september free mag - part 3

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In times of fiscaltightening, alleyes turn to the

question of whopays what intothe public pot

Other section content:

40 David Grayson make

the business case

Four years ago, the world was a different place. JPMorgan still signed cheques, bailouts werewhat sinking seafarers did and we were all a lotbetter off.

So when the Oxford Centre for Business Taxationasked companies about corporation tax, the conclu-

sion was categorical: the issue was too complex orobscure for the average man on the street.How things change. In March 2011, more than

half a million citizens took to the streets of Londonto protest against tax injustice. Spearheaded bythe campaign group UK Uncut, their anger homedin on big business. Tax dodging by large compa-nies, it was claimed, is costing the UK exchequer95bn in lost revenue every year.

The speed at which tax has become a majorpublic issue in the UK and elsewhere is astonishing.Tax hardly has the emotive appeal of slave labour ortoxic waste. Yet its explosion onto the public agendais not entirely surprising. In times of fiscal tight-

ening and spending cuts, all eyes turn tothe question of who pays what into the public pot.

In a time of austerity, youve seen campaigngroups look around and ask if the burden is being borne by all in an equal measure, says LouiseRouse, director of engagement at UK campaigngroup Fair Pensions.

Media attention has played its part too. In the UK,the Guardian newspaper ran a series of Tax Gapinvestigations into big brands. Likewise, in the US, theNew York Times has turned the spotlight on the taxpolicies of corporate giants such as GE and Google.

Tax practices may be attracting headlines, but theethics of tax is not entirely new. Corporate tax

payments in the developing world have long beenthe subject of scrutiny. The Extractive IndustriesTransparency Initiative, for example, whichattempts to increase disclosure of payment bynatural resource companies to governments, datesback to 2002.

Responsible business issueWhat definitively is new, however, is the generalrecognition that tax is now a core responsibilityissue for business.

At its most basic, the ethics of taxation ultimatelyderives from companies social contract with thecountries in which they operate. Taxes fundpublic goods such as education and healthcare.When large companies evade or avoid tax, govern-ments are left with one of two choices: cutspending, or tax individuals and smaller domesticbusinesses more.

Mitigating tax payments may not be illegal, but

neither is it entirely responsible when such practicesnegatively impact a countrys social and economicwellbeing. So argues John Christensen, director of theNetwork for Tax Justice, a UK-based campaign group.

In other words, dont use aggressive tax avoid-ance and evasion and then try to pretend that youare engaged in a corporate responsibility agenda.The two are quite simply incompatible, he says.

The message appears to be seeping intothe C-suite. Andrew Witty, chief executive ofGlaxoSmithKline, recently condemned the habit ofinternational companies to float in and out of soci-eties depending on tax regimes. The practice iscompletely wrong, he told the Observer newspaper.

Tax and ethics

Can pay, should payBy Oliver Balch

As tax blasts its way onto the public agenda, companies should concentrate on where they pay,as well as how much

YENWEN/ISTOCKPHOTO.C

OM

Strategy and managementEthical Corporation September 2011

Whats good

policy?

Abide by a general anti-

avoidance principle.

Acknowledge that tax has

major economic impact

on society and is therefore

a responsibility issue.

Report on tax policies and

practices in annual

accounts and corporate

responsibility reports.

Adopt tax mitigation

techniques subject to

consideration

of their social and

economic impacts.

Integrate tax policy and

practice in corporate

governance systems.

Report tax on a country-

by-countrybasis.

List all subsidiary

entities and publish

accounts for their

activities.

Source: Tax Justice Network


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8 Ethical Corporation September 20

Ethics aside, a compelling business case forresponsible tax planning can also be made. Reputa-tions are at risk. Recent months have seen protesterscamped out in front of Boots, Top Shop, Vodafoneand a host of other high street retailers.

Its not just bad press companies need to worryabout. A tax dodger badge, fair or otherwise, canlead to a host of costly repercussions, from legalchallenges to the loss of favourable tax status.

Once a pattern of uncertainty in taxation

reporting is known to exist, then it is possible that acompany may trade at a discount to its true valuefor fear that further uncertainties will be revealed,consultancy firm SustainAbility stated some yearsago in a far-sighted report on tax.

Of course, where irresponsibility becomes ille-gality, the costs can run far higher. Commoditytraders Bunge, Cargill and Dreyfus could face billsrunning into hundreds of millions of dollars if aninvestigation into unpaid taxes and duties by theArgentine government goes against them.

So what does a responsible approach to tax looklike? Campaign groups are fighting it out withcorporate tax departments to determine just that.

Companies arent paying enough, according to thformer. All legal requirements are being metrespond the latter.

Amid this polarising debate, one thing seemcertain: tax avoidance, tax evasion and abuse of tahavens and offshore secrecy laws all lie beyond thpale.

A small number of corporations opt for thwrong side of the law. They often do so with thactive complicity of accountants, banks and law

firms a practice John Christensen describes awilful blindness.

Most large companies, however, operate withilegal boundaries. They are too big and too visible tdo otherwise. When it comes to tax, howeverlegality is not the watertight defence it used to be.

The argument that we are obeying the law andeverything that we are doing is technically permissible no longer washes in the court of publiopinion, says Rouse of Fair Pensions, whichrecently published a joint paper on the issue. Thaleaves many companies exposed.

To date, aggressive tax avoidance strategies suchas transfer pricing and the use of tax havens hav

Responsibleapproachesto 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

qualitativeand

quantitative informationon your tax practices and

their impacts.

Work with peers and

stakeholders to

formulate a mutually

agreed code of conduct.

Source: Action Aid/FairPensions

Don't be a tax dodger

Strategy and management

Have you paidan appropriatelevel of tax?

Appropriate levels of tax

are the rates stipulated by

the relevant tax authority

within the country where

the companys tax liability

falls, minus 3%. The lower

figure is because taxable

profits and accounting

profits are not the same

thing.

As a result, it is unlikely acompany will pay exactly the

tax rate laid down in law on

its declared taxable profits.

The rate may be higher

because some costs allowed

for accounting purposes are

disallowed for tax, such as IT

equipment and other capital

items.

Source: Profit Through

Ethics/See What You Are

Buying Into standard


4/17


The spotlightis turningin particularon corporate

operationsin developingcountries

been perceived as permissible behaviour.Now, the public mood (if not the letter of the law)

is shifting. As well as reducing tax income for thestate, tax avoidance effectively penalises nationalbusiness that dont have the capacity to shift assetsoffshore and the like.

The safe ground, according to all parties, lies inlegitimate tax planning and mitigation. Indeed,shareholders could reasonably argue that anybusiness that fails to take full advantage of existing

tax agreements or explicit exemptions is behavingirresponsibly.

Transparency trumpsA major reason behind the current confusion iscompanies own management of the issue. Manycorporations dont have a uniform tax policy. Forthose that do, the policy is often not applied consis-tently across all the companys operations.

