Corporate social responsibility: a legal framework for socioeconomic development in Tibet.
"As companies seek to be guided by more socially and environmentally responsible values, we need to ask what corporate responsibility means. This is an especially challenging question for the increasing number of foreign companies working in or looking at working in Chinese-ruled Tibet. This commercial and corporate interest comes at a time in Tibet's history when ordinary Tibetans have no real say in their country's development. Tibetans should be participating, directing and benefiting from this development especially when it concerns the exploitation of Tibet's non-renewable resources such as gold. Therefore, (1) appeal to all foreign mining companies, and their shareholders, who are thinking about working in Tibet to consider carefully about the ethical values when embarking on such a venture."
--The Fourteenth Dalai Lama, 2003
"Over the past years Tibet has made significant progress in economic and social development. But we also recognize that Tibet is still behind the central and eastern parts of China in terms of economic and social progress. The Chinese government has taken strong measures to accelerate the economic and social development in Tibet including the formulation of a new plan for that purpose, in the hope that we will be able to further promote the living standards of the farmers and herdsman in Tibet. Tibet needs to develop its economy on a sustained basis; at the same time we must pay close attention to environment conservation and the preservation of Tibet's cultural heritage. We respect the freedom of religious belief of Tibetan compatriots, and their religious belief is protected by the law. We must treat all our Tibetan compatriots as equals and with respect and make continuous improvement in our work in this area."
--Former Chinese Premier Wen Jiabao, 2012
In the past few decades, China has lifted hundreds of millions of people out of poverty. (2) The economic conditions that created China's economic ascendancy, and thus allowed it to reduce poverty, continue to awe the international community. The reason is simple: at present, no other country has been able to produce and maintain similarly high levels of growth. For example, over the thirty-year period ending in 2007, China's growth rate was more than 8% a year, and from 2005-2010, this accelerated to an estimated 10%, notwithstanding recessions in the wealthy countries with which China trades. (3) As Harvard University economist Ricardo Hausmann notes, "[i]n the history of humankind, no country has ever grown for 30 years at the rate China has grown." (4) By comparison, the best thirty-year timeframe for the US economy was from 1960 to 1990, during which it had an average growth rate of 2.3%. (5) Such sustained economic growth has resulted in China becoming the world's factory floor and an extractor of significant mineral deposits. (6) The massive exports from this production allowed China to surpass Germany in 2009 to become the number one exporter of goods, (7) and in 2010 to triumph over Japan to become the second largest economy. (8)
Despite China's economic rise and prosperity, however, not all of its population is benefiting. In 2012, a study (9) from China's Southwestern University of Finance and Economics revealed an increasing wealth gap, suggesting China may be among the world's most unequal countries. (10) This inequality has long been most acute in Tibet, as Chinese government subsidies and investments have not adequately addressed socioeconomic disparities in this region. In fact, the policies appear to promoting inequality, especially in the areas of wealth, jobs, and education. In addition, there is increasing evidence that Tibetans are unhappy with the lack of proper labor, environmental, and stakeholder engagement practices of many companies operating in Tibet.
Corporate Social Responsibility (CSR)--the business practice of integrating respect for international human rights and environmental sustainability laws and norms into company decisions and core operations--can and should be used to address Tibetan socioeconomic development. The use of CSR can help promote social harmony and stability, create and enhance business opportunities for domestic and foreign companies, and allow Tibetans to participate actively in determining their own development needs.
This article describes a framework for investment in Tibet that utilizes CSR as the driving force. Part I discusses Tibetan socioeconomic disparities, with a focus on economic and educational inequality. Part II defines CSR principles and tools and puts forth the business case for CSR. Part III applies these CSR tools to the Tibetan context, with specific reference to Chinese regulations and international laws and norms, and to the CSR concepts of stakeholder engagement and community investment.
I. UNDERSTANDING THE TIBETAN CONTEXT--A LANDSCAPE OF DISPOSSESSION AND EXCLUSION
In this article, "Tibet" refers to all Tibetan administrative areas of China, and "Tibetans" refers to the ethnic, indigenous population that lives in these areas. From the Tibetan perspective, Tibet has always consisted of three main regions: Amdo (northeastern Tibet), Kham (eastern Tibet) and U-Tsang (central and western Tibet). In 1965, fifteen years after entering Tibet, the Chinese government redrew these boundaries. Currently, this area exists as the Tibet Autonomous Region (TAR), an area of 1.2 million square kilometers that is west of the Yangtse River, includes part of Kham, and is often referred to as "Central Tibet" in English. Amdo and the rest of Kham exist as Tibetan autonomous prefectures (TAPs) and Tibetan autonomous counties (TACs) and have been incorporated into the provinces of Gansu, Qinghai, Sichuan, and Yunnan. Collectively, these Tibetan areas are often referred to as "Tibet" or "the Tibetan plateau" and are about the size of Western Europe (2.5 million square kilometers) or one quarter of China's landmass.
As will be discussed in further detail below, focusing on Tibet from a CSR standpoint is helpful for three chief reasons. First, addressing Tibetan socioeconomic inequalities can further the Chinese government's sought-after goal of social stability and harmony. Second, as Tibetan areas continue to become more open through the development of new train networks and other infrastructure, the potential for new business opportunities awaits. For those companies presently in Tibet, CSR offers the ability to enhance business operations. Third, these opportunities can help promote greatly needed and wanted socioeconomic development for Tibetans.
