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Macquarie University: HRM 307 Adrianna De Nardi (Student Number: 412 138 58)

07/10/11

The International Organisation for Standardisation (ISO) 26000, defines social responsibility as the actions of an organisation to take responsibility for the impacts of its activities on society and the environment, where these actions: (a) are consistent with the interests of society and sustainable development; (b) are based on ethical behaviour, compliance with applicable law and international instruments; and (c) are integrated into the ongoing activities of the organisation (Bowens, 2007). This very definition alone presents a number of challenges for International Human Resource Management (IHRM). Firstly, for IHRM to identify, measure and address the full scope and impact, both tangible and intangible, on global stakeholders, secondly, in protecting and applying a uniform corporate identity that aligns to the interests and ethics of a global society that is composed of unequal, unique and fragmented cultures, and finally for IHRM to be compliant and kept abreast of international law and instruments which may conflict with corporate policy, workplace practices and standards. To help meet these challenges, Porter and Kramer provide a holistic CSR approach for IHRM. The inside-out approach maps the social impact of the HR activities value chain to identify positive and negative social impacts. The outside-in approach diagnoses the social dimensions of a companys competitive context to identify both CSR risks and opportunities. Additionally, by understanding cross-cultural nuances, alongside catering functional HRM activities to a global context, IHRM is able to form an integrated and strategic partnership between society and business to provide a unique value proposition to all stakeholders. Thereby, strategic CSR can be a powerful and invaluable tool for IHRM to create rewarding organisational and global opportunities. CSR first emerged in the eighteenth century, interestingly by Adam Smith who formed the basis of free-market economies but expressed the importance of actors behaving honestly and justly so the ideals of the free-market could be sustained. During the industrial revolution when organisations became more powerful and dominant, social darwinism (i.e. business survival of the fittest) formed, justifying cutthroat and brutal, competitive strategies with minimal concern to the impact on society (Hopkins, 2003 p11). During the wake of numerous hostile takeovers in 1980s, societal backlash arose. Big business was criticized for being too powerful, for practicing antisocial and anticompetitive practices and using a shareholder primacy approach for corporate conduct and decision making. As globalisation opened up new markets and expanded

Macquarie University: HRM 307 Adrianna De Nardi (Student Number: 412 138 58)

07/10/11

the role and influence of major corporations on government decision making and policy, concerns of child labour, exploitation and corruption increased, sparking demands of higher social and environmental standards. Reports of abusive labor practices resulted in consumer boycotts of Nike products, Greenpeace protests in 1995 made international headlines when Shell decided to sink an obsolete oil rig (Porter & Kramer, 2006 p3). Fastfood and packaged food companies held responsible for obesity and poor nutrition and even pharmaceutical companies expected to respond to the African AIDS pandemic even though their primary product lines and markets have little to no association (p3). Add to the complexity of IHRM understanding and managing stakeholder perceptions of what a company should be responsible for is the added issue of not knowing the organisations impact on society over time (e.g. Asbestos, thought to be safe in the early 1900s given the scientific knowledge then available). Ignoring CSR, can negatively impact a companies reputation, finances, ability to attract good employees, diversion of management attention away from core activities, restrictions on operations, obstacles in raising finance and insurance and difficulties with life cycle (customers downstream and suppliers upstream), (Cox, 2011). As a first step to meeting CSR expectations, IHRM must be continuous aware of changing CSR demands globally, managing stakeholder perceptions as well as learning from other cases of organisational behaviour - not policy. In accordance to ISO 26000, CSR extends to seven core organisational practices, this includes: Human Rights, community involvement and development, labour practices, consumer issues, fair operating practices, the environment and organisational governance (Bowens 2007). The concern is that while IHRM has the challenge in meeting these responsibilities, results from a global CSR survey found only 15% of Americans, 17% of Australians and 22% of Canadians actually monitored global fair labour standards/practices (e.g. child labour regulations and working conditions), (Appendix 1). Furthermore, less than 40% respondents stated they had a formal CSR policy, America only 25% (SHRM Research, 2007). The report does not express whether respondents were involved in direct/indirect international activities which could help explain the poor results, however this lack of general awareness is important to address for IHRM as increasingly organisations whether directly or indirectly impact global trade, employee relations (e.g. sourcing talent or outsourcing), and managing

Macquarie University: HRM 307 Adrianna De Nardi (Student Number: 412 138 58)

