A joint parliamentary inquiry is about to release a report on Corporate Social Responsibility in Australia. It will address issues including obliging companies to attend to the interests of stakeholders who are not also shareholders. The report will also raise the question of the need for legislation to enforce such care, in the form of compulsory corporate social responsibility [link].
Corporate social responsibility is not the same as ethical behaviour, but it is an important component of such action. It is therefore important to measure companies’ social responsibility and work out how their performance can be improved.
A social license to operate
There are two key aspects of this inquiry from an ethical point of view. We can say that a business is good - or ethical - if it contributes positively to human welfare. The problem is, 'whose welfare?' A company may benefit the owners of the company's capital, but damage the workers, the community, or the suppliers.
How do we decide what behaviour is ethically correct? While ethics may be of concern to the radical individual, ethics usually begins with the fact we are social beings requiring social relations and services in order to survive and thrive. As such, the ethical frame of reference is the relationships individuals have with others. One very basic ethical principle is 'Do good, avoid harm .. to self and others'.
In our society, corporations are treated as if they were persons, with many of the rights and duties of the human person. Societies have extended these rights to corporations on the understanding that the duties are also fulfilled and that the activities of the corporation are of benefit to that society. In this sense, corporations have a social license to operate.
Social responsibilities, social footprint and sustainability
Unfortunately we do not know the extent to which corporations currently have a regard for non-shareholder stakeholders because there is no systematic measurement of what companies are doing [link]
Some companies report on their contributions to social and community projects, while others give accounts of their social and environmental impacts. But all tend to stress the positives. Many companies do not report at all. In fact, Australian companies report social and environmental impacts far less than their OECD counterparts.
A KPMG survey states that 23% of the top 100 in Australia publish 'sustainability reports' which the survey defines as non-financial reports on environmental, social and economic performance. This figure compares to 81% in Japan and 71% in the UK [link - pp. 3f).
KPMG claims the low rate is offset by rapid uptake of this sort of reporting. in 1995 only 1% of the top 500 Australian companies offered sustainability reports, in 2005 that figure stood at 24%. An August 2005 study of 98 of Australia’s leading corporations by Professor Michael Adams of the University of Technology Sydney concluded that being a good corporate citizen was not generally seen as central to companies’ core business (link).
This lack of clarity is itself a strong argument for moving towards a common and comparable reporting scheme such as that offered by the Global Reporting Initiative. Good decisions by consumers, stockholders, and democratic governments require accurate information that aids comparison. This alone is a good case for government bodies such as ASIC to determine a common standard, and encourage businesses to report accordingly, either by regulation, guidelines or some other mechanism. It promotes less, rather than more, regulation.
Under Australian Corporations Law, executive officers and board members have a legal obligation to maximise returns. This requirement is independent of any other goals stipulated in a company's articles of association.
Currently, corporations making socially or environmentally based decisions must justify them based on shareholder interests. It is better in the long run. By behaving in a socially responsible manner, a company can earn a good reputation. The company can increase profitability while the community recognises that the company is acting responsibly.
Laws that require unethical behavour
But it remains for the company to decide what to do if there is some legal but unethical behaviour that is in the shareholders’ interests and is unlikely to be discovered by the public or risk the company’s reputation. By virtue of current legislation, the company may be bound to commit the unethical act, harming the community in the process.
The justification of maintaining the firm’s reputation remains conditional on maximising profit. Further, there is potential for this situation to undermine the reputation of all companies claiming to act responsibly, because the community knows that profit remains the only real bottom line. For this reason, the law needs to be relaxed to allow company directors to make decisions based on social and environmental grounds without having to justify them also on fiduciary grounds.
Comments should be short, respectful and on topic. Email is requested for identification purposes only.
18 October 2007
I am alban, Student in Social Work,
I Read you article , It was beauitfull,sir I like to do a research on CSR,is there any scales to measure CSR , If so can you please refer to me .
10 September 2008
Hi, I am Imelda, student in a university in Surabaya-Indonesia. I am interested about CSR. I want to make a research about it. Is there any indicator and scale to measure CSR? If you permit it, Please send to me. Thank You
03 April 2009
this is something good.
A.S.M. Ahsan Habib
07 November 2009
Sir, i am A. habib. I read your article and it is exception than others. I want some suggestion about the matter how CSR measures in the banking industry where data obtained from employee, society members and customer.
11 March 2011
I am a student in the University of Lagos Nigeria. I Read you article and I must confess it was brilliant. Sir, I'm about to do a research on CSR and how it affects business success.Are there any scales to measure CSR , If so can you please refer to me
25 May 2011
Is there any scale to measure the SCR on oil&Gas industry ? if you please send me the link
09 July 2011
I am Jyoti ,doing Ph.D.(research in CSR)
I read your artical,it was helpful.I want to know how to measure CSR in Banking industry.Please help me
11 November 2011
Sir, i am A. Joshua. I read your article and it is exception than others. I want some suggestion about the matter how CSR measures in the banking industry where data obtained from employee, society members and customer.
07 March 2012
thanks for the article, sir, i will be very happy if you help me come up with the relationship that exists betweeen csr and performance in the petroleum company. i am a masters student currently caryying out research.
17 April 2012
Sir, i am Daenerys Stormborn of the House Targaryen. I read your article and it is exception than others. I want some suggestion about the matter how CSR measures in the dragon breeding industry where data obtained from employee, society members and customer.
08 May 2012
Hi. please kindly send me the parameters for measuring CSR. Thank you.
29 July 2012
I enjoy your article. I'm researching on the relationship between CSR and financial performance. I would like to know how ro measure CSR for the banking industry.
29 December 2012
Hi, i m shabeer, Anglia Ruskin University London. I read your article, this article helped me a lot when i was doing my dissertation on Tesco Corporate Social Responsibility in Malaysian context. thank you very much..:)
22 December 2016
This really highlights some of the most important features of CSR. While my company has been working hard to make an impact out of a sense of mindfulness, it often surprises our clients when we inform them that it is profitable as well. In fact, it’s so profitable we’ve based our whole marketing agency around this triple-bottom-line : betterbetterbetter.org!