Any discussion of the Tibetan socioeconomic context first requires an understanding of the political backdrop. The relationship between Tibetans and Chinese is complex and contested. This article does not aim to rehash this debate; however, it is necessary to briefly flag the importance of understanding the Tibetan political perspective. Since 1950, when the Chinese People's Liberation Army entered Tibet, there has been ongoing tension between Tibetans and Chinese. The general disposition among Tibetans is a feeling of being ruled by outsiders. When this sentiment is combined with exclusionary socioeconomic forces, discussed below, feelings of dispossession deepen, resulting in mistrust between Tibetans and Chinese. Understanding this political background and its attendant economic and social context is a vital prerequisite to maximizing successful business operations in Tibet. (15)
Additionally, there are challenges that come with analyzing Tibetan socioeconomic data for the non-Chinese or non-Tibetan who is dependent upon readily available English sources. The vast majority of the socioeconomic data discussed here has been provided by the Chinese government in its statistical yearbooks and then analyzed by the economic development scholar Andrew Fischer. Fischer is an Associate Professor in Population and Social Policy at the Institute of Social Studies (The Hague) of Erasmus University Rotterdam. He is the only western economist researching macro development economics and its ancillary effects within the context of Tibet; as such, his work is relied upon extensively in this article. (16)
Furthermore, an additional challenge in working with this data is its age. The data discussed was gathered from 1997 to 2010. Socioeconomic data that is more recent than 2010 is not discussed in this article, either because Fischer has not yet analyzed it or because the Chinese government stopped reporting and/or altered certain categories of data, thus making it impossible to track those trends over time. In addition, while Fischer's robust analysis is extensive, its primary focus is the TAR. The majority of the estimated six million total Tibetans live outside of the TAR in Gansu, Qinghai, Sichuan, and Yunnan, which makes it difficult to offer conclusive Tibetwide observations from Fischer's analysis. (17) Even with these data limitations, however, Fischer's work helps to shed light onto the socioeconomic forces that are affecting many, if not most Tibetans.
Such socioeconomic forces have long plagued China. For example, in its 1997 (18) and 1999 (19) China reports, the United Nations Development Programme placed the TAR at the bottom (20) of its ITuman Development by Province Index, (21) and it noted vast regional development disparities that were most pronounced between eastern coastal regions on the one hand and western interior areas on the other. (22) It was with these facts and context in mind that in 1999 Chinese President Jiang Zemin announced a new program called the "Great Western Development" campaign. (23) The purpose of the program was to spur development in China's poorest provinces (24) and autonomous regions (25) through infrastructure development and foreign investment.
Since the late 1990s, the Chinese central government has poured billions of dollars into the TAR and other western areas. Consequently, in recent years the economy of the TAR has seen incredible growth. For example, the per capita Gross Domestic Product (GDP) grew faster than 10% per year from 1997 onwards. (26) Between 2000 and 2005, the GDP in the TAR doubled (27), and from 1997 to 2007 the GDP more than quadrupled. (28) Per capita growth rates surpassed the national average from 2001 to 2003. (29) Moreover, these rates were the highest in western China for most of this time; among the western provinces, the TAR accelerated faster than the rest during the late 1990s and early 2000s but then fell back in line with the pack by the mid-2000s. (30) To compare these rates to China as a whole, the aggregate real GDP of the TAR grew by roughly three times between the years 1996 and 2004, and in Qinghai by about two and a half times. (31) In China as a whole during these years, GDP only doubled, and even this, as noted above, was one of the most unprecedented growth rates in human history. (32)
GDP growth, however, does not necessarily mean an increase in well-being for all, which therefore raises important questions: what brought about these high growth rates and who are the beneficiaries? When one investigates these GDP growth rates, a complex picture emerges, characterized by increasing inequality. Breaking down the high growth rates reveals that unlike the rest of China, where the growth model is rooted in the development of local economies, most of the TAR's GDP comes as a result of massive external government subsidies and investment. (33) This subsidized investment is mainly aimed at government administration and construction projects, the inefficiencies of which have created extreme dependency with little to no multiplier effects in the local economy. (34) In 2010, for example, these subsidies were so large that they made up the equivalent of almost 109% of the TAR's GDP. (35) The reason is that the vast majority of the subsidies are monetarily tied to entities that are outside of the TAR, many of them state-owned or connected to the construction or tourism sectors. (36) Consequently, most of the investment dollars have a boomerang effect (37) wherein they simply flow into the TAR and then right back out, with little benefit to locals. (38) As a result, there is very little locally-generated investment that meets local needs and which has the potential to spur future local economic growth. (39) As Fischer writes, "[t]he development of locally-owned business and local expertise tends to be sidelined in the process and ownership in the economy is progressively transferred to non-Tibetan outsiders...." (40)
