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2. Ethical Corporation • September 2011 Strategy and management 37
YENWEN/ISTOCKPHOTO.COM
Other section content:
40 David Grayson makes
the business case
Tax and ethics What’s good
policy?
Can pay, should pay
• Abide by a general “anti-
avoidance principle”.
By Oliver Balch
• Acknowledge that tax has
As tax blasts its way onto the public agenda, companies should concentrate on where they pay, major economic impact
as well as how much on society and is therefore
a responsibility issue.
our years ago, the world was a different place. payments in the developing world have long been
F JPMorgan still signed cheques, “bailouts” were
what sinking seafarers did and we were all a lot
the subject of scrutiny. The Extractive Industries
Transparency Initiative, for example, which
• Report on tax policies and
practices in annual
accounts and corporate
better off. attempts to increase disclosure of payment by
responsibility reports.
So when the Oxford Centre for Business Taxation natural resource companies to governments, dates
• Adopt tax mitigation
asked companies about corporation tax, the conclu- back to 2002.
techniques subject to
sion was categorical: the issue was “too complex or
consideration
obscure” for the average man on the street. Responsible business issue
of their social and
How things change. In March 2011, more than What definitively is new, however, is the general
economic impacts.
half a million citizens took to the streets of London recognition that tax is now a core responsibility
to protest against “tax injustice”. Spearheaded by issue for business. • Integrate tax policy and
the campaign group UK Uncut, their anger homed At its most basic, the ethics of taxation ultimately practice in corporate
in on big business. Tax “dodging” by large compa- derives from companies’ social contract with the governance systems.
nies, it was claimed, is costing the UK exchequer countries in which they operate. Taxes fund • Report tax on a country-
£95bn in lost revenue every year. public goods such as education and healthcare. by-country basis.
The speed at which tax has become a major When large companies evade or avoid tax, govern- • List all subsidiary
public issue in the UK and elsewhere is astonishing. ments are left with one of two choices: cut entities and publish
Tax hardly has the emotive appeal of slave labour or spending, or tax individuals and smaller domestic accounts for their
toxic waste. Yet its explosion onto the public agenda businesses more. activities.
is not entirely surprising. In times of fiscal tight- Mitigating tax payments may not be illegal, but Source: Tax Justice Network
ening and spending cuts, all eyes turn to neither is it entirely responsible when such practices
the question of who pays what into the public pot. negatively impact a country’s social and economic
“In a time of austerity, you’ve seen campaign wellbeing. So argues John Christensen, director of the
groups look around and ask if the burden is being Network for Tax Justice, a UK-based campaign group.
borne by all in an equal measure,” says Louise “In other words, don’t use aggressive tax avoid-
Rouse, director of engagement at UK campaign ance and evasion and then try to pretend that you
group Fair Pensions. are engaged in a corporate responsibility agenda. In times of fiscal
Media attention has played its part too. In the UK, The two are quite simply incompatible,” he says. tightening, all
the Guardian newspaper ran a series of “Tax Gap” The message appears to be seeping into
investigations into big brands. Likewise, in the US, the the C-suite. Andrew Witty, chief executive of eyes turn to the
New York Times has turned the spotlight on the tax GlaxoSmithKline, recently condemned the habit of question of who
policies of corporate giants such as GE and Google. international companies to “float in and out of soci-
Tax practices may be attracting headlines, but the eties” depending on tax regimes. The practice is
pays what into
ethics of tax is not entirely new. Corporate tax “completely wrong”, he told the Observer newspaper. the public pot

3. 38 Strategy and management Ethical Corporation • September 2011
Responsible
approaches
to tax
Management steps
• Create a company tax policy
setting out the principles
to be applied and the
practices ruled out.
• Disseminate this policy
to internal and external
stakeholders.
• Ensure board level
oversight of internal
tax policymaking.
• Disclose a range of
qualitative and
quantitative information
on your tax practices and
their impacts.
• Work with peers and
stakeholders to
formulate a mutually
agreed code of conduct.
Source: Action Aid/FairPensions
Have you paid
an appropriate
level of tax? Don't be a tax dodger
“Appropriate levels of tax” Ethics aside, a compelling business case for Companies aren’t paying enough, according to the
are the rates stipulated by responsible tax planning can also be made. Reputa- former. All legal requirements are being met,
the relevant tax authority tions are at risk. Recent months have seen protesters respond the latter.
within the country where camped out in front of Boots, Top Shop, Vodafone Amid this polarising debate, one thing seems
the company’s tax liability and a host of other high street retailers. certain: tax avoidance, tax evasion and abuse of tax
falls, minus 3%. The lower It’s not just bad press companies need to worry havens and offshore secrecy laws all lie beyond the
figure is because taxable about. A “tax dodger” badge, fair or otherwise, can pale.
profits and accounting lead to a host of costly repercussions, from legal A small number of corporations opt for the
profits are not the same challenges to the loss of favourable tax status. wrong side of the law. They often do so with the
thing. “Once a pattern of uncertainty in taxation active complicity of accountants, banks and law
As a result, it is unlikely a reporting is known to exist, then it is possible that a firms – a practice John Christensen describes as
company will pay exactly the company may trade at a discount to its true value “wilful blindness”.
tax rate laid down in law on for fear that further uncertainties will be revealed,” Most large companies, however, operate within
its declared taxable profits. consultancy firm SustainAbility stated some years legal boundaries. They are too big and too visible to
The rate may be higher ago in a far-sighted report on tax. do otherwise. When it comes to tax, however,
because some costs allowed Of course, where irresponsibility becomes ille- legality is not the watertight defence it used to be.
for accounting purposes are gality, the costs can run far higher. Commodity “The argument that ‘we are obeying the law and
disallowed for tax, such as IT traders Bunge, Cargill and Dreyfus could face bills everything that we are doing is technically permis-
equipment and other capital running into hundreds of millions of dollars if an sible’ no longer washes in the court of public
items. investigation into unpaid taxes and duties by the opinion,” says Rouse of Fair Pensions, which
Source: Profit Through Argentine government goes against them. recently published a joint paper on the issue. That
Ethics/See What You Are So what does a responsible approach to tax look leaves many companies exposed.
