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Corporate Social Responsibility

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Learn about corporate "speech" and other "rights" v. people's rights. And help put Americans before corporations.

This article is part of the Tobacco portal on Sourcewatch funded from 2006 - 2009 by the American Legacy Foundation.

Corporate social responsibility (CSR) is commonly described by its promoters as aligning a company's activities with the social, economic and environmental expectations of its "stakeholders." It has become a multi-billion dollar public relations specialty in the business world.

CSR and public relations

With the growing popularity of CSR in the last few years, especially in Europe and more recently in the U.S., a number of major PR firms have responded by establishing specialist CSR practice groups within their companies.

In a review of the role of PR firms in corporate social responsibility programs, Lisa Roner wrote in Ethical Corporation that "many early efforts to communicate on corporate responsibility have been high on production value and low on substance."

Citing examples such as Hill & Knowlton's role in the first Gulf War and the more recent overbilling controversy that engulfed Fleishman-Hillard over its contracts with a Los Angeles government agency, Roner argues, "It appears PR firms may have to clean up their own ethics, since many corporate buyers seem to believe that a messenger with internal issues of its own may not be best placed to deliver a credible message." [1]

What tobacco industry documents reveal about the intent and utilization of corporate social responsibility

When British American Tobacco was contemplating producing its first corporate social responsibility report, their Corporate and Regulatory Affairs director, Michael Prideaux, sketched some of the benefits of the process as being to build "credibility" and establish a "robust platform on which to build a reputation communications campaign".

"The process will not only help BAT achieve a position of recognized responsibility but also provide 'air cover' from criticism while improvements are being made. Essentially it provides a degree of publicly endorsed amnesty," he wrote. [2] (Note link is to an 11MB pdf file).

A ten-page Tobacco Institute document from 1982 titled "The Development of Tobacco Industry Strategy" indicates that the tobacco industry's early corporate social responsibility programs were developed as part of an overall strategy to address the tobacco industry's eroding power and credibility. The industry was facing multiple challenges in areas of health, taxes, ingredients, product labeling, advertising, product specifications and import-export. For the first time, industry adversaries were becoming more organized and unified. The industry found that its formerly firmly committed supporters were diminishing in federal and state legislative bodies, and the playing field was "being defined and drawn too often by our adversaries." To address these challenges, the Institute proposed that the industry become more involved in public service and social affairs as a way "To receive broad recognition for responsible public service, i.e . to offset the notion that we place profitability above public welfare."

The potential positive outcomes of adopting programs of this nature," wrote the Institute, "may be increased goodwill and reputation of the tobacco industry; strengthening of social and economic systems in which the industry operates; the ability to affect the problem areas that most concern the tobacco industry and simultaneously obtain tax benefits; a more sophisticated understanding by government regulators of the needs/behaviors of industry. For example, a program to discourage teens from smoking (an adult decision) might prevent or delay further regulation of the tobacco industry."

The paper further states the expectation of a return on their investment in such programs.[1]

An October 13, 1999 article by Bill Pecoriello of the "global wealth management" company Sanford C. Bernstein, Pecoriello discussed the testimony of PM Chief Executive Officer Michael E. Szymanczyk in the then-ongoing U.S. Department of Justice's (DOJ) civil racketeering lawsuit. U.S. Attorney Sharon Eubanks asked Mr. Szymanczyk about Philip Morris' corporate social responsibility makeover program called "PM-21," which had been made visible to the public through the company's youth smoking prevention television commercials, the publicizing of PM's support for domestic violence shelters and feeding the hungry, and the cutting of some cigarette advertising from youth-oriented publications. Szymanczyk told the court that PM started the PM-21 program to bring the company into alignment with society's expectations of a responsible company and thus boost the company's stock value. U.S. attorney Eubanks questioned whether the PM-21 program wasn't actually a publicity ploy instead, aimed at mitigating public anger at the company and minimizing the potential for large jury awards in court cases. To back this up, Ms. Eubanks presented a 1999 memo written by Steven C. Parrish, (Vice President and General Counsel for PM) and sent to all PM employees. In the memo, Mr. Parrish introduced 11 pages of comments from financial analysts about the newly launched PM-21 program. Many of the comments focused on the effect the PM-21 program was expected to have on potential jury awards:

"In the long term, we feel that a campaign such as this will help mitigate the need on the part of juries to further punish tobacco companies for past behavior..." [Page 2065572428]
"We believe that over time the [PM21] program should (1) moderate public anger against the company and the tobacco industry; (2) reduce the risk of large-scale punitive damage awards in individual smokers claims..." [Page 2065572429]
"We reiterate our initial assessment of the image campaign as a long-term positive for the company based on its ability to mitigate 'jury anger." [Page 2065572435]
"...we feel that the company's 'admission', particularly over time, will actually strengthen the company's legal defense and reduce the risk of large scale punitive damage awards in individual smoker cases..." [Page 2065572437]
"Leaving the 'flat-earth' society should moderate juror anger, a key factor in the juries' willingness to punish Philip Morris...The company's revised position, in our opinion, will be viewed as far more reasonable and will likely help moderate potential juror anger." [Page 2065572437]

