Redmond, Louise --- "The Challenge of CSR" [2005] ALRCRefJl 23; (2005) 87 Australian Law Reform Commission Reform Journal 22

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Reform Issue 87 Summer 2005/06

This article appeared on pages 22 – 26 of the original journal.

The challenge of CSR

By Louise Redmond*

Corporate social responsibility¹ has grown in recent years from a fringe activity by companies such as UK skin care retailer The Body Shop and US ice cream company Ben and Jerry’s to a highly visible priority for many companies.

The key influencers that have moved corporate social responsibility (known by its acronym CSR) to centre stage have been globalisation, the changing role of business in a world where the boundaries between private sector/government/civil society have become blurred, and the erosion of trust in our institutions, especially business.

There is no single definition of CSR. However, stripped to its essence, corporate social responsibility requires four things of companies:

• open and transparent business practices;

• ethical behaviour;

• respect for stakeholder groups;² and

• strong performance on economic, social and environmental issues.

Companies who engage with CSR across these dimensions do so from a belief that achieving economic objectives and social objectives can be complementary—they do not rule each other out. It is not straightforward and simple—that is the challenge of the CSR agenda.

This article illustrates how Australian companies have responded to this challenge.

Why CSR matters

There are many answers to this, but here I focus on three reasons.

1) Employees are a vital part of a company’s ability to operate. They are a key stakeholder group who respond to CSR.

2) Access to business opportunities. Much is made of the ‘social licence to operate’. While that is important, linking CSR to the business strategy of a company opens up new opportunities.

3) Trust is an integral part of our social fabric—from eating food that a stranger has prepared, to giving our credit card to pay for that food. As a community, we need to have trust in our institutions as well as in each other.

Employees

Critical issues facing human resource managers in today’s workforce include recruiting and retaining top talent; building a sense of engagement with the company; creating incentives for exceptional performance; and enhancing critical competencies.³

Corporate social responsibility can add significant value to a company’s attempts to face these challenges.

Employees want to work for a company they are proud of; this goes beyond pay and conditions. For some companies, this means finding ways to engage with the community in a strategic manner (that is, aligned to their business) that links with the interests of employees, reflects corporate values and delivers results in the community and for the company.

Our experience has shown that three factors that are particularly important to employees are meaning, balance and trust. The opportunity to be involved in a community investment program is, for many employees, a way of getting a greater sense of meaning in their work, some balance between work and community, and can add to their level of trust of the business.

Access to business opportunities

The role of business in society is at the core of any consideration of CSR. The debate is caught between two contrasting positions—those who argue, like Milton Friedman, that ‘the business of business is business’, and those who argue that business should be mindful of its impacts. In a recent article, Ian Davis, of McKinsey and Company, drew attention to how social issues are, in fact, a fundamental part of the ‘business of business’.

‘Companies that treat social issues as either irritating distractions or simply unjustified vehicles for attack on business are turning a blind eye to impending forces that have the potential fundamentally to alter their strategic future.’⁴

Just a few years ago, obesity was seen as a combination of genetics and unhealthy lifestyle choices—certainly not the responsibility of food companies. Today we are seeing calls for further controls in the marketing of unhealthy foods. Companies can take a defensive position or look for new market opportunities. The challenge of CSR is to be open to the importance of social issues for corporate strategy. A version of CSR which is about producing an ethical policy, a glossy sustainability report, or an employee volunteering program, is not the full picture of what corporate social responsibility can deliver.

In its simplest form, it is clear that businesses will not find growing markets for their goods and services in an economic environment where people do not earn income; that an educated and healthy workforce is critical for a business to succeed.

Management guru Michael Porter (with Mark Kramer) recently argued that we have moved beyond seeing economic and social objectives as distinct and often competing:

‘In the long run, social and economic goals are not inherently conflicting but integrally connected.’⁵

In this article, Porter and Kramer use the example of the Cisco Networking Academy Program, where Internet network company Cisco Systems focused not on the educational system overall, but on the training needed to produce network administrators—the particular kind of education that made the most difference to Cisco’s competitive context. But Cisco’s CSR approach goes way beyond the Networking Academy Program.⁶ In Australia, Cisco has a strong commitment to reducing the ‘digital divide’ in Indigenous communities. It is the lead technology partner for Indigenous Enterprise Partnerships in Cape York where it has made a long-term commitment, along with other major corporations and mid-sized companies.

It is the ability to be attuned to social issues relevant to your business, through engagement with stakeholders, and then translate that into business strategy, that sees corporate social responsibility adding real value to a company rather than being seen as a ‘fad’, an expense or a defence against regulation.

Trust

Lack of trust in business is as much an issue in Australia as it is elsewhere. The 2005 Sweeney Research Eye on Australia found that nearly two-thirds of Australians perceive business as being untrustworthy. More than half believe that big corporations have no morals and ethics. Other research has consistently reaffirmed these findings.

Trust is the element that ‘oils’ our relationships, whether personal, within the workplace or in doing business. It is integral to our institutions—especially legal institutions, for readers of this journal.

