Selling or embedding: Governance, Corporate Responsibility, and the role of the C-Suite

This article appeared in edited form in Ecotextile News,  Edition of March/February 2015.

Buying (and/or procurement) teams in brands are under constant pressure. After all, buyers are – in the bigger picture of a brand – an untypical group of people: While everyone else is geared towards adding to the coffers, the buyers’ primary occupation entails a focus on the opposite: they mostly spend their company’s hard earned cash.

Adding to the company coffer, for most corporate functions entails generating more revenue. In contrast, the only way that buyers can pitch in with their colleagues’ efforts, is to spend as little as possible.

Imperfect corporate incentive systems

The singular situation of the buying team, justifiably or not, is often seen as a segregated and somewhat ‘different’ group of people within a company. And is also just the top of the iceberg. The extent to which such functional ‘borders’ are manifest in a company’s’ everyday reality, is just a reflection of how segregated, or collaborative, the different teams manage to work with each other.

Further, the degree of collaboration between teams is not only a reflection of how smoothly integrated a company works across different functions, but also on how impactful CSR and sustainability efforts within a company ultimately are. Less segregation and more collaboration is typically correlated with better outcomes, including higher efficiencies, effectiveness and achievements.

Efficiencies, effectiveness and results however, are to an important degree the direct result of whether or not the board and the top line of company executives are held directly accountable for the outcomes. Being accountable for the outcomes means in the business context: executives’ performance evaluation, including bonuses and remuneration adjustments, are directly dependent on the outcomes and achievements – including and specifically also of those that result from activities, efforts and investments into risk management and mitigation, which in turn are an integral part of CSR & sustainability.

The first conclusion therefore is:
Only if also the top line of company executives, as well as any other management level across the company, are held accountable for and judged by their contribution to the company’s risk management and mitigation efforts, which includes importantly CSR and sustainability performance, the company will struggle on their journey to become a ‘good corporate citizen’. Without senior commitment and engagement, the system only ever allows for minor ‘bug fixes’.

Define and measure progress: A precondition for accountability

Allocating accountability to the right extent at the right management level – from top executive to middle and line management – is compulsory, but it is not sufficient on its own.

Measurement is the first step that leads to control and eventually to improvement. If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it. If you can’t control it, you can’t improve it.

H. James Harrington

Accountability needs to be facilitated through measurements – in order to be specific on what someone is actually accountable for – , progress goals, and incentives that are tied to the actual outcomes.

Only when accountability is combined with the measurement of progress achievements in the specified areas, and the outcomes then linked to a role’s performance evaluation, change is bound to happen.

Without the framework of interdependency between accountability, measurements, goals, and outcomes, in place and applied, there is no recognisable manifestation of any goal’s relevance for the company.

And CSR and sustainability goals are no exception to this rule.

Many are the case studies where well-intended measures were not backed by the CEO. To this day, in most companies, the changes that are required if one is to take CSR and sustainability seriously, have the (segregated) CSR teams peddling their efforts to the heads of other functions such as the buying, sourcing, design or merchandising directors. This is a singular waste of time and resource.

This all said: Many of these segregated CSR teams have only thanks to extraordinary work, patience and sheer perseverance achieved more than was ever thought possible. They would merit to be patted on their back for their results in the face of adversity.

Yet: If the accountability for CSR and sustainability measures and goals was built into the functional roles of day-to-day business, the CSR department might well quickly turn first into a sought-after in-house consultant, and then simply seize to exist as a separate entity, and be absorbed into the different functions. Because that’s where these experts actually belong.

Risk Management is CEO responsibility. And at the heart of CSR and Sustainability

Due to the lack of hard data, embedding CSR and sustainability related achievements – examples of which would be: improvements of environmental and social benchmarks, or increased use of ‘better’ materials – in operational job roles, used to be a tricky issue.

However, thanks to tools such as the Higg Index or the Fair Wear Foundations’ Labour Minute Cost Calculator, which provide concrete and tangible data points, the use of factual CSR and sustainability data has become much easier, and can now be implemented within operations processes and functions. Such tools allow assigning operational accountability to exact the groups, departments, and job roles where the relevant activities are performed.

What remains though is the strategic decision on an executive level whether or not to indeed use these tools for such purpose.

And here lies the crux: unless above mentioned executives have not been set themselves targets and responsibilities that incentive them accordingly, the whole process gets stuck.

With, for example, the Global Reporting Initiative (GRI), the Global Compact (GC), or the B Impact Assessment suitable tools do of course exist. Moreover, they have been recognised as facilitators and enablers of responsible – read the investor’s interpretation: highly risk aware – corporate practice. Skilled risk management in turn is a key shareholder and stakeholder interest, which is the reason why investment analysts and stockbrokers scrutinise such reports, and the thoroughness of their compilation, in detail.

Conclusion

While risk management and mitigation is a principle focus point of a CEO, the very risks harnessed and created within a company’s own everyday operations and habits remain often without being recognised.

CSR and sustainability teams typically exist separately as ‘policing’ units, and are perceived to obstruct the efficient and goal driven functioning of the different corporate departments. This seeming dissonance has so far been remedied by not allocating budget to many CSR and sustainability team at all, and demanding that they find ‘sponsors’ within other departments of the organisation in order to realise their projects.

This modus operandi makes it very clear that such projects are of low priority to the organisation, and it means putting the cart before the horse:

Buying processes that are overly keen on achieving a low price no matter what, for instance, pose a serious risk for a company: with regards to quality, reputation, delivery times, and reliability to just name a few areas of concern. That such risk factors may potentially remain undetected is the manifestation of a lack of strategic foresight. One that is being picked up and judged unfavourably by investors for it puts the stability of a company at stake – not just the bottom line.

It is for those reasons that all risk management, including in the shape of CSR and sustainability strategic and operational goals, must be accounted for by top management, and that the goals must be implemented in the accountabilities of functions and roles of each operations department.