Corporate Social Responsibility, (Blackpool Conference)

Speech by Norman Lamb on Wed 21st Sep 2005

Norman Lamb:

First of all, hello and thank you for inviting me to speak on the issue of Corporate Social Responsibility, an issue which I feel is of great - and growing - importance.

Although the idea of 'corporate social responsibility' was around in the 1970s, 'CSR' as we know it only began to emerge around 15 years ago, pioneered by so-called ethical companies such as Ben & Jerry's ice cream and the Body Shop.

Tentative CSR initiatives following in the footsteps of Ben and Jerry's 'social audit' in 1989 gradually began appearing in the more mainstream corporate world.

However, many people saw this as a cynical attempt by big business to distract consumers from the ravages inflicted on the environment in the quest for greater profits - without actually halting the ravaging itself.

One can't help thinking - or at least I can't - of Ken Clarke, whose role at British American Tobacco is supposedly to foster the company's reputation for social responsibility.

Ken claims BAT is one of the more advanced and responsible British companies he's come across - despite the serial closure of British factories in Britain and subsequent loss of jobs (950 during Ken's time in government), and the company's history of cosying up to unsavoury regimes.

At a shareholder meeting 2 years ago, Ken was forced to admit that Burma, where BAT had extensive operations, was "not one of the most attractive governments in the world."

It may have been the repercussions of this remark that finally persuaded BAT to comply with Foreign Office requests to pull out of Burma.

However this does not appear to have changed the company's general attitude towards regimes accused of human rights violations.

For example, as pointed out in the Guardian diary earlier this month, BAT's operations in Iran are enjoying considerable growth under the current regime.

Socially responsible initiatives on the one hand, deals with oppressive regimes on the other.

It is this type of double standard that leads stakeholders, in particular NGOs, to level the charge that CSR is at best cosmetic and at worst pointless.

However, as more businesses become involved in sustainable development and socially responsible initiatives, stakeholders seem to be growing more pragmatic and, perhaps, more optimistic about the positive effects of CSR.

I would also like to think that there is an increasing number of company directors share, at least in part, my belief that the hard-nosed Anglo Saxon philosophy 'the business of business is business', and nothing more, is out-dated, out-modded and, more importantly, invalid.

When the Economist - unsurprisingly - discussed the dangers and delusional nature of CSR, this enemy of capitalism, in January 2005, it also gave space to more enlightened arguments about the relationship between business and society.

The key factor in making CSR work is recognising and understanding the nature of this relationship between business and society.

The FTSE4Good Index Series measures the performance of companies according to globally recognised corporate responsibility standards, and facilitates investment in these companies.

The FTSE4Good website claims many companies have found that good CSR performance actually reduces risks and brings genuine business opportunities that positively impact on the success of the company.

As a Liberal, I believe passionately in individual freedom - and this translates directly to free markets with business operating free from unnecessary government interference.

But I do not subscribe to the view that the only valid purpose for business is increasing shareholder value.

I believe that social and environmental issues, far from being tangential to business, are in fact of fundamental relevance.

As Leigh Clifford, Chief Executive of Rio Tinto, a global mining company, said last year, "We live in a connected world. What we do affects others and what they do affects us."

An important step for business is to acknowledge that this connectivity may result in some commercial activities being limited.

While we must accept that maximising profit is a vitally important, possibly the most important, objective for business - I would argue that 'maximising' must be defined within certain social and environmental parameters.

CSR initiatives should ideally be beneficial to both society and to business - so-called 'win-win' initiatives.

But there may also be a need for socially responsible actions where the corporate benefit is not immediately obvious.

It is vital to strike a balance. The Liberal Democrats do not advocate legislation to force compliance with as yet non-existent CSR standards.

However, we do support the Operating and Financial Reviews - OFRs - and believe they have a significant role to play in encouraging business to take account of social and environmental issues.

According to the government, OFRs are designed to enhance the quality and transparency of company reporting to stakeholders and are expected to provide information relating to employees, environmental, social and community matters and other key factors in the performance of a company.

Philip Hodkinson of HBOS, in a speech to the APPG on CSR, highlighted an aspect of OFRs he anticipates will be hugely beneficial: the greater emphasis on dialogue with stakeholders so as to enable directors to judge the "materiality" of an issue.

As directors get better at conducting such dialogue, the result should be more responsive, better run, more sustainable companies.

OFRs should heighten the influence of the consumer on corporate management decisions.

We must not under estimate consumer awareness of their ability to have a direct and immediate influence on policy decisions.

For example, recent research found that 55% of shoppers said they were more likely to buy Fairtrade goods, while 83% said businesses should improve long term trade links to benefit African producers rather than make charitable donations.

