Simple steps to sustainability
Why CR? Making the case from
righteousness to riches
Lecture 2:
Cranfield University, 12th January 2009
David Logan
Structure of presentation
1.
Introduction
2.
Motives for responsible behaviour
3.
The importance of core values
4.
Examples of responsibility issues being reported
1
1. Introduction
Government
For-profit
34%
60%
Not-for-profit
6%
Informal
Figures relates to share of US GDP 2000
2
Introduction
• Companies are ‘corporate citizens’ of our society
• They have rights and responsibilities as private citizens do
• All have
- economic and social power
- environmental impacts
- choices about how they behave
• CR is about how these choices are exercised
• Multinationals have immense scale
3
Introduction
Who are these corporate citizens?
50,000 multinationals
and 300,000
multinational affiliates
Millions of small and medium sized
business
The Fortune 500
4
The ownership of the Fortune Magazine top 500 global
multi-nationals in 2007
10
38
94
7
184
Other
European
North America
Asia developed
Asia developing
South America
167
5
Introduction
• Private sector is immensely diverse in terms of
- ownership
- products and services
- business to business or consumer facing relations
- creativity
- social sensitivity
• What are the factors which tend to support responsible choices across this group of institutions?
• Financial strategy is key
- all play by the rules of the market
- short-term profit maximisers exist
- long-term profit optimisers dominate
6
2. Motives for responsible behaviour
• Why might private companies choose to behave?
• Five possible forces
1. The law
2. Threats to reputation
3. Opportunities to build the business
4. Mutual self-interest with stakeholders and the wider society
5. Moral conviction
• Mixed motives are common
7
Motives for responsible behaviour
1. The law
- Law has been used extensively to control corporate behaviour
• slavery
• health and safety in factories
• financial integrity
• environmental impact
- Law tends to lag behind corporate practice
• ‘the creative destruction’ of capitalism is very powerful
- Law is based on local jurisdictions
• may be absent
• not enforced
• may be offensive
- International law is very weak
- Prosecutions can be expensive
- However law also creates the level playing field for business
8
Motives for responsible behaviour
2. Threats
- Reputation is a key business asset
- Charges of irresponsible behaviour can damage reputations
- NGOs/media are key initiators of criticism
- Damage to reputations can lead to loss of business
• consumer boycotts
• employee de-motivation
• investor confidence
- Risk management is a key response
- Legislation may follow if there is no corporate action
- Costs can be small or large
9
Motives for responsible behaviour
3. Opportunities to build the business
- Some businesses offer corporate responsibility as a competitive advantage in the marketplace
• Ben & Jerry’s
• The Body Shop
• Fairtrade products
• socially responsible investing
- Consumer expectation operates at a lower level too
• ‘fix it for us!’
• cause related marketing
- Business to business is also effected
• WalMart supplier requirements
- The competition for talent
• BP
• GE
- Costs are seen as an investment
10
Motives for responsible behaviour
4. Long-term self-interest
- Building relationships with stakeholders is key to long-term success
- Employees
• company towns
• healthcare provision
• education and training
- Suppliers
• investment and technology transfer
- Communities
• corporate giving and volunteering
- Moderate costs but long-term mutual benefits
11
Motives for responsible behaviour
5a Moral convictions
- Ethical concerns are real in business – there is such a thing as business ethics!
- Trust is the basis of so much business behaviour
• key to long-term sustainability of the business
• it is cost effective
- Big CR decisions often have a strong ethical aspect
• withdraw from a country e.g. South Africa
• withdraw a product e.g. J&J Tylenol case
• lose a contract by not paying bribes
- Ethical behaviour can be very costly – but it is the right thing to do
12
Motives for responsible behaviour
5b Moral convictions
- Marxism saw all profit making activity as ethically wrong
- Religious groups see some business fundamentally unethical?
• tobacco
• alcohol
• gambling
• pornography
• arms
• animal products
- Some single decisions are seen as wrong
• factory closures
- Often no right answer – only the one the company can stand behind
- Values do vary around the world – but UN system is developing global standards
13
3. The importance of core values
• Charismatic CEOs don’t have all the answers – they can’t be everywhere
• CEOs create the values framework
• Employees
- act in the company’s name
- live its values
- are responsible for its reputation
• Employees need clear guidance about responsible choices
• Companies need to explicitly state their values
- rule driven -v- building an ethical culture
14
Importance of core values
Values into Action
Corporate Mission
Values Statement
Code of Business Principles
Policies e.g. environment, supplier code,
diversity statement
Business performance
1. Corporate functions e.g. HR, marketing
2. Operating units
15
Read through the J&J Credo – one of the best articulations of corporate values there is
16
Importance of core values
17
The importance of core values
• Values bind an organisation together
• They inform policies and practice
• Practice can be measured and performance can be understood often in numerical form
• The debate about values within a company needs to be based on facts
• Next lecture is about measuring responsible performance
18
Who shares in Unilever’s success?
19
Diageo – who’s responsible?
In a country report too
20
Anglo: benefits and taxes
21
Danone: access to products
22
Danone: pay
23
Starbucks: pricing & sourcing
24
Shell: business ethics
25
Give us a ring
For further information please contact:
David Logan
Chairman and Co-founder
Corporate Citizenship
5th Floor, Holborn Gate
330 High Holborn
London WC1V 7QG
United Kingdom
T: +44 (0)20 7816 1616
E: david.logan@corporate-citizenship.com
W: www.corporate-citizenship.com