How CSR can help manage risk

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Corporate social responsibility (CSR) is often referred to as business responsibility and an organisation's response on environmental, ethical, social and economic issues.

Positive actions that reduce the negative impact of an organisation on these issues can be seen as a way of managing risk. An example of this could be a retailer constantly monitoring its employment policies to ensure that is adhered to throughout its supply chain, so avoiding any scandals on human rights abuse or potential litigation over working standards.

What are the main areas of risk to a business?
Corporate reputation, governance and ethics are headline issues associated with corporate social responsibility (CSR) that have made the news headlines in the last few years. Examples include the ethics of arms and defence deals, ‘fat cat’ director salaries and shareholder activism, illegal workers and supply chain issues, the financial scandal of Parmalat, and the famous collapses of Enron and WorldCom and false accounting.

These are all topical issues that have demonstrated areas of risk to companies. All are important issues in there own right. Here Article 13 will look at these areas collectively grouped under the banner of risk.

By answering the following questions we hope to demonstrate the important role HR has within a business in identifying and addressing risk. What is risk? What do words like governance really mean? Why are they headline news? And what can HR do?

Risk
Managing and controlling risk is key to running a successful organisation. Risk can be defined as the possibility of suffering harm or loss. Within the area of CSR there are four general areas of risk.
1. Supply chain – country specific such as human rights abuses, or company specific risks such as pollution.
2. Operational risks – this covers compliance with regulation, employee satisfaction and dangerous operations
3. Product – this covers use of hazardous raw materials (e.g. nuclear energy) waste during production, and health and safety issues.
4. Societal expectations – this covers what society demands of a business in the 21st Century

Governance

Poor governance reflects a culture where employees are not involved in the way things are done,
Good governance will ensure both current and future risks that affect all stakeholders are identified and that the appropriate internal controls (accountability mechanisms, systems and procedures) are used to mitigate, and in some cases, turn risk into opportunities.

Poor governance reflects a culture where employees are not involved in the way things are done, or even worse one where corporate governance (the way a business operates and the role of the board) procedures do not exist and whistle blowing becomes necessary.

Corporate reputation
An organisation’s reputation is built on its relationship with staff, customers, suppliers, investors and the community they operate within. These stakeholders are the very same that CSR activities seek to involve. This is why CSR can help maintain and enhance reputations.

A change in reputation can lead to a number of negative impacts such as a drop in share value of the a business, a decrease in profitability as customer and staff loyalty drops, a decrease in business opportunities (as potential partners question the trust and integrity), a decrease in new investment as the business is seen as a greater risk, and even increased insurance premiums.

How to manage risk
First the risk needs to be identified. Having an organisational culture of accountability, transparency and staff involvement (inclusiveness) is beneficial as staff and suppliers can act as risk detectors and feedback on early warning signs.

Here HR has a role to play ensuring the culture of the organisation is one where there is a planned process that captures this feedback. An example of this type of approach is that of Roche, a leading global pharmaceutical company, who turned to Article 13 in 2001 for help in identifying dilemmas for employees involved within drug development side of the business.

The pharmaceutical industry is a highly legislated and regulated environment with numerous industry standard operating procedures (SOPs), guidelines covering all aspects of good practice in clinical trials, and review processes through external ethics committees. Through facilitated workshops the dilemmas experienced by Roche employees in everyday work that were not covered in SOPs or in Roche’s own corporate principles were identified and their impacts analysed.

The findings revealed that the organization could be at risk if staff did not have a planned way to deal with dilemmas e.g. an ethical concern became a full-blown issue if left unmanaged. The need for some type of internal support for staff on ethical decisions and responsibilities became apparent. Staff did not want another ‘policy’ but a process that enabled staff to engage with the issues and resolve them.

From this debate a process that dealt with four key themes: patients, colleagues, trust and integrity was developed. The approach was trialled and human resources staff and trainers have been key to integrating the approach into training and induction sessions.

Through trialling, measures of success have been developed so that its implementation can be monitored and the approach improved. The strength of this work was the governance and buy-in generated by participation alongside the flexibility of bringing in facilitators and champions of issues in society.

This example demonstrates the emergent “involve me’ culture reflected in the wider corporate social responsibility agenda in which stakeholders, in this case employees, are working in partnership with their organization to deliver an environment where risk, or indeed opportunity, is identified and managed.

“De-risking” - the role of HR
HR has a crucial role in the development and implementation of CSR within an organisation. The development and implementation of CSR policies acts as a mechanism to support employees facing “risks”.

By first benchmarking your organisations performance on CSR activities you will identify areas of risk. Other tactics include:

  • Workshops to engage with staff and suppliers to explore areas of risk
  • Develop interactive intranet sites that show case examples of good practice, or build in opportunities for promotion of good practice at staff meetings
  • Review company policy and procedures to ensure values are consistent – procurement, recruitment, training, appraisals and exit interviews
  • Consult and involve staff more in the running of a business
  • Provide feedback questionnaires for employees, customers and suppliers – to show the organisation is living its values

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