Corporate Responsibility: A Business Strategy for Managing Risks and Building Trust, Study notes of Business

Download Corporate Responsibility: A Business Strategy for Managing Risks and Building Trust and more Study notes Business in PDF only on Docsity! The Business Case for Corporate Responsibility Arthur D Little Foreward We live in an increasingly complex and sceptical world. Corporate scandals, stock market downturn, uncertain economy, threat of terrorism – all have diminished trust in the corporate sector and its lead- ers. Companies have to address this, individually by demonstrating their positive impact on society and collectively by developing comparative meaningful measures by which to report their progress against. Corporate Responsibility is not a fad, but an imperative. Yet even as it becomes more main- stream, stakeholders are becoming more critical, and the standards for meaningful social interaction are rising. Business in the Community has been in existence for 21 years, but the need for it has never been greater. The need to inspire and engage more companies and the importance of sharing best practice and learning has never been more vital. Therefore, I welcome the opportunity for this joint publica- tion with Arthur D. Little and the simplicity with which it sets out the compelling arguments for companies, large and small, to integrate responsible business practices into the very heart of their operations. In the coming year Business in the Community will use this document and work more intensely to ensure the accurate reporting of corporate impact on society, without which there cannot be sympa- thetic consideration of the real challenges and dilemmas companies face. David Varney Chairman, Business in the Community and mmO2 Introduction Companies that embrace Corporate Responsibility recognise that their social and environmental impacts have to be managed in just the same way as their economic or commercial performance. But getting started, putting Corporate Responsibility principles into practice, can be difficult and many companies struggle to justify the management of social and environmental affairs in terms of tangible business benefit. Corporate Responsibility should be seen as a journey rather than a destination, and as society’s expec- tations of business continue to get more demanding, the sooner companies start out the better. In recent years much has been written about the subject and the business imperatives1. There are six commonly recognised benefits that can be gained from an effective business-led approach: • Reputation management • Risk management • Employee satisfaction • Innovation and learning • Access to capital • Financial performance This paper provides a simple guide to understanding how these benefits can be realised. Risk management Corporate Responsibility provides a means by which companies better understand and manage risk. All businesses take risks and make judgements about the level of risk that is appropriate. Many corpora- tions are broadening their definition of risk to encompass wider and longer term risks that incorporate social and environmental issues. In addition, they are engaging with a wider external audience to understand needs and expectations and take action where appropriate. There is growing pressure for companies to understand and act on a widening range of risks across their business. Over the last few years, there have been a number of guidelines and initiatives to encourage business to manage risks across their business. Examples of these are presented in Table 1 (see below). In particular the Operating and Financial Review (OFR) will have a significant impact in the way companies report on the social and environmental risks to their business. 86% of institutional investors across Europe believe that social and environmental risk management will have a significantly positive impact on a company’s long term market value16. However, a recent survey suggests that, despite many companies understanding the reputational issues associated with sustainability, less than one third of respondents are currently incorporating risks or opportunities associated with sustainability into their internal risk assessment process or business strategies17. Corporate Responsibility offers more effective management of risk, helping companies to reduce avoidable losses, identify new emerging issues and use positions of leadership as a means to gain competitive advantage by influencing new regulation to strengthen competitive advantage18. Key messages • There is growing pressure for companies to understand and act on a widening range of risks across their business. • Corporate Responsibility provides a means by which companies better understand and manage risk. • The effective management of social and environmental risks presents business opportunities. “By focussing on CSR we can better improve our processes for identifying and managing business risk” Michael Bailey Chief Executive Officer Compass Group plc Guidance Operating and Financial Review ABI disclosure guidelines on Socially Responsible Investment (SRI) Internal Control: Guidance for Directors on the Combined Code of Corporate Governance (Turnbull) Year 2003 2002 2001 Sponsor Department of Trade and Industry Association of British Insurers Department of Trade and Industry Detail Principles and guidance on how Directors of companies over a certain size should report on issues that are material