ERS 490 Sheila Buttery and Cassandra Polyzou Prof. Robert Gibson April 15, 2005 Corporate Responsibility: Assessing Current Strategies and the Potential for Promoting Sustainability

Abstract: This study represents an attempt to assess where Corporate Responsibility, as a practice, currently stands and what can be done to drive it forward towards sustainability. A comprehensive understanding of the requirements for Sustainable Development and what sort of system corporations operate within is necessary in establishing how Sustainable Development interacts with corporate objectives, ideology and production processes. With this background in mind, the development of Corporate Responsibility, how it is currently used, and what its limitations are under the current system are examined. The fact that Corporate Responsibility is dominated by voluntary initiatives in a context of deregulation, globalization and profit maximization indicates that more stringent action needs to be taken, by corporations and other actors, to take the necessary next step towards shifting the current paradigm towards sustainability.

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Corporate Responsibility: Assessing Current Strategies and the Potential for Promoting Sustainability Sheila Buttery and Cassandra Polyzou Executive Summary

Minimal government planning and the belief that free market capitalism is the

best way to manage the world economy characterized the last half of the twentieth

century (Black, 2002). Corporations thrived under such a system but created impacts that

would not go unnoticed given media coverage, a rising global civic culture and increased

scrutiny by non-government organizations.

Businesses generally, and large corporations specifically, have played a large role

in environmental degradation (Adams et al., 2004; Desjardin, 1998; Henriques, 2004)

through their extraction and production processes and promotion of excessive

consumption. Scandals revealing malpractice and malfeasance at the highest levels of the

corporate hierarchy, impacts of globalization on the environment, sweatshops,

commercialization in schools, and excessive CEO pay have contributed to a growing

public distrust in the corporate and economic structure. All of these factors have

challenged capitalism’s triumphant “golden age” and the unchecked power invested in

multi-national corporations. Corporate Responsibility initiatives are the corporate

response to these pressures, including the demand of some stakeholder groups to check

corporate power and to include environmental and social considerations in corporate

accounting. The benefits and shortcomings of Corporate Responsibility initiatives are

explored and assessed in this study.

Chapter 2, Sustainable Development, of this study delves into the evolution and

principles of Sustainable Development as a new framework for socio-political

organization and choice. Sustainable Development recognizes that exploitation and over-

consumption of natural resources cannot be continued at the current rate because the

resources and ecological integrity on which humans depend for their basic survival, are

being steadily depleted (Diesendorf, 2000). Predictions for the future reveal that more

people are increasing their quality of life and with consuming more products. The world

simply cannot maintain current lifestyle demands especially those enjoyed by

industrialized countries, let alone meet an increase in these demands.

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Generally, the ecological problems and barriers to sustainable development humanity

faces are systemic (Hutchinson, 1996; Kay et al., 1999). Shifting the focus of

development on sustainability will require a reexamination of systems conception, that is,

how society views the relationship between the natural and social systems (Martinez-

Alier, 2001), as well as the committed involvement of all sectors of society as

stakeholders in Sustainable Development (Dryzek, 2002). Stakeholders in Sustainable

Development include national governments, international bodies, non-government

organizations, the public (in various roles from shareholders to corporate employees to

consumers and citizens), and corporations.

Chapter 3, Corporations and Global Capitalism, examines the role of

corporations in the dominant global capitalist market system. The basic tenets of the

current system are the context for corporate activities. In order to understand the full

gamut of pressures and motivations that affect corporate behaviour, legal, economic,

national and cross-boundary pressures are also examined. The spheres of influence of

corporate operations are discussed, with particular emphasis on social and environmental,

and political arenas.

Chapter 4, The Development of Corporate Responsibility, illustrates the growth of

mistrust by other societal actors of corporate operations. Increasingly, the corporate

response in the current era has been to take on Corporate (Social) Responsibility

initiatives. The assessment of these initiatives focuses on the following research

questions:

• What can Corporate Responsibility contribute to the pursuit of Sustainable

Development?

• What are the limitations of Corporate Responsibility strategies?

• And what can be done to further the actual practice of Corporate

Responsibility?

A vast amount of literature has been written on aspects of Corporate

Responsibility. In fact, there seems to be an excess of material covering the same or

similar topics, such as strategies for incorporating environmental concerns into business

practices. While the literature contributes to a diversity of options in pursuing Corporate

Responsibility it also leads to a prevailing sense of uncertainty and confusion about the

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future of corporate practice beyond the recognition that corporations need to be more

socially and environmentally responsible. The focus of this study is upon academic

pursuits, to both inform and guide students and those wishing to learn more about

Corporate Responsibility practices. This study attempts to summarize some of the major

pillars and some of the major criticisms of Corporate Responsibility and to recommend

how subsequent studies should address the future practice of Corporate Responsibility.

In Chapter 5, Current Situation, we critically assess Corporate Responsibility

initiatives. Though there are some exceptional ethically responsible companies, generally

Corporate Responsibility practices are not promoting sustainability sufficiently. The

critique can be summarized by the following main elements:

• The inadequacy of Corporate Responsibility strategies for pursuing Sustainable

Development,

• The Sustainable Development principles of economic limits to growth and equity

are currently overlooked by most Corporate Responsibility initiatives,

• The insufficiency of voluntary initiatives of corporations to fundamentally

address social and environmental concerns,

• The need for more comprehensive, accountable, and transparent reporting of

corporate practices,

• The frailties of the larger (or broader) economic system, the corporate role within

this system, and the limits of corporations to change this system, and

• The implementation gap, which is the substantial gap between the formal intent of

treaties, agreements, and convention laws, from local to global levels of authority,

and their actual implementation effects on natural systems and communities

(Dale, 2001).

The role of corporations in pursuing Sustainable Development through Corporate

Responsibility initiatives is, as demonstrated, limited. Some of this weakness can be

remedied by voluntary initiatives. Corporations, for instance, could choose to report the

impacts of their operations more transparently. Corporate Responsibility has become a

competitive issue, forcing corporations to be more sustainable in the face of consumer

scrutiny. Corporate Responsibility initiatives are not always driven by the “bottom line”

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either. The ethics of managers and directors of corporations has been a major internal

driver for some companies in adopting ethical policies and in creating an ethics based

corporate culture.

More realistically, however, ethical and responsible behaviour of corporations

will be fostered by pressures from various outside stakeholders. Such pressures include

government regulations, media reporting and “watch-dog” practices by NGOs, consumer

demand for responsibly produced goods, and shareholder investment in ethically

responsible corporations. These pressures will place demands and constraints on

corporate behaviour and operations. Chapter 6, Conclusions, details these findings.

Seeing as the literature on Corporate Responsibility is already extensive, sometimes

confusing and overwhelming, and because this study is directed toward academia, the

final recommendations are more or less a list of studies intended to advance the literature

on Corporate Responsibility practices. Chapter 7, Recommendations for Further Study,

outlines some broad starting points for academics to pursue in furthering the practices of

corporate responsibility.

TABLE OF CONTENTS 1.0 Introduction 1

1.1 Rationale 2 1.2 Methodology 3 1.3 Literature Review 4

2.0 Sustainable Development 7

2.1 Stakeholders 11 Governments 12 International Bodies 14 Non-government Organizations 15 The Public 16 Corporations 17

3.0 Corporations and Global Capitalism 19 3.1 The Corporation 20 3.2 Economic Sphere 21

3.2.1 Capitalism 22 Division of Labour 23 Liberalism 23 Individualism 24 Consumerism 25 Growth and Maximization of Profit 25

3.2.2 Capital Accumulation and the Investment Game 27 Global Capitalism 28

3.3 Legal Sphere 28 3.3.1 National Regulations 29 3.3.2 International Regulations 30

Globalization 31 International Networks 31

3.4 The Implications of Corporate Behaviour 33 3.4.1 Social 33 3.4.2 Environmental 35 3.4.3 Political 35

4.0 The Development of Corporate Responsibility 37

4.1 The Three Eras of Corporate Responsibility 37 4.2 Criticism of Corporate Responsibility 39

5.0 Current Situation 41

5.1 The Potential of Corporate Responsibility 41 5.1.1 Visionary Companies 41 5.1.2 The Strategies 43

Internal Strategies 43 External Strategies 45

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5.2 Critique of Current Corporate Responsibility 52 5.2.1 Strategies 52 5.2.2 Economic Growth 53 5.2.3 Equity 54 5.2.4 Voluntary Initiatives 57 5.2.5 Reporting 58 5.2.6 The Whole-System Effect 59 5.2.7 The Implementation Gap 60

6.0 Conclusions 61 7.0 Recommendations for Further Study 67 References

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1.0 INTRODUCTION

Although there have always been pundits and critics who have warned that

capitalism is a flawed system, the overwhelming consensus of the last century in

corporate boardrooms, government lobbies, and in most of the developed world has been

that capitalism is triumphant (Jackson et al, 2004).

After World War II, when most of Europe was recovering from military

devastation, the United States was busy expanding its economic and military strength.

With America leading the way a new economic world order was established, including

the creation of international free trade and capital markets supported by American credit

and investment (Black, 2002). The development of new technologies improved market

efficiency, communications, and the transportation of goods. It added to rapid growth in

trade and the availability of capital - as long as you were not a communist (Black, 2002).

Much of the developed world found it very easy to enjoy and support this capitalist

market system. Many world leaders, such as Ronald Reagan and Margaret Thatcher, saw

the market as a marvel that could withstand any adversity. The oil crisis of the 1970s,

for instance, caused an immediate upsurge in inflation and unemployment but the market

soon adjusted. “The crisis was not lasting in its effects. Growth resumed, especially in

countries that were able to contain labour inflation, raise productivity and move into new

areas of demand” (Black, 2002; 109). Minimal government planning and the belief that

free market capitalism is the best way to manage the world economy characterized the

last half of the twentieth century. The 1990’s were especially successful as the GDP of

the world increased by close to 40 per cent, although the benefits were enjoyed primarily

by the industrialized world.

As the world prepared to greet the new millennium, however, television

newscasts were dominated by images of anti-globalization protesters marching against

the World Trade Organization in Seattle. Suddenly the public caught a very different

glimpse of capitalism. Various other factors over the last five years have challenged

capitalism’s triumphant “golden age” and specifically the unchecked power invested in

multi-national corporations.

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Scandals revealing malpractice and malfeasance at the highest levels of the

corporate hierarchy, impacts of globalization on the environment, sweatshops,

commercialization in schools, and excessive CEO pay have contributed to a growing

public distrust in the corporate and economic structure. Headliners such as Enron and

WorldCom attracted the attention of a somewhat sleeping world by shattering the

promise of unfettered growth and the spoils of global capitalism (Jackson et al, 2004).

Consumers, investors, business leaders and politicians have joined the voices of

protesters, calling on corporations to improve their behaviour (Martin, 2003).

“Although corporate governance failures were a crucial catalyst, they were not the

only series of events to challenge the triumph of global capitalism” (Jackson et al., 2004).

The increasing fear of international terrorism, global epidemics and disease, the risks of

global climate change, and ideological, religious and military wars have weakened the

global system.

The challenges to capitalism have resulted in increased pressures on and scrutiny

of corporations. Jackson et al, describe three different criticisms of corporate behaviour-

based on ethics, equity and sustainability. The first criticism is related to a deterioration

of public confidence; most of the public does not believe that corporate practices are

ethical, honest or straightforward (Jackson et al., 2004). The prevailing belief is that the

private sector and corporations need to demonstrate evidence of good governance

practices for the benefit of their communities and shareholders. The second criticism is

that corporations function in and benefit from a system that promotes social and

economic inequalities in the workplace, within nations and on a global level (Jackson et

al., 2004). Thirdly, drivers of economic growth such as modern production systems,

consumption patterns, and the application of new technologies are threatening the Earth’s

ecological sustainability. These criticisms will be examined in-depth in Chapters 3 and 5

as we assess how successful corporations have been or can be in mitigating the problems

present in the current capitalist market system.

1.1 Rationale

A vast amount of literature has been written on aspects of Corporate

Responsibility. In fact, there seems to be an excess of material covering the same or

3

similar topics, such as strategies for incorporating environmental concerns into business

practice. While the literature contributes to a diversity of options in pursuing Corporate

Responsibility it also leads to a prevailing sense of uncertainty and confusion about

where corporate practice needs to go from recognition that corporations need to be more

socially and environmentally responsible. The focus of this study is upon academic

pursuits, to both inform and guide students and those wishing to learn more about

Corporate Responsibility practices. This study attempts to summarize some of the major

pillars and some of the major criticisms of Corporate Responsibility and to recommend

how subsequent studies should address the future practice of Corporate Responsibility.

The set of broad questions we attempted to answer were:

• What can Corporate Responsibility contribute to the pursuit of Sustainable Development?

• What are its limitations? • What can be done to further the practice of Corporate Responsibility?

1.2 Methodology

The research for this paper was based on an extensive literature review. The

assessment of corporate behaviour and what drives ethically responsible actions required

critical analysis of journal articles, books, textbooks, NGO documents, government and

international policy and/or documents, web sites, and news articles on various subjects

regarding Corporate Responsibility.

The arduous task of such a compilation was accomplished first by establishing the

conditions required for sustainable development and why its pursuit is relevant. Next the

complex socio-political and economic system that contextualizes corporate being was

outlined. A comprehensive understanding of the requirements for Sustainable

Development and the system in which corporations operate within was necessary in

establishing how Sustainable Development interacts with corporate objectives, ideology

and production processes. With this background in mind, the development of Corporate

Responsibility, how it is currently used, and what its limitations are under the current

system were examined.

Considerations were made about what corporations can be expected to achieve in

this arena voluntarily and what changes will have to be made with pressures from other

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actors on the commercial industry in the pursuit of sustainability. Finally, the

recommendations include suggestions for future research on Corporate Responsibility,

with the aim of avoiding previously researched aspects of Corporate Responsibility and

of bridging the “implementation gap.”

This study focuses a great deal on international strategies and governing bodies

because of the global reach of many corporate operations and the devastating

implications of corporate activities on global ecosystems. In addition, the paradigm shift

towards sustainability that is proposed by policy analysts and environmentalists alike

must necessarily operate in an international context because the current dominant

capitalist system functions as a global influence.

The primary limitation of this study was temporal. An eight month time frame

restricted the extensiveness of the research and generated a general outlook on the future

of Corporate Responsibility. If time had not been a limiting factor this study could have

also explored interviews with policy-makers and leaders in the field of Corporate

Responsibility, instead research was limited to books, websites and print sources.

Another limitation was the researchers’ own biases. Having a background in

Environmental Studies meant that we conducted the study from a political ecology and

social ecology perspective.

1.3 Literature Review

This study began with an accumulation of a vast and diverse body of literature.

The project has a basic structure with three main sections: sustainable development,

corporations and the global economic system, and an assessment of Corporate

Responsibility in the context of the current economic system and with the goal of

sustainable development. The literature can be subdivided and summarized according to

these main areas. Although the literature does not neglect any specific aspect of

Corporate Responsibility, one criticism of the current literature on the topic is that a

compilation has not been done to assess specifically where the overall practice of

Corporate Responsibility currently stands and what needs to be done in the future to drive

the practice forward.

