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By Peter Jackson
Illustration: Geneviève Côté
 COMPANY EXECUTIVES MUST PAY ATTENTION TO STAKEHOLDERS AS WELL AS THEIR SHAREHOLDERS
Corporate accountability has become headline news thanks to corporate scandals in the United States and in Canada. And as most of these scandals have resulted in tremendous declines in share values, much of the attention has been on improving accountability to shareholders. Bodies such as stock exchanges, securities commissions and the accounting profession have concentrated on rebuilding trust in the financial reporting system, in corporate integrity and in the stock markets.
However, there is a longer-term shift in corporate accountability that also deserves attention. Events such as the collapse of Enron, trends such as the globalization of the economy and of information transfer, and pressing ecological issues such as climate change are reshaping how we see the role of corporations in society.
The conventional view is summarized by the Canadian democracy and Corporate Accountability Commission: "As long as they obey the laws of the nation, those who manage the corporations are accountable only to those with capital invested in it — the shareholders. Existing corporate law guards against management abuse of shareholder interests by first giving legal primacy to those interests and then defining their content in simple terms: the maximization of profit."
The problem with this shareholder primacy approach is, as the commission put it, some people believe "corporate profit-maximization objectives have been responsible for shaping domestic and international policy agendas, the results of which have had serious negative consequences for human rights, working conditions, and the environment."
Between the die-hard defenders of the shareholder-primacy view and the radicals protesting in the streets of Quebec City and Seattle is a growing body of people seeking to reform the current system by embracing a broader form of corporate accountability. After all, shareholders are not the only victims of corporate failures. Employees can lose jobs, careers and pensions — their financial security. Whole communities suffer when a major employer closes down. Our collective humanity
is diminished every time a child in the developing world is condemned to live as an indentured worker in a sweatshop. None of us can escape being part of the system that allows such things to happen, though we can choose whether our personal actions and buying choices support or reform the system.
In another failure, it is the environment that suffers. And when the environment suffers, people suffer, although the impact may be felt elsewhere — downwind or downstream of the polluting plant, for example, or in time by future generations.
Corporate social responsibility (CSR), also called corporate citizenship/sustainability, is an expanded notion of corporate accountability rooted in stakeholder relationships –– and it is gaining prominence. In 1995, management guru Max Clarkson argued that without the continued participation of its primary stakeholders, "the corporation cannot survive." In 1999, the Conference Board of Canada defined the area: "CSR is the overall relationship of the corporation with all of its stakeholders. … Elements of corporate social responsibility include investment in community outreach, employee relations, creation and maintenance of employment, environmental responsibility, human rights and financial performance."
Today, CSR is moving toward the mainstream. Investors can access the Dow Jones sustainability world index, which tracks the performance of companies that meet its criteria. Dow Jones analysis shows that companies listed in the sustainability index are performance leaders. In its 2000 annual review of the index, Dow Jones stated the following: "Investors are attracted to corporate sustainability because, as a business strategy, it creates long-term shareholder value by embracing opportunities and managing risks associated with economic, environmental and social developments."
Alberta's Suncor Energy Inc. has been on the Dow Jones sustainability world index four years in a row. Its vision of becoming a sustainable energy firm integrates environmental, economic and social needs and stakeholders' expectations.
The company tracks and reports a variety of measures. Economic performance measures include levels of oil production, net earnings and cash flow, as well as number of employees and taxes paid. Environmental measures include air emissions (including greenhouse gases), energy consumption, water use and waste management. Social performance addresses such areas as health and safety, employee relations, workforce, equal opportunity and diversity and community relations.
"Since we first articulated our vision of becoming a sustainable energy company," says Suncor CEO Rick George, "Suncor has embarked on a challenging, but rewarding journey — a journey that has shaped our organization's culture, influenced our decisions and set the stage for growth. Along the way, we have come to appreciate the challenges a sustainable energy future presents — a challenge that involves working to improve our environmental, economic and social performance, while resolving what initially appears to be conflicting stakeholder interests and expectations. Meeting the growing demand for low-cost energy while addressing diverse stakeholder concerns is a dilemma faced by Suncor, the energy industry, government and society."
The choice of the word "dilemma" is fitting. Triple bottom line reporting is an emerging art, though some guidelines exist, such as the Global Reporting Initiative (see www.globalreporting.org). Dealing with Dilemmas is the title of the most recent Report on the Triple Bottom Line from Danish pharmaceutical Novo Nordisk, widely acknowledged as a leader in this form of reporting. Its report lists seven dilemmas, and describes how it is tackling each:
• How do we do business consistently in an unjust, unequal world and yet respect the diversity within that world?
