Big Business and Inclusive - PowerPoint Presentation

Slide1

Big

Business and Inclusive

Development: Changing Roles and PerceptionsPeter UttingUnited Nations Research Institute for Social Development (UNRISD)ESRC Research Seminar Series, “Changing Cultures of Competitiveness”Institute for Advanced Studies, Lancaster University17 April 2009Slide2

Purpose of presentation

1.To examine the changing roles of business in growth models and policy regimes conducive to inclusive development2.To assess the potential and limits of CSR from the perspective of inclusive development

3.To highlight the importance of multi-disciplinarity for understanding the potential and limits of CSRSlide3

Key questions to be addressed

- What worked historically?Why did CSR emerge?What interests, institutions and ideational factors are driving the agenda?

What has happened in practice?What gets left off the agenda? And why?What sort of development model does CSR really support?What might be done differently? Slide4

What worked historically?

Under what conditions did large corporations play aconstructive role in growth models and policy

regimes conducive to inclusive development ?What worked in the late industrializers (Nordics & East Asia) and Fordist/New Deal USA?-- certain sets of business preferences-- certain types of state-market and power relations-- certain forms of collaborative institutionsAlbeit significant variations under different Varieties ofCapitalism and Welfare State or Policy RegimesSlide5

Business preferences

- company support for education & training, healthy workforce, decent wages, related for example to the need for skilled labour, to reduce absenteeism/rise productivity, to expand consumer markets

- ISI/protectionism mitigate low wage preferences - production centred in TNC affiliates (rather than out-sourcing) - managerial ‘long-termism” (concern with value creation over the long term)Slide6

Power relations

- presence of countervailing forces; balance of social forces (e.g. strong state, strong labour); relative decline in corporate power (during depression and WWII)

- developmental states (with vision, regulatory and administrative capacity) - contestation; social movement activismSlide7

Collaborative Institutions

- social pacts: “CSR” (e.g. good working conditions, life-long employment, healthcare, fiscal responsibility, philanthropy) as part of a bargain/compromise in return for pro-business & pro market incentives (e.g. industrial policy, minimalist regulation)

- embedded elites, which identified with the community & their workforce (through direct production); (Gramscian) hegemony (discursive power of business elites) - encompassing business associations, representing broad range of private sector interests, including SMEs - stakeholder consultation/dialogue; collective bargainingSlide8

Globalization and Liberalization

Fundamental changes occur in business preferences, power relations and collaborative institutionsStylized facts & perceptions (albeit with variations by VoC and policy regime):

- “rolling back” of certain state functions; rise of the “competition state” & ”New Constitutionalism” - deterritorialized capital versus territorially constrained states - global penetration of TNCs & growing structural, instrumental and discursive power of big business - unravelling of corporatist social pacts - weakening of countervailing forces (state and labour) - nature of social movements/civil society and activism changes with rise of NGOs & the information revolution - importance of “knowledge”, knowledge networks, “epistemic authority” i.e. decision-making based on expert technical opinion - business preferences change (e.g. focus on skills & higher education; increased international competition puts pressure on firms to cut costs/wages; race to the bottom) - “disembedding” of elites through some forms of FDI, global supply chains and sub-contracting & flexibilization of labour markets - short-termism: quarterly results, prioritization of shareholder interests and CEO remuneration. Slide9

Tensions in the contemporary model of “corporate capitalism”

Heightened reality or perception of externalities: environmental degradation, “race to the bottom”, tax avoidance/evasion & bribery; global corporations seen to be implicated in global injusticeMoral issues surface as corporate rights far outpace corporate responsibilities; as rich get richer; and global corporations penetrate poor countries & communities

Rise of activist protests and campaigns in 1980s/90s:Oil spills (Exxon), pesticides (Union Carbide), human rights abuses (Shell), indigenous peoples (Rio Tinto), sweatshops (Nike), infant feeding (Nestle), deforestation (McDonalds), GMOs (Monsanto)Increased risk, complexity and uncertainty for large firmsVulnerability of large corporations that rely on brands and company or product imageAs a result:TNCs need to better manage risks and reputationTNCs need to control their supply chainsTNCs need to control the activists & regulatory pressuresCSR becomes a crucial element in this strategySlide10

The Rise & Institutionalization of CSR

- CSR takes off internationally in early 1990s (Earth Summit) & is backed by powerful actors, institutions and ideas: - Emergence of a CSR “movement”, involving global corporations, business associations, NGOs, academia (management studies, IR, development studies), international organizations, and (belatedly) trade unions and government.

