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Have we over-sold corporate social/environmental opportunity vs. risk?

Ironically, of course, a lower fat option…

I think we might have done.

Back in 2001 when Ethical Corporation started out in the world of business ethics, it was all about risk.

Risk that could affect reputation, employee morale, supply security and resilience, and investor confidence.

Don’t just take my word for it. Read this Q&A with Mike Barry from Marks & Spencer, from January 2002.

Much has changed in the 11 years since this was published, and much has stayed the same. An old cliche I know, but one that is accurate in this case.

But somewhere along the way some companies got distracted from the original risk management focus.

Some went too far along the route of “it’s all about corporate social/environmental opportunity” rather than only focusing on that when risk was managed as effectively as possible.

Call it a focus on PR, the distraction of persuading consumers to be climate or eco friendly, or the appeal of minimising energy usage and transport costs and calling it sustainability opportunity.

Call it what you will, somehow, somewhere, the slightly paranoid edge of what was then CSR, sharpened by late 1990s and early noughties scandals, became blunted in some companies.

I was discussing this a week or so ago with a 20+ year stalwart in the industry and he agreed.

Somewhere in the mix of partnerships, macro climate policy, the excitement of consumer engagement (remember carbon labelling?) and so on, we posited over coffee, some businesses lost sight of the fundamentals of risk management.

Then the crisis came along from 2008 and budgets were cut, companies went into a bit of a bunker from which some are still emerging.

Meanwhile the risk side of responsible business grew larger. Regulatory pressure, minor though it is, has created a larger stick with which to beat business, by NGOs, the media and regulators.

Globalisation of sourcing continued apace, Lehman Brothers or no Lehman Brothers, and a growth in nearsourcing due to energy costs brought risk back closer to home, sometimes without the management attention due.

This lack of attention to risk radars, to risk trends, has affected us all. Big systemic, social risks have developed unnoticed, as we focused on bigger, environmental, macro-risks most companies can do little about on their own. (that’s not to say they shouldn’t be tackled, just that dual focus is needed)

Most importantly, technology and the ability of almost anyone, anywhere to report on so-called corporate malfeasance has grown faster perhaps than even Gordon Moore might have predicted.

And so the horsemeat scandal was covered so fast companies had no time to react. And the continuing disaster of Bangladesh’s almost total lack of governance, which has been brewing for a decade, perhaps three or four, became obvious, lightening-fast, recently.

My point is this: Are companies focusing too much on “let’s engage consumers” and “let’s motivate our people with green initiatives” and not enough on “let’s work out our short/mid term risks and manage them better first”?

I know what you might say now. “It is unwise to generalise, you have to look company by company”.

Yes that is true. Much of what I write here is driven by a feeling, rather than anything specific I can point to as unequivocal evidence. That’s what a blog is for, this is not a science journal after all.

I just worry that these dual notions that “companies will save the world by ‘engaging’ consumers” and “boards can only drive change if we call it opportunity” have been hugely over sold versus the management of risk.

Now we are finding out fast, that genuine business innovation that is truly ‘game changing’ is still, sadly, rare, and that consumers are not really motivated by corporate campaigns to change their ways permanently.

As the Accenture study showed recently, CEOs are noticing that many of the easy wins on energy efficiency etc, have been made, and opportunity to save has turned into discussions about serious allocation of capital to go to the next level.

Yes of course we should sell the opportunity of CR/sustainability/ethics to company boards and investors. But not at the expense of better risk management. My concern is that the latter has been substituted by the former in some businesses.

There’s clearly a maturing approach being taken by companies to supply chain risk, as this recent post discusses. It’s moving up the chain of corporate importance, of that there is no doubt. My concern is that companies are being distracted in some cases, from managing these risks as well as they might.

Many companies are run by former CFOs, they, above everyone, understand risk management on the balance sheet.

So whilst we focus on quantifying opportunity we must not forget that equally quantification of risk is at least, if not more, important.

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The online training course “Getting to Grips with CR Communications” begins at the end of November. Check out the modules here, and how to sign up, here.

1 Comment

  1. Hi Toby – thanks, this is thought-provoking. And timely. And it would seem it's time to refocus – the "let's engage consumers" to stimulate demand for sustainability strategy seems to have fallen flat. The European Commission strategy from the early noughties until quite recently was driven by a belief engaging consumers was the right approach. And that would reinforce, perhaps even quell the uproar in the business community in response to demanding environmental legislation (REACH, RoHs, etc).
    That – as you know – has given way to a more pragmatic and potentially inclusive and persuasive strategy (from what I understand – and we probably have the global financial crisis to thank for that; and all the corporate malfeasance implicated in it) that links sustainability to competitive advantage and long-term value creation.
    What has surprised me in conversations in the past year or two is a reluctance in certain quarters in the North/West/developed world to accept that risk management is a valid or even acceptable driver of CSR, sustainability whatever we care to label management of long-term strategic social and environmental issues (and a laboured debate about what CSR means to different people in my opinion should be avoided – the challenges are too pressing to prevaricate any further).
    My focus since returning from the Egypt right after the Arab spring in early 2011 has been mining and resource extraction. What I observed in speaking with and following a lot of the listed multinational players – and this may be peculiar to these industries – is a focus on and commitment to sustainable economic development, promoting transparency to secure “(social) licence to operate” (driven by Dodd Frank in the case of eastern DRC – legislation which back-fired driving well-run, responsible companies out of the region because the risk of continuing to do business there seemed too high; the FLEIGHT legislation and the Transparency Directive). Look at De Beers, look at Anglo American, Tullow Oil, Gemfields PLC to name a few. These companies understand their social licence to operate is premised on good conduct and a commitment to the communities impacted by their operations. Getting it wrong leads to incidents like – with all the damage inflicted – the one witnessed in Marikana, South Africa.
    It looks like Ruggie's Guiding Principles have put a lens on and clarified the roles of the various actors. And in so doing promises to stop the buck-passing which has led to circular debate (like the one about – this one still seems to be rumbling in one of the groups I subscribe to in LinkedIn and is a pet hate of mine – namely, “how do we define CSR?”).
    The phrase that seems to best sum up the benefits of responsible conduct (often in the face of companies from other parts of the world who do not engage in debates about such issues) is Sustainable Long-Term Value Creation.
    Those four words address the interests and concerns of multiple stakeholders in an era of competition for natural resources. Pursuing such a strategy looks like a true win-win. For Business and Society. Provided of course all the actors live up to their respective responsibilities.
    My observation – I’m currently in Brazil – is EP & H&S legislation is often used to justify the agenda of vested interests: those of the powerful over the disenfranchised. I’m not suggesting for a moment that’s what’s happening here. That would be very controversial. And would probably also jeopardise my own interests.
    What really counts according to a certain view is the lives and livelihoods of the most vulnerable stakeholders, those whose voices are often excluded (for very innocent reasons) from the debate.

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