In it together

Gandhi is not a good role model for corporate responsibility managers if they want to see sustainable change

“Be the change you wish to see in the world” Mahatma Gandhi famously said. Managers charged with achieving their companies’ commitments to sustainability can be forgiven for saying that in practice change isn’t quite so simple. If only.

In our analysis this month we present four differing ways of achieving change. Coca-Cola director, Ed Potter, shows how following government-led guidelines can at least get you started. But my colleague, Thomas Milburn, warns about the dangers of following the pack, and says that a reliance on benchmarks makes mediocrity the norm.

Another colleague, Megan De Young, stresses the importance of an empowering corporate culture, one that does indeed allow people to be the change. Finally lawyer, Rita Sheth, wants to harness a strong business trend – outsourcing of basic legal processes to new markets like India – and add a principle-based commitment to improve its social impact.

Meanwhile the UK government consultation on what it can do to drive change in responsible business practices closed this month. It has promised an action plan by the end of the year. Sceptics will doubt what governments can achieve, although that hasn’t stopped legislators in jurisdictions as diverse as Nigeria, the Philippines, the European Union and most recently India trying to mandate corporate social responsibility.

My own view, as I’ve argued before (here and here), is that governments do have a role to play. However the strongest drivers of change in any business are those related to commercial success.

Corporate managers in search of inspiration are better off quoting not Ghandi but Charles Darwin, who said “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.”

And for urgency, a more contemporary business viewpoint: “The world is changing very fast. Big will not beat small anymore. It will be the fast beating the slow.” Words of wisdom from Rupert Murdoch.

What do we need from the public sector, if the pace of change towards sustainable business is to speed up?

This month our regular round-up leads off with an interview – here sustainability director,André Veneman, tells the story of AkzoNobel’s journey from compliance and governance as the driver, to a principles-based approach, and now with collaboration and partnership across the whole value chain driving change. It’s an inspiring tale and one that others will recognize and aspire to.

But one thing struck me forcibly in his account: there’s no mention of governments being involved. Yet governments’ purchasing comprises anywhere between a quarter (USA) and a half (Scandinavia) of the economy. And in the key market segment for AkzoNobel, construction, governments make many of the rules through planning and building control about minimum standards, for example on insulation and protective coatings.

Personally, I’m no believer that governments should take control, nor indeed that they should set too many rules.  However I do think they must have a seat at the table in our sustainability debates. And they uniquely are able to create a so-called level playing field, where the leaders like AkzoNobel have the competitive space to develop and bring to market the products we need if sustainable living is to become truly possible.  That’s all about smart regulation to facilitate innovation, not a straight-jacket of control.

I’ve commented before on CCBriefing about the role of government – faltering steps by the UK government towards an effective policy on CSR and why the ‘green economy’ needs a green society, with governments involved.

Recently I’ve started writing for Guardian Sustainable Business on the interface between politics and business. For example, here’s my priority list of five actions that business leaders should be asking of the political parties, as we enter the pre-election manifesto writing phase.

My essential point is that government can accelerate change by setting the parameters within which business can do what it does best – take risk, innovate, invest, produce and above all sell.  Governments will need to change their mindsets if they are to embrace this new role.

Let me know what you think – comment below or contact me directly.  It’s a topic I’m sure to return to many times.

A common theme links several of our comment pieces this month with the topical issues of business responsibility currently running in the media – such as zero hour contracts at firms like Sports Direct and the Archbishop of Canterbury’s criticism of payday loans offered by Wonga and others.

It’s a theme that’s guided me since I first started helping companies be more responsible in their behaviours and more sustainable in their business models. And it’s one summed up in a phrase borrowed from politics – as Deep Throat said to Bob Woodward while investigating the Watergate scandal: follow the money.

The question for Wonga isn’t whether it is charging apparently high rates for short-term unsecured borrowing. It does, and so does my respectable high street bank if I go overdrawn by even a pound on my current account or I am a day late paying my credit card bill. The real question for me is whether Wonga is making super-normal profits (as economists call it) by exploiting a market failure and lack of competition.

If they are, then the Archbishop of Canterbury’s plan for a credit union-based alternative stands an economically-viable chance of success. If they are not, then politicians’ distaste for Wonga-style lending is better directed at reinstating a generous Social Fund or other state-funded social security option.