Buying Into standard like? Campaign groups are fighting it out with To date, aggressive tax avoidance strategies such
corporate tax departments to determine just that. as “transfer pricing” and the use of tax havens have

4. Ethical Corporation • September 2011 Strategy and management 39
Naturally, any responsible tax policy must explic-
itly rule out any illegal activity. The list of other
Emerging
non-negotiables is open to debate, however. Among
practices on tax
the steps suggested by responsible tax advocates
British American Tobacco
are: abiding by a general “anti-avoidance principle”;
supports the “gradual and
considering the societal impacts of tax mitigation;
predictable” increase in
and publishing financial accounts for subsidiary
taxes on tobacco.
entities (see box).
The priority above all is transparency. Tax is not Anglo-American, for five
an issue that will go away and so companies years, has published “taxes
must “articulate their position clearly”, says borne and claimed” in both
Peter Truesdale, associate director at London- developing and developed
based consultancy firm Corporate Citizenship countries, as well as an
and author of a recent report on responsible tax effective tax rate by country
management. and weighted average for
“This doesn’t necessarily mean companies the company as a whole.
paying more tax – but it does mean companies iden- McDonald’s publishes a
tifying a coherent and credible position on tax, and headline tax figure for the
finding simple language to defend it in,” he adds. company as a whole
To assist in that process, Corporate Citizenship ($1.1bn), plus its total bill for
has developed a tax map to enable companies to social and income taxes in
chart where, how and what they pay in taxes. its top nine markets year-
In terms of disclosure, the vast majority of by-year.
companies go no further than the statutory require- SAB Miller talks of a “tax
ment to include an overall tax figure in their annual footprint” and reveals the
tax and accounts. That will “almost certainly” have split in its taxes between
to change, Truesdale says. “In the modern world, developed and developing
you can’t get away from articulating a position and countries.
providing sufficient information to show that you Exxon Mobil publishes its
are doing it.” total payment in direct and
The spotlight is turning in particular on corpo- indirect taxes and duties in
rate operations in developing countries, especially the UK (£5.1bn) and compares
those with “material” tax bills. A case in point is this to total government
Ghana, where one sixth of the country’s entire tax expenditure (about 1%).
revenues derive from foreign-owned businesses. Source: Tax, Reputations
Greater disclosure of overseas tax payments is and Responsibility, Corporate
been perceived as permissible behaviour. currently under consideration by European and US Citizenship, May 2010
Now, the public mood (if not the letter of the law) legislators. Some companies – but not many – are
is shifting. As well as reducing tax income for the pre-empting the possibility of future regulation by
state, tax avoidance effectively penalises national publishing tax payments on a country-by-country
business that don’t have the capacity to shift assets basis.
offshore and the like. A notable example is Rio Tinto. The mining giant The spotlight
The safe ground, according to all parties, lies in recently “redesigned” its approach to tax disclosure, is turning
legitimate tax planning and mitigation. Indeed, publishing payments made to governments in each
shareholders could reasonably argue that any of its main operational markets.
in particular
business that fails to take full advantage of existing In its recent dedicated tax report, the company on corporate
tax agreements or explicit exemptions is behaving states that its $7.4bn tax bill for 2010 marks a “signif- operations
irresponsibly. icant contribution to public finances” for the
countries where it operates. The report also voices in developing
Transparency trumps concerns about the threat of tax increases in the countries
A major reason behind the current confusion is future.
companies’ own management of the issue. Many Going public is not without its risks. Govern-
corporations don’t have a uniform tax policy. For ments, shareholders and the general public will all
those that do, the policy is often not applied consis- have their opinion on whether a company’s tax
tently across all the company’s operations. payments are fair or not.
The first task for any corporate responsibility The debate over tax and ethics is only just getting
manager, therefore, is to determine their company’s started, however. By making its payments clear,
current practice. On the back of that information, a companies such as Rio Tinto earn a legitimate place
policy should be agreed and steps taken to see that in the discussion. More should join them at the
it is implemented. table. n

5. 40 Strategy and management Ethical Corporation • September 2011
SCHUCHUNKE/ISTOCKPHOTO.COM
Essay
Why companies must build the
business case
By David Grayson
Leading companies understand why being a good corporate citizen leads to economic success
he “business case” for corporate responsibility was “Addressing social and environmental concerns is
A growing number
T given new resonance this summer by the News of
the World phone hacking scandal and the events that
becoming part of mainstream business.” of companies see
that corporate
followed. For the media companies involved, “corpo- Revisiting the business case
rate responsibility” had been reduced to an optional The companies whose leaders “get” the importance responsibility is
extra that could be abandoned when management of embedding corporate sustainability and responsi- about behaviour
creates a culture of sales targets (circulation and adver- bility deep into a business are becoming more
tising) and profitability improvements at all costs. intelligent at managing their own corporate sustain-
in core operations
In the end, that narrow perspective cost people’s ability and responsibility programmes – and
jobs and reputations, a great deal of money and, assessing their impacts on business and wider society.
ultimately, the business itself. That’s a high price to This is particularly evident in research on the
pay for ignorance. corporate responsibility business case conducted
In contrast, there is a growing number of compa- recently by the Doughty Centre and Business in the
nies whose leaders see that corporate responsibility Community2. We worked together to update the 2003
is about how companies behave in their core opera- Arthur Little study3 that examined the arguments for
tions: how they go about their business and how companies to take responsible business more seri-
they make their money. ously. We also reviewed companies’ submissions for
For such companies – particularly those whose BITC’s Corporate Responsibility Index.
