MASTER’S DEGREE IN STATE MANAGEMENT AND HUMANITARIAN AFFAIRS

University of Sarajevo – University of Belgrade – La Sapienza University of Rome

CORPORATE SOCIAL RESPONSIBILITY:

- Leading aspects of CSR concept in Bosnia and Herzegovina -

BYEMIRA MEŠANOVIĆ

SUPERVISOR: Prof. Dr. MURIS ČIČIĆ

SARAJEVO, BOSNIA AND HERZEGOVINA

September 15th, 2005

82 pages

TABLE OF CONTENTS

1 INTRODUCTION 5

2 CORPORATE SOCIAL RESPONSIBILITY 8

2.1 CSR DEFINITION 82.2 CSR ORIGIN AND DEVELOPMENT 102.3 CSR INITIATIVES AND INSTITUTIONS 15

3 CONTEMPORARY VIEW ON CORPORATE SOCIAL RESPONSIBILITY 20

3.1 PRACTICAL ASPECTS OF CSR 203.2 CURRENT TRENDS AND DEBATES ON CSR 253.3 FACTS AND HIGHLIGHTS 30

4 CORPORATE SOCIAL RESPONSIBILITY IN BOSNIA AND HERZEGOVINA 32

4.1 CSR OVERVIEW 324.2 CSR INITIATIVES 404.3 POLICIES AND LEGISLATION 48

5 EMPIRICAL ANALYSIS 51

5.1 CASE STUDY 515.2 BASIC CUSTOMER ATTITUDE SURVEY 56

6 CONCLUSION 66

7 BIBLIOGRAPHY 72

8 Annexes 79

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“I believe that every right implies a responsibility; every opportunity an obligation; every possession a duty” (John D Rockefeller)

Acknowledgments

I would like to express gratitude and appreciation to Prof. Dr. Muris Čičić for

enormous help and support, and to Ms. Nejra Čengić for technical and organizational lead.

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Abbreviations

CEO - chief executive officer

CPCD - Centre for Promotion of Civil Society

CSO - civil society organizations

CSR - corporate social responsibility

EC - European Commission

EU - European Union

GC - Global Compact

GEMI - Global Environmental Management Initiative

GMO - genetically modified organism

IBEI - The International Business Ethics Institute

ILO - International Labor Organization

IRC - International Rescue Committee

ISEAL - Environmental Accreditation and Labeling

ISO - International Standard Organization

NGO - nongovernmental organization

OECD - Organization of Economic Cooperation and Development

SAI - Social Accountability International

SMEs - small and medium enterprises

UNDP - United Nations Development Program

WBI - The World Bank Institute

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1 Introduction

This paper is founded on two objectives. The first one is an applied aim that is trying to

find a solution for development of corporate social responsibility framework in BiH. The

second objective is theoretical. It focuses on the concept of CSR in general, its impact and

meaning for society.

The companies' increased power also leads to increased responsibility and higher

demands from the society. According to the Hilton and Gibbons, there are established myths

about companies that they are no longer presented as opinions but assumed to be fact1. Those

myths are related to: poverty and equality, human rights, sweatshops and child labor, cultural

imperialism, and two misconceptions like “profit is bad” and “every company wants to rule

the world”. Two mentioned authors attempt to highlight positive features of companies’

mentality, in general referring to capitalism as something “good”, and to provide arguments to

oppose 6 myths to be violated or performed by companies. Even with that, it is more likely to

find arguments supporting correlation between corporate business’ performance and

mentioned myths. For instance, there is a whole doctrine in “When Corporations Rule the

World”2 unfolding companies’ effect on poverty fortification, violation of human rights, bad-

mannered exploitation of work force, negative economic growth and trade expansion, and

many other features of “globalization” or “illness of modern society”. Moreover, the book

portrays corporations’ intentions to misuse positive causes with aim to masquerade their true

purpose.

In today’s society it is very trendy to speak of non-governmental organizations

[NGOs] as being more businesslike and of private business as being more NGO/socially

oriented. There are thousands of trainings and programs, both for NGOs and private

businesses, which are dedicated to enforcement of different management practices aimed at

making these two sectors more publicly acceptable and socially sustainable3.

Corporate Social Responsibility is a new term, recently well-explored and differently

described by different groups of authors, or practitioners. In brief, corporate social

responsibility consists of ethical investment, community development, labor and environment

protection, and company’s internal ethical code. “Corporate social responsibility is a

commitment to improve community well-being through discretionary, business practices and 1 Hilton, Steve and Giles Gibbons. Good Business: Your world needs you. London: TEXERE Publishing Limited. 2002. 2 Korten C. David. When Corporations Rule the World. USA: Kumarian Press, Inc., 1995. 3 NGOs have to learn how to make income and insure sustainable activities, but corporations have to become more sensitive to social problems. Not only external consultants play important role but also many companies like NIKE, Coca-Cola, have their own, full-time employed, CSR manager or spokesperson etc.

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contribution of corporate resources. Corporate social initiatives are major activities

undertaken by a corporation to support social causes and to fulfill commitments to corporate

social responsibility”4. Quoting Hilton and Gibbons, they argue that “social responsibility will

become what fancy consultants sometimes describe as hygiene factor, a sine qua non, and a

basic requirement of doing business”5. Accordingly, CSR is added value to any company that

primarily contributes to performance management, and it should not be considered as luxury

that exclusively belongs to strong and multinational corporations.

In line with previous definitions, it is important to mention significant role of

government in fostering social justice and ensuring social development. Hence, we have to

avoid tendency to replace role of government with role of corporations. CSR is seen as extra

niche for companies in competitive market but also companies can incontestably complement

and supplement the efforts of governments at social development.

The overall goal of this paper is to asses the nature of Corporate Social Responsibility

(CSR), and in BiH context taking into account both customer and companies’ perspectives.

Research will explicitly relate to the meaning of CSR for customers when they take

decisions about specific products, and companies when they create their business performance

practices. In many ways it will be important to mention whether conditions for such concept

exist in BiH. Thus, the research will focus on the existing programs and initiatives that

support CSR by being implemented by different governmental, nongovernmental or

intergovernmental organizations.

Based on the available information of the situation in BiH related to CSR, the following

problems are defined to be addressed in this research:

A) Problem 1

Relationship between CSR activities in BiH and contemporary approach to CSR

Times gone by beginning of war in BiH illustrated that individual and corporate

donations and sponsorships by firms to sport clubs, cultural events, the disabled, and children

were common in BiH pre-war society. At present, it is difficult to find publicly released

record on companies’ community related activities including adequate information on

achievements and benefits. CSR stands for concept reaching far beyond sponsorship or

donation. It reflects upon performance management and stakeholders’ satisfaction. It will be

significant to asses whether companies in BiH perform activities linked to community

development by following modern CSR theory and whether such activities can be considered

4 Kotler, Philip and Nancy Lee. Corporate Social Responsibility: Doing the most good for your business. New Jersey: John Wiley & Sons, Inc. 2005. 5 Ibid, Hilton and Gibbons, p. 53 - 104

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as CSR in contemporary perspective. In addition, it will be beneficial to investigate on how

companies create positive relationship between CSR activities and their business.

B) Problem 2

Relationship between customers ‘purchasing habits and company’s CSR activities

Customers are perpetum mobile of CSR development and certain knowledgebase exist

in societies in which CSR is regularly performed. It will be significant to asses if there is

awareness or general knowledge on CSR amongst BiH customers. Consequently, it will be

interesting to asses whether mentioned knowledge influence customer’s behavior. The

question is whether customers build their purchasing habits based on company’s CSR

activities. Hence, analysis will dig deep into customers’ perception related to the fact that CSR

is concept driven by many different motives.

In line with previously defined problems two hypothesizes are set up:

A) Hypothesis 1

Taking into consideration problem 1 we hypothesize that companies in BiH are not

performing CSR strategies in advanced fashion. The reason can be the ignorance of

possibilities and benefits that CSR generates for business or lack of resources and knowledge

to implement such demanding strategies.

B) Hypothesis 2

Taking into consideration problem 2 we hypothesize that customers in BiH do not make

their choices when buying a product/service based on companies CSR record/strategy.

Methodology applied in this research includes Case Study Analysis and Basic Customer

Attitude Survey. Case study consists of selected company analysis. Selection of company has

been done based on public records on companies’ activities. Case study is formulated in a way

to asses company’ CSR strategy in terms of created benefits for society and for the company

itself. It put emphasis on CEO perception of benefits resulted from CSR activities. Kotler’s

and Lee’s of CSR efforts will be used as criteria for company’s’ preferences: cause promotion,

cause related marketing, corporate social marketing, corporate philanthropy, community

volunteering, and socially responsible business practices.

Basic Customer Attitude Survey focuses on measuring customer’s perception of CSR and

how important for customers is if company delivers in this manner. Questions will be

specifically targeting customers’ opinion on CSR meaning and to what extent it influences

their purchasing habits.

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2 Corporate Social Responsibility

This chapter is devoted to the description of CSR history. It will touch upon the scope of

advocacy activities undertaken by different actors who contributed to CSR development.

Accordingly, it will comment on supremacy of employees’ or customers’ associations in the

process of making corporations more socially responsible. Different initiatives will be

portrayed based on their roles and responsibilities. The aim of this chapter is also to set

necessary terminology including CSR evolving definition with respect to cultural and societal

boundaries and specificities.

Key words related to this chapter are: CSR origin, social activism, CSR definition, CSR

initiatives, stakeholder vs. shareholder, CSR report.

2.1 CSR definition

Prior to the focus on CSR initiatives and its origin, it is important to recount CSR

definition. Definition has evolved through history. Used connotation mostly remained the

same, but different theorists try to re-formulate it in a way to follow theory, practice but also

sensitive cultural context. There is a wide-variety of definitions considering corporate social

responsibility which are dependent on perception of CSR in different societies across the

world. For instance, in Ghana CSR is defined as „capacity building for sustainable livelihoods

which respects cultural differences and finds business opportunities in building skills of

employees, the community and government“ and definition from Philippines „CSR is about

business giving back to society“.6 It is expecting that values and priorities for businesses are

vary from country to country. “Traditionally in the United States, CSR has been defined much

more in terms of a philanthropic model. Companies make profits, unhindered except by

fulfilling their duty to pay taxes. Then they donate a certain share of the profits to charitable

causes. It is seen as tainting the act for the company to receive any benefit from the giving.

The European model is much more focused on operating the core business in a socially

responsible way, complemented by investment in communities for solid business case

reasons”7. Therefore, some authors argue that society shape CSR definition and not

companies.

Definition set by the European Commission:6 Holme, Richard and Phil Watts. "Making Good Business Sense" The World Business Council for Sustainable Development. 2000, January. 2005. < www.wbcsd.org/includes/> 7 Ibid.

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„CSR is a concept whereby companies integrate social and environmental concerns in

their business operations and in their interaction with their stakeholders on a voluntary basis”

(European Commission 2002: 7)  

Already mentioned definition set by Kotler and Lee:

“Corporate social responsibility is a commitment to improve community well-being

through discretionary, business practices and contribution of corporate resources. Corporate

social initiatives are major activities undertaken by a corporation to support social causes and

to fulfill commitments to corporate social responsibility”

Most of the definitions relate to community development, improved business practices,

stakeholders. Stakeholders in Europe are strongly interconnected to CSR. In USA

shareholders play significant role as well. “David Norton, company group chairman of

Johnson & Johnson, claimed that his firm had been following CSR practices for the last 25

years and that shareholders had earned a great return over that time”.8 In the last ten years this

company has received more then 50 of different awards and recognitions for its business

practices9. On their web-site the section dedicated to shareholder service is well-developed

and very informative in terms of CSR. On the contrary, strictly following shareholder values

would not be appropriate when discuss small and medium enterprises which far and wide are

European reality.

A variety of polices also shape CSR definitions and practices. Many corporations go by

official rules and policies and make decision based on how polices are defined. Danone is

used as good example. Danone has decided not to use GMO in its products in Europe but in

USA they continue using it as it is generally accepted10.

Various terms and concepts are closely related to CSR such as business ethics, triple

bottom line, corporate citizenship, socially responsible investment, social impact investment,

social accountability, corporate social rectitude, corporate philanthropy, sustainable business

etc. In some cases, there is variance only in used terminology but in the others there is more

evident difference in terms of measuring it by simple criteria: extent of responsibility, relation

to stakeholders and community, issue tackled, For instance: “ CSR approach typically defines

stakeholders more broadly and is more concerned with the company’s responsibility to the

community. Most business ethics programs are focused internally by making employees

8 “Shareholders vs. stakeholders”. FT Mandate. 2005. <www.ftmandate.com>9. “Investor relations”. Johnson & Johnson. 2005. <www.investor.jnj.com/services.cfm?textOnly=false>10 European Social Investment Forum. Multi stakeholder forum on CSR. 2005. <www.eurosif.org/pu>

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responsible for their behavior with regard to other employees, in other words, only primary

stakeholders”.11

The conclusion would be that there is no one single definition of CSR. Each society has

to define what CSR means for its specific cultural, historical and economic framework. What

surely has to be taken into account is that CSR has to involve wider community interest and to

reflect country priorities and needs.

2.2 CSR origin and development

“CSR has its origin in the social activism of the 1960s and 1970s. Awareness of issues

such as equal opportunities, racial equality and workplace safety, and health first galvanized

the public into scrutinizing business practices more closely than before. Then lead to this

obligations being enshrined in law”12. In different literature it is easy to find an example of a

woman named Elisabeth Hayrick from England who initiated protest against capitalist

exploitation in 1970. “She distributed leaflets outside local shops proudly announcing that

‘we, the people, can overthrow slavery’”13. The reason for this boycott was sugar production

and sugar import into the Great Britain as sugar was produced by low-wages labor in

Caribbean. As by the literature, a few years later she succeeded to tile the way for abolition of

mistreatment of low-wages labor that she called slavery. Indisputably, similar examples can

be found all over the world throughout the past 30 years in particular related to apartheid

Africa. Examples are mainly connected to American companies, thus many argue that CSR

originated in USA. Power-domination upshots spread out as disease to the rest of the world

as North American companies have somewhat overriding role in global sense. Providentially,

CSR materialized as necessary and broadly acknowledged medicine. What does this mean for

the business? It means that “business could no longer justify their existence by the economic

success alone; neither could their responsibility be regarded as being only to their

shareholders as espoused by Friedman (1970). They have to be responsive to a wider range of

public”14.Media also played increasingly discernible role in the field of raising social

awareness. Their mission was dedicated to dispute different companies’ decision or to

challenge companies by writing stories/reportage about their businesses. The B&Q marketing 11 Altham, J., “Business Ethics versus Corporate Social Responsibility: Competing or Complimentary Approaches?” International Business Ethics Institute. Washington. 2005. <www.business-ethics.org/documents/JulietAlthamUpload.doc>12 Vlakovic - Tafra, Majda and Anne Gregory. “CSR: New Context, New approaches and New Applications: A Comparative Study of CSR in a Croatian and UK Company”. 12th Symposium BledCom. 2005. <www.bledcom.com/history/11th_international_public_relations_research_symposium/proceedings_2004>13 The case of Elisabeth Hayrick is described in detail at http://www.suite101.com/article.cfm/leicestershire/2624814 Ibid, Vlakovic - Tafra and Gregory

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director was challenged by one journalist at the press conference with questions on the subject

of very specific detail considering amount of tropical hardwood B&Q stocked. “When he

confessed that he did not know, the journalist replied ‘well, if you do not know, you don’t

care’”15. The marketing manager immediately has decided to find out this information by

hiring the best experts. Ten years after, B&Q grew to be popular by valuable expertise in the

field of tropical rainforest, they have supported Forest Stewardship Council16 created in 1992,

they established “project based attitude”17 in improving working and safety conditions in

factory etc. B&Q became, as we called, socially responsible company with ethical investment

practices.

“The term CSR was in common use in the early 1970s (although seldom abbreviated),

and the term "stakeholders" was used to describe corporate owners beyond shareholders at

least as long ago as 1989”18. „The history of social and environmental concern about business

is as old as trade and business itself. Commercial logging operations for example, together

with laws to protect forests, can both be traced back almost 5,000 years. In ancient

Mesopotamia around 1700 BC, King Hammurabi introduced a code in which builders,

innkeepers or farmers were put to death if their negligence caused the deaths of others, or

major inconvenience to local citizens. In ancient Rome senators grumbled about the failure of

businesses to contribute sufficient taxes to fund their military campaigns, while in 1622

disgruntled shareholders in the Dutch East India Company started issuing pamphlets

complaining about management secrecy and “self enrichment”. With industrialization, the

impacts of business on society and the environment assumed an entirely new dimension. The

“corporate paternalists” of the late nineteenth and early twentieth centuries used some of their

wealth to support philanthropic ventures. By the 1920s discussions about the social

responsibilities of business had evolved into what we can recognize as the beginnings of the

“modern” CSR movement“19

If we examine different literature it is obvious that, beside liberated citizens’ influence,

CSR was instigated from the pressure of strong and committed employees’ and consumers’

associations. None can better review company’s behavior then the group which represent

rights of people employed by companies, or group which represent consumers of companies’

15 Ibid, Hilton and Gibbons, pp. 5616 NGO that developed a credible system of independent certification and timber labeling. 17 They do not go against internationally agreed codes but use project approach to test the best options and asses how they work in practice.18 Marlin, J.T., A. Marlin., “A brief History of Social Reporting”. Business Respect. 51, March 2003. MallenBaker. 2005 <www.mallenbaker.net/csr/CSRfiles/page.php?Story_ID=857>19 “History of corporate social responsibility and sustainability”. The ESRC Centre for Business Relationships, Accountability, Sustainability and Society. 2005. <www.brass.cf.ac.uk/History%20L3.pdf>

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goods. Moreover, none can hurt company more then its primary stakeholders which in theory,

keep company alive. Some authors will disagree with this statement as, it will be mentioned

after in this paper, shareholders play more important role in some countries. This does not

make a huge difference because the point is not focused on Who creates the pressure but on

How company reacts to it. Relevance of those associations is for the most visible in

undeveloped or developing countries when cases like “Nike in Indonesia”20 recurrently

appear.

In United States labor movement has grown out of difficult conditions created by

industrial wars in which many died, but employers still used every means to break strikes

while “11 million families were living on an average of $380 a year”21. Only a moment after,

“between 1897 and 1904, labor union membership rose from 447,000 to 2.073,000”22. In the

later stages, different ethnics groups came together under the same roof of labor associations,

women joined their efforts and at the same time won right to vote, and all of them carried out

actions to dethrone corporations’ power. Corporations slowly realized importance of labor

unions, which resulted in setting up the practices that provide better wages, optimal working

conditions, but also stability through system that is not fatal for corporations’ power23. Second

threat to corporations in USA emerged with totally new young generation “the flower

children” that challenged basic assumptions about lifestyle, fight for the different rights and

equity, raised voices against poverty etc. This generation dropped out of the consumer habits

what defied existing norms and values24.

