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Corporate Social Responsibility Webinar for Medinah Institute
1. Madinah Institute for Leadership &
Entrepreneurship Webinar Series
Corporate Social Responsibility
Practice & Implementation
William P. Kittredge, Ph.D.
President
Cervelet Management & Strategy Consulting
www.cerveletconsulting.com
www.cerveletconsulting.com
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CSR Creates Sustainable Development
Sustainable development is a form of economic growth
that recognises the importance of environmental and
social objectives in long-term company financial
performance and survival
Contrast neoclassical economic theory & CSR critics
Sustainability leads to the institutionalisation of Corporate
Social Responsibility & Sustainability (CSR&S)
3www.cerveletconsulting.com
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CSR & S: Who Pays; Who Benefits?
Old assumption – companies with CSR under perform
Research suggests – organisations adopting CSR enjoy
higher returns and corporate growth & sustainability
"Corporate social responsibility is a hard-edged business
decision. Not because it is a nice thing to do or because
people are forcing us to do it... because it is good for our
business" - Niall Fitzgerald Former CEO, Unilever
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Corporate Social Responsibility (CSR)
Involves diverse partners
Requires stakeholder identification & engagement
Private sector generates responsible profits
Society reaps the benefits of sustainable development.
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Evolution 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 responsible
companies
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Sustainability & CSR
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Arts &
Culture
Employee
Voluntarism
EducationHealth
Disaster
Relief
Community /
Livelihood
Development
CSR
Initiatives by
Group Companies
Environment
CSR
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Corporate Social Responsibility (CSR)
Implementation in line with organisational vision,
mission, and goals – strategic plan implementation
CSR - a comprehensive framework developed and
adopted by the organisation
No generic framework fits all situations
Role of public regulatory bodies & NGO
Transparency and credibility of CSR claims
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Ensuring Real Sustainability
Build a business case for CSR - not merely a normative
case
Identify and distinguish sustainability and green-washing
Commitment to transparency (e.g. TBL reporting)
Commitment to multi-dimensional measurement &
reporting
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How 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 end
point.
Companies, and those who own and manage them,
have more power than the average citizen; therefore
more responsibility to act appropriately
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How to respond?
Select a CSR model that is relevant to your business, and
its 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 are
available – step-by-step guides streamline the process,
making results easier to achieve.
Train key personnel – use 'train the trainers' model
Don't be afraid
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Responsible Business Framework
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It is up to the individual company, perhaps
working with their consultants, to determine:
Which to address
In what order of priority
Appropriate metrics and measures for their
business and context
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Responsible Business Framework
(RBI see references)
Perception
The company reflects on its own values and
understands how these values relate to its
business goals.
All businesses exist to make a profit; the
company's values determine ethical reference
points for business decisions.
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Responsible Business Framework
Preparation
Implementing values as policies and
procedures, training company personnel,
creating reporting & communication systems
for stakeholders.
Difficult process, especially for informally
organised small businesses. However, once
formally promulgated, easier to integrate into
day-to-day management.
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Responsible Business Framework
Practice
Senior management must lead by example,
establish rewards and sanctions, ensure
policies embodied in daily business practice.
The company's culture reflects management's
practice; you lead from the front. If the leaders do
not follow the rules, the employees will follow their
poor example rather than the written policies.
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Responsible Business Framework
Performance
Sustained responsible behaviour requires
constant reinforcement to integrate CSR
principles into daily practice; cultural change
All company personnel share a clear set of
values integrated into the company's business
model and reflected in day-to-day decision-
making.
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Core Values
Business values, mission, & goals are the
foundation of CSR
Company claims of good behaviour, when not
supported by evidence, may actually harm
business prospects over the long term.
“It takes 20 years to build a reputation and five
minutes to ruin it.” - Warren Buffett
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Core Values
A values statement may offer the best picture of
the organisation’s philosophical grounding.
The company and all of its employees must be
seen to enact those values at all times.
Demonstrate an understanding of ethical
priorities, the intent act responsibly, and the
willingness to act consistent with these
principles
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Core Values
It has become commonplace to see value
statements in company reports & the websites
of many businesses of all sizes.
If few people within the company adhere to the
stated values or treat them merely a public
relations tool, the price of hypocrisy can be
high.
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Core Values
Conflicts have destroyed businesses, even
large international companies.
Arthur Anderson case study
Taj case study
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Core Values
A responsible company knows that principles
mean nothing without implementation.
The commitment to implementation is in the
company policies and incentives provided to
employees.
Fiscal Integrity
Managerial Integrity
Product Integrity
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Fiscal Integrity
The primary responsibility of a business is to
remain profitable. You must be viable to be
responsible. Your fiduciary responsibilities
cannot be neglected.
