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Management Practices: New Corporate Values – Take Hold

Since the late 1990s, a new buzzword has entered the lexicon of management thinkers and academics: corporate social responsibility, or CSR. Among its chief principles are that corporations not only are responsible for creating jobs and paying taxes, but also ought to pay equal attention to how daily business practices affect — both socially and environmentally — the surrounding communities in which they operate.

Proponents argue that CSR not only promotes better-run businesses that are mindful of the communities in which they operate, but also attracts a cadre of savvy investors who want to feel good about their investments. “The marketplace is increasingly being driven by emotional values,” says Alan R. Procter, a columnist with PPC and president of Alan R. Procter Consulting Inc. in Vancouver, a consulting firm dedicated to future awareness and technology. “For example, branding of all kinds of products and services appeals to an emotional market need.”

Studies show that emotions drive investment choices, and whether or not a company embraces the values framed by CSR sends consumers a message. For one, CSR sends notice that corporations will no longer be the heartless (and arrogant) souls whose chief concerns revolve around shareholder value and inflated stock prices — arguably part of the rubric of self-interest. (Of course, few corporations and the CEOs that run them see themselves in this harsh light.)

Yet, self-interest, enlightened or not, has taken a hit recently, partly because of the Enron scandal that shook the financial world. The energy giant’s fall from grace is an object lesson on how arrogance and greed can blind any company, even one as large and powerful as Enron, and eventually undo it. “Enron’s example demonstrates it’s not only important to say that one operates ethically, but to actually do it and be transparent about it,” says George Khoury, director of the Ottawa-based Conference Board of Canada’s Canadian Centre for Business in the Community, a leading business think-tank.

“Enron had a code of ethics, it had a report that said it operated ethically, but in effect it was all talk — as we have seen from developments,” Khoury notes. To Khoury and others, the message is clear: “A company risks losing business if it operates in a ethical vacuum, making it vulnerable to scandals.”

Becoming transparent

Still, even before the Enron scandal in the United States blew the cover off dubious accounting practices, corporations have been facing increasing pressure (and scrutiny) from such diverse groups as environmental non-governmental organizations (NGOs) and ethical funds managers to become more transparent on how their daily business practices affect people and places.

This scrutiny is largely due to the size of multinational corporations. The world’s largest 200 companies have combined revenues that account for one-quarter of global GDP, the value of all goods and services produced. There is growing sentiment that, as governments spend less on social programs, large multinationals ought to fill the gap. The thinking boils down to this, Khoury says. “If corporations are so large, then they have a responsibility to society.”

That being the case, some companies have introduced the triple bottom line to their balance sheets, a measure of the social, environmental and economic well-being of the company. The triple bottom line goes beyond financial accounting, using accounting principles to report on a company’s environmental and social performance. No longer is shareholder value the only area that company senior executives have to lose sleep over.

Even so, the idea of becoming transparent concerns a lot of company executives, who often equate openness with giving away trade secrets. That is not the case. Khoury points to other natural resource companies operating in the oil-and-gas sector, which have made great strides in becoming more open, thereby becoming more accountable to more groups of people. “They are transparent about what objectives they are promising to work toward and achieve, whether in the area of environment, community investment or human rights,” he says. “The companies then report back on a regular basis to have their performance externally audited.”

Typically, auditors are not from large accounting firms, but from NGOs, which focus their energies on monitoring social and environmental practices than on finding out trade secrets. “The NGOs are not necessarily giving out trade secrets about management goals, but about environmental and social goals,” Khoury says.

To be sure, NGOs have set their sights on universal workplace standards or laws that touch upon, among other things, restricting child and low-wage labour practices. (As part of globalization, industrial nations have set up shop in developing nations like Thailand, Indonesia and Sudan, because they could operate with fewer restrictions.)

NGOs are working with labour organizations to promote such standards as the United Nations’ Global Compact and its nine initiatives, whose aim is to make globalization work for all the world’s people. Some forest-products companies are taking notice. For example, Stora Enso of Helsinki signed on to the UN principles in December 2001. “Historically, many communities developed around sawmills or paper mills, and responsibility was typically a local concept,” said Jukka Hrml, Stora’s chief executive officer. “But today one must also consider responsibility at the global level.”

True enough. “Companies can’t afford to operate one way in North America and another way elsewhere,” Khoury notes.

That doesn’t mean that wages in developing nations have to necessarily match those of North America, he says. The most important thing is to be consistent and frank about one’s practices — even publicly admitting a mistake. “Then, the public and the people watching that company feel some sympathy for that company. The company might say, ‘This is what we expected to do, but it didn’t work out.'”

