A Measure of Success – CSR Business Intelligence

It would seem that we have been over this a thousand times before… What gets measured gets managed. It was true when we invented TQM in the 80’ties and LEAN in the 90’ties and while we seem to forget about basic management skills when we adopt network organisation and self-empower our employees it is still true that if you can stick a number to your performance there is a much better chance that improvements follow close behind.

My good friend Michael Koploy have for a number of years been working with evaluation and documentation of CSR performance. As I he has realised that with CSR comes complexity on a scale that is mind-blowing. For TQM, LEAN and other quality management systems there were at least boundaries that was relatively narrow outlook defined by customers, suppliers, competitors and employees, but with CSR there are no scope.

So how do you work with CSR data, how do you get your hands on it and how can you present it in a way that gives meaning to decision makers and stakeholders. Michael has adopted an approach that might work and builds on some of the fundamentals of TQM and at the same time takes into account that the world (and organisations with it) is always changing. Build on three basic principles with data as “King”.

First – Automate and improve data collection to get a better picture of corporate sustainability;

Companies generate millions of data points every day and as time of progressed much of these systems have been integrated into various systems like SAP or other Business Intelligence (BI) structures. Finance, HR and operations have for a long time used these systems in order to improve their processes and it is high time that CSR professionals do the same.

Second – Use analytics applications to find trends and make informed decisions;

The graphic integration that comes with advanced BI systems can prove to be even more useful when it comes to sustainability performance. Often we see fragments of a total effort displayed in the CSR report or through corporate announcements and newsletters. But what we really need to specialised and specific information that is valuable to the individual stakeholder. For instance if I’m interested in anti-corruption issues I would like to be able to access the policies related to the issue but also audit reports and key performance indicators tracked in real time. What I do not need is a general understanding that this or that company is working actively to reduce corruption in its supply chain I want to know the “how”.

Third – Develop sustainability teams that are data-minded and accountable for business decisions.

The Crap-in-Crap-out principle is of cause also applicable when it comes t CSR Data gathering, reporting and presentation. So when data have to be managed it is done by people who know what they are doing and not by some random employee who have little or no knowledge about a given subject. A team approach works because it forces us to articulate our assumptions about how the world works and enables us to be challenged on our views. Within the field of CSR there are many opinions about what is the right thing to do and how its should be done, so instead of just having one person deciding a team of people agree and are accountable for the approach.

Data is not only king when it comes to CSR it is central, but not without the right people and approach to come with to terms with sometimes difficult to comprehend facts about the organisations that we work with. Data and data processing can unveil truths about an organisation which calls for hard decisions and sometimes for managers to change their perception of right and wrong. But without a common BI platform we will never get close to realising the knowledge that we can gain from systematic and comprehendible CSR data approach.

Vestas is moving dangerously close to the edge

The crisis in Vestas is now so deep that the group existing only because of their banks want the too. According to a local Danish newspaper Jyllandsposten has Vestas has signed an agreement with banks to ensure that the company has enough money to continue operations. Otherwise they would have to close down operation.

The information has been disclosed in an interim financial statement for the second quarter of 2012.Which follows several years of poor financial performance and inability to change its strategy when the financial crisis hit in 2008.

The situation is now that Vestas has been unable to live up to the loan agreements made with its bank connections a significant step down from just a few years ago when the company was one of the fastest growing companies in Denmark.

Danger in the horizon

“Despite this, financial covenants testing is affected by the disappointing results realised by Vestas in the second half year of 2011 and the first quarter of 2012, which mainly related to the cost overruns in relation to the introduction of new technology” says the statement from Vestas to add: “Vestas has therefore agreed with its lenders to defer the half-year 2012 testing of the financial covenants contained in Vestas’ banking facilities and the lenders have allowed drawings, which in the opinion of Vestas are sufficient for the continued operation of Vestas on usual terms since the company expects to test on normal terms in the future.

According to Frank Jensen from the Danish Stock Analysis information that Jyllandsposten talked to is;

“The fact that banks are easing the requirements shows that the Vestas simply can not live up to them. There is only one explanation, and it is that they do not get the money in the Treasury, as required,” said Frank Jensen epn.dk.

This should be seen in the light that Vestas lost 338 million. euro in the first quarter and during the first two quarters the total is now nearing a total of 633 million euros.

