REPUTATION MANAGEMENT: An ethical stake - Socially responsible policies are now setting business agendas

Last July, the Government introduced the Statement of Investment

Principles (SIPs), which required institutional investors to disclose

the social, environmental and ethical polices of their occupational

pension funds.



The move was welcomed by stakeholders increasingly interested in the

ethical balance sheet of a company.



'There has been a change in the model of business success,' says John

Drummond, a Corporate Culture director: 'Instead of focusing on

short-term financial performance, there is a recognition that the value

of a business is linked to intangibles, such as customer loyalty,

company strategy, employee skills, and the management of risk and

reputation value.'



This view has been endorsed by the findings of several recent surveys.

According to a study of corporate social responsibility among opinion

leaders, conducted by Burson-Marsteller in partnership with the Prince

of Wales Business Forum, 42 per cent of those interviewed agreed

strongly that corporate reputation would affect share prices in the

future. In addition, 66 per cent agreed that corporate citizenship would

be of importance in the future.



Similarly, in a recent Social Investment Forum survey, Deloitte & Touche

found that just 14 per cent of companies did not take socially

responsible investment polices (SRI) into account, while a global

research project carried out by SWR Worldwide into corporate reputation,

found consumers would 'punish' their favourite brands for bad corporate

behaviour.



These finding are supported by Echo Research in a report entitled

'Giving Back: Corporate Social Responsibility 2000/01'. The

international communications research company found that in the future,

investors 'will look closely at the nature of the business they are -

through the injection of funding - helping to succeed.'



So all the evidence suggests that social and environmental

responsibility will indeed affect the bottom line. Companies are

realising that if they want to retain public confidence, they must

implement socially responsible policies. It is a view encouraged by the

Government, albeit on a voluntary basis. All major UK businesses are now

being asked to report on non-financial matters.



While there is no indication that non-financial reporting will become

mandatory, there are several compelling reasons why companies should put

the necessary steps in place now. Last November, the Company Law Review

produced its latest consultation report entitled 'Completing the

Framework'.



The report confirmed earlier proposals for an Operating and Financial

Review (OFR), which would go beyond financial performance and require

businesses to report on broader aspects of performance including 'wider

relationships, risks and opportunities and social and environmental

impacts.'



In December the Turnbull Commission report on corporate governance came

into effect. Listed companies must now comply with recommendations on

risk management areas such as health, safety and environment, and

reputation. The report was unequivocal: social and environmental factors

should be included in risk assessments along with conventional financial

threats.



'This will encourage fund managers to address the financial implications

of the social and environmental risks of a company,' says John Levick,

VLP managing director. 'It may mean that companies that do not take the

environment seriously will see their share price dive because dangerous

exposure to environmental risks will be seen by the City as evidence of

failure to manage risk in general.'



Nick Bent, manager of B-M's CSR unit, agrees. 'The Turnbull report means

that companies will have to take a broad, sophisticated approach to

risk, explicitly including environmental matters and threats to

reputation. Reputation is a key element of the intangible assets of a

company, and hence its value.'



Bent says the PR industry can help companies make their environmental

and social policies more accessible to investors and financial analysts:

'Some companies are finding their time is being consumed as they are

bombarded with questionnaires by investors and pension funds. Hopefully,

this should encourage companies to make the information publicly

available online, in a user-friendly format.'



Bent adds that PR can also help build the social and environmental

credentials of a company into the corporate brand.



Weber Shandwick chief executive of corporate, consumer and healthcare

Chris Genasi also believes the PR industry can help provide investors

with accessible and engaging information: 'Agencies can help clients

become aware of their responsibilities and of the issues and

opportunities involved. They can also provide broader advice on how to

communicate a company's achievements to all stakeholders.'



Company reports are the most obvious way in which PR agencies can

present information on a company's social and environmental credentials.

