Stefanie B. Hiß. CSGR Working Paper No. 141/04. September PDF

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Does Corporate Social Responsibility need Social Capital? The Example of the Sector Model Social Responsibility of the Foreign Trade Association of the German Retail Trade (AVE), a Public Private Partnership

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Does Corporate Social Responsibility need Social Capital? The Example of the Sector Model Social Responsibility of the Foreign Trade Association of the German Retail Trade (AVE), a Public Private Partnership Project Stefanie B. Hiß CSGR Working Paper No. 141/04 September 2004 Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick, Coventry, CV4 7AL, United Kingdom. URL: 1 Does Corporate Social Responsibility need Social Capital? The Example of the Sector Model Social Responsibility of the Foreign Trade Association of the German Retail Trade (AVE), a Public Private Partnership Project Stefanie B. Hiß 1 Marie Curie Fellow, CSGR, University of Warwick CSGR Working Paper No. 141/04 September 2004 Abstract This paper raises the question of whether controlling companies with the help of a monitoring system is a successful way to establish social standards within the supply chain and to help to spread social standards into developing societies. Since the debate thus far has concentrated strongly on the question of what monitoring systems look like and how they are implemented, this paper aims to broaden the discussion by pointing out the possible interrelations between the role of social capital and the diffusion of social standards. What role can social capital play in the diffusion of social standards? After a short introduction to the debate about Corporate Social Responsibility and social standards, there is a discussion of monitoring systems and their limits. Then my own concept of social capital is developed in specific regard to the concerns outlined above. After that, the focus will shift to the possible interactions between social standards and social capital. Finally, my considerations will be illustrated with a case study of the Public Private Partnership-project Sector Model Social Responsibility of the Foreign Trade Association of the German Retail Trade (AVE). Keywords: Multinational Companies, Corporate Social Responsibility, Social Standards, Codes of Conduct, Monitoring, Social Capital, Public Private Partnership project, Multi-Stakeholder Round Table Address for correspondence: Stefanie Hiß Graduiertenkolleg Märkte und Sozialräume in Europa (Research Training Group Markets and Social Systems in Europe ) Otto-Friedrich-Universität Bamberg Lichtenhaidestr Bamberg, Germany Phone: +49 (0) or Homepage: 1 Dipl.-Volkswirtin (equivalent to Master s Degree/ Economics), Dipl.-Politologin (equivalent to Master s Degree/ Political Science), University of Warwick (GB): Marie-Curie Fellow CSGR; University of Bamberg (Germany): Doctoral Graduate Programme Markets and Social Systems in Europe. 2 Introduction This paper is concerned with what role social capital could play in the process of the diffusion of social standards. This question arises in the following context: When confronted with the societal demand to act in accordance with Corporate Social Responsibility (CSR) Multinational Companies (MNCs) more and more often react by establishing voluntary codes of conduct concerning social standards 2 throughout their supply chain. At the beginning of this process companies often declined any responsibility for their supply chain (e.g., Locke 2003:51). They established codes of conduct that were limited to the realms of their company and received no credible monitoring. In reaction to an intense public debate, an increase of critical campaigns, and customers boycotts, more companies now see themselves challenged not only to establish a code of conduct but also to establish a more credible external, independent system of monitoring for their company as well as for their whole supply chain, reaching far into developing countries. Several monitoring systems have been developed that try to optimise control and raise social standards within the supply chain. The Monitoring Process of Codes of Conduct concerning Social Standards The development of monitoring systems can be seen as a reaction to the criticism of codes of conduct of being implemented in an unreliable way. Generally, the monitoring of la bour standards is a process of controlling whether or not the labour standards of a code of conduct are implemented in the right way. There is a wide spectrum of different monitoring systems, ranging from internal to independent or external monitoring systems. Definitions of the terms within this spectrum also vary considerably. 3 Usually, internal monitoring is defined as a form of monitoring conducted by the company itself. By this means the company can integrate the monitoring into its normal quality ma nagement, which puts it on a more regular basis but keeps 2 The following distinction concerning social standards is usually made: On the one hand, the broad term social standards is used more generally in the literature as a comprehensive term for minimum standards with respect to the provision of labour contracts (e.g., working time, wages, social insurance, etc.) and labour rights (Scherrer et al. 1998:12 quoted in Windfuhr 2004). On the other hand, the more specific term core labour standards refers to the definition of the International Labour Organisation (ILO) (Windfuhr 2004:105). In their Declaration on Fundamental Principles and Rights at Work the ILO identified seven, now eight, key conventions as core labour standards. The Declaration covers four areas: Freedom of association and the right to collective bargaining; the elimination of forced and compulsory labour; the abolition of child labour; and the elimination of discrimination in the workplace (International Labour Organization n.d.). 3 Alternatively, there is the distinction between first, second and third party monitoring. Usually businesses see themselves as the first party, the suppliers as the second party, and the monitor as the third party (Ascoly/ Zeldenrust 2003). 