1

2

Today many business leaders claim that corporateresponsibility is a make-or-break issue for their

companies. In response to mounting social andenvironmental pressures, a fast-increasing numberof companies throughout the world have unveiledcorporate responsibility programmes. US conglom-erate General Electric has launched itsecomagination project and Wal-Mart has taken veryvisible steps in response to criticisms of its retailbusiness. In Europe, companies including ABB,ABN AMRO, ENI, Shell and Unilever are devel-oping often very extensive programmes.

These commitments imply that business leadersare waking up to the demands for responsiblebehaviour as the private sector contribution tosustainable development and, in Europe, to theshared governance of more cohesive societies withdevolved responsibilities.

In our experience, however, not a single sizeablecompany can credibly claim to be responsible or“sustainable” across the spectrum of its activities.While many companies have made grandiose state-ments, the reality is that change is slow, even amongthe leaders. Most often, we see a series of experi-ments as companies address these demands.

Over the course of the next five to ten years, webelieve that many companies will recognise thattheir corporate responsibility projects were under-taken without a firm idea of what corporate

responsibility really implied for business. We fearthat many of the present activities that pass forcorporate responsibility will have to be unlearned asit becomes clear they destroy value ordo not live up to the scrutiny of stake-holders. To help prevent such valuedestruction, we offer a top-ten list of themost common mistakes in corporateresponsibility.

1 Lacking visionMost companies begin their corporateresponsibility journey by asking ques-tions such as “where are we now andwhat might we do about CR?” Thisapproach focuses too much on currentactivities and strategy.

An alternative, and more creative,approach is to ask: “What does thiscompany want to be in ten years’ time?”Through this approach companies willdevelop a vision of the role of thecompany in its industry and commu-nity. Only after having a compellingvision in place of what a companywants to be can the company address:“Where are we now?” and “What andhow do we need to change to bringabout our vision?”

Corporate responsibility failings

A how-not-to guide

Michael Blok, Vernon Jennings, Deborah Leipziger and Nigel Roome outline the ten mostfrequent areas where companies make corporate responsibility mistakes

Ethical Corporation • December 2006Special report: top ten corporate responsibility mistakes 40

Where are we going?

5

4 6

2

3

2 Oblivious to the scale of required change Public statements about corporate responsibility bysenior executives in all parts of the business worldunderscore our view that corporate responsibility-related demands and pressures on business arehaving enormous impact on the bottom line. Thereis a clear need to consider organisational changeand development based on completely new mana-gerial perspectives.

Few companies appear to recognise from theoutset the magnitude of change, thinking insteadthat by selectively modifying existing business prac-tices or undertaking one-sided showcase initiativesthey will address the corporate responsibility chal-lenge. This change does not require that businessloses sight of its main purpose of creating wealth,but it does require the identification of new, moreresponsible and smarter ways to create wealth.

Best-practice examples are few but we suggestthis is found at Carillion, the UK constructioncompany, which is no longer paid to build but toprovide the services of a finished building,including maintenance.

Rohner, the Swiss textile firm, is moving towardclosed-loop production and closed-loop consump-tion of its textile services.

3 Sub-strategic Corporate responsibility practice is often managedas a staff function, at a sub-strategic level, with littleconnection to the strategy of the business, its coretechnologies or management know-how. Compa-nies often “muddle through” with this sub-strategicapproach until they discover that what they havebeen doing is applying a surface treatment withoutaddressing the underlying causes of the social andenvironmental pressures they face.

Companies fail, for example, to address thepossibility of changing the structure of incentivesystems, the focus of decision-making, and manage-ment systems in the core of their business whileimplementing corporate responsibility projects inspecific business units. This is often caused by a lackof understanding among executives and strategistsof the (potential) significance of the range of issuesthat contribute to CR and the ways that they mayaffect the business. It can be resolved by a clearerappreciation of the nature of the pressures and thereal possibility they will mount rather than go away.

4 Unsophisticated view of corporate responsibility In the absence of a strategic vision, many companiesdo not separate the two roles of corporate responsi-bility: protecting the assets of the firm andproviding a basis for the creation of new value.Protecting the value of existing assets requiresmanagerial control (management systems, perform-ance indicators, reporting, adherence to codes andstandards). Value creation requires a capacity for

innovation and change, which takes place not justin the research and development department butacross the whole company.

One aspect of a strategic view of corporateresponsibility is to select those activities that need tobe protected through more responsible practices,and those activities where corporate responsibilitymight help create new value for the future.

