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  1. 1. GLOBALIZATION OF SUSTAINABLE DEVELOPMENT?: PRINCIPLES AND PRACTICES IN TRANSNATIONAL CORPORATIONS Dennis A. Rondinelli Georgia Tech Center for International Business Education and Research Working Paper Series 2007-2008 Working Paper 023-07/08 For further information: email: October 2006 (c) 2006
  2. 2. GLOBALIZATION OF SUSTAINABLE DEVELOPMENT?: PRINCIPLES AND PRACTICES IN TRANSNATIONAL CORPORATIONS by Dennis A. Rondinelli Prepared for: International Research Colloquium on Multinational Enterprise and Sustainable Development: Strategic Tool for Competitiveness Center for International Business Education and Research Georgia Tech October 19-20, 2006 _______________________________________ Dennis A. Rondinelli is Senior Research Scholar at the Duke Center for International Development, Sanford Institute of Public Policy, Duke University, Durham, North Carolina and Director of the Pacific Basin Research Center, Soka University of America, Aliso Viejo, California. He is also the Glaxo Distinguished International Professor of Management Emeritus at the University of North Carolina-Chapel Hill.
  3. 3. The growing public concern that private corporations should not only earn reasonable profits and provide fair returns to shareholders but also operate as good corporate citizens and socially responsible organizations has spread to the largest transnational corporations (TNCs) and seems to have been taken up by companies in both richer and poorer countries. Sustainable development -- a concept that has been widely adopted by international organizations, national and local governments, and businesses -- calls for people and organizations “to meet the needs of the present without compromising the ability of future generations to meet their own needs.” 1 The concept of sustainable development includes the simultaneous consideration of economic growth, environmental protection, and social equity in business planning and decision-making. 2 As part of their corporate citizenship or social responsibility strategies many TNCs are creating voluntary environmental programs to manage more effectively the environmental impacts of their plants, facilities, and operations. 3 These sustainable development initiatives are especially important in transitional and developing countries around the world where environmental conditions are already hazardous, where social conditions often lag far behind those in richer countries, and where regulatory protection for people and the environment either may not now exist or is ineffectively implemented. A study undertaken by the Organization for Economic Cooperation and Development claims that corporate social responsibility initiatives are now “a broad international business trend,” both in OECD countries and emerging market countries. 4 Over the past decade an increasing number of TNCs have adopted corporate social responsibility (CSR) strategies, issued sustainability or corporate responsibility reports, and implemented and monitored the impacts of their CSR programs. The study found increasing corporate engagement on social responsibility issues as measured by membership in the Dow Jones Sustainability Index, registration with the 1
  4. 4. Global Reporting Initiative, responses to the Carbon Disclosure Project, and ISO 14001 certifications. The number of voluntary ISO 14001 Environmental Management Systems certifications, for example, has increased steadily from a little more than 36,000 in 2001 to more than 111,000 in 2005. 5 The KPMG International Survey of Corporate Responsibility Reporting 2005 that included more than 1600 companies, including 250 companies of the Fortune 500 (Global 250) and the top 100 companies in 16 countries (National 100) found that corporate responsibility reporting has been steadily increasing since 1993. KPMG found that in 2005 “52 percent of the G250 companies and 33 percent of the N100 companies issued separate corporate responsibility reports, compared to 45 percent and 23 percent, respectively, in 2002.” 6 The most dramatic change that KPMG found was that many of the companies have moved from simply reporting environmental data to reporting sustainability information on social, environmental and economic issues. Corporate social responsibility programs of most large TNCs in the past were often defined narrowly as environmental regulatory compliance, environmental management practices, philanthropy, or developing external relationships with stakeholders to address social and environmental problems. 7 Increasingly companies have included incentives for employees to work with community groups on natural resource conservation and protection projects and making donations and gifts for environmental programs. Many companies now include assessing the quality of local environmental conditions and local environmental sustainability and carrying capacity, contributing to environmental infrastructure development or improvement, sponsoring education and training programs for employees, funding community- initiated social development initiatives, and creating formal stakeholder relationships with social 2
  5. 5. and environmental interest groups, nonprofit organizations, and local governments to prevent or solve crucial social and environmental problems. 8 Other companies include in their sustainable development programs the adoption of internal management practices that prevent pollution at its source. 9 Despite the fact that an increasing number of TNCs seem to be adopting sustainable development strategies, critics contend that their corporate social responsibility reports may misleading, incomplete, and self-serving, that is, simply public relations gimmicks that are not a true reflection of their business practices. Skeptics argue that transnational corporations often use their sustainability or corporate social responsibility reports as “green wash,” to cover over or divert public attention from business practices that continue to endanger the environment and create risks for the communities in which they operate. Indeed some critics argue that TNCs are “incompatible with sustainable development,” because they have no long-term commitment to community or place, future generations, democractic governance, equity and social justice, and that they simply “seek to create greater wants, focusing on ‘excessities’ more than necessities.” 10 Questions remain about how large multinational companies conceive of sustainable development, how comprehensive and integrated their sustainable development policies are with their business models, strategies, and practices, how far TNCs go beyond required regulatory controls in attempting to achieve sustainable development goals, how they implement their social responsibility and sustainable development programs, how their sustainable development strategies are monitored and evaluated, and how effective their sustainable development practices really are. This paper explores these questions by examining the corporate responsibility and sustainable development strategies of what the United Nations Centre for Trade and 3
