Saturday, June 26, 2010

BP ... poster child for failed corporate social responsibility (CSR)?

Dear Colleagues

I am interested and increasingly active in connection with corporate social responsibility (CSR) and concerned about what impact it is having on corporate behavior and on society as a whole. The recent post on the Ethical Corporation website is interesting. The URL is: The text of this post is set out at the end of my remarks. I made a short comment on their post as follows:
Dear Colleagues

CSR is more important than profit ... though you would never know it from listening to the Business News TV channels or the MBA trained professionals. Sadly there are no effective metrics in use to give CSR the leverage it needs. We are doing this with a metrics methodology currently called Community Analytics (CA) that is as rigorous as corporate accounting but looks at economic activity from impact on community rather than impact on stockholders. Without metrics CSR is merely a marketing and advocacy tool ... nothing more!

Peter Burgess
The Ethical Corporation posting identifies an issue that has been increasingly apparent for a number of years ... namely that the use of CSR has been convenient as a supplement to the corporate marketing initiatives and as a supplement to internal operational imperatives ... in other words CSR has been practiced to supplement profit.

There is nothing wrong with supplementing profit ... but there is something wrong with having CSR that is totally superficial. There is also something wrong with the corporate analysis of risk.

In my view, risk is not a financial construct ... it is an engineering construct and in good engineering the practice of risk management is what makes it possible for complex systems like aircraft and modern bridges and buildings to be built and to be safe. My own work in risk management was about doing operational things to reduce the probability that an accident would happen, and there would be casualties and costs. At the time my title was CFO ... chief financial officer ... but the cost of risk was not going to get managed by the insurance company but by the way our operations performed.

So what happened at BP ... costs were reduced, profits were increased, risks were increased ... and then the incident and everything now is about the cost of the incident, and costs soar, profits are diminished and the very future of the company is at risk. The impact on BP and on society ... the socio-economic society of the US Gulf Coast states .... of this incident is not yet determined but I would argue that the societal damage is larger than the stock market capitalization of BP! The fact that BP has agreed to set aside some $20 billion is indicative of a large projected cost!

But whatever happened to CSR ... arguably it was very "Lite" and not much more than a fancy paint job.

My hope is that the CSR movement can be persuaded to engage with value metrics so that profit and value are both part of the way organizations engage in economic activity and resources are allocated. Without metrics it is difficult to get traction and to get meaningful things done.

The BP story has a long way to go ... and the full costs are not going to be understood for a long time to come.

Peter Burgess
BP and the Gulf of Mexico oil spill: Exposing the limits of CSR-lite

BP's recent environment and safety record calls into question whether CR as currently practiced is fit for purpose, suggests Simon Propper

The corporate responsibility (CR) and sustainability community has been pretty quiet about the terrible incident continuing in the Gulf of Mexico. Nobody wants to rush to judge a situation that is complex and highly specific to the oil exploration sector.

This is patently sensible. But the ongoing disaster should make everyone involved in the corporate responsibility field reflect on the effectiveness of CR as currently practiced.

Many commentators attributed the global credit crunch and subsequent banking collapse to a failure of corporate responsibility. And indeed a number of institutions obviously did behave irresponsibly.

But the banking crisis was not a failure of CR in the sense that ethics systems and governance were in place and failed to ensure responsible behaviour. The banks were essentially non-participants in corporate responsibility.

Yes they greened their offices and invested generously in communities, but their core business, particularly investment banking were - and still are - outside the scope of their responsible business programmes. So the banks failed but CR was untested.

BP is entirely different. There is much creative speculation about what the initials ‘BP’ stand for. Greenpeace is running a ‘competition’ to design the company a new logo. This must be one of the best supported design competitions ever held: see the many entries on flickr.

Some suggestions such as ‘Big Pickle’ exhibit dark humour and others like ‘Blatant Polluter’ and ‘Bought Politicians’ express rage. But in the CR world BP stood for Best Practice.

'CSR compliant'

Rarely has a company so quickly and enthusiastically adopted all the tools and techniques recommended to it by experts, business organisations and assorted vocal stakeholders.

After John Browne took BP out of the machiavellian Global Climate Coalition in 1997 and began his address to the Greenpeace Business conference with the words, ‘It makes a change for me to be occupying one of your platforms…’ the company became increasingly confident of its relationship with NGOs and its place in society.

While the current CEO Tony Hayward has diluted the company’s bigger vision for combating climate change and moving ‘beyond petroleum’, his focus on operational integrity was supposed to be even stronger.

This is a company with all the CR scouting badges: ISO14001 at major operating sites, an advanced Operating Management System, thorough materiality and risk assessment procedures, comprehensive stakeholder engagement processes, reporting to GRI A+ standard and assurance by Ernst & Young to AA100AS principles of inclusivity, materiality and responsiveness.

Best practice?

How then is it possible that a much admired company fully implementing best practice can suffer a series of major, even catastrophic incidents? Not in areas outside the main thrust of CR management, like the banks, but in the core objectives of protecting people and the planet.

Three major incidents appear to be more than coincidence or bad luck. In 2005 an explosion at the Texas City Refinery killed 15 people and injured 180.

In 2006 leaks of oil were discovered at the Prudhoe Bay operations in the environmentally sensitive Alaska North Slope. And now of course they have the big one.

This calls into question whether CR as currently practiced is fit for purpose.

A possible explanation for the apparent failure of CR, is that the bar is set too low in most of the approved processes and standards.

In other words it’s too easy to have an A+ report and a certified environmental management system.

This may well be part of the problem and one does hear stories of a box-ticking mentality among some of the systems certifiers.

One corporate executive told me recently that his company does not certify to ISO14001 because the independent certifiers are less rigorous than their own auditors.

Of course not all companies have the potential to cause destruction on the same scale as BP, but all large companies can have a significant impact if they make mistakes and they risk their own reputations when they do so.

Lip service...

Is appears entirely likely that we have developed quite a good understanding of how to identify sustainability risks, but still do not really give that information the weight it deserves when it comes up against commercial pressures – like the need to do things quickly, to cut costs and to minimise regulatory hurdles.

Have we been too accommodating in our effort to ingratiate CR to business, seeing lip-service as preferable to rejection? By ‘we’, I mean the CR industry itself. Consultants, auditors and in house professionals are not in the best position to stand up to really serious pressure from senior executives.

Also the marginalisation of CR in company decision making mostly takes place in private. The really difficult decisions that take a risk over a cautious approach are rarely debated in public or even discussed with corporate responsibility and sustainability teams.

Investors, for all their genuine engagement in CR, continue to be part of the problem.

When viewing a successful company with a good reputation they should be probing how this is being protected not pushing to shave another percent off operating costs.

Perhaps the BP accident in the Gulf of Mexico marks the end of CR-lite and the beginning of a new era where CR risks are fully reflected in company strategy.

Simon Propper is Managing Director of sustainability strategy consultancy, Context.

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