Barbara Crowther of the Fairtrade Foundation argues these figures indicate "ever growing numbers of consumers are realizing that their own actions can have an immediate and positive impact".

In this case, consumer opinion did have an immediate effect when, as a result of the survey, Marks & Spencer announced they would henceforward only serve Fairtrade tea and coffee in their cafes.

This is a classic case of 'win-win' CSR: consumers win because fairtrade goods are more available, and it can safely be assumed that Marks & Spencer because more consumers buy their tea and coffee.

A less clear cut case is that of Shell which, 10 years ago, was publicly excoriated for its actions in Nigeria and hit rock bottom in graduate opinion polls of future employers.

Shell is still regularly in the news over issues such as the $20 billion Sakhalin-2 gas and oil project off the east coast of Russia which environmentalists claim threatens salmon spawning grounds and endangers western Pacific grey whales.

But now, we have the Shell Foundation, which is - I quote from the website - "separated from Shell's commercial interest. But its ability to make a difference is strengthened by its relationship with Shell companies all around the world.

The Foundation's programmes - supporting efforts to reduce the impact of fossil fuels, to help poor communities gain access to modern energy and to help them generate income - reflect this relationship.

Interestingly, I also read on the Foundation's website, that the Shell Group business principles state "the company is committed to contributing to sustainable development- taking account of the social, environmental and economic implications of all their activities. Being trusted to do so is essential for their continued business success."

This is a massive step by Shell into the arena of social responsibility and it demonstrates a welcome willingness to acknowledge the business sense of taking the 'social and environmental implications' of their activities into account.

Notably, it suggests a sea change from the attitudes prevalent just a decade ago when events in the Ogoni Delta in Nigeria became a major PR disaster - although the jury is still out as to whether Shell's core behaviour has changed.

Critics rightly point out that Shell is still criticised over its involvement in Nigeria, with the negative social impacts of oil extraction in the Niger Delta detailed in a WAC Global Securities report only last year.

But this is no reason not to encourage Shell for at least moving in the right direction.

We can be overly quick to condemn worthwhile initiatives on the basis that the company involved isn't perfect.

For example, when Radio Taxis, a London black cab firm, announced they had become the "world's first carbon neutral taxi company" the reaction from environmental groups - which commented that we shouldn't be using cars at all - was unimaginative, unrealistic and generally unhelpful.

Radio Taxis' plans to reduce carbon emissions and offset unavoidable emissions by sponsoring renewable energy projects overseas and sustainable forestry projects in the UK are courageous and innovative.

We should be encouraging other transport companies to follow suit, not criticising them for existing!

But CSR is not just about externalities, but must also address internal corporate behaviour, towards employees.

Interestingly, jobseekers are becoming more sensitive to corporate ethics.

In a 2004 survey, Ernst & Young found that a staggering 89% of graduates described high ethical standards as "imperative" when assessing a prospective employer.

Link that to the results from an Industrial Society survey in 2002 which found 65% of businesses would be prepared to make changes if pushed by employees and you have a sound basis for employee-led initiatives.

Ernst & Young match funds raised by employees for good causes.

Many other companies give employees time off work for volunteering, enabling people to offer their time and skills to a local charity or project.

VSO has established partnerships with certain businesses who give employees (usually unpaid) leave to work on VSO projects abroad, and hold their job open.

Such initiatives can have knock-on effects: on his return, one Accenture-VSO volunteer set up an initiative through which Accenture provides services at a discount to poor communities overseas.

Conversely, employees must be encouraged to challenge and expose employers whom they believe are not behaving responsibly.

Employees who are proud of their company, who feel appreciated and valued tend to be more fulfilled at work and are more likely to provide a more loyal, more productive workforce.

Another example of win-win CSR.

I would also like to see greater effort put into educating companies to see that CSR is not a burdensome waste of time and money but in fact is a good business opportunity.

OFRs will push companies to make social responsibility part of their normal accounting procedure and encourage them to see the benefits of engaging with stakeholders.

The results should be improved local, national and international reputations which in turn should lead to enhanced performance, thereby creating a virtuous circle with CSR shown to be a valuable tool in good corporate management.

I believe any argument that makes social issues tangential to business is blinkered, and does not address the reality for companies operating in a global economy.

Managing social responsibility is just like managing any aspect of a business - it can be done well or it can be done badly.

Well-managed CSR will be central to both long and short term strategy, supporting business objectives, strengthening relationships with stakeholders, reducing costs and maximising efficiency.

I want to see companies viewing CSR and their involvement in socially responsible initiatives as an integral part of their 'brand'.

Only then will CSR finally have become a fully accepted part of standard corporate management.