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CSR in Shipping: On Balancing CSR and Business Strategy

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Introduction:

The management of a harbor located in the Far East is planning a modernization of the harbor. The project will destroy several hundred of poor citizens homes, and the local authorities will provide no alternative housing. Nordic shipping companies, which frequently do business through this harbor, face the risk of worsening the good but fragile relationship with the harbor management if they propose any initiative.

One shipping company in particular recently joined Global Compact and has committed itself to strengthen its efforts with regard to corporate social responsibility (CSR). The company is now facing the dilemma of acting with regards to CSR, or to preserve the good but fragile relationship with the harbor management.

This paper will illuminate Archie Carroll’s four alternative strategies of social responsiveness, look at how the global compact principles of human rights is linked to the dilemma, identify two main options analyzed through the navigation wheel, and lastly this paper will provide have come up with recommendations for the shipping company.

Carroll´s Theory of Social Responsiveness

Corporate social responsibility refers to the capacity of a corporation to respond to social pressures (Crane & Matten, 2010). Carroll delineated four possible reactions or responses of an organization to a situation involving socially or environmentally relevant issues. This model describes the strategic approaches used by organizations to deal with accusations of perpetrating or facilitating violations of human/animal rights, environmental regulations etc. These responses are also inextricably linked to the perceived responsibilities of the organization as described by Carroll`s (1979 in Crane & Matten, 2010) four-part model of corporate social responsibility, which included economic, legal, ethical and philanthropic responsibilities.

The four strategies are:
1. Reaction. Involves the denial of responsibility for any social issues. In this situation, the company can claim that it is the government and politicians’ responsibility to accommodate the slum-dwellers in alternate locations, and that they are not directly responsible for the fate of the slum-dwellers. In such a response, only the economic and legal responsibilities of the organization are considered by the decision-makers. They are not legally bound to obstruct the activities of the harbor management company, and any intervention will only result in a loss of total revenue.

2. Defense. The corporation reluctantly admits responsibility but does the very least required to maintain a good public image. For example, if questioned by the media, the company could issue a statement that they are aware of the human rights violations in the harbor modernization program, but are not direct participants in the planning or execution of this strategy, and hence not responsible for the displacement of the slum-dwellers. Here, the decision-makers consider the company’s economic and legal responsibilities, and also grudgingly admit to having some ethical responsibility. However, they distance themselves from the situation by stating that they have no power to influence these events.

3. Accommodation. The corporation accepts responsibility and does what are demanded of it by the relevant groups: Harbor management, employees, customers, Global Compact, shareholders etc. Here, the shipping company could accept responsibility of potentially being complicit in a human rights violation, and hence approach the Global Compact office for advice regarding the specific situation. The decision-makers thus consider the economic and ethical responsibilities of the company, and decide to take responsibility beyond what is demanded by the law for the benefit of the public, and in compliance with the Global Compact agreement they signed.

4. Pro-action. The corporation seeks to go beyond industry norms and anticipates future expectations by doing more than is expected of them. In this case, the shipping company could volunteer to finance alternate accommodation for the slum-dwellers when their dwellings have been demolished. They could also urge the state government to tackle the larger problems of poverty, unemployment, and human rights abuses in the society concerned. The decision-makers consider not only their ethical responsibilities, but also their philanthropic responsibilities to the society at large.

The Global Compact Principles on Human Rights

Principle 1. “Businesses should support and respect the protection of internationally proclaimed human rights” (UN Global Compact Office & OECD Secretariat, 2005).

According to the Universal Declaration of Human Rights (UDHR), human rights are defined as an “existence worthy of dignity”. This definition involves different actions that can be applied to businesses either in looking out for the wellbeing of their employees or through improvements to the material well-being of a community. This principle is wide in range and there must be different topics involved in it, but there are two of them that are important for this case:

* Principles that involve a company’s business partners, and their employees, both in the public and private sector (United Nations High Commission for Human Rights, 2000).
* Principles that affect the community and general human rights environment in which a company operates (United Nations High Commission for Human Rights, 2000).

With these two sub–principles, the company discussed in this workshop has the responsibility to look not only for their employees, but as well taking into account the community that is settled in the environment they operate. If it is true that the company is not directly related to the destruction of the homes of the people in the slum, it is also true that they are accountable for the relationships they have with their business partners and how their decisions impact the local community. An “existence worthy of dignity” implies a lot of resources for a person to live in good conditions and reach a good level of wellbeing, it can be argued that living in a slum doesn’t take part in the wellbeing of a person but the harbor and the company should realize that it´s the place this community calls home. Being one of the companies in the global compact makes them responsible to look after actions that can violate human rights, and make an effort to be an agent of change that can accomplish a different outcome in situations that don’t have clear guidelines in order to be resolved.

Principle 2: Businesses have to “make sure that they are not complicit in human rights abuses” (UN Global Compact Office & OECD Secretariat, 2005).