performance has been recognised through Business Many academic articles, as well as numerous
in the Community’s Awards for Excellence and its management consultants’ reports, have been
Corporate Responsibility Index – responsible produced since the 2003 study. We found that both
business behaviour is embedded in the DNA of the the academic theory and practitioner arguments
business. It’s part of the organisation’s culture and were remarkably consistent with each other.
strategy, manifesting itself in what gets said and Our study – which encompassed both an
done by everyone from boardroom executives to academic and practitioner literature review as well
those working at the front lines of the most remote as companies’ own reports of their activities in their
business units. Corporate responsibility is a BITC’s Awards for Excellence and CR Index submis-
coherent part of the corporate “story”. It’s not some- sions over the period 2003-10 – identified seven key
thing a company does; it’s what a company is. business benefits. In order of the frequency with
“The idea that managing the impact of commer- which they were cited, these were:
cial activity on society and the environment brings 1. Brand value and reputation – benefits realised
business benefits is gaining momentum,” writes from responsible business that improve the value
columnist Sarah Murray in the latest Financial of the brand and/or the reputation of the brand
Times Special Report on Responsible Business1. or organisation.

6. Ethical Corporation • September 2011 Strategy and management 41
AUSINASIA/ISTOCKPHOTO.COM
2. Employees and future workforce – benefits from
responsible business practice that affects the
working life of employees, and the ability to
attract and hold on to talent. This includes
employee motivation, productivity, recruitment,
satisfaction, retention, engagement, and loyalty.
3. Operational effectiveness – improvements and
innovation in an organisation’s practices and
processes as a direct result of being more respon-
sible and sustainable, creating more effective
operations and higher levels of efficiency.
4. Risk management – benefits resulting from CR
efforts that improve the organisation’s ability to
identify and reduce exposure to risk, and
prepare for and manage risks better.
5. Direct financial impact – direct benefit to the
financial performance of an organisation. For
example improving access to capital, reducing
costs, and improving shareholder value.
6. Organisational growth – an opportunity for
overall organisational growth derived from
being a responsible business, whether through
new markets, new product development, lateral Is it accepting sustainability?
expansion, new customers, or new partner-
ships/alliances. The emergence of ‘shared destiny’
7. Business opportunity – new opportunities or What is particularly striking about companies recog-
innovation generation created for all stake- nised in BITC’s 2011 Awards for Excellence4 is that
holders specifically because of their efforts in the boundary between what gets described as
being a responsible business. This can result in “business” on the one hand and “social” and/or
new business development, but critically it is “environmental” benefit on the other is becoming
about win-win opportunities for a variety of blurred. For example:
stakeholders. • EDF Energy’s Zero Harm programme5 – this
aims to achieve “zero harm” (no incidence of
In addition, there were two new categories of workplace injury and no form of work casual or
benefit that emerged in the most recent years work aggravated illness). The case study cites cost
covered by the review. savings, reductions in work-related ill health inci-
• Organisational leadership – defined as “leader- dence rates, days lost and musculoskeletal health
ship achieved through helping society” problems as “business benefits” while employee
which results from a radical change in the pride, advocacy and perceived management
internal corporate values and external market interest in employee health and well-being –
reconstitution. which could also be construed as business
• Macro-level sustainable development – defined benefits – are cited as “employee benefits”.
as “the impact and responsibilities an organisa- • Tata Consultancy Services’ Adult Literacy
tion has to higher level economic, social and Programme6 – this utilises TCS IT expertise to
Businesses have
environmental issues”. create Computer Based Functional Literacy a direct stake
(CBFL), a multimedia software package that in ensuring
The emergence of this last benefit signals an tackles adult literacy in a 40-hour programme. By
important trend – namely that, as companies have shortening the development time for CBFL the success of
become progressively sophisticated in their manage- products in different languages, TCS can address sustainable
ment of sustainability issues, the more aware they wide-scale Bottom of the Pyramid literacy
are of the close interdependence between the fate of problems more swiftly (a social benefit). However,
development
their business and that of the world at large. the roll-out of these products, engaging employees
They are recognising that their businesses have a and families as volunteers in the process, also
direct stake in ensuring the success of sustainable helps open up new markets and boosts recruit-
development – and therefore their efforts to mitigate ment, retention, motivation and enhanced
the impacts of climate change, poverty, famine, company perception – all clear business benefits.
health pandemics, corruption and other global socio- • On the environmental side, The Co-operative
economic, political and environmental crises are not Group has focused on reducing its own green-
bolt-on extras to the business but are direct invest- house gas emissions as well as providing or
ments in the long-term viability of the business. withholding of finances to companies in order to

7. 42 Strategy and management Ethical Corporation • September 2011
ANDRES RODRIGUEZ/DREAMSTIME.COM
customers, suppliers and others in their immediate
sphere of influence, but with a much wider range of
stakeholders with whom they are inter-connected.
By engaging the hearts and minds of individuals
in these extended stakeholder networks – which can
encompass even their own industry competitors (eg
the Extractive Industries Transparency Initiative, the
Kimberley Process certification scheme and other
sector-wide sustainability initiatives) – businesses
can build vibrant powerful engines of societal
change, in tandem with growing and developing
their own companies.