to shareholder interests, including the company’s impact on the environment and wider community. Guidelines on disclosures on environmental, social and ethical matters in company annual reports, including whether or not the company’s board has effective systems for managing significant risks. Provides guidance on the implementation of the Internal Control Requirements of the Combined Code on Corporate Governance. It requires companies to identify, evaluate and manage their significant risks and to assess the effec- tiveness of their internal control systems. It includes direct reference to risks related to health and safety, environmental and reputational issues. Table 1: Examples of guidelines to encourage improved risk management “We believe that our employees are one of our strongest assets and by giving them the opportunity to do what they do best everyday our employees feel engaged and fulfilled in their roles. Our vision is to create an environment where great people can do their best work and realise their potential” Stephen Harvey Director of People and Culture Microsoft Ltd. "A new breed of job seeker is placing ethical issues above financial incentives when consid- ering a job offer. Future job packages need to reflect this new found ethical consciousness among job seekers if companies are to main- tain their appeal" Keith Robinson Website Director totaljobs.com Employee satisfaction Businesses are run by people for people. As Zadek has commented “they are no more or less than a human intervention for making things out of other things and getting them into use”20. Business is dependent on its employees in its operations, on its relationships with other stakeholders and on the delivery and creation of value. It is not possible to separate employees from a business, they are the business. Understanding and aligning their values with that of the business is critical for business suc- cess. In the UK, the average employee is at work almost two-thirds of all the days in a year. Employment is a significant part of people’s lives. Just as people develop and pursue things important to them outside the workplace, they expect to be able to flourish as individuals within the workplace. People want to work for a responsible organisation22. Recent evidence suggests that three in five people want to work for a company whose values are consistent with their own19 and they will stay with the organisation whilst this consistency remains. The challenge is that companies are not seen to respond to these demands as employees expectation’s rise22. BUPA have reported that engaged, motivated and inspired employees are key to business success. In 1999, they launched “Taking Care of Lives in our Hands” integrating values through the business. This initiative help boost employee satisfaction (up by 20%) and their business turnover (up by 32%)22. Corporate Responsibility is increasingly the overriding factor in attracting and retaining a talented and diverse workforce. Key messages • Three in five people want to work for a company whose values are consistent with their own19. • There is increasing evidence that the proportion of people wanting to work for a responsible organisation is growing. • 81% of young people have a strong belief in the power of responsible business practice to improve profitability over time. • Corporate Responsibility is increasingly the key factor in attracting and retaining a talented and diverse workforce. Case study 2: Centrica British Gas’ National Sales Centre (NSC) is based in Cardiff, South Wales. It employs 2,700 people and is responsible for handling all of the company’s domestic gas, electricity and telephone sales enquiries. As Cardiff is a popular location for call centres, employee retention is a real issue. British Gas developed its employee community involvement programme in 2000 as a means of creating a degree of differentiation and improving retention. After over 1,000 hours of employee time in the community, thorough evaluation was conducted showing: • Higher Retention rates for individuals who volunteered. • Improved rating as an “above average” place to work - to 63%. • Increased job satisfaction levels - to 67%. • Increased advocacy rates - from 49 to 57% who would speak highly of the company. • 28% of Action Day participants achieved promotion. • Increased positive media coverage - 4.3 million media “opportunities to see” generated. • Absenteeism significantly reduced. • Improved customer satisfaction ratings: two points above the stretch target23. Innovation and learning In 1983, a Royal Dutch/Shell survey found that one third of the firms in the Fortune 500 in 1970 had vanished. Shell estimated that the average lifetime of the largest industrial enterprises is less than forty years, roughly half the lifetime of a human being24. Peter Senge, founder of the Centre for Organisational Learning at Massachusetts Institute of Technology's Sloan School of Management asserts that although the death of these firms may be attrib- uted to economic change and redistribution of resources, high corporate mortality is a symptom of deeper problems that afflict all companies that most organisations learn poorly25. Recent evidence suggests that companies embracing Corporate Responsibility stimulates creativity and learning. 