Corporate responsibility at IBM is a class act so high expectations then when the IBM Institute for Business Value this week came out with a piece on CSR: Attaining sustainable growth through corporate social responsibility. Dazzling stuff but one or two clangers as well.

IBM gets it with the concept of a ‘CSR Value Curve’ moving away from below the line cheque book philanthropy and minimal legal compliance towards more strategic integration. The day of the outsize cheque with the requisite cheesy photo opportunity are numbered. If enlightened businesses are negotiating collaborative governance arrangements directly with concerned stakeholders then so for the better. If better environmental management also reduces costs and turns on employees, great. If strategic philanthropy can act as a sand box for developing new business models to profitably unlock excluded markets then business is serving society well and making the greatest impact possible.

‘Ubiquitous connectivity’ has empowered the masses to challenge the power of business. But then I think IBM takes it a bridge too far:

the balance of power between business and society has shifted toward society and away from business

This is dangerous thinking and may lead business leaders to assume, if they have no power in society, they carry less responsibility beyond the regulatory minimum. Some of the greatest ethical blunders in business have been borne from such thinking. And business is part of society not something separate from it.

In fact, the more dramatic shift is the shrinking role of government. NGOs have swelled to bridge the gap and act as a spot check on business. Citizens, as employees, shareholders and consumers are indeed empowered with social media tools to place significant and sometimes conflicting pressure on the corporation but make no mistake, the economic and political forces still are firmly on the side of business. So with business looming so large on the landscape, there is naturally increased pressure for greater corporate accountability and social engagement well beyond the realm of just staying low, paying taxes and obeying the law.

If there is any doubt about the power of business in society we need look no further than Wal Mart. Recently the FT reported than environmental lobbyists from both sides of the fence were spending as much time in Bentonville, Arkansas as Washington DC. Wal Mart’s supply chain policy apparently is as potent as the regulatory authority of the remaining global super power. Wal Mart understands its role, the responsibility to be more broadly accountable and to lead on sustainability issues. So far they have been making a decent fist of it.

But before all else, transparency is fundamental:

In fact, the company that invites more eyes and on its operations can preempt problems that would otherwise become very expensive to solve.

But when it comes to provision of CSR information, IBM identify a tricky disclosure dilemma. 63% of executives believe they have sufficient information to satisfy customers concerns on CSR but only 33% are confident they understand customer expectations.

Even the most open and proactive firms face dilemma: Too often they just don’t know what they know. And when they do, they don’t know what to share.

Representing a real shift, many NGOs are today more prepared to engage with business towards a common goal. Look at HSBC and WWF, Unliever and Oxfam or, more eye catching perhaps, Greenpeace and McDonalds. Strange bedfellows and maybe not permanent friends but working together for incremental progress.

Such collaborations help business reduce risk and even bring new product concepts to market. Stakeholder management then is about much more than information provision, it is about relationships. And if an influential study on CSR Communications released jointly last week by Edelman, Net Impact, Boston College Centre for Corporate Citizenship and the World Business Council for Sustainable Development is to be believed business has yet a long way to go:

Companies now grasp the business case for effective stakeholder engagement and are working hard to improve communication lines—whether it’s through direct stakeholder contact, new web-based CR reporting, or other channels that allow for greater responsiveness to stakeholder issues and recommendations. Yet stakeholders of every stripe—NGOs, SRI fund managers, journalists, internal audiences—have criticized CR communications and engagement.

So is IBM is a tad premature or naive to suggest the following?

Imagine the information gathering ability and the cost savings that could come from asking the foot soldiers of a global NGO to monitor working conditions or chemical spills.

I think so. Maybe NGOs will foot soldier for corporate audits but they won’t expect to do it on the cheap nor settle for anything less than very high levels of enterprise wide performance and assurance. After all, NGOs have their own brand credibility and stakeholder interests to protect. They will also rightly expect business to invest in their continued and long range capacity, NGOs too have capital requirements.

NGOs can play an important role as an independent verifier of corporate social performance and such public assurance unlocks real value from a fairly expensive corporate social audit programme. But where it gets really interesting is when both sides can work together on product, process and quality assurance design. For example, the Fair Trade and Forest Stewardship Council marquees command a premium, create new revenue streams, reduce risk and deliver social justice. The micro revolution has changed banking even in the developed world and mobile telephony is pushing far down the long tail to access huge new markets - all of this necessarily requires some level of NGO collaboration.

