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  • 1. T ERI-Europe and the New Academy of Business havebeen working with various partners groups, especially the more vulnerable income groups, in the three countries. We hope that this willon an initiative to understand and assist in eventually elaborating aencourage corporate responsibility home-grown agenda of corporateacross South Asia. The initiative seeks responsibility sensitive to the social,to raise awareness and stimulate a cultural, and economic situation inproactive corporate responsibility Bangladesh, India, and Sri Lanka.agenda in three South Asian This report presents the results ofcountries—Bangladesh, India, and Sri the initiative’s second activity—anLanka. The partners are the Centre agenda-setting survey on corporatefor Policy Dialogue (Bangladesh), responsibility in Sri Lanka. TheTERI (India), and LGA Consultants survey explored the views and(Sri Lanka). The project is funded by expectations of workers, companythe Asia Division of the Department executives, and civil society groupsfor International Development, UK. towards the social, economic, and Our vision is to contribute to a environmental responsibilities ofpositive change towards business companies operating in Sri Lanka. Itpractices and attitudes that support was the first to include workers in asustainable development and poverty survey on corporate responsibility.eradication in the region. The focus is The survey was carried out in 2003on expanding the knowledge base of through a partnership between TERI-corporate practices in South Asia Europe, LGA Consultants, and therelating to working conditions within Sri Lanka Business Developmentfactories; living conditions in Centre in Colombo. The resultssurrounding communities; presented in this report are intendedenvironmental protection; and to provide a better understanding ofcorporate accountability and attitudes and practices and developtransparency. In this way, we aim to targeted training materials forprovide useful information and tools company executives, workers, and(such as training materials) for South community representatives.Asian companies and civil society
  • 2. Understanding and Encouraging Corporate Responsibility in South Asia Update Two: Sri Lanka Altered Images the 2003 state of corporate responsibility Ritu Kumar David F Murphy Rochelle Mortier Chandana Rathnasiri Lalith Gunaratne iAltered Images: the 2003 state of corporate responsibility
  • 3. © The Energy and Resources Institute, 2004ISBN 81-7993-035-1All rights reserved. No part of this publication may be reproduced in any form or byany means without prior permission of the publisher.Published byTERI Press Telephone 2468 2100 or 2468 2111Darbari Seth Block E-mail teripress@teri.res.inHabitat Place Fax 2468 2144 or 2468 2145Lodhi Road Web site www.teriin.orgNew Delhi – 110 003 India +91 • Delhi (0) 11IndiaPrinted in India by Kaveri Printers Pvt. Ltd, New Delhi ii Understanding and Encouraging Corporate Responsibility in South Asia
  • 4. ContentsContentsUnderstanding corporate responsibility in Sri Lanka 1Corporate responsibility in Sri Lanka 2003: a snapshot 7Conclusions and next steps 21References 24 iiiAltered Images: the 2003 state of corporate responsibility
  • 5. Acknowledgements Acknowledgements The authors wish to record their appreciation of the assistance rendered by TERI, India, especially the following. P Ms Mudita Chauhan-Mubayi and Ms Parikrama Gupta for editing; P Mr R Ajith Kumar for design, layout, and typesetting; P Mr R K Joshi for cover design and graphic illustrations; and P Mr T Radhakrishnan for production supervision.iv Understanding and Encouraging Corporate Responsibility in South Asia
  • 6. Understanding corporate responsibility in Sri Lanka1 Understanding corporate responsibility in Sri LankaC urrent business perspectives and practices in Sri Lanka areproducts of both the island’s colo- the total employment (47.8%). On a sectoral basis, the service sector is the largest sector for employmentnial trading past as well as its (42.6%), while the agriculture sec-present turbulent political circum- tor accounts for 32.4%, and indus-stances. Commerce in Sri Lanka is try for 25.7%.rooted in a long history of interna- The Sri Lankan private sectortional trade with its former colonial has not always enjoyed governmentpowers – the Portuguese, the encouragement and public support.Dutch, and the British – as well as In the 1960s and the early 1970s,with neighbouring Asian countries. large numbers of private companiesPrivate companies were formed in and foreign-owned enterprises,the early part of the 18th century, across all sectors, were nationalized.and Sri Lanka’s stock market was Large industrial companies, for ex-set up in the latter half of the 1800s. ample in the steel and cement sec-Sri Lanka has around 240 compa- tors, as well as tea plantations andnies currently listed on the Co- newspaper publishing concerns felllombo Stock Exchange and can be under government ownership andcompared – at least in scale – with management. In 1977, with a newBangladesh (around 208 listed government in place, the corporatecompanies). 1 Employment in the sector was given the impetus to actprivate sector is just under half of as an engine of economic growth in1 Details at <http://www.bangladeshcapitalmarket.com/>, last accessed on 15 March 2004 1Altered Images: the 2003 state of corporate responsibility
