CSR is about focusing on the little things

It seems odd that when corporations show their commitment to society through CSR they get the most out of doing something about the little things. Companies that are successful looks at what they do well and tries to figures out how this impact communities that they are active in, in ways they could not imagine if they did not have the tools provided though CSR.

When reviewing the many definitions of CSR that is out there it gives little or no clue how actually to conduct social responsibility. It would seem that if one just followed conventional wisdom it would be hard if not impossible to satisfy even the simplest requirements given by all these different classifications.

“The Social Responsibility refers to the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society.” Bowen, 1953 in Social Responsibilities of the Businessman, which commonly regarded as the first milestone in modern CSR research and practice.

Another more modern definition have been issued by the International Standards Organisation (ISO) through their guidance on social responsibility “Responsibility of an organization for the impacts of its decisions and activities on society and the environment, through transparent and ethical behaviour that contributes to sustainable development, including health and the welfare of society; takes into account the expectations of stakeholders; is in compliance with applicable law and consistent with international norms of behaviour; and is integrated throughout the organization and practiced in its relationships.”

Both of these very fine definitions give little or no clue to what companies should actually do to both successful in terms of profit, development and continued competitive advantage, and at the same time being in tune with societies moral compass.

But some companies have actually done quite well trying to combine their CSR with their core business. Just to give a few examples.

Danish Novo Nordisk has committed themselves to the task of “Changing diabetes” and have successfully introduced new products like Victoza inline with their core mission statement

The Swedish fashion company, H&M have under the statement “Conscious” has with worked to create sustainable fashion through a comprehensive CSR system that reduce risks in their supply chain.

Vivendi, the French telecom company, have initiated a program that promotes the safe use of the Internet to youth.

All of these initiatives are small when it comes to the efforts that the company needs to put into them because it is embedded in the “what we do” part of their business, but even so that have a huge impact on their outreach to the communities they are active in.

So even though it would seem that these successful companies are focusing on the “little things” they do represent a significant societal impact exactly for that reason.

A Measure of Success – CSR Business Intelligence

It would seem that we have been over this a thousand times before… What gets measured gets managed. It was true when we invented TQM in the 80’ties and LEAN in the 90’ties and while we seem to forget about basic management skills when we adopt network organisation and self-empower our employees it is still true that if you can stick a number to your performance there is a much better chance that improvements follow close behind.

My good friend Michael Koploy have for a number of years been working with evaluation and documentation of CSR performance. As I he has realised that with CSR comes complexity on a scale that is mind-blowing. For TQM, LEAN and other quality management systems there were at least boundaries that was relatively narrow outlook defined by customers, suppliers, competitors and employees, but with CSR there are no scope.

So how do you work with CSR data, how do you get your hands on it and how can you present it in a way that gives meaning to decision makers and stakeholders. Michael has adopted an approach that might work and builds on some of the fundamentals of TQM and at the same time takes into account that the world (and organisations with it) is always changing. Build on three basic principles with data as “King”.

First – Automate and improve data collection to get a better picture of corporate sustainability;

Companies generate millions of data points every day and as time of progressed much of these systems have been integrated into various systems like SAP or other Business Intelligence (BI) structures. Finance, HR and operations have for a long time used these systems in order to improve their processes and it is high time that CSR professionals do the same.

Second – Use analytics applications to find trends and make informed decisions;

The graphic integration that comes with advanced BI systems can prove to be even more useful when it comes to sustainability performance. Often we see fragments of a total effort displayed in the CSR report or through corporate announcements and newsletters. But what we really need to specialised and specific information that is valuable to the individual stakeholder. For instance if I’m interested in anti-corruption issues I would like to be able to access the policies related to the issue but also audit reports and key performance indicators tracked in real time. What I do not need is a general understanding that this or that company is working actively to reduce corruption in its supply chain I want to know the “how”.

Third – Develop sustainability teams that are data-minded and accountable for business decisions.

The Crap-in-Crap-out principle is of cause also applicable when it comes t CSR Data gathering, reporting and presentation. So when data have to be managed it is done by people who know what they are doing and not by some random employee who have little or no knowledge about a given subject. A team approach works because it forces us to articulate our assumptions about how the world works and enables us to be challenged on our views. Within the field of CSR there are many opinions about what is the right thing to do and how its should be done, so instead of just having one person deciding a team of people agree and are accountable for the approach.