Even though American companies are listed as number 1 in “blameworthy list”, situation

in Western Europe was not any better. When in 1992 unemployment rate in Europe exceeded

average of 10% in different countries, Europe was under pressure of advises by different

multinationals to reduce the social safety net benefits, to reduce employer social security

contributions, and strict employment-protection rules.25 This did not contribute to CSR as it

treated CSR as an inefficient tool in global market and a limit to survival of European

businesses. This provoked the affected groups to respond. The approach was slightly different.

Role of corporation was examined in terms of their importance for society and future Europe

20 Along with Adidas, Nike controls 49 per cent of the sports shoe market and employs more than 600,000 people in contract factories. Workers in Indonesia, Thailand and other countries have complained in the past of 77-hour weeks, a ban on unions and dangerous conditions in which employees have lost limbs through crush injuries. SEE The Ethical Revolution Sweeping through the World's Sweatshops at <www.globalpolicy.org/socecon/tncs/2005/0416ethicalrevolution.htm>21Wasserman, H. America Born and Reborn. New York: Collier Books. 1983: 11022 Dubofsky, M. Industrialism and the American Worker. Arlington Heights, III.: Harlan Davidson. 1975: 8723 Ibid, Korten p. 57 - 5924 Ibid25 Ibid

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as economic power. Accordingly, government in Europe contributed to CSR more then any

civil society organization [CSO]. At European level, various policy initiatives related to CSR

were undertaken either by European Commission or some other body. In December 1999, the

European Commission published its Communication on Fair Trade focusing on trade

liberalization and protection for social and environmental standards. Then, EC organized two

symposia in collaboration with US Department of Labor in 1998, and during the same year

EC Directorate – General for employment held a workshop for „Monitoring Codes of

Conduct and Social Labels. All these occurred with an intention to promote EU as sensitive

and highly aware of social and environmental concerns. From the very beginning CSR is seen

as “key element of sustainable development”26. Key steps of CSR in the European Union27:

1995 European Commission President Jacques Delors and a group of European companies launch the Manifesto of Enterprises against Social Exclusion.

March 2000

Lisbon European summit sets new strategic goal of making Europe the most competitive and dynamic knowledge-based economy in the world by 2010. For the first time, the European Council makes a special appeal to “companies’ corporate sense of social responsibility regarding best practices on lifelong learning, work organization, equal opportunities, social inclusion and sustainable development”.

June 2000

EU adopts Social Policy Agenda, stressing the importance of CSR in adapting working conditions to the new economy.

March 2001

European Council in Stockholm welcomes business initiatives to promote CSR and calls for a wide exchange of views around the forthcoming Green Paper.

July 2001

European Commission publishes the Green Paper on promoting a European framework for CSR (COM/2001/366).

July 2001

European Commission Communication on promoting core labor standards.

October 2001

ETUC Executive Committee adopts a wide-ranging policy on CSR.

July 2002

European Commission Communication on Corporate Social Responsibility: A business contribution to sustainable development (COM/2002/347).

October 2002

European Commission sets up European Multi-Stakeholder Forum on CSR (CSR EMS Forum) to exchange good practices and assess common guidelines.

June 2004

ETUC Executive Committee adopts resolution laying down a series of priorities for the development of CSR in Europe.

29June 2004

CSR EMS Forum to report to European Commission.

In addition, important aspect to be considered when discussing and explaining difference

in development of CSR in Europe and America is issue on individualism vs. collectivism. “In

the US, a culture of individualism suggests that individuals are responsible for their own

success and, hence, if there is demand for solving ethical questions, it is the individual who is

responsible for making the right choices (e.g. Trevino and Nelson 1999; Ferrell, Fraedrich et

26 " Promoting a European Framework for Corporate Social Responsibility". CSR Europe response to the European Commission: Consultation on the EU Green Paper. European Commission.2005. <http://europa.eu.int/comm/employment_social/soc-dial/csr/csr_europe_eu_en011218.htm>27 “Corporate Social Responsibility: Key steps of CSR in the European Union” European Trade Union Confederation. 2005. <www.etuc.org/a/139>

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al. 2000). In Europe, however, it is traditionally not the individual businessperson, nor even

the single company, that is seen as primarily responsible for solving ethical dilemmas. Rather,

it is a collective and overarching institution, nominally the state”28

Characteristic of the framework in which CSR has developed in the US and Europe are

very different to other parts of the world. For instance, CSR in Japan, Latin America, and

Eastern Europe is not so much related to citizens or labor associations’ activities. It is concept

recently promoted and it is linked to foreign investment requirements, to popularity of CSR

overseas or to endeavors for adopting international standards like ISO29. Especially in the

countries being in war in the nearest past, the business responsibility is not seen as priority

amongst other issues considered as immediate objective30. However, practitioners from these

countries will argue that CSR concept existed since long time ago but systematic definition

and approach was imported from USA or Western Europe. Web portal on CSR in Japan states

that “Japanese companies have a unique and long history of contributing to society, for

example, through customer-oriented products and services, stable employment, philanthropy,

community involvement, and so on so forth. Most of companies with long history have had

mission statements which mention the strong commitment to society”31. Very similar

arguments are used by practitioners in SEE countries when discuss history of CSR. Croatian

and Serbian representatives32 who attended Conference on CSR in BiH opposed statement that

there is no CSR in former Yugoslavian countries, with examples of CSR activities dated

from1970: internships, recreation for employees, employees’ sports game, renovation of

cultural centre involving employees of different companies etc. In addition, they said that

CSR is nothing new to SEE but further development of old concept 33.

However, CSR is more then “being humanitarian and ethical” in terms of very different

initiatives taking place under the umbrella of CSR mania. The essential is to measure impact

business has on society and to help companies to foresee, manage and communicate their

strategy to control impact without impairing others. Nevertheless, it will be difficult to

delineate and recognize first CSR initiative ever and make everyone agree upon it.

28 Matten, D. and J. Moon. “Implicit and Explicit CSR: A conceptual framework for understanding CSR in Europe”. Royal Holloway: School of Management. 2005. <www.rhul.ac.uk/Management/News-and-Events>29 Japan has sent experts to the ongoing debate over how to incorporate CSR into international standards at the International Standardization Organization (ISO). See <www.rieti.go.jp/cgj/en/columns/text_013.htm#note>30 Sri Lanka, BiH etc. 31 CSR and Japan. CSR Archives. <www.csrjapan.jp/index_e.html>32 Radmila Radic Dudic, Gradjanske Inicijative SCG; Lidija Pavic Rogosic, Odraz Hr. 33 Conference took place in Sarajevo, March 2005

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2.3 CSR initiatives and institutions

Loads of different efforts and organizations are recognized in the past as CSR founders.

Growing need for both mandatory and non-mandatory reporting of the social, environmental

and economic impact of business activities slowly institutionalized CSR. Twenty years ago, it

was rarity to hit upon business reporting. However, some companies recognized advantage of

such action, thus started with information campaigns of their CSR “mind-set” and activities.

One is certainly Levi Strauss almost known as pioneer and today’s leader in CSR. If

chief executive officer [CEO] of this company create list of CSR successes in 90s, the list will

contain for sure: The award given by the Council of Economics Priorities for “unprecedented

commitment to non exploitative work practices in developing countries”, Money magazine

positioned it as first among all U.S. companies for employee benefits, and proclamation that

Levi Strauss is one of the hundred best companies to work for34.“Before, Levi Strauss was

accused of contracting in Haiti and Mexico where workers have been sacked for being union

members, as well as using low wages to prop up profits, and now when the campaign group

No Sweat35 uncovered evidence of abuses at a factory in Mexico recently, Levi Strauss sent its

own investigators, accepted the accusations were true and worked with the contractor to

ensure unions were recognized. The jeans maker has also started to buy some of its cotton

from organic sources.”36

Next to Levi Strauss there are Esprit, The Gap, Nike, and other global brands that have

gathered multimillion-pound profits by using sweatshop labor in developing countries.

Pressure groups were intensively targeting these companies with anti-sweatshop campaigns.

At last, these companies disclosed their exploitive business and openly discussed issue of

workers placed in difficult working conditions37.

And to end with long list of companies dealing with CSR, it is worth mentioning

manufacturers of conceivably the biggest human’s threats, fast food and tobacco. The first

common associations related to these two “forbidden” words are Mc Donald and Philip

Morris. Both companies are today among the most active in CSR field.

Despite the exertion of business to act more “responsible”, sometimes it is burden to

accomplish it all alone without external lead and impetus. In-between 1989 and 1997 many

organizations have been established and incorporated social responsibility within their

34 See official Levi Strauss web site <www.levistrauss.com/responsibility/foundation/>35 Campaign group established 10 years ago. Popular through cases with Nike, Levi Strauss, The GAP etc. 36 Frith, M. “Ethical Revolution Sweeping Through the World’s Sweatshops”. The Independent. Global Policy Forum. April 2005. <www.globalpolicy.org/socecon/tncs/2005/0416ethicalrevolution.htm>37 Ibid.

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mission or scope of activities: Business for Social Responsibility, The Copenhagen Centre,

Corporate Social Responsibility Europe, ETHIBEL, Ethics Institute of South Africa,

The European Business Campaign on Corporate Social Responsibility, Global

Environmental Management Initiative, The Global Reporting Initiative, Global Sullivan

Principles, The International Business Ethics Institute, and The Zicklin Centre for

Business Ethics Research. All these organizations have registered either as private

companies, NGOs or Institutes aimed at helping companies to adapt to CSR practices and

CSR “way of thinking” by mobilizing, advising, creating labels and principles, advocating,

educating etc.

According to the Warwick Businesses school different phases took place in relation to

promotion of corporate social responsibility by different initiatives and institution. Three

phases are described:

a) Awakening (1960 -1983);

b) Engaging (1984 -1994);

c) Networking (1995 – today).

This very attractive analysis explains that during the first phase initiatives/standards

that were developed are as follows: US Environmental Protection Act ‘69, Club of Rome ‘72,

Brandt report ’80; Besides, during the second phase developed initiatives/standards are as

follows: Responsible care ’85, Superfund US ’85, Brundtland report ’87, ICC Principles of

SD ’91, Rio Earth Summit ’92; And finally, during the third phase new initiatives/standards

are: ISO 14 000 ’96, Amnesty International Business principles ’98, Triple Bottom Line

concept ’98 & AA1000 ’99, UN Global Compact ’00, Global Reporting Initiative, WEF

Corporate initiative statement. In line with those initiatives, some already mentioned

organizations were established but also institutions and “gatherings” such as Council for

Economic priorities ‘69, Greenpeace ’72, Davos ’88, Amnesty Business group ’91, Rio plus

10 in J’burg ’02, Worlds Social Forum in Brazil etc.38

Also, very prominent individuals decided to support CSR. “In October 2001, the

Prince of Wales hosted a conference for Human Resource Directors to explore the

possibilities of establishing an international campaign to promote employee engagement.

Companies and other leading experts stepped forward to form a Working Group that

supported IBLF in developing the strategy for the launch of the campaign. ENGAGE which

38 Mohan, A. “Improving knowledge about CSR”. Warwick business school. 2003. Round Table. 2005. <http://europa.eu.int/comm/enterprise/csr/roundtables.htm>

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was formally launched in Belfast in October 2002 operates in an atmosphere of growing

public awareness of and concern about social, economic and environmental problems”39.

Not long time ago, CSR reports were seen as rarity, and very often as one-off

activity taken by certain company. In addition, group of people who red reports was

limited to hard-core campaigners or business consultants. However, this slightly changed

and improved over the years. According to Alice and John Tepper Marlin it went also

through three phases overlapping with media coverage and perspective of CSR. The first

phase of CSR (1970 and 1980) was the weakest, not linked to corporate performance, but

mainly to PR without critical aspects. Report at that time was composed of advertisements

and annual-report sections.  It was perceived as very personal and not connected to CSR. The

second phase was pioneering phase which open the door to today’s CSR reporting. “It began

with Ben & Jerry's, which in 1989 commissioned a "social auditor" to work with the B&J

staff on a report covering 1988. The social auditor" was given free rein to interview anyone

in the company for two weeks, on any day or night shift”40.  The auditor introduced an issue

of stakeholders who represent wider community including even suppliers. Hence, he

recommended that the report should be called a Stakeholders Report. Accordingly it should be

divided into the major stakeholder categories: Communities (Community Outreach,

Philanthropic Giving, Environmental Awareness, and Global Awareness), Employees,

Customers, Suppliers, and Investors. The report was launched with auditor's input who signed

it and said that in his opinion Stakeholder Report “fairly describes the performance of the

company in the area of social responsibility for the year 1988 with respect to five stakeholders

groups”41 “The third phase of CSR reporting is surely the most interesting because it

introduces not only third-party certification of the reports, but certification by bodies that are

accredited to certify against social or environmental standards.  It breathes life into standards

and on-site inspection, because social auditors are firms and people who are accredited by

environmental or social accreditation bodies (or by both).The standards are already

determined before an auditor goes in and the procedures are specified. When a violation is

found, the facility is given a chance to take corrective action.  The auditor returns to see that

required corrective actions are made. Major problems are not allowed to remain year after

year”42. In light with mentioned standards and certifications companies were/are under the

pressure to protect brand name so businesses attitude toward reporting became more proactive

39 ENGAGE. 2005. <http://www.engage.org/>40 Ibid, Marlin 41 Auditor was John Tepper Marlin42 Ibid, Marlin

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and they have tried to raise value of what they report. The pioneers and global leaders and

certified facilities of the new phase of CSR reports are Social Accountability International

[SAI] enhancing labor standards, and environmental leader is Environmental Accreditation

and Labeling [ISEAL] formed by Forest Stewardship Council, the International Federation of

Organic Agriculture and the Dutch Max Havelaar Foundation43. Though, there are many other

organizations writing and defining standards and codes for corporate accountability: ILO,

ISO, OECD, ETI etc.

“A global reporting survey conducted in 2004 by the Association of Chartered Certified

Accountants and CorporateRegister.com found that the number of corporate social,

environmental, and sustainability reports increased from fewer than 100 in 1993 to more than

1,500 in 2003. Similarly, a 2003 study of the world's 100 largest companies by the consulting

group CSR Network found that almost half of them (49) issued an environmental, social, or

sustainability report“ 44.

With increasing expectations to get more qualitative and informative CSR reports, burden

for those companies to provide such information in a standardized way also grow. Key

external standards on the whole applicable to reporting are:

a) The Global Reporting Initiative (GRI) as a multi-stakeholder initiative formed

to develop globally applicable guidelines that can be used voluntarily by

reporting organizations45.

b) The AA1000 Assurance Standard as the first assurance standard for social and

sustainability reporting. The standard provides a framework for assuring that

GRI-based and other CSR reports provide information that is material,

complete, and responsive to stakeholder concerns and interests46.

c) The CERES Report as a standardized format for corporate environmental

reporting developed through collaboration with companies, institutional

investors and environmental organizations47.

Besides the public, media and government are becoming more and more interested to

systematically approach CSR and reports. Recently, different media broadcasted CSR reports

of respective companies. Examples are CNN and Nike report or Wall Street Journal and Gap's

43 “CSR Instruments: Codes of Conduct”. The Multilateral Investment Fund. 2005. <www.iadb.org/mif/v2/files/StudyCSRannexA.pdf>44 BSR staff. “CSR Reporting”. BSR: Business for Social Responsibility. 2005. <www.bsr.org/CSRResources/IssueBriefDetail.cfm?DocumentID=50962>45 Global reporting Initiative. 2005. <www.globalreporting.org>46 Ibid. 47 Coalition for Environmentally Responsible Economies. 2005. < www.ceres.org>

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first CSR report. Considering governments, “a few governments have imposed more wide-

ranging requirements for disclosure of social and environmental performance. For instance, a

2001 French law requires large companies listed on the French stock exchange to include in

their annual reports discussions of the social and environmental impacts of their activities in

France. Under pending regulations proposed in May 2004, the U.K. would require U.K.-listed

companies to publish Operating and Financial Reviews that would include among other

business issues information about a company’s employees, environmental issues, and social

and community matters”48. Nevertheless, governments have to comprehend their unavoidable

role in fostering CSR by creating better conditions for companies to behave more responsibly

and to efficiently manage different CSR strategies.

CSR and reports became mainstream incentive for business performance today and it will

be unanticipated to find any gigantic company without record on CSR. It is of course to be

assessed whether their actual performance match expected goal and reasoning set by public

and different mentioned institutions. CSR turned into some kind of democratic model in

economy sector relying on citizens’ and other associations’ participation which is monitored

by different institutions, and by means of beforehand placed rules and standards.

3 Contemporary view on Corporate Social Responsibility

In today's highly competitive market, companies need an extra niche, and many have

found that CSR activities can make the difference in winning and maintaining customers or

48 Ibid, Business for Social Responsibility

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losing them. Contemporary view on CSR is important for understanding CSR practical

aspects and impact. This chapter will also provide brief insight into companies impending

CSR standards. The relevance of CSR is illustrated by the fact that there are quite good

researches providing facts and highlights that substantiate importance of this concept.

Key words related to this chapter: impact, ethical investment, cause promotion, cause

related marketing, corporate social marketing, corporate philanthropy, community

volunteering, and socially responsible business practices.

3.1 Practical aspects of CSR

In spite of many definitions that were born to put CSR in plain words, for ordinary

reader or even inexperienced company, it is still vague what CSR means in practice. It is easy

to guess that CSR is something about company “doing Good”. It is about company trying to

perform against stakeholders’ needs switching from confrontational to co-operational model

including almost everyone as stakeholders: market, consumers, media, NGOs, governments

etc. When talking CSR in nowadays’ it is impossible to avoid mentioning human rights, child

labor, sweatshops, environment, and ethics. „It can include anything ranging from actions

aimed at improving human rights and combating child labor to fostering local development

and diversity within the workforce to ways in which companies can improve their

communication and reporting on their labor practices“49. Kotler and Lee tried to systemize and

describe different ways/options for performing within CSR framework. They have also

pointed out that CSR shifted from obligation to strategy and that companies use it more and

more to support its goals and mission50.

