GLOBALIZATION OF SUSTAINABLE DEVELOPMENT?:

PRINCIPLES AND PRACTICES IN TRANSNATIONAL

CORPORATIONS

Dennis A. Rondinelli

Georgia Tech Center for International Business Education and Research

Working Paper Series 2007-2008 Working Paper 023-07/08 http://www.ciber.gatech.edu

For further information: email: ciber@mgt.gatech.edu

October 2006

(c) 2006

GLOBALIZATION OF SUSTAINABLE DEVELOPMENT?: PRINCIPLES AND

PRACTICES IN TRANSNATIONAL CORPORATIONS

by

Dennis A. Rondinelli

Prepared for:

International Research Colloquium on

Multinational Enterprise and Sustainable Development: Strategic Tool for Competitiveness Center for International Business Education and Research

Georgia Tech

October 19-20, 2006

_______________________________________

Dennis A. Rondinelli is Senior Research Scholar at the Duke Center for International Development, Sanford Institute of Public Policy, Duke University, Durham, North Carolina and Director of the Pacific Basin Research Center, Soka University of America, Aliso Viejo, California. He is also the Glaxo Distinguished International Professor of Management Emeritus at the University of North Carolina-Chapel Hill.

The growing public concern that private corporations should not only earn reasonable

profits and provide fair returns to shareholders but also operate as good corporate citizens and

socially responsible organizations has spread to the largest transnational corporations (TNCs)

and seems to have been taken up by companies in both richer and poorer countries. Sustainable

development -- a concept that has been widely adopted by international organizations, national

and local governments, and businesses -- calls for people and organizations “to meet the needs of

the present without compromising the ability of future generations to meet their own needs.”1

The concept of sustainable development includes the simultaneous consideration of economic

growth, environmental protection, and social equity in business planning and decision-making.2

As part of their corporate citizenship or social responsibility strategies many TNCs are creating

voluntary environmental programs to manage more effectively the environmental impacts of

their plants, facilities, and operations.3 These sustainable development initiatives are especially

important in transitional and developing countries around the world where environmental

conditions are already hazardous, where social conditions often lag far behind those in richer

countries, and where regulatory protection for people and the environment either may not now

exist or is ineffectively implemented.

A study undertaken by the Organization for Economic Cooperation and Development

claims that corporate social responsibility initiatives are now “a broad international business

trend,” both in OECD countries and emerging market countries.4 Over the past decade an

increasing number of TNCs have adopted corporate social responsibility (CSR) strategies, issued

sustainability or corporate responsibility reports, and implemented and monitored the impacts of

their CSR programs. The study found increasing corporate engagement on social responsibility

issues as measured by membership in the Dow Jones Sustainability Index, registration with the

1

Global Reporting Initiative, responses to the Carbon Disclosure Project, and ISO 14001

certifications. The number of voluntary ISO 14001 Environmental Management Systems

certifications, for example, has increased steadily from a little more than 36,000 in 2001 to more

than 111,000 in 2005.5

The KPMG International Survey of Corporate Responsibility Reporting 2005 that

included more than 1600 companies, including 250 companies of the Fortune 500 (Global 250)

and the top 100 companies in 16 countries (National 100) found that corporate responsibility

reporting has been steadily increasing since 1993. KPMG found that in 2005 “52 percent of the

G250 companies and 33 percent of the N100 companies issued separate corporate responsibility

reports, compared to 45 percent and 23 percent, respectively, in 2002.”6 The most dramatic

change that KPMG found was that many of the companies have moved from simply reporting

environmental data to reporting sustainability information on social, environmental and

economic issues.

Corporate social responsibility programs of most large TNCs in the past were often

defined narrowly as environmental regulatory compliance, environmental management practices,

philanthropy, or developing external relationships with stakeholders to address social and

environmental problems.7 Increasingly companies have included incentives for employees to

work with community groups on natural resource conservation and protection projects and

making donations and gifts for environmental programs. Many companies now include

assessing the quality of local environmental conditions and local environmental sustainability

and carrying capacity, contributing to environmental infrastructure development or

improvement, sponsoring education and training programs for employees, funding community-

initiated social development initiatives, and creating formal stakeholder relationships with social

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and environmental interest groups, nonprofit organizations, and local governments to prevent or

solve crucial social and environmental problems.8 Other companies include in their sustainable

development programs the adoption of internal management practices that prevent pollution at its

source.9

Despite the fact that an increasing number of TNCs seem to be adopting sustainable

development strategies, critics contend that their corporate social responsibility reports may

misleading, incomplete, and self-serving, that is, simply public relations gimmicks that are not a

true reflection of their business practices. Skeptics argue that transnational corporations often

use their sustainability or corporate social responsibility reports as “green wash,” to cover over

or divert public attention from business practices that continue to endanger the environment and

create risks for the communities in which they operate. Indeed some critics argue that TNCs are

“incompatible with sustainable development,” because they have no long-term commitment to

community or place, future generations, democractic governance, equity and social justice, and

that they simply “seek to create greater wants, focusing on ‘excessities’ more than necessities.”10

Questions remain about how large multinational companies conceive of sustainable

development, how comprehensive and integrated their sustainable development policies are with

their business models, strategies, and practices, how far TNCs go beyond required regulatory

controls in attempting to achieve sustainable development goals, how they implement their

social responsibility and sustainable development programs, how their sustainable development

strategies are monitored and evaluated, and how effective their sustainable development

practices really are.