  6. 6. Development (UNCTAD) has designated as the 25 most globalized TNCs, that is, those companies with largest foreign assets, sales, and employment in the world. UNCTAD’s 2004 ranking of the most globalized TNCs provides a sample of corporate CSR reports that can be used to examine their social responsibility and sustainable development activities. The adoption of corporate responsibility strategies by TNCs with the largest foreign assets is significant because of their worldwide economic and social influence. Their foreign assets, sales, and employment have strong global impacts. (See Table 1.) According to UNCTAD, the 25 most globalizaed TNCs had more than $3.4 trillion in assets, more than $1.9 trillion of which were held outside of their home countries. The 25 conglomerates had total sales of more $2 trillion. They employed more than 4.2 million people and created employment for millions more working for suppliers, service firms, contractors, and their overseas affiliates. They represented a wide variety of industries including telecommunications, motor vehicles, electrical and electronic equipment, petroleum products, energy and utilities, media, pharmaceuticals, and diversified mixes of products. The sheer economic power of these companies is enormous. BP, the British based petroleum and energy-resources company, for example, alone had total sales in 2003 of more $180 billion, more than the gross domestic income of 106 countries the previous year. The seven automobile makers among the 25 most globalized TNCs—General Motors, Ford, Toyota, Volkswagen, Honda, BMW, and Fiat—had revenues from sales ($652 billion) in 2003 that exceeded the gross national income a year earlier of every country in the world except nine -- India, Canada, China, France, Germany, Italy, Japan, the United Kingdom, and the United States. The total sales revenue of the 25 companies exceeded the Gross Domestic Product of all of the 4
  7. 7. Table 1. 2004 UNCTAD Ranking of Most Globalized Nonfinancial Transnational Corporations Foreign Total Total Ranking Corporation Assets Assets Sales Employment 1 General Electric 229,001 575,244 131,698 315,000 2 Vodafone Group Plc 207,622 232,870 42,312 66,667 3 Ford Motor Company 165,024 295,222 163,420 350,321 4 British Petroleum Plc 126,109 159,125 180,186 116,300 5 General Motors 107,926 370,782 186,763 350,000 6 Royal Dutch/Shell 94,402 145,392 179,431 110,000 7 Toyota Motor Corp. 79,433 167,270 127,113 264,096 8 Total 79,032 89,450 96,993 121,469 9 France Telecom 73,454 111,735 44,107 243,573 10 ExxonMobile Corp. 60,802 94,940 200,949 92,000 11 Volkswagen Group 57,133 114,156 82,244 324,892 12 E.On 52,294 118,526 35,054 107,856 13 RWE Group 50,699 105,116 44,110 131,765 14 Vivendi Universal 49,667 72,682 55,004 61,815 15 ChevronTexaco Corp. 48,489 77,359 98,691 66,038 16 Hutchison Whampoa 48,014 63,248 14,247 154,813 17 Siemens AG 47,511 76,474 77,244 426,000 18 Electricité de France 47,385 151,835 45,743 171,995 19 Fiat SPA 46,150 96,990 52,638 186,492 20 Honda Motor Company 43,641 63,167 65,366 63,310 21 News Corporation 40,331 45,214 17,421 35,000 22 Roche Group 40,152 46,160 19,173 69,659 23 Suez 38,739 44,805 43,596 198,750 24 BMW AG 37,604 58,192 39,995 96,263 25 Eni Group 36,991 68,987 45,329 80,655 Total 1,907,605 3,444,941 2,088,827 4,204,729 Source: UNCTAD, 2004. poor and middle income countries combined in each of six regions of the world -- East Asia and the Pacific, South Asia, Europe and Central Asia, Latin America and the Caribbean, and the Middle East and North Africa, and Sub-Saharan Africa. Presumably, corporate practices and behavior of the 25 most globalized TNCs can influence, for good or ill, stakeholders around the world more directly and more powerfully than even the governments of the countries in which they operate. 11 They often set the example for other TNCs and for domestic firms in both their home and host countries. 12 How the largest 5
  8. 8. global TNCs perceive corporate social responsibility, define the activities that constitute socially responsible corporate behavior, and implement their sustainable development plans and monitor impacts can profoundly affect the people and places where they operate. This paper reviews the contents of the social responsibility reports published on the Internet websites of the 25 TNCs with the largest foreign assets. 13 The content analysis used public information provided by the companies with no independent attempt to verify the accuracy of their reports, other than accepting the certification of external auditors engaged by the companies. The attempt here was not to prove or disprove that the companies consistently lived up to the claims they made in their public documents, but to discern how they define and seek to implement their strategies. WHAT IS SUSTAINABLE DEVELOPMENT STRATEGY? The concepts of corporate social responsibility and sustainable development are defined broadly and often used interchangeably. In general, however, corporate social responsibility is often seen as a means of attaining sustainable development goals. The World Business Council for Sustainable Development defines corporate social responsibility as “the ethical behavior of a company toward society,” that is, management “acting responsibly in its relationships with other stakeholders who have a legitimate interest in the business—not just the shareholders.” 14 Others point out that corporate citizenship is “about understanding and managing an organization’s influences on and relationships with the rest of society in a way that minimizes the negative and maximizes the positive.” 15 Business for Social Responsibility, an environmental interest group, considers corporate social responsibility to be “operating a business in a manner that meets or exceeds the ethical, legal, commercial, and public expectations that society has of business.” 16 6
  9. 9. Logan, Roy and Regelbrugge point out that corporations exhibit good citizenship through at least four levels of activities: 17 1) commercial self-interest -- in which they adhere to all laws and regulations and select those activities benefiting stakeholders and communities that also directly contribute to their profitability and competitiveness in the market; 2) expanded self- interest with immediate benefits -- in which they undertake activities that go beyond normal business concerns to benefit stakeholders and communities in ways that also provide measurable short- and medium-term benefits to the company; 3) expanded self-interest with long-term benefits -- in which they support community activities, such as education and training, that will have important impacts on continuing business success; and 4) promoting the common good -- in which they support or participate in activities that improve conditions in the community or for stakeholders with no expectation of direct tangible benefits to the company. HOW DO THE MOST GLOBALIZED TNCs PERCEIVE CORPORATE SOCIAL RESPONSIBILITY? Of the 25 most globalized TNCs ranked by UNCTAD in 2004, all identified and provided Internet access to reports they variously titled “corporate responsibility,” “corporate social responsibility,” “leadership and vision,” “corporate citizenship,” “sustainability,” or “environmental, health and safety” reports. Although all but four (Toyota, Honda, The News Corporation, and Hutchison Wampoa) of the top 25 non-financial TNCs ranked by the United Nations Conference on Trade and Development (UNCTAD) were US- or Western European- based companies, between 2002 and 2005 they had all issued CSR reports or documents related to social responsibility. 18 7
