Business and Society: Corporate Social Responsibility

1. Business and Society:Corporate Social Responsibility Professor Alexander Settles Faculty of Management, State University – Higher School of Economics

2. What is Corporate (Social) Responsibility (CSR)? • Definitions and Terms • Corporate social performance • Corporate social responsibility • Social Capital • Corporate responsibility • Business Ethics • Socially responsible investing Business Ethics • Human Capital • Corporate Citizenship • Corporate Accountability • Sustainability • Sustainable Development

3. What is Corporate Social Responsibility (CR)? • Internal • Business Ethics • Human resource / personnel management • Labor standards of suppliers • External • Social – local and global • Environmental

4. Responsibilities of Business Economic (must do) Legal (have to do) Ethical (Should Do) Discretionary (Might Do)

5. Milton Friedman’s Traditional View of Business Responsibility • “There is one and only on social responsibility of business – to use its resources and engage in activities designed to increase profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” (1970) Economic Legal Ethical Ethical

6. CSR Components • Business Ethics Environment • Rule of Law – Anti-Corruption • Labor Market Conditions • Environmental Risks • Social/Political Risks • Corporate Governance Risks

7. Frameworks - Triple Bottom Line (a) Economic bottom line. Although main emphasis is on financial performance, this often refers not only to profit but to the philosophies behind a company's strategy or behavior, the sustainability of its businesses and its 'human capital'. (b) Environmental bottom line. The impact of its products or operations on the environment, plus the nature of its emissions and waste and how it is dealing with them. (c) Social bottom line. How it approaches issues such as ethnic and gender diversity, working hours and wages, staff security and its contribution to community services or facilities.

8. WBI Framework

9. WBI: CR as an Integrated Approach • A comprehensive set of policies, practices and programs • Integrated into business operations, supply chains, decision making processes • Includes responsibility for current and past actions as well as future impacts • Issues vary by company size, sector, and location

10. UN Approach: Global Compact Human Rights Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and Principle 2: make sure that they are not complicit in human rights abuses. Labour Standards Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; Principle 4: the elimination of all forms of forced and compulsory labour; Principle 5: the effective abolition of child labour; and Principle 6: the elimination of discrimination in respect of employment and occupation.

11. UN Global Compact Environment Principle 7: Businesses should support a precautionary approach to environmental challenges; Principle 8: undertake initiatives to promote greater environmental responsibility; and Principle 9: encourage the development and diffusion of environmentally friendly technologies Anti-Corruption Principle 10: Businesses should work against all forms of corruption, including extortion and bribery.

12. Russian Firms in the Global Compact – Joined • Analytmarketing Joint Stock Company, 2001/06/21 • Intersputnik International Organisation of Space, Communications Technology Hardware & Electrical Equipment, 2003/01/03 • Iteren, Professional, Scientific and Technical Services, 2004/05/11 • Joint Stock Company Foreign Trade Association, 2002/03/22 • JSC "Murmanelectrosviaz", Telecommunication, 2002/06/27 • JSC ALTEN, Construction Materials 2005/06/21 • Kirov State Air Enterprise, Aerospace & Aviation 2002/03/22 • Moscow City Telephone Network, Telecommunication 2002/06/27 • MTK Companies Group, Telecommunication 2002/06/27 • Murmanelectroviaz Telecommunication 2002/06/27 • Nefteyugansk United Airline Transportation Company, Aerospace & Aviation 2002/03/22 • Russian Aluminium Joint Stock Company, Metals & Mining 2002/03/27 • Sistema JSFC 2002/08/31 • Svyazinvest JSC, Telecommunication 2002/06/27

13. Russian Firms in the Global Compact – Joined and submitted COP • CJSC ARM Group Enterprises, Utilities 2004/05/26 • Interros, Finance & Insurance 2001/10/22 • Volga-Dnepr Airlines, Aerospace & Aviation 2000/11/14 • Yukos Oil, Oil & Gas 2001/08/15

14. US Corporate Responsibility • CSR / Corporate Social Performance has existed in some form for more than 25 years in the U.S. • Sources of CSR/CSP: • Environmental regulation • Foreign Corrupt Practices outlawed • Development of Socially Responsible Investment community • Institutional investors place pressure on corporations • Employee retention and development are crucial for success

