CORPORATE SOCIAL RESPONSIBILITY IN GENERAL
1. CSR values and practices, including levels of support from government, business and the general public
The Czech government has not addressed the issue of CSR to any significant extent or adopted any legislation or programme to deal directly with CSR questions. In 2001, however, the Czech Securities Commission issued the Corporate Governance Code (CGC), a recommendation to Czech companies outlining the principles of good corporate conduct; this Code was revised in June 2004 in part to reflect the new 2004 OECD Principles of Corporate Governance. In addition, the Economic Chamber of the Czech Republic began organising workshops focusing on CSR issues in autumn 2004.
According to a 2004 survey by Business Leaders Forum, an independent Czech association concerned with socially responsible business practices, 64 per cent of participating Czech companies were already familiar with the concept of CSR. The issue was particularly well understood by managers of large multinational companies with branches or subsidiaries in the Czech Republic. The surveyed companies generally considered the most important CSR issues to be employee care and education, corporate transparency and environmental responsibility. In fact, many of these companies had already adopted CSR-type measures but did not classify them in terms of CSR.
The general public in the Czech Republic is very poorly informed about CSR issues, and the term ‘corporate social responsibility’ and its Czech equivalents remain almost unknown. On the other hand, according to a 2003 survey by Philip Morris, approximately two-thirds of respondents agreed that the activities of a company should not be limited to profit-making and tax payment.
2. Laws, statutes, government publications or other significant framework documents
Strict statutory regulations in the Czech Republic govern various CSR-related issues. This applies, in particular, to labour and social welfare issues (eg employee protection, employee benefits, occupational health and safety), which are regulated by legislation including the 1965 Labour Code and the 1992 Wage Act, and to some extent, to environmental issues. ‘Soft law’ regulation is very rare in the Czech Republic; regulations generally impose strict obligations rather than mere directives and guidelines.
As an exception to this rule, the CGC sets out both “hard law” rules, based mostly on the Czech Commercial Code, and soft law principles derived from OECD and EU documents, including the 2003 European Commission publication, Modernising Company Law and Enhancing Corporate Governance in the European Union. The CGC focuses largely on shareholders’ rights, but also summarises the main principles that should be covered by a company’s ethical code (including principles for dealing with customers, local communities etc). The CGC does not impose enforceable obligations on companies, but provides recommendations for their conduct. The recommendations refer mainly to joint stock companies listed on securities markets, but may also be applied to unlisted companies. Despite the existence of the CGC, Czech law does not require companies to adopt any code of corporate ethics; the formulation of such a code depends strictly on the goodwill of each company. This situation may change in the future following the country’s accession to the EU.
3. International treaties, conventions or standards
As a result of the Czech Republic’s accession to the EU in May 2004, it was required to and generally did adopt the acquis communitaire of the European Communities. As such, it became subject to a number of documents issued by the European Commission concerning CSR principles. Although there are no framework European laws on CSR, in July 2001, the Commission released the green paper Promoting Core Labour Standards and Improving Social Governance in the Context of Globalisation which defines CSR and describes EU policy in this area. Compliance with these principles remains voluntary, however, for EU member states. In July 2002, the Commission published a communication document further explaining CSR principles and their reception. In this document, the Commission proposed that a multi-stakeholder forum on CSR be held at the EU level in order to promote transparency and the convergence of socially responsible practices and instruments. The findings and conclusions of this multi-stakeholder forum were presented to the Commission in June 2004. In May 2003, the Commission issued a document entitled Modernising Company Law and Enhancing Corporate Governance in the European Union, which explained guidelines for updating the European regulatory framework for company law and corporate governance. In October 2004, the Commission set up a European Corporate Governance Forum to assess optimal corporate governance practices in EU member states with a view to increasing the conformity of national CSR codes and advising the Commission.
Outside the EU framework, the Czech Republic has ratified several UN and other international treaties, conventions and declarations regarding CSR issues, such as the 1975 Human Resources Development Convention, the 1981 Occupational Health and Safety Convention, the 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, the 2001 Stockholm Convention on Persistent Organic Pollutants and the 1992 Basel Convention on the Control of Transboundary Movement of Hazardous Wastes and their Disposal. With the exception of the 1992 Basel Convention, one of the few international treaties to impose direct liability upon companies in signatory states, these international law regulations are not binding upon companies but only impose obligations on their signatories. In terms of (non-legal) framework documents, the Czech Republic has created a National Contact Point to promote the OECD Guidelines for Multinational Enterprises (a set of OECD recommendations to multinational enterprises). There are, however, no Czech participants in the UN Global Compacts initiative, a voluntary corporate citizenship project of the UN Secretary General whose members include companies and nongovernmental organisations.
