When things get messy

Judging from events of the past year or so, it may seem like the best response to a corporate crisis these days is to retreat to the boardroom and pray like hell that someone else gets walloped worse.

Back in the spring, the story of Toyota’s runaway cars looked like it would drag on for months. Then Goldman Sachs conveniently landed in the crosshairs of legislators and securities regulators, taking the heat off the automaker. In turn, the bankers on Wall Street got a reprieve at the expense of the pelicans, fish and residents of the Gulf of Mexico, courtesy of BP.

In all these cases, and the many others that have grabbed headlines in recent months, the damage has already been done. And for the most part companies have surrounded themselves with crisis-management teams and public-relations hired guns to deal with their short-term problems. But if they’re smart, troubled companies will also review their policies around the emerging field of corporate social responsibility (CSR) to discover why things went so wrong, say sustainability experts. Doing so could even help avoid a repeat of their woes in the future.

It’s important to point out that CSR isn’t about crisis management. The underlying argument for having an intensive CSR policy is to identify environmental, social and governance risks and prevent disasters from happening in the first place. Having said that, companies can start by reviewing how they deal with the fallout from their crises. “What a lot of companies overlook in a crisis is the way they handle things from a communications perspective,” says Andrea Baldwin, director of advisory services at Canadian Business for Social Responsibility, a non-profit CSR consultancy in Toronto. “That means taking accountability for it at a higher level, apologizing for it and recognizing the effects it does have.”

In the case of BP, company CEO Tony Hayward has apologized to Gulf residents. But the company could take further steps, say experts, such as establishing a transparent grievance process through which locals can file claims. As the cleanup continues, BP should also hand the job of reviewing the spill to an independent third party, says Coro Strandberg, a CSR consultant in Burnaby, B.C.: “The more egregious the incident, the more a company will be obliged to engage stakeholders to rebuild public trust.”

Such measures might help ease some of the criticism BP and other troubled companies face. Over the long term, though, a more thorough focus on CSR could pay off in spades. When CSR consultants go into any company, let alone one that’s just come through a mammoth crisis like an oil spill, a key first step is to conduct a gap analysis, says Strandberg. As the term implies, the goal of a gap analysis is to audit specific aspects of a company that relate to how it monitors and manages its impact on society and the environment, and look for any shortcomings compared to how the best companies in their industries handle themselves.

One key area looked at is a company’s compensation structure, and whether the rewards set out for executives and employees reinforce a socially responsible business strategy. That means aligning pay not just with the profits earned by the company, but also its impact on people and the planet. “What happens is folks are not compensated for thinking in a triple-bottom-line way,” says Strandberg, referring to the focus on a company’s ecological, social and financial performance. “At the end of the day you might have a nice CSR policy, but people are compensated on their turnaround time, productivity and sales targets. The signals to staff are in fact contrary to the CSR policy.”

Part of the process also involves looking at a company’s codes of conduct, and whether there’s any meat behind them. For instance, do the company’s policies relate to specific risks, are they reported honestly, and have they been verified by a third party? “They need to be more than just policies that get posted on a website or framed on the boardroom wall,” says Strandberg.

Many believe that’s what happened at BP, which spent years polishing its corporate halo. Yet the Gulf oil spill, as well as an earlier spill in Alaska, a deadly explosion at a Texas refinery and a helicopter crash in the North Sea that claimed the lives of all 16 on board, all within the last five years, have tarnished the company’s image. “BP’s reputation as a firm committed to the highest level of corporate social responsibility, particularly among socially concerned investors, has taken an incredible blow with this crisis,” said Mark Regier, director of stewardship investing for MMA Praxis, a faith-based investment fund that owns BP shares. The company has also been booted out of several CSR stock indexes as a result of the spill, including the Dow Jones Sustainability Index. As Robert Reich, professor of public policy at the University of California at Berkeley, wrote recently: “[BP is] the poster child for PR masquerading as CSR.”

Even at the best of times, implementing a CSR policy is not a quick or easy process. “When we go into a company that’s never done CSR, other than random acts of kindness, it can take 18 months to get to where a strategy is in place,” says Baldwin. Fully embedding CSR into a corporate culture depends on how much energy and conviction executives are willing to devote to the task. But one of the most common hurdles is making the case for change. A major scandal—and the erosion of public trust that inevitably comes with it—is sometimes all the justification that’s needed. “There’s nothing like an external crisis to galvanize you,” she says. “It becomes self-evident why that type of culture is so important and so inherent in your reputation and brand.”
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