Incorporating CSR into business strategy and decision making by Article 13

ARTICLE 13 ORANGE PAPER

Incorporating CSR into business strategy and decision-making: A review of current board-level practice in the FTSE100 Lee McDougall, Jane Fiona Cumming and Neela Bettridge

ARTICLE 13 ORANGE PAPER

Since 1998, we have reviewed, researched and commented on the social, environmental, economic, and ethical trends shaping organisational performance (public and private sector). This research - ‘Article 13 Orange Papers’ - represents our commitment to the dissemination of knowledge and good practice which is critical to the transition to a sustainable society. For further Article 13 Orange Papers Whilst this publication is free to view, we would welcome your recognition of our work by contributing to our chosen charity – please see our UNGC page NOTE: Article 13 Orange Papers are independent in their views and publishes articles written from a very broad spectrum of opinions. Unless stated, the views in these articles do not necessarily represent Article 13’s own views. We acknowledge all copyright featured on these papers

Incorporating CSR into business strategy and decisionmaking: a review of current board-level practice in the FTSE100 October 2007 An Article 13 publication by Lee McDougall, Jane Fiona Cumming and Neela Bettridge

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Contents

Page

Executive Summary ...............................................................................................................3 Overall Findings: .................................................................................................................................. 4 Vulnerabilities:...................................................................................................................................... 5

Introduction and Methodology ................................................................................................7 Literature Review ...................................................................................................................9 Figure 1. Types of committees adopted at board level by FTSE100 companies: ............................ 12 Figure 2. Leadership of board-level CSR Committees in FTSE100 companies: ............................. 14 Figure 3. Board-level CSR Committees in FTSE100 companies according to sector: .................... 15 Figure 4. Main areas of focus for board-level CSR committees in the FTSE100:............................ 16 Table 1. Breakdown of main areas of focus for five board-level CSR committees in the FTSE100: 17 Figure 5. Main functions of board-level CSR committees in the FTSE100: ..................................... 18 Figure 6. Members of board-level CSR committees in FTSE100 companies: ................................. 19 Table 2. Examples of CSR committees by membership type in FTSE100 companies:................... 19 Figure 7. Business functions of members of board-level CSR committees in FTSE100 companies: ........................................................................................................................................................... 20 Table 3. Business functions of members of three board-level CSR committees in FTSE100 companies:......................................................................................................................................... 20 Table 4. External representation on board-level CSR committees in the FTSE100: ....................... 21 Figure 8. Names of board-level CSR committees in the FTSE100: ................................................. 22 Table 5. Names of board-level CSR committees in the FTSE100 within the miscellaneous category in Figure 8: ......................................................................................................................................... 23 Figure 9. Frequency with which CSR committees in FTSE100 companies meet: ........................... 23

Case Studies........................................................................................................................25 Implications and Conclusion .................................................................................................27 Appendix 1 – Board-level CSR Committees in the FTSE100................................................29 Appendix 2 – Full Case Studies............................................................................................34 CASE STUDY 1 – ANGLO AMERICAN PLC .................................................................................... 34 CASE STUDY 2 – HAMMERSON PLC ............................................................................................. 36 CASE STUDY 3 – HBOS PLC........................................................................................................... 39 CASE STUDY 4 – LEGAL AND GENERAL PLC .............................................................................. 40 CASE STUDY 5 – MAN GROUP PLC............................................................................................... 42

References...........................................................................................................................44 1. Web-based Resources: ................................................................................................................ 44 2. Endnotes: ...................................................................................................................................... 44

Executive Summary The hope for the planned Operating and Financial Review (OFR), subsequently transformed into the business review by Gordon Brown, was that it would place an obligation on listed companies to report on risks to the company strategy including environmental and social issues. It was seen that this would make these issues a board level item and ensure directors were aware of them. At best, it was hoped this would bring corporate social responsibility (CSR) into all listed boardrooms. The subsequent, recent Companies Act (2006) does stipulate that directors must assume responsibility for environmental, employee, social and community matters. It states that company directors: “must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to— (a) the likely consequences of any decision in the long term, (b) the interests of the company’s employees, (c) the need to foster the company’s business relationships with suppliers, customers and others, (d) the impact of the company’s operations on the community and the environment, (e) the desirability of the company maintaining a reputation for high standards of business conduct, and 1

(f) the need to act fairly as between members of the company.”

Listed companies have the added requirement to include information on these issues in their annual business reviews – the review and forward looking narrative in the annual report and accounts. The question this shift from data to narrative reporting raises is how are boards responding to this requirement and how are they setting up governance and board engagement with the issues arising? This current research, carried out by Article 13, explored whether compliance with the Companies Act, other nationally and internationally recognised standards,2 as well as growing pressure from shareholders, investors and other stakeholders, is contributing to a shift in boardroom practice and culture relating to CSR and if so how it is being implemented practically. The initial phase of this research verified a trend that Article 13 had noticed that has emerged in the last two years in FTSE100 companies: the formation of board-level CSR committees and other board-level instruments designed to provide governance in CSR. Article 13’s research reviews what is happening in practice and considers the approaches to reporting and frameworks for development of such committees and committee membership. Based on initial evidence gathering from literature reviews and the baseline data from company reports, the following definitions have been used for the purposes of this research: 3

•

Board-level committees: these are not solely limited to committees listed as ‘board committees’ within the information published on governance. They extend to committees which include either (or both) the chief executive officer or other board members in the membership listing as well as those committees which are chaired by the company secretary, who as the agent functioning on behalf of the board is considered (in this research) to be a board member. CSR committee: any group, no matter what it is called, established for the purpose of addressing CSR related issues, including those coming under the banner of social, environmental or ethical issues.

Results are based on desk research carried out between May and August 2007 using corporate websites, annual reports and accounts, CSR reports, committee terms of reference, and other recent independent research on related subject areas. The Combined Code in the UK formalised the committee structure as a key component of UK company governance and the research showed that 98% of the FTSE100 companies reported that they have established all three board committees – Audit, Remuneration and Nomination – demonstrating compliance with The Combined Code on Corporate Governance (July 2003) and the Companies Act (2006). Forty-eight companies have also listed additional committees – 16 of the 48 companies in the FTSE100 which provide information about additional board committees list a committee which has a remit to oversee CSR activities. Further analysis of other reports, typically CSR reports, and other publically available data revealed a further 42 of the FTSE100 companies also had a CSR committee which was considered to be board level. Therefore, a total of 62 CSR committees have been considered to be board level for the purposes of this research. Overall Findings: • •

•

23 of the 62 board-level CSR committees are chaired by non-executive directors. The number of mentions around factors often viewed as elements of CSR practice revealed that ‘environment’ is the most frequently mentioned area of focus for board-level CSR committees. Other factors which received frequent mention were health, safety, social, ethical and community issues. The cited functions of the CSR committees in the FTSE100 were wide ranging. Broadly seven key functions are consistently deemed to come under their remit: o Oversee and review [CSR] policies, strategy, plans, progress and performance; o Develop frameworks, policies and guidelines; o Regularly report and offer advice to the board, its committees and management; o Facilitate, oversee and support stakeholder engagement – relationship building; o Set and review progress against targets; o Assess and monitor risk exposure and performance; and o Monitor consistency with the company’s statement of business principles and benchmark against best practice. 36 of the 62 CSR committees have members representing a broad range of business functions (i.e. more than three business functions). A detailed analysis of the evidence 4

•

base did not reveal many instances – only three out of 62 committees – where external representatives are listed amongst the membership of board-level CSR committees. Where data was found, it was revealed that the majority of CSR committees – 22 out of 62 – include as part of their governance the requirement to meet at least quarterly (a minimum of four times) per year.

Vulnerabilities: Extrapolating out from these research findings there could be the potential for board-level governance vulnerability in a number of areas: • • • • • •

Limited board-level CSR oversight either through a nominated committee or designated board agenda items. Lack of published terms of reference for CSR board committees. Insufficient links to stakeholder input and external advice to such a committee. Clear connections with the business strategy, impacts and responsibility (CSR). Links with the other board committees – risk, audit, remuneration. Board-level ‘training’ to support directors in making informed decisions about issues as they arise.

