Chapter 10 - Corporate Social Responsibility and Stakeholders

Question 1

What is the definition of Corporate Social Responsibility?

Answer 1

EU: companies integrate social and environmental concerns in business operations / in their interaction with their stakeholders on a voluntary basis

KING IV: ‘corporate citizenship’concept - recognising organisation as an integral part of the society it operates in - organisation is a JURISTIC person in the society with rights BUT ALSO RESPONSIBILITIES/OBLIGATIONS - broader society is LICENSOR of the organisation

Question 2

What are the 3 main terms used to describe corporate social responsibility?

Answer 2

• Corporate Citizenship ( King II onwards) - companies as citizens of the countries in which they operate. Requires balance financial needs of shareholders with societal need of the countries within which they operate.
• Sustainability - company focus on long-term survival. Requirement to balance current requirements for business ops without comprimising the needs for future generations.
  Can also refer to the planet’s sustainability- impact on the environment (closely aligned to CSR)
• ESG - increasingly fashionable - refers to company’s environmental, social & governance activities.

Question 3

Why did companies give up responsibility for welfare of their employees?

Answer 3

Most think after WWII - advent of free education & NHS

State took over responsibility for workforce well-being. This led to companies’ focus being more on profits/growth in order to help economic recovery after the war rather than on the interests of society as a whole.

Question 4

What changed to create an interest in the social responsibility of companies?

Answer 4

Late 80s- concerned with corporate behaviour/ lack of consideration for the societies they operated in. Focus on short-term profits to the detriment of long-term profitability/sustainability and society as a whole.

1992 - ‘do well by going good’ - introduced idea of potential financial benefits which could be **induced by CSR **- offsetting engagement and compliance costs.

1990s’ - recognition and growth of CSR - reputational impact of good CSR realised - means outsiders see the org as decent, ethical and trustworthy and good to its workforce, community and the environment. Evidence shows that this increases financial returns for investors

Question 5

What are some drivers for CSR activities for an organisation (Reasons why companies initiate CSR activities)?

Answer 5

THE COMPANY
- Sustainability
- Innovation
- To reduce risk
- Recruit and retain capital (Financial and Human)
- To obtain competitive advantage

GOVERNMENT & BILATERAL ORGANISATIONS
- Government – through laws and regulations set minimum standards (ex. EA2010, Human Rights Act)
- OECD - Guidelines for multinationals
- World Bank Group - Guidance in areas such as human rights and good CG practices

INVESTORS
- Investors may not invest in companies whose practices are considered to go against the values espoused by the investors or to be violating laws, regulations and the principles of human rights.
- Factors include:
* company’s record on human rights & child labour
* Impact of the company’s activities on the environment
* Nature of business are taken into account (ex. harmful products) - whether SRI or not (ex. tobacco, oil)

SHAREHOLDER & TRADE ASSOCIATIONS
* Shareholder activists and trade associations
- PLSA
- IA
- International Corporate Governance Network (ICGN)

Question 6

What are skeptics main points re CSR / ‘green washing’?

Answer 6

Criticisms/scepticism of CSR = organs only involved for what can gain / question motive behind CSR

• See main motivation as advertisement / superficial ‘window-dressing’
• Even to ‘cover up’ unethical or harmful practices….

Question 7

According to Eisenstein of Board effect, what are the 4 general and specific ways that companies can join their efforts between business ethics and social responsibility (EL-PVE)?

Answer 7

1. Environmental efforts;
2. Philanthropy;
3. Ethical labour practices; and
4. Volunteering

Question 8

What are the 4 categories of CSR activity?

Answer 8

Propaganda- Primarily focused on building the organisation’s reputation (high benefit to company, low to society)

Pet projects - Projects closely associated with CSR

Philanthropy - typically large chariable donations

Partnerships - Create significant shared value creation for both organisations and society fall within the category of partnerships.

Question 9

What makes partnership collaborations work in the long-term according to Albani and Henderson (what is required for a win-win CSR partnership) ?

Answer 9

• Fairy godmother
• Identify clear reasons to collaborate
• Set simple, credible goals (especially if unlikely bed-fellows)
• Professional help (especially if culture clash ex.private org and an NGO) - independent facilitator will ‘push things forward’
• Core good people (who are entirely committed to the partnership)
• Be flexible in defining ‘success’
• Be willing/able to ‘let go’: having an exit strategy

Question 10

What are some examples of CSR frameworks/guidances for companies?

Answer 10

UN Guiding Principles on Human Rights

SIGMA Project

UN Global Compact

Equator Principles

OECD Guidelines for Multinational Enterprises

Question 11

Overview of UN Guiding Principles on Business and Human Rights.

Answer 11

Role businesses can take in protection of human rights

Applies to all companies

Applies EU re human rights followed by member states to businesses in member states

Countries should put in place effective remedies for those suffering from human-rights abuses that are business related.

Question 12

Overview of UN Global Compact.

