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Learning, Practice, Results. In Good Company
The Value of Social Reporting Lessons learned from a series of case studies documenting
the evolution of social reporting at seven companies
Institute for Responsible Investment
www.BCCorporateCitizenship.org
Boston College Center for Corporate Citizenship
The Value of Social ReportingII
The Value of Social Reporting
Lessons learned from a series of case
studies documenting the evolution of
social reporting at seven companies
Authors:
Belinda Richards
David Wood
Table of Contents2 Introduction
4 Thesocialreport:Communicationsandperformancemanagement
6 Theevolutionofsocialreports:Corporateperspectives
11 Contents:Howtodecidewhatisinareport?
19 Preparingthereport
28 FormatandDistributionofthereport
35 Conclusions
38 AboutthecompaniesintheStudy
52 Acknowledgments
www.BCCorporateCitizenship.org
Learning, Practice, Results. In Good Company
The Value of Social Reporting 1
It is the combination of both the communication and the performance management aspects of a social report, and the reporting process, that make it a unique tool for promoting good corporate citizenship.
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Boston College Center for Corporate Citizenship
The Value of Social Reporting2
Transparencyisrecognizedasacorecom-ponentofcorporatecitizenshipandsocialreportingisquicklybecomingapreferredvehicleforcommunicationaboutcorporatecitizenship.Thenumberofreportshasgrownexponentiallyinrecentyears,andcompaniesaredevotingextensivetimeandresourcestomaketheirreportsmoreusefulbothtoexter-nalstakeholdersandtheirowninternalman-agementsystems.Forinstance,KPMG’srecentsurveyofcorporateresponsibilityreportingfoundthatnearly80percentoftheworld’s250largestcompaniesnowproduceareport.
Despitethegrowingexperienceofcompanies
globallywithreporting,andthesignificantresourcesnowdedicatedtoproducingthesereports,stillrelativelylittleisknownaboutwhatcompaniesthemselvesthinkaboutkeyquestionssuchas:
• Whydocompaniesdecidetoreport?• Whatinformationshouldreportscontain?• Howdocompaniesprepareareport?• Doreportshelpcompaniesengagewith
theirstakeholders?• Doesreportingleadtomanagingwhat
youmeasure?• Wheredocompaniesfindvaluein
reporting?
Methodology To prepare the case studies, Center researchers visited the headquarters of each company to conduct interviews with key employees who either contribute to the preparation of the report or use it in their role at the company. Additional interviews were conducted by phone and more detailed interviews were held with the employees who have primary responsibility for report preparation. The range of functional areas that these employees represented within their companies spanned corporate citizenship, supply chain, human resources, investor rela-tions, marketing, environment, health and safety, and one CEO.
The interviews provided an insight into how the report and the reporting process had devel-oped at each company and where employees from across each company perceived the value in the process and the report.
The project was funded by the participating companies and the Boston College Institute for Responsible Investment.
Introduction
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Learning, Practice, Results. In Good Company
The Value of Social Reporting 3
Toanswerthesequestions,theBostonCol-legeCenterforCorporateCitizenship’sInsti-tuteforResponsibleInvestmentexaminedtheexperiencesandpracticesofsevencompaniesinpreparingsocialreports.Thatexaminationformsthebasisofthisoverviewreportandcasestudiesoneachofthesevencompanies.Thecompanieswerechosentorepresentdif-ferentindustries,geographiesandexperienceinreporting.Thecompaniesthatparticipatedintheprojectwere:
• BaxterInternationalInc.• GapInc.• Nestlé• NovoNordisk• SeventhGeneration• StateStreetCorporation• Telefónica,S.A.
Thisresearchfocusesnotonthesocialreportsthemselves,butratherontheprocessandoutcomesofreporting:howcompaniespreparethereports,theeffectsofreportingonmanagementpractices,thechangescompa-niesexpecttomakeinthefuture,andtheles-sonstheyhavelearnedalongtheway.
Theresearchers’goalwastofindwhetherandhowcompaniesfoundvalueinthereportingprocess,andwhetherandhowtheirreportscreatevalueforinternalandexternalreaders.Inthisreportthebroaderissuesrelatedtoreportingwillbeexplored.Unlessotherwisenoted,allreferencestothecompaniesarefromthecasestudies.
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The Value of Social Reporting4
Sincethebeginningofthe1990s,pressurehasincreasedoncompaniestobemoretrans-parentaboutthesocialandenvironmen-talimpactsoftheirbusinessactivities.Thispressurehascomefromavarietyofdifferentstakeholders:
• Consumersconcernedabouttheethicalimplicationsoftheirpurchases;
• Shareholdersseekingtointegratesocialandenvironmentalrisksintotheirinvest-mentdecisions;
• Communitiesandcivilsocietyorganiza-tionsdemandingtoknowthevaluethatcompaniescontributetosociety;
• Employeeswhowantassurancethatthecompanytheyworkforisagoodcorporatecitizen.
Oneresponsetothispressurehasbeentopublishanaccountofthesocialandenviron-mentalprofileofacompany.Thisallowsacompanytoofferawindowintohowitviewskeysocialandenvironmentalrisksandoppor-tunitiesinthecontextofitsbusinesspractic-es.Oneformatthatcompanieshavechosentopresentthisinformationisasocialreport.
Inthisstudy,“socialreport”isacoveringtermtodescribethestandalonepublicationsofthecompaniesparticipatinginthisstudy,variouslycalledsustainabilityreports,corpo-rateresponsibilityreports,CSRreports,cor-poratecitizenshipreports,“CreatingSharedValue”reportsand“corporateconsciousness”reports.
Althoughsocialreportsaregenerallyjustoneofasuiteofcorporatecitizenshipcommuni-cationtools,theterm“report”denotesdistinctcharacteristicsthatdistinguishsocialreportsfromotherdocuments:
• Social reporting describes performance:Whereyouare,whereyouhavebeenandwhereyouaregoing
• Social reporting involves measurement: Todescribeprogress,thereportmustindi-catewhereyouare,whereyouhavebeenandwhereyouhopetogo
• Social reporting is a recurring process:Overtime,thestoryemergesbyreportingregularlyagainstconsistentindicators
Global Reporting Initiative Guidelines
definition of sustainability reporting
“Sustainability Reporting is the prac-tice of measuring, disclosing, and being accountable to internal and external stakeholders for organizational perfor-mance towards the goal of sustainable development.”
– Sustainability Reporting Guidelines
Version 3.0
The social report: Communications and performance management
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The Value of Social Reporting 5
Itisthecombinationofboththecommuni-cationandtheperformancemanagementaspectsofasocialreport,andthereportingprocess,thatmakeitauniquetoolforpro-motinggoodcorporatecitizenship.IntheBostonCollegeCenter’smonograph“TheStagesofCorporateCitizenship”,transpar-encyanddisclosureareakeyfeatureofstagefivecompanies.Attheendpointoftheevolu-tion,companiesaremovingbeyondreactivestatementsandflankprotection,andtowardfulldisclosurethatenablesfrankdialoguewithstakeholdersandcreatesopportunitiesto“changethegame.”However,gamechangingonlybecomespossiblewhenreportinganddisclosureispartofanoverallcorporateciti-zenshipstrategy.
U.S.SupremeCourtJusticeLouisBrandeis’statementthat:“sunlightisthemosteffec-tiveofdisinfectants”wasmademorethan80yearsagoatatimewhennewstandardswerebeingintroducedforfinancialreport-ing.1Inthecourseofinterviewsforthisstudy,researchersfoundthatthesameprincipleappliestonon-financialreporting–namely,thatoncecompaniesstartdisclosingtheirper-formance,thereisanincentivetoimprovethatcanbeusedtodriveacorporatecitizen-shipagenda.
Ifreportingdrivesperformance,thenwhatisbeingmeasuredandreportedmustreflectwhatoughttobemanaged.Aligningthecon-tentofareportwithastrategicapproachtomanagingcorporatecitizenshipcanprovidepractitionerswithapowerfultoolforimprov-ingperformance.
But,aswasfoundduringtheresearch,report-ingtocommunicatecanconflictwithperfor-mancemanagement.Thenewsandideasacompanywishestotellitsstakeholdersdoesnotalwayscorrespondtotheinformationitneedstotrackandimproveperformance.Nordotheinterestsofthecompany’smostvocalstakeholdersalwaysreflectthecompany’sgreatestimpact.
Intheory,thisconflictcanberesolvedbyrec-ognizingthatreporting,whileakeycompo-nentofarobustcorporatecitizenshipframe-work,isultimatelyameansandnotanendtoimprovingperformance.Itiswhenthesocialreportisusedstrategicallyaspartofacor-poratecitizenshipmanagementframework,ratherthanasaseparateactivityfocusedoncommunicatingwithstakeholders,thattherealvaluecanbeachieved.
Transparencymustdrivebothinternalandexternalreporting–onlyanhonestaccountofperformanceandgoals,failuresandsuc-cesses,allowssocialreportstobeeffective.Buttransparencyaloneisnotenough.Effec-tiveinternalsystemsarenecessarytotakewhat’slearnedthroughthereportingprocesstoachievecontinuousimprovement.Thisremainsachallenge,andgoal,forallthecom-paniesinthisstudy,andpresumablyforallcompaniesthatcreatesocialreports.
1Brandeis, L. 1933. Other Peoples’ Money, and How the Bankers Use It.1
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Early reporting initiativesThreecompaniesparticipatinginthisstudy,Baxter,Nestlé,andNovoNordiskwereamongthevanguardcompaniesthatpublishedenvi-ronmentalreportsintheearly1990s.Thesereports,oftenledbytheEnvironment,HealthandSafetydepartmentswithinorganizations,establishedabaselineforperformanceonenvironmentalissuesaspartofamanagementsystemintentoncontinuousimprovement.Thereportsalsoallowedthesecompaniestotakealeadershippositiononenvironmentalissuesamongtheirpeers,externalstakehold-ersandgovernmentagencies.
Parallelingthetrendforenvironmentalreportingwasatrendforcorporations,partic-ularlyintheUnitedStates,toreportontheircontributionstosociety.ForStateStreet,whathastodayevolvedintoasustainabilityreportbeganasareportonphilanthropicandcom-munityinvolvementactivities.Recognizingthatthecommunitywasakeystakeholderinitsactivities,StateStreetsoughttoaccountforitscontributionstosociety.
Externalinitiatives,suchastheUnitedNationsConferenceonSustainableDevelop-ment,theformationoftheWorldBusinessCouncilforSustainableDevelopment,andlat-ertheUnitedNationsGlobalCompact,wereallcitedasinfluentialfactorsbycompaniesastheydecidedtoreport.Theseinitiativesreflectthegrowingdebatearoundtheroleofbusinessandsociety.Theevolutionofreport-ingreflectshowconceptssuchassustainabledevelopmentcametoencompassnotonlyquestionsofenvironmentalstewardship,butalsosocialimpact.
Alsoinfluentialwasgrowingadvocacyamongcivilsocietyorganizations.Companiessoughttorespondtoallegationsandbepartofdebatesratherthanthesubjectofthem.Althoughinitialresponsesmayhavebeenresponsive–suchasaNovoNordisk’sreviewofapublicpamphletonenzymes–overtimecompanieshaveseenreportingasatooltotaketheinitiativeonkeyissues.Forinstance,Nestlé’sreportonitsbusinessinAfricawastimedtocoincidewiththeG8Summitondevelopmentin2005.Thenotionthatbusi-nesscouldbeapartnerinfindingsolutionsandshouldbeincludedindebateratherthanexcludedwasemergingwithinbusiness,governmentandcivilsociety.
Toward an emerging standardTheevolutionoftheGlobalReportingInitia-tive(GRI)Guidelinesplaysanimportantroleinthisstory.TheGRIisamultistakeholderpartnershipinitiallyledbytheenvironmentalorganizationCeres.ThepurposeoftheGRIwastocreateasetofprinciplesandguidelinesforreportingthatrespondedtotheneedsofcompanies,civilsocietyorganizationsandinvestors.TheinitialmotivationfortheGRIwastopromotereportinginaccordancewiththeCeresPrinciples,whichhadbeendevel-opedinresponsetotheExxonValdezoilspillandwereconsequentlyfocusedontheenvi-ronment.However,asAllenWhite,oneoftheGRI’sfounders,recalledduringaninter-viewin2007,theGRI’ssuccessdependedonitbecomingamoreholisticnonfinancialreportingstandard,witheconomicandsocialmetricsjoinedtoenvironmentalmetrics,as
The Evolution of Social Reports: Corporate Perspectives
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The Value of Social Reporting 7
demonstratedintheoriginalframeworkthatemergedin1998.2
CorporateRegister’sonlinerecordofsocialreportsdemonstratestheevolutionthatoccurredincorporatereporting.Whileini-tialreportswerepredominantlydescribedas“Environment”or“Environment,HealthandSafety”reports,thevastmajorityofreportstodayareclassifiedaseither“SustainabilityReports”(coveringenvironment,socialandeconomicinformation)or“CorporateRespon-sibilityReports”(coveringEHS,communityandsocialinformation).3Theexperienceofthecompaniesinthestudyreflectsthiscon-vergence:whetheritwasmovingfromanenvironmentalfocus,aswasthecaseforBaxterandNovoNordisk,orfromaninitialfocusonsocialissuesasforGapandStateStreet,theresultwasreportsthatreflectedamoreholisticassessmentofthecompanies’performanceacrossthesocial,environmentalandeconomicissues.
Thosecompanieswhichbeganreportinglater–representedherebySeventhGenera-tionandTelefonica–adoptedamoreholisticapproachtoreportingfromtheoutsetbasedontheGRIGuidelines.AsanintervieweeatSeventhGenerationnoted,fora“valuesdriv-en”companysuchasSeventhGeneration,thequestionhasbecomenotwhethertoreport,butwhattoreport.DrivenbyacharismaticCEO,JeffreyHollender,transparencyisseenasakeyelementtotheresponsiblebusiness
practicestowhichtheyaspire.ForTelefónica,thereportisakeycomponentofacorporateresponsibilityframeworkthatseekstoman-agereputationanddriveinternalinnovation.
ThestoryforNestléissimilar,inthatthereportwasdescribedasthe“faceofthecom-pany”andcreatinga“platformfordialogue”withstakeholders.Recently,Nestlehasmovedfromissuespecificreportstowarda“CreatingSharedValue”reportthataddressesthecom-pany’sapproachtocorporatecitizenship.
The recurring question: For whom are
reports written?Theoretically,socialreportswillbeofusetotheirreaders.Yetarecurringquestioncon-frontedbyallthecompaniesinthestudywas:whoactuallyreads,orshouldreadthesereports?
Thisquestionisfundamental.Withoutaclearunderstandingofwhotheaudienceisforthereportitbecomesimpossibletoidenti-fytheinformationthatthereportshouldcon-tain,whetherinformationshouldbepresent-edasmetricsorstories,whatlevelofdetailorverificationisrequired,howbesttodissemi-natethereport,andhowthereportcanbeusedtoengagewithstakeholders.
Ceresnotesthat“companiesandstakehold-erswithinandoutsideoftheCeresCoali-tionutilizecorporatesustainabilityreportsas
2Waddock, S. 2007. On Ceres, the GRI and corporation 20/20: Sandra Waddock talks to Allen White (Interview). Journal of Corporate Citizenship (Vol. 26, Summer) p. 38.