Echoing the Combined Code guidance for Audit Committees (2003), Article 13 believes and recommends that best practice therefore is “beyond meeting the essential requirements and that every board needs to consider in detail what arrangements are best suited for its particular circumstances”. Equally, Article 13 repeats from the Code that “all directors remain equally responsible for the company’s affairs as a matter of law”. The findings of the research and best practice governance, as laid out in the Combined Code, lead Article 13 to advocate that good practice for CSR committees should include: 1. A board-level designated committee led by the senior non-executive director (linking with his/her role as key liaison with stakeholders). 2. A majority membership of non-executives but with the inclusion of at least one executive director (e.g. Finance, Human Resources). 3. One member who is also a member of the risk committee. 4. The requirement to meet at least four times per annum. 5. Written terms of reference for the CSR committee that are provided by the board and include the committee’s remit clearly stated with the definition of CSR for that company and links to the business strategy and to stakeholders. 6. The roles and responsibilities should include: • To monitor the integrity of the CSR statements of the company; • To review the company’s internal CSR risk register, company impacts and stakeholder engagement programme; • To make recommendations to the board in relation to the appointment of external advisors; • To monitor and review such advisors’ (to include auditors if required) objectivity and effectiveness; 5

To develop and implement policy on identifying, managing and integrating CSR issues into the business strategy; • To review significant CSR reporting issues and judgements made in connection with the preparation of the company’s business review, particularly the clarity, completeness and materiality of disclosures. 7. The ability to appoint independent advisors to assist the committee in its remit. 8. Training should be made available both for the committee and the board on CSR and specific topics in the agenda, e.g. climate change, human rights, supply chains, employee engagement. 9. Reporting by the committee to the Board, with a minimum of one item per annum on the Board agenda. 10. The Chairman of the CSR committee should be present at the AGM to answer questions, through the Chairman of the Board, on the CSR aspects of the business review and the CSR committee’s activities. •

Introduction and Methodology In the UK, the new Companies Act (2006) provides a legal foundation for CSR governance at board level. Based on initial evidence gathering, the following definitions have been used for the purposes of this research: • Board-level committees: these are not solely limited to committees listed as ‘board committees’ within the information published on governance. They extend to committees which include either (or both) the chief executive officer or other board members in the membership listing as well as those committees which are chaired by the company secretary, who as the agent functioning on behalf of the board is considered (in this research) to be a board member. • CSR committee: any group, no matter what it is called, established for the purpose of addressing CSR related issues, including those coming under the banner of social, environmental or ethical issues. The research focus is on CSR and governance, and on publically available information. As the literature review suggested that 86% of FTSE100 companies are actively producing reports on non-financial aspects of their business,3 the FTSE listing, with its requirement for publication of Annual Reports and Accounts, seemed to present an obvious source. To start this research, Article 13 consulted by telephone and electronic means with a number of leading authors and opinion formers who have written about company reporting and CSR, CSEAR principles and mechanisms, and board-level responsibilities within the corporate social responsibility (CSR) agenda. These interviews indicated that little had been written about in this area, although there was awareness amongst CSR and accountability practitioners of this emerging trend.4 We then carried out a literature review based on a number of sources identified through these interviews, through a Google search on company boards, through a search of information held on this topic in the Article 13 knowledge centre and through leading published sources.5 The methodology for this initial phase of the research is primarily desk based. Annual reports and accounts of every FTSE100 company covering the period 2004 to 2007 were initially reviewed and all mentions of board-level committees and governance structures, whatever they were called, but ranging from audit committees through to the Way We Do Business Action Group were recorded. This was then overlaid with further analysis using company websites, CSR or sustainability reports, committee terms of reference and other independent research on related areas. This covered, for example, research on boards in the US and the manner in which they are evolving to incorporate issues around CSR within their remit and the emergence of stakeholder panels in the UK.

From this evidence base, five case studies were selected, each from a different sector and each demonstrating a different aspect of these CSR or governance structures. Obviously there may be bias in this research in that we are reliant on what the companies report on. Our aim is to take this research and approach the companies reviewed to ask for their comments/additions with a view to adding questionnaire- and interview-based qualitative information by March 2008. This next phase will consider whether and, if so, how the types of governance structures looked at in this research have delivered innovation or transformation, arising from the CSR agenda, to the companies’ business. (See Article 13 research, “Approaches to business innovation and transformation – the role of corporate governance”)

Literature Review As already detailed in the summary in the UK, the new Companies Act (2006) provides a legal foundation for CSR governance at board level. The recent briefing paper from the Institute of Business Ethics (2007) cites this legal requirement as one of several drivers for the development of board-level CSR committees in the UK. Other drivers cited include: risk and reputation management; embedding of ethical values throughout an organisation and raising board awareness of ethical values and issues, whilst indicating to staff that values and ethics are taken seriously at the top.6 Parallel developments in the US, reviewed by Cramer and Hirschland in the Harvard Business Review (2006), show that legislative changes to board composition, roles and authority as well as increased attention to non-financial risks and opportunities are leading to the expansion of boards’ ‘fiduciary duties’ to include social, environmental and human rights issues. It is reported in this review that US boards are recognising that a proactive approach to these issues impacts on business performance and enhances their own legitimacy. “Active board engagement around what it means to be a responsible and responsive enterprise has the potential to buttress the true power of the board as an instrument for strategic, long-term value creation. Boards are stepping in to help guide company strategy by defining the meaning of “responsibility” in an era when the views of stakeholders have joined shareholders as critical measures of company success.”7

This is further reflected in the US where it is becoming increasingly common for companies to address CSR issues at board level with an estimated 20 percent of the Standard & Poor’s 500 having established board CSR committees8 and eight out of Fortune’s top ten ‘Most Admired Companies for Social Responsibility’ in 2004 having board CSR committees. This literature reports that the reasons cited for boards taking a proactive stand on CSR issues include: positioning companies for future success; reducing conflict with environmental campaigners and communities; responding to stakeholder demands; reputation building and attracting mainstream investors. Notably, Porter and Kramer (2006) pointed out that in 2005 alone there were 360 shareholder resolutions relating to CSR issues such as labour conditions and global warming.9 Although the literature does not demonstrate a standard approach to integrating oversight of CSR issues into the structures of US boards, Cramer and Hirschland (2006) identified four emerging trends: • Expanding the charter of an existing board committee; • Considering the full board as a CSR committee; • Establishing an executive committee or external advisory committee that reports to the board; and • Establishing a CSR-specialised board committee.

Their research showed that of these four approaches in US boards, the establishment of a CSR-specialised board committee is the preferred choice. Examples cited included Merck, Rio Tinto, Coca-Cola and McDonald’s. It was emphasised that careful consideration should be given to governance and composition when establishing board CSR committees. Further research in the US cited in a BSR Issue Brief on “CSR Governance Structures” also notes that “companies are finding that a board that is diverse in terms of gender, ethnicity and professional experience is better equipped to grapple with emerging and complex challenges.”10 BSR continue their research in “The Stakeholder Fiduciary: CSR Governance and the Future of Boards” (April 2006), where White argues that boards should not be solely accountable to company shareholders. A board’s activities have a direct impact on an organisation’s CSR performance and it should, therefore, adopt a ‘stakeholder governance’ approach in its decision-making.11 Furthermore, in the UK, David L Owen (2005) noted the recent shift from corporate social responsibility programmes driven by moral accountability to those underpinned by a drive to achieve competitive advantage.12 CSR is more frequently being regarded as being of strategic importance to organisations. The Business Ethics Briefing (2007) also gives an overview of committee structures, responsibilities and approaches to reporting, as determined by looking at current good practice. The main ideas put forward are summarised below: • Committee name – wide range of variations, e.g. CR committee, CSR committee, Business Principles Committees, Risk and Responsibility Committee, ‘How We Do Business’ Committee; • Size and ‘make-up’ – dependent on the nature and governance structure of the organisation; • Status – some may not be board level, e.g. sub-committee of an executive committee, body of specialists with professional experience in areas of stakeholder concern or a steering group; • Responsibilities – wide ranging, e.g. overarching view of how the company does its business; establishing and embedding corporate ethical values, the ethics policy and code and ensuring and monitoring ethical business practice; overseeing the organisation’s CSR strategy; etc; • Reporting – at least annually; meeting minutes should be sent to the board; contribute a review of issues, activities and performance to the Annual report.13 Reflecting a ‘stakeholder governance’ approach (see above), UK-based research reveals that a parallel to the evolution of CSR committees in recent years has been the emergence of stakeholder panels.14 Companies are establishing these panels as a means of engaging effectively with stakeholders to identify and respond to environmental and social issues. This reflects the strategic importance now placed on CSR and stakeholder engagement, as well as the growing role both have in terms of governance. In the foreword to “Critical Friends” 10

(2007), Knight and Dupre describe the role stakeholder panels play in organisational strategy: “We see panels as an increasingly important means of stakeholder engagement that help companies advance beyond a defensive or compliance approach to social and environmental issues to one of understanding strategic opportunities and risks.”15

Examples cited include Camelot, Centrica and GSK. In instances such as these, the role of CSR committees is in establishing the stakeholder panels, identifying relevant stakeholder representatives and defining objectives and measures of success.16 Knight and Dupre (2007) report that membership of the stakeholder panels is a critical factor in achieving success. They found the key to success was recruiting a good balance of members, taking into account an organisation’s range of impacts and the key stakeholders affected by its operations.17 Careful recruitment of members increases capacity to focus more specifically on relevant issues and to consult with a wider range of stakeholders. Sjoberg (2007) gave similar advice on the make-up of teams working in the field of CSR: “…it is strongly advisable that the leader of the CSR operations organises a CSR team including experts from different parts of the organisation so that maximum results can be achieved and input from and feed-back to the entire organisation is secured.”