80% of European business leaders believed that responsible business practice allowed compa- nies to invigorate creativity and learn about the marketplace22. Furthermore, over four in five of both employees and CEOs believe responsible organisations are more creative26. The long term survival of organisations is also dependent upon their ability to understand and act on societal and technological change. Joseph Schumpeter, one of the greatest 20th century economists, coined the term "creative destruction" to describe the dynamic pattern where innovation upstarts unseat established firms27. During periods of dramatic change, incumbent firms27 are unsuccessful in building the capabilities needed to secure a position in the new competitive landscape28. Hart and Milstein from the University of North Carolina, suggest that dramatic change in the way business operates is inevitable given the significant social and environmental problems facing the plan- et. They argue that these problems present innovators and entrepreneurs a significant business oppor- tunity28. The benefits of innovation should not be constrained by the boundaries of the organisation. Many organisations are co-innovating with business partners to identify new approaches that deliver business benefits whilst tackling a social or environmental issue. For example, Nike has programmes in place with six of its material suppliers to collect 100% of their scrap and recycle it into the next round of products, reducing production costs and waste29. Corporate Responsibility stimulates learning and innovation within organisations helping to identify new market opportunities, establish more efficient business processes and to maintain competitiveness. Key messages • Innovation and learning are critical to the long term survival of any business. • Environmental constraints and societal pressure are narrowing the window of opportunity for business. • Leaders in Corporate Responsibility are using innovation and learning as a vehicle to turn these constraints into significant business opportunity. Case study 3: The Beacon Press The Beacon Press’ commitment to innovation has made it one of the leading UK printing compa- nies. Their strong commitment to the environment has enabled them to push the boundaries of technology and has demonstrated that new standards of quality can be achieved through environ- mental best practice. Beacon was one of the first companies to convert to waterless printing hav- ing introduced waterless presses when existing machines were due for replacement. The extra capital expenditure incurred to purchase the waterless technology has been offset by reductions in operating costs. Beacon Press’ leadership in environmental performance has made them a pre- ferred supplier to other companies waking up to greening their supply chain. Beacon Press now have 1 in 10 of the FTSE350 companies as customers30, they were winners of Business in the Community's Environment Award for Excellence in 2002 and won the Queen’s Award for Sustainable Development in 2003. Conclusion Companies that embrace Corporate Responsibility can open doors on new markets, new opportunities and new relationships, set the scene for long term profitability and increase the competitiveness of the communities in which they operate. Conversely, companies that fail to manage their responsibilities to society as a whole risk losing their so-called Licence to Operate – the unwritten authority to do busi- ness that is granted by a company’s stakeholders at large. Stakeholder views, and their expectations of corporate behaviour, are shaped by what they see happen- ing in the world around them. And with today’s communication networks, the world extends from the local neighbourhood to the planet as a whole. The role of business in providing the wherewithal to tackle these global challenges was highlighted by Kofi Annan at the World Summit on Sustainable Development in Johannesburg in September 2002. He told the business community directly that they have the finance, the resources and the technology to bring about the changes that are needed to address the world’s major social and environmental problems. The rationale for Kofi Annan’s statement is very clear. Business is the primary source of investment in productive capacity and main employer in most societies. But, Corporate Responsibility is not restricted to big business. Companies of all sizes can benefit, as responsible suppliers to corporate customers, by reducing risks, in attracting and retaining talented staff, through the exploitation of new markets for responsible products and services, in meeting responsibility criteria set by lenders and last but not least by reducing operating cost. Many companies are already leading the way, driven by their belief that Corporate Responsibility is essential to their business. Although visionary leadership and the values of individuals in many compa- nies are proving instrumental in bringing about greater responsible business practice54, the business case for this action is compelling. Examples of global challenges Our society is facing a unique set of global challenges. For example: • 78% of the world’s population remain poor50 and many are unable to meet their most basic needs. • 28% of the world’s children under five years old are still severely or moderately undernourished51. • Air pollution is estimated to cause five per cent of the world’s deaths each year52. • The 1990s were the warmest decade and 1998 the warmest year on record. • The second hottest year on record after 1998, was 2002. • In the 1990’s approximately 2% of the world’s forests were lost53. • It is estimated that about 10% of all known plant species are under threat of extinction as a result of our activities53. References 01 Garz Dr. H., Volk C., Gilles M., More Gain than Pain – SRI: Sustainability Pays Off, West LB Panmure, Nov 2002 Webley S., More E., Does Business Ethics Pay?, Institute of Business Ethics, April 2003 Chilvers & Keeble (2003) Corporate incentives and drivers for innovation in sustainable business practice: an in-depth study of Aviva plc, University College London and Arthur D.Little Limited. Hedstrom, G., Shopley, J. & LeDuc, C. (2000) Realising the Sustainable Development Premium, Prism, Arthur. D. Little Limited. Kemp, V. (2001) To whose Profit? Building a Business case for sustainability, WWF. Halliday C., Schmidheiny, S., & Watts, P.