It is impressive to see a heavyweight like IBM throw significant intellectual horsepower behind sustainability and challenge for innovation.

Bob Suh, Chief Technology Strategist at Accenture writing in yesterdays Financial Times hits the panic button on US productivity. Apparently it is starting to slip relative gains in Europe and China. The reason is an under investment in technology. I know what you are thinking, I’d be surprised too if Accenture reached a different conclusion about the need for tech spend. Nevertheless.

What is interesting in terms of sustainability trends are two issues. One is an apparent political fear of technology investment inside the firm amongst CIOs with Accenture reporting only 34% of major IT projects coming in without a hitch. Suh uses the heart surgery analogy:

Taking no action with a 100 per cent chance of gradual death, is more palatable than having a procedure that has a 66 per cent chance of sudden death.

The other issue is a concentration of spending on Sarbanes Oxley compliance and M&A systems integration that might be better spent on overall process efficiency.

The former though based on well grounded fear is a clear example of short term thinking getting in the way of longer term value creation. The latter is an example where legal compliance is traded away against the opportunity for greater resource efficiency.

In reality, to tackle global problems such as climate change and poverty we will need a massive innovation in business process efficiency. For example, writing in the Foreign Affairs journal recently Elizabeth Economy quoted a Chinese official:

To produce goods worth $10,000 we need seven times the resources used by Japan, almost six times the resources used by the U.S. and — a particular source of embarrassment — almost three times the resources used by India.

And if we are to see compliance focus come at the cost of productivity we will certainly be slow to make progress. We need to be better able to do both. At the least we will need greater regulatory certainty to spur investment in cleaner technologies but compliance too should be nimble. Multistakeholder, voluntary initiatives such as the Electronic Industry Code of Conduct or the Extractive Industry Transparency Initiative show real promise in this area in helping organisations more flexibly meet the societal demand. The tech industry job one is to shore up CIO confidence in tech investment.

The Economist Intelligence Unit this week publishes a report on the state of business and sustainability entitled: Doing Good: Business and the Sustainability Challenge. (Disclosure: SAP was amongst a number of co-sponsors of this report) The report captures nicely the zeitgeist - most businesses have accepted sustainability as a mainstream concern but struggle to integrate it meaningfully into strategy and performance management.

Though the Economist family has been famously agnostic on sustainability (the magazine once referred to it as a ‘faulty analysis of the capitalist system’) a healthy skepticism is no bad thing with 71% of executives surveyed agreeing ‘too many organizations use sustainability merely as a public relations tool’. At first take this seems disappointing but actually I think I would be more concerned if the result pointed emphatically the other way towards complacency. Clearly, most executives believe there is work to be done to better manage sustainability performance and assure stakeholders.

The EIU study identified some of these management gaps:

Four key areas currently receiving too little attention within business are: leadership, supply chains, reporting and metrics and the transformation of values into processes. At present, weaknesses in one or another of these will condemn too many companies to poor performance in this area.

Perhaps more important, as the social and environmental forces driving sustainability reshape the economy, an inability to understand and perform in this area could be fatal for business.

Jane Nelson from the Harvard CSR Initiative (and something of an icon in this field in my view) sums up the conundrum well:

Most companies are not sure what is enough. On climate change, what is enough? That you have a policy? That your emissions meet or exceed some publicly agreed level? And if so who sets the level?

The awful truth is that sustainability has to be understood in context of the industry not as a set of universal principles. Read the rest of this entry »

Tom Lantos may have made his very last stand for human rights last November when he recalled Yahoo! executives to challenge their earlier testimony surrounding the Shi Tao case. Shi Tao is a Chinese activist serving ten years in prison on trumped up charges and Yahoo! stand accused of handing over information on Tao to the police. Yahoo! management had originally testified they had no specific information on the nature of the Chinese police investigation and were just complying with a routine request. But later an NGO produced evidence that Yahoo had the relevant police information all along. The Yahoo! explanation: bungled communications. And it was this that earned Yahoo! CEO Jerry Wang and Michael Callahan one last tongue lashing from Tom Lantos. Richard Koman wrote a number of good blog posts on this a few months ago.

