Corporate Social Responsibility Webinar for Medinah Institute

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Presentation with additional materials as presented during the 22 April 2013 Medinah Institute for Leadership and Entrepreneurship webinar.

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  • DIMENSIONS OF CSR ALL REQUIRED FOR SUSTAINABILITY SPECIFICS MUST BE CULTURALLY AND ORGANIZATIONALLY APPROPRIATE IF TO SUCCEED.
  • EXTERNAL ENVIRONMENT – SOCIAL EXPECTATIONS – CONSTANTLY EVOLVING; HENCE THIS IS PROCESS, NOT END POINT
  • Refer to Table 1
  • REQUIRES COMMITMENT, NOT LIP SERVICE, OF OWNERS OR MOST SENIOR MANAGEMENT – BOARD OF DIRECTORS, PRESIDENT, CFO, ETC. WITHOUT THE ON-GOING COMMITMENT OF THESE LEADERS, CSR, OR ANY INITIATIVE, WILL FAIL BECAUSE YOUR SUBORDINATES FORCE YOU TO LEAD BY EXAMPLE. WHAT YOU DO MATTERS MUCH MORE THAN WHAT YOU SAY COMPANY PERSONNEL, SUPPLY CHAIN PARTNERS, OTHER STAKEHOLDERS ARE CONCERNED WITH DEEDS, NOT TALK THIS IS SIMPLY AN EXTENSION OF THE BUSINESS PRINCIPLE FOR YOUR PRODUCTS OR SERVICES
  • INFORMALLY ORGANIZED EMPHASIS ON LEADING BY EXAMPLE NO PLACE TO 'HIDE' IN SMALL BUSINESS BUT TEND NOT TO HAVE FORMAL BUSINESS POLICY PROCESS
  • UTAH TREASURER EXAMPLE
  • A company must be clear about its values and articulate them in a way such that everyone associated with its business processes understands them without any confusion. And, these values must be distilled into policies and procedures that work reliably, equitably & without exception. Converting values into policy and practice is perhaps the most crucial milestone on the road to responsible business. It is also a process only decision-makers can lead. Formulating policies and procedures may require long hours of deliberation. Yet once done, a policy document becomes the touchstone for business decisions, and procedures throw up a shield against undue requests from influential members of society.
  • Started by Arthur Andersen in 1913, the company was founded on a reputation of integrity and professional excellence, with its slogan being, 'Think Straight, Talk Straight'. By 2001, Andersen had grown to 85,000 employees worldwide, with annual revenues of almost a billion dollars. When the Enron and MCI-WorldCom scandals broke, with Andersen's name firmly linked to their accounting malpractices and to other well-publicized financial misadventures at Sunbeam Inc., Asia Paper and Pulp, and the Baptist Foundation. A decade later, even after the U.S. Supreme Court overturned an earlier conviction, Andersen finds itself shunned by the business community as a company that violated its own principles of integrity and paid the ultimate price.
  • MCI-WorldCom illustrates this well. When it filed for bankruptcy in 2002 it was more than the biggest corporate collapse in U.S. history. It was an example of wayward governance propelled by greed, where an overtly religious CEO attended church while senior managers systematically abused the accounting system through fraudulent entries and loans, reflected losses as investments, and lied to investors in collusion with accountants and stock-market analysts. SEE ALSO ARTHUR ANDERSON & ENRON OR TAJ CASES
  • This accountability is proportional to their level in an organisation Hence, the owner or CEO has the highest level of responsibility to ensure that the business is profitable, as well as guaranteeing that it is able to fulfil its obligations as expected by law, the market, or society, and that the company remains answerable to each. In the MCI-WorldCom case,owner Bernie Ebbers was sentenced to 25 years in prison, and his senior managers sentenced to five years each. As part of their corporate accountability mechanisms, a number of countries require companies to declare the financial benefits given to board members and senior management. Balance Privacy Concerns
  • A recent example is that of Toyota, the world's leading car-maker, which ordered a recall of 4.3 million vehicles in response to an August 2009 fatal accident caused by a stuck accelerator pedal. Another 2.3 million vehicles were recalled in 2010. The recall included all but two of Toyota's major models. The company's president, Akio Toyoda, ordered extensive testing for all models, saying, “We are grasping for salvation...Toyota has become too big and distant from its customers,' conveying that the company was responsible for its product and that such faults were the result of it not listening closely to customers. The recall and repair costs for 6.6 million vehicles meant a loss of billions of dollars. However, Toyota correctly realised that the financial costs were insignificant when compared with the retention of 40 years of stakeholder goodwill Product integrity can build a business, but a loss of product integrity can drag a company down. The alternative would likely have been for follow Dow Corning into bankruptcy.
  • As you can see, a stakeholder may or may not be a shareholder, while all shareholders are stakeholders. Stakeholders is the more general term. Used hereinafter to refer to KEY stakeholders!