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Sustainable Development has long been a contested term. Much of the literature

used in this study regarding Sustainable Development revolved around compilation texts

such as Dryzek’s Politics of the Earth (1997) and Dresner’s Principles of Sustainable

Development (2002). These sources served to illuminate the evolution of Sustainable

Development from its conception, to its linkages with the environmental movement in the

1970’s, through to its inclusion in breakthrough environmental policy reports like the

Brundtland Report. These sources then go on to highlight the major values of

Sustainable Development, espoused in the Principles of Sustainable Development (see

Table 1) and the debates that have ensued in trying to implement these principles.

Because the focus of this study is upon corporations, an attempt was made to link

Sustainable Development ideas with literature on green business (McDonough and

Braungart, 1998; Ravailoli, 1995; Winsemius and Guntram, 2002; Wiser, 2001). Specific

articles on integrating environmental concerns into business strategies (Cramer, 2002;

Henriques, 2004; Holliday et al., 2002; Hutchinson, 1996, Jackson and Nelson, 2004)

proved to be very helpful.

Next we focused upon corporations and the global economic system. For this task

a wide variety of sources were utilized. Books (Clifton et al., 2003; Douthwaite, 1992;

Norgaard, 2001; O’Hara, 2001) and websites (NetMBA, 2005) about economics

generally were particularly useful for developing an understanding of and creating an

outline of basic market economic theory, critiques of the system, and alternative ideas

about valuation within this system. Texts and articles concerned with corporate

operations and behaviour were numerous and served to demonstrate and academically

critique corporate operations under the current economic system (Cook, 2000; Friedman,

2005; Hedley, 2002; Korten, 1995).

Finally we assessed the current standing of Corporate Responsibility by

examining its limitations within the current system while maintaining sustainable

development as the ultimate goal. This was a challenging task and required an

integration of sources. We outlined and critiqued various internal (Burritt et al, 2003;

Korten, 1995; Phelen, 1973) and external strategies (Bakan, 2004b; Elkington, 1997;

McDonough and Braungart, 1998; McIntosh et al., 1998; Olson and Toyne, 2000; The

Global Compact, 2005; Global Reporting Initiative, 2005) of corporations for pursuing

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Sustainable Development and Corporate Responsibility. Then attention was turned to

issues surrounding economic growth (Desjardins, 1998, Korten, 1995) and equity

(Bendell and Visser, 2004; Galbraith, 1996; Shrivastava, 1995; Padilla, 2002) which are

covered, more directly, by the principles of Sustainable Development and hence the

materials on this topic (Dresner, 2002, Dryzek, 1997). The effectiveness of voluntary

initiatives (Bhan, 2005; Frankel, 1998; Gibson, 2001; Gilding, 2000) and corporate

reporting (Adams et al., 2004; Burritt et al., 2003; GRI, 1999; Kolk, 1999; Raar, 2002)

was also assessed before turning attention towards the implementation gap (Bakan,

2004a; Dale, 2001).

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2.0 SUSTAINABLE DEVELOPMENT

There currently exists an incompatibility between the “business as usual”

traditional model of economics and the objectives of public interest groups that are

addressing issues of environmental degradation and social injustice. The struggle that

most often exists between these two systems stems from the recognition that traditional

economic models promote the idea of infinite growth associated with continued

enthusiasm for resource use, to and beyond the level of over exploitation, within an

environmental system which is limited and finite (Dresner, 2002; Dryzek, 1997;

McDonough and Braungart, 1998; Ravailoli, 1995). Winsemius and Guntram (2002)

eloquently detail that, “the growing awareness of the damaging environmental impacts of

unbridled growth leads to increased questioning of the absolute primacy of economic

imperatives” (8). This is the struggle which business must address. The call sent out for

changing and ideally reconciling this struggle between the environment and traditional

economics has been sustainable development.

Sustainable Development was a term first used widely in 1980 by the

International Union for Conservation of Nature and Natural Resources in their

publication of the World Conservation Strategy. The World Conservation Strategy

foreshadowed much of the material that was to be covered by the World Commission on

the Environment and Development which was conceived of in 1983 and culminated in

the publication of the Our Common Future otherwise known as the Brundtland Report in

1987. (Dresner, 2002). Sustainable Development has most famously been defined as

development which “meets the needs of the present without compromising the ability of

future generations to meet their needs” (Dresner, 2002, p1, Deiesendorf, 2000, p22) in the

Brundtland Report (1987). Though there are other viable definitions and great debate

about their validity, this definition will suffice for this study. A direct consequence of the

Brundtland Report was the UN Conference on the Environment and Development. The

Conference in Rio de Janeiro in 1992 produced the Rio Declaration, which included

Agenda 21, a plan of action detailing sustainable development priorities called. The

Principles of Sustainable Development were elaborated on in greater detail in this

document and are highlighted in Table 1 below (Dresner, 2002).

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Table 1 - Summary of the Principles of Sustainable Development Principle Brief

1 Humans are the core of concerns for sustainable development.

2

States, by international law, have the right to exploit their own resources according to their own policies but are responsible for ensuring that their practices do not damage the environments of other states beyond their national jurisdiction.

3 Right to development must equitably meet the needs of present and future generations.

4 To achieve sustainable development, environmental protection must be integrated with and not isolated from development.

5 All states and peoples must cooperate to eradicate poverty to increase the standard of living for all.

6

International actions for environment and development should address the interests and needs of all countries while providing special priority for developing nations that are most economically and environmentally vulnerable.

7

States have common but differentiated responsibilities in cooperating to conserve, protect, and restore the integrity of Earth’s global ecosystem. Developed nations must recognize their responsibility of the pressures their societies place on the environment and available resources.

8 To pursue sustainable development, States should reduce and eliminate unsustainable economic patterns of production and consumption and promote appropriate demographic policies.

9 States should cooperate to build up internal capacity for sustainable development by improving scientific and technological understanding through information exchange and innovation.

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Participation of all concerned citizens at the relevant levels is required to handle environmental issues. This includes promotion of public awareness, appropriate access to information, and the opportunity to participate in decision-making.

11 Effective and contextually appropriate environmental legislation must be enacted by States.

12 International cooperation of States is required to promote an open economic system for economic growth and sustainable development in all countries. Unjustified discrimination should be avoided.

13 States should develop international law for those affected by pollution and to deter, through liability and compensation, those who pollute within their jurisdiction.

14 States should cooperate to deter the relocation/transfer of environmentally harmful activities and/or substances to other States.

15 The precautionary approach will be applied to environmental decision-making processes.

16 States should internalize environmental costs, with the philosophy that the polluter should pay, with regard to the public interest and without distorting international trade and investment.

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17 In situations where there is likely to be environmental harm an impact assessment should be undertaken by a competent national authority.

18 A State must immediately notify the international community of any natural disasters that are likely to affect the environments of other states. Other States will help a state so afflicted.

19 A State is required to notify other States of any activities that may adversely affect them and shall consult them in a timely fashion in good faith.

20 Women have a vital role to play in achieving sustainable development and must be full participants in all such activities.

21 World youth should also be recognized as participants in sustainable development.

22 States should recognize, respect, and include indigenous communities, their knowledge and practices, in the pursuit of sustainable development.

23 The environment of oppressed/occupied peoples must be protected.

24 States should respect international law protecting the environment at times of armed conflict; war being inherently destructive to the environment.

25 Peace, development, and environmental protection are interdependent.

26 Environmental disputes must be solved peacefully as detailed by the charter of the United Nations.

27 States and people should cooperate in good faith to fulfill these principles. (Information From Source: Rio Declaration, 2005).

There is a great diversity of arguments about how sustainable development can be

achieved and if it is even possible to have sustainable development. Some of the more

conservative approaches to sustainable development, the Triple Bottom Line approach

for example, recognize the need to incorporate environmental and social values in

business or organizational economic accounting (Elkington, 1998). In practice, however,

such strategies fall far short of fundamentally changing the structures and institutions, the

pillars of the status quo, which are causing environmental degradation (Norman and

MacDonald, 2004; Dryzek, 1997). Some of the more radical green philosophies, such as

Deep Ecology, question whether any commercially driven development can be

undertaken in a truly sustainable manner. The term sustainable development, in their

opinion, is an oxymoron (Dresner, 2002; Dryzek, 1997).

Others insist that Sustainable Development has potential and is in fact an

appropriate way to address our society’s environmental and social inequalities. A

pragmatic perspective says that the only way to assess the effectiveness Sustainable

Development is to dive in and give it a go. Dryzek (1997) is straightforward in noting,

“the success or failure of sustainable development rests on dissemination and acceptance

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of the discourse at a variety of levels, but especially that of global civil society, followed

by action on and experimentation with its tenets” (p135 – 136).

What is clear is that humanity’s survival is contingent on the continued

functioning of the natural environment (Diesendorf, 2000). Sustainable Development is a

goal for achieving our long-term survival, and as such, semantics are not as important as

the values that underlie the definitions (Dresner, 2002) and how these can be actively

pursued. The semantics of Sustainable Development, therefore, must be second to action

(Dunphy, 2000). One commonly respected version the key elements of a sustainable

society and principles for guidance in the endeavour is the set of twenty-seven Principles

for Sustainable Development explicitly outlined in the Rio Declaration of 1992 (see

Appendix A) The core issues of sustainable development that can be extrapolated from

the principles include equity (inter- as well as intra-generational), limits to economic

growth, peace, human rights, utilization of the Precautionary Principle in decision-

making, and international and state laws to ensure each of these. More generally, from

these principles, sustainable development requires, as Gilding (2000) notes, “an

integrated approach to social, environmental, and economic concerns in decision-making,

recognizing that all three areas are important” (40). Hutchinson (1996) takes these core

issues a step further and details the elements of a sustainable society, demonstrated in

Figure 1.

In addition to the principles of sustainable development, there are visions of what

such a society would encompass, and strategies for making such a future possible. In

general, the vast literature on strategies is geared towards helping specific actors to work

towards sustainable development goals. For example, McDonough and Braungart (1998)

have proposed a strategy for businesses to work towards sustainability through a process

they call “The Next Industrial Revolution”. According to this strategy, businesses should

take a “cradle to cradle” accountability approach to the products and services they offer

in order to cut down on resource use and eliminate waste completely. Generally, the

ecological problems and barriers to sustainable development humanity faces are systemic

(Hutchinson, 1996; Kay et al., 1999) and require, as Hutchinson (1996) has determined,

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“systemic or ecological thinking and a shift in values from expansion to conservation,

quantity to quality and domination to partnership” (21).

Figure 1 – Elements of a Sustainable Society

2.1 Stakeholders in Sustainable Development

Crucial to delivering Sustainable Development is the identification of

stakeholders, which are the agencies and citizens who are affected by, and who do or

should influence, the outcome of development decisions. The governments of states or

nations, international governance bodies, non-governmental organizations (NGOs),

corporations, and the public in general all have parts to play in creating or hindering

sustainable development (Cramer, 2002, Hutchinson, 1996). Each of the players is also

Government Business Technology Democratic, Cyclic, Resource Benign, Legitimate Conserving, Appropriate Empowering, Modified Free Markets Population Materials Stabilized, Reused and Recycled, Healthy Conserved, Sustainable Sources

Values Energy Human Rights and Equity, Efficient Use, Justice, Transition to Renewable Peace and Security Sources Food Ecology Water Sustainable Yields, Natural Systems Clean Fresh Water for all, Near to Markets, Protected and Respected, Economical Use, Organically Grown Diversity of Species Pollution Prevented Protected Modified From: Hutchinson, 1996.

Respectful Economics: Valuing People, the Environment, And

Resources

Elements of a Sustainable Society

Peaceful and Democratic Human

Communities Conservation of Physical Resources

Respect for Biodiversity

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influenced by the implementation of Sustainable Development principles. It is important

to understand each player’s role and how they may contribute generally to sustainable

development.

Governments

Governments of states and nations and international governance bodies (the UN,

for example) are empowered to set policies and regulations, which have the potential to

bring sustainable development to the forefront of societal development. Regulations are

the formal rules or standards that dictate what is acceptable and required behaviour,

putting limits on what is permissible. Governments usually employ a mix of tools. Their

tools include regulation (command and control) and support of self-regulatory initiatives,

such as environmental assessments, planning, and supporting programmes that apply

rules on company installations, operations, and post-production processes. Governments

may also use market mechanisms such as tax incentives or penalties for the same purpose

(Burritt et al., 2003). The costs of non-compliance range from criminal charges resulting

in prison sentences to damaged reputations (Burritt et al., 2003). Command and control

is a system of formal enforcement that is backed up by sanctions or negative incentives

for contraventions (Haufler, 2001; Burritt et al., 2003). Self-regulation occurs when the

parties being regulated design and enforce rules themselves (Haufler, 2001). Much of

this occurs with businesses wishing to have a high level of flexibility in the regulatory

process where they cannot avoid regulation entirely. The argument stands that less

severe regulations allow companies to more easily pursue and produce economic profit.

Strict regulations are typically considered, at least from the perspective of corporate

interests, to be a hindrance to economic growth. Government and international

governance bodies often create regulations to establish a base line, a minimum standard

which puts pressures on parties to comply to a specific level which they might not set for

themselves and gives the public and other actors recourse to hold them accountable for

their actions. Self-regulation is best used as a supplement to formal regulation or as part

of a larget set of motivations and tools including regulation (Gibson, 2001). The

regulatory power of government has the ability to turn business objectives that are purely

economic, to serve the common good (Goodpaster et al., 2003). Regulatory regimes set

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standards for and put limits on corporate production processes and have the ability to

enforce penalties for non-compliance (Haufler, 2001), at least in industrialized countries

with enforcement capacity (and this is an important exception). Without government

regulations, market mechanisms remain the primary driving force of corporate decision

making (Goodpaster et al., 2003).

Governments can choose to encourage attention to Sustainable Development in

their own activities, for governments can act as and are businesses too. Canada

introduced one of the first national Sustainable Development strategies in the industrial

world in 1990. Canada’s Green Plan, as it was called, was followed by the Guide to

Green Government in 1995 that set up a model for Sustainable Development at the

federal level (Environment Canada, 2002). Both federal and provincial governments in

Canada have tended to promote voluntary non-regulatory strategies through increased

industry-government collaboration. In 1999 the Commissioner of the Environment and

Sustainable Development, along with environmental NGOs, recommended that the

government adopt more stringent requirements for voluntary initiatives (Government of

Canada, 2002). In response to the criticism the government created the Environmental

Performance Agreement Policy in 2001 to promote greater stakeholder participation,

facilitating information exchange and performance monitoring and a comprehensive

coverage of environmental issues as they relate to public and private institutions

(Environment Canada, 2003). Currently, businesses practicing within a Sustainable

Development framework in Canada adhere to a decentralized model of Sustainable

Development regulation and reporting based on independent public audits.

Government has a very intimate and inseparable relationship with business.

