This chapter on corporate social responsibility uses “social” in its narrower sense, as distinct from environmental issues, focusing primarily on the corporate workplace – from factories, mines and farms to retail stores – and also on corporate philanthropy. The chapter covers the remaining segment of the “triple bottom line,” having covered financial issues in Chapter 2 and environmental issues in Chapter 3.
Workplace issues have been globalized and now focus seriously on supply-chain management. Community issues tend to be addressed primarily in relation to company headquarters, although product safety issues can be global and corporate philanthropy is becoming more global (as the response to the tsunami in 2004 indicated). These issues have all been pushed to the top tier of corporate priorities by publicity, consumer activism, or aspirations of senior managers or principal shareholders. The related ethical, legal, and economic questions perplex CEOs and do not lend themselves to easy answers:
Is treating workers fairly something a company should do because it is right or because it is the company’s best interest, or both, or neither? Henry Ford doubled the pay of his workers because he was able to (profits were high), and he said it was an easy decision because it helped his workers to buy his Model T. But could this consequentialist logic be turned aroundto justify Wal-Mart paying its workers less, so that they can’t afford to shop anywhere but Wal-Mart?
What standards of workplace and community responsibility should be accepted? Should you as an executive recommend your company go for an easy-to-meet standard that doesn’t cost much but is also not worth very much, or should you try to go for a more challenging standard that has high credibility and might bring some side benefits (cost savings, marketing advantages) to the company? Would it be too costly to go for the higher standard?
How wide a variation in workplace standards is acceptable?In a global economy in which the culture where goods are manufactured may be very different from the one in which they are sold? How significant are reputational risks in your consumer market raised by your activities in the producer location? Is this a risk only for companies, or is there a national risk? Should the U.S. Government have a policy on corporate social responsibility? Why not just regulate business? Workplace and consumer-protection practices, and government regulation, have often evolved in the aftermath of scandal and tragedy.
How should your company respond to variations among countries in legal enforcement? Developing countries have great differences in their legal systems, their level of law enforcement and the culture of compliance. How does a multinational company best operate in this environment to minimize negative exposure to its brand(s)?
Should corporate giving be strategically related to brand-building or in the long run is it better to make it independent? For example, pharmaceutical companies are expected to improve people’s health—should corporate charity in this industry therefore focus on medical education and public health programs? The argument for this is that they possess the appropriate expertise and can provide medical products and services at cost. But what if doing so might have the effect of undercutting their market demand fro their goods and services? Do desperately poor people in Africa have an inalienable right to medicines at a price they can afford, for widespread, life-threatening illnesses? If so, who is responsible for responding to this right?
How much does CSR contribute to actual brand sales? Polls show that consumers and investors say they care about CSR and will choose products to buy and companies to invest in with an eye on their social records. But do significant numbers of consumers and investors actually behave as they say they will? If they do act on the social records of companies, how reliable are the records they use?
What is the most effective way to focus attention on a company’s CSR efforts for brand-building? Should CSR information be in a separate CSR report or incorporated in the annual report? If included in the annual report, how much space should be devoted to CSR? How easily can consumers identify corporate behavior at the point of purchase? Are investors able to find out about CSR records at the point when they buy a security?
What CSR activities bring value to the financial bottom line? What CSR activities bring value to the company independent of the brand value to consumers and investors? For example, does the activity increase productivity, reduce costs, improve quality, create more loyal employees, and improve management? Can CSR policies and measures help select business partners that are well-managed, reliable, and ethical?
Who can best influence workplace standards in developing countries? In industrialized countries, consumers, socially responsible investors, NGOs and the media may advocate CSR. In developing countries, CSR practices are often the product of customer supply-chain demands, but sometimes also domestic demand and CSR leadership. How does the source of demand for CSR affect producer response?
Can low-cost retailers continue to focus almost exclusively on price in the supply chain? Can a company like Wal-Mart, the world’s largest retailer, address negative NGO campaigns primarily by attention to environmental issues, without responding to workplace issues?
In the 19th and early 20th centuries, industrialization created sweatshop conditions in Europe and the United States. Improvement was gradual, through a long process of public education, passage and enforcement of regulations, union organizing, the gradual emergence of a culture of compliance and the development of human resources and other management systems. Public concern and reform started in Europe in the mid-19th century. U.S. concern was ignited by Jacob A. Riis’s book, How the Other Half Lives (1890) and Lewis W. Hine’s haunting photographs of children working in mines, textile mills, and factories. A critical event in U.S. labor history was the Triangle Shirtwaist fire on March 25, 1911.The disaster occurred on Greene Street, east of Washington Square, in what is now NYU’s Brown Building, next door to where the NYU Law School was then. The Triangle factory was on the top two floors and 146 young girls died largely because the fire exits were locked. The fire led within four years to 36 new worker-safety regulations in NY City and NY State. A staffer of the NY State Factory Investigating Commission, Frances Perkins, was brought by FDR in March 1933 to Washington as U.S. Secretary of Labor, the first-ever female Cabinet member. Secretary Perkins introduced many New Deal labor laws including Social Security. As public attention was drawn to labor issues, unions strengthened and a range of state and municipal laws in the North required payment for overtime and restricted child labor. But conditions remained largely unregulated, segregated, and dire in the South, where unionization proved more difficult. The New Deal established national standards and enforcement measures. The National Labor Relations Act (1935) created a labor arbitrator, the National Labor Relations Board (NLRB). The Fair Labor Standards Act (1938) provided a Federal (1) guarantee of the right of workers to select a union, (2) ban against unfair labor practices, (3) minimum wage, (4) 40-hour week (there is still no U.S. limit on overtime), and (5) limitation on child labor. In addition, the government started a program to reward businesses for improved labor relations. Businesses were permitted to display a blue eagle to signify to consumers their compliance with labor regulations, the ability of employees to organize, and the adoption of a code of conduct informed by consumers, government, and unions. New Deal laws and their enforcement led to a decline in U.S. sweatshops and an overall improvement of labor practices. Today, the U.S. Department of Labor (DOL) is responsible for enforcement of the Fair Labor Standards Act and its Occupational Safety and Health Administration (OSHA) is responsible for health and safety regulation. Some industries are inspected by specialized agencies. Resources for inspections have been constrained and do not permit regular inspections of all facilities. Instead, small samples of workplaces are inspected, most often in response to worker complaints or targeting of sectors in which compliance is notoriously poor. Violators can be prosecuted criminally, fined, forced to pay back wages, or restrained by an injunction. U.S. states and localities have their own regulations. But there are no such laws internationally and in any case laws alone are not enough.
A “culture of compliance” is essential, with wide agreement on minimum standards and employers routinely abiding by the law—whether motivated by decency, fear of enforcement, or the bottom-line benefits of good human resources management.
The existence of a culture of compliance in the United States and other developed countries significantly amplifies government enforcement.
The International Labor Organization (ILO), a specialized U.N. agency, formulates labor standards as a norm for national labor laws. The first convention, on working hours, was passed in 1919 and applies to all states that ratified it. The fundamental labor standards apply to all member states:
Freedom of association and the right to collective bargaining;
The elimination of forced and compulsory labor;
The abolition of child labor; and
The elimination of discrimination in the workplace.
Most countries have labor laws that meet ILO standards, but in developing countries such laws are rarely enforced. Sometimes lack of enforcement is deliberate, a response to demand by a global firm or a lure to bring business into a country. Although excellent as norms for national laws and for designing a global code or standard, international conventions like those of the ILO are ill-suited for direct use in a workplace. Many companies have drafted and adopted practical codes of conduct for their overseas supply chain. Most U.S. brand-name consumer products companies—and about two-thirds of Fortune 500 firms—have developed their own codes of conduct to cover operations that include their supply chain. But studies by the ILO and Organization for Economic Cooperation and Development (OECD) found that the multitude of standards embodied in independent corporate codes of conduct led to confusion among suppliers, consumers, buyers, and retailers. A large factory that supplied numerous brands became subject to more than one audit per day to satisfy code demands—yet with little repercussion for less-than-stellar performance and high costs to the audited supplier. As of 2000, only two-thirds of the analyzed codes addressed discrimination, fewer provided for workplace safety, and only one in five addressed freedom of association or called for training programs for workers. Fewer than 20 percent required one day of rest in seven and fewer than one in three of these codes committed the company to monitor implementation.
The use of separate codes of conduct for each company has created problems:
The codes vary greatly, making it difficult for suppliers to understand what is being asked of them
Each code has its own audit requirements, creating demands for duplicative multiple audits.
Companies insisting on higher standards face a “free-rider” dilemma.
A global brand or retailer may buy products made in tens of thousands of factories, farms, and small suppliers in more than a hundred countries. The buyer must manage the supply chain to ensure delivery of products as designed, to arrive at the right port on schedule (especially for seasonal items), meet customs and product safety requirements of the importing country, be cost competitive, and, increasingly, be produced in a manner that treats workers in ways that will not offend targeted consumers. A supply chain to a U.S. retailer has four aspects:
Quality and innovation
Workplace and environmental issues
When a retailer or brand focuses on price to the exclusion of other aspects of the supply chain, the result can be negative NGO and media attention on exploitation of workers in supplier factories or other workplaces. Private-sector leaders wishing to build and protect their companies’ reputations encounter the “free-rider” problem. If only a few brands or retailers invest in a supply chain management system to upgrade labor conditions at their suppliers, their competitors, sharing the same suppliers, stand to reap the benefits – such as reduced reputation risk, higher productivity of workers, better quality of products) without incurring the costs. The problem is analogous to a producer that pays minimum wages but loses business to another producer who pays less than the minimum wage. One response to this problem has been the development of industry-wide codes. Numerous single-industry labor standards have been created. For example, the International Council of Toy Industries (ICTI), led by the New York-based U.S. Toy Industry Association (has developed the CARE Process for workplace improvement. The American Apparel and Footwear Association (AAFA) has developed WRAP, a standard and certification system for garment factories.
Single-industry standards represent an advance over individual company codes. But individual codes are difficult to audit against and are burdensome for suppliers, who may face many audits against different standards. Multi-stakeholder and multi-industry standards are developed by bringing representatives from diverse interests together to develop codes and implementation systems through consensus. Several highly credible workplace standards have been designed by multi-stakeholder groups.
Some members may never before have worked with members of the other sectors in anything but adversarial proceedings. Arriving at consensus among diverse stakeholders on a practical standard is difficult but important because the resulting standard is likely to be more robust and credible than if any one of the sectors developed it alone. One necessary adjunct of a standard is a management system to implement it on a routine basis, so that conditions prevailing one day can be counted to exist the next day. This requires:
Delegation of authority and responsibility
Communication of the standard
Training of managers and workers
Creation of standards and procedures
In particular, creation of a system for filing and resolving complains of non-compliance with the standards.
With such a management system in place, an outside auditor will be able to check on the working of the system.
Example: Multi-Stakeholder Standard-Setting
Social Accountability International assembled a representative SA8000 Advisory Board made up of members from business, trade unions and NGOs, sharing a common commitment to improving working conditions worldwide with a standard that would really work and would be developed quickly. SAI’s ground rules, based on the conflict-resolution principles of the Search for a Common Ground, were: 1.Everyone has an equal seat at the table 2.Listen with respect 3.Define terms carefully 4.Seek to craft a system that all sectors could buy into, is scalable (practical for companies managing any size network of suppliers) and is credible worldwide The group engaged in a successful process of drafting, soliciting and considering interested party comments, testing at actual facilities, and arriving at consensus on a standard. It bonded and continues to work in a highly positive manner.
Once a standard is developed, non-compliances must be corrected, independent verification must be put in place and compliance publicly disclosed. Certification of a company’s compliance with multi-stakeholder standards is a transparent system of verification. It can provide a consistent and reliable way to manage a global supply chain. Standards for corporate behavior are meaningful when they have an effective implementation and verification system, and are transparent to the public. Management systems can provide for implementation of the performance elements of standards. See Eileen Fisher Case Links SA8000 stats
How does Eileen Fisher’s brand positioning relative to workplace and environmental issues compare with, say, that of American Apparel?
What are implications of the Eileen Fisher case for the company’s future supply chain management? What competitive advantages does this implementation of SA8000 confer on the brand, if any? Is it sustainable?
If you were a manager at Eileen Fisher, how would you approach the workplace issues raised by NGO’s in the 1990’s? How would you address the issues of wages and hours? What market reaction to these decisions would you expect? Can these changes create value for the company’s brand? How? How can the company market its products based on its investment in CSR?
As the company expands, do you think consumers and advocacy groups will begin to take notice of the company? How might they react to the CSR initiatives? How have competitors in the industry responded?How do you think others in the industry will respond to this over time? How will other industries respond?
What indicators would you use to track the social impact of supply chain management?
How does the company recognize progress on CSR?How is CSR performance embedded in performance goals/objectives & reviews and in the compensation of managers?
The application of workplace standards in China workers must address one fundamental problem. It looms large in the workplace-certification arena because so many factories are located in China and so many U.S. brands buy from them. The problem is that workers in China may only belong to government-controlled unions, of which the largest is the All-China Federation of Trade Unions. This law conflicts with the first of the previously cited ILO conventions, the right to “freedom of association.” In this situation, how is the standard of freedom of association or “the right to organize” to be interpreted? What should a responsible corporation do when ILO conventions and national laws conflict? How should certification and accreditation agencies (and groups setting standards) tackle the problem? There are interesting developments in the four-cornered evolution of the freedom of association issue in China:
In one corner are the global labor unions, which are unwilling to accept a government-appointed union leadership as providing the same protection to workers as a freely elected union. The international unions believe that freedom of association must be part of any attempt to improve conditions of workers in China.
In another corner is the sovereign Chinese Government, which officially has not changed its position that workers are permitted to organize only under the aegis of government-controlled unions. However, regional Chinese governments such as Guangdong Province are inserting themselves into the arena and are finding labor unions useful allies in dealing with multinationals.
The position of multinational corporations depends on their corporate philosophies: (1) Companies like Wal-Mart and McDonald’s that pursue a lowest-cost strategy have resisted union organizing in the United States because they believe it will raise costs and reduce their competitiveness. But Wal-Mart and McDonald’s are cooperating fully with the official Chinese unions in organizing their retail outlets because they have no choice. (2) Multinationals that are seeking assurance that their Chinese suppliers do not use sweatshop or child labor are seeking certification from suppliers of compliance with labor standards. The impact of this has been so widespread that a story circulated in the Chinese press that the U.S. Government would refuse to allow exports from China that were not from certified factories.
Seeking to intermediate in this confusing environment are the setters and enforcers of labor standards like SA8000. Global labor unions as a rule refuse to associate themselves with industry standards that do not include freedom of association. But how is this standard to be applied in a country where the unions are controlled by government?
One compromise approach that is being tried with some success is the use of“parallel means,” i.e., election of worker committees that are unique to each factory. Workers are considered to benefit from freedom of association through freely and fairly elected worker committees, which create the infrastructure for a future time when freedom of association may go to a higher level. For some workers this is their closest exposure to anything resembling the democratic process. The results of this exposure can be interesting.
Gap Inc. has also been a leader in promoting the (RED) campaign,which it supported along with Motorola and Sprint, to generate money to fights AIDS in Africa. Ad Age argued that it was unsuccessful and a bad idea. Really? The RED campaign.
Gap Inc. and VF Student assignment, NYU, 2006: On the SustainAbility list of the top corporate Corporate Social Responsibility reports, the only U.S. apparel-related company was Gap Inc. (Adidas, which was also on the list, is not U.S.-based.) You are an AVP/Communications at VF (Lee, Wrangler, Kipling, North Face,Nautica). Mackey McDonald, Chairman, President and CEO, recently received from a UNC Greensboro professor a copy of the Gap Inc. CSR report and a recommendation that VF emulate it. McDonald asks you for a 250-word memo explaining to him (1) why someone might think the Gap Inc. report is better than VF's posted reports and (2) whether or not you think VF should emulate the Gap Inc. CSR report. The VF counterparts to the Gap Inc. CSR report are located on the company web site under Corporate Governance. Here are comments from two students who gave permission for their responses to be put on a public web site.
