Sunday, 10 February 2013

Corporate Social Responsibility by Prof. Waswa Balunywa, PhD




CORPORATE SOCIAL RESPONSIBILITY

Lessons for Uganda
By
Assoc. Prof. Waswa Balunywa
Principal, MUBS


Presented at a
PUBLIC AWARENESS LECTURER
ORGANISED
BY
INSTITUTE OF CORPORATE GOVERNANCE OF UGANDA
JULY 27TH, 2004



                                    

CASES
1.   Exxon Valdez Oil Spill

Exxon Corporation is one of the world’s biggest multinational companies with primary interests in oil and petroleum products. One of its oil tankers, a ship carrying millions of gallons had an accident off the cost of Alaska in North America.  It was reported that about twelve million gallons of oil was spilled from the tanker. This environment disaster caused havoc to animal and plant life over an area of 1,100 miles of coast line.  Sea otters, fish, birds were killed in thousands. Plant life was destroyed extensively.
Ecologists call this the worst environment catastrophe ever.

2.     Union Carbide in Bhopal, India

Union Carbide Corporation is a US based multinational company dealing in chemical and is one of the largest chemical companies. It has plants and distribution outlets throughout the world including one in Bhopal. In December 1980, at the Bhopal plant, water contamination occurred in a highly poisonous chemical called Methyl Isocyanate (MIC), which is used in production of serin, a pesticide. This caused a cloud of MIC gas to drift over the city of Bhopal. Within a few hours of the leakage about 2600 people within the vicinity of the plant died. By 1991, it was reported that about 1 person was dying per day as a result of the leakage. Union carbide took a responsibility to make good and compensated people who were affected.

3.     Enron Corporation

Enron Corp. was one of the largest energy, commodities and Service Company. Before it filed for bankruptcy, it marketed electricity and natural gas, delivered energy and other physical commodities, and provided financial and risk management services to customers worldwide.

Based in Houston, Texas, Enron was formed in July 1985 by the manager of Houston Natural Gas and Inter North of Omaha, Nebraska. Initially, a natural gas pipeline company, Enron rapidly evolved from delivering energy to brokering energy futures as energy markets were deregulated. The company began marketing electricity in 1994 and entered the European energy market in 1995.

Enron illegally reaped $ 1.1 billion profit from questionable trading schemes with nicknames like “Death Star” and “Get Shortly.”

Employees of Enron Corp. coached rookie traders on ways to overload California’s power grid during the state’s energy crisis and kept multiple sets of books to cover their tracks.

An Enron trader would coach new ways to overload California’s transmission grid, and then collect a fee for relieving the fake congestion.

“If the line is not congested, then I would just look for ways to congest it,” said a trader. “If you can congest it, that’s money-maker no matter what, cause you‘re not losing any money to move it down the line.”

4.     Nakasero Soap Works

In Uganda, there was a case of Nakasero soap Works in Mbuya which was reported sometime back to be emitting in the air that affected residents.

There are many other cases worldwide where organizations are reaping off consumers and the general public while some never come to light.

These cases raise questions of the responsibility of business organizations as they pursue markets and profits.


What is Corporate Social Responsibility?

Social responsibility of a business or corporate responsibility consists of series of obligations a business has towards the business itself, its employee’s, owners, the state and the society at large.

The primary objectives of a business have seen by business scholars and economists, to be satisfaction of customer needs and profit maximization.  A business exists for economic performance and economic results.  Therefore markets and profits are the key objectives.
However, business enterprises perform theses profit motivated activities in society, thus society has interest in business.

The fact that business operate in Society, it has an impact on it in a variety of ways. It offers products and services to consumers.
But its actions can also impact on the society negatively. Business affects the physical environment. It may for instance pollute it. By doing so, society has been demanding that business should have social responsibility and not only exploit resources in environment, but make sure that it preserves them and safeguards others. The major issues here have been pollution of environment and conservation of resources through effective utilization.

*    Pollution

Business extracts resources from the environment and is able to give us goods and services. However, in the process of doing so, business may negatively impact on the environment. Business has therefore to assess the impact of its activities to see whether they will be acceptable.


