Corporate Responsibility

This article was first published on the LRQA.com the Global Centre website in April 2005. It is reproduced here for the benefit of LRQA's UK audience.

Corporate responsibility (CR) is defined as a mechanism for companies to voluntarily integrate social and environmental concerns into their operations and their interaction with stakeholders, which are over and above their legal responsibilities.

The challenge then for 21st century companies is to govern their corporate activities, in line with globalisation, increasing legislation and growing expectations of stakeholders, whilst improving their triple bottom line (economics, environment and social performance).

To do this most companies are integrating the issues of the marketplace, workplace, human rights, the community and the environment into their core business strategies in an attempt to ensure a better quality of life for everyone, now and for generations to come.

LRQA provides a range of services to companies wishing to be accountable and transparent for their corporate governance. The key components are:

• Risk management
• Stakeholder engagement
• Management systems and performance measurement
• Corporate reporting of environmental, social and ethical performance.

Consequently by integrating CR into your core business the following benefits can be derived:

• Better risk and crisis management
• Good relations with stakeholders and interested communities
• Increased worker commitment
• Increased productivity
• Reduced operating costs
• Enhanced brand value and reputation
• Long-term sustainability for your company and society.

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Corporate governance

Are you aware of recent changes to corporate governance legislation?

Corporate governance is generally understood to mean the relationship between shareholders, directors and management and the systems that guide and control them.

Traditionally this has included such issues as executive evaluation and compensation, board composition, auditing practices and investor relations. However, in the last ten years, the concept of corporate governance has been increasingly interpreted to include a much broader range of (non-financial) economic, ethical, social and environmental issues whilst encompassing a greatly expanded group of stakeholders such as suppliers, customers, local communities and the general public.

In 2005 the UK reformed its Company Law. It requires companies to publish an Operating and Financial Review (OFR) that discloses its material environmental, social and ethical issues.

The OFR is intended to arm shareholders with information on which they can make a proper assessment not only of past performance but also of the directors' view on the company's future prospects and its approach to managing all those factors (environmental performance, employee issues, relations with suppliers, customers and local communities) which are crucial to its future success and reputation.

In the US during 2002 the Sarbanes Oxley Act was introduced. The Act is organized into eleven titles; sections 302, 404, 401, 409, 802 and 906 are the most significant with respect to compliance. In particular section 404 requires a management assertion and auditor attestation on the effectiveness of internal controls.

The Act applies to companies listed on the US stock exchanges and is intended to:

• "deter and punish corporate and accounting fraud and corruption, ensure justice for wrongdoers, and protect the interests of workers and shareholders" (Quote: President Bush)
• protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws.

Misinformation can be punishable by fines and/or imprisonment. Against this background, process transparency and compliance have acquired a completely new emphasis.

LRQA can help senior management to comply with these corporate governance regulations which potentially impact on your financial liabilities and company reputation. An initial assessment will appraise your business processes, confirm the consistent application of standards and identify deficiencies and areas for improvement.

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Risk management

Do you have a formal risk register?

Risk can be defined as the combination of the probability of an event and its consequences (ISO/IEC Guide 73). In all types of operation, there is the potential for events and consequences that constitute opportunities for benefit (upside) or threats to success (downside).

Risk management is a central part of any company’s strategic management and good management first identifies and then mitigates its risks. Risk management should be a continuous and developing process. It should address methodically all the risks surrounding the company’s activities past, present and in particular, future. It must be integrated into the culture of the company with an effective policy and a programme led by the most senior management. These policies are then translated into tactical and operational objectives that are assigned throughout the company. It supports accountability, performance measurement and reward, thus promoting operational efficiency at all levels.

LRQA can help you to:

• establish a business framework
• identify all significant risks
• determine measurement criteria
• set mitigatory measures
• review performance.

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Stakeholder engagement

Do you know who your key stakeholders are? Or what their critical issues are?

Stakeholder engagement is a formal process of relationship management through which companies engage with a set of their stakeholders in an effort to align their mutual interests, to reduce risk and advance the triple bottom line - the company's financial, social, and environmental performance.

Current ‘critical issues’ include climate change, emerging standards and regulations, supply chain risks and human rights.