Deficit of despite good figures for renevue

Revenue increased to 1.6 million. Euro. and is increase from 931 million. euros from the same quarter last year. However, the increased revenue is not impressive in the light that it bottom line showed a deficit of 8 million. euros after tax, compared with a profit of 55 million. euro in the second quarter of 2011.

Vestas considers this to be a temporary issue and in the light of the company’s positive results in the second quarter of 2012 combined with the large backlog of firm and unconditional orders, Vestas expects to meet the financial covenants contained in its current banking facilities in the near-term future.

With this in mind it becomes increasingly difficult to believe that Vestas will be able to live up to its financial commitment even after massive layoffs and changes on board level.

CSR as Stakeholder engagement a short intro

Redesigned logo used from 2011-present.

Redesigned logo used from 2011-present. (Photo credit: Wikipedia)

Stakeholder engagement is central to the evolution of CSR. The debate is centred around: how or if stakeholders need to be managed? and if so, how or when you choose to communicate with them? (Reich, 1998, Vogel, 2005). For most companies a broad approach to stakeholder engagement introduces a high degree of complexity that most would rather do without, but there are ways of formulating and engaging in meaningful relationships that can create long lasting value for the company.

One way of engaging is to invite stakeholders to participate in the development of the business in key areas of mutual interest. Starbucks’ relationship with Conservation International to promote sustainable coffee production and fair-trade practices (Austin & Reavis, 2004) is one such example. For the NGO it gives needed exposure to the organisations key mission and for the company, in this case Starbucks, it gives positive exposure and a confirmation on the image as being committed to sustainability. In addition, it can create large saving for the company. E.g. the normal employee turnover rate is around 200% in retail while at Starbucks is it only 65%-70%. In monetary terms it costs the company 500$ to train a new recruit (Austin & Reavis, 2004:3), so huge savings can be made. While there is no direct link between the corporate sustainability and fair-trade practices and its ability to create a nourishing working environment, the active CSR strategy by Starbucks does differentiate the company from others and make it more attractive also to its employees.

Getting to the context of CSR – Letting mentally handicapped people contribute

I think that we are becoming to preoccupied with communicating about CSR, on the business case and on showing the value of CSR on the balance sheet, when it is really about business doing a difference in society. We think that when one lives in a welfare state like Denmark, where the government will tender to all your needs there wouldn’t be any need for locally context based CSR activities other than sponsoring the local football club. But the thing is that there are plenty of opportunities for companies to make a real difference to people who really appreciate the effort.

As one of the many activities I engage in is my work with the Danish association LEV. LEV is a private national association for retarded people, relatives and others that were formed in 1952. Basically covering handicapped people ranging from Asperger and ADHD to people with Downs and other relative heavy diagnosis. People, who can function in society, but need varying degrees of support and structure in order to do so.

One of the biggest issues that these handicapped people have is that they are being shoved away in state sponsored initiatives and offers, where they are isolated from the rest of society. One could call it that the “blanket of the welfare state” has covered them protecting people from harm, but making them unable to move. This is of cause done with the best of intentions shielding the weak in society from all the bad things that could happen (and maybe also shielding society from them). But an unfortunate side effect is that these people become isolated, their personal development stagnates and they feel that they are not offered the opportunity to contribute to society like everybody else.

However, I’m sure that there is room for one or two people in every workplace that is not exactly fitting into our perception of normality. I am also sure that many institutions have tasks that are waiting for employees, who will take pride in doing the tasks that we normally never get done, because they are routine and mundane. It may well be that an employee who is disabled does not have the same skills and resources as the rest of us, but they have something to contribute that we all can benefit from.

Some companies have already discovered that working in close corporation with local NGO like LEV on specific areas can actually make CSR very real to employees and customers alike. Even though they have not framed the initiatives as CSR in their own communication their activities are testimonials to some of the values that guide them.

To many companies CSR have become something that is detached from the day-to-day operations. Initiatives that are within communicated as CSR are more or less reduced to CO2 emissions, Codes of Conducts, Signing charters and different forms of philanthropy. But it does not have to be like that. CSR can actually be much more concrete, down to earth and close to the employees. By inviting a handicapped person into the organisation one gets a real idea about the values and ethical outlook of the company one is part of. The handicapped that are willing and able are more than happy to be invited into companies, where they can earn their own money and contribute on an equal basis with other employees.

