CorpComms Magazine

Corporate responsibility is odd. It is ill defined, frequently misunderstood and yet hard to ignore. Most board directors know it has some relevance; many are not entirely sure as to whom it has relevance or how it should be approached. Some wish, frankly, that it did not exist.

Increasingly, however, the real sceptics are in the minority. But, even if the vast majority of companies sense that corporate responsibility matters to a wide variety of stakeholders, they are less certain about how to communicate their efforts.

The Companies Act of 2006 states that all but the very smallest of companies must include a business review in their directors' report. Quoted companies must make sure this review includes information on environmental issues, employees, social and community issues. The review must also include key performance indicators relating to the environment and employees 'where appropriate'.

So there is some legislation in place. But the devil is in the detail and the detail is in short supply.

'We are seeing an increasing amount of companies jumping on the 'ethical bandwagon' with all singing, all dancing corporate social responsibility reports, or, contrary to this, reporting the very bare minimum within their annual accounts,' says Mark Way, partner at the Madano Partnership.

'Critics suggest that better governmental and international regulation and enforcement are necessary to ensure that companies behave in a socially responsible manner. Greater regulation is therefore also required within the reporting of CSR.'

In some respects, however, greater regulation may be counter-productive. UK authorities traditionally prefer a principles-based approach to corporate governance, believing that this encourages more thought and less box-ticking. For many involved in advising companies on corporate responsibility reporting, this kind of mentality is already too prevalent.

'Corporate responsibility reporting is still a massive me-too,' says Stuart Anderson, a director at 85Four. 'Most companies look at themselves from the inside out rather than the outside in. They think about how they want to present themselves, instead of thinking about what their stakeholders might want to find out.'

Mark Goyder, founder and director of Tomorrow's Company, echoes this view.

'In many cases, you get the impression that the CSR report has been written by a shiny young professional who has spent more time thinking about what is expected than what is relevant to that particular company,' he says.

This is not entirely surprising, given the plethora of possible issues that can be covered in a corporate responsibility report and the wide range of stakeholders who may be interested in reading it.

'The corporate responsibility report is one of the most holistic communications programmes that a company undertakes. It needs to have traction on so many levels both internal and external,' says Lisa Attenborough, group head of communications at Mondi.

'Our own people are a key target but, aside from them, the primary audiences for the report are specialist - NGOs, academics and investors. The demands of these audiences are principally data-centric, in part because they incorporate the data into their own often complex models. But the report must be readable. It will inevitably be widely read and without supporting narrative, data on its own is inadequate.'

Taking it seriously

Mondi, a paper and packaging group that demerged from mining company Anglo-American just two years ago, has thought a lot about corporate responsibility partly because it has had to. The very nature of its business - working closely with local communities across the world and chopping down forests to make paper - forces the company to take corporate responsibility seriously and to think carefully about how to communicate its efforts.

The company worked with Anderson at 85Four and decided to disseminate information using three different avenues. Some mention is made of its approach to corporate responsibility in the annual report; there is a more lengthy narrative in a separate corporate responsibility report; finally, detailed analysis and discourse is available on the website, where it can be regularly updated.

'We had to cover off all our stakeholders' requests and we discovered that they really wanted up-to-date information,' says Attenborough.

Mondi approached the situation almost scientifically. Many do not. Analysis carried out by communications agency Radley Yeldar showed that, while 75 per cent of FTSE 100 companies produce a separate corporate responsibility report, only 19 per cent of FTSE 250 companies follow suit. Among the 350 largest private companies in Britain, only seven per cent produce a corporate responsibility report.

'For many people, corporate responsibility is still a compliance document. They don't see the value of it. Clearly, this is particularly the case among privately-owned companies. But they have stakeholders too,' says Stine Jensen, senior corporate responsibility consultant at Radley Yeldar.

Research conducted by marketing and communications agency Black Sun revealed that even though more companies are thinking about corporate responsibility, many are not communicating their efforts effectively.

'We spoke to 40 leading investors on the buy-side and the sell-side. When we asked them if they found non-financial KPIs useful, 55 per cent said yes. When we asked them if they valued companies' CSR disclosure, only 32 per cent said they did. Most felt it was not integral to companies' performance. This could be seen as a challenge to companies to communicate better,' says Bronwyn Millar, client services director at Black Sun.

Ineffective communication is particularly germane as companies are taking steps internally to move corporate responsibility up their agenda. Two years ago, 34 per cent of companies had a board level commitment to CSR; now it is 45 per cent - still materially less than half.

Radley Yeldar's analysis looked specifically at how good companies are at communicating their corporate responsibility efforts - not the programmes themselves but the communication of them. Starting with the FTSE 350 and the 350 largest private UK companies, Radley Yeldar whittled down the list to 113 companies, representing every sector of British industry.

Assigning criteria

The firm than analysed these companies' corporate responsibility reports according to ten criteria, six relating to content and four relating to communication. The first was corporate responsibility and business strategy - does the report explain what the company's business strategy is and how it fits with the corporate responsibility strategy?

The second was materiality - is the company reporting on relevant issues? 'A law firm for example, may talk about how it is making sure the lights are turned off at night but stakeholders may be more interested in who its clients are and whether they are bona fide,' says Jensen.

Transparency was also deemed important - whether readers can understand the report and any KPIs mentioned in it. Forward-looking information explores whether a company explains what the future might look like and how it intends to deal with the risks and opportunities that lie ahead.

Stakeholder engagement assessed whether a company listened to or was influenced by its stakeholders; accountability and implementation checks whether a company is taking corporate responsibility seriously and if it explains how corporate responsibility is managed within the business.

On the communication front, Radley Yeldar looked at whether the reports had a coherent message, whether they were easy to navigate, whether they were well designed and whether they were structured in a logical and accessible way.

'Lots of companies just look at the criteria of Business in the Community - community, employees, marketplace and workplace - to help them frame their reports. This may be helpfully internally but it may not be that relevant to external audiences,' says Jensen.

Across the communications industry, relevance and accountability stand out as key issues. 'There is no one size fits all. It depends on the industry you are in. You can't give long boring commentary. You have to look at how people are going to read it and use it,' says Anderson.

'You have to think first of all where your success comes from and who your key relationships are. You must also be honest about the issues you face. If you work in a polluting industry, for example, there is no point glossing over it. Your stakeholders won't thank you. They want candour and conviction,' says Goyder.

'What you include has to be material to your business. A breakdown of male and female staff may be an interesting fact, for example, but it may be less relevant than staff turnover, female promotion or ethnic diversity,' says Dick Newby, head of corporate responsibility at Financial Dynamics.

Community involvement is another area which companies have often got wrong. 'In the past, this tended to depend heavily on the prejudices of the board. But it should be relevant to the business,' says Newby.

Relevance matters

Financial Dynamics worked with Avis, the car rental company, on this area. 'The company decided to make vehicles available for free to certain charities and it also became involved in local environmental projects. These went with the grain of the business,' Newby explains.

Tomorrow's Company believes businesses gain respect from stakeholders if they set out what they intend to do and then report on their progress. 'Reporting on performance provides verification of whether or not the company has achieved what it set out to do. This allows it to understand whether or not it has correctly identified its key relationships and success model, and to change these as necessary. This allows it to define how to measure its success model, so it can be communicated,' says Goyder.

'Many companies find non-financial reporting difficult - because it forces them to be explicit about the success they seek and what drives it.'

The key question for many companies - and their investors - is whether corporate responsibility has any bearing on financial performance.

'The practice of CSR is subject to much debate and criticism. Proponents argue that there is a strong business case for CSR, in that corporations benefit in multiple ways by operating with a strategy broader and longer than their own immediate, short-term profits. Critics argue that CSR distracts from the fundamental economic role of businesses and that it is nothing more than superficial window-dressing,' says Madano's Way.

