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Corporate social responsibility: Is it ethics, or just marketing?

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Starkly different views on corporate social responsibility, under which human rights, labour, environmental and community interests are appreciated and addressed by corporations, emerged in a panel discussion at the EBRD Annual Meeting.

Bruce Moats, Corporate Vice-President with the privately-owned California jeans maker Levi Strauss & Co. said the main reason to have corporate social responsibility policies is “it’s the ethical thing to do, even if you can’t justify it” on the balance sheet.

Beside him Stefano Vlahovic, of the Russian pre-packaged food business Produkty Pitania, took the contrarian point of view despite all his firm’s investments in the well-being of its staff. “The purpose of a company is to earn shareholder return. It is not to improve the lot of the people,” said Mr Vlahovic.

Stepping in for the state

Mr Vlahovic said circumstances forced his company to provide for its labour force when the state could not or would not. This meant making sure buses were available to bring them to work; that their apartments beside the factory were habitable; that the local sewage system was upgraded.

“In a place in which infrastructure is not so developed…in order to operate smoothly we encountered costs that were not included in the business plan,” said Mr Vlahovic.

“I would like to question the utility of corporate social responsibility beyond marketing and the CEO wanting to be well received at the golf club,” he added. And if CSR policies are really just there for marketing purposes, he said, corporate budgets for social programmes “should be scrutinised like the advertising budget, for return on investment”.

Mr Moats described Levi Strauss’ 150 year history of taking care of its staff and community: the founder’s philanthropic efforts to help orphans and families in San Francisco in the mid-1800s; keeping staff employed during the 1929-30 Great Depression, even though the factories had no orders; ensuring HIV-positive employees did not face discrimination, starting in the 1980s; and most recently, providing spousal benefits to same-sex partners of staff members.

Sweat shops cut costs

There was a great deal of discussion on outsourcing and ‘sweat shops’: some large corporations with corporate social responsibility programmes have been accused of turning their production over to external firms that produce at lower cost because they don’t observe the same health, pension, labour, safety, environmental, human rights and other policies; child labour has also been an issue.

Mr Vlahovic said that if it cost a company $14 to produce a product using its own staff members who enjoy good pension benefits, while outsourcing reduced costs to $7 because those workers do not have pensions, the corporation owed it to shareholders to go with the latter. “If you don’t, you’re keeping the people who are willing to do it for $7 out of a job.”

Mr Moats said Levi Strauss “has been 99 per cent outsourced for 10 years” but the firms that produce its jeans observe the company’s corporate social responsibility programmes.

On child labour, Mr Moats was adamant: “Sweatshops are not fine. It is not fine for a seven year old to make Levis Strauss jeans.” He said the argument is sometimes made that if children in poor countries don’t work for a good employer like Levi Strauss, they could end up in worse employment, even prostitution, but he said his firm was not willing to be even the lesser of two evils.

Shigeo Katsu, World Bank Regional Vice-President for Europe and Central Asia, said surveys showed that “all other things being equal, governments that promote corporate social responsibility seem to have a better chance of attracting foreign investment”.

19 April 2004