What if Business as Usual
The role of standards in corporate
There is a growing sense that organizations must recognize that they have a wider responsibility than their own profitability and returns to shareholders. They must take responsibility for their wider economic, social and environmental impact. But there is a lack of consensus about what organizations should be doing to contribute to sustainable development, or what constitutes corporate social responsibility. Corporate sustainability standards have a key role to play in establishing this consensus.
Emerging standards for sustainability and corporate citizenship serve two purposes. in part, they are about circumscription, practical guidance and measurement that allow good practice to be understood and repeated. This coincides with the familiar definition of a standard as a measure of quality, an approved example or model for imitation, and a mark of integrity and honesty. But standards are also about providing focus for this still-developing movement. This is consistent with another meaning of a standard as a distinctive emblem used as a rallying point of an army or movement. Corporate sustainability standards provide a vehicle to articulate what organizations of the 21st century should be about. Indeed, the very process of developing standards is as important as the resulting standards themselves; it is a mechanism for drawing in the views of different stakeholders.
it is possible to draw distinctions between codes, guidelines and standards, particularly whether they are mandatory or voluntary and their level of formality.
This, however, is not the focus of this chapter and we will use standard here in a wide sense that encompasses codes and guidelines. We use the term standard to mean a written statement that seeks to influence practice so that it is repeatable.
The growth and scope of corporate
Take-up of voluntary standards continues to grow. Research by the institute of Business Ethics (Smith, 2002) found that ‘in August 2001, 73 of the companies listed in the FTSE100 either had a code of business ethics or had one in preparation. There has been a rising trend among FTSE500 companies to have such codes rising from 33 per cent in 1993 to 57 per cent in 1997.’ Probably the most widely accepted standard is the international organization for Standardization's (ISO's) ISO14001, which by the end of 2001 had been taken up by over 37,000 organizations in 112 territories.
The spectrum of standards has also been expanding to cover all areas of the sustainability agenda. However, research in 2000 by the organisation for Economic Co-operation and Development (OECD) on 246 voluntary corporate codes found that most were concerned with the environment and labour agendas. it is also noticeable that codes of conduct tend to be concentrated in certain sectors. OECD found that codes were concentrated in trade, textiles, chemicals and extractive industries. Codes addressing labour issues tend to be concentrated in sectors such as garments, footwear, sports goods, toys and retailing, whereas environmental codes are more likely to be found in chemicals, forestry, oil and mining.
Do we need corporate sustainability standards? Given the growing resources being devoted to developing and adopting standards, it is worth asking do we need them at all? What benefits do they offer and what are the drawbacks?
Benefits of sustainability standards
- Allow good practice to be codified and shared. A recent OECD report (OECD, 2001) argues that private codes help to change business behaviour and help to develop intangible resources, notably expertise and consensus.
- Reduce the learning cycle that each organization must go through, allowing previous experience to be shared and built upon. The Global Reporting initiative (GRI), for example, provides a ready-made framework of appropriate indicators for organizations wishing to report their social performance.
- Allow professionalization. The development of AA1000, for example, has given rise to a recognized set of skills and practitioners in the field of social auditing and stakeholder dialogue.
- Help drive out bad practice. The development of clear reporting guidelines and management systems will help to counter the problem of manipulation by corporate public relations (PR) departments to put the best possible light on corporate performance.
- Provide a mechanism for recognizing those who commit to follow them. The recognition of achievement helps consumers to reward those companies that reach agreed standards and, in turn, provides some incentive for companies.
- Help consolidation and focus – a standard picks out the essential elements. This helps organizations to overcome complexity and focus limited resources. it is noticeable that some actors are involved in several standards initiatives, bringing with them shared frames of reference. Sometimes standards refer directly to others. The FTSE4Good, for example, takes account of compliance with a diverse range of standards as evidence of meeting its criteria. These include elements of ISO14000; the UN Global Compact; the international Labour organization's (ILo's) core labour standards; the Environmental Management and Auditing System (EMAS); Social Accountability 8000 (SA8000); and the World Health organization (WHO)/ United Nations Children's Fund (UNICEF) international code on the marketing of breast-milk substitutes.
