Ethical corporation Issue One, December 2001


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Ethical corporation Issue One, December 2001

  1. 1. Issue 1 • December 2001 Free news and analysis at Plus Mark Wade Wally Olins An exclusive Interview with the founder of the Shell Report The legend talks to Ethical Corporation GoodCorporation’s CEO FTSE4Good The options for effective reporting standards Signs of an investment sea change? and special interviews with Rob Lake Henderson Global Investors Creating Trust Emma Howard Boyd The leading thinkers on CSR and brand management Jupiter Asset Management Genoa 2001: Would you like this to happen outside your HQ? w w w .e t h i c a l c o r p .c o m
  2. 2. December 2001 Ethical Corporation magazineEditor’s notes elcome to the first edition of Ethical Corporation magazine, the first independent by-industry, for-industryW briefing on the business case for corporate social and environmental responsibility. Our objective is to serve the growing demand for business intelligence from large enterprises about who’s benefiting from imple-menting ethical practices right through their companies and how they’re doing it. You can subscribe free to this magazine by simply filling in one of the reply cards inside or by visiting our In this issue we speak to a broad cross section of industry experts and analysts to find out why companies like Shelland the Co-operative Bank have embraced corporate responsibility and hear the advantages they’ve gained. We’re alsotalking to leading thinkers such as Warwick Business School and the New Economics Foundation for a cross-industry per-spective. Investors and stakeholders are pushing these issues where it matters - with their cash. Find out what some of theleading fund managers like Henderson and Jupiter have to say about CSR involvement and what they’re looking forfrom your company. As branding supremo Wally Olins puts it, business has moved to the front pages, and now is the time for you toaddress the issues in your corporation. Let us know if you would like your company to be interviewed for next month’s issue or if you are interested incontributing an article. Meanwhile, enjoy the first issue!Toby WebbEditor Contents 4| Wally Olins on ethics and product differentiation Ethical Corporation magazine 6 | The man from Del Monte, he say ‘good’ is published monthly by 7 | Leading think tank NEF gives us its view of profits and ethics FC Group 9 | GoodCorporations CEO gives us the standards lowdown 3rd Floor, Black Lion House 45 Whitechapel Road 10 | CorporateCulture suggests 10 steps to CSR success London, E1 1DU 12 | We speak with Mark Wade, Founder of the Shell Report United Kingdom 14 | Rob Lake, Henderson Global Investors, on global SRI Publisher 15 | Warwick Business School on the next generation of executives Christian Braun 17 | FTSE4Good - measuring a sea change in investment? We ask FTSE’s Gareth Parker +44 (0)20 7375 7153 18 | Emma Howard Boyd, Jupiter Asset Management, on changing attitudes to SRI 19 | CSR Duo, Richard Aylard and Jordana Friedman, Burson Marstellar Editor Toby Webb 21 | Publish & be praised, by Flag 22 | Ethical brand and that customer base: we talk to the Co-operative Bank +44 (0)20 7375 7561 24 | Real Ethics, Robert Jones Design 25 | New resources - helping you formulate your strategy Alex Chilton Design © Copyright 2001 First Conferences Ltd. All rights reserved. This document contains original material protected by copyright. No unauthorised use of material herein may be made without the prior consent of First Conferences Ltd. Ethical Corporation magazine is a proprietary creation and trademark of First Conferences +44 (0)20 7736 5568 Ltd. Please note the views of the contributors in this publication are their own and not those of Ethical Corporation magazine. www.ethicalcor 3
  3. 3. December 2001 Ethical Corporation magazine inter view Business has moved to the front pages Ethical Corporation speaks with Wally Olins down the street and buy from another. This Today even the most conservative and can happen almost everywhere that products threatened of corporations knows that it has are commodities, not in all cases, but in to do something. It’s becoming part of their many. vocabulary, even if they don’t believe in it. With individuals like Richard Branson or Whether or not they believe in it doesn’t Anita Roddick, the company is associated matter. They will do it not because they want with the reputation of the person, and vice to but because their share price will go down versa. The Virgin brand is a manifestation of if they don’t get involved. what Richard Branson purports to be, and is The fundamental of any corporation is therefore inseparable in the consumer’s share value. Everything has to be measured mind. against share value, market share and profit. Making money by behaving badly will not In what ways are corporate social work if everyone knows about those that are responsibility and branding currently doing it. Social pressures are now becoming Can you give us a quick rundown on colliding? sufficiently powerful to make companies your career to date? Look at the way in which Nike and others behave better. Business has moved to the I began my career in the advertising industry have had bad press on ethical business issues front pages. and started Wolff Olins with Michael Wolff and the way the ‘No Logo’ movement is BP is projecting itself as a highly respon- in 1965. Wolff Olins has created a number of treating brands as a scapegoat, an enemy and sible social creature. It may or may not be, very well known brands, Orange, 3i, First a power beyond control. Then you can see but it understands the power of social Direct among many others, and has offices why it is that a lot of people are attributing to responsibility. Exxon are not bothering – worldwide working with a number of global brands a deliberate attempt to manipulate they believe it has no bearing on their profits. corporations. and control. But you only have to look at The Exxon attitude is the one that was Omnicom bought Wolff Olins a few brands like Levis and Marks & Spencer to see shared by most companies in the past. Over months ago and I left amicably. I am that the customer is still in control. They fell the next 10 years I believe we will see a real Professor of Marketing and Branding at sev- from consumer favour and suffered because shift to the BP attitude as consumer groups eral universities and I write books and lec- of it. and the media increasingly highlight compa- ture at conferences and seminars. Of course, brands are trying to manipu- nies’ ethical activities. late the customer. We live in a world that is In a recent Economist article deeply manipulative. Children try to manip- Which firms would you highlight “Who’s wearing the trousers?” ulate parents and vice versa. But corpora- whose practices are taking ethical you stated that “the next big thing tions and their brands cannot directly control considerations into account? in brands is social responsibility… consumers, however hard they try. The cor- Most companies are starting to try very hard. It will be clever to say that there is poration will instead have to anticipate what Most large European companies like Shell nothing different about our product consumers want and provide it. Now con- and BT take this very seriously. Business is or price, but we behave well.” sumers want to see socially responsible com- front page news and this means that corpo- Is this something that your current panies. And they will buy their products. rations and their brands will be pressurised experience would confirm? It is in the interests of a corporation to into doing what consumers wish them to do. It’s clear to me that the difference between behave better for market share. Corporations Ethical business practices will become more most products is now negligible – it’s are increasingly taking this into account. significant. s increasingly about the company behind the product rather than about the product itself, Is this a gradual change over Wally Olins advises various especially where you have companies selling the last 10 years, or is there a sea corporations on branding and services across a number of areas, like Virgin change happening here in corporate corporate identity issues. He is or Tesco, for example. philosophy? Visiting Professor at a number of universities. He has written many Look at petrol companies – if you think a I think it is a sea change. I can remember 25 books, including the seminal work particular company’s behaviour is bad, you years ago, the few organisations wanting a ‘Corporate Identity’, and is currently can buy from a competitor. If you don’t want social audit back then were the very unusual writing a new book on branding. He can to buy from one company, you just drive ones. be contacted on +44 (0)20 7224 2121 4 www.ethicalcor
