Corporate Social Responsibility

Recent attacks on BP over the oil spill in the Gulf of Mexico highlights the widely held public view that companies often fail to carry out business practices that are congruent with Corporate Social Responsibility (“CSR”).

What is CSR?
CSR can be defined as businesses aligning their values and behaviour with the expectations and needs of stakeholders, i.e. customers, investors, employees, suppliers, communities and wider society. CSR demands that businesses are accountable to stakeholders, inducing operations that have a positive impact on stakeholders.

CSR is an important issue on the Continent; despite companies risking financial losses, potential litigation and reputational ruin, shocking cases still occur.  This is as a result of the complexity and unevenness of global power relations, combined with the absence of a strict and enforceable international rule system.

There are examples of initiatives that bring multinationals to account for their human rights obligations, in effect encouraging them to prioritise CSR. It is important to note that these are not enforceable. These include:

• United Nation’s Universal Declaration of Human Rights (“UNDHR”).     The basic premise of this is that “all human beings are born free and equal in dignity and rights”;
• UN Global Compact encourages companies to build ten principles in the areas of human rights, labour, environment and anti-corruption into their business strategies. 2 of the principles call on businesses to develop an awareness of human rights, to work within their sphere of influence to uphold these universal values and make sure they are not complicit in human rights abuses; and
• Organisation for Economic Development (“OECD”) guidelines states that “enterprises should respect the human rights of those affected by their activities consistent with the host government’s international obligations and commitments”.

 Despite these moral guidelines, companies continue to act unethically, as these prescriptions are by and large voluntary. For example, in 2009, UK company-Afrimex sourced minerals from the Congolese war zone, which were deemed to be conflict resources. This highlights that there is an urgent need to instill binding and enforceable international rights to protect individual rights.  

Arguably it is our governments’ responsibility to push for enforceable international rights and to ensure that strict local standards and regulations are adhered to. Waving the finger of blame at multinationals is analogous to persecuting a badly behaved child that has had poor parental guidance. Whilst it is crucial to acknowledge and correct these companies’ behaviour, it is imperative that African governments ensure that foreign companies are not incentivised to be “Morally Hazardous”, a form of market failure.

What is Moral Hazard?

Moral hazard arises because an individual or institution does not take the full consequences and responsibilities of its doings, and therefore has a tendency to act less carefully than it alternately would, leaving another party to hold some responsibility for the consequences of those actions.

Moral hazard occurs where there is information asymmetry: the party with more information about its actions or intentions has a tendency or incentive to behave inappropriately from the perspective of the party with less information.