The Repercussions of the Conflicting Interpretations

The Repercussions of the Conflicting Interpretations

So what are the possible repercussions of this growing chasm of understanding and application?

Skeptics contend that the enormously different interpretations of CSR will only add to the friction that has recently been witnessed between the United States on issues as far ranging as farm support, steel subsidies, corporate taxation , war in Iraq, and the development of the International Criminal Court. With the European Union quickly moving ” both by legislation and through consensus ” toward requiring companies to provide accurate reports on social and environmental performance (including contract and supplier performance), the issue may have important political and economic repercussions in the near future.

After all, this new European and Japanese approach to SEAAR requires a fundamental rethinking of how a company manages its supply chain policies, particularly when it comes to suppliers and subcontractors in foreign markets. The European approach to nonfinancial reporting accepts that transparency and rigor of reporting will mean companies really must change their policies to reflect what they say, and therefore must develop new ways of influencing, monitoring, and reporting on subcontractors .

This dilemma can have two obvious results. First, it can be disruptive, creating a further divide between the Euro/Japanese approach and that of the United States. The European interpretation, by all logic, will soon by necessity be forced upon the American companies doing business in the European Union. Because it is government driven, EU directives will quickly move all EU companies toward this higher standard, and presumably investors and consumers will reward them accordingly . By all accounts, within the next few years , triple-bottom-line accounting and SEAAR-type reporting will become a minimum and expected standard. If U.S. companies, in turn , are required to comply with these reporting regulations, it could precipitate a WTO-type crisis, with these reporting requirements labeled as a form of tariff against imports ” both between the EU and the United States, and also between the EU and developing labor markets.

Probably it will be a trade issue, eventually, says John Brookes of Manaxis. Because just as with ISO 9000, and ISO 14000 before, European customers will put pressure on American suppliers, and American suppliers will be encouraged and eventually comply. [21 ]

This dividing effect may already be apparent. This Anglo/European drive toward CSR and triple-bottom-line reporting is beginning to bring pressure on U.S. companies, as well, points out Jim Kartalia, President of Entegra Corporation and a specialist on risk and reputation management. Any American corporation that wants to do business globally is going to be forced to address these issues. The EU is pushing this legislation, he concludes, and they are going to force American companies to comply or else they are not going to get business. [22 ]

In Europe, trends toward environmental supply chain management are already visible, says Joseph Carter, Professor of Supply Management at Arizona State University. Although, an average U.S.-based firm may not be thinking along environmental issues while developing corporate strategy, pressures from global firms, including those based in the United States, are likely to influence other firms to follow the European trend. [23 ]

Dr. Judy Henderson, Chair of the Global Reporting Initiative, thinks the two different approaches to SEAAR may have a more contentious result. What I would be more concerned about, she says, is that we get to the situation which we have with financial accounting, where Europe goes in one direction and the U.S. goes in the other . . . and then 70 years down the track they are trying desperately to harmonize the reporting framework and standards. That is why we thought with the GRI that we could get in on the ground floor as an international framework, and we could sort of leapfrog that dichotomy between the U.S. and Europe. [24 ]

Either way, it is not inconceivable that by mandating SEAAR, European and Japanese governments are moving quickly to what could be another dramatic ideological trade conflict with the U.S. government and business community.

On the other hand, a more optimistic view holds that the drive toward mandatory SEAAR, particularly if it is accompanied by competition, and a general acceptance by NGOs, consumers, and investors that this level is good and necessary, may simply become a part of how all business is conducted in the future, and may rapidly be adopted by U.S. businesses as well. On an organizational level, these standards will turn out to be leading practice both in terms of investment and in terms of risk and reputation management. European companies will set new standards for transparency through their third-party auditing and verified social and environmental reporting that initially will provide a certain competitive edge to European multinationals, forcing U.S. multinationals to eventually apply those standards as well.

I think a lot of companies are doing very good and very interesting work [in the U.S.] behind the scenes, says John Queenan from PricewaterhouseCoopers Advisory Services. But they are just not being very transparent to the public about it . . . My opinion is that the gap is not necessarily as wide as people think . . . and U.S. companies are catching up quickly. [25 ]

Boston-based Allen White, the GRI s cofounder and former acting CEO, agrees. My own view is that we are on a road to convergence, inexorably ” not divergence . . . he says. I say this because the forces of globalization, by definition, will tend to level the playing field in terms of international standards. It won t matter, or will matter less over time, whether General Motors or Ford or Du Pont, or whatever company in the U.S. thinks or doesn t think about a particular CSR aspect ” whether it is reporting or assurance or labor standards. This is the case because these companies already are so closely integrated into the European economy and the global economy through their operations and subsidiaries, partnerships and alliances, that they will be forced to adopt best practices in non-financial reporting. [26 ]

Of course, based on the issues raised in earlier chapters, there is a strong business case to be made for closer monitoring and reporting on ethical supply chain policies even without this European SEAAR initiative, based simply on the protection of a corporation s reputation in light of increased investors, NGO, consumer, and legal pressures.

I think the European Reporting movement will, to some extent, move the Americans along, concludes Alice Tepper Marlin. It also depends how global American companies are. Some companies that you would identify as American right away, really are very international companies. And they have to be influenced by what is happening in Europe, and they do take a global perspective. [27 ]

[21 ] Interview, August 15, 2003.

[22 ] Interview, January 23, 2002.

[23 ] Joseph Carter, and Ram Narasimhan, Environmental Supply Chain Management, Center for Advanced Purchasing Studies, 1998, Focus Study (Executive Summary).

[24 ] Interview, July 29, 2003.

[25 ] Interview, November 6, 2003.

[26 ] Interview, August 12, 2003.

[27 ] Interview, June 24, 2003.