Analysis of Corporate Social Responsibility Training Initiatives in

Multinational Enterprises:

The challenge of localizing CSR

“The central challenge we face today is to ensure that globalization becomes a positive force for the entire world’s people, instead of leaving billions of them behind in squalor. Inclusive globalization must be built on the great enabling force of the market, but market forces alone will not achieve it. It requires a broader effort to create a shared future, based upon our common humanity in all its diversity”.

Kofi Annan, the UN Millennium Forum, Summit and Assembly, September 2002

Florencia Roitstein

February 2005

Introduction

This paper presents and discusses the range of contributions that multinational enterprises (MNEs) have made towards the creation of human capital development through corporate social responsibility (CSR) related training initiatives in developing countries1. The document takes a comprehensive view of the complex linkages between MNEs CSR strategies’ training initiatives and human capital creation. In doing so, general trends and best practices are presented and policy recommendations are suggested to mobilize the MNEs sector towards a deeper and long lasting engagement in human capital development2 in the emerging markets.

It is almost common place at present that business organizations are expected to exhibit ethical behavior and moral management. However, the social expectations have increased repeatedly over the past decades. Nowadays firms are not only expected to pay attention to the social impact of their activities’ “negative externalities” (Frank, 1999), they are also asked to be virtuous and to behave as a moral and ethical corporate citizen to stay in business. As Peter Drucker states: “In the next society, the biggest challenge for the large company -especially the multinational- may be its social legitimacy” (Drucker, 2001).

In surfing the waves of international business, we have to face cultural differences as a powerful force, which affects attitudes and behaviors towards social legitimacy and ethics. We go even further by questioning whether it is best to adapt local country business ethics or to impose a company’s ethical standards abroad. In addressing these business

1 The author has been involved in the development of various MNE’s CSR related strategies and is currently
part of a research team studying the understanding of CSR among leading MNEs. Therefore, some of the data
and information that will be presented in this paper reflects the numerous interviews completed during the last
years in different MNEs operating in the developing world. When data relates to desk research, the
corresponding reference will be cited.

2 The author understands CSR related training initiatives as a mean for achieving human capital development
in a way that contributes to equity and social value creation. Social value creation is defined as the value that a
firm can offer and transfer to society through its interactions and activities towards economic and civic
capability development. Some of the social values created by firms consist of contributing to progress,
improving the quality of national programs (i.e. education, health), creating new entrepreneurs, motivating
innovation, among others.

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challenging questions, companies seem to look for solutions by getting involved in defining their role as citizens of the world through their CSR behavior.

The UN Global Compact3 and the World Business Council for Sustainable Development4 are illustrative examples of the efforts that MNEs are making to reach a culturally shared understanding for corporate responsibility.

In this paper, we shall adopt the definition proposed by the World Bank 2003 conference on “Public Policy for Corporate Social Responsibility” in which corporate social responsibility is defined as “the business commitment to contribute to sustainable economic development5, working with employees, their families, the local community and society at large to improve their quality of life, in ways that are both good for business and good for development”.

After years of enthusiasm and debate on CSR, voices are coming up to question the real output on innovation, social value creation and social progress (Pendelton, 2004). This disillusionment is also associated with the fact that even though the business case for CSR is rather evident6, firms do not seem to integrate it into their business practices7. In addition,

3 The Global Compact is a programme launched by the U.N. in July 2000 upon the direct initiative of
Secretary General Kofi Annan (2002). It aims to involve the business community in a new kind of cooperation
with the United Nations through the acceptance of the nine universal principles in the areas of human rights,
the defense of labor and environmental protection. Today more than 1500 firms have joined the UN Global
Compact.

4 The World Business Council for Sustainable Development is a coalition of 170 international companies
united by a shared commitment to sustainable development via economic growth, ecological balance and
social progress.

