4.

1Voluntary versus Mandatory

Compliance goes to the heart of CSR because it largely dictates the degree to which a
company is going to be accepted by society. Those companies that add value will be
welcomed and those that are perceived to be detracting from the general well-being will
be criticized, even rejected. How the notions of contributing or adding value and
detracting are defined is constantly shifting; therefore, there is self-interest driving
companies to determine in advance what will be expected of them:

Companies are more mindful that their reputation is a precious asset which
today's media can destroy in hours. Hence their interest in responding to the
demand for CSR.

There is a strong case for the strict regulation of a company's actions when they come
into (potentially negative) contact with society. For example, left to its own devices, a
company transporting nuclear waste might be tempted to avoid undertaking all the costly
precautions necessary to ensure a completely safe journey. There is also, however, a
strong case that a company has to be genuinely committed to implementing CSR in order
for it to be effective and that no amount of regulation can dictate such commitment:

Mandatory disclosure requirements would not help-especially if they were highly

prescriptive. If requirements were too rigid, the result would be a bureaucratic
compliance culture, where disclosure would relate not to any real commitment to good
behavior but to a desire to tick the right boxes.... If corporate social responsibility means
anything, it must involve some voluntary recognition by companies that they cannot
thrive in isolation or opposition to the society in which they are trying to do business."

Alan Greenspan, chairman of the Federal Reserve Board in the United States, has long
been an advocate of self-regulation, or voluntary compliance, within the finance industry:

"It is in the self-interest of every business- man to have a reputation for honest dealings
and a quality product," he wrote ... in 1963. Regulation, he said, undermines this
"superlatively moral system" by replacing competition for reputation with force ....
[Greenspan] still admires the laissez-faire capitalism of the mid-19th century. At that
time, competition, not regulation, kept financial markets honest. Banks, for example,
issued their own currency whose value fluctuated with the issuer's reputation."

Government regulatory interventions-such as producing a national currency and

guaranteeing individual savings deposits-Greenspan argues, reduced the incentive for
bankers and businessmen to act prudently ... [and made] depositors less concerned about
the reputation of the bank to which they entrusted their money."

The European Multi Stakeholder Forum on Corporate Social Responsibility (CSR EMS
Forum) indicates a growing awareness of the need to encourage voluntary change:
Participants agreed [on] a definition of corporate social responsibility. They reaffirmed
that it is the voluntary integration of environmental and social considerations into core
business operations over and above legal obligations, and is based on dialogue with
stakeholders."

It is also true, however, that given half a chance, many companies would determine
where to cut costs based on self-interest (i.e., the lowest cost) rather than on what they
feel would be best for society in general, if money were no object. Hence the case for
stricter legislation as a safeguard:

Enron, for example, proudly presented its CSR credentials as a giant PR exercise while
internally betraying them. Unless companies really own CSR it is only window-dressing,
argue the voluntarists. The best instrument is to show business that behaving well is good
business, so that it adopts CSR willingly and internalizes it.
There is definitely a place for regulation in areas of greatest interest to the largest number
of people: In France, since 2002 all public companies have been required to report social
and environmental information as part of the annual report."
Belgium has a national kite marking scheme so that consumers can identify companies
that follow CSR principles."
Too much regulation stifles entrepreneurship and encourages inefficiency. Yet business's
best interests require an understanding that consumer definitions of what is and is not
acceptable are shifting. If firms ignore consumer expectations, a potentially more
damaging backlash of wide- spread regulation may stifle the business environment and
make the whole situation worse. A pattern that is emerging in global business is
that those corporations that have felt the brunt of the attention of CSR campaigners up
until now are often those that are most proactive regarding CSR. These companies see the
self-interest in reacting positively to their experiences and instigating CSR protection
to try and avoid similar problems in the future: Shell's experience with Brent Spar and in
Nigeria convinced it to take relations with its stakeholders more seriously, becoming an
exemplar of best practice in its environmental and social reporting."
It is always difficult to tell, of course, whether these incidents prompt a company
genuinely to re-evaluate its operations and strategic perspective to incorporate the
importance of CSR or whether the company merely recognizes a need to appear
concerned about issues that can harm it. The debate continues.

Questions for Discussion and Review (25 marks )

1. Which argument do you favor-persuading a company to change to incorporate a CSR

perspective voluntarily or forcing them to change using legislation? Why?

