Leading to a Sustainable Future - Hay Group

Leading
to a
Sustainable
Future
“
Corporate social responsibility goes to the
heart of the long-term viability and success
of an organisation.
”

Hay Group
FOCUS
Corporate Social Responsibility
Leading to a
Sustainable Future
Hay Group’s James Bourchier and Helen Scotts bring clarity
to the issue of sustainability and focus on the things that
CEOs and senior leaders need to do to lead a sustainable
and socially responsible corporation – one that meets the
expectations of stakeholders now and into the future.
The terms ‘corporate social
responsibility’ and ‘sustainable
organisation’ have become part of
our corporate language. The trouble
is everyone wants to tick these boxes,
without understanding that the issues
they describe are more than short-term
management fads. Do we really know
what it means for how we design and run
organisations? Do CEOs understand why
they should take up this challenge?
For organisations, sustainability means
focusing on managing the impact they
have on the world at large. This means
minimising the harmful impact and
seeking opportunities for positive impact
to create now the organisation it wishes to
be in the future.
The tendency to connect ‘sustainability’
only with environmental issues ignores
the fact that sustainability also relates to
people – employees, customers and other
stakeholders. Sustainable organisations are
concerned about their employees: building
talent, creating development opportunities
and contributing to growth within
the broader community. Promoting
an environment which energises and
develops people makes good business
sense. A sustainable environment ensures
retention, builds a great employer brand
and secures a customer base for the future.
Enlightened leaders know that their
employees are their customers.
Corporate social responsibility
Corporate social responsibility (CSR)
implies that corporations (businesses
and other organisations) have a
responsibility (both a moral obligation
and commitment) in a social context
to take action and build a sustainable
organisation. CSR requires leaders to be
visionary about the end state they want to
create and to have the capacity to translate
that vision into concrete changes they
will want to lead themselves. It demands
the same degree of personal commitment
required to lead any significant change
effort and requires leaders to ask
themselves some key questions:
• Where do I stand on this issue
personally? How will I then engage
others in the discussion?
• How deep do we want to take our
CSR? How can we integrate our
response to optimise emergent
strengths and opportunities and
respond to emergent weaknesses and
threats effectively and responsibly?
Not just a management fad
CSR must be seen as a strategic issue
because it goes to the heart of the
long-term viability and success of an
organisation. It is intrinsically linked to
the organisation’s future. Market and
consumer expectations have grown for
organisations to demonstrate CSR and be
structured towards a sustainable future.
Consumers of the future will make their
choices based on how organisations
perform against this measure and future
generations of employees will want to feel
aligned and connected with the values of
their employer. If there is a disconnect
they simply won’t stay. Given the tight
labour market and the measures now
required to attract and retain a new
generation of workers, organisations
cannot afford high turnover if they want
to remain competitive.
Corporations must see themselves as
operating in a social system comprised
of many parts, players, interests and
competing needs. The notion of ‘social
responsibility’ implies an obligation to
contribute in a manner that is not self-
serving but rather directed towards some
common good. To pursue a CSR agenda
in a genuine way, an organisation must see
itself as connected – impacting and being
impacted on by other elements of the
social system.
How organisations actually respond will
be a matter of choice. Some will respond
at a minimal level, taking steps to manage
environmental impact in order to protect
themselves from litigation and ensure
shareholder return. Others will go further
and take a more systemic approach,
seeking to understand themselves better
in an expanding, fast moving context and
thinking about future business impacts
– adopting and integrating policy and
process change to store up for the future.
When organisations embark on
sustainability as a strategic issue, they will
take a systemic approach. It will be seen
as integrally linked to business strategy.
Consequently, it will be the role of CEOs
and the executive leaders to push the CSR
agenda. They will appreciate the fact that
in a strategic context, seeking a sustainable
future will involve consideration of how the
organisation engages with its customers,
how it interfaces with the market, how it
operates, how it is structured and how core
processes are managed now.
Organisational responses
Strategies for addressing CSR and
sustainability issues have been varied.
Organisational outcomes and benefits
are moderated by the depth of their
investment, their integration and context
as outlined in table 1.
