Faced with increased public scrutiny, companies are trying to instil morality into their operations.
LARGE corporations have the potential to make a significant impact on our daily lives. Through their operations they can affect their employees, customers, suppliers and even their neighbours. Because their influence is so pervasive, companies today are more aware of their responsibility to society as a whole.
It wasn’t always this way. Historically businesses were thought responsible only to their owners. In the early days of the Industrial Revolution all considerations other than profit were ignored. Workers had few rights, no safety equipment and little pay. Pollution was endemic. Income inequality between the owner and the worker was as great as that between the lord and the serf during the medieval period. Charles Dickens made his career writing about such social injustices.
Gradually things began to change. A century ago workers started to gain more rights, either through their own union organisations, legislation, or even violent civil uprising. Soon corporations became responsible to their customers, too: they could not lie in their advertising or sell faulty products, for example. The theory was that companies were accountable to more people than just their owners, yet even this concept continued to evolve.
Much of the modern corporate responsibility ideal grew out of the environmental movement of recent decades. In Finland, the first awards for good corporate reporting were based only on environmental disclosures. A company was responsible for its actions in the natural environment which affect broad swaths of society. This was a concept of corporate social justice which extended beyond those directly involved in a company’s activities.
The concept of a socially responsible company continues to develop. Now society believes a business should consider gender diversity in their workforce and contribute voluntarily to charity, for example. Even a company’s willingness to pay taxes without channelling business through tax havens is often considered a sign they are socially responsible. Generally speaking, corporate social responsibility is a way to measure a company’s morality.
Finland’s most respected companies
Fiskars and Konecranes
Alko and Veikkaus
Valio and Stockmann
Snellman and Raha-automaattiyhdistys (RAY)
Altia and Helsinki Energy
Source: TNS Gallup
Finnish companies in the Global 100 list of most sustainable corporations
6) Neste Oil
Source: Corporate Knights
Some indicators of Corporate Social Responsibility
Convictions for corruption
Cost of employee health and safety
Percentage of staff in unions
Staff breakdown by gender
Training for staff
Voluntary contributions to civil society
Work days lost due to accidents and illness
Source: United Nations
Past winners of Finland’s best CSR report
Source: FIBS Ry.
There is no universally accepted definition of corporate social responsibility, or CSR, but there are some broad guidelines. A company is considered socially responsible if they meet or exceed societal norms in human rights, labour standards, the environment and corruption.
The European Union claims that CSR is “the concept that an enterprise is accountable for its impact on all relevant stakeholders.” The World Business Council for Sustainable Development has a more concise definition: “The continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families, as well as of the local community and society at large.”
Each company needs a bespoke social responsibility program for their unique activities. Grocery stores may stock fair trade products. Airlines may focus on maintaining a fleet of newer planes which use less fuel and so are less polluting. Software businesses – an industry notorious for being male-dominated – might make a special effort to recruit good female coders.
In all these cases a socially responsible company has priorities besides making the highest profit. A clothing company could earn more income by using sweatshops but makes the conscious decision not to do so. But how much profit should be sacrificed to be socially responsible?
Responsibility leads to profits
Minna Aila is head of communications and corporate responsibility for the engineering company Outotec, which is currently ranked the third most sustainable company in the world. She believes there isn’t a trade-off between profit and responsibility.
“We promise the best return on our customers’ investment with minimised ecological impact,” she says. “For us, sustainability is not an ‘add-on’; it is our business. We are taking sustainability seriously, and believe that in the long term we are therefore able to deliver better business performance. Thus sustainability is a vital contributor to shareholder value creation.
“And even better, we are at the same time able to create value also to the society around us by finding solutions to some of the challenges our modern lifestyle poses towards the planet and generations to come. This also contributes to the motivation of our people.”
There is some quantitative proof of Aila’s assertion. For example, the socially-responsible FTSE KLD 400 Index has outperformed the broader stock market over the past five years. It could be that successful companies simply have the resources to be socially responsible, but studies have shown it to be the other way around: being responsible improves the chances of success. Ruben Hernandez-Murillo, an economist at the American Federal Reserve Bank of St. Louis, wrote that there are theoretical and empirical analyses which indicate socially responsible activities increases profits.
Outotec and Kesko
Outotec is the Finnish leader in CSR. They are currently ranked as the third most sustainable company in the world by The Global 100, which rates companies by criteria such as energy productivity, the ratio of CEO to average worker pay, safety performance and leadership diversity. Finnish companies are no stranger to the list: two years ago Nokia, Kesko and Neste Oil made the cut. This year Nokia dropped off the list due to the divestment of the mobile phones division, but Outotec are now ranked higher than Nokia ever was.
“We have set ourselves clear and ambitious long term sustainability targets and are working steadily to reach them,” Aila continues. “Our mission – ‘sustainable use of Earth’s natural resources’ – sets the direction for all our operations. It therefore follows quite naturally that we are doing a lot. Apparently we have also been successful in telling about our activities.
“Being ranked as the world’s third most sustainable company is a great source of joy and pride for us. However, even though it’s a cliché, sustainability is a journey, and a company can never be ‘ready’ – there will be a lot to do also in the future.”