3Corporate Register, November, 2008. Global Report Output by Type. http://www.corporateregister.com/charts/bytype.htm
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informativebenchmarkingandaccountabilitytoolstomeasureacompany’senvironmen-tal,socialandeconomicperformance.”4ThemembersoftheCerescoalitionincludeinves-tors,environmentalorpublicinterestgroups,foundations,laborgroupsandcompanies.Needlesstosay,eachgrouphasitsowninter-estsandusesfortheinformationinreports.
Whenaskedtoidentifywhoistheaudiencefortheirreports,intervieweeslistedabroadgroupofstakeholders.Thesegroupsallposedparticularconsiderationswhendecidingonthecontentofthereport,determiningtheprocessesrequiredtocaptureinformationandthebestwaytodistributethereport.Theaudienceslistedbyintervieweesinclude:
• EmployeesAlthoughnotedasaprimaryaudienceforthereport,companiesstruggledwithrep-resentinganimageofthecompanythatwasboth“real”forcurrentemployeesandappealingtopotentialrecruits;balancingtheculturaldifferenceswithinnationalorinternationalworkforces;andmakingthereportaccessibletobluecollarandwhitecollarworkersalike.
• ConsumersGrowingconsumerinterestinproductsthatareassociatedwithresponsibleprac-ticesiswelldocumented.However,com-paniesfoundsocialreportsacumbersometoolforengagingwithconsumers.Strikingtherightbalancebetweentellingstoriesandinformingaboutperformanceprovedverydifficult.Similarly,thebestlength
andformatforthereporttoengagewithconsumersalsoprovedproblematic.Forexample,Gapemployeesnotedthereportisjustonetooltheyusetoengagecustom-ersonissuesofcorporatecitizenship,withothersincludinganin-storebrochure,in-storedecorationandproductlabels.
• Business partners – Suppliers and customersCompaniesrecognizedthatinformingorganizationsintheirvaluechainsabouttheircorporatecitizenshipactivitieswasakeyopportunitytoincreasetheirinfluenceinsuchrelationships.Whileeachcompanynotedusingthereportinsomewayinrela-tiontosuppliersorbusinesscustomers,thereportsservedprimarilyasademonstrationofcommitmenttosocialandenvironmen-talissues.Companieshadyettofindwaysofusingthereporttoengagebusinesspart-nersinfindingsolutionstocommonsocialandenvironmentalproblems.
• Governments and regulatory agenciesGovernmentsandregulatoryagencieswerecitedbyseveralcompanies,mostnotablyBaxterandTelefónica,askeyaudiencesforthereport.Baxterusesitsreporttodemon-strateleadershiponenvironmentalissueswhileTelefónicahasfounditsreportstobeaneffectivemeansofdescribingpositiveeconomiccontributionsmadebyitsbusi-ness.However,theneedtotailortheinfor-mationinthereporttomakeitrelevanttorelevantgovernmentrepresentativeshasbeenachallenge.
4Ceres. Engagement and Disclosure. www.ceres.org
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• Civil society organizationsCivilsocietyorganizationsweresingledoutasstakeholderstowhomcompaniesdistributedtheirreports.Butthesegroupspresentedachallenge:companies’socialreportscoverabroadrangeofissues,butmostcivilsocietyorganizationsareinter-estedindetailedinformationaboutmorespecifictopics.Creatingareportthatcov-ersspecificareasindetailwhileatthesametimeremainingrelevanttootherstakehold-erswasakeyconcernforcompanies.
• InvestorsSociallyresponsibleinvestorsweremen-tionedasakeyaudienceforthereportbymostcompaniesbuttherewasclearlyfrus-trationthatformanySRIs,andparticu-larlysociallyresponsibleindices,havingareportdidnotreducethenumberofsur-veysorrequestsforfurtherinformationforcompanies.
Mainstreaminvestorswerestillperceivedtobeuninterestedinsocialreports(anobservationsupportedbyresearchconduct-edbytheCenter’sInstituteforResponsibleInvestment),5despitetheexistenceofini-tiativessuchastheUnitedNationsPrin-ciplesforResponsibleInvestment(UNPRI),whichmarkatrendtowardgrowinginterestinenvironmental,socialandgov-ernance(ESG)information.SignatoriestotheUNPRI,representingus$15trillioninassetsundermanagement,arecommit-
tedtointegratingESGintotheirinvest-mentdecisionsandseeking“appropriatedisclosure…fromtheentitiesinwhichweinvest.”6
Thedifferentaudiencescomplicatethereport-ingprocess.Whilestoriesresonatebetterwithretailconsumers,civilsocietyorganizationsdemanddetailedandverifiableinformationonspecifictopics.Similarly,employeesmaybemostinterestedinthepartofthecompanyinwhichtheywork,whereasinvestorspreferlimitedbuttargetedinformationthatinformstheiroverallassessmentofthecompany’senvironmental,socialorgovernancerisk.
Resolvingtheseconflictsrequirescompro-mise.Companiesneedtoprioritizetheaudi-encestowhomthereportisdirectedanddevelopalternativemeansofcommunicatingwithotherstakeholders.Withoutadefinedaudienceforthereport,itrisksbecoming,asanintervieweefromNovoNordiskobserved,adocumentthatis“foreverybodyandfornobody.”
InNovoNordisk’scase,thecompanydecid-edseveralyearsagotointegrateitssustain-abilityreportintoitsannualfinancialreporttoshareholders.Thisdecisionreflectedthecentralpositionaccordedtomanagementofthe“triplebottomline”withinthecompany.ShiftingtoanintegratedreportresolvedthequestionoftheaudienceforNovoNordisk:fortheintegratedreport,theaudienceis,and
5Wood, David and Hoff, B. 2007. The use of non-financial information: What do retail investors want? Boston College Institute for Responsible Investment. www.bcccc.net/FINRAresearch. Wood, David and Hoff, B. 2007. The use of non-financial information: What do investment professionals want? Boston College Institute for Responsible Investment. www.bcccc.net/FINRAResearch.
6For more information, see United Nations Principles for Responsible Investment. www.unpri.org
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mustbe,shareholders.Althoughthisgavethereportaclearerpurpose–howtodemon-stratethevalueofthetriplebottomline–italsoreducedtheamountofinformationthatcouldbeincludedinthereportandchangedthetoneinwhichthereportiswritten.Theintegratedreportrecordsperformance,withfinancialandnonfinancialinformationpre-sentedinequalterms.Thishasrequiredreducingtheamountofnonfinancialinforma-tionandchangingthetonesothatratherthanposingquestionsandengagingindebate,thenonfinancialinformationwaswritteninmorecertainterms,consistentwiththefinancialinformation.
Unlessthereportretainsalinktothecom-pany’sownassessmentofwhichcorporatecitizenshipissuesaremostimportantforittomanage,thereporthaslessvalueasaper-formancemanagementtool.Confiningthereport’sroletothatofacommunicationtoolmaymeanthereportwillnotfullyreflectcor-porateperformanceagainstcorporatecitizen-shipgoals.Ratherthanbeingatoolforbuild-ingconfidencewithstakeholders,thereportcanbecomeapotentialliabilityifitdoesnotreflectthecompany’sactualperformance.
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Contents: How to decide what is in a report?
Decidingonthecontentofareportrequiresacarefulbalanceofthecommunicationandperformancemanagementaspectsofreporting.Theelusivenessofthereport’saudiencecomplicatesconsiderationsofcontents.Atthesametime,carefulconsiderationisnecessarytoensurethereportisintegratedintothecompany’sinternalcorporatecitizenshipmanagementgoals,ifitistobeofuseinachievingthem.Thekeydilemmasidentifiedinrelationtothecontentofthereportrelatebothtothenatureoftheinformationincludedinthereportandthemannerinwhichtheinformationwaspresented.Companiesusedarangeoftoolstohelpthemresolvethesedilemmas.Theseincluded:
• Assessmentofkeycorporatecitizenshiprisks
• Benchmarkingagainstpeers• Engagingwithexternalstakeholders• Engagingwithinternalstakeholders
Usingthesetoolsallowscompaniestodevel-opaprocessforassessingthosecorporatecitizenshipissuesthataremostmaterialtotheirbusinessandtotheirstakeholders.Italsoprovidesatestinggroundfortheman-nerinwhichtheinformationispresented.Forinstance,askingstakeholderstoreviewareportdraftinasafeandneutralsettingallowscompaniestoseehowreadersrespondbothtoformandtocontent.
Establishingaprocessforprioritizingsocialandenvironmentalrisksandopportuni-tiescanbeusedtoinformthecontentofthe
report,but,moreimportantly,providethebasisfordevelopingperformancegoalsinacorporatecitizenshipmanagementprocess.Indeed,ascompaniesbecamemoreexperi-encedreporters,theemphasisshiftedtowardusingtheprocessesthatevolvedthroughreportingaspartofthecorporatecitizenshipmanagementprocessandthereportbecameameansofdocumentingprogressratherthansettingtheagenda.
Mapping stakeholder concernsMostemployeesresponsibleforpreparingthereportworkedeitheronacorporatecitizen-shipteamorincommunicationsorpublicaffairs.Inbothcases,thismeanttheyhadagoodunderstandingofthekeyissuesofcon-cerntostakeholdersthroughdirectinterac-tions,fieldinginquiries,respondingtosur-veysfromsociallyresponsibleinvestors,andongoingmonitoringofmediacommentary.Thisknowledgeprovidedausefulbackgroundforpreparingthereport.AsanintervieweeatGapreported,monitoringspeakingengage-mentsorcustomerinquiriesaboutproductsourcingcanprovideimportantinsightsintoemergingtrends.
Insomecases,companiesconductedafor-malprocessofmappingcurrentissuesinthepressoronline.Forinstance,severalcom-paniesengagedSustainAbilitytoundertakedesk-basedresearchofthecurrentissuesbeingdiscussedinthemediaandcivilsocietyorganizationsthatrelatedtotheircorebusi-nessactivities.Thecompaniesthenworkedtoprioritizetheseissues.
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TheGRIwasalsousedtoinformtheinitialmappingprocessforcompanies.AsDeborahSpakofCorporateCommunicationsatBax-terdescribedit,“GRIisagoodcompilationofthehighestlevelexpectationsandneedsofavarietyofstakeholders.”Examiningthelistofindicatorsandprioritizingthemaccordingtotheinternalunderstandingofthecompa-ny’sbusinesswasausefulstartingpointforidentifyingissuesthatshouldbeincludedin
MaterialityThe concept of materiality is drawn from financial reporting, where it is used to assess whether information must be included in a company’s financial reports. Broadly speaking, information is “material” if it would impact a reasonable inves-tor’s assessment of a company. In the context of nonfinancial reporting, the GRI offers the following statement describing materiality:
The information in a report should cover topics and indicators that reflect the organi-zation’s significant economic, environmental and social impacts, or that would sub-stantively influence the assessments and decisions of stakeholders.
Translating this concept to social reporting, although seemingly intuitive, has been a challenge. This is largely because unlike financial reports, social reports are prepared with a number of different readers in mind. For example, while investors may define “materiality” as nonfinancial information that will impact on financial performance, advocacy groups will be interested in information related to their particular issues – whether animal rights or greenhouse gas emissions. In both cases, stakeholders may be influenced by information that companies report, meaning that it is “mate-rial” from their perspective.
Different frameworks have been developed to identify material issues. Two com-monly used by companies are those developed by AccountAbility and SustainAbility. These frameworks both emphasize stakeholder engagement in assessing materiality.
thereport,whetherornottheultimateobjec-tivewastocomplywiththeGRI.SimilaremergingstandardsthatcompaniesincludingNestlé,NovoNordiskandTelefónicareferredtointhisregardweretheU.N.Millenni-umDevelopmentGoalsandtheU.N.Glob-alCompactPrinciples.Thetrendtorefertothesestandardsinreportswassimilarlynot-edbySustainAbilityinitsreport“Tomorrow’sValue.”7
7http://www.sustainability.com/downloads_public/insight_reports/Tomorrows_Value_Exec_Summary.pdf
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Benchmarking against peersThecompaniesanalyzedinthisstudyallref-erencedpeerreportswhenpreparingtheirown.Inmanycases,itwasapparentthatcompanieswereinfluencedbygeneraltrendstoreportwithintheirindustry.Althoughindustrypeersdidhavesomeinfluence,com-paniesdidnotlimitbenchmarkingtocom-petitors’reportswhenlookingforexamplesofbestpractice.Since“bestpractice”inreport-ingisstillevolving,learningfromthelessonsandexamplesofothershasbeenvaluabletocompaniesastheydevelopedtheirownapproachtoreporting.
Generallyspeaking,companieslookedtopeersinfourcategorieswhenidentifyingbestpractice:
1. Companies in the same industry sector Startingwithcompaniesinthesame
industrysectorprovidesaninsightintohowothershavepresentedcommonchal-lengesrelatedtothecompany’sbusinessactivities.Forinstance,Gapnotedthatitcompareditssupplychaindisclosuretotheapproachtakenbyothercompaniesintheclothingindustry.Inthatindustry,asoneintervieweeobserved,momentumwascre-atedbythevariousreportingactivitiesofacoregroupofcompaniesincludingGap,NikeandTimberland.
However,othersnotedthatwhileindustrypeercomparisonisausefulstartingpoint,thereistremendousvariationwithinsec-tors.Forexample,StateStreetisacusto-dialbankandassetmanager,meaningthatitscorporatecitizenshipchallengesdifferfromothercompaniesinthefinancialser-vicesindustrysuchasinsurancecompa-niesorretailbanks.
2. Companies of similar size Anothersourceofinfluencewastheactivi-
tiesofcompaniesofasimilarsize,partic-ularlyinthecaseofthelargercompanies.Fortheseorganizations,demonstratingleadershipandmeetingcommunityexpec-tationsregardingreportingwerekeycon-siderations.AsTelefónicaCorporateResponsibilityManagerDaviddeSanBen-itoTorrenoted,“societyexpectsmorefromlargecompanies.”SeventhGeneration,thesmallestcompanyinthestudy,alsousedthereportsofsimilarlysizedorganizations–inparticularthosethatsharedacommon“values-driven”approachtobusinesssuchasBen&Jerry’s.
3. Companies operating in the same country or geography
Severalcompanieswereinfluencedbylocalandinternationalreportingtrends.Insomecasesthiswasdrivenbytheactivi-tiesofregulatoryagencies,aswasthecasewithNovoNordiskandBaxter’searlyenvi-ronmentalreporting.Inothercases,moni-toringthereportsofotherlocalcompaniesprovidedanopportunitytobepartofdefin-ingcorporatecitizenshipinthatlocale,aswasthecasewithNestlé’s“CreatingSharedValue”reportinMexico.
4. Recognized leaders in reporting – regard-less of their sector, size or locationWhenaskedtoprovideexamplesof“bestpractice”inreporting,companiesallreferredtorecognizedleadersinreport-ingassourcesofinfluence.Thisincludedcompanieswithintheirindustry,locationorsize,butalsothosecompaniesthatwererecognizedforaparticularaspectoftheirreporting.Forexample,manyreferredto
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BP’sapproachtostakeholderengagement,Nike’ssupplychaindisclosure,NovoNor-disk’sintegratedreportandStarbucks’formatanddistributionaseffectivetech-niques.Thisreflectsthecommonchalleng-escompaniesfacewhendetermininghowtotalkaboutcorporatecitizenshipandhowbesttoengagewiththeiraudience.
Engaging with external stakeholdersAllcompaniesincorporatedsomeformofinteractionwithstakeholderstoreceiveinputonthecontentoftheirreports.Doingsohelpedgetabetterperspectiveonwhatissuesweremostimportantforstakeholdersandprovidedfeedbackonthelevelofdetailtheyexpectedtoseeinthereport.Engagementalsoexploredideasforaddressingissuesandidentifyingstakeholderexpectationsaboutthecompany.