  10. 10. The CSR reports of the companies still have not reached a level of standardization that allows easy compilation of frequency distributions of the definitions and components of corporate social responsibility. Table 2 indicates the frequency with which companies reported the activities they considered to be part of their corporate social responsibilities. In order to be Table 2. Corporate Social Responsibility Activities Reported Activity Frequency of Coverage Corporate environmental management 21 Health and safety standards 21 Environmental protection 20 Community economic/ social development 19 Socially oriented product/service development 18 Dialogue with stakeholders 18 Code of ethics/corporate behavior 17 Maintaining/promoting diversity 17 Developing employee skills 17 Employee works standards/welfare 16 Financial accountability/transparency 16 Philanthropy/charity 16 Alternative energy use 16 Corporate governance standards 14 Human rights principles 12 Support for employee community voluntary services 12 Supplier behavior codes 12 Concern for consumer safety 7 Fair compensation and benefits 6 Responsible marketing standards 4 Code of fair procurement 3 counted, the report had to address the issue rather than merely mention it and to explain how the company was carrying out its CSR activities. Clearly, the most frequently reported CSR activities were those related to legal compliance – corporate environmental management, health and safety standards and environmental protection. Most companies also reported philanthropic or charitable activities as part of their CSR strategies and included not only charitable donations 8
  11. 11. but also community economic and social development projects and support for employees involved in voluntary community activities. A third most frequently reported category of CSR activities involved the development of socially-oriented products or services. Many of the TNCs are also developing contacts and engaging in dialogues with stakeholders, both internally and externally, on corporate social responsibility standards and activities. Most companies report enhancement of employee working conditions and capabilities, diversity in the work place, and fair treatment of workers as an important part of their CSR strategies. Finally, TNCs are adopting corporate governance, ethics, fair procurement, and financial transparency codes both in compliance with national legal requirements and as voluntary standards of business practice. For many of the corporations their first CSR report was published only within the last three to five years. The titles of their reports often indicate the focus of their strategies, but increasingly those with more comprehensive CSR strategies are coming to define social responsibility as the combination of governance, financial transparency, environmental management, product impact, human and labor rights, employee safety, product innovation, and charitable activities. Many of the companies follow guidelines for defining the scope of their CSR strategies and reporting established by external organizations such as the Global Reporting Initiative (GRI), the United Nations Global Compact, the Global Environmental Management Initiative (GEMI), or others. The 25 most globalized TNCs define CSR in a variety of ways, yet the coverage of the reports indicates some convergence in the perceptions of TNC executives about the most important components of CSR. 9
  12. 12. HOW COMPREHENSIVE ARE TNC’s SOCIAL RESPONSIBILITY STRATEGIES? Among the world’s 25 most globalized transnational corporations, the scope of reported CSR activities varied greatly. The 25 firms can be categorized into three levels of coverage: comprehensive strategies, diversified strategies, and focused on limited strategies. (See Table 3.) Table 3: Comprehensiveness of CSR Activities “Comprehensive” CSR ExxonMobil 17 Vodaphone 17 Activities BMW 16 General Electric 16 Ford 15 RWE Group 15 Siemens 15 “Diversified” CSR Activities Roche Group 14 Eni Group 14 BP 13 France Telecom 13 Shell 14 Electricité de France 13 Total 13 General Motors 12 Vivendi 11 Volkswagen 11 Fiat SPA 11 Toyota 10 Chevron 10 Suez 10 “Focused” or “Limited” CSR Honda 7 E.On 6 Activities News Corp. 5 Hutchinson Wampoa 5 1. Comprehensive Strategies. Seven of the 25 companies had CSR reports that were more comprehensive in coverage, identifying 15 or more of the 21 CSR activities reported. ExxonMobil and Vodaphone reported the largest number of CSR activities, closely followed by BMW, General Electric, Ford Motor Company, RWE, Ford Motor Company, and Siemens. General Electric, the US-based diversified TNC, defines social responsibility as complying with laws at all of its business locations, protecting the safety of employees on the job, being a “good neighbor” in the communities in which it operates, addressing historical contamination issues cooperatively and incorporating principles of social responsibility in processes and products. 19 10
  13. 13. Toyota’s environmental policy pledges to promote environmental measures that strengthen its reputation as “a company trusted by the local community.” 20 ExxonMobil’s CSR strategy consists of 16 policies that form its standards of business conduct. It includes in its CSR policies ethics, conflict of interest, directorships, political activities, international operations and health, environment, and safety. Its standards include policies on product safety, customer relations, alcohol and drug use, and work place harassment. 21 The Ford Motor Company has incorporated into its CSR strategy stronger standards for the independence of company directors, a comprehensive set of policies, directives and standards of corporate conduct, and the use of comprehensive assessments to identify potential legal compliance issues and take action to prevent violations. 22 The British-based TNC Vodafone also sees social responsibility broadly as developing products and services that meet social and environmental needs, guidelines for responsible marketing, and a code of ethical purchasing throughout its supply chain. BMW sees its work on hydrogen cars, its research on issues of transportation mobility, the development of mobile sensors to monitor traffic flow, and the development of clean energy for automobile transportation as socially responsible activities. 23 2. Diversified CSR Activities. Another 14 of the top 25 most globalized TNCs had diversified strategies for corporate social responsibility, ranging from 10 to 14 of the 21 reported activities. The Eni Group, an Italian-based petroleum exploration, refining, and distribution company, sees CSR as a condition for international competitiveness, arguing that “an important factor in the long-lasting success of business activities lies in the ability to generate a sustainable value; a goal that can be achieved only by respecting the different needs, cultures and languages and by encouraging the short and long term trust of those who not only hold a financial state in 11
