Corporate Social Responsibility (CSR)

Written by Malcolm Bruce MP and published in Parliamentary Monitor on Fri 18th Jun 2004

Defining CSR is in itself a very difficult task meaning something different depending on who you talk to. The CSR Group sponsored by the DTI has defined it as:

'The management of an organisation's total impact upon both its immediate stakeholders and upon the society within which it operates…it is about the integrity with which a Company governs itself…lives by it's values…measures its impact and reports on its activities.'

Currently business largely self-regulates adherence to CSR principles. Critics of such an approach, who are calling for tough Government intervention, point to a lack of action from UK companies citing as an example the very small number of companies who responded to the Prime Minister's call in 2000 for voluntary reporting of sustainable development policies.

I believe that prescriptive regulation not only will add to the heavy administrative burden faced by business, it will encourage companies to adopt a 'box ticking' approach to CSR.

Where Government has a very important part to play is in creating an environment which rewards those businesses that adopt an ethical approach. It should even consider 'naming and shaming' those that digress. In addition I believe that it is also important that a responsible company ensures that its executives do not act in a way that creates distance between themselves, the employees and the communities within which they operate.

Transparency

In the perfect world the consumer ensures that business not only supplies quality goods and services but does it in a way that benefits the wider community. Government in a perfect world does not 'get in the way' of business as the consumer has dictated the terms on which he will buy from any particular supplier.

However in order to put the consumers in a position that allows them to exert pressure upon business to look beyond the needs of shareholders Government has to ensure greater transparency. This empowers the consumer to make an informed decision taking into account not only price but also the treatment of all involved in the supply chain, the effect of the business' practice on the environment and the investment that the organisation makes in the communities within which it operates.

Research by the Social Market Foundation found that 82% of consumers prefer to deal with socially and environmentally responsible businesses; a sizeable proportion would choose the more responsible business even if this proved to be more expensive. Yet only 2% of those surveyed believed they had enough information to make this decision.

The Government's proposals for directors' of quoted companies producing an Operating and Financial Review includes a requirement for such a report to highlight "social and community issues" and "environmental matters." However the proposals are drafted such that the directors will determine what is required to be disclosed leaving much scope for uncertainty. In addition the OFR is focused upon the financial impact of the particular company's practices but not reporting its wider impact.

There has been a focus upon the treatment by Supermarkets of suppliers and the effect that this is having upon the communities within which these suppliers operate. The major Supermarkets are bound by a Code of Practice which determines the relationship with their suppliers. It would considerably assist the effectiveness of the Code if the Supermarkets were required to make a statement as part of the OFR that they are fully compliant with the Code and the steps that they take to ensure that this is the case.

Similarly oil companies should disclose within their OFR's what steps they take to clearing oil spillages such that the surrounding environment is not affected and the testing they carry out to ensure that this is the case.

By slightly widening the scope and focus of the OFR will ensure that more information is released into the public domain, empowering consumers to decide who they want to do business with.

Curbing excess

Responsible behaviour has to be embedded right at the top of an organisation. Executives are increasing disenfranchisement between themselves, employees and communities by the award of totally unjustifiable remuneration.

The often displayed disparity between executive pay and performance has generated universal anger and does the organisation concerned no favours. I am in favour of 'fat cat' pay for 'fat cat' performance; those who take risks and deliver success should be rewarded proportionately. However too often those on remuneration committees do not set challenging criteria that stretch the ability of management or they readily agree to the inclusion of contractual 'golden handshake' payments essentially for failure.

I believe this is an area where light regulation will encourage more responsible behaviour. Legislation should be introduced that empowers shareholders with a binding vote on executive pay rather than a mere advisory function that they serve at present. In addition the votes cast by institutional shareholders should be made available for public scrutiny.

CSR should not stop at the UK border - businesses operating in overseas jurisdictions owe a duty of care to their employees, the local community and host country. Again this is an area where there is tremendous pressure upon politicians to introduce legislation that will hold UK companies accountable for their actions overseas. Extra - territorial litigation in plaintiff friendly US, under the Aliens Tort Claims Act, has contributed to the bankruptcy of nearly every North American asbestos producer.

Businesses should take heed of this before Governments are compelled to respond by introducing legislation to satisfy a demand for immediate action.

Moreover businesses need to accept that adopting responsible and ethical policies is not a restrictive force on a company's profitability; properly inculcated within the culture of the business makes it more attractive to employees and consumers.