The analysts also praised PM for avoiding offering an apology to the public for the company's decades of wrongdoing, for carefully wording its public statements to preserve its current liability defenses, and for continuing to sidestep any direct admission about the link between smoking and disease.[2]

CSR and regulation

CSR is often used to promote voluntary corporate initiatives, as an alternative to additional or existing mandatory regulations. The International Chamber of Commerce has aggressively promoted a standards-free concept of "corporate responsibility" that enables companies to proclaim their "responsibility" without necessitating companies to meet minimum standards.

Accordingly, many non-governmental organizations are suspicious of the CSR "movement" as corporate PR or regulation-dodging."The burgeoning industry known as corporate social responsibility - or CSR ... is now seen as a vital tool in promoting and improving the public image of some of the world's largest companies and corporations," Christian Aid stated, in its report scutinising the record of several major companies. "The image of multinational companies working hard to make the world a better place is often just that - an image ... What's needed are new laws to make businesses responsible for protecting human rights and the environment wherever they work," Christian Aid argued. [3]

CSR and sales

People's consumption patterns are influenced by corporate social responsibility efforts, according to a 2004 survey of more than 400 "opinion elites" (members of the top 10 percent of society, with regard to media consumption, civic engagement, and interest in public policy issues) in 10 countries, by APCO Worldwide. "Positive CSR information has led 72% of the respondents to purchase a company's product or services and 61% to recommend the company to others. Conversely, negative CSR news has led 60% to a boycott a company's products and services," reported PR Week. [4]

Based on its survey, APCO suggested that companies "shape the opinion environment" by touting their own CSR efforts, although "91 percent of respondents found CSR more credible when verified by a third-party such as a non-governmental organization or local government."

The UN's Global Compact

The meaning and practical effect of one international CSR program, the Global Compact of the United Nations, has been debated. "Some companies are using it for public relations," admitted consultant Scott Greathead, but it fosters "dialogue between companies and their civil society critics" and "lends the stature of the Secretary General to the concept of corporate responsibility." Consultant John Elkington contends, "More attention should be paid to the extent to which corporate lobbying by Global Compact members align - or don't align - with their stated commitment." Also, the lack of enforcement "raises real concerns about the longer-term risk to the UN's reputation," he warns, according to Business Week.[5]

The four myths of CSR

Deborah Doane, the chair of the Britain-based organization CORE Coalition (for "COrporate REsponsibility"), wrote an article for the Fall 2005 issue of the Stanford Social Innovation Review where she listed and debunked what she called "the four key myths of CSR." Those myths are: [6] (links to PDF file)

  1. "The market can deliver both short-term financial returns and long-term social benefits." According to Doane, not only are the interests of profit-seeking corporations and broader society often at odds, but socially reponsible investments by corporations "are particularly unlikely to pay off in the two- to four-year time horizon that public companies, through demands of the stock market, often seem to require."
  2. "The ethical consumer will drive change." Doane writes, "Most surveys show that consumers are more concerned about things like price, taste, or sell-by date than ethics. Wal-Mart’s success certainly is a case in point."
  3. "There will be a competitive 'race to the top' over ethics amongst businesses." While CSR efforts often "offer good PR," which companies of course like, "in some cases businesses may be able to capitalize on well-intentioned efforts, say by signing the U.N. Global Compact [see below], without necessarily having to actually change their behavior."
  4. "In the global economy, countries will compete to have the best ethical practices." Although companies often claim that their presence in "developing" countries will improve health, environmental and labor conditions, Doane counters, "companies often fail to uphold voluntary standards of behavior in developing countries, arguing instead that they operate within the law of the countries in which they are working. In fact, competitive pressure for foreign investment among developing countries has actually led to governments limiting their insistence on stringent compliance with human rights or environmental standards, in order to attract investment."

Business and conservative opposition to CSR

"The Business Council of Australia has come out against Government plans to create legislation forcing directors to meet certain levels of corporate social responsibility (CSR)," reports The Age. [7]

"Mandating CSR through legislative intervention runs the risk of stifling the innovation and creative approaches to CSR that are being adopted by Australian companies," claims the lobby group, in a submission to a Parliamentary inquiry. The submission stresses, "The greatest social contribution made by corporations is through employment, the goods and services they create and the wealth these produce." It also highlights the existing CSR efforts of Council members. The chair of Morgan Stanley Australia says government mandates would result in less meaningful CSR: "People would invent a bit of jargon, for example 'societally appropriate value maximisation,' as a way of asserting that they were doing whatever Canberra thought it was causing them to do."

