Better business, better world

What do you think of when you hear the term corporate social responsibility (CSR)? Enron's Ken Lay slinking off to gaol after the largest ever US bankruptcy? WorldCom kidding its investors it's profitable after hiding $3.85bn expenditure under the company carpet? Microsoft's Bill Gates giving millions to fight AIDS and to sponsor a worldwide infant vaccination programme. Or BP, somewhat ironically, urging us to adopt greener approaches in our use of energy? Over the past few weeks, I have been asking people in manufacturing companies for the first thought that CSR brings to mind. These four top the bill. Ask them what they personally do in the name of CSR and the responses are very different. Bigger companies can usually reel off the process changes that have cut water and energy consumption and the amount they gave to local community and environmental charities. Smaller ones tend to talk about recycling paper, turning off the lights and the great time they all had on Red Nose Day. Ask them if they audit their CSR performance in the same way as they monitor their productivity and most look somewhat bemused. If they consider CSR at all, it is considered the province of the blue chips, with time and money to spend on the luxuries of corporate life. They may underrate themselves. UK companies, and SMEs in particular, may think they score badly on any CSR rating. But according to Dr Martin Gibson, director of Envirowise, it may all be a matter of labelling. "Many small businesses don't actually know what it means but they are doing a lot of things that we would call CSR - both for the environment, and on the social side. When, however, people think of CSR, they think of the big corporates like Unilever and Macdonalds, not themselves." So what does CSR actually mean? Definitions vary but one of the clearest comes from the Small Business Consortium: "CSR highlights the voluntary role of business in contributing to a better society and a cleaner environment beyond its financial and capital commitments." It's a deceptively simple concept that actually embraces many aspects of industrial operations. Good CSR takes into account your relations with both the immediate community through socially responsible programmes and donations and the wider consequences of what you do through the products you provide, and the way you make and market them. That, in turn, brings a whole range of environmental considerations into play, both through the way you source raw materials and the impact of your production, packaging and distribution processes. At the same time, CSR requires a good hard look at the way you relate to people. That means how honestly, fairly and openly you deal with your customers, your suppliers, your investors and - often overlooked - your employees. This not only covers the traditional areas of recruitment, pay and training, but also broader issues like diversity and equal opportunities. Multinationals which have been taking CSR seriously wrap the whole thing up in declared ethical principles and statements of values. Some, frankly, take it no further than the PR. Others, like DuPont and Johnson & Johnson, which are consistent winners of awards for both their green and social contributions, embed it across their operations. Their KPIs (key performance indicators) set CSR conformance on the same level as performance and profitability. So where does that leave the rest of us? The reluctant should note the word 'voluntary' in the definition. There is no legal requirement to demonstrate responsible operations per se although aspects of it are regulated under a whole ragbag of legislation ranging from pollution control to Sarbanes-Oxley. Does that mean it is safe for a company to do what's obligatory and walk away from the rest? Not on your Nelly. It's a fallacy that CSR is the province of bleeding heart liberals. Most of us would prefer to leave our grandchildren a world that isn't baked to a crisp. And few of us would willingly base our own solvency on child-labour or poisonous industrial practices. But when your company is fighting for survival against rising costs and competition from low-wage economies, your own part in protecting the world can seem pretty incidental. So let's take a hard, self-interested look to see where CSR makes plain, good business sense. First of all, Envirowise warns that SMEs who don't recognise how CSR and environmental issues affect the future of their business are risking both the loss of customers and access to growth capital. Big international companies are beginning to put the squeeze on suppliers, joint venture partners and contractors to incorporate the kind of socially responsible practices that matter to their consumers. There are some high profile examples that bear Envirowise out. Look what happened to Nike's profits when it was widely believed its sports shoes were being produced by child labour in Asian factories. Financiers also recognise the trend and are factoring social and environmental issues into their investment decisions. Companies with effective policies in place are less vulnerable to supply chain black listing. Equally importantly, they are also more efficient - saving, on average, up to £1,000 every year per employee. Envirowise widely advises companies on supply chain compliance and also cost reduction. Dr Gibson says that businesses of all sizes can make savings by adopting simple low-cost or no-cost measures to reduce waste. "At the moment, many businesses are writing off between 1% and 4% of their turnover, and I must emphasise that's turnover rather than profit. Using too much water, over-complicated product design or simply throwing away too much, all hit businesses where it hurts." It doesn't take much effort to make a difference to the bottom line. The Small Business Consortium cites 16-strong Ormiston Wire, which made