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Ethical Corporation • September 2011 Strategy and management 37 YENWEN/ISTOCKPHOTO.COM Other section content: 40 David Grayson makes the business caseTax and ethics What’s good policy?Can pay, should pay • Abide by a general “anti- avoidance principle”.By Oliver Balch • Acknowledge that tax hasAs tax blasts its way onto the public agenda, companies should concentrate on where they pay, major economic impactas well as how much on society and is therefore a responsibility issue. our years ago, the world was a different place. payments in the developing world have long beenF JPMorgan still signed cheques, “bailouts” werewhat sinking seafarers did and we were all a lot the subject of scrutiny. The Extractive Industries Transparency Initiative, for example, which • Report on tax policies and practices in annual accounts and corporatebetter off. attempts to increase disclosure of payment by responsibility reports. So when the Oxford Centre for Business Taxation natural resource companies to governments, dates • Adopt tax mitigationasked companies about corporation tax, the conclu- back to 2002. techniques subject tosion was categorical: the issue was “too complex or considerationobscure” for the average man on the street. Responsible business issue of their social and How things change. In March 2011, more than What definitively is new, however, is the general economic impacts.half a million citizens took to the streets of London recognition that tax is now a core responsibilityto protest against “tax injustice”. Spearheaded by issue for business. • Integrate tax policy andthe campaign group UK Uncut, their anger homed At its most basic, the ethics of taxation ultimately practice in corporatein on big business. Tax “dodging” by large compa- derives from companies’ social contract with the governance systems.nies, it was claimed, is costing the UK exchequer countries in which they operate. Taxes fund • Report tax on a country-£95bn in lost revenue every year. public goods such as education and healthcare. by-country basis. The speed at which tax has become a major When large companies evade or avoid tax, govern- • List all subsidiarypublic issue in the UK and elsewhere is astonishing. ments are left with one of two choices: cut entities and publishTax hardly has the emotive appeal of slave labour or spending, or tax individuals and smaller domestic accounts for theirtoxic waste. Yet its explosion onto the public agenda businesses more. activities.is not entirely surprising. In times of fiscal tight- Mitigating tax payments may not be illegal, but Source: Tax Justice Networkening and spending cuts, all eyes turn to neither is it entirely responsible when such practicesthe question of who pays what into the public pot. negatively impact a country’s social and economic “In a time of austerity, you’ve seen campaign wellbeing. So argues John Christensen, director of thegroups look around and ask if the burden is being Network for Tax Justice, a UK-based campaign group.borne by all in an equal measure,” says Louise “In other words, don’t use aggressive tax avoid-Rouse, director of engagement at UK campaign ance and evasion and then try to pretend that yougroup Fair Pensions. are engaged in a corporate responsibility agenda. In times of fiscal Media attention has played its part too. In the UK, The two are quite simply incompatible,” he says. tightening, allthe Guardian newspaper ran a series of “Tax Gap” The message appears to be seeping intoinvestigations into big brands. Likewise, in the US, the the C-suite. Andrew Witty, chief executive of eyes turn to theNew York Times has turned the spotlight on the tax GlaxoSmithKline, recently condemned the habit of question of whopolicies of corporate giants such as GE and Google. international companies to “float in and out of soci- Tax practices may be attracting headlines, but the eties” depending on tax regimes. The practice is pays what intoethics of tax is not entirely new. Corporate tax “completely wrong”, he told the Observer newspaper. the public pot
38 Strategy and management Ethical Corporation • September 2011 Responsible approaches to tax Management steps • Create a company tax policy setting out the principles to be applied and the practices ruled out. • Disseminate this policy to internal and external stakeholders. • Ensure board level oversight of internal tax policymaking. • Disclose a range of qualitative and quantitative information on your tax practices and their impacts. • Work with peers and stakeholders to formulate a mutually agreed code of conduct. Source: Action Aid/FairPensions Have you paid an appropriate level of tax? Dont be a tax dodger “Appropriate levels of tax” Ethics aside, a compelling business case for Companies aren’t paying enough, according to the are the rates stipulated by responsible tax planning can also be made. Reputa- former. All legal requirements are being met, the relevant tax authority tions are at risk. Recent months have seen protesters respond the latter. within the country where camped out in front of Boots, Top Shop, Vodafone Amid this polarising debate, one thing seems the company’s tax liability and a host of other high street retailers. certain: tax avoidance, tax evasion and abuse of tax falls, minus 3%. The lower It’s not just bad press companies need to worry havens and offshore secrecy laws all lie beyond the figure is because taxable about. A “tax dodger” badge, fair or otherwise, can pale. profits and accounting lead to a host of costly repercussions, from legal A small number of corporations opt for the profits are not the same challenges to the loss of favourable tax status. wrong side of the law. They often do so with the thing. “Once a pattern of uncertainty in taxation active complicity of accountants, banks and law As a result, it is unlikely a reporting is known to exist, then it is possible that a firms – a practice John Christensen describes as company will pay exactly the company may trade at a discount to its true value “wilful blindness”. tax rate laid down in law on for fear that further uncertainties will be revealed,” Most large companies, however, operate within its declared taxable profits. consultancy firm SustainAbility stated some years legal boundaries. They are too big and too visible to The rate may be higher ago in a far-sighted report on tax. do otherwise. When it comes to tax, however, because some costs allowed Of course, where irresponsibility becomes ille- legality is not the watertight defence it used to be. for accounting purposes are gality, the costs can run far higher. Commodity “The argument that ‘we are obeying the law and disallowed for tax, such as IT traders Bunge, Cargill and Dreyfus could face bills everything that we are doing is technically permis- equipment and other capital running into hundreds of millions of dollars if an sible’ no longer washes in the court of public items. investigation into unpaid taxes and duties by the opinion,” says Rouse of Fair Pensions, which Source: Profit Through Argentine government goes against them. recently published a joint paper on the issue. That Ethics/See What You Are So what does a responsible approach to tax look leaves many companies exposed. Buying Into standard like? Campaign groups are fighting it out with To date, aggressive tax avoidance strategies such corporate tax departments to determine just that. as “transfer pricing” and the use of tax havens have
