ERS 490
Sheila Buttery and Cassandra Polyzou
Prof. Robert Gibson
April 15, 2005
Corporate Responsibility: Assessing Current Strategies and
the Potential for Promoting Sustainability
Abstract:
This study represents an attempt to assess where Corporate Responsibility, as a practice,
currently stands and what can be done to drive it forward towards sustainability. A
comprehensive understanding of the requirements for Sustainable Development and what sort
of system corporations operate within is necessary in establishing how Sustainable
Development interacts with corporate objectives, ideology and production processes. With
this background in mind, the development of Corporate Responsibility, how it is currently
used, and what its limitations are under the current system are examined. The fact that
Corporate Responsibility is dominated by voluntary initiatives in a context of deregulation,
globalization and profit maximization indicates that more stringent action needs to be taken,
by corporations and other actors, to take the necessary next step towards shifting the current
paradigm towards sustainability.
Corporate Responsibility: Assessing Current Strategies and the Potential for
Promoting Sustainability
Sheila Buttery and Cassandra Polyzou
Executive Summary
Minimal government planning and the belief that free market capitalism is the
best way to manage the world economy characterized the last half of the twentieth
century (Black, 2002). Corporations thrived under such a system but created impacts that
would not go unnoticed given media coverage, a rising global civic culture and increased
scrutiny by non-government organizations.
Businesses generally, and large corporations specifically, have played a large role
in environmental degradation (Adams et al., 2004; Desjardin, 1998; Henriques, 2004)
through their extraction and production processes and promotion of excessive
consumption. Scandals revealing malpractice and malfeasance at the highest levels of the
corporate hierarchy, impacts of globalization on the environment, sweatshops,
commercialization in schools, and excessive CEO pay have contributed to a growing
public distrust in the corporate and economic structure. All of these factors have
challenged capitalism’s triumphant “golden age” and the unchecked power invested in
multi-national corporations. Corporate Responsibility initiatives are the corporate
response to these pressures, including the demand of some stakeholder groups to check
corporate power and to include environmental and social considerations in corporate
accounting. The benefits and shortcomings of Corporate Responsibility initiatives are
explored and assessed in this study.
Chapter 2, Sustainable Development, of this study delves into the evolution and
principles of Sustainable Development as a new framework for socio-political
organization and choice. Sustainable Development recognizes that exploitation and overconsumption of natural resources cannot be continued at the current rate because the
resources and ecological integrity on which humans depend for their basic survival, are
being steadily depleted (Diesendorf, 2000). Predictions for the future reveal that more
people are increasing their quality of life and with consuming more products. The world
simply cannot maintain current lifestyle demands especially those enjoyed by
industrialized countries, let alone meet an increase in these demands.
i
Generally, the ecological problems and barriers to sustainable development humanity
faces are systemic (Hutchinson, 1996; Kay et al., 1999). Shifting the focus of
development on sustainability will require a reexamination of systems conception, that is,
how society views the relationship between the natural and social systems (MartinezAlier, 2001), as well as the committed involvement of all sectors of society as
stakeholders in Sustainable Development (Dryzek, 2002). Stakeholders in Sustainable
Development include national governments, international bodies, non-government
organizations, the public (in various roles from shareholders to corporate employees to
consumers and citizens), and corporations.
Chapter 3, Corporations and Global Capitalism, examines the role of
corporations in the dominant global capitalist market system. The basic tenets of the
current system are the context for corporate activities. In order to understand the full
gamut of pressures and motivations that affect corporate behaviour, legal, economic,
national and cross-boundary pressures are also examined. The spheres of influence of
corporate operations are discussed, with particular emphasis on social and environmental,
and political arenas.
Chapter 4, The Development of Corporate Responsibility, illustrates the growth of
mistrust by other societal actors of corporate operations. Increasingly, the corporate
response in the current era has been to take on Corporate (Social) Responsibility
initiatives. The assessment of these initiatives focuses on the following research
questions:
•
What can Corporate Responsibility contribute to the pursuit of Sustainable
Development?
•
What are the limitations of Corporate Responsibility strategies?
•
And what can be done to further the actual practice of Corporate
Responsibility?
A vast amount of literature has been written on aspects of Corporate
Responsibility. In fact, there seems to be an excess of material covering the same or
similar topics, such as strategies for incorporating environmental concerns into business
practices. While the literature contributes to a diversity of options in pursuing Corporate
Responsibility it also leads to a prevailing sense of uncertainty and confusion about the
ii
future of corporate practice beyond the recognition that corporations need to be more
socially and environmentally responsible. The focus of this study is upon academic
pursuits, to both inform and guide students and those wishing to learn more about
Corporate Responsibility practices. This study attempts to summarize some of the major
pillars and some of the major criticisms of Corporate Responsibility and to recommend
how subsequent studies should address the future practice of Corporate Responsibility.
In Chapter 5, Current Situation, we critically assess Corporate Responsibility
initiatives. Though there are some exceptional ethically responsible companies, generally
Corporate Responsibility practices are not promoting sustainability sufficiently. The
critique can be summarized by the following main elements:
•
The inadequacy of Corporate Responsibility strategies for pursuing Sustainable
Development,
•
The Sustainable Development principles of economic limits to growth and equity
are currently overlooked by most Corporate Responsibility initiatives,
•
The insufficiency of voluntary initiatives of corporations to fundamentally
address social and environmental concerns,
•
The need for more comprehensive, accountable, and transparent reporting of
corporate practices,
•
The frailties of the larger (or broader) economic system, the corporate role within
this system, and the limits of corporations to change this system, and
•
The implementation gap, which is the substantial gap between the formal intent of
treaties, agreements, and convention laws, from local to global levels of authority,
and their actual implementation effects on natural systems and communities
(Dale, 2001).
The role of corporations in pursuing Sustainable Development through Corporate
Responsibility initiatives is, as demonstrated, limited. Some of this weakness can be
remedied by voluntary initiatives. Corporations, for instance, could choose to report the
impacts of their operations more transparently. Corporate Responsibility has become a
competitive issue, forcing corporations to be more sustainable in the face of consumer
scrutiny. Corporate Responsibility initiatives are not always driven by the “bottom line”
iii
either. The ethics of managers and directors of corporations has been a major internal
driver for some companies in adopting ethical policies and in creating an ethics based
corporate culture.
More realistically, however, ethical and responsible behaviour of corporations
will be fostered by pressures from various outside stakeholders. Such pressures include
government regulations, media reporting and “watch-dog” practices by NGOs, consumer
demand for responsibly produced goods, and shareholder investment in ethically
responsible corporations. These pressures will place demands and constraints on
corporate behaviour and operations. Chapter 6, Conclusions, details these findings.
Seeing as the literature on Corporate Responsibility is already extensive, sometimes
confusing and overwhelming, and because this study is directed toward academia, the
final recommendations are more or less a list of studies intended to advance the literature
on Corporate Responsibility practices. Chapter 7, Recommendations for Further Study,
outlines some broad starting points for academics to pursue in furthering the practices of
corporate responsibility.
iv
TABLE OF CONTENTS
1.0 Introduction
1.1 Rationale
1.2 Methodology
1.3 Literature Review
1
2
3
4
2.0 Sustainable Development
2.1 Stakeholders
Governments
International Bodies
Non-government Organizations
The Public
Corporations
7
11
12
14
15
16
17
3.0 Corporations and Global Capitalism
3.1 The Corporation
3.2 Economic Sphere
3.2.1 Capitalism
Division of Labour
Liberalism
Individualism
Consumerism
Growth and Maximization of Profit
3.2.2 Capital Accumulation and the Investment Game
Global Capitalism
3.3 Legal Sphere
3.3.1 National Regulations
3.3.2 International Regulations
Globalization
International Networks
3.4 The Implications of Corporate Behaviour
3.4.1 Social
3.4.2 Environmental
3.4.3 Political
19
20
21
22
23
23
24
25
25
27
28
28
29
30
31
31
33
33
35
35
4.0 The Development of Corporate Responsibility
4.1 The Three Eras of Corporate Responsibility
4.2 Criticism of Corporate Responsibility
37
37
39
5.0 Current Situation
5.1 The Potential of Corporate Responsibility
5.1.1 Visionary Companies
5.1.2 The Strategies
Internal Strategies
External Strategies
41
41
41
43
43
45
5.2 Critique of Current Corporate Responsibility
5.2.1 Strategies
5.2.2 Economic Growth
5.2.3 Equity
5.2.4 Voluntary Initiatives
5.2.5 Reporting
5.2.6 The Whole-System Effect
5.2.7 The Implementation Gap
52
52
53
54
57
58
59
60
6.0 Conclusions
61
7.0 Recommendations for Further Study
67
References
ii
1.0 INTRODUCTION
Although there have always been pundits and critics who have warned that
capitalism is a flawed system, the overwhelming consensus of the last century in
corporate boardrooms, government lobbies, and in most of the developed world has been
that capitalism is triumphant (Jackson et al, 2004).
After World War II, when most of Europe was recovering from military
devastation, the United States was busy expanding its economic and military strength.
With America leading the way a new economic world order was established, including
the creation of international free trade and capital markets supported by American credit
and investment (Black, 2002). The development of new technologies improved market
efficiency, communications, and the transportation of goods. It added to rapid growth in
trade and the availability of capital - as long as you were not a communist (Black, 2002).
Much of the developed world found it very easy to enjoy and support this capitalist
market system. Many world leaders, such as Ronald Reagan and Margaret Thatcher, saw
the market as a marvel that could withstand any adversity. The oil crisis of the 1970s,
for instance, caused an immediate upsurge in inflation and unemployment but the market
soon adjusted. “The crisis was not lasting in its effects. Growth resumed, especially in
countries that were able to contain labour inflation, raise productivity and move into new
areas of demand” (Black, 2002; 109). Minimal government planning and the belief that
free market capitalism is the best way to manage the world economy characterized the
last half of the twentieth century. The 1990’s were especially successful as the GDP of
the world increased by close to 40 per cent, although the benefits were enjoyed primarily
by the industrialized world.
As the world prepared to greet the new millennium, however, television
newscasts were dominated by images of anti-globalization protesters marching against
the World Trade Organization in Seattle. Suddenly the public caught a very different
glimpse of capitalism.
Various other factors over the last five years have challenged
capitalism’s triumphant “golden age” and specifically the unchecked power invested in
multi-national corporations.
1
Scandals revealing malpractice and malfeasance at the highest levels of the
corporate hierarchy, impacts of globalization on the environment, sweatshops,
commercialization in schools, and excessive CEO pay have contributed to a growing
public distrust in the corporate and economic structure. Headliners such as Enron and
WorldCom attracted the attention of a somewhat sleeping world by shattering the
promise of unfettered growth and the spoils of global capitalism (Jackson et al, 2004).
Consumers, investors, business leaders and politicians have joined the voices of
protesters, calling on corporations to improve their behaviour (Martin, 2003).
“Although corporate governance failures were a crucial catalyst, they were not the
only series of events to challenge the triumph of global capitalism” (Jackson et al., 2004).
The increasing fear of international terrorism, global epidemics and disease, the risks of
global climate change, and ideological, religious and military wars have weakened the
global system.
The challenges to capitalism have resulted in increased pressures on and scrutiny
of corporations. Jackson et al, describe three different criticisms of corporate behaviourbased on ethics, equity and sustainability. The first criticism is related to a deterioration
of public confidence; most of the public does not believe that corporate practices are
ethical, honest or straightforward (Jackson et al., 2004). The prevailing belief is that the
private sector and corporations need to demonstrate evidence of good governance
practices for the benefit of their communities and shareholders. The second criticism is
that corporations function in and benefit from a system that promotes social and
economic inequalities in the workplace, within nations and on a global level (Jackson et
al., 2004). Thirdly, drivers of economic growth such as modern production systems,
consumption patterns, and the application of new technologies are threatening the Earth’s
ecological sustainability. These criticisms will be examined in-depth in Chapters 3 and 5
as we assess how successful corporations have been or can be in mitigating the problems
present in the current capitalist market system.
1.1 Rationale
A vast amount of literature has been written on aspects of Corporate
Responsibility. In fact, there seems to be an excess of material covering the same or
2
similar topics, such as strategies for incorporating environmental concerns into business
practice. While the literature contributes to a diversity of options in pursuing Corporate
Responsibility it also leads to a prevailing sense of uncertainty and confusion about
where corporate practice needs to go from recognition that corporations need to be more
socially and environmentally responsible. The focus of this study is upon academic
pursuits, to both inform and guide students and those wishing to learn more about
Corporate Responsibility practices. This study attempts to summarize some of the major
pillars and some of the major criticisms of Corporate Responsibility and to recommend
how subsequent studies should address the future practice of Corporate Responsibility.
The set of broad questions we attempted to answer were:
•
•
•
What can Corporate Responsibility contribute to the pursuit of Sustainable
Development?
What are its limitations?
What can be done to further the practice of Corporate Responsibility?
1.2 Methodology
The research for this paper was based on an extensive literature review. The
assessment of corporate behaviour and what drives ethically responsible actions required
critical analysis of journal articles, books, textbooks, NGO documents, government and
international policy and/or documents, web sites, and news articles on various subjects
regarding Corporate Responsibility.
The arduous task of such a compilation was accomplished first by establishing the
conditions required for sustainable development and why its pursuit is relevant. Next the
complex socio-political and economic system that contextualizes corporate being was
outlined. A comprehensive understanding of the requirements for Sustainable
Development and the system in which corporations operate within was necessary in
establishing how Sustainable Development interacts with corporate objectives, ideology
and production processes. With this background in mind, the development of Corporate
Responsibility, how it is currently used, and what its limitations are under the current
system were examined.
Considerations were made about what corporations can be expected to achieve in
this arena voluntarily and what changes will have to be made with pressures from other
3
actors on the commercial industry in the pursuit of sustainability. Finally, the
recommendations include suggestions for future research on Corporate Responsibility,
with the aim of avoiding previously researched aspects of Corporate Responsibility and
of bridging the “implementation gap.”
This study focuses a great deal on international strategies and governing bodies
because of the global reach of many corporate operations and the devastating
implications of corporate activities on global ecosystems. In addition, the paradigm shift
towards sustainability that is proposed by policy analysts and environmentalists alike
must necessarily operate in an international context because the current dominant
capitalist system functions as a global influence.
The primary limitation of this study was temporal. An eight month time frame
restricted the extensiveness of the research and generated a general outlook on the future
of Corporate Responsibility. If time had not been a limiting factor this study could have
also explored interviews with policy-makers and leaders in the field of Corporate
Responsibility, instead research was limited to books, websites and print sources.
Another limitation was the researchers’ own biases. Having a background in
Environmental Studies meant that we conducted the study from a political ecology and
social ecology perspective.
1.3 Literature Review
This study began with an accumulation of a vast and diverse body of literature.
The project has a basic structure with three main sections: sustainable development,
corporations and the global economic system, and an assessment of Corporate
Responsibility in the context of the current economic system and with the goal of
sustainable development. The literature can be subdivided and summarized according to
these main areas. Although the literature does not neglect any specific aspect of
Corporate Responsibility, one criticism of the current literature on the topic is that a
compilation has not been done to assess specifically where the overall practice of
Corporate Responsibility currently stands and what needs to be done in the future to drive
the practice forward.
