Introduction and Background
Corporations should use corporate social responsibility to address corruption, just as they use corporate social responsibility to address environmental and human rights concerns, prioritizing robust corporate social responsibility programs and fully developed initiatives. Creating such a shift in a company’s values would in turn change the dynamics within the company’s culture, and as a result would work to reduce the risk of corruption and/or human rights violations in the course of the company doing business. Corporate social responsibility is an innovative concept that has taken a center spotlight recently in the global business realm. Attempts to fully define the term have persisted for nearly the last three decades. The term does not always have the same meaning, and can take on a different definition based on the geography where it is being used, the culture, or the context of the corporation.
The concept of corporate social responsibility (or “CSR”) also overlaps with various other business concepts such as: sustainability, corporate citizenship, environmental accountability, and business ethics. One definition that has been attributed to the term is “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.” CSR has also been defined by saying that “companies operate in an economically, socially, and environmentally sustainable manner, while recognizing the interests of stakeholders, including investors, customers, employees, business partners, local communities, the environment, and society at large.”
A notable and influential corporate social responsibility theorist, Archie B. Carroll, created a pyramid to illustrate and describe CSR that has been utilized by many scholars in the field of business ethics. Carroll proposed that all the layers within his diagram in sum create the concept of corporate social responsibility as a whole. Carroll’s pyramid consists of four levels or layers. The first level or layer at the base of the pyramid is the “economic” level. This layer includes the fiscal responsibilities and duties of the company itself, including the most basic principle of a business – that it must be profitable. The second layer moving upward would be the “legal” level. This layer encompasses a corporation’s responsibility to obey the law and follow the “rules of the game.” The third level of the pyramid is the “ethical” level.
This layer contains a company’s “obligation to do what is right, just, and fair.” This layer also stands for the principle that companies should have a responsibility to “avoid harm” to not only the communities in which they are operating, but also against any of their stakeholders, and society in general. The top-most layer of the pyramid is what Carroll describes as the “philanthropic” level. Contained within this layer are three main ideas that serve as the main themes for corporate social responsibility as a whole: 1) that companies should be good corporate citizens; 2) that companies should contribute to their communities; and 3) that companies should help improve the quality of life for all.
So, why does corporate social responsibility matter and why should corporations care about whether or not they engage in it? Since 2012, there have been several factors that have forced business entities to make CSR more of a focus within their corporate development and business plan. Factors such as: a rise in consumer activism, 24-hours accountability (both ushered in by the increase in social media usage for consumers and presence for companies and brands), and an increase in global resource exhaustion have all served as a necessary catalyst. Since this new shift in focus in the corporate world, there have been four main areas that have particularly played a role in shaping current corporate social responsibility policy.
The first area is employee engagement. Companies with an increased level of employee engagement in the development and support of their CSR policies saw defined increases in their bottom line. Engaged organizations’ profit growth was calculated to have occurred at a rate of about three times faster than their unengaged competitors. Another area that was instrumental in the push and creation of “the new CSR” is the emergence and use of cause-marketing. Cause-marketing was created when “for-profit entities and nonprofit organizations partner together to drive revenue, exposure, and fundraising” for a cause championed by the nonprofit. This corporate involvement with charity leads to public good, which in turn provides businesses with more legitimacy in the course of developing their CSR policies.
As a result, these cause-marketing programs have been found to enhance a company’s reputation. Skeptical consumers have also pushed corporations to make CSR a priority while doing business. In recent years, consumers have been demanding more transparency from companies that they are patronizing. With innovative tools like social media, allowing customers and consumers to engage more often and in real time with companies, brands, and nonprofit organizations as well as a growing desire to track their business practices, consumers have called for greater accountability from corporations. The last major area that has helped shape corporate social responsibility policy in recent years is board-level involvement. BusinessWire reports that “CEOs and C-suite executives in all sectors are more deeply involved in corporate social responsibility, as these programs are increasingly integral to a company’s culture and its connections to customers and employees.”
