Geoff Lane and Paul O’Connor from PricewaterhouseCoopers look at the trials and tribulations of putting a successful corporate social responsibility strategy in place
Congratulations! Your company has made it onto the target list for the May Day protestors. After making sure your office windows are boarded up for the day, you sit back and wonder: How did a responsible company like ours get involved in all this? And what am I going to do about all this corporate social responsibility (CSR) stuff I keep hearing about?
Pressure to address CSR is coming from a number of directions: the drive for transparency promoted by recent corporate governance standards and regulations, including the Turnbull Report and, in the US, the Sarbanes-Oxley Act; reporting guidelines such as those from the Association of British Insurers; the requirements of institutional shareholders who have adopted CSR policies of their own; and demands from employees, NGOs, suppliers, and customers.
The UK Trade and Industry Select Committee recently (May 2003) published its sixth report, The White Paper on Modernising Company Law. It believes that government proposals will mean that “in practice directors will not be able to get away with assuming that environmental and social impacts are not relevant to their company and can be passed over without comment”.
The corporate response
So what do you need to do? The first step is to decide to what extent the whole issue of CSR is relevant to your business. There are some simple questions you can ask to ascertain this. For example, is your company experiencing:
- new or increased requirements to demonstrate CSR performance to current or potential customers or clients?
- demands for information on CSR issues from institutional shareholders (pension funds for example) or socially responsible investment (SRI) ratings agencies?
- difficulty in accessing capital, such as obtaining bank loans, due to new CSR policies being operated by banks?
- scrutiny or negative press from external stakeholders, such as local community or NGOs?
- loss of business to competitors who are gaining advantage from doing things that you are not?
If you suspect that the answer to some or all of these questions is yes, then perhaps it is time to take some steps along the roadmap to improved CSR performance.
The CSR roadmap
The first challenge is to agree what CSR means for your organisation, which is not as easy as it sounds. The popular definition of “being accountable for your impact on all relevant stakeholders and being committed to behaving fairly and responsibly” is a good place to start.
But who are your stakeholders? Which ones really have an influence over your business? How are you meant to know what they expect from you?
The best approach, of course, is to ask them. But this requires effort, co-ordination, and the prospect of raising unwelcome expectations.
If direct engagement sounds too intimidating at this stage, there are other ways of understanding broad stakeholder expectations for a particular industry. For example, companies often refer to the Global Reporting Initiative Guidelines (www.globalreporting.org/guidelines/2002.asp) and (www.globalreporting.org/guidelines/sectors.asp), which are being developed through extensive stakeholder engagement.
There are a number of other tools to help decide what CSR means for your company. One way of getting a feel for where you stand is to benchmark your position against others within your industry sector. To find out what the most socially responsible companies are doing, look at the Ethical Performance website (www.ethicalperformance.com). You can also look at CSR strategy case studies(www.ethicalcorporation.com).
The second challenge is to decide who will be responsible for CSR at the company. Many companies are starting to appoint directors with responsibility for CSR matters or dedicated CSR managers, as well as forming board-level CSR committees. Without buy-in from the highest levels of management, most CSR strategies are doomed to fail.
Assuming you have executive support, a budget and the personnel resources, how do you make it happen? There are always two elements to this.
The first is putting the processes in place: introducing the governance arrangements (formal documentation of CSR roles and responsibilities is a proven technique), policies, procedures, objectives and targets, management systems, performance indicators, audit and monitoring procedures, development of management controls and reporting.
But the real challenge is the second bit — changing hearts and minds, behaviours and attitudes. Any organisation has its own way of working and old habits die hard. This is why buy-in at the top is so important.
Keeping up the good work
It’s often easy to get enthusiastic about new initiatives and CSR programmes are no exception. But after you have set up the Board Committee, determined the strategy, incentivised the right people and published the first report, it is often hard to sustain the momentum.
So, how do you build on your progress and ensure competing initiatives do not begin to hamper the progress you have made? Some companies achieve continual improvement by embedding CSR controls into their existing business processes, and then finding new ways to increase their effectiveness.
The final challenge is getting credit for your achievements from your stakeholders. A word of caution is needed here — some companies often feel frustrated at the lack of recognition they receive for CSR improvement efforts that they feel proud of.
However, it is better practice not to focus too much on gaining recognition for a CSR strategy at the start, but to pursue improved CSR performance because it is right for the business. Too much emphasis on getting credit can result in a risk that the initiative will be perceived as a public relations exercise rather than a serious commitment to CSR management.
In addition, companies seeking to gain credit for their efforts face the risk that candid reporting on CSR may result in criticism from the very stakeholders they are attempting to convince of their CSR credentials. Despite the risk of further scrutiny, more companies are now seeking to benefit from their investment in CSR management initiatives.
Other specific benefits of improved CSR performance include:
- improved risk management: the Turnbull Report and the Sarbanes-Oxley Act now require boards to review the internal controls environment and assess the effectiveness of these controls in managing risk;
- profitability and market capitalisation: a number of studies have suggested that there is a strong and direct link between corporate and financial performance;
- improved brand value: improved CSR performance is
likely to contribute positively to brand value; and
- levels of customer and employee loyalty are likely to improve: CSR performance plays an important part in purchasing decisions, while corporate reputation is also crucial to an organisation’s ability to attract and retain high calibre staff.
Whatever steps you take, genuine commitment and a focus on learning from the experience of others are perhaps the most important elements to consider when looking at getting a CSR strategy together.
And who knows. While you are sitting down to write the company’s first CSR report, those May Day protestors might walk right past your office’s boarded windows in order to hassle the next company down the road.