Corporate Social Responsibility Of Rio Tinto

There have been a lot of changes seen in CSR over the past few years along with the increase in trend. The major reasons for this reform are understand by companies for responsibility towards society, community and environment. Companies are now getting forward and understanding the need for CSR and are taking actions for lowering the operational impact on society and environment (Sandor, R. (2003)). Companies are now taking steps to improve on the betterment of community and environment. In this assignment the discussion would be on Rio Tinto & the CSR it follows and how does Stake holder are affected. Introduction section would contain details about company profile and Concept of CSR. Then Literature review which would talk about how stake holder are affected in relation to CSR and some theory about it and about CSR. Then would be followed by analysis which would contain how CSR is followed in the company and how are the stakeholder involved and effected. Here I would also include the different CSR currently followed by Rio Tinto and how is the impact of those CSR activities. Then end would be Conclusion where I would explain what I understood and conclude on the CSR followed by Rio Tinto.

INTRODUCTION

Corporate social responsibility can be termed as a company’s incorporated norms towards social, environmental and economical factors turning into creating value and operations of a company and also turning the values and operations into transparent and accountable manner. CSR is now becoming an integral strategy for companies to sustain long term success and growth. In the initial phase of introduction of the concept of corporate social responsibility in the year 1990, corporate social responsibility was just taken as a responsibility or a charity where companies used to form fund for granting financial help for worthy causes (Commission of the European Communities. 2001). But now the concept of corporate social responsibility has changed. Over past few decades, corporate social responsibility has changed faces from charity and dependency to empowerment and partnership with customers and society. Corporate social responsibility has become a tool for companies to build involvement with community (Rohmetra, Neelu, and Dhotra J.R, (2006)). Corporate social responsibility also helps a company to build and promote its companies values in the international market and to develop sustainability in the society.

COMPANY PROFILE

In this assignment the company selected is Rio Tinto. Rio Tinto is a leading international player in the industry of mining. The company was formed with a combination of rio Tinto Plc from London listed public company and Rio Tinto Limited which is a listed company in Australian. These two companies joined in as a dual listed company into a single economic entity known as Rio Tinto group (Company Web site (www.riotinto.com)). Rio Tinto is the market leader in the production of finding, mining and processing the earth’s mineral resources. Rio Tinto is a global player dealing in supplying essential minerals and metals to the worldwide market to meet up the demand & supply. The major products which Rio Tinto deals with are “aluminum, copper, diamonds, coal and uranium, gold, borax, titanium dioxide, salt, talc and zircon and iron ore” (Company Web site (www.riotinto.com)). The major aim of it is to provide returns to shareholders on long term business group. ” This means concentrating on the development of first class or embodies into large, long life and efficient operations, capable of sustaining competitive advantage through business cycles. (www.riotinto.com)) “

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The total activities or a process which companies manage is 30 which include 57 of the controlled activity mining and operations and a total of 5 remote mining operations (Company Web site (www.riotinto.com)). Rio Tinto is spread globally but the major activities or business spread is in Australia which comprises to about 60% of the total operations. The next largest operation center is in North America and Canada comprising of 28%. Rio Tinto caters to a Human capital of 33000 employees’ world wide (Company Web site (www.riotinto.com)). On the website it is clearly given that Rio Tinto is more concern about the health and safety side and gives it a major priority. Rio Tinto puts the group businesses into the sustainability development as the center of all its operations. Rio Tinto also looks into providing environmental effects as an activity to minimize environmental effects on the community and environment and keeping in mind that the local community gains from the decision (Company Web site (www.riotinto.com)).