  4. 4. December 2001 Ethical Corporation magazineCSR investment is not a choiceToby Kent draws upon a specific case of Del Monte in Kenya, recently acquired by Signor Cragnotti’s Cirioempire, and argues that wherever one sees the responsibilities of business lying, good business sense dictatesthat companies address the needs both of their employees and of the societies in which they operate. etting the man from Del Monte to DMKL produce indicates the changed ’s cancelled in April 2001, but the damageG say yes is not easy. The basis of one of the world’s most successfuladvertising campaigns is Del Monte’s com- world in which we live and companies oper- ate. It underlines that issues of corporate responsibility relate to how companies treat done to the company is more enduring. Employee and community relations have notably improved, but profits remain down.mitment to growing and using only the local communities, as well as how they treat The events at DMKL show that corpo-finest, freshest produce. The message is simple: their employees. It also shows that corporate rate social responsibility is not simply a lux-the Del Monte label guarantees quality to social responsibility is as much about the ury in which companies invest when theythose who consume it. It also implies that the way in which companies interact with feel they can afford it. In a commercial worldattentions of the Del Monte man bring happi- employees and communities as it is about in which “the customer is always right”ness to the producers of the foods he chooses. how much one spends. investing in employee welfare, or social The case of Del Monte Kenya Limited DMKL did not entirely neglect peoples’ investment, is almost as much about what(DMKL) showed that getting the man from needs, but the wider society, both in Kenya your customers demand you pay as aboutDel Monte to say “yes” to spending on the and later in Italy, felt that the company was what your company feels it can afford to pay.welfare of his employees and the communi- not contributing what it could afford for, and DMKL has learned from its experiences,ties surrounding his Kenyan plantation had thus should offer to, its employees and near- but it was a costly lesson. Had the DMKLbeen more difficult than getting him to by communities. management always listened to the concernsspend on more obvious business interests. At The situation reflects the complex, “glob- of employees and local communities theythe time DMKL was owned by the Imerman alised” world which we inhabit. We are could have avoided the boycott altogether.South African group, and the commitments becoming used to the idea of living in a more Expensive developments could have beento meeting the highest product standards interconnected world, and many changes are spread over years as part of company growthwere not translated to meeting standards of driven by multinational companies which rather than as large, unexpected capital out-employee care. Certainly local communities supposedly roam the world looking for com- lay, and productivity is unlikely to have beendid not always cheer the arrival of the Del petitive advantage, undermining govern- harmed by better employee relations.Monte man. ments and national interests. However, responsible action is not worth a In fact, animosity between DMKL man- ’s In response, suggests Mary Kaldor of the company’s investment if it does not addressagement, staff and neighbouring communi- London School of Economics, we see an the concerns of those you want to impress.ties grew to such an extent that by 2000 the increasingly active civil society, making its If done well, responsible corporateunions, local NGOs and representatives of claim to regain the space “grabbed” by behaviour will minimise expenditures thatthe Catholic church combined to organise a multinational corporations. Alternatively, it companies may come to pay as a matter ofboycott of Del Monte’s products in Italy, one may be that as people in developed countries expediency. It will also reduce the risk ofof the company’s key export markets. travel to places and are kept informed of internal, client, or consumer conflict. The DMKL had drawn criticism from activist events around the world, almost regardless of DMKL case shows the power of consumersstudents in Kenya since the 1970s. their occupations, they project this “worldli- to influence business decisions. However,Nevertheless, as an export-focussed business, ness” onto their everyday lives. consumers, or customers are not always endDMKL did not pay much attention to the Whatever the motivation for the growth users but may be clients, or other companiesdemands of a few local radicals. Why should of consumer activism and the changing rela- in supply chains. Whoever they are, reputa-they when they paid their 5,000 employees tions between western societies and the firms tion matters.relatively well, provided social facilities, which were once perceived as representing Corporate social responsibility is notincluding housing, education for employees’ their interests, the changes are significant. about being nice. The potential to limitchildren and healthcare - social goods that Companies must fully understand these expenditure, maintain or improve employeemany argue should be supplied by governments, shifts to avoid damaging their reputations, and community relations, control risk andif not individuals themselves? In addition, a and thus their profits, as DMKL has shown. promote reputation means that applying cor-further 50,000 people in the neighbouring The Italian consumer boycott of Del porate social responsibility strategies is sim-town of Thika are directly or indirectly sup- Monte’s goods was directed against the com- ply good business sense. sported by Del Monte’s presence. pany’s Kenyan operations, but the negative Despite such capital outlay and the ben- publicity undermined the Del Monte brand Toby Kent can be contacted by emailefits of the company’s presence, the fact that at large. Swift Del Monte Kenya Limited at CSR@tobykent.comthis was not enough to head off a boycott of action appeased its critics. The boycott was www.ethicalcor 6
  5. 5. December 2001 Ethical Corporation magazine No more global business as usual Corporate ethics after September 11 By Deborah Doane, Head of Corporate Accountability, New Economics Foundation recent article in the Financial Times ee stress. At the same time, companies are exceptions, they haven’t led to any signifi- A (Oct. 8) reported on a forum that had taken place at Harvard Business School, the home of globalised business. still having to grapple with long-term con- siderations and the question of what CSR will ultimately mean. James Farrar, CSR cant change. BP well-known for its CSR , programmes, including stakeholder dia- logue, rebranded itself last year as “Beyond Students, it seems, were discussing how cor- Manager at British Airways, for example, Petroleum”. Unfortunately, there is little evi- porate social responsibility can help bridge recognises that their immediate social dence of BP “doing well by doing good”. BP the gap between have and have-not nations responsibility is to their staff and to the sur- had to climb down on its rebranding exercise as one way to reduce terrorism. US business vival of the business… “but, over time, what at its AGM in April, admitting that it could- students, as a result of the horrific events of the brand is and what BA stands for will n’t commit itself to any serious investment in September 11th, are now being forced