PANEL 3: Social initiatives by enterprises

Key messages:

Social initiatives are an essential component of the new strategy, which aims to achieve a growing convergence between the needs of society and business interest

Some social initiatives make plain economic sense. Increasingly, they are not considered as additional elements but an integral part of business strategies

The reason not all enterprises take social initiatives seem to be that some are simply not aware of the potential benefits

The company provided for an addendum to its regular contracts with suppliers, dealing specifically with the issue of child labour

Mr. G. Davis, PXG, Head, Scenario Processes and Applications, Shell International Ltd.
Mr. B. Nicholls, Deputy Permanent Secretary, Minister of Social Affairs, Denmark
Mr. B. Stigson, Executive Director, World Business Council for Sustainable Development, Geneva
Mr. B. Bacon, Vice-President, World Business Academy
Mr. C. Kapartis, Secretary-General, International Organisation of Employers
Ms. J.F. Dy, Chief, Conditions of Work and Welfare Facilities Branch, ILO
Mr. S. Itoh, Vice-President, Japanese Trade Union, JTUC-RENGO, Tokyo
Ms. M. Barner, Product Manager, IKEA of Sweden AB
Mr. P. Odier, Managing Partner, Lombard Odier & Cie, Geneva
Mr. T. Kline, Vice-President, Manufacturing Strategy, Pfizer U.S. Pharmaceutical Group, USA

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Summary of proceedings:

Enterprises find themselves confronted with new challenges for three fundamental sets of changes. In the economic sphere, they must be more competitive in product markets, financial markets must become more volatile, and an increasing number of workers are competing for jobs with a rapidly changing profile. Within enterprises, work organization has become flatter, which is creating new pressures. In the political sphere, the ability of the state to intervene is increasingly being questioned. In the social sphere, more and more men and women have increasing aspirations which result in periodic outbreaks of discontent and which call for institutionalized mechanisms for arbitration to ensure social peace.

Enterprise social initiatives comprise internal and external initiatives. Internal initiatives relate to employment and human resource development, but also to measures that ensure job security. External social initiatives include measures targeting retired employees, families of present employees and potential employees. They also involve initiatives affecting other enterprises, suppliers and customers, as well as actions towards schools, charities and local community groups. Social initiatives may be more or less business-oriented. The former comprise the provisions of jobs, training and local infrastructures. The latter include mainly philanthropic activities. A third distinction is made between voluntary and legally enforced actions.

While enterprises have always been involved in social activities, genuine new initiatives are characterized by financial support to outplacement, self- employment, employee buy-outs, business start-ups and indirect assistance to outsiders. Other extensive forms concern the financial involvement of employees in business management.

Royal Dutch Shell

In addition to its normal commercial operations, which generate a yearly income of about $ 6 billion, Royal Dutch Shell spends some $60 million per year on social programmes which are designed to support development within local communities and generally speaking involve education, development, cultural activities, youth, conservation and welfare. Decisions about the nature and scope of specific projects are up to each Shell company and are usually taken in partnership with local organizations, agencies and community groups best placed to identify priorities and select the most appropriate means.

Societies and their expectations of institutions are changing in a way that combines a loss of trust in companies, governments, traditional religious institutions and international institutions, with expanded expectations from these organizations. Different groups have quite different and sometimes inconsistent expectations, as recently experienced by Shell with the Brent Spar incident.

A new and more difficult agenda for business and its relation with society is emerging. In addition to their normal tasks - of creating wealth, meeting customers' needs and generating dividends for shareholders - enterprises are being asked to address a wider set of social concerns including issues of sustainable development and consumption, human rights and politics. Enterprises are aware of the influence they might exert in solving social or political problems in some situations, but their license to operate does not give them the authority of governments, international institutions, other political institutions, or churches.

Denmark

A major concern of the Danish government is the need to improve the quality of state welfare interventions through the creation of a "new welfare society" where government acts in partnership with business and social institutions. In 1993, a Social Commitment of Private Enterprise committee was set up in Denmark. The committee started a campaign to sensitize companies about the need to prevent social exclusion at the plant level; to involve companies in initiatives aiming to integrate those already excluded, such as the long-term unemployed; and to promote more socially concerned enterprise employment policies.

These goals are to be pursued primarily by means of attitudinal change among local administrations, labour market associations, and small and large enterprises, so as to increase awareness that social responsibilities do not undermine profitability. A second instrument is pilot show-case projects in local communities. The third measure concerns legislative action to support and motivate socially responsive behaviour, without imposing detailed constraints on enterprises. A National Network of High-level Executives was also set up to advise the Government. It attracted considerable media interest and public support.

While this experience might appear specific to Denmark, an international conference will be held in Copenhagen in October 1997 publicize the programme and formulate a platform for further action. The International Institute for Labour Studies will be involved in the establishment of a "think tank" to prepare the conceptual ground for the Conference. Some general principles may be drawn from experience so far.