The money that does stay in the TAR is mostly concentrated in the government employment sector, an area that is inaccessible to most Tibetans (the reasons for which are discussed below). (41) Additionally, this investment is primarily targeted toward city centers, with rural areas seeing only modest benefits. This is important because the majority of Tibetans are farmers and nomads who do not live in urban areas. Moreover, very little of the investment is put toward social programs. In 2005, for example, 13% of GDP went toward the government and party administration, whereas only 6% went toward education and 1% toward "health, social security, and social welfare." (42) This is the inverse of every other province in China; for example, investment in Sichuan for education was double the investment in government administration. (43)
a. Economic Inequality
The result of this type of investment is a vast wealth disparity: in 2003-2004 the TAR had the highest rate of urban-rural inequality of any region in China. (44) The total disposable income of Tibetan farmers and nomads was less than half of the average income for China's peasants. (45) In 2001, the urban-rural income ratio of the TAR peaked with urban residents retaining income that was 5.5 times higher than the average per person household income of rural residents--the highest China has ever seen at the provincial level. (46) This ratio fell to its lowest in 2006 but has continued to rise from 2007 onward with urban residents retaining income that ranges from 3.6 to 4 times that of rural residents. (47) This picture is made starker by declining average urban household incomes. Until the early 2000s, incomes in the TAR were above the national average and the highest in western China. (48) In 2002, however, they converged with the national average and then fell below the average in 2004; in 2006 they declined sharply and were the lowest in all of China. (49)
An increasing wealth divide within urban areas compounds this inequality. Between 2000 and 2005, urban inequality doubled in the TAR. Average wages of the top half of urban employees in the TAR--which mainly consists of those employed by the State--almost doubled relative to average wages of all employed urban residents. (50) This inequality rate increased further and reached an all-time high in 2007 after which it fell slightly. (51) As Fischer notes, this data "suggests that little urban wealth in the TAR disperses outside the State sector and the wealth of those without access to State sector employment has rapidly fallen behind the rapid salary and wage rises of those in State-sector employment." (52)
A small demographic (53) of Tibetans are taking advantage of this State investment because their Chinese skillset (knowledge of Mandarin, Chinese work culture, and connections to government or business) allows them to gain access. (54) However, this number is declining. For example, between 2001 and 2003, there was an overall reduction (55) in the number of Tibetan staff working in State-owned enterprises that was not offset by a rise in employment in non-State units; elsewhere in China such reductions in the State sector have been counterbalanced by uptakes in private sector employment. (56) Within this category, the more coveted government cadre jobs saw an even steeper decline. Overall cadre employment went up from 69,927 in 2000 to 88,734 in 2003, but the number of Tibetan cadres dropped from 50,039 to 44,069 (or from 72% of total cadre employment to just less than 50%). (57) Therefore, employment in the TAR, particularly Tibetan employment, has contracted in the exact area of the economy that grew most rapidly (58)--the urban State sector. (59) The end result is that urban Tibetans bore the brunt of rising inequality. They were squeezed out of the highly privileged State-sector jobs and thus, the sharp wage increases noted above were captured by non-Tibetans resulting in an exclusionary economic environment for Tibetans in the TAR.
b. Education Gaps
A driving force behind this employment exclusion is educational inequality. An acute demonstration of this is captured by illiteracy rates between provinces (among both rural and urban communities) and by sex. The illiteracy rates (60) in the TAR are staggering. In 2004, the total rate was 44%, (61) compared to 22.1% in Qinghai, 19.4% in Gansu, 11.5% in Sichuan, and 10.3% in China as a whole. (62) The city rate in the TAR was higher than the rural rate, 47% versus 43% respectively. (63) These rates are in stark contrast to those in other surrounding provinces, where the city rates were much lower than rural rates and closer to the national average. (64) During this period, the numbers for China as a whole were 4.8% for city dwellers and 13.7% for rural populations. (65)
By 2009, these rates had not changed significantly in the TAR. Its total rate was 39.6%, compared to 14.7% in Qinghai, 15.9% in Gansu, 9.2% in Sichuan, and 7.1% in China as a whole. (66) Unlike in 2004, the city rate in the TAR was slightly lower than the rural rate, at 37.2% versus 40.9% respectively. (67) However, the 2009 rates for the TAR are exceptional because no other province in China had city and rural rates that were almost at parity. (68) The next highest rate of city illiteracy was in Gansu at only 5.6% versus its rural rate of 19.6%. (69) Moreover, the city rates in every other province were only a fraction of rural rates, within close range of the national average, and (with the exception of Gansu) had all made steady improvements since 2001. (70) Thus, the working age permanent city resident population in the TAR is burdened with China's highest level of illiteracy, which is the highest not only among cities but also when compared to rural areas. (71)
The inequalities come into greater relief when the numbers are broken down by sex across provinces. For example, data from 2004 shows that a Tibetan woman moving from the rural areas of the TAR was about 35 times more likely to be illiterate than a male city resident migrating from Sichuan. (72) In contrast, a woman in rural Sichuan was almost 1.7 times more likely to be literate than a male permanent-resident in Lhasa, despite the fact that such a woman was less than half as likely to be literate than her male counterpart in the rural areas of Sichuan. (73)