Theprocessofstakeholderengagement,whileimportantforthepurposeofreport-ing,wasalsoameansforinvitingstakehold-erfeedbackoncompanies’corporatecitizen-shipmorebroadly.Indeed,aswasmadeclearinthecasesofGap,SeventhGenerationandTelefónica,stakeholderengagementwasseenfirstasanopportunitytobuildrelationshipswith,andlearnabout,stakeholders’percep-tionsofcorporatecitizenshiprisksandoppor-tunities,andonlysecondarilyasameansofdeterminingthecontentofthesocialreport.
Despitethebroaderpurposeofstakeholderengagement,usingthereportasastartingpointforengagingwithstakeholderscreated,accordingtoanintervieweefromTelefónica,a“safespace”fordialogue.Focusingonthemostmaterialissuesfacilitatedamorepro-ductiveconversation.However,limitingthe
conversationalsolimitedthepotentialben-efitsofengagement.Forinstance,SeventhGenerationseekstouseitsreportasameansofengagingothersinitsgoalofachiev-ingfundamentalsystemschangesthatwillincreasesustainability.Bylimitingdiscussiontothereport,SeventhGenerationfelt,therewasanopportunitymissedtoengageontheissuesthemselves.
Thefirststeptoengagingwithstakeholdersis,ofcourse,toidentifythem.Companiesdidthisinanumberofways.Someengagedthird-partygroupssuchasCeres,Account-AbilityandSustainability,eachofwhichhasitsownnetworkofpractitionersfocusedonkeysocialandenvironmentalissues.Forinstance,CeresconvenespanelscomprisedofmembersoftheCerescoalition,whichincludescompanies,NGOs,tradeUnionsandinvestors.
Externalorganizations,inthisprocess,servedasbrokersthatcreatedthegroundrulesfortheengagement.AsanintervieweeatNestlécommented,existingrelationshipswiththestakeholderrepresentativeswasimportantforthesuccessofthesessions.WorkingwithAccountabilityallowedNestlétoconvenepanelsinthreegeographiclocationswhichincreasedthescopeofthefeedbackreceived.AnotherexamplewasGap,which,facingashareholderresolutionregardingreporting,workedwithagroupofsociallyresponsibleinvestorstodevelopaframeworkforreport-ingonitssupplychainandotherissues.TheSRIs,asinvestorsconcernedwithabroadgroupofissues,wereabletoprovideathirdpartyperspectiveonbothcurrentandfutureissuesfacingthecompany.
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Ceres stakeholder process Baxter has been a Ceres company since 1997. Ceres is a Boston-based NGO that brings together investors, corporations and civil society organizations (including unions and NGOs) that are concerned with advancing important sustainability issues such as respond-ing to global climate change. Ceres works with companies to provide stakeholder input into reporting and disclosure of environmental and social issues. It is also the organization that launched the initial GRI Guidelines.
Ceres convenes stakeholders to provide feedback on company reports. Each company has a stakeholder team that provides comments before, during and after the report is finalized. The stakeholder team is comprised of different members of the Ceres coalition, in Baxter’s case: three investor representatives, two corporate representatives (from different industries), three environmental NGOs and several other NGOs, some with specific knowledge of the health-care sector.
Workingwiththirdpartiesexperiencedinfacilitatingstakeholderengagementalsoallowscompaniestobenefitfromtheirestab-lishedmethodologiesforanalyzingtheissuesraisedbystakeholders.BothAccountAbilityandSustainAbilityhavedevelopedprocess-esforprioritizingissuesbasedonstakehold-erconcerns.Similarly,Ceresprovidescom-panieswithsummariesoffeedbackfromitsengagementsessionsandcanalsoworkmorecloselywithcompaniesontheirreports.
Telefónica’s stakeholder engagement
process Telefónicadevelopeditsownprocessfor
stakeholderengagement,whichitisusingatbothagroupandcountry-leveltodeter-minecorporatecitizenshippriorities.Itisthesecondstepofthemanagementpro-
cess,helpingTelefónicatoidentifythekeysocialandenvironmentalissuesitsstake-holdersperceivetobeassociatedwithitsbusiness.Stakeholderpanelsareconduct-edonanannualbasisatbothagroupandcountry-level.WhileTelefónica’scentralcorporateresponsibilityteamhasbeenleadingthesessionstodate,country-levelmanagersareexpectedtomanagethepro-cessinthefuture.AlthoughtheprocessispartofTelefónica’ssystemforidentifyingcorporatecitizenshippriorities,thefind-ingsfromtheengagementsessionsalsoinformthecontentofitsreports.
Thekeybenefitoftheprocesshasbeentolocalizethesettingofcorporatecitizen-shipprioritieswithinthegroup.AlthoughTelefónicahasacommonframeworkformanagingcorporateresponsibility,itacknowledgesthatthekeychallengesin
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AccountAbility – AA1000 PrinciplesThe AA1000 framework, developed by AccountAbility uses the principle of “inclusivity” as a foundation. Inclusivity is defined as an organization’s commitment to identify, engage with and respond to stakeholders, and account for performance. 8 Under the AccountAbility stan-dard, inclusivity is achieved by engaging with stakeholders. Through engagement, companies are able to ensure that they address three additional principles: materiality, completeness and responsiveness.
AccountAbility’s process for determining materiality is based on an assessment of an issue’s “relevance” and “importance.” Accountability uses a five-part process to help companies identify the relevance and importance of different issues.9 This involves identifying issues in relation to: direct financial impacts, policy-related performance, organizational peer-based norms, stakeholder behavior and concerns, and societal norms. Once relevant issues are identified, they are prioritized based on importance.
SustainAbility SustainAbility’s framework is based on three concepts: the degree of societal concern sur-rounding an issue, the potential impact of the issue on the business, and the degree of con-trol that a company has over an issue. Issues are identified either through research or by engaging directly with stakeholders. Once identified, the issues are mapped on a matrix to determine what should ultimately be included in the report.
ColombiawilldifferfromthoseinSpainortheUnitedKingdom.Byengagingwithlocalstakeholders,thecentralcorporateresponsibilityteambasedinSpainisabletounderstandthenuancesofmanagingcorporatecitizenshipacrossthegroup.Moreimportantly,countrymanagersareabletoadapttheircorporatecitizenshipprograms–andtheirreports–tosuittheirlocalcircumstances.
Engaging with internal stakeholders Muchemphasisondeterminingtheappro-priatecontentforthereportfocuseson“soci-etalconcerns”orexternalstakeholderopin-ions.However,withemployeesandinternalstakeholdersasakeyaudienceofthereport,itisimportantthatthecontentofthereportreflectsemployees’owncorporatecitizen-shipconcerns.ForanemployeeatGap,forinstance,thecompanypresentedinthereport
8 AccountAbility. 2008. ‘AA1000 AccountAbility Principles’. (www.accountabilityaa1000wiki.net/index.php/AA1000_AccountAbility_Principles).
9 http://www.novonordisk.com/sustainability/values_in_action/Assurance/materiality.asp
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mustbe“real”foremployees.Inadditiontoprovidinganinsightintotheinformationthatisrelevantfromanemployeeengagementperspective,companiesfoundthatemploy-eeshadavaluableperspectiveoninforma-tionaboutthekeycorporatecitizenshiprisksandopportunitiesfacingtheirorganization.Finally,involvingmoreemployeesinthepro-cessofreportingisameansofraisingaware-nessofthereportandopensopportunitiestodeepenengagement.
Companieshadarangeofmechanismsforengagingwithemployees–somemorefor-malizedthanothers.Forexample,NestléandTelefónicaheldmeetingswithkeyemployeesresponsibleforcontributingtothereports.Thepurposeofthesemeetingswastopri-oritizecontentforthereport.Similarly,StateStreet’scommunityaffairsteam,whichisresponsibleforpreparingthereport,engagesdirectlywithemployeesresponsibleforpro-vidinginformation,inordertoimprovethecontentofthereport.
BaxterisintheprocessofintegratingitsreportingprocesswiththeactivitiesofitsnewlyformedSustainabilitySteeringCom-mittee.Byaligningthecontentofthereportwiththestrategysetbythiscommittee,Bax-terhopestousethereporttoreinforcethecommittee’spriorities.Similarly,NovoNor-diskhasariskmanagementcommitteethatisresponsibleforidentifyingpriorityissuesfac-ingthecompany.Theserisksarereflectedinthekeyperformanceindicatorsinthereport.
Generally,companiesinthestudymissedtheopportunitytotrulyengagewithinternalstakeholdersduringthereportingprocess.Eventhoughinternalstakeholdersrepresent
avaluablesourceofinformation,mostcom-paniesonlyhadlimitedformalprocessesforengagingwithemployees,relyinginsteadonthereportingmanager’sknowledgeoftheprevailinginternalviews.AtSeventhGen-eration,forexample,althoughemployeesinterviewedwereengagedinthecompany’smissionofsustainability,therewasalackofownershipofthereportandreportingpro-cess.Ratherthanseeingthereportasareflec-tionoftheirwork,manyemployeesobservedthatthereportingprocesswasnotbuiltintotheirperformancemanagementprocesses.Forcompanieswithmultipleoffices–andparticularlythosewhoseoperationstran-scendstateornationalboundaries–failingtoensurethatthereportproperlyreflectstheconcernsofaglobalworkforcecreatesariskthatthereportpresentsabiasedrepresenta-tionofthecompany,reducingitsutilityasatoolforcompany-wideemployeeengagement.
Using the GRI GuidelinesTheGlobalReportingInitiativeGuidelineswereusedbyeachofthecompaniesinthestudyintheirmostrecentreports,butthedegreetowhichtheywereapplied,thecom-panies’levelofexperienceinusingtheGRI,andthemannerinwhichthecompaniesusedtheGRIvariedsignificantly.
CompaniesidentifiedanumberofbenefitsassociatedwithusingtheGRI.Chiefamongthesewerethattheexistenceofacommonframeworkprovidedabenchmarkfordisclo-sure,allowingcompaniestodeterclaimsof“greenwashing.”Byreportingagainstagreedstandards,companieswereabletodemon-strateacommitmenttotransparencyand,throughthedegreetowhichtheindicatorswereapplied,abenchmarkagainsttheir
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peers.AnotherbenefitassociatedwiththeGRIwasthatitprovidedastartingpointforidentifyinginformationthatshouldbeinclud-edinthereport.
TherewerealsomanychallengesidentifiedwiththeGRI.AkeycomplaintabouttheGRIwasthattheindicatorsrepresenteda“laundrylist”ofinformationforcompaniestoreporton.Thishasbeenaddressedinsomecasesbytheexistenceofindustryguidelines,butwasstillarecurringtheme.Thesheernumberofindicatorsandresourcesrequiredtoreportagainstthemalldeterredsomecompaniesfromapplyingtheguidelinesinfull.Atacer-tainpoint,theadditionalresourcesrequiredtorespondtomoreindicatorsoutweighthebenefitfromgreaterdisclosure.Thiscon-cernwaskeenlyfeltbySeventhGeneration,thesmallestandonlyprivatelyheldcompanyinthestudy.AlthoughSeventhGenerationiscommittedtotransparency,itexperiment-edwitha“GRI-lite”reporttoreducethebur-denofproducingafullreport.TheambiguityoftheindicatorswasalsocitedasanegativeaspectoftheGRI.Whilethebenefitofambi-guitymaybethatitallowsstandardsofbestpracticetoemerge,itreducesthecomparabil-ity(andthereforethecompetitiveopportuni-ty)ofreports.
CompaniestendedtousetheGRIasaguide,ratherthananabsolutestandardfordisclo-sure.ExceptionstothiswereTelefónica,whichsetaninternalrequirementthatallreportsachievethehighestapplicationlevel
oftheGRI,andNovoNordisk.Othercompa-niesusedtheGRIasastartingpointforiden-tifyingissues,ratherthanacomprehensivelistuponwhichtobasethereport.Ratherthanthegoalofrespondingtoalltheindica-torsdrivingthecontentofthereport,com-paniesinsteaddecidedwhattheywantedtoreportusingtheirowntestsforestablishingmateriality.TheGRIwasasourceofdefini-tionsforpresentingcertaininformation.ItseemedthatwherenoadditionaleffortwasrequiredtoreportinaccordancewiththeGuidelines,companieswoulddoso.Howev-er,thebenefitsofreportingagainstaddition-alindicatorswerealwaysweighedagainstthecostsofdoingso.
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Onekeylessonfromthisstudy:Itisthepro-cessofpreparingthereportthatoffersthegreatestopportunitiesforleveragingtheper-formancemanagementbenefitsofreporting.Inessence,preparingareportcreatesadefactoperformancemanagementsystem,asitrequirescollectingkeyperformancedata,ana-lyzingperformanceandidentifyingareasforimprovement.Byrequiringemployeesandconsultantstocollectinformationandanalyzeperformanceonaregularbasis,companiescreateincentivestoimproveperformance.Thereportcreatesareasontoaskforinfor-mationfromcolleaguesacrossthecompanyinacontextthatistime-sensitiveratherthan“nicetohave.”Theexperienceofcompaniesinthestudywasthatthereportingprocesshelpedreinforcetheimportanceofmanagingsocialandenvironmentalissues.
Regardlessofthecompany’slevelofexperi-encewithreporting,theamountoftimeandresourcesittooktopreparereportswassignifi-cant,andviewedasaburdenbycontributingstaff.Formanyemployeesinvolvedinthepro-cess,reportingwasseenasanadditionaltaskratherthanapriority.Ascompaniesbecamemoreexperiencedreporters,datacollectionsystemsbecameincreasinglyformalizedandopportunitieswerefoundtostreamlinethereportingprocess.Intheearlierstagesofreporting,theprocessofpreparingthereportprovidedanopportunitytobuildnetworksacrossthecompanyandstarttoestablishinter-nalfeedbackloops,despitefrequentcom-plaintsfromemployeesabouttheadditionalreportingburden.
Someofthecommonchallengesseeninthepreparationprocesswere:
• Buildingcross-functionalsupportforthereportandreportingprocess
• Collectingdataefficientlywhileensuringaccuracyandconsistency
• Balancingtimespentonreportingwithtimespentonprojectmanagement
Building a cross-functional teamAllcompaniesusedsometypeofcross-func-tionalteamtopreparetheirreports,withtheprocessledbyasmallcoreteam.Ingeneral,thecorereportingteamwaseitherinthecor-poratecitizenship/CSRteam,orinanexter-nallyfacingrolesuchaspublicaffairsorcom-munications.Thiscoreteamcoordinateddatacollectionfromacrossdifferentbusinessunitsincludingenvironment,humanresourc-es,operations/sourcing,realestate,investorrelations,publicaffairs,productdevelopmentandinternationalsitemanagers.Inaddition,employeesfromlegal,marketinginvestorrelations,publicaffairsandcommunicationswereallinvolvedinthepreparationorreviewofthereportandinsomecasesanexternalauthorwasusedtowritethereport.