(2002) Walking the Talk: The Business Case for Sustainable Development. Greenleaf Publishing and Berrett-Koehler. Roberts, S., Keeble, J. and Brown, D. (2002) Business Case for Corporate Citizenship, Arthur D. Little Limited. WBCSD (2002) The Business Case for Sustainable Development: Making a difference toward the Johannesburg Summit 2002 and beyond. WBCSD, Geneva. Grayson, David / Hodges, Adrian: Everybody's Business: Managing Risks and Opportunities in Today's Global Society, 2001 02 MORI, European Study on CSR (Survey of 12,162 members of the general public across Europe) 03 Fombrun, C., Gardberg, N. & Barnett, M. (2000) "Opportunity Platforms and Safety Nets: Corporate citizenship and Reputational risk", Business and Society Review, 105:1, 85-106. 04 Annual CSR study, MORI, 1998/2002 05 Business in the Community, The Ultimate Win Win Win (1999) supported by Research International. 06 Global CSR Monitor (20 countries), Environics, 2001 07 MORI Trust Monitor, 2003 08 Voice of the People (47,000 adults across 47 countries), 2002 09 MacMillan and Joshi (1997) Sustainable competitive advantage and firm performance: The role of intangible resources. Corporate Reputation review, Summer/Fall 1997. Vol 1. No.1, Henry Stewart Publications. 10 Interbrand (2000) cited in www.csreurope.org 1 1 Ethical Performance, 2002 12 MORI (2001) Annual CSR Study 13 Financial Times, 9 September 2003 *Corporate Social Responsibility 14 www.friendsprovident.co.uk 15 Socially Responsible Investment (SRI) is an investment strategy that takes into account a company’s ethical, social and environmental performance as well as its financial performance. 16 Taylor Nelson (2001) The European Survey on SRI and the Financial Community (conducted among 302 financial analysts and fund managers across Europe) 17 PWC (2002) 2002 Sustainability Survey Report. PWC. 18 Hedstrom, G.S., Shopley, J.B. and LeDuc C.M. (2000) "Realizing the Sustainable-Development Premium," Prism, Arthur D. Little. 19 Environics’ Global Campus Monitor (2003) conducted among 1,200 undergraduates across the 20 largest economies in the world 20 Zadek,S. (2001) "The Civil Corporation:The New Economy of Corporate Citizenship" Earthscan. 21 Assumes an average of 5 working days a week with 25 days vacation. 22 BITC (2003) Responsibility: Driving innovation, Inspiring employees. FastForward Research 2003, Business in the Community 23 Centrica (October 2003) & Corporate Citizenship Company (2003) Good Companies, Better Employees, July 2003. 24 de Geus, A. (1988) "Planning as Learning" Harvard Business Review (March-April 1988): 70-47, cited in Senge, P. (1990) The Fifth Discipline: The Art & Practice of The Learning Organisation, Century Business, London. 25 Senge, P. (1990) The Fifth Discipline: The Art & Practice of The Learning Organisation, Century Business, London. 26 BITC (2003) Responsibility driving Innovation, Inspiring Employees: Fastforward Research 2003, Business in the Community, London. 27 J. Schumpeter, The Theory of Economic Development, Cambridge, MA: Harvard University Press, 1934. 28 Hart, S. & Milstein, M.B. (2000) Global Sustainability and the Creative Destruction of Industries, Sloan Management Review. 29 Senge, P.M. & Carstedt, G. (2001) Innovating our Way to the Next Industrial Revolution. MIT Sloan Management Review. Vol. 42. No.2. 30 www.beaconpress.co.uk 31 Taylor Nelson (2001) The European Survey on SRI and the Financial Community (conducted among 302 financial analysts and fund managers across Europe), 32 Business in the Community (2001) Investing in the Future, City attitudes to environmental and social issues, Business in the Environment. 33 For example: The World Bank, the European Bank for Reconstruction and Development (EBRD), the Inter American, Development Bank (IADB), the Nordic, Investment Bank (NIB), and the International Finance Corporation (IFC) 34 UNEP (2002) Finance and Insurance: Industry as Partner for Sustainable Development, United Nations Environment Programme Finance Initiatives. 35 Arthur D. Little (2003) Speaking the same language, Arthur D. Little, BITC & UK Social Investment Forum 36 Taylor Nelson (2001) The European Survey on SRI and the Financial Community, (conducted among 302 financial analysts and fund managers across Europe). 37 www.sustainability-index.com 38 SiRi Group, Avanzi SRI research (2003) & Eurosif (2003) cited in CSR Europe, Deloitte & Euronext (2003) Investing in Responsible Business: The 2003 survey of European fund managers, financial analysts and investor relations officers, CSR Europe & Deloitte. 39 Business in the Environment (2001) Investing in the Future: City attitudes to environmental and social issues. Business in the Environment. 