There is some published evidence that the external representation, evident on the majority of stakeholder panels, has also been replicated in some CSR committees. Amicus, now part of Unite, the UK’s largest manufacturing union, reflects on its involvement in Legal and General’s (see Case Study 4) board-level CSR committee and the associated subcommittees in its “Corporate Social Responsibility Guide” (2007). As well as giving the union “leverage to pursue member’s interests and issues within the structures of the organisation”, Legal and General gains expertise in employee initiatives such as volunteering schemes.19 By way of conclusion, AccountAbility and Utopies (2007) outlined some of the key impacts of stakeholder panels, which include: awareness raising; collaborative, accelerated learning; strengthened relationships between the company and panel members (often external stakeholders); informed decision-making; enhanced effectiveness of internal change agents; better crisis management; improved credibility and trust; and partnership development.20 The impacts of CSR governance structures will provide a strand of our investigations. The next section of this research report uses the findings from the desk research to consider whether: • The new Companies Act has acted as a driver for the development of the board-level CSR committees in the UK; • The drivers for CSR committees differ to those cited in the US; • The structures, responsibilities, approaches to reporting and frameworks for development of such committees correspond to the literature review findings; • Membership specifically extends to external representation; and finally • The impacts of these structures can be extended and linked to existing governance structures to build a picture of best practice. 11

Results and Commentary This section provides a detailed analysis of the key findings emerging from the desk-based research described in the Introduction and Methodology. It takes into account patterns and themes identified in the literature review to establish whether these are borne out in the practice of the FTSE100 companies. It begins by looking more generally at CSR governance at board level in FTSE100 companies and then the focus narrows to the practices of those companies which are specifically identified as having board-level CSR committees. The commentary is augmented by charts and tables throughout, as well as specific examples from the evidence base. Figure 1. Types of committees adopted at board level by FTSE100 companies: What type of governance structures do companies in the FTSE 100 favour in terms of addressing CSR at board level? Dedicated board committees Dedicated senior management committees Expanded role of existing committees

31%

59%

3% 6%

Whole board

No evidence found

N = 100

Initial desk- and web-research of governance and investor relations sections of annual reports and accounts and corporate websites confirmed that 98% of the FTSE100 companies reported that they have established all three board committees â&#x20AC;&#x201C; Audit, Remuneration and Nomination â&#x20AC;&#x201C; demonstrating compliance with The Combined Code on Corporate Governance (July 2003) and the Companies Act (2006). Forty eight companies have also listed additional committees. Ten companies list their Risk (or similarly named) committees as board-level committees (e.g. Alliance & Leicester, Friends Provident), whilst a further six have included Health, Safety and Environment (or similarly named) committees (e.g. British Airways, Scottish & Southern Energy). Other committees which receive at least one mention include Executive (e.g. Barclays Bank), Corporate Governance (e.g. Reed Elsevier), Disclosure (e.g. Centrica) and Treasury (e.g. Wolseley) committees. Sixteen of the 48 companies in the FTSE100 which provide information about additional board committees list a committee which has a remit to oversee CSR activities. The 16 companies are identified in Appendix 1 on page 30, but include for example Alliance Boots (Social Responsibilities Committee), BHP Billiton (Sustainability Committee), HSBC Holdings 12

(Corporate Responsibility Committee) and Royal Dutch Shell (Social Responsibility Committee). CSR is also included within the sphere of activity of two of the board-level Health, Safety and Environment (HSE) committees (Anglo American – see Case Study 1 – and BP), one of the Risk committees (National Grid) and one of the Audit Committees (Old Mutual). In total, therefore, there are 20 companies which specifically list their CSR committee as board level. The preceding analysis shows that although it is becoming more common to list additional specialised board-level committees, it is not yet widespread practice for companies to list CSR governance structures as specific board committees. Further analysis of other reports, typically CSR reports, and other publically available data revealed a further 42 of the FTSE100 companies did have a CSR committee which was considered to be board level. However, the CSR committees of these 42 companies were not cited in the committee section of the annual report and accounts (as was the case with the 20 companies identified in section 1 above). Companies included in this category include 3i, Diageo and Scottish & Newcastle. The earliest of these committees could be traced back to 2001, namely those established by British American Tobacco and Cadbury Schweppes. Therefore, a total of 62 CSR committees have been considered to be board level for the purposes of this research. This figure includes those committees chaired by the company secretary who, as the dedicated board resource, is considered to be a board level entity for the purpose of this research. The company secretary chairs CSR committees at Aviva, DSG International, Experian and Home Retail Group, amongst others. A further three committees, also included in the overall figure of 62 CSR committees, were described as having been expanded to incorporate CSR issues into them. The companies where this was the case are Johnson Matthey, Old Mutual and Royal Bank of Scotland. It is likely that this was also the case for a number of the other HSE committees, although it was not made specific on the companies’ websites and could therefore not have been assumed to be the case. In the instances where clarity was lacking, the committees were included under one of the other categories. A further six of the FTSE100 companies, whilst not having a board-level CSR committee, have some form of senior management committee dedicated to CSR (reporting to the board). These include Alliance & Leicester’s CR Committee which is chaired by the Director of Corporate Communications and International Power’s Health Safety and Environment Committee which is chaired by the Director of Operations and Engineering. One company, Imperial Tobacco Group, reports that issues relating to CSR will be handled by the whole board. This company has chosen not to establish a board-level committee 13

devoted to CSR issues in favour of “managing CR through mainstream management”. In this case, the Chief Executive’s Committee also has an important role to play. The review of the remaining 31 FTSE100 companies’ reports and websites did not reveal any specific evidence as to how CSR was being addressed at board level. However, 25 of these 31 did include a simple statement acknowledging that the board held overall responsibility for issues relating to CSR. Examples of these companies include AMVESCAP, Associated British Foods, Cable & Wireless, Mitchells & Butlers, Punch Taverns, Rexam and Sage. Sixty of the FTSE100 companies (i.e. 60%) have produced ‘business reviews’ in their annual reports and accounts, as required by the new Companies Act (2006). Of these 60 companies’ business reviews, 38 (i.e. 63%) have reported they have board-level CSR committees. The following commentary focuses on the 62 CSR committees identified as being board level. For the purposes of the research, CSR committees were defined as being board level if they were listed alongside other board committees, if their members included the CEO and/or board members or if they were chaired by the company secretary.

Figure 2. Leadership of board-level CSR Committees in FTSE100 companies: Who Chairs CSR committees at board level in FTSE 100 companies?

Director/Executive Director/Senior Executive 13%

Non-executive Director CEO

Not found 2%

Other Senior Management Roles 5%

Chairman Non-executive Director 37%

Chief Financial Officer/Group Financial Director 6%

(Group) Company Secretary Chief Financial Officer/Group Financial Director Other Senior Management Roles

(Group) Company Secretary 13% Chairman 3%

Director/Executive Director/Senior Executive CEO 21%

Not found

N = 62

Thirty seven percent (or 23) of the 62 board-level CSR committees are chaired by nonexecutive directors. These include Alliance Boots, Anglo American (see Case Study 1), BP, Cadbury Schweppes, GlaxoSmithKline, Man Group (see Case Study 5) and Unilever. A further 21% (or 13) of the committees are ‘overseen’ by the CEO, as is the case with committees operating in BT Group, Hammerson (see Case Study 2), Liberty International, Reed Elsevier, Rolls-Royce Group and Yell Group. The company secretary and directors/senior executives are the third equal most frequent chairs of CSR committees, at 13% (or 8) for each job role. Companies with company secretaries as chairperson include 14

Experian Group, ITV, Persimmon and Reuters Group, whilst companies with a senior/executive director include BHP Billiton, Carnival, Kingfisher, Lloyds TSB Group and Morrison (Wm) Supermarkets. Job roles incorporated within the category ‘other senior management roles’ are Chief Operating Officer (Land Securities Group), Group Vice President of Sustainability (Imperial Chemical Industries) and Group Board Director (Next).

Figure 3. Board-level CSR Committees in FTSE100 companies according to sector: Which sectors do companies with board level CSR committees in the FTSE 100 come from? Food Producers Chemicals Aerospace & Defence Pharmaceuticals & Biotechnology Oil & Gas Producers General Financial Sector

Food & Drug Retailers Beverages Real Estate Gas, Water & Multiutilities Media Life Insurance General Retailers Banks Other Mining 0

N = 62

Num ber of Com panies

The primary sectors represented amongst the FTSE100 companies with board-level CSR committees were: • Mining – Anglo American (see Case Study 1), BHP Billiton, Kazakhmys, Lonmin, Rio Tinto Group, Vedanta Resources, Xstrata; • Banks – HBOS (see Case Study 3), HSBC Holdings, Lloyds TSB Group, Royal Bank of Scotland, Standard Chartered Bank; • General retailers – DSG International, Home Retail Group, Kingfisher, Marks and Spencer Group, Next; • Life insurance – Aviva, Legal and General Group (see Case Study 4), Old Mutual, Prudential, Standard Life; and • Media – British Sky Broadcasting Group, ITV, Reed Elsevier, Reuters Group, Yell Group. 15

The sectors which make up the ‘other’ category are: distribution (Alliance Boots), fixed line telecommunications (BT Group), household goods (Persimmon), support services (Experian Group), tobacco (British American Tobacco) and travel and leisure (Carnival). Research for this breakdown by sector also revealed that 100% of the FTSE100 companies within the general retailers (5 of 5), pharmaceuticals & biotechnology (3 of 3), food & drug retailers (3 of 3), oil & gas producers (3 of 3) and chemicals (2 of 2) sectors have established board-level CSR committees. Equally well represented were the mining companies (7 of 10) and companies in the real estate (4 of 5) and gas, water & multiutilities sector (4 of 5) having developed board-level CSR committees. Sectors with a slightly lower take up in this regard are media (5 of 8), banks (5 of 8), life insurance (5 of 7) and food producers (2 of 4). It was noteworthy to discover that none of the four FTSE100 companies within the electricity sector has established a board-level CSR committee.