- CSR becomes institutionalized via CSR consultancy industry, MBA curricula, multi-stakeholder initiatives (e.g. UN Global Compact, ISO, ETI, SA8000, Global Reporting Initiative, etc., and international soft lawSlide11

Ideational foundations and drivers of CSR

Neoliberalism

Limits of government & “command and control” regulation (inefficiency, rent seekingKey role of private actors & self-regulating markets (corporate self-regulation)Institutional / governance theoryNew institutionalist economics (institutions matter for economic performance) (Douglass North, Oliver Williamson)Embeddedness & embedded liberalism (Karl Polanyi, John Ruggie)Global governance: importance of multilayered and multi-playered governance (Robert Keohane); limits of inter-state relations; importance of non-state actors (business and NGOs) in knowledge networks, “epistemic communities” and private regulationManagement theoryStakeholder theory (Freeman 1984)Win-win (Michael Porter)Organizational theoryNew institutionalism (culture, norms and values within organizations matter (DiMaggio and Powell 1991)Organizational learning to deal with complexity (Peter Senge 1990)Slide12

CSR: What is it?

Multiple definitionsResponsiveness to societal and stakeholder concerns;

Internalization of social and environmental objectives in a “triple-bottom line” (Elkington)Voluntary initiatives that go beyond philanthropy and law“Continuous improvement”Multiple rolesRisk and reputation managementTo enhance legitimacy To control supply chainsTo “do no harm”To fill weaknesses & gaps in global governance and regulatory systemsTo gain influence in public opinion & public policy, & in regulatory arenas (private regulation)Slide13

An Expanding CSR Agenda

Eco-efficiency & environmental protectionOccupational health and safetyChild labour

Community assistance (“corporate social investment” – health and education; differential pricing (e.g. HIV/AIDS drugs)CSR in the supply chainEthical investmentLabour rightsHuman rightsConflict zonesEthical & Fair tradePoverty reductionSlide14

CSR & the International Poverty Reduction agenda

In context of the post Washington Consensus, poverty reduction re-emerges as a strategic priority in international development circlesreflects slight shift in correlation of forces from IFIs to UNBut also “convergence” in international development thinking and policy, favouring institutional fine-tuning (as opposed to transformative change), voluntary approaches, public private partnerships, private regulation

“Late CSR” takes on board poverty reduction Slide15

The new developmental logic of CSR:

Big business is seen as a proactivedevelopment agent:Providing basic goods and services (e.g. water, cheap/free medicines)

Private standard-settingPublic-private partnerships Directly engaging with the Millennium Development Goals (MDGs)Ethical and fair trade “Bottom of the Pyramid” (Prahalad)Slide16

Potential and Limits of CSR

CSR Balance SheetAfter 2 decades of CSR: research is now shedding light on its impact from a development perspective (Hamman et al.; Blowfield and Frynas; Eade and Sayer; Fig; Barrientos and Smith; Utting & Zammit)

Good awareness-raising tool to get corporations to think more systematically about social, environmental, human rights issues;New financing for development; mobilizes new resources for social and sustainable development through PPPs;Some areas of progress, e.g. child labour, occupational health and safety (OHS), environmental management systems (EMS) in TNC affiliates and top tier suppliers; compliance with minimum wage legislation (Barrientos & Smith – ETI evaluation) CSR fills some normative & institutional gaps, (new standards, disclosure, social audits)Evolves through time (more issues; ratcheting-up of standards, better reporting; « learning by doing »)Slide17

Potential and Limits of CSR

Problem of scalability or limited uptakeOperational weaknesses related to implementationStructural conditions that constrain CSRThe politics of CSRSlide18

Scale

CSR discourse tends to suggest that many/most corporations are engagedReality check:Universe of TNCs: 79,000 (UNCTAD 2008)TNC affiliates: 790,000

TNC suppliers: millionsSlide19

Table 1

Participation in Selected Multi-Stakeholder Initiatives.

2008Multi-stakeholder Initiative

Entities

ISO 14001 Certification

154,572

Global Reporting Initiative

1,500

United Nations Global Compact

4,961

Forest Stewardship Council

7,500

Marine Stewardship Council

38

Partnerships for Sustainable Development

344

SA 8000

1,779

Fair Labor Association

- Participating companies

- Accredited companies

27

11

Ethical Trading Initiative

53

Principles for Responsible Investment

Asset owners

Investment managers

119

216

Extractive Industries Transparency Initiative

39

Source: Official WebsitesSlide20

Variations in response

Study of top 100 Fortune corporations, reveals major differences in approach and commitment to CSR & poverty reduction.