I’m not saying that it is easy and it does require that the people who are involved also knows what they are going into, but the organisational benefits are huge. Not only to the individual handicapped person, but also to the employees that work with them and to the company as a whole.

Socialist government will tax multinationals – Nestle is next

Creating Shared Value Forum 2010

Image by Nestlé via Flickr

The new socialist minister of Tax Thor Möger Pedersen will upgrade the Danish treasury organisation with an extra 160 employees in order to investigate international companies on their tax books.

“It is high time to intervene. The Government will increase the transparency of companies’ payment of corporation tax. All the promise and all must contribute to the Danish economy back on its feet – even the multinationals’ he says

In practice this will mean that multinationals tax information will be posted on the treasuries website and their books will looked into. The claim is that these companies even during the good times up to 2008 (or 2007) did not pay their fair share and now that things are bad they claim even higher tax reductions.

One of the companies that are being named is Nestle a company that have been under scrutiny in several countries around the world for their ability to pay very low taxes. They even have tax manager positions that make around 100’000 Euro with the purpose of reducing the tax paid by the company.

With the prospect of being named and shamed the company is threatening to move their Nordic headquarter to Sweden. Which is strange is this country is even higher taxed than Denmark but I guess they had not really thought the idea fully through. As the Danish CEO of Nestle Fred Holm puts it.

“We have our Nordic headquarters in Denmark, but if we are to be exhibited in this way, then we might as well move to Sweden. Then there is no reason to be in Copenhagen. We want to be here, but we will not be shown, when we just follow the rules, “says Fred Holm, who says that Nestslé has 230 men employed in Denmark.

To be honest I find the idea appealing. What could our society do if we all contributed to the same pot? Some of these companies have made billions of Euros on operating in these countries and have not paid their fair share of tax for several decades. Their ability to hide and shuffle their money around has been remarkable and clever. While I do not think they have done anything illegal they could at least be challenged on their morals and ethics.

On the Nestle website the company proclaims that they are all for share value e.g. the Kramer and Port kind I would guess, but in the interpretation it means that

Creating Shared Value is a fundamental part of Nestlé’s way of doing business that focuses on specific areas of the Company’s core business activities – namely water, nutrition, and rural development – where value can best be created both for society and shareholders.”

So according the Nestle interpretation of CSV it does not include tax so one could hardly claim that they are unethical on that point on the other hand leaving it out does say something about the company mind-set and approach to the societies it operate in.

If a link between profit and society can’t be established it is not in Nestle mind CSR and therefor is tax not included.

I for one will be looking forward to what the Danish government will do and how they will go around the business of making multinationals pay more back to the society that they operate in. One must not forget that there are companies that do pay their fair share and that they are put at a disadvantage by companies that have the ability to shuffle money around. It could actually be a competitive advantage that tax paying companies can utilize in the Danish market as tax evaders leave and create new market opportunities which were out of reach before.

What to look for in SRI

A plot of the S&P 500 composite index price to...

Image via Wikipedia

Going through endless annual, governance and different CSR reporting seems to me as an inclusion of too many parameters. So what should I look for? I have take out some quick headlines.

Operating Profit – Is always a winner as it tells me if a company is able to generate a profit. As an investor this is of cause always important but it does not tell me how this profit was generated.

Earnings Per Share (EPS) – How does earnings look compared to the number of shares issued. An important indicator if earnings were generated on the basis selling stock.

ROAReturn on Assets also called a number of other things but gives an indicator if the company could be over or undervalued. ROA is also a indicator of how well the company assets are managed.

ROE – Return on Equity looks at the how well the company is able to reinvest my money.

ROICReturn on Capital Invested a little broader than ROE, but it tells me how well the capital that the company has at its disposal Is reinvested in the company.

P/E – Profits and Earnings Ratio gives me an indicator of how expensive or cheap a given stock is. It looks at Market CAP (the share price times the total number of shares) divided by its earnings after tax etc. per share (EPS)

Beta – How volatile is the stock. More volatile stock are more risky but can also help me archive my goals.

Governance – How does the composition of the board and executive management looks like. How many years have they been in their position, education, gender, ethnicity, age.  

CSR – I will be looking at their CSR standards and charters but mainly to find out how integrated the systems are imbedded into the rest of the organisation. 

Press and News – A quick rundown on the headlines that the organization have been subjected to. Just to get another perspective.