While the purpose of these two sectors seems to differ, governments and companies

require each other to exist. Business is responsible for making profits, driving the

capitalist economic system and the sustenance of company operations. Governments are

charged with protecting the common good, the interests of the public, and the sustenance

of human society, which often hinders protecting and promoting economic activities. It

is hard to imagine governments ever managing human societies without inputs from other

actors like NGOs or corporations (Jackson et al., 2004). On their own, governments are

left with inadequate resources to manage the societies they are responsible for supporting

14

when business controls a large portion of the collective capital wealth. Governments

have sometimes proven to be deficient in administering social services (Jackson et al.,

2004). This may be because they lack the resources to adequately fund the necessary

services. As the number of people living in poverty increases annually, public resources

are declining, citizen debt is growing, and high-level corporate salaries continue to

increase. Within capitalist market driven economies, governments need the benefit of

corporate alliances, especially for the resources and capacity that businesses employ, to

restructure society towards sustainability. As a consequence, governments are linked

with and perhaps dependent on corporate decisions. Business affiliated lobby groups

constitute the largest pressure on politicians, aside from public opinion. Using their

political power, businesses can lobby for changes in tariffs, tax regimes, regulations or

seek to gain access to natural resources

International Bodies

Governments are the primary decision makers within nations but international

bodies/structures also play a role in the pursuit of Sustainable Development. They do so

by forming agreements, conventions and trade organizations that govern (or attempt to

govern) interactions of corporations with other corporations and with other actors like

governments, smaller national businesses, etc. between and beyond national borders.

The International Monetary Fund (IMF) and the World Bank are both institutions

that have played a large part in helping and hindering sustainable development in the

international arena. They have had key role in mobilizing and distributing funds to

impoverished developing countries (Dryzek, 1997) attempting to address poverty issues.

They have done so, however, by implementing programmes like Structural Adjustment

Programmes (SAPs) based on driving economic growth to reduce national debt. Most

often, SAPs and other similar programmes operate at the expense of citizens of poorer

nations by diverting funding flows from social services to debt reduction programmes

(McIntosh et al., 1998). As Korten (1995) notes, “The World Bank and IMF are leading

proponents of economic rationalism and free-market, export-led growth strategies” (105).

The pursuit of economic growth is not always wanted nor is it necessarily pertinent for

alleviating poverty. What is important is that quality of life is promoted, which has not

15

been the result of a number of World Bank and IMF programmes. The World Bank has

tried more recently to update its structure and goals to take greater consideration, at least

on paper, of social and environmental concerns. They have created an Environment

Department and named a director of Sustainable Development. Whether or not these

structural changes will result in a more considerate and focused pursuit of Sustainable

Development remains to be seen (Dryzek, 1997).

Non-government Organizations

Non-governmental Organizations (NGOs) have a key role in the promotion of

Sustainable Development. An NGO is an organization that is neither a business nor a

government agency. An NGO can be a small single-issue pressure group or a large group

representing mainstream activities, such as business (McIntosh et al., 1998). Their

activities are wide and varied, with most NGOs focusing on particular issues, a series of

issues, or specific interests. Though NGOs are not always focused on a concern for the

world’s disadvantaged, their function, when considered cumulatively, is to act as the

monitors of the “public good” to protect the interests of society’s disadvantaged members

-directly through specific projects or indirectly through funding, educational programs,

and support- or otherwise neglected concerns such as the environment. Their

accountability and governance structures vary between organizations. Currently

international NGO’s tend to be characterized by the resources and organizational

structure (hierarchical) of other professional organizations (McIntosh, 2003). NGOs have

become numerous and more influential in the past two decades (Norgaard, 2001) as

global communications have broadened and become more accessible to the wider public

(McIntosh et al., 1998). According to Frankel (1998) the world’s decision-making

structures suffer from a “Global Problematique”. The Global Problematique explains that

those possessing the power and influence to create fundamental change in society

(governments and corporations) have the least motivation to change the status quo that

gave them power in the first place. While state governments are meant to guard the

public’s best interest they often fail to do so because their traditional ways of operating,

including traditional dealings with big business, have provided them with power and they

fear jeopardizing their position. Citizens may not agree with or fully condone

16

government-corporate relations and may even find their health and quality of life harmed

by their dealings.

A particular set of NGOs (including players such as Greenpeace, the World

Wildlife Fund, and Amnesty International) has been formed by concerned citizens,

academics, experts and activists, with the specific objective of monitoring corporate and

government activities. They act as watch-dogs, often directly challenging the global

problematique. They are created out of concern for environmental and social issues, and

their activities are aimed at publicizing otherwise hidden decisions and bringing existing

power structures to light. More generally, NGOs also offer creative, lobbying, and legal

pressure as well as an essential continuity to environmental and social justice causes.

Through NGOs, citizens can hold governments and businesses accountable for their

actions (McIntosh, 2003).

NGOs are key in the promotion of Sustainable Development because they serve to

bring local, often otherwise overlooked, issues and concerns up against those of powerful

national and international bodies like governments and corporations (Korten, 1996). The

function of NGOs in the Sustainable Development agenda is to decentralize power and

decision-making. They do so through the use of activist networks and use of the media to

inform and educate average citizens. Raised awareness and the access to tools and

resources an NGO possesses, provide citizens with the voice to challenge traditional

powers and the ability to create change that raises the quality of life of their communities.

The Public

The public is a general term that encompasses all people on Earth. The public, in

general, has many roles to play in the establishment and promotion of Sustainable

Development. The public is the basis of NGO’s and activist group memberships

(Norgaard, 2001), holding governments and corporations responsible to the “public

good” (McIntosh, 2003). Members of the public also compose the shareholder basis of

corporations, which gives them considerable potential sway in corporate decision-making

(Read, 2000). In deciding where to place their investments (shares, bonds, etc.), the

public arbitrates the growth and lifespan of companies. They can choose to invest in

companies that carry out sustainable business practices and openly report about their

17

practices and impacts. The impacts of goods and services depend upon the types of

production, manufacturing, and distribution a company uses. Members of the public also

are, or can be, powerful as consumers. The financial choices the public makes support

certain products and production methods. Some consumers have incorporated

environmental and social considerations in their buying habits, opting for instance to buy

organic produce or fair trade coffee. How a corporation meets the demands of consumers

determines its financial success (Diesendorf, 2000). The concerns raised by employees

of a company are also important (McIntosh et al., 1998). Politically, citizens make

important choices as voters. Although the current political environment does not offer a

wide array of divergent political agendas, voters can choose from a limited number of

different platforms that address environmental and social issues differently and in so

doing influence the decision-making framework. Aside from the public’s active roles in

society, citizens are also related to Sustainable Development in that they or their progeny

pay the cost of political mistakes or corporate wrongdoing. Pollution, environmental

disasters, decreased social funding and other calamities that befall a country most heavily

affect ordinary citizens who may or may not have had direct influence on the human

cause of the problem. In general decisions seem to be made by government officials,

scientific experts, business representatives, and other capital controlling institutions,

excluding the informing voice of citizens. That is not to say that mechanisms do not exist

that integrate public participation, but only to say that overall the public has a passive role

in direct decision-making. Therefore the public as consumer, shareholder, employee, and

voter can influence and be affected by corporation sustainability and the Sustainable

Development principles (McIntosh, 2003). Equally so, the public are citizens of

nations/states and can demand sustainability be the goal of their government and of their

society (Dresner, 2002).

Corporations

Finally, the spotlight is turned toward corporations. Corporations, it is argued,

have the power and influence to redirect the trend of environmentally insensitive

practices toward a future of sustainable development (Cramer, 2002; Diesendorf, 2000;

Graafland et al., 2003; Hutchinson, 1996; Ite, 2004; Viederman, 1997). Environmental

18

degradation is the result of socio-political interactions, an individualistic liberal political

system and capitalist economic system (O’Hara, 2001). Corporations, being actors

within these systems, cause environmental degradation (Adams et al., 2004; DesJardins,

1998; Henriques, 2004) through their operations, extracting and processing materials and

goods (Jenkins, 2004), and through their promotion of excessive consumption (Cramer,

2002). Corporations also control the movement of enormous sums of capital that are

reinvested into the market or used to expand corporate operations through franchises,

take-overs and mergers.

Each of these actors/stakeholders has the potential to influence sustainable

development or to hinder its achievement according to the actions each party takes and its

goals. Each player is, however, only a player and cannot determine the fate of a

sustainable future on its own but rather in conjunction with each of the others

(Diesendorf, 2000). The contribution or neglect on the part of corporations to apply

sustainability principles and endeavours has implications for the future of humanity. As

Diesendorf (2000) writes, “Clearly, corporations are important players in the

sustainability scene. Therefore, creating a sustainable society must involve changes to

corporations as well as to other social institutions”(25).

The following section on the current corporate system examines relevant legal

and economic structures, with the purpose of understanding how corporations accumulate

wealth and power. The discussion will then lead into how corporations can be enabled

and expected to behave in a sustainable manner within the current legal and economic

spheres.

19

3.0 CORPORATIONS AND GLOBAL CAPITALISM

Sustainable development theories address social and ecological destruction

incurred by human activity and deal with the sustainability of corporation because they

dominate a considerable amount of human activity. As stakeholders in Sustainable

Development, businesses and corporations are influenced and are affected by the

effective promotion of sustainability throughout our society.

Environmental degradation and the state of human welfare result from socio-

political interactions within and between nations. As key actors in the global economic

system, that dominate socio-political interactions, corporations play a crucial role in the

state of environmental and human health around the world today. The dominance of

corporations in virtually every realm of human life is a relatively recent development.

The history of the current global capitalist system is well branched, long and complex,

involving different drivers from the British monarchy to Elijah McCoy who invented the

automatic lubricator used in engines and industry today. The current dominant economic

and societal global structure was first developed in the West and has since spread around

the world. This system, which is based upon a demand driven capitalist economy, has

created a social atmosphere that is unsustainable as people demand and consume vast

amounts of resources, a behaviour that is reinforced by the individualistic nature of

Western culture (O’Hara, 2001). Businesses generally, and large corporations

specifically, have played a large role in environmental degradation (Adams et al., 2004;

Desjardin, 1998; Henriques, 2004). The destruction of natural areas, habitat reduction,

and pollution are caused by business operations, extracting and processing of materials

and the transportation of goods by companies (Jenkins, 2004). Businesses further

contribute to environmental degradation by promoting the wasteful consumption of their

products (Cramer, 2002) for the sole purpose of increasing their capital revenue, market

share and expansionary options. The interesting twist is that large corporations have the

power, influence and means (capital, resources, and political sway), to redirect the trend

of environmentally insensitive practices towards a future of sustainable development

(Cramer, 2002; Diesendorf, 2000; Graafland et al., 2003; Hutchingson, 1996; Ite, 2004;

Viederman, 1997).

20

Corporations must be included in every discussion of sustainability given their

role in society and their power to influence change. Any effective policy development

and strategies geared towards promoting sustainability need to include an assessment of

the potential economic impacts and necessary changes needed on the road towards a

more socially and environmentally sustainable society.

The following section discusses the values and structures that influence corporate

behaviour and ultimately the capacity of corporations to apply Sustainable Development

principles to their practices.

3.1 The Corporation

A corporation is an autonomous entity that exists in the realm of law and

economics. “…A corporation is considered to be an association of individuals created by

law or under authority of law, having a continuous existence irrespective of that of its

members, and powers and liabilities distinct from those of its members” (Diesendorf,

2000; 24). In essence this means that though corporations are run by the participation of

many individuals, on an abstract and legal level, corporations operate as “individuals” in

their operations. Corporations have powers and liabilities beyond those of ordinary

human individuals, who are always in flux while the corporation itself remains a constant

entity.

A corporation is an institution in its own right (Korten, 1995; 53). Just as public

institutions and governments have structures and human participants who guide the larger

body, corporations have rules, charters and laws that govern their actions. Corporations

exist to allow one or more individuals to “leverage massive economic and political

resources behind clearly focused private agendas” (Korten, 1995; 53). Within the current

capitalist economic regime, corporations deal with all aspects of the economy from

production, distribution, marketing and consumption of goods and services.

In his book, When Corporations Rule the World (1995), David Korten states:

“Corporations have emerged as the dominant governance institutions on the planet, with

the largest among them reaching into virtually every country of the world and exceeding

most governments in size and power. Increasingly, it is the corporate interest more than

the human interest that defines the policy agendas of states and international bodies,

21

although this reality and its implications have gone largely unnoticed and unaddressed”

(Korten, 1995; 54). In his arguments Korten highlights that not only are corporations part

of the dominant societal structure, but they occupy a heightened position of power.

Corporations are active participants and representatives of a system of concentrated

wealth and power that usurps public governance, while also setting the agenda for current

and future decisions within this system. Korten’s view may seem extremely critical of

the current system, but a brief study of the history and elements of the system supports

his argument.

Before launching into a discussion of corporations the basic elements that

constitute the current economic and socio-political system in which they operate must be

outlined: liberalism, individualism, and market capitalism.

3. 2 Economic Sphere

Corporations are tools for managing economic wealth as much as they are

artifacts of the law. Any one trying to understand why corporations exist, what drives

their development and how they can help promote sustainability must at some point

examine the history of modern economic thought and the basic elements that define our

modern economic system.

Economic systems deal with the exchange of goods and services between

members of a community, regions, and nations, with production and distribution of

material wealth in a society (Clarke, 1989; 334). By providing a framework for

producing, distributing, allocating and consuming wealth, the economic system is meant

to support and supply the needs of citizens. The economic system is made up of a set of

institutions concerned with the movement of wealth. These institutions include local,

regional, national and international private and public organizations.

Currently the economy plays a huge role in the way our lives are structured.

Economics has become part of public discourse to the point that the state of society in

general is meaningful only when it is framed in the language of Gross National Product,

“rates”, “productivity”, “money supply”, “capital formation”, and “unemployment”

(Wolin, 1981). Economic concerns are paramount in current society and emerge in the

public consciousness as one of the prime motivating factors for individual and collective

22

decisions. It also “prescribes the form that ‘problems’ have to be given before they can

be acted upon” and the variety of choices that can be made (Wolin, 1981). The economy

has definitely emerged as the main organizing force since the Industrial Revolution.

3.2.1 Capitalism

There are different types of economies that embody a range of ideologies from

centrally planned socialism to participatory economics. For the purpose of studying

corporations this report will focus on global capitalism as an economic system, because

corporations have thrived best within this framework. Capitalism is also the current

dominant global economic system because it has been able to match supply with demand

better than its centrally planned rivals (Wired, 2005).

The dominant capitalist system is based on a self-regulating market that sets the

price of goods according to fluctuations in supply and demand. The model for supply-

demand economics was popularized in Alfred Marshall’s Principles of Economics,

published in 1890, and remains a fundamental concept of modern economics. The price

of good is established when the quantity of a good equals the quantity that is demanded.

The Figure 2 illustrates how changes in supplies and the level of demand influence

market prices.

Figure 2 - The Market System in Traditional Theory

D – Demand

S – Supply P – Price of Goods or Services (Modified from Comer, 2004).