  14. 14. the company, but who also see it as a promoter of working, economic, commercial, social, environmental or local concerns.” 24 Eni includes business ethics, respect for stakeholders, protection of workers and equal opportunities, enhancement of professional skills, respect for diversity, respect for human rights, cooperation, and protection of environment, health and safety as core principles and activities in its CSR strategy. Total sees corporate social responsibility as guaranteeing fundamental human rights of employees and lobbying to promote international global standards, implementing good governance and financial transparency, and promoting social equity and diversity in human resources through gender diversity, internationalization, training and sharing knowledge and technological skills. 25 Total also defines corporate citizenship in part as preventing and managing industrial and work-related incidents and protecting the health of communities in which it operates and contributing to host community development by promoting sustainable growth and reducing poverty in developing countries, encouraging employment, and supporting the disadvantaged; and reducing the “corporate footprint” on local communities in which the company operates. Fiat’s CSR strategy is part of its Group Code of Conduct, which provides policies and guidelines on business conduct -- including conflicts of interest, insider trading, bribery and illicit payments, money laundering prevention, and export control laws; employees—including guidelines for financial officers and standards for equal opportunity, harassment, working environment and hiring practices; standards for external relationships with customers, suppliers, public institutions, trade unions, communities and the media; health, safety and the environment, and accounting and internal control. 26 12
  15. 15. Many of the other TNCs in the sample combine corporate governance standards, financial reporting and auditing responsibility, and ethical codes. France Telecom has adopted principles of corporate governance and financial reporting required by both the French Financial Security Law and the Sarbanes-Oxley Act in the United States. 27 In light of recent international corporate scandals, the France Telecom Group adopted stronger internal controls and financial reporting standards, higher quality standards for published information, and new governance policies and procedures. 3. Limited or Focused CSR Activities. For many of the most global TNCs, the adherence to external and often international ethical standards and principles of corporate governance has become a more visible social responsibility. Four companies, however, did not specifically report corporate social responsibility, and only 5 to 7 of the 21 activities reported by all 25 of the most globalized TNCs appeared on their websites. Among the mostly narrowly defined reports is that The News Corporation. The company conceives of corporate social responsibility primarily in terms of standards of business conduct. It states standards for corporate assets and for preventing conflicts of interest, relationships with competitors, receipt and investigation of complaints, and ethics for the corporation’s chief executive and senior financial officers. 28 The News Corporation did not report on performance or indicators of measurement that would indicate how effectively it carries out its standards. HOW DO GLOBAL TNCs FORMULATE SOCIAL RESPONSIBILITY STRATEGIES? How TNCs formulate their CSR strategies or choose social responsibility activities is not always clear from their CSR reports. However, several of the companies indicate that they combine internal coordination processes with external consultation in shaping their CSR 13
  16. 16. strategies and many use the guidelines developed by nonprofit organizations or international CSR monitoring and assessment groups. The French gas and electric TNC, Suez, created an Ethics, Values and Sustainable Development Coordination Unit -- consisting of representatives from both management and operational units, reporting to the Executive Management Committee and to the ethics, environment, and sustainable development committee of the board of directors -- to develop its sustainable development strategy. The unit provides an “internal platform” for dialogue within the company’s international group and with external stakeholders. The unit’s mission is to “promote the distribution of information on sound practices between the head office and subsidiaries, propose strategic directions and encourage the development of synergies.” 29 The company shapes its CSR strategy through partnerships with the Global Compact, World Business Council for Sustainable Development, CSR Europe, UNESCO, and the French committee for environment and sustainable development, Comité 21. The German-based utilities company RWE, which serves markets throughout Europe and other parts of the world, adopted a sustainability strategy in 2003 based on four years of internal coordination and development. 30 The company began coordinating the strategy in 1998 between its environmental protection department and its Group Headquarters after appointing a permanent staff of environment officers. The coordination resulted in a set of environmental guidelines that were discussed and disseminated in 1999 through a group-wide transfer seminar and implemented through the adoption of the Environmental Reporting and Information System (ERIS). RWE then developed Group-wide sustainable development guidelines, conducted pilot studies during 2001 and performed environmental management reviews. In 2002, the company adopted its future convention on sustainable development, began internal and external surveys 14
