Ethical Performance
inside intelligence for responsible business


Getting to grips with executive pay: a litmus test for the CSR profession

September 2009

Many people were caught with their pants down when the global financial crisis erupted a year ago – and CSR practitioners were among them. A key role of a corporate responsibility executive is to be the canary in the coal mine and alert management to potential reputational problems. Yet you would do well to find anyone in the profession who could say they had been working behind the scenes over the years to counter the reckless business practices that led to meltdown.

Of course, it would be ridiculous to lay the blame for the financial crisis at the door of CSR executives. But if there was such a collective failure to identify and address the fundamental risks that had built up in the system, then it is legitimate to ask whether the profession can make more than a marginal contribution to society. Even some prominent organizations in the CSR field are beginning publicly to doubt the value of corporate responsibility policies and programmes if they fail to tackle the kind of systemically unsustainable behaviour that has been prevalent in recent times. Those doubts began with Enron and have only been strengthened by more recent events.

One area where CSR professionals signally failed to do their job was on excessive executive pay. Few, if any, senior corporate responsibility practitioners saw the bonus culture as a business risk, or raised the subject in discussions with the board or in policy documents. Yet the skewing of corporate priorities caused by the proliferation of enormous, short-term bonuses was one of the major reasons for the poor business decisions that precipitated the crisis.

Perhaps they would have made little progress if they had raised the subject. After all, it is not easy to persuade those who are benefiting from exorbitant pay levels to curb their own excesses. But it would have been nice to have tried. That it was not should cause some serious self-examination. Do CSR professionals need to hone their expertise in economics and finance to be up to the job?

The issue has not gone away, and having missed the boat the first time, they have a chance to make amends. After a period of limited contrition, and in the face of dithering by governments and regulators, financial institutions, in particular, appear to be returning to the bonus trough with relish. Given the heightened sensitivity to bankers’ remuneration worldwide, now is the time for the profession to join the debate. There are no cut and dried answers to getting to grips with excessive pay, but CSR professionals need to address it – right now. If they’re not already talking about it at least to their boards, then they should be.

Peter Mason | Global | Executive Remuneration


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