• How do we improve access to healthcare and make our products affordable, and yet continue to operate a profitable business?
• How do we protect our intellectual property rights and yet help share knowledge that can save lives and generate income for others?
• How do we stimulate diversity and equal opportunities and yet maintain a corporate culture of shared values?
• How can we pay due respect to animal welfare yet continue to use animals for testing in order to meet the safety requirements for pharmaceutical products?
• How can we use biotechnology to create significant advances for humankind and yet respect the public's anxieties about genetic engineering?
• How can we continue to increase production and our use of resources and yet contribute to sustainable development?
Every company that addresses CSR will find its own dilemmas — but that is not stopping many from beginning the process. In Canada, the CSR movement has recently received four boosts:
CEO support In the September 2002 report of the Canadian Council of Chief executives, Governance, Values and Competitiveness, the council, which consists of CEOs from all sectors of the economy, says: "The recognition that companies must take into account the interests of a wide variety of stakeholders in order to serve the interests of their shareholders is expressed in a variety of ways. Some of the terms used are corporate social responsibility, corporate citizenship, the 'triple bottom line' and sustainable development. Each company must decide for itself how best to express and integrate its values with its business strategy. We would note, however, that there is strength in numbers, and suggest that participation in broader collective initiatives may serve both to build an individual company's reputation and to enhance public trust in the free enterprise system as a whole."
Recognition: a key concern The January 2002 report of the Canadian Democracy and Corporate Accountability Commission states "corporate responsibility means being accountable to a series of 'stakeholders,' regardless of whether the total 'stake' of these persons is currently protected by law." In recognition of this, the commission recommends each board of directors assign responsibility for oversight of CSR to a board committee and appoint a senior executive as ombuds-person with management responsibility for this area. It also recommends a disclosure regime modeled on the Canadian approach to governance disclosure: "As with the TSE corporate governance guidelines, companies should be required as part of their listing requirement on Canadian stock exchanges to disclose in their annual reports or annually in information circulars their approach to corporate social responsibility, assess the extent to which these practices conform to 'CSR Guidelines' set out in stock-market listing rules and explain any discrepancies."
Emerging professionalism The University of Toronto's St. Michael's College has joined forces with the Conference Board of Canada to establish a certificate program in corporate social responsibility. The first group graduated from the program in 2002, and this year's program rapidly filled up, a sign of emerging professionalization of the field.
Regulatory requirement As of 2001, most federally incorporated financial institutions are required to publish a public accountability statement that discloses, among other things, their goals in community development and examples of the activities undertaken on a voluntary basis by employees on behalf of the institution for the purpose of community development. Although this requirement is narrower than full-scope triple bottom line reporting, it is a clear step in that direction.
As these developments show, CSR has a lot of momentum. "We believe long-term competitive success depends on being trusted to meet society's expectations," says Philip Watts, chairman of the committee of managing directors of energy giant Royal Dutch/Shell. In their book Building Public Trust — The Future of Corporate Reporting, Samuel DiPiazza and Robert Eccles analyse the benefits to Shell as including "attracting and motivating top talent, reducing cost through eco-efficiency, reducing risk, influencing product and service innovation, attracting more loyal customers, enhancing brand and enhancing reputation."
Many corporations recognize the truth of this analysis and are embarking on implementation of CSR, some out of enlightened self-interest and some out of the simple conviction that it is the right thing to do. Fully implemented, CSR will be integrated with all ongoing corporate routines, from planning to reporting, from the board of directors to the most junior employee. The triple bottom line of economic, environmental and social development is linked to internal management tools such as the balanced scorecard and performance goals for individuals. Corporate values are also realigned, as are supporting processes as varied as human resources and accounting.
Corporations that have not yet started down this path can begin by taking stock of where they are by asking: Who are our stakeholders? What do they expect from us? How well are we responding? What shall we do to improve?
These questions provide the framework of a continuous improvement process. As progress is made, they will be probed more deeply and with increasing participation from within the company and, as time goes by, from external stakeholders. Now is a good time to begin paying attention to the evolving expectations of corporate accountability and the impacts on sustained organizational success.
Peter Jackson, CA, is a Toronto-based consultant in risk management, governance development and strategic change. He is Technical Editor for Governance | 
