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What is the Definition for Globalization?Top AnswerGlobalization can be defined as growth to a global or worldwide scale. It iscommonly used as a precise way of describing the spread and connectedness of

production, communication, and technologies across the world, which has involvedthe interlacing of economic and cultural activity. Sometimes the term can be used bysome institutions to refer to their efforts globally, such as the World Bank, increating a global free market for goods and services.

Advantages of Globalization?

Top AnswerIn globalization, there is integration of markets which brings about cheap productsfor the consumers; outsourcing leads to job creation in less developed areas; it alsoprevents the saturation of goods in a specific market.

Globalization means increasing the interdependence, connectivity, andintegration on a global level, with respect to the social, cultural, political,technological, economic, and ecological levels. It is the collaboration of

countries to provide a boost to trade practices, and also to reduce culturaldifferences. Its various advantages can be felt all across the globe by oneand all, and also to a very large extent in our daily lives.

Obviously, now we understand that globalization is here to stay. Here arethe most common and important advantages that globalization, overtime, has brought about for mankind. These have been listed in noparticular order, and are all vital in their own way.

Peaceful Relations

Most of the countries have resorted to trade relations with each other inorder to boost their economy, leaving behind any bitter past experiencesif any. Nations now try to raise capital and fortify their stand ininternational trade, rather than hosting a war. Thus, globalization has

induced international peace and security in a big way.


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Free Trade

Free trade is a policy in which a country does not levy taxes, duties,subsidies or quota on the import/export of goods or services from othercountries. There are countries which have resolved to free trade inspecific regions. This allows consumers to buy goods and services,comparatively at a lower cost.

Global Connectivity

Globalization has promoted international connectivity. With the use of the

Internet, the world has definitely become a smaller place. There has beenexchange of thoughts and ideas which has morally boosted andinterlinked the mindset of people all round the world.

New Markets

The opportunities for new markets has increased dramatically. Numerouscompanies have started investing in different countries and luringcustomers for their brands. These ever-expanding markets have helpedcountries to raise capital in terms of foreign domestic investments, thusimproving the economy of the country.

Employment Opportunities

One of the most advantageous factors of globalization is that it fosters

the generation of employment. This happens due to the emergence ofnew companies and new markets, where lots of skilled and unskilled laboris required. Immigration between countries also increases, providingbetter opportunities for people all round the world. By providingemployment, globalization helps in increasing the standard of living of thepeople, and also reduces poverty.

Quality Products


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The competition among different companies finds place at aninternational level. It becomes important for the companies to focus onquality goods and services, in order to have a strong foothold in themarket. The consumer is benefited in the process, and gets qualityproducts at cheaper rates. He/she also gets the opportunity to select hisgoods from a large variety available in the market.

Environmental Protection

Mutual trade carried out by countries has brought about an understandingfor the protection of the environment from which they benefit so much. It

has been accepted by most countries that action needs to be taken insaving natural resources and wildlife, without thinking about theboundaries that separate them. Global environmental problems likecross-boundary pollution, over-fishing in the oceans, climate change,etc., are solved by discussions and conventions.

Good for Developing Nations

It is claimed that globalization increases the economic prosperity ofdeveloping nations. Developed countries invest in such countries with anaim of capturing new markets, which helps them improve theirinfrastructure and technologies to international levels. A lot of capital isinvested in such projects, which in turn proves fruitful to the economy ofthe developing nation as well.

Equality for All

Globalization has helped in creating international criminal courts, andinternational justice movements are also launched to provide justice topeople at a global level. Disputes are solved through global standardssuch as patents, copyright laws, and world trade agreements. Thus, it hasensured that people do not get discriminated with regard to country,caste, creed or sex.


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Ease of Transportation

With the advent of globalization, there has been an immense increase inthe transportation of goods and services worldwide. Things which tookweeks for conveyance, can now easily be availed within a couple of days.Due to the development of containerization for ocean shipping,transportation costs are reduced to a great extent, lowering the cost ofproducts in world markets.

Travel and Tourism

Globalization has promoted tourism to great heights. There are manyplaces that have tourism as their main source of capital generation.International trade among different countries also helps in increasing thenumber of tourists that visit different places around the world.

Unity in Diversity

Globalization has helped in bringing about integrity and socialunderstanding everywhere. The dream for a global village becomesrealistic after looking at the impact of globalization. It has helped inremoving some barriers that had kept the world divided on variousgrounds. There has been propagation of democratic ideas amongcountries. Cross-cultural contacts grow and cultural diffusion takes place,which helps in minimizing differences, and promotes companionship.

External Borrowing

It has often been seen that a poor country is unable to provide adequatefinancing to its companies, which proves to an obstacle in thedevelopment of the country on the whole. With the help of globalization,there is opportunity for corporate, national, and sub-national borrowersto have better access to external finance, with facilities such as externalcommercial borrowing and syndicated loans.


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It is a common belief that globalization plays a role just at internationallevels of trade and commerce, but the fact is that it has played animportant role in making our lives much more comfortable too. Thephones, apparels, gadgets or accessories that we use in our day-to-daylife are be available to us through globalization. Knowingly orunknowingly, we are all under the impact of globalization, and moreimportantly it has helped in bringing international peace and justice tomankind.Read more at Buzzle: http://www.buzzle.com/articles/advantages-of-globalization.html

NEGATIVE IMPACT OF GLOBALISATION

Globalization is the buzzword of today. Economies of the world are beingincreasingly integrated as new technology and communication hasbrought people together. We often hear the phrase that the 'world hasbecome a global village' - which itself signifies how much has changed inthe world in the past few decades. American businessmen are investingtheir time in studying the culture of the Middle East, so that they cannegotiate with their counterparts in a better way. Young graduates inIndia are being taught how the Americans roll their R's, so as to make aseamless conversation with their clients in many of the call-centers! Thephenomenon that is globalization, has brought new dimensions to thisworld, and people are mingling with each other like never before. The

social, economic, and political changes that globalization has broughthave been accompanied by some challenges. We will not approach itsnegative effects as a cynic, but as a student or an observer, so that weare free of any kind of prejudice and bias, and understand the topic in abetter way.

