Government efforts to force organisations to disclose information beyond their financial results tend to be ill-fated.
In 2005, and after three years of wrangling, Chancellor of the Exchequer Gordon Brown conceded temporary defeat on this front by scrapping the Operating and Financial Review (OFR) - legislation that would have made it mandatory for all publicly listed companies to report on the social and environmental strategies relevant to their business.
But the Government has not given up. As the dust settles around OFR, its replacement, the Companies Act, is currently trundling through Parliament (see 'What is the companies act?', below).
This legislative behemoth, which has already chalked up 1,962 amendments - tabled at 13 Parliamentary Committee sittings - could have a significant impact on how PROs approach CSR. Its main purpose is to make all companies duty-bound to report more fully on their corporate and social behaviour. This includes a new requirement for companies to disclose more details about their supplier relationships - for instance, whether third parties abide by animal welfare rules. Although the full act is not due to be made law until next year, this particular requirement was fast-tracked and made effective from January this year - much to the protestation of groups such as the CBI, which claims it ‘strait-jackets directors in how they spell out risks to business'.
Also included in the act is an obligation to produce an annual business review, designed to allow shareholders to better assess CEOs' performance. The review should, says legislators, extend to employee, social, community and environmental matters. Most importantly it should be quantified using key performance indicators (KPIs) rather than woolly and unspecific generalisations.
Top of the agenda
So, what does all this mean for the communicators of CSR programmes? Tony Hoskins, chief executive of CSR consultancy The Virtuous Circle, says the act should strengthen the trend among listed companies to develop robust CSR programmes as a ‘licence to operate'.
He adds that in theory, the act should change business leaders' attitudes to CSR - as the figureheads of their company programmes, for which they are personally responsible, the issue of CSR will have a greater priority within organisations. However, he also predicts the act could turn out to be counter-intuitive, and reduce the quality of CSR reporting.
‘My concern is that the requirement for selected CSR data to be shifted into the annual report will cause PROs to question the role of the stand-alone CSR report, which many firms currently produce as a matter of course,' says Hoskins. ‘If there is a sizeable element in the annual report covering non-financial narrative and KPIs, what is the benefit of another document, covering the same ground?'
Hoskins says the major impact for PR practitioners will be the production of CSR comms targeted at specific groups, rather than trying to produce a single document for all stakeholders (for views on this, see below). He adds: ‘The change means PR people will need to be able to produce documents designed specifically for different stakeholder categories, focusing on their areas.'
Alliance Boots group head of CSR Richard Ellis says: ‘The Companies Act in its latest guise has definitely widened the scope of what companies must report on.' Contrary to Hoskins though, he adds that PROs need not fear the developments. ‘When you think about it, it sort of makes sense. A company like ours can't cover all of its CSR activity in an annual report. It makes a lot more sense to have a separate CSR report where all the issues can be dealt with in more depth.'
Ellis believes companies must face up to the fact that they are being put under greater scrutiny. He says it is positive that PR professionals will no longer be able to conceal information in relation to CSR: ‘The inclusion of KPIs is important because people understand that CSR needs to be measurable. It will no longer be good enough for PROs to say "we want to reduce our carbon footprint". This act should force PR practitioners into being more honest - they should set goals and in the next document report on progress against those objectives.'
Some PR professionals are ahead of the legislation. Mining group Rio Tinto, for example, is preparing its 11th sustainable development report. These reports usually run to more than 40 pages, but this year Rio Tinto will be producing a separate two to three-page factsheet. It will contain CSR KPIs aimed at analysts, who are showing an increasing appetite for non-financial data when assessing companies' performance.
‘One of the trends we are seeing is that further differentiation is necessary in our CSR reporting,' says Rio Tinto principal adviser, sustainable development, Michael Tost. ‘The different stakeholder groups clearly need different levels of information.'
How much to report?
Rio Tinto's annual CSR report is only the tip of the iceberg. Last year its CSR website, packed with graphs and tables, swelled to a hefty 800 pages.
Tost has conducted a review into how this information is used. Feedback reveals that shareholders feel overwhelmed. As a result, the decision has been taken to cut the site back to 100-150 pages this year.
