Ethical Performance
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analysis

preserving reputation is the main driving force

December 2003

The progress made by US companies in the field of CSR is largely the result of an overriding need to manage reputation, not of government prodding

The aftermath of the state visit of a US president to the UK is a good time to take stock of the current administration’s achievements in the field of CSR. At first glance, its record is poor: the US has not signed the Kyoto protocol designed to slow global warming and has a poor record on industrial pollution.

But as European countries have found, CSR policy can also be advanced by modest voluntary and legislative initiatives that seek to nudge, and not coerce, companies into responsible behaviour. The UK pensions disclosure regulation, which consists of a few lines in an act several hundred pages long, and applies to pension funds and not to companies, is a good example of this approach, though its precise impact is disputed.

At this level, the Bush administration’s performance is mixed. On the positive side, it has carried forward the first ever human rights standards for oil, gas and mining companies. Bennett Freeman, who led the development of the Voluntary Principles on Security and Human Rights as US deputy assistant secretary of state for democracy, human rights and labour in the previous administration, says: ‘The government has been using its convening power, diplomatic resources and negotiating skills to carry forward this work. As a result of its efforts, the number of extractive companies involved has almost doubled.’

Freeman, now managing director for corporate responsibility at the public relations firm Burson Marsteller, cites two other examples of CSR policy initiatives started under the previous administration and taken forward by the current one – the Apparel Industry Partnership (AIP) and the Kimberley Process, which seeks to ensure that the profits from diamond sales do not fuel guerrilla wars in Africa. ‘The administration can take credit for getting the Fair Labor Association going, which arose out of the AIP, and secondary credit with others for the Kimberley Process,’ says Freeman.

However, these strictly sectoral initiatives are pretty modest, compared with what European governments are doing. Eric Biel, acting director of the Lawyers Committee for Human Rights in Washington, says: ‘The Bush administration deserves credit for following through on the Voluntary Principles but frankly there wasn’t much of a brilliant track record for it to follow. The previous administration was very quiet too.’

CSR proponents in the US also received only a modest dividend from the corporate governance crisis that followed the collapse of the energy trading company Enron: despite presidential utterances on the need for greater corporate responsibility, the only regulation within Sarbanes-Oxley directly to the point is the requirement for mutual fund managers and investment advisers to declare how they cast proxy votes at company meetings, which is expected to cause the number of shareholder resolutions on CSR topics to rise.

Scrutiny by regulators, of course, is only one factor that prompts companies to consider their responsibilities to society more closely. Mick Blowfield, an adviser at the influential San Francisco-based non-profit body Business for Social Responsibility, says: ‘CSR is a part of the neo-conservative agenda in a way that does not really relate to the UK experience. US companies see the benefit of showing that business can provide moral leadership by taking their responsibilities to society seriously. It also helps to pre-empt the prospect of legislation, which they see happening in Europe.’

This may help to explain the rapid rise of employee volunteering in the US, identified by president Bush as a key way for companies to demonstrate social responsibility.

The consensus is that the US lags behind Europe on CSR. ‘One of the motivators for the Voluntary Principles was to help close the gap between UK and US extractives companies on their willingness to engage with non-government organizations on human rights and related issues,’ says Freeman. ‘We wanted to capitalize on the fact that BP and Shell and Rio Tinto were already further down the road, and to get them into the same room with US companies and NGOs to try to talk the same language. It was deliberately done in a UK/US transatlantic context.

‘My sense is that US companies have far greater difficulty in recognizing the legitimacy of stakeholder concerns than did UK companies. It is an issue of legitimacy, both of issues and of groups. But that is changing.’

The changes are driven by the growing awareness that whatever a government does, or does not do, to promote CSR, it is companies’ rather than politicians’ reputations that are at stake. And, one might add, the interest of investors. Wall Street is now very aware of the risks associated with poor governance. But that awareness extends only to classical corporate governance. If Wall Street follows Europe’s example and gives weight to wider concerns of sustainability, change will accelerate – and for some, the change has already begun.




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