  • 7. Understanding corporate responsibility in Sri Lankaa bid to create a liberal, market- socially responsible practices. Thedriven economy. This ambition was majority of Sri Lankans can hardlyhowever short-lived, as Sri Lanka envisage environmentally sustain-slipped into a state of ethnic civil able initiatives, human rights pro-war in the early 1980s. By the end of tection, and gender equality beingthe 1990s, official estimates put the integrated into business practices.number of lives lost due to the warat around 60 000. While the war has Four models of corporatebeen mostly confined to the north responsibilityand the east of the island, its impact The four models of CR (corporateon the corporate sector has been responsibility) outlined here illus-significant due to the inherent po- trate the evolution of the businesslitical and business risk. It is then model, as well as the ways in whichperhaps unsurprising that the Sri businesses have viewed and en-Lankan corporate sector tends to be gaged in social responsibility withincautious and conservative. South Asia. Sri Lankan society is highly po-liticized and there is a general pub- Ethical modellic perception of the private sector The origins of the first ethicalbeing exploitative. Recent large- model of CR lie in the pioneeringscale privatization on the island – efforts of 19th century corporatesuch as that of bus services – has re- philanthropists such as the Cadburysulted in companies being accused brothers2 in England and the Tataof ‘cherry-picking’ the profitable family in India. The pressure onroutes and services. Those routes Indian industrialists to demonstratethat are deemed unprofitable are their commitment to social progressleft with either a low level of service increased during the Independenceor no service at all. With this experi- movement, when Gandhi developedence of recent private sector deve- the notion of trusteeship, wherebylopment, the public is sceptical of the owners of property wouldchange and mistrusts the motives of voluntarily manage their wealth onbusiness. People generally do not behalf of the people.expect companies to engage in2 John and Benjamin Cadbury, brothers from Birmingham, pioneered the development ofchocolate around 1847. 2 Understanding and Encouraging Corporate Responsibility in South Asia
  • 8. Understanding corporate responsibility in Sri Lanka I desire to end capitalism almost between the state and society were as much as the most advanced clearly defined for the state enter- socialist. But our methods differ. prises. Elements of CR, especially My theory of trusteeship is no those relating to community and makeshift, certainly no camou- worker relationships, were en- flage. I am confident that it will shrined in labour law and manage- survive all other theories. ment principles. Sri Lanka broadly Gandhi (1939), followed the same political evolu- cited in Bose (1947) tion around this time, and this model prevailed until the change ofIn Sri Lanka, there is little evidence government in 1977.of such corporate philanthropy inthe early 20th century. Philanthropy Neo-liberal modeltended to be directed towards reli- Indeed, the global trend towardsgious causes by philanthropists who privatization and deregulation canwere also owners of companies. be said to be underpinned by a thirdThese wealthy families tended to model of CR—that companies aredonate money for the renovation of solely responsible to their owners.Buddhist places of worship. An ex- This approach was encapsulated byample of this was the renovation of the American economist Miltonthe Kelaniya Temple with funds do- Friedman,3 who in 1958 challengednated by the Wijewardene family. the very notion of CR for anything other than the economic bottom Statist model line.A second model of CR emerged inIndia after Independence in 1947, If anything is certain towhen India adopted the socialist destroy our free society, toand mixed economy framework undermine its very foundation,with large public sector and state- it would be a widespreadowned companies. The boundaries acceptance by management of3 Recipient of the 1976 Nobel Prize for Economic Sciences, Friedman is widely regarded asthe leader of the Chicago school of monetary economics, which stresses the importance of thequantity of money as an instrument of government policy and a determinant of business cyclesand inflation. Friedman has also written extensively on public policy, with emphasis on thepreservation and extension of individual freedom. 3Altered Images: the 2003 state of corporate responsibility
  • 9. Understanding corporate responsibility in Sri Lanka social responsibilities in some the Buddhist concept of dhana, is sense other than to make as an integral part of life on the island. much money as possible. This is The religious model would suggest a fundamentally subversive that local shareholders of firms doctrine. should engage in philanthropy. Friedman (1958) However, this rarely happens in practice. Most Sri LankanMany in the corporate world and corporates are also not aware of theelsewhere would agree with this more secular, humanitarian reason-concept, arguing that it is sufficient ing, which underpins CR, or of thefor business to obey the law and growing international trend towardsgenerate wealth, which through a stakeholder mindset.taxation and private charitablechoices can then be directed Stakeholder modeltowards social ends. The rise of globalization has also The Sri Lankan corporate sector brought with it a growing consensushas not opened up in any significant that with increasing economicsense towards philanthropic giving rights, business also has to face up toand wider social responsibility. This its social obligations. Citizen cam-is possibly due to a lack of initiatives paigns against irresponsible corpo-to educate and raise local awareness rate behaviour, along with consumerof the possibilities in these areas. It action and increasing shareholderis also partly a result of an inherent pressure, have given rise to theconservatism in the private sector, stakeholder model of CR. This viewwhich mostly resembles the neo- is often associated with R Edwardliberal approach to CR. Freeman,4 whose seminal analysis Sri Lanka is a predominantly Bud- of the stakeholder approach to stra-dhist society. Nearly 70% of the popu- tegic management in 1984 broughtlation is Buddhist; philanthropy, or stakeholders into the mainstream of4 Pioneer of the stakeholder and ‘business ethics’ concept in the context of corporate respon-sibilities, Freeman developed a framework for identifying and managing the critical relation-ships of the modern corporation. His conceptual crystallization of stakeholder analysis hasbecome a staple of both academic writing and business academic models. Freeman’s contribu-tion to education at the intersection of business and society is also extensive. He has wonnumerous teaching awards and is well known for his innovative approach to pedagogy. 4 Understanding and Encouraging Corporate Responsibility in South Asia
