Accountants and the crisis: CSR - man overboard

On the face of it, suggesting that corporate social responsibility may fall
victim to the global downturn seems ridiculous. In the last couple of months
alone ­ at a time when life for most corporates has grown decidedly tougher ­
businesses as diverse as KPMG, German chemical giant Bayer, tobacco
multinational Reynolds, Ford, Starbucks, BP and Shell have all issued CSR
reports, reaffirming their commitment to one of the most significant causes of
the 21st century.

At the same time Harvard, an institution that knows a thing or two about
which way the corporate wind is blowing, is taking bookings for its fourth
annual executive education programme on CSR.

‘The programme will enable firms to achieve even higher levels of economic
and social performance ­ positively driving the bottom line, while significantly
contributing to the betterment of society,’ says faculty chair Professor V
Kasturi Rangan, casting understatement to the wind.

Meanwhile, fresh analysis of corporate reporting by FTSE100 companies reveals
the top tier of UK plc is enthusiastically embracing sustainability reporting.
There has been a ‘substantial increase’ in the number of comp-anies producing
CSR reports, says consultancy Black Sun, which compiled the report. ‘More
companies are discussing CSR issues [and] 85% of companies reference how CSR is
governed within their business,’ it says.

But all these headline-rattling commitments mask an important aspect of the
debate.
The great success of the green movement has been to convince companies that
being green makes business sense.

And the best thing that has happened to CSR lobbyists has been the success of
green companies. Until now, at least ­ because what seems to have been forgotten
is that green is only a subset of CSR. And saying that green will survive the
downturn is one thing. Saying CSR will is another altogether.

Business in the Community prefers the term ‘responsible business’ to CSR w
hich it measures by the degree to which a company: treats its employees fairly,
equitably and with respect; protects the environment for future generations;
manages its impact in society and the environment; is a responsible neighbour;
and observes basic human rights.

In assessing potential member companies for its ‘CSR’ index,
FTSE
4 Good uses similar criteria. As well as working towards environmental
sustainability, it demands member stocks also develop positive relationships
with stakeholders; uphold and support universal human rights; ensure good supply
chain labour standards; and act to counter bribery.

My fear is that with the clouds of recession already looming, many companies
will relax many CSR commitments, and cherry pick those that suit. And there’s
evidence that it’s already happening.

Take developing positive relationships with stakeholders.

Earlier this year Alliance Boots extended its payment terms to suppliers to
75 days from the end of the month in which an invoice is received. According to
the Federation of Small Business, it is one of about 14 (largely retail)
companies charging a 2.5% ‘settlement fee’ when paying supplier invoices.

As Martin Williams, chief executive of credit rating agency
Graydon
and a blogger on AccountancyAge.com, recently wrote: ‘Alliance Boots and other
large corporations publish an awful lot about their corporate social
responsibility policies, and what they do to make the world a better place.

‘Boots for instance talks on its CSR website about its belief that it has an
“enormously valuable role to play in promoting the health of our nation”, and
also believes in treating its customers “fairly”.

‘So are suppliers not important stakeholders in the Boots business? Why no
mention that they, like customers, should be treated fairly? Does anyone think
about the social and economic impact of not paying suppliers on terms that they
can live with?’

How about upholding universal human rights and ensuring good supply chain

labour standards?

Last month Channel 4 postponed a programme entitled The Devil Wears
Primark about ongoing, unethical sourcing of low-cost high street fashion.
The BBC’s Panorama went ahead with a similar investigation.

Primark reacted swiftly, removing the clothes from sale and refunding
customers who returned them.
It agreed to stop buying from three suppliers it found were using child labour
to embroider clothes it had sold. It warned other suppliers and said it would
appoint a non-governmental organisation in southern India to police its supply
chain.

But this was not enough for critics. Martin Hearson of Labour Behind the
Label, which seeks to improve working conditions in the clothing industry,
labelled the response ‘old school reputation management’.

Harsh? A little. But why was the problem uncovered by the media and not
through an internal supply chain audit? Primark says it would never ‘knowingly
permit’ the activities now uncovered. Not knowing, lobbyists would argue, is no
longer an excuse.

Dark corners

So will companies ­ as those that are serious about CSR should ­ look for
problems in
the darker corners of their businesses as times get tougher?

I suspect most won’t for fear of what they might find.

And finally take the last FTSE 4 Good criteria: companies must act to counter
bribery. A recent survey from Ernst & Young showed that more than one in
three of 1,200 international business leaders surveyed said corrupt business
practices had got worse. Some 13% of all UK respondents said their organisation
had experienced at least one bribery or corruption incident in the last two
years.

And there’s further evidence that CSR commitments are weakening.

Take a closer look at the
Black Sun research and
there are hints that for many companies, CSR is already a box that’s there to be
publicly ticked, not a movement to be embraced.

Only one in three FTSE100 companies link CSR with their strategic objectives.
Less than half have a board-level CSR committee. And just 5% provide external
assurance for the CSR elements of their annual report.

Until CSR becomes part and parcel of what companies do, it can be all too
easily diluted. And that, I fear, is what will happen as the downturn
intensifies.