Ethical Corporation • September 2011 Strategy and management 39 Naturally, any responsible tax policy must explic- itly rule out any illegal activity. The list of other Emerging non-negotiables is open to debate, however. Among practices on tax the steps suggested by responsible tax advocates British American Tobacco are: abiding by a general “anti-avoidance principle”; supports the “gradual and considering the societal impacts of tax mitigation; predictable” increase in and publishing financial accounts for subsidiary taxes on tobacco. entities (see box). The priority above all is transparency. Tax is not Anglo-American, for five an issue that will go away and so companies years, has published “taxes must “articulate their position clearly”, says borne and claimed” in both Peter Truesdale, associate director at London- developing and developed based consultancy firm Corporate Citizenship countries, as well as an and author of a recent report on responsible tax effective tax rate by country management. and weighted average for “This doesn’t necessarily mean companies the company as a whole. paying more tax – but it does mean companies iden- McDonald’s publishes a tifying a coherent and credible position on tax, and headline tax figure for the finding simple language to defend it in,” he adds. company as a whole To assist in that process, Corporate Citizenship ($1.1bn), plus its total bill for has developed a tax map to enable companies to social and income taxes in chart where, how and what they pay in taxes. its top nine markets year- In terms of disclosure, the vast majority of by-year. companies go no further than the statutory require- SAB Miller talks of a “tax ment to include an overall tax figure in their annual footprint” and reveals the tax and accounts. That will “almost certainly” have split in its taxes between to change, Truesdale says. “In the modern world, developed and developing you can’t get away from articulating a position and countries. providing sufficient information to show that you Exxon Mobil publishes its are doing it.” total payment in direct and The spotlight is turning in particular on corpo- indirect taxes and duties in rate operations in developing countries, especially the UK (£5.1bn) and compares those with “material” tax bills. A case in point is this to total government Ghana, where one sixth of the country’s entire tax expenditure (about 1%). revenues derive from foreign-owned businesses. Source: Tax, Reputations Greater disclosure of overseas tax payments is and Responsibility, Corporatebeen perceived as permissible behaviour. currently under consideration by European and US Citizenship, May 2010 Now, the public mood (if not the letter of the law) legislators. Some companies – but not many – areis shifting. As well as reducing tax income for the pre-empting the possibility of future regulation bystate, tax avoidance effectively penalises national publishing tax payments on a country-by-countrybusiness that don’t have the capacity to shift assets basis.offshore and the like. A notable example is Rio Tinto. The mining giant The spotlight The safe ground, according to all parties, lies in recently “redesigned” its approach to tax disclosure, is turninglegitimate tax planning and mitigation. Indeed, publishing payments made to governments in eachshareholders could reasonably argue that any of its main operational markets. in particularbusiness that fails to take full advantage of existing In its recent dedicated tax report, the company on corporatetax agreements or explicit exemptions is behaving states that its $7.4bn tax bill for 2010 marks a “signif- operationsirresponsibly. icant contribution to public finances” for the countries where it operates. The report also voices in developingTransparency trumps concerns about the threat of tax increases in the countriesA major reason behind the current confusion is future.companies’ own management of the issue. Many Going public is not without its risks. Govern-corporations don’t have a uniform tax policy. For ments, shareholders and the general public will allthose that do, the policy is often not applied consis- have their opinion on whether a company’s taxtently across all the company’s operations. payments are fair or not. The first task for any corporate responsibility The debate over tax and ethics is only just gettingmanager, therefore, is to determine their company’s started, however. By making its payments clear,current practice. On the back of that information, a companies such as Rio Tinto earn a legitimate placepolicy should be agreed and steps taken to see that in the discussion. More should join them at theit is implemented. table. n
40 Strategy and management Ethical Corporation • September 2011 SCHUCHUNKE/ISTOCKPHOTO.COM Essay Why companies must build the business case By David Grayson Leading companies understand why being a good corporate citizen leads to economic success he “business case” for corporate responsibility was “Addressing social and environmental concerns is A growing number T given new resonance this summer by the News of the World phone hacking scandal and the events that becoming part of mainstream business.” of companies see that corporate followed. For the media companies involved, “corpo- Revisiting the business case rate responsibility” had been reduced to an optional The companies whose leaders “get” the importance responsibility is extra that could be abandoned when management of embedding corporate sustainability and responsi- about behaviour creates a culture of sales targets (circulation and adver- bility deep into a business are becoming more tising) and profitability improvements at all costs. intelligent at managing their own corporate sustain- in core operations In the end, that narrow perspective cost people’s ability and responsibility programmes – and jobs and reputations, a great deal of money and, assessing their impacts on business and wider society. ultimately, the business itself. That’s a high price to This is particularly evident in research on the pay for ignorance. corporate responsibility business case conducted In contrast, there is a growing number of compa- recently by the Doughty Centre and Business in the nies whose leaders see that corporate responsibility Community2. We worked together to update the 2003 is about how companies behave in their core opera- Arthur Little study3 that examined the arguments for tions: how they go about their business and how companies to take responsible business more seri- they make their money. ously. We also reviewed companies’ submissions for For such companies – particularly those whose BITC’s Corporate Responsibility Index. performance has been recognised through Business Many academic articles, as well as numerous in the Community’s Awards for Excellence and its management consultants’ reports, have been Corporate Responsibility Index – responsible produced since the 2003 study. We found that both business behaviour is embedded in the DNA of the the academic theory and practitioner arguments business. It’s part of the organisation’s culture and were remarkably consistent with each other. strategy, manifesting itself in what gets said and Our study – which encompassed both an done by everyone from boardroom executives to academic and practitioner literature review as well those working at the front lines of the most remote as companies’ own reports of their activities in their business units. Corporate responsibility is a BITC’s Awards for Excellence and CR Index submis- coherent part of the corporate “story”. It’s not some- sions over the period 2003-10 – identified seven key thing a company does; it’s what a company is. business benefits. In order of the frequency with “The idea that managing the impact of commer- which they were cited, these were: cial activity on society and the environment brings 1. Brand value and reputation – benefits realised business benefits is gaining momentum,” writes from responsible business that improve the value columnist Sarah Murray in the latest Financial of the brand and/or the reputation of the brand Times Special Report on Responsible Business1. or organisation.