The first task for any corporate responsibilitymanager, therefore, is to determine their company scurrent practice. On the back of that information, apolicy should be agreed and steps taken to see thatit is implemented.

Naturally, any responsible tax policy must explic-itly rule out any illegal activity. The list of othernon-negotiables is open to debate, however. Amongthe steps suggested by responsible tax advocatesare: abiding by a general anti-avoidance principle;considering the societal impacts of tax mitigation;and publishing financial accounts for subsidiaryentities (see box).

The priority above all is transparency. Tax is notan issue that will go away and so companiesmust articulate their position clearly, saysPeter Truesdale, associate director at London- based consultancy firm Corporate Citizenshipand author of a recent report on responsible taxmanagement.

This doesnt necessarily mean companiespaying more tax but it does mean companies iden-tifying a coherent and credible position on tax, and

finding simple language to defend it in, he adds.To assist in that process, Corporate Citizenshiphas developed a tax map to enable companies tochart where, how and what they pay in taxes.

In terms of disclosure, the vast majority ofcompanies go no further than the statutory require-ment to include an overall tax figure in their annualtax and accounts. That will almost certainly haveto change, Truesdale says. In the modern world,you cant get away from articulating a position andproviding sufficient information to show that youare doing it.

The spotlight is turning in particular on corpo-rate operations in developing countries, especially

those with material tax bills. A case in point isGhana, where one sixth of the countrys entire taxrevenues derive from foreign-owned businesses.

Greater disclosure of overseas tax payments iscurrently under consideration by European and USlegislators. Some companies but not many arepre-empting the possibility of future regulation bypublishing tax payments on a country-by-countrybasis.

A notable example is Rio Tinto. The mining giantrecently redesigned its approach to tax disclosure,publishing payments made to governments in eachof its main operational markets.

In its recent dedicated tax report, the company

states that its $7.4bn tax bill for 2010 marks a signif-icant contribution to public finances for thecountries where it operates. The report also voicesconcerns about the threat of tax increases in thefuture.

Going public is not without its risks. Govern-ments, shareholders and the general public will allhave their opinion on whether a companys taxpayments are fair or not.

The debate over tax and ethics is only just gettingstarted, however. By making its payments clear,companies such as Rio Tinto earn a legitimate placein the discussion. More should join them at thetable. n

Emergingpractices on tax

British American Tobacco

supports the gradual andpredictable increase in

taxes on tobacco.

Anglo-American, for five

years, has published taxes

borne and claimed in both

developing and developed

countries, as well as an

effective tax rate by country

and weighted average for

the company as a whole.

McDonalds publishes a

headline tax figure for the

company as a whole

($1.1bn), plus its total bill for

social and income taxes in

its top nine markets year-

by-year.

SAB Miller talks of a tax

footprint and reveals the

split in its taxes between

developed and developing

countries.

Exxon Mobil publishes its

total payment in direct and

indirect taxes and duties in

the UK (5.1bn) and compares

this to total governmentexpenditure (about 1%).

Source: Tax, Reputations

and Responsibility, Corporate

Citizenship, May 2010


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A growing numbeof companies seethat corporateresponsibility is

about behaviour

in core operations

The business case for corporate responsibility wasgiven new resonance this summer by the News ofthe World phone hacking scandal and the events thatfollowed. For the media companies involved, corpo-rate responsibility had been reduced to an optionalextra that could be abandoned when management

creates a culture of sales targets (circulation and adver-tising) and profitability improvements at all costs.In the end, that narrow perspective cost peoples

jobs and reputations, a great deal of money and,ultimately, the business itself. Thats a high price topay for ignorance.

In contrast, there is a growing number of compa-nies whose leaders see that corporate responsibilityis about how companies behave in their core opera-tions: how they go about their business and howthey make their money.

For such companies particularly those whoseperformance has been recognised through Businessin the Communitys Awards for Excellence and its

Corporate Responsibility Index responsiblebusiness behaviour is embedded in the DNA of thebusiness. Its part of the organisations culture andstrategy, manifesting itself in what gets said anddone by everyone from boardroom executives tothose working at the front lines of the most remote business units. Corporate responsibility is acoherent part of the corporate story. Its not some-thing a company does; its what a company is.

The idea that managing the impact of commer-cial activity on society and the environment brings business benefits is gaining momentum, writescolumnist Sarah Murray in the latest FinancialTimes Special Report on Responsible Business1.

Addressing social and environmental concerns isbecoming part of mainstream business.

Revisiting the business caseThe companies whose leaders get the importanceof embedding corporate sustainability and responsi-

bility deep into a business are becoming moreintelligent at managing their own corporate sustain-ability and responsibility programmes andassessing their impacts on business and wider society.

This is particularly evident in research on thecorporate responsibility business case conductedrecently by the Doughty Centre and Business in theCommunity2. We worked together to update the 2003Arthur Little study3 that examined the arguments forcompanies to take responsible business more seri-ously. We also reviewed companies submissions forBITCs Corporate Responsibility Index.

Many academic articles, as well as numerousmanagement consultants reports, have been

produced since the 2003 study. We found that boththe academic theory and practitioner argumentswere remarkably consistent with each other.

Our study which encompassed both anacademic and practitioner literature review as wellas companies own reports of their activities in theirBITCs Awards for Excellence and CR Index submis-sions over the period 2003-10 identified seven key business benefits. In order of the frequency withwhich they were cited, these were:1. Brand value and reputation benefits realised

from responsible business that improve the valueof the brand and/or the reputation of the brandor organisation.

Essay

Why companies must build thebusiness caseBy David Grayson

Leading companies understand why being a good corporate citizen leads to economic success

SCHUCHUNKE/ISTOCKPHOTO.C

OM

0 Strategy and management Ethical Corporation September 20


6/17


2. Employees and future workforce benefits fromresponsible business practice that affects theworking life of employees, and the ability toattract and hold on to talent. This includesemployee motivation, productivity, recruitment,satisfaction, retention, engagement, and loyalty.

3. Operational effectiveness improvements andinnovation in an organisations practices andprocesses as a direct result of being more respon-sible and sustainable, creating more effectiveoperations and higher levels of efficiency.

4. Risk management benefits resulting from CRefforts that improve the organisations ability toidentify and reduce exposure to risk, andprepare for and manage risks better.

5. Direct financial impact direct benefit to thefinancial performance of an organisation. Forexample improving access to capital, reducing

costs, and improving shareholder value.6. Organisational growth an opportunity foroverall organisational growth derived from being a responsible business, whether throughnew markets, new product development, lateralexpansion, new customers, or new partner-ships/alliances.

7. Business opportunity new opportunities orinnovation generation created for all stake-holders specifically because of their efforts in

being a responsible business. This can result innew business development, but critically it isabout win-win opportunities for a variety ofstakeholders.