Answer 12

Encourage companies to align their strategies and operations with its 10 principles that cover (HALT)
- Human Rights
- Anti-Corruption
- Labour
- The environment

12,000 companies in over 160 countries participants as of 2021

Question 13

Overview of the Sigma Project

Answer 13

Sustainability-integrated guidelines for management (by BSI)

5 guiding principles - clear practical advice for companies to understand sustainability and their contribution to it.
5 Capitals (similar to IT)
- Human
- Financial
- Manufactured
- Natural
- Society

Integratation of sustainability into core business processes and mainstream decision-making

Allows linking to other frameworks - so companies can build on what they already have in place.

Question 14

Overview of the Equator Principles.

Answer 14

A risk management framework adopted by financial institutions.

Ways to determine, assess and monitor environmental and social risk in projects.

Primary intention to provide a minimum standard for due diligence and the monitoring of reasonable risk making decisions.

Question 15

Overview of OECD Guidelines for Multinational Enterprises.

Answer 15

Aims to encourage positive contributions that multinatonal enterprises can make to economic, environment and social progress - minimise the difficulties to which their various operations may give rise.

Addresses general, employment and environmental policies.

Question 16

What considerations might an organisation take into account when seeking to measure their CSR initiatives?

Answer 16

1. Focus on outcomes using both quantitative and qualitative measurements
2. Listen to stakeholders -
3. Do not undervalue stories
4. Learn from others
5. Identify/Measure risks -
6. Measure, refine, modify, Measure
   again -

Question 17

Should CSR targets / achievement of CSR index status be used as part of performance-related critera in bonus/incentive schemes for senior executives?

Answer 17

• Ex. use at Royal Dutch Shell
• Only where organisation has a CLEARLY ARTICULATED BUSINSESS CASE for its CSR activites and how these help secure the organisation’s overall sustainability.
• Investors look for well-defined performance metrics tied to CONCRETE MEASURABLE PLANS.
• Execs could take advantage of vague set targets otherwise- which carries reputational/business risk as a consequence.
• In absence of CSR metrics - board retains right to reduce reward where reputational/business damage caused by an event that was negative impact on business’ long-term sustainability, the environment or on society- ex. an oil spill

Question 18

Name 5 goals covered by UN Sustainable Development Goals.

Answer 18

• Zero hunger
• Quality education
• Reduce inequalities
• Climate action
• No poverty

Question 19

Give 3 examples of CSR benchmarking indexes.

Answer 19

• Dow Jones Sustainability Index (first csr index) - USA
• FTSE4 Good Indexes - UK
• BITC Responsible Business Tracker

Question 20

What is integrated thinking?

Answer 20

A process that takes into consideration a balanced way the effective and efficient utilisation of each of the six capital resources available to an organisation when developing strategy or decision making.

Question 21

What are the 6 capital resources of integrated thinking>

Answer 21

• Social (value added by relationships with individuals/institutions developed via stakeholder engagement)
• Manufactured (physical means/infrastructure to provide products/services)
• Human (collective skills/experience of employees)
• Financial (money, equity, bonds etc. required to operate)
• Natural (resources/energy needed to produce products/services)
• Intellectual (patents, copyrights, designs, brand knowledge, goodwill etc.)

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Question 22

What is the main risk in respect of the separate management of capitals?

Answer 22

Creation of a SILO where each capital is managed separately.

Question 23

What are some ways in which the company (via the CoSec) can reduce the risk of silo effect?

Answer 23

• Could have a form requiring the sign-off of propsals by ALL departments prior to their submission to the board
• CoSec to review board proposals to ensure a holistic approach across all capitals, prior to their submission to the Board.
• CEO to hold regular management meetings with ALL heads of department present before board meetings

Question 24

Why is it important for companies to think in an integrated way?

Answer 24

• Balanced way to consider things overall
• Allows effective and efficient utilisation of the capital resources available when developing strategy or decision-making.
• Capitals are becoming rare and therefore costs are growing

Question 25

Why is there a great focus on the longer term in organisations?

Answer 25

By focusing on the long-term sustainable success of the company, organisations should generate value for shareholders and contribute to wider society.

Question 26

Why is it difficult to determine what a company’s sustainability?

Answer 26

• What ARE its current/future needs?
• Time period re ‘future generations’
• WHO sustainability should be FOR

Question 27

What does the UKCGC say on engagement with stakeholders / need to do and report on such?

Answer 27

PROV.5

• Board to understand views of other stakeholders
• Should to describe in AR how interests/matters of s.172 considered
• Keep engagement mechanisms under review so they remain effective

Question 28

List the 3 ways a company can engage with stakeholders

Answer 28

REACTIVELY: defensively when forced to, in response to crisis/attempt to rebuild rep reputation

PROACTIVELY - attempts to understand stakeholders’ concerns/issues.
ex. surveys/focus groups, direct engagement before decisions

INTERACTIVELY - ongoing relationship of mutual respect/openness/trust with stakeholders

Question 29

What should a company do if stakeholder concerns cannot be addressed via engagement?