Data is not only king when it comes to CSR it is central, but not without the right people and approach to come with to terms with sometimes difficult to comprehend facts about the organisations that we work with. Data and data processing can unveil truths about an organisation which calls for hard decisions and sometimes for managers to change their perception of right and wrong. But without a common BI platform we will never get close to realising the knowledge that we can gain from systematic and comprehendible CSR data approach.

Directions of the CSR movement

For the past five decades we have seen a tremendous development within the CSR movement from a few hippies in the sixties shouting curses at Dow Chemicals to businesses build on the idea of sustainability such as the Body shop and Starbucks. This blog is about what I think will happen in the next few years. The list is far from complete but gives an overview of some of the trends that will shape CSR in the coming years.

Codes of conducts as a “license to operate”. Code of conducts was, a few years ago, seen as a source of competitive advantage, and to some businesses a method to organise its philanthropic efforts. Today they are seen as something that most international businesses have as part of their normal business approach and more a given than an extra feature. Even companies like A.P.Møller-Maersk that until recently did almost nothing within sustainability is now implementing Codes of Conduct and have become member of the Global Compact.

Moving from a fragmented approach to CSR companies now work strategically with philanthropy and stakeholder engagement/management. As described by Porter and Kramer there are real advantages to be gained by working strategically and long-term with the company’ philanthropic activities (Porter & Kramer, 2002). And companies are using philanthropy to gain access to students and other important resources that they will need for their future growth. Apple computers have successfully engaged with university students as part of their strategy, which has moved the company from being marginalised in the market to be directly comparable with Microsoft.

The further evolution of sustainable and social risk management into real tools for business. Where companies engaged with stakeholders because they represented a business risk they would in the future also be part of business development. Globalization have meant that business have expanded its scope and reach significantly. Fuelled by waves of liberation in developing and emerging markets have initiated a significant increase in contact with countries and regions that can be categorized as difficult to do business in. The increased sphere of contact and influence have spread to every coroner of the world and is to a large extend fuelled by the prospect of high returns, first mover advantages and market shares (Haufler, 1997, Mehmet, 1999, Banfield et al., 2003, Gouldbourne, 2003,

Jamali & Mirshak, 2010). According to the World Bank some 1,5 billion people are affected by organised violence or conflicts (World Bank, 2012), this number constitute roughly one fifth of the total population of the world making it one of the world’s biggest social issues. Conflicts are present in all parts of the world and have a direct or indirect impact on the lives of everybody on the planet either through social ties or as part of our professional lives. For people who are directly affected it is an ever-present threat that invades all activities and decision making processes, for the societies involved it puts social lives and development in a state of suspended animation. To a large extend the issues that business needs to confront are outside what can be considered the norm within traditional risk management strategies (RMS) because the issues are socially embedded and complex (Holzman et al, 2003). As seen in the case with Starbucks NGO and companies can work together on areas of common interest and create new products and services (Austin & Reavis, 2004).

Social responsible investments or SRI will become more and more influential on driving investment decisions and thereby the choices of management. It is not argued that investment companies will become more social conscious but customers like institutional investors will become more and more concerned about how they are growing their portfolios (Hawken, 2004). This will not happen because they suddenly become aware that they have a significant social or environmental impact but that the customers of instructional investors are starting to wonder how their pensions are growing.

The raise of the corporate citizen. The idea of corporate citizenship was first seen a few decades ago (Crane & Matten, 2010). The idea of corporations as citizens with obligations and rights really saw its emergence with several big international finance scandals such as scandal around Enron and Arthur Anderson around the turn of the century. The idea of a corporate citizen comes from the notion that companies like people have an obligation to the community they are part of. This means that they are obliged to behave in accordance with ethical norms formulated by society. In many ways the corporate citizen come from the idea of engagement with salient stakeholders and acting in accordance with their expectations and wishes. While there are many companies that claim corporate citizenship a very have moved beyond mere rhetoric.

