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Why CSR Is a Corporate Governance Challenge

Author: Elliot Schrage, Adjunct Senior Fellow for Business and Foreign Policy
October 1, 2002
Ethical Performance


A wave of human rights lawsuits against multinationals demonstrates the need for board oversight of CSR risks, says Elliot Schrage.

American courts are redefining global corporate social responsibility, with business practices once considered standard operating procedures increasingly under attack before US judges. ExxonMobil and Unocal are accused of complicity with the repressive practices of security forces in Indonesia and Myanmar (formerly Burma). Plaintiffs charge Gap, Levi Strauss and other retailers of conspiring with factory owners to place migrant workers into ‘sweatshop’ conditions on the island of Saipan.

Court scrutiny has not been limited to American multinationals. A US appeals court, for example, agreed that Royal Dutch Shell (not its US subsidiary) was subject to US court scrutiny for its role in the execution of Ogoni activist Ken Saro-Wiwa by the Nigerian government.

Historically, acceptable global business practices were grounded in the principle of ‘when in Rome, do as the Romans do’. Responsible multinationals respected local customs and practices. Managers no longer have it so easy. These lawsuits chip away at the historic principle by pushing US courts to scrutinize transnational business relationships. The cases demonstrate the profound risks facing corporations that operate without a clear set of corporate values – and effective procedures to apply them worldwide.

Who best to set these standards, define those values, and review their implementation? Governments seem unlikely to agree on any regime of global social regulation anytime soon. Corporations face a strategic challenge: should this work be managed as an operational matter or as a corporate governance issue?

Promoting global CSR should become a corporate governance challenge for directors, not simply an operational challenge facing management committees. The magnitude of the potential risks is simply too great. Too few corporate boards include ‘public policy’ or ‘corporate responsibility’ committees charged with addressing the risks of doing business in diverse markets. Perhaps it is no accident that Nike – one of the main targets of the lawyers and anti-globalists – recently established such a committee. Yet it is remarkable that corporations have done so little to give boards meaningful oversight. How many CSR executives regularly report to corporate directors on these risks and opportunities?

The Enron debacle has brought new attention to the responsibilities of audit committees and the need for independent oversight of management’s accounting practices. The coming wave of human rights cases promises to do the same for global social responsibility.

Elliot Schrage, adjunct senior fellow in business and foreign policy at the Council on Foreign Relations, teaches at Columbia University’s Graduate School of Business. He was previously senior vice president at Gap.

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