Acrosseachofthecompanies,intervieweesbeyondthecoreteamweresupportiveofaprocessthatallowedthemtogainabetterunderstandingoftheoverallobjectiveofthereport.Byengagingwithcontributorsandreviewersearly,thecorereportingteamwasableto:
Preparing the report
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• Buildgreaterunderstandingofwhyinfor-mationwasbeingcollected,reducingresis-tancefromemployeesinothergroupstaskedwithcollectingtheinformation
• Incorporatefeedbackfromemployeeswithmoredetailedunderstandingofspecificissuesbeingcoveredinthereport,suchasenvironment,allowingthereporttobetterreflectinternalpriorities
• Identifyareasofconcernupfrontandworkthroughissuessothatstatementsorinformationinthereportwerenotasur-prisetoseniormanagementwhenthereportwasinthefinalstagesofreview
• Createownershipofthereportingprocessandthereport,andincreaseawarenessanddialoguearoundtheissuesitcontains
Inpractice,intervieweesacrossthestudyreported,ausefulstepwastoholdameet-ingforkeyemployeesinvolvedincontrib-utingtoorreviewingthereportsixtoninemonthspriortotheexpectedcompletiondateofthereport.Ameetingwasfoundtobeausefulwayofensuringeveryonehadacom-monunderstandingoftheobjectivesofthereport.Thisallowedthosecontributinginfor-mationtosuggestalternativeinformationthatmightberelevantforthereportortodevelopmoreappropriateindicatorstocaptureper-formance.Similarly,ithelpedthosereviewingthereporttounderstandwhyitwasimportanttodiscloseparticularinformationandtoiden-tifyproblematicareasearly.
Forexample,Nestlébroughttogetheremploy-eesfromawiderangeoffunctionalareastoprovidefeedbackontheinitialoutlineofthereport.Representativesincludedseniorman-agersfromitsOperations,Sourcing,HumanResources,InvestorRelations,PublicAffairs,
andHealth,Safety&Environmentteams.Oneemployeedescribedtheprocessas“dem-ocratic,”inkeepingwithSwitzerland’slonghistoryofcivilparticipation.EmployeesatTelefónicanotedthathavinganin-personinthemeetingtodiscussthereportafford-edanopportunityforthemtogainabroaderperspectiveoftheissuesthatthecorporateresponsibilityteammanagesandtounder-standhowdifferentissuesareprioritized.
Emailandphonecallsprovedlesseffectiveatbuildingandmanagingthecross-function-alteams.Theyreducedcontributors’abilitytoseethegreatercontextofthereportandtounderstandwhyinformationtheyprovidedwasrelevantorirrelevant.Whilethisdidnotnecessarilyseemtodetractfromthereportorreportingprocess,itdidseemtobeamissedopportunitytoreinforcethenetworkofcon-tributorsacrossthecompanyandtocreategreaterownershipofthereportbeyondthecorereportingteam.
Data collectionThechallengesassociatedwithdatacollec-tion–evenforthemostexperiencedreportersinthestudy–weremyriad.However,itwasalsothroughthedatacollectionprocessthatopportunitiesarosetoengagewithemployeesacrossthecompanywhowouldnototherwisebeinvolvedincorporatecitizenshipactivities.
Identifying data sourcesInsomecasesdatacouldbeextractedfromexistingdatamanagementsystemsoroth-ersourcessuchasPeopleSoftforhumanresourcesinformation,environmental,healthandsafetyrecords,orannualfinancialreportsforeconomicinformation.However,evenwherecommondatacollectionsystemsexist-
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ed,theinformationinputtedacrosscom-panies,particularlythoseoperatingacrossnationalborders,varieddependinguponreg-ulatoryrequirementsorlocalpriorities.Forexample,employeedemographicsarenotuni-versallycollectable,“regulatedwaste”coversdifferentitemsdependingonthecountry,anddeterminingtotaltaxespaidisnotalwaysassimpleasitmightsound.
Complicationsalsoarosewhereinternalper-formanceindicatorsdifferedfromtheinfor-mationdemandedbyexternalaudiences.Insomeinstancesthiswasbecauseinformationwasnotcapturedforthepurposeofassessingcorporatecitizenshipperformance,requiringadditionalprocessinginordertoprovidetheinformationneededforthereport.Forexam-ple,utilitybillsarecommonlymonitoredonacostratherthanconsumptionbasis.ForGap,whichoperatesthousandsofstoresacrosstheUnitedStates,theinformationavailablevar-ieddependingonthedifferentleaseagree-mentsinplace.Whilesomestorespaidutil-itybillsdirectly,othersthatwerepartoflargershoppingcomplexeshavethesecostsincorpo-ratedintotheirrents–meaningthereisnoindividualmeterforthestore’selectricityconsumption.
Anotherpointmadebyintervieweesisthatemployeeswhoholdinformationaboutelec-tricityconsumptiondonottypicallyengageincorporatecitizenshipactivities–collectingandreportingthisinformationwasseenasaburdenbeyondtheirassignedrole.Aformalprocess–withclearsupportfromtop-levelmanagement–helpedtoimproveemployees’
willingnesstocontributetothereportasitsendsastrongsignalthatthereportisconsid-eredimportant.
IT systems for capturing informationCollectinginformationforthereportpresent-edaveryrealtechnicalchallengeforcom-paniesinthestudy.Forinstance,Nestlehasglobaloperationsinnearlyeverycountry,andadecentralizedmanagementstructurehasonlyrecentlyadoptedacommoninformationmanagementsystem–somethingthatPeterBrabeck,theformerCEO,hasacknowledgedhadposeddifficultiesforpreparingasocialreport.10Evenwhereacommonplatformorcombinationofplatformsexistedwithincom-panies,SeventhGenerationwasaloneinhav-ingaperformancemanagementsystemthatintegratedsocialandenvironmentalinfor-mationintoitsenterpriseresourceplanning(ERP)software.
SeventhGenerationadapteditsERPsystemsothatitprovidesdetailedinformationabouttheenvironmentalimpactofproducts.Thegoalofthisistoallowmanagerstoassessboththefinancial,aswellasenvironmentalimpactswhenmakingdecisions.Forexam-ple,theERPsystemcanbeusedtocalculatebothfinancialandcarboncostsassociatedwithdifferenttransportationoptions,helpingtodeterminethemostcost-andcarbon-effi-cientmeansofmovinggoods.Althoughtheprimarymotivationwastoimprovemanagers’abilitytoimproveenvironmentaloutcomes,theERPisavaluablesourceofinformationforthereport.
10Reference to Brabeck’s speech on the Nestlé web site, which is referenced in the case study.
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Formostcompanies,theprocessofdataman-agementcentersonusingemailandExcelspreadsheets.Thisinformationmaybesup-plementedbydatafromPeopleSoft,depend-ingonwhetherthecompanyhasacommonsystemacrossitsoperations.Thatsaid,per-sonalcontactsratherthaninstitutionalizedsystemsfacilitatedthecollectionofinforma-tion,whichsomecompaniessawasalimita-tiontothesystem.Telefónica,inparticular,notedthatithassetthe“depersonalization”ofthereportingprocessasagoalgoingfor-ward.Ratherthanrelyingonkeyindividualsforaccesstoinformation,thereportingteamaimstocreateformalsystemsfordatacollec-tionacrossthegroup.
Severalcompanieswereexperimentingwithpurposebuiltsoftwarefordatacollection.Forexample,StateStreetusesOneReport,anonlinedatacollectionsystemandTelefónicausesCircle360.Whilethesesystemsmakeiteasiertomanageinformation,replacingExcelspreadsheets,bothsystemsstillrequirethatinformationbeenteredmanually.Thiscreatesanadditionaltaskforemployeesandincreas-estheriskofusererror.Despitetheextrawork,employeesatStateStreetweregener-allysupportiveoftheOneReportsystem,asitallowedthemtosee(butnotalter)theinfor-mationthatothercontributorswereprovid-ingfromacrossthecompany,givingthemabetterunderstandingofthecompany’sover-allcorporatecitizenshipperformance.Italsoallowedthemtoseethatotherswerealsobeingrequiredtoprovideextrainformationforthesocialreport.
Adaptingexistingsystemstobettercaptureinformationforthereport,orinvestinginanewdatacollectionsystem,bothrequirecon-
siderablecommitmentsfromcompanies.AddingnewindicatorstoexistingsystemsorintroducinganewITsystemrequirescon-siderabletimeandresources.ITsystems(inmanycasesnotdesignedtocapturenonfinan-cialinformation)requireadjustment,policiesandmanualsmustbealtered,andemploy-eesneedtoberetrained.Forexample,Nestléhasbeenabletouseanewglobalinformationmanagementsystemtogatherinformationforitsmostrecentreport,suchasglobalenvi-ronmentalperformanceindicators.Asnotedearlier,thecontentandperformanceindica-torscontainedinreportsarestillevolving,meaningsomecompanies,forinstanceNovoNordisk,prefertowaituntilthereisgreaterconsensusaroundwhatdatamustbecollect-edbeforeaddingnewindicatorstoexistingITsystemsorcreatingnewsystems.
Challenges posed by qualitative dataThechallengeofcollectinginformationforthereportwasnotlimitedtoquantitativedata.Obtainingqualitativeinformationwasalsodifficult,whetheritmeantidentifyingnarra-tivestoexplainperformanceorcollectingsto-riesandvignettestobringlifetothenum-bers.Storiesgenerallyneedtobecollectedaseventsoccurortheyareforgotten.Itisalsodifficulttocommunicatethestoriesthatareneededforthereport.Baxtertriestoover-comethesechallengesbysendingregularemailrequestsforstories,includingexamplesoftopicsinthemessage.AtNovoNordisk,allemployeesareinterviewedbytheexternalauthorofthereport,whichallowscontribu-torstoexplainwhatthenumbersaresayingandprovidetheirinsightintoperformanceduringtheyear.SeventhGenerationdrawsonaninternalnewslettercalled“InnerPiece”whichcompilesstoriesthroughouttheyear.
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Ittooktime,however,forthesemecha-nismstoresultinbetterflowsofinformation.Thiswasdue,inpart,toemployees’needtobecamemorefamiliarwiththecontentofthereport.InNestlé’scase,onceemployeessawinformationthatwaspresentedfromdifferentpartsoftheorganization–forexample,envi-ronmentalawards–theybegantoproactivelyprovideinformationaboutinitiativestakenintheirownpartofthecompany.
Ensuring information is accurate and
consistentCollectingdataisonlythefirststep.Report-ingteamsnexthavetomakesurethedataisaccurate,consistentandrelevant.Whetherthereportispreparedprimarilyasatoolforengagingwithstakeholdersorforthepurpos-esofperformancemanagement,accuratedataiscrucial.Theriskofinaccuratestatementsisthatthereportwilldestroytheconfidenceofstakeholdersratherthanimprovingtrustand,sincethelegalcaseofKaskyv.Nike,mayexposecompanieswithU.S.operationstopossiblelegalactions.
Thegreatestriskisreputational.Intoday’sworldvideofootagefromafactoryinIndiacanbedisseminatedwithlighteningspeedaroundtheworld.ThisconcernledGaptoincludeadditionalexplanatoryfootnotesinthepub-lishedresultsofitssupplierauditsascertainindicatorssuggestedperformancewasmorepositivethanexpectedduetothedifficultyassociatedwithmeasuringcertainsectionsofitssuppliercode,suchasthoserelatingtodis-criminationorfreedomofassociation.
External AssuranceEngagingathirdpartytoprovideassuranceofthereportisoneapproachthatcompaniesaretakingtogivecomforttobothreadersofthereport,andtointernalstakeholdersconcernedthereportmustbeanaccuraterepresenta-tionofthecompany.Companiesinthestudyvariedintheirapproachtoexternalassur-ance.WhileNovoNordiskandTelefónicabothengaged“BigFour”accountingfirmstoaudittheirnonfinancialreports,otherssuchasBaxter,NestléandStateStreetworkedwithboutiquesustainabilityassurancefirms,whileGapandSeventhGenerationincludedstake-holderstatementsintheirreports.
Similarly,thescopeoftheassuranceprovid-edinthereportsvaried.Somecompanieshadonlyspecificinformationinthereportassured.Gaponlysoughtassuranceofitssupplierauditprocess.Othercompanies,suchasNovoNordisk,soughttoestablishanassuranceprocessthatwasasrobustasthatappliedtoitsfinancialinformation.
Assetoutinmoredetailinthefollowingsec-tion,eachoftheseapproachesprovideddiffer-entbenefitstothecompaniesandthereadersofthereport.Fromacommunicationstand-point,somecompanies,particularlythoseengagingwithinvestors,suchasNovoNor-diskandTelefónica,orthosethatwereunderintensescrutiny,suchasGap,usetheassur-anceprocessasasignaltoreadersthatthecompanywasconcernedwiththeaccuracyofthedisclosure.Forothercompanies,suchasBaxterandStateStreet,theauditprocessprovedtobeameansofimprovingorrein-forcingtheperformancemanagementaspectsofthereportingprocess.
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Different approaches to external assurance}External assurance is a growing trend in social reporting. KPMG’s triennial survey found that the use of formal third-party assurance of Global Fortune 250 companies rose from 30 per-cent to 40 percent in the past three years.11 Similarly, Corporate Register published a recent study looking at different approaches to external assurance and assessing the meaning of assurance statements. Companies in the study adopted different approaches to assurance, from verification of a limited number of key indicators to a principles-based audit along the lines of the U.S. Sarbanes-Oxley requirements. Here are some observations about the lessons learned.
Purpose of assuranceGiven the difficulties associated with data collection and consistency, one of the key rea-sons for assurance was to ensure accuracy. Having a third party, experienced in verifica-tion of nonfinancial statements helped provide additional comfort that the information was correct. In the case of Novo Nordisk and Telefónica, both of which issue integrated reports, the decision to audit the information was driven by their boards. As an employ-ee at Novo Nordisk observed, there is no question that nonfinancial indicators must be audited – they are standing alongside financial figures.
Verification of results may also serve as a key part of a performance management system. Not only does it ensure accuracy when assessing performance, but also identifies areas for improvement. Both Baxter and Gap approach the audit process in the spirit of ensur-ing the systems and controls they have in place do allow them to properly manage their key corporate citizenship issues: for Baxter, environmental performance; for Gap, supply chain audits.
Finally, external assurance is a signal to the reader that the report is a serious product, not a marketing brochure, a point as important for employees preparing the report as for its ultimate audience. At Baxter, Novo Nordisk, State Street and Telefónica, the audit process reinforced the importance of the report among employees contributing to the report – ele-vating the status of corporate citizenship issues.
Scope of assuranceThe scope of the assurance processes varied among companies; each had to define with its auditor clear scopes of work and materiality thresholds. A common starting point was to verify a limited number of key indicators, typically the most sensitive issues in the report. The process involves an assessment that there is no material misstatement of
11http://www.kpmg.com/SiteCollectionDocuments/International-corporate-responsibility-survey-2008.pdf
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these indicators. This requires the auditor to consider both the methodologies applied and assumptions made, as well as the processes for collecting information.
Companies may also expand the scope of the assurance to the entire report. In this case, companies must first establish materiality thresholds with the auditor, who will then assess the information in the report and the overall impression of the report to assure that there is no material misstatements. One standard used to inform this assessment is the AA1000 Assurance Standard, developed by AccountAbility. The AA1000 requires verifica-tion that the report meets the criteria of materiality12, completeness, responsiveness and focuses on whether these criteria have been integrated into companies’ management sys-tems for reporting.
Who should conduct the auditWhen it came to deciding who should conduct the audit, companies varied in their use of “Big Four” accounting firms, boutique sustainability or environmental assurance firms, or stakeholder representatives. Decisions were driven by consideration of the purpose of con-ducting the audit and the resources available to cover the cost of the process.13
Novo Nordisk and Telefónica both had their reports assured by Big Four firms. Largely, this decision was driven by the Board’s direction that nonfinancial information be audited to the same degree as the financial information. In the case of Novo Nordisk, for instance, where shareholders are the primary audience of the integrated report, using a Big Four auditor was considered a necessity.