Either way, transparency about the economic facts helps inform the debate. In our comment pieces this month, Pradeep Jethi from the Social Stock Exchange says the real benefit from the new ‘high impact’ stock exchange isn’t so much in raising new capital (although greater visibility will help); it’s about demonstrating who benefits and by how much.  Peter McAllister from the Ethical Trading Initiative says companies should use the UN Guiding Principles on Business and Human Rights. I would only add that analysing your economic value chain will show where your greatest responsibility lies, even when out of immediate operational line of sight.

Many years ago, when I first started working with South African Breweries (SABMiller today), central to their CSR report was a value-added chart. Their then FD argued that the little known third statement in the annual report and accounts (after the profit & loss account and the balance sheet) was actually the most informative. Showing flows of cash, it illuminated who got and gave the money – in from customers and out to employees, suppliers, governments and investors.

We started using it with other clients, GRI adopted a variant in the G3 guidelines and (I’d like to say) the rest is history – except that even today too few companies publish this data, even fewer explain what it means and virtually none opens up a discussion on contentious issues like wage differentials and profit margins.

Without these economic fundamentals, even a halfway intelligent debate with external critics is impossible. Internally too, knowing where your economic impacts are provides a firm guide to action for companies trying to be responsible and make a difference. It turns out that Deep Throat was right, and not just about what a crook Nixon really was.

We can thank Andrew Mitchell MP – former cabinet minister for international development, brought low by ‘plebgate’ – for the thought that CSR used to be understood “in a fluffy way” as a form of global paternalism where companies “bunged in ten million quid” as conscience-salving charity. No more feel-good, sucking up to consumers, he says: the tax avoidance furore has caused a radical redefinition of CSR. (Interview with TLQ digital magazine)

Coming as the UK Government launches a consultation about corporate responsibility (A call for views, June 2013), it raises the wider thought about whether politicians and civil servants have ever really ‘got’ what business responsibility and sustainability is all about. Certainly there aren’t many of us actually working in the field who ever did think there was anything ‘fluffy’ about it.

The last government was praised for establishing a CSR unit in what was then the DTI (back in the late 1990s – remember the last century? – when Tony Blair was prime minister). It arguably led the way in the rest of Europe on what governments can do to encourage or enforce responsible business practices. That said, it went through CSR ministers like hot dinners, with only Stephen Timms standing out for his focus and understanding.

Credit where it’s due, the current government has some of the right pieces in place. It has a formal policy to make companies more accountable to their shareholders and the public. To achieve this, company reporting rules are being changed, boards encouraged to be more representative of women, shareholders given more power to link pay to performance, and employee ownership made more accessible.

And the consultation is covering important topics in the CSR area: consumers, supply chain, human rights, small businesses, reporting and metrics. Responses will contribute to a new “framework for action on corporate responsibility”, the government says, to be published by the end of 2013…. which raises a question about action by whom?

The Government’s definition of CSR is still about voluntary actions over and above statutory requirements, a minimalist approach that even the slow-coach Brussels Commission abandoned in 2011.

That limited thinking, coupled with the current fixation about de-regulation – rather than smart regulation to set standards, drive innovation and fuel sustainable growth – raises doubts in my mind at least about how much ‘action’ will be involved.

If I’m right that those working in the field, both in leading companies and supporting agencies, are streets ahead of politicians’ thinking, let’s use this consultation to bring government policy into the 21st century.

What a muddle we are getting into about corporate tax!

Apple CEO, Tim Smith, tells the US Congress that tax rates are too high, implying he won’t bring Apple’s cash mountain back home unless they cut the charge substantially. Congress counters by alleging Apple has created “ghost companies” not taxed under any jurisdiction.

Also in the spotlight is Google’s chairman, Eric Schmidt, who describes the international tax structure as “irrational”, although then defends the company as simply and strictly following those (presumably inadequate) rules rather than exercising any judgement.

Meanwhile even responsibility poster child, Marks & Spencer, is criticised – unfairly, in my humble opinion – for how it accounts for online sales in continental Europe.

It seems tax is proving to be taxing after all. Certainly both politicians and companies are taking chunks out of each other, generating more heat than light. The truth is that it rather suits both sides to blame the other, rather than sit down and begin the difficult job of finding common ground.

What should that common ground look like?

First, tax is about rules. Governments set them and companies must follow them. They need to be clear and simple. Second, the key rule is for tax to be levied on value creation, in the jurisdiction where it is created. Third, in a global and increasingly online economy, definitions of value creation need updating and tightening – companies should accept that and stop seeking to defend themselves behind rules no longer acceptable to many in society.

