Heeding the call: more and more, stakeholders are demanding that corporations live up to their social responsibilities and institute practices that value people, communities, and the environment

Internal Auditor, August, 2003 by Hans Nieuwlands

INCREASINGLY, CORPORATE GOVERNANCE STAKEholders--including shareholders, employees, analysts, regulators, activists, and labor unions--are expressing their concern about the extent to which global enterprises practice their social responsibilities. The Business for Social Responsibility (BSR), a global nonprofit organization that provides businesses with information and training on corporate social responsibility (CSR), defines CSR as "achieving commercial success in ways that honor ethical values and respect people, communities, and the natural environment." Failure to acknowledge the importance of CSR can create high reputation risk. In the past, several multinationals that have been accused of being socially irresponsible--for example, Shell International Ltd. for polluting the environment, The Coca-Cola Co. for food contamination, and Nike Inc. for unacceptable working conditions--have paid the price and have since established CSR plans.

Chief audit executives (CAEs) need to ensure that social responsibility is on the board's agenda of corporate governance issues. They should be aware of existing standards and global initiatives as they relate to CSR and use them as yardsticks against which to measure their organization's performance. Additionally, auditors should advise the board on identified best practices and determine whether the organization's core values and code of conduct still reflect the desired position of the enterprise in today's and tomorrow's world.

Over the last decade, the field of CSR has grown significantly. Numerous governmental, non-governmental, and advocacy groups have entered the arena and have issued standards and reports to address CSR concerns. For example, in July 2002 the European Commission issued a white paper that calls for a new social and environmental role for businesses in the global economy. And on March 25, the Institute of Social and Ethical Accountability, an international, not-for-profit, professional institute, launched the AA1000 Assurance Standard to address the credibility and quality of reporting on social, environmental, and economic performance.

Three areas of CSR in which global organizations have achieved significant improvements are the environment, human rights, and the safety of food.

BUILDING A SUSTAINABLE ENVIRONMENT

In September 2002, the United Nations (U.N.) held a World Summit on Sustainable Development in Johannesburg, South Africa. Governments, businesses, and civil society from all over the world agreed on an action plan that, according to U.N. Secretary General Kofi Annan, "will put us on a path that reduces poverty while protecting the environment, a path that works for all peoples, rich and poor, today and tomorrow."

Some targets set at the summit included:

* Cutting the proportion of people without access to basic sanitation in half by 2015.

* Using and producing chemicals by 2020 in ways that do not lead to significant adverse effects on human health and the environment.

* Achieving a significant reduction in the rate of loss of biological diversity by 2010.

On May 9, the leaders reconvened for a two-week meeting in New York where they established a program and work plan for the next 15 years. For the first two-year cycle (2004-2005), the U.N.'s Commission on Sustainable Development will focus on water, sanitation, and human settlements, followed by energy, climate change, atmosphere, and industrial development issues in the 2006-2007 cycle. Numerous issues will be addressed throughout the program, including poverty eradication, changing unsustainable patterns of production and consumption, health, and education.

One company that has emerged as a leader in the areas of sustainable development and social performance is Chiquita Brands International, an international marketer and distributor of fresh and processed food products. In 2001, the Rainforest Alliance, an international conservation organization based in New York, presented Chiquita with the first Sustainable Standard-setter Green Award. Companies, cooperatives, and landowners that participate in the Alliance's programs meet rigorous standards for protecting the environment, wildlife, workers, and local communities.

In 2001, the Rainforest Alliance recertified 119 Chiquita farms in Latin America for compliance with the standards set by the alliance's ECO-O.K./Better Banana Project. The Better Banana Project is managed by the Sustainable Agriculture Network (SAN) and a network of independent, non-profit conservation organizations, with the Rainforest Alliance acting as the secretariat. Their mission is to transform social and environmental conditions in tropical agriculture through conservation certification. Standards are available for the farming of bananas, coffee, and citrus fruit.

In 1998, Chiquita was looking for objective, concrete, and measurable performance standards. The company compared the Better Banana Project standards to a variety of other environmental standards and management systems around the world. Chiquita concluded that the nine principles and audit criteria of the Better Banana Project offered the most rigorous, objective, measurable, and best internal bench-marking standards for performance (see "Banana Standards and Indicators," opposite page).