23

When demand moves forward (increases), this has a positive effect on the price of a

good, whereas a decrease in demand will bring prices down. The opposite is true for the

relationship of supply and market value. When the supply of a product increases, it

floods the market and prices fall, conversely, a decrease in supply equals and increase in

the price of a good. The market works to try to balance supply and demand to avoid

either a shortage or surplus of products in the market (NetMBA, 2005).

In addition to supply-demand economics, capitalism’s basic tenets include the

division of labour, liberalism, self-regulation, and private property ownership.

Division of Labour

Under a capitalist system, the means of production, meaning the equipment,

machinery, factories and the materials are owned by a the same individual or group that

also owns the commodities produced by the system. The people who work to make the

products are employed by the owners and their labour is considered a commodity, or an

“article of trade” (Kilcullen, 1996). Within the capitalist system, people primarily work

to produce objects to sell in the market and not for their own subsistence. This

necessitates that their wages relate to their subsistence needs. Given the understanding

that a person should be able to find anything she needs in the market, capitalism requires

the division of labour and the specialization of individuals in certain segments of the

market. Dating back to Adam Smith’s The Wealth of Nations (1776), this idea that

humans have a natural propensity to exchange the fruits of their labour for other products,

in combination with the pressure for productive efficiency under conditions of

competition, has led to the specialization and division of labour (Kilcullen, 1996). Since

people no longer work for their own subsistence, specialized laborers within the capitalist

system provide communities with access to farmers, mechanics, doctors, teachers,

plumbers etc.

Liberalism

Liberalism is a political ideology that first drew upon the ideals of the

enlightenment, science and rationality. It is based on a faith in human progress and in the

24

ability and goodness of people, and on a firm belief in individual rights and welfare

(Bridgewater and Kurtz, 1968). Britain, followed by the United States, has been the

major hegemonic force driving the spread of liberal ideology around the world (Taylor

and Flint, 2000), through colonization and expansion. The three main components of

liberalism are self-determination, consumerism in a laissez-faire capitalist economic

system, and democracy. The release of these components onto the global stage is

increasingly demanded by a growing number of nations. Tragically, their application has

proved to be unsustainable (Dresner, 2002; Taylor and Flint, 2000). According to the

Principles outlined in the Rio Declaration, sustainable development is dependent on

democracy and democratic processes, which are in conflict with the basic tenets of

liberalism: individual rights and consumerism.

Individualism

The democratic capitalist system is based on the notion that every individual’s

right to freedom is the most important social value and the purpose of government is to

preserve that right (Clarke, 1989). Individualism, or individual rights to liberty and

opportunity, does not necessarily promote environmental degradation but possessive

individualism does characterize humans as inherently acquisitive and materialistic.

Proponents of democratic capitalism would say that democratic authority and power are

derived from a group of individuals working together –the public- who have the right to

determine how they should be governed (Cook, 2000). Therefore, citizens are

empowered and, in theory, could demand sustainable practices and environmental

protection from their governments. This is only true for a small fraction of the world’s

population. Effective political participation has been limited primarily to the world of

white wealthy men in industrialized nations. Individualism, espoused by liberal

democracy, goes awry in the environmental and social sectors because it promotes a

socio-political system that is illegitimate and does not represent the interests of the

majority of the world’s population.

The authoritative system distributes rights and freedoms based on privilege and a

hierarchical social structure. Traditionally, liberalism has promoted the idea of negative

individual rights where a person, in the pursuit of the “good life”, cannot be restricted in

25

that endeavour unless she infringes upon someone else’s right to also pursue that goal. In

other words, one person’s pursuit should not result in the coercion of another (Cook,

2000; Dresner, 2002). As the following discussion of corporate power indicates,

corporations as legal individuals benefit from a high level of privilege within the

capitalist market system, to the point that they usurp the power of individual citizens and

their representative governments.

Consumerism

Consumerism is an important aspect of the current capitalist economic system. In

order for companies to grow they need the citizens of the world to buy their products.

The division of labour has necessitated that individuals buy products from others in order

to survive. As part of the market system corporations provide many of these necessary

materials, goods, and services to the public for a sale price (Jenkins, 2004). The

competitive individualism that drives the market system, production of goods and

innovative technological discoveries also encourages unhindered corporate growth. As a

consequence of market competition corporations, have fallen into the abominable habit of

promoting artificial “needs” and flooding the market with a plethora of trinkets (Clarke,

1981). The resulting excessive and unnecessary consumerism of unnecessary products is

promoted by corporations to increase sales (Cramer, 2002). Unfettered consumption is

environmentally unsustainable because the unlimited desire for things is inevitably met

with the reality of limited resources. Among the arguments against an individual’s right

of free-reigning over-consumption is that it infringes upon the ability of someone else to

also pursue a better quality of life (Dresner, 2002). The excessive consumerism practiced

by most citizens in the industrial world has a grave impact on global equity,

environmental limits and goes against the Principles of Sustainable Development outlined

in the Rio Declaration (1992), which addresses issues such as global equity. The issue of

equity will be discussed further in Chapter 5.

Growth and the Maximization of Profit

Smith’s market conception recognized individual self-interest as a basic driving

force for the management of society (Korten, 1995). Smith put forward the notion that

26

self-motivated actions of individuals serves to benefit society as a whole. For example,

workers in any specific field who apply new technologies in order to increase production

efficiency and reduce business costs, consequently offer costumers faster service and

cheaper products. Therefore the individual is the key unit of the capitalist economy.

Capitalism empowers self-interested actions as the best way to allocate resources without

the need for substantial intervention by a central governing authority (Korten, 1995; 115).

Corporations, as legal individuals, are encouraged to pursue their interests, which can be

narrowly defined as profit, growth and material progress.

Smith may not have been the first, and is definitely not the only theorist to discuss

the concepts of productivity, growth and progress, but he is as least one of the most

famous. Smith’s early ideas that the increased specialization of labour fosters

technological development and economic progress, meaning expansion, have carried on

into today’s modern capitalist market system. Following Smith’s advice, advocates of

economic growth have made it synonymous with the well-being of human society over

the last century.

The advocates of economic growth point to the fivefold increase in the global

economic output, measured primarily in Gross National Product (GNP), since the 1950s

and link the ballooning of GNPs to the general health of the global society. There have

been many critics of GNP as a measure of economic growth and quality of life. Perhaps

the first to relate GNP shortcomings to the environmental context was Edward Mishan in

his 1967 book, The Costs of Economic Growth. He charged that the calculation of the

GNP was misleading because it failed to assess such factors, among others, as the

negative impacts of affluence against growth. His arguments have held up well over the

decades. Despite this, GNP still remains the basis of gauging economic growth and well

being world wide (Dresner, 2002).

Growth within the current global economic system results from the accumulation

of capital in the hands of investors who collect the profits/dividends on their corporate

investments and reinvest and/or spend on consumption. For their part, corporations

contribute to growth and the maximization of profits by three primary means. Firstly,

they take over their competitors to expand their market reach. When they are large

enough, companies gain control over their suppliers, distributors and manufacturers

27

through the process of vertical integration. Finally, companies diversify their operations

to expand the nature of their economic activity. Every endeavour is undertaken with the

goal of maximizing profits, cutting costs, and ultimately encouraging economic growth.

Economic growth is the result of the cycle of investment and corporate profit pay-outs.

Politicians often talk about raising the “standard of living” in their national

budgets as a product of a healthy economy. The idea is that as long as the economy is

growing more and more people will be able to reach a higher “standard of living.”

“‘Standard of living’ is a technical term that refers to ‘the per capita rate of consumption

of purchased good and services,’” which invariably links the well-being of citizens to

economic growth (Douthwaite, 1992; 9). The assumption that a healthy economy is one

that is constantly growing is characteristic of the modern capitalist market system.

3.2.2. Capital Accumulation and the Investment Game

The economic system we have today allows individuals and groups to accumulate

wealth without having to produce any products associated with their new wealth. The

abstraction of wealth creation from the production of goods is a recent phenomenon and

another characteristic of capitalism.

The earliest markets worked on a barter and trade system where transactions

would only occur in city markets, or when traders meet face to face (Korten, 1995). This

constraint was lifted when people started using standardized units of exchange like coins

and eventually paper bills as “receipts” for their purchases (Korten, 1995; 185). Money,

as economist John Maynard Keynes informed us, serves to store value for an indefinite

amount of time after the actual time of the transaction (Taylor and Flint, 2000). Further,

the ability to hold money allows capitalists to sell their products and then wait for market

conditions to improve before buying more raw materials with their money.

“In its broadest sense, investment consists of putting an asset into a form that is

intended to increase its value. In an economic context, however, it refers to spending on

capital goods in order to increase output - building a new factory, purchasing new

equipment or public spending on infrastructure” (Department of Finance, 2005).

28

Global Capitalism

The discussion of corporate growth must also include an international dimension

in the analysis of the global market system. Back in 1967 America’s undersecretary of

state for economic affairs, George Ball, reflected on the global scope of corporate

activities and his ideas stand true even today, forty years later:

“[T]he political boundaries of nation-states are too narrow and constricted to define the scope and activities of modern business… By and large, those companies that have achieved a global vision of their operations tend to opt for a world in which not only goods but all the factors of production can shift with maximum freedom” (Ball, 1967).

The development of multi-national corporations is the latest stage in the growth of

corporate power. Corporations are created in one country but they have the freedom to

sell products, locate operations and make purchases in any country around the world in

order to maximize their profits. Innovations in telecommunication and transportation

have given corporations the ability to move resources and money across national borders,

giving such corporations the title of multi-nationals. This globalization of economic

transactions means that corporations are defined by the legal and economic structures of

their domestic markets, as well as the legal and economic structure of international

markets. Both national and international corporate structures need to be examined in

order to fully understand the breadth of corporate activities.

The following section on the current corporate system examines relevant legal

and economic structures, with the purpose of understanding how corporations accumulate

wealth and power. The discussion will then lead into how corporations can be enabled

and expected to behave in a sustainable manner within the current legal and economic

spheres.

3.3 Legal Sphere

Legally, corporations provide a basis for people to make financial transactions in

the marketplace. Corporations are defined and created by legal parameters (laws,

regulation, taxation, additional requirements), and as such are artifacts of the law. In

Canada, a company has the option to register its incorporation with a provincial or federal

29

authority, depending on the scope of its activities (Government of Canada, 2003). Once a

business has been incorporated, it gains a separate legal existence, it becomes a “person”

under the law. As a separate legal entity, a corporation can enter into contracts, own

property, pay income and property taxes distinctly from its owners (Canada Revenue

Agency, 2005). The benefits of incorporating versus other forms of business

organization (ie. proprietorship, partnership) is that members cannot be held liable for

debts, and obligations beyond their share capital and the corporation gains a separate

legal standing, making it independent of continued membership (Government of Canada,

2003). The specific legal responsibilities of corporations and of their members are

specified by both national and international governing bodies and their relative

regulations.

3.3.1 National Regulations

Different national governments have different ways of regulating the creation,

organization, amalgamation and dissolution of corporations (Legal Information Institute,

2005). Corporations are usually required to document and report the details of their

creation and provisions regarding of their internal management to government

organizations. State statutes work under the assumption that each corporation, upon

formation, will adopt specific bylaws that define the rights and obligations of its officers,

directors and other persons under its jurisdiction (Legal Information Institute, 2005).

The Canadian government, like other states, regulates the issuance and selling of

corporate stocks, bonds and other investments in business through its securities laws

(Department of Finance, 2002). Securities laws are designed to safeguard investors and

help them make the best decisions regarding their financial investments by ensuring each

investor and potential investor has the same information regarding the state of securities

(stocks, bonds etc.) The securities industry is regulated by federal and provincial

governments, as well as self-regulated investment dealers and stock exchanges like the

Toronto Stock Exchange (Department of Finance, 2005). In 2003, six of the 207

securities firms in Canada controlled 73 per cent of the securities industry (Department of

Finance, 2005). Essentially, the securities industry regulates the movement of capital

between individuals and groups of investors into corporate coffers.

30

According to corporate law, people who finance a company’s infrastructure,

operations and existence are essentially its owners. The direction of business is guided

by the hand of voting investors who are willing to put their capital at stake under the

expectation that the invested business will provide a measurable return on their

investment. Legally, corporations and their directors are only directly responsible to their

shareholders (Harvard Business School, 2003). Unless there are contraventions of other

laws, the existence of a corporation will not be, by its traditional legal definition,

challenged or in jeopardy, as long as shareholders are happy.

This early definition of corporations that designates financiers as a company’s

rightful owners dates back to the early days of business when the chief executive tended

to also be the largest financier (Harvard Business School, 2003). When pioneering

entrepreneurs dominated the world of business, before multi-national corporations

ballooned to the size they are today, the same people who invested capital into a company

were also the company’s managers and directors. “Ultimately there's a legal duty and a

legal obligation on the part of the company's directors and managers to do whatever

needs to be done to ensure that the best interest of the shareholders are served, and that

means the best financial interest of the shareholders” (Bakan, 2004a).

Another way by which governments regulate corporations is through competition

laws. As discussed in section 3.2.1 a healthy level of competition is considered a key

element of the capitalist market system. Governments try to maintain market competition

by limiting corporate takeovers, mergers and the creation of monopolies. According to

capitalist market theory, as competition between companies for consumer attention

increases, prices fall and exports expand across international markets to the benefit of

consumers and national economies. The Canadian Competition Bureau administers and

enforces a set of federal acts that are intended to “promote and maintain fair competition

so that Canadians can benefit from lower prices, product choice and quality services”

(Government of Canada, 2005).

3.3.2 International Regulations

As George Ball asserts in his quotation above, many corporations need to exist on

an international scale in order to be competitive and profitable in today’s market. Many

31

international agreements on trade regulations, tariffs, taxes, and standards govern the

cross-border movement of corporate capital. The organization of international relations

under these agreements is part of the complex network of economic, technical, political,

and socio-cultural dimensions of globalization (Hedley, 2002).

Globalization

The current globalized system is the result of technological innovations and the

growth of Western economies. Entire university courses and books are based on the

study of the development of globalization but for the purpose of this report we will focus

on the basic characteristics and implications of modern globalism. To summarize,

globalization is “the expansion of global linkages, organization of social life on global

scale, and growth of global consciousness, hence consolidation of world society”

(Lechner, 2000; The Globalization Web Site, 2005). Globalization is more critically

considered by many nations, organizations, individuals and cultures to represent “an

elitist, Western-dominated form of economic and cultural imperialism” which favours

corporate and capitalist interests over those of communities and the environment (Hedley,

2002; 179). Corporations that function in the global context are referred to as

transnational corporations or multi-national corporations. They are defined as any

business that accepts foreign investment, owns or controls assets in more that one

country, produces goods and services outside its country of origin and is spatially

dispersed between many nations (Hedley, 2002). Although transnational corporations

have existed prior to the twentieth century (some examples include the East India

Company and the Hudson Bay Company) the last forty years have seen a phenomenal

increase in transnational corporate activity (Hedley, 2002). Global networks of

transnational corporations have actually grown to a magnitude surmounting the

importance of traditional state controlled import-export practices that in the past

controlled the delivery of goods and services worldwide (Hedley, 2002; 14).

