Corporate Governance - Corporate Social Responsibility

Question 1

What are the four key Components of Corporate Responsibility?

Answer 1

1. Corporate social responsibility - Commitment by business to ethical behaviour and economic contributions, while improving life quality of workforce, local community and wider society.
2. Sustainability - Management of operations, strategy and risk to improve or minimise harm to the environment.
3. Corporate citizenship - Behaviour of companies as if they were citizens of their domicile country, with expected legal, socio-ethical and economic responsibilities.
4. Environmental, social and governance - Integration of enviromental, social and governance concerns into capital markets.

Question 2

What are five Drivers for CSR for a Company?

Answer 2

1. Sustainability
2. Risk reduction
3. Financial and human capital attraction
4. Innovation
5. Obtaining competitive advantage

Question 3

How do Governments and Supranationals promote CSR?

Answer 3

1. Laws and regulations.
2. Guidelines for multinationals (e.g. OECD Guidelines for Multinational Enterprises).
3. Best practice guide for human rights and good corporate governance (e.g. UN Global Compact; SIGMA).

Question 4

Why is CSR important for Investors?

Answer 4

1. Investors may not invest in companies whose practices are contrary to investor principles or violate laws, regulations and human rights norms.
2. Investors may manage their investments according activist or trade association principles (e.g. Investment Association; Pensions and Lifetime Savings Association.

Question 5

What is Greenwashing?

Answer 5

Practice of making unsubstantiated or misleading claims about the environmental benefits of a product, service, technology or company practice.

Question 6

How should CSR Initiatives be measured?

Answer 6

1. Focus on outcomes (i.e. beneficiaries of initiatives).
2. Usage of quantitative and qualitative measures (e.g. Dow Jones Sustainability Indexes; FTSE4Good Indexes; Business-in-the-Community Responsible Business Tracker).
3. Stakeholder feedback.
4. Proper valuation of individual stories.
5. Learning from other.
6. Risk identification and measurement.
7. Refinement, modification and re-measurement.

Question 7

What is Integrated Thinking?

Answer 7

A process that considers, in a balanced way, the effective and efficient utilisation of six capital resources available to an organisation when developing strategy or decision-making, viz.:
1. Financial capital (money, bonds, equity etc.).
2. Human capital (collective skills and experience of personnel).
3. Manufactured capital (physical infrastructure needed to provide products and services).
4. Intellectual capital (IP, intangibles).
5. Natural capital (resources and energy required for company’s products and services).
6. Social capital (value added by company to its social relationships that it has developed through stakeholder engagement).

Question 8

What are three Key ways of engaging with Stakeholders?

Answer 8

1. Reactively - Defensive engagement, when forced during crisis.
2. Proactively - Attempt to understand stakeholder concerns and issues via engagement.
3. Interatively - Retention of on-going relationships of mutual respect, openness and trust.

Question 9

What does the UK CGC, Wates Principles and ICSA/IMA Prescribe by means of Stakeholder Engagement?

Answer 9

1. Board should understand company’s key stakeholder views and describe in AR&A how their interest and s.172, CA ‘06 matters have been considered in discussions and decision-making (Provision 5, Code).
2. Board should foster effective stakeholder relationships aligned to company purpose. The board is responsible for overseeing meaningful stakeholder engagement (including workforce) and having regard to their views when taking decisions (Principle 6, Wates Principles).
3. ICSA/IMA prescribe 10 principles via ‘The Stakeholder Voice in Board Decision-making’, including:
   - Board should determine which stakeholders they need to engage with directly.
   - Board should identify and keep under review who they consider their key stakeholders.
   - Board should ensure appropriate engagement occurs with key stakeholders takes place and is kept under regular review.

Question 10

What is the Impact of Section 172, CA ‘06 in terms of Corporate Governance?

Answer 10

Section 172, CA ‘06 provides that the directors should promote the success of the company for the benefit of its members as a whole. In doing so, the directors must consider:
1. Interests of the company’s employees.
2. Likely long-term impact of decisions.
3. Desirability of the company maintaining a reputation for high standards of business conduct.
4. Need to foster business relations with the company’s suppliers, customers and other stakeholders.
5. Impact of decisions on the community and environment.
6. Need to act fairly as between members.

Question 11

What is the Company Secretary’s Role in Stakeholder Engagement?

Answer 11

1. DEVELOPING:
   - Identifying stakeholders.
   - Developing stakeholder engagement strategy.
   - Discussing/approving KPIs for social, environmental and financial performance.
   - Approving policy for external, financial, non-financial or integrated reporting.
   - Integrating stakeholder issues into AGM.
   - Discussing of risks and impacts of projects and operations with stakeholders.
   - Convening stakeholder fora.
   - Documenting stakeholder concerns and learned lessons.
2. ADVISING:
   - Advising board on reporting.
   - Alerting board on risks and opportunities associated with stakeholder engagement.
   - Advising board on set-up of committee responsible for stakeholders.
   - Advising Remuneration Committee on linking management rewards to achievement of CSR targets.
3. MONITORING:
   - Performing analysis as to whether gaps exist between company’s current position and strategic plan.
   - Receiving regular reports for board to be included in agenda for target monitoring.
4. COMMUNICATING - Informing key stakeholders about CSR initiatives and targets, and keep them apprised of progress.