Figure 4. Main areas of focus for board-level CSR committees in the FTSE100:

What are the main areas of focus for board level CSR committees in the FTSE 100? marketplace w orkplace economic security sustainable development equality and diversity

Areas of focus

human rights reputation risk cr generally community business ethics other miscellaneous areas of focus social health safety environment

N = 62

Number of mentions

The tabulated results detailing number of mentions around factors often viewed as elements of CSR practice revealed that ‘environment’ is the most frequently mentioned area of focus for board-level CSR committees. Other factors which received frequent mention were health, safety, social, ethical and community issues. 16

Factors falling within the â&#x20AC;&#x2DC;other miscellaneous areas of focusâ&#x20AC;&#x2122; category shown in the graph only received one mention each and include, amongst other focus areas, marketing (Cadbury Schweppes), food and consumer issues (Cadbury Schweppes), ethical sourcing and procurement (Cadbury Schweppes), corporate social investment (SABMiller), access to medicines (GlaxoSmithKline), global community partnerships (GlaxoSmithKline) and employment standards (Cadbury Schweppes).

Table 1. Breakdown of main areas of focus for five board-level CSR committees in the FTSE100: The following table provides a breakdown of the areas of focus listed for five of the boardlevel CSR committees in order to provide additional support to the chart of focus areas above. Company

Committee

Areas of focus

Name Environment

Health

Safety

Social

Ethical

Community

Other

BAE

Corporate

Systems

Responsibility

Stakeholder

Committee

Engagement

Centrica

Corporate

Reputation

(Risks and

Responsibility

opportunities)

Committee Lonmin

Risk and

Risk

SHEC Committee

National

Risk and

Grid

Responsibility

Diversity

Equality and

Committee

Human Rights

Severn

Corporate

Diversity

Trent

Responsibility

Supply Chain

Committee

Assessment Growth opportunities from CR issues

Figure 5. Main functions of board-level CSR committees in the FTSE100: What are the main functions of board level CSR committees in the FTSE 100?

Ensure integration of CSR into everyday activities Review compliance w ith legal and regulatory requirements, as w ell as internationally Manage, monitor and measure KPIs and learnings Identify and assess key CSR issues that might impair company's strategic objective

Functions

Monitoring consistency w ith the company's statement of business principles and Assess and monitor risk exposure and performance Set and review progress against targets Facilitate, oversee and support stakeholder engagement - relationship building Develop framew orks, policies and guidelines Regularly report and offer advice to board, its committees and management Additional miscellaneous functions Oversee and review policies, strategy, plans, progress and performance 0

N = 62

10 15 20

25 30 35

40 45

Num ber of m entions

The cited functions of the CSR committees in the FTSE100 were wide ranging. Broadly, there are seven key functions which are consistently deemed to come under their remit: • Oversee and review [CSR] policies, strategy, plans, progress and performance (e.g. Hammerson (see Case Study 2), Man Group (see Case Study 5), Morrison (Wm) Supermarkets); • Develop frameworks, policies and guidelines (e.g. Legal and General Group (see Case Study 4), Schroders, Tesco) ; • Regularly report and offer advice to the board, its committees and management (e.g. Alliance Boots, Diageo, HSBC Holdings); • Facilitate, oversee and support stakeholder engagement – relationship building (e.g. BAE Systems, British American Tobacco, Tesco); • Set and review progress against targets (e.g. Hammerson (see Case Study 2), Liberty International, National Grid); • Assess and monitor risk exposure and performance (e.g. Lonmin, Scottish & Newcastle, Slough Estates/SEGRO); and

â&#x20AC;˘

Monitor consistency with the companyâ&#x20AC;&#x2122;s statement of business principles and benchmark against best practice (e.g. BG Group, Royal Dutch Shell, Xstrata).

The functions incorporated under the miscellaneous category include, amongst other functions, preparation and reviewing of reports (e.g. BHP Billiton); increasing awareness of the issues and enhancing reputation (e.g. British American Tobacco); reviewing and managing non-compliance and complaints (e.g. Carnival); providing a forum for discussion of the issues (e.g. Standard Life) and attracting and retaining the best people (e.g. British Sky Broadcasting Group).

Figure 6. Members of board-level CSR committees in FTSE100 companies: What is the membership composition of board level CSR committees in FTSE 100 companies?

13%

Senior Management (including Company Secretary)

10%

Board Members Only

34%

Combination of Board Members and Senior Management No evidence found

43%

N = 62

The fact that a good majority (77%) of the reviewed board-level CSR committees has board members represented amongst the membership demonstrates that issues relating to CSR are being reviewed at a senior level by these companies. Moreover, more than half of this 77% includes the Chief Executive within the membership.

Table 2. Examples of CSR committees by membership type in FTSE100 companies: Senior Management (including

Board Members only

Combination of Board Members

Aviva (including CEO)

Anglo American (including CEO)

DSG International

Royal Bank of Scotland (including

Kingfisher (including CEO)

Persimmon

BHP Billiton

HSBC Holdings

Reuters Group

Kelda Group

Land Securities

Company Secretary)

and Senior Management

CEO)

(Note: The examples listed in Table 2 above were selected at random.)

Figure 7. Business functions of members of board-level CSR committees in FTSE100 companies: Are members of board level CSR committees in the FTSE 100 from a broad range of business functions?

34%

Yes 58%

No No evidence found

N = 62

Fifty eight percent (or 36) of the 62 CSR committees have members representing a broad range of business functions, whilst only eight percent have a membership which does not seem to be representative of a significant range of the business activities. CSR committees with broad representation through their members include those operating at 3i, British Land Company, Centrica, ITV, Land Securities Group, Persimmon and Shire Pharmaceuticals Group.

Table 3. Business functions of members of three board-level CSR committees in FTSE100 companies: The breakdown of committee membership for three companies is given below to highlight the broad range of business functions that board-level CSR committees often incorporate. Company

Committee Name

Business Functions of Members

Corporate

•

Company Secretary

Responsibility

•

Human Resources Director

Committee

•

Group Communications Director

•

Head of Investor Relation

•

Investment Director in 3i’s Asia investment business

•

Investment Executive in 3i’s Oil and Gas team

•

Associate in 3i’s UK Venture Capital team

•

Director responsible for 3i’s SMI portfolio

CR Operational Risk

•

Company Secretary

Steering Group

•

Head of Investor Relations

•

Controller of Public Affairs

•

Head of Internal Communications

•

Controller of Regional Affairs

•

Head of Resourcing and Diversity

(by job title and/or division)

ITV

•

Representatives from main business teams: Broadcasting, Content and Consumer

Company

Committee Name

Business Functions of Members (by job title and/or division)

Shire

Corporate

Pharmaceuticals

Responsibility

Group

Committee

•

Chief Financial Officer and Executive Vice President, Global Finance

•

Executive Vice President and General Manager Sales/Marketing North America

• •

Senior Vide President, Global Corporate Communications Chief Scientific Officer and Executive Vice President, Global R&D

•

Vice President and Commercial Leader, CNS STAT

•

Managing Director, Commercial

•

Senior HR Projects and Change Management Director

•

Senior Vice President and Chief Compliance and Risk Officer

•

Vice President, Global Procurement Services

•

Executive Vice President, Global Human Resources

•

Executive Vice President and General Manager, Shire HGT

•

Senior Director, Global EH&S

•

Executive Vice President, Global Supply Chain

•

Senior Global Facilities Director

Table 4. External representation on board-level CSR committees in the FTSE100: A detailed analysis of the evidence base did not reveal many instances – only three out of 62 committees – where external representatives are listed amongst the membership of boardlevel CSR committees. Company

Committee Name

External Representation

BHP Billiton

Sustainability Committee

Professor Jim Galvin – adviser to the committee

Imperial Chemical Industries

Sustainability Board

A range of external stakeholders

Legal and General Group

CSR Committee

Representative from Amicus (manufacturing union)

The inclusion of external representatives on CSR committees and the use of external consultants to provide strategic guidance to these committees is an avenue that will be followed up as part of the next stage of this research (due for completion in March 2008). Many companies refer to the use of external providers to validate CSR or sustainability reports and it is likely that these providers are also called upon for support and advice on broader CSR issues, including the set up and effective management of board-level CSR committees. Hammerson (see Case Study 2), for example, states that “we work with external consultants who provide us with strategic and technical advice on current CR issues”.

