Risk Management Requires Legal And Compliance Officers To Focus On Corporate Social Responsibility

Tuesday, May 1, 2007 - 01:00
Integrity Interactive
Michael R. Levin, Esq.

Editor: Please tell our readers about your professional background.

Levin: Prior to joining Integrity Interactive in 2001, I practiced law in Boston for six years focusing on civil litigation. I joined Integrity Interactive to focus my efforts on the "preventative" side of the law and I have held several roles here - first as a senior business development executive where I initiated more than 25 major client relationships and next as a Director of Compliance and Ethics Services, where I consulted with and designed best-practice compliance and ethics programs for more than 100 companies. My expertise covers the full range of potential corporate integrity failures, including compliance, ethics and corporate social responsibility risks.

As Director of Corporate Integrity Strategy, I am responsible for developing new Integrity Interactive services in areas like corporate social responsibility and compliance and ethics risk assessment, and further enriching Integrity's compliance and ethics offerings. My responsibilities at Integrity are global, and I work closely with Integrity personnel and clients located in North America, Europe, and Asia.

Editor: Would you tell our readers about corporate social responsibility (CSR) and why it is important for companies to focus on it?

Levin: CSR is the contribution that a company makes to society through its management of its economic, social, and environmental impacts and its management of relationships with stakeholders. The idea of "stakeholder" is what is important here because historically the greatest beneficiary of an organization's efforts was the shareholder. Milton Friedman said "the business of business is business" but with an expanding global economy companies have focused on more than just shareholder value and philanthropy in their own back yard. Today, after mergers and acquisitions, a company's back yard is really the globe and companies have realized that they have a greater impact than the locality around their headquarters. Because stakeholder interaction can present risk, it is very important to spend time considering CSR policies and practices.

Editor: How does a CSR policy contribute to a company's risk management program?

Levin: Policies exist to manage and mitigate risk. CSR is no different. You can't fix what you don't know about, and CSR policies and procedures can serve to illuminate deficiencies and uncover gaps that, if found by stakeholders, could cause the enterprise pain. For example, an organization may pay wages globally that are deemed acceptable in each locale where the organization does business. Perhaps one of those locales is in a developing economy. While the wage may be the legal minimum, it may not provide the ability for basic subsistence to the individual worker. If an NGO decided to make your organization the poster child for its cause - even if you are operating within local law - you will feel the pain. A CSR policy and procedures will help you know about these issues and create policies to provide living wages wherever you do business.

Editor: What major corporate risks can be reduced with corporate social responsibility programs?

Levin: An effective CSR program can reduce several critical risks - the six "Ds" - including the destruction of shareholder value, the disruption of management, the distraction of employees, the diminution of brand equity, the disruption of supply chain, and the deterioration of customer relationships. Here are a few examples:

More and more investors are looking to invest in companies they believe in on a social level. CSR initiatives can attract new investors while the lack of CSR commitments, or worse a CSR failure, can cause investors to sell off shares. This is particularly important in the EU where pension funds are required to consider CSR programs before including a particular company's stock in the fund.

Great companies like Shell have had issues with CSR. Shell faced the wrath of unhappy NGOs because it didn't consider all possible stakeholders when it sought to decommission an oil rig. While it ultimately satisfied these constituents, it was not before the media took note and its customer relationships and its brand equity suffered.

Another example is the supply chain. When CSR concerns in the area of labor relations or human rights arise, say in one of your factories, your organization may have a difficult time satisfying production demands if forced to find an alternate supply.

If your organization has in place a strategy and a policy around CSR issues, you can avoid or at least be better prepared should a failure occur.

Editor: What departments within an organization should be charged with overseeing the CSR program?

Levin: While most organizations have important philanthropic initiatives - oftentimes operated through a foundation - these efforts do great things for society but do not assist to mitigate organizational risk. CSR lends itself well to corporate risk reduction, and as such, should be overseen by those with the tools to manage such risks - the Chief Legal Officer or the Chief Compliance and Ethics Officers. Increasingly, we see individuals with the title Corporate Responsibility Officer (CRO). Individuals holding this title tend to work toward creating overall corporate strategy incorporating CSR principles which is critical. As part of this strategy, Chief Legal and Chief Compliance Officers should play a part.

