Simple steps to sustainability Lecture 2: Cranfield University, 12 th January 2009 David Logan Why CR? Making the case from righteousness to riches

1 Structure of presentation 1.Introduction 2.Motives for responsible behaviour 3.The importance of core values 4.Examples of responsibility issues being reported

2 1. Introduction Government 34% For-profit 60% Not-for-profit 6% Informal Figures relates to share of US GDP 2000

3 Introduction Companies are ‘corporate citizens’ of our society They have rights and responsibilities as private citizens do All have - economic and social power - environmental impacts - choices about how they behave CR is about how these choices are exercised Multinationals have immense scale

4 Introduction Millions of small and medium sized business 50,000 multinationalsand 300,000multinational affiliates The Fortune 500 Who are these corporate citizens?

5 The ownership of the Fortune Magazine top 500 global multi-nationals in 2007

6 Introduction Private sector is immensely diverse in terms of - ownership - products and services - business to business or consumer facing relations - creativity - social sensitivity What are the factors which tend to support responsible choices across this group of institutions? Financial strategy is key - all play by the rules of the market - short-term profit maximisers exist - long-term profit optimisers dominate

7 2. Motives for responsible behaviour Why might private companies choose to behave? Five possible forces 1.The law 2.Threats to reputation 3.Opportunities to build the business 4.Mutual self-interest with stakeholders and the wider society 5.Moral conviction Mixed motives are common

8 Motives for responsible behaviour 1.The law - Law has been used extensively to control corporate behaviour slavery health and safety in factories financial integrity environmental impact - Law tends to lag behind corporate practice ‘the creative destruction’ of capitalism is very powerful - Law is based on local jurisdictions may be absent not enforced may be offensive - International law is very weak - Prosecutions can be expensive - However law also creates the level playing field for business

9 Motives for responsible behaviour 2. Threats - Reputation is a key business asset - Charges of irresponsible behaviour can damage reputations - NGOs/media are key initiators of criticism - Damage to reputations can lead to loss of business consumer boycotts employee de-motivation investor confidence - Risk management is a key response - Legislation may follow if there is no corporate action - Costs can be small or large

10 Motives for responsible behaviour 3. Opportunities to build the business - Some businesses offer corporate responsibility as a competitive advantage in the marketplace Ben & Jerry’s The Body Shop Fairtrade products socially responsible investing - Consumer expectation operates at a lower level too ‘fix it for us!’ cause related marketing - Business to business is also effected WalMart supplier requirements - The competition for talent BP GE - Costs are seen as an investment

11 Motives for responsible behaviour 4. Long-term self-interest - Building relationships with stakeholders is key to long-term success - Employees company towns healthcare provision education and training - Suppliers investment and technology transfer - Communities corporate giving and volunteering - Moderate costs but long-term mutual benefits

12 Motives for responsible behaviour 5a Moral convictions - Ethical concerns are real in business – there is such a thing as business ethics! - Trust is the basis of so much business behaviour key to long-term sustainability of the business it is cost effective - Big CR decisions often have a strong ethical aspect withdraw from a country e.g. South Africa withdraw a product e.g. J&J Tylenol case lose a contract by not paying bribes - Ethical behaviour can be very costly – but it is the right thing to do

13 Motives for responsible behaviour 5b Moral convictions - Marxism saw all profit making activity as ethically wrong - Religious groups see some business fundamentally unethical? tobacco alcohol gambling pornography arms animal products - Some single decisions are seen as wrong factory closures - Often no right answer – only the one the company can stand behind - Values do vary around the world – but UN system is developing global standards

14 3. The importance of core values Charismatic CEOs don’t have all the answers – they can’t be everywhere CEOs create the values framework Employees - act in the company’s name - live its values - are responsible for its reputation Employees need clear guidance about responsible choices Companies need to explicitly state their values - rule driven -v- building an ethical culture

15 Importance of core values Business performance 1.Corporate functions e.g. HR, marketing 2.Operating units Corporate Mission Values Statement Code of Business Principles Policies e.g. environment, supplier code, diversity statement Values into Action

16 Read through the J&J Credo – one of the best articulations of corporate values there is

17 Importance of core values

18 The importance of core values Values bind an organisation together They inform policies and practice Practice can be measured and performance can be understood often in numerical form The debate about values within a company needs to be based on facts Next lecture is about measuring responsible performance

19 Who shares in Unilever’s success?

20 Diageo – who’s responsible? In a country report too

21 Anglo: benefits and taxes

22 Danone: access to products

23 Danone: pay

24 Starbucks: pricing & sourcing

25 Shell: business ethics

Give us a ring For further information please contact: David Logan Chairman and Co-founder Corporate Citizenship 5th Floor, Holborn Gate 330 High Holborn London WC1V 7QG United Kingdom T: +44 (0) E: W: