Saturday, February 13, 2010

Corporations should take CSR seriously

Over the last three years there have been enormous shifts in the global economic landscape. These shifts have been underway for a long time, but they have become more obvious, and they have accelerated in an exponential manner.

Europe and the United States have increasingly used financial constructs to be able to report profit and growth. The balance sheet of the corporate world has been wrong in many cases because the law and regulations allowed the companies to ignore unfunded liabilities, and pretend they did not exist. A bankruptcy move an unreported liability from the company to the government ... and nobody squeals. The stockmarket goes up when companies fire workers and make more profit ... but the economy tanks ... and nobody squeals.

Meanwhile the BRIC countries ... Brazil, Russia, India and China have each emerged as economic power houses. People in the US brag that the US economy is still "n" times bigger than the Chinese economy ... but the US GDP is almost 70% consumer consumption and there is more than 17% that is healthcare. So it may be big but is it healthy. If real reality was used for the comparison then there should be a metric that recognises that a sneaker that is in the Chinese economic data at say $5 flows through the US economy as a $150 sneaker. Something is dreadfully wrong with the metric. The Chinese, the Indians and the Brazilians are building out new infrastructure and production facilities ... the US is sitting on a backlog of critical infrastructure repair and maintenance that needs doing, but won't get funded.

CSR is an idea that puts the corporate organization on the right side of history. The corporate business is where wealth is created ... but this wealth gain in the corporate world has been, in many cases, offset by a terrible destruction of socio-economic value. This has been very obvious with the housing bubble burst where years of banking and financial services profit was earned while setting the stage for the value of the housing market to crash. CSR should be seeing these things before they happen so that the business model of the organization gets changed.

CSR is not part of the first team. Too often CSR is part of a PR exercise, and not at all relevant in the big decisions of the enterprise. The CEO may talk about CSR, but how many actually support CSR and integrate these ideas into the business. Not many!

Community Analytics (CA) will help to make the CSR movement far more credible. CSR needs metrics that tell the story of the value impact of the corporate enterprise ... metrics that are as reliably produced as those that are subject to GAAP rules and are audited. This is what CA will do ... and as CA does this, it will be possible to compare how much the enterprise has increased the profit, and at the same time how much community value has been achieved ... or not. The profile of companies will change for the better.

Whether or not a corporate entity is transparent or not, whether the corporation publishes data or not, the CA initiative can observe how the entity behaves, and incorporate that into the structure and reporting for the community.

Thursday, March 27, 2008

CSR ... vitally important for society ... but not for traditional corporate stakeholders

Dear Colleagues

Corporate Social Responsibility (CSR) has become a fashionable buzzword ... but what is the role of CSR in the practical world of corporate decision making.

CSR has been structured to be a value to the traditional stakeholders in the corporation ... in other words a benefit should accrue from the application of CSR to: (1) stockholders; (2) management; (3) employees; (4) customers; and (5) suppliers.

A good business certainly should deliver benefit to these groups ... but what about impact on society as a whole? A really good business should be delivering benefit to society as a whole at the same time that it is delivering benefit to its traditional stakeholders ... in fact, in the long run, it is only business that delivers benefit to all stakeholders, including society at large, that will thrive and prosper.

Because societal value has been been missing from the EVA (economic value adding) formula that has become widely used in the corporate world ... and the number crunching optimizations favored by business schools ... society is now faced with a portfolio of business that has made massive amounts of nominal profit but has little intrinsic value, and generates little social benefit.

Arguably, it is even worse than this. In the banking and finance sector, much of the nominal profit that has been available for the corporate stakeholders represents value that has been extracted from society ... not at all a creation of wealth, but merely a transfer of wealth from one segment of society to another.

CSR needs to be strong enough to address these matters ... and for this there needs to be, not only an internal corporate initiative about CSR, but an external movement as well. Society needs meaningful CSR ... and for this there needs to be a framework that facilitates CSR and helps to hold corporate management responsible for it.

The Social Benefit Accountancy initiative of Tr-Ac-Net is moving in this direction. One of the goals of this initiative is to move beyond journalism as the reporting basis for CSR and have some quite broadly accepted principles that will guide the development of information about a corporate organizations social benefit footprint.

With Social Benefit Accountancy it should be possible to have a whole new additional dimension of value that gets taken into consideration by investors and decision makers.


Peter Burgess

Wednesday, February 27, 2008

Does the brand name mean anything any more?

Dear Colleagues

I did my professional training in accountancy with Cooper Brothers in the early 1960's. I was very proud of the training and the professionalism of Chartered Accountants. Around that time Cooper Brothers combined with Lybrand, Ross Bros. and Montgomery to form Coopers and Lybrand. Over the next 40 odd years there were more combinations and Coopers and Lybrand grew to become a huge international firm.

And then Coopers and Lybrand combined with Price Waterhouse to become and even bigger firm PriceWaterhouseCoopers.

I am an "alumnus" of this combination ... and was recently contacted by the PWC alumni organization and given some Internet access to information about the firm and the activities of the alumni. The first page of the website stated the following:
© 2006 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
The words that got my attention were "each of which is a separate and independent legal entity"

The PriceWaterhouseCoopers brand name is global ... but there is a disconnect. The brand name gives PWC a global upside while at the same time the leadership and the network carries nothing of the responsibility associated with professional performance.

Yes: the world has changed since the 1960s ... but the need for ethical behavior and for professional excellence has not. I understand the "need" for avoiding legal responsibility since the Anderson debacle, but this dis-association from the worldwide brand name seems disingenius.

My take from this little fact is that relying on brand name reputation is a risky business. Essentially you take your chances even when you are working with the apparently best name in the business.

Peter Burgess

Monday, February 25, 2008

The Benetton CSR Spin ... Shame on Them!

Dear Colleagues

One of the people in our network made the following observation:
I was walking on the Paris grand boulevards a few days ago when my attention was caught by giant posters displayed in Benetton's shop windows. The posters were shamelessly taking credit for their micro-credit action in Africa, with posters of beneficiaries etc. While I do not mind multinational companies doing some PR around their social action (like Danone with the Danone-Grameen project and Zizou for the celebrity angle), I couldn't help finding Benetton's approach crude and even disingenuous. ... SNIP SNIP ... this commercial exploitation of CSR should be denounced lest they drag down the whole concept of micro-credit ... SNIP SNIP ... The role of micro-credit is after all to alleviate poverty, NOT to sell more pullovers. This may only foster more cynicism among the wider public.

I could not agree more. CSR is a good thing, but it is open to all sorts of abuse. I would expect that there is more spin, if not downright abuse, of CSR than there is serious socio economic benefit. The problem is that nobody really knows. The metrics are not accessible.

In the case of Benetton I would like to see time series numbers for the following:
* Gross Sales
* Operating Profit
* Cost of CSR
* Cost of Advertising and Promotion

I would like to have the following numbers for the same time periods:
* Amount of Benetton's microcredit
* The amount of microcredit in Africa
* The amount of microcredit in the World

Everyone uses the little personal stories to market themselves. It is commonplace in the marketing of CSR in the corporate community, and it is also common in the fund raising area of the NGO community, and indeed, the UN organizations themselves. This a practice that has its roots in journalism ... and one day it would be good to see this replaced by reporting that has its roots in old fashioned accountancy where the numbers really do stand up and give a true and fair view of the situation.


Peter Burgess

Wednesday, February 6, 2008

CSR needs bringing to scale

Dear Colleagues

CSR is getting a reasonable amount of press coverage, but CSR hardly can be identified in the financial numbers of the corporate world.

If CSR has hardly any impact on corporate financial numbers, then CSR is likely to be doing little of impact in the world at large.

If CSR needs bringing to scale ... then what does that mean. It means that there will be an impact from CSR on the corporate financial statements, and there will be impact of CSR in the affected communities. The challenge is to make these moves substantial, and to make them positive so that there is a win-win for both the corporate enterprise and the community at large.

Simple and thoughtless accounting and business strategy will end up with zero sum at best, and perhaps something exponentially worse. But with thought, in fact it may be possible for the corporate world to use its capacity to do some things that would make a very big difference to the society we live in and the planet we live on.

It might be possible to do this using conventional CSR, but probably not. On the other hand, there is a way that the corporate world could mobilize its capacity by organizing an affiliated unit that operates as a social business to provide services at cost and measuring performance in terms of the social good that emerges rather than merely the profit that emerges. Clearly this needs to be done with understanding on the part of all the stakeholders, and it is likely that an enterprise of this type needs separate stockholders to finance it ... but the option should be created and offered as an alternative to the profit maximizing model that is the only choice at the moment.