If the company in question decides to not intervening it means that they are implicated in human rights abuses that another company is causing, as the project will result in tearing down several hundred of poor citizens homes. By tearing down these homes, they participate not only in taking people away from their homes, but also in destroying people’s safety net and possibly their jobs.

The company recently committed itself to strengthen its efforts with regard to corporate social responsibility through membership in the Global Compact. To make sure that they are not complicit in human rights abuses they can look for alternative actions that might prevent or decrease human rights abuse. The company can explore what options are available and find a solution that is mutually beneficial for the company, the harbor management, and the local community.

Two main options analyzed using the Navigation Wheel

In the beginning of this paper we described the four different responses in Carrol’s theory of Corporate Social responsiveness. We have chosen two options from two of the different possible responses. The first option is from the reaction response, where the company considers the economic and legal aspects of the situations and decides to do nothing about the situation in the Far East. The second is from the accommodation response where the company balances CSR with the business objectives. We will now analyze the two different options by using the Navigation Wheel described in the article “Ethical navigation in Leadership training” by Kvalnes and Øverenget (2012). We will put each question in the wheel to each option.

Reaction response – Doing nothing
Law. In the narrow sense of the law, the company is not doing anything illegal by not doing anything with the tearing down of the poor people’s houses. It is the harbor company and local authorities that actually perform the injustice. In the broader sense of the law, where we include the Global compact principles, we argue that the company is breaking laws that they have voluntarily committed themselves too. By not doing anything about the human right abuses the company is complicit by omission, and therefore breaking one of their self-imposed laws.

Identity. Since we do not know anything about the company’s values except that they recently joined Global compact, we can assume that they have a wish to be identified as a socially responsible company. By not doing anything with the poor people’s housing situation we argue that the company is not acting in accordance with their values. To evaluate if the company is doing something in conflict with their identity we can use the principle of opportunism, and ask the questions: Will the company be forced to defend their decision publicly? Will people get to know about it (Kvalnes & Øverenget, 2012). The answer to these questions is: It depends. On how big the shipping company is, how important the harbor is and other factors. Are the country and the situation on the media or any human rights organizations radar? If the situation is, the company probably must defend their action of doing nothing and it will hurt their reputation.

Morality. Morality is concerned with the beliefs about right and wrong that are more or less shared by several people (Kvalnes & Øverenget, 2012). The reaction response denies any moral responsibility for the slum-dwellers. On the one hand, if the company is able to influence the harbor management the reaction response is morally wrong because it has huge negative consequences for a lot of people. Given the company commitment to corporate social responsibility through global compact, it will also be wrong in a deontological way of reasoning. On the other hand, if the company were not able to actually influence the harbor management the consequences would be the same no matter which reaction the shipping company adopts. Still, by deontological reasoning it will be wrong. In sum of this discussion the reaction response will be morally wrong.

Ethics. By using the navigation wheel in our review of the harbor situation, we are conducting an ethical analysis in a broader sense. We will now conduct an ethical analysis in a narrow sense, by using the two principles of equality and publicity. We could also have used Duty ethics, which includes Kant’s categorical imperative, and Consequentialism, which includes act- and rule utilitarianism, in our analyzes.  “The principle of equality states that equal cases should be treated equally. That a difference in treatment requires that there is a morally relevant difference between the two cases” (Kvalnes & Øverenget, 2012). How would the company act if the situation were in Norway? If there were a Norwegian harbor that needed maintenance, and this would result in a lot of homeless Norwegians? The company would probably act differently than doing nothing. If so, the question we must ask is: Is there any moral difference between those cases? We argue no, and by that, we conclude that the company’s decision cannot be justified ethically. “The principle of publicity states that you should be able to defend your decision publicly. To what extent can you be open about it to all the relevant people?” (Kvalnes & Øverenget, 2012). We argue that the company is not able to defend their decision publicly; this is mostly because the company recently joined the global compact. We have already discussed this with the principle of opportunism above. If the company did not try to appear as socially responsible one could say that the company can argue that “they are just customers of the harbor, and are not responsible.” The response of this argument will depend on who hears it. There are probably a lot of different views about how to act in this situation, and some will agree that the company is doing what it can, and some will say they should intervene. So then it depends on whom the company should listen to.

Economy. In a short-term view the reaction response appears as the most profitable one because it does not disrupt the relationship between the harbor management and the shipping company. Therefore it seems like the most reasonable response when focusing purely on the economic part of the navigation wheel (Kvalnes & Øverenget, 2012). In a long-term view we have to consider how the reaction approach influences the company reputation. If the reputation is considerably damaged, the long-term economic outcome may be a loss of revenue. Also, the economic aspect has to be evaluated in relation to identity. The choice then becomes between going economically bankrupt or going bankrupt with regard to identity (Kvalnes & Øverenget, 2012). To conclude, the reaction response is an economically appropriate response, but only if other aspects are taken into account.

