Corporate Social Responsibility

Corporate Social
Responsibility
A Case Study Approach

Edited by

Christine A. Mallin
Professor of Corporate Governance and Finance, and Director,
Centre for Corporate Governance Research, University of
Birmingham, UK

Edward Elgar
Cheltenham, UK • Northampton, MA, USA
© Christine A. Mallin 2009

All rights reserved. No part of this publication may be reproduced, stored

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Contents
List of figures vii
List of tables viii
List of contributors ix

Introduction and overview 1

Christine A. Mallin

PART I CSR IN EUROPE

1 CSR and integrated triple bottom line reporting in Italy:

case study evidence 9
Andrea Melis, Silvia Carta and Silvia Del Rio
2 CSR in Spain: examples of some practices 40
María Sacristán Navarro and Silvia Gómez Ansón
3 Sticking to core values: the case of The Body Shop 59
Bert van de Ven, André Nijhof and Ronald Jeurissen

PART II CSR IN CENTRAL AND EASTERN EUROPEAN

COUNTRIES

4 CSR in Russia 81
Alexander Settles, Olga Melitonyan and James Gillies
5 Responsible business in Polish economic practice: the
experiences of the Camela S.A. Factory of Clothing Inserts 98
Izabela Koładkiewicz

PART III CSR IN ASIA AND AUSTRALIA

6 CSR dynamics in South Korea and Japan: a comparative

analysis 123
Seungho Choi and Ruth V. Aguilera
7 Pulp, politics, process and pollution: Gunns Ltd and the
Tamar Valley pulp mill 148
Kathy Gibson and Gary O’Donovan

v
vi Corporate social responsibility

PART IV CSR: ADDITIONAL DIMENSIONS

8 A case study of the strategic use of CSR: the American

Gaming Association and the National Center for
Responsible Gaming 177
Kate Spilde Contreras and Donald S. Siegel
9 Accounting disclosure and human rights in the oil industry 194
Matthias Beck and Steven Toms
10 Does the adoption of codes of conduct marginalize labor
unions? The case of Turkey’s garment industry 216
Melsa Ararat and Mahmut Bayazıt
11 CSR in Islamic financial institutions in the Middle East 258
Samy Nathan and Chris Pierce

Index 275
Figures
1.1 Sabaf’s step to triple bottom line reporting in 2005 18
1.2 Sabaf and its stakeholders 20
1.3 Added value allocation 26
2.1 Corporate governance ratings by country (Europe) 41
2.2 Women in the boardroom by country (Europe, 2006) 44
2.3 Women in the boardroom by country (Europe, 2007) 44
6.1 Analysis of the actor-centered approach in CSR 127
9.1 Braybrooke and Lindblom’s diagram of decision types 196
9.2 Average sales by involvement in areas of severe human
rights abuse 203
9.3 Average sales by involvement in areas of severe human
rights abuse (number of countries) 204
9.4 Average sales by involvement in areas of severe human
rights abuse (groups of countries) 204
9.5 Average sales by involvement in areas of severe human
rights abuse (excluding outlier) 205
9.6 Amount of CSD reporting by topic and by involvement in
areas of severe human rights abuse (excluding outlier) 206
9.7 Share of CSD reporting by topic for different companies by
involvement in areas of severe human rights abuse 207
10.1 Analytical framework of factors affecting the adoption of
CoC 226
11.1 The framework for Shari’ah Law 264
11.2 An alternative Islamic framework 264

vii
Tables
1.1 Board of directors and board committees at Sabaf S.p.a. 13
1.2 Evolution of the structure of Sabaf’s social report 17
1.3 Evolution of identification of stakeholders 21
1.4 Policies, provisions and key projects 23
1.5 Human capital indicators 28
1.6 Structural capital indicators 29
1.7 Relational capital indicators 31
1.8 Social indicators 32
1.9 Environmental indicators 33
2.1 Responsible index ratings 42
5.1 Benefits provided by Camela for employees and the wider
stakeholder community: summary 111
6.1 Rankings of social responsibility in Korea and Japan 125
6.2 Social contributions ratio in Korea and Japan 125
6.3 Comparison of the role of actors in formulation of CSR
between Korea and Japan 141
7.1 Federal election results for Tasmania 160
7.2 Federal election results for Minister for Environment
(Turnbull) and Shadow Minister for Environment (Garrett) 161
7.3 Potential hidden costs of the Tamar Valley pulp mill 164
10.1 Turkey’s garment industry, descriptive statistics (2007) 228
10.2 Interviews with supplier firms 231
11.1 Stage of development of Islamic finance in the MENA
region 259
11.2 Islamic banking products 265

viii
Contributors
Ruth V. Aguilera, Associate Professor, College of Business and Institute
of Labor and Industrial Relations, University of Illinois at Urbana-
Champaign, IL, USA.
Melsa Ararat, Director, Corporate Governance Forum of Turkey, Sabanci
University, Turkey.
Mahmut Bayazıt, Faculty of Management, Sabanci University, Turkey.
Matthias Beck, Professor of Public Sector Management, York Management
School, University of York, UK.
Silvia Carta, Department of Accounting and Business Economics,
University of Cagliari, Italy.
Seungho Choi, Eli Broad Graduate School of Management, Michigan
State University, MI, USA.
Kate Spilde Contreras, Chair, Sycuan Institute on Tribal Gaming and
Associate Professor, School of Hospitality and Tourism Management,
San Diego State University, San Diego, CA, USA.
Silvia Del Rio, Department of Law and Business Administration,
University of Rome TRE, Italy.
Kathy Gibson, Senior Lecturer, University of Tasmania, Australia.
James Gillies, Dean Emeritus of the Schulich School of Business, York
University, Toronto, Canada.
Silvia Gómez Ansón, Professor of Finance and Accounting, University of
Oviedo, Spain.
Ronald Jeurissen, Professor of Business Ethics at Nyenrode Business
Universiteit, and Chairman of the European Institute for Business Ethics,
The Netherlands.
Izabela Koładkiewicz, Assistant Professor, Koźmiński University, Warsaw,
Poland.

ix
x Corporate social responsibility

Christine A. Mallin, Professor of Corporate Governance and Finance,

and Director, Centre for Corporate Governance Research, University of
Birmingham, UK.
Andrea Melis, Associate Professor of Accounting and Business
Administration, University of Cagliari, Italy.
Olga Melitonyan, Lecturer in Strategy, Department of Public Policy,
Faculty of Applied Political Science, State University – Higher School of
Economics, Moscow, Russia.
Samy Nathan, Professor of Accounting and Finance, New York Institute
of Technology – Bahrain Campus, Bahrain.
André Nijhof, Associate Professor at the European Institute for Business
Ethics, Nyenrode Business Universiteit, The Netherlands.
Gary O’Donovan, Dean of the Faculty of Business, University of Tasmania,
Australia.
Chris Pierce, Chief Executive Officer of Global Governance Services Ltd,
UK.
María Sacristán Navarro, Associate Professor of Business Organization,
Universidad Rey Juan Carlos, Madrid, Spain.
Alexander Settles, Professor of Corporate Governance and Strategic and
General Management, Faculty of Management, State University – Higher
School of Economics, Moscow, Russia.
Donald S. Siegel, Dean and Professor, School of Business, University at
Albany, NY, USA.
Steven Toms, Professor of Accounting and Finance and Head of School,
York Management School, University of York, UK.
Bert van de Ven, Lecturer at Tilburg University, The Netherlands.
Introduction and overview
Christine A. Mallin

Corporate social responsibility (CSR) has gained an increasingly high

profile in recent years. CSR can be defined as the ways in which a business
seeks to align its values and behaviour with those of its various stakehold-
ers. The stakeholders of the business include the employees, customers,
suppliers, government, interest groups (such as environmental groups) and
wider societal interests on whom the operations of the business may have
an impact. Often it can be a difficult balancing act for a business to try to
effectively consider the perceived needs of these often disparate groups of
stakeholders, and some companies appear much more successful in this
regard than others.
CSR is an area in which investors, especially institutional investors, are
showing an increasing interest. The interest of institutional investors is
often driven by the expectations of their clients, for example, the ultimate
beneficiaries of pension funds; or by the pronouncements of industry body
representative groups such as the Association of British Insurers (ABI);
or by government-supported initiatives both at a national and an inter-
national level. The United Nations Principles for Responsible Investment
(UN PRI) are an important development in this area. In 2005 the UN
Secretary General invited a group of the world’s largest institutional inves-
tors to join a process to develop the Principles for Responsible Investment
(PRI). The UN PRI website states

[T]here is a growing view among investment professionals that environmen-

tal, social and corporate governance (ESG) issues can affect the performance
of investment portfolios. Investors fulfilling their fiduciary (or equivalent)
duty therefore need to give appropriate consideration to these issues, but to
date have lacked a framework for doing so. The Principles for Responsible
Investment provide this framework. . . . The Principles are voluntary and
aspirational. They are not prescriptive, but instead provide a menu of possible
actions for incorporating ESG issues into mainstream investment decision-
making and ownership practices.

There is a growing awareness that companies cannot operate in isola-

tion from the wider society in which they are located, and that they need

1
2 Corporate social responsibility

to consider the interests of groups other than shareholders if their longer-

term sustainability is to be maintained. The purpose of this volume is to
highlight, through various case studies, how CSR has evolved in a number
of countries around the world and to illustrate its application in specific
countries and case study companies. The volume has four parts which
focus on different regions and illustrate the ways in which CSR is develop-
ing, given different legal structures (civil law versus common law); different
governance and ownership structures; and differing societal expectations
regarding the importance of various stakeholder groups.

CSR IN EUROPE

Part I focuses on corporate governance in various European countries.

In Chapter 1, Andrea Melis, Silvia Carta and Silvia Del Rio provide a
detailed analysis of CSR in Italy by analysing CSR practices in an Italian
company, Sabaf. Sabaf is a family business, as are most Italian companies,
and has already been recognized as one of the Italian companies more
committed to CSR. Sabaf adopts a triple bottom line approach in its
activities and reporting, that is, it takes into account and provides infor-
mation to its stakeholders about its financial, social and environmental
performance.
In Chapter 2, María Sacristán Navarro and Silvia Gómez Ansón
provide an interesting overview of the development of CSR in Spain and
illustrate the adoption of best practice in a number of Spanish companies
encompassing Iberdrola, Eroski, Bankinter, Telefónica and Inditex.
Finally in this part, Bert van de Ven, André Nijhof and Ronald Jeurissen
detail the development of The Body Shop and the importance to it of the
social projects it has undertaken. They then discuss the implications of
The Body Shop’s reorganization, brand repositioning and the L’Oréal
takeover, and what the future might hold for The Body Shop.

CSR IN CENTRAL AND EASTERN EUROPEAN

COUNTRIES

Russia and Poland are the two countries featured in Part II.
In Chapter 4, Alexander Settles, Olga Melitonyan and James Gillies
discuss the development of CSR in Russia and highlight the impact of
key events, notably the transition from a command to a market economy.
They conclude that the focus of Russian firms with respect to CSR is pri-
marily on domestic issues and that so far there is limited interest in issues
 Introduction and overview 3

of global warming, environmental protection, fair trade, or carbon foot-

prints of business activities. Firms which do tend to give consideration to
these broader areas are primarily those in the resource industries in which
foreigners have major investments. It is interesting to note the influence of
overseas investors in this regard.
In Chapter 5, Izabela Koładkiewicz analyses the development of CSR
in Poland, recognizing that while there are still identified weaknesses in
CSR in Poland, the Polish business world is continuously moving forward
in the sphere of CSR, albeit it is the divisions of international corpora-
tions that continue to be the leaders. However, small and medium-sized
enterprises are beginning to take part as well. Izabela provides a detailed
analysis of the CSR implemented by the Camela S.A. Factory of Clothing
Inserts in Poland.

CSR IN ASIA AND AUSTRALIA

In Part III, there are two thought-provoking chapters covering a compari-

son of the CSR dynamics in South Korea and Japan, and the tensions in
the pulp mill industry in Tasmania, Australia.
In Chapter 6, Seungho Choi and Ruth V. Aguilera analyse the char-
acteristics of CSR in South Korea and Japan in terms of the different
influence that local actors exercise on their respective CSR practices.
They discuss the general CSR trend in South Korea and Japan based on
several CSR indicators, and the three general approaches to comparative
CSR studies: cultural, attitudinal and actor centred. They highlight the
role of local actors in moulding CSR in South Korea and Japan and the
implications of CSR activity in the two countries.
In Chapter 7, Kathy Gibson and Gary O’Donovan provide a fascinating
account of the case of Gunns Ltd, a large Australian public company, and
the machinations and processes involving the company, the Tasmanian
state government, the Australian federal government, and various activist
groups in the proposed development of a large pulp mill in northeastern
Tasmania. They highlight the many competing interests of diverse stake-
holders, intent on maximizing or minimizing to their own advantage the
triple bottom line (TBL) – economic, social, and environmental – returns.

CSR: ADDITIONAL DIMENSIONS

Finally, Part IV contains case studies which highlight CSR in four differ-
ent contexts in several countries.
4 Corporate social responsibility

In Chapter 8, Kate Spilde Contreras and Donald S. Siegel present a

case study of the strategic use of CSR by the gambling industry. They
describe the birth and evolution of the American Gaming Association
and its role in the creation of the National Center for Responsible
Gaming. Their chapter highlights that CSR is not just a firm-level phe-
nomenon, especially when an industry is highly regulated, such as the
gaming industry.
In Chapter 9, Matthias Beck and Steven Toms, drawing on concepts
of incrementalism and focusing on oil companies that operate in regions
which are characterized by severe human rights abuses, examine differ-
ences in the nature of corporate social disclosure (CSD) reporting among
these companies with the CSD of companies which do not operate in these
areas. To illustrate their descriptive analysis, they examine how two com-
panies of similar size, but with differing involvement in areas of human
rights abuse have approached their CSD reporting. These companies are
Forest Oil which predominantly operates in the US and Canada, and
Santos Oil which operates in several Australasian countries.
In Chapter 10, Melsa Ararat and Mahmut Bayazıt discuss the adop-
tion of codes of conduct in Turkey and assess the potential impact on
the labour unions in the Turkish garment industry. Specifically they ask
whether the adoption of these codes causes the marginalization of the role
that unions play in a developing country context, where marginalization
is defined in terms of both decreasing perceived utility of unions as well as
scope and depth of issues that they can influence.
In the final case study, Samy Nathan and Chris Pierce (Chapter 11)
discuss the adoption of CSR by Islamic financial institutions in the Middle
East. They highlight that in order to fully understand the values and
culture of Islamic financial institutions one needs to understand the nature
of Shari’ah Law and the role of the Shari’ah Supervisory Boards.

CONCLUSIONS

This volume contains case studies from many different regions around the
globe, reflecting various stages of economic development, legal systems,
political and cultural aspirations. The development of CSR is at differ-
ent stages in different companies, and industries, in various countries.
However, the trend does seem to be for CSR to be increasingly viewed as
an essential rather than as something that is merely desirable. The adop-
tion of CSR practices leads to improved relationships with the various
stakeholders and should also contribute to the long-term sustainability of
companies, countries, and ultimately the world.
 Introduction and overview 5

I would like to thank the authors for their time in writing the case studies.
The authors, like the countries represented in the book, constitute a range
of nationalities, and are from various professional backgrounds including
academics and company directors. They all care deeply about CSR and
how it can help to shape a better future for us all. I trust that readers of
this volume will enjoy the various chapters and be made even more aware
of the importance of CSR and how it holds the key to the future.
PART I

CSR in Europe
1. CSR and integrated triple bottom
line reporting in Italy: case study
evidence
Andrea Melis, Silvia Carta, Silvia Del Rio

INTRODUCTION

Corporate social responsibility (hereafter CSR) is a term that involves

several different concepts and definitions (for example, Carroll, 1979,
1999; Crane and Matten, 2004). The definition provided by the Green
Paper (European Commission, 2001: 8) seems to summarize the essential
points of the concept, as the integration by companies of:
social and environmental concerns in their business operations and in their
interaction with their stakeholders on a voluntary basis. Being socially respon-
sible means not only fulfilling legal expectations, but also going beyond com-
pliance and investing ‘more’ into human capital, the environment and the
relations with stakeholders.

Socially responsible companies are expected to integrate economic,

social and environmental concerns into their business strategies and their
activities, going beyond compliance with the law. CSR is not philan-
thropy. Parmalat was very philanthropic, but was not socially responsible,
as emerged from the 2003 scandal.
In Italy the social responsibility of firms has roots dating from long
before the emergence of the CSR movement during the last decades of the
twentieth century. Article 41 of the Italian Constitution, promulgated in
1948, provides a basis to foster the social responsibility of private corpora-
tions, as it underlines how economic activity should not be undertaken if
it conflicts with social usefulness or in any way that it brings any form of
damage to human security, freedom and dignity. Furthermore, the same
article clearly states that ‘the law may determine suitable programmes and
controls so that the economic activity could be addressed and coordinated
towards social purposes’.
The academic debate about CSR has a long tradition in Italy, partly
due to the influence of Catholic values within some mainstream academic

9
10 Corporate social responsibility

circles. Onida (1968) provided the first modern contribution to this topic
with his normative theory of ‘simultaneous maxima’ (teoria dei massimi
simultanei), according to which, companies should maximize the value
of all corporate stakeholders, rather than focusing on financial perform-
ance and shareholders’ value. From a normative perspective, Masini
(1970) argued that profit does not represent the final aim of a firm, but is
instrumental in satisfying the needs of shareholders and workers. Coda
(1985) pointed out that firms that seek profit maximization at the expenses
of stakeholders’ value are likely to have their financial sustainability
constrained in the long term. Catturi (1994) endorsed a global added-
value approach, similar to the triple bottom line (see Elkington, 1997),
by arguing that a company creates value only if it satisfies all human
needs, that is, the wealth captured by consumers, employees, and sup-
pliers of capital exceeds any external costs (such as environmental costs)
imposed on the surrounding community or on others who are not direct
participants in the enterprise.
Industrial districts and small and medium-sized enterprises (SMEs) have
engaged in sustainable forms of conducting business through the conver-
gence of the interests of shareholders, employees, senior management and
the local communities (Canarutto and Nidasio, 2005).
A recent survey conducted by Perrini et al. (2006), which selected 395
Italian companies that were likely to be ‘CSR sensitive’, found that the
most frequent CSR activities carried out by the Italian companies ana-
lysed are: training activities (89 per cent), safeguarding employees’ health
(82 per cent), support of the local community (72 per cent), support of
cultural activities (70 per cent), and control of product safety (67 per cent)
and its impact on the environment (62 per cent). These companies have
usually adopted CSR tools such as employee involvement programmes
(83 per cent), sponsorships (75 per cent) and donations (51 per cent). As
for the reasons that encouraged companies to adopt socially responsible
behaviour, the most frequent advantages indicated by the companies
were: (i) benefits to company image (90 per cent), (ii) opportunity to
improve relations with the local community (76 per cent) and (iii) ethical
motivations of senior management (56 per cent).
CSR reporting is a central charter for public relations in communicat-
ing an organization’s socially responsible activities and in creating mutual
understanding with its stakeholders in order to achieve legitimacy.1
In addition, stakeholder-oriented reporting, which integrates financial
reporting with social and environmental reporting in a single annual
report, plays an active role in constructing the underlying ideas and
notions of CSR. Such integrated reporting carries out a relevant role to
crystallize abstract concepts, and to help visualize company’s activities.
 CSR and integrated triple bottom line reporting in Italy 11

Thus it substantially contributes to making the ‘stakeholder philosophy’

viable and reliable, and influences company behaviour (Zambon and Del
Bello, 2005).
This chapter provides a case study which describes CSR practices in an
Italian company. Sabaf is a family business, as are most Italian companies,
and has already been mentioned as a significant case concerning CSR in
Italian companies (see Bergamin Barbato and Mion, 2004; Borgonovi,
2005). In 2003, Sabaf was named as one of the Italian companies more
committed to CSR by 10 of the largest Italian institutional investors
(Avanzi SRI Research, 2003). Sabaf adopts a triple bottom line approach
in its activities and reporting, that is, it takes into account and provides
information to its stakeholders about its financial, social and environmen-
tal performance. Sabaf is included in the list of companies in which ethical
funds which operate in accordance with the Ethibel2 evaluation can invest
as well as in the Kempen SNS SRI index.3 The company obtained the ISO
140014 certification in 2003 and has complied with SA 80005 since 2005.
Sabaf prepares its social report according to the guidelines of the Global
Reporting Initiative (hereafter GRI) (2000, 2002), the GBS guidelines
(2001),6 and the AccountAbility 1000 (AA1000, ISEA, 1999; AA1000SES,
ISEA, 2005).7 Furthermore, Sabaf complies with the Global Compact
principles.8

COMPANY PROFILE AND CORPORATE

GOVERNANCE

Sabaf Società per azioni (S.p.a.) was founded in the immediate post-
Second World War period in Lumezzane (Lombardy, Italy) by Battista
Saleri and his sons (Sabaf stands for Saleri Battista and sons). The
company began its manufacturing activity in the brass industry, and soon
focused on producing valves for gas cooking appliances. In 1993 Giuseppe
Saleri, son of Battista, bought the shares from some of his brothers and
took over control of the company. In 1998, Sabaf was listed on the Italian
Stock Exchange. Nowadays, Sabaf is a worldwide leading manufacturer
of components for household gas cooking appliances, with a market share
of approximately 50 per cent in Europe and a global share of about 10 per
cent. Its core market consists of the manufacture of household appliances,
in particular of cookers, hobs and ovens.
In 2006 the Sabaf group comprised its parent company (Sabaf S.p.a.)
and four other wholly owned companies: Sabaf Immobiliare S.r.l. and
Faringosi-Hinges S.r.l., both based in Italy, Sabaf do Brasil L.t.d.a.
(Brazil), and Sabaf Mexico SA de cv (Mexico). Sabaf has approximately
12 Corporate social responsibility

600 employees and over 50 per cent of its consolidated turnover comes
from export sales. Therefore it may be considered to be a relatively small
multinational group.
Despite the fact that the Saleri family, via Giuseppe Saleri Società in
accomandita per azioni (S.a.p.a.), still controls 53.81 per cent of the com-
pany’s voting shares and has three of its members on the board of direc-
tors, since 1994 the family has delegated the chief executive officer position
to a professional manager, Angelo Bettinzoli. This was due to the decision
of the major shareholder to separate ownership and management, with the
latter delegated to senior managers led by the CEO.
The corporate governance structure is part of Sabaf’s overall approach
to social responsibility, as claimed by the company in its corporate govern-
ance report. Good corporate governance should ensure that a corporation
performs better and has a better relationship with its stakeholders. In its
corporate governance report, the company clearly states:

The model adopted is based, in the first place, on the decision to achieve strict
separation of the interests and choices of the key shareholder (the Saleri family)
from the interests and choices of the Company and Group, consequently
entrusting corporate management to managers not forming part of the key
shareholder. In order to reinforce this decision, the Saleri family . . . has under-
taken, also via signature of an accompanying agreement, not to hold, executive
offices . . . within Sabaf Group companies. (Sabaf, 2006a)

Since 2001, Sabaf has chosen to belong to the so-called STAR

(Segmento Titoli ad Alti Requisiti) segment, a mid-cap (middle capi-
talization) corporate governance segment which contains ‘shares with
high requirements’, that is, listed companies that choose to comply with
superior standards of internal control and monitoring.9 This choice has
forced Sabaf to comply with stricter transparency and disclosure rules on
corporate governance.
Sabaf adopts a traditional Italian board structure, characterized by a
board of directors and a board of statutory auditors (see Melis, 2004).
Both boards are appointed through the shareholders’ general meeting.
Sabaf’s board of directors comprises 11 directors. Six of them are non-
executive directors, including five who are considered as independent
(Table 1.1). Both the Compensation Committee and the Internal Control
and Audit Committee are exclusively composed of non-executive direc-
tors, the majority of whom are independent. Both committees are chaired
by a non-executive director, who cannot be considered as independent
according to the strict definition of independence chosen by the Italian
Code of Conduct on Corporate Governance (Committee for Corporate
Governance, 2006, para. 3.C.1), which excludes the independence of
 CSR and integrated triple bottom line reporting in Italy 13

Table 1.1 Board of directors and board committees at Sabaf S.p.a.

Board of directors Internal Compen-

Control sation
Position Name Executive Non- Independent
and Audit committee
executive
Committee
Chairman Giuseppe X
Saleri
Deputy Giambattista X
Chairman Saleri
Deputy Ettore Saleri X
Chairman
CEO Angelo X
Bettinzoli
Director Alberto X
Bartoli
Director Leonardo X X X
Cossu
Director Franco X X
Carlo Papa
Director Salvatore X X
Bragantini
Director Federico X X
Alberto Giua
Director Raffaele X X
Ghedini
Director Flavio X X
Pasotti

Source: Elaborated from company data – updated at July 2007.

company directors who have been in their position for more than nine
years during the last 12 years.
In accordance with the recommendations of the Italian Code of Conduct
(ibid., para. 2.C.3), Sabaf set up a lead independent director position, as
the chairman’s position is covered by a controlling shareholder.
Despite the fact that Sabaf complies with the key recommendations
of the Italian Code of Conduct, it has not set up a nomination commit-
tee. This choice is common among Italian listed companies, which are
characterized by the presence of a controlling shareholder (see Melis,
2006). However, in Sabaf the lack of a nomination committee is combined
with the fact that the voting list system (also known as ‘slates’) for the
appointment of directors has not yet been adopted.
The board of directors is wholly appointed by the Saleri family, with no
representation of minority shareholders. However, Sabaf will introduce
14 Corporate social responsibility

a slates system for the next board elections, in compliance with the 2006
Italian Consolidated Law on Finance. The purpose of this change is to
ensure that at least one member of the board is appointed by minority
shareholders.
The board of statutory auditors comprises three independent audi-
tors, one of whom, the chairman, has been appointed by the minority
shareholders, as required by Italian corporate law (Sabaf, 2006a).
The financial, social and environmental information provided by Sabaf
in its integrated annual report is audited by A.G.N. Serca, a local audit-
ing firm, for its financial content, and by KPMG for its social and
environmental content.

CORPORATE IDENTITY AND CHARTER OF

VALUES

Corporate identity is an organization’s members’ collective understand-

ing of the features presumed to be central, and relatively permanent, that
distinguish the organization from other organizations (Albert and Wetten,
1985), including the corporate ethos, aims and values that contribute to
differentiating the organization within its competitive environment (Van
Riel and Balmer, 1997). The clear definition of the main values and prin-
ciples that characterize an organization is the first step to defining what an
organization is and what it aims to be. The sharing and the identification
of a social group’s values and identity induce individuals to engage in, and
derive satisfaction from, the view of themselves as a member of the group
(Ashforth and Mael, 1989).
The definition of corporate identity in CSR aims to identify corporate
values and the commitments that a company purports to make towards
its stakeholders. CSR may be considered as a particular contract that the
company signs with its main stakeholders (Sacconi, 1999). The conditions
of this contract are the respect of the values and commitments stated either
in the company’s ethics code or in its charter of values. Sabaf, which has
never had an ethics code, published its charter of values in 2003.
According to Sabaf (2006b: 24), the charter of values is a ‘tool with
which the Sabaf board of directors expresses the values, standard of
conduct, and ways in which relations between Sabaf and its stakeholders
are managed’. It contributes to formalizing the corporate identity and
values, but provides fewer constraints to corporate actions than an ethics
code, as it excludes formal sanctions.
Sabaf prepared its charter of values according to the recommendations
of SEAN10 and IBS.11 Its charter is composed of five sections. The first
 CSR and integrated triple bottom line reporting in Italy 15

two are dedicated to a description of the company’s mission and values

which are summarized in the concept of shareholder value with respect to
environmental sustainability, promoting a continuing dialogue with the
different stakeholders.
Sabaf’s values have a central focus on individuals and on the respect of
the individual’s physical, cultural and moral integrity. Any alternative that
does not respect these values is to be rejected even if that alternative might
lead to economic benefits for the company. For example, Sabaf changes
its working-hour shifts during the Ramadan period, to allow its Muslim
employees to respect their religious rites.
The central focus on individuals is embedded with other commitments,
such as:

● promoting the values of thought and belief that express the com-
pany’s commitment to invest in the development of its employees’
skills, and to promote the innovation of its products;
● promoting the value of action, which expresses the commitment to
ensure the safety of its staff and customers through research and
development (R&D) of new systems that guarantee a continued
improvement of the processes and product quality. Sabaf is com-
mitted to promoting the safety culture through a communications
policy on the external environment;
● promoting the value of communication, which expresses the
commitment to conduct a continuing transparent dialogue with
its stakeholders. The different stakeholders are informed about
company policy and choices. Thus, they can monitor whether their
expectations are met.

The third section of the charter of values, ‘Principles of conduct’, con-

tains the principles that are intended to govern the behaviour of internal
and external Sabaf stakeholders. The key principles are:

● honesty: respect of the laws, internal and external regulations and

the charter of values;
● moral integrity: the assumption of moral behaviour in the face of
different forms of discrimination;
● equity: respect of impartiality in decisions with no discrimination in
relation to gender, sexual orientation, age, nationality, political and
religious beliefs;
● transparency and fair dealing: respect of transparent communica-
tion with different stakeholders to guarantee them the opportunity
to take decisions responsibly;
16 Corporate social responsibility

● efficiency and effectiveness; and

● dialogue: consulting stakeholders before taking a decision to reach a
solution in accordance with different interests.

The fourth section of the charter of values contains a description of

different stakeholders and the commitments made by Sabaf (see next
section).
The fifth section, ‘Enforcement of the charter’, describes the mecha-
nisms for the implementation of the charter of values. The first commit-
ment is to monitor the implementation of the charter and the diffusion of
values among stakeholders. To improve its charter of values, Sabaf revises
it periodically, and verifies its comprehensiveness as well as the coherence
of its activities (as reported in the integrated annual report) with its values
and principles. Stakeholders may report any violation of the charter of
values, by contacting the human resources manager (for employees) or the
internal auditor (for other external stakeholders).
The provision of a monitoring device is a signal of the company’s com-
mitments to respect the provisions of its charter of values, by involving
all its stakeholders. The existence of the charter is not ‘sufficient for its
enforcement but serves as the Constitutional Charter, expressing the
values for which Sabaf must strive, by way of conduct and decisions of
individuals and of the group as a whole’ (Sabaf, 2003a: 13).

VALUES DISTRIBUTION TO CORPORATE

STAKEHOLDERS

Sabaf published its first social report in 2000 (Sabaf, 2000). Since then it
has followed the guidelines suggested by GBS (2001), in accordance with
GRI indicators (GRI, 2000).
Zambon and Del Bello (2005) argued that the reporting process may
play an active role in putting CSR into practice: (i) directly, through the
narrative parts which contain definitions and descriptions of the stake-
holder-oriented activities performed, and/or (ii) indirectly, through the
structure and content of the data reported.
In its socially responsible management system, the Sabaf management
runs the company, taking into account its financial, social and envi-
ronmental impact. To do so, Sabaf implements ProGReSS©, a socially
responsible management system for sustainable development. Sabaf’s case
study shows that a social report is not only a communication device, but it
may also become a strategic management tool, in compliance with a triple
bottom line approach.
 CSR and integrated triple bottom line reporting in Italy 17

Table 1.2 Evolution of the structure of Sabaf’s social report

2000–2001 2002–2004 2005–2006

Social reporting Integrated reporting
Methodological Methodological 1) Identity and governance
introduction introduction
Corporate identity Corporate identity ● corporate identity
Sustainability ● sustainability
governance governance
Economic performance Economic 2) Operation and
performance management information
Social performance Social performance ● directors’ report on
consolidated financial
statements
Environmental ● directors’ report on
performance social and
environmental
performance
Dialogue with Dialogue with ● proposal for
stakeholders stakeholders improvement
● independent auditors’
report
Proposals for Proposals for 3) Consolidated financial
improvement improvement statements
Independent auditors’ Independent 4) Financial statements of
report auditors’ report Sabaf S.p.a.

Source: Elaborated from company data.

Evolution of Sabaf’s Social Report

From 2000 to 2006, Sabaf’s social report structure (see Sabaf, 2000–
2006b) has improved considerably, increasing its ability to disclose key
information to its users (see Table 1.2).
In 2000 and 2001, the social report was composed of the following five
sections (or chapters), preceded by a methodological introduction and
followed by a statement of procedural compliance (Table 1.2):

● corporate identity (history, vision, mission, strategy and corporate

governance);
● economic performance (allocation of added value);
● social performance (relationships with corporate stakeholders);
18 Corporate social responsibility

From 2000 to 2004

Financial Social report
statements
Financial
Performance Social and
Environmental
Performance
Financial and social
communication

From 2005 to 2006

Integrated reporting
Triple bottom line
communication

Financial Social Environmental

performance performance performance

Source: Elaborated from company’s data.

Figure 1.1 Sabaf’s step to triple bottom line reporting in 2005

● dialogue with stakeholders (Sabaf is open to criticism by its

stakeholders); and
● proposals for improvement (commitments to its stakeholders to
improve its activities).

From 2002 to 2004 the methodology remained consistent, while the

social report’s structure changed. Sabaf began to differentiate between
financial, social and environmental performances. In fact, information
about these issues was already provided, but the revised structure made it
more understandable. Two new sections were added:

● sustainability governance, which contained information about cor-

porate governance and the social responsibility management system
(previously contained in the section ‘Corporate identity’); and
● environmental performance (previously contained in the section
‘Social performance’).

Sabaf began to prepare and present its annual reports in accordance

with a triple bottom line approach, in which social and environmental
outcomes were as important as financial results (Figure 1.1).
Since 2005, Sabaf has prepared an integrated annual report (see Sabaf,
2005, 2006b), that is, one single document in which financial reporting has
 CSR and integrated triple bottom line reporting in Italy 19

been integrated with social and environmental reporting. Sabaf’s CEO

explained the decision of preparing and presenting a single integrated
annual report as follows:
The choice we have made is the result of an important consideration, which is
this: the Corporate Social Responsibility Report constitutes ‘certification’ of a
certain type of ethos, the opportunity to assert the centrality of the individual
in business strategies, and the desire to demonstrate that, whilst pursuing its
legitimate interest in profit, Sabaf also helps to improve the quality of people’s
lives. And if this is true, accounting data and social impact cannot be assessed
separately – as if they were two separate topics, to be addressed in detached
documents on separate occasions. They are, on the contrary, two aspects that
are directly and tightly linked. (Sabaf, 2005: 4)

Since 2005, Sabaf’s integrated annual report has comprised four sec-
tions (Table 1.2). Social and environmental information is contained in
the first and second sections, with the exception of the directors’ report on
consolidated financial statements.

Identification of Stakeholders

In accordance with Freeman’s (1984) definition, Sabaf identifies its stake-

holders as follows: ‘all those groups of individuals – consisting of indi-
vidual persons, organizations and communities – that directly influence the
company’s business or that are directly or indirectly affected by it’ (Sabaf,
2006b: 57).
In its socially responsible management approach, Sabaf interacts with
all its stakeholders, both internal (employees and shareholders) and exter-
nal (customers, suppliers, creditors, public administration, competitors,
the community, and the environment), engaging with all of them. Sabaf
acknowledges that a socially responsible company cannot be self-account-
able (Sabaf, 2003b: 120). Thus, it seeks to understand its stakeholders’
expectations, engages with them, and submits itself to their judgement. To
do so, Sabaf implements the AA1000 standard (1999) to build an effective
approach to stakeholders’ engagement, which fosters companies’ commit-
ment to a longlasting relationship with stakeholders. In particular, Sabaf’s
dialogue with stakeholders follows the AA1000SES (2005)12 guidelines.
Figure 1.2 illustrates Sabaf’s relationships with its stakeholders.
Stakeholders are represented closer to or farther from the company,
depending on the size of influence that the company’s actions can have on
each of them. Sabaf identifies the following stakeholders:

● employees: all those who have a hierarchical relationship (or other

type of working relationship) with Sabaf, for example, business
20 Corporate social responsibility

Environment
Competitors

Suppliers
Employees
Creditors
Sabaf
Customers
Shareholders Public
Administration

Community

Source: Elaborated from company data.

Figure 1.2 Sabaf and its stakeholders

agents and other people who represent Sabaf in the outside envi-
ronment and look after the company’s relations with stakeholders.
They are biennially involved in a satisfaction survey, which estimates
employees’ identification with the company’s mission;
● shareholders: the majority shareholder (the Saleri family) and minor-
ity shareholders, such as Italian and international institutional inves-
tors, and private shareholders. Financial analysts and institutional
investors are involved via questionnaires and personal meetings
with senior management;
● customers: producers of domestic electrical goods, from large multi-
nationals to niche SMEs, who are involved in a biennial satisfaction
survey, via the corporate website, and personal meetings;
● suppliers: raw materials, machinery, equipment, goods, and services
suppliers, who are involved through biennial meetings and surveys;
● creditors: banks and other financial institutions that contribute to
the financial support of the company;
● competitors: companies which make components for domestic gas
cooking appliances;
● public administration: central government bodies and agencies,
regional governments, local authorities, and public agencies, which
 CSR and integrated triple bottom line reporting in Italy 21

Table 1.3 Evolution of identification of stakeholders

2000–2001 2002 2003–2004 2005–2006

Employees Employees Employees Employees
Shareholders Shareholders Shareholders Shareholders
Customers Customers Customers Customers
Suppliers Suppliers Suppliers Suppliers
Creditors Creditors Creditors Creditors
Public Public Public Public
administration administration administration administration
– – Competitors Competitors
Community* Community Community Community
– Environment Environment Environment

Note: * In 2000 and 2001, Community includes both people and the environment.

Source: Elaborated from company data.

are provided with copies of the analyses concerning emissions

released into the atmosphere by Sabaf’s factories;
● community: the local community, schools and universities, consum-
ers of household appliances and, more generally, the entire civil
society. Sabaf involves them through multi-stakeholder discussion
panels; and
● environment: the local territorial context in which the company carries
out its manufacturing activities and the wider environmental context
which is potentially affected by the group’s activities or products.

Sabaf’s identification and description of its stakeholders as well as its

evolution in the reports emphasize the company’s improvement in its man-
agement system and social and environmental reporting (see Table 1.3).
Two aspects are particularly important.
First, the inclusion of competitors in its stakeholders’ analysis represents
an example of the company’s commitment to follow its stakeholders’ sugges-
tions and put them into practice. Competitors have been considered as stake-
holders as a result of suggestions received in two different multi-stakeholder
discussion panels organized to present the 2002 social report. These meetings
were attended by representatives of creditors, customers and the local com-
munity, such as universities, trade unions and financial newspapers.
Second, the identification of the natural environment as a unique stake-
holder represents the result of an increased CSR awareness. Until 2001, the
environment was measured and analysed as a part of the local community
22 Corporate social responsibility

in the ‘Community’ section (see Table 1.3). Since 2002, the environment
has been assigned a specific section, ‘Environmental performance’, which
has been given the same importance as ‘Social performance’. Sabaf’s
environmental policy and impact have been analysed in more depth, by
reporting an increasing number of indicators. The choice of the company
to report its environmental policy and impact is the result of its com-
pliance with ISO 14001, a continuous-improvement-oriented standard,
based on the ‘plan–do–check–act’ methodology. Since 2002, environmen-
tal information has been provided in compliance with the first step of ISO
14001 (Plan). Since 2005, Sabaf has prepared an integrated annual report
and the environment has been inserted into the ‘Social and environmental
performance’ section, together with other stakeholders.

Stakeholders’ Policies, Provisions and Projects

Sabaf’s values focus on the central importance of individuals. This philos-

ophy is also perceived in its activities towards stakeholders. Table 1.4 lists
the main corporate policies and commitments towards its stakeholders,
its compliance with the main voluntary provisions, and key projects. The
most interesting aspects of stakeholder involvement concern employees,
shareholders, customers and the local community.
Sabaf seeks to support employee involvement by improving internal
communication.13 First, Sabaf has recommended that its production
managers and department supervisors behave responsibly and set an
example for all employees. Second, it has adopted an organizational com-
munication plan, aimed at fostering internal communication and analysis
of staff needs. Third, since July 2003 it has published a quarterly in-house
magazine whose purpose is to develop a continuous dialogue within the
organization. Last but not least, during the 2006 training sessions, struc-
tured group meetings and individual interviews were organized for middle
managers and for line teams. Practical aspects of the company’s operations
were discussed to ascertain the participants’ perceptions and concerns.
Sabaf is committed to enhancing shareholders’ value by guaranteeing the
company’s sustainable growth, and communicating strategies and policies in
a timely and transparent way. As a voluntary disclosure, Sabaf has approved
its Corporate Governance Handbook (Sabaf, 2006c), and complied with the
key recommendations of the Italian Corporate Governance Code. Given its
CSR commitment, the company has been included in the Ethibel list.
Sabaf is committed to providing safe and environmental-friendly prod-
ucts to its customers. In compliance with ISO 9001:2000, its quality
and environmental management systems are integrated. Sabaf’s quality
management system has the following aims:
 CSR and integrated triple bottom line reporting in Italy 23

Table 1.4 Policies, provisions and key projects

Stakeholders Policies Provision Key projects

compliance
Employees To foster: SA8000 To improve internal
flexible working OHSAS 18001 communication
hours; through:
respect for dissemination of
different cultures; information;
regular Organizational
information Communication
to trade union Plan;
representatives; ‘Living the Values’
permanent training project
training process;
the value of its
intangible assets
Shareholders To provide timely, Corporate To comply with the
thorough, and clear governance Italian Corporate
communication handbook Governance Code for
To respect listed companies
ethical values in
management
Customers To support long- ISO 9001:2000– To realize high-quality
term relationships Vision 2000 products with a low
which aid (Sabaf has environmental impact
innovation in had ISO 9001
components and certification since
finished products 1993)
Suppliers To monitor its Demand respect
supply chain (via for SA8000
the application principles
of the SA8000
standard)
To avoid any
exploitation of its
dominant position
Creditors To provide timely,
complete, clear,
and transparent
communication
and to ensure
total equality of
information
24 Corporate social responsibility

Table 1.4 (continued)

Stakeholders Policies Provision Key projects

compliance
Competitors To ensure integrity
in management of
business
To promote fair
competition,
respecting rights
relating to patents
and trademarks
To encourage social
responsibility
Public To ensure clear, To guarantee an open
administration prompt, complete dialogue with the
communication various authorities
To collaborate with to foster harmonious
institutions to ensure industrial development
the development of
safer products
Community To improve the To collaborate with
quality of life in the AIESEC, and with the
communities where University of Brescia
the company does To make donations
its business to local NGOs and
To make donations charities
to non-profit To commit to long-
associations distance adoptions
To contribute to
young people’s
education by liaising
with schools and
universities
Environment To promote the ISO 14001 (since To make energy-
development and 2003) saving products
use of eco-efficient
technologies and
products
To train employees To reduce hazardous
so that they are aware waste
of the environmental
aspects and impacts
connected with their
job
 CSR and integrated triple bottom line reporting in Italy 25

● to improve processes and products continuously, with special atten-

tion to environmental protection and employee safety;
● to involve partners and suppliers in the process of constant
improvement, which fosters innovation in components and finished
products;
● to enhance the value of human resources; and
● to improve business performance.

Sabaf aims to improve the quality of life in the communities where it

operates. It promotes action in the social, cultural, educational and sports
areas, by donating to non-profit associations or liaising with schools and
universities to contribute to young people’s education. For instance, since
2002 Sabaf has been collaborating with AIESEC, the world’s largest student
organization, which has been particularly active in promoting CSR issues.

SOCIAL AND ENVIRONMENTAL REPORTING AND

KEY PERFORMANCE INDICATORS

A section of Sabaf’s annual report, ‘Key performance indicators’, con-

tains a summary of financial and non-financial indicators. The latter
include human capital, structural capital, relational capital, and social and
environmental indicators.

Financial Indicators

The financial dimension of sustainability concerns the organization’s

impact on the financial conditions of its stakeholders and on the economic
system at local, national and global levels. Its importance is stressed in the
GRI guidelines (2002).
One core economic performance indicator14 is direct economic value gen-
erated and distributed which includes revenues, operating costs, employee
remuneration, donations and other investments in the local community,
retained earnings, and payments to capital providers and governments.
In the section ‘Key performance indicators’, Sabaf reports first the
main performance ratios based on its income statement, comparing the
results over a three-year period, then, the statement of the added value
and its allocation among different stakeholders, as recommended by GBS
guidelines (2001).
Nearly 50 per cent of the added value produced in 2006 was paid to
employees and staff as their remuneration. The section ‘Sabaf and its staff ’
explains the company’s commitment to employees and the composition
26 Corporate social responsibility

Donations
Company 0.1%
14.5%

Owner's equity Employees

14.6% 48.8%

Borrowed
capital 1.4%

Public
administration
20.6%

Source: Elaborated from 2006 company annual report.

Figure 1.3 Added value allocation

of their remuneration. Employees are hired according to the rules of the

Italian collective labour contract for the mechanical engineering indus-
try, supplemented by company-level agreements, which include addi-
tional fixed and performance-related remuneration for all employees. Its
Brazilian subsidiary guarantees a salary which is 17 per cent higher than
the Brazilian minimum salary.
Over one-fifth of the added value produced in 2006 is given to the public
administration via direct and indirect taxes. In addition, Sabaf claims that
it has never received government grants or any particular government aid
to support its business.
Some 1.4 per cent of the added value is paid to borrowed capital, which
includes interest for loans and others forms of financial support of the
company.
The remuneration of owners’ equity increased in 2006. Dividends are
14.6 per cent of the added value. Besides the distribution of an ordinary
dividend of €0.60 per share, Sabaf paid out an extraordinary dividend of
€1 per share. The extraordinary dividend was considered appropriate,
given the group’s financial position and strong cash generation.
Some 14.5 per cent of the value added is allocated to reserves as
remuneration for the company.
Donations amounted to approximately 0.1 per cent of the added value
 CSR and integrated triple bottom line reporting in Italy 27

in 2006. Sabaf mainly supported local social and humanitarian initiatives

in recognition of its commitment to the local community.

Human Capital

The first group of non-financial indicators referred to is human capital,

which includes personal attributes such as knowledge, skills and experience
(Roos, 1998). In particular:

● average employee age: reflects a constantly growing company and

the desire to hire young workers, giving preference to in-house train-
ing and growth rather than bringing in outside skills;
● employee high educational level: measures the number of graduate
workers and holders of higher education certificates to total employ-
ees. The section ‘Sabaf and its staff ’ reports on the complete staff
breakdown by educational qualifications. The company’s policy is
to offer traineeships in the mechanical engineering field to under-
graduates and high-school students;
● staff turnover: measures the ratio between number of leavers and
dismissed employees and the total of employees, as recommended by
performance indicators in ‘Labor Practice and Decent Work’ (GRI,
2002). Sabaf is aware of the fundamental importance of having a stable
and qualified workforce, therefore it monitors staff turnover; and
● average training hours per capita: measures the total training hours
to total employees, as recommended by GRI (2002). Sabaf con-
tributes to employee professional growth via a continuous training
process. The subsection ‘Training and internal communication’
contains a complete description of the hours spent on training. This
performance indicator is interrelated with the training investment to
sales ratio, which has increased in 2006.

Sabaf reports a continuous improvement of its human capital main

indicators since 2004 (see Table 1.5). For instance, the average employee
age, the average training hours per capita and the percentage of training
investment have all improved. These data seem to confirm the commit-
ment of Sabaf to promote the development of its staff ’s skills and its policy
of hiring young people.

Structural Capital

Roos (1998: 151) defined structural capital as ‘the extension and man-
ifestation of human capital into innovation, business processes and
28 Corporate social responsibility

Table 1.5 Human capital indicators

2006 2005 2004

Average employee age Years 33.8 34.3 34.6*
Educational level – high % 42.1 42.2 41.6
Staff turnover % 5.6 5.3 4.9
Average training hours Hours 29.0 26.0 27.0
per capita
Training investments/sales % 0.23 0.19 0.17

Note: * Excluding Sabaf do Brasil L.t.d.a.

Source: Elaborated from 2006 company annual report.

relationships with dealers and others’. Key structural indicators, which

concern investments and spending for intangible assets and quality of
products and processes, are:

● process engineering hours on total hours worked: measures the

hours with reference to R&D of new machines or products. It repre-
sents the time that the company spends on innovation;
● customer rejects: measures the number of customer charge-backs
and credit notes for returned goods on sales. Since Sabaf is com-
mitted to guaranteeing high-quality standards for its products, the
number of rejects is an important indicator to analyse the produc-
tion process and correct relevant errors; and
● sustained quality costs on sales: measures the number of customer
and in-house rejects on sales. This indicator provides information
about the quality of internal and external processes, and measures
their efficiency.

Sabaf reports an increase in investments in tangible and intangible assets

(see Table 1.6). The reduction of investments for quality may be explained
by the fact that measuring instruments and equipment had already been
acquired in previous years.

Relational Capital

Relational capital represent the relationships with internal and external

stakeholders (Roos et al., 1997). The main indicators adopted by Sabaf
are:
 CSR and integrated triple bottom line reporting in Italy 29

Table 1.6 Structural capital indicators

% – 2006 % – 2005 % – 2004

IT budget (investments + current 0.97 0.24 0.50*
expenditure)/sales
Employees with PC 41.60 40.50 36.30**
New product development hours/total 1.30 1.10 1.50
hours worked
Process engineering hours/total hours 3.00 3.80 3.90
worked
Tangible investments/sales 10.60 7.90 16.20
Intangible investments/sales 0.74 0.50 0.65
Current spending for quality/sales 0.14 0.12 0.09
Investments for quality/sales 0.07 0.20 0.12
Customer rejects 0.06 0.07 0.08*
In-house production rejects 0.41 0.36 0.42*
Substandard quality costs/sales 0.47 0.43 0.50*

Note: * Sabaf S.p.a. only. **Excluding Sabaf do Brasil L.t.d.a.

Source: Elaborated from 2006 company annual report.

● strike hours for internal reasons15 to total employees: measures

participation of employees in strikes. Sabaf shares information
and opinions with trade unions about issues such as hiring policies,
equal opportunities, and health and safety. The section ‘Sabaf and
its staff ’ contains the reasons for the strike hours with the percentage
of employee participation. In 2006, no strikes occurred in any of the
group’s companies;
● average sales per customer: measures the ratio between the total
sales and the number of customers; this increased slightly in 2006.
The section ‘Sabaf and its customers’ contains a complete sales anal-
ysis with a description of the number of countries and the customer
breakdown by sales class;
● indicators such as percentage sales to new customers, percentage of
sales to top 10 and top 20 customers: these monitor the relationship
between Sabaf and its customers, by measuring the incidence of the
main and the new customers. Sabaf aims to increase the number of cus-
tomers, but also to establish a longstanding relationship with them;
● the number of samples produced for customers and number of dif-
ferent stock-keeping units (SKUs) supplied to 10 major customers:
measures Sabaf’s effort to involve its customers in the innovation
process; numbers have increased. The distribution of samples helps
30 Corporate social responsibility

Sabaf to tailor its production process to its customers’ needs and

suggestions, thus consolidating its collaborative relationship with
them;
● customer complaints: measures the ability and promptness of Sabaf
to solve customer complaints. In 2007 Sabaf prepared a question-
naire targeting its main customers with the aim of estimating the
level of their satisfaction in relation to these aspects;
● purchases from certified suppliers: measures the percentage of pur-
chases from certified suppliers on total purchases. Sabaf involves
its suppliers in a process of constant improvement, encouraging
longlasting partnerships. Sabaf encourages its suppliers to adopt
CSR practices. For example, its suppliers are required to respect SA
8000 standard (2005) as a prerequisite to establishing a long-term
relationship;
● media presence: measures the number of times that Sabaf has fea-
tured in magazines and on websites, in newspapers and in other
media. In order to improve its external communication, Sabaf’s
website contains links to all articles appearing in the business media.
An increasing presence in the media enables Sabaf to announce its
social and environmental performance and its progress towards total
quality. Through the media, Sabaf divulges the technical character-
istics of the group’s new products and improves its external image;
● number of financial analysts following Sabaf stocks: measures the
attention of the financial market to Sabaf shares. Sabaf considers
financial communication crucial to its growth. In 2007 a ques-
tionnaire was prepared to estimate how the financial community
evaluated its choices on CSR and corporate governance. The results,
contained in the section ‘Sabaf and its shareholders’, were presented
to potential investors; and
● lawsuits against the group’s companies: measures the number of
legal disputes with its stakeholders. The absence of legal disputes is
a signal of the company’s social behaviour. At 31 December 2006,
legal disputes were underway with three employees.

Social Indicators

The main social indicators are:

● total employee headcount (men and women): measures the compo-

sition of employees and shows how Sabaf guarantees equal oppor-
tunity between men and women. The section ‘Labour practices and
decent work’ performance indicators (GRI, 2002) suggests that the
 CSR and integrated triple bottom line reporting in Italy 31

Table 1.7 Relational capital indicators

2006 2005 2004

Strike hours for internal reasons/ Hours 0 0 3.2
total employees
Average sales per customer €/000 436 425 426
Sales from new customers % 1.31 2.29 2.22
Incidence of top 10 customers % 47 52 53
Incidence of top 20 customers % 67 71 70
Samples produced for customers Number 1,182 717 919
Different product SKUs supplied Number 2,713 2,282 2,265
to top 10 customers
Customer complaints Number 324 274 280*
Certified supplier sales % 54.3 49.3** 49.9**
Media presence Number 279 274 223
Financial analysts following Sabaf Number 6 7 5
stock on an ongoing basis
Lawsuits against group’s Number 0 3 0
companies

Note: * Sabaf S.p.a. only. **Excluding Sabaf do Brasil L.t.d.a.

Source: Elaborated from 2006 company annual report.

composition of the board of directors and breakdown of employ-

ees per category according to gender, age group, minority group
membership, and other indicators of diversity should be reported.
In accordance with the law, Sabaf guarantees equal opportunity
to men and women. Although the percentage of female employees
has decreased since 2004, Sabaf still encourages a high presence of
female staff within the Italian metalworking and engineering sector;
● sickness rate: measures the percentage of sick leave hours to total
workable hours; this has remained constant over the years. This
ratio indirectly monitors the satisfaction of company staff and its
commitment to the company. The section ‘Sabaf and its staff ’ con-
tains a subsection ‘working hours and hours of absence’ in which
there is an explanation of the total hours of absence with the reasons
compared with the sector average. Sabaf points out, for example,
that the high number of maternity leave hours, compared with the
sector average, reflects the high percentage of female staff. The total
annual sick leave hours is lower than the sector average;
● accident frequency and gravity indices: indicators of safety. Sabaf
monitors the effectiveness of its efforts to safeguard the safety
32 Corporate social responsibility

and health of its employees. These indices have been significantly

reduced over the period analysed;
● job creation: measures the annual number of hirings and the compa-
ny’s commitment to create job opportunities and benefits for the local
community. The number of jobs created has constantly increased.
Indeed, its workforce has increased by 12 per cent since 2005;
● percentage of supplies bought from local suppliers: measures Sabaf’s
preference for local suppliers in order to allocate a significant part
of added value within the local community. The section ‘Sabaf and
its suppliers’ reports on the company’s commitment to support the
development of the territory where it operates by giving preference
to local companies in selecting suppliers. In 2006, the purchases
made in the local areas in which it operates accounted for some two-
thirds of the total; and
● donations on net profit: measures the percentage of profit that Sabaf
passes on to the community. Sabaf’s commitment to the community
is not only in the form of cash donations to humanitarian, sporting
and cultural associations, but is also manifested in the creation of
job opportunities and a ‘constant activity with regard to disseminat-
ing good corporate business practices’ (Sabaf, 2006b: 109).

Environmental Indicators

Sabaf considers that the environment is an important stakeholder. The

ISO 14001 certification is a significant step towards respect for the envi-
ronment in its production process. Products are made to guarantee the

Table 1.8 Social indicators

2006 2005 2004

Total employee headcount Number 594 531 507
Men % 64.3 62.9 60.7
Women % 35.7 37.1 39.3
Sickness rate % 3.4 3.5 3.3
Accident frequency index 20.47 20.76 38.65
Accident gravity 0.19 0.24 0.39
Jobs created Number 66 24 5
Supplier sales from suppliers in % 49.6 43.0 44.8
province of Brescia
Donation/net profit % 0.2 0.5 0.7

Source: Elaborated from 2006 company annual report.

 CSR and integrated triple bottom line reporting in Italy 33

greatest efficiency and the lowest consumption. The Sabaf annual report
contains several environmental performance indicators suggested by GRI
(2002), which include:

● materials used: measures the consumption of the main materials

(brass, aluminium alloys and steel) that Sabaf uses in its processes.
The consumption of aluminium alloys increased in 2006 as it has
several advantages over the production of brass valves, in terms of
energy saving, lower lead content of product, lighter product and a
consequent reduction of consumption for packaging and transport.
Products made with these materials are easily recyclable. The section
‘Sabaf and the environment’ contains a complete description of the
eco-efficiency of aluminium alloys compared with other materials
(such as brass and steel), as well as a description of the main prod-
ucts and their advantages in terms of innovation and improvement
of environmental performances;
● waste: measures the production of three types of waste – municipal,
hazardous and non-hazardous. The monitoring of these is impor-
tant with regard to improving environmental performance. In
2006, Sabaf achieved a drastic reduction of hazardous waste. Sabaf
planned a further reduction for 2007;

Table 1.9 Environmental indicators

2006 2005 2004

Materials used:
Brass Metric tons 4,937 4,373 4,795
Aluminium alloys Metric tons 7,039 5,625 5,629
Steel Metric tons 7,646 7,011 6,870
Waste:
Municipal-type waste Metric tons 130 134 219
Total hazardous waste Metric tons 1,252 3,216 3,978
Total non-hazardous waste Metric tons 7,527 6,148 6,305
Natural gas consumption M3 000 3,193 2,723 2,505
Electricity consumption MWh 24,279 20,553 18,889
CO2 emissions Metric tons 21,419 18,460 16,706
Current environmental % 0.47 0.48 0.53
spending/sales
Environmental investments/ % 0.08 0.35 0.09
sales

Source: Elaborated from 2006 company annual report.

34 Corporate social responsibility

● natural gas and electricity consumption: measures the consump-

tion of natural gas (a relatively clean energy source) and electricity.
Sabaf promotes the advantages of cooking with gas as opposed to
electricity, as the former is more efficient and more environment
friendly than the latter. The use of natural gas enables Sabaf to
reduce its emissions of greenhouse gases. The increasing use of
natural gas reflects the increase of in-house production in the pres-
sure die-casting and enamelling departments; and
● environmental spending and investments to total sales: measures
the percentages of the costs incurred and investments made that
Sabaf undertakes in order to safeguard the environment. The
section ‘Sabaf and the environment’ contains a list of the main envi-
ronment-related expenditures. The most relevant costs are related
to waste disposal. In 2005, Sabaf made an important investment
related to foundry water recycling plants, which have permitted a
significant reduction of waste.

CONCLUSIONS

Sabaf is a family-run manufacturing business group. Sabaf considers good

corporate governance as part of its overall approach to social responsibil-
ity, and thus decided that it should be listed on the Italian Stock Exchange
within the so-called STAR segment. It is included in the Kempen SNS
SRI index as well as in the list of companies in which ethical funds which
operate in accordance with the Ethibel evaluation can invest.
Sabaf adopts a triple bottom line approach in its activities and report-
ing, which has improved significantly since its first implementation in
2000. Since 2005, it has integrated financial reporting with social and
environmental reporting in a single annual report. This integrated triple
bottom line reporting plays a dual role: first, it helps Sabaf to monitor its
financial, social and environmental performance through several key per-
formance indicators, and second, it fosters Sabaf’s communication with
its stakeholders.
Sabaf’s management seems consistent with the definition of CSR stipu-
lated in the 2001 Green Paper of the European Commission. The improve-
ment in its reported performance from 2004 to 2006 demonstrates the
company’s commitment to translate its values into practice.
The only concern about Sabaf’s social responsibility is that most of its
CSR-related activities have little material negative impact on its financial
performance. Although Sabaf states that any potential alternative that
does not respect its core values would be rejected by its management, even
 CSR and integrated triple bottom line reporting in Italy 35

if it provided financial benefits to the company, we found no evidence

that its senior management has ever had to take such a decision. In other
words, we found no evidence that the Sabaf management has ever faced a
true CSR dilemma in recent years, that is a situation where pursuing social
and/or environmental performance would have meant restricting the
financial performance of the company in a material way, by either increas-
ing its costs or curbing its revenues. Thus, the evidence from the Sabaf case
study seems to be consistent with the so-called ‘enlightened stakeholder
theory’ view of the firm (see Jensen, 2002) according to which, senior man-
agement pursues a total long-term firm value by taking into account, at the
same time, the company’s relations with all important constituencies.

KEY LEARNING POINTS

Sabaf represents a case of good CSR practice in Italy. This case study has
illustrated how:

● Sabaf seeks to adopt a triple bottom line approach in its activities.

Senior management manages the group in accordance with the cor-
porate values stated in its charter of values, and states that any alter-
native that does not respect Sabaf’s values is to be rejected even if such
an alternative were to result in financial benefits for the company.
● Sabaf identifies its stakeholders and engages with them. The devel-
opment of a continuous dialogue with its stakeholders is considered
a sine qua non, as Sabaf is aware that a socially responsible company
cannot be self-accountable.
● Sabaf monitors its financial, social and environmental performance,
and communicates to its stakeholders by means of a single annual
report. The integration of financial reporting with social and envi-
ronmental reporting, also called triple bottom line reporting, repre-
sents a fundamental part of Sabaf’s social responsibility, as it plays
an active role in CSR.

DISCUSSION QUESTIONS

The following questions concern Sabaf’s attempt to be a socially respon-

sible company:

1. A socially responsible company cannot be self-accountable. Critically

discuss this statement using evidence from the Sabaf case.
36 Corporate social responsibility

2. What does a triple bottom line approach mean? How does Sabaf put
it into practice?
3. Who are the key corporate stakeholders? How does the Sabaf
management interconnect with each of them?
4. How can a company measure its social and environmental perform-
ance? Critically evaluate Sabaf’s triple bottom line reporting.
5. What active role is played by integrated reporting in CSR? Critically
discuss this, using evidence from the Sabaf case.
6. How is corporate governance linked to corporate social respon-
sibility?
7. To what extent does a company engage with its stakeholders to seek
social legitimacy rather than actual social responsibility? Critically
discuss this, using evidence from the Sabaf case.

ACKNOWLEDGEMENTS

We would like to express our gratitude to Chris Mallin for her comments
on previous versions of this work. This chapter is the result of a joint
effort of all three authors. In particular, Andrea Melis wrote the introduc-
tion and the section ‘Company profile and corporate governance’, Silvia
Carta wrote the sections ‘Corporate identity and charter of values’ and
‘Social and environmental reporting and key performance indicators’,
while Silvia Del Rio wrote ‘Values distribution to corporate stakeholders’.
Conclusions and key learning points are to be attributed to all authors
jointly.

NOTES

1. Legitimacy theory predicts that companies adopt environmental and social responsibil-
ity reporting (in addition to financial reporting) to legitimize their operations within the
society (see, for example, Epstein and Votaw, 1978).
2. Ethibel is an independent consultancy agency for socially responsible investments that
advises banks and brokers, offering ethical savings accounts and investment funds. In
order to guarantee the quality of such financial products, Ethibel has its own European
quality label. The criteria for the social–ethical company screenings, which shape the
characteristics of investment funds accredited with the Ethibel label, cover all aspects of
CSR.
3. Kempen SNS SRI is the first index for socially responsible European small-caps (com-
panies with small-capitalization).
4. ISO 14001 provides the guidelines for an environmental management system that
enables an organization to develop and implement a policy and objectives which take
into account legal requirements and information about significant environmental
aspects (ISO, 2004).
 CSR and integrated triple bottom line reporting in Italy 37

5. SA8000 (SAI, 2005) is a global social accountability standard for decent working condi-
tions, developed and overseen by Social Accountability International. It is based on the
UN Universal Declaration of Human Rights, Convention on the Rights of the Child
and various International Labour Organization (ILO) conventions.
6. GBS (Gruppo di studio per il Bilancio Sociale) is an Italian special interest group com-
posed of academics, auditors, and other CSR experts, which published the first Italian
guidelines for the preparation and presentation of social reports in 2001.
7. The AA1000 Framework was developed by the Institute of Social and Ethical
Accountability (ISEA) to help organizations build their accountability and social
responsibility through quality social and ethical accounting, auditing and reporting.
8. Global Compact is an international initiative that includes thousands of companies
together with UN agencies, labour and civil society to support universal environmental
and social principles.
9. The Italian Stock Exchange has attempted a market-based approach to improving
Italian governance in 2000 with the introduction of STAR (‘market for shares with
high requirements’), a mid-cap corporate governance segment which certifies listed
companies that comply with superior standards of internal control and monitoring. The
Italian Stock Exchange aimed to promote ‘good corporate governance’, by providing
discerning investors with the ability to immediately identify and invest in companies
that meet stringent corporate governance guidelines.
10. The Social and Ethical, Auditing and Accounting Network (SEAN) is an Italian con-
sortium founded by KPMG and a national consulting firm. Its aim is to promote a CSR
management system, ProGReSS©.
11. Founded in 1989, Istituto Europeo per il Bilancio Sociale (IBS) is an Italian private con-
sulting firm, whose activities have been focused on developing guidelines for preparing
and presenting social reports.
12. The AA1000 Stakeholder Engagement Standard (AA1000SES) is a generally applicable
framework for improving the quality of the design, implementation, assessment, com-
munication, and assurance of stakeholder engagement developed by the ISEA.
13. Sabaf assumes that its intellectual capital may be fostered through the reinforcement of
its human capital, via the increase of employees’ skills, identification and satisfaction.
Human capital fosters the development of its organizational capital (operational know-
how and process improvements) ensuring a further development of relational capital (in
terms of improving stakeholders’ engagement).
14. Performance indicators suggested by GRI (2002) are classified as core and additional
indicators. Core indicators are generally applicable and are assumed to be material
for most organizations. Additional indicators represent emerging practices or address
topics that may be material for some organizations, but not for others (ibid.).
15. These data do not include strike hours due to external reasons related to the renewal of
the national collective labour contract.