5 Inability to hear outside voicesCorporate responsibility demands new views ofhow a company’s activities affect a range of stake-holders. Experience shows that with no cleardistinction between value protection and valuecreation it is not easy to engage stakeholders inappropriate ways, to ask them appropriate ques-tions and to listen and understand theirsuggestions.

For example, stakeholders might be invited tocomment on a sustainability report without a clearidea of whether this serves to improve the report,strengthen relationships, reveal negative effects on

stakeholders, or identify opportunities for innova-tion. This lack of focus often leads to pressures andresponses not being identified and relationshipslanguishing in misunderstanding.

6 Sticking with old managerial competenciesFew companies have recognised that the competen-cies they have regarded as central to performance inthe past may not meet the needs of the future. Forexample, the skill of successfully interacting withstakeholders in strategic planning or product devel-opment is not widespread. The lack of such skills inthe typical manager, and the traditional focus on“hard” analytical tools, reflects current businessculture and education, not necessarily futurerequirements.

December 2006 • Ethical Corporation Special report: top ten corporate responsibility mistakes 41

Tried and tested, but never works

Many companieswill recognisethat theircorporateresponsibilityprojects wereundertakenwithout a firmidea of whatcorporateresponsibilityreally impliedfor business

9

108

7

Ethical Corporation • December 2006Special report: top ten corporate responsibility mistakes 42

Few companieshave recognisedthat the competenciesthey haveregarded ascentral toperformance in the pastmay not meetthe needs of the future

Michael Blok, Vernon Jennings,Deborah Leipziger and NigelRoome advise companies onstrategy and sustainability as partof the Anders & Winst Company.

7 One worldwide approachMost corporate responsibility programmes, even formultinational companies with wide experience ofinternational business, still operate according to oneworldwide approach to corporate responsibility,often based on the agenda and practices of thecompany’s home country. This does not do justiceto the real differences between the corporateresponsibility agendas across countries, even withinwell-defined regions such as northern Europe.

For example, in Germany high value is placed onenvironmental sustainability and good communityrelations, whereas in Nordic countries the role ofcompanies in developing economies is criticallywatched. Excessive uniformity is an almostuniversal mistake in corporate responsibility.

8 Uneven approachA number of companies make substantial commit-ments and achieve good corporate responsibilityperformance in some divisions, localities or func-tional areas, while behaviour continues in otherparts of the company that many might view as irre-sponsible.

For example, many companies have madecarbon-neutrality pledges without tackling some ofthe other big corporate responsibility issues theyface, which could include child labour or unsafeworking conditions in their upstream supply chain.In so doing, these companies often create theimpression that their corporate responsibilityprogrammes are driven by image considerationsrather than a deep-seated conviction that corporateresponsibility is a core business asset.

9 Non-participative managementMany recently unveiled corporate responsibilityprogrammes have been formulated and imple-mented through top-down directives, not matchedby the devolved freedoms and responsibilitiesrequired within the company that help to makecorporate responsibility a part of company cultureand procedures.

In the same way that many companies do nothave adequate skills to engage and listen to externalstakeholders, they often have similar difficulties indrawing on ideas, energy and commitment of theirworkers and closest suppliers. Best practice requirescompanies to help manage corporate responsibilitythrough a network of “change champions”, but thisis rarely practised.

10 Failure to see corporate responsibility asinnovationThis list of ten common failures began with thesuggestion that many corporate responsibilityprogrammes lack a well-founded vision of thecompany in the future and the place of corporateresponsibility. The tenth common failure points theway to a more responsible future and underscoresmany of the mistakes outlined above: failure to seethat corporate responsibility practice is best basedon a continuous innovation process that linkscorporate responsibility to a company’s businessmodel.

Indeed, many companies are currently seekingto be more innovative for competitive reasons, yetexperience difficulties achieving their goals. It istherefore not surprising that few regard their corpo-rate responsibility programmes, whether directed tovalue protection or value creation, as innovationprocesses in their own right.

By avoiding these common mistakes, managementcan go a long way towards managing corporateresponsibility in a way that fits the company’schanging needs while maximising the potential forvalue creation. The reason these mistakes continueto be made is principally that it is easier to get itwrong than it is to get it right.

Businesses, and business leaders, will have toshow the courage to recognise and respond to thefact that many parts of their activities may be goingin the wrong direction and will need to be put rightif value is to be created in the longer term. n

One solution doesn't fit all