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.