4
Sustainable Development has long been a contested term. Much of the literature
used in this study regarding Sustainable Development revolved around compilation texts
such as Dryzek’s Politics of the Earth (1997) and Dresner’s Principles of Sustainable
Development (2002). These sources served to illuminate the evolution of Sustainable
Development from its conception, to its linkages with the environmental movement in the
1970’s, through to its inclusion in breakthrough environmental policy reports like the
Brundtland Report. These sources then go on to highlight the major values of
Sustainable Development, espoused in the Principles of Sustainable Development (see
Table 1) and the debates that have ensued in trying to implement these principles.
Because the focus of this study is upon corporations, an attempt was made to link
Sustainable Development ideas with literature on green business (McDonough and
Braungart, 1998; Ravailoli, 1995; Winsemius and Guntram, 2002; Wiser, 2001). Specific
articles on integrating environmental concerns into business strategies (Cramer, 2002;
Henriques, 2004; Holliday et al., 2002; Hutchinson, 1996, Jackson and Nelson, 2004)
proved to be very helpful.
Next we focused upon corporations and the global economic system. For this task
a wide variety of sources were utilized. Books (Clifton et al., 2003; Douthwaite, 1992;
Norgaard, 2001; O’Hara, 2001) and websites (NetMBA, 2005) about economics
generally were particularly useful for developing an understanding of and creating an
outline of basic market economic theory, critiques of the system, and alternative ideas
about valuation within this system. Texts and articles concerned with corporate
operations and behaviour were numerous and served to demonstrate and academically
critique corporate operations under the current economic system (Cook, 2000; Friedman,
2005; Hedley, 2002; Korten, 1995).
Finally we assessed the current standing of Corporate Responsibility by
examining its limitations within the current system while maintaining sustainable
development as the ultimate goal. This was a challenging task and required an
integration of sources. We outlined and critiqued various internal (Burritt et al, 2003;
Korten, 1995; Phelen, 1973) and external strategies (Bakan, 2004b; Elkington, 1997;
McDonough and Braungart, 1998; McIntosh et al., 1998; Olson and Toyne, 2000; The
Global Compact, 2005; Global Reporting Initiative, 2005) of corporations for pursuing
5
Sustainable Development and Corporate Responsibility. Then attention was turned to
issues surrounding economic growth (Desjardins, 1998, Korten, 1995) and equity
(Bendell and Visser, 2004; Galbraith, 1996; Shrivastava, 1995; Padilla, 2002) which are
covered, more directly, by the principles of Sustainable Development and hence the
materials on this topic (Dresner, 2002, Dryzek, 1997). The effectiveness of voluntary
initiatives (Bhan, 2005; Frankel, 1998; Gibson, 2001; Gilding, 2000) and corporate
reporting (Adams et al., 2004; Burritt et al., 2003; GRI, 1999; Kolk, 1999; Raar, 2002)
was also assessed before turning attention towards the implementation gap (Bakan,
2004a; Dale, 2001).
6
2.0 SUSTAINABLE DEVELOPMENT
There currently exists an incompatibility between the “business as usual”
traditional model of economics and the objectives of public interest groups that are
addressing issues of environmental degradation and social injustice. The struggle that
most often exists between these two systems stems from the recognition that traditional
economic models promote the idea of infinite growth associated with continued
enthusiasm for resource use, to and beyond the level of over exploitation, within an
environmental system which is limited and finite (Dresner, 2002; Dryzek, 1997;
McDonough and Braungart, 1998; Ravailoli, 1995). Winsemius and Guntram (2002)
eloquently detail that, “the growing awareness of the damaging environmental impacts of
unbridled growth leads to increased questioning of the absolute primacy of economic
imperatives” (8). This is the struggle which business must address. The call sent out for
changing and ideally reconciling this struggle between the environment and traditional
economics has been sustainable development.
Sustainable Development was a term first used widely in 1980 by the
International Union for Conservation of Nature and Natural Resources in their
publication of the World Conservation Strategy. The World Conservation Strategy
foreshadowed much of the material that was to be covered by the World Commission on
the Environment and Development which was conceived of in 1983 and culminated in
the publication of the Our Common Future otherwise known as the Brundtland Report in
1987. (Dresner, 2002). Sustainable Development has most famously been defined as
development which “meets the needs of the present without compromising the ability of
future generations to meet their needs” (Dresner, 2002, p1, Deiesendorf, 2000, p22) in the
Brundtland Report (1987). Though there are other viable definitions and great debate
about their validity, this definition will suffice for this study. A direct consequence of the
Brundtland Report was the UN Conference on the Environment and Development. The
Conference in Rio de Janeiro in 1992 produced the Rio Declaration, which included
Agenda 21, a plan of action detailing sustainable development priorities called. The
Principles of Sustainable Development were elaborated on in greater detail in this
document and are highlighted in Table 1 below (Dresner, 2002).
7
Table 1 - Summary of the Principles of Sustainable Development
Principle
Brief
1
Humans are the core of concerns for sustainable development.
States, by international law, have the right to exploit their own resources
according to their own policies but are responsible for ensuring that their
2
practices do not damage the environments of other states beyond their
national jurisdiction.
Right to development must equitably meet the needs of present and future
3
generations.
To achieve sustainable development, environmental protection must be
4
integrated with and not isolated from development.
All states and peoples must cooperate to eradicate poverty to increase the
5
standard of living for all.
International actions for environment and development should address the
interests and needs of all countries while providing special priority for
6
developing nations that are most economically and environmentally
vulnerable.
States have common but differentiated responsibilities in cooperating to
conserve, protect, and restore the integrity of Earth’s global ecosystem.
7
Developed nations must recognize their responsibility of the pressures their
societies place on the environment and available resources.
To pursue sustainable development, States should reduce and eliminate
unsustainable economic patterns of production and consumption and promote
8
appropriate demographic policies.
States should cooperate to build up internal capacity for sustainable
9
development by improving scientific and technological understanding
through information exchange and innovation.
Participation of all concerned citizens at the relevant levels is required to
handle environmental issues. This includes promotion of public awareness,
10
appropriate access to information, and the opportunity to participate in
decision-making.
Effective and contextually appropriate environmental legislation must be
11
enacted by States.
International cooperation of States is required to promote an open economic
system for economic growth and sustainable development in all countries.
12
Unjustified discrimination should be avoided.
States should develop international law for those affected by pollution and to
13
deter, through liability and compensation, those who pollute within their
jurisdiction.
States should cooperate to deter the relocation/transfer of environmentally
14
harmful activities and/or substances to other States.
The precautionary approach will be applied to environmental decision15
making processes.
States should internalize environmental costs, with the philosophy that the
16
polluter should pay, with regard to the public interest and without distorting
international trade and investment.
8
In situations where there is likely to be environmental harm an impact
assessment should be undertaken by a competent national authority.
A State must immediately notify the international community of any natural
18
disasters that are likely to affect the environments of other states. Other
States will help a state so afflicted.
A State is required to notify other States of any activities that may adversely
19
affect them and shall consult them in a timely fashion in good faith.
Women have a vital role to play in achieving sustainable development and
20
must be full participants in all such activities.
World youth should also be recognized as participants in sustainable
21
development.
States should recognize, respect, and include indigenous communities, their
22
knowledge and practices, in the pursuit of sustainable development.
23
The environment of oppressed/occupied peoples must be protected.
States should respect international law protecting the environment at times of
24
armed conflict; war being inherently destructive to the environment.
25
Peace, development, and environmental protection are interdependent.
Environmental disputes must be solved peacefully as detailed by the charter
26
of the United Nations.
27
States and people should cooperate in good faith to fulfill these principles.
(Information From Source: Rio Declaration, 2005).
17
There is a great diversity of arguments about how sustainable development can be
achieved and if it is even possible to have sustainable development. Some of the more
conservative approaches to sustainable development, the Triple Bottom Line approach
for example, recognize the need to incorporate environmental and social values in
business or organizational economic accounting (Elkington, 1998). In practice, however,
such strategies fall far short of fundamentally changing the structures and institutions, the
pillars of the status quo, which are causing environmental degradation (Norman and
MacDonald, 2004; Dryzek, 1997). Some of the more radical green philosophies, such as
Deep Ecology, question whether any commercially driven development can be
undertaken in a truly sustainable manner. The term sustainable development, in their
opinion, is an oxymoron (Dresner, 2002; Dryzek, 1997).
Others insist that Sustainable Development has potential and is in fact an
appropriate way to address our society’s environmental and social inequalities. A
pragmatic perspective says that the only way to assess the effectiveness Sustainable
Development is to dive in and give it a go. Dryzek (1997) is straightforward in noting,
“the success or failure of sustainable development rests on dissemination and acceptance
9
of the discourse at a variety of levels, but especially that of global civil society, followed
by action on and experimentation with its tenets” (p135 – 136).
What is clear is that humanity’s survival is contingent on the continued
functioning of the natural environment (Diesendorf, 2000). Sustainable Development is a
goal for achieving our long-term survival, and as such, semantics are not as important as
the values that underlie the definitions (Dresner, 2002) and how these can be actively
pursued. The semantics of Sustainable Development, therefore, must be second to action
(Dunphy, 2000). One commonly respected version the key elements of a sustainable
society and principles for guidance in the endeavour is the set of twenty-seven Principles
for Sustainable Development explicitly outlined in the Rio Declaration of 1992 (see
Appendix A) The core issues of sustainable development that can be extrapolated from
the principles include equity (inter- as well as intra-generational), limits to economic
growth, peace, human rights, utilization of the Precautionary Principle in decisionmaking, and international and state laws to ensure each of these. More generally, from
these principles, sustainable development requires, as Gilding (2000) notes, “an
integrated approach to social, environmental, and economic concerns in decision-making,
recognizing that all three areas are important” (40). Hutchinson (1996) takes these core
issues a step further and details the elements of a sustainable society, demonstrated in
Figure 1.
In addition to the principles of sustainable development, there are visions of what
such a society would encompass, and strategies for making such a future possible. In
general, the vast literature on strategies is geared towards helping specific actors to work
towards sustainable development goals. For example, McDonough and Braungart (1998)
have proposed a strategy for businesses to work towards sustainability through a process
they call “The Next Industrial Revolution”. According to this strategy, businesses should
take a “cradle to cradle” accountability approach to the products and services they offer
in order to cut down on resource use and eliminate waste completely. Generally, the
ecological problems and barriers to sustainable development humanity faces are systemic
(Hutchinson, 1996; Kay et al., 1999) and require, as Hutchinson (1996) has determined,
10
“systemic or ecological thinking and a shift in values from expansion to conservation,
quantity to quality and domination to partnership” (21).
Figure 1 – Elements of a Sustainable Society
Respectful Economics:
Valuing People, the
Environment, And
Resources
Government
Business
Technology
Democratic,
Legitimate
Cyclic, Resource
Conserving,
Empowering,
Modified Free Markets
Benign,
Appropriate
Population
Materials
Stabilized,
Healthy
Reused and Recycled,
Conserved,
Sustainable Sources
Peaceful and
Democratic Human
Communities
Conservation of
Physical Resources
Elements of a Sustainable
Society
Values
Energy
Human Rights and Equity,
Justice,
Peace and Security
Efficient Use,
Transition to Renewable
Sources
Food
Ecology
Water
Sustainable Yields,
Near to Markets,
Organically Grown
Natural Systems
Protected and Respected,
Diversity of Species
Protected
Clean Fresh Water for all,
Economical Use,
Pollution Prevented
Respect for Biodiversity
Modified From: Hutchinson, 1996.
2.1 Stakeholders in Sustainable Development
Crucial to delivering Sustainable Development is the identification of
stakeholders, which are the agencies and citizens who are affected by, and who do or
should influence, the outcome of development decisions. The governments of states or
nations, international governance bodies, non-governmental organizations (NGOs),
corporations, and the public in general all have parts to play in creating or hindering
sustainable development (Cramer, 2002, Hutchinson, 1996). Each of the players is also
11
influenced by the implementation of Sustainable Development principles. It is important
to understand each player’s role and how they may contribute generally to sustainable
development.
Governments
Governments of states and nations and international governance bodies (the UN,
for example) are empowered to set policies and regulations, which have the potential to
bring sustainable development to the forefront of societal development. Regulations are
the formal rules or standards that dictate what is acceptable and required behaviour,
putting limits on what is permissible. Governments usually employ a mix of tools. Their
tools include regulation (command and control) and support of self-regulatory initiatives,
such as environmental assessments, planning, and supporting programmes that apply
rules on company installations, operations, and post-production processes. Governments
may also use market mechanisms such as tax incentives or penalties for the same purpose
(Burritt et al., 2003). The costs of non-compliance range from criminal charges resulting
in prison sentences to damaged reputations (Burritt et al., 2003). Command and control
is a system of formal enforcement that is backed up by sanctions or negative incentives
for contraventions (Haufler, 2001; Burritt et al., 2003). Self-regulation occurs when the
parties being regulated design and enforce rules themselves (Haufler, 2001). Much of
this occurs with businesses wishing to have a high level of flexibility in the regulatory
process where they cannot avoid regulation entirely. The argument stands that less
severe regulations allow companies to more easily pursue and produce economic profit.
Strict regulations are typically considered, at least from the perspective of corporate
interests, to be a hindrance to economic growth. Government and international
governance bodies often create regulations to establish a base line, a minimum standard
which puts pressures on parties to comply to a specific level which they might not set for
themselves and gives the public and other actors recourse to hold them accountable for
their actions. Self-regulation is best used as a supplement to formal regulation or as part
of a larget set of motivations and tools including regulation (Gibson, 2001). The
regulatory power of government has the ability to turn business objectives that are purely
economic, to serve the common good (Goodpaster et al., 2003). Regulatory regimes set
12
standards for and put limits on corporate production processes and have the ability to
enforce penalties for non-compliance (Haufler, 2001), at least in industrialized countries
with enforcement capacity (and this is an important exception). Without government
regulations, market mechanisms remain the primary driving force of corporate decision
making (Goodpaster et al., 2003).
Governments can choose to encourage attention to Sustainable Development in
their own activities, for governments can act as and are businesses too. Canada
introduced one of the first national Sustainable Development strategies in the industrial
world in 1990. Canada’s Green Plan, as it was called, was followed by the Guide to
Green Government in 1995 that set up a model for Sustainable Development at the
federal level (Environment Canada, 2002). Both federal and provincial governments in
Canada have tended to promote voluntary non-regulatory strategies through increased
industry-government collaboration. In 1999 the Commissioner of the Environment and
Sustainable Development, along with environmental NGOs, recommended that the
government adopt more stringent requirements for voluntary initiatives (Government of
Canada, 2002). In response to the criticism the government created the Environmental
Performance Agreement Policy in 2001 to promote greater stakeholder participation,
facilitating information exchange and performance monitoring and a comprehensive
coverage of environmental issues as they relate to public and private institutions
(Environment Canada, 2003). Currently, businesses practicing within a Sustainable
Development framework in Canada adhere to a decentralized model of Sustainable
Development regulation and reporting based on independent public audits.