  • While managing a small (40,000 customers) electric utility, I engaged stakeholders via regular attendance by myself or senior staff at Chamber of Commerce, Rotary Club, and similar business oriented organisation meetings and their informal activities, such as charity golf tournaments. I also regularly (usually monthly) randomly selected individual customers from our database and invited them to attend a brief meeting over lunch or breakfast. The simple meals gave me the opportunity to speak directly with customers informally and keep my 'finger on the customers pulse'. For larger organisations, where the customer base is too diverse and/or too dispersed globally, other methods, such as online surveys, Facebook pages, and other social media can be effective engagement tools.
  • Many use the therm 'social investment' to imply direct company funding for various activities. However, some the most robust and lasting social investments require little or no funding. As manager of a small local electric utility, I provided bucket truck rides to children at local farmer's markets and fairs. The only 'cost' was the salaries of the electric workers I already had employed. As an additional benefit, employee morale was improved. In my business consulting role in the US, SME clients often asked 'how big a check' they should write to a given charity. I pointed out that giving to everyone who asks isn't the answer. In the case of Alliance Bank, a small regional bank building its home mortgage and business loan portfolio, I suggested that staff volunteers take company time to work building homes with Habitat for Humanity, wearing Alliance Bank logo shirts. The Bank's employees were very enthusiastic and the program built several homes for low income people. Alliance Bank employee morale improved, their reputation as 'socially responsible' spread through the home mortgage market, and, while on the job sites, several of the business bankers met contractors and other business people, establishing relationships with them that resulted in business loan activity.
  • such as employees, shareholders, and consumers. The annual general meeting of shareholders is a regulatory instrument to implement transparency and accountability. Other common ways are through websites, company newsletters and media messages, and increasingly advertising. Taken together, these two concepts manifest a measure of a company's governance and management
  • In addition, for businesses dealing with overseas clients, there are international regulations, particularly within the European Union and the United States, that typically require disclosure of value, origin, and content, but are increasingly seen to address social responsibility, environmental safety, and even fair trade and security. These aspects, like financial accounting, frequently require the establishment of a compliance system within a company that tracks the entire organisation’s operations for specific compliance data at the process level and generates information that can be reported under law. Such a system is often used by companies to safeguard their internal processes against fraud or misappropriation by employees or managers and to optimise business profitability by avoiding breach of law and its costly consequences.
  • Another commonplace form of compliance is product labelling. Laws in various countries require that all products sold within that country or exported display information on content, origin, and use. The most commonly regulated products, with respect to claims against unfair or deceptive practices, are food or dietary supplements, medicines and drugs, cosmetics, and consumer equipment and devices. In addition to product content or composition labelling, the law in a number of countries requires safety or care labels on products, particularly textiles, toys, and electronics. Compliance codes in the United States and Europe are increasingly demanding disclosures on social and environmental responsibility, such as statements of natural resource use or child labour, and energy ratings, under laws such as Section 137 of the U.S. Energy Policy Act.
  • Another commonplace form of compliance is product labelling. Laws in various countries require that all products sold within that country or exported display information on content, origin, and use. The most commonly regulated products, with respect to claims against unfair or deceptive practices, are food or dietary supplements, medicines and drugs, cosmetics, and consumer equipment and devices. In addition to product content or composition labelling, the law in a number of countries requires safety or care labels on products, particularly textiles, toys, and electronics. Compliance codes in the United States and Europe are increasingly demanding disclosures on social and environmental responsibility, such as statements of natural resource use or child labour, and energy ratings, under laws such as Section 137 of the U.S. Energy Policy Act.