In addition, there were two new categories of benefit that emerged in the most recent yearscovered by the review. Organisational leadership defined as leader-

ship achieved through helping societywhich results from a radical change in theinternal corporate values and external marketreconstitution.

Macro-level sustainable development definedas the impact and responsibilities an organisa-tion has to higher level economic, social andenvironmental issues.

The emergence of this last benefit signals animportant trend namely that, as companies havebecome progressively sophisticated in their manage-ment of sustainability issues, the more aware theyare of the close interdependence between the fate oftheir business and that of the world at large.

They are recognising that their businesses have adirect stake in ensuring the success of sustainabledevelopment and therefore their efforts to mitigatethe impacts of climate change, poverty, famine,health pandemics, corruption and other global socio-economic, political and environmental crises are not bolt-on extras to the business but are direct invest-ments in the long-term viability of the business.

Businesses have

a direct stakein ensuring

the success ofsustainabledevelopment

The emergence of shared destinyWhat is particularly striking about companies recog-nised in BITCs 2011 Awards for Excellence4 is thatthe boundary between what gets described asbusiness on the one hand and social and/orenvironmental benefit on the other is becomingblurred. For example: EDF Energys Zero Harm programme5 this

aims to achieve zero harm (no incidence ofworkplace injury and no form of work casual orwork aggravated illness). The case study cites costsavings, reductions in work-related ill health inci-dence rates, days lost and musculoskeletal healthproblems as business benefits while employeepride, advocacy and perceived managementinterest in employee health and well-being which could also be construed as business

benefits are cited as employee benefits. Tata Consultancy Services Adult Literacy

Programme6 this utilises TCS IT expertise tocreate Computer Based Functional Literacy(CBFL), a multimedia software package that

tackles adult literacy in a 40-hour programme. Byshortening the development time for CBFLproducts in different languages, TCS can addresswide-scale Bottom of the Pyramid literacyproblems more swiftly (a social benefit). However,the roll-out of these products, engaging employeesand families as volunteers in the process, alsohelps open up new markets and boosts recruit-ment, retention, motivation and enhancedcompany perception all clear business benefits.

On the environmental side, The Co-operativeGroup has focused on reducing its own green-house gas emissions as well as providing orwithholding of finances to companies in order to

Is it accepting sustainability?


7/17

reduce the impact of the products and servicesoffered. These activities have reduced the environ-mental impacts of the Co-op as well as its clientsand other stakeholders. But they also reinforcethe Co-ops corporate reputation as a leadingadvocate for sustainability, attracting andretaining customers who have cited ethics/environment as a reason for opening and main-taining an account.

Finally, construction company Wates Group,BITCs Company of the Year, has engaged a wide

range of its stakeholders including employees,customers, suppliers as well as risk specialistsand a network of social enterprises to redefineits approach to sustainability. Its activitiesencompass employee development and engage-ment, community transformation, carbonfootprint reduction, elimination of waste andresponsible sourcing through its supply chain.This has created a wide range of business benefits including enhanced employee engage-ment and responsible leadership, improvedoperational effectiveness, new business opportu-nities, more effective risk management andenhanced brand reputation.

What does the close alignment of these businessand societal benefits signify? In the January/February 2011 edition of Harvard Business Review7,Professor Michael Porter and Mark Kramer havewritten that in light of recent historical trends, thepurpose of the corporation must be redefined ascreating shared value, not just profit per se.

However, the work of these leading-edge compa-nies whose achievements have been recognised byBITC and others suggests that something far moreexciting is going on: that enlightened businessleaders are recognising that their companies have ashared destiny, not only with their employees,

customers, suppliers and others in their immediatsphere of influence, but with a much wider range ostakeholders with whom they are inter-connected.

By engaging the hearts and minds of individualin these extended stakeholder networks which caencompass even their own industry competitors (ethe Extractive Industries Transparency Initiative, thKimberley Process certification scheme and othesector-wide sustainability initiatives) businessecan build vibrant powerful engines of societachange, in tandem with growing and developintheir own companies.

Engaging and building your stakeholdercommunityWhat is evident from these companies corporatresponsibility case studies is that their succesdepends on creating a sense of shared destiny

among the companys key stakeholder groupsparticularly among employees and suppliers as weas wider community constituencies. Cooperationnot competition, is central to this process.

The power of cooperation has been recogniseby Harvard Law School Professor Yochai Benkler. Inthe July/August 2011 edition of Harvard BusinesReview8, he draws on research in evolutionar

biology, psychology, sociology, political science, andexperimental economics to argue that peoplbehave far less selfishly than most assume. Evolutionary biologists and psychologists have evenfound neural and, possibly, genetic evidence of human predisposition to cooperate. These finding

suggest that instead of using controls or carrots ansticks to motivate people, companies should ussystems that rely on engagement and a sense ocommon purpose.

The same principle applies to building a community of engaged stakeholders to achievsustainability goals. Our Doughty Centre team believe that engagement is central, not only tembedding sustainability in companies, but tensuring the success of the company in its widespossible sense. Our team has developed a roadmapfor stakeholder engagement9 as well as a morrecent how-to guide for engaging employees withcorporate responsibility10.

But to create a foundation for engagement withsustainability, one has to begin, not just with th business case for corporate responsibility but at more fundamental level, with a clear sense of whathe business is for: the case for business.

In his landmark 1990 RSA Lecture11, Prof CharleHandy made a simple but profound argument: thain the interests of business as well as wider societycompanies should be reconceived as wealthcreating, self-governing communities, not aproperties. Each corporate community must answefor itself the question, what is our company for?He argued eloquently that profit-making was means, not an end, and every company needed t

The purpose of

the corporationmust be redefinedas creating sharedvalue

42 Strategy and management Ethical Corporation September 20

Empowered employees achieve more

ANDRE

SRODRIGUEZ/DREAMSTIME.C

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8/17


discover a purpose beyond itself. That purposeneeds to be embody a vision that is ambitiousand yet accessible to everyone in the corporatecommunity.

Answering this basic question cannot beachieved with a sanitised mission statement writtendown by a few top executives in a managementstrategy meeting. Dialogue with your corporatecommunitys stakeholders is central to this process(see, for example, our Doughty Centre how-to guideon CR knowledge management12 to understand thecentral role of corporate storytelling).

Knowing what your company is for, in thebroadest possible sense, means understanding: What your company is trying to achieve (eg to

help people and businesses throughout theworld reach their full potential (Microsoft)).

Who is in your extended corporate community

(eg for many leading-edge companies, thisincludes not just the usual suspects close to thecentre of the organisation, such as customers,employees and investors, but stakeholders whoare more geographically remote, for exampleindividuals in Bottom of the Pyramid groupsworking in factories at the furthest reaches of thesupply chain).