Yet a company can pursue financial success
without imposing unnecessary costs on the
environment or society
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Fiscal Integrity
Clear, transparent accounting, consistent with
international standards
Regular professional audits
Appropriate fiscal controls
'Don't lie to yourself'
TBL implementation where and when feasible
Appropriate social investments, e.g. Saudi Basic Industries
Corporation (Sabic) "Clean up the Gulf Day"
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Managerial Integrity
Company governance and management is the
face of a company.
It is the stakeholders' window into the
organisation’s commitment to ethical and
responsible behaviour
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Managerial Integrity
A company's decisions are deeply entwined
with its ethical values.
These values are reflected in its public image,
influencing how much business it can
generate in the long-term
When a company's declared values contradict
its practices, catastrophic consequences may
follow.
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Managerial Integrity
Business leaders or managers engaged in
guiding and decision-making assume
responsibility for their actions.
Accountability is most commonly manifested in
the annual financial statement.
When signed by the CEO, it implies personal
responsibility from company decision-makers
and their readiness to face the consequences
of their business decisions.
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Managerial Integrity
A responsible company needs a responsible
management.
Guarantee responsible governance and
management through policies of transparency
and accountability.
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Product Integrity
A company's most visible impact is through its
product or service.
Hoover, Thermos, and Frigidaire are examples
of product names that became synonymous
with trusted companies.
Highly successfully companies provide products
or services that become symbols of
responsible business in the market they serve.
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Product Integrity
A responsible company makes strong, ethical
commitments and delivers on what it
promises.
Implement transparent systems that allow
product quality, production methods, and
supply chains activities to be viewed by
stakeholders.
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Stakeholder Engagement
Stakeholder – a person or organisation that is
effected by the company's actions or activities,
directly or indirectly
Key stakeholders are those for whom the
company's actions or activities hold high salience
Shareholder – a person or organisation with a
financial interest or ownership interest in the
company
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Stakeholder Engagement
Regularly consulting key stakeholders & seeking
their active involvement drives the success of a
company's strategic approach through:
Product feedback
Perception of company
Desirable social investments
Consultation may take the form of surveys, focus
groups, market research activities, or any scale
appropriate activity.
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Stakeholder Engagement
The need for this type of activity grows from what
might be termed 'non-governmental social auditing'.
In essence, this is the promulgation of regulatory
requirements by trans-national entities that are
'enforced' via social media campaigns and other
informal means
These informal requirements may be formally
adopted by national or international regulatory
bodies.
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Stakeholder Engagement
A responsible company must factor in the concerns,
and potential concerns, of its stakeholders, and
invest appropriately.
Policies that allow for appropriate interaction with
stakeholders provides the basis for achievement in
this area.
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Transparency
Transparency is critical to accountability.
Transparency, which implies that owners or
managers communicate decision rationale
openly to stakeholders within and outside the
company
Transparency implies direct, open
communication between decision-makers and
key stakeholders.
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Transparency
Adopting transparency in operational and
reporting processes
Social expectation shifts from ‘why do you
report?’ to ‘why don’t you report
meaningfully and understandably?’
Research indicates correlation between
economic, social and environmental
indicators
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Transparency
Financial reporting is the most commonly
understood form of compliance. More recently,
corporate governance, environmental
performance, and social investments reporting
has been added.
International regulations typically require
disclosure of value, origin, and content, but
increasingly address social responsibility,
environmental safety, fair trade and security.
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Transparency
Allowing a group of persons to conduct business
without exposure to individual liability makes
the incorporated company a most potent
vehicle of economic activity
Price: laws & informal requirements for
companies to demonstrate financial
transparency & prudence, and fiduciary
trusteeship through disclosure mechanisms.
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Transparency
Product certifications and labelling
EU 'CE' standards
International Organisation on Standardisation (ISO) standards
And many more...some are listed in the Compliance Reporting
Table
A responsible company understands the importance of
consistent compliance and demonstrates is by using clear,
internationally recognised policies of disclosure that make
improvement and consistency easier for the internal
management and verifying compliance easier for all
stakeholders.
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Seattle | Bangkok | Karachi | Islamabad
www.cerveletconsulting.com
From Sustainability to Sustainability…
William P. Kittredge, Ph.D.
President
Cervelet | Management & Strategy Consulting
wkittredge@cerveletconsulting.com
(084) 717 7900
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References
4 P's based on RBI, Pakistan's formulation
AA1000 standard, based on John Elkington's
triple bottom line (3BL) reporting
Editor's Notes
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.