Articles

 MHC International Ltd (MHCi) CSR Update

National Liberal Club, check London 11 Jan 2011

MHC International Ltd's (MHCi) fifth annual update took place in Central London with invited experts drawn from the business, academic and NGO world.  This beginning of the year, invitation only, event is designed to keep MHCi's work on the cutting edge of CSR and Sustainability issues to ensure that our research, advisory services and executive programmes are as up-to-date as possible.

The six key questions posed to our audience and moderated by Michael Hopkins (MH), MHCi's CEO, were:

  1. What did CSR mean for companies in the UK/Europe/USA/emerging markets in 2010?
  2. Has the paradigm continued to shift from responsibility to sustainability for 2011?  If so what are the implications?
  3. CSR is about key issues and stakeholder dialogue....are these changing?
  4. What are the key business case issues and how are they being tackled and measured?
  5. What would be 3 key things to say to convince curious but skeptical CEOs to take C(S)R seriously, or even more seriously?
  6. How has C(S)R affected business management?

Scope of C(S)R

The CSR community has failed to provide a good critique of why so many companies took risks that imperiled the sustainability of their companies, their stakeholders and communities.  Recent empirical work on the financial crisis and BP's Deepwater disaster shows that the causes cannot simply be ascribed to greed and cost-cutting and that a more nuanced understanding of company cultures, processes and incentives is required. (We need to understand why, for example, certain banks chose not to pursue unsustainable lending strategies and financial instruments.)  and needs to do more, especially as CSR had only a minor effect during the last recession e.g. financial crisis, BP Deep Water drilling fiasco etc 

Also, if a company's activities could be expressed as a meal, then CSR is too often regarded as the salad and the real meal is elsewhere but, to carry the metaphor further, if we continue to eat unsustainable fatty and/or unhealthy foods the salad (the CSR) does not cancel this out. But, as argued by participants, strategic CSR balances all these issues into one healthy meal.

There was some discussion of Rumsfeld's famous unknowns quote i.e. the unknown unknowns.  Even though most companies have not been not tested as catastrophically as BP, it could well be that CSR is working in the background to optimize performance and mitigate risk. 

A model could be Unilever which is carrying out path-breaking work, especially its work in South Africa and Indonesia to estimate the indirect beneficial impacts of a company on such issues as ameliorating un- and under-employment.  Nestle is also pursuing an interesting path with its Shared Value approach, highlighted in Davos 2011, although concern was expressed about its partial approach and not treating all stakeholders.  Further, BP started well under Lord Browne but didn't filter down to the operations nor to the Government regulators nor to BP's sub-contractors.  Ford is now the electric car company - a real shift of strategy.

There is more SR in family owned firms than others in general

CSR could have saved Enron - there was agreement after a long discussion - as the problem with the company was that the culture was one of unrelenting greed.

Government needs to set longer term targets for companies and get them away from focusing upon the three month financial report, beloved of financial markets and their advisers

Re-emphasised the MHCi (Donna Wood) approach of principles, processes and products for C(S)R, especially as it was thought that a long-term vision was crucial for companies

All companies have some aspects of CSR, but still has a narrow function in general..this will change over time.

How does CSR give a company a competitive advantage?  It does, or can, in a myriad of ways...e.g. organic food, alternative energy uses, new products such as fuel efficient cars etc.  The watchword is innovation, though it should be recognized that this can be piecemeal and incremental (e.g. the variety of fuel-saving technologies that VW and BMW have used to produce 70 mpg+ mainstream models) as opposed to perceived ‘breakthrough' technologies, e.g. Toyota hybrids

Can CSR contribute to companies pulling out of recession e.g. job creation.  There are more things they can do such as [INTERLINK]socially responsible restructuring, providing a location for newly unemployed but are limited in recessionary times to create effective demand for jobs when their own survival is at stake - see forthcoming MHCi Monthly Feature on this and an [INTERLINK]MHCi article on recessionary times from the last recession.

Stakeholders

Stakeholder activism is increasing with a focus on radical transparency (from Daniel Goleman's - Ecological Intelligence but with an eye on the post-Wiki leaks world).

Companies must know who their stakeholders are, identify the key ones and deal openly with them.  It is dangerous to respond only to those who shout loudest:  what is important is how the activity affects the core business of a company.

How to deal with stakeholder priorities given that engaging with key stakeholders is essential for good C(S)R?  Are companies missing their key stakeholders?

Don't expect a set piece dialogue, it must be flexible and arrange conversations in congenial places.

Not necessarily face-to-face, social media can help in focusing on particular "crowds", but social media has, to date, been primarily a tool of the young and educated - but see MHCi's tweets!

Key questions not always helped by theory of which the urgency-legitimacy-power framework of Mitchell is one of the best known.  The questions are: Who are the key stakeholders? How do you know you have chosen the correct ones?  How do you dialogue?

It was agreed that there should not be a CSR Unit with one ‘chief' since C(S)R should be embedded in a company's culture.  However, there needs to be managers for creating the company culture, training on ethics etc., measuring key impact indicators, writing the company report and keeping its website up-to-date.  There also needs to be a clear path to the CEO, to operational departments and to those dealing with transformational trends and corporate opportunity.  "Operating responsibly" should be the norm rather than the exception.