This paper explores these questions by examining the corporate responsibility and

sustainable development strategies of what the United Nations Centre for Trade and

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Development (UNCTAD) has designated as the 25 most globalized TNCs, that is, those

companies with largest foreign assets, sales, and employment in the world. UNCTAD’s 2004

ranking of the most globalized TNCs provides a sample of corporate CSR reports that can be

used to examine their social responsibility and sustainable development activities.

The adoption of corporate responsibility strategies by TNCs with the largest foreign

assets is significant because of their worldwide economic and social influence. Their foreign

assets, sales, and employment have strong global impacts. (See Table 1.) According to

UNCTAD, the 25 most globalizaed TNCs had more than $3.4 trillion in assets, more than $1.9

trillion of which were held outside of their home countries. The 25 conglomerates had total sales

of more $2 trillion. They employed more than 4.2 million people and created employment for

millions more working for suppliers, service firms, contractors, and their overseas affiliates.

They represented a wide variety of industries including telecommunications, motor vehicles,

electrical and electronic equipment, petroleum products, energy and utilities, media,

pharmaceuticals, and diversified mixes of products.

The sheer economic power of these companies is enormous. BP, the British based

petroleum and energy-resources company, for example, alone had total sales in 2003 of more

$180 billion, more than the gross domestic income of 106 countries the previous year. The seven

automobile makers among the 25 most globalized TNCs—General Motors, Ford, Toyota,

Volkswagen, Honda, BMW, and Fiat—had revenues from sales ($652 billion) in 2003 that

exceeded the gross national income a year earlier of every country in the world except nine --

India, Canada, China, France, Germany, Italy, Japan, the United Kingdom, and the United States.

The total sales revenue of the 25 companies exceeded the Gross Domestic Product of all of the

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Table 1. 2004 UNCTAD Ranking of Most Globalized Nonfinancial Transnational Corporations

Ranking Corporation Foreign Assets

Total Assets Sales

Total Employment

1 General Electric 229,001 575,244 131,698 315,0002 Vodafone Group Plc 207,622 232,870 42,312 66,6673 Ford Motor Company 165,024 295,222 163,420 350,3214 British Petroleum Plc 126,109 159,125 180,186 116,3005 General Motors 107,926 370,782 186,763 350,0006 Royal Dutch/Shell 94,402 145,392 179,431 110,0007 Toyota Motor Corp. 79,433 167,270 127,113 264,0968 Total 79,032 89,450 96,993 121,4699 France Telecom 73,454 111,735 44,107 243,573

10 ExxonMobile Corp. 60,802 94,940 200,949 92,00011 Volkswagen Group 57,133 114,156 82,244 324,89212 E.On 52,294 118,526 35,054 107,85613 RWE Group 50,699 105,116 44,110 131,76514 Vivendi Universal 49,667 72,682 55,004 61,81515 ChevronTexaco Corp. 48,489 77,359 98,691 66,03816 Hutchison Whampoa 48,014 63,248 14,247 154,81317 Siemens AG 47,511 76,474 77,244 426,00018 Electricité de France 47,385 151,835 45,743 171,99519 Fiat SPA 46,150 96,990 52,638 186,49220 Honda Motor Company 43,641 63,167 65,366 63,31021 News Corporation 40,331 45,214 17,421 35,00022 Roche Group 40,152 46,160 19,173 69,65923 Suez 38,739 44,805 43,596 198,75024 BMW AG 37,604 58,192 39,995 96,26325 Eni Group 36,991 68,987 45,329 80,655

Total 1,907,605 3,444,941 2,088,827 4,204,729 Source: UNCTAD, 2004.

poor and middle income countries combined in each of six regions of the world -- East Asia and

the Pacific, South Asia, Europe and Central Asia, Latin America and the Caribbean, and the

Middle East and North Africa, and Sub-Saharan Africa.

Presumably, corporate practices and behavior of the 25 most globalized TNCs can

influence, for good or ill, stakeholders around the world more directly and more powerfully than

even the governments of the countries in which they operate.11 They often set the example for

other TNCs and for domestic firms in both their home and host countries.12 How the largest

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global TNCs perceive corporate social responsibility, define the activities that constitute socially

responsible corporate behavior, and implement their sustainable development plans and monitor

impacts can profoundly affect the people and places where they operate.

This paper reviews the contents of the social responsibility reports published on the

Internet websites of the 25 TNCs with the largest foreign assets.13 The content analysis used

public information provided by the companies with no independent attempt to verify the

accuracy of their reports, other than accepting the certification of external auditors engaged by

the companies. The attempt here was not to prove or disprove that the companies consistently

lived up to the claims they made in their public documents, but to discern how they define and

seek to implement their strategies.

WHAT IS SUSTAINABLE DEVELOPMENT STRATEGY?

The concepts of corporate social responsibility and sustainable development are defined

broadly and often used interchangeably. In general, however, corporate social responsibility is

often seen as a means of attaining sustainable development goals. The World Business Council

for Sustainable Development defines corporate social responsibility as “the ethical behavior of a

company toward society,” that is, management “acting responsibly in its relationships with other

stakeholders who have a legitimate interest in the business—not just the shareholders.”14 Others

point out that corporate citizenship is “about understanding and managing an organization’s

influences on and relationships with the rest of society in a way that minimizes the negative and

maximizes the positive.”15 Business for Social Responsibility, an environmental interest group,

considers corporate social responsibility to be “operating a business in a manner that meets or

exceeds the ethical, legal, commercial, and public expectations that society has of business.”16

6

Logan, Roy and Regelbrugge point out that corporations exhibit good citizenship through

at least four levels of activities: 17 1) commercial self-interest -- in which they adhere to all laws

and regulations and select those activities benefiting stakeholders and communities that also

directly contribute to their profitability and competitiveness in the market; 2) expanded self-

interest with immediate benefits -- in which they undertake activities that go beyond normal

business concerns to benefit stakeholders and communities in ways that also provide measurable

short- and medium-term benefits to the company; 3) expanded self-interest with long-term

benefits -- in which they support community activities, such as education and training, that will

have important impacts on continuing business success; and 4) promoting the common good -- in

which they support or participate in activities that improve conditions in the community or for

stakeholders with no expectation of direct tangible benefits to the company.

