HBR Case Study; Should Sustainability Have a Seat in the C-Suite?

Harvard Business Review has the best case studies, but then I guess we should expect that. I know that I read their case studies, and say "Well, of course" in answer to their question. But like most really good questions, the answers are never "yes" or "no". There is a real pleasure in thinking through the problem.

This month it was no different.  Their question was: Should Sustainability Have a Seat in the C-Suite? My gut reaction is "Well, yeah, how else are they going to be, and be seen to be serious about this?" But a close reading of the case, a mythical computer and electronics company called Narinex, made me rethink my automatic response. They are losing bids, not all the time, and not all the big ones, but enough to make them look closer. And one of the key differentiators is their competitor's (in the situation highlighted) sustainability record. At least, it seems to be their record.

Closer reading shows that it is not the sustainability record, but in part the presentation of that record through the appointed CSO (Chief Sustainability Officer) at one of their competitors.

I won't rehash the case here, you can read it at the link above. But I do want to mention two of the comments submitted by readers.

Elaine Cohen, as usual, is clear in her argument - "I believe the question at this point is not whether to hire a CSO but what is the sustainability reality for the Narinex company. The focus on sustainability is not going away, and is now a minimum expectation of businesses." She then goes on to recommend a Sustainability Mapping Study, with result provided to leadership for decision making.

She ends by saying "Sooner or later, in my experience, if a company is serious about sustainability, a CSO is a necessary asset. However, in the first stages, moving forward step by step may require broader expertise that one CSO can deliver and it might be better to establish some initial good practice through engaging the management team in their own functional areas, but only if there is someone in the business who is prepared to champion this as a short-medium term assignment."

The other comment that I really liked was from Erik Thomsen, who approached the problem from a slightly different point of view. Erik focuses on the availability of information for clear future decision making. He says "This is because the financial metrics traditionally used in the C-Suite are inherently backward looking and fail to capture critical environmental and social factors that are the drivers of medium to long-term financial performance. "

He's right. The information provided, and modeling performed remains based on well worn paradigms, one of which is that a zero price input today will remain a zero price input in the future. The pricing of externalities, if not in fact then certainly in projections, is critical to corporate success.

While I favour hiring a CSO, Erik has a different view: "What’s more, hiring a Chief Sustainability Officer implies that the rest of the C-Suite is too busy to be concerned with sustainability. This would implicitly de-position sustainability, putting it into a box other members of the C-Suite don’t have to think about."

He finished by saying "Finally, addressing the VP of Sales’ concerns -- who is going to generate more buzz, a Chief Sustainability Officer talking about issues that could be handled by someone in marketing and communications? Or the CFO, COO and CEO talking about the strategic business decisions that will ensure the company’s future profitability in an environmentally and socially sustainable way?"

Both Erik and Elaine are right, even through their suggestions in the end are different, I think they are both right. I think they should hire a CSO. Yet Erik makes the point well, who better than the entire leadership team to make the point that sustainability has become part of the DNA of the company?

It will be interesting to see how this evolves.

Real Pink Falmingos - near Alres, France

CSR/Sustainability reporting: the coming explosion

The next three years will see CSR/Sustainability reporting transition from a "nice to have" to a "Cost of Entry". Companies will find themselves less able to win contracts, upstream supply chain participants will expect reports, and banks will demand to see the CSR report just as they require a set of (audited) financial statements (I'll talk about "audited" in another post).

Today the creation and maintenance of a CSR report can be expensive and time-consuming, and there doesn't seem to be the demand.

Cast your mind back to the darkest reaches of history - say - 1995. The Internet was reasonably well established, and you could search for sites, sort of. If you knew the website of a company (or someone's e-mail address, not everyone had one) you could type in the www then the e-mail address after the @ but before the ".com", and if you were lucky, or the company was really really big, you could find a website.

Companies around the world knew that being on the web mattered, and certainly the leaders had some pretty fantastic sites.

A century or two later, sometime around 1998, I don't remember when exactly, I did the little dance of the cut-and-paste to search for a company website... and for this search, there was no site. I rang my contact at the company and asked "I'm surprised your company doesn't have a website. Why not?"

The answer I got was "Creating and maintaining a website is expensive and time-consuming, and there doesn't seem to be the demand." Sound familiar?

So what changed to make websites truly ubiquitous?

The cost of creation plummeted, tools became available to help build sites, large numbers of people played with HTML and other web technologies. But most important, people; me, and you, began to expect to find a website. Companies without websites dropped in our estimation as "serious" companies. 

Did the websites need to be sexy, smart, absolutely current as of this morning? No. But there had better be a site.

The coming explosion

CSR/Sustainability reporting is at that cusp. the big companies, regardless of industry, have CSR reports. Thousands of companies provide reports to the CDP (Carbon Disclosure Project), over a thousand are producing GRI (Global Reporting Initiative) compliant reports and/or GRI Content Indexes. Today I go to websites and wonder if I do not see Corporate Responsibility, or CSR, or Sustainability. I'm reaching the point where I wonder what they are hiding.

And I ask "I'm surprised you don't have a sustainability policy or a CSR report. Why not?" Well, you know the answer that I'm getting.

But that is about to change, and change pretty radically. Demand creates innovation. Innovation drives adoption. Adoption feeds innovation and demand.