Key issues that have been of concern;

·        Usage of agro chemical

To be able to increase production in agriculture, chemical are used to kill insects and fungi. These chemical are toxic (poisonous) and also biocidal (Life killing). They not only affect plants but the people who use them.

·        Nuclear waster
While searching for alternative sources of energy to meet the increased demand for energy, nuclear power became a source.  However, the disposal of the spent nuclear fuel is a problem. Radiation, which is emitted from spent uranium and is harmful to human beings. It can cause cancer and other problems.

·        Acid Rain
As business exploits resources and uses energy it emits certain gases in the air. A gas called sulphur dioxide is produced by burning of fossil fuels, mainly coal. This gas rises into the atmosphere and it reacts with water in the clouds. The reaction increases the acidity in the water and when it rains, the rains are as termed acid rains which are harmful to plants and animals.

·        The Greenhouse Effect
As business burns fossil fuels, certain gases, known as Chloro-Flouro Carbons (CFCs) but particularly
Carbon dioxide are emitted into atmosphere.  These gases interfere with the natural process of reflecting back the earth rays into the atmosphere. Ordinarily, when the sun shines, its rays in form of radiation, heat the earth.
In a greenhouse, the rays instead of being leaked back into space are reflected into the house. Gases have a similar effect; their presences in the atmosphere do not allow rays to be leaked into space. Instead, they are reflected back onto the earth. This results into global warming.  The earth becomes wormer. The impact of global warming is increased desertification, disappearance of low-lying islands due to increase in water caused by melting ice I polar areas. These affect agriculture and life generally.

·        Holes in the ozone layer
In addition to the global warming, another negative effect is skin cancer that arises from direct sun rays, called Ultra violent radiation. The earth has a protective layer called the ozone. The ozone deflects some of the ultra violent rays away from the earth. However, it has been found that CFCs that have been emitted into the atmosphere have been responsible for holes in the ozone layer that have been identified. This leads to human beings being exposed to the sun rays, which may lead to skin cancer.  CFCs have been used mainly as propellants in aerosols (sprays) and as coolants in refrigeration systems.  Businesses worldwide have reduced the use of these CFCs and plan to phase them out.

*    Waste and rubbish disposal
Industrialization has created a problem of disposal of both domestic and industrial waste. Most industries create a waste that has to be disposed off. This is usually disposed off in lakes, rivers and seas.
This has affected life in these places and consequently affected Economic activities of those who depend on these waters. It also affects the quality of life. Another problem is the volume of rubbish that has emerged with urbanization.  Not only is the volume a problem of disposal, ‘Buveera’ as they are known in Uganda have blocked sewage and channels and have become a healthy hazard.





*    Resource Usage in Business
There is a fear that with increased industrialization along with the increase in the world population, the world may run out of resources. To be able to produce the various products used worldwide, minerals are used.  However, the resources are finite.  The minerals may get finished, what next.  Another problem is energy resources.  More cars, planes etc, mean more energy uses. Oil and gas are estimated to last only another 50 years.

* Ethical Issues in Business
         Society is also concerned about ethical issues arising from business practices.
         Various issues arise in this regard include;
·        Donations by business to political parties.
·        Corruption involving buying favours from politicians and other persons.
·        Industrial espionage.
·        Theft by companies or by individuals.
·        Drug trafficking.
·        Dumping of industrial waste into third world countries.
·        Child labour.
·        Prostitution
·        And such related matters.

Society is concerned that business is profiting from wrong doing. But what is this interest? In case cited above, we have companies that have caused harm to society. Do these companies have a responsibility to Society?

The concept of social responsibility focuses on these interests and it has been evolving over the period.

Why seek social responsibility of business?

Over the last 80 years, there has been a remarkable increase in the quantities of goods and services supplied for human needs. These are attributed to the rapid economic development that has taken place. Numerous business names are today household names known as everybody. For instance worldwide names like Coca Cola, IBM, Sonny, Mercedes Benz, and Toyota are well known. In Uganda’s middle class, the same names are familiar.  Local household names include sportsman, kimbo and colgate.

Before World War 1, poverty was taken for granted as a universal condition of mankind. Today lack of development and poverty is considered an exception and a problem.  Businesses have succeeded so much that they have created affluence through goods and services and provision of employment.  It is the success of business that has given rise to demands for social responsibility from business. This success has come up with many costs.