There are numerous CSR issues that are now being brought into and discussed in the boardroom, such as: supply chain risk, diversity, natural resource management, and reputation risk. Involving the board in development and enforcement of CSR programs has been determined to be “absolutely essential… these individuals serve as a company’s cultural center and have great influence over the entire employee base’s attitude toward the importance of corporate responsibility.” A “tone-from-the-top” approach is likely to be the most effective way to not only implement and achieve a corporation’s corporate social responsibility goals, but will also help serve as a catalyst for a shift in corporate values. Making corporate social responsibility a greater priority will help lead to more successful CSR programs which in turn will not only benefit individual companies, communities, and the global market, but will also help work to reduce corruption worldwide.
In addition to the positive global benefits created when a company engages in CSR, corporate social responsibility is also self-serving for a corporation. Most models of corporate social responsibility are “based on the principle that goodwill earned from the stakeholders will lead to benefits to the corporation.” As a result, this allows the corporation to further enhance its own value to its stakeholders. CSR is often evaluated as a “long-term investment” for a company. It can be used as a instrument to increase a company’s profits. CSR is “rapidly becoming an essential business process, and should be incorporated as part of every executive’s strategic plan” for their company.
An increasing number of businesses are recognizing the importance of corporate social responsibility as a key aspect of doing business today, and implementing robust CSR programs. This fuels a desire for comparison between competitors, to see how Company A is measuring up to Company B, in addition to determining how well they are achieving their CSR goals. The disclosure of a company’s CSR goals and their subsequent achievements in reaching those goals will help to foster trust between its stakeholders and the company itself, as well as have a positive impact on the reputations of its brands. This is important and essential to any company doing business, because “as any business leader knows, trust is an invaluable asset in today’s highly competitive global marketplace.”
In order for companies to develop and compare their CSR programs, there needs to be an adherence to certain standards, best practices, or recommendations for successful CSR initiatives, as well as uniformity in delineating key aspects of CSR and what a strong CSR program should look like. A successful CSR program should, first and foremost, be two things: 1) completely transparent; and 2) well-communicated to the public, as well as any of the company’s other stakeholders. A CSR program should also create mechanisms for monitoring, enforcement, and ensuring compliance. This accountability aspect of a CSR program works hand in hand with the transparency aspect, to allow stakeholders to evaluate and gather information about a company’s business practices.
The Evolution of Corporate Social Responsibility
For the past 20 years, CSR has been limited to philanthropy on the part of corporations and other charitable acts. This donation of financial resources has been the favored route for companies who want to flout a program for corporate social responsibility – but charitable contributions may not always be blind good will.
Charitable contributions can be problematic in an anti-corruption context, and as a result, are not the most beneficial form of CSR. While contributions by private companies to governments and/or communities abroad are not explicitly barred by the U.S. Foreign Corrupt Practices Act (“FCPA”), some charitable contributions can quickly fall within its jurisdictional realm. On paper, the FCPA seemingly only applies to payments made to foreign officials; however, in recent years, the interpretation of “foreign official” and what can constitute a “payment” has been greatly expanded. If these charitable contributions can be seen as made with an intent or for the purpose to influence the foreign government or local official who may have the discretion to affect the corporation’s operation in that area, then these “donations” are likely to be considered payments that are corrupt and in contravention of the FCPA. As a result, companies face very real challenges with respect to protecting themselves from FCPA liability in the course of practicing CSR by making charitable donations abroad. However, in recent years corporate social responsibility has taken on more complex forms than that of a charitable contribution.
CSR has been changing and evolving into a much more all-encompassing business practice – and as a result, charitable contributions are no longer the quintessential example of what corporate social responsibility looks like today. Some examples of initiatives that companies have included in their corporate social responsibility programs include: environmental sustainability initiatives such as companies “going green” and switching to renewable energy sources; strict supply chain monitoring and compliance programs; and efforts to improve labor conditions in developing countries in which they are doing business. Companies, including major retailers and brands like Burlington, have instituted codes of conduct to establish standards for acceptable working conditions within their supply chains, as well as enforcement mechanisms to ensure that persons subject to these codes are abiding by them. These efforts can also assist a company in ensuring and maintaining compliance with the FCPA.
Companies should “be able to identify and mitigate against bribes and corrupt payments, not only to ensure compliance with the law, but also to keep markets competitive and ensure that their activities are positively benefitting the societies in which they operate.” Extensive monitoring and due diligence in enforcing compliance, and transparency in a company’s supply chain can lead to a reduction in forced labor, human trafficking, and other forms of corruption that may occur in the course of a company doing business.
