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Corruption and Human Rights in Latin America: A Call for Change in Corporate Social Responsibility in Developing Countries

August 18, 2017
Companies are usually known for being self-centered organizations. Thus, decades ago it would have sounded quite outlandish to talk about their responsibilities towards the social and political community in which they operate.[1]

Fortunately, management evolved and today most companies acknowledge that the relationship they develop with their surroundings impacts their ability to continue to operate effectively [2]. Hence, it became best practice in big businesses to have a department dedicated to Corporate Social Responsibility (CSR). CSR is usually seen as a mechanism to allow companies to benefit society while still benefiting from their own mission and bottom-line [3]; CSR is also frequently referred to as a form of philanthropy, especially in developing countries. Nonetheless, the successive corruption scandals in these countries stress the importance of pushing CSR practices to encompass the full extent of the notion of social responsibility. 

Consider, for instance, Operation Car Wash in Brazil, one of the largest corruption investigations in modern history [4]. Since its beginning in 2014, it has implicated and indicted at least 16 big companies for paying bribes of approximately $5bn [5] in 12 countries [6]. By uncovering cases of bribes and illegal campaign contributions made by firms to government officials, the Operation has brought about the conviction of many politicians and businessmen, and sparked the debate about institutional and political reforms in many of these countries. Hopefully, it will also foster the discussion about companies’ social responsibility and their role in shaping a more transparent and human rights abiding society.  

Image: Operation Car Wash net explains the operation through different perspectives and how the corruption scheme worked. Source: EstadãoImage: Operation Car Wash net explains the operation through different perspectives and how the corruption scheme worked. Source: Estadão

The United Nations (UN) understands that corporate social responsibility (CSR) acts as the partnership between businesses, civil societies and governments to promote shared goals between the private sector and the international community, such as building stable markets, combating corruption, and ensuring social inclusion [7]. Besides the UN, many academics and businessmen have tried to define CSR, although no consensus has been reached [8]. There seems to be a broader understanding, however, that social responsibility might manifest in different approaches in developed and developing countries [9] as they face different challenges and problems. As a result, the elements of the Carroll’s CSR Pyramid [10], in order of importance from economic, legal, ethical, and philanthropic responsibilities (see figure 2) [12], might have different significance and interact with one another in a different manner in developing countries [11] (see figure 3).[13]

Image: The CSR pyramid for developed countries.Source: JoamImage: The CSR pyramid for developed countries.
Source: Joam

 

Image: The CSR pyramid for developed countries.Source: VisserImage: The CSR pyramid for developed countries.
Source: Visser

According to this approach, economic responsibility in developing nations would still receive the most emphasis; however, philanthropy would come next, followed by legal and then ethical responsibilities [14]. The last two elements are exactly the ones related to legal compliance, transparency and accountability, which in turn are important aspects to prevent corruption. While governments are usually the ones – at least in developing countries – implicated in corruption, firms, in many circumstances, are the source from which the money flows to promote such practices. As such, it is disappointing that promoting incentives to deter companies from engaging in misconduct in developing countries is not a priority.  

This is a relevant concern because corruption has a negative impact on both the protection of human rights and on economic development [15]. Indeed, international and non-governmental organizations have recently built a conceptual framework describing precise terms that link corruption and social indicators related to human rights violations [16]. This effort is especially important considering that countries with high levels of corruption usually have low performance in terms of social indicators. This is true for Brazil, Panamá, Dominican Republic, Ecuador, and Venezuela, five of the countries implicated in the Car Wash Operation. These countries have a very low position on the 2016 Corruption Perceptions Index [17], extremely high rates of homicide [18]and weak performance in others human rights indicators, such as freedom of the press[19]. In most of these countries, the public is calling for government agents to be held accountable for their illicit activities as a result of Operation Car Wash [20]. What about companies’ accountability? What should companies take away from Car Wash?

One of the most important lessons is that it should not be acceptable for a company’s success to come at any cost: both legal and ethical responsibilities should be the foundation supporting any future goals firms might envision. Besides being against the law, participating in bribing and other forms of illicit collusions with governments cancels any positive effects brought about by the other two responsibilities of the pyramid. Contributions arising from the economic responsibility layer, which includes the capacity to generate investment and income, and create jobs, will most likely be surpassed by both the amount of money that will never be reverted to the population and the economic crises that may follow the aftermath of a corruption scandal. In turn, the philanthropic responsibility will never be enough to solve structural social problems, many of which is caused or perpetuated by corruption, offering rather a set of palliative initiatives that do not even scratch the surface of acute social problems. While philanthropy has an essential role in supporting the work of social movements and organizations, it might also reflect the contradiction and even the hypocrisy of companies. By surreptitiously feeding a whole web of crime that damages the core of society, it prevents its development and full compliance with widespread human right standards. 

The connection between human rights, corruption and social responsibility does not have a matured framework and it may still be molded and enhanced. However, companies must help with this effort by taking the essential step of acknowledging that participating in corruption perpetuates structural conditions of social vulnerability and underdevelopment, and hinders improvements in social welfare and access to rights. They could also join international efforts to engage the private sector in anti-corruption initiatives [21], implement guidelines to incorporate anti-corruption measures in their internal procedures [22], and reshape their CSR accordingly. Companies should not accept the position of bystanders while investigations like Operation Car Wash unfold the central participation of big firms; they should rather be protagonists in developing ethical and legal responsibilities to both enhance their own goals and foster social development. Connecting corruption and human rights is an essential move to enhance both realms [23]; including corporate social responsibility in this equation is another paramount step in promoting a fair and more equitable society.

