Corporate Responsibility Standards

Corporate Responsibility and the Question of Implementation
Despite its enormous success as a concept, corporate responsibility always faces the challenge of implementation on the ground. Waddock, for instance, defines corporate responsibility as “the strategy and operating practices a company develops in operationalizing its relationships with and impacts on societies, stakeholders and the natural environment.”1 Inevitably, such definitions beg the question of how do we change corporations’ strategies and operational practices? What are the relevant issues and how are these issues addressed? While each company needs to find its own way in “managing” its responsibilities, guidance is also provided by so-called corporate responsibility standards (e.g., the Global Reporting Initiative, Social Accountability 8000, the Fair Labor Association Workplace Code, and the UN Global Compact). Although these initiatives differ very much in their aim, scope and operational procedures, they all recognize the essential role that business plays in building sustainable societies.

In their most general sense, we define such standards as predefined rules and procedures for organizational behavior with regard to social and/or environmental issues that are usually not required by law. Standards differ from codes of conduct insofar as companies do not develop them “internally”. Codes of conduct are developed by the very same company, which later on uses the code internally and/or imposes the code on its suppliers. In 1991, Levi-Strauss pioneered responsible global sourcing through a code of conduct. By contrast, standards are developed by third parties (often NGOs) and thus externally imposed on corporations. Although not required by law, a variety of companies have adopted corporate responsibility standards over the last decade. For instance, the UN Global Compact moved from just 50 business participants in 2000 to over 5,300 signatories in 2010 (data as of February 2010).

There are a variety of reasons why managers find it attractive to use these standards. First, standards provide a level playing field when it comes to corporate responsibility. They offer orientation while managing the often unspecific (and sometimes contradictory) demands which are placed on corporations. Second, stakeholders pressure corporations to adopt standards to live up to their responsibilities. Corporations, in turn, respond to this pressure by using standards as signaling devices to consumers and other stakeholders to distinguish themselves from competitors. Third, there is also isomorphic behavior between businesses. If one key actor in an industry starts to use a standard, other companies join in because they fear competitive disadvantages. Fourth, although heavily debated in terms of its ethical dimension, some companies have also signed up to standards because of business benefits. For instance, there is increasing evidence that financial markets are valuing firms’ participation in standards, largely because standards help to anticipate business risks.2 It should be noted, however, that the relation between corporations’ social and financial performance is contested and remains subject to further debate.3