The inter-linkage between CSR and development studies. Will further develop and as we will see in this book gender will be one of the lessons learned from the field of development studies that will define corporate behaviour in the years to come. For decades development practitioners have known that economic growth, democratisation and security does not happened in a vacuum and that development a sustainable business climate is linked to society and governance structures. As companies increasingly becomes global even at very early stages of business lifecycle so does the issues that they have to confront. But as older companies have had time to cope with different cultures and business environments young entrepreneurs does not have the same privilege. In essence this means that they will have to experience a much steeper learning curve of they are going to survive on the global marketplace. The tools that have been refined through years of development studies will be an integrated part of creating a sustainable business platform for the future.

Since the 80’ties have seen large-scale privation of traditional state enterprises in areas like transportation, communication, healthcare, energy and infrastructure. Mostly influenced by neoliberal thinking in United Kingdom and United States were large-scale privatisation programs were implemented under Margret Thatcher and Ronald Reagan (Bhagwati, 2007:98, Harvey, 2005:57ff). As this happened private business also found its way into areas traditionally controlled by the state and as time have progressed more and more areas have seen either total takeover by private business as we have seen in telecommunication, part privatisation with majority state ownership as with railroads or private companies in direct competition with or as a alternative to state institutions as we have seen in Healthcare and Private security companies (Harvey, 2005, Dicken, 2003, Klein, 2000, Friedman, 2007).

The concept of CSR have found it’s way into the business world largely due to the weakening of the state and as a result of pressure by stakeholder groups to act as information have been more widely available from even the most remote part of the world. Word like ‘Sweatshop’ and ‘child labour’ would not have found its way into everyday language if it had not been for the increased transparency and persistence of stakeholders who have come forward within the last two decades.

CSR and Partnerships

partnership agreement

partnership agreement (Photo credit: o5com)

One of the more resent developments within the field of CSR has been the emergence of strategic partnerships. Ever since the start of business there have been different forms of partnerships from small business franchises to large-scale outsourcing. In the last decade there have been an emergence of other forms of partnerships such as business and governmental institutions and in the last few years between Business and NGOs. While the first form of partnership is relative unproblematic as it is assumed that both parties have similar end goals in their efforts to maximize return on investment it is another case for the two last forms of partnership.

Business and Governmental partnerships have been seen in areas were both parties could see synergies. This could be in cases were companies wanted to explore markets in developing countries but needed support in-order to get a foothold in the market. In both Sweden and Denmark business partnerships are promoted by governmental development agencies like SIDA Business-4-Devlopment and DANIDA Business-2-Business programs (SIDA, 2012, DANIDA, 2012).

CSR as Supply Chain management

One area where CSR stakeholder engagement/management has been very effective is in managing corporate supply chains. For most businesses but especially for retail, the supply chain can be very comprehensive and might include several tiers before arriving at the primary supplier (Halldorson et al, 2007:286). In a CSR context the supply chain represent a unique set of challenges as it stretches the moral responsibility of the corporation outside its direct sphere of influence. It has been proven time and time again that even though the company might not have direct management control they are still held accountable for the decisions made in their supply chain both up and downstream (Austin & Reavis, 2004, Baron et al, 2004).

Effective supply chain management encompasses much more than just CSR issues but the idea of sustainable supplier relationships are becoming increasingly important. Where time, quality and price used to be the drivers for the logistics chains more and more companies are finding out that the “how” of production and transportation is on the “radar”. The question of how goods are produced and transported becomes most salient when companies start to source into areas where different management cultures, labour laws or governance practices are in place. Issues that companies in one part of the world take for granted is something that people need to fight for in other places. The challenge then becomes how to manage this diversity over a string of different supplier and customer relationships. A common approach adopted to manage supply chain is using Code of Conduct to gain some form of control over the suppliers (Vogel, 2008). Even though it is far from a foolproof system it does present a platform from which the company can get an overview and thereby a possibility to manage its organisational risks in its supply chain. For retail businesses a systematic system of information gathering, risk analysis and auditing is essential and will always have to be a cornerstone of CSR efforts.

