Corporate Social Responsibility and Post-Communist Business: From State Paternalism to Enlightened Self-Interest?

The voluntary integration of social and environmental concerns into commercial operations–‘corporate social responsibility’ or ‘CSR’–is not a new trend in the West. Often encouraged by the watchdog efforts of consumer groups, companies in many western countries have been spending money on responsible business practices for years, often because they see it as important for their reputation and image. What is new, however, is that firms are starting to recognize–and some studies are beginning to show–that CSR can boost a company’s profits. By reducing the usage of energy and other inputs, firms can promote environmental sustainability as well as reduce costs. Firms are increasingly aware that better working conditions for employees can help reduce turnover and absenteeism.¹ Financial institutions are increasingly integrating CSR criteria into investment decisions, creating new financial opportunities for companies that embrace CSR principles.

In post-communist countries, the notion that companies have a social role to play is not new. Under socialism state-owned companies built and maintained social, cultural, sporting, housing, and recreational facilities, and provided hot water at subsidized rates for local communities, without commercial cost-benefit analysis. These activities were part of the communist ideology of guaranteed welfare and social protection; they were not driven by factors of economic efficiency.

When privatization began in the 1990s, many firms divested themselves of these social obligations in order to stay afloat in the market economy. This focus on core business activities often created feelings of nostalgia and resentment among people whose access to social services was being scaled back. When combined with popular views equating privatization with corruption and insider deals, these divestitures further reduced popular trust in post-communist companies and their managers. Recent UNDP surveys for Croatia and Hungary reported that many people don’t trust the new capitalists. According to data published in 2004, more than half of Poles believe that private businesspeople don’t obey the law.²  

The (slow) rise of CSR in transition countries
In contrast to state paternalism, CSR is about the development of the communities, markets, and human resources on which a company’s long-term prospects depend. It reflects a forward-looking ‘enlightened self-interest’ approach by companies looking for partnerships with other stakeholders to find solutions to common problems. In contrast to the West (where civil society groups spurred companies to adopt CSR principles), in the post-socialist world, the first big CSR push came from foreign investors seeking to align their business practices in Eastern Europe with CSR principles at home. EU accession processes also helped catalyze post-communist CSR, by encouraging local companies to distinguish themselves as progressive and able to compete on the more brand-conscious, consumer-driven–and often more socially aware–single market. Some local NGOs are starting to push companies to go beyond what is required by law to promote social and environmental goals. And some business leaders see the pursuit of CSR as a way of strengthening popular trust in post-communist companies.

CSR is supported by the United Nations, both regionally and globally. The Global Compact was founded in 2000 by former Secretary-General Kofi Annan as a voluntary alliance of businesses that agree to follow 10 core CSR principles in such areas as human rights, environmental protection, labour standards and anti-corruption. With over 3,200 member companies, the Global Compact has become the world’s largest CSR initiative. In the Europe and CIS region, national networks exist in Armenia, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Georgia, Hungary, Lithuania, Northern Cyprus, Macedonia, Moldova, Poland, Russian Federation, Turkey, and Ukraine. These networks help companies to exchange ideas on how best to implement CSR principles, and to better support development programming.

Coca-Cola’s ‘Every Drop Matters’ regional water partnership with UNDP highlights recent developments in this area. Since for Coca-Cola clean water is a key input for virtually all its products, sustainable water resource management is a key business objective. One joint project in Croatia has mobilized local communities to regularly clean local rivers by ‘adopting’ them.³  Microsoft, which is providing software and curricula to telecentres around the region, is working with UNDP in Bulgaria to provide computing and Internet facilities to tens of thousands of beneficiaries. It is also working to strengthen IT skills of disadvantaged Roma communities in Hungary, the disabled in Poland and the Czech Republic, and youth in Slovenia, to bolster their employment prospects.
Multinationals are also introducing CSR principles to the region via supply chain management. For example, the British retail chain Tesco has offered its suppliers the chance to sell on the UK market if they can follow stringent social and environmental principles. Danisco Sugar in Lithuania employs supply chain management techniques to ensure that social, environmental, ethical and quality standards are being met by its suppliers.

Human resource development is another focus area for CSR in the region. SVIK, a Slovak textile company, has invested in a local trade school in order to increase the number of skilled Roma workers on which the company can draw. Today, Roma employees–most of whom were trained in this trade school–comprise one third of SVIK’s workforce. Kurt Zrt, a medium-sized data recovery company in Hungary, has sponsored technical education programmes for disadvantaged youth, as part of efforts to ensure adequate supplies of skilled workers.

Large Russian companies–including those in which the state retains important ownership stakes–are also showing strong interest in CSR. The aluminum maker Rusal is spending $10 million a year to run grant programmes that support the environment, worker health and safety, and the communities in which the company operates. Other Russian companies such as gas giant Gazprom and electricity provider UES are demonstrating their interest in CSR, in part so they can access Western capital. Going beyond what is required by law is important for western markets, which have shown more skepticism towards Russian business practices. Pursuing CSR has served to lower financing costs and risk premiums for Russian companies.⁴

Microsoft is helping people with disabilities gain high-tech job skills in the Czech Republic, Photo courtesy of Microsoft

Firms in Russia are not the only ones who need to improve public perceptions of their business practices. Charges of corporate social irresponsibility have been levied against prominent western multinationals, including Coca-Cola and Tesco. In 2006, six states in India announced partial or complete bans on Coca-Cola products after claims that the drinks contained harmful pesticides. Tesco has been criticized for building on highly contested greenfield sites, and for undermining the livelihood of small traders. For these (and other) reasons, critics perceive CSR initiatives as being merely window dressing to distract attention from harmful corporate behaviour.

More questions than answers
The fundamental question for development practitioners is whether CSR helps to reduce poverty. Unfortunately, its newness in the post-communist region precludes definitive answers to this question. It is clear that long-term thinking–a cornerstone of corporate social responsibility–gets short shrift in many local companies, which are fighting for survival, struggling to pay salaries, and fending off the tax office. UNDP research on CSR in Poland strongly suggests that large numbers of companies will not become interested in CSR until their customers start to value it. However, UNDP CSR studies conducted in Croatia, Hungary, Lithuania, Poland, and Slovakia do suggest that CSR initiatives can have a significant impact on poverty and social exclusion.

Prodded by foreign investment, multilateral organizations, and local leaders, CSR has a fighting chance among larger companies in the region. As distinct from the West, where the chief drivers of CSR have been consumers and civil-society groups, the chief proponents of CSR in Central and Eastern Europe and the CIS remain foreign investors and large indigenous companies. The real question now is how to spur consumers and civil society groups to replicate the role they play in the West, in pushing companies to pursue more responsible business practices.

Peter Serenyi, Communications Associate for UNDP’s Bratislava Regional Centre, is managing editor of Development and Transition.