Strategic reporting for a better society

8 Jan

In December we heard that the Government’s Behavioural Insights team, or “Nudge” Unit, had found a way to persuade more than 100,000 extra people a year will carry donor cards. Their insight has helped solve one of the NHS’s most frustrating conundrums – how to increase the number of people on Britain’s Organ Donor Register. Surveys regularly show that 90%of us support the principle of donation – yet only a third bother to join the register.  As a result, three people a day die because there are not enough donors.

The most important feature of the new messages recommended by the Nudge Unit is that they appear to affect the reader personally, rather than applying “peer pressure” or “shock value”.

This got me thinking.  Almost every company I talk to states that it wants to do its bit for society and for the environment.  Many say they want to support their locality or help local business.  A quick scan of the internet reveals a myriad of positive messages for companies proclaiming their support for a variety of causes.

But actually when you look a bit harder the amount of effort (and money) put into these programmes is de minimis.  And more importantly the spend is more about PR and reputation than anything to do with the company’s strategy or its business plan.

So how could we get business with its priority set firmly around the bottom line to recognise a “personal interest” in supporting the causes it says it wants to support?  How can we move away from just applying peer pressure or moral shock value on entities that don’t understand such sentiments and have nowhere to reflect it in any of the reports that fundamentally affect how much money they make or how they’re regarded by investors?

The “personal benefit” to a firm of working with and for the benefit of society seems obvious to many observers, but for those immersed in the day-to-day struggle for market share and commercial advantage it must seem a very distant, even miraculous, ambition.

However, in their ground-breaking paper, first published by Harvard Business in January 2011, Michael Porter and Mark Kramer explain that a concept of shared value recognizes that societal needs, not just conventional economic needs, define the markets that business operates in. Not only that, but “social harms or weaknesses frequently create [considerable] internal costs for firms—such as wasted energy or raw materials, costly accidents, and the need for remedial training to compensate for inadequacies in education”.

So in these two critical areas – developing products that society really needs (and will therefore pay for!) and reducing real internal costs – there are genuine, rational strategic business reasons for getting involved in socially positive activity.  For these reasons alone, such activities should be taken off the PR director’s desk and sat firmly on the chief executive’s.

But how to nudge that change of priorities, that change in behaviour?  How to get chief executives to take a real interest in what their company is doing rather than how it is doing? Enter (onto a completely silent stage) the Financial Reporting Council’s draft guidance on the preparation of the new Strategic Report, a new requirement (commencing from September 2013) requiring quoted companies to disclose additional information, including a description of the company’s strategy and business model, details of human rights issues and information relating to the gender split of directors, senior management and employees.

The Strategic Report has to be signed off by the board and is clearly intended to nudge them to develop certain behaviours.

I would like the Strategic Report to be expanded to encompass a strong requirement to report on the social and environmental outcomes from the operation of the business.  The SR should include volunteering and mentoring programmes, contracts with (not donations to) not-for-profit or local providers, and other socially positive activities.

This all may sound a very small step and something that will produce no tangible outcome, but as the Nudge Unit found, people’s behaviour is more likely to be changed when they see their own interest and not when they feel bullied or compelled.   I think, in fact, that such a change, small in itself, is very likely to unleash the competitive “we’re better than our competition” spirit that makes capitalism such a powerful force.

By requiring business to report regularly with a high standard of transparent and comparable data we would kick-off the creative and competitive elements of business who always want to demonstrate they are leaders in the field.  Gradually we may even nudge them to place socio-environmental considerations at the heart of their strategies.  If it works for kidney donors maybe it can work for business?