Abstract of

Neither Cyclical Nor Optional: The CSR Mandate in Good Times and Bad

Does the global economic crisis alleviate the need for multinational corporations (MNCs) to engage in discretionary community based activities of a proactive nature? One might argue that hard economic times should lower the standards by which socially responsible corporations are judged. Corporate Social Responsibility (CSR) implies taking into account non- economic stakeholders and the impact of a corporation’s operations on these stakeholders who are neither investors in a firm nor workers in its employ. Moreover, many community stakeholders are not even consumers of the products or services offered by corporations operating in their midst. At a time when corporate resources are tight, might it not be corporate irresponsibility for a corporation to spread itself thin by placing the interests, needs, and desires of all stakeholder groups on an equal footing? Nonetheless, taking account of the needs of a broad range of community stakeholders is integral to the CSR concept, so much so that the emerging standard for measuring good corporate citizenship is a firm’s demonstrable commitment to global ethical codes (e.g., the Global Compact) and to multiple stakeholder accounting (MSA). This paper analyzes the interaction of CSR, MSA, and good corporate citizenship and argues that these interrelated concepts merge to make CSR a permanent fixture in the global economy, one that is neither cyclical nor optional. It reaches the conclusion that the global recession will be neither a boon nor a bane for the CSR movement because CSR is not a question of economics; it is instead a moral mandate of the global age, one that has been made irreversible by the emergence of a global civil society.

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NEITHER CYCLICAL NOR OPTIONAL: The CSR Mandate in Good Times and Bad

Academy of Business ResearchSpring International Conference

New Orleans, Louisiana March 14 – 16, 2012

Gwen Alexis, Ph.D. , J.D.Associate Professor

Leon Hess Business SchoolMonmouth University

W. Long Branch, NJ

galexis@monmouth.edu

Bad Times for Business

The financial crisis that started with the credit crisis in 2008 has reverberated around the globe, reaching a crescendo in the current global economic crisis.

This epic downturn has spread like a firestorm touching all aspects of business

Do Hard Times justify lowering CSR standards?

Corporate Social Responsibility (CSR)• Corporate Social Responsibility (CSR) entails taking

into account the impact of a corporation’s operations on all stakeholders with an interest in or who are affected by its operations.

Economic Stakeholders Non-Economic Stakeholders

However, is putting all stakeholders on an equal footing when times are tight a sign of Corporate Irresponsibility?

“There is one and only one social responsibility of business – to use its resources and engage in activities to increase its profits so long as it stays within the rules of the game.”

… Milton Friedman (1962)

The Rules of the Game have Changed!

• Government has intervened with laws, regulations, and regulators that make it perilous for business to ignore certain stakeholders and, in fact, alters the relationship of the publicly traded corporation (PTC) with the investor --long deemed by the boards of PTCs to be the “primary” stakeholder.

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The Role of the U.S. Government in Environmental Issues

National Environmental Policy Act (NEPA) of 1970 was first major entrance of U.S. government into environmental issues. Accomplished two things:1. Established broad policy goals aimed at

preventing or eliminating damage to the environment and biosphere

2. Created the Environmental Protection Agency (EPA), an independent agency that administers three categories of federal environmental laws Air – Clean Air Act (CAA) most important.

Authority for EPA to attack Global Warming by enacting greenhouse gas emissions regulations

Water Land

EPA Declares Greenhouse Gases a Danger Controversial Formal Label Opens Door to New Emissions Regulations for

Power Plants, Refiners, Smelters in addition to automobile manufacturers

• by Ian Talley, Wall Street Journal Online (12/11/09):

THE "ENDANGERMENT FINDING" ANNOUNCED BY EPA ADMINISTRATOR LISA JACKSON IS NECESSARY TO MOVE AHEAD ON NEW EMISSIONS STANDARDS FOR CARS …. MADE UNDER THE CLEAN AIR ACT, IT ALSO OPENS UP LARGE EMITTERS SUCH AS POWER PLANTS, OIL REFINERIES, CHEMICAL PLANTS AND METAL SMELTERS TO REGULATIONS THAT LIMIT THEIR OUTPUT OF CARBON DIOXIDE AND OTHER GASES.

