The chief executive had a number of excellent ideas that qualified him to be a prime advocate for corporate responsibility. And he had the power and authority to execute these ideas. He was an extremely successful entrepreneur who built his company from scratch to become an international player and he used his private wealth to establish a foundation to secure the well-being of his employees.
His rationale was that they had had a share in generating his wealth and should therefore profit from it. For decades to come, every employee received a healthy profit share as well as a bundle of social services financed through the foundation – including a company-financed pension scheme, generous sick pay, paid holidays and a powerful workers’ representation within the foundation to ensure that these employee benefits could not be abolished by the next chief executive.
Additionally, he thought it would be a good idea to restrict the chief executive’s earnings – he therefore commanded that the chief executive should not earn more than ten times the average wage.
However, Ernst Abbe, chief executive of Schott Glasworks, had never even heard about corporate responsibility, and most certainly did not ponder the business case of what he was doing, in the year 1889. During the high times of industrialisation, to build and grow companies in Germany often meant conducting business in a socially responsible way – simply because it often grew from within a family business or within a close-knit community.
It was the success of these entrepreneurs and their growing businesses that paved the way for the concept of the social market economy, establishing Germany as a country with a high degree of social conscience, providing the environment for the production of high quality goods and services.
In today’s recession-plagued Germany, the social market economy is no longer a popular expression. What used to be the pride of German business is more often than not seen as a synonym for what is wrong with German business. The established social dialogue between employers and trade unions is seen as slow, inflexible and often unable to take on the challenges companies face.
An example is the impact of social dialogue on German law regulating incorporated companies. Regulations that for decades have been heralded as being incredibly successful in delivering socially responsible business and a high quality output need a makeover.
Deutsche Bank is a global business. One in two of its employees work outside Germany. As an “AG”, a company owned by shareholders, it is ruled by the “Aktiengesetz” the German Stock Corporation Act, which requires a supervisory board with an equal share of votes from management and employees. However, to benefit from this exemplary model of stakeholder dialogue, the employees who sit on the supervisory board have to work and live in Germany. Which means that about 50% of the Deutsche Bank employees are not represented by this model.
How can a global player extend a nationally regulated stakeholder dialogue? And, if there is a traditional German agenda of conducting socially responsible business – how can this be introduced into global action?
With Deutsche Bank, this challenge is being met. In 2003, its first “Cultural Corporate Affairs Report” tried to collate all cultural and community activities that had been established within national markets. So how does the bank deal with these differences in culture?
Its international programme “Initiative Plus” gives a financial incentive of €500 (or the equivalent) per employee to encourage volunteering. National corporate citizenship programmes within Deutsche Bank are often run by national foundations – an approach that ensures that the bank can compete with its peer group within each country it operates in.
Frank Trümper, global head of corporate cultural affairs, says: “It is very difficult to compare different cultures. Take, for example, corporate volunteering: yes, it is far more developed in Anglo-Saxon countries. However, millions of Germans are very active volunteers for all sorts of social causes – but to them the concept of volunteering is part of their outside-work activities. These volunteers do not see their volunteering as connected to their employer, although they would bring in their professional expertise. If you look at the total figures in the UK and Germany, the overall time spent in volunteering compares well.”
Trümper’s job is to find a common denominator for the company’s corporate citizenship and to align this into a strategy that includes non-financial values as part of the bank’s credo. Trümper strongly believes that “in the long run, a corporate culture of exceptional performance in business alone, reducing the banker purely to his functional role, will not allow a sustainable success”.
He says: “Corporations are part of society, not only business, and bankers are also citizens and parents, and not just business-people.” However, all this is aimed at developing “strategic philanthropy” – a concept not quite as advanced as some of the bank’s corporate-citizenship programmes suggest.
If social aspects are not a strong influence on companies’ corporate responsibility, how else do German companies develop their role in society?
Socially responsible investment
Socially responsible investment, which itself is being driven by regulation, is starting to become a strong influence on company management. Since January 2002, certified private pension schemes and some occupational pension schemes must “inform members in writing, whether and in what form ethical, social, or ecological aspects are taken into consideration when investing the paid-in contributions”. This disclosure regulation has been based upon the British example. However, it applies only to a small segment of the pension-fund market.
Walter Kahlenborn, chairman of the Forum for Sustainable Investment, an association of institutional investors committed to socially responsible investing, names a report by the German Ministry of the Environment that states that responsible investing has led to more detailed sustainability reporting as well as to changes in industrial practices.
Shortly after the regulation on disclosure, the official German Corporate Governance Code was introduced. Companies have to confirm their compliance with the code at least annually, or explain deviations.
The code summarises statutory requirements on the governance of listed companies. It also provides recommendations that take account of nationally and internationally recognised standards. It contains ideas for good and responsible corporate governance.
To Kahlenborn, socially responsible investing, codes of conduct and ratings work because companies refer to each other and learn in a peer group. This makes it much easier for them to engage in debate, compared with when discussions are initiated by governments, media or non-governmental organisations.
Dustin Neuneyer of the non-governmental organisation Germanwatch believes that although the Anglo-Saxon banking and finance industry still lead when it comes to the impact of socially responsible investing and corporate responsibility, German companies are catching up. Germanwatch gives companies more credit for their sustainability practice than official trade associations.
Frank Bock, an analyst with BVI, Germany’s main trade association of investment funds, is much more sceptical about the impact of responsible investing than Neuneyer. According to Bock, sustainable investment plays a rather ancillary role within the German funds market.
It is not only the leading role of UK and US fund managers that influences German companies. Equally important are customer expectations in a developed market. Differentiation through environmental and social issues enables the success of new brands and products. “Green” products, from cars to washing-up liquid, sell well.
Unfortunately, with German companies this has not yet led to substantial reporting. According to the 2002 “Global Reporters Survey” from the United Nations Environment Programme, and Sustainability, only two German companies are within the top 25 (BASF and Volkswagen). The survey notes that most German reports are strong in environmental information but much less strong on social reporting.
For a country with a longstanding model of social dialogue and a social market economy, this is surprising.
Bernhard Seitz, author of a book on corporate citizenship, says companies need to develop “corporate narratives” in an attempt to recast themselves as somehow similar to those German entrepreneurs that led the introduction of social measures more than 100 years ago. With “corporate narratives”, companies can develop a strategic approach to corporate citizenship – driven not by a product-related business case but rather by the desire to make the company more tangible and approachable.
In a world of mergers, acquisition and conglomerates, corporate citizenship can help locate a company within its neighbourhood, partners and customers. A company such as Siemens has long since lost its connection with its founder Werner von Siemens. Today, it’s simply an amorphous giant of more than 400,000 employees working from hundreds of locations. This loss of connection, together with a wariness of what is seen as the old-fashioned social economy, can turn pronouncements on corporate responsibility into mere hype. At least that is what many corporate responsibility reports from German companies still suggest.
Torsten Sewing is a freelance journalist based in Germany