Figure 8. Names of board-level CSR committees in the FTSE100: What are board level CSR committees in FTSE 100 companies called? 30

Number

25 20 15 10 5 Sustainability Committee/Board

Social Responsibility Committee

Operating/Executive Committee

Risk and Responsibility Committee (and variations)

Corporate Social Responsibility (CSR) Committee

Miscellaneous

Health, Safety and Environment (HSE) Committee

Corporate Responsibility (CR) Committee/Group/Forum/ Steering Group

N = 62

Committee names

The term most frequently used to describe CSR amongst the FTSE100 is ‘corporate responsibility’ or ‘CR’ with 28 of the 62 board-level CSR committees incorporating the term in the committees’ names. The name Corporate Responsibility (or CR) committee is particularly popular (e.g. Alliance & Leicester, J Sainsbury, Land Securities Group, Persimmon) with variations including Corporate Responsibility Steering Group/CRSG (British Sky Broadcasting Group, Experian Group and Home Retail Group), Corporate Responsibility Advisory Board/CRAB (Reuters Group), Corporate Responsibility and Reputation Committee (Unilever) and CR Forum (Reed Elsevier). Only seven out of 62 CSR committees contain ‘corporate social responsibility’ or ‘CSR’ in their names. The name CSR Committee is utilised by, amongst others, British American Tobacco, Kelda Group, Liberty International and Marks & Spencer Group. The second most favoured name is Health Safety and Environment (HSE) Committee and variations thereof. Companies with HSE Committees include International Power, Kazakhmys, Rolls-Royce Group and Schroders. A number of companies have expanded on the traditional HSE terminology to incorporate other factors of importance to their CSR programmes, such as security, community, risk and ethics, in the names of their CSR committees. Examples of these include a Health, Environmental, Safety and Security Committee (Carnival) and Risk and SHEC (Safety, Health, Environment and Community matters) Committee (Lonmin). As well as appearing under the HSE bracket, the word ‘risk’ appeared across a variety of other committee names (6 out of 62) – Risk and Responsibility Committee (National Grid), Corporate Accountability and Risk Assurance Committee/CARAC (SABMiller) and Group Audit and Risk (Old Mutual). 22

Table 5. Names of board-level CSR committees in the FTSE100 within the miscellaneous category in Figure 8: The miscellaneous category appearing in Figure 8 incorporates a range of alternative, often innovative, names for CSR committees: Committee Name

Company

Board Committee on Social and Environmental Accountability

Rio Tinto Group

Corporate Citizenship Committee

Diageo

Cross-Functional Steering Group of Senior Executives

Morrison (Wm) Supermarkets

Governance and Responsibility Steering Group

Yell Group

Safety and Sustainable Development Committee

Anglo American

Way We Do Business Action Group (WWDBAG)

HBOS

Figure 9. Frequency with which CSR committees in FTSE100 companies meet: How frequently do board level CSR committees in the FTSE 100 meet per annum? Once 2% Tw ice 11% No evidence found 43% Six or more times 3%

Three times 6%

Four times 35%

N = 62

As many of the board-level CSR committees do not make their Terms of Reference publically available on company websites, it was difficult to find information relating to meeting frequency. Where data was found, it was revealed that the majority of CSR committees â&#x20AC;&#x201C; 35% or 22 out of 62 â&#x20AC;&#x201C; include as part of their governance the requirement to meet at least quarterly (a minimum of four times) per year. British Sky Broadcasting Group, Carnival, Friends Provident, Hammerson (see Case Study 2), ITV, Slough Estates/SEGRO and Standard Life are amongst the companies with CSR committees which meet quarterly. A review of Terms of Reference for other board-level committees (i.e. Audit, Remuneration and Nomination) showed that it was most common for committee meetings to be held quarterly. The practice of the board-level CSR committees identified in this research is in keeping with this tendency. The preceding commentary demonstrates that companies in the FTSE100 are actively taking measures and setting up governance frameworks to take leadership on matters relating to CSR from the very top echelons of their organisations. The new Companies Act, combined with environmental concerns, seem to have resulted in this burgeoning of board-level CSR 23

committees in the FTSE100 companies. Although no standard approach has evolved to date, the evidence suggests that these committees are mirroring existing board-level structures in respect of composition, structures and functions. In order to see how this works in practice, five companies have been selected to profile in more detail in the following section.

Case Studies Five case studies of FTSE100 companies with board-level CSR committees have been compiled in order to complement the research findings. Each of the companies profiled in the case studies comes from a different sector. The companies were selected because sufficient information was publically accessible via websites and reports and their committees were broadly representative of initial research results. The companies featured are Anglo American (mining), Hammerson (real estate), HBOS (banks), Legal and General (life insurance) and Man Group (general financial). These case studies give a practical illustration of the patterns identified in the desk-based research. Key highlights from the case studies are outlined in this section and the full case studies can be found in Appendix 2. The next phase of this research programme will investigate a number of FTSE100 companies’ board-level CSR committees by means of semi-structured interviews to gain a more in-depth understanding of the innovations and impacts of these types of structures. Case Study Highlights Structures – The five companies all have distinct naming terminology for their board-level CSR committees: Safety and Sustainable Development Committee, CR Group, The Way We Do Business Action Group, Corporate Responsibility Committee and CSR Committee. The year of establishment for all three companies’ board-level CSR committees where evidence was found was 2006. All five companies stated that their committees meet quarterly. In two instances the committees are chaired by the CEO (Hammerson and Legal and General), with a further two being chaired by a non-executive director (Anglo American and Man Group) and the remaining company’s committee being chaired by the Group Finance Director (HBOS). Functions – The five board-level CSR committees profiled have in common the oversight of the company’s CSR programme, although one company (Anglo American) categorises it as sustainable development. Two of the companies incorporate strategy development as part of the CSR committee’s functions (Anglo American and Legal and General), whilst evaluation against targets is mentioned by three companies (Hammerson, Legal and General and Man Group). One company (Hammerson) includes benchmarking against best practice within the CSR committee’s remit. Membership – Each of the five board-level CSR committees in the case studies lists a broad cross section of members, including a mix of board members and senior executives from different business functions. As well as non-executive directors, CEOs and company secretaries, heads of CSR, HR, finance, corporate affairs, risk and compliance are included in the membership mix. Two companies (Hammerson and Legal and General) include external representation in the membership of their board-level CSR committee.

Activities – The activities of the board-level CSR committees are closely linked with the key functions referred to above. Recurring activities include developing CSR frameworks, policies and targets, reviewing progress against objectives and reporting performance to the board. One company (Hammerson) has established a number of working groups around the elements of the company’s CSR programme. Another company (Anglo American) has the requirement for heads of business units to make presentations to the committee and its chairman attends the company’s Annual General Meeting. Evidence of Innovation or Transformation – The innovations worth noting include the special remuneration for members of CSR committees, the attendance of the committee chairperson at annual general meetings, the formalisation of CSR responsibilities for review in annual appraisals, the inclusion of a visit to an operation in the committee’s annual schedule and the running of conferences around CSR-related matters.

Implications and Conclusion The preceding analysis confirms the research focus, namely that a majority of companies in the FTSE100 (62%) have established a board-level CSR committee. A quarter of these committees are referred to explicitly in the companiesâ&#x20AC;&#x2122; listing of board-level committees, whilst the remainder either have board members involved in the committee or they are chaired by the company secretary. The Companies Act (2006) as a driver for establishing board-level CSR committees Based on the timing of the outputs of the Company Law Review in the last two years and the fact that a significant proportion of the 62 board-level CSR committees in the FTSE100 have only been formed in the last two years, it seems reasonable to assume that the new Companies Act (2006) has contributed to the creation of board-level CSR committees. The research suggests that this trend of establishing formal mechanisms at board level to manage the overall approach to social, environmental and ethical issues is likely to become even more common practice amongst the FTSE100 in the coming years. Additional drivers for establishing board-level CSR committees There is little evidence of other drivers besides regulatory changes for formation of boardlevel CSR committees. This strand will be followed up more rigorously in the next phase of this research (see Next Steps below). However, the fact that environment is the dominant area of focus for these committees suggests that the media focus on environment-related issues as well as the increasing knowledge and interest of stakeholders is acting as a driving force for companies to address CSR issues at board level. The formation of a CSR committee could be a tangible means of achieving this in the public domain. Structures, responsibilities and approaches of board-level CSR committees It is most common for a non-executive director or CEO to chair board-level CSR committees. A majority (77%) of the reviewed companies has board members represented amongst the membership, demonstrating that issues relating to CSR are being reviewed at a senior level by these companies. A wide range of sectors is represented amongst the FTSE100 companies with board-level CSR committees, although mining is the most prevalent. This is likely to be owing to the sectoral make-up of the FTSE100. The focus of board-level CSR committees in the FTSE100 is also varied, although environment receives the most mentions. Other key areas of focus include safety, health and social issues. The research also identified the primary function of FTSE100 board-level CSR committees as overseeing and reviewing policies, strategy, plans, progress and performance.