The retailer Kesko has also received praise for their social responsibility. Besides being consistently ranked in the Global 100, Kesko was awarded for having Finland’s best sustainability report late last year. Kesko has tried some orthodox ideas to be socially responsible – such as a youth hiring scheme – but has also been innovative, such as a smartphone app which allowed consumers to track the source of their freshwater fish.
“Assured indicators and descriptions in a corporate responsibility report provide a more comprehensive picture of the company’s operations and sustainable development than the traditional income statement and balance sheet,” Kesko’s CEO Matti Halmesmäki said in a release.
Palm oil problems
Neste Oil is another Finnish company which has been frequently praised, being placed on the prestigious Dow Jones Sustainability Index as well as the Global 100 list. Yet it has also been the target of considerable criticism. The problem is palm oil. Palm oil can be used as a renewable biofuel, which is generally seen as good for the environment. Yet clear-cutting primeval rainforest for monoculture palm oil plantations is devastating for the ecosystem.
“Now the technology itself is quite alright,” Greenpeace’s Juha Aromaa told this publication in an earlier interview. “The problem is with the raw materials they are using.”
Neste Oil has tried to make its operations friendlier to the environment. Its suppliers must be members of the Roundtable on Sustainable Palm Oil, all of its purchases are traceable, and the palm oil is certified by systems approved under EU legislation. In 2013 they also adopted additional guidelines where they pledge not to purchase raw materials from recently deforested land.
Greenpeace has been a tough critic of Neste Oil, even opening parody websites such as Nestespoil.com to voice their concerns. Neste Oil sued to have the website closed down, but failed when it was deemed to be non-commercial criticism as part of the freedom of expression.
It is no surprise Neste Oil tried to close down Greenpeace’s critical website, because the public perception of a company’s social morality will influence their behaviour. According to a survey conducted this spring by TNS Gallup, three out of four Finns believe it is important for companies to participate in social activities, help develop society and contribute to solving social challenges. This has an effect on the bottom line, as 42 per cent of respondents said their purchasing behaviour was affected by a company’s social responsibility.
A business’s reputation for social irresponsibility can even infect an entire industry. The mining company Talvivaara experienced the death of an employee at their Sotkamo site which raised questions about their safety procedures. Multiple toxic waste water leaks practically destroyed the company’s environmental credentials. Both the Lapin Kansa newspaper and Erkki Virtanen of the Ministry of Employment and the Economy claimed Talvivaara had damaged the reputation of all of Finland’s mining companies.
Some industries are considered fundamentally unethical because of their products, customers or operations. Coal mining, petroleum production and weapons manufacturing are sometimes cited as irresponsible industries. Many large investors engage in ethical investing and avoid such industries. The Kingdom of Norway refuses to invest any of their pension funds in companies which produce tobacco or anti-personnel mines, two activities which they see as immoral.
Yet there might be hope for any industry. Greenpeace’s Aromaa thinks that even an oil company can be considered environmentally responsible.
“Yes, of course they can,” he said during the earlier interview. “But what it requires is a change in business strategy.”
Deception and greenwashing
Companies know that being perceived as socially responsible is integral for their public image. A 2004 study found that Danes and Norwegians considered social responsibility more important for a company’s reputation than visionary leadership or financial performance.
With this in mind, sometimes the temptation is too great for company marketers. According to Advertising Age the notorious Product Red campaign had corporate sponsors who spent 100 million US dollars in advertising to tell the world they raised 18 million US dollars for HIV programs in Africa.
Finnish companies didn’t partake in Product Red, but they have occasionally been accused of greenwashing. The term greenwashing has been coined for marketing which is used deceptively to claim a company is environmentally friendly. Neste Oil has frequently been accused of this by Greenpeace. In contrast, Nokia’s mobile phone division did exactly the opposite: they had an excellent CSR program but barely marketed their credentials at all.
“Our marketing was about products, while sustainability was about processes,” explained Esko Aho, former head of Nokia’s corporate relations and responsibility, in a previous interview.
Good corporate citizens
Despite the occasional stumbles of companies like Neste Oil and Talvivaara, Finnish businesses are generally seen as good corporate citizens. The Finnish business community has a history of paying attention to corporate social responsibility. FIBS’s annual award for best CSR report dates back to 1996, when Neste Oil took top honours.
The Finnish public also tends to pay close attention to companies’ social activities. For instance, the gambling companies Veikkaus and RAY are not in an industry with a particularly good reputation, but their social goals of spending their income on domestic charities make them highly admired. Both companies are among the ten most respected Finnish firms.
“I dare say that sustainability and corporate responsibility are more a norm than an exception in most Finnish companies,” says Aila. “It is getting very difficult to operate without a strong ethical value base, because all faults are quickly visible in the era of social media.”
Liisa Rohweder, the head of WWF Finland, is pleased that Finnish companies pay attention to their concerns, but wants to see more.
“Finnish companies should take stronger actions,” she says. “There has been a discussion about CSR for more than 20 years. No more concepts and discussions are needed. We need to act now.”
David J Cord