FROM THE MARGINS > GLOBAL COMMENT. by JANE NELSON Director, Business Leadership and Strategy, The International Business Leaders Forum

Transcription

1 > GLOBAL COMMENT FROM THE MARGINS by JANE NELSON Director, Business Leadership and Strategy, The International Business Leaders Forum 14 Global comment

2 TO THE MAINSTREAM: Corporate social responsibility in the global economy From WorldCom to the World Summit on Sustainable Development and the World Economic Forum, 2002 will be remembered as a year when corporate social responsibility entered the political and economic mainstream. The corporate governance scandals that have rocked America and other major capital markets have placed the issues of ethics, accountability, and transparency firmly on the agenda of business leaders and regulators. The UN s World Summit on Sustainable Development attracted almost as many corporate leaders as Heads of State and Government. The summit officially acknowledged public-private partnerships as a critical, if at times controversial, mechanism for tackling global issues such as climate change, corruption, poverty alleviation, human rights and access to energy, water and healthcare. The World Economic Forum launched a Global Corporate Citizenship initiative and started to mobilise its 1,000 corporate members around challenges such as HIV/AIDS, the digital divide and access for developing countries to OECD markets. These are just three examples of a fundamental shift in expectations and approaches that are starting to take us beyond business as usual. From street demonstrations to cyberspace campaigns, and from City Halls to the United Nations General Assembly, there is a growing spotlight on the role of business in society and growing expectations on what this role should be. For the business community there is growing recognition of the need to understand and respond to these expectations in a manner that helps to build competitive edge, or at the very least to manage risks and sustain profitability, while tackling some of the toughest economic conditions in recent memory. The business community faces three major challenges and opportunities as we approach the end of 2002: First, unrelenting pressure to deliver shareholder value in a period of global economic downturn, high levels of competition, and increased international risk and uncertainty. This calls for companies to focus on operational Global comment 15

3 efficiency, productivity and innovation; Second, massive pressure to rebuild public trust and investor confidence in a period of corporate governance scandals and accounting failures. This calls for companies to focus on accountability, transparency and integrity; Third, growing pressure to deliver wider societal value in a period of antiglobalisation backlash, international insecurity and inequality, and distrust of the power of big business. This calls for pro-active engagement with stakeholders and effective management of the wider societal impacts and contributions of business. The central leadership challenge for business is to demonstrate that delivering shareholder value, wider societal value and increased accountability and transparency can all be achieved together. Demonstrating that these goals are not mutually exclusive and can in fact be mutually beneficial lies at the heart of the growing corporate responsibility movement. In different ways and with different levels of commitment, leading companies are responding to this challenge. They are implementing policies and procedures that clearly align private gain with public purpose. Many are establishing reporting and accountability systems to demonstrate that they are creating wealth not only for shareholders, but also for other stakeholders everywhere they operate. They are starting to move the concept of corporate responsibility beyond compliance and beyond philanthropy, to focus on the way they carry out their core business activities and how they interact with the public domain. While European countries and companies offer a wealth of new approaches, some of the most innovative thinking is coming from developing countries such as South Africa, Brazil, India and the Philippines. Driven by a combination of changing societal expectations, new regulatory frameworks, innovative market mechanisms, sustainability indices, socially responsible investment funds and corporate-led or multi-stakeholder voluntary initiatives, corporate responsibility is becoming a more mainstream and global issue. What determines excellence in corporate responsibility and what are some of the critical challenges for the next few years? Four key factors set the leaders apart from the pack: integration; innovation; accountability; and engagement. First, integration. Leaders in corporate responsibility integrate it into their core business structures and strategies. They have clearly stated corporate values and principles. They lead from the board level, with independent board level committees to champion and monitor their corporate responsibility performance. Companies such as Suez, Shell, Nokia, Deutsche Bank, Unilever, BASF, Siemens, and BP, which rank 16 Global comment