  17. 17. and issued its sustainability strategy in 2003, disseminating it again through an international environmental management seminar. In 2004, RWE published its first corporate social responsibility report and implemented its group-wide auditing practices. The Ford Motor Company used a broad process of consultation with internal managers and external organizations to develop a Code of Basic Working Conditions to protect human rights in its value chain. Ford’s Code covers standards for its own divisions and for suppliers and distributors on child labor, compensation, forced labor, freedom of association, collective bargaining, working hours and verification, harassment and discrimination, and employee health and safety. Ford also developed compliance and auditing processes to enforce code standards at its own facilities and will extend the code and compliance assessments to major business partners and suppliers RWE, the German utilities TNC, follows guidelines for reporting CSR activities established by the Global Reporting Initiative (GRI). General Motors uses stakeholder consultations through periodic meetings of stakeholders, advisory council forums, surveys and written correspondence. To formulate, implement and disseminate the results of its CSR strategies, General Motors – as do the vast majority of the 25 most globalized TNCs -- uses a combination of stakeholder consultation and alignments with organizations concerned about social responsibility, including the GRI, the World Business Council for Sustainable Development (WBCSD), CSR Europe, Business for Social Responsibility (BSR), and the Coalition for Environmentally Responsible Economies (CERES). France Telecom was among the first companies to endorse and join the UN Global Compact and is a member of international industry associations that have adopted principles of sustainable and ethical development. 15
  18. 18. HOW DO TNC’S IMPLEMENT CSR STRATEGIES? The 25 most globalized TNCs implement their CSR strategies through the activities identified in Table 2. Among the most frequently featured in their CSR reports are efforts to green the supply chain, environmental management and protection activities, philanthropic and charitable activities, development and introduction of socially beneficial products and services, and codes of ethics and standards of business practice. Social Responsibility in and Greening of the Supply Chain The most globalized TNCs often report implementation of CSR policies through greening of their supply chains. KPMG found that 80 percent of the 1,600 CR reports it reviews mention supply chain issues and that 70 percent require some form of supplier declaration concerning codes of social or environmental conduct. 31 The Ford Motor Company -- as have many of the most global TNCs -- has certified its manufacturing facilities to ISO 14001 environmental management standards and extends environmental management standards to both its manufacturing and product development operations. Ford, along with General Motors and other major automobile manufacturers, has also required key input production suppliers to obtain ISO 14001 certification for their facilities. General Motors created a “GM Suppliers Environmental Advisory Team” in 1997 to improve mutual understanding of environmental programs and 32 efficiency and evaluate new ideas to promote eco-efficiency throughout its supply chain. Like its competitors in the automotive industry, Toyota is attempting to develop a “green supply chain,” requiring suppliers to comply with its list of banned substances and to become certified or registered for the international standards for environmental management systems. 16
  19. 19. Environmental Management and Protection The 25 most globalized TNCs, like the 1,600 companies surveyed by KPMG, report environmental, health and safety performance as the leading component of their CSR strategies. Toyota North America, for example, adopted an “Earth Charter” that guides its environmental management activities and corporate citizenship practices around the world. 33 Ford also uses performance reviews of products that cover fuel economy, tailpipe emissions, materials, energy use, water use, waste generation and land use in order to reduce negative environmental impacts. Total pursues environmental protection by helping to reduce the global economy’s dependence on carbon, making the energy system more secure, and preventing negative impacts from growth of transportation through improving automotive fuel quality and making land and maritime transportation safer. Total reports that it practices social responsibility by curbing emissions, conserving water, reducing odor and reducing the risk of accidental pollution and by maintaining biodiversity in areas where its plants are located. General Motors is adapting its materials accounting systems, its material safety data sheet management systems, and its materials inventory control systems to generate environmental regulatory reports and to support pollution prevention initiatives. Philanthropic and Charitable Activities All of the most globalized TNCs, to some degree, use charitable contributions as a cornerstone of their CSR strategies. About 74 percent of the companies in the KPMG survey reported philanthropic activities as part of their corporate social responsibility and sustainable development strategies. In 2002, for example, the Ford Motor Company made philanthropic contributions of $84 million and between 1998 and 2002 it made charitable contributions of more than $373 million in the United States alone. 34 In 2003 the Ford Motor Company Fund 17
  20. 20. and the corporation together made more than $120 million in grants for community investment and engagement in the locations where it operated and supported volunteerism by employees in local communities. General Motors entered a partnership with the Nature Conservancy to provide $5 million over five years to help the environmental group preserve land and water ecosystems in North America, Latin America, the Caribbean, and the Asia-Pacific Region. Chevron has supported more than 1,000 employees’ volunteer efforts since 1987 to restore portions of Yosemite National Park damaged by overuse by contributing more than $600,000 to their efforts. Chevron also helps finance employee programs in Alberta, Canada to replant more than 100,000 evergreens on land cleared for oil and gas production, and to educate teachers and students in Mississippi about wildlife and habitat preservation. Socially Beneficial Products and Services An increasing number of the most globalized TNCs are also developing socially- responsive products and services and assessing the social impacts of their existing products. Responding to increasing interest in non-carbon based energy, BP the British petroleum company combines new business development and socially responsible activities by diversifying into solar and wind energy generation and pursuing innovations in alternative and renewable energy technology. 35 Ford is developing hybrid, alternative fuel, and electric vehicles and helping to develop fuel cell programs. Ford also uses performance reviews of products that cover fuel economy, tailpipe emissions, materials, energy use, water use, waste generation and land use in order to reduce negative environmental impacts. 18
