As a result of the corporate crises of the past few years, there seems to be general agreement that corporations have a responsibility not only to investors but to a larger group of stakeholders and even to society at large. Corporate social responsibility (CSR) has become the new buzzword, and corresponding value statements by corporations have mushroomed. Here are two examples:
  1. Communication, Respect, Integrity, Excellence

  2. Excellence, Efficiency, Sustainability, Integrity
It might be interesting to know where these statements come from. The second set describes the values to which Swiss Re is committed. The first is stated in the annual report for the year 2000 of -- Enron. It thus appears that value statements in themselves are not very meaningful. To provide real, hands-on guidance, a corporation’s values must be reflected in its corporate governance and compliance.

Corporate Governance and Compliance

Corporate governance deals with organizational schemes and supervisory systems, the sharing of powers and functions, with reporting and transparency. Compliance sets rules on procedures, on dos and don’ts in pursuing the corporation’s activities.

Corporate governance must -- among other things -- extend to transparent reporting and a supervisory and auditing structure that embraces societal and environmental issues. The “Codes of Conduct” in which compliance rules are usually set down should address concrete business situations, dealing for example with questions of confidentiality, conflicts of interest, insider trading etc.

And every employee should be encouraged not only to seek advice in cases of doubt but also to report in cases of non-compliance. Even the most detailed code, however, cannot ensure that all the company’s representatives abstain from bending the rules, and detailed rules can even be dangerous if they result in a quest to find loopholes. Most importantly, therefore, a company must develop a culture of compliance with ethical standards, based on role models and open communication.

The Meaning of Corporate Social Responsibility

Many business people equate the concept of corporate social responsibility with making contributions to society for free. In my view, this is a misconception. Of course, a large corporation can and should be able to provide a certain number of working places for people with disabilities, it can and should also help underprivileged groups within society and support cultural activities. But there is a limit to such charitable activities: both the law and the market, forces publicly owned corporations to focus on creating value for shareholders. Charitable activities must be distinguished from sponsoring, which also brings benefits for society, but from which the corporation expects a reasonable payback, in the form of an improved reputation or new business opportunities.

Apart from charity and sponsoring, though, a corporation has only one social responsibility: to perform its own business activities in an efficient way and in compliance with its core values. Insurers and reinsurers, for example, have the task to actively manage risks, and thus help other industries to embark on business activities that would be too risky if no risk transfer and risk mitigation was possible. To provide this protection in a profitable way is equivalent to ‘corporate responsibility’ in the insurance industry.

Does it Pay Off?

The corporate risk landscape has changed significantly over the past few years, and will continue to do so:

  • Investors want to be informed of a corporation’s activities beyond the bottom line.

  • Employees want to be proud of their employer; clients, too, prefer a responsible partner.

  • Regulators and legislators have tightened frameworks.

  • Corporations are under increased public scrutiny from NGOs on global issues such as human rights and sustainable development.

  • Society at large requests much greater transparency with regard to a corporation’s impact on society and the environment.
Corporate social responsibility -- as defined above -- is a prerequisite to meet these rising expectations. It helps to safeguard a corporation’s reputation and there is ample evidence showing that it pays off financially.

For large financial sector companies, this is particularly true for several reasons. They need highly skilled employees and have to give them a large degree of discretion in their work. Such employees look for values they can share. Furthermore, financial sector corporations are frequently one-brand companies and rely heavily on that brand to make their products somewhat tangible. And they tend to operate globally, meaning that a tainted reputation in any part of the world adversely affects activities worldwide. They thus simply cannot afford for any of their stakeholders to have doubts about the way they do business.

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This article has been reprinted courtesy of Radar, SustainAbility's monthly newsletter. It first appeared in the February/March issue of that publication.