Social initiatives by enterprises

ILO ENTERPRISE FORUM 96

Discussion paper by Howard Gospel, Professor of Oxford University, United Kingdom

International Labour Organization

Introduction
The changing context and pressures
What are enterprise social initiatives?
Social initiatives by enterprises
Some dilemmas and possible ways forward
Summary points for discussion

Introduction

This paper places the idea and practice of enterprise social initiatives within a broad context. It begins by sketching relevant developments in the economic, political and social environments. It then defines what is meant by the social initiatives of enterprises and provides some examples of the types of initiatives which are being pursued at the present time in different countries. The problems and dilemmas which confront firms in developing social initiatives are then explored. Finally, means of promoting appropriate initiatives are outlined and some points for discussion are raised.

The changing context and pressures

Enterprises have always been involved in social initiatives of various kinds. However, organizations now face a changing environment in which they may choose to take initiatives in the social area. We would stress the following changes.

From an economic point of view, there is an intensification of competitive pressures in most markets. In product markets, this is the result of improvements in transportation and communications, the lowering of tariff and other barriers, and political pressures for liberalization. In important sectors, the activities of multinational companies have grown in terms of world production and the effects they have on a larger number of countries. In financial markets, investors can more easily move their assets around and choose where they will invest. In the labour market, there is also more competition, in that more workers are competing with one another for a rapidly changing mix of jobs. Labour market competition has become more international, in part because of geographical mobility, but more because of the location decisions of multinationals and actual or threatened transfer of work between countries. The creation of regional groupings such as the EU and NAFTA does not contradict globalization tendencies, for within such blocs there is also an intensification of competition. Together these competitive pressures may simultaneously impede and require more social initiatives on the part of firms.

Along with economic changes have gone changes in the organization of enterprises. Competitive threats and technological changes have led firms to introduce looser, flatter, and more flexible structures. In some countries this has been accompanied by waves of mergers, acquisitions, and divestitures and an increasing dominance of the financial function. There has also been a blurring of the boundaries of the enterprise through networks, alliances, spin-offs, and subcontracting of various kinds. Within firms, both nationally and internationally, these changes have brought about a growth in diversity and more variegated systems of employment and industrial relations. Again, such changes place a new set of constraints on enterprise social initiatives.

Political changes have included, in many countries, a reduction in state intervention in the direction and oversight of industry, employment, and social welfare. In part, this withdrawal of the State has come about because of the collapse of regimes such as those in the former Soviet Union and Eastern Europe. In part, it has been occasioned by a shift to more free-market policies and the pursuit of deregulation and privatization by many governments. This withdrawal may be creating a shortfall in welfare, employment protection and other services once provided by governments.

From a social point of view, there are also significant changes. In most countries there is a growth in educational attainment and rising aspirations. These aspirations are being met for some, but not for all. At the present time, in many countries, there are high levels of unemployment, growing job insecurity, and widening income differences. Resultant discontents and potential instabilities may now be less likely to be channelled through trade unions whose membership coverage and strength have fallen in many countries. However, in the last few years, in reaction to deregulatory tendencies, there may now be a growing feeling that there is some need for new initiatives.

What are enterprise social initiatives?

Social initiatives cover a number of activities. They include initiatives in terms of employment and skills development; they cover matters such as job tenure, benefit systems, and worker protections; they also cover educational, charitable, and artistic provision; they may include the participation and representation of employees and other groups in the governance of the enterprise.

Analytically we can distinguish between various kinds of initiatives. First, there are internal and external initiatives. Internal activities refer to employment, training and welfare measures undertaken by organizations for their own employees. This is the traditional area of enterprise social or human resource policy. In turn internal initiatives may be further subdivided into what are sometimes called “soft” and “hard” policies. The former relate to policies which may seek to provide greater job security; they may lead to higher levels of training and provide more discretion in jobs; and they may give a greater say in decision-making. The latter include policies which companies pursue which may lead to a reduction of job security and the growth of contingent employment; they may reduce discretion at work; and minimize independent voice for employees.

By contrast, external initiatives cover measures which are undertaken by enterprises for those outside the organization. This can be for individuals, for groups, or for other organizations. Individuals and groups might cover family members of employees or past employees such as pensioners. Outside organizations here might include business partners and subcontractors, suppliers, and customers; they might also extend to local and national community groups and voluntary organizations such as charities. At a different level, they might cover activities vis-à-vis the environment. These could range from a concern by fast-food companies for litter in urban areas, to chemical companies' activities vis-à-vis local pollution, to “green” issues on a more global scale such as the initiatives some large firms have taken in recent years in respect of rainforests and fisheries.