- Allow comparison: from comparison comes learning. Comparison also underpins accountability, allowing, for example, the benchmarking of comparable activities.
- Can reduce entry and transaction costs by providing ready-made templates and management systems, and can make those costs easier to forecast.
Concerns about sustainability standards
Standards can create problems too, of course. Dangers include:
- Promoting accepted practice rather than best practice. The QWERTY keyboard is now the de facto standard for keyboard layouts, despite the fact that it is not the best design ergonomically. As this example shows, standardization even around an inferior standard can still be better than no standard at all.
- inhibiting innovation. Companies may choose to follow standards rather than develop their own practices. The existence of a standard can make it harder for new practices to be accepted.
- Being seen as an irrelevance, that they are not taken up or are inappropriately applied. It is true that in the area of voluntary standards companies may choose those that are easy to comply with, and ignore those that are really most relevant to their operations.
- Promoting the lowest common denominator. Of course, standards can be pitched so low that they may give stakeholders a false sense of reassurance. But, over time, the understanding of standards and what they mean will grow. it is easier to campaign to change a specific standard than investigate and campaign to change the practice of each individual company.
- Being too rigid or too flexible. Drafting a universally applicable standard runs the danger of being insensitive to a whole host of diversity issues. Does a ban on child labour preclude children delivering newspapers in the UK? If not rigid enough, does it leave the standard open to endless interpretation?
In our view, there is no doubt that the benefits outweigh the potential problems. The development of standards is essential to agreeing the parameters of organizational responsibility and evaluating organizational performance. But what type of standards do we need?
Approaches to standards
As we have seen, the number of standards is proliferating. Despite their variety, they can be grouped into a series of approaches.
These set out broad principles of behaviour but do not specify how they are to be achieved or how conformity with them can be assessed.
The pros of these standards are that they help to identify the scope of issues with which an organization should be concerned. They provide opportunities for external alignment for an organization.
The cons are that they often lack details as to how they are to be implemented, and compliance is often difficult to establish.
Performance standards are concerned with what the organization actually achieves. These may vary from very specific targets, to outlining indicators against which organizations should report and then tracking their performance historically or against a suitable external benchmark.
The pros of these standards are that they help to provide transparency about what is actually being achieved.
|Principle-based standards||Process standards||Performance standards||Hybrid standards|
|UN Global Compact||AA1000||SA8000||FTSE4Good SIGMA|
|OECD Guidelines for Multinational Enterprises||ISO14000 ISO9000||Global Reporting Initiative||London Stock Exchange Combined Code|
|Caux Roundtable Principles for Business||Winning with Integrity (Business in the Community)|
The cons include the difficulty of establishing generally applicable targets that are sufficiently sensitive to different operating contexts – for example, different industries, countries and scale of operation – and of ensuring that like is compared with like. Such standards may have a narrow scope. Their predefined scope may miss the issues that are most important to a given company and its stakeholders.
These standards outline processes that an organization should follow in order to improve its performance. While performance is not directly addressed, the standards may include processes to identify appropriate performance targets – for example, in consultation with stakeholders or by reference to external codes.
The pros of these standards are that they provide practical guidance to organizations and help to establish repeatable processes and behaviours.
The cons are that they do not prescribe performance levels, and may be over-bureaucratic.