The Gap Inc. CSR report and VF's Global Compliance reports are markedly different. On the surface, the Gap Inc. report is aesthetically pleasing and sophisticated in presentation, effectively utilizing design, graphs, charts, and sidebars making it easily digestible for a number of different kinds of audiences. As well, Gap's use of the term social responsibility is a signal that the company strives to operate beyond the minimum laws and compliance standards. More importantly though, the depth of the company's commitment to social responsibility and to their stated goal of creating lasting change in the garment industry is evident in this report of their initiatives, partnerships, integration of standards and compliance in many aspects of their business. The Gap Inc. report includes the company's internal goals and measurement outcomes, allowing stakeholders to understand on a basic level the company's goals, how they measure them, and the outcomes they are working toward. In contrast, the VF Global Compliance report, while comprehensive in explaining the auditing process and scope, is lacking in information about the company's results and goals related to their own Global Compliance Principles. Even though Gap Inc. and VF are different businesses, as they are both in the same industry, I would recommend that VF should make some improvements to their report using Gap Inc.'s for best practices in communicating to stakeholders VF's commitment to compliance and their principles. While VF's report mentioned that they engage third-party auditors and work within established standards (WRAP), the report's focus on the technical aspects of the compliance process with no summary of results made it hard to read and could result in stakeholders (including their own employees) having a limited understanding of their performance and goals.
From: S Steinacher To: Mackay McDonald Re: Comparison of our CSR report to Gap's CSR report Mackay, As requested, I have examined Gap's CSR report and compared it to our own. Here is my honest assessment. First, the tenor of each report was quite different. Gap presented its statement in a prosaic fashion that suggested a heartfelt conversation with Paul Pressler. For example, it discussed Paul's visit to a factory in India, and it highlighted Gap's contribution to communities devastated by the tsunami. The language and supporting photographs made me feel as though Paul was proud of these acts. In addition, Gap's report was action-oriented, with phrases such as "energizes people" and "encourages success." By contrast, our bureaucratic, staid report was replete with technical, legal-oriented jargon such as "Global Compliance Principles", "Fair Labor Code of Workplace Conduct", and "WRAP-certified standards". It did not convey any sense of personal involvement. Sadly, I did not enjoy reading it. Further, I believe the images in the Gap report trumped our own. Whereas our report featured a disjointed series of dry pie charts, obtuse maps, and stock photographs, the Gap report presented a related stream of up-close-and-personal photographs of employees at work and volunteers in their communities. Did we purchase our photos from an image supplier such as Corbis (www.corbis.com)? To answer your second question, I firmly believe our report should emulate Gap's. In our next release, we should demonstrate, on a very personal level, how VF helps its workers and is active in its communities. We must include photos of intimate interaction! In addition, we should reduce the legalese concerning compliance, and embrace colloquial phrases that speak to our commitment to Corporate Social Responsibility. I have more feedback for you, but cannot present it in a simple memo. Please let me know when we can get together to discuss our report in more detail. Best Regards, S Steinacher
Corporate philanthropy to an average person may mean “how businesses support the communities in which they operate?” To a company, its philanthropy may also be an opportunity to build camaraderie amongst employees or a public relations Band-Aid. To local charities, it may be a much-needed source of support. Corporate philanthropy will continue to undergo changes that increase transparency. The main aspects of it are donations, employee volunteer programs, cause-related marketing and strategic development.
In the past it was enough for a company to offer support to the communities in which it operated by sponsoring a town event or donating money to charity. Often unrelated to the core business, public companies faced the critique that shareholders were being shortchanged, while public relations departments advocated such behavior as an opportunity to build community support and brand recognition. While charitable giving is still common in the United States, it is less common for a company operating in developing nations. Giving tends to be concentrated in the headquarters country and community. Companies in developing countries that face challenges to basic operations such as corruption, lack of government services (such as education or clean water), and intense poverty may use charitable community development programs to improve the supply of food, shelter, and education, and thereby support development of a supply of labor capable of meeting the increasingly demanding employment needs of the company.