Initiatives can be further subdivided into those which are clearly based on business principles and those which are less business orientated. The former category might cover the promotion of job-related training, the development of subcontractor skills, or the creation of local infrastructure conducive to business in a community. These are clearly in a company's interest and have a definite pay-off for the specific firm. The latter category might include initiatives which are primarily charitable and artistic in nature, such as general educational provision or sport and artistic sponsorship. Of course some of the latter will have a reputational and advertising effect and may not be entirely disinterested.

Finally, many of these initiatives are voluntarily undertaken by firms; others are legally encouraged or based. Voluntary initiatives may in some instances be one-off “favours” provided on an ad hoc basis. Alternatively voluntary initiatives may constitute long-term and substantial commitments embodied in customs and practices or in collective agreements. Legally inspired initiatives might be in the area of health and safety provision or aspects of pension provision. Of course legally based initiatives are more likely to be seen as rights by those who receive them and companies are less able to withdraw them unilaterally.

Social initiatives by enterprises

Enterprises have always been involved in social initiatives. In the nineteenth and early twentieth century, there were many enterprises of a paternalistic nature which provided housing, health care and pensions, schools and churches, and recreational amenities. In the course of the twentieth century, traditional paternalism gave way to a more “modern” type provision. This involved benefits such as training, health care and pensions, usually based on seniority in more bureaucratic internal labour markets. Governments in part encouraged such trends through legislation, but also provided their own alternatives in the form of welfare state provisions. During 30 or so years after the Second World War, in a context of relatively full employment, these internal labour-market-type social initiatives expanded. However, in recent years there has been some questioning of the coverage and scope of some aspects of enterprise social provision. At the same time, governments have been re-examining the level and coverage of welfare state provision.

However, many of these institutional arrangements continue, and there are others which are new initiatives.

In the area of jobs and employment opportunities, it has in recent years become more difficult for firms to provide employment security and keep excess staff on their payrolls. Large European and North American firms have called massive redundancies. Even in the large firm sector in Japan, there have been layoffs and a questioning of the so-called lifetime employment system. In response to this, with the advent of restructuring and redundancies from the mid-1970s onwards, many enterprises have developed outplacement support for employees who had to be made redundant. Examples of this might be in traditional heavy industries such as mining, steel and shipbuilding in Western European countries. Firms have encouraged self-employment programmes and the start-up of small businesses with advice and cash and have provided support for management and employee buy-outs. Sometimes, in the United States and now in Europe, this has involved the creation of employee share ownership plans (ESOPs) giving various rights of ownership to employees in new enterprises. Also in the United States, where legal obligations and constraints on firms are less than in Europe, some companies voluntarily provide payments based on years of service, job search assistance, and continued health-care benefits.

In the area of education and training, a number of significant new initiatives may be cited. In recent years some firms, such as Ford in various countries, have gone beyond their traditional training activities and have inaugurated employee development programmes intended to improve the basic educational level and employability of their employees. In some firms this has taken the form of training accounts - giving staff the opportunity to choose a tailor-made set of courses. The argument here is that, if firms cannot provide employment security any longer, they should enhance the employability of employees via recognized skills which may be used in the external labour market. Also, some large enterprises have increasingly felt the need to provide training for business partners, subcontractors and customers within their commodity chains. This is often cited as a characteristic of large Japanese companies, both within Japan and outside. In addition, some large enterprises have provided training programmes for public sector organizations, charities, and worker-owned enterprises and cooperatives. They have also given support for education and training in the broader community. Recent examples of this might be enterprise support for City Technology Colleges in the United Kingdom and initiatives in the United States to provide skills for socially excluded groups such as unemployed youths and long-term unemployed.

Reference has already been made to initiatives vis-à-vis other enterprises. This might include help to firms within a community of firms, such as in Japanese Keiretsu-type arrangements or in some German and Italian industrial districts. It would also include support with technology transfer or organizational know-how to organizations in developing countries. Interventions have also been stimulated by a need to protect disadvantaged workers in developing countries. Such have recently been undertaken by some large supermarket chains, clothing companies, and toy and sporting goods manufacturers. This has sometimes involved the development of minimum standards which suppliers must meet. Finally, initiatives vis-a-vis other organizations might include secondment of staff to charities, school governing bodies, and other voluntary organizations.