While more enlightened companies have been producing company reports for

years, ethical investment is still a relatively new phenomenon and most

companies will need to be guided through the appropriate channels of

communication and presentation of content. Furthermore, the introduction

of the SIPs means that today's company reports will have a sharper focus

in order to respond to the needs of the financial community.



John Orme, a Countrywide Porter Novelli director, warns that unless

social and environmental values are 'locked into the heart' of a

business, institutional investors will consign company reports to the

bin: 'The key word here is behaviour, not policy promises. By putting an

organisation's ethical and social behaviour in the context of its

commercial and business issues, stakeholder audiences can get a more

informed perspective.'



Mike Groves, partner at Great Circle, which specialises in social and

environmental reporting, says new standards are being set in reporting:

'The days of pretty pictures and 'greenwash' are over. Reporting and

disclosure is now a much more sophisticated affair.'



Drummond has set up a social and environmental reporting unit with

design agency Loines Furnival: 'The new unit will focus on all aspects

of corporate responsibility, including publications, the web and

preparations for the OFR for those companies who wish to be ahead of the

game.'



Clearly, the stakeholder audience is wider than just institutional

investors. While the list will vary from sector to sector, stakeholders

with an interest in the social and environmental policies of a company

include employees, the media, NGOs, investors, potential recruits

(especially graduates), politicians, the local community and

customers.



The challenge for PR is to demonstrate that a company's commitment to

social and environmental policies adds value, particularly to the

investment community and shareholders. Caring policies are all very

well, but unless they affect the bottom line, there is little incentive

to adopt them or flag them up.



It is here the skill of PR practitioners will be critical. Take the area

of staff retention. If there has been an increase as a result of a

benevolent employment policy, it would be the job of PR practitioners to

demonstrate that recruitment and training costs will be lower. A

progressive approach to social and environmental issues could save money

through reduced waste and energy use. Other areas PR practitioners could

flag up include attracting investors, clients or customers to a company

that has a better ethical and environmental record than its

competitors.



Bent says: 'Companies can be feted for having ethical credibility or

persecuted for a perceived lack of it. PR has a role to play in ensuring

that a company's ethical and environmental efforts are recognised to

ensure they reap the rewards of the benefits.'



But for PR practitioners to work to the best of their ability, there is

an obvious need for standardised and accurate information on the ethical

policies of companies.



At present, several standards exist based on a credible third-party

certification process, including the ISO 14001 environmental standard.

In addition, Project SIGMA, a sustainability management system standard,

is being developed by the British Standards Institution (BSI), Forum for

the Future and AccountAbility. Project SIGMA is being funded by the DTi

and will be supported by the DETR, DfEE and DFID.



Elsewhere, the Business in the Environment Index monitors and ranks

FTSE100, Business in the Community, and Business in the Environment

members on their environmental management systems, while the Dow Jones

Sustainability Index ranks companies on their environmental and social

performance.



Companies can also judge their own ethical policies. Morley Asset

Management has a matrix for judging sustainability, and it has recently

added a section on corporate governance policy.



NGOs can also act as unofficial watchdogs of corporate honesty. Friends

of the Earth regularly reveals inconsistencies between a company's

environmental policies, its pension investment criteria and trade

association policy positions.



Two new benchmarks will make life even easier for institutional

investors, as well as acting as a wake-up call for companies to get

their ethical and environmental houses in order. The Pensions Investment

Research Consultancy (PIRC) has just launched a SRI service which claims

to provide institutional investors with objective analysis and support

to pursue socially responsible investment policies.



According to the PIRC, institutional investors need to monitor how well

companies are managing their stakeholder relationships in addressing the

corporate responsibility agenda. The SRI Service provides the investor

with a range of news, briefings, seminars and company profiles to help

fill their knowledge gaps.



The service is based on a company's stakeholder relationships at a local

and international level. These are the environment, including corporate

policies; employment, including training programmes and equal

opportunities; human rights, including involvement with repressive

regimes; community policy, including charitable and political donations

plus corporate governance, including best practice compliance and

IR.