I am confident that there will soon be tools and processes that will make the creation of CSR reports "easy", inexpensive, and ubiquitous. And when that happens, centuries will have passed in an instant, and we will be living in a world in which CSR/Sustainability reporting is simply assumed. That regardless of the size of the company, if it is a "serious" company, wanting to attract and retain clients, staff, and frankly needing to demonstrate that it understands the importance of the societal/corporate "contract", CSR/Sustainability reporting will be a core element of communications and corporate reporting. Just like a website for (audited) financial statements are today.

Example of a CSR / Sustainability Policy

Most companies already have policy frameworks in place, with policies covering a range of business activities. Sometimes policy is developed at a micro-level determining just who can spend exactly how much, on what and when (as one example). I have also worked with companies to develop their policy frameworks and to create the set of “high level” policies under which detailed policies can be ‘attached’. My clients found this to be an effective way of creating the link between the Vission/Mission and individual and business behavior at a detailed level.

For your reading pleasure, A CSR / Sustainability Policy. Note that the ‘Interpretation’ and 'Specific Responsiblities' secions set out the responsibilities of various business units and functions at a high level, but at a level “below” the policy statement. This provides the bridge between “who we are” and “how we do it”.

The Policy Statement itself contains a three elements - Who we are, What individuals are responsible for, and what is provided to enable achievement.

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Background

Throughout our history we have sought to achieve our business objectives while at the same time acting as a good corporate citizen in all our communities, and across those elements of our supply chain that we have been able to directly influence. It is the intention of the company to continue to be a good corporate citizen. The assumptions of what good corporate citizenship entails have been evolving, and it is our intention to continue to evolve our business practices as such assumptions evolve.

Recent years have seen the growth of the concept of Corporate Social Responsibility and Sustainability. While neither of these is a new concept, the importance of these to effective business operations has been demonstrated from the perspective of enhancing business performance and the potential negative public relations impacts where a company fails to demonstrate these principles in action.

While we are proud of our heritage and confident that we embody these principles in our business practices, this policy statement has been developed to provide clear guidance in understanding our obligations and expectations. This policy statement is effective from xxx date xxxx and is applicable to all company divisions, Strategic Business Units (SBUs), and to our commercial relationships will all suppliers and customers.

Policy Statement

We are an ethical company dedicated to ensuring that we use only those resources required to achieve our legitimate business objectives, while doing what we can to conserve existing natural resources such as to ensure that there will be sufficient resources for future generations, while also contributing to our communities and the communities in which we and our suppliers and customers much live.

It is the responsibility of each employee of the company to ensure that these principles are upheld across our business operations and commercial relationships, and that each employee serves as an ambassador for the company in all our communities.

As a company dedicated to this vision, we will make available the tools and resources required to be this company, and will support each employee as they live this policy.

Interpretation

The Company’s Policy Manual sets out specific policies covering all HR policies. These policies have been developed to provide a foundation for each employee’s behavior and the behavior of the company. These policies must be followed at all times by all employees.

The Accounting and Finance Policy Manual sets out specific policies for the allocation and application of the financial and capitol resources of the company.

As an element of demonstration of adherence to our policy, and to communicate our achievement against our policy, we produce an annual consolidated CSR/Sustainability report, providing in that report all information required to comply with and meet the reporting spirit of the standard that we use (*for example, the Policy might be to meet the reporting requirements of both the UN Global Compact Communication on Progress elements and a GRI - Global Reporting Initiative - index, ISO26000, CDP - Carbon disclosure Project -  or another standards).

Specific Responsibilities

The Board of Directors (BoD) is responsible for approval of the CSR/Sustainability Policy, and to ensure the principles of the policy are included in the company’s strategic plan and statement of business objective. The BoD also monitors for compliance with the policy via review of regular briefings from the CEO.

The Chief Executive and Senior Management are responsible for implementation of the policy, and to ensure the business plans and projections are built taking the policy into consideration.

Risk Management is responsible for identification and communication of the risk environment related to CSR/Sustainability, including economic, social and environmental risk, and to provide guidance senior leadership and SBU leadership on country and regional risk. Risk Management also provides the systems and processes for the estimation, monitoring and reporting against regulatory mandated reporting (excluding SEC or other financial regulator reporting).

Corporate Communications develops the company’s annual CSR/Sustainability report. Corporate Communications works with Finance and the CFO’s office to ensure that all reported information has been reviewed and that assurance has been provided over such information. Corporate Communciations may seek guidance and support from other functions in determining approriate content for such reports and communication. Corporate Communications, in consultation with Senior Leadership, will determine the most appropriate standards to use for such communication.

SBU Presidents (Managing Directors) are responsible for implementation of all company policies, including all CSR/Sustainability policies. SBU leadership is also responsible for provision of accurate and timely CSR/Sustainability reports at defined levels of data granularity, as required by the Office of Sustainable Business Practices.

Commercial Managers and Contract Managers are responsible for ensuring that all corporate CSR/Sustainability policies are accepted by all suppliers, and built into all future contracts.

The Office of Sustainable Business Practices is responsible for the development of specific sustainability metrics, the compilation of reports based on information provided by SBUs, and management of the relationship with the CSR/Sustainability Assurance provider (until such time as such assurance is incorporated into annual and regulator reports).

Human Resources maintains an inventory of social programs and the resources provided by the company in support of such programs.

Supporting Materials

The Operational Policies Manual for each SBU and Corporate include specific CSR/Sustainability metrics and standards.

Budgeting and Performance reporting templates have been (or will be) updated to identify additional budget estimates and reporting required to achieve CSR/Sustainability mandates.

Supporting Unit

Any questions regarding this policy should be directed to the Office of the Corporate Council, or to your local Risk Management or General Council’s office. Consult your local director for contact details.