Government has a very intimate and inseparable relationship with business.
While the purpose of these two sectors seems to differ, governments and companies
require each other to exist. Business is responsible for making profits, driving the
capitalist economic system and the sustenance of company operations. Governments are
charged with protecting the common good, the interests of the public, and the sustenance
of human society, which often hinders protecting and promoting economic activities. It
is hard to imagine governments ever managing human societies without inputs from other
actors like NGOs or corporations (Jackson et al., 2004). On their own, governments are
left with inadequate resources to manage the societies they are responsible for supporting
13
when business controls a large portion of the collective capital wealth. Governments
have sometimes proven to be deficient in administering social services (Jackson et al.,
2004). This may be because they lack the resources to adequately fund the necessary
services. As the number of people living in poverty increases annually, public resources
are declining, citizen debt is growing, and high-level corporate salaries continue to
increase. Within capitalist market driven economies, governments need the benefit of
corporate alliances, especially for the resources and capacity that businesses employ, to
restructure society towards sustainability. As a consequence, governments are linked
with and perhaps dependent on corporate decisions. Business affiliated lobby groups
constitute the largest pressure on politicians, aside from public opinion. Using their
political power, businesses can lobby for changes in tariffs, tax regimes, regulations or
seek to gain access to natural resources
International Bodies
Governments are the primary decision makers within nations but international
bodies/structures also play a role in the pursuit of Sustainable Development. They do so
by forming agreements, conventions and trade organizations that govern (or attempt to
govern) interactions of corporations with other corporations and with other actors like
governments, smaller national businesses, etc. between and beyond national borders.
The International Monetary Fund (IMF) and the World Bank are both institutions
that have played a large part in helping and hindering sustainable development in the
international arena. They have had key role in mobilizing and distributing funds to
impoverished developing countries (Dryzek, 1997) attempting to address poverty issues.
They have done so, however, by implementing programmes like Structural Adjustment
Programmes (SAPs) based on driving economic growth to reduce national debt. Most
often, SAPs and other similar programmes operate at the expense of citizens of poorer
nations by diverting funding flows from social services to debt reduction programmes
(McIntosh et al., 1998). As Korten (1995) notes, “The World Bank and IMF are leading
proponents of economic rationalism and free-market, export-led growth strategies” (105).
The pursuit of economic growth is not always wanted nor is it necessarily pertinent for
alleviating poverty. What is important is that quality of life is promoted, which has not
14
been the result of a number of World Bank and IMF programmes. The World Bank has
tried more recently to update its structure and goals to take greater consideration, at least
on paper, of social and environmental concerns. They have created an Environment
Department and named a director of Sustainable Development. Whether or not these
structural changes will result in a more considerate and focused pursuit of Sustainable
Development remains to be seen (Dryzek, 1997).
Non-government Organizations
Non-governmental Organizations (NGOs) have a key role in the promotion of
Sustainable Development. An NGO is an organization that is neither a business nor a
government agency. An NGO can be a small single-issue pressure group or a large group
representing mainstream activities, such as business (McIntosh et al., 1998). Their
activities are wide and varied, with most NGOs focusing on particular issues, a series of
issues, or specific interests. Though NGOs are not always focused on a concern for the
world’s disadvantaged, their function, when considered cumulatively, is to act as the
monitors of the “public good” to protect the interests of society’s disadvantaged members
-directly through specific projects or indirectly through funding, educational programs,
and support- or otherwise neglected concerns such as the environment. Their
accountability and governance structures vary between organizations. Currently
international NGO’s tend to be characterized by the resources and organizational
structure (hierarchical) of other professional organizations (McIntosh, 2003). NGOs have
become numerous and more influential in the past two decades (Norgaard, 2001) as
global communications have broadened and become more accessible to the wider public
(McIntosh et al., 1998). According to Frankel (1998) the world’s decision-making
structures suffer from a “Global Problematique”. The Global Problematique explains that
those possessing the power and influence to create fundamental change in society
(governments and corporations) have the least motivation to change the status quo that
gave them power in the first place. While state governments are meant to guard the
public’s best interest they often fail to do so because their traditional ways of operating,
including traditional dealings with big business, have provided them with power and they
fear jeopardizing their position. Citizens may not agree with or fully condone
15
government-corporate relations and may even find their health and quality of life harmed
by their dealings.
A particular set of NGOs (including players such as Greenpeace, the World
Wildlife Fund, and Amnesty International) has been formed by concerned citizens,
academics, experts and activists, with the specific objective of monitoring corporate and
government activities. They act as watch-dogs, often directly challenging the global
problematique. They are created out of concern for environmental and social issues, and
their activities are aimed at publicizing otherwise hidden decisions and bringing existing
power structures to light. More generally, NGOs also offer creative, lobbying, and legal
pressure as well as an essential continuity to environmental and social justice causes.
Through NGOs, citizens can hold governments and businesses accountable for their
actions (McIntosh, 2003).
NGOs are key in the promotion of Sustainable Development because they serve to
bring local, often otherwise overlooked, issues and concerns up against those of powerful
national and international bodies like governments and corporations (Korten, 1996). The
function of NGOs in the Sustainable Development agenda is to decentralize power and
decision-making. They do so through the use of activist networks and use of the media to
inform and educate average citizens. Raised awareness and the access to tools and
resources an NGO possesses, provide citizens with the voice to challenge traditional
powers and the ability to create change that raises the quality of life of their communities.
The Public
The public is a general term that encompasses all people on Earth. The public, in
general, has many roles to play in the establishment and promotion of Sustainable
Development. The public is the basis of NGO’s and activist group memberships
(Norgaard, 2001), holding governments and corporations responsible to the “public
good” (McIntosh, 2003). Members of the public also compose the shareholder basis of
corporations, which gives them considerable potential sway in corporate decision-making
(Read, 2000). In deciding where to place their investments (shares, bonds, etc.), the
public arbitrates the growth and lifespan of companies. They can choose to invest in
companies that carry out sustainable business practices and openly report about their
16
practices and impacts. The impacts of goods and services depend upon the types of
production, manufacturing, and distribution a company uses. Members of the public also
are, or can be, powerful as consumers. The financial choices the public makes support
certain products and production methods. Some consumers have incorporated
environmental and social considerations in their buying habits, opting for instance to buy
organic produce or fair trade coffee. How a corporation meets the demands of consumers
determines its financial success (Diesendorf, 2000). The concerns raised by employees
of a company are also important (McIntosh et al., 1998). Politically, citizens make
important choices as voters. Although the current political environment does not offer a
wide array of divergent political agendas, voters can choose from a limited number of
different platforms that address environmental and social issues differently and in so
doing influence the decision-making framework. Aside from the public’s active roles in
society, citizens are also related to Sustainable Development in that they or their progeny
pay the cost of political mistakes or corporate wrongdoing. Pollution, environmental
disasters, decreased social funding and other calamities that befall a country most heavily
affect ordinary citizens who may or may not have had direct influence on the human
cause of the problem. In general decisions seem to be made by government officials,
scientific experts, business representatives, and other capital controlling institutions,
excluding the informing voice of citizens. That is not to say that mechanisms do not exist
that integrate public participation, but only to say that overall the public has a passive role
in direct decision-making. Therefore the public as consumer, shareholder, employee, and
voter can influence and be affected by corporation sustainability and the Sustainable
Development principles (McIntosh, 2003). Equally so, the public are citizens of
nations/states and can demand sustainability be the goal of their government and of their
society (Dresner, 2002).
Corporations
Finally, the spotlight is turned toward corporations. Corporations, it is argued,
have the power and influence to redirect the trend of environmentally insensitive
practices toward a future of sustainable development (Cramer, 2002; Diesendorf, 2000;
Graafland et al., 2003; Hutchinson, 1996; Ite, 2004; Viederman, 1997). Environmental
17
degradation is the result of socio-political interactions, an individualistic liberal political
system and capitalist economic system (O’Hara, 2001). Corporations, being actors
within these systems, cause environmental degradation (Adams et al., 2004; DesJardins,
1998; Henriques, 2004) through their operations, extracting and processing materials and
goods (Jenkins, 2004), and through their promotion of excessive consumption (Cramer,
2002). Corporations also control the movement of enormous sums of capital that are
reinvested into the market or used to expand corporate operations through franchises,
take-overs and mergers.
Each of these actors/stakeholders has the potential to influence sustainable
development or to hinder its achievement according to the actions each party takes and its
goals. Each player is, however, only a player and cannot determine the fate of a
sustainable future on its own but rather in conjunction with each of the others
(Diesendorf, 2000). The contribution or neglect on the part of corporations to apply
sustainability principles and endeavours has implications for the future of humanity. As
Diesendorf (2000) writes, “Clearly, corporations are important players in the
sustainability scene. Therefore, creating a sustainable society must involve changes to
corporations as well as to other social institutions”(25).
The following section on the current corporate system examines relevant legal
and economic structures, with the purpose of understanding how corporations accumulate
wealth and power. The discussion will then lead into how corporations can be enabled
and expected to behave in a sustainable manner within the current legal and economic
spheres.
18
3.0 CORPORATIONS AND GLOBAL CAPITALISM
Sustainable development theories address social and ecological destruction
incurred by human activity and deal with the sustainability of corporation because they
dominate a considerable amount of human activity. As stakeholders in Sustainable
Development, businesses and corporations are influenced and are affected by the
effective promotion of sustainability throughout our society.
Environmental degradation and the state of human welfare result from sociopolitical interactions within and between nations. As key actors in the global economic
system, that dominate socio-political interactions, corporations play a crucial role in the
state of environmental and human health around the world today. The dominance of
corporations in virtually every realm of human life is a relatively recent development.
The history of the current global capitalist system is well branched, long and complex,
involving different drivers from the British monarchy to Elijah McCoy who invented the
automatic lubricator used in engines and industry today. The current dominant economic
and societal global structure was first developed in the West and has since spread around
the world. This system, which is based upon a demand driven capitalist economy, has
created a social atmosphere that is unsustainable as people demand and consume vast
amounts of resources, a behaviour that is reinforced by the individualistic nature of
Western culture (O’Hara, 2001). Businesses generally, and large corporations
specifically, have played a large role in environmental degradation (Adams et al., 2004;
Desjardin, 1998; Henriques, 2004). The destruction of natural areas, habitat reduction,
and pollution are caused by business operations, extracting and processing of materials
and the transportation of goods by companies (Jenkins, 2004). Businesses further
contribute to environmental degradation by promoting the wasteful consumption of their
products (Cramer, 2002) for the sole purpose of increasing their capital revenue, market
share and expansionary options. The interesting twist is that large corporations have the
power, influence and means (capital, resources, and political sway), to redirect the trend
of environmentally insensitive practices towards a future of sustainable development
(Cramer, 2002; Diesendorf, 2000; Graafland et al., 2003; Hutchingson, 1996; Ite, 2004;
Viederman, 1997).
19
Corporations must be included in every discussion of sustainability given their
role in society and their power to influence change. Any effective policy development
and strategies geared towards promoting sustainability need to include an assessment of
the potential economic impacts and necessary changes needed on the road towards a
more socially and environmentally sustainable society.
The following section discusses the values and structures that influence corporate
behaviour and ultimately the capacity of corporations to apply Sustainable Development
principles to their practices.
3.1 The Corporation
A corporation is an autonomous entity that exists in the realm of law and
economics. “…A corporation is considered to be an association of individuals created by
law or under authority of law, having a continuous existence irrespective of that of its
members, and powers and liabilities distinct from those of its members” (Diesendorf,
2000; 24). In essence this means that though corporations are run by the participation of
many individuals, on an abstract and legal level, corporations operate as “individuals” in
their operations. Corporations have powers and liabilities beyond those of ordinary
human individuals, who are always in flux while the corporation itself remains a constant
entity.
A corporation is an institution in its own right (Korten, 1995; 53). Just as public
institutions and governments have structures and human participants who guide the larger
body, corporations have rules, charters and laws that govern their actions. Corporations
exist to allow one or more individuals to “leverage massive economic and political
resources behind clearly focused private agendas” (Korten, 1995; 53). Within the current
capitalist economic regime, corporations deal with all aspects of the economy from
production, distribution, marketing and consumption of goods and services.
In his book, When Corporations Rule the World (1995), David Korten states:
“Corporations have emerged as the dominant governance institutions on the planet, with
the largest among them reaching into virtually every country of the world and exceeding
most governments in size and power. Increasingly, it is the corporate interest more than
the human interest that defines the policy agendas of states and international bodies,
20
although this reality and its implications have gone largely unnoticed and unaddressed”
(Korten, 1995; 54). In his arguments Korten highlights that not only are corporations part
of the dominant societal structure, but they occupy a heightened position of power.
Corporations are active participants and representatives of a system of concentrated
wealth and power that usurps public governance, while also setting the agenda for current
and future decisions within this system. Korten’s view may seem extremely critical of
the current system, but a brief study of the history and elements of the system supports
his argument.
Before launching into a discussion of corporations the basic elements that
constitute the current economic and socio-political system in which they operate must be
outlined: liberalism, individualism, and market capitalism.
3. 2 Economic Sphere
Corporations are tools for managing economic wealth as much as they are
artifacts of the law. Any one trying to understand why corporations exist, what drives
their development and how they can help promote sustainability must at some point
examine the history of modern economic thought and the basic elements that define our
modern economic system.
Economic systems deal with the exchange of goods and services between
members of a community, regions, and nations, with production and distribution of
material wealth in a society (Clarke, 1989; 334). By providing a framework for
producing, distributing, allocating and consuming wealth, the economic system is meant
to support and supply the needs of citizens. The economic system is made up of a set of
institutions concerned with the movement of wealth. These institutions include local,
regional, national and international private and public organizations.
Currently the economy plays a huge role in the way our lives are structured.
Economics has become part of public discourse to the point that the state of society in
general is meaningful only when it is framed in the language of Gross National Product,
“rates”, “productivity”, “money supply”, “capital formation”, and “unemployment”
(Wolin, 1981). Economic concerns are paramount in current society and emerge in the
public consciousness as one of the prime motivating factors for individual and collective
21
decisions. It also “prescribes the form that ‘problems’ have to be given before they can
be acted upon” and the variety of choices that can be made (Wolin, 1981). The economy
has definitely emerged as the main organizing force since the Industrial Revolution.
3.2.1 Capitalism
There are different types of economies that embody a range of ideologies from
centrally planned socialism to participatory economics. For the purpose of studying
corporations this report will focus on global capitalism as an economic system, because
corporations have thrived best within this framework. Capitalism is also the current
dominant global economic system because it has been able to match supply with demand
better than its centrally planned rivals (Wired, 2005).
The dominant capitalist system is based on a self-regulating market that sets the
price of goods according to fluctuations in supply and demand. The model for supplydemand economics was popularized in Alfred Marshall’s Principles of Economics,
published in 1890, and remains a fundamental concept of modern economics. The price
of good is established when the quantity of a good equals the quantity that is demanded.
The Figure 2 illustrates how changes in supplies and the level of demand influence
market prices.
