From leader to follower – the impact of Danish CSR legislation

One would epact that countries that have a dedicated CSR law would also be the ones that would lead the pack on reporting. However according to the latest KPMG International survey of Corporate Responsibility Reporting is Denmark at best a slow follower behind countries like India, Spain, Hungary, China and South Korea just to name a few.

Traditionally the Danes have though of them selves as the “inventors” quality reporting on CSR with companies like NovoNordisk, Novozymes and Danisco at the very top. But it would seem that success have fostered complacency and now just about everybody have overtaken this ones a beacon of CSR reporting. According to KPMG we have moved from Quality to Quantity as we see more and more reporting being done but the quality of these reports does not seem to follow. One might think that having a dedicated CSR law would foster quality but it would seem that it is the other way around.

It should not be that difficult to follow the law as it is quite easy to come up with a policy, create a report and act on its findings. But it looks like that most companies have focused on the letter of the law rather than internalising CSR as part of the business. This leads to the dilemma if CSR should be voluntary or involuntary as s the case in Denmark at least for the 1100 biggest companies.

If the KPMG survey is true it could mean that a voluntary approach foster quality in reporting such as in the areas of IT, Assurance, Integration, use of standards and use of communication channels. While a law approach would mean that one gets more CSR reporting but at a lower quality.

One could argue that quality will come as time passes and it is only a matter of getting the right tools implemented. But if one looks at the CSR reporting discourse that Danish companies have taken it would seem that companies goes for the lowest common denominator.

In my mind Danish companies have taken a clear and present competitive advantage and turned it into a exercise in cost reduction. Shame on you….

Identifying the fraudster

The 10th principle of the Global Compact states “Businesses should work against corruption in all its forms, including extortion and bribery.” But hand in hand with corruption comes fraud. In the so-called developed world we might have been able to reduce corrupt behavior to a large extend but instead we have given room for white-collar crime or fraud.

According to a resent survey done by KPMG there are able reason why business should be extra alert but also that there are tell-tale signs that are not being heard and followed by organisations.

“It is surprising that companies continue to ignore warning signs, particularly in light of the recession. While cost-cutting initiatives associated with the downturn may have played their part in the observed shift, such cuts may prove a false economy. While defenses are down, the fraudster sees the opportunity to capitalize. The need for companies to be vigilant has never seemed more important.”

So who is these fraudsters and how do one spot some of the characteristics of a fraud being committed.

He does typically not work alone. In most cases (61%) he (and yes it is a he) works with others in-order to do his crime. The fraudster can either work with internal parties or external contractors.

The fraudster is a male between the ages of 36 and 45 years, who works in the finance function or finance related role. The unique organizational position grants him access and knowledge about the internal controls and especially where the governance structure is weak and can be exploited.

He has been with the company for more than 10 years, and holds a senior management position. Such individuals will be better able to override controls and may have accumulated a good deal of personal trust enabling him to manipulate key organisational members in order to do his crime.

Evija Miezite, Associate Director, KPMG Baltics SIA, leader of forensic projects in Latvia, notes that “According to the survey, the typical fraudster most commonly works in the procurement or sales function. The finance function often plays the role of ‘policing’ these functions. We also note that in Eastern Europe, some 89 per cent of persons investigated, had been employed at the company for more than 3 years (of which more than half had been employed for longer than 6 years) and 52 per cent of the frauds had run for more than 3 years before they were detected.”

Another major problem is that organisations are very reluctant to communicate about the fraud being committed meaning that the perpetrator in practice can “shop” around in other organisations committing the same crime again and again.

Integrating or delegating the CSR effort what should companies do?

For most companies CSR is believed to be an expense rather than a investment. This has resulted in quite different approaches to the CSR effort. Some have chosen to integrate their work inside the communication or Human Resource department while others have independent and dedicated to the task at hand. Yet others have opted for an outsourcing approach were they let their regular financial auditor, like KPMG or PWC or smaller consulting companies like Identitas or CSR Gender group do their reporting as part of their consulting services.

One would often think that integration would be the best approach that companies can take to their CSR reporting structure, but if you have no resources this might not be the case. There are actually some merits to outsourcing or teaming up with a business partner.

For one there is standardization of reporting. I have looked over hundreds of CSR reports of all types and there seem to be a infinite number of ways that one can write and report on the subjects within Environment, Social impact and Governance issues. Most of the major consulting firms will use a standard approach, either invented by them or using one of the majors reporting frameworks like Global Reporting Initiative (GRI) or one, or more of the standards issued by ISO. Standardisation enables analysts to compare and evaluate individual companies with each other across a wide range of indicators.

Secondly there is the subject of expertise and knowledge. Most business does not have CSR as part of their core business, they produce other types of products or service, which might or might not be related to such activities. The point is that most business does not have the capacity to create a sustainability report, which reflect a relative true image of the company’s behaviour. When organisations try to create reports for which they have no or very little understanding about their impact, at most these reports becomes fragments of reality and in worst case they are more or less conscious efforts at manipulation. So getting the right expertise in place can actual help the CSR reporting effort even though these resources are not part of the business itself.

Third, there is some merit to the focus on the core business. Some proponents of CSR almost make one believe that the only reason of business is to contribute to a better world that the product and organisation is secondary to this higher aim. However, any manager or business professional will tell you that the Reason E’tre for business lay in its product and not it’s organisation or how it conduct itself. This might come as a chock to some but without a clear product or service the organisation will not exist for very long and therefor have no way to behave either good or bad. This means that if you are managing organisations that produce technical systems for the medico industry you might not know that much about ethics or how to access your impact on society or the environment. So the best thing you might do, is actually to contact somebody who can help you with making this assessment and a external consultant might be the one you are looking for.

Corporate culture might be in the way of change. We all know that change in organisations does not come easy so you might want to have somebody who has no connection or previous history within the company to facilitate this change. Somehow it is just easier for a external consultant to ask the logistics manager if he receives any kickbacks from the main forwarders working contracts for the company than it is for the local communication specialist to do the same. The consultants role and work description is clear in most organisations that they enter and it is legitimate for them to investigate all the ins and outs of the organisations without there motives being put into question. So, for some companies it can actually help the process by having somebody from the outside either as an interim manager or consultant.

I think the lesson is that business “should do what it is good at” and if that includes CSR reporting, and organisational and cultural change management then they should do that. Organisations engaged in CSR activities should have a hard look at their core business and either establishes a strong connection with their reason for being or ask themselves if it is better concentrate on something else. If they come to the conclusion that they are not able or willing to engage in CSR activities, but that it is part of their license to operate they should think about what is best do a half ass job at it or find a suitable business partner to  facilitate the process.