How to Achieve Corporate Responsibility

by David Frood
(Sydney, Australia)

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.

Focus Points


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?


The Solution


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.

In Summary


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.







Comments for How to Achieve Corporate Responsibility

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BP Cost Cutting Culture
by: Stephen Warrilow

An interesting article David, that addresses much of what has been published in the press in recent months about the cost cutting culture at BP - especially during the reign of the previous CEO Lord Browne (often known as "the sun king" for his expensive tastes and style) .

There have many articles and informed comments in the media outlining the direct link between the style of leadership of Lord Browne, his values and aspirations for BP, the cost cutting culture he espoused to underpin those aspirations and the "corner cutting" culture that this created, all leading to the tragic consequences that are now being experienced.

Your analysis of the "under pressure" component and the restraining influence of values is, I feel, particularly insightful.

Values are an important component of organisational culture.

In my own experience and in my view, I have found that organisational culture is the single biggest determinant of how individuals will behave within an organisation - on occasions overriding intelligence, common-sense and the seemingly obvious.

Goleman and others stress the importance of the emotional tone created by the leader and its direct impact on organisational culture and performance.

So, to a considerable extent, that culture can be seen as a direct reflection of the leader and his or her own true inner values etc.

This takes on an even greater significance in the centralised "command-control" management style of so many organsations, and this is why your recommendations for decentralised decision-making and growth by innovation make so much sense.




Couldn't Agree More
by: Tony Schultz

Given the current situation with BP in the Gulf this article is very relevant.

Unfortunately, corporate values have change quite considerably over the last 10 years where it seems that making large profits at the the expense of everything else has change the culture of many (what were once great) companies.

Employees are now considered as resources rather than real people and this means they are often seen as expendable with short use-by dates.

How to Achieve Corporate Responsibility
by: Jeff Richardson

Froody - agree with you 100%. Well defined, written and explained.

Richo

David - points well made
by: Ray Smith, ECO2 Forests Inc

David's points here are sound. Corporate responsibility is a strengthening trend - a trend for our time. Companies who continue to do business in the ways of the past and pursue profit at all cost risk their long term survival.

It is a pertinent business decision to put in place corporate values and philosophies to position a company to maintain standards of corporate behaviour appropriate to our time.

Increasingly investors, particularly large investors, are looking for companies that can deliver the fiscal returns they need but in a socially responsible manner thereby making their investment a socially responsible one.

At the forefront of current trends is sustainability. Principally this, rightly, draws focus to the environment. But it is wider than this as David suggests.

To be effective corporate values and philosophies must be appropriate to a company's operations and need to be realised in the actions of an organisation ? otherwise the existence of the values set is pointless.

Inculcating these values into the daily life and actions will manifest them into a company?s decision making processes.

A simple change like including the values set as items in the annual performance review of individuals and departments is a small motivational step that can generate behavioural change and have a significant impact on a company?s decision making processes.

What Is a GREAT Company?
by: Brent Taprell

Very nice words by Tony. And I also agree with you Stephen.

I believe the Culture is missing and the new generation of CEO is Profit driven by short cuts and quick results.

Thus Turning A Great Company into a Not so Great company.

BUT..... If they are turning Mega Profits, and the Share Holders are Happy, How do you Re-educate for the better?

Only those with the right Culture, can see the ?better?, and only then, can we prepare for those short cuts that have been taken, to try and stop any negativity or losses through that Company.

I guess the Question for me is.....

Is a GREAT company GREAT because of how many Billion?s it?s made?

OR

Is a GREAT company GREAT because it respects the Culture that has helped it become Profitable?

And How much Profit do you need to become Great...?

Great discussion
by: David Frood

There have been lots of good points raised.

With repect to Brent's point on "What makes a great company" I was reminded of Warren Buffett.

Yesterday I read a pledge made by Mr Buffett to give away (to worthy causes) 99% of the fortune he has made.

Putting this together with Brent's comments and question left me with this answer.

A great company is one that makes a positive contribution to mankind and the environment.

It is one that strives to ensure that its employees are better off for their involvement and that this goodwill spreads to the general community.

It is not shy about the enormous profit that it makes because this is the means by which it can achieve organizational, social and environmental goals.

It knows that its place in the world is to reach across borders and achieve results for people that even Governments can find difficult. The knowledge, skills and systems employed provide a conduit for all good ideas to reach the ulimate goals of their creators, to serve mankind.

In his pledge Mr Buffett made the point that his circumstances allowed him to give away 99% because he and his family would not suffer any consequences.

It is up to each corporation to determine the point that their organization will not suffer and put the rest to good use. This is a great company and one that any one of us would be proud to be named as one of the Directors.

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