Corporate Social Responsibility in Europe: Shaping New Governance

1. Dr Béla Galgoczi:European Trade Union Institute, Brussels Changing patterns of corporate social responsibility in Europe EU – Japan workshop on Corporate Social Responsibility Hitotsubashi University, Tokyo, Japan 26-27 November 2004, Tokyo

2. Brief overview of the different corporate governance models, in Europe: Liberal market economy vs. Co-ordinated market economy /with alternatives, as social-democratic, Rhineland – model or etatistic/. The basic differences of the two major models: -financing /dominantly/ through capital markets or bank credits; -corporate governance /CEO, dual board, “patron”/; - innovation /market, venture capital, incrementalistic/; -participation, employee representation /conflictual, co-operative, participatory/; -qualification, training and human resource policies.

3. Universal problems with corporate governance • Raising uncertainties and complexity regarding the social dimension of company behaviour /co-operation vs. Conflictual relations; short term vs. Long-term perspective/; • Dealing with people in a global economy; • Need for stability – externalisation of social and environmental aspects is not sustainable in long-term perspective; • Declining influence of nations vs. Social partners rooted nationally

4. The emergence of the CSR concept One of the most important drivers of CSR is the idea that there is a “business case” for responsibility. • not only the financial performance of a company can be objectively measured, • but the non-financial performance can also be analysed, reported • auditing and certifying methods to be developed • the term “triple bottom line” - which links financial, environmental and social performance of companies.

5. Definitions of CSR • Corporate social responsibility is a commitment by a company to manage its role in society – as producer, employer, market player, customer and citizen – in a responsible and sustainable manner. • including a set of voluntary principles – over and above legal requirements – that seek a positive impact on societies • CSR is “good corporate governance” – doing good /not being seen as doing good/ by recognising the company’s responsibility to all its stakeholder groups. • CSR is a concept, whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on voluntary basis.

6. Promoting democracy on company level • Workers involvement is a social and economic advantage; it is a need in civil society • European framework and support must help to improve traditional practices in national/local working cultures inshaping challenges from globalization • Workers involvement will become a new importance in thinking on a new social role of – multinational – companies after the decade of a pure shareholder value approach • Workers involvement is more than strong legal framework: f.e. HRM, CSR, financial participation

7. Structure of European level governance • Legally binding • Regulation  European law  legislative act • Directive  European framework law  legislative act •  European regulation  non-legislative • Decision  European decision  non-legislative • Not legally binding • Recommendation  Recommendation • Opinion  Opinion

8. Direct Participation Collective Bargaining Workers Representation Co-determination Capital Ownership Sectoral Policies Workers Involvement – Pieces of a Puzzle

9. Workers Involvement – as legislative elements of the European Framework Information & Consultation European Works Councils SE-Directive

10. The European framework of WP • Information and consultation and participation of employees belongs to the core elements of the European Social Model. n • From the end of the 1980s workers’ participation has received particular attention and has been embedded in several EU Directives. • This went parallel with the rediscovery of the importance of human resources and trust-based employee relations in company success

11. Renewing the European governance system Less top-down approach Complementing policy tools by non-legislative elements • ·Appropriate use can be made of alternatives to legislation without undermining the provisions of the Treaty • -co-regulation • -self-regulation • -voluntary sectoral agreements • -open method of co-ordination (encouraging co-operation, exchange of best practice, agree common targets and guidelines for member states) • ·Legislation as part of a broader solution combining formal rules with other non-binding tools.

12. Place of CSR, as soft law element in Eur governance • ·Soft law  independence with respect to state law as adaptation to globalisation • ·Privatisation of labour standards  deregulation • Defined as a (additional and) different form of regulation  self regulation or auto-regulation of undertakings • ·Advantage: social control over transnational production activities • ·Dangers: lack of social compensation for economic inequality, selection of issues  weakening of workers’ rights, substitute to state law and negotiated norms • ·Remedies: Involvement of social partners (sectoral level, European Works Councils), to adapt legislation (procedures, social labeling).

13. Accountability vs responsibility • The term “corporate accountability” is being used to refer to the obligations on corporations imposed by governments and to the corporate governance framework established to hold management accountable. On the other hand, “corporate social responsibility” stands for voluntary activities without being accountable. It is widely accepted that that regulatory and corporate governance frameworks can shape corporate behaviour more than CSR principles or initiatives. There is a growing recognition – especially among trade unionists – that these regulatory frameworks are inadequate.