Some standards combine elements of the three other approaches as illustrated in Table 13.1
Principles-based standards, while strong on values, are weak at suggesting how they should be operationalized by business. In contrast, performance and process standards are often more detailed. one criticism sometimes made is that there is too much emphasis on process and not enough on performance-based standards. But performance standards tend to rest on process. Process standards, with their emphasis on defining concepts and prescribing activities, are part of the process of building the infrastructure for ever-improving levels of performance. We need to take care not to dismiss process standards simply
The Environment Agency of England and Wales sponsored research during 2002 into whether the environmental performance of ISOI400l-certified sites was superior to those without the standard. The results found that while the standard was associated with better procedures, these procedures were not associated with better performance (fewer incidents, complaints or non-compliance events) (Environment Agency, 2002). Critics seize on such evidence to dismiss ISO14001 or process standards. But we need to be wary of judging process standards directly for performance - we don't condemn the existence of financial management systems when we discover poor performance. We use the management system to help identify and understand the problem. If the system is also hindering performance, then we improve the process. Our financial accounting system has evolved in just such a way, constantly modified in the light of new understanding. Despite its failings and its indirect relationship with financial outcomes, it plays an essential supporting role. In the corporate sustainability field we are still building this necessary infrastructure.
because they do not directly address performance. Likewise, a certain degree of consensus needs to be achieved about what is to be done before you can measure how well it is being performed and the impact that it has. A case in point for many practitioners today is to agree on ways to measure new intangibles such as social performance in order to set performance targets (see Box 13.1 for a discussion of the process/performance paradox relating to ISO14001).
And, so, it is all too easy to get into a sterile debate about which of these types of standards is best. in reality, each of the different approaches has something to offer. one single approach cannot provide all that is needed. We need an architecture of standards that together combines the best of the different approaches and provides:
- a framework of principles;
- practical workable guidance on what is to be done; and
- the ability to assess actual performance.
The diverse format of standards
We find further diversity in the format of different standards. They vary from de facto practice, to loose guidelines, to specifiable standards and formally recognized standards developed through nationally and internationally agreed mechanisms – for example, the British Standards institution (BSi) or the iSo. Similarly monitoring and enforcement mechanisms range from none at all to self-regulation, or the use of transparency mechanisms – for example, public reports – through to formal independent auditing and verification. Codes concerned with broad principles tend to have a less prescriptive format and looser enforcement mechanisms. Performance-based codes tend to have tighter monitoring procedures. SA8000, which is concerned with labour standards, for example, requires certification by an SA8000-accredited body. The certificate is renewed every three years and requires six-monthly surveillance audits. Process codes tend to be quite prescriptive in their format – for example, the ISO14001 standard sets out clear steps to be followed, which can be audited. The variety of formats reflects the different audiences for whom they are written, their intended uses and their authorship.
Who are the standard-makers?
As Table 13.2 illustrates, there are many different actors involved in crafting standards. Companies are able to write organization-specific codes that are relevant to them and their context, and which they are committed to uphold. But there is nothing to stop a company from avoiding difficult issues and resisting external challenges. A company code in isolation is vulnerable to the accusation of being simply a PR exercise. industry codes can be particularly helpful in identifying relevant dimensions of performance and laying the foundations for comparable data. A potential concern is that standards forged in an industry forum such as a trade association may result in a lowest common denominator approach and result in weaker standards.
Business-led standards may lack credibility with civil society, especially because of the need to reconsider the boundaries of companies’ responsibilities and to whom they are accountable. Conversely, non-governmental organization (NGO)-led standards are sometimes charged with lack of realism, and may be viewed with suspicion by business. As for traditional standard-making bodies such as the BSI and ISO, some argue that their processes are not sufficiently transparent and are ill equipped to properly represent the voices of civil society and the developing world.
Governments are, of course, key players, responsible for the United Nations declarations and capable of moving from voluntary to mandatory standards. But governments of different hues have, to date, been hesitant to take the lead, nor is there universal agreement that this is what is needed.