The Negative Effects of GlobalizationIn order to cut down costs, many firms in developed nations haveoutsourced their manufacturing and white-collar jobs to Third-World
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countries like India and China, where the cost of labor is low. The mostprominent among these have been jobs in the customer service field asmany developing nations have a large English-speaking population -ready to work at one-fifth of what someone in developed world may call'low-pay'. This has caused a lot of resentment among the people ofdeveloped countries, and companies have been accused of taking their

jobs away. Another problem is that many Americans are not satisfied withthe level of customer service that they are subjected to, and this hascaused a lot of animosity among people and has added to the dissent thatpeople already have against outsourcing.There are various schools of thought which argue that globalization has

led to an increase in activities such as child labor and slavery. Incountries with little or no accountability, corporations employing childrencan work smoothly by bribing the officials, which may result in anincrease in illegal activities. Critics opine that globalization has resulted ina fiercely-competitive global market, and unethical practices in businessis a by-product of this.Globalization may have inadvertently helped terrorists and criminals. Atthe heart of globalization is an idea that humans, materials, food etc. beallowed to travel freely across borders, but 9/11 was a ghastly reminderthat people with evil intentions can use it as an opportunity and causedamage.It is not only the developed nations that are complaining about itsnegative effects, people in developing nations - where most of theindustries have been set up, have their own set of reasons againstglobalization. They often complain that their cities have been reduced to

garbage-dumps where all the industrial waste is accumulated andpollution levels are sky-high.Fast food chains like McDonalds and KFC are spreading fast in thedeveloping world. People are consuming more junk food which has anadverse impact on their health. Apart from the health concerns, there issomething else that globalization has been criticized for, and it is theaccusation that it has opened floodgates for restaurants and eaterieswhich are insensitive to the religious beliefs of the host nation. Forexample, a lawsuit had to be filed against McDonalds in India, after it was


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accused of serving beef in their burgers.While the rich are getting richer, the poor are struggling for a squaremeal. If the current Occupy Wall Street protests are a reminder of howangry people are with the current set-up, then those who govern usshould take notice, and work towards alleviating poverty. Ideally,globalization should have resulted in creation of wealth and prosperity,but corporate greed and corrupt government has ensured that money isnot distributed equally.When the first-known case of AIDS came up in America, only few wouldhave traced its origin to Sub-Saharan Africa. Globalization bought peoplefrom various countries together, and this is perhaps the reason that a

virus from a jungle was transported to almost every country in the world.Environmental degradation is an issue which has been debatedferociously in various international meetings, and it has to be acceptedthat globalization is one of the most important factors that hasaggravated the situation. The amount of raw materials needed to runindustries and factories is taking a toll on the natural reserves of planetearth, and pollution has severely impacted the quality of air that we needso very much for our survival.As we mentioned in the beginning of the article that like everything else,globalization has its own share of kudos and brickbats. We have reacheda stage since our evolution that discarding the concept of globalizationmay not be possible at all, therefore, the strategy should be to findsolutions to the threats it poses to us so that we can work towards abetter, fulfilling future.By Prabhakar Pillai

Read more at Buzzle: http://www.buzzle.com/articles/negative-effects-of-globalization.html
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If you look at the tag on your shirt, chances are you would see that it wasmade in a country other than the one in which you sit right now. What'smore, before it reached your wardrobe, this shirt could have very wellbeen made with Chinese cotton sewed by Thai hands, shipped across thePacific on a French freighter crewed by Spaniards to a Los Angelesharbor. This international exchange is just one example of globalization, aprocess that has everything to do with geography.

Globalization and Its Characteristics

Globalization is the process of increased interconnectedness among

countries most notably in the areas of economics, politics, andculture .McDonalds in Japan , French films being played in Minneapolis, andthe United Nations , are all representations of globalization.

The idea of globalization may be simplified by identifying several keycharacteristics:

Improved Technology in Transportation and Telecommunications

What makes the rest of this list possible is the ever-increasing capacityfor and efficiency of how people and things move and communicate. Inyears past, people across the globe did not have the ability tocommunicate and could not interact without difficulty. Nowadays, aphone, instant message, fax, or video conference call can easily be usedto connect people. Additionally, anyone with the funds can book a planeflight and show up half way across the world in a matter of hours. In

short, the "friction of distance" is lessened, and the world begins tometaphorically shrink.

Movement of People and Capital

A general increase in awareness, opportunity, and transportationtechnology has allowed for people to move about the world in search of anew home, a new job, or to flee a place of danger. Most migration takes

place within or between developing countries, possibly because lower
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standards of living and lower wages push individuals to places with agreater chance for economic success.

Additionally, capital (money) is being moved globally with the ease ofelectronic transference and a rise in perceived investment opportunities.Developing countries are a popular place for investors to place theircapital because of the enormous room for growth.

Diffusion of Knowledge

The word 'diffusion' simply means to spread out, and that is exactly whatany new found knowledge does. When a new invention or way of doing

something pops up, it does not stay secret for long. A good example ofthis is the appearance of automotive farming machines in Southeast Asia,an area long home to manual agricultural labor.

Non-Governmental Organizations (NGOs) and MultinationalCorporations

As global awareness of certain issues has risen, so too has the number of

organizations that aim to deal with them. So called non-governmentalorganizations bring together people unaffiliated with the government andcan be nationally or globally focused. Many international NGOs deal withissues that do not pay attention to borders (such as global climatechange, energy use, or child labor regulations). Examples of NGOsinclude Amnesty International or Doctors without Borders.

As countries are connected to the rest of the world (through increasedcommunication and transportation) they immediately form what abusiness would call a market. What this means is that a particularpopulation represents more people to buy a particular product or service.As more and more markets are opening up, business people from aroundthe globe are coming together to form multinational corporations in orderto access these new markets. Another reason that businesses are goingglobal is that some jobs can be done by foreign workers for a muchcheaper cost than domestic workers; this is called outsourcing.


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At its core globalization is an easing of borders, making them lessimportant as countries become dependent on each other to thrive. Somescholars claim that governments are becoming less influential in the faceof an increasingly economic world. Others contest this, insisting that

governments are becoming more important because of the need forregulation and order in such a complex world system.

Is Globalization a Good Thing?