HOW DO THE MOST GLOBALIZED TNCs PERCEIVE CORPORATE SOCIAL RESPONSIBILITY?

Of the 25 most globalized TNCs ranked by UNCTAD in 2004, all identified and

provided Internet access to reports they variously titled “corporate responsibility,” “corporate

social responsibility,” “leadership and vision,” “corporate citizenship,” “sustainability,” or

“environmental, health and safety” reports. Although all but four (Toyota, Honda, The News

Corporation, and Hutchison Wampoa) of the top 25 non-financial TNCs ranked by the United

Nations Conference on Trade and Development (UNCTAD) were US- or Western European-

based companies, between 2002 and 2005 they had all issued CSR reports or documents related

to social responsibility.18

7

The CSR reports of the companies still have not reached a level of standardization that

allows easy compilation of frequency distributions of the definitions and components of

corporate social responsibility. Table 2 indicates the frequency with which companies reported

the activities they considered to be part of their corporate social responsibilities. In order to be

Table 2. Corporate Social Responsibility Activities Reported

Activity Frequency of Coverage Corporate environmental management Health and safety standards Environmental protection Community economic/ social development Socially oriented product/service development Dialogue with stakeholders Code of ethics/corporate behavior Maintaining/promoting diversity Developing employee skills Employee works standards/welfare Financial accountability/transparency Philanthropy/charity Alternative energy use Corporate governance standards Human rights principles Support for employee community voluntary services Supplier behavior codes Concern for consumer safety Fair compensation and benefits Responsible marketing standards Code of fair procurement

21 21 20 19 18 18 17 17 17 16 16 16 16 14 12 12 12 7 6 4 3

counted, the report had to address the issue rather than merely mention it and to explain how the

company was carrying out its CSR activities. Clearly, the most frequently reported CSR

activities were those related to legal compliance – corporate environmental management, health

and safety standards and environmental protection. Most companies also reported philanthropic

or charitable activities as part of their CSR strategies and included not only charitable donations

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but also community economic and social development projects and support for employees

involved in voluntary community activities. A third most frequently reported category of CSR

activities involved the development of socially-oriented products or services.

Many of the TNCs are also developing contacts and engaging in dialogues with

stakeholders, both internally and externally, on corporate social responsibility standards and

activities. Most companies report enhancement of employee working conditions and capabilities,

diversity in the work place, and fair treatment of workers as an important part of their CSR

strategies. Finally, TNCs are adopting corporate governance, ethics, fair procurement, and

financial transparency codes both in compliance with national legal requirements and as

voluntary standards of business practice.

For many of the corporations their first CSR report was published only within the last

three to five years. The titles of their reports often indicate the focus of their strategies, but

increasingly those with more comprehensive CSR strategies are coming to define social

responsibility as the combination of governance, financial transparency, environmental

management, product impact, human and labor rights, employee safety, product innovation, and

charitable activities. Many of the companies follow guidelines for defining the scope of their

CSR strategies and reporting established by external organizations such as the Global Reporting

Initiative (GRI), the United Nations Global Compact, the Global Environmental Management

Initiative (GEMI), or others. The 25 most globalized TNCs define CSR in a variety of ways, yet

the coverage of the reports indicates some convergence in the perceptions of TNC executives

about the most important components of CSR.

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HOW COMPREHENSIVE ARE TNC’s SOCIAL RESPONSIBILITY STRATEGIES?

Among the world’s 25 most globalized transnational corporations, the scope of reported

CSR activities varied greatly. The 25 firms can be categorized into three levels of coverage:

comprehensive strategies, diversified strategies, and focused on limited strategies. (See Table 3.)

Table 3: Comprehensiveness of CSR Activities

“Comprehensive” CSR Activities

ExxonMobil 17 Vodaphone 17 BMW 16 General Electric 16 Ford 15 RWE Group 15 Siemens 15

“Diversified” CSR Activities

Roche Group 14 Eni Group 14 BP 13 France Telecom 13 Shell 14 Electricité de France 13 Total 13 General Motors 12 Vivendi 11 Volkswagen 11 Fiat SPA 11 Toyota 10 Chevron 10 Suez 10

“Focused” or “Limited” CSR Activities

Honda 7 E.On 6 News Corp. 5 Hutchinson Wampoa 5

1. Comprehensive Strategies. Seven of the 25 companies had CSR reports that were

more comprehensive in coverage, identifying 15 or more of the 21 CSR activities reported.

ExxonMobil and Vodaphone reported the largest number of CSR activities, closely followed by

BMW, General Electric, Ford Motor Company, RWE, Ford Motor Company, and Siemens.