07/10/11

Expatriates etc To meet CSR challenge the recommendation is for IHRM to use a diagnostic tool for assessing HR professionals in each country of their understanding of CSR, their responsibilities and general knowledge of the international environments to which the organisation operates in to aid in identifying knowledge gaps and develop training programs. In a forum on public policy, Palthe (2008), identified how a functional approach (e.g. recruitment, compensation), can help to achieve CSR. For example, an organisation can conduct a recruitment survey and offer to pay for training of women and children in developing nations in exchange for responding, and/or to include CSR into job descriptions (p6), however the issues arise with how practical, measurable and sustainable these initiatives are, as training is of little use to women and children if they have no job prospects to apply the training in let alone training children to work? Additionally, while many companies are starting to adopt triple-bottom line reporting, issues arise when companies place profitability at the same level, since a company cannot survive by behaving in a socially or environmentally responsible manner while making losses (Hopkins 16). Merely integrating the word CSR into organisational policies and reporting practices is not enough to deliver any tangible and/or sustainable outcomes, companies must develop a more strategic CSR approach to avoid shallow initiatives and CSR lip service. For IHRM to address the many challenges that CSR present and apply CSR initiatives internationally that are meaningful, sustainable and measurable, it is necessary to examine the relationship between the two core players in CSR - business and society. Specifically, how these players interact and impact each other. The interdependence between a business and society takes two forms. Firstly, an

organisation imposes upon society its operations within the normal course of business. Where each activity in a companys value chain impacts on the communities in which the firm operates, thereby creating either positive or negative social consequences (Porter & Kramer 2006, p8). While it may be easy to identify the social impact of workplace activities such as implementing compensation policies, performing hiring/promotion functions, and disposing of waste), the principles that underpin these activities, the

Macquarie University: HRM 307 Adrianna De Nardi (Student Number: 412 138 58)

07/10/11

manner in which they are conducted, who is involved, and when and where they are conducted can greatly positively or negatively impact on society (e.g. downsizing has a very different and even fatal social consequence in Japan than in Australia), While organisations affect society so to does society positively and negatively affect organisations. Organisations operate in a competitive environment that is impacted by social conditions. Such social conditions range from: the quantity and quality of available organisational inputs (e.g. skilled labour), the rules and incentives that govern organisations such as labour and OHS laws, the size and sophistication of local demand which is influenced by standards for product quality, consumer rights; and the local availability of supporting industries, such as product and service providers (p7). The ability to recruit appropriate human resources, for example, may depend on a number of social factors that companies can influence, such as the local educational system, housing availability, the existence of discrimination (limiting the resource pool), and the adequacy of health systems. Understanding the relationship between organisations and society is the cornerstone of Porters and Kramer (2006), holistic inside-out and outside in approach that not only aids IHRM to meet CSR challenges but also identifies how strategic and beneficial partnerships between organisations and society can result in shared value for all stakeholders and can even become part of an organisations competitive advantage. The inside-out approach uses the organisation value chain to chart all the social consequences of its activities. This identifies a list of risks and opportunities that need to be examined and prioritised. There are many advantages for IHRM to use this approach, firstly as illustrated in Figure 1, IHRM develop a holistic view of the business and its activities and not just constrained by a view of HRM functions only, secondly, it enables a proactive and diagnostic approach to identify where the greatest potential for positive and negative impact workplace activities may have on society, which aids in developing relevant CSR metrics and thereby incentive schemes rather than applying generic CSR expectations in job descriptions and rewarding token CSR gestures.

Macquarie University: HRM 307 Adrianna De Nardi (Student Number: 412 138 58)

07/10/11

Figure 1.0

While the inside-out approach provides an understanding of the social ramifications of the value chain, the outside-in approach (Appendix 3 and 4) provides an understanding of the social dimensions of the companys competitive context. Similar to inside-out, the outside-in approach provides IHRM with a proactive and diagnostic tool to identify and frame the environment of the organisation and the risks and opportunities that this presents in terms of CSR. Remembering that for IHRM that these tools must be used in each country of operation to ensure that local, specific differences are captured and not to generalise issues. Using the information captured from the inside-out and outside-in approach, will help guide IHRM to find opportunities that present shared values between society and to organisation next is to decipher between three social issues (figure 2.0). Generic social

Macquarie University: HRM 307 Adrianna De Nardi (Student Number: 412 138 58)

07/10/11

issues deemed important to society but neither significantly affect the companys operations nor influence the companys long-term competitiveness. Value chain social impacts that significantly affect the companys activities in the ordinary course of business and the Social dimensions of competitive context where factors in the external environment that significantly affect the underlying drivers of competitiveness in those places where the organisation operates (p8). For example, Carbon emissions may be a generic social issue for a financial services firm like Commonwealth Bank, a negative value chain impact for a transportation-based company like Australia Post, or both a value chain impact and a competitive advantage for Toyota (e.g. Hybrid vehicle).
Figure 2.0