Perhaps the biggest boost to the issue of CSR will come this summer when

the FTSE launches the FTSE4Good indices. All licensing revenues from

FTSE4Good, which will set a global standard for socially responsible

investment, will be contributed to UNICEF.



Mark Makepeace FTSE chief executive officer says: 'With the increasing

globalisation of the investment community, FTSE4Good represents a

critical step forward by providing a consistent standard by which to

judge companies' socially responsible credentials.'



Using data provided by the Ethical Investment Research Service (EIRIS),

the FTSE4 Good committee will identify companies with the strongest

records of corporate social and environmental performance. They will be

assessed on criteria including the environment, human rights and social

issues and stakeholder relations. Grounds for exclusions are likely to

include the manufacture of tobacco products.



The standard for entry to the FTSE4Good indices will be consistent

across countries and sectors and will apply to the companies regard-less

of their size and financial performance.



There is little doubt that social responsibility is set to become part

of the corporate landscape. And as the custodians of reputation, PR

practitioners are uniquely placed to demonstrate how an ethical balance

sheet can add value.



As Groves says: 'The management of social and environmental issues are a

key facet of corporate reputation and reputation is tied up with the

value investors place on a company.'



FLEXING - SHAREHOLDER MUSCLE



Where once investors gave companies with questionable ethical and

environmental policies the cold shoulder, nowadays the same investors

are more likely to be attending their AGMs.



'It is the principle of positive engagement,' explains John Levick, VLP

managing director. 'There is a move afoot among institutions not to

exclude companies but rather to use the shareholding they have to effect

an improvement in a company's performance.'



It is a strategy deployed by NGOs, such as Friends of The Earth (FoE)

and Greenpeace. Greenpeace last year put forward a shareholder

resolution at BP's AGM to invest in renewable energy rather than carry

out exploration work in an Arctic wildlife reserve.



FoE acting projects and campaign director Duncan McClaren says: 'Trading

ethically used to be based on 'screening' or not investing in certain

companies. With a policy of engagement, companies will invest in a

company but use their influence to change management practices.'



Shareholder resolutions are put forward at AGMs when institutional

shareholders are present. It is the job of NGOs to persuade investors to

vote with them, though in reality investors generally vote with the

company. And often a company will prepare a sop in advance to take the

wind out of an NGO's resolution.



'There is often a lot of political horse trading,' confirms McClaren.

'We don't expect to win resolutions, but they can be a very effective

tool to draw the company's attention to a particular issue. And anything

that impacts on the reputation of a firm can devalue its shares.' FoE,

which has a pounds 30,000 share-holding in Balfour Beatty, is preparing

a shareholder resolution in conjunction with the Ilisu Dam Campaign to

put to the construction company's next AGM on 2 May.



Balfour Beatty would like to be granted an export credit guarantee from

the Government to support its bid to join a consortium of construction

companies working on the Ilisu Dam in Turkey.



According to McClaren, the controversy lies in the location of the dam.

It lies within the Kurdish part of Turkey and the Kurds view its

construction as part of a packet of repressive measures the Turks are

inflicting upon them.



McClaren believes that the dam could also pose a potential environmental

hazard and that once constructed, Turkey would be in a position to

control the downstream waterflow to countries such as Syria: 'It is an

international water course and we are saying the Turks should consult

with downstream states.'



FoE's resolution is that Balfour Beatty should adopt the principles laid

down by the World Commission on Dams. This, however, would be akin to

withdrawing from the entire project. Swedish construction company

Skanska recently adopted the World Commission's principles and as a

result has withdrawn from the construction coalition.



But victory is not judged by a company's adoption of a resolution.

Rather, the objective is to draw attention to ethical and environmental

concerns through flexing its shareholder muscle.



Have you registered with us yet?

Register now to enjoy more articles and free email bulletins

Register
Already registered?
Sign in

Would you like to post a comment?

Please Sign in or register.