Compliance & Social Responsibility
the globe, businesses are now expected to be responsibleto
improve their business performance, make profits, and contribute
to the economic progress of their communities by learning
how to meet the reasonable expectations of their stakeholders:
all those involved in, affected by, or able to influence the
of the Responsible Business Enterprise
responsible business enterprise
(RBE) is an essential part of a market economy. Its responsibility
is to serve the needs of customers while making a profit
for its owners. It does so by cooperating well with its
key stakeholders: employees, suppliers, and many others.
Business ethics is an essential discipline of the RBE in
a market economy. It guides the choices made and actions
taken by the RBE in all its business conduct. The discipline
of responsible business provides a toolkit of management
practices to aid any enterprise in the responsible pursuit
of its vision of a desired future.
RBE is a collection of people who come together freely to
pursue shared purposes. As a business, its purpose is to
produce goods and services that customers freely choose
to buy. As a responsible business, the enterprise - and
its employees and other agents - takes responsibility for
business choices made and actions taken as well as the results,
impacts, and outcomes that follow. The RBE engages its stakeholders
so that - through its business decisions and activities
- it adds on balance value to its stakeholders.
the body of practices of the RBE, we distinguish between
good management practices in general and specific ethics,
compliance, and social responsibility management practices.
This distinction is productive provided it is understood
to be arbitrary. What we are really talking about are the
practices management must be adept at, and pursue, if an
enterprise is to be responsible. responsibility
and Policy Aspects of the Responsible Business
within an enterprise occurs most surely where its members
respect and trust one another. The RBE pursues respect and
trust through four integrated approaches: business and professional
ethics, organizational ethics, corporate social responsibility,
and corporate governance. These approaches underlie our
inquiry into what it means for an enterprise to be responsible.
They combine to form a fifth, integrating discipline: the
discipline of the business ethics.
of these approaches represents a distinct body of theory
and technique, which, when integrated, help us define the
RBE. Taken together, these approaches describe a process
that surfaces the essences of an enterprise where they are
not yet clear and infuses them through all the enterprise
says and does.
RBE guides its employees and other agents through standards,
procedures, and reasonable expectations based upon its core
beliefs. It encourages and supports their responsible
business conduct through structures, systems, and strategies
designed and developed to foster reasonable stakeholder
expectations and guide their employees and other agents.
For the RBE, its strategies declare its purpose and core
values. They establish how it will govern itself. They set
boundaries to what its employees and other agents can do
to achieve its purposes. They establish what its external
stakeholders can expect from it by way of its business conduct.
the discipline of responsible
business establishes how an enterprise intends to succeed,
what it assumes responsibility for, and how it holds itself
accountable. Without the discipline such an approach instills,
an enterprise risks a lack of focus. This discipline applies
whether an enterprise is large and complex (LCE) or small
to medium (SME).
Business Ethics as the Discipline of the Responsible Business
of the following approaches to business ethics developed
to meet specific ethics and policy issues. Corporate social
responsibility grew because business ethics was not inclusive
enough. Corporate governance grew because the shareholder-owners
had limited legal liability, but no voice in management.
Organizational ethics grew because organizations of all
sorts had common issues of policy and structure. We integrate
all of these approaches as the 'discipline of the RBE' under
the general term of business ethics.
Business ethics, then, is a tool to meet two important enterprise
goals. It is a tool to help managers ensure that their employees
and other agents comply with legal minimums. One must never
lose sight of that goal. It is also a tool to help managers
move beyond merely complying with rules and regulations.
This allows them to set another, higher goal: to help lay
the foundation for good business practices and functioning
market economies for all.
Business and Professional Ethics
classic sense, business and professional ethics is the pursuit
of what is good in the production and exchange of goods
and services. It defines business as a contributing member
of society. Professional ethics more typically reflect trade
association standards, peer pressure, and public opinion.
Business ethics, in its narrowest sense, reflect a common
sense of how the public is best served by a business.
and professional ethics are not recent events. Many professional
codes have been around for a long time. An early example
is the Hippocratic Oath, which provides, in part, "First,
do no harm." But some codes or their provisions are
new. Examples are biomedical ethics, especially the ethics
of genetics, and cyber ethics, or the ethics of the Internet.
Some codes are extensions, such as the ethics of health
care, which reflects the political and economic trade-offs
of providing social health care. Others are specific trade
association ethics, such as journalism, advertising, or
public relations. Still others reflect typical business
functions such as human resources, finance, or procurement.
ethics serves as a bridge. It links the policy governance
of the directors and the individual choices and actions
of the enterprise's employees and other agents. Corporate
social responsibility is the approach guiding the enterprise's
aspirations for the future. Corporate governance is the
approach of translating these aspirations into the policies
of the owners. Organizational ethics is the means by which
management guides its employees and other agents in their
day-to-day business conduct.