Attracting investment

Still, many companies are reluctant to admit mistakes, looking at such public confessions as the road to lower stock prices. But, that might not be the case. “Data shows that companies are not penalized [in the stock market] for ethical behaviour,” Khoury says. (See sidebar: Increasing investor confidence.)

There’s more. “CSR values may help investment,” says Avrim Lazar, president and chief executive officer of Ottawa-based Forest Products Association of Canada. “But that’s not the main reason CEOs would implement it in an organization. The main reason to do so is because they live in a community that includes their employees, which own the resources they use. Their children live in those communities. It’s the right thing to do.”

In Lazar’s view, it’s not that CSR results in better corporate performance, whether the measures are financial, social or environmental. “The reason that CSR companies do well is because they have strong management skills and strong leadership, not because they are being rewarded for their CSR.”

Lazar suggests that the access to capital that CSR proponents say are readily available to CSR companies is overstated. “It’s nice that ethical behaviour is rewarded, but that doesn’t generally motivate investors.”

As to whether CSR is another management fad, Lazar is not ready to go that far. It has its place, he says. “Anything that provides a context to dialogue on how an enterprise relates to its community and expresses its values and ethics is a positive thing.”

The best industry example of trying another approach is Weyerhaeuser Co. Ltd., which decided to resolve complex social and environmental issues at its operations in British Columbia, on the Canadian west coast, home to environmental groups and First Nations peoples.

Weyerhaeuser and west-coast forestry companies like Canadian Forest Products, Doman Industries and Norske Canada experienced a huge level of international media scrutiny in the last 10 years, notably over issues such as First Nations land claims, clear-cutting and harvesting of old-growth forests. “We ha
d to reconcile the global perspective with community concerns,” says Linda Coady, vice-president of environmental enterprise for Weyerhaeuser’s BC Coastal Group in Vancouver. In short, ecological issues like saving trees clashed against economical ones like saving jobs.

Sitting at the table

Weyerhaeuser decided to invite environmental groups like Greenpeace Canada, Rainforest Action Network and Sierra Club of BC along with local governments to the table to negotiate an agreement on these long-standing issues, in part to alleviate the economic pressure that west-coast firms were feeling. “The marketplace didn’t like the conflict,” Coady notes. “But what the marketplace wanted to see is people in British Columbia working together to solve the problem. And it’s what we wanted to see, too.”

The negotiations were tough, often messy and tension-filled. “It’s not hard to get people to the table, but it’s hard keeping them there,” she explains. But the process has been worthwhile, even as it continues. The result was the Coast Forest Conservation Initiative and the Joint Solutions Project.

The efforts by Coady and other stakeholders culminated is a land-use agreement to protect more than 600,000 hectares of forests on the north and central coasts of BC, and a commitment to adopt ecosystem-based forest management in the area. Based on the agreements, environmentalists halted their market campaigns against BC-produced forest products. “Consumers want to know that their products come from well-managed forests,” Coady notes.

CSR forms an important part of sustainability. It’s not an option one considers only when times are economically good, Coady points out. “It actually profoundly affects the economics of the business if you do it wrong, or not at all. It isn’t a question of altruism or corporate public relations. It’s actually a key component of the bottom line, to provide value to your shareholders.”

To be sure, British Columbia’s experience is atypical and extreme, but the lessons learned are beneficial to all Canadians. “If things move the way they do, Canada has an opportunity to become a global leader in this area,” Coady says. “No one can manage natural forests the way that Canadians can.”

Is CSR just another management fad? Procter and others say it’s here to stay. “The status quo is not acceptable to consumers,” he says. As for the risk of not integrating CSR in to a company’s corporate strategy, it’s hard to determine the future with any degree of certainty.

But Canadian companies might face trade restrictions from Europe, which has advanced further in CSR policies. For example, United Kingdom has a minister for CSR, a policy that it initiated in 2000. (See sidebar: A look outside North America.) “In a soft marketplace as we are witnessing now, companies worldwide are looking for ways to distinguish themselves — CSR is one way.”

In short, the companies that do well are forward-thinking, ecologically-attuned and consumer-conscious, values that aptly describe corporate social responsibility. If companies are looking at CSR as part of a public-relations strategy, they should be forewarned. The Enron scandal confirms at least one thing: corporations have a responsibility to maintain the public trust, and inform the public of their actions. If not, they will eventually face punishment from consumers and the financial markets. As the Conference Board’s Khoury puts it, “You better do what you are saying you will do.”

Perry J. Greenbaum is an award-winning business and technology writer. He can be reached at pjgreenbaum@metrocast.net