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USEFUL WEBSITES (WITH AN ENGLISH VERSION)

Global Compact, www.unglobalcompact.org.

Global Reporting Initiative, www.globalreporting.org.
Institute of Social and Ethical Accountability, www.accountability21.net.
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Social Accountability International, www.sa-intl.org.
2. CSR in Spain: examples of some
practices
María Sacristán Navarro and
Silvia Gómez Ansón

INTRODUCTION
Over the last decade, corporate responsibility has evolved from a focus on what
not to do towards a business innovation agenda that translates today’s social
and environmental challenges into opportunities for creating economic value
. . . (AccountAbility 2007, p. 11)

As Günter Verheugen, Vice-President of the European Commission, argues,

‘businesses of all sizes must consider their role in today’s society when
making strategic and operational decisions’ (Verheugen 2007, p. 112).
Corporate social responsibility (CSR) has also evolved considerably in
Spain during the last decade, and especially more recently. For instance,
the year 2007 marked a considerable advance in CSR: it was the first year
that the Unified Code of Best Practice, which was approved in May 2006,
was applicable to Spanish publicly listed companies. The Unified Code of
Best Practice includes, among others, recommendations that are closely
related to social responsibility issues, such as: the approval of a CSR
policy, the adequate management of reputational risks and the establish-
ment of programmes of corporate integrity. As a consequence, in 2007
there was an increase in the number of Spanish quoted companies that
approved formal CSR policies, decided to establish specialized commit-
tees within the boards of directors to deal with CSR issues and formalized
programmes of corporate integrity (Fundación Alternativas, 2008, p. 23).
This movement, which relates CSR practices to corporate governance
(CG) practices, aims to: (i) institutionalize CSR in quoted companies, as
companies should understand that all relevant decisions should be ana-
lysed from a social, environmental, ethical and reputational view; (ii) for-
malize the responsibilities of the boards of directors in the issues linked to
CSR; (iii) develop procedures that allow management teams to share CSR
issues with the boards; (iv) allow the participation of the boards in CSR

40
 CSR in Spain: examples of some practices 41

14.78
16 13.75 14.18 14.54
14 12.66 13.15 13.19 13.52
11.47 11.59 12.20
12
Rating

10
8
6
4
2
0
Germany

Italy

Spain

Belgium

Portugal

2007
European
company
Sweden

France

Switzerland

Netherlands

United
Kingdom
Country

Source: Heidrick & Struggles (2007).

Figure 2.1 Corporate governance ratings by country (Europe)

issues; and (v) provide the members of the boards with information that
allows them to take informed decisions in CSR issues (ibid., p. 23).

What is the General Situation of CSR in Spain?

The Heidrick & Struggles report: ‘Corporate Governance in Europe: Raising

the Bar’, published in 2007 and relating to information for 2006, situates
the largest Spanish companies among the worst-valued in CG practices
in Europe (Figure 2.1), and compared to the 2005 Report, Spain suffers a
downgrading, in contrast to improvements found in the rest of Europe (the
European CG average ratio amounted to 12.68 in 2005 and to 13.19 in 2007,
while in 2007 Spanish companies obtained an average CG ratio of 12.20).
The study published by AccountAbility in 2007, ‘The State of
Responsible Competitiveness, 2007’, also suggests that Spain occupies a
non-favourable position in CSR issues among developed, and especially
European, countries. The results of this study indicate that ‘mature
or developed nations, and European countries in particular, are most
advanced in embedding responsible business practices at the heart of their
economies. Nordic countries dominate the list, with Sweden taking first
place and Denmark, Finland, Iceland and Norway all being in the Top
Six, alongside the UK’ (AccountAbility, 2007, p. 21). Spain with an index
of 63.7 occupies the 26th position, far below the European average, and
therefore does not belong to the cluster of top 20 countries, but to that of
the ‘asserters’, which includes countries moving from the back to the front
foot, countries seizing opportunities in responsible competitiveness (Table
2.1). Moreover, with regard to indicators at the firm level, those included
under ‘Business action’, Spain has an index of just 61.4, and occupies an
even lower position: 35th.
42 Corporate social responsibility

Table 2.1 Responsible index ratings

Country Responsible Policy Business Social

competitiveness drivers action enablers
index 2007
Sweden 81.5 86.0 90.2 74.7
Denmark 81.0 89.9 86.9 76.6
Finland 78.8 83.9 84.1 76.7
Iceland 76.7 83.5 74.9 86.3
United Kingdom 75.8 88.8 75.9 76.6
Norway 75.5 83.8 77.3 75.9
New Zealand 74.9 88.6 72.2 80.0
Ireland 74.6 85.0 73.8 78.1
Australia 73.0 82.7 73.6 73.3
Canada 73.0 83.7 72.5 74.8
Germany 72.7 81.8 74.8 70.1
Netherlands 72.6 81.6 75.0 69.5
Switzerland 72.5 87.8 74.5 65.7
Belgium 71.9 86.1 70.1 73.0
Singapore 71.3 83.7 74.4 63.5
Austria 70.9 84.1 71.6 67.2
France 70.1 76.9 69.2 73.6
United States 69.6 72.6 72.1 68.6
Japan 68.8 80.7 68.9 65.7
Hong Kong, China 68.3 84.5 68.9 60.6
Portugal 65.9 79.2 63.1 65.7
Estonia 65.0 73.5 67.4 73.0
Slovenia 64.1 76.0 61.3 63.7
Chile 64.0 80.3 65.4 67.9
Malaysia 63.7 82.3 68.4 59.2
Spain 63.7 73.3 61.4 63.3
Korea, Rep. 63.0 69.3 62.8 60.7
South Africa 62.5 75.8 66.9 61.3
United Arab Emirates 62.4 75.1 63.6 52.1
Lithuania 62.1 78.7 64.0 63.6

Source: AccountAbility (2007).

Nevertheless, CSR is nowadays part of the strategy of Spanish com-

panies. More than 600 companies have signed the Global Compact
principles and clients, investors, public administrations and other agents
are putting increasing pressure on Spanish companies to respect ethical,
environmental and social issues. Spanish companies are included in inter-
national sustainability indexes such as the DJ Sustainability Indexes or
 CSR in Spain: examples of some practices 43

the FTSEGood Indexes, and the Spanish Stock Market has launched the
FTSE4GoodIbex Index (March 2008).
Selecting examples of CSR practices among the many companies in a
country is not easy. We decided to provide examples of different prac-
tices put in place by Spanish companies with respect to human resources:
diversity (gender and disabled people), volunteering and suppliers.

GENDER DIVERSITY AND EQUALITY OF

OPPORTUNITIES

Institutional Setting

Spain has a women’s employment rate below the EU27 average and one of
the highest gender gaps among EU27 countries. Moreover, according to
the Eurobarometer of November 2008, Spanish citizens are among those in
Europe who face greater difficulties in reconciling professional and family
life. Some 22 per cent of Spanish citizens interviewed find it really difficult
to reconcile their professional and family life, a percentage that is only sur-
passed by Portugal (33 per cent of those interviewed) and Hungary (24 per
cent), and 42 per cent find it quite difficult. Moreover, among the principal
problems faced by Spanish families are those associated with the difficulties
of reconciling professional and family life (30 per cent) and the low level of
public support to families (18 per cent). In addition, Spanish citizens con-
sider it more necessary to establish flexible solutions for childcare (77 per
cent), and 69 per cent also cite access to temporary work as a priority.
With regard to gender diversity in top management positions, Spain
also obtains quite a low score compared to other European countries
(Figure 2.2). According to the Heidrick & Struggles report, compared to
a European average of 8.4 per cent of women on boards in 2006, Spain
showed a mean percentage of just 3.1 per cent on the boards of the largest
publicly listed companies. The situation improved during 2007 and the
large Spanish publicly listed companies now have an average of 6.6 per
cent women per board; nevertheless, Spanish companies are well below the
European average (Figure 2.3).
The awareness of the existence of a gender glass ceiling and the need for
Spanish companies to reconcile professional and family life increased with
the approval of the Unified Code of Best Practice in 2006, which included
a recommendation to promote women directors and the Equality Act of
Women and Men (Ley de Igualdad de Mujeres y Hombres) in 2007. The
following subsections will discuss how some companies have established
CSR diversity-related practices.
44 Corporate social responsibility

25 21.3
20
Percentage
15.2
15 12.4
10 7.5 8.4 9.0
7.2
5.3
5 2.3 3.1
0.7
0 Portugal

Italy

Spain

Belgium

Switzerland

France
2007
European
company
Netherlands

Germany

United
Kingdom

Sweden
Country

Source: Heidrick & Struggles (2007).

Figure 2.2 Women in the boardroom by country (Europe, 2006)

50 44.2
40
Percentage

30 25.7 26.9
18.1
20 11.5 12.3
10 6.0 6.6 6.6 7 7.2 7.6 7.8 9.2 9.7 10.1
0.8 2.1
0
Portugal

Italy

Greece

Spain

Switzerland

Belgium

Luxembourg

France

Germany

Austria
European
average
Ireland
United
Kingdom
Netherlands

Denmark

Finland

Sweden

Norway
Country

Source: European Professional Women Network Monitor (2008), www.europeanpwn.net.

Figure 2.3 Women in the boardroom by country (Europe, 2007)

Iberdrola

Iberdrola, an electrical company, was designated as the best company

within the utilities sector in the 2008 Dow Jones Sustainability Index
(DJSI) and achieved the best score in its sector in two of the three facets
that are taken into account when preparing the DJSI: the economic and
social dimensions.
Iberdrola approved a Code of Professional Conduct in 2002 (amended
in 2007) that formalizes the principles, values and standards of conduct
of its professionals. To supplement this code, in 2007, the board of direc-
tors approved the company’s CSR policy which, among other things,
sets as objectives: (i) to respect all human rights and, in particular, those
whose violation degrades workers as a group, rejecting child labour and
 CSR in Spain: examples of some practices 45

forced or compulsory labour and (ii) to develop a favourable framework

of labour relations based on equality of opportunity, non-discrimina-
tion and respect for diversity, promoting a safe and healthy environ-
ment and facilitating communication with the workforce. The Code
of Conduct states that it will observe and promote non-discrimination
through the application of a universal recruitment policy based on the
merits and qualifications of candidates. It also guarantees that objective
evaluation systems based strictly on professional criteria will be applied.
Furthermore, companies’ compensation models should establish fair
rewards based on the level of responsibility of professionals, defined by
categories, and the performance of employees, by recognizing effort and
commitment, valuing experience, responsibility, the complexity of the
work performed, versatility, flexibility and work abroad (Iberdrola, 2007,
p. 157). The report also states:

In addition, in order to give effect to the principle of non-discrimination, when-

ever there are employees with diminished ability to perform their duties for
medical reasons who do not obtain the declaration of permanent disability, the
companies shall assign them to the vacancy that is most suitable for their skills
and knowledge, maintaining their original category. (Ibid., p. 162)

Iberdrola may be considered as a company leader in the reconciliation

of professional and family life. As the company states:

The entry of women into the workplace has entailed changes in social, labour
and family relationships. However, there are serious obstacles to the achieve-
ment of a balance in their social and labour participation, largely for cultural
reasons relating to their practically exclusive assumption of domestic and
family responsibilities. All of this has a negative impact on their possibilities
of employment in terms of equality and professional development. Following
the principles set forth in the Law for the Equality of Women and Men, the
Iberdrola Group, in its collective bargaining agreement, states its clear inten-
tion to promote real equality between women and men, eliminating the social
obstacles and stereotypes that prevent the achievement of such equality.
Specifically, it acknowledges the right to the reconciliation of personal, family
and working life and promotes greater responsibility among women and men
in assuming family obligations. Within this context, the Agreement specifically
provides for the following:

● Paid vacation.
● Breast-feeding time.
● Shorter working hours for family reasons.
● Leave.
● Job change.
● Adjustment of the corporate organization to allow the exercise of the right to
reconcile personal, family and professional life.
46 Corporate social responsibility

Employees exercising the rights that seek to reconcile working and family life
may not be discriminated against in any way and shall retain all their employ-
ment rights as provided in the Collective Bargaining Agreement and applicable
laws and regulations.
All employees of the companies forming part of the Iberdrola Group may
exercise such rights on equal terms . . . (Ibid., pp. 160–61)

Furthermore, in 2003 Iberdrola implemented

a maternity and family support policy which exceeds the rights afforded by
current Spanish legislation, and which is based on two specific measures:

● A 15-calendar-day paid leave to be taken prior to the expected delivery date.

Since it was introduced, 108 employees had taken this leave by 2007.
● A flexible five-hour working day starting on the expiration of the statutory
maternity leave and during the period remaining until the first anniversary of
the delivery date, with full salary. Since it was introduced, 198 employees had
benefited from this measure by 2007. (Ibid., p. 162)

In 2007, Iberdrola moved further in the direction of reconciling profes-

sional and family life and became the first company listed on the Ibex-35
index to implement a continuous working day throughout the year.
All these measures have made possible the certification of the compa-
nies making up the Iberdrola Group in 2006 as a ‘Family-Responsible
Company’:

Iberdrola was the first electricity company to receive such a certificate and
one of the first seven Spanish companies to do so. In order to receive this cer-
tificate, both an internal audit and an external audit are required to verify the
information provided. The Company’s responsible behaviour was, as has been
described above, further strengthened during 2007, thus enhancing its competi-
tiveness and allowing it to renew the certification, and its subsidiaries Iberdrola
Operación y Mantenimiento and Iberdrola Renovables both achieved certifica-
tion during 2007, thus consolidating the process within the companies of the
Group. The following challenges, set forth in the Action Plan to consolidate
Iberdrola’s policy as a Family-Responsible Company, were also met:

● Expand the scope of the Family-Responsible Company model to Iberdrola

Operación y Mantenimiento and Iberdrola Renovables.
● Include references in the Code of Conduct to Iberdrola’s involvement in the
reconciliation of professional and family life.
● Develop, manage and strengthen the Family-Responsible Company model
with indicator analysis (Scorecard), and report to the Human Resources
Committee and the Corporate Social Responsibility Committee.
● Issue the alternative measures certificate for the companies proposed for
certification.
 CSR in Spain: examples of some practices 47

● Update existing procedures and establish new procedures.

● Develop internal audit procedures.
● Train employees, including such information in the reception and integration
plans.
● Enhance the level of communication, with the presentation of periodic news
and the inclusion of messages in road shows and the Sharing [Comparte]
programmes.
● Develop surveys on family-responsible policies.
● Revise the policy manual. (Ibid., p. 162)

Eroski

Eroski is a retailing cooperative with more than 50,600 employees. More

than 80 per cent of its workforce consists of women. It has set up an
‘Equality Observatory’ with the objective of changing the working condi-
tions in the company for women. The Observatory comprises 17 people
from Eroski with different responsibilities and representations:

It fosters initiatives and maps out proposals for management on four key
topics:

● Women in the company, with professional plans connected with women and
working conditions in general.
● Women and health, working on concerns which directly affect the health and
well-being of women from both the preventive and palliative points of view.
● Women and training, with training programmes in which women gain a
greater presence in professional skills and internal promotion programmes.
● Reconciling work and family life.

In 2007 the Observatory published its Guide to Non-Discriminatory

Recruitment to prevent sex discrimination in recruitment procedures, and its
Guide to Non-Sexist Language which is designed to help Eroski personnel
involved in communication processes. (Eroski, 2007, pp. 37–8)

With regard to reconciling professional and family life, Eroski has

extended the leave of absence for childcare, putting de facto and de jure
couples on the same footing, and established a period of unpaid leave with
the job being retained. The following measures have been implemented
(ibid., p. 38):

● Leave of absence for looking after a child aged under 8 with a longer period
(24 months) during which time the employee’s job is kept for them. By law,
workers are only entitled to a maximum of up to three years (we had previ-
ously expanded leave of absence time up to six years).
● Putting de facto and de jure couples on the same footing for all purposes
(permits, licences, leave of absence and so on).
48 Corporate social responsibility

● Voluntary reduction (with no grounds required) of the working day with the
option to return to a full timetable.
● Unpaid leave, with the job being kept open, to work with a non-governmen-
tal organization or for personal or professional development.
● No splitting of working days lasting less than four hours.
● Right to a minimum working week of 28 hours.

Furthermore, ‘the Equality Observatory also seeks to create working

environments which are adapted to the physical and structural condi-
tions of women and to balance the presence of men and women in the
professional categories traditionally occupied by members of one or the
other sex’. In 2007, it carried out an evaluation of jobs and tasks and
their redefinition according to ergonomic principles for the protection of
working women, monitored the plans for evaluating and adapting jobs
to the working conditions required for pregnant women, has set out the
key jobs which could be held by women and has established measures to
equalize the number of full working days for women and men in the same
jobs (ibid., p. 37).

INTEGRATION OF DISABLED PEOPLE: BANKINTER

Bankinter is a Spanish bank that defines its objective as ‘to improve the
quality of life’ (Bankinter, 2007, p. 2). It is rated as one of the best com-
panies to work for in Spain (Best Place to Work Survey). In the area of
social action, some years ago it decided to create a specific Social Action
department whose watchword is ‘we are different, so that we are all equal’,
and which has developed, inter alia, an accessibility project that has made
it possible for the disabled to operate with the bank through any channel:
Internet, branches, telephone, mobile telephone and so on. Also, it has
worked actively on promoting the Corporate Volunteer Group, with 5.3
per cent of the labour force taking part in activities of this type organized
by the bank.
Bankinter is also committed to equality between men and women. In
2007, women accounted for 48.2 per cent of the workforce, compared with
51.8 per cent of men. The constant efforts to ensure a diverse and balanced
workforce are also reflected in the percentages of new hires, which stood at
48.4 per cent for men and 51.6 per cent for women in 2007. Furthermore,
as part of its policy of equality and non-discrimination, Bankinter also
promotes the diversity of its workforce: the bank has employees of 28
different nationalities.
Bankinter had 34 disabled members on its staff in 2007. Spanish law
states that, ‘companies that have not yet reached the quota of including
 CSR in Spain: examples of some practices 49

2 per cent of disabled workers on their payroll are legally permitted to

use alternative means of fulfilling this social obligation, by purchasing
goods and services from special employment centres, which are entities
whose workforce comprises a majority of disabled people, or by making
donations to non-profit entities dedicated to working with such persons’.
Bankinter complies with the law as regards its integration of such indi-
viduals, but it goes further by taking on the challenge of meeting the
quota or exceeding it in the 2010s and in addition it will be cooperating
actively to achieve the genuine integration of the disabled, both within and
outside Bankinter. The bank spends the amount allocated to its alternative
measures on:

● Purchasing goods and services from special employment centres,

in close partnership with Fundación ONCE (a Spanish foundation
that aims to achieve the full integration and normalization of the
disabled in Spanish and European society).
● Donating an amount to Fundación Adecco (a foundation that seeks
the employment of those who face more difficulties finding a job) to
be spent entirely on efforts for the selection, training and integration
of the disabled at all levels of Bankinter (ibid., p. 43).

For this purpose Bankinter and Fundación Adecco have signed an agreement
for the implementation of joint initiatives aimed at the full social and labour
integration of the disabled and disadvantaged in three different fields: the inte-
gration of the disabled, of women with family responsibilities and of those over
45 years of age.
As part of this agreement, the ‘Family Plan’ aims to provide the relatives of
Bankinter employees who suffer some degree of disability with assistance of
various kinds to facilitate their real integration in the workplace and society.
These actions focus on two specific groups:

● For adults: there are training initiatives centred upon developing skills
and social attitudes to facilitate their entry into employment, as well as
access to information, guidance and counselling relating to the search for
employment.
● For underage individuals: Bankinter gives financial assistance of €3,000, paid
into the employee’s January salary, with a view to alleviating, where possible,
the financial outlays of Bankinter employee families who have children with
30 per cent disability.

The actions carried out in 2007 included financial assistance for psychological
counselling, equine therapy courses and summer camps, and the sponsorship of
activities focused on developing skills and attitudes for movement and involve-
ment in the community, such as the Pilgrim’s Way to Santiago, an adapted
alpine ski course and the multi-adventure weekend at the Burguillo reservoir
(Avila). (Ibid., p. 44)
50 Corporate social responsibility

Bankinter has also developed and implemented accessibility projects

that make it possible for any customer or employee, regardless of his or
her personal or technological capacities, to access the bank through any
channel. In this sense, Bankinter seeks to become a benchmark financial
institution for the more than three and a half million disabled in Spain.
In 2005, Bankinter became the first financial institution to adapt all its
relationship channels and platforms on the basis of universal accessibil-
ity criteria. Bankinter.com was the first financial internet portal to attain
an AA rating for website accessibility in 2005. In March 2007, Bankinter
became the first bank to achieve the Eurocert European website accessibil-
ity certification, which guarantees that the bank’s internet websites meet
the highest standards of accessibility and that they comply with the guide-
lines established by the various specialist organizations with backing from
the European Commission, which means that they are accessible for most
people, irrespective of their limitations: ‘Its most frequently consulted
pages are fully compatible with the special software used by the physically
disabled in their habitual internet browsing activities, whether this be
reading software for the blind or visually impaired, or voice recognition
software for persons with other disabilities’ (ibid., p. 78). Furthermore,

[A]t the end of 2006, coinciding with the Day of Persons with Disabilities,
Bankinter launched an audio financial information service, aimed specifically
at customers with visual impairment. This innovative project, called ‘Integral
Audio Statement audio’, provides customers with a CD, if requested, furnish-
ing complete and thorough audio information on all their positions at the bank.
The information is provided on a monthly basis and consists of a spoken tran-
scription of the balances of their positions at month-end and the detail of the
movements made during the period. (Ibid., p. 81)

In 2007 Bankinter launched the same financial information in ‘big letter’

format, which entailed recognition of the visually impaired.

The branch network has also been included within Bankinter’s Accessibility
project. At the end of the 2007, 94.8 per cent of the bank’s branches were
fully accessible. Major advances have been made in this physical network,
for example: levelling of floors at the branches, improving the door opening
systems, equipping the branches with furniture without sharp edges or corners,
and creating areas of passage to improve movement within the branches. These
projects were undertaken with the aim of building a bank without barriers and
providing a uniform quality of service to all the customers. The maximum-
access prototype branch which the bank launched at the end of 2005 comes into
this category of ‘physical access’. This branch is located in one of the Fundación
ONCE Group’s buildings. The branch was designed following a global concept
of maximum accessibility which takes into account all aspects (the use of space,
furniture, technological infrastructure, customer care service personnel and so
 CSR in Spain: examples of some practices 51

on), to meet all the requirements needed so that anyone with impaired vision,
hearing or mobility will have no obstacles or difficulties when carrying out their
banking business. The branch has spaces that permit easy passage to improve
internal movement, furniture that has no sharp corners or edges, an accessible
ATM, is all on one level, computers with on-screen navigation systems or voice
synthesizer programs, screen magnifiers, videos in sign language, interpreter
services, a typetalk communicator and so on. Also the cash counter has been
housed with an additional sound system (a sound amplifier and loop system) to
improve the communication between the employee behind the reinforced glass
panel and a customer with a hearing disability. Also, those in charge of the
office are bank employees who have a disability. (Ibid., p. 82)

In telephone banking, a specialist group was formed to serve the disabled.

This group has the responsibility of providing a solution to all the difficulties
that a disabled customer could encounter – whether this involves hearing or
visual impairment – when trying to carry out a financial transaction. The bank
has also set up a sign language interpretation service to provide the necessary
support to deaf customers in the signing of certain transactions which, due
to their complexity, require the use of financial language that the deaf may
find difficult to understand. A simple telephone call to telephone banking –
specifying the time, day and branch where the operation is to take place – is
sufficient to take advantage of this service. Other specific services may also be
requested such as the ‘monthly audio statement’, the ‘monthly statement in big
letters’ and the ‘Braille coordinates card’. (Ibid., p. 83)

With the aim of clarifying what should be and what is not being done in
the area of bank accessibility, in December 2007, Bankinter and the ONCE
Foundation jointly launched the ‘Financial services accessibility guide’:

[This] is a manual, the first of its kind, the objective of which is, first, to make
evident the needs of the disabled in terms of accessibility to financial and
investment-related services and the difficulties that they face in their usual rela-
tions with banks; and, second, to systemize certain good practices that banks
and savings banks should follow to be able to offer this type of service to all
customers on an equal footing. (Ibid., p. 81)

With regard to specific products, in July 2007 Bankinter publicly launched the
first financial product constructed on the basis of the legal vehicle of protected
patrimony, governed by Law 41/2003, on the patrimonial protection of the
disabled. Under the commercial name ‘Protected Patrimony Management’
(PPM), this product takes advantage of the tax relief relating to this concept
to offer the customer a higher rate of return. In addition to the product itself,
Bankinter assumes the obligation to provide advisory services to disabled
persons and their relatives to assist them in establishing a protected patrimony
through various initiatives: placing at their disposal a network of the bank’s
legal advisers, who have been specially trained in this task; mediating with
notaries versed in this legal concept, with the bank assuming the notary costs
in the initial deed.
52 Corporate social responsibility

Protected patrimony is a legal instrument of great interest to persons with

serious physical or sensory disability and for those with intellectual disability.
Its purpose is to allow the designation of specific assets (money, properties,
rights, securities and so on), and the earnings arising from the management
thereof, which allow the disabled to cover their everyday needs. In this way,
the assets and the rights that comprise the protected patrimony are set apart
from the other personal property of their owner-beneficiary, and have a specific
administrative and supervisory regime which, inter alia, includes extraordinary
tax advantages for the contributors (with a first to third degree of direct or col-
lateral kinship, inclusive, spouse or the disabled person’s carers under a tutelage
or fostering arrangement). (Ibid., pp. 76–7)

Furthermore, in 2007 the Corporate Volunteer programme was started

up, with the objective of encouraging employees to become involved and
participate in the social action of the company: ‘Bankinter’s volunteer
group is built upon the active involvement of any employees, and it is the
employees who freely and voluntarily propose initiatives receiving the full
support of the social action area to set the initiative in motion’ (ibid., p. 77).
The first initiative of the programme took place in April, under the name
of ‘Sports day for a good cause’. This activity, in which more than 100 of
the bank’s employees participated, aimed to raise funds for the Deporte y
Desafío Foundation, devoted to aiding the social integration of disabled
persons through the promotion of adapted sports and out-door activities.
Also, a scheme was set up known as ‘Zero Row’, whereby employees, who
either did not wish to or were unable to take part in the competition, could
contribute to this socially committed project. The funds raised were given
over to the start-up of one of the three projects presented by the Deporte
y Desafío Foundation which were voted for online by the employees
themselves on a website set up on the bank’s intranet.
The Corporate Volunteer programme has added continuity to an initia-
tive that began in 2005 with the launch of the Volunteer Portal – which
came about as a result of the advice and cooperation of the Chandra
Foundation – and had become extremely popular among employees, with
an average of 1,462 visits a month.
As a result of these initiatives, in May 2007 Bankinter received the 2007
Internet Day Award for Best Website Accessibility. Also, in October 2007,
Bankinter carried off the annual award presented by the BIP Foundation
– devoted to the integration of the disabled through information com-
munications and technology (ICT) – in the category of ‘Best Socially
Committed Business Project’. Furthermore, the Empresa y Sociedad
Foundation also gave Bankinter a high profile in its annual study entitled
‘The companies and savings banks best perceived as a result of their initia-
tives in relation to the integration of the disadvantaged’, based on a survey
that takes into account the opinions of 247 experts. In the eighth edition
 CSR in Spain: examples of some practices 53

of this study, Bankinter ranked fifth in the category of the companies best
perceived as a result of the projects of integration based on products and
services.

VOLUNTEERING PROGRAMMES FOR EMPLOYEES:

TELEFÓNICA
Telefónica, the telecommunication company, is well known in Spain for its
large volunteering programme:

Nearly 19,000 Telefónica Group volunteers in Spain and 13 countries of Latin

America took part in community projects in 2007 as part of the Telefónica
Foundation’s Volunteering programme. Telefónica’s employeess got involved
for instance in 2007 in more than 443 initiatives and volunteered more than
164,408 hours of their time. The projects sought to help nearly 246,427 children,
the economically disadvantaged, the elderly, and victims of natural disasters
such as Peru’s earthquake. (Telefónica, 2007, p. 49)

Among the highlights of 2007 was the support given to Proniño, a

programme run by the Telefónica Foundation that aims to help eradicate
child labour by getting children into school. In 2007, the programme
provided schooling for over 52,000 children in Latin America. In 2007,
Telefónica’s annual International Volunteering Day was dedicated to
Proniño for the first time.
In Spain, the company introduced the ‘cyber-volunteer’, where the
employees volunteered to be trained online in ICT teaching, so that they
can pass on their knowledge and skills to others. ‘There were also initia-
tives to support people with disabilities, including sports activities in con-
junction with the “También Foundation” and the Special Olympics, and
schemes to help young people at risk of dropping out of school, through
Junior Achievement educational programmes’ (ibid., p. 49).

CSR POLICIES TOWARDS SUPPLIERS: INDITEX

The Inditex ‘Annual Report’ (2007, p. 24) states:

Some 35 per cent of Inditex’s production is carried out in Asia, 14 per cent
in other European countries and the remaining 2 per cent in other regions.
The group had to 31 January 2008 a network of 1,187 suppliers globally with
which it maintains stable relationships. As an active part of the supply chain,
Inditex extends to all its suppliers its policy of corporate responsibility and
social undertaking by means of the implementation of the code of conduct
54 Corporate social responsibility

of manufacturers and external workshops whose acceptance is obligatory to

be able to maintain commercial relations with the group. Inditex regularly
implements procedures for auditing and control of compliance with the code
of conduct by its suppliers. International institutions and independent audi-
tors are those responsible for carrying out these periodical audits based on
international standards such as the Base Code of Ethical Trading Initiative,
International Labour Organization (ILO) and United Nations agreements and
the 10 principles of the Global Compact, among others.

This policy, the ‘standards for suppliers’, was awarded 89 per cent, well
above the average (54 per cent) in the DJSI evaluation published in the
CSR Report of 2007 by the company. Overall, Inditex obtained a score of
61 per cent, also above the average of 41 per cent.
The Code of Conduct of the Inditex group was approved by the board
of directors in February 2001. The code is defined as an ethical commit-
ment that includes key principles and standards for the appropriate devel-
opment of the relations between Inditex and its principal stakeholders:
shareholders, employees, partners, suppliers, customers and society. It
included an Internal Code of Conduct and a Code of Conduct for External
Manufacturers and Workshops to guarantee the suitable introduction and
management of the principles contained in the Human Rights Declarations
and the Conventions of the United Nations and those of the International
Labour Organization, principally. The code was modified in July 2007. Its
current regulatory framework is made up of the following (ibid., p. 71):

● The agreements of the International Labour Organization (ILO).

● The Universal Declaration of Human Rights of the United Nations.
● The Principles of the Global Compact of the United Nations.
● The Directives of the OECD for multinational companies.
● The Base Code of Ethical Trading Initiative (ETI).
● The locally applicable employment legislation.
● The local legislation in environmental matters and, in the absence
thereof, the international legislation that is in force.

The code comprises 11 points that relate to:

● Child labour: The External Manufacturers and Workshops shall not work
with minors. Inditex defines as minors those people who are under the age
of 16 or in exceptional cases 14, in those countries included in section 2.4 of
Convention 138 of the International Labour Organization. In the event that
local legislation establishes a higher age limit, the provisions established in
the same shall be respected.
● Non-discrimination: The External Manufacturers and Workshops shall not
apply any type of discriminatory practice with regard to sex, race, creed,
 CSR in Spain: examples of some practices 55

age, nationality, sexual orientation, political opinion or physical or mental

disability.
● Freedom of association: The External Manufacturers and Workshops shall
respect the rights of the employees to associate or organize themselves or to
bargain collectively, in no case shall employees be subjected to any kind of
sanction because of this.
● Harassment and abuse: The employees of the External Manufacturers and
Workshops shall be treated with dignity and respect. Under no circum-
stances shall physical punishment, harassment of any type or abuse of power
be permitted.
● Health and safety: The External Manufacturers and Workshops shall guar-
antee their employees a safe and healthy workplace in compliance with the
provisions of law, ensuring reasonable minimum conditions of light, ventila-
tion, hygiene, fire prevention safety measures, as well as access to a drinking
water supply. Likewise, the External Manufacturers and Workshops shall
guarantee that these minimum conditions are met in any of the facilities that
they could provide for their employees.
● Remuneration policy: The External Manufacturers and Workshops shall
comply with the local legislation in force with regard to labour matters. They
shall pay their employees at least the minimum wage established by law for
each professional category.
● Environment: The External Manufacturers and Workshops are obliged to
comply with the provisions of the legislation in force on environmental
matters.
● Subcontracting policy: The External Manufacturers and Workshops, which
subcontract work for Inditex, shall be responsible for the subcontractors’
compliance with the code.
● Other applicable law: The External Manufacturers and Workshops shall
comply with all the legislation in force (local, national and international).
● Supervision and compliance: The External Manufacturers and Workshops
authorize Inditex itself or through third parties to carry out inspections,
which guarantee the observance of this code, providing these supervisors with
access to the necessary documentation and means to ensure this process.
● Publication of the code: The managers of the External Manufacturers and
Workshops shall inform their employees about the contents of the Code of
Conduct. A copy of the same, drawn up in the local language, shall be placed
in any place accessible to all employees.

Inditex regularly implements procedures for auditing and control of

compliance with the Code of Conduct by its suppliers. International insti-
tutions and independent auditors are responsible for carrying out these
periodical audits. In this sense, in 2007, further to joint work conducted in
previous years, Inditex reached a major agreement with the International
Textile, Garment and Leather Workers’ Federation (ITGLWF). Under
this agreement, which is a first in the sector, both parties work together
in the entire audit process of the production line in the verification of
compliance with its Code of Conduct and, where appropriate, in the
identification and correction of any breaches.
56 Corporate social responsibility

The company also considers:

[Our] policy of corporate social responsibility includes the undertaking to

improve the application of labour and social rights and quality of life of com-
munities in which their manufacture activities are carried out. This means that
supervision of compliance with the Code of Conduct of Manufacturers and
External Workshops is completed with programmes for strengthening of the
production chain and corrective action plans for suppliers that require this. The
company conducts educational projects in the factories of its suppliers and in
the communities where the workers and their families reside, within projects
which include work with and for the community in an integral and sustainable
manner.
Inditex’s CSR policy in the scope of the production chain is completed with
work groups comprising participants in the process (suppliers, unions, buyers
and corporate associations) with the aim of encouraging respect for fundamen-
tal rights and promoting innovative processes. (Ibid., p. 25)

Clusters are made up of networks of relations between manufacturers,

business organizations, local trade unions and Inditex and their main
objective is to develop selective and lasting relationships beyond the
market relations (the price, the product and sale), such as the exchange of
qualitative information, the implementation of codes of conduct and, on
numerous occasions, direct cooperation between all the participants. The
clusters constitute an important forum to debate the changes and adapta-
tions necessary to the employment practices which give rise to an improve-
ment in competitiveness. These clusters of suppliers are, for instance,
active in Portugal, Morocco, Turkey, Bangladesh, India and China.

KEY LEARNING POINTS

CSR is a reality nowadays. There is still so much to do, but companies

that believe in CSR may certainly obtain competitive advantages. Spain is
country that still has a long way to go in order to enforce CSR practices
in all types of firms. Nevertheless there are considerable exceptions to this
situation as this chapter documents.
Corporate governance (the Unified Code of Best Practices in the Spanish
case) may influence CSR, as some recommendations are closely related to
CSR, but CG codes usually refer mainly to publicly listed companies.
Spanish listed companies have actually increased the approval of formal
CSR policies during the last years. Nevertheless several international
reports situate Spanish companies among the worst-valued European
companies in CG and CSR practices.
Substantial efforts are being made by Spanish firms to improve this
 CSR in Spain: examples of some practices 57

situation. With regard to gender diversity and equality of opportunities,

Spain is characterized by difficulties in reconciling professional and family
life and by a low percentage of gender diversity among top management
positions and on the boards of directors. The CSR diversity practices
implemented by Iberdrola (an electrical company) or Eroski (a food
retailing cooperative) aim to correct this situation. Iberdrola is a company
leader in reconciling professional and family life and has obtained a
Family-Responsible certificate. Eroski is an example of a non-quoted
company which has established an Equality Observatory that aims to
change the company’s conditions for women. With reference to the inte-
gration of disabled people, Bankinter (a bank), constitutes an example of
a company that promotes diversity and integrates disabled people. It aims
to exceed legal requirements to integrate the disabled and has implemented
projects that allow the accessibility of disabled people as customers. It has
also designed financial products that respond to the aim of protecting the
patrimony to such people.
Telefónica (a telecommunications company) is another example of a
company that develops volunteering programmes for employees. Finally,
with regard to suppliers, the chapter analyses the case of Inditex, an
example of how CSR practices may be extended to suppliers and other
stakeholders.

DISCUSSION QUESTIONS
1. Do you think that CSR could be enforced by legal requirements? Is it
good for the companies to be forced to adopt some CSR practices or
should they be voluntary?
2. If CG codes only affect quoted companies, what happens to non-
quoted companies? What incentives should be established for non-
quoted companies?
3. Is it more difficult to implement CSR practices among non-publicly
listed companies? Why?
4. Read the Inditex example. How can CSR practices be extended to other
firms’ stakeholders? Do you think that this adds value to Inditex?
5. What advantages do volunteering programmes for employees have
for a company?

REFERENCES
AccountAbility (2007), ‘The State of Responsible Competitiveness 2007’,
AccountAbility, London.
58 Corporate social responsibility

Bankinter (2007), ‘Corporate Social Responsibility Report 2007’, Madrid, Spain,

available at: www.bankinter.es.
Eroski (2007), ‘Annual Report 2007’, Elorrio (Vizcaya), Spain, available at: www.
eroski.es.
Fundación Alternativas (2008), ‘Informe 2008. La Responsabilidad Social
Corporativa en España, 2008’, Madrid, Spain.
Heidrick & Struggles (2007), ‘Corporate Governance in Europe: Raising the Bar’,
Heidrick & Struggles, Paris, France.
Iberdrola (2007), ‘Sustainability Report 2007’, Madrid, Spain, available at: www.
iberdrola.es.
Inditex (2007), ‘Sustainability Report 2007’, A Coruña, Spain, available at: www.
inditex.com.
Telefónica (2007), ‘Annual Report 2007’, Madrid, Spain, available at: www.tel-
efonica.es.
Verheugen, G. (2007), ‘CSR and competitiveness: a view from the European
Commission’, AccountAbility, July, 111–15.
3. Sticking to core values: the case of
The Body Shop
Bert van de Ven, André Nijhof and
Ronald Jeurissen

INTRODUCTION

From the outset, The Body Shop attracted much publicity with its social
commitment. This publicity proved to be an extremely effective way of
increasing awareness of The Body Shop name. The Body Shop was able
to pass through its first phase of expansion with none of the extravagant
advertising campaigns that are common in the cosmetics sector. Although
the reason for doing without advertising was Anita Roddick’s lack of
funds at the start, it has now become part of the corporate image. The
Body Shop really is different; it is not a case of business as usual. But how
different can a company remain as it grows from a small shop into a fran-
chise chain with branches on every continent, and is now part of a major
publicly listed company?

THE BODY SHOP: FROM ECCENTRIC SHOP TO

SOCIALLY COMMITTED MULTINATIONAL

The Body Shop was founded in 1976 by Anita Roddick as a means

of providing income for her family while her husband Gordon took a
sabbatical year in America. Gordon’s sabbatical used up most of their
savings, so that the first Body Shop had to be financed from extremely
limited resources (Roddick, 1991, p. 71). Various Body Shop character-
istic features were born of this financial necessity. To start with, there
is the unusual type of product that The Body Shop provides. Anita
Roddick made a virtue out of a necessity by basing her soaps and lotions
on natural ingredients, such as beeswax, grains of rice, cocoa butter,
almonds and bananas. Having worked as a United Nations researcher
in the 1960s, she was aware that men and women in Africa, Asia and
Australia used locally grown plant extracts to care for their bodies. These

59
60 Corporate social responsibility

ingredients have the advantage of being inexpensive and readily avail-

able. This brought her to the idea of The Body Shop’s alternative cosmet-
ics line. A second feature of the original shop formula was packaging the
products in simple brown bottles with handwritten labels, which people
could also reuse. Finally, The Body Shop was unable to afford any adver-
tising. Anita Roddick managed to compensate amply for this by cleverly
playing the role of the underdog – the mother and her children – when
neighbouring undertakers objected to what in their view was The Body
Shop’s inappropriate name (ibid., p. 77). She managed to bring her prob-
lems to the attention of a local newspaper, and so generated free publicity
for her extraordinary shop. This approach was so successful that she used
it repeatedly until the late 1990s as a way of increasing awareness of The
Body Shop’s name.

Core Values of The Body Shop

The Body Shop’s policy on animal testing was revolutionary at the time,
and was a point on which The Body Shop wished to distinguish itself
clearly from the competition. The Body Shop asked its suppliers to sign
declarations that they had performed no animal testing in the past five
years, and had no plans to perform tests of this kind in the future. The
usual reason for animal testing in the cosmetics sector is fear of being sued
for damages because of product deficiencies. However, the product recipes
that The Body Shop generally used were extremely well established.
Roddick therefore had no fear of any detrimental effects ensuing from
the use of her products. Volunteers were engaged to try out new products,
and the results were freely available to other producers. The usual animal
testing methods were indeed quite barbaric. For instance, rabbits were
made to eat solid matter such as creams and lipstick to determine the
lethal dose. The amount that was found to kill more than 50 per cent of
the animals became the official standard, as the name Lethal Dose 50 sug-
gests (Sodeman, 2003, p. 601). Nonetheless, animal testing long remained
commonplace, and was even prescribed in law for some new products,
because of the priority given to consumer health. However, changes are
now afoot. Several countries now have legislation that imposes a require-
ment of necessity on animal testing. The Body Shop lobbied strongly for
legislation of this kind. It also has a singular philosophy of how to bind
customers, albeit that Anita Roddick had concerns about whether it could
survive:

The hardest thing for me are the marketing people, because they focus on us as
a brand and our customers as consumers. We’ve never called it a brand; we call
 Sticking to core values: the case of The Body Shop 61

it The Body Shop. In 20 years, we’ve never, ever called a customer a consumer.
Customers aren’t there to consume. They’re there to live, love, die, get married,
have friendships – they are not put on this planet to bloody consume. (Budman,
2001, pp. 15–16)

OUR VALUES

Against animal testing: We consider testing products or

ingredients on animals to be morally and scientifically inde-
fensible.

Support community trade: We support small producer communi-

ties around the world who supply us with accessories and natural
ingredients.

Activate self-esteem: We know that you’re unique, and we’ll

always treat you like an individual. We like you just the way you
are.

Defend human rights: We believe that it is the responsibility of

every individual to actively support those who have human rights
denied to them.

Protect our planet: We believe that a business has the responsi-

bility to protect the environment in which it operates, locally and
globally.

When Gordon Roddick returned from his sabbatical, he found a profit-

able company, and, on Anita’s request, he was appointed its managing
director. In subsequent years The Body Shop expanded very substantially.
The Body Shop shops are quite different from the usual cosmetics sales
outlets. For instance, the staff are instructed not to push customers into
buying, but to be receptive to questions and willing to advise, even if that
does not lead to an immediate purchase. The staff of normal cosmetics
shops, on the other hand, have a more dominant sales-oriented attitude.
The Body Shop staff also receive half a day’s wage for services to the
community. This form of voluntary work is now a popular expression of
one aspect of corporate social responsibility (CSR). The Body Shop was
therefore in the vanguard of this trend. Staff policy addresses the combi-
nation of work, family life and care. Wives and husbands are allowed to
62 Corporate social responsibility

work together, and there is a children’s day-care centre on the company

premises. The Body Shop has its own production facilities in the countries
from which the ingredients are sourced, and pays relatively high wages,
in what is known as the ‘Trade not Aid’ programme. Finally, employees
are selected very much on the basis of personal values. Applicants have
to answer questions about their personal heroes, literary preferences and
attitudes to social issues (Sodeman, 2003).

Strategy for Growth

Anita Roddick and her husband have succeeded in conveying The Body
Shop concept to others by turning it into a franchise. This happened as
long ago as 1977. This move allowed The Body Shop to grow faster than
would otherwise have been possible. The expansion was boosted in 1984
when The Body Shop was floated on the stock exchange. The Roddick
family then jointly held 30 per cent of the issued shares and retained
management of the business. Throughout the 1985 to 1990 period,
revenue and profit rose by a factor of 10 (ibid., p. 602). The Body Shop’s

THE BODY SHOP’S MISSION STATEMENT

Our reason for being:

To dedicate our business to the pursuit of social and environmen-

tal change.
To creatively balance the financial and human needs of our
stakeholders: employees, franchisees, customers, suppliers and
shareholders.
To courageously ensure that our business is ecologically sustain-
able: meeting the needs of the present without compromising the
future.
To meaningfully contribute to local and international communities
in which we trade, by adopting a code of conduct which ensures
care, honesty, fairness and respect.
To passionately campaign for the protection of the environment,
human and civil rights, and against animal testing within the
cosmetics and toiletries industries.
To tirelessly work to narrow the gap between principle and
practice, whilst making fun, passion and care part of our lives.
(Hanson, 1996, p. 30)
 Sticking to core values: the case of The Body Shop 63

reputation, which is inextricably linked with Anita Roddick’s, also devel-

oped favourably in this period. In 1985 she was named British business-
woman of the year, in 1989 she won the award for best British retailer,
and she was also honoured with the royal ‘Order of the British Empire’
(OBE). Celebrities such as Princess Diana, Sting and Bob Geldof were
Body Shop customers at the time, while its virtues were also extolled by
like-minded entrepreneurs such as Ben Cohen, one of the founders of Ben
and Jerry’s.

An American Adventure

The Body Shop attempted in 1988 to extend the success of its franchise
formula to the United States. However, The Body Shop found the going
tougher there for the following three reasons (Sodeman, 2003). First, its
product prices were significantly higher than those of mass-produced
drugstore items. Second, The Body Shop failed to open many shops in
the United States. One reason was that an entrepreneur doing business
in different states of the United States is subject to varying requirements.
In 1991 there were only 40 stores in 12 metropolitan areas around the
country. Mail order sales were insufficient to support strong revenue
growth. The third factor was that The Body Shop traditionally does not
advertise, instead building up its market image through Anita Roddick’s
innovative entrepreneurship. This approach generated a continuous flow
of free publicity. This strategy, which was born originally of necessity, has
in the course of time become part of The Body Shop’s alternative image.
Advertising came to be seen as a waste of resources, and an insult to the
customer. However, it became increasingly clear in the 1990s that further
expansion in the United States would be difficult, if not impossible, without
advertising campaigns. Even in the unique product segment of affordable
luxury products with an exotic and natural image, The Body Shop has to
be wary of competition from the likes of the Bath & Body Works store
chain of The Limited.

The Body Shop Under Fire

In 1993 Anita Roddick appeared for the first time in an American televi-
sion advertisement, breaking her own Body Shop policy of not advertising
her products directly to customers. The advertisements depict her search-
ing for new ingredients in exotic cultures (ibid., p. 603). Some Body Shop
customers viewed this as submission to commerce. This affair turned out
to be just the beginning of much poorer publicity. In 1994 Jon Entine
published his crushing article about The Body Shop in Business Ethics,
64 Corporate social responsibility

tellingly entitled ‘Shattered image’. Some of the criticism in his article was
directed at The Body Shop’s Trade not Aid programme. Entine said that in
fact only a small proportion of the ingredients was purchased through fair
trade programmes, while the majority was bought on the world market. In
an article in 1995, Entine added another serious allegation (Entine, 1995).
An internal Body Shop memo from May 1992 stated that 46.5 per cent of
the ingredients in their products were not free of animal testing. Although
The Body Shop did not deny these criticisms, the impression they give calls
for clarification.1
First, the production volume that could be generated from the Trade
not Aid programme is too small for worldwide sales, so a proportion of
the production is purchased through the mainstream market. It is also true
that it is impossible to guarantee that all ingredients are free from animal
testing. The only substantiated claim that The Body Shop was able to
make at the time was that attempts had been made to persuade suppliers
to abstain from animal testing. Furthermore, social and ethical auditing
and reporting were in their infancy at the time, and The Body Shop was in
the vanguard of businesses that scrutinized their own policy and system-
atically published the results.

Increasing Competition

In 1998 The Body Shop had 1,600 shops and 5,000 employees in 47
countries. In relative terms, however, the financial performance lagged
the forecasts. This increased the pressure on Gordon and Anita Roddick.
The position of managing director (or corporate executive officer) was
transferred in that year to a professional manager, and Anita and Gordon
became members of the management board. However, this measure was
to have little effect, and at the start of the new millennium the results still
underperformed financial market expectations. Furthermore, there was
now also increased competition from store chains and own brands in the
British domestic market. There were various attempts in 2001 to find a
party to take over the company. However, the Roddicks were unable to
identify an ethical investor for The Body Shop, and a possible sale to a
venture capital fund was rejected on principle. After these failed attempts
to have The Body Shop taken over, Anita and Gordon decided to stand
down in 2002. The Body Shop then had to embark on a new course. Steve
McIvor, the head of communication at The Body Shop, admitted that the
mixture of politics and marketing had not always worked well, and that
they will be trying to make the brand ‘less soap-boxy, patronizing, and
lecturing’ (Carroll, 2003, p. 611).
 Sticking to core values: the case of The Body Shop 65

A New Start for The Body Shop2

The new Body Shop approach is clearly identifiable mainly in the launch
of new products and a new shop formula. For instance, there are efforts to
design the new products more attractively, with more luxury packaging.
More shelf space is being reserved for these new products in the new shop
formula, because fewer products are being handled. The shops themselves
have also had a complete makeover. The new shop formula was tested
worldwide in eight shops in 2004, and then rolled out to many franchisees.
Details of the new approach are discussed below, based on the changes
that have occurred in The Body Shop Benelux (Carney, 2005).
Jan Oosterwijk, the director and owner of The Body Shop Benelux, has
been involved in The Body Shop since the early years, and can enthusiasti-
cally recount the time when he and the Roddicks met ‘soul mates’ in the
United States, such as the founders of Ben & Jerry’s and the shoemaker Strike
Right. Although he therefore personally endorses The Body Shop’s values, he
also thinks that The Body Shop has to change. Like Steve McIvor, he wants
more attention to be given to product marketing. The shops must be more of
a customer ‘pamper station’ and ‘the odour of charitas’ has to go, as far as
Oosterwijk is concerned (Baltesen, 2003). Furthermore, The Body Shop also
intends to sell its products outside its own shops. For instance, in 2003 their
products went on sale in four BP filling stations. As a franchisee, Oosterwijk
is dependent on The Body Shop International for the renewed products.
Oosterwijk’s comments are crystal clear: the reason for working on
the new approach, or, as he calls it, going ‘on safari with The Body Shop
Benelux’, is that The Body Shop Benelux’s revenue has been stagnating
for several years, and that this is also attributable to the old Body Shop’s
products and shop formula. Furthermore, he says that increased competi-
tion could put profitability under even greater pressure. The goal, there-
fore, is to make more profit per customer by ensuring that customers buy
more each time they visit a shop, and by arranging for stronger customer
binding. This goal can be achieved only if The Body Shop succeeds in
binding the right target group. This obviously has to start with identifying
this target group. The new Body Shop’s target group is made up of what
are known as the ‘cultural creatives’. This group was discovered by sociol-
ogist Paul Ray and psychologist Sherry Anderson in an extensive 13-year
study into Americans’ values (Ray and Anderson, 2000).3 A feature of
this group is its commitment to the current problems of society and the
environment. It is possible to distinguish the following six themes:

1. care for the ecological problems of the world;

2. concern about the discrimination and exploitation of people;
66 Corporate social responsibility

3. criticism of materialism and economic gain;

4. attention for people in the immediate environment;
5. a better living environment; and
6. the importance of a personal lifestyle.

The last theme, personal lifestyle, already suggests that the cultural crea-
tives’ social commitment coincides with attention for their own lives as
well as care for themselves and those close to them. This is why this target
group is attractive for companies that respond to a need for products for
personal pampering. Furthermore, this target group is interested in prod-
ucts that can help them shape their commitment to the world and society.
The Body Shop is interesting to the cultural creative in two ways. On
the one hand, the products and the corporate image are consistent with
a commitment to social and ecological themes. The Body Shop tradition-
ally fulfils this need for luxury with products that transcend their pure
functionality through an association with intangible values. On the other
hand, but equally important, The Body Shop was present at the birth of
the trend that has seen body care grow from a vital necessity to a lifestyle
(Kramer, 2001) – except that The Body Shop has tended to neglect this
luxury, or pampering, component of its brand in the course of time. The
Body Shop Benelux is therefore devoting more attention to the luxury and
the comfort that the products and the shop formula must offer customers.
This demands a change of culture within The Body Shop Benelux, because
the social commitment attracted more attention in the Anita Roddick
years than other aspects of product quality. This imbalance, which The
Body Shop itself recognizes, is eliminated in the new approach. The Body
Shop Benelux now distinguishes three forms of product quality:

1. Functional quality: the products must deliver what they promise. The
active ingredients must therefore really have the envisaged effect.
2. Visual quality: the packaging must be luxurious and attractive to
customers, the promotional material must be of top quality, and the
shops must look neat and tidy, and adapt their image to changing
times.
3. Intangible quality ingredients: animal welfare; human welfare; natural
and environmental welfare.

The third quality component again expresses The Body Shop’s social
commitment. It would therefore be wrong to suppose that The Body Shop
no longer believes in CSR, or that they can no longer make their mark in
this respect. After a period of limited activity in this area in the wake of
the senior management changes, The Body Shop International is again
 Sticking to core values: the case of The Body Shop 67

investing in social and ethical auditing. However, this now concentrates

more on main issues and on the most important Body Shop stakehold-
ers, who are its consumers, employees, shareholders, franchisees, sup-
pliers and the environment. It is therefore more of an instrument for
stakeholder management, and less of a way of reporting to consumers
and the general public (The Body Shop, 2004). Management of The Body
Shop International states that this re-entry into the social and ethical
reporting arena is merely a start, and that the Global Reporting Initiative
benchmarks will be used more as a guide in future.

Results of the New Strategy

The new approach would appear to be bearing fruit (Carney, 2005).

On the one hand, Carney explains this by increased efficiency in stock
control, better organization of the supply chain, better use of sales data,
and the use of new distribution channels, such as direct delivery to cus-
tomers. The Body Shop has thus repositioned itself as what is known
as a ‘masstige’ brand (a contraction of ‘mass’ and ‘prestige’) in which a
premium quality product is offered at a price only slightly above that of
mass-produced goods. Market analysts are now seeing a brighter future
for The Body Shop. At any rate, several of them again recommended the
share in the spring of 2005. Oosterwijk has since sold his franchise rights in
the Benelux to The Body Shop. The Body Shop had already bought back
the franchise rights in the UK, the United States and Canada. In 2004, the
chain had 2007 shops.

Takeover by L’Oréal

The story of the The Body Shop took an interesting turn in March 2006.
The French cosmetics group L’Oréal took over The Body Shop for £652
million (€975 million). The Roddicks received £130 million. In an initial
reaction to the takeover, Anita Roddick appeared not to view this as selling
out on her ideals: ‘L’Oréal has displayed visionary leadership in wanting to
be an authentic advocate and supporter of our values’.4 She once thought
otherwise. Only three years ago, she criticized L’Oréal because of what she
called the group’s part in a cosmetics industry conspiracy to undermine
women’s confidence in themselves (Van Straaten, 2006).
The Body Shop is continuing as an independent company, and will
therefore retain as a brand the same commitment to CSR. Nonetheless,
criticism was quick to follow the takeover. In particular, what many found
hard to swallow was that The Body Shop was being taken over by L’Oréal,
which some critics still accuse of using animal testing. For example, the
68 Corporate social responsibility

website of Naturewatch, a non-profit animal welfare organization, is

calling for a boycott for this very reason.5 The first consumer responses
on the internet have been fairly mixed, with many in favour of a boycott,
while others hope that The Body Shop will have a positive influence on
L’Oréal. The French cosmetics group itself appears at any rate to be plan-
ning to present a more socially responsible face, in which the takeover of
The Body Shop can be a viewed as part of the strategy. Another sign in this
direction is L’Oréal’s purchase one month earlier of the French company
SkinEthic, which developed a new product testing technique that uses
artificial human tissue, entirely eliminating the need for animals (Van
Straaten, 2006).

ANALYSIS

It is clear to consumers that The Body Shop is a special company in many

respects. But how can The Body Shop distinguish itself from mainstream
industry? Without pretending to be exhaustive, an answer to this question
can be found by comparing two characteristics of The Body Shop’s early
years with a more conventional way of doing business.
The first characteristic has to do with the type of stakeholders on which
The Body Shop focused in the early years. In a society in which social
and environmental problems transcend the sphere of influence of national
governments, in which information can span the world in the blink of an
eye, and in which industry continues to gain power, the question that soon
arises is how far the responsibility of companies extends. Which responsi-
bilities should a company accept and to which parties? Stakeholder theory
is something to hold on to when answering this question. Mitchell et al.
(1997) suggest that parties can gain a company’s attention on the basis of
three criteria: power, legitimacy and urgency. In the power perspective,
parties are deemed to be stakeholders if they have an important contribu-
tion to make to the organization’s survival. Consider banks, customers
and employees. In accordance with how significant, irreplaceable, and well
organized their contribution is to the organization, these parties can insist
that their expectations are satisfied. Where parties have power, they need
make no appeal to morality in order to press their interests; power alone is
enough. Consider the environment, future generations, and customers who
have no purchasing power. Whereas powerful stakeholders can demand,
these stakeholders – at any rate in a legal sense – can only ask. Whereas the
first group can respond to a difference of opinion by resorting to power,
the second group has to suffice with a moral appeal. How do these stake-
holder categories relate to both The Body Shop and mainstream industry?
 Sticking to core values: the case of The Body Shop 69

Mainstream industry focuses primarily on the powerful stakeholders,

and occasionally attends to other parties, through sponsoring, or CSR
projects. The Body Shop adopted a different approach from the outset. At
the centre are powerless stakeholders, such as animals, for which steps are
taken to prevent their use in product testing, alongside native population
groups seeking an income, and the environment, which is not burdened
with mountains of packaging waste. It goes without saying that The Body
Shop also needs contributions from banks and employees, but it would
appear in the early years that these were subordinate to promoting the
interests of the powerless stakeholders.
The second characteristic that distinguishes The Body Shop from main-
stream industry is its determination to break with the obvious. The deviant
viewpoints – for instance with respect to advertisement and packaging –
make The Body Shop look more like an interest group than a business.
What is special, however, is that The Body Shop does not criticize the
industry from outside, but demonstrates from the inside how to set up
and expand a profitable company based on unconventional assumptions.
For example, the use of animal testing in the development of new cosmetic
products can no longer be justified as a ‘necessary evil’. The Body Shop
shows that this is a choice, in which different companies operate different
policies. The same is true of the assumption that the price of raw materials
is determined by supply and demand. That too is no longer an incontro-
vertible fact since The Body Shop has shown how a company also has the
option of purchasing goods based on a fair price. Furthermore, The Body
Shop’s original aversion to advertising and the open activism in the name
of the company deviate sharply from the practice of many other compa-
nies. In this way, The Body Shop questions numerous automatic assump-
tions in mainstream industry. The Body Shop grew to become a standard
bearer of a broader movement in industry that seeks to do business differ-
ently. The Body Shop’s impact therefore goes far beyond its immediate
achievements in the cosmetics sector.

CONCLUSIONS

The Body Shop has gradually professionalized its approach and has also
persevered with various social projects in the face of fierce criticism. With
the reorganization, brand repositioning and the L’Oréal takeover, The
Body Shop appears to have averted the risk of sustained erosion of its
market share. After the reorganization, The Body Shop’s management
attention assumed more business and commercial aspects and less of a
pioneering role in CSR. The question now is whether The Body Shop will
70 Corporate social responsibility

continue in the future to be viewed by customers as distinct from competi-

tors, who have slowly also become more active in CSR.
The history of The Body Shop has gone through three phases: rise,
fall and recovery. The company’s recovery is not a repetition of the early
period, but a transformation, in which the ideals of old have been tem-
pered by the hard business lessons of the fall. The Body Shop’s new style
is a synthesis of the previous two phases. These phase transitions that the
company has been through suggest two conclusions, which we believe are
of great importance for the thinking surrounding the business aspects of
CSR, but as yet are still undeveloped theoretically:

1. The Body Shop is an example of sustainable business that actually

does not appear to be so sustainable commercially, in that the competi-
tive advantage of the sustainability was not preserved.
2. The Body Shop is an example of sustainable business that actually
does not appear to be so sustainable in a moral sense, in that the moral
values proved unable to withstand the success (and in particular the
expansion) of the business.

Both observations, which we explain below, suggest that a business ethics

success story might be rarer than the current CSR doctrine would have us
believe. Ethics pays, but not always. Certain lights have to be at green if
CSR is to be a success in both an ideal and a business sense. The case of
The Body Shop has several important lessons for us.

KEY LEARNING POINTS

How Enduring is a Competitive CSR Advantage?

We can classify The Body Shop’s strategy in the rise phase as one of dif-
ferentiation. This is a competitive strategy in which a business manages
to employ certain unique attributes of its product or its image as a way
of distinguishing itself from its competitors. In this way, the company
manages to bind to itself a specific group of customers with a strong brand
preference, or manages to connect in a unique way with a certain emotion
or perception of large customer groups. The Body Shop has succeeded in
appealing to a very specific customer group, being the socially and ecologi-
cally aware buyers of body care products who identify with the founder
Anita Roddick’s sustainability ideals.
Together with Ben & Jerry’s, the Triodos bank and others, The Body
Shop has a place as one of the pioneers of the ‘ethical differentiation
 Sticking to core values: the case of The Body Shop 71

strategy’. Since its foundation, The Body Shop has pushed for the intrinsic
value of animal life, by selling cosmetics based on natural products, while
paying a fair price and allowing no animal testing. The customer group
that the special proposition of the ethical producer appeals to is usually
also willing to pay a little extra – or, in the case of Triodos, not to squeeze
the last drop out of financial efficiency.
It goes without saying that the competition will not sit back and watch
all this happen. A successful differentiation strategy invites imitation. The
Body Shop was therefore bound to be confronted at some point with a
‘clone’, which came in the form of Bath & Body Works. A differentiation
strategy is more sustainable the more distinguishing properties can be
identified, the more difficult it is to copy, and therefore the longer it can
hold out against the competition. Porter (1985) speaks in this connection
of the ‘sustainability of differentiation’, which depends mainly on two
things: its continued perceived value to buyers and the lack of competitor
ability to imitate it.
A strategy of ethical product differentiation runs into difficulty here pre-
cisely because of its ethical nature. Important CSR characteristics happen
to be the transparency requirement and the principle of the dialogue with
stakeholders. In other words, CSR demands external communication.
The Social and Economic Council of the Netherlands (SER) says the
following:

It is expected of businesses in the current phase of social development that they

answer legitimate questions from society, and are willing to be give full disclo-
sure and to enter into a permanent dialogue with various stakeholders. (SER,
2000, p. 17)

The emphasis on transparency in the CSR doctrine is nonetheless at

odds with the aim for sustainable differentiation, which is actually served
when the unique resources, knowledge and skills of the company are
not known, particularly by competitors. Porter speaks in this connec-
tion of ‘proprietary learning’: a learning process that only the company
goes through, and not the competition (Porter, 1985, p. 159). This is the
opposite of transparency and a CSR learning network.
Furthermore, it is a known phenomenon that companies that openly
favour certain matters are the first to be tackled on practices that are not
entirely in line with the ambitions. A good name for this effect would be
the ‘transparency paradox’. No one seems to notice the other, less con-
spicuous, companies, even if they commit many more blunders than those
that make open statements. It is precisely the companies with a transpar-
ent approach that provide the media and interest groups with a handle to
72 Corporate social responsibility

tackle them with. The outcome of this paradox is that the front-runners
can expect criticism, and the less conspicuous companies will remain out
of range. To some extent, this will also have happened with the criticism
directed at The Body Shop.
What is interesting is that The Body Shop was actually a pioneer in
the dialogue with stakeholders and the development of sustainability
reporting. Are transparency and dialogue perhaps compatible with an
ethical product differentiation strategy, in a way that Porter’s theory does
not predict? If so, ethical product differentiation would be something
completely different from the ‘ordinary’ variety.
The Body Shop published its first social report in 1995, after consult-
ing more than five thousand stakeholders. This makes The Body Shop a
front-runner in the development of sustainability reporting (Wheeler and
Sillanpää, 1997). The company has existed for over 20 years, and as time
has passed it has come in for increasing censure. We tend to think this is
no coincidence. It seems more likely that The Body Shop can attribute
the prime of its early period – roughly between 1976 and 1990 – to a suc-
cessful strategy of ethical product differentiation, which, however, began
to tarnish after some 15 years, partly as competitors started to imitate the
successful formula, but also because of political measures that undermined
The Body Shop’s distinctiveness, such as anti-animal testing legislation.
The principles of the dialogue and the transparency, which The Body
Shop started to embrace in 1995, were not part of an ethical differentia-
tion strategy, but an answer to increasing suspicion and criticism of the
company. A differentiation strategy usually yields only a temporary com-
petitive advantage, until either the differentiating value loses potency, or
the competition catches up. Only rarely does a company manage to benefit
from a differentiating characteristic in the long term. The same applies to
ethical product differentiation.

‘Small is Beautiful’, or Not?

