How to Achieve Corporate Responsibility
by David Frood
Corporate responsibility is a term that is being used a lot right now. It seems as though the general population has reached the point where they just want big business to behave in a way that is both socially acceptable and responsible.
Before we start attempting to define what corporate responsibility is, it is worthwhile considering what it is not. Corporate responsibility is not:
- Taking short-cuts that result in damage to the environment
- Using inferior ingredients in manufacturing that are harmful to peoples' health
- Telling lies to avoid large payouts to victims of negligence
- Leaving people in hardship by finding a "legal" right not to pay a claim
- Paying huge salaries to a few and "letting go" of many
- Making billions and being blind to millions of children without even access to clean drinking water
The above list provides a general comment and we must acknowledge the many corporations out there that are aware and have either taken steps or are taking steps to be responsible entities.
However, we only need one highly irresponsible corporation to do enormous and irreversible damage to us and our environment. This is the point that the general population is well aware of and the reason for the call for change.
Why Behave Irresponsibly?
Corporations exist for two reasons:
(1) Make profit
(2) Increase the capital value
Businesses will achieve this in two ways:
(1) Sales growth
(2) Reducing expenses relative to sales
Directors and senior managers will spend most of their time working on these two strategies that will ensure that the entity continues to grow. In the event that sales growth is not enough to achieve these targets organizations will look for ways to reduce costs to protect profits. The longer an organization finds it difficult to achieve its targets through sales growth, the more likely it is to start taking short-cuts in safety. This is because reputations are at stake, large salaries, bonuses and years of successful directorships.
The "Under Pressure" Component
Decisions made that could negatively impact on safety are made by good people who are well educated with excellent business experience, under pressure.
It is the "under pressure" component that is the biggest problem because it is not until a person is under extreme pressure that their true character becomes visible.
Therefore, what we can end up with is a normally rational, calm and sensible person being tested to find out who they really are. It is at this point when a career engineer suggests a way that the job can be done at a percentage of the original budget cost and the decision point is under pressure that potential disasters are borne. The problem is that the decision-maker is often a single person and subject to human faults.
These decisions can also be made my more than one person, so the outcome can be a result of the dynamics of the group. Who is more senior, more vocal, or a better sales person? Statistics will be used to rationalise the decision. The probability of something going wrong, of someone getting sick, injured or dying as a result of the decision will be looked at and evaluated. This small group with similar objectives can then rationalise that the chances are so remote that something could go wrong that we may as well save the money.
From the above we have learned that there are a number of focus points where poor decisions can be made, leading to irresponsible corporate activity. Interestingly, it is only viewed as irresponsible when something does go wrong. The main focus points are therefore:
- Important decisions being made by one person
- Important decisions being made by a small group with similar interests
- The need for the entity to grow
- Corporate values
Most of the above list is quite obvious from the introduction, perhaps with the exception of corporate values. This is noted as a focus point because of the way that many organizations now treat these values. In the foyer of any large organization you are likely for find a statement of values. The Annual Report will also list the values of the corporation. The real issues are these:
- How well have these values been installed in the organization?
- Are all employees guided by them?
- Would the installation of the values be strong enough to override the pressures that occur at decision points?
As with individuals, for any organization to behave in a responsible manner it must want to. Therefore, the environment that needs to be created to support corporations must positively address each of the focus points. Not only do we need to address each of these points but they also need to operate in harmony with each other.
A logical place to start is the very issue that creates the most pressure in an organization, which is the need to grow and to increase the entity value. To do this it is necessary that we find a solution to the main limitation to growth.
Because corporations are managed by just a few senior managers and a board of directors, ideas to grow the company are limited predominately to these individuals. Employees will often have their own ideas but are unlikely to tell anyone about them because of three main reasons:
(1) Their idea could get stolen by another employee
(2) They will not be adequately remunerated
(3) Job security may be at risk by suggesting that things could be done differently
The challenge to the organization therefore is to encourage ideas from employees that can create growth by innovation and to adequately reward the source. The successful implementation of this program means that the company has a constant flow of ideas on new services, products and markets from which to grow.
Installing New Values
For values to really do their job they must be installed at the "belief" level. Too often values are installed but not believed. It is therefore necessary that some education goes along with installing the corporate values and recruitment processes ensure values are strengthened over time. An individual faced with hardship and/ or under stress will not commit a crime if it contravenes a value that they deeply believe in.
Reducing the Risk in Decision-Making
The main risks for corporate decision-making are:
- Decisions being made by a single person
- Decisions being made by a few people with similar interests
- Managers making decisions under pressure for results
To some extent we have already dealt with some of this risk through the installation of values to the "belief" level and providing a mechanism for growth by innovation. However more measures are required to ensure that important decisions are not made by the same people every time. The "boiling frog syndrome" states that gradualism will break down barriers. In other words, what was unacceptable as a corporate risk yesterday, may be acceptable to the same people tomorrow.
Young people are now graduating from Universities with one or more degrees before starting work. They have been taught to analyse and to think and yet employers do not always use this resource.
Issues need to be ranked to indicate their importance to the organization, customers and general public. Where the ranking is high enough, a cross-section of employees should provide analysis and input towards the final decision. Computer systems can easily cope with this functionality and random employees can provide un-bias logical comments and scoring. This process takes the pressure off the one or few people that now make major decisions and spreads the risk to ensure that rational decisions are made that are uninfluenced by personal agendas.
By far the majority of modern organizations are very close to the above solution and simply need tuning, rather than a complete overhaul. It would be fair to say that they would also be happy to make these changes if there were benefits to the corporation in doing so. The benefits of this tuning exercise are geared to the corporate heart-beat:
(1) Increased profits
(2) Improved capital value
The risk to all of us of even one large corporation not operating in this manner is that one decision that is made by the CEO, under pressure for results, within a supportive and desensitized environment that sets off a disastrous chain of events.
There is an answer and the answer is attractive to the most seasoned board member. It is the combination of growth by innovation
and decentralised decision-making.
The first steps are recognizing the problems and then wanting to make a change for the better.
David Frood is the author of "The Thinking Corporation" - that explores the issues raised in this article and provides some very practical solutions.
A corporate change program is available to transform organizations into "A Thinking Corporation". The program is available to be delivered by all change consultants following accreditation.