International Networks

A number of international alliances and organizations, private and public

institutions play a role in the regulation of transnational corporations. The United

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Nations (UN), established in 1945, represents, either directly or indirectly, every country

in the world and is considered the most prominent international alliance (Hedley, 2002).

The UN is accompanied by a global infrastructure that helps to facilitate negotiation and

implementation of international laws in a variety of issues from human rights to military

action: Food and Agricultural Organization, World Health Organization, the World Bank,

International Labour Organization, International Civil Aviation Organization,

International Telecommunication Union, and World Meteorological Organization

(Hedley, 2002). This network of organizations cannot force any action by nation states,

and does not have the infrastructure or resources for proper enforcement but only makes

recommendations and sets standards that represent the moral authority of the community

of nations. As the number of national governments pursuing stronger environmental

strategies increases so does the global convergence of product standards and regulations

(Burritt et al, 2003).

Other global organizations and agreements include the GATT and the WTO. The

main function of alliances like the General Agreement on Tariffs and Trade (GATT),

which led to the formation of the World Trade Organization (WTO) in 1995, is to secure

resources and services for continued economic growth by lowering trade barriers (World

Trade Organization, 2003). The WTO works with governments and international

organizations in handling trade disputes between private and state actors, provides a

forum for trade negotiations, and monitors national trade policies to meets its mandate of

improving trade liberalization (World Trade Organization, 2003).

A slew of integrated regional blocs including the European Union (EU), the

Association of South-East Asian Nations, the North American Free Trade Agreement

signatories, the Organization of American States, and the Southern African Development

Community also represent networks of nations (Hedley, 2002). The EU for example

represents twenty-five European countries and formulates laws that govern not only the

regional economy, but also other aspects of human and environmental spheres. Unlike

any other organization of its scope, the individuals who sit in the EU governing body are

democratically elected every five years to represent their respective member country

(European Union, 2005).

33

The underlying ideology that frames international regulations is based on the

same laissez-faire free-market liberalism that sets most national policies and was created

through multilateral trade negotiations that specifically benefit powerful trading nations

(Goncalves et al, 1994). In their study of the intensified privatization of the EU, Clifton

et al. attributed increased corporate power to the convergence of national policies

orienting the region towards increased deregulation, sectoral liberalization to promote

open movement of capital between and within industries, and a new focus on shareholder

interests (2003). In other words, international regulations governing the activities of

transnational corporations can be described as favouring a harmonized world economic

system with established rules that assist capital and goods to flow freely across national

boundaries (Korten, 1995; 122).

3.4 The Implications of Corporate Behaviour

The degree of corporate responsibility, whether or not public and environmental

interests are integrated into the corporate decision-making structure, depends heavily

upon the culture and responsiveness of individual companies. But regardless of their

choices, corporate behaviour has a profound effect on all aspects of human life and

environmental health. Any discussion of corporate influence must consider the spectrum

of multi-facetted impacts, and in so doing lead into a logical discussion of how

corporations influence sustainability and the promotion of sustainability in the current

global capitalist system. The following section will examine the impacts of corporations

in three different areas: social, environmental and political.

3.4.1 Social

Analysts and critics of corporate behaviour have long insisted that corporations

have no social conscience and do not take responsibility for their actions that threaten

social security, community cohesion, and human well-being. This is not true for all

companies but all companies are social actors with intimate relationships with citizens

and communities. These relationships relate not only to company activities, such as

manufacturing, transportation, and resource extraction, but also to the range of activities

that a company supports through investment.

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Corporations have varied and many facetted spheres of influence in society

(Fussler, 2004). The people closest to a company, namely its employees, are most

directly affected by the way that company runs. The degree to which a company adheres

to labour laws governing the amount of hours employees are expected to work, allocation

of fair wages, employees’ rights to freedom of association and collective bargaining

(participation in labour unions), the elimination of compulsory labour and child labour, as

well as adequate occupational health and safety measures impart a dedication to either

positively or negatively, even if it is through neglect, influence the quality of life of their

employees (Fussler, 2004). A corporation’s priority of securing revenue often takes

precedent over protecting the human rights of employees (Korten, 1995). Manufacturing

companies often relocate to developing countries to take advantage of the lower costs of

labour. Beginning in the early 1990’s outsourcing, particularly in the apparel industry,

has allowed the exploitation of low minimum wages in countries like Indonesia and

Taiwan. Nike, for example, shifted its production facilities to Indonesia into what are

commonly known as “sweatshops”, helping to spur a surge in company profits and made

Nike the dominant athletic shoe producer of the 1990s (Manheim, 2004). Numerous

reviews of sweatshop practices have found a litany of human rights violations: forced

labour including prison labour; employment of workers under the age of 15; sexual,

physical, or verbal abuse; discrimination on the basis of gender, race, religion, age,

disability, nationality, political opinion, or ethnic origin; unsafe or unhealthy working

conditions (Manheim, 2004; US Department of Labour, 1998).

The second sphere of influence consists of a corporation’s business partners. This

relationship relates to the kinds of contracts a company secures with suppliers,

manufacturers, distributors and other business associates. Following fair business

practices and ensuring that suppliers are in compliance with human rights is important to

a corporation’s social responsibility (Fussler, 2004).

The third sphere of influence concerns the relationship between a corporation at

its host communities. Corporations use community resources (land, water, forests etc.),

dispose of waste and often contaminate community waters and land, disrupt local

ecosystems on which communities depend on for food, shelter and cultural purposes,

without consulting community members.

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The fourth sphere is one that is often overlooked, yet is essential to the promotion

of sustainability on a global scale. Advocacy and dialogue between government and

corporations (Fussler, 2004), both small and transnational, influence the implementation

and shaping of international policies, agreements and regulations. Corporations have a

considerable economic leverage with government and can use it to lobby for specific

policy arrangements.

3.4.2 Environmental

As used here, the term “environment” refers to natural ecosystems, including

living and non-living components, biophysical systems (climate, water cycles etc.), plants

and animals and their interrelations in the system. Corporations within the global

capitalist economic system exist within the broader ecological context of the ecosphere

(the ecosystems of our planet) (Burritt et al., 2003). As aforementioned, corporations and

the drivers of economic growth such as modern production systems, consumption

patterns, and the application of new technologies are currently threatening the Earth’s

ecological sustainability

3.4.3 Political

Corporations are important drivers of national economies. They provide jobs, they make

the majority of goods and services found on store shelves, and they provide a substantial

portion of the tax revenues that are needed to sustain national governments (Manheim,

2004). The simple truth is that governments need corporations because business controls

greater capital than state governments are able to amass from crown corporations,

investments and tax revenues; corporations also own and control a great deal of resources

such as energy and mineral sources, technologies, intellectual property, infrastructure etc.

And corporations need governments to maintain a stable financial, legal and social

context in which to carry out their income-producing activities. As Korten (1995)

explains, corporations have in some cases usurped the power of democratic governance

that attempts to enable citizens’ decision-making power, by driving policies in their own

profit oriented interests.

36

The combination of modern global capitalism and the resultant dominant brand of

corporate hegemony have had a negative impact on most social, environmental and

political spheres.

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4.0 THE DEVELOPMENT OF CORPORATE RESPONSIBILITY

Corporate Responsibility (Corporate Responsibility) is expressed through the

voluntary practices of incorporated companies that go beyond current state or

international legal obligations to take responsibility for the effects of their operations on

social and environmental spheres (Lapalme, 2003). In order to take this responsibility,

corporations must establish a systemic connection between their financial profitability

and their environmental and social performance (Cramer, 2002). Corporate social

responsibility (CSR) is the traditional term used in much of the literature, and though

some sources have taken it to include the environment (Lapalme, 2003), the

environmental sphere of issues has often been overshadowed by social concerns

(DesJardins, 1998). Corporate Responsibility thus encompasses the wider realm of

responsibility for all impacts of a corporation, social and environmental, and stresses the

corporate role as a member of society having corresponding obligations to other

members/stakeholders of society as outlined in Chapter 2.

4.1 The Three Eras of Corporate Responsibility

The development of corporate responsibility can be divided into three broad eras.

The first era is characterized by government regulation, which was ushered in by the

publication of Rachel Carson’s Silent Spring in 1962 (Frankel, 1998). Silent Spring drew

attention to corporate operations and the fact that corporations could not always be

counted on to protect the public’s best interest (Lear, 1997). Due to public concern and

increasing media coverage over environmental issues and corporate behaviour

governments, in industrialized countries mainly, responded by regulating industry.

The era of regulation soon made way for the era of compliance of the mid-1980s.

At that time the number of monitoring agencies was increasing as was the world’s

connectedness in terms of communications and the global reach of media networks. The

emerging “global village” mentality was particularly offended by the many examples of

industrial accidents occurring worldwide. Mercury-deaths in Minamata, Japan, and the

Love Canal tragedy in New York State can be added to the list of environmental disasters

involving veiled chemical dumping and toxic pollution. The town of Bhopal, India was

the site of the world’s most infamous and worst industrial disaster (Frankel, 1998). In

38

early December of 1984, the Union Carbide plant located in Bhopal released 42 tons of

toxic gas into the atmosphere. As a consequence, 2,000 people died instantaneously, a

further 4,000 deaths were identified after the event and 60,000 people were permanently

injured in. Upon further investigation it was discovered that Union Carbide’s facility in

Bhopal, as well as other plants in developing nations were poorly managed and operated,

and that the disaster could have been prevented. Following this incident, another

accident in a Union Carbide plant in Virginia, USA resulted in the hospitalization of 120

people (McIntosh et al., 1998). The Bhopal tragedy was covered widely by the media

and caused public outrage and backlash towards chemical companies. The operations of

corporations in general and specifically in developing nations came under suddenly

intense scrutiny. Not only did this demonstrated that corporations were not following

regulations, it also highlighted the inequitable corporate treatment of developed and

developing nations. The public was left feeling appalled and endangered. In order to

restore their public images, appease public concerns and ethical scrutiny, corporations

were forced to clean up their acts and comply with set regulations and standards. The era

of compliance lasted until 1988 (Frankel, 1998).

The final era of corporate responsibility, the era beyond compliance, began in

1987 and was in full swing by 1988 as the Brundtland report was published, distributed,

and widely read (Frankel, 1998). The Brundtland report (a report of the World

Commission on the Environment and Development chaired by Gro Harlem Brundtland)

and was published in 1987. The Report detailed the key elements of sustainable

development in hopes that this would become the new focus of global development. Its

debut marked a shift in ethical consideration of the environment and of communities.

The Report lent legitimacy to the governments of developing nations who were seeking

fairer treatment in trade and development and raised public awareness of both

environmental and social issues (Dresner, 2002). This was further solidified with the

publication of the Rio Declaration in 1992. What emerged was a proposal for a new set

of values and knowledge and the beginnings of a new social movement that is community

and ecologically focused (Dunphy, 2000). Insofar as public and government expectations

have risen, corporations can no longer afford to dismiss the impacts of their operations.

39

Mere compliance is not sufficient to address public concerns, sustainability has become a

competitive issue (Gilding, 2000).

As a result corporations started taking their own steps towards more sustainable

behaviour. Since the beginning of the third era corporate codes of conducts have been

littered with aspirations of corporate social responsibility, guidelines addressing issues

such as ethical standards, community involvement, and compliance with legal

requirements. Levi Strauss & Company was the first multinational to adopt a code of

conduct with its “Global Sourcing and Operating Guidelines” released in 1991

(Manheim, 2004). Since Levi Strauss’ precedent-setting commitment, many corporations

have followed in adopting unassailable codes of conduct (Manheim, 2004). Many other

sectors, from the mining industry to cosmetics have adopted voluntary initiatives to

appease public and government scrutiny. The phenomenon of voluntary corporate

responsibility will be further discussed in section 5.2.4.

4.2 Criticism of Corporate Responsibility

The main criticism of Corporate Responsibility is that it is too vaguely defined

and motivated to be effective (Foster, 2004; WBCSD, 2000). The strategies for pursuing

corporate responsibility, it is argued, are optimistic and idealistic in their language but

provide little practical guidance as to how Sustainable Development should be pursued.

The results of Corporate Responsibility initiatives are highly individualized to fit specific

corporate objectives and cultures and thus cannot easily be compared between companies

let alone on an industry wide scale. There is a lack of cohesion and of one widely

accepted set of criteria that can bring the Corporate Responsibility sector together.

Sustainability indicators, of which there is a plethora, are also of little use in this

muddled context. While, sustainability has become a competitive issue (Gilding, 2000)

there is no accepted practical way to distinguish or measure advancements in pursuing

Sustainable Development. This has led to a critical view of Sustainable Development

investments by corporations and shareholders in an era where the level of environmental

degradation and the need for Sustainable Development has become critical.

Another major obstacle to effective Corporate Responsibility is a questionable

level of corporate motivation towards adherence with Sustainable Development

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principles. A corporation’s responsibilities, it is argued, are to create profit for

shareholders (Friedman, 2005) and social responsibilities are for the realm of

government, NGO’s, and individuals (WBCSD, 2000). As such, Corporate

Responsibility initiatives can be seen as unnecessary undertakings that can actually be

detrimental to a company’s survival. The diversion of revenue from primary commercial

operations into Corporate Responsibility could potentially have negative effects on

shareholder value, unless there are clear commercial reasons for Corporate Responsibility

(eg. to build employee and customer loyalty or pre-empt regulatory action).

The following discussion attempts to shed some light on the current Corporate

Responsibility sector and how Corporate Responsibility deals with the problem of vague

definitions and a disparity in the level of corporate motivation.

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5.0 CURRENT SITUATION

Corporate Responsibility is an area of study that has generated vast amounts of

theory and strategic frameworks for implementation. While this has been useful in

discourse, there has been a lack of effective and efficient action on the subject. To

determine why this is the case, an assessment of the current corporate responsibility

practices is required in order to identify the weaknesses and strengths of the current

approaches.

5.1 The Potential of Corporate Responsibility

Though there is a lack of cohesive and comprehensive action in the area of

corporate responsibility there are exceptional companies striving to take a more holistic

and responsible approach to their operations. There are numerous awards given to

companies each year, for example under the Ethics in Action Awards Program1. These

various awards assess corporate responsibility initiatives among competitors using

various sets of criteria. Case study research, a relentless and overwhelming amount of it,

has also been done to assess the commitment of specific firms to corporate responsibility.

A long list of highly publicized and noteworthy corporations include, though are not by

any stretch of the imagination limited to, Husky Injection Moulding, Interface, The Body

Shop and Electrolux.