Engaging and building your stakeholder
community
What is evident from these companies’ corporate
responsibility case studies is that their success
depends on creating a sense of “shared destiny”
among the company’s key stakeholder groups,
Empowered employees achieve more particularly among employees and suppliers as well
as wider community constituencies. Cooperation,
reduce the impact of the products and services not competition, is central to this process.
offered. These activities have reduced the environ- The power of cooperation has been recognised
mental impacts of the Co-op as well as its clients by Harvard Law School Professor Yochai Benkler. In
and other stakeholders. But they also reinforce the July/August 2011 edition of Harvard Business
the Co-op’s corporate reputation as a leading Review8, he draws on research in evolutionary
advocate for sustainability, attracting and biology, psychology, sociology, political science, and
retaining customers who have cited ethics/ experimental economics to argue that people
environment as a reason for opening and main- behave far less selfishly than most assume. Evolu-
taining an account. tionary biologists and psychologists have even
• Finally, construction company Wates Group, found neural and, possibly, genetic evidence of a
BITC’s Company of the Year, has engaged a wide human predisposition to cooperate. These findings
range of its stakeholders – including employees, suggest that instead of using controls or carrots and
customers, suppliers as well as risk specialists sticks to motivate people, companies should use
and a network of social enterprises – to redefine systems that rely on engagement and a sense of
The purpose of its approach to sustainability. Its activities common purpose.
encompass employee development and engage- The same principle applies to building a commu-
the corporation ment, community transformation, carbon nity of engaged stakeholders to achieve
must be redefined footprint reduction, elimination of waste and sustainability goals. Our Doughty Centre team
responsible sourcing through its supply chain. believe that engagement is central, not only to
as creating shared This has created a wide range of business embedding sustainability in companies, but to
value benefits including enhanced employee engage- ensuring the success of the company in its widest
ment and responsible leadership, improved possible sense. Our team has developed a roadmap
operational effectiveness, new business opportu- for stakeholder engagement9 as well as a more
nities, more effective risk management and recent how-to guide for engaging employees with
enhanced brand reputation. corporate responsibility10.
But to create a foundation for engagement with
What does the close alignment of these business sustainability, one has to begin, not just with the
and societal benefits signify? In the January/ business case for corporate responsibility but at a
February 2011 edition of Harvard Business Review7, more fundamental level, with a clear sense of what
Professor Michael Porter and Mark Kramer have the business is for: the case for business.
written that in light of recent historical trends, “the In his landmark 1990 RSA Lecture11, Prof Charles
purpose of the corporation must be redefined as Handy made a simple but profound argument: that
creating shared value, not just profit per se”. in the interests of business as well as wider society,
However, the work of these leading-edge compa- companies should be reconceived as wealth-
nies whose achievements have been recognised by creating, self-governing communities, not as
BITC and others suggests that something far more properties. Each corporate community must answer
exciting is going on: that enlightened business for itself the question, “what is our company for?”
leaders are recognising that their companies have a He argued eloquently that profit-making was a
“shared destiny”, not only with their employees, means, not an end, and every company needed to

8. Ethical Corporation • September 2011 Strategy and management 43
CHRISTIAN DELBERT/DREAMSTIME.COM
discover a purpose beyond itself. That purpose
needs to be embody a vision that is ambitious
and yet accessible to everyone in the corporate
community.
Answering this basic question cannot be
achieved with a sanitised mission statement written
down by a few top executives in a management
strategy meeting. Dialogue with your corporate
community’s stakeholders is central to this process
(see, for example, our Doughty Centre how-to guide
on CR knowledge management12 to understand the
central role of corporate storytelling).
Knowing what your company is for, in the
broadest possible sense, means understanding:
• What your company is trying to achieve (eg “to
help people and businesses throughout the
world reach their full potential” (Microsoft)).
• Who is in your extended corporate community
(eg for many leading-edge companies, this
includes not just the usual suspects close to the
centre of the organisation, such as customers,
employees and investors, but stakeholders who
are more geographically remote, for example Success means creating shared destiny across the supply chain
individuals in Bottom of the Pyramid groups
working in factories at the furthest reaches of the References:
Inspiration is
supply chain). 1 Sarah Murray, “Working harder to pin benefits down”, FT Special
• How your company can best achieve its Report on Responsible Business 2011, 7 June 2011 what you will
purpose in ways that respect all the members of (http://t.co/5ratitc). need most on your
your corporate community (eg promoting the 2 Business in the Community and the Doughty Centre for Corporate
health and well-being of employees; alleviating Responsibility, The Business Case for Being a Responsible Business,
company’s journey
poverty or tackling illiteracy among potential March 2011. to sustainability
customers, employers and/or suppliers at the 3 Business in the Community and Arthur D. Little, The Business Case
Bottom of the Pyramid; preserving the long-term for Corporate Responsibility, 2003.
integrity of natural resources shared with others). 4 For details, see
http://www.bitc.org.uk/awards_for_excellence/awards_for_excell
It is only in this context that one can define what ence_2011_winners/all_results.html.
corporate sustainability and responsibility means to 5 See http://www.bitc.org.uk/resources/case_studies/afe2818.html.
your company. That definition will be unique to 6 See http://www.bitc.org.uk/resources/case_studies/
every business. Ideally it should be broad enough – tata_adult_literacy_1.html.
in its vision of who is part of your corporate commu- 7 Michael Porter and Mark Kramer, “The Big Idea: Creating Shared
nity and the scope of the timeframe over which your Value”. Harvard Business Review (Jan/Feb 2011).
business expects to operate – to encompass innova- 8 Yochai Benkler, “The Unselfish Gene”, Harvard Business Review
tive, longer-term projects focused on creating (July/August 2011).
sustainable value with a diverse mix of partners (see, 9 Neil Jeffery, Stakeholder Engagement: A Road Map to Meaningful
for example, our Doughty Centre Occasional Paper Engagement (#2 in the Doughty Centre ‘How to do Corporate
on the work of social intrapreneurs13). Responsibility’ Series) (July 2009).