to change.” renewable energy. consider how their actions impact on society. Perhaps less apparent than the immedi- A recent study by the University of Immediately after the attacks, many from ate concerns is the more pressing need for Sussex has found that companies with envi- the NGO movement thought that CSR dis- companies to understand the link between ronmental management (EMAS) systems cussions would be put on the back-burner their regular business actions and their global, perform no better in this regard than those and that there would be little opportunity to social and environmental impacts, in partic- without. And much of social reporting has continue the dialogue with companies that ular, how they can have a more positive resulted in “corporate spin” rather than has progressed relatively well over the last influence on global poverty and inequality. It improvements to social performance (see few years. Impending layoffs and financial is an opportunity for CSR programmes to Corporate Spin: the Troubled Teenage Years concerns would surely take precedence over break the PR barrier – that is, to be fully of Corporate Social Reporting, New discussions about CSR programmes and imbedded in a company’s operations and Economics Foundation, 2000). policies. outputs. In some cases this has proven to be true. CSR programmes, to US-based Dole Food Company has just date, have been based “Since September 11th there scrapped its director responsible for CSR on the assumption that has been an unprecedented level policies, in spite of their commitment to they can improve the improving labour standards. bottom line. But as one of discussion across businesses At the same time, since September 11th, corporate leader said in Europe and North America there has been an unprecedented level of dis- at an Environment cussion across businesses in Europe and Council conference last about their impact on society” North America about their impact on socie- spring, “this is still a ty. CSR has an even greater relevance today leap of faith”. More importantly, we need to CSR cannot save the world, nor can it than it did just two months ago. “The cata- have a better understanding of how CSR completely rebalance the inequities that clysmic events of September 11th are only programmes can actually have an impact on have emerged over the last half-century likely to intensify society’s scrutiny of busi- social and environmental performance of the across the globe. As Oded Grajew of the ness… many in the media are arguing that a company. Instituto Ethos in Brazil says in a new book, certain redistribution of the west’s economic Corporate social responsibility emerges, The Civil Corporation, “If business is so wealth, rather than redeployment of its mili- in part, from a frustration that the corporate powerful and now doing so much good, how tary power, will be far more effective in sector yields considerable power and that the come so much is still wrong in the world?” countering further acts of global terrorism” advantages of the free-market, globalised An embedded CSR programme, however, writes John Griffiths, director of Rocket economy have not necessarily delivered an can make a difference: to employees; to rela- Science, a consultancy. equal benefit to all. Those in the south have tionships with customers; and to suppliers. Some of the issues companies are dealing become servants to the system, yet fail to And there is also the potential to see greater with are more immediate, such as mitigating derive sufficient benefits. benefits of business delivered to the south – risk in order to renew insurance policies or CSR programmes were meant to partial- the current servants of global capitalism. coping with the obvious concerns of employ- ly overcome this. But, to date, with few When employees and shareholders are www.ethicalcor 7
  6. 6. December 2001 Ethical Corporation magazine consulted, they generally don’t agree with as a marketing tool. While it is laudable and to the detriment of the majority. Basic servic- the state of the world. A recent survey by important that many companies are con- es, such as water and electricity, are now Powergen found that 77% of respondents tributing to the disaster relief funds to help delivered by private northern hemisphere believe that environmental and social per- victims of the attacks, it should not be used companies in many developing countries, formance of the company ranked just as high as a replacement for more serious engage- often in an unregulated manner. as financial performance. “Aligning a com- ment with the issues. pany’s values with those of its employees Corporate Philanthropy makes a more highly motivated and produc- at BA may have suffered “What can companies do? First, tive workforce”, says Rob Lake of due to financial con- Henderson’s Global Investors. cerns, but CSR pro- they can commit themselves to open, What can companies do? First, they can grammes will continue honest dialogue with stakeholders commit themselves to open, honest dialogue as the need to align with stakeholders – not just those from the CSR more closely – not just those from the inside. inside. Stakeholder councils provide one way with governance struc- Stakeholder councils provide one for companies to formalise this process and tures becomes more rel- ensure that external factors are taken into evant than ever before. way for companies to formalise this consideration in a company’s decision-making. A more sophisticated process and ensure that external The Co-operative Bank, winner of this approach to CSR year’s Impact on Society award, is intending engages thoughtfully factors are taken into consideration to raise a discussion on its website about how with the local commu- in a company’s decision-making.” the events of September 11th may have nity as partners in the changed its customers’ views about a variety process. The implemen- of ethical issues, and in turn, to help deter- tation of properly monitored and enforced How can companies see the benefits of mine what the bank’s response should be. It labour standards, such as fair wages and living these services delivered to a larger portion is proceeding cautiously, however – the conditions, should involve community actors of the population, in an affordable and dialogue is intended as a way to determine in order to ensure that the best of intentions accessible manner? The pharmaceutical what is important to its stakeholders in light are not led astray. A simple signing of a code industry’s excessive profits through intellec- of the events, not a PR exercise to raise its of conduct is no longer sufficient. tual property rights means that many in own profile. Third, they should consider how the developing countries have little access to Second, companies must go beyond CSR endless pursuit of profits benefits a few, often affordable medicine for highly curable ill- nesses. CSR has, to date, failed to deliver any tangible bene- fits on a sufficient scale. But this doesn’t mean that we should give up on corporate responsibility. Following a heightened awareness of global issues since September 11th, we should be giving it more, rather than less, attention. Companies that do sur- vive the short-term crisis will emerge in a completely dif- ferent operating environ- ment – one in which CSR has the potential to help face the challenges that will see them survive over the longer-term, for the benefit of the many, not the few. s For more information visit www.neweconomics.org8 www.ethicalcor
