crp Oil

Embed Size (px)

Citation preview

  • 7/29/2019 crp Oil

    1/4

    Simon Propper considers weaknesses in the CSR industry that should beaddressed in light of the BP Deepwater Horizon disaster

    In aprevious articleI suggested that BPs series of safety and environmental crisesshould cause the CR profession to rethink the established approaches to managing

    social, ethical and environmental issues.If a company can be judged to have achieved best practice and still fail consistentlyand severely, we can hardly just carry on as before.

    Several thoughtful comments in response to that article mainly agreed that CR bestpractice, as currently applied, is not up to the job. Since then others have gone furthereven making the accusation that theCR community collaborated in the BP disaster.That is nonsense - failure does not equal collaboration - but to improve CR we need tounderstand the weaknesses and propose remedies. Its easy to declare CR broken, butaltogether harder to propose how it can be repaired.

    Below are ten proposals to make CR more robust. Im putting these forward fordiscussion rather than suggesting that they provide a definitive solution. The CRcommunity needs to collaborate in improving its approach and increasing itseffectiveness.

    It is after all a young profession working to refine new techniques and gain acceptancein the wider business community. To put the limitations of CR in context, accountingstandards have been continually refined for a hundred years but have still not eliminatedall fraud.

    1. Strong governance

    Accountability for CR in most companies is too fuzzy. This is in part due to the multi-faceted nature of the subject, meaning that it meddles in everybody elses business.The same of course applies to management of risk and legal compliance yet thesefunctions tend to be well anchored in the corporate structure.

    CR needs a dedicated chief responsibility officer (CRO), reporting to the CEO. The daysof the head of communications or operations doubling as the head of CR should beended. Indeed these functions require oversight by the CRO. CR also requires a boardcommittee, of equal stature to the audit committee, ensuring management control andregular reports to the board. Most existing CR committees do not have this seniority andmany lack any clear function at all.

    2. Non-executive director representationCR needs board representation through a board member not tasked with deliveringoperational performance in other words a non-executive. This director would alsochair the CR committee. The appointment criteria should ensure that he or she has theskills to scrutinise performance and strategy across a broad range of social, ethical andenvironmental issues.

    http://www.ethicalcorp.com/content.asp?ContentID=6985http://www.ethicalcorp.com/content.asp?ContentID=6985http://www.ethicalcorp.com/content.asp?ContentID=6985http://www.ethicalcorp.com/content.asp?ContentID=7003http://www.ethicalcorp.com/content.asp?ContentID=7003http://www.ethicalcorp.com/content.asp?ContentID=7003http://www.ethicalcorp.com/content.asp?ContentID=7003http://www.ethicalcorp.com/content.asp?ContentID=7003http://www.ethicalcorp.com/content.asp?ContentID=7003http://www.ethicalcorp.com/content.asp?ContentID=6985
  • 7/29/2019 crp Oil

    2/4

    3. GovernanceLogically, outsourcing and the company supply chain should not require its own sectionhere. Like any other business function it should be managed through the othersafeguards listed.

    However the rush to remove capital intensive operations from the company assets andtake advantage of low labour costs in the east, has been so rapid and extreme thatsome giant and successful companies now comprise little more than strategy, financeand marketing teams.

    While companies have worked out how to acquire the products and services they needin a cost effective way, they have been much less successful in managing the CRimplications of their outsourcing. There has been some progress notably in electronics,apparel and retail but control, particularly over multi-tier supply chains is much lowerthan when the same operations were in house. It may eventually be seen to be a factorin the humbling of both Toyota and BP.

    But what to do? Most supplier vetting is undertaken by the purchasing departmentwhich is often not well resourced and does not necessarily possess the appropriateskills. Better control of outsourcing issues will require significantly greater focus andfunding.

    It would take a separate article to explain how this could best be implemented, butreview of the sourcing policies and contracts independent of the purchasing teamresponsible for them is an obvious step. Reebok used to operate such a system untiltheir take-over by Adidas.