4. Non-statutory sources of liability for companies
The Czech legal system sets out formal legal liability entirely by statute. Czech courts and administrative authorities impose legal responsibility on the basis of breaches of statutory or contractual duties; the latter are themselves subject to certain statutory limitations and requirements. CSR-related liability must therefore be enforced on the basis of an established violation of the broader statutory regime, eg a breach of environmental protection or labour law legislation, or proven contractual non-compliance. As noted above, public authorities may use non-statutory methods, eg incentives, guidelines and recommendations to promote socially responsible corporate behaviour, these measures however neither represent legal obligations nor establish liability if they have no statutory basis.
5. Principal institutions, government agencies and/or major non-governmental organisations (NGOs)
The Czech governmental agencies involved in the promotion of CSR are the Economic Chamber of the Czech Republic and the Securities Commission, which deals chiefly with listed joint stock companies, as discussed in sections 1 and 2 above. Non-governmental organisations (NGOs) include the Business Leaders Forum and the CSR Centre of the Confederation of Industry and Transport of the Czech Republic (Svaz prumyslu a dopravy Ceské republiky). The Business Leaders Forum is a national partner organisation of CSR Europe and the Prince of Wales International Business Leaders Forum. It focuses on the promotion of socially responsible business practices and partnerships among businesses, government, educational institutions, non-governmental organisations and local communities. The CSR Centre is a division of the Industry Union Institute, which is the education, training and advisory arm of the Confederation of Industry and Transport of the Czech Republic, a Czech private sector employer and entrepreneurial organisation. The CSR Centre focuses on the promotion of CSR principles in relation to Czech entrepreneurs. For more details of NGOs dealing with particular CSR issues, see section 6 below.
SPECIFIC AREAS OF CORPORATE SOCIAL RESPONSIBILITY
6. Human rights
In the Czech Republic, the protection of human rights is largely held to be a fundamental legal obligation, and the general public is very sensitive to human rights violations. The Czech constitutional system includes a Charter of Fundamental Rights and Liberties which contains a catalogue of the most important human rights and is based on the Universal Declaration of Human Rights. It also reflects a number of international treaties which have been signed and ratified by the Czech Republic, including the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights (UN documents); the Convention for the Protection of Human Rights and Fundamental Freedoms and the European Social Charter (Council of Europe documents). The Charter of Fundamental Rights and Liberties generally prevails over any conflicting Czech legislation.
Czech legislation such as the Labour Code incorporates and expands upon the Charter of Fundamental Rights and Liberties and the above-mentioned international treaties. Direct corporate liability for human rights abuses usually results from the violation of this domestic legislation; for examples, see section 9 below regarding corporate responsibility towards employees.
Any individual who believes his/her fundamental rights have been breached can appeal to the state ombudsman and courts, including the Constitutional Court, and on an international level, to the European Court of Human Rights, ie in cases of alleged state breaches of fundamental rights. In addition, the Czech government has established its own Council for Human Rights that monitors human rights violations across the Czech Republic. Locally active NGOs focusing on human rights include Amnesty International and the Czech Helsinki Committee (Ceský helsinský výbor).
7. Corruption
Corruption is an issue of great public interest in the Czech Republic; bribery, in particular, is a criminal offence under the 1961 Criminal Code and is subject to investigation and prosecution by a special police department. Nevertheless, the country receives a fairly low ranking in international corruption indexes and was placed 51st out of 146 countries in the 2004 Transparency International Corruption Perceptions Index.
One of the most serious issues is corruption affecting public tenders, and special legislative changes have recently been adopted to deal with this problem. The new 2004 Public Procurement Act implements EU public procurement directives and contains more effective legal mechanisms for fighting corruption; further amendments to this Act are expected to ensure compliance with new EC Directive 2004/18/EC on the co-ordination of procedures for the award of public works contracts, public supply contracts and public service contracts and with EC Directive 2004/17/EC on procurement procedures for entities operating in the water, energy, transport and postal services sectors.
The 1996 Act on Measures against Legalisation of Crime Proceeds creates anti-money laundering legislation at a national level, which is generally compliant with the Financial Action Task Force recommendations on anti-money laundering and combating the financing of terrorism. Nevertheless, law enforcement results have been limited in terms of specific money laundering prosecutions, convictions and asset recovery.
