Corporate responsibility Flashcards
Explain the difference between CSR, corporate citizenship and
sustainability.
There is no one definition of CSR. Some organisations understand it as purely
charitable giving, others as an integral part of their business models and hence
strategic planning. Others combine their environmental activities with CSR. The
type of involvement in CSR by organisations will depend on their operational
activities, their understanding of CSR, and the philosophy and values of their
organisation.
The term corporate citizenship has a wider definition than CSR. Corporate
citizenship describes how companies should act in the same way as the citizens
of the countries in which they operate, that is, to meet the countries’ legal,
social, ethical and economic responsibilities expected of its citizens. This requires
companies to balance the financial needs of its shareholders with the societal
need of the countries within which it operates.
The term sustainability refers to an organisation focusing on its long-term
survival. It requires organisations to balance their current requirements
for operating their businesses, without compromising the needs of future
generations. In doing this, CSR obviously plays a part in ensuring the long-term
survival of the organisation – this is often why the two terms are linked.
Why did companies give up responsibility for the welfare of their
employees?
Some believe that following World War II, the advent of free education and the
National Health Service in the UK saw the state take over from companies the
responsibility for the well-being of the workforce. This in turn led to companies
focusing more on making profits and achieving growth to help economic
recovery after the war than on acting in the interests of society at large.
What changed to create an interest in the social responsibility of
companies?
By the late 1980s, society was becoming more and more concerned with
the behaviour of corporations and their lack of concern for the communities
within which they operated. There was a belief by some that short-term
profits were being focused on to the detriment of long-term profitability and
sustainability, not just of the organisations but also of society as a whole. In
1991, a theoretical debate on ‘doing well by doing good’ was started by the
Porter hypothesis that the financial benefits from innovation induced by CSR
more than offset the engagement and compliance costs. There has also been
a growing recognition since the early 1990s that the reputational impact of a
good CSR rating is positive as the outside world sees the organisation as decent,
trustworthy, and good to its employees, the community and the environment.
Evidence shows that this increases the financial returns for an organisation’s
investors.
Give three reasons why companies initiate CSR activities.
Organisations have realised that they can use CSR activities for the following:
To obtain competitive advantage.
To reduce risk, especially reputational risk.
To attract human capital.
For innovation.
For sustainability.
Describe what is required for a win-win CSR partnership.
There can be many factors which aid a win-win partnership, including: having
clear reasons to collaborate, having core people entirely committed to the
partnership, having simple and credible goals, having a facilitator, incentivising
workers, flexibility and having a clear exit strategy planned.
Why is it important for companies to think in an integrated way?
Integrated thinking considers things in a balanced way to allow the effective
and efficient utilisation of the capital resources available to an organisation
when developing strategy or decision making. These capitals are growing rare
and therefore costs to the organisation are growing. It is important for an
organisation to manage resources in the most effective way.
What are the six capitals that companies need to manage effectively
and in an integrated way?
Financial capital – money, equity, bonds, monetary value of assets, etc. that
an organisation needs to operate.
Human capital – the collective skills and experience of the people that
work for the organisation.
Manufactured capital – physical means and infrastructure needed for an
organisation to provide its products and services, e.g. fixed assets.
Intellectual capital – patents, copyright, designs, goodwill, brand value and
knowledge accumulated, i.e. intangible assets.
Natural capital – natural resources and energy that the organisation
depends on to produce its products/services.
Social capital – value added to an organisation by the social relationships
with individuals and institutions that an organisation has developed
through its stakeholder engagement.
What are the challenges with determining a company’s
sustainability?
Sustainability requires the balance of current needs against future needs. The
challenge with this is determining:
The current and future needs.
The time period to be considered when looking at future generations.
Who the sustainability should be for (e.g. the company, the country or the
world).
Why is there a greater focus on the longer-term in organisations?
By focusing on the long-term sustainable success of the company, organisations
should generate value for shareholders and contribute to wider society.
What are some of the major problems with traditional corporate
reporting?
Annual reports have become so detailed and extensive that many are
totally inaccessible to the average reader.
Annual reports present the historic performance and activities of the
company over the previous financial year.
Annual reports tend to focus on the financial performance of the company
excluding information on non-financial matters.
Some intangibles are excluded – such as good corporate governance,
brand recognition, good reputation and sound risk management.
Some costs are excluded – e.g. the environmental costs of using up natural
resources that can never be regenerated, and of the impact of carbon
emissions on climate change are excluded from financial accounting.
Different reports are prepared for different users, for example, sustainability
report and corporate governance report. Each of these reports tries to
meet the demands of a particular stakeholder group. These reports are
often not connected as they are developed by different departments
within the organisation that are not talking to each other. The result is
that they end up showing each stakeholder group a different aspect of the
organisation.
By focusing on financial reporting only, organisations have been pushed
into short-termism as they strive to meet the requirements on a quarterly
or six-monthly basis of the markets.
Define narrative reporting.
Narrative reporting describes the additional non-financial information which is
included in companies’ annual reports providing a wider, and some would argue
a more meaningful, picture of the company’s business, its strategy, and future
prospects.
What parts of an annual report and accounts are examples of
narrative reporting?
the chair’s statement;
the directors report;
the directors’ remuneration report;
the corporate governance report;
the strategic report.
What is a safe harbour?
Section 463 of the 2006 Act introduces a new safe harbour in relation to
directors’ liability for the directors’ report, the strategic report and the directors’
remuneration report. Directors are only liable to compensate the company
for any loss it suffers as a result of any untrue or misleading statement in, or
omission from, one of these reports if the untrue or misleading statement
is made deliberately or recklessly, or the omission amounts to dishonest
concealment of a material fact.
This safe harbour addresses the concern of directors over liability for negligence
when making, for example, forward-looking statements in the reports, in
particular, the strategic report. The directors’ liability is limited to the company
rather than to third parties.
Give three examples of why a company would choose to voluntarily
report on its CSR activities.
Any of the following could be given.
reputation of brand
ethical considerations
innovation and learning
employee motivation
risk management or reduction
access to capital/increased shareholder value
economic considerations
strengthened supplier relationships
market position improvement
improved relations with government
cost savings
Why is it important to set CSR targets and link them to executive
pay?
To be able to report on their CSR activities organisations need to be able to set
non-financial targets and measure their progress against targets.
Using targets as part of the performance criteria in bonus and incentive schemes
for senior executives ensures that CSR needs within companies are taken
seriously and that targets are actively worked towards.
However, boards in the absence of CSR metrics have retained the right to
reduce incentive awards in cases of substantial damage to the company’s
business or reputation resulting from an event that has had a negative effect
on the environment, society or the organisation’s long-term sustainability. For
example, an oil spill where inadequate precautions tied to the activities of senior
executives can be shown.
