Corporate Social Responsibility: From Conflict Resolution to Conflict Anticipation

by Bruce Paton

We cannot tell yet, but the recent controversies over Apple’s supply chain in China may represent the last great corporate social responsibility (CSR) conflict of the 20th century or the icon of a new 21st century way of rethinking CSR. The choice belongs to Apple’s senior management team, and they have not yet shown their hand.

Apple has been targeted for scrutiny not solely because of its unique challenges, but also at least in part because of its current status as the publicly traded corporation with the world’s largest market capitalization. In separate allegations, Apple has been accused of contracting with factories guilty of violating Chinese labor laws and of contracting with other factories guilty of illegal discharges of toxic wastes. Apple responded first by denying the allegations based on information from their own supplier audits, and then later by inviting third party audits by the Fair Labor Association (FLA), an independent NGO. Predictably, the FLA found evidence of labor practice violations at Foxconn Technology Group, the world’s largest electronics supplier, but could not substantiate many of the alleged violations.

The allegations and Apple’s response follow a classic 20th century CSR conflict cycle: A) The company, acting in good faith, specifies practices its suppliers must uphold. B) The company specifies a regime of audits and inspections it deems cost effective to ensure compliance with its requirements. C) An activist group investigates allegations of labor violations and calls for independent scrutiny. D) The company responds to adverse media coverage by inviting a third party investigation, which uncovers evidence of labor problems. E) The company announces new measures to correct the offending practices, and prevent future conflicts.

In a 20th century CSR conflict, the company minimizes the information provided to consumers, regulators, investors, and other stakeholders. Leading edge companies provide additional information through sustainability reports, corporate social responsibility reports, or other voluntary disclosures. But information is seldom offered, or even collected, that would allow consumers or investors to make informed choices based on product-by-product measurements or comparisons.

In essence, 20th century CSR conflicts have been contests over asymmetric information. In a globalized economy, firms have chosen to rely on suppliers that are both geographically and culturally remote from the markets they serve. Suppliers inherently have more information about the labor practices they employ than the companies that hire them. Because of severe time and cost pressures, suppliers have strong incentives to cut costs and put extra pressure on their employees.

When conflicts erupt, multinational firms have scrambled to provide enough information to satisfy affected stakeholders without fundamentally changing the balance of information. Firms have either attempted to demonstrate that they were not guilty of the wrongdoing alleged against them, or attempted to demonstrate that the crisis had been averted and new systems had been put in place to prevent recurrences of the problems.

Seldom have companies demonstrated a capacity to eliminate the problems by fundamentally altering the information balance. 21st century approaches to CSR will be defined by a fundamental shift in the use of information. Firms will be held accountable for creating and maintaining systems to prevent labor and environmental abuses, and create credible information that allows for continuous monitoring.

CSR
Photo from Creative Commons.

Newly emerging institutions, aided by social media, will shift the information balance in significant ways. For example, Laborvoices.com provides the ability to collect anonymous data concerning working conditions from deep within supply chains. When such sites become populated with data from supplier factories, multinational firms will have a rich base of independent data on the practices of their suppliers. Similarly, Free2work.org provides consumers the ability to identify and avoid products and services prone to slave labor and other forms of bonded servitude. Similar applications will certainly emerge to address environmental practices.

So what will 21st century CSR look like? Without being clairvoyant we can make several predictions:

  1. CSR will no longer be driven primarily by conflicts and conflict resolution. Instead, firms will be forced to build and maintain systems that prevent labor and environmental abuses.
  2. Proactive and often anonymous data collection will be a key strategy. Social media will enable anonymous crowd sourcing of data on both positive and negative supplier practices.
  3. Firms will continue to be judged based on harm caused by their products, their operations, and their supply chains. However, the bar will be set considerably higher. Firms will be judged on their ability to prevent harm, not merely to respond when abuses are uncovered.
  4. Consumers, regulators, investors, and other stakeholders will have better and more complete information on the impact of companies and their products and services. These stakeholders will be better positioned to anticipate problems and to create social pressure for companies to devise effective solutions.
  5. Small companies currently slip through the net of CSR scrutiny unless major calamities occur. In the future, these companies will increasingly be held accountable to their business customers for their own conduct.

In addition, the CSR efforts of multinational firms will be judged on their ability to identify and meet previously unmet human needs. At least three significant trends will transform the context of CSR over the next few decades.

First, climate change will begin to cause increasing dislocations, dramatically increasing human vulnerability. Companies will feel increasing pressure to disclose their actual contributions to climate change, both from their operations and their products. Clearly, companies of all types will be required to rethink the types of products and services they offer and the locations in which they make them to reduce their impact on climate change. Firms will also be forced to use their capabilities to help respond to climate-induced calamities.

Second, for the first time in human history, a majority of our species now lives in cities. A growing part of that population lives in slums, favelas, and other informal settlements. These habitations are characterized by increased risk from floods, landslides, and fires, among others. This reflects a growing reliance on others to provide basic necessities such as food and water. It also reflects a growing concentration of demand for products and services.

Finally, perhaps the most complex of these great drivers is the rise of emerging and frontier markets. This emergence has been accompanied by the rapid growth of “middle class” consumers and an accompanying demand for products and services they have previously been denied.

Addressing these previously unmet needs will require the private sector’s full innovative capabilities, as well as the careful scrutiny of civil society organizations, in order to assure that results are both profitable and beneficial.

21st century CSR will thus be characterized by:

  1. prevention of classic CSR conflicts through proactive strategies to collect and deploy information to overcome information asymmetries on their supply chains, and
  2. affirmative use of firms’ innovative capacities to meet previously unmet human needs.

Apple’s management team has, thus far, chosen to respond to its supply chain problems in China in a responsible 20th century manner. What remains to be seen is whether Apple and its suppliers will choose to fundamentally alter the information balance in its supply chain and to use its considerable talents and resources to address previously unmet human needs.


Bruce Paton received his MBA from Stanford University, followed by his PhD from University of California Santa Cruz. He is currently Chair of the Management Department in the College of Business at San Francisco State University. He previously served as Chair of the Fisher International MBA program at the Monterey Institute of International Studies. He has more than twenty years of high-level experience in industry, government, and higher education. His research primarily focuses on sustainable business strategies and public policies.

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