Corporate Social Responsibility, Ethics, and Governance: Definitions and Importance
Discuss about the Socio Emotional Wealth and Corporate Responsibility.
According to Howard R Bowen’s book namely “Social Responsibilities of the Businessman”, published in 1953, corporate social responsibility has been defined as the set of obligations required to be fulfilled by the businessmen, in terms of designing policies and undertaking decisions which are in line with the objectives and values of the society as a whole (Moon, 2014). The concept of corporate social responsibility is not only restricted to healthy environmental practices, but it extends towards aligning overall values of an organization with the aspirations of the stakeholders’ vis-à-vis customers, employees, investors, suppliers, regulators and society (Zientara, 2017). The international importance of CSR can be easily traced via the number of international organizations formed for the same, which are constantly addressing the issues concerning social and ethical responsibilities of organisations (Katamba, et. al, 2012) Some of the noteworthy names among these are Global Reporting Initiative, the Organization for Economic cooperation and development, the UN Global Compact, the World Business Council for Sustainable Development, and the International Organization for Standardization. Business ethics refers to the application of the moral values such as trust, openness, integrity, objectivity and respect, the conduct of business. The various ethical issues as have been recognised are employee conflicts of interest, sexual harassment, unauthorized payments, employee privacy, environmental issues, insider trading and many more (Jamnik, 2017). Corporate governance structure refers to the practices, processes and rules which helps in directing and controlling the entities. It is basically the framework of rules and practices which enables the management being transparent, fair and accountable (Tricker, 2015). The corporate governance structure has multiple facets i.e. people, roles, policies and structures.
The company chosen for the evaluation is Rio Tinto. Rio Tinto is one of the world’s chief mineral and metal mining conglomerate having head offices in Australia and UK. The objective of this report is to analyse the policies of Rio Tinto with respect to governance structure, corporate social responsibility and business ethics, their implementation as well as the results. The company carries out its corporate social responsibilities through the Sustainability Committee, which was headed by the Sustainability Committee Chairman, Ms Megan Clark for the year 2017 (Rio Tinto, 2018).
In order to have a glance of the CSR policy of the company Rio Tinto, few of the activities that were undertaken recently and the achievements of the year 2017, are listed below.
- The company championed Australia’s White Ribbon (domestic violence) campaign which operates on the line of protection and support of families affected by domestic violence. Rio Tinto became a White Ribbon accredited workplace in Australia in the month of March 2018 (Rio Tinto, 2018).
- Rio Tinto remains to be one of the leading companies of Australia employing indigenous Australians. The reported numbers of full time indigenous employees were 1,431, who constituted approximately eight per cent of the company’s total Australian employees in 2017 (Rio Tinto, 2018).
- The company runs an employee assistance programme, that deals with providing them with professional advices and support for employees and their families. More than 95 per cent of employees of Rio Tinto are covered by the Employee Assistance Programme (Rio Tinto, 2018).
- There has been a reduction of 27 percent of greenhouse gas emissions in past 10 years (Rio Tinto, 2018).
- Around 69 percent of the energy sources of Rio Tinto are renewable energy resources (Rio Tinto, 2018).
A number of models have been developed over the years to assess the corporate social responsibility framework of the entities. The two techniques that have been used to analyse the company’s CSR activities and governance structure are Carroll’s Pyramid and Wartick and Cochrane’s Typology. Archie B. Caroll had developed the Pyramid of CSR, to study the corporate social responsibilities and social issues in management (Schwartz, 2011). The technique is based on the CSR definition laid down by Archie B. Caroll himself. According to him CSR activities of an organization is confined within four kinds of expectations of society namely, economic, legal, ethical and discretionary.
Rio Tinto: Company Overview
A company has to be economically responsible by providing quality goods at competitive prices to the society and by earning profits. Also it is the responsibility of the management to maximise the long term economic returns to the shareholders of the company. The economic benefits can be examined by the consistency of share value in the market and distribution of the profits in the form of cash dividend. Following graph describes the growth and consistency of the share price of Rio Tinto over the period of 1 year, apart from the minor
The legal responsibility deals with compliance of applicable laws and regulations. The company Rio Tinto reports on the corporate social responsibility against the Corporate Governance Code of UK, the Australian Exchange Corporate Governance Council’s corporate governance principles and recommendations (also known as the ASX Principles), and New York Stock Exchange Corporate Governance Standards (Rio Tinto, 2018). Apart from these, the company follows the Global Reporting Initiative (GRI) Sustainability Reporting Standards and 10 principles of sustainable development as laid down by the International Council of Mining and Metals.
Ethical responsibilities refer to the adoption of moral principles and engagement in activities that are ethically viable. The management of company Rio Tinto has formulated a code of business conduct “The way we work”, for its worldwide operations which clearly sets out the principles of teamwork, safety, respect, integrity and excellence. According to the annual report of Rio Tinto for the year 2017, the Sustainability Committee works under the guidance of the board of the directors and is responsible for overseeing and reviewing the policies of management, standards and strategies formulated to mitigate the risks and challenges concerning health, employees’ safety, asset security, environmental issues and society. Apart from this, the committee is also responsible of ensuring that the company operates in a way that is in line with the mission and objectives of the entity, towards all the stakeholders and that the activities contribute towards the development of nation and society as a whole.
The philanthropic responsibilities deal with the contribution towards societal issues and improvement of the overall environment within which company operates (Carroll and Buchholtz, 2014). According to the data published in the Rio Tinto’s Sustainability Report 2017, company had spent a whooping US $ 176 million in the year 2017, as an amount for contribution towards the community. The amount was utilized to run 1336 community programmes covering health, environmental protection, education, housing, and agricultural and business development. The following image shows the community contributions by Rio Tinto in year 2017
Corporate Social Responsibility at Rio Tinto
Another model for the analysis of the corporate social responsibility function of an organisation is Wartick and Cochrane typology. Wartick and Cochrane developed this three dimensional model named as Corporate Social performance Model in 1985, comprising three elements namely, the subject of social problem, the type of social responsibility and the nature of corporate responsiveness (Morrison,2015). This model is inspired from that of Caroll’s pyramid and is based on the principle as to identifying of social problems, problem analysis and the corporate activities in relation to that. The company Rio Tinto has developed corporate social responsibility standard which is line with the International Finance Corporation’s Performance Standard on Environment and Social Sustainability (Rio Tinto, 2018). The company engages in social and economic impact evaluations, in order to understand the implications of the business activities and thereby reduction of negative impacts on the surrounding community throughout the life cycle of the operations.
- During the year 2016, Rio Tinto was in news for delaying the payment to its suppliers by almost double the normal time, raising the payment terms to 90 days. Rio Tinto was grossly negligent in performing its ethical duties towards the suppliers, while most of the suppliers belonged to small and medium size businesses (Pascoe, 2016). In response to the controversy, Rio Tinto launched the Supplier code of conduct, which is now issued to all our suppliers. It outlines what the company is expecting of them in terms of human rights, labour rights, safety and the environment.
- Relations between the Mongolian government and Rio Tinto had soured in 2013, when a dispute had arisen over costs and taxes related to a proposed expansion of Oyu Tolgoi copper and gold mine (Burton and Edwards, 2018). The matter was finally resolved in 2015, when the agreement was signed between the government of Mongolia and Rio Tinto (Reuters, 2018).
The governance structure of Rio Tinto as described in the Annual Report, 2017 comprises of the various parties, and each one of them is described in brief in the following segment.
Chairman: Mr Simon Thompson has taken over the post of the Chairman with effect from March 5th, 2018. He is responsible for leadership, setting up of board agendas and the overall effectiveness of the functioning of the board (Rio Tinto, 2018).
Chief Executive Officer: The CEO, Mr Jean Sebastian Jacques is responsible for the day-to-day management of the business through the delegation of activities and support of various committees such as Executive Committee, Investment Committee, Risk Management Committee, Ore Reserves Steering Committee, Disclosure Committee and Closure Committee. These are collectively known as the management committees (Rio Tinto, 2018).
Chief Financial Officer: The CFO, Mr Christopher Lynch is entrusted with the responsibility of financial planning, reporting and analysis, management of investor relations and overseeing overall capital structure formulation and implementation (Rio Tinto, 2018).
Board of Directors: The board of directors consists of six non-executive directors, who provide overall leadership and direction to the affairs of the company either directly or indirectly, in order to provide long-term value to shareholders and other stakeholders. The board is responsible for establishing corporate policies and strategies, and to ensure that there is an effective internal control environment for day-to-day operations to take place efficiently. The board recognises and delegates its functions and authorities the various committees (Rio Tinto, 2018).
