The CSR Schism

It is this very different approach to CSR that is already causing a good deal of confusion and friction between the U.S. and European business communities. Although it is not by any means an absolute ” not all European companies are adopting SEAAR programs, and several U.S. multinationals are leading the SEAAR cause ” there is still an enormous gap in the way that the vast majority of businessmen in the United States and in Europe understand the direction of the CSR movement.

At the heart of this widely differing emphasis is a fundamentally different view of what corporate social responsibility means. Unlike most European companies who view CSR policy through the lens of reporting on a company s social and environmental performance in its extended supply chain, U.S. companies tend to see CSR as almost a domestic and financial accounting-based issue. Very few U.S. companies understand CSR to primarily involve applying international labor or environmental standards throughout their supply chain, or reporting on their social and environmental performance as part of their annual report.

Instead, most U.S. companies still seem to be interpreting CSR to mean a combination of good deeds and improved corporate governance. In fact, few U.S. executives, according to all evidence, seem to appreciate these differing interpretations, or the rapid emergence of international standards and reporting frameworks that will soon become as common and expected (if not required by law in many nations) as normal financial reporting in Europe and Japan.

What is possibly more important and revealing is that the press in the United States, still broadly seems to perceive CSR in the context of corporate governance and recent accounting scandals, or more broadly as a company s responsibility for assisting in global issues such as the AIDS/HIV pandemic, free trade, or debt relief policies. In many ways, because there is such a wide difference in understanding and interpretation, U.S. business leaders seem not to be appreciating how seriously the European governments , businesses, investment community, and general population are taking this drive toward transparency and social and environmental accountability and reporting.

Why has the U.S. business community on the whole been so different in its approach to CSR and SEAAR? Like most of us who see evidence of this remarkable schism daily, Frank Vogl, from Transparency International, believes that the U.S. business community has failed to appreciate this rapidly expanding SEAAR movement in Europe, remaining largely oblivious to the likely repercussions of such divergent policies. He blames this difference in approach on four things:

Ignorance. Many CEOs do not know what is happening in Europe, they do not adequately understand the NGO pressures, they do not appreciate the range of stakeholder concerns and, unlike Jack Welch, they do not see the power of a focus on values for their business survival.
Complacency. Many business leaders believe they are doing a great job on the ethics front. After all, their firms have not had a major public crisis ” yet. CEOs feel peer pressure on business profits, not on integrity performance. CEOs take great pride in being listed in the annual surveys by Fortune magazine and by The Financial Times /PriceWaterhouseCoopers of the most respected companies. Issues of corporate integrity and accountability are not criteria that feature prominently in these surveys, which tend to focus on financial performance.
U.S. Government and Public Pressure Has Been Modest in a Number of Integrity Areas. U.S. companies have not faced the same levels of governmental pressure and public outcry in many of the social responsibility areas, as have the Europeans. Respect for capitalism s virtues sometimes runs deeper on this side of the Atlantic. Americans appear more tolerant, for example, about the massive remuneration given to U.S. CEOs, which dwarfs compensation to top European and Japanese business leaders. In Europe top executive pay is often seen as an ethics issue ” in this country we accept it just as business as usual.
Mistaking PR for Integrity Management. Misunderstandings about the importance of social responsibility issues have led corporations to view them in purely public relations and advertising terms. . . . Many firms wrongly believe that PR and advertising can secure their integrity reputations. Frequently, this muddled thinking is the product of efforts by consulting firms, who promote reputation management and reputation assurance services by highlighting the negatives and the scandal stories (Nike, Exxon and so forth). Moreover, by striving to substitute PR and advertising for substantive integrity management, companies evidently fail to see that their action can serve only to strengthen public distrust over time, while adding credibility to NGOs who, by similar advertising means, attack global corporations. ^{[18 ]}

Alice Tepper Marlin, President of Social Accountability International, thinks this yawning gap in perceptions regarding CSR and SEAAR in Europe and the United States has only been further hampered by the lack of media attention on these types of CSR- related issues.

One problem in the U.S. over the past two years , says Marlin, is that terrorism and the two wars has dominated the news so strongly that there isn t room for much other news ” so it is very, very hard to get a different news story in now. So people are thinking much less about policy issues and human rights issues, there is very little written and very little attention other than terrorism and Iraq, the Middle East and Afghanistan right now.

That is not true in Europe, she concludes, where there is a much wider variety of stories and greater coverage. ^{[19 ]}

Many activists take a more cynical view, claiming that the reason U.S. companies don t want to accept transparent, third-party reporting is because they have too often made extravagant and emotion-ridden claims about their dedication to corporate responsibility and the environment, and are afraid that open reporting will prove that those claims were simply marketing hype. CorpWatch even awards green Oscars for companies that have excelled in this type of deceit, giving human rights, social and environmental abuses a patina of respectability. Nike, under criticism for alleged inaccuracies in its claims of activities that it was pursuing in Asia to stop child labor during the events that lead up to the Nike v. Kasky lawsuit, even decided to withhold its yearly corporate social responsibility report in 2002, only further fueling allegations that it was because they had misrepresented their actions in the report in the first place. ^{[20 ]}

Whatever the true reasons for U.S. corporate reticence, these broadly different interpretations of CSR mean that too often the two business communities ” European and American ” are talking at cross purposes. To illustrate the point, when I mention CSR to a European businessman, he or she inevitably assumes that I will be concerned about what standards or certifications they have. They are thoroughly familiar with ISO 14001, SA 8000, the Ethical Trading Initiative, or the Global Reporting Initiative. Adoption of triple-bottom-line accounting is generally accepted as the future norm.

When, on the other hand, I mention CSR to a U.S. business audience, I inevitably get a response concerned with what steps the company is taking to avoid corporate accounting scandals, what Sarbanes-Oxley will mean to them, how much the company gives to the local community, or its sponsorship of the local soccer league. The mention of SA 8000 or the GRI is almost uniformly met with total incomprehension.

^{[18 ]} Frank Vogl, Corporate Integrity and Globalization: The Dawning of a New Era of Accountability & Transparency, a speech to The G. Albert Shoemaker Program in Business Ethics at the Smeal College of Business Administration, Pennsylvania State University, March 23, 2001 at www.transparency.org/speeches/vogl_shoemaker.html.

^{[19 ]} Interview, June 24, 2003.

^{[20 ]} Vanessa Houlder, Shades of Green, The Financial Times, August 19, 2002, p. 10.