Feature
Corporate social responsibility

Opportunities knock

For some companies, mention the word 'CSR' and you'll conjure up visions of worthy but misplaced corporate altruism, endless mitigation for risk and unwanted outside scrutiny. It needn't be that way, say David Grayson and Adrian Hodges.



Company secretaries will know only too well that corporate social responsibility, or CSR, has shot up the agenda in recent years.

Together with their colleagues in investor relations and corporate communications, many company secretaries will have been on the receiving end of a growing number of CSR-related questionnaires and surveys. These may hail from institutional investors like HBOS's Insight Investment or the group of 35 international institutional investors who make up the Carbon Disclosure Project targeting the world's 500 biggest companies on climate change. They may, alternatively, come from business groups like Good Corporation, Business in the Community's Corporate Responsibility Index (published jointly with The Sunday Times), FTSE4Good, or now the London Stock Exchange's new data platform for information on corporate responsibility, the Corporate Responsibility Exchange (CRE). They may also come from the increasingly active NGOs.

Many company secretaries will also probably have seen CSR-related questions raised at their AGMs. Some of these may have been critical resolutions tabled concerning some aspects of the company's environmental and social impacts, such as labour conditions in an overseas factory or in a supplier's premises. They will certainly be intimately concerned with good corporate governance, itself an important element of being a responsible business, particularly in this post-Enron, Parmalat, Worldcom et al business environment.

In response to the CSR challenge, some companies produce a regular Environmental and Social or Sustainability Report alongside their main Annual Report and Accounts - more than 2,000 firms around the world now do so. Even for those that don't currently report separately on environmental and social impacts, it is likely that the Operating and Financial Review (OFR), expected to come into force in 2005 and to require all listed companies to report on material developments and their impacts, will be a further pressure to report formally on such matters. In practice, businesses reporting on their significant environmental and social impacts for OFR purposes will also want to tell the world how they are dealing with these impacts.

The OFR will also, of course, raise corporate governance issues. For one thing, it will have to be owned by the board because it represents the board view and is meant to be a forward-looking statement that provides the context for business strategy. This may require an ad hoc committee of non-executives, so that the board is involved much earlier than typically with traditional Annual Reports and Accounts.

Straight to the heart
Be under no illusions, then: corporate social responsibility issues are already on many companies' agendas, and will increasingly be so over the next few years.

CSR is not just about charitable donations committees, or encouraging staff to volunteer and fundraise for worthy causes: it goes to the very heart of how a business is run. Despite this, however, the CSR movement has lost its way. The movement was founded on the premise of harnessing the 'can-do' spirit and skills of business to address societal need and create a virtuous circle of community and business benefit. Now, though, it is in danger of becoming a drag on business performance and competitiveness, to the detriment of both community and corporation.

Firstly, some companies are simply jumping on the CSR bandwagon, bowing to corporate peer pressure. Rather than adequately thinking through the implications of social, ethical and environmental factors for their business, they copy other companies' programmes and practice: CSR for CSR sake. Secondly, in too many cases CSR is being 'bolted-on' on to various business operations and functions, often in an ad hoc manner, reinforcing departmental silos and with no real heed to the needs of business strategy.

Thirdly, because one of the biggest drivers for implementing CSR is scrutiny from non-governmental organisations, a common reaction is to activate risk management processes, implement risk mitigation procedures that secure adherence to minimum standards and then draw up the corporate shutters. After all, not many successful companies the authors know of have achieved their success in an extremely competitive market place because they were particularly attentive to risk management. Sound risk management may have helped a company retain a market leadership position, but not earn it.

In fact, CSR has become associated too much with risk management, compliance and protecting reputation. The result, as one leading consultancy reported recently, is that opinion-leaders believe that the tone and language of CSR is 'earnest and dull'. 'Earnest and dull'? Where's the passion and the energy, the excitement and the entrepreneurial can-do of business? How will CSR become embedded in the life-blood of business, if its very essence feels alien to the spirit of entrepreneurship?

Opportunities
We have to talk less about minimising risks and rather more about maximising the opportunities of CSR.

We should see more emphasis being placed upon corporate social opportunity (CSO), treating CSR as an exciting source of creativity and innovation that can lead to corporate social opportunities in the form of innovation in products and services, access to new markets, and building new business models (how products are conceived, developed, marketed, distributed, financed, staffed etc). We should see corporate social opportunities as commercially attractive activities that also advance environmental and/or social sustainability.