5.1.1 Visionary Companies

According to de Geus, four characteristics typify companies that are economically

successful and have longevity (McIntosh et al., 1998). See Box 1 below. These

characteristics are further supported by research cited by Collins and Porras that suggests

that visionary companies are those that have strong core values or ideologies which are

geared towards company evolution rather than profit maximization (McIntosh, 2003;

McIntosh et al., 1998; Olson and Toyne, 2000). “Visionary” companies set audacious

goals for themselves oriented around company ideology, potentially including goals that

1 For more information see the Ethics in Action Awards Program web site: www.ethicsinaction.com

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are sustainability oriented. An example given in the literature was Dupont’s goal of

producing no waste (Olson and Toyne, 2000).

Box 1 – Four Characteristics of Successful Companies with Longevity

4 Characteristics of Successful

Companies with Longevity

1. Sensitivity to the external environment, which allows the company to learn and adapt.

2. Cohesion and identity, which allow the company to be a community and have a

personality.

3. Tolerance and decentralization because the company understands its own ecology; this enables it to build new relationships within and outside the company.

4. Conservative financing which allows the company to govern its own growth and

evolution. de Geus (1997)From McIntosh et al., 1998; p76

Although de Geus list does not specifically refer to sustainability, the four

characteristics and general concept of expressed ideological orientation suggest that

corporate responsibility, as an increasingly competitive as well as ethical element of the

current economic climate, may be something that visionary companies adopt in order to

survive and thrive over the long term (McIntosh et al., 1998; Olson and Toyne, 2000).

In order to foster sustainability, in which corporate responsibility for

environmental and social impacts plays a major role, three shifts towards sustainability

must be recognized and incorporated into the values and ideologies of corporations

(McIntosh et al., 1998). These are outlined in Box 2 below. The shift of values within

corporations can be fostered by public pressure, managerial or employee ethical beliefs or

both combined.

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Box 2 – Three Sustainability Shifts

Three Sustainability Shifts

1. Value the environment for the contribution it makes to life on earth, whether in terms of physical resources, recycling, beauty, amenity, or religious significance.

2. All people have a right to environmental resources, including material and

beauty.

3. Decision making about the use of environmental resources must be based on an awareness of all those who may be affected by the decision, including people in other parts of the world and future generations.

From McIntosh et al., 1998, p101

5.1.2 The Strategies

There are various ways by which corporations choose to address and improve

their corporate orientation towards sustainability, whether they are “visionary” companies

or not. In order to promote sustainable corporate behaviour effectively, corporations can

and must institute checks and balances, both externally and internally, to cover the entire

sphere of a company’s influence (Phelan et al, 1973; 396). The following section

examines the different strategies by categorizing them as internal or external, with the

acknowledgement that because Corporate Responsibility is such a large field, there may

be some strategies that are not included.

Internal strategies

Board rooms, golf courses and directors’ meetings are the common sites of

corporate decision-making where the decisions that guide corporate behaviour are steered

by the ideology of the people involved. For this reason, a great deal of Corporate

Responsibility strategies are geared at corporate managers and internal corporate

governance structures.

Currently, directors and managers, as the representatives of the corporate being,

are only directly responsible, by law, to their shareholders. The decision making

framework of their jobs necessitates that they maximize profit for their investors and

shareholders. But while managers are captive to the profit-interest motive, they also have

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the ability to direct corporate purpose. Individuals with vision provide corporations with

a greater scope of purpose beyond the limited practice of profit maximization, and tend to

create companies with longevity and greater economic stability (McIntosh et al., 1998;

Olson and Toyne, 2000).

Internally, corporations can change the tools and mechanisms that inform their

decision making framework. Burritt et al. (2003) outline how environmental

management can be inserted into the current business practices and data collection of any

corporation (See Table 2 below). Once these tools are used by a company the ultimate

aim is that the information that they produce (eg. environmental audits on compliance

with regulations) support real improvements in performance (Burritt et al., 2003).

Table 2 - Methods of environmental management derived from methods of conventional economic management Conventional Management Tool Environmental Management Tool Calculating and costing Life-cycle assessment Accounting Environmental accounting Auditing Environmental auditing Reporting Environmental reporting Total quality management Total quality environmental management Control Eco-control (Burritt et al, 2003; 316)

Korten (1995), however, insists that focusing on raising the social consciousness

of corporate managers incorrectly defines the problem. “The problem is a predatory

system that makes it difficult for them to survive. This creates a terrible dilemma for

managers with a true social vision of the corporation’s role in society. They must either

compromise their vision or run a great risk of being expelled by the system” (Korten,

1995; 212).

In their analysis of the Dupont company, Phelan et al, (1973) recommended that

public stakeholders be integrated into corporate decision-making, especially on issues

that directly influence community well-being such as resource extraction and use, waste

disposal and labour rules. This effectively means making corporate boardrooms and

meetings publicly accessible, in order to formulate development decisions using a

transparent and open process. Phelan et al (1973) argue that while a perfect system of

democratic government influencing the economic system might provide the necessary

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checks on corporate power, such perfection is inherently impossible. “Since there will

always be some co-option of public officials by private corporations and some

concentration of economic power in certain market sectors, local residents should be

given some internal checks on corporate power through participation in corporate

government” (Phelan et al, 1973; 396).

So while corporations need to ensure that their directors and managers fully

espouse the principles of sustainable development they must also integrate the public into

their decision making structure.

External Strategies

Joel Bakan, author of The Corporation: The Pathological Pursuit of Profit and

Power does not believe that changing the internal structure of the corporation is

necessary; instead, corporations can be regulated against causing environmental and

social damage with the power democratically bestowed upon governments. Governments,

argues Bakan, need to promote responsible corporate behaviour through legal

requirements and standards that are closely followed by enforcement mechanisms.

Further, stricter regulations can emphasize the capacity of corporations to benefit society

by delivering goods and services sustainably (Bakan, 2004b).

External Corporate Responsibility strategies are concerned with the interfaces of

consumer-, authority- and public-corporate relationships, and are related to

environmental standards and legal requirements. Companies, such as the

abovementioned visionaries, can choose to act as individuals or in co-operation with

other companies. “Co-operation in addressing environmental problems can be through

the whole industry (horizontal co-operation) or over the whole “life-cycle” of a product

(vertical co-operation)” (Burritt et al., 2003; 185). These strategies are often launched

and supported by corporate marketing and public relations activities (Burritt et al., 2003).

Strategies range in scale, from local, regional to global and include various organizations,

and agreements, such as the UN Global Compact.

On the regional and national level there are regulators, standard-setters,

professional organizations that influence whether or not corporations espouse strict

environmental standards (Burritt et al., 2003). National pollutant inventories, federal

46

environmental protection agencies and the European Unions’ Eco-management and Audit

Scheme (EMAS) are examples of systems and bodies that allow corporations to report on

their activities. Burritt et al., (2003) identify EMAS and the International Organization

for Standardization (ISO 14000; ISO 14001; ISO 14004) as very important and popular

standards for corporate environmental management system design. The German Blue

Angel environmental label is an excellent example of a successful national certification

system (Burritt et al., 2003). The 25 year old Blue Angel program has certified

approximately 3,800 products and according to the users of the label, the Blue Angel has

stimulated competition for ecological innovation and the ecological quality of the

products and services provided (Blaue Engel, 2005). Although the standards vary by

country, the organic farming industry is well-know for having developed strict and exact

criteria for “organic”, “bio”, and “eco” labeled food products (Burritt et al., 2003).

A great deal of work on corporate responsibility has been done on an international

scale. The main purpose of international agreements on allowable corporate behaviour is

to produce a unified and standardized code of ethics for businesses with a multinational

reach (Panyarachun, 1998). Some that already exist include Social Accountability 8000,

the OECD Guidelines for Multinational Enterprises, ILO Multinational Enterprises-

Tripartite Declaration of Principle, the Caux Round Table Principles for Business and

Amnesty International’s Human Rights Principles for Companies (Panyarachun, 1998).

Missing from this list is the widest reaching and best known Corporate Responsibility

framework: the UN Global Compact.

Following the meeting at Davos in Switzerland, UN Secretary-General, Kofi

Annan’s ideas on a sustainable global economy were made into a formal programme.

The UN Global Compact’s operational phase was launched in 2000 at UN headquarters

in New York. Over the following four years, more than 1,000 companies, 20

transnational NGOs, international labour organizations, and six UN agencies joined to

form an international network (Fussler et al, 2004). The UN agencies involved are the

following: the Office of the High Commissioner for Human Rights, the United Nations

Environment Programme, the International Labour Organization, the United Nations

Development Programme, the United Nations Industrial Development Organization, and

the United Nations Office on Drugs and Crime (The Global Compact, 2005). Most

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regions of the world are represented in the Compact’s membership, including participants

from a range of developing and developed countries (Fussler et al, 2004).

The Global Compact does not regulate, police, monitor, or enforce corporate

behaviour. Instead, the Compact depends on “public accountability, transparency and the

enlightened self-interest of companies, labour and civil society to initiate and share

substantive action in pursuing the principles upon which the Global Compact is based”

(The Global Compact, 2005). There are 10 guiding principles set out by the Compact.

See Box 3. The programme is a guide for socially, environmentally and economically

sustainable corporate decision-making. According to the mandate of this voluntary

association of private and public actors, its goal is to bridge the gap between the global

markets system and national communities.

Box 3 – United Nations Global Compact, 2005 The Global Compact's ten principles in the areas of human rights, labour, the environment and anti-corruption enjoy universal consensus and are derived from:

• The Universal Declaration of Human Rights • The International Labour Organization's Declaration on Fundamental Principles

and Rights at Work • The Rio Declaration on Environment and Development • The United Nations Convention Against Corruption

The Global Compact asks companies to embrace, support and enact, within their sphere of influence, a set of core values in the areas of human rights, labour standards, the environment, and anti-corruption:

Human Rights

• Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and

• Principle 2: make sure that they are not complicit in human rights abuses.

Labour Standards

• Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;

• Principle 4: the elimination of all forms of forced and compulsory labour; • Principle 5: the effective abolition of child labour; and • Principle 6: the elimination of discrimination in respect of employment and

occupation.

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Environment

• Principle 7: Businesses should support a precautionary approach to environmental challenges;

• Principle 8: undertake initiatives to promote greater environmental responsibility; and

• Principle 9: encourage the development and diffusion of environmentally friendly technologies

Anti-Corruption

• Principle 10: Businesses should work against all forms of corruption, including extortion and bribery.

There is a wide range of local, regional and global Corporate Responsibility

strategies, certifications, regulations and agreements that are instituted by either private

or public bodies. “One main difference between standards provided by private and public

institutions is that public agencies and regulators institute regulatory rather than voluntary

systems” (Burritt et al., 2003; 295).

The way a corporation functions has implications for its external environment.

Different strategies have been developed to increase the environmental sustainability of

businesses. The Global Compact is just one. The Natural Step, the Triple Bottom Line,

the Cradle-to-Cradle approach, the CERES principles and the Global Reporting Initiative

are among the more widely known other frameworks. To follow is a brief description of

each of these. Unlike the Global Compact which sets out responsibility guidelines to be

incorporated into corporate ideology, these strategies represent the way in which a more

sustainable corporate ideology can be implemented and customized for specific corporate

cultures and contexts of operation.

Natural Step

The Natural Step is a Swedish based approach created by Dr. Karl-Henrik Robert

(McIntosh et al., 1998). It is now used by over 100 major corporations world wide

(Olson and Toyne, 2000) including IKEA and Electrolux (McIntosh et al., 1998). The

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approach is reliant on the concept of natural capital and on a systems approach. There

are four basic principles to this approach based upon scientific understanding and they

are as follows:

• Matter and energy cannot appear or disappear (conservation law),

• Matter and energy tend to spread spontaneously (2nd law of thermodynamics),

• The quality, concentration, and structure of materials determines their biological

and economic value – dispersal in the environment reduces value, and

• The essential net producers of concentration and structure are green plant cells

through the process of photosynthesis (Olson and Toyne, 2000).

Triple Bottom Line

John Elkington and his environmental consulting company SustainAbility are the

drivers behind the popular Triple Bottom Line (TBL) approach. Elkington’s book,

Cannibals with Forks (1997), set out and detailed the philosophy of this approach. The

basic premise of the TBL is that businesses should account for more than just their

economic bottom line. Environmental and Social bottom lines should also be accounted

for and calculated in order to gauge the full impact of a company’s impacts (Elkington,

1998).

Cradle-to-Cradle (aka The Next Industrial Revolution)

McDonough and Braungart have advocated this approach which suggests that

businesses ought not to create negative impacts on the environment. The main premise

of this approach is to design for sustainability (Olson and Toyne, 2000). This can be

achieved, they argue, through life cycle accountability where the full range of a products

life span is accounted for by the company which produces it. There are three

fundamental principles to this approach. The first principle is that Waste = Food. This

means that any wastes produced must be an input to another production source (hence

cradle to cradle). The second principle McDonough and Braungart advocate is to respect

diversity. They recognize, through this principle, that the interaction between all aspects

of ecosystems (both biotic and abiotic) are complex. The disruption of the diversity

within ecosystems can mean that it stops functioning and may ultimately negatively

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impact upon the quality of life of humans. The final principle is to use solar energy. The

use of energy should be benign. Solar energy is the basis of all natural processes and

should also be the basis of human production systems. Energy systems should be based,

more generally on non-carbon based fuels and their delivery systems should be highly

efficient (McDonough and Braungart, 1998; Olson and Toyne, 2000).

CERES Principles

The CERES Principles were established by the Coalition for Environmentally

Responsible Economies (formed in 1989) which was seeking to provide the investing

community with reliable information about corporations’ environmental initiatives and

performance (Olson and Toyne, 2000). Their creation was spurred by the Exxon Valdez

oil spill off the coast of Alaska (McIntosh et al., 1998). The 10 principles (fully outlined

in Table 3 below) are protection of the biosphere, sustainable use of natural resources,

reduction and disposal of waste, wise energy use, risk reduction, marketing of safe

production and services, damage compensation, disclosure, appointment of

environmental professionals, and assessment and audit (McIntosh et al., 1998; Olson and

Toyne, 2000).

Table 3 - The CERES Principles Principle Brief

1 – Protection of the Biosphere

Reduction and progress in eliminating substances that may cause environmental damage to ecosystems and/or inhabitants. Protecting open spaces and biodiversity.

2 – Sustainable Use of Natural Resources

Sustainable use of renewable resources and conservation of non-renewable resources through efficient use and planning.

3 – Reduction and Disposal of Wastes

Reduction and elimination of waste through source reduction and recycling.

4 – Energy Conservation Improved energy conservation and efficiency of operations, goods, and services. Use of environmentally safe and sustainable energy sources.

5 – Risk Reduction Minimize the environmental, health, and safety risks of operations to employees and communities.

6 – Safe Products and Services

Reduce and eliminate the use, manufacture, or sale of goods and services that cause environmental damage or pose health and safety hazards.

7 – Environmental Restoration

Promptly and responsibly correct conditions that endanger health, safety, or the environment and redress injuries to

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persons or damage to the environment.

8 – Informing the Public

Inform anyone and everyone affected of conditions caused by the signatory that might endanger health, safety, or the environment. Regularly seek advice and counsel with communities and refrain from actions against employees for reporting dangerous incidents or conditions.