Another reason for seeking social responsibility from business is disenchantment with government and its inability to solve major social problems. It was generally believed with the decline of individualism at the turn of 19th century that the government was to solve all major social problems.  This myth was exploited with failure of government to spearhead growth in many socialist countries and as a result, people started loosing confidence in government’s abilities.  The revival of spirit of free markets economies in 1980’s added to this view that business had a more important role in solving societal problems than government.

The emergency of a new group of business managers that have more clout than politicians has also been another reason why society is looking to business to solve social problems. In the past, society leaders were the royalty and clergy. Later, philosophers and scientists were added to the list among the leaders of society. Today, that is no longer the case.  Business owners and managers have emerged as the new leaders and it is logical that they take up responsibility of society’s major problems. Names like Bill Gates, Jack Welsh, are common among world leaders.

          Evolution of Social Responsibility

The concept of social responsibility of business has been dynamic. It has been changing over time and continues to change. There are broadly two views. The traditional approach and the modern one.

·              Traditional approach
The traditional approach view of social  responsibility of business lays emphasis on managerial responsibility  to business, social responsibility towards employees and responsibility of business people in support  of the arts, the museum, musical, educational and religious institutions and donations to philanthropic and other community causes.

The contract between society and business was governed by the traditional ethic of caveat emptor (Let the buyer be aware). This left the buyer to be aware of the products he consumed and that it was not the responsibility of business to give a fair deal to consumers.
The traditional view of social responsibility has been re-emphasized in recent years by a prominent economics Milton Friedman. He has argued in his book, Capitalism and Freedom that there is only one social responsibility of business.

“…..to use its resources and energy in activities designed to increase its profit so long as it stays within the rules of the game…… and engages in open and free competition without deception and fraud…….”
Friedman argues that business should concern itself only with producing goods and services and not competent to determine what social problems are and their importance or urgency. He argues that this should be left to concerned individuals and government agencies.

Friedman’s views which are on one extreme on the various arguments of social responsibility are merely a restatement of the classical practice of social responsibility by organizations. Early views, which form the basis of social responsibility of business or corporate social responsibility, are developed out of principle that power begets responsibility.
Organizations acquire responsibility out of financial power that they posses.  These are general broad responsibilities that make business stewards of some society problems. Ensuring from the power is the responsibility of organizations with ability, to attempt to solve some of the problems in society.  This gives rise to what has been called the Charity Principal.

The charity and stewardship principal form the basis of corporate social responsibility.
The charity principle requires the more fortunate members of society (the rich) to assist the less fortunate members including the handicapped, the risk, the elderly   and the unemployed either directly through other institutions.  The stewardship principal requires business and wealthy individuals to see themselves as stewards or caretakers who hold their property for the benefit of society as a whole. These are the principles that formed the basis of corporate social responsibility.

Drucker in his book Practice of Management argues that this traditional approach was concerned with the society responsibility of business but with social responsibility of business people. Emphasis is on what business people should or might do outside their business.

·        The Modern Approach
Whether business has a responsibility to society is no longer a question. The issue is to what magnitude. Corporate social responsibility has moved away from traditional ‘what businesses should do to tackle and solve problems of society, to what it can contribute to society problems’. This approach arose as a result of business redefining its role in society.  Some critics of traditional approach argued that the approach allowed the business community to see social problems from their view of points and this social responsibility was a reflector of individual values.

The new concept of social responsibility no longer asks what the limitations of business are but demands that business takes responsibility  for social problems, social issues, social and political goals and that is also becomes the keeper of society’s conscience and a solver of society’s problems.  In fact, this social responsibility is not only being demanded of business but also of non business institutions like Universities, hospitals and other societies and Associations not for profit. The argument is that every organization has responsibility to society.

·        Corporate Social Responsibility

Many mangers and theorists have come up with what may be called variations in modern approach.  These variations are also a reaction against the traditional approach which tended to equate social responsibility with individual decisions of business people. One such approach is that of corporate social responsiveness rather than responsibility.

