Who’s responsible for Corporate Social Responsibility?

TI released its progress report on the OECD Anti-Bribery convention this week. Meanwhile, a new survey says that almost 1 in 5 company employees consider it acceptable to pay bribes to win or retain business. Deborah Hardoon, Senior Research Coordinator  at TI, considers business responsibility.

Milton Friedman’s view that a company’s only social responsibility is to increase profits could be taken as an endorsement for companies to behave however they choose, potentially engage in corruption and bribery if this delivers on the bottom line, and that to support businesses, governments should refrain from stepping up the laws and penalties associated with engaging in bribery and corruption.

Taken a different way, if we understand the origins of this viewpoint, we can use the profit incentive as a great opportunity to actually reduce bribery and corruption in the private sector: whereby the distorting and damaging effects of corruption hurt profits too.

Businesses are waking up to this, thanks to several incentives that ensure integrity is good for business.

• Governments and regulators must increase the corporate risk of fines and prison time for corrupt behaviour, so that firms allocate resources to avoiding such offenses. Enforcement of the OECD anti-bribery convention for example, introduces costs and risks to corrupt businesses, incentivising them to change their behaviour. The UK bribery act, for example, which comes into force on the 1^st July, includes as an offense not just the act of bribery itself, but also the failure to prevent bribery through the absence of ‘adequate procedures’, helping to channel firms’ resources into compliance and integrity efforts, as the PWC headline suggests ‘Act now or Pay later’.
• Institutional investors are paying increasing attention to Environmental, Social and Corporate Governance criteria of, with an increasing number signing up to the UN Principles for Responsible Investment. Firms competing for investment will also have to respond to this by meeting these criteria.
• Employees are increasingly considering the reputation and ethics of a company when choosing who to work for. The Ernst & Young European Fraud survey finds that 45% of people questioned would be unwilling to work for a company involved in a major bribery or corruption scandal. This should be an important consideration for firms seeking to win the best talent.
• The general public are also playing their part. The recent developments in the Middle East and North Africa, although directed at governments, have clearly demonstrated that people are prepared to stand up against unacceptable practices, even where this is at personal cost to their own safety. And TI’s Global Corruption Barometer 2010 similarly finds that 7 in 10 people would be willing to get involved in the fight against corruption. Public discontent for corruption and bribery is supported by vocal media and activities by civil society organisations and actors in the field of Corporate Social Responsibility, which draw attention to the relative performance and transparency of companies through reports such as TI’s Promoting Revenue Transparency report and resources like CSR hub, which allow people to assess individual companies based on their activities and performance on a range of CSR criteria.

And signs are that these developments are starting to pay off. Last week the Ernst & Young European Fraud Survey found that two thirds of business people surveyed agree that there are commercial advantages for companies with strong reputations for ethical behaviour.

It is recognized that every company has a footprint and that the size and shape of this footprint can be evaluated and measured in some way. I firmly believe  that companies can and should be making a positive impact on their environment.

Mobilizing the resources of the largest and most powerful firms and improving the impact they have on their communities and countries of operation is not only a good thing, but entirely necessary. And as the Kroll Global Fraud report says, ‘companies usually have more leverage than they realize’ in terms of bringing about a positive change.

But it takes all of us in society to take responsibility for effecting this change. The agents and actions outlined above, all play a role in influencing firm behaviour and outcomes.  Governments, investors, employees, business leaders and the public all have a responsibility to put the necessary incentives in place. And ultimately, business leaders have a responsibility to respond to these incentives, so that in practice improving integrity improves profit and that, in the long run, a responsible business is a sustainable one.

Although the incentives are improving and mentalities are changing, a lot remains to be done. Ernst & Young’s report warned that ‘there remains a tolerance of unethical behaviour that goes to the very top of business’.

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