  7. 7. December 2001 Ethical Corporation magazineEffectively implementing businessethics in the enterpriseCompanies realise why they should be socially responsible, but the questionof how is not so straightforward, says Michael Littlechild t is difficult to find a dissenting voice in environment, labour and so on. For multina- own values or have the expertise to judgeI the current chorus of approval for social responsibility. The number of convincingreasons for being socially responsible is tionals the UN Global Compact provides a set of principles covering the environment, labour and human rights to which compa- whether they can be monitored effectively. The second is whether to have inde- pendent verification. Those against cite thegrowing and, whether these come from nies can sign up. difficulty of verifying soft issues and theinvestors, consumers or employees, most There are alternatives to common stan- problems of short-term reviews by auditorscompanies recognise the importance of dards. The most popular is to create a home- who have not been part of the process ofaddressing social and ethical issues. But once made code of conduct. Companies devise crafting the values. These arguments seem tocompanies have decided that they want to do their own ethical criteria, communicated in be losing ground to the need for credibilitysomething… what then? Putting these prin- their literature and on their websites directly which independent review can bring. Againciples into practice is the real challenge. to their suppliers and customers. They may there may be a differentiation by size here. An increasing number of companies are employ certifiers to check their compliance, The vast majority of companies that are notchoosing to adopt one of a variety of stan- but generally this is for internal purposes household names have little hope that wedards on offer that cover various aspects of rather than as a public audit of their adher- will take their word for it. The big brandssocial responsibility. Some companies have ence to their own rules. Another more might have thought differently in the past,obvious key single issues to deal with resource-intensive alter-because of the business they are in. Chemical native adopted by some "It is not much use to have anindustries, for example, have focussed on the large companies is socialenvironment, and clothing manufacturers reporting. Again, this is outstanding record on pollutionon labour conditions. In response to these based on a home-made reduction if indecent work practicesconcerns, existing standards generally cover code, as the social reportone stakeholder group. The ISO series is makes public the activi- are endemic in the supply chain"perhaps best known for its quality (ISO ties and progress under9000) and environmental management (ISO the code and may be externally verified. but the ethics of the largest companies have14000) standards. The demands of health Reporting frameworks have been developed in been called into question in recent years. Asand safety have created other standards, from recent years for this purpose, such as the a result, many multinationals have takenthe international OHSAS 18001 to individ- AA1000 and the Global Reporting Initiative, refuge in independent verification, believingual national standards. To meet concerns that provide methodologies on social report- that although openness may expose weak-over sweatshops and child labour there are ing and their external verification. nesses, it will also inspire the greater confi-standards such as SA8000 and the UK-based So companies trying to understand what dence that the whole process is seeking toEthical Trading Initiative, which focus on social responsibility actually means in practice achieve.labour practice throughout the supply chain. are faced with a variety of possible solutions. Every company is different: we all have However, many companies are now There are two key decisions of principle to be different focuses depending on the type ofmoving on from dealing with their sector’s made. The first is whether to adopt an exist- business we do, the issues we face and ourheadline issue to respond to the broader ing standard or devise an own code. Own own organisational culture. But the princi-pressure on companies to be all-rounders. It codes have the benefit of being tailored to the ples of social responsibility apply to everyoneis not much use to have an outstanding business and reflecting the values of the – and make business sense for everyone.record on pollution reduction if indecent shareholders, management and, if consulted, Choosing the best way to deal with the issueswork practices are endemic in the supply employees and other stakeholders. Common of social responsibility depends on what yourchain. Gradually, the fragmented nature of standards have the converse benefit of being company needs and what you can invest, notsocial responsibility is developing into a shared with others and so are perceived as just financially, but also in terms of both timemore comprehensive approach that tries to neutral. Stakeholders and the public as a and effort. sbring together all parts of the business’ whole do not fear that the company hasimpact on society. In response there are now omitted issues that it finds inconvenient. Michael Littlechild is the CEO of GoodCorporation. For more informationstandards that offer an overall management Moreover, few but the largest companies can visit www.goodcorporation.comapproach, encompassing the key areas of afford the process of sifting and choosing their www.ethicalcor 9
  8. 8. December 2001 Ethical Corporation magazine How to protect a trusted brand With a raft of critics attacking global brands and with businesses waking up to corporate responsibility, John Drummond suggests ten simple steps to help organisations win trust Within this new sense of purpose is the do things in your business. Shell have their concept of balance. Increasingly, sharehold- business principles. Southern Sun Group of ers understand that managing simply to South Africa have defined their top ten secure financial results can bite you on the accountabilities to stakeholders. Johnson & bottom line. Johnson have a credo. Hewlett Packard have rules of the garage. The big trick is develop- 2: Create a workforce committed ing a framework which makes sense for you. to your purpose But there are three critical factors: Articulating your purpose gains you at least two things. First, you communicate a con- • your convictions need to emerge from sumer benefit (and win a bit more trust). your business Second, you stand more chance of achieving • they need to be genuine convictions and that rare thing – employees working togeth- strong enough to remain in place when er for a common goal. tested But there’s more to it than defining a • they need to be translated into practice direction. There has to be a conscious deci- sion to create a common culture. Carol 4: Manage the intangibles Lavin Bernick took over from Alberto Culver The model of business success has changed. as Vice Chairman and Director of Pfizer and Past financial success only provides one realised the company was facing a cultural dimension of value. Other factors which can 1: Articulate a clear sense crisis. Changes included making an annual add to the value of a business include a clear of purpose ‘state of the company’ address and creating strategy, a strong board, customer loyalty, First, revisit the purpose of the business. The the role of Growth Development Leader. employee skills, new revenue streams, purpose should be inspirational for everyone She says, “Passion is probably the single competitive differentiation, reputation and with a stake in the business. That means it pre-requisite to cultural change… if you’re innovation. will probably include a social dimension. not passionate about it, don’t even bother.” They may be called intangibles, but that’s There are very few businesses that do not Believe in your product or service but don’t not a good name. They’re very tangible. If make a social contribution. You take away oil presume employees will gather round the you successfully manage values and value or banking, the utilities or transport busi- flag. Creating a co-operative culture where you earn trust. nesses and watch the knock-on effect on employees work together on a shared goal everyone’s lives. won’t happen by accident. 5: Develop a clear strategy To get to your purpose, ask what the A co-operative culture involves a planned for corporate social world would be like without your product or approach, employee involvement, the shar- responsibility service. Social aspects of a business mission ing of best practice and common policies and Here’s a prediction. In the next decade or so, is not a superficial aspect of branding. It processes. When you are on this road, you corporate social responsibility will merge should be an accurate representation of your won’t simply find it easier to retain existing into corporate governance and corporate role or it won’t be credible. employees, you will also become a magnet reputation. They’ll become the same thing. Take Pfizer’s refreshing statement of pur- for like-minded people. In the meantime, it’s not too difficult to cre- pose: “We at Pfizer dedicate ourselves to ate your own model for managing CSR. helping humanity and delivering exception- 3: Define “how we do things There are some useful starting points. al financial performance by discovering, around here” For example in the UK there are the developing and providing innovative health People have a lust for a clear framework of Business Impact Task Force model and the care products that lead to healthier and more how to behave. Usually called values, the fact new GoodCorporation mark. productive lives.” is there are many ways of defining how you The trick is to recognise that there is not 10 www.ethicalcor
