By: Jorge Emilio Sierra Montoya (*)
For Juan Alfaro—Director of the Corporate Social Responsibility Program of the International Graduate School of Management, IESE (One of the most prestigious business schools in Spain—such responsibility adds value to the Companies, as stated below.
The New Company
Today, a new Company exists and so does a so-called New Economy. And this Company stands out from the former or traditional business venture, as it plays an increasing role in offering solutions to socials issues. Therefore, it maintains a close relationship with society, which did not seem as important in the past.
This is only natural -based on Alfaro- because 40% of the world’s GDP is generated by large companies, which clearly demonstrates the enormous power of social transformation these companies possess.
Of course, there is no intention to replace the State in this regard, but leaving it alone is not an option either as if the solution to such issues is limited to the Government or the State it represents.
No. Rather, it complements the efforts of the government and has been known for many years as social policy, which therefore should also be developed within the private sector. This generally occurs through strategic, convenient, and intelligent alliances.
In fact, there is another new phenomenon, unprecedented in the history of humanity known as Globalization. For Alfaro, this is inevitable and irreversible, but it cannot be exclusively based on the ethical values that condemn—as a matter of principle—child labor in Companies or the environmental degradation by its productive activity, as stated by the United Nations Global Compact.
The Company -reports Alfaro- within popular modern concepts, is a global agent affected by different interest’s groups, from Non-Governmental Organizations—NGO’S—to environmental movements including the media and the Third Sector shaped by foundations.
This effect is so evident that it is common to observe the presence of Social Groups’ Shareholders at assemblies, those who acquire enough shares to attend and demand the respect for regulations accorded to minority Shareholders such as transparency, etc., contained in the Good Governance or Corporate Governance Codes.
And if anyone doubts the importance of such aspects in the business life, just think of the corporate scandals because of accounting failures triggered some years ago due to a stock market collapse. This event was worse than the one caused by the terrorist’s attacks in New York, which lead to a massive loss of confidence on the part of large Companies.
“CSR strategies helps to transform those companies, as it should,” Alfaro notes.
What is a Sustainable Company?
Sustainability. What does it include? Alfaro insists that it is characterized by the economic, environmental, and social aspects par excellence of a responsible Company or a good corporate citizen.
“Sustainability depends on the long-term survival of the company”, Alfaro indicates, while ensuring that multiple empirical data, based on a concrete reality of the whole planet, is clearly proven.
It is here that a traditional company and a sustainable company is identified based on the changes mentioned above. The first, in effect, only fulfills the law to benefit shareholders and maybe some employees and clients. These types of Companies only focus on short terms goals
On the other hand, the second type of Company does not only consider creating value for the Three Actors, especially shareholders. Instead, it tries to provide value to other interest’s groups not for opportunistic reasons, but instead as authentic corporate strategists, where the future of the company will depend on the success of the same. They, no doubt, bet on long term goals.
Dialog with stakeholders is the key, so much so that if there is not enough -Alfaro warns- CR strategies are worthless because social projects will be discarded and expectations of interested parties are discarded instead of joining efforts in cooperation and solidarity.
Finally, the difference between the two types of Companies is evidenced in relation to the values it holds: On the other hand, for a traditional Company, the value lies in tangible assets (equipment or machinery, for example). The sustainable Company relies on intangible assets (brand or reputation) that increasingly adds more weight to the market.
For example, if Microsoft was ever sold -Alfaro muses-, how much does its image, reputation, and knowledge—that provides true value to the company—truly worth? What of the dress worn by the beautiful movie actress… why does it cost so much if the raw material is of minimal value? Isn’t the worth based on the fame of the designer, enough even to seduce an actress?
Therefore -Alfaro states- the advertising firms of large Companies attribute more to values than to the product itself: “We do not sell fashion products, but lifestyles”, is a declaration often shared by their very effective advertisements.
Other Model Characteristics
However, there is a sustainable business model, which -according to Alfaro- can be achieved in two ways: first, at a reactive level, because it’s implemented by the competition or for some social contingency such as: caring for those affected by a natural disaster; the second, on the other hand, pursues the right course. It’s proactive, without the aforementioned pressures, which gives rise to various types of CR and its corresponding projects.
However, the differences do not end here. Instead, in his opinion, there are three CR states: the basic, which is fulfilling the law; the tactical, that goes beyond the legal obligations, and those of a strategic Corporate Responsibility, integrated into additional steps in the value chain of the company. In other words, in all its areas or departments (administration, finance, commercial, etc).
For Alfaro, it is not necessary to have an exclusive CR management area, but it should be incorporated into all different areas of the Company, and all employees should participate in these activities applying the same strategy and assuming, in the end, Corporate Responsibility.
And a final message, prior to presenting these strategies with some recommendations: Great care should be taken with the wave of certifications (quality, environmental, industrial safety…) as if obtaining such certifications guarantees the full implementation of CR.
“It reminds me of a friend who approached to tell me he had already obtained a certificate that said he wasn’t crazy,” he declares with irony.
For Alfaro, the advanced model of Corporate Responsibility should be applied in the entire value chain of a Company, based on a firm organizational chart.
A Commission of Responsibility and Corporate Government should be at the same level of the Board of Directors, with a certain level of Independence; The president of the Company depends, as is obvious, on the Board. However, this power comes from from the director of Corporate Responsibility, who in turn, depends on the President, who also reports to the Committee of Corporate Responsibility, integrated by the Directors of the area.
As you can see, no one can be apart from CR, where a total and comprehensive commitment should be implemented.
Strategies and Recommendations
Also, the model has two types of corresponding strategies classified by Alfaro: In the first place, the internal dimension, that focuses on developing the internal processes of the Company. This strategy is clearly based on the aforementioned chart. In the second place, the external dimension based on outside forces developing social models within the Community with philanthropic activities disclosing how much is done in this regard. This can only happen when your house is already in order. In other words, when the Company knows what to do and how to do it.
This is the road any Company should take if they wish to be Socially Responsible.
And regarding communication and disclosure of Corporate Responsible activities, Alfaro highlights several ways from advertising to the triple bottom line (economic, environmental, and social), based on methodologies like the Global Reporting Initiative—GRI—reports that must be submitted to be considered by all interest groups to verify said details.
This is what Companies that are part of the benchmark of the Sustainability Index of the New York Stock Exchange do, whose upward trend, above the traditional Down Jones is further proof -says Alfaro- of the greatest value that CR brings to each Company.
Finally, a list of CR recommendations that are highly useful to Companies include: 1- Corporate Governance; 2- Corporate Accountability Commission and Corporate Governance; 3- CR Principles, integrated into the values of a Company; 4- Vision and Mission, consistent with CR; 5- Codes of Conduct; 6- CR Strategies applied to Business Strategies; 7- CR annual and multi-annual programs; 8- CR on a Company’s Scorecard (Indicators); 9- Interests Groups Maps; 10- Economic, Environmental, and Social Plan; 11- Company Positioning Assessment; 12- Corporate Responsibility Director; 13- CR Internal Committee; 14- Defense of Interests Groups, external to the Company; 15- CR Management System; 16- Exchange of best Company practices; 17- Standards; 18- Publishing the list of partners, suppliers, and Company contractors; 19- Responsible management of suppliers. And the list goes on…
(*) Corporate Social Responsible Advisor (CSR)