Figure 2 - The Market System in Traditional Theory
D – Demand
S – Supply
P – Price of Goods or Services
(Modified from Comer, 2004).
22
When demand moves forward (increases), this has a positive effect on the price of a
good, whereas a decrease in demand will bring prices down. The opposite is true for the
relationship of supply and market value. When the supply of a product increases, it
floods the market and prices fall, conversely, a decrease in supply equals and increase in
the price of a good. The market works to try to balance supply and demand to avoid
either a shortage or surplus of products in the market (NetMBA, 2005).
In addition to supply-demand economics, capitalism’s basic tenets include the
division of labour, liberalism, self-regulation, and private property ownership.
Division of Labour
Under a capitalist system, the means of production, meaning the equipment,
machinery, factories and the materials are owned by a the same individual or group that
also owns the commodities produced by the system. The people who work to make the
products are employed by the owners and their labour is considered a commodity, or an
“article of trade” (Kilcullen, 1996). Within the capitalist system, people primarily work
to produce objects to sell in the market and not for their own subsistence. This
necessitates that their wages relate to their subsistence needs. Given the understanding
that a person should be able to find anything she needs in the market, capitalism requires
the division of labour and the specialization of individuals in certain segments of the
market. Dating back to Adam Smith’s The Wealth of Nations (1776), this idea that
humans have a natural propensity to exchange the fruits of their labour for other products,
in combination with the pressure for productive efficiency under conditions of
competition, has led to the specialization and division of labour (Kilcullen, 1996). Since
people no longer work for their own subsistence, specialized laborers within the capitalist
system provide communities with access to farmers, mechanics, doctors, teachers,
plumbers etc.
Liberalism
Liberalism is a political ideology that first drew upon the ideals of the
enlightenment, science and rationality. It is based on a faith in human progress and in the
23
ability and goodness of people, and on a firm belief in individual rights and welfare
(Bridgewater and Kurtz, 1968). Britain, followed by the United States, has been the
major hegemonic force driving the spread of liberal ideology around the world (Taylor
and Flint, 2000), through colonization and expansion. The three main components of
liberalism are self-determination, consumerism in a laissez-faire capitalist economic
system, and democracy. The release of these components onto the global stage is
increasingly demanded by a growing number of nations. Tragically, their application has
proved to be unsustainable (Dresner, 2002; Taylor and Flint, 2000). According to the
Principles outlined in the Rio Declaration, sustainable development is dependent on
democracy and democratic processes, which are in conflict with the basic tenets of
liberalism: individual rights and consumerism.
Individualism
The democratic capitalist system is based on the notion that every individual’s
right to freedom is the most important social value and the purpose of government is to
preserve that right (Clarke, 1989). Individualism, or individual rights to liberty and
opportunity, does not necessarily promote environmental degradation but possessive
individualism does characterize humans as inherently acquisitive and materialistic.
Proponents of democratic capitalism would say that democratic authority and power are
derived from a group of individuals working together –the public- who have the right to
determine how they should be governed (Cook, 2000). Therefore, citizens are
empowered and, in theory, could demand sustainable practices and environmental
protection from their governments. This is only true for a small fraction of the world’s
population. Effective political participation has been limited primarily to the world of
white wealthy men in industrialized nations. Individualism, espoused by liberal
democracy, goes awry in the environmental and social sectors because it promotes a
socio-political system that is illegitimate and does not represent the interests of the
majority of the world’s population.
The authoritative system distributes rights and freedoms based on privilege and a
hierarchical social structure. Traditionally, liberalism has promoted the idea of negative
individual rights where a person, in the pursuit of the “good life”, cannot be restricted in
24
that endeavour unless she infringes upon someone else’s right to also pursue that goal. In
other words, one person’s pursuit should not result in the coercion of another (Cook,
2000; Dresner, 2002). As the following discussion of corporate power indicates,
corporations as legal individuals benefit from a high level of privilege within the
capitalist market system, to the point that they usurp the power of individual citizens and
their representative governments.
Consumerism
Consumerism is an important aspect of the current capitalist economic system. In
order for companies to grow they need the citizens of the world to buy their products.
The division of labour has necessitated that individuals buy products from others in order
to survive. As part of the market system corporations provide many of these necessary
materials, goods, and services to the public for a sale price (Jenkins, 2004). The
competitive individualism that drives the market system, production of goods and
innovative technological discoveries also encourages unhindered corporate growth. As a
consequence of market competition corporations, have fallen into the abominable habit of
promoting artificial “needs” and flooding the market with a plethora of trinkets (Clarke,
1981). The resulting excessive and unnecessary consumerism of unnecessary products is
promoted by corporations to increase sales (Cramer, 2002). Unfettered consumption is
environmentally unsustainable because the unlimited desire for things is inevitably met
with the reality of limited resources. Among the arguments against an individual’s right
of free-reigning over-consumption is that it infringes upon the ability of someone else to
also pursue a better quality of life (Dresner, 2002). The excessive consumerism practiced
by most citizens in the industrial world has a grave impact on global equity,
environmental limits and goes against the Principles of Sustainable Development outlined
in the Rio Declaration (1992), which addresses issues such as global equity. The issue of
equity will be discussed further in Chapter 5.
Growth and the Maximization of Profit
Smith’s market conception recognized individual self-interest as a basic driving
force for the management of society (Korten, 1995). Smith put forward the notion that
25
self-motivated actions of individuals serves to benefit society as a whole. For example,
workers in any specific field who apply new technologies in order to increase production
efficiency and reduce business costs, consequently offer costumers faster service and
cheaper products. Therefore the individual is the key unit of the capitalist economy.
Capitalism empowers self-interested actions as the best way to allocate resources without
the need for substantial intervention by a central governing authority (Korten, 1995; 115).
Corporations, as legal individuals, are encouraged to pursue their interests, which can be
narrowly defined as profit, growth and material progress.
Smith may not have been the first, and is definitely not the only theorist to discuss
the concepts of productivity, growth and progress, but he is as least one of the most
famous. Smith’s early ideas that the increased specialization of labour fosters
technological development and economic progress, meaning expansion, have carried on
into today’s modern capitalist market system. Following Smith’s advice, advocates of
economic growth have made it synonymous with the well-being of human society over
the last century.
The advocates of economic growth point to the fivefold increase in the global
economic output, measured primarily in Gross National Product (GNP), since the 1950s
and link the ballooning of GNPs to the general health of the global society. There have
been many critics of GNP as a measure of economic growth and quality of life. Perhaps
the first to relate GNP shortcomings to the environmental context was Edward Mishan in
his 1967 book, The Costs of Economic Growth. He charged that the calculation of the
GNP was misleading because it failed to assess such factors, among others, as the
negative impacts of affluence against growth. His arguments have held up well over the
decades. Despite this, GNP still remains the basis of gauging economic growth and well
being world wide (Dresner, 2002).
Growth within the current global economic system results from the accumulation
of capital in the hands of investors who collect the profits/dividends on their corporate
investments and reinvest and/or spend on consumption. For their part, corporations
contribute to growth and the maximization of profits by three primary means. Firstly,
they take over their competitors to expand their market reach. When they are large
enough, companies gain control over their suppliers, distributors and manufacturers
26
through the process of vertical integration. Finally, companies diversify their operations
to expand the nature of their economic activity. Every endeavour is undertaken with the
goal of maximizing profits, cutting costs, and ultimately encouraging economic growth.
Economic growth is the result of the cycle of investment and corporate profit pay-outs.
Politicians often talk about raising the “standard of living” in their national
budgets as a product of a healthy economy. The idea is that as long as the economy is
growing more and more people will be able to reach a higher “standard of living.”
“‘Standard of living’ is a technical term that refers to ‘the per capita rate of consumption
of purchased good and services,’” which invariably links the well-being of citizens to
economic growth (Douthwaite, 1992; 9). The assumption that a healthy economy is one
that is constantly growing is characteristic of the modern capitalist market system.
3.2.2. Capital Accumulation and the Investment Game
The economic system we have today allows individuals and groups to accumulate
wealth without having to produce any products associated with their new wealth. The
abstraction of wealth creation from the production of goods is a recent phenomenon and
another characteristic of capitalism.
The earliest markets worked on a barter and trade system where transactions
would only occur in city markets, or when traders meet face to face (Korten, 1995). This
constraint was lifted when people started using standardized units of exchange like coins
and eventually paper bills as “receipts” for their purchases (Korten, 1995; 185). Money,
as economist John Maynard Keynes informed us, serves to store value for an indefinite
amount of time after the actual time of the transaction (Taylor and Flint, 2000). Further,
the ability to hold money allows capitalists to sell their products and then wait for market
conditions to improve before buying more raw materials with their money.
“In its broadest sense, investment consists of putting an asset into a form that is
intended to increase its value. In an economic context, however, it refers to spending on
capital goods in order to increase output - building a new factory, purchasing new
equipment or public spending on infrastructure” (Department of Finance, 2005).
27
Global Capitalism
The discussion of corporate growth must also include an international dimension
in the analysis of the global market system. Back in 1967 America’s undersecretary of
state for economic affairs, George Ball, reflected on the global scope of corporate
activities and his ideas stand true even today, forty years later:
“[T]he political boundaries of nation-states are too narrow and constricted to
define the scope and activities of modern business… By and large, those
companies that have achieved a global vision of their operations tend to opt for a
world in which not only goods but all the factors of production can shift with
maximum freedom” (Ball, 1967).
The development of multi-national corporations is the latest stage in the growth of
corporate power. Corporations are created in one country but they have the freedom to
sell products, locate operations and make purchases in any country around the world in
order to maximize their profits. Innovations in telecommunication and transportation
have given corporations the ability to move resources and money across national borders,
giving such corporations the title of multi-nationals. This globalization of economic
transactions means that corporations are defined by the legal and economic structures of
their domestic markets, as well as the legal and economic structure of international
markets. Both national and international corporate structures need to be examined in
order to fully understand the breadth of corporate activities.
The following section on the current corporate system examines relevant legal
and economic structures, with the purpose of understanding how corporations accumulate
wealth and power. The discussion will then lead into how corporations can be enabled
and expected to behave in a sustainable manner within the current legal and economic
spheres.
3.3 Legal Sphere
Legally, corporations provide a basis for people to make financial transactions in
the marketplace. Corporations are defined and created by legal parameters (laws,
regulation, taxation, additional requirements), and as such are artifacts of the law. In
Canada, a company has the option to register its incorporation with a provincial or federal
28
authority, depending on the scope of its activities (Government of Canada, 2003). Once a
business has been incorporated, it gains a separate legal existence, it becomes a “person”
under the law. As a separate legal entity, a corporation can enter into contracts, own
property, pay income and property taxes distinctly from its owners (Canada Revenue
Agency, 2005). The benefits of incorporating versus other forms of business
organization (ie. proprietorship, partnership) is that members cannot be held liable for
debts, and obligations beyond their share capital and the corporation gains a separate
legal standing, making it independent of continued membership (Government of Canada,
2003). The specific legal responsibilities of corporations and of their members are
specified by both national and international governing bodies and their relative
regulations.
3.3.1 National Regulations
Different national governments have different ways of regulating the creation,
organization, amalgamation and dissolution of corporations (Legal Information Institute,
2005). Corporations are usually required to document and report the details of their
creation and provisions regarding of their internal management to government
organizations. State statutes work under the assumption that each corporation, upon
formation, will adopt specific bylaws that define the rights and obligations of its officers,
directors and other persons under its jurisdiction (Legal Information Institute, 2005).
The Canadian government, like other states, regulates the issuance and selling of
corporate stocks, bonds and other investments in business through its securities laws
(Department of Finance, 2002). Securities laws are designed to safeguard investors and
help them make the best decisions regarding their financial investments by ensuring each
investor and potential investor has the same information regarding the state of securities
(stocks, bonds etc.) The securities industry is regulated by federal and provincial
governments, as well as self-regulated investment dealers and stock exchanges like the
Toronto Stock Exchange (Department of Finance, 2005). In 2003, six of the 207
securities firms in Canada controlled 73 per cent of the securities industry (Department of
Finance, 2005).
Essentially, the securities industry regulates the movement of capital
between individuals and groups of investors into corporate coffers.
29
According to corporate law, people who finance a company’s infrastructure,
operations and existence are essentially its owners. The direction of business is guided
by the hand of voting investors who are willing to put their capital at stake under the
expectation that the invested business will provide a measurable return on their
investment. Legally, corporations and their directors are only directly responsible to their
shareholders (Harvard Business School, 2003). Unless there are contraventions of other
laws, the existence of a corporation will not be, by its traditional legal definition,
challenged or in jeopardy, as long as shareholders are happy.
This early definition of corporations that designates financiers as a company’s
rightful owners dates back to the early days of business when the chief executive tended
to also be the largest financier (Harvard Business School, 2003). When pioneering
entrepreneurs dominated the world of business, before multi-national corporations
ballooned to the size they are today, the same people who invested capital into a company
were also the company’s managers and directors. “Ultimately there's a legal duty and a
legal obligation on the part of the company's directors and managers to do whatever
needs to be done to ensure that the best interest of the shareholders are served, and that
means the best financial interest of the shareholders” (Bakan, 2004a).
Another way by which governments regulate corporations is through competition
laws. As discussed in section 3.2.1 a healthy level of competition is considered a key
element of the capitalist market system. Governments try to maintain market competition
by limiting corporate takeovers, mergers and the creation of monopolies. According to
capitalist market theory, as competition between companies for consumer attention
increases, prices fall and exports expand across international markets to the benefit of
consumers and national economies. The Canadian Competition Bureau administers and
enforces a set of federal acts that are intended to “promote and maintain fair competition
so that Canadians can benefit from lower prices, product choice and quality services”
(Government of Canada, 2005).
3.3.2 International Regulations
As George Ball asserts in his quotation above, many corporations need to exist on
an international scale in order to be competitive and profitable in today’s market. Many
30
international agreements on trade regulations, tariffs, taxes, and standards govern the
cross-border movement of corporate capital. The organization of international relations
under these agreements is part of the complex network of economic, technical, political,
and socio-cultural dimensions of globalization (Hedley, 2002).
Globalization
The current globalized system is the result of technological innovations and the
growth of Western economies. Entire university courses and books are based on the
study of the development of globalization but for the purpose of this report we will focus
on the basic characteristics and implications of modern globalism. To summarize,
globalization is “the expansion of global linkages, organization of social life on global
scale, and growth of global consciousness, hence consolidation of world society”
(Lechner, 2000; The Globalization Web Site, 2005). Globalization is more critically
considered by many nations, organizations, individuals and cultures to represent “an
elitist, Western-dominated form of economic and cultural imperialism” which favours
corporate and capitalist interests over those of communities and the environment (Hedley,
2002; 179). Corporations that function in the global context are referred to as
transnational corporations or multi-national corporations. They are defined as any
business that accepts foreign investment, owns or controls assets in more that one
country, produces goods and services outside its country of origin and is spatially
dispersed between many nations (Hedley, 2002). Although transnational corporations
have existed prior to the twentieth century (some examples include the East India
Company and the Hudson Bay Company) the last forty years have seen a phenomenal
increase in transnational corporate activity (Hedley, 2002). Global networks of
transnational corporations have actually grown to a magnitude surmounting the
importance of traditional state controlled import-export practices that in the past
controlled the delivery of goods and services worldwide (Hedley, 2002; 14).