Answer 29

Be open, honest and transparent as to why.

Example = Nova Nordisk re insulin, pharmaceutical companies regarding animal testing - many will ask for this to stop but it is required on the products by LAW.

Question 30

What does Principle E of the Code say about the company’s engagement with employees?

Answer 30

PRINC.E
‘the board should ensure workforce policies & practices are consistent with the company’s values & support its long term sustainability. The workforce should be able to raise any matters of concern’.

Question 31

What 3 methods does Provision 5 of the Code suggest the company can to do ensure the recommendations re employee/workforce engagement are fulfilled?

Answer 31

PROV. 5 - one or combo of these methods should be used

• Appointing a Director from workforce
• Establishing a formal workplace advisory panel
• Having a designated NED

Where no method chosen - company should explain any alternative arrangements in place and why the board considers these effective.

Question 32

MWhat does Provision.6 of the Code state regarding the company’s workforce?

Answer 32

• A means for the workforce to raise concerns in confidence and, if they so wish, anonymously.
• Board shout routinely review this and reports arising from its operations.
• Board should ensure arrangements in place for the proportionate and independent investigation of such matters and for follow-up action.

Question 33

What were the key findings of FRC’s lab “Workforce-Related Corporate Reporting” (2020)?

Answer 33

Reporting needs to improve to
a) Meet the needs of investors; and
b) Reflect modern-day workforices.

Working conditions, and such areas, are under increased focus by investors/potential investors.

Investors support clearer company disclosures regarding such matters.

Question 34

What were the 2 key findings / points made by FRC Workforce Engagement & UKCGC: A Review of Company Reporting and Practice?

Answer 34

• Many FTSE350 companies appear to downplay the importance of workforce engagement in their ARs
• Changes in engagement are more an EVOLUTION than a REVOLUTION - most companies are simply amending existing practices that have been in place for years. rather than devising/considering new ones.

Question 35

10 Core principles of ‘ICSA/IA - Stakeholder Voice in Board Decision Making’(2017)

O

Answer 35

1) Identify who/why key stakeholders, regular review
2) Which to engage with directly
3) What staekholder expertise required in boardroom
4) When appointing new director- NC take stakeholder perspective into account
5) Chair/CS - ensure adequacy of induction / training re stakeholder engagement is maintained
6) Chair - how best to ensure decision-making gives sufficient consideration to key stakeholders
7) BoD ensure appropriate engagement taking place - regular review
8) When designing engagement mechanisms - what is best/most convenient for stakeholders not just the company
9) Report on how taken impact on stakeholders into account
10) Provide feedback - tailored to different stakeholder groups

Question 36

What WATES Principle is applicable to large private companies in respect of ‘engagement’?

Answer 36

PRINCIPLE 6

Question 37

Why, according to Wates, should boards should identify and prioritise stakeholder relationships?

Answer 37

These are integral to its ability to generate and preserve value

Will vary from company to company depending on the size and nature of the organisation

Some are common, but also other material stakeholders- specific to orgs circumstances/sector

Question 38

What matters are set out in s.172 and should be reporting on in a company’s s.172 satement?

Answer 38

1) Likely consequences of actions in long term

2) Interest’s of company employees

3) Need to foster business relationships with customers, suppliers and others

4) Impact on the community and environment (of the company’s operations)

5) Desirability to maintain a reputation for high standards of business conduct

6) Need to act fairly between members of the company

Question 39

What factors in an organisation may require/have to change as a result of its obligations re s.172 reporting?

Answer 39

• Strategy
• Targets
• Risk management processes

Question 40

What factors explain the business case for stakeholder engagement?

Answer 40

• Less hostile perception on market (to local values/ways of operating)
• Create value and wealth
• Gain/retain loyal customers, avoid boycotts/other negative consumer actions
• Create perception it is a desirable place to work - attract human capital
• Identify ways to increase efficiency / reduce operational costs
• Indicate a more responsible approach to risk taking - reduces risk
• Be better able to leverage opps - giving co compet advantage - can identify new ideas that address stakeholder needs - effective stakeholder engaget proms corp learning/innovation
• More readily welcomed into new markets “” less hostile to local values/ways of operating

Question 41

How can the Company Secretary/Governance professional assist / advise the board regarding stakeholder engagement?

Answer 41

• Identifying which stakeholders have legitimate expectations and interests;
• Mapping the power and interest of stakeholder or such groups in order to develop strategy for engaging with them;
• Discussing and approving key performance indicators for social, environmental and financial performance;
• Approving policy for external, financial, non-financial (sustainability) or integrated reporting;
• Advising the board on reputational risk aspects to stakeholder engagement;
• Advise board on setting up a separate committee to deal with stakeholder issues (mixture of board and management members).