John Palfrey, Executive Director of the Berkman Centre for Internet and Society at Harvard Law School brings a more moderate voice to this debate:

The hard problem at the core of this issue is that police come to technology companies every day to ask for information about their users. It is a fair point for technology companies to make that they often cannot know much about the reason for the policeman’s inquiry. It could be completely legitimate: an effort to prevent a crime from happening or bringing a criminal to justice.

Yahoo! has been the company that has been most tarred, in some ways, for a problem that is industry-wide, and should be resolved on an industry-wide (or broader, such as law or international law) basis.

Understandable enough but stakeholders rightly expect corporate accountability on this so how to balance what is possible in China and elsewhere with what is right? After the initial Congressional hearings a chastened industry began a series of dialogues facilitated by Business for Social Responsibility and the Centre for Democracy and Technology towards development of a voluntary code for Principles on Free Expression and Privacy to agree a code to guide future action. The coalition is a big tent including Yahoo!, Microsoft, Vodafone and Google together with NGOs active on this issue including Human Rights Watch & Reporters Without Borders amongst others.

And because of these voluntary efforts, Palfrey for one was willing to give Yahoo! some credit:

Yahoo! has been a very constructive player in the ongoing effort to come up with a code of conduct for companies in this position (along with Google, Microsoft, and others). And Yahoo! has been working hard to establish internal practices to head off similar situations and voicing its concern about Chinese policies in this arena. Their efforts since the Shi Tao case on this front have been laudable.

The coalition was due to report at the end of last year but I fear the November Lantos hearings and now the proposed acquisition may have delayed progress. Now that Lantos has passed on and with the possibility of Yahoo! being absorbed by Microsoft, their collective legacy might be the first steps towards a voluntary code of conduct to protect human rights and freedom of expression on the internet.

The first post on ZDNET! And if that isn’t scary enough I kind of need to spend some time explaining the concept of ‘sustainability’, the subject matter of this blog. Nailing custard to a wall would be so much easier. Ask ten people what sustainability means and you will get seventeen different answers. The big challenge then in writing this blog is how to avoid howling contradictions of my own.

To start at first principles, the most often used definition of sustainability first coined by Gro Brundtland, defines sustainable development as development that

‘meets the needs of the present without compromising the ability of future generations to meet their own needs’.

For business, this is about achieving a good balance between financial performance and social and environmental impact which means consideration of stakeholder interests beyond shareholders including employees, suppliers, partners, communities and civil society. This is where it starts to get somewhat contentious. Should a CEO really consider the needs of broader interest groups or simply focus only on shareholders? Is there really a fundamental conflict between different stakeholders over an expanded time horizon?

Important also is consideration of economic externalities including environmental costs and also benefits drawn into business from society such as the availability of an educated work force and critical infrastructure. And its easy to forget that the greatest impact business has on society is the overwhelmingly positive role it plays as a primary generator and distributor of wealth.

Globalization has given real impetus to this amorphous area often interchangeably defined as sustainability, corporate citizenship, corporate social responsibility and corporate responsibility. Globalization and pervasive technology has allowed business to proliferate and out run comprehensive regulatory control. The deal then is business must self govern and assure society of its benign influence. And in truth, we in business too are relative babes in the woods when it comes to globalization. Business models dreamed up over fifty years in the shelter of well ordered markets in Western Europe and the
US are thrown to the wild frontiers of developing markets. All of this makes for really good theatre! We all make mistakes, some of greater consequence than others.

Getting down to specifics, sustainability at management level means taking responsibility for the entire business impact up and down the value chain. This extended view takes us beyond the ecological footprints and into the complexity of human rights considerations including labor rights, security, privacy, corruption controls, all in avoidance of even indirect complicity in the violation of human rights.

These are exciting times for the tech sector. It is truly enabling a flattening out of the global economy and offers the potential for much greater corporate accountability, market inclusiveness and resource efficiency. But technology is also raising new societal questions about privacy, IP rights, accessibility and security.

Something tells me there will be plenty of fodder here for conversation.