International Networks
A number of international alliances and organizations, private and public
institutions play a role in the regulation of transnational corporations. The United
31
Nations (UN), established in 1945, represents, either directly or indirectly, every country
in the world and is considered the most prominent international alliance (Hedley, 2002).
The UN is accompanied by a global infrastructure that helps to facilitate negotiation and
implementation of international laws in a variety of issues from human rights to military
action: Food and Agricultural Organization, World Health Organization, the World Bank,
International Labour Organization, International Civil Aviation Organization,
International Telecommunication Union, and World Meteorological Organization
(Hedley, 2002). This network of organizations cannot force any action by nation states,
and does not have the infrastructure or resources for proper enforcement but only makes
recommendations and sets standards that represent the moral authority of the community
of nations. As the number of national governments pursuing stronger environmental
strategies increases so does the global convergence of product standards and regulations
(Burritt et al, 2003).
Other global organizations and agreements include the GATT and the WTO. The
main function of alliances like the General Agreement on Tariffs and Trade (GATT),
which led to the formation of the World Trade Organization (WTO) in 1995, is to secure
resources and services for continued economic growth by lowering trade barriers (World
Trade Organization, 2003). The WTO works with governments and international
organizations in handling trade disputes between private and state actors, provides a
forum for trade negotiations, and monitors national trade policies to meets its mandate of
improving trade liberalization (World Trade Organization, 2003).
A slew of integrated regional blocs including the European Union (EU), the
Association of South-East Asian Nations, the North American Free Trade Agreement
signatories, the Organization of American States, and the Southern African Development
Community also represent networks of nations (Hedley, 2002). The EU for example
represents twenty-five European countries and formulates laws that govern not only the
regional economy, but also other aspects of human and environmental spheres. Unlike
any other organization of its scope, the individuals who sit in the EU governing body are
democratically elected every five years to represent their respective member country
(European Union, 2005).
32
The underlying ideology that frames international regulations is based on the
same laissez-faire free-market liberalism that sets most national policies and was created
through multilateral trade negotiations that specifically benefit powerful trading nations
(Goncalves et al, 1994). In their study of the intensified privatization of the EU, Clifton
et al. attributed increased corporate power to the convergence of national policies
orienting the region towards increased deregulation, sectoral liberalization to promote
open movement of capital between and within industries, and a new focus on shareholder
interests (2003). In other words, international regulations governing the activities of
transnational corporations can be described as favouring a harmonized world economic
system with established rules that assist capital and goods to flow freely across national
boundaries (Korten, 1995; 122).
3.4 The Implications of Corporate Behaviour
The degree of corporate responsibility, whether or not public and environmental
interests are integrated into the corporate decision-making structure, depends heavily
upon the culture and responsiveness of individual companies. But regardless of their
choices, corporate behaviour has a profound effect on all aspects of human life and
environmental health. Any discussion of corporate influence must consider the spectrum
of multi-facetted impacts, and in so doing lead into a logical discussion of how
corporations influence sustainability and the promotion of sustainability in the current
global capitalist system. The following section will examine the impacts of corporations
in three different areas: social, environmental and political.
3.4.1 Social
Analysts and critics of corporate behaviour have long insisted that corporations
have no social conscience and do not take responsibility for their actions that threaten
social security, community cohesion, and human well-being. This is not true for all
companies but all companies are social actors with intimate relationships with citizens
and communities. These relationships relate not only to company activities, such as
manufacturing, transportation, and resource extraction, but also to the range of activities
that a company supports through investment.
33
Corporations have varied and many facetted spheres of influence in society
(Fussler, 2004). The people closest to a company, namely its employees, are most
directly affected by the way that company runs. The degree to which a company adheres
to labour laws governing the amount of hours employees are expected to work, allocation
of fair wages, employees’ rights to freedom of association and collective bargaining
(participation in labour unions), the elimination of compulsory labour and child labour, as
well as adequate occupational health and safety measures impart a dedication to either
positively or negatively, even if it is through neglect, influence the quality of life of their
employees (Fussler, 2004). A corporation’s priority of securing revenue often takes
precedent over protecting the human rights of employees (Korten, 1995). Manufacturing
companies often relocate to developing countries to take advantage of the lower costs of
labour. Beginning in the early 1990’s outsourcing, particularly in the apparel industry,
has allowed the exploitation of low minimum wages in countries like Indonesia and
Taiwan. Nike, for example, shifted its production facilities to Indonesia into what are
commonly known as “sweatshops”, helping to spur a surge in company profits and made
Nike the dominant athletic shoe producer of the 1990s (Manheim, 2004). Numerous
reviews of sweatshop practices have found a litany of human rights violations: forced
labour including prison labour; employment of workers under the age of 15; sexual,
physical, or verbal abuse; discrimination on the basis of gender, race, religion, age,
disability, nationality, political opinion, or ethnic origin; unsafe or unhealthy working
conditions (Manheim, 2004; US Department of Labour, 1998).
The second sphere of influence consists of a corporation’s business partners. This
relationship relates to the kinds of contracts a company secures with suppliers,
manufacturers, distributors and other business associates. Following fair business
practices and ensuring that suppliers are in compliance with human rights is important to
a corporation’s social responsibility (Fussler, 2004).
The third sphere of influence concerns the relationship between a corporation at
its host communities. Corporations use community resources (land, water, forests etc.),
dispose of waste and often contaminate community waters and land, disrupt local
ecosystems on which communities depend on for food, shelter and cultural purposes,
without consulting community members.
34
The fourth sphere is one that is often overlooked, yet is essential to the promotion
of sustainability on a global scale. Advocacy and dialogue between government and
corporations (Fussler, 2004), both small and transnational, influence the implementation
and shaping of international policies, agreements and regulations. Corporations have a
considerable economic leverage with government and can use it to lobby for specific
policy arrangements.
3.4.2 Environmental
As used here, the term “environment” refers to natural ecosystems, including
living and non-living components, biophysical systems (climate, water cycles etc.), plants
and animals and their interrelations in the system. Corporations within the global
capitalist economic system exist within the broader ecological context of the ecosphere
(the ecosystems of our planet) (Burritt et al., 2003). As aforementioned, corporations and
the drivers of economic growth such as modern production systems, consumption
patterns, and the application of new technologies are currently threatening the Earth’s
ecological sustainability
3.4.3 Political
Corporations are important drivers of national economies. They provide jobs, they make
the majority of goods and services found on store shelves, and they provide a substantial
portion of the tax revenues that are needed to sustain national governments (Manheim,
2004). The simple truth is that governments need corporations because business controls
greater capital than state governments are able to amass from crown corporations,
investments and tax revenues; corporations also own and control a great deal of resources
such as energy and mineral sources, technologies, intellectual property, infrastructure etc.
And corporations need governments to maintain a stable financial, legal and social
context in which to carry out their income-producing activities. As Korten (1995)
explains, corporations have in some cases usurped the power of democratic governance
that attempts to enable citizens’ decision-making power, by driving policies in their own
profit oriented interests.
35
The combination of modern global capitalism and the resultant dominant brand of
corporate hegemony have had a negative impact on most social, environmental and
political spheres.
36
4.0 THE DEVELOPMENT OF CORPORATE RESPONSIBILITY
Corporate Responsibility (Corporate Responsibility) is expressed through the
voluntary practices of incorporated companies that go beyond current state or
international legal obligations to take responsibility for the effects of their operations on
social and environmental spheres (Lapalme, 2003). In order to take this responsibility,
corporations must establish a systemic connection between their financial profitability
and their environmental and social performance (Cramer, 2002). Corporate social
responsibility (CSR) is the traditional term used in much of the literature, and though
some sources have taken it to include the environment (Lapalme, 2003), the
environmental sphere of issues has often been overshadowed by social concerns
(DesJardins, 1998). Corporate Responsibility thus encompasses the wider realm of
responsibility for all impacts of a corporation, social and environmental, and stresses the
corporate role as a member of society having corresponding obligations to other
members/stakeholders of society as outlined in Chapter 2.
4.1 The Three Eras of Corporate Responsibility
The development of corporate responsibility can be divided into three broad eras.
The first era is characterized by government regulation, which was ushered in by the
publication of Rachel Carson’s Silent Spring in 1962 (Frankel, 1998). Silent Spring drew
attention to corporate operations and the fact that corporations could not always be
counted on to protect the public’s best interest (Lear, 1997). Due to public concern and
increasing media coverage over environmental issues and corporate behaviour
governments, in industrialized countries mainly, responded by regulating industry.
The era of regulation soon made way for the era of compliance of the mid-1980s.
At that time the number of monitoring agencies was increasing as was the world’s
connectedness in terms of communications and the global reach of media networks. The
emerging “global village” mentality was particularly offended by the many examples of
industrial accidents occurring worldwide. Mercury-deaths in Minamata, Japan, and the
Love Canal tragedy in New York State can be added to the list of environmental disasters
involving veiled chemical dumping and toxic pollution. The town of Bhopal, India was
the site of the world’s most infamous and worst industrial disaster (Frankel, 1998). In
37
early December of 1984, the Union Carbide plant located in Bhopal released 42 tons of
toxic gas into the atmosphere. As a consequence, 2,000 people died instantaneously, a
further 4,000 deaths were identified after the event and 60,000 people were permanently
injured in. Upon further investigation it was discovered that Union Carbide’s facility in
Bhopal, as well as other plants in developing nations were poorly managed and operated,
and that the disaster could have been prevented. Following this incident, another
accident in a Union Carbide plant in Virginia, USA resulted in the hospitalization of 120
people (McIntosh et al., 1998). The Bhopal tragedy was covered widely by the media
and caused public outrage and backlash towards chemical companies. The operations of
corporations in general and specifically in developing nations came under suddenly
intense scrutiny. Not only did this demonstrated that corporations were not following
regulations, it also highlighted the inequitable corporate treatment of developed and
developing nations. The public was left feeling appalled and endangered. In order to
restore their public images, appease public concerns and ethical scrutiny, corporations
were forced to clean up their acts and comply with set regulations and standards. The era
of compliance lasted until 1988 (Frankel, 1998).
The final era of corporate responsibility, the era beyond compliance, began in
1987 and was in full swing by 1988 as the Brundtland report was published, distributed,
and widely read (Frankel, 1998). The Brundtland report (a report of the World
Commission on the Environment and Development chaired by Gro Harlem Brundtland)
and was published in 1987. The Report detailed the key elements of sustainable
development in hopes that this would become the new focus of global development. Its
debut marked a shift in ethical consideration of the environment and of communities.
The Report lent legitimacy to the governments of developing nations who were seeking
fairer treatment in trade and development and raised public awareness of both
environmental and social issues (Dresner, 2002). This was further solidified with the
publication of the Rio Declaration in 1992. What emerged was a proposal for a new set
of values and knowledge and the beginnings of a new social movement that is community
and ecologically focused (Dunphy, 2000). Insofar as public and government expectations
have risen, corporations can no longer afford to dismiss the impacts of their operations.
38
Mere compliance is not sufficient to address public concerns, sustainability has become a
competitive issue (Gilding, 2000).
As a result corporations started taking their own steps towards more sustainable
behaviour. Since the beginning of the third era corporate codes of conducts have been
littered with aspirations of corporate social responsibility, guidelines addressing issues
such as ethical standards, community involvement, and compliance with legal
requirements. Levi Strauss & Company was the first multinational to adopt a code of
conduct with its “Global Sourcing and Operating Guidelines” released in 1991
(Manheim, 2004). Since Levi Strauss’ precedent-setting commitment, many corporations
have followed in adopting unassailable codes of conduct (Manheim, 2004). Many other
sectors, from the mining industry to cosmetics have adopted voluntary initiatives to
appease public and government scrutiny. The phenomenon of voluntary corporate
responsibility will be further discussed in section 5.2.4.
4.2 Criticism of Corporate Responsibility
The main criticism of Corporate Responsibility is that it is too vaguely defined
and motivated to be effective (Foster, 2004; WBCSD, 2000). The strategies for pursuing
corporate responsibility, it is argued, are optimistic and idealistic in their language but
provide little practical guidance as to how Sustainable Development should be pursued.
The results of Corporate Responsibility initiatives are highly individualized to fit specific
corporate objectives and cultures and thus cannot easily be compared between companies
let alone on an industry wide scale. There is a lack of cohesion and of one widely
accepted set of criteria that can bring the Corporate Responsibility sector together.
Sustainability indicators, of which there is a plethora, are also of little use in this
muddled context. While, sustainability has become a competitive issue (Gilding, 2000)
there is no accepted practical way to distinguish or measure advancements in pursuing
Sustainable Development. This has led to a critical view of Sustainable Development
investments by corporations and shareholders in an era where the level of environmental
degradation and the need for Sustainable Development has become critical.
Another major obstacle to effective Corporate Responsibility is a questionable
level of corporate motivation towards adherence with Sustainable Development
39
principles. A corporation’s responsibilities, it is argued, are to create profit for
shareholders (Friedman, 2005) and social responsibilities are for the realm of
government, NGO’s, and individuals (WBCSD, 2000). As such, Corporate
Responsibility initiatives can be seen as unnecessary undertakings that can actually be
detrimental to a company’s survival. The diversion of revenue from primary commercial
operations into Corporate Responsibility could potentially have negative effects on
shareholder value, unless there are clear commercial reasons for Corporate Responsibility
(eg. to build employee and customer loyalty or pre-empt regulatory action).
The following discussion attempts to shed some light on the current Corporate
Responsibility sector and how Corporate Responsibility deals with the problem of vague
definitions and a disparity in the level of corporate motivation.
40
5.0 CURRENT SITUATION
Corporate Responsibility is an area of study that has generated vast amounts of
theory and strategic frameworks for implementation. While this has been useful in
discourse, there has been a lack of effective and efficient action on the subject. To
determine why this is the case, an assessment of the current corporate responsibility
practices is required in order to identify the weaknesses and strengths of the current
approaches.
5.1 The Potential of Corporate Responsibility
Though there is a lack of cohesive and comprehensive action in the area of
corporate responsibility there are exceptional companies striving to take a more holistic
and responsible approach to their operations. There are numerous awards given to
companies each year, for example under the Ethics in Action Awards Program1. These
various awards assess corporate responsibility initiatives among competitors using
various sets of criteria. Case study research, a relentless and overwhelming amount of it,
has also been done to assess the commitment of specific firms to corporate responsibility.
A long list of highly publicized and noteworthy corporations include, though are not by
any stretch of the imagination limited to, Husky Injection Moulding, Interface, The Body
Shop and Electrolux.
5.1.1 Visionary Companies
According to de Geus, four characteristics typify companies that are economically
successful and have longevity (McIntosh et al., 1998). See Box 1 below. These
characteristics are further supported by research cited by Collins and Porras that suggests
that visionary companies are those that have strong core values or ideologies which are
geared towards company evolution rather than profit maximization (McIntosh, 2003;
McIntosh et al., 1998; Olson and Toyne, 2000). “Visionary” companies set audacious
goals for themselves oriented around company ideology, potentially including goals that
1
For more information see the Ethics in Action Awards Program web site:
www.ethicsinaction.com
41
are sustainability oriented. An example given in the literature was Dupont’s goal of
producing no waste (Olson and Toyne, 2000).