Ethical Corporation • September 2011 Strategy and management 41 AUSINASIA/ISTOCKPHOTO.COM2. Employees and future workforce – benefits from responsible business practice that affects the working life of employees, and the ability to attract and hold on to talent. This includes employee motivation, productivity, recruitment, satisfaction, retention, engagement, and loyalty.3. Operational effectiveness – improvements and innovation in an organisation’s practices and processes as a direct result of being more respon- sible and sustainable, creating more effective operations and higher levels of efficiency.4. Risk management – benefits resulting from CR efforts that improve the organisation’s ability to identify and reduce exposure to risk, and prepare for and manage risks better.5. Direct financial impact – direct benefit to the financial performance of an organisation. For example improving access to capital, reducing costs, and improving shareholder value.6. Organisational growth – an opportunity for overall organisational growth derived from being a responsible business, whether through new markets, new product development, lateral Is it accepting sustainability? expansion, new customers, or new partner- ships/alliances. The emergence of ‘shared destiny’7. Business opportunity – new opportunities or What is particularly striking about companies recog- innovation generation created for all stake- nised in BITC’s 2011 Awards for Excellence4 is that holders specifically because of their efforts in the boundary between what gets described as being a responsible business. This can result in “business” on the one hand and “social” and/or new business development, but critically it is “environmental” benefit on the other is becoming about win-win opportunities for a variety of blurred. For example: stakeholders. • EDF Energy’s Zero Harm programme5 – this aims to achieve “zero harm” (no incidence of In addition, there were two new categories of workplace injury and no form of work casual orbenefit that emerged in the most recent years work aggravated illness). The case study cites costcovered by the review. savings, reductions in work-related ill health inci-• Organisational leadership – defined as “leader- dence rates, days lost and musculoskeletal health ship achieved through helping society” problems as “business benefits” while employee which results from a radical change in the pride, advocacy and perceived management internal corporate values and external market interest in employee health and well-being – reconstitution. which could also be construed as business• Macro-level sustainable development – defined benefits – are cited as “employee benefits”. as “the impact and responsibilities an organisa- • Tata Consultancy Services’ Adult Literacy tion has to higher level economic, social and Programme6 – this utilises TCS IT expertise to Businesses have environmental issues”. create Computer Based Functional Literacy a direct stake (CBFL), a multimedia software package that in ensuring The emergence of this last benefit signals an tackles adult literacy in a 40-hour programme. Byimportant trend – namely that, as companies have shortening the development time for CBFL the success ofbecome progressively sophisticated in their manage- products in different languages, TCS can address sustainablement of sustainability issues, the more aware they wide-scale Bottom of the Pyramid literacyare of the close interdependence between the fate of problems more swiftly (a social benefit). However, developmenttheir business and that of the world at large. the roll-out of these products, engaging employees They are recognising that their businesses have a and families as volunteers in the process, alsodirect stake in ensuring the success of sustainable helps open up new markets and boosts recruit-development – and therefore their efforts to mitigate ment, retention, motivation and enhancedthe impacts of climate change, poverty, famine, company perception – all clear business benefits.health pandemics, corruption and other global socio- • On the environmental side, The Co-operativeeconomic, political and environmental crises are not Group has focused on reducing its own green-bolt-on extras to the business but are direct invest- house gas emissions as well as providing orments in the long-term viability of the business. withholding of finances to companies in order to
42 Strategy and management Ethical Corporation • September 2011 ANDRES RODRIGUEZ/DREAMSTIME.COM customers, suppliers and others in their immediate sphere of influence, but with a much wider range of stakeholders with whom they are inter-connected. By engaging the hearts and minds of individuals in these extended stakeholder networks – which can encompass even their own industry competitors (eg the Extractive Industries Transparency Initiative, the Kimberley Process certification scheme and other sector-wide sustainability initiatives) – businesses can build vibrant powerful engines of societal change, in tandem with growing and developing their own companies. Engaging and building your stakeholder community What is evident from these companies’ corporate responsibility case studies is that their success depends on creating a sense of “shared destiny” among the company’s key stakeholder groups, Empowered employees achieve more particularly among employees and suppliers as well as wider community constituencies. Cooperation, reduce the impact of the products and services not competition, is central to this process. offered. These activities have reduced the environ- The power of cooperation has been recognised mental impacts of the Co-op as well as its clients by Harvard Law School Professor Yochai Benkler. In and other stakeholders. But they also reinforce the July/August 2011 edition of Harvard Business the Co-op’s corporate reputation as a leading Review8, he draws on research in evolutionary advocate for sustainability, attracting and biology, psychology, sociology, political science, and retaining customers who have cited ethics/ experimental economics to argue that people environment as a reason for opening and main- behave far less selfishly than most assume. Evolu- taining an account. tionary biologists and psychologists have even • Finally, construction company Wates Group, found neural and, possibly, genetic evidence of a BITC’s Company of the Year, has engaged a wide human predisposition to cooperate. These findings range of its stakeholders – including employees, suggest that instead of using controls or carrots and customers, suppliers as well as risk specialists sticks to motivate people, companies should use and a network of social enterprises – to redefine systems that rely on engagement and a sense of The purpose of its approach to sustainability. Its activities common purpose. encompass employee development and