There is a heated debate about the true effects of globalization and if itreally is such a good thing. Good or bad, though, there isn't muchargument as to whether or not it is happening. Let's look at the positives

and negatives of globalization, and you can decide for yourself whether ornot it is the best thing for our world.

Positive Aspects of Globalization

As more money is poured in to developing countries, there is a greater chance for the people in those countries to economically succeed and increase their standard of living.

Global competition encourages creativity and innovation and keeps prices forcommodities/services in check.

Developing countries are able to reap the benefits of current technology withoutundergoing many of the growing pains associated with development of these technologies.

Governments are able to better work together towards common goals now that there is anadvantage in cooperation, an improved ability to interact and coordinate, and a globalawareness of issues.

There is a greater access to foreign culture in the form of movies, music, food, clothing,and more. In short, the world has more choices.

Negative Aspects of Globalization

Outsourcing, while it provides jobs to a population in one country, takes away those jobsfrom another country, leaving many without opportunities.

Although different cultures from around the world are able to interact, they begin to meld,and the contours and individuality of each begin to fade.

There may be a greater chance of disease spreading worldwide, as well as invasive speciesthat could prove devastating in non-native ecosystems.

There is little international regulation, an unfortunate fact that could have direconsequences for the safety of people and the environment.


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Large Western-driven organizations such as the International Monetary Fund and theWorld Bank make it easy for a developing country to obtain a loan. However, a Western-focus is often applied to a non-Western situation, resulting in failed progress.

IMPACT OF GLOBALISATION IN DEVELOPING COUNTRIES & INDIA

mpact on India: India opened up the economy in the early nineties following a major crisis that led by aforeign exchange crunch that dragged the economy close to defaulting on loans. Theresponse was a slew of Domestic and external sector policy measures partly prompted by theimmediate needs and partly by the demand of the multilateral organisations. The new policyregime radically pushed forward in favour of amore open and market oriented economy. Major measures initiated as a part of the liberalisation and globalisation strategy in the earlynineties included scrapping of the industrial licensing regime, reduction in the number ofareas reserved for the public sector, amendment of the monopolies and the restrictive trade

practices act, start of the privatisation programme, reduction in tariff rates and change over tomarket determined exchange rates. Over the years there has been a steady liberalisation of the current account transactions, moreand more sectors opened up for foreign direct investments and portfolio investmentsfacilitating entry of foreign investors in telecom, roads, ports, airports, insurance and othermajor sectors.

The Indian tariff rates reduced sharply over the decade from a weighted average of72.5% in 1991-92 to 24.6 in 1996-97.Though tariff rates went up slowly in the late nineties ittouched 35.1% in 2001-02. India is committed to reduced tariff rates. Peak tariff rates are to

be reduced to be reduced to the minimum with a peak rate of 20%, in another 2 years mostnon-tariff barriers have been dismantled by march 2002, including almost all quantitativerestrictions. India is Global:The liberalisation of the domestic economy and the increasing integration of India with theglobal economy have helped step up GDP growth rates, which picked up from 5.6% in 1990-91 to a peak level of 77.8% in 1996-97. Growth rates have slowed down since the countryhas still bee able to achieve 5-6% growth rate in three of the last six years. Though growthrates has slumped to the lowest level 4.3% in 2002-03 mainly because of the worst droughts

in two decades the growth rates are expected to go up close to 70% in 2003-04. A Globalcomparison shows that India is now the fastest growing just after China.


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This is major improvement given that India is growth rate in the 1970's was very low at 3%and GDP growth in countries like Brazil, Indonesia, Korea, and Mexico was more than twicethat of India. Though India's average annual growth rate almost doubled in the eighties to5.9% it was still lower than the growth rate in China, Korea and Indonesia. The pick up in

GDP growth has helped improve India's global position. Consequently India's position in theglobal economy has improved from the 8 th position in 1991 to 4 th place in 2001. When GDPis calculated on a purchasing power parity basis. Globalisation and Poverty: Globalisation in the form of increased integration though trade and investment is animportant reason why much progress has been made in reducing poverty and globalinequality over recent decades. But it is not the only reason for this often unrecognised

progress, good national polices , sound institutions and domestic political stability alsomatter. Despite this progress, poverty remains one of the most serious international challenges weface up to 1.2 billion of the developing world 4.8 billion people still live in extreme poverty. But the proportion of the world population living in poverty has been steadily declining andsince 1980 the absolute number of poor people has stopped rising and appears to have fallenin recent years despite strong population growth in poor countries. If the proportion living in

poverty had not fallen since 1987 alone a further 215million people would be living inextreme poverty today. India has to concentrate on five important areas or things to follow to achieve this goal. Theareas like technological entrepreneurship, new business openings for small and mediumenterprises, importance of quality management, new prospects in rural areas and privatisationof financial institutions. The manufacturing of technology and management of technologyare two different significant areas in the country. There will be new prospects in rural India. The growth of Indian economy very muchdepends upon rural participation in the global race. After implementing the new economic

policy the role of villages got its own significance because of its unique outlook and brandingmethods. For example food processing and packaging are the one of the area where newentrepreneurs can enter into a big way. It may be organised in a collective way with the helpof co-operatives to meet the global demand. Understanding the current status of globalisation is necessary for setting course for future.For all nations to reap the full benefits of globalisation it is essential to create a level playingfield. President Bush's recent proposal to eliminate all tariffs on all manufactured goods by2015 will do it. In fact it may exacerbate the prevalent inequalities. According to this

proposal, tariffs of 5% or less on all manufactured goods will be eliminated by 2005 andhigher than 5% will be lowered to 8%. Starting 2010 the 8% tariffs will be lowered each yearuntil they are eliminated by 2015. GDP Growth rate: The Indian economy is passing through a difficult phase caused by several unfavourabledomestic and external developments; Domestic output and Demand conditions were

adversely affected by poor performance in agriculture in the past two years. The globaleconomy experienced an overall deceleration and recorded an output growth of 2.4% during
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policies and market conditions. Rather, they are influenced by both domestic andinternational policies and economic conditions. It is thus clear that a globalising economy,while formulating and evaluating its domestic policy cannot afford to ignore the possibleactions and reactions of policies and developments in the rest of the world. This constrained

the policy option available to the government which implies loss of policy autonomy to someextent, in decision-making at the national level. ~