Box 1 – Four Characteristics of Successful Companies with Longevity
4 Characteristics of Successful
Companies with Longevity
1. Sensitivity to the external environment, which allows the company to learn and
adapt.
2. Cohesion and identity, which allow the company to be a community and have a
personality.
3. Tolerance and decentralization because the company understands its own
ecology; this enables it to build new relationships within and outside the
company.
4. Conservative financing which allows the company to govern its own growth and
evolution.
de Geus (1997)From McIntosh et al., 1998; p76
Although de Geus list does not specifically refer to sustainability, the four
characteristics and general concept of expressed ideological orientation suggest that
corporate responsibility, as an increasingly competitive as well as ethical element of the
current economic climate, may be something that visionary companies adopt in order to
survive and thrive over the long term (McIntosh et al., 1998; Olson and Toyne, 2000).
In order to foster sustainability, in which corporate responsibility for
environmental and social impacts plays a major role, three shifts towards sustainability
must be recognized and incorporated into the values and ideologies of corporations
(McIntosh et al., 1998). These are outlined in Box 2 below. The shift of values within
corporations can be fostered by public pressure, managerial or employee ethical beliefs or
both combined.
42
Box 2 – Three Sustainability Shifts
Three Sustainability Shifts
1. Value the environment for the contribution it makes to life on earth, whether in
terms of physical resources, recycling, beauty, amenity, or religious significance.
2. All people have a right to environmental resources, including material and
beauty.
3. Decision making about the use of environmental resources must be based on an
awareness of all those who may be affected by the decision, including people in
other parts of the world and future generations.
From McIntosh et al., 1998, p101
5.1.2 The Strategies
There are various ways by which corporations choose to address and improve
their corporate orientation towards sustainability, whether they are “visionary” companies
or not. In order to promote sustainable corporate behaviour effectively, corporations can
and must institute checks and balances, both externally and internally, to cover the entire
sphere of a company’s influence (Phelan et al, 1973; 396). The following section
examines the different strategies by categorizing them as internal or external, with the
acknowledgement that because Corporate Responsibility is such a large field, there may
be some strategies that are not included.
Internal strategies
Board rooms, golf courses and directors’ meetings are the common sites of
corporate decision-making where the decisions that guide corporate behaviour are steered
by the ideology of the people involved. For this reason, a great deal of Corporate
Responsibility strategies are geared at corporate managers and internal corporate
governance structures.
Currently, directors and managers, as the representatives of the corporate being,
are only directly responsible, by law, to their shareholders. The decision making
framework of their jobs necessitates that they maximize profit for their investors and
shareholders. But while managers are captive to the profit-interest motive, they also have
43
the ability to direct corporate purpose. Individuals with vision provide corporations with
a greater scope of purpose beyond the limited practice of profit maximization, and tend to
create companies with longevity and greater economic stability (McIntosh et al., 1998;
Olson and Toyne, 2000).
Internally, corporations can change the tools and mechanisms that inform their
decision making framework. Burritt et al. (2003) outline how environmental
management can be inserted into the current business practices and data collection of any
corporation (See Table 2 below). Once these tools are used by a company the ultimate
aim is that the information that they produce (eg. environmental audits on compliance
with regulations) support real improvements in performance (Burritt et al., 2003).
Table 2 - Methods of environmental management derived from methods of conventional
economic management
Conventional Management Tool
Environmental Management Tool
Calculating and costing
Accounting
Auditing
Reporting
Total quality management
Control
(Burritt et al, 2003; 316)
Life-cycle assessment
Environmental accounting
Environmental auditing
Environmental reporting
Total quality environmental management
Eco-control
Korten (1995), however, insists that focusing on raising the social consciousness
of corporate managers incorrectly defines the problem. “The problem is a predatory
system that makes it difficult for them to survive. This creates a terrible dilemma for
managers with a true social vision of the corporation’s role in society. They must either
compromise their vision or run a great risk of being expelled by the system” (Korten,
1995; 212).
In their analysis of the Dupont company, Phelan et al, (1973) recommended that
public stakeholders be integrated into corporate decision-making, especially on issues
that directly influence community well-being such as resource extraction and use, waste
disposal and labour rules. This effectively means making corporate boardrooms and
meetings publicly accessible, in order to formulate development decisions using a
transparent and open process. Phelan et al (1973) argue that while a perfect system of
democratic government influencing the economic system might provide the necessary
44
checks on corporate power, such perfection is inherently impossible. “Since there will
always be some co-option of public officials by private corporations and some
concentration of economic power in certain market sectors, local residents should be
given some internal checks on corporate power through participation in corporate
government” (Phelan et al, 1973; 396).
So while corporations need to ensure that their directors and managers fully
espouse the principles of sustainable development they must also integrate the public into
their decision making structure.
External Strategies
Joel Bakan, author of The Corporation: The Pathological Pursuit of Profit and
Power does not believe that changing the internal structure of the corporation is
necessary; instead, corporations can be regulated against causing environmental and
social damage with the power democratically bestowed upon governments. Governments,
argues Bakan, need to promote responsible corporate behaviour through legal
requirements and standards that are closely followed by enforcement mechanisms.
Further, stricter regulations can emphasize the capacity of corporations to benefit society
by delivering goods and services sustainably (Bakan, 2004b).
External Corporate Responsibility strategies are concerned with the interfaces of
consumer-, authority- and public-corporate relationships, and are related to
environmental standards and legal requirements. Companies, such as the
abovementioned visionaries, can choose to act as individuals or in co-operation with
other companies. “Co-operation in addressing environmental problems can be through
the whole industry (horizontal co-operation) or over the whole “life-cycle” of a product
(vertical co-operation)” (Burritt et al., 2003; 185). These strategies are often launched
and supported by corporate marketing and public relations activities (Burritt et al., 2003).
Strategies range in scale, from local, regional to global and include various organizations,
and agreements, such as the UN Global Compact.
On the regional and national level there are regulators, standard-setters,
professional organizations that influence whether or not corporations espouse strict
environmental standards (Burritt et al., 2003). National pollutant inventories, federal
45
environmental protection agencies and the European Unions’ Eco-management and Audit
Scheme (EMAS) are examples of systems and bodies that allow corporations to report on
their activities. Burritt et al., (2003) identify EMAS and the International Organization
for Standardization (ISO 14000; ISO 14001; ISO 14004) as very important and popular
standards for corporate environmental management system design. The German Blue
Angel environmental label is an excellent example of a successful national certification
system (Burritt et al., 2003). The 25 year old Blue Angel program has certified
approximately 3,800 products and according to the users of the label, the Blue Angel has
stimulated competition for ecological innovation and the ecological quality of the
products and services provided (Blaue Engel, 2005). Although the standards vary by
country, the organic farming industry is well-know for having developed strict and exact
criteria for “organic”, “bio”, and “eco” labeled food products (Burritt et al., 2003).
A great deal of work on corporate responsibility has been done on an international
scale. The main purpose of international agreements on allowable corporate behaviour is
to produce a unified and standardized code of ethics for businesses with a multinational
reach (Panyarachun, 1998). Some that already exist include Social Accountability 8000,
the OECD Guidelines for Multinational Enterprises, ILO Multinational EnterprisesTripartite Declaration of Principle, the Caux Round Table Principles for Business and
Amnesty International’s Human Rights Principles for Companies (Panyarachun, 1998).
Missing from this list is the widest reaching and best known Corporate Responsibility
framework: the UN Global Compact.
Following the meeting at Davos in Switzerland, UN Secretary-General, Kofi
Annan’s ideas on a sustainable global economy were made into a formal programme.
The UN Global Compact’s operational phase was launched in 2000 at UN headquarters
in New York. Over the following four years, more than 1,000 companies, 20
transnational NGOs, international labour organizations, and six UN agencies joined to
form an international network (Fussler et al, 2004). The UN agencies involved are the
following: the Office of the High Commissioner for Human Rights, the United Nations
Environment Programme, the International Labour Organization, the United Nations
Development Programme, the United Nations Industrial Development Organization, and
the United Nations Office on Drugs and Crime (The Global Compact, 2005). Most
46
regions of the world are represented in the Compact’s membership, including participants
from a range of developing and developed countries (Fussler et al, 2004).
The Global Compact does not regulate, police, monitor, or enforce corporate
behaviour. Instead, the Compact depends on “public accountability, transparency and the
enlightened self-interest of companies, labour and civil society to initiate and share
substantive action in pursuing the principles upon which the Global Compact is based”
(The Global Compact, 2005). There are 10 guiding principles set out by the Compact.
See Box 3. The programme is a guide for socially, environmentally and economically
sustainable corporate decision-making. According to the mandate of this voluntary
association of private and public actors, its goal is to bridge the gap between the global
markets system and national communities.
Box 3 – United Nations Global Compact, 2005
The Global Compact's ten principles in the areas of human rights, labour, the
environment and anti-corruption enjoy universal consensus and are derived from:
•
•
•
•
The Universal Declaration of Human Rights
The International Labour Organization's Declaration on Fundamental Principles
and Rights at Work
The Rio Declaration on Environment and Development
The United Nations Convention Against Corruption
The Global Compact asks companies to embrace, support and enact, within their sphere
of influence, a set of core values in the areas of human rights, labour standards, the
environment, and anti-corruption:
Human Rights
•
•
Principle 1: Businesses should support and respect the protection of
internationally proclaimed human rights; and
Principle 2: make sure that they are not complicit in human rights abuses.
Labour Standards
•
•
•
•
Principle 3: Businesses should uphold the freedom of association and the effective
recognition of the right to collective bargaining;
Principle 4: the elimination of all forms of forced and compulsory labour;
Principle 5: the effective abolition of child labour; and
Principle 6: the elimination of discrimination in respect of employment and
occupation.
47
Environment
•
•
•
Principle 7: Businesses should support a precautionary approach to environmental
challenges;
Principle 8: undertake initiatives to promote greater environmental responsibility;
and
Principle 9: encourage the development and diffusion of environmentally friendly
technologies
Anti-Corruption
•
Principle 10: Businesses should work against all forms of corruption, including
extortion and bribery.
There is a wide range of local, regional and global Corporate Responsibility
strategies, certifications, regulations and agreements that are instituted by either private
or public bodies. “One main difference between standards provided by private and public
institutions is that public agencies and regulators institute regulatory rather than voluntary
systems” (Burritt et al., 2003; 295).
The way a corporation functions has implications for its external environment.
Different strategies have been developed to increase the environmental sustainability of
businesses. The Global Compact is just one. The Natural Step, the Triple Bottom Line,
the Cradle-to-Cradle approach, the CERES principles and the Global Reporting Initiative
are among the more widely known other frameworks. To follow is a brief description of
each of these. Unlike the Global Compact which sets out responsibility guidelines to be
incorporated into corporate ideology, these strategies represent the way in which a more
sustainable corporate ideology can be implemented and customized for specific corporate
cultures and contexts of operation.
Natural Step
The Natural Step is a Swedish based approach created by Dr. Karl-Henrik Robert
(McIntosh et al., 1998). It is now used by over 100 major corporations world wide
(Olson and Toyne, 2000) including IKEA and Electrolux (McIntosh et al., 1998). The
48
approach is reliant on the concept of natural capital and on a systems approach. There
are four basic principles to this approach based upon scientific understanding and they
are as follows:
•
Matter and energy cannot appear or disappear (conservation law),
•
Matter and energy tend to spread spontaneously (2nd law of thermodynamics),
•
The quality, concentration, and structure of materials determines their biological
and economic value – dispersal in the environment reduces value, and
•
The essential net producers of concentration and structure are green plant cells
through the process of photosynthesis (Olson and Toyne, 2000).
Triple Bottom Line
John Elkington and his environmental consulting company SustainAbility are the
drivers behind the popular Triple Bottom Line (TBL) approach. Elkington’s book,
Cannibals with Forks (1997), set out and detailed the philosophy of this approach. The
basic premise of the TBL is that businesses should account for more than just their
economic bottom line. Environmental and Social bottom lines should also be accounted
for and calculated in order to gauge the full impact of a company’s impacts (Elkington,
1998).
Cradle-to-Cradle (aka The Next Industrial Revolution)
McDonough and Braungart have advocated this approach which suggests that
businesses ought not to create negative impacts on the environment. The main premise
of this approach is to design for sustainability (Olson and Toyne, 2000). This can be
achieved, they argue, through life cycle accountability where the full range of a products
life span is accounted for by the company which produces it. There are three
fundamental principles to this approach. The first principle is that Waste = Food. This
means that any wastes produced must be an input to another production source (hence
cradle to cradle). The second principle McDonough and Braungart advocate is to respect
diversity. They recognize, through this principle, that the interaction between all aspects
of ecosystems (both biotic and abiotic) are complex. The disruption of the diversity
within ecosystems can mean that it stops functioning and may ultimately negatively
49
impact upon the quality of life of humans. The final principle is to use solar energy. The
use of energy should be benign. Solar energy is the basis of all natural processes and
should also be the basis of human production systems. Energy systems should be based,
more generally on non-carbon based fuels and their delivery systems should be highly
efficient (McDonough and Braungart, 1998; Olson and Toyne, 2000).
CERES Principles
The CERES Principles were established by the Coalition for Environmentally
Responsible Economies (formed in 1989) which was seeking to provide the investing
community with reliable information about corporations’ environmental initiatives and
performance (Olson and Toyne, 2000). Their creation was spurred by the Exxon Valdez
oil spill off the coast of Alaska (McIntosh et al., 1998). The 10 principles (fully outlined
in Table 3 below) are protection of the biosphere, sustainable use of natural resources,
reduction and disposal of waste, wise energy use, risk reduction, marketing of safe
production and services, damage compensation, disclosure, appointment of
environmental professionals, and assessment and audit (McIntosh et al., 1998; Olson and
Toyne, 2000).
Table 3 - The CERES Principles
Principle
Brief
Reduction and progress in eliminating substances that may
1 – Protection of the
cause environmental damage to ecosystems and/or
Biosphere
inhabitants. Protecting open spaces and biodiversity.
Sustainable use of renewable resources and conservation
2 – Sustainable Use of
of non-renewable resources through efficient use and
Natural Resources
planning.
3 – Reduction and Disposal Reduction and elimination of waste through source
of Wastes
reduction and recycling.
Improved energy conservation and efficiency of
operations, goods, and services. Use of environmentally
4 – Energy Conservation
safe and sustainable energy sources.
Minimize the environmental, health, and safety risks of
5 – Risk Reduction
operations to employees and communities.
Reduce and eliminate the use, manufacture, or sale of
6 – Safe Products and
goods and services that cause environmental damage or
Services
pose health and safety hazards.
7 – Environmental
Promptly and responsibly correct conditions that endanger
Restoration
health, safety, or the environment and redress injuries to
50
8 – Informing the Public
9 – Management
Commitment
10 – Audits and Reports
persons or damage to the environment.