Inactive approach: No explicit statements on poverty. We create jobs and employment (as by-product of profit maximization). Payment of taxes. Affordable products. No code of conduct and/or low compliance likelihood. No support for labels. No separate business model for poor.Reactive approach: Contribution to economic growth. Narrow BOP: mention of market changes in poor regions. Creation of local employment used defensively. Micro-credits as (small) part of philanthrophy. Transfer of technology and knowledge mentioned, but not specified. Vague code and low specificity as regards poverty. Support for Global Compact and modest support for GRI. Dialogue vaguely mentioned Active approach: Explicit statement on moral unacceptability of poverty.Definition of decent wage. Broad BOP: explicit view on how this strategy addresses poverty alleviation (net effect). Creation of local employment opportunities at suppliers. Micro-credits as part of business strategy. Transfer of technology and knowledge is specified. Explicit support for MDG1. Wholehearted support for GRI. Philanthropy is aimed at poverty in general. Specific code and/or labelling on poverty and/or fair trade.Pro-active approach: Strategic statement on poverty. Explicit support for all MDGs (including #8 on partnerships). Active partnerships with NGOs and international organisations on poverty. Very explicit code and support of highest possible transparency (GRI). Transfer of technology and knowledge is specified and discussed for its impact on poverty alleviation. Codes and labelling activities part of a contract with third parties (high specificity and high compliance likelihood). Dialogues as an explicit tool to raise strategic effectiveness. Search for a separate (strategic) business model for the poor.Source: Rob van Tulder 2008Slide21

Varied responses (global corporations)

Fortune 100 corporations, 2006 %; overlap possible

Inactive Re-active Active Pro-activeTotal (N=100) 63 55 33 4Europe (N=52) 48 67 52 8USA (N=30) 77 47 13 0East Asia (N=15) 93 27 7 0Developing (N=3) 33 66 33 0Source. van Tulder 2008Slide22

Operational & Structural limits of CSR

Weaknesses & Blind Spots

- sub-contracting - migrant, casual workers often excluded; - issues of concern to women workers often excluded; - working conditions versus labour rights (freedom of association and collective bargaining) - minimum wages versus “living wage” - “policing” approach to CSR in the supply chain; negative impacts on suppliers and workers in developing countries) - superficial audits - focus on micro (firm level) as opposed to macro (public policy) issues, e.g. lobbying, tax evasion & tax avoidance; - focus on primary and secondary sectors; limited attention to financial sector - weak disclosure & free riding (e.g. company sustainability reporting & UN Global Compact - double standards: suppliers operate in a straight-jacket; talk the talk of CSR and lobby for socially regressive policies or engage in « the race to the bottom »Slide23

Oil Industry

Good Practice (left column) vs. Bad Practice (right column)

BPUNGC, WBSCD, ETI, GGFR, GRI, DJSI, FTSE4Gd, KLD100

Multinational Monitor (2000 ; 2005) ; Public Eye on Davos ( 2005) ATCA (1999)

Chevron Corporation

WBSCD, GGFR

Multinational Monitor ( Chevron: 1992, 1998 ; Texaco1993; Unocal: 1994 1996) ; Public Eye on Davos (Unocal 2005; Chevron 2006) ATCA (1999)

ExxonMobil

EITI, GGFR

Multinational Monitor (Exxon: 1989, 2001; Exxon Mobil: 1997, 2001; Mobil: 1998 ) ; Public Eye on Davos ( 2006) ATCA (1996)

Occidental Petroleum

EITI

ATCA (1999)

Royal Dutch/Shell

UNGC, WBSCD, ETI, GGFR, GRI, DJSI, FTSE4Gd, KLD100

Multinational Monitor (1998, 1995, 2002) ; Public Eye on Davos ( 2005) ATCA (1997)

Statoil

UNGC, WBSCD, ETI, GGFR, GRI DJSI, FTSE4Gd

Total

UNGC, ETI, GGFR, DJSI, FTSE4Gd

Multinational Monitor (Elf: 1997) ; Public Eye on Davos ( 2005)Slide24

Upshot:

It is difficult to generalize about CSR & the behaviour of firms; there exist multiple drivers, conditions and contexts: Business preferences vary by firm & industry & VoC

Normative environment and competitive pressures inside firms vary, as do societal expectations about the role of businessInstitutional & regulatory contexts varyContestation (social pressures) variesSlide25

Multiple perspectives on the pros and cons of CSR

Very different interpretations therefore exist regarding the contribution, substance & potential of CSR:CSR as a distraction that undermines sound business practices, shareholder primacy (Henderson, The (early) Economist)

CSR as a distraction from regulations, democracy & citizenship citizenship (Robert Reich, Noreena Hertz);Learning by doing; win-win potential; CSR instruments and institutions evolve, mature & are gradually ratcheted-up; (Porter, Ruggie, Zadek, Hopkins)The substance of CSR reflects the balance of social forces & contestation, hegemonic & counter-hegemonic struggle (Antonio Gramsci, David Levy, Utting)Greenwash: CSR = window-dressing, misinformation and PR to legitimize business-as-usual (Kenny Bruno, Judith Richter)Means to stabilize conditions of late capitalism; «new ethicalism » (Ngai-Ling Sum, Claire Cutler)Slide26