engage- The same principle applies to building a commu- the corporation ment, community transformation, carbon nity of engaged stakeholders to achieve must be redefined footprint reduction, elimination of waste and sustainability goals. Our Doughty Centre team responsible sourcing through its supply chain. believe that engagement is central, not only to as creating shared This has created a wide range of business embedding sustainability in companies, but to value benefits including enhanced employee engage- ensuring the success of the company in its widest ment and responsible leadership, improved possible sense. Our team has developed a roadmap operational effectiveness, new business opportu- for stakeholder engagement9 as well as a more nities, more effective risk management and recent how-to guide for engaging employees with enhanced brand reputation. corporate responsibility10. But to create a foundation for engagement with What does the close alignment of these business sustainability, one has to begin, not just with the and societal benefits signify? In the January/ business case for corporate responsibility but at a February 2011 edition of Harvard Business Review7, more fundamental level, with a clear sense of what Professor Michael Porter and Mark Kramer have the business is for: the case for business. written that in light of recent historical trends, “the In his landmark 1990 RSA Lecture11, Prof Charles purpose of the corporation must be redefined as Handy made a simple but profound argument: that creating shared value, not just profit per se”. in the interests of business as well as wider society, However, the work of these leading-edge compa- companies should be reconceived as wealth- nies whose achievements have been recognised by creating, self-governing communities, not as BITC and others suggests that something far more properties. Each corporate community must answer exciting is going on: that enlightened business for itself the question, “what is our company for?” leaders are recognising that their companies have a He argued eloquently that profit-making was a “shared destiny”, not only with their employees, means, not an end, and every company needed to
Ethical Corporation • September 2011 Strategy and management 43 CHRISTIAN DELBERT/DREAMSTIME.COMdiscover a purpose beyond itself. That purposeneeds to be embody a vision that is ambitiousand yet accessible to everyone in the corporatecommunity. Answering this basic question cannot beachieved with a sanitised mission statement writtendown by a few top executives in a managementstrategy meeting. Dialogue with your corporatecommunity’s stakeholders is central to this process(see, for example, our Doughty Centre how-to guideon CR knowledge management12 to understand thecentral role of corporate storytelling). Knowing what your company is for, in thebroadest possible sense, means understanding:• What your company is trying to achieve (eg “to help people and businesses throughout the world reach their full potential” (Microsoft)).• Who is in your extended corporate community (eg for many leading-edge companies, this includes not just the usual suspects close to the centre of the organisation, such as customers, employees and investors, but stakeholders who are more geographically remote, for example Success means creating shared destiny across the supply chain individuals in Bottom of the Pyramid groups working in factories at the furthest reaches of the References: Inspiration is supply chain). 1 Sarah Murray, “Working harder to pin benefits down”, FT Special• How your company can best achieve its Report on Responsible Business 2011, 7 June 2011 what you will purpose in ways that respect all the members of (http://t.co/5ratitc). need most on your your corporate community (eg promoting the 2 Business in the Community and the Doughty Centre for Corporate health and well-being of employees; alleviating Responsibility, The Business Case for Being a Responsible Business, company’s journey poverty or tackling illiteracy among potential March 2011. to sustainability customers, employers and/or suppliers at the 3 Business in the Community and Arthur D. Little, The Business Case Bottom of the Pyramid; preserving the long-term for Corporate Responsibility, 2003. integrity of natural resources shared with others). 4 For details, see http://www.bitc.org.uk/awards_for_excellence/awards_for_excell It is only in this context that one can define what ence_2011_winners/all_results.html.corporate sustainability and responsibility means to 5 See http://www.bitc.org.uk/resources/case_studies/afe2818.html.your company. That definition will be unique to 6 See http://www.bitc.org.uk/resources/case_studies/every business. Ideally it should be broad enough – tata_adult_literacy_1.html.in its vision of who is part of your corporate commu- 7 Michael Porter and Mark Kramer, “The Big Idea: Creating Sharednity and the scope of the timeframe over which your Value”. Harvard Business Review (Jan/Feb 2011).business expects to operate – to encompass innova- 8 Yochai Benkler, “The Unselfish Gene”, Harvard Business Reviewtive, longer-term projects focused on creating (July/August 2011).sustainable value with a diverse mix of partners (see, 9 Neil Jeffery, Stakeholder Engagement: A Road Map to Meaningfulfor example, our Doughty Centre Occasional Paper Engagement (#2 in the Doughty Centre ‘How to do Corporateon the work of social intrapreneurs13). Responsibility’ Series) (July 2009). In this way it becomes possible to progress 10 Nadine Exter, Engaging Employees in Corporate Responsibility:beyond maintaining reputation and legitimacy, and A Doughty Centre How-to Guide (#6 in series) (June 2011).cost and risk reduction, to innovation and reposi- 11 Charles Handy, “What is a Company For?”, Michael Shankstioning, and growth path and trajectory, the four Memorial Lecture, delivered 5 December 1990, reprinted in Beyondquadrants in Hart and Milstein’s Sustainable Value Certainty: The Changing Worlds of Organisations (Hutchinson,Matrix14. 1995). Finally, your core purpose must be something 12 Melody McLaren, Supporting Corporate Responsibility Performancethat people feel, not just think. It needs, above all, Through Effective Knowledge Management: A Doughty Centre forto inspire people to work together to achieve Corporate Responsibility How-to Guide (January 2011).some higher goal, through actions great and small, 13 David Grayson, Melody McLaren and Heiko Spitzeck, Socialevery day they come to work. Because, more than Intrapreneurs – an extra force for sustainability innovation:strategy or business plans, inspiration is what you Doughty Centre Occasional Paper (January 2011).will need most on your company’s journey to 14 Stuart L. Hart and Mark B. Milstein, Creating sustainable value,sustainability. n Academy of Management Executive, 2003, Vol. 17, No. 2.