The challenge for CSR is to understand what builds trust. It is a combination of having open and transparent practices, being responsive to stakeholders (that is, being willing to listen to what is important to stakeholders about how your company operates), and having strong performance on economic, environmental and social issues.

There are a number of ways that companies can do this, from signing up to initiatives like the Corporate Responsibility Index and the UN Global Compact, through to producing CSR or sustainability reports which give an honest and transparent report on performance on indicators that are important to a wide range of stakeholders.

Fundamentally, it is about having real performance, not just for ‘show’. It’s about having your own employees be your ‘brand ambassadors’ because they are in a unique position to understand what it’s like to work in your organisation, and how deep the culture, the ethical behaviour and the stated commitments go.

CSR and law firms

Does corporate social responsibility matter to law firms? This is an interesting question and many law firms struggle with it. Law firms are not publicly owned—their ownership is through a partnership. Yet the larger firms are very ‘corporate’ in their structure. They aim to provide quality services, in an ethical manner, for a profit.

The ‘professional’ tag for lawyers seems to be the one that separates them from CSR. Pro bono law is the way in which law firms make a contribution to the disadvantaged in society— this is a professional obligation, which all law firms take part in to a greater or lesser extent.

Inherent in pro bono law is that it is ‘for the public good’, and it is done quietly—without drawing attention to oneself, or using it for brand value/marketing.

The limitations of this approach are many.

Firstly, pro bono law is restricted to lawyers, yet people who are not lawyers make up about half of the firm’s workforce. This effectively denies these employees the opportunity to actively contribute to the community through their workplace.

Secondly, employees (whether lawyers or not) are a key stakeholder group. The economics of retaining staff, after the initial investment in their training, is a driving factor in being sensitive to what employees want from a firm. CSR can be a powerful tool in building employee pride and loyalty, as well as providing a way of enabling employees to find meaning and balance in their work.

Thirdly, law firms, like other businesses, need to proactively look for competitive advantage and brand value in their activities. CSR gives the opportunity to use positive achievements for business advantage.

Finally, the ‘supply chain model’ is having an impact on law firms. Companies who have embraced CSR across their operations now look to their suppliers to demonstrate their CSR credentials. For government, this means the number of pro bono hours recorded. For other companies, this means assessing a supplier’s track record in how they manage their social and environmental impacts as part of the selection process. Legal services are an integral part of a business/government’s work; hence law firms are being asked to demonstrate their performance on CSR dimensions.

Taking up the challenge of CSR

There is no one path for adopting a CSR approach. It will depend on what aspects are most important to your company, whether it is large or small.

Some approaches are:

Develop a community investment program. A community investment program should engage your employees, have a clear link to your business and offer the opportunity to make a positive difference to a section of the community where you do business.

Consider your organisational culture from an ethical standpoint. Is there an entrenched culture of a high standard of ethical behaviour? What are the messages from senior management around this? What training and reinforcement of stated values are there in the company?

Develop your workplace environment. Is this ‘a great place to work’? Does the level of staff turnover fit with your industry norm? Is diversity valued? Is occupational health and safety a priority? Are employees able to have a reasonable balance between work, family and community commitments?

Reduce your environmental impact. Office-based professional service firms often discount their environmental impact. Yet the collective weight of impacts such as waste to landfill, energy use, water use, and travel is very significant. There are ways to minimise and offset these.

Commit to measurement and benchmarking of CSR activities. Finding ways to measure non-financial performance is a challenge. There are now tools for measuring and benchmarking community investment. The London Benchmarking Group model (LBG) is being adopted by companies in Australia as a way to track the inputs, outputs and impacts of their community investment over time.⁷

A commitment to measuring and benchmarking can give companies a way to make their activities tangible, and connect to the core of the business. Every other part of the business is actively managed for results. Community investment also needs to achieve results—for the community and the business.

Take part in external ratings. The Corporate Responsibility Index, managed by St James Ethics Centre in Australia and New Zealand, is a useful tool for a company to work through what is involved in corporate responsibility.⁸ It gives companies a structured approach to follow, and comprehensive feedback on their performance.

For listed companies, indices such as Dow Jones Sustainability Index are a useful means to demonstrate performance.

Prepare and publish a CSR/ sustainability report. Communication on performance is important to a company. How can employees take pride in a company’s performance if they are not aware of it? How can clients, customers or other stakeholders understand performance and use it to shape opinions and behaviours if they do not have access to information?

Reports can be as simple as a wall chart that sets out your key issues and how you have addressed these, right through to a comprehensive report using the full extent of the Global Reporting Initiative.⁹

Listen to stakeholders. Find out what aspects of your social, environmental and ethical performance are important to your stakeholders and how they think you are performing. This can be as simple as analysing customer and employee satisfaction feedback that you may regularly gather. Or it can extend to setting up forums with specific stakeholder groups, such as customers, government, suppliers, local communities, non-government organisations.

Understand the supply chain model. This includes developing an understanding of where you fit in the supply chain of other companies who have specific standards around CSR performance. It also means looking at your own supply chain—how you treat suppliers, and what you know about the conditions under which the products you use to run your business are produced.