LITERATURE REVIEW

Legitimacy Theory

In Legitimacy theory, companies need to undertake various CSR activities to Legitimate in front of the community and society. Active companies following CSR activities are prone to changes as per the needs, priority and concern towards the society & Community. Managing Legitimacy is similar or as good as managing the community perception. Companies try and maintain legitimacy practices in many ways (Mayer and Rowan (1977)). An organization works to integrate the social legitimacy element in their organizational structure to maximise the survival capability and to increase the resource capability of the organization. “Independent of their productive efficiency, organisations which exist in highly elaborated institutional environments and succeed in becoming isomorphic with these environments gain the legitimacy and resources needed to survive” (Mayer and Rowan (1977), p. 352)

Stakeholder Theory

A stake holder theory deals with the consideration of expectation of the stake holders towards community and society for the Corporate Disclosure Policies. It would take account of basics like the US Trueblood Report (1973), Woodward (1993) where activities like human resources, owners, non-equity suppliers of funds, suppliers of goods and services, customers, political interest, the general public and the physical environment are included (Capriotti, P., & Moreno, A. (2007)). Along with the management team and stakeholders theory, the company reveals the corporate disclosure as a tool for gathering information needed by the powerful stakeholder group. Managers and management use this information to manipulate the stake holders who stand to be known for the decision of the survival of the company (Amber, T. & Wilson, A. (1995)).

Corporate Social Responsibility

Corporate social responsibility can be defined as an integrated social, environmental and economical factors turning into values and operations to convert to transparent and accountable manner. It has become a very important tool for long term planning and business success and growth (Palazzi, M. and Starcher, G. 1997). Until 1990 corporate social responsibility was just taken as a responsibility or a form of charity where companies used to open up funds and charity houses and grants for providing financial grants for different causes (Raynard ,P., & Forstater, M. (2002)). Corporate social responsibility is taken in a wrong way by companies to understand it as a charity form. In real sense corporate social responsibility is more than just a responsibility and cost or constrain for a firm (Drucker, P. F. 1984). If corporate social responsibility is taken in the right way can turn companies to generate better opportunity, innovation and competitive edge and can also help a company to minimise the social pressure (Dickson, M. A., Eckman, M. 2006). To understand and analyse the term corporate social responsibility, it is very important to understand the right meaning of the term. According to Maignan, I., Ferrell, O. C. 2004, CSR could be defined as “….operating a business in manner that meets or exceeds the ethical, legal, commercial and public expectations that society has of business”. With the above definition it is very clear that it works on the harmony of the triple P concept which is the people, plant and profit (Hopkins, M. 1998). There are very diverse definitions of CSR stated in literature. According to Birch, D., & Moon, J. (Eds.). (2004)CSR is defined as an emphasized expectations of society. All these definitions and meaning of corporate social responsibility state different elements and the operations of business.

Fundamentals & Concepts of CSR

Corporate social responsibility can be defined as a concept to be followed by companies for a fundamental idea of contributing for the social betterment of the community where they are located (Birch, D. (2003)). “Corporate social responsibility is essentially a concept where by companies decide voluntarily to contribute to a better society and a cleaner environment” (Capriotti, P., & Moreno, A. (2007)). Corporate social responsibility has seen a lot of changes in the concept over the past few years. The major reason for these changes are due to facts that organizations have started to understand the responsibility towards environment and society and have volunteered to take measure steps towards society and environment (Sandor.R,2003). Corporate social responsibility is taken in two fold, first being spending profit and the second about firm diverting themselves from the main objective of only earning profit (Holme, R. and Watts, P. 2000). In the current market palace, companies are touting to corporate social responsibility activity but are not able to demonstrate accountability hence reporting.

Why is CSR important today?

Company’s reputation in the current market place is dependent on the CSR activity by the company and enhanced branding of a good company would mean that a good CSR would build better image in the market and a negative corporate social responsibility would mean that a company with poor performance which in turn would mean a damage in the brand value of the company (Capriotti, P., & Moreno, A. (2007)). Currently companies take brand image as a key driver and also believe that corporate social responsibility benefits for creating good brand image. A company following corporate social responsibility is also believed to attract good and skilled labour and also helps company in retention of old employees (Buchholz, Rogene A. (1991)). “A company’s environmental and social performance is an increasingly pavement proxy and leading indicator for three typically under-weighted drivers critical to future profitability potential: corporate agility or adaptability; durability of a firm’s competitive advantage; and the quality of its strategic management.” (Matte Kierman, EMD of Innovate strategic advisor). On and above this many of the institutional investors are also using CSR as a tool to guide their investment decisions.