Inform anyone and everyone affected of conditions caused
by the signatory that might endanger health, safety, or the
environment. Regularly seek advice and counsel with
communities and refrain from actions against employees
for reporting dangerous incidents or conditions.
Implement and sustain a process that ensures the board
and CEO are fully informed about pertinent environmental
issues and are fully responsible for environment policy.
Conduct an annual self-evaluation of the implementation
of these principles, including annual completion of
CERES report, which will be made available to the public.
From: Olson and Toyne, 2000.
Global Reporting Initiative
The Global Reporting Initiative (GRI) framework was released in draft form in
1999 and in 2002 it was established as an independent international body based upon the
Triple Bottom Line approach. GRI is a multi-stakeholder process that provides
corporations with guidelines related to economic, environmental and social aspects of
business activities (Global Reporting Initiative, 2005). GRI has become the primary
global guideline organization for sustainability reporting (Burritt et al., 2003).
Corporate sustainability reporting is a voluntary initiative that is meant to
communicate environmental performance to stakeholder and target groups. Legislators,
NGO’s, management and business partners, investors and financial analysts, as well as
university researchers are among the readers of corporate reports. These reports include
the corporate structure for environmental protection, environmental policies, goals and
actions planned to achieve these goals (Burritt et al., 2003).
Each of the strategies examined in this report has its own specific focus, though
on a basic level they appear to be very similar. They are all designed with the idea of
achieving Sustainable Development within the current economic system. There are a
great number of strategies not included in this report. However, such strategies are
usually based on some variation of the well-known strategies discussed here. Though
these strategies provide a blueprint for companies to become more responsible in their
51
operations, there are problems with their use in the pursuit of Sustainable Development,
these problems will be discussed in the upcoming section.
5.2 Critiquing Current Corporate Responsibility
Though there is hope that the pursuit of Sustainable Development will be fruitful,
there is a great deal of confusion and frustration with how to go about doing so. The
concept of Corporate Responsibility has shown promise in helping corporations to play
their part in Sustainable Development. There remain, however, obstacles to the
integration of Sustainable Development into corporate ideology and activities, mostly
related to corporate accountability and the system within which corporations function.
Identifying the gaps in theory and current practice is needed in order to remedy the
barriers to corporate responsibility and achieve Sustainable Development.
5.2.1 Strategies
Individual companies can use the strategies previously outlined, among others, to
pursue corporate responsibility and sustainable development. As we have seen, there is
not much fundamental difference between these approaches. Whether or not they are
effective in changing corporate behaviour can only really be assessed by the way
companies use them, whether comprehensively or not, and how they address the
sustainability principles. These strategies only serve as the framework to create a
corporate blueprint for change and action. The actual blueprint is something each firm
must decide upon and fit into its business or industry context and unique corporate
culture (Oakley and Buckland; 2004, Olson and Toyne, 2000). This point is echoed by
Olson and Toyne (2000), who point out that such strategies as these, “only have meaning
when applied to the activities and circumstances of the corporations using them. They
are not a blueprint, but a framework for creating one” (247).
Most of the approaches claim to espouse the principles and ethics of
sustainability. In practice, however, the language means little when corporate practices
do not follow the ethics and philosophy of the strategies or comprehensively account for
their social and environmental impacts. Norman and MacDonald (2004), for instance,
found in their critique of the Triple Bottom Line that while companies appeared to be
52
committed to Triple Bottom Line principles, there really was no concrete way to
determine or compare their actions to other companies or to indicators. Companies using
the Triple Bottom Line were not taking any truly verifiable responsibility for their
operations and could not necessarily be said to be pursuing sustainability goals.
Furthermore, the sustainable development principles of limits to growth and
equity are given little comprehensive attention within these frameworks though they are
fundamental principles to be addressed if corporations are to take ethical responsibility
for their actions. Needs (equity) and limits are the two key concepts of Sustainable
Development and as such should not be absent from discussions of how to create
sustainable development (Dresner, 2002; Dryzek, 1997; Langhelle, 2000).
5.2.2 Economic Growth
Unlimited growth is in direct conflict with hopes for environmental and social
justice. The Exxon Valdez oil spill of 1989 highlights this conflict. The oil tanker ran
aground off the Alaskan coast, releasing 10.8 million gallons of crude oil into the ocean,
contaminating the water and coast line (McIntosh et al., 1998) In environmental terms,
the Exxon Valdez oil spill was a severe disaster and yet, economically, with conventional
GDP measurement it counted as a net contribution to economic output (Korten, 1995).
The sustainable development principle of limits to growth is rarely addressed by any of
the previously outlined approaches to Corporate Responsibility in anything but a vague
manner. Unlimited growth is a dogmatic idea entrenched within the capitalist market
system (Dresner, 2002). DesJardins (1998) argues that a theory of Corporate
Responsibility must be derived from a model of sustainable economics instead of the
prevailing capitalist market system of economics in order to be effective. This may be so
considering that the strategies of corporate responsibility that are compatible with the
prevailing market system fail to address such a fundamental principle like limits to
growth. To achieve the goals set out by the principles of Sustainable Development,
Corporate Responsibility initiatives and their public and private proponents must attempt
to change the traditional economic assumptions of profit maximization and unlimited
economic growth.
53
The principle of limits to growth is usually tied to critiques of the excessive
consumption levels in developed nations. In order to raise the quality of life in
developing nations, some substantial economic growth will be required and this is an
issue directly related to principles of equity (Dresner, 2002). The issue is not about
companies never growing, it about how and when they grow. Korten (1995) writes
eloquently, “If our concern is with sustainable human well-being for all people, then we
must penetrate the economic myths embedded in our culture” that prioritize unlimited
material growth (50). Economic growth is a function of corporate operations that can be
directly controlled by each company. They can limit the extent of their growth, choosing
not to expand at times when the opportunity presents itself, though there are few
examples of companies doing so. Korten (1995) goes on to outline two priorities of a
sustainable economy which should also be the priorities for corporations pursuing
Sustainable Development as major players within the economy. These priorities are:
•
balance between human use of the environment for human needs (nature as a
resource) and the ability for ecosystems to regenerate and sustain themselves,
•
and the allocation of available natural capital for equal access and opportunity,
to meet the physical, natural, socio-cultural, intellectual, and spiritual needs of
all people (50).
Within the capitalist market system, companies need to make a profit as a duty to
shareholders. Corporations are thus subscribed to the idea of unlimited growth. This
reality embodies the greatest challenge for Corporate Responsibility in contributing to
sustainability. Unless Corporate Responsibility strategies integrate limits to growth
within their philosophies, their marriage to Sustainable Development will be illusionary
and fail to achieve that end.
5.2.3 Equity
Like limits to growth, equity is a sustainable development principle that is
difficult yet crucial for corporations to address. Equity refers to the state of populations
being equal in power and status as well as having equal opportunity to a similar quality of
life (Merriam-Webster Dictionary of Law, 1996). Issues of equity are diverse and
54
complex, and include considerations of equity between generations, countries, cultures,
population segments, genders, etc.
Equity is a conundrum issue for corporations. Where the boundaries of corporate
responsibilities for rectifying global inequities should be drawn is debated and elusive.
Corporations may not be solely responsible for addressing all current global inequities,
many of which are politically and culturally based, but they do have a role in creating and
deepening (and therefore in remedying) some inequities. But if, as Korten (1995)
suggests, we are to allocate available natural capital for equal access and opportunity, to
meet the physical, natural, socio-cultural, intellectual, and spiritual needs of all people
(50) to create a sustainable economy, issues of equity are paramount.
Corporations are set to be participants in continued economic activities, providing
goods and services that are needed to meet the basic needs of the ever growing human
population and raise the quality of life of the world’s poor (Bendell and Visser, 2004;
DesJardins, 1998). As participants of the economic system corporations are committed to
making money and in their endeavor of acquisition they (meaning their directors and
shareholders) occupy some of the world’s highest earning brackets. Unfortunately the
majority of the world’s population does not enjoy the same economic status as corporate
representatives. Economist John K. Galbraith (1996) explains that income disparities are
justified by the modern capitalist mind with the idea that each individual is morally
entitled to his or her wealth. For income that is attained with little or no resulting service
to society (ie. inheritance, or a CEO’s inexcusably large severance pay) modern
capitalism tends to explain that this wealth is re-invested into society and ultimately
provides “incentive to effort and innovation that is in the service of all” (Galbraith, 1996).
This assertion creates a cultural protection of the affluent and the rich (Galbraith, 1996).
But the fact remains that the few cannot become excessively rich without denying
resources to the excessively poor (Galbraith, 1996).
At the same time as corporations do well with the principles of profit
maximization, acquisitiveness, and liberalism, current consumption patterns can hardly
be sustained over the long term. Increasing current consumption patterns to include
everyone on the planet is ecologically impossible (DesJardins, 1998; Dresner, 2002) and
is ethically questionable (Bendell and Visser, 2004). Further, there are disparities in the
55
equity of treatment that corporations demonstrate in their dealings with developed versus
developing nations. Democratic, economic, political and cultural mechanisms that serve
to preserve some kind of control over corporate wrongdoings in industrialized countries
do not exist to the same degree in most developing countries (Shrivastava, 1995). To the
detriment of the citizens, the current system, of which corporations are a part, enforces
low-environmental and labour standards in developing countries. Corporations directly
benefit from this mechanism because it allows them to externalize expenses like the cost
of toxic waste disposal. It also allows them to avoid entirely other business costs like
upgrading equipment or renewing dumping licences (Ravailoli, 1995; Shrivastava, 1995).
Like the example of Bhopal, the cost of corporate wrongdoing has been left to local
communities, while corporations continue to internalize their profits and pursue
economic growth. “Despite all the debates about ecological degradation caused by
industrial processes, developing countries continue to rapidly industrialize their
economies using conventional technologies,” while they lack the necessary physical and
social infrastructure (eg. training, education, waste treatment facilities) and enforcement
capacity to manage their industries (Shrivastava, 1995, ). Clearly the overall assessment
of corporations, particularly transnationals is that they perpetuate, benefit and can cause
social inequalities related to income disparities, environmental justice, and inequalities
between developed and developing nations. Therefore, they must improve equity if they
are truly interested in promoting sustainability.
The ways in which corporations operate also have implications for intergenerational equity. Inter-generational equity is the equality of opportunity and quality
of life between generations. Some serious and controversial questions arises in
considering inter-generational equity. Should the current generation hold moral
obligations towards future generations based on present markets? Can we assume that
future generations will require the same resources in the same amounts that the current
generation does? Our needs now are not well defined, but how are we to define them for
future generations that do not yet exist and may exist in an entirely different context from
ourselves? These are highly philosophical questions. For the sake of brevity, Padilla
(2002) summarizes the arguments:
56
“to guarantee future generations a fair treatment, the analysis should consider
their right to a nondeteriorated socioeconomic and ecological capacity. The
capacity of the present to alter the conditions of life of the future imposes this
responsibility” (section 4.1)2.
Intra- and inter-generational equity figured prominently in the Brundtland Report and the
later Rio Declaration (Dresner, 2002). The extraction, manufacturing, and distribution
processes of corporate goods and services use resources. The inefficient and
unsustainable use of resources inevitably depletes the amount available for present and
future generations to use (Padilla, 2002). The depletion of natural resources also has
effects on the health of ecosystems in general and consequently, the future viability of
corporations and their commercial activities. But while this is true collectively for
corporations, individual corporations may see little direct interest in protecting the future.
Clearly equity, in its many-varied forms, is a very important element of
sustainable development. By identifying the inherent inequality in the modern economic
system it is also evident that corporations stand to benefit from this inequality; therefore
there is an underlying contradiction in the expectation that corporations, under the current
paradigm, can fully espouse the tenet of equity through mechanisms such as Corporate
Responsibility initiatives.
5.2.4 Voluntary Initiatives
Governments, both state and international bodies, would have to play a
fundamental role through regulation, subsidies, educational programmes, tax policies etc.
in pressuring corporations to include sustainability and ethical considerations such as
limits to growth and equity. Beyond regulations, liability laws, and tax policies, which
set minimum standards of operation in industrialized nations, current corporate
responsibility initiatives and actions are voluntary. Corporations are increasingly selfregulating in order to avoid the inflexibility and inconvenience of government regulation
(Haufler, 2001). The threat of government regulation has usually spurred corporations
(in the current time) to undertake voluntary initiatives and allowed government to save
money otherwise required for creating and enforcing said regulations. Critics of business
2
To further examine the complexities and nuances of the arguments of inter-generational equity, see
Padilla’s weighty article in full: www.sciencedirect.com
57
self-regulation are skeptical of the ability of corporations to govern themselves.
Corporate voluntary initiatives as a substitute and/or as justification for dismantling
traditional regulatory capacities are not desired, though such initiatives are a reasonable
supplement to regulation (Gibson, 2001; Gilding, 2000). Skeptics of self-regulation are
usually aware and wary of what occurred in pre-regulatory eras when corporate mishaps
and disasters, such as the Bhopal disaster in 1984, occurred more frequently. Incidences
such as these left the public feeling at risk with little recourse (Frankel, 1998; Gibson,
2001; McIntosh et al., 1998). Critics, especially those in NGOs, are still wary of
corporate operations in developing nations where regulatory regimes are weak or prone to
corruption (Shrivastava, 1995). Due to the voluntary nature of corporate initiatives,
NGOs, rather than national governments, are increasingly the voices demanding and
pressuring corporations to be more responsible. For example, Oxfam, an aid and
advocacy NGO, is currently demanding that the Canadian mining company, Placer Dome
take full responsibility for the impacts of its operations in the Philippines, which closed in
the mid 1990’s. Oxfam brought media attention, on behalf of the local community, to the
fact that Dome never took effective action to clean up the site on Marinduque Island
where toxic tailings were released into the environment. The tailings contaminated the
Boac River system and negatively affected the health and livelihoods of the local
community who once supported its operations (Mordant, 2005).
To give some scope to the power of consumer pressure, in 1999, the Environics
Research Group found that, “49% (of consumers) said that they strongly consider the
company's demonstrated social responsibility” and of the 25,000 consumers surveyed,
23% said they had refused to buy the products of a company in the previous year for
failing to meet perceived social and ethical obligations (Bhan, 2005; 1).
5.2.5 Reporting
A backbone issue of all of this debate about the extent and effectiveness of
corporate responsibility is reporting. Transparent and accountable reporting can help to
hold corporations responsible for their actions. Though most Corporate Responsibility
strategies promote transparent reporting by corporations, in practice this is not necessarily
the case (Elkington, 1998; Raar, 2002). Only recently has a globally focused set of
58
guidelines (GRI) been introduced to the field of corporate reporting and these guidelines
have not been fully implemented yet. The GRI framework and other reporting programs
fall under the category of voluntary initiatives (GRI, 1999). This effectively means that
there is no obligation for corporations who claim to be utilizing GRI guidelines to adhere
to specific standards (Raar, 2002). In order to maintain a positive public image and
remain competitive there is a tendency for corporations to highlight the achievements of
their practices while glossing over their failures or failing to report those practices which
cause environmental degradation (Adams et al., 2004; Kolk, 1999; Burritt et al., 2003).