Social initiatives by enterprises should be voluntary and profit-making. Legislation can play a supportive role, but should not impose constraints such as compulsory quotas. Programmes must be based on concrete experience. Real life case studies are much more telling than abstract postulates. Partnership between government and business is crucial. Societies are likely to gain in stability as a result of initiatives based on these principles.

The World Business Council for Sustainable Development

The primary aim of business is to reward those who have risked their capital in the enterprise. But increasing demands are being put on business ranging from calls for companies to work on environmental standards higher than legal requirements, to appeals to take on greater civic responsibilities in countries which lack the basic institutional infrastructure, and to provide housing, education and health care.

The problem for the individual company is to know to what extent such demands are being reflected in general business practice and in the market. Pushing up costs more than competitors undermine a company's ability to compete. Ignoring the market signals leaves it with a ruined reputation among customers.

The World Business Council for Sustainable Development (WBCSD) is a coalition of 125 leading world corporations and their CEOs. Its mission is to be a leading business advocate on issues of sustainable development and to promote eco-efficiency through high standards of environmental and resource management. Its work is centred around four key items: business leadership; policy development; best practice; and global outreach.

The growing involvement of companies in WBCSD is a sign that business has understood the new challenge and its role in sustainable development. WBCSD's vision is that some things could grow - jobs, productivity, capital and knowledge - without an increase in pollution, waste or poverty. But to accomplish this, the right framework conditions for business must be provided, including sets of minimum standards. There is a limit to what too detailed legislation can achieve, however.

The concept of eco-efficiency has been developed by WBCSD as a management philosophy and a tool for companies to shift from a pure economic perspective to one that encompasses environmental and social aspects. Eco-efficiency is about doing more from less, being more innovative, involving the employees and the communities in which business operates, and delivering competitively priced goods while progressively reducing waste in resources.

Big strides have been made in protecting the environment. But there are also growing signals that business wants to be involved in the creation of an equitable social development and is taking its responsibilities in this area seriously. Enlightened corporations around the world have integrated a social dimension into their strategies, and managers with long-term vision have recognized that the broader aspects of business responsibilities will be the engines of change.

Three perceptions

There are three ways in which business perceives its social responsibilities. According to one school of thought, the business of business is to make business. After all, enterprises pay taxes, make donations to NGOs and pay wages. But this view no longer dominates. A second, quite common view recognizes that there are serious social problems and that business has a social role, with a responsibility to devote resources to tackling issues such as ecological degradation and unemployment. In reality, however, words and actual action differ considerably, as shown by the widespread trend towards the downsizing of the workforce.

A third, small but rapidly growing group of enterprises sees social problems as symptoms of more fundamental issues. The strategy of these enterprises to cope with these problems is not through incremental changes in attitude of enterprises towards customers, employees and suppliers. Rather it requires a fundamental change in business itself. Social initiatives are an essential component of the new strategy, which aims to achieve a growing convergence between the needs of society and business interests.

The role of the employers' organization

The primary duty of an enterprise is profit. Economic performance is the foundation without which the enterprise could not survive or discharge any other responsibility. In the past enterprises have always been involved in social initiatives of various kinds, and for good reasons, such as the need to develop its actual and potential clientele. Today, they must broaden their activities in this area as a result of the changes in the economic and social environment.

To reconcile business priorities and social responsibilities is more difficult, however. In the new highly competitive world, enterprises must often work on very slim margins. Moreover, they are over-burdened with the social cost of the welfare state in which most of them operate. As far as external social initiatives are concerned, they are necessary to the community and, in the long term, beneficial to the enterprise itself. They must be voluntary and based on the ability of the enterprise to invest in them. To impose codes, standards, conventions and legal interventions based on these initiatives is at best inappropriate.

As it is the organization which promotes and defends the interests of enterprises in the social field, the employers' organization is more actively involved in social matters and more broad-based, covering all sectors of economic activity. Its practical experience in the negotiation and resolution of social issues gives it the reach and the credibility to influence its members in this field.

The resolution on child labour which was unanimously adopted by the International Organization of Employers (IOE) is an example of the means at the disposal of employers' organizations to encourage and foster social initiatives by enterprises. In co-operation with the ILO, the IOE is developing a handbook for the guidance of enterprises in their dealing with child labour. Other areas of initiatives and guidance include such issues as the environment, safety and health at the workplace, the disabled, the informal sector, and social policies at the national and international levels. Employers' organizations are also active in promoting measures to respond to redundancies and to enterprise restructuring, for example, by providing support to enterprise-based training programmes and co-operating with ILO-sponsored programmes to foster entrepreneurship.

Social issues and good business

Social initiatives by enterprises are not new, but they are assuming a new dimension in the changing economic and social context. First, the enterprise is not only a major economic actor but a social actor as well, as a result of globalization, the shift away from the notion of a "provident" state, and to some extent the decline of unionism in some countries. Second, there is a mounting concern on the part of consumers, society at large and enterprises themselves to reconcile ethics and economics, . Third, the voluntary nature of social initiatives is of particular interest at a time when policy is moving from regulation toward incentive.