The preferred name for board-level CSR committees is â&#x20AC;&#x2DC;Corporate Responsibility (CR) Committeeâ&#x20AC;&#x2122;, although there is a good deal of variation. The research revealed that the majority of board-level CSR committees meet at least quarterly. External representation Only three of the 62 board-level CSR committees reviewed were identified as having external representatives listed amongst the members. This strand will be followed up in more detail in phase two of this research (see Next Steps). Innovation? It is anticipated that the innovations already identified in this desk research of board-level CSR committees will become more evident in the next stage of this research. Based on the desk-based case studies undertaken, the innovations emerging include special remuneration for members of CSR committees, attendance of the committee chairperson at annual general meetings and formalisation of CSR responsibilities for review in annual appraisals. Next steps The next stage of this research is due for completion at the end of March 2008 and will build on the analysis already carried out using publically available sources. It will draw on information gathered through questionnaires and interviews to establish a more in-depth understanding of board-level CSR committees in FTSE100 companies. Phase two will look more specifically at the drivers for establishing board-level CSR committees; the key benefits being delivered by these types of committees; any additional use of external representation by committees and the value it brings; the nature of learning and development opportunities given to committee members and evidence of innovation or business transformation brought about by these committees. Having established the full picture as to the current landscape, Article 13 will consider what the future holds in terms of further developments.

Appendix 1 – Board-level CSR Committees in the FTSE100 The following table contains a list of the 62 FTSE100 companies (in alphabetical order) which have been identified as having board-level CSR committees. As well as company name and industry sector, the table provides the committee name and job title of the committee chair. The fourth column also highlights whether or not companies we have identified as board level, according to the definition put forward for this research report, are listed as such on FTSE100 companies’ websites (corporate governance/investor relations sections) or in directors’ reports (see Research Analysis, section 1). As explained in earlier sections of this research report, there may be a bias to the results as this initial phase has involved desk-based research and is therefore reliant on what the companies report on. The three companies with a star (*) beside their name specifically stated that these committees had expanded their remit to include CSR matters. Company 3i Group

Sector General Financial

Committee Name Corporate

Committee Chair

Listed as Board

(job title)

Level

Company Secretary

Responsibility Committee Alliance Boots

Distribution

Social

Non-executive

Responsibilities

Director

Yes

Committee Anglo American

Mining

Safety and

Non-executive

Sustainable

Director

Yes

Development Committee AstraZeneca Aviva

Pharmaceuticals &

Global CR

Non-executive

Biotechnology

Committee

Director

Life Insurance

Corporate Social

Group Company

Responsibility

Secretary

Yes

Committee BAE Systems

Aerospace &

Corporate

Non-executive

Defence

Responsibility

Director

Yes

Committee BG Group

Oil & Gas Producers

Corporate

Non-executive

Responsibility

Director

Yes

Committee BHP Billiton

Mining

Sustainability

Director

Yes

Safety, Ethics and

Non-executive

Yes

Environment

Director

Committee BP

Oil & Gas Producers

Assurance Committee

Company British American

Sector Tobacco

Tobacco

Committee Name

Committee Chair

Listed as Board

(job title)

Level

Corporate Social

Non-executive

Yes

Responsibility

Director

Committee British Sky

Media

Broadcasting Group

Corporate

Non-executive

Responsibility

Director

Steering Group (CRSG) BT Group

Fixed Line

Operating

Telecommunication

Committee

CEO

s Cadbury

Food Producers

Schweppes

Corporate and

Non-executive

Social

Director

Yes

Responsibility Committee Carnival

Travel & Leisure

Health,

Director

Environmental, Safety & Security Committee Centrica

Diageo

Gas, Water &

Corporate

Non-executive

Multiutilities

Responsibility

Director (Senior

Committee

Independent)

Corporate

Chief Executive

Beverages

Yes

Citizenship Committee DSG International

General Retailers

Corporate

Company Secretary

Responsibility (CR) Committee Experian Group

Support Services

CR Steering Group

Company Secretary

GlaxoSmithKline

Pharmaceuticals &

Corporate

Non-executive

Biotechnology

Responsibility

Director

Hammerson

Real Estate

CR Group

Chief Executive

HBOS

Banks

Way We Do

Group Finance

Business Action

Director / Executive

Group (WWDBAG)

Director

Corporate

Company Secretary

Yes

Committee

Home Retail Group

General Retailers

Responsibility Steering Group HSBC Holdings

Imperial Chemical Industries

Banks

Chemicals

Corporate

Non-executive

Responsibility

Director

Committee

(Independent)

Sustainability Board

Group Vice

Yes

President,

Company

Sector

Committee Name

Committee Chair

Listed as Board

(job title)

Level

Sustainability ITV

Media

CR Operational Risk

Company Secretary

Steering Group Johnson Matthey*

Chemicals

Chief Executiveâ&#x20AC;&#x2122;s

Chief Executive

Committee J Sainsbury

Food & Drug

CR Committee

Retailers Kazakhmys

Mining

Non-executive Director

Health, Safety and

Executive Director /

Environment (HSE)

Strategy Director

Committee Kelda Group

Gas, Water &

CSR Committee

Chairman

Executive

Executive Director

Yes

Multiutilities Kingfisher

General Retailers

Committee Land Securities

Real Estate

CR Committee

Group

Chief Operating Officer of Land Securities Trillium

Legal and General

Life Insurance

CSR Committee

Group

Group Chief Executive

Liberty International

Real Estate

CSR Committee

Chief Executive

Lloyds TSB Group

Banks

Corporate

Senior Executive

Responsibility Steering Group Lonmin

Mining

Risk and SHEC

Non-executive

(Safety, Health,

Director

Environment and Community matters) Committee Man Group

General Financial

Corporate

Chairman/Non-

Responsibility

executive Director

Committee General Retailers

CSR Committee

No reference found

Morrison (Wm)

Food & Drug

Cross-Functional

Senior Executive

Supermarkets

Retailers

Steering Group of

Marks and Spencer Group

Senior Executives National Grid

Gas, Water &

Risk and

Non-executive

Multiutilities

Responsibility

Director

General Retailers

Corporate

Group Board

Responsibility (CR)

Director

Yes

Committee Next

Forum Old Mutual*

Life Insurance

Group Audit and

Non-executive

Yes

Company

Sector

Committee Name Risk Committee

Committee Chair

Listed as Board

(job title)

Level

Director (Independent)

Persimmon

Household Goods

CR Committee

Group Company

Prudential

Life Insurance

Corporate

Group Finance

Responsibility

Director

Secretary

Committee Reed Elsevier

Media

CR Forum

CEO

Reuters Group

Media

Corporate

Company Secretary

Responsibility Advisory Board (CRAB) Rio Tinto Group

Mining

Board Committee

Non-executive

on Social and

Director

Yes

Environmental Accountability Rolls-Royce Group

Aerospace &

Health, Safety and

Defence

the Environment

Chief Executive

Committee Royal Bank of

Banks

Scotland*

Group Executive

Group Chief

Management

Executive

Committee (GEMC) Royal Dutch Shell

Oil & Gas Producers

Social

Non-executive

Responsibility

Director

Yes

Committee SABMiller

Beverages

Corporate

Non-executive

Accountability and

Director (Senior)

Risk Assurance Committee (CARAC) Schroders

General Financial

Health, Safety and

Chief Financial

Environment

Officer

Committee Scottish &

Beverages

Newcastle

Corporate

Chief Executive

Responsibility Committee

Severn Trent

Gas, Water &

Corporate

Non-executive

Multiutilities

Responsibility

Director

Committee Shire

Pharmaceuticals &

Corporate

Chief Financial

Pharmaceuticals

Biotechnology

Responsibility

Officer / Executive

Committee

Vice President

Group Risk and

Chief Executive

Group Slough Estates

Real Estate

Company

Sector

Group / SEGRO

Committee Name

Committee Chair

Listed as Board

(job title)

Level

Corporate

Group Chief

Yes

Responsibility and

Executive

Responsibility Committee

Standard Chartered

Banks

Bank

Community Committee Standard Life

Life Insurance

Corporate

Chairman

Yes

Responsibility Committee Tesco

Food & Drug

Corporate

Retailers

Responsibility

Executive Director

Committee Unilever

Food Producers

Corporate

Non-executive

Responsibility &

Director

Yes

Reputation Committee Vedanta Resources

Mining

HSE Committee

Non-executive Director

Xstrata

Mining

HSEC Committee

Director

Yell Group

Media

Governance and

CEO

Responsibility Steering Group

Appendix 2 – Full Case Studies

CASE STUDY 1 – ANGLO AMERICAN PLC Sector: Mining Committee Established: TBC Committee Name: Safety and Sustainable Development Committee Chair: Non-Executive Director

Meeting Frequency: Three or four times per annum, including a visit to an operation (five times in 2006)