In this way it becomes possible to progress 10 Nadine Exter, Engaging Employees in Corporate Responsibility:
beyond maintaining reputation and legitimacy, and A Doughty Centre How-to Guide (#6 in series) (June 2011).
cost and risk reduction, to innovation and reposi- 11 Charles Handy, “What is a Company For?”, Michael Shanks
tioning, and growth path and trajectory, the four Memorial Lecture, delivered 5 December 1990, reprinted in Beyond
quadrants in Hart and Milstein’s Sustainable Value Certainty: The Changing Worlds of Organisations (Hutchinson,
Matrix14. 1995).
Finally, your core purpose must be something 12 Melody McLaren, Supporting Corporate Responsibility Performance
that people feel, not just think. It needs, above all, Through Effective Knowledge Management: A Doughty Centre for
to inspire people to work together to achieve Corporate Responsibility How-to Guide (January 2011).
some higher goal, through actions great and small, 13 David Grayson, Melody McLaren and Heiko Spitzeck, Social
every day they come to work. Because, more than Intrapreneurs – an extra force for sustainability innovation:
strategy or business plans, inspiration is what you Doughty Centre Occasional Paper (January 2011).
will need most on your company’s journey to 14 Stuart L. Hart and Mark B. Milstein, Creating sustainable value,
sustainability. n Academy of Management Executive, 2003, Vol. 17, No. 2.

9. 44 By invitation Ethical Corporation • September 2011
NOGUEIRA/DREAMSTIME.COM
Reporting
Ensuring true assurance
Robust independent assurance of sustainability reports trumps mere
data verification for securing stakeholder trust, argues Jason Perks
t’s time to make up our minds together financial, environmental,
I about how sustainability reporting
is assessed. One option is to restrict
social and governance information in
a consistent and comparable format.
our remit to basic verification of data. But the fact that IIRC is driven by
The other is to pursue much more the accountancy profession means Assured information is worth reading
extensive evaluations of how well that simply integrating a standard
reports address what matters to set of sustainability metrics could sustainability performance confi-
stakeholders. I am worried that we become the de facto approach in dently. It would also be a big help to
may be about to take the wrong road. integrated reporting. This would companies trying to decide how
If we go down the verification severely restrict the potential of best to have their reports independ-
route, it’s unlikely that sustain- reports to give a full account of a ently assessed.
ability reports will properly address company’s performance. I believe this is achievable in
companies’ material issues or drive the next decade because, in the
strategic responses. The alternative Get beyond the data AA1000 Assurance Standard, we
– robust, stakeholder-based assur- The other main danger is that compa- have something that’s proven and
ance – offers far more value to nies might be tempted to get their generally applicable. AA1000AS
stakeholders and companies. financial auditors to examine the
What we mandates the use of three princi-
Of course, assurance can include whole integrated report. This could need most, ples: inclusivity, materiality and
verification of claims and data, but encourage data verification at the if assurance is responsiveness. At our recent
that is just one element. It also expense of specialist assurance of the roundtable, attendees resoundingly
means establishing the extent to sustainability content. Non-financial to deliver on confirmed the validity of these
which the report addresses the reporting should be based firmly on its potential, principles for assurance.
issues that concern stakeholders stakeholder needs. In particular, any Of course, AA1000AS is not the
and have an impact on the business. integrated reporting framework
is a single, only assurance standard out there,
It is about checking not only that the needs to be clear that assurance internationally and it has flaws. But it is the only
things in the report are right but should examine how well the accepted standard specifically designed for
also, more fundamentally, that the company has identified, addressed sustainability and based on an inclu-
right things are in the report. and reported its material issues. framework sive stakeholder-based approach.
The choice of direction is upon us At a recent roundtable examining Even if AA1000AS isn’t yet
today in large part because of pivotal the future of assurance, partici- widely used for assurance, it is
work that’s going on to develop two pating companies were agreed that, gaining ground among the leaders
key sustainability frameworks. while systems and data checking do in sustainability. In the last four
The G4 version of the influential add value, stakeholder involvement annual Corporate Responsibility
Global Reporting Initiative guide- and a clear set of principles for Reporting Awards, the winners of
lines is currently out for consultation. assurance are vital for credibility. the Credibility Through Assurance
At the moment, reporters can However, without a clear lead category have all used the standard
add the “+” suffix to the GRI appli- from GRI or the IIRC, it may be diffi- – including The Co-operative.
cation level they have attained even cult to bring about a more general Irrespective of whether AA1000AS
for superficial verification of one change in behaviour. Many large will be the unifying standard, if the
small part of the report. GRI should companies still publish unassured sustainability report is to be a
encourage more meaningful, high- reports, and the majority who do genuine way of helping businesses
quality assurance, in particular by seek an independent check are still be more sustainable, it is vital we
applying more stringent criteria to only going for verification. choose proper stakeholder-led assur-
the use of the “+” symbol. What we need most, if assurance ance over verification. n
Meanwhile, the work of the is to deliver on its potential, is a
International Integrated Reporting single, internationally accepted Jason Perks is group director of corporate
Committee is gathering pace. The framework. This would be a boon sustainability agency Two Tomorrows. He is a
IIRC is aiming to create a framework for stakeholders because it would member of the interim standards board for the
for integrated reporting that brings enable them to compare companies’ JASON PERKS AccountAbility AA1000 series of standards.