By 2009, these patterns largely remained in place. A Tibetan woman migrating from the rural areas of the TAR was almost 37 times more likely to be illiterate than a male city resident migrating from Sichuan. (74) Taking the inverse, a male city resident in Lhasa or Shigatse was about one-third times more likely to be illiterate than a woman in rural Sichuan, despite the fact she was almost three times as likely to be illiterate than her male counterpart in rural Sichuan. (75) These numbers improved somewhat for the average male city resident of the TAR between 2004 and 2009 (from 1.7 to 1.3 respectively), but they got slightly worse for the average rural Tibetan woman of the TAR. (76)
These inequalities between provinces are important because migrants from Qinghai, Gansu, and Sichuan are competing for employment in the TAR. As Fischer writes, "the anomaly of the Tibetan areas is to be noted: the most educated local cohort (male city permanent residents) is much less educated on average than even the least educated cohort of inter-provincial migrants coming to Tibet and competing in local urban labor markets (female rural residents from Sichuan)." (77) This asymmetry is not seen in any other province in China, and its severity has not improved significantly over the past decade. (78)
The problem is exacerbated by the lack of schooling beyond the primary level in the TAR. (79) For instance, 16% of the TAR population had some type of secondary education in 2004 versus 45% in Qinghai, 48% in Gansu, 50% in Sichuan, and 59% in China as a whole. (80) This indicates not only a high level of illiteracy in the TAR, but also that skilled labor (with Chinese-fluency) was in short supply. (81) Furthermore, the rate for those that had tertiary education in the TAR (junior college, university, and postgraduates (82) was far lower compared to surrounding provinces. Therefore, using another cross-province example, a woman from Qinghai was more than twice as likely as a male in the TAR to have some type of secondary schooling, and almost three times as likely to have some type of tertiary education. (83)
As with the other data sets, by 2009, (84) the numbers in the TAR had not changed significantly, whereas the other provinces saw much greater improvements. (85) In 2009, 24% of the TAR population had some type of secondary education versus 64% in Qinghai, 66.6% in Gansu, 67.3% in Sichuan, and 83.9% in China as a whole. The number of those with a tertiary education in the TAR continued to be much lower than those in surrounding provinces; and between 2000 and 2009, the percentage of those in the TAR with this education only increased from 1.5-1.7%. (86)
Breaking down these numbers by rural and urban populations (87) demonstrates that a rural person from Sichuan in 2009 was more likely to have a junior secondary level of schooling than a TAR city resident. (88) The only areas of advantage for a TAR resident were at the senior secondary and tertiary levels; here TAR city residents outperformed their rural counterparts in Sichuan. (89) However, a city resident from Sichuan was more than three times as likely to have a tertiary education than his or her city Tibetan counterpart in the TAR. (90) Such disparities are not seen across any other provinces in China. (91)
The steep illiteracy rates and under-education among most Tibetans has resulted in a lack of Chinese-related work skills that would allow them to gain entry into the formal workforce. (92) Tibetans are unable to compete in large numbers in the formal employment sector, government or otherwise, vis-a-vis migrants who come from the surrounding provinces, most of whom are migrating from Sichuan, Qinghai, and Gansu. (93) While migrant labor occurs all over China, these workers tend to have lower levels of education (94) and thus fill the lowest-skilled jobs. What makes Tibet unique is that these same low-skilled and undereducated migrant workers are on average more educated and better skilled than the vast majority of Tibetans. This marginalization therefore places Tibetans at an extreme disadvantage. With the opening of the Qinghai-Tibet railway, migration to Tibet has only increased, (95) further intensifying the employment disparities for Tibetans. (96) And, as discussed below, this situation is made even more challenging for those who are able to secure employment in the corporate sector because the improper practices of some companies have led to Tibetan protests by workers and surrounding communities who are airing a range of grievances.
c. Consequences of Socioeconomic Inequality
The convergence of these educational inequalities and attendant economic effects are not without consequence. Lack of economic opportunity for Tibetans has led to unrest. (97) In March of 2008, the world's attention focused on Tibet as riots and protests ignited across the Tibetan plateau from Lhasa and Shigatse to Chengdu and Xining, and many rural villages and towns in between. (98) Conservative estimates suggest the number of uprisings across Tibet reached at least 125. (99) Some of the protests in Lhasa turned violent with Hui Muslim and Chinese shops being burned (100) to the ground, an indication that the main target of the Tibetan grievance was aimed not necessarily at symbols of State power, but rather at the economic actors who exclude Tibetans from the employment arena: non-Tibetan migrants. (101)
More recently, a wave of self-immolations has swept across Tibet. As of the date of publication, the number stands at 133. (102) While the vast majority of the self-immolated individuals conveyed messages calling for greater political freedom, two immolators (103) carried out their protests near the entrance of a mining site. Reporting (104) on these two deaths does not provide further detail as to the motivation of the immolators, but the mere fact that the mining area was chosen as the site for the immolation suggests that these immolators viewed the consequences of mining in these Tibetan areas as highly problematic. By extension, one might also presume that this sentiment is shared by the communities in which the immolators lived, as the location where one self-immolates is of significance because it is a often a symbolic act reflecting grievances shared by the larger community.
