Business is everywhere. Some is crucial to development, while some is implicated in poverty, human rights abuses and environmental destruction. In recent years there has been an upturn in corporations taking responsibility for development challenges. Research shows this is a mixed blessing whilst development practitioners and policy makers could engage more critically to ensure real benefits for development.
Most codes are developed by industrialized nations: how appropriate are they to local conditions and concerns in developing countries?
Given the power of corporations today it is time to look afresh at the role of business in society. Not only has the number of 'transnational corporations' (TNCs) risen ten-fold since 1970 but their turnovers dwarf that of many national economies. Their ability to escape state regulation or even dictate that regulation, has given rise to growing concerns about TNC accountability. Their involvement with the basic building blocks of development, however, such as food, shelter, medicines and infrastructure, raises questions about how TNCs might contribute to achieving the Millennium Development Goals.
Corporate social responsibility (CSR) is often used to describe this broader view of business-society relations. CSR refers to company policies and activities that affect society and which are not mandated by law, but nevertheless may arise from existing laws, or favour new ones. They are not necessarily voluntary, as they may be mandatory through other channels and nor are they necessarily voluntarist, as they may, however rarely, call for state intervention.
Mainstream CSR relates to issues such as occupational health and safety, labour, human rights, anti-corruption, environmental management systems, or company support for community development projects. The CSR tool box includes codes of conduct, reputation management, social and environmental reporting, stakeholder dialogues, and public-private partnerships.
Since its revival in the 1990s, the concept of CSR has grown. The 2002 World Summit on Sustainable Development in Johannesburg marked CSR's arrival on the international policy agenda. CSR successes include the 24 million hectares of forest certified under the voluntary Forest Stewardship Council (FSC). Yet, given that 84 percent of FSC-endorsed forests are in industrialised countries, where large companies find it easier to meet certification requirements, the initiative has done little to tackle tropical deforestation. And of the 65,000 TNCs worldwide, only around 4,000 produce reports on their social or environmental performance. It is the companies with high-profile brands, or those which supply to companies with high-profile brands that are affected by public concern. CSR does not cover, and nor can it, every important issue, every company or every region: enforcement is in the hands of markets and public pressure.
Research on HIV/AIDS shows that companies are responsible for the impact of the disease, if for example, they provide unhelpful working conditions, or discriminate against employees infected with the virus, or if they hold patents on important drugs. Jessica Owens writes that work by the International Labour Organization (ILO) has found HIV/AIDS is having a negative impact on business, with some companies beginning to respond proactively. However, individual workplace programmes are not enough to address the spread of HIV/AIDS; nor can they manage the financial risk facing companies. The key issue is how companies influence the frameworks within which governments, communities and families can act to protect themselves.
As CSR standards become more widespread, their legitimacy has been questioned. Most codes and systems to monitor compliance are developed by industrialised nations: how appropriate are they to local conditions and concerns in developing countries? Given that standards are a mechanism for managing value chains and for influencing the social impact of an economic activity, might they become a new form of protectionism?
In addressing this issue, the accountability of codes and monitoring to workers and communities is key. Research by Marina Prieto-Carrón in Central America illustrates that gender issues are often ignored by voluntary codes concerning workplace practices and that participatory methods of implementation and compliance monitoring are necessary. Clearly such approaches need to be coordinated and promoted.
Making CSR more inclusive and relevant to workers and local communities is vital for individual factories and plantations and for countries and regions. Studies on CSR in developing countries are rare; if they do exist, they often adopt western concepts of what CSR is and what it isn't. CSR has to be indigenous rather than imported, argues Ritu Kumar in her article on South Asia.
Donors need to resist adopting a simplistic view that simply working with TNCs will benefit poor people
CSR is also criticised for deflecting organisations from the real issues: given that NGOs, companies and governments are increasing their concentration on CSR, some suggest that better obligatory regulation of corporate practice, nationally and internationally, regarding social, environmental and human rights issues is not needed. NGOs have thus started to move towards a 'corporate accountability' agenda, focusing on how to strengthen people's power in relation to corporations. Research by Peter Utting at the UN Research Institute for Social Development shows how governments need to collaborate internationally to develop better mechanisms for holding corporations accountable to citizens.
This debate is mostly about how to make business less harmful. There is another dimension, however: how can business contribute to development? Michael Warner and Rory Sullivan note how the World Bank has promoted partnerships with companies on specific development-related projects, getting mining companies, for example, to promote regional development.
More recently, companies have started to do business with people living on less than two dollars a day, explains Bruce Jenks from the UN Development Programme. Does this mean big business may be the key to overcoming poverty? Case studies of small scale construction in Mexico, salt iodization in India, and microfinance worldwide offer evidence that the private sector can play a useful role.
However, problems with this approach arise on closer inspection of who is served, with what, and by whom.
Firstly, much of the profitable business with lower-income markets involves products such as cell phones rather than the provision of basic nutrition, sanitation, education and shelter.
Secondly, what type of development is being promoted by strategies such as marketing consumer products to poor people? Claims about empowering people simply by enabling them to consume certain products can not be taken at face value.
Thirdly, the environmental impacts of changing consumption patterns need examining rather than assuming that such problems can be solved through technical and financial advancement.
Finally, if more foreign companies serve poor people might this displace local businesses and increase the drain of resources from local economies?
How large firms might use their financial, technical and management resources to help local entrepreneurs improve and scale up their businesses and avoid exploitative local middlemen, needs exploring. However, exploitative North-South supply chains, tax avoidance, and anti-competitive practices are fairly typical of TNCs which undermine their economic contribution to development. Donors need to resist adopting the view that simply working with TNCs will benefit poor people.
Such economic issues have been largely overlooked by the mainstream CSR agenda. The revenue implications, for employees and for governments, of non-payment of taxes, transfer pricing, or intra-corporate financial flows, for example, amount to billions of dollars of lost earnings. Corporate taxation should be central to the debate, argues Manuel Riesco, in his article on mining in Chile. Unless CSR begins to deal with responsible financial practice, it will continue to be seen as a diversionary tactic with limited benefits for development. So what can be done?
Development practitioners must now engage CSR on their own terms and map out an agenda that addresses corporate responsibility for 'bad' development on one hand and corporate opportunities for sustainable development on the other.
CSR must distance itself from neo-liberal economic assumptions of development and how to attain it. Governments are crucial for ensuring civil and political rights that allow public pressure to influence firms and provide education and infrastructure for them to do business with poor people.
If CSR holds promise for development it must address how companies can support, rather than undermine, governments in performing these roles.
This article was written by Jem Bendell who is a consultant to the UN on corporate social responsibility and a founder of www.lifeworth.com. This piece originally appeared in www.evancarmichael.com.