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.

CSR as Supply Chain management

One area where CSR stakeholder engagement/management has been very effective is in managing corporate supply chains. For most businesses but especially for retail, the supply chain can be very comprehensive and might include several tiers before arriving at the primary supplier (Halldorson et al, 2007:286). In a CSR context the supply chain represent a unique set of challenges as it stretches the moral responsibility of the corporation outside its direct sphere of influence. It has been proven time and time again that even though the company might not have direct management control they are still held accountable for the decisions made in their supply chain both up and downstream (Austin & Reavis, 2004, Baron et al, 2004).

Effective supply chain management encompasses much more than just CSR issues but the idea of sustainable supplier relationships are becoming increasingly important. Where time, quality and price used to be the drivers for the logistics chains more and more companies are finding out that the “how” of production and transportation is on the “radar”. The question of how goods are produced and transported becomes most salient when companies start to source into areas where different management cultures, labour laws or governance practices are in place. Issues that companies in one part of the world take for granted is something that people need to fight for in other places. The challenge then becomes how to manage this diversity over a string of different supplier and customer relationships. A common approach adopted to manage supply chain is using Code of Conduct to gain some form of control over the suppliers (Vogel, 2008). Even though it is far from a foolproof system it does present a platform from which the company can get an overview and thereby a possibility to manage its organisational risks in its supply chain. For retail businesses a systematic system of information gathering, risk analysis and auditing is essential and will always have to be a cornerstone of CSR efforts.

Limits to Transparency

If only the world could be more transparent it would be a much better place to live in. Companies would behave more responsible, Governments would be able to enforce rules, regulate much more effectively and people in general would have a much better idea about the powers influencing their everyday lives.

Transparency has been the mantra of the CSR movement we have hailed the word on numerous occasions on every seminar I have ever attended. When companies have come to us we have told them that If only they were a little more transparent they would not be in the mess that they are in right now! Or we have preached to them that the only way to protect themselves is if they can report on a few more indicators in order to quantify their processes and show that they are truly sustainable.

I have worked with these systems for the past 15 years and I know every one of them from A to Z. I wake up at night reciting ISO26000 on Concepts, Terms and Definitions and I know the weak points in the Global Compact and all the companies that cut corners to be part of the sustainable business movement and being FB pals with Ban Ki-Moon.

On of my friends Michael Koploy send me an entry he made on 5 Questions to Start the Sustainable Supply Chain Conversation and it made me thinking about some of the things that we continue to talk about but keep missing. He does argue for more transparency, as we all do, but also that we should take a look beyond the apparent and into the DNA of the company. The “what are we all about”-question of sustainable business. How do we get managers to think for themselves, their business and the society that they are part of at the same time?

We produce incentive plans and bonus schemes, but it did little or nothing to prevent greed and poor ethics during the initial stages of the financial crisis. We created lists of “good” companies, but they do not seem to do much better than the ones that are “bad”. We have systems upon systems that produce endless reports that only a handful of people actually read. So what is the answer to creating a sustainable DNA for business leaders?

Well for starters we should take a good hard look at our educational system both the public and private ones. What are we actually teaching our coming leaders about how to run a business? Are we teaching them how to create a sustainable business model in more than financial terms or have our business schools and universities become temples of past ideologies? I do not talk about revolution or throwing professors out on the streets (even though some of them might need to go that way), but about taking a hard look at what we actually teach our students. We know that blindly following the thinking and guidelines of Keynes, Hayek or Friedman only works in the short run (Keynes smiles) so why not take that insight seriously and bringing it into the lecture hall.

Secondly we need to make shareholders/owners accountable. It will be a significant step away from what we have been used to be doing until now and nothing like business as usual. For too many years one could have an ownership form where one could own a company but not be accountable for its actions. We appoint a board of directors, but we do not really care who they are or what they are doing, as long as they keep producing the results that we want them to. In the process they become complacent and distant from the decision making process. And when things eventually go wrong they are often caught unaware of what have been going on right under their noses.

It would be presumptuous of me to say that I have all the answers, but I do know that its takes more than measuring to create a sustainable business as Michael points out. CSR is more a symptom of a financial ideology that have been over interpreted and gone wrong than an independent movement. Our never-ending quest for accountability and transparency will not succeed until we realise that we need to make some changes to how business operate and we do not do this by replacing with just another ideology.

Should FDI be linked directly to engagement in CSR activities?

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Companies that engage in foreign direct investments (FDI) in developing countries should at least some degree have sustainability approach to their business processes or should they?

When we do our every day purchases in stores and shops in our local neighborhood there is a high possibility that we will be buying wares produced in a developing country. Some of the thing we buy will be as bought on the open market on the commodities such as a lot of Fruit, Cacao or Coffee etc. while others are produced, manufactured and exported as part of the same corporate supply chain. These production facilities are being put in place in order for the parent company (normally in a developing country) to save costs on procurement, wages and in order to better control their supply chain (upstream vertical integration).

FDI is characterized as an investment that is made in another country or territories, between a parent company and its subsidiary. Normally we will look at two types of FDI outward and inward.

An outward FDI is an investment that is backed by the government against all types of associated risks. This form of FDI is also closely related to governments export subsidies, partnerships like strategic philanthropy Risk and different forms of government aid in relation to establishing corporate presence.

When governments want to attract investments then they can use different forms of economic factors in order to encourage inward FDIs. These can include low interest loans, tax breaks like in special low tax areas, grants, subsidies, and the removal of different forms of restrictions and limitations. Factors detrimental to the growth of FDIs include necessities of differential performance and limitations related with ownership patterns.

Link between CSR and FDI

We would like to believe that we are serious about our efforts to develop and create a basis for sustainable business, but how could we encourage and facilitate such a process. In India there are concerns that the CSR movement will make life harder for companies trying to export seeing CSR as a threat to FDI because it puts pressure on some of the areas were developing countries are actually able to compete such as wages, working environments, labor rights etc.  

“Indian authorities think that the ISO standards could be used by developed countries as a way to decrease trade coming from developing countries. India has appealed that the ISO-26000 should not be deemed an international standard, guideline or recommendation to follow.” India Briefing News

This statement is to a large extent in contrast to the popular thinking that CSR is something that is welcomed in the developing world. The CSR standard is being developed by the International Standards Organization (ISO) to encourage more corporations to implement socially responsible practices in among other places their supply chain.

“The whole idea behind the move seems to be to achieve factor price equalization by imposing minimum wage standards on developing countries,” Biswajit Dhar, director general of Research and Information System for Developing Countries told the Economic Times.

The question is we morally obligated to implement the same standards as we would at home as we do abroad?

What if we turn the tables and tell companies that if they want to benefit from the economic advantages that come with setting up a business in a developing country, they will have to apply the same sustainability standards which are present in the region they come from. So for example if a local garment company sets up a factory in Bangladesh in order to get access to cheap labor it should as a minimum live up to the same standards as it is under in a local context in order for them to export garments back to the country of origin. Or if on IT-company sets up operations in Mumbai, India it would have to employ IT professionals at the same terms that they do it home.   

It’s a tempting thought that some of the social dumping issues that are part of the FDI thinking could actually be tackled through the active utilization of CSR.