How To Manage Corporate Responsibility

The previous 10 years have seen a massive growth of interest in corporate responsibility. Concern about the social and ethical implications of corporate behavior has focused a spotlight on organizations perceived as behaving poorly, and adverse publicity can soon lead to lackluster financial performance. Corporate performance on social and ethical, as well as financial, accounts cannot be hidden, and demands for transparency, accountability and public reporting are steadily increasing.

For the poor performers, especially the big ones, there’s no place to hide.

Putting it Into Practice

Demands for responsible business conduct are nothing new. Ethical trading and consumer protection requirements are set out in the Old Testament, and medieval merchants were familiar with the principle of the “just price” for the goods they sold. Today, there is still a moral case for active management of corporate responsibility issues. But for a much wider range of companies, what weighs particularly heavily is the business case. Sound corporate responsibility practices and appropriate reporting allow businesses to protect their “license to operate,” to reduce costs, risks and liabilities, to increase employee and customer loyalty and secure customer advocacy for the business, and to reduce the likelihood of costly and unwelcome surprises.

But how do you put it into in practice? The fundamental need is to manage ethical and social issues as rigorously and objectively as any other core business issue, and to integrate them with other aspects of the business. Corporate responsibility is to be built in, not bolted on.

This requires management processes and systems to measure and ensure performance. Some companies quail at this point, knowing from their experience with quality management or environmental compliance that management systems can be bureaucratic and time-consuming things. Here, there are two pieces of good news. The first is that in well-run companies, the great majority of what is needed to manage corporate responsibility is likely to be there already. These companies may just have to take account of a wider range of interested parties or handle a greater variety of data, without needing to invent a whole set of new procedures. The second is that although corporate responsibility at first seems wide ranging and ill defined, careful focus and selection makes it much less intimidating.

Managing corporate responsibility and being accountable for the company’s operation involve a straightforward set of process steps. The starting point is one of understanding and communicating company values and aspirations. Values are important: Collins & Porras in “Built to Last” have clearly shown how values-driven organizations outperform their competitors over the long term. The values have to count in strategic decisions: it is pointless having values around respect and concern for people if they don’t influence a company’s decision making when it comes to investing in a country with a doubtful human rights record or considering plant closures.

By the Numbers:

1. Identify values. We’ve deliberately chosen to make values – not external stakeholders – the starting point of the system. Companies must start with their own clear values and purpose, not be driven by the changing fashions of external stakeholder opinion. Only if a company’s values are clear at the outset will its credibility be robust, durable and safe from the charge of adopting social responsibility as a short term expedient (just as companies have been accused of “greenwashing” by giving only superficial attention to environmental issues).
2. Understand stakeholders. There are too many stakeholders and issues to handle in detail, so it is necessary to identify key stakeholders and issues on which to concentrate attention. This selection process will need to be defended, and so there must be clearly identified and documented selection criteria. With a rigorous selection process, there’s no danger of concealing the difficult and perhaps risky issues for the company. But it is also important to include the positive – to highlight those issues where the company has a strong story to tell.
3. Select what to measure. Select indicators associated with the chosen issues and the “hot spots”, ensuring that these indicators give interested stakeholders the information they want and highlight areas for action. It is important to select indicators so that performance can be measured and improved with time. Comparability with other companies in one’s own sector or outside can also be important – investors and customers alike are interested in how a company compares with its peer group.
4. Collect and analyze data. For the purposes of an external report, it is helpful to balance quantitative data and stakeholder testimony – resisting the temptation to edit the latter!
5. Discuss the “undiscussables,” otherwise known as disclosure, performance appraisal and reporting. If a report is to make an impact, it is important to be prepared to address controversial topics and to discuss the “undiscussables.” Some companies choose to use their report as evidence of their commitment to a radical change of direction. Others prefer to emphasize the sound operational management demonstrated by their approach to corporate responsibility.
6. Verify and review. External verification adds considerable value to a report and ultimately might be combined with verification of environmental and financial performance data. It provides an opportunity for comparison with external good practice and helps assure stakeholders that consultation procedures and other processes are reliable.

This generic management system approach can be applied to both small organizations and large. It is important to cast it in a vocabulary and a process framework that will be familiar to members of the company, and to interface it with existing company processes. This was the approach taken by Royal Dutch/Shell when with assistance from Arthur D. Little they created their Sustainable Development Management Framework, a set of values and processes designed to help Shell companies take economic, environmental and social considerations into account.

It is easy to see that the characteristics of corporate responsibility management also apply to managing other aspects of business. This underlines a real benefit of social and environmental management: it encourages a move from systems narrowly based on traditional financial information toward management systems that are broadly based and forward-looking.

Working with Stakeholders

Engaging with stakeholders inside and outside the organization is fundamental to the approach above, and serves several purposes. First, it enables stakeholder opinions and perceptions to be probed on issues of concern. Second, it offers an opportunity to involve stakeholders in selecting the issues to address. This needs a good deal more courage on the part of the company, but it represents a commitment to address real concerns. Third, and most demandingly, it can allow stakeholders to say how they want performance to be measured on the chosen issues – and to influence the selection of indicators and metrics for reporting purposes.

With internal stakeholders, there is a fourth aspect of engagement to add: the building of closer alignment between the organization’s vision and values, and those of its employees. This is not easy, but with a commitment to listen and learn, it can have a remarkable effect on motivation and employee pride.

The further the company aspires to go with stakeholder engagement and reporting, the greater the benefits – and the pitfalls. Credibility is hard to build but easy to damage. Success is more likely if a few simple rules are followed. Firms that start by making their own values and vision explicit are less likely to be buffeted by later changes in stakeholder opinion. Those that develop dialogue with their own staff first, and that prepare carefully for wider engagement, have a good foundation for going to a broader range of stakeholders. The best results come from dialogue that is genuinely two-way and sustained, leading to a continuing relationship in which strengths, weaknesses and concerns are openly and constructively discussed.

Will it Stick?

Finally, will it stick? In the 1970s, social assessment had a brief period of prominence with the concept of a “social balance sheet.” The balance sheet helped companies weigh and make choices about the social benefits and costs of their activities, and a number of companies, including General Motors, tried it out. However, with the advent of the monetarist 1980s and the belief, famously propounded by Milton Friedman, that the social responsibility of business is simply to increase its profits, corporate social responsibility faded into the background. Now, however, leading companies are recognizing a compelling business case for taking corporate responsibility seriously, even in tough times. With financial, environmental and social performance all seen as key to long-term success, corporate responsibility is set to stay firmly on the agenda.

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By David Brown, a senior consultant at Arthur D. Little. Copyright 2002 Ethical Corporation magazine, a GreenBiz News Affiliate.