Corporate Social Responsibility (CSR) is the concept that that a corporation’s responsibilities include other stakeholders and includes other responsibilities above and beyond a return for shareholders. These responsibilities include legal, ethical and philanthropic responsibilities in addition to economic responsibilities (Trevino and Nelson, 2005, p. 31). Other stakeholders could include employees, suppliers, the customers, the community and others. Types of responsibilities the corporation may hold beyond a return for shareholders could include, protecting and or improving the environment where the company operates, improving conditions for the community where the company resides, etc…

Corporate Governance refers the way in which the corporation governs itself. Governance includes the way the company reports earnings, pays Directors, etc… Recognizing that improper governance can have huge consequences for employees and shareholders, the government requires corporations to follow Corporate Governance laws and guidelines that are designed to reduce the risk of fraud, and financial ruins such as those that caused the demise of corporations like Enron, WorldCom and Global Crossing.

Solid Corporate Governance that protects investors and employees from accounting fraud, conflict of interest, etc., can be seen as a part of any company that is acting socially responsible. Because a CSR company is acting in a way above and beyond what is required of it by law to protect stakeholders in the company, solid Corporate Governance of a CSR oriented company could be viewed as a way in which the company can ensure that the interests of many directly related and dependent on the company can be protected, including; employees, customers, the communities that depend on tax revenues and employment, etc… Solid Corporate Governance can be seen as an essential first step of any CSR oriented company. Without it, it risks conflict of interest of its board members, CEO, uncertain financial and accounting practices and other risks which could have devastating negative impacts on all stakeholders. For example, Enron’s collapse due to failure of Corporate Governance to prevent fraud and deceit hurt thousands of employees, the community of Houston, where most employees lived, the tax revenues that supported public works, the effect on families and couples who lost retirement savings, health insurance coverage, etc… In fact, before Enron’s accounting fraud became known, many would have considered Enron a solid socially responsible citizen because of its much recognized funding of museums, hospitals and many other organizations in the community where they operated (p. 163). However, all the communities would have been better off in the long run, if Enron had never contributed a dime to these social responsible activities, but had rather provided solid Corporate Governance over its internal operations. If Enron had done this, thousands would not have lost jobs, communities would have maintained higher tax revenues, retirements would have been more secured for thousands, health insurance would have been secured by many more, returns would have been higher for investors and shareholders, etc…

Corporate Governance should be seen as a top priority of any company seeking to be a good corporate citizen. More good can be done by a company ensuring solid corporate governance, than other activates usually seen as important for Socially Conscious organizations. Furthermore, more pressure should be exerted on organizations to establish good social governance than should be exerted on companies to sponsor other socially responsible activities and stakeholders in communities, the press, the government, etc., should also recognize and applaud companies who may put more effort on Corporate Governance although they may lack other social activities. Governance should be seen ad rewarded as the top priority.

References:

Trevino, L., and Nelson, K., (2005). Corporate social responsibility and managerial ethics. Hoboken, NJ: John Wiley and Sons, Inc.

Since founding Magnify Leadership and Development, James has developed, facilitated and coached programs including; Change Leadership, Coaching, Communication Skills, Sustaining Learning, Interviewing Skills, Leadership, Territory Management for dozens of leading global organizations; including, Advantis Research and Consulting, IMS, CMOE, Pfizer, Sinclair, Disetronic Medical Systems, StratX, ASTD, Coventry Health Care, Wilson Learning, and many others. James is bilingual and can facilitate and coach in both English and Spanish.

Prior to founding Magnify Leadership and Development, James headed Pfizer’s Learning and Development for all of Europe, Canada, Africa and the Middle East where he was instrumental in the development of a global management curriculum and other training initiatives to enhance organizational effectiveness for over 30,00 employees.

Visit James website to learn how we can you with your leadership and communication development needs.

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Tags: business, work, economic, ethics, public

We all welcomed the campaign to address poverty in Africa and Tony Blair’s commitment to it. When it was launched, the emphasis was on reducing debt and increasing aid from the rich Western nations. The priorities stated were to tackle disease, especially aids, and to generate economic activity.

At the time Blair retired, after 10 years as prime minister, progress in terms of contributions from the West had been extremely disappointing. The debt issue has been addressed in only 25% of the countries where relief is needed, and the aid contribution (separate from debt relief) from the rich Western nations to African countries has actually fallen.