This is not just semantics. This is about asking business people and those engaging with business to think about CSR in a very different way. This is not CSR as 'those nice people in corporate HQ who do good works and keep us out of trouble with pesky NGOs and the media' - this is about a genuine and authentic commitment to environmental and social responsibility and ethical business practices, becoming a new source of R&D; a new form of market research; a new route to market.

There are plenty of real-world instances where this very thing is happening. For example, Cemex is the third largest cement company in the world, based in Mexico. Creative thinking has led the company to invent a concrete mix with added anti-bacterial agent, which means that when used for flooring in low cost housing projects for poorer communities, dwellings have built-in health protection. When used in hospitals and clinics, the treated concrete not only helps kill germs but also means that less expensive (and potentially polluting) cleaning agents have to be used.

In another example, Vodafone has just established a whole new product and marketing department to explore products that have both commercial and social benefit. Meanwhile, technicians in the research laboratories of IBM worked with colleagues from their community relations department in a collaborative project with SeniorNet, an NGO promoting access to technology for senior citizens. As a result of the partnership, IBM created new technology to transform readability of web pages, and were able to utilise the technology in other web-based products and in support for Internet Service Providers. In addition, IBM was well consequently well placed to respond to new US regulations on media accessibility.

Bank of America has funded some $4 billion worth of mortgages in recent years thanks to borrowing arranged by community activists in low-income areas in US inner cities. One community partnership, the Neighbourhood Assistance Corporation of America, has some $10 billion worth of commitments from Bank of America and Citigroup combined. The banks reach new untapped markets that they otherwise would have difficulty reaching. Low-income families are advised by those they already know and can trust.

In emerging markets and less developed countries, international food Company Nestlé, finally, has a policy of investing over the long term in capacity building local suppliers, as a way of ensuring quantity and quality of the supplies it requires. In Brazil, the company gives technical assistance and loans supporting over 300,000 farmers in the dairy industry, with no accompanying conditions obliging farmers to sell to Nestlé. Local communities have seen significant rises in standards of social and economic development in areas where Nestle operates these policies.

Practice makes perfect
A company may strike lucky and hit upon a specific corporate social opportunity by accident.

It may happen by serendipity, but that's like hoping you get lucky and that you will win the Lottery. As champion golfer, Gary Player, once remarked when told - after a particularly difficult shot that he was lucky: 'funny that, the harder I practice, the luckier I get!' In other words, if a company is going to make a regular habit of finding profitable business activities that also advance environmental and social sustainability, then instead of CSR being a bolt-on to business operations, it has to be built-in to business purpose and strategy.

Why, though, should businesses that are authentic and have genuinely integrated CSR into their core and embedded it through the organisation, be better at finding and systemically exploiting corporate social opportunities? The answer is, a commitment to responsible business and sustainable development creates more pressure on the company to find new solutions — it makes the business more receptive to 'out-of-the-box' thinking. It makes the company more receptive to approaches from NGOs, governments and academia with ideas for collaboration.

A company that is genuine in practising CSR and that aspires to corporate social opportunities is more likely to have eclectic and effective stakeholder engagement processes in place, so stakeholders will have better understanding of the company's interests and areas of expertise and where it might be particularly open to new ideas. Outsiders will be more likely to have the company on their radar screen as a potential collaborator, and consider it more open to what at first might seem 'zany, crazy ideas' A company committed to stakeholder engagement will be more likely to have highly accessible and visible contact points that external stakeholders can approach and who in turn can link the external approaches to the most appropriate people inside the business.

Crucially, the company is also less likely to have what one might call a 'not invented here' mentality. Rather, it will engage in what Tom Peters called 'creative swiping', being open to ideas not just from other businesses but also from other sectors. There will be a corporate culture that is not only willing to work with others but also widely known and respected so that outsiders want to work with it. It is more likely to have the right mind-sets for fair and equitable collaboration with other sectors and partners. By understanding sustainability, it will be more alert to opportunities as an integral part of keeping costs down and value up.

Many a company secretary will already be clear about the importance of these issues. They will, though, probably still have something of a job to do selling that internally. There are, however, a series of diagnostic tools and processes that can help these companies move from the 'why' of corporate responsibility to the 'how' and beyond. These diagnostic planning tools, all framed within a seven-step model, provide a practical guide to help business leaders and understand how to assess the impact of CSR on their core business strategy and operations and help them identify and prioritise between subsequent options and resulting business opportunities.

