Business representatives are adamant that a voluntary approach to CSR, driven by competitive advantage, marks the best way to take the agenda forward. Pressure to legislate is mounting, however. Briefing invites two proponents of the debate to have their say.
Phil Hodkinson is a director of HBOS, chairman of BITC’s Corporate Impact Reporting Initiative and member of the DTI OFR Working Party.
Whether the business rationale for corporate responsibility is aimed at improving brand reputation, customer loyalty, employee advocacy or otherwise, there is no doubt that UK plc and the City are now paying attention to the issue.
Corporate responsibility is expected to be the next source of competitive advantage; an advantage that some will grasp and others, to their cost, will not.
That each business will find that a different formula works best for them is undeniable. Like all successful business strategies, the focus of corporate responsibility has to be tailored to the needs of the organisation and the market in which it operates if the outcome is to be truly differentiating. Powerfully, this will require businesses to individually understand and decide what action to take, rather than simply permit them to adopt off-the-shelf solutions with all the attendant problems of “not invented here”.
Equally, it is clear that it’s not sufficient to just have a good or worthy plan; the quality of execution is as critical to the outcome as it is for any other aspect of strategy. This will require leaders to enthuse and motivate others to act, will require managers to be disciplined and to be held to account, and will require widespread and effective communication internally.
All of this offers the best prospects for accelerating the pace at which corporate responsibility becomes an integral part of corporate life. As businesses demonstrate that their performance has been enhanced by a positive, differentiated approach, corporate responsibility will become a “must have” on the strategic agenda of all but the most moribund organisations.
And as with other aspects of corporate strategy, commercial advantage will only be maintained if the source of competitive differentiation is constantly refreshed and upgraded. It is through this competitive market pressure that the corporate responsibility agenda will inevitably move forward in society with the greatest speed and the greatest impact.
Brian Shadd’s response
Voluntary CSR holds society and the environment to ransom. By arguing in favour of using CSR for “competitive advantage” as Phil Hodkinson does, he naively assumes that the market can reach a point of perfect harmony, that there are never any tradeoffs to be made. But all economists know the market isn’t perfect, and any business worth their muscle knows that tradeoffs are part and parcel of competition. A business cannot survive unless it is profitable, and if that means placing things like the environment or societal goods in second place, then that’s what will happen.
The Company Law approach to defining ‘materiality’ is an important first step, but it is destined only to deliver modest improvements. Will it bring up the laggards? Highly unlikely. If business now fails to see the relevance of social and environmental impacts (especially in terms of risk) where there is noimmediate pressure from consumers or shareholders, then it’s unlikely that they’ll behave any differently under the new regime. And the leaders will continue to make relevant trade-offs.
What is needed are mandatory reporting and performance standards, so that ‘materiality’ doesn’t become a hedging point for corporate strategy. Public goods should not be held to ransom through the voluntary approach: they should be non-negotiable.
Brian Shaad is campaign coordinator for the Corporate Responsibility (CORE) Coalition. CORE is supporting a parliamentary bill that requires companies to report openly on environmental and social issues andinvolve stakeholders in this process.
“Legislation is unnecessary.”
“Business can regulate itself.” “Regulation imposes yet another burden on business.” The arguments against corporate responsibility legislation fall within the usual business mantra that all regulation is bad. But business should look beyond the usual rhetoric, and see that their arguments don’t make the case – not for the public; not for shareholders.
Self-regulation has so far failed to deliver responsible business practice beyond the ‘leaders’. In spite of all the hype and the good intentions, the majority of companies (including some of those who issue social and environmental reports) are far better at avoiding responsibility than facing it head on. And generally, they do so only in the name of ‘brand reputation,’ which can represent up to 75% of a company’s value. But at the end of the day, it’s the stakeholders and shareholders that suffer the consequences.
An unfocussed and opaque approach to corporate responsibility can do more harm than good – and it’s the misguided attempts of a small minority that can drag down the public’s and shareholders’ trust in business.
Take the latest corporate responsibility scheme from chocolategiant Cadbury’s, who are now offering vouchers for school sports equipment, in return for purchasing huge volumes of chocolate. Perhaps this is causerelated marketing at its best. In the interests of public health and childhood obesity, it’s corporate responsibility at its worst.
Without a legal framework of set, quantifiable indicators, companies only benefit from what they choose to report, overlooking the possible benefits of a broader approach. As Environment Minister Margaret Beckett recently noted, “We cannot rely on business to show too much altruism” where there is no immediate and tangible reward. And as the Cadbury case shows, the tangible rewards come in the form of bending the corporate responsibility framework for business ends.
The forthcoming Corporate Responsibility Bill provides Government with the opportunity to take a lead and present companies with a fair and legal framework, which can deliver real benefits for all. Business should also see that they have much to gain by accepting this type of legislation and can play a proactive role by supporting such an initiative.
Phil Hodkinson’s response
There is and always will be a need for legislation and regulation to set the minimum standards expected of commercial organisations.
But contrary to Brian’s confidence in regulation as a motivator for advancing the corporate responsibility agenda, mandatory requirements will do nothing to encourage organisations to raise their game or to go beyond compliance, no matter how onerous. It is the attraction of competitive advantage that drives businesses to develop best practice and ultimately embarrasses laggards into action.
In this context, the proposed changes to Company Law that will require companies to report inter alia on the material aspects of corporate responsibility are to be welcomed. This will encourage directors to understand the subject more fully and how it can benefit the bottom line. It will promote transparency and strengthen market pressure.
In short, I concede that both regulation and voluntary action are required; regulation to prevent abuse by the few; voluntary action to inspire best practice amongst the many. But regulation that sets out to inspire is bound to fail; regulation that strangles or severs voluntary action, such as the CORE proposals, will do more harm than good.
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