This is changing however. The Internet means that a local disaster in a faraway place - bleach leaking into a river in South America or unkind working practices in China - can quickly reach a worldwide audience, affecting customer opinion and customer buying choices. Conversely, Marks & Spencer's Plan A won plaudits among consumers as it showed the company was taking climate change seriously and impressed investors, who saw the project as combining corporate responsibility with cost-cutting.

'M&S and Walmart have both shown that if you take the lead in this area and communicate well, you see benefits to your business and your brand,' says Newby. 'There is evidence too that graduates are influenced by companies' corporate responsibility reporting. A big international bank we worked with had its online pages tracked and found those most accessed by graduates were the corporate responsibility pages - so even when they cut budgets in other areas, they kept the corporate responsibility budget.'

Clear and concise

Some institutional investors remain sceptical about the financial value of CSR but there is a growing conviction that it matters - which means they want to know what their companies are doing about it in clear, concise, measurable terms. Ethical investors have always felt this way but corporate responsibility has become much more mainstream.

The Association of British Insurers offers guidelines to investors to monitor companies' corporate responsibility credentials. 'Our guidelines suggest that companies should provide KPIs against which investors can measure corporate responsibility performance. The whole social responsibility investing area is important to an increasing number of investors who want to gain a longer-term picture of the companies in which they are investing,' says Andrew Ninian, corporate governance analyst at the ABI.

For those who believe in corporate responsibility, companies are moving in the right direction, albeit relatively slowly. Communication is also making progress but it is slower still.

'A good corporate responsibility report identifies the issues affecting a company, explains how it is going to address those issues and provides KPIs so stakeholders can see how it is performing against those issues. Around 75 per cent of companies talk about their performance but only half outline the issues they need to address,' says Millar.

'But these reports are becoming more interesting to institutional investors as they often see non-financial indicators as a lead indicator of financial performance.'

Corporate responsibility covers an exceptionally wide range of topics - from saving electricity in the London office to providing healthcare in central Africa. Reporting on it is a challenge therefore. What do you say? Who are you addressing? How do you make it interesting, relevant and credible? Most consultants believe the answer lies in the very heart of the body corporate - the report has to reflect what the company is and the thoughts and concerns of its leaders. It has to have integrity. 

Top ten companies - the best CR reports

• BAT - CR and business strategy, Forward-looking information 
• Cadbury - Audience segmentation, CR and business strategy, messaging
• Carillion - CR and business process , implementation, design and appeal
• Centrica - Transparency, CR and business strategy
• HSBC Holdings - CR and business strategy, stakeholder engagement, accountability and implementation
• Lonmin - Stakeholder engagement, accountability and implementation
• Royal Dutch Shell - Navigation, CR and business strategy, stakeholder relations
• Tesco - Structure, accountability and implementation, materiality
• Vodafone Group - Forward-looking information, CR and business strategy, messaging
• Xstrata - Forward-looking information, strategic context, disaggregate performance data

Source Radley Yeldar

Top CR reports by sector

• Basic materials - Anglo America, Lonmin, Xstrata
• Consumer Goods - British American Tobacco, Cadbury, SAB Miller
• Financials - Friends Provident, HSBC Holdings, Royal Bank of Scotland
• Healthcare - GlaxoSmithKline
• Industrials - BAE Systems, Carillion
• Media - Guardian Media Group, ITV, Reed Elsevier
• Oil and Gas - BG Group, Cairn Energy, Royal Dutch Shell
• Real Estate and  Home Construction - The Berkeley Group Holdings, Hammerson
• Retail - Sainsbury (J), Marks & Spencer Group, Tesco
• Support Services - Associated British Ports, Experian Group, Rexam
• Telecommunication and Technology - BT Group, Vodafone Group
• Travel and Leisure - FirstGroup, Intercontinental Hotels Groups, Ladbrokes
• Utilities - Centrica, Thames Water, United Utilities Group

Source Radley Yeldar

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