Running company has always been balancing act. Board and management juggle the sometimes conflicting demands of shareholders, customers, employees, suppliers and communities. Now it’s even more tricky. Companies are under increasing scrutiny, not only for their financial performance but also for the way they conduct themselves.
They are expected to be ‘good corporate citizens’, ‘a fun place to work’ and concerned with not just keeping shareholders happy but being also socially and environmentally responsible – while complying with the laws, rules and regulations that govern the company’s business.
Scandalous high-profile cases in the United States and closer to home have exposed company boards to increased public attention and criticism, followed by tighter standards for regulatory compliance.
But some companies are voluntarily putting money and time into meaningful and successful partnerships with charities, environmental groups and NGOs, even when it’s not core business or required by the government.
They are also taking action on reducing greenhouse gas emissions ahead of government incentives to do so, and taking part in initiatives such as Target Zero for waste and EECA’s Emprove programme for energy efficiency.
Why do they do it? What’s in it for them, and where does the impetus come from?
We enter the boardroom to look at the role of directors.
Newly appointed New Zealand Institute of Directors vice-president Kerry McDonald believes the drive comes from two forces: the interests and personalities of the individuals on the board and the need of the business for acceptance by the community.
Besides his role at the Institute of Directors, McDonald is also chairman of the Bank of New Zealand and Oceana Gold New Zealand, and vice-chairman of Oceana Gold. He is director of National Australia Bank, Ports of Auckland and Gough Gough and Hamer, and has just been appointed as director of Opus International Consultants, following more than 20-year career with Comalco in Australia, New Zealand and elsewhere.
Says McDonald: “The nature of the individuals on the board and their own values – that is powerful driver. The individual sees it as appropriate – if not necessary – that the company has not only high standard of economic performance and compliance, but also, within its capabilities, social responsibility and environmental performance.
“The companies can range from large to small. The personal values of the people and the capacity of the company will vary.
“The second leg is – in many companies these days it’s almost the ‘licence to operate’ catchphrase – if we’re to operate in this community, we must have the confidence of the community so they accept us as good operators and are happy to have us as part of the community.”
McDonald refers to the mining companies he’s been involved with, including Comalco and Rio Tinto in Australia and New Zealand, and Oceana Gold: “Comalco and Rio Tinto were thinking along these lines 20 years ago. Not with the public engagement you have now, but the corporate ethos was you either did it to high standard or the business would be at risk – otherwise, if you were going to be mining company you wouldn’t be allowed to operate.”
Auckland University of Technology professor of management Kate Kearins agrees. Kearins, who has special interest in sustainability, says: “There are several motivating factors for companies who want to do good things and be seen and report on them. But one of the main underlying ones would be corporate ‘legitimation’.”
She says that although the link between doing good and financial performance is not securely established, “There will always be place for people who want to invest money in good rather than bad.
“For people to do business with you, you need to be legitimate social members of the community.”
She sees the need for legitimation as one of the forces behind such partnerships as SkyCity’s support for Kidz First, the Starlight Symphony, the Special Olympics NZ and the Breast Cancer Foundation.
Says Kearins: “Sometimes there’s kind of moral suasion to want to do the right thing. You don’t want your kids to think you send them to private schools off the back of asbestos.”
McDonald is pragmatic: “If you’re depending on [selling] consumer goods – people won’t buy from you if they think you’re environmentally irresponsible – and you might be depending on the community for permits or licences.”
The findings of Auckland market researcher Nick Jones & Associates confirm this assessment. The company’s research project with Nielsen Media Research Panorama asked sample of 6000 New Zealanders questions about their attitudes and purchasing habits in 2004, 2005 and 2006.
It has found an increasing number of people expect companies to support charities and other worthy causes. They think more highly of environmentally and socially active companies and make their purchasing decisions accordingly (see box story “Consumers who care”).
Says Jude Mannion, CEO of the Robin Hood Foundation: “Directors used to be right-wing and concerned only with shareholder value. Now we have research that can prove people switch to brand that’s doing good. It’s no longer just feel good. We can prove if your competition stands for social responsibility and you don’t, consumers will switch to them. The baby boomers have money and they give damn.”
The Robin Hood Foundation (motto: “doing good is good for business”) is broker for relationships between businesses and non-profits, set up three years ago.
Peter Neilson, chief executive of the New Zealand Business Council for Sustainable Development, cites three drivers towards environmental and social sustainability.
“Traditionally, there was the cost concern – energy efficiency was taken up for reasons of cost, not necessarily for looking after the planet.
“Secondly, the consumers are now more sophisticated in differentiating between companies.”
He says only small number of ethical consumers are prepared to pay premium for greener product, but where two are the same in other respects including price, the consumers will choose the greener one.
“Thirdly, sustainable businesses are more attractive to young, tertiary educated employees – that’s important in tight labour market.”
He says the drive is also related to the nature of the business, such as whether it is large energy user or whether it’s listed or unlisted. “This is not major unless it’s listed, but effectively financial analysts and investors are looking at sustainability risk in terms of knocking the value off companies. If you have high emissions, you will be exposed to the carbon charge. They’re looking at your vulnerability – what’s your long term projection for liability? High emitters have bigger exposure.”
Pressure on New Zealand businesses to raise their standards can come from their multinational parent companies.
DB Breweries has tough benchmarks and reporting requirements for energy and water efficiency, set by parent Heineken for its breweries dotted around the globe.
Says Neilson: “After Bhopal, multinationals worldwide said they would maintain the same standards in all the countries they operate in, because people expect company of this type will operate the same wherever it is. Some performance standards are higher than the legal minimum.”
Board mandate
The Robin Hood Foundation’s Mannion says the direction has to come from the top. “The board plays huge role. Without that board mandate, it’s not fair on CEOs, because they have to go out on limb.
“The board must see its responsibility as giving the business the mandate to have robust social investment strategy. The business must be given permission by the board and told that this is one of the outcomes it will be measured on.
“If you look at global companies where this has occurred, like Vodafone and Microsoft, they have then activated world-leading CSR [corporate social responsibility] practices.
“In