Based on Kotler and Lee model, there are six options for companies’ initiatives under

which most social responsibly-related activities fall. Those 6 options are as follows: cause

promotion, cause-related marketing, corporate social marketing, corporate philanthropy,

community volunteering, and socially responsible business practices. Cause-promotion is

activity through which company provides money, in-kind contribution, and other resources to

raise awareness about a social cause. Company can do it independently, it can enter into

partnerships or it can be one of the sponsors. An example is The Body Shop promoting a ban

on the use of animals to test cosmetics. Companies working with environment are pretty much

interested in this option. Cause-related marketing describes companies’ effort to contribute

49 Nassau, Laurentien van-Oranje and Sonia Casino Diaz. “Corporate Social Responsibility: A New Approach to EU Policy-making”. European Union lobbying - Changes in the arena. Ed.Robin Pedler. New York : Palgrave European Centre for Public Affairs, 200250 Ibid, Kotler and Lee pp. 5 - 9

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or donate a percentage of profits to a specific cause based on product sales. An example is

Dell that offers percent off selected new products when up to three products are recycled

online. Even though it is sometimes hard to see difference among first three options as

corporate social marketing means that companies support the improvement and/or

realization of a behavior change campaign aimed at improving public health, safety, the

environment, or community well-being. An example is Philip Morris that gives confidence to

parents to talk with their children about tobacco use. Corporate philanthropy is what

majority usually relate to CSR behavior. It means that companies directly make contribution

to charities or CSOs and very often in the form of donations or in kind services. An example

is McDonald’s House that offers places to stay for families with seriously ill children. It can

be any company that provides donations for different projects and programs though NGOs or

community foundation. Community volunteering is when company encourages its

employees, partners or members to voluntarily work in different community organizations

mainly NGOs. An example is Levi Strauss & Co. employees who provided support to

distribute leaflets about a new disease that was devastating the gay community in San

Francisco (HIV/AIDS). Socially responsible business practices means that company adopts

and conducts discretionary business practices and investment that support social cause to

improve community well-being. An example is Starbucks that work with Conservation

International to support farmers to minimize impact on their local environment51.

Presented scheme or model has a lot to do with American perception of CSR. Model is

surely very informative and educative for companies and beginners in the field of CSR.

Moreover, greater parts of world-wide CSR activities meet the previously described division.

Nevertheless, companies’ internal codes of conduct and their relationship with employees is

what is missing in this very comprehensive model. CSR initiative is seen almost as an extra

work for company in this model. Company has to choose a good cause, has to asses

community needs, has to make good implementation plan, has to evaluate. In today’s

European perspective CSR is not an added effort for company. It is incorporated value in day-

to-day management and practices. It respects wider group of stakeholders never forgetting its

employees. It is more about company being open to its stakeholders in a cooperative way, and

creating business-to-business partnership to follow different norms and ethical standards. "A

company has to be transparent and well behaved; just having a good quality product is not

sufficient anymore."52

51 Ibid, Kotler and Lee pp. 23 – 251

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European Commission published a survey in 2002 as part of a study in the context of

the Observatory of European SMEs, in which it presented that around half of European SMEs

are engaged in some form of socially responsible activity. To the contrary, it showed that

taking into consideration modern view of CSR, half of those activities would not be defined

as CSR. The reasons lie in the fact that providing support to sports and cultural

activities ,through donation or sponsorship, is not anymore considered as advanced CSR53.

Likewise, any kind of charitable giving is especially criticized by public in different countries.

They believe it is not adequate for a company to build child playgrounds if a company

produces something that destroys health. Company has to, if not to solve a problem, to try not

to foster resolution of a problem. Satisfaction of employees and customers appears as an

essential indicator of company behavior.

In addition, other stakeholders should act more strongly to support development of

CSR concept in practical terms. Role of government is also perceived as helpful in terms of

clarifying what is CSR in practice but also acting as a role model for companies. Recently,

this was fairly visible with Canadian businesses that literally expressed need for having

federal government as a role model and a channel for disseminating best practices54.

Government could also help by: „adding CSR to the criteria that government agencies use

when deciding from which companies to buy goods and services, providing export credit

support for responsibly performing companies or sectors, easing customs checks for

responsible companies, and so forth“55. European Union [EU], if taken as an economic block,

should proactively support CSR actions and performance. In Rio Tinto plc statement to EU

Green Paper Promoting European Framework for Corporate Social Responsibility (CSR)56

they propose that “on a general footing the EU could support the promotion of CSR

performance by”57:

- raising awareness and supporting CSR initiatives at the international level,

- ensuring coherence between CSR policy and other EU policy,

52 “Corporate Social Responsibility, a Priority in Europe”. Survey of key business opinion formers and decision makers. SocialFunds.com. (October 04, 2000). 2005. <www.socialfunds.com/news/article.cgi/article385.html>53 European Commission. 2005. < http://europa.eu.int/comm/index_en.htm>54 “8 Role of Government in Supporting CSR” Natural Resources Canada. 2005. <www.nrcan.gc.ca/sd-dd/pubs/csr-rse/p8_e.html>55 Aslam , Abid. “ When profit is not enough”. Backgrounder: Corporate Social Responsibility. Initiative for Policy Dialogue. 2005. <www2.gsb.columbia.edu/ipd/j_corporatesocial.html>56 The aim of the paper was to launch a wide debate on how the EU could promote CSR - "how to make the most of existing experiences, to encourage the development of innovative practices, to bring greater transparency and to increase the reliability of evaluation and validation"57 Stewart, Shaun. “Rio Tinto plc.: Green Paper Promoting a European Framework for Corporate Social Responsibility (CSR) – Rio Tinto Statement”. European Commission. (12 December, 2001). 2005. <http://europa.eu.int/comm/employment_social/soc-dial/csr/pdf2/046-COMP_Rio-Tinto_UK_011212_en.htm>

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- developing CSR related information tools in co-operation with other stakeholders

- organizing and moderating on-going CSR stakeholder dialogue,

- promoting research and analysis on CSR initiatives and development and,

- facilitating access to CSR information on the Internet, particularly for SMEs.

Along with NGOs and governments, academia should be the focal point for creating

new knowledge on CSR good practices trough research, but also education of managers. For

instance, “Corporate Social Responsibility Initiative, to be launched on March 4 th 2006 was

established by the Kennedy School of Government with the goal of working with colleagues

at the Harvard Business School, Harvard Law School, and Harvard School of Public Health.

The CSR Initiative will consist of an integrated program of research, education and outreach

activities bringing together leading practitioners and scholars to advance both knowledge and

applied research in the field of corporate responsibility. The Initiative is supported by a core

group of Founding Companies: The Coca-Cola Company, Chevron Texaco, General Motors,

and Walter H. Shorenstein”58. Good pattern for win-win situation and partnership. World

Bank, apart from regular programs that support CSR, has decided to set up academia learning

cycle in the field of CSR and business ethics. „The World Bank Institute (WBI), in

partnership with Wharton School has organized a classroom discussion series. The series

connect classrooms in 8 countries through four video-conference sessions to participate

in discussions about case studies. The aim is to provide an opportunity for students and

professors from different countries to share their perspectives. Along with these Video-

Conferences, the students will be participating in WBI's online course on Corporate Social

Responsibility and Sustainable Competitiveness, through which they will be engaging in a 3

month online dialogue on CS“59.

External and wide-ranging partnership and stakeholders’ role is evidently important, but

the internal force presents even bigger challenge when implementing CSR activity. Every

manager will always inquire information on how much it cost to implement CSR activity or

principle. Thus, it is sometimes difficult to persuade profit-oriented organization to

voluntarily commit itself to apply CSR principles or implement action. And of course, it costs.

But also it is cost-effective investment. „The practice of CSR is a continual learning and

improving process, which incorporates both legislative and voluntary elements, and which

58 Gavel, Doug. “Harvard Schools Unite for Corporate Social Responsibility Initiative” The HARBUS Online. (March 1,2004). May, 2005.<www.harbus.org/media/paper343/news/2004/03/01/News/Harvard.Schools.Unite.For.Corporate.Social.Responsibility.Initiative-622624.shtm>l59 “Global classroom on corporate responsibility and ethics”. World Bank. January - April, 2005. <www.worldbank.org>

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turns principles and policies into measurable action and accountable practice, in as cost

effective and as transparent a way as possible”60. Afterward in this paper, benefits that a

company has from such commitment will be illustrated.

At this point, the best practices are brought into the focus by challenging logic to define

it best with an adjective. Since companies/industries are different, and society needs are

differently scaled, the dilemma is whether there is any common sense to highlight some

practice as better than the other. Some criteria have to exist beside the mentioned standards

and policy guidelines that define how a company should perform at the minimum. As stated in

different sources, authors who have tried to set up indicators on how to perform and measure

good CSR practice have put emphasis on cultural component, as well as country priority. For

example, in Africa, the criteria for selecting a good CSR program are separately defined in

relation to three priorities: environment, human rights and stakeholders. Further, it is

formulated in terms of presence and quality of sustainability policy; stakeholder dialogue;

compliance with best governance practices like King 2002; evidence of social impact in area

of business, including procurement; greater responsibility for maintenance of human; etc.61.

Based on CSR evaluation data which came from Ethical Investment Research Service

[EIRIS] the Top ten companies performing CSR standards are: 1. AstraZeneca UK 2. Bayer

Germany 3. Degussa Germany 4. ICI UK 5. Norsk Hydro Norway 6. BASF Germany 7.

Henkel Germany 8. Umicore Belgium 9. Diageo UK 10. BT Group UK. CSR was rated in

terms of corporate governance, Employees (equal opportunity, health and safety, employment

stability, unions, education/development), Society (protecting human rights in developing

countries, fair procurement, relationship with customers and vendors, community activities)

Environment (commitment towards environmental issues and outcomes, use of

environmentally-friendly sources of energy)62.

It can be concluded that there are endeavors to crown a company as King or Queen of

CSR. Sometimes, various CSR awards or ranking lists can be seen as good driving

mechanism for companies to conduct themselves more responsibly and to inspire employees

to partner with communities.

60 Ibid, European Commission. Rio Tinto statement. 61 Newton-King , Nicky. “JSE Securities Exchange South Africa“. An exchnage view. JSE Limited. 2005. <www.jse.co.za>62 “CSR: Top 10 CSR performing Companies”. Ethical Investment. June 24, 2005. <www.ethicalinvestment.org.uk/modules.php?name=News&file=article&sid=39>

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3.2 Current trends and debates on CSR

As any other concept, or popular and publicly discussed phenomenon, CSR provokes

arguments pro and against its values and impact. CSR impact is discussed in terms of its

contribution to society and to company itself. Though, there are views of CSR as threatening

to companies and capitalism, in general.

Impact on society that is defined with qualitative indicators can be assessed easily just

by asking questions: How many? How much? How often? Qualitative and unforeseen impact

is very often placed under the agenda of a never-ending issue. Project named RARE –

Rethoric And Realities. Analysis of Corporate Social Responsibility in Europe has a goal to

address the particular issue of CSR impact. It is stated in the Project document that “using a

specially developed tool – CSR Impact Assessment – the rhetoric of CSR shall be separated

from factual impacts in the sectors. The Impact Assessment takes into consideration both, the

micro-level of companies and the macro-level of economic and socio-political effects. On the

socio-political level, where the focus of analysis lies, the project team strives to evaluate the

contribution of companies' CSR measures to achievement of the European Union's policy

goals in four areas of sustainable development”63 This does not differentiate EU from any

other institution or country, as it is said, all of them want to witness impact and all of them use

measurement system created according to their needs and visions. The most frequently

illustrated benefits societies gain from CSR are: community development, poverty reduction,

fair employment, environmental protection, sustainable development, social development,

creation of more vibrant markets etc.

Paradoxically, it is much easier to find literature explaining how a company can benefit

from CSR with only a few sentences about the impact on it has on the society. Thus, many

consumers still argue that CSR is a fancy makeup for businesses and that business will never

truly care about society. The fact is that impact can not be measurable without clear plan on

what companies are keen to accomplish in society. The most frequently illustrated company

benefits are related to profit, human resource quality, risk management, competitive

advantage, reputation and image, investors, capital, public relation, increased efficiency,

innovation in market through cooperation with local community etc. One of the well-known

63 Viganň ,Federica. “Citizens and governance in a knowledge based society 2004-2007” European Commission. May, 2005. <www.feem.it/Feem/Pub/Programmes/Corporate+Social+Responsibility+and+Management/Activities/200407-RARE.htm Fondazione Eni Enrico Mattei>

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CSR consultancies in UK, CSR Network64, and its experts has prepared analysis on CSR

benefits to businesses. Analysis is shown in table below:

The Top 10 Benefits of Engaging in Corporate Social Responsibility (CSRnetwork

and Radley Yeldar)65

1) Increased profit An 11-year Harvard University study found that "stakeholder-balanced" companies showed fourtimes the growth rate and eight times the employment growth when compared to companies that are shareholder-only focused. 2) Access to capitalCompanies that are committed to CSR often have access to capital that would not otherwise be available, due to the increase in Socially Responsible Investment (SRI). A 2001 study showed that 12% of total investment in the USA was of a socially responsible nature. Likewise, there are were 313 green, social and ethical funds operating in Europe in June 2003. 3) Reduced operating costs/increased operational efficiencyContrary to widely-held opinion, improved environmental management systems do not automatically result in greater cost. Over time, they improve operational efficiency by reducing waste production and water usage, increasing energy efficiency and in some cases, selling recycled materials 4) Enhanced brand image and reputationA good reputation is often very hard to build – and yet can be destroyed in less than a day. A strong reputation in environmental and social responsibility can help a company build this trust. 5) Increased sales and customer loyaltyResearch has shown that consumers not only want good and safe products, but they also want to know that what they buy was produced in a socially and environmentally responsible way. 6) Increased productivity and qualityBusiness for Social Responsibility say “Company efforts to improve working conditions, lessen environmental impacts or increase employee involvement in decision-making often lead to increased productivity and reduced error rate. 7) Increased ability to attract and retain employees A company’s dedication to csr can help to attract and retain employees. People want to work for a company that is in accordance with their own values and beliefs. 8) Potentially, reduced regulatory oversight The more a company shows it is committed to CSR by complying with and going beyond legislation, the more lenient governments and regulators may be with the company. 9) Reducing risk, and increased risk management The more a company is committed to CSR, the less they are exposing themselves to business risk.This could be reputational risk following bad press, e.g. the highly publicised “Nike sweatshops 10) ‘Keeping up’ with competitors and where the market is.This is where business is heading: the world over, regardless of the regional culture.

Field where CSR produces a number of results is sustainability of non-governmental

sector [NGOs]. In the countries where government does not supply NGOs with an extra fuel

for their activities and where different donors are slowly phasing out their programs,

businesses can create room and conditions for improvements. Prolific partnerships between

NGOs and profit-oriented organizations can balance businesses’ intention to communicate

with community and NGOs mandate to represent community needs. In this respect, it is

worthy to be mentioned that CSR is also seen as reflection of real democratic values. It fosters

64 csrnetwork has a proven track record in helping big businesses and other organizations make corporate social responsibility a reality.65 CSRNetwork. 2005. <www.csrnetwork.co>

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participation in business and creates democratic governance. However, Henderson criticizes

any form of equal partnerships by putting emphasis on doubtful capabilities of different actors

to speak for society in whole. He thinks that “no non-governmental organization, and no

grouping of such organizations, has a valid claim to represent and to speak for, the people of a

country when that country has a democratically elected and responsible government“.66 There

is a logical point in such judgment, except that it is certain that NGOs bear a huge

responsibility in any democratic society and are involved in grass-root programs representing

community needs. Moreover, NGOs can influence decision making processes by strong and

participatory advocacy. NGOs have skills gained through direct work and contacts with

communities, consequently those skills can be transferred to businesses when implementing

certain type of CSR activities. Both sides can benefit from such mutual partnerships.

Otherwise, a different approach can tempt these two sides entering into warfare around CSR

issues and values. Interesting approach can be found in Introductory paper of Sir Geoffrey

Owen who pointed out that “there are clear dangers for a company in getting into a fight with

an NGO, especially if - as is the case with several environmental groups - that NGO enjoys

considerable support among employees and customers“67. His second important remark is that

NGOs „increasingly well organized and with a growing international membership, have

become active in trying to persuade or compel companies to cooperate in advancing their

cause“. Nonetheless, in some countries, particularly developing ones, raising awareness on

CSR should target both businesses and NGOs to take more active role in it. NGOs also have

to be involved not only through advocacy but by taking on CSR principles themselves.

Regardless of the fact that CSR, in general, can create more positive results than cause

harm, it is difficult to oppose all practitioners and consumers who still challenge companies

and society to dig deep into CSR concept and prove its values and meaning. A quite sarcastic

mode in presenting consumer’s point of view could be recognized in Ed Mayo speech to

journalists68 when he said that conference after conference held on CSR theme, it grows to be

a well-developed scheme. He continued with a statement that there are probably more public

awards on CSR than there are socially responsible businesses and that if we search for

corporate responsibility on Google we will get 37.000 references. He added that CSR has

never been about consumers but only about businesses. The bottom line of his critics was

66 Henderson, David. "The Role of Business in the Modern World: Progress, Pressures, and Prospects for the Market Economy" Institute of Economics Affairs. (27 July, 2004). 2005. <www.iea.org.uk>67 Owen, Geoffrey “Corporate Social Responsibility: rethinking the role of corporations in a globalizing world”. Introductory Paper. Madingley Hall, Cambridge. (3-11 October 2002). 2005.<www.21stcenturytrust.org/owen.htm>68 National Consumer Council. 2005. <www.ncc.org.uk/pressinfo>

27

connected to mistrust in CSR and no reason for consumer to buy high-priced products even if

company is hypothetically socially “responsible”. His conclusion was that if companies

engage consumers, then it is possible to harness CSR to transform markets69. On the other

hand, in Online Forum of International Organization for Standardization [ISO], consumers are

attacked with thoughts that „most people will do almost anything to save the planet as long as

it does not involve any personal inconvenience. So if they can demonstrate their concern by

filling their petrol-guzzling Jeep Grand Cherokees and Dodge Durangos with CSR-friendly

Shell instead of fuel from some less socially aware oil company, they may feel a little less

guilty about sitting in a traffic jam pumping greenhouse gases into the atmosphere while the

public transport system falls into decrepitude“70. Consumers’ approach toward CSR is

generally assessed to be more attitudinal then behavioral.

In general, “true” motivation at the back of CSR is what is judged and disliked.