The growing interest of business in social responsibility is partly driven by philanthropy and societal pressure. But a fundamental reason is also that some social initiatives make plain economic sense. Increasingly, they are not considered as additional elements, but an integral part of business strategies.

Enterprises are focusing on global performance and the combination of elements that make it possible, including greater involvement of workers in fostering innovation, improving organizational efficiency, and building a robust and productive corporate culture. A good corporate image is also essential for good business. Studies and surveys have shown that enterprises with a high social profile outperform their competitors, perhaps because those enterprises which are sufficiently well-run to achieve high standards of social responsibility are also likely to apply the same care to their general business.

The reason not all enterprises take social initiatives seems to be that some are simply not aware of the potential benefits. There is a need for research to build up convincing evidence. In some cases, enterprises are under the threat of opportunistic behaviour by their competitors, in particular if they act alone. Enterprises also have different capacities and different needs. Social initiatives must be closely adapted to specific business situations.

There is no "one-size-fits-all" approach. The ILO experience is that once evidence is available on the benefits of taking social initiatives, enterprises are quick to respond. In order to encourage this response, the ILO research agenda in this area is focusing on the identification of good practices and the preparation of practical case studies on how different types of social initiatives are developed and implemented by enterprises.

Japan

The "raison d'être" of business in society is to provide products and services, employment, adequate working conditions, and to make profits and distribute dividends. These are the social responsibilities of enterprises which many do not fulfil. Increased global competition can be used by enterprises as a pretext not to take their social responsibilities seriously. At the same time, many workers have difficulty in keeping up with technological change.

At the last ILO Conference President Chirac of France emphasized the need for life-long employability through permanent professional training. Voluntary and compulsory contributions by enterprises to welfare systems and the provision of quality employment are noble tasks. Public training of workers must be complemented by internal enterprise programmes for skill development.

Due to the appreciation of the Yen and other structural changes, Japan is now facing unemployment. The relocation of production to lower wage areas is increasingly being accompanied by labour management consultation and outsourcing schemes, whereby the Government pays two-thirds or four-fifths of salary for six months or one year. Many Japanese firms do not have sufficient resources to sustain a large training program. This is a problem for SMEs in particular.

IKEA

IKEA is a global retailer with a presence in 29 countries and a sourcing network comprising some 2,500 suppliers in 71 countries. The company is exposed to pressure by consumers and the media following a case of bonded labour in the carpet industry in Pakistan. This was a difficult but greatly useful learning experience for the company. Ikea's viewpoint on the issue of child labour can be summarized in a number of key words:

Responsibility - The company could not afford to ignore the conditions under which suppliers were producing the goods it distributed. It also had a responsibility to inform its business partners about this problem and to look for solutions, possibly together with international organizations such as the ILO.

Knowledge - Detailed information was necessary in order to deal with the issue of child labour. The experience in Pakistan had shown that the nature of the carpet industry, for example, the extreme fragmentation of production, is a reason behind child labour. It was important to visit the workplaces, to find out about the role of agents and intermediaries and to talk with as many people as possible, in particular to overcome local reticence to discuss the issue.

Awareness - This had to be raised at all levels within the organization and in all the countries where it operates.

High standards - This is an area where IKEA can be most influential. The company provided for an addendum to its regular contracts with suppliers, dealing specifically with the issue of child labour. Monitoring was the difficult part, which could be partly tackled by means of random checks by independent monitoring bodies.

Alliances - Alliances were crucial. In Sweden, for instance, a working group has been established, comprising the company, other importers, trade unions and UNICEF. Such alliances are a tool to exert greater pressure on governments. Reliance on NGOs is helpful to influence suppliers. In general, alliances and action at various levels are required to eradicate child labour.

The social dimensions of financing

Lombard Odier & Cie advises institutional investors in Europe, primarily pension funds. Banks and the financial sector as a whole welcome the discussion on the criteria for investment. Sensitivity towards the political and social implications of investment decisions has grown. The social dimension of finance is increasingly being recognized by decision-makers.

Some guidelines are necessary to harmonize financial and social objectives. There is a trade-off between the longer term benefits of pension owners and the short term social-economic benefits of investments with pension funds. Early retirement schemes are a case in point. They are good for business but less interesting for the individuals concerned, especially for single parents, divorced working mothers, mothers with insufficient numbers of contributory years, or people who entered the labour market late in their lives.

Pfizer

Pfizer, a multi-national health care firm with annual sales of US$ 10 billion, was founded in Brooklyn, New York, in 1849. Its Brooklyn manufacturing plant was the only Pfizer location for over 100 years. It was the site of the world's first penicillin plant and the location of the discovery of the antibiotic terramycin. In the 1960s and 1970s the area around the plant experienced significant urban decline, poverty, crime, abandoned buildings, vacant lots and poor local education.

Unlike other companies Pfizer decided to maintain production and employment at the Brooklyn site and make the community better. The company attacked four major issues. It strove to maintain employment opportunities, to renovate abandoned buildings for housing purposes, to set up a public school for the community, and to fight crime in the area.

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