Working in tandem with corporate social responsibility, yet as a tool of companies’ shareholders themselves is another important concept: environment, social, and governance (“ESG”) issues. Like corporate social responsibility, the definition of ESG is in flux. MSCI, a leader in investment research, defines the concept as “the consideration of environmental, social, and governance factors alongside financial factors in the investment-making decision process.” “ESG investing is often used synonymously with sustainable investing, mission-related investing, or screening.” Recently, there has been a great increase in the number of “ESG investors.” ESG investors are “values-based investors who are more interested in what happens in the next decade than the next quarter.” Like corporate social responsibility, companies investing time and efforts into ESG issues are helping them to be more successful in the long-run.
Not only could programs that address ESG issues be beneficial to the companies themselves, but these standards tie in directly with the shift in corporate values that is necessary to effectively practice corporate social responsibility, as well as to create a change in corporate culture resulting in a prioritization of anti-corruption efforts, as well as promoting social good. Some of the factors considered by investors when examining a company’s dedication to ESG issues are very similar to those that make up corporate social responsibility, such as the company’s approach to: climate change, natural resources, pollution and waste, human capital, product liability, social opportunities, stakeholder opposition, and corporate governance or behavior. The United Nations has also brought ESG issues to the forefront of the decision-making process for investment, with its 2006 creation of an investment initiative called the United Nations Principles for Responsible Investment. This UN network has over 1,800 signatories whom have all committed to six voluntary principles, the first being the incorporation of ESG issues into investment analysis and decision-making.
Using these innovative tools and initiatives to help better the world in which they operate, corporations today can play a major leadership role, change corporate culture, and improve results of anti-corruption efforts by treating corruption as a “strategic CSR” issue.
Current Guidance on Corporate Social Responsibility and Its Measurement
There are numerous publications that offer international guidance for implementation and execution of corporate social responsibility initiatives. Some prominent examples include: The United Nations (UN) Guiding Principles on Business and Human Rights, the Organization for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises, the UN Global Compact, and the International Labour Organization (ILO) Standards. These publications set forth proposed standards for business ethics, providing guidance on how corporations worldwide can be good corporate citizens and adopt socially responsible business practices that bolster their CSR efforts.
The UN Convention on Corruption also sets forth recommendations for transparent business practices and encourages parties to develop anti-bribery and anti-corruption policies. Many advocates in the CSR field are calling on companies that engage in CSR to use this Convention as a tool and leverage their corporate influence over public governments to enact and enforce its rules.
Third-party organizations monitor companies’ efforts in the CSR realm and measure their progress. One such organization, The Reputation Institute, compiles a report annually on companies with the best CSR reputations around the world. Their study measures corporate social responsibility by in three key areas: workplace, citizenship, and governance by gauging a company’s commitment to being a fair employer, examining its role in society, and its ability to meet its fiscal obligations. In their 2018 report, 140 companies total were evaluated. The results ranked the companies from 1-100, with 1 being the company with the best reputation for corporate social responsibility worldwide.
The top three companies, as of 2018, are as follows: Google, the Walt Disney Company, and The Lego Group. This paper will utilize brief case studies to further explore two of the top companies, the Walt Disney Company and The Lego Group. The following brief case studies will summarily examine how these companies began their corporate social responsibility programs, what types of initiatives the companies have implemented, as well as the attitude and perspective of their board members and/or top-level management towards their CSR efforts.
The Walt Disney Company
The Walt Disney Company (“Disney”) first came onto the corporate social responsibility scene around 2008, when the company “took stock of efforts to be a good corporate citizen of the world…” set its first CSR goals, and produced its first corporate social responsibility report. On the company’s website, Disney ensures that corporate social responsibility is on the main stage. The CSR section of the website proffers Disney’s definition of corporate social responsibility, which is “…our commitment to operate our businesses in an honorable and ethical manner along with our efforts to bring comfort, inspiration, and opportunity to families around the world.” On this section of their website, Disney publishes its CSR reports, which are produced annually and detail the company’s performance and progress in meeting their established CSR goals, called “targets”. The website also contains some highlights of their CSR program, generally discussing their commitment to a responsible supply chain and ethical sourcing of Disney-branded products, their International Labor Standards program, and the reduction of their product footprint. A detailed survey of all of the CSR initiatives that Disney has implemented can be found within their annual CSR reports.