In March 2006, Competitive Enterprise Institute analyst Isaac Post wrote, "Though CSR was labeled by free-market icon Milton Friedman as a 'subversive doctrine,' much of the business community has embraced it, arguing that it is simply 'good for our business.' Opponents of CSR have naturally argued the contrary, emphasizing the economic costs of following such a 'misguided virtue' as CSR. But little attention has been paid to the actual arguments made by advocates of CSR within the business community. This is a shame, because a closer analysis of the 'business case for CSR' shows that it is, indeed, based on a set of assumptions that undermine the legitimacy of the free-enterprise system." [8]

Competitive Enterprise Institute Editorial Director Ivan Osorio wrote, "Clive Crook of The Atlantic Monthly, whose article in The Economist, 'The Good Corporation,' sparked considerable debate on CSR, adds another important consideration: 'Profit seeking serves the social purpose.' To that I would add the corollary: By doing anything to reduce their bottom line, companies make the world poorer — and there's nothing responsible in that." [9]

On March 3, 2006, the American Enterprise Institute hosted a conference on CSR titled, "Is Corporate Social Responsibility Good Business?" The event was part of their joint project with the Federalist Society, called NGO Watch. The conference description asked, "Is CSR really a win-win situation—as its promoters claim—for both corporations and the public? Corporate leaders struggle with determining to whom their social responsibilities extend: to shareholders, employees, local communities, the environment, humanity as a whole, future generations?" The conference promised to "examine the complex global CSR phenomenon and take an in-depth look at Wal-Mart, which has been under fire for some of its corporate, social, and environmental practices." [10]

In August 2006, Thomas J. Borelli from National Center for Public Policy Research wrote, "CSR is an insurance policy for image-sensitive CEOs. By paying an ideological and financial cover charge to social and environmental causes, CEOs gain admittance to Club CSR and enjoy a host of membership privileges. One major club benefit is protection from advocacy actions such as protests and boycotts wielded by anti-business activists. ... By feeding into politically correct themes, these campaigns frequently distract the media and shareholders from failed business practices and poor stock performance." [11]

Robert Murphy criticized CSR in a Townhall.com column. Referring to the basic principles of fair trade, he wrote, "[A]s an economist I disagree with virtually every plank of the trendy movements. For example, why should Starbucks pay more than it has to for its coffee beans? If one group of farmers is willing to work for $7 per day, while another group is “organized” and insists on $10 per day, how does it help poor people by refusing to hire the first group? Market wages aren’t set by whim; they reflect productivity." [12]

Murphy added, "Even the ban on child labor isn’t so straightforward. Sure, it makes me uncomfortable to think of little children in distant lands toiling away so I can get a cappuccino, but does it really help them to refuse to give them money? For many families around the world, the children need to work to avoid starvation. Declaring ourselves righteous and hiring only adults doesn’t fix the problem." [13]

Progressive opposition to CSR

In a press release, Body Shop founder and early proponent of socially-responsible business practices Dame Anita Roddick is quoted as saying, "I don’t think Corporate Social Responsibility is working. I think it’s been taken over by the big management houses, marketing houses, been taken over by the big groups. It’s a huge money building operation now." [14]

Labor activist Jeff Ballinger dismisses CSR as cost-effective public relations. He told the Corporate Crime Reporter: "The CSR cost for Nike is about $10 million to $12 million a year, just for the CSR staff and expenses, to go to these sustainability meetings all over the world. ... They have two or three Nike people at every meeting. That’s part of the CSR game. ... I figure 75 cents per pair of shoes to the worker would fix the problem. If Nike instead paid workers 75 cents more per pair of shoes, do you know what that would cost Nike compared to the CSR cost? That would cost them $210 million a year." [15]

Playing FTSE with social responsibility

"Nearly a fifth of the UK's top public companies are still failing to deliver comprehensive reports detailing the economic, environmental and social impact of their business," reports Andy Favell for The Independent. Analyses have found corporate social responsibility (CSR) reports from 18 of the British companies on the FTSE 100 Index to be inadequate. Nine of the "poor performers" are also listed on FTSE-4Good, which is geared towards socially responsible investment. Favell explains, "FTSE-4Good initially set the bar relatively low and listing requirements are lifted each year." He concludes, "It is common to hear both investors and [non-governmental organizations] levelling criticism at the standard of CSR reporting as a whole. ... With a significant number of the FTSE 100 still failing to satisfy on CSR reporting, and greenwash accusations against many others, are we really getting the information we deserve?" [16]

Articles and resources

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References

  1. Tobacco Institute The Development of Tobacco Industry Strategy April 16, 1982. 10 pp. Bates No. 03673753/3762
  2. D.J. Adelman, M. Cohen, A.H. Gurkin, Bonnie Herzog, William Pecoriello No Title Report. October 13, 1999. Bates No. 2065572428/2438

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