The future of corporate social responsibility
by Henry J. Lindborg
In the quality world, some may have missed the demise of so-called corporate social responsibility (CSR), which came as a surprise because, until recently, it appeared quite robust.
Meant as a way to increase brand trust among consumers while boosting morale and engagement of employees, CSR was hailed as a no-brainer, but something went wrong.
Notice was given by Lord John Browne, former chief executive of BP, in his new book Connect: How Companies Succeed by Engaging Radically with Society.1 In it, Browne wrote, "Corporate Social Responsibility (CSR) has failed in its role as the system for handling external relationships because it is so disconnected from commercial activity and from the needs of real people. I believe CSR is dead."
In an interview with McKinsey & Co., a global consulting firm, Browne eulogized that CSR had been a "valiant attempt" at engaging with stakeholders, but after becoming "a little corrupted" and "isolated, separated from the business as a whole, [it] became a little bit less interesting to boards of directors, who really wanted to know where the money was being made."2
The late CSR, whose ancestors include a variety of social movements as well as the United Nation’s Global Compact, came to prominence among quality professionals through ISO 26000:2010—Guidance on Social Responsibility. Prior to this standard, its career had taken a number of turns: in the 1990s focusing on the environment and in the 2000s rebalancing social and environmental issues under the rubric of "sustainability."
After ISO 26000, organizations responded to crashes or scandals by touting their social responsibility through burgeoning numbers of "non-financial" reports, spurred and supported by the Global Reporting Initiative (GRI) and curated by CorporateRegister.com. According to a 2015 study by KPMG, more than 90% of the world’s largest organizations conducted corporate social responsibility reporting.3
However, these reports were flawed by an overemphasis on PR and a lack of hard evidence on effectiveness. Despite the sheer volume of reports, they failed to serve CSR’s reputation well. In the EU, where some organizations are required to conduct social responsibility reporting, the European Commission had to mandate more rigorously transparent and comparable documentation.
Though valiant, CSR was not without its detractors. In 1901, J. P. Morgan famously stated, "I owe the public nothing."
Variants of his sentiment continued to appear during debates throughout CSR’s lifetime regarding the standard’s role in forcing organizations to pit the interests of stockholders "who really wanted to know where the money was being made," against those of other stakeholders.4 This organizational split did lead, in part, to the isolation noted by Browne as a cause of death. According to KPMG, only 10% of survey respondents generated integrated financial and non-financial reports.
While CorporateRegister.com has collected almost 80,000 reports and sought to improve the quality of data being reported through stakeholder input, those samples remain problematic. The KPMG survey found that two-thirds of the largest organizations present third party assurance of CSR data, mainly through accounting firms.
However, reports vary significantly in the types of indicators, metrics and benchmarks being employed—even within the same industry. ISO 26000 alone could not fix these issues, as it is not a management system standard and is not appropriate for certification.
On the stockholder side, KPMG found that traditional annual reports also lack quality processes.5 Annual reports provide few key performance indicators aligned with value and fail to analyze risk adequately. Remarkably, 85% of organizations did not identify brand and reputation as key risks in annual reports.
In spite of all of this evidence, and of Lord Browne’s standing as a noted strategist and business leader, he may have exaggerated the report of CSR’s death.
History shows that brand and reputation risks can be high in any organization, and potential for risk is what has motivated many CSR initiatives. This correlation presents a good case for conducting integrated reporting within the framework of enterprise risk management (ERM). The quality foundation for engagement already has been built.
ISO 26000 and ISO 31000—Risk Management offer guidance tested by all stakeholders. Aligning the two standards with organizations’ quality management systems could present a
framework for integrating ethics, CSR and finance. ISO 26000 allows for the application of principles by any organization, and its use requires structured reflection on corporate purpose and responsibilities. ISO 31000 provides a method for analyzing and addressing risk in a way that can be applied to any level of an organization.
In some areas, integrated CSR reporting is alive and improving. Quality professionals experienced in the Malcolm Baldrige National Quality Award criteria and familiar with how concepts are applied in maturity models such as Philip Crosby’s, have much to contribute to making reports more usable and comparable—while remaining at the same unique expressions of corporate commitments.
Also, quality professionals are deeply familiar with customer-supplier commitment and compliance. CSR is now embedded in the practices of large corporations in supply chain management; for example, if you are a supplier to McDonald’s or Wal-Mart, social reporting is required.
Finding the value
Integrating responsibility into risk management could revitalize CSR and is in line with Browne’s thinking. As he stated, "If society’s against you, it will affect government, it will eat into your market. Our analysis shows that there’s probably about 30% of the value in any company at risk through these sorts of effects. That is an extraordinary amount of value. It needs to be protected."
- John Browne, Robin Nuttall and Tommy Stadlen, Connect: How Companies Succeed by Engaging Radically With Society, WH Allen, 2015.
- McKinsey & Co., "How Companies Succeed Through Radical Engagement," interview, http://tinyurl.com/jfu94am, February 2016.
- KPMG, "Currents of Change: The KPMG Survey of Corporate Responsibility Reporting 2015," http://tinyurl.com/hqyyqkq, 2015.
- Keller Fay Group, "Unpacking Corporate Purpose: A Report on the Beliefs of Executives, Investors and Scholars," http://tinyurl.com/qfpm6hr, May 2014.
- KPMG, The KPMG Survey of Business Reporting 2014, www.kpmg.com/betterbusinessreporting, 2014.
Henry J. Lindborg is executive director and CEO of the National Institute for Quality Improvement, which provides consulting in strategic planning, organizational development and assessment. He holds a doctorate from the University of Wisconsin-Madison and teaches in a leadership and quality graduate program. Lindborg is past chair of ASQ’s Education Division and of the Education Training Board.