Good governance required for global growth

PUBLISHED : Saturday, 10 September, 2005, 12:00am
UPDATED : Saturday, 10 September, 2005, 12:00am

MANY INVESTORS around the world have had their fingers burned by one or other of the numerous corporate scandals which have come to light in recent years.

Unfortunately, it is too much to hope that instances of high-level malpractice will disappear completely, but governments and companies have woken up to the fact that tighter regulations ultimately benefit everyone.

Consequently, companies have started to pay much closer attention to matters of corporate governance and to look at more than just the bottom line.

To cope effectively with new regulations and the increasing scrutiny of pressure groups, many have decided to adopt an approach known as corporate social responsibility (CSR). This helps to check the spread of potentially suspect financial practices and ensures that unequivocal management policies are in place.

CSR establishes a clear set of values for a company and its management team to abide by. They are also there for the benefit of all other stakeholders the company works with.

Kathy Bloomgarden, the chief executive of public relations (PR) company Ruder Finn advises her clients to adopt CSR.

'Public confidence in business managers and their ethical standards is not that great,' she said. 'If you can move away from the stereotype of executives being somewhat greedy and only interested in making profit, then I think that is going to set your business apart.'

In essence, CSR is based on the 10 principles of the Global Compact, launched by the United Nations in July 2000. These principles are not legally binding, but the UN asks companies to 'embrace, support and enact, within their sphere of influence, a set of core values in the areas of human rights, labour standards, the environment and anti-corruption'.

Adopting CSR standards and applying them correctly is not always easy. It may require managers to accept completely new ways of thinking and can affect almost every business decision. Potentially, this can lead to additional costs, which may raise operating expenses and affect customers and profitability.

'There may be some short-term costs to bear, and some tough decisions,' Ms Bloomgarden said. 'Ultimately, you must have conviction that [implementing CSR] is better for your ability to grow and prosper. It allows you to be different, to attract the right people and to have good rapport with government.'

There must be genuine change, though, not just a mission statement, she added.

'There has to be personal commitment by management, in their own lives and in their discussions with other people.'

Corporate leaders should also be clear in their intentions, so that the principles of CSR are felt throughout the organisation.

'Staff have got to believe that the management really means it, and are not just using big words,' Ms Bloomgarden said.

So how do companies go about adopting CSR principles?

The process has to begin right at the top. The first task is to devise a clear value statement based on the company's business strengths. This is a way of concentrating thinking around what the organisation really stands for and what it should be trying to achieve in the long term. 'It sounds easy, but requires a lot of discussion to be meaningful.'

This is where PR consultants can prove to be invaluable. They can help in identifying key corporate values and commitments, monitor the process, write up the details, and point out where clarification or changes are most needed.

Once the value statement is in place, executives can then decide on a policy direction and decision-making process. Clearly, the stated objectives should fit in with existing business plans.

'I think the problem for CSR can be that it's not really geared to what the company does. If it's not a priority for management, it doesn't work very well. It has to be very genuine and that requires more time, thinking and discussion,' Ms Bloomgarden said.

To make the programme effective, companies must provide training and education for employees and plan visible, memorable activities. They also have to ensure the programme is adopted company-wide. It can be localised for different markets and should include continuing measurement techniques.

Open and sustained dialogue with stakeholders is also vital. This helps other parties to understand, respect and trust the company's values. Investors will be more inclined to back an organisation which obviously stresses good governance and transparent business practices. It is also an excellent way of dealing with issues raised by activist groups and ensuring all sides get a fair hearing.

'If you are clear about the kind of company you are and the contribution you make, you can have a much better dialogue,' she said.

In addition, if a company works in accordance with CSR principles, it is a great way to attract good talent, at a time when it is increasingly difficult to find suitable staff in Asia.

'People want to feel they are working for really good companies, where they can respect the management and where others in the broader community appreciate what the company stands for.'

This applies particularly in today's business environment, where you see chief executives and chairmen running into avoidable problems, which ultimately affect employees.

Asian companies have lagged behind their European counterparts in signing on to CSR initiatives, but the increased presence of multinationals in Asia should change this. Similarly, as Asian enterprises become more global in their outlook, they are likely to embrace these issues more readily.

Ms Bloomgarden believes they will have to take this road to remain internationally competitive.

Companies worldwide are generally reacting positively to CSR. 'I think there's been a really huge change,' she said. 'Corporate misdeeds are so publicly aired. I think people have realised we need a much stricter set of rules and more giving back to community.' This was important for regaining the confidence of smaller investors and the general public.

'There has to be some way of amending the view that multinational corporations are greedy foreign entities that don't contribute. You really need to get beyond that, since companies are becoming much more important factors in global economic growth.'

Ruder Finn's 10-Point Plan for CSR

Devise a clear value statement based on unique strengths.

Ensure top management commitment and board-level ambassadors.

Decide on a clear policy direction and decision-making process.

Align CSR programme objectives with existing business plans.

Make open and sustained stakeholder dialogue a priority.

Cultivate employee buy-in and participation.

Provide all necessary materials, training and education.

Cascade the programme and then localise it for different markets.

Plan visible, memorable and meaningful activities.

Build in continuing measurement techniques.

Businesses should:

Support and respect the protection of internationally proclaimed human rights.

Ensure they are not complicit in human rights abuses.

Uphold the freedom of association and effective recognition of the right to collective bargaining.

Uphold the elimination of all forms of forced and compulsory labour.

Uphold the effective abolition of child labour.

Uphold the elimination of discrimination in respect of employment and occupation.

Support a precautionary approach to environmental challenges.

Undertake initiatives to promote greater environmental responsibility.

Encourage the development and diffusion of environmentally friendly technologies.

Work against all forms of corruption, including extortion and bribery.