44 By invitation Ethical Corporation • September 2011 NOGUEIRA/DREAMSTIME.COM Reporting Ensuring true assurance Robust independent assurance of sustainability reports trumps mere data verification for securing stakeholder trust, argues Jason Perks t’s time to make up our minds together financial, environmental, I about how sustainability reporting is assessed. One option is to restrict social and governance information in a consistent and comparable format. our remit to basic verification of data. But the fact that IIRC is driven by The other is to pursue much more the accountancy profession means Assured information is worth reading extensive evaluations of how well that simply integrating a standard reports address what matters to set of sustainability metrics could sustainability performance confi- stakeholders. I am worried that we become the de facto approach in dently. It would also be a big help to may be about to take the wrong road. integrated reporting. This would companies trying to decide how If we go down the verification severely restrict the potential of best to have their reports independ- route, it’s unlikely that sustain- reports to give a full account of a ently assessed. ability reports will properly address company’s performance. I believe this is achievable in companies’ material issues or drive the next decade because, in the strategic responses. The alternative Get beyond the data AA1000 Assurance Standard, we – robust, stakeholder-based assur- The other main danger is that compa- have something that’s proven and ance – offers far more value to nies might be tempted to get their generally applicable. AA1000AS stakeholders and companies. financial auditors to examine the What we mandates the use of three princi- Of course, assurance can include whole integrated report. This could need most, ples: inclusivity, materiality and verification of claims and data, but encourage data verification at the if assurance is responsiveness. At our recent that is just one element. It also expense of specialist assurance of the roundtable, attendees resoundingly means establishing the extent to sustainability content. Non-financial to deliver on confirmed the validity of these which the report addresses the reporting should be based firmly on its potential, principles for assurance. issues that concern stakeholders stakeholder needs. In particular, any Of course, AA1000AS is not the and have an impact on the business. integrated reporting framework is a single, only assurance standard out there, It is about checking not only that the needs to be clear that assurance internationally and it has flaws. But it is the only things in the report are right but should examine how well the accepted standard specifically designed for also, more fundamentally, that the company has identified, addressed sustainability and based on an inclu- right things are in the report. and reported its material issues. framework sive stakeholder-based approach. The choice of direction is upon us At a recent roundtable examining Even if AA1000AS isn’t yet today in large part because of pivotal the future of assurance, partici- widely used for assurance, it is work that’s going on to develop two pating companies were agreed that, gaining ground among the leaders key sustainability frameworks. while systems and data checking do in sustainability. In the last four The G4 version of the influential add value, stakeholder involvement annual Corporate Responsibility Global Reporting Initiative guide- and a clear set of principles for Reporting Awards, the winners of lines is currently out for consultation. assurance are vital for credibility. the Credibility Through Assurance At the moment, reporters can However, without a clear lead category have all used the standard add the “+” suffix to the GRI appli- from GRI or the IIRC, it may be diffi- – including The Co-operative. cation level they have attained even cult to bring about a more general Irrespective of whether AA1000AS for superficial verification of one change in behaviour. Many large will be the unifying standard, if the small part of the report. GRI should companies still publish unassured sustainability report is to be a encourage more meaningful, high- reports, and the majority who do genuine way of helping businesses quality assurance, in particular by seek an independent check are still be more sustainable, it is vital we applying more stringent criteria to only going for verification. choose proper stakeholder-led assur- the use of the “+” symbol. What we need most, if assurance ance over verification. n Meanwhile, the work of the is to deliver on its potential, is a International Integrated Reporting single, internationally accepted Jason Perks is group director of corporate Committee is gathering pace. The framework. This would be a boon sustainability agency Two Tomorrows. He is a IIRC is aiming to create a framework for stakeholders because it would member of the interim standards board for the for integrated reporting that brings enable them to compare companies’ JASON PERKS AccountAbility AA1000 series of standards.
