Until recently, the image of pragmatic capitalism is one that laughs at the notion of volunteer work, sustainable practices and community harmony. But consumer, employee and shareholder pressure, climate-change worries and the threat of regulations are changing that. “No company can afford to ignore it,” Larry Stone says of corporate social responsibility (CSR).
British Telecom giant BT Group
, where Stone is president of group public and government affairs, is certainly not ignoring CSR. But it’s also important to make a business case for doing good, says Stone. “Our CFO is delighted when we have a project which can pay out in three or five years, and reduce our energy bill,” he says. “He’s less delighted if we put forward a project like a wind farm, which might take seven or nine years.”
He spoke to CFO Innovation’s Angie Mak about how to balance CSR spending and business concerns, BT Group’s experiences implementing CSR programmes, overcoming unforeseen project setbacks and other issues.
How do you balance CSR spending and prudent financial management?
There are two elements to it. First of all, what’s CSR? It was traditionally seen as being community engaging, charitable giving, education programmes — basically, filling in links with communities and being seen as a good corporate citizen.
The return on investment on that is the same as your ROI in having a good brand and reputation. Every company wants [a trustworthy brand], but it’s very difficult to build a business case around it. It’s a lot like getting a license to doing business. It’s something which is good and helps employee engagement, and very difficult to [assign the value of] pounds notes or a Hong Kong dollar to it.
But CSR has [now] moved more into the business space, increasingly into things like energy efficiency and being green. Inevitably, if organisations don’t enforce energy efficiency and positive environmental practices voluntarily, there are going to be regulations — carbon accounting rules that will be possibly mandated as emission reductions in the future. We’re already seeing a regulatory approach.
Our CFO is delighted when we have a project which can pay out in three or five years, and reduce our energy bill. At the same time, he’s less delighted if we put forward a project like a wind farm proposal, which might take seven or nine years. It’s that sort of debate in organisations now.
There’s also the risk management aspect of it.
Climate change is a risk for all businesses, including the telecom sector. Working with IT partners or telco services around Internet, intelligent energy management systems for buildings, logistics or smart metres — these practices will reduce energy emissions and also help our business growth. There’s growth in the low-carbon economy for us, and we try to put a lot of effort into looking at this market.
[Other] companies, much more than us, are looking at branding their company with eco-imagination . . . We do some advertising [ourselves] which we think is linked in to how we think we’re becoming a green organisation. That builds our brand and reputation, particularly in the UK market.
Everyone wants to do the right thing, sometimes pitching it as a corporate requirement, sometimes as a personal requirement. In BT’s case, the chairman Mike Rake brought over his vision for CSR from his previous company. But is combining a personal vision with a business goal ultimately just an expensive branding exercise? It’s not easily reducible to a business case.
Do you find that CSR helps you recruit and retain talent?
There are studies, some nascent, that suggest that happier people work better. If people are reasonably happy and engaged, and have a diverse life outside work, then they’re more likely to be positive about an employer and to stay with their employer. You may even hire better graduates in a competitive marketplace for people. Volunteering improves productivity. It’s not proven yet, but we think that there will be an empirical case which suggests that.
I don’t think you would get the same employee engagement, personal engagement between the organisation and the customers, through [just] an advertising campaign . . . An increasing trend is facilitating volunteering by your people, especially in northwest Europe and the US. When graduates are looking for companies to join, they were previously thinking, “Is my job interesting and how much am I going to be paid?”
Now, they’re thinking much more about the social nature of the company. Is it good to the environment? Is it a nice place to work? Is it diverse? What’s the number of women on the board and what’s its approach to ethnicity and the disabled? They’re much more attuned to that because information is readily available now. It’s very difficult for companies to mischaracterise themselves about CSR, what they’re really doing and their real policies. If you do mischaracterise it, then you’ll be found out, because the Internet is very viral.
What's the ROI your company has achieved for its efforts?
BT has done quite a bit — everything from reducing paper use to generating its own electricity. Some of our programmes, which involve reduction in heat and energy use in buildings, give payback in one to two years, so [enforcing that programme is] absolutely a no-brainer.
