Most companies that are criticized for irresponsible behaviour respond to the claims in their annual reports. But not all.
It is high season for annual reports from businesses - and they are about so much more than just numbers. All Norwegian companies are required to include something about equality, health, environment, safety and working conditions.
Larger companies must also report on how they tackle responsibility. They must explain how they integrate the consideration of community into their business strategies, daily operations and relationship with stakeholders.
Firms will not get away with simply talking about principles and guidelines. They must illustrate how the theory is put into practice. They should also consider what they have achieved and what expectations they have for the future.
Multiple offenders write about social responsibility the most
- More and more companies are keen to act responsibly. Meanwhile, we periodically read about companies that do not, says researcher Caroline Dale Ditlev-Simonsen at BI.
According to her, many of the companies who write the most about social responsibility are some of the worst offenders.
So perhaps it is not so strange that corporate responsibility reports and talk of sustainability are seen as marketing and pure embellishment.
Can we really trust the corporate reports? What do the companies that are criticized in the media for irresponsible behaviour write in their reports? How do they address these claims?
The criticized seven
Ditlev-Simonsen has conducted a study among seven selected companies that have all been vehemently criticized by the media for acting irresponsibly in various areas.
The BI researcher chose three Norwegian companies that operate internationally and have faced criticism: Statoil, for negative environmental impacts on oil sand; Intex for the destruction of ecosystems; and Telenor, for poor working conditions and child labour among subcontractors.
In addition, the study includes two Swedish companies: Lundin Petroleum has been criticized for possible involvement with the war in Sudan, while Ericsson has been criticized for poor working conditions and child labour among subcontractors.
The last two companies are Vale, a Brazilian mining company that has been criticized for poor working conditions and environmental degradation, and Alstom, a French industrial giant that has been criticized for corruption.
Four ways to answer
Ditlev-Simonsen has analyzed how these companies use their CSR-reports to respond to such criticism in the year following a scandal.
The results are presented in the journal Issues in Social and Environmental Accounting.
The CSR researcher investigate Carroll and Wilson’s four stages of social responsiveness :
- Reaction The company reviews criticism in its non-financial reporting.
- Defence The company defends itself against criticism.
- Accomodation The company accepts criticism and promises to improve.
- ProactionThe company accepts criticism and promises to improve beyond what is expected.
The study shows that companies tend not to choose one of these four strategies. Either they would utilise all four strategies, or not acknowledge the criticism at all.
Six out of seven promise to sharpen up
Six of the seven companies investigated, including the three Norwegian companies, used all four strategies in their non-financial reports. They reviewed media criticism, recognised their responsibilities, made promises to improve and do more than what it is expected of them.
The seventh company, Alstom, writes nicely about the importance of CSR but doesn’t mention its public media criticism with so much as a word.
Statoil, Telenor and Intex
In 2007, Statoil was subject to massive criticism for its involvement in the oil sand of Canada.
- In its CSR report for 2007, the company recognises that the acquisition of oil sands extraction in Canada has been the subject of public debate and criticism, both in Norway and internationally, says Ditlev-Simonsen.
Statoil writes in its defense that it has started an extensive project to reduce harmful emissions from its operations. They will conduct business with as much consideration for the environment as is possible, and will invest in extensive research and development to achieve this.
In 2009, the Norwegian mining company Intex was subjected to massive criticism of its nickel production in the Philippines.
- This was tackled head-on in the annual report for the same year. This is where they expressed their resistance to the project. Intex underlines its willingness to work towards a sustainable society, says Ditlev-Simonsen.
The company emphasised its commitment to developing the local community through support for education and scholarships, health, water and sanitation, agriculture and livelihoods. Intex emphasised that it employs locals and pays equal wages for equal labour.
In 2008, Telenor was scrutinized in the media for its hazardous working conditions and its use of child labour through one of its subcontractors.
In the 2008 annual report, Telenor addressed this criticism and willingly offered a response. They had implemented a programme to raise awareness about issues relating to health, good working conditions, safety and environmental standards, says Ditlev-Simonsen.
Telenor also reported closer monitoring of working conditions through both announced and unannounced visitors to subcontractors.
- Both Statoil, Intex and Telenor have acknowledged and responded to criticisms. Reports also reflect a proactive strategy in which they promise to do more than what is expected of them, comments Ditlev-Simonsen.
Three tips for managers
Researchers have developed three practical tips for managers and employees who are responsible for reporting on CSR activities.
- Be open about challenges and the dilemmas ahead.
- Share the lessons learnt by the company – both positive and negative.
- Be short, precise and specific. Those who write the most about CSR are not necessarily the most socially responsible.
- There is nothing wrong in recognising that it may be difficult to behave in a socially responsible manner. If your company is open about dilemmas, it shows willingness to do more than just talk, Ditlev-Simonsen concludes.
Caroline D Ditlev-Simonsen: Are Non-Financial (CSR) Reports Trustworthy? A Study of The Extent to Which Non-Financial Reports Reflect the Media’ Perception of The Company’s Behaviour (pdf), Issues in Social and Environmental Accounting, ISSN 1978-0591 (Paper), 2014.
This article is published in an online edition of forskning.no, on 16th April 2015.