However, EPA Rule on cross-state emissions to take effect Jan 1 2012 stayed by US Appeals Court in response to request by electric power producers et al. (whose position was that 6 months was insufficient time to begin reducing emissions of sulfur dioxide and nitrogen oxide).

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Particulate Matter

The elderly, children, and asthmatics are particularly susceptible to health problems caused by breathing fine particles.

Individuals with pre-existing heart or lung disease are also at an increased risk of health problems due to particle pollution.

EPA also administers Water Quality and Land-Related Legislation

Water quality legislation Clean Water Act

Land-related legislation Toxic Substances Control Act Superfund (Comprehensive Environmental Response,

Compensation, and Liability Act of 1980)

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Government Protection of Consumers

Important Regulatory bodies protecting consumers• Federal Trade Commission• Consumer Product Safety Commission• Food and Drug Administration• Food and Health Administration• National Transportation Safety Board• National Highway Traffic Safety Administration (NHTSA)Important Consumer Legislation• Dodd-Frank Wall Street Reform and Consumer Protection Act( 2010)• Warranty Act of 1975• Clayton Antitrust Act of 1914

– prevents price discrimination favoring certain buyers– prevents agreements whereunder company will only sell to suppliers who

agree not to carry the products of competitors• Consumer Product Safety Act of 1972

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Government Protection of Employees

Important Legislation• Occupational Safety and Health Act (OSHA)

– Workplace Safety (only applicable to U.S. workplaces)• National Labor Relations Act (NLRA)

– Labor/Management Relations; i.e., right of labor to organize into unions (NLRA does not stop Coca-Cola from union-busting activities in its plants in Turkey)

• Fair Labor Standards Act (FLSA)– Contains federal Child Labor Laws (FLSA does not affect outsourced production facilities

where children may be found working under sweatshop conditions)• American with Disabilities Act (ADA) of 1990 - no discrimination based on physical or

mental disabilities• Civil Rights Act of 1964 - Titles VII and IX, in particular• Equal Pay Act of 1963 - same pay for men and women doing same jobImportant Regulatory Agencies• Equal Employment Opportunity Commission• Occupational Safety and Health Administration• National Labor Relations Board

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• U. S. Securities Act of 1933 (“Securities Act”)Mandatory registration of stocks being offered to the public

• U.S. Securities and Exchange Act of 1934 (“Exchange Act”) Created U.S. Securities and Exchange Commission (S.E.C.),

which is main regulatory agency where securities markets are concerned

Requires publicly traded companies to file periodic financial reports with SEC and post on company website

• Sarbanes -Oxley Act of 2002 (SARBOX)Increased Transparency and Accountability of BusinessProtection for Whistle-blowers

Government Protection of Investors(Transparency, Disclosure, Accountability)

Annual Report

Hence, Business has no choice other than to be mindful of all stakeholders!

Multinational Corporations (MNCs)

• MNCs face the additional problem of foreignness and hence need to establish and maintain legitimacy in today’s global marketplace– Must evince a demonstrable commitment to global

ethical codes• Held accountable to multiple stakeholders on both the

domestic front and abroad– CSR is “good corporate citizenship” and imbues the

MNC that engages in CSR with credibility• CSR allows MNC to amass moral capital in communities

and societies in which it operates

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Global Ethical NormsVarious stakeholders in the corporate enterprise are advancing a global CSR agenda for the multinational corporation (MNC).

Global Institutions cultivating global ethical norms for business

United Nations Environmental Programme Initiatives (Global Compact)International Organization for Standardization (ISO 14000, et al.)CERES (“Valdez Principles”)

Transnational Environmental Activists (“Global Civil Society”)

Alien Tort Claims Act (“ATCA”)“Green “ consumers, employees, and investors

Green Business Opportunities

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UN Environmental Programme (UNEP)

UNEP Initiatives Montreal Protocol – universally ratified treaty (as of 2009) to phase out use of CFC’s,

harmful chemicals that resulted in hole in the ozone layer (leading to skin cancer and cataracts) Global Compact – under which MNCs hailing from around the globe agree to subscribe to

10 universal principles, 3 of which involve environmental issues Global Reporting Initiative (GRI) – GRI developed the most widely used sustainability

reporting framework in the world, and entails measuring and reporting on 3 areas of performance: EconomicEnvironmental SocialAKA Triple Bottom Line (TBL) Reporting

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Unlike the U.S. which has strong laws and a legal system that allows special interest groups easy access to courts and regulatory agencies to fight environmental pollution, Less Developed Nations (LDNs) are likely to have weak environmental laws and feeble enforcement of the laws that do exist.