savings of £10,000 on a turnover of £1.4m simply through basic energy-saving measures like light bulbs with motion sensors, plastic skylights to cut the need for artificial light and the installation of a highly efficient condensing gas boiler. The Isleworth-based company also avoids the Climate Change Levy by sourcing power from a renewable energy company, saving around £1,100 per year. Redruth-based Harman Pro Audio introduced a series of no-cost and low-cost initiatives to reduce packaging and associated costs. These included the redesign of packaging to eliminate polystyrene, the use of bulk packaging instead of single packs, and the re-use of packaging for deliveries to a regular customer. It added up to cost savings of over £37,000 with a total payback period of just 12 weeks for the packaging redesign. A project undertaken by Allied Distillers Ltd (ADL), however, illustrates just how much can be achieved when basic principles of waste minimisation are extended throughout the supply chain. After several years of implementing a programme at its own site, ADL decided to involve its key suppliers in a similar initiative. Confidential, on-site waste reviews by Envirowise identified the main opportunities for improvement. A wide range of facilities and process improvements, supported by independent consultants, followed training workshops. For example, its label manufacturer made savings of over £108,000 per year by buying smaller sheets of paper, reducing label weight, and cutting 'overs' in paper and foil. By recycling damaged pallets and adopting reusable layer pads, its glass container supplier saved nearly £25,000 while a new auto-doping lubrication system for moulding tools cut rejects by 29% and saved a mighty £300,000 per year. Together, ADL and its seven suppliers saved £1.2m, cut materials usage by 945t, reduced water use and effluent generation by 48,000m3 and made energy savings of 78,000 GJ per year. Since most of the companies are taking the waste minimisation projects even further, the level of savings is expected to increase. The emphasis here has been on the elements of CSR that are easiest to cost and present the most tangible return. When it comes to the wider social issues, things become a lot trickier. Dr Mike Kennerley of Cranfield's Centre for Business Performance is currently researching how organisations integrate socially responsible actions into their mainstream decision-making. "Organisations are looking for the business case to say better corporate responsibility will lead to better financial performance. Plenty of studies do that but give very little detail of how you do the actual trade-offs. If you can link the business impacts of corporate responsible actions to drivers like shareholder value, at least you can explicitly understand what the tradeoffs are." He believes that one of the basic problems is that CSR measures haven't been integrated with the financial tools, like net present value, that are used to make decisions. "Not that the tools are necessarily wrong but the way in which they are applied generally tends to take too narrow a focus. They tend just to consider, for example, immediate customers without considering the broader brand impact and its long-term effect on revenue. It makes the whole process more complex but if you don't do it, you are just ignoring some of the things that may really affect you later." Companies already focused on the social as well as environmental aspects of CSR are well aware of the difficulties of determining the ROI. Some, however, are prepared to live with it because it's the way they want to do business. One such is Chelmsford-based e2v technologies, which has a huge international reputation for innovation, notably in RF, microwave and sensing components. Aside from the public sector, its 1200-strong workforce makes it the area's largest employer. "We cover waste management, energy, and compliance with environmental legislation as a matter of course," explains HR director Peter Scraton, "but we don't see ourselves in a vacuum. The community gives a lot to us - not least all the people who work for us - and we feel we have to give something back." The 'something' is huge. At a national level, there has scarcely been an educational initiative on science and technology that has not prominently featured e2v. Locally, it works formally by taking the same agenda out into the community, and informally through volunteer programmes to clean rivers, support community facilities and the like. Last year it gave £17,000 to its charities committee, supplementing the £5,000 directly raised by employees. It tries to offset the costs of all these programmes through vigorous energy conservation. Why do it at all? Scraton admits that the publicity is a huge commercial driver, not least because it reinforces the view that e2v is a good place to work. But there are strong operational benefits, too. Voluntary and external work is a major tool for developing its own people. "When our apprentices go out into schools, they grow too. Aspiring managers are sent out into the community to help, but also to improve their leadership and life learning." Scraton says that a junior manager seconded to work with deprived kids in a community centre brings a lot of people skills and social awareness back into the workplace. Is this approach to CSR a luxury? Scraton acknowledges that it is much easier for an organisation with financial means to have a robust approach to CSR. "Companies like ours do see a strong commercial rationale for pursuing these things. However, I do believe there is a strong ethical driver." Basically, socio-economic programmes reinforce the way e2v wants to operate. "We try to run our business with integrity, innovation, raising the bar, connectivity. Lots of the CSR concepts link directly back to the values we want our managers to work with."