Editor: What steps should an organization take to effectively integrate CSR with its existing compliance and ethics program?

Levin: First, ensure that individuals responsible for compliance and ethics initiatives have a seat at the table with the CSR folks. "Corporate Integrity" programs - meaning compliance, ethics, and CSR - share a common toolset for managing, measuring and mitigating potential risks. First, organizations must view each to strategize and assess the status of the enterprise's policies, procedures, programs and internal controls. Next, organizations must provide training and communication on the key elements of each Corporate Integrity topic to ensure employees understand the company's position and his or her responsibility. Finally, organizations must track, report, and audit their progress on each Corporate Integrity topic to prove their due diligence and to become transparent to their stakeholders.

Since most organizations already have this infrastructure in place for compliance and ethics, it is not a stretch to incorporate CSR into the framework. First, screen stakeholders, identify potential trouble spots and your organization's top CSR risks. Next, set the tone at the top (as you would for compliance and ethics), communicate to employees, suppliers, investors and customers your CSR commitments, and train your organization's employees as well as suppliers' employees on your CSR commitments. Finally, report as required by NGOs, investors, and regulators. Track global standards, and test and verify the effectiveness of your CSR initiatives.

Editor: How can a consulting organization such as Integrity Interactive assist with the integration of those two programs?

Levin: Integrity Interactive has been providing state-of-the-art risk mitigation services around compliance and ethics for years and has helped over 350 companies around the world raise their employees' sensitivity and awareness to critical issues they face in their jobs. Because CSR demands the same approach - raising employees' sensitivity and awareness to CSR issues - the Integrity Interactive platform is perfectly poised to deliver. Integrity can deploy assessment tools to capture employee attitudes and opinions about the organization's CSR initiatives, provide training and communication tools to enhance employees' understanding of those initiatives and the company's CSR commitments, and provide reports to document a company's due diligence in their CSR commitments. The documentation of these efforts then may become the substance of efforts at transparency - actual CSR reporting, whether it be in the form of a CSR Annual Report, a Communication on Progress (COP) pursuant to the UN Global Charter, or a piece of the company's annual report to shareholders.

Editor: What external factors should a company look to when developing a CSR program, ie. industry standards, public complaints, shareholder suggestions, current events, etc.

Levin: There is a wealth of information publicly available on the Internet. A great place to start is to investigate other companies' website information in your industry. Talk to peers. Look at recent shareholder resolution filings in your industry. Also, there are standards like the UN Global Charter on Human Rights, the Global Reporting Initiative (GRI), the Universal Declaration of Human Rights, and the Global Sullivan Principles. These are the internationally recognized underpinnings of the CSR movement.

Editor: Suppose that an organization is considering implementing new costly technologies that have not been adopted in the industry but the technology will have a significant impact on toxic emissions. How should that organization draw a balance between doing what is socially responsible and not providing a competitor with a competitive advantage?

Levin: You've just described the Toyota Prius. Toyota spent a great sum of money designing a system different from the other automotive manufacturers for clean emission vehicles. Turns out that they created the industry standard and have captured the largest market share for their Prius vehicle. Now, they reap the benefits of licensing their technology to other automotive manufacturers.

Editor: What should a general counsel do to get buy in from management who may be reluctant to implement the new technology because of the costs associated with it?

Levin: When making the argument to focus on CSR initiatives, I think it is less an argument about costs and technology than it is the cultural and mental shift needed to actually accept CSR as a priority. As I mentioned earlier, most companies have the framework already in place from the compliance and ethics initiatives. CSR can merely be an extension of that. Remember: strategy and assessment; training & communication; tracking, reporting and auditing.

Editor: Are there any governmental entities that require companies to report their CSR activities in their annual reports?

Levin: Several governments already require their companies to include CSR in their annual report. The first to do this were France, South Africa, and Australia. I mentioned earlier that EU pension fund laws require consideration of a company's CSR efforts before a company's stock can be included in the fund. There may be specific industry standards to follow, as well.

Please email the interviewee at mlevin@i2c.com with questions about this interview.