14. Challenges of CSR for trade unions • Most trade unionists see CSR as a desirable goal, although some see it more as a dangerous attempt to create a substitute for the traditional roles of both governments and trade unions. In this regard unionists often see CSR as a mere public relation exercise by companies • The most controversial issue in the concept of CSR for trade unions is its voluntary character, being “above and beyond legal requirements”. • Some see CSR as an alternative to regulation and as an alternative to interest representation of employees by trade unions.

15. Challenges of CSR for trade unions • Private standard-setting Trade unions face a series of challenges with respect to standards. Business is using codes of conducts and other forms of private standard setting in the social area to redefine or reinterpret standards so as to make their responsibility seem less, than it really is. • Reporting and verification Agreeing on what to report to the public about the social impacts is a crucial form of standard-setting. Unlike financial and environmental reporting, the social dimension has a high level of intangibles. • Sociallyresponsible investment (SRI) Influencing investment funds that claim to invest in companies that are socially responsible. Works, where workers institutions with an interest in CSR have influence on investment decisions (e.g. Pension Funds)

16. Challenges of CSR for trade unions • Social rating, social labels and awards The CSR phenomenon features positive incentives, such as awards, labels, best practices. These concern labour issues ranging from human resource practice awards to labels related to supply chain codes. Trade unions are often bypassed and “experts” engaged to judge the reports may not be familiar with industrial relations. Such labels and awards have serious credibility problems, as the basic motivation is to gain commercial benefits.. The CSR concept can thus appear in contradictory forms. It stresses the importance of engaging stakeholders but at the same time, stresses unilateral management action. The danger is that CSR is more about management systems and checklists than genuine dialogue. The management prefers to choose its ‘stakeholders’ for dialogue. Too often, companies engage NGO-s over workplace issues and avoid trade unions.

17. The major concerns of ETUC regarding CSR The basic message of the ETUC resolution is that CSR should complement, but in no way replace, legislation on social and environmental rights or standards set by collective bargaining. The most important unfounded illusions towards CSR, as the ETUC sees: • The illusion that CSR would sweep away the balance of power, as the employers’ responsibilities are diluted; • The illusion that all stakeholders are on equal footing in this policy; • The illusion that the voluntary method of other best practices would be enough to assert CSR.

18. The major concerns of ETUC regarding CSR The Executive Committee of the ETUC stressed that, “rather than being regarded as an added extra, CSR must permeate the very being of the company and its governance, covering its entire operation and taking on board social and environmental issues in its day-to-day management.” The prerequisite for CSR is respect for collective bargaining and laws, which means companies must act to: • promote collective bargaining where there it is insufficient or even nonexistent; • enhance the involvement of trade unions, workers and their representatives as well as the respect for and defence of their rights.

19. Opportunities for trade unions through CSR Even if the acceptance of CSR principles in European trade union circles are rather mixed, it is vital to address these questions by trade unions in order to be able to shape them. Trade unions could use the instruments of CSR as a springboard for reaching employees, having been out of their scope sofar. It could be a proper strategy for trade unions to oppose the unilateral, voluntary approach of companies and opt for a framing of corporate social responsibility either by laws or by contractual agreements with the trade unions and other stakeholders.

20. Possible priority topics for trade unions Activities in alliance with NGO-s and other stakeholders, as: • Meetings and debates to formulate trade union and NGO approaches to CSR; • Educational activities in using int’l standard-setting systems; • Joint campaigns for identifying major TU principles on CSR; • Work on the establishment of countervailing powers in the field of consumption and sustainable development. Setting a target for the following major goals: Within a foreseeable time, all international companies to sign contractual agreements with the workers’ rep’s in all their daughter and branch companies in order to implement at least the eight ILO Conventions – to be registered at the ILO. • Work for extending the ILO’s standard-setting system. • On European level, trade unions should contribute to developing the European governance in its tools in tackling CSR.

21. The option of using the EWC-s in shaping company policies in line with CSR As EWC-s operate on corporate basis, on European or even worldwide level, they can deal with many of the issues, taken up in CSR: Internal issues - Human resources management – training, equal opportunities - Health and safety issues - Adaptations to change – restructuring - Management of environmental impacts ·External issues - Local communities - Business partners, consumers, suppliers - Human rights, trade union recognition - Global environmental concerns.

22. Concluding remarks CSR is neither an objective nor an option, it is a context offering challenges and opportunities that can also be shaped. These opportunities all mean that trade unions would have lots of options in shaping CSR practices and make sure, that the CSR initiative is not weakening their basis and influence, but contributes to their strengthening. It needs however a nuanced approach and not a defensive stance.