Other forms of protest have also occurred, largely against the practices of Chinese extractive companies. (105) The chief Tibetan grievances in these cases have focused on poor labor and environmental practices and religious and cultural insensitivities, which have presumably arisen because extractive projects are planned and implemented without the consultation and consent (106) of the local Tibetan communities. These protests have resulted in arrests, injuries, and deaths to the protestors, and to the blockading of sites and damaging of equipment belonging to the companies. Furthermore, as the illustrative examples below demonstrate, the size of the protests appears to have increased in recent years, presumably as a result of increased company activity.
The spring of 2009 saw a several month standoff in which Tibetans protested the opening of a goldmine in Chamdo prefecture (TAR) that was to excavate at a site considered sacred by the local Tibetan community. At one point as many as 500 Tibetans blocked the road to the mine to prevent security forces from arriving. (107) A year later, in May 2010, thousands of villagers protested at the same mine when the company resumed mining. Thirteen Tibetans were arrested and five were injured as a result. (108)
Later in August of 2010, Tibetans held a demonstration outside of a government building in Palyul (Sichuan province) over concerns that the excavation at a nearby mining site was disturbing an area of spiritual significance and polluting the environment. During this confrontation, Chinese security forces shot into an open crowd, killing four Tibetans and wounding thirty more. (109)
In September of 2011, Tibetans were involved in a dispute over payment of wages with a Chinese mining company in Kardze (Sichuan province). Four Tibetan laborers were wounded after the clash escalated and the company fired upon the protestors. (110)
In February of 2012, after a year of back-and-forth confrontations between a local village and a mining company in Yunnan province, the local government ordered the mine to be closed. Among the incidents that led to the closure were threats and violence from agents hired by the company, harassment and arrests by local police, riots by the local Tibetan community, and the destruction of $300,000 worth of mining equipment by Tibetans who pushed it into a nearby river in protest. The chief complaint was that the company was mining near Mount Kawagarbo, one of Tibet's most sacred mountains. (111)
In August of 2012, 1,000 Tibetans in Markham County (TAR) protested at a mining site that they said was environmentally hazardous. Chinese security responded by firing tear gas and live rounds into the crowd, resulting in the death of one protestor. (112) In May of 2013, 5,000 Tibetans in Driru (TAR) protested against mining activities in an area that they consider sacred. (113) Most recently, in August of 2013, 4,000 Tibetans protested against diamond mining in Gedrong Zatoe County (Qinghai province). (114) At least 500 Chinese security personnel responded by firing tear gas into the crowds, injuring at least eight individuals. (115)
Such protests and self-immolations indicate not only the long-building and ongoing Tibetan discontent, they also demonstrate policy failure. However well intentioned the Chinese government-sponsored Western Development policies may have been, the protests and self-immolations are a clear signal that China has failed to bring about sufficient socioeconomic opportunities for Tibetans. Making matters worse is the fact that the protests and self-immolations have occurred despite vigorous efforts by the Dalai Lama and his representatives to prevent Tibetan unrest by engaging the Chinese government over issues not just of political autonomy, but also those relating to education, migration, and the economy, among others. (116)
Having successfully completed the Qinghai-Tibet railway in July 2006, China is now constructing additional railway networks and other infrastructure projects throughout Tibet. (117) The result will be further integration of Tibet not only to the Chinese economy but also the larger South Asian markets. (118) Explicitly stated reasons for the railway construction are tourism (119) and resource extraction. (120) As tourists increasingly roam the streets of Lhasa (121) and beyond, (122) and Tibet's more than 3,000 mineral reserves (123) are extracted, investment in other areas of the economy is sure to occur simultaneously. This will result in an opening of Tibet's markets allowing for further private sector involvement not only for Chinese companies (Stateowned and private), but also in the form of foreign direct investment. (124)
These business opportunities hold out the potential to bring great benefit to Tibetans so long as they are pursued in a way that does not continue to exclude Tibetans from the fruits of economic growth. A model of development that further increases educational and economic gaps for Tibetans, disrespects their religious and cultural customs, and disregards the need to seek their consultation and consent for investment projects will only deepen social disharmony. Therefore, Tibetans must be empowered to make the major decisions that drive development in Tibetan areas. Unless a new strategy is pursued that allows for the needs and views of Tibetans to be addressed and integrated, feelings of Tibetan dispossession and marginalization will only worsen with more Tibetan protests, uprisings and self-immolations to follow, thus undermining not only China's highly desired social stability, but also the ability for companies to have stable operations that are free from protests. (125)
CSR offers one potential solution in which Tibetans can take advantage of much needed and wanted development and business can flourish amid new markets and opportunities. The end result is the possibility for a win-win solution in which the interests of Tibetans, the foreign and domestic business community, and by extension, the Chinese government, can all be served.