15. Corporate Citizenship – US approach • Good corporate citizenship; • Provision for a safe and healthy workplace; • Exemplary employment practices; • Responsible environment protection and practices; • Contribution to the overall growth and development of the local economy; • Implementation of activities that are compatible with local science and technology policies • Compliance with international, and local laws, focusing on anti-corruption, anti-bribery and transparency. Source: US Department of State

16. US CSR Activities • Business organizations • The Business Council • Business Roundtable • The Conference Board • Investment screening • Investor Responsibility Research Center • Dow Jones Sustainability Indexes

17. Russian Approach • RSPP – Social Charter • Economic and financial stability (pay taxes) • Quality of production (customers) • Labor Relations • Human rights • Protect the environment • Form local associations to work with local stakeholders and government

18. Russian Approach • Measuring • UNDP & Russian Association of Manager’s Report “About the social investments in Russia in 2004” • AMR’s “Business and the social development of Russia: problems and prospects” 2006 • Reporting • Accountability • Global Reporting Initiative (GRI)

19. Examples of Russian Reports • Alfa Bank • British American Tobacco Russia • JSC Gazprom • JSC Lukoil Oil Company • McDonald's Russia • North-West Timber Company • OJSC MMC Norilsk Nickel • RAO UES • RUSAL • Sibneft (Gazprom Neft) • YUKOS Oil Company PC

20. Corporate Responsibility as Firm Strategy Examples • Environmental concerns or fair trade concerns allow for companies to charge premium prices – Ben & Jerry’s Homemade Inc. and The Body Shop • Trustworthiness may generate enduring relationships with suppliers - Maytag

21. Corporate Responsibility as Firm Strategy Examples • Firms can attract outstanding employees that desire to work for a responsible firm – Procter & Gamble • They are more likely to attract capital infusions from investors who view reputable companies as desirable long-term investments - Rubbermaid

22. CSR and Risk Management • Protecting and enhancing reputation, brand equity and trust • Attracting, motivating and retaining talent • Managing and mitigating risk • Improving operational and cost efficiency • Ensuring license to operate • Developing new business opportunities– new products and services, new markets, new alliances, new business models • Creating a more secure and prosperous operating environment

23. Sources of Social Risk

24. Social Risk Equation

25. Social Risk as Managed Strategic Risk

26. Evolution of Social Risks

27. Reputation, Corporate Responsibility, and Competitiveness • Does a socially responsible commitment by corporations improve the business climate? • What are the results from the US and other western countries? • The CCG has played a role in exposing the academic community to Corporate Governance practices and CSR issues

28. Corporate Social Reporting – Some of the Standards • Global Reporting Initiative • AA1000 & AA1000SES – AccountAbility • SA8000 SAI • Business process standards • ISO 9000 "quality management” • ISO 14000 "environmental management” • IAASB’s International Standard on Assurance Engagements • ISO 26000 “corporate social responsibility – published by 2008

29. Stakeholder Engagement Model

30. Engagement Questions for the Firm • What is the issue or problem? • How complex is it? • What is its scope? • Who else has an interest in the problem? • What is working and not working in the current approach? • What would be accomplished by engaging others in the dialogue?

31. Reporting Concepts • Determine information requirements for early sensing and reporting • Establish reporting protocols • Reporting chain • Reporting frequency (e.g., urgent vs. routine) • Reporting templates • Create metrics that support: • Measurement and assessment of risk impact • Aggregation and prioritization (including common taxonomy) • Meaningful and contextualized understanding of material risks • Develop protocols for early warning indicators for immediate reporting/action • Identify internal and external information sources • Define reporting tools

32. Reporting Standards • Stakeholder Involvement • Subject Area • Environmental • Labor • Transparency and Ethics • Industry Area • Forestry • Mining • Oil and Gas • Telecommunications • Hospitality

33. Sustainability Reports • Understanding of a company’s economic, social, and environmental position • What kind of company are we? • What are the key issues for long term financial growth and sustainability? • What are the pressures on the company? • How should the company be positioned?

34. Sustainability Reporting • Risks to the company – Defining the scope • What are the risks? • Who is evaluating the risks? • How often? • Proactive versus Reactive • Setting policies • Who sets the policies? What is the Board of Directors involvement? • Involving the company • Involving stakeholders

35. Sustainability Reporting • Who is the audience? • Employees • Government • Public • Investors • Stakeholders • What will be disclosed? • Operational Issues • Information gathering and control systems • Standard operating procedures • Internal reporting • Assurance