New Directions in Governance & Regulation - Theory

Moving Foward ?Fundamentally depends on reconfiguring governance systems and the balance of forces:

state: law & public policy (national and international)economic: market pressures; corporate hierarchyassociational: networks, associations, communities & civil society (Hollingsworth & Boyer; Crouch)Economic globalization and liberalization generated a deep governance imbalance: economic (and finance) modes became too powerful, and trumped state & associational modesCurrent crisis creates spaces for a) reconfiguring power relations, b) reforming/transforming institutions, and c) addressing the blind spots on the CSR agendaSlide27

Recent proposals

Recent shifts in thinking and practice:

- less “policing” of supply chains by TNCs; limits of social auditing; more training & capacity building in SMEs - greater attention to the actual developmental impacts of CSR & PPPs (not just process) - more equitable power relations and participation within MSIs and PPPs - the need to strengthen: a) systems of industrial relations, e.g. via International Framework Agreements, and b) state labor inspection capacity. - need for greater policy coherence: e.g. when private sector expansion occurs, state regulatory capacity needs to be strengthened not diminished) - greater compatibility between CSR initiatives in LDCs and national & international development strategies & priorities - need to ensure “corporate accountability” by strengthening disclosure of information, grievance procedures for stakeholders, and possibilities for redress; as well as penalties for non- compliance; - important role for international “soft” and “hard” law, e.g. OECD Guidelines on MNEs; UN Human Rights law Slide28

Towards “Corporate Accountability” ?

Recent rise of a “corporate accountability movement” - Moving beyond corporate self-regulation and

voluntary approaches - Moving beyond the narrow emphasis on shared values, stakeholder dialogues, best practice learningNeed to reconnect:CSR and public policy & law; voluntary & legalistic approachesReconnecting CSR and southern stakeholders, development strategies and prioritiesReconnecting CSR and trade unions & industrial relations (not only NGOs & business)Slide29

CSR & Crisis: Possible effects of the current crises

Downside:

Belt-tightening: decline in CSR spending and corporate givingMore reliance on sub-contracting & labour flexibilizationConsumers less interested in “ethical consumerism”, prefer to buy in Mal-MartUpside:New CSR issues or priorities emerge: e.g. executive pay; balance between real wages and profits and dividends; CSR and the financial sector; greater transparency in reporting (e.g. lending); employment generation; conditions of retrenchment and retraining; & climate change & eco-efficiency.More attention to “corporate responsibility” and corporate ethics“Regulation” is back on the agendaThe state will reassert its role in regulation and social protectionOpen questions:Will some issues move off the agenda? e.g. poverty reductionWill vulnerable companies want to defend against reputation damage and therefore take CSR seriously? Will trade unions reassert themselves?Will US push for higher labour standards abroad?Responses will vary by firm, industry, society and VoCSlide30

Another crisis -- the Intellectual Crisis of CSR

4 analytical and empirical limitations ofmainstream thinking on CSR. It is

Ahistorical: doesn’t draw on the lessons of history about how and why big business engaged with inclusive developmentEmpirically weak: focuses on “best practices” and doesn’t examine comprehensively CSR performance and outcomesTheoretically thin: ignores key theoretical approaches that facilitate our understanding of the potential and limits of CSRPolitically naive: fails to acknowledge the political underpinnings and dynamics of institutional changeThis suggests the crucial importance of breaking out of the confinesof management studies and IR, and drawing more on sub-disciplinesand schools of thought associated with political science, sociology,law, human geography and development studies.Slide31

CSR & Development Models

How do CSR (and Corporate Accountability (CA), PPPs & fair trade (FT) look from a development perspective?How do they relate to different development models?

Grosso modo – three models:Neoliberalism (freeing-up of markets; corporate control; trickle down social development)Embedded liberalism (free markets; FDI and institutions to control for perverse effects)Alternative globalization (counter-hegemonic struggle; corporate down-sizing, local development, associative/social economySlide32

Situating CSR in a development framework

CSR & PPPs (depending on their content and context) tend to reinforce the neo-liberal or embedded liberalism models;

CA & FT tend to reinforce the embedded liberalism or alter-globalization modelsNeoliberalismCSRPPPsCAFT

Embedded Liberalism

Alternative

GlobalizationSlide33

End

THANK YOU For further information on UNRISD research on CSR, see www.unrisd.org

Markets, Business and Regulation programme Contact: Peter Utting (utting@unrisd.org)