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CSR and Corruption

CSR is an important part of an MNE’s CG at home and abroad in foreign emerging markets where they often have to deal with widespread corruption in business and the local governments. As Fassin and Van Rossem (2009, 584-585) reminded their readers, Anglo-Saxon MNEs emphasize philanthropy, while on continental Europe philanthropy is seen as distinct from CSR. Using survey data from 126 MNEs in China (36 percent response rate), Luo (2006) found that when perceived corruption in the business sector increased, MNEs that focused more on ethics had a greater propensity to use arm’s length bargaining to deal with the government, whereas MNEs that focused less on ethics and more on philanthropy were more likely to use social connections to deal with the government.

Ethical Indices

Taking a closer look at ethical indices of companies, it emerges that the FTSE4Good is an amalgam of indices (excluding companies from the tobacco, nuclear, and arms industries, which are listed on the FTSE All-Share

Index) that assesses the performance of the remaining companies against globally recognized environmental and social governance criteria. The DJSI yields the oldest global sustainability benchmark by assessing the sustainability performance of the largest 2,500 companies listed on the Dow Jones Global total Stock Market Index in terms of a number of economic, environmental, and social criteria. Unlike the FTSE4Good, the DJSI does not exclude any companies but selects companies for inclusion in its index if their total sustainability score places them in the top 10 percent of the most sustainable companies in their sector. Each company is assessed using an industry-specific questionnaire, and the assessment also takes into consideration media and stakeholder analysis. The FTSE4Good and the DJSI review companies’ performance biannually and annually, respectively, and companies may be added or deleted from the index accordingly. In 2010 BP’s total sustainability score took a dive as a result of the Deepwater Horizon oil spill and the company was ejected from the DJSI. Comparison of DJSI and the FTSE4Good Index shows that the former contains measures of economic performance while the latter does not; in other words, as Porter and Kramer (2006, 80) pointed out, the CSR ratings are not consistently measured and do not necessarily reflect corporate social impact.

Weakness of ethical indices39 includes the fact that, as FTSE’s Head of Responsible Investment40 admitted, “many sustainability indices do have a pretty opaque methodology.” It would not be an exaggeration to say that there is no consensus on best practice. Neither FTSE4Good nor DJSI give sufficient information about why some companies are included and others are not, while some indices better suit companies with particular internal structures. The questions posed to companies in order to assess their corporate responsibility performance change from year to year, making it difficult to track their CSR progress over time; some have asserted that the indices reward companies that respond to the questionnaires rather than those that have the best socially responsible practices. Furthermore, the index score reflects successful marketing by companies rather than their sustainability performance. Finally, in view of the preceding criticisms, some companies treat the indices with mistrust.

The importance of CSR for businesses becomes clearer when one bears in mind that “governments, activists, and the media have become adept at holding companies to account for the social consequences of their activities,” and not surprisingly perhaps, “ ... CSR has emerged as an inescapable priority for business leaders in every country” (Porter and Kramer 2006, 78). India, in fact, became the first country to mandate CSR in April 2014, requiring companies to spend 2 percent of their net profit on social development (Prasad 2014).

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