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How far does corporate social responsibility go? What should a company do if the authorities in a foreign country are clearing away residential areas (and removing residents without any compensation) to make room for industrial development that may allow said company (and other companies in the same location) to expand its offshored manufacturing facilities? Interfere? Do nothing?

 

This question was posed in today's edition of "Dagens Næringsliv" (DN), the Norwegian equivalent of the "Wall Street Journal". Unfortunately it's only available in the printed edition, otherwise I would link to it. That said, there probably wouldn't be too many Norwegian-speaking readers in this forum anyway. The article centers around an alleged quote from Milton Friedman, "The business of business is business", a quote that is often seen as the direct opposite of social responsibility. While corporate social responsibility looks good on paper, how far are companies willing to not just talk the talk, but also walk the walk when push comes to shove?

 

The hypothetical example cited in DN actually referred to a ship owner, and the foreign authorities were harbor authorities, who were expanding a harbor in order to modernize its operations. While looking forward to a more efficient harbor, the company has just learned that the residential areas to be cleared are the homes of the poorest of the poorest who are simply removed without giving them any new place to live or any form of compensation. Add to that, the hypothetical company has just joined Global Compact, a UN strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption. From this it would follow that the company should protest against these expansion plans. However, a formal protest may harm business, as the harbor authorities may react negatively to it and purposely (but not offcially) delay the loading and unloading of the company's vessels, leading to increased costs and lost time. What should the company do?

 

Øyvind Kvalnes, the article author who asks this question is Associate Professor at BI, the Norwegian School of Management, actually posted this question to his Master students, who most of them were in favor of that the company should actively deal with this issue, both from an ethical point of view, but also from a long-term economic perspective, as the market would be likely to reward action more than re-action, and because today's young people would want to work in such a company.

 

Underpinning his views, Kvalnes cites an old paper by Archie B Carroll from the University of Georgia, written in 1979: A three dimensional model of corporate social performance. In the paper, Carroll describes four possible reactions the company can use in this case: React, Defend, Accommodate and Lead.

React:

Deny any social responsibility, do nothing, saying that this is the local authorities responsibility, not their's.

 

Defend:

Admit that it has responsibility, but do as little as possible, just enough to maintain its reputation.

 

Accommodate:

Accept responsibility, and follow the advice of pressure groups and lobbyists who want the company to take action.

 

Lead:

Be responsible and take action before the media gets wind of the story, and go further than what is expected.

In addition to these four strategies for incorporating responsibility into business operations, Caroll also lists what he calls the four social responsibilities of business: Economic, Legal, Ethical, and Discretionary responsibility.

Economic Responsibility:

The first and foremost social responsibility of business is to produce goods and services that society wants and to sell these at a profit.

 

Legal Responsibility:

Society expects business to fulfill its economic responsibility, but within the framework of legal requirements.

 

Ethical Responsibility:

Although the first two already embody ethical norms, society has non-codified ethical norms which expect certain behaviors and attitudes in certain situations and which change over time and debate.

 

Discretionary Responsibility:

These are voluntary actions, guided only by a business' desire to engage in social roles that are not mandated, required by law, and not even generally expected.

The four responsibilities can provide a useful framework for any company that decides to do business in foreign countries, where politics and ethics don't always go hand in hand and where corruption is the order of the day. Many companies have already discovered the competitive advantage of claiming to be socially responsible. But how many companies are willing to go the whole nine yards. Are you?

 

References:

- Kvalnes, Ø. (2010) Hvilket samfunnsansvar? Dagens Næringsliv, 9.11.2010, s.4

- Carroll, A. (1979). A Three-Dimensional Conceptual Model of Corporate Performance. The Academy of Management Review, 4 (4), 497-505

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