With hindsight, The Body Shop seems to have failed to retain ethical
product differentiation as a strategy. You could also say that the company
has failed to retain the ethical fervour, which was definitely present in the
convictions of founder Roddick, as a flexible strategy. To this day, for
example, they still champion the fight against animal testing, which is no
doubt necessary, but now contributes little to the company’s sustainable
differentiation, since animal testing for non-medical purposes is subject
to increasing legal restrictions. Note that a full ban on animal testing for
non-medical purposes in the European Union will not come into force
before 2009.
 Sticking to core values: the case of The Body Shop 73

In terms of an ethical product differentiation strategy, an extremely

important trump card that The Body Shop had in their hand was the
unique contacts that had been established with a group of stringently
selected suppliers of natural products in the developing world, such as the
Kayapo Indians, with their traditionally prepared nut oil. This is an inimi-
table asset. For a very obvious business reason, The Body Shop nonethe-
less threw away this competitive trump card: the company grew too large
to be serviced by a stringently selected band of small-scale suppliers of this
kind. As a result, the company was forced in the 1990s to admit that it had
greatly diluted the original ‘Community Trade’ formula. The company
also had to confess that it was not entirely free from animal testing. The
official defence was that they only ever encouraged suppliers to abstain
from animal testing; they had never claimed that The Body Shop ingre-
dients were guaranteed to be animal testing free. Hair-splitting of this
kind was expected of politicians, not of fervent sustainability pioneers.
Why could The Body Shop not remain the company that Anita Roddick
once must have had in mind: an honest cosmetics store, with natural, fair
products, and without causing animals to suffer?
The answer should be sought, among other things, in the 1984 flotation
and the expansion by a factor of 10 in the subsequent five years. Expansion
is what the stock market likes to see, and preferably in double digits. But
rapid expansion is at odds with the philosophy of ‘conservation and pres-
ervation’ (of authenticity, of nature, of native peoples, and of animals),
on which The Body Shop was founded. The company could no longer
keep its original promises; sustainable production was unable to keep
pace with this increased demand, and The Body Shop started to make
mistakes. Because the company had set such store by social responsibility,
it effectively fell into a pit it had dug for itself.

Sustainable Success, Perhaps Briefly?

The Body Shop has now entered a third phase, in which it has become
a much more conventional cosmetics business, or, in its own words, a
‘pamper station’. Other sustainability front-runners have been through the
same development process. The Van Melle sweets factory was a champion
of corporate environmental care 10 years ago. This Breda-based company
proudly announced as recently as 1997 that it had installed the largest
industrial solar water heater in Europe. But there has been nothing but
silence on the subject since the sale to Perfetti of Italy. When software
house Origin was sold to Philips, the prominence in the company culture
of the sustainability idealism of its founder, Eckhart Wintzen, almost
visibly melted away.
74 Corporate social responsibility

The Body Shop announced in 2003 the purchase of £5 million worth of

natural ingredients and accessories through the ‘Community Trade’ pro-
gramme. This amounted to just 0.74 per cent of that year’s total turnover,
which is hardly something to shout about. The Body Shop’s new style is
not a radical departure from conventional business paradigms, and is no
longer a major sustainability innovator.
The Body Shop’s takeover by L’Oréal in March 2006 must be viewed
with particular interest in this connection. L’Oréal is the largest cosmetics
company in the world, and prides itself on its sustainability policy. The
company reported in 1989 that it had stopped animal testing, and had
developed several of its own technically innovative alternatives, such as
testing chemicals on cell cultures. As far as animal testing is concerned,
therefore, L’Oréal would appear to have even better credentials than The
Body Shop. Maybe L’Oréal will succeed in developing its new acquisi-
tion as a jewel in its crown, and a new chapter will be added to The Body
Shop’s sustainability story. That would be a departure from the usual
haste with which new business owners throttle the sustainable business
practices of their takeover targets.
Sustainable business never provides more than a temporary competitive
advantage. This is an important lesson from The Body Shop’s history.
This is not much of a surprise from a business studies perspective, but it
might appear to put a damper on sustainable business thinking. We had
yet to reach this stage in thinking-through the relationship between profit
and principles. The reality is that sustainability gives us not the slightest
ability to escape the laws of business. The knowledge of being morally
right may also make a sustainable enterprise negligent of changes in the
competitive field and the risks that are still a feature of the market.

Visionary Companies

But is this the only lesson we can draw from this case? Can sustainable
business ever be more than hype or a passing fad? Perhaps it can. Collins
and Porras (1997) have shown that it is not impossible for companies to be
leaders in their sector for a long time. However, these companies exhibit a
different form of differentiation, not that of products, but of their identity
and strategy. Collins and Porras focus their research on companies they
label as ‘visionary’. These are the companies that set the trend in their
sectors, and include Hewlett Packard, Johnson & Johnson, Sony and Walt
Disney. Visionary companies are characterized by the central nature of
their ‘core ideology’. A company’s core ideology can be compared with
the fundamental ideals of a major nation, church or school. It is a cohe-
sive whole of assumptions that act as a firm foundation for the enterprise:
 Sticking to core values: the case of The Body Shop 75

‘This is who we are, and what we stand for. This is what we are about’.
Visionary organizations are guided by a goal, or a ‘purpose’, which Collins
and Porras describe as: ‘the organization’s fundamental reason for exist-
ence beyond just making money – a perpetual guiding star on the horizon’.
The associated time horizon is extremely long. It is about ‘values we would
strive to live up to for a hundred years’. The core ideology is an essential
element of the historical development of visionary companies (ibid., pp.
73–4).
The entrepreneurs behind the visionary company are not driven by
short-term commercial results. What is important to them is to build up
an organization: a life’s work. The stability of the core ideology, and the
associated orientation to an ultra-long term, does not eliminate the need
for the company to adapt extremely flexibly to changes in the external
environment. However, the long-term strategy of visionary enterprises is
not a matter of swimming with whatever tide happens to be running, but
of a conscious change of course, based on the core ideology that defines
the company’s identity in the long term. Collins and Porras say that con-
serving the core of the company is the very basis of revolutionary change.
Based on the work of Collins and Porras, we could also conclude that the
success of The Body Shop’s ethical product differentiation has diminished
in the long term because the company stuck too rigidly to specific products
and specific sustainability benchmarks. The company pushed through no
revolutionary changes. In terms of Collins and Porras, we could say that
The Body Shop never actually managed to become a visionary enterprise.
The company failed to adapt flexibly to changing circumstances on the
basis of a strong core ideology.
In the hands of entrepreneurs who are not only driven, but also
know what competition means – at any rate according to Collins and
Porras – sustainability has a chance of being more than a flash in the
pan. Nonetheless, amending our initial conclusion in this way does not
justify boundless optimism about the prospects of achieving sustainability
through CSR, and therefore through the market. Entrepreneurs who are
good in competition also understand that sustainability should not be
pursued at any price. In their view, the win–win situation of profit and
principles is a target that is constantly moving. They also know that they
must always act in line with the market and that markets tend to equilib-
rium, even between ideal and reality. This means that, from the perspec-
tive of sustainability, a core ideology is not without risk. It is conceivable
that at some point the benefits of a sustainable image can also be pursued
with the minimum of effort and expense. A ‘grey sustainability’ can then
also take hold in a company with a core ideology, as now seems to have
happened with The Body Shop.
76 Corporate social responsibility

Anyone seeking a faster and more radical path to sustainability will

have to trust not only in the market, but also in a strong government. As
it happens, this was also Elkington’s view. ‘Sustainable corporations and
sustainable markets will rarely evolve of their own accord’, he wrote. And
also: ‘After two decades of celebrating markets and denigrating govern-
ments, we are probably on the threshold of a new era in which the triple
bottom line agenda helps to give governments and regulation new forms
of legitimacy’ (Elkington, 1997, pp. 387–8). Regulation: it really does say
that.
A key factor in the ‘CSR doctrine’, to use Carroll and Buchholtz’s
(2003, p. 43) term, is driven by the fundamental conviction that a com-
pany’s business revenues and social responsibility go hand in hand. It
goes without saying that this is a sensible fundamental conviction that
directs and explains the socially committed actions of enterprises. But, of
course, it is not always true. The conditions for congruency between profit
and ethics are not always satisfied (Jeurissen, 2004). The Body Shop case
study offers an interesting illustration of this point. The Body Shop history
illustrates well the struggle of a company that aimed from the outset to
combine sustainability and sound business. It was to be a story of trial
and error.

DISCUSSION QUESTIONS

1. How does The Body Shop distinguish itself from mainstream

industry?
2. Why are The Body Shop’s principles gradually changing?
3. What conditions have to be satisfied to make corporate social respon-
sibility a success in both an ideal and a business sense?
4. How might The Body Shop retain the ethical differentiation strategy
now that competitors are also more likely to be engaging in corporate
social responsibility?
5. What is the basis of the success of visionary enterprises?
6. How does The Body Shop’s change of course test the beliefs of
employees and management?

NOTES

1. For Anita Roddick’s own response, see the Utne Reader of January/February 1995,
p. 104.
2. This account is based on (i) an interview by Jan Oosterwijk and Sigrid Hettinga with the
 Sticking to core values: the case of The Body Shop 77

author and Caroline Kroes on 25 March 2004; (ii) a presentation of the new strategy by
Sigrid Hettinga at Tilburg University on 21 October 2004.
3. See also the website: www.culturalcreatives.org/book.html.
4. ‘L’Oréal buys Body for £652m’, The Guardian, 17 March 2006, available at: www.
guardian.co.uk/business/2006/mar/17/retail.money (accessed 19 May 2008).
5. Naturewatch, ‘Naturewatch boycotts The Body Shop. They are just not worth it’, avail-
able at: www.naturewatch.org/shoppingguide/News_loreal_bodyshop.asp (accessed 7
April 2006).

REFERENCES

Baltesen, F. (2003), ‘Body Shop werkt aan nieuwe identiteit’ (Body Shop working
on a new identity), NRC Handelsblad, 11 December.
Body Shop, The (2004), Values Reporting. Our Reporting Approach, available
at: www.thebodyshopinternational.com/web/tbsgl/library.jsp (accessed 16 June
2005).
Budman, M. (2001), ‘Questioning authority’, Across the Board, January, 15–16.
Carney, B. (2005), ‘Toning up The Body Shop’, Businessweek, 18 May.
Carroll, A.B. (2003), ‘The Body Shop International PLC (1998–2001)’, in Carroll
and Buchholtz (eds), pp. 609–12.
Carroll, A.B. and A. Buchholtz (2003), Business and Society: Ethics and Stakeholder
Management, 5th edn, Thomson/South-Western, Mason, OH.
Collins, J.C. and J.I. Porras (1997), Built to Last. Successful Habits of Visionary
Companies, Harper Business, New York.
Elkington, J. (1997), Cannibals with Forks: The Triple Bottom Line of 21st Century
Business, Capstone, Oxford.
Entine, J. (1994), ‘Shattered image’, Business Ethics, October, 23–8.
Entine, J. (1995), ‘The Body Shop: truth and consequences’, Drug and Cosmetic
Industry, February, 54–64.
Hanson, K.O. (1996), Social Evaluation of The Body Shop International, The Body
Shop International, Littlehampton.
Jeurissen, R. (2004), ‘Institutional conditions of corporate citizenship’, Journal of
Business Ethics, 53, 87–96.
Kramer, T. (2001), ‘Zeepbellen’, NRC Handelsblad, 6 December.
Mitchell, R.K., B.R. Agle and D.J. Wood (1997), ‘Toward a theory of stakeholder
identification and salience: defining the principle of who and what really counts’,
Academy of Management Review, 22(4), 853–86.
Porter, M. (1985), Competitive Advantage: Creating and Supporting Superior
Performance, Free Press, New York.
Ray, P.H. and S.R. Anderson (2000), The Cultural Creatives: How 50 Million
People Are Changing the World, Harmony Books, New York.
Roddick, A. (1991), Body and Soul, Vermilion, London.
Social and Economic Council of the Netherlands (SER) (2000), De winst van
waarden: Advies over maatschappelijk ondernemen (The profit of values: recom-
mendations on corporate social responsibility), SER, The Hague.
Sodeman, W.A. (2003), ‘The Body Shop International PLC’, in Carroll and
Buchholtz (eds), pp. 600–609.
78 Corporate social responsibility

Van Straaten, F. (2006), ‘Compassie met de schepping. The Body Shop kapitalis-
tischer dan “Dame Anita” pretendeert’, NRC Handelsblad, 24 March.
Wheeler, D. and M. Sillanpää (1997), The Stakeholder Corporation: The Body
Shop Blueprint for Maximizing Stakeholder Value, Pitman, London.
PART II

CSR in Central and Eastern European

countries
4. CSR in Russia
Alexander Settles, Olga Melitonyan and
James Gillies

INTRODUCTION

In their splendid book Corporate Social Responsibility: Readings and

Cases Crane et al. (2007), citing Grafski and Moon (2004), write in their
section on CSR in emerging/transitional economies:

[W]hile there is a plethora of different approaches to CSR in these countries,

one might argue that in some respects Russia and China represent the most
extreme cases. Russia on the one hand has seen privatization and the turn to
capitalism accompanied by rather weak and corrupt governmental institutions
resulting in what some would refer to ‘as a cowboy economy’. It is, therefore,
little wonder that CSR is still a largely unknown concept in Russia and for
many Russian business people, bears strong resemblance to communist times.
(Crane et al. 2007: 12)

By definition transitional economies experience dynamic change. In the

case of Russia the most recent – 2008 – changes have led to a strengthening
of government and the centralization of many activities in various govern-
ment departments. At the same time there has been substantial growth in
the private sector of the economy and a rapid expansion of interest in, and
acceptance of, modern private corporate governance practices.
In 2004–06, the Corporate Governance Centre at the Higher School of
Economics (Gillies and Melitonyan, 2008) offered more than five seminars in
four different cities throughout Russia on different aspects of corporate gov-
ernance, including corporate social responsibility. Since then the demand
for education and training in CSR has become so great that the Corporate
Governance Centre at SU-HSE has expanded its original mandate of teach-
ing corporate governance to include the teaching of a wide range of offerings
in CSR. The search from the expanding private sector for knowledge about
appropriate corporate governance practices and CSR has expanded expo-
nentially, and with that expansion has come an increasing acceptance of
various traditional types of corporate socially responsible activities.

81
82 Corporate social responsibility

Some further, but totally unscientific evidence of the interest in CSR

in Russia is the fact that in November 2008, if ‘Corporate Social
Responsibility Russia’ was entered in the Google search engine, more
than half a million entries – 559,000 to be exact – would be found. While
this number is not as great as for other BRIC countries (Brazil, Russia,
India and China; Brazil led the way with more than 2 million entries), or
European countries (there were 754,000 entries for Germany and 634,000
for the UK), or the United States (with close to 1,120,000 entries), it is still
a very large number and does suggest that CSR is more than an ‘unknown
concept’ in Russia.
Many of the entries, of course, are not relevant to the understanding
or practice of CSR in Russia. A simple sampling of the 559,000 entries
indicates that by far the most are from private organizations that operate
throughout the world who use ‘the web’ to explain their position regard-
ing CSR – always reporting it as being constructive in every country
where they operate, including Russia. It would appear that about half
of all the entries are of this character. Another 25 per cent of the entries
are from organizations involved in promoting more CSR throughout the
world, another 10 per cent are from various international agencies and the
balance are Russia specific. While these figures are not much more than
informed guesses – the contents of all 559,000 entries were not examined –
it still means that in 2008 there were in the neighbourhood of 75,000 web
entries devoted entirely to CSR in Russia. While this type of general evi-
dence is far from indicative of an overwhelming and/or sufficient interest
on the part of Russian corporations in the topic, it clearly is large enough
to at least question Grafski and Moons’s (2004) conclusion that CSR is a
‘little known concept’ in Russia.
To the contrary we argue that CSR has always been of significance in
a large part of Russia and is becoming a more important element in the
strategies and operations of an ever-increasing number of companies in
the Russian business community.

THE UNIQUE CHARACTERISTICS OF CORPORATE

SOCIAL RESPONSIBILITY

One of the great difficulties in assessing and comparing CSR among

various countries is the fact that the idea itself has such a wide variety
of meanings. Crane et al. (2007) attempt to make some order out of the
vast number of concepts by suggesting that what it means depends to a
considerable degree on who is defining it – government, business associa-
tions, corporations, non-governmental associations or social enterprises
 CSR in Russia 83

– and indicate that within these groups there are numerous approaches
(ibid.: 17). If this lack of definition among different types of groups were
not enough to make the appraisal of CSR sufficiently difficult, concepts
of CSR also vary enormously from country to country and from time to
time. Consequently, all sweeping generalizations about CSR must be con-
sidered with care. Social, cultural and historical developments of nations
are so diverse that no one set of CSR principles will fit all or indeed would
be appropriate for all (Dayman, 2008: 1). Certainly, the extent of CSR
in Russia in the twenty-first century is a product of unique geographic,
historic and political conditions.

A BRIEF HISTORY OF CSR IN RUSSIA

The Soviet Years

One of the most important reasons for the early development of CSR
in Russia is the vast territory of the country, the fact that most cities in
Siberia and the far east of Russia are located very far from one another,
and of course, the socialist organization of society. During the Soviet
years, emphasis was placed on the development of resources, and the
major method of doing so was through the massive planning and con-
struction of great industrial enterprises around which great cities were
built. The consequence of this type of development was that industrial
plants and cities were inextricably intertwined with one another. State
enterprises (companies) not only produced products from the plants
but were also deeply integrated into all the activities of the community
by providing heat and power to the houses, building roads, supporting
schools and so on. They also sponsored sports teams, built stadiums
and swimming pools, organized sporting leagues, and funded orchestras
and dance groups. Workers depended on these enterprises for the alloca-
tion of housing, transport, leisure time and vacations, healthcare and
sanatorium visits and so on. Depending on one’s location in the Russian
Federation, the enterprise or agency that people worked for was respon-
sible for cradle to grave services. As one historian put it: ‘these cities were
practically parts of the plants, embedded in the communal and social
infrastructure of the USSR’ (Dayman, 2008: 2). Indeed, one can make
the case that state enterprises in Russia started practising much earlier
and much more vigorously than most of the activities (and many more)
that were later recognized as major parts of CSR in many European and
North American countries.
84 Corporate social responsibility

The Transition Years

In the transition years of Perestroika, between the mid-1980s and the

1990s, as it struggled to move from a command to a market economy,
Russia underwent a revolution, perhaps even greater than that of 1919. It
was an incredibly difficult time when the entire structure of the economy
was altered as ownership of enterprises changed dramatically. Many of
the largest firms in major Russian industries ended up in the hands of
a few dominant owners – the ‘Oligarchs’. Thousands of medium-sized
enterprises were privatized and fell under ownership and management of
groups who, not surprisingly, had little or no knowledge of how private
markets worked, and of the changes that had to be made in their busi-
nesses if they were to be successful. And, finally, many organizations
remained in government hands and were run in the traditional fashion
by people who tried to maintain the system of management in a market
economy that was used under the Communist regime. The result was a
period of chaos in which the managers of many, if not most, businesses
did not know how to operate – there was a breakdown in their sources of
supply, limited demand for their goods and little enforcement of contracts.
The government was corrupt, bribery became endemic and businesses
began to search for ways to cut their costs. Simply surviving became the
major goal of most enterprises.
What is not sufficiently recognized in most analyses of this transition
is that it not only involved the transfer of ownership rights to the private
sector, but that the privatized corporations inherited responsibility for the
overwhelming range of social services that the firms carried out during the
Soviet period. Basic activities such as transport, heating, water and waste
disposal in some cities were suddenly the responsibility of these compa-
nies and their new owners, most of whom had no interest in retaining
them. In places like Norilsk, Surgut, Tyumen, Sakha (Yakutia) and other
company-dominated cities, the major enterprises dropped their traditional
role as social service providers as they tried to become profit-maximizing
corporations. They turned over to ill-equipped local governments the
responsibility of providing the infrastructure required to keep communi-
ties operating. Consequently, ‘in many regions, towns and settlements all
types of infrastructure – from cultural (libraries, cinema, theatres, youth
groups, etc.) to transportation and communication began to collapse’
(ibid.: 2).
In addition to the decline in essential services the relationship between
workers and employers changed dramatically. A cornerstone of the Soviet
period was the provision by employers of non-monetary benefits such as
housing, healthcare, vacations, and other services. During privatization
 CSR in Russia 85

these services stopped and wages were monetarized with a much lower
purchasing power. As a result, an entire generation was left without the
resources to acquire housing and the other services that were normally
provided by the company for which they worked.
As is well known, without the existence of a well-functioning govern-
ment at any level, the situation became so out of control that by 1998 there
was a shortage of almost every kind of product, stores were empty, bank-
ruptcies were rife, bribery was endemic, local governments were powerless,
the banking system collapsed and the central government defaulted on its
debts. Russia became bankrupt.

The Beginning of Stability

As the end of the twentieth century approached there began to be a better

understanding among Russian business managers and owners of how the
market worked, more stable government emerged and because of the rapid
increase in the price and demand for natural gas, oil, precious metals and
agriculture products from Europe and the Middle East, Russia’s major
industries, which were concentrated in the production of commodities,
began to prosper. Many of the largest companies that had been acquired
by the Oligarchs during the privatization period, particularly under Boris
Yeltsin, adopted modern management methods and were beginning to be
operated effectively and profitably. As these major companies prospered
so did thousands of suppliers who provided the goods and services that the
giant firms needed. The prosperity of the resource industries flowed over
into other areas of the economy and the increase in the rate of growth of
Russia’s GNP between 1998 and 2004 was possibly one of the fastest ever
experienced by a modern country.
Under such circumstances it is not surprising that the first decade of
the twenty-first century was a period of enormous change for Russia.
During the Soviet and transition periods Russians travelled little, were not
exposed to Western culture and there was very little foreign investment
in the country. After the end of Perestroika, Russians from all levels of
society began to travel widely, became enamoured with Western televi-
sion and literature and exchange of ideas among scholars and business-
men was common. Corporations increased the volume of international
trade by enormous proportions and the government joined international
organizations such as the Organisation for Economic Co-operation and
Development (OECD). Russia once more became an active country
within the community of nations.
During this period the approaches to CSR taken by Russian firms
and governments were influenced by developments in other nations and
86 Corporate social responsibility

international agencies, as well as by some of the changing domestic situa-

tions. The most significant of these forces are discussed below.

Rebuilding the infrastructure

The most important issue with respect to CSR in Russia in the first years
of the twentieth century was the question of who should pay for rebuilding
the economic infrastructure, so vital to the health and prosperity of indus-
try, and who should pay for the collateral social services, so important in
developing and maintaining an efficient, effective workforce? The strong
economic growth of the era contributed to the stability of the govern-
ment and provided a base for taxation and the raising of public funds for
rebuilding the infrastructure. Historically, however, the business entities
paid for much of the infrastructure and for the various cultural, educa-
tional and other services that people enjoyed under the Soviet system. In
short, the question of CSR was at the centre of the relationship between
the now quite strong private sector and a new strong central government.
There is no question that the central government expected the private
sector to play a major role in dealing with CSR issues. Indeed, at the
annual meeting of the Congress of Russian Industrialists – a major trade
association of private firms – in November 2004, President Vladimir Putin
declared that the Russian government anticipated that Russian business
would ‘increase their investment in social projects, science, education and
the development of the so-called human factors’ (Johnson, 2004). This was
a very important declaration because ‘in contrast to the mid 1990’s when
the state was weak and business dominated many aspects of life in Russia
the state had recovered most of its positions and become the leading politi-
cal player in the country’ (ibid.). Leaders in the private sector were well
aware that in the new market-driven Russian economy a high level of CSR
was expected from them by the government.
In addition, circumstances led to the private sector becoming more
deeply involved in many activities that normally would not be considered
as part of CSR in other countries. Unfortunately during the years of
transition, when local and regional governments were in control, normal
public services deteriorated to the point that they became unreliable and
in some cases almost non-existent. As a result, with the return of prosper-
ity, not necessarily because they wanted to, but for their very survival, a
large number of corporations once again began to operate the municipal
services in various cities – they became associated with local governments
in building roads, laying gas pipelines (not only to their plants but also to
residential users) and developing power and sewage disposal plants. The
fact is that Russian firms once again were not only absorbing many of
the basic costs of running a community but were actually managing the
 CSR in Russia 87

activities in partnership with local authorities. Indeed, they were accepting

almost as much CSR as had existed during the Soviet period.
But there was a major difference from the Soviet era. Now most local
governments still saw themselves as partners of the newly privatized, and
in the resource centres, wealthy firms. By and large, while companies rec-
ognized and were prepared, through the payment of taxes, to share the
costs of social services, many were stunned when they wanted to expand
or make changes to find that local authorities often made it clear that
they could do so only if they dealt with certain parties. Otherwise, it was
unlikely that they would ever be able to acquire the necessary services to
run their businesses, let alone expand them. In time these costs began to
be known euphemistically as ‘franchise protection costs’. For many busi-
nesses these bribes were simply accepted as a cost of doing business and
maintaining a modicum of order in civil society.
The willingness of many enterprises to accept responsibility for such
a large number of services and pay bribes was based, however, on much
more than simply getting the services they had to have in order to operate
effectively. The introduction of such a new concept as private owner-
ship, even to its greatest supporters, was distressing for many people
– particularly older ones. If the transformation from a command to a
market economy was to succeed, companies needed all the support they
could muster from the community where they were located. Consequently,
instead of reducing their support for local activities they tried to maintain
and increase it.
At the same time, private market-driven businesses did not want to
return to the Soviet system whereby firms provided all the services. As a
result, the debate about the appropriate amount of CSR in Russia is not
that much different in principle from that in other economies, that is, what
is the appropriate distribution of responsibility for various social activities
between the private and the public sectors?

The impact of international trade and investment

One of the results of the transfer from a command to a market economy
was the growth of a number of gigantic Russian corporations. As
these corporations grew, propelled by the huge worldwide demand for
resources, their need for capital expanded. Under such circumstances,
it is not surprising that large Russian firms, mostly but not all, control-
led by the Oligarchs, began to list their shares on the London and New
York Stock Exchanges. When they did so they had to meet all the listing
standards. While most of these standards are associated with governance
questions – transparency of operations and completeness in reporting and
so on – the owners of the exchanges also expect that listed companies will
88 Corporate social responsibility

perform in a ‘socially responsible fashion’. In spite of the fact that what

this means is not clearly specified, listed Russian companies accepted that
they had a responsibility to behave, however defined, in a socially respon-
sible fashion and began to proudly proclaim in their annual reports and
other literature that they did so.
At the same time as Russian companies have been increasing their
operations outside of Russia, foreign firms have been investing in Russia.
Many, if not most of these firms have been associated with industries –
mining, energy, forestry – that in many countries have begun to operate
(not always without formal and informal pressure) according to strict
standards with respect to safety, disposal of waste, protection of the envi-
ronment and sustainability. When these firms entered Russia they brought
with them their practices with respect to issues such as safety, maintenance
of the environment, conservation, pollution and so on. They are condi-
tioned to functioning, at least to some extent, according to CSR guidelines
in other countries and consequently influence Russian companies and their
Russian partners to operate in the same fashion. For example, according
to its various reports, TNK-BP (a Russian British firm) prepares a regional
and national social investment policy annually and has active programmes
for providing housing for socially disadvantaged families, preventing and
treating hepatitis and supporting underfinanced medical institutions. It
also supports athletic teams and organizations in the regions where it
operates and publishes a social report of its activities (TNK-BP, 2006). At
the very least, the foreign companies provide standards against which to
measure domestic operations.

The impact of privatization on management

It is not, however, simply following in the footsteps of foreign investors
and professional advisers that has led large Russian firms to engage in
various aspects of CSR. In the period of transition from a command to a
market economy the newborn Russian companies adopted management
ideas from all over the world. Indeed, management practices that evolved
in Western companies over a century were put in place in a decade with
the consequence that contemporary (2008) management in many Russian
companies is by any definition ‘very modern’.
Once they were privatized and sought the favour of customers, busi-
nesses in their supply chains and the support of various levels of govern-
ment, Russian managers realized that including sound CSR practices as
part of their strategic planning led to more effective performances. For
example, Severstal reported in its company documents in 2007 that it was
actively reshaping the social policy it had inherited from the past and an
active part of its new strategy was to work to improve the quality of life of
 CSR in Russia 89

its employees. It reported: ‘social responsibility of Severstal lies within the

following fields: health protection and the improvement of living stand-
ards of the company employees and of their family members and charity
work [and] in 2006 the company allocated $50.8 million towards social
programmes and charity’ (Severstal, 2008).
While it is not as yet as prevalent in Russia as in Western countries, in
recent years some Russian companies have become very active in spon-
soring various types of sporting and cultural events. They are doing this
not only as a marketing tool but also as a part of larger programmes of
CSR. Although the scale of such activity is not large in comparison with
this type of sponsorship in many other countries, for example, Coca Cola
supporting the Olympics, sponsorship is a rapidly growing element in
the strategy of many companies. Moreover, it is important to note that
some Russian companies are providing support to national institutions of
higher education by paying the tuition of talented students and supporting
the research of faculty members and young professors.
From an examination of annual reports and other documents it is clear
that the very large major corporations are committed to incorporating
their values and ethics into everything they do – from how they run their
businesses, to how they treat their employees, to how they impact on the
communities where they live and work. The extent to which they live up to
their commitments is a matter for review and reporting, and such report-
ing is not as extensive in Russia as in many other countries. However, it
would be quite incorrect to suggest that the highest level of management
at major Russian corporations are unaware of the major CSR issues and
that they are not taking at least some of them into consideration in their
strategic business planning. It is not only because of a desire to be accepted
among the great companies of the world, the consequences of history
and the wish to cooperate with government goals that they are doing so,
but also because they know that in the long run CSR contributes to the
profitable operations of their companies.

The impact of philanthropy

There is a very long tradition of private philanthropy in Russia. As early
as the seventeenth and eighteenth centuries, Russian merchants and noble
families held magnificent parties, balls and poetry salons to introduce
striving artists, dancers, musicians, poets and writers to the public. In the
nineteenth century, Russian patrons of the arts such as Mamontov and
Morozov were known throughout Europe for their great collections of
unique artworks. During the Soviet years these collections, among many
others, were nationalized and exhibited in national museums of arts.
During the Communist period there was no such thing as corporate or
90 Corporate social responsibility

individual philanthropy. There was, however, under every leadership, one

constant – strong support for cultural activities, particularly music and
dance. The Russian Opera Company and the Ballet Russe both became
organizations with worldwide reputations. Indeed, ballet has become a
symbol of the culture of Russia. The support for these and similar cultural
organizations by the Russian people and their governments has always
been strong.
In recent years, private philanthropy has increased substantially. Indeed,
many wealthy Russians are duplicating the role of the American tycoons
who at the end of the nineteenth century filled their mansions with pictures
and other types of art from Europe. The degree of large Russian corpo-
rations’ involvement in various philanthropic activities, particularly in
the field of arts, is so great that Russian collectors are now a very signifi-
cant factor in the world art community. Indeed, in recent years, Russian
Oligarchs have been among the leading supporters of contemporary artists
(Thompson, 2007) and it is highly likely that many of their acquisitions
will end up in Russia. In fact, it is already happening. In 2008, art collec-
tor Stella Kesaeva, wife of Russian billionaire Igor Kesaeva, ‘signed an
agreement with the Russian culture ministry to open a museum of con-
temporary art in Moscow in a bus garage built in the 1920s by modernist
architect Konstantin Melnikov’ (Art Newspaper, 2008: 1).
Private philanthropy of the nature and scale found in the United States,
for example, where almost every citizen to some degree supports the
United Way, which is based on fund raising from individuals by the com-
panies in which they work, or the Red Cross, which mounts mammoth
campaigns directed at individuals for funds, is not widespread in Russia.
However, the situation is changing primarily because of the influence of
foreign firms that have either invested capital in Russian organizations or
established branches in Moscow. For these firms, such charitable giving
is a part of their general operations – they support all types of charitable
activities in other countries and so it is only part of their normal opera-
tions to support not-for-profit organizations doing important work in the
areas of health, education and general welfare in Russia. Once it became
the standard practice of foreign professional firms in Russia to accept
some corporate social responsibilities it was not long before Russian firms,
often clients of these professional organizations, followed suit.

The impact of international and national organizations

There is no question that the concept of CSR has entered into the lexicon
of Russian business culture. The major Russian business associations such
as the Russian Union of Industrialists and Entrepreneurs (RSPP), the
Association of Russian Managers and the Russian Chamber of Commerce
 CSR in Russia 91

and Trade have followed in the path of their Western colleagues and
focused attention on setting guidelines for businesses’ role in society.
The RSPP (once known as the group of ‘red’ directors) has adopted a
Social Charter that outlines businesses’ role in society and encourages its
members to become an active part of the communities within which they
operate. In addition to business associations’ efforts, non-governmental
organizations (NGOs) have facilitated CSR’s entry into Russia by spon-
soring over 30 seminars and conferences on CSR since 2004 and by the
translation of international standards on CSR reporting into Russian.
The United Nations, through the UN Global Compact1 has reached out
to Russian business and government leaders to be a part of the UN’s pro-
gramme to engage business in solving social and environment problems. It
publishes a quarterly that reports on developments associated with CSR in
countries throughout the world:

[A]t the beginning of 2007 CSR and sustainable reporting were part of the busi-
ness practices of more than 40 Russian companies. Fifteen of them featured
such reports as a separate section of their annual reports, while eighteen pro-
duced separate social reports, eight reported on sustainable development and
the remaining four issued environmental reports. Thirteen of these documents
were prepared on the basis of methodology and indicators of international
standards. (Kostin, 2007: 3)

The UN has also sponsored information, research and consultative activ-

ity to develop CSR practices in Russia.
While most Russian businesses and business organizations have
addressed social and political risks, only a small vanguard of Russian
businesses has begun to address the environmental issues related to CSR.
However, change is coming. The Association of Russian Managers has
included an environmental component to their definition of CSR. It is
reported that the adoption of environmental sustainability policies and a
mechanism for reporting how they are enacted is in the initial stages in 43
companies (Kostin, 2007).
Environmental protection in Russia remains primarily a compliance
issue. Most Russian business leaders still believe that international
standards of environmental management are too costly and there-
fore major Russian companies have not focused on these issues and
have not been anxious or ready to participate actively in international
ratings. Unfortunately, currently only four Russian companies provide
environmental reports.2
Some Russian national rating systems have also been developed:
Environmental Responsibility of Biggest Russian Industrial Enterprises,
the ratings of the International SocioEnvironmental Union and the
92 Corporate social responsibility

Independent Environmental Rating Agency. The value of the ratings varies

but they are all designed to encourage Russian enterprises to incorporate
social goals – broadly defined – into their strategic planning. In 2006, the
International Design Bureau published its first rating of corporate respon-
sibility of Russian firms based on the methodology of the international
think-tank AccountAbility – the leading five Russian firms were OJSC
Norilsk Nickel, OJSC Lukoil, OJSC UES of Russia, Severstal-Group and
OJSC Novolipetsk Steel.

CSR in Russia: The Defining Difference

There is a defining difference between CSR in Russia and CSR in the

Western world. It is being developed, analysed, scrutinized and judged in a
country where within the memory of many citizens all services were provided
by the state, Not surprisingly, CSR is more closely linked with the political,
social and economic history of Russia than it is in any other modern indus-
trial country. In most Western industrialized countries the great issues of
CSR are associated with deciding what social issues are the responsibility of
corporations that should be undertaken by business in a voluntary manner,
and what are the responsibilities of governments. The fact that in Russia the
state indirectly delivered all social benefits during the Soviet period and the
privatized corporations did so in the transition and post-transition periods
greatly complicates the issue. It is within this historical background that the
current development of CSR in Russia is being worked out.
The great economic growth since the 1998 crisis, combined with high
commodity prices, has created an expectation that the major Russian com-
panies, particularly in the oil, gas, metals and mining and manufacturing
industries, should readopt much of the general philosophy of the Soviet
period. Those who clearly understand the nature of privatization recog-
nize that the private company is now a totally different instrument from
the company of the Soviet era, and cannot deliver all expected benefits and
remain competitive in the free market. Many of the largest companies in
Russia have been caught up in this legacy of the past. Both workers and
governments are seeking a return closer to the Soviet model when compa-
nies paid for and delivered almost all services. Companies, of course, are
resisting attempts to have them accept these costs.
Consequently, the debate about CSR is not simply about the voluntary
acceptance of certain social, cultural or economic responsibilities by busi-
ness but a discussion of the entire spectrum of social services. In recent
years (2008) governments at all levels have stressed the need for profitable
Russian corporations to improve the social benefits and infrastructure in
the areas in which they operate. In response, business corporations through
 CSR in Russia 93

their various associations are constantly seeking a role in the long-term

planning process in an effort to manage the expectations of governments
and the public with regard to the appropriate scope of CSR activities of
Russian companies. Moreover, many companies are trying to move away
from programmes designed on the Soviet collective basis by putting in
place policies that meet the needs of targeted groups of employees such as
young specialists and highly skilled experts whom they wish to retain.
While debate about the distribution of social costs between business and
government is not unique in most countries, it is of a different nature in
Russia. The question in Russia is not whether it is appropriate for busi-
nesses to take on many socially oriented activities in the name of CSR,
but rather whether it is responsible for businesses to give up activities
that because of history and change they have for one reason or another
been forced to take on in the past. This reversal in Russia of the situation
found in other countries, and more importantly of the assumptions that
underline the bulk of research and writing about CSR, may imply the need
for a unique set of strategies and tactics for the proponents of an effective
approach to CSR in the new world of free markets in Russia.

CONCLUSIONS

All of the above factors – the need to rebuild infrastructure, the impact
of foreign trade and investment, the adaptation of contemporary man-
agement methods, the development of philanthropy and the work of
international and domestic organizations – have had an impact on the
development of CSR in Russia.
There is a long history, dating back to the Soviet era, of CSR in Russia,
if CSR is defined in terms of the relationship of business organizations
with the society of which they are a part. During that period, under a
socialist philosophy, companies provided ‘cradle to the grave’ services to
their employees and the cities where they were located. However, in the
great transition from a command to a market economy to all intents and
purposes all CSR disappeared in the midst of the general chaos. During
the recovery at the end of the twentieth century, because of the breakdown
in the normal infrastructure and social services during the transition,
many companies became involved with governments in undertaking activ-
ities that in most industrialized countries would be considered solely the
responsibility of governments. As the economy has grown and companies
have prospered, the debate about the appropriate balance between private
support and government support for such services has increased.
There is no doubt that large Russian companies are aware of the
94 Corporate social responsibility

traditional notions of CSR and more importantly accept that it is in their

interest to include them in their corporate strategies. The major companies
have adopted both internal and external policies designed to improve the
well-being of their employees in terms of health, housing and a vast array
of educational and recreational and cultural programmes.
The focus of Russian firms with respect to CSR is primarily on domestic
issues. So far there is limited interest in issues of global warming, environ-
mental protection, fair trade, or carbon footprints of business activities.
The major push for consideration of CSR by Russian firms in these broad
areas has come primarily from firms in the resource industries in which
foreigners have major investments. There is only a modest level of interest
in international standards, and consequently public reporting according
to standards of international organizations is low in Russia. Teaching
about CSR to management teams has expanded rapidly, and CSR is by no
means a foreign concept to Russian managers.
Corporate social responsibility in Russia has developed in response to
the history and politics of the country. As such it has followed a very dif-
ferent pattern from that of other non-socialist countries. Given the fact
that the Russian market economy is still very new, the implementation of
CSR, as has been the case in the implementation of corporate governance,
is still a thin, but thickening, crust that occurs primarily in large firms that
have an international profile or which have been influenced by govern-
ment to engage in CSR activities.

KEY LEARNING POINTS

1. If a socialist society for some reason decides to change from a

command to a market economy, it is vital that plans be made to
maintain public services. Failure to do so will lead to chaos.
2. Local governments who for years have not been in the business of
providing local infrastructure are ill-equipped to take on the respon-
sibility when the transition from a command to a market economy
takes place.
3. Privatized companies must be in a position to continue to supply
during and after a transition many of the public services and much of
the infrastructure that they supplied in the socialist era.
4. Failure to make such plans will result in chaos. In 1998 it led to the
failure of the Russian economy.
5. A strong government is an important factor in encouraging CSR.
6. Modern management techniques and methods flow rapidly and
freely among open societies.
 CSR in Russia 95

7. Knowledge about CSR is widespread in Russia and is growing.

8. A major force in acquisition of knowledge about CSR in Russia has
been the listing of shares by large companies on foreign exchanges.
9. Foreign investment and foreign advisers to Russian firms have been
significant forces in bringing knowledge about CSR to Russia.
10. Educational institutions in Russia have been instrumental in spread-
ing knowledge about CSR.
11. Formal international agencies, international NGOs and similar
organizations are well known in Russia and have had some influence
in promoting CSR.
12. CSR is an important element in the strategic planning of the larger
Russian companies and of large Russian companies with foreign
partners.
13. Even among larger firms, CSR is focused much more on domestic
than on international issues.
14. CSR is only recently becoming a factor in medium-sized and smaller
Russian firms.
15. Philanthropy among major Russian companies and business leaders
has become significant, particularly in the field of art.
16. As companies mature in the relatively young free market in Russia,
they will unquestionably follow the practices of other industrial
countries and embrace greater levels of CSR.

DISCUSSION QUESTIONS

1. How significant is the culture and history of a country in determining

the degree to which the business community exhibits an interest in
CSR?
2. Would Russian workers have more of the benefits of CSR, as identi-
fied in Western industrialized economies, if they were still under the
Soviet system?
3. Did the collapse of Russian society during the transition from a
command to a market economy have a major impact on the develop-
ment of CSR in Russia? If so, how?
4. With increasing prosperity and stability in Russia, will foreign advis-
ers and firms continue to have: (i) as much influence on the acceptance
of CSR in Russia as they have had in the past; (ii) less; or (iii) about
the same amount?
5. Which factors will induce Russian corporations to become more
involved in the major international issues of CSR – climate change,
sustainability, cleaner environments?
96 Corporate social responsibility

NOTES

1. The Global Compact is a partnership of the Office of the United Nations Commissioner
for Human Rights, the International Labour Organization, the United Nations
Environmental Programme, the United Nations Industrial Development Organization
and the United Nation of Office of Drugs and Crimes.
2. OJSC Gazprom, OJSC Ryasan Grez, OJSC Arkhangelsk Pulp and Paper Mill and OJSC
Northwest Forestry Company (OJSC: Open Joint Stock Company).

REFERENCES
Art Newspaper (2008), Art Newspaper: International Edition, 16 (184), 1.
Crane, A., D. Matten and L. Spence (2007), Corporate Social Responsibiity:
Readings and Cases, London: Routledge.
Dayman, S. (2008), ‘Russia in 2008: ISO Corporate Social Responsibiliy in a Post-
Socialist State’, ISO Social Responsibility, March, available at: www.ecologia.
org/isosr/sergey.html (accessed 15 November 2008).
Gillies, J. and Olga Melitonyan (eds) (2008), The Canada/Russia Corporate
Governance Program, 2000–2006, Toronto: Schulich School of Business, York
University.
Grafski, S. and J. Moon (2004), ‘Comparative overview of Western and Russian
CSR Models’, in S. Litovchenko (ed.), Report on Social Investment in Russia,
Moscow: Russian Managers’ Association, pp. 13–22.
Johnson, D. (2004), ‘Social Responsibility of Russian Businesses’, Johnson’s
Russia List, 29 November, available at: www.edi.org.russia/jonson/8473-20.cfm
11 (accessed 15 November 2008).
Kostin, A. (2007), ‘Russia: the evolving corporate responsibility landscape’,
Compact Quarterly, 1, available at: www.enewsbuilder.net/globalcompact/e_
article000775164.cfm?x=bll.o.w (accessed 15 November 2008).
Severstal (2008), ‘Social Responsibility’, available at: www.severstal.com/eng/
sustainable_development/social_responsibility/ (accessed 15 November
2008).
Thompson, D. (2007), The $12 Million Dollar Stuffed Shark: The Curious
Economics of Contemporary Art, London: Palgrave Macmillan.
TNK-BP (2006), Social Investment in Russia 2005, Moscow: TNK-Bp.

FURTHER READING
There is a very large and rapidly growing literature on all aspects of CSR in Russia,
particularly with respect to social programmes. For more information on sources,
contact Alexander Settles: asettles@hse.ru.

Alekseeva, O. (2008), ‘Corporate Social Responsibility in Russia: Growing Up

in an Unfavorable Environment’, available at: www.soc-otvet.ru/ (accessed 15
November 2008).
Biagov, Yu (2006), ‘The corporation as a moral agent’, Russian Journal of
Management, 4, 93–6.
 CSR in Russia 97

Boykov, A. (2006), Social Partnership: Decorations and Reality, Moscow: RAGS.

Business Research Association (2006), ‘Does Business Trust People in Power?’,
Moscow.
Croty, J. and A. Crane (2004), ‘Transitions in environmental risk in a transitional
economy: management capability and community trust in Russia’, Journal of
Risk Research, 7, 413–29.
Kuznetsov, O. and A. Kuznetsova (2008), ‘Gaining competitiveness through trust:
the experience of Russia’, European Journal of International Management, 2,
22–38.
Laptev, L. (ed.) (2004), Corporate Social Responsibility: Corporate Reporting –
New Factor of Interaction of Business and Society, Moscow: Delovoy Express.
Neschadin, A. (ed.) (2006), Business and Society: Beneficial Partnership, Moscow:
Vershina.
Peregudov, S. (2003), Corporations, Civil Society and the State: The Evaluation of
Relations, Moscow: Nauka.
Russian Association of Managers (2002), Corporate Social Responsibility: The
Practical Use for a Company. All-Russian Initiative Social Program of Business,
Moscow.
Russian Association of Managers (2005) ‘Corporate social responsibility and the
civil society: corporate social report’, Moscow.
Soboleva, I. (2006), ‘Corporate social responsibility: global context and Russian
realities’, Problems of Economic Transition, 49, 82–95.
5. Responsible business in Polish
economic practice: the experiences
of the Camela S.A. Factory of
Clothing Inserts
Izabela Koładkiewicz

INTRODUCTION: AN OVERVIEW OF CSR IN

POLAND
The state of advancement of implementation of the concept of corporate
social responsibility (CSR) in Polish business practice continues to dem-
onstrate that there is still a lot to do (Gasparski et al., 2004). Nevertheless,
with the passing years it is possible to observe growth in an awareness of
this subject not only among the implementers of the concept – businesses
– but also throughout society. This is confirmed by an analysis of the six
successive Responsible Business in Poland reports (from the years 2002–07)
published by the Responsible Business Forum1 (Koładkiewicz, 2008a).
In spite of the fact that the picture of CSR in Poland emerging from this
analysis presents only a segment of the greater whole, it demonstrates the
increase in awareness of this topic in Poland. Expectations on the part
of society concentrate on guaranteeing decent work and ethical behavior
by the business world (Kalata, 2006, p. 7). This is pointed to not only by
the results of research carried out among employees, but also by court
sentences condemning employers for not paying wages (for example,
Biedronka and APART) and the increasingly strong involvement of the
media in promoting the concept of responsible business – for example,
the ‘White Ribbon’ campaign promoting clean principles and respect for
workers’ rights (Kapcewicz, 2004, p. 7; UNDP, 2007). More and more
voices are also being aired on the topic of responsible business by public
partners and government administration (UNDP, 2007).
In the case of companies, it is possible to observe that the balance is
slowly shifting from expressing mere interest and declarations of under-
taking actions in the future to real implementation of ventures and
programs tied in with responsible business (in the form of various social

98
 Responsible business in Polish economic practice: Camela 99

involvement programs, worker volunteer work, codes of ethics, public

reports, educational efforts, and the introduction of socially useful prod-
ucts to the market, as well as the implementation of best practice in cor-
porate governance and investments for environmental protection). This
trend is confirmed by the continuously increasing number of program
descriptions submitted each year to the authors of Responsible Business in
Poland. One of the sources of these changes may be companies’ growing
interest in the idea of CSR in their local community (Wierzbowska and
Kuraszko, 2006, pp. 12–13).
Another encouraging matter is the gradual evolution in the approach of
companies to the idea of CSR. They are gradually starting to perceive it as
more than mere actions aimed at improving their image. With increasing
frequency they are moving beyond charity work. The number of long-term
programs is also growing. This positive change is just the beginning of the
road, however. Domestic companies are still plagued by a lack of knowl-
edge and familiarity with professional instruments facilitating the effective
implementation of the standards and principles of responsible business.
This may be why they continue to prevaricate on a declarative level.
Another challenge is seeing the need to look at CSR as an essential
element of company strategy. A strategic dimension should encompass
the building of relations, especially long term, with stakeholders. A start-
ing point for the implementation of this task should be the identification
of all stakeholders, not just the most important ones (who are usually
well known and well provided for), discovering their interests, creating
effective channels for communication and innovation, and the continuous
management of relations with them.
Summarizing, in spite of identified weaknesses, the Polish business
world is making progress in the sphere of CSR, albeit it is the international
corporations that continue to be the leaders. However, small and medium-
sized enterprises are also beginning to participate. Furthermore, there has
been a gradual ripening in the market vicinity, where the debate on the
topic of CSR is encompassing ever-larger circles. In sum, we know what
the concept of CSR is. The remaining problem is its effective implementa-
tion in real life, and how to solve this matter is among the more important
challenges to be faced in the near future.
The objective of this chapter is to demonstrate actions in the realm
of CSR implemented by the Camela S.A. Factory of Clothing Inserts,
operating in Wałbrzych and Mieroszów in Lower Silesia.
Information obtained through interviews with two representatives of
the management board procured over several hours was used in preparing
this case study. The interviews were of a free-flowing character and were
conducted on April 14 and 15, 2008 at the company offices in Wałbrzych.
100 Corporate social responsibility

Company documents and its internet pages served as a source of supple-

mentary data on its CSR activities. Other observations were provided by
visits to the manufacturing plants in Wałbrzych and Mieroszów.
A basic limitation of the study is the one-sidedness of opinions received.
The interviews involved only the management board members. However,
thanks to the open stance of the management board, it may be possible to
conduct questionnaire studies among company employees in the future.
The purpose of such studies would be to discover employees’ opinions and
approach to the concept of responsible business as well as learning their
views on Camela practices in this area to date. The results of such a study
will serve as an interesting supplement to this set of observations.

HISTORY

The Fabryka Wkładów Odzieżowych Camela S.A. (Camela S.A. Factory

of Clothing Inserts) was formerly the Wałbrzyskie Zakłady Przemysłu
Lniarskiego (Wałbrzych Factory of Flax Industry), which was established
in 1951 in Wałbrzych in Lower Silesia.2 It was a state-owned enterprise. The
plant was active in the textile industry and manufactured linen, tow, deck-
chair, towel, and bed linen as well as fabrics for printing and harvest cloths.
The transformation of the Polish economy, launched in 1989, did
not bypass the factory. It changed its name to the Camela Factory of
Clothing Inserts (Camela) that same year and commenced the process of
privatization in 1994. The outcome was the establishment of a worker-
owned company in 1995, with 100 percent of the equity in the hands
of the Camela employees. The property of the liquidated state treasury
enterprise was taken over and used by the new company for a fee on the
basis of a leasing agreement. In 1999, the company took over the assets
completely. The joint stock company remains in the hands of its workers
to this day, where top management hold a 50+ percent stake, while the rest
of the shares are owned by the remaining employees.

CAMELA TODAY

Camela is among the few major companies (employment in 2007 amounted

to 314) in the Wałbrzych region that not only managed to survive the dif-
ficult transformation period, but went on to develop and achieve success
in a market economy. The latter finds confirmation in awards won by
Camela in various fields each and every year (Appendix 5A contains a list
of awards) as well as in its position as a leader in the Polish market.
 Responsible business in Polish economic practice: Camela 101

To a great extent the following factors have contributed to the com-

pany’s success, enhancing its competitive advantage:

● well-considered investments in modern technology, where the

replacement of the machinery was a long-term process, not a one-off
event. Thanks to this, today’s Camela has at its disposal one of the
most modern plants in the world;
● a strong orientation towards product innovation; and
● quality considerations: from its very beginning, the question of
quality was among the key tasks at Camela. Thanks to its implemen-
tation, the company received a TÜV CERT PN-EN ISO 9001:2001
Quality Management System 2004 certificate as well as an Öko-Tex
Standard 100 certificate for clothing inserts with thermoplastic
adhesive, which confirms the human- and environmentally friendly
nature of company products.

The continuously expanding product assortment includes clothing

inserts (woven and knit, including elastic and bi-elastic), sewn inserts (shirt
and tie inserts), thermoplastic adhesive footwear inserts, auxiliary materi-
als for the manufacture of leather and fur products, canvases for hand
embroidery, lambrequin stiffeners, composites and laminates, and related
services, as well as weaving and knitting threads and yarns.
Camela’s main markets, in terms of sales, are those in Europe, par-
ticularly in Poland, where Camela is successfully competing with three
main competitors who hold approximately 60 percent of those markets.
Moreover, Camela products may also be found in American, Asian, and
African markets.

CAMELA: CONTINUOUS CARE FOR WORKERS,

A VALUABLE LEGACY LEFT BY THE STATE
ENTERPRISE

There is no doubt that among the important challenges for every company
facing up to the concept of responsible business is guaranteeing employees
‘decent work’. This means that the employer ‘not only disburses salaries
and forwards ZUS [Social security premiums] on time, but also creates
decent working conditions, observes worker rights, and does not exploit
the employees, but works towards their development and treats them as
partners’ (Kapcewicz, 2004, p. 7).
In the view of the management board, Camela is implementing the
above task, albeit the term ‘socially responsible business’ is not formally
102 Corporate social responsibility

used within the company. This view of the management board is confirmed
by several prizes and awards received by Camela, including winner of the
Fair Play Enterprise competition in the years 2002, 2004, 2005 and 2006
for reliability in their relations with suppliers, customers, and staff, and
acknowledging the company as an Employer Organizing Safe Working
Conditions in 2001 by the Wrocław District Labor Inspectorate, which
awarded First Prize to the CEO in the group of companies employing over
250 people.
In characterizing actions undertaken in the interest of workers, members
of the management board stressed the socialist past of the company.
Camela operated as a state enterprise up to the period of systemic trans-
formation. It was privatized in 1994–95 through worker privatization,
whereby the employees became the company owners.
The persistently manifest state enterprise pedigree is, to a great extent,
the result of the top management core being formed by managers who
have been involved with the company for more than 30 or even 40 years.
The CEO has been involved in its management since the 1960s. When
installed as director in 1965, he assembled a new managerial team, which
today continues to manage Camela. Years of work in a state enterprise
as well as life in a socialist country continue to have an impact on his
approach to workers – it is characterized by caring and respect.
Mutual relations between the managerial staff and workers are also
influenced by long-term collaboration, which has existed under diverse
conditions. It encompasses both the period of the centrally planned
economy and the almost 20-year period of a market economy. Regardless
of the character of the economy, the company has had moments that were
both good and bad. Experiencing such moments together created the
foundation for mutual trust. Note that just like the top management, most
of the workers at Camela can also be characterized by their employment
stability. Most of them have been employed by the firm since the1960s
and 1970s. For many, Camela was and is their only place of employment.
The result of this situation is the rather high average age of the work-
force, which is approximately 40. The first major influx of ‘young blood’
occurred in 2007, but it did not encompass the top management.
Since the 1990s, the level of employment at the company has fallen
significantly. Camela employed 690 in 1990; 10 years later the figure was
only 371. A certain stability may be observed as of the year 2005, when
the employment level was 314. Currently, the outflow of staff is the result
of a natural passage into retirement, rather than a restructuring led by
company needs. Workers rarely resign of their own accord, although there
are single cases of departures resulting from an organizational mismatch.
There can be no doubt that a continuous reduction in employment is
 Responsible business in Polish economic practice: Camela 103

among the painful processes that have taken place in the company over
the past 18 years. Moreover, the complexity of this process was also
predetermined by the situation in the local labor market, which was very
difficult. With the closing of all mines during the 1990s, the Wałbrzych
region experienced structural unemployment of 27 percent. By 2008 it was
approximately 18.4 percent,3 while the unemployment rate for the city
of Wałbrzych itself amounted to approximately 13 percent (December
2007).4
In the case of Camela, which is among the few companies that survived
the transformation period in this region, the means of reducing the work-
force subject to such conditions created a significant challenge for the
managerial staff. Aware of the complexity of the situation – the necessity
of satisfying the economic needs of the organization versus its status as
one of the few employers in the region – the top management put in sig-
nificant effort to find a solution, striving to reconcile these contradictory
challenges. They felt responsible for their workers; decisions regarding
layoffs were taken with great care and their basis was always the possibil-
ity of the fired employees receiving other social benefits (for example, early
retirement). In fact, this approach to layoffs remains to this day.
Another event that left its mark on management–worker relations is
certainly the privatization of the company. Both rank-and-file workers
and the top management were a party to it. Consent for such a form of
privatization as well as broad participation in the transaction was, to a
great extent, the result of trust in the managerial staff, which was its ini-
tiator. At the same time, the top management undertook actions aimed
at facilitating the participation in the privatization process of the largest
possible group of employees. Among methods applied were payments of
bonuses from special company funds as well as the granting of low-interest
credit for the purchase of stock, and a wide-ranging campaign to convince
workers as to the benefits of the concept of worker privatization. The
result was the launching in 1994 of the process of privatization encom-
passing 670 employees, of whom 517 purchased stock. Currently, Camela
continues to be the property of its workers, where over 50 percent of its
shares is in the hands of the management board while the remaining shares
are at the disposal of workers.
Another noteworthy factor is that Camela employees are endowed with
business sense. This is demonstrated by the results of a questionnaire-based
study conducted among workers in 2007 as well as in their approach to
problems constantly cropping up in the company. For example, 2006 was
a tough period for the company due to a lack of orders. The situation was
serious enough to consider halting production, which created the threat of
worker layoffs. In looking for a solution, the management board proposed
104 Corporate social responsibility

restrictions on working hours, which signified a fall in wages, but simulta-

neously avoided layoffs. The management board submitted this compro-
mise to the trade unions active in Camela, but they rejected the idea. In
response, the management board decided on a meeting with all employees
in order to present its proposal for solving the problem directly. The CEO
met with the entire workforce in one of the production halls, where he pre-
sented the solution proposed by the management board. The outcome of
this meeting was consent on the part of the workers to implement the idea,
in spite of the fact that it signified lower wages – it guaranteed that there
would be no layoffs. Note that a major factor in obtaining the employ-
ees’ consent for implementing the management board’s proposal was the
trust which they had for the CEO as well as the other management board
members. Years spent working together characterized by top management
stability created a good foundation for mutual trust and reinforced the
management’s credibility among the workers. This undoubtedly fosters
collaboration and a striving towards consensus. It should not be forgot-
ten that the situation in the local labor market continues to be difficult,
which may impact on the position of Camela employees with respect to
the top management’s proposals (agreement to work together rather than
opposing everything).
Statements by representatives of the top management point to yet
another dimension derived from the company’s state enterprise pedigree:
there is no major competitive pressure among workers. The positive aspect
of this situation is the absence of any ‘rat race’, which influences the good
working atmosphere in the company.
In addition to the valuable components of Camela’s state enterprise
legacy (that is, respect for workers and a good working atmosphere), there
are also some negative influences/leftovers. These include expectations
among workers for a continuation of activities in their interest that they
experienced during the era of a socialist Poland. This stance is especially
common among workers who were already working for Camela at that
time. Employment in only one job and no experience in working for any
other employer, particularly private employers, fosters a lack of appre-
ciation for what workers actually have. To a great extent this factor is
responsible for some workers adopting a position of passive recipient
rather than noticing all the actions being taken with their interests in
mind. Certain such activities are being continued at Camela in spite of the
change in status from state enterprise to private company. Their scope has
been limited, however. Among them is a subsidy for worker vacations (at
present, most of the costs are covered by the worker, as compared with
such costs being paid by the state during the socialist period). Moreover,
the company pays for summer camps for the children of all employees.
 Responsible business in Polish economic practice: Camela 105

An example of management care for workers is also seen in the inter-

est taken in their health. A nurse is always on duty in the company and
a physician is available twice each week. The organizing of all sorts of
preventive checkups encompassing all employees is another initiative of
the top management. Furthermore, in the event of illness, a worker can
count on support from the company (including in the form of subsidies
for the purchase of the necessary medicine at the local hospital). A recent
management board initiative exemplifying its caring stance for the health
of its personnel is the introduction of a bonus for not smoking. The
trade unions demonstrated their disdain for this idea, but the workers
themselves accepted it.
Care in providing a ‘friendly’ job station is among activities aimed at
creating decent working conditions. In the case of Camela, use of modern
technologies forces the continuous modernization of the production halls.
As a result of these efforts, working conditions in production divisions are
improving all the time. Great stress is placed on cleanliness on the factory
floor as well as providing workers with a functional staff room.
Activities undertaken in the interest of workers at Camela are not
restricted to providing them with a sense of security and good working
conditions. Possibilities for personal development make up an impor-
tant component. Investments in worker development vary in form – for
example, the organizing of in-house training, including English language
courses, and financial support for employees going to college as well as
subsidies for college costs.
The company top management aims to identify the development needs
of its staff and tries to meet them. For example, noting a lack of familiar-
ity with the specifics of the textile industry among ‘non-textile’ workers,
it organized post-graduate studies with the assistance of the University of
Bielsko–Biała. The curriculum was specially developed to meet the needs
of Camela and was intended to expand the knowledge of this group of
employees about the textile industry. Classes were held over weekends
at the university. Over a dozen people took part (and only two people
dropped out).
Another method of stimulating worker development is the creation
of conditions fostering innovative behavior. Camela’s top management
is aware that in today’s climate a lack of innovation can mean the quick
passage of a company into an economic limbo. Hoping to secure a con-
tinuous influx of innovative solutions, work has been launched on new
regulations intended to encourage all employees to put forward ideas con-
nected with the application of new manufacturing solutions. This means
that each and every Camela employee can become a source of ideas. Each
idea will be checked by the research and development department, and,
106 Corporate social responsibility

if tests are successful, the originator of the idea will participate in the
profits.
Stimulation of innovative behavior among company workers points to
the implementation of another aspect of the CSR concept – the guarantee-
ing of sustainable development.
One aspect of the concept of responsible business is for the company
to treat its workers as partners. This cannot be accomplished without
dialogue. In this context, the creation of good communication channels
between workers and the managerial staff becomes a major challenge.
An increase in management activity in this sphere can be observed at
Camela over the past year. The above-mentioned questionnaire study
conducted among employees in 2007 was an attempt to expand applied
communication instruments. Until the study, the main worker communi-
cation channel consisted of bulletin boards hanging by each production
hall, which enabled workers to learn about the most important informa-
tion related to company operations (for example, regarding quality or
output). This method of communication has many limitations, however.
First, information flow is in one direction (from the top management
to workers), meeting the needs of only one side. Second, it is question-
able whether workers actually read the information and announcements
displayed on the bulletin boards.
Currently, the new form of communication that was inspired by the
results of the study, which demonstrated a need to decrease the distance
separating the managerial staff and workers, is to set up meetings between
the president of the board and individual groups of workers. A total of 12
such meetings had already taken place by April 2008. They were organized
in the 4th quarter of 2007 and the 1st quarter of 2008. The objective of the
meetings was to discuss the workers’ problems, and their expectations with
respect to the management, and to pass on information about the situa-
tion of the company. The meetings proved popular among the employees,
but they also provided several interesting insights into how the workers
felt and their views on what is happening in the company. Furthermore,
the CEO of Camela valued this formula for communications very highly.
The idea was put forward to make such meetings a permanent fixture and
organize them once every two years, for example.
Data gathered during such meetings can be a useful starting point for
further improvement in managing worker relations. For example, the need
to change the behavior of foremen with respect to their subordinates is some-
thing that must be tackled. Research has demonstrated a lack of sufficient
skills on the part of foremen in managing workers. The top management is
now considering various solutions, including the organizing of training for
foremen aimed at increasing their knowledge of managing people.
 Responsible business in Polish economic practice: Camela 107

Camela activities targeted at workers are not limited to questions involv-

ing the creation of a friendly work environment. A festival for workers has
been organized annually at the Mieroszów stadium (the site of one of the
company’s production plants) for the past several years. Other residents
of Mieroszów can also take part, but they must finance their participation
themselves, whereas Camela employees are funded by the company. These
events have proved very popular, which is borne out by worker attendance
as well as interest on the part of the local community.
Camela experience to date demonstrates that the absence of use of the
term ‘corporate social responsibility’ as well as of familiarity with the the-
oretical principles behind this concept in no way impedes practical imple-
mentation. Camela’s top management is acting intuitively in accordance
with the concept of CSR. In their quest for an answer to this phenomenon,
representatives of the management board strongly stressed the socialist
past of the company as well as their own experiences of living during that
period and working for a state enterprise. A factor that is also responsible
for the friendly approach to workers is employment stability, both in the
case of the top management and the workforce. To a great extent, this
plays a part in mutual understanding, which fosters trust.
It may also be assumed that the process of worker privatization with the
participation of all interested employees might also have played a role in
the increased level of responsibility of the company. This is especially likely
in the case of members of the management board who became the owners
of over 50 percent of Camela’s shares as a result of the privatization.
There can be no doubt that with respect to actions in the realm of CSR,
Camela has a solid basis for their further development. One of the major
challenges remaining is an increase in awareness of the assumptions behind
this idea among workers, and thus a change in their position from passive
recipient to active participant in these processes. A good starting point
may be the development of the code of ethics that is already functioning in
the organization, albeit not in written form.