LRQA can help you to design mechanisms to properly collect and respond to stakeholder views. The form of engagement will depend on your objective and type of stakeholder.

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Management systems and performance measurement

Are you aware of emerging standards, environmental legislation, social regulations, et als and how they impact your business?

There are dozens, if not hundreds, of codes of conduct for corporate responsibility in the marketplace. This has led to the call for harmonised management system standards and a single and international standard for CSR management. The International Organization for Standardization (ISO) Committee has decided to develop a standard to benchmark CSR, accountability and governance practices.

LRQA is instrumental on these development committees and understands how these standards are designed to support/impact your business. This is where our extensive knowledge of existing management systems such as ISO 9001, ISO 14001, OHSAS 18001 and ISO 27001 is of great value.

LRQA can help you to:

• ensure that corporate policies, procedures, and strategies reflect material issues
• integrate new controls into existing management systems
• gain certification against recognised standards
• deliver continual improvement against performance measures.

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Corporate reporting

Do you publish corporate reports? Are they externally verified?

These reports are documents that describe the performance and plans of a company and are read by a variety of stakeholders. They are similar to the financial accounts published currently by companies but disclose material information on environmental, social and other issues instead.

The format for disclosing data and information varies considerably. It may be site, corporate, product or management system specific, relate only to greenhouse gas emissions, health and safety or address a number of stakeholder concerns as identified through dialogue.

National governments encourage disclosure using markedly different strategies. For example:

• Australia - Corporations Act, requires companies to report breaches of environmental laws and licences in their annual reports. Also introducing a UK-style requirement for financial providers to disclose the extent to which environmental, social or ethical issues are considered in investment decisions.
• Denmark - Green Accounts Act, requires companies in nine industry sectors (including steel, oil and gas, chemicals, power generation) to publish “green accounts” for each site. The main disclosure requirement is about consumption of energy, water and materials, polluting emissions, waste disclosure, compliance with regulations, environmental policy statements and supplier policies. The government also joined the trend to require such information to be aggregated in the main financial annual report, though in common with the UK approach, management has discretion on what to include and how to report.
• European Union - the 8th Company Law Directive, similar requirements to Sarbanes-Oxley
• France - Nouvelles Regulation Economiques, requires all listed companies to include social and environmental issues in their statutory annual reports. Several specific issues are to be included as part of the directors’ report whilst reviewing social and environmental impacts. These are employment, resource use, emissions, expenditure and management action on environmental protection measures.
• Netherlands - part of the Environmental Management Act, requires companies in industrial sectors with high environmental impacts (e.g. chemicals, food, oil, power generation, airports) to report for each of their sites. Also the directors’ report is expected to include a review of environmental, social and ethical matters, similar to the UK requirement for the OFR but as matter of “best practice” rather than a legal requirement. As in the UK stakeholder relations are seen as an important issue.
• Norway and Sweden - follow similar approach to Denmark. Companies must disclose labour and environmental issues.
• UK - Company Law, requires companies to publish an Operating and Financial Review (OFR).
• USA – Sarbanes Oxley requires a management assertion and auditor attestation on the effectiveness of internal controls.

LRQA can help you to:

• develop your corporate reports
• establish robust data management systems
• demonstrate credibility and build trust with stakeholders by independently verifying your data and information.

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Links

This page provides links to related 3rd-party websites. LRQA is not responsible for the content of external sites.

• Global Reporting Initiative, www.globalreporting.org, provides a framework for principles of preparation and rules on data reporting for non-financial operating reports.
• AA1000 AS, www.accountability.org.uk, provides set of accounting principles similar to the financial industry and framework for assurance providers on undertaking verification of reports
• Universal Declarations on Human Rights, www.un.org, is a standard that promotes respect for human rights and freedoms
• UN Global Compact, www.unglobalcompact.org is a voluntary corporate citizenship initiative with two objectives:
  • Mainstream the ten principles in business activities around the world
  • Catalyse actions in support of UN goals
• International Labour Organisation, www.ilo.org, is the UN specialized agency which seeks the promotion of social justice and internationally recognized human and labour rights.

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