Employee Volunteer Programs
Another philanthropic practice many US companies use to build community recognition and support is employee volunteer programs, such as: participating in one-day service events, fundraising walks, or regular volunteering. Companies that participate encourage participation, arrange activities, excuse work absences, and in some cases even pay for the time spent volunteering. In addition to benefits incurred by the community, these programs build a sense of community within the company and employee loyalty.
Cause-related marketing campaigns are a way that companies answer the concern that charitable activity doesn’t help the financial bottom line. Cause-related marketing can tie donations for a specific cause to a specific product or business function. The concept is that consumers who support the given cause are more likely to purchase the offered good or service than if the promotion did not take place. Sometimes, a portion of the revenue profits associated with the sale of the specific good or service are donated to the specified cause. Newman’s Own pledges to donate all profits to charitable causes. Ben & Jerry’s earmarked “1% for peace” of its Peace Pops. Questions to ask about cause-related advertising include: What portion of profits is appropriate? Should this portion be disclosed to the customer? How can the customer be assured that the donation is made?
The newest trend in corporate philanthropy is to build it into corporate strategy, advancing activities that can support core business while meeting community needs. In practice, this type of corporate philanthropy is perhaps the hardest to define, as it varies both by the business and the community it serves. Ranging from providing new products to meet niche populations to providing worker training for the purpose of increasing diversity of labor supply or to fill a labor shortage, these programs tie activities to real business objectives rather than public relations activities. Strategies could include investing in inner cities, or creating housing for the poor or elderly. At the 2002 World Economic Forum in New York City, CEOs presented a management Framework for Action that executive management teams can use to place corporate philanthropy at the core of business strategy. The group encouraged their peers to lead their companies to implement principles and practices for managing the company’s impacts on society and its relationships with stakeholders. Signatory CEOs commit to make every effort “to enhance the positive multipliers of their activities and to minimize any negative impacts on people and the environment, everywhere they invest and operate, recognizing that the frameworks adopted for being a responsible business must move beyond philanthropy and be integrated into core business strategy and practice.”
The Economist argued in January 2005 that corporations should not be reducing profits and shareholder dividends by making contributions to victims of the Southeast Asian tsunami. Companies in certain cities have jointly pledged to give 5 percent or more of their pre-tax earnings to charities. What’s the right amount of corporate philanthropy? Cite dollar amounts or other statistics in making your case.
 Leon Stein, ed., Out of the Sweatshop(Quadrangle/ NYTimes Book Co., 1977), 188-200 and The Triangle Fire (NY: A Carroll & Graf/Quicksilver Book, 1962, republished by Cornell, ILR Press, 2001); and David von Drehle, Triangle: The Fire That Changed America (Atlantic Monthly Press, 2004). NYU Law School student Inez Milholland (John Tepper Marlin’s great-aunt) is mentioned in both of these books as deeply involved in NYU Law School student efforts to assist Triangle workers before and after the fire (other prominent friends of these workers included J.P. Morgan’s daughter Anne).
 It was 60 percent in 2003 but has increased since then. National Research Council, Roger McElrath, ed., “Monitoring International Labor Standards: Summary of Domestic Forums,” NRC, 2003, 38.
ILO MCC Working Paper, Michael Urminsky, Editor, “Self Regulation in the Workplace: Codes of Conduct, Social Labeling, and Socially Responsible Investment,” ILO, 2000.
 The case was originally prepared for the NYU Stern School CSR elective course by Jennifer Lewin, former NYU Stern MBA student, in 2003 with support from the NYU Stern Markets, Ethics and Law program. It was updated with the assistance of Amy Hall in 2007.
* The International Labour Organization (ILO), a U.N. body, addressed labor issues at the international level.
 The inherent conflict between a state-run union and freedom of association has also been an issue in two other countries: Vietnam and Myanmar. But some progress on this issue has been made in Vietnam and more serious human-rights issues in Myanmar tend to push the question of freedom of association to the background.
 This question is raised explicitly by Gap Inc. in its 2004 Social Responsibility report.
 David Barboza, “McDonald’s in China Agrees to Unions: A Willingness to Alow for Organizing at Some Restaurants,” The New York Times, April 10, 2007, C3.