5 The concept “Sustainable Development” (SD) is defined as “the development that meets the needs of the
present generation without compromising the ability of future generations to meet their needs” (UNEP, 1987).
Even if the term SD was launched almost 20 years ago, (Brundtland Report, 1987), its conceptualization
varies worldwide, depending on what type of world policymakers and practitioners think is needed creating
for future generations to inherit.

6More and more investors are putting their money into socially responsible mutual funds. According to the Social Investment forum, the assets in these funds grew 40% faster than other assets from 1995 to 2003. (Jan Chong, in Stanford Social Innovation Review, Fall 2004).

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as the recent report published by Christian Aid illustrates, even though companies are more and more engaged in CSR related behavior, the efficacy of the strategies, the genuine change and the tangible improvement in communities’ every day life remains rather poor. (“Behind the mask: the real face of corporate social responsibility,” Christian Aid Report, 2004). Other critical voices towards CSR have been raised for some time. Milton Friedman for example, is convinced that corporations are good for society but he strongly opposed the idea that corporations should try to do good for society. “A corporation is the property of its stockholders; its interests are the interests of its stockholders. Now, beyond that should it spend the stockholders’ money for purposes which it regards as socially responsible but which it can not connect to its bottom line? The answer is no”. The only social responsibility of corporate executives, Friedman believes, is to make as much money as possible for their shareholders while obeying the law. However, globalization is making this simple statement complicate. Whose laws shall MNEs obey? Local laws or firm’s homeland laws? It may be that because of the impact of the globalization imperative, the rules of the game need to be the same for all players in different industries and different regions? Today most MNEs business practices in emerging economies show otherwise8.

David Henderson (2001), for instance, proclaims that:

…good corporate citizenship not only does not come cheap for the corporation but in addition, it is not firms’ role in society. Social, economic and environmental goals are the job for governments, which remain competent to do it if they choose.

Although the CSR perspective is seen as moral9 and ineffective for authors like Friedman or

Henderson, others see CSR as an approach to overcome the limitations of national

jurisdiction and deal with the global impact of business in societies (Lunheim, 2004). While

7 Recent research from the Institute for Social and Ethical Accountability shows that among 35 listed
companies with considerable risk from rogue behavior in their supply chain, only seven had dedicated
managers whose primary responsibility includes suppliers’ labor standards. The study shows “a significant
disjoint” between board-level policy commitments and their integration into standard management practices
(Ethical Performance Newsletter, June 2004, p.3).

8 This is particular clear on the financial industry. It started with scandals in the US: Bank Boston for
laundering money, Citibank for parking funds off shore in the Caribbean.

9 Friedman believes that corporate executives who choose social and environmental goals over profits are, in
fact, immoral.

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the debate among scholars on the role of business in society has reached its peak, companies seem to be trying hard to find out their way to respond to societal expectations. In fact, the review carried out on MNEs’ CSR related behavior suggests that the main driver for firms to get involved on CSR initiatives is the understanding that to achieve sustainable business development, they have to commit themselves to contribute to social development. Constant social development is needed not only for equity and social peace, but also for sustainable growth. Investment and transfer of corporate know-how to society (in areas such as health, education, human capital accumulation and professional development) is crucial for raising productivity and business opportunities. The strategic management of stakeholders’10 expectations (Freeman, 1984) for reducing social and political risk has become a major issue in the globalization era.

Most probably, because of the different understanding of the reason for “why firms exist”11 the concept of CSR remains a fuzzy one, with unclear boundaries. Carroll and Buchholtz (1999) note: “What is particularly paradoxical is that large numbers of business people have enthusiastically embraced the concept of corporate social responsibility during the past three decades, but only limited consensus has emerged about what corporate social responsibility really means”.