Deputy Editor of the Economist explained that “for most companies, CSR does not go very

deep. For most conventionally organized public companies, which mean almost all of the big

ones, CSR is little more than a cosmetic treatment“. He also acknowledged that for anything

that advances the company they should not get applause or an extra credit. In The

Economist71 it is shown that the charitable contributions of FTSE 100 companies (including

gifts in kind, staff time devoted to charitable causes and related management costs) averaged

just 0.97% of pre-tax profits. A few give more; many give almost nothing (though every one

of them records some sort of charitable contribution). The total is not exactly startling. The

figures for American corporate philanthropy are bigger, but the numbers are unlikely to

impress many CSR advocates72. „Cynics may see it that way, but our feeling is that CSR

should never be used as “window-dressing” by companies who say one thing in public and do

another behind closed doors.  It cannot be denied that the link between CSR and a company’s

reputation is increasingly being held up as a reason for embracing the concept, but critics

must also admit that it would be very difficult for a company to fake CSR in the long run“73. 

There are always exceptions and positive illustrations. For instance Shell moved

forward to assimilate social, environmental and economic concerns into its decision-making

69 Ibid.70 Kernaghan, Webb. “Investors as Drivers of CSR”. International Organization for Standardization. Online Forum. (9 October, 2001). 2005. <www.iso.org/iso/en/comms-markets/sr/background/messageboard/2001-10-09.html>71 “The good company“. The Economist. January 20th, 2005. <http://www.economist.com/displaystory.cfm?story_id=3555212>72 “The 2004 Giving List”, Britain's Guardian. The Economist. 2005. <www.economist.com/displaystory.cfm?story_id=3555212>73 CSR Europe. Frequently Asked Questions. 2005. <www.csreurope.org/aboutus/FAQ/#affect>

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at all levels. They want to be more proactive and to “move on from what we might call

corporate philanthropy, which often meant handing over money and sitting back, to the more

structured approach of social investment"74. Controversially, the chairman of Shell was

criticized by The Financial Times for the perception that he “spent more time trying to

convince environmentalists of Shell's commitment to sustainable development than reassuring

investors that he was aware of the growing gap between Shell's performance and that of its

peers”75. However, Shell is not the only example. With a minimum effort, it will not be too

problematic to find companies with effectively measured and verified CSR successes.

Criticism brought by the various economic experts is directed to CSR demands placed

on companies’ vital business. Tight spot is created around the question what exactly

businesses generate from CSR and what they lose in the process of “giving the capitalism

more human face”76. Besides Henderson, who is a hard core opponent, there is also Ethan

Kapstein, professor of economics and political science at Insead, the French business school,

whose article "The Corporate Ethics Crusade" appears in Foreign Affairs magazine77.

Common feature of all their arguments is fear that “CSR distracts business from business and

CSR activists threaten businesses, investor interests, jobs and the free enterprise system”78.

Some of arguments given by different businesses are: „Businesses are owned by their

shareholders - any money they spend on so-called social responsibility is effectively theft

from those shareholders who can, after all, decide for themselves if they want to give to

charity. The leading companies who report on their social responsibility are basket cases - the

most effective business leaders do not waste time with this stuff. Our company is too busy

surviving hard times to do this. We can not afford to take our eye off the ball - we have to

focus on core business. It's the responsibility of the politicians to deal with all this stuff. It's

not our role to get involved. “79 It is probably necessary to pay attention to such arguments

against CSR as they are coming from businesses that are supposed to implement it. Yet it can

be of great importance to grant enough time for opponents to digest values and CSR as such.

Of course, business should not be under constant pressure to produce something that is

socially responsible. Core purpose of business is to create profit and it should not be forgotten 74 Shell. 2005. <www.shell.com>75 Friedman, Milton. “Why is Corporate Social Responsibility a Threat?” The Social Responsibility of a Business is to increase its profits. Jan. 23, 2004. Free Enterprise Action Fund. 2005. <www.freeenterpriseactionfund.com/about.html >76 Henderson, David. Misguided virtue, False Notions of Corporate Social Responsibility. London: Institute of Economic Affairs. 2002. 77 Ibid, Kernaghan78 Ibid, Friedman 79 “Arguments against CSR”. Mallen Baker. ( April 2nd, 2001). 2005. <www.mallenbaker.net/csr/CSRfiles/against.html>

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that profit employs people and, thus, tackles an important social issue. Even though such

attitude seems to be contradictory, it is not. CSR is not a threat to business, profits and

capitalism. It is a win-win solution for both business and society in global and national

framework. It combines needs, possibilities, capabilities of all parties included aimed at

reaching optimal scenario for community solutions.

3.3 Facts and Highlights

94% of company executives believe the development of a Corporate Social Responsibility

(CSR) strategy can deliver real business benefits. (Source: Ernst & Young survey, 2002)

1 out of 3 international executives think that social responsibility initiatives will increase

sales. (Source: Hill & Knowlton's Corporate Reputation Watch, 2002)

71% of CEOs would sacrifice short-term profitability in exchange for long-term

shareholder value when implementing a sustainability programme.

(Source:Pricewaterhouse Coopers annual CEO survey, 2002)

More than 100 empirical studies published between 1972 and 2000 have examined the

relationship between companies’ socially responsible conduct and financial performance.

In these studies, the majority of results (68%) point to a positive relationship between

corporate social performance and financial performance. 

The London Business School confirms these findings and has identified 80 studies on

CSR, of which 42 demonstrated a positive impact, 19 found no link, and 15 produced

mixed results and only 4 showed a negative impact (Smith, 2001).

Companies with a public commitment to ethics perform better on 3 out 4 financial

measures than those without. These companies also have 18% higher profits on average.

(Source: Institute of Business Ethics, 2003)

A study of “stakeholder superstars” (including Coca Cola, Procter and Gamble, Johnson

& Johnson) showed that companies who consistently try to take into account its

stakeholders opinions outperformed the S&P 500 by more than twice the average over the

past 15 years. Total shareholder return was 43% over the past 15 years, while the total

shareholder return from the S&P 500 was 19% (Schmidt, 2000).

In Europe, green, a 2001 CSR Europe/Avanzi study found that social and ethical funds

have grown by more than 58% in only 18 months (over the period 1/00 to 06/01). There

are currently almost 300 SRI funds in Europe.

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86% of investors believe that social and environmental risk management improves a

company's market value in the long term. (Source: CSR Europe/Taylor Nelson Sofres,

2001)

In the US, the Social Investment Forum reports that there was more than $2 trillion in

assets under management in portfolios that use screens linked to ethics, the environment,

and corporate social responsibility.

Socially responsible investment accounts for nearly 13 percent of the $16.3 trillion in

investment assets under professional management in the U.S. 

A similar survey conducted by Russell Reynolds Associates, indicated that about 50% of

the European investors and 61% of US investors have decided not to invest in a company,

or have reduced their investment, because of poor governance practices (Russell Reynolds

Associates, Corporate Social

70% of European consumers say that a company's commitment to social responsibility is

important when buying a product or service.  (Source: CSR Europe/MORI, 2000)

1 in 5 consumers would be very willing to pay more for products that are socially and

environmentally responsible. (Source: CSR Europe/MORI, 2000)

CSR accounts for over 25% of image and reputation impact on customer satisfaction. 

78% of employees would rather work for an ethical and reputable company than receive a

higher salary. (Source: The Cherenson Group,2001)

Companies that introduce competitive employee benefit programs can decrease company

costs related to absenteeism, turnover, disability and health-care claims by 30%. (Source:

Medstat Group/American Productivity and Quality, 2001)

4 Corporate Social responsibility in Bosnia and Herzegovina

“Three years of war (1992-1995) destroyed the economy, and infrastructure, in Bosnia

and Herzegovina, causing unemployment to soar, as well as the death of about 250,00080

people and displacing half of the population. Bosnia has been facing a dual challenge: not

only must the nation recover from the war, but it also has to finish the transition from

socialism to capitalism”81. Gradually, BiH moved from emergency status to development

programs and capacity building. Hence, in the process of recovery in terms of

competitiveness and endurance, many requirements emerged for BiH companies and

80 This number changes depending on source 81 “Economy of Bosnia and Herzegovina” .Wikipedia. 2005. <www.answers.com/topic/economy-of-bosnia-and-herzegovina>

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economy in general. Consequently, CSR in Bosnia and Herzegovina is still developing and

facing hurdles typical for countries in transition. In this chapter, the specific case of CSR in

BiH is outlined and key players are identified.

Key words related to this chapter are: Global Compact, tax revenue system, ethical

code of conduct, EU integration, and triple bottom line

4.1 CSR overview

Bosnia and Herzegovina as a sovereign country at present, and a part of socialist

Yugoslav system previously, has a long tradition of having the state as a main actor in

regulating social welfare, social rights, economy, helping the poor, community development

and so forth. As a result, “mentality” that exists on various stakeholder levels can be defined

as state dependency. However, attitude that the state will deal with all social problems can not

be prevalent any longer. Currently, there is a global trend towards a reduced role of the state

in the social welfare and involvement of other stakeholders such as the business sector is of

considerable importance. In this respect, experience shows that during the period of socialism

in BiH, companies have participated in social issues. “Individual and corporate donations and

sponsorships by firms to sport clubs, cultural events, the disabled, and children were common.

The socialist period also left a legacy of high levels of protection of labor rights and core

labor standards”82 Therefore, despite the fact that CSR is not officially documented nowadays,

different CSR initiatives can be found even tough they are not recognized or articulated as

CSR practice.

In order to briefly asses CSR case in BiH, the triple-bottom-line criteria will be used as

a tool. Triple bottom line includes three areas in which companies are expected to deliver

impact. “First one is economic profit: a company must be able to produce an economic

surplus in order to survive. This is not only a goal in it self, but a means for providing other

social goods, such as employment. The second bottom line is the environmental impact of the

company. The operation of most companies have effects on the environment, and many have

now introduced ‘green accounts’ in order to make visible the environmental impact of a

company. The third bottom line is the social impact. This relates to company’s concern for

human beings both internally (the employees), and externally (the society at large). For

example, internally, it is about improvement of health, environment and security conditions,

giving to employees a possibility for further education, and avoidance of discrimination of

any groups of employees (e.g. ethnic minorities, gender minorities, etc.). Externally, it may 82 Bagic, Aida, et al. “Overview of CSR in Croatia” Ed. Kim Perlow. Zagreb: Academy for Educational Development, 2004. < www.aed.hr/en/dokumenti/200403_CSRreport.pdf>

32

involve a variety of topics such as concern for human rights, working conditions in supply

companies, corruption, sponsoring and contribution to the local community”83.

Regarding the first bottom line, “Bosnia and Herzegovina (BiH) is a lower middle-

income country with a gross national income per capita of US$2,040 in 2003. Approximately

61 percent of GDP is created in the service sector, 23 percent in industry, and 11 percent in

agriculture”84. “More than half of total BiH income is controlled by 20 companies, of which

several are still state owned85. In 2004, Elektroprivreda BiH had largest income which

amounted to 645 million KM, while BH Telecom had largest profit equivalent to 164 million

KM86. “Taking into account the population living below the poverty line the most pressing

problem, however, is how to maintain the current level of economic spending and social

programs, given the fact that external financial support seems to be gradually waning”87

Intentionally, BiH is to be less dependent on foreign financial aid and more directed toward

private investments and business driven development. Data on transition economies88, such as

BiH, has shown that small and medium-sized enterprises are the leading movers in job

creation and new investments. Hence, it is reasonable to expect that SMEs will play an

important role in the reinvigoration of the BiH economy. Approximately 2000 state-owned

large companies that dominated the economy in pre-war BiH, are presently privatized, or have

already been privatized.89 For example, employment generation through private sector, mainly

SMEs, proved to be a very efficient tool in small undeveloped community in BiH such as

Kalesija where 42% of people were employed by private companies during the privatization

process. Business sector appeared to be the foundation for economic development in this

municipality90. “Increased employment in farming can also have a positive effect on the return

of displaced persons in both entities since many farmers are still living in houses in cities,

waiting for development and employment in their villages of origin”91.

83 Bull, Benedicte. „Corporate Sociial Responsibility: The Norwign Experience“. Centre for Development and the Environment (SUM). (March 19th, 2003). 2005.<www.iadb.org/etica/Documentos/chil2_bul_respo-i.pdf>84 “Bosnia and Herzegovina: Country Brief”. World bank. 2005. <www.worldbank.org>85 Such as: Klas, Bosnalijek, BH Steel, Energoinvest, Sarajevska pivara, Fabrika duhana Sarajevo,BH Telekom etc.86 Metiljevic, Asim.” Vise od polovine prihoda u BiH ostvaruju drzavna preduzeca”. Bosna. 455. 4 August 2005: 43. 87 Hukic, Mersiha. “Rebuilding BiH: achievements and difficulties”. Centre for Balanced Development (CBD). (February 9th, 2000). 2005. <http://i-p-o.org/rebuilding-bosnia.htm> 88 Croatia, Slovenia. Poland etc.89 Lepsøy, Håkon, et al. “Private Sector Development in Bosnia and Herzegovina”. NIS strategy. NORAD’Department for Latin America, the Middle East and South Eastern Europe. (May 16 th, 2002). 2005. <www. unpan1.un.org/intradoc/groups/ public/documents/UNTC/UNPAN019072.pdf>90 “Upravljanje i Razvoj. Stvarna priča o rastu privatnog sektora u Bosni i Hercegovini”. ESI studija. 2005. <www.esiweb.org/docs/showdocument.php?document_ID=31>91 Ibid, Lepsøy

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Conversely, it is very difficult to measure exact number of jobs created by the

private sector in Bosnia and Herzegovina. “Tax rates on labor are high, discouraging hiring of

new workers and increasing incentives for gray market employment. Many employers

underreport their labor force in order to avoid paying taxes and benefits. Official

unemployment is approximately 41%, although given the large gray economy; some World

Bank estimates place actual unemployment at around 17%”92. In the analysis of the post-war

labor market in BiH, it is evident that most of the unofficial employment is in the private

sector including youth and low-educated individuals. However, it is also evident that, in

comparison with the other two sectors, the business sector contributes higher net positive

employment growth.93

It is important to underline CSR perspective in relation to the privatization process

in BiH. It seems that fear that the privatization process will cause unemployment was not

realistic. Data shows that companies decreased their work force; however, this was not a

dramatic decrease. Companies with higher profit, in contrast to companies that registered

deficit, managed to maintain majority of staff. The situation is similar with bigger companies

vs. smaller ones. Privatization contributed to CSR in terms of providing chance for vulnerable

groups such as youth and females to get employed94. However, some other negative aspects of

privatization in terms of CSR and ownership will be mentioned in next chapters.

Regarding the environmental issues, and the second bottom line it can be argued that

“because of the concentration of heavy industry, BiH was heavily polluted before the war. 

The economic downturn after the war with industrial closures has therefore had beneficial

effects on the environment”95 Nonetheless, because of the use of old technology in heavy

industry it can be difficult for BiH economy to fulfill the countries obligations, which would

in a straight line influence creation of the financial basis for implementation of environmental

law96. Yet, Bosnia and Herzegovina is a state party to different international agreements and it

restarted the process of re-ratifying everything what was ratified in former Yugoslavia. The

tempo of the process differs between the Federation of BiH and Republic of Srpska. The RS

has already adopted what is still pending in the Federation. „Currently there are activities in

92 “Bosnia and Herzegovina: 2005 Investment Climate Statement for Bosnia and Herzegovina” U.S. Department of State. 2005. <www.state.gov/e/eb/ifd/2005/41986.htm>93 “Labor Market in Postwar Bosnia and Herzegovina: How to Encourages Business to Create Jobs and Increase Worker Mobility“. World Bank. Report No. 24889-BIH. (November 4th, 2002). 2005. <www.esiweb.org/bridges/bosnia/WB_LabourMarket.pdf >94 Ibid95 Ibid, Lepsøy96 Stefanovic, Djordje. “Report on the current status of acceptance and impanation of environmental law”. The Regional Environmental Center. (2003).2005. <www.rec.org>

34

the Federation on preparation of The Law on the Environmental protection97 and Law on the

Natural Protection. In accordance with the environmental laws, the secondary legislation is

currently undergoing the preparation and harmonization process with the EU environmental

legislation The environmental legislation requires from the enterprises to obtain adequate

permits/grants for their activities (the environmental permit, to meet the requests for waste

management, to establish monitoring system, reporting, polluter-pays principle etc)”98

However, there is little emphasis on environmental issues in enterprises. As it was mentioned,

the laws are in place, harmonized with the EU systems, but so far little has effectively been

done to reduce pollution, save energy or secure proper handling of waste material99.

Different initiatives have been created to support companies in adopting standards

related to the environment, management systems that are environment friendly. “Project

"Capacity Building for Implementation of Environmental Management System  (EMS) based

on ISO 14001  – POEMS-BiH" is initiated by Center for Environmentally Sustainable

Development [CESD]100 and has as an aim to “build capacities in SMEs in BiH for

introduction and implementation of environmental management system (EMS), as well as

internal auditing for EMS certification based on ISO 14001. This project will enable the

companies’ project participants to implement these activities step-by-step, with the final aim

of implementing EMS based on ISO 14001 and become ready for final certification by some

of the authorized certification bodies”. The four SMEs including Sarajevska Pivara,

Vegafruit- Mala Brijesnica, Zica - Sarajevo, Mebos - Samac, and two other SMEs Ferimpex -

Zavidovici and Vlasic Milk- Karaula/Travnik expressed their interest in participating in the

POEMS-BiH project. “The ISO 14001 was designed to provide any type of public or private

organization with environmental management systems standards. Companies adhering to the

ISO 14001 implement environmental management systems, conduct environmental audits,

and evaluate their environmental performance with guidance from the ISO”101. Based on BiH

Chamber of Commerce data there are seven companies in BiH that have already adopted ISO

14001.

Because of the complicated political system, and unclear jurisdiction over

environmental issues, the situation is hectic in terms of monitoring, controlling, approving,

97 Draft Law on the Protection of the Environment, Draft Law on the Protection of the Waters, Draft Law on the Protection of the Nature , Draft Law on Waste Management, and Draft Law on the Protection of the Air.98 “Infrastructure and environment”. WKO.at. (5.-7. April 2005). 2005. <www.portal.wko.at/wk/dok_detail_ file.wk>99 Ibid, Lepsøy100 “Project: Capacity Building for Implementation of Environmental Management System  (EMS) based on ISO 14001  – POEMS-BIH"”. CESD. 2005. <www.coor.ba/en/aktivnosti.html>101 International Standard Organization. 2002. <www.iso.org>

35

disapproving any activity that is potentially environmentally questionable. Hence, there are

companies not taking into account environmental issues. For example, Finvest Drvar has

allegedly been engaged in unsustainable logging for over 9 years in Drvar area. Also, newly

privatized zinc mine, Sase Srebrenica, has been reported as a polluter of the rivers in

Srebrenica. As Bosnia has the third largest forest reserve in Europe, the issue of illegal

deforestation is the most relevant issue when discussing CSR and natural environment in BiH.