For some things, like our wind farm project
, we thought it would pay back in about 10 years. But the cost of installing the wind turbines and planning-permission time scales have [made the timing] go in the other direction. Assumptions will change during the lifetime [of a CSR project]. But we’re a business which is used to having paybacks of ten, fifteen or twenty years because of our major infrastructure investments, so these times scales aren’t a major issue.
We also don’t invest on our own — we offset the risk. For example, we consume about 0.7% of the total UK electricity. So if we can generate 25% of our own energy, that’s 0.2% of the UK grid. That’s very positive, but that’s also a lot of money to invest in an infrastructure. So we’re doing that jointly with partners. We have an infrastructure partner and a finance partner. What we tend to supply is the land.
We think this is a good and powerful return because energy prices are going up. We’ll be generating energy and will go off the national grid. Private equity partners are very interested our infrastructure fund, and the local authorities are quite interested.
You would think government would fast-track these projects.
That was the theory, that the government would provide incentives for offshore and onshore wind energy, by helping with planning permissions and in possible subsidies through a ‘renewable obligation certificate’ (ROC), plus possible tax benefits. Our CFOs were interested in that. Also, in terms of core carbon reporting, we could get an offset for using green energy, compared to brown, so there were tax savings. But in practice, what’s happened is that the planning permission didn’t arrive faster. People love the idea of wind energy but they don’t want the wind turbines near them. It’s taken a lot longer than expected to get planning permission.
The second issue is that the legal and regulatory regime for carbon reporting, taxation and accounting is very complicated. It’s also national rather than international. Lacking a common approach to carbon accounting and measurement is a major issue for businesses. Sometimes, the carbon taxes are a complete mess.
Didn’t you factor in these issues when you first planned the project?
We anticipated some of that, but not all of it. But to be fair, the business case for wind energy is becoming more difficult. Shell had a big plan to do a massive wind farm [called the London Array] in the Thames Estuary, and they’ve cancelled that. Shell’s CFO was quite right to say to the board, “Is this still cost effective?”
There’s massive debate about [BT’s own wind farm project], but we’re going ahead. There will be a post-investment review process, because each site is very different environmentally. [The challenge is that] some local people will be there, or a big Royal Air Force base or school nearby. One project has a local bird sanctuary nearby. Rich people are particularly nervous. Frankly, if there are very powerful people living nearby, they’ll block it.
Have you had any CSR projects that didn’t work out according to plan?
We have the UK’s largest green energy contract. We were going to be taxed on our carbon [emission] for green energy versus brown energy. Two years after we started doing this as part of a long-term contract, the government changed the law. Immediately, the contract became a little less attractive.
We’re looking to renegotiate those contracts where we’re working with energy companies, to make them a bit longer-term and more commercially attractive. One thing you can’t understate is [unforeseen] actions by your own government
. There are a number of imponderables in business, and government action is probably the biggest.
On the community side of CSR, our big mistake was being too diverse, and therefore our resources were too dispersed. We had 50 or 60 projects, rather than three main projects. These included what we were doing with education and communities. People didn’t know what we really stood for, which meant [the community projects] didn’t build our brand and reputation.
We’ve now tried to simplify our messages in that area, so that it had a real positive impact on our brand. I think the problem is that the value of your reputation is as long as a piece of string. It’s a bit like corporate governance; if you have a bad brand, you’re dead. If you have a good brand, it sort of helps.
The other big problem in CSR is that once you start a project, it’s incredibly difficult to stop. All these ventures are highly worthy and they generally involve very important people, especially when politicians are engaged. So be careful what you start, because you might not be able to stop it. We went to a lot of effort in being careful that whatever we stop will be sustainable [after we pulled back from the project].
How did BT manoeuvre back out and refocus?
Firstly, it was a strategic intent. We have a board committee, which looks after this area, and our chairman chairs it. We had to have a glide path, where we leave this sort of area and move into something else much smaller. One way is that we can encourage someone else to take our place. These projects are very good, but you can’t fund everything.
Another way is to make [the project] a sustainable, standalone NGO activity, rather than requiring support. After five or six years of funding, it can become sustainable through that kind of activity. First of all, you need to make sure someone else will take over it. Secondly, sit down and have a serious of dialogues with the key politicians who are particularly interested in this. It can be a net benefit.
If there was no noticeable revenue increase after implementing CSR initiatives, do you think companies would still go ahead?