In response to the shortcomings of standards led by a single stakeholder group, there has been a developing trend to involve diverse stakeholders (such as the GRI as Illustrated in Box 13.3). Such multi-stakeholder initiatives can be challenging and complex to manage. Nor are they immune to criticism. They, too, must consider to whom they are accountable and how they reflect the views of different stakeholders fairly, particularly Southern perspectives; but the outcome of multi-stakeholder dialogue is more likely to have widespread credibility.Table 13.2 Illustrates a sample of standards by different authors. Box 13.2 provides more detailed illustration of Responsible Care as an example of an industry standard.
|Single company||Allied Domecq; Levi Strauss; Nike; Bradford and Bingley|
|Industry||FORGE2 (banking and insurance);|
Responsible Care Programme (Chemical Industries Association)
|Commercial-rating agency||FTSE4Good; Dow Jones Sustainability Index|
|Business grouping||Caux Roundtable|
|NGO||Amnesty International's Human Rights Guidelines for Companies; Principles for Global Corporate Responsibility by the Interfaith Center for Corporate Responsibility; Ecumenical Council for Corporate Responsibility(Great Britain); Task Force on the Churches and Corporate Responsibility(Canada)|
|Standards-making body||ISO9000; ISO14000|
|Government||European Union's Eco-Management and Audit Scheme|
|International institution||UN Declaration of Human Rights; ILO conventions; OECD Guidelines for Multinational Enterprises|
|Multi-stakeholder||GRI; AccountAbility 1000 series; Social Accountability International SA8000; SIGMA; Ethical Trading Initiative Base Code|
Responsible Care was started by the Canadian Chemical Producers Association during the mid 1980s and now operates in 46 countries as a means for the chemical industry to express its commitment to continual improvement in all aspects of health, safety and environmental performance. In the UK, the Responsible Care Programme is operated by the Chemical Industry Association (CIA), which represents 75 per cent of the chemical industry, including companies such as Bayer, AstraZeneca, Johnson Matthey and Kodak. At the heart of Responsible Care are ten guiding principles covering such areas as product stewardship; resource conservation; policy; process safety; and employee involvement. In 1998, the CIA published a Responsible Care guidance manual that includes a management system and mandatory self-assessment. Take-up of these elements has been high; but interest in voluntary third-party certification has not been as strong. Responsible Care contains a number of initiatives to help struggling members. Poor performers are offered peer support through a system of local ‘cells’ and consultancy best practice packages paid for by the CIA. As with many sectoral standards, Responsible Care does not exclude individual companies from operating their own codes or attaining other cross-sectoral standards.
The Global Reporting Initiative (GRI) is one of the better-known standards. A long-term multi-stakeholder international undertaking, GRI's mission is to develop and disseminate globally applicable sustainability reporting guidelines for voluntary use by organizations reporting on the economic, environmental and social dimensions of their activities, products and services. The guidelines set out five principles for reporting. GRI was originally sponsored by the Coalition for Environmentally Responsible Economies (CERES) - a coalition of environmental groups, socially responsible investors and public pension administrators - but then received United Nations (UN) support. In 2002 it became a permanent institution. Organizations that adopt GRI produce reports on their financial, social and environmental information. GRI takes an integrated approach to performance measurement. It includes cross-cutting indicators that straddle traditional issues-based demarcations. By the time of its August 2002 review, over 140 organizations had prepared reports based on GRI, attracted, in part, by its comprehensive and easy-to-understand guidelines on non-financial reporting. The GRI August 2002 release sought to build in ease of benchmarking over time and between organizations; however, its growing complexity may deter less committed users. It does not a specify a rigid format, preferring a guidelines approach that allows organizations to report ‘in accordance’. GRI does not police reporting claims made in its name.
What makes for successful sustainability
Existing sustainability standards are already contributing to understanding and practice. The diversity of approaches helps to provide flexibility. But there is a need for some consolidation, even if only to reduce the sheer number of standards and resulting confusion. What characteristics are required of successful corporate sustainability standards for the future?
Credibility with a wide range of stakeholders
As already indicated, taking a multi-stakeholder approach is essential to building credibility and acceptance.