Sign up to the UN Global Compact. The Global Compact is a voluntary initiative set up in 2000 when Secretary-General Kofi Annan invited business leaders to sign up to 10 principles covering human rights, labour standards and environmental responsibility.¹⁰ The challenge is to turn support for these principles into day-to-day running of business to create value and improve performance.

Conclusion

The challenge of CSR is how to turn the aspirations that organisations have to be socially responsible and a positive force for good into reality, in a context that is full of daily tensions, paradoxes and competing demands.

The task is to find ways that business can use the particular skills and resources it has access to to create value in the communities where it operates, at the same time as creating value for its owners, investors, shareholders.

We face huge social and environmental challenges domestically and globally. No longer can we expect ‘someone else’ to solve these challenges—business, civil society and governments must all find ways to work together. Corporate social responsibility has the potential to be a tool to do this. Let us rise to the challenge!

Case Studies

Unilever’s Reading for Life program

Anglo-Dutch multinational Unilever has a global approach to its CSR. It has a focus on health, education and the environment. When employees were asked their priorities within these areas, literacy emerged as a major concern. As one employee said, ’what chance have kids got, if they can’t read when they leave school?’

Positive Outcomes was then tasked to develop a program that made a real difference to improving reading skills for children and did so in a way that actively engaged employees.

The result was Reading for Life. This is a 14-week program, where employees commit to attending a local primary school once a week, and work with a student in Years 2–4, who the teacher has identified as needing some individualised assistance with reading. Learning Links, a non-profit organisation which specialises in assisting children with learning difficulties, prepared a detailed kit for the ‘reading buddies’ to use, and trains and supports the employees over the 14-week course.

This program has proved very popular with the employees, the schools, the students and their parents. Reading improvement is tested, and the students have benefited from this program. Unilever’s goal now is to open up this program to other companies and public sector organisations to use; their vision is that by 2010, 10,000 school children will have taken part in Reading for Life, and be able to read confidently and capably at their age level.

Community Voice Mail

Cisco Systems in the US is a major contributor to this non-profit service. Cisco is now supporting its introduction to Australia.

Community Voice Mail is a service where homeless people without a telephone can have free access to their individualised voice mailbox from a public phone.

Cisco’s Unity (VoIP or Voice over Internet Protocol) technology is used to provide mailboxes for those who may not have access to phones—this is critical in helping them secure jobs and services.

‘Community Voice Mail is a great example of what we look for in a partnership. They focus on the basic needs of underserved people and are incorporating Internet technology to create scaleable, more efficient solutions. It’s very satisfying to know we are helping to offer thousands of people a tangible tool to reclaim their lives.’

—Michael Yutrzenka, Executive Director, Cisco Systems Foundation

AGL: Energy for Life

AGL is an Australian energy company that developed a community investment program that connected its employees, its desire to contribute to the community, and that stayed within its core competencies.

AGL decided to focus on homelessness as a theme. With three million customers, they saw a link in reaching out to those who do not have access to their energy services.

Energy for Life has four parts:

Warmth in winter: AGL pays the energy bills of homeless shelters during the winter months.

Energy matters: promoting energy efficiency, with specific projects to assist low-income communities achieve energy efficiency.

Employee volunteering: opportunities to get involved through partnerships, especially around homelessness, in work time.

Employee giving: workplace giving.

AGL’s CSR approach goes beyond its community investment program. For example: it grapples with the environmental impacts associated with its products; it set up structures to engage with stakeholders; it has a strong focus on health and safety performance. In October 2005, AGL released its second sustainability report.

* Louise Redmond is Director of Positive Outcomes, a company that advises businesses on their CSR strategies and programs. She manages LBG Australia, a model for measuring and benchmarking community investment.

Endnotes

1. Other terms that are commonly used are ‘corporate responsibility’, ‘corporate citizenship’ and ‘sustainable development’. In this article CSR is intended to cover these terms.

2. A stakeholder is anyone who affects or is affected by a company’s operations. The key perception is that company decision makers need to consider a range of interests from customers and shareholders to employees, suppliers, local communities, pressure groups and even potentially, future generations.

3. World Business Council for Sustainable Development Driving Success: human resources and sustainable development (2005) at <www.wbcsd.org/web/publications/hr.pdf> (7 Nov 2005).

4. I Davis, ‘The biggest contract’, The Economist, 28 May 2005, 69.

5. M Porter & M Kramer, ‘The Competitive Advantage of Corporate Philanthropy’ (2002) 80 (12) Harvard Business Review 7.

6. L Redmond, ‘Cisco Systems: Global Programme: Local Impact’ (2005) 17 (Spring) Journal of Corporate Citizenship 69.

7. See <www.lbg-australia.com> for more detail.

8. See <www.corporate-responsibility.com.au> for more detail.

9. The GRI has specific resources for small and medium sized businesses, as well as public sector agencies. See

<www.globalreporting.org>.

10. See <www.unglobalcompact.org> for more detail.