It directly influences soil erosion, courses of the rivers, and may cause further ecological

crisis. Eko Gorani, a Bosnian Environmental NGO, said that they raised an issue of illegal

deforestation and urged 10 Federation Cantons to halt uncontrolled deforestation. However,

they have never received an answer from any of the authorities. Sarajevo Canton claims that it

is countering the activities of the illegal loggers by restoring damaged forests and investing

1.2 million KM this year alone on activities such as tree planting”102.

The third bottom line is the most inclusive and, to a certain extent, culturally

bounded. Also, it represents what is usually considered as CSR, treatment of human beings

and community at large. The already mentioned socialist tradition to invest in local

communities and protect labor remains present nowadays in BiH. Capacities and

opportunities for companies to practice it unfortunately declined. The reason can be a lesser

amount of profit, insufficient legislation and lack of information flow between different

sectors. Still, BiH national labor legislation guarantees fair employment conditions, work-

place safety, vocational guidelines and trainings, equality of opportunity and treatment etc.

BiH also ratified over 65 different International Labor Organization [ILO] Conventions

including C148 Working Environment (Air Pollution, Noise and Vibration) Convention, 1977,

C142 Human Resources Development Convention, 1975 , C182 Worst Forms of Child

Labor Convention, 1999103 etc. Because of the unfriendly businesses climate and difficulties

that businesses face it is expected that their care for the community will be of minor scale.

Surprisingly, there are several good examples, notwithstanding that most of the companies

find themselves responsible to provide sponsorship for different sport and cultural events. For

instance, TV Hayat and its effort to support and cover any humanitarian action primarily

linked to Srebrenica inhabitants who live in poverty. Moreover, in their mission it is stated

that they serve the community and want to contribute to its development. Followed by this

example there is KLAS d.d. that is certified by ISO 9001 and for many years use advanced

technologies. “KLAS also continuously develops programs aimed at providing scholarship to

102 Zornic, Ilda. “Illegal Loggers Loot Bosnian Forests”. Environment News Service. 2005. <www.ens-newswire.com/ens/jan2005/2005-01-03-01.asp>103 International Labor Organization. 2005.<www.ilo.org/ilolex/cgi-lex/ratifce.pl?Bosnia>

36

talented students and is one of companies in BiH that founds its future activities on the

employment and promotion of young staff”.104 Novi Grad Municipality in Sarajevo, has

initiated a project of announcing a tender for construction of a shopping center in settlement

of Dobrinja. The condition for winning the tender was that the buyer, besides building the

shopping center, also builds a sports hall and gives it over to the local community. An

unexpectedly high number of interested companies took part in the tendering procedure,

which was won by Merkator105. Also, ProCredit Bank confirmed that it t cares about the

society in which it operates. It supported Think BiH project organized by the Goethe

Institute that wants to promote Bosnia and Herzegovina within itself106.

In many developing, or undeveloped countries, low-wage labor and the unemployed

encounter mistreatment and exploitation by private companies107. In general, it is difficult to

find official and confirmed data on maltreatment of labor force in BiH. There are assumptions

and considerations related to gender and ethnic discrimination in BiH, however, there is yet a

widely accepted proof to be found. For example, there are views that females have been

discriminated against in favor of demobilized soldiers. Also, sources point toward gender

discrimination in pay at socially owned enterprises, but not necessarily at private

businesses108. Even though women are entitled to one year of paid maternity leave, based on

data from State Department, women in all parts of the country encounter problems with

regard to the nonpayment of maternity leave allowances, and the unwarranted dismissal of

pregnant women and new mothers. However, this is not the case only in private companies, as

the same problem appears in NGOs etc. Ethnic discrimination can be illustrated by examples

like Stolac municipality where privatized companies owned by Croats do not employ

Bosniaks. Based on United Nations Development Program report on municipal development,

nontransparent and discriminatory hiring practices are visible in all BiH municipalities,

especially within public companies such as post and telephone companies, electricity

companies, and forestry companies. These companies tend to employ members of the

dominant ethnic group or political party in the given area.109

104 Klas d.o.o. 2005. <www.klas.com.ba/eng/klasdanas.wbsp>105 Metiljevic, Asim.”Merkator gradi sportsku dvoranu”. Bosna. 455. 4 August 2005:42. 106 ProCredit bank. 2005. <www.procreditbank.ba>107 Most notably the cases of ethnic minority issues around Shell plants in Nigeria, or the treatment of workers in the maquiladora zone on border between the United States and Mexico. 108 “Bosnia and Herzegovina: Country Reports on Human Rights Practices”. Bureau of Democracy, Human Rights, and Labor February. (February 23 rd, 2001). U.S. Department of State. 2005.<www.state.gov/g/drl/rls/hrrpt/2000/eur/693.htm>109 RMAP consolidated report 2004. United Nations Development Program. 2005. <www. undp.ba>

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Child labor exploitation has not been officially registered in BiH. “The minimum

age for employment of children in the Federation and in the RS is 15 years. The labor

regulation in BiH prohibits children from performing hazardous work, such as night work.

Child labor is not known to be a problem; however, children sometimes assist their families

with farm work and odd jobs. There have been credible but unconfirmed reports that children

are trafficked to work in begging“110.

The issue of the disabled persons has to be taken into consideration by companies

when rethinking CSR strategies. This can be a prolific field for companies to build upon their

CSR activities. Especially having in mind the post-conflict environment in BiH, where the

number of disabled persons is rather high.

BiH Labor Law guarantees occupational safety and health regulations, overtime pay,

rest and vacations. Because of the small number of available jobs, in some cases, it can be

difficult for employees to leave even unsafe workplaces because of lack of employment

opportunities. However, it is difficult to point out any specific cases. Perhaps, the issue of

returnees who do not manage to get health insurance because they are forced to work in the

gray economy would be the most appropriate example. “Regarding social benefits, employees

and employers share the costs of health care, pension, and unemployment insurance in the

Federation, while in Republika Srpska, all of these costs are borne by employers”. The

problem appears when employers are not in position to pay benefits and employees are still

willing to stay and keep their work place.

It is important that ordinary citizens are allowed to be shareholders of companies, as it

increases their influence in the decision-making. In some cases, ownership creates basis for

CSR. However, it is widely perceived that privatization in BiH was not always performed in a

transparent manner. Furthermore, the method was not beneficial as “86 of the most valuable

companies in BiH were privatized under the principle of so called privatization by tender, and

employees by mentioned companies and citizens with average income had no practical

possibility to participate in. It was conducted in such a manner that 66% of assessed value had

to be paid in cash and the remaining part in securities. The money was transferred to the

consumer treasuries of the public administration and not to company as economic subjects.”

This was not positive for companies or for citizens and employees.

Based on the available information, associations of consumers and associations of

employees were not fully active in fighting irresponsible business practices or promoting

responsible ones. “The law in both entities prohibits discrimination by employers against

110 Ibid, Bosnia and Herzegovina: Country Reports on Human Rights Practices”.

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union members and organizers, in accordance with ILO standards. Practical barriers existed

for employees to bring complaints against employers, such as high unemployment, a

backlogged court system, and the large number of workers in the grey economy. Some unions

reported that employees of private companies were threatened with dismissal if they joined a

union”111. Also, number of employees’ unions is, by all accounts, smaller in private companies

than in the companies owned by the state.

Media react sporadically to the issues related to CSR. The scenario closest to CSR

advocacy occurred when USAID Media Project initiated a television program which resulted

in a government action to correct misleading advertising. “Dzepobran, a consumer protection

TV series, aired a story on one of the major grocery stores in BiH. The crew discovered that

the store's promotional campaign “Buy Three, Get One Free” was not true. Buying four

products individually would have actually been cheaper. Based on the show, a government

market inspection team came to the store the next day and initiated an investigation that

forced the store's management to admit their "mistake" and take steps to correct it”112.

Accordingly, there is no official record of issued CSR reports. Sporadic information

appears in newspapers and few companies provide brief information on their web-sites.

Based on different information, cases and needs, it can be concluded that fundamental

framework for CSR exists in Bosnia and Herzegovina. It still remains debatable if there is

awareness, responsibility, know-how, and inspiration for doing it.

4.2 CSR initiatives

Several initiatives in BiH are gradually meeting the goal of directly or indirectly

promoting Corporate Social Responsibility. Various civil society organizations collaborate

with enterprising ideas and capacities, but funds are mainly insured by the international

community113. Local businesses are still skeptical, but are slowly getting involved within the

initiatives.

111 Ibid112 “BiH in action”. USAID. 2005. <www.usaid.gov/locations/europe_eurasia/countries/ba/index.html>113 UN, World Bank, EC, IRC

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4.2.1 Global Compact in Bosnia and Herzegovina

As it was previously mentioned, Global Compact [GC] was one of the initiatives

created in the networking phase of CSR global promotion and development. The Global

Compact was initiated by United Nations Secretary-General Kofi Annan in 2000114. He

invited business leaders to join an international initiative – Global Compact – that would

bring companies together with UN agencies, labor and civil society to initiate and share ten

universal principles in the areas of human rights, labor, environment and anti-corruption.

Global Compact is an instrument that relies on companies’ voluntarily endeavor to be

involved in such scheme and accordingly it is not a mandatory task. Furthermore, it relies on

public accountability, transparence and business self-interest115. The Global Compact has

encouraged the creation of local networks, organized on country, or regional basis.

In November, UNDP’s Nordic Office for business partnership performed numerous

stakeholder consultations in BiH. It was concluded that there was considerable interest in the

GC and the establishment of a local network. Consequently, UNDP Bosnia and Herzegovina

decided to launch the GC and a local network in BiH. The launch will take place on

September 19, 2005 in Sarajevo.

The Global Compact pursues two complementary objectives in BiH: first, to

incorporate the spirit of the GC and its ten principles related to Human Rights, Labor rights,

Environmental sustainability and Anti-corruption, in a company’s business strategy and

operations; second, to encourage partnerships among key stakeholders for the wider

development of Bosnia and Herzegovina. The local Network will provide a countrywide

platform for mutual learning and policy dialogue on the GC principles, corporate social

responsibility and the private sector’s role in BiH society. The basic idea behind this project

is to advance responsible business practices in BiH, to encourage business engagement in

society and to facilitate dialogue between businesses, the UN, labor organizations,

government and civil society. Gaining knowledge and inspiration on how to deal with

potential consumers’ campaigns is surely helpful preparation for companies’ future exertion. It

serves as an added value for companies’ survival techniques. What’s more, companies can

understand why is it noteworthy to properly respond to community needs articulated through

unsatisfied consumers’ boycotts. The participants of the Global Compact gain access to an

extraordinary network for learning and exchange of experiences consisting of a variety of the

largest corporations in the world, United Nations and Civil Society Organizations. The Global

114 For dates and history <www.unglobalcompact.org> 115 BiH Global Compact Launch. UNDP. 2005. <www.undp.ba>

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Compact counts on the participation by over 2,000 companies, including Ericsson, Nokia,

Volkswagen, DHL, Daimler-Chrysler, Nestle, Nike, Deutshe Telecom, etc. But the GC is also

counting on the participation on Small and Medium sized enterprises. Participation in the

Global Compact will help BiH companies to adapt to EU values and principles. EU based

companies are increasingly emphasizing the tremendous importance of good corporate

behavior in order to stay competitive. By joining the Global Compact, BiH based companies

can learn and conduct a dialogue with many of the most successful companies in the world,

with civil society organizations, labor organizations and the United Nations. By implementing

the ten GC principles and be engaging in society, BiH companies can display its commitment

to high standards and thus become more attractive as a business partner for EU based

companies and meet increasing consumer demand for corporate social responsibility

UNDP, in the course of GC, entered into partnership with Foreign Trade Chamber for

the reason of having a strong partner with reliable links to different stakeholders, companies

and investors. They are jointly supporting the process of establishment of a local BiH Global

Compact Network consisting of companies, civil society organizations and the UN

agencies116. Governmental officials or agencies are not necessarily part of GC in BiH.

Common for many GC Networks is that it is a “business governed initiative”117 and the very

same principle shall be kept in BiH. GC BH Network Secretariat will be placed in UNDP and

once the Network reaches its sustainability Secretariat can be moved to Foreign Trade

Chamber or to different businesses on the rotation basis, depending on stakeholder interest.

It is decided that BH GC Network will initially focus its attention on fighting different

forms of corruption and its supporters. Luckily, nearly all contacted BiH companies expressed

positive opinions on idea of having local GC Networks118 and, hopefully, majority of them will

officially join this effort. The procedure is fairly simple, by sending a letter to CEO Kofi

Annan a company is automatically integrated into this eminent global movement, yet

structurally belonging to a local Network. The companies are than expected to, in order to

integrate the ten principles into their strategy and operations, set in motion changes in their

business principles. Also, the companies are obliged to, once a year, publicize in a report

(stakeholder report, annual corporate report, etc.) the progress of integrating the principles and

engaging in society. Even with the very poor knowledge on CSR, and GC principles, BiH

companies can play a critical role in GC Network development by actively taking part.

Chance for further trainings will be given to members of GC through series of round tables,

116 Ibid. BiH Global Compact Launch 117 Silborn, Patrik. UNDP. Personal Interview. June 22nd 2005. 118 Silborn, Patrik. UNDP Personal Interview. June 5th. 2005.

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discussions, and best practice models, which will surely upgrade their knowledge and

contribute to experience sharing.

Hence, GC should become the central meeting point for different stakeholders

concerned about CSR in BiH and parties eager to contribute. GC presents all-inclusive

contemporary approach that integrates and consolidates all important features of CSR ranging

from advocacy, through concrete actions, to final reporting and transparency. The advantage

of being a part of GC is that company will not be in a position to single-handedly cope with

changing social requirements related to CSR. Also, GC is a great opportunity for a company

to be promoted inside of local and international markets. The number of truly dedicated

supporters to GC in BiH can be used as an indicator for further CSR analysis and

development strategies in terms of measuring the exact potential and interest. Other

stakeholders can play a role as watchdogs, educators, campaigners etc. NGOs should glue

their initiatives and efforts to existing GC process and try to put forward ideas and actions

corresponding with GC main principles. BH GC Network launching event is planned for

September 2005.

4.2.2 Ethical Code of Conduct and Corporate Governance Codes

Different codes manage and shape internal and external corporate behavior. Ethical

corporate code determines basic roles and duties within a company, and companies’ relation

with external environment. Corporate governance code provides standards for governance

structures, transparency and disclosure, equitable treatment of shareholders and their

protection etc. This set of codes mutually contributes to corporate performance, hence, to

CSR. Moreover, it includes fortification of interests of both the stakeholders and the

shareholders. Also, neither code means anything if not practically adapted to company’s

environment and implemented on daily basis.

In relation to development of corporate governance system, two initiatives are taking

place in Bosnia and Herzegovina. Initiative undertaken by Canton Sarajevo Chamber of

Commerce [KSCK] is an effort to promote and establish Ethical Code within companies.

KSCK in cooperation with Chambers of Commerce from Belgrade, Ljubljana and Zagreb

discussed their liability in the field of socially responsible manners of companies. Chambers

from Sarajevo and Zagreb have drafted text and a manual of Ethical Code of Conduct for their

members, which is at present subject of discussion and adoption. They moved even further

and wrote societal mission for all Chambers of Commerce in the SEE region. In short, this

mission implies their role in creation of CSR and realization of corporate ethics through

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accepting Ethical code of conduct to be Chamber based and then Code of conducts tailored to

different corporate branches119.

Another initiative is implemented by the European Commission Delegation in Bosnia

and Herzegovina [EC Delegation] and “it is part of EC Delegation wider efforts to support

improvement of legal framework for capital market development in BiH and enhancement of

operations and work of main players in capital markets, including Privatization Investment

Funds and joint stock companies”120. Based on their assessment, BiH does not have a

corporate governance code. Security Commission of FBiH, which strives to regulate corporate

governance related issues, has the authority to prescribe standards for protection and it is

responsible for regulation and monitoring of the application of corporate governance standard.

Until now they have issued three sets of standards which are, according to EC Delegation

expert’s assessment, response on identified issues such as organization on shareholders’

meetings of registered joint stock companies and privatization investment funds, rather then

comprehensive recommendation on good corporate governance121. It is evident that issues

important, not only for internal company management, but for society as whole, in terms of

transparency, rules and responsibilities of boards, are not yet covered by these standards.

Accordingly, the role of government can be discussed in terms of creating institutional

and legislative changes to support, not only concrete activities, but also create fertile

environment for recognition and adoption of different standards and procedures. Hence, this

paper will examine role of government in CSR in the following parts.

4.2.3 NGOs effort

Despite the fact that NGOs in BiH are not remarkably active in the field of CSR,

several NGOs have decided to endorse NGO role through concrete projects and initiatives.

Most of the projects are related to awareness raising, research and organized discussions. This

kind of approach provides good back up for any further action-oriented attitude as it will build

a comprehensive knowledge-base for effective and justified actions. CSR related perception

of NGOs in BiH can also be one-sided, as CSR is seen as a good funding mechanism once the

international donors move from this region. However, the NGOs should perceive CSR not

only as a good opportunity for fund-raising, but as a social value to be promoted.

119 Grebo, Kemal. “Regionalna inicijativa privrednih komora u promociji drustveno odgovornog poslovanja”. Canton Sarajevo Chamber of Commerce. March 21st, 2005.120 Pavelic, Davor. “Corporate Governance Codes and Best Practices”. European Commission Delegation in Bosnia and Herzegovina. April, 2005: 4 - 10121 Ibid, Pavelic

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4.2.3.1 IRC initiative

International Rescue Committee in Bosnia and Herzegovina launched a CSR initiative

in 2004 with an aim to promote CSR as framework for partnership between CSOs,

governmental institutions and businesses. Their approach was to organize round tables and

series of discussions, and to afterwards, as a final product of the initiative, set up a short-term

training program in cooperation with Sarajevo Business School and the regional Conference.

First round table took place in spring 2004 and resulted in establishment of

cooperation among Canton Sarajevo Chamber of Commerce, IRC and Faculty of Economy of

University of Sarajevo. These three parties have introduced many participants to the meaning

of CSR, current situation in BiH regarding CSR, and to what are achievable perspectives.

Respectable companies joined the round table and contributed to discussion by articulating

their experiences and points of view on the subject matter. Most of them complained how

difficult it is to cooperate with NGOs on daily basis, as there is no available time, and no

concrete idea on what can be done. Concrete idea on how to improve situation was lacking in

companies ‘opinions.

Regional Conference, which took place in March of 2005, has hosted several

businesses from Croatia, Serbia and Montenegro, and Bosnia and Herzegovina along with

NGOs and governmental representatives. It took two days of discussion to reach a conclusion

relevant for all three represented countries. Discussion included history of CSR, best practices

and several round tables on various topics including CSR role in media, multinationals in

BiH, innovation in sustainable investment practices, NGOs and CSR etc.