  9. 9. December 2001 Ethical Corporation magazineone holy grail in CSR but at least seven. digital TV And for the last few years I’ve . story to tell but not telling it? There are won-However, that’s for another day. The initial been proposing businesses use their access to derful hidden stories about the contributionchallenge you have, as Richard Holme and market to move beyond employee volunteer- of business. Look at the recent social webPhil Watts from Rio Tinto and Shell have ing to customer volunteering for social caus- sites of BT and Diageo. There are many hid-said, is to find your “magnetic north”. es. It’s coming. den gems in almost every business. You need to define why you want to man- But even the best don’t invest. They don’tage CSR. And that varies from company to 8: Manage risk including invest in communications. And when theycompany. Drivers include attracting ethical risks relating to trust do, they make several key mistakes:investment, compliance, competitive It’s bizarre that the risk management or cor-differentiation, improving reputation and porate audit departments still focus on • they sometimes forget that people arewinning customer loyalty. financial risk. New corporate governance interested in people requirements in the UK and the new • they sometimes forget that good6: Create a brand with Company Law Review know that directors communications are about a dialoguepersonality have wider responsibilities. not about an annual reportThere is no reason why common principles The sentiment they express is that the • and they sometimes forget that we areof success should lead to conformity, but they directors have a duty to manage longer term as interested in future plans as pastoften do. People articulate their purpose and risk relating to reputation, business probity, performancevalues in the same way as others. They fol- health and safety and social or environmen-low the same reporting guidelines. They fol- tal issues.low the same techniques in eBusiness, Manage risk effec-employee communications, financial man- tively and you can head “Passion is probably the singleagement, setting objectives and every other off chunky financial risk prerequisite to cultural change…aspect of business. And that is not a good like more regulation andway of winning trust. I prefer Madonna’s legislation, windfall taxes if you’re not passionate about it,advice - express yourself. or consumer boycotts. don’t even bother.” People who win trust are open, visible, My own convictionengaging and they tend to have their own is that a new disciplinepersonality. That personality is diverse. You will emerge called integrity risk manage- So what is this? So what are these tencan see it in the buzz as you walk into the ment. It’s not difficult. It’s applied common steps? They don’t add up to PR, corporatereception of Asda HQ in the UK. sense. You simply spot the areas where there responsibility or branding. So what are we You can see it in the amazing ideas of is a potential gap between your policy and talking about here? Is it a new concept?Semco of Brazil, who devolve “to the max”. your practice and you manage it. Could we call it sustainable branding orAnd you can see it in the words of Ralph trust marketing?Larsen, Chairman and CEO of Johnson & 9: Leverage social change You can if you like. I prefer business com-Johnson, in their European CSR report for Businesses still tend to think good corporate mon sense. And it isn’t hair-brained wishful2000 (that’s an invitation to seek them out). responsibility is about managing the foot- thinking. Many of these actions are taking print of their impact on society. But real place today in businesses of many sizes. Also,7: Listen and involve people progress will be achieved when they use let’s not imagine this is only relevant forin strange new ways their muscle to achieve genuine social companies. This is as relevant for govern-Why is this at 7? The first step to win trust is change linked to their business. I see a ments and not-for-profit institutions. It’s theto listen. If a company does not have its fin- growth in campaigns which go beyond basic way things are going.ger on the pulse of stakeholder opinion, it charitable fund-raising or PR into new terri- Our choice is simple. We can create sus-doesn’t have a feel for its corporate health. tory – working on a single cause and tainable businesses which are authentic, aimAnd it’s not just about good old fashioned campaigns which make a tangible social for balanced results, behave responsibly andquantitative and qualitative research. difference. win trust because they deserve it, or we can Look at the recent creation of a consumer It’s a difficult balancing act, but it can be step boldly down a cul-de-sac of increasedpanel by the radio station Classic FM. done in a way which wins trust and leads to consumer cynicism. Where do you want toMembers will be recruited from listeners via genuine social and business benefit. There is be? In the wake or in the vanguard? son-air advertisements. As GWR chairman nothing wrong with mutual benefit. AndRalph Barnard says, the aim is “to meet the there is nothing wrong with business playinggrowing need for consumers to have a more a social role. John Drummond is the Strategyeffective voice in broadcasting.” Director of Corporate Culture. The truth is that there are a bunch of 10: Invest in communications but make it a dialogue For more information visitnew ways of engaging customers. We’re seeing more engagement through What is the point, I ask, in having a great www.ethicalcor 11
  10. 10. December 2001 Ethical Corporation magazine inter view Shell’s Mark Wade speaks with Ethical Corporation magazine Mention corporate ethics and the name of Shell often comes up. We spoke with Mark Wade, founder of the Shell Report and a key member of Shell’s Sustainable Development Group, to find out more about the business benefits and challenges What’s your background with Shell? portfolio. In our case as an energy major that cial approvals, how you bring this into the I’ve been with the group for 22 years. I started would mean a long term evolution away way in which you motivate and reward staff. out as a research biochemist in support of from hydrocarbons as the basic fuel stock to our chemicals business. I was a founder renewable or alternative energy sources. So Can you tell us how the member and am a current member of the ultimately one can view that as the goal. management structure works Sustainable Development Group in the cor- But I also have to be very upfront and say at the very top level for strategic porate centre of Shell International. that we can sow the seeds for that now, we decisions on this within Shell? can bring in the new technologies, we can We have at the executive level what we call How is Shell going about becoming help develop the markets and the infrastruc- the Sustainable Development Committee, a truly sustainability-supporting ture, but let’s not kid ourselves: hydrocar- which is chaired by Phil Watts, the company? bons are going to remain the mainstay of the Chairman of the Committee of Managing Firstly, our commitment to sustainable energy scene for at least