40 The DJSI combine the financial performance of over 300 companies from 22 countries that lead their industry in terms of corporate sustainability. 41 MSCI indices are the most widely used benchmarks by global portfolio managers. According to a survey conducted by Pensions & Investments, over 90% of international institutional equity assets in the USA are benchmarked to MSCI Indices. See www.msci.com/overview/index.html. 42 SAM Indexes GmBH (2003) Results of DJSI Review 2003, see www.sustainability-indexes.com. 43 Business in the Community (2002) FastForward Research (among European business leaders), BITC/NOP. 44 Collins, C. & Porris, J.I. (2000) Built to last: successful habits of visionary companies. 3rd Edition, Randon House, London. 45 www.ibe.org.uk/DBEPsumm.htm 46 CSR Europe, Deloitte & Euronext (2003) Investing in Responsible Business: The 2003 survey of European fund managers, financial analysts and investor relations officers, CSR Europe & Deloitte. 47 Business in the Community (2002) FastForward Research (among European business leaders), BITC/NOP. 48 PWC (2002) 5th Annual Global CEO survey: Uncertain Times, Abundant Opportunities. PWC & World Economic Forum. 49 Novo Nordisk (2002) Sustainability Report 2002, Novo Nordisk 50 Milanovic, B. and S. Yitzhaki. (2001) Decomposing World Income Distribution: Does the World have a Middle Class? Washington, D.C: World Bank 51 UNICEF (2001) 52 Worldwatch Institute (2002) State of the World 2002, World Watch Institute, cited in BT (2003) Just Values: Beyond the Business case, BT’s 6thOccasional Paper. 53 World Conservation Monitoring Centre (1999) 54 See BT (2003) Just Values: Beyond the Business case, BT’s 6th Occasional Paper. and Chilvers & Keeble (2003) (2003) Corporate incentives and drivers for innovation in sustainable business practice: an in-depth study of Aviva plc, University College London and Arthur D. Little Limited. For more information, please contact: This paper supersedes Arthur D. Little’s paper on the Business Case for Corporate Citizenship which was published for the World Economic Forum's Global Corporate Citizenship Initiative (GCCI) in 2002. The paper was published to accompany the CEO Statement on Corporate Citizenship “Global Corporate Citizenship: The Leadership Challenge for CEOs and Boards”, developed by the GCCI in cooperation with the Prince of Wales International Business Leaders Forum and launched at the World Economic Forum's Annual Meeting, January 2002. www.weforum.org/corporatecitizenship About Arthur D. Little Arthur D. Little is a global management, technology and environmental consulting group serving major public and private sector clients. We are one of the world’s premier consulting firms, with more than 1,000 staff members based in around 40 offices around the world. In the UK we employ some 100 consulting staff in our offices in London and Cambridge. We provide a full range of management consulting services to the UK market and overseas through our global Practices. At our Cambridge base we can provide some 50 environmental, safety and risk specialists. With a track record of over 30 years, we work with companies and governments to help them deal with the most difficult environmental, social and safety risk problems, and in so doing move further along the path to sustainable development. We help companies manage their environmental, health, and safety risks effectively to maintain their licence to operate and meet the needs of their business in a sustainable and responsible manner. Our staff are specialists in applying technical expertise and indus- try knowledge with a broad business perspective. About Business in the Community Business in the Community is a unique movement in the UK of over 700 member companies, with a further 1600 participating in our programmes and campaigns. We operate through a network of 88 local business-led partnerships, as well as working with 45 global partners. Our purpose is to inspire, challenge, engage and support business in continually improving its positive impact on society. Members of Business in the Community commit to action and to the continual improvement of their company's impact on society. Our members commit to: Integrate, manage and measure responsible business practice throughout their business Impact through collaborative action to tackle disadvantage Inspire, innovate and lead by sharing learning and experience Business in the Community works globally through its partnership with the International Business Leaders Forum. We work across the European Union as a partner of CSR Europe and as the co-ordinator of the Cecile Network. Together our member companies employ over 15.7 million people in over 200 countries worldwide. In the UK our members employ over 1 in 5 of the private sector workforce. For information on Business in the Community visit www.bitc.org.uk December 2003 Printed by the Beacon Press using their pureprint environmental print technology. The paper is 75% recycled from de-inked post consumer waste. Vegetable inks were used throughout. The printer is registered to ISO 14001 and EMAS. C adluk/bccr/12/03 · creative@expdesign.co.uk Justin Keeble Arthur D. Little Limited Science Park, Milton Road Cambridge CB4 0XL Tel: +44 (0)1223 392090 E-mail: keeble.justin@adlittle.com www.adl.com Charlotte Turner Business in the Community 137 Shepherdess Walk London N1 7RQ Tel: +44 (0)870 600 2482 E-mail: charlotte.turner@bitc.org.uk www.bitc.org.uk