It is unlikely that most organisations will
reach the deepest level of CSR, which
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Hay Group
FOCUS
Corporate Social Responsibility
Table 1: The CSR Hierarchy
CSR Lite
CSR Compliant
CSR Strategic
CSR Integrated
Deep CSR
Companies with superficial or marginal commitment to
meaningful social or environmental improvement. They
adopt minimal general standards but are not interested in
advancing beyond this level.
Companies committed to ensuring their operations
demonstrate adherence to current CSR standards. They
focus on building stakeholder support for their CSR
approach and securing their social license to operate.
Companies that adopt basic standards and become
strategic about their approach to CSR, using it to create
shareholder value through product differentiation, niche
marketing, etc. They create strategies around a few
aspects of CSR for which they can develop competitive
advantage and generate significant impact. Some
believe their survival depends on their CSR or sustainable
development strategies without which they might go out
of business.
Companies that integrate CSR throughout their business
model, not simply as a strategic advantage in niche
markets, but to fulfil their commitment to reduce their
environmental footprint and improve the social impact of
their operations. They have comprehensive CSR policies
covering all aspects of their operations and operationalise
CSR principles through such things as rigorous
performance standards, corporate objectives and reward
mechanisms.
Companies that adopt or are founded on business models
whose mission is to improve social or environmental
conditions. Many will have realised the benefits of CSR
and will have mined and exhausted early-stage CSR
measures. They act to address real trade-offs between
elements of the triple bottom line in sustainable
consumption, resource extraction, just transitions, and
intergenerational equity etc.
Table adapted from research by the Canadian Co-operative Association (http://www.coopscanada.coop/)
reflects a very particular business model.
However, there are strategic questions to
be answered by all organisations regarding
their position on CSR, such as where
are they now and how far do they go?
Becoming better corporate citizens is not a
statement or an endpoint, it is a journey.
The role of leaders
Responses to the issue of CSR and
sustainability need to be championed by
key leaders in the organisation. A lack of
leadership on these issues has led to some
notable corporate ‘disasters’ (for example
James Hardy, HIH). Following these, the
ASX introduced best practice guidelines 1
which helped to reassure the market
and suggested the emergence of greater
corporate consciousness. They also put the
CSR mandate squarely with the board of
directors and leaders by recognising the
relationship between CSR, sustainability
and governance.
Corporate governance principles and
responsiveness to CSR and sustainability
appear to be going hand in hand towards
corporate best practice. In 2007 the ASX
went further, requiring listed entities
to disclose their compliance with new
corporate governance regulations 2 . A
greater consideration of CSR and the
sustainability of business practices have
clearly been mandated.
The board of any organisation may be
charged with directing a CSR response,
but it takes a committed leader to manage
the change and lead the organisation to a
clear understanding of the CSR business
context. The complexity inherent in
the CSR challenge and the diversity of
information needed to meet the challenge,
requires a leader with the ability to see the
‘big picture’ while focusing on the detail.
CSR leaders need to be ready to step into
territory outside their corporate comfort
zones, a step which inevitably brings
uncertainty. Collaborative leadership
allows concerns to be brought into the
open and managed, which reassures and
helps employees to understand the CSR
approach while promoting ownership of
the outcomes. A key challenge in rolling
out a CSR strategy will be to ensure
it aligns with the organisation’s wider
strategy and to manage any mismatch.
The CEO’s responsibility
Turning CSR concepts into actions and
making them work requires a leader who
can create a culture of awareness and
engagement while ensuring integration
and compliance. CEOs are the logical
choice for the role, but they must be
supported by the executive team to
optimise an integrated response to the
risks and opportunities represented by an
expanding corporate environment.
The leadership team needs to start with a
clear understanding of an organisation’s
economic, social and environmental
responsibilities, and the impact they are
having and can potentially have in the
future. With this knowledge the leader
can begin moulding the organisation’s
future impact, identifying the easy gains
from a CSR approach and positioning
the organisation to consider future
implications and direction. The leadership
team’s understanding and confidence
in the relevance of CSR, will inform its
CSR strategy and frame the organisation’s
relationships and interactions as well
as its response. Tactical investments in
resources must support the strategy and
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Hay Group
FOCUS
Corporate Social Responsibility
operational adjustments made to integrate
the initiative successfully.