the next thirty years Directors. This committee comprises of very development is to contribute to sustainable and the transition away from them is going senior representatives off the Chief development. That means that you need to to be a long process. Executives committees of each of our five manage your operation in a way that is main businesses: Exploration and Production; responsible in terms of respect for the envi- What are the internal challenges Chemicals; Oil Products; Gas; and Power ronment, of respect for people and of being you’ve faced at Shell? How do and Renewables. The committee also com- mindful of human rights. corporate communications, prises heads of corporate centre functions You can do that within your existing busi- marketing and corporate strategists like human resources, finance and legal as ness model in that you can run your affairs interact in terms of in a way that recognises these broader implementing responsibilities. In this regard, when you get socially and “We want to take the concept of oil and gas out of the ground you do it more environmentally Corporate Social Responsibility into cleanly, more safely, more efficiently. responsible When you refine it you are very con- strategies? the decision-making process and cerned about eco-efficiency aspects. And I think it operates at a hardwire it into the systems and when you sell the products you try to do it in more fundamental level the way that is going to involve the lowest that that. The idea is processes on the one hand, and to quantity of sulphur, lead, aromatics and so that we want to take the bring it into the hearts and minds of on. And when you explore in sensitive areas concept of corporate of the world you do it in a way that respects social responsibility people on the other” biodiversity and the rights of indigenous into the decision-mak- people or whatever the particular issue might ing process and hardwire it into the systems well as company secretaries and us in the be. and processes on the one hand, and bring it Sustainable Development Group. It meets That type of contribution to sustainable into the hearts and minds of people on the twice a year currently and looks at the whole development can be done within your exist- other. approach of driving this type of thinking ing business model. On the other hand, you It’s a cultural change that we are trying to across our organisation. can also view it as evolving within what I engineer as part of Shell’s overall transfor- Beneath that there is what we call the would call the fourth dimension of sustain- mation. So in that regard it’s not just a ques- Sustainable Development Panel, which able development, that of time. tion of individual departments – it’s about comprises representatives from those same You can say you can use this agenda to how you bring this into your strategy and areas but at a rather more workaday level inform the way you evolve your product planning, how you bring it into your finan- who are still very senior but who can roll 12 www.ethicalcor
  11. 11. December 2001 Ethical Corporation magazinetheir sleeves up and make this happen in a and the development of social capital within What are institutional investorspractical sense throughout the organisation. the respective communities are some of the asking for from Shell today that Externally we also have the Social main issues with which we will be confronted. they didn’t ask for 5 years ago?Responsibility Committee, non-executive Clearly there has been a very significantexternal directors of the board of the two Where are the CSR-related business increase in interest in socially responsibleparent companies of the Shell Group, Royal opportunities in the future for Shell? investment funds. This is coming from theDutch Petroleum and Shell Transport In terms of business opportunities, I think general public who want to make sure thatand Trading. This meets on a twice-yearly that depends on the business model. In their money is invested in ways they feelbasis to review our internal governance a group of companies like Shell we have comfortable with.processes regarding the application of Shell’s hugely different businesses. We have oil It’s also coming from pension fundsbusiness principles, to help shape safety and exploration and production, where many which are being managed on behalf of allenvironmental policies and procedures and of the relationships are with national oil sorts of organisations, such as unions andto shape our commitment to sustainable companies. universities, who are telling their fund man-development. What are the advantages there of CSR? agers they want their members’ money Well, we’re seen as a company of enormous invested in a way they would feel happyAre you feeding the message about technological strength and as an organisa- with. There’s no doubt that this is growingsustainability and responsible tion of great integrity in that we don’t bribe rapidly, but it still represents quite a smallbehaviour out to your suppliers? and take a very strong stand in that area. proportion of overall investment in the stockIt’s a mammoth challenge. One important Shell has the economic capability to take markets.component is that when we form new joint very long-term views of emerging energy When we look at the more mainstreamventure relationships or contractual supplier systems and have therelationships our business principles are economic clout to makeclearly on the table during those negotiations. the massive investments “When we form new jointWe have to be satisfied that the conduct of which are often venture relationships or contractualthat joint venture or contractual relationship required to help a coun-will uphold those principles or operate in a try generate income supplier relationships our businessway which is compatible with them. from its indigenous principles are clearly on the table That’s the first element and we have right mineral wealth.of audit in terms of HSE and other ways of So you need to during those negotiations”ensuring that our businesses are managed demonstrate to govern-with integrity. That’s the front line if you like. ments that you can behave responsibility and investors, I think that to a large extent these The second line is more on the hearts help them meet their strategic energy needs. considerations are not top of their agenda.and minds side again, to use our influence to You also need to demonstrate that you can do When it comes to making judgements onhelp people see the business case for corpo- this in a way which is sensitive to companies in this more mainstream arearate social responsibility such that there is a the environment and to the needs of local they’re going to be looking for the most partwillingness to want to go these routes. But communities. If you can do this then you are at the more traditional measures of predict-it’s a big challenge and the further you push likely to be seen as a preferred partner. In ing future value growth. Nevertheless, ourthe envelope on your supply chain or rela- some of the other business models, such as commitments to CSR and sustainable devel-tionships the more difficult it becomes. business-to-business, you can look at opment are seen as neutral in that regard. So improving your costs through eco-efficiency. long as we can be seen to perform as an effec-What are emerging corporate In some of the business-to-business con- tive organisation then they will continue toresponsibility issues today for sumer models you might use an awareness of recommend us.the energy industry? society’s expectations for the delivery of goods, Of course, you do see the growth inIn the energy industry, the biggest issue is mindful of the environment and respectful of things like the FTSE4Good indices and thethat of climate change and companies’ human rights in their supply chain and pro- Dow Jones Sustainability Indexes andresponses to that particular issue. That is a duction. there’s a whole raft of these type of indicesmajor challenge, in terms both of how you You need to make sure that your goods now. Shell is in the FTSE4Good. We’ve beenaddress the issue of climate change and of and services are in line with that. If people in the Dow Jones Sustainability Indexesthe impacts that has on the way you manage are looking for things which are greener, since their inception and last time around weyour business. You have to look at what busi- cleaner and safer, then that can be used were the top sustainability company in theness opportunities can come from it. For to inform the type of products you would energy sector. sextractive industries clearly there are other produce. So there’s a number of differentenvironmental issues. Biodiversity is of ways that you can use an understanding of For more information on Shell visitconcern. When operating in sensitive parts CSR and where it’s come from in terms of the world the rights of indigenous people society’s expectations to deliver business value. www.ethicalcor 13
