Can a Corruption Scandal Expose What Has Gone Wrong with ‘CSR Codes’?

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Ligia Maura Costa, Full Professor and Associate Dean for International Relations at FGV-EAESP, Brazil, discusses what happens when a company doesn’t comply with its own CSR code.

Overview

In the early 1990’s, Codes of Conduct of Social Responsibility (CSR Codes) emerged, as they are well known nowadays. CSR Codes represent a change in companies’ traditional paradigm. Following Zaheer’s leading work (1995), the issue of liability relating to foreign operations, and the extent to which this affects the performance of multinational companies in foreign countries, has attracted much attention. Some recent empirical works have proved that CSR Codes may be a valuable instrument for improving the local quality of life for communities where they are operating.

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Supported by international organizations and associations, many studies, research projects, surveys, books, seminars, and conferences deal with the issue of corruption. “Bribes, kickbacks, ‘grease’, and ‘speed’ money are perhaps the most conspicuous types of corrupt activity” (Doh, Rodriguez, Uhlenbruck, Collins, Eden, 2003:114). Corruption is a social and global phenomenon that is not specific to emerging markets. Nevertheless, there is no disagreement among mainstream scholars that corruption has a more negative impact in emerging markets. In fact, its negative effect seems to be stronger in these countries. However, multinational companies, through the implementation of their CSR Codes, may be important actors battling corruption in emerging markets.

If the assumption is true that CSR Codes are an effective mechanism of voluntary institutionalization against corruption, it is mandatory to analyze some of its limits. CSR Codes can promote the integration of responsible economic practices against corruption, but they can also be used as a response to deflect criticism. CSR Codes may only be an effective mechanism against corruption as long as multinational companies fully comply with their CSR Code’ statements. In order to confirm these limits, issues against corruption present in the CSR Code of Petrobras – the major Brazilian oil and gas company – have been analyzed. Corruption issues present at Petrobras’ CSR Code have been divided into three common subcategories, as follows: bribery and corruption, political contributions and financial transparency.

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Bribery and corruption

Petrobras’ CSR Code has statements rejecting the payment or acceptance of bribes, collusion, pressure or illegitimate favors, either directly or through third parties, whether public officers or private individuals. For instance, the Petrobras Code of Ethics “specifically forbids the use of unlawful practices (corruption, bribery and ‘off-the-books’ accounting) in order to obtain commercial advantages”.

Political contributions

Petrobras’ CSR Code is against political contributions. Petrobras does not admit contributions to a political party or organization or to any individual who either holds public office or is a candidate for a public office to the extent allowed by the applicable domestic law.

Financial transparency

Petrobras’ CSR Code has policies emphasizing measures to promote financial transparency. For instance, one of Petrobras’ “guiding principles” is “a commitment to the transparency and accuracy of the information provided to all the stakeholders”.

How credible can the CSR initiatives of Petrobras be after the corruption scandal that has exposed the company at a global level? It became clear that there is a gap between the claimed concern for social responsibility and the actual behavior of the company. Recent scandals evolving FIFA and Volkswagen demonstrate that the overall execution of the ideals behind corporate social responsibility are currently at stake and it seems that they have been deeply damaged. One can blame CSR Codes’ trend that has been to focus more on goals and aspirations and much less on concrete and tangible results.

Igia Maura Costa Council CommunityDue to a scandal, shall the nature of CSR Code reporting change in order to recover legitimacy? An effective response from companies to confront the situation requires new compliance procedures and rules, revised incentives, and the overhaul of deviant norms and immediate removal of guilty parties. Besides, instead of highlighting what they will do in 2025 on their CSR Codes, companies, like in the movie Back to the Future, should focus on what is happening today or what has happened in the near past with the company and what the immediate response is to the current issue. Companies’ compliance with CSR Codes is a fundamental condition for social, environmental and economic growth at the global level. A company that establishes a CSR Code without ensuring full compliance of its statements compromises the ideals behind this approach and also compromises its image. And, it is better for companies to change the approach, before they have to.

References

  • ZAHEER, S. Overcoming the liability of foreignness. Academy of Management Journal, v. 38, n. 2, p. 341-363, 1995.

Ligia Maura Costa Council on Business & SocietyRead more about Ligia Maura Costa

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