It is largely forgotten that, before its collapse last year amid revelations of unethical accounting practices, Enron was regarded as one of the most ethical and socially responsible companies in the world. In 2000 alone it won six major environmental awards. Sandwich chain Pret A Manger built its success on a commitment to fresh, natural ingredients and an image as a caring company that gave food to homeless people. McDonald’s has a very different reputation, yet in January 2001 – to the astonishment of many – Pret sold it a 25 per cent stake.
These are just two examples of how it is becoming increasingly difficult to evaluate a company’s corporate social responsibility (CSR) credentials. According to MORI research, the percentage of consumers who consider a company’s CSR stance when buying a product has grown from 28 per cent in 1996 to 48 per cent in 2002. So being seen to be socially concerned can increase sales. In the past year several major investment bodies, including the Association of British Insurers and the National Association of Pension Funds, have announced that they expect to see CSR initiatives from the companies in which they invest. CSR also boosts share prices. So, how can consumers and investors differentiate between those companies which are just hoping to raise sales and share prices, and those that are genuinely ethical and responsible?
A global standard
GoodCorporation is a global standard, covering an organisation’s responsibility to its employees, suppliers, customers, and providers of finance, as well as its community and environmental impacts. It was set up in July 2001 in response to growing scepticism about the validity of the social reports produced by companies themselves.Its director, Leo Martin, says: “Seventy-nine FTSE-100 companies now produce some form of social or environmental report.
“However, only 16 include any quantitative data to back up their policy assertions. In general, published social reports focus on ‘easy’ issues such as employee training, charitable donations, and health and safety, without taking on the more difficult CSR issues like quantifying impacts, reporting on stakeholder views and admitting when things are not going well. This is why a kitemark such as GoodCorporation is important as a shortcut to help outsiders evaluate how well a company is performing.”
Mark Goyder, director of the Centre for Tomorrow’s Company, a research and education charity which urges companies to consider stakeholder relationships as well as profits, is equally sceptical about the value of social reports: “I’m not opposed to these reports, but I am concerned that they are being used simply to keep the ethical lobby quiet rather than as a way to ingrain CSR into a company’s culture. Reports should be annual at least, and should cover a wide enough range of subjects to allow people really to understand the purpose, values, and culture of a company.”
Rebecca Collings, managing director of C21, an agency that works on CSR reports for companies such as Adidas-Salomon and BT, agrees that UK companies need to take social reporting more seriously: “Stated commitments to CSR reporting are not backed up by appropriate budgets. For instance, many utilities companies spend only &£15,000 on a social report. A more realistic figure would be &£60,000 to &£80,000. Companies such as BT have realised that, far from being just defensive measures, these reports can enhance a brand. Most, though, will wait until regulation forces them to invest more significantly.”
They won’t have to wait for long. The Company Law Bill will force companies to be more transparent about their impact in areas such as the environment, employee conditions, and community involvement. It is expected to become law within three years.
Don’t believe a word of it
However, many feel that the credibility of company reports has been fatally damaged by the accounting scandals that have emerged, largely from the US, over the past year. Clearly, reports must be believed if they are to have any value.
Market Research Society director-general David Barr argues that, as a consequence, his industry has a role to play in corporate reporting: “Auditors are less trusted now. Increasingly, market research agencies, as providers of impartial information, are being asked to compile the data published in corporate reports. For instance, Camelot has used MORI and Research International to produce data in areas such as employee attitudes and the number of lottery ticket sales refused to minors.”
While ethical investment is a recent development, as are corporate accounting scandals on such a huge scale, UK companies have faced pressure from consumers and non-governmental groups since at least the Eighties, when Body Shop educated a generation in ethical shopping. Activism continued through the Nineties – Greenpeace stopped Shell from sinking the Brent Spar oil platform, for instance. As a result, UK companies are often better at actually putting CSR into practice than they are at reporting it.
This would seem to be true of Eurotunnel, according to Anne Leva, corporate affairs manager: “We built on an area of outstanding natural beauty, so we funded an archeological study before digging, and then used the spoil to build an entirely new piece of land at the foot of the cliffs. We employ an agency to regenerate that land: rare butterflies and orchids are returning. We also return value to the local community, with initiatives such as events for youth groups. We give discounted tickets to schools to foster cross-Channel links, and are always keen to share the expertise of staff through mentoring and teacher placements.” Despite all this activity, 2003 will be the first time Eurotunnel reports any of it.
Removing the bushel
However, in many cases reporting does manage to keep pace with activity. Sportswear manufacturer Adidas-Salomon has hired experts to communicate its attempts to tackle issues such as child labour.
In the same way, drinks manufacturer Diageo takes CSR and its communication very seriously. Director of corporate citizenship Geoffrey Bush explains: “Our CSR activities include alcohol education initiatives; the Water of Life programme, which has to date provided clean water to over 500,000 people around the world; and an array of community projects, all funded by one per cent of our pre-tax profits.
“In terms of reporting, we are moving from separate financial and social reports towards integrated group and country reports. We publicise our CSR work heavily on our Internet and intranet sites, through the Seeing is Believing programme – where employees visit projects we’ve supported – and through ad hoc initiatives which often involve sending leaflets to every one of our 25,000 employees.”
Reporting progress to employees is becoming increasingly important. Brian Michael, managing director of TwentyFirstCentury Communications, which helps large companies such as Hilton and Sainsbury’s with employee communications, believes that companies are beginning to recognise the value of CSR as a recruitment and motivation tool. He says: “People want to work for ethically sound companies and they want to know about the organisation’s plans and values. Technology is allowing corporate communications departments to provide focused messages for key individuals.”
Companies are moving away from the traditional view of CSR as a costly but necessary show of altruism, and recognising that well-managed CSR can reduce costs, enhance brands and increase sales. Coffee manufacturer Percol has found success through the counter-intuitive approach of paying producers in developing countries up to three times more than its mainstream competitors pay. The result is high-quality coffee and a strong brand.
Cheryl Thallon, who recently set up Viridian, a small vitamin company, agrees that we are witnessing a radical shift in business thinking: “We wanted to tap into the growing sense of frustration that people feel about the way that businesses operate. We try to ensure that every aspect of what we do is ethical and contributes to the world around us. We offer refunds for returned bottles and recycle them. Half our net profit is given to environmental and children’s charities.”
Many would question the financial viability of a company that prioritises ethics over profit to such an extent, but Thallon believes there is a virtuous circle: “We have no recruitment costs and are bombarded by people who want to work here. We have little need for advertising, as retailers are so keen to sell our products. We are growing steadily and profitably, and all the indications are that we will continue to do so.”
Viridian, however, is an exception in the small business sector market: the growing focus on CSR continues to be driven by large corporations. As MORI chairman Professor Robert Worcester puts it: “Bigger companies can afford to take CSR seriously; they also know that they can’t afford not to.”