Five Board Committees: The Company Rio Tinto comprises of the following five committees, through which the various functions are carried out (Rio Tinto, 2018).
- Audit Committee
- Nominations Committee
- Remuneration Committee
- Sustainability Committee
- Chairman’s Committee
Legal Responsibility and Adherence to International Standards
Group Company Secretary: Mr Steve Allen and Mr Tim Paine are the joint company secretaries of the company and are responsible for advising the board of directors on the various governance related matters (Rio Tinto, 2018)
Following images describes the governance structure of Rio Tinto.
Conclusion
Thus from the discussion undertaken in the previous parts, it can be concluded that corporate social responsibility, ethics and governance structure play an important part in the overall functioning of the businesses of 21st century. Over the years the relationship between the managers, and the quality and detail of CSR reporting has gained a worldwide recognition. The concept, related techniques and practices have developed a major significance, and the companies like Rio Tinto voluntary disclose their CSR activities and governance because of two major reasons. Firstly it enhances their reputation among the stakeholders groups leading to customer loyalty, long term benefits, and it is a mode of paying back to the society that has given them the license to work in. Secondly in order to make the reporting practices transparent and fair. From the analysis of corporate social responsibility policy of Rio Tinto, it can be concluded that the CSR activities undertaken by the company over the years has helped the company in building a brand name for themselves not only in metal and mining industry but globally as well. Though there existed a few instances of gaps in the Corporate Social Responsibility performance of Rio Tinto, but the company has managed to respond successfully to such instances and get past them to become the leading global mining group.
References
Burton, M., and Edwards, T. (2018) Rio Tinto digs deeper into Mongolia. [online] Available from: https://www.reuters.com/article/us-rio-tinto-mongolia/rio-tinto-digs-deeper-into-mongolia-idUSKBN1FA17R [Accessed 07/06/2018].
Carroll, A. B., and Buccholtz, A. K. (2014) Business and Society: Ethics, Sustainability, and Stakeholder Management. 9th ed. Boston, MA: Cengage Learning.
Jamnik, A. (2017) The Challenges Of Business Ethics: The Basic Principles Of Business Ethics – Ethical Codex In Business. [online] Available from: file:///C:/Users/System04100/Downloads/RIC_volume_3_issue_3_Anton_Jamnik%20(1).pdf [Accessed 05/06/2018].
Katamba, D., Zipfel, C., Haag, D., and Kazooba, C. T. (2012) Principles of Corporate Social Responsibility (CSR): A Guide for students and practicing managers in developing and emerging countries. Houston: Strategic Book Publishing and Rights Co.
Market Index (2018) Rio Tinto Limited. [online] Available from: https://www.marketindex.com.au/asx/rio [Accessed 07/06/2018].
Moon, J. (2014) Corporate Social Responsibility: A Very Short Introduction. New York: Oxford University Press, p. 3.
Morrison, J. (2015) Business Ethics: New Challenges in a Globalised World. London: Palgrave Macmillan, p. 226
Pascoe, M. (2016) Unethical Rio Tinto seeing shares surge up. [online] Available from: https://au.finance.yahoo.com/news/unethical-rio-tinto-seeing-shares-surge-up-034629798.html [Accessed 07/06/18].
Reuters (2018) Rio Tinto, Mongolia end stand-off to build huge copper mine. [online] Available from: https://www.reuters.com/article/rio-tinto-plc-oyu-tolgoi-idUSL3N0Y95MT20150519 [Accessed 07/06/18].
Rio Tinto. (2018) Annual Report 2017. [online] Available from: https://www.riotinto.com/documents/RT_2017_Annual_Report.pdf [Accessed 07/06/18].
Rio Tinto. (2018) Sustainable Development Report 2017. [online] Available from: https://www.riotinto.com/documents/RT_SD2017.pdf [Accessed 07/06/18].
Schwartz, M. S. (2011) Corporate Social Responsibility: An Ethical Approach. New York: Broadview Press.
Tricker, B. (2015) Corporate Governance: Principle, Policies and Practices. 3rd ed. Oxford: Oxford University Press.
Zientara, P. (2017) Socio emotional Wealth and Corporate Social Responsibility: A Critical Analysis. Journal of Business Ethics, 144(1), pp. 185–186.
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