Every year the number of issues that can be shoehorned into the CSR category expands. Yet the act sets PROs the challenge of making sustainability reporting more focused and better linked to company strategy. ‘One of the big issues in CSR reporting circles is "materiality",' says BT CSR communications manager Emma Williams. ‘How material is what we are telling people? We went through a "materiality process" last year when we spoke to employees, shareholders and opinion leaders - and asked what they would like us to tell them. We are realists. When you get a 200-page document through your door, you're not going to read every page.'
The result was a punchy 18-page document, Changing World: Sustained Values, and a new website, developed to be far more interactive that its previous incarnation. ‘By overwhelming people it becomes misinformation,' says
Other additions to the Companies Act are provisions that encourage companies to communicate with their shareholders electronically. The basic premise is that, subject to shareholder approval, companies should be able to default to electronic communication instead of paper-based comms. These aspects of the act were also fast-tracked by the Government and came into effect in January. Arguments from groups keen to see companies made more accountable, such as Corporate Watch, criticised this addition. They argued that giving corporations the option to send reports over email would result in fewer stakeholders actually reading that information because of the low success rate of email marketing. They added that at least when reports are physically posted, the company information is ‘out there'.
Ellis says Alliance Boots prints fewer than 2,000 copies of its CSR report and has considered switching to electronic-only publication, but has not done so because of high demand for the print version. Nevertheless, the shift to e-comms is quickening, with some commentators seeing it as a positive development.
‘Companies still have to inform shareholders that new information has been posted on the website,' says Richard Carpenter, development director at CSR consultancy Radley Yeldar. ‘They can do this via a valid address - this might be an email address but, in the vast majority of cases, is likely to be a postal address. That means sending a letter, postcard or other printed material to advise that the new information is available online. Some companies are using this opportunity to send out a super-summary of important information.'
Hoskins claims as few as one in ten shareholders requests hard-copy annual reports. So, how can PROs make sure their CSR websites are accessed?
Hoskins says websites will need to be more policy-rich, enabling stakeholders to answer most of their CSR questions. The CSR element of the annual report will be featured within the website, together with stakeholder category-specific information. ‘Clearly as a result of the move away from hard copy, there will be significant cost savings - and probably considerable environmental savings as well,' he says.
Accenture UK head of corporate citizenship, Isabel Naidoo, says: ‘Our preferred medium is electronic. But companies can flag up specific reports that can be made available in paper-based media.'
‘For me, the "t" in trust stands for transparency,' says Edelman London CEO Stuart Smith. ‘Organisations that want to build trust with consumers need to be seen to be transparent.' Which, in short, is a prime aim of the new Companies Act.
WHAT IS THE COMPANIES ACT?
The Companies Act 2006 received Royal Assent last November and has the dubious distinction of being the largest piece of legislation ever passed in the UK. It updates company law and touches on a number of areas, including the reporting of CSR information.
Listed companies will be obliged to include in their annual report a Business Review that covers company performance in new areas. These are ‘to the extent necessary for an understanding of the development, performance or position of the company’s business’, and must include information about environmental matters, employees and social and community issues.
The Business Review will have to include key performance indicators and comment on the underlying corporate policies relating to non-financial areas. It will also comment on the effectiveness of these policies.
An eleventh-hour amendment in autumn 2006 caused controversy – the provision that listed companies will also be required to include in their Business Review information on contractual and other relationships essential to the business. To allay fears that this would force companies to reveal sensitive commercial information, DTI minister Lord Sainsbury made a statement in the House of Lords in November, in which he clarified that directors are only required to include information to the extent necessary for an understanding of the development, performance or position of their company’s business. The act does not therefore force them to list their suppliers, but it still specifies that vital business partnerships should be disclosed in the interest of greater transparency.
Certain elements of the Companies Act were fast-tracked and came into force on 20 January this year. These include Electronic Shareholder Communications provisions that switch the default from print to electronic information delivery.
A detailed timetable relating to implementation of the rest of the act is expected from the Department for Trade and Industry shortly, but all of its provisions are anticipated to be in force by October 2008.
MARKS & SPENCER
On 15 January, with CEO Stuart Rose involved directly, Marks & Spencer launched Plan A – so-called because ‘there is no Plan B’. This £200m CSR programme will have an impact on every aspect of the retailer’s operations over the next five years.