II. CSR DEFINED
CSR is often subject to misunderstanding because its meaning is intensely debated. This confusion can be attributed to an evolving definition where each user often defines CSR differently. Even so, an emerging consensus (126) defines CSR not as peripheral add-on activities or one-off exercises such as public relations, marketing, or philanthropy, but as going to the core ways in which a company operates and makes business decisions. (127)
At its most fundamental level, CSR involves the methods and business practices through which a company addresses its social and environmental impact by integrating respect for internationally recognized human rights and environmental sustainability standards into company management decisions and core operations. (128)
In more basic terms, CSR addresses the ways in which a company not only spends its money, but also how a company makes that money. CSR involves both sides of this coin because even if a company has great philanthropic initiatives, such largesse will ring hollow if the company's profits are secured in an irresponsible manner, as attempts to offset irresponsible behavior through philanthropy will be viewed by stakeholders as untenable. To achieve these measures CSR typically employs the concurrent use of several tools, each of which can be amplified at different levels depending on the needs of the individual situation.
These tools (129) include:
Integrated Decision Making. (130) Those in charge must consider environmental and social issues in addition to economic considerations.
Stakeholder Engagement. (131) The practice of engaging all stakeholders within a corporation's sphere of impact (132) about environmental and social issues.
Transparency. (133) The notion that corporations must provide public reports and disclose material information on the environmental and social impact of their company's operations within their sphere of impact.
Consistent Best Practices. (134) The custom of a corporation consistently applying the highest social and environmental standards to all business operations irrespective of the global business location.
The Precautionary Principle. (135) The idea that even in the absence of conclusive scientific evidence pointing toward serious and irreparable harm, corporations must take precautionary measures within their sphere of impact; and when corporations desire to promote a potentially harmful project/product, they have the onus of proving the harm is socially acceptable.
Accountability. (136) The simple notion that corporations--and those responsible for corporate decisions--must be held accountable for the social and environmental harms they create and for breaches of their own proclaimed ethical standards. And finally,
Community Investment. (137) The notion that corporations must contribute to the social, cultural, economic, and/or environmental enrichment in the communities in which they operate.
These tools are interdependent and mutually reinforcing, each building off one another. As the authors of Corporate Social Responsibility: A Legal Analysis write in explaining how these tools work together in conjunction:
The principle of integrated, sustainable decision-making represents a body of knowledge, skills, and an attitude or frame of mind that sets the stage for effective implementation of all the other principles. It promotes the corporation to take a system perspective, assessing business value not merely from a truncated financial point of view, but also considering the more holistic 'triple-bottom-line/ which takes non-financial, social, and environmental results into account. Stakeholder engagement ... provides an important pathway and methodology for strengthening those triple-bottom-line results. The principle of transparency is both a key expectation forming a prominent feature of the new global business landscape, and an enabler of all the other principles. The principle of consistent best practices emerges as a result of the first three principles ... forming a substantive core of standards that in turn will continue to evolve along with the other CSR principles. Like all the other principles, the precautionary principle puts a healthy check on what could otherwise be imprudent action. But if it and the others fail, the accountability principle steps in as the final incentive for the business to 'walk its talk.' Community investment...is perhaps the principle most subject to future evolution, promoting business not just to avoid harm but to invest resources in helping to address pressing social and environmental challenges. (138)
a. Business and Human Rights Under the UN Framework
In 2005, then Secretary-General Kofi Annan appointed Harvard University Professor John Ruggie as Special Representative of the Secretary-General on human rights and transnational corporations and other business enterprises, with the mandate of creating a new global framework for business and human rights. (139) Starting in 2005, Ruggie released several annual reports relating to various aspects of his mandate. (140) In 2008 he released the first iteration of his three-pillar "Protect, Respect, and Remedy" framework, which the UN Human Rights Council adopted unanimously. (141) Ruggie refined the framework in subsequent reports and submitted his final report, the UN Guiding Principles for Business and Human Rights, to the UN Human Rights Council in March 2011. (142) In June 2011, the Human Rights Council--whose membership included China--endorsed the principles unanimously. (143) As such, the UN framework and Guiding Principles represent the first instance in which the UN has provided an authoritative global reference point for business and human rights. (144)
The UN framework rests on three independent yet mutually reinforcing pillars. These include:
... the state duty to protect against human rights abuses by third parties, including business, through appropriate policies, regulation, and adjudication; the corporate responsibility to respect human rights, which includes acting with due diligence to avoid infringing on the rights of others, and to address such adverse impacts as may occur; and greater access to effective remedies by victims, judicial and non-judicial. (145)
The framework therefore looks at the relationship between the State and the corporation with an eye toward avoiding human rights abuses at the hands of business, along with what to do when situations go awry and abuses arise.
Under the first pillar, Ruggie explains that States must protect against human rights abuses within their territory and/or jurisdiction by third parties, including companies. This includes: enforcing laws that require businesses to respect human rights; ensuring that other laws and policies that govern the creation and ongoing operation of companies (e.g. corporate law) do not constrain but enable business respect for human rights; providing effective guidance to companies on how to respect human rights throughout their operations; and encouraging and, where appropriate, requiring, companies to communicate how they address their human rights impacts. (146)
In the case of State-owned business enterprises, Ruggie explains that States must take additional steps to protect against human rights abuses. He writes:
States individually are the primary duty-bearers under international human rights law, and collectively they are the trustees of the international human rights regime. Where a business enterprise is controlled by the State or where its acts can be attributed otherwise to the State, an abuse of human rights by the business enterprise may entail a violation of the State's own international law obligations. (147)
Furthermore, Ruggie notes that State-owned companies are also subject to the corporate responsibility to respect, which includes requiring State-owned companies to engage in human rights due diligence, discussed below.