Regarding the environment and saving energy, everyone wants to consume less energy, because it saves money for the business, and there are growth opportunities in low-carbon economies. That’s always going to be a business goal, either at a cost level or revenue level.
For larger companies, it’s impossible to do nothing. The minimum you could do, by law, is to have good corporate governance and ethical practices, mission, vision and values. But what do your employees expect of you? Do they expect volunteer opportunities? Do [candidates] reject joining your company because you don’t engage with society?
Increasingly, we’re being asked by investors in presentations about what we’re doing regarding energy or the community. They’re interested. Then there’s government. The British government is very interested in our volunteering programme.
Your CSR depends on the type of business you are in. It makes no sense to have certain types of programmes if you’ve only got three customers. Your CSR programme needs to be tailored. As a company in telecoms, we have millions and millions of direct transactions in the UK and with our customers around the world. They’re very much face-to-face with our company. Other companies only do business-to-business.
Where is a good place to start a CSR project?
Firstly, the project has to be connected to your business. A lot of what we do at BT is connected in more than one way with communications — such as education and learning for children, or communication skills. If it’s not linked to your business, maybe it could be linked to a particular community. There has to be a sensible business and community route that will be linked with you.
Secondly, don’t do too many things. Be very clear. Have real engagement and dialogue in advance with stakeholders, with focus groups. Engage in a very clear dialogue with your employees.
How should a company present its CSR vision to stakeholders?
A lot of companies feel obliged to do CSR because their competitors are doing it, hence there’s a lot of cynicism from the board. It has to be cast as a professional business case, rather than philanthropic and half-hearted.
Secondly, be very careful not to get into the hobby horses of your chief executive or chairman. For example, a few British companies got heavily involved in sponsoring horse events or yacht racing, which weren’t really connected with their businesses. They were highly expensive, but they were given a veneer of CSR by the company.
Thirdly, you should get professional advice. It’s very easy for companies to do everything in-house, but there are lots of very good organisations, NGOs and consulting practices, who can give you help. Fourthly, there are thousands and thousands of NGOs and good causes. Weed out what’s good for your company and what’s not.
How would you go about convincing overworked employees into spending three days a year or a day each month to go out and perform volunteer work?
It’s a personal choice, so it’s voluntary. Secondly, at BT, we try and match skills with opportunities. A lot of the interest is spawned through peer feedback.
If you do something outside work, it makes you feel invigorated and better the next day. Rather than having a top-down company programme, you would have a lateral, peer-to-peer, person-to-person dialogue. It’s almost like a viral CSR.
Some people might like it because they’ll get two days off work. It’s a big investment, because if you’re not at work, then you can’t be productive. One of the equations is: by doing this for our workforce, people are happier at work, they stay with us longer, and maybe we’ll recruit more people.
When carrying out the plan, you should also enforce some discipline, because some people would like to spend all year volunteering. Please [remember to] come to work. It’s a balance.
From your work with CSR, what kinds of projects have been popular with companies?
Engaging with children and education. Every business needs to engage with schools, universities and education. In terms of something that’s core to your business, recruitment, retention and engagement are always core. Environment and sustainability is another because it’s a good business opportunity. All companies consume energy and want to be sustainable.
Wouldn’t it be inappropriate if a security company, say, suddenly decides to mingle with schoolchildren?
There are certain types of businesses, like tobacco, where it’s very difficult. They’re very important because they create a lot of jobs, but at the same time there are health issues. Do they engage with health and health research? Absolutely. They do try to make their products cleaner.
In our case, all our people who go and work in schools have to go through a detailed CRB (Criminal Records Bureau) check, about who these people are. The last thing you want is for our people to go volunteering in schools, and then we find out there’s a paedophile. There’s all these things to think about, and countries have different laws for it, so engagement is quite complicated.
If a company can’t revamp its practices all at once, is it a good strategy to come clean publicly?
Yes, you have to be honest and transparent, unless it’s commercially sensitive information for one reason or another, which is unlikely. You have to say: this is where we were, and this is where we’re going. You could go to the market and say, “We’re the world’s most secure company for data processing.” But it only takes one person to lose one unencrypted file somewhere and your reputation’s ruined. You have to be very careful what you claim to be.