9 – Management Commitment

Implement and sustain a process that ensures the board and CEO are fully informed about pertinent environmental issues and are fully responsible for environment policy.

10 – Audits and Reports Conduct an annual self-evaluation of the implementation of these principles, including annual completion of CERES report, which will be made available to the public.

From: Olson and Toyne, 2000.

Global Reporting Initiative

The Global Reporting Initiative (GRI) framework was released in draft form in

1999 and in 2002 it was established as an independent international body based upon the

Triple Bottom Line approach. GRI is a multi-stakeholder process that provides

corporations with guidelines related to economic, environmental and social aspects of

business activities (Global Reporting Initiative, 2005). GRI has become the primary

global guideline organization for sustainability reporting (Burritt et al., 2003).

Corporate sustainability reporting is a voluntary initiative that is meant to

communicate environmental performance to stakeholder and target groups. Legislators,

NGO’s, management and business partners, investors and financial analysts, as well as

university researchers are among the readers of corporate reports. These reports include

the corporate structure for environmental protection, environmental policies, goals and

actions planned to achieve these goals (Burritt et al., 2003).

Each of the strategies examined in this report has its own specific focus, though

on a basic level they appear to be very similar. They are all designed with the idea of

achieving Sustainable Development within the current economic system. There are a

great number of strategies not included in this report. However, such strategies are

usually based on some variation of the well-known strategies discussed here. Though

these strategies provide a blueprint for companies to become more responsible in their

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operations, there are problems with their use in the pursuit of Sustainable Development,

these problems will be discussed in the upcoming section.

5.2 Critiquing Current Corporate Responsibility

Though there is hope that the pursuit of Sustainable Development will be fruitful,

there is a great deal of confusion and frustration with how to go about doing so. The

concept of Corporate Responsibility has shown promise in helping corporations to play

their part in Sustainable Development. There remain, however, obstacles to the

integration of Sustainable Development into corporate ideology and activities, mostly

related to corporate accountability and the system within which corporations function.

Identifying the gaps in theory and current practice is needed in order to remedy the

barriers to corporate responsibility and achieve Sustainable Development.

5.2.1 Strategies

Individual companies can use the strategies previously outlined, among others, to

pursue corporate responsibility and sustainable development. As we have seen, there is

not much fundamental difference between these approaches. Whether or not they are

effective in changing corporate behaviour can only really be assessed by the way

companies use them, whether comprehensively or not, and how they address the

sustainability principles. These strategies only serve as the framework to create a

corporate blueprint for change and action. The actual blueprint is something each firm

must decide upon and fit into its business or industry context and unique corporate

culture (Oakley and Buckland; 2004, Olson and Toyne, 2000). This point is echoed by

Olson and Toyne (2000), who point out that such strategies as these, “only have meaning

when applied to the activities and circumstances of the corporations using them. They

are not a blueprint, but a framework for creating one” (247).

Most of the approaches claim to espouse the principles and ethics of

sustainability. In practice, however, the language means little when corporate practices

do not follow the ethics and philosophy of the strategies or comprehensively account for

their social and environmental impacts. Norman and MacDonald (2004), for instance,

found in their critique of the Triple Bottom Line that while companies appeared to be

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committed to Triple Bottom Line principles, there really was no concrete way to

determine or compare their actions to other companies or to indicators. Companies using

the Triple Bottom Line were not taking any truly verifiable responsibility for their

operations and could not necessarily be said to be pursuing sustainability goals.

Furthermore, the sustainable development principles of limits to growth and

equity are given little comprehensive attention within these frameworks though they are

fundamental principles to be addressed if corporations are to take ethical responsibility

for their actions. Needs (equity) and limits are the two key concepts of Sustainable

Development and as such should not be absent from discussions of how to create

sustainable development (Dresner, 2002; Dryzek, 1997; Langhelle, 2000).

5.2.2 Economic Growth

Unlimited growth is in direct conflict with hopes for environmental and social

justice. The Exxon Valdez oil spill of 1989 highlights this conflict. The oil tanker ran

aground off the Alaskan coast, releasing 10.8 million gallons of crude oil into the ocean,

contaminating the water and coast line (McIntosh et al., 1998) In environmental terms,

the Exxon Valdez oil spill was a severe disaster and yet, economically, with conventional

GDP measurement it counted as a net contribution to economic output (Korten, 1995).

The sustainable development principle of limits to growth is rarely addressed by any of

the previously outlined approaches to Corporate Responsibility in anything but a vague

manner. Unlimited growth is a dogmatic idea entrenched within the capitalist market

system (Dresner, 2002). DesJardins (1998) argues that a theory of Corporate

Responsibility must be derived from a model of sustainable economics instead of the

prevailing capitalist market system of economics in order to be effective. This may be so

considering that the strategies of corporate responsibility that are compatible with the

prevailing market system fail to address such a fundamental principle like limits to

growth. To achieve the goals set out by the principles of Sustainable Development,

Corporate Responsibility initiatives and their public and private proponents must attempt

to change the traditional economic assumptions of profit maximization and unlimited

economic growth.

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The principle of limits to growth is usually tied to critiques of the excessive

consumption levels in developed nations. In order to raise the quality of life in

developing nations, some substantial economic growth will be required and this is an

issue directly related to principles of equity (Dresner, 2002). The issue is not about

companies never growing, it about how and when they grow. Korten (1995) writes

eloquently, “If our concern is with sustainable human well-being for all people, then we

must penetrate the economic myths embedded in our culture” that prioritize unlimited

material growth (50). Economic growth is a function of corporate operations that can be

directly controlled by each company. They can limit the extent of their growth, choosing

not to expand at times when the opportunity presents itself, though there are few

examples of companies doing so. Korten (1995) goes on to outline two priorities of a

sustainable economy which should also be the priorities for corporations pursuing

Sustainable Development as major players within the economy. These priorities are:

• balance between human use of the environment for human needs (nature as a

resource) and the ability for ecosystems to regenerate and sustain themselves,

• and the allocation of available natural capital for equal access and opportunity,

to meet the physical, natural, socio-cultural, intellectual, and spiritual needs of

all people (50).

Within the capitalist market system, companies need to make a profit as a duty to

shareholders. Corporations are thus subscribed to the idea of unlimited growth. This

reality embodies the greatest challenge for Corporate Responsibility in contributing to

sustainability. Unless Corporate Responsibility strategies integrate limits to growth

within their philosophies, their marriage to Sustainable Development will be illusionary

and fail to achieve that end.

5.2.3 Equity

Like limits to growth, equity is a sustainable development principle that is

difficult yet crucial for corporations to address. Equity refers to the state of populations

being equal in power and status as well as having equal opportunity to a similar quality of

life (Merriam-Webster Dictionary of Law, 1996). Issues of equity are diverse and

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complex, and include considerations of equity between generations, countries, cultures,

population segments, genders, etc.

Equity is a conundrum issue for corporations. Where the boundaries of corporate

responsibilities for rectifying global inequities should be drawn is debated and elusive.

Corporations may not be solely responsible for addressing all current global inequities,

many of which are politically and culturally based, but they do have a role in creating and

deepening (and therefore in remedying) some inequities. But if, as Korten (1995)

suggests, we are to allocate available natural capital for equal access and opportunity, to

meet the physical, natural, socio-cultural, intellectual, and spiritual needs of all people

(50) to create a sustainable economy, issues of equity are paramount.

Corporations are set to be participants in continued economic activities, providing

goods and services that are needed to meet the basic needs of the ever growing human

population and raise the quality of life of the world’s poor (Bendell and Visser, 2004;

DesJardins, 1998). As participants of the economic system corporations are committed to

making money and in their endeavor of acquisition they (meaning their directors and

shareholders) occupy some of the world’s highest earning brackets. Unfortunately the

majority of the world’s population does not enjoy the same economic status as corporate

representatives. Economist John K. Galbraith (1996) explains that income disparities are

justified by the modern capitalist mind with the idea that each individual is morally

entitled to his or her wealth. For income that is attained with little or no resulting service

to society (ie. inheritance, or a CEO’s inexcusably large severance pay) modern

capitalism tends to explain that this wealth is re-invested into society and ultimately

provides “incentive to effort and innovation that is in the service of all” (Galbraith, 1996).

This assertion creates a cultural protection of the affluent and the rich (Galbraith, 1996).

But the fact remains that the few cannot become excessively rich without denying

resources to the excessively poor (Galbraith, 1996).

At the same time as corporations do well with the principles of profit

maximization, acquisitiveness, and liberalism, current consumption patterns can hardly

be sustained over the long term. Increasing current consumption patterns to include

everyone on the planet is ecologically impossible (DesJardins, 1998; Dresner, 2002) and

is ethically questionable (Bendell and Visser, 2004). Further, there are disparities in the

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equity of treatment that corporations demonstrate in their dealings with developed versus

developing nations. Democratic, economic, political and cultural mechanisms that serve

to preserve some kind of control over corporate wrongdoings in industrialized countries

do not exist to the same degree in most developing countries (Shrivastava, 1995). To the

detriment of the citizens, the current system, of which corporations are a part, enforces

low-environmental and labour standards in developing countries. Corporations directly

benefit from this mechanism because it allows them to externalize expenses like the cost

of toxic waste disposal. It also allows them to avoid entirely other business costs like

upgrading equipment or renewing dumping licences (Ravailoli, 1995; Shrivastava, 1995).

Like the example of Bhopal, the cost of corporate wrongdoing has been left to local

communities, while corporations continue to internalize their profits and pursue

economic growth. “Despite all the debates about ecological degradation caused by

industrial processes, developing countries continue to rapidly industrialize their

economies using conventional technologies,” while they lack the necessary physical and

social infrastructure (eg. training, education, waste treatment facilities) and enforcement

capacity to manage their industries (Shrivastava, 1995, ). Clearly the overall assessment

of corporations, particularly transnationals is that they perpetuate, benefit and can cause

social inequalities related to income disparities, environmental justice, and inequalities

between developed and developing nations. Therefore, they must improve equity if they

are truly interested in promoting sustainability.

The ways in which corporations operate also have implications for inter-

generational equity. Inter-generational equity is the equality of opportunity and quality

of life between generations. Some serious and controversial questions arises in

considering inter-generational equity. Should the current generation hold moral

obligations towards future generations based on present markets? Can we assume that

future generations will require the same resources in the same amounts that the current

generation does? Our needs now are not well defined, but how are we to define them for

future generations that do not yet exist and may exist in an entirely different context from

ourselves? These are highly philosophical questions. For the sake of brevity, Padilla

(2002) summarizes the arguments:

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“to guarantee future generations a fair treatment, the analysis should consider their right to a nondeteriorated socioeconomic and ecological capacity. The capacity of the present to alter the conditions of life of the future imposes this responsibility” (section 4.1)2.

Intra- and inter-generational equity figured prominently in the Brundtland Report and the

later Rio Declaration (Dresner, 2002). The extraction, manufacturing, and distribution

processes of corporate goods and services use resources. The inefficient and

unsustainable use of resources inevitably depletes the amount available for present and

future generations to use (Padilla, 2002). The depletion of natural resources also has

effects on the health of ecosystems in general and consequently, the future viability of

corporations and their commercial activities. But while this is true collectively for

corporations, individual corporations may see little direct interest in protecting the future.

Clearly equity, in its many-varied forms, is a very important element of

sustainable development. By identifying the inherent inequality in the modern economic

system it is also evident that corporations stand to benefit from this inequality; therefore

there is an underlying contradiction in the expectation that corporations, under the current

paradigm, can fully espouse the tenet of equity through mechanisms such as Corporate

Responsibility initiatives.

5.2.4 Voluntary Initiatives

Governments, both state and international bodies, would have to play a

fundamental role through regulation, subsidies, educational programmes, tax policies etc.

in pressuring corporations to include sustainability and ethical considerations such as

limits to growth and equity. Beyond regulations, liability laws, and tax policies, which

set minimum standards of operation in industrialized nations, current corporate

responsibility initiatives and actions are voluntary. Corporations are increasingly self-

regulating in order to avoid the inflexibility and inconvenience of government regulation

(Haufler, 2001). The threat of government regulation has usually spurred corporations

(in the current time) to undertake voluntary initiatives and allowed government to save

money otherwise required for creating and enforcing said regulations. Critics of business 2 To further examine the complexities and nuances of the arguments of inter-generational equity, see Padilla’s weighty article in full: www.sciencedirect.com

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self-regulation are skeptical of the ability of corporations to govern themselves.

Corporate voluntary initiatives as a substitute and/or as justification for dismantling

traditional regulatory capacities are not desired, though such initiatives are a reasonable

supplement to regulation (Gibson, 2001; Gilding, 2000). Skeptics of self-regulation are

usually aware and wary of what occurred in pre-regulatory eras when corporate mishaps

and disasters, such as the Bhopal disaster in 1984, occurred more frequently. Incidences

such as these left the public feeling at risk with little recourse (Frankel, 1998; Gibson,

2001; McIntosh et al., 1998). Critics, especially those in NGOs, are still wary of

corporate operations in developing nations where regulatory regimes are weak or prone to

corruption (Shrivastava, 1995). Due to the voluntary nature of corporate initiatives,

NGOs, rather than national governments, are increasingly the voices demanding and

pressuring corporations to be more responsible. For example, Oxfam, an aid and

advocacy NGO, is currently demanding that the Canadian mining company, Placer Dome

take full responsibility for the impacts of its operations in the Philippines, which closed in

the mid 1990’s. Oxfam brought media attention, on behalf of the local community, to the

fact that Dome never took effective action to clean up the site on Marinduque Island

where toxic tailings were released into the environment. The tailings contaminated the

Boac River system and negatively affected the health and livelihoods of the local

community who once supported its operations (Mordant, 2005).

To give some scope to the power of consumer pressure, in 1999, the Environics

Research Group found that, “49% (of consumers) said that they strongly consider the

company's demonstrated social responsibility” and of the 25,000 consumers surveyed,

23% said they had refused to buy the products of a company in the previous year for

failing to meet perceived social and ethical obligations (Bhan, 2005; 1).

5.2.5 Reporting

A backbone issue of all of this debate about the extent and effectiveness of

corporate responsibility is reporting. Transparent and accountable reporting can help to

hold corporations responsible for their actions. Though most Corporate Responsibility

strategies promote transparent reporting by corporations, in practice this is not necessarily

the case (Elkington, 1998; Raar, 2002). Only recently has a globally focused set of

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guidelines (GRI) been introduced to the field of corporate reporting and these guidelines

have not been fully implemented yet. The GRI framework and other reporting programs

fall under the category of voluntary initiatives (GRI, 1999). This effectively means that

there is no obligation for corporations who claim to be utilizing GRI guidelines to adhere

to specific standards (Raar, 2002). In order to maintain a positive public image and

remain competitive there is a tendency for corporations to highlight the achievements of

their practices while glossing over their failures or failing to report those practices which

cause environmental degradation (Adams et al., 2004; Kolk, 1999; Burritt et al., 2003).