Many of the organizations are facing problems and the management have been working on the problems for years now, but as CSR matures at a higher level and is able to measure the performance, has saved the management from many problems (Woodward, D.G. (1993)). Today companies are running for profit and money market and each business men is looking forward to maximise profit by adopting new and innovative strategies. Economist and strategist are working towards new philosophies to gain higher profit for the company.

BODY OF THE STUDY

The concept of CSR has grown very fast over the past few years in Australia. It has also turned into a business itself (Hosmer, Larue. Tome, (2005)). If it needs to be counted on the number of companies trout for achievement then the number would be close to all, at least in concept. But all these companies do not follow the global reporting format for CSR and neither do they publish the activities. According to the stakeholder theory, companies are using corporate social responsibility as a relationship build tool between the company and the community. Corporate social responsibility is used as a strategy to build trust between the organization and the community (Raynard ,P., & Forstater, M. (2002)). A customer would only buy a product from the company if it trusts the company product and the company and a supplier would only associate with a company if it relies on the sustainability of the company. Even we could see that employees would like to associate with companies who have respect and brand name in the market (Boatright, John R, (2006)). It is strongly seen that companies would be known to be a winning company if it proves to provide profit and serve value in the long run for the society and also survive in the long run.

The theory of legitimacy IN CSR is used as a tool by companies to build reputation and brand image in the market. “Among other things, a good reputation affords resource companies their slither certify to drive and improves relations with regulators, which help them obtain the required permits for their operations with fewer hold-ups” (Boatright, John R, (2006)).

EXAMPLE OF CORPORATE SOCIAL RESPONSIBILITY BY RIO TINTO

The one line slogan in Rio Tinto with respect to corporate social responsibility is “The Way We Work”. Rio Tinto as a company has drafted a series of activities for the society engagement. These corporate social responsibility activities and engagements varies in different forms starting from site relationship building with the local bodies to trust and foundation for local and national level corporate social responsibility to NGOs Partnering for corporate social responsibility (Raynard ,P., & Forstater, M. (2002)). These trust and foundations are formed internally by the company and managed by the company internally. These activities and engagements give a clear picture of the stake holder theory being implemented by riot into on front of corporate social responsibility which is spread over a complex and varied nature (http://www.riotinto.com/752_partnerships.asp viewed on 21-jun-2010). Thou the company follows different activities and engagements for corporate social responsibility but the main source for corporate social responsibility activities in Rio Tinto is the NGO Method where the NGos understand the need and relevance of Rio Tinto’s core business issues. The partnership way of corporate social responsibility depends on situation of looking at and focusing on the global issues, whether it would impact the global reach or the community at local. The best example of partnership activities by Rio Tinto for corporate social responsibility is the approach for the Biodiversity conservation. Rio Tinto Management with stake holders discussed on the Biodiversity issues and decided to partner with Earthwatch Institute and in 1993 build the fellowship program where it attached its 24 Employees in the program. The Next corporate social responsibility activity example which Rio Tinto got responsible for is the Botanical diversity in the rain forest of Cameroon and conservation rain forest of Indonesia (http://www.riotinto.com/752_partnerships.asp viewed on 21-jun-2010). Rio Tinto as a corporate social responsibility activity volunteered for assisting the task with supply of valued fund and skilled labor for the project. Rio Tinto as a corporate social responsibility has partnered with many NGOs like the Bird life international, WWF Australia, Royal Botanic Garden in Kew and the Eden project in UK. Rio Tinto started their partnership with birdlife international as a corporate social responsibility activity because birds are an indicator of environmental health and biodiversity. Partnering the Corporate social responsibility activity with Eden project stressed on the post mining regeneration (http://www.riotinto.com/752_partnerships.asp viewed on 21-jun-2010). This was the major reason for partnering with Eden project. The partnering with Royal Botanic Garden served in improving the environment through practical scientific work. Rio Tinto’s employees are always a part of any corporate social responsibility activity held by NGO on behalf of Rio Tinto to manage and effective delivery. Detailed work plan is build and review in regular interval. Rio Tinto gets into partnership agreement with all its partnering associates who feature the basic of the objective to be taken care under the agreement and the relationship (http://www.riotinto.com/752_partnerships.asp viewed on 21-jun-2010).