Source: Porter and Kramer (2006)

IHRM can use the inside-out and outside-in as a tool to identify systematically the social impacts of the units activities in each location and sort these into the categories of social issues in order to begin to identify opportunities for symbiotic relationships whereby the success of the company and the success of the community become mutually reinforcing. However, integrating business and social needs takes more than good intentions and strong leadership, it requires adjustments in culture, training, reporting relationships, and incentives and this is where HR functions can support CSR initiatives rather than try to drive CSR. In an increasingly global environment IHRM are presented with a number of CSR challenges. Porter and Kramers inside out, outside in approach addresses the ISO

Macquarie University: HRM 307 Adrianna De Nardi (Student Number: 412 138 58)

07/10/11

26000 standard of social responsibility by being consistent with the interests of society and sustainable development; basing itself on ethical behaviour and compliance with applicable international law and instruments; and most importantly with strategically integrated into the ongoing activities of the organisation. What is also important however is for IHRM to address the lack of HR awareness in international activities, to learn from other organisations, understand the changing perceptions and expectations of stakeholders and to cater CSR to local communities. Corporations are not responsible for all the worlds problems, nor do they have the resources to solve them all, but with IHRM integrating strategic alliances between business and society perhaps Adam Smiths advice 200 years ago will begin to manifest for both, whereby both inside and outside the organisation, greater opportunities are not gained at the expense of the other, but as a result of working with each other.

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Macquarie University: HRM 307 Adrianna De Nardi (Student Number: 412 138 58)

07/10/11

References
Bowens, R 2007. ISO 26000 WHITE PAPER Understanding the ISO 26000 Social Responsibility standard and how it relates to and can be assessed alongside other standards Sustainability Report Assurance, SG. Accessed from http://www.sgs.com/white-paper-library/iso-26000-information-request.htm at September 5, 2011. CAMAC: Australian Government - Corporations and markets Advisory Committee, 2006. The Social Responsibility Report, accessed from http://www.camac.gov.au/camac/camac.nsf/byHeadline/PDFFinal+Reports+2006/$file/CSR_Rep ort.pdf at September 5, 2011 Cox, P 2011. Institutional Interest in Corporate Responsibility: Portfolio Evidence and Ethical Explanation. Journal of Business Ethics. Vol 103, No 1, September 2011, p 143-165 Hopkins, M 2003, 'The business case for CSR: Where are we?' International Journal for Business Performance Management, vol. 5, no. 2,3, p 125-40. Hopkins, M 2004. Corporate Social Responsibility: an issues paper. Policy Integration Department World Commission on the Social Dimension of Globalisation. International Labour Office, Working Paper No. 27. Geneva. Oketch, MO 2004, 'The corporate stake in social cohesion', Corporate Governance, vol. 4, no. 3, pp. 5-19. Martins, N, Coetzee, M 2009. BurkeLitwin as a diagnostic framework for assessing organisational effectiveness. SA Journal of Human Resource Management. Vol 7. No 1 p 1-13.

Palthe, J 2008. Managing Human Rights and Human Resources: The Dual Responsibility of
Global Corporations. Forum on Public Policy. Michigan University, USA. Accessed from http://forumonpublicpolicy.com/summer08papers/archivesummer08/palthe.pdf on 10 September 2011. Porter, ME., Kramer, MR 2006. Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility. Harvard Business Review (HBR) Spotlight. http://www.salesforcefoundation.org/files/HBR-CompetiveAdvAndCSR.pdf SHRM (Society of Human Resource Management) Research, 2007. 2007 Corporate Social Responsibility:United States, Australia, India, China, Canada, Mexico and Brazil. A Pilot Study by SHRM, AHRI, NHRDN, HRinIndia, HRA,CIIC, CCHRA, AMEDIRH, COMARI and ABRH. Accessed from http://www.shrm.org/Research/SurveyFindings/Documents/2007%20Corporate%20Social %20Responsibility%20Pilot%20Study.pdf on 5 September 2011.

Macquarie University: HRM 307 Adrianna De Nardi (Student Number: 412 138 58)

07/10/11

Appendix 1

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Appendix 2

Source: SHRM Research (2007)

Macquarie University: HRM 307 Adrianna De Nardi (Student Number: 412 138 58)

07/10/11

Appendix 3

Macquarie University: HRM 307 Adrianna De Nardi (Student Number: 412 138 58)

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Appendix 4

Source: WBCSD (World Business Council for Sustainable Development) Vision 2050 Full Report. Accessed from http://www.wbcsd.org/web/projects/BZrole/Vision2050-FullReport_Final.pdf on September 10, 2011.