CSR and the Law - Part 1

CSR and the law – Part 1.

5 April 2011

Managing For Society, The Manila Times

Should CSR be legally mandated? How can CSR be best supported by law? These questions have arisen as bills seeking to mandate corporate social responsibility (CSR) are pending in Congress. House Bill 1224 has been filed by Pampanga Rep. Gloria Macapagal-Arroyo and son Camarines Sur Rep. Diosdado "Dato" Arroyo. The counterpart Senate Bill 1239 has been filed by Sen. Manuel Villar. Both bills are entitled “An Act Institutionalizing Corporate Social Responsibility, Providing Incentives Therefor, and for Other Purposes”.

As a researcher, educator and advocate in the area of socially responsible business I am observing these developments with much interest. I’m certainly happy that CSR is in the radar screen of lawmakers. If nothing else, this will draw attention to the important role that business needs to play in Philippine society.

Meanwhile, the bills have concerns from various quarters, notably the business organizations and foundation groups. Is a CSR law necessary? Does it not duplicate already existing laws on philanthropic business activities? Will it not become a disincentive for companies who, on their own, are already actively involved in CSR activities?

These are all legitimate concerns and it’s good that they have been raised and are being discussed. I serve as vice-chair of the CSR committee in the Management Association of the Philippines and I think the issues raised by the bills present a good opportunity to clarify some fundamental issues about CSR in the Philippines. This is important for a meaningful discussion of the bills.

A basic issue is defining CSR. There are, of course, many definitions of CSR and the bills use a two-step approach to defining the concept. In the explanatory notes to the bills, the World Bank definition is cited: “the commitment of business to behave ethically and to contribute to sustainable economic development by working with all relevant stakeholders to improve their lives in ways that are good for business, the sustainable development agenda, and society at large”. In the body of the bills themselves, the specific stakeholders are mentioned when CSR is defined as a business organization’s “obligation to consider the interests of society by taking responsibility for the impact of their activities on customers, employees, shareholders, communities and the environment in all aspects of their operations.”

Although these definitions can still be improved, I find them promising for a couple of reasons. The mention of stakeholders in the World Bank definition and the specific identification of these stakeholders as impacted by the corporation concretizes Article XII, Section 6 of the Constitution which states that “The use of property bears a social function, and all economic agents shall contribute to the common good. “ Most people find the constitutional reference to the common good quite confusing. The mention of specific stakeholder groups in the bills serves to lessen this confusion; these are the groups that corporations should be concerned about.

Moreover, the definitions emphasize the need for corporations to actively engage with all stakeholders in ensuring that their business activities are always ethical and lead to the improvement of lives. At the very least, corporations are reminded that their business operations should never knowingly harm any stakeholder group.

Thus, the definitions promote a concept of CSR which is integral to the operations of the business, not external to it, and which is sensitive to the various groups impacted by business activities. So far, so good.

But the logic of the bills weakens after the definition stage. They propose that “all expenses incurred by any corporation in the exercise of its corporate social responsibility shall be fully deducted from its gross income”. If the definition of CSR is one which is integrated to business operations, then this leads to the absurdity that all business expenses can be tax deductible.

Dr. Benito Teehankee is the Corazon C. Aquino associate professor of business management at De La Salle University. He may be emailed at teehankeeb@yahoo.com. The views expressed above are the author's and do not necessarily reflect the official position of De La Salle University, its faculty and administrators.