Answer –

For the question it is hard to take a stand because both the arguments have their own pros
and cons such as being not mandatory some companies will follow CSR and some will
not thus this can create disturbing standards and chaos in any industry. But from the fresh
and fair perspective I will stand by the perception of CSR as a voluntarily responsibility
rather then being a forced legislation, simply because it is a proven fact that when we do
something forcefully we certainly find our way out of it by any means it should be
proactively done by business community.

CSR is deeply connected with values, not with laws. Values cannot be forced, they can be
promoted, taught or awaken. However, if a company decides not to be socially
responsible, it’s more likely that its stakeholders will end up punishing its behavior. It’s
something that comes from inside the company, with a desire to change things and create
value.

The problem is that CSR activities are still regarded as philanthropy and less as strategy
to improve business activities. Indicative of this stance are missing CSR structures,
external monitoring, lack of knowledge regarding CSR initiatives and unwillingness to
publish CSR activities and ignorance about CSR initiatives. All we need to have is
minimum standards, a certain framework that set the rules of the game. The government
of nations should come up with better reward and recognition schemes for the companies
who comply with CSR and thus make them aware of the benefits lies in abiding CSR,
providing them with country specific needs, initiatives such as CSR awareness and its
advantage through local networks via learning events and seminars for corporate
executives etc will make “voluntary CSR” work rather then making it mandatory to
follow the footsteps laid by the government.

2. Have a look at Shell's Web site and the way it presents the two issues that prompted
the company to reinvent itself as a CSR-oriented organization: Brent Spar
(http://www.shell .com/Brent spar/) and Nigeria (http://www.shell.comlnigeria/). Do you
think Shell's reaction to these problems shows a genuine commitment to change or
simply recognition of the need to appear to be listening to key external stakeholders?

Answer –

No I think that reaction to these problems does not show a genuine commitment to
change and is simply window dressing.

Shell is a company which operates in critical industry where climate change, human
rights, role of multinational companies in the global economy, operating in
environmentally sensitive regions, renewable resources, dealing with industrial legacies
are some of the major critical factors which have to be taken care of sincerely. For each
of these issues, public opinion is not static and may radically change over time.
Therefore, it is important to gain an understanding of how global opinion on certain
topics may vary. These changing opinions will continue to influence the Shell Group’s
view of where it should position itself.

In Nigeria the protest by the Ogoni tribe due to uneven distribution of wealth and the
execution of one of their tribe leader by the military which many thinks can be prevented
if Shell intervened at that point of time, damaged Shell’s image a lot. Shell says that it
overcame this issue by engaging in dialogue and reconciliation with the various local
tribes and then invested in community for their betterment and economic development for
indigenous peoples. Shell must have learnt one main lesson here that is related to human
rights but it is doubtful whether Shell has really learned anything from its mistakes in
Nigeria. There is a new Shell venture in the West African country Tshad that looks as big
as the Nigeria operation, and with the same possible consequences.

The Brent Spar affair has brought quite some change of attitude to Shell. Ten years ago
the Multinational could afford to blatantly ignore campaigns against the South African
Apartheid regime. Then came the Brent Spar incident and car owners were taking en
masse to boycotting Shell's petrol pumps, and such an attitude no longer paid off. Shell
came to feel the might of the mass market, and bowed down. Though Shell web-site
represents the measure of openness about issues previously wrapped in taboo. There are
carefully written features on human rights, the environment does they really matters. At
the site's discussion forums arranged by subject everybody is allowed a say about Shell's
practices. The question is of course whether this form of openness really yields results.
The forums are not intended for people to question Shell; the email facility is provided
for that. The email service is actually being used quite intensively to put questions to
Shell--these are the 1,100 emails coming in every month. What the nature is of these
questions, and the answer to these, remains between Shell and the emailers.
Looking at all this one might conclude that this amounts to a fake openness, for show
purposes only. After all, in public true discussions are being eschewed. They have
changed a lot in their communication, they're far more careful about how they present
themselves to the outside world. Adopting a code of conduct regarding human rights and
the environment is simply not enough. What counts is implementation and enforcement.
Shell has not in any way made clear how they intend to translate their good intentions
into concrete practice. There is no independent body to monitor the implementation of the
code of conduct.

3. Enter the search terms csr, mandatory, voluntary into Google. Have a brief look at
some of the relevant documents this search produces. What is your sense of the argument
that is playing out within the business world? Where would most corporations like the
balance to fall? Is that the same as the nonprofit organizations or NGOs that are also
participating in the debate?