By Mike Eldon
Until not that long ago ‘the tyranny of Wall Street’ pressured companies on the New York Stock Exchange to focus almost exclusively on their next quarterly results. Senior management would beaver away, largely with the sales and finance people, to massage their numbers so as to show that every three months without fail they were doing better than in the previous equivalent period, leading this to be reflected positively in the share price of the company.
Huge effort went into this numbers manipulation, taking so much time from how these people could have been engaged more ethically and productively. Never mind that the focus on the quarter may well have worked against longer-term healthy growth and sustainability, as immediately they transited into the following quarter the distortive numbers chase began all over again. I know all about this personally, as over the years I have worked for and with different multinationals – and I am also aware that it has far from stopped.
It has been fascinating, however, to observe the shift from that virtually exclusive need by corporates to satisfy the short-term interests of shareholders to a broader and longer-term appeal to all key stakeholders. Internal stakeholders include all levels of staff and board members, external ones such as customers and suppliers, others like government and the communities within which the companies operate, plus the environment. And what they now all expect regarding the role and behaviour of businesses in society has changed very significantly.
In response, we have seen that multiple frameworks have been developed to guide organisations on how to live up to what others increasingly expect of them – and to be fair, to what many more now expect of themselves. Certainly, publicly listed companies – including here in Kenya – must comply with Environment, Social and Governance (ESG) guidelines that enlighten them on how to be sensitive to these considerations. Increasingly too, down to small family businesses, more and more companies – largely as a reflection of their leaders’ values – are integrating Corporate Social Responsibility (CSR) more fully into their activities, and complying with the principles and spirit of ESG.
Like the chairman-owner of one mid-sized company where I am a board adviser, who recently informed me that this year they will be focusing on ESG and aligning their CSR with the UN’s Sustainable Development Goals (SDGs), evolving from the narrower traditional view of CSR. Not because he has to but because he wants to, and for the long-term good of his business.
Their CSR programmes have been largely transactional, consisting of one-off donations of food, and without too much staff engagement. So, they will now enrich these programmes in the context of the relevant SDGs, with focus on measurable, sustainable impact.
As far as ESG is concerned, they have been making excellent progress in each of the three components, and again not merely to be compliant with laws and regulations. It’s thanks to the values of the chairman, who believes in doing what’s right anyway, by being fair to all key stakeholders. That’s just who he is, a responsible leader, and that’s how he expects others in his company to be – to go for win-win rather than win-lose outcomes, with each other and with the external stakeholders.
This is not with the resigned expectation that such behaviour will compromise their profits, but rather that it will enhance financial success. For these days customers increasingly look for suppliers who display integrity and fairness. It’s what makes them loyal and leads them to recommend such suppliers to others. The same goes for employees, who are attracted to work for responsible organisations and to remain with them for longer.
Lenders, investors, insurers and others will also find them attractive to partner with, as they have nothing to hide and so are relaxed about being transparent. It means organisations must do a good job reporting on how they go about promoting high standards of ESG, so that perceptions properly reflect the uplifting reality.
As this trio of three-letter acronyms – CSR, SDGs and ESG – has been moving towards centre stage, how do we bring them all together in an effective way that doesn’t become unnecessarily complicated? How do we avoid getting bogged down in the bureaucracy of mere compliance or allow them to operate in independent silos that lack synergy? How do they deliver – and know they deliver – measurable and sustainable positive impact?
Prof Michael Hopkins, the author of several books on CSR, advocates for a “systems approach” to CSR and the related SDGs and ESG frameworks. It means treating them as a high-level integrated component of the overall strategy, with active board engagement. It must be well-managed so as to ensure profitable sustainability, and be pursued without compromising those profits. For it is only a question of how profits are generated, and not with the expectation of sacrificing them.
The key stakeholders must be mapped out, and they must be engaged ongoingly in conversations about these issues, leading to the long-term business case for what emerges being made: what will it all cost, and what will it deliver? For more on this, see my Business Daily article of 6th December 2022: https://www.businessdailyafrica.com/bd/opinion-analysis/columnists/csr-do-good-in-a-sustainable-way–4044178
Following guidelines such as those issued by the Nairobi Securities Exchange is good. Then we have valuable organisations like the UNDP Global Compact and the local Blue Company, that sign up members to commit to being ethical and to doing business with other ethical entities. They have formed excellent communities of best practice, enabling the good guys to work with and learn from each other. They well are worth joining.
The fact that Business Monthly has felt that this theme deserves devoting a whole issue to it shows how significant the shift to doing the right thing and to saying “no” when one should is becoming. Not just for public companies, and indeed not just for private sector for-profits, but also for NGOs and for all levels of government.