Some of the leading MNEs reflect a long-term commitment to developing business while contributing to society, following somehow the definition of CSR proposed by the World Bank. Moreover, these MNEs have identified CSR related training initiatives as their main focus of engagement in order to contribute in a sustainable manner to society and business development. These leading companies seem to have long realized that a key element for their business’ long term success is to integrate in their global business strategies

10 The strategic management of stakeholders’ expectations is the capacity of the firm to deal and prioritize the
different and sometimes conflicting demands coming from the social players that are affected or that affect the
operations of the corporation (suppliers, government, customers, employees, etc.). Social risk reduction is
defined as the exposure to possible loss resulting from normative delegitimation challenges by critical social
players (Yaziji, 2004). Some of these losses include: costs associated with changes to the regulatory
environment, reduced market size and market share, diminished brand value, shareholder constraints on
behavior, lower employee moral, etc.

11 Differences in western and Asian cultures on the role of business in society, just to mention an example

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stakeholders expectations and local needs. To do so, these companies have engaged on effective partnership at the global and local level with a variety of relevant stakeholders12.

This paper is organized as follows: the Introduction is dedicated to presenting the current debate on CSR. Section 1 gives a summary of the methodology used to review the existent literature on MNEs involvement in CSR related training activities. Section 2 is devoted to characterizing the CSR initiatives engaged by MNEs. Section 3 presents the analysis and directions for further research. Finally, Section 4 provides recommendations for private and public decision makers interested in finding effective ways to inspire and engage MNEs in successful partnerships to develop human capital and social value in emerging countries.

1. Methodology

For the time being, little evidence is available to make a quantitative analysis of MNEs contribution to human capital development and value creation through their CSR training initiatives. In the years to come, more MNEs training initiatives will be implemented and evaluation of impact and comparisons between initiatives could be possible.

Thus, at this stage of MNEs engagement evolution on CSR training initiatives, we consider relevant to identify prominent MNEs carrying “good CSR practices”. Two rationales motivate this choice. On one hand, prominent MNEs have a very high degree of capillarity. On the other, they have a high level of visibility. Therefore, the impact these MNEs can have in modeling other MNEs behavior in same and different industry sectors is quite significant. As shown by C. Argyris’ (1982) research on business behavior, “Adaptive learning”, coping-solving problems, is the most current way of doing business. On the other hand, “Generative learning”, focuses on creating-continuous experimentation and feedback

12 Stakeholders refer to those who have an interest in a particular decision, either as individuals or as representatives of a group. This includes people who influence a decision, or who can potentially influence it, as well as those affected by such decision; such as host governments, local suppliers, social players, firm employees. (www.earthsummit2002.org/ic/process/stakeholders.htm)

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in an on-going analysis to define and solve problems. It involves questioning the assumptions about the way we work, a characteristic usually found in leading companies.

We shall adopt as criteria for ‘good CSR practices’ that of Michael Porter’s (Porter and Kramer, 2002) model:

“Today’s companies ought to invest in CSR as part of their business

strategy to become more competitive. Corporate success depends on the

local environment and appropriate infrastructure, the right types and

quality of education to future employees, cooperation with local

suppliers, quality of institutions, local legislation and so on. In this

corporate competitiveness context, the company’s social initiatives can

have a great impact, not only for companies but also for the local society”

Table 1 shows MNE’s websites researched to gather data for this work, in five industry sectors.

Table 1. List of MNEs websites researched

Industry / Firms
Consumer Goods / Unilever, Arcor, Danone, Nestle.
Gas & Oil / Shell, Repsol, Total Elf Fina, Exxon.
Pharmaceutical / Astra Zeneca, Aventis, Johnson & Johnson, Roche.
Semiconductors + IT / IBM, Intel, Microsoft, SAP.
Textile / C&A, Levi’s, Puma, The Gap.

Among the 30 MNEs researched, one MNE by industry sector was identified (see Table 2) because of having developed CSR training initiative most relevant to contributing to the societal fabric of capability building; so-called hereby “Good CSR training practices”

As this work is of a qualitative nature, we shall present examples of the initiatives carried out by the multinationals with the purpose of illustrating the potential contribution that