– “Many of the people and communities left behind by the development and globalization projects look to nongovernmental organizations (NGOs), rather than to states or international agencies, to represent them and to meet their needs. Indeed, we are currently in a phase of 'NGOization,' in that national governments and international institutions have lost much of their legitimacy, and NGOs take considerable initiative in guiding grassroots development activities.”

..... Philip McMichael, Development and Social Change

The NGOization of the global public policy arena

Transnational NGOs as “Global Civil Society”

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An Emerging Global Civil Society? A consortium of 53 transnational environmentalist NGOs filed suit against the U.S. Environmental Protection Agency to get it to take regulatory action to halt marine pollution by cruise ships.

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Alien Tort Claims Act (ATCA)28 U.S.C. §1350

“The district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.”

Filártiga v. Peña-Irala, 630 F.2d 876 (2nd Cir. 1980) - Paraguayan victim of torture and murder. Suit filed by NGO consortium on behalf of surviving relatives.

Using an 18th Century Law to Express Global Moral Outrage

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3 Jurisdictional Requirements of ATCA Lawsuit

1. An alien plaintiff (filed by NGO in name of plaintiff)2. Victim of a tort (civil wrong or injury)3. Violation of a law of nations– UN Declaration of Human Rights– UN Declaration on Environment and Development– Montreal Protocol (reduce CFCs)– UN Convention on the Law of the Sea (UNCLOS)

– Sarei v. Rio Tinto, PLC, 456 F.3d 1069 (9th Cir. 2006)– Declaration of the UN Conference on the Human

Environment

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Center for Constitutional Rights(CCR)

NGOs find the Alien Tort Claims Act (ATCA) to be a useful tool in fulfilling their missions.

CCR is dedicated to advancing UN Universal Declaration of Human Rights and U.S. Constitution

ILO is dedicated to bringing decent work and livelihoods, job-related security and better living standards to the people of both poor and rich countries.

“ATCA provides remedies for earth rights abuses around the world.”

EarthRights International (ERI) has filed amicus briefs with CCR, ILO and the EarthJustice Legal Defense Fund .

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Business EnvironmentalismFrom NIMBY to Business Opportunity

• Business used to view the environment as an externality; hence no attention was paid to the environmental damage caused by business operations

• However, Environmental Performance and Financial Performance are not mutually exclusive− Cost/Benefit Analysis or Strategic CSR (being a good

environmental steward can enhance the bottom line) Today, Business is paying attention to the Business Opportunities in

Green Business

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Going “Green”: A Smart Business Strategy

Green consumers• Actual and potential customers of retail who express

preferences for products, services, and companies that are perceived to be more environment friendly than competitors.

Green employees• Employees play a major role in promoting environmentalism

at work.

Green investors• A growing number of mutual funds, stock and bond

offerings, money market funds, and other financial instruments have included environmental components.

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Global Public Goods

Kenneth Chenault (CEO, AmEx) emphasizes the “social compact” in which society permits the corporation to exist because it contributes to the “common good”:

A socially responsible company strives to meet a standard that’s higher than the bottom line.... We must remember that corporations exist because society says they can — and society assumes that we’ll contribute to the common good. That’s the bargain we strike. The social compact (Chenault, Commentary 2006)

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• Most MNCs are already on board with Chenault’s analogy of a social compact via the UN Global Compact. The Compact asks business to adhere to 10 principles or core values in the following 4 areas:– Human Rights– Labor Standards– Environmental Protection– Anti-Corruption

• This is built-in CSR – mandated by the Global Compact – and cannot be expected to waver merely because of hard economic times.

Global Public Goods

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• Duane Windsor (Doing Well and Good…, 2009) notes that “social compact” theory is now going global. – European Union definition of CSR: “going beyond

minimum legal requirements and obligations stemming from collective agreements”

Global Public Goods, cont’d.

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The End!

• Questions? Comments?