Now let’s see how Rio Tinto as a company molds the legitimacy theory activities for its corporate social responsibility activity. Rio Tinto holds corporate social responsibility activity in their operation likes Corporate Governance, Employment, Land access, Human rights, community, Political involvement, Sustainable development and Safety. Rio Tinto funds and invest a lot in community development as it corporate social responsibility activity. A perfect example of community investment is sponsorship, donations, infrastructure support for the community, educational funds for community and employee, partnering with different bodies (Nemeskeri, R. L. (2003)). Rio Tinto has also been awarded by BRW as the most socially responsible ASX 100 companies in 2006. On the side of Environmental Rio Tinto activities for corporate social responsibility includes Sustainable development planning and policies, Day to day management for environmental planning and Gradual rehabilitation and long term mining closure planning (http://www.riotinto.com/752_partnerships.asp viewed on 21-jun-2010).

THE BENEFIT DUE TO CSR TO RIO TINTO & STAKEHOLDERS

These corporate social responsibility activities, Engagements and partnering helps Rio Tinto to understand the issues and concerns of its stakeholders and the customers. It helps Rio Tinto to get a alarm of the risk in early stage which helps in managing better the risk to Bio diversity. These CSR activities also help the organization to get expert knowledge on business concern and critical issues. Through these corporate social responsibility activities Rio Tinto gets an understanding of the long term community development as their core responsibility of the company. The mine life is always around 30-50 years and rio Tinto would always wants to build trust and reputation in the community through corporate social responsibility (Rohmetra, Neelu, and Dhotra J.R, (2006)). Some more advantages which Rio Tinto and stakeholders get due to corporate social responsibility activities is as follows.

Branding: Corporate social responsibility is used by company as a tool for build brand of the company and for the product (Murthy, CSV, (2006)). Companies try to build brand of their product and company in the minds of the customers and the society. Branding through corporate social responsibility helps companies in increasing sales and in turn revenue. Corporate social responsibility helps Rio Tinto in building strong and long term relationship with the customers and the community. Rio Tinto builds relationship and holds corporate social responsibility activities through NGO partnering to develop brand building (The Way to Work, 2005).

Brand Insurance: Brand Insurance means that a company does not repeat the same mistake again and again and also learn from the past experience of self or from others. In the case of Rio Tinto, corporate social responsibility helps in warning the company of the risk at an early stage related to Biodiversity. This helps the company to takes steps in an organized manner. Due to the corporate social responsibility and the partnering with Ngo and institutes helps Rio Tinto to sense the risk well in advance for it to be tackled (The Way to Work, 2005).

Crisis Management: Corporate social responsibility helps a company to generate revenue at the time of crisis also due to the brand building and the relationship building between the company and the community and the customers (Kotler, Philip, and Armstrong, Gary, (2006)).

Changing social Expectations: in the global and competitive market, customers have started expecting from the company they are associated with. The need for corporate social responsibility activities is also increasing due to the expectation from customer built due to the high scandal, reducing the trust of the customers (Baxi, C.V. & Prasad Ajit (2005)). with the help of corporate social responsibility, a company can build in confidence and trust of customers and community. In the case of Rio Tinto, corporate social responsibility helps the company to build trust in the area where the mines are located. It also serves in build long term relationship with the community (The Way to Work, 2005).