General Electric, the US-based diversified TNC, defines social responsibility as complying with

laws at all of its business locations, protecting the safety of employees on the job, being a “good

neighbor” in the communities in which it operates, addressing historical contamination issues

cooperatively and incorporating principles of social responsibility in processes and products.19

10

Toyota’s environmental policy pledges to promote environmental measures that strengthen its

reputation as “a company trusted by the local community.”20

ExxonMobil’s CSR strategy consists of 16 policies that form its standards of business

conduct. It includes in its CSR policies ethics, conflict of interest, directorships, political

activities, international operations and health, environment, and safety. Its standards include

policies on product safety, customer relations, alcohol and drug use, and work place

harassment.21 The Ford Motor Company has incorporated into its CSR strategy stronger

standards for the independence of company directors, a comprehensive set of policies, directives

and standards of corporate conduct, and the use of comprehensive assessments to identify

potential legal compliance issues and take action to prevent violations.22

The British-based TNC Vodafone also sees social responsibility broadly as developing

products and services that meet social and environmental needs, guidelines for responsible

marketing, and a code of ethical purchasing throughout its supply chain. BMW sees its work on

hydrogen cars, its research on issues of transportation mobility, the development of mobile

sensors to monitor traffic flow, and the development of clean energy for automobile

transportation as socially responsible activities.23

2. Diversified CSR Activities. Another 14 of the top 25 most globalized TNCs had

diversified strategies for corporate social responsibility, ranging from 10 to 14 of the 21 reported

activities. The Eni Group, an Italian-based petroleum exploration, refining, and distribution

company, sees CSR as a condition for international competitiveness, arguing that “an important

factor in the long-lasting success of business activities lies in the ability to generate a sustainable

value; a goal that can be achieved only by respecting the different needs, cultures and languages

and by encouraging the short and long term trust of those who not only hold a financial state in

11

the company, but who also see it as a promoter of working, economic, commercial, social,

environmental or local concerns.”24 Eni includes business ethics, respect for stakeholders,

protection of workers and equal opportunities, enhancement of professional skills, respect for

diversity, respect for human rights, cooperation, and protection of environment, health and safety

as core principles and activities in its CSR strategy.

Total sees corporate social responsibility as guaranteeing fundamental human rights of

employees and lobbying to promote international global standards, implementing good

governance and financial transparency, and promoting social equity and diversity in human

resources through gender diversity, internationalization, training and sharing knowledge and

technological skills.25 Total also defines corporate citizenship in part as preventing and

managing industrial and work-related incidents and protecting the health of communities in

which it operates and contributing to host community development by promoting sustainable

growth and reducing poverty in developing countries, encouraging employment, and supporting

the disadvantaged; and reducing the “corporate footprint” on local communities in which the

company operates.

Fiat’s CSR strategy is part of its Group Code of Conduct, which provides policies and

guidelines on business conduct -- including conflicts of interest, insider trading, bribery and

illicit payments, money laundering prevention, and export control laws; employees—including

guidelines for financial officers and standards for equal opportunity, harassment, working

environment and hiring practices; standards for external relationships with customers, suppliers,

public institutions, trade unions, communities and the media; health, safety and the environment,

and accounting and internal control.26

12

Many of the other TNCs in the sample combine corporate governance standards,

financial reporting and auditing responsibility, and ethical codes. France Telecom has adopted

principles of corporate governance and financial reporting required by both the French Financial

Security Law and the Sarbanes-Oxley Act in the United States.27 In light of recent international

corporate scandals, the France Telecom Group adopted stronger internal controls and financial

reporting standards, higher quality standards for published information, and new governance

policies and procedures.

3. Limited or Focused CSR Activities. For many of the most global TNCs, the

adherence to external and often international ethical standards and principles of corporate

governance has become a more visible social responsibility. Four companies, however, did not

specifically report corporate social responsibility, and only 5 to 7 of the 21 activities reported by

all 25 of the most globalized TNCs appeared on their websites. Among the mostly narrowly

defined reports is that The News Corporation. The company conceives of corporate social

responsibility primarily in terms of standards of business conduct. It states standards for

corporate assets and for preventing conflicts of interest, relationships with competitors, receipt

and investigation of complaints, and ethics for the corporation’s chief executive and senior

financial officers.28 The News Corporation did not report on performance or indicators of

measurement that would indicate how effectively it carries out its standards.

HOW DO GLOBAL TNCs FORMULATE SOCIAL RESPONSIBILITY STRATEGIES?

How TNCs formulate their CSR strategies or choose social responsibility activities is not

always clear from their CSR reports. However, several of the companies indicate that they

combine internal coordination processes with external consultation in shaping their CSR

13

strategies and many use the guidelines developed by nonprofit organizations or international

CSR monitoring and assessment groups.

The French gas and electric TNC, Suez, created an Ethics, Values and Sustainable

Development Coordination Unit -- consisting of representatives from both management and

operational units, reporting to the Executive Management Committee and to the ethics,

environment, and sustainable development committee of the board of directors -- to develop its

sustainable development strategy. The unit provides an “internal platform” for dialogue within

the company’s international group and with external stakeholders. The unit’s mission is to

“promote the distribution of information on sound practices between the head office and

subsidiaries, propose strategic directions and encourage the development of synergies.”29 The

company shapes its CSR strategy through partnerships with the Global Compact, World

Business Council for Sustainable Development, CSR Europe, UNESCO, and the French

committee for environment and sustainable development, Comité 21.