Baxter, Nestlé and State Street each used boutique audit firms to verify the information in their report. Baxter does so in support of its goal of continuous improvement process for managing environmental performance. Nestlé and State Street determined that the greater specialization of the smaller firm allowed for a constructive appraisal of its corporate citizen-ship management processes.
Both Gap and Seventh Generation preferred to rely on stakeholder representatives to assess their report. For Gap, the review was limited to the supplier audit results. The purpose of the audit was to provide comfort to readers that the program was as Gap described it. As a Gap interviewee noted, given the sensitivity of the issue, having a stakeholder respected by potential critics review the information would provide more comfort to readers than a state-
12The term ‘materiality’, when used in the context of the AA 1000 criteria, means material in that it would impact on stakeholders’ decisions in relation to the company.
13Based on rough numbers provided by companies, the cost of the audit ranged from five to six figures.
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ment from an accounting firm. In Seventh Generation’s case, no assurance of the report was undertaken, but feedback received from the Ceres stakeholder panel that reviewed the report was included along with statements noting how the observations had been incorporated into the final report.
Perspectives on the audit processDespite the costs in terms of time and resources, companies found that the process of the audit was valuable – although not necessarily because of the message it sent to readers of the report. The key benefits associated with the audit process included:
• The internal reinforcement that having a third party verify information provided; and • The feedback received from the auditors about how the quality of information or the
reporting process could be improved.
Where companies did find that third-party verification did provide comfort to external stakeholders, it was because engaging a third-party signaled that reporting was taken seri-ously. Stakeholders did not seem to pay much attention to which approach to assurance was chosen.
Companies found that having a third-party verify either the processes for preparing or the content of the report helped to elevate the perceived importance of the report internally. It also helped to reinforce the materiality of different corporate citizenship issues. For example, at State Street, the Community Affairs team found that having a third party to push an issue, in this case corruption, helped to convince internal stakeholders that it was a topic of inter-est for stakeholders and should be addressed in the report.
Upon completion of the audit, the auditor provided both an assurance letter for publication in the report, and a detailed report identifying areas for improvement, for internal use. While most companies only make the assurance letter publicly available in their reports, Novo Nordisk also publishes the detailed report on its web site. Even where the information was not made publicly available, the feedback helped companies identify how their reporting pro-cesses could be improved and provided external support for changes.
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Balancing the time spent on reporting
with time spent on project managementSocialreportstakealotoftimeandresourc-es.Aconsciouseffortisrequiredtoensurethefocusforacorporatecitizenshipteamremainsimplementingprogramsandachiev-ingtargets–ratherthanmerelyproducingasocialreport.Evenforcompaniesthathavebeenreportingformorethan15years,suchasBaxterandNovoNordisk,ensuringthereportremainsameansandnotanendinitselfhasbeenachallenge.
Onewaytoaddressthisconcernistohaveaclearlydesignatedteamresponsibleforpre-paringthereport.Inparticular,havingadedi-catedwriter(whetherinternalorexternal)topreparethereporthelpsrelievetheloadfromemployeescontributinginformationandreducestheamountoftimespenteditingthereporttoensureconsistency.
Companiesalsonavigatethischallengebyintegratingreportingintotheirperformancemanagementsystems.Producingasocialreportcanleadcompaniestoidentifytheircurrentposition,assesstheirkeyrisksandopportunities,developstrategiesforimprove-mentandregularlyreportonprogress.
Thedisciplineofreportingcanextendtomanagingcorporatecitizenship.However,toensuretheprocessisproductive,aconsciouseffortmustbemadetousereportingtosup-portabroaderperformancemanagementsys-tem.Forexample,asTelefónicaevolveditsapproachtocorporateresponsibility,itusedreportingtosupportthefirstandlaststepsinitscorporateresponsibilitymanagementprocess:identifyingissuesandmeasuringprogress.Byfocusingonusingthereportaspartofabroaderprocess,Telefónicatriestoensurethereportreflectscorporatestrategy.
12
3344
5
Internal DiagnosisSelf diagnosis of CR risks in all fixed and moble phone operations Oct. 2006
External DiagnosisDialogue with stakeholders on the CR reports for Spain, Argentina, Chile and Peru Dec. 2006
Approval and roll-out of initiatives and projectsApproval of Corporate Business principlesDec. 2006
AdvanceProgress in the corporate CR projects (please see milestones)2006
CommunicationLocal CR reports in Argentina, Brazil, Chile, Peru and SpainJune 2006
Where reporting fits
Telefonica – CR management model
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Whilethereportremainsausefultoolfordrivingperformance,thisfunctionisdistinctfromdrivingpriorities–atensionthatbothNovoNordiskandBaxterhavehadtoover-comeinthepast.Forexample,in2007BaxtercreatedaSustainabilitySteeringCommitteecomprisedofVP-levelemployeesfromacrossthegroup.TheSSCisresponsibleforidenti-fyingsustainabilityprioritiesanddeterminingkeyperformanceindicators.
Format and distribution of the report
Forcompaniesintheearlystagesofdevelop-ingacorporatecitizenshipstrategyandbuild-inginternalgovernancemechanisms,report-ingcanbeanimportanttoolinmappingcorporatecitizenshipimpacts,identifyingstrategicprioritiesandbuildingandengaginganetworkwithinthecompany–inshort,alltheelementsrequiredtoestablishastrategicprocessformanagingcorporatecitizenship.
Iftheprocessofpreparingthereportempha-sizesperformancemanagement,theprocessofproducinganddistributingthereporthigh-lightscommunication.ThroughouttheCen-ter’sresearch,apoorlykeptsecretrevealeditself:companiesviewthesocialreportasanimportantcommunicationtool,buttheywerefrustratedwithitseffectivenessincommuni-cation.SeventhGeneration’sexperiencewithitsfirstreportisaprimeexample.DespitewininganawardforthebestsmallbusinessreportfromCeres,akeyemployeenotedthereportreceivedlittleattentionfromtheaudi-encetowhichitwasdirected.
Someofthekeyproblemscompaniesfacedinrelationtothebestformatanddistributionchannelsforthereportincluded:
• Determiningthebestformatwithwhichtoreachdifferentaudiences–whetheronlineorprinted,liveorstatic,longorshort
• Howtoensurethatthereportreachesitstargetaudience
• Findingwaystomonitoringfeedbackaboutthereport
Thekeyquestionscompaniesfacedindecid-ingonthebestformatanddistributionmech-anismsfor thereportallcenteredontheelu-sivenessofthereport’saudience.Length,formatanddistributionchannelquestionsrequireclearlydefinedtargetaudiences.Butsocialreportsaremeanttoservemanyaudi-enceswithdifferentneeds.
Researchrevealedanemergingfocusonusingthereportasafoundationorfirststepforcommunicatingwithstakeholders,ratherthananattempttobeallthingstoallpeople.
TheemergenceoftheInternetasacommu-nicationtoolhashadanenormousimpactinthisregard.Havingabroaderreportorreposi-toryofinformationonlinewasseenasavalu-abletooltounderpinabroadercommunica-tionstrategy.Thisinformationcouldbemadeeasilyavailable,andthentailoredforspecificaudiences.Thelargersocialreportestablishedcredibility–servedasabackstop–foraddi-tional,shorter,communicationdocuments.
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Deciding on the format of the reportThedifferentformatsusedbycompaniesincludedprintedreports,summarybro-chures,staticonlinereportsinPDFformat,interactiveonlinerepositoriesofinformationandshortercommunicationpiecessuchasin-storemessaging.Somecompaniesprepareddifferentdocumentsforinternalandexter-nalaudiences,whichallowedthemtopres-entcommoncontentinawaythatbetterres-onatedwitheachaudience.Nocompanyfeltentirelycomfortablethatitscurrentcombina-tionofproductswasaneffectivemethodofengagingwithitskeyaudiences.Herearetheprosandconsofthedifferenttypesofdocu-mentsproduced:
Printed reportsEachofthecompaniesinthestudyproducedsomesortofprintedreportandmanyhadexperimentedwithdifferentlengthsandfor-mats.Despiteconcernsaboutcost,theenvi-ronmentalimpactandthedifficultyindis-tributingaprinteddocumenteffectivelytostakeholders,companiesfelthavingaformal,printedreportgavetheinformationgreatersubstance.Senioremployeeswhopartici-patedintheinterviews,inparticular,notedtheyusedtheprintedreportswhenengag-ingwithseniorcounterpartsatsupplierorcustomerorganizations.AsAlisaCorbett,aseniormarketingemployeeatBaxternoted,theSustainabilityReportrepresentsBaxterasacompanyandallowscustomerstoseeitas“aliving,breathingorganizationthatiscom-mittedworldwidetomakeadifferenceacrossmanyimportantdimensions,”notlimitedtotheproductsitsources.Similarly,StateStreetchairmanandCEORonaldLoguenotedthattheCSRReportistheonlydocumentthatdescribesthe“whole”companyandthathe
ensurescopiesareavailableinthemeetingareaoutsidehisoffice.
Mostintervieweeswereskepticalthattheprintedreportswereeverreadbystakeholders–buttheystillfoundvalueinthereport’sabil-itytosignalthecompanytakesbothreportinganditscorporatecitizenshipprogramsseri-ously.Theprintedreportswereexpensivetoproduceand,asseveralintervieweespointedout,inconsistentwithstatedcommitmentstoreducingenvironmentalimpact.Toaddresstheseconcerns,companieshadshortenedthereport,withatrendofshiftingmoreinforma-tiononlineandusingtheprinteddocumentasanexecutivesummaryratherthanafullreport.Further,manycompanieshadreducedthenumberofcopiesprintedandlimiteddis-tributiontothecompany’scorestakeholders.
Online reportsForcompaniesinthestudy,theInternetwasseenasacoreelementintheirstrategyfordistributingthereport.Withreportingevolv-inginparallelwiththeInternet-drivencom-munications,companieswereexperiment-ingwiththemosteffectivewaytopresentinformationonline.Someoftheapproach-esincludedpublishingthereportaspartofthecompanywebsite,dividedintocontentsections.Anotherapproachwastopublishastatic(PDF)versionoftheprintedreportonline.Mostcompaniesusedacombinationoftheseapproaches.Othercompanieswereexperimentingwithmore“live”onlinecom-munication.SeventhGenerationCEOJeffreyHollenderhasablogthatcreatesamoreup-to-datedialoguewithstakeholders.SeveralintervieweesnotedTimberland’sdecisiontopublishkeyperformanceindicatorsonaquar-terlybasisthroughthesocialnetworkingsiteJustMeans.
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ThebiggestbenefitofusingtheInternetisthatitallowscompaniestoprovidealargeamountofinformationinawaythatisnotoverwhelming.Asnotedearlier,respond-ingtotheneedsofallstakeholdersinasin-gledocumentisimpossibleandresultsinanunwieldyandineffectivedocument.Anadvantageoftheonlineformatisthatcom-paniescanprovideinformationrelevanttoabroadrangeofstakeholdersinaformatthatallowsreaderstoreadilyaccessinformationmostrelevanttothem.Forinstance,NovoNordiskusesitswebsitetoprovidethenon-financialinformationfromitsTripleBottomLinereport,alongwithadditionalinforma-tiononitsotherinitiativesrelatedtohumanrightsandsustainabilityonitsCSRwebsite.Eventhoughtheseinitiativesarenotinclud-edinNovoNordisk’sprintedreport–becauseitscontentiskeptmaterialtothetargetaudi-enceofinvestors–thecompanyisstillabletoreportonprogresstointerestedstakeholdergroups.
Althoughnotmentionedexplicitlybyintervie-wees,publishingthereportsolelythroughawebsitewithnostaticformposesapossibleriskoflosingsomeoftheperformanceman-agementbenefits.Atseveralcompanies,suchasTelefónicaandStateStreet,havingadead-lineforproducingacompilationofinforma-tioninastaticformwasausefulwaytorein-forcetheimportanceofcollectinginformationacrossthecompany.Atboththesecompanies,aswithNestléandNovoNordisk,thedeadlineforpublishingthesocialreportisalignedwiththecompany’sfinancialreport.
Astaticdocumentalsoallowscompaniestomeasureprogress–thoughthisconcerncouldbeaddressedthroughproperdesign
onlineaswell.AtGap,oneintervieweenot-edthatthereportswereausefulreferencefornewandoldemployeesinterestedinhowGap’sapproachtomanagingitssupplychainhasevolved.
Executive summaries and brochuresCompanieshadexperimentedwithpublish-ingsmallerversionsofthereportfortarget-edaudiences,fromexecutivesummariestoissuespecificbrochures.Althoughthesedoc-umentscontainedlessdetailedinformation,theywerefelttobemoreaccessibleforstake-holdergroups.Inaddition,theycouldbetai-loredtotheneedsofparticulargroups.Forexample,Telefónicaproducesexecutivesum-mariesofthereportforeachstateinSpain.Theseincludelocallyrelevantinformation,suchasinfrastructureinvestment,jobscre-atedandenvironmentalimpactswithinthestate.Telefónicahasfoundthesesummariestobeaneffectivewaytoengagewithlocalbusinessassociationsandconsumergroups.Similarly,Baxterencouragesitsinternation-alsubsidiariestotranslatethesummarybro-chureofitsreport,andtoincorporatelocalexamplesintothecoveringlettersentwiththebrochuretostakeholders.Employeesnot-edtheyusedthesebrochureswhenengagingwithcustomersorsuppliers.
Thosecompaniesthatproducedexecutivesummariesorbrochuresdidsowiththebackingofalargerrepositoryofinformation–whetheraprintedreportorwebsite–towhichtheycouldreferstakeholdersseekingmoredetailedinformationonparticulartop-ics.Therefore,eventhoughthebrochuremaybetheprimarypublicationphysicallydistrib-utedbycompanies,thelargersocialreportretainsitskeyrole.
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Baxter’s experience with the format of the reportBaxter first started exploring the possibilities of online reporting in the early 2000s. At the time, Baxter found that the social report had become unwieldy as the company responded to stakeholder demands for increasing amounts of information. To address this, Baxter decid-ed to move the bulk of its content to an online format, reducing the printed report to a more manageable size. In 2003, Baxter took this a step further, publishing its full report online only accompanied by a 10-page summary. As Deborah Spak of Baxter Corporate Communications recalled, this decision was seen as “pushing the envelope” at the time, as most other com-panies were focused on including more information, not less. But the move was not well received externally and Baxter saw its performance in corporate citizenship rankings drop. As one employee observed, this was not because Baxter’s programs or initiative had changed, but because people were unable to find the information they were seeking.
Baxter has now found a middle ground, with its social report comprised of the following doc-uments:
• The full social report (more than 175 printed pages) is published online.• 13,000 copies of a 40-page summary of the social report are printed.• 15,000 copies of a 16-page summary brochure are printed. Baxter encourages its interna-
tional subsidiaries to translate these as a tool for engaging local stakeholders.
Despitetheusefulnessofreportsummaries,nocompanythatparticipatedfeltthatithadsolvedtheproblemoftargetingaudiencesaswellasitmight.Theyarestillsearchingforalternativemethodsofcommunicationtoengagestakeholdersoncorporatecitizenshipissues.Forexample,Gapisexploringdiffer-entwaysitcouldengagewithcustomersinstoresusingsparespacetoitsadvantage.Sev-eralintervieweesnotedStarbucks’successinusingin-storebrochurestoengagewithcus-tomers.TheydrewacontrastbetweenthecustomerexperienceinaStarbuckscafeand
buyingclothesintheGap–forGaptoengagewithcustomersinitsstores,abrochuremaynotbethemosteffectivetool.
