CSR as Standards and Reporting

Logo of Global Reporting Initiative

Last week I had a short blog about stakeholder engagement and some of the events leading up to the tendency for businesses and organizations to look beyond clients and suppliers. But in order to be effective a systematic approach is needed that will enable organizations to categorize and absorb the knowledge gained from a more outgoing approach.

Other forms of stakeholder engagement can come through compliance and reporting on the corporations’ ability to conform to certain standards. There are many good reasons why corporations engage on compliance strategies. The main arguments are:

  1. Stamp of approval through accreditation
  2. Attractiveness to social responsible investors, and
  3. Branding the company as a social responsible member of the community (Locke et al, 2006:1f).

Initiatives such as Global Compact (GC), Global Reporting Initiative (GRI) or the supplementary Principles for Responsible Investments (PRI), enables companies to increase their transparency level (United Nations Global Compact, 2008, UNEP Finance Initiatives, 2005, Global Reporting Initiative, 2006). Some of these initiatives are sponsored by the United Nations (UN) and thereby giving companies that abide to the standards, a stamp of approval from a world recognised institution. Other standards organisations are private or semi-governmental institutions that have created systems for governing sustainable behaviour as for example systems issued by the International Organisation for Standardization[1].

Systems can also be grouped by industry or be customized to the individual company where they are called Code of Conduct or similar systems. Common for Codes of Conduct are that they in some form are linked to universal agreed treaties such as the human rights, labour standards or environmental agreements. There are, however, some drawbacks in relying too heavily on these systems. A company like e.g. Nike has adopted a comprehensive Code of Conduct system of standards and control which both rely on internal and external auditing, but has found that this does not safeguard the company from criticism on labour standards in its supply chain (Locke et al, 2006). The lessons learned from Nike is that standards and systems should not stand alone but should be complimented by other forms of stakeholder engagement such as joint training with suppliers and frequent meeting activities both formal and socially to increase cultural exchange between the parties (Locke & Romis, 2006).

The second driver for stakeholder engagement can be the access to social responsible investors. While only a few years ago the Social Responsible Investments (SRI) constituted a fraction of the total investment portfolio it was in 2008 representing investments of over 18 trillion USD (UNEP Finance Initiatives, 2005). For many companies it can be a benefit to be part of a SRI portfolio as it gives access to funds that other companies might not have access to. In addition, the system of control and auditing can enable the company to streamline its processes and get rid of organisational risk that might affect long-term profitability. Investigations into the link between profitability and CSR shows that companies that rate their CSR effort positively also have a significant better financial performance than companies that does not (Economist, 2008:6).

The third reason for adopting a compliance strategy is the potential for positive branding. The GC is now consisting of approximately 5000 companies (United Nations Global Compact, 2008) from around the world. Grouping with other well-branded businesses who subscribe to the GC standard can boost their corporate brand and increase the collective brand value of all. Other companies use CSR actively to differentiate themselves in an otherwise competitive market.

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Mattel and Disney under pressure again for Human and Labour rights violation

According to a resent study done by Sacom is the toys produced by Disney and Mattel who also make the Barbie dolls produced under poor working conditions. This is not the first time that Mattel in specific have been under scrutiny on their ethics.

A Chinese factory that produces, among other Disney characters, Fisher Price toys, Barbie dolls, have been accused of using child labor, toxic chemicals and to push employees to illegal overtime.

These claims have been put forward by the Hong Kong-based human rights organization Sacom who has studied the working conditions at the factory Sturdy Products.

The factory, located in Shenzhen city, has more than 6,000 people on the payroll, and according to the survey, employees were among other things pressured to work 120 hours extra a month.

In addition, they must work for a salary far below minimum wage, and earlier this year one of the employees, a 45-year-old woman, committed suicide after several supervisors had yelled at her.

Among the accusations that is made by Sacom are:

■ The employment of a 14-year-old. Staff also reported the presence of other child workers, according to the investigator.

■ Routine excessive overtime. Employees produced a “voluntary” document they said they had to sign agreeing to work beyond the maximum overtime legal limit of 36 hours a month, along with wage slips that suggested they were averaging 120 hours of overtime a month.

■ A harsh working environment in which workers complained of mistreatment by management. One worker injured on the production line was shouted at and ordered back to work despite needing medical treatment.

■ Concerns about the chemicals in use and poor ventilation. Employees claimed three workers had fallen ill. They said they had to hide pots of adhesive and thinners during audits of the factory by its client companies.

■ They also claimed that they were paid by the factory to give misleading answers during audits and that they were fined for failing to hit targets. The calculation of wages for different workers was described by Sacom as arbitrary.

Disney and Wall Mart are prone to take action

As this is not the first time that the big retailers Mattel and Wal-Mart is under pressure to get more control over their supply chain.

“We take reports like this very seriously and we will implement a corrective action plan if our investigations confirm any of the findings,” said Wal-Mart spokeswoman Megan Murphy told the South China Morning Post

“As soon as we learned of the suicide at the Sturdy Products Factory, we immediately launched an investigation.”

According to the Human rights group was Wal-Mart also in contact with the International Council of Toy Industries (ICTI), a trade association that certifies legal compliance and decent working conditions in toy factories worldwide, which was pursuing a separate investigation.

Winson, who owns Sturdy Products, According to The Guardian newspaper declined to comment on the new report from Sacom. But the study has however shaken Disney Group, and supermarket chain Walmart, which sells some of the products being produced at the factory.

Disney said in a statement that they “always take cases dealing with licensees and business partners very seriously” and that the group, will now “evaluate the situation” from the information they have available. Wall Mart, which has more than 8,500 giant stores around the world have decided to, launched an independent investigation of working conditions.

This and other instances where factories in China or some of the other market in Asia have been monitored using different types of codes just shows the limits of what these can do for business when it comes down to running the everyday business. Big companies in the developed world can implement and make supply chain partners sign as many Codes of Conduct or Ethics as they want to if it is not followed by real action it will mount to little more than window-dressing.