How your company can best achieve itspurpose in ways that respect all the members ofyour corporate community (eg promoting thehealth and well-being of employees; alleviatingpoverty or tackling illiteracy among potentialcustomers, employers and/or suppliers at the

Bottom of the Pyramid; preserving the long-termintegrity of natural resources shared with others).

It is only in this context that one can define whatcorporate sustainability and responsibility means toyour company. That definition will be unique toevery business. Ideally it should be broad enough in its vision of who is part of your corporate commu-nity and the scope of the timeframe over which yourbusiness expects to operate to encompass innova-tive, longer-term projects focused on creatingsustainable value with a diverse mix of partners (see,for example, our Doughty Centre Occasional Paperon the work of social intrapreneurs13).

In this way it becomes possible to progressbeyond maintaining reputation and legitimacy, andcost and risk reduction, to innovation and reposi-tioning, and growth path and trajectory, the fourquadrants in Hart and Milsteins Sustainable ValueMatrix14.

Finally, your core purpose must be somethingthat people feel, not just think. It needs, above all,to inspire people to work together to achievesome higher goal, through actions great and small,every day they come to work. Because, more thanstrategy or business plans, inspiration is what youwill need most on your companys journey tosustainability.n

References:

1 Sarah Murray, Working harder to pin benefits down, FT Special

Report on Responsible Business 2011, 7 June 2011

(http://t.co/5ratitc).

2 Business in the Community and the Doughty Centre for Corporate

Responsibility, The Business Case for Being a Responsible Business,

March 2011.

3 Business in the Community and Arthur D. Little, The Business Case

for Corporate Responsibility, 2003.4 For details, see

http://www.bitc.org.uk/awards_for_excellence/awards_for_excell

ence_2011_winners/all_results.html.

5 See http://www.bitc.org.uk/resources/case_studies/afe2818.html.

6 See http://www.bitc.org.uk/resources/case_studies/

tata_adult_literacy_1.html.

7 Michael Porter and Mark Kramer, The Big Idea: Creating Shared

Value. Harvard Business Review (Jan/Feb 2011).

8 Yochai Benkler, The Unselfish Gene, Harvard Business Review

(July/August 2011).

9 Neil Jeffery, Stakeholder Engagement: A Road Map to Meaningful

Engagement (#2 in the Doughty Centre How to do Corporate

Responsibility Series) (July 2009).

10 Nadine Exter, Engaging Employees in Corporate Responsibility:A Doughty Centre How-to Guide (#6 in series) (June 2011).

11 Charles Handy, What is a Company For?, Michael Shanks

Memorial Lecture, delivered 5 December 1990, reprinted in Beyond

Certainty: The Changing Worlds of Organisations (Hutchinson,

1995).

12 Melody McLaren, Supporting Corporate Responsibility Performance

Through Effective Knowledge Management: A Doughty Centre for

Corporate Responsibility How-to Guide (January 2011).

13 David Grayson, Melody McLaren and Heiko Spitzeck, Social

Intrapreneurs an extra force for sustainability innovation:

Doughty Centre Occasional Paper (January 2011).

14 Stuart L. Hart and Mark B. Milstein, Creating sustainable value,

Academy of Management Executive, 2003, Vol. 17, No. 2.

Success means creating "shared destiny" across the supply chain

Inspiration iswhat you will

need most on yourcompanys journeyto sustainability


9/17

By invitation4

together financial, environmental,social and governance information ina consistent and comparable format.

But the fact that IIRC is driven bythe accountancy profession meansthat simply integrating a standardset of sustainability metrics could

become the de facto approach inintegrated reporting. This wouldseverely restrict the potential ofreports to give a full account of acompanys performance.

Get beyond the dataThe other main danger is that compa-nies might be tempted to get theirfinancial auditors to examine thewhole integrated report. This couldencourage data verification at theexpense of specialist assurance of thesustainability content. Non-financial

reporting should be based firmly onstakeholder needs. In particular, anyintegrated reporting frameworkneeds to be clear that assuranceshould examine how well thecompany has identified, addressedand reported its material issues.

At a recent roundtable examiningthe future of assurance, partici-pating companies were agreed that,while systems and data checking doadd value, stakeholder involvementand a clear set of principles forassurance are vital for credibility.

However, without a clear leadfrom GRI or the IIRC, it may be diffi-cult to bring about a more generalchange in behaviour. Many largecompanies still publish unassuredreports, and the majority who doseek an independent check are stillonly going for verification.

What we need most, if assuranceis to deliver on its potential, is asingle, internationally acceptedframework. This would be a boonfor stakeholders because it wouldenable them to compare companies

sustainability performance confi

dently. It would also be a big help tcompanies trying to decide howbest to have their reports independently assessed.

I believe this is achievable ithe next decade because, in thAA1000 Assurance Standard, whave something thats proven angenerally applicable. AA1000Amandates the use of three principles: inclusivity, materiality anresponsiveness. At our recenroundtable, attendees resoundinglconfirmed the validity of thes

principles for assurance.Of course, AA1000AS is not thonly assurance standard out thereand it has flaws. But it is the onlstandard specifically designed fosustainability and based on an inclusive stakeholder-based approach.

Even if AA1000AS isnt yewidely used for assurance, it igaining ground among the leaderin sustainability. In the last fouannual Corporate ResponsibilitReporting Awards, the winners othe Credibility Through Assuranc

category have all used the standard including The Co-operative.

Irrespective of whether AA1000Awill be the unifying standard, if thsustainability report is to be genuine way of helping businesse be more sustainable, it is vital wchoose proper stakeholder-led assurance over verification.n

Jason Perks is group director of corporate

sustainability agency Two Tomorrows. He is a

member of the interim standards board for the

AccountAbility AA1000 series of standards.

Reporting

Ensuring true assurance

Robust independent assurance of sustainability reports trumps meredata verification for securing stakeholder trust, argues Jason Perks

Assured information is worth reading

What weneed most,

if assurance isto deliver on

its potential,is a single,

internationallyaccepted

framework

JASON PERKS

Ethical Corporation September 20

Its time to make up our mindsabout how sustainability reportingis assessed. One option is to restrictour remit to basic verification of data.The other is to pursue much moreextensive evaluations of how wellreports address what matters to

stakeholders. I am worried that wemay be about to take the wrong road.If we go down the verification

route, its unlikely that sustain-ability reports will properly addresscompanies material issues or drivestrategic responses. The alternative robust, stakeholder-based assur-ance offers far more value tostakeholders and companies.

Of course, assurance can includeverification of claims and data, butthat is just one element. It alsomeans establishing the extent to

which the report addresses theissues that concern stakeholdersand have an impact on the business.It is about checking not only that thethings in the report are right butalso, more fundamentally, that theright things are in the report.

The choice of direction is upon ustoday in large part because of pivotalwork thats going on to develop twokey sustainability frameworks.

The G4 version of the influentialGlobal Reporting Initiative guide-lines is currently out for consultation.