Aims of the Conference were as follows: (i) to explain the concept of CSR – raise

awareness in all sectors of society (ii) to give regional overview of the situation related to

CSR in S&M, Croatia and B&H (iii) to present successful case studies from respective

countries (iv) to give recommendations for further development and application of the CSR

concept in the region122. Interest of BiH companies for the Conference was pretty low. Several

of them appeared at this important event, but most of them refused to come because they had

no time.

Out of 55 participants, 50% were organizations from BiH, but out of these BiH

participants, less than 10% were companies. Sharing of experiences has made it clear that the

situation does not differ drastically from country to country. There is already an interest group

in Croatia actively working on CSR123 along with process of labeling different environment-

122 Daguda, Aida. International Rescue Committee. Personal Interview. March 23rd. 2005. 123 NGO “ODRAZ” is actively promoting CSR.

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friendly products. In Serbia and Montenegro situation is not as bright as in Croatia, although

CSR is not unfamiliar term for NGOs effectively partnering with private sector in Serbia.

Good example is sustainable and innovative pool of funds, provided by the business sector in

Leskovac, used for community support.124 Situation in BiH is similar, but there is yet to be

developed a definition of CSR terminology. CSR is a fairly new term and not in wider use.

However, in all countries there are many requirements to be indemnified and measures to be

implemented in order to, promote and improve CSR. Conclusions of the Conference on how

to develop and improve CSR were defined in all encompassing manner. The most important

are as follows: (i) to strengthen co-operation between sectors of society (government,

private and non-government/non-profit sector) as co-operation between sectors has to grow

from implementing ad hoc projects to developing and nurturing partnerships, targeted towards

achievement of long-term goals for social change and development; (ii) to continue and

further develop regional co-operation as the western Balkans region has a lot of common

ground and linking elements that should be utilized for progress of entire region. Co-operation

between Croatia, Serbia & Montenegro and Bosnia & Herzegovina through exchange of CSR

best practices and formation of common informative resource, such as a web site, can greatly

contribute to faster acceptance and practical application of CSR; (iii) to raise awareness and

level of knowledge about CSR in all sectors of society since taking into account the

advancement of this concept, although fairly unknown in this region, it is necessary to invest a

lot of effort in making the knowledge about the CSR easily accessible to business, NGOs and

government representatives. Academic institutions can and should play valuable role in

creating solid knowledge base about CSR in the region. In addition, multinational companies

should take a leading role in promotion of CSR as multinational companies should be socially

responsible and after taking over a global brand, local offices of multinational companies

should inherit their business standards and values; (iv) to change legal regulations as it is

necessary to regulate legal framework within which CSR activities are implemented, mostly

tax deduction system in all three countries; (v) to further strengthen the NGO sector and

make it more professional as the NGO sector in the region has to continue with building of its

own structure, reputation and relationship with other sectors; (vi) to propound and

emphasize the role of CSR in the process of European integration as there is a European

CSR campaign in the EU currently, whose main aim is to foster involvement of CSR in

business making, as well as promotion and establishment of reward system for achievements

124 “Fond Izazova” established by Educational Centre Leskovac which distributes financial support given by different businesses.

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thus far; (vii) to continue investing in communities in an innovative and sustainable

fashion as we should get over lack of trust and abuse of donor resources through focusing on

promotion of best practices and establishment of transparent mechanisms of support in

communities; (viii) to strengthen role of media as a key factor in promotion of CSR as it is

necessary to establish coherent strategic and long-term promotion of CSR of all actors in

society (including media) through constant education of journalists, promotion of their

research and animation of key people and decision-makers in media; (xi) to propound the

role of government in promotion of CSR as government authorities should play the role of

mediator between business, NGO and all other interested parties125.

In general this was only a beginning of joint efforts “bearing in mind numerous and

complex challenges which this region is facing, as the role of international community is

lessening, as well as limited experience in building successful inter-sectored partnerships, the

promotion of CSR concept in the countries of the region presents a step forward at this stage

and valuable attempt towards ensuring that civil society becomes stronger, more productive

and sustainable”126.

4.2.3.2 Centre for Promotion of Civil Society research

Centre for promotion of civil society [CSPD] has conducted research on CSR in BiH

that was also supported through IRC program. In this research, as is the case in all IRC

programs, CSR is mainly treated as a tool for strengthening civil society in BiH and for

providing financial support to NGOs. Therefore, 100 NGOs were contacted to enlighten their

experience in cooperating with private sector and majority of research questions were created

to follow this direction. After the research was done, the CEO of CSPD127 officially stated that

it is impossible to investigate CSR in BiH as it does not exist as concept or tangible variables.

However, research confirmed what has been previously mentioned about CSR in BiH and its

current status.

Results shows that only 1% of NGOs received permanent financial support from

different businesses or public sector and that most of them rely on international donors

stationed in or outside BiH. Forty eight percent of NGOs confirmed that they have/had

sporadic cooperation with business sector, which was mainly in form of receiving financial

grants for their activities. Number of organizations said that cooperation with the business

125 “Odgovorno poslovanje za dobrobit privrede i drustva”. IRC regional Conference, minutes. 21st – 22nd, March. 2005.126 Ganibegovic, Majda. International Rescue Committee. Personal Interview. March, 23rd. 2005.127 Sero, Fadil. Introductory speech. IRC regional Conference. March 21st, 2005.

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sector was based on service exchange. For example: (i) cooperation on municipal

development plan (ii) exchanging training for money (iii) shared humanitarian actions (iv)

participation on trade fairs etc. NGOs perception is that taxation system and the legislation

has to be improved in favor of better conditions for business to use donations as CSR tool,

and that NGOs should play a critical role in pressuring the government to impose this change.

NGOs also expressed what the biggest obstacles are to cooperation between businesses and

CSOs. In this respect, they mentioned lack of understanding about NGOs and their role in the

private sector. Furthermore, they mentioned improper presentation of NGOs toward private

sector, insufficient legislation regulating this cooperation, and uninspired tax deduction policy

in BiH etc. Valorized recognition of common capacities, values, and purpose has to be built

by both sectors as highlighted by NGO leaders, as well as high transparency from both

sides128.

Within the same research, business representatives provided their opinion and

approach to question of cooperation with NGOs129. The companies that took part said that

NGOs generally “do good” and implement useful programs. Secondly, they claim that NGOs

have to work to deserve respect from the business sector. Thirdly, they claim that NGOs are a

prolonged hand of the international community, and that NGOs have to look after their

business and let companies do their own. They also mentioned that, in a very unfriendly BiH

business environment, it is rather difficult to follow any other principle than commercial

successes. Furthermore they explained that the problem is not the companies, but the state

with low labor costs, such as Bosnia, which creates pressure on competitors to produce excess

profit. In this context, it is excess work to think about human rights. However they still have

to fight to satisfy basic consumer requirements: good price, quality, availability, security and

usefulness. Business representatives are interested in supporting NGOs, as well as to get

support from NGOs in creation of positive business environment. Exactly 50% of interviewed

companies said that they have supported NGOs but because of the legislative obstacles they

are not ready to continue. Further 25% said that they are interested to support NGOs working

with people with special needs, and 25% said that they mainly have supported sport clubs as it

was in their interest. The same companies expressed their opinion on what is necessary to be

done in order to strengthen CSR: (i) awareness raising (ii) coordination amongst business

associations and joint platform for exchanging the best practices (iii) help to companies to

128 Šero, Fadil and Slavko Klisura. “Corporate Social Responsibility”. Research document. Centre for Promotion of Civil Society. 2005. 129 «Klas» - Sarajeva, UPI Banka dd – Sarajevo, «Lura» - Livno, «Lijanovići» - Široki Brojeg, «Coca Cola» - Sarajevo i «Bekto – International» - Goražde.

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incorporate and apply CSR strategies and provide CSR reports (iv) technical support to NGOs

to enable them for cooperation with private sector and information sharing130.

4.3 Policies and legislation

In BiH, polices and legislation pertaining to CSR are discussed in light of EU

integration processes. CSR is seen as an element included in the process of EU integration,

and Lisbon strategy is promoted as overall framework for CSR development. Representative

of Agency for European integration131 in BiH said that CSR is a problematic issue even in

developed countries. Hence, she claims that, for BiH, it would be best to incorporate the CSR

Strategy into the overall European integration and partnership process. Lisbon strategy132 can

serve as a benchmark for communication of priorities, and setting up prospects in the field of

CSR. Promotion of further structural reform can be seen as first step in that process. Her

examples and ideas are the following: further improvement of corporate governance133,

reduction in labor rigidities, and support to mobility of labor in BiH market. Supportive

measures will be as follows: (i) harmonization of employment and work procedures with EU

standards (ii) fighting the grey economy (iii) development of high-quality and efficient

educational and vocational systems (iv) employment procedures which will enable employers

to pay social and pension benefits (v) to allow the market to operate by reducing government

interference and lowering the ratio between government expenditure and GDP (vi) to

strengthen state-level capacity in the field of environment, ensuring the full functioning of a

State Environment Agency etc.

An issue of debate is political corruption that became an acute problem in Bosnia and

Herzegovina. “Transparency International in its 2004 Corruption Perception Index ranked

BiH 82 out of a total of 145 countries, on par with countries such as Armenia and

Madagascar”134. Corruption is widespread, encompassing business sector as well. “In view of

the wrongdoing which has been uncovered in the Special Auditors’ reports into the BiH

electricity sector135, PTT etc. the High Representative announced that he has enacted several

130 Ibid, Šero, Fadil and Slavko Klisura. 131 Ramljak,Daria. “Drustveno odgovorno poslovanje u svjetlu evropskih integracija”. IRC regional Conference. March 21st, 2005. 132 The Lisbon Strategy, also known as the Lisbon Agenda or Lisbon Process, is an action and development plan for the European Union. It was set out by the European Council in Lisbon on March 2000. <www. europa.eu.int/growthandjobs/index_en.htm>133 Zakon o Ekonomsko-socijalnom vijeća, Zakon o radu (BiH), Uspostava Ekonomsko socijalnog vijeća, Uspostava sekretarijata Ekonomsko-socijalnog vijeća134 Ibid, “Bosnia and Herzegovina: Country Reports on Human Rights Practices”. 135 the ordinary citizens and small businesses of Herzegovina who paid their electricity bills were in fact providing free electricity and kick-backs to the HDZ’s privileged elite

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pieces of legislation designed to tackle corruption in public utilities. One is Law on Donations

in both Entities. This legislation will only allow public companies to give money out of

profits, and only when: (a) they are for the cultural, sport, social welfare or humanitarian

purposes; (b) the management board and the appropriate minister has unanimously approved

the decision; and (c) the donation is published in the official gazette for a certain period prior

to the gift, to ensure transparency“136. By some measures this legislation hampers CSR efforts.

The second issue is Tax Law considering donations.137 In Federation of BiH,

contributions for humanitarian, cultural, educational, and scientific purposes, which can not

be over 0.5 of total yearly revenue, are tax deductible, as well as contributions for amateur

sports. Membership fees and contributions for professional organizations and political parties

are tax deductible up to 0.1% of total revenue. Also, up to 0.5% of total revenue can be tax

deductible for promotional activities. The Law does not distinguish between donations made

to natural persons, NGOs, or other organizations, as they are all considered under the same

legal arrangement. In the RS, contributions to humanitarian, cultural, educational, and sports

purposes are recognized as tax deductible up to 1% of the total yearly revenue. In RS only

donations or contributions to humanitarian organizations that are registered are tax deductible.

Membership fees and contributions to professional organizations are recognized as tax

deductible up to 1% of yearly revenue. Costs of promotional activities are tax deductible up to

3% of yearly revenue, but, as in FBiH, it seems that this rule encompasses contributions to

NGOs as well.

Many BiH companies argue that this is a rather discouraging Law regarding donation

and that it would be much easier if this Law is adjusted and used as tool to motivate

companies to be more socially responsible. In neighboring country deductible amount is

higher. For instance: Macedonia (3%), Bulgaria (5%), Albania (2%), Croatia (2%) etc.

Different systems can be used when promoting a role of tax benefits. Tax incentives for

donors are usually as follows: (i) tax deduction; (ii) tax credits; (iii) tax designation schemes –

1% Law. Deductions are the most common form of benefit granted. The important is that gift

or donation must be to foundation, association or other non-profit-organization. For example

in US, a deduction is allowed both to individuals and corporate donations. Individual

donations in FBiH are 100% deductible. In RS, individual donations are deductible up to 10%

of income. 1% Laws pioneered in Hungary in 1996 and later in Slovakia. It grants private

136 Decision declaring the Law on Donations/Grants of the Federation of Bosnia and Herzegovina. “Official Gazette of the Federation of Bosnia and Herzegovina”. No. 13/03 (April 2, 2003)137 Law on Corporate Income Tax. Official Gazette of F BiH. No. 33/02 and 28/04

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individuals a right to designate the use of 1% of their taxes paid to a non-profit-organization

and 1% to a Church. The donation is anonymous. It can be beneficial to enhance the role of

tax benefits in BiH. Taxpayers would have a direct influence on how their taxes are used and

the concept and existence of NGOs would be more widely known138.

5 Empirical analysis

The research has examined and evaluated CSR as perceived by companies and

consumers. Results produced by this research are divided into two sections: (i) description of

BiH company activities based on Kotler and Lee CSR model139 (ii) overview of BiH

consumer’s attitude toward CSR. As there are several companies that are applying CSR

principles with a loose knot to modernize approach, it won’t be apposite to reflect upon all

their programs. The purpose of the Case study is to present company whose CSR model can

be currently endorsed as best practice example in BiH. Consumer’s attitudes are quantified

and should be perceived as an indicator of trends in BiH, and not as an indicator of actual

consumers’ behavior or ultimate opinion.

5.1 Case study

This research is an in-depth case study of one company who has been involved in

implementing CSR activities.

Semi standardized interview was used to gather data necessary to develop a case study

narrative. Questions are structured from more general inquiring basic information on the

subject of company, then with focus narrowed to more specific and related to CSR activities.

138 Shea, Catherine. “ Promoting Philanthropy: promoting Role of Tax Benefits”. International Centre for Not-for-Profit Law. (2003). 2005. <www.ngo.ee/orb.aw/class=file/action=preview/id=5046/286,2,Tax Benefits for Charitable Giving>139 Kotler’s Six options for doing good

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Company selected for Case study is PC Kids d.o.o from Bosnia and Herzegovina. The

interview was conducted with current company chief executive officer [CEO].

5.1.1 Basic information on PC Kids

PC KIDS d.o.o is a BiH company dedicated to information technology and

representation. It is located in Sarajevo with main service related to creation and maintenance

of computer networks of all sizes. Also, they work on installation and maintenance of

software. In short, they vend and mend computer equipment. All 140 PC Kids employees are

certified by either HP or some other brands. The company was created in war when, at that

time, daily newspaper Oslobodjenje employees imported the first computers via using

available channels in Dobrinja. Today, PC Kids is the most successful computer company in

BiH. Their main partners are Hewlett-Packard's enterprise, Microsoft140, APC Legendary

reliability141, and Enterasys Networks142

5.1.2 PC Kids CSR Records

PC Kids signed contract with its main American partner HP aimed at implementing

project “PC KIDS helps to displaced persons in BiH”. They initiated this action by asking

themselves a question: What business can do to help community? An eminent problem of

refugees, returnees and displaced persons who live without secured homes or in devastated

houses has appeared as priority area to tackle with their premeditated aid. Basic idea was to

insure funds for these groups in need to build or refurbish or fully reconstruct the houses. PC

Kids and HP conducted a need analysis and entered into partnership with different

associations dealing with displaced person and refugees by providing service to this group.

They have made list of 50-60 different associations, verified and assed their status in order to

finalize agreement. Agreement consists of role and responsibilities of both parties describing

PC Kids and HP as finance provider and association as finance distributor and monitor.

Money was collected in a form of taking a percentage of profit earned on computer sale and

giving it to Fund established by associations. Each and every purchaser had full freedom to

decide in which Fund money should be sent. This was not controlled by company or

association. It happened that aid from Sarajevo goes to Bjeljina, from Mostar to Banjaluka

140 Certified for importing and representing 141 PC Kids certified partner, APC creates delighted customers by improving the manageability, availability and performance of information and communication systems through the rapid delivery of innovative solutions to real customer problems.142 Elite partner

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and similar. After showing proof that money was paid in some of the offered funds, consumer

could buy computer for price not including tax. Buyers were individuals with altruistic

motives and different organizations such as BH Telekom, American Embassy, different Banks,

Elektorprivreda that wanted to support action. 50 different companies participated in Action

by ordering computers and other equipment. Some of the companies requested that organizers

should buy material for reconstruction instead of giving money to refugees.

Action takes place during the religious holidays, the time which is considered as

“giving” months. HP and PC Kids contributed with 5% each to total financial aid. Action is

organized each year for already 6 years. Annual collected support exceeds 38.000 KM and up

till now they have provided support in amount of 430.000 KM. This brings them on the first

position as the biggest private donor of all companies in BiH ever invested in charitable

cause. PC Kids benchmark is to exceed half a million KM with collected financial support. In

their opinion the biggest obstacle to the amount collected is that they have to pay taxes on

donation. Around 300 000 different families applied to receive support from different Funds

created through mentioned action. PC Kids employees actively participate in preparation of

the Action.

PC Kids in addition support children with Morbus Crohna and Ulcero Collitis. They

sponsored CD „Diseases is not the end“143, which was dedicated to raise awareness on this

ailment and raise support for people suffer from it. In addition, 70 famous artists donated their

songs or melodies to CD. PC Kids also provided financial support to association dealing with

Morbus Crohna patients. Employees also voluntarily participated by visiting children,

collecting food and clothes, etc.

There is neither report issued by PC Kids nor information can be found on their web-

site or HP web-site. Prior to the Action they organized press - conference and announced

when Action will start and basic criteria and aims.

PC Kids logo sometimes appears among logos of sponsors of different sports or

cultural events.

143 “Disease is not the end” is a huge project sponsored by PLIVA company with an aim to help patients suffering from Morbus Crohna and Ulcero Collitis

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5.1.3 PC Kids CSR analysis

Analysis of PC Kids CSR activities based on Kotler and Lee model shows that PC

Kids commits to making contribution to society based on cause related marketing,

philanthropic action and community volunteering.