4-12-2007Corporate Social Responsibility: Impact ofglobalisation and international businessKim KercherBond University , [email protected] this and additional works at: http://epublications.bond.edu.au/cgejThis Journal Article is brought to you by the Faculty of Law at ePublications@bond .It has been accepted for inclusion in Corporate Governance

eJournal by an authorized administrator of ePublications@bond. For moreinformation, please contact Bond University's Repository Coordinator .Recommended CitationKim Kercher. (2007) "Corporate Social Responsibility: Impact of globalisation andinternationalbusiness" ,, .http://epublications.bond.edu.au/cgej/4Corporate Social Responsibility: Impact of globalisation and internationalbusinessAbstract[Extract] Corporate Social Responsibility (CSR) is associated with the conduct ofcorporations and inparticular whether corporations owe a duty to stakeholders other than shareholders.Whilst the phraseCorporate Social Responsibility may be gaining momentum, the concept itself is notnew. The question as towhether corporations owe duties to broader stakeholders has been debated atvarious times throughout thetwentieth century.Keywords


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corporate social responsibility, corporations, globalisation, international businessThis journal article is available at ePublications@bond:http://epublications.bond.edu.au/cgej/4

orporate Social Responsibility

Impact of globalisation and international businessBy Kim KercherDate of publication: 11 December 2 6IntroductionCorporate Social Responsibility (CSR) is associated with the conduct of corporations and in

particularwhether corporations owe a duty to stakeholders other than shareholders. Whilst the phraseCorporate Social Responsibility may be gaining momentum, the concept itself is not new. Thequestion as towhether corporations owe duties to broader stakeholders has been debated at various timesthroughoutthe twentieth century.The CSR debate has largely revolved around the conduct of multinational corporations(MNEs) andother large private companies which, due to their size, have the ability to significantlyinfluencedomestic and international policy and the communities in which they operate. Central to the

debate isthe perceived deficiency of national and international law remedies regarding corporateaccountability,in particular the ability of available regulation to successfully regulate a corporationsconduct in

jurisdictions outside the corporations home state. Proponents of CSR argue that the efficient functioning of global markets depends on socially responsible business conduct.There are a number of factors relevant to the current CSR debate, including:

globalisation and the proliferation of cross border trade by MNEs resulting in an

increasingawareness of CSR practices relating to areas such as human rights, environmental protection,health and safety and anti corruption;

organisations, such as the UN, the Organisation for Economic Co operation andDevelopment(OECD) and the International Labour Organisation (ILO), have developed compacts,declarations,guidelines, principles and other instruments that outline norms for acceptable corporateconduct;

access to information and media enables the public to be more informed and to easilymonitor


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corporate activities; consumers and investors are demonstrating increased interest in supporting responsible

business practices and are demanding more information as to how companies address risks and

opportunities relating to social and environmental issues; recent high profile corporate collapses have contributed to public mistrust and the demandforimproved corporate governance, accountability and transparency;

commonality of expectations by citizens of various countries with regard to minimumstandardscorporations should achieve in relation to social and environmental issues, regardless of the

jurisdiction in which the corporation operates; and increasing awareness of the inadequacy of current regulations and legislation with regard

to CSRmatters and the regulation of MNEs.11 Strategis Canada, An overview of Corporate Social Responsibility, Part 1, at 14.06.06CORPORATE SOCIAL RESPONSIBILITY: IMPACT OF GLOBALISATION2Interestingly, the fundamentals of CSR are considered to be universal reflecting theglobalisation of

business and economies. The traditional ethos of maximising shareholder value withoutregard to otherstakeholders is an outdated notion in todays global environment. CSR not only sitscomfortably withthe mantra of maximising shareholder value, sustainable CSR practices enhance shareholdervalue.DefinitionA single globally accepted definition of CSR does not exist, as the concept is still evolving.Thelanguage used in relation to CSR is often used interchangeably with other related topics, suchascorporate sustainability, corporate social investment, triple bottom line, socially responsibleinvestmentand corporate governance. However, various individuals and organisations have developedformaldefinitions of CSR, including2:

The commitment of business to contribute to sustainable economic development, workingwithemployees, their families, the local community and society at large to improve their qualityof life

(World Business Council on Sustainable Development).


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Operating a business in a manner that meets or exceeds the ethical, legal, commercial and publicexpectations that society has of business (Business for Social Responsibility) .

A set of management practices that ensure the company minimises the negative impacts

of itsoperations on society while maximising its positive impacts (Canadian Centre forPhilanthropy).

The integration of business operations and values whereby the interests of all stakeholdersincluding customers, employees, investors, and the environment are reflected in thecompanys

policies and actions (The Corporate Social Responsibility Newswire Service). It is important to differentiate CSR from charita ble donations and good works, ie corporate

philanthropy and human rights.

The debateThe CSR debate broadly focuses on whether a corporations sole purpose is to maximiseshareholderwealth (shareholder primacy principle), vs. the ability to consider a broader range ofstakeholders in itsdecision making. The debate has been the subject of commentary throughout the twentiethcentury andcontinues to be relevant due to the size and power of MNEs and the globalisation of businessoperations.The debate in each era has been triggered by different catalysts. Traditionally the debatefocused on the

power of corporations, particularly large national and multinational corporations, howeverthe debatehas evolved over time to consider broader social impacts such as the environment, employeeandcommunity rights. Areas of focus throughout the twentieth century included:

1930s general debate as to the role and purpose of corporations, ie solely a shareholderfocusedvehicle or an entity with wider responsibilities;3

1950s focused on the disproportional power of the US corporation compared to othernations;2 Australian Government, CSR Defined at16 June 2006.3 Andrew Clarke, The Models of the Corporation and the Development ofCorporate Governance (2005) 1.CORPORATE SOCIAL RESPONSIBILITY: IMPACT OF GLOBALISATION3


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1960s and 1970s the corporations role in relation to environmental degradation,minority rightsand consumer protection;

1980s and 1990s targeted the social impact of the proliferation of corporate raiders and

hostiletakeovers;4 and the current debate weaves all the elements of previous debates together from a global and

community perspective and is focused on whether regulation should be expanded toencompassCSR matters.The following quotes illustrate the consistency of thought over time with regard tocorporations havingsocial obligations:

