Ethics is not something novel for people in business. Nevertheless, until recently, accountability for setting standards for the manner of business and certifying that economic wealth was impartially shared was assumed by governments acting individually or collectively through international institutions. This distribution of responsibilities, however, is speedily changing under the influences of globalization.
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This paper scrutinizes these developments. It looks at altering definitions of corporate social responsibility and the emergence of codes of ethics and their function in defining and delivering those responsibilities. It identifies a number of factors that are driving these changes. With the advance of globalization, the outlook that the solitary responsibility of corporations is to earn profits for their shareholders is increasingly hard to uphold. The eradication of corruption, respect for human rights, tolerable working conditions for labour, and healthy local communities are all stimulants to economic growth and development.
Definition of Corporate Social Responsibility
A good working definition can be found in a Conference Board of Canada document entitled Corporate Social Responsibility: Turning Words into Action (1999): “Corporate social responsibility is the overall relationship of the corporation with all of its stakeholders. These include customers, employees, communities, owners/investors, government, suppliers and competitors. Elements of social responsibility include investment in community outreach, employee relations, creation and maintenance of employment, environmental responsibility, human rights and financial performance.”
The suggestion that business should be conducted ethically is not a new one. Nor is the idea that business should be performed in socially responsible ways. For most of the last century, however, conscientiousness for setting values for the conduct of business and ensuring that economic wealth was shared in some manner across all segments of society was supposed by governments acting individually or cooperatively. In the industrialized countries of Western Europe and North America, democratically elected governments have protected human rights in law.
Welfare safety nets have been put in place to shelter people from the worst effects of unemployment, and measures to defend standards of public health have been instituted. Acting collectively through international institutions like the United Nations and the International Labour Organization, governments around the world have set international human and labour rights standards declared as having worldwide applicability.
By assuming primary accountability for social concerns and environmental standards, governments left businesses free to focus concentration on the generation of goods and services and the maximization of returns. Not surprisingly, this allotment of responsibilities has had noteworthy implications for the apparent role of business ethics and corporate social responsibility. It has tended to hearten corporations to define their social and ethical responsibilities scarcely.
Where ethics is concerned, the business has tended to focus on values important to the conduct of business, namely integrity in financial transactions, value for company property, prevention of conflicts of interest, the honouring of contractual obligations, and respect for the law basic rules of courtesy. For the most part, companies that have gone beyond these rather constricted limits have done so for clearly defined public relations purposes. This slender focus has resulted in corporate codes of ethics fashioned with a vision primarily to protect the firm from the unethical behaviour of its employees.
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In the industrialized democracies of the West, this approach to ethics has, until quite lately, not produced grave concerns. People in other parts of the world have fared less well. In developing countries, the proposal that the primary purpose of business was to enrich owners and shareholders has provided companies and their managers with a rationalization for not getting drawn in broader social issues touching on human rights or working conditions, or the quality of life of people in the communities in which they generated their profits.
Ethics in Business
Progressively, top companies are defining their social responsibilities by orientation to their shareholders, but also to their other stakeholders. This, in turn, has pressed companies moving in this direction to define their values and put them into action. To accomplish this task, many corporations have bowed to value statements and codes of ethics. A code of ethics for a corporation is a complex statement that does four things for its directors, managers and employees to govern themselves:
- Firstly it identifies as clearly and concisely as possible the mission or guiding purpose of the organization.
- Secondly, it sets out the core values essential to achieving its mission.
- Thirdly it sets out the principles that are to be respected in all interactions with stakeholders, that is to say, its shareholders, clients or customers, employees and pensioners, suppliers, the local communities in which it does business and others affected by what it does.
- Finally, it sets out rules that are designed to ensure that the principles and values are put into action.
While codes of ethics that have some or all of these characteristics are now quite common, research and experience indicate that they are not enough. What else is then necessary?
Creating a code and failing to take steps compulsory to ensure that the code is treasured can actually encourage unethical and irresponsible conduct. Successful implementation requires a company-wide implementation strategy planned to guarantee that ethical commitments are met all through a company’s operations. This means:
- Effective communication: People cannot respond to an ethics code they do not know or understand. Neither are they likely to take seriously a code that is not publicly and frequently endorsed by senior management, particularly the CEO or a code created without their participation and involvement.
- Education and training: Education and training sessions give employees at all levels an opportunity to examine typical applications of the code in their particular areas of responsibility and explore the application of the code where the right answer is less than obvious and straightforward.
- Penalties for non-compliance and rewards for exemplary conduct: If the code is not enforced, it is unlikely to be respected. Penalties that respond to the seriousness of a breach of the code signal commitment to code implementation. Rewarding those who respect the code is also an effective way to communicate a company’s commitment to building an ethical corporate culture.
- Confidential counselling and reporting: Surveys of employees show that one of the most difficult challenges in building an ethical corporate culture is persuading employees that reporting problems or seeking advice on ethical issues will not result in criticism, censure or punishment. A system that allows employees to communicate concerns with a view either to reporting unethical conduct or seeking out advice in a difficult situation is, therefore, an important component of any ethics program. Equally important is feedback from the company detailing how it has dealt with concerns communicated confidentially.
- Internal monitoring: Like every aspect of effective management, systematically monitoring the success in implementing the ethics code is important. Consistent, effective monitoring can provide valuable quality control information and alert a company to problems before they become serious.
- Independent ethics and social audits: A final and emerging component of ethics programs, independent ethics audits will be used increasingly to assist management in determining how effectively their ethics code is being implemented and to give credibility to the claims that a company is committed to being a good corporate citizen. In the absence of independent, third-party audits, claims that a corporation is taking its social responsibilities seriously may well be greeted with public scepticism.
Ethics programs with these components can have a significant positive impact on the way companies are viewed both internally by their employees and externally by the public at large. Ethical management impacts employee morale positively. It attracts highly qualified and well-motivated recruits at all levels of operations. It strengthens relations with stakeholders by opening doors to cooperation and dialogue. It can also have a positive impact on share values. Conversely, companies are gradually coming to the realization that unethical behaviour can be financially very costly. It generates stress at all levels of management. It is an open invitation for government regulation. It can damage a company’s reputation overnight, and it undermines internal control.
Two examples of major multinational corporations that are actively engaged in building effective ethics programs are General Electric and Shell.
Why CSR is important
Advantages of CSR
Benefits to companies
- More productive workers.
- Greater employee loyalty.
- Higher customer satisfaction.
- Improved company’s image and reputation, conducive to higher sales.
- Fewer litigation costs.
- Less volatile stocks.
Benefits to the communities
- Reinforcement of fundamental rights (health, education, labour rights, etc.).
- Contribution to the development.
- Improvement of the environment.
This private sector/civil society corporate social responsibility and partnership model is now being explored by corporations in manufacturing, resource extraction and retailing around the world. It may well be of value in building capacity on the part of the voluntary sector to monitor corporate conduct and raise public awareness and the public profile of efforts aimed at raising standards of business conduct. These positive trends are new and emerging and thus need to be encouraged. It is unrealistic to assume that all countries and businesses in Latin America and the
The Caribbean will embrace corporate social responsibility rapidly. There will be exceptions, and there will be setbacks. But the political signals that leaders can send to foster good corporate governance are vital, and many look to the Summit of the Americas to set the hemisphere on the long-overdue path of socially and environmentally responsible corporate behaviour.
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