Company secretaries might specifically want to ask themselves the following questions:

• Can I instigate a session at the board annual 'away-day' (or whatever its equivalent may be), to discuss the company's approach to CSR?
• Have I identified particular board members who are sympathetic and alert to corporate responsibility issues - for example, non-executives who have promoted corporate responsibility in other companies with which they are associated?
• When the company recruits new non-executives, is experience of Responsible Business included in the search brief?
• When did the company last systemically scope the risks and opportunities it faces in regard to corporate responsibility - from stakeholders' views, for example, or from benchmarking against competitor and industry norms and suchlike?
• Does the company have an explicit set of values, and if so, is the connection made between these values and responsible business principles? Do those values genuinely drive corporate decision-making?
• Are there adequate mechanisms for whistleblowing in place to enable staff to flag up violations of company values?
• What governance arrangements does the board now have for oversight of corporate responsibility issues in the round? When was this last reviewed and benchmarked against other companies' to corporate responsibility governance arrangements?
• Is corporate responsibility included in the annual appraisals between chairman and individual board members; and in the board's collective review of how well it is performing?
• Has the board and senior management team genuinely embraced stakeholder engagement (as opposed to a one-way stakeholder-management philosophy)? Even so, is the board briefed regularly on key themes emerging from stakeholder engagement?
• Does the company have a transparent, equitable and realistic mechanism for allocating risks and rewards associated with commercial opportunities that might be developed with different stakeholders?
• Am I including corporate responsibility in my own Continuous Professional Development?

For a company to move from a culture of CSR as risk-minimisation to one based on maximising opportunities, requires a corporate mind-shift, as well as a structured process to consider the implications of CSR on business strategies. How will we recognise a CSO company when we see one? There are some very clear behaviour characteristics to observe, and these are outlined in the box opposite.

The transition, of course, will not happen overnight. It requires an alignment of business values, purpose and strategy with the social and economic needs of customers and consumers, while embedding responsible and ethical practices in the business. A tall order? Perhaps, but the goal of creating greater sustainable, shareholder value through successful business strategies, while contributing to social and environmental sustainability, is worth striving for.


David Grayson is a director of Business in the Community and Adrian Hodges is Managing Director of International Business Leaders Forum. They are co-authors of Corporate Social Opportunity - Seven Steps to Make Corporate Social Responsibility Work for Your Business, published by Greenleaf Publishing, 2004.



THIS TO GO INTO A SEPARATE BOX:

Key characteristics of a corporate social opportunity company

1 The organisation explicitly aligns and articulates its purpose, vision and values consistently with responsible business practice.
2 The leadership and senior management team fully believes in and lives those values and purpose—and demonstrably so.
3 Purpose, vision and values are intensely and continuously communicated throughout the organisation and beyond.
4 Purpose, vision and values are constantly reinforced through culture, processes and rewards. This includes their incorporation into:
• Recruitment and induction
• Management and staff training
• Performance objectives
• Appraisal, reward and recognition structures
• Promotion considerations
• Procurement criteria and processes
• Due diligence procedures for assessing business partners
5 In addition, there are effective mechanisms for whistleblowing on any 'values gaps'—that is, gaps between values espoused and values lived.
6 There are effective tools and processes for scoping, and then prioritising risks and opportunities associated with corporate social responsibility, and a framework for deciding how to reach decisions, and check for consistency with stated corporate values.
7 There are decision-making processes at the top of the organisation (in the board, board sub-committee and so on) for oversight and effective decision-making throughout the organisation, and there is a means of capturing and codifying knowledge to ensure continuous improvement.
8 There are effective stakeholder engagement processes to proactively seek any corporate social opportunities, and to build trust, openness and empathy, which encourage such opportunities to emerge.
9 There is an ethical code governing relations with stakeholder partners, to determine the fair share of risks and rewards (e.g. in relation to intellectual property rights) in exploiting corporate social opportunities, and opportunities for entrepreneurialism and creativity — a set of opportunities that is widened by the spirit of openness, and by the culture of enlightened curiosity.
10 There is appropriate measurement and reporting of the company's performance as well as processes for rectifying gaps, and learning from the emergence of gaps.