At the moment, reporters canadd the + suffix to the GRI appli-cation level they have attained evenfor superficial verification of onesmall part of the report. GRI shouldencourage more meaningful, high-quality assurance, in particular byapplying more stringent criteria tothe use of the + symbol.

Meanwhile, the work of theInternational Integrated ReportingCommittee is gathering pace. TheIIRC is aiming to create a frameworkfor integrated reporting that brings


10/17

Curbing C-suite socialspendingThe stereotype of corporate responsi-bility being little more than the chiefexecutive signing off cheques forcharity is (rightly) much maligned inthese days. Today, companies preferto talk less of charitable philanthropyand more of strategic social invest-ments. All the same, thepersonalities and preference of boardmembers still heavily influence the

philanthropic contributions of thecompanies they govern. In this paper,Marquis and Lee examine 10 yearsworth of data for Fortune 500companies to determine how suchinfluence plays out.

The headline findings of theresearch are intriguing. Companieswith new chief executives, forexample, are likely to give more.Contributions also increase as theproportion of female senior managersin a company increases. And finally,the larger the board, the higher phil-

anthropic spending is likely to be.In these days of strategic philan-thropy, the individual largesse ofsenior managers appears to runcontrary to firm-level strategies. Howto rein in arbitrary charitable expen-diture remains a crucial question.Organisational structures, such as acorporate foundation, may well help.So too might internal processes.Regrettably, the paper falls short ofany firm conclusions. A tantalisingcase of more research needed.Who Is Governing Whom? Senior

managers, governance and the structure ofgenerosity in large US firms by Christopher

Marquis and Matthew Lee, Working Paper

11-121, Harvard Business School, July 2011.

Negotiate throughthe glass ceilingIts a mans world out there. Or is it?On the face of it, the statistics suggestotherwise. Findings from CatalystResearch show that women make upmore than half of Americas manage-ment, professional and relationsoccupations (51.5%).

ReviewEthical Corporation September 2011

Business school bulletinBy Oliver Balch

Learn from the Gap, why boardroom opinions still influence philanthropy and how to improve gender equality

Engaging stakeholders, not policing factoriesIn the late 1990s, global US retailer Gap was represented by two websites: itsofficial corporate site, and the very much unofficial GapSucks.org.

Legitimate concerns about suppliers practices overseas put the US clothingbrand in the spotlight. Fast forward 10 years and Gaps name was back in theheadlines. The issue read much the same: one of its suppliers (this time inLesotho) was dumping toxic waste into local landfills. This time public outcrywas muted. Why? Because of a decade or more of effective stakeholderengagement by the company.

Engaging stakeholders is easier said than done. The process can beexpensive, slow and complicated. For starters, companies must determinewhich stakeholders to engage and how. Those relationships then needmanaging. This paper crystallises the management process into five usefulsteps: draw a stakeholder map, identify material issues, define objectives,resolve issues, and embed engagement.

So what are the key lessons from Gap? First, call off the police. By the endof the 1990s, Gap had more than 100 auditors combing its factories. These stillwerent enough to catch every problem. Its experience in Cambodia high-lights the problems of compliance. After years of civil conflict, most workersdid not have official papers, making age verification difficult. It took thecompany several years to accept its legalistic risk-mitigation approach wasbroke.

The second major take-away from Gaps experience comes at the end ofthe process. How would the company narrow down internal opinion (someof which saw engagement as selling out to NGOs) and opinions in thestakeholder world (many of which remained sceptical)? Gaps approach wasto hire in boundary spanners, individuals that were familiar with bothcorporate and civil society discourse. It worked, smoothing relations on bothsides of the fence.

Issues of non-compliance may well continue to occur for multinationalcompanies. Their supply chains are complex and multi-tiered. With the rightstakeholder relations in place, however, not every issue has to become acrisis.How Gap Inc Engaged With its Stakeholders by Craig Smith et al, MIT Sloan

Management Review, Summer 2011.

Relations smoothed

TAYACHO/

ISTOCKPHOTO.C

OM

Look upwards, however, and theinfamous glass ceiling seems morebullet-proof than ever. Only aboutone in every 13 (7.6%) top earners inFortune 500 companies are women.As for the hot seat, the stats are evenmore dismal: a measly 2.6% ofFortune 500 chief executives arewomen.

This short paper summarisesthoughts expressed by alumni ofPennsylvania Universitys Wharton

School. Companies today are buildinon masculine norms, participantscontended, with environments thatare not conducive to allowing womento thrive and grow.

So what would a female-friendlycompany look like? It doesnt neces-sarily mean koi ponds and a farmersmarket at the head office, as retailerAnthropologies boasts (howevernice). Whats needed is a total shift imindset to one in which companiesare genuinely sensitive to womenfamily roles as well as their career

progression.If women do opt out, its notbecause they cant handle theirfamilies, the paper argues. Itsbecause they feel they really cantadvance. One exacerbating problemis the general reluctance on womenpart to initiate negotiations. As workcontracts become less fixed, womenshouldnt hold back in pushing forperks and work patterns that work fothem.Masculine Norms: why working women

find it hard to reach the top,

Knowledge@Wharton paper, August 2011

Campus newsThree hundred speakers are due toaddress the annual conference ofinternational campus network groupNet Impact, scheduled for October27-29 in Portland, Oregon, US.

The latest annual survey by MITSloan Management Review and theBoston Consulting Group finds thatsix in 10 of the large companiesinterviewed will increase theirsustainability spending in 2011.n


11/17

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 profitand loss, and isnt shy about letting everyone know about it

of non-compliance from its factory audits and forproviding detailed information on its training andcompliance work with suppliers. However, there isno discernible link between the two. Shouldnt thetraining programmes be designed to tackle theseareas of weakness? Also there is no discussion of theprocess by which the company takes action forpersistent infringement. How long can a non-

compliant supplier remain before it is replaced?

Long-term goalsPuma has introduced a new sustainability scorecardwith hard targets for 2015. There are specific targetsrelating to the company (offices, stores and ware-houses), factories (suppliers) and products (design,packaging, processes and logistics). These targets setout Pumas commitment to measurably improvingperformance, such as a 25% reduction in CO2 emis-sions by 2015. Ambitiously, this goal applies tosuppliers factories as well as the companys ownfacilities. However, longer-term goals beyond 2015are still lacking.

The quality of data reported against key perform-ance indicators has also improved, though the rangeof environmental measures remains limited. Forexample, the companys environmental profit and lossaccount includes total water use, but no discussion ofwater quality or scarcity.

Pumas internal management of sustainability issomething of a mystery. Will it still be down to influ-ential chief executive Jochen Zeitz to promotesustainability from his new role as head of the recentlycreated sport and lifestyle division of Pumas parentcompany, the French luxury brands group PPR?

No review of Pumas reporting would becomplete without considering the companys envi-

ronmental profit and loss account, released just amonth after the integrated report. Through someclever modelling and an amount of guesswork, theP&L estimates the economic cost of Pumas envi-ronmental pawprint to be 94.4m.

