The bottom line in corporate social responsibility

TRANSPARENCY

by Lori Bamber

When Milton Friedman’s influential article, “The Social Responsibility of Business is to Increase Profit,” appeared in the New York Times Magazine in 1970, it was an accurate reflection of the time. Whether or not you agreed with Mr. Friedman’s laissez-faire philosophy, you couldn’t argue with his underlying assertion: Being good could be viewed as a wasteful expense when it was so easy to get away with being bad.

Over the next 35 years, however, the world would change in ways that Mr. Friedman could not have predicted. Consumers woke up to their power to shape the world, and even companies with immense advertising budgets would find themselves fighting losing battles for their most valuable asset – their brands.

The financial risks of ineffective social and environmental practices have grown exponentially for corporations, and by extension, for investors and lenders.

As part of a panel discussion entitled “The View from the Finance People” at the Corporate Knights Conference in June, Barbara Stymiest, RBC’s chief operating officer, and former CEO of the TSX Group, put it this way: “We’ve all heard about those companies that have become legends of corporate irresponsibility because of scandals and crises… I’ll bet if you had seen their quarterly statements before their crises, you wouldn’t have seen the storms brewing. You’d have felt confident buying their shares… But shareholders quickly learned about the hidden liabilities in their investments.”

Talisman Energy is a corporation experienced on the front lines of this new world. In 1998, Talisman bought a share of a profitable oil-producing operation in Sudan, an unstable region with civil conflicts dating back to 1955. Talisman divested its Sudanese holdings in 2002, but along the way, it would face protests, ongoing legal action and damage to its share price as the result of concerns its activities in the area were fuelling human rights abuses.

With no ability to control Sudanese revenue spending, Talisman responded to criticism in part by breaking new ground in disclosure, becoming pioneers in corporate responsibility reporting and one of the first extraction companies in the world to have its corporate responsibilty (CR) reports verified by a third party (PricewaterhouseCoopers).

Partly as a result of those efforts, presumably, Talisman was named one of Canada’s 50 Best Corporate Citizens by Corporate Knights this year.

“By providing transparency on the fiscal contributions a company is making to a host government,” says Reg Manhas, manager of Corporate Responsibility at Talisman, “the public has the information it needs to ask the next question: Where is this money going? In countries where allegations of corruption and misuse of public funds are rife, we believe this is a significant risk management tool for the company.”

As with any new discipline, progress is incremental – but each step is a positive one. Westport Innovation, a world leader in alternative fuel automotive applications, has even extended its transparency efforts inside its organization, with an Ethics Hotline that employees can use to voice concerns about corporate behaviour – without fearing reprisal.

Transparency must be a management tool, not an optics exercise. Catherine Orer, director of Public Affairs of Gildan, another company that honed its reporting under fire, says, “We have more and more stakeholders that want information in a timely manner.”

Transparency is simply the most effective and efficient way to build effective relationships with stakeholders, and those relationships are fundamentally important to the company’s long-term well-being. “It is difficult to engage with everyone one on one, but transparent disclosure, having a (CR) report, ensures that everyone is informed. It’s a good way to begin building relationships with stakeholders, and it gives us a chance to tell our side of the story.”

Today, Gildan works closely with Maquila Solidarity Network, an organization that advocates for workers’ rights in Mexico, Asia and South America. Gildan now posts periodic updates on its website to inform stakeholders of progress made on its commitments, as well as to keep them fully abreast of any delays that might occur.

“You always have to think about transparency first,” says Ms. Orer. “This is not a promotional exercise. Stick to the facts, or you’ll have no credibility.”

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