This concept argues that business should be responsive to, rather than responsible for, social problems.  This means business should solve problems that exist or crop in society when they come to learn about them. On learning about the problem, business should study the problem and evolve ways of dealing with it. This is responding to problems in society.

Social impacts and social problems

Drucker, with his tremendous contribution to all kinds of business concepts puts into context social responsibility by introducing the sub concepts of social impacts and social problems.

He argues that the concept of social responsibility arises because of the existence of business units and their interaction with the society. Normally, these responsibilities arise in two areas.  They may emerge as a result of the actions of the business itself, social impacts or may arise as problems of society which are not caused by the business but may affect it because of social problems.

·        Social impacts
This deal with what an organization does to society. An organization exists to provide a specific product or service to society. It has to do its work within a social setting. It employs people and uses resources in the environment and this impact on the society. Thus, its social impacts go beyond the contribution it exists to make.  Social impacts are incidental to the main function  of the institution,  for instance, an industry producing iron  and steel releases smoke which creates a social impact, the smoke is incidental to the manufacture of iron and steel which is a product needed by the society.

Management deals with social responsibility arising out of social impacts by trying to minimize them or eliminate such impacts if possible since they are not primary to the objective of the business. Thus, it is management’s responsibility because it is business responsibility.  The Exxon Valdez oil spill and the Bhopal gas leakage are classical cases when business has a responsibility for its impact on society.

Social problems
This deals with what an organization can do for the society.  There are social problems that exist in society and may affect an organization e.g. Drugs and AIDS epidemics have affected societies. A health business or any other organization cannot exist in a sick society, thus business has to tackle and solve these social problems and in essence, it assumes responsibility for social problems.
Management of organizations finds such problems as challenges and tackle them to satisfy a social need not because they are seen as profitable business opportunities, but are issues which may directly or indirectly affect business.

AIDS affects society by killing young able aided people and even imposes costs on their treatment before death occurs.  Business may be affected in two ways. One is that by affecting able aided people it affects the supply of labour to business. Business will thus experience labour shortages.  The second is that it is the able aided people who work and earn.  Through earned incomes they purchase goods produced by business. Costs of treating such people and their absence at the work also impacts on organization.

                 LESSONS FOR UGANDA

Business in Uganda is still in an early stage of development.  There is no sizable business compared to Kenya or for that matter the developed countries. Despite this, there are already problems of social problems that business needs to tackle.

Through out the country, ‘buveera’ has become a problem. There is an urgent need for society to solve this problem. Many people have constructed houses in swamps causing problems to the environment.

The National Environment Management Authority has been very active in the recent years in addressing issues of environmental protection. They have been reported in the press to be taking an active role in preventing environmental destruction. They now make impact studies and authorize establishment of industries after these studies have been made on the impact of a factory on the environment.
Because Uganda has not made a lot in business development, it has a chance to develop a responsive corporate social responsibility.

Cases of Corporate Social Responsibility in Uganda

·        The Madhvani Group

The Madhvani Group is known for sugar among other household items in Uganda. It is one of the largest conglomerates in the country. Its core business has been and continues to be sugar. It has an 8,000 acre plantation in Kakira, Jinja district.   It has been encouraging out growers of sugar cane around its estate with a view to creating jobs and incomes in the communities.   It has recently launched an initiative to benefit the out grower group as well as the broader community. The Madhvani group sees this initiative as putting back resources into the local community.
The group does other things including providing working capital and loans to the out growers, primary health care facilities and maintenance of local infrastructure.

·        British American Tobacco (BAT)

BAT is a multinational with operations in Uganda. It manufactures and sells cigarettes globally. In Uganda, BAT has an out growers scheme in areas where tobacco is grown. BAT has also initiated dialogue with stake holders where it discusses the impact of cigarette smoking on commodities.  BAT does not encourage underage people to smoke and as part it continues to produce cigarettes with low nicotine.

·        Makerere University Business School (MUBS)

The Business School has a programme called Business clinics where it arranges for free business advice to small business communities as part. According to the School this is one way of giving back to the community.