  21. 21. Vodafone is developing new digital radio systems in Germany for police, fire and rescue services and designing other products and services with “high social value.” Vodafone also assesses the social impacts of mobile phones, including accessibility in developing countries and to lower income groups in rural areas, analyzes the value added in economies and undertakes research on the health impacts of electromagnetic fields exposure on human health. ExxonMobil reports on programs to develop advanced fuels and vehicle systems to improve fuel efficiency and to improve hydrogen production distribution for automotive fuel cell Codes of Ethics and Standards of Business Practice An increasing number of global corporations are adopting codes of conduct for a wide variety of activities that have a social impact. The Swiss pharmaceutical TNC, Roche, in addition to its commitment to comply with all local, national and international legislation in its operations around the world, adopted a set of corporate principles providing guidelines on topics such as bribery, granting of advantages, dealing with third parties, receipt of gifts, conflicts of interest and remuneration of intermediaries. 36 The BMW Group’s social responsibility strategy includes development of targeted human resource improvement programs, guidelines for work safety and health protection, the use of efficient work structures with flexible working hours, applying internationally applicable criteria and systems for employee assessment, and paying above average “success-oriented” remuneration and benefits. Suez, the French gas and electric TNC, has adopted a strong set of procurement principles that focus on making purchasing a shared activity involving users in the definition of needs, making procurement decisions transparent, and coordinating decisions between the group headquarters and its entities and branches. The procurement standards seek fairness and 19
  22. 22. impartiality with suppliers and to avoid of conflicts of interest, ensure compliance with laws and regulations, and act consistently with the Group’s commitments to sustainable development. HOW DO TNCs REPORT, MONITOR, AND CONTROL? The corporate social responsibility and sustainable development reports of the 25 most global companies reveal some information on how these TNCs report, monitor and control the activities they claim as contributing to the public good. Companies use a combination of internal monitoring and reporting and external “social auditing” organizations. Internal Monitoring and Reporting General Motors focuses its monitoring and reporting on a set of key economic, environmental and social indicators. Economic indicators include revenue, earnings, dividends, vehicle sales, and global vehicle market share. Its environmental indicators include global energy use, global carbon dioxide emissions, global non-recycled waste, global water consumption, and GM sites certified to ISO 14001 (international environmental management systems standards). Social indicators include community donations and sponsorships, employees, diversity (5 of female and minority workforce in the United States), discrimination charges in the United States, employee satisfaction surveys, recordable injury rates, and lost time accident rates. One of the most comprehensive social responsibility reporting systems was developed by the French energy TNC, Suez, through a two-year design, testing and application process. It includes a detailed set of environmental and social performance measures. The environmental measures include 17 indicators of overall environmental management performance, 12 indictors of energy use and capacity measures, 12 indicators of air emissions, 17 indicators of water consumption and conveyance and sanitation capacity and treatment, 9 indicators of waste production, 3 indicators of vehicle use, and 10 eco-efficiency indicators. An equally detailed set 20
  23. 23. of social performance measures include characteristics of staffing by geographical area, distribution of staffing by categories of employees, proportion of women among employees, distribution of staffing by type of contract, age distribution of permanent staff, turnover rates, distribution of compensation categories, occupational safety indicators, and statistics on training for employees. General Electric uses extensive monitoring and auditing tools in its 500 manufacturing and assembly facilities around the world including compliance checklists, self-assessment procedures, and audits, focused operating reviews, web-based results tracking, training, and incentives for employee involvement in external community activities. In addition, GE certifies its facilities by ISO 14001 environmental management system standards, has adopted occupational health and safety voluntary protection programs, and does extensive supply chain reviews to ensure that suppliers meet environmental regulatory requirements. External Audit and Oversight The most globalized TNCs are also increasingly using external audits, evaluations, and certifications of their operations by international standards in order to monitor the implementation of their CSR strategies and obtain independent assurance of their activities. The most popular international standards of operations are the International Organization for Standardization (ISO) 14001 environmental management systems standards and ISO 9000 series total quality management standards. The German utilities company, RWE, has its performance assessed by the Sustainable Asset Management rating agency and evaluated by WestLB and the London-based consultancy SustainAbility. The French petroleum giant Total, in addition to certifying many of its facilities by ISO 14001 standards, signed external audit contracts with a British-based NGO 21
  24. 24. GoodCorporation to evaluate the application of its code of conduct using 76 evidence points. GoodCorporation together with external auditors such as KPMG, Pricewaterhouse Coopers and Bureau Veritas conduct ethical profiling programs at selected Total subsidiaries. The British petroleum company BP has signed the UN Global Compact and uses professional auditors, Ernst & Young, to verify its social responsibility claims and data against the Global Reporting Initiative principles and AccountAbility’s AA1000 Assurance Standards for materiality, completeness, and responsiveness. The French TNC, Suez, has its social responsibility performance rated by Vigeo, a European social and environmental rating agency, and provides its declarative rating to investors. Vigeo rates the company on its performance in human resources, environment, client relations, corporate governance and commitment. ASSESSMENT: GLOBALIZATION OF PRINCIPLES -- GAPS IN PRACTICE Although international organizations and nongovernmental rating and monitoring organizations claim an increase in corporate attention around the world to sustainable development and social responsibility reporting, serious questions remain about how significant the growing number of corporate citizenship reports is compared to the large number of enterprises doing business globally. Critics of TNC business practices and skeptics of CSR reporting continue to question whether or not the information reported by transnational corporations accurately reflects their actual business practices, how effective the sustainable development programs of corporations are in addressing important social and environmental problems, how seriously investors, shareholders, and consumers consider the social responsibilities of international corporations in their financial and purchasing decisions, and how committed senior executives in TNCs are to implementing sustainable development policies beyond mere compliance with legal and regulatory mandates. 22
