Ethical Performance
inside intelligence for responsible business
 

editorial

chief executives are finding that CSR can help build the business

November 2005

Judging by their preambles to corporate non-financial reports, many chief executives are strongly committed to socially responsible business practice. Too often, however, their companies' past behaviour tells a different story, although there are notable exceptions among both firms and CEOs.

So what are we to make of these pious protestations? In the last month alone, more than a dozen chief executives have publicly committed their companies to becoming more socially responsible by joining a Business Roundtable initiative called SEE Change; others have become involved in the Clinton Global Initiative, which seeks to harness the business community to achieve sustainability goals.

PR considerations aside, the standard explanation is that the CEOs are responding to a series of negative pressures - reputational risk, increasing fines, demands for greater transparency, and so on. But a more interesting explanation may be found on the other side. Could they be discovering incentives to pay more than lip service to corporate social responsibility?

In assessing the health of their organizations, CEOs have lots of historical information such as financial data, but fewer predictors of future company performance. This was one reason for introducing the Operating and Financial Reviews that large UK listed companies must now furnish. The OFR requirement can be seen as a reflection as well as a cause of greater interest in CSR on the part of CEOs. Moreover, it's up to each company to pick the forward-looking measures most indicative of its prospects. At a minimum, the legislation encourages boards to look at the business in a new way.

The same applies to corporate responsibility indices. When a company appears a long way down in this or that index, it can't always be 'because the index methodology is faulty'. New ways of measuring a company's health are emerging, some of which will be useful to CEOs, and which will become more so as they are refined.

A further positive development is the changing nature of SRI engagement. Gone are the days when investors merely struck stocks off an approved list. Insight Investment's groundbreaking Board and Corporate Responsibility project involves CEOs and chairmen personally in building a consensus on what constitutes best practice in UK public companies, encouraging boards to ponder the links between customer satisfaction, employee commitment, and financial results. Finally, many of the board committees set up formally to consider CSR are CEO-led. CEOs may now be starting to think as much about what they have to gain from CSR as what they have to lose.


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