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The Added Value of Corporate pResponsibility

“Being sustainable does not happen g ppby accident”

Rob Challis Tangent Synergy Ltd27 January 2011

Key Element is REPUTATION, the bedrock of Sustainability, concerns….

• Others’ perception of you‐COMMUNICATIONS• Driving market value‐ INVESTOR RELATIONSDriving market value INVESTOR RELATIONS• Sustaining & enhancing marketplace 

l i hi SALESrelationships‐SALES, COMPLIANCE,REGULATORS

• Facilitating talent acquisition‐HRC ti d t i t k h ld l lt ALL• Creating and sustains stakeholder loyalty‐ALL

Corporate Responsibility ‐ the catalyst for sustainability

• CR discipline applies globally‐not UK centricCR discipline applies globally not UK centric• Breaks down reputation into “bite sized” chunks• A discipline for stakeholder engagement• Focuses on identification of key non‐financial yrisks

• Articulates the value of being responsible• Articulates the value of being responsible• A strategic discipline‐no longer just “touchy feely”

What Price Corporate Responsibility?What Price Corporate Responsibility?

• Consider the risks of not understanding how times are changingg g

• Need to differentiate from competitorsU d di h k h ld• Understanding why stakeholders may or may not trust you

• Evidence your business is sustainable(Likely to be around for the longer term)be around for the longer term)

Before we beginBefore we begin….

The global trend in Sustainability reporting?reporting?

(No longer the preserve of the big(No longer the preserve of the big players)

Companies which Report on Corporate Social Responsibility Issues *

2008  2002Fortune 500 Top 250 64% 45%Fortune 500 Top 250 64% 45%World’s Top 100 80% 23%United Kingdom 71% 49%Financial Sector (Global) 57% 27%Financial Sector (Global) 57% 27%

* KPMG KPMG

Key Global Corporate y pResponsibility Drivers 

• Economic                                                                                     74% ++• Ethical                                                                                           53% ++• Innovation and learning                                                             53%• Employee motivation                                                                 47% +++• Risk management/reduction 47% +++• Access to capital/increased shareholder value 39% +++

R t ti b d 27%• Reputation or brand 27% +++• Market position (share) improvement                                    21% ++• Strengthened supplier relationships                                       13% +• Cost savings 9% +• Cost savings                                                                                   9% +• Relationships with governmental authorities                          9% ++• Other                                                                                             11% ‐

+ indicates trend is upwards since survey% indicates significant change in focus                                                                    

Corporate Responsibility‐ A definition…

• “a business approach that creates long‐term value by embracing opportunities and y g ppmanaging risks deriving from economic, environmental and social developments”environmental and social developments .

Key wordsKey words…..

• “Long term” ‐ evidencing you will be around for a while‐that your business is sustainabley

• “Risk” –Corporate Responsibility concerns risk“E i i l d i l“• “Economic, environmental and social“–perhaps of concern to Stakeholders

So Corporate Responsibility concerns evidencingevidencing ….

• your business is sustainable• You understand the risks it is designed toYou understand the risks it is designed to addressA d di f k h ld• An understanding of stakeholder concerns

So, how do these elements combine?

Identification / Quantification of Key Non‐Financial RisksFinancial Risks

The main non financial risk of any company is its REPUTATIONREPUTATION

“ Corporate Social Responsibility is the discipline

by which responsibleby which responsible behaviour is evidenced and

quantified to stakeholders. In d i th i t t i d

Market Cap

ON

doing so, their trust in and commitment to the business and confidence in its brand is EP

UTA

TIO

built and sustained”Net asset value

RE

KEY WORD……….KEY WORD……….

•RISKS•RISKSThe New UK Companies Act requires (some)The New UK Companies Act requires (some) companies to report on key non‐financial risks h h “ f ll d ld h lwhich “if crystallised could have a material 

adverse impact on the financial performance of the company.…”

Non financial Risk and SustainabilityNon‐financial Risk and Sustainability….

h id ifi i l i i i i d• The identification, analysis, mitigation and transparent reporting of non‐financial risks constitute the bedrock of sustainability

• This should be the outcome of effective Corporate Responsibility

• Stakeholder engagement is an effective modelStakeholder engagement is an effective model for establishing the typical/generic areas where most organisations will have non‐where most organisations will have non‐financial risk

Stakeholder definitionsStakeholder definitions

“A h b ”• “Anyone who can bugger up your company”(Financial Times)

• “Someone who can be affected by of affect a company’s actions” (ICSA Directors’company s actions  (ICSA Directors  Handbook)i ( l h h ld• Direct (employees, shareholders, customers, 

suppliers, community etc.) and• Indirect (media, NGOs etc.)

Areas of non‐financial risk by stakeholder group

P l (th bilit t tt t d t i th b t ibl• People (the ability to attract and retain the best possible talent)

• Market place ( governance, all interactions with investors & p ( gother suppliers of capital, customers, intermediaries, suppliers and NGOs)

• Community (where employees and customers live and work)Community (where employees and customers live and work)• Environment (an expectation by employees, customers and 

broader society)• Stakeholders (maintaining their trust, loyalty and 

commitment)

ALL ARE CONSTITUENTS OF REPUTATION , SO PROVE IT WORKS….

FTSE4GOOD vs FTSE4GOOD vs FTSEFTSEFTSEFTSE

DJSI EURO STOXX [white line] VS DJ EURO STOXX (2001‐2006)DJSI EURO STOXX [white line] VS. DJ EURO STOXX (2001‐2006)

How to create the Value Proposition

Th h i h k h ld id if k• Through engagement with stakeholders, identify key non‐financial risksC h i i h h f l• Canvass their views as to what they feel differentiates your organisation from its peers‐what might create and sustain their loyaltymight create and sustain their loyalty

• Establish what they value and what they do notU hi i f C R ibili• Use this to inform your Corporate Responsibility Strategy

E il id b t h t d thi ?Easily said but how to do this?