Reporting is touted as an important communication tool between corporations and

stakeholders; unfortunately, the most important stakeholders, consumers, employees and

the general public rarely see the actual reports or any resultant recommendations (Burritt

et al., 2003). Environmental reporting currently operates more as a marketing tool and an

industry back-patting exercise, than it does a tool for increasing a corporation’s

accountability (Adams et al., 2004).

5.2.6 The Whole-System Effect

Corporations are not the only actors responsible for social and environmental

impacts. All businesses, including small to medium enterprises (SME’s), have a role in

pursuing or hindering a sustainable future. In fact, all societal actors covered in chapter 2

on Sustainable Development, have parts to play. As for the role of corporations and the

use of corporate responsibility initiatives, the question remains, where should the

practices and operations of corporations go from here?

While it is important that individual firms take action, it means little to

sustainability as a societal goal if the entire system of economics and general business

operations remain unsustainable. The sustainability agenda cannot be carried on the

backs of a minority of companies within a larger system. Global initiatives have been

undertaken to address the inconsistency of corporate responsibility practices between

firms and the inequity of treatment that arises in corporate practices in developing versus

developed nations. But these global initiatives remain voluntary and lacking in

accountability. There is a disparity between the intention of global initiatives and their

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ability to implement Sustainable Development principles. This systematic problem of

what is called the “implementation gap” is further discussed in following section.

5.2.7 The Implementation Gap

Although there has been a substantive increase in treaties, conventions and

agreements at the global and local level directed at managing natural systems since the

1970s, “there remains a substantial gap between the formal intent of such laws and their

actual effect on natural systems” (Dale, 2001). The same can be said of Corporate

Responsibility initiatives, frameworks and networks that exist today. Dale (2001)

discusses the failure of governments in their regulatory and organizational capacity, as a

predominant weakness in the coordination of Sustainable Development policies. The

failing of governments to exercise authority on behalf of their constituents has led to

“implementation gaps” (Dale, 2001). Canada’s Commissioner for the Environment and

Sustainable Development stated that: “Some of the most pressing issues facing

governments today cut across departmental mandates and political jurisdictions.

Effective co-ordination is essential for meeting our sustainable development challenges-

governments are not very good at it” (Dale, 2001).

Where government fail, global initiatives are often looked upon as the required

remedy. Although these initiatives have the benefit of cross-jurisdictional, trans-

boundary authority they lack the on-the-ground monitoring structures that are needed to

give their initiatives the strength of effective implementation. Since they lack the

structures to implement and regulate or even to monitor corporate activities they depend

on voluntary participation, making them generally ineffective.

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6.0 CONCLUSION

Generally, the ecological problems and barriers to sustainable development

humanity faces are systemic (Hutchinson, 1996; Kay et al., 1999) and require “a shift in

values from expansion to conservation, quantity to quality and domination to partnership”

(Hutchinson, 1996; 21). The shift is necessary to secure sustainable development as an

important product of the modern global system and will require a questioning of the

supremacy of economic imperatives in the current global system (Winsemius and

Guntram, 2002). This can be derived through the formulation of a new systems

understanding that places economics in a less central role in ensuring the quality of life of

human societies. Martinez-Alier et al. (2001) identified a primary misconception that

informs unsustainable activities as the understanding that environmental, social, and

economic systems as equal and separate. In reality, the economic system is dependent

upon the social system, and both are dependent upon the integrity of the larger global

environment. This system conception is illustrated in Figure 3, below and demonstrates

that human survival is dependent upon the integrity of ecological systems (Diesendorf,

2000).

Such a shift will also require the committed involvement of all sectors of

society (Dryzek, 2002). Crucial to delivering Sustainable Development is the

identification of stakeholders, which are the agencies and citizens who are affected by,

and who do or should influence the outcome of development decisions. The governments

of states or nations, international governance bodies, non-governmental organizations

(NGOs), corporations, and the public in general all have parts to play in creating or

hindering sustainable development (Cramer, 2002; Hutchinson, 1996). Corporations

have the power and influence (in capital and human resources) to redirect the trend of

environmentally insensitive practices toward a future of sustainable development

(Cramer, 2002; Diesendorf, 2000; Graafland et al., 2003; Hutchinson, 1996; Ite, 2004;

Viederman, 1997). Their contribution of Corporate Responsibility initiatives will aid in

the pursuit of Sustainable Development but there are currently limits to the extent and

form of their contributions.

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Figure 3 – Nested Environmental and Human Systems

Information From: Martinez-Alier, 2001.

When formulating strategies to make corporate activities more sustainable governments,

NGO’s and industry representatives must be aware of these limitations and should

attempt to address them in their pursuit of Sustainable Development.

Governments, especially on a national or larger scale, must help corporate beings

become more sustainable, and in so doing shift the way the current socio-political system

functions. The way in which decisions are made is equally as important as what those

decisions lead to. In terms of improving sustainability, decision-making must integrate a

multi-stakeholder approach and natural ecological limits of a project for the final purpose

of “maintaining rather than exploiting resilience and diversity” (Dale, 2001;147). Part of

a new decision-making framework, according to Dale (2001), is a change in the role of

federal and local governments from “doing, controlling and monitoring” to acting as

catalysts in the dialogue between stakeholders (Dale, 2001; 153). The current socio-

political system is reactionary to social and environmental problems, partly because the

public is detached from the decision-making process. Governments should act as the

Environment

Social

Economic

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hosts to an interactive process of joint decision-making that reflects the principles of

sustainability, from discussion all the way through to implementation and monitoring. A

face-to-face interaction of public and corporate representatives empowers citizens to

influence important development decisions that the public is currently excluded from.

The gap between the time a social or environmental issues becomes a threat or public

concern and the moment government policy reacts to that concern is seen as a major

obstacle to Sustainable Development. Involving a wide range of stakeholders decreases

this gap and helps to incorporate a more equitable socio-political power structure.

In addition to guiding sustainable corporate decisions through a multi-stakeholder

framework, governments must also put pressure on existing corporate operations that

influence employees, communities, natural ecosystems, and business partnerships. “The

solution probably lies with more stringent and more effective legal constraints on what

corporations can do” (Bakan, 2004b), as well as a set of economic incentives for

increasing environmentally and socially responsible behaviour. The courts and

government bodies have the power to restrict corporate behaviour and more importantly

encourage Sustainable Development. Seeing as the gamut of corporate activities reaches

far beyond national boundaries it is important that national governments work together

through international organizations to establish a solid framework for sustainable

corporate behaviour.

International organizations such as the UN must help national governments in

formulating the requirements and guidelines for Corporate Responsibility. The weakness

of voluntary strategies such as the UN Global Compact can be mitigated with a new

focus on empowering government agencies to integrate the supplied principles into their

regulatory interactions with corporations. Essentially international institutions are

effective in devising comprehensive guidelines based on equity, human rights, and

environmental protection, but they lack the infrastructure and jurisdiction to implement

and monitor corporate behaviour. The UN has contributed a great deal to a sense of

global civil society, but cannot be expected to implement changes towards a paradigm

shift. Standard setting and certification agencies will also play a role in providing a level

of consistency in the way that corporations are treated by different countries and regions.

The problem of transnational corporations exploiting lower environmental and labour

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standards in developing countries is a concern that cannot be left for developing countries

to address alone. NGOs can provide additional support as international watchdogs and

advocacy groups focused on addressing Corporate Responsibility.

NGOs have been instrumental in providing a voice for human and ecological

concerns. Acting opposite government bodies, NGOs are especially important to the

improvement of Corporate Responsibility because they enhance public participation and

democratic governance. “Since there will always be some co-option of public officials

by private corporations and some concentration of economic power in certain market

sectors” (Phelan et al, 1973; 396), NGOs are necessary as third party observers for public

accountability and transparency of corporate activities. NGOs can also act as watchdogs

of corporate operations by monitoring pollution, contamination and corporate compliance

to labour laws and regulations.

A “one solution fits all” concept cannot be applied to the future actions of

corporations when addressing Sustainable Development and the necessary paradigm

shift. Currently, there are many strategies that address the various aspects of the

corporate world, including managerial, operational and legal, in an attempt to promote

sustainability, or the blanket strategy of Corporate Responsibility. The effectiveness of

these strategies varies so much that it is difficult to assess how all principles, let alone

one principle, of sustainability is actually being implemented. Therefore it is difficult to

determine how Corporate Responsibility can be made more sustainable. However, the

different pressures and motivations that an individual corporation experiences, which set

the stage for a corporation’s ability to promote sustainability, can be outlined.

What has emerged is a complete depiction of the pressures and motives that

corporations face. This list includes direct profit incentive, market competition,

shareholder and investor pressure, government intervention (regulations, standards, taxes

etc.), consumer pressure, public and NGO pressure, visionary directors/managers,

employee and labour union groups, and finally demands from within industry and

international institutions. While considering the pressures faced by corporations this

study examined and divided Corporate Responsibility strategies into two categories:

internal and external.

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Internal strategies consider the roles and influences of corporate employees,

particularly corporate managers and directors. These strategies are important because

they target corporate decision-makers and they promote the foundation for broader

Corporate Responsibility programs. If a competent and driven team of directors chooses

to move a corporation effectively towards sustainability, then a visionary company with

an environmentally and socially responsible agenda is likely to develop. To tie in with

the goals of governments in changing decision-making frameworks, managers must

ensure that they organize themselves to recognize and respond to outside demands as

well as opportunities and that they incorporate public stakeholders and NGOs into their

framework. Once a Sustainable Development framework has been internally adopted by

a corporation, these types of strategies are effective in driving voluntary initiatives but

they rely on the inclination of individual managers and do not exist in every corporation;

therefore they cannot be relied upon to have widespread effects.

The remaining Corporate Responsibility strategies were categorized as external

strategies. External Corporate Responsibility strategies deal with consumer-, authority-

and public-corporate relationships, and are related to environmental standards and legal

requirements.

Both external and internal strategies are predominantly voluntary, industry-lead

initiatives. Although a great deal of progress has followed the development of these

strategies and the resultant cooperation of various stakeholders, it is obvious that the next

step must go beyond voluntary action; specifically because voluntary programs do not

offer deep change, as is necessary to shift the current global capitalist paradigm.

While there are visionary companies that have been successful in making real

their commitment of sustainable development, the application of most Corporate

Responsibility strategies has resulted in rhetorical promises with a small amount of actual

evidence aligning promises with social and environmental impacts. Corporate

Responsibility remains predominantly voluntary and the implementation gap between

theory and current practice persists as a real problem for corporate accountability.

Whether or not the progress of Corporate Responsibility is real has been argued

without producing a consensus, but one thing can be said with certainty: progress is slow.

The sluggish pace of Corporate Responsibility has led many analysts to be sceptical of

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the extent of change allowable within the existing capitalistic framework, where

corporations run the show (Bakan, 2004a). Corporations tend to engage in environmental

and social programs if those endeavours align with their crusade for a better market share

or an increased competitive advantage. Within the current system, business tends to

promote sustainability if there is a calculated benefit to its own profits, and with this

understanding it is difficult to have a blind confidence in the effectiveness of Corporate

Responsibility (Bakan, 2004a). There are also principles of sustainability that do not

receive adequate attention in most Corporate Responsibility strategies, namely the

promotion of social equity.

Corporate activity cannot become sustainable without the explicit and decisive

pressure of other societal actors because corporate interests are severely limited by the

global economic context they operate in. Corporate Responsibility cannot be relied upon

to change the way the global economic system functions, for that reason its effectiveness

in promoting sustainability, which is a question that demands a systematic shift in values,

cannot be answered simply. Instead, the question must be redirected to the actors who,

through their interactions with corporations, support modern capitalistic values and

consequently prohibit the paradigm shift towards sustainability. Corporate Responsibility

strategies offer many progressive ideas and mechanisms that need to be evaluated and

integrated into a broader context of change in order to be effective.

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7.0 RECOMMENDATIONS FOR FURTHER STUDY

There is a great deal of literature about Corporate Social Responsibility and Corporate

Responsibility. In order to avoid reiteration of some of the main concepts and subjects

covered by the extensive literature, we have created a list of some of the more pertinent

studies that should be undertaken about the practice of Corporate Responsibility. This

list is not exhaustive but will aid in driving the literature and academic study of Corporate

Responsibility forward and provide students with broad starting points for projects.

• A critical examination of the pragmatic contribution of international governance

bodies and structures to the practice of Corporate Responsibility, the protection of

interests of Third World nations, and what implications the use of ideas derived

by Western analysts might have for Third World cultures or societies.

• Assessment of how NGOs can contribute to corporate attempts to pursue

Corporate Responsibility and what hinders their involvement.

• An investigation of the obstacles to transparent and open reporting by

corporations and strategies to avoid greenwashing and “spin”, in order to improve

corporate accountability and promote Corporate Responsibility.

• An examination of specific strategies for the inclusion of a wider variety of

stakeholders (beyond employees and shareholders) in corporate decision-making

structures, using a case study analysis.

• A practical analysis of how limits to economic growth might be instituted into the

existing system, while determining whether this integration is even possible.

• Part of the solution to the implementation gap (see 5.2.7), according to Dale

(2001), is a change in the role of federal and local governments from “doing,

controlling and monitoring” (153) to acting as catalysts in the dialogue between

stakeholders. A framework that enables governments to act as hosts to an

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interactive process of joint decision-making and reflects the principles of

sustainability, from process all the way through to implementation and monitoring

needs to be developed. A study of a local government structure would provide a

useful partnership for research.

• The gap between the time a social or environmental issue become a public

concern and the moment government policy reacts to that concern will remain a

chasm unless a new design for decision-making is implemented. By designing

such a framework, one can also determine what elements of the existing

regulatory regime can contribute to sustainability.

• Dale (2001) suggests that reforming the current dominant socio-economic

paradigms and adapting our behaviour to the eventual negative impacts of our

lifestyles is a waste of time. The long-running debate surrounding reforming the

current system is many-sided, but the implications of the debate itself on the

advancement of sustainability has not been explored. An examination of this

debate needs to be undertaken, to determine the implications on the future of

Sustainable Development. Along with this topic, the alternative to the current

system needs to be explored as it relates to the sustainable behaviour of

corporations and business.

• The current economic system, with its externalizing of social and environmental

impacts, poses a serious challenge to implementing Sustainable Development.

“The ecological economists”, Ravaioli (1995) suggests, “have rejected unlimited

expansion, unlimited growth and accumulation, as a basic category of an

economic model that now seems unsustainable” (156). A lofty aspiration, and

one which has yet to be comprehensively undertaken, is a study to determine what

type of economic system would better foster Corporate Responsibility and

sustainable development.

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• Ethics are “predicated on the assumption that there exist within any culure –

defining the culture – certain norms of human behaviour” (Cook, 2000; 45). A

number of ethical considerations, like shareholder responsibility and adherence to

regulation (which at one time was not a particular concern for corporations – see

chapter 4) have been institutionally engrained in corporate culture. Beyond

voluntary Corporate Responsibility choices, could social and environmental ethics

become engrained in corporate culture? What framework for change would be

required for this to happen?

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