According to their most recent report covering 2017, Disney contributed roughly $350 million in charitable donations for the year, including donations allocated to disaster relief to areas worldwide affected by natural disasters such as Hurricanes Harvey, Irma, Maria. The report examines The Walt Disney Company’s long-term CSR goals and evaluates whether or not the company committed to practices throughout the year that will help them achieve those targets. For example, the company’s commitment to environmental conservation and leadership has led them to develop long-term goals or “targets” to: produce zero net greenhouse gas emissions; produce zero waste; and conserve water resources. Disney details its strategy for achieving these goals, referencing the company’s decision to commit to “avoiding emissions, reducing emissions through efficiencies, replacing high-carbon fuels with low-carbon alternatives, seeking alternative technologies… and supporting carbon reduction projects.”
Disney reports that as of fiscal year end 2017, they are on track to meet their long-term goal of zero net greenhouse gas emissions, and that the company has reduced their net emissions by 41% from their levels in 2012.
The report also details the company’s International Labor Standards Program and its commitment to improving and adhering to fair and safe labor standards, supply chain monitoring and improvement, and risk prevention, identification, and mitigation in supply chains. Disney boasts many policies aimed at these targets, such as their Permitted Sourcing Countries policy, Human Rights Policy, Conflict Minerals Policy, and Code of Conduct for Manufacturers (which is modeled after the standards proposed by the ILO). Disney also participates in a yearly public disclosure of their “vertical facility list”, a list all facilities that manufacture products or components incorporating any intellectual property owned by the company.
Customers can use this list to determine the exact origin of certain products and product components, as well as gather information about the individual facilities.
It is clear that the executives at the company have built on Walt Disney’s urging that “anything that has a Disney name to it is something we should feel responsible for.” Disney’s board and top-level management have committed to adhering to their ethical values as a company, prioritizing CSR in accordance with those values, creating and implementing a robust CSR program, and using their brand and notoriety to successfully enhance the public good.
The Lego Group
The Lego Group (“Lego”) has done some significant re-branding in recent years to emerge as one of the world’s current CSR leaders. After their partnership with Shell Oil (“Shell”) caused Lego to be on the receiving end of a major public relations dig, centered around oil drilling, by Greenpeace in 2016, the Danish company chose to end a partnership with Shell that had been in existence since the 1960s. In doing so, Lego transformed itself into a role model for sustainability and committing itself to “making a positive impact on the world our children will inherit.” Lego went on to join causes with prominent sustainability organizations, such as the international non-governmental organization the World Wildlife Fund. They have launched numerous environmental sustainability initiatives through their Planet Promise program, including commitments to investing in renewable energy, sustainable materials (through programs available at their Sustainable Materials Center), and the reduction of waste.
In 2017, Lego achieved their goal of balancing 100% of the energy used in production with energy from solely renewable sources.
A new pilot program was also launched in 2017 called Dare to Care, which focuses on employee safety and well-being in the workplace. Lego’s Chief Executive Officer (CEO) Niels B. Christiansen views Dare to Care as a step in the right direction for the company, stating that “Our ambition is to improve on our strong safety record and embed a safety culture throughout the organization.”
Like the Walt Disney Company, Lego has also instituted strict standards for its supply chain and manufacturers, culminating in the Lego Code of Conduct. The Code prohibits child and forced labor of any kind, as well as requires responsible sourcing of minerals for any metal or electronic components of Lego’s products. Lego requires that these minerals are only supplied from smelters that are part of the Conflict Free Smelters Program.
These initiatives are all great examples of how Lego is leading with its values. Truth be told, the company has not always held these commitments and ideals and placed them in the forefront of their business practice. But the Lego Group is a perfect example of how a shift in the overarching values of a company can facilitate a major shift in the company’s very culture, leading to better prioritization and more effective corporate social responsibility.