ethics is the basis for a process that surfaces the essences
of an enterprise and infuses those essences throughout all
that it says and does. The process is typically called an
'ethics and compliance' initiative or program. It is an
integral part being a 'RBE.' For an enterprise, an ethics
and compliance initiative declares its social purpose and
core values. It establishes what its stakeholders can expect
of its business conduct. It influences how it will govern
itself. It sets boundaries to what its employees and other
agents can do to achieve shared purposes. If its context
raises particular pressures, such as bribery or corruption,
organizational ethics develops anti-corruption
measures to combat them. In short, an ethics and compliance
initiative establishes what an enterprise is responsible
for and how it will hold itself accountable.
an ethics and compliance initiative also frees the moral
imagination of employees and other agents. Goals and objectives
are made clear. Boundaries are made known. Employees and
other agents become free to pursue shared purposes by whatever
means they have the capacity to dream. They must be able
to justify their decisions and actions in terms of shared
purposes, values and visions. But if individual choices
and actions are otherwise within the boundaries set by the
enterprise itself, they may proceed without fear, even if
a mistake is made in good faith.
classic 'narrow' formulation of business's social responsibility
is the economist Milton Friedman's declaration that "the
sole of purpose of business is making profits for its shareholders."
While Friedman noted that this pursuit had to follow the
law and social norms, he was explicitly opposed to holding
business responsible for curing a variety of social ills
not directly caused by it.
advocating increased social responsibility come from a variety
of perspectives. Some resent corporate power and influence
in general. Others want business to take "greater account
of its social and environmental-as well as its financial-footprints."
Others look at the power and affluence of corporations,
especially in the industrialized West, and want to see them
share that power and distribute that affluence in order
to achieve their notion of 'social justice.'
is no global shared definition of corporate social responsibility.
A number of the main ones follow:
for Social Responsibility: Business decision making linked
to ethical values, compliance with legal requirements, and
respect for people, communities, and the environment.
Business for Social Responsibility: A company's commitment
to operating in an economically and environmentally sustainable
manner while recognizing the interests of its stakeholders.
Europe: A new business strategy in which companies conduct
business responsibly by contributing to the economic health
and sustainable development of the communities in which
they operate, offer employees healthy, safe, and rewarding
work conditions, offer quality, safe products, and services
are accountable to stakeholders
a fair return to shareholders whilst fulfilling the above
their perspective, there is one principle on which most
will agree. The responsible business cannot afford to ignore
the legitimate interests of the stakeholders who make its
success possible-owners, customers, employees, and suppliers.
Another principle is perhaps more controversial for some
than others. But most would also agree that the RBE cannot
ignore those other stakeholders affected by its choice and
actions-the community and environment. In a world of cable
news and the Internet, a reputation can be made or undone
through the simplest of choices and actions-and their impacts
RBE defines itself through the approach of corporate social
responsibility (CSR). Through this process, the RBE defines
itself in terms of core purpose, values, and vision of a
valued future. It defines that vision by determining which
stakeholders will be involved in, or affected by, its choices,
actions, and their outcomes.
RBE binds these elements of business life together as a
sound set of beliefs about who it is and how the world works.
It knows where it is and what challenges it chooses to address.
It has a core to hold onto and a vision toward which to
is, then, is a mark of the RBE: that it knows who it is,
what it aspires to, and who will be involved or affected
along its way. The principal tool for the RBE is the process
of 'stakeholder analysis.'
dominant form of business in the global market economy is
the business corporation. A fictional 'person,' the corporation
is a government-chartered structure to organize collective
effort. Its owners, the shareholders, have limited liability,
by law, and may freely transfer their ownership shares.
It is characterized by a separation of personal responsibility
from business ownership. This has important ethical implications.
While the owners are granted liability to the extent of
their capital contributions, the enterprise itself is not
relieved of the social roles and responsibilities that an
unincorporated business must meet.
of directors represents the owners' interests, but a core
of professionals manages the enterprise itself. The issues
corporate governance addresses revolve around questions
of who reflects the desires of shareholders, and how well
they do so. The RBE defines how it will govern itself through
the approach of corporate governance. Through this process,
the RBE defines itself in terms of the three relationships:
(1) owner-shareholders and their representatives, the board
of directors; (2) the board of directors and management;
and (3) controlling shareholders and minority shareholders.
of the RBE is that it knows what ownership and management
can expect from one another as stakeholders. In large part,
external forces, such as laws, security regulations, and
capital markets, define the viable options for corporate
governance. This makes it all the more important for its
governance to reflect, as much as possible, the aspirations
of the enterprise itself and clearly defined responsibilities
to the shareholders. But, to define the role of the board
of directors broadly to meet social needs rather than represent
the interests of its shareholders is to give "uncontrollable
power" to the board. A poorly defined grant of discretion
virtually invites abuse and further government intervention
in the market.
ownership is separated from responsibility, shareholder
liability is limited, as a matter of public policy, to encourage
the free flow of capital. But what of the ethical responsibility
of these owners? Does limited legal liability imply limited
ethical responsibility? The global dialogue generally ignores
this aspect of corporate ownership, though there is an increasingly
significant movement for "socially responsible investing,"
which law does not wholly recognize as yet. Nonetheless,
the RBE must take into account all the interests of it shareholders-ethical
as well as legal-so we look here to the ethical responsibilities
of stock ownership.