  25. 25. One of the most frequent criticisms of what have become increasingly slick, glossy reports on corporate social responsibility and sustainable development is that they are simply public relations tools that often do not reflect what companies really do and that have little impact on how firms operate, especially when faced with competitive or financial challenges. Many of the CSR reports of the 25 most globalized TNCs remain broad statements of intention but lack specifics that would engender trust in their commitment to implementing them. In this sense, they mirror the CSR reports of 1,600 companies surveyed by KPMG. That survey found for example, that “almost two-thirds of CR reports include a section on corporate governance, although most reports lack specifics on how CR is structured and information on how governance policies are implemented within the organization. 37 KPMG also found that although about 60 percent of the CSR reports they reviewed addressed social issues such as labor standards, working conditions and community involvement, “reporting performance remains sketchy, possibly due to the lack of clear social indicators.” Public trust in CSR and sustainable development reports may also be undermined by the fact that only about 30 percent of the 1,600 companies surveyed by KPMG included formal independent “assurance” statements, only one-third of the companies invite feedback on the reports from users, and only 8 percent report on the feedback they receive. Deborah Doane, a leading skeptic, calls corporate social responsibility a “myth,” arguing that market forces make it difficult or impossible for companies to deliver both short-term financial returns and long-term social benefits. She argues that ethical consumerism is simply not strong or widespread enough to drive change, that CSR is not a competitive advantage for global corporations, and that in a global economy countries will simply not compete to have the best ethical practices. 38 23
  26. 26. Continuing reports about many of the 25 most globalized companies profiled in this paper of business practices that are antithetical to their CSR objectives may reinforce critics’ skepticism. Vivendi nearly went bankrupt following the company’s accounting scandals in 2003 and both the company and its chief executive were fined heavily by European regulators for issuing inaccurate and deliberately misleading financial information. 39 Both Siemens and Daimler Chrysler AG were found to have taken part in bribing officials in Iraq’s oil for-for-food program. Vodaphone’s reputation was compromised by a phone tapping scandal of political and military leaders by its subsidiary in Greece during the 2004 Olympics. 40 Total’s reputation was sullied in Europe by a major oil spill that devastated part of the French coastline. Major institutional investors holding more than $6.75 billion worth of shares in ExxonMobil severely criticized the company in 2006 for failing “to acknowledge the potential for climate change to have a profound impact on global energy markets, and which lags far 41 behind its competitors in developing a strategy to plan for and manage these impacts.” Both Shell’s and Chevron’s business practices in Nigeria have come under continuing criticism and Chevron’s oil terminal in Escravos, Nigeria, was seized several years ago by 600 women villagers protesting the company’s negative impacts on the local environment. 42 The advertising executive who helped create BP’s publicity campaigns touting its strategies for diversifying into alternative energy and re-branding BP as “Beyond Petroleum” turned skeptical after learning in 2006 of charges against the oil giant of price fixing and collusion in England and of its failure to maintain pipelines in Prudhoe Bay in Alaska, leading to corrosion and leaking and the shutdown of facilities producing 400,000 barrels of oil a day. “Think of it. Going beyond petroleum. The best and the brightest, at a company that can provide practically unlimited resources, trying to find newer, smarter, cleaner ways of powering the 24
  27. 27. world,” he wrote in a New York Times op-ed article. “Only they didn’t go beyond petroleum. They are petroleum.” 43 Such skepticism of corporate social responsibility and sustainable development claims is sometimes reinforced by corporate executives themselves. The McKinsey Company’s 2006 “Global Survey of Business Executives,” based on responses from 4,238 corporate CEOs and CFOs in 116 countries found strong evidence of a continuing gap between the recognition of corporate responsibility principles and business practices. (See Table 4.) “Business executives across the world overwhelmingly [84%] believe that corporations should balance their obligations to shareholders with explicit contributions to the broader public good,” the McKinsey 44 survey found. However, most of the executives saw corporate social activities “as a risk, not an opportunity, and frankly admit that they are ineffective at managing this wider social and political issue.” Few of the global executives surveyed by McKinsey believe that environmental and social responsibility issues will have the most impact, positive or negative, on shareholder value for the companies in their industries over the next five years. Only 28 percent chose environmental issues or climate change, 23 percent health care and employee benefits, 17 percent demand for healthier or safer products and affordability of products for poorer customers, 14 percent ethical standards for advertising and marketing, 12 percent workplace conditions and safety, 11 percent demand for more ethically produced products, and 3 percent human rights standards as significant competitive factors. On all of these socially-oriented issues, only a minority of global executives saw only or mostly opportunity and limited risk for shareholder value for companies in their industries over the next five years. Most saw either a balance between risk and opportunity or mostly risk and limited opportunity. 25
