The Concept of Corporate Citizenship in a Global Environment

Written by admin on April 11th, 2011

1.         Introduction

Over the past two decades, the forces of economic globalization, political transformation and technological innovation have increased the global reach and influence of the private sector. The number of transnational corporations has almost doubled from 37,000 in 1990 to over 60,000 today, with some 800,000 foreign affiliates and millions of suppliers and distributors operating along their global value chains. This process has conferred new rights and created new business opportunities for global corporations and large national companies, while also exposing weaknesses in national and global governance structures. It has also resulted in new competitive pressures and risks, and led to increased demands for greater corporate responsibility, transparency and accountability.

As a result, today’s business leaders face a complex and often contradictory set of stakeholder expectations. They are being called on to engage with activists as well as analysts, to manage social and environmental risks as well as market risks, to be accountable for their non-financial as well as their financial performance, and to cooperate as well as to compete, often with non-traditional partners, focused on unfamiliar issues. They are under pressure from governments, consumers, trade unions, non-governmental organizations and a small but growing number of their investors, to demonstrate outstanding performance not only in terms of competitiveness and market growth, but also in their corporate governance and corporate citizenship.

In short, corporate executives are faced with a complex, unprecedented challenge: How can they continue to deliver shareholder value while also delivering, and demonstrating that they are delivering, societal value?

2.         What is corporate citizenship?

The term ‘corporate citizenship’runs the risk of being all things to all people. But it does have some easily identifiable elements too. The basic idea is to understand business as part of society, contributing directly to the welfare of society, rather than somehow separate from it. Whereas in the past the baseline of good behaviour was ‘acting within the law’across the company’s operations, newer aspirations range from the maxim ‘do no harm’through to assessing ‘overall net impacts’. Companies need to go beyond simply obeying the law and making a competitive return for their shareholders if they are to respond to the challenge of citizenship.

Corporate citizenship invites companies to make strategic choices based on an understanding of the total impacts of their business in society. The practice of corporate citizenship involves a

focus on one or more of three main areas:

v     the societal impacts that flow from basic business policy and practice (as managed and measured through various codes of conduct, ‘values statements’and company reports);

v     the impacts that a company has up and down the value chain (e.g. when child labour is employed by its suppliers; or when end consumers dispose of its products in ways likely to harm the environment); and

v     the impacts that come from the voluntary contributions that businesses make to communities affected by their operations (including charitable gifts, community investment and commercial initiatives in the community).

Management and communication tools such as the ‘social audit’, development of key performance indicators on corporate citizenship, ‘benchmarking’best practice across a variety of industries, and best practice on ‘cause-related marketing’have all grown up alongside these core elements of corporate citizenship. Codes of  good conduct for companies abound, as do stamps or standards awarded by third parties, such as the Social Audit stamp of the Brazilian NGO IBASE, or the Social Accountability 8000 standard developed by the Council on Economic Priorities Accreditation Agency. The professionalization of environmental management has had an impact on the ‘new’tools of social management and accounting, accelerating the process of adaptation to the corporate citizenship agenda. But not all companies professing to be good ‘corporate citizens’choose to use all of these tools, and the current state of ‘corporate citizenship’varies from country to country.

3.         What drives Corporate Citizenship in a Global Context?

The emergence of ‘corporate citizenship’as a guiding principle for business strategy has been driven by a number of changes in the business operating environment. The overall process of globalization

affects all businesses one way or another.

Globalization has given rise to unprecedented links between economies, cultures, individuals and groups. Technological advances such as the internet have transformed communications. When multinational corporations apply different standards at home from those in their overseas operations, the gaps are exposed to external scrutiny as never before. The result is that the corporate

citizenship debate has acquired an increasingly significant ‘international’ dimension, raising one of the most difficult sets of questions in the current policy and business agenda: where does the responsibility of companies end and the role of governments begin, and by what (and whose) standards should this be judged?

Economic liberalization and deregulation have seen a massive increase in the flow of capital, goods and services across borders, opening new markets to foreign investment. At the same time the gaps between rich and poor around the world have widened and the world’s population is growing rapidly.

As privatization proceeds apace around the world, companies are increasingly responsible for providing services that were public-sector responsibilities in the past; areas such as healthcare provision by private companies and liberalization of energy markets focus more attention on the role of companies in the place of governments. The role of the private sector in provision of technical assistance around the world has also increased as corporations have become more involved in providing funding for intergovernmental bodies and as contractors in the delivery of donor assistance programmes. The overall balance of public- and private sector responsibilities is changing.

Globalization has given rise to new demands on corporations to exercise their power responsibly. There is a popular perception that in some markets the economic power and influence of corporations is much greater than that of the incumbent government. Some international NGOs have focused in on this, giving rise to new demands that companies investing in politically unstable economies such as the Sudan should use their power to encourage host country governments to spend the revenue that their investments generate for social benefit – not to wage wars or benefit political elites.

It is often pointed out that the turnover of the world’s largest companies is greater than the GNP of all but around 20 members of the United Nations. But individually even large companies account for only a fraction of global economic ouput: BP, Amoco and Arco together produce no more than 0.01%.

Globalization is not an entirely ‘neutral’ driver of corporate citizenship from a business perspective. Indeed, a powerful ‘backlash against globalization’ has now been set in motion, as witnessed by the public demonstrations surrounding recent World Trade Organization (WTO) and International Monetary Fund (IMF) meetings in Seattle and Washington.

Some proponents of corporate citizenship in the North see it as a way of countering the backlash against globalization – of reinvigorating the notion that trade and investment can bring overall social and environmental welfare gains. Encouragement of global corporate responsibility then becomes part of efforts to put ‘a human face on the global economy’.

One maxim seems to find resonance with all: that with power needs to come responsibility. Globalization, it is said, is transforming corporate responsibility from a choice into an imperative.6 But the extent of that responsibility remains a matter of hot debate.

4.         Commitments to Corporate Citizenship

There are numerous examples of commitments towards corporate citizenship. Many of them involve not only the private sector, but also the public sector and civil society organizations.

v     The Global Compact was proposed by the outgoing UN Secretary General, Kofi Annan, at Davos in January 1999. He called on business leaders to embrace and enact within their own corporate activities nine core principles derived from universally accepted agreements on human rights, labour and the environment. Today the Global Compact brings together several hundred companies, with some of the world’s leading trade union bodies, human rights and environmental organizations in a global learning forum, policy dialogues and variety of development projects. Companies engage in the initiative through the written support of their CEOs.

v     Tackling global health issues: The World Economic Forum Global Health Initiative (GHI) is designed to foster greater private sector engagement in the global battle against HIV/AIDS, tuberculosis and malaria. In cooperation with the World Health Organization and UNAIDS, the GHI brings together businesses, NGOs, civil

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