Seeing the wood for the trees
Published : July 2008
The recent boom in CSR activity has seen many
companies falling over each other to advertise
their socially responsible credentials – and
none more so than the energy giants. Is it
simply the stuff of marketing genius, or are
there greater gains to be had? Becky Done talks
to Mary Francis CBE, chair of the Corporate
Responsibility Committee at Centrica
Regardless of size, most companies can now boast their own committee dedicated to tackling impact across at least one strand of corporate social responsibility – usually the environment. Centrica is no exception – a recent billboard campaign for British Gas proclaimed, “We’ll harvest the wind. You’ll reap the rewards”; and Centrica’s Corporate Responsibility Committee (CRC), chaired by senior independent non executive director Mary Francis CBE, meets quarterly to review progress and performance on matters of corporate responsibility (CR). Its commitments and related activities, as one might expect, are deeply embedded in investor information and vigorously promoted via sustained advertising campaigns. It is clear that Centrica recognises the commercial value of these initiatives – so is CR merely another marketing tool designed to attract investors and customers?
Mary Francis agrees that promoting carbon emissions targets and delivering energy efficiency advice helps to attract customers. “Those have become very core themes of our advertising to our customers; it’s at the core of our business,” she confirms. Little wonder, then, that on the back of a global trend to get in touch with one’s social conscience, and with customers’ choices based on more than just figures, committees such as Centrica’s play a vital role in ensuring growth for the company.
And what about investors? Francis was previously director general at the Association of British Insurers (ABI), so she knows what investors are looking for. “One of the things I learned a lot about at the ABI is how the major institutional shareholders look at the company in which they invest – and the key factor that they all look for is quality of management. I’ve had a number of meetings with major
shareholders and I’m finding increasingly that they’re looking at our handling of CR as an indication – as one indicator – of the quality of management.
“I think the way that management deals with corporate responsibility is simply illustrative of whether that team is focused on long-term strategy, thinks broadly and is alert of developments in the external world – alert to what politicians and consumer groups are saying – and not just very narrowly focused on the business and its short-term delivery.”
For Francis, CR is not simply a boxticking exercise: “It’s about really integrating the way that we think about our impact on the external environment with our long-term strategy, seeing it as essential to being a sustainable company and moving on from the less sophisticated position to the really embedded approach to CR.”
And it’s not just customers and investors who are demanding that companies pay attention to these issues. Attracting and retaining talent, Francis confirms, is increasingly dependent on a demonstrable commitment to CR: “As a company like ours increasingly realises, its employees want to be working in a company which takes CR seriously – and they have a huge appetite to hear what the board and the senior management are doing in this area. It’s no longer just about wanting to be taking part in some community initiatives – though those are extremely important – but wanting to know that if they’re working for a major energy company, what our policy is on climate change and its effect on the environment.”
Of course, Francis acknowledges, this issue isn’t unique to the energy industry. “I think any company has issues which its employees want to feel proud about, and
well-informed about.”
So what exactly is it that investors, customers and employees are looking for?
Centrica’s approach encompasses a broad range of areas key to CR. “We have a whole set of challenges which we’re making very good progress with. We have a green energy product; we have a very stretching carbon emissions reduction target; and a very key challenge for us this year is health and safety – not only in our energy production operations, but in our major servicing operation installing and servicing gas and electric equipment in people’s homes.” And it’s not just about internally-driven perception of what’s important – a major factor, perhaps, in Centrica’s decision to appoint NEDs like Francis to the committee. Francis spends time engaging with various lobby and interest groups to find out what they think is important for Centrica to focus on. “I think the whole point of CR for a major company is being very alert to its external environment, so I want to spend a lot of time understanding what people’s views and expectations in the outside world are about the way we impact on them – so that’s partly my role, to get out and about,” she says.
Does she think it’s important that she and Andrew McKenzie, the CRC’s other NED, are there to provide an element of balance? “Yes,” she smiles. “We aren’t interested in reams of information and data. I think we do help the executives to see the wood for the trees,
so to speak.”
Francis seems genuinely passionate about the role that the CRC plays within the wider company. “We have a record that I’m very proud of at Centrica in that we spend considerably more on programmes, special tariffs and special advice for our more vulnerable customers than our market share would dictate – we have a large proportion of the industry’s spending on helping vulnerable customers.”
So exactly what long-term benefits do these CR measures deliver? One is a major boost to corporate reputation.
“CR is all about thinking about your impact on the outside world and being very sensitive to what customers, lobby groups and media are thinking and saying on issues where we get involved,” Francis explains. “An obvious example is that rising fuel prices are impacting on poorer customers and if we don’t think about that very carefully and take appropriate action, we inevitably stand to be criticised. A very different example is that we are at early stages of exploration for gas in Nigeria and other third world countries. If we don’t think very carefully about how we interact with the local communities in the area we are affecting; if we don’t listen to what the communities want; if we were to ride rough-shod over concerns about preserving the environment or how we deal with potential political corruption, we can find ourselves in the eye of media and political enquiries. So right from how we deal with the poor customer in a UK city to how we deal with a local community in Nigeria; at any moment if we’re not dealing with those sort of things sensitively, our reputation can be hugely impacted.”
Which would be hard to recover from? “Absolutely,” agrees Francis. “Reputational loss takes a long time to turn around. So these aren’t add-ons – they’re absolutely integral to preserving value in the company over the longterm, which is of direct interest to our shareholders, as well as to the wider stakeholders in the community.”
Of course, shareholders are bound to place the company’s performance – on all levels – under close scrutiny, and the CRC plays a major role in ensuring that the company delivers for them. But the fine art of balancing financial returns with environmental and social concerns is where companies often fall short.
“Business life’s all about tradeoffs between short-term and longer-term advantage or performance; and I think that the sort of issues that we grapple with are really only a subset of the much bigger tension that there always is in any organisation between the short-term and the long-term. We might feel that in the short-term we will deliver higher profits this year by cutting our fuel poverty programmes or easing up on our emissions targets; but we know that if we do ease up on those things, we have longer-term weakness. And so the CR function in the company is to keep the eye on long-term strength, and I think that’s just one example of a company that has a strong strategy.”
So a lot of companies get it wrong? “I think there’s quite a spectrum between companies who regard CR as a bit of an add-on – something where you have the opportunity to emphasise a few good deeds, whether charitable, or paying lip service to some of the targets on climate change. I find a number of companies who still talk about their effect on the environment in terms of their office consumption of energy, rather than their wider operations’ impact on the climate and the environment. As chair of the CRC, I think my challenge is to ensure that the company is really moving on from the position that I think many companies are still in – of thinking that CR is about telling a good story.”
Francis is convinced that by avoiding the quick-fix approach, a company will, as the advert goes, reap the rewards. So effectively, good governance equals better results?
“I can’t say that I have ever seen a research study which demonstrates that conclusively. But what I can say with complete conviction is that if a company has good governance – by which I mean clarity about responsibilities, clarity about processes for taking decisions, avoiding conflicts of interest – then that company most definitely avoids some big risks. It helps to avoid the risk of one person or one group of people becoming too dominant and it ensures that you have careful decision-making. I strongly believe that a company that is well governed will then be able to use its other advantages to better effect.”
So if companies rush to jump on the CR bandwagon by throwing together an ill-designed plan designed purely to boost credibility, it will not deliver the desired benefits. Francis agrees. “I’ve found that this is one area where taking a personal interest and getting under the skin of what’s going on in the company repays a great deal.” END