Under the second pillar, Ruggie states that corporations must avoid causing or contributing to adverse human rights impacts through their own activities, and address those impacts when they occur. In addition, companies must seek to prevent or mitigate adverse human rights impacts that are directly linked to their operations, products, or services by their business relationships, even if they have not contributed to those impacts. (148)
Ruggie offers human rights due diligence as the method through which companies can achieve this goal. (149) His conception of this has four main parts, which are not to be viewed as one-time activities, but as sustained and ongoing throughout a company's existence. (150) Human rights due diligence must include:
... a statement of policy articulating the company's commitment to respect human rights; periodic assessment of actual and potential human rights impacts of company activities and relationships; integrating these commitments and assessments into internal control and oversight systems; and tracking and reporting performance. (151)
Under the second part of human rights due diligence, in order to identify and assess any actual or potential human rights impacts, Ruggie states that companies should draw on internal and/or external independent human rights experts, and engage in meaningful consultation with potentially affected groups and other relevant stakeholders. (152) Additionally, Ruggie notes that conducting human rights due diligence is context-specific, where the goal is "to understand the specific impacts on specific people, given a specific context of operations." (153) Furthermore, to undertake accurate human rights due diligence, Ruggie urges companies to understand the concerns of potentially affected stakeholders by consulting them directly in a way that takes into account language and other potential barriers to effective engagement. (154)
When carrying out human rights due diligence assessments, Ruggie urges companies to use as a reference point all internationally recognized human rights instruments. (155) At a minimum, this includes the Universal Declaration of Human Rights, the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights, along with the International Labor Organization core conventions. (156) In addition, Ruggie states that companies will need to consider additional UN human rights standards for projects that affect groups of people who are "at-risk or vulnerable" (e.g. "indigenous peoples"). (157)
Companies should look to these various human rights instruments even when they do not necessarily impose direct legal obligations because, as Ruggie notes, "companies can and do infringe on the enjoyment of the rights that these instruments recognize [and] those rights are the baseline benchmarks by which other social actors judge companies' human rights practices. ("158)
b. The Business Case for CSR: Positive and Negative Drivers
At the present moment, most CSR concepts are grounded in law, but the level of grounding differs for each of the above-mentioned tools and by global location, with some countries having strong legal mandates and others having virtually none. In Europe, CSR's presence and acceptance seem strongest, (159) whereas it is in a relatively nascent state in the United States. In Asia and elsewhere in the developing world the opportunities for CSR creation are vast; but as will be discussed below, China has legislation requiring CSR. (160) However, even where CSR is not legally mandated, a wise company should err on the side of caution so as to maintain its 'social license to operate.' (161)
As corporations occupy an increasingly large role within everyday life, they face pressure from a variety of arenas to act responsibly. These drivers of CSR can be categorized as positive drivers and negative drivers, though many overlap and could exist in both.
i. Positive Drivers
There are mixed views on what one may term "the business case for CSR," in that it is unclear whether the relationship between CSR and profitability exists, and if so, whether that relationship is causal. (162) Even so, there are drivers related to what is often termed "enlightened" self-interest. (163)
Risk Management. Companies are increasingly beginning to understand that utilizing CSR principles helps them to avoid risk. Among others, this risk can take the form of legal compliance, regulatory costs, litigation, and the need to maintain a social license to operate.
Employee Recruiting, Retention, and Morale. There is evidence that employees increasingly want to work for responsible companies and therefore seek out those that have a reputation for having strong CSR practices. (164) Related is the idea that employees who value CSR will stay at companies longer, allowing for greater employee morale and therefore greater retention.
Cost Savings. Similarly, by retaining employees, companies can reduce the costs associated with hiring and training new employees. Moreover, some companies believe that CSR makes them more innovative and therefore profitable. As the clothing giant Gap, Inc. has stated:
When factories treat workers well, they also tend to produce a higher-quality product and deliver it on time. The more we respect and empower our own employees, the more creative and innovative our products and marketing tend to be. (165)
Moral Imperative. A smaller number of companies argue that there is a need to be responsible for CSR/sustainability purposes or otherwise. Typically these companies have been engaging in CSR for years because of forward-thinking leaders who believe deeply in the benefits of CSR. (166)
Competitive Advantage. If CSR is adopted, it can then serve to give the individual company a competitive advantage over its peers. Its marketing department can vigorously promote the company's commitment to CSR to increase customer loyalty and profits.