10. Ethical Corporation • September 2011 Review 45
Business school bulletin
By Oliver Balch
Learn from the Gap, why boardroom opinions still influence philanthropy and how to improve gender equality
Engaging stakeholders, not policing factories Curbing C-suite social Look upwards, however, and the
In the late 1990s, global US retailer Gap was represented by two websites: its
spending infamous glass ceiling seems more
The stereotype of corporate responsi- bullet-proof than ever. Only about
official corporate site, and the very much unofficial “GapSucks.org”.
bility being little more than the chief one in every 13 (7.6%) top earners in
Legitimate concerns about suppliers’ practices overseas put the US clothing
executive signing off cheques for Fortune 500 companies are women.
brand in the spotlight. Fast forward 10 years and Gap’s name was back in the
charity is (rightly) much maligned in As for the hot seat, the stats are even
headlines. The issue read much the same: one of its suppliers (this time in
these days. Today, companies prefer more dismal: a measly 2.6% of
Lesotho) was dumping toxic waste into local landfills. This time public outcry
to talk less of charitable philanthropy Fortune 500 chief executives are
was muted. Why? Because of a decade or more of effective stakeholder
and more of “strategic social invest- women.
engagement by the company.
ments”. All the same, the This short paper summarises
TAYACHO/ISTOCKPHOTO.COM
personalities and preference of board thoughts expressed by alumni of
members still heavily influence the Pennsylvania University’s Wharton
philanthropic contributions of the School. Companies today “are building
companies they govern. In this paper, on masculine norms”, participants
Marquis and Lee examine 10 years’ contended, with environments that
worth of data for Fortune 500 are not conducive to allowing women
companies to determine how such to “thrive and grow”.
influence plays out. So what would a female-friendly
The headline findings of the company look like? It doesn’t neces-
research are intriguing. Companies sarily mean koi ponds and a farmers’
with new chief executives, for market at the head office, as retailer
example, are likely to give more. Anthropologie’s boasts (however
Contributions also increase as the nice). What’s needed is a total shift in
proportion of female senior managers mindset to one in which companies
in a company increases. And finally, are genuinely “sensitive” to women’s
the larger the board, the higher phil- family roles as well as their career
Relations smoothed anthropic spending is likely to be. progression.
In these days of strategic philan- “If women do opt out, it’s not
Engaging stakeholders is easier said than done. The process can be
thropy, the individual largesse of because they can’t handle their
expensive, slow and complicated. For starters, companies must determine
senior managers appears to run families”, the paper argues. “It’s
which stakeholders to engage and how. Those relationships then need
contrary to firm-level strategies. How because they feel they really can’t
managing. This paper crystallises the management process into five useful
to rein in arbitrary charitable expen- advance.” One exacerbating problem
steps: draw a stakeholder map, identify material issues, define objectives,
diture remains a crucial question. is the general reluctance on women’s
resolve issues, and embed engagement.
Organisational structures, such as a part to initiate negotiations. As work
So what are the key lessons from Gap? First, call off the police. By the end
corporate foundation, may well help. contracts become less fixed, women
of the 1990s, Gap had more than 100 auditors combing its factories. These still
So too might internal processes. shouldn’t hold back in pushing for
weren’t enough to catch every problem. Its experience in Cambodia high-
Regrettably, the paper falls short of perks and work patterns that work for
lights the problems of compliance. After years of civil conflict, most workers
any firm conclusions. A tantalising them.
did not have official papers, making age verification difficult. It took the
case of “more research needed”. “Masculine Norms: why working women
company several years to accept its legalistic risk-mitigation approach was
“Who Is Governing Whom? Senior find it hard to reach the top”,
“broke”.
managers, governance and the structure of Knowledge@Wharton paper, August 2011.
The second major take-away from Gap’s experience comes at the end of
generosity in large US firms” by Christopher
the process. How would the company narrow down internal opinion (some
of which saw engagement as “selling out to NGOs”) and opinions in the
Marquis and Matthew Lee, Working Paper Campus news
11-121, Harvard Business School, July 2011. Three hundred speakers are due to
stakeholder world (many of which remained sceptical)? Gap’s approach was
address the annual conference of
to hire in “boundary spanners”, individuals that were familiar with both
corporate and civil society discourse. It worked, smoothing relations on both
Negotiate through international campus network group
sides of the fence.
the glass ceiling Net Impact, scheduled for October
It’s a man’s world out there. Or is it? 27-29 in Portland, Oregon, US.
Issues of non-compliance may well continue to occur for multinational
On the face of it, the statistics suggest The latest annual survey by MIT
companies. Their supply chains are complex and multi-tiered. With the right
otherwise. Findings from Catalyst Sloan Management Review and the
stakeholder relations in place, however, not every issue has to become a
Research show that women make up Boston Consulting Group finds that
crisis.
more than half of America’s manage- six in 10 of the large companies
“How Gap Inc Engaged With its Stakeholders” by Craig Smith et al, MIT Sloan
ment, professional and relations interviewed will increase their
Management Review, Summer 2011.
occupations (51.5%). sustainability spending in 2011. n

11. 46 Review Ethical Corporation • September 2011
Puma 2010 annual report
A bite as big as its roar?
By Luke Jones
Puma has been busy developing an integrated report and now calculates its environmental profit
and loss, and isn’t shy about letting everyone know about it
uma, the German “sports lifestyle” giant, has of non-compliance from its factory audits and for
P been a brand to watch this year. But does the
company’s 2010 integrated annual report mark a
providing detailed information on its training and
compliance work with suppliers. However, there is
genuine union of business and sustainability? no discernible link between the two. Shouldn’t the Snapshot
Initial signs are good. It has introduced some training programmes be designed to tackle these
innovative elements of sustainability reporting, areas of weakness? Also there is no discussion of the Follows GRI? Yes A+.
such as a separate environmental “profit and loss process by which the company takes action for Assured? Yes
account”. The supply chain section of the integrated persistent infringement. How long can a non- Materiality analysis? No
report is comprehensive and shows a commitment compliant supplier remain before it is replaced? Goals? Yes
to industry collaboration, and a new sustainability Targets? Yes, new
scorecard provides solid environmental and social Long-term goals sustainability scorecard.
goals. However, as is often the case, the report is not Puma has introduced a new sustainability scorecard Stakeholder input? Yes
quite as integrated as it seems at first glance. with hard targets for 2015. There are specific targets Seeks feedback? Provides
The company claims that “sustainability is key to relating to the company (offices, stores and ware- contact details but doesn’t
Puma’s long-term progress”, yet its “Back on the houses), factories (suppliers) and products (design, explicitly request feedback.