Part of this has been extracted from a book entitled, “Business Administration by Waswa Balunywa”


SCOPE OF SOCIAL RESPONSIBILITY OF BUSINESS
*    What society expects from Business
Drucker’s proposition tends to put into context of social problems.  These are broad outlines of what is expected of business, their obligations towards society.
Business Organizations are economic units that exist for economic performance and economic results guided by the profit motive.  However, the society expects assistance from business since business exists for and in society. Thus, the challenge of business today is to make an economic enterprise truly human with an integrated social purpose. We can enumerate some of specific responsibilities of business society as follows:-

Business and Resource
When a business   embarks on the production of goods or services, it does so with a view of solving some particular societal need by providing the product or rendering the service.  This end, every business has the responsibility of making the fullest possible use of its resources, whether human or material. This is with a view of rendering the best economic performance with the best result.

However, the production of modern goods has come with negative consequences on resources.   Not only are resources being depleted but there is also pollution and waste of resources.   This has given rise to environmental concerns and today there are laws and movements of people with concern for environmental protection. The consequences of un controlled utilization of resources has been ecological imbalance, depletion of the zone layer, acid rain and global warming.
Weather has been changing worldwide with droughts, too much rain and other phenomenon.

There are now programmes aimed at conserving resources and preventing pollution.  Social movement like Green Peace are battling business over environmental protection.  These movements work towards prevention of the environment. They have argued against nuclear experiments and such other environmental degrading practices.  In Uganda, The National Management Environmental Authority (NEMA) was set up by an Act of parliament as an agency to ensure sustainable development. It is charged with the responsibility of ensuring that the country’s resources are conserved.  Business, therefore has a responsibility to ensure proper utilization of resources keeping in mind their renewal and responsibility.  

Business and Shareholder
Shareholders are people who commit their capital to undertake a business. Thus, business has the responsibility providing fair and adequate reward or their risks taken in availing such capital.  Besides, the returns on their capital, shareholders are entitled to regular, accurate and full financial information about the business. Business is thus responsible to owners.

Business and workers
When a business is established, it has some specific purpose, to render a service or produce some commodity; however, this cannot be achieved unless there are people to manage it. Workers are drawn from society and thus it is the responsibility of the business to see that workers get their fair wage for fair work.   
Besides remuneration of workers, management must recognize worker’s right to participate in decisions affecting them, to membership of a trade union, to collective bargaining and right to strike.   Management must strive to and give workers an opportunity to develop their capabilities through training and education. Workers participation in profits and purchase of    share is an imperative requirement on the part of management also.

Other issues regarding employment include employment of women and minorities, and health and safety of workers.  Over the last 20 years or so, there has been a realization of unfair treatment to women. Women were excluded from senior and managerial jobs, they were paid less.  A gender campaign to bring women to the mainstream has seen women come up to be treated equally with men.   This situation is not yet satisfactory but a lot has been achieved.
The employment of minorities and disabled has also been an issue of concern.
It many western countries, blacks were denied jobs because of colour.    Disabled people were also discriminated against.  In many countries, this discrimination has been outlawed and companies are required to be equal opportunity employers.  Another aspect that a business has to take care is health and safety of employees.  
Protective clothing, first aid and safety measures must be in place in organizations.  All these are today obligations of companies to employees.

Business and the customers
Business undertakes a particular opportunity to satisfy society’s needs. Goods and services to society should therefore be reasonably priced and of a standard quality.  
Adulteration of goods, lack of fair measure and lack of service or courtesy to customer, misleading advertisement and dishonest means are violation of obligations business has towards customers-society.  The concept of the buyer be aware is long gone. Business cannot exploit consumers.

As a result of the desire by consumers themselves to fight companies that exploit them, they have formed organizations for a purpose.  They go by various names, consumers watch, consumer alert etc. In Uganda, the Uganda Consumers Protection Association is such a movement. This movement by consumers to protect their interest is called consumerism. Besides thus has a responsibility to provide a fair deal to consumers.

Business and Government
In recent years, society has turned its eyes off the Government to Business.  Business role in society has achieved heights beyond that of government in tackling and solving problems.   However, the government is still the apex institution.  Government guides policy and provides the necessary climate for business to flourish. It also sets rules by which business plays.  However, government can only function if business pays taxes.  All government activities depend on this.

