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Do Your Customers Really Trust You? Well, That Depends …

Written By: Paloma Somohano
Published On: April 1 2009

Crises such as the one we’re currently going through seriously damage the trust bestowed by individuals upon corporations. This is more likely to result in the development of new corporate techniques to change these perceptions, which will most probably translate into new pressures from individuals, pressure groups, societies, or governments. Most likely, companies will be requested to strictly adhere to (if not go beyond) strict legal frameworks regulating their overall activities, aiming to protect consumers and other stakeholders.

Many companies have already begun to implement social and environmental initiatives within their business framework. One of the major incentives has been regulatory compliance. These regulations originate mainly from local, regional, or national regulations, aiming at achieving a particular environmental objective.

However, motivations for complying with these regulations vary largely. According to research conducted by AMR (Crossing the Great Divide: Sustainability as Corporate Strategy [registration required]), the major motivations for companies who actually implement green projects are

  • business opportunities (30%)

  • corporate brand (21%)

  • competitive advantage (14%)

  • moral imperative (11%)

  • compliance (10%)

  • strategic risk mitigation (7%)

  • product innovation (4%)

  • customer request (3%)


There is no doubt that the general trend is to move towards sustainability practices, regardless of whether the motivations are sustainability, savings on materials, or both. Unquestionably, companies adopting reactive strategies (based on compliance) may fall behind on long-term competitiveness. On the other hand, we can expect proactive initiatives, based on long-term sustainability objectives (win–win scenarios) and strategically integrated practices, to allow companies to move beyond compliance and achieve competitive advantage over competitors.

Due to their multidisciplinary nature, environmental issues in organizations can be addressed in many ways, according to the motivations mentioned above, and through a combination of initiatives. As each company has different motivations, environmental strategies are never the same. Nevertheless, there is one thing all companies embarking on these initiatives have in common: responsibility. In essence, companies are challenged to be accountable for the impacts of their actions. This concept is usually known as corporate social responsibility (CSR).

Unfortunately, there is a lack of consensus as to what constitutes CSR. Some companies talk about “corporate governance.” Others talk about “sustainability” or “corporate citizenship.” In fact, some companies’ definitions don’t even mention the environment at all. It is thus important to state the difference between all these concepts and the ones that are truly linked to sustainability.

Corporate Governance
As Sir Adrian Cadbury explained in a 1992 Report on Financial Aspects of Corporate Governance (Global Corporate Governance Forum, International Finance Corporation):
Corporate governance is the system by which companies are directed and controlled… Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place. The responsibilities of the board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship. The board’s actions are subject to laws, regulations and the shareholders in general meeting.

Hence, the concept of corporate governance is strictly linked to shareholders and the maximizing of share value in a responsible way.

Corporate Social Responsibility
One of the most common definitions for CSR is the one from the World Business Council on Sustainable Development (Corporate Social Responsibility: Making Good Business Sense): Corporate social responsibility is the commitment of business to contribute to sustainable economic development, working with employees, their families, the local community and society at large to improve their quality of life.

Furthermore, the UN Global Compact states that definitions of CSR may differ depending on the field where they arise. For example, from an ethics standpoint, companies are expected to practice CSR in order to “do good” to society. From an economic point of view, CSR will only be practiced as long as it’s profitable for companies.

According to the UN Global Compact, CSR has three dimensions: voluntarism, stakeholder management, and networking. Voluntarism is opposed to punishment, and allows companies to find best practices themselves and not through regulations. Stakeholder management incorporates the idea that companies should be held accountable not only to shareholders, but also to stakeholders, as they are directly influenced by the company’s activities. And third, relating to the importance of networking: best practices need to be communicated.

In Concepts and Definitions on CSR and Corporate Sustainability (pp. 107-119), Van Marrewijk concludes that “one solution fits all” approach to CSR and corporate governance should be abandoned, and that you should adopt more specific definitions that match the development, awareness, and ambition levels of your organization.

Unfortunately, we cannot provide a particular nor unified definition of standards or values for CSR. What is important to keep in mind is that CSR initiatives usually arise from a consensus of common values within a given company—a consensus which differs  from company to company. It is important to note than these values are extremely subjective and cannot be compared from one organization to another. It is therefore difficult to evaluate or benchmark overall efficiency.

Now we’d like to know where your organization stands.

{democracy:29}
 
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