Student Blog Disclaimer
  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.

References:

  [1] Special thanks to Marcelo S. Oliveira Goncalves and Elgin Karlshausen. 

  [2] ISO - International Organization for Standardization, https://www.iso.org/iso-26000-social-responsibility.html 

  [3] James Epstein-Reeves, “Six Reasons Companies Should Embrace CSR”, Forbes – The CSR Blog, February 21, 2012, https://www.forbes.com/sites/csr/2012/02/21/six-reasons-companies-should-embrace-csr/#77d6ddb93495 

  [4]”Brazil’s Car Wash Scandal Reveals a Country Soaked in Corruption”, Bloomberg, May 25, 2017, https://www.bloomberg.com/news/articles/2017-05-25/brazil-s-car-wash-scandal-reveals-a-country-soaked-in-corruption 

  [5]”operation Car Wash: Is this the biggest corruption scandal in history?”, The Guardian, June 01, 2017, https://www.theguardian.com/world/2017/jun/01/brazil-operation-car-wash-is-this-the-biggest-corruption-scandal-in-history 

  [6]”This company created the world’s biggest bribery ring”, CNN, April 5, 2017, http://money.cnn.com/2017/04/05/news/economy/odebrecht-latin-america-corruption/index.html 

  [7]”Corporate Responsibility & The Global Compact”, United Nations-Business Action, https://business.un.org/en/documents/csr 

  [8] Andrew Crane, Dirk Matten, Laura J. Spence, “Corporate Social Responsibility in a Global Context” - Chapter in: Crane, A., Matten, D., and Spence, L.J., ‘Corporate Social Responsibility: Readings and Cases in a Global Context’, September 1, 2013, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2322817; Alexander Dahlsrud, “Corporate Social Responsibility is Defined: an Analysis of 37 Definitions”, Corp. Soc. Responsib. Environ. Mgmt. 15, 1–13, November 09, 2006, http://onlinelibrary.wiley.com/doi/10.1002/csr.132/epdf.   

  [9]”Developing countries” are here understood accordingly to the United Nations classification, which considers a combination of per capita gross national income, human assets index and an economic vulnerability index (“World Economic Situation and Prospects”, United Nations, 2017, https://www.un.org/development/desa/dpad/wp-content/uploads/sites/45/publication/2017wesp_full_en.pdf)

  [10]Carrol’s CSR pyramid is one of the most referenced and used reference in the academic and practical theories of corporate social responsibility. Suliman, Abubakr M., Hadil T. Al-Khatib, and Sumina E. Thomas. “Corporate Social Responsibility.” Corporate Social Performance: Reflecting on the Past and Investing in the Future (2016): 15.

  [11] Visser, Wayne. “Corporate social responsibility in developing countries.” In The Oxford handbook of corporate social responsibility. 2008, http://www.waynevisser.com/wp-content/uploads/2012/04/chapter_wvisser_csr_dev_countries.pdf 

  [12] Nalband, Nisar Ahamad, and S. A. Kelabi. “Redesigning Carroll’s CSR pyramid model.” Journal of Advanced Management Science 2, no. 3 (2014), http://www.joams.com/uploadfile/2014/0217/20140217024434433.pdf

  [13]Visser, Supra 11.

  [14]Id. 

  [15]”Human Rights and anti-corruption”, Office of the United Nations High Commissioner for Human Rightshttp://www.ohchr.org/EN/Issues/Development/GoodGovernance/Pages/AntiCorruption.aspx 

  [16]”Corruption and Human Rights: making the connection”, International Council on Human Rights Policy and Transparency International, 2009, http://www.ichrp.org/files/reports/40/131_web.pdf 

  [17] These countries’ positions in the rank are the following: Venezuela – 166; Dominican Republic and Ecuador – 120; Panama – 87; Brazil – 79.  “Corruption Perceptions Index 2016”, Transparency International (https://www.transparency.org/news/feature/corruption_perceptions_index_2016#table).  

  [18] The countries’ homicide rates and respective position on the 2017 map built by the World Health Organization are: Venezuela - 51.7, 3rd place; Brazil - 30.5, 9th place; Dominican Republic, 30.2, 10th place; Panama - 18.7, 20th place; Ecuador; 10.2, 41th place. “World health statistics 2017: monitoring health for the SDGs, Sustainable Development Goals”, World Health Organization, 2017, http://apps.who.int/iris/bitstream/10665/255336/1/9789241565486-eng.pdf?ua=1

  [19] These countries’ positions in the rank are the following:  Venezuela – 137; Ecuador – 105; Brazil – 103; Panama – 96; Dominican Republic – 59. “2017 World Press Freedom Index”, Reporters Without Borders, 2017, https://rsf.org/en/ranking

  [20]”How a scandal that started in Brazil is now roiling other Latin American countries”, The Washington Post, February 22, 2017, https://www.washingtonpost.com/world/the_americas/how-a-scandal-that-started-in-brazil-is-now-roiling-other-latin-american-countries/2017/02/20/cf163672-f2e6-11e6-9fb1-2d8f3fc9c0ed_story.html?utm_term=.013e5673ab96 

  [21]Visser, supra 11.

  [22] Like the UN Global Compact Anti-Corruption Working Group – “Work with global leadersto end corruption - Join the Anti-Corruption Working Group”, United Nations Global Compact,https://www.unglobalcompact.org/take-action/action/anti-corruption-working-group

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