CAMELA AND THE LOCAL COMMUNITY

Camela actions targeting the local community can best be described as

‘dispersed’ because they are directed at many recipients. They mainly take
the form of financial support. The company’s management board is of the
view that it is better to provide support for many with small amounts than
to use a large sum of money in support of one. With such an approach, the
company’s beneficiaries receive amounts ranging from several hundred to
tens of thousands of Polish zlotys (PLN).
108 Corporate social responsibility

The company’s charity effort is mainly directed to those in need who are
located in its area of operations as defined by the manufacturing plants in
Wałbrzych and Mieroszów. The main recipients benefiting from Camela
aid include local sports clubs and schools, which receive financing ear-
marked for the procurement of sporting equipment and supplementary
meals for children.
There are also individuals among the beneficiaries of Camela’s charita-
ble activities, who have approached the company and requested assistance
directly. For example, the company provided financing for two marathon
runners, making it possible for them to participate in marathons organ-
ized around the world. Among other occasional activities is support for
the theater in Wałbrzych as well as collaboration with the Wałbrzych city
authorities in developing a brochure about the city and a subsidy for the
local hospice. There is also the annual Mieroszów festival, which, although
it is primarily organized for company employees, is open to residents and
provides them with a welcome local attraction – the community is small
and there is not much variety in terms of entertainment.
Actions in the interest of the local community meet the needs of the
moment rather than being a component part of the company’s long-term
intentions. Moreover, the local community is the primary initiator of
such efforts, which are directed at Camela when the company is asked for
concrete help.
The company has no written procedures or rules regulating this sphere
of its activities. Nor does it have a specific independent job position dedi-
cated to collaboration with the local community. The only systemic solu-
tion is that the management board has made the president of the board
its plenipotentiary with regard to decisions in this area (the president of
the board is empowered by the board to set the level of the subsidy). The
usual procedure is to submit such matters at management board sessions
when signals from the local community suggest a need for support for
or involvement in a given venture. Decisions regarding the granting of
a subsidy or company involvement in a given venture are based on not
only the logic or value of the idea, but also the economic situation facing
Camela. An important aspect determining consent for assistance is trust
on the part of the management board in the potential beneficiaries.
In the view of Camela’s CEO, a stable company situation is a prereq-
uisite to company activity in the interest of the local community or other
stakeholders. In times of change – for internal organizational reasons
or as a result of events in the community – all effort is concentrated on
addressing company difficulties. Support for others activities drops into
the background.
Although Camela’s community activities are, for the most part, on
 Responsible business in Polish economic practice: Camela 109

a day-to-day basis in response to needs as they materialize, support for

schools and sports clubs has a long tradition lasting more than 10 years.
Essentially, this can be considered a long-term commitment.
The experience of one of the management board members suggests
that for more than a dozen years, Camela’s collaboration with the com-
munity has been characterized by fluctuating intensity as well as changing
numbers of cooperating stakeholders. For example, he currently sees a
trend of decreased collaboration with the municipal authorities. At one
point such cooperation was very active, where a tangible effect was co-
financing for the construction of the sewage treatment plant in the 1990s.
The reason for the present situation is a fall in interest for such operations
on the part of the municipality.
Another example of a weaker collaboration concerns Camela’s support
for the local hospital, whose current director seeks financial support (for
example, for the purchase of medication needed by the hospital’s patients)
significantly less often than had been the case a few years ago. Camela’s
top management does not know the reason for this situation.
In spite of a strong orientation towards the local community, Camela
also undertakes actions targeted at recipients beyond it. Such beneficiar-
ies include vocational textile schools throughout the country. Using its
more than 55 years of tradition in the textile industry as a foundation,
the company tries to provide support by supplying all manner of materi-
als that are useful in teaching the profession, including sample inserts,
product catalogues, and brochures. An interesting formula for assistance
is also the possibility of visiting the plant and organizing work–study
programs for students.
In summarizing the involvement of the company in the community,
what should be stressed is its strong local community orientation defined
by the location of its manufacturing plants in Wałbrzych and Mieroszów.
Currently, the main beneficiaries of this aid are children and youths
attending local schools or local sports clubs. As expressed by a Camela
management board member, such activities are considered as ‘investments
in our own region’. At this point it is worth reiterating that all Mieroszów
residents can take part in the annual festival organized by the company
for its employees.
The experience of Camela demonstrates that a lack of any long-term
plans for action in the interest of the local community in no way inter-
feres with continuous support, albeit these efforts are of a one-off nature,
dispersed, and usually initiated by external stakeholders. In line with its
potential, the company tries to assist the local community. This is why
the gradual fall in interest among Camela’s local institutional partners in
collaboration aimed at improving the lot of the community is a reason for
110 Corporate social responsibility

concern. The present representatives of the management board have the

impression that there is a lack of interest on the part of the authorities in
the region to maintain and develop such collaboration.
Although the assistance offered to the local community by the company
is not systemic in character, it is seen as such by that community. However,
as one of the management board members claims, this does not translate
into the company’s position in the region. Among the important factors
responsible for this state of affairs, a board member singled out the indus-
try in which Camela is active, as the textile industry is considered uninter-
esting and not offering any exciting possibilities for development.

CAMELA AND THE ENVIRONMENT

Camela’s pro-environmental orientation is primarily expressed in its

efforts to provide products that are people and environmentally friendly.
The actions the company undertakes are aimed at meeting human–
environmental requirements currently in effect in relation to standards
for products that come into direct contact with the skin. Camela is one of
6,000 companies throughout the world that have implemented and apply
the Öko-Tex Standard 100 certificate. The Öko-Tex certificate, which rates
the environmental qualities of products, is a guarantee that the products
are free of hazardous substances in concentrations that have a negative
impact on human health (safe textiles). Moreover, Camela products meet
legal regulations in force in Europe with respect to the application of azo5
dyestuffs.
Camela strongly stresses its involvement in the manufacturing of prod-
ucts that are optimized in terms of human ecology as well as that they are
tested and certified by textile institutes recognized throughout the world.
An important effect of involvement in the certification system, stressed by
the company, is the specification of safety standards for end-users in the
textile industry chain.
For its part, care for the immediate natural environment is fostered
thanks to Camela’s completely modern manufacturing technologies.

CONCLUDING COMMENTS

The above presentation of the practice of Camela in implementing the

CSR concept is a successive element expanding our knowledge of imple-
mentation of the idea subject to Polish conditions (for a summary see
Table 5.1). Analysis of current experience of the company shows that
 Responsible business in Polish economic practice: Camela 111

Table 5.1 Benefits provided by Camela for employees and the wider
stakeholder community: summary

Benefits for Camela employees Benefits for Camela area

Employment stability 1. Benefits for the local community:
Decent working conditions Main recipients: local sports clubs
A ‘friendly’ job station – and schools – financing for the
continuous modernization in procurement of sporting equipment and
the factory supplementary meals for children
Possibilities for personal Financial support for two marathon
development runners, making it possible for them
Good communications with to participate in marathons organized
workers around the world
Friendly approach to employees Support for the theater in Wałbrzych as
Subsidies for worker vacations well as collaboration with the Wałbrzych
Free summer camps for the city authorities in producing a brochure
children of all employees about the city, and producing a subsidy
Nurse always on duty in the for the hospice
company and a physician is Festival organized each year in
available twice each week Mieroszów
In case of illness a worker can Co-financing for the construction of the
count on support from the sewage treatment plant in the 1990s
company 2. Benefits for the extended community:
Bonus for not smoking Support for vocational textile schools
Festival organized each year in throughout the country: supply of
Mieroszów various materials that are useful in
teaching, including sample inserts,
product catalogues, and brochures as
well as the possibility of visiting the plant
and organizing work–study programs for
students
3. Benefits for the environment:
Products that are people and
environmentally friendly
Öko-Tex Standard 100 certificate
Completely modern manufacturing
technologies

Source: Own research.

a much-stressed aspect of this activity is the absence of use of the term

‘corporate social responsibility’. Implemented actions, especially those
targeting workers, were a natural continuation of the tradition of the state
enterprise (Camela is among the few companies in the region that survived
112 Corporate social responsibility

the period of systemic transformation). One factor fostering this approach

is the employment stability of the top management, whose members have
been working for the company since the1960s and 1970s. Under Polish
conditions, such a situation is a rare phenomenon. This is because for
many state enterprises, adapting to new market conditions of operation
signified ownership changes, and with the new owner came the replace-
ment of the top management. The worker privatization path chosen by
Camela and in which its workers participated, as well as a lack of further
changes in the ownership structure in the wake of privatization (that is,
the shareholder structure, consisting of members of the management
board and the remaining workers, remains unchanged, although there
were certain observable modifications to the size of share packages) did
not upset the credibility of the top management who continue to serve as a
foundation for trust visible in relations with the employees.
However, it seems that these are not the only factors that create the
conditions whereby the company cares for its workers. Camela operates in
the difficult and technologically quickly developing textile market, which
necessitates continuous adaptation to changes (the fashion market is not
foreseeable), constant care about quality, and ongoing innovation. It is
not news that a prerequisite to the efficient execution of these tasks is the
accumulation of human capital in the organization.
Well-motivated employees are the key to further success, including the
generating of profits. This simply means that it is necessary to care for the
workers, and Camela’s top management is aware of this. This is confirmed
by quality policy guidelines implemented in the company, which point out
the need to:

● involve and motivate all employees in the continuous improvement

of the quality of manufactured products;
● mold the conviction that each and every worker at his or her job
position or in contacts with customers bears responsibility for
quality and the company image and brand;
● successively improve the qualifications of the workforce; and
● increase the value of sales while simultaneously lowering costs.

A successive factor fostering the treatment of workers in a responsible

manner, and thus creating the image of Camela as a friendly workplace,
is the slowly growing need to ‘rejuvenate’ the workforce. Like the top
management, the present team of workers is, to a great extent, made up
of people who have been working for Camela for many years, and there-
fore the problem of a natural replacement of staff is approaching at an
increasing rate. An ace held by Camela in the business of attracting new
 Responsible business in Polish economic practice: Camela 113

workers is its location in a region that was hit by structural unemployment

in the 1990s (the closing down of mines). Even today, the job situation is
not easy. Moreover, it is the view of the CEO that the wages offered by
the company are better than anywhere else. The problem lies in the fact
that it is not easy to attract a good worker. Among the reasons for this
phenomenon are the character of the industry in which Camela operates
(the textile industry is not perceived as having development potential) and
the emigration of young people to the European labor market or to other
major Polish cities. For this reason, an image of a company caring for
its workers can prove very useful. Perhaps the top management should
consider transforming its intuitive approach to the concept of a business
that is responsible in its actions to a more systemic and long-term one,
thus creating a component in the building of a long-term strategy for the
company’s development.
That same intuitive application of the assumptions behind the CSR
concept was used in Camela’s actions aimed at collaboration with the local
community. There was no system for planning activities, which tended to
emerge out of day-to-day needs and were mainly limited to financial subsi-
dies directed at local sports clubs and schools. The weakness in company–
local community relations is the passive stance of the company expressed
in its waiting to be approached before taking action. Moreover, decisions
regarding involvement in support are taken on the basis of knowledge held
by the management board, which is not necessarily complete. This should
come as no surprise as the primary task of the management board is not
the monitoring of the needs of the local area, but the efficient development
of the company. That is where it concentrates its complete attention.
There can be no doubt that the positive orientation of the management
board to such types of activity fosters the potential development of col-
laboration between the company and the local community. The board
members, as has been stressed several times, have not only been working
for Camela over the past 30 or more years, but have also lived in this
region and are fully fledged members of its relatively small community.
What is more, and what was underscored during the interviews, is that as
managers of the company they feel a responsibility to this community.
A positive outlook and hopes are not enough, however. The chal-
lenge facing the company is to develop a long-term and more systematic
formula for collaboration with the local community. Closer ties with the
local authorities would undoubtedly foster such actions. Unfortunately,
observations of the past several years point to the opposite process – the
municipality authorities have shown a steady decline in interest in such
activities.
In concluding this characterization of Camela’s experience in the area
114 Corporate social responsibility

of responsible business, it is again necessary to stress that its approach to

the idea of responsible business is, to a great extent, conditioned by the
stance of its top management. This approach is shaped by faith in certain
values drawn from life and professional experiences to date. Declarations
from the management board show that it feels no pressure from other
stakeholders to implement the assumptions behind the concept of CSR in
practice. In its view, the idea of responsible business is of no interest to cus-
tomers, workers, or the local authorities. However, the local community is
aware of Camela’s efforts to address CSR.
In order to prevent the evaporation of its achievements in this area, the
Camela management board should try to activate collaboration with the
municipality as well as influence growth in the activity of its own workers,
through employee volunteer efforts, for example. The basic challenge is
the building of the assumptions behind the CSR concept not only as a
component part of a long-term strategy, but also as an important element
of organizational culture. The high average age of the management board
members points to the weight of such efforts. As new people appear on
the management board, it is probable that they may have a completely
different set of experiences and expectations, where action in the realm of
CSR may be of no interest to them. In such an event, what will happen
to Camela’s current approach to responsible business, which to a great
extent is the result of the stance of the present top management? This is
undoubtedly an important question for which the top management should
start seeking an answer. This is especially true as Camela’s practice to date
is, to a great extent, in line with the message of Günter Verheugen, Vice-
President of the European Commission, directed to German entrepreneurs
in 2006. In this message Verheugen pointed to the possibility of making
socially involved business a calling card of European responsibility:

Greater freedom in business today also means the greater responsibility of

individual businessmen. . . . The businessman who sees that the workplace is
threatened is obligated to look for solutions through his own activities. Bearing
in mind the development of technology and competitiveness, the businessman
should, more than in the past, strive for growth in innovation and the raising of
the qualifications of this workers . . . (Verheugen, 2006)

KEY LEARNING POINTS

1. Year-by-year awareness of the concept of corporate social responsi-

bility is growing in Poland. Not only is business interested, but so also
is Polish society. The forms of activities and level of implementation
of CSR differ among companies, however it is possible to observe the
 Responsible business in Polish economic practice: Camela 115

slow shift from expressing mere interest and declarations of under-

taking actions in the future to real implementation of ventures and
programs tied with responsible business.
2. Among important challenges placed before every company by the
concept of responsible business is guaranteeing ‘decent work’ for
employees. This means that employers should not only disburse sala-
ries and forward ZUS (social security premiums) on time, but they
should also create decent working conditions, observe worker rights,
strive for worker development, and treat workers as partners.
3. Camela’s experience to date demonstrates that the absence of use of
the term ‘corporate social responsibility’ as well as of familiarity with
the theoretical principles behind this concept in no way impedes prac-
tical implementation. Among factors fostering action in the area of
CSR in the case of Camela are employment stability, both in the case
of the top management and the workforce, mutual understanding,
and the trust and credibility of the top management.
4. Camela’s experience demonstrates that a lack of any long-term plans
for action in the interest of the local community in no way interferes
with continuous support, albeit these efforts are of a one-off nature,
dispersed, and usually initiated by external stakeholders.
5. A stable company situation is a prerequisite to company activity in the
interest of the local community or other stakeholders.
6. The stance of the top management, to a great extent, determines the
company’s approach to the idea of responsible business.

DISCUSSION QUESTIONS

1. Corporate social responsibility in Poland: what are the main challenges?

2. Identify factors supporting implementation of the CSR idea at
Camela.
3. List the strengths and weaknesses of Camela’s activity in the process
of implementation of the concept of corporate social responsibility.
4. List the threats and opportunities associated with responsible busi-
ness that Camela may face in the near future. What should be done to
avoid threats and to use opportunities?
5. What would you do as a member of the Camela management board
to improve the level of institutionalization of the concept of corporate
social responsibility in the company (more systemic and long-term
activity in that area)?
6. What would you do as a member of the Camela management board to
activate cooperation with stakeholders from the surroundings?
116 Corporate social responsibility

NOTES

1. The Forum Odpowiedzialnego Biznesu (Responsible Business Forum) is an association

with the status of a pro bono publico organization and is the first and only non-govern-
mental organization in Poland concerned with the concept of responsible business in a
comprehensive manner (Report 2007).
2. ‘The Powiat [county-level unit] of Wałbrzych is in the southwestern section of Poland
in the Lower Silesian Voivodeship [Province]. It is located in the Central Sudeten
Mountains, in the area of the Wałbrzych Foothills and the Wałbrzych, Kamienne
[Stony], and Sowie [Owl] mountains. The Powiat borders with the Czech Republic’
(Local Development Plan for the Powiat of Wałbrzych for 2005–2006 and subsequent
years).
3. See www.dwup.pl/index.php?option=com_content&task=blogcategory&id=20&Itemi
d=52, accessed May 1, 2008.
4. See www.um.walbrzych.pl/strony/do_druku/gospodarka/oferta_inwest/statystyka_gos
podarka/002-p.jpg, accessed May 1, 2008.
5. Azo is the name of a chemical compound of Nitrogen.

REFERENCES

Camela S.A. Factory of Clothing Inserts, Documentation, available at: www.

camela.pl/11, accessed April 28, 2008.
Gasparski, W., Lewicka-Strzełecka, A., Rok, B. and Szulczewski, G. (2004),
‘Odpowiedzialność społeczna i etyka biznesu w polskim życiu gospodarczym:
Infrastruktura na rzecz rozwoju etyczności funkcjonującego w Polsce biznesu’
(Business social responsibility and ethics in Polish economic life: infrastructure
for the development of ethics in business functioning in Poland), preliminary
study report, Institute of Philosophy and Sociology (IFiS) of the Polish Academy
of Sciences (PAN) and the Leon Koźmiński Academy of Entrepreneurship and
Management, Warsaw.
Kalata, A. (2006), ‘Biznes na etycznym fundamencie’ (Business on an ethical
foundation), Raport odpowiedzialny biznes w Polsce. Dobre praktyki – 2006
(Responsible Business in Poland Report: best practice – 2006), Warsaw, avail-
able at: www.odpowiedzialnybiznes.pl, p. 7.
Kapcewicz, B. (2004), ‘Dla chcącego nic trudnego – O odpowiedzialności społecznej
małych i średnich firm’ (Where there’s a will there’s a way: on the social respon-
sibility of small and medium enterprises), Raport odpowiedzialny biznes w
Polsce. 100 dobrych przykładów – 2004 (Responsible Business in Poland Report:
100 good examples – 2004), Responsible Business Forum, Warsaw, available at:
www.odpowiedzialnybiznes.pl, p. 7.
Koładkiewicz, I. (2008a), ‘Corporate Social Responsibility w Polsce. Perspektywa
raportów Forum Odpowiedzialnego Biznesu: 2002–2007’ (Corporate social
responsibility in Poland from the perspective of the 2002–2007 Responsible
Business Forum reports), unpublished material.
Koładkiewicz, I. (2008b), Typewritten transcripts of interviews with the president
and members of the management board of the Camela S.A. Factory of Clothing
Inserts as conducted on April 14 and 15, 2008 at the offices of the company in
Wałbrzych.
‘Plan rozwoju lokalnego powiatu wałbrzyskiego na 2005–2006 i lata następne’
 Responsible business in Polish economic practice: Camela 117

(Local development plan for the Powiat of Wałbrzych for 2005–2006 and subse-
quent years), Wałbrzych, October 2005, available at: www.powiat.walbrzych.pl/
DokumPlan/pliki/PRL.pdf.
United Nations Development Programme (UNDP) (2007), ‘Społeczna
Odpowiedzialność Biznesu w Polsce. Wstępna analiza’ (Business social respon-
sibility: preliminary analysis), Warsaw.
Verheugen, G. (2006), ‘Unia europejska jako przystań na burzliwym morzu glo-
balizacji’ (The European Union as a harbor on the stormy seas of globalization),
Gazeta Wyborcza, April 23.
Wierzbowska, T. and Kuraszko, I. (2006), ‘Działania z zakresu CSR są w Polsce
najczęściej inicjowane przez PR. Raport z badania na temat postaw osób
związanych z branżą PR wobec idei CSR’ (CSR efforts in Poland are most often
initiated by PR: a report on the positions of people in the PR industry on the
concept of CSR), Raport odpowiedzialny biznes w Polsce. Dobre praktyki – 2006
(Responsible Business in Poland Report: best practice – 2006), available at:
www.odpowiedzialnybiznes.pl, p. 12.

REPORTS

Raport odpowiedzialny biznes w Polsce w 2002 roku (Responsible Business in

Poland in 2002 report), Responsible Business Forum, Warsaw, February 2003,
www.odpowiedzialnybiznes.pl.
Raport odpowiedzialny biznes w Polsce. 100 dobrych przykładów – 2003 (Responsible
Business in Poland Report: 100 good examples – 2003), Responsible Business
Forum, Warsaw, www.odpowiedzialnybiznes.pl.
Raport odpowiedzialny biznes w Polsce. 100 dobrych przykładów – 2004 (Responsible
Business in Poland Report: 100 good examples – 2004), Responsible Business
Forum, Warsaw, www.odpowiedzialnybiznes.pl.
Raport odpowiedzialny biznes w Polsce. Dobre przykłady – 2005 (Responsible
Business in Poland Report: good examples – 2005), www.odpowiedzialnybiznes.
pl.
Raport odpowiedzialny biznes w Polsce. Dobre praktyki – 2006 (Responsible
Business in Poland Report: best practice – 2006), Responsible Business Forum,
Warsaw, www.odpowiedzialnybiznes.pl.
Raport odpowiedzialny biznes w Polsce. Dobre praktyki – 2007 (Responsible
Business in Poland Report: best practice – 2007), Responsible Business Forum,
Warsaw, www.odpowiedzialnybiznes.pl.
118 Corporate social responsibility

APPENDIX 5A PRIZES AND AWARDS WON BY

THE CAMELA S.A. FACTORY OF
CLOTHING INSERTS

European Medal – A competition organized by the Business Center Club

and the Office of the Committee for European Integration

2001 – For viscose no-spindle yarns

2002 – For decorative yarns
2004 – For elastic clothing inserts with thermoplastic adhesives
2005 – For clothing inserts with ‘double adhesive points’

The Fair Play Enterprise Certificate 2002, 2004, 2005

This award is granted by the Chapter of the National Chamber of

Commerce
Fair Play Enterprise 2004 Statuette

The Teraz Polska Polish Promotional Emblem

2002, 2003 – Nomination in the Competition for Best Products and

Services for the manufacturer of clothing inserts with double adhesive
points

Polish Business Leader Competition

For the best large enterprise

2001, 2002, 2003, 2004 – Four nominations for the company and the
President of Board and General Manager – Janusz Seńczuk – for the
title of Polish Business Leader
2004 – Polish Business Leader Statuette

Lower Silesian Commercial Certificate

Competition organized by the Lower Silesian Lodge of the Business

Center Club
2002, 2003, 2004 – Three awards by the Chapter of the Lower Silesian
Commercial Certificate of the Lower Silesian Lodge of the Business
Center Club
2003 – Lower Silesian Commercial Certificate Statuette
2004 – Golden Lower Silesian Commercial Certificate Statuette
 Responsible business in Polish economic practice: Camela 119

Europroduct – 2000

First Prize for knitted clothing inserts with ‘double adhesive points’

International Poznań Fair Gold Medal

2002 – For knitted clothing inserts with ‘double adhesive points’

2004 – For elastic clothing inserts

The Wałbrzych Mouflon

2000 – Mouflon – First Prize in the competition for the best company and
product of the Wałbrzych region in the company of the year category
2001 – Mouflon – First Prize for knitted clothing inserts with ‘double
adhesive points’
2002 – Mouflon – First Prize and the Commercial Personality of the
Region title for the President of Board of the Camela S.A. Factory of
Clothing Inserts – Janusz Seńczuk
2003 – 3rd Prize in the best large enterprise category
2004 – 2nd Prize in the best product category for elastic clothing inserts
2005 – The Super Mouflon Award for the President of Board, Janusz
Seńczuk, and the Camela S.A. Factory of Clothing Inserts

Employer Organizing Safe Working Conditions 2001

1st Prize in the group of companies employing over 250 people for the
President of the Board Janusz Seńczuk, granted by the District Labor
Inspector in Wrocław
Source: www.camela.pl/11.
PART III

CSR in Asia and Australia

6. CSR dynamics in South Korea and
Japan: a comparative analysis
Seungho Choi and Ruth V. Aguilera

THE CONCEPT OF CSR

Over the past few decades, corporate social responsibility (CSR) – actions
taken by the firm intended to further social goods beyond the direct
interests of the firm and that which is required by law (McWilliams and
Siegel, 2001) – has gained increasingly enthusiastic attention from busi-
ness and academic researchers. However, the very extensive literature
addressing the theory and practice of CSR is still very much grounded
in the European and US contexts (Birch and Moon, 2004). Nonetheless,
given the globalization of business, there is a pressing need to acquire
insight into the nature of CSR in different countries. In recognition of this
lacuna, we examine the activities of CSR in two Asian countries: South
Korea (from here on, ‘Korea’) and Japan. These two countries are both
East Asian democracies and have been closely linked to each other, given
their geographical and cultural proximity as well as for historical reasons.
Yet, despite their similarity, we show that these two Asian countries have
adopted different approaches to CSR. Until recently, CSR practices and
performance from most Asian countries have not been introduced to the
Western world, with the exception of a few Japanese CSR studies (for
example, Wokutch, 1990; Lewin et al., 1995; Wokutch and Shepard, 1999;
Fukukawa and Moon 2004). Especially intriguing is the fact that there is
no research in the Western academic world focusing exclusively and in
depth on Korean CSR issues, although there are a few comparative CSR
studies that include Korea among their sample of countries (for example,
Chapple and Moon 2005; Welford, 2005).
The main purpose of our chapter is to analyze the characteristics of
CSR in Korea and Japan in terms of the different influence that local
actors exercise on their respective CSR practices. First, we introduce the
general CSR trend in Korea and Japan based on several CSR indicators.
Second, we discuss three general approaches to comparative CSR studies:
cultural, attitudinal, and actor centered. Third, we explain the role of local

123
124 Corporate social responsibility

actors in molding CSR in Korea and Japan. We conclude by discussing

some implication of CSR activity in the two countries.

THE ASSESSMENT OF CSR PERFORMANCE IN

KOREA AND JAPAN
To identify differences in CSR performance between Korea and Japan, we
look at environmental and social responsibility. Corporate environmental
responsibility emphasizes minimizing the ecological impact of organiza-
tional operations in a number of ways, such as, preventing environmental
pollution, devoting resources to environmental protection, and voluntar-
ily committing to governmentally sanctioned environmental rules and
laws (Starik and Rands, 1995; Shrivastava, 1996). The environmental
sustainability index (ESI) measures the ability of nations to protect the
environment. It consists of 21 indicators of environmental sustainability
including natural resource endowments, past and present pollution levels,
environmental management efforts, contributions to protection of the
global environmental systems, and a society’s capacity to improve its envi-
ronmental performance over time. ‘Private sector responsiveness’, among
the 21 indicators used to evaluate corporate environmental responsibility,
is especially significant in considering Korea and Japan. Private sector
responsiveness of ESI is significantly correlated with other environmental
measures such as ecological footprint per capita and the Environmental
Vulnerability Index. Japanese firms have a score of 2.04 and are ranked
third. In contrast, Korean firms rank 18th and score 0.76.
Social responsibility entails that companies care for the broader society
in which they are embedded. It generally comprises the ethical, discretion-
ary and legal responsibility of firms. Ethical responsibility is related to
societal moral codes of conduct, whereas discretionary responsibility is
concerned with voluntary involvement and support of wider societal enti-
ties (Carroll, 1979). We draw on a set of existing indicators to compare
social responsibility in Korea and Japan. First, the opacity index of
PricewaterhouseCoopers provides a corruption index as well as a ranking
of ethical practices and legal responsibilities. The opacity index measures
the lack of transparency in a country’s legal, economic, regulatory and
governance structures. In addition, the ethical practice criteria and cred-
ibility of managers contained in the World Competitiveness Report of
the Institute for Management Development (IMD), Lausanne, are used
to assess ethical and legal responsibility. Lastly, the discretionary respon-
sibility is assessed by the amount of voluntary donation towards social
progress.
 CSR dynamics in South Korea and Japan 125

Table 6.1 Rankings of social responsibility in Korea and Japan

Measures Korea Japan

Corruption criteria of opacity index 61st 38th
Ethical practices 38th 32nd
Credibility of managers 52nd 24th

Sources: Opacity Index 2004 (Kurtzman Group); IMD (2004).

Table 6.2 Social contributions ratio in Korea and Japan

Measures Korea (2000) Japan (1999)

Social donation/revenue 0.37% (out of 192 0.1% (out of 283)
companies)
Social donation/income for 6.3% (out of 186) 2.3% (out of 279)
continuing operation
Social donation/income before tax 4.4% (out of 172) 4.76% (out of 229)

Sources: FKI (2003); Keidanren (2003).

As Table 6.1 shows, Korea’s corruption score and ranking (61st)

is lower than that of Japan (38th). In ethical practice criteria, Japan’s
ranking is 32nd and that of Korea is 38th. The ranking of the credibility of
managers in Korea is placed 52nd, compared to 24th in Japan. However,
Table 6.2 shows that the social contribution measures of Korean firms
are generally greater than Japanese firms, which means that Korean
companies spend a higher proportion of their revenue on social contribu-
tion than Japanese firms. Based on the above evidence, Japanese firms
generally outperform Korean ones in social responsibility except in social
contribution arenas.
Therefore, we can say that Japan is surpassing Korea in CSR perform-
ance based on two general CSR dimensions. However, Korea is also one
of the few Asian countries to pay attention to CSR. For instance, in a
study by Chapple and Moon (2005), Korea is the country with the second
greatest impact of CSR in Asian countries.

COMPARATIVE APPROACHES TOWARDS CSR

There have been several attempts to explain CSR similarities and differ-
ences across countries from different perspectives. First, Wokutch (1990)
126 Corporate social responsibility

explains the characteristics of Japanese CSR through culturally dominant

factors, such as the sense of duty and importance of group membership,
both of which are based on Confucianism. However, Korea and Japan
have exchanged their cultural and social values for at least the past
1500 years, most notably Confucianism and Buddhism. In addition, the
Japanese colonial period, from 1910 to 1945, stimulated the two countries
towards sharing a similar institutional history. In particular, Japanese
law, which originated from nineteenth-century German law, made an
impact on the basic framework of Korean commercial law (Hamilton and
Biggart, 1988). As a consequence of these similarities, the two countries
share a lot in terms of history and culture. This is confirmed by Hofstede’s
(1980) cultural dimension index which is very similar in terms of power
distance, uncertainty avoidance and individualism/collectivism and only
differs when it comes to masculinity/femininity.
Second, most previous comparative CSR studies assess the differ-
ence of CSR activities by examining the attitudes and values of manag-
ers or executives towards CSR (for example, Quazi and O’Brien, 2000;
Maignan, 2001; Singhapakdi et al., 2001; Maignan and Ferrell, 2003).
This approach assumes that perceptions and personal values of employees
will be directly related to actual CSR activities of corporations. In other
words, it presumes that a more favorable perception towards CSR stimu-
lates more active CSR performance. This approach has been identified
as a significant determinant of the decisions of social and environmental
corporate responsibility strategies and policies (Mitchell et al., 1999;
Egri and Herman, 2000; Hood, 2003; Hemingway, 2005). Although the
attitudes and values of individuals are powerful motivators to explain
different behaviors, this explanation does not clarify why individuals
have favorable or unfavorable attitudes and perceptions toward CSR. In
addition, the favorable attitudes and values do not always translate into
behaviors, especially since most CSR questionnaires are related to ethical
aspects of respondents, which could readily tempt them to give socially
acceptable answers regardless of their actual CSR performance. The oral
illustrations of researchers or the presence of surveyors might prevent this
kind of bias. Moreover, geographic limitations make it hard to conduct
structured questionnaires in comparative CSR studies. In fact, many atti-
tude approach studies are conducted via standard mail or email. Hence,
there are limitations in substantially illustrating the differences between
two countries with attitudinal determinants.
Finally, CSR can be explained using the stakeholder management
model (Aguilera et al., 2006). This notion suggests that companies have
an influence on various stakeholders, such as customers, employees, local
communities, governments, and interest groups. Therefore, companies
 CSR dynamics in South Korea and Japan 127

State

Social pressure toward

Corporate

Distinct CSR
performance
Firm

CSR
Customers
responses

Labor

Investors

Figure 6.1 Analysis of the actor-centered approach in CSR

have a responsibility to consider the interests of multiple stakeholders in

their operations, production and decisions. Although these stakeholders
are recipients of CSR activities of firms, they also exert influence on the
companies’ CSR behaviors. Aguilera and Jackson (2003) see the creation
and transformation of institutions as a result of the mutual interaction of
agency of actors influencing institutions. They argue that the variance of
corporate governance practices across countries is a product of the inter-
nal interactions of actors, including capital, management and labor, given
their institutional environment. When considering stakeholders, who are
related to CSR activity as actors, CSR might be regarded as the conse-
quence of interactions of related actors. As Figure 6.1 shows, we adopt the
actor-centered approach to analyze the differences and characteristics of
CSR between Korea and Japan by looking at five actors: state, corporate,
customers, labor, and investors.

CSR DYNAMICS IN KOREA

Korean society recognized the importance of CSR through its financial

crisis. This historic economic disaster provided a context which gener-
ated societal demands and pressures on CSR by stimulating local actors.
Korea experienced a financial crisis between October 1997 and March
1998, although the first symptoms were recognized in 1996. Korea’s
account deficit broadened from 2 percent of GNP in 1995 to 5 percent in
128 Corporate social responsibility

1996. The growth of exports slowed down and foreign debt increased dra-
matically to US$100 billion in 1996. The relative appreciation of Korean
currency, a prolonged recession in Japan and Europe, and the contagion
of financial crisis in other East Asian countries exacerbated the Korean
economic situation (Ahmadjian and Song, 2006). The financial disaster
had fatal impacts on chaebols,1 which generated 40 percent of GNP in
Korea (ibid.) and had played a significant role as an internal generator of
Korean economic miracles. In 1997, 16 chaebols among the top 30 filed
for bankruptcy, including Hanbo Steel (the 14th-largest chaebol), Sammi
Group (17th largest) and Sangyong Group (fifth largest) and Kia motors
(third-largest auto maker). The stock market dropped 50 percent and
Korea’s sovereign credit was downgraded by Moody’s and Standard and
Poor’s from A1 status to junk bond status. One third of Korean merchant
banks were closed and the default ratio rose to 62 percent in February of
1997. This financial meltdown required the Korean government to borrow
a total of US$30.2 billion from the International Monetary Fund (IMF)
and the World Bank (ibid.).
The financial crisis introduced the concepts of CSR to Korean society.
For example, there was a substantial increase in references to CSR in the
Korean Economic Daily. Although Korean firms superficially knew about
CSR before the financial crisis, most CSR activities were generally limited
to corporate contribution and philanthropical activities. This crisis had a
great impact on local actors, such as state, corporate, unions, and consum-
ers, who were important stakeholders in CSR. For example, the financial
crisis brought the first transition of political power from the ruling to the
reformative opposition party. Moreover, the severe restructuring of com-
panies broke lifetime employment systems, and the uncovering of firms’
corruptions prompted monitoring by non-governmental organizations
(NGOs). Abolishing protectionist trade policies enabled customers to
claim their rights and voice their complaints against Korean companies,
which had enjoyed a monopoly for decades. Furthermore, these local
actors saw the fatal consequences when companies pursued only their eco-
nomic profits through the financial crisis. As a result, these bitter lessons
make local actors rethink the role and responsibilities of corporations in
society and stimulated them to generate considerable societal demands for
improved CSR behavior in Korea.

State

Traditionally, the Korean government sustained close relationships with

private firms for economic development purposes. A highly centralized,
strong government set and implemented ambitious economic development
 CSR dynamics in South Korea and Japan 129

programs for its industrialization (Kim, 1997). It had the power to license
business projects of private firms and provide financial resources to firms
through nationalized commercial banks (ibid.). The Korean government
used chaebols as an engine for industrialization. Chaebols did not hesitate
to follow government directions because they could enjoy many advan-
tages as a result of their cooperation with government, such as export
promotion in strategic industry sectors (Amsden, 1997; Kim, 1997) with
the help of preferential credit allocations, tax benefits and protection from
foreign imports and investments (Steers et al., 1989). Under government
protection, chaebols could make use of unrestrained bank debt to diversify
into new products, unrelated businesses and overseas markets, and focus
on growth over profitability (Ahmadjian and Song, 2006).
However, the Korean financial crisis brought about a dramatic change
in the strong bond between chaebols and government. In 1998, a reforma-
tive opposition party swept the government away from the conservative
party, which had originated in military dictatorship. It believed that the
ineffective management of chaebols was one of the main triggers of the
Korean economic crisis. The new administration imposed new laws and
regulations on chaebols as part of a restructuring program. For instance,
it required them to reduce the debt to equity ratio below 200 percent, and
introduced a mandatory requirement for independent directors for large
listed firms (ibid.). In addition, it increased the penalties for accounting
fraud (Chung, 2002) and introduced accounting principles to match inter-
national standards. President Roh Moo Hyun also showed his clear com-
mitment to the reformation of chaebols through the following comments
in 2002:

What I mean to say is that the unreasonableness of the economic system gov-
erning chaebols, if it is not addressed, will weigh on the economy, undermine
efficiency and consequently bring about an economic crisis. I will address the
problem of the let-up in the reform of the chaebol system so as to forestall
any burden on the economy. There will absolutely be no retreat from market
reform, but there will be forward movement bit by bit. (Roh, 2002)

We argue that CSR might be a useful tool for the Korean government
in accelerating the restructuring process of chaebols. The goals of CSR,
which emphasize firms’ social, ethical, and environmental responsibili-
ties beyond economic and legal duties, are aligned with the goals of the
reformation of chaebols by the Korean government. There are already
several signs that the government intends to address the issue of CSR.
For instance, MOCIE (Ministry of Commerce, Industry and Energy)
has a plan to legislate CSR laws to promote CSR activities. MOCIE is
also developing a CSR reporting system for companies and planning to
130 Corporate social responsibility

use pension investment as a social responsibility investment (MOCIE,

2005). Furthermore, the Korean government established the Presidential
Commission on Sustainable Development of the Republic of Korea
(PCSD) in 2000. The PCSD is establishing a national strategy and policy
for sustainable development, maintaining a balance between economy,
society, and environment. Therefore, considering the historically strong
influence of the government on firms and its recent support of and
attention to CSR, the government might become a cornerstone of the
development of CSR in Korea.

Corporate

Korean companies have used CSR activities to restore their damaged

reputation and credibility. Korean companies, especially chaebols, were
blamed as a primary cause of Korea’s financial crisis. The public and gov-
ernment criticized their reckless overexpansion, cheating of shareholders
and concealment of dodgy corporate deals. For instance, research shows
that a Korean CEO perceives the strongest anti-corporate mood among
22 countries (Accenture, 2001) – 70 percent of Korean CEOs responded
that there is an anti-corporate mood in Korea. Korean corporations rec-
ognize that the lack of credibility in the eyes of the public and the state is
detrimental to their business success.
To restore their damaged reputation, many large Korean firms have
been addressing CSR issues. They have established CSR or ethical depart-
ments and become involved in a variety of CSR activities including dona-
tions, community projects and the adoption of codes of conduct (FKI,
2003). Korean CSR activities focus especially on donations. For example,
79 percent of the total CSR budgets were executed in the form of cash or
product donations as charity, and the amount of donations increased over
time (ibid.). Usually, firms do not make any follow-up efforts after making
donations, as they would with other CSR activities such as community
involvement and social contribution. Large donations can easily draw the
attention of media and give the public a favorable impression.
Nevertheless, the excessive focus on donations results in limited develop-
ment of other CSR initiatives in Korea. Many Korean companies simply
think of CSR as the extension of social contribution and community
involvement. For example, the survey carried out by the Korea Enterprise
Institute (KOREI, 2004) shows that only 20.6 percent of respondents in
Korean companies are familiar with the concepts of CSR. In addition,
only large companies in limited industries, which have a direct influence
on the environment and export most of their products, such as oil and
electronics, to foreign countries are involved in CSR activities (ibid.).
 CSR dynamics in South Korea and Japan 131

Furthermore, the convenience of donations inhibits the development of

more sustainable CSR activities in Korea. In other words, Korean com-
panies have used CSR as an impression management tool to repair their
tarnished reputation and to increase brand value rather than internalizing
long-term CSR into their corporate philosophy or core strategy. For
example, Lee Kun-hee, chairman of Samsung Group, the largest Korean
chaebol, recently donated $0.85 billion to charity to offset illegal political
donations and dubious insider trading. In addition, Chung Mong-Koo,
chairman of Hyundai Motor Group, the second largest chaebol, also
donated $1 billion in shares of an affiliate to charity to defuse a deepen-
ing bribery scandal. Both companies announced their CSR plans in order
to win over the support of the public at the moment when public opinion
was at its lowest point. These cases clearly show the tendency of Korean
companies to rely heavily on monetary donations as a solution to CSR
problems. In sum, these highly visible examples show that Korean CSR
activities are superficial.

Customers

Inglehart and Baker (2000) argue that individuals in high GNP per capita
countries are more likely to be concerned with environmental and social
issues, quality of life, and subjective well-being than individuals in low
GNP per capita countries. In addition, people in high-income countries
assert stakeholder claims for corporate responsibility based on their
greater economic and human capital (Jones, 1999). Before the financial
crisis, Korean consumers thought of chaebols as a key driver of economic
development and, recognizing the limited presence of CSR, focused on the
economic responsibility of firms. Korean consumers were willing to bear
low-quality and expensive prices of products and services of Korean firms
in the name of national economic development. As a result, the economic
miracle made it possible for Korea to become the 11th country in the
world in terms of economic size and GDP (IMD, 2004). The industrialized
economy influenced Korean consumers to develop an awareness of and
see a necessity for CSR activities. Above all, consumers clearly recognize
that irresponsible activities of firms undermined the economy’s strength
through the lessons of financial crisis. A survey carried out by the East
Asian Institute (EAI, 2005) found that 72.4 percent of respondents would
not invest in companies that do not give social and environmental respon-
sibility serious attention. In addition, 76.6 percent of subjects responded
that they will not purchase the products and service of companies that do
not fulfill a minimum CSR standard. Although only 15 percent of respond-
ents have actually boycotted the products and services of irresponsible
132 Corporate social responsibility

companies, 46 percent of consumers respond that they strongly intend

to act on their convictions in the future. It is interesting that 63 percent
of respondents support the intervention of government to promote CSR
activities. Considering the Korean government’s strong interest in CSR,
consumers might support the direct involvement of government in the
establishment of laws and regulations regarding CSR.

Labor

Korea adopted many of the Japanese labor institutions such as synchro-

nized annual contract renegotiation, a seniority-based wage and a bonus
system (Yoon, 2005). Nevertheless, unlike Japan, Korea has one of the
strongest unions in the world. From 2000 to 2004, the number of working
days lost due to strikes (per 1000 employees) was the sixth highest among
the OECD countries and well above other Asian countries including Hong
Kong, China, and Taiwan (OECD, 2005). In particular, the strike inten-
sity figure in 2000 for Korea (109.1) was 63 times larger than that of Japan
(1.6) (Yoon, 2005). We believe that this strong Korean union density has
a high potential to influence the CSR agenda of companies for a number
of reasons.
First, Korean unions pressure companies to apply elements of CSR in
workplaces, which naturally favor unions. There is commonality between
CSR and union interests in improved work–life balance, better childcare
facilities, and flexible working arrangements for parents (Weitbrecht,
2003). Furthermore, other areas of CSR that foster union attention
emphasize concerns for employee welfare, training, and the protection of
employees from the negative consequences of restructuring (GPMU, 2001;
Preuss et al., 2005). For example, the German union IG Bergbau, Chemie
und Energie advocates that traditionally it has been making a contribution
to CSR by fighting for co-determination and against unfair competition
in its industries (Habisch and Wegner, 2005). The Federation of Korean
Trade Unions (FKTU), the nation’s largest labor confederation, pursues
the issues of improvement in working conditions and the abolition of
discrimination in the workplace. For instance, the FKTU made a certain
contribution to the development of CSR in Korea by bringing these topics
into the annual negotiation of labor contracts, including realistic real
wage, employment security, and promotion of occupational health and
safety standards. Recently it is focusing on human rights issues about
contingent workers and workplace discrimination.
Second, the FKTU has a political alliance with the Domestic Labor
Party (DLP). The DLP is a political party that represents workers and
pursues progressive social, economic and political agendas. In 2004, it sent
 CSR dynamics in South Korea and Japan 133

10 representatives out of 299 to the National Assembly and gained 13.1

percent of the proportional representation vote. Although the DLP is still
a minority political party in Korea, its entry into the National Assembly
is significant in giving Korean unions a political force to represent their
interests and concerns. Since European unions, which have representatives
in congress, are actively involved in CSR activities, Korean unions also
have the potential to make their voice heard in establishing CSR regula-
tions and laws. In sum, strong Korean unions will occupy a significant
position in promoting CSR through political alliances.

Institutional Investors

Socially responsible investment (SRI) represents a significant source to

influence investors or potential investors in firms to manage all of the
corporation’s responsibilities (Waddock et al., 2002). SRI investors select
targets for their investments after a comprehensive evaluation of the CSR
and financial performance of companies. Usually, the main actors of SRI
are institutional investors, who put pressure on companies to manage
CSR activities through large investments.
The impact of SRI in Korea is currently minimal. Until 2004, Korea
had only two SRI funds and about $10 million in assets (Yoon, 2004).
It is essential for institutional investors to accurately and reliably assess
information about CSR performance of firms for dynamic SRI activ-
ity. In order to increase the reliability and validity of CSR information,
companies need to engage in more transparent and standardized report-
ing practices such as the Global Reporting Initiative (GRI). GRI estab-
lishes Sustainability Reporting Guidelines to create accepted reporting
standards (Waddock et al., 2002). In 2005, only two Korean companies
had joined the GRI (KOREI, 2005). Therefore, institutional investors in
Korea have to rely on the selective and unreliable information provided by
companies. The lack of reliable information makes it difficult for them to
create a pool of SRI targeted firms.

CSR DYNAMICS IN JAPAN

Previous Japanese CSR studies in the 1990s paid attention to the excep-
tional CSR performance of Japanese companies across certain dimensions,
including product quality, customer service and concern for employee
welfare (Wokutch 1990; Lewin et al., 1995; Wokutch and Shepard 1999).
During the 1990s, much of the world was attracted to Japanese innovative
management practices such as just in time, quality circle, and total quality
134 Corporate social responsibility

management. These advanced management practices enabled high-quality

goods and services to be provided to markets at a competitive cost. As a
result, Japanese companies enjoyed customer satisfaction and credibility.
In addition, the participation of employees, life-time employment, good
working conditions and extensive benefit programs in Japanese firms
resulted in strong loyalty and high morale of employees. In particular,
Japanese firms had a strong reputation for their occupational safety
and health, evident in the extremely low worker injury and illness rates
(Wokutch 1990; Wokutch and McLaughlin, 1992; Wokutch and Shepard,
1999).
Lewin et al. (1995) argued that the world might scrutinize the Japanese
model of CSR in the future as it had Japanese management practices in
the past. Although the CSR performance of Japanese firms is exceptional,
compared to other Asian countries (Chapple and Moon, 2005), the CSR
performance of Japanese companies has not met the expectations of these
scholars. The CSR achievement of firms has been limited to certain areas
such as environmental responsibility and the work environment. For
instance, despite their achievements, Japanese firms have failed to improve
chronic problems such as discrimination against minorities, women and
foreigners, and are also noted for poor corporate governance (Fukukawa
and Moon, 2004). Why has Japan failed to meet the expectations of the
Western world in the CSR field up to the present day? We address this
question through the analysis of each actor that participates in the for-
mulation of CSR. We argue that Japanese actors have not created enough
internal societal pressure to motivate firms to develop CSR practices that
exceed limited and restricted past CSR activities.

Government

In Japan, there is a historical division of power between companies and

states (Van Wolferen, 1990). In other words, although the Japanese gov-
ernment has maintained a close and stable relationship with companies,
the two play their own distinct roles without interfering with each other
(Lewin et al., 1995). Therefore, it is very hard to find direct state interven-
tion in Japanese business activities. Instead, the government relies heavily
on the extensive use of administrative guidance rather than legal proce-
dures to control industries (ibid.). Based on this cooperative relationship
with the state, companies have encountered a favorable legal and social
environment for conducting their business, reflected in their opinions of
the policies and laws of government.
This stable and harmonious relationship between firms and govern-
ment restricts the influence of government on CSR. The Japanese state
 CSR dynamics in South Korea and Japan 135

emphasizes initiatives and guidance to encourage CSR activities rather

than specific laws or rules. This approach gives Japanese firms wide lati-
tude in interpreting and applying government guidelines. Furthermore,
when it establishes guidelines for CSR, the government takes into account
the opinions of industry. As a result, most of the state’s guidance has not
exceeded the expectation and control of firms. For example, Keidanren
(Japanese Business Federation) closely collaborates with METI (Ministry
of Economy, Trade and Industry) and MOE (Ministry of Environment) in
developing CSR schemes. The CSR proposal, in particular, which METI
submitted to the International Standards Organization (ISO), is an example
which demonstrates the strong influence of Keidanren. In 2005, METI
adopted Keidanren’s original CSR proposal with very little alteration to the
suggestions for the standardization of social responsibility to the ISO.
Evidently, the over-reliance of the Japanese government on administra-
tive guidance fails to establish institutionalized CSR programs and systems.
Vague government guidelines result in the confusion of firms about the
range and the definition of CSR. Furthermore, the liberal guidelines fail to
produce conformity of CSR practices by way of legislation, laws and rules.
Although legislation restricts the flexibility of business, it establishes clear
standards and agreement on controversial issues. Without specific legisla-
tion regarding CSR issues, Japanese companies have selectively focused
on CSR areas which are positively related to their profitability and public
image, most notably employee health and safety, harmonious labor rela-
tions and high-quality products. In addition, it is difficult for the Japanese
government to introduce reformative and innovative CSR policies which
might ignite resistance from companies.
The effects of legislation on Japanese CSR activities are evident in the
outstanding achievement of environmental responsibility. Unlike other
CSR areas, the Japanese government has controlled and emphasized
environmental issues with the assistance of legislation such as the Basic
Environment Law of 1993 and the Basic Law for Establishing a Recycling-
based Society of 2000. Although the government has made initiatives and
issued guidelines, they are more specific and explicit as compared to ones
in other CSR areas. Of course, the achievement of environmental respon-
sibility might be attributed to other sources: domestic factors (Fukukawa
and Moon, 2004) and foreign criticism (Wokutch, 1990). Nevertheless, the
influence of legislation on this issue cannot be ignored.
In conclusion, the general guidelines and initiatives of CSR activities
allow the Japanese government to sustain stable and non-adversarial
relationships with companies. However, the lack of enforced legislation
results in the selective development of CSR activities and the introduction
of narrow CSR policies.
136 Corporate social responsibility

Corporate

Japanese firms have played a significant role in formulating the perform-

ance and characteristics of Japanese CSR. With regard to the indirect
intervention of government and the limited influence of customers and
unions on CSR, it is evident that Japanese firms have been a major actor
in molding Japanese CSR activities. Previous studies emphasized the role
of Japanese multinational companies, which imported the CSR practices
of host countries into their own operations in Japan (Lewin et al., 1995;
Wokutch, 1990). Furthermore, the performance of Japanese companies
on certain dimensions of CSR has achieved high standards (Wokutch,
1990). For example, Japanese companies have a reputation of providing
high-quality goods and services, which has led to high customer satisfac-
tion. Furthermore, their harmonious labor relations and workplace safety
and health promotion have become a benchmark for other companies.
Environmental responsibility is the area of CSR in which Japanese corpo-
rations have made the most progress and impact (Keizai Doyukia, 2004).
On the other hand, there are certain CSR areas that Japanese companies
have ignored. According to Wokutch and Shepard (1999), there is a huge
discrepancy between the working conditions of regular workers in large
companies and contingent workers and subcontractors. For instance,
small Japanese subsidiary firms have not enjoyed the same level of safety
and health conditions as major Japanese companies. Furthermore, most
Japanese firms disregard gender equality issues, sexual harassment and
racism. Also, they tend to be involved in business scandals related to
political donations and mismanagement.
Without close interaction with or intervention of other CSR actors,
Japanese companies have focused on CSR areas that are directly aligned
with their profitability. Although most companies respond positively to
the economic profit of CSR activity, companies in other countries are
requested by governments, unions, and NGOs to engage in CSR activi-
ties that are not necessarily related to the firm’s bottom line. However,
Japanese companies have enjoyed autonomy in formulating CSR strate-
gies without interference from internal and domestic actors. As a result,
they consider CSR as an instrument to increase their self-interest and to
improve their public image. In other words, the pursuit of self-interest is
a major driver for Japanese CSR initiatives rather than ethical considera-
tions (Wokutch, 1990; Lewin et al., 1995; Wokutch and Shepard, 1999).
As a result, Japanese firms give priority to CSR areas in which they can
see a clear connection to profit and return on investment. For example,
these firms clearly recognize that improving the working environment
and harmonious labor relations encourages the active participation of
 CSR dynamics in South Korea and Japan 137

workers and increases employees’ commitment to their work. The involve-

ment and collaboration of employees results in boosts to worker productiv-
ity and loyalty, as well as increased product quality (Ouchi, 1981; Pascale
and Athos, 1981; Schonberger, 1982; Wokutch and Shepard, 1999).
Furthermore, the focus on occupational health and safety minimizes the
productivity loss caused by illness and accidents.
Second, Japanese firms identify that advanced environmental CSR
activities give them a competitive advantage over other companies.
Historical environmental disasters, Minamata disease and Itai Itai disease,
made Japanese firms realize their significant role in environmental respon-
sibility. Furthermore, Japanese firms are evidently aware that their efforts
to reduce environmental burdens have led to greater efficiency, lower costs
and the creation of new markets for environmentally friendly goods and
services. In addition, the effort to tackle environmental issues leads to
innovation in technology and management. Fukukawa and Moon (2004)
provide evidence showing that environmental responsibility is well insti-
tutionalized within Japanese CSR. Furthermore, the Kyoto Protocol to
the UN Framework Convention on Climate Change, which was agreed
upon in Japan, is pushing Japanese companies of all sizes and industries
to reduce greenhouse gas emissions. This pressure forces Japanese firms
to focus on resource conservation, recycling and the adoption of an envi-
ronmental accounting system (Keizai Doyukai, 2004). Japanese hybrid
cars are a good example of the effects of their environmental manage-
ment. These cars are based on the advanced technology that offers fuel
efficiency and ultra-low gas emission. Obviously hybrid cars are making
a positive contribution to conserving natural resources and reducing pol-
lution. Furthermore, they also provide new and fast-growing markets for
Japanese companies.
On the other hand, Japanese corporations could find no direct profits or
interest in improving social responsibility in areas such as discrimination
based on gender, race, and age. They have shown no serious involvement
in these areas and have even opposed any involvement in practices that
do not match their interests. For example, the improvement in corporate
governance is essential to increase the transparency of management,
especially with regard to the continuous scandals of Japanese corpora-
tions. However, Keidanren clearly opposed the corporate governance
reform which threatened the influence and authority of top management
(Ahmadjian and Song, 2006).
Nevertheless, Japanese corporations have responded sensitively to the
above social responsibility issues and corporate governance problems in
their overseas business, especially in Western countries, due to strong
pressures from host governments and customers for social responsibility.
138 Corporate social responsibility

For example, sexual harassment and racism are serious issues which can
easily damage corporate image and public relations in the West. This dis-
crepancy of Japanese firms’ attitudes toward social issues reveals that self-
interest is a strong driver and standard for Japanese CSR performance.
Furthermore, some scholars even argue that much of the environmental
progress that has been achieved in recent years has come about in response
to foreign criticism rather than domestic pressure (Beck, 1986; Hamilton
and Kanabayashi, 1994).
In conclusion, Japanese firms perceive CSR as an instrument to increase
their profits and to generate competitive advantage. As a result, they have
made outstanding progress in certain areas which align with their self-interest,
such as environmental management, labor relations and working conditions.
However, they continue to ignore other responsibilities such as promoting
equal employment opportunities and effective corporate governance.

Consumers

A steady rise in economic prosperity and fulfillment of basic economic

needs in Japan has brought about greater demands for CSR by Japanese
citizens (Wokutch, 1990). Japanese consumers are willing to give support
to companies which have a good CSR track record. Recent survey data
reveal that 62.4 percent of respondents will give priority to buying from
companies that are socially responsible and have a sound ethical policy
(METI, 2004).
Nevertheless, it seems doubtful that the strong interest of Japanese
consumers in CSR generates enough societal pressure to affect the CSR
agenda of Japanese companies. Traditionally, the consumer movement in
Japan has been relatively weak (Wokutch, 1990). Furthermore, Japanese
firms place little importance on consumers’ interest due to their protec-
tionist trade policies, which place industry interests over consumer inter-
ests (Wokutch, 1990; Lewin et al., 1995). Therefore, it is uncertain how
many consumers actually carry over their intention to support CSR into
their behavior, such as boycotting the products and services of irresponsi-
ble companies.

Labor

Japanese labor institutions have created industrial peace in Japan

(Hashimoto and Raisian, 1985; Ito, 1992; Flath, 2000; Yoon, 2005).
Japanese unions have had very stable and predictable relations with com-
panies. This labor–management cooperation has been a foundation of
Japanese participation management, fostered in part by enterprise unions
 CSR dynamics in South Korea and Japan 139

(Wokutch, 1990). Enterprise unions organize workers within a single

enterprise or establishment and cover all regular workers, both blue and
white collar. One of their main roles is to inform employees about firms’
decisions and to monitor the personnel administration of the company
(Aoki, 1990).
However, the symbiotic relationship between management and labor
limits the influence of unions on the CSR agenda of companies. Although
Japanese companies actively seek the participation of employees, they
have no intention of inviting unions to participate in decision-making
processes. In fact, Japanese unions have been criticized for failure to
contest the ‘frontier of control of the workplace’. The enterprise unions
that are based on a single firm cannot generate strong collective bargain-
ing compared to craft or industry unionism. Furthermore, Japanese firms
are well prepared to fight fiercely for the ‘right to manage’ and implement
personnel policies which consolidate control (Whittaker, 1998). The per-
sonnel department has been developed to restrain unions (Aoki, 1990).
Therefore, Japanese enterprise unions do not generate sufficient pressure
on firms to go beyond standard CSR purposes.

Institutional Investors

Since the first SRI fund was introduced in 2001, Japan now has 11 funds
with 100 billion yen in assets (Japaninc, 2003). With regard to SRI, Japan
ranks third after the US and Europe, according to figures analyzed by
SiRi Co. Ltd, an SRI research and consulting company, headquartered
in Fribourg, Switzerland. A June 2003 survey of Japanese, US and UK
investors conducted by Japan’s Ministry of the Environment (2003) sup-
ported the strong interest of Japanese investors in CSR. Some 84 percent
of Japanese investors surveyed responded that they were ‘very much inter-
ested’ or ‘somewhat interested’ in CSR. This number is larger than the per-
centage of US respondents (80 percent) and those in the UK (67 percent).
In addition, 79 Japanese companies have joined the GRI and they provide
credible and standardized information on their CSR performance.
Although the rapid growth of SRI in Japan is impressive, it is a rela-
tively new concept with a short track record. Compared to the size and the
number of SRI funds in the US and Europe, the development of Japanese
SRI is in its infancy. For instance, the US manages 200 SRI mutual funds,
and has $151 billion in assets. Europe has 313 funds and $12.2 billion in
assets.
Nevertheless, we argue that institutional investors have high potential
to make a strong impact on CSR performance in Japan. Unlike other
actors such as unions, customers and government, institutional investors
140 Corporate social responsibility

directly affect the interest of companies. For instance, the opinions and
attitudes of institutional investors toward specific companies influence
their stock price. Furthermore, most companies acquire their financial
capital through institutional investors. Therefore, the strong interest of
Japanese institutional investors in CSR might play a significant role in
molding Japanese CSR initiatives.

DISCUSSION

This chapter shows different levels of CSR involvement in Korea and

Japan. Generally, Japanese CSR activities outperform those in Korea in
terms of environmental and social dimensions. As Table 6.3 summarizes,
we analyzed the role of relevant actors in framing CSR in Korea and
Japan by adopting an actor-centered approach and show how different
actor influences – state, corporate, customers, labor and investors – lead
to different types of CSR in the two countries.
Since the financial crisis, the Korean government has focused on
reforming the inefficient and unreasonable management of the chaebols.
In fact, weakening the chaebols’ influence on the economy has been a
central goal of the government (Ahmadjian and Song, 2006). Although
the Korean government has not been directly involved in CSR, it recently
recognized the relevance of CSR as a tool to accelerate the restructur-
ing process of the chaebols. Considering the historically strong influence
of the Korean government on corporations, we expect that the Korean
state has high potential to become one of the most influential actors in
molding CSR. In Japan, in contrast, the government has maintained its
pro-business attitude toward companies. In addition, it relies on initia-
tives and guidance to encourage CSR activities rather than creating spe-
cific laws or rules. Furthermore, the government listens to the opinions
of companies, while establishing CSR guidelines. However, vague gov-
ernment guidelines result in the confusion of firms about the range and
definition of CSR. As a result, firms can adopt selective and instrumental
CSR practices.
Korean firms have adopted CSR due to instrumental reasons such as
restoring their damaged reliability and reputation. This perception has
led Korean corporations to focus on corporate donations in their CSR
activities, which can attract the attention of the media and give a favorable
impression to the public. However, the excessive emphasis on corporate
donations prevents Korean firms from understanding CSR as a multidi-
mensional model. Furthermore, it makes corporations believe that they
can avoid taking responsibility for their unethical and illegal behaviors by
 CSR dynamics in South Korea and Japan 141

Table 6.3 Comparison of the role of actors in formulation of CSR

between Korea and Japan

Actor Korea Japan

State Strong intervention in Weak intervention in business
business activities activities
Adversarial relationship Cooperative relationship with
with firms firms
Reliance on legal procedure Reliance on administrative
guidance
Corporate Using CSR to restore Most active role in formulating
damaged credit and public Japanese CSR
relations Focusing CSR area directly
Focusing on corporate related to profit: instrumental
donations purpose, e.g., environmental
Failure to understand CSR management
Lack of real commitment Enjoying autonomy of CSR
to CSR activity without pressure from
other actors
Customers Increase in awareness of Increase in awareness of
CSR CSR
Discrepancy between Discrepancy between behavior
behavior and awareness and awareness
Labor Strong trade union Enterprise union
Adversarial relationship Cooperative relationship with
with management management
Strong collective bargaining Weak collective bargaining
Raise CSR issues in annual Reliance on firms (human
negotiation of labor resource department) in CSR
contracts issues
Having political alliances No political alliances
Investor Introduction of SRI Active SRI
Small size of SRI Rapid growth in the size of SRI

making donations to society. Japanese firms have played the most active
role in formulating the involvement and characteristics of Japanese CSR.
Without the direct intervention of other CSR actors, Japanese companies
have been very successful in certain CSR areas that are directly aligned with
their profitability such as environmental management, workplace safety
and harmonious labor relations. Nonetheless, Japanese corporations have
ignored and even opposed CSR areas that are not directly related to their
interests. In sum, the commitment of Japanese corporations to CSR has
failed to go beyond self-interest. There has been a growth in consumer
142 Corporate social responsibility

expectations of socially responsible businesses, as consumer economic

prosperity has increased. However, very few consumers are actually carry-
ing through their concerns for CSR into their behavior, such as boycotting
the products and services of socially irresponsible companies.
Korea and Japan share labor institutions such as synchronized annual
contract renegotiation, a seniority-based wage and a bonus system.
However, the influence and power of Korean unions is much stronger than
it is for the Japanese unions. Korean unions have affected the development
of certain areas of CSR through their collective bargaining, including a real-
istic real wage, employment security, and the promotion of occupational
health and safety standards. Furthermore, Korean unions succeeded in
sending their representatives to the Korean National Assembly. Therefore,
we argue that the influence of Korean unions on CSR will increase in the
future, and we also expect that it has a high potential to create external
pressure to force Korean corporations to proactively adopt CSR. In con-
trast, Japanese unions have had very stable and predictable relations with
companies. The nature of enterprise unionism prevents unions from having
strong collective bargaining power which is diminished only through the
policies and control of human resource departments weakening unions. As
a result, a symbiotic relationship between management and labor restricts
the influence of unions on the CSR agenda of corporations.
The development of SRI in Korea is limited due to the lack of a trans-
parent and standardized CSR reporting system. On the other hand, the
rapid growth of SRI in Japan is impressive. Although Japanese institu-
tional investors have only recently adopted SRI, Japan’s SRI has been
established as the third largest in the world. There is a strong shared
interest among Japanese investors in CSR. Furthermore, many Japanese
firms provide credible and standardized CSR information for institutional
investors. Therefore, we argue that institutional investors may have strong
impacts on CSR performance in Japan and generate social pressures to
force Japanese firms to adopt more far-reaching CSR policies.

CONCLUSION

Unlike other comparative studies relying on a cultural or attitudinal

approach, we draw on an actor-centered approach to compare CSR prac-
tices in Korea and Japan. We believe that CSR in different countries might
be regarded as the consequence of the internal interactions of related
stakeholders. This approach is especially useful to compare countries
when they have similar cultural and societal backgrounds or when surveys
do not provide comprehensive information on CSR. We argue that CSR
 CSR dynamics in South Korea and Japan 143

is often being used as a tool of impression management for companies.

However, we expect that the strong interest of local actors in CSR, such as
the government and the unions, can generate internal social pressure such
as in the case of Korean firms. We confirm that Japanese corporations
have established notable achievements in CSR programs and policies,
yet this outcome does not meet the expectations of researchers who had
predicted that Japan would establish its own CSR model as it has in man-
agement practices. For example, the success of Japanese CSR has been
limited to areas directly aligned with their economic profit. We suggest
that local actors in Japan have failed to create enough social pressure to
motivate firms to go beyond the excessive emphasis on instrumental CSR.
Japanese firms have been able to develop a CSR agenda without interfer-
ence from other actors such as government, consumers and unions, and as
a result they have taken an instrumental CSR view.
Our chapter also takes a comparative look at Korean CSR, which is
a rare inquiry in the Western academic world. Although there has been
active research on Korean CSR in Korea, most of it was published in
Korean and has focused on certain areas of CSR, particularly social
contribution and donations. We assessed the overall CSR performance in
Korea by analyzing the role of each actor in influencing CSR.
We discuss the role of limited actors in pressuring for CSR in each country
yet we are aware that other actors might also affect CSR practices. For
instance, both Korea and Japan have many multinational companies operat-
ing all over the world. The interaction with local actors in foreign contexts,
such as the US and the UK, countries more responsive to CSR, might encour-
age CSR in both countries. In addition, we do not mention specific measures
to gauge the degree of influence of each actor on CSR or to estimate social
pressure for CSR in each country; instead, our analysis is based on a review
of the existing literature (in the original language) and archival data.