In 1932 American commentator, E Merrick Dodd argued companies, like individuals,should striveto be good corporate citizens by contributing to the community to a greater extent than isgenerallyrequired and therefor e the corporation as an economic institution has a social service as wellas a

profit making function;5 In January 1973 The Confederation of British Industry published the Watkinson Report A

newLook at the Responsibilities of the British Public Compan y which observed that there must

be and be seen to be an ethical dimension to corporate activity and concluded companies mustrecognisethat they have functions, duties and moral obligations that go beyond the immediate pursuitof

profit and the requirem ents of law; In 2001 Robert Hinkley observed corporations exist only because laws have been

enacted to provide for their creation and give them licence to operate. When these laws were enactedmostcorporations were small and their impact on society was insignificant Today corporationsare ourmost powerful citizens and it is no longer tenable that they be entitled to all the benefits ofcitizenship, but have none of the responsibilities6. The shareholder primacy proponent argues that a corporations sole reason for existence istomaximise shareholder wealth whilst obeying the laws of the countries within which thecorporation

operates. Economist Milton Friedman famously argued that because shareholders owncorporations,


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the only social responsibility of business is to increase profits. Friedmans argument gainedtraction,especially after the publication in 1976 of an influential paper, Theory of the Firm, whichstated

shareholders are principals who hire directors as their agents to manage corporations, andthe job ofdirectors is to increase shareholder wealth through every means possible, short of violatingthe law.7Proponents of CSR argue that, for a corporations long term success and profitability, itsdirectors mustconsider the interests of shareholders and other relevant corporate stakeholders such asemployees,consumers and the communities in which the corporation operates. Current proponents of

CSRmaintain there is demonstrated evidence that corporations which implement relevant andsustainableCSR practices perform better and attain greater competitive advantage.Despite the various arguments, much of the corporate industrialised world has attempted tofind a

balance with regard to the corporations impact on a wider group of stakeholders, whilst alsofocusingon maximising shareholder wealth. A recent global survey of corporate executives revealedthat,4 Corporations and Market Advisory Committee, Corporate Social ResponsibilityDiscussion Paper (November 2005)7.5 Andrew Clarke, The Models of the Corporation and The Development ofCorporate Governance ( 2005) 3.6 Kerrie Burnmeister, Corporate Responsibility A Matter or Ethics or Strategy, BlakeWaldron Dawson at 11

June 2006.7 Prof Lynn A Stout, Shareholders Unplugged, UCLA School of Law< http://www.legalaffairs.org/issues/March April 2006/argument_Stout_marapr06.msp> at 18 June 2006.CORPORATE SOCIAL RESPONSIBILITY: IMPACT OF GLOBALISATION4overwhelmingly, executives embrace the idea that the role of corporations in society goes

beyondsimply meeting its obligations to shareholders.8 This view is also supported by a recent

survey of global


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investment managers which recognised that environmental, social and governance mattersmay becritical to investment performance.9 Additionally, three quarters of the one hundred and fiftyseven

global corporate managers surveyed predicted that social or environmental corporate performanceindicators would become mainstream investment considerations within ten years.10CRS and the lawCorporate history provides many examples of companys pursing profit without regard torelevantCSR matters, including:

Nike factories in Asia were criticised for extremely poor working conditions and foremploying

young children;11 Nestle received criticism in relation to its practices including unethical marketing andutilising asupply chain that uses child bonded labour;

James Hardie has been criticised regarding its failure to provide adequate compensation to peopleaffected by asbestos related diseases resulting from the companys building products;

Ford Pinto scandal whereby Ford, although aware of a fatal design flaw, decided it would becheaper to pay off possible law suits with regard to resulting deaths instead of recalling andfixingthe affected cars;12

Shells joint venture with the Nigerian government where, in 1995, Ken Saro Wiwa andeight otherswere executed largely due to leading a non violent campaign against environmental damageassociated with the operations of multinational oil companies, including Shell and BritishPetroleum. Shell was criticised for not using its power to intercede with regard to theexecutions.13;and;

Enron manipulated electricity in order to maximise profits at the expense of Californiancitizens.Historically, a narrow view of corporate responsibility has been enforced whereby acorporations responsibility extends only to maximising profits. In Dodge v Ford Motor Co14 theMichigan SupremeCourt upheld the shareholders claim that a corporation is carried on primarily for the profitof theshareholders and therefore the powers of the directors are to be exercised on this basis. Thedecision of


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the directors not to declare a dividend to facilitate the expansion of the business and increasethenumber of employees was considered to be inappropriate. However, subsequent cases havetaken a

more flexible approach. Decisions made to benefit consumers, the community, employeesand the8 The McKinsey Global Survey of Business Executives: Business and Society, TheMcKinsey Quarterly (December2005), conducted the survey in December 2005 and received responses from 4,238executives, more than aquarter of them CEOs or other C level executives in 116 countries.9 Mercer Investment Consulting, 2006 Fearless Forecast What do investment managersthink about responsible

investment ( March 2006) at 11. 10 Ibid 11.11 Global exchange 2005, Nike Campaign at 14 June 2006.12 at 14 June 2006.13 at 14 June 2006.14 170 NW 668 (1919).CORPORATE SOCIAL RESPONSIBILITY: IMPACT OF GLOBALISATION5

environment have been considered as not breaching directors duties where shareholdersinterestshave not been completely disregarded and emp hasis placed on the corporations future. 15In Australia, the traditional view is that case law and corporations legislation does not extendadirectors obligation to consider stakeholders other than shareholders (other than in respect ofcreditorswhen a company is or is likely to become insolvent).10 Acting in the best interest of thecompany hasgenerally been interpreted by the courts as acting in the best interest of shareholders.However, lawsrelating to labour conditions, consumer protection and community matters such asenvironmental

protection apply to corporations and therefore any decision by directors in breach of theserequirements may potentially lead to a breach of directors duties.16,17 Recently the Parliamentary Joint Committee (PJC) on Corporations and Financial ServicesInquiry intoCorporate Responsibility and Triple Bottom Line Reporting (Committee) considered whetherthe legal


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safety as state and federal level, Trade Practices Act which promotes competition andfair trading to protectconsumers.18 The interests of the company include the continuing well being of the company.

