Companies have embraced the concept of the ‘opportunity’ of responsibility, but managing risks must never be neglected, says Toby Webb
Have we overplayed the importance of corporate social and environmental opportunity relative to risk? There are arguments that we might have done.
Back in 2001 when Ethical Corporation started out in the world of business ethics, it was all about risk. Risk that could affect reputation, employee morale, supply security and resilience, and investor confidence.
Much has changed in the 12 years since 2001, and much has stayed the same. That’s an old cliché, perhaps, but one that is accurate in this case.
But somewhere along the way some companies got distracted from the original risk-management focus. Some went too far along the route of “it’s all about corporate social/environmental opportunity” rather than concentrating on managing risk.
Call it a focus on PR, the distraction of persuading consumers to be climate- or eco-friendly, or the appeal of minimising energy usage and transport costs and calling it sustainability opportunity.
Call it what you will. Somehow, somewhere, the slightly paranoid edge of what was then “CSR”, which was sharpened by scandals of the late 1990s and early 2000s, became blunted in some companies.
Somewhere in the mix of partnerships, macro climate policy, consumer engagement (remember carbon labelling?) and so on, some businesses lost sight of the fundamentals of risk management.
Then the crisis of 2008 came along and budgets were cut, and companies went into a bunker from which some are still emerging.
Meanwhile the risk side of responsible business grew larger. Regulatory pressure, minor though it is, has created a larger stick with which to beat business, by NGOs, the media and regulators.
Globalisation of sourcing continued apace, Lehman Brothers or no Lehman Brothers, and a growth in nearsourcing due to energy costs brought risk back closer to home, sometimes without the management attention it deserved.
This lack of attention to risk radars, to risk trends, has affected us all. Big systemic, social risks have developed unnoticed, as we focused on bigger, environmental, macro-risks most companies can do little about on their own. (That’s not to say they shouldn’t be tackled, just that dual focus is needed).
Most importantly, technology and the ability of almost anyone, anywhere to report on so-called corporate malfeasance has grown faster perhaps than even Gordon Moore might have predicted.
And so the horsemeat scandal became a massive story so fast that companies had no time to react. And the continuing disaster of Bangladesh’s almost total lack of governance, which has been brewing for a decade, perhaps three or four decades, became obvious, lightning-fast.
So: are companies focusing too much on “let’s engage consumers” and “let’s motivate our people with green initiatives” and not enough on “let’s work out our short/mid-term risks and manage them better first”?
OK, you might say that it is unwise to generalise, and you have to look company by company. That is true. But the sense here is driven by a feeling, rather than any unequivocal evidence.
There is a worry that these dual notions that “companies will save the world by ‘engaging’ consumers” and “boards can only drive change if we call it opportunity” have been hugely oversold in comparison with the management of risk.
Now we are finding out fast that genuine business innovation that is truly ‘game changing’ is still, sadly, rare, and that consumers are not really motivated by corporate campaigns to change their ways permanently.
As the Accenture CEO study showed recently (see p6), company leaders are noticing that many of the easy wins on energy efficiency etc, have been made, and opportunity to save has turned into discussions about serious allocation of capital to go to the next level.
Yes of course we should sell the opportunity of CR/sustainability/ethics to company boards and investors. But not at the expense of better risk management. My concern is that the latter has been substituted by the former in some businesses.
There’s clearly a maturing approach being taken by companies to supply chain risk. It’s gaining corporate importance, of that there is no doubt. But perhaps companies are being distracted in some cases from managing these risks as well as they might.
Many companies are run by former chief financial officers, and they, above everyone, understand risk management on the balance sheet.
So while we focus on quantifying opportunity we must not forget that quantification of risk is at least as important, if not more.
Toby Webb is founder of Ethical Corporation and Stakeholder Intelligence. He blogs at http://tobiaswebb.blogspot.co.ukbusiness strategy Responsible Business risk management