The methodology has its limitations, but Pumashould be congratulated on this attempt to translateenvironmental (and eventually social) impacts intoa financial measure. This is the clearest sign yet thatthe company is serious about embedding sustain-ability into core business the integrated annualreport alone would not convince us. We wait withinterest to see whether the P&L approach generatesresults across Pumas triple bottom line. n

Puma, the German sports lifestyle giant, has been a brand to watch this year. But does thecompanys 2010 integrated annual report mark agenuine union of business and sustainability?

Initial signs are good. It has introduced someinnovative elements of sustainability reporting,such as a separate environmental profit and lossaccount. The supply chain section of the integrated

report is comprehensive and shows a commitmentto industry collaboration, and a new sustainabilityscorecard provides solid environmental and socialgoals. However, as is often the case, the report is notquite as integrated as it seems at first glance.

The company claims that sustainability is key toPumas long-term progress, yet its Back on theAttack business plan is seemingly unconnected to thePuma.Vision sustainability plan. The split is evenapparent in the chief executives letter which,whether by chance or design, discusses businessstrategy and performance on one page and sustain-ability on the second, with little to link the two.

One would assume that Puma has built a business

case for sustainability robust enough to warrant thekind of investment apparent from its comprehensivesupply chain management programme, yet thecompany remains shy about making an explicitconnection. The section on risk management is agood example. Despite identifying brand imageand sourcing as key risks, these four pages containjust one short paragraph on sustainability.

Pumas environmental and social programme,Puma.Safe, is an evolution of the companys originalfactory audit function, and supply chain remains aprominent feature of the approach.

Puma has widened the scope of its auditprogramme to include more third- and fourth-tier

suppliers, leading to a significant increase in thenumber of audits undertaken in 2010. Pumascommitment to supply chain transparency is alsohaving an impact beyond its own reporting. From2011 onwards 18 key suppliers, which account fortwo-thirds of Pumas products, will publicly reporttheir sustainability performance.

Wages within the supply chain remain one of themost high-profile issues for the garment industryand it is one Puma does not shy away from. In 2010,wages were a key theme at the companys annualmultistakeholder talks and the report includes arange of balanced third-party quotes.

Puma can be commended for reporting on areas

Snapshot

Follows GRI? Yes A+.

Assured?Yes

Materiality analysis? No

Goals?YesTargets? Yes, new

sustainability scorecard.

Stakeholder input?Yes

Seeks feedback? Provides

contact details but doesnt

explicitly request feedback.

Key strengths? Pushing for

supply chain transparency.

Chief weakness? Lack of real

integration.

Pleasant surprise? Innova-

tive environmental profit

and loss account.

Luke Jones is a consultant at

Context.

[email protected]

www.econtext.co.uk

Puma shouldbe congratulated

on its attemptto translateenvironmental

impacts intoa financialmeasure

6 Review Ethical Corporation September 20


12/17

scratching example is that the report counts as a majorachievement the fact that it has achieved the target ofimprovement in overall environmental efficiency.

A careful reading of the report might lead one towonder whether Toshiba has abandoned GRI for ISO26000, the nascent corporate responsibility guidelines.While the GRI index contained on the companys CRwebsite references the 2010 report (covering full year

2009) and various others, as well as the companysmain website, there are no references to the 2011report. Further, although the report points to a mate-riality analysis, and even displays a 3D graphic tosupport the idea, the report identifies no issues asmaterial. Both Toshibas third-party evaluator and thecompanys own consultant express a desire to see thecompany identify and prioritise its material issues.

Toshibas reporting of environmental performanceis far stronger than that of its other practices. Itsapproach is clearly laid out, as is its focus on greeningprocesses, products, and technologies. A discussion ofenvironmentally conscious products (ECPs) is inter-esting and should lead readers to see connections to

business success, even if such connections themselvesare not clearly drawn. Toshiba self-certifies a group ofproducts identified as Excellent ECPs based on theirability to meet or exceed internally set environmentalperformance standards. No doubt stakeholders investors and customers in particular would beinterested in seeing details of these products envi-ronmental performance vis vis competing products.

Toshiba devotes a considerable amount of space todiscussion of its improving eco-efficiency factors butrelatively little to better known indicators, such astrend data on GHG emissions, energy consumption,water use and waste generation. The few quantita-tive environmental indicators reported are centred

on reductions of GHG emissions and water usagemainly through ECPs. Stakeholders may be left towonder why there arent more quantitative indica-tors of performance. Perhaps Toshiba is saving thosefigures for its still-to-come environmental report.

Next time, Toshiba might consider putting all thatinformation in one place, so stakeholders who want tosee performance data dont have to go hunting for it.And while ISO 26000 is a useful tool in helping directattention to a variety of environmental, social andgovernance issues, Toshibas use thereof should notpreclude rigorous application of GRI in particular adetermination of the companys material issues.Theres plenty of room in this world for both. n

Toshiba 2011 CSR report

Too much information

By Kathee Rebernak

Toshibas 2011 corporate responsibility report and website, together, show in microcosm theconfusion that reigns in corporate responsibility or sustainability, or citizenship reporting

Review

If ever there were a poster child for the case to bemade for integrated reporting, Toshiba would be it.Toshibas 2011 CR report, with its accompanyingwebsite and various other reports, provides reams ofinformation. Toshiba largely fails, however, topresent a cohesive picture of its overall performance.

To its credit, Toshiba publishes an impressiveamount of information on its philosophy of gover-

nance and management of environmental and socialactivities, and the activities themselves. Its corporatereporting consists of an annual financial report,annual CR report, environmental report and a citi-zenship, or social contributions activities report.

In addition, each of Toshibas nearly 150 facilitiespublishes its own environmental report; that mostare written in Japanese may prevent many stake-holders from diving more deeply into the data. Andthen theres the CR website.

Unfortunately, none of this gives a particularlygood picture of how the companys many, manyactivities that fall under the umbrella of corporateresponsibility including environmental activities

that seem to be a key component of Toshibasproduct and technology development contributeto Toshibas growth and profitability.

Much of the information on the website is copiedexactly from the report or vice versa but some iscontradictory and it is not clear which mediumpresents the more accurate picture. Complicatingstakeholders ability to assess performance is the factthat the 2011 environmental and social contributionsactivities reports are not due out until later this year.

The result is confusion. For example, save onevague line in the targets section about supportingthe employment of female employees, the reportcontains no discussion of gender diversity. The

website does, however, contain a lengthy discussionof gender diversity or, rather, the lack thereof.

Jilting GRI for ISO 26000?Toshiba has vigorously pursued reporting in line withthe ISO 26000 standard. It has adopted an in-depthapproach to assessing performance of a variety ofsub-issues in each of the seven ISO 26000 subjectcategories and has set targets and plans for each. Andwhile the company has identified 235 action itemsand established an impressive array of key perform-ance indicators, the large majority of targets stated arequalitative. Nonetheless, the company reports 100%achievement of most of its targets. A rather head-

Kathee Rebernak is the founder

and chief executive of Frame-

work:CR.

