Roger Cowe: are CSR managers in line for a promotion?
July 01, 2003
The recent furore over executive pay demonstrates that the inner sanctum of many corporate boardrooms still remain beyond the bounds of the humble CSR manager. Here Roger Cowe makes the case for CSR considerations to be promoted onto the corporate governance agenda.
The press has been enjoying a feast of juicy fat-cat stories the like of which we haven’t seen since the “Cedric the pig” row in 1995 – when Cedric Brown’s 74% pay rise at British Gas caused such a storm. Then the government’s concerns resulted in the Greenbury report. The current administration has introduced accountability by requiring a vote on remuneration committee reports. But so far as action is concerned, we are not much further on. The message on executive pay is still essentially: “something must be done, but we don’t know what”.
But the reputation damage has hit business, not the politicians, which must be something of a shock for CSR people charged with guarding a company’s reputation, but never having been anywhere near the remuneration committee. CSR managers have no doubt long shared the current interest of both press and shareholders in their chief executive’s remuneration package. After all, that is where they get to know how much the boss stands to gain should he get fired! However, boards have not habitually reciprocated the CSR managers’ interest in their pay packets, failing to consider that remuneration policy requires an input from the CSR team.
The recent furore has demonstrated, however, that the outside world considers excessive pay-offs to be irresponsible – and therefore a matter of corporate responsibility – even if the directors don’t. It is an example of corporate governance and corporate responsibility coming together, and making both rather more important than they may have seemed to many senior executives.
That is not to say that leading companies have treated corporate governance trivially (although that may be true for CSR in some cases). It is, after all, a subject dear to the hearts of many major shareholders, and what is dear to their hearts gets the attention of the board. But it has been seen as a pretty technical, procedural issue – you need the right boardroom structures and the right length of contracts, and then the shareholders will be happy. Now they know that simply going through the procedural motions is not enough. If you are spotted doing something irresponsible – like agreeing to pay a chief executive £30 million or so in the event of his being fired – you will be punished. The same applies to CSR. It doesn’t matter how good your stakeholder dialogue is, how closely your reporting follows the Global Reporting Initiative and AccountAbility’s standards, or even how sincerely you can expound on values and commitment. A company that is caught fouling up will be punished. In fact, not just companies, as the government has discovered with its little difficulty over unsustainable wood.
That is why CSR must be at the heart of a company, engaging with all aspects of responsibility. Even in purely shareholder terms, any risk manager attempting to meet the requirements of Turnbull and the Association of British Insurers guidelines should take into account the reputational risk of corporate governance issues such as top pay, as well as the dangers of child labour or poorly-sourced timber.
But as a recent paper by Henderson Global Investors points out (Governance for Corporate Responsibility, see Guest Editorial), even those companies that are advanced in thinking about risks in this way tend to manage the process through the audit committee. Its financial focus may not be as appropriate as a dedicated board committee on corporate responsibility. Unfortunately for this argument, GSK is one of those which has such a committee, but that didn’t stop it walking into the remuneration firestorm at its annual meeting.
Whatever the board structure, it is hard to see the head of CSR going to the chief executive and explaining that the pay package on the table is against the company’s interests because of reputation risk. Which is why these things will continue to be played out in the pages of the newspapers.
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