  • Corporate Social Responsibility Webinar for Medinah Institute

    1. 1. Madinah Institute for Leadership &Entrepreneurship Webinar SeriesCorporate Social ResponsibilityPractice & ImplementationWilliam P. Kittredge, Ph.D.PresidentCervelet Management & Strategy Consultingwww.cerveletconsulting.comwww.cerveletconsulting.com
    2. 2. 2Corporate Social Responsibility (CSR)2www.cerveletconsulting.com
    3. 3. 3CSR Creates Sustainable Development Sustainable development is a form of economic growththat recognises the importance of environmental andsocial objectives in long-term company financialperformance and survival Contrast neoclassical economic theory & CSR critics Sustainability leads to the institutionalisation of CorporateSocial Responsibility & Sustainability (CSR&S)3www.cerveletconsulting.com
    4. 4. 4CSR & S: Who Pays; Who Benefits? Old assumption – companies with CSR under perform Research suggests – organisations adopting CSR enjoyhigher returns and corporate growth & sustainability"Corporate social responsibility is a hard-edged businessdecision. Not because it is a nice thing to do or becausepeople are forcing us to do it... because it is good for ourbusiness" - Niall Fitzgerald Former CEO, Unilever4
    5. 5. 5Corporate Social Responsibility (CSR) Involves diverse partners Requires stakeholder identification & engagement Private sector generates responsible profits Society reaps the benefits of sustainable development.5
    6. 6. 6Evolution of CSR Compliance− Establishment of standards− Certifications Triple Bottom Line (TBL) Reporting− “making a business case” for CSR (see references)− Social, environmental, & financial impacts Responsible Competitiveness Market forces engaged to reward socially responsiblecompanies6
    7. 7. 7Sustainability & CSR7Arts &CultureEmployeeVoluntarismEducationHealthDisasterReliefCommunity /LivelihoodDevelopmentCSRInitiatives byGroup CompaniesEnvironmentCSR
    8. 8. 8Corporate Social Responsibility (CSR) Implementation in line with organisational vision,mission, and goals – strategic plan implementation CSR - a comprehensive framework developed andadopted by the organisation No generic framework fits all situations Role of public regulatory bodies & NGO Transparency and credibility of CSR claims8
    9. 9. 9Ensuring Real Sustainability Build a business case for CSR - not merely a normativecase Identify and distinguish sustainability and green-washing Commitment to transparency (e.g. TBL reporting) Commitment to multi-dimensional measurement &reporting9
    10. 10. 1010CSR Framework
    11. 11. 11CSR Lifecycle Creates Sustainability Initiation Implementation Organisational growth CSR process repetition CSR goal update Updated CSR implementation11
    12. 12. 1212CSR Lifecycle
    13. 13. 13How to respond?Do something, make a startSet and realize realistic CSR goals− Company resources− Business linesAcknowledge that this is an iterative process, not an endpoint.Companies, and those who own and manage them,have more power than the average citizen; thereforemore responsibility to act appropriately13
    14. 14. 14How to respond?Select a CSR model that is relevant to your business, andits social, political, and cultural environment.Remember you are changing corporate cultureSecure active commitment of senior management.Make use of the workbooks and toolkits that areavailable – step-by-step guides streamline the process,making results easier to achieve.Train key personnel – use train the trainers modelDont be afraid14
    15. 15. 15Responsible Business Framework15It is up to the individual company, perhapsworking with their consultants, to determine:Which to addressIn what order of priorityAppropriate metrics and measures for theirbusiness and context
    16. 16. 16Responsible Business Framework(RBI see references)PerceptionThe company reflects on its own values andunderstands how these values relate to itsbusiness goals.All businesses exist to make a profit; thecompanys values determine ethical referencepoints for business decisions.
    17. 17. 17Responsible Business FrameworkPreparationImplementing values as policies andprocedures, training company personnel,creating reporting & communication systemsfor stakeholders.Difficult process, especially for informallyorganised small businesses. However, onceformally promulgated, easier to integrate intoday-to-day management.
    18. 18. 18Responsible Business FrameworkPracticeSenior management must lead by example,establish rewards and sanctions, ensurepolicies embodied in daily business practice.The companys culture reflects managementspractice; you lead from the front. If the leaders donot follow the rules, the employees will follow theirpoor example rather than the written policies.
    19. 19. 19Responsible Business FrameworkPerformanceSustained responsible behaviour requiresconstant reinforcement to integrate CSRprinciples into daily practice; cultural changeAll company personnel share a clear set ofvalues integrated into the companys businessmodel and reflected in day-to-day decision-making.
    20. 20. 20Core ValuesBusiness values, mission, & goals are thefoundation of CSRCompany claims of good behaviour, when notsupported by evidence, may actually harmbusiness prospects over the long term.“It takes 20 years to build a reputation and fiveminutes to ruin it.” - Warren Buffett
    21. 21. 21Core ValuesA values statement may offer the best picture ofthe organisation’s philosophical grounding.The company and all of its employees must beseen to enact those values at all times.Demonstrate an understanding of ethicalpriorities, the intent act responsibly, and thewillingness to act consistent with theseprinciples
    22. 22. 22Core ValuesIt has become commonplace to see valuestatements in company reports & the websitesof many businesses of all sizes.If few people within the company adhere to thestated values or treat them merely a publicrelations tool, the price of hypocrisy can behigh.