  • 10. Understanding corporate responsibility in Sri Lankamanagement literature (Freeman of commercial viability and1984). According to him, ‘a business successes.stakeholder in an organization is any Wheeler and Sillanpää (1997)group or individual who can affect, oris affected by, the achievement of the The experience of the past decadeorganization’s objectives’. has served to reinforce this view- However, it was not until the point. With companies facing in-1990s that the idea of the creasing scrutiny in the globalstakeholder corporation gained economy, the CR agenda now en-prominence in business practice. compasses a wide range of issues in-David Wheeler and Maria Sillanpää cluding provision of product(formerly with The Body Shop) quality, safe products at fair prices,captured the essence of the ethical business practices, fair em-stakeholder model in the following ployment policies, and environmen-statement. tal performance. In addition, there is increasing focus on the growth of The long-term value of a corporate power and therefore the company rests primarily on: the need for greater accountability and knowledge, abilities and commit- transparency to society, for example ment of its employees; and its through reporting, corporate gov- relationships with investors, ernance, and stakeholder dialogue. customers and other Indeed, there is a growing con- stakeholders. Loyal relationships sensus throughout the world that are increasingly dependent upon companies need to go beyond their how a company is perceived to traditional ‘economic’ roles; the fol- create ‘added value’ beyond the lowing analysis from the Centre for commercial transaction. Added Development and Enterprise in value embraces issues like South Africa aptly demonstrates quality, service, care for people this. and the natural environment and integrity. It is our belief It is in the interests of the corpora- that the future of the development tion and the business sector as a of loyal, inclusive stakeholder whole to become more self- relationships will become one of conscious social actors. Both the the most important determinants individual firm and the voluntary 5Altered Images: the 2003 state of corporate responsibility
  • 11. Understanding corporate responsibility in Sri Lanka business association need to think civil society. Most companies per- hard and strategically about their ceive CR as sponsorship of sporting role in society, and their relation- activities, donations to charities, ships with government and others. and other social service activities. To do anything else is counter- The main exception is in the gar- productive. ment industry, where there is some Bernstein and Berger (2000) evidence of companies champion- ing broader CR values and practices.The evidence on CR in Sri Lanka The garment industry is also Sri Lan-suggests that a neo-liberal model of ka’s largest export sector, comprisingCR is prevalent. However, this around 52% of total export earnings.needs to be qualified and tempered The broader CR agenda is also prac-against the reality that there is a lack tised and aspired to in a few local sub-of knowledge and understanding of sidiaries of MNCs (multinationalthe broader definition of CR. corporations). ✤ CR is a novel concept for SriLankan companies, employees, and 6 Understanding and Encouraging Corporate Responsibility in South Asia
  • 12. Corporate responsibility in Sri Lanka 2003: a snapshot2 Corporate responsibility in Sri Lanka 2003: a snapshotT ERI-Europe commissioned LGA Consultants Ltd to con-duct an initial survey of the state of child abuse, domestic violence, environment, and anti-tobacco and alcohol production.CR in Sri Lanka. The Sri LankaBusiness Development Centre car- The survey was carried out inried out the survey. 5 It was designed Colombo, where the largest concen-to capture the experiences and per- tration of corporate entities inceptions of CR practices from the Sri Lanka is located. The poll sur-following three sets of stakeholders. veyed 150 employees, 70 company Workers of companies in the managers, and 16 public repre- sectors of tea and other planta- sentatives. tions, garments, ceramics and The survey provides an overview tiles, shoes, financial services, of company practices as well as em- food, telecommunications, phar- ployee and civil society experiences maceuticals, fertilizer, tobacco, and perceptions of CR. It attempts energy, leather, construction, to register factors that influence the and travel and tourism opinions of companies as well as Company executives and those that shape expectations of CR. managers from the above sectors A summary of the main findings is Civil society groups represent- provided here. ing the interests of child labour,5 More on the Sri Lanka Business Development Centre at <http://www.slbdc.org>, lastaccessed on 15 March 2004 7Altered Images: the 2003 state of corporate responsibility
  • 13. Corporate responsibility in Sri Lanka 2003: a snapshot Main findings brought about through high-profile cases of corporate exploitation, has What are the key drivers for been a strong impetus for compa- corporate responsibility in nies to focus on CR practices. This Sri Lanka? has placed pressure on local sub-The few Sri Lankan companies that sidiaries of international MNCs tohave recently adopted socially re- be more accountable and responsi-sponsible practices have done so ble. One sector where this is in-mainly to meet the requirements of creasingly evident is the garmentinternational buyers of goods pro- sector in Sri Lanka. Here, compa-duced in Sri Lanka. The formal nies tend to perform better on CRrequirements for CR practices, practices relative to other sectors,especially in terms of working con- due to their mainly export-orientedditions and worker welfare, act as business models and acceleratedstrong signals for Sri Lankan scrutiny and standard setting bycorporates interested in doing busi- their parent companies. An exampleness in international markets. Sri of this is Slimline, a garment manu-Lankan corporate practices are also facturer set up in 1993 with interna-increasingly