Some notable companies missing from the Reptrak rankings are some of the world’s largest corporations such as Amazon, Walmart, and Apple. While Apple comes in on the Reptrak rankings at 88 out of 100, both Walmart and Amazon did not even make the cut for 2018. Each of these companies are ranked in the top 10 largest companies based on revenue. Amazon, Walmart, and Apple are also companies who pride themselves on the fact that they have been found to be (mostly) immersed in nearly every aspect of the consumer experience. These three companies hold great consumer influence, and their products reach a wide variety of people all over the world. Correlating with the low-ranking results for these three major companies, the 2018 Reptrak found that the technology industry’s overall corporate social responsibility reputation declined the most of all industries.
Perhaps these low ranks for these prominent companies are a result of any combination of things; maybe their sheer size, maybe their long and distant supply chains, maybe a result of efforts by the companies to keep costs for the consumer low, like in the case of giant retailer Walmart.
However, in recent years Walmart has committed itself to promoting and implementing more ethical business practices. According to Walmart’s 2018 Update on Global Ethics and Compliance Program, the company has been working to bolster and develop its anti-corruption program. The Update states that Walmart has begun investigating and evaluating the companies with which they do business; have begun to train, monitor and audit their global suppliers; and reduced the number of third parties that they use for compliance purposes. Walmart’s 2018 Global Responsibility Report also details their other CSR initiatives outside of the strict anti-corruption context. Those initiatives include: enhancing sustainability in their operations by reducing greenhouse gas emissions and reducing waste; enhancing sustainability in their “value chains” by promoting responsible sourcing, supporting worker dignity, and providing safer and healthier products for its consumers; and giving back to the community by relieving hunger and providing disaster relief assistance.
All of these CSR initiatives showcase Walmart’s effort to reduce corruption and human rights abuses in their supply chain and workforce, as well as operate their massive business in an environmentally sustainable manner. Walmart has responded well to criticisms from its consumers (and others) and has worked hard to re-brand as a strong proponent of CSR dedicated to having a positive impact on the world.
Amazon has also been working towards improving their reputation as a leader in business ethics and sustainability. In September 2015, Amazon appointed a “Director of Social Responsibility” on the tails of intense criticisms regarding the company’s CSR and business practices, specifically its treatment of employees and sustainability initiatives. By 2016, Amazon had assembled a team of “notable corporate responsibility executives.” But even after doing so, Amazon still seems to be falling far behind its counterparts in the technology industry, such as Apple, Google, and Microsoft. Unlike most other companies its size, Amazon does not publish an annual sustainability, supply chain, or any other type of CSR report. With that being said, it is simply untrue to say that Amazon is not engaging in CSR of any kind. There are numerous corporate social responsibility programs that have been implemented in recent years.
One is the quintessential example of the traditional interpretation of corporate social responsibility: AmazonSmile. AmazonSmile allows consumers to shop the same products, at the same prices, but with 0.5% of the item’s purchase price donated to a charitable organization of the consumers choice.
Amazon’s website also has a “Sustainability and Environment” webpage which boasts that they are “committed and invested in sustainability because it’s a win all around…” The highlights of the webpage include some of Amazon’s long-term goals and their current initiatives to achieve them, such as: powering all of their global infrastructure using 100% renewable energy; inventing sustainable packaging that eliminates waste, a commitment to responsible sourcing including implementation of a Supplier Code of Conduct along with periodic assessments of compliance. Amazon’s website also includes information regarding the company’s prohibition of child labor, forced labor, human trafficking, and slavery. Interestingly, Amazon also has explicit sections on their website dedicated to “Ethical Behavior”, touting their policy against bribery and corruption, policies that are encompassed in Amazon’s Code of Business Conduct and Ethics. Amazon requires all of its suppliers to comply with anti-corruption laws, such as the FCPA.
With all of these positive CSR efforts, one must wonder why there is such a discrepancy between their initiatives and Amazon’s location on most CSR reputation rankings. Perhaps it is the lack of transparency; simply finding this information on Amazon’s website was actually quite troublesome. Additionally, the information was presented in a general sense, not going into much detail about each of their projects. Public disclosure is very much lacking. It could also have something to do with its sheer size; with a company like Amazon, where sellers and manufacturers are not always in a single vertical stream, supply chain monitoring and due diligence may be one of the biggest obstacles to a fully developed corporate social responsibility program. It may also have something to do with the values of the company itself, and the prioritization of their top-tier executives.