Ethical Corporation • September 2011 Review 45 Business school bulletin By Oliver Balch Learn from the Gap, why boardroom opinions still influence philanthropy and how to improve gender equality Engaging stakeholders, not policing factories Curbing C-suite social Look upwards, however, and the In the late 1990s, global US retailer Gap was represented by two websites: its spending infamous glass ceiling seems more The stereotype of corporate responsi- bullet-proof than ever. Only about official corporate site, and the very much unofficial “GapSucks.org”. bility being little more than the chief one in every 13 (7.6%) top earners in Legitimate concerns about suppliers’ practices overseas put the US clothing executive signing off cheques for Fortune 500 companies are women. brand in the spotlight. Fast forward 10 years and Gap’s name was back in the charity is (rightly) much maligned in As for the hot seat, the stats are even headlines. The issue read much the same: one of its suppliers (this time in these days. Today, companies prefer more dismal: a measly 2.6% of Lesotho) was dumping toxic waste into local landfills. This time public outcry to talk less of charitable philanthropy Fortune 500 chief executives are was muted. Why? Because of a decade or more of effective stakeholder and more of “strategic social invest- women. engagement by the company. ments”. All the same, the This short paper summarises TAYACHO/ISTOCKPHOTO.COM personalities and preference of board thoughts expressed by alumni of members still heavily influence the Pennsylvania University’s Wharton philanthropic contributions of the School. Companies today “are building companies they govern. In this paper, on masculine norms”, participants Marquis and Lee examine 10 years’ contended, with environments that worth of data for Fortune 500 are not conducive to allowing women companies to determine how such to “thrive and grow”. influence plays out. So what would a female-friendly The headline findings of the company look like? It doesn’t neces- research are intriguing. Companies sarily mean koi ponds and a farmers’ with new chief executives, for market at the head office, as retailer example, are likely to give more. Anthropologie’s boasts (however Contributions also increase as the nice). What’s needed is a total shift in proportion of female senior managers mindset to one in which companies in a company increases. And finally, are genuinely “sensitive” to women’s the larger the board, the higher phil- family roles as well as their career Relations smoothed anthropic spending is likely to be. progression. In these days of strategic philan- “If women do opt out, it’s not Engaging stakeholders is easier said than done. The process can be thropy, the individual largesse of because they can’t handle their expensive, slow and complicated. For starters, companies must determine senior managers appears to run families”, the paper argues. “It’s which stakeholders to engage and how. Those relationships then need contrary to firm-level strategies. How because they feel they really can’t managing. This paper crystallises the management process into five useful to rein in arbitrary charitable expen- advance.” One exacerbating problem steps: draw a stakeholder map, identify material issues, define objectives, diture remains a crucial question. is the general reluctance on women’s resolve issues, and embed engagement. Organisational structures, such as a part to initiate negotiations. As work So what are the key lessons from Gap? First, call off the police. By the end corporate foundation, may well help. contracts become less fixed, women of the 1990s, Gap had more than 100 auditors combing its factories. These still So too might internal processes. shouldn’t hold back in pushing for weren’t enough to catch every problem. Its experience in Cambodia high- Regrettably, the paper falls short of perks and work patterns that work for lights the problems of compliance. After years of civil conflict, most workers any firm conclusions. A tantalising them. did not have official papers, making age verification difficult. It took the case of “more research needed”. “Masculine Norms: why working women company several years to accept its legalistic risk-mitigation approach was “Who Is Governing Whom? Senior find it hard to reach the top”, “broke”. managers, governance and the structure of Knowledge@Wharton paper, August 2011. The second major take-away from Gap’s experience comes at the end of generosity in large US firms” by Christopher the process. How would the company narrow down internal opinion (some of which saw engagement as “selling out to NGOs”) and opinions in the Marquis and Matthew Lee, Working Paper Campus news 11-121, Harvard Business School, July 2011. Three hundred speakers are due to stakeholder world (many of which remained sceptical)? Gap’s approach was address the annual conference of to hire in “boundary spanners”, individuals that were familiar with both corporate and civil society discourse. It worked, smoothing relations on both Negotiate through international campus network group sides of the fence. the glass ceiling Net Impact, scheduled for October It’s a man’s world out there. Or is it? 27-29 in Portland, Oregon, US. Issues of non-compliance may well continue to occur for multinational On the face of it, the statistics suggest The latest annual survey by MIT companies. Their supply chains are complex and multi-tiered. With the right otherwise. Findings from Catalyst Sloan Management Review and the stakeholder relations in place, however, not every issue has to become a Research show that women make up Boston Consulting Group finds that crisis. more than half of America’s manage- six in 10 of the large companies “How Gap Inc Engaged With its Stakeholders” by Craig Smith et al, MIT Sloan ment, professional and relations interviewed will increase their Management Review, Summer 2011. occupations (51.5%). sustainability spending in 2011. n
46 Review Ethical Corporation • September 2011 Puma 2010 annual report A bite as big as its roar? By Luke Jones Puma has been busy developing an integrated report and now calculates its environmental profit and loss, and isn’t shy about letting everyone know about it uma, the German “sports lifestyle” giant, has of non-compliance from its factory audits and for P been a brand to watch this year. But does the company’s 2010 integrated annual report mark a providing detailed information on its training and compliance work with suppliers. However, there is genuine union of business and sustainability? no discernible link between the two. Shouldn’t the Snapshot Initial signs are good. It has introduced some training programmes be designed to tackle these innovative elements of sustainability reporting, areas of weakness? Also there is no discussion of the Follows GRI? Yes A+. such as a separate environmental “profit and loss process by which the company takes action for Assured? Yes account”. The supply chain section of the integrated persistent infringement. How long can a