under greater scrutiny tional partners and brand nameby international NGOs. Interna- customers. Slimline’s CR practices,tional and local reporting of abuses specifically in redefining mutuallyof labour practices and human beneficial relationships betweenrights are now more widespread. (1) the management and the work-International NGOs are mainly re- ers and (2) the management and thesponsible for making Sri Lankan cor- community, helped mitigate a criti-porate practices transparent to an cal situation with a previously po-international community, that is keen litically charged labour force andto drive sound business principles in a dissatisfied local community. Oneglobalized world. There is also evi- of the main drivers for change wasdence of a small number of local com- the pressure levied by internationalpanies that are taking a proactive clients and partners to improveapproach to world-class CR. worker welfare and working condi- The increased social conscious- tions in their supply chain (Kumar,ness of Western civil society, forthcoming). 8 Understanding and Encouraging Corporate Responsibility in South Asia
  • 14. Corporate responsibility in Sri Lanka 2003: a snapshot Are corporate responsibility of Sri Lanka, together with the Sri policies and practices consist- Lankan Chamber of Commerce. ent in Sri Lankan companies? This is, however, a limited commer- cial and financial view of govern-In general, most Sri Lankan compa- ance, which is used mainly tonies surveyed had written mission mitigate fraud and financial risk,statements. These statements, how- and to effect accountability.ever, tended to be – for the most The majority of firms surveyedpart – cosmetic in nature. The ma- also indicated that they do not sup-jority did not include a statement of port political funding. However, de-commitment to stakeholders. Over spite this overwhelmingly negative70% of the companies stated that response, it is well known that Srithey did have a code of conduct, Lankan companies generally dobusiness principles, and ethics but fund political parties. It would ap-most were either unwilling or un- pear that these companies do notable to provide evidence of these. wish to disclose their relationshipsAround 70% also stated that train- or affiliations with various politicaling on ethical practices was avail- parties.able for employees, but again no About 78% of the firms (Figure 1)evidence could be provided to sup- surveyed acknowledged their socialport this. It was evident that most responsibilities as employers, andcompanies surveyed did not under- this is evident in their mission state-stand the importance of having a set ments and annual reports. It ap-of publicly available principles to pears customary for an employer toguide their corporate behaviour. express commitment to social re- On the specific issue of corrup- sponsibility in annual reports andtion and political patronage, more other company publications. How-than 75% of the firms surveyed did ever, only 28% of companies con-not have any policy statement. Only duct employee satisfaction surveysone firm complied with the guide- and there is little evidence to sug-lines set out for good practice by gest that employee views are incor-Transparency International. Good porated into corporate policies.governance is understood locally in Policy-making tends to be the do-a narrow sense, comprising the cor- main solely of top management.porate governance rules set by the This is characteristic of the ratherInstitute of Chartered Accountants 9Altered Images: the 2003 state of corporate responsibility
  • 15. Corporate responsibility in Sri Lanka 2003: a snapshot the strong preference for confiden- tiality and the not insignificant local inter-firm rivalry and competition. Around 80% of the companies surveyed are not members of a local or international business associa- tion that would set standards or guidelines for business conduct. Just three companies surveyed stated that they followed interna- tional guidelines in designing labour policies. Two followed the charter of international labour ini-Figure 1 Acknowledging social tiatives, which is a requirement for responsibility as an ISO (International Organization for employer Standardization) certification, and one followed the guidelines set by the Fair Labour Association.feudalistic management style that ap-pears to have been adopted by somesenior executives in Sri Lanka. Are best practices and international standards taken into account?Over 70% of the companies sur-veyed do not adhere to any nationalor international benchmark on bestpractices, corporate governance,safety measures, waste treatment,and so forth (Figure 2). There areno formal means for inter-firmcomparison and benchmark deve-lopment. This lack of local enthusi- Figure 2 Conformity to national orasm for sharing information and international benchmarksworking collectively may be due to 10 Understanding and Encouraging Corporate Responsibility in South Asia
  • 16. Corporate responsibility in Sri Lanka 2003: a snapshot A significant number of firms sur-veyed have won national and interna-tional awards for performance. Theseinclude the Green Globe Certifica-tion awarded to Aitken Spence Ltd,the Best Factory in South Asia hon-our awarded to Unichella Garments,and the Visa Card Award to HSBC.Seylan Bank (Sri Lanka) was a run-ner-up in the corporate social respon-sibility award in the field of povertyalleviation—the first Asian award inthis field given by the Asian Instituteof Management.6 Figure 3 Commitment to the Universal Declaration of Are labour rights established Human Rights and to and enforced? international labourOnly 33% of the sample agreed that standardsthey have a commitment to the Uni-versal Declaration of Human Rights do not apply to part-time or tempo-and to international labour stand- rary staff.ards (Figure 3). Most companies do About 38% of the surveyed firmsnot understand that human rights have a strategy to implement labourare a core component of the broader policies and carry out audits tocorporate social responsibility check whether implementation isagenda. Around 46% of companies effective. About 40% have a boardhave a publicly available corporate member responsible for implemen-framework for human resource tation. Around 54% develop targetsmanagement that includes labour and procedures for policy imple-standards, employee relations, com- mentation, although, in most cases,munication, training, health and sufficient resources are not madesafety, and equal opportunities. The available for proper policy imple-rules and policies of most companies mentation. Half of all surveyed6 Details at <http://www.aim.edu.ph/home/announcement.asp?id=425>, last accessed on15 March 2004 11Altered Images: the 2003 state of corporate responsibility