Reputation. The focus of reputation aspect is how others will perceive the response. Given that the shipping company recently joined the global compact and might actually be able to influence the harbor management, it is reasonable to assume that the media or other parts of public society will question the denial of responsibility. This in turn will have negative impacts on the company reputation. However, the danger of giving reputation too much attention is reducing, for example, the participation in the global compact to a question of morality of actors external to the company and not a question of the true intrinsic morality of participants in the company. The conclusion being that the reaction response comes with a high risk of negative reputation, but also that reputation should be secondary to morality.

Accommodation response – Doing something
A suitable response from this perspective would be to coordinate and collaborate with other shipping companies that use this harbor and share similar CSR values or commitments. If these companies approach the harbor management as a unit, their individual interests are safeguarded and their collective bargaining power is greater. There is thus a delicate balance achieved between the economic responsibilities and the ethical responsibilities of the shipping company (O’Neill, Saunders, & McCarthy, 1989).

Law. There is nothing in this case suggesting that it’s illegal to demolish those houses that are built on the expanded harbor real estate. UN Global Compact is normative and is subordinate to the national laws of this country, though someone opting for an accommodationist position would argue for the value of normative frameworks that stipulate CSR principles. Norms can evolve into laws, and some action on the behalf of the people living in the slums could set precedence for the future.

Identity. We can distinguish between individual and collective identity dependent on whether the person(s) in question should act as a unit or not. “Our” values refer not only to the shipping company, but everyone else that have signed the contract. There is strength in numbers and that can be used as leverage in the board meeting.

Morality. Various factors can influence the reasoning in this instance, and henceforth the utilization of consequentialist, deontological or social pressure based frameworks. A deontologist would argue that the universality of the Human Rights principles has more weight in this case, and the self-interested motivational factors in swing from the harbor managers conflict with Kantianism (Crane & Matten, 2010). Accommodationists cannot be evangelistic when it comes to such principles, and must henceforth be moderately consequentialist or deontological. Social pressure from the harbor management is likely to sway an accomodationist unless the pressure to act for the other group is stronger.
Ethics. Two important principles are those of “equality” and “publicity” (Kvalnes & Øverenget, 2012). The principle of equality can be very hard to utilize when a company is facing a unique scenario, and/or is not aware of how similar cases have been handled by firms of a similar spirit. Membership in the Compact does however mean that they can utilize the resources of the UN Compact Office and ask for advice. The second principle guards against the demoralizing gravity of secrecy in that it heightens self-consciousness.

Economy. One of the key differentiating features of accommodationists is their ambition to balance profit and service motives in a CSR perspective (Arlow & Cannon, 1982; Lotila, 2010). They cannot present their concerns for the people living in the slums in a way that jeopardize their productive relationship with the harbor managers; must exhibit a tempered inertia for their CSR responsibilities.
Reputation. Accommodationists want to position themselves as cognizant of the negative externalities in business, and it would hence not be in their interests to be known as the company that turned their back to the people living in the slum. They have however made the decision to operate in a country in which a good reputation connotes different things than in Norway.

Recommendation to the Shipping Company

In conclusion, we would recommend that the shipping company adopt the accommodation response to this dilemma, and start gathering support from other shipping companies in order to approach the harbor management company. At the same time, they could also present this case to the UN Global Compact Office in order to bring attention to and invite possible solutions for their dilemma.
Together, both these actions could succeed in safeguarding the company’s economic interests, preventing human rights abuse in this situation, and establishing their brand image as a socially responsible and active organization.

References

Arlow, P., & Cannon, M. J. (1982). Social Responsiveness, Corporate Structure, and Economic Performance. Academy of Management Review, 7(2), 235-241. doi: 10.5465/AMR.1982.4285580

Crane, A., & Matten, D. (2010). Business Ethics: Managing Corporate Citizenship and Sustainability in the Age of Globalization (3 ed.). USA: Oxford University Press.

Kvalnes, Ø., & Øverenget, E. (2012). Ethical Navigation in Leadership Training. Nordic Journal of Applied Ethics.

Lotila, P. (2010). Corporate Responsiveness to Social Pressure: An Interaction-Based Model. Journal of Business Ethics, 94(3), 395-409. doi: 10.1007/s10551-009-0272-0

O’Neill, H. M., Saunders, C. B., & McCarthy, A. D. (1989). Board Members, Corporate Social Responsiveness and Profitability: Are Tradeoffs Necessary? Journal of Business Ethics, 8(5), 353-357.

UN Global Compact Office , & OECD Secretariat. (2005). The UN Global Compact and the OECD Guidelines for Multinational Enterprises. http://www.oecd.org/daf/inv/mne/34873731.pdf

United Nations High Commission for Human Rights. (2000). Business and Human Rights: A Progress Report. http://www.ohchr.org/Documents/Publications/BusinessHRen.pdf

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