Ethical Business Is Better Business

Corporate Social Responsibility (CSR) is one of the most commonly heard phrases in the international business world today. But is it a new way of doing business, or yet another box that has to be ticked by executives keen to get on with the business of making money? Many international firms operating in Africa have comprehensive CSR policies and now the practice is being taken up by African companies themselves. What does it really mean and what are the implications for the continent?
Report by Neil Ford

Economic enterprises cannot solely be judged by their balance sheets and the contribution that they make to GDP. Definitions of CSR vary widely in theory and in practice, but the World Business Council for Sustainable Development provides the following sound definition in its Making Good Business Sense report: “Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development, while improving the quality of life of the workforce and their families as well as of the local community and society at large.”
It should encompass sustainable development and fair treatment for employees, suppliers, customers and host communities both by the company itself and any companies with which they trade.

In practice, many companies seek to give their operations an ethnic or environmental veneer, in a process known as ‘green washing’. They fund adverts showing their products against a backdrop of happy children, green meadows and clear water. They provide grants to worthwhile causes and use more space on their websites to describe their role in these projects than to their core economic activities. CSR officers are employed and even whole departments created to oversee their ‘do-gooding’.

Yet CSR is about much more than philanthropy, although this can play a part. Corporate social responsibility should permeate every aspect of a company’s activities and not be sidelined or neatly cordoned off, in the same way that some history academics discuss black or women’s history as if they were minor extensions to the mainstream story of humankind. Green washing can, however, play a role. In seeking to appear more ethical, businesses may begin to adopt some of the best practices employed by those firms that genuinely wish to make a wider positive impact.

CSR was originally taken to be the avoidance of negative activity. Workers in Zambian copper mines, for example, should be entitled to international standards of health and safety. South African factories should be designed to avoid silicosis –a devastating lung disease that is common in poorly ventilated factories. Angolan oil pipelines should be secure enough to avoid soil and water pollution, while Nigerian gas should not be flared at source, thereby contributing to global warming. In the same vein, toys produced in Ghanaian workshops should not utilise paint that is poisonous to their end consumer: children around the world.

Now, however, those with a genuine interest in CSR argue that companies should seek to do good as well as avoid harm. This can mean investing in renewable energy projects, rather than merely avoiding heavily polluting coal fired plants.
It could mean providing training courses for workers that both help the company and help the individual, while also seeking to support local organisations that provide that training. It can also involve investment in water, power and transport infrastructure that can benefit the company as well as the local community.

As a result, supporters of CSR would argue that the approach can be good for profits as well as people. The positive PR generated by genuine CSR can also boost the bottom line.
Many companies now adopt a position of positive engagement in order to bridge the gap between different levels of social and environmental consideration in different parts of the world.
In China, for instance, many Western companies work alongside suppliers over many years to improve working conditions, environmental regulation and social cooperation step by step. Some argue that a combination of the stick and the carrot is better than merely excluding non-complying firms. Such an approach is surely only applicable where no potential bidder for a contract can offer the CSR standards expected by a bidder.

The African angle
CSR is often regarded as a western phenomenon and only relevant to Africa with regard to the activities of international companies operating on the continent. Some feel that companies have enough of a challenge operating in many African states without placing yet more obstacles in their way. Yet embracing CSR can help to ensure that Africa and its people derive more benefit from the economic activity that they host, while minimising the social and environmental downside. Moreover, it would be totally wrong to market African states as locations where international firms can avoid the kind of social, economic and environmental obligations that are taken for granted elsewhere in the world.
South Africa is probably the most successful African country at promoting CSR. Its empowerment legislation is designed to encourage companies to have a more positive impact on the society within which they operate. In addition, companies listed on the Johannesburg Stock Exchange are now required to produce annual CSR reports listing their “social, transformation, ethical, safety, health, and environmental management policies and practices”.
Under changes to the New Companies Act that were introduced in 2008, the government now seeks to “reaffirm the concept of the company as means of achieving economic and social benefits”.
Panasonic of Japan has formulated a CSR policy for Africa based on the protection of labour rights, human rights and the environment. A company spokesperson said: “In the procurement of articles and services, we base our evaluation and selection of suppliers on compliance with laws and regulations and accepted standards of behaviour and agreement with our business philosophy and code of conduct.” In other words, suppliers must sign up to Panasonic’s ethical guidelines on doing business.

The diamond industry has sought to improve its image because of international furore over blood or conflict diamonds. De Beers, for instance, now has more than 8,500 organisations, including retailers and mines, participating in its Best Practice Principles Assurance Programme.
The policy states: “Although the Kimberley Process Certification Scheme and the World Diamond Council System of Warranties had been launched in 2003 to address the issue of Conflict Diamonds, no single standard existed to evidence full ethical practices throughout the diamond pipeline addressing social, employment, business, health and safety and environmental issues.”
De Beers says: “We saw an opportunity to leverage our leadership position in the diamond pipeline to establish a benchmark for best practice not only within the diamond mining sector, but also to drive best-practices standards through the cutting, polishing and jewellery manufacturing pipeline.”

All participants are required to maintain online CSR workbooks covering a wide range of topics, some of which are then assessed by a third party auditor. Where a material breach is raised, the group is considered to be non-compliant with the BPP Programme and the sight-holder may face termination of its contract.
The jewellery industry has become a test case for CSR, partly because of attempts to tackle blood diamonds, but also because of the sheer reach of the industry. A single item can contain metals and gemstones from a dozen different countries, many of them in Africa, while many components are transferred to other centres for processing and polishing.  Many items are then assembled in East Asia before being marketed elsewhere in the world. Pressure is now being put on firms to account for the provenance of their raw materials. The US Patriot Act and similar legislation in other Western states requires the diamond, gold and coloured gemstones sector to monitor and report ‘suspicious’ transactions.
Moving on from the Kimberley Process, the World Jewellery Confederation (CIBJO) is now encouraging member companies to have a positive role in the societies within which they operate, as well as avoiding having a negative impact. CIBJO president Gaetano Cavalieri concedes that this is partly in order to “To defend the industry from the various challenges that could threaten our reputation and integrity”.

However, he also wants the industry: “To function as a positive influence, serving as a means for sustainable economic and social development in the communities and countries in which we are active” and “To be fully transparent in the way we operate our businesses and about what we sell.”
Many talk about CSR as if it is an entirely new innovation. Yet CSR is related to the fair trade movement, the Extractive Industries Transparency Initiative (EITI) and the Publish What You Pay Campaign, in that it encourages ethical behaviour.
It also follows from the Quaker belief, developed in the UK in the 17th and 18th centuries, that the main aim of private enterprise is to add value to society and not just to make a profit. It is part of the age-old struggle between the state, individuals and private enterprise to promote their own needs.

Few now argue against the benefits of capitalism but its direction of travel can be adjusted. A balance of power is needed in the relationship between host communities and corporations in order to create a more just society for all.


Written by African Business Magazine