  • 17. Corporate responsibility in Sri Lanka 2003: a snapshotcompanies report on their labour Representatives of labour unionspractices. However, just one of belonging to India, Pakistan, Bang-the 50 firms surveyed conforms to ladesh, and Sri Lanka have resolvedSA 8000, the auditable international to set up a labour commission of thestandard for companies seeking to South Asian region to monitor theguarantee the basic rights of workers enforcement of labour rights[SA stands for social accountability]. (Mishra 2003). This reinforces the Almost all companies stated that resultant view of this survey, thatthey do not engage in unfair dis- there is a problem with enforce-missals. However, there is consider- ment. External enforcementable evidence in the media and through the legal process as well asemployee protests, that some firms holding firms accountable throughhave been party to cases of unfair other means, such as adverse pub-dismissal. Only 16% of the compa- licity and lobbying, appears to benies stated that they had faced ma- low.jor legal disputes relating to labour Are worker health and safetypolicies and practices. Local labour laws are compre- properly prioritized?hensive in attempting to protect There is a relatively higher commit-employees. However, the cost of liti- ment to health and safety in thegation is prohibitive for most. In ad- workplace, compared to other la-dition, a culture of corruption bour-related policies. As many asensures that officers of various em- 85% of the firms believe that theyployee benefit organizations, such provide clean, healthy, and safeas the Employment Provident Fund working conditions (Figure 4). Also,or the Employment Trust Fund 70% have reported that they pro-may, sometimes, be open to bribes, vide proper training on health andin order to avoid legitimate cases safety to their staff, while 64% claimbeing subject to legal process. The to have adequate procedures for im-serious problems surrounding liti- plementation. The surveyed em-gation in Sri Lanka are pervasive, ployees echoed this view; mostnot only in the area of industrial re- believed that health and safety sys-lations, but also in civic life, and tems were monitored regularly andimpede the enforcement of law and enforced.the safeguarding of the rights of Training on health and safety isemployees. mainly aimed at workers on the 12 Understanding and Encouraging Corporate Responsibility in South Asia
  • 18. Corporate responsibility in Sri Lanka 2003: a snapshot issues appears, in some cases, not to be understood. Only four of the surveyed firms appear to formally report accidents publicly. Some take prompt action as laid down by the Workmen’s Compensation Act, and some re- port accidents internally to the top management. The common under- standing is that most cases are set- tled through informal means (commissions, bribes, etc.) without public disclosure. Around 22% ofFigure 4 Maintenance of good the firms were subjected to fines working conditions and prosecutions, indicating that some form of legal process is avail- able and the law is enforced to someshopfloor and covers fire drills, ex- degree. Around 25% of the firmsplosions, toxic emissions, burns, had faced civil suits.and wounds. Managers and super-visors in some firms are trained in Is there evidence of childprocedures to deal with explosions labour or gender and racialand terrorist attacks. However, only discrimination in thearound one-third of the companies workplace?audit the implementation of health Child labour is prohibited by legis-and safety procedures and policy. lation in Sri Lanka. Large compa-Very few firms report on health and nies generally do not employsafety incidents, and most are not children aged under 14 years. Em-aware of benchmarks that could be ployment of children as domesticset in this area. One company re- servants is also prohibited by law;sponse to the question of external while there is general awareness ofreporting was that there was no this, children are sometimes em-need for external reporting as ac- ployed in some households.tion was taken immediately. The There is evidence of both genderneed to report, measure, and effec- and racial discrimination in thetively manage health and safety workplace in Sri Lanka. Although a 13Altered Images: the 2003 state of corporate responsibility
  • 19. Corporate responsibility in Sri Lanka 2003: a snapshotrelatively high proportion of com- the majority of the workforce, andpanies surveyed (63%) have policies companies such as Slimline haveto ensure equal opportunities (Fig- implemented progressive practicesure 5), covert discrimination exists. to support female staff by encourag-Around 56% of the employees sur- ing equality and supporting andveyed believed that their companies addressing gender differences.preferred to employ women only To contextualize gender dis-from a certain age group, while 90% crimination, certain gender-relateddisagreed with the statement that statistics for Sri Lanka are helpful.their company preferred not to em- Women comprise 37% of the totalploy women. Women tend to be dis- labour force of 8 million.7 The un-criminated against in certain employment rate for women standscompanies and sectors, especially at around 16% compared to nearlythose requiring employees to work 10.6% for men. The adult illiteracylate evening shifts. However, in the rate for women is 11% compared togarment industry, women comprise 5.6% for men. Discrimination on the basis of race, social origin, school, and po- litical affiliation is pervasive in Sri Lankan society, and is generally reflected in the workplace. Compa- nies with ownership and manage- ment from a particular ethnic group tend to hire employees from the same ethnic group. They do not ac- tively seek to encourage diversity through their recruitment policies. Are workers paid satisfactory wages? All firms state that their remunera- Figure 5 Policies for equal tion policies are fair. However, opportunity worker demonstrations and union7 Details at <http://devdata.worldbank.org/genderstats/genderRpt.asp?rpt=profile&cty=LKA,Sri%20Lanka&hm=home>, last accessed on 15 March 2004 14 Understanding and Encouraging Corporate Responsibility in South Asia