Distribution channelsCompaniesusedarangeofchannelstodis-tributetheirsocialreports,dependingontheformatofthedocumentandtheintendedaudience.Mostcompaniesmaintainalistofkeystakeholderstowhomcopiesoftheprint-edreport(whetherthefullreportorexecutivesummary)aresent.Insomecasesthislistismaintainedcentrallybyapublicaffairsorcor-
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poratecommunicationteam,asatNestléandGap.Thelistsarecompiledthroughrequestsforinformationreceivedduringtheyear,con-tactpointsatpartnerorganizationsandgov-ernmentofficials.Companiesalsousedadecentralizedapproach,wheresenioremploy-eeswereresponsibleforsendingthereporttotheirkeystakeholders.Forexample,JeffreyHollendersendsSeventhGeneration’sreporttoCEOswithwhomheengagesandseniorsalesmanagersatBaxtersendthereportdirectlytotheirkeycustomers.
Inadditiontomakingthesocialreportavail-ableontheircorporatewebsites,eachcom-panyinthestudypublishedaPDFversionoftheirreportonthewebsiteCorporateReg-ister.Thiswebsiteisanonlinerepositoryofsocialreportsfromcompaniesallovertheworld.SomecompanieselectedtogobeyondCorporateRegister’sbasicpublicationserviceandsubscribetoitspremiumservice,whichincludesnotificationtoitsmembershipbaseofthereport’spublication.Althoughcompa-niesusedthisserviceandfounditusefulforengagingwiththe“CSRcommunity,”asoneintervieweedescribedit,companiesfounditwasalimitedtoolforengaginginaconversa-tionaboutcorporatecitizenshipwithabroad-ergroupofstakeholders.
Therewereexamplesofcompaniesholdingaformal“launch”fortheirreport,insomecasesinternalandothersexternal.NestlélauncheditsCreatingSharedValuereportinNewYork,invitingstakeholderrepresenta-tivesfromcivilsocietyorganizations,U.N.agencies,partnerorganizationsandthoughtleadersinthecorporatecitizenshipcommu-nitytolistentoapaneldiscussionledbythen-
CEOPeterBrabeck.Inotheryears,Nestléhasusedthelauncheventforitsissue-specif-icreportstopromotedialogueonparticularissues,suchastheroleofbusinessinAfrica,orwater.Companiesadopteddifferentmeth-odsofdistributingthereporttoparticularstakeholdergroups:
ShareholdersAllcompaniesbroughtthereporttotheatten-tionoftheirshareholders–bothSRIandnon-SRI.ForNovoNordiskandTelefóni-ca,theannualreporttoshareholdersnowincludesthesocialreport;NovoNordiskasanintegratedpresentationoftheinformationandTelefónicaasseparatesectionsdescrib-ingthecompany’s“body”and“soul.”NestléandBaxterincludeasectionofcorporateciti-zenshipperformancehighlightsintheannualreport,andNestléalsoprovidesacopyoftheissue-specificreportpublishedeveryyearinitsannualshareholderpack.Otherapproach-esweretobringthereporttoshareholders’attentionbyincludingacardwithinstructionsofhowtoaccessitonlinewiththeannualreportormentioningthereportinthechair-man/CEO’sletterenclosingthereport.
Allcompaniesmadecopiesofthereportavail-ableatthegeneralmeetingofsharehold-ers.Severalinvestorrelationsrepresentativesinterviewednotedthattherewereincreas-inglyquestionsaboutcorporatecitizenshipputtotheBoardduringthesemeetings,eventhoughthegeneralsensewasthatshare-holderswerenotveryengagedonissuesofcorporatecitizenship.Toaddressthis,NovoNordisk,whichviewsitsTripleBottomLinemanagementprocessasatoolforreduc-ingriskandidentifyingopportunity,istak-ingstepstoeducateshareholdersaboutits
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approach.Aspartofthis,NovoNordiskcon-venes“sustainabilityroadshows”forinves-tors,whichareacombinedeffortoftheinves-torrelationsteamandtheTripleBottomLineteam.
EmployeesThoughcompaniesviewedthereportasanopportunitytoengageemployees,allofthemstruggledwithachievingthisgoal,andfeltthatthereportwasasomewhatlimitedtoolforreachingemployeeseffectively.OneapproachusedbyBaxterandSeventhGen-erationwastohaveaninternallaunchforthereport.BaxtersendsavoicemailfromitsCEO,BobParkinson,toeveryemployeealert-ingthemtothereport’spublication.Sev-enthGenerationholdsalunchtimesessiontolaunchthereport,usingtheeventasanopportunitytoengageemployeesaboutSev-enthGeneration’sapproachtocorporateciti-zenship.Othercompaniesensurethatreportsareavailableincommonareas,suchascafete-rias,ordistributedthroughstoresinthecaseofGap.AtStateStreet,thesocialreportisseenasthefoundationofabroadercampaigntopositionCommunityAffairsfortheyear.
Manynotedthatemployeesrequestedfurtherinformationorsubmittedcommentsaboutthereport(inBaxter’scase,employeesmadesignificantlymorecommentsviathecompa-ny’swebsitethananyotherreaders).Mostfeltthevolumeofinformationwasanimpedi-menttoengagingemployeesontheunderly-ingissues.
Thekeyquestionisnotjustgettingemploy-eestoreadthereport,buttounderstandwhatcorporatecitizenshipmeansforthecompany,andhowtheycanmakeacontributiontothe
biggerpicture.Someideasraisedforengag-ingwithemployeesinthefutureincludedusingtheemployeeintranetsitetoprovideshortpiecesofinformationuponlogin,send-ingpostcardstoemployeesonaregularbasis,andencouraginglocalplantstopublishbro-chureswithexamplesofcorporatecitizenshipinactionintheirlocation.
Onegroupofemployeesworthmentioningspecificallyisnewrecruits.Severalcompa-nies,includingBaxterandGap,notedthatthereportwasavaluabletoolintherecruitmentprocess.Baxter,asabusiness-to-businesscompany,isnotaswellknownasothermedi-calproductscompaniesthatitcompeteswithforrecruitinggraduates.HavingthereportisavaluabletooltointroduceBaxtertouniversi-tystudents.ForGap,thereportsprovidenewemployeeswitharesourcetolearnabouthowGapistacklingdifficultissuessuchassup-plychainandenvironment.Othercompaniesacknowledgedthepotentialofthereportsasatoolforengagingnewemployees,buthadyettoworkoutthebeststrategyforusingthereport.
CustomersCustomerswereanequallydifficultaudience.Whileallcompaniesnotedagrowinggroupofconsumerswhoareinterestedinknowingdetailedinformationaboutcorporatecitizen-shipperformance,mostwerenotbasingtheirpurchasingdecisionsontheseissuesorwereonlyinterestedinalimitedamountofinfor-mation.Incontrast,companiesnotedthatwhentheircustomerswerealsobusinesses,therewaspotentialtousethereporttoadvan-tage.Forexample,bothBaxterandNovoNordisknotedthevalueofhavingareportthatdescribedthenonfinancialactivitiesof
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theircompaniestothemedicalprofessionalsandhospitalswhoaretheircorecustomers.Althoughtherewasnotangibleevidenceofthereport’simpact,employeesatbothcom-paniesfeltthatithelpedtobuildrelationshipsandtoinspireconfidenceinthecompanyanditsproducts.Nestléalsonotedthegrowingdemandforinformation,particularlyaboutsustainabilityandenvironment,frommajorretailgroups.
Therealopportunity,asintervieweesatBaxter,SeventhGenerationandStateStreetobserved,wasnotjusttoinformcustomersaboutcorporatecitizenshipperformance,buttoengagewiththemtoachievejointimprove-ments.Byidentifyingareasforcommonactionandlearningfromeachother,thereisgreaterpotentialtoachievepositiveimpactandsystemschange.
Monitoring feedback from the reportAfteralltheeffortthatcompaniesputintopreparinganddistributingthereport,mostfoundthattherewasadisappointinglackoffeedbackonthereport.Indeed,asidefromformalstakeholderengagementprocesses,allcompaniesstruggledtogetfeedbackfromreaders.Someofthemechanismsusedtoobtainfeedbackwereonlinesurveyslinkedtothecompanywebsiteandpostcardsur-veysincludedintheprintedreport,howeverbothhadrelativelylowresponserates.Com-paniesalsotrackeddownloadsofthereportfromtheirwebsitesand“hits”ontheonlineversion.Baxterreceived100responsestoitsonlinesurvey,thevastmajorityofwhichwerefromemployees.
SeventhGenerationcreatedanadditionalincentiveforreaderstoprovidetheirfeed-backinits2007report(publishedin2008)byinvitingreaderstoenteracontest.The“SpheresofInfluence”contestasksbusiness-es,organizationsandindividualstocommu-nicatetheoneideainSeventhGeneration’sreportthatinspiredthemthemostandthenshowhowtheywouldusea$5,000grandprizetocarryoutthatidea.Thecontestisdrivenbythecompany’sdesiretoencouragereaderstoreflectonthecontentofthereportandbeinspiredtoactontheideasgeneratedbySeventhGeneration’swork.Atthecom-pletionofthisreport,thecontesthadnotyetconcluded,butthehopeisthatitwillmakethereportamoreeffectivetoolforengagingstakeholdersinthebroadergoalofachievingsystemschange.
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Althoughtherewereonlyalimitednumberofcompaniesparticipatinginthisstudy,somecommonexperienceswithreportingwerefoundfromwhichconclusionscanbedrawnandfutureresearchcanbeguided.Herearesomeanswerstothequestionsposedatthebeginningofthereport.
Why do companies decide to report?Companiesdecidedtoreportforanumberofreasons,relatedbothtocommunicationandperformancemanagement.Ingeneral,thepushformomentumforreportinghasbeendrivenbyexternalstakeholders,governmentagencies,multi-stakeholderinitiativesandleadingcompanies.
Twokeyissuesemergedinthedrivetoreport:
• Communication:Greaterawarenessoftheopportunitiestoengagewiththesegroupstoachievecommonobjectives,aswellastherisksassociatedwithfailuretoengageareencouragingcompaniestoreport.
• Performance management:Forsomecom-paniesreportingwasseenoriginallyasatoolforperformancemanagement–particularlyinrespecttoenvironmentalperformance.However,thebenefitsofhavingaregularassessmentofcorporatecitizenshipactivitieswasalsoastartingpointforothercompaniestousethereportasafoundationforbuildingamorestrate-gicapproachtomanagingcorporatecitizenship.
What information should reports contain?Therecurringproblemofidentifyingtheaudienceforthereportsmadeitdifficultforcompaniestoidentifythebestcontentforthereport.Someaudiencesareinterestedindetailedinformationaboutspecifictopics,whileotherspreferamoreholisticperspectiveofthecompany.Someaudiencesprefersto-riesanddiscussionofissuesfacingthecom-pany,whileotherswantquantitativekeyper-formanceindicatorsandgoals.
Whendecidinghowtobalancethesecompet-ingdemandscompaniesusedarangeoftoolsincludinginternaldiscussion,stakeholderengagement,mappingkeycorporatecitizen-shiprisksandopportunitiesandlinkingtointernalpriorities.Theemergenceofcom-monstandards,suchastheGlobalReportingInitiativeandincreasinginnovationamongcorporatepeerswerealsokeyreferencepointsforcompanieswhendeterminingcontent.
Nocompanywasentirelycomfortablewiththecontentofitsreport.Allwrestledwiththeproblemofbalancingcontentfordiffer-entaudiences,andforthedifferentinter-nalpurposesofcommunicationandperfor-mancemanagement.Onecommonconcernwasthatreportshadtoobroadafocus,andstrayedfromthekeyissuesandinformationwithwhichcompaniesandtheirstakeholderscouldbestassesstheirperformance.
Conclusion
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How do companies prepare a report? Preparingasocialreportisnosmalltask.Foreachofthecompaniesinvolvedinthestudy,havingadedicatedteamorstaffmembertocoordinatethereportingprocesswaskey.Theotherpieceofadvice:startearlyandbudgetmoretimethanyouthinkyouwillneedtocompletethereport!
Informationcollectionwasamajorchallengeascompaniesneededtobuildnewsystemsandnetworkstoobtaindataforthereport.Inmanycases,thismeantengagingwithemployeeswhowerenototherwiseinvolvedinmanagingcorporatecitizenshipissues–forinstancethoseinsourcing,legal,market-ingandhumanresources.Companiesexpe-riencedpush-backfromsomeemployees,asprovidinginformationforthereportcreatedadditionalwork.Butoverallthereportingpro-cesswasseenasanopportunitytobuildawidergroupofinternalcorporatecitizenshipchampions.
Ascompaniesbecamemoreexperiencedwithreporting,thechallengebecameinstitution-alizingtheprocessofpreparingthereportsocontributorswerechosenbasedontheirfunc-tionalrolesratherthanthroughpersonalnet-works.
Each ofthecompaniesexperimentedwithexternalassuranceofthereport.Theassur-anceprocesswasseenasawaytogetfeedbackonsystemsfordatacollection,helpingtomakethemmorerobust.Itwasalsoseenasawaytogivecomforttointernalandexternalstakehold-ersintheaccuracyoftheinformation.
Do reports help companies engage with
their stakeholders?Companiesviewtheirreportsasusefultoolstoengagewiththeirstakeholders.Theyarefrustratedbythelackofresponseandfeed-backonreports,butatthesametime,theyfindthereportingprocess,andtheendprod-uct,tobeaplatformfordialoguewithgroupsrangingfromcivilsocietytopublicagenciestoconsumers.Thereportswereseentocre-atecredibilityformoresubstantivedialogue,despitethecommoncomplaintthatreportscanbeviewedasself-servingmarketingmorethansubstantivesupport.
Onekeytakeaway:thereportitselfcannotfos-teralastingdialoguewithstakeholders.Itisonetoolintheprocess,whichhelpsidentifykeyissuesandalsoallowsforaviewofcorpo-ratecitizenshippracticesovertime.Butcom-paniesfoundthereportitselfplayedarelative-lysmallroleinthestakeholderengagementpracticestheyfoundmostvaluableforthecompany.
Does reporting lead to managing what you
measure?Companiesviewedthereportingprocessashavingthepotentialtocreateadefactoper-formancemanagementsystem.Byidentifyingkeymaterialissues,creatingasystemtogath-erperformancedataonthoseissues,andinte-gratingthereportingprocessacrosscorporatedepartments,thereportcouldhelpcreatetheabilitytochangebehavior.
Inpractice,however,companiesfoundthereportshadnotyetfullydevelopedintosuchasystem.Manysawthemselvesasintheear-lystagesoftheprocess–stillidentifyingkeyissuesandmetrics,withperformancemea-
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surement,andtheinstitutionalizationofgoalsandtargetsagainstthosemetrics,anextstepalongthereportingpath.Onecommonconcernexpressedisthatthereport,asanendinitself,shouldnotdrivestrategy,norwilltheprocess,byitself,drivechange.Thereportisinsteadarepositoryofinformation,andapro-cessofdata-gathering,thatmustbetakenupandusedbymanagementinorderforperfor-mancetoimprove.
Where is the value in reporting?Thekeyelementsofareportarethatit:• Describesperformance• Requiresmeasurement• Trackstheevolutionofcorporatecitizen-
shipovertime
Overtime,areportcanplayavitalroleinsup-portingimprovedcorporatecitizenshipper-formancebyestablishingabenchmarktowhichcompaniescanbeheldaccountablebytheirinternalandexternalstakeholders.However,attheendoftheday,improvingcor-poratecitizenshipperformanceisnotabouthavingagoodsocialreport.Instead,asocialreportmustreflectwhatisgoingonwithinacompany.
