Mendoza School of Business

Globalisation and the business case for corporate social responsibility

Published: August 20, 2008 / Author: Rev. Management

Take one look at the smog that hangs over the Olympic host city Beijing and it becomes abundantly clear – globalisation and economic expansion come at a price. Resource depletion, worker exploitation, pollution and corruption – this is the dark underbelly of globalisation that has raised alarm bells around the world.

Thankfully, more and more individuals and organisations are waking up to the social, environmental and ethical costs of a global marketplace and are making a sound business case for a new era of moral capitalism.

Leading the way in this regard is the United Nations with its groundbreaking Global Compact initiative. Launched in 2000, the Global Compact now has more than 5600 participants – including 4300 businesses in 120 countries around the world – making it the world’s largest voluntary corporate social responsibility project.

The Global Compact is effectively trying to encourage multinational corporations and all companies around the world to conduct their business ethically and responsibly – with respect for human rights, labour rights, the environment and a commitment to fighting corruption.

These ideals are outlined within ten key Principles that signatories of the Compact make a commitment to upholding. Every company that signs up is invited to make a clear statement of support and must include some references in its annual report (or other public documents) on the progress it is making on internalising the Principles of the Compact. Those who fail to submit a report within two years of becoming a signatory are delisted and effectively named and shamed in the public domain. As of June 2008 the number of de-listed companies stood at 630.

Critics of the Global Compact maintain that such a voluntary project – with no enforcement mechanism – and no real sanctions for those who do not comply can do little to influence the behaviour of companies who act irresponsibly in the name of profit-making.

However, without any ‘world government’ or hard international law to enforce ethical business practice, few alternatives exist.

In this light, the Global Compact can be seen as the first step on the ladder towards a responsible brand of capitalism. It is by no means a foolproof solution, but it does represent the beginnings of a paradigm shift in which “soft” trans-national law is gradually complementing and completing “hard” national law.

Interestingly, the impetus for this shift comes not from national political discussion but from businesses who are concerned and from the work of NGOs who are critical of globalisation and who research and lobby in the worldwide society for collective action across national borders. At the base of this paradigm shift is a fundamental concern to retrieve the moral purpose of business.

The current state of the global economy and the planet mean this is a concern that cannot be taken lightly. In recent years the media has frequently reported on companies who exploit the lax legislative laws in developing nations needing to attract foreign investment. Cases in point include the regular dumping of toxic e-waste in Ghana and elsewhere by the developed world, the exploitation of child workers in the Indian textile industry and the destruction of African rain forests to fuel China’s booming manufacturing industry, to name a few.

In a globalised world, even where nation-states are willing or able to regulate these actions they are often reluctant to do so for fear of losing new investment to nations with less stringent regulations. This so-called ‘race to the bottom’ is unfortunately a fact of life in developing countries – and critics of globalisation are adamant that the citizens and resources of such nations cannot be left vulnerable to the forces of supply and demand.

But moral reasons aside – does a business case exist for a more ethical strain of capitalism?

According to the Global Compact, yes there is. The Compact maintains that responsible business practices not only contribute to the well-being of stakeholders, they have increasingly become a long-term value proposition for business itself. It makes business sense for companies to invest in creating a sound environment in which to do business, to minimise risks and to harness new business opportunities by supporting developing and emerging markets.

Consumers too are starting to change the way business operates. The largest-ever survey on global public opinion about the changing role of companies – The Millennium Poll on Corporate Social Responsibility – conducted in 1999, showed clear evidence that citizens around the world are judging corporations and their actions more closely – and then voting at the till.

The survey showed that “one in five consumers report either rewarding or punishing companies in the past year based on their perceived social performance, and almost as many again have considered doing so.” The same poll says that “two in three citizens want companies to go beyond their historical role of making a profit – they want companies to contribute to broader societal goals as well.” It is quite probable that almost a decade later these numbers are likely to be much higher today.

The flipside of globalisation together with the expansion of the Internet means that more knowledge – and with that power – rests with ordinary citizens than ever before. Companies increasingly have to consider their reputation capital in the marketplace and protect their brand by ensuring their operations are beyond reproach. This has been seen particularly in the apparel industry where consumers have put pressure on sports clothing giants Nike and bargain clothing retailer Primark (UK) to review the conditions in their factories, stop child labour
and pay a living wage.

Furthermore, creating sustainable value in a company by attending to environmental, social and governance performance is increasingly being rewarded by the international investment community – and thus increases the business case for corporate social responsibility.

So while the Global Compact may not have the sanctions that critics of globalisation are looking for, it is at least giving the public a platform from which to judge companies and their actions. As climate change and other pressing social issues continue to get prominence in the media, the public is likely to continue to push companies towards sustainable business models and it is this pressure, coupled with the moral imperatives for change, which will usher in a new era of responsible capitalism in the years ahead.

Oliver Williams is the Director of the Center for Ethics and Religious Values and Associate Professor of Management and a director of the United Nations Global Compact Foundation and Visiting Professor at the University of Cape Town’s Graduate School of Business.



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