[email protected]

www.frameworkCR.com

Toshiba largelyfails to presenta cohesive picture

of its overallperformance


SnapshotFollows GRI? Hard to say;

GRI index contains no refer-

ence to 2011 report.

Assured? So it says, by anindividual; no assurance

standard mentioned.

Materiality analysis?Yes,

but no material issues

identified.

Goals?Yes

Targets? Yes

Stakeholder input?Yes

Seeks feedback?Yes

Key strength: Application of

environmental standards in

new product development.

Chief weakness: Too many

parts; no centralisation ofdata.


13/17

New booksBy Oliver Balch

Our pick of the best new publications

In Good Company: an anatomyof corporate social responsibilityBy Dinah RajakHardcover: 328 pages, $80

ISBN: 0804776091Publisher: Stanford University PressPublished: September 2011

This critical look at the corporate responsibilitymovement examines the problems of letting the marketrule. Focusing in on mining company Anglo American,the book explores the developmental downsides of thiswin-win theory.

Corporate Citizenship and NewGovernance: the political role ofcorporationsBy Ingo Pies and Peter Koslowski (eds)Hardback: 208 pages, $139ISBN: 9400716605Publisher: Springer

Published: August 2011

Drawing on the fields of strategic management,economics, law and political science, this book offers anin-depth reflection on the theory of corporate citizenship.Questions about how companies new roles in societyand their part in modern governance structures aretackled head-on. A key book for an international age.

Corporate Greenhouse GasManagement: from operationsto strategyBy Dr Rory SullivanPaperback: 109 pages, 65

ISBN: 955372070Publisher: Environmental Finance Publications

Published: July 2011

Based on insights from six leading companies BASF,Deutsche Post DHL, Maersk, National Grid, StandardChartered and Vodafone this snappy study examineshow climate change is being integrated into businessstrategies. Plenty of practical guidance as well for thosecompanies looking to follow suit.

Twitter for Good: change theworld one tweet at a timeBy Claire Diaz-OrtizHardback: 224 pages, 16.99ISBN: 1118061930

Publisher: Jossey-BassPublished: August 2011

Written by Twitters head of corporate social innovationand philanthropy, this book sets out to show how thesocial media site can provide a platform for cause-based campaigns. Packed with dynamic examples fromaround the world, readers will find guidance andinspiration in harnessing the micro-site for good.

Building StakeholderRelations and Corporate SocialResponsibility: a sensemakingperspectiveBy Barbara FryzelHardback: 248 pages, 65ISBN: 230273252Publisher: Palgrave Macmillan

Published: July 2011

This book explores how companies engage in CRactivities, how their corporate identity determines theway in which they perceive the stakeholders and, asa result, engage in dialogue-based relations with them

The Business of Sustainability:trends, policies, practices, andstories of successBy Scott McNall et al (eds)Hardback: 907 pages, $184.95ISBN: 0313384943Publisher: Praeger

Published: October 2011

This three-volume collection sets out the why, what,who and how of sustainability and business.Management obstacles, measurement metrics, businesopportunities, and pathways to success all merit acomprehensive coverage. An impressively wide-ranginoverview.

Sustainable Business: FinancialTimes briefingBy Brian CleggPaperback: 160 pages, $59.99

ISBN: 0273746010Publisher: FT Press/Prentice HallPublished: October 2011

Pitched as short, high value, results-focused advice,this concise briefing from the FT offers senior managersvaluable insights into establishing high-valuesustainable business strategies. A handy, actionableguide for beginners and veterans alike.

Screwing Mother Nature forProfit: how corporations betrayour trust and why the newbiology offers an ethical andsustainable futureBy Elaine SmithaPaperback: 256 pages, $19.95

ISBN: 1780280189Publisher: WatkinsPublished: October 2011

Presented as a wake-up call to the impact ofcorporate-led globalisation, this book lays out analternative based on principles of cooperativecompetition and conscious, sustainable growth.

Books8 Ethical Corporation September 20


14/17

Jim Peacock has joined Hill& Knowltons specialist CRand sustainability team asassociate director. Peacock hasmore than 10 years of corpo-rate communications,sustainability strategy andcommunications experience.He joins from the CarbonTrust, where he was head ofcorporate communicationsand stakeholder engagement.

Karin Mortensen Laljani is the new managing directorofCorporate Citizenship, the global full service sustain-ability consultancy and part of Bell Pottinger Group.Laljanis remit is to drive sustainability into the marketingfunction and influence organisations to change the waythey are approaching environmental and social issues aspart of business strategy. Her most recent position wasmanaging director of Aegis Media plc and she is co-author of Sustainable Communications, which waspublished in May 2009.

Timberland has hired MarkNewton as vice-president ofcorporate social responsibility

CSR. In this newly createdrole, Newton will leadTimberlands global teamresponsible for managing theorganisations four areas offocus within CSR: environ-mental stewardship, globalhuman rights, communityengagement and trans-

parency and reporting. Newton joins Timberland fromDell where he most recently served as executive directorof global sustainability.

John Ruggie, UN special representative for business andhuman rights, is to join the corporate social responsi-

bility practice of corporate law firm Foley Hoag.Ruggie, currently a Harvard professor, will join the

firms Boston office inSeptember as a senioradviser. Ruggie is the authorof the Guiding Principles onBusiness and Human Rights,which the UN Human RightsCouncil formally endorsed inJune after six years of devel-opment. The principlesprovide high-level guidanceto companies on managingthe human rights impacts oftheir operations and are

likely to affect national law and policy in jurisdictionsworldwide. As a senior adviser at Foley Hoag, Ruggiewill help multinational companies navigate the princi-ples and apply them to their global business practices.

Standard Chartered has appointed Nii Okai Nunoo,current area head of corporate affairs in west Africa, asits new regional head of sustainability for Africa.

Regnan GovernanceResearch and Engagementhas appointedAmanda

Wilson to the newly createdposition of deputy managingdirector. Wilson joinsRegnan from Suncorp,where she was responsiblefor culture and performance,including reward, workplacerelations, recruitment,systems and talent manage-ment. She will be based in

Regnans Sydney office.

Lexis PR has promoted Michael Hoevel to the positionof head of sustainability for Glasshouse Partnership, itsspecialist CSR and sustainability unit. Hoevel has

worked for the company since 2006 on a number ofnational and international accounts.

Gareth Llewellyn has joinedNetwork Rail as its newsafety director. Llewellyn, aformer global director forsafety, health, environmentand corporate responsibilityfor the UKs National Grid,was most recently managingdirector of a consultancybusiness providing safetyand sustainability advice toglobal clients. As well as

having responsibility forsafety, Llewellyn is also leading Network Rails sustain-ability agenda.