The Czech Republic has ratified international treaties on bribery such as the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and the Council of Europe Criminal Law Convention on Corruption. The Czech Republic is also a member of the Group of States Against Corruption (GRECO), a Council of Europe anti-corruption organisation. Transparency International and the Open Society Fund are among the major NGOs established to combat corruption.
8. Corporate governance and business ethics
Corporate governance rules are mainly prescribed by the Czech Commercial Code, which regulates the status of companies, their statutory bodies and their relationships towards shareholders. Other relevant legislation contains additional rules applicable to specific types of companies (eg the Act on Business Activities on the Capital Market regarding listed companies, the Banking Act regarding banks, the Pension Insurance Act regarding pension funds etc).
As noted above in section 1, the Czech Securities Commission’s CGC summarises the hard and soft law rules that apply particularly to listed joint stock companies. Certain of these statutory rules, including some information and disclosure rules, are enforced by public authorities (eg the Securities Commission and municipal registration courts). In other cases, the aggrieved party may bring a suit against the party allegedly in breach. Where a member of a company’s statutory body fails to act with due care, for example, the company may demand compensation from him/her for any resulting damage in court proceedings. Compliance with the soft law corporate governance rules included in the CGC is not monitored or enforced by any government authority.
With effect 1 January 2005, all Czech companies trading securities on an EU-regulated market are required to prepare consolidated accounts complying with International Accounting Standards. The NGOs operating in this field include the Business Leaders Forum and the CSR Centre of the Confederation of Industry and Transport of the Czech Republic.
9. Corporate responsibility to employees
According to the Business Leaders Forum 2004 survey, employee care and employee education are viewed by companies as the most important CSR issues. Labour law in the Czech Republic is subject to strict state regulation; the Labour Code and the Wage Act are the key statutes which set out general principles. They prescribe matters including maximum work hours, minimum wages and mandatory workplace and occupational health and safety conditions. The Labour Code stipulates rules for large-scale dismissals, trade union participation and the protection of women, minors and handicapped employees; it also prohibits racial, sexual or other discrimination against employees and requires employers to take out valid insurance against employment-related accidents and injuries.
Employees’ rights are further protected by international treaties which the Czech Republic has signed and ratified. In addition to UN anti-discrimination conventions, the most important treaties are those of the International Labour Organisation (ILO). As a longstanding member of the ILO, the Czech Republic (or former Czechoslovakia) ratified over 60 different ILO treaties, although these only impose obligations on signatory states and do not establish any direct liability of employers. Many Czech employers offer their employees diverse additional benefits outside the statutory requirements, including educational courses and voluntary retirement insurance. Such offers are generally voluntary; in some cases, the government has launched tax benefit programmes to support them.
A network of state authorities is responsible for the protection of employees’ rights. The Ministry of Labour is the chief administrative employment protection body which manages a network of local labour offices supervising general workplace conditions. The Czech Office for Occupational Safety and its inspecting agencies monitor compliance with occupational safety rules. Generally, fines are the most common statutory penalties imposed by these authorities for breaches of labour rules. NGOs which advocate for employees’ interests include trade unions and their associations.
10. Corporate responsibility towards the environment
Environmental responsibility was cited by Czech companies as the third most important CSR issue in the 2004 Business Leaders Forum survey. Nevertheless, many companies eschew concrete environmental protection measures in favour of less effective actions designed to enhance their public image. Czech regulation in this area is divided into laws focusing on different environmental concerns such as the 2002 Air Protection Act, the 2001 Water Act, the 2001 Waste Management Act and the 1992 Nature and Landscape Conservation Act. These Acts are continually amended to reflect the level of environmental protection to which the Czech Republic has committed itself under international treaties or is obliged to implement as an EU member state. Companies may be liable under these statutes for offences including land contamination, pollution, endangering species and eco-systems and waste-related activities. The most common method of enforcement of environmental regulation is through administrative proceedings, and particularly, the imposition of administrative penalties by state authorities, ie fines or revocation of licences/permits. Under the Criminal Code, the state may impose criminal sanctions in cases where conduct by natural persons causes an environmental threat or damage constituting a criminal offence. The basis for these offences is damage caused through the violation of environmental laws and regulations. Penalties which may be imposed on offenders generally consist of injunction orders, fines or imprisonment.
The Czech Republic has ratified treaties such as the UN Framework Convention on Climate Change (including the 1997 Kyoto Protocol), the Vienna Convention on the Protection of the Ozone Layer and the Montreal Protocol on Substances that Deplete the Ozone Layer, the 1992 Convention on Biodiversity and the 2000 Cartagena Protocol on Biosafety. It is also a participant in the EU Natura 2000 Programme focusing on bird protection. Generally, however, these treaties and programmes do not impose direct liability on companies.