Today, much more is being done by China, while India is becoming increasingly involved. A key factor is that, unlike Western finance, the aid from China comes without strings. Because the Chinese are happy enough with the trade which flows from their involvement, they make little effort to impose their culture on the recipient countries.

Self-Defeating Conditions

Apart from its inadequate volume, aid from the Europe and the USA has limited impact because of the conditions imposed with grants; notable by the USA and the UK. An obvious absurdity is the ‘no abortion’ condition imposed by the Bush administration on grants to tackle aids. (Fortunately, this condition is not applied to some of the grants from the USA non government sector – for example, the Gates Foundation.)

A second restriction, more generally applied – especially by the UK – is the insistence on privatisation. The failure, in terms of value for money for the public, of Thatcher, Major and Blair governments’ private finance initiatives (PFIs) does not appear to have dampened the enthusiasm for applying them to other countries.

In some African countries this has resulted in people becoming worse off than before the aid was granted. An obvious example is an increase in the cost of water as a result of privatisation. As with most privatisation, what appeared to be a short-term benefit has been more than wiped out by longer-term disadvantage.

What Must Change?

So the first change must be to remove the privatisation requirement. It is recognised, of course, that private firms which have succeeded in developing countries have valuable expertise. However, this should be used in the context of public control; control on behalf of indigenous people by leaders democratically elected to represent them. Although it has to be accepted that private firms exist to act in their own interests, as their obligations to shareholders require, they must recognise that their interests are not the priority with grant-aided projects. The most they should expect is a reasonable, commercially calculated, return.

Second, steps must be taken to ensure that a much smaller proportion of aid is devoured by consultants in the donor countries. These consultants are often involved in negotiating the grants: some are paid more for a week’s work than an African’s annual income. And, too often, the focus is on the trade benefits to the donor nations, rather than on the needs of the recipients.

Unless radical, and urgent, changes are made, the West will continue to lose influence in Africa. Europe and the USA will not be able to compete with China and India, or other emerging powers such as Venezuela, if they persists with trading agreements and arrangements which favour the rich nations.

A New Strategy

In terms of strategy, the most urgent change is to shift the emphasis to job creation; integrated with education and training. For the longer-term, literacy and social and political education is as necessary as training in the skills required by the jobs directly related to the projects. Too often the requirement (in the conditions imposed with the grants) to complete projects in a specified period ignores the issue of permanent benefit.

The key to bringing about real improvement for the poor is to ensure that investment is used to release the resources that the countries already have. The most important resource is the expertise that people have acquired from their life experiences. Millions of Africans have to be entrepreneurs to make enough money merely to survive: many who fail in this respect are no longer of this world.

Those who are still with us have gained valuable knowledge about the obstacles to success in their environments – and have devised strategies to overcome them. It is the habit of the West to seek to impose its own structures, rather than support the recipient countries’ own organisations. A typical example was when Blair set up his African Commission, instead of supporting an African initiative: the recently formed New Partnership for Africa’s Development.

Another valuable resource is, of course, the fund of knowledge accumulated by businesses which have figured out how to succeed in difficult trading circumstances. In being able to turn a profit, such enterprises have acquired valuable insights into the varying operation of markets in different countries.

Although private companies are entitled to a reasonable return for their contributions to projects, they must recognise that the projects are not run for their benefit. Thee needs of the recipients are paramount but, as the Chinese have recognised, benefits flow without the imposition of strict conditions.

In other words the focus must be on the longer-term benefits which can occur only with the involvement, on an equal basis, of the people themselves. Providing the approach is to integrate education and training with economic development, this can lead to the evolution of processes for democratic participation.

Ending Waste and Corruption

These changes would make a major contribution to ending waste and corruption. Although these are usually highlighted as problems in developing countries, they apply at least as much to agents operating on behalf of the donors. In how many cases have individuals and businesses from the donor countries become more prosperous as a result of their involvement, but have left the recipient countries poorer?

Paul Wolfowitz, the leader of the World Bank who is no longer with us, identified tackling corruption as his priority. His demise resulted from focusing on corruption in the developing world, while ignoring it closer, much closer, to home. From his words and actions, it could be concluded that he believed that the same standards should not be applied to the rich in the West as to the poor in developing countries.

The assumption in the West that the main, or in some circles entire, problem is with the developing countries is not sustainable. This is not to argue that they do not have problems of corruption, but to quote John Christenson (The Guardian 30/5/07):

‘For each dollar of aid that goes into Africa, at least

Five dollars flows out under the table.’

Keith Wymer

July 2007