The German-based utilities company RWE, which serves markets throughout Europe and

other parts of the world, adopted a sustainability strategy in 2003 based on four years of internal

coordination and development.30 The company began coordinating the strategy in 1998 between

its environmental protection department and its Group Headquarters after appointing a

permanent staff of environment officers. The coordination resulted in a set of environmental

guidelines that were discussed and disseminated in 1999 through a group-wide transfer seminar

and implemented through the adoption of the Environmental Reporting and Information System

(ERIS). RWE then developed Group-wide sustainable development guidelines, conducted pilot

studies during 2001 and performed environmental management reviews. In 2002, the company

adopted its future convention on sustainable development, began internal and external surveys

14

and issued its sustainability strategy in 2003, disseminating it again through an international

environmental management seminar. In 2004, RWE published its first corporate social

responsibility report and implemented its group-wide auditing practices.

The Ford Motor Company used a broad process of consultation with internal managers

and external organizations to develop a Code of Basic Working Conditions to protect human

rights in its value chain. Ford’s Code covers standards for its own divisions and for suppliers and

distributors on child labor, compensation, forced labor, freedom of association, collective

bargaining, working hours and verification, harassment and discrimination, and employee health

and safety. Ford also developed compliance and auditing processes to enforce code standards at

its own facilities and will extend the code and compliance assessments to major business partners

and suppliers

RWE, the German utilities TNC, follows guidelines for reporting CSR activities

established by the Global Reporting Initiative (GRI). General Motors uses stakeholder

consultations through periodic meetings of stakeholders, advisory council forums, surveys and

written correspondence. To formulate, implement and disseminate the results of its CSR

strategies, General Motors – as do the vast majority of the 25 most globalized TNCs -- uses a

combination of stakeholder consultation and alignments with organizations concerned about

social responsibility, including the GRI, the World Business Council for Sustainable

Development (WBCSD), CSR Europe, Business for Social Responsibility (BSR), and the

Coalition for Environmentally Responsible Economies (CERES). France Telecom was among

the first companies to endorse and join the UN Global Compact and is a member of international

industry associations that have adopted principles of sustainable and ethical development.

15

HOW DO TNC’S IMPLEMENT CSR STRATEGIES?

The 25 most globalized TNCs implement their CSR strategies through the activities

identified in Table 2. Among the most frequently featured in their CSR reports are efforts to

green the supply chain, environmental management and protection activities, philanthropic and

charitable activities, development and introduction of socially beneficial products and services,

and codes of ethics and standards of business practice.

Social Responsibility in and Greening of the Supply Chain

The most globalized TNCs often report implementation of CSR policies through greening

of their supply chains. KPMG found that 80 percent of the 1,600 CR reports it reviews mention

supply chain issues and that 70 percent require some form of supplier declaration concerning

codes of social or environmental conduct.31 The Ford Motor Company -- as have many of the

most global TNCs -- has certified its manufacturing facilities to ISO 14001 environmental

management standards and extends environmental management standards to both its

manufacturing and product development operations. Ford, along with General Motors and other

major automobile manufacturers, has also required key input production suppliers to obtain ISO

14001 certification for their facilities. General Motors created a “GM Suppliers Environmental

Advisory Team” in 1997 to improve mutual understanding of environmental programs and

efficiency and evaluate new ideas to promote eco-efficiency throughout its supply chain. 32 Like

its competitors in the automotive industry, Toyota is attempting to develop a “green supply

chain,” requiring suppliers to comply with its list of banned substances and to become certified

or registered for the international standards for environmental management systems.

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Environmental Management and Protection

The 25 most globalized TNCs, like the 1,600 companies surveyed by KPMG, report

environmental, health and safety performance as the leading component of their CSR strategies.

Toyota North America, for example, adopted an “Earth Charter” that guides its environmental

management activities and corporate citizenship practices around the world.33 Ford also uses

performance reviews of products that cover fuel economy, tailpipe emissions, materials, energy

use, water use, waste generation and land use in order to reduce negative environmental impacts.

Total pursues environmental protection by helping to reduce the global economy’s

dependence on carbon, making the energy system more secure, and preventing negative impacts

from growth of transportation through improving automotive fuel quality and making land and

maritime transportation safer. Total reports that it practices social responsibility by curbing

emissions, conserving water, reducing odor and reducing the risk of accidental pollution and by

maintaining biodiversity in areas where its plants are located. General Motors is adapting its

materials accounting systems, its material safety data sheet management systems, and its

materials inventory control systems to generate environmental regulatory reports and to support

pollution prevention initiatives.

Philanthropic and Charitable Activities

All of the most globalized TNCs, to some degree, use charitable contributions as a

cornerstone of their CSR strategies. About 74 percent of the companies in the KPMG survey

reported philanthropic activities as part of their corporate social responsibility and sustainable

development strategies. In 2002, for example, the Ford Motor Company made philanthropic

contributions of $84 million and between 1998 and 2002 it made charitable contributions of

more than $373 million in the United States alone.34 In 2003 the Ford Motor Company Fund

17

and the corporation together made more than $120 million in grants for community investment

and engagement in the locations where it operated and supported volunteerism by employees in

local communities.

General Motors entered a partnership with the Nature Conservancy to provide $5 million

over five years to help the environmental group preserve land and water ecosystems in North

America, Latin America, the Caribbean, and the Asia-Pacific Region. Chevron has supported

more than 1,000 employees’ volunteer efforts since 1987 to restore portions of Yosemite

National Park damaged by overuse by contributing more than $600,000 to their efforts. Chevron

also helps finance employee programs in Alberta, Canada to replant more than 100,000

evergreens on land cleared for oil and gas production, and to educate teachers and students in

Mississippi about wildlife and habitat preservation.

Socially Beneficial Products and Services

An increasing number of the most globalized TNCs are also developing socially-

responsive products and services and assessing the social impacts of their existing products.