Attack” business plan is seemingly unconnected to the packaging, processes and logistics). These targets set Key strengths? Pushing for
“Puma.Vision” sustainability plan. The split is even out Puma’s commitment to measurably improving supply chain transparency.
apparent in the chief executive’s letter which, performance, such as a 25% reduction in CO2 emis- Chief weakness? Lack of real
whether by chance or design, discusses business sions by 2015. Ambitiously, this goal applies to integration.
strategy and performance on one page and sustain- suppliers’ factories as well as the company’s own Pleasant surprise? Innova-
ability on the second, with little to link the two. facilities. However, longer-term goals beyond 2015 tive environmental profit
One would assume that Puma has built a business are still lacking. and loss account.
case for sustainability robust enough to warrant the The quality of data reported against key perform-
kind of investment apparent from its comprehensive ance indicators has also improved, though the range
supply chain management programme, yet the of environmental measures remains limited. For
company remains shy about making an explicit example, the company’s environmental profit and loss
connection. The section on risk management is a account includes total water use, but no discussion of
good example. Despite identifying “brand image” water quality or scarcity.
and “sourcing” as key risks, these four pages contain Puma’s internal management of sustainability is
just one short paragraph on sustainability. something of a mystery. Will it still be down to influ-
Puma’s environmental and social programme, ential chief executive Jochen Zeitz to promote Puma should
Puma.Safe, is an evolution of the company’s original sustainability from his new role as head of the recently be congratulated
factory audit function, and supply chain remains a created sport and lifestyle division of Puma’s parent
prominent feature of the approach. company, the French luxury brands group PPR?
on its attempt
Puma has widened the scope of its audit No review of Puma’s reporting would be to translate
programme to include more third- and fourth-tier complete without considering the company’s envi- environmental
suppliers, leading to a significant increase in the ronmental profit and loss account, released just a
number of audits undertaken in 2010. Puma’s month after the integrated report. Through some impacts into
commitment to supply chain transparency is also clever modelling and an amount of guesswork, the a financial
having an impact beyond its own reporting. From PL estimates the economic cost of Puma’s envi-
2011 onwards 18 key suppliers, which account for ronmental “pawprint” to be €94.4m.
measure
two-thirds of Puma’s products, will publicly report The methodology has its limitations, but Puma
their sustainability performance. should be congratulated on this attempt to translate
Wages within the supply chain remain one of the environmental (and eventually social) impacts into
most high-profile issues for the garment industry a financial measure. This is the clearest sign yet that
and it is one Puma does not shy away from. In 2010, the company is serious about embedding sustain-
wages were a key theme at the company’s annual ability into core business – the integrated annual Luke Jones is a consultant at
multistakeholder talks and the report includes a report alone would not convince us. We wait with Context.
range of balanced third-party quotes. interest to see whether the PL approach generates lukej@econtext.co.uk
Puma can be commended for reporting on areas results across Puma’s triple bottom line. n www.econtext.co.uk

12. Ethical Corporation • September 2011 Review 47
Toshiba 2011 CSR report
Too much information
By Kathee Rebernak
Toshiba’s 2011 corporate responsibility report and website, together, show in microcosm the
confusion that reigns in corporate responsibility – or sustainability, or citizenship – reporting
f ever there were a poster child for the case to be scratching example is that the report counts as a major
I made for integrated reporting, Toshiba would be it.
Toshiba’s 2011 CR report, with its accompanying
achievement the fact that it has “achieved the target of
improvement in overall environmental efficiency”.
website and various other reports, provides reams of A careful reading of the report might lead one to
information. Toshiba largely fails, however, to wonder whether Toshiba has abandoned GRI for ISO Snapshot
present a cohesive picture of its overall performance. 26000, the nascent corporate responsibility guidelines. Follows GRI? Hard to say;
To its credit, Toshiba publishes an impressive While the GRI index contained on the company’s CR GRI index contains no refer-
amount of information on its philosophy of gover- website references the 2010 report (covering full year ence to 2011 report.
nance and management of environmental and social 2009) and various others, as well as the company’s Assured? So it says, by an
activities, and the activities themselves. Its corporate main website, there are no references to the 2011 individual; no assurance
reporting consists of an annual financial report, report. Further, although the report points to a mate- standard mentioned.
annual CR report, environmental report and a citi- riality analysis, and even displays a 3D graphic to Materiality analysis? Yes,
zenship, or “social contributions activities” report. support the idea, the report identifies no issues as but no material issues
In addition, each of Toshiba’s nearly 150 facilities material. Both Toshiba’s third-party evaluator and the identified.
publishes its own environmental report; that most company’s own consultant express a desire to see the Goals? Yes
are written in Japanese may prevent many stake- company identify and prioritise its material issues. Targets? Yes
holders from diving more deeply into the data. And Toshiba’s reporting of environmental performance Stakeholder input? Yes
then there’s the CR website. is far stronger than that of its other practices. Its Seeks feedback? Yes
Unfortunately, none of this gives a particularly approach is clearly laid out, as is its focus on greening Key strength: Application of
good picture of how the company’s many, many processes, products, and technologies. A discussion of environmental standards in
activities that fall under the umbrella of corporate environmentally conscious products (ECPs) is inter- new product development.
responsibility – including environmental activities esting and should lead readers to see connections to Chief weakness: Too many
that seem to be a key component of Toshiba’s business success, even if such connections themselves parts; no centralisation of
product and technology development – contribute are not clearly drawn. Toshiba self-certifies a group of data.