CSR as (Social) Risk Management

Some thoughts on CSR and Risk management

Effective risk management has almost from the start of CSR been part of the reasons for engagement with stakeholders (Bebbington et al, 2007). Many companies have had NGO raise problems which companies did not even know existed or had any plan for how to tackle. In other cases the companies where attacked for business practices, which where part of their core business such as when City bank was under attack for lending money to project that lead to deforestation in Latin-America (Baron et al, 2004). Here stakeholder engagement becomes essential in order to keep the brand name undamaged and most important in keeping the trust that customers has put into the company intact. There are no single success formula on how to communicate effectively with stakeholder or which ones that should be heard or which can be ignored. What is important is that companies and organisations take a stand on how to make this communication work in practice; otherwise the risks can remain unseen for long periods until the day where it becomes unmanageable for the company and turns into a real crisis. As I have described have companies like Nike implemented systems that enable them to get a feeling for what is happening in the world and how there brand is perceived, and hopefully this system will give them some warning on cases soon to emerge.

Adopting a strategy of transparency have over time proven the best assurance for companies to manage their CSR risks and more and more companies are trying to create systems so that their stakeholders can see what they are doing. By looking at the growing number of members of GC it is clear that transnational companies from around the world are using transparency or at least what appears as transparent to manage social risk issues.

CSR as Standards and Reporting

Logo of Global Reporting Initiative

Last week I had a short blog about stakeholder engagement and some of the events leading up to the tendency for businesses and organizations to look beyond clients and suppliers. But in order to be effective a systematic approach is needed that will enable organizations to categorize and absorb the knowledge gained from a more outgoing approach.

Other forms of stakeholder engagement can come through compliance and reporting on the corporations’ ability to conform to certain standards. There are many good reasons why corporations engage on compliance strategies. The main arguments are:

  1. Stamp of approval through accreditation
  2. Attractiveness to social responsible investors, and
  3. Branding the company as a social responsible member of the community (Locke et al, 2006:1f).

Initiatives such as Global Compact (GC), Global Reporting Initiative (GRI) or the supplementary Principles for Responsible Investments (PRI), enables companies to increase their transparency level (United Nations Global Compact, 2008, UNEP Finance Initiatives, 2005, Global Reporting Initiative, 2006). Some of these initiatives are sponsored by the United Nations (UN) and thereby giving companies that abide to the standards, a stamp of approval from a world recognised institution. Other standards organisations are private or semi-governmental institutions that have created systems for governing sustainable behaviour as for example systems issued by the International Organisation for Standardization[1].

Systems can also be grouped by industry or be customized to the individual company where they are called Code of Conduct or similar systems. Common for Codes of Conduct are that they in some form are linked to universal agreed treaties such as the human rights, labour standards or environmental agreements. There are, however, some drawbacks in relying too heavily on these systems. A company like e.g. Nike has adopted a comprehensive Code of Conduct system of standards and control which both rely on internal and external auditing, but has found that this does not safeguard the company from criticism on labour standards in its supply chain (Locke et al, 2006). The lessons learned from Nike is that standards and systems should not stand alone but should be complimented by other forms of stakeholder engagement such as joint training with suppliers and frequent meeting activities both formal and socially to increase cultural exchange between the parties (Locke & Romis, 2006).

The second driver for stakeholder engagement can be the access to social responsible investors. While only a few years ago the Social Responsible Investments (SRI) constituted a fraction of the total investment portfolio it was in 2008 representing investments of over 18 trillion USD (UNEP Finance Initiatives, 2005). For many companies it can be a benefit to be part of a SRI portfolio as it gives access to funds that other companies might not have access to. In addition, the system of control and auditing can enable the company to streamline its processes and get rid of organisational risk that might affect long-term profitability. Investigations into the link between profitability and CSR shows that companies that rate their CSR effort positively also have a significant better financial performance than companies that does not (Economist, 2008:6).

The third reason for adopting a compliance strategy is the potential for positive branding. The GC is now consisting of approximately 5000 companies (United Nations Global Compact, 2008) from around the world. Grouping with other well-branded businesses who subscribe to the GC standard can boost their corporate brand and increase the collective brand value of all. Other companies use CSR actively to differentiate themselves in an otherwise competitive market.