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This is an extract from Managing corporate legitimacy – a toolkit, by Dorothée Baumann-Pauly and published by Greenleaf.
The failure of many governments to provide basic rights for their citizens has given rise to the expectation that globally operating corporations should step in and fill governance gaps, for example in the area of human rights. Building on theories in political science, the concept of corporate citizenship establishes a new role for the corporation in the global economy, whereby corporations become political actors in global governance. In her book Managing Corporate Legitimacy, Dorothée Baumann-Pauly develops business tools for assessing corporate citizenship. This abridged extract outlines a comprehensive corporate checklist, describing how businesses can systematically revise their business practices to take on their global citizenship responsibilities.
In order to fully embed the concept of corporate citizenship (CC) in the organisation, CC in practice must feature three dimensions: commitment; structures and procedures; and interactivity.
1) Strategic integration. It is the primary task of top management to think through the mission of the business; thus, the integration of CC in strategic documents depends heavily on the involvement of senior management.
Integrating CC in high-profile strategic documents such as mission statements or codes of conduct is also a precondition for the embeddedness of CC in daily business operations. Research shows that strong ethical leadership is required to make formal CC commitments part of an ethical culture.
2) Coordination. The ability to make quick decisions rests upon a structure that places CC coordination at the centre and not at the margins of the institutional architecture, with short reporting lines to senior management.
Employees in charge of the coordination must have both easy access to senior management and authority to initiate measures and projects that further the goal of implementing CC.
3) Structures and procedures. After committing to and strategically planning for CC, companies must make internal organisational alignments at lower levels to meet these strategic objectives.
This affects all kinds of organisational processes (alignment of policies and procedures), HR (incentive structures and training) as well as controlling (impact assessments and reporting). The elements mutually enforce one another. For example, if CC is poorly communicated to employees, complaints channels will not be functioning properly because employees may not know the procedures, and those that do know them may not trust them.
4) Alignment of policies and procedures throughout the organisation. While mission statements and codes of conduct provide orientation at a general strategic level, policies and procedures at lower levels must be aligned accordingly to support the CC commitment through daily business
This means that all decision-making processes must be systematically and routinely scanned for their potential social and environmental impact. To embed CC at a procedural level, the policies and procedures of all departments must be reviewed to ensure that no policy contradicts CC guidelines and that all procedures systematically integrate CC.
5) Alignment of incentive structures. For employees to take on the additional responsibility of critically assessing the social and environmental implications of their work, incentive systems must be designed to factor in these efforts.
Only if non-compliance with CC is punished and exceptional ethical behaviour is rewarded, will CC be treated as seriously as other company policies.
6) Provision of training measures. CC can be realised only if employees know what the concept entails and what the attendant expectations are for their specific areas of work. Consequently, they need training in how to apply CC guidelines appropriately, how to interpret and react to ambiguous situations, and how to decide when they need to seek help.
The kind of training ranges from initially sensitising employees to CC issues to simulating ambiguous decision- making situations for specific groups in the corporation. Trevino et al (1999) found that training is most effective if it is delivered by the direct manager and not by external consultants, because then it is most convincing that leadership at all levels cares about ethics.
7) Creation of complaints channels. Every social system has its faults, and mistakes are unavoidable. What matters most, however, is whether there are mechanisms in place that are able to detect such breakdowns, and correct them. It is critical that there are confidential channels through which violations of CC guidelines can be reported.
8) Evaluation of implementation. Controlling is an indispensable management tool: it functions as an early warning system and helps managers to see whether progress has been made toward an organisational goal. If no progress has been made, the strategy may be revised and resources allocated at an earlier stage.
To embed CC, its performance has to be tracked and evaluated just like other business processes. The methodology for tracking the progress of embedding CC, however, may at times be different from that for other business processes because it must be ensured that the activities have the desired effect. This involves assessing the impact and the legitimacy of CC activities.
As legitimacy is subjectively ascribed, stakeholder feedback must be factored in when progress is measured. Thus, measuring CC means measuring ‘impact’ and not just ‘outcomes’ and requires a participatory approach. The evaluation results should then be used to define the priorities of future CC activities.
9) Reporting. A CC report should document regular impact assessments, and highlight what has been considered an achievement as well as non-achievements, along with the next steps in the implementation process.
Unfortunately, until recently the content and quality of CC reports could not be compared. This changed through the introduction of the reporting guidelines of the Global Reporting Initiative (GRI). Currently, approximately 1,500 MNCs report according to these GRI guidelines, and GRI has established a de facto standard for CC reporting. Nevertheless, following the GRI guidelines means collecting all kinds of social and environmental data; only if CC is already well embedded in the organisation can the guidelines be addressed comprehensively.
10) Level of participation in collaborative initiatives. Assessing whether a corporation has been looking for allies among its peers and engaging in constructive dialogue with critical stakeholders while implementing CC reveals whether it has recognised that CC implementation is an inherently communicative process.
Collaborating with peers and external stakeholders helps in the design of innovative and sustainable solutions for CC challenges, and participation in collaborative CC initiatives represents a precondition for this kind of collaboration.
11) Quality of stakeholder relationships. The quality of stakeholder relationships determines how firmly CC is embedded on an interactive dimension. Solid stakeholder relationships are the result of a long-term process of engagement which has built up trust between the parties. Examples have shown that there are no shortcuts for this process, because corporate legitimacy must be earned.
Assessing the quality of stakeholder relationships is subjective, and in order to balance the subjective bias, data will be collected from various sources.corporate citizenship corporate governance embedding CSR management strategy