KEY LEARNING POINTS

● A useful way to compare CSR in two countries is to look at how

different stakeholders might influence CSR practices. We look
at five different ‘players’: state, corporate, customers, labor and
institutional investors.
● Korean companies are just beginning to be aware of the importance
of CSR, while Japanese firms provide credible and standardized
CSR information to stakeholders.
● Our research shows that the strong interest of Korean local actors
in CSR, such as government and unions, is likely to generate future
144 Corporate social responsibility

internal social pressure, which will cause firms to become more com-
mitted to CSR.
● Japanese corporations have in place extensive CSR programs and
policies (particularly in environmental management, labor relations
and working conditions) but they tend to be limited to areas directly
aligned with economic profit.
● Japanese CSR lags behind when it comes to promoting equal
employment opportunities and implementing effective corporate
governance practices.
● Organized labor is more likely to exercise pressure on CSR in Korea
than in the Japanese institutional setting of enterprise unionism.
● The development of SRI in Korea is limited due to the lack of a
transparent and standardized CSR reporting system while there has
been tremendous interest and impressive growth of SRI in Japan in
recent years.

DISCUSSION QUESTIONS

1. Name four stakeholders that have the potential to influence CSR

practices according to Choi and Aguilera. Can you suggest other
stakeholders? Discuss.
2. What is the main difference regarding the role of the state towards
CSR in Japan and in Korea? How do you think this difference shapes
CSR practices in these two countries?
3. Describe the traditional CSR practices that Japanese and Korean
firms have engaged in.
4. Discuss the corporate governance characteristics that prevent a wider
and deeper development of CSR in Korea. Do you think other coun-
tries might face similar challenges?
5. In Japan, what is the relationship between its innovative management
practices such as total quality management (TQM) and CSR issues?
6. Many multinational companies (MNCs) from the United States and
Western Europe are doing business in Korea and Japan. How might
these MNC influence the CSR practices of local companies in Korea
and Japan? Provide some examples.

NOTE

1. Chaebols are Korean-style conglomerates, which are family-owned business groups

(Kim, 1997).
 CSR dynamics in South Korea and Japan 145

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7. Pulp, politics, process and pollution:
Gunns Ltd and the Tamar Valley
pulp mill
Kathy Gibson and Gary O’Donovan

THE CASE

The best soap operas have multiple and intertwining plots, interesting
and diverse characters and storylines, unexpected twists and turns, and,
occasionally, outcomes which are not easily predicted. The case of Gunns
Limited, a large Australian public company, and the machinations and
processes involving the company, the Tasmanian state government, the
Australian federal government, and various activist groups in the pro-
posed development of a large pulp mill on the picturesque Tamar River in
northeastern Tasmania, has all the ingredients of a great soap opera.
This case is laced with the many competing interests of diverse stake-
holders, intent on maximizing or minimizing to their own advantage the
triple bottom line (TBL) – economic, social, and environmental – returns.
Companies, such as the powerful Gunns Ltd, are constantly trying to
balance shareholder satisfaction with the social and environmental needs
of other key stakeholders. This is even more pertinent in this case where,
it is argued, Gunns and its present and proposed pulp mill operations
are crucial to the economic health of the region as well as the State of
Tasmania.
This case also extends the TBL to the ‘quintuple’ bottom line (QBL),
by including issues of good governance and party political objectives at
both state and federal levels. The governance extension (the fourth bottom
line) relates to the responsibility of the parties involved in the process
and ultimate decision to build (or not) the pulp mill to adopt transparent
and accountable governance practices. The fifth bottom line concerns the
political ambitions of the two main political parties at a state and federal
level in Australia, the Australian Labor Party (ALP) and Liberal Party, as
well as the growing importance of the Green Party. Complexity is added
by the fact that the electorates where the mill development is planned

148
Pulp, politics, process and pollution: Gunns Ltd and the Tamar Valley pulp mill 149

are among the most marginal at all levels of government; local, state and
federal. A federal election was held in November 2007 and campaigning
for the election was at its peak at the time the impacts of the proposed pulp
mill were at the forefront of special interest and political party agendas.
There are several key learning features in this case. In addition to
extending the concept of the TBL to the QBL, the facts identified in the
case raise serious questions as to who has, and who should have, ultimate
responsibility and accountability in a case of this kind. The facts in this
case also highlight the need for clearer delineation between the role and
responsibilities of government and its regulatory process, and to what
extent it may be influenced by a large private sector organization seeking
to maximize profit for its shareholders and deflect scrutiny from its social
responsibilities. These issues are of particular importance given the timing
of the approval process and a volatile political environment, including a
pending federal election. A final key issue of the extent to which a pro-
posal of this kind should be decided on political, rather than social and
environmental, grounds is also raised.
It is not the intention of this case study to comment in detail on the
commercial, social and environmental merits of the mill development, but
simply to examine the issues of the case in relation to good governance in
the public and private sectors. The following is a contextual description of
the process, and the roles of the main players within it.

THE COMPANY

Gunns Limited was founded in Tasmania in 1875 by brothers John

and Thomas Gunn and is one of Australia’s oldest companies. In 2008,
this Tasmanian registered company was Australia’s largest hardwood
producer, operating five modern sawmills throughout Tasmania. These
sawmills produce seasoned framing timbers, rough sawn kiln dried hard-
wood and hardwood products such as laminated beams, tongue and
groove flooring, mosaic and block parquetry, mouldings and furniture
components. Gunns also operates Tasmania’s two veneer factories and a
veneer factory in Christchurch, New Zealand. This makes the company
the largest producer of sliced veneer in Australia and New Zealand. It also
operates four woodchip export ports in Tasmania, exporting eucalyptus
woodchips produced from sawmilling residues and residual pulpwood
from integrated harvesting operations. It owns 185,000 hectares of free-
hold land and manages in excess of 110,000 hectares of plantations, with
the majority of these being in Tasmania (Gunns Ltd, 2007).
The company also has joint venture arrangements with Forestry
150 Corporate social responsibility

Tasmania, a state-owned business enterprise which manages 1.6 million

hectares of Tasmanian state forest land of which 50 per cent or 800,000
hectares is available for wood. At the beginning of 2007 Gunns employed
about 1,700 people, most of whom were in Tasmania, and the company
had a revenue turnover in the 2007 financial year of approximately
AUD700 million.

THE PULP MILL PROPOSAL

Smell the roses at the National Rose Garden . . . see the Little Penguins at
Low Head . . . taste gourmet food and wine in the park . . . hear the sounds
of summer . . . dive off the rocks . . . feel the hot sand between your toes . . .
pick plump strawberries in the morning, drink sparkling wine with lunch in the
vineyard where the grapes are grown, and stroll along the boardwalk at dusk to
dine, facing sunset over the marina . . .

This is the Tasmanian government’s description of holiday activities aimed

at enticing tourists to the Tamar Valley region in northern Tasmania. The
Tamar Valley, which leads to Bass Strait on the north coast of Tasmania,
is described as ‘the valley of the senses’. Launceston, the largest city on the
Tamar River, is described as being at the centre of the natural and historic
wonders of the region, a ‘foodies’ paradise’, and comparable with the
south of France (LTV, 2007).
It is in this area of Tasmania that Gunns Ltd proposes to build a
pulp mill costing AUD1.7 billion on a greenfield site on the banks of
the Tamar River. The pulp mill proposal was the largest ever planned
investment within the private sector in Australia at that time. It aimed
to enable ‘downstream processing’ of the company’s timber resources to
produce pulp and paper, both to replace imports and to develop an export
market.
Despite strong support from the state government, the proposal was
controversial. It polarized public opinion between those desiring the eco-
nomic benefits anticipated from the mill and those with concerns about
the environmental and social impacts and potential harm to existing
businesses in the area, including wine, primary production, fishing and
tourism. For example, an economic impact study commissioned by the
Tasmanian Roundtable for Sustainable Industries (TRSI) reported that
the pulp mill may add 280 jobs to the Tasmanian economy, but at a cost of
an estimated 216 deaths from respiratory disease and log truck accidents.
The report also identified additional potential negative impacts of the pulp
mill, including 1,044 job losses in the tourism industry, with overall indus-
try losses of nearly AUD1.1 billion. The fishing industry was also expected
Pulp, politics, process and pollution: Gunns Ltd and the Tamar Valley pulp mill 151

to lose AUD175 million of business sales and 175 jobs if Tasmania’s clean
green sales niche were lost, and four times that amount if a feared dioxin
contamination of fish and shellfish in Bass Strait occurred as a result of
dioxin-contaminated effluent from the pulp mill (Neales, 2007).
The following sections explain the proposal and its implications for
corporate governance within the context of the financial imperatives of
business, political and government structures, environmental policies and
processes, and issues of community concern.

GOVERNMENT AND GOVERNANCE IN TASMANIA

Although Australia is one nation, it is a federal state with nine parlia-

ments, comprising the federal parliament and one in each of the six states
and two territories. Each state has its own state government, which enacts
legislation and regulates the economic, social and environmental activities
of the state. While the individual states are largely autonomous, the federal
government has specific powers granted by the Australian Constitution
(1900) to make laws in relation to certain matters. These include defence
and taxation, trade and commerce (s.51 (i)) and the regulation and control
of corporations (s.51 (xx)). Thus the federal government has power to
intervene in all forms of corporate activity, including company activity
in relation to the environment (Burritt and Gibson, 1993), even though
environmental protection legislation per se is a matter for the states.
The federal and all state governments, except Queensland, have a
similar three-part structure which comprises the Crown (represented by
the Governor General of Australia and governors of each state), an upper
house and a lower house. At the national, or federal, level, the upper
house is the Senate, and the lower house is the House of Representatives.
The Senate consists of 76 senators, 12 from each of the six states and
two from each of the Australian territories, and a proportional system
of voting is used to more accurately reflect the intentions of the electors.
While the Senate’s law-making powers are similar to those of the House of
Representatives, the Senate is principally a house of review. The House of
Representatives, known as ‘the people’s house’ has 150 elected members
who each represent an electoral division. Members are elected via a
preferential voting system in which voters rank the candidates and the
candidate with the most votes gains the seat. The functions of the House
of Representatives include making laws, determining the government
(the party with the majority of elected representatives in the lower house
forms the national government), publicizing and scrutinizing government
administration, representing the people, and controlling government
152 Corporate social responsibility

expenditure (Parliament of Australia, 2008). Legislation passed by both

houses of Parliament is then given assent by the Governor-General, the
Queen’s representative, prior to becoming Australian law.
In Tasmania, the upper house is the Legislative Council, which was
established in 1825 as the original legislative body for Tasmania (then
called Van Diemen’s Land), following the constitutional separation of
Van Diemen’s Land from New South Wales to form a separate colony
(Parliament of Tasmania, 2008). It is a house of review which has always
been controlled by a majority of nominally independent members. The
lower house in Tasmania is the House of Assembly, where there are five
electorates, each with five members elected under the Hare–Clark1 system
of proportional representation. The political party that has the majority of
members in the House of Assembly forms the state government, and the
government leader is the state premier. It is a convention that the initia-
tion of legislation in Tasmania resides in the House of Assembly, leaving
the Legislative Council to act as a house of review. State laws are enacted
by introducing a Bill into the House of Assembly, which, when agreed to
and passed, is reviewed by the Legislative Council. Following Council
approval, it then receives Royal Assent from the state governor.
The third level of government in Australia is local government. Prior
to 1827, the Tasmanian colony was divided into nine police districts, each
under the control of magistrates. Councils were established for Hobart and
Launceston (the two major cities in the state), in 1835 and 1857, respec-
tively, and these were followed by the development of rural municipalities.
Municipal districts and boundaries have changed markedly over time,
but following substantial changes in 1993, there are now 29 Tasmanian
councils, overseen by the local government office of the state government.
Local councils are required to exercise controls over environmental out-
comes from a wide range of activities in their area, to monitor and control
building activity, and engage in consultation with their residents to ensure
high standards of public accountability (DPAC, 2008).
In relation to environmental legislation, while there is a Commonwealth
Environmental Protection Act (CEPA), environmental protection and
land-use planning in each state is the responsibility of state governments,
and each state has its own environmental protection and planning legisla-
tion. The main environmental protection legislation in Tasmania is cur-
rently the Environmental Management and Pollution Control Act 1994
(EMPCA, 1994). This legislation established an Environment Protection
Policy Review Panel, which is chaired by the executive commissioner
of the Resource Planning and Development Commission (RPDC). The
Commission was established by the Resource Planning and Development
Act 1997 (RPDC, 2007a) to oversee the state’s planning system, take
Pulp, politics, process and pollution: Gunns Ltd and the Tamar Valley pulp mill 153

responsibility for reporting on the state of the environment, and to assess

public land-use issues and projects of state significance.
Promoters of development proposals with potential environment effects
are required to apply for a permit within the normal planning processes
set out in the Tasmanian Land Use Planning and Approvals Act 1993. If a
proposal is identified as a project of state significance, it is then dealt with
separately from the normal planning process. For this to occur, an order
made by the governor declaring the proposal to be a project of state sig-
nificance must be approved by both State Houses of Parliament before an
assessment can begin. The state premier is currently the minister responsi-
ble for projects of state significance, and he directs the RPDC to undertake
an integrated assessment of the proposal and make recommendations to
the government. Following this recommendation, the government makes
the final decision on whether the project will proceed.
Within this process, the proponent prepares a Draft Integrated Impact
Statement (IIS) (Gunns Ltd, 2006) which describes the proposal and
addresses all potential environmental, social, community and economic
impacts of the construction and operation of the project. A key step is
an invitation for public comment on a draft set of guidelines before the
RPDC provides the final scope guidelines to the proponent. Following
receipt of public submissions and the holding of appropriate hearings, the
RPDC prepares a Draft Integrated Assessment Report (DIAR) (RPDC,
2007b) which is publicly exhibited for a minimum of 28 days. Submissions
are invited, and further hearings may be held before the RPDC submits a
final report to the Tasmanian premier. The government then determines
whether the project is to proceed, and any conditions that should apply.

THE PULP MILL PROCESS

The processes, sequence of events and roles of the major players have
significant implications for corporate governance in the private and public
sectors. It could be argued in this case that the executive chairman of
Gunns Ltd, John Gay, by maintaining a high personal profile throughout
the process, deflected attention from the other directors. This enabled
governance of the company’s ongoing operations to be largely unaffected
by the very large amount of media and public attention resulting from
the proposed development. Gay, in turn, was skilful in emphasizing what
he identified as problems with the process, rather than potential social
and environmental problems with the proposed mill. In this way, much
of the media and public attention became focused on the Tasmanian
premier, Paul Lennon, who was championing the project, and who was
154 Corporate social responsibility

held responsible for the perceived abuse of democratic processes involved

in developing new and specific legislation, rather than confirming the
normal assessment process. The fact that economic aspects of the proposal
gained the support of trade unions and both of the major political parties
also shielded the company from a great deal of scrutiny of its governance
methods, and of the potential social and environmental effects of the
mill’s operations. The case has, however, raised considerable questions in
relation to the state government’s processes, and there remains a strong
perception in the public mind that the boundary between corporate gov-
ernance in the interests of shareholders and public sector governance in
the interests of the community is now considerably blurred in Tasmania
(Neales, 2008).
Tasmania has the greatest proportion of forest cover of any state in
Australia, and logging and wood chipping has long been a major under-
pinning of its economy. Forestry operations are undertaken by Forestry
Tasmania, a government business enterprise which is responsible both for
implementing government forestry policy and for the sale of its timber
resources. In recent times, there has been rising concern at the level of
destruction of old-growth forests by logging activities that produce a
low economic return, resulting in a limited, but increasing focus on other
means of adding greater value to forest products, such as pulp and paper
production. Tasmania also has an increasing number of high-return, niche
industries including wine, olives, truffles, soft fruits, aquaculture and spe-
cialty dairy products that are increasingly contributing to the economy.
Further, tourism developments have become of increasing importance and
there are concerns that the traditional large forestry operations are incom-
patible with the development of further tourism growth and the other
niche industries (ABS, 2006). While a pulp mill will add value to forestry
production, it will require the continuation, perhaps increase, in extensive
forestry operations in order to provide the volume of raw materials it will
require. An additional concern is for potential harm to the ‘clean and
green’ image of Tasmania that has been carefully cultivated by the tourism
and newer agricultural, aquaculture and horticultural ventures, and by the
traditional farm products that have also benefited from this brand image.
The issue of the mill was first raised in June 2003, when the then
state deputy premier, Paul Lennon, dined with John Gay. It is reported
(Mercury, 2007) that they discussed a proposed pulp mill development. In
October 2003, at the request of the then premier, Jim Bacon, the RPDC
provided guidelines for the mill development, and the government estab-
lished a Pulp Mill Task Force within the State Department of Economic
Development. In the following month, the state government announced
its support for a billion-dollar pulp mill to be developed by Gunns and
Pulp, politics, process and pollution: Gunns Ltd and the Tamar Valley pulp mill 155

possibly a further partner, and in June 2004, Australian Prime Minister

John Howard offered AUD5 million towards funding the mill in the
lead-up to the federal election. In the same month the RPDC released for
public comment a set of ‘best practice’ guidelines for the project, which
had been prepared at the request of Paul Lennon, who was by then the
state premier. The guidelines were approved in October, and the premier
announced his strong support for the project, which was declared a
‘project of State significance’. This declaration enabled the project to be
independently assessed by the RPDC, aimed at avoiding delays which
might otherwise occur during normal state planning processes.
In February 2005, Gunns confirmed that the chosen site for the mill
was Long Reach, in the Tamar Valley, and indicated that, contrary to
expectations, the mill would not use a chlorine-free process (Gunns Ltd,
2006). The RPDC released its draft scope guidelines in April, by which
time the Wilderness Society was launching a Federal Court challenge to
the development, on environmental and social grounds. By August 2005,
Gunns had not lodged its required IIS with the RPDC, and indicated that
further delays were to be expected. In the meantime, despite the project’s
upgraded planning status, tension and controversy were emerging, with
accusations of government interference on behalf of the company. For
example, in February 2005, the chair of the RPDC issued the first of
several requests to the head of the government’s Pulp Mill Task Force,
asking that the Task Force ‘curb its activities to prevent it having negative
effects on the Commission’ (Gale, 2007).
With a state election scheduled for early 2006, rallies against the mill
were organized, and Gunns, anticipating that a minority government
and reduced support for the project might be the outcome, threatened to
develop the mill in Asia (Neales, 2007). However, when the incumbent
ALP government was returned to power, with Paul Lennon as premier,
John Gay announced that the mill’s future in Tasmania was secure. The
federal government also provided an AUD60 million budget for roads
development to improve transport infrastructure for the mill.
Gunns submitted revised project information at the request of the
RPDC, and filed its IIS of 7,500 pages (Gunns, 2006) in June 2006, and
a call for public submissions was made, to close in September. During
the submission process, in July 2006 Forestry Tasmania and Gunns
signed a wood supply agreement for the mill (Mercury, 2007), and Gunns
confirmed that it would continue to export woodchips once the mill was
operational. This further raised public concerns in relation to the amount
of native forests that would need to be harvested to meet the company’s
requirements. In September there were more public demonstrations in
opposition to the mill and Gunns confirmed that an error in its IIS meant
156 Corporate social responsibility

that dioxins released by the mill would be 45 times worse than estimated.
This was followed by a Commonwealth Scientific and Industrial Research
Organisation (CSIRO) report that the mill as planned would exceed emis-
sion levels for nitrogen oxide, the gas which causes acid rain (ibid.).
By December 2006, the RPDC was attempting to obtain additional
information from the company in relation to the proposal, and in January
2007 two members of the Pulp Mill Assessment Panel (the chair and the
industry expert) resigned, indicating that political interference was occur-
ring. In the same month, Gunns expressed frustration at what it described
as unreasonable delays, and in February provided the additional informa-
tion that the RPDC had been requesting. Gunns then imposed a deadline
of 30 June 2007 for approval of the project. In the meantime, the replace-
ment chair of the RPDC Panel had resigned, saying that he was being
pressured to speed up the process. The company again complained (ibid.)
about the cost and length of the RPDC process, and accused members of
the Commission of bias. Then, on 14 March 2007 the company announced
to the Australian Stock Exchange that it was withdrawing from the RPDC
process, and on the same day the state premier called an emergency cabinet
meeting to discuss the issue.
Premier Lennon hastened to identify an alternative, more rapid, way
of facilitating the mill development and, following the cabinet meeting,
the Pulp Mill Assessment Act 2007 was introduced into parliament. This
was aimed at enabling the pulp mill proposal to be dealt with directly by
the Tasmanian parliament (House of Assembly), bypassing the RPDC
process. In the ensuing political furor, an ALP member of parliament was
sacked from the ALP for voting against the premier’s proposal, and rallies
of up to 5,000 people in support of the mill and 10,000 people against the
mill were held. A survey (ibid.) taken in August 2007 revealed that more
than two-thirds of Tasmanians were opposed to the fast-track approval
process that had been introduced for the mill, and in the same month the
federal environment minister indicated interim support provided that
certain conditions were met. Despite vigorous opposition the Tasmanian
Pulp Mill Assessment Act was passed on party lines. A report was com-
missioned from Sweco Pic, a Swedish pulp mill development company,
and on the last day of August, the Tasmanian parliament gave approval
for the development to proceed.
In the following month, September, the federal ALP opposition envi-
ronment spokesman (Peter Garrett) indicated ALP support for the project,
and the federal environment minister (Malcolm Turnbull) commissioned
his own report. Gunns then reduced its profit forecast, citing delays in the
mill approval process as a cause, and John Gay warned the federal govern-
ment not to impose additional conditions on the mill. There was a strong
Pulp, politics, process and pollution: Gunns Ltd and the Tamar Valley pulp mill 157

campaign to put pressure on the federal environment minister to intervene,

which he could legally do by virtue of the Australian Constitution and the
federal Environmental Protection and Biodiversity Conservation Act
(EPBC, 1999). Following an enquiry, which received more than 31,000
public submissions, the federal minister gave approval on 5 October for
the pulp mill development to proceed, subject to an additional 24 condi-
tions to limit emissions. Public protest, however, continued.
Throughout the process, the state government’s strong support for the
project, and in particular the development of a special Act of Parliament,
attracted much of the criticism that might otherwise have been levelled at
the company. While the company’s behaviour, particularly in relation to
the provision of information, was criticized, it was John Gay who drew
most criticism for using the importance of Gunns Ltd to Tasmania to
influence government actions. There was also much public criticism of
Premier Lennon, who was seen by some as being unduly influenced by
a large corporation, to its own advantage, and to the possible detriment
of democratic processes within Tasmania. One member of the House
of Assembly, for example, in abstaining from voting on the ‘fast-track’
process that led to the special legislation said:

I believe the expediency Gunns has placed on this Parliament has caused a
lot of public stress, and stress amongst my parliamentary colleagues. . . . No
private company should ever try to bully a government into pressured decision-
making. This is not a harmonious or collaborative way of working, so I see that
Gunns have left this Government, this Parliament and the Tasmanian commu-
nity hamstrung. This would have to be one of the most difficult positions this
Parliament has faced for many years.
Gunns . . . have made the government become the scapegoat because Gunns
wanted a cheaper outcome. Why are they not held accountable? . . . I am not
happy when a private developer has such a heavy influence on our democratic
system. I am not happy that the RPDC process was abandoned by Gunns.
(Hansard, 2007, 2.35)

POLITICS AND THE PULP MILL

Tasmania is pivotal to the fortunes of federal and the state governments in

Australia. The northern region of Tasmania, near where the pulp mill site
is proposed, contains two of the most marginal electorates at both federal
and state levels. The political importance of Tasmania and issues emanat-
ing from it are discussed in this section and in particular the importance of
party politics and the need to influence swinging voters when faced with
two marginal electorates. The fine line the major political parties have had
to tread during the last three decades in Tasmania has mainly related to
158 Corporate social responsibility

issues that have created tension between economic, social and environ-
mental impacts on voters in the Tasmanian and federal electorates.
Australia’s population is approximately 21 million, of which Tasmania’s
is about 500,000. Tasmania has five seats in the federal parliament. Two
of these seats, Braddon and Bass, have long been considered marginal and
are in the region near where the proposed pulp mill is planned, as is the
seat of Lyons. Historically, the party which has held Bass and Braddon
at the same time has achieved government at the federal level. In the
Senate, Tasmania has the same number of senators as every other state
(12) despite the difference in population, and this makes the Senate votes
of Tasmanians relatively more important than they otherwise might be.
Voting at a federal level occurs every three years with the whole of the
House of Representatives and half (36) of the Senate seats being decided
at each election.
In Tasmanian state elections, held every four years, the seats of Bass and
Braddon (the same names and locations as the federal electorates) are also
the most marginal, and historically the party with the majority of members
in these two seats has most often been in government. There are 29 local
government councils in Tasmania, six of these in the areas most likely to
be directly impacted by the operations of the proposed mill. Council elec-
tions are held every two years and these elections are fought and decided
very much on local issues.
At a federal level there are two main parties, the Liberal/National
Coalition (LNC) and the ALP. Over the last decade the Green Party (GP)
has become more prominent federally and in Tasmania (where the party
originated) with its primary message relating to environmental matters.
The GP is a federation of eight state and territory parties which grew out
of Australian environment movements in the 1970s and 1980s. The cam-
paign to save Lake Pedder led to the formation of the United Tasmania
Group in 1972. This was the first ‘green political party’ in the world and
the people involved in this group eventually formed the national GP. At
the federal level, the GP has at times held the balance of power in the
Senate and has continued to increase its votes and power base since that
time. It led the ‘no pulp mill’ campaign during 2007.
Environmental issues achieved national prominence in the 1983 federal
election when the ALP won after campaigning strongly throughout the
country in opposition to the Tasmanian government’s proposed damming
of the Franklin River below the Gordon River in Tasmania. That issue
dominated Tasmanian politics throughout the late 1970s and early 1980s,
spilling over to the federal sphere in 1982/83. The issue caused great rifts
between those who supported the construction of the dam and those
who sought the preservation of the wilderness values of the region. In
Pulp, politics, process and pollution: Gunns Ltd and the Tamar Valley pulp mill 159

December 1982, the dam site was occupied by protesters, leading to wide-
spread arrests and greater publicity. The dispute became a federal issue
the following March, when a campaign in the national print media helped
bring down the LNC government of Malcolm Fraser at the 1983 election.
The new ALP government, under Bob Hawke, had promised to stop the
dam from being built. A legal battle followed between the federal govern-
ment and Liberal Tasmanian state government resulting in a landmark
High Court ruling in the federal government’s favour (CLR, 1983).
In the late 1980s, a pulp mill was proposed to be built near Wesley
Vale in northern Tasmania. The claim that waste generated by the mill
would threaten Tasmania’s World Heritage listed forests became a sig-
nificant environmental and political issue at the state and federal levels,
and the project was abandoned by its foreign-owned backers, Noranda
and North Ltd. This proposal was actively discouraged by the GP, which
ran for the House of Assembly in Tasmania for the first time in the 1989
elections. They received 17.1 per cent of the vote across the state and
won five of the then 35 seats in the state parliament (Tasmanian House
of Assembly, 2008), largely on the anti-pulp mill and other forestry
protection issues.
In 2004, at the federal level, the then ALP opposition leader Mark
Latham campaigned very strongly on stopping the logging of old-growth
forests in Tasmania and particularly in the areas near the seats of Bass,
Braddon and Lyons. At a time when the economy was a dominant politi-
cal factor, voters were more concerned about employment, and the LNC
reclaimed the seats of Bass and Braddon from the ALP. Interestingly
these victories would not have been possible without the assistance of
traditional ALP-supporting, forestry, building and mining unions, who
supported the LNC’s forestry policy, rather than that of the ALP. In the
post-election analysis, many media analysts remarked on these strangest
of bedfellows.
At the November 2007 federal election, the ALP won after 12 years
of LNC control, with a national swing of 5.7 per cent providing it with
43.4 per cent of total votes. There was a national swing of 0.6 per cent to
the GP, increasing its share of the vote to 7.8 per cent. There is no doubt
that the Tamar Valley pulp mill issue impacted greatly on the fortunes of
the three political parties, particularly in specific electorates. The LNC,
through the environment minister, Malcolm Turnbull, approved the con-
struction of the pulp mill just prior to the election. The ALP, while giving
the issue as low a profile as possible also indicated that they would support
the pulp mill if elected, but would place stronger and stricter environmen-
tal safeguards on its construction and operation than would the LNC. The
ALP regained the seats of Bass and Braddon and increased their majority
160 Corporate social responsibility

Table 7.1 Federal election results for Tasmania (%)

Party Bass Braddon Lyons

2004 2007 2004 2007 2004 2007
(a) Before distribution of preferences
ALP 39.2 37.2* 43.1 43.7* 44.6* 43.1*
LNC 49.1* 43.5 47.4* 44.0 42.3 32.5
GP 8.1 15.3 5.6 8.1 9.9 11.2
Ind (Quin) 9.6
(b) After distribution of preferences
ALP 47.4 51.0* 48.9 51.4* 53.7* 58.8*
LNC 52.6* 49.0 51.1* 48.6 46.3 41.2

Note: * denotes winner.

in Lyons, but in considering the impact of the pulp mill proposal it is most
interesting to look at the impact the GP and two independents had on the
results. Table 7.1a compares the percentage of votes before the distribu-
tion of preferences and Table 7.1b is the two major party preferred vote
after the distribution of preferences.
The clear message from these tables is that the pulp mill issue was very
influential in the votes cast. The GP significantly increased their vote
in Bass and to a lesser extent in Braddon and Lyons. The 7.2 per cent
increase in the GP vote in Bass was well above the national average and
can be directly attributed to the anti-pulp mill sentiment. The primary
votes for the LNC, before the distribution of preferences, fell in all three
seats. The primary votes for the ALP fell in Bass and Lyons, but rose
slightly in Braddon. Given a national swing of 5.7 per cent to the ALP, the
fall in its primary votes in Bass and Lyons indicates substantial voter dis-
satisfaction with its pro-pulp mill stance. There is little doubt that without
the distribution of GP preferences, 75 per cent of which went to the ALP,
it would not have won Bass. While the increase in the GP vote was not
as great in Braddon as in Bass, it was still above the national average
and, again, without GP preferences (again at 75 per cent) the ALP would
not have won the seat. The seat of Lyons is interesting for a number of
reasons. The independent candidate, Ben Quin, had been the pre-selected
LNC candidate but he withdrew his candidacy a few weeks prior to the
election, stating that he could not support the LNC party’s position on the
pulp mill. He then ran as an independent candidate. The 9.6 per cent of
the vote which he gained, considered alongside the 11.2 per cent vote for
the GP, indicates a very strong anti-pulp mill vote in Lyons. While 77 per
Pulp, politics, process and pollution: Gunns Ltd and the Tamar Valley pulp mill 161

Table 7.2 Federal election results for Minister for Environment

(Turnbull) and Shadow Minister for Environment (Garrett)
(%)

Party Wentworth (Turnbull) Kingsford Smith (Garrett)

2004 2007 2004 2007
(a) Before distribution of preferences
ALP 28.9 30.5 48.6* 52.8*
LNC 40.3* 50.3* 36.0 33.9
GP 12.9 15.0 7.8 10.0
Ind (King) 15.9
(b) After distribution of preferences
ALP 47.5 46.2 58.8* 63.3*
LNC 52.5* 53.8* 41.2 36.7

Note: * denotes winner.

cent of GP preferences in Lyons went to the ALP, Quin’s preferences went

almost 50/50 to the ALP and LNC.
Tables 7.2a and b compare the fortunes of the LNC Environment
Minister Turnbull and the ALP Shadow Environment Minister Garrett.
Both held their seats at the 2007 election but once again the voting support
for the GP, which campaigned strongly on an anti-pulp mill platform
in their two electorates, displays an interesting pattern. In essence, their
support increased by a substantially greater proportion than did the
national swing in both seats, and, in addition, their primary vote was
much higher than the national average for their party. Nationally the ALP
received about 80 per cent of the GP preferences, but in Wentworth they
received 88 per cent and in Kingsford Smith, Peter Garrett received 85 per
cent. Wentworth was one of the few seats where the LNC increased its
vote in the 2007 election, but this was largely due to the fact that in 2004
the then sitting member, Peter King, lost a pre-selection competition to
Malcolm Turnbull and ran as an independent, picking up almost 16 per
cent of the vote. He did not contest the seat in 2007. An Age newspaper
poll conducted two months before the 2007 federal election asked 2965
registered voters whether the decision to build a pulp mill in Tasmania’s
Tamar Valley would affect their vote: 87 per cent indicated that it would
and 13 per cent that it would not, illustrating the importance of the issue
to voters at the national level (Tapvision, 2008).
The most recent Tasmanian state election was in March 2006 and
the ALP won comfortably, with Paul Lennon retaining the position of
162 Corporate social responsibility

premier. However, the pulp mill proposal had not gained momentum and
notoriety until after the election. Since that time, opinion polls have indi-
cated that the Lennon government has lost a great deal of support and,
notwithstanding a number of other scandals, the pulp mill and the public
resentment at perceived abuse of the planning process has been a major
cause of this downturn. Typical of the opinions being expressed are the
following:

Most of the year was marked by an extraordinary lack of good governance

and abrogation of proper process from the Lennon government, particularly in
relation to the State government’s approval of the Tamar Valley pulp mill.
By August 2007, an EMRS opinion poll showed Mr. Lennon’s approval
rating had fallen to a staggering low of 24 per cent. After being branded as Mr.
32 Per Cent in February in an earlier survey, it was not a slump Mr. Lennon
relished.
Labor members manning the booths and handing out how-to-vote cards
(at the Federal election on November 24) reported a common refrain from
Labor voters. In essence, the unwelcome message was: ‘I’m voting Labor this
time because I want a Rudd [the ALP leader] government in Canberra, but
don’t expect me to vote for Labor and Paul Lennon at the next State election’.
(Neales, 2008)

In Launceston, the pulp mill also had a marked effect on local elections
held in October 2007. The Australian newspaper reporting the outcome of
the Launceston mayoral election said:

A backlash against Gunns pulp mill has toppled Launceston Mayor Ivan Dean
and his deputy and seen a number of anti-mill candidates elected to northern
Tasmanian councils. Mill opponents yesterday hailed the results of Tasmania’s
local government elections as proof of widespread opposition to the mill, to be
built in the Tamar Valley north of Launceston. As well, a plebiscite held with
the council elections in Hobart showed 76 per cent opposition to the mill among
voters in the state capital. Mr. Dean, who lost the Launceston mayoral race to
anti-mill candidate Albert van Zetten, conceded his support for the $2 billion
project ‘played some part’ in his downfall. (Denholm, 2007)

GUNNS LTD: ECONOMICS AND CORPORATE

SOCIAL RESPONSIBILITY (CSR)

Gunns is one of Tasmania’s largest employers, and the economic prosper-

ity of the state, especially its northern area, is heavily dependent on forestry
and Gunns’ contribution to this industry. Gunns claims that the pulp mill
will bring about an average per annum increase in household expenditure
of AUD870 per year in Tasmania, and an increase in tax revenue for the
Pulp, politics, process and pollution: Gunns Ltd and the Tamar Valley pulp mill 163

state and federal governments of almost AUD894 million for the period
from 2008 to 2030, some of which will be returned to Tasmania under the
Commonwealth Grants Commission scheme. It further argues that there
will be an additional AUD39 million annual expenditure by the construc-
tion workforce into the northern Tasmanian economy and a 15 per cent
increase in local property prices (Gunns Ltd, 2008a).
There is little doubt that the mill will generate economic activity.
However, the ‘net’ benefits of the proposed project are difficult to identify
and this calculation depends largely on whether both direct and indirect
benefits and costs of the project are included. For example, in a 2005
radio interview, the general manager of the pulp mill project claimed
that a university study indicated that the mill would create about 4,000
jobs directly, and another 4,000 indirectly during the two-year construc-
tion phase. The study also claimed that in its operational phase it would
create an extra 1,500 jobs, both directly and indirectly. If these figures are
accurate they represent a significant (approximately 2 per cent) contribu-
tion to Tasmania’s GDP (ABC, 2005). Since then, however, it is clear that
the direct number of operational jobs, once the mill is open, will be less
than 300 and the number of indirect jobs and where they might be is not
specified.
The figures provided by Gunns regarding the economic impact of the
mill have been contradictory. Its latest estimates assert that about 3,400
more jobs can be expected in Tasmania in 2008 if the pulp mill is con-
structed, with 1,617 being employed in the operational phase, and that, by
2030, an extra 2,000 Tasmanian jobs may be created (Bell Bay Pulp Mill,
2008). However, other conflicting estimates from Gunns indicate that the
mill, when completed, will provide only an additional 292 operational
jobs, 60 per cent of which will require additional training (Gunns Ltd,
2008a) The national leader of the GP, Senator Bob Brown, has drawn
attention to these variations, as well as others, noting:

[T]he pulp mill will have 292 jobs, according to the Gunns’ specification when
it’s built. Well, there’s been more than 300 jobs shed out of the forestry industry
since John Howard [the then Prime Minister] with the forestry division of the
CFMEU [Construction, Forestry, Mining and Energy Union] and their flags
flying made that momentous decision during the 2004 election campaign which
said they’d protect jobs. They didn’t. There’s been more jobs shed since then
because it suited Gunns’ bottom line and lots of other logging companies in
this state than the pulp mill will create. That’s a furphy. This is a mill to make
money for a corporation which exports it profits out and its job prospects out
of Tasmania. But which according to an independent economic analysis, would
have a $3.3-billion hit on other prospective industries in Tasmania, including
the clean green industries and many more jobs will be lost because of this than
the mill will create itself. (Jones, 2007)
164 Corporate social responsibility

Gunns claim that they are committed to source employment and serv-
ices from Tasmania whenever possible, estimating that 40 per cent of jobs
during construction and 80 per cent of jobs once the mill is operational
will be filled by Tasmanians (Gunns Ltd, 2008a). The 40 per cent figure,
corresponding to about 1,400 jobs for Tasmanians, is difficult to believe
as, at present, there are not enough surplus skilled workers available in
Tasmania to meet that level of demand. If workers are sourced from within
Tasmania, it will most likely be at the expense of other areas of building
and construction, where there is and has been a shortage of skilled labour.
The mill’s impact on other areas of the Tasmanian economy has been the
subject of many claims by opponents of the mill. The Tamar Valley region,
for example, is one of the main tourist routes in Tasmania and generates a
great deal of economic activity each year. Fear of negative environmental
impacts has opponents of the mill indicating the potential losses which
may result. For example, one set of claims is that over a 30-year period, the
economic losses generated will be in the range of hundreds of millions of
dollars (Tapvision, 2007). These claims are summarized in Table 7.3.
The notion of striking a balance between CSR and profit maximization
for the private sector has gained significant influence over the last 20 years.
This seems not to be the position advocated by Gunns’ CEO, John Gay,
who emphasizes that the company’s major objective is to maximize profit
for its shareholders, as illustrated in the following excerpt from a nation-
ally televised interview with John Gay in his response to a question about
balancing corporate profits against protecting wildlife (Sunday, 2003).

Graham Davis (Reporter): Again, for many people – and not just the Greens
– it’s the scale of what’s happening in Tasmania that’s at issue, not whether

Table 7.3 Potential hidden costs of the Tamar Valley pulp mill

Loss estimated cost (A$) Reason

Food production $320 million Farming land used for tree
plantations
Tourism $110 million Smell, increased log trucks,
river pollution
Fishing $100 million Market concerns about
dioxins and effluent in the
river and other waterways
Water use $50 million Needed for trees and pulp
mill process
Brand damage Unknown Loss of ‘green’ state
reputation
Pulp, politics, process and pollution: Gunns Ltd and the Tamar Valley pulp mill 165

logging should or shouldn’t take place. Only the most ardent conservationist
would want to place 8,000 jobs at risk. Yet, if there are rules, they should be
adhered to, even if there’s no consensus on forestry, more of a balance should
be struck. The chasm of perception here is obvious when you go to see logging’s
Mr. Big. What’s good for the forestry business in Tasmania is always good for
the rest. How do you feel about protected species dying for your business?
John Gay: Well, there’s too many of them and we need to keep them at a
reasonable level.
Graham Davis: You’re saying there’s too many wombats and ring-tailed
possums?
John Gay: Yes, most certainly.
Graham Davis: Why are they protected then? Why are they classed as
endangered?
John Gay: Well, because the numbers are getting too great and the ring-tailed
possum is a very small proportion of this. It’s usually the brush possums that
are poisoned, not ring-tails.
Graham Davis: Well, how can you say that, though, when you concede that this
thing kills everything?
John Gay: Well, that everything that goes there to eat, but I believe it is an
acceptable practice.
Graham Davis: It is acceptable practice to knock off all the wildlife in the
surrounding areas, so that you can put your tree seedlings in?
John Gay: Yes.

As one of the major employers in a small state, Gunns is the focus of

significant social and environmental pressures, similar in their intensity
to those faced by large multinational companies operating in developing
countries. For this reason, the company might be expected to demon-
strate its sense of social responsibility in its annual reports (Gibson and
O’Donovan 2007). However, in the last five years, Gunns’ minimal annual
report disclosures have been made, and the company does not produce
a separate sustainability report. It is interesting to note that, despite a
lack of general disclosure, positive information about the proposed pulp
mill, its impacts and how they would be managed, featured prominently
in the 2006 and 2007 annual reports. In terms of corporate citizenship,
Gunns supports many Tasmanian community initiatives and sponsors
philanthropic causes and sporting events, and in this context contributes
to community and social capital.
Its philanthropy, however, may be considered selective, as in December
2004, the company instituted legal action against 20 groups and individu-
als, including the Wilderness Society, Doctors for Forests and Senator Bob
Brown, for loss of business for the amount of AUD6.36 million. The basis
166 Corporate social responsibility

of the action was that protesters and activists had disrupted a number of
operational forestry activities in Tasmania and overseas and this caused a
financial loss. From a CSR standpoint and the reputation of Gunns, the law
suit created a huge backlash, one that is still continuing. The defendants,
who have become known as the ‘Gunns 20’, come from many walks of life.

The massive suit covered 10 different protest actions, in the state and overseas,
over four years. Greens leader Bob Brown had a $1.7 million claim against
him. Four people from the Wilderness Society each faced claims in excess of
$1.3 million, and the organisation itself a further $3.9 million. Those sued
range from a country grandmother to a town dentist, and a filmmaker to a law
student. Some had assets, others not. (Darby, 2006)

The claims against six defendants, including all of the corporate ones,
were dropped by Gunns in December 2006, but the courts ruled that
actions against the remaining defendants could continue. Gunns paid
the legal costs of the six defendants of about AUD500,000. The case is
continuing, with another of the cases against one of the defendants, Dr
Frank Nickalson, being struck out by the Supreme Court of Victoria on
17 September 2007. Vanessa Bleyer, President of Lawyers for Forests, was
present in court and described the result as follows:

Unexpected, given the order striking out the statement of claim came when
Gunns applied to strike out a paragraph in the defendant’s defence. It is of
concern that Gunns appears not to want the truth of the doctor’s statement
tested in court. It is concerning that Gunns is suing people who raise public
health issues in light of the pulp mill proposal. (Legal, 2007)

The reputation of Gunns as a good corporate citizen may have been

seriously compromised as a result of this action. The issue of freedom of
speech and the right to protest has become a core issue in the debate about
the Gunns 20 case. It was reminiscent of the 1997 McLibel case where
Helen Steel and Dave Morris were sued by McDonald’s for libel for what
was contained in leaflets they had produced and handed out in the UK. As
with the McLibel case (McLibel, 2008), Gunns’ law suit evokes images of
a David versus Goliath struggle and the court of public opinion appears to
be in favour of the defendants rather than the corporate protagonist.

SOCIAL AND ENVIRONMENTAL IMPACTS OF THE

PROPOSED PULP MILL
Do we invest $8,000 in buying outdoor furniture if we won’t be able to sit there
because of the odour? (Kirsty Allwood, Manager, Ninth Island Winery and
Restaurant, quoted in Lyons, 2007, p. 26)
Pulp, politics, process and pollution: Gunns Ltd and the Tamar Valley pulp mill 167

In a case of this length it is not possible to explain in detail the complex

scientific arguments relating to the environmental impacts of the proposed
pulp mill. In summary, a range of scientific opinion exists, some suggesting
that the mill will have little adverse environmental impact, some indicat-
ing serious environmental destruction. As a result, there are many areas
of disagreement between the parties to the dispute, relating to the type
and degree of impact the mill will have, to what is acceptable and what
can and should be done to minimize the impact. The pulp mill will use a
variety of chemicals in the manufacturing process, notably dioxins, and
there is no disagreement that a quantity of effluent and residual chemicals
will end up in the waterways. This may have an adverse impact on marine
life and on both the fishing industry and recreational fishing. There will
also be discharges of gases into the atmosphere and this has the potential
to increase human respiratory problems and produce unpleasant odours.
The manufacturing process also requires large amounts of water and this
is particularly pertinent for a state that often experiences drought condi-
tions. The types and sources of timber used in the pulp mill have both
direct and indirect environmental impacts, especially in relation to the
ecological impacts of using wood from old-growth forests. In the case of
plantation eucalypts, opportunity costs related to the alternative use of
the land must be considered. Further, there are environmental and social
impacts of transporting timber resources to the mill site, and delivering
pulp from the mill to ports and ultimate customers. There are also several
specific wildlife issues, most notably in regard to the mill’s likely impact on
a seal colony about 15 kilometres from the proposed site.
Gunns has listed its response to the potential environmental impacts of
the proposed mill (Gunns Ltd, 2008a). In summary, it claims that the mill
will be built to minimize negative environmental impacts using the world’s
best technology. The use of, or at least the claim to be using, world’s best
practice, does not mean that there are no dangers or impacts and Gunns
does not claim that the impact will be zero. However, the notion of world’s
best practice is a relative measure, indicating that the practice involved is
achievable based on what is affordable. It is the incongruity between the
application of what is achievable (technologically) and what is affordable
(to the company’s financial bottom line) that is the crux of the ongoing
debate about the benefits and costs of the pulp mill. When calculating
financial profit, externalities (that is, the indirect costs of operation not
borne by the corporate entity) are not included as expenses and do not act
to reduce profit. However, externalities are real costs that must be paid for
by society, and in particular the local community, if it wishes to achieve or
maintain its lifestyle, including its physical environment.
The City of Launceston, in particular, is set in a valley in which the
168 Corporate social responsibility

prevailing winds trap airborne pollutants, and this problem is exacerbated

during the winter months by the existing, very prevalent use of wood
heaters in homes in the area. This problem is sufficiently serious for the
city council and federal government to instigate schemes to reduce the use
of wood heaters in order to help relieve the pollution in the valley. One of
the main social (and financial) impacts of this pollution is the increase in
respiratory problems of people living in the area. This means that extra
resources are required by the health system for medical treatment, that
people are less productive in the work place, and that social and com-
munity activities are reduced. While the emissions from the pulp mill may
not be dangerous in isolation, when added to the existing types and levels
of pollution they may have a synergistic effect on the health of residents
which will increase all of the associated costs.

The Australian Government has paid $2 million replacing wood stoves with
other forms of heating in the Tamar Valley to reduce air pollution. But it has
also given Gunns $5 million to build a pulp mill whose boilers will create pollu-
tion equivalent to an extra 11,000 wood stoves. (Wilderness Society Tasmania
Inc., 2007)

Social impacts are, arguably, more difficult to identify than environ-

mental impacts. They are difficult to quantify, subject to a variety of
conflicting opinions and beliefs, and change over time. Indeed, in many
cases the unexpected social consequences of large-scale government and
corporate activity are more immediate than longer-term environmental
effects. For example, it is instructional to consider the social impacts and
collateral damage that occurred in the small town of Valdez (population
in 1989 about 3,500), Alaska, following the grounding of the oil tanker
Exxon Valdez in March 1989, and whether this might be pertinent to the
construction phase of the pulp mill. After the oil spill, many Valdez locals
were forced out of their homes due to the rising rental prices caused by the
influx of the media and clean-up crews. Locals who had worked in the area
for years had their livelihoods in the oil industry and fishing and marine
industry curtailed and at the same time the influx of itinerant workers saw
large wage rises and skyrocketing prices (Alder, 1989).
At the height of the clean-up operations, some 15,000 workers were
employed by Exxon and each worker had to be supplied with equipment,
transportation, food, lodging, logistical support, and supervision. Valdez
grew to three times its normal size almost overnight and bed and break-
fast accommodation sprang up all over the city. New food and clothing
stores were set up and prices soared. Temporary buildings were erected
for Exxon’s office space. On average it cost Exxon $1,000 each day to
support one worker on a beach clean-up crew. It is true that a proportion
Pulp, politics, process and pollution: Gunns Ltd and the Tamar Valley pulp mill 169

of this windfall went to local people, but this was a temporary benefit as,
in the longer term, the locals made their substantive living in the oil, ship-
ping, fishing and marine industries, which were devastated by the oil spill
(Valdez Alaska, 2007). The social capital of the town was changed forever
in the aftermath of the oil spill.
It is planned that Gunns will build a temporary village in George Town,
near the site of the mill, for 800 workers. It is likely that an anticipated
further 3,000 or more construction workers will need to use rental or
hotel/holiday accommodation in the area (Tamar, 2008). At present,
rental properties in and around the Launceston area show a 95/97 per
cent occupancy rate, so the implication of the construction of the mill is
that tourist accommodation may be unavailable for periods during con-
struction, or become substantially more expensive, leading to a decline in
tourist numbers to the detriment of businesses that depend on tourism.
This, in turn, could have an adverse long-term social, as well as environ-
mental, impact. Similarly, the influx of large numbers of male workers into
George Town and the surrounding areas will generate a number of adverse
impacts. In Valdez, for example, there was a major increase in prostitution
during the peak clean-up phase.

CONCLUSION

The concept of CSR and the responsibilities of companies in the private

sector to balance the interests of shareholders and direct stakeholders with
the broader interests of society is an accepted part of the culture of busi-
ness in the twenty-first century. The extent to which companies practise
and actively embrace CSR in a substantive, positive way, as opposed to
attempting to manipulate public perceptions of their CSR, continues to
be a matter of much debate. The case of Gunns and the proposed Tamar
Valley pulp mill extends the CSR concept beyond the role of the corpora-
tion’s relationship with its stakeholders and governance to consideration
of the role of the government, the government’s governance, responsibil-
ity and accountability and the importance of issues such as this to the
electoral fortunes of political parties.
The timing of the mill proposal and the changes to the mill approval
process in the context of a looming federal government election and in
the 12 months immediately following a Tasmanian state election, clearly
introduced political agendas into the landscape. This may have allowed
the company to escape closer scrutiny in relation to their CSR than would
have otherwise been the case. The lack of a clear, transparent and account-
able process and the role of the Tasmanian government in the episode
170 Corporate social responsibility

quickly became ‘the story’ and, despite the best intentions of many of
the anti-pulp mill campaigners, the social, environmental and economic
impact of the mill, and the way in which Gunns would be held accountable
for them, faded into the background.
Finally, the case mirrors much of the criticism levelled at CSR practices
of multinational companies in developing countries where the economic
prosperity of the country is particularly dependent on the presence of
the multinationals’ operations in the country. Governments of develop-
ing countries have often been criticized for allowing these companies to
operate at a lower level of social and environmental accountability than
the companies would be allowed to in their home country or other devel-
oped parts of the world. The companies themselves are also criticized for
taking advantage of the poorer countries in this regard. The uniqueness
of the Gunns case is that Tasmania is a prosperous, although small, state
in one of the richest and most developed countries in the world. While
Gunns is a very important company in respect of the economic well-being
of Tasmania, the facts of this case suggest that its level of influence over
government decision making has much in common with multinationals in
poor countries. From a good governance perspective, one might question
the sustainability of this situation.

KEY LEARNING POINTS

● By including issues of government and political influence, the

concept of the triple bottom line (TBL) is extended to a quadruple
bottom line (QBL).
● Consideration is given to who has, and who should have, ultimate
responsibility and accountability for a major project with complex
and wide-reaching effects on the competing interests of a very broad
range of stakeholders.
● The importance of clearly distinguishing between the regulatory process
and the role and responsibilities of government is emphasized.
● An examination is undertaken as to what extent it is appropriate
for government processes to be influenced by a large private sector
organization seeking to maximize profits for its shareholders.
● The methods which may be adopted by a company in an attempt to
deflect scrutiny from its social and environmental responsibilities is
discussed.
● A key issue examined is the extent to which a large industrial pro-
posal should be decided on the basis of political, rather than social
and environmental, considerations.
Pulp, politics, process and pollution: Gunns Ltd and the Tamar Valley pulp mill 171

DISCUSSION QUESTIONS

1. If a majority of voters are opposed to a particular development,

should the government facilitate it because ‘it knows best’?
2. What advice would you provide to a government about balancing
social, environmental and economic concerns?
3. What factors should influence company boards in making decisions
about development of new projects? Which of those factors do you
consider to be most important?
4. Where a company makes a major economic contribution to a par-
ticular regional area, how much influence is it appropriate for that
company to exert on government decision making?
5. Should triple bottom line considerations have a greater influence
in decision making in the private or public sector, and for what
reasons?
6. Who should have ultimate responsibility in a case such as this where
there are clearly conflicting corporate, government, political and
societal concerns?
7. Identify and explain to what extent Gunns Ltd abrogated their CSR
to:
(a) the Tasmanian government?
(b) the federal government?
8. Do you believe that appropriate governance was practised in this case by
Gunns; the Tasmanian government and the federal government? Identify
where and how you think governance practices could be improved.

NOTE

1. The Hare–Clark voting system, named after Thomas Hare and Andrew Inglis Clark,
has been used in Tasmania since 1909. It is an electoral system often called ‘quota-
preferential’. Candidates are elected from multi-member constituencies, but not using
the proportional representation methods common in European countries. Candidates
are elected by achieving a quota of votes, and those votes can be made up by votes
cast for the candidate, or votes transferred to the candidate as preferences. The
Tasmanian House of Assembly is the only place in Australia that uses the Hare–Clark
system.

REFERENCES

ABC (2005) Radio National ‘Clean green pulp mill or the son of Wesley Vale’, text
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htm (accessed 20 October 2007).
172 Corporate social responsibility

ABS (Australian Bureau of Statistics) (2006), Tasmanian Year Book, available at:
www.abs.gov.au/Ausstats/abs@.nsf/Previousproducts/1384.6Main%20Feature
s12005?opendocument&tabname=Summary&prodno=1384.6&issue=2005&nu
m=&view= (accessed 17 November 2007).
Alder, J. (1989), ‘Alaska after Exxon’, Newsweek, 18 September, p. 53.
Australian Constitution (1900), An Act to Constitute the Commonwealth of
Australia, 9 July 1900, amended in Commonwealth of Australia Constitution
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Bell Bay Pulp Mill (2008), available at: www.gunnspulpmill.com.au/faqs.html
(accessed 20 January 2008).
Burritt, R. and Gibson, K. (1993), ‘Who controls world heritage listed assets?’,
Environment and Planning Law Journal, 10 (4), 278–90.
CLR (1983), Commonwealth v Tasmania (1983) 158 Commonwealth Law Reports
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and-the-law/2006/08/29/1156617279358.html?page=fullpage#contentSwap2
(accessed 1 November 2007).
Denholm, M. (2007), ‘Gunns backlash swings council votes’, The Mercury,
1 November, available at: www.theaustralian.news.com.au/story/0,25197,
22682743-5006788,00.html (accessed 20 January 2008).
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gov.au/divisions/lgo/information/history.html (accessed 8 January 2008).
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Government of Tasmania, Act No. 44 of 1994.
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Australian Government, Department of the Environment and Water Resources,
Canberra.
Gale, F. (2007), ‘Good environmental governance and Tasmania’s Tamar Valley
pulp mill: a comparison of the APDC and PMAA processes’, School of
Government, University of Tasmania, August.
Gibson, K. and O’Donovan, G. (2007), ‘Corporate governance and environmental
reporting: an Australian study’, Corporate Governance: An International Review,
15 (5), September, 944–56.
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Limited, 14 July.
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profile.html (accessed 17 October 2007).
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24 January 2008).
Gunns Ltd (2008b), ‘Proposed Pulp Mill on the Tamar River – the issues dis-
cussed’, available at: www.tamarpulpmill.info (accessed 18 January 2008).
Hansard (2007), House of Assembly, Tasmania, Hansard, 30 August, 2.35 pm.
Jones, T. (2007), ‘Greens leader discusses Tas pulp mill’, available at: www.abc.
net.au/lateline/content/2007/s2019051.htm (accessed 15 December 2007).
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gunns20.org/node/132 (accessed 15 January 2008).
LTV (Launceston Tamar Valley) (2007), Sensational Launceston Tamar Valley,
available at: www.ltvtasmania.com.au (accessed 17 December 2007).
Lyons, J. (2007), ‘Apple Isle’s core dilemma’, The Weekend Australian, 15–16
September, p. 26.
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McLibel Trial (2008), available at: www.mcspotlight.org/case/index.html (accessed

22 January 2008).
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The Mercury, 5 October, p. 4.
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able at: www.news.com.au/mercury/story/0,22884,23048731-5006550,00.html
(accessed 18 January 2008).
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2007).
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Integrated Assessment Report’, Government of Tasmania, Hobart.
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article_1205.asp (accessed 11 January 2008).
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2008).
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2008).
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essed 17 January 2008).
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valdezalaska.org/history/oilSpill.html (accessed 15 November 2007).
Wilderness Society Tasmania Inc. (2007), ‘What will the pulp mill do to our quality
of life?’, leaflet prepared by the Wilderness Society.
PART IV

CSR: additional dimensions

8. A case study of the strategic use
of CSR: the American Gaming
Association and the National
Center for Responsible Gaming
Kate Spilde Contreras and Donald S. Siegel

INTRODUCTION
In recent years, academics have devoted greater attention to the strategic
implications of corporate social responsibility (henceforth, CSR). The
term ‘strategic CSR’ was coined by Baron (2001). Following McWilliams
and Siegel (2001, p. 117), CSR is defined as instances where firms go
beyond compliance and engage in ‘actions that appear to further some
social good, beyond the interests of the firm and that which is required by
law’. For example, an automobile manufacturer could produce ‘hybrid’
vehicles, which significantly exceed government fuel efficiency require-
ments. In a similar vein, a savings and loan association is said to be
socially responsible when it approves a higher proportion of loans to poor
or minority borrowers than required by the Community Reinvestment
Act, which governs the lending practices of these institutions (Siegel and
Vitaliano, 2007).
Other examples of the strategic use of CSR include incorporating social
characteristics or features into products and manufacturing processes
(for example, aerosol products with no fluorocarbons or using environ-
mentally friendly technologies), adopting progressive human resource
management practices (for example, promoting employee empowerment)
to recruit and retain employees, achieving higher levels of environmental
performance through recycling and pollution abatement (for example,
adopting an aggressive stance towards reducing emissions), and advancing
the goals of community organizations (for example, working closely with
groups such as United Way).
This chapter presents a case study of the strategic use of CSR by
the gambling industry. Specifically, we describe the birth and evolution
of the American Gaming Association (AGA) and its role in the creation

177
178 Corporate social responsibility

of the National Center for Responsible Gaming (henceforth, NCRG).1

Although it is difficult to confirm the industry’s motives for engaging
in this activity, we conjecture that the AGA had two related objectives.
The first goal was to reduce the negative externalities associated with
gambling, which would help them accomplish their second objective: to
forestall additional regulation and improve public relations in this highly
controversial sector.

SYNOPSIS

It was the black-and-white photo that made Frank Fahrenkopf think

twice: the line-up of tobacco industry executives holding up their right
hands before the congressional committee, about to declare that their
product did no harm. As he sat with Chuck Mathewson, Skip Avansino
and Steve Wynn, who were recruiting him to become the top lobby-
ist for the gambling industry, at the Las Vegas Country Club in 1994,
Fahrenkopf invoked that famous picture and told them, ‘We can’t make
the same mistakes as tobacco, we can’t go down that road by denying
that there are people who develop problems because of our products’
(Contreras, 2007). Indeed, Fahrenkopf made it clear that he would not
leave his long-term legal career if these pioneers did not share his vision
of the industry and agree to promote education among its members and
transparency with the public.
When the AGA was launched in May 1995, there were few academic
studies on pathological or problem gambling, and the field remained
largely an outgrowth of more generic substance abuse literature. This lack
of any definitive scientific evidence did not stop the anti-gaming lobby
from claiming that 20 per cent of all gamblers had a problem and that
those few gamblers accounted for 80 per cent of all gambling revenues,
however. While these fringe groups had no facts, nor did the gambling
industry itself. Indeed, there were over 27 different scientific instruments to
measure problem and pathological gambling and no consensus definition
of either the condition or its cause. There was a lot of work to be done.

THE BIRTH OF THE AMERICAN GAMING

ASSOCIATION (AGA)

The gambling industry is not easily categorized. Legalized gambling in

the United States consists of a range of diverse activities including state-
run lotteries, riverboat casinos, pari-mutual horse and dog racing, tribal
American Gaming Association and the National Center for Responsible Gaming 179

government gaming, commercial casino gaming, and sports betting, among

other activities. Each product is carefully marketed to particular market
segments and defined and regulated in various ways. Over time, casinos
have variously marketed themselves as a part of the entertainment indus-
try (think MGM Grand), as family entertainment venues and as high-end
integrated resort/spas with a gaming component. While gambling oppo-
nents claim that gambling is part of a larger array of industries that rely
on selling a vice, there are very few similarities between the structure of the
various legal gambling products, the use of their revenue streams or their
impacts on consumers or communities. Regardless of its official classifica-
tion or self-definition, it is safe to say that all legal gambling is ultimately
a partnership between government and industry in the United States. No
one understood that relationship better than Frank Fahrenkopf.
By 1993, Fahrenkopf had concluded a successful stint as Chairman
(1983–89) of the Republican National Committee (RNC) and had been
practicing law for over 30 years, including his then current position as
a partner with Hogan & Hartson in Washington, DC, where he chaired
the International Trade Practice Group. Fahrenkopf specialized in regu-
latory, legislative and corporate matters for multinational, foreign and
domestic clients. His early legal career included 17 years of practice as a
trial and gaming lawyer in Nevada, his home state. In that capacity, he
represented clients before Nevada gaming regulatory authorities. He had
once been Wayne Newton’s personal attorney. One of his clients at Hogan
& Hartson was the American Pasta Association, which worked closely
with the congressional agricultural committees to be sure that federal laws
did not interrupt their industry’s interests or upset their markets.
Representing the interests of the array of stakeholders who produce
pasta in the United States exposed Fahrenkopf to the ways that ‘an indus-
try’ can be mobilized as a political unit in Washington in spite of small dif-
ferences between its members. After a board meeting at the Capital Hilton
on 16th Street, Fahrenkopf met up with an old friend, Raymond ‘Skip’
Avansino who was President and CEO of Hilton Hotels, Inc. at that time.
Fahrenkopf told him,

I just met with the Pasta guys, who are always working to be sure the Federal
Government doesn’t screw them. Meanwhile, here you guys are putting mil-
lions of dollars into the ground and you have no representation in Washington.
(Contreras, 2007)

By December of that year, Avansino called a meeting with Fahrenkopf,

himself and the major players in the gambling industry at that time. At
the end of the meeting, Avansino asked Fahrenkopf to start the process
180 Corporate social responsibility

of creating a trade association to represent the interests of the commercial

gaming industry. Fahrenkopf responded that he would need at least eight
signatures to make it happen. Following the meeting, there were no formal
plans to take up the issue, so Fahrenkopf continued with his law practice
at Hogan & Hartson.
In the spring of 1994, the federal government announced a plan to insti-
tute a 4 per cent gross receipts tax on gambling in order to finance Hillary
Clinton’s healthcare plan. Thirty-one state governors signed letters oppos-
ing the tax and reiterating their dependence on tax revenues from gaming
to fund their own government programs and services, and it was ultimately
defeated. However, for the ‘boys in Vegas’, the federal tax proposal was
a wake-up call. Fahrenkopf’s phone rang off the hook, and this time the
group asked if he would set up a national gaming industry organization
. . . and run it. Fahrenkopf dodged the request and suggested that they hire
a headhunter to find the appropriate person. Once the word got out that
the American Gaming Association was forming, the executives received
200 applications. It was an impressive group, which included a former
senator, a former congressman, a federal judge and a former head of
President Ronald Reagan’s legal staff. Chuck Mathewson, Skip Avansino
and Steve Wynn spent an entire day conducting the interviews with the 10
finalists culled from the pool. When they were done, they went back to Las
Vegas to make their decision. Nothing happened for two months.
Meanwhile, Fahrenkopf was invited to give a talk at the Young
President’s Association (YPO) at a conference in Las Vegas. Learning that
he was in town, the search committee asked Fahrenkopf to join them for
dinner. Because of his booked schedule, Fahrenkopf suggested instead that
they meet for breakfast the next morning at the Las Vegas Country Club.
The next morning over breakfast the committee came straight to the point:
‘we know you, you know the law, you are from Nevada, and we trust you’.
They asked Fahrenkopf to help the organization get up and running and to
stay for a year. He agreed he would do it for a year, starting in mid-1995.
Fahrenkopf knew he could not do it alone, however. As he searched his
Rolodex for ideas, he remembered a woman he had met a few years prior.
One of his closest friends was a lawyer who had become president of the
American Bar Association (ABA.) While at the ABA, his friend had a tal-
ented administrator, an attorney named Judy Patterson. Through this con-
nection, Fahrenkopf worked with Patterson on various issues, including
the ABA’s project to change the American people’s image of lawyers. The
ABA was a dues-paying membership organization, which the new gaming
trade association would also be. Fahrenkopf called Patterson that spring
and she agreed to join him a month later. The AGA officially opened its
doors on July 1, 1995, with three employees: Fahrenkopf, Patterson and
American Gaming Association and the National Center for Responsible Gaming 181

an additional lobbyist. The AGA’s first board of directors included a

host of notable industry leaders, including Hilton Hotels, Inc. President
Raymond Avansino, Mirage Resorts, Inc. Chairman Steve Wynn, Charles
Mathewson, Chairman of International Game Technology (IGT), William
Boyd, Chairman and CEO of Boyd Gaming, Henry Gluck, Chairman and
CEO Caesars World, H. Steven Norton, President and COO of Argosy
Gaming Company, Timothy Parrott, Chairman and CEO, Boomtown,
Inc., Michael Rose, Chairman of Promus Companies and Clyde Turner,
Chairman of the Board, President and CEO of Circus Enterprises.2
The first year passed quickly. After 30 years of practicing law,
Fahrenkopf decided to stay. By that time, the US Congress was consider-
ing the creation of a national study commission to evaluate US gambling
policy, which meant that there was an opportunity to impact the agenda.