Business should meet government requirements of taxes, returns and such requisites as demanded.  Besides the role mentioned above, many governments still play an important role in societal affairs by providing utilities that business evades due to unpredictability of such ventures.  

Business and Community
The above five points are rather particular in that they refer to specific aspects in society.  The community expects numerous services and help from business.
Business exists for society and in society but it should not make society bear costs that result from business- social impacts.  Things like air and water pollution are examples of social impacts that arise due to business activity.  Location of an industry and rapid economic development to provide high standards are also business obligations towards the community.  
Business therefore has a crucial role to play in community life and its responsibilities are wide and varied.  This is now being expressed through the environmental protection movements like Green Peace and consumer movements.  
Government world wide now talk of sustainable development which is development aimed at ensuring that resources are available over a long period of time. Business therefore has a responsibility to society as a whole.  To provide goods and services, to solve social problems and also to ensure sustainable development.   Business should not simply use resources for its sake, it should keep society’s overall requirements in mind.

*    Limits of Social Responsibility

While we expect all from the business, we must appreciate that there are limitations on what it can do.

Limits of business’s own objectives
Te classical approach to social responsibility has been against business assuming social responsibilities.  They argue (and are also supported by economist Friedman) that a business primary responsibility is to produce goods and services efficiently and to earn profits for its owners.
Any solution of a social impact or a social problem-unless it is making it into an opportunity-creates social costs and social costs cannot be born unless there are profits-the saying these days is “it is not enough for a business to do well, it must also do good” but in order to “do good”, a business must do “do well” and indeed “do very well”.  Therefore business cannot simply solve social problems because they exist. This may kill the business unit.

Lack of competence
To take one task for acts for which lacks competence is an irresponsible behaviour.  A business cannot simply respond to social problems or even social impacts because if has too, even if it was complete.



Limits of Authority
The most important limitation on social responsibility is the limitation of authority.  Responsibility and authority are two inseparable words, whoever assumes responsibility must have authority and thus to assume social responsibility unless it has the right authority. On social impacts, the authority is within the institution. But for social problems, authority must be acquired from society.  Besides, when business assumes such authority, there is usually talk that it is becoming the master of society.  Thus, there is a great limitation imposed by the authority factor on business assuming responsibility.

BEYOND SOCIAL RESPONSIBILITY

While we demand business to be socially responsible, there are other issues which are not responsibility as such but for which business is obliged. Issues evolve around business ethics.  There is a lot of talk about ethics of business. Ethics is a problem of moral values.  Honesty is the word to describe ethics, however, this is required to everybody and not only business.  The first responsibility of a professional, be it a doctor, a lawyer, a manager-is the Greek statement “primum non nocere”- not knowingly do harm.
This is the basic rule of professional ethics and the basic rule of an ethics of public responsibility.

The importance and uniqueness of business today puts business in a unique position in the matter of ethics. Business has become central to every activity.  It pays wages, taxes and supports non-business activity. The relationship among units, with politicians and other members of society is the issue that involves ethics.  The issues that have been important are corruption, theft, industrial espionage, misleading advertising.  

Corruption

This is an issue of major concern worldwide corruption takes various forms and is in both business and non business institutions.  It may be bribery to influence the conduct of a person or taking advantage of a position one is in.  The subject however is controversial.  
In certain culture, especially Asian and African certain things are not ethical. For instance offering gifts to business people is also common practice in many African cultures.  It is seen as a sign of respect.
In the majority of the western countries most of these practices amount to bribery and are unacceptable.  As the world becomes one through globalization, and yet business practices are greatly influenced by western practices, the subject of corruption is taking centre stage as a problem.  Should business people offer gifts which may influence awarding of contracts?

Thefts

Another unethical behaviour is theft in business.  This is a major issue, theft by employees.  Employees take away company property, forge documents, steal money and company deliberately.  This is theft. One of the major causes of collapse of organization in Uganda and believe in many African countries is theft by employees.  There is no well documented evidence to this fact but many employees have mentioned this as problem.
Many managers of once thriving companies have gone out the collapsing companies with property not easily accounted for.  This is clearly unethical behaviour but is rampant in Uganda. Theft is usually taken as a corrupt practice.

Industrial espionage 

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