Corporate social responsibility, or CSR, is an element of corporate behavior that promotes long-term contribution to the development of society. Companies that look down on this concept and engage in such practices as bribery, child labor or environmental degradation are usually punished with boycotts and plunging stock prices when discovered.
Dutch food retailer Royal Ahold, a global operator, is a typical case of CSR failure. Earlier this month, Dutch prosecutors raided its head office in the Netherlands in connection with a criminal investigation into reports in February that its food service units in the United States and Argentina allegedly window-dressed their books to show an extra 970 euros million in profits over the past three years.
The accounting scandal marred Royal Ahold’s image and dragged its stock price from nearly 10 euros to about 3 euros on Feb. 24, the first day of trading after the overstatement was announced.
“While building up the worldwide sales networks, we failed to impose our CSR rules on our foreign subsidiaries,” said Sharon Christians, senior vice president of corporate communications at Royal Ahold. “We have been in a serious crisis since Feb. 24 this year. We have to improve our brand in cooperation with stakeholders, including employees and investors,” she said.
To take the responsibility for the scandal, Royal Ahold President and CEO Cees van der Hoeven and Chief Financial Officer Michael Meurs resigned. The company also announced it would pare its global network by selling off subsidiaries in Brazil, Argentina, Peru, Paraguay, Indonesia and Malaysia to regain the confidence of shareholders. It also expects to reduce its pretax profit for the period in question by over $1 billion.
Before the scandal broke, Royal Ahold was considered one of the Netherlands’ front runners in corporate social responsibility. In its 2002 annual report, then President Hoeven said, “In the area of corporate social responsibility, we have accomplished great deal in our local markets this year. We are proud of the work our operating companies have done.”
However, as Royal Ahold’s thick and serious 40-page report on CSR shows, mere words are not enough to ward off a major mistake.
According to the Confederation of Netherlands Industry and Employers, the largest organization of Dutch employers, a rising number of companies have been devoting more attention to CSR because they are concerned about the risk of becoming entangled in unforeseeable problems, such as charges of environmental destruction and food poisoning, that could occur on foreign soil.
Tim van Kooten, public affairs issues manager for Shell Nederland B.V., said CSR is an issue of risk management, not corporate volunteerism.
Shell Nederland, part of the British and Dutch global petrochemical giant, constantly holds talks with shareholders, employees, customers, business partners and NGOs about its CSR activities, he said. The company checks on its subsidiaries’ activities from various standpoints, including environmental protection, business practices and human rights. “We know that we are a part of the (environmental destruction) problem because we have been conducting energy business,” Kooten said. “We have to think about CSR seriously.”
In March, major electronics maker Royal Philips Electronics compiled its first annual sustainability report. According to the report, the company has reduced industrial waste by 16 percent and energy use by 8 percent compared with the previous year.
Arthur van der Poel, a member of the company’s group management committee, stressed that CSR is a serious issue, not just a chance to issue corporate PR. “If we did something wrong and did not respond to it correctly, we would lose our corporate brand image overnight,” he said.
According to Herman Wijffels, chairman of the Netherlands Social and Economic Council, an advisory body to the government, many Dutch firms have come to understand why CSR is important but are dragging their feet when it comes to implementing in-house CSR checking and management systems. And since the Dutch government’s understanding of CSR lags behind that of its business sector, it might be up to outsiders to push the Netherlands into adopting more responsible behavior, he said. Boycotts, for example, might change a company’s attitude toward CSR in a hurry.
However, Pieter Winsemius, a member of the Scientific Council for Government Policy, another government advisory body, said NGOs, investors, consumers and employees should all pressure local companies into taking action.
Winsemius said that although NGOs are not yet big enough to influence Dutch companies, they are making an effort. He also pointed out that the number of companies investors wield influence over is limited. While consumers can influence companies over short periods of time, they are not the leading players expected to ultimately force them into better CSR behavior, Winsemius said.
Employees should play a leading role to make companies respect CSR behavior by changing the corporate culture concerning CSR from inside, he said.