THE NATIONAL GAMBLING IMPACT STUDY

COMMISSION

In 1996, Congress was contemplating a federal study of gambling policy in

the United States. Gambling activity had spread to 46 states at that time,
up from two states in 1976, the last time that Congress had investigated
the issue. The commercial gaming industry represented by the AGA was
generally not in favor of federal regulation of gambling activity since it
was currently a states’ rights issue and the 1976 study had found this to
be the most advantageous arrangement. The states’ rights view of public
policy for gambling was supported by a general belief that the local gov-
ernments were in a better position to determine what was appropriate for
their constituents than the federal government, which tended to legislate
from a theoretical position, rather than a pragmatic one.
The Study Bill provided numerous opportunities to suggest improve-
ment. Public records reflect that the AGA had five lobbyists – in addition
to Fahrenkopf – working Capitol Hill to influence the bill. While the AGA
did not formally oppose the study, they objected to various provisions
(such as subpoena powers for Congress) and had a stake in who was
appointed to the nine-member panel. The AGA was successful in extending
the debate about the Study Commission Bill long enough to get reasonable
people on the record, and AGA members ultimately agreed that a national
study could and should be done as long as it was not biased. In the
meantime, the AGA commissioned its own research on topics that were
important to their constituents, including gambling employee satisfaction,
the alleged relationship between gambling and crime and the effectiveness
of state regulation of casino gaming.
182 Corporate social responsibility

For two years the AGA, along with other industry representatives and
stakeholders, intently followed the actions of the Study Commission.
They also continued to produce exceptional educational materials that
were passed along to the body, which was lacking in data and informa-
tion about most industry segments. The final report ultimately made few
compelling recommendations and was considered politically neutral for
the AGA’s membership. Given the make-up of the Study Commission,
which included a number of industry opponents, this neutral report was
a major relief for the AGA and its membership. In addition, the Study
Commission’s analysis of the gambling products on their own terms (and
in relationship to each other) benefited the commercial casino industry
since it highlighted their employment benefits, the role of unions, and the
heavy regulation of its businesses. In fact, Study Commission members
formally commended the gaming industry for being the largest supporter
of research on gaming through the NCRG.
Fahrenkopf’s reaction to the report reflected this insight: ‘While this
report is not without its faults, it definitely draws a favorable distinction
between commercial casinos and other segments of the gaming industry’.3
Within a few years, the AGA had already made important progress in
educating policy makers about the gaming industry.

EARLY RESEARCH

As the debate for the Gambling Study Commission was taking place, the
AGA was already commissioning research into problem and pathological
gambling’s parameters and prevalence. There were very few scientists who
could produce this kind of work, but the AGA was confident they found
the right person in Dr Howard Shaffer. In the early 1990s Phil Satre,
then CEO of Harrah’s Entertainment Corporation (HEC), was invited
to Harvard University to present on a panel addressing youth problems.
The conference was organized by Shaffer in the Division on Addictions at
Harvard Medical School. After that event, Satre contacted Fahrenkopf to
tell him about the conference and about Shaffer’s work. After that conver-
sation, Fahrenkopf was attending a meeting of the National Association
of State Attorneys General in St. Louis and Satre arranged for Shaffer and
Fahrenkopf to meet for breakfast at the St. Louis Hyatt.
Fahrenkopf asked Shaffer if he would be interested in creating a research
agenda to investigate the prevalence of problem and pathological gam-
bling in the United States. Shaffer had some initial fears that the industry
might try to use him, or that he would be perceived as an apologist for the
industry. Fahrenkopf had his own fears: that problem and pathological
American Gaming Association and the National Center for Responsible Gaming 183

gambling rates would be large enough to cause the gambling industry

political harm. In spite of these concerns, both men agreed that the indus-
try would ultimately benefit from finding the truth sooner than later and
to sharing it with the policy makers and the public. The fear of appearing
in gambling’s version of tobacco’s ‘black and white photo’ outweighed the
concern about learning the scope of the problem or fully understanding
the phenomenon of problem and pathological gambling.
From that relationship and the success of individual casino company
initiatives, the NCRG was born in 1996 and established as an independ-
ent non-profit, charitable and educational organization based at the
University of Missouri, Kansas City.

NATIONAL CENTER FOR RESPONSIBLE GAMING

When the state of Missouri first approved gambling, the Port Authority
of Great Kansas City signed a development agreement with the casino
companies to earmark funds to go toward the study, prevention and
treatment of problem and pathological gambling. Early industry con-
tributors included Boyd Gaming, Grand Casinos, Station Casinos, and
Hilton. These four companies, through compliance with this develop-
ment agreement, provided seed money to form the NCRG. Other major
gaming entertainment companies such as MGM Grand, Mirage, Harrah’s
and International Game Technology followed with multi-year gifts that
enabled the NCRG to jumpstart the first scientific research grants program
in the US dedicated exclusively to supporting high quality research on
gambling disorders and youth gambling.
In 1997, Shaffer and his team received the first grant distributed
by the NCRG and produced what is considered to be the definitive
study of problem and pathological gambling prevalence, ‘Estimating the
Prevalence of Disordered Gambling Behavior in the United States and
Canada: A Meta-analysis’.
After three years in Missouri, the NCRG awarded a $2.4 million grant
to Harvard Medical School’s Division on Addictions to establish the
Institute for Research on Pathological Gambling and Related Disorders,
which then assumed responsibility for the grant-making oversight and
also supported the groundbreaking research led by Shaffer and his col-
leagues. Now an affiliated charity of the AGA, the NCRG raises money
for research and conducts educational programs for gaming employees,
healthcare providers and the public. According to Fahrenkopf, ‘the
NCRG has grown like top seed since then’ (Contreras, 2007).
Judy Patterson was one of the primary architects of the NCRG, along
184 Corporate social responsibility

with Christine Reilly, the first executive director of NCRG, and Howard
Shaffer. On the industry side, Tom Brosig of Grand Casinos was heavily
involved in the early days, while Phil Satre of Harrah’s and Bill Boyd of
Boyd Gaming have been involved with NCRG’s executive leadership and
have financially supported the Center since its inception. When industry
leaders like Satre and Boyd ‘stepped up to the plate’ the rest of the industry
followed.
The NCRG remains the only national organization exclusively devoted
to the funding of peer-reviewed research on disordered gambling and to
educating the public about responsible gaming. The NCRG’s mission is to
support peer-reviewed, scientific research into pathological gambling and
to provide scientifically-based responsible gaming education and aware-
ness programs to casino communities nationwide. The NCRG has been
an amazing success, investing $22 million in more than 40 peer-reviewed
research investigations at 31 leading research institutions in the United
States, Canada and Europe. Because gambling studies is still an emerging
field, no other organization, including the National Institutes of Health
(NIH), has funded as many individual research projects as the NCRG.
NCRG-funded research has always required rigorous, peer-reviewed
scientific standards analogous to those required by the NIH. NCRG-
funded studies have been published in more that 150 highly competi-
tive, peer-reviewed scientific journals, and the NCRG has supported
more than 30 research projects at institutions including Yale University,
Boston University Medical School, Harvard University, Johns Hopkins
University and McGill University in Canada.

WHY GAMING IS UNIQUE

We conjecture that the gambling industry is unique because it relies upon a

partnership between government and industry. Fahrenkopf puts it this way:

Our industry is different because it is a privilege not a right. Because of this rela-
tionship, the government has leverage over us and can require certain conces-
sions. For example, when a German car company announces that it will open
a plant in the United States, the states go crazy competing for it. When BMW
came to South Carolina, the state gave them land, tax benefits and other perks
in order to attract them. When a community hosts a casino, that business pays
higher taxes than other business and generally creates all of its own infrastruc-
ture, with no perks. (Contreras, 2007)

Because of this relationship, the commercial casino industry is also

heavily scrutinized by the media. Because the AGA is charged with
American Gaming Association and the National Center for Responsible Gaming 185

protecting the industry’s interests, it responds to many media issues,

including a recent exposé on children in casinos. Fahrenkopf describes it
here:

I was watching 20/20 back in the late 1990s and just about had a heart attack.
The reporters took cameras to Atlantic City at 1:00–2:00 in the morning and
were going through the lobbies of some of the hotels. There were little children
asleep on the couches in the lobbies while their parents were off gambling. I
immediately contacted Judy [Patterson] and we sat down to brainstorm about
a solution to this issue. We reached out to John Walsh and the Center for
Missing and Exploited Children in order to determine the best course of action.
When we met with Ernie Allen, we jointly developed a code of conduct for
handling children, including what security should do. We are very pleased that
we now have that adopted [by the AGA membership]. Interestingly, when the
Mashantucket Pequot Tribe opened their casino and hotel, they built a child-
care center with licensed childcare workers to care for the children. However,
they were severely criticized for doing so. So you are damned if you do and
damned if you don’t. (Contreras, 2007)

It is this attention to emerging issues that has advanced the AGA’s

mission beyond just representing the commercial gambling industry’s
interests to helping shape – and protect – the industry itself.

BUSINESS-LEVEL CORPORATE SOCIAL

RESPONSIBILITY

While Fahrenkopf’s work at the AGA represents CSR at the industry

level, individual gambling companies also have their own cultures and
initiatives. Fahrenkopf mentions that Harrah’s Entertainment has been
the nation’s top sponsor of Meals on Wheels for 10 years. Through
Satre’s early exposure to Shaffer’s work, Harrah’s was also one of the first
companies to invest in youth and problem gambling programs.
In some cases, individual company initiatives have inspired the AGA to
expand its scope. For example, gambling giant MGM MIRAGE practices
CSR in the form of heavy investments in diversity. While the commercial
casino industry has long been a proponent of diversity in the workplace,
Fahrenkopf notes that, ‘no company has spent more time, money and
energy on diversity than MGM Grand. It’s a personal thing for them’
(Contreras, 2007). In 2000, the AGA created a Diversity Task Force to
promote inclusion in all aspects of the commercial casino industry. The
task force conducts workshops for industry professionals, suppliers, and
minority, women and disadvantaged business enterprises (MWDBE);
collects data on industry diversity; and creates and organizes programs
186 Corporate social responsibility

designed for industry-wide implementation. The Global Gaming Expo

(G2E), AGA’s annual trade show and conference, instituted a diversity
exhibitor program at G2E 2006. In November of that year, task force
members also launched a Diversity Reporting Program for suppliers
wherein companies who supply the commercial casino industry with goods
and services are required to report on their own diversity practices in the
areas of purchasing and contracting. While the program does not mandate
a diversity threshold, the task force informed suppliers that diversity is
attractive to casino companies. The AGA has committed to ongoing eval-
uation of the success of workforce diversity in the US commercial casino
industry, including 2001 and 2003 reports by PricewaterhouseCoopers
entitled ‘Gaming Industry Diversity Snapshot’.
At the industry level, the AGA brings companies together on issues
of mutual concern. In addition to the NCRG and Diversity Task Force,
the AGA enacted a Responsible Gaming National Education Campaign
in 1998 and an AGA Code of Conduct for Responsible Gaming in 2003.
The signature program of the Responsible Gaming National Education
Campaign is Responsible Gaming Education Week, which the AGA and
its members created in 1998. Held during the first week of August each
year, it is targeted at employees, patrons and the public. While the indus-
try has a collective voice on these important issues, there are other issues
– such as smoking policies – that companies address individually or at the
state level.
While the AGA’s membership consists primarily of commercial casino
interests, they take a broad view of the gambling industry in their efforts.
With the growth and success of the tribal government gaming industry,
among other sectors, the AGA has recently made their own Code of
Conduct and online employee training program available to non-AGA
members. Due to AGA’s success, other gaming organizations have recog-
nized that a codified approach to responsible gaming is vital for success,
but some lack the tools and information needed to develop and implement
a comprehensive program. To meet this need within the larger gambling
industry, the NCRG created the Partnership for Excellence in Education
and Responsible Gaming (PEER) in 2007.
Through a unique partnership between the AGA and the NCRG,
membership in the PEER program provides tribal governments or organi-
zations with full access to the PEER Resource Guide, a blueprint for
implementing the provisions of the AGA Code. Before now available
only to AGA members, the PEER Resource Guide gives other gambling
industry stakeholders the set of tools needed to develop and implement a
world-class responsible gaming education program, no matter what the
size of their facility or organization.
American Gaming Association and the National Center for Responsible Gaming 187

KEY LEARNING POINTS

More than a decade later, Fahrenkopf is still at the helm of the AGA.
He is justifiably proud of the commercial casino industry’s willingness to
uncover the truth about their impacts (both good and bad) on communi-
ties and individuals. While Fahrenkopf admits that some of the research
topics ‘are not an easy sell’ to his members he continues to be proud of the
gaming executives he represents for supporting the NCRG no matter what
the research reveals:

I never wanted the gambling executives to end up in Congress like the heads
of the tobacco industry. That famous picture presented an image of something
we just couldn’t do. I’m proud of what this industry has done in 10 years. They
have been good corporate citizens and with the research from NCRG they have
always let the chips fall where they may. (Contreras, 2007)

There are several lessons to be learned from this case. The first is that
CSR is not just a firm-level phenomenon, especially when an industry is
highly regulated, such as the gaming industry. In this instance, it was sensi-
ble for CSR to be a collective effort, that is, having an industry association
take the lead on promoting ‘socially responsible’ gaming, while doing the
hard work of investigating the scope and nature of the industry’s potential
externalities.
This raises the question of the relationship between CSR and corporate
citizenship, which is a second lesson to be gleaned from this case. It is clear
that the gaming industry was conscious of its role as a corporate citizen.
The term ‘citizenship’ itself invites a different type of ethical justifica-
tion than the term social responsibility invokes. Citizens are members of
society who have rights, benefits and responsibilities. They are expected to
abide by society’s laws and norms, and may incur penalties for violating
those laws and norms. At an individual level, good citizenship denotes the
assumption of non-mandated responsibilities to advance the welfare of
society. These distinctions can be mapped onto the concept of corporate
citizenship.
In contrast, firms are legal entities, which can be regarded as ‘citizens’,
to the extent that society grants them rights and privileges. In exchange
for the benefits of citizenship, corporations must abide by society’s laws
and norms. However, good corporate citizenship also requires that firms
affirmatively exercise additional responsibilities to society. CSR, on the
other hand, typically does not denote such a broad or inclusive com-
mitment. Corporations can be ‘socially responsible’ merely by satisfying
certain stakeholder demands, but in this context, the industry was seeking
to appeal to a broader constituency.
188 Corporate social responsibility

A third lesson to be drawn from this case study is that an industry

(not just an individual firm) can use CSR strategically, in order to fore-
stall additional regulation and to promote a better image for the sector.
This is especially important for industries whose products and services
might generate negative externalities on third parties, such as gambling.
Specifically, the NCRG is designed to enhance the public and the indus-
try’s understanding of problem gambling and to identify effective methods
for preventing and treating gambling disorders. The establishment of the
NCRG is a classic example of a ‘socially responsible’ institution. It was a
successful, proactive attempt by the gaming industry to demonstrate its
commitment to reduce the negative externalities of gaming.

DISCUSSION QUESTIONS

1. How is the gaming industry using CSR ‘strategically’?

2. How is CSR at the firm level different from CSR at the industry
level?
3. What is the difference between CSR and corporate citizenship?
4. What lessons did you learn from the description of the birth and evo-
lution of the American Gaming Association (AGA)?
5. Can you think of other industries that might benefit from applying
lessons learned from CSR the gaming sector?
6. What aspects of Frank Fahrenkopf’s career path and experience made
him an ideal person to lead the AGA and develop its CSR initiative?

NOTES

1. NCRG was initially organized as the ‘Gaming Entertainment Research and Education
Foundation’ with NCRG as a part of its activities. The Foundation subsequently
changed its name to NCRG.
2. Press Release, American Gaming Association, ‘Fahrenkopf to Head New Gaming
Association’, May 10, 1995.
3. ‘PANEL RECOMMENDS A FREEZE ON NEW FORMS OF GAMBLING’, St.
Louis Post-Dispatch (Missouri), June 19, 1999, p. 13.

REFERENCES

Baron, David (2001), ‘Private politics, corporate social responsibility and inte-
grated strategy’, Journal of Economics and Management Strategy, 10, 7−45.
Contreras, Kate Spilde (2007), Personal communication/interview with Frank
Fahrenkopf, AGA Offices, Washington, DC, 9 February.
American Gaming Association and the National Center for Responsible Gaming 189

McWilliams, Abagail and Donald S. Siegel (2001), ‘Corporate social responsi-

bility: a theory of the firm perspective’, Academy of Management Review, 26,
117−27.
Siegel, Donald S. and Donald Vitaliano (2007), ‘An empirical analysis of the
strategic use of corporate social responsibility’, Journal of Economics and
Management Strategy, 17(3), 773−92.
190 Corporate social responsibility

APPENDIX 8A AGA CODE OF CONDUCT FOR

RESPONSIBLE GAMING* 1

The American Gaming Association (AGA) and its members pledge to our
employees and patrons to make responsible gaming an integral part of
our daily operations across the United States. This pledge encompasses all
aspects of our business, from employee assistance and training to alcohol
service, advertising and marketing. This Code also covers the commitment
of our members to continue support for research initiatives and public
awareness surrounding responsible gaming and underage gambling. The
following Code of Conduct details how we fulfill this pledge.

Pledge to Our Employees

● AGA members will educate new employees on responsible

gaming.
● AGA casino companies will train gaming floor employees on
responsible gaming and provide periodic refresher training.
● AGA members will implement communications programs for
employees to improve understanding of responsible gaming and
related policies and procedures.
● AGA members will distribute to new employees brochures describ-
ing responsible gaming and where to find assistance. Companies will
make copies of these brochures available to employees.
● AGA members will post responsible gaming awareness signage
bearing a toll-free help-line number at various locations where
employees congregate.

Pledge to Our Patrons

To promote responsible gaming

● AGA members will make available brochures describing responsible
gaming and where to find assistance. These will be available and
visible in gaming areas and at ATMs.
● AGA members will make available on their Web sites information
describing responsible gaming and where to find assistance.
● AGA members will display in gaming areas and at ATMs signage
that can be easily read bearing a toll-free help line number.

* Copyright AGA. 2003. Reprinted with permission.

www.americangaming.org/programs/responsiblegaming/code_public.cfm.
American Gaming Association and the National Center for Responsible Gaming 191

● AGA members will make available to patrons and employees infor-

mation generally explaining the probabilities of winning or losing at
the various games offered by the casino.
● Each AGA casino company will provide opportunities for patrons
to request in writing that they not be sent promotional mailings and
for revocation of their privileges for specific casino services such as:

● Casino-issued markers.
● Player club/card privileges.
● On-site check-cashing.

In addition, each AGA casino company shall make reasonable

efforts to honor a written request from any person that it not know-
ingly grant that person access to gaming activities at one or more of
its facilities.
● AGA casino companies reserve the right to exclude a patron from
gaming, without a request from the patron.

To prevent underage gambling and unattended minors in casinos

● AGA casino companies will make diligent efforts to prevent under-
age individuals from loitering in the gaming area of a casino.
● AGA casino companies will communicate the legal age to gamble
through appropriate signage and/or brochures.
● Employees working in relevant areas will receive training in appro-
priate procedures for dealing with unattended children, under-
age gambling, and the purchase and consumption of alcohol and
tobacco by minors.
● If a child appears to be unsupervised or in violation of local
curfews and other laws, security or appropriate personnel will be
contacted and remain with the child while reasonable steps are
taken to locate the parent or responsible adult on property or
by telephone. If efforts are unsuccessful, security personnel will
contact an appropriate third party, such as the police department
or department of youth services, and release the unattended child
to their care.

To serve alcoholic beverages responsibly

● AGA casino companies will observe a responsible beverage service
policy including the following elements:

● Casinos will not knowingly serve alcoholic beverages to a

minor.
192 Corporate social responsibility

● Casinos will not knowingly serve alcoholic beverages to a visibly

intoxicated patron.
● Casinos will make a diligent effort not to permit gaming by a
visibly intoxicated patron.

● AGA casino companies will train appropriate casino employees in

the company’s responsible alcoholic beverage service policy, and
will provide periodic refresher training to those employees.

To advertise responsibly
This Code applies to the advertising and marketing of casino gaming by
AGA member companies. It does not pertain to advertising and market-
ing that is primarily of hotels, restaurants and entertainment that are
often associated with or operated or promoted by casinos. For the pur-
poses of this code, advertising and marketing include radio and television
ads broadcast off the premises, print, direct mail, billboard and Internet
promotions.

● Casino advertising and marketing will:

● Contain a responsible gaming message and/or a toll-free help

line number where practical.
● Reflect generally accepted contemporary standards of good taste.
● Strictly comply with all state and federal standards to make no
false or misleading claims.

● Casino advertising and marketing materials will not:

● Contain cartoon figures, symbols, celebrity/entertainer endorse-

ments and/or language designed to appeal specifically to children
and minors.
● Feature current collegiate athletes.
● Feature anyone who is or appears to be below the legal age to
participate in gaming activity.
● Contain claims or representations that gaming activity will
guarantee an individual’s social, financial or personal success.
● Be placed in media where most of the audience is reasonably
expected to be below the legal age to participate in gaming
activity.
● Imply or suggest any illegal activity of any kind.
● Be placed in media specifically oriented to children and/or
minors.
American Gaming Association and the National Center for Responsible Gaming 193

● Appear adjacent to, or in close proximity to, comics or other

youth features, to the extent controlled by the AGA member.
● Be placed at any venue where most of the audience is normally
expected to be below the legal age to participate in gaming
activity.

Pledge to the Public . . .

To continue funding research

● AGA members will continue to provide funding for the National

Center for Responsible Gaming, which is the leading source of
science-based research and information on gambling and health.
● AGA members will use this research to identify the best practices for
casinos to follow to promote responsible gaming.
● AGA members will continue to develop a dialogue surrounding
scientific research on gambling and health to communicate to and
educate patrons, employees and policy-makers.

To provide oversight and review

● One year following the adoption of this Code of Conduct each AGA
member company will implement the Code and begin conducting
annual reviews of its compliance with this Code. 2

** All aspects of AGA’s Code of Conduct are subject to local, state and federal laws. **
9. Accounting disclosure and human
rights in the oil industry
Matthias Beck and Steven Toms

OVERVIEW

During the past decade, companies operating in environmentally and polit-

ical sensitive areas have placed increasing emphasis on corporate social
responsibility (CSR) and corporate social disclosure (CSD). While there is
clear evidence that the amount of ‘socially’ relevant information reported
within the annual reports of most companies has increased – often in both
absolute and relative terms – it is less apparent why companies provide this
information and, even more so, how differences in their levels of disclosure
should be interpreted. Drawing on concepts of incrementalism and focus-
ing on oil companies that operate in regions which are characterised by
severe human rights abuses, this chapter examines differences in the nature
of CSD reporting among these companies with the CSD of companies
which do not operate in these areas. In analysing this disclosure data, it
is noted that companies with extensive operations in politically sensitive
areas are more likely to focus on wider issues such as environmental and
broader community concerns, which tend to impose relatively few concrete
commitments and restrictions on these companies. By contrast, compa-
nies operating in less-sensitive areas emphasise issues relating employee
welfare, which tend to carry more tangible obligations. These observations
follow a ‘restrictive adaption’ pattern of CSD whereby companies adapt
CSR ends to available means in an incrementalist fashion, making envi-
ronmental and social reporting a tool for the reinforcement of inertia.

BACKGROUND

The past decades have seen a massive rise in the extent to which companies
report on environmental, social and political issues (Toms, 2000, 2002). At
the same time the oil industry has been characterised by significant social
responsibility failures (Woolfson and Beck, 2005a). Although there is no

194
 Accounting disclosure and human rights in the oil industry 195

clear understanding of the drivers of this process, the literature appears to

distinguish two hypotheses, namely that of benign and enlightened capital-
ism and that of malign, or at the least, ineffectual CSR. In the benign view,
firms are essentially enlightened oligarchies, which recognise their social,
political and environmental impact and their associated responsibilities
and make appropriate disclosures. Broadly speaking their CSD is assumed
to arise from an ethical code which is espoused by the senior management
of the firm and is transmitted ‘top down’ as a matter of policy. Applied to
the issue of company operations in areas of human rights abuse, the benign
model would suggest that ethical companies would either avoid operating
in these areas, or alternatively do their utmost to support those working
for them within these areas. In the latter case we would expect CSD
reporting to focus on how the company is coping with these challenges,
and in particular on how the company is seeking to ensure the welfare of
employees and communities under potentially adverse circumstances.
The alternative hypothesis is that firms have no such ethical code and
that managers merely seek out profit opportunities wherever and when-
ever they arise. In so far as companies engage in CSD they would do so
largely in response to market, social and political pressures. According to
this hypothesis, CSDs are likely to reflect differential political, regulatory
and lobbying power in different countries. Where these powers are the
strongest, the firm makes greater CSDs in response, notwithstanding the
objective level of impact in that country. Where powers are weaker, for
example in unstable and underdeveloped countries, managers face less
direct pressure to make CSDs. Actual disclosures in these circumstances
are likely to be adapted to the expectations of the governments and public
where the corporation is domiciled, particularly where political, regulatory
and lobbying systems are well developed.
This negative or malign view of CSD is compatible with notions of
malign incrementalism1 where organisational actors maximise their own
security by ‘limiting considerations of alternative policies to those poli-
cies that differ in relatively small degrees from policies presently in effect’
(Dror, 1964, p. 154; citing Lindblom, 1959, p. 84). According to the malign
version of incrementalism, as elaborated by Dror (1964, 1971), incremen-
talism, which is usually characterised by a high degree of organisational
consent, gives rise to ‘pro-inertia and anti-innovation forces’ (p. 155), which
undermine the possibility of genuine policy reform. Implied in Dror’s view
is that, once organisational inertia has established itself as benefiting key
members of the organisational hierarchy, further ‘restrictive adaption’ of
policy alternatives will ensure that a genuine change in policy direction is
virtually ruled out (see also Weiss and Jordan, 1976; Battle, 2001).
While Dror’s malign version of incrementalism borrows heavily from
196 Corporate social responsibility

Lindblom’s descriptive account of incrementalism, it radically rejects the

positive normative implications which Lindblom’s early work, in par-
ticular, attaches to this type of policy making. Conceptually Lindblom’s
descriptive account of incrementalism can, however, be seen as virtually
independent from the advocacy of ‘muddling through’ which character-
ises much of his early work.2 This applies in particular to Lindblom’s
joint work with Braybrooke (1963). In their book A Strategy of Decision,
Braybrooke and Lindblom (1963) suggested that organisational decision
making can be arrayed according to two axes, where one axis represents
the severity of change and the other the level of understanding which deci-
sion makers bring to a problem.
Braybrooke and Lindblom’s diagram gives rise to four types of deci-
sions: (1) decisions which effect large change and are guided by adequate

High
Understanding

Quadrant 2 Quadrant 1

Some administrative and Revolutionary and utopian

‘technical’ decision making decision making

Analytical method: synoptic Analytical method: none

Incremental Large
Change Change
Quadrant 4

Quadrant 3 Wars, revolutions, crises and

grand opportunities
Incremental politics
Analytical method:
Analytical method: disjointed not formalised or well
incrementalism (among others) understood

Low
Understanding

Source: Braybrooke and Lindblom (1963, p. 78).

Figure 9.1 Braybrooke and Lindblom’s diagram of decision types

 Accounting disclosure and human rights in the oil industry 197

information; (2) decisions that effect small change and are guided by high
understanding; (3) decisions that effect small changes and are guided
by low levels of understanding; and lastly, (4) decisions that effect large
change but are guided by little understanding and hence give rise to blind
or unpredictable resolutions. According to Braybrooke and Lindblom,
type 1 decisions are relatively rare in the normal course of organisational
activity and involve elements of revolutionary and utopion decision
making. Similarly, type 4 decisions are extraordinary in the sense of being
characteristic of wars or crises. By contrast, type 3 decisions which effect
‘small and incremental change and not guided by a high level of under-
standing’ are typical of the ‘day by day’ decision making of politicians
and/or corporate decision makers (p. 78). Specifically, Braybrooke and
Lindblom (1963) state:

These decisions, we now see, are the decisions typical of ordinary political life –
even if they rarely solve problems but merely stave them off or nibble at them,
often making headway but sometime retrogressing. Decisions like these are
made day by day in ordinary political circumstances by congressmen, execu-
tives, administrators, and party leaders. (p. 71)

One of the crucial characteristics of type 3 incremental decision making

for Braybrooke and Lindblom is that it supports consensus and stability,
which they, in a grand leap of faith, appropriately criticised by Dror (1964)
and others, equate with ‘high-quality’ decision making. This leap of faith
is partially underpinned by another equally questionable but conceptually
intriguing process, namely the ‘fundamental dependence of ends on means’
(p. 94) in incremental policy making which is explained as follows:

1. The analyst chooses as relevant objectives only those worth considering in

view of the means actually at hand or likely to become available.
2. He [sic] automatically incorporates consideration of the costliness of
achieving the objective into his marginal comparison, for an examination
of incremental differences in value consequences of various means tells him
what price in terms of value he is obtaining as an increment of another.
3. While he contemplates means, he continues at the same time to contem-
plate objectives, unlike the synoptic analyst who ideally must at some point
stabilise his objectives and then select proper means. (p. 94)

Based on this type of adoption Braybrooke and Lindblom (1963)

further conclude:

Since policy analysis is incremental, exploratory, serial and marked by adjust-

ment of ends to means, it is to be expected that stable long-term aspirations
will not appear as dominant critical values in the eyes of the analyst. The
198 Corporate social responsibility

characteristics of the strategy support and encourage the analyst to identify

situations from which to move away rather than goals toward which to move.
Even short-term goals are defined in terms of reducing some observed ill rather
than in terms of a known objective. (p. 102)

Braybrooke and Lindblom’s notion of incrementalism is closely linked

to the earlier concept of satisficing, according to which decision makers
do not select means to achieve objectives but rather engage in ‘successive
limited comparison’ (see also Simon, 1955). In his early article ‘The science
of “muddling through”’, Lindblom (1959, p. 81) describes successive
limited comparison as follows:

1b. Selection of value goals and empirical analysis of the needed action are not
distinct from one another but are closely intertwined.
2b. Since means and ends are not distinct, means–end analysis is often inap-
propriate and limited.
3b. The test of a ‘good’ policy is typically that various actors find themselves
directly agreeing on a policy (without their agreeing that it is the appropri-
ate means to an agreed objective).
4b. Analysis is drastically limited:
i) Important possible outcomes are neglected.
ii) Important alternative potential policies are neglected.
iii) Important affected values are neglected.
5b. A succession of comparisons greatly reduces or eliminates reliance on
theory.
[Note: bs are in the original]

In addition to being limited in terms of analytical depth and conceptual

breadth, Lindblom (1959) suggested that the successive limited compari-
sons characteristic of incrementalism or ‘restrictive adaption’, are highly
selective in terms of which views they draw. Thus one inherent process
of incrementalism is not only that only a small number of ‘low change’
alternatives are considered, but also that these selections are driven by
powerful interest groups and/or majority coalitions with a view towards
preserving and enhancing their position within the organisational hierar-
chy or broader organisational context.
The last argument in particular can be closely linked to the environ-
ments in which CSD policies are formulated. Like state policy makers
who are aware of which interest groups are powerful and respond to their
needs, corporate decision makers will have an understanding as to the
intended target of their CSD activities. This is suggestive of two further
detailed relationships. First, CSDs, like other accounting disclosures, are
responses to the requirements of shareholders. As a powerful interest
group, shareholders demand, and managers supply, non-financial as well
 Accounting disclosure and human rights in the oil industry 199

as financial information as part of a risk management process designed to

mitigate political risks. Consequently, a second relationship is that CSDs
will be made for the benefit of the domestic population rather than for
the benefit of populations impacted by the firms’ overseas operations. A
corollary is that CSDs inculcate a sense in domestic populations that their
domiciled corporations are more socially responsible than they actually
are,3 in the very sense that incrementalist policy makers purport to engage
in genuine policy reforms when they in fact ‘restrictively adapt’ to exter-
nal needs on the basis of successive limited comparisons of existing policy
options.

PRIOR STUDIES OF THE DETERMINANTS OF CSD

The purpose of the chapter is to investigate differences in the levels and

nature of CSD among oil companies operating in areas of human rights
abuse, in line with the benign hypothesis and the alternative hypothesis of
‘restrictive adaption’ as introduced above. There is currently little recent
evidence in favour of either hypothesis or indeed on the relationship
between international activity and CSD in general.
Legitimacy theory is founded on the notion of a social contract (Dierkes
and Antal, 1985; Gray et al., 1995) and the dimensions of such a contract
potentially increase as the firm diversifies its activities internationally.
Accordingly, CSD is often seen as a response to threats to the organisa-
tion’s legitimacy (Deegan, 2000; Deegan et al., 2002). CSDs may also be
seen as a tool for establishing, protecting or repairing the legitimacy of the
organisation in that they may influence public opinion and public policy
(Patten, 1991; Cho and Patten, 2007) and reduce political, social and eco-
nomic exposure and pressure (Deegan and Rankin, 1997). Additionally,
legitimation through CSD may play a part in influencing the policy
process by shaping social and environmental standards, as suggested by
Patten (1992, p. 472).
Conceptually, legitimacy theory is nested within the benign hypothesis,
as managers seek to fulfil their side of the social contract. The same might
be said of ethical perspective stakeholder theory, in which all stakeholders
(both primary and secondary) have a right to be provided with informa-
tion about how the organisation is impacting on them, through pollution,
community engagement and so on (Deegan, 2000). For Lindblom (1994),
the purpose is to influence ‘relevant publics’. If a multinational corpora-
tion begins to exploit the natural environment of an underdeveloped
country, it follows that the members of that society become a ‘relevant
public’. However, it seems equally likely that the firm will not seek to
200 Corporate social responsibility

manage its relationship with this ‘public’ if it has underdeveloped politi-

cal organisation, regulation and lobbying institutions. Conceptually, this
is an unsatisfactory model as it leaves it unclear whether a company’s
CSR activities are guided primarily by external pressures or by internal
managerial and/or economic imperatives.
In this sense it can be argued that the concept of ‘malign incremental-
ism’, as discussed above, offers the potential for a theoretically more rigor-
ous analysis of CSR, as it views CSR and CSD related decisions as being
driven by managerial agents who ‘restrictively adapt’ to external demands.
In other words, by assuming that managers opt for incrementalism when
making decisions that effect small changes and are guided by low levels of
understanding, we are able to formulate expectations with regard to the
nature of the decision-making process.
As previously stated, the purpose of the chapter is to examine the
empirical relationship between the moral attitudes of oil company execu-
tives, proxied by their willingness to operate in countries that engage
in human rights abuses4 and the disclosure of social and environmental
information in their annual reports. These disclosures are differentiated
principally by their reference to environmental and employment issues.
Because the environment is a less tangible stakeholder group than the
firm’s employees, environmental disclosures are assumed to be at a higher
level of generality than employee disclosures since they can be less easily
identified with a contractual stakeholder and are less easily auditable.
More unscrupulously managed firms might therefore be more likely to
engage in environmental disclosure than employee disclosure. The major
advantage of supposing such an empirical relationship is that it avoids the
tautological reasoning of legitimacy theory discussed above by using a
direct empirical proxy for managerial moral motive.
Whereas there is a large literature on corporate social disclosure (for
recent reviews, see Newson and Deegan, 2002; Brown and Fraser, 2006),
and its determinants, previous empirical studies have not examined this
supposed relationship. As these reviews make clear, there have been a
large number of single-country studies and similar case studies dealing
with the environment disclosures as a focus. There have been similar,
if somewhat fewer, studies that have considered employment-related
disclosures. Fewer still have considered human rights as a focus for
corporate concern, and make only passing reference to the attitudes of
governments and organisations to human rights (for example, Gray et
al., 2006). None has attempted to measure concern for human rights
using a direct proxy, even though corporate immorality in this respect
is frequently alleged where firms are seen to behave badly in particular
circumstances (Aguilera et al., 2007). No previous study has attempted
 Accounting disclosure and human rights in the oil industry 201

to link environmental and employee disclosures and concern or lack of

concern for human rights.
All three elements are particularly important in the context of the oil
industry. Companies in the industry have been associated with human
rights abuses in particular countries, a leading case being Shell’s treatment
of the Ogoni people of Nigeria (Wheeler et al., 2002). The impact of cor-
porate activity on the environment is at its most obvious and potentially
most damaging in the case of oil. Moreover, in terms of employment strat-
egy, oil firms typically rely on highly skilled and in many cases technically
proficient workers, often unionised, from the country of domicile. Any
study of CSD in the oil industry therefore should be concerned with these
three elements at least to some extent.
Furthermore, the oil industry, perhaps more than any other, is truly
international in its scope. The international dimension is an important
element in the ensuing test of disclosure determinants. As a consequence
the study contrasts with a prior literature which although international in
its scope is usually country specific in its focus (for example, Deegan and
Gordon, 1996; Deegan et al., 2002; O’Dwyer, 2002). The country-specific
focus characterises prior stock market-orientated studies (Epstein and
Freedman, 1994) and those testing legitimacy theory which relate CSD
to the social context in which firms operate (Deegan, 2000; Deegan et al.,
2002).

METHODOLOGY

The sample of this study comprises 38 companies from the global oil
and gas industries, respectively. The dataset is based on year 2000 and
the sample of oil and gas production companies was obtained from a
population of 1,841 oil and gas production companies (as listed on the
Wood Mackenzie database). Once firms which did not have stock market
quotations or had missing data were eliminated, this left a sample of 38
companies. Generally speaking, excluded companies were smaller and less
multinational in scope, which also reduces their potential relevance to the
study. The information available for the remaining companies allowed the
quantification of the number of countries where a company has oil and gas
reserves and the commercial value of these reserves.

Variables

The following analysis is based on CSD and other company data for all of
these 38 oil and gas companies. For the purpose of this analysis, CSD data
202 Corporate social responsibility

as an empirical variable is defined as all the information produced by cor-

porate management in the annual report regarding the interaction between
the organisation and its physical and social environment, including issues
such as those relating to human resources, community involvement and
the natural environment. This study adopts the annual reports as the
source of CSD data. The annual report is a statutory, accessible corporate
document which speaks about the organisation as a whole, is widely used
in prior research (Wiseman, 1982, p. 55; Deegan and Rankin, 1997; Gray
et al., 2001) and is viewed as credible by user groups (Tilt, 1994).
Content analysis was used to measure CSD as it had been widely
adopted in previous social responsibility disclosure studies (Hackston
and Milne, 1996). To facilitate the completion of the content analysis, an
interrogation instrument, checklist, and decision rules were developed.
The sentence was used as the unit of coding. Reliability was assessed using
two rounds of pre-testing by three coders. The two pre-testing rounds
produced increasingly convergent views as to what constituted a CSD sen-
tence, and led to the formulation of several decision rules and amendments
to the initial checklist.
The key measure for quantifying CSD is the total number of sentences
in an annual report pertaining to these issues. Crucially the CSD sentence
count has been further categorised into five subgroups, namely ‘envi-
ronmental’ [env], ‘community related’ [com], ‘employee health related’
[emph], ‘other employee welfare related’ [empo] and ‘general’ [gen].
Companies were categorised according to whether they operated in an
area of human rights abuse on the basis of the Amnesty International list
of the ‘top worst offenders’ in 1999.5 This list included the following coun-
tries: Democratic Republic of Congo, Rwanda, Burundi, Algeria, Sierra
Leone, Egypt, North Korea, Sudan, Indonesia, Yugoslavia, Pakistan,
China, Libya, Burma, Iraq, Afghanistan, Iran, Yemen, Chad and Republic
of Congo (formerly People’s Republic of Congo). Of these 20 countries a
total of 13 could be considered international oil producers: Republic of
Congo (formerly People’s Republic of Congo), Algeria, Egypt, Sudan,
Indonesia, Pakistan, China, Libya, Burma, Iraq, Iran, Yemen and Chad.
Assessing the involvement of individual companies in these coun-
tries involved a detailed process where information from country regu-
latory agencies, multinational bodies, non-governmental organisations
and company data was accessed. For the purpose of this analysis it was
assumed that any operation, including small-scale drilling or explora-
tion activities should be counted as ‘country involvement’ on account of
the fact that, in political risky regions, such activities have the potential
of attracting media attention. Notwithstanding the careful investigation
of this issue, there is the possibility that some company involvements
 Accounting disclosure and human rights in the oil industry 203

may have been overlooked, if only on account of less than transparent

subcontracting arrangements adopted by some companies.

ANALYSIS
Based on the previous country list a total of 26 companies could be identi-
fied as having operated in one or several of the countries identified as being
areas of human rights abuse, while 12 companies had not been involved
in any of the listed countries. The average sales revenue of companies
operating in areas of human rights abuse vastly exceeded that of the ‘non-
involved’ companies (see Figure 9.2).
This pattern was mirrored by Figure 9.3 which showed average sales
volumes to rise for companies which were involved in additional countries
which had been identified as areas of human rights abuse.
This result is not surprising, since we would expect larger companies to
be more willing to risk involvement in such countries on account of such
factors as potential political instability, risk of civil unrest or expropria-
tion and/or their lesser vulnerability to adverse media reactions. Also, it is
notable that the study sample includes a number of small companies which
continue to limit, or had at the time, limited themselves to domestic opera-
tions. This includes a small number of Canadian, Australian and New
Zealand companies which were involved solely in domestic oil and gas
production. One exception to this was the Venezuelan state oil company
PDVSA which, although having a sales volume of 53,234 million US
dollars, was not involved in any activities outside Venezuela.
In order to facilitate the successive analysis of CSD data, these

35,000,000
29,680,397
30,000,000
25,000,000
20,000,000
15,000,000
10,000,000
6,421,339
5,000,000
0
Not involved Involved

Figure 9.2 Average sales (in thousand USD) by involvement in areas of

severe human rights abuse
204 Corporate social responsibility

140,000,000
121,256,253 119,511,000
120,000,000

100,000,000
82,866,500
80,000,000

60,000,000

40,000,000 34,343,027
28,378,000
21,814,805
20,000,000
6,421,339 4,116,575 2,970,397
0
None 1 2 3 4 5 6 7 8

Figure 9.3 Average sales (in thousand USD) by involvement in areas of

severe human rights abuse (number of countries)

70,000,000
59,886,915
60,000,000

50,000,000

40,000,000

30,000,000

20,000,000

10,000,000 6,421,339
3,789,096
0
None 1–2 3+

Figure 9.4 Average sales (in thousand USD) by involvement in areas of

severe human rights abuse (groups of countries)

companies were grouped into three categories including companies which

(i) had not been involved in any of the listed countries of human rights
abuses (12 companies, or 11 when excluding PDVSA); (ii) had been
involved in one or two of the listed countries (14 companies); and (iii) had
been involved in more than three of the listed countries (12 companies).
Due to the anomalous characteristics of PDVSA as a large company with
no external involvement, this grouping resulted in a situation where the
average sales volume of the first, or ‘non-involved’, group exceeded that
of the second group of companies involved in listed countries (see Figure
9.4).
In order to avoid potentially distorting effects arising from the inclu-
sion of PDVSA, the company was excluded from the subsequent analysis,
 Accounting disclosure and human rights in the oil industry 205

70,000,000
59,886,915
60,000,000

50,000,000

40,000,000

30,000,000

20,000,000

10,000,000
2,165,643 3,789,096
0
None 1–2 3+

Figure 9.5 Average sales (in thousand USD) by involvement in areas of

severe human rights abuse (excluding outlier)

which drastically reduced the average sales revenue of the ‘non-involved’

group (see Figure 9.5).
As a next step in the analysis, the level of CSD reporting across differ-
ent subcategories was assessed. This included the above-listed subgroup
of ‘environmental’ [env], ‘community related’ [com], ‘employee health
related’ [emph], ‘other employee welfare related’ [empo] and ‘general’
[gen] disclosure. Overall there was a clear pattern where across almost all
subcategories the absolute level of disclosure increased with the level of
involvement in areas of abuse. This was particularly pronounced for the
third group of companies (involved in 3+ countries) which averaged more
than twice the absolute level of disclosure for the ‘sum’ subcategory as
well as ‘environment’, ‘community’ and ‘general’ subcategories (see Figure
9.6). However, this pattern reversed for ‘employee health’ subcategory,
where average total disclosure for the ‘non-involved’ group exceeded that
of the other groups.
In order to reduce potential distortions due to larger companies con-
ducting more extensive CSD, this pattern was investigated further by
calculating subcategory disclosure levels as a percentage of total disclo-
sure activity (Figure 2.7a–c). This analysis highlighted several interest-
ing patterns. Thus, the CSD reporting of the ‘non-involved’ companies
was dominated by ‘other employee welfare’ issues (53 per cent of total
CSD), followed by ‘environmental’, ‘community’ and ‘general’ CSD. This
pattern changed in the case of the ‘minor-involved’ companies (1–2 coun-
tries with human rights abuses), where environmental CSD was followed
by ‘other employee welfare’, ‘general’, ‘employee health’ and ‘community’
CSD. Interestingly, even when both categories of employee-related CSD
206 Corporate social responsibility

160
no ctry
139
140 1–2 ctries
3+ ctries
120

100

80 70
59 60
60

40 30
19 21 23 19
17 16 16
20 10
4 5 7 4
2
0
sum env com emph empo gen

Figure 9.6 Amount of CSD reporting by topic and by involvement in areas

of severe human rights abuse (excluding outlier)

(employee welfare and health) were added together for this group, this still
amounted to far less disclosure than the CSD for employee welfare of the
‘non-involved’ group alone. Lastly for the ‘major-involved’ (3+ countries
listed as human rights abusers) ‘environmental’ CSD accounted for almost
half of total reporting, followed by the ‘other employee welfare’, ‘general’,
‘community’ and ‘employee health’ subcategories.
Taken together, this analysis suggests that companies which operate
in several (3+) countries which are listed as suffering from human rights
abuse, gear their CSD towards an emphasis of broad social issues such as
environmental responsibility and general statements of objectives towards
societies and communities. At the same time, their CSD places compara-
tively less emphasis on more tangible issues such as employee welfare and
to some degree employee health (see comparison with 1–2 group).
While this finding is, needless to say, open to different interpretations,
there is a strong possibility that these differences in CSD mirror a process of
‘restrictive adaption’ to achievable goals and ‘relevant’ demands, and of a
‘successive limited comparison’ of achievable policy goals. This is evidenced
in particular by the focus of involved companies on broad environmental,
social and general aspects of CSD and, perhaps even more so, the discern-
ibly narrower focus of non-involved companies on employee welfare.

CASE STUDIES

To illustrate the previous descriptive analysis, this section briefly exam-

ines how two companies of similar size, but with differing involvement in
 Accounting disclosure and human rights in the oil industry 207

(a) Companies which are not involved in areas of severe human rights abuse
general
6%
env
32%

empo
52% com
7%
emph
3%

(b) Companies which are involved in one or two countries where there is
(b) severe human rights abuse
general
16%
env
36%

empo
27%
com
emph 9%
12%

(c) Companies which are involved in three or more countries where there
(c) is severe human rights abuse
general
13%

empo
16% env
48%
emph
11%
com
12%

Figure 9.7 Share of CSD reporting by topic for different companies by

involvement in areas of severe human rights abuse (excluding
outlier)
208 Corporate social responsibility

areas of human rights abuse have approached their CSD reporting. These
companies are Forest Oil which predominantly operates6 in the US and
Canada and Santos Oil which operates in several Australasian countries.
Forest Oil is a US oil company with total sales of 913 million US dollars
in 2000 (the year for which the disclosure data was collected), which
has focused its business on building reserves in the US and expanding
in Canada. Following an expansion business operation in the southern
US and the Gulf of Mexico, the company acquired large Canadian hold-
ings in the mid-1990s. Partially due to its extensive reserves in Canada,
the company had, by 2000, not acquired operations outside the US and
Canada and its business continues to focus on these areas. The annual
report of Forest for the year 2000 shows a strong emphasis on local
charitable engagements and employee welfare with a lesser focus on
environmental issues.7 Interestingly there are extensive references to the
company’s charitable activities and involvements, with a particular focus
on employee activities:

Forest Oil Corporation has a long history of actively supporting our associates in
their chosen community causes and volunteerism. With the improved econom-
ics in our business, and the nation’s improved economic outlook, we believe it is
more important than ever to lend assistance to those in need . . . . For the third
consecutive year our employees availed themselves of a company-sponsored
workday to participate in Habitat for Humanity’s homebuilding project in the
Denver area . . . . Employee volunteers comprise our corporate contributions
committee so that Forest Oil’s charitable grants are directed primarily to those
organizations where our employees devote their time and resources. In 2000,
these included our annual Christmas Project in which Forest Denver employees
adopted an inner city family of seven through the Bridge Project and a Russian
immigrant family of eight through Ecumenical Refugee Services . . . . Among
other employee-sponsored outreach efforts were: homeless shelters; food banks;
cancer, AIDS and hospice agencies; senior citizens and disabled outreach; events
supporting Special Olympics, Shriners and the Salvation Army; and animal
shelters and humane societies in Colorado. (Annual Report, 2000, p. 26)

This detailed description of Forest Oil’s charitable involvements con-

trasts with the relative brevity of the annual report’s statements on envi-
ronmental issues. Characteristically for this report, these statements are
linked to issues of community involvement with the report stating:

Proactive citizenship is woven through the fabric of Forest Oil at all levels.
From our activities in remote locations around the world to the communities
where we live and work, we do not waver in our focus on safety and responsi-
bility. We are dedicated to the protection of the environment and are striving
to increase America’s supply of clean-burning natural gas while minimizing the
impact of our operation and even improving the lands upon which we work.
 Accounting disclosure and human rights in the oil industry 209

The people of Forest Oil Corporation, wherever we conduct the business,

take great pride in our culture of involvement and leadership in our communi-
ties. (Ibid., p. 26)

With operations in Alaska, Forest clearly does operate in an environ-

mentally sensitive environment. However, the company’s CSD appears to
prioritise community relations over environmental policy per se. This can
be interpreted as a form of incrementalism in the sense that greater focus
is placed on the achievable goal of positive community relations than the
avoidance or minimisation of potential environmental harm. With regard
to human rights, Forest’s position as a company operating almost exclu-
sively in North America reduces the need for these issues to be discussed
and, as far as relationships with native populations are concerned, this is
again in an incrementalist fashion subsumed under the broader heading of
community relations.
Santos is an Australian oil and gas company whose sales amounted to
1,500 million US dollars in 2000. Founded in 1954, Santos has been ini-
tially active in South Australia Northern Territory Oil Search. Apart from
operating in the Timor Sea and Carnarvon Basin in Western Australia,
Santos acquired significant holdings in Indonesia in the mid-1990s.
Santos’s 2000 annual report makes no mention of human rights issues
arising from its involvement in Indonesia.8 The balance of the annual
report, which the company website advertises as having won the ‘Bronze
Award for distinguished achievement in Annual reporting of the
Australasian Reporting Awards’ emphasises the company’s commitment
to environmental protection. Additionally there is a relatively lengthy
section on the company’s accomplishments in terms of occupational
health and safety. Both sections focus on a description of organisational
arrangements and/or targets. Regarding occupational health and safety
the report states:

Santos investigates and reports all accidents, near misses and hazards. The
measure of safety performance used is the Total Recordable Case Frequency
rate (TRCF) which is defined as the number of Recordable Cases (Medical
Treatment and Lost Time Injuries) per million hours worked by Santos
employees and contractors. . . . The Company strives for the highest standard
of occupational health and safety (OH&S) and is fully committed to a work
environment free of injuries. . . . Of particular emphasis for safety programs has
been the intent that contractor safety performance should match that of Santos’
employees. Many contractors now achieve safety performance matching that of
Santos employees. (Annual Report, 2000, p. 22)

In terms of specificity, Santos’s statement of safety targets probably

exceeds what comparable companies would have reported at the time.
210 Corporate social responsibility

However, this positive aspect of this part of the report must be weighted
against the relatively vague statements regarding the safety performance
of subcontractors. Previous analysis of health and safety in oil opera-
tions have highlighted that subcontracting is often the source of major
safety failures (Woolfson et al., 1996) and it is obvious that these prob-
lems could have been particularly pressing in the areas in which Santos
operated.
With regard to the bulk of Santos’s CSD, this focuses predictably on
statements with regard to the company’s commitment to environmental
protection, which emphasise the company’s organisational arrangements,
policies and procedures rather than specific targets:

The company has a long history of conducting its activities in a way that
avoids and minimises potential impacts on the environment. Santos’ first envi-
ronmental professional was employed in 1980. Since that time, the Company
has established a core team of dedicated environmental advisors as well as
incorporating environment into the line management function. As with safety,
the environment is everyone’s responsibility – be they employee or contractor,
operator or manager . . . . Santos has achieved high standards of environmental
performance – illustrated by the many awards it has received. Relationships
with regulatory bodies are robust and positive and focussed on an evolving
process of co-regulation . . . . During 2000 Santos was not fined or prosecuted,
nor did it receive any notices of non-compliance. This process of continual
improvement underlies the Santos Environmental Management System, which
in itself is subject to constant evolution, amendment and change – reflecting
both external and in-company changes over time. . . . Management of environ-
mental risk is managed through: comprehensive environmental management
systems; environmental committees at Board and management levels; the reten-
tion of specialist environmental staff and advisers; regular internal and external
environmental audits; and imposing environmental care as a line management
responsibility. (Annual Report, 2000 p. 22)

Overall, Santos’s annual report for the year 2000 lends strong support
to the previously discussed hypothesis that companies with involvement
in areas of human rights abuse tend to emphasise less auditable areas of
corporate activity in their CSD. As a company operating in Indonesia
at the time and operating in conjunction with Indonesian subcontrac-
tors, it can be assumed that the company faced significant issues in
relation to employee welfare and community relations. However, its
CSD places a strong emphasis on the company’s adoption of an envi-
ronmental management system, which, in terms of incremental decision
making, can be considered as an incidence of restrictive goal selec-
tion where achievable policy goals are given priority over potentially
more pressing issues, which might be more difficult and more resource
consuming to address.
 Accounting disclosure and human rights in the oil industry 211

CONCLUSION

This chapter has drawn on concepts of incrementalism in order to investi-

gate differences in CSD among oil companies that operate in regions which
are characterised by severe human rights abuses, and companies which do
not. One of the main expectations of this analysis was that, by acting as
incrementalist or ‘restrictive adaptors’, companies would adapt CSD ends
to available means. Expressly it was assumed that companies which oper-
ated in areas of human rights abuse would avoid addressing the specific
problems arising from these engagements and focus their CSD on less tan-
gible issues – as addressing human rights issues would require major, and
potentially costly, policy changes. Meanwhile, it was assumed that ‘non-
involved’ companies would focus more concretely on achievable targets
with regard to employee welfare or community relations. Underlying
these hypotheses was the assumption that, because the environment is a
less tangible stakeholder group than the firm’s employees, environmental
disclosures were at a higher level of generality than employee disclosures
since they can be less easily identified with a contractual stakeholder and
are less easily auditable.
These assumptions gave rise to two specific hypotheses: namely, that
companies with extensive operations in politically sensitive areas would
be expected to be more likely to focus on wider issues such as environ-
mental and broader community concerns, which tend to impose rela-
tively few concrete commitments and restrictions on these companies. By
contrast, companies operating in less-sensitive areas were expected to
emphasise issues relating to employee welfare, which tend to carry more
tangible obligations. Underlying these hypotheses was the assumption
that, because the environment is a less tangible stakeholder group than
the firm’s employees, environmental disclosures were at a higher level of
generality than employee disclosures since they can be less easily identified
with a contractual stakeholder and are less easily auditable.
The chapter found strong quantitative and qualitative support for this
hypothesis. On the quantitative level, it was found that companies which
operated in several (3+) countries which were listed as suffering human
rights abuse, geared a proportionately greater part of their CSD towards
an emphasis on broad social issues such as environmental responsibility
and general statements of objectives towards societies and communi-
ties, while placing comparatively less emphasis on more tangible issues
such as employee welfare and to some degree employee health issues.
Specifically, for the ‘major-involved’ (3+ countries listed as human rights
abusers) ‘environmental’ CSD accounted for almost half of total report-
ing, followed by the ‘other employee welfare’, ‘general’, ‘community’ and
212 Corporate social responsibility

‘employee health’ subcategories. This contrasted dramatically with the

‘non-involved’ group, whose CSD was dominated by the ‘other employee
welfare’ category, and which provided more CSD for ‘other employee
welfare’, than the ‘major-involved’ group did for ‘other employee welfare’
and ‘employee health’ together.
On the qualitative level, the year 2000 annual reports for the companies
Forest Oil, which operated exclusively in North America, and Santos,
which operated inter alia in Indonesia, provided evidence of the tendency
of annual reports of ‘involved’ and ‘non-involved’ groups to focus on
different areas of corporate activity. In line with the previously discussed
expectations, Forest’s report focused on charitable and employee welfare-
related activities, whereas Santos emphasised the commitment of the
company to less auditable environmental goals.
Taken together the quantitative and qualitative analysis of this chapter
lends strong support to the applicability of established theories of ‘malign
incrementalism’ and ‘restrictive adaption’ to the context of CSD and
CSR.

KEY LEARNING POINTS

1. This chapter started out by noting that the oil industry is characterised
by significant CSR challenges which partially arise from the fact that
these companies operate in regions where severe human rights abuses
take place.
2. This chapter contrasted alternative views of CSR which we described
as being associated with a benign or a malign view of the corporation.
The benign view assumes that companies engage in CSD because they
follow a genuine ethical code. The malign view assumes that compa-
nies are basically unethical and engage in CSD only when it benefits
their bottom line.
3. In expanding the malign view, we argued that the behaviour of some
companies was characterised by a form of ‘malign incrementalism’
where they chose their interventions by adapting to external demands
in a minimalist fashion without engaging in genuine reform.
4. In order to test the hypothesis that CSD followed a pattern of ‘malign
incrementalism’ we stated that we would expect companies which
operated in regions which were characterised by severe human rights
abuses to be less specific in their CSD than companies that did not.
5. This comparison showed that companies which operated in three or
more countries of severe human rights abuse geared a proportionately
greater part of their CSD towards an emphasis on broad social issues
 Accounting disclosure and human rights in the oil industry 213

such as environmental responsibility and general statements of objec-

tives towards societies and communities, while placing comparatively
less emphasis on more tangible issues such as employee welfare and to
some degree employee health issues.
6. In the qualitative section we discussed the reports of two companies,
one of which operated in areas of human rights abuse while the other
did not. Again we found a greater proclivity for the first company
to give general CSD information in its annual report than for the
second.
7. The chapter concluded that the amount of CSD information a
company provided was not necessarily a measure of how ethically
engaged it was. This was the case because companies which operated
in problematic areas often used general CSD information to deflect
attention from the challenges they faced.

DISCUSSION QUESTIONS

1. Why does the oil industry face specific CSR challenges?

2. What is the malign view of CSD?
3. What is ‘malign incrementalism’?
4. Why is legitimacy theory difficult to test?
5. How can companies create diversions from ethical challenges?
6. Under which circumstances would CSD be a good measure of a
company’s ethical engagement?

NOTES

1. While not specifically describing incrementalism as ‘malign’, Dror’s (1964) criticism of

Lindblom describes incrementalism as a source of dysfunctional policy making.
2. For an overview of Charles Lindblom’s works on policy making see, for example,
Anderson (1978).
3. This aspect of the asymmetric response hypothesis is similar to the ‘Maginot’ hypothesis
(Glasbeek, 1988; Woolfson and Beck, 2005b), where, like the French fortifications of
1940, CSDs create a false sense of security.
4. It should be noted that the proxy only works in one direction so that firms that do
operate in countries with human rights abuses are deemed to be immorally managed,
whereas it is possible that firms which do not operate in such environments are also
immorally managed but lack the opportunities to make such investments.
5. Accessed from www.guardian.co.uk/world/1999/oct/24/humanrights.theobserver2 in
March 2008.
6. Forest’s 2000 annual report (see below) notes a recent project in South Africa as the only
involvement outside North America.
7. Accessed from www.forestoil.com/downloads.2000_annual_report.pdf in March 2008.
8. Accessed from www.santos.com/library/annual_report_2000.pdf in March 2008.
214 Corporate social responsibility

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10. Does the adoption of codes of
conduct marginalize labor unions?
The case of Turkey’s garment
industry
Melsa Ararat and Mahmut Bayazıt

It is much easier . . . to be benevolent than it is to share power.

(Bowen, cited in Selekman, 1958)

INTRODUCTION

Since the early 1990s, outsourcing labor-intensive production to low-cost

countries has become a strategy widely used by transnational retail and
branded goods companies in response to competitive pressures, while com-
petition between suppliers has created a downward pressure on already
inferior working conditions in those countries. The protection of workers’
rights has meanwhile suffered a setback worldwide with the diminishing
power of unions. As a result, the ‘labor problem’ and the issue of social
standards at the workplace have taken center stage in the corporate social
responsibility (CSR) discourse (see O’Rourke, 2003; Sethi, 2003).
Two strategies have been developed in response to public concerns, one
being international systems of regulation such as the International Labor
Organization (ILO) conventions. The second strategy involves the self-
regulation of firms across their supply chains through ‘voluntary’ codes of
conduct (CoC). These CoC are proposed as instruments of CSR.
In this chapter we try to answer the following question: does the adop-
tion of CoC cause the marginalization of the role that unions play in a
developing country context? We define marginalization in terms of both
decreasing perceived utility of unions as well as scope and depth of issues
that they can influence.1
In the first section we provide a background of the roles of unions and
CoC. In the second section we present the analytical framework we use
for our inquiry. The third section presents the case study, starting with a

216
 Does the adoption of codes of conduct marginalize labor unions? 217

review of the industry, followed by an overview of the Social Standards

Round Table (Round Table) – a multi-stakeholder European initiative
aimed at developing institutional support to implementation of a proprie-
tary CoC. We continue by analyzing the case based on observations of the
Round Table, semi-structured interviews and archival data. The chapter
concludes by arguing that: (i) CoC may become a tool allowing employers
to decrease the utility of trade unions in the eyes of their workers, creat-
ing further challenges for organizing activities, and (ii) CoC may shift the
balance of power to the buyer–supplier networks in setting and enforcing
social standards, further marginalizing the scope and depth of issues that
unions can influence. On the other hand, we also argue that CoC, when
acknowledged, supported and monitored by a broad set of stakeholders,
have the potential to set the agenda on social dialog – or lack of it – and
the underlying structural issues.

THE ROLE OF UNIONS AND THE VOLUNTARY

CODES OF CONDUCT

Role of Unions

Despite wide variations in industrial relations systems across the world, the
underlying functions of unions, wherever they exist, are the same. First,
unions are needed to rebalance the power in relation to employers or even
tilt it in favor of the workers. Second, workers need protection from poor
management and the ability to voice their true preferences without the fear
of being fired. These two basic functions have been referred to, respectively,
as the ‘monopoly face’ and the ‘collective voice face’ of unions (Freeman
and Medoff, 1984). In the former, unions are basically viewed as rent
extractors whereas in the latter they are regarded as rent creators (Aidt and
Sena, 2005).2 Although some economists still view unions mainly as rent
extractors, that is, institutions using their monopoly power to raise wages
over competitive levels, there is increasing consensus in the literature that
rent creation, that is, seeking wage increases through contributing to higher
productivity and efficiency, is more likely than rent extraction in competi-
tive markets and in cooperative industrial relations climates (Freeman and
Medoff, 1984; Aidt and Sena, 2005). Unions may also have a positive
effect on labor productivity by raising wages and obliging the firm to intro-
duce productivity-enhancing technology (Singh and Zammit, 2004). Others
suggest that the costs and benefits of unions and collective bargaining
depend largely upon the economic, institutional and political environment
in which unions and employers interact (Aidt and Tzannatos, 2002).
218 Corporate social responsibility

At a higher level of analysis, unions can be considered a political force

and a party representing workers’ collective voice in social dialog in the
larger society. As mobilizers of the working class, when unions have
political power and connections to other civic organizations in the society,
they play a critical role in making government more transparent, more
effective, and more responsible to its citizens (Lee, 2007).3
Despite possible productivity and governance benefits offered by unions,
union membership has been in decline around the world, especially in the
private sector, since the 1980s4 due to fundamental changes in attitudes
and institutions associated with increased economic competition and the
new managerialism with its rhetoric of ‘human resource development’.
In the less developed countries, unionization is also undermined by
International Monetary Fund (IMF) agreements and debt crises (Martin
and Brady, 2007). In addition to these macroeconomic effects, the incom-
pleteness of industrial relations systems in these countries as indicated by
restrictions on freedom of association, stringent registration requirements,
political interference and acts of antiunion discrimination, are significant
predicaments for unionization (Aidt and Tzannatos, 2002).
Responding to the erosion of union power, scholars, labor advocates,
non-governmental organizations (NGOs), and community groups have
sought to develop alternative or complementary ways of representing
workers’ interests. Although it is too early to reach a final verdict, alterna-
tive institutions which emerged in the US such as human rights activists,
living-wage campaigns, legal service centers, and Working Today5 seem to
be limited in their impacts compared to workplace unions (Freeman et al.,
2005). Even if they were effective substitutes for unions, these emerging
labor market institutions are yet to emerge in developing societies.