Analysis and Proposed Solutions
In the course of research, a consensus seems to be that accountability and transparency are two of the values most necessary to reduce corruption. These are also two of the most effective factors of a successful corporate social responsibility program. Companies should use their corporate social responsibility programs and initiatives as a strategic tool to combat corruption. CSR programs often already have projects or policies in favor of reducing (or eliminating) human rights abuses, promoting fair labor standards, and protecting employee rights. These values are within the very essence and scope of anti-bribery and anti-corruption efforts as well. Additionally, companies who are prioritizing CSR initiatives that prohibit forced labor, protect the environment, strictly monitor their supply chains and manufacturers, and are overall forward-looking are likely to have the same values that can easily be translated into an anti-corruption context or robust FCPA compliance program. These values work to create a new corporate culture, putting CSR and ESG issues at the forefront of the world in which these companies are doing business.
This change in culture, shifting from “diffuse” techniques (remedying wrongs when they become known or become a public relations issue) to focus on outcome-oriented techniques is an essential step towards eliminating corruption. Companies should create incentives for a change in behavior, attitude, and values at all levels of the corporation. Most importantly, a change in values and priorities at the uppermost echelons of a corporation is more likely to result in changes and effective implementation of policies throughout. If board members and top-level management are passionate about making changes in the way they do business in an effort to have a more positive impact on society, it seems as though the rest of the company may follow their lead. Companies should align and integrate their resources and values in order to swiftly execute and implement their CSR initiatives. Their CSR initiatives should include an anti-corruption component. Companies should lean into the “tone-from-the-top” approach, and institute the proper values, as well as promote and engage in action from the top.
Increased engagement of a company’s stakeholders, board members and consumers alike, will lead to a push for increased accountability. An effective way to increase transparency of a company’s business practices is to undertake legitimate legal reform to make publication of CSR efforts mandatory and uniform across the board, similar to requirements of the California Transparency in Supply Chains Act. The Transparency in Supply Chains Act mandates that companies doing business within California provide consumers with information detailing how they are ensuring their supply chains are free from human rights abuses such as human trafficking and slavery and educate consumers about the responsible and ethical sourcing of their products. The law does not require all businesses operating in California to implement measures, but rather requires public disclosure of existing measures covering five main topic areas.
The topic areas for disclosure include a company’s policy for: verification, audit, certification, internal accountability, and training. Implementing this type of public disclosure requirement would greatly increase not only transparency between a corporation and its stakeholders, but also force companies to take a hard look at their CSR practices and ensure they are up to snuff. Mandatory public disclosure would also lead to greater accountability within each company to ensure that they are proud of the facts that they are disclosing.
Corporations today are taking notice of the fact that “social and environmental stability and sustainability are two important pre-requisites for sustainability of the market in the long run.” They are also recognizing that socioeconomic and political instability can be very bad for business. Therefore, companies should ensure that rigorous anti-corruption compliance programs are as much a part of their CSR practices as programs to address their environmental impact. Reducing bribery and corruption are as critical a part of corporate social responsibility as reducing greenhouse gas emissions. As a result, corporate social responsibility can be perceived as both a value of a company (which in turn is made a priority) as well as a strategy to combat corruption, political instability, and ensure the consistency of business in a global marketplace.
Corporate social responsibility is now an integral part of the modern business landscape. Stakeholders should view anti-corruption initiatives as a strict focus of corporate social responsibility. Anti-corruption values are the same values surrounding the other concepts involved with corporate social responsibility. Stakeholders are beginning to dig deep and complete thorough assessments of each company’s initiatives and corporate values. As a result, there is a greater call for accountability and transparency with respect to a corporation’s business practices and values. Companies can achieve these goals using tools like public disclosure, annual reporting, and goal-setting. These tools will also allow companies to easily compare themselves to their competitors, in turn fuel a greater desire to achieve their CSR goals and create robust CSR programs that will ensure that companies are acting as good corporate citizens. Corporations, using corporate social responsibility as a direct strategy to mitigate against corruption, can serve as agents of change working to reduce human rights violations and corruption in the global marketplace.