Responsible business: Institutionalising corporate social responsibility in law

Integral for companies doing business in the Philippines, corporate social responsibility (CSR) and engaging with local governments and communities are key for large investors operating in the country. Owing to the geographical make-up of the Philippines, legal and regulatory systems are largely decentralised, with local groups wielding substantial power that can determine whether or not planned projects proceed.

Philippine companies, particularly large ones, are involved in projects related to education, the environment, poverty, health and disaster aid. Increasing environmental awareness has also affected the way firms involved in industrial activities have gone about working within their communities.

As Ramon R del Rosario Jr, the chairman of the Makati Business Club, a private non-profit business association working to promote the role of the private sector in national development efforts, wrote in a recent article, “Corporations are building partnerships with communities, non-governmental organisations and with the government to formulate creative and effective responses to the overarching problem of widespread poverty.” In mid-October 2011, Manila hosted the 10th Asian Forum on CSR, the theme of which was creating shared value via strategic CSR. Del Rosario noted that many programmes “are increasingly not just auxiliary projects separate from the companies’ businesses but are embedded components of the firms’ strategy”.

LEGISLATION: The Philippines is set to take CSR a step further with plans for Congress to pass a law that will mandate and regulate CSR activities. The House of Representatives has passed on the third and final reading a measure institutionalising CSR for both domestic and foreign corporations. A similar bill is working its way through the Senate, though that one is designed to only apply to large taxpayer corporations in the country.

Representative Diosdado Macapagal-Arroyo, coauthor of the House bill, said that to help encourage companies to engage in CSR, stock corporations are prohibited from retaining surplus profits in excess of 100% of their paid-in capital except when justified by definite corporate expansion or CSR projects and programmes approved by the board of directors. The bill also obligates all local government units to extend whatever assistance is necessary for business establishments in the exercise of CSR activities in their areas.

Under the measure, CSR-related activities will include charitable programmes and projects; scientific research; youth and sports development; cultural and educational promotion; services to veterans and senior citizens; social welfare; environmental sustainability; health development; disaster relief assistance; and employee-and employer-related CSR activities.

OPPOSITION: But there has been opposition to the bill from various business organisations, including the Makati Business Club and its chairman. Del Rosario wrote that there is simply no need for it, as “in the Philippines, CSR has evolved since the 1960s at a pace often more advanced than in most other countries without any legislative intervention.” He pointed out that in terms of regulation, corporations and their CSR work are already subject to existing parameters.

Indeed, some in the private sector worry that legislating CSR activities could hamper efforts by imposing additional constraints. “The proposed bills may be unnecessary considering that most local companies go beyond mere compliance with existing laws to ensure a healthy business environment for their stakeholders,”

Junie del Mundo, the CEO of EON The Stakeholder Relations Firm, told the press. Del Rosario agreed that mandated CSR could blunt a firm’s competitiveness. “In the Philippines, 99.2% of the formal business sector is actually composed of small and micro-enterprises. Making CSR compulsory for such small businesses could well hamper the growth of entrepreneurship.”

Proponents of the new bill say that the state recognises the vital role of the private sector and it is obliged to encourage sustainable economic development and environment protection in the Philippines. Other countries, such as India, have also begun mandating CSR.