  12. 12. December 2001 Ethical Corporation magazine inter view Influencing ethical policy Investment fund managers are playing an important role in encouraging business ethics within enterprises and establishing responsible funds for investors. Ethical Corporation speaks with Rob Lake of Henderson Global Investors to find out what institutional investors are looking for from enterprises The Review will lead to legislation in a cou- using child labour is very great for a major ple of years that will probably require com- high street brand. panies to report on aspects of environmental For example, currently there is a lot of and social performance. But we are already discussion about chemicals in the home asking companies questions about these being potentially hazardous to consumers. issues now, whatever the outcome of the Companies need to get on top of public Company Law Review. We look at human rights and socially responsible “What are the benefits? Well, supply investment policies in chain savings, HR savings, R&D all the companies we research for potential savings. This is quickly turning into a investment. We make a must-have scenario for companies” point of seeking an What’s your involvement in socially active dialogue with responsible investment? companies on all the issues of business ethics opinion and safety aspects to keep up with I’ve been the Head of SRI strategy at in all areas. We try to work out as much as public expectations. Henderson since December 2000, after 14 we can about how companies work. Oil companies have issues of human years at NGOs such as Friends of the Earth, For example, staff motivation and repu- rights, security in developing countries and Traidcraft and the RSPB. Nick Robins, our tation are all-important to their future value of course climate change. Mining companies Head of Research, has had jobs in similar to us. If we see that companies do not seem that work with the military in developing organisations. The work I do now is surpris- to be taking notice of some of these issues, countries have some major issues they have ingly similar to the work I did at NGOs – we will address this, as any other investor to look at. working with companies to try to influence should, to help them have a full understand- them to embrace SRI and ethical polices. ing of the importance of socially responsible From Henderson’s perspective, Henderson’s global investments total just investment. where do you see this moving in over £100 billion worldwide and Henderson Henderson has a constant dialogue with the next year or two, especially with has large shareholdings in a large number of companies based on our risk management an apparant recession coming? companies, which gives us some influence strategies to make sure that our funds per- The level of expectation of consumers on all over their ethical policies. I believe that the form and that we have an understanding of these issue is rising – companies are going to extent to which business can offer solutions the views of that company and the risks for be continually pressured to increase standards to some global problems is significant. our money. We will, of course, ask for and to do things on a voluntary basis. improvements if we believe them to be neces- Expectations will rise and public expectations Can you give us some background sary. We are continually trying to build a more will still be there in any recession. on Henderson’s investment in SRI? rounded analysis of companies into our main- What are the benefits? Well, supply chain It started in the late 1970s beginning with stream investment process. savings, HR savings, R&D savings. This is the Joseph Rowntree charitable trust. quickly turning into a must-have scenario Henderson now has over £1 billion in SRI What are the challenges for for companies. There is a sense that interna- investments, one of the largest ethical invest- companies you are working with tional companies need to be far more sensi- ments in the UK. We invest for a variety of in implementing ethical practices? tive and show that they are socially responsi- retail and institutional clients. It depends on which sector you are in. In ble in different countries and that they can retail it’s often the developing world. The adapt to meet changing public needs. s Will the Company Law Review reality is that operating in low labour cost affect the way these funds are For more information visit countries has some major ethical challenges invested in the future? for companies. The reputational risk of14 www.ethicalcor
  13. 13. December 2001 Ethical Corporation magazine Educating tomorrow’s executive The business case for the integration of corporate social responsibility By Professor Alyson Warhurst, Director, Corporate Citizenship Unit, University of Warwick, UK ew journalists, politicians, corporate company culture so as to merit an image of to benefit. They have lost faith in the distri- F CEOs or international agency profes- sionals would bare-facedly reject cor- porate social responsibility. But every year, integrity and responsibility. They are also aware that the ‘external costs’ of their opera- tions (i.e. the costs of those environmental bution powers of the governments that host- ed these investments. They now frequently resort to negotiating directly with business to MBA courses in business schools all over the and social impacts beyond operating costs secure more immediate benefits in educa- world are full. Full of ambitious would-be that previously the state or local host com- tion, housing and health – basic develop- executives who argue that the “business of munities have absorbed) can no longer be ment rights – and in return they grant what business is business”. Reiterating Friedman’s taken for granted, and over time, need to be is tantamount to a local ‘social license to 1970s utterances about the social responsibil- ‘internalised’. operate’. This is understandable, and most ity of business being to make profit, from Globalisation also means that interna- companies respond rationally by seeking which all benefits will ‘trickle down’ to those tional business is increasingly operating in dialogue not conflict. Some countries who patiently wait, MBA students are most areas of conflict. Business can no longer pose require this in law, few are aware that such reluctant to make the business case for CSR. as neutral. There exists a growing imperative prior consultation is enshrined in an ILO Foremost they want to be taught how to for business operating in make money fast. Indeed, one of the greatest areas where human “CSR is now not only a bottom line issue discrepancies in the evaluations MBA stu- rights are infringed to dents customarily make of their professors use legitimate influence but also a moral imperative, with respect pertains to their appreciation or not of to promote human to the relationship between business whether the case for CSR has been made rights even outside of convincingly or boringly. At Warwick their areas of operation. and its internal/external stakeholders. Business School, learning about CSR is a At the very least they are CSR is to be sidelined at your peril.” compulsory part of every MBA. In some being called upon to business schools it is a losing battle to make examine whether their presence and their (International Labour Office) convention or one session an optional elective. indirect impacts contribute