Stakeholder EngagementStakeholder EngagementId tif k t k h ld• Identify key stakeholder groups

• Select representative sampleD l l t ti• Develop relevant questions

• Ask the questionsT tl t th fi di• Transparently report the findings

• State how they have informed your strategy and programmesprogrammes

• Illustrate where perceptions are no alignedA REAL LIFE EXAMPLE OF CR INFLUENCINGA REAL LIFE EXAMPLE OF CR INFLUENCING STRATEGY(Selection from 400 slides)

Change in current reputationsChange in current reputations

Financial services sector

Hedge fund related business

Man Group in particular

ance

d

d th

e

ases

ag

edInvestors

Enha

Stay

edSa

me

Dec

rea

/ Dam

aInternal

External - general

Intermediaries

Conclusions

• External stakeholders see issues with financial services as being malpractice and they don't understand hedge funds.

• Man Group is perceived as being better off than others but still significantly affected by issues

20

Man Group is perceived as being better off than others but still significantly affected by issues such as Madoff

Change in current reputations Change in current reputations –– Internal Internal stakeholdersstakeholders

Financial services sector

Hedge fund related business

Man Group in particular

ance

d

d th

e

ases

ag

edGraduates

Enha

Stay

edSa

me

Dec

rea

/ Dam

a

Senior management

Directors

Conclusions

• Internal stakeholders see the villains as being banks, politicians and media, and they feel hedge funds have unnecessarily taken the blame

21

Assessment of how stakeholders' attitudes to CR Assessment of how stakeholders' attitudes to CR changed over the past year changed over the past year –– Internal ViewsInternal Views

Investors regard it as even more important, because of need for sustainability

Investors are regarding the efficacy of CR activities as a key indicator of trust

External stakeholders have not changed attitudes towards CR in the past yearattitudes towards CR in the past year

CR has become less relevant to companies, because of commercial issues

100%

onsi

dere

d pp

ropr

iate

%

Graduates

Senior management

Conclusions

1

Co

Ap0%Directors

Conclusions

• CR is seen to many as of continuing importance

CR l i h i t ti d li k t th b i t t

22

• CR also requires, however, integration and links to the business strategy

What CR activities are significant to external What CR activities are significant to external stakeholders? stakeholders? -- Environment Environment –– Internal views Cont.Internal views Cont.

Engaging and sharing resources with corporates, governments and NGO's

Introducing initiatives, e.g. Waste segregation and 'bottleless' water system

ghow

Graduates

HigLoSenior management

Directors

Conclusions

• Directors do not see Environment as a priority.

23

Embedding Corporate ResponsibilityEmbedding Corporate Responsibility

• Leadership from the very top is absolutely fundamental particularly at the• Leadership from the very top is absolutely fundamental, particularly at the early stages of the programme‐once mature, it is not so critical.

• Quantification of value is key‐give stakeholder facing teams the ammunition they need to evidence the organisation is sustainable Get theammunition they need to evidence the organisation is sustainable. Get the data!

• Report transparently both the good and the bad• Show people the part they play in the process and what’s in it for themShow people the part they play in the process and what s in it for them.• Use them to inform the strategy so they own a part of it• Workshops and seminars• Surveys• Surveys• Constantly re‐evaluate the non‐financial risks and use Corporate 

Responsibility disciplines to pro‐act them where possible

To be effective and sustainable, Corporate Responsibility must be a value proposition and p y p p

driver which:‐• demonstrably adds and quantify its value to the business• demonstrably adds and quantify its value to the business 

proposition and key stakeholders;

• represents an investment from which there is a reasonable• represents an investment from which there is a reasonable  expectation of a quantifiable financial and non financial return; for example, a reduction in employee turnover, an improved uptake of customers, enhanced share price etc.;p , p ;

• adapts to be relevant to the nature and scale of the business; 

• is integrated into the business strategy and processes;

i h d i k b d• is research and risk based; 

Cont’dCont d….• is focused on the identification and mitigation of key non• is focused on the identification and mitigation of key non 

financial risks which underpin business sustainability (defined here as “the long term survival of the business”).

• through research, surveys and engagement, meets the fair and reasonable expectations of  and evidence value to all stakeholders in a transparent way; 

• is able to withstand reasonable scrutiny both internal and external; 

• differentiates the business against competition for example in the areas of  recruitment, investment and customers;

t t d i f b i t ti d d t t• protects and reinforces business reputation and engenders trust in business dealings and engagement.

Integrated Corporate ResponsibilityIntegrated Corporate Responsibility–– How it How it hangs togetherhangs together

How We BehaveCore Values

Key Value Drivers (Adding

Value)

Responsible Business Behaviour Value)

Community

Positive

Behaviour

GoodwillMarket ValueMarket Place

Brand

Positive Reputation

Our PeopleTrust

Our Environment

SUSTAINABILITY

Final Message….g

So, is Responsible Business a cost or an investment

??

Rob ChallisRob Challis,Tangent Synergy Ltd,Tangent House,

d18, Ditton Road,Surbiton,Surrey,KT6 6QZTel:‐ +44(0)20 8399 2069Fax:‐ +44(0)20 8390 5990( )Mobile:‐ +44 (0)7850 724153Email:‐ [email protected] Profile:‐ http://www linkedin com/myprofile?trk=hb tab proLinkedIn Profile: http://www.linkedin.com/myprofile?trk hb_tab_pro