ILO 1997)

Another example is the European Community adopting the first code of conduct for companies with subsidiaries in South Africa in 1977. This initiative aimed at fighting racism and Apartheid in South Africa. Still in 1984, the majority of the companies partly or completely ignored the provisions of the code. (Heidel 1999: 2) Chapter 4 will deal with codes of conduct more thoroughly.

Scherrer and Greven, two internationally recognised sociologists, assume that as consumerism became increasingly organised and seals prevalent as a result of the UNCTAD conference in 1964 (“trade not aid”). Those labels had their predecessors in the fair trade movement organised by development and clerical associations. (Scherrer/Greven 1999: 2) Since these social labels are the key focus of this paper, we will deal with them in more detail in the second part of this paper.

3.3. Aspects included in social responsibility

With the theoretical debate on codes of conduct and social labels distinguishing between ethical production, ethical trade, and ethical consumption, practitioners, especially in the field of social labels tend to highlight the following aspects: minimum labour standards, environmental or green issues, development issues, and sustainability, which will be used to structure this chapter.

It should be noted that the definitions from Section 1 and the following differentiations do not claim to be correct in an absolute sense. Literature and the mission statements of several national or international organisations use narrow and wide definitions of the term social responsibility. The reader will be provided with the most common definitions and classifications in order to give what I believe is a useful overview.

3.3.1. Minimum Labour Standards – "Ethical Trade"

The exploitation of workers by powerful and under regulated companies has always been a problem. Especially in a global system of production and trade lacking governance, workers who produce the goods that are daily demanded and consumed need to be supported. The idea to support these workers was born in the early 1970s and become known as Ethical Trade. Ethical Trade tries to promote minimum workers' rights in large multinational corporations. One of the most important international organisations is the Ethical Trading Initiative (ETI), a UK-based alliance of companies, trade unions and NGOs. The aim of this initiative is to guarantee compliance with core labour and human rights standards. The next two subchapters will explain in detail the two approaches with respect to these rights. Universal Declaration of Human Rights

Some codes of conduct and labels use the Declaration on Fundamental Principles and Rights at Work published by the ILO, while other initiatives use related international human right instruments such as the Universal Declaration of Human Rights and the UN Convention on the Rights of the Child. Especially Articles 23, 24, and 25 of the

Universal Declaration of Human Rights focus on minimum workers’ rights. (UNO 1948)

Article 23.

(1) Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment.
(2) Everyone, without any discrimination, has the right to equal pay for equal work.
(3) Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.
(4) Everyone has the right to form and to join trade unions for the protection of his interests.

Article 24.

Everyone has the right to rest and leisure, including reasonable limitation of working hours and periodic holidays with pay.

Article 25.

(1) Everyone has the right to a standard of living adequate for the health and well- being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.
(2) Motherhood and childhood are entitled to special care and assistance. All children, whether born in or out of wedlock, shall enjoy the same social protection.

(UNO 1948)

This Declaration has been ratified by all 189 member-states of the UNO. ILO Conventions:

In contrast to this rather general statement from the United Nations Organisation, many experts, such as Heidel (2000), Scherrer/Greven (1999), and Hilowitz (1997

quoted in ILO 1997/2) suggest the seven ILO core conventions included in the Declaration on Fundamental Principles and Rights at Work as a basis for minimum workers’ rights. Below the names of the conventions, the dates of ratification, the number of articles, the number of ratifications and the most prominent countries not having ratified the convention are given. (ILO 2002)

- Forced Labour Convention (No.29), 1930, 26 Articles, 160 Ratifications, Not ratified: e.g. USA, Canada, China
- Freedom of Association and the Right to Organise Convention (No.87), 1948, 13 Articles, 139 Ratifications, Not ratified: e.g. USA, China, India, Brazil
- Right to Organise and Collective Bargaining Convention (No.98), 1949, 6 Articles, 151 Ratifications, Not ratified: e.g. USA, Canada, China, Mexico, India
- Equal Remuneration Convention (No.100), 1951, 4 Articles, 156 Ratifications, Not ratified: e.g. USA, Pakistan, South Africa
- Abolition of Forced Labour Convention (No.105), 1957, 2 Articles, 157 Ratifications, Not ratified: e.g. Japan, China, India
- Discrimination (Employment and Occupation) Convention (No.111), 1958, 6 Articles, 154 Ratifications, Not ratified: e.g. USA, Japan, Great Britain,

China, Nigeria

- Minimum Age Convention (No.138), 1973, 9 Articles, 116 Ratifications, Not ratified: e.g. USA, Japan, Austria, China, India, Pakistan, Brazil, Mexico

The relevant literature explains the case for and against each of the two options. Firstly, the UN Declaration is to be favoured because it has been ratified by all of its 189 members and has therefore strong support, but on the other hand, the content of the declaration is rather general with its three articles concerning labour standards, so its interpretation and negotiation might be difficult, especially in an international context.

156 of 156 pages


Social Responsibility Seals - Social Labels
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