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Useful web links
* Delaware Business Central, Fortune Special Sections: available at
http://www.timeinc.net/fortune/services/sections/fortune/region/2002_
12delaware.html accessed on 14-5-07.
* Bumgardner, Larry ˜Reforming Corporate America™: available on http://
gbr.pepperdine.edu/031/sarbanesoxley.html accessed on 28-3-06.
23
Corporate responsibility, corporate
governance and emerging
jurisdictions
Corporate responsibility,
23 corporate governance and
emerging jurisdictions


CHAPTER OVERVIEW
Having considered the differing approaches of the UK and the US to cor-
porate governance in the era of global business and trade post-Enron it is
useful to consider how key emerging jurisdictions such as India should
respond and adjust to a more transparent era. It is to be hoped that they
can benefit from the lessons learned by the jurisdictions considered in pre-
vious chapters. This discussion prioritises the relevance of corporate
responsibility (CR and also known as CSR, corporate social responsibility)
in the debate, bearing in mind that CSR has been said to have originated in
India. Historically industrialists had to earn the licence to operate through
a demonstration of CSR in the form of providing community facilities such
as schools, places of worship, etc. In this chapter it is also argued that in
order to draw CSR more into the area of sustainable risk management it
should be considered in the light of corporate responsibility and in the
light of various codes and models that respect sustainable development.
Comparisons are also made in the SAARC region. Illustrations of codes
and models included in the Appendices “ such as G and H “ can assist in
this debate.



Differing approaches to CSR
Bearing in mind the comparisons made regarding corporate governance in the
UK and the US it is important to be aware that case studies have found major
differences in approach in relation to corporate social responsibility. In the UK
the approach is to consider both the shareholder and the stakeholder. There are
legal and market drivers for companies to recognise and report the risks with
regard to society and environment. In the US companies have not been obliged
to disclose non-financial information (Williams, Cynthia and Conley, John ˜An
emerging third way? The erosion of the Anglo-American shareholder value
construct™, Cornell International Law Journal (2005) 38 CNLILJ 493). Instead of
shifting towards the US approach of corporate governance discussed in Chapter
22, the UK is also inclining towards CSR in its measures to reform corporate
Chapter 23 “ Corporate responsibility, corporate governance and emerging jurisdictions 575



governance. For instance, the UK government relaunched its CSR website
(www.csr.gov.uk). The website sets out what the government is doing to
achieve CSR goals, including policies and legislation, national initiatives and
information on best practice. An Academy for Corporate Social Responsibility
has been established (www.csracademy.org.uk) as a resource for organisations
wishing to develop their CSR skills, providing information on training and
development so that CSR can be incorporated into everyday business practice.
In addition, a ˜competency framework™ has been developed to help managers
assimilate corporate social responsibility within their organisation. The frame-
work has six core characteristics that can be downloaded from the CSR
Academy website:
Understanding society;
Building capacity;
Questioning business as usual;
Stakeholder relations;
Strategic views of the business environment; and
Harnessing diversity.



CSR Competency Framework
The CSR Competency Framework aims to help integrate CSR in the organ-
isation. It is a flexible tool that can be used:
As part of an organisation™s performance review process;
*
For incorporation into an organisation™s existing competency models;
*
As a self-development tool for targeted managers; or
*
As part of a staff induction programme.
*
It provides a set of core characteristics designed to help managers integrate
responsible business decision making. Different levels of attainment are
set out together with detailed behaviour patterns and case studies from
companies already engaged in CSR activities.



In contrast, the US framework is more shareholders oriented, with the objective
of maximising the wealth for shareholders. Meanwhile in the UK the share-
holder approach is converging with the stakeholder approach of European
countries. Indeed the EU CSR Alliance is addressed to individual businesses.
This reflects the European Commission™s view that CSR takes primarily a vol-
untary approach, encouraging engagement from a diversity of European busi-
nesses. The success of the Alliance and the effectiveness of its outcomes also
depend on business engagement with other stakeholders, who are invited to
make full use of the opportunities the Alliance offers, by working closely with
businesses who would like to take part. Any business, whatever its size, can
become involved.
Part E “ Case Studies of Business Risks
576




The EU Business Alliance on CSR
On 22 March 2006, the European Commission published a communica-
tion on CSR, and launched the European Alliance for CSR. It is an
umbrella network for discussion and debate on new and existing CSR ini-
tiatives by large companies, SMEs and their stakeholders. The Alliance
establishes the foundations to promote CSR by:
* Raising awareness and improving knowledge on CSR and reporting on
its achievements;
* Helping to mainstream and develop open coalitions of cooperation; and
* Ensuring an enabling environment for CSR.
The Commission adopted this approach as it is convinced that companies™
CSR activities can contribute to a number of its policy objectives, from
increasing European competitiveness to progression towards the
Millennium Development Goals.
It is intended that the Alliance will be the focus for European activity
on CSR by enabling networking across a range of businesses and facilitat-
ing the exchange of experiences and knowledge of CSR practices.
According to the stated aims it will mobilise the resources and capacity of
businesses and their stakeholders in order to:

* Provide a valuable forum for generating dialogue;
* Fertilise ideas and stimulate new CSR activity; and
* Build partnerships between businesses and stakeholders.
While the Alliance is principally business led and business run, it pro-
vides an opportunity to create partnerships and develop opportunities
with other stakeholders “ charities and other civil society organisations
that benefit from such CSR programmes.
The role of institutions
Institutions such as the UK government, the EU, institutional investors,
NGOs “ shaping the rules and regulations governing corporate governance
in the UK “ are leading the shift of the UK in a direction which takes into
consideration the needs of stakeholders. Institutional stakeholders play a
large part in this shift by requiring and encouraging companies to recog-
nise social and environmental risks and disclose the ways in which they
manage them.



As is discussed also above the proposed operating and financial review (OFR)
and directors™ report required companies to disclose their social and environ-
mental responsibilities. Whereas it was a solid step in the direction of stake-
holder interest it has been scrapped by SI 2005 No. 3422. Nevertheless under
the Companies Act 1985 (Operating and Financial Review) (Repeal)
Regulations 2005 which came into force on 12 January 2006 directors are
Chapter 23 “ Corporate responsibility, corporate governance and emerging jurisdictions 577



required to produce a business review in compliance with the Companies Act
1985. It can be said the market forces are compelling companies to be con-
cerned about their social and environmental responsibilities. This approach is
considerably different from the US approach which is more focused on share-
holder wealth creation and is quite indifferent to a company™s social and envir-
onmental responsibilities. There is no clear liability on companies to disclose
information related to such responsibility.



Key CSR codes and reporting initiatives
Key codes include well-known codes such as:

* The Ceres Principles (written in response to the Exxon Valdez oil spill);
* Sullivan Principles (conceived in response to South African apartheid);
* MacBride Principles (addressing corporate involvement in Northern
Ireland);
* The Global Exchange/International Labor Rights Fund;
* US Business Principles for Human Rights of Workers in China “ given
recent and long-standing reports of human rights abuses in China;
* The Equator Principles (EP), a banking industry initiative covering pro-
ject finance;
* The Collevecchio Declaration on Financial Institutions and
Sustainability, which non-governmental organisations prefer;
* The EP are mentioned under the UNEP Statement by Financial
Institutions on the Environment and Sustainable Development, which
at this point is much less widely recognised than the EP; and
* There are some very significant reporting codes such as the Global
Reporting Initiative (GRI), Social Accountability International SA8000,
and AccountAbility AA1000 standards.


Relevance of UK developments and the OFR for
CSR and governance
Under the proposed OFR directors of listed companies were to have the add-
itional duty to present qualitative, quantitative and forward-looking informa-
tion and analysis. In accordance with the OFR they were to consider what
information to provide on a wide range of ˜non-financial™ factors which would
be relevant to understanding business performance. These non-financial elements
represented the first attempt at mandatory reporting requirements of these issues
in UK company law. They included information about employees, environmen-
tal matters and community and social issues. In this context SERM research has
found that commentators have often referred to the combination of the non-
financial areas as CSR. Moreover the EU definition mentioned above may provide
a useful starting point for a definition to understand how CSR non-financial
issues and risks need to be considered as part of the OFR requirements.
Part E “ Case Studies of Business Risks
578



All of these issues are relevant to the concept of governance and sustain-
able risk management. Good governance is crucial to maintain market confi-
dence and to improve company performance and returns on investment which
are made through pension funds and other savings or investments. Moreover,
good corporate governance enables corporations to meet wider public expect-
ations about the behaviour of businesses as employers, suppliers and consumers
of natural resources with social and environmental responsibilities. It is impor-
tant to note that OFRs were going to be produced after ˜due care, skill and dili-
gence™ had been applied and would have to address environmental, social and
community or CSR issues where applicable. It was to be the ultimate responsi-
bility of the company directors to sign off the content. Moreover if they decided
not to report on various issues, such as the non-financial aspects of the OFR
they would have had to make a statement that they had considered these issues
in detail and decided that they were not material to the business. Thereafter the
auditors were to be required to express an opinion on whether the directors had
prepared the OFR after ˜due care, skill and diligence™ “ the same terminology as
that required in the annual report and accounts produced by companies. This
emphasis on directors™ duties remains relevant in terms of sustainable risk
management in the light of the Companies Bill (referred to in Chapter 21).


Corporations, economic drivers and directors™ duties
Initially business organisations were generally motivated by the one and only
goal of economic development. In order to attain competitive economic super-
iority, some believe that they forgot core values such as human rights, environ-
ment and ethics. Economic success seemed to be the priority of the corporation
in the furtherance of pure capitalism. However, the growth of corporations
reached a stage where they attained the status of legal entities regulated by laws
and regulations (see Chapter 6). Stakeholders started playing an important role
in the construction and destruction of the corporate power. In other words, just
as power comes with huge responsibilities, social responsibilities were handed
over to the corporation. CSR therefore became a management technique to bal-
ance economic growth and investment on the one hand and social, environ-
mental and ethical concerns on the other hand. In the post-Enron era where
corporations strive to regain shareholder confidence, it is therefore feasible for
CSR to be a viable tool of transparency in emerging jurisdictions.


India case study
Global interest in the linkages between investment, corporate responsibil-
ity (CR) and sustainable development (SD) is increasing and India is part
of this movement. In India, the business community acknowledges the
need to involve financial markets in their efforts to integrate responsible
business practices into corporate strategy. Moreover, The Energy and
Resources Institute (TERI) is evidently launching the first assessment of
Chapter 23 “ Corporate responsibility, corporate governance and emerging jurisdictions 579




the potential for socially responsible investment (SRI) in India. Supported
by the Global Opportunities Fund of the UK FCO, the project seeks to
assess how to merge sustainability and responsibility factors with invest-
ment decision making in the Indian context. It considers ways in which
the investment community can be mobilised to support the progress of
enhanced practices that are aligned to India™s wider development needs.
The initiative will build on the growing awareness of the investment rele-
vance of issues such as good governance, business ethics, human
resources, environmental management and energy use, as well as commu-
nity impacts. In addition, foreign portfolio investors are introducing envi-
ronmental, social and governance (ESG) factors into their investment
decisions. A steering group of members from the Indian and European
investment communities will guide and evaluate the content of the proj-

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