  • 20. Corporate responsibility in Sri Lanka 2003: a snapshotaction and protests suggest other- (first year), and 2575 SLR (~37wise. There can be wide variation in dollars) for sewing machine opera-wages by industry sector. In Sri tors and iron operators (first year).Lanka, there is no single national In most cases, the minimum wagesminimum wage. 8 The Wages Board are too low to attract workers, andOrdinance regulates wages and firms need to pay wages higher thanother payments for persons em- the stipulated minimum. Theployed in 39 different trades and employees surveyed were mostlysectors. The current minimum happy with wages, overtime pay,monthly wages for the garment and labour conditions.manufacturing trade, last increasedin April 1998, are 2000 SLR (Sri Are employee human rights adequately safeguarded in theLankan rupees) (~29 dollars) for workplace?trainees and helpers, 2525 SLR(~36 dollars) for unskilled workers There is evidence that the rights of employees to join trade unions, not to work overtime, and to be safe- guarded from sexual, physical, or mental harassment are compro- mised in Sri Lanka in varying degrees (Figure 6). In Sri Lanka, almost all leading trade unions are affiliated with the main political parties of the coun- try, and operate on a political agenda rather than on a company- specific, work-oriented remit. Sri Lankan employers therefore tend to view trade unions as a problem, and trade unionism as a vehicle for worker association is rejected and Figure 6 Support for trade union actively discouraged by companies. activities In July 2003, a case made legal8 Details at <http://www.dol.gov/ILAB/media/reports/oiea/wagestudy/FS-SriLanka.htm>,last accessed on 15 March 2004 15Altered Images: the 2003 state of corporate responsibility
  • 21. Policies to prevent harassment Corporate responsibility in Sri Lanka 2003: a snapshothistory in Sri Lanka when a referen-dum was held at Polytex GarmentIndustries, to decide on the eligibi-lity of a trade union to represent theworkers. As many as 82% of theworkers voted in favour of such re-presentation. The concerned tradeunion was considered not to repre-sent any party or political affiliation(SLDN 2003). In July 2003, theILO (International Labour Organi-zation) made a formal complaint tothe Sri Lankan government regard-ing violations of the principles of Figure 7 Policies to preventfreedom of association and the right harassmentto collective bargaining. The caseconcerned the Jaqalanka Ltd fac-tory where the management and Sexual harassment of Sri Lankanothers, including Sri Lanka’s Board migrants, domestic workers, andof Investment, are alleged to have workers employed in the plantationintimidated workers during the sectors and free trade zones wasweeks preceding an election, to de- highlighted in an ILO statement intermine whether the union had 40% September 2003, when the directormembership and could therefore be of the ILO’s Colombo officerecognized as a collective bargain- launched a code of conduct anding agent (ILO 2003). procedures, which would address Only 30% of the surveyed firms sexual harassment in the workplacehave a policy to prevent sexual, in Colombo (Kannangara 2003).physical, or mental harassment of Most permanent full-time work-staff (Figure 7). Although the lack ers are covered by laws that prohibitof policy does not necessarily mean them from regularly working morethat violations take place, there is than 45 hours per week (a five-and-some evidence to suggest that har- a-half day workweek). Although allassment does take place and that the firms surveyed agreed that theythese incidents are not reported due conform to working time legisla-to the staff ’s fear of losing their jobs. tion, 40% force their employees to 16 Understanding and Encouraging Corporate Responsibility in South Asia
  • 22. Corporate responsibility in Sri Lanka 2003: a snapshotwork overtime (Figure 8). While this welfare, tend to practice social phi-is illegal, companies tend to prey on lanthropy by providing scholarshiptheir employees’ fear of losing their awards to universities, donations tojobs to enforce overtime work. hospitals, and donations to commu-This is particularly prevalent in nities adversely affected, for exam-export-oriented companies strug- ple, by drought. Only 27% of thegling to meet delivery and shipping companies stated that they conductdeadlines. community opinion surveys and 18% stated that they report on com- munity welfare in their annual re- ports and company news bulletins. Just under half the companies tended to recruit staff and make purchases from the local commu- nity. Other firms had no clear policy on supporting their local communi- ties in an economic sense (Figure 9). When company plans have a po- tential effect on the local commu- nity, just 33% of companies stated that they have a formal policy for prior consultation with their com-Figure 8 Employees forced to work munities. It would appear that overtime NGOs and other community groups are not particularly active in enforcing corporate accountability How well do companies to their local communities. Just 9% support the community? of the firms stated that they wereCommunity partnership activity is a targeted by civil society groups, fornovel concept for most firms in Sri policies or plans that affected theLanka. While some appear to be wider community. The issues thataware of a responsibility to support most affected local communitiesand invest in their communities, tend to be environmental, such asmost do not commit to this. The the disruption of the ecological ba-small minority of companies, who lance, toxic waste emissions, andsubscribe to the idea of community water and air pollution. 17Altered Images: the 2003 state of corporate responsibility
