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CSR is not enough

Different countries define it in different ways. The Western view – that governments and not companies should generally be responsible for social benefits – sometimes conflicts with that held by populations in third-world countries, which often expect philanthropy

Companies cannot even agree on what to call it: some refer to CSR. Others prefer corporate accountability, stakeholder engagement or sustainable development (PE 2/10 p18).

As a starting point, it is hardly auspicious. And neither are many of the conclusions reached by George Frynas in Beyond Corporate social responsibility: oil multinationals and social challenges, which sets out to investigate the extent to which the development of local communities, society at large and the natural environmental can benefit from the voluntary actions of oil companies. The CSR approach, the book argues, is not enough.

Frynas defines CSR as an umbrella term for a variety of theories and practices relating to societal effects of company operations. And he explores CSR in relation to three subject areas: environment, development and governance. CSR, the book says, "largely fails to deal with the three challenges".

It is not all negative. CSR schemes have potential for dealing with environmental issues such as carbon emissions and oil spills, says Frynas, a professor of CSR and strategic management at Middlesex University Business School. "Corporate reporting on the environment is steadily improving, new environmentally friendly technologies are being developed and tangible improvements are being made by some companies." As well as reducing harm to the local environment, environmental programmes can be of benefit to companies by lowering operating costs, and introducing better equipment and encouraging innovation.

And although CSR has been adopted unevenly across the oil and gas sector, companies in the industry have probably done more than companies in other sectors, argues the book, partly because they have had to address the highly visible, negative effects of their operations, such as oil spills. They have developed corporate codes of conduct, become adept at reporting their CSR programmes and have signed up to various international CSR-related programmes, such as the UN Global Compact and the UK's Extractive Industries Transparency Initiative.

However, the general drift of the book is negative. CSR has "less potential" for addressing problems related to community development and governance, even though more effective community relations and improved governance would benefit companies (resulting in fewer operational losses, less corruption and improved corporate reputations) and host countries (better education and more private-sector investment).

Frynas argues that the reluctance or failure of companies to address development and governance concerns occurs for two reasons: unlike development agencies, companies do not tend to prioritise development goals such as poverty reduction; and multinational companies tend not to accept responsibility for the society-wide impact of their industry.

Yet companies certainly are not the only ones to blame. CSR can be constrained by a lack of government support, corruption or lack of a civil society. Government action is an essential part in motivating companies to adopt ambitious CSR principles – by, for example, removing regulatory uncertainties, offering suitable economic incentives for companies to act responsibly and ensuring companies compete on a level playing field.

There will, says Frynas, be further pressure on governments and intergovernmental organisations to go beyond voluntary CSR, although, noting the failures of formal regulatory approaches to social and environmental issues, he says government regulation is not a panacea. "We need to learn more about the optimal balance of voluntary and mandatory, national and international, prescriptive and enabling regulation." Debates on CSR must move beyond unproductive calls for or against regulation towards studying "new forms of shared governance".

Frynas suggests that instead of relying on voluntary corporate initiatives, the responsibilities of business might be incorporated into the rules governing the market – regional economic trade agreements, international treaties or bilateral investment treaties between countries, for instance. He also says industry associations such as the International Council on Mining and Metals have an important role to play in spreading social and environmental practices, and argues that companies would benefit from having a strong role model and champion.

And he proposes new models for corporate governance regimes, such as the mandatory inclusion of employee representatives on the boards of trustees of pension funds, and changes to company law and regulations to increase the power of marginalised stakeholders and to require companies to becoming more transparent about their activities.

It is a timely, clearly written and readable publication that takes stock of the limited progress that has been made by certain companies – mostly those that need to keep on good terms with financial markets. For Western oil companies much of the book makes grim reading. The intended beneficiaries of CSR schemes may not need to read the book to be aware of the movement's limited success.

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