Among the commitments in a 100-point plan is the pledge that by 2012 M&S will: become carbon-neutral; send no waste to landfill; extend sustainable sourcing; set new ethical trading standards; and help its employees live a healthier lifestyle.
M&S head of corporate social responsibility Mike Barry says: ‘This year we focused on the meat of what we were communicating, and when people look at the detail they see it’s a big commitment.’
High-profile environmentalist Jonathon Porritt, founder director of Forum for the Future, advised on M&S’s CSR programme, which was given additional credibility by the backing of Greenpeace and WWF. Although the scale of the initiative caught many by surprise, one reason why it was so well received is that M&S has painstakingly built up its CSR credentials.
Six years ago, M&S began to explore whether its activities were in line with ‘societal expectations’. After one year recording feedback from shareholders, staff and customers, it found it had become ‘decoupled’ from public mood.
New CSR policies were put in place, exemplified by a five-year partnership with Breakthrough Breast Cancer, the responsible sourcing of fish, and being the first major UK retailer to sell clothing made from Fairtrade-certified cotton.
Around 18 months ago, M&S began explaining its efforts to customers, most prominently through its Look Behind the Label ad campaign.
The Agency View
Gavin Grant (above), Burson-Marsteller UK chairman: ‘In itself, the act won’t affect significant change, but more reflects a change in the public mood. The public are cynical of the information they receive from government, and are more willing to believe pressure groups and independent commentators.
‘Much of the best information on CSR is electronic, for instance reports are being updated in real time, creating a dynamic dialogue. There is an increasing desire to look behind the label and to third parties as reference points, particularly web sources such as blogs. Companies need to engage in dialogue in a more meaningful way.
‘There is an increasing public appetite for information about how a company is behaving and its impact on the society in which it operates. There are two principal factors driving this: the opening up of a global marketplace – people are hearing what is happening in countries such as China and India; and the explosion of information through the web.’
Solitaire Townsend (above), Futerra MD: ‘Hardworking CSR information is that which is dug up out of the CSR report, with the esoteric language brushed off and then communicated to customers and shareholders with messages that actually reach them.
‘All indicators point towards far more online reporting of financial and non-financial information. The challenge for PR remains the same either way. CSR gives a company personality, passion and the potential for new stakeholder relationships, so our job is to translate and utilise that fantastic resource in appropriate ways.‘You may have a huge reservoir of CSR information that is of interest only to the “CSR geeks”, but any company that isn’t considering the PR implication of increased disclosure needs to get a move on. Of course, the best and easiest form of crisis management is prevention – dealing with the risk issues internally through operational changes and ethical supply initiatives is healthier than planning your defence strategy.’
The Client View
Simon Henderson, Centrica director of corporate reputation: ‘Yes, the act will change things – it will help further integrate relevant CSR material with financial KPIs and strategy communication. We believe it will encourage more balanced and robust reporting for shareholders and wider stakeholders. It may also reduce CSR content that is not business-critical – encouraging sharper communications.
‘There will be opportunities for more flexible communications to cover different audiences. Through direct communications, 1.5 million British Gas customers have completed a home energy audit as part of a wider campaign on climate change/energy efficiency. Centrica has also presented its approach to key corporate responsibility issues to analysts – examples of how it is using “big” and “small” communications.
‘We are working closely with suppliers to monitor supply-chain issues, but equally suppliers have expectations of us – it’s a two-way process.’
Malcolm Padley (above), Rentokil Initial head of corporate communications: ‘The act is a positive move. It means more information is to be made available with greater use of KPIs and introduces a better definition for the role of directors.
‘It should raise the overall level of reporting across UK corporates. Rentokil Initial has distributed each CSR review in electronic format only, and the level of usage has increased steadily over the past five years.
Personally I would go further and stop all formal CSR reporting on paper. Over the next three years there will be much greater use of video within CSR reporting online. Why just write about it, when videos can take the interested party to the scene?
‘Broadband should be utilised to enhance communication. Show people the new health and safety policies in action, show the new learning and development teams in place, show the results of R&D product stewardship programmes...’