RBE chooses and acts in ways that reflect the best interests
of their owners. But these should be the interests of responsible
citizens in their own right. This is one important political-economic-social
implication for the RBE. Governance at substantial variance
from the norms of society as a whole inevitably invites
either shareholder disapproval or government intervention.
governance has been largely a matter of national or, in
the case of the USA, state development until recently. On
the international scene, there have been two major developments:
the OECD published Guidelines for Corporate Governance and
the influential body, the International Corporate Governance
Network (ICGN), representing more than $6 trillion in assets,
recommended that companies adopt the OECD guidelines "as
amplified" by the ICGN.
to the growing importance of cross-border capital markets
investments, the OECD adopted "Principles of Corporate
Governance" (the "OECD Principles") in 1999.
These principles are based upon the ethical premise that
business leaders have an obligation to be fair, transparent,
accountable and responsible in their conduct. The OECD Principles
have been influential in shaping corporate governance codes
in several countries throughout the world, including the
Russian "Code of Corporate Governance," issued
in April 2002.
OECD Principles include recommendations on how an enterprise
should operate its board of directors, set policies and
procedures for internal supervision and control, and develop
business long-term strategy. They set forth best practices
of corporate governance including: instituting independent
auditing; placing strong independent directors on boards
of directors; following a clear and consistent concept of
"conflict of interest"; guaranteeing shareholder
rights, especially minority shareholders; establishing high
standards of financial accountability and transparency;
and commitment to honest and fair dealings with all elements
of the business community.
the interests of investors in responsible business, the
ICGN made a number of far-reaching recommendations. In a
"Working Kit" statement of corporate governance
criteria, they addressed the issue of corporate citizenship
in this manner:
The overriding objective of the corporation should be to
optimize over time the returns to its shareholders. Where
other considerations affect this objective, they should
be clearly stated and disclosed. To achieve this objective,
the corporation should endeavor to ensure the long-term
viability of its business, and to manage effectively its
relationships with stakeholders. (emphasis added)
Corporations should adhere to all applicable laws of the
jurisdictions in which they operate.
Boards that strive for active cooperation between corporations
and stakeholders will be most likely to create wealth, employment
and sustainable economies. They should disclose their policies
on issues involving stakeholders, for example workplace
and environmental matters.
duties of individual members of the board of directors include
actively monitoring the activities of the enterprise. In
a 1996 case in the influential Delaware Chancery Court in
the USA, the Chancellor held that:
obligation includes a duty to attempt in good faith to assure
that a corporate information and reporting system . . .
exists, and that failure to do so under some circumstances
may, in theory at least, render a director liable for losses
caused by noncompliance with applicable legal standards
. . . .
case has been widely interpreted to require more effective
organizational Corporate Responsibility Programs to prevent
and detect criminal behavior. The decision, however, sets
a relatively low standard to follow for individual directors
to avoid personal liability.
for Responsible Business: An International Trend
standards and expectations have developed over the last
few decades. Governments, international institutions, transnational
organizations, organized labor, and civil society conducted
a global dialogue into what it means to be a responsible
dialogue has not been complete. Many voices have not been
heard or have been heard imperfectly. Moreover, there is
an inherent tension between setting global standards and
respecting local conditions. This being said, the standards
and expectations of the last two decades reflect current
best thinking and realistic best practices.
is important to realize as well that these standards and
expectations reflect the thinking and practices of market
economies that are more or less successful at meeting the
most urgent needs of their citizens. Many of them are honored
in their breach to be sure. But as noted above, in developed
market economies, breach is the exception not the rule.
In fact, it is precisely because the behavior is not the
norm is what makes the breach possible. Moreover, it does
not follow that meeting these standards and expectations
will necessarily lead to flourishing communities. Business
can lead, but it cannot control the political-economic-social
environments in which it operates.
other hand, it is highly doubtful that businesses and economies
that do not aspire to-and largely meet-these standards and
expectations will be invited to join a market economy in
any enduring fashion. And if invited, it is highly unlikely
that they will be able to participate fully in market economies
that are largely characterized by these standards and these
is a "global paradox" at play here. For the RBE
to meet the urgent, often dire needs of expanding populations,
it must use all the innovation, imagination, and independent
thinking that characterize successful businesses everywhere.
But it must do so from a solid foundation of norms, values,
and standards that provide the starting point for deciding
whether a business is or is not responsible. Click here
for a number of emerging global standards organized by the
stakeholders they affect and the major issues they address,
Click here for news,
features, and editorials on emerging market economies.
owners and managers have learned that a Corporate Responsibility
Program helps owners and managers improve their business
performance, make profits, and contribute to economic progress
the pressures presented by its relevant context: political,
economic, social, technological
its organizational culture: core beliefs, participation,
responsibility, knowledge-sharing, and dealing with conflict
reasonable stakeholder expectations
responsible management practices to meet stakeholder expectations
from enterprise decisions and activities
resource, see Business Ethics:
A Manual for Managing a Responsible Buisness Enterprise
in Emerging Market Economies