Responding to increasing interest in non-carbon based energy, BP the British petroleum

company combines new business development and socially responsible activities by diversifying

into solar and wind energy generation and pursuing innovations in alternative and renewable

energy technology.35

Ford is developing hybrid, alternative fuel, and electric vehicles and helping to develop

fuel cell programs. Ford also uses performance reviews of products that cover fuel economy,

tailpipe emissions, materials, energy use, water use, waste generation and land use in order to

reduce negative environmental impacts.

18

Vodafone is developing new digital radio systems in Germany for police, fire and rescue

services and designing other products and services with “high social value.” Vodafone also

assesses the social impacts of mobile phones, including accessibility in developing countries and

to lower income groups in rural areas, analyzes the value added in economies and undertakes

research on the health impacts of electromagnetic fields exposure on human health. ExxonMobil

reports on programs to develop advanced fuels and vehicle systems to improve fuel efficiency

and to improve hydrogen production distribution for automotive fuel cell

Codes of Ethics and Standards of Business Practice

An increasing number of global corporations are adopting codes of conduct for a wide

variety of activities that have a social impact. The Swiss pharmaceutical TNC, Roche, in addition

to its commitment to comply with all local, national and international legislation in its operations

around the world, adopted a set of corporate principles providing guidelines on topics such as

bribery, granting of advantages, dealing with third parties, receipt of gifts, conflicts of interest

and remuneration of intermediaries.36 The BMW Group’s social responsibility strategy includes

development of targeted human resource improvement programs, guidelines for work safety and

health protection, the use of efficient work structures with flexible working hours, applying

internationally applicable criteria and systems for employee assessment, and paying above

average “success-oriented” remuneration and benefits.

Suez, the French gas and electric TNC, has adopted a strong set of procurement

principles that focus on making purchasing a shared activity involving users in the definition of

needs, making procurement decisions transparent, and coordinating decisions between the group

headquarters and its entities and branches. The procurement standards seek fairness and

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impartiality with suppliers and to avoid of conflicts of interest, ensure compliance with laws and

regulations, and act consistently with the Group’s commitments to sustainable development.

HOW DO TNCs REPORT, MONITOR, AND CONTROL?

The corporate social responsibility and sustainable development reports of the 25 most

global companies reveal some information on how these TNCs report, monitor and control the

activities they claim as contributing to the public good. Companies use a combination of internal

monitoring and reporting and external “social auditing” organizations.

Internal Monitoring and Reporting

General Motors focuses its monitoring and reporting on a set of key economic,

environmental and social indicators. Economic indicators include revenue, earnings, dividends,

vehicle sales, and global vehicle market share. Its environmental indicators include global energy

use, global carbon dioxide emissions, global non-recycled waste, global water consumption, and

GM sites certified to ISO 14001 (international environmental management systems standards).

Social indicators include community donations and sponsorships, employees, diversity (5 of

female and minority workforce in the United States), discrimination charges in the United States,

employee satisfaction surveys, recordable injury rates, and lost time accident rates.

One of the most comprehensive social responsibility reporting systems was developed by

the French energy TNC, Suez, through a two-year design, testing and application process. It

includes a detailed set of environmental and social performance measures. The environmental

measures include 17 indicators of overall environmental management performance, 12 indictors

of energy use and capacity measures, 12 indicators of air emissions, 17 indicators of water

consumption and conveyance and sanitation capacity and treatment, 9 indicators of waste

production, 3 indicators of vehicle use, and 10 eco-efficiency indicators. An equally detailed set

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of social performance measures include characteristics of staffing by geographical area,

distribution of staffing by categories of employees, proportion of women among employees,

distribution of staffing by type of contract, age distribution of permanent staff, turnover rates,

distribution of compensation categories, occupational safety indicators, and statistics on training

for employees.

General Electric uses extensive monitoring and auditing tools in its 500 manufacturing

and assembly facilities around the world including compliance checklists, self-assessment

procedures, and audits, focused operating reviews, web-based results tracking, training, and

incentives for employee involvement in external community activities. In addition, GE certifies

its facilities by ISO 14001 environmental management system standards, has adopted

occupational health and safety voluntary protection programs, and does extensive supply chain

reviews to ensure that suppliers meet environmental regulatory requirements.

External Audit and Oversight

The most globalized TNCs are also increasingly using external audits, evaluations, and

certifications of their operations by international standards in order to monitor the

implementation of their CSR strategies and obtain independent assurance of their activities. The

most popular international standards of operations are the International Organization for

Standardization (ISO) 14001 environmental management systems standards and ISO 9000 series

total quality management standards.

The German utilities company, RWE, has its performance assessed by the Sustainable

Asset Management rating agency and evaluated by WestLB and the London-based consultancy

SustainAbility. The French petroleum giant Total, in addition to certifying many of its facilities

by ISO 14001 standards, signed external audit contracts with a British-based NGO

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GoodCorporation to evaluate the application of its code of conduct using 76 evidence points.

GoodCorporation together with external auditors such as KPMG, Pricewaterhouse Coopers and

Bureau Veritas conduct ethical profiling programs at selected Total subsidiaries.

The British petroleum company BP has signed the UN Global Compact and uses

professional auditors, Ernst & Young, to verify its social responsibility claims and data against

the Global Reporting Initiative principles and AccountAbility’s AA1000 Assurance Standards

for materiality, completeness, and responsiveness. The French TNC, Suez, has its social

responsibility performance rated by Vigeo, a European social and environmental rating agency,

and provides its declarative rating to investors. Vigeo rates the company on its performance in

human resources, environment, client relations, corporate governance and commitment.