3 it in the company s area of responsibility. For example, the German company Faber-Castell established an integrated management system for quality, environment and social aspects, called FABIQUS (Faber-Castell n.d.). A less integrated form of internal monitoring can be carried out by conducting internal inspections, e.g. social audits, undertaken as spot-checks by the company itself or by any owned subsidiary founded specifically for this purpose. External or independent monitoring is more credible and is conducted by an independent organization, e.g. a Non Governmental Organisation (NGO) (Ascoly/Zeldenrust 2003:8ff, IGM Vorstand et al. 2001:62, Fuchs 2000:297ff, Urminsky 2001:32). Theoretically, these different monitoring systems can be seen as complementary. Whilst internal monitoring, especially in the form of an integrated management system, can help to spread social standards throughout a company culture, independent or external monitoring can exert real control more thoroughly legitimate (ILO 1998:No.66). There are various cases where it is difficult to find out how the monitoring systems work and whether or not they are credible. For example, the retail company C&A claims to monitor its code of conduct with the help of the company SOCAM. But, as NGOs point out, all SOCAM s staff were previously employed by the C&A group. Therefore, critical NGOs raise the question whether SOCAM s activities in relation to the C&A group could be interpreted as independent and external monitoring at all (Women Working Worldwide n.d.). Empirically, the OECD lists 246 codes of conduct, but only 137 include internal monitoring and only 26 allow independent or external monitoring (Wick 2003:23). Therefore, there is not only an intense debate as to how to increase the number of codes of conduct concerning social standards, but also as to how to improve the credibility and effectiveness of monitoring systems. Some well known criticism of monitoring systems will be mentioned in the following in order to clear what are the limits of monitoring systems. In the second half of the paper I will come back to these limitations. Systems of monitoring codes of conduct are often based on spot-check controls that are not very frequent. NGOs complain that monitoring is often not very intense. In many cases, during a one or two hour visit, monitors interview the management about employment issues and are guided 4 around the premises. They are therefore only able to identify obvious violations of the code of conduct (Women Working Worldwide n.d.). As a result, no real and continuous pressure for a sustainable and effective improvement of social standards can be exerted. In my view, it is not sufficient simply to call for intensified mechanisms of control. More intensified control not only raises the costs, it also has little chance of success unless there is some kind of practical commitment bringing social standards to life (decarlo 2004: ch. 2.1.) Another criticism concerning monitoring focuses on the dependency structures. Suppliers often seem to implement social standards by complying with the relevant code of conduct because they are economically strongly dependent from their buyers, e.g. the large retailers whose goods are produced at the supplier s facilities, the merchandisers, brand name companies or their intermediaries. For them, compliance with the codes of conduct above the minimum required by the monitoring does not make sense since it involves economic disadvantages. To a certain extent, they have no economic margin for ethical behaviour. For example, the time limits for fulfilling a contract in the textile industries are sometimes only a few days or weeks. The supplier finds itself faced with the dilemma of either producing the goods on time or risking the loss of his buyer. This kind of pressure is passed on directly to the workers, resulting in, for example, enforced overtime. In such a situation of dependency, respecting the code of conduct does not make sense for the supplier. Instead, the code of conduct and the monitoring process are perceived as further demands directed against the interest of the supplier. Additionally, adherence to codes of conduct sometimes has the consequence that workers perceive them as unfavourable. An example is the workers rejection of the prohibition of overtime. As such, this prohibition is designed to protect workers, but as overtime working hours are necessary for them to earn the minimum wage they need for their survival, they tend to reject the social standard. The problem of a supplier unable to pay living wages cannot be solved with a limited code of conduct prohibiting overtime working hours. To design codes of conduct in the right way requires a wider perspective and the ability to anticipate the impacts and consider the preconditions and possible even unintended consequences. Even if workers feel themselves committed to the social standards within a code of conduct, often an atmosphere of fear and arbitrariness preva ils which prevents them from engaging and fighting for their own rights. In particular, when workers rights are denied and unemployment is high, workers will hardly risk complaining about violations for fear of negative consequences, e.g. sacking. In what is a precarious situation for both supplier and worker, the idea of shared values with regard to public welfare plays a more minor role than harsh economic necessities. The notion that economic 5 considerations might be simply subordinated to social standards is less than realistic. Indeed, social standards as framed in a code of conduct are very often perceived as a strange, isolated and disconnected element. In these circumstances, intensifying control seems to me a rather limited approach to diffuse social standards. Instead, there is a need for reciprocal understanding, and an exchange about the different cultural interpretations of social standards and their value for society as a whole. In this sense, monitoring systems are not enough for the diffusion of social standards. Due to structures of economic dependency and different cultural interpretations of social standards, monitoring systems have to be supplemented by something else. Only then can the obstacles to a better diffusion of social standards be overcome. Additionally, monitoring systems are limited with respect to their area or territoriality of influence. Any possible control cannot reach the informal sector (e.g. so-called sweatshops) or the far ends of the supply chain of the formal sector, at least when it is organised as a complicated system of sub-sub-contractors or in the form of long, shifting subcontracting chains (Murray 1998:32f, Reichert 2004:8, Röben 1999:8). In the worst case, a code of conduct may result in a relocation of work from the formal into the informal sector (Reichert 2004:7ff). The above mentioned limitations of monitoring systems are only some examples, of what impedes a spill-over of social standards from a few MNCs and their suppliers into the wider economical sector and into the societal institutions, the rules, scripts, norms and values of a society. This paper will raise the question of whether controlling companies with the help of improved monitoring systems alone can be a successful way of establishing social standards within the supply chain and of