Unlesscompaniesstrikeabalancebetweenthecommunicationandperformanceman-agementaspectsofthereportandreport-ingprocess,thereportrisksbecomingdis-connectedand,againovertime,lessrelevantandcredibletostakeholders.Companiesneedtoensurethatthecontentofthereportreflectstheirkeycorporatecitizenshippri-orities,whichisonlypossibleiftheyhaveastrategicapproachtoidentifyingandmanag-ingcorporatecitizenship.Althoughusingthereportasaresponsivecommunicationdirect-
edataddressingstakeholderconcernsmaybeeffectiveintheshortterm,therecurringnatureofthereportdemandsthatcompaniesalsoaddresslongerterm,systemicissuesinthereporttoensureitremainsarelevanttool.
Ultimatelythereportshouldbeseenasameans,ratherthananend.Havinganaward-winningsocialreportwillnotinandofitselfimproverelationshipswithstakeholdersorimprovecorporatecitizenshipperformance.Theseobjectivesaredrivenbyademonstrat-edcommitmenttoaddressingcorporateciti-zenshipissuesinastrategicmanner.Areportcan,however,createafoundationforengag-ingwithstakeholdersandbuildaframeworkformanagingcorporatecitizenship.Byestab-lishinginternalandexternalfeedbackloops,thereportinformsthedevelopmentofarobustcorporatecitizenshipstrategyandcre-atesanaccountabilitymechanismthatpro-videsincentivesforimprovement.
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About the companies in the study
BaxterFoundedin1931,BaxterInternationalInc.isaU.S.-basedglobal healthcarecompanythatdevelopsmedicaldevices,specialtypharma-ceuticalproducts,andbiotechnologytosaveandsustainthelivesofpeoplewithmedicalconditionsincludinghemophilia,immunedisorders,kidneydisease,cancerandtrauma.Baxteremploysabout45,000peopleintheUnitedStatesandits250facilitieslocatedin100countriesaroundtheworld.MorethanhalfofBaxter’semployeesarebasedoutsidetheUnitedStates,asarehalfofitssales.Bax-ter’scustomersarehospitalsandhealthcareprovidersratherthanpatients.Mostofthesecustomersoperateasnot-forprofits,wheth-ertheyarehospitals,faith-basedhospitalnet-worksintheUnitedStatesorgovernment-operatedhealthcareprogramsinEurope.Thesearemostlymission-drivenorganiza-tions,notjustcommercialproviders.Increas-ingly,theabilitytodemonstratea“sharedsenseofmission”isakeywaytomaintainrelationshipswiththesecorecustomers.Giv-enthiscontext,itisincreasinglyimportantforBaxtertobeabletodemonstrateitsalignmentwiththemissionsofitscorecustomersandtoshowthatithasrealcommitmentstoachiev-ingsustainabilityacrossitsoperations.
Motivation for reportingBaxter’sfirstinternalandexternalenviron-mentalreportswereameansfortheEnvi-ronmentalHealth&Safetydepartmenttocommunicateitsprogresstowardtheenviron-mentalgoals.Thesustainabilityreportnowprovidesabaselineforcontinualimprove-ment,enablingthecompanytodemonstrateprogressovertime,andtherebyadvanceitssustainabilityprograms.
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Baxter Stays True ToIts Pioneer MissionOne in a series of case studies on social reporting
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Type of reportSustainabilityReport,pilotingGRIguidelines
Number of reports: 15
First year of reportingIn1992,Baxterproduceditsfirstexternalreportfocusedontheenvironment.In1999thereportevolvedintoabroadersustainabil-ityreportaspartoftheGRIpilotandBaxterhascontinuedtousetheGRIGuidelinesforitsreport.
External assuranceBaxterengagesenvironmentalconsultantsArthurD.Littletoaudittheenvironmentalinformationinthereport.Itdoesnotexter-nallyverifyotherinformationinthereportasithasnotyetseenthebusinesscasefordoingso,butthecompanyisexploringtheideaofexpandedverificationthroughitsstakeholderengagementforums.
Stakeholder engagement processBaxterhasfoundseekingfeedbackfromexternalstakeholdersprovidesavaluablebaselinefromwhichtoselectindicators.ThecompanyhasbeenalongtimesupporterofCeresandhasuseditsstakeholderspanelpro-cesssince1997.
Key tensions and lessons learnedWhileBaxter’sSustainabilityReportgrewoutofitsenvironmentalhealthandsafetypro-gramsduringtheearly1990s,thereisaten-sionbetweenusingthereporttosupportstrategicandprogramgoalsandthereportbecomingthegoalinitself.AsBaxtertransi-tionstoanewgovernancestructureforsus-tainability,whichincludestheformationof
aSustainabilitySteeringCommitteecom-prisedofleadersfromacrossthecompany’sfunctionalarea,thereisanopportunitytoaddressthisissue.ItisclearBaxter’scom-mitmenttotransparencyhasbenefitteditsinternalprograms.However,foradrivetobeconstructivelyappliedtoprogramsthattrulydoadvancesustainabilityinthecontextofanindividualorganizationtheremustalsobearobustmanagementsysteminplaceforiden-tifyingpriorities.
Withfacilitiesinmorethan100countries,theprocessofdatacollectionfortheglobalSustainabilityReportpresentsthreekeychal-lengesforBaxter:theneedforadatamanage-mentsystemthatcancapturethekeysustain-abilityindicatorsacrosstheGroup;ensuringthatindicatorsareinterpretedconsistentlyacrossthecompany;andfurtherinstitution-alizingthedatacollectionprocess.Relatedtothechallengeofglobaldatacollectionisthechallengeofdeterminingwhatdatatocollectinthefirstplace.EventhoughtheGRIguide-linesareuseful,therearechallengestoaone-sizefitsallapproachandBaxterisparticularlymindfulofnotbeingseentoforceaU.S.biastoitsreport.
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About the companies in the study
GapThefirstGapstorewasopenedinSanFran-ciscoin1969.TodayGapInc.hasgrowntobeoneoftheworld’slargestspecialtyretail-ers,withrevenuesinexcessof$15billionin2007andmorethan3,100storesintheUntiedStates,Canada,theUnitedKing-dom,France,IrelandandJapan.Gapdirect-lyemploysmorethan150,000peopleandtouchesmanymorethroughits2,000-plussupplierslocatedaroundtheworld.Gap’sbusinessisoperatedaccordingtoitsfourbrands:Gap,BananaRepublic,OldNavyandPiperlime.Thekeyfocusamongadvo-cacygroupshasbeenonGap’ssupplychainpracticesand,whilethisremainsoneGap’smostmaterialissues,thecompanyisincreas-inglyseekingtotakeabroaderapproachtoitssocialresponsibilityprogram.Gaphasembracedtheideathatitssocialresponsibil-ityprogramisimportanttobothGap’srep-utationandcommercialsuccess,throughemployeeretentionandrecruiting,strength-eningthebrand,promotinginnovationandminimizingdisruptioninGap’ssupplychain.
Motivation for reportingThefirstreportwasameansofaddress-ingtwoissuesthatcametoaheadin2002:thenegativeallegationsbeingmadeagainstGapandaproposedshareholderresolutionfromagroupofsociallyresponsibleinves-tors(SRIs)demandingthatGapreportonthestepsitwastakingtoaddressthesubstanceoftheallegations.Thereporthassinceevolvedparticularlyonenvironmentandworkplaceissues,andGapexplicitlyusedthereportasameansofaskingbigquestionsabouttheroleofacompanyinsociety.
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Type of reportGapproducesabiennialsocialresponsibil-ityreport,basedontheGRIGuidelinesandApparelandFootwearSectorSupplement.InitiallythereportwasfocusedonGap’ssup-plychainissues,butthecontenthasevolvedinsubsequentyearstoexpandcoverageofenvironmentalandgovernanceissues.
Number of reports: 3
First reporting year: 2003
External assuranceGaphasnottakentheapproachofengagingathirdpartytoverifyalltheinformationinthereport,however,informationinthereportaboutGap’ssupplychainisdrawnfromitsvendorcomplianceprogram,whichisverifiedbybothSocialAccountabilityInternationalandtheEthicalTradingInitiativeinordertoidentifyimprovementsfortheprogram.
Stakeholder engagement process Externalstakeholderengagementisfacilitat-edbySustainAbilityandthePublicReport-ingWorkingGroupthatwascomprisedofSRIsinvolvedwiththeproposedshareholderresolution(DominiSocialInvestmentsandCalvert),alongwiththeInterfaithCenterforCorporateResponsibility(representingfaith-basedinvestorssupportingtheresolution),theAsYouSowFoundationandtheCenterforReflection,EducationandAction.
Key tensions and lessons learnedOneofthekeychallengesGapfacesasitstrivestoincreasecontentistoensurethereportremainsengagingtostakeholdersandreadersofthereport.Reportingtochangebehaviorratherthanjusttoinformrequiresbalancingdetailwithreadabilityandmanag-ingthechallengesofpublishingatransparen-cyreportratherthanapublicrelationsreport.
Collectinginformationthatistimely,consis-tent,andaccurateisanotherkeychallengefacingGap’sreporting.DuetotheKaskyv.Nikecourtcase,Gapappliedaninterpretationof“accuracy”thatrequiredGaptobeconfi-dentnotonlyinthequalityofthedata,butalsothatthewaytheinformationwaspresent-edwasnotmisleading.AlthoughthecasedidnotdeterGapfromitsobjectiveoftranspar-encyandfulldisclosureofitsfactoryaudits,itdidmeanthatGapapproachedthisdisclo-surebyadoptingthoroughinternalverifica-tionofthedataanddevelopingrobustmet-ricstosupportitsstatements.Priortoissuingitsfirstreport,Gapwentthroughalengthyprocessofstakeholderengagementtodeviseappropriatemetricsforitssupplieraudits.Ithasalsosoughttoimproveitsdatacollec-tionprocess,includingtheintroductionofanonlinedataentrysystemandextensiveeduca-tionaboutthemeaningofindicators.
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About the companies in the study
42
Nestlé Nestléistheworld’slargestfoodandbever-agecompany,withsalesofmorethanus$80billionandnetprofitofaboutus$8billionin2007,makingitlargerthanitsnexttwocompet-itors,KraftandUnilever,combined.Itsglobalworkforceconsistsofabout275,000employ-eesandithasfactoriesoroperationsinalmosteverycountryintheworld.Nestlé’sleadershippositionmeansthatitissubjecttothescrutinyofNGOs,consumersandemployeesaroundtheworld.Currentissuesthecompanyfac-esincludelingeringcontroversysurroundingitsinfantformulaproductsdatingbacktothe1970sandmorerecentNGOcampaignstarget-ingfair-tradecoffeeandbottledwater.Nestléhashistoricallynotproducedanannual“CSRreport,”however,thischangedinMarch2008,whenNestlépublisheditsfirstfullycomprehen-sivereporton“CreatingSharedValue”.
Motivation for reportingCSRReportinghasbeendrivenfromanum-berofdirectionsatNestlé,bothinternalandexternal.Someofthedriversidentifiedwere:informingshareholdersofpoliciesandpriori-tiesrelatedtoenvironmentalandsocialissuesasadoptedbytheBoardandseniormanage-ment;beingpartofthecurrentdebatearoundsocialandenvironmentalissuesthatimpactthecompany’sbusiness;upholdingcom-mitmentstoinitiativessuchastheUnitedNationsGlobalCompactbyprovidingreportsonprogress;andtakingopportunitiestodem-onstrateleadershiponissuesofimportancetothecompanyandseniormanagement.
Type of reportNestléintendstopublishacomprehensivereportonCreatingSharedValuebiennially,complementedbythecontinuedpublication
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Nestlé Shares Its Story of Creating Shared ValueOne in a series of case studies on social reporting
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ofissuespecificreportsandup-to-dateinfor-mationonthecompany’swebsite.Previously,thecompanyfocusedonissue-specificreportscovering:Environmentalmanagement,sus-tainability,water,coffee,AfricaandLatinAmerica
Number of reports: 1
First year of reportingSocialreportingatNestlébeganwithinfor-mationincludedintheannualmanagementreportin1990.Afterthat,thecompanypro-ducedissuespecificreports,movingtoacom-prehensive“CreatingSharedValue”reportin2008.
External assuranceIn2008,BureauVeritasprovidedanassur-ancestatementfortheCreatingSharedValueReport,aswellasaninternalauditofNestléEnvironmentalManagementSystem
Stakeholder engagement processNestléhasbeenprogressivelybuildingitspro-cessesforstakeholderengagementaroundkeyissues,startingthroughthepreparationofitsissuespecificreports.Thesereportshavecreateda“platformfordialogue,”providingopportunitiestoparticipateindebatesratherthanbeingthetopicofdebate.
Key tensions and lessons learnedWhileNestléacknowledgesinitsrecentreportthat“externalreportingofinitiativesandkeyperformanceindicatorscanhelpdriveimprovedperformanceinternally,”therewasconcernthatthegoalofreportingshouldnotbeallowedtodisplaceNestlé’sfocusonlong-termvaluecreation.Nestléistakingstepsto
participateininitiativessuchastheGlobalReportingInitiativeSectorSupplementforthefoodprocessingsector,whichwillallowNestlétofocusbothitsreportingandman-agementonissuesrelatedtoitsindustryandtofacilitatethecreationofbenchmarksamongitspeercompanies.Reportingoncommonindicatorswillnotonlyhelpexter-nalaudiencestobetterassesswhereNestléstandsrelativetoitspeers,butitwillalsopro-videincentivestosupportNestlé’scultureofcontinuousimprovement.
WhileNestléhaslongadvocatedabroaderviewoftheroleofbusinessandtheconceptof“CSR,”itisonlyjuststartingtoidentifyeffec-tivewaystodemonstratewhatthismeansinpractice.TheLatinAmericareportpublishedin2006markedafirststeptowardprovidingmetricsandexamplestosupportthisposi-tion,statingNestléshouldadoptamoreholis-ticsetofindicatorstodemonstratehowitcre-atessharedvalue,andbemoreexplicitaboutdesiredsocialimpacts.AsNestlémovestothebiennialpublicationofaCreatingSharedValuereport,identifyingindicatorswhichdemonstratethisconceptposethefollowingchallenges:
• EnsuringthattheindicatorsselecteddriveperformanceinareasthatmattergiventhenatureofNestlé’svaluechainanditsbusi-ness;and
• Findingwaystoquantifythe“indirect”impactsthatNestléisabletoimpartthroughitsbusiness,wherethecompany’simpactsarenotonlyrelatedtoitsmanufac-turingprocessesandproduct,butalsotointeractionswithsuppliersandconsumerhabits.
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About the companies in the study
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Novo NordiskNovoNordiskisahealthcarecompanythatfocusesontwocorebusinesssegments:dia-betescareandbiopharmaceuticals(hormonereplacementtherapies,humangrowthhor-mone,hemophiliatreatments).Thecompa-nywasformedin1989afterthemergeroftwoDanishcompanies:NovoIndustriA/SandNordiskGentofteA/S,bothfoundedinthe1920s.FromitsrootsinScandinavia,NovoNordiskhasgrowntobeaglobalcom-panyandemploysmorethan26,000peoplein80countries.Ithasamarketpresencein179countriesaroundtheworldand,inpar-ticular,isgrowingitspresenceintheUnitedStates.NovoNordiskisrecognizedasalead-erinsustainabilityand,inparticular,sustain-abilityreportingandhasbeentherecipientofnumerousawards,inDenmarkandglob-ally.Since2004NovoNordiskhaspublishedanintegratedannualreportthatsetsoutthecompany’sfinancialandnonfinancialperfor-mance.ThishasrequiredtheintegrationofNovoNordisk’sformer“sustainabilityreport-ing”intothecompany’sannualreporttoshareholders.