Governmental bodies involved in environmental administration are the Czech Ministry for the Environment and Ministry of Agriculture as well as regional (district) authorities and municipal councils and the Czech Environmental Inspectorate. Special authorities manage the maintenance of national parks and preserved landscape areas. The Czech Ministry for the Environment makes use of non-legislative incentive schemes to encourage corporate environment responsibility; under these schemes, companies satisfying certain standards are granted the right to use special environmentally friendly product labels. Many companies have also implemented the generic management standards set out by the International Organization for Standardization (ISO), including the ISO 14001 environment management standard. These standards aim to minimise harmful environmental effects caused by companies’ activities and require the continual improvement of their environmental performance. Adoption of these standards remains voluntary. A number of environment protection NGOs are active in the Czech Republic, including both international organisations such as Greenpeace, and local environment-focused chapters such as Children of the Earth (Dìti zemì) and the Rainbow Movement (Hnutí Duha).
11. Corporate responsibility to communities
Czech law does not generally impose any obligations on companies which would create advantages for particular communities. Certain state legislation does, however, include incentive schemes which encourage companies to behave responsibly towards specific communities. Other statutes set out frameworks for such schemes. Under the 2000 Investment Incentives Act, companies operating in regions with higher than average unemployment levels are eligible for investment incentives if they invest lower minimum sums than apply elsewhere in the Czech Republic.
In its Resolution No. 566/2004, the Czech government also launched a programme to support newly established workplaces in regions heavily affected by unemployment. Under this programme, a company investing over CZK10 million (approx. €339 million) in a new project in a region with an unemployment rate above 14 per cent can obtain a state subsidy of up to half of each employee’s total wages over two years (but no more than CZK200,000 (approx. €6,773) per employee). It may also recover up to 35 per cent of the costs of employee training related to the project (but no more than CZK35,000 (approx. €1,186) per employee). These arrangements are administered by the Ministry of Industry and Trade and its agency CzechInvest, which arranges investment schemes and the provision of subsidies.
Since the Velvet Revolution of 1989, a number of private activist organisations and movements have also been established which promote the diverse interests of regional, social and other communities. These entities usually deal with specific aspects of corporate responsibility towards communities; South Bohemian Mothers (Jihoèeské matky) was established, for example, to campaign regarding nuclear plant activities and other local issues in South Bohemia.
12. Corporate responsibility for overseas activities
Most Czech companies undertaking overseas activities are branches or subsidiaries of large multinational companies. As a result, issues of corporate responsibility are generally resolved through guidance at the parent level. In principle, where a Czech company engages in overseas activities that would, for example, constitute a criminal offence under Czech law, their responsible individuals (eg board members) may be held criminally liable in the Czech Republic. Given the low level of sensitivity to product origins among the Czech general public and media, however, this is generally not an issue for Czech companies performing business abroad.
13. Procurement
There is generally no requirement to take CSR issues into account when awarding either governmental or public contracts. Nevertheless, the 2004 Public Procurement Act, which is modelled to comply with extensive EC regulation on public procurement, permits the assessment of environmental factors and similar criteria when awarding public tenders. On this basis, CSR-related criteria may in fact be decisive in a public tender if the tender administrator agrees to this. For additional information regarding corruption in the course of public tenders, refer to section 7 above.
14. CSR reporting and socially responsible investing
In the Czech Republic, there are no requirements or guidelines for reporting by companies on CSR issues, and decisions regarding such reporting remain entirely at each company’s discretion. Some companies report voluntarily on certain CSR issues, in particular, on environmental and employee issues; the disclosed information is, however, often used solely for public relations and marketing purposes. The Czech financial market is fairly small and generally does not feature any special business opportunities or share indexes aimed at socially responsible investors. In spite of this, transparency was generally endorsed by Czech companies in the 2004 Business Leaders Forum as one of the key CSR issues, and increased public attention to CSR reporting is to be expected.
SOURCES
2004 Corporate Governance Code, Securities Commission
www.sec.cz/download/Brochures/CG_2004_web_AJ.pdf.
CSR Guidebook, Business Leaders Forum, February 2004 www.blf.cz/csr/en/survey.pdf.
EU Green Paper, Promoting Core Labour Standards and Improving Social Governance in
the Context of Globalisation (COM/2001/416 final).
European Commission, Modernising Company Law and Enhancing Corporate
Governance in the European Union – A Plan to Move Forward (COM/2003/0284 final).