Voluntary Codes of Conduct

Voluntary CoC have been proposed as an institution which complements

the role of unions. Since their inception, CoC have raised much contro-
versy. Advocates of CoC argue that these private initiatives are more flex-
ible, democratic, and effective than traditional labor regulation in the light
of the shift of power from central state to transnational firms (Arthurs,
1996). Some authors suggest that firm-level incentives could work, but
only if they are supported by a global infrastructure (Fung et al., 2001) and
based on internationally certifiable standards (Christmann and Taylor,
2006). Opponents such as Murray (2004), on the other hand, posit that
the focus on branded goods obscures the issues related to the majority of
workers who produce for local markets or produce non-branded goods.
A fundamental opposition to self-regulatory systems is related to their
 Does the adoption of codes of conduct marginalize labor unions? 219

effect on the power balance between corporations and workers. Private

regulations may challenge the legitimacy of state regulation or ‘crowd out’
the role of unions (Justice, 2001) since even if they secure worker protec-
tion they do so by increasing the scope of management power (Blackett,
2001). Furthermore, the replacement of union power by a privatized
system may motivate companies to do only the minimum required to
avoid bad publicity (Moberg, 2001).
Despite the controversies, the issuance of global CoC has been a growing
trend over the last 25 years. Originally quite diverse, the CoC have been
converging around the issues covered by the ILO Core Conventions.6 A
review of surveys, however, establishes that many CoC deal selectively
with the Core Conventions, with freedom of association and wages
continuing to be ignored (O’Rourke, 2003; Bethoux et al., 2007).
Unions have long been aware that the proliferation of CoC poses chal-
lenges for themselves. They suspect that CoC may be used as a substitute
for collective bargaining, eroding the legal basis for workers’ rights.
The International Confederation of Free Trade Unions (ICFTU) and
International Trade Secretaries (ITS) recommend that all CoC related to
labor practice should be ‘negotiated’ between the company and the appro-
priate trade union (ICFTU–ITS, 2000). Similar concerns have been raised
by scholars (Engels, 2000; Compa, 2001).
Unions in general are reported to be critical of CSR branded initiatives
such as unilaterally adopted CoC; however, their actual response varies
depending on the context. Unions in European countries with strong cor-
poratist traditions (for example, in Germany) try to be in the driving seat.
On the other hand, unions in the UK and France, possibly due to their
weaker position with regard to influencing the agenda, see CSR as a threat
(Preuss et al., 2006). In general, European unions express unanimous criti-
cism of CSR perspectives which frame CSR as a ‘voluntary’ concept that
could potentially replace legally enforced obligations, and transfer yet
more power and discretion to corporations, negatively affecting the role
that the unions play.

FRAMEWORK OF THE ANALYSIS

In response to stakeholders’ skepticism towards emphasis on voluntar-

ism related to the notion of CSR, the European Commission in its Green
Paper (2001, p. 7) argued:

Corporate social responsibility should nevertheless not be seen as a substitute

to regulation or legislation concerning social rights . . . In countries where such
220 Corporate social responsibility

regulations do not exist, efforts should focus on putting the proper regulatory
or legislative framework in place in order to define a level playing field on the
basis of which socially responsible practices can be developed.

Given this argument, it is important to understand what happens to

unions and social dialog when CoC are introduced into a developing
country where workers and their unions have a weak standing in society
both legally and socially. We argue that four issues need to be consid-
ered to better understand the effects of CoC for industrial relations in
developing countries:

1. the nature of CoC as a self-regulatory tool;

2. strategies that organizations use against institutional pressures;
3. the nature of the institutional environment and incentives; and
4. differences in cultural values between transnational companies and
their suppliers.

CoC as Instruments of Non-governmental Regulation

The literature on non-governmental regulation explains it as a response to

two connected developments: weakening of governments – and resulting
failures of state bureaucracies – and the growing power of transnational
firms (Haufler, 2001). It is suggested that transnational firms can promote
ethical business practices in developing countries through use of CoC
(Beschorner and Müller, 2007). Consequently CoC may have a diffusing
effect by setting a normative framework for labor standards. A number
of criteria are proposed (O’Rourke, 2003) to evaluate the effectiveness of
non-governmental regulatory systems:

1. Legitimacy – are key stakeholders involved in all stages of standard

setting, monitoring and enforcement?
2. Rigor – do CoC meet or exceed ILO conventions and local laws, are
standards measurable, and is monitoring technically competent?
3. Accountability – is monitoring independent and transparent?
4. Complementarity – do private regulatory systems support and improve
state regulation?

These criteria seem difficult to meet, especially if the CoC address indi-
vidual businesses without the involvement of organized workers. A review
of CoC implementations reveals that the inadequacy of most initiatives
is manifested in the absence of disclosure of supplier locations, failure to
embrace all core ILO conventions, weak implementation mechanisms,
 Does the adoption of codes of conduct marginalize labor unions? 221

lack of legitimacy of auditors and lack of collective representation of

workers (Miller, 2003).

Strategies Organizations Use against Institutional Pressures

If CoC are voluntary, enterprise-driven initiatives and refer to practices

that are considered to exceed compliance with the law, it is important
to ask what drives firms to adopt these initiatives. Three motivations
– utilitarian, normative, and identity – have been identified to explain
the adoption of practices. The first two types of motivation suggest that
firms may use CSR for impression management by positively influencing
the stakeholder perceptions of the firm. The last type represents genuine
concern for social standards and suggests that firms may seek to enhance
their social performance not as a means but as an end in itself. Echoing
the utilitarian motive, the strategic choice perspective suggests the role of
top managers’ choice of strategies for competitive advantage in practice
adoption (Chandler, 1977). Neo-institutional theory (Meyer and Rowan,
1977; DiMaggio and Powell, 1983), on the other hand, argues that mul-
tiple external pressures lead firms to adopt structures to attain organiza-
tional legitimacy, although these structures are usually decoupled from the
technical core of the firm and lead a life of their own, especially for late
adopters.
It is clear from research evidence (Weaver et al., 1999; Kimerling, 2001;
Ramus and Montiel, 2005) that institutional pressures generally lead
to a ceremonious or symbolic adoption of CoC. CoC are ‘embraced’ as
a public relations ploy or window-dressing while business continues as
usual (Roberts, 2003). Rather than blindly acquiescing or conforming
(that is, passive strategies) to institutional pressures, supplier firms may
adopt other strategies – compromising, avoiding, defying, manipulating
and associated tactics – as a form of resistance to these pressures (Oliver,
1991).
Organizations, when they are confronted with conflicting demands
from their stakeholders (social standards versus cheaper production),
may follow a compromising strategy by balancing these demands, that
is, conforming to minimum standards to pacify the pressure or by
actively bargaining to extract some concessions from stakeholders (ibid.).
Organizations may follow an avoidance strategy by adopting CoC as
a façade – by avoiding external monitoring of its social practices or by
changing its boundaries. Organizations can use a defiance strategy by
ignoring attempts by stakeholders to remind them of their social respon-
sibilities, by challenging the virtue of institutional demands on social
issues, or by outright attacking the stakeholders. Finally, organizations
222 Corporate social responsibility

may purposefully manipulate institutional demands through co-opting

important constituents such as monitoring agencies, NGOs or govern-
mental bodies, by influencing the meaning and criteria of evaluation or by
controlling institutional processes.
Organizations would evaluate the demands for the adoption of CoC
in terms of their importance for organizational legitimacy and efficiency.
Out of these demands, freedom of association and collective bargain-
ing perhaps create the highest level of conflict with economic pressures
since organized labor could potentially extract high rents through wage
concessions and therefore decrease profitability by increasing labor rates.
Although all CoC provisions can be considered a threat to the discretion
of managers, it is freedom of association and collective bargaining that
directly jeopardize their limits of authority by placing the requirement
to negotiate with a third party. Managers socialized in the market-based
regimes are expected to avoid and defy unionization by arguing that
unions limit their flexibility in the face of changing environments, and with
their corrupt leaders and outdated practices they are a menace to society.
Therefore, we argue that supplier firms pressured to adopt CoC would
strategically select provisions on freedom of association and collective
bargaining rights to decouple from their practices, and these provisions
would be most likely to be subject to attempts to achieve parity between
multiple stakeholders’ and organizations’ interests.
In fact, most other standards, such as employment of forced and child
labor as well as safe and healthy working conditions, because of the con-
sensus on their basic nature between various stakeholders, have received
more attention in the popular media, suggesting that legitimacy would
more easily follow their adoption. In addition, violations of the right to
freedom of association are among the easiest to conceal from, and the
hardest to monitor by external stakeholders, relative to violations of
other basic rights. This is because these violations are hidden in subtle
day-to-day conversations and cannot be unearthed easily. We therefore
expect that even when organizations adopt the provision of freedom of
association: (i) they would try to hide violations of this provision from
external groups; (ii) they would design and use monitoring schemes that
make it hard for the monitoring body to uncover these violations; and
(iii) they would choose business partners that do not have organized labor
and change business partners if attempts to avoid unionization have been
unsuccessful.
Since the precise meaning of CSR is open to discussion (Crane et al.,
2007) and CoC, unlike governmental regulations, are suggested in order to
provide much-needed flexibility, differences in the interpretation of CSR
and in the content of codes across firms are to be expected. Unsurprisingly,
 Does the adoption of codes of conduct marginalize labor unions? 223

many organizations create, either individually or collectively with other

industry organizations, their own version of CoC rather than utilizing
previously written codes of the ILO or the Organisation for Economic
Co-operation and Development (OECD), or by writing one jointly with
unions and NGOs (ILO, 1998). Therefore, it is likely that firms will, wher-
ever possible, try to dominate the institutional process on social standards
by writing their own codes, by choosing their own monitors (or choosing
to monitor internally), by forming close ties with governments and by
placing insiders in NGOs and partnerships.

Inhospitable Institutional Environment and Incentives

An extensive body of literature argues that under competitive conditions,

firms behave opportunistically in the pursuit of short-term profits at the
expense of employees’ interests unless institutions are in place to mitigate
such behavior (Albert, 1993). The garment industry’s output market is
characterized by high buyer price sensitivity and high bargaining power
of buyers alongside low barriers to entry and low concentration of firms.
The result is a highly competitive environment sensitive to the threat of
increased wages by collective bargaining. Supplier firms may respond to
these forces positively by making investments to improve productivity or
negatively by disinvestment or subcontracting to small firms in the infor-
mal sector. Other options available to suppliers include targeting buyers
who do not care about social standards and moving the production facili-
ties to countries where the standards are lower. It is reported that capital
investment is very mobile in this sector (Murray, 2004). Similarly, in the
output markets, transnational buyers can respond to higher supplier prices
by shifting subcontracting to countries where standards are lower.
Economic conditions affect the degree to which firms act in socially
responsible ways but this relationship is mediated by a number of institu-
tional factors (Campbell, 2007). Firms that are uncertain about the pros-
pects of future profitability will allocate fewer resources to meet even the
minimum threshold of socially responsible behavior. High inflation and
volatile exchange rates frequently observed in developing countries create
disincentives. Firms will be more likely to behave in socially responsible
ways if (i) there are strong and well-enforced state regulations in place to
ensure socially responsible behavior; (ii) there is a system of self-regulation
in place to ensure socially responsible behavior; (iii) there are outsiders –
private, independent organizations, including NGOs, institutional inves-
tors, and the press – who monitor their behavior and when necessary
mobilize to change it; (iv) they operate in an environment where norma-
tive calls for good behavior are institutionalized in educational venues in
224 Corporate social responsibility

which managers participate; (v) the firms belong to trade or employers’

associations which promote socially responsible behavior; and (vi) they
are engaged in institutionalized dialog with unions, employees, investors
and other stakeholders (through work councils, co-determination, legally
binding collective bargaining agreements and so on). Most of these insti-
tutional factors specified by Campbell are not present in many developing
countries.
Another factor that creates a negative incentive for compliance is
corruption. Corruption is a major issue in most developing countries,
preventing enforcement of law and leading to unfair competitive advan-
tage for corrupt firms. Firms located in countries with more predatory
governments (for example, those resorting to bribes, confiscatory taxa-
tion, disregard of property rights and so on) practice weaker governance
because owners of these firms have lower incentives to improve their self-
regulation and transparency (Durnev and Fauver, 2008).
We therefore expect the supplier firms to respond negatively to outside
pressures for social responsibility.

Cultural Values as Boundary Conditions

Apart from institutional environments constraining the effective diffusion

of social standards, cultural differences also place boundary conditions on
how likely it is that certain standards will take hold in various host coun-
tries. Culture is defined as several shared processes such as shared ways of
thinking, feeling and reacting, shared meanings and identities, or shared
motives, values and beliefs that members of collectives commonly experi-
ence and transmit through generations (House et al., 2004). Differences
in terms of three types of cultural value are expected to facilitate the
marginalization of unions through the use of CoC in certain developing
countries. First, a cultural value that is in direct contrast with freedom
of association and collective bargaining rights is uncertainty avoidance.
Uncertainty avoidance is the extent to which the members of a culture
feel threatened by uncertain or unknown situations and try to avoid such
situations (Hofstede, 1980). In these cultures, conflict is usually suppressed
out of a strong need for affirmation and consensus. Uncertainty-avoiding
cultures therefore try to minimize the possibility of uncertain and conflict-
ridden situations by strict laws and rules. Collective bargaining represents
one such situation where conflicts are inherent and explicit and the end
result is not known in advance (and can involve further escalation of con-
flict, for example, strikes). It is therefore expected that countries with a
culture that is characterized by uncertainty avoidance, will limit workers’
rights of collective bargaining. Even when collective bargaining rights are
 Does the adoption of codes of conduct marginalize labor unions? 225

recognized by law, in these countries provisions of CoC which provide for

collective representation may not be welcomed by owners and managers
of suppliers. Collectivism, a cultural dimension frequently coupled with
uncertainty avoidance, reinforces harmony-seeking behavior.
Another cultural value that does not fit with social standards on
freedom of association rights is power distance. Power distance is defined
as the extent to which the less powerful members of institutions and organ-
izations expect and accept that power is distributed unequally (ibid.). In
cultures with high-power distance, organizations are more likely to be
hierarchical and centralized. A closely related concept to power distance is
paternalism, which is defined as ‘a system under which an authority under-
takes to supply needs or regulate conduct of those under its control in
matters affecting them as individuals as well as in their relations to author-
ity and to each other’ (Merriam-Webster Online, 2007). Although most of
the Western world considers paternalism as ‘a derogatory reference to an
organization’s “fatherly” efforts to better the lot of its employees’, other
countries, such as Brazil, Japan, Korea and Turkey, have well-established
paternalistic traditions (Shafritz, 1980, p. 250). In high-power distance
cultures with paternalistic traditions, powerful managers are expected to
decide for the good of their workers and act as a benevolent autocrat or
a good father. The acceptance of the freedom of association clause would
amount to acceptance of workers as equals and workers’ organizations as
stakeholders. This would surely challenge the mindsets of managers who
are used to having their way with their workforce.
The analytical framework explained above is graphically presented in
Figure 10.1.

THE CASE OF TURKEY’S GARMENT SECTOR

Brief History and Evolution of the Garment Sector

The textile and garment sector has been the driving force of the Turkish
economy since the 1980s largely due to the lower cost of production
factors7 and proximity to the European Union (EU) market. As of 2005,
Turkey was the fourth-largest garment exporter in the world with a 3.3
percent market share. Some 70 percent of all garment exports from Turkey
are to the EU; Germany is the biggest importer, accounting for approxi-
mately 30 percent of all garment exports from Turkey to the EU (Aras,
2006).
Due to its importance with respect to export capacity and employment,
the sector has been generously supported by successive governments over
226 Corporate social responsibility

Uncertainty Avoidance
Power Distance Cultural Context
Paternalism

Adversarial Industrial Relations Climate

Legislative Constraints Institutional Context
Lack of Economic Incentives

Compromising
Organizational
Avoiding
Strategies Context
Manipulating

Lack of Legitimacy
Private Regulation
Poor Oversight
Through CoC
Low Accountability

Figure 10.1 Analytical framework of factors affecting the adoption of

CoC

the years; for example, in 2004 the sector received 60 percent of all indus-
trial investment subsidies. Investment and export subsidies, until they were
eliminated in 1989, and the informality in the sector suppressed competitive
dynamics. Recently, increased competition, removal of quotas maintained
under the World Trade Organization (WTO), erosion of cost advantages
by high taxes and unfavorable exchange rate regimes created bottlenecks.
Meanwhile the unit costs have been decreasing in China, India, Indonesia
and Morocco. This trend has forced owners to move production facilities
out of the main urban centers, and to employ agricultural workers with
little or no experience in the industry. Although recently producers have
been focusing on sector-wide differentiation strategies led by employers’
organizations, many companies in the sector still choose to subcontract to
the informal sector to maintain cost advantages.
Labor accounts for 20 percent of the input costs in the garment sector.8
The sector is the largest employer in Turkey, employing 11 percent of all
the registered and 20 percent of the unregistered workers. Taymaz and
Ozler (2005) point out that effective application of the acquis commun-
autaire by extending the coverage to informal sectors is likely to elimi-
nate some firms and lead to a painful adjustment process in the medium
term, although the long-run effect is likely to be positive for productivity,
growth and employment.
 Does the adoption of codes of conduct marginalize labor unions? 227

The State of Industrial Relations in Turkey

Industrial relations in Turkey have a volatile history (see Cetik and

Akkaya, 1999; Koray and Celik, 2007 for reviews). Before the establish-
ment of the Republic, unionization was banned in 1909 by the parliament
of the Ottoman Empire. A similar stance was taken in the early years of
the Republic, outlawing workers from forming unions, from collective
bargaining and/or from striking. These prohibitive laws are considered as
an attempt by the one-party government to sustain the unity of the fragile
state and avoid conflicts between classes. It was only after the Second
World War and the changing of the dominant figures in Europe as well as
the transition to a multi-party political system and the expansion of the
private sector, that labor rights entered into the debate. A new union law
was drafted in 1946 as a response to pressures from the ILO. This law was
not functional, however, since it did not give workers the right to collective
bargaining, largely out of concerns for class conflict. No significant gains
for labor therefore materialized until the 1960s, when a new constitution
and labor law incorporated freedom of association, the right to collective
bargaining and the right to strike. Although such state-imposed freedoms
created material gains, the fact that a workers’ movement was premature
meant that the protection of these freedoms over the long term was impos-
sible. In fact, successive military coups in 1971 and 1980, in response to
increasing class strife, first curtailed and then took back many of the rights
gained in the 1960s. The 1970s witnessed an increasing polarization in the
form of longlasting strikes with wide participation, followed by another
military coup d’état in 1980. A set of new laws in 1983 effectively set strin-
gent requirements for many union activities, including membership, col-
lective bargaining and strikes. These laws, still in use today, are considered
to contradict the ILO norms and agreements signed by Turkey (Koray
and Celik, 2007). The period after 1980 is largely considered a time of pro-
liferation of liberal economic policies and support of the private sector to
the detriment of the workers’ cause.
There are a total of nine unions organizing the textile and garment sector
in Turkey; six are small independent unions and the other three belong
to three national confederations (Cetik and Akkaya, 1999). Only the last
three unions have the right to negotiate a collective bargaining agreement
due to a law which requires that a union represent 10 percent of the sec-
tor’s workforce before negotiating an agreement. Collective bargaining
can only take place at the workplace level. There are 22,000 companies
and 8,000 exporters in the industry. Although reported membership by the
largest three unions – TEKSIF, TEKSTIL-IS and OZIPLIK-IS9 – suggest
that the union density of the garment sector is close to 86 percent in 2007,
228 Corporate social responsibility

Table 10.1 Turkey’s garment industry, descriptive statistics (2007)

Description Statistic
Share of GDP 10.7 %
Share of industrial production 20 %
Share of manufacturing labor force 24–28 %
Share of industrial exports 18.9 %
Export unit price increase (07/06) in USD 2.6 to 6.20
Share of world trade 5%
Ranking in apparel suppliers in the world 4
Share of Germany in exports 26%
Number of companies 22.000
Number of exporters 8,000
Number of registered workers 792,000
Number of unregistered workers (est.) 2,400,000
Number of collective bargaining agr. 12
Export value in 2007 to the EU (in USD) 12,774,938,000
% change (07/06) in exports to the EU 17%
% increase (07/06) in total exports 14.8%
% change (07/06) in exports to OECD –12% (primarily Canada,
USA)
% workers under collective agr. (est.) 1

Source: Own compilation from ITKIB, Jo-In, TEKSIF and TEKSTIL-IS reports.

this number is grossly misleading since it accounts for only 792,000 reg-
istered workers.10 Moreover, the reported membership is inflated by the
government because of political reasons, and by the unions themselves
who need to have organized 10 percent of the sector. The estimated number
of unregistered workers, including children and illegal immigrants, in the
sector is between 2 and 2.4 million (Jo-In Briefing Paper No. 2, 2005). If
this estimate is realistic, union density in the sector is less than 4 percent.
The percentage of unionized workers covered by a collective bargaining
agreement is somewhat lower, possibly around 1 percent, since only those
three unions that can claim to represent at least 10 percent of the registered
workers are eligible for negotiations. Most of the collective bargaining
agreements are signed in the textile sector and the number of collective
bargaining agreements in effect in the garment sector is estimated to be
only 12. A selection of descriptive statistics about the sector is provided in
Table 10.1.
As stated above, historically freedom of association and collective bar-
gaining rights in Turkey have been subject to legal and practical restric-
tions.11 Current labor regulations do not allow for spontaneous industrial
 Does the adoption of codes of conduct marginalize labor unions? 229

action (for example, strikes are allowed only if an agreement cannot be

reached through collective bargaining). Even the violation of a negoti-
ated agreement by the employer does not form a sufficient basis for strike
action. Furthermore, this right can only be exercised subject to a highly
bureaucratic and complex process. Strikes that do not strictly follow this
process are categorized as illegal; heavy penalties are attached to them
such as immediate termination of employment for those on strike, liability
for monetary damages incurred by the employer and jail sentences for
those involved. Strikes that are general, that have a political purpose, that
are conducted to protest or show solidarity with other unions, are con-
sidered illegal and can receive even harsher penalties than regular illegal
strikes. In the past, even legal strikes that workers voted in favor of have
been postponed and effectively cancelled by the government for ‘health
and national security reasons’. These decisions have been considered a
violation of workers’ rights by both the ILO and the EU (Commission of
the European Communities, 2004).
One of the most important issues for Turkey’s accession to the EU
is adopting and implementing the EU acquis communautaire related to
labor market regulations and employment policies. The new employment
law, adopted in 2003, ignores the European Commission’s (EC) recom-
mendation (2002, 14) on consultation and employee representation.
Provisions related to ‘informing employees’ in other directives are also
left out.
The weak status of unions in Turkey is reflected in decreasing unit labor
costs. From 1980 to 2000, labor productivity increased from 100 to 197
whereas the unit labor cost – as a ratio of nominal wages in manufactur-
ing to value added deflated by consumer price index and GDP deflator,
respectively – has decreased from 100 to 54.5. This indicates a decrease in
share of labor in the distribution of income (UNCTAD, 2003).

Background of Social Standards Round Table

The history of the Round Table goes back to 2001 when a Round Table
was set up in Germany by private companies, industrial federations, trade
unions, NGOs and German ministries with the objective of developing
an understanding of ‘how social standards can be introduced efficiently
and transparently with the participation of all concerned’.12 The German
Round Table led to a partnership between the German Federal Ministry for
Economic Cooperation and Development (BMZ) and the Foreign Trade
Association (FTA) of the German Retail Trade (AVE) aimed at improv-
ing social standards adopted by foreign suppliers to German industries
in 11 countries including Turkey. The initiative had two implementation
230 Corporate social responsibility

tracks, (i) developing a CoC which was to follow independent audits of the
suppliers in order to identify the issues and (ii) the setting up of national
Round Tables with the objective of implementation of social standards at
the institutional and political levels.
With regard to the first track, the initial efforts of the German
Round Table and the AVE were later channeled to the Business Social
Compliance Initiative (BSCI) which was founded in 2003 by the FTA and
member companies. The BSCI was intended as a sector solution for retail
and was a response to previous failures of multi-stakeholder initiatives
involving unions and NGOs. The BSCI is open only to corporations, but
the unions and NGOs are invited to participate in an Advisory Council.
The BSCI launched its code, which is inspired by the ILO’s core labor
standards and the SA 8000 standards, in November 2004. Following the
foundation of the BSCI, the suppliers of member firms were informed
of the initiative and were requested to respond to a questionnaire relat-
ing to the current status in their factories. Later, audits were conducted
to verify the responses. Those suppliers who did not satisfy the German
retailers were ‘engaged’ in a dialog and offered support for corrective
actions.13
With regard to the second track, the GTZ initiated and provided opera-
tional finance for the National Round Tables.14 National Round Tables
are designed as multi-stakeholder forums whereby government representa-
tives, labor unions, employer and exporters’ unions and other relevant
NGOs are invited as members. The objective of the National Round Table
is to provide institutional support to the implementation of CoC. More
than 60 Round Table meetings were held in 11 countries by the end of
2006.

Turkish Round Table

With its long experience of working in Turkey, the GTZ was able to initiate
the Turkish Round Table with participation from the government, workers
and employers’ unions, the union of exporters and sector organizations.
Throughout the first two years, the GTZ led, organizing the Round Table
meetings. At the end of the second year, the GTZ asked the members to take
over the ownership of the Round Table. Lacking mutual trust, members
invited two university professors, one perceived to be closer to business
circles, the other to the unions, to be the moderators.15 After the third year
with support from the GTZ and the moderators, the members finally took
over the complete organization. The list of members is given in Appendix
10A1.
 Does the adoption of codes of conduct marginalize labor unions? 231

Table 10.2 Interviews with supplier firms

Firm Code * Unionization Interviews with

Buyer(B)/ Yes (Y)/
Workers/union Owners/
Own(O) No (N)
representatives managers
Alpha B Y x
Beta B and O Y x x
Delta B N x x
Gamma B N x x
Omega B and O Y x

Note: * B: Code imposed by the buyer/buyers; O: Code developed by the firm itself.

DATA AND ANALYSIS

Our observations started with interviews with the representatives of

those organizations which have been members of the Round Table for
two years, followed by participant observations in subsequent meetings
for 18 months. We interviewed workers and managers of two supplier
firms – Delta and Gamma – described as the most successful implement-
ers of the CoC by Turkey’s Garment Producers’ Association (TGSD),
a membership-based association, the most sympathetic of employers’
organizations to social standards. We also interviewed two unionized
firms – Alpha and Beta – the first one of which was already unionized
before the introduction of the CoC, and the second was affiliated with an
international brand name through common ownerships. Beta produced
for both its affiliated brand name and other transnational retailers. Finally
we interviewed the management of Omega, which was a wholly owned
subsidiary of an international firm and manufactured only for its parent
under its corporate CoC. The list is shown in Table 10.2.
Interviews with the leaders of labor unions TEKSIF and TEKSTIL-IS,
and two government officers – one from the ministry of labor and one
from the treasury – contributed to our analysis. Archival data included
websites and printed documents of GTZ, BSCI, Jo-In16 and AVE, and
minutes and presentation materials used at Round Table meetings.
Our first observation was the existence of a tension between employer
associations and unions which was evident from the tone and contents of
statements made by both parties during Round Table meetings and inter-
views. This was not surprising given the history of adversarial relations
between unions and managers in Turkey.
232 Corporate social responsibility

The second observation was the low level of unionization in supplier

firms which have implemented the BSCI code and/or other brand-specific
codes. Although it was not possible to compare union penetration levels
in companies with or without CoC since neither the buyers nor the sup-
pliers disclose the full list of their suppliers, the fact that there are only
12 collective agreements in the sector against more than 200 companies
that have implemented the BSCI CoC suggests that the codes have not
been successful in creating an environment where freedom of association
was effectively exercised. This situation also raises questions about the
informativeness of audits. According to audit reports, in most suppli-
ers – 162 out of 205 – that implemented the BSCI code, the freedom of
association and the right to bargaining were fully protected (BSCI, 2006).
The BSCI (p. 23) attributes this contradiction to the legal framework and
unions themselves:

Turkey’s labor laws are sophisticated and comprehensive. . . . [However] the

laws and regulations for freedom of association and collective bargaining are
very complicated and almost impossible to use. Besides this, existing unions
heavily compete with each other.

What was the reason why the workers could not or did not use their right
to organize and the right to collective bargaining if these rights were fully
protected via CoC in the majority of suppliers? We applied our analytical
framework in order to understand the effect of codes on workplace stand-
ards related to worker representation and specifically unionization.

Legitimacy, Rigor, Accountability and Compatibility

In our view, the involvement of key stakeholders participating in the

Round Table in monitoring and enforcement was not satisfactory. First,
none of the stakeholders demonstrated an institutional commitment to
the CoC or to the mission of the Round Table. Although the Round Table
provided an environment whereby the participants, as individuals, devel-
oped a better understanding of each other’s positions, and engaged in a
dialog which gradually became less antagonistic and controversial, it failed
to mobilize the member organizations in their institutional capacity:

We participate in the meetings because we personally want to, but we have dif-
ficulty in putting the social standards on the agenda of our boards. They are
struggling with much more compelling issues. Therefore the results or decisions
of the Round Table are not communicated to our members. . . . Round Tables
helped to raise our awareness of social standards as individuals, but they had
no effect on our institutions. They didn’t have any effect at all on the producers
(suppliers) either. (ITKIB)
 Does the adoption of codes of conduct marginalize labor unions? 233

While each employer organization has a slightly different attitude

towards the CoC and the Round Table, unions attempt to show a unified
front. In every Round Table meeting there is at least one representative
from one of the three major unions, although, TEKSTIL-IS and TEKSIF
clearly are more vocal than OZIPLIK-IS. These two unions seem to share
similar views as to what their role should be in the Round Table. When
asked about their view of CoC, the TEKSTIL-IS representative explained
their guarded stance:
We view [COC] cautiously. We have never cooperated in the preparation of
one, we did not attempt to, and we will not attempt to after today. CoC did not
bring the employers and the union together.

Union representatives suggest a number of reasons for their stance.

First, they feel the need to align themselves with the International Textile,
Garment and Leather Workers’ Federation (ITGIWF), which has not put
its stamp of approval on BSCI codes. In fact, representatives of all three
national unions boycotted the 15th meeting of the Round Table (March
16, 2007) when they learned that the BSCI representatives were invited as
guests. During this particular meeting no one around the table spoke of
the unions’ absence, as if this was something normal. The second reason
why unions shun the CoC is the fear that pressure to adopt codes would
facilitate the use of subcontractors, many of which are already part of a
very large informal sector, eroding their membership base. Our subse-
quent interviews confirmed our initial observations of the tension between
the parties connected with the implementation of codes:

Unionism in Turkey has not yet completed its formation. . . . They [unions] per-
ceive CSR as an alternative to unions and label CSR programs as acts of yellow
unionism. They can’t see the potential benefits of CSR for unions. On the other
hand, employers must understand that such programs cannot be successful
without unions. Unilateral initiatives destroy social peace and eventually fail.
(Government Officer, Ministry of Labor)

Unions’ requirements are much less sophisticated than the codes. Unions think
workers are only concerned about wages. A wrong assumption! I don’t believe
unions are concerned about workers’ rights. In fact, employer associations are
more active in promoting the codes than unions. (Manager of Delta)

While unions were reluctantly but consistently involved, contrary to

the active role played by the German government in the German Round
Table, the Turkish government has been a passive observer of the CoC
implementations. Although both government departments invited by
the GTZ accepted the invitation to become Round Table members, they
rarely participated in the meetings and when they did, the participants
234 Corporate social responsibility

were always very cautious when they spoke. There is no evidence of other
supportive or complementary efforts by the Turkish government to raise
the social standards at the workplace. Similarly we have not come across
any evidence that the civil society, NGOs or the media, have shown
any interest in the Round Table or CoC. This lack of key institutional
support can partially explain the inadequacy of CoC in promoting social
dialog.
The BSCI code has clear references to the ILO Core Conventions;
however, the monitoring and enforcement system seems to be less than
effective. Independent auditors were heavily criticized by the unions. For
example during the fifth meeting of the Round Table, a presentation on
the monitoring results of supplier firms provoked a heated discussion.
Union representatives voiced their doubts about the monitoring results
given that the results show no problems with respect to the freedom of
association when there is almost no such freedom (Minutes, December
9, 2004). A similar concern about the adequacy of monitoring was also
expressed in an interview with a TEKSTIL-IS union representative:

Buyer firms try to get away with minor touch ups in response to complaints
about a supplier’s social standards if that supplier is irreplaceable. However,
if the complaint is about a low-quality, high-price supplier with poor delivery
performance then they use the low social standards as a pretext for immediately
abolishing their contract. In addition, when we call the unit responsible for
CoC monitoring we get a delayed response. They stall for two weeks. None of
these people lift a finger before they call their bosses in the US. Those who are
diffusing CoC are not doing their job properly. For example, 12 people were
fired from a workplace because they became union members. We called the
office to let them know, but before they responded to us the number of those
who were fired increased to 35. During this time, the CoC office told us to write
a report in English. These people act just as buyers. If the product is good they
ignore the shortcomings [in social standards].

It was clear that despite the assumed merits of independent audits such
as objectivity, accumulation of expertise and focus, there are issues when
it comes to auditing the provisions related to freedom of association. The
BSCI’s project coordinator, who was invited to a Round Table meeting,
confirmed that the current audit system is ineffective in addressing viola-
tions of freedom of association (Minutes, March 16, 2007). Auditors who
have participated in Round Table meetings also noted that the competi-
tion between the auditors, cost concerns and lack of continuity limit the
quality of independent audits in general.
The ‘flexibility’ of the model which leaves it to the buyers to react in the
manner they see appropriate to failures of compliance with the code was
frequently criticized by employers associations as well:
 Does the adoption of codes of conduct marginalize labor unions? 235

Can your [BSCI’s] members commit to continuing orders or long-term con-

tracts to our members if they comply with the code? Do your members stop
working with those suppliers who don’t comply? No. Do you penalize your
members if they continue ordering from substandard suppliers? No. (ITKIB
questioning BSCI representative at a Round Table meeting)

In summary, we observed that the CoC were not effective in ensuring

freedom of association due to lack of commitment from key stakehold-
ers, ineffective audit systems and lack of incentives or sanctions, with the
notable absence of government involvement:
I am surprised by the lack of attention from the Ministry of Labor to the Round
Table meetings. The garment sector is the biggest employer in Turkey which
mandates that the ministry should be present here. If the current issues are not
resolved, the sector will face bigger problems in the future. (H.-D. Koeppe,
FTA advisor, Minutes, March 16, 2007)

Strategies and Tactics Used by Supplier Firms

It was clear from our observations that the majority of supplier firms
which enter the social standards discourse enter it involuntarily, in
response to demands made by transnational buyers, and thereafter utilize
a variety of tactics to cushion themselves from what they saw as interven-
tions of monitoring agencies, buyers and unions. The cautious stance of
unions toward CoC coupled with their strategy of targeting supplier firms
with CoC increases the defensiveness of suppliers. Some suppliers com-
plain about the aggressive attempts to organize in their workplace. In one
instance, a number of supplier firms participating in the Joint Initiative on
Corporate Accountability and Workers’ Rights (Jo-In) project in Turkey,
provided escalating union pressure following a Jo-In meeting as the reason
for doubting the value of further participation in the project (Jo-In Interim
Report, May 2007). In fact, a number of managers reportedly stated that
they prefer to deal with unions through the legal system rather than to
bind themselves with CoC. In an interview with an owner–manager of a
supplier (Delta) which ‘successfully’ implemented CoC, we were told that
they were avoiding unions at all costs.
Suppliers argue that brands are not playing fair as they increasingly
demand lower prices and at the same time ask them to provide a living
wage to workers. These conflicting demands are especially hard to answer,
given the unfair competition from informal sector suppliers as well as sup-
pliers from lower-cost countries. Unofficial statistics suggest that unreg-
istered workers on average take home less than half the wage (including
benefits and bonuses but excluding overtime) of registered workers and
about one-third of the wage (including benefits and bonuses but excluding
236 Corporate social responsibility

overtime) of unionized workers (Jo-In Briefing Paper No. 2, 2005). Similar

unfair discrepancies are reported with respect to overtime hours and over-
time pay in comparison with other countries (Jo-In Briefing Paper No. 3,
2005).
The meaning and hence the Turkish translation of freedom of ‘associa-
tion’ have been debated. Freedom of association was one of three stand-
ards ‘where there is no consensus about their interpretation or where not
enough is known about their implementation’ (Jo-In Report, 2005, p. 3).
The problem of its interpretation was also brought up in the Round Table.
A union representative from TEKSTIL recommended a workshop that
would potentially help different stakeholders to reach a consensus on its
meaning. In an interview he stated that his recommendation was partly
based on the irregularities in the various translations of the concept by the
supplier firms in an attempt to water down the essence of the principle.
We were told in interviews that the firms strongly oppose using the correct
translation of the term. Some translations imply non-statutory informal
gatherings. It is possible that the correct term ‘örgüt’ is avoided because
of its use in association with militant political organizations and outlawed
organizations (that is, terör örgütü) in the media. Another possibility,
which is voiced by the union representatives, is that the term is intention-
ally mistranslated by some of the suppliers to avoid legitimizing unions.
This suggests the use of a manipulation strategy by the suppliers.17
The ILO’s president of the Turkish branch, Gülay Aslantepe, reported
that almost all complaints made to the ILO with respect to social stand-
ards were about freedom of association. At the 13th meeting of the Round
Table, she argued that because employers believe that unions drive wages
up and in the long run cause plant shutdowns, they promote the notion
of a negative right, ‘the right not to be a union member’. In the same
meeting, Professor Ayşe Buğra, a researcher on social policies, argued
that the primary reason for union avoidance is probably not only the fear
of wage increases but is also to keep full control of the workplace: ‘The
complaint that union in the workplace implies two-headedness is voiced
by many employers’. We found her argument valid at least in some cases:
‘Unionization had only a marginal effect on our costs since we work in full
compliance with laws’ (Manager, Beta).
Just as suppliers are selective in implementing the provisions of the code,
buyers are no different. Two groups of auditors independently estimated
that, despite the inclusion of a freedom of association clause in most CoC,
only 10–15 percent of branded companies pay any real attention to this
topic in their social audits (ILO and Jo-In Report, 2005). According to
these auditors, even in audits when freedom of association receives atten-
tion, questions regarding the unions’ access to the workplace are directed
 Does the adoption of codes of conduct marginalize labor unions? 237

solely to the managers. It is suggested that the issue of freedom of associa-

tion is not to a priority for many auditors and it is not considered to be a
factor in their pass/fail decisions at the end of audits.
There were some examples to the contrary, where auditors more
concerned with freedom of association conducted detailed interviews
and training sessions with managers and employees. However, the issue
usually came to the forefront only when there were specific complaints or
evidence about discrimination against employees who seek union affilia-
tion. This suggests that a compromise is reached between suppliers who
adopt CoC, auditors who are looking for work from branded companies,
and branded companies that turn a blind eye to subtle violations of the
freedom of association.
Another compromise involves equating workplace representation with
union representation. Branded companies reportedly consider the issue of
freedom of association as part of a broader issue of social dialog between
the employers and their workers. In AVE’s social audit questionnaire (2003)
prepared by a consulting company, the issue of freedom of association and
collective bargaining is covered in eight questions. Only one of these ques-
tions, the first one, deals directly with freedom of association. The following
three deal with the existence of a workers’ organization (question 2), the
existence of a union (question 3) and the ability of a workers’ organization
or the union officials to communicate freely with their members inside the
workplace (question 4). Other questions deal with collective bargaining
rights, alternative mechanisms to compensate for the deficiencies in the
legal frameworks, grievance mechanisms and worker actions. Hence, audi-
tors generally check to see if there are ways in which workers can voice their
concerns such as suggestion boxes and grievance mechanisms as manifes-
tations of freedom of association. For example, in a website belonging to
a major supplier who boasts about producing for brand names such as
Tommy Hilfiger, Puma, Nike and Adidas, and about receiving the ‘Best
Social Compliance’ award from Nike, the term ‘workers’ organizations’
is used to refer to the use of workplace representatives appointed by the
employer (www.imteks.com.tr/ifc.htm). Managers of supplier firms with
such representation mechanisms argue that they do not need agents (unions)
since their workers can directly communicate with them. Our interviews,
however, with ‘human resource managers’ and workplace representatives,
the two parties in this dialog, suggest that the content of this communica-
tion does not usually go beyond simple problems in the workplace, such as
the size or taste of meals or personal conflicts between workers themselves:
‘We always get what we want. For example, we wanted fruit instead of
dessert, and food packages during Ramadan. Our boss agreed . . . We don’t
talk about wages in those meetings’ (Worker, Gamma).18
238 Corporate social responsibility

It is unrealistic to expect that these mechanisms can address and resolve

more critical issues, such as wages, benefits and job security. Despite some
positive examples of the use of workplace representation summarized later
in this chapter, they clearly do not provide voice to the extent possible via
union representation and they are inherently insecure as they depend on
the employer’s willingness to maintain and support them (see Hammer,
2000).
The use of subcontractors can be considered an avoidance strategy of
the suppliers. Many of these ‘business partners’, which at times carry half
of the production load of the suppliers, are in the informal sector. It is
clear that the low price that these subcontractors can give to the supplier
in addition to their ability to work on small orders with high speed and
flexibility are essential for their survival. A union representative from
TEKSTIL-IS commented:

I always tell the buyer firms not to give small orders. According to the
Association of Subcontractors, there are about 40–45 thousand ateliers. If each
employs 20 workers, it adds up to 800,000 workers. . . . It is very difficult to keep
track of restructuring going on in the sector. Every day we hear about factories
moving, companies closing and opening up somewhere else.

Another way in which suppliers use the avoidance and manipulation

strategies is by choosing their own auditors. In the 15th Round Table
meeting (March 16, 2007) where BSCI representatives presented their code
and its implementation, the ITKIB representatives persistently asked if the
suppliers would be able to select the auditors. The answer from the BSCI
was positive. This interest in auditor selection is interpreted as a way of
ensuring a good report from audits by securing the help of sympathetic
auditors.
Such manipulation through the use of trusted third parties is also used
by a supplier who decided to allow the union in its workplace in the face
of buyer pressures. Two different local unions were invited to two different
plants.19 Next, in order to avoid the involvement of the local branch of the
union, which had unsuccessfully attempted to intervene despite objections
from the management and was therefore considered to be aggressive, they
made arrangements for a union branch from a distant city to unionize one
of the plants. The choice of branch was based on the social networks of
the human resources director (that is, the branch president was a worker
he had recruited in a previous employment).
In sum, our observations, interviews and archival information corrobo-
rate that suppliers use a number of strategies and tactics to cushion the
unwanted effects of CoC. This was especially true with respect to freedom
of association as well as wages and work hours. In fact, some of the other
 Does the adoption of codes of conduct marginalize labor unions? 239

provisions such as that against using child labor were religiously complied
with.

Incentives and Institutional Environment

Two major reasons were obvious in all interviews for employers’ avoid-
ance of unions: economic and cultural. Our interviews with employer
organizations focused on understanding the expected consequences result-
ing from the implementation of CoC, particularly relating to freedom of
association. We were given a uniform response: businesses were under a
lot of economic pressure which made it impossible to accept the additional
costs and complications that unions would bring:

1,000 companies relocated to lower-cost countries like Turkmenistan,

Azerbaijan and Bulgaria, leaving 150,000 unemployed workers behind.
(President of TGSD)

Government representatives confirmed that the unions would pose

a threat because of their potential role in preventing informality in the
workplace:

The demands of the branded companies raised the cost of employment to a very
high level. The wage that was agreed in collective bargaining was 700–750 YTL.
The employer will not pay this legally. For many employers informality is the
only way. The factories are looking for illegal immigrants; you see a lot of ads
written in the Cyrillic alphabet. (Government Officer, Ministry of Labor)20

Having been forced to implement the CoC, the supplier firms had no
intention of pressurizing their own subcontractors to comply with even
the minimal legal requirements. Anecdotal evidence suggests that most
supplier firms outsource about 40 to 50 percent of their production at
various stages to substandard contractors. In some cases, subcontractors
are affiliated with the main supplier through common or related owner-
ship. It seems that structuring the business as a pyramid or network of
firms with varying degrees of legality under common or related ownership
is common. Such structuring allows the owners to spin off parts of the
‘proper’ business to less costly substandard operations:

The main impact of implementing a CoC is on reducing informality both in

employment and in trade. This is a problem for employers; you open your
market, goods keep coming in and our firms have to compete with the manu-
facturers whose social standards nobody knows anything about. Naturally
[Turkish suppliers] run away from CoC. (Government Officer, Ministry of
Labor)
240 Corporate social responsibility

The distant stance of government and lack of genuine concern for

sector-wide informality suggests that the government feels unable to
ensure a civil climate for the development of social dialog in the sector. In
fact, a report prepared for the European Foundation for the Improvement
of Living and Working Conditions (Oke, 2006) suggests that although
some positive developments in social dialog have been observed in Turkey,
starting with the establishment of the Economic and Social Council (ESC)
in 1995, this body until now has been a target of complaints and skepti-
cism in terms of its functionality and representation. The ESC is mainly
criticized on the basis that it convenes only when the government seeks
the support of social partners and that its function is purely consultative
(Dereli, 2004).
We observed a different stand in Omega and to a certain extent in Beta,
both of which have voluntarily adopted proprietary codes. They were con-
cerned about protecting their brand names’ reputation.

Economic conditions are harsh, but they cannot be overcome by stealing from
workers’ human rights. The problem is the government. Employers turn to infor-
mality instead of pressurizing government for fair play. (Manager, Omega)

We started auditing our own subcontractors and demanding that they meet
certain standards. We will raise the bar slowly. (Manager, Beta)

The possibility of a descent into informality is perceived as the biggest

threat by workers when considering unionization (Bugra et al., 2007).
Our interviews with workers of arguably the ‘best implementers’ in which
unions were avoided provide ample evidence that lack of judicial protec-
tion and fear of unemployment is a real obstacle to unionization. In addi-
tion to difficulties inherent in the law, the ideological background raises
barriers to freedom of association in Turkey. Turkey’s recent economic
recovery is generally attributed to adoption of liberal policies which have
no role for trade unions. The ‘greater good’ of economic development
justifies lower wages, increasing income disparity and high unemployment
(average 11 percent, but over 30 percent in some areas) further weakening
the structural power of unions. Unionists are aware of the challenges:

The employers do not see the unions as stakeholders. Social dialog doesn’t
exist in the slightest sense. When there is no tradition of consensus building and
dialog, power struggle and demonstration of power shapes the nature of the
interaction between the parties. (TEKSIF)

Workers go to the branded companies when they have a problem with work-
place standards not to the unions. Unions have no power. Even they appeal
to the branded companies when they think their rights are not respected.
(Manager, Delta)
 Does the adoption of codes of conduct marginalize labor unions? 241

As a strategy, trade unions focus their union drives on those firms with
CoC. They attempt to obtain lists of those firms adopting codes, assum-
ing that these firms have in principle accepted their workers’ freedom of
association. This strategy is criticized by employers who argue that unions
ignore millions of unregistered workers to focus on a smaller number who
are already much better off socially thanks to CoC:

Why don’t the trade unions focus on developing solutions for informal workers
if they represent the interests of the working class? For example, we cannot
officially employ home workers due to the safety criteria required by the codes.
They are, therefore, a part of the informal sector. They want to be close to
home, they want to have time for their children. We need to get women out of
their homes but also address their demands. Unions can come up with creative
solutions to overcome the obstacles. (President of TGSD)

On the one hand, unions run into bureaucratic problems in organizing

in the informal sector:

To register a worker as a union member, the law requires that we need to write
his social security registration number as well as the registration number of his
workplace on his union card which should be approved by the notary. This
law is limiting. Of course, firms operating in the informal sector do not have
registration numbers just as their workers do not have social security numbers.
If we fill a union card for these workers and send it to the ministry they throw
this card into the garbage can instead of investigating the unregistered firm.
(Interview with TEKSTIL-IS representative)

On the other hand, unions’ strategy of organizing firms with CoC has
not worked so far:

In general our strategy has not been successful yet. In fact, it is harder to organ-
ize a firm with a CoC. Workers currently think only about economic terms . . .
In Turkey, workers’ rights and even human rights are issues that workers unfor-
tunately have not learned about and defended enough after the 1980s.

In summary, we conclude that the harsh economic and competitive

conditions, combined with high informality and corrupt practices in the
absence of political will to reduce informality, will create disincentives for
supplier firms to root the standards firmly in their operations.

Legacies and Culture in Play

Prior cross-cultural studies (Hofstede, 1980, 2001) indicate that Turkish

national culture strongly emphasizes uncertainty avoidance (ranks
16–17 among 50 countries), and power distance (ranks 18–19 among 50
242 Corporate social responsibility

countries).21 We expected that these cultural value emphases will exacer-

bate employers’ resistance to unions and workers’ unwillingness to engage
in union activities.
Emphases on power distance and the related system of paternalism
were most evident in our observations. Employer organizations were more
reluctant to attend the Round Tables when they were hosted by trade
unions, fearing that this may indicate ‘equal standing’. The salaried repre-
sentatives of employer organizations frequently complained about the dif-
ficulty of convincing their board members to meet with the trade unions:

We need to bring them [employers and union leaders] together socially. If they
meet outside their formal roles, the employers may understand that the union
leaders of today are not the trouble makers of yesterday and accept engaging
with them.

Age seniority is also a source of power in Turkish society. When the

retiring leader of a union was replaced by a much younger, smartly dressed
man, Mr Narin22 is quoted as asking whether he is expected to ‘sit around
the table with boys?’.
Owners see the presence of unions as a threat to their power. In their
view, sharing power with workers’ representatives disturbs the peace in the
workplace. In one particular case, the employer who dismissed workers
who became union members has stated the reason for dismissal as ‘union
activities’ on official documents although such dismissal is clearly illegal.
This demonstrates the mental conditioning of the employers with regard
to unions. In fact, suppliers were openly warned that unionization is a pos-
sible cost of adopting social standards in a training manual prepared by an
employer organization for training Turkish suppliers in social standards.
Some owner–managers were quite vocal about their resistance to trade
unions:

My workers have everything they need. What else can unions give them, but
disruption of the harmony we have achieved in the workplace? The unions
always try to prove their power. For example, they instruct the workers not to
work overtime although the workers need the extra money. If my workers want
to be unionized I cannot stop them, but I don’t think they will. I give more to
my workers than any trade union ever achieved in a collective bargaining agree-
ment in this sector. (Owner, Delta)

In one case, management avoided unionization by taking control of the

organizing activities; he gathered the workers together and asked them to
vote openly for or against unions. In the presence of their employer, the
majority voted against the union. The firm later faced a negative campaign
 Does the adoption of codes of conduct marginalize labor unions? 243

from the local union and pressure from a number of branded compa-
nies, particularly Otto, to allow unionization activities. In response, the
management decided to allow the union to become involved:

We once again gathered the workers in the cafeteria. We explained that many
buyers see not having a union in the workplace as a deficiency and therefore we
will be unionized. (Manager, Beta)

The management negotiated a lower union fee on behalf of the workers

and paid the notary fees through a one-time family assistance bonus. This
not only decreased any financial concerns workers that might have had at
the time, but also lowered the chance that they might expect the union to
have an active presence in the future. In exchange for loyalty, the bosses
demonstrate highly benevolent behavior not only with respect to work-
related issues but also personal issues:

If our workers need money, we lend them money or show them as laid off and
then re-employ them so that they can use their accumulated pension reserves
(severance pay) . . . They learned to eat less bread, and more vegetables. The
bread consumption has halved since we started. . . . If you treat your employees
as human beings, they give back loyalty and respect. (Owner, Delta)

If a boss does not give, then there would be a need for a third party. A couple
of years ago, we asked ourselves what more we can give to our workers. We
decided to give a bonus as a gift for those who get married and have children.
We pay an amount equal to the price of a wedding gown to those who get
married. This was an unheard of practice. (HR manager, Gamma)

When the patrons appear to be paternal or benevolent, the feeling of

indebtedness and loyalty increases. A workplace representative in a plant
which implemented the CoC suggested that the loyalty was related to their
gratitude and the family atmosphere in the workplace:

The implementation of the CoC affected our culture considerably. The factory
is like a family. Friendships are very strong . . . The harmony and order at the
factory changed our family lives. We don’t fight with our spouses any more. We
learned how to negotiate without getting aggressive. (Worker, Gamma)

Most workers in the non-union workplaces also consider unionization

as an act of disloyalty. They fear that inviting a union to become involved
would result in undesired conflicts in labor relations and a disruption of
the status quo. Employees’ comments confirm the role of high-power
distance and uncertainty avoidance that define the societal values in
Turkey:
244 Corporate social responsibility

We can’t be against a workplace that fed us all these years. Organizing would
mean division. Workers in other workplaces don’t want to unionize out of fear
that they might get fired. In here we don’t want unionization because we have
what we need. There are workplaces where unions set up a protest over trivial
matters. In 1980 workers went on strike in a workplace because they wanted
chicken instead of turkey for meals. (Worker, Gamma)23

In this setting, implementation of CoC makes it difficult for unions to

become involved, reducing their perceived and real utility:

When we introduced benefits for maternity and allowances for marriages, a

friend of mine who is a union leader called me: ‘What do you think you are
doing?’, he asked, ‘how are we going to convince the workers to become union
members now?’. (Manager, Beta)

Despite these demonstrations of ‘caring for the employees’, union repre-

sentatives suggest that the employers want full power over employees and
do not care about their human rights when there is a conflict with profits:

When an urgent order comes in, some employers tell workers to do overtime
regardless of the workers’ family circumstances. If it is a unionized place,
employers have to follow the law and ask the workers’ consent. We usually
negotiate with the employer to give a one-day advance warning of overtime.
This is not a power issue for us; it is simply a human rights issue. We appreciate
the employers’ need for flexibility. In fact, when the employer needs overtime
work and provides advance warning we make sure that workers understand the
need and help plan the shift. Employers see workers as machines. For example,
in [a non-unionized workplace] a woman was about to leave the plant at the end
of the day. The security guards asked her to get out of the bus and come back.
She told them she did not want to do overtime, but they forced her out of the
bus. She came back crying; she was supposed to pick up her daughter from a
bus stop on the way to their house. The manager sent someone to pick up her
daughter but she wasn’t there. Hours later a call came from another worker
from the service bus who had picked up her daughter from the bus stop. But all
this time she was worried sick about her daughter. These kinds of things happen
all the time. We tell workers that freedom from such pressures is a human right.
They just need to understand that only by organizing themselves can they have
a mechanism to make their voice heard and to uphold their rights as workers
and human beings. (TEKSTIL-IS representative)

Similarly, auditors taking part in a joint ILO and Jo-In workshop cited
cases where workers are relocated to jobs in poorer conditions when
they want to be unionized. There are also examples of groups of workers
being laid off as a result of becoming a union member (interview with
TEKSTIL-IS representative). These actions indicate that employers do
not hesitate to use severe and illegal tactics when workers are considered
 Does the adoption of codes of conduct marginalize labor unions? 245

to be disloyal. Employers ask and expect full loyalty from their workers in
exchange for the privilege of a job. These behaviors and expectations are
typical of paternalistic systems where an authority figure supplies the needs
or regulates the conduct of those under its control. Workers fear that unions
would bring more trouble than gain in this setting. They cite rumors of plant
shutdowns or relocations as a result of unionization. Fear of reprisal by the
employer and loss of employment is commonly voiced by the workers.

Further Observations

We have observed that work councils in workplaces where there are no

unions benefit the employers:

We can now turn our backs on our employees without fear. We were initially
against the works councils, but we can’t think of doing without them anymore.
Our scrap levels went down drastically, productivity increased . . . . We use ‘fish
bone’ methodology to solve production problems . . . . Our workers designed
an original tool that completely eliminated the problems caused by the new
machinery we imported . . . . We know that education is investment. We organ-
ize training sessions during work hours on any subject that our workers are
interested in such as ‘bird flu’. We want them to be free of worries so that they
can focus on their work. (Manager, Gamma)

Now we produce 15,000 items in our factory. We started with 10,000. We owe
it to our workers’ dedication. (Manager, Delta)

Although CoC made it more difficult for unions to enter a workplace

and also marginalized the utility of unions, we were able to observe that
an institutional dialog between employers and unions may work for both
parties once union activities are authorized in a workplace:

Once we sat around the table, we had a very smooth collective bargaining process.
The only problem was that we wanted all the workers to benefit from collective
agreement, not only those who were members. At first, the union [was] opposed
to it, but our code prohibited us from discriminating workers on any basis.
Eventually we solved the problem by setting up a joint education fund, equal in
size to the amount of membership fees, for the benefit of union members . . . . I
think the union leaders are as concerned about the continuity of our business as
we are. When we need to work overtime, I just inform the union instead of talking
to every shift; they organize it for us. My job is much easier now. Of course the
threat from low-cost countries is always there, but it can’t justify human rights
violations . . . Our CoC changed our mentality. (Manager, Omega)

We no longer fear any uncertainty that unionization may introduce in the

future now that we have a union. Our clients also know that we have a stable
business. (Manager, Beta)
246 Corporate social responsibility

Unions are much more cooperative nowadays; leaders of past legacies are
finally retiring, being replaced by young leaders who believe in compromise.
Our boss says ‘the success of the union is my success’. (Manager, Beta)

SUMMARY AND CONCLUSIONS

Codes are meant to apply to companies as a supplement to not as a replace-
ment for state laws and regulations. The ILO standards which provide the
normative basis for the contents of the CoC put obligations on signatory
governments to include the conventions in a country’s legal framework.
Transposing the government responsibility to the business with respect to
elimination of forced labor, minimum age, child labor, discrimination and
equal remuneration seem to be less of an issue since observation of these
rights can be easily monitored, observed and brought to the spotlight with
the support of existing laws. In the case of freedom of association and the
right to collective bargaining, this transposition seems to be problematic.
As explained before, the judicial framework for industrial relations in
Turkey is prohibitive and restrictive with respect to freedom of associa-
tion and collective bargaining. Both of these issues go beyond improving
the working conditions at the workplace to the heart of power relations.
The legal barriers for exercising the freedom of association and collective
bargaining make it easier for employers to avoid unionization. As we
summarize below, CoC are ineffective in these areas:

1. Suppliers implement codes selectively; use various tactics to avoid

unionization; make explicit or implicit threats to workers who seek
union affiliation; and exploit workers’ feelings of loyalty.
2. Independent audit systems are not effective in auditing the implemen-
tation of standards related to freedom of association and collective
bargaining.
3. In the presence of a CoC, convincing the workers to give up their
association rights is easier since CoC improves workers’ conditions
and decreases the utility of unions.
4. Owners’/management’s long-held assumptions and beliefs about unions
also play a role in opting for avoidance or acceptance. The cultural
values and institutional background of the developing country seem to
be important in the adoption and implementation of the CoC. When
they directly contradict the values underlying the CoC, as in the case of
Turkey, diffusion and internalization of the CoC become harder.
5. When unionization cannot be avoided, some suppliers increase
the level of subcontracting and turn to informality. Government’s
 Does the adoption of codes of conduct marginalize labor unions? 247

reluctance to eliminate informality and the lack of transparency in

the supply chain makes it difficult to reverse this trend and root the
standards firmly in the sector.
6. CoC do shift the power to the management in setting and enforcing
social standards, further marginalizing the scope and depth of issues
that trade unions can influence. The unions still play a positive role in
the presence of CoC, but the benefits accrue to the employers more
than to the workers except in the matter of resolving minor employee
problems.
7. Although implementation of CoC improves the quality of life of the
workers, the sustainability of these improvements may be questioned
when the standards are not legally protected with a collective agree-
ment.

As such, in the Turkish context, despite its positive role in improv-

ing the quality of life of workers in selected workplaces, CoC have two
unintended consequences: increased informality and marginalization of
unions. The second one is particularly important since the development of
a complete industrial relations framework which would protect workers’
rights in the long run and which would effectively include the freedom
of association and the right to collective bargaining cannot be achieved
without strong unions.
We believe that the promotion of CSR and ‘voluntarism’ may under-
mine the need to complete the legal framework that governs industrial
relations. This outlook confirms Hiß’s (2004) skepticism expressed in her
case study of the BSCI initiative in which she drew attention to the fact
that social standards were less a part of the wider societal rules, values and
norms of the societies in developing countries, making it difficult for initia-
tives like Round Tables to reduce the gap between the structural power of
workers and that of their employers.
Despite the difficulties, multi-stakeholder initiatives such as the Social
Standards Round Table have the potential to play a crucial role in over-
coming the shortcomings of private regulations. As such we find the Round
Table concept to be innovative and credible. The Turkish experience could
have had more success if the focus shifted to: (i) pressurizing the govern-
ment to be actively involved; (ii) building trust between the member institu-
tions; and (iii) building societal support to tripartite dialog. A Round Table
project to improve the effectiveness of audit methodology in addressing
the implementation of the standards related to freedom of association and
collective bargaining could be the starting point to build trust.
We do not take the absolutist position that labor rights should be applied
without attention to their economics, but argue that for fast-growing
248 Corporate social responsibility

developing countries, the effects of higher labor standards are easily exceeded
by the increase in productivity and competitiveness, as demonstrated in the
experience of Asian countries during the past 20 years. Although we do not
have any statistical evidence, our limited observations demonstrate that
all parties – government, workers and employers – seem to benefit from
an institutional dialog at the workplace. The Round Table can undertake
further research in analyzing the economic impact of unionization on the
firms and the competitiveness of the sector, disseminate case studies of suc-
cessful social dialog examples, facilitate management education, organize
panels, conferences, workshops, and most importantly engage the thought
leaders and decision makers of social parties in the debate.
Why do the employers of firms that have accepted that they will imple-
ment CoC fear unions if union presence is likely to be of benefit? The
answer may be found in the following words of a unionized worker:

We feel much more confident and strong now. We know that the union will
back us up if needed. We are not alone; we have a sounding board, we can
consult with our leaders. . . . We meet with representatives from other factories
in the union. We help each other to find solutions and learn from each other.
This is a completely different feeling of belonging.

At the core of the fear probably lies the potential role that unions can
play in representing the aggregate interests of workers at the national level
as an economic and political agent and redressing the power imbalance
between workers and corporations developed during the last 25 years
thanks to neo-liberal policies and stand-by agreements. Turkey’s economic
recovery and the prospects of EU accession more than justify a view of the
workplace as a key locus for a participatory form of democracy to evolve.

KEY LEARNING POINTS

Even though imposing the adoption of a CoC upon the suppliers may be
considered as an act of social responsibility for the transnational buyers and
retailers, the suppliers in developing countries adopt CoC in response to
buyer pressure and as a matter of economic necessity for receiving orders.
These circumstances lead to (i) decoupled and unsustainable practices,
unless these improvements are protected by law and reinforced by legally
binding collective agreements, and (ii) unintended consequences such as a
push to formality and marginalization of unions – further weakening the
chances for sustainable improvements in social standards. The case study
demonstrates that the context in which business operates affects both the
business behavior and the society’s and government’s expectations from
 Does the adoption of codes of conduct marginalize labor unions? 249

business, and provides lessons for pressure groups and transnational com-
panies for better understanding the key issues in implementing CoC in a
developing country context where the freedom of association is not fully
established and unions are already marginalized.
Key features are:

1. the context in which diffusion of CSR practices take place in develop-

ing countries;
2. the interplay between CoC and industrial relations systems;
3. the limitations of voluntary approaches in improving and rooting
social standards in weak institutional settings; and
4. the ceremonial adoption of CoC.

DISCUSSION QUESTIONS

The case study aims to provoke a discussion on the following key ques-
tion in addition to exploring the effect of CoC on the role of unions in
developing countries: under what conditions can voluntarism and non-
governmental (private) regulations work? More specifically:

1. Does the diffusion of CoC marginalize the role of workplace unions

even when the CoC explicitly refer to the freedom of association and
collective bargaining?
2. How does the CSR discourse affect the interpretation of CoC in coun-
tries where law enforcement is weak and informality is used as a basis
of competitive advantage?
3. What role do the institutional environment and culture play in selec-
tive implementation of the CoC?
4. What kind of policies are needed for the effective implementation of
CoC and enhancement of social standards?
5. What role can public–private partnership initiatives play in the imple-
mentation of CoC and enhancement of social standards?
6. What are the implications of the case for trade unions, branded com-
panies and multi-sector initiatives which aim to improve the social
standards in a workplace in a sustainable way?