to Toshiba’s growth and profitability. products identified as “Excellent ECPs” based on their
Much of the information on the website is copied ability to meet or exceed internally set environmental
exactly from the report – or vice versa – but some is performance standards. No doubt stakeholders –
contradictory and it is not clear which medium investors and customers in particular – would be
presents the more accurate picture. Complicating interested in seeing details of these products’ envi-
stakeholders’ ability to assess performance is the fact ronmental performance vis à vis competing products.
that the 2011 environmental and “social contributions Toshiba devotes a considerable amount of space to Toshiba largely
activities” reports are not due out until later this year. discussion of its improving eco-efficiency factors but fails to present
The result is confusion. For example, save one relatively little to better known indicators, such as
vague line in the targets section about supporting trend data on GHG emissions, energy consumption,
a cohesive picture
“the employment of female employees”, the report water use and waste generation. The few quantita- of its overall
contains no discussion of gender diversity. The tive environmental indicators reported are centred performance
website does, however, contain a lengthy discussion on reductions of GHG emissions and water usage
of gender diversity – or, rather, the lack thereof. mainly through ECPs. Stakeholders may be left to
wonder why there aren’t more quantitative indica-
Jilting GRI for ISO 26000? tors of performance. Perhaps Toshiba is saving those
Toshiba has vigorously pursued reporting in line with figures for its still-to-come environmental report.
the ISO 26000 standard. It has adopted an in-depth Next time, Toshiba might consider putting all that
approach to assessing performance of a variety of information in one place, so stakeholders who want to
“sub-issues” in each of the seven ISO 26000 subject see performance data don’t have to go hunting for it.
categories and has set targets and plans for each. And And while ISO 26000 is a useful tool in helping direct
while the company has identified 235 “action items” attention to a variety of environmental, social and Kathee Rebernak is the founder
and established an impressive array of key perform- governance issues, Toshiba’s use thereof should not and chief executive of Frame-
ance indicators, the large majority of targets stated are preclude rigorous application of GRI – in particular a work:CR.
qualitative. Nonetheless, the company reports 100% determination of the company’s material issues. krebernak@frameworkCR.com
achievement of most of its targets. A rather head- There’s plenty of room in this world for both. n www.frameworkCR.com

13. 48 Books Ethical Corporation • September 2011
New books
By Oliver Balch
Our pick of the best new publications
In Good Company: an anatomy Building Stakeholder
of corporate social responsibility Relations and Corporate Social
By Dinah Rajak Responsibility: a sensemaking
Hardcover: 328 pages, $80 perspective
ISBN: 0804776091
By Barbara Fryzel
Publisher: Stanford University Press
Hardback: 248 pages, £65
Published: September 2011
ISBN: 230273252
This critical look at the corporate responsibility Publisher: Palgrave Macmillan
movement examines the problems of letting the market Published: July 2011
rule. Focusing in on mining company Anglo American, This book explores how companies engage in CR
the book explores the developmental downsides of this activities, how their corporate identity determines the
“win-win” theory. way in which they perceive the stakeholders and, as
a result, engage in dialogue-based relations with them.
Corporate Citizenship and New The Business of Sustainability:
Governance: the political role of trends, policies, practices, and
corporations stories of success
By Ingo Pies and Peter Koslowski (eds) By Scott McNall et al (eds)
Hardback: 208 pages, $139 Hardback: 907 pages, $184.95
ISBN: 9400716605 ISBN: 0313384943
Publisher: Springer Publisher: Praeger
Published: August 2011 Published: October 2011
Drawing on the fields of strategic management, This three-volume collection sets out the why, what,
economics, law and political science, this book offers an who and how of sustainability and business.
in-depth reflection on the theory of corporate citizenship. Management obstacles, measurement metrics, business
Questions about how companies’ new roles in society opportunities, and pathways to success all merit a
and their part in modern governance structures are comprehensive coverage. An impressively wide-ranging
tackled head-on. A key book for an international age. overview.
Corporate Greenhouse Gas Sustainable Business: Financial
Management: from operations Times briefing
to strategy By Brian Clegg
By Dr Rory Sullivan Paperback: 160 pages, $59.99
Paperback: 109 pages, £65 ISBN: 0273746010
ISBN: 955372070 Publisher: FT Press/Prentice Hall
Publisher: Environmental Finance Publications Published: October 2011
Published: July 2011 Pitched as “short, high value, results-focused advice”,
Based on insights from six leading companies – BASF, this concise briefing from the FT offers senior managers
Deutsche Post DHL, Maersk, National Grid, Standard valuable insights into establishing high-value
Chartered and Vodafone – this snappy study examines sustainable business strategies. A handy, actionable
how climate change is being integrated into business guide for beginners and veterans alike.
strategies. Plenty of practical guidance as well for those
companies looking to follow suit.
Twitter for Good: change the Screwing Mother Nature for
world one tweet at a time Profit: how corporations betray
By Claire Diaz-Ortiz our trust – and why the new
Hardback: 224 pages, £16.99 biology offers an ethical and
ISBN: 1118061930
Publisher: Jossey-Bass
sustainable future
Published: August 2011 By Elaine Smitha
Paperback: 256 pages, $19.95
Written by Twitter’s head of corporate social innovation
ISBN: 1780280189
and philanthropy, this book sets out to show how the
Publisher: Watkins
social media site can provide a platform for cause- Published: October 2011
based campaigns. Packed with dynamic examples from Presented as a “wake-up call” to the impact of
around the world, readers will find guidance and corporate-led globalisation, this book lays out an
inspiration in harnessing the micro-site for good. alternative based on principles of cooperative
competition and “conscious, sustainable growth”.