Michael Fitzgerald looks at how organisations regard their social responsibilities and how these have evolved to become integral today
The aims of corporations have changed significantly during the past half century. Much of the renewed focus on corporate social responsibility has come via the identification of the need for 'sustainable development'. The UN-sponsored report Our Common Future, also known as the Brundtland Report, defines sustainable development as "development that meets the needs of the present without compromising the ability of future generations to meet their own needs".
Sir Adrian Cadbury, speaking at the World Bank's Global Corporate Governance Forum in 2000, defined corporate governance as being "concerned with holding the balance between economic and social goals and between individual and communal goals. The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources."
Nearly 20 years on from Sir Adrian Cadbury's remark, the prestigious Harvard Business Review in its February 2018 edition nailed its colours firmly to the mast:
"We are witnessing a big, transitional moment - akin to the transition from analogue to digital, or the realisation that globalisation is a really big deal. Companies are beginning to realise that paying attention to the longer term, to the perception of their company, and to the social consequences of their products is good business."
The phrase 'corporate social responsibility' (CSR) can be interpreted in many ways. The main approaches may be summarised as:
- Any business entity has a single reason to exist and that is as a means of wealth creation for its shareholders. The economist Milton Friedman would have been the most easily identified champion of this view in the latter half of the 20th century.
- Others see society and business as inextricably linked and driven by ethical considerations. There would seem to be very little overlap between this approach and the previous one, and yet both models have produced profitable businesses and wealthy shareholders.
- A variant of the above involves company owners identifying that the company has the power to influence society. The company may take the opportunity to operate in the social sphere to exercise this power.
- A fourth approach sees the need to integrate social needs into business methodology, in recognition of the fact that the company would not exist without the needs of broader society.
The modern approach
According to Michael Hopkins, editor of and contributor to CSR and Sustainability - From the Margins to the Mainstream: "CSR is steadily moving from the margins to the mainstream across the spectrum of private companies, NGOs and the public sector. It has grown from being a concept embraced by a small number of companies such as The Body Shop in the 1980s, to a widespread global movement. At its weakest level, it is represented by a few philanthropic gestures by organisations but, when applied in its most complete form, it can steer the organisation or sector to deliver a fully-fledged, system-wide, multi-stakeholder operation, accompanied by multiple types of certification."
The key difference between the approaches is in defining who the stakeholders are for any business. For example, Tata Sustainability Group's mapping of stakeholders (Figure 1 above) for any business looking at CSR and sustainability goes well beyond Milton Friedman's narrow shareholder focus.
Shankar Venkateswaran, Tata Sustainability Group CEO, elaborates on the concept of sustainability and its relationship with corporate social responsibility: "This automatically implies that a company must a) map its stakeholders b) understand what its stakeholders expect of it in terms of environmental, social and financial performance, and consequently c) build a business model that incorporates these expectations. The governance processes have a key role to play in enabling and ensuring this."
A sure sign of the change in approach is the increasing number of organisations that now exist in order to rate corporations on CSR and sustainability. This is a seachange; something is only measured if it is deemed to be of value, and CSR and sustainability are now valuable currencies. But how real is the commitment?
Questions to ask when considering whether a business is truly committed to CSR include:
- Are CSR and sustainability built into the business model?
- Is it evident at executive level?
- Does someone have oversight and responsibility for these issues at board level?
- Does meeting or failing to meet CSR and sustainability targets impact on remuneration?
- Are targets set, communicated, assessed and reviewed?
Although the CSR key performance indicators (KPIs) will differ depending on the organisation, they are, in all instances, quantifiable financial and non-financial measures. They should be included in the organisation's strategic plans.
Inconsistencies in the application of CSR and sustainability have undermined much of the progress made. A billionaire business leader may be donating to charities supporting the homeless under the guise of CSR, while the business model giving rise to these super-profits is founded on minimal labour rights and zero-hours contracts. That same business may be contributing to lobbying firms which campaign against earmarked levies to fight homelessness.
While the donation may hit the first mark of CSR, the approach here fails to meet the broader definition of business sustainability, as well as having negative social impact.
Practical and scaleable
Sadly, the cost of a senior staff member taking time out to appear in a promotional picture presenting a giant cheque to a community organisation is often higher than the sum raised for the charity. It may be cost-effective advertising for the company, but it is not genuine CSR.
I remember meeting excited colleagues who, with no carpentry experience between them, had earlier in the day helped repair damaged park furniture. They were buzzing and enjoyed a sense of bonding in the pub that night. The reality was that the council dismantled their work the next day as it was a danger to the public.
If one's finance team was preparing statutory returns and a member of the sales team turned up to help to raise money under the guise of 'team-building', they would be sent packing. Similarly, if the valuation actuary decided they would like to undertake a 'sponsored Movember IT migration', they would be told, in no uncertain terms, that they should stick to the area where their skills apply.
If companies are serious about engaging with community organisations on an ongoing basis, then it would seem axiomatic that the company recruit and employ individuals who understand the requirements and complement the skillset to make the community organisation more effective. If the company is serious about CSR and sustainability, it should then treat these issues as a core part of the business and apply the same professionalism it applies to revenue generation and compliance. CSR is not a hobby.
We are a small consultancy with four employees. Three of the team are assigned to revenue generation and administration. The fourth employee's only role is to partner with and mentor small community organisations that are already making an immediate positive impact to vulnerable people. This part of the business, community support resources, is a cost to net income and generates worth in a different currency than revenue - but it is a core part of our business model. Information on progress is shared on a monthly basis, and the addition of future staff will hinge, in part, on their buy-in to this principle. Progress is reviewed with the same diligence as any other projects.
In the past year, we have succeeded in helping two organisations: one providing creative classes to adults with mental health difficulties and the other providing opportunities for integration for female asylum seekers in Ireland's Direct Provision system (asylum seeker accommodation). This has indirectly led to the city's Library Services linking to the children of asylum-seeking people living in the Direct Provision centres. The day these children delighted in the discovery of the library services was the proudest in my 30-something years as an actuary.
There is nothing in our small-scale model that is not scaleable if companies make genuine CSR a business priority, allocate resources accordingly and employ people with the necessary skillset to make a real impact. In fact, I would suggest that making CSR an integral part of the definition of 'business as usual' should be the aim, rather than merely a photo opportunity or a marketing exercise.
Michael Fitzgerald is director at Fitzgerald Actuarial