helping to spread social standards in developing societies. Even if, with the help of a monitoring system, it were possible to detect the compliance with a certain code of conduct it is unclear whether the values connected to it would be accepted in developing societies and could therefore be implemented in a sustainable way. As the debate has concentrated strongly on the question of what monitoring systems look like and how they are implemented, I want to br oaden the discussion by pointing out the possible interrelations between the role of social capital and the diffusion of social standards. In the prevailing debate this interconnection of social standards and social capital is widely neglected. Social Cap ital Before focusing on the interconnections between social standards and social capital we have to take a closer critical look at the highly ambiguous and controversial concept(s) of social capital. In the broad debate about social capital not only are there questions raised concerning its 6 conceptualisation and measurement, the concept is also criticised for giving rise to vague ideas and casual empiricism (Solow 1999 quoted in Ahn/Ostrom 2002:2). Bourdieu, Putnam and Coleman are the authors most often credited with bringing in key thoughts and impulses to the contemporary debate about social capital (Caroll/ Stanfield 2003:397ff). The following summary of this debate tries to point out how social capital is conceptualised, discussed and applied in a variety of disciplines. Panther (2002:155ff) has attempted to classify the different disciplinary debates. According to him, the aspect of trust is stressed in economics, in sociology the aspect of networks is highlighted, and in political science the aspect of civil society engagement is focused upon. Similarily, Ahn and Ostrom (2002:19) make a distinction between three key elements of the concept: trustworthiness, network structures and institutions. Outside academic circles the term social capital is increasingly used for policy purposes (Dolfsma/ Dannreuther 2003:405ff). The World Bank, for example, sees social capital as a key concept against poverty and inequality. It uses the following definition: Social capital refers to the institutions, relationships, and norms that shape the quality and quantity of a society s social interactions ( ) Social capital is not just the sum of the institutions which underpin a society it is the glue that holds them together (The World Bank 1999). After this very short introduction into the world of social capital definitions the question arises of how to deal with the multifarious meanings of and distinctions within this one term. What makes the concept of social capital more than the sum of the different elements it is made of (e.g. trust(worthiness), network structures, institutions or civil society engagement) and as such valuable? I want to interpret and use these well-known and diverse definitions of social capital as a basis for my own concept. With reference to these diverse definitions, I will sort them along certain positive qualities (1, 2). On top of that, I will try to focus on the normative qualities inherent in many of the definitions mentioned above (3). Finally, I will try to put this new concept into the context of the concerns of this paper. On the next pages, social capital is differentiated according to the following qualities: (1) Social capital as a resource; (2) Social capital as a capability, and (3) Social capital as capital to be socia l. 7 Social Capital as a Resource. The qualities related to social capital as a resource will be seen mainly in the structural component of the concept. There are, for instance, structures of networks, contacts, established trust or reputation. One example of social capital as a resource is membership within a network, such as a multi-stakeholder forum. Such affiliations can be seen as a valuable resource to a MNC for obtaining information about stakeholders views concerning CSR or the contemporary debate in a manageable, personal and perhaps trustful circle. But, this should be distinguished from the different ways how to use such resources. In my view, this depends essentially on the capability, e.g., to develop alliances through trustworthy behaviour or to build up a good reputation. Social Capital as a Capability. In addition to social capital as a resource, the qualities related to social capital as a capability will be seen mainly in the process component of the concept. It can be seen as a capability to develop, to use, to activate or to obtain resources such as networks, contacts, trust or reputation, which can be characterized as a process. For example, a person or a company with a high level of capabilities or skills can more easily create alliances and facilitate cooperation, can better communicate and diffuse its own values and norms, or can also manipulate the public by playing with Public Relations. Social capital as a resource and social capital as a capability are closely connected with each other, and therefore the distinction has often more the character of an analytical one. Both are unthinkable without social interactions. Building up a resource requires the capability to do so, and vice versa. As with Giddens structuration theory, resources and capabilities are interrelated. An actor needs resources to elaborate his capabilities, and in the process of doing so reproduces the resources. As regards the different cultural borders that social standards have to overcome, the issue could be raised whether social capital as a resource and as a capability can also function as translators or transmitters between, for example, different value systems of different networks. Apart from these considerations the question of the normative and positive components of social capital has to be discussed. From my point of view, the two qualities of social capital discussed so far are applicable to a wide range of goals but operate irrespective of public welfare. They 8 can therefore be descr ibed as positive rather than normative qualities. In order to determine the normative aspect of social capital, let us invoke a third quality. Social Capital as Capital to be Social. In my view, social capital also has a normative component. I will try to explain in what way it seems to be a normative as well as a positive concept. The Italian Mafia, widely perceived as a force contradicting public welfare, can, following the qualities of social capital mentioned until now, be described as having a high level of social capital. In many parts of southern Italy the Mafia has close networks, commonly shared values and enjoys a certain trustworthiness from its members. Along the d
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