Function: • To enable oversight of the strategic responses to sustainable development issues, including safety, health and environment matters, on behalf of the shareholders. • To take responsibility for developing framework policies and guidelines for the management of sustainable development issues and ensure their progressive implementation throughout the Group. Membership: At any given time, the Safety and Sustainable Development Committee consists of not less than two non-executive directors together with additional persons co-opted to the Committee, as decided by the committee. Currently three independent non-executive directors are members, as well as the Chief Executive. Executives heading key functions and business units, as well as the technical director, participate in all meetings of this Committee. Members of the Committee are paid special remuneration as fixed by the board. Activities: • Develops the framework policies and guidelines for the management of sustainable development issues including safety, health and environment. • Reviews the policies and performance of the Company. • Encourages independently managed subsidiaries, associates and significant investments to develop policies, guidelines and practices congruence with the Company’s safety and sustainable development policies. • Receives reports covering matters relating to material safety and sustainable development risks and liabilities. • Monitors key indicators and learning on incidents. • Considers material national and international regulatory and technical developments in the fields of safety and sustainable development. • Facilitates participation, co-operation and consultation on safety and sustainable development matters with governments, national and international organisations, supranational authorities, other companies and relevant bodies. The Chairman of the committee attends the company’s Annual General Meeting to answer 34

CASE STUDY 1 – ANGLO AMERICAN PLC questions concerning safety and sustainable development policies and their development and/or implementation. The committee has within it Terms of Reference the ability to “obtain such outside or other independent professional advice as it considers necessary to carry out its duties” The Safety and Sustainable Development Committee is supported by a Sustainable Development Council, comprising leaders of corporate functions and business units. This Council takes the lead on strategy and agrees Group targets. Each business unit head makes a safety and sustainable development presentation to the committee. Overarching CSR Framework: “Since our founding almost 90 years ago, we have established a proud tradition of not only delivering market-beating returns for our shareholders, but of benefiting the broader communities in the countries in which we operate.” Anglo American also holds Group Sustainable Development Conferences. Participation in relevant benchmarking and organisations includes: • United Nations Global Compact (UNGC) • Extractive Industries Transparency Initiative (EITI) • International Council on Mining and Metals (ICMM) • World Business Council for Sustainable Development (WBCSD) • Voluntary Principles on Human Rights • Global Business Coalition on HIV/AIDS Evidence of Innovation or Business Transformation: • •

Members of the Safety and Sustainable Development Committee are given special remuneration. The Committee Chairman attends the company’s Annual General Meeting.

Further information will be gathered for this section in phase two of this research by means of questionnaires and interviews with relevant stakeholders. (Source: Safety and Sustainable Development Committee – Terms of Reference (2005); Anglo American Climate of Change: Report to Society 2005; Corporate Governance Overview from the 2006 Annual Report; Anglo American A Climate of Change: Report to Society 2006 and the company website – www.angloamerican.co.uk)

CASE STUDY 2 – HAMMERSON PLC Sector: Real Estate Committee Name: CR Group

Committee Established: 2006

Chair: Chief Executive

Meeting Frequency: Quarterly

Function: • To oversee the Group’s CR management and framework. • To ensure that the company’s performance, approach and philosophy are consistent with good practice, are being regularly reviewed and effectively communicated. Membership: Hammerson’s CR Group has a multi-disciplinary membership with representatives from across the Group. Membership currently includes: • Board Director, Hammerson plc; • Company Secretary; • Director, Corporate Affairs; • Director, Human Resources; • Group Financial Controller; • Asset Management Executive (offices); • Asset Management Executive (retail); • Managing Director, Hammerson Management Services (retail); • Senior Project Manager (construction); • Directeur Administratif & Financier; • Directeur Technique; • External CR Adviser. Activities: • Ensures that CR programmes, initiatives and performance are monitored and recorded in an effective manner and that the Group’s CR approach and performance is regularly reviewed and complies with good practice. • Reports to the main board twice a year and ensures that progress against targets is formally reviewed annually. The CR Group provides a detailed annual report, plus an interim half-year update. The CR report describes progress made on key areas and outlines areas of focus and priorities for the year ahead. The heads of the working groups (see below) give their own reports within the CR report. With buildings accounting for 50% of carbon emissions, 60% of waste produced and 62% of all water usage, environment issues are at the top of the CR Group’s agenda. When asked what the most surprising effect of the re-formed CR Group was, the Deputy Chairman of the CR Group (Managing Director, UK Development) said: “The enthusiasm 36

CASE STUDY 2 – HAMMERSON PLC with which everyone has participated, both within the CR Group itself and throughout the Company. There has been serious debate about CR issues at Hammerson – it really is changing the way people think and behave which is the whole point.” Subsidiary working groups: Seven subsidiary working groups have been formed by the CR Group for specific aspects of CR implementation and according to relevant stakeholder group. These working groups are responsible for reporting on initiatives in each area; recommending annual benchmarks and targets; identifying opportunities and risks and providing the necessary advice and encouragement to the teams on the ground. The working groups are made up of representatives from across the company and are headed by a senior manager as chairperson: • Occupiers and Customers – Head of Hammerson Management Services; • Suppliers – Director of Project Management; • Local Communities – Head of Sustainability; • Employees – Director of Human Resources; • Financial Stakeholders – Director of Corporate Affairs; • Environment – Managing Director UK Development; and • Communications – Head of Sustainability. The heads of the working groups are responsible for proposing three- to five-year objectives alongside annual targets and then, when approved by the CR Group, ensure they are achieved. Individuals’ responsibilities are reviewed as part of annual appraisals. The new Local Communities sub-committee was established in 2006 to roll out best practice community investment initiatives across the UK portfolio. The working group has 3-5 year objectives and 2007 targets. The French CR Committee was formed in 2006 and a representative of this Committee sits on the board-level CR Group. Review of CR Objectives: In 2006, the CR Group challenged the Company’s former CR objectives, testing their relevance against current business goals. This process brought better understanding of the importance of CR to Hammerson’s bottom line, together with clear annual targets and accountability throughout the operations. It also provided clearer ownership of CR targets and a greater awareness of sustainable business practices throughout the organisation. The biggest challenges faced by the CR Group have been meeting ambitious targets and integrating successfully the changes to systems and procedures across the Company in a considered and consistent way. (See Hammerson’s CR Report 2006 for further information on how the Company organises its corporate responsibility activities, as well as further detail on the activities of the individual 37

CASE STUDY 2 – HAMMERSON PLC working groups.) Overarching CSR Framework: “We believe that the long-term future of the business is best served by respecting the interests of all our stakeholders and carrying out our development and property management activities in a way which has a positive or neutral effect on the environment.” Hammerson’s CR vision, underpinned by eight key commitments to its stakeholders, is “to adopt innovative ways of working and solutions that reflect a responsible approach to the environmental, social and economic conditions affecting our activities to thereby drive value through all areas of our business”. Hammerson views CR as a collective responsibility and the Chief Executive wants to “nurture an environment across our business which gives all employees the encouragement and tools necessary to deliver, measure and report against our key targets”. A new post of Head of Sustainability was created from February 2007. The individual in this role is responsible for formulating and implementing the Group’s strategy on sustainable development. Participation in relevant benchmarking and organisations includes: • FTSE4Good Index • Dow Jones Sustainability Indices • Business in the Environment Annual Index • Top 100 Companies that Count 2004, Business in the Community’s Corporate Responsibility Index • Founding member of the Property Environment Group (PEG) Evidence of Innovation or Business Transformation: • Individuals’ responsibilities for corporate responsibility are formalised and reviewed as part of annual appraisals. • The CR Group has impacted favourably on the thoughts and behaviours of internal stakeholders. Further information will be gathered for this section in phase two of this research by means of questionnaires and interviews with relevant stakeholders. (Source: 2006 Corporate Responsibility Report; Hammerson 2006 Target Review, Upstream; Corporate Responsibility: The Hammerson Approach and the company website – www.hammerson.com)

CASE STUDY 3 – HBOS PLC Sector: Banks Committee Established: 2006 Committee Name: The Way We Do Business (WWDB) Action Group Chair: Group Finance Director

Meeting Frequency: Quarterly

Function: • To drive the Corporate Responsibility Agenda across the Group. Membership: An executive from each division and key central function. Activities: • Co-ordinates actions and initiatives required to embody the Way We Do Business statement. Overarching CSR Framework: “Our reputation and the health of our brand is one of our strongest assets and integral to the success of our business.” The Way We Do Business is a statement of HBOS’s business principles, outlining the company’s commitment to its shareholders, customers, colleagues, suppliers and to society in general. The strategy is driven by stakeholder dialogue and business principles are directly underpinned by a series of key performance indicators. Ultimate responsibility for CR lies with the board; each member has responsibility for the Way We Do Business and for implementing Group CR policies. Day-to-day management is carried out on the Board’s behalf by specialist committees and by the Group’s CR team, which reports through the Director of Communications, directly to the Chief Executive. The Corporate Division and functional teams also have their own CR Directors or Managers. Other committees driving the CR agenda include: Financial Inclusion Committee, Climate Change Group, HBOS Communications Group and Diversity Leadership Group. Participation in relevant benchmarking includes: • FTSE4Good • Dow Jones Sustainability Index • Business in the Community Corporate Responsibility Index (Platinum ranking) • Global 100 Most Sustainable Companies • Innovest Global Sustainability Review (AAA rating) • 2006 Accountability rating (ranked 9th globally) • Carbon Disclosure Project Climate Leadership Index Evidence of Innovation or Business Transformation: Information for this section will be gathered in phase two of this research by means of questionnaires and interviews with relevant stakeholders. (Source: HBOS plc Corporate Responsibility Report 2006: The Way We Do Business; The Way We Do Business Statement of Business Principles and the Group website – www.hbosplc.com)

CASE STUDY 4 – LEGAL AND GENERAL PLC Sector: Life Insurance Committee Name: CSR Committee

Committee Established: Not found

Chair: Group Chief Executive

Meeting Frequency: Quarterly

Function: • To develop the Company’s CSR strategy, oversee its implementation and monitor how its performing against targets. Membership: • Group Chief Executive; • CSR Manager; • Company Strategy Director; • Resources and International Director; • Head of HR, UK Operations; and • Amicus National Health and Safety Officer (Note: Amicus, the UK’s largest manufacturing union, has a senior representative on the CSR Committee, as well as relevant representatives on the various sub-committees. Amicus says this ‘partnership in action’ approach gives Amicus leverage to pursue members’ interests within the structures of the organisation.) Activities: The tone for the work of the committees and its members is set out in the CSR guiding principles. •

•

Undertakes an annual review of risks and opportunities associated with the companies’ social, environmental and ethical impacts and activities; responsibility for reviewing each area, and for assessing the likelihood and impact of identified risks, is delegated to the relevant Committee member, their management teams, or the appropriate sub-committee. Establishment of targets against risks and opportunities identified.