Project “PC Kids help to displaced persons in BiH” is a typical example of Cause

related marketing through which company match consumer contribution (5% HP and 5% PC

Kids) related to specific product: computer in PC Kids case. It is also recognized that Action

follows specific time frame which is holiday’s time in PC Kids case. Both characteristic are

pretty common to world wide Cause-related marketing initiatives considering product links

and agreements with communities. As cause related marketing depends on consumer action

PC Kids demonstrated that it si possible to rely on BH society when solving problems and

developing communities. However it is also a risk, as whole initiative depends on consumer

response. Fortunately, this is very successful initiative in terms of involving broader range of

stakeholders, creating partnership in order to encourage community to take responsibility and

ownership over the results. Hence, PC Kids managed to implement very formal agreements

and coordination with charities which is also very typical for CRM. PC Kids succeed in

choosing a good cause that is visible and important for all communities in BiH: help to

refugees, returnees and displaced persons. In this particular case, cause was sufficiently

enough attractive to mobilize companies and citizens. The same goes for specific product.

CSM is very much associated with products that have mass market appeal and large

costumers’ base. Computers are product of that kind. Benefits for company implementing

CRM are mainly related to marketing as such. Different reports showed that consumers are

more likely to switch brands or retailers to one associated with good cause, when price and

quality are equal. Even though, PC Kids does not articulate clearly benefits related to the

Action there are different magazines affirmatively writing about PC Kids humanitarian

motives and behavior144.

Second PC Kids project supporting Association for Morbus Crohna and Ulcero

Collitis represents mixture of Corporate Cause promotion and Corporate Philanthropy.

Corporate Cause promotion is indicated through supporting CD with an aim to raise

awareness on specific issue: Morbus Crohna and Ulcero Collitis. However, this is good

approach if corporate wants to strengthen its image but it is always better to chose cause

which is in line with corporate mission. In PC Kids case it would be beneficial to promote

144 “Sedmica u Fokusu”. Dani. February, 2004. 2005. <www.bhdani.com/default.asp?kat=fok&broj_id=348&tekst_rb=3>

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programs for children with difficulties in using or learning computer skills or to go for

behavioral change and encourage children to read more books instead of only playing

computer games. To go even further, it will be logical to invest in this action if PC Kids

intends to employ people suffering of mentioned diseases. Otherwise, it was not the best

selected program for PC Kids to support and promote. Cause promotion can also leave

company without long term marketing outcomes as visibility for the corporation can get lost.

Investing in CD as sustainable promotional material is not very efficient as CD can also be

used one day and second day will be replaced by other music. Materials like CDs, T-shirts,

sport caps, etc. are not always the best solution for company to promote its involvement in

Cause promotion. For PC Kids, it can be also difficult to track results for the company from

the promotional effort but also to track results of expenditures and non-monetary contribution.

The main sponsor of an initiative Pliva is for the logical and visible reasons included. It is

company producing medicines and indirectly treating diseases. For PC Kids there is not

interest for co-branding in this area, and that is what usually attracts companies to cause

promotion.

Besides CD, PC Kids provided pure financial aid to Association which can be

accredited as philanthropic giving. Philanthropic giving was pioneer model for many

companies to invest in society. As CSR is still in the development phase in BiH it is

expectable that many companies will immediately chose this model. It is good way for

company to show interest but it is very short-termed in terms of building continuous CSR

practices. PC Kids provided direct contribution to a cause in a form of cash grants. The

biggest critic is again directed to cause that does not reflects PC Kids mission and main

business performance areas. Also it would be beneficial for PC Kids to establish systematic

program for grants distribution, with clear criteria representing its goals, monitoring and

evaluation.

The final PC KIDS effort remaining on the list is in-kind contribution to community

through involvement of employees in concrete projects. According to their sayings this has

contributed to team building and employees commitment to the company. PC Kids employees

donated their times and talents in the field of humanitarian work for children in hospital and

poor children. This effort produced results on two levels. One level is direct impact on

targeted beneficiaries. Second level is related to development of voluntarily spirit among

employees and in community. Generally, companies advanced in this area chose to organize

volunteer work of their employees through web-sites listings, existing offers, or awarding

cash grants where employees spend a time or providing paid time off during the year to do

54

volunteer work. PC Kids chose to support volunteer engagement of its employees based on

their humanitarian motives and needs. However, it is a far from systematically organized

volunteering program within the company.

Despite the fact that PC KIDS is the highly regarded and foremost organization in the

field of community development in BiH it seems that for the management of the company it is

not clear what such efforts means for company business and its growth. The described

projects are not internally recognized as CSR program or initiative. CEO of the company is

not even familiar with CSR concept and she claims that only motive for them is associated to

humanitarian goals and that company does not track or expect potential benefits to be brought

to the company145. In researches overseas it is shown that 94% of company executives believe

the development of a CSR strategy can deliver real business benefits146 or 1 out of 3

international executives think that social responsibility initiatives will increase sales 147.

Consequently, PC Kids do not issue CSR report by taking a risk not to act in transparent

manner. As HP is the main partner to PC Kids and partner in their humanitarian projects it can

easily be concluded that idea came from this world well-known leader in CSR. Idea however

is not still fully digested by PC KIDS management who act as being uncomfortable to

acknowledge PC KIDS benefits from CSR activity.

5.2 Basic Customer Attitude Survey

Basic Customer Attitude Survey focuses on measuring customer’s perception of CSR and

how important for customers is if company delivers in this manner. Consumer perception

indicates consumer interpretation of current situation related to CSR. This interpretation

depends on various factors: media, knowledge, experience, availability of information etc.

Why measure consumer perceptions of CSR? What did we plan to learn?

“Purchase behavior is driven by many factors such as personality, ages, culture, social

surroundings etc. and consumers purchase based on perceived wants and needs. There are a

number of reasons that a consumer may assign positive or negative value to the product,

regardless whether it fits these needs or not”.148 Many researches showed that companies that

act in socially responsible ways are generally evaluated more positively by consumers than

companies not known as socially responsible.149 “Researches also indicate that consumers do

145 Sabic. Amira. PC Kids CEO. Personal Interview. February 2005. 146 Ernst & Young survey, 2002147 Hill & Knowlton's Corporate Reputation Watch, 2002148 Flaubert, Gostave. “Theory of consumer perception”. Ed. Dana Dieckman. 2005. <www.ciadvertising.org/sa/spring_04/adv382j/danamd/theory%20site/perceptionrealitypurchase.htm>149 Lichtenstein, R. Donald, Minette E. Drumwright and Bridgette M. Braig. „The effect of CSR on Customer Donation to Corporate supported Non profits”. American Marketing Association. 2005.

55

vary on their responsiveness to CSR. For example, Webb and Mohr (1998) found a number

of interviewees who said they shopped based on price, quality, or convenience rather than

choosing retailers because of the social causes they support. Experimental studies, however,

have generally found a positive impact of CSR.”150 A 2000 CSR Europe/MORI poll found

that 70% of European consumers say that a company's commitment to social responsibility is

important when buying a product or service, and 1 in 5 would be very willing to pay more for

products that are socially and environmentally responsible. “A company's commitment to

sound labor practices, environmental stewardship and good community relations plays an

influential role in how it is perceived by the public, especially in developed countries. The

effect can also be seen, albeit to a lesser degree, in developing countries. In 20 developed

countries surveyed, CSR-related factors collectively accounted for 49% of a company's

image, compared with 35% for brand image and just 10% for financial management.

Conventional activists 'demand that corporations fulfill their operational responsibilities - that

is, duties they encounter in the course of their businesses. Social activists, on the other hand,

'expect companies to exercise citizenship by going beyond the sphere of their everyday

operations and playing a socially minded leadership role'. Conventional activists are more

likely to be North Americans with high levels of education and income. Social activists are

more evenly distributed across the global population”151.

In this research, purchase intent and opinion on CSR were measured by asking the

respondent three multiple choice questions. The respondent were asked to select exactly one

answer (statement) from the all possible so she or he could rate how likely he or she would be

to buy product from socially responsible company. Respondent also were asked what CSR

represent in his or her opinion and what motivates company to act more responsibly.

Methodology of data collection:

Research method: Face-to-face or personal interviews

Selection of households: Method of “Random movement route”.

Selection of correspondents: Method of “Last birthday” (person who, in a given

household, has most recently celebrated birthday) for persons older than 18

<www.marketingpower.com/content21339C5891.php>150 Mohr, A. Lois and Deborah J. Webb. “The effects of corporate social responsibility and price on consumer responses” The Journal of Consumer Affairs. Vol. 39. Issue 1. p. 121. April, 2005. Blackwell – synergy. 2005.<www.blackwell-synergy.com/doi/full/10.1111/j.1745-6606.2005.00006.x>

151 “Corporate Social Responsibility Monitor 2001: Global Public Opinion on the Changing Role of Companies”. CSR monitor. 2005. <www.bsdglobal.com/issues/sr_csrm>It identifies those aspects of corporate practice that matter most to the general public. It also reveals some intriguing differences in priorities between different regions of the world.

56

Time of research: May 2005.

Sample N 1500: random, stratified. The sample is representative at BiH level, the entity

level, and 3 areas with one ethnic numerical majority, for over 18 year olds.

Sample characteristics:

Male Female

Gender 49% 51%

Urban Rural

Settlement type

42,9% 57,2%

18-35 35-50 51+

Age 38,8% 26,3% 34,9%

No Basic High school University

Education 11,7% 18,7% 57,1% 12%

No Up to 300 KM 301-500 501+

Income 4,3% 31,8% 22% 28,7%

FBiH RS D Brcko

Entity 58,3% 39,6% 2,2%

5.2.1 BCAS Data analysis

For all given values Chi square is statistically significant (p<0.01). Chi square values

denote the degree of confidence that relationship between variables described in research is

systematic in the larger population and not attributable to random error. By itself, it does not

ensure that the relationship is theoretically or practically important or even very large.

Only some of differences will be relevant in terms of the practical effects on CSR.

P1: In your opinion, in BiH a company is socially responsible if it:

Table 1: All respondents

N %Promotes work and development of the party for which I vote 110 7,32

Gives a percentage of profit made on one of its products for construction of playgrounds for children

153 10,17

Provides sponsorship for sports and cultural events 161 10,75

Pays social benefits and taxes for its employees 363 24,20

57

There are no socially responsible companies in BiH 446 29,73

N/A 268 17,84

Table 1 reflects upon respondents (consumer) opinion on CSR implication and what

respondents understand by CSR. One - third of respondents (29, 7%) claim that there are not

socially responsible companies in BiH. There are 24, 20% of respondents who claim that

company is socially responsible if pays social benefits and taxes for its employees. Almost an

equal number of respondents claim that company is socially responsible if provides

sponsorships for sports and cultural events (10, 75%) and if gives percentage of profit made

on one of its products for construction of playgrounds for children (10, 17%). There are also

18% of respondents who did not know what CSR is or did not provide an answer. It was

expected that vast majority of respondents will associate CSR with labor treatment, social

benefits and pension. It can be due to the terminology used. Even if person is not familiar with

CSR, the expression social will immediately provide a link to social issues such as social

protection, benefits etc. It can be explained by using arguments that they think that companies

are socially responsible if follow practice prescribed by law.

It seems that demographic variables of gender and age do not play significant role in

creating opinion on what CSR represent in practice. Even though it can be expected that due

to experience the young adults (ages from 18 to 35) will relate CSR to more modern concept

of giving donation whereas older generation will relate CSR to socialistic concept of

providing sponsorship (ages over 35). Surprisingly, only 5, 95% of respondents from middle

age group (ages from 35 to 50) think that company is socially responsible if provides

sponsorships for sports and cultural activities, whilst the percentage is much higher among

respondents from other age groups (Table 2 and Table 3).

Table 2: P1 – Gender

Male Female N % N %

Promotes work and development of the party for which I vote

55 7,47 55 7,17

Gives a percentage of profit made on one of its products for construction of playgrounds for children

69 9,34 84 10,96

Provides sponsorship for sports and cultural events 91 12,41 70 9,15

Pays social benefits and taxes for its employees 185 25,14 178 23,30

58

There are no socially responsible companies in BiH 210 28,56 236 30,86

N/A 126 17,08 142 18,56

Table 3: P1 – Age

18 - 35 35 - 50 51+N % N % N %

Promotes work and development of the party for which I vote

38 6,61 27 6,93 44

8,40

Gives a percentage of profit made on one of its products for construction of playgrounds for children

59 10,12 44 11,09 50

9,53Provides sponsorship for sports and cultural events 84 14,44 23 5,95 54

10,26

Pays social benefits and taxes for its employees 160 27,56 89 22,48 11421,76

There are no socially responsible companies in BiH 149 25,64 141 35,82 15629,69

91 15,64 70 17,73 107 20,36

By contrast, living in certain entity can play a much greater role in influencing opinion

on CSR, with a substantially lesser proportion of respondents from D Brcko claming that

there are no socially responsible companies in BiH. Whereas 38, 17% of respondents in RS

and 24, 65 % of respondents in FBiH agree with this statement (Table 4)

Table 4: P1 – Entity

F BiH

RS D Brcko

N % N % N %Promotes work and development of the party for which I vote

68 7,75 42 7,08

Gives a percentage of profit made on one of its products for construction of playgrounds for children

77 8,81 73 12,29 3 7,90

Provides sponsorship for sports and cultural events 109 12,43 48 8,00 5 15,75

Pays social benefits and taxes for its employees 211 24,11 143 24,03 9 29,81

There are no socially responsible companies in BiH 215 24,65 227 38,17 4 11,67

N/A 194 22,25 62 10,44 11 34,87

Opinion differs between respondents with university degree and respondents with high

school and below. Only 5, 25% of respondents with high school claim that company is

socially responsible if promotes work and development of the party for which they vote.

Whereas 12, 20% of respondents with university degree support this statement. Only 11, 24%

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of respondents without any education and 17, 26 % respondents with elementary school said

that company is socially responsible if pays benefit and taxes for its employees. Whereas 31,

28% of respondents with university degree and 27, 65 % of respondents with high school

agree with this statement (Table 5).

Table 5: P1 – Education

No Elementary High school

University

% % % %Promotes work and development of the party for which I vote

9,32 9,35 5,25 12,20

Gives a percentage of profit made on one of its products for construction of playgrounds for children

8,41 8,69 11,13 9,54

Provides sponsorship for sports and cultural events 13,17 12,52 9,55 11,68

Pays social benefits and taxes for its employees 11,24 17,26 27,65 31,28

There are no socially responsible companies in BiH 25,80 30,57 31,62 24,17

N/A 32,06 21,60 14,80 11,13

P2: If a company is socially responsible, meaning if it invests in community development, respects human rights etc., it means that:

Table 6: P2 – all respondents

N %Has higher profit than other companies

196 13,10Wants to be more popular and to attract higher number of buyers

335 22,35Wants to satisfy its employees and create positive interaction among them

288 19,22Wants to free it self from paying taxes

183 12,19Wants to help community development for philanthropic reasons without profiting from it

155 10,30N/A 343 22,84

Table 6 reflects upon respondents’ opinion on what is driving mechanism behind

company’s socially responsible behavior. It showed that 22, 3% of respondents think that if

company is socially responsible it means that company wants to be more popular and to

attract higher number of buyers. Also, 19, 22% of respondents think that company’s

responsible behavior is aimed at making employees satisfy and creating positive interaction

60

among them. Almost an equal number of respondents think that company wants to free itself

from paying taxes (12, 19%) and have higher profit then other companies (13, 10%). Only 10,

30% think that if company is socially responsible it means that company wants to help

community for purely philanthropic reasons. According to this data, it is visible that

respondents’ opinion is almost equally divided between two judgments of companies’ socially

responsible behavior: self-centered motives such as increased number of buyers, no taxes etc,

and viewing motivation in relation to employees and community benefits.

Gender appears to make little difference to how we judge company’s motivation

behind CSR. The differences in response rates between men and women are a mere 3

percentage points for all statements (Table 7)

Table 7: P2 - Gender

Male Female N Col

%N Col %

Has higher profit than other companies 104 14,21 92 12,03

Wants to be more popular and to attract higher number of buyers 173 23,60 162 21,15

Wants to satisfy its employees and create positive interaction among them

148 20,18 140 18,30

Wants to free it self from paying taxes 83 11,32 100 13,02

Wants to help community development for philanthropic reasons without profiting from it

75 10,22 79 10,38

N/A 150 20,47 192 25,12

It is not surprising that despite an education, consumers will believe that behind

companies’ responsible behavior there is something more than philanthropic spirit and that

such behavior has to be linked with image and profit (Table 8).

Table 8: P2 – Education

No Elementary Highschool University % % % %

Has higher profit than other companies 10,33 14,10 13,52 12,19

Wants to be more popular and to attract 22,38 26,32 20,31 26,57

61

higher number of buyers

Wants to satisfy its employees and create positive interaction among them

13,31 13,58 21,38 23,53

Wants to free it self from paying taxes 7,18 12,04 13,85 9,82

Wants to help community development for philanthropic reasons without profiting from it

8,09 7,16 11,24 11,99

N/A 38,71 26,79 19,70 15,91

Majority of respondents from D Brcko (47, 1%) claim that if company is socially

responsible it means that it wants to satisfy its employees and create positive interaction

among them. This differs from other two entities. Yet again, issue of popularity and

company’s image appeared as important feature when respondents from different entities

judge companies motivation: 22, 92% in F BiH and 21, 66 % of respondents in RS think that

company wants to attract buyers by performing responsible practices (Table 9).

Table 9: P2 – Entity

F BiH

RS D Brcko

N % N % N %Has higher profit than other companies 120 13,79 76 12,73 0 1,03

Wants to be more popular and to attract higher number of buyers

200 22,92 129 21,66 6 19,40

Wants to satisfy its employees and create positive interaction among them

156 17,84 117 19,77 15 47,01

Wants to free it self from paying taxes 76 8,69 103 17,35 4 11,86

Wants to help community development for philanthropic reasons without profiting from it

71 8,09 80 13,44 4 12,37

N/A 251 28,67 89 15,05 3 8,33

P3: When buying a certain product how important is it for you to know that the company producing it invests in community development, and cares about the community in which it operates, including human rights and environment?

Table 10: P3 – all respondents

N %Very important and I always choose products made by a company with an image of one which invest in community development, regardless of the price of product.

