Working in harmony

The best question I was ever asked by a head-hunter was whether there was any kind of company I wouldn’t want to work for. It’s a very good question and one that demands attention because, when you pick a company to work for, you are not just accepting a job – you are choosing a lifestyle.

Aligning beliefs

More importantly, no matter what role you hold, you become an ambassador for that company. If you can’t comfortably champion and recommend its products and services to your friends, customers and suppliers, or if you don’t feel that you fit with the organisation’s culture and beliefs, then you have a problem. One of the catalysts for employees leaving a company is their working environment: they feel like a square peg in a round hole, they feel uncomfortable being themselves, they don’t like the way business is done or they fall out with their manager and team.

Diversity and inclusion, culture, values, ethics and social purpose are becoming increasingly important decision-makers when choosing a job and, for companies, are becoming critical to get right in order to attract, engage and retain top talent.

A 2018 Deloitte survey that looked at 10,455 ‘millennials’ across 36 countries showed that 52% rank a positive workplace culture as being ‘very important’ when choosing a company to work for and 69% stay beyond five years in a diverse organisation. A 2018 PwC survey surveyed 10,029 members of the general population based in China, Germany, India, the US and the UK and stated that 23% said ‘doing a job that makes a difference is most important to their career.’

However, this is not just about attracting people to work for you; the whole area of CSR is starting to take root and grow in priority for other stakeholders. These include government, investors, clients, competitors as well as candidates and employees. Getting CSR wrong can have a big impact, so just what do we mean when we make reference to ‘social purpose’ and ‘social responsibility’ and what are the concerns?

Tackling key issues

A few years ago, CSR used to be referred to as ‘green-washing.’ There was some recognition that recycling and conserving power were good ideas and employees might be encouraged to give to a charity, but CSR was considered to be completely divorced from ‘real business.’ Today, statistics around carbon footprints, recycling and energy efficiency are ‘givens.’ Equally, recognising the importance of employee-chosen charities and allowing employees the time and flexibility to support the issues that they feel passionate about, or that touch them personally, play an important part in overall employee wellbeing. However, CSR itself is much broader, deeper and complex.

While business may be all about making money, CSR is about how they make that money. It focuses on the higher social purpose of the company – what are the company’s products, services and importantly ethics, doing to give back to society, to preserve the environment, protect the community upon which it relies, safeguard its responsibilities to its workforce and to make its business sustainable in the long-term. CSR is about research, development and future-proofing the business by responsibly tackling the key issues that will impact it in the coming years. It is about de-risking the future but, in doing so, ensuring that it takes into account the three P’s – Profit, People and Planet; they are all intertwined.

There has been a shift in focus to look at how companies conduct themselves prompted by some seismic business catastrophes, as well as a growing swell of understanding and opinion on the impact humans and their industries are having on the environment and climate change. The collapse of large companies has shown how bad business decisions incentivised by profit and what is felt to be ‘executive greed’ can impact the workforce, forcing thousands of people to lose their jobs and their future pensions. Companies within the clothing industry have been charged with using child labour or providing unsafe manufacturing facilities. Energy companies have been found guilty of polluting the environment. Equal pay issues between male and female employees doing similar jobs have hit the headlines. Traces of mercury leaking into the sea have been found in fish and hence into the food chain on a widespread basis.

Recently a huge focus has been placed on the use of plastics and the impact that plastic packaging and plastic waste is having on wildlife and the oceans.

“There has been a shift in focus to look at how companies conduct themselves”

The European Parliament has voted for a complete ban on a range of single-use plastics across the union in a bid to stop pollution and which it hopes will come into effect in 2021. The Intergovernmental Panel on Climate Change has issued a special report on the impact of global warming if the temperature rises 1.5 °C above pre-industrial levels and hopes to strengthen the global response to climate change, sustainable development and the efforts to
eradicate poverty.

A tangible impact

This growing awareness that profit can no longer be at the expense of ethical work practices and environmental considerations is also fuelled by the speed of communication and real-time reporting. Around 30 years ago, only a thousand people had access to the Internet, now more than three billion individuals are connected. It took radio approximately 38 years to reach a market audience of 50 million people, 13 years for television, three years for the iPhone and apparently only 19 days for the online game Pokémon Go. This means that news travels immediately; we can watch disasters unfold before our eyes and be aware of what companies are doing as they do it.