    23. 23. 23Core ValuesConflicts have destroyed businesses, evenlarge international companies.Arthur Anderson case studyTaj case study
    24. 24. 24Core ValuesA responsible company knows that principlesmean nothing without implementation.The commitment to implementation is in thecompany policies and incentives provided toemployees.Fiscal IntegrityManagerial IntegrityProduct Integrity
    25. 25. 25Fiscal IntegrityThe primary responsibility of a business is toremain profitable. You must be viable to beresponsible. Your fiduciary responsibilitiescannot be neglected.Yet a company can pursue financial successwithout imposing unnecessary costs on theenvironment or society
    26. 26. 26Fiscal IntegrityClear, transparent accounting, consistent withinternational standardsRegular professional auditsAppropriate fiscal controlsDont lie to yourselfTBL implementation where and when feasibleAppropriate social investments, e.g. Saudi Basic IndustriesCorporation (Sabic) "Clean up the Gulf Day"
    27. 27. 27Managerial IntegrityCompany governance and management is theface of a company.It is the stakeholders window into theorganisation’s commitment to ethical andresponsible behaviour
    28. 28. 28Managerial IntegrityA companys decisions are deeply entwinedwith its ethical values.These values are reflected in its public image,influencing how much business it cangenerate in the long-termWhen a companys declared values contradictits practices, catastrophic consequences mayfollow.
    29. 29. 29Managerial IntegrityBusiness leaders or managers engaged inguiding and decision-making assumeresponsibility for their actions.Accountability is most commonly manifested inthe annual financial statement.When signed by the CEO, it implies personalresponsibility from company decision-makersand their readiness to face the consequencesof their business decisions.
    30. 30. 30Managerial IntegrityA responsible company needs a responsiblemanagement.Guarantee responsible governance andmanagement through policies of transparencyand accountability.
    31. 31. 31Product IntegrityA companys most visible impact is through itsproduct or service.Hoover, Thermos, and Frigidaire are examplesof product names that became synonymouswith trusted companies.Highly successfully companies provide productsor services that become symbols ofresponsible business in the market they serve.
    32. 32. 32Product IntegrityA responsible company makes strong, ethicalcommitments and delivers on what itpromises.Implement transparent systems that allowproduct quality, production methods, andsupply chains activities to be viewed bystakeholders.
    33. 33. 33Stakeholder EngagementStakeholder – a person or organisation that iseffected by the companys actions or activities,directly or indirectlyKey stakeholders are those for whom thecompanys actions or activities hold high salienceShareholder – a person or organisation with afinancial interest or ownership interest in thecompany
    34. 34. 34Stakeholder EngagementRegularly consulting key stakeholders & seekingtheir active involvement drives the success of acompanys strategic approach through:Product feedbackPerception of companyDesirable social investmentsConsultation may take the form of surveys, focusgroups, market research activities, or any scaleappropriate activity.
    35. 35. 35Stakeholder EngagementThe need for this type of activity grows from whatmight be termed non-governmental social auditing.In essence, this is the promulgation of regulatoryrequirements by trans-national entities that areenforced via social media campaigns and otherinformal meansThese informal requirements may be formallyadopted by national or international regulatorybodies.
    36. 36. 36Stakeholder EngagementA responsible company must factor in the concerns,and potential concerns, of its stakeholders, andinvest appropriately.Policies that allow for appropriate interaction withstakeholders provides the basis for achievement inthis area.
    37. 37. 37TransparencyTransparency is critical to accountability.Transparency, which implies that owners ormanagers communicate decision rationaleopenly to stakeholders within and outside thecompanyTransparency implies direct, opencommunication between decision-makers andkey stakeholders.
    38. 38. 38Transparency Adopting transparency in operational andreporting processes Social expectation shifts from ‘why do youreport?’ to ‘why don’t you reportmeaningfully and understandably?’ Research indicates correlation betweeneconomic, social and environmentalindicators38
    39. 39. 39TransparencyFinancial reporting is the most commonlyunderstood form of compliance. More recently,corporate governance, environmentalperformance, and social investments reportinghas been added.International regulations typically requiredisclosure of value, origin, and content, butincreasingly address social responsibility,environmental safety, fair trade and security.
    40. 40. 40TransparencyAllowing a group of persons to conduct businesswithout exposure to individual liability makesthe incorporated company a most potentvehicle of economic activityPrice: laws & informal requirements forcompanies to demonstrate financialtransparency & prudence, and fiduciarytrusteeship through disclosure mechanisms.
    41. 41. 41TransparencyProduct certifications and labellingEU CE standardsInternational Organisation on Standardisation (ISO) standardsAnd many more...some are listed in the Compliance ReportingTableA responsible company understands the importance ofconsistent compliance and demonstrates is by using clear,internationally recognised policies of disclosure that makeimprovement and consistency easier for the internalmanagement and verifying compliance easier for allstakeholders.
    42. 42. 42Seattle | Bangkok | Karachi | Islamabadwww.cerveletconsulting.comFrom Sustainability to Sustainability…William P. Kittredge, Ph.D.PresidentCervelet | Management & Strategy Consultingwkittredge@cerveletconsulting.com(084) 717 7900
    43. 43. 43References4 Ps based on RBI, Pakistans formulationAA1000 standard, based on John Elkingtonstriple bottom line (3BL) reporting

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