    4. Enhanced compliance function Compliance is an important factor. Manycompanies already have the right policies and systems but fail to stick to them whenbusiness pressures make a short-cut appealing. Compliance needs a boost in statusand proper funding to enable regular thorough audits.It may never be the most popular role in a company but it should command universalrespect and some fear too. The CEO must make support for the compliance functionexplicit and take a stand against managers taking short-cuts.

    5. External oversight Companies cannot afford to be insular about CR and benefitfrom exposure to external perspectives, even when critical.

    Although there have been some teething problems, external panels provide companies

    with a greater level of assurance that they are behaving appropriately and importantearly warning of issues looming.

    6. Culture change Those of us immersed in CR day to day easily forget what a newfield it is and how long is the journey to being fully integrated in business. Ten yearsago, CR was barely recognised yet today theres almost no CEO of a major companywho will dismiss the subject and many are strong advocates.

  • 7/29/2019 crp Oil

    3/4

    But business is a conservative culture and change that does not instantly earn profit isslow to establish. Companies committed to CR really do need to step-up the corporateculture campaigns. The most significant element being the unqualified support ofmanagement especially the CEO. Tacit support will no longer suffice. We need far moreCEOs to admire for their CR leadership.

    7. Performance related pay There has been plenty of talk about incorporating CRgoals into remuneration and many companies say they do this in their reports. Myimpression is that the extent is very limited, both in terms of value and the breadth ofemployees covered.This is a vital part of the company message that CR is core to business. Companiesreward behaviour they value or should so if CR is important to the business it mustcomprise a significant slice of remuneration. Conversely poor CR performance or non-compliance must be seen to be punished. Money talks.

    8. Get the KPIs right There are really two points here: get the right KPIs and give them

    the right profile.Here is an example of how the wrong KPI can be used. Most companies track their losttime injury frequency rate (LTIFR) and see it as a key measure of safety performance. Ifyou look at BPs it has steadily improved. Most injuries are caused by people fallingover or crashing vehicles. So a strong focus on hand-rails and driving safety will bringdown your LTIFR.

    But less frequently a really major critical incident will come along and endanger manylives. An oil rig explosion or mine wall collapse for example. Guard rails and nice drivingdont help here.

    So its all too easy, with the best intentions, to use the wrong KPI and misdirect effort toimprove performance. Companies need to review their KPIs and seriously test theiradequacy as measures of impact on people and the environment.

    The second point is the profile given to CR KPIs. If CR is taken seriously they should sitalongside the other business KPIs both in internal board reports and the companyannual report. CEOs should get used to briefing investors on CR performance in thesame presentations that address strategy and financials.

    9. Risk identification All quoted companies maintain a risk register and informshareowners of risks they judge material in their annual report. The risk registers record

    risks of any type, including social and environmental factors.The difficulty comes in assessing the probability of a particular event occurring and theseverity of the consequences if it does, a challenge amplified by the nature of social andenvironmental issues.

    Companies are not good at identifying their own weaknesses yet these are often thecauses of social and environmental lapses. When problems occur the consequences

  • 7/29/2019 crp Oil

    4/4

    can be difficult to predict since regulators behave inconsistently and NGOs may or maynot launch a damaging campaign.

    As a result many companies currently underestimate the probability and severity of risksfrom social and environmental impact. The methodology for rating risk needs to be

    updated.

    10. An overhaul of ISO14001 and OHSAS18000 The international standards forenvironment and health and safety management cover a large segment of all CR issuesand something is not working when certified companies continue to make consistentlarge mistakes.It could be that the standards themselves are too loose, placing emphasis onprocedures not performance. It was often said of the ISO9000 quality standard that youcould manufacture crap provided you did it consistently every day.

    Or perhaps the accreditation system isnt sufficiently rigorous, handing out tickets too

    easily in return for the fees. I cant say for sure, but some of the HSE managers I mostrespect, say that their own systems need to be much tighter than the accredited system.That cant be right.

    I hope that these ten proposals for robust CR are helpful and will encourage furtherdiscussion within the CR community. BP has tested the credibility of all working in thisfield and the case demands a vigorous response.