Increasing Affluence: In today’s knowledgeable and competitive markets, the influensive customers buy product by choice and not by force. The choices in the market currently are high due to high competition and multiple players in the market. These competition can be reduced to a great extend by the corporate social responsibility (Batten, Jonathan A. & Fetherston, Thomas A (Eds.) (2003)). Corporate social responsibility helps companies to build relationship with community and customer and also helps in building brand name for long term use (Hosmer, Larue (Tome, (2005)).

Environmental Stability: Every company should show responsibility towards environment and to keep the environment free from harm due to the processes of the company. A company should avoid interference on the environmental stability due to the company’s operations. This would help the company to build confidence and relationship with customers in long run (Boatright, John R, (2006)). “Rio Tinto is actively involved in contributing to the MMSD analysis, focusing its input on issues such as community development; the management of mined waste; biodiversity; and, product stewardship” (The Way to Work, 2005). All voluntary steps taken with regards to avoiding environmental performance is given in the annual reports. Regular audit and review is done for assurance of implementation of environmental policies (The Way to Work, 2005).

Employee Benefit: it is a growing strategy by companies to apply corporate social responsibility in building sustainability reputation and brand allowing companies to hold human capital in the company and to attract new skilled talent into the company. It also helps companies to build retention strategy for employees. In case of Rio Tinto, It operates the health and safety of employees as their priority. It contributes to sustainability development and works closely with the host country and community and respects the laws & Customs. They hire local people at all levels to avoid unfair and give equitable chance to all and even benefits and opportunity with discriminations (The Way to Work, 2005).

Globalization: Corporate social responsibility plays a very important role in the global market for a company due to its relationship build and brand building features. “Corporate social responsibility can also be defined as a means of matching companies operations with that of stake holder’s values and demands” (Boatright, John R, (2006)). These features can be measured correctly if they are followed for run term and are developed continuously. CSR creeps into all aspects of companies operations and achieving and revealing the companies value and this can best be done with the help of CSR (Boeger, Nina, Murray, Rachel & Villiers, Charlotte (2008)).

CONCLUSION

With the above discussion it can be concluded that the corporate social responsibility activity can be used by a company as a strategy to reduce organization risk and to maximize profit by building relationship with customers and the community and also by gaining trust of the customers and stakeholders. Corporate social responsibility activity can also be used as a tool for building brand of the company and reputation building of the company. Corporate social responsibility activity can also be used to build strong product in the market and in the minds of the customers. This in turn will help the organization to fight competition and stay in the market (Nemeskeri, R. L. (2003)). Corporate social responsibility is a need for today for companies to survive in the free market and with the material comfort customers and society. Companies need to work on environmental stability and social stability. It is also seen that the accountability, transparency for the social and environment investment work as a key aspect in the corporate governance.

Following are few of the recent published CSR activities and norms and policies followed by Rio Tinto on the Web site. It stated that apart from the environmental policy of the company and the associated standards, company has taken a lot of steps towards corporate social responsibility programs like “management of air quality, ecosystems services, biodiversity, climate change, energy, land, water, and closure” (Company website). These programs get input from the local government and expects from the field. The company also reviews and improves on the internal control of the company like standards, strategies, strategic risk reviews and business unit conformance audits). These audits are done to with a view to control on the companies working. Rio Tinto believes on being active in civil society engagements. The stake holder approach is a fundamental for CSR to Rio Tinto’s success of the business. The multiple sector collaboration is a demand for the challenges of sustainability development. Rio Tinto works with partnership for capturing the synergy of diverse experience and looking forward for solutions which are acceptable to all. “Skills and resources can be pooled to achieve outcomes not likely to be achieved unilaterally” (Company Website).

In today’s global market, every company needs to work on the corporate social responsibility activity to stabilize in the long run and to gain trust of the customers.