Lord Turner of Ecchinswell, chairman of the UK's Financial Services Authority declared in an interview with Prospect magazine last week that the City had grown beyond a reasonable size, claiming that the financial services industry accounted for too much of the national output and attracted too many of Britain's brightest graduates.
He opined that "some of it is socially useless activity" and that the industry had "swollen beyond its socially useful size". From "Masters of Universe" to "socially useless" is quite a drop especially when this comes for the man leading the FSA and the country's banking reform.
I find the above quoted statement remarkable yet at the same time I am aware that it is a sign of our times. The truth is that the world has changed dramatically post-Lehman Brothers' bankruptcy. For instance, is it any coincidence that most of the big global banks such as HSBC, Banco Santander or BNP Paribas have signed up to The Equator Principles - a set of principles aiming to promote a more socially useful banking behaviour in the market place. They refer to themselves as "Equator Principles Financial Institutions" and their mission is to finance projects that are socially responsible and based on sound environmental management practices.
Flicking through the pages of the Equator Principles makes interesting reading and one can conclude that HSBC (Malta), for example, and as part of the HSBC Group, will not provide loans to projects in excess of $10 million if and when the borrower is unwilling or unable to "comply" with the social and environmental policies and procedures set in the aforementioned principles.
Hypothetically speaking, therefore, HSBC will not provide a loan to a proposed borrower which does not adhere to the Equator Principles. This could include, for instance, the borrower not conducting a proper Social and Environmental Assessment as detailed in Exhibit II (annexed to the Equator Principles). A practical example of this would be if the proposed borrower did not consult the "affected parties" or denied them the right to participate in the "design, review and implementation of the project".
This is just one quoted example and one would have to read the document itself to appreciate the full implications but just imagine if this principle alone were to be strictly applied to all projects financed by HSBC in Malta! As a market leader the bank could, by leveraging its power with borrowers, overnight radically alter (for the better no doubt) the way business is done and how capital investment decisions are taken.
The fact is that the world seems to be moving towards a more compassionate form of capitalism and we all need to be aware of this seismic shift in the competitive landscape. It is for this reason that businesses are starting to invest time and money in ensuring that they have a professional, creditable and authentic CSR strategy. In a sense, CSR reporting not only forces the business to openly disclose whether or not it is in compliance but also encourages the organisation to change its mindset (culture) and that arguably is one of the key benefits of taking CSR seriously. I think it is fair to assume that businesses shall in the near future (if they haven't already started) to move from "self-interest" to a more "shared value" based decision-making.
That is a business strategy that is of meaningful benefit to society but also valuable and relevant to the interests of the business. In fact, people in the trade now-a-days commonly use terms such as "return on social investment", "corporate social opportunity" or "creative capitalism" (vide article by Bill Gates in Time Magazine entitled "Making Capitalism More Creative" dated July 31, 2008 for an instructive insight). I would simply remind the reader of Thomas Hobbes's (1588-1679) "Original State of Nature" (a human condition of constant war) who proposed that rational and self-interested individuals need to agree to a "social contract" to ensure their own preservation. I would argue that the same applies to the business world: to survive in the future, businesses must pursue "socially responsible activity" and this is best achieved by pursuing an authentic CSR Strategy based on "shared value" rather than "self-interest".
Here is an interesting fact: the recent UK government sponsored MacLeod Review on employee engagement argued that the failure of British firms in recent years to engage their staff was costing them billions in lost productivity, and CSR programmes have proved one of the cheapest and easiest ways for firms to boost engagement levels. The argument goes that if employees are proud of the company they work for and enjoy what they do, they'll resonate more with the company's mission and work harder.
It would be interesting if The Times of Malta started to hold an annual poll to find out (by interviewing employees) which is the best company to work for in Malta and to verify if the winner had a well thought out, authentic, CSR strategy. My exposure to the UK market leads me to believe that more often than not, the winners of the UK Sunday Times "Best Company to Work For" have over the years (nine years so far) produced companies with a simple mission that leaned in favour of "shared value" rather than "self-interest".
Let us not forget that a key stakeholder of the firm is not just the customer or a community but also the employee! Thus to develop a CSR strategy which impacts positively the community and simultaneously engages the employee makes perfect business sense even from a customer satisfaction point of view. I've used banks in this article as an example of how that industry is orientating towards a "sustainable banking" business model but the same naturally applies to other industries. Strategic CSR is very much alive and CSR reporting will in the years to come become as important as financial reporting. My only hope is that the government through the local regulator - the MFSA - picks up on this and phases in legislation to encourage the practice of independent CSR Reporting.
Lastly, my advice to locally based CEOs is to conduct a genuine soul searching exercising within their own ranks and ask if their CSR reporting is just marketing spin or actually reporting "socially useful activity" based on "shared value"!
Mr Fenech is a partner at Fenci Consulting Ltd.
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