It's a moment that every CEO or CFO dreads. The questionnaire arrives. It looks long and menacing, and frankly, you don't understand much of it. It sits in the 'much too difficult' tray for a while, and then you pass it to public relations, investor relations, HR, environment, community affairs or any other department that might be able to deal with it.
Then it comes back. The deadline is looming, and it’s still full of gaps. Your choice is stark. Bin it, and potentially face criticism in the press and from your investors, or send it, and perhaps face similar consequences. But you’re a responsible company, right? Why does all this CSR stuff seem so difficult?
The results of the first Business in the Community Corporate Responsibility Index were published this week. A total of 120 companies participated. The index, and others like it, has been the subject of intense debate, speculation and corporate indecision. Whatever businesses think about it, most agree that it has helped focus executive attention firmly on the corporate social responsibility agenda.
In essence, CSR is about a company recognising and responding to the needs of its key stakeholders, and demonstrating this publicly. This means focusing on its impact on the environment, its people, the marketplace, and the wider community. It is becoming increasingly clear that CSR, and the wider concept of sustainability, is not a management fad. In a recent PricewaterhouseCoopers survey of almost 1000 CEOs in 43 countries, 79% said sustainability was vital to the profitability of any company, up from 69% the year before.
Pressure to address CSR is coming from a number of directions: the drive for transparency promoted by recent corporate governance regulations, reporting guidelines such as those from the Association of British Insurers, the requirements of pension fund managers and socially responsible investors, and demands from employees, NGOs, suppliers, customers. In some European countries, regulations force companies to report publicly on their management of certain CSR issues.
So how are companies responding? We work with organisations at different stages; from those asking the question ‘is CSR relevant to us?’ to those involved in ground-breaking reporting and independent assurance. None of them find it easy. But, many of them face the same challenges, obstacles and dilemmas.
The first challenge is agreeing what CSR means to the organisation. The stock 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 count? How are you meant to know what they expect from you?
Best practice, of course, is to ask them. But this requires effort, coordination, and the prospect of massively raising expectations. Once you have started a process of ‘engaging with stakeholders’ you cannot turn it off again. They expect to hear what you have done to address their concerns. Nevertheless, many companies find talking to stakeholders an invaluable way of framing and developing their CSR strategies.
If direct engagement is too much to contemplate, there are other ways of understanding broad stakeholder expectations for a particular industry. For example, companies often refer to the Global Reporting Initiative Guidelines and Sectoral Supplements, which are being developed through extensive stakeholder engagement. Once a company understands the spectrum of stakeholder expectations, it has to decide which to address. This can be tricky, as many of the issues are uncomfortable moral and ethical ones.
The second challenge is deciding who is responsible for CSR. Because CSR encompasses everything an organisation does, everybody is to some extent responsible. Many companies are appointing CSR managers, and forming board level ‘CSR committees’ to tackle the issue. In companies with no specialist function, we have seen ‘ownership’ of CSR resting with investor relations, community affairs, environment health and safety, the company secretary and the office of the chairman. The finance and audit community is becoming increasingly involved, often bringing a new level of rigour to traditionally ‘soft’ areas of company performance.
One common theme is that the companies at the forefront have strong and focused leadership. In these cases the CEO, CFO or chairman is almost evangelical about CSR, and the organisation jumps to their tune. Often these companies have faced a challenge to their reputation such as a high profile media or NGO campaign.
The majority, however, find it is difficult to establish a tangible business case for action and get buy-in from the executive. The dilemma is that addressing CSR does not automatically lead to improved financial performance.
Observers debate whether companies in the socially responsible indices such as the Dow Jones Sustainability Index or FTSE4Good outperform their peers. We could argue that CSR is not about financial value, but the value derived from sound governance, transparent reporting, satisfied employees and customers.
Economists and accountants are busy developing means to value these non-financial factors, but it is hard to win over a sceptical CEO or CFO on a ‘moral’ argument alone.
So you have executive support, a budget and some 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, policies, procedures, objectives and targets, management systems, performance indicators, monitoring, 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. When the CEO volunteers a day a month on a community project, and encourages his executive team to do the same, his organisation gets the message.
We all know how easy it is to get enthusiastic about new initiatives, and CSR programmes are no exception. When you have set up the board committee, determined the strategy, written the newsletter, published the first report, it is often hard to sustain the momentum.
How do you build on your progress? Companies that achieve this have really hard-wired CSR into their existing business processes. They find that meaningful objectives and targets, linked to personal performance objectives, certainly focus the mind. A committed CEO will continue to talk about CSR in public and internally, and publish reports that detail progress.
The final challenge is getting credit for your achievements from your stakeholders. Here companies face the dilemma of openly reporting, and simultaneously laying themselves open to criticism from stakeholders. Many companies struggle with the concept of ‘putting their heads above the parapet’ and stress that they want to be ‘part of the pack’.
Despite these concerns, increasing numbers of companies are seeking inclusion in voluntary ratings like the BITC Index released on the 12 March. Public reporting and independent assurance is rising. Of the FTSE 250 companies, 50 reported for the first time in 2001/2, 103 produce stand alone reports, 95 include ethical and social information in mainstream reporting, and 36 have independent verification.
CSR is set to become ‘business as usual’, which means more work for accounting and financial professionals. It might mean direct questions on the issue from well informed shareholders, pressure to develop and report on ‘non-financial’ indicators of value, and development of the necessary governance arrangements, systems and controls to appropriately manage the issues. You might find yourselves working with independent advisors to collect and provide assurance on CSR-related information, to be presented in the Annual Report and Accounts and stand-alone reports.
This experience has its challenges, but it is an incredibly exciting time to be involved in this work. Business and its partners, employees, customers, investors and wider society can only gain from increased corporate responsibility.