Fourth, both governments and companies must be open about how much tax they levy / pay respectively, down to country level. And fifth, in seeking to follow the rules, interpretation and intent matter crucially – so companies need to be clear what underlying principles define their behaviour on tax.

Two years ago I helped devise a ‘tax map’ to assist companies through this contested territory. It’s still available here. Our clients tell us they find it helpful. It doesn’t absolve them from scrutiny or occasional criticism. But it does allow them to give a coherent account of themselves. And for them at least, it turns out tax doesn’t need to be taxing after all.

The CSR industry is to blame for lax standards and weak enforcement, ultimately leading to horrifying factory deaths, say American unions.

News of the terrible tragedy in Bangladesh – in which hundreds of factory workers were crushed to death in a collapsed building – reached me last week just as I was reading a report by the American labour unions on the failings of voluntary certification. With the death toll in this disaster now expected to exceed 1000, this report cited the factory fire in Karachi, Pakistan in September 2012 in which nearly 300 were killed.

The AFL-CIO concludes that voluntary certification standards simply aren’t working. They go further and say that the whole ‘CSR model’ is failing. Indeed they draw an “eerie parallel” with the failings in financial self-regulation that contributed to the banking crash in 2007. Privatized regulation, they call it. (You can read more here.)

That said, poor construction standards, woefully inadequate health & safety protection and limited scrutiny are not limited to Bangladesh or Pakistan. Two weeks earlier, a fertiliser factory near Waco, Texas exploded with spectacular ferocity, destroying a whole residential neighbourhood and killing 14.

So it’s certainly not just fashion – very much the theme of our round-up this month – where questions arise about who sets the rules and who polices them – and who pays the price for failures.

The trouble is, I don’t think the AFL-CIO’s prescription is the whole answer, either. They call for governments to set tough laws and enforce ILO norms. They want workers to have effective rights to freedom of association. They say the ‘CSR industry’ works for management and can undermine legal enforcement and workers’ rights.

Surely it’s a case of both/and, not either/or. In addition to governments enforcing the letter of the law, we need genuine commitment from factory owners to go beyond mere compliance; customers in the extended supply chain to accept that tick-box certification is never enough; and ultimately western consumers to ask the right questions.

If so, then globalisation leads to adoption of the best international standards, not a race to the bottom. And in fairness to AFL-CIO they also call for reforms to voluntary social auditing, with global brands making big long term commitments…. Sounds like a job for the growing phenomenon of corporate sustainability ‘plans’. The many victims of current failings deserve nothing less.

Is the circular economy just another fancy concept, so beloved of sustainability professionals, or a practical way forward for politicians and business people alike?

Writing here last month I previewed the book I’ve been working on recently. Published on March 15 by Biteback, The Green Book addresses a narrow audience – public policy makers with a liberal ideological outlook, whether in or outside the Liberal Democrats – but it asks a big question, one that affects us all: what does the economy and society look like if we are to move successfully to a low carbon world?

A lot of the answers come back to issues addressed in the ‘circular economy’ concept: simply put, doing more with less, whether resources, energy, waste or overall usage. Arguably there’s nothing new in this. Walter Stahel is credited with coining the phrase ‘cradle to cradle’ back in the 1970s. More recently the Ellen MacArthur Foundation has been promoting the concept – supported by companies such Kingfisher, especially its subsidiary, the retailer B&Q, which is adopting a Net Positive strategy.

Politicians too have been picking up on it, and not just in the LibDems. In March Labour front bench spokesman Gavin Shuker called for government action to boost investor confidence in the transition to a circular economy. In the coalition government, Defra and BIS are supporting a Green Alliance circular economy taskforce involving companies like BASF, Boots, Interface, Unilever and Veolia.

The challenge facing everyone – companies with goods to sell as much as political parties with votes to win – is how to make such a big transition through a series of gradual steps. Moving to a circular economy, based on low carbon energy and zero waste production and consumption cycles, is certainly not easy.

As I said last month, our book advocates an expanded role for the Green Investment Bank, to lead a programme of public infrastructure investment. It says citizens need to live more sustainable lifestyles, helped to make the right choices by much tougher energy efficiency standards. Governments have a key role by regulating in ways that help business to make the investments needed for their long term prosperity.

Overwhelmingly clear from our research is that business needs government to act. Going round in circles, passing the buck back and forth, is simply no longer an option.

For more on The Green Book project, see here http://www.green-book.org.uk/