The Social Investment Business has appointedJonathan Jenkins as its new CEO. The largest socialinvestor in the UK, The Social Investment Business worksto support social enterprises, charities and voluntaryorganisations to become stronger and more financiallysustainable. Jenkins has more than 15 years experiencein raising finance for small and medium projects fromhis City career. He is currently on secondment to the BigLottery and NESTA, working on the Big Society Bank.

NSF International, an independent organisation that

protects human health and the environment, haspromoted Tom Bruursema to be general manager of NSSustainability. Bruursema will lead the growing portfolioof NSFs sustainability services, including standardsdevelopment through the National Center for Sustain-ability Standards founded by NSF International in 2010.

Prior to his new appointment, Bruursema managed theNSF testing and certification programme for onsite waste

water treatment technologies

Tarmac has expanded itssustainability team withthe appointment ofAndySwain as sustainabilitymanager. Working acrossTarmacs UK business, Swainwill be developing newenvironmental tools forcustomers to help to drivethe companys sustainabilityprogramme.n

Appointment of the month

International entrepreneur and philanthropist RamGidoomal has become chair designate ofTraid-

craft, the fair tradecompany and develop-ment charity. Gidoomalwas formerly UK chiefexecutive of the InlaksGroup, an internationalfood commodity company.

Gidoomal was co-founder of the ChristmasCracker project, whichmobilised UK teenagers toraise money for the devel-oping world in the 1980sand 1990s. His current

roles include chairman of the Office of the Inde-pendent Adjudicator for Higher Education;chairman of the South Asian Development Partner-ship Trust; chairman of Allia, the social profitsociety; and board member of the InternationalJustice Mission. He will assume his role as Traidcraftchairman once his election to the board isapproved at this years AGM.

Traidcraft has played a pioneering role in thefair trade movement and I am honoured to havebeen asked to serve as its chair, Gidoomal says. Ilook forward to working with the team as itembarks on a new strategic period in the vitalwork of helping producer communities in thedeveloping world flourish and prosper.

People on the moveEthical Corporation September 2011

People on the move

By Claire Manuel [email protected] thanks to Miriam Heale, Allen & York Recruitment

Jim Peacock

Amanda Wilson

Gareth Llewellyn

Andy Swain

Mark Newton

John Ruggie

Ram Gidoomal


15/17

0

EC: How is Kraft looking to makeconsumers more sustainable?

NB: Kenco offers a case in point.Two years ago, we introduced arefill bag instead of glass jar. Therefill has 97% less packaging than

the jar, with obviously a hugeamount less energy going in tomaking it. About 25% of our salesare now with the refill bag.

EC: Do you think consumers canrealistically drive sustainability?

NB: You only have to look atCadbury Dairy Milk to see howmuch sustainability resonateswith todays consumers. Sincegoing 100% Fairtrade in 2009,the brand is growing double

digits. The market share and pene-tration has also gone up forKenco since becoming certified.Consumers are seeking value fortheir values. But you have to putit in their language and make iteasy for them. You shouldnt chargea premium.

EC: If you cant charge a premium,who takes on the extra cost?

NB: It comes from us makinginvestments in our value chain. If

we want to make a positive differ-ence with scale, it has to bemainstream. Mainstream meansthat consumers should not have topay a premium to be good. Thatsvery clear from research across awhole range of food categories. Sowe made a deliberate investmentdecision in paying more for certi-fied cocoa and coffee, and wemanage it like any other businessinvestment.

EC: What practical difference is

Krafts commitment to certification

making to producers?

NB: Weve sold about 300m bars oDairy Milk since going Fairtrade. Aa result, about 2.5m has beentransferred through the Fairtradpremium to cocoa cooperatives inGhana.

EC: You recently visited Ghana tsee the work of the Cadbury CocoPartnership. What did you takaway from the experience?

NB: Where weve seen a readifference being made is whenprogrammes are community-ledSo, that 2.5m weve given, itfor the communities to decidhow its spent not us. The samgoes for the Cadbury Cocoa Partnership. Well invest over 10 yearsome $45m in cocoa growincommunities. We work with greapartners there Care and WorlVision but its ultimately thfarmers themselves who muschoose the best paths to thei

development.

EC: You talked about workinthrough industry initiatives. Whythis important?

NB: It would be madness to suggesthat any company has got everything right. Theres still a lot morto do. These are exceptionallcomplicated and challenging issuethat can only be addressed througcoalitions of industry, governmentsNGOs, and so on. n

COLUMNIST:


Fast facts:Kraft Foods

Headquarters:

Northfield, Illinois, US

Founded: 1903

Net revenue (2010):

$49.2bn

Net profit (2010): $4.1bn

Number of employees:

127,000

We all knowthat thepressures on

the planet areincreasing

Nick Bunker

Nick Bunker, president, Kraft Foods and Cadbury, UK and Ireland

We have an imperative to

look after the farmersNick Bunker was appointed president of Kraft Foods and Cadbury forUK and Ireland in February 2010. Before this he was vice-presidentand managing director of Kraft Foods UK and Ireland. Bunker hasworked for Kraft since 2000. Bunker spoke to Oliver Balch

CEO interview

Ethical Corporation: How do youdefine sustainability and whatdoes it mean for a company likeKraft?

Nick Bunker: For us, sustainabilityisnt to do with CSR. Its to do with

the fundamental underpinning ofour business. We are one of theworlds biggest purchasers of cocoa,coffee and cashew nuts. Thereforewe are dependent on the sustain-ability and security of that supply.We have a social imperative as wellto look after the welfare of thefarmers on whom we depend.

EC: Is sustainability of supply agrowing issue for Kraft, then?

NB: We all know that the pressures

on the planet are increasing. Weknow that rising living standardsand increasing populations willmake food production harder andwell have more mouths to feed.The other context is that most ofthese commodities are grown indeveloping countries, which havetheir own social, environmentaland economic challenges.

EC: Devising solutions that arescalable is obviously an imperative.How is Kraft going about this?

NB: Certification is a good example.We have 15 brands that have theRainforest Alliance or Fairtrademark. I believe its good to supportthe co-existence of different [certifi-cation] schemes. As a significantglobal player, by working with bothwe can bring scale to sustainabilitythat maybe others cannot. To put itin context, 100% of our Kenco coffeeis bought from Rainforest Alliance-certified farms, which equates toabout 96m cups of coffee per week.


16/17

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The Corporate Social Responsibility program at Harvard Business School ExecutiveEducation exists for one reason: the impact you will make when you get back to yourorganization. Sharpen your ability to evaluate corporate responsibility practices, alignsocial responsibility with core strategies, and create actionable plans for any economicenvironment. To make a meaningful difference, visit us at www.exed.hbs.edu/pgm/csr/

Balance.

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september free mag - part 3

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