Accountants and the crisis: CSR - man overboard

On the face of it, suggesting that corporate social responsibility may fall victim to the global downturn seems ridiculous. In the last couple of months alone ­ at a time when life for most corporates has grown decidedly tougher ­ businesses as diverse as KPMG, German chemical giant Bayer, tobacco multinational Reynolds, Ford, Starbucks, BP and Shell have all issued CSR reports, reaffirming their commitment to one of the most significant causes of the 21st century.

At the same time Harvard, an institution that knows a thing or two about which way the corporate wind is blowing, is taking bookings for its fourth annual executive education programme on CSR.

‘The programme will enable firms to achieve even higher levels of economic and social performance ­ positively driving the bottom line, while significantly contributing to the betterment of society,’ says faculty chair Professor V Kasturi Rangan, casting understatement to the wind.

Meanwhile, fresh analysis of corporate reporting by FTSE100 companies reveals the top tier of UK plc is enthusiastically embracing sustainability reporting. There has been a ‘substantial increase’ in the number of comp-anies producing CSR reports, says consultancy Black Sun, which compiled the report. ‘More companies are discussing CSR issues [and] 85% of companies reference how CSR is governed within their business,’ it says.

But all these headline-rattling commitments mask an important aspect of the debate.
The great success of the green movement has been to convince companies that being green makes business sense.

And the best thing that has happened to CSR lobbyists has been the success of green companies. Until now, at least ­ because what seems to have been forgotten is that green is only a subset of CSR. And saying that green will survive the downturn is one thing. Saying CSR will is another altogether.

Business in the Community prefers the term ‘responsible business’ to CSR w hich it measures by the degree to which a company: treats its employees fairly, equitably and with respect; protects the environment for future generations; manages its impact in society and the environment; is a responsible neighbour; and observes basic human rights.

In assessing potential member companies for its ‘CSR’ index, FTSE 4 Good uses similar criteria. As well as working towards environmental sustainability, it demands member stocks also develop positive relationships with stakeholders; uphold and support universal human rights; ensure good supply chain labour standards; and act to counter bribery.

My fear is that with the clouds of recession already looming, many companies will relax many CSR commitments, and cherry pick those that suit. And there’s evidence that it’s already happening.

Take developing positive relationships with stakeholders.

Earlier this year Alliance Boots extended its payment terms to suppliers to 75 days from the end of the month in which an invoice is received. According to the Federation of Small Business, it is one of about 14 (largely retail) companies charging a 2.5% ‘settlement fee’ when paying supplier invoices.

As Martin Williams, chief executive of credit rating agency Graydon and a blogger on AccountancyAge.com, recently wrote: ‘Alliance Boots and other large corporations publish an awful lot about their corporate social responsibility policies, and what they do to make the world a better place.

‘Boots for instance talks on its CSR website about its belief that it has an “enormously valuable role to play in promoting the health of our nation”, and also believes in treating its customers “fairly”.

‘So are suppliers not important stakeholders in the Boots business? Why no mention that they, like customers, should be treated fairly? Does anyone think about the social and economic impact of not paying suppliers on terms that they can live with?’

How about upholding universal human rights and ensuring good supply chain
labour standards?

Last month Channel 4 postponed a programme entitled The Devil Wears Primark about ongoing, unethical sourcing of low-cost high street fashion. The BBC’s Panorama went ahead with a similar investigation.

Primark reacted swiftly, removing the clothes from sale and refunding customers who returned them.
It agreed to stop buying from three suppliers it found were using child labour to embroider clothes it had sold. It warned other suppliers and said it would appoint a non-governmental organisation in southern India to police its supply chain.

But this was not enough for critics. Martin Hearson of Labour Behind the Label, which seeks to improve working conditions in the clothing industry, labelled the response ‘old school reputation management’.

Harsh? A little. But why was the problem uncovered by the media and not through an internal supply chain audit? Primark says it would never ‘knowingly permit’ the activities now uncovered. Not knowing, lobbyists would argue, is no longer an excuse.

Dark corners

So will companies ­ as those that are serious about CSR should ­ look for problems in
the darker corners of their businesses as times get tougher?

I suspect most won’t for fear of what they might find.

And finally take the last FTSE 4 Good criteria: companies must act to counter bribery. A recent survey from Ernst & Young showed that more than one in three of 1,200 international business leaders surveyed said corrupt business practices had got worse. Some 13% of all UK respondents said their organisation had experienced at least one bribery or corruption incident in the last two years.

And there’s further evidence that CSR commitments are weakening.

Take a closer look at the Black Sun research and there are hints that for many companies, CSR is already a box that’s there to be publicly ticked, not a movement to be embraced.

Only one in three FTSE100 companies link CSR with their strategic objectives. Less than half have a board-level CSR committee. And just 5% provide external assurance for the CSR elements of their annual report.

Until CSR becomes part and parcel of what companies do, it can be all too easily diluted. And that, I fear, is what will happen as the downturn intensifies.