ASSESSMENT: GLOBALIZATION OF PRINCIPLES -- GAPS IN PRACTICE

Although international organizations and nongovernmental rating and monitoring

organizations claim an increase in corporate attention around the world to sustainable

development and social responsibility reporting, serious questions remain about how significant

the growing number of corporate citizenship reports is compared to the large number of

enterprises doing business globally. Critics of TNC business practices and skeptics of CSR

reporting continue to question whether or not the information reported by transnational

corporations accurately reflects their actual business practices, how effective the sustainable

development programs of corporations are in addressing important social and environmental

problems, how seriously investors, shareholders, and consumers consider the social

responsibilities of international corporations in their financial and purchasing decisions, and how

committed senior executives in TNCs are to implementing sustainable development policies

beyond mere compliance with legal and regulatory mandates.

22

One of the most frequent criticisms of what have become increasingly slick, glossy

reports on corporate social responsibility and sustainable development is that they are simply

public relations tools that often do not reflect what companies really do and that have little

impact on how firms operate, especially when faced with competitive or financial challenges.

Many of the CSR reports of the 25 most globalized TNCs remain broad statements of intention

but lack specifics that would engender trust in their commitment to implementing them. In this

sense, they mirror the CSR reports of 1,600 companies surveyed by KPMG. That survey found

for example, that “almost two-thirds of CR reports include a section on corporate governance,

although most reports lack specifics on how CR is structured and information on how

governance policies are implemented within the organization.37 KPMG also found that although

about 60 percent of the CSR reports they reviewed addressed social issues such as labor

standards, working conditions and community involvement, “reporting performance remains

sketchy, possibly due to the lack of clear social indicators.”

Public trust in CSR and sustainable development reports may also be undermined by the

fact that only about 30 percent of the 1,600 companies surveyed by KPMG included formal

independent “assurance” statements, only one-third of the companies invite feedback on the

reports from users, and only 8 percent report on the feedback they receive.

Deborah Doane, a leading skeptic, calls corporate social responsibility a “myth,” arguing

that market forces make it difficult or impossible for companies to deliver both short-term

financial returns and long-term social benefits. She argues that ethical consumerism is simply not

strong or widespread enough to drive change, that CSR is not a competitive advantage for global

corporations, and that in a global economy countries will simply not compete to have the best

ethical practices.38

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Continuing reports about many of the 25 most globalized companies profiled in this

paper of business practices that are antithetical to their CSR objectives may reinforce critics’

skepticism. Vivendi nearly went bankrupt following the company’s accounting scandals in 2003

and both the company and its chief executive were fined heavily by European regulators for

issuing inaccurate and deliberately misleading financial information.39 Both Siemens and

Daimler Chrysler AG were found to have taken part in bribing officials in Iraq’s oil for-for-food

program. Vodaphone’s reputation was compromised by a phone tapping scandal of political and

military leaders by its subsidiary in Greece during the 2004 Olympics.40 Total’s reputation was

sullied in Europe by a major oil spill that devastated part of the French coastline.

Major institutional investors holding more than $6.75 billion worth of shares in

ExxonMobil severely criticized the company in 2006 for failing “to acknowledge the potential

for climate change to have a profound impact on global energy markets, and which lags far

behind its competitors in developing a strategy to plan for and manage these impacts.” 41 Both

Shell’s and Chevron’s business practices in Nigeria have come under continuing criticism and

Chevron’s oil terminal in Escravos, Nigeria, was seized several years ago by 600 women

villagers protesting the company’s negative impacts on the local environment.42

The advertising executive who helped create BP’s publicity campaigns touting its

strategies for diversifying into alternative energy and re-branding BP as “Beyond Petroleum”

turned skeptical after learning in 2006 of charges against the oil giant of price fixing and

collusion in England and of its failure to maintain pipelines in Prudhoe Bay in Alaska, leading to

corrosion and leaking and the shutdown of facilities producing 400,000 barrels of oil a day.

“Think of it. Going beyond petroleum. The best and the brightest, at a company that can provide

practically unlimited resources, trying to find newer, smarter, cleaner ways of powering the

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world,” he wrote in a New York Times op-ed article. “Only they didn’t go beyond petroleum.

They are petroleum.”43

Such skepticism of corporate social responsibility and sustainable development claims is

sometimes reinforced by corporate executives themselves. The McKinsey Company’s 2006

“Global Survey of Business Executives,” based on responses from 4,238 corporate CEOs and

CFOs in 116 countries found strong evidence of a continuing gap between the recognition of

corporate responsibility principles and business practices. (See Table 4.) “Business executives

across the world overwhelmingly [84%] believe that corporations should balance their

obligations to shareholders with explicit contributions to the broader public good,” the McKinsey

survey found. 44 However, most of the executives saw corporate social activities “as a risk, not

an opportunity, and frankly admit that they are ineffective at managing this wider social and

political issue.”

Few of the global executives surveyed by McKinsey believe that environmental and

social responsibility issues will have the most impact, positive or negative, on shareholder value

for the companies in their industries over the next five years. Only 28 percent chose

environmental issues or climate change, 23 percent health care and employee benefits, 17

percent demand for healthier or safer products and affordability of products for poorer

customers, 14 percent ethical standards for advertising and marketing, 12 percent workplace

conditions and safety, 11 percent demand for more ethically produced products, and 3 percent

human rights standards as significant competitive factors. On all of these socially-oriented

issues, only a minority of global executives saw only or mostly opportunity and limited risk for

shareholder value for companies in their industries over the next five years. Most saw either a

balance between risk and opportunity or mostly risk and limited opportunity.

