Articles

MHCi MONTHLY FEATURE:

September 2006

CSR, REPUTATION AND CORPORATE GOVERNANCE:

THE NEED TO MOVE FROM OUTSIDE-IN TO INSIDE-OUT

By

Katherine Howard, and Graham Young, CRF Ltd;

Michael and Ivor Hopkins, MHCi Ltd.

The problem of outside-in

One of the problems with CSR is that it allows a company to build up a portfolio of 'doing good' activities either with or to stakeholders. Over time this gives the board a warm feeling and staff a sense that 'they are doing their bit', but this approach also brings a tendency for the company as a whole to lull itself into a sense of false security.

The way CSR has developed over the past ten years or so is essentially outside in, driven by NGOs and pressure groups focusing on a prescribed list of issues. If a company adopts CSR within this, now well established approach, its board and, in particular the individual who is designated to meet the CSR agenda will be addressing externally driven lists of issues, producing related performance indicators, and annual (usually lengthy) reports about them. Often the company's prime (possibly only) objective is to get a good rating with one or even several of the agencies such as BITC, FTSE4Good or DJSI.

False security

The comfort zone is about doing well against these criteria. As such, to rate highly has even become an end in itself, the business case being to have the corporate reputation endorsed by these external organisations. The false security comes from believing that a good reputation delivered through this approach actually means that your company is behaving properly. It does not.

Of necessity these external organisations can only scrape the surface of how the company really behaves, and they do so by having questionnaires filled in, carrying out high level interviews with key staff and assessing how a company performs against their chosen list of issues.

A good rating will send a message to staff that the company is doing OK as compared with its peers and that they, as part of the company, can feel satisfied. Plaudits are showered on the CSR nominated director (or more frequently the manager) and everyone now feels comfortable to leave that individual to do the CSR on their, and the company's, behalf.

This approach fails to recognise that it is how the company behaves in a corporate sense and how each member of staff behaves individually that will establish the company's reputation in any fundamental way that can last. A sound reputation will be grounded in having a robust framework which brings the company's values as the focal point together with supporting processes to map the whole business activity, embedding the values into strategic and day to day thinking and decision making. While stakeholders' views provide vital input to setting values and identifying and resolving issues, this is only part of the story. A stakeholder focused approach on its own will not lead a company in this direction because, put simply, meeting the company's value set is subordinated to externally driven agendas.

The need for inside-out corporate responsibility

Some companies, who are now leading the way, do recognise the importance of embedding values and using a robust framework or methodology to aid staff to understand and adhere to the value set. Included in the framework will be processes to demonstrate that embedding is taking place and to monitor and report on performance. Essentially this approach sees reputation as a valuable asset which has to be carefully and thoughtfully built up across all aspects of the business and integrated into the whole business organism. These companies recognise that it is their corporate responsibility to ensure that behaviour is in line with their stated values. They recognise the importance of driving this activity internally from the board and that they have to manage associated reputation risks and opportunities.

The benefits for these companies of taking this inside-out approach are threefold. They recognise that:

First - a robust framework of values and supporting processes, driven internally, is more likely to provide reliable assurance for the board about behaviour and reputation risk than an approach driven by some external body who really doesn't know the business in any detail

Second - corporate responsibility focusing on the corporate value set will produce a more fundamental understanding and thoughtful culture; one which is more likely to provide the thorough underpinning of behaviour that society might expect

Third - having a thorough values based culture will be more likely to bring to the surface the real and latent social, ethical and environmental issues which need to be addressed. An internal supporting framework will provide a means of holistically addressing these, involving key stakeholders as appropriate.

Suggested next steps

So what steps should a company take to implement the inside-out corporate responsibility approach? The following seven steps are suggested, and more details can be obtained on request from MHCi:

  1. Ensure the board is in control of, and has ownership of, corporate responsibility
  2. Assess how far company values have penetrated the company
  3. Ensure there exists a robust framework or methodology to support value based behaviour
  4. Identify key reputation issues, governance and operational gaps or policy inconsistencies, (informed but not driven by stakeholders)
  5. Prioritise, resolve or manage these
  6. Monitor and report on performance
  7. Go round again

Notes on the authors

Katherine has many years' experience in financial management at a senior level in major UK based companies including Uniliver, Roll-Royce, J Sainsbury and BAA where she was Finance Director of Heathrow Airport, was a co-founder of the Institute of Social and Ethical Accountability, advises companies on CR aspects of governance, strategy and risk and is a Director of Corporate Responsibility Framework Ltd. Her Co-Director at CRF Ltd, Graham Young was a founder of the Fair Trade industry and is also a CR consultant.

Michael and Ivor Hopkins are Partners in MHC International Ltd. A company specialising on CSR and Sustainable Business, and CSR and Expert Forums. They have joined up with CRF Ltd. to promote the notion of CSR from an inside-out perspective.

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If you found this Monthly Feature stimulating, then here are some previous MFs that might interest you. See Monthly Features on www.mhcinternational.com:

How does present or future legislation affect CSR efforts? Monthly Features (20 - The social responsibility of Nation States - June 2002; 22. CSR and Legislation: Legislate of Not?CSR and Legislation - July 2002; 24. Socially Responsible Downsizing - October 2002;

How can we define Corporate Social Responsibility? Monthly Features ( 6. - Is Corporate Social Responsibility the Same as Corporate Sustainability? - December 2000; 7. What, if any, is the relation between Corporate Governance and Corporate Social Responsibility?, January 2001. 26. Is CSR just a trendy fad?, December 2002; 27. CSR and Labour Issues, January 2003)

Why should companies and organisations adopt CSR policies and programmes? Monthly Features

(1. Corporate manslaughter - June 2000; 2. Corporate Social Responsibility - The Big Picture - July 2000; 3. Will social responsibility burn up your bottom line? - August 2000); 4. Singapore: Corporate, Social and Responsible but no Corporate Social Responsibility - Oct 2000 9. Economics of Corporate Social Responsibility - March 2001; 11. Alternative View of CSR: A Dialogue with the Financial Times - May 2001; 15. CSR Investment - the next 'dot.com' boom?, - November 2001; 16. New Directions for CSR: Can CSR enhance a companies' intellectual capital? December 2001; 17. CSR in Recessionary Times - January 2002; 14. CSR, poverty and terror - October 2001)19. CSR: 5 Minutes with the CEO: - March 2002; 23. CSR and Global Business Principles or Standards: What a mess! - September 2002; 25. CSR: Is it worth it?- November 2002?; 29. Sex, CSR and the Future - April 2003, 34. CSR: An Exit Strategy - Nov 2003)