Many companies are managing the three elements of the triple bottom line (TBL) separately; but, increasingly, the three elements need to be managed in a way that recognizes their interrelationships. Such a strategic approach is also important to making breakthrough rather than incremental change. Fewer integrated standards may also encourage take-up by companies for whom the number of standards has been a deterrent to action.
Many businesses are looking for practical guidance on what they should do.
Standards need to reflect the circumstances and context in which they are applied, where this is appropriate. it is unlikely that a single standard can provide all that is needed. it may be appropriate to have a company code to reflect corporate values and circumstances, a sector code to address specific issues, as well as a more generic standard that is externally recognized and validated. The way in which standards interact will play an important part in achieving flexibility.
it is important to show evidence of organizational improvement over time. As more companies report, particularly to agreed standards, we are likely to see more benchmarking and league tables being published. it is also likely that we will see more industry-specific measures being developed.
Drivers for corporate sustainability standards
There are a number of drivers for increasing standardization. A succession of different opinion surveys suggests that the public expect higher levels of non-financial corporate performance. At the same time, the surveys also suggest declining trust in companies. The investment community is showing increasing interest in corporate sustainability performance and is looking for ways to assess it, evidenced by the development of specific indices such as the FTSE4Good.
Governments are also showing increasing interest. We are seeing more examples of legislation touching on the social and environmental behaviour of companies. In the UK, the 1999 amendment to the 1995 Pensions Act requires trustees of pension funds to declare a statement of investment principles, including the extent to which social and environmental issues are considered. in France, a new law has been published requiring reporting by French corporations. The European Union (EU) has issued first a Green and then a White Paper on corporate social responsibility (CSR). It has concluded, so far, that a voluntary approach is preferable.
ISO, the international standards-making body, is also showing increasing interest in this area. In June 2002 its Consumer Policy Committee considered the desirability and feasibility of a CSR standard and recommended the establishment of a working party. it has mentioned the sustainability integrated guidelines for management (SIGMA) (see Box 13.4) as an example of what a corporate responsibility management system might look like. Discussions within ISO about whether a standard is needed and the form it should take are ongoing.
The SIGMA project is led by AccountAbility, the BSI and Forum for the Future, and is backed by the UK government's Department of Trade and Industry (DTI). SIGMA aims to develop an integrated approach for organizations to manage sustainability issues in order to improve their social, economic and environmental performance.
SIGMA builds on existing standards such as AA1000 and the Global Reporting Initiative (GRI), but seeks to pull them together in an integrated framework. Via its project steering group, SIGMA involves a wide range of stakeholders, including the Confederation of British Industry, the Association of Chartered Certified Accountants (ACCA), Traidcraft, and the World Wide Fund For Nature (WWF). In addition, it is actively piloting its work with leading companies and public-sector organizations to test out what actually works. The SIGMA guidelines consist of a set of principles, a management framework and a toolkit of practical approaches. The guidelines provide a process for organizations to improve their performance.
Some argue for voluntary standards, seeing them as a substitute for legislation and mandatory standards. That is, if business regulates itself and secures its licence to operate, it will stave off the prospect of governmental interference. An alternative view is that voluntary standards are a precursor of legislation. Here the existence of agreed concepts and approaches makes the legislators’ job much easier and thereby brings legislation closer.
Standards are no panacea. There are real problems in crafting standards that are general enough to be widely relevant; specific enough to be actionable; flexible enough to endure; and stringent enough to secure improvement. The standards we currently have may not do enough, but they are capable of evolution. Standards do have a crucial role to play. They provide a vital part of the infrastructure to improve corporate performance. They enable learning, allow comparison, set thresholds and provide an example for others to follow. The development of standards is also important in a second sense. it provides a rallying point to focus on the fundamental nature of corporate performance, how it is to be achieved and how it should be evaluated. Crafting new and evermore challenging standards is an essential endeavour. Standards of different types will help to give greater definition to the concept of the triple bottom line and, most crucially, will help to ensure that it is effectively translated into action.