281 18,75

62

It is important that companies invest in community development, but that does not affect my buying products of that company, only if I like the product I will buy from such companies

390 26,02

Not important, when shopping, I only care about the price and the quality of the product

623 41,54

N/A 205 13,69

Table 10 reflects on respondents’ attitude toward importance of CSR for their purchase

behavior. Even though it was expected that respondents will provide socially suitable answer

by claming that it is very important for them to buy product of socially responsible company,

in contrary they were very straightforward: 41, 54 % of respondents said that when buying a

certain product the only important are price and the quality. Only 18, 75% said that it matters

to them if company is socially responsible and that they always chose to buy products from

such companies. Whereas 26, 02 % said that it is important that companies invest in

community development, but that does not affect their purchasing decisions, only if they like

the product they will buy from such companies what again brings to quality and price. Taking

into consideration BiH purchasing power it is expected that consumer will have to look into

price when buying certain products. However, products of socially responsible companies are

not by design more expensive. Providentially, attitude can be modified and does not always

signalize actual behavior. Nonetheless, 18% of consumers in BiH who already care or 26%

who find CSR important can serve as initial capsule for moving toward wider awareness.

Even though one would say that women are more socially concerned then man, there

is no significant difference between male’s and female’s related to their purchasing habits and

CSR (Table 11).

Table 11: P3 Gender

Male Female N % N %

Very important and I always choose products made by a company with an image of one which invest in community development, regardless of the price of product.

142 19,29 140 18,24

It is important that companies invest in community development, but that does not affect my buying products of that company, only if I like the product I will buy from such companies

192 26,17 198 25,87

Not important, when shopping, I only care about the price and the quality of the product

299 40,74 324 42,31

N/A 101 13,81 104 13,58

63

From the analysis of data taking into consideration settlement type the following facts

are revealed: 24,13% of respondents from urban areas said that it is very important to them

when buying certain products to buy it from socially responsible company, while only 14,71%

of respondents from rural area confirm the same. On the other hand, 30, 7% of respondents

from rural area said that it is important that companies invest in community development, but

that does not affect them buying products of that company, only if they like the product they

will buy from such companies. Whereas only 19, 77% of respondents from urban area

confirm the same attitude. However, nearly 50% of both groups said that price and quality is

only what matters to them when shopping (Table 12).

While our study does seem to show that education contribute to awareness, it certainly

doesn’t show that it create more positive behavior. There is no difference between purchase

habits in consumers with different level of education.

Table 12: P3 – Settlement type

Grad SeloN % N %

Very important and I always choose products made by a company with an image of one which invest in community development, regardless of the price of product.

155 24,13 126 14,71

It is important that companies invest in community development, but that does not affect my buying products of that company, only if I like the product I will buy from such companies

127 19,77 263 30,71

Not important, when shopping, I only care about the price and the quality of the product

271 42,06 352 41,15

N/A 90 14,04 115 13,43

It was expected that respondents with higher income will be more concerned about

CSR because they can afford it. However, 21, 48% of respondents with monthly income

higher then 501 KM said that they always chose to buy products from socially responsible

companies. Moreover, 12, 44% of respondents with no income confirmed the same. Also 36,

82% of respondents with no income said that it is important that companies invest in

community development, but that does not affect their purchase decisions. Whereas the same

statement is confirmed by 23, 34% of respondents with income up to 300 KM, and 28,63% of

64

respondents with income over 501 KM. 39,07% of respondents with no income said that

when shopping they only care of price and quality of the products, while more respondents

with higher income said the same (Table 13).

Table 13: P3 – Monthly income

No Do 300 KM

301 - 500 501+

% % % %Very important and I always choose products made by a company with an image of one which invest in community development, regardless of the price of product.

12,44 15,75 18,80 21,48

It is important that companies invest in community development, but that does not affect my buying products of that company, only if I like the product I will buy from such companies

36,82 23,34 28,05 28,63

Not important, when shopping, I only care about the price and the quality of the product

39,07 45,17 41,43 41,05

N/A 11,66 15,74 11,71 8,85

6 Conclusion

Companies in BiH are not performing CSR strategies in advanced fashion.

When buying a product/service, customers in BiH do not make their

choices based on companies CSR record/strategy.

Corporate Social Responsibility evolved into a modern widely accepted concept; hence it

is explored within the global agenda. It represents a comprehensive concept related to the role

of business in global market and development. CSR is based on the presumption that the

stakeholders expect companies to perform responsibly in terms of reducing negative outcomes

resulting from their merely profit-orientated goals: violation of human rights, poverty

fortification, sweatshops, environment degradation, labor exploitation etc.

An assortment of definitions and approaches to CSR came into view and one is

determined by socio-cultural and economic situation in a country but also by the political

system and beliefs. In USA, CSR has developed as an attempt to respect shareholders’ needs

and promote companies’ image through philanthropic events, while in Europe CSR is seen as

day-to-day management practice and modus operandi concerning wider group of

65

stakeholders: “Europe with human face”152. In different developing countries CSR is still not

adopted as corporative value but it is more ad-hoc reaction to external market and investors’

requirements. In addition, in developing countries, especially in ones with socialistic

background CSR is commonly perceived as sponsorships of sport or cultural events, and/or

payments of social benefits prescribed by law.

Definition and synonyms of CSR consist of terminology like: community development,

partnership, giving back to society, ethical investments, corporate citizenship, capacity

building, sustainable development, etc. In today’s competitive market nearly each and every

respectable corporation adopted and developed difference CSR strategies, societal mission,

community funding mechanism, learning programs etc. CSR includes both internal

corporative behavior and external relationships. Internal behavior comprise of fair and ethical

labor practices, corporative governance code, different standards and labels related to

production and service. External partnership considers link to stakeholders and community-

friendly programs. Based on Kotler and Lee review there are accustomed ways of “doing

good” that are implemented by different companies: Cause promotion, Cause- Related

marketing, Corporate Social Marketing, Corporate Philanthropy, Community volunteering,

Socially responsible business practices. Which option will be used sometimes depends on

society needs but also on industry type, companies’ priorities and core business, knowledge

and capacities. Moreover, corporations like Nike, Shell, B&J, J&J, McDonald, Levi Straus,

apply multiform and combined CSR programs.

Along with different companies, a number of supportive initiatives have been developed.

Wide range of service is provided to companies if they want to learn how to develop effective

and beneficial CSR program. Initiatives like CSR Europe or UN Global Compact represent a

networking scheme applied to CSR in order to bring companies to work together, to discuss

CSR, exchange information and best practice, promote their programs and find partners.

Other stakeholders also can join such initiatives. In order to standardize CSR efforts and to

make it ‘handy’ for companies and users, some initiatives set down standard codes and

measures (Caux Round Table, the Global Sullivan Principles, the Dow Jones Sustainability

Index, the FTSE4Good and other mechanisms that now proliferate in sectors and countries).

Standards are also developed for companies’ reporting on CSR. It is not sufficient enough to

apply CSR strategy but companies have to prepare reports with transparent and detailed

information on its business and CSR activities: The Global Reporting Initiative (GRI), The

AA1000 Assurance Standard, The CERES Report as a standardized format for corporate

152 Lisbon strategy

66

environmental reporting developed through collaboration with companies, institutional

investors and environmental organizations.

Contemporary view on CSR rationale brings into play arguments challenging CSR

impact and motivation behind. In theory, CSR is favorable both for company and for society.

In practice, it si difficult to verify all achievements and to appraise concrete changes. It also

put forward question whether companies are accountable for social problems and instability.

Companies are not obliged to takeover public service role but they can be helpful in terms of

making complementary actions and preventing potential problems resulted from their

business. CSR contributes to companies in more than a few different areas such as increased

profit, access to capital, reduced operating costs/increased operational efficiency, enhanced

brand image and reputation, increased sales and customer loyalty, increased productivity and

quality, increased ability to attract and retain employees, potentially reduced regulatory

oversight, reducing risk, and increased risk management, keeping up’ with competitors and

where the market is. Impact on society can not be generalized as there are very different

programs: it can be parental education, rebuilt children playgrounds, donation to humanitarian

programs, scholarships, investment in IT innovations, anti-drugs-tobacco campaign, GMO

awareness etc. In developing countries CSR can contribute also to conflict resolution, fair

competition, efficient privatization, unified corporate codes and standards, environment-

friendly business practices, ethical investments, partnerships etc. However, skeptics argue

that real managers do not have sufficient time at their disposal to dedicate to high-quality and

systematic CSR program and for that reason impact can be in short supply and potential

harms are still unforeseeable. However, CSR is valued by many stakeholders and many

researches’ results proved its multilevel significance. NGOs enter in partnership with private

sector in order to establish interactive mechanism for development of CSR and to ensure win-

win situation as upshot of joint venture. More and more customers build their purchasing

behavior based on companies’ CSR records.

This paper looked upon CSR in BiH context taking into account, both customer, and

business perspectives. It reviewed the meaning of CSR for BiH customers when they make

decisions about specific products, and companies when they create their business performance

practices. In conclusion, both results from case study and survey indicate that CSR is still an

undeveloped concept in BiH in terms of contemporary approach. Research shows that

companies in BiH are not performing CSR strategies in advanced fashion. CSR is not well

embedded into companies’ core business and there is no long-term commitment to CSR. It

showed that companies in BiH are rather oriented to merely promotional activities such as

67

sponsorships of difference events and marketing material, then to a long-term systematic CSR

approach. Different reasons are set behind the scene. The reason can be the ignorance of

possibilities and benefits that CSR generates for business or lack of resources and knowledge

to implement such demanding strategies. Furthermore, overall BiH business climate does not

encourage companies to act more responsibly toward society i.e. strict law regulating

donations. Existing CSR activities in BiH are results of sporadic efforts, while a strategic

component is missing. Companies with existing CSR records do not provide evidence of

understanding CSR concept as such. SMEs are a potential target for promotion of CSR since

it is reasonable to expect that in medium term a good part of economy in BiH will be in the

hands of these companies.

Companies in BiH can be actively involved in different fields. “Private investors represent

key to emerging market”153 thus companies can play crucial role in attracting foreign

investment. Business in BiH can play central role in helping employment of vulnerable

groups, investing in communities where these groups are situated, adapting transparent

practices that will prevent violation of human rights pertaining to these groups. Initiatives can

be promoted to increase understanding across cultures, faiths and communities – including

encouragement of managers and employees to visit community projects, places of worship

and institutions of minority groups. Also, companies have significant communications

capacity to promote clear messages in this area. This can make a significant difference

regarding tolerance, harmony and community relations.

Private sector in Bosnia can also go up against “brain drain” by providing better

opportunities to youth and young professional employment and accordingly preserve human

resource and development in BiH. Support for programs assisting youth and education is

particularly important, as these can strike at the heart of alienation and disaffection and reduce

risk of anti-social, violent and criminal behavior. Moreover, Global Compact in BiH decided

to initially gather BiH companies to stand against corruption which is evident problem in BiH

creating obstacle for good governance, poverty reduction and also development of CSR.

Some argue that it is too early for development of CSR in BiH. It should go in line with

EU integration and follow principle of Lisbon strategy. Accordingly, it shall include

promotion of further structural reforms, reduce in labor rigidities and harmonization of

employment and work procedures with EU standards, fight grey economy, development of

high-quality and efficient educational and vocational systems, employment procedures which

will enable employers to pay social and pension benefits etc. In addition it intends to allow the

153 Wold Bank. 2005. <www. worldbank.org>

68

market to operate by reducing government interference and lowering the ratio between

government expenditure and GDP, to strengthen State-level capacity in the field of

environment etc. The priorities of CSR development to be linked with EU partnership

priorities.

Partnership with NGOs can initially help companies to understand their role in

community development and empowerment. There is no established culture for NGOs and

companies in BiH to cooperate together on the basis of mutual vision and interest. NGOs are

seeing companies as source of funds rather then an equal partner. Companies are seeing

NGOs namely as prolonged hand of international community or mainly humanitarian

organizations. There are few examples when NGOs and companies managed to establish

successful partnership and worked alongside existing governmental programs. In the research

conducted by CPCD it is apparent that companies are still very much devoted to having State

taking care of social problems, and NGO sector as responsible to join the State in that

endeavor. However, through partnership this can be changed toward prosperity and shared

ownership over pro-poor development.

CSR has to be regarded as a strategy. It takes time for a company to earn the trust of a

community. Therefore, a company with a short-term perspective will be less likely to make

CSR as its strategy. Companies that have a longer-term perspective, however, may be more

willing to wait for the benefits from CSR. Nonetheless, it is impossible to expect BiH

companies to become fully socially responsible at once or to be self-regulated. Companies

also have to be supported in this process with direct or indirect measures and strategies. State

should work to change legal regulations as it is necessary to regulate legal framework within

which CSR activities are implemented, mostly tax deduction system. Initiatives like GC or

IRC program should serve as learning and meeting platform for companies and other

stakeholders to exchange best practice, to build strategies and attract foreign investments. As

the initial steps, projects that encourage and empower companies to adopt different standards

are also important. Sarajevo Chamber of Commerce Ethical Code of Codex and ECD

Corporative Governance Code have to become everyday reality to many companies and not

seen as luxury of large business.

“Academic institutions can and should play valuable role in creating solid knowledge

base about CSR. Media as a key factor in promotion of CSR should be strengthened as it is

necessary to establish coherent strategic and long-term promotion of CSR of all actors in

society through constant education of journalists, promotion of their research and animation

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of key people and decision-makers in media”154. BiH should also partner with neighboring

countries as situation related to CSR is very similar.

Costumers are very often main basis of companies’ responsible behavior. “The

important point here is that this ‘responsibility’ should not be viewed as a matter to be decided

solely by corporate managers, shareholders and government. Consumers, as well as workers

and others, "vote" in the various markets in which firms transact business.  So if it produces

profits, as this car probably will, it's socially responsible.  If it doesn't, people don't want to

pay the price. In other words, they've "voted" against it -- society doesn't want it”155.

Accordingly, second hypothesis has been confirmed. Customers in BiH do not make their

choices when buying a product/service based on companies CSR record/strategy. Research

showed that 42% of BiH citizens said that when shopping, they only care about the price and

the quality of the product. Many of them emphasize importance of CSR but not in terms of

influencing their purchasing habits. But this does not mean that consumers worry more about

getting the lowest price than about anything else. In similar surveys with consumers, i.e.

Crawford and Mathews, it is found that consumers care more about getting "fair and honest"

prices than about getting the lowest price. However, it is only an attitude that can be tailored

by empowering costumers and by deepening their awareness on CSR.

It was also expected that BiH citizens will perceive CSR in relation to payment of social

benefits and taxes or sponsorships of cultural and sport events. Philanthropic and other

components are also recognized. However, one - third of respondents agree that there are no

socially responsible companies in BiH. Bearing in mind very negative image of private sector,

accentuated by the different media, it is reasonable that so many citizens disapprovingly

observe reputation of private sector. Yet existing CSR efforts are not documented and

published in a transparent manner. Therefore, public promotion of CSR activities is required.

Socially responsible companies are mainly perceived by BiH citizens as companies that are

determined to build better image and retain costumers. There is also view that socially

responsible companies wants to satisfy its employees and build better relationships among

them.

New knowledge and debates in combination with minimum of effort and dialogue with

stakeholders will create possibility of progress in the area of CSR in BiH. Certain knowledge

base has be developed in BiH and therefore more focused researches should be conducted in

the areas such as policy and business environment that support CSR, customers’ and

154 Ibid, IRC regional conference. Minutes. 155 “A test of the socially responsible consumer”. Ideoblog. (November 28th, 2004). 2005. <http://busmovie.typepad.com/ideoblog/2004/11/a_test_of_the_s.html>

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employees’ behavior in relation to CSR, CSR and SMEs. However, writing policy papers that

can contribute or lead to a concrete action would be more beneficial in terms of upgrading

existing or building new CSR activities or practices.

It will take much hard work to develop a comprehensive approach tailored to BiH

current and future situation. However, partnerships and good scope of joint activities

including government, civil society and private sector can contribute the most.

7 Bibliography

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INTERVIEWS

Daguda, Aida. International Rescue Committee. Personal Interview. March 23rd. 2005.

Ganibegovic, Majda. International Rescue Committee. Personal Interview. March, 23rd. 2005.

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Sabic. Amira. PC Kids CEO. Personal Interview. February 2005.

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Silborn, Patrik. UNDP. Personal Interview. June 22nd 2005.

---. Personal Interview. June 5th. 2005.

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No. 13/03 (April 2, 2003)

8 Annexes

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Annex 1 CSR snapshots

„Our commitment is to invest time,expertise and resources to provideeconomic opportunity,improve the quality of lifeand foster good will in our communitiesthrough locally relevant initiatives“Coca Cola HBC (social responsibilty report 2004)

 

"THE MAGIC OF EVERYDAY MOMENTSTM" CAMPAIGN LAUNCHED TO SHOW PARENTS THE POWER OF EVERYDAY INTERACTIONS WITH YOUNG

CHILDREN FILLS NEED IDENTIFIED BY PARENTS. „Just like you we care about how your kids feels“, Johonson&Johonson campaign for children and parents

MCDonald's CSR

McDonald's® and Ronald McDonald House Charities® Donate $400,000 to Namaste Charter School in ChicagoMcDonald's and Ronald McDonald House Charities (RMHC®) have presented the Namaste Charter School in Chicago with a check for $400,000 to further support the school's holistic approach to education, which integrates physical fitness and nutrition as core components of its rigorous academic curriculum.

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By displaying their involvement with the world, Nike tries to create a more positive image that will hopefully be more appealing. Nike uses this image of giving back since it may show that Nike is going outside of their business responsibilities and making an effort to help less fortunate people around the globe.

SHELL Benefit Communities

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 Wherever we work, we are part of a local community. We will constantly look for appropriate ways to contribute to the general well being of the community and the broader societies who grant our license to operate.

Education & ScholarshipsProviding Canadian students with the tools for lifelong learning is important to Shell and critical to the success of our company and our country.

Supporting the EnvironmentFinding solutions for today’s environmental challenges requires the commitment and shared ideas of all Canadians.

Shell People in the CommunityAt Shell, we believe it is important to recognize and support the volunteer efforts of our employees, retirees and marketing partners.

Supporting Aboriginal CommunitiesShell funds education and cross-cultural awareness initiatives that benefit Aboriginal communities near our facilities or our exploration interests. We also support national programs such as those by the National Aboriginal Achievement Foundation.

Shell FoundationThe Shell Foundation supports efforts to achieve a balance between economic growth, care for the environment and equitable social development - the goal of sustainable development.

Living Up to Our Commitments Examples of Shell Canada’s performance in providing benefits to communities.

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Annex 2 Chi square values, Basic Attitude Customer Survey

All respondents First question Second question Third question

1,96661E-72 2,64411E-33 3,99898E-57

Categories Entity Settlemen

t typeAge Education Gender

1. Q.6,13461E-84 4,10938E-76 1,83486E-74 2,18666E-79 2,07108E-73

2. Q.1,17341E-44 2,75566E-37 1,35569E-34 1,78092E-38 7,39211E-35

3. Q.1,02984E-67 8,71259E-64 6,47996E-56 1,81253E-54 3,0315E-57

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