Clients, suppliers, candidates, employees and investors are informed, aware and subsequently develop their opinions. This rising tide of views on what is not acceptable and what should be ‘good practice’ is starting to take effect and have a tangible impact on businesses and how they are perceived.

Let’s start with investors: the United Nations-backed Principles for Responsible Investment (PRI) were devised by the investment community and encourage responsible investing. The signatories’ commitment said: ‘We believe that environmental, social and corporate governance (ESG) issues can affect the performance of investment portfolios.’ They have developed six principles, two of which specifically relate to ESG issues for the companies in which they invest. Principle one states that: ‘We will incorporate ESG issues into investment analysis and decision-making processes’ including asking investment service providers (such as financial analysts, consultants, brokers, research firms or rating companies) to integrate ESG factors into evolving research and analysis. Whilst principle three states that: ‘We will seek appropriate disclosure on ESG issues by the entities in which we invest’ including asking for ESG issues to be integrated within annual financial reports and supporting shareholder initiatives and resolutions promoting ESG disclosure.

Many influential investors have signed up to the PRI. Those that haven’t formally signed up still have a view. One of which quotes on its website that its ‘view would be that businesses which used enforced labour, child labour, uneconomic wage rates and/or unsafe or harmful business practices (such as polluting or harming the environment) for example, are not sustainable in perpetuity, suffering from falling rates of returns, leading to decreased normalised earnings.

These types of companies make unlikely investment candidates.’ Overall, while financial returns are still a primary consideration, investors recognise ESG as an increasing consideration and that their clients are often looking for ethical companies in which to invest their money. This seems to be particularly true of the younger generation with one major investor blog from 2017 stating: ‘If you are a millennial investor – or just think like one – you are likely to have some very different attitudes about investing than previous generations. We conducted a survey and 67% of millennials say they want investments to reflect their social and environmental values.’

Powerful debates

The Government is also starting to get concerned. Starting in 2008 with the financial crisis and what was felt to be inflated executive pay relative to company performance, they introduced a uniform reporting structure and the ‘Single Figure of Remuneration’ with the aim of more readily being able to benchmark reward against results.

Since then, the Davies Review has set a target on board diversity stipulating that 33% of FTSE board members should be women by 2020, the Modern Slavery Act came into effect in 2015, the Living Wage has become established, mandatory Gender Pay Gap reporting began in 2017, and from 2019 there will be the requirement to report CEO vs employee pay ratios. Consultation has begun on ethnicity pay gaps and, under the revised UK Corporate Governance Code, companies are now required to provide a summary of how their directors have engaged with employees and had regard to employee interests.

These issues have all highlighted ethical work practices and started powerful debates that have raised the profile of those companies that set the pace – and those that lag behind.

This undoubtedly has an impact on business. Tenders for services are placing greater weight on CSR issues, there is an expectation that a company’s principles should be reflected throughout its supply chain and customers are being more discerning in what they buy and who they buy it from.

However, out of governance and legislation come opportunities. Rather than focus on just being compliant, companies should take the opportunity to gain a competitive advantage. While many of the reporting regulations can cause additional workload and the methodology sometimes can be questioned, the actual issues they aim to address are real ones.

Those companies that embrace and tackle these issues will grow and be more successful. Their reputation will be enhanced and they will have a louder ‘voice’ at the table. Crucially, they will be more sustainable. One company I heard speak recently said that that diversity leads to greater debate which in turn leads to better decisions which can only make a bigger and more positive difference to a company’s business results.

Social purpose

We are already seeing examples of companies changing their stance. A well-known brand that markets a product to make stains ‘vanish’ has started to advertise by saying that if you remove stains
and make clothes last longer, it will lead to less landfill – they have found a new social purpose. The retailer Iceland has committed to eliminating plastic packaging from all its own brand products in the next five years and hopes to have succeeded by the end of 2023.

A large insurer is investing its funds under management in housing and infrastructure. There is a rise of FinTech companies that look to address big social issues like affordable loans and fast access to medical care by using AI and online apps.

As our world comes under increasing pressure, those companies that will thrive, prosper and be sustainable are those that are innovative and can find a way both to make money and work in harmony with the earth and the life that lives on it. 

Rosemary Lemon is Group Head of Reward at Hays plc