Directors must not act for motivesforeign to the companys interests, but the law permits them to consider many interests and

purposes, as long as there isalso a purpose of benefiting the company. (See JD Heydon, Directors Duties and theCompanys Interests in P Finn (ed), Equity and Commercial Relationships (Law Book Company, 1987) 135.)Submission by the New South Wales Young Lawyers Pro Bono and Community ServicesTaskforce to the Corporationsand Markets Advisory Committee,

at7 July 2006.CORPORATE SOCIAL RESPONSIBILITY: IMPACT OF GLOBALISATION6

ASX Governance Recommendations should be expanded to incorporate CSRsustainabilityreporting guidelines.Although the committee does not believe it is necessary to mandate either (i) consideration ofstakeholders interests or (ii) sustainability reporting, the committee is of the view that there

is a need toensure corporations consider these matters.19 The PJC commented that any hesitation on the part ofcorporate Australia in incorporating CSR matters into their business practices does not arisefromlegislative constraints of the Corporations Act. The PJC considers that the interpretation ofthe currentlegislation is the best way forward for Australian corporations on the basis that an effectivedirectorwill realise that the wellbeing of the corporations comes from strategic interaction withoutsidestakeholders.20The ASX Corporate Governance council released an explanatory and consultative paperoutlining thecouncils review of Good Corporate Governance and Practice Guidelines in

November 2006. The paperconsiders, amongst other matters, recommendations of the PJC regarding CSR and outlinestheCouncils proposals regarding same. The major proposed changes relate to Principle 7 whichdeals with


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risk management. New commentary seeks to provide guidance on risk management andadvises thatrisk management encompasses legal obligations and the expectation of stakeholders, andnotes that an

effective risk management involves considering factors that bea r upon the companyscontinued goodstanding with its stakeholders and community.21 Further the commentary notes thatstakeholders mayinclude shareholders, employees, business partners, creditors, consumers, the environmentand the

broader community in which the company operates.22 The commentary advises that materialrisks mayinclude operational, environmental, sustainability, compliance, strategic or external, ethicalconduct,reputation or brand, technological, product or service quality and human capital, which, if not

properlymanaged, will impact on the company.23 The Council seeks feedback as to the role thecouncil shouldundertake in assisting companies reporting on risks relating to CSR matters. US reform (like Australia) has focused predominantly on the integrity of financialinformation and asyet has not mandated CSR. As a result, a majority of US states have adopted, and still retain,corporate constituency statutes, which permit directors to broaden the stakeholders they consider incorporatedecision making24,25. Typically the statutes allow the board, in discharging their duties, toconsider theimpact on employees, suppliers, customers and communities. Many argue that theintroduction of

prescriptive regulation with regard to CSR matters is unnecessary and would in fact result indirectors

being less accountable. Interestingly, although many argue that existing regulation allowscorporationsto conduct their operations in a socially responsible manner, there is less commentary as tohowcorporations are held accountable in the absence of prescriptive legislation where acorporations domestic or international policy is not consistent with acting in a socially responsiblemanner.A variety of European legislative and regulatory development (UK, France and Austria) hasincreasingly required the reporting of CSR, such as the Nouvelles Regulations Economiques

introduced


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19 Parliamentary Joint Committee on Corporations and Financial Services, CorporateResponsibility: ManagingRisk and creating value (22 June 2006). 20 Parliamentary Joint Committee on Corporations and Financial Services Corporate

Responsibility: ManagingRisk and creating value (22 June 2006) 37. 21 ASX Corporate Governance Council, Revi ew of the Principles of Good CorporateGovernance and BestPractice Recommendations Explanatory and Consultation Paper (November 2006) 18. 22 ASX Corporate Governance Council, Principles of Good Corporate Governance andGood PracticeRecommendations Exposure Draft of Changes (November 2006) 30, 31. 23 Ibid 30, 31.24 Corporations and Market Advisory Committee, Corporate Social ResponsibilityDiscussion Paper (November 2005) 7.25 The Pennsylvania Act (23 December 1983) was the first corporate constituent statute.CORPORATE SOCIAL RESPONSIBILITY: IMPACT OF GLOBALISATION7

by France in 2001 and the UKs Operating and Financial Review effected in April 2005.Reform in theUK appears to be the most ambitious to date as it will require directors to consider theimpacts of their

business operations on, amongst other matters, employees, the community and theenvironment. 26 TheUK Government has also committed to publishing advice on how directors should interprettheirduties regarding the consideration of social and environmental matters. 27 Other countrieshave notfollowed the UKs approach with regard to expanding directors duties to incorporate theconsiderationof a broader group of stakeholders.GlobalisationTwenty years ago, environmental and social issues were for activists. Ten years from now,they arelikely to be amongst the most critical factors shaping government policy and corporatestrategy.Twenty years ago, we were a series of local states and countries, national and regional

businesses thatwere partially connected. Ten years from now, we will be globally interdependent asindividuals andorganisations.28 International investment by MNEs is central to corporate globalisation,which


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inevitably will lead to a desire to harmonise laws and reporting practices. MNEs tend to be afocal pointwith regard to CSR due to their size and complexity and the fact that they operate in morethan one

jurisdiction either directly or via subsidiary entities or in alliances with other entities.The most difficult issues arising with regard to CSR occurs in poor countries with weak andsometimescorrupt governments. Many MNEs are larger and more economically significant than thedevelopingnations in which they operate. Whilst MNEs may facilitate the stimulation of a developingnations economy, they also have the capability of abusing their power in host countries which areoften eitherunable or unwilling to hold MNEs accountable for inappropriate conduct. Poorly regulatedinternational investment in these environments distorts local development, fuels conflict andmaycontribute to abuses occurring.29 Accordingly, strengthening cross border corporateaccountability andmore effective international regulation of MNEs is necessary. In addition, developingcountries should

be encouraged to strengthen their political and economic systems to enable theirgovernments to moreeffectively regulate the private sector.Historically international law remedies in relation to MNEs are considered weak. Thisweakness isexacerbated when domestic laws are incapable of holding MNEs accountable forinappropriate conductin other jurisdictions. This issue is further complicated when the national law in the countrywhere theinappropriate conduct occurred is either inadequate or the judicial system or government isnotmotivated to commence action against the offending corporation. These issues have led to acommoncriticism the MNEs operate outside the law and therefore no forum capable of holdingMNEsaccountable for inappropriate conduct exists.