Type of reportNovoNordiskfirstpublishedanenvironmen-talreportin1994.In1998,inadditiontotheenvironmentalreport,thecompanypublishedaseparatesocialreport.NovoNordiskmergedthetwoin1999inasustainabilityreportusingtheGRI.WhenNovoNordiskintegrat-edtheTripleBottomLineintoitsArticlesofAssociationin2004,itintegratedthesustain-abilityreportintheannualfinancialreportforatrueTBLreport.
Learning, Practice, Results. In Good Company
Novo Nordisk Takes Strides To Integrate Triple Bottom LineOne in a series of case studies on social reporting
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Number of reports: 14
External assurance:
PricewaterhouseCoopers
Stakeholder engagement processNovoNordiskhasdeveloped mechanismsforassessingmateriality,whichincludereferencetoexternalstakeholderconcernsbyinclud-ingnonfinancialinformationintheannualreport,aswellasdevelopingalternativecom-municationvehiclestomaintainitsengage-mentwithexternalstakeholders.
Motivation for reportingForNovoNordisk,reportingisapartofitsoverarchingcommitmenttoTBL.Thepur-poseofreportinghasevolvedintoanaccount-abilitymechanismandinvitationfordialogueonsocialandenvironmentalissuesaswellasaperformancemanagementtool.
Key tensions and lessons learnedAlthoughthereisgeneralconsensusthatnonfinancialperformanceinformationright-lybelongsintheannualreport,prioritizinginformationinthecontextofanintegratedreportisachallengeforNovoNordisk.Thenatureofthedocumentanditscoreaudience(investors)haspresentedNovoNordiskwiththechallengeofbalancingtheinformationandpresentingitinanintegratedway.NovoNordiskissearchingforindicatorsthathelpitunderstandthewaythetriplebottomlinesinteractandallowthecompany(anditsstakeholders)toassesstheimpactofNovoNordisk’sbusiness.Bybetterunderstand-inghowthetriplebottomlinesinteract,NovoNordiskwillbeabletoinnovateitsbusinessmodelsothatitcreatesvaluefordifferentstakeholders.
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About the companies in the study
46
Seventh GenerationFoundedin1988,SeventhGenerationisasmall,rapidlygrowing,privatecompanybasedinBurlington,Vt.Thecompanyoffersacompletelineofnon-toxichouseholdcleaningproducts,papergoodsandtrashbags,aswellashealthybabycareandfemininehygieneproducts.Itwasfoundedonthepremisethatbusinessisapowerfulmeanstocreateamorejustandsustainableworld.Byhelpingcon-sumersmakeinformedchoicesabouttheproductstheyuse,andworkingwithsupplierstomanufactureproductsthataresafefortheenvironment,SeventhGenerationisseekingtohaveapositiveimpactontheEarth.
Motivation for reportingRatherthanjustacceptingreportingasapriceofadmissionforbeingavaluesdrivencompa-ny,thegoalistoidentifyhowthereportitself,andgreatertransparencygenerally,canhelpadvancesustainability.
Type of reportSustainabilityreportbasedontheGRIguidelines
First reporting year: 2003
Number of reports: 5
External assurance: No
Learning, Practice, Results. In Good Company
Seventh Generation Seeks to Sustain Essence Amid ChangeOne in a series of case studies on social reporting
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Stakeholder engagement processSeventhGenerationusestheCeresstakehold-erpaneltoprovideadviceonhowtoimprovethereportandtochallengeitsdisclosure.Also,inanattempttoencouragestakeholderengagement,SeventhGenerationhasintro-ducedacontestforthebestideainspiredbythe2007report.Thewinnerwillreceive$5,000toimplementtheidea.
Key Tensions and Lessons LearnedTheuseofGRIguidelinesisanotedtensionatSeventhGeneration.Afterreceivinglittlestakeholderfeedbackforthe2005GRIreport,SeventhGenerationtransitionedtoa“GRILight”versionofreporting.Tothecompany,itwasnotworththeresourcestocreateareportitsawtobealmostthesameeveryyear.How-ever,the2007reportreturnedtofullyimple-mentingtheGRIguidelines,butthistimeSeventhGenerationapproachedtheprocesswithagoalofexploringhowSeventhGen-erationcanusetransparencytosupportitsbroadergoalsofsystemschange.
MovingforwardSeventhGenerationisfacedwiththetaskofidentifyingwaystolever-agetheresourcesrequiredfortheprocessofreportinginordertoachievemoreinternalbenefitandreachitsbroadergoalofsystemschange.
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About the companies in the study
State StreetWith$14trillioninassetsundercustodyand$1.7trillioninassetsundermanage-ment,StateStreetisagloballeaderinprovid-ingfinancialservicestoinstitutionalinves-tors.Foundedmorethan200yearsagoandheadquarteredinBoston,StateStreettodayemploysmorethan27,000peopleworld-wide,maintainingoperationsin26countries,includingallmajorinvestmentcentersandagrowingpresenceinAsia.StateStreethaslongacknowledgedthatasacorporatecitizen,itneedstobecognizantofitsstakeholders.Butduringtheearly2000sandparticularlyinthepost-EnroneraStateStreet,alongwithothersinthefinancialservicesindustry,hasbeenre-examiningwhatitmeansforafinan-cialinstitutiontobeagoodcorporatecitizenandwhatstakeholders’expectationsofitare.Reflectingitspositionasanindustryleaderonthebusinessside,StateStreetalsoaimstostayontheforefrontofhowbusinessesinitsindustryfacesustainabilityissues.
Type of reportStateStreetpublishesasustainabilityreportbasedontheGRIguidelines.Itpreviouslypublishedanannualreportonphilanthropicactivitiescalled“WorldView”.
First reporting year: 2003
Number of reports: 5
External assurance:
Det NorskeVeritas
Learning, Practice, Results. In Good Company
State Street Accounts ForStakeholders’ NeedsOne in a series of case studies on social reporting
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Stakeholder engagement processStateStreetisamemberofCeresandworkswithaCeresstakeholderpaneltoobtainfeed-backonitsreportandcorporatecitizenshipinitiatives.
Motivation for reportingReportinghasbeenpartofabroaderstrategytobuild“grassroots”awarenessofwhatcor-poratecitizenshipmeansforafinancialinsti-tutionlikeStateStreet.
Key Tensions and Lessons LearnedThereisuntappedpotentialforStateStreettousereportingasatoolformoreeffectivecommunicationsandengagementandtosup-portthestrategicdirectionofitsCSRWork-ingGroupandEnvironmentalSustainabil-ityCommittee.TheCSRreporthasplayedanimportantroleinhelpingthesecommitteesidentifykeyissuesandcollectbaselineinfor-mationinacentralpoint.However,asthesecommitteesstarttocreateamorestrategicapproachtoaddressingsocialandenviron-mentalissues,StateStreetnowhastheoppor-tunitytousetheCSRreporttoreportontheinitiativesandprioritiesoftheinternalcom-mittees,makingitpartoftheperformancemanagementsystemfortheseissues.
StateStreethasbeenguidedbytheGRIGuidelines,buthaskeptaneyeonwhatinfor-mationisbothpossibleandproductivetocol-lect.Asexperiencewithreportinghasgrownandemployeesbecomemorefamiliarwiththepurposeofthereport,theyhavebeenabletoprovidemoresuggestionsaboutnewinfor-mationthatcouldbeincluded.Infacingthechallengeofstreamliningthedatacollectionprocess,StateStreetimplementedanonlineplatformfordatacollection.Goingforward,however,StateStreetneedstoadoptmorerobustmetricsthatsupportitsstrategicpriorities.
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About the companies in the study
TelefónicaTelefónicaistheoneoftheworld’slargestintegratedtelecommunicationsfirmsoffer-ingfixedline,mobile,Internetandentertain-mentservices.ItsbusinessesspanEuropeandLatinAmerica,touching200millioncustomers,233,000employees,1.7millionshareholdersand20,000suppliers.Telefóni-cawasestablishedin1924asthestate-ownedtelecommunicationsproviderinSpainandunderwentconsiderablechangewhenitwasprivatizedin1994.Furtherchangescamein2006,whenTelefónicamergeditsfixedlineandmobilebusinessesintoonecompany.AsofDecember2007,morethan60percentofTelefónica’sbusinesswasoutsideEurope.In2007,Telefónicastartedexpandingitspres-enceinEuropethroughtheacquisitionoftheBritishmobileoperator,O2,whichbroughtoperationsintheUnitedKingdomandEast-ernEurope.ThecorporateresponsibilityteamatTelefónicawasestablishedforthepurposeofmanagingandimprovingcorporatereputa-tion.Thiscommittee,theonlyoneofitskindinaSpanishcompany,isaconsultativecon-trolcommitteecomprisedoffourindepen-dentdirectors,whobringexperiencefrommanagingcorporateresponsibilityindifferentindustries.ThecommitteehasanimportantroleinsupervisingthepoliciesandprojectsassociatedwithcorporateresponsibilityintheTelefónicaGroup.
Motivation for reportingReportingservesasareputationmanagementtoolforTelefónica,demonstratingthecompa-ny’scontributiontosociety.However,overthecourseoftimetheemphasisofreportingisshiftingfromreputationmanagementtoper-formancemanagement.
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Type of reportCommencingin2007,Telefónicabeganintegratingitscorporateresponsibility(CR)reportintothecompany’sannualreport(forthe2006year).Dividedintotwosections,theannualreportcommunicatesthestatusofTelefónica’s“body,”thefinancialresults;andits“soul,”itsCRresults.
Number of reportsTelefónicaemphasizestheneedforcountry-levelCRmanagerstocollecttheirownper-formanceinformationandpreparecoun-try-specificreports.In2004,fourcountriesproducedseparateCRreports(Argenti-na,Brazil,ChileandPeru)andby2006,ithadgrownto10countries,coveringallofTelefónica’sLatinAmericanmarkets.InEurope,Telefónicahasalsobeenapplyingitsgroup-widepolicytocompaniesacquiredthroughtheacquisitionofO2.In2007,Germany,Ireland,theUnitedKingdomandtheCzechRepublicallproducedcountry-levelCRreports.
First year of reporting: 2003
External assurance:
Ernst&Young
Stakeholder engagement process Telefónicahasdevelopeditsownprocessforstakeholderengagementwhichitappliesinallgeographicregions.Stakeholderengage-mentisdoneaspartofTelefónica’sCRman-agementprocess,butthelessonslearnedthroughtheengagementalsoinformtheissuesonwhichTelefónicareports.Ineachcountry,Telefónicaconvenesasessionofagroupofkeystakeholdersrepresentingcon-
sumergroups,suchaspeoplewithdisabili-ties,civilsocietyorganizationsfocusedonenvironmentalorsocialissues,andotherpar-tiesrelevanttothelocationofthefocusgroup.
Key tensions and lessons learnedTelefónicafaceschallengeswithensuringaccuracyandconsistencyacrossitsreportsbecausethecapacityoflocalCRmanagersvaries,asdoestheinformationavailabletomeasureCRperformance.ToensurelocalCRmanagersunderstandtheinformationrequiredbydifferentperformanceindica-tors,Telefónicahasestablishedregionaltrain-ingsessionstobuildcommonunderstanding.Theauditprocessalsohelpstoeducatecoun-try-levelmanagersontheinformationthatdif-ferentindicatorsrequireandhowtoimprovetheaccuracyofthedatacollected.However,limitationsremainwheredataiscollecteddif-ferentlyacrosstheTelefónicagroup,whetherforinternalorexternalreasons.
DespitetheemphasisthatTelefónicahasplacedonusingcorporatecitizenshiptoimproveitsreputationwithstakeholders,itisstillidentifyingwaystousethereportsaseffectiveengagementtools.Forsomeaudi-ences,describedasthe“coreCSRcrowd,”Telefónicahasbeenabletousethereportstosomeadvantage.Butintermsofabroaderrangeofexternalstakeholders,Telefónicaisexploringwaystocommunicatemoreeffec-tively.Telefónicaalsoneedstofindwaystousethereportsmoreeffectivelyamonginter-nalstakeholders.
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Thisstudywasmadepossiblethankstothesupportofthecompaniesfeaturedinthecasestudies.Thanksmustgotothemanyemploy-eesatthesecompanieswhoparticipatedintheinterviewsandtothecompaniesthem-selvesfortheirfinancialsupport.Inaddi-tion,keyindividualswithinthesecompaniesprovidedtimeinassistingwithcoordinatinginterviewsandprovidingvaluablefeedback.SpecialthanksgoestoElaineSalewske,BaxterInternational;MonicaOberkoflerandMelis-saSwanson,GapInc;SusanneStormer,NovoNordisk;GregorBarnum,SeventhGenera-tion;RickPearlandRachelCriscuollo,StateStreetCorporation;andDaviddesanBenitoTorre,Telefónica.
Thanksmustalsogotoanumberofthoughtleadersandpractitionerswhoprovidedtheirinsightsduringthecourseoftheproject:KatieFry-Hester,SustainAbility;AdamKanzer,DominiSocialInvestments;MegFrickeandKirstyJennings,Ernst&YoungAustralia;ScottMcAuslandandBastianBuck,GlobalReportingInitiative;RichardBoele,BanarraSustainabilityAssuranceandAdvice;BrookeBartonandAndreaMoffat,Ceres;ChrisJochnick,OxfamAmericaPrivateSectorTeam;andJamesGifford,U.N.PrinciplesforResponsibleInvestment.
ValuableinputintothepreparationofthecasestudiesandindevelopingthefindingsofthisreportwasalsogratefullyreceivedfromtheCenter’sresearchteamandothercolleaguesfromtheBostonCollegeCenterforCorporateCitizenship,withparticularthankstothosewhowerepartoftheinternalreviewcommit-
tee:BradleyGoogins,ChrisPinney,PhilipMirvisandPeggyConnolly,aswellastoTimWilsonandSharonSabinfortheireditorialanddesignassistance.
Finallytheprojectwouldnothavebeenpos-siblewithoutthecontributionsofSeemaBharwaniandValerieLaVoie,co-authorsofthecasestudies,andthethoughtleadershipofDavidWood,directoroftheInstituteforResponsibleInvestment,inconceivingtheoriginalideafortheprojectandprovidingconsiderableinputintoeachofthecasestud-iesandthisfinalreport.
Acknowledgments
www.BCCorporateCitizenship.org
Learning, Practice, Results. In Good Company
The Value of Social Reporting 53
At the end of the day, improving corporate citizenship
performance is not about having a good social report.
Instead, a social report must reflect what is going on
within a company.
Learning, Practice, Results.
In Good Company.
Boston College Center for Corporate Citizenship 55 Lee Road, Chestnut Hill, MA 02467
Phone 617-552-4545 Fax 617-552-8499 Email [email protected] Web site www.BCCorporateCitizenship.org
The Boston College Center for Corporate Citizenship is a membership-
based research organization associated with the Carroll School of
Management. It is committed to helping business leverage its social,
economic and human assets to ensure both its success and a more
just and sustainable world. As a leading resource on corporate
citizenship, the Center works with global corporations to help them
define, plan, and operationalize their corporate citizenship. Through
the power of research, management and leadership program,
and the insights of its 350 corporate members, the Center creates
knowledge, value, and demand for corporate citizenship. www.
BCCorporateCitizenship.org