Value Creation. Looking more broadly at the business case, corporations must realize (as some have) that they exist not only to make a profit but also to create broader types of value within society. Through the production of their product(s) or offering of their service(s), corporations are always meeting a societal need and in doing so creating social value. The key is for the individual corporation to ask itself the following question: in meeting that societal need, how can the corporation maximize social value and minimize societal harm for all affected community members, recognizing the corporation is an integral part? From this perspective, the individual company can begin to understand that so long as the social need it is addressing is met in the most socially beneficial way, the end result will be that when the community benefits, so does the company.
ii. Negative Drivers
Reputation/Brand Image. The preservation of a positive brand image and/or reputation is crucial for many corporations, as it keeps afloat customer loyalty and by extension a social license to operate. While it may not be possible to quantify the effect of CSR (or a lack thereof) on a company's brand, there certainly are tangible results. (167)
Civil Society and NGO Pressure. As NGOs rise to alleviate unmet societal needs, one of their tactics for promoting social change is to target the transgressions of corporations. NGOs benefit from specialized expertise and a focus on single issues. The scope of NGOs' impact on the corporate environment can be attributed to their efficiency in utilizing inexpensive, efficient web tools that enable them to instantly mobilize a global army of stakeholders with the mere click of a mouse. (168) As such, NGOs have become effective in placing pressure on corporations and in many instances corporations have been forced to change behavior the NGOs or community finds objectionable. (169)
Social Media and Technology. Related, individuals around the world increasingly have at their disposal technological tools with which to document human rights/environmental abuses and corporate misconduct. Coupled with the explosion of social media, this means that companies face growing pressure to be transparent and responsible. Consequently, irresponsible companies will increasingly find it more difficult to hide their wrongdoings, as activists and consumers will challenge them by exposing their bad corporate behavior on the Internet. (170)
An example of an American company and its poorly thought out behavior toward Tibetans is illustrative. In February of 2011, the coupon company Groupon ran a series of commercials during the Super Bowl with the purported goal of raising awareness about its Save the Money campaign, an effort to donate money to charitable causes. (171) One of its commercials instructed consumers to support Tibetan restaurants and thereby Tibetans themselves. (172) However, the ad missed its intended mark and deeply offended many viewers because it suggested that the suffering of Tibetans is acceptable so long as consumers can eat cheaply in their restaurants. Consequently, consumers took to social media and criticized the company. Some announced their departure as customers; others demanded corporate contrition. (173) Within four days of the advertisements airing, and under mounting pressure, Groupon's CEO issued a public apology and retracted the ad. (174) In the end, Groupon had spent several million dollars airing its ads and yet lost countless customers because of its faux pas.
Litigation. As corporations increase their presence in people's lives, so too will litigation aimed at keeping companies in line. In addition to being hugely distracting, human rights and environmental-related litigation can be expensive, as it costs the company money both in trial and settlement. (175) These cases can protract for years and even decades. (175) One can only imagine how long BP will be in court dealing with the aftermath of the US gulf-coast oil spill disaster. (177)
Consumer Pressure. In a world that is ever captivated by international issues (poverty, disease, climate change and its related weather disasters, etc.), consumers are increasingly looking for ways to "vote with their wallets" when business practices are seen to contribute negatively to these issues. Companies are aware of these consumer desires and therefore the need to be "green" and socially responsible. Many are now taking steps (genuine and otherwise) to be better environmental stewards and/or CSR advocates. (178) Moreover, given rising attention to conditions in factories around the world, (179) many brands are being forced to disclose more information about their sourcing practices and improve conditions that do not meet minimum human rights standards. (180)
Government Mandates. Regulations governing CSR differ by country and by sector. Some countries require CSR, (181) but most only mandate some element of it. It is beyond the scope of this article to offer a global survey of CSR regulations; however, suffice it to say that CSR laws will inevitably increase as corporate scandals emerge. For example, the United States passed financial reform shortly after its economic recession hit its nadir in the fall of 2008. Such domestic CSR laws will undoubtedly draw from international CSR norms in general, and the UN Guiding Principles in particular. Thus, given that these norms and principles will increasingly be embedded in State, national, and international legislative and regulatory frameworks, sophisticated and prudent companies are taking measures "to get ahead of the legal curve." (182)
Discussing these above-listed drivers in combination, John Sherman, Senior Fellow at the Corporate Social Responsibility Initiative at Harvard's University's Kennedy School of Government and a member of Ruggie's team, puts forth reasons for why using CSR, particularly human rights due diligence, is beneficial for companies. Sherman notes that from a broader company perspective, human rights due diligence should be viewed as proactive risk management where the goal is to create a stable operating environment and thus retain cost savings. He writes:
[In order to exercise human rights due diligence, Ruggie] has noted that a company should engage with those who might be adversely affected by the company's operations in order to determine those potential impacts and how best to address them. Due diligence is not a unilateral company exercise but a two-way conversation..... Viewed wholly from a shareholder perspective, the risks of infringing on human rights can cost a company big money, and so should be included in any company risk analysis. As ... [Ruggie] ... noted in his 2010 report to the UN Human Rights Council, a study of the oil and gas industry found that the risks to exploration from disputes between oil explorers and external stakeholders has been growing much faster than the technical risks of getting oil out of the ground. And one oil & gas company estimated that over a two-year period, it lost $6.5 billion in value from such "above ground" disputes with communities. These disputes can cause disruption and delay in financing, construction, and operations, greatly distract senior leaders' attention, swiftly trash a company's reputation, and lead to the loss of its legal and social license to operate. And that list doesn't include the obvious risk of litigation, which is hugely expensive and distracting regardless of who wins. (183)
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|Title Annotation:||Abstract through II. CSR Defined, p. 120-151|
|Publication:||Yale Human Rights and Development Law Journal|
|Date:||Jan 1, 2014|
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