[Questions by Agata Rudnicka (Faculty Management, University of Łódź), prepared for Responsible Business Forum]

 

1. What do enterprises need to implement social responsibility?

The path that companies take in getting to CSR is varied. Some get there through risk management, others through a dogged pursuit of efficiency, others through a commitment to its employees and still others through a Damascene moment of revelation for the CEO. Their path to getting to CSR will have an impact on how they implement CSR.

But to pursue CSR as a strategic driver, they need several things.

Firstly an understanding of what CSR is and a good sense of the value of their company to society and also any harm that the company or its products or services does.

Secondly, some level of senior buy-in to the CSR agenda. Companies aren’t democracies, and it doesn’t matter how many of the employees think CSR is the right thing to do if senior management doesn’t think it’s any good, then it won’t happen.

Thirdly, they need to believe that business can be done by doing good for their business and achieving outcomes for wider society that minimise harm and maximise opportunities to strengthen society. Most companies don’t even stop to think about how they affect broader society.

Fourthly is an understanding of how truly difficult doing business will be in a resource constrained future. If everyone on the planet were to live the current lifestyle of the average European, then we would need three planets worth of resources. Because we only have one planet, that’s not possible, so we need a new way to think about consumption and resource use if we are to avoid climate disaster and resource wars. Business can play a significant part in improving lifestyles and efficient use of resources.

Of course I could talk a lot about the detail of those things, and many other factors that need to be present.

 

2. Is there any business case for CSR?

About 15 years ago if you had asked that question, there would have only one or two studies that showed CSR had any kind of business case, and a lot more studies that showed CSR wasn’t a good investment.

Recent research highlights an overwhelming amount of evidence to show that companies that manage CSR issues well have several advantages over those that don’t. That evidence holds true globally and in a surprisingly broad range of companies and countries.

Companies that are high performers on CSR outperform their peers on total shareholder return and revenue per employee. They have better access to finance from banks and bonds and often at lower rates. They have employees that are more productive and stay longer. They are more innovative. There is a positive market reaction to reporting of sustainability. They have less volatile share prices (share price beta), better risk management. They have higher levels of trust from consumers and many more social benefits. They have less waste and are more efficient.

I think the business case is so strong that the onus has flipped. There isn’t a business case for NOT doing CSR. Companies that I work with are still discovering new ways to be more profitable from CSR.

 

3. You propose a materiality matrix which helps to understand what social responsibility really is. Could you tell something more about it? How the model is construct and what it means to the company?

Actually the materiality matrix has been around for a while, but I think it’s a really useful tool.

Its main function is to sift through the range of CSR issues, of which there are thousands, and help an enterprise determine which ones are most important for the business to get right.

At its heart it uses two main things to assess each CSR issue. Firstly, it seeks to understand the importance to business of any given CSR issue. Usually companies use a business case or risk measure in order to determine the importance.

Secondly it uses the importance of issues to stakeholders, which is often the area that creates most difficulty for companies. Stakeholders are anyone who can affect, or be affected by the activity of the company. Putting that another way, companies have to understand how people and groups outside the business see CSR issues and how they rate the company on those issues.

The key is to target CSR issues that are both important for business success and really matter to stakeholders, and the materiality matrix is a great tool to help with that.

 

4. Is materiality related to shared value concept? What is new?

The shared value concept is a variation of CSR that the Harvard Professor Michael Porter has been trying to peddle for a while now. It’s not new either, in fact it has it’s roots in CSR from more than 20 years ago. It’s related to materiality, but it’s not the same.

Michael Porter advocates for companies doing things that create value both for companies and for society. That’s a rather isolated perspective that ignores that companies can create significant amounts of harm through their operations - what economists have been calling externalities since at least the 1960s. So while Michael Porter is interested in value created for the company and value created for stakeholders, a good materiality process is interested in the value created for companies, along with the value created for stakeholders AND the avoidance of a series of negative impacts for stakeholders. It includes a broader set of concerns that we all know are important for a stable and well functioning society.