  28. 28. Table 4: McKinsey Corporation Survey of Global Business Executives on Managing Social Responsibility Role of business in society Should focus only on Should generate high returns profits while obeying but balance contributions to laws and regulations broader public good 16% 84% Overall contribution that large Generally or Generally or somewhat corporations (public or private) make somewhat positive negative or neutral to the public good 68% 32% Tactics used by corporations to Tactic used most Tactic believed to be most manage sociopolitical issues frequently effective • Media and public relations 49% 35% • Lobbying regulators and 48% 25% governments • CEO speeches and public actions 24% 14% • Advertising and marketing • Publication of sustainability or 22% 12% corporate citizenship report 16% 12% • Philanthropy 14% 11% • Entering new markets or exiting 7% 6% old ones Tactics believed to be more effective Tactic frequently Tactic believed to be most used effective • • Increasing transparency about risks 12% 36% of products or processes • Policies on ethics and corporate 20% 35% responsibility issues • Engaging stakeholders 15% 33% • Improving compliance with laws 26% 32% and regulations • Using industry coalitions to 29% 30% develop joint responses to issues • Changing product lines and 8% 12% processes In your industry who takes the lead in Takes the lead Should take the lead sociopolitical issues and who should? • CEO or Board Chair 56% 74% • Public or corporate affairs 14% 4% 26
  29. 29. department • Other executive or members of 10% 7% Board • Core business divisions 5% 5% • Department of corporate social 5% 3% responsibility • HR department 2% 1% • Strategy department 1% 3% Source: Adopted from McKinsey Quarterly survey of 4,238 global business executives, January 2006. All data weighted by GDP of constituent countries to adjust for differences in response rates from various regions. Nearly one-third of the executives did not believe that corporations made “a generally or somewhat positive contribution to the public good.” Moreover, a majority of the executives believed that the tactics that companies in their industries used to manage social responsibility issues– media and public relations, lobbying, CEO speeches, and advertising and marketing— were ineffective. Only 16 percent believed that publication of sustainability or corporate citizenship reports were an effective tactic. Yet, they reported overwhelmingly that the tactics believed to be most effective in their industries – increasing transparency about risks of products or processes, policies on ethics and corporate responsibility issues, and engaging stakeholders – were used infrequently. Although 74 percent of the respondents said that the CEO or Board Chair should take the lead in social responsibility issues only 56 percent thought that top executives did take the lead in their industry. Only relatively small numbers of respondents believed that leadership should be taken by public or corporate affairs departments, other executives, core business divisions, or corporate social responsibility units. CONCLUSION Although, as the CSR reports of the 25 most globalized TNCs reflect, the principles of corporate social responsibility and sustainable development have become more widely 27
  30. 30. recognized by corporations around the world and increasing numbers of them are publicly discussing their activities, serious gaps still exist between recognition of the principles and actual business practices. Assessed by the framework that Mirvis and Googins constructed on the five stages of corporate citizenship –1) elementary, 2) engaged, 3) innovative, 4) integrated, and 5) transforming – many transnational corporations analyzed in this paper seem to be still at stages 1 and 2. 45 They focus on legal compliance and license to operate and focus on jobs, profits and taxes or philanthropy and environmental protection. Relatively few of the 25 most globalized TNCs have moved to the integrated stages of addressing all elements of the “triple bottom line” by viewing sustainable development as a value proposition and taking leadership in championing it. Fewer still have realigned their organizations to make sustainability a driving force of their business. Tables 2 and 3 on the coverage of CSR reports reflect that fact that relatively few of the most globalized TNCs have reached stage 5 of seeking to “change the game” by creating new markets and promoting social change. The gap between the growing global recognition of the importance of sustainable development principles and actual business practice may be due to lags in strategy implementation, or to lack of real commitment, or simply to unrealistic expectations on the part of sustainable development advocates. Government regulatory officials and environmental interest groups sometimes overlook or ignore the fact that corporations are in business to earn profits and create wealth. They are not charitable organizations or public interest groups. Their leaders’ perceptions of how to achieve sustainable development will be influenced by their overall business strategies and by market conditions. Neither regulatory control alone nor interest group pressure is likely to force them to move beyond compliance with legal requirements, unless they see sustainable development activities as competitive advantages. 46 28
  31. 31. Although many of the companies in KPMG’s survey claim that they report corporate responsibility for ethical reasons, 74 percent list “economic considerations” as their primary motivation for issuing CSR reports. Unless companies see the economic as well as social value of sustainable practices and internalize those values in their business model, they are unlikely to integrate proactive practices into their overall business strategies. And unless the market responds more positively to corporate social responsibility and socially-beneficial products and services, corporations cannot be expected to move more rapidly toward innovative, integrated or transforming stages of corporate citizenship. Understanding the broader context in which TNCs perceive of corporate citizenship and sustainable development can give public interest groups and government regulatory agencies new opportunities to influence their business practices, but ultimately progress on CSR depends on strong corporate leadership and positive market response. 47 A better understanding of the scope of activities that TNCs are willing and able to use to improve their sustainable development performance can help external stakeholders work more effectively with corporations to identify cutting-edge business practices, educate shareholders and consumers about the value of sustainable development activities, and develop sustainable development management practices that can be disseminated and adopted more widely. 29
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