New national and international precedents are challenging the historical view. In the US, theAlien TortClaims Act (ATCA) of 178930 is being used in a number of cases to sue MNEs forviolations of26 at 3 December 2006.

27 at 3 December 2006.28 PriceWaterhouseCoopers, Corporate Responsibility: Strategy, Management and Value,


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at 22 June2006.29 David Mepham, Beyond Corporate Responsibility Rethinking the International

Business Agenda at 30 June 2006.30 The Alien Tort Claims Act is the only United States law permitting MNEs withsignificant assets in the US to beheld accountable for their unethical behavior elsewhere in the world. Passed in 1789 by theFirst Congress ofthe United States, it enables victims of torture, slavery, ethnic cleansing, and other crimesagainst humanity to

put the corporations that are responsible on trial in American courts. In recent history,

plaintiffs have used it toCORPORATE SOCIAL RESPONSIBILITY: IMPACT OF GLOBALISATION8international law in countries outside the US. Following a number of cases in the UK, MNEsmay now

be legally liable for human rights violations abroad where access to local justice isrestricted.31 Althoughlasting international precedent has not been established with regard to matters consideredunder eitherthe ATCA or UK cases, the actions are a positive step towards corporate liability with regardtoinappropriate conduct by corporations abroad.During the last three decades there has been a growth in bilateral arrangements which havetaken theform of investment protection and promotion treaties. These treaties reflect the desire ofhome countrygovernments to protect the investment of companies aboard and the desire of host countriesto attractforeign direct investment. Early treaties concluded with developing countries emphasisedinternationaltrade and protection of citizens aboard rather than foreign direct investment. However, from1960onwards treaties have focused on foreign direct investment. A criticism of these treaties isthat thetreaties have marginal impact on the decision making of the MNE and host country.Most attempts to regulate CSR have resulted from public international bodies and nongovernmentorganisations (NGOs). Codes of conduct relating to CSR matters such as bribery,

environment and


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human rights are voluntary and not legally binding, however, may represent subtlediplomacy by

NGOs towards a consensus amongst governments which in turn may be embodied innational

legislation or universally accepted standards. The trend in developed nations is to support thereporting of CSR without introducing legislation to mandate CSR practices, instead,governmentsappear to be content relying on initiatives introduced and championed by NGOs such as theOECD,UN and GRI.OECD Guidelines for Multinational EnterprisesThe OECD Guidelines for Multinational Enterprises (the Guidelines), first adopted in 1976,are the

longest standing initiative for the promotion of high corporate standards. The Guidelinescontainvoluntary principles and standards for responsible business conduct in areas such as humanrights,supply chain management, disclosure of information, anti corruption, taxation, labourrelations,environment, competition, and consumer welfare. The Guidelines aim to promote the

positivecontributions of MNEs to economic, environmental and social progress.sue government officials involved in human rights violations, such as former Philippinedictator FerdinandMarcos and former Serbian war leader Radovan Karadzic. Most recently, the Alien TortClaims Act has beenused to file suits against multinational corporations complicit in egregious human rightsabuses. For example: Burmese villagers have sued Unocal, whose corporate headquarters is just outside LongBeach, California,on charges that its partner the Burmese military murdered and raped villagers and forcedthem towork while assisting with Unocals pipeline project. Nigerian villagers sued Chevron Texaco for its complicity in murders at peaceful protests ata Chevron oil

platform and the related destruction of two villages. Eleven Indonesian villagers are suing Exxon Mobil for human rights abuses committed byits securityforces. Subcontractors in Iraq involved in the torture and mistreatment of prisoners are being heldaccountableunder the legal authority of the Alien Tort Claims Act .


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at 7 July 2006.31 House of Lords judgments in cases involving Rio Tint o in Namibia and Thor Chemicalsand Cape plc in SouthAfrica. In addition, a clause in the UK AntiTerrorism, Crime and Security Act

2001 has opened up the possibilitythat UK companies and nationals, including company directors, could be prosecuted in theUK for corruptionoffences abroad, regardless of whether they involve public officials or the private sector.David Mepham, Beyond Corporate Responsibility Rethinking the International BusinessAgenda at 30 June 2006.CORPORATE SOCIAL RESPONSIBILITY: IMPACT OF GLOBALISATION9

The Guidelines express the shared values of 39 countries consisting of the 3032 OECDmembers and 933nonmember countries. The adhering countries are the source of almost 90 per cent of theworlds foreign direct investment and are home to most major MNEs.While observance of the Guidelines is voluntary for companies, adhering governments makea formalcommitment to promote their observance among MNEs. The most concrete expression ofthis

commitment is the National Contact Point (NCP), often a government office, which isresponsible forencouraging observance of the Guidelines and for ensuring that the Guidelines are wellknown andunderstood by the national business community and by other interested parties. Criticsconsider the

NCP mechanism weak and ineffective. Accordingly, it has been suggested that theGuidelines and in

particular the NCPs be strengthened. The Guidelines are part of a broader package ofinstruments,most of which address government responsibility and promote open and transparent policyframeworks for international investment.34Global Sullivan PrinciplesThe Global Sullivan Principles (GSP) released in 1999 consists of eight principles. It is avoluntary codeof conduct seeking to enhance human rights, social justice, protection of the environment andeconomicopportunity for all workers in all nations. The GSP originated with suggestions made byReverend Dr.