  • 23. Corporate responsibility in Sri Lanka 2003: a snapshotFigure 9 Factors to ensure rights and needs of the communities A few firms encourage their em- any practices in place to suggest anployees to engage in community ac- awareness or sense of responsibilitytivities. Examples of this include for the environment. Environmentalfundraising for local cancer hospi- regulations do exist in Sri Lanka buttals, campaigns to channel aid to are often violated by companies.drought-affected areas, organiza- The media tends to report on thesetion of and support to peace violations when the lives and liveli-marches and rallies in favour of the hoods of local people are affected.recent government peace initiative, One-third of the companies sur-and assistance to disabled soldiers. veyed have a public environmental policy, and a similar proportion has Are environmental protection policies that commit to continuous policies and practices in place? improvement on environmental prac-Two-thirds of the companies sur- tices. About 27% of the companiesveyed had neither any policies nor train employees on environmental 18 Understanding and Encouraging Corporate Responsibility in South Asia
  • 24. Corporate responsibility in Sri Lanka 2003: a snapshotprotection and participate in volun- publish environmental reportstary environmental programmes; (Figure 10).24% of the companies have a board Most companies do not have andirector responsible for environ- overall environmental managementmental issues; and 18% believe that system. Only 25% of companiesthey set aside adequate resources stated that they had such a formalfor environmental protection and system. None of the firms surveyedFigure 10 Key factors: environmental policy and implementation 19Altered Images: the 2003 state of corporate responsibility
  • 25. Corporate responsibility in Sri Lanka 2003: a snapshothad obtained ISO 14000 or Eco- 33% have programmes promotingManagement and Audit Scheme ac- designs for the environment, cover-creditation. Around 30% of the ing energy, materials, toxic reduc-companies appear to have a policy tion, recyclables etc. None of theof minimizing and preventing firms surveyed had quantified thewaste. There is almost no awareness market benefits of environmentallyof the need to conserve water. Most preferable products, and 30%companies do not see water as a stated that they regularly reportedscarce resource and therefore have to consumers on environmentalno policies or practices to prevent risks, and provided instructions onwater wastage. The larger compa- safe disposal of material. None of thenies do not practise material recy- firms surveyed appeared to havecling or the usage of recycled faced any legal action relating to amaterials. A few small firms operat- breach of environmental regulations.ing in niche markets appear to have Meanwhile, two Sri Lankan ho-some initiatives on using recycled tels were recently awarded thematerials. prestigious Green Globe award for In terms of managing and mini- sustainable tourism. The Kandalamamizing the environmental risks as- Hotel received this accolade in 1999sociated with goods and services and has recently obtained ISOproduced by the firms, just 24% of 14001 accreditation. In 2001, thethe companies stated that they had award was won by The Deer Parkappropriate policies in place. About Hotel. ✤ 20 Understanding and Encouraging Corporate Responsibility in South Asia
  • 26. Conclusions and next steps3 Conclusions and next stepsT his survey has revealed a number of areas where there isconsiderable scope for improving perhaps necessitated attention and action to be focused on perpetrators of humanitarian abuses other thanCR practices in Sri Lanka. the corporate sector. For example, the recruitment of child soldiers Lack of understanding and and child abuse are issues that have awareness of corporate been highlighted in the local and responsibility foreign press.A significant finding of this survey is Nevertheless, there is significantthe need for training and develop- opportunity to educate and raisement to counter the lack of under- awareness on CR, at least in termsstanding and awareness of the of a traditional business perspec-broader stakeholder approach to tive, so as to meet the requirementsCR. The historical and social rea- of international buyers of Srisons for this include the relatively Lankan goods. The importance ofsmall size of the private sector, a export-oriented business for the Srifeudal culture of management re- Lankan economy is critical. There issulting from a colonial past, and a also potential for Sri Lankanmassive disparity in income levels corporates to improve their localbetween executive management and reputation through CR initiatives.shareholders and workers. The seri- The need to educate and establishous political upheaval and civil war such practices is perhaps most ur-of the past two decades has also re- gent due to the political nature ofsulted in other significant humani- the corporate sector. It could betarian and social problems that have considered particularly useful to 21Altered Images: the 2003 state of corporate responsibility