4 highly on traditional corporate governance surveys, offer examples of board level leadership on wider corporate responsibility issues. In addition to board level involvement, leading companies systematically identify the key issues and stakeholders for their company and industry sector. And they establish appropriate policies and procedures to manage these, with a clear line of accountability to the executive management team and board. Some companies are starting to integrate performance requirements for responsible business practices into their management appraisal and incentive systems. Second, innovation. Leaders in corporate responsibility look at corporate responsibility not only from the perspective of compliance and risk management, but also with an opportunity and value creation mindset. They integrate ethical, social and environmental criteria into their research and development policies. They see opportunities to develop new processes, products, services, and markets that meet social and environmental, as well as commercial needs. They establish internal venture capital funds, award programmes, competitions and other incentives to encourage such innovation. DuPont, 3M, Nokia, Proctor & Gamble, Suez, BP, Shell and Nestlé are a few examples of companies that are adopting such approaches. Leading companies are also actively engaged in institutional innovation. They are supporting new voluntary frameworks and coalitions to change the public policy discourse and to create new rules of the game. These include voluntary initiatives such as the UN Global Compact, the Ethical Trading Initiative, the World Commission on Dams, and the Global Alliance for Workers and Communities. Third, accountability. Leaders in corporate responsibility make a public commitment to their purpose, their principles and their goals. They set measurable targets and timelines for addressing what they consider to be their company s critical issues and stakeholders. They aim to measure their performance and publicly report on it in a consistent and transparent manner. Some are establishing key performance indicators and metrics. Unilever and Diageo, for example, both use a cash-value-added metric to report on how their cash is allocated between different stakeholder groups. DuPont has developed a metric that assesses the shareholder value added per pound of production, with the aim of generating more value with less material intensity and less of an environmental footprint. The best companies are committed to independent verification of their performance. And they Global comment 17

5 are willing to raise difficult dilemmas in their public reports, as the Novo Group and Shell have done. The Global Reporting Initiative, which was established as an independent, multi-stakeholder organisation during 2002, estimates that some 150 companies are now officially using its guidelines to report on their sustainability performance, while many more are using the guidelines as an informal guide. resources to solve development or social problems. And it can create a space for shared learning and experimentation. If these are the characteristics that define excellence in global corporate responsibility or citizenship, what are the major challenges? There are many. Two that are likely to be of particular relevance in the next few years are how to move to scale and how to build capacity. Fourth, engagement. Leaders in corporate responsibility engage in systematic communication, consultation and collaboration with their key stakeholders. They host stakeholder forums and some establish permanent stakeholder advisory panels at either the corporate level, the plant level, or to address a specific issue. BT, Unilever, DuPont, Dow, and the Suez Group all offer examples of such advisory structures. A few companies, such as Statoil and Danone, have established global framework agreements with international trade unions, creating a new approach to problem solving and information sharing on labour issues. The examples of institutional innovation outlined above also illustrate new types of stakeholder engagement. This engagement serves several purposes. It can help to change governance frameworks or influence public policy. It can serve as an accountability mechanism for corporate responsibility performance. It can help to mobilise diverse First, how to move to scale. Despite the growing focus on corporate responsibility, there are probably less than 3,000 major companies, if that, which are systematically and strategically addressing corporate responsibility issues throughout their operations. The UN Global Compact, for example, has about 700 companies in its network. The national European networks affiliated to CSR Europe mobilise a few thousand companies. Yet UNCTAD estimates that there are some 60,000 transnational corporations, which have around 800,000 foreign affiliates. Will voluntary-led initiatives and market mechanisms be sufficient to mobilise all these companies to improve their ethical, social and environmental performance? Voluntary initiatives undoubtedly create a space for innovation and offer flexibility for local adaptation, but many people argue they are not enough. There are growing calls for greater regulation on corporate responsibility issues. Most leading 18 Global comment

6 companies recognise that a combination of regulation, market mechanisms and voluntary initiatives are needed, but there is little agreement on the most effective and efficient balance. Nor is there agreement on the appropriate nature, scope and sanction of regulation. Should public policy focus on command and control regulations, for example, or on creating an enabling environment, such as requiring public reporting on corporate responsibility issues or establishing social labels, certifications, awards and rating systems? Who will have a place at the table in influencing these different alternatives? How will their implementation be monitored? These and other questions are likely to intensify in the next few years. Second, how to build capacity. We talk easily and increasingly of corporate social responsibility, multi-stakeholder forums, and public-private partnerships. Yet few organisations or individuals are skilled or competent in any of these areas. We need a new generation of managers and technical specialists in the public, private and civil society sectors with appropriate skills and competencies. Above all they will need to be able to think and act across traditional boundaries, whether sectoral, functional, geographic, or cultural in nature. The newly launched European Academy of Business in Society can play a key role in moving this agenda forward. Initiatives such as Cambridge University s Postgraduate Certificate in Cross-Sector Partnership, developed with the International Business Leaders Forum and The Copenhagen Centre, will also be crucial. Many more multistakeholder research, training and action learning programmes are needed and support will be required from both the public and private sector. In summary, corporate social responsibility has come a long way over the past couple of years. For leading companies it has undoubtedly moved beyond philanthropy and beyond compliance. Beyond these leadership companies, however, corporate responsibility is still in the process of moving from the margins to the mainstream. The responses to the two challenges above will be crucial in determining how fast and how far this transition goes. Global comment 19