non- Materiality analysis? No report is comprehensive and shows a commitment compliant supplier remain before it is replaced? Goals? Yes to industry collaboration, and a new sustainability Targets? Yes, new scorecard provides solid environmental and social Long-term goals sustainability scorecard. goals. However, as is often the case, the report is not Puma has introduced a new sustainability scorecard Stakeholder input? Yes quite as integrated as it seems at first glance. with hard targets for 2015. There are specific targets Seeks feedback? Provides The company claims that “sustainability is key to relating to the company (offices, stores and ware- contact details but doesn’t Puma’s long-term progress”, yet its “Back on the houses), factories (suppliers) and products (design, explicitly request feedback. Attack” business plan is seemingly unconnected to the packaging, processes and logistics). These targets set Key strengths? Pushing for “Puma.Vision” sustainability plan. The split is even out Puma’s commitment to measurably improving supply chain transparency. apparent in the chief executive’s letter which, performance, such as a 25% reduction in CO2 emis- Chief weakness? Lack of real whether by chance or design, discusses business sions by 2015. Ambitiously, this goal applies to integration. strategy and performance on one page and sustain- suppliers’ factories as well as the company’s own Pleasant surprise? Innova- ability on the second, with little to link the two. facilities. However, longer-term goals beyond 2015 tive environmental profit One would assume that Puma has built a business are still lacking. and loss account. case for sustainability robust enough to warrant the The quality of data reported against key perform- kind of investment apparent from its comprehensive ance indicators has also improved, though the range supply chain management programme, yet the of environmental measures remains limited. For company remains shy about making an explicit example, the company’s environmental profit and loss connection. The section on risk management is a account includes total water use, but no discussion of good example. Despite identifying “brand image” water quality or scarcity. and “sourcing” as key risks, these four pages contain Puma’s internal management of sustainability is just one short paragraph on sustainability. something of a mystery. Will it still be down to influ- Puma’s environmental and social programme, ential chief executive Jochen Zeitz to promote Puma should Puma.Safe, is an evolution of the company’s original sustainability from his new role as head of the recently be congratulated factory audit function, and supply chain remains a created sport and lifestyle division of Puma’s parent prominent feature of the approach. company, the French luxury brands group PPR? on its attempt Puma has widened the scope of its audit No review of Puma’s reporting would be to translate programme to include more third- and fourth-tier complete without considering the company’s envi- environmental suppliers, leading to a significant increase in the ronmental profit and loss account, released just a number of audits undertaken in 2010. Puma’s month after the integrated report. Through some impacts into commitment to supply chain transparency is also clever modelling and an amount of guesswork, the a financial having an impact beyond its own reporting. From PL estimates the economic cost of Puma’s envi- 2011 onwards 18 key suppliers, which account for ronmental “pawprint” to be €94.4m. measure two-thirds of Puma’s products, will publicly report The methodology has its limitations, but Puma their sustainability performance. should be congratulated on this attempt to translate Wages within the supply chain remain one of the environmental (and eventually social) impacts into most high-profile issues for the garment industry a financial measure. This is the clearest sign yet that and it is one Puma does not shy away from. In 2010, the company is serious about embedding sustain- wages were a key theme at the company’s annual ability into core business – the integrated annual Luke Jones is a consultant at multistakeholder talks and the report includes a report alone would not convince us. We wait with Context. range of balanced third-party quotes. interest to see whether the PL approach generates email@example.com Puma can be commended for reporting on areas results across Puma’s triple bottom line. n www.econtext.co.uk
Ethical Corporation • September 2011 Review 47Toshiba 2011 CSR reportToo much informationBy Kathee RebernakToshiba’s 2011 corporate responsibility report and website, together, show in microcosm theconfusion that reigns in corporate responsibility – or sustainability, or citizenship – reporting f ever there were a poster child for the case to be scratching example is that the report counts as a majorI made for integrated reporting, Toshiba would be it.Toshiba’s 2011 CR report, with its accompanying achievement the fact that it has “achieved the target of improvement in overall environmental efficiency”.website and various other reports, provides reams of A careful reading of the report might lead one toinformation. Toshiba largely fails, however, to wonder whether Toshiba has abandoned GRI for ISO Snapshotpresent a cohesive picture of its overall performance. 26000, the nascent corporate responsibility guidelines. Follows GRI? Hard to say; To its credit, Toshiba publishes an impressive While the GRI index contained on the company’s CR GRI index contains no refer-amount of information on its philosophy of gover- website references the 2010 report (covering full year ence to 2011 report.nance and management of environmental and social 2009) and various others, as well as the company’s Assured? So it says, by anactivities, and the activities themselves. Its corporate main website, there are no references to the 2011 individual; no assurancereporting consists of an annual financial report, report. Further, although the report points to a mate- standard mentioned.annual CR report, environmental report and a citi- riality analysis, and even displays a 3D graphic to Materiality analysis? Yes,zenship, or “social contributions activities” report. support the idea, the report identifies no issues as but no material issues In addition, each of Toshiba’s nearly 150 facilities material. Both Toshiba’s third-party evaluator and the identified.publishes its own environmental report; that most company’s own consultant express a desire to see the Goals? Yesare written in Japanese may prevent many stake- company identify and prioritise its material issues. Targets? Yesholders from diving more deeply into the data. And Toshiba’s reporting of environmental performance Stakeholder input? Yesthen there’s the CR website. is far stronger than that of its other practices. Its Seeks feedback? Yes Unfortunately, none of this gives a particularly approach is clearly laid out, as is its focus on greening Key strength: Application ofgood picture of how the company’s many, many