Individual members of the CSR committee have responsibility for different elements of the CSR programme, including: • Co-ordination and reporting of the CSR programme • Community involvement • Customer-focused and brand issues • Human Resource management • Environment • Overseas operations • Representing the views of the employees One example of activities the committees are involved in is an employee volunteering policy. The initiative was raised by Amicus in one of the sub-committees and is now being 40

CASE STUDY 4 – LEGAL AND GENERAL PLC piloted – paid time off to volunteer in local community projects. The Group board as a whole reviews the minutes of the Committee, receives an annual presentation on the CSR programme and conducts an annual review of the Committee and programme, as well as considering specific aspects of CSR as appropriate throughout the year. In 2006, Legal and General was praised by People Magazine for its practice of including an Amicus representative on the CSR Committee. Legal and General considers it beneficial and has found it valuable in ensuring that the views of its employees are heard and considered. Overarching CSR Framework: “At Legal & General, as in many organisations, CSR grew out of a philanthropic motive. More recently we have come to recognise that it is a ‘need to have’ rather than a ‘nice to have’, and that responsible behaviour adds value to our business.” The CSR committee has four direct sub-committees: • Group Environment Committee; • Group Health and Safety Committee; • Group Charity Committee; and • Business Ethics Working Group. Participation in relevant benchmarking includes: • FTSE4Good Index • Dow Jones Sustainability World Index • Dow Jones Sustainability STOXX Index • Business in the Environment Index • ABI’s Customer Impact Scheme • CIPS Supply Management awards Evidence of Innovation or Business Transformation: •

A senior union representative is included as a member of the committee.

Further information will be gathered for this section in phase two of this research by means of questionnaires and interviews with relevant stakeholders. (Source: Legal & General

CSR Report 2006; “Amicus

Corporate Social Responsibility Guide” –

www.amicustheunion.org and the Legal & General website/CSR mini-site – www.legalandgeneralgroup.com)

CASE STUDY 5 – MAN GROUP PLC Sector: General Financial Committee Established: 2006 Committee Name: Corporate Responsibility Committee Chair: Non-Executive Director/Chairman

Meeting Frequency: Quarterly

Function: • Oversee Corporate Responsibility Policy and initiative implementation, monitoring and reporting. Membership: • Group Head of Corporate Responsibility; • Deputy Group Chief Executive/Finance Director/Company Secretary; • Managing Director, Man Financial; • Chief Executive, Man Investments; • Head of Group Risk; and • Group Compliance Manager Activities: The Corporate Responsibility Committee is integrated into the overall risk governance architecture. The Group Head of Corporate Responsibility manages the day-to-day CR function, but each core CR policy has an ‘Accountable Executive’ who carries the responsibility for integrating the policy with the day-to-day business and for reporting performance against the targets for that specific element. The Corporate Responsibility Committees receives reports from Accountable Executives on what has been delivered and aspirations for the coming year within the CR report. Periodic group-level reports based on performance reporting across the group are presented to the board. The Corporate Responsibility Committee also provides recommendations to the board. (See the 2006 CR Report for graphical information on how CR is managed at Group level.) Overarching CSR Framework: “It is not our intention or desire to become the market leader in Corporate Responsibility but simply to have an honest, credible, transparent and effective programme which: • is relevant to the nature and scale of our business; • will withstand reasonable scrutiny; • meets the fair and reasonable expectations of our stakeholders; • adds value to our business proposition; and • reinforces and protects our reputation.” Man Group’s board has the oversight of the CR programme, although there are CR Offices 42

CASE STUDY 5 – MAN GROUP PLC at divisional and regional level, cascading from the CR Committee. Clear definition of individual board members’ roles and responsibilities in respect of CR is given in the CR report. A thorough review of the Company’s CR arrangements was carried out in 2005-06. It was led by an internal CR team, which drew on external expertise. The primary responsibility for managing CR lies with line management in each operating division, therefore the review involved extensive engagement through meetings and workshops – developed a comprehensive and integrated Corporate Responsibility Programme. It responded to stakeholder expectations in its creation. The 2005 Corporate Responsibility report was included in the Annual Report of that same year. Man Group is currently in the process of creating a dedicated CR website which will be available later in the year. The company has also produced a Group Corporate Responsibility Manual. Man Group has consolidated ethical components of the business into a Global Ethical Policy, which is built around four core values of integrity, excellence, performance and innovation. Man Group has adopted a risk based approach in the creation of its CR programme. External support was provided by Quadrant Risk Management (International) Limited. The Group has also embarked on a carbon neutrality initiative. Participation in relevant benchmarking and organisations includes: • FTSE4Good • Dow Jones Sustainability Index • UNGC signatories Evidence of Innovation or Business Transformation: • • •

Corporate responsibility is treated within a ‘risk governance’ framework. There are ‘Accountable Executives’ who hold responsibility for specific elements of corporate responsibility. A Corporate Responsibility Manual has been produced for staff and stakeholders.

Further information will be gathered for this section in phase two of this research by means of questionnaires and interviews with relevant stakeholders. (Source: Corporate Responsibility Report 2006: ‘Our reputation…is held in trust by our people’; Corporate Responsibility Report 2005 (in Annual Report and the company website – www.mangroupplc.com)

References 1. Web-based Resources: The following documents (where publically available) were referred to for each of the FTSE100: • Annual Reports and Accounts; • Company Websites (including Investor Relations sections); • CSR or Sustainability Reports; and • Committee Terms of Reference.

2. Endnotes:

Companies Act 2006, Chapter 46, Part 10 (A Company’s Directors), Chapter 2 (General Duties of Directors), 172 – Duty to promote the success of the company, p 79, http://www.opsi.gov.uk/ACTS/acts2006/ukpga_20060046_en.pdf. 2

See Cumming, J F, “Standards, standards, standards – and the supply chain” (June 2007), International Corporate Governance, Issue 164, 8-9.

www.corporateregister.com – statistics from March 2007.

See, for example, Owen, David L, “CSR After Enron: A Role for the Academic Accounting Profession?”, Research Paper Series, No 33 (2005), International Centre for Corporate Social Responsibility, University of Nottingham.

Again, see Owen, D L.

“Business Ethics Committees”, Business Ethics Briefing, Issue 5 (June 2007), Institute of Business Ethics, p 1.

Cramer, A and Hirshland, M, “The Socially Responsible Board” (November/December 2006), The Corporate Board, p 1.

Cramer and Hirschland, p 2. Statistics from research carried out by the Investor Responsibility Research Center.

Porter, Michael E and Kramer, Mark R, “Strategy & Society: The Link Between Competitive Advantage and Corporate Social Responsibility”, HBR Spotlight (December 2006), Harvard Business Review (www.hbr.org) p 2.

“CSR Governance Structures”, BSR Issue Briefs (last updated April 2005), Business for Social Responsibility, www.bsr.org. 11

White, A L, “The Stakeholder Fiduciary: CSR Governance and the Future of Boards” (April 2006), Business for Social Responsibility, p 4.

Owen, D L, p 3.

“Business Ethics Committees”, pp 1-2.

AccountAbility and Utopies, “Critical Friends: The Emerging Role of Stakeholder Panels in Corporate Governance, Reporting and Assurance” (March 2007), AccountAbility and Utopies, Foreword by Knight, A (AccountAbility) and Dupre, S (Utopies). 15

AccountAbility and Utopies, p 1.

AccountAbility and Utopies, p 5.

AccountAbility and Utopies, p 16.

Sjoberg, G, “Who should run the CSR activities?” (June 2007), Centre for Sustainability and Excellence (CSE) Newsletter.

Simpson, D, “Amicus Corporate Social Responsibility Guide” (first printing February 2007), Amicus, see www.amicustheunion.org. 20

AccountAbility and Utopies, p 24.