to, or under- in the national constitution of countries with Nonetheless, for students or senior execu- mine, the development rights and opportu- strong indigenous communities, such as tives alike, to reject CSR is to be oblivious to nities of their host communities. Colombia. Companies are also recognising one of the most fundamental challenges to that they must take responsibility for the have impacted international business over Some reflections wider impacts of their operations beyond the last ten years. I offer the following reflections for those that their workforce and the perimeter fence. still believe there is no business case for CSR With the recent liberalisation of investment A moral imperative and that companies have no role to play in regimes worldwide, governments may have Over the last decade, foreign direct invest- contributing to society other than through made downward adjustments in social wel- ment by international companies in develop- profit-making. fare spending in order to accommodate tax ing countries has increased tenfold and pub- Some believe that people will a priori breaks to attract these foreign investments, lic funding of development assistance has benefit if business is allowed unbridled to sometimes with strong encouragement from declined. CSR is now not only a bottom line make profit. This is called the ‘trickle down’ international financial institutions. Business issue but also a moral imperative, with effect. The concept refers to economic meas- is starting to recognise that it has a responsi- respect to the relationship between business urements of benefits, not equity or well- bility to address locally the social impacts and its internal/external stakeholders. CSR is being considerations. Furthermore, history generated as a result of their investment to be sidelined at your peril. has demonstrated that people living in opportunities. Companies are acknowledg- Ethical deliberations are demanding poverty, especially indigenous communities ing that they cannot pay their taxes then more time in the boardroom. Business lead- in the vicinity of remote agricultural, mining sleep easy in the knowledge that benefits will ers are realising that they need to address and oil operations, have been among the last trickle down, other than through employ- www.ethicalcor 15
  14. 14. December 2001 Ethical Corporation magazine ment, to their local host communities would be no need for corporate social invest- tributions to development as defined by spe- through the lifetime of their investment. ment or for charities, but surely there is room cific affected groups. for both while we are striving for a ‘trickle The ‘triple bottom line’ down utopia’. In the meantime, appropriate Students and social policy Some suggest that the greater the competi- consultation and active listening to stake- Finally, it is ironic that MBA students are tive pressure on business the less able they holder needs and concerns should ensure good at scoring points today about the legit- will be to serve wider social goals. But this that the strategies of companies wishing to imacy of NGOs, while their professors prob- misses the fact that, in many countries, gov- pursue responsible practice are tailored to ably protested in the 1960s and 70s about ernments and banks now select companies, local needs. apartheid, the coup in Chile, policy towards award licenses and approve finance on envi- the Sandanista government in Nicaragua ronmental and social track records and not No harm to development and the ‘cuts’ at home in education. Students just on economic grounds. This is the ‘triple I have heard it asserted that companies, today, (MBAs or political scientists), are bottom line’. through being obliged to operate to higher more likely to make a ‘hit’ on the stock mar- Many companies are pushing CSR in the standards, are harming the development ket than hit the streets protesting. supply chain by demanding that their sup- prospects of poor countries on account of They miss the important point about pliers demonstrate ethical and environmen- eroded competitiveness. This seems miscon- why pressure groups exist. NGOs in most tally sound practice. Research is showing ceived on two counts. cases endeavour to speak on behalf of people that the conditions attached to investment First, economic wealth is no longer a sin- (or issues) who, for reasons such as human financing and procurement, which are sensi- gle priority. Rather, broader concerns about rights infringement, have no ‘voice’ – i.e. dis- tive to longer-term political, environmental health, wellbeing and quality of life are as placed communities, refugees, disadvan- and health risks and liabilities, are drivers as important and, in some specific situations of taged groups such as women and children, potent as government regulation in promot- weak government, busi- ing more environmentally and socially ness can deliver these responsible business practice. This in turn more efficiently and "Companies are acknowledging that enhances a company’s competitiveness and directly to local commu- contributes to its acquiring ‘preferred suppli- nities through corporate they cannot pay their taxes then sleep er status’. social investment. easy in the knowledge that benefits Some observers have expressed concern Secondly, communities that there exists pressure from ‘socially and politicians in devel- will trickle down, other than through responsible’ businesses to impose costs they oping countries have employment, to their local host have accepted voluntarily on their suppliers strived hard to achieve and that this is tantamount to unfair busi- high environmental and communities through the lifetime ness practice. labour standards and of their investment." The response here is that, yes, companies not to be considered as can and do set higher and higher standards. ‘pollution havens’. These improved social and environmental Moreover, research suggests that under- endangered species etc. It is through dia- practices, in turn, are quite appropriately dif- taking environmental investment can pro- logue with NGOs that many of these issues fused through the market. As a result, a mote economic, technical and energy effi- are put on the business agenda. number of corporate initiatives in the areas ciencies and savings and reduce costs in the I am definitely not arguing that MBA of human rights, biodiversity conservation long term through avoiding costly retro-fit- students are unworldly or immune from and social development have addressed ting and reducing future liabilities. social responsibility concerns. In fact, the development needs that were not being met Increasingly, some companies consider they most rewarding part of teaching is beginning by governments. have a responsibility to use their legitimate with a class of sceptics and ending with an This view, in a sense, is a corporate paral- influence to promote human rights and enthusiastic group of students who are lel to the argument that we should not give labour codes of conduct as well as improved queuing up for further reading and case money to charities as individuals as this takes environmental standards, as good corporate studies to make the CSR business case. s away the pressure on governments to address citizens. social development. While we might agree Just because we don’t all agree about Professor Alyson Warhurst holds the with the theory, who are we to say that those what is ‘development’, is that justification for Chair of Strategy and International living in poverty and those whose human doing nothing? I should think not! It misses Development at Warwick Business School and is Director of the rights are being infringed today should wait the growing importance to business of part- Corporate Citizenship Unit (CCU), for governments to change tomorrow, or in nership and dialogue with stakeholders and University of Warwick. the case of developing countries that have interested partners that can help companies invited foreign investment in, for the benefits to understand what would actually consti- For more information visit to trickle down? In an ideal world there tute improved social performance and con-16 www.ethicalcor