Michael Porter’s perspective is limited by his dogmatic insistence that only business can create value, and that simply isn’t the case. We all know that value is created in society in many places. Fathers and mothers create value by teaching their children positive values. Teachers create value by passing on knowledge to our children. Charities create all kinds of tangible value by solving social problems. Governments create value whenever they prevent harm, provide education, support infrastructure that allows us to have good lifestyles and provide stability for our country. So Michael Porter’s perspective should be rejected.

Materiality is a much broader concept than shared value, and companies have been using it for more than more than a decade to understand their impacts on society.

 

5. Could you give some examples of success stories from companies that use the matrix?

Marks and Spencers is a UK retailer that has significant operations in food and clothing retail. They have been using a materiality analysis of their business since 1996 to make assessments about which parts of CSR they should invest in.

Although they don’t publish their matrix, they do publish a unique report that talks about their return on investment from their CSR programs and their annual reports identify the areas of CSR that matter most to them and why they matter. Last financial year, their return on CSR investment was more than 100%. That is, for every pound spent on CSR, they made more than a pound in return, as well as the pound they initially invested.

They use their materiality assessments to change strategy, include stakeholders, change business targets and identify risks and opportunities which, without CSR, they would have ignored.

There are other examples in my book, including that of SAP which has an amazing set of metrics that shows how much value CSR creates in their business.

 

6. What tips can you give to Polish entrepreneurs interested in building strong CSR framework of their operations?

So many that I barely know where to begin!

I guess one of the first things would be to seek understanding of what the social value of your business is. It is all well and good to produce products or services, but if no-one really cares if your business ceases to operate tomorrow, then you don’t have any kind of social distinctiveness. But of course, that won’t appeal to all of your entrepreneurs.

Employees want to feel as though they are part of something that really matters, and that’s because they are just normal people. We all want to feel as though we are part of something important. Do what you can to ensure that employees know what part they play in contributing to a good outcome for the business, themselves and wider society in general.

By ensuring that your company always lives positive values, it will appeal to your employees in a way that will mean they are happier (although that ultimately isn’t the most important thing in a business), and also more innovative, productive and stay longer and work harder to achieve the goals of the business.

There are many others, but that looks like a good start. If you want to know more, come to our training!

 

7. We are at the beginning of the new year so I can still ask about CSR trends for 2014. What will be the crucial global issues for CSR in this year?

Companies aren’t meeting the expectations of investors, governments and charities when it comes to minimising the harm they do and maximising the value they create for society.

Through changes to the Global Reporting Initiative’s framework and the trend towards integration of annual reports with CSR reports such as that coming from the International Integrated Reporting Council, there will be a much greater focus on the CSR matters for each company. That requires companies to do an assessment of the issues, and setting of targets for CSR in a similar way that we see for other performance areas including profit expectations and share price growth.

CSR will become part of normal business and cease to be philanthropic donations as a way to ‘do good’.

 

Dwayne Baraka: Short Biography

Dwayne’s first experience in business started in country Australia where he worked in hardware retail, electronics and manufacturing. Moving to Sydney, he completed degrees in law and theology, and later an MBA, in which he topped the course on CSR. Subsequently, Dwayne worked in small, medium and large law firms, managing busy and varied litigation, corporate and commercial law practices. He met the needs of his international corporate clients as part of PWC Legal, but also was on hand to represent refugees pro bono.

Since 2008, he has been based in London and working in corporate social responsibility, during which time he has provided CSR services to companies in a dozen countries. In addition to working in countries like the UK, USA and Australia where CSR has increasingly become a familiar term to business leaders, Dwayne has been involved in the very early stages of thinking with those in the Middle East and eastern Europe as they developed ideas about how CSR could be expressed in their context. He has trained over 300 professionals in CSR, on issues such as ‘Risk and Materiality’ and ‘The Business Case for CSR’.

Dwayne is a leading thinker on CSR, publishing a regular blog, and writing and editing Springer’s Encyclopedia of Corporate Social Responsibility, since 2010. Further, his article on the engagement between companies and the non-profit sector won paper of the year in the Journal of Global Responsibility.

Dwayne is committed to putting numbers on ‘soft’ CSR disciplines and believes that there are virtually no companies that cannot be more profitable through CSR.

Dwayne has most recently written a book for CSR professionals on the relevance of CSR issues: "Making Sustainability Matter".