NOTES

1. In this chapter, CoC are a set of standards concerning both labor practices and labor
relations. We exclude standards addressing other issues such as the environment,
250 Corporate social responsibility

consumer rights, product safety, corporate governance, and ethical business practices.
We also limit our scope to private codes and exclude the use of the term referring to
instruments of governmental or intergovernmental organizations. Our focus is on
CoC, adopted by companies which outsource internationally, and which are meant
to apply to companies’ suppliers and subcontractors regardless of their physical
location.
2. Research indicates, however, that the union wage premia are much smaller in the devel-
oping world, estimated to be around 5–10 percent (Singh and Zammit, 2004).
3. Historically, freedom of association was the medium through which organizations were
permitted to self-regulate. From this pluralistic perspective, collective bargaining is not
characterized as a manifestation of governmental regulation, but rather of employers
and workers to generate and enforce the norms which govern the workplace and even-
tually create the law applicable to them (Blackett, 2001).
4. Except for a few northern European countries such as Sweden, Finland, Belgium and
Denmark where a Ghent system (a union-managed unemployment scheme) is in place.
5. Working Today is an organization which was originally founded as a broadly based
membership organization representing workers, with a special focus on independent
workers. It has now evolved into an organization that is striving to fill the lack of rep-
resentation for professional and white-collar workers.
6. Core Conventions: freedom of association and collective bargaining, elimination of
forced labor and compulsory labor, elimination of discrimination in the workplace and
elimination of child labor. Engels (2000) reported that codes that refer to ILO conven-
tions were almost exclusively unilateral employer products.
7. Turkey is the world’s sixth largest and Europe’s largest cotton producer with approxi-
mately 4 percent of the world’s total cotton production. It has a comparative advantage
in natural and synthetic yarn production.
8. According to TISK statistics, 32.8 percent of the workers had 5, 16.6 percent had 8
and 19.3 percent had 11 years of formal education. Only 3.5 percent of the workforce
had higher education, and 24.3 percent of the workers had vocational training in high
school (TISK Publications, 2005).
9. TEKSIF, founded in 1962, is the Textile, Knitting and Clothing Industry Workers’
Union of Turkey and is affiliated with TURK-IS, the Confederation of Trade Unions of
Turkey. TEKSTIL-IS, founded in 1965, is the Textile Workers’ Union and is affiliated
with DISK, the Confederation of Progressive Trade Unions of Turkey. OZIPLIK-IS,
founded in 1978, is the Union of Textile, Thread, Knitwear and Garment Workers
of Turkey and is affiliated with HAK-IS, the Confederation of True Trade Unions of
Turkey. Only these three unions among others have the right to bargain on behalf of
their members because of the size of their membership in the sector.
10. Registered workers are included in the social security system and their employers are
obliged to pay social security contributions and personal income tax to the state. Not
registering a worker is against the employment law. An unregistered worker does not
have access to public healthcare services and pension benefits. All trade union members
are registered workers, but not all registered workers are union members.
11. In fact, collective bargaining and strikes are legally banned for public workers.
12. See the GTZ website for details.
13. Engels-Zanden and Wahlqvist (2007) in their analysis of the BSCI explain the trend
to move from cross-sectoral (multi-stakeholder) partnerships in CSR initiatives to
‘post-partnerships’ which are open exclusively to corporations, following the failure
of previous cross-sectoral European initiatives. Most of these initiatives failed either
due to the conflicts between corporations and unions or, and more often, due to the
conflicts between unions and NGOs. The Swedish Clean Clothes campaign known as
‘Dress Code’ has collapsed as a result of withdrawal of union support from the project
(Egels-Zanden and Hyllman, 2006).
14. GTZ (Deutsch Gesselschaft für Technische Zusammanarbeit) is an international coop-
eration enterprise for sustainable development with worldwide operations.
 Does the adoption of codes of conduct marginalize labor unions? 251

15. One of the moderators is the first author of this chapter. The second author has also
been an observer in a number of meetings.
16. The Joint Initiative is another initiative, similar to the Round Table, which brings key
stakeholders together in the ‘global effort to improve working conditions in global
supply chains’. Jo-In believe that ‘codes of conduct can only make an effective and
credible contribution to this effort, if their implementation involves a broad range of
stakeholders, including governments, trade unions, employers’ associations and civil
society’.
17. It is worth noting that the Round Table was seriously involved in ‘finding a word’ which
would replace ‘örgüt’ so that employers would not become irritated when they read the
Code.
18. See the minutes of a typical meeting in Appendix 10A2.
19. Interviews with union stewards in one of the plants suggested that they had no contact
with the other plant and did not know whether employment practices differed between
the two plants.
20. In fact, the average wage achieved in collective bargaining in the sector is said to be
marginally higher than the minimum wage, confirming that the effect of unionization
is primarily to reduce informality in the workplace. YTL recently changed to TLR
(Turkish Lira).
21. In the uncertainty avoidance index (UAI) Turkey’s score is similar to other Mediterranean
countries (Greece, Spain, Portugal, France and Italy) and different from Anglo-Saxon
(Britain, US, Canada, Australia) and Nordic (Sweden, Denmark, Norway) countries.
Germanic countries (Germany, Austria, Switzerland and Netherlands) rank some-
where in the middle in uncertainty avoidance scores. Power-distance scores and rank-
ings resemble the uncertainty avoidance scores except that Germanic countries also
rank low in power distance similar to Anglo-Saxon and Nordic countries (Hofstede,
1980, 2001).
22. President of the Textile Employers’ Union.
23. The worker who mentioned the strike caused by a disagreement over the meals was
probably only a small child in 1980.

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256 Corporate social responsibility

APPENDIX 10A1 MEMBERS OF THE TURKISH

ROUND TABLE

Government Representatives

● Ministry of Labor and Social Security

● DTM (Undersecretary of Foreign Trade, DG for Export, Dep. of
Textiles and RMG)

Trade Unions

● OZIPLIK-IS (Trade Union, Member of HAK-IS)

● TEKSIF (Textile, Knitting and Clothing Industry Workers’ Union
of Turkey, member of TURK-IS)
● TEKSTIL-IS (Trade Union, member of DISK)

Employer Organizations

● ITKIB (Istanbul Textile and Garments Exporters’ Union)

● TGSD (Turkish Clothing Manufacturers’ Association)
● TUTSIS (Turkish Textile Employers’ Association)
● TARGEV (Textile, Clothing, Leather Industries, Technology and
Design Research and Development Foundation of Turkey)

Chambers

● TOBB (Union of Chambers and Commodity Exchanges of Turkey)

● Istanbul Chamber of Industry

International Agencies

● ILO (International Labor Organization) Ankara Office

NGOs

● Consumers’ Union
● TUTKODER (Association for the Protection of Consumers)
● KSSD (CSR Association)
 Does the adoption of codes of conduct marginalize labor unions? 257

APPENDIX 10A2 MINUTES OF A MEETING

BETWEEN THE WORKS
COUNCIL AND EMPLOYER
REPRESENTATIVES

Minutes of the Meeting, August 28, 2006

Workers’ Representative We would like food baskets for

Ramadan.
Employer’s Representative We will discuss this matter at the
board meeting.
Workers’ Representative We want to work on August 30,
2006 – an official holiday – instead of
Monday August 4, 2006.
Employer’s Representative If all employees agree, we can do
that.
Workers’ Representative The clocks on the shop floor don’t
work.
Employer’s Representative We will arrange to get them repaired.
Workers’ Representative We would like tea and coffee machines
in the cafeteria and more fruit on the
menu.
Employer’s Representative We will talk to the catering firm.

Workers’ Representatives Employer’s Representatives

[6 names and their signatures] Production Manager [Name and
signature]
Human Resources Manager [Name
and signature]
11. CSR in Islamic financial
institutions in the Middle East
Samy Nathan and Chris Pierce

INTRODUCTION

Islamic financial activity commenced in the Middle East relatively recently.

Arguably the first bank in the region to be founded on Islamic principles
was the Arab Bank of Palestine in 1930. In 1963, the first Islamic bank was
established in Egypt followed by small banks in Egypt as well as in Saudi
Arabia. Currently, there are more than 300 Islamic financial institutions
(IFIs) in over 50 countries around the world and over 250 mutual funds
that comply with Islamic principles (Solé 2007).
Islamic assets account for less than 1 percent of the world’s total
banking assets (Pace 2007). However, this sector of banking is currently
growing at over 20 percent per annum. McKinsey, the consultancy firm,
have identified that Islamic banking assets and assets under management
in 2006 were approximately US$750 billion and have forecast that they
are expected to exceed US$1 trillion by 2010. This exceptional growth has
been caused by:

1. New banks entering the market For example, new Islamic banks
that have recently been launched include the Inmaa Bank (Saudi
Arabia), the Al Hilal Bank (UAE), the Al-Noor Islamic Bank (UAE),
the Al Masraf Bank (Bahrain) and the Global Banking Corporation
(Bahrain).
2. Conventional Western banks converting to Islamic banks Recent
conversions include the Al Jazira Bank (Saudi Arabia), the National
Commercial Bank (Saudi Arabia) and the Kuwait Real Estate Bank
(Kuwait). In Indonesia, Panin Bank has converted Bank Harfa to an
Islamic bank after acquisitions. Also, BRI has acquired Bank Jasa
Arta to convert it to an Islamic bank.
3. Conventional Western banks establishing ‘Islamic windows’ These
‘Islamic windows’ in conventional Western banks provide Shari’ah-
compliant products. HSBC (Indonesia) has set up a new Shari’ah unit

258
 CSR in Islamic financial institutions in the Middle East 259

in Jakarta. OSK Investment Bank (Malaysia) has begun to conduct

Islamic business.
4. Increased cross-border transactions Many banks have increased their
cross-border activities. For example, in Bahrain, the Al-Baraka
Banking Group (ABG) has recently acquired a license to operate a
new subsidiary in Syria. Also, Bahrain-based International Investment
Bank bought a 49 percent stake in Azerbaijan’s Amrahbank to
convert it to an Islamic bank. In Saudi Arabia, the NCB recently
acquired 60 percent of Turkiye Finans in Turkey and Al Rajhi has
launched operations in Malaysia. In the UAE, the Emirates Global
Islamic Bank has recently commenced operations in Pakistan.
5. The issuing of Sovereign Islamic Bonds The issuing of Sovereign
Islamic Bonds (SIBs) has grown substantially in recent years. In 2005,
SIB issues were US$12 billion and by 2007 this had grown to US$39
billion. This phenomenal growth prompted new countries to issue
SIBs such as the UK, Thailand and Japan. Moreover, the convert-
ible sukuk have grown rapidly to contribute to the overall growth of
SIBs.

Countries in the Middle East and North Africa (MENA) region are at
different stages of development. Table 11.1 classifies the MENA countries
into those that are developing IFIs, those that have established IFIs, those

Table 11.1 Stage of development of Islamic finance in the MENA region

Stage of development Country

Developing Islamic financial institutions Algeria
Lebanon
Oman
Syria
Established Islamic financial institutions Morocco
Palestine
Qatar
Tunisia
Turkey
Established Islamic financial institutions and mutual funds Egypt
Iran
Jordan
Kuwait
Saudi Arabia
UAE
Established Islamic capital market Bahrain
260 Corporate social responsibility

EXAMPLE OF AN ESTABLISHED ISLAMIC

FINANCIAL MARKET: BAHRAIN

Bahrain currently hosts 34 Islamic banks and financial institutions

involved in commercial banking, investment banking, offshore
banking and fund management. These banks are governed
and controlled by the Central Bank of Bahrain (CBB). The CBB
ensures that all the rules and regulations are fair to the Western
and Islamic banks and that fair competition exists between the
banks.

that have established IFIs and mutual funds and those that have an estab-
lished Islamic capital market.
There are a number of empirical research studies focusing upon corpo-
rate governance in IFIs. For instance, Lewis and Algaoud (2001) focused
their research upon the strategies and investment policies of Shari’ah
Supervisory Boards (SSBs). Gambling and Karim (1991), Banaga et al.
(1994) and Baydoun et al. (1997) have all examined the accounting and
auditing practices within IFIs. Erol et al. (1990) and Grais and Pellegrini
(2006) have focused on transparency and disclosure of market-relevant
information by IFIs. Nathan and Ribière (2007) have compared and
contrasted conventional Western banking knowledge and wisdom with
Islamic banking.
However, there are many areas of research in this field that are under-
explored. Corporate social responsibility (CSR) is one such area, although
organizations such as the Dubai Centre for Corporate Values (DCCV)

DUBAI CENTRE FOR CORPORATE VALUES

(DCCV)

The DCCV was established in June 2006 to disseminate CSR

practices in Dubai and the region. In 2006 it produced its first
corporate social responsibility and sustainability report on three
leading organizations in the Emirates: the Dubai Technology
and Media Free Zone (TECOM) Authority, the Dubai Financial
Services Authority (DFSA) and the Dubai Airport Free Zone
Authority (DAFZA). It has yet to make a report on an Islamic bank.
For more information on the CSR in Dubai, visit: www.dccv.ae.
 CSR in Islamic financial institutions in the Middle East 261

are attempting to disseminate CSR practices in Dubai and the MENA

region.
CSR in IFIs has been described by Dusuki and Dar (2005) as
providing:

a framework for the role of business in society, setting standards of behavior

to which a company must subscribe to impact society in a positive and produc-
tive manner. The emergence of social enterprise, business ethics, environmental
practices, a human rights approach to recruitment and employment conditions
and investment in the community are examples of such impact.

CSR is relevant to Islamic banks. IFIs are businesses established within

the ambit of Islamic Law (Shari’ah) and are expected to be guided by an
Islamic view based upon the principles of social justice and well-being
derived from divine revelation. Dusuki and Dar have argued:

Islamic banking system has an in-built dimension that promotes social respon-
sibility, as it resides within a financial trajectory underpinned by the forces of
Shari’ah injunctions. These Shari’ah injunctions interweave Islamic financial
transactions with genuine concern for ethically and socially responsible activi-
ties at the same time as prohibiting involvement in illegal activities or those
which are detrimental to social and environmental well-being.

This chapter examines the distinctive features of the Islamic framework,

which are not very well understood by the West. In particular, issues asso-
ciated with the need to comply with Shari’ah principles and the role of the
SSBs will be discussed. This will help set the context for the discussion, and
examples, of CSR activities in MENA banks in practice.

THE DISTINCTIVE FEATURES OF THE ISLAMIC

FRAMEWORK

Many Islamic banking scholars such as Lewis and Algaoud (2001) and Iqbal
and Molyneux (2005) have argued that although Islamic banks perform
mostly the same functions as conventional Western banks, they do this in
distinctly different ways. The main differences arise out of the need to comply
with Shari’ah Law and the role of the SSBs which are discussed below.

Compliance with Shari’ah Law

Islamic beliefs provide a framework that determines the relationships

between man and God, and between human beings. Shari’ah Law governs
all economic and social activities and undertakings of Muslims and is
262 Corporate social responsibility

derived from the Qur’an and Sunnah which are the sayings and practices
of the Prophet Muhammad (PBUH).
According to Shari’ah Law, the Islamic financial system aims to enhance
the economy of the country through the purchasing and selling of physical
assets (investment activities), and building the infrastructure.
The framework for Shari’ah Law involves:

● Fairness Muslims believe that Allah is the creator and that He

owns all heaven and earth and therefore the ownership of resources
is only temporary and limited to a human’s short life span. As
a result, Islam requires that these resources should be acquired
honestly, used properly and allocated equitably. Those who own
should not act arrogantly towards those who do not own. Muslims
are therefore expected to be faithful and trustworthy, not misuse
their wealth and treat everyone fairly regardless of race, religion
or nationality. The fairness principle requires anyone involved in a
transaction to make an informed decision without being misled or
cheated. The Holy Qur’an says:

Whosoever interveneth in a good cause will have the reward thereof, and
whosoever interveneth in an evil cause will bear the consequences. (4:85)

Islam emphasizes justice and fair dealings in business transactions. All

business transactions should be fair to both parties (the buyers and
the sellers). The reward for justice has been emphasized by the holy
prophet (PBUH) when he promised that the honest merchant would
be with the prophets and the martyrs on the day of resurrection.
● The right to pursue personal economic well-being Shari’ah Law
permits the right to seek economic well-being. However, Islam
makes a clear distinction between what is halal (lawful and permis-
sible) and what is haram (forbidden and undesirable) in pursuit of
economic activity. In general terms, Islam forbids all forms of eco-
nomic activity that are morally or socially injurious. For example,
transactions involving alcohol, tobacco, pork-related products,
armaments, gambling, pornography and other activities that are
deemed to be socially detrimental.
● The strict and explicit prohibition of riba (usury or inter-
est) Borrowing and lending cash and achieving gain through
interest is totally prohibited, because money is considered to be
an intermediate commodity that does not have gain in itself. This
means that the concept of time value of money cannot be applied in
Islamic financial activities.
 CSR in Islamic financial institutions in the Middle East 263

Shari’ah Law does not permit the charging of any type of interest
on using money among Muslims only. In Islam, it is acceptable to
charge interest to non-Muslims but paying interest to non-Muslims is
forbidden. Islamic banks have developed mechanisms to allow interest
income to be replaced with cash flows from productive sources, such as
returns from wealth-generating investment activities and operations.
Any transaction performed for speculative purpose is completely
forbidden (gharer), but accepting necessary business risk due to
market changes is allowed.
Commercial insurance on various assets is prohibited because it
trades on personal misfortune, however, mutual insurance (takaful)
is allowed.
● Risk and profit- and loss-sharing philosophy Shari’ah Law requires
that when profits are distributed, more emphasis is placed on reward
for effort rather than reward for merely owning capital. IFIs must
share the risk with the investor if losses occur. This type of risk
management is normally defined between the two parties by signing
contracts before the start of any transaction. These contracts are
designed and standardized by the International Islamic Financial
Market (IIFM) and act as a hedge against uncertainty.
● Contractual certainty The principle of gharar (the concept of uncer-
tainty) requires that the seller must own the asset before the exchange
of contracts and must inform the buyer about any defect in the asset
unless it is trivial. There must be complete transparency between the
two parties during the exchange of assets and clear identification of
the transfer of ownership. Uncertainties or ambiguities that can lead
to disputes may render a contract void under Shari’ah Law.

Figure 11.1 sets out the framework of Shari’ah Law. While some of
the above principles and rules are based on clear and explicit rulings of
Shari’ah Law, others are derived from Shari’ah Law scholars’ interpreta-
tions and understanding of the Qur’an. These interpretations can and do
differ between Shari’ah Law scholars. Certain contractual terms deemed
to be valid under Shari’ah Law by the scholars of one school may not be
acceptable to scholars from another school.
An alternative Islamic framework involving faith and belief, practices
and activities and moralities and ethics is shown in Figure 11.2.

Islamic financial institutions (IFIs)

IFIs are of particular interest to researchers as all IFIs require total com-
pliance with Shari’ah Law as a basis for all transactions. They prohibit
interest and limit the channels of investments to specific activities.
264 Corporate social responsibility

Shari’ah Law

Fairness Right to Haram Riba Sharing Gharar

pursue (prohibited (prohibition the risk, (prohibition
personal activities) of interest) profit of
well-being and loss speculation)

Figure 11.1 The framework for Shari’ah Law

ISLAM

Faith & belief Practices & activities Moralities & ethics

(Aqidah) (Shari’ah) (Akhlaq)

Man-to-God worship Man-to-man activities

(Ibadat) (Muamalat)

Political Economic Social

activities activities activities

Other economic Banking & financial

activities activities

Figure 11.2 An alternative Islamic framework

IFIs are very different from Western financial institutions because of

their Islamic banking practices which cover all types of investments that
are religiously approved such as: managed funds, partnerships, cost-plus
financing, leasing, futures contracts, and hedging.
Table 11.2 illustrates a typical portfolio of Islamic banking products
that are offered by most IFIs.

Islamic corporate social responsibility (ICSR) and IFIs

The Accounting and Auditing Organization for Islamic Financial Institutions
(IAAOIFI, 2008) is in the process of developing a definition of ICSR that
refers to all activities carried out by an IFI to fulfill the following:
 CSR in Islamic financial institutions in the Middle East 265

Table 11.2 Islamic banking products

Equity finance Debt finance

Mudaraba (profit sharing) Murabaha (cost-plus financing)
Musharaka (equity participation) Ijarah (leasing)
permanent and diminishing Salam (deferred delivery)
Istisna’a (work in progress)
Sukuk (Islamic Bonds)

● religious responsibility, that is, to obey the laws of Islam in all its
dealings and operations;
● economic responsibility, that is, to be financially viable, profitable
and efficient;
● legal responsibility, that is, to respect and obey the laws and regula-
tions of the country of operation;
● ethical responsibility, that is, to respect the mass of societal, religious
and customary norms which are not codified in law; and
● discretionary responsibility, that is, the expectation from stakeholders
that IFIs will perform a social role in implementing Islamic ideals over
and above the religious, economic, legal and ethical responsibilities.

The IAAOIFI is currently developing uniform standards on ICSR

activities and compliance for IFIs. These standards are currently at the
consultative stage. The standards are intended to codify existing principles
and rules in a comprehensive structured format and ensure that ICSR
activities and compliance of IFIs are communicated in a uniform, truth-
ful and comprehensible manner to relevant stakeholders to whom the IFI
owes a duty of accountability.
The consultative standard contains principles and rules in the following
areas:

1. Mandatory core conduct This includes policies for screening clients,

late repayments and insolvent clients, earnings and expenditures pro-
hibited by Shari’ah employee welfare.
2. Recommended core conduct This includes policies for Qard Hasan (a
non-interest-bearing loan intended to allow the borrower to use the
loaned funds for a period of time with the understanding that the same
amount of the loaned funds would be repaid at the end of the period),
reduction of impact on the environment, screening clients, screen-
ing contractors, industry investment quotas, social impact-based
investment quotas, environmental impact-based investment quotas,
266 Corporate social responsibility

par excellence customer service, entrepreneur and social savings and

investments, and employee welfare.
3. Mandatory supplementary conduct This includes the policy for
Zakat, a fixed religious obligation calculated by reference to net assets
(including cash) that have appreciated over a specific period of time.
It excludes assets that have been acquired for consumption or use in
the production of revenues. Zakah is the Islamic principle of giving a
percentage of one’s income to charity that applies to Muslim.
4. Recommended supplementary conduct This includes policies for
charitable activities, and Waqf (a religious endowment) management.

The objectives of ICSR are the same as the individual social responsibil-
ity of each Muslim: to enjoin right and to forbid wrong. The definition of
right and wrong in Islam can be defined in various dichotomies which are
overlapping. In their legal form, ‘right’ refers to everything that is permis-
sible or recommended (Halal and Mustahab, respectively), while ‘wrong’
refers to everything that is not permissible or not recommended (Haram
and Makruh, respectively). From the perspective of Islamic jurisprudence,
‘right’ refers to what is just while ‘wrong’ refers to what is unjust.
It is the responsibility of the SSB to provide an independent review and
attestation of ICSR conduct as an assurance to stakeholders.

Shari’ah Supervisory Boards (SSBs)

The SSBs review the operations of financial institutions to ensure that they
comply with the Shari’ah Law. This is, to a large extent, an investigatory role.
In the increasingly complex and sophisticated world of modern finance, the
religious board endeavors to answer the question whether or not proposals
for new transactions or products conform to the Shari’ah Law and the SSBs
offer constructive and creative recommendations. The role of each SSB is:

● to certify permissible financial instruments before issue through a

fatwa (a legal opinion issued by a qualified scholar on matters of
religious belief and practice);
● to verify that transactions comply with issued fatwas;
● to approve calculation of zakat (a religious tax deducted from the
wealthy to be paid to the needy); and
● to dispose of non-Shari’ah-compliant earnings.

An IFI is required to establish operating procedures to ensure that no

form of investment or business activity is undertaken that has not been
approved in advance by the SSB. Also, the management of the IFI is
 CSR in Islamic financial institutions in the Middle East 267

required to periodically report and certify to the SSB that the actual invest-
ments and business activities undertaken by the institution conform to
forms previously approved by the SSB.
The members of the SSB are appointed by shareholders at the General
Assembly, employed by the IFIs and report to the board of directors.
The SSB has the right to appoint a Shari’ah internal auditor to monitor
the day-to-day transactions and report directly to them. If the SSB discov-
ers that any transaction violated the Shari’ah Law and that this transac-
tion has generated revenue to the IFI then the SSB can set these earnings
aside and donate them to a charitable organization.
It is the responsibility of the SSB to provide an independent review and
attestation of ICSR conduct as an assurance to stakeholders.
This usually involves:

● a review function which examines whether ICSR is being imple-

mented both in form and in substance by the IFI. The review func-
tion may be outsourced to an Internal Shari’ah review body of the
IFI, at the discretion of the SSB, with an appropriate disclosure to
that effect in the SSB report; and
● an attestation function, which provides a statement as part of the
SSB report, stipulating that management has behaved in accordance
with ICSR standards.

Since Islam has four different sects (Hanafi, Hanbali, Maliki and
Shafi’i) which interpret the Islamic Holy Book (the Qur’an) differently,
SSB members tend to be selected from the dominant sect in their country
and consequently reflect their own understandings of the Qur’an on the
transactions of IFIs.
The various governance challenges of the SSB are as follows:

1. Competence Since the Shari’ah scholars on the SSBs carry great respon-
sibility, it is important that only high caliber scholars are appointed. There
is currently a shortage of appropriately qualified scholars to provide
rigorous challenge and oversight of a bank’s products and services.
2. Independence Due to the shortage of scholars, many SSB members
have positions on many different IFIs and have access to proprietary
information. As a result the possibility of serious conflicts of interest
exists. Little is currently known about how SSBs are dealing with this
problem in practice.
3. Lack of professional certification IFIs currently experience difficulty
in selecting between scholars due to the lack of professional certifica-
tion in terms of Shari’ah expertise.
268 Corporate social responsibility

EXAMPLE: GULF FINANCE HOUSE (GFH)

In its Annual Report in 2006 GFH stated:

As an Islamic institution, GFH takes its responsibility to support the

well-being of the communities in which it operates seriously. GFH
believes in the social responsibility of business towards overall human
welfare. Accordingly, GFH endeavours to make a significant difference
to the well-being of the world around it wherever the Bank is present.
To handle such a role, it is GFH’s belief that this task can be done by
integrating social values into corporate activities – a principle that is
woven into the day-to-day functioning of the Bank.
During 2006 the Bank responded to the needs of the societies in
which it has activities, in a number of different ways, as part of its
proactive efforts to assist underprivileged sections of the community.
The Bank’s corporate social responsibility programme for 2006 con-
tinued to focus on helping the underprivileged, while enhancing the
quality of life for everyone through supporting education activities,
health programmes and sports events.
The following are just some examples of the financial support pro-
vided by GFH in 2006:
● establishment of the Gifted Students Centre in Bahrain, which is
now complete: The centre’s aim is to serve the Bahraini society
by embracing special abilities and is designed to develop and
enhance the various talents of these students for a brighter and
promising future;
● participation in the Crown Prince International Scholarship
Program (Bahrain);
● participation and financing of various social activities;
● participation in ‘Waqf’ to promote Islamic finance activities.

Source: Gulf Finance House (2007).

4. Consistency Some commentators argue that there is a lack of con-

sistency among SSBs. In particular, fatwas that are issued by some
SSBs may conflict with fatwas issued by other SSBs.
5. Lack of disclosure There is a general lack of disclosure concerning
Shari’ah scholars’ duties, decision making, rulings and areas of com-
petence. Some commentators argue that all fatwas issued by the SSB
should be included in the Annual Report and if appropriate discussed
at the General Assembly Meeting.
 CSR in Islamic financial institutions in the Middle East 269

EXAMPLE: KUWAIT FINANCE HOUSE (KFH)

In its Annual Report in 2007 KFH stated:

KFH continued its effective participation in the beneficial social activi-

ties carried out during the year, as it provided KD 1.250 million to Bait
Al-Zakat (Kuwait Zakat House), entered into an agreement for imple-
mentation of charitable projects inside and outside Kuwait, increased
the provisions allocated for the construction of 15 ambulance centers
on the motorways in Kuwait worth KD 1.450 million, and participated in
supporting the medical conferences and research on the early detec-
tion and diagnosis of cancer.
Moreover, KFH has devoted itself to the construction and imple-
mentation of the Social Welfare Houses Club related to the Ministry
of Social Affairs and Labor, at Al-Zour Area. KFH has established the
Juvenile Care House at Sulaibikhat, financed the Care Centers for
the People with Special Needs throughout the State of Kuwait, and
supplied medical equipment and devices to a multitude of Ministry of
Health hospitals.
As far as charitable projects and Holy Qur’an projects are con-
cerned, KFH is committed to the construction of the Holy Qur’an
Recitation-Schools Center belonging to the Ministry of Awkaf. KFH has
also supported the Family (Osareya) Development Association and
the Holy Qur’an Institutes, Al-Seraj Al-Munir, Kuwait’s Big Competition
for Memorizing the Holy Qur’an, and the Knowledge Seekers Welfare
Fund.
As for support of education, KFH has fully equipped two laboratories
at the Statistics and Research Section at Kuwait University and allo-
cated sums for the Charitable Fund of Needy Students.
Furthermore, KFH has assigned KD 0.5 million for the humanitarian
relief activities in different places struck by earthquakes, hurricanes,
and warfare worldwide.

Source: Kuwait Finance House (2008).

CSR ACTIVITIES IN ISLAMIC FINANCIAL

INSTITUTIONS IN PRACTICE

Dusuki and Dar (2005) identified that 91 percent of respondents in their

survey believed that social responsibility can enhance the reputation and
public image of an Islamic bank and concluded:

By effectively and efficiently being involved in CSR activities Islamic banks may
inevitably generate valuable resources in terms of reputation, long term stand-
ing and loyalty from various stakeholders. . . . CSR can be used as a strategic
270 Corporate social responsibility

EXAMPLE: THE NATIONAL BANK OF KUWAIT (NBK)

In 2008 NBK, a leading provider of financial services in Kuwait,

released its first annual CSR report (16 pages). NBK recognizes
its ‘duty and responsibility to support a variety of humanitarian,
charitable and educational efforts in the community’. Examples of
community activities include:

● the creation of NBK Children’s Hospital at Al Sabah Medical

Area to provide medical attention to underprivileged chil-
dren. The KD 3 million hospital was built at the bank’s
expense and donated to the Ministry of Public Health;
● donation of US $1 million in aid for Lebanon;
● organization of iftar tents in various locations to serve more
than 100,000 meals during the holy month of Ramadan;
● NBK staff visits to the sick and elderly in hospitals and insti-
tutions;
● a day-long beach clean-up on Kubar Island;
● an annual walkathon with over 5,000 citizens to promote
healthy habits and a sporting lifestyle;
● sponsored Francophone day; and
● conferences and symposiums.

NBK was awarded the first Kuwait National CSR award in 2007.

tool to enhance the reputation and public image of a business institution while
at the same time prove to be profitable for the institution in the long-run.

However, the reality concerning CSR activities is extremely difficult to

identify.
IFIs usually mention their CSR activities in the ‘Consolidated Statement
of Sources and Uses of Good Faith and Qard Fund’.

CSR ACTIVITIES IN NON-ISLAMIC BANKS IN THE

MIDDLE EAST IN PRACTICE

A recent survey of banks in the MENA region by Hawkamah and IFC

(2008) identified that very few banks provided CSR information in their
annual report. The survey found:
 CSR in Islamic financial institutions in the Middle East 271

EXAMPLE: GULF BANK

In 2006 the bank decided that it would focus its CSR activities on
‘helping future generations of Kuwaitis achieve their full potential’.
Examples of community activities include:

● sponsoring Injaz Kuwait, a non-profit NGO dedicated to

educating young people about business, economics and
entrepreneurship;
● donating ultrasound medical equipment to the Mubarak Al
Kabir Hospital;
● sponsoring a child life specialist for one year at KACCH
(Kuwait Association for the Care of Children in Hospital);
and
● donating money for the orphans in a Lebanon charity
home.

● only 39 percent provided any details on environment, social and

economic sustainability issues; and
● only 27 percent of respondents from banks had a CSR policy pub-
lished on their website.

CONCLUSION

IFIs are becoming more important in terms of total assets within the global
financial market. In order to fully understand the values and culture of
an IFI one needs to understand the nature of Shari’ah Law and the role
of the SSBs. Recent empirical work has shown that social responsibility
activities enhance the reputation and public image of Islamic banks and
in the future it is likely that IFIs will have a higher level of disclosure and
transparency concerning their corporate social responsibilities.

KEY LEARNING POINTS

This chapter should enable the reader:

● to understand the reasons for the growth in importance and size of

IFIs over the last decade;
272 Corporate social responsibility

● to understand what makes IFIs different from other types of finan-

cial institutions (particularly in terms of their governance struc-
tures); and
● to be aware of examples of CSR activity in IFIs in the Middle East.

DISCUSSION QUESTIONS

1. Why have IFIs grown in importance and size over the last decade?
2. What makes IFIs different from other types of financial institutions?
3. What are the governance challenges of IFIs?
4. Whose responsibility is it within an IFI to provide an independent
review and attestation of an IFI’s corporate social responsibility?
5. Is Islamic CSR in IFIs different from CSR in non-Islamic financial
institutions in the Middle East? (Give reasons)
6. Is Islamic CSR different from non-Islamic CSR? (Give reasons)

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Baydoun, N., A. Nishimura and R. Willett (eds) (1997), Accounting in the Asia-
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Dusuki, A. and M. Dar (2005), ‘Does corporate social responsibility pay off? An
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Erol C., E. Kaynak and R. El-Bdour (1990), ‘Conventional and Islamic banks’,
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Gambling, T. and R. Karim (1991), Business Accounting and Ethics in Islam,
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Grais, Wafik and Matteo Pellegrini (2006), ‘Corporate governance in institu-
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Hawkamah/IFC (2008), Corporate Governance MENA Survey, Dubai:
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Iqbal, M. and P. Molyneux (2005), 30 Years of Islamic Banking: History,
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Lewis, M. and L. Algaoud (2001), Islamic Banking, Cheltenham, UK and

Northampton, MA, USA: Edward Elgar.
Nathan, S. and V. Ribière (2007), ‘From knowledge to wisdom: the case of corpo-
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Pace, D. (2007), ‘Islamic finance: a truly global industry’, paper presented at the
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so/2007/res0919a.htm (accessed 10 March 2009).
Index
abuse 55 animal testing
accountability 220–21, 226, 232–5 Body Shop, The 60, 61, 62, 64, 67–8,
AccountAbility 1000 (AA1000) 11, 19, 73
37, 40, 41, 92 legislation 60, 72
Accounting and Auditing Organization L’Oréal 74
for Islamic Financial Institutions stakeholders 69
(AAOIFI) 264–5 annual reports 202
actors Ararat, Melsa 4
actor-centered approach 127, 142–3 art 90
corporate actors 130–31, 136–8, 141, Asia, corporate social responsibility
144 (CSR) in 3, 123–5
customers 131–2, 138, 141, 142 Asian financial crisis 127–8
investors 133, 139–40, 141, 142 Aslantepe, Gülay 236
labor 132–3, 138–9, 141, 142, 144 Association of Russian Managers 90, 91
state 128–30, 134–5, 140, 141 auditors 14, 234, 238, 246
added value 26 Australia
advertising 192 corporate social responsibility (CSR)
Afghanistan 202 in 3, 162–6, 169–70
age, influence of 242 government 148, 151–3, 156–8
Aguilera, Ruth V. 3, 127 pulp mill proposal, Gunns Limited
Algaoud, L. 260, 261 150–51, 153–62, 166–9
Algeria 202, 259 responsible competitiveness 42
Allah 262 Santos Oil 209–10
Allwood, Kirsty 166 Australian Labour Party (ALP) 156,
American Bar Association (ABA) 158–62
180 Austria 42, 44
American Gaming Association (AGA) Avansino, (Raymond) Skip 178, 179,
children, effects of gambling on 181
185 AVE (Foreign Trade Association of the
Code of Conduct 186, 190–93 German Retail Trade) 229–30, 237
corporate social responsibility (CSR)
185–7 Bacon, Jim 154
discussion questions 188 Bahrain 258, 259, 260
key learning points 187–8 Baker, W.E. 131
National Center for Responsible ballet 90
Gaming (NCRG) 4, 178, 183–4 Banaga, A. 260
National Gambling Impact Study banking
Commission 181–2 compliance with Shari’ah Law 4,
objectives 177–8 261–3, 264
origins of 178–81 corporate social responsibility (CSR)
Anderson, Sherry 65 264–6, 269–70

275
276 Corporate social responsibility

growth of Islamic Financial community role 107–10, 111, 113

Institutions (IFIs) 258–60 company profile 100–101
non-Islamic banks 270–71 corporate social responsibility (CSR)
products 263–4, 265 in 110–15
of Shari’ah Law Supervisory Boards data collection 99–100
(SSBs) 266–9 discussion questions 115
Bankinter 48–53, 57 employees 101–7, 111, 112–13
Baron, David 177 environment 110
Bass (Tasmania) 158, 159–60 key learning points 114–15
Bath & Body Works 71 Campbell, J.L. 223–4
Bayazıt, Mahmut 4 Canada 42, 67, 208–9
Baydoun, N. 260 Carney, B. 67
Beck, Matthias 4 Carroll, A.B. 76
Belgium 41, 42, 44 Carta, Silvia 2, 36
benign capitalism 195, 199, 212 Catturi, Guiseppe 10
Bleyer, Vanessa 166 Central Bank of Bahrain (CBB) 260
board of directors 12–14 Central Europe 2–3
Body Shop, The Chad 202
competitive advantage of corporate chaebols 128, 129, 130–31, 140
social responsibility (CSR) Chapple, W. 125
69–76 charity
differentiation 69 Camela S.A. Factory of Clothing
discussion questions 76 Inserts 107–10, 111
history 2, 59–68 Forest Oil 208
key learning points 70–76 Islamic corporate social
stakeholders 68–9 responsibility (ICSR) 268, 269,
Boyd, Bill 184 271
Braddon (Tasmania) 158, 159–60 Korea 130, 140
Braybrooke, D. 196–7 Russia 90
Brazil 225 charter of values 14–16
bribery 87 children 54, 185, 191–2
Brosig, Tom 184 Chile 42
Brown, Bob 163, 165–6 China 42, 202, 226
BSCI (Business Social Compliance Choi, Seungho 3
Initiative) 230, 232, 233, 234, 238, Chung Mong-Koo 131
247 citizenship 187
Buchholtz, A. 76 Coda, Vittorio 10
Buğra, Ayşe 236 codes of conduct
Burma 202 American Gaming Association
Burundi 202 (AGA) 186, 190–93
business organizations 90–91 cultural influences 224–5, 226, 246
Business Social Compliance Initiative discussion questions 249
(BSCI) 230, 232, 233, 234, 238, Inditex 53–6
247 institutional influence 223–4, 226,
business success, and corporate social 246
responsibility (CSR) 69–76, 84–5 key learning points 248–9
organizational strategies 221–3, 226,
Camela S.A. Factory of Clothing 246
Inserts Round Tables 230, 247–8
awards and prizes 100, 102, 118–19 self-regulation 220–21
 Index 277

Turkish Round Table 230–46 Contreras, Kate Spilde 4

unionization, effect on 216–17, 219, core ideology 74–5
232–46, 247 core values 60–62, 74–5
voluntary codes of conduct 218–19 corporate actors
weaknesses of 246–7 actor-centered approach 127
collective bargaining 222, 224–5, 227, influence on governments 170
228, 246, 247 Japan 136–8, 141, 144
collective voice face of unions 217 Korea 130–31, 141, 144
Collins, J.C. 74–5 corporate citizenship 187
commercial insurance 263 corporate governance
commercial success 69–76, 84–5 Body Shop, The 62, 64
communication 22, 23, 71, 106 country ratings 41
community Japan 137
American Gaming Association Russia 81
(AGA) Code of Conduct 193 Sabaf S.p.A. 11–14
Bankinter 48 Spain 40–43, 56
Camela S.A. Factory of Clothing corporate identity 14
Inserts 107–10, 111, 113 corporate social disclosure (CSD)
corporate social disclosure (CSD) in areas of human rights abuses 4,
199, 205–6, 207, 211–13 194, 200–201, 211–13
Forest Oil 208–9 data analysis, oil and gas industries
gambling 184–5 201–6, 207
Gunns Limited 163–4, 166–9 decision making 194–9
Islamic corporate social discussion questions 213
responsibility (ICSR) 268, 269, Forest Oil 208–9
271 key learning points 212–13
Italian companies 10 previous studies 199–201
key performance indicators 32 Santos Oil 209–10
policies towards 24, 25 corporate social responsibility (CSR)
Russian companies 82–5, 86–7, 88, in Australia 3, 162–6, 169–70
89–90, 92–4 banking 264–6, 269–70
Sabaf S.p.A. 20, 21, 24, 25, 32 Body Shop, The 69–76
as stakeholders 20, 21 codes of conduct 216–19, 248–9
community trade (Body Shop, The) 61, and commercial success 69–76, 84–5
62, 73, 74 as competitive advantage 70–72
companies corruption 130–31, 224, 241
incrementalism in decision making cultural influences 126, 224–5, 226,
195–9 241–5, 246
organizational strategies 221–3, 226, in discussion questions 144
235–9, 246 Dubai Centre for Corporate Values
ownership 100, 103 (DCCV) 260
self-regulation 220–21 European Commission 219–20, 229
compatibility 232–5 externalities 188
competition 70–72, 221 foreign firms 88, 95
competitors 20, 21, 24 gambling 185–7
complaints 30, 31 government 83
complementarity 220–21 incentives 223–4, 226
Congo, Democratic Republic of 202 institutional environment 223–4,
Congo, Republic of (People’s Republic 226
of Congo) 202 investor interest 1–2
278 Corporate social responsibility

Islamic Financial Institutions (IFIs) differentiation 69, 70–72

264–6, 269–70, 271–2 directors 12–14
in Italy 2, 9–11, 34–5, 41, 44 disabled employees 45, 48–53, 57
in Japan 3, 123–5, 133–40, 141–2, discretionary responsibility 124–5
143–4 discrimination 54–5
in Korea 3, 123–5, 127–33, 140–41, see also disabled employees; gender
143–4 diversity
and management 114, 126 discussion questions
meaning of 1, 9, 82–3, 177 American Gaming Association
media 98 (AGA) 188
motivation 221–4, 226 Body Shop, The 76
non-Islamic banks 270–71 Camela S.A. Factory of Clothing
in Poland 98–9, 110–15 Inserts 115
profit 70–76, 136–7, 162–6 codes of conduct 249
in Russia 2–3, 81–2, 83–93, 94–5 corporate social disclosure (CSD) in
and Shari’ah Law 261, 266–9 areas of human rights abuses
in Spain 2, 40–43, 56–7 213
spread of 4–5 Gunns Limited pulp mill proposal
standards 264–6 171
studies 125–7 Islamic Financial Institutions (IFIs)
in transparency 71 272
see also Islamic corporate social Japan 144
responsibility (ICSR) Korea 144
corruption 130–31, 224, 241 Russia 95
Crane, A. 81, 82 Sabaf S.p.A. case study 35–6
creditors 20, 21, 23 Spain 57
cultural creatives 65–6 diversity 43–8, 185–6
cultural support 10, 89–90, 108, 111, DJ Sustainability Indexes 42
270 Domestic Labor Party (DLP), Korea
cultural values 126, 224–5, 226, 241–5, 132–3
246 Dow Jones Sustainability Index (DJSI)
customers 44
actor-centered approach 127 Dror, Y. 195, 197
American Gaming Association Dubai Centre for Corporate Values
(AGA) Code of Conduct (DCCV) 260
190–92 Dusuki, A. 261, 269
Japan 138, 141, 142
Korea 131–2, 141, 142 Eastern Europe 2–3
policies towards 23, 62 Economic and Social Council (ESC)
Sabaf S.p.A. 20, 21, 23 240
as stakeholders 20, 21 economic impact 223–4, 226,
239–41
Dar, M. 261, 269 education
Davis, Graham 164–5 Camela S.A. Factory of Clothing
debt finance 265 Inserts 105, 109, 111
decision types 196 gambling 186, 190
Del Bello, Adele 16 Russian companies 89
Del Rio, Silvia 2, 36 work councils 245
Denmark 41, 42, 44 Egypt 202, 259
Deporte y Desafío Foundation 52 Elkington, J. 76
 Index 279

employees Sabaf S.p.A. 18, 20, 21–2, 24, 32–4,

American Gaming Association 35
(AGA) Code of Conduct Santos Oil 209, 210
190 as stakeholders 20, 21–2
Camela S.A. Factory of Clothing suppliers’ conduct 55
Inserts 101–7, 111, 112–13 environmental sustainability index
company ownership 100, 103 (ESI) 124
corporate social disclosure (CSD) environmentally friendly products 137
200, 201, 205–6, 207, 209–10, equal opportunities 43–8, 57, 136, 138
211–13 equity finance 265
disabled employees 45, 48–53, 57 Erol, C. 260
gender diversity 43–8 Eroski 47–8, 57
Gunns Limited 163–4 Estonia 42
health 10, 55, 105, 111, 209–10 Ethibel 11, 34, 36
Japanese companies 136–7 ethical auditing 67
performance indicators 25–6, 27, 28, ethical perspective stakeholder theory
29, 31 199–200
policies towards 22, 23, 62 ethical responsibility 124–5
Russian companies 82–5, 86–7, 88, Ethical Trading Initiative (ETI) 54
89, 92–4 ethics 70–72, 195
Sabaf S.p.A. 19–23, 25–6, 27–32 Europe 2–3, 139
Santos Oil 209–10 European Commission 219–20, 229
social indicators 30–32 European Union (EU) 225, 229
as stakeholders 19–20, 21 externalities 167–8, 188
of suppliers 54–5 Exxon Valdez oil spill 168–9
volunteering programmes 52, 53,
57, 62 Fahrenkopf, Frank 178, 179–81, 182,
energy consumption 33, 34 183, 184–5, 187
enlightened capitalism 195, 199 Federation of Korean Trade Unions
enlightened stakeholder theory 35 (FKTU) 132
enterprise unions 138–9 financial crisis, Korea 127–8
Entine, Jon 63–4 financial reporting 16–19, 25–7, 35
environment Finland 41, 42, 44
Australia 152–3, 158–9 flexibility 75
Camela S.A. Factory of Clothing foreign firms
Inserts 110 influence in Japan 136, 137–8, 143
corporate social disclosure (CSD) influence in Korea 130, 143
200, 201, 205–6, 207, 208–9, influence in Russia 85–6, 88, 90, 95
210, 211–13 introduction of corporate social
Exxon Valdez oil spill 168–9 responsibility (CSR) 88, 95
Forest Oil 208–9 Foreign Trade Association of the
Gunns Limited pulp mill 150–51, German Retail Trade (AVE) 229,
164–5, 166–9 237
Italy 10 Forest Oil 4, 208–9, 212
Japanese companies 124, 135, 137 Forestry Tasmania 149–50, 154, 155
Korean companies 124, 130 France 41, 42, 44, 219
legislation 152–3 franchise protection costs 87
policies towards 24, 62 freedom of association
reporting 18, 35, 91–2 cultural opposition to 225
Russian companies 91–2, 94 Inditex 55
280 Corporate social responsibility

legislation 246 Turkish imports 225

management opposition to 222 unions 219
Turkey 227, 234–5, 236–7 gharar (uncertainty) 263, 264
Freeman, Edward 19 Gibson, Kathy 3
FTSEGood Indexes 43 Gillies, James 2
FTSEGoodIbex Index 43 Global Compact 11, 37, 42, 54, 91
Fukukawa, K. 137 see also International Labour
fundamental dependence of ends on Organization (ILO); United
means 197 Nations (UN)
Global Gaming Expo (G2E) 186
gambling Global Reporting Initiative (GRI)
American Gaming Association Body Shop, The 67
(AGA) 177–81 Japanese companies 139
children, effects of gambling on 185, Korean companies 133
191–2 Sabaf S.p.A. 11, 16, 25, 33
Code of Conduct 186, 190–93 Gómez Ansón, Silvia 2
corporate social responsibility (CSR) governance 267–8
185–7 government
government relationship 184–5 actor-centered approach 127
National Center for Responsible Australia 148, 151–3, 156–8
Gaming (NCRG) 4, 178, and corporate social responsibility
183–4 (CSR) 83
National Gambling Impact Study gambling industry, relationship with
Commission 181–2 184–5
societal problems of 178 Japan 134–5, 140, 141
Gambling, T. 260 Korea 128–30, 140, 141
gaming see American Gaming Poland 102–7, 111–12
Association (AGA); gambling political role in pulp mill proposal
garment industry 4, 223–4, 225–6, 157–62, 169–70
227–9 Russia 86–7, 92–4
Garrett, Peter 161 Turkish Round Table 233–4, 235,
gas industry 201–6, 207 240
Gay, John 153, 154, 155, 156, 157, Grafski, S. 81, 82
164–5 Grais, W. 260
GBS (Gruppo di studio per il Bilancio Greece 44
Sociale) 11, 16, 25, 37 Green Party (GP), Australia 158–62,
gender diversity 24, 43–8, 57, 62–3, 163
185–6 GTZ (Deutsch Gesselschaft für
German Federal Ministry for Technische Zusammanarbeit) 230
Economic Cooperation and Gulf Bank 271
Development (BMZ) 229 Gulf Finance House (GFH) 268
Germany Gunns Limited
AVE (Foreign Trade Association company profile 149–50
of the German Retail Trade) corporate social responsibility (CSR)
229–30, 237 3, 162–6, 169–70
corporate governance rating 41 discussion questions 171
gender diversity 44 economic impact of pulp mill 162–5
responsible competitiveness 42 environmental effects of pulp mill
Social Standards Round Table proposal 166–9
229–30 key learning points 170
 Index 281

political role in pulp mill proposal insurance 263

157–62, 169–70 Integrated Impact Statement (IIS) 153,
pulp mill proposal 150–51, 153–7 155
triple bottom line reporting 3, 148–9, interest, from lending 262–3, 264
170 International Confederation of Free
Trade Unions (ICFTU) 219
haram (forbidden activities) 262, 264 International Design Bureau 92
harassment 55 International Islamic Financial Market
Harrah’s Entertainment 185 (IIFM) 263
health International Labour Organization
of employees 10, 55, 105, 111, (ILO)
209–10 Core Conventions 219
Islamic corporate social international regulation 216, 227
responsibility (ICSR) 270 Social Standards Round Table 230
pollution effects 168 standards 54, 246
Hewlett Packard 74 strikes in Turkey 229
Hiß, S. 247 Turkish Round Table 236, 244, 256
Hofstede, G. 126 see also Global Compact; United
Hogan & Hartson 179 Nations (UN)
Hong Kong 42 International Monetary Fund (IMF)
Howard, John 155 218
human capital 27, 28 International Textile, Garment and
human rights abuses Leather Workers’ Federation
corporate social disclosure (CSD) 4, (ITGLWF) 233
194, 200–201, 211–13 international trade 87–8
countries 202 International Trade Secretaries (ITS)
oil companies involvement in areas 219
of 201–6, 207, 209–10 investment 12, 87–8, 95
Hungary 43 investors 1–2, 127, 133, 139–40, 141,
hybrid cars 137 142
Hyundai Motor Group 131 see also institutional investors
Iqbal, M. 261
Iberdrola 44–7, 57 Iran 202, 259
Iceland 41, 42 Iraq 202
IG Bergbau, Chemie und Energie 132 Ireland 42, 44
incentives 223–4, 226, 235, 239–41 Islamic corporate social responsibility
incrementalism 195–9, 200, 209, (ICSR)
211–12 non-Islamic banks 270–71
India 226 in practice 269–70, 271–2
Inditex 53–6, 57 Shari’ah Law Supervisory Boards
Indonesia 202, 209–10, 226, 258 (SSBs) 266–9
inertia 195 standards 264–6
informal workplaces 239–41, 246–7 Islamic Financial Institutions (IFIs)
infrastructure 86–7, 109, 111 banking products 263–4, 265
Inglehart, R. 131 compliance with Shari’ah Law 4,
innovation 27–8, 29, 105–6 261–3, 264
institutional environment 223–4, 226, corporate social responsibility (CSR)
233–4, 239–41, 246 264–6, 269–70, 271–2
institutional investors 1–2, 127, 133, discussion questions 272
139–40, 141, 142 growth of 258–60
282 Corporate social responsibility

key learning points 271–2 Gunns Limited pulp mill proposal

non-Islamic banks 270–71 170
of Shari’ah Law Supervisory Boards Islamic Financial Institutions (IFIs)
(SSBs) 266–9 271–2
ISO 14001 11, 22, 24, 32, 36 Japan 143–4
ISO 9001 23, 101 Korea 143–4
Italian Code of Conduct on Corporate Russia 94–5
Governance 12–13, 22, 23 Sabaf S.p.A. case study 35
Italy 2, 9–11, 12, 34–5, 41, 44 Spain 56–7
see also Sabaf S.p.A. key performance indicators 25–34
ITKIB (Istanbul Textile and Garments Koładkiewicz, Izabela 3
Exporters’ Union) 238, 256 Korea (South Korea)
corporate social responsibility (CSR)
Jackson, G. 127 in 3, 123–5, 127–33, 140–41,
Japan 143–4
corporate social responsibility (CSR) discussion questions 144
in 3, 123–5, 133–40, 141–2, environment 124, 130
143–4 key learning points 143–4
discussion questions 144 labor 132–3, 141, 142, 144
environment 124, 135, 137 paternalism 225
key learning points 143–4 responsible competitiveness 42
labor 132, 138–9, 141, 142, 144 social responsibility 124–5
paternalism 225 sustainability 124
responsible competitiveness 42 see also North Korea
social responsibility 124–5 Kuwait 259, 269, 270
Sovereign Islamic Bonds (SIBs) Kuwait Finance House (KFH) 269
259 Kyoto Protocol 137
sustainability 124
Jeurissen, Ronald 2 labor
Johnson & Johnson 74 actor-centered approach 127
Joint Initiative on Corporate child labor 54
Accountability and Workers’ codes of conduct 246–8
Rights (Jo-In) 235, 244 Japan 132, 138–9, 141, 142, 144
Jordan 259 Korea 132–3, 141, 142, 144
role of unions 217–18
Karim, R. 260 Round Tables, benefit of 247–8
Keidanren (Japanese Business Turkey 227–9
Federation) 135, 137 Turkish Round Table 230–46
Kempen SNS SRI index 11, 34, 36 see also unions
Kesaeva, Stella 90 Launceston (Tasmania) 150, 152, 162,
key learning points 167–8, 169
American Gaming Association Lebanon 259
(AGA) 187–8 Lee Kun-hee 131
Body Shop, The 70–76 legal disputes 30, 31, 165–6
Camela S.A. Factory of Clothing legal responsibility 124–5
Inserts 114–15 legal systems 126
codes of conduct 248–9 legislation 55, 60, 72, 135, 152–3,
corporate social disclosure (CSD) in 246
areas of human rights abuses legitimacy 220–21, 226, 232–5
212–13 legitimacy theory 199
 Index 283

Lennon, Paul 153–4, 155, 156, 157, Morocco 226, 259

161–2 motivation 221–4, 226
Lewin, A.Y. 134 Muhammad, Prophet of Islam
Lewis, M. 260, 261 (PBUH) 262
Liberal/National Coalition (LNC) Murray, J. 218
158–62 Muslim employees 15
Libya 202 mutual insurance (takaful) 263
Lindblom, C.E. 196–7, 198 Myanmar 202
Lindblom, C.K. 199
Lithuania 42 Nathan, Samy 4, 260
local community support see National Bank of Kuwait (NBK) 270
community National Center for Responsible
local government 109, 113, 152, 156–7, Gaming (NCRG) 4, 178, 183–4,
158, 181 187, 188
L’Oréal 67–8, 74 National Gambling Impact Study
Luxembourg 44 Commission 181–2
Lyons (Tasmania) 158, 159–61 National Round Tables 230
Naturewatch 68
Malaysia 42 Navarro, María Sacristán 2
malign incrementalism 195–6, 200, 212 neo-institutional theory 221
Mallin, Christine A. 36 Netherlands 41, 42, 44
management role New Zealand 42
corporate social responsibility (CSR) Nigeria 201
114, 126 Nijhof, André 2
ethical code 195 non-governmental organizations
opposition to freedom of association (NGOs) 91, 95
222 North Korea 202
in Russian companies 88–9, 94 Norway 41, 42, 44
marketing 64–5
Masini, Carlo 10 O’Donovan, Gary 3
materials 33 oil industry
Mathewson, Chuck 178, 180, 181 corporate social disclosure (CSD)
McDonalds 166 201–6, 207, 211–13
McIvor, Steve 64 Forest Oil 4, 208–9, 212
McLibel case 166 human rights abuses 201–6, 207,
McWilliams, Abagail 177 209–10
media 30, 31, 98, 185 Santos Oil 4, 209–10, 212
Melis, Andrea 2, 36 Öko-Tex Standard 100 certificate 110,
Melitonyan, Olga 2 111
METI (Ministry of Economy, Trade Oman 259
and Industry), Japan 135 Onida, Pietro 10
MGM Mirage 185 Oosterwijk, Jan 65, 67
mission statement 62 opacity index 124, 125
Mitchell, R.K. 68 opera 90
MOCIE (Ministry of Commerce, Organisation for Economic Co-
Industry and Energy), Korea 129 operation and Development
Molyneux, P. 261 (OECD) 54, 85
monopoly face of unions 217 organizational strategies 221–3, 226,
Moon, J. 81, 82, 125, 137 235–9, 246
morality 70 oversight 220–21, 226
284 Corporate social responsibility

OZIPLIK-IS (Union of Textile, pulp mill proposal, Gunns Limited

Thread, Knitwear and Garment company profile 149–50
Workers of Turkey) 227, 233, corporate social responsibility (CSR)
256 3, 162–6, 169–70
Ozler, S. 226 discussion questions 171
economic impact of pulp mill 162–5
Pakistan 202 environmental effects of pulp mill
Palestine 259 proposal 166–9
Parmalat 9 key learning points 170
paternalism 225, 226, 241–5 political role in pulp mill proposal
Patten, D.M. 199 157–62, 169–70
Patterson, Judy 180, 183 pulp mill proposal 150–51, 153–7
PDVSA (Petróleos de Venezuela) 203, triple bottom line reporting 3, 148–9,
204 170
Pellegrini, M. 260 Putin, Vladimir 86
Perestroika 84, 85
performance indicators 25–34 Qatar 259
Perrini, Francesco 10 quality, of products 66
philanthropy 9, 89–90, 95, 165 quality management 22–5
Pierce, Chris 4 Quin, Ben 160
planning process, Tasmania 153 quintuple bottom line (QBL) 148,
Poland 3, 98–9 170
see also Camela S.A. Factory of Qur’an 262, 263, 267
Clothing Inserts
political objectives 148–9, 157–62, R&D (research and development)
169–70 indicators 27–8, 29
pollution 168 Ray, Paul 65
Porras, J.I. 74–5 regulation 55, 60, 72, 135, 152–3, 246
Porter, M. 71 see also self-regulation
Portugal 41, 42, 43, 44 Reilly, Christine 184
power distance 225, 226, 241–5 relational capital 28–30, 31
Presidential Commission on relevant publics 199–200
Sustainable Development of the remuneration 55, 217
Republic of Korea (PCSD) 130 Republic of Korea see South Korea
privatization 103–7, 111–12 Resource Planning and Development
product quality 66 Commission (RPDC) 152, 153,
product safety 10 155, 156
profit responsible competitiveness 41–2
compliance with Shari’ah Law 263, restrictive adaption 195–9, 200,
264 211–12
and corporate social responsibility revolutionary change 75
(CSR) 70–76, 136–7, 162–6 riba (usury or interest) 262–3, 264
function of 10 Ribière, V. 260
government influence 170 rigor 220–21, 226, 232–5
ProGReSS 16 risk, compliance with Shari’ah Law
Prophet Muhammad (PBUH) 262 263, 264
proprietary learning 71 Roddick, Anita 59, 60–61, 62–3, 64,
public administration 20–21, 24, 86–7 67, 70
publicity 63–4 Roh Moo Hyun 129
Pulp Mill Assessment Act (2007) 156 Roos, Johan 27
 Index 285

Round Tables 229–30, 247–8 Islamic corporate social

see also Turkish Round Table responsibility (ICSR) 264–6,
Russia 269–71
corporate governance 81 non-Islamic banks 270–71
corporate social responsibility (CSR) Shari’ah Supervisory Boards (SSBs)
2–3, 81–2, 83–93, 94–5 266–9
discussion questions 95 Shell 201
key learning points 94–5 Shepard, J.M. 136
Russian Union of Industrialists and Siegel, Donald S. 4, 177
Entrepreneurs (RSPP) 90–91 Sierra Leone 202
Rwanda 202 simultaneous maxima 10
Singapore 42
SA8000 11, 23, 30, 37, 230 SkinEthic 68
Sabaf S.p.A. Slovenia 42
charter of values 14–16 Social and Economic Council of the
corporate governance 11–14 Netherlands (SER) 71
corporate social responsibility (CSR) social auditing 67
2, 11, 34–5 social effects of industrial development
discussion questions 35–6 168–9
key learning points 35 social indicators 30–32, 35
key performance indicators 25–34 social reporting 16–19, 35
social report 16–19 social responsibility see corporate
stakeholders 19–25 social responsibility (CSR)
safety of employees 55, 209–10 Social Standards Round Table 229–30,
Saleri family 11–12, 13 247
sales 29, 31 see also Turkish Round Table
Samsung Group 131 socially responsible investment (SRI)
Santos Oil 4, 209–10, 212 133, 139, 142, 144
satisficing 198 Sony 74
Satre, Phil 184 South Africa 42
Saudi Arabia 258, 259 South Korea see Korea (South
SEAN (Social and Ethical, Auditing Korea)
and Accounting Network) 37 Sovereign Islamic Bonds (SIBs) 259
self-interest 136 Soviet Union 83, 89–90
self-regulation 218–19, 220–21 Spain
separation of powers 12 corporate governance in 40–43, 56
Settles, Alexander 2 corporate social responsibility (CSR)
Severstal 88–9 in 2, 40–43, 56–7
Shaffer, Howard 182–4 discussion questions 57
shareholders gender diversity 43–8
corporate social disclosure (CSD) key learning points 56–7
198–9 responsible competitiveness 41, 42
policies towards 22, 23, 31, 62 speculation 263
relational capital 30 sponsorship 89, 108, 111
Sabaf S.p.A. 20, 21, 22, 23, 30, 31 sports 108, 111
as stakeholders 20, 21 stakeholder management model 126–7
Shari’ah Law stakeholders
compliance with 4, 261–3, 264 Body Shop, The 68–9
and corporate social responsibility identification 19–22, 35, 99
(CSR) 261, 266–9 policies towards 22–5, 62
286 Corporate social responsibility

power of 68–9 Sweden 41, 42, 44

relational capital 28–30, 31 Switzerland 41, 42, 44
standards Syria 259
International Labour Organization
(ILO) 54, 246 Tamar Valley 150, 155, 164
Islamic corporate social Tasmania
responsibility (CSR) 264–6 corporate social responsibility (CSR)
Social Standards Round Table of Gunns Limited 3, 162–6,
229–30, 247 169–70
STAR stock exchange listing, Italy 12, environmental effects of pulp mill
34 proposal 150–51, 164–5, 166–9
state government 151–3, 156–8
actor-centered approach 127 industries 154
Australia 148, 151–3, 156–8 political role in pulp mill proposal
and corporate social responsibility 157–62, 169–70
(CSR) 83 Taymaz, E. 226
gambling industry, relationship with TEKSIF (Textile, Knitting and
184–5 Clothing Industry Workers’ Union
Japan 134–5, 140, 141 of Turkey) 227, 231, 233, 256
Korea 128–30, 140, 141 TEKSTIL-IS (Textile Workers’ Union)
Poland 102–7, 111–12 227, 231, 233, 234, 236, 238, 256
political role in pulp mill proposal Telefónica 53, 57
157–62, 169–70 Thailand 259
Russia 86–7, 92–4 The Body Shop see Body Shop, The
Turkish Round Table 233–4, 235, TNK-BP 88
240 tobacco industry 178
strategic corporate social responsibility Toms, Steven 4
177, 188 Trade not Aid programme 62, 64
see also corporate social trade unions see unions
responsibility (CSR) training 10, 105, 106, 245
strikes 132, 229 transparency 71–2, 124
structural capital 27–8, 29 Triodos 71
subcontracting 55, 238, 246–7 triple bottom line reporting
Sudan 202 Gunns Limited case study 3, 148–9,
SU-HSE (State University Higher 170
School of Economics) 81 Sabaf S.p.A. 11, 16–19, 34, 35
Sunnah 262 Tunisia 259
suppliers Turkey 4, 225–6, 227–9, 241–5, 259
Body Shop, The 73 see also Turkish Round Table
clusters 56 Turkey’s Garment Producers’
employees 54–5 Association (TGSD) 231
policies towards 23, 53–6, 57, 62 Turkish Round Table
relational capital 30, 31 data 230–32
Sabaf S.p.A. 20, 21, 23, 30, 31, 32 effect on unionization 232–46, 247
Santos Oil 210 members 256
social indicators 32 Turnbull, Malcolm 161
as stakeholders 20, 21
Turkish Round Table 232–46 uncertainty-avoidance 224, 226, 241–5
sustainability 62, 69–76, 124, 130 Unified Code of Best Practice (Spain)
sustainability governance 18 40, 43
 Index 287

unions see also American Gaming

and codes of conduct 216–17, 219, Association (AGA)
232–46, 247 USSR 83, 89–90
Japan 138–9, 142 usury 262–3, 264
Korea 132–3
marginalization of 216–17, 247 Valdez (Alaska) 168–9
relational capital performance values, charter of 14–16
indicators 29, 31 Van Melle 73
role of 217–18 Ven, Bert van de 2
Round Tables, benefit of 247–8 Verheugen, Günter 40, 114
Turkey 227–9 visionary companies 74–6
Turkish Round Table 230–46, voluntary codes of conduct 218–19
247 volunteering programmes 52, 53, 57, 62
United Arab Emirates (UAE) 42,
258, 259 wages 55, 217
United Kingdom (UK) 41, 42, 44, 67, Walt Disney 74
219, 259 waste 33, 34
United Nations (UN) 1, 54, 91, 137 Wilderness Society 155, 165–6
see also Global Compact; Wokutch, R.E. 125–6, 136
International Labour women 43–8
Organization (ILO) work councils 237, 245–6, 257
United States (US) working hours 15
American Bar Association (ABA) Working Today 250
180 World Competitiveness Report 124
Body Shop, The in 63, 67 Wynn, Steve 178, 180, 181
Forest Oil 208–9
philanthropy 90 Yemen 202
responsible competitiveness 42 Yugoslavia 202
socially responsible investment (SRI)
139 Zambon, Stefano 16