Another area where there is a mixture of old and new initiatives is in the provision of health and welfare support and protection. Along with traditional health-care support, initiatives here might include corporate finance initiatives in hospital building and health-care programme operation; new health screening programmes for employees, families and sometimes outsiders in the community; employee counselling programmes, covering health and other worries; initiatives for disabled workers - providing chances of employment, funding of charities, working for awareness; awareness and equal opportunities policies in terms of HIV and AIDS. In the area of child welfare provision, and in pursuit of equal opportunities, some firms have voluntarily provided for maternity and paternity leave, help with fostering and adoption, and the provision of crèche facilities for both employees and outsiders. There has also been some greater awareness of elder care, with firms recognizing the responsibilities of staff for the care of elderly relatives.

There is a question as to whether, in our definition of social initiatives, we should include participation of employees and other so-called “stakeholders” in enterprise governance. If this question is answered in the affirmative, here we must consider a spectrum of initiatives and arrangements. These might range from consultative committees of various kinds to the use of outside auditors to check on policies, as has been introduced by some companies in South Africa; to more active employee and pensioner involvement in pension fund management; to employee share-ownership plans (ESOPs). This also raises the question of works councils, collective bargaining, and co-determination schemes as a manifestation of, and a means towards, enterprise initiatives. For those outside the enterprise, it also raises the question of the role of other interest groups in enterprise governance.

Some dilemmas and possible ways forward

There are a number of dilemmas which are posed by enterprise social initiatives.

The first is the age-old one - how to reconcile business priorities and social responsibilities. On the one hand, undoubtedly a main (some would say the main) responsibility of firms is to their shareholders. In a competitive world, firms have no choice but to make a profit and pay dividends to those who invest. On the other hand, there are other interested parties, internal and external, and satisfying these may also be socially desirable and indeed may make good business sense.

A second dilemma relates to ability and incentives. In a more competitive world and one where unemployment is higher than in the past, there is less ability and in some ways less incentive for firms to make social initiatives. But conversely, it might be argued, there is more need, since human resources are increasingly a major source of organizational and national competitiveness. There may also be broader benefits to the firm in terms of greater social stability and social capital.

A third dilemma relates to coverage. Many social initiatives are taken by a small number of large successful private sector firms, where an owner-entrepreneur or senior executives choose to make such choices. But what about those who are outside this sector of the economy or who are not employed at all or are employed in other countries? There are obvious limits to enterprise initiatives.

A fourth dilemma relates to boundaries. How are we to draw the boundaries between what should be done by individuals and families, communities, the State, and enterprise social initiatives? How are we also to draw the boundaries between topics which would seem appropriate for enterprise social initiatives and others which might not?

A final dilemma relates to possible ways forward. If certain types of enterprise social initiatives are seen to be desirable, how should they be encouraged? In this respect there are a number of possible ways forward.

The first is to leave it to the voluntary action of enterprises. Here the argument would be that it is in their best interests to attract and retain good labour forces and have favourable outside environments. Of course, well-meaning and far-sighted enterprises will see this and act accordingly. However, many will not, and the more there are of these, the more this will undermine the more far-sighted enterprises.

A second way forward is to look to bilateral regulation through mechanisms such as works councils or collective bargaining. It could be argued that, if we are not just talking about ad hoc “favours” which can be given and withheld, then “rights” must be established. Agreements with trade unions and works councils have been a traditional way of doing this. However, in many countries collective bargaining is shrinking; its level is declining to that of the plant; and it also tends only to help those actually covered. However, it should be added that there are some interesting developments in this respect such as the Social Dialogue of the European Union, one of whose initiatives, for example, is in the area of family responsibilities.

A third way is to look to international codes, standards and conventions, of a more or less voluntary nature. Here obviously the ILO has a long experience and can provide assistance with the diffusion of innovations, but it will need to re-examine and target its activities in the light of changing circumstances and in a more enterprise direction.

A fourth way is to look to national and supra-national law. At the national level, there may be some scope for legal intervention. This could take the form, for example, of legal obligation to report initiatives in company accounts or to conduct a social audit so as to make initiatives more transparent. There might also be scope for giving privileged tax status and tax incentives to enterprises which take these initiatives, such as has recently been suggested by United States Secretary of Labour, Robert Reich. At the supernational level, the activities of the EU and proposals for social clauses in international trade agreements may be seen as examples.

Summary points for discussion