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Leon Sullivan that a global code be derived from the original Sullivan Principles (whichwereinstrumental in the fight to dismantle apartheid in South Africa). The GSP were developed inconsultation with leaders of business, government and human rights organisations in various

nations.35ILO Tripartite DeclarationThe ILO, founded in 1919, is a specialised agency of the United Nations focusing on labourissues andhas 178 member states to date. The ILO Tripartite Declaration (Declaration) also seeks toencourage the

positive contribution of MNEs to economic and social progress and states, inter alia, that: MNEs should obey national laws, respect international standards, honor voluntary

commitments

and harmonise their operations with the social aims of countries in which they operate36; governments should implement suitable measures to deal with the employment impact ofMNEs; and

in developing countries, MNEs should provide the best possible wag es, conditions ofwork(including health and safety) and benefits to adequately satisfy basic needs within theframeworkof government policies.Whilst the principles expressed in the Declaration are addressed to governments, employersandworkers organis ations in both home and host countries, the principles are voluntary37.32 OECD countries are Australia, Austria, Belgium, Canada, Czech Republic, Denmark,Finland, France,Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico,

Netherlands, NewZealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey,UK, US.33 The non OECD countries are Argentina, Brazil, Chile, Estonia, Israel, Latvia, Lithuania,Romania and Slovenia.34 OECD Guidelines for Multinational Enterprises at 25 June 2006.35 FAQs about the GSP at 29 June 2006.36 Caux Round Table, International Labour Organisation,, at 26 June 2006.

CORPORATE SOCIAL RESPONSIBILITY: IMPACT OF GLOBALISATION10


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sustainable development objectives of the UN. The audience targeted is the globalcommunity,however the focus is on the eleven largest capital markets, with a goal of protecting the longterm

interests of fund beneficiaries39. The PRI were borne from the perceived disconnect betweencorporateresponsibility, and the behaviour of financial markets, which are often influenced byshort termconsiderations at the expense of longer term objectives40.The PRI, developed by leading institutional investors and overseen by the UN EnvironmentProgramme Finance Initiative and the UN Global Compact, includes environmental, socialand37 Tripartite Declaration of Principles concerning Multinational Enterprises and Social

Policy, at 26 June 2006.38 The UN Secretary General Remarks at the launch of the Principles for ResponsibleInvestment, New York StockExchange, 26 April 2006 at 1 July 2006.39 UNEP Finance Initiative at 1July 2006.40 Principles for Responsible Investment at 1 July2006.CORPORATE SOCIAL RESPONSIBILITY: IMPACT OF GLOBALISATION11governance criteria, and provides a framework for achieving higher long term investmentreturns andmore sustainable markets. The UN Secretary General has stated it is my hope that thePrinciples willhelp to align investment practices with the goals of the UN, thereby contributing to a morestable andinclusive global economy. 41 Global Reporting InitiativeThe Global Reporting Initiative (GRI), convened in 1997, was established to improvesustainabilityreporting practices, while achieving comparability, credibility, timeliness, and verifiability ofreportedinformation.42 The Guidelines, first released in June 2000, revised in 2002 with a revisiondue during2006, seek to develop globally accepted sustainability reporting guidelines. These guidelinesare also

voluntary and are used by organisations in reporting on the economic, environmental, andsocial


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dimensions of their activities. The Guidelines are increasingly becoming a universallyaccepted methodof harmonising CSR reporting in various jurisdictions. Approximately 1000 organisationsworldwide

incorporate the GRIs Guidelines into their reporting. ConclusionGlobalisation and the significant growth and influence of the private sector have highlightedissuessuch as CSR and the regulation of MNEs. Whilst considerable progress has been made inholdingcompanies accountable for their environmental performance, progress on social issues suchas humanrights, corruption, corporate transparency and labour standards has been more limited.

Although therehave been attempts to widen the scope of stakeholders directors may consider, for mostcompanies CSRconsists of voluntary initiatives designed to enhance the social impact of their practices, withsome ofthese initiatives actively promoted by government. Many corporations have incorporatedCSR intotheir codes of conduct, sought to work closely with NGOs in formulating corporate policy inundeveloped countries, subscribed to the UN Global Compact and other UN initiatives, andhaveincorporated GRI guidelines into their financial reporting. However despite these initiatives,there stillremains a gap pertaining to legal accountability relating to CSR practices, particularly inrelation toMNE operations in jurisdictions outside their home state.There are many factors as to why one solution addressing the issue of corporateaccountability

pertaining to CSR, particularly with regard to directors duties, may not be feasible, such as(i) thesovereignty of the many nations that make up the global community, (ii) diversity oflegislation,regulation, culture and business practices of the various jurisdictions in which corporationsoperate and(iii) the significant uncertainty as to how to regulate the conduct of corporations in foreign

jurisdictions.There is no easy solution, however this does not mean a workable solution concerning thesematters isnot possible or feasible.

It is increasingly apparent that in modern industrialised economies, profit maximisation isfacilitated by


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a demonstrated approach to corporate responsibility. Paradoxically, focusing solely on thetraditionalview of shareholder value may have a negative impact on a companys ability to maximiseshareholder

value by placing too much emphasis on short term performance, whilst neglecting longer temopportunities and issues.43 To maximise the benefits of international investmentcorporations must41 Principles for Responsible Investment at 1 July2006.42 Global Reporting Initiative, Guidelines, at 26June 2006.43 Chartered Secretaries Australia, Submission to CAMAC in relation to the discussion

paperCorporate Social

Responsibility (24 February 2006) at 3.CORPORATE SOCIAL RESPONSIBILITY: IMPACT OF GLOBALISATION12operate within a clear framework of governance, underpinned at national and internationallevel bylaw and regulation enforceable either by the companys home state or by a court ofinternationalstanding, eg, the International Court of Justice. It addition national laws should be widened

to enablecorporations to be held accountable for inappropriate conduct, undertaken either bythemselves orentities controlled by them directly or indirectly, in jurisdictions outside their home state. Itmay benaive to believe that a meaningful system of global norms could exist without formaldeterrence.Although most jurisdictions appear determined to keep CSR on a voluntary footing,regulatorychanges are focusing on encouraging higher standards on CSR at home and abroad.44 InAustralia,there is significant resistance from the corporate community and other interest groupsregarding theintroduction of prescriptive regulation regarding CSR practices and reporting. However,despite thearguments for and against prescriptive regulation regarding CSR matters, the threat ofcriminal or civilsanctions acts as a powerful deterrent. Robert Hinkley suggests that rather than adopt a

prescriptiveapproach, corporate legislation can still be amended by imposing open ended duties oncorporate


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48 Ibid.

glob & csr imp

Documents