These ideas originate with Dr. Muhammad Yunus, the creator of the Grameen Bank and its microfinance services. They have proved successful in the Grameen context ... the next step is to see how well the concepts can be applied in other settings.

Peter Burgess

Tuesday, December 25, 2007

Why Corporate Social Responsibility is Important

Dear Colleagues

Corporate Social Responsibility (CSR) is important because, in the long run, profits derive from the value adding of the organization ... much of which might be associated with the company's products and services ... but some is associated with the impact of the company on the society as a whole.

While the market economy, and particularly the capital markets have the appearance of being driven by profit, and expectation of profit ... there is an underlying assumption that the society as a whole has the strength and integrity to serve as a foundation for corporate economic activities. When society is dysfunctional ... profits are no longer assured.

At its core, a corporation succeeds because it has the capability of carrying out its business processes ... design, manufacturing, distribution, marketing, logistics, etc ... cost effectively. Good companies are efficient and use their resources well. But if, in the process of doing things efficiently, there is damage to society as a whole ... should this be ignored, or should it be taken into account.

While the "law" does not require the accounting to take into consideration issues like the impact on the "commons", there is more law now than in decades past about things like safety in the workplace, impact on the environment, and so on, but no movement yet for this to be driven by corporate leadership and by the leadership of the financial system.

This leadership is needed. The corporate organization has been a big part of the success of the industrial revolution ... and the industrial revolution has been a big part of the wealth creation of the last two centuries. But the corporate organization did not do it on its own ... it was made possible by wave after wave of discovery in science and wave after wave of technological application. Almost all the great leaps in global wealth were achieved because a need in society could be met more cost effectively by some new invention ... and these new inventions were deployed using the corporate form of organization.

Was this perfect? No ... and in fact there were many flaws in the system ... but, on balance, progress was made. And, over the years many of the flaws have been addressed ... but some have not. As old flaws were corrected ... some new flaws have appeared.

CSR is needed to help get the corporate flaws fixed, and especially those flaws that result in a damaging impact on society as a whole.

The corporate organization made trade possible with great trading and shipping companies. Transport of people and goods on land was facilitated by the great investments in railroads. More efficiency in transport was achieved with corporations that mass produced automobiles. Convenient energy came from corporations that produced electricity. Construction companies built houses, factories, roads and bridges. Companies profited and society benefitted. The balance between corporate profit and societal benefit has always been contentious ... but for most of two hundred years both were positive.

Some would argue that in recent years corporate profit has been masive at the same time that societal benefit has been negative ... this is the financial sector corporate business model, that is rather different from the industrial sector business model that gave two centuries of progress. With the 21st century version of globalization it seems that one society loses at the expense of another ... a formula for future conflict that would be damaging to all.

CSR is needed to put these things into perspective. CSR is VERY important.


Peter Burgess
The Tr-Ac-Net Organization

Saturday, December 22, 2007

Why Corporate Social Responsibility is fashionable

Corporate Social Responsibility (CSR) seems to be in fashion. Is this a fashion that is going to become a classic, or will it fade away rather quickly?

CSR should be an integral and important part of corporate governance, and should be integrated into the mainstream of the business. But CSR is usually something that has been clearly added as an afterthought, and hangs on the outside of the core corporate structure.

Because the lack of CSR can have serious public relations (PR) consequences, it is quite common to have senior executives linked to the CSR effort ... but whether this has any impact on the scale and value of CSR efforts is not at all clear.

In due course Tr-Ac-Net will get a body of information together about CSR activities, and will eventually be in a position to relate the cost of CSR activities with the revenues of the organization, and the profits of the organization. Compared to the main business of the corporate giants, the CSR component is tiny ... really tiny. In fact, sufficiently tiny in most corporate organizations to be embarrassing, if the data were widely known.

The good news is that the social value of CSR activities is often significant ... and there is the possibility that expanding corporate CSR could eventually increase stockholder value, rather than being a drag on earnings and therefore on stock prices.

Corporate CSR is fashionable because more and more of corporate leadership is hearing that there is good news associated with CSR, and it is good business to link to this. It will stay fashionable when corporate executives know that CSR is a parameter of corporate performance that is being measured.

Part of the Tr-Ac-Net mandate is to provide performance metrics that go beyond the traditional corporate financial statements and the information needed to satisfy GAAP. Information about CSR activities, including the corporate impact on society and the commons will go a long way towards improving corporate citizenship, and the world's quality of life.


Peter Burgess
The Tr-Ac-Net Organization