At the shallow end, leading an
organisation down the ‘CSR Lite’ path
is likely to be fairly straightforward.
Simple initiatives may be implemented,
ensuring policies are in place that reduce
power and water consumption or that
no stakeholder backlash is looming from
existing operations or strategies. However,
the benefits and outcomes of such an
approach are also limited.
Leading a strategic and systemic approach
to CSR is more difficult. It requires that
organisational boundaries be redefined
or eliminated and engagement with a
much broader range of stakeholders
than an organisation might typically
consider. A systemic CSR response is
likely to need a cross functional and
multidisciplinary approach to gather and
act upon sustainability information and
Position
Strategy
Operation
social input. It will also call for investment
in new information systems along
with more sophisticated approaches to
business analysis. Stakeholder engagement
programs, environmental impact studies,
product lifecycle analysis, business model
sustainability, employee engagement and
research and development are but a few
potential aspects of a comprehensive,
strategic CSR response. Leading a
systemic CSR response can be challenging,
however, as an investment in the future,
the benefits and outcomes are also greater.
A viable future
Summary of the top five issues for leaders to consider
Tactics
Alignment
Enlightened CSR leaders who are
aware of the increasingly complex and
dynamic globalised context (socially,
environmentally and economically) are
better placed to understand the emerging
requirements of their organisations.
Leaders with this insight can expect to
identify emergent strengths, weaknesses,
Where do I stand on this issue personally? How will I then
engage others in the discussion?
How deep do we want to take our CSR?
How do I need to change the way I work with my board and
top team to ensure that CSR and sustainability issues and
systems are understood and managed?
What programs, processes and information systems need
to change to implement the strategy? (Triple bottom
line accounting, action research, sustainability analysis,
stakeholder engagement systems etc.)
How do we align our response with our current and future
strategies, utilising our new understanding of a wider, longterm
business context to influence strategic decision making?
opportunities and threats for their
organisations that would otherwise not
be managed optimally. They will be better
able to lead, coordinate and understand
all these elements thereby increasing
their ability to respond in a more
integrated way. This will create a more
comprehensive view for decision-making
to ensure a systemic approach.
Behaving as a socially responsible
corporation means establishing a viable
future from a commercial point of view
while doing some good in the present.
Leaders who step up to the CSR challenge
by minimising negative impacts on the
environment and by seeking to make a
positive impact via community and social
initiatives, help drive their organisations
to a successful and sustainable future. •
1
Principles of Good Corporate Governance and Best
Practice Recommendations (2003).
2
Corporate Governance Principles and
Recommendations (2007).
CSR and sustainability as an investment
CSR is not typically on the balance sheet of many organisations. Hay Group believes
market pressure is creating a need for CSR programs that account for the risks and
opportunities associated with these less tangible resources more actively. The value
of any investment lies in the value of the underlying resources, opportunities and risks
it represents. In the same way, the value of a CSR investment is related to the social,
environmental and economic resources it both accesses and impacts.
Currently, organisations that are scrupulously tracking their financial activity may not be
consistently monitoring the opportunities and risks associated with social engagement
and the environment. In a simple example of how a CSR program could start to do this,
organisations that engage in employee climate surveys have access to rich information
about the opportunities and risks associated with their employee group – a shift in
sentiment may quickly increase employee turnover and, therefore, have direct financial
impact. A more complex risk that many organisations may soon have to face is a
carbon tax. Most local organisations produce carbon emissions (that is, are not carbon
neutral) whether through production, waste or travel. Only a minority of organisations
are monitoring this ‘externalised liability’ – but monitoring carbon emissions may soon
become a requirement and a carbon tax will become an accounting cost. CSR programs
should be seen as investments with emergent dividends. Long-term yield will become
more obvious as successful strategies identify leaders in a market that is hotting-up
around CSR, even as growth slows.
Leaders who begin to account for CSR related risks and opportunities through business
linked CSR programs, as they would more tangible assets, will be ready to face market
changes and position their organisations with a competitive advantage for a more
sustainable future.
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