Reporting is touted as an important communication tool between corporations and
stakeholders; unfortunately, the most important stakeholders, consumers, employees and
the general public rarely see the actual reports or any resultant recommendations (Burritt
et al., 2003). Environmental reporting currently operates more as a marketing tool and an
industry back-patting exercise, than it does a tool for increasing a corporation’s
accountability (Adams et al., 2004).
5.2.6 The Whole-System Effect
Corporations are not the only actors responsible for social and environmental
impacts. All businesses, including small to medium enterprises (SME’s), have a role in
pursuing or hindering a sustainable future. In fact, all societal actors covered in chapter 2
on Sustainable Development, have parts to play. As for the role of corporations and the
use of corporate responsibility initiatives, the question remains, where should the
practices and operations of corporations go from here?
While it is important that individual firms take action, it means little to
sustainability as a societal goal if the entire system of economics and general business
operations remain unsustainable. The sustainability agenda cannot be carried on the
backs of a minority of companies within a larger system. Global initiatives have been
undertaken to address the inconsistency of corporate responsibility practices between
firms and the inequity of treatment that arises in corporate practices in developing versus
developed nations. But these global initiatives remain voluntary and lacking in
accountability. There is a disparity between the intention of global initiatives and their
59
ability to implement Sustainable Development principles. This systematic problem of
what is called the “implementation gap” is further discussed in following section.
5.2.7 The Implementation Gap
Although there has been a substantive increase in treaties, conventions and
agreements at the global and local level directed at managing natural systems since the
1970s, “there remains a substantial gap between the formal intent of such laws and their
actual effect on natural systems” (Dale, 2001). The same can be said of Corporate
Responsibility initiatives, frameworks and networks that exist today. Dale (2001)
discusses the failure of governments in their regulatory and organizational capacity, as a
predominant weakness in the coordination of Sustainable Development policies. The
failing of governments to exercise authority on behalf of their constituents has led to
“implementation gaps” (Dale, 2001). Canada’s Commissioner for the Environment and
Sustainable Development stated that: “Some of the most pressing issues facing
governments today cut across departmental mandates and political jurisdictions.
Effective co-ordination is essential for meeting our sustainable development challengesgovernments are not very good at it” (Dale, 2001).
Where government fail, global initiatives are often looked upon as the required
remedy. Although these initiatives have the benefit of cross-jurisdictional, transboundary authority they lack the on-the-ground monitoring structures that are needed to
give their initiatives the strength of effective implementation. Since they lack the
structures to implement and regulate or even to monitor corporate activities they depend
on voluntary participation, making them generally ineffective.
60
6.0 CONCLUSION
Generally, the ecological problems and barriers to sustainable development
humanity faces are systemic (Hutchinson, 1996; Kay et al., 1999) and require “a shift in
values from expansion to conservation, quantity to quality and domination to partnership”
(Hutchinson, 1996; 21). The shift is necessary to secure sustainable development as an
important product of the modern global system and will require a questioning of the
supremacy of economic imperatives in the current global system (Winsemius and
Guntram, 2002). This can be derived through the formulation of a new systems
understanding that places economics in a less central role in ensuring the quality of life of
human societies. Martinez-Alier et al. (2001) identified a primary misconception that
informs unsustainable activities as the understanding that environmental, social, and
economic systems as equal and separate. In reality, the economic system is dependent
upon the social system, and both are dependent upon the integrity of the larger global
environment. This system conception is illustrated in Figure 3, below and demonstrates
that human survival is dependent upon the integrity of ecological systems (Diesendorf,
2000).
Such a shift will also require the committed involvement of all sectors of
society (Dryzek, 2002). Crucial to delivering Sustainable Development is the
identification of stakeholders, which are the agencies and citizens who are affected by,
and who do or should influence the outcome of development decisions. The governments
of states or nations, international governance bodies, non-governmental organizations
(NGOs), corporations, and the public in general all have parts to play in creating or
hindering sustainable development (Cramer, 2002; Hutchinson, 1996). Corporations
have the power and influence (in capital and human resources) to redirect the trend of
environmentally insensitive practices toward a future of sustainable development
(Cramer, 2002; Diesendorf, 2000; Graafland et al., 2003; Hutchinson, 1996; Ite, 2004;
Viederman, 1997). Their contribution of Corporate Responsibility initiatives will aid in
the pursuit of Sustainable Development but there are currently limits to the extent and
form of their contributions.
61
Figure 3 – Nested Environmental and Human Systems
Environment
Social
Economic
Information From: Martinez-Alier, 2001.
When formulating strategies to make corporate activities more sustainable governments,
NGO’s and industry representatives must be aware of these limitations and should
attempt to address them in their pursuit of Sustainable Development.
Governments, especially on a national or larger scale, must help corporate beings
become more sustainable, and in so doing shift the way the current socio-political system
functions. The way in which decisions are made is equally as important as what those
decisions lead to. In terms of improving sustainability, decision-making must integrate a
multi-stakeholder approach and natural ecological limits of a project for the final purpose
of “maintaining rather than exploiting resilience and diversity” (Dale, 2001;147). Part of
a new decision-making framework, according to Dale (2001), is a change in the role of
federal and local governments from “doing, controlling and monitoring” to acting as
catalysts in the dialogue between stakeholders (Dale, 2001; 153). The current sociopolitical system is reactionary to social and environmental problems, partly because the
public is detached from the decision-making process. Governments should act as the
62
hosts to an interactive process of joint decision-making that reflects the principles of
sustainability, from discussion all the way through to implementation and monitoring. A
face-to-face interaction of public and corporate representatives empowers citizens to
influence important development decisions that the public is currently excluded from.
The gap between the time a social or environmental issues becomes a threat or public
concern and the moment government policy reacts to that concern is seen as a major
obstacle to Sustainable Development. Involving a wide range of stakeholders decreases
this gap and helps to incorporate a more equitable socio-political power structure.
In addition to guiding sustainable corporate decisions through a multi-stakeholder
framework, governments must also put pressure on existing corporate operations that
influence employees, communities, natural ecosystems, and business partnerships. “The
solution probably lies with more stringent and more effective legal constraints on what
corporations can do” (Bakan, 2004b), as well as a set of economic incentives for
increasing environmentally and socially responsible behaviour. The courts and
government bodies have the power to restrict corporate behaviour and more importantly
encourage Sustainable Development. Seeing as the gamut of corporate activities reaches
far beyond national boundaries it is important that national governments work together
through international organizations to establish a solid framework for sustainable
corporate behaviour.
International organizations such as the UN must help national governments in
formulating the requirements and guidelines for Corporate Responsibility. The weakness
of voluntary strategies such as the UN Global Compact can be mitigated with a new
focus on empowering government agencies to integrate the supplied principles into their
regulatory interactions with corporations. Essentially international institutions are
effective in devising comprehensive guidelines based on equity, human rights, and
environmental protection, but they lack the infrastructure and jurisdiction to implement
and monitor corporate behaviour. The UN has contributed a great deal to a sense of
global civil society, but cannot be expected to implement changes towards a paradigm
shift. Standard setting and certification agencies will also play a role in providing a level
of consistency in the way that corporations are treated by different countries and regions.
The problem of transnational corporations exploiting lower environmental and labour
63
standards in developing countries is a concern that cannot be left for developing countries
to address alone. NGOs can provide additional support as international watchdogs and
advocacy groups focused on addressing Corporate Responsibility.
NGOs have been instrumental in providing a voice for human and ecological
concerns. Acting opposite government bodies, NGOs are especially important to the
improvement of Corporate Responsibility because they enhance public participation and
democratic governance. “Since there will always be some co-option of public officials
by private corporations and some concentration of economic power in certain market
sectors” (Phelan et al, 1973; 396), NGOs are necessary as third party observers for public
accountability and transparency of corporate activities. NGOs can also act as watchdogs
of corporate operations by monitoring pollution, contamination and corporate compliance
to labour laws and regulations.
A “one solution fits all” concept cannot be applied to the future actions of
corporations when addressing Sustainable Development and the necessary paradigm
shift. Currently, there are many strategies that address the various aspects of the
corporate world, including managerial, operational and legal, in an attempt to promote
sustainability, or the blanket strategy of Corporate Responsibility. The effectiveness of
these strategies varies so much that it is difficult to assess how all principles, let alone
one principle, of sustainability is actually being implemented. Therefore it is difficult to
determine how Corporate Responsibility can be made more sustainable. However, the
different pressures and motivations that an individual corporation experiences, which set
the stage for a corporation’s ability to promote sustainability, can be outlined.
What has emerged is a complete depiction of the pressures and motives that
corporations face. This list includes direct profit incentive, market competition,
shareholder and investor pressure, government intervention (regulations, standards, taxes
etc.), consumer pressure, public and NGO pressure, visionary directors/managers,
employee and labour union groups, and finally demands from within industry and
international institutions. While considering the pressures faced by corporations this
study examined and divided Corporate Responsibility strategies into two categories:
internal and external.
64
Internal strategies consider the roles and influences of corporate employees,
particularly corporate managers and directors. These strategies are important because
they target corporate decision-makers and they promote the foundation for broader
Corporate Responsibility programs. If a competent and driven team of directors chooses
to move a corporation effectively towards sustainability, then a visionary company with
an environmentally and socially responsible agenda is likely to develop. To tie in with
the goals of governments in changing decision-making frameworks, managers must
ensure that they organize themselves to recognize and respond to outside demands as
well as opportunities and that they incorporate public stakeholders and NGOs into their
framework. Once a Sustainable Development framework has been internally adopted by
a corporation, these types of strategies are effective in driving voluntary initiatives but
they rely on the inclination of individual managers and do not exist in every corporation;
therefore they cannot be relied upon to have widespread effects.
The remaining Corporate Responsibility strategies were categorized as external
strategies. External Corporate Responsibility strategies deal with consumer-, authorityand public-corporate relationships, and are related to environmental standards and legal
requirements.
Both external and internal strategies are predominantly voluntary, industry-lead
initiatives. Although a great deal of progress has followed the development of these
strategies and the resultant cooperation of various stakeholders, it is obvious that the next
step must go beyond voluntary action; specifically because voluntary programs do not
offer deep change, as is necessary to shift the current global capitalist paradigm.
While there are visionary companies that have been successful in making real
their commitment of sustainable development, the application of most Corporate
Responsibility strategies has resulted in rhetorical promises with a small amount of actual
evidence aligning promises with social and environmental impacts. Corporate
Responsibility remains predominantly voluntary and the implementation gap between
theory and current practice persists as a real problem for corporate accountability.
Whether or not the progress of Corporate Responsibility is real has been argued
without producing a consensus, but one thing can be said with certainty: progress is slow.
The sluggish pace of Corporate Responsibility has led many analysts to be sceptical of
65
the extent of change allowable within the existing capitalistic framework, where
corporations run the show (Bakan, 2004a). Corporations tend to engage in environmental
and social programs if those endeavours align with their crusade for a better market share
or an increased competitive advantage. Within the current system, business tends to
promote sustainability if there is a calculated benefit to its own profits, and with this
understanding it is difficult to have a blind confidence in the effectiveness of Corporate
Responsibility (Bakan, 2004a). There are also principles of sustainability that do not
receive adequate attention in most Corporate Responsibility strategies, namely the
promotion of social equity.
Corporate activity cannot become sustainable without the explicit and decisive
pressure of other societal actors because corporate interests are severely limited by the
global economic context they operate in. Corporate Responsibility cannot be relied upon
to change the way the global economic system functions, for that reason its effectiveness
in promoting sustainability, which is a question that demands a systematic shift in values,
cannot be answered simply. Instead, the question must be redirected to the actors who,
through their interactions with corporations, support modern capitalistic values and
consequently prohibit the paradigm shift towards sustainability. Corporate Responsibility
strategies offer many progressive ideas and mechanisms that need to be evaluated and
integrated into a broader context of change in order to be effective.
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7.0 RECOMMENDATIONS FOR FURTHER STUDY
There is a great deal of literature about Corporate Social Responsibility and Corporate
Responsibility. In order to avoid reiteration of some of the main concepts and subjects
covered by the extensive literature, we have created a list of some of the more pertinent
studies that should be undertaken about the practice of Corporate Responsibility. This
list is not exhaustive but will aid in driving the literature and academic study of Corporate
Responsibility forward and provide students with broad starting points for projects.
•
A critical examination of the pragmatic contribution of international governance
bodies and structures to the practice of Corporate Responsibility, the protection of
interests of Third World nations, and what implications the use of ideas derived
by Western analysts might have for Third World cultures or societies.
•
Assessment of how NGOs can contribute to corporate attempts to pursue
Corporate Responsibility and what hinders their involvement.
•
An investigation of the obstacles to transparent and open reporting by
corporations and strategies to avoid greenwashing and “spin”, in order to improve
corporate accountability and promote Corporate Responsibility.
•
An examination of specific strategies for the inclusion of a wider variety of
stakeholders (beyond employees and shareholders) in corporate decision-making
structures, using a case study analysis.
•
A practical analysis of how limits to economic growth might be instituted into the
existing system, while determining whether this integration is even possible.
•
Part of the solution to the implementation gap (see 5.2.7), according to Dale
(2001), is a change in the role of federal and local governments from “doing,
controlling and monitoring” (153) to acting as catalysts in the dialogue between
stakeholders. A framework that enables governments to act as hosts to an
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interactive process of joint decision-making and reflects the principles of
sustainability, from process all the way through to implementation and monitoring
needs to be developed. A study of a local government structure would provide a
useful partnership for research.
•
The gap between the time a social or environmental issue become a public
concern and the moment government policy reacts to that concern will remain a
chasm unless a new design for decision-making is implemented. By designing
such a framework, one can also determine what elements of the existing
regulatory regime can contribute to sustainability.
•
Dale (2001) suggests that reforming the current dominant socio-economic
paradigms and adapting our behaviour to the eventual negative impacts of our
lifestyles is a waste of time. The long-running debate surrounding reforming the
current system is many-sided, but the implications of the debate itself on the
advancement of sustainability has not been explored. An examination of this
debate needs to be undertaken, to determine the implications on the future of
Sustainable Development. Along with this topic, the alternative to the current
system needs to be explored as it relates to the sustainable behaviour of
corporations and business.
•
The current economic system, with its externalizing of social and environmental
impacts, poses a serious challenge to implementing Sustainable Development.
“The ecological economists”, Ravaioli (1995) suggests, “have rejected unlimited
expansion, unlimited growth and accumulation, as a basic category of an
economic model that now seems unsustainable” (156). A lofty aspiration, and
one which has yet to be comprehensively undertaken, is a study to determine what
type of economic system would better foster Corporate Responsibility and
sustainable development.
68
•
Ethics are “predicated on the assumption that there exist within any culure –
defining the culture – certain norms of human behaviour” (Cook, 2000; 45). A
number of ethical considerations, like shareholder responsibility and adherence to
regulation (which at one time was not a particular concern for corporations – see
chapter 4) have been institutionally engrained in corporate culture. Beyond
voluntary Corporate Responsibility choices, could social and environmental ethics
become engrained in corporate culture? What framework for change would be
required for this to happen?
69
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