The business case must be clear.  Compliance standards are increasing but, as Ken Locke of MIT has shown, if the culture of the ideas embedded in certification schemes are not absorbed into the company and supply chains then any scheme will be circumvented.

Trends for 2011

Likely to be:

More emphasis on ‘inclusivity' i.e. a strategic approach to C(S)R that covers all essential ingredients in the governance-environmental-financial-economic-social-sustainability (GEFESS) nexus, as NGOs, governments and companies increasingly realize that company or NGO programmes, however big or good, are incomplete and restrained in their effectiveness if they don't address some underlying structural and governmental problems (e.g. new hospitals or schools in the developing world have limited and short-lived impacts where the supporting infrastructure of trained staff, etc is missing) See and earlier MHCi article on this - [INTERLINK]Strategic CSR and Competitive Advantage.

Scalability will also become a watchword: having one niche area or product for CR will not be enough because all products will need to be responsible - see GSK and their open patent.

There will be more emphasis on supply chains and this could be the ‘big' story for 2011 after the events in 2010 with Deep Water, Financial subsidiaries, Rating agencies, Mortgage slicing, Emerging market costs and conditions of work etc.

Companies have tended to shift more to make a big impact in a few areas rather than a system wide approach, this trend is likely to continue as systematic CSR (CSR 2.0 to use Dr Visser's enthusiasm) is still not widely understood.

This ‘systematic' CSR is not yet widespread although signs that it is increasing (e.g. Nestle despite some limitations with its ‘Shared Value' approach, Unilever, Ford, Nike, Gap)  We should be excited by companies who are making major changes that are not based simply on following societal norms or in following peers / copying competitors.

Governments will play an increasing role in, for instance, governance but we also see some countries legislating for CSR (e.g. Nigeria, Mauritius and India even though the models adapted seem to be overly concerned with philanthropy).

Companies will be forced to be more socially responsible in their advertising.

There is a move toward CSR for public institutions and NGOs and there is increasing interest in ‘personally responsibility' especially for those in senior positions.

Smart companies will look more to the social value of their brands.

 Climate change may move down the list of priorities to be replaced by more concern with worker rights and human rights, with concerns about water supply and quality also rising on the agenda (NB Nestlé's CEO advocated such a move over a year ago).  Although it was noted that water shortages may well be exacerbated by climate change.

The lesser know sustainability issue of bio-diversity will also rise up the agenda and more attention will be placed on its economic value.

Where multinationals pay their tax is likely to be increasingly focused  on by activist groups and, given the recent tenor of street demonstrations, protests could turn increasingly ugly.

More pessimism was expressed about living standards and there were fears that living standards in Europe would start to fall as the deficit cuts factor in, but could be compensated by strong corporate action who have seen their cash holdings rise despite the recession due to higher productivity of workers, low interest rates and less hiring.

Emerging markets are where the energy is and one can expect to see a lot of innovation in the C(S)R agenda.

Message to CEOs

What key issues are worth drawing to the attention of skeptical CEOs?

  1. CSR will help them not ‘screw' up, will help change workforce culture and make their employees more ‘employable' and more productive.
  2. Will help to avoid a culture of fear including in Board rooms where, too often, discordant views reflecting inconvenient views tended to be buried.
  3. Will help to make the external world more relevant inside companies where there is a tendency to read few sources of news (company newsletter and perhaps ‘The Economist').
  4. There are a number of positive stories e.g. Ford, Unilever, Nestle who have all profited from good CSR.
  5. CSR can lead to new opportunities and innovation; stakeholders can help identify unmet social needs.
  6. CSR can help your share price as a company's market value, increasingly, is composed of up to 80% intangible and 20% tangible assets.
  7. Personal and corporate responsibility can lead to a positive legacy for ex-CEOs!

Last word

The C(S)R scene is robust and expanding.  The recession over 2009-2010 seems to have given new impetus to the area and will require more detailed work than ever before especially if, as expected, ISO26000 takes hold after its launch in 2010.  We shall hold our Sixth CSR Update on January 10th 2012 in London as usual.

Annex: On CSR Definitions

The Meeting was started by defining terms and Michael Hopkins repeated his definition that had been examined by many and evolved accordingly - see [INTERLINK]CSR Definitions .

The definition was discussed and the following points noted:

Governance is a key issue.

CSR now should be CR to emphasise a strategic systems approach.

Some thought definitions depended on the audience while others felt that the definition should be consistent (and the participants liked the MHCi definition) but attention spans are short for long expressions.  MH says that his basic learning message is that:

‘C(S)R is about treating stakeholders responsibly'

Definitions need to help constructive discussion and there is a difference between an academic or technical definition and a marketing or internal definition such as Intel's "what's the right thing to do?". However defined, it was felt that the important thing was that CSR should help give organisations a strong sense of what is acceptable and what is not; there are too many examples of companies with impressive CSR mission statements and programmes that nonetheless have behaved irresponsibly. (This is particularly true in financial services.) Some wondered whether GRI reporting, a la carte as it were, led to the use of an implicit definition that, nevertheless, varied between companies i.e. no definition!

[As well as participants, thanks to additional comments from Patrick Gasser, Head CR at UEFA, Nyon, Switzerland]