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Table 4: McKinsey Corporation Survey of Global Business Executives on Managing Social Responsibility Role of business in society Should focus only on

profits while obeying laws and regulations 16%

Should generate high returns but balance contributions to broader public good 84%

Overall contribution that large corporations (public or private) make to the public good

Generally or somewhat positive 68%

Generally or somewhat negative or neutral 32%

Tactics used by corporations to manage sociopolitical issues • Media and public relations • Lobbying regulators and

governments • CEO speeches and public actions • Advertising and marketing • Publication of sustainability or

corporate citizenship report • Philanthropy • Entering new markets or exiting

old ones

Tactic used most frequently 49% 48% 24% 22% 16% 14% 7%

Tactic believed to be most effective 35% 25% 14% 12% 12% 11% 6%

Tactics believed to be more effective • • Increasing transparency about risks

of products or processes • Policies on ethics and corporate

responsibility issues • Engaging stakeholders • Improving compliance with laws

and regulations • Using industry coalitions to

develop joint responses to issues • Changing product lines and

processes

Tactic frequently used 12% 20% 15% 26% 29% 8%

Tactic believed to be most effective 36% 35% 33% 32% 30% 12%

In your industry who takes the lead in sociopolitical issues and who should? • CEO or Board Chair • Public or corporate affairs

Takes the lead 56% 14%

Should take the lead 74% 4%

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department • Other executive or members of

Board • Core business divisions • Department of corporate social

responsibility • HR department • Strategy department

10% 5% 5% 2% 1%

7% 5% 3% 1% 3%

Source: Adopted from McKinsey Quarterly survey of 4,238 global business executives, January 2006. All data weighted by GDP of constituent countries to adjust for differences in response rates from various regions.

Nearly one-third of the executives did not believe that corporations made “a generally or

somewhat positive contribution to the public good.” Moreover, a majority of the executives

believed that the tactics that companies in their industries used to manage social responsibility

issues– media and public relations, lobbying, CEO speeches, and advertising and marketing—

were ineffective. Only 16 percent believed that publication of sustainability or corporate

citizenship reports were an effective tactic. Yet, they reported overwhelmingly that the tactics

believed to be most effective in their industries – increasing transparency about risks of products

or processes, policies on ethics and corporate responsibility issues, and engaging stakeholders –

were used infrequently.

Although 74 percent of the respondents said that the CEO or Board Chair should take the

lead in social responsibility issues only 56 percent thought that top executives did take the lead in

their industry. Only relatively small numbers of respondents believed that leadership should be

taken by public or corporate affairs departments, other executives, core business divisions, or

corporate social responsibility units.

CONCLUSION

Although, as the CSR reports of the 25 most globalized TNCs reflect, the principles of

corporate social responsibility and sustainable development have become more widely

27

recognized by corporations around the world and increasing numbers of them are publicly

discussing their activities, serious gaps still exist between recognition of the principles and actual

business practices. Assessed by the framework that Mirvis and Googins constructed on the five

stages of corporate citizenship –1) elementary, 2) engaged, 3) innovative, 4) integrated, and 5)

transforming – many transnational corporations analyzed in this paper seem to be still at stages 1

and 2.45 They focus on legal compliance and license to operate and focus on jobs, profits and

taxes or philanthropy and environmental protection. Relatively few of the 25 most globalized

TNCs have moved to the integrated stages of addressing all elements of the “triple bottom line”

by viewing sustainable development as a value proposition and taking leadership in championing

it. Fewer still have realigned their organizations to make sustainability a driving force of their

business. Tables 2 and 3 on the coverage of CSR reports reflect that fact that relatively few of the

most globalized TNCs have reached stage 5 of seeking to “change the game” by creating new

markets and promoting social change.

The gap between the growing global recognition of the importance of sustainable

development principles and actual business practice may be due to lags in strategy

implementation, or to lack of real commitment, or simply to unrealistic expectations on the part

of sustainable development advocates. Government regulatory officials and environmental

interest groups sometimes overlook or ignore the fact that corporations are in business to earn

profits and create wealth. They are not charitable organizations or public interest groups. Their

leaders’ perceptions of how to achieve sustainable development will be influenced by their

overall business strategies and by market conditions. Neither regulatory control alone nor

interest group pressure is likely to force them to move beyond compliance with legal

requirements, unless they see sustainable development activities as competitive advantages. 46

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Although many of the companies in KPMG’s survey claim that they report corporate

responsibility for ethical reasons, 74 percent list “economic considerations” as their primary

motivation for issuing CSR reports. Unless companies see the economic as well as social value

of sustainable practices and internalize those values in their business model, they are unlikely to

integrate proactive practices into their overall business strategies. And unless the market

responds more positively to corporate social responsibility and socially-beneficial products and

services, corporations cannot be expected to move more rapidly toward innovative, integrated or

transforming stages of corporate citizenship.

Understanding the broader context in which TNCs perceive of corporate citizenship and

sustainable development can give public interest groups and government regulatory agencies

new opportunities to influence their business practices, but ultimately progress on CSR depends

on strong corporate leadership and positive market response.47 A better understanding of the

scope of activities that TNCs are willing and able to use to improve their sustainable

development performance can help external stakeholders work more effectively with

corporations to identify cutting-edge business practices, educate shareholders and consumers

about the value of sustainable development activities, and develop sustainable development

management practices that can be disseminated and adopted more widely.

29

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