Leo Martin is a director and founder of GoodCorporation, the corporate responsibility standard and is the principal character in the BBC’s series, Good Company, Bad Company; in this the third of a new series ‘CSR and beyond’ Martin looks at how to make a business case for corporate social responsibility.
In the last article we argued that the usual business case for corporate (social) responsibility is flimsy because it relies on stock-market studies which try to show that ‘good’ companies outperform ‘bad’ companies in terms of share price over a period of time.
We found that these studies are actually inconclusive with as many showing a positive correlation as those showing no correlation or a slight negative correlation. We concluded that the best response is to ignore these studies and focus instead at the micro business case for corporate responsibility.
A successful way to build the business case for corporate responsibility is to breakdown some of these woolly notions about “goodness” into something much more concrete.
1. The code of conduct
To do this the CSR manager will normally start with the company’s own code of ethics or principles, if it exists. This is usually some frustrating vague document that says that the company will be nice to everyone, while making a fortune. But it is important to use this document if it exists because it has buy-in, if little respect, as a starting point. If it does not exist, it is probably worth developing and the Institute of Business Ethics (www.ibe.org) is a useful starting point with lots of practical examples.
2. Identify your stakeholders
Secondly, from the code of conduct it should be easy to identify the organisation’s stakeholders. The word stakeholder is a bit like the term CSR itself, it should almost always be avoided, because everyone has a different preconceived notion about what they are talking about and views are nearly always different. By stakeholder we mean real people with practical day-to-day relationships with the company such as employees, customers, suppliers, sub-contractors, regulators and shareholders.
What about community relationships? Are these people not the normal definition of stakeholders? Well we do include NGO groups like Greenpeace, but the reality is that these civil society groups are stakeholders for a very small group of the largest companies only.
For the vast majority of businesses they should be ignored because they have no relationship with the company and their views (while sometimes being a useful check on everyone’s behaviour) are not directly useful for most businesses.
We do also include community groups that might benefit from a company’s community policy, but we would not over-stress the importance of this relationship relative to the other stakeholders listed above. Finally we do include neighbourhood groups and individual neighbours. They do often have a real and useful view on how the company operates.
3. List your responsible business practices for each stakeholder
Thirdly, the CSR manager should identify each of the individual business practices (protecting customer data, a transparent system of pay setting for employees, or accurate accounts for shareholders) which the organisation should operate for each stakeholder group.
The CSR manager can identify these concrete business practices which should sit behind each of the sentences in the code of conduct. The development of this type of management framework is not rocket-science, but it can move the organisation forward in a dramatic way. It moves beyond the worthy notion that “we will be fair to our customers” to focus attention on real aspects of business behaviour (like how to manage a customer complaint, or use customer feedback) which business people can understand.
To develop this type of management framework the organisation might look at some of the many existing codes and management frameworks which are set out in CSR reports of the large, listed companies. The GoodCorporation Standard and guidance manual also provides a useful (free!) starting point as well www.goodcorporation.com
Once the company has a list of stakeholders and a list of practices about how it wants to deal fairly and responsibly with each stakeholder group, it then has its corporate responsibility management framework.
4. Making the business case
Each of the items of the framework should then be assessed for its business case. If say we think that a fair grievance procedure is one of our good practices for employees then we need to assess the case for managing such a practice. A moment’s thought should make us realise that this type of procedure costs money to operate.
But hopefully the next moment’s thought will make us realise that the absence of such a practice will also cost the company money. The cost of litigation where disputes with employees or unions escalate is clear. The cost of low morale and employee frustration may be recorded in higher employee turnover and/or lower productivity.
To take another example, a company might include accurate reporting to shareholders as one of its good practices.
Again it costs money to provide information, to have it checked, to ask shareholders for views about the quality of information presented, and to use this feedback to change and improve the information provided.
But a moment’s thought again would point directly to the business case for doing this. Satisfied shareholders with good information about the company and a positive view of the management of the company will maintain their investments for longer periods at lower cost to the company.
There may however, be cases where the costs outweigh the immediate benefits. We worked recently at a financial services business that had no appraisal system for employees. The HR director said it was an aim to establish one, but the costs were prohibitive. We argued that the long-term benefits to employee morale, people development and productivity should make the payback clear, but the company remained unconvinced.
The company should list its stakeholders and for each business practice it can then set out the costs and benefits. This can be constructed using a short sentence for each or a set of “+++” and “—“ for each one.
Turning these costs and benefits into monetary values is ideal, but in reality it is often too difficult and too time consuming to achieve, listing the practices and detailing the associated costs may, however, be adequate..
Some of the practices may only have a longer-term payback and the CSR manager might find it useful to write down the expected payback period (short term, medium term, long term).
The overall logic of this type of detailed analysis is compelling. By bringing together diverse good practices that affect each of the different stakeholders the company can ensure that a ‘fairness’ and ‘responsibility’ test is applied to each one. This ensures that the case is made for consistent good practice throughout the organisation.
It should also be a powerful tool for the CSR manager who is trying to prevent or challenge irresponsible practice somewhere in the organisation. Brought together these elements of fair and responsible behaviour combine to make a successful and profitable business culture.
Other articles in this series
