The failure of corporate social responsibility - A Global View

From an article in the New Straits Times, Malaysia, Sept. 21, 2008

In Malaysia, firms with strong corporate social responsibility (CSR) have been recognised through well-publicised awards.

Common wisdom also holds that public-private collaborations involving governments, multinational corporations (MNCs) and international financial institutions such as the World Bank will enhance social well-being by eradicating poverty, promoting sustainable forms of economic development, protecting the environment and respecting the rights of indigenous communities.

A study undertaken between 2006 and 2007 by the United Nations Research Institute for Social Development (UNRISD) indicates two major problems that can emerge with the concept of CSR.

First, by advocating self-governance through CSR, MNCs can limit government regulation of their activities. By linking up with the government, these firms can ensure that fewer restrictions are imposed on them.

Second, the viability of the concept of CSR works on the assumption that all governments, in the developed and developing world, can similarly implement and effectively oversee policies that ensure efficient and just use of domestic resource rents, presumably due to the even distribution of power among the three arms of government. But the UNRISD study suggests that public-private partnerships can lead to the problem of institutional capture.

In this study of nine countries -- India, the Philippines, Peru, Bolivia, Australia, Canada, Nigeria, Chad and Cameroon -- institutional capture manifests itself in a number of ways, most conspicuously through the funding of political parties by MNCs and through key appointments made to the boards of directors of major international agencies, and can contribute to practices that would otherwise be severely criticised.

In Chad and Cameroon, for example, the World Bank underwrote the risks of private enterprises in an oil extraction and pipeline project, ostensibly so that its cooperation with MNCs and these authoritarian governments would help alleviate poverty. The implementation of this project contributed to the creation of new poor, impoverishing indigenous communities that had a sustainable way of life.

In India, an MNC had actively co-opted influential politicians through corporate appointments in a public-private joint-venture in order to secure the right to extract resources on land deemed to belong to indigenous communities. In an appraisal of the implementation of the mammoth Camisea oil and gas project in Peru, the concept of the broker state was deployed in the study to expose the gradual transformation of the government's public identity into a private one, when its role to serve as a neutral arbiter between competing forces within capital and society had been compromised.

One key lesson from the case of Bolivia, Chad and Cameroon was that while international agencies, such as the World Bank, had played a prominent role in determining the award of resource extraction contracts, they had failed to -- or refused to -- discipline either governments or MNCs when they violated the terms of their agreements.

And even though the governments of most developing countries, such as Peru, tend to be acquiescent to the World Bank and the Inter-American Development Bank, these financial institutions have not reprimanded them or MNCs for undermining the role of the public institutions they funded to monitor the extraction of subsoil resources.

Institutional reforms are obviously necessary to ensure that engagement between governments, international institutions and MNCs in the conduct of resource extraction does no harm to indigenous communities and the environment.But are such reforms futile, given the economic strength of MNCs? Is the alternative for the government to take greater sovereign control over the country's natural resources and the terms of extraction, to ensure the interests of citizens are protected?

In Bolivia, the government of Evo Morales sought to control and discipline MNCs when he forced oil corporations to renegotiate the contracts they had secured from previous regimes, to better favour the interests of his country. In spite of MNCs' protests over the revised terms of the contracts, they continued their operations in Bolivia.

Other factors have helped check the abuse of mineral resources and environments in developing economies. In the late 1980s and early 1990s, a number of watchdog organisations were formed to monitor multinational activity worldwide. These NGOs' denunciations of a series of crises and fiascos associated with mineral and hydrocarbon firms proved effective enough for the business world to embrace anew the notion of CSR.

According to the oft-quoted World Business Council for Sustainable Development, CSR "is the continuing commitment by business to behave ethically and contribute to economic development". CSR refers to how a corporation manages the economic, social and environmental impact that its operations have locally, regionally and globally.

The UNRISD case studies, however, point to a disturbing common trend of the violation of the very codes of conduct and charters drawn up by MNCs. In Peru, the MNC's publicly-stated goals to protect the environment and promote its social capital programme were not only contravened, but the company abdicated responsibility for its pollution of the environment
by passing on the blame to its subcontractors.

Importantly too, the quality of the social provisions for indigenous communities by MNCs in Peru, India, Nigeria, Chad and Cameroon has been extremely poor. Such outcomes reinforce the argument by a number of NGOs that the government should not abdicate to MNCs the responsibility for providing key social services and that they must have statutory approaches to enforce social and environmental standards.

Clearly, all this focus and debate about the consequences of indiscriminate resource extraction has shifted the way that MNCs talk about doing business. MNCs have learnt to adopt the language of rights, of the necessity to promote environmental protection and of the need to include indigenous peoples in decision-making involving extraction of resources, a point noted in Australia, Nigeria, Peru, Canada and the Philippines.

However, the studies also indicate that in Canada and Australia, MNCs view consultation with indigenous communities as an important long-term strategy to secure more control over subsoil resources.

These case studies demonstrate that while corporations may embrace CSR in their annual reports and brochures, the ways in which they develop and maintain their operations are often questionable.

The links between government, international financial agencies and private firms, specifically MNCs, need to be understood  in any meaningful analysis of CSR.

Also needed is a review of the nature of government policies that have direct bearing on the form of organisation and enterprise development by a transnational company within a nation. The case studies clearly point to inequitable ownership and control distribution in joint ventures favouring MNCs which allow for high levels of exploitation of mineral rents.

These studies also associate MNC involvement in resource extraction industries with high levels of corruption, seen in Nigeria, Chad, Cameroon, Peru and the Philippines.

In all cases, corrupt politicians remain at arms length from business. Rather than arrogate the right to public resources to themselves, leaders are more likely to sell these concessions to private businesses.

The primary concern then about the viability of CSR is that, given the overwhelming influence that transnational capital can have over governments and international agencies, self-regulatory measures are unlikely to serve as an effective monitoring mechanism.

What is required is not public-private compacts but an effective arms-length and accountable relationship between governments and MNCs to deal with corruption, environmental degradation and exploitation of indigenous communities.