processes, products, and technologies. A discussion of environmental standards inactivities that fall under the umbrella of corporate environmentally conscious products (ECPs) is inter- new product development.responsibility – including environmental activities esting and should lead readers to see connections to Chief weakness: Too manythat seem to be a key component of Toshiba’s business success, even if such connections themselves parts; no centralisation ofproduct and technology development – contribute are not clearly drawn. Toshiba self-certifies a group of data.to Toshiba’s growth and profitability. products identified as “Excellent ECPs” based on their Much of the information on the website is copied ability to meet or exceed internally set environmentalexactly from the report – or vice versa – but some is performance standards. No doubt stakeholders –contradictory and it is not clear which medium investors and customers in particular – would bepresents the more accurate picture. Complicating interested in seeing details of these products’ envi-stakeholders’ ability to assess performance is the fact ronmental performance vis à vis competing products.that the 2011 environmental and “social contributions Toshiba devotes a considerable amount of space to Toshiba largelyactivities” reports are not due out until later this year. discussion of its improving eco-efficiency factors but fails to present The result is confusion. For example, save one relatively little to better known indicators, such asvague line in the targets section about supporting trend data on GHG emissions, energy consumption, a cohesive picture“the employment of female employees”, the report water use and waste generation. The few quantita- of its overallcontains no discussion of gender diversity. The tive environmental indicators reported are centred performancewebsite does, however, contain a lengthy discussion on reductions of GHG emissions and water usageof gender diversity – or, rather, the lack thereof. mainly through ECPs. Stakeholders may be left to wonder why there aren’t more quantitative indica-Jilting GRI for ISO 26000? tors of performance. Perhaps Toshiba is saving thoseToshiba has vigorously pursued reporting in line with figures for its still-to-come environmental report.the ISO 26000 standard. It has adopted an in-depth Next time, Toshiba might consider putting all thatapproach to assessing performance of a variety of information in one place, so stakeholders who want to“sub-issues” in each of the seven ISO 26000 subject see performance data don’t have to go hunting for it.categories and has set targets and plans for each. And And while ISO 26000 is a useful tool in helping directwhile the company has identified 235 “action items” attention to a variety of environmental, social and Kathee Rebernak is the founderand established an impressive array of key perform- governance issues, Toshiba’s use thereof should not and chief executive of Frame-ance indicators, the large majority of targets stated are preclude rigorous application of GRI – in particular a work:CR.qualitative. Nonetheless, the company reports 100% determination of the company’s material issues. krebernak@frameworkCR.comachievement of most of its targets. A rather head- There’s plenty of room in this world for both. n www.frameworkCR.com
48 Books Ethical Corporation • September 2011 New books By Oliver Balch Our pick of the best new publications In Good Company: an anatomy Building Stakeholder of corporate social responsibility Relations and Corporate Social By Dinah Rajak Responsibility: a sensemaking Hardcover: 328 pages, $80 perspective ISBN: 0804776091 By Barbara Fryzel Publisher: Stanford University Press Hardback: 248 pages, £65 Published: September 2011 ISBN: 230273252 This critical look at the corporate responsibility Publisher: Palgrave Macmillan movement examines the problems of letting the market Published: July 2011 rule. Focusing in on mining company Anglo American, This book explores how companies engage in CR the book explores the developmental downsides of this activities, how their corporate identity determines the “win-win” theory. way in which they perceive the stakeholders and, as a result, engage in dialogue-based relations with them. Corporate Citizenship and New The Business of Sustainability: Governance: the political role of trends, policies, practices, and corporations stories of success By Ingo Pies and Peter Koslowski (eds) By Scott McNall et al (eds) Hardback: 208 pages, $139 Hardback: 907 pages, $184.95 ISBN: 9400716605 ISBN: 0313384943 Publisher: Springer Publisher: Praeger Published: August 2011 Published: October 2011 Drawing on the fields of strategic management, This three-volume collection sets out the why, what, economics, law and political science, this book offers an who and how of sustainability and business. in-depth reflection on the theory of corporate citizenship. Management obstacles, measurement metrics, business Questions about how companies’ new roles in society opportunities, and pathways to success all merit a and their part in modern governance structures are comprehensive coverage. An impressively wide-ranging tackled head-on. A key book for an international age. overview. Corporate Greenhouse Gas Sustainable Business: Financial Management: from operations Times briefing to strategy By Brian Clegg By Dr Rory Sullivan Paperback: 160 pages, $59.99 Paperback: 109 pages, £65 ISBN: 0273746010 ISBN: 955372070 Publisher: FT Press/Prentice Hall Publisher: Environmental Finance Publications Published: October 2011 Published: July 2011 Pitched as “short, high value, results-focused advice”, Based on insights from six leading companies – BASF, this concise briefing from the FT offers senior managers Deutsche Post DHL, Maersk, National Grid, Standard valuable insights into establishing high-value Chartered and Vodafone – this snappy study examines sustainable business strategies. A handy, actionable how climate change is being integrated into business guide for beginners and veterans alike. strategies. Plenty of practical guidance as well for those companies looking to follow suit. Twitter for Good: change the Screwing Mother Nature for world one tweet at a time Profit: how corporations betray By Claire Diaz-Ortiz our trust – and why the new Hardback: 224 pages, £16.99 biology offers an ethical and ISBN: 1118061930 Publisher: Jossey-Bass sustainable future Published: August 2011 By Elaine Smitha Paperback: 256 pages, $19.95 Written by Twitter’s head of corporate social innovation ISBN: 1780280189 and philanthropy, this book sets out to show how the Publisher: Watkins social media site can provide a platform for cause- Published: October 2011 based campaigns. Packed with dynamic examples from Presented as a “wake-up call” to the impact of around the world, readers will find guidance and corporate-led globalisation, this book lays out an inspiration in harnessing the micro-site for good. alternative based on principles of cooperative competition and “conscious, sustainable growth”.