  • 27. Conclusions and next stepshave external guidelines and en- based on mutual respect and coop-forcement of CR to counter the cor- eration rather than suspicion.porate sector’s inherent tendencyfor political manoeuvring, in a Civil society in the initialcountry subject to high political stage of understandingrisk. corporate responsibility The perspectives elicited from Sri Room for improved enforce- Lankan civil society in this survey ment of national labour suggest that the concept of civil ac- policies and worker rights tivism has possibly been thwartedThis survey also indicates a prob- by two decades of politicization andlem with the enforcement of labour control. Civil society is, under-rights in Sri Lanka. The checks and standably, mainly focused on sig-balances in the form of due legal nificant concerns arising directlyprocess and trade unionism, for ex- and indirectly from the civil war.ample, to help protect and defend There is an opportunity to increasethe rights of workers, appear to be awareness of the role of civil societyineffective, thwarted, or actively in encouraging and initiating localdiscouraged in Sri Lanka. While the CR practices. Opportunities forissues with Sri Lanka’s legal process mutually beneficial partnershipswill take time to resolve, a between corporates and NGOs alsostakeholder approach to building ought to be explored.employee relationships based onemployee participation in policy- Limited understanding ofand decision-making can mutually sustainable developmentbenefit both the employees and the and links to corporatemanagement. Raising awareness of responsibilityemployee rights and training in The survey indicates that there isbuilding mutually beneficial em- scope to increase education andployee–management working rela- training on sustainable develop-tionships could provide significant ment in the context of CR. The ben-benefits without having to resort to efits of, and the necessity for,labour policy enforcement. This sustainable development needs tocould be an important initial step in be encouraged across all sectors inforging responsible relationships Sri Lanka, and not, as it is perhaps 22 Understanding and Encouraging Corporate Responsibility in South Asia
  • 28. Conclusions and next stepsperceived today, as an attractive fea- these areas through sustainableture for the hotel industry which practices, could serve as an initialattracts international awards and kick-start into action in this area.attention, and commands premiumprices. Next steps A United Nations Environment This report has served to highlightProgramme report in 2001 high- some key areas that require the at-lighted the five top areas of environ- tention of managements, workers,mental concern in Sri Lanka: civil society, and the government in(1) land degradation by soil erosion, order to improve the effectiveness(2) waste disposal, (3) pollution of and scope of CR in Sri Lanka. Thereinland waters, (4) biodiversity loss, is considerable potential for col-and (5) depletion of coastal re- laborative action and capacitysources. An analysis and training building at the local level to intro-programme for corporates and civil duce and sustain the agenda for CRsociety representatives on how com- in Sri Lanka. ✤panies can effect improvement in 23Altered Images: the 2003 state of corporate responsibility
  • 29. References References [Available online at <http://Ansoff H I (ed.). 1969 www.icftu.org/displaydocument.asp?Business Strategy, p. 239 Index=991218328&Language=EN>,Harmondsworth, England: Penguin last accessed on 17 March 2003]Bernstein A and Berger P L (eds). Kannangara A. 20032000 Need for eradicating sexual harass-Business and Democracy: cohabi- ment at workplaces stressedtation or contradiction?, p. 8 Sri Lanka Daily News, 18 SeptemberLondon: Centre for Development and 2003Enterprise [Available online at <http:// www.dailynews.lk/2003/09/18/Bose N K (ed.). 1947 new24.html>, last accessed onSelections from Gandhi 17 March 2004]Ahmedabad: Navajivan PublishingHouse Kumar R. Forthcoming Slimline Case StudyFreeman R E. 1984 New Delhi: TERI PressStrategic Management:A Stakeholder Approach Mishra B. 2003Boston: Pitman Publishing Company S Asian labour unions plan a commissionFriedman M. 1958 The Times of India, 11 December 2003Three major factors in business [Available online at <http://management: leadership, decision- timesofindia.indiatimes.com/cms.dll/making and social responsibility html/uncomp/[Talk delivered at Eighth Social Science articleshow?msid=187351>, lastSeminar, 19 March 1958, as summa- accessed on 15 March 2004]rized by W A Diehm in Social ScienceReporter, and cited in Ansoff 1969] SLDN (Sri Lanka Daily News). 2003 Referendum decides on tradeGandhi M K. 1939 union representationThe Harijan (Poona), 16 December Sri Lanka Daily News, 2 August 20031939 [Available online at <http://[cited in Bose 1947] www.dailynews.lk/2003/08/02/ILO (International Labour Organiza- new30.html>, last accessed ontion). 2003 17 March 2004]ILO Complaint: Sri Lanka: Wheeler D and Sillanpää M. 1997anti-union tactics in Jaqalanka Ltd The Stakeholder Corporation: a(EPZ) (Complaint letter to the blueprint for maximising share-Sri Lankan government) holder value, p. ix London: Pitman Publishing Company 24 Understanding and Encouraging Corporate Responsibility in South Asia
  • 30. About TERI-EuropeA charity set up by TERI, India and approved by the Charity Commission forEngland and Wales, TERI-Europe endeavours to strengthen the linkages be-tween India and Europe by (1) exploring common grounds forsolutions to global problems like climate change, (2) setting up databases tofacilitate appropriate technology choices in various sectors of the economies,(3) informing European industry about business opportunities in India’senergy and environment fields, and (4) promoting dialogue betweenorganizations on pertinent issues like corporate social responsibility. Further details at <www.teriin.org/teri-eu/index.htm> About New Academy of BusinessThe New Academy of Business is an independent business school with avision to build a just and enterprising future. It works with entrepreneurs,educators, managers, activists, policy-makers, and other change agents toproduce educational activities and resources. Its major activities areteaching, collaborative research, organizational learning, and eLearning. Further details at <www.new-academy.ac.uk> About LGA Consultants (Pvt.) LtdWith a focus on building a sustainable future for the world, LGA Consultantsprovides international consulting services in the areas of renewable energy,rural energy, and business development. It has undertaken projects on climatechange, marketing, and human resources training for donoragencies and governments either on its own or in partnership with local/international consultants. It has an alliance with Sage Training (Pvt) Ltd, ahuman resources development and training organization based in Australiaand Sri Lanka. The focus in Sri Lanka is on leadership and soft skillsdevelopment. Further details at <www.sagetraining.com>