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Designing your Corporate Responsibility strategy for the new Companies Act

The Rt. Hon. Stephen Timms MP,  Former Minister of State for Competitiveness
Cavendish Conference Centre, Central London,  17 January 2008

I am delighted to be here and to be following Julia.

This is the second term for me as Minister for Corporate Responsibility – the first was in 2002 to 2004. I enjoyed that term hugely and I am very pleased to be doing the job again.

It may at first sight seem rather odd that corporate responsibility sits in my ministerial brief around competitiveness – alongside enterprise and small business, manufacturing, construction, telecomunications, company law – the prerequisites for competitiveness in the modern globalised economy. But I believe that is exactly the right place for corporate responsibility to sit.

One phenomenon which I was very struck by in my first term in this role was how large a consideration it was for employers that young people – and especially the brightest young people, those people who employers are especially keen to recruit for their competitiveness – that those young people so strongly want to work for an employer practising responsibility. They want through their work to be contributing to solving the big problems that everyone is concerned about – poverty, disadvantage, climate change. They are not satisfied any longer simply to be contributing to solutions in their spare time or as a hobby – they want their work to be a contribution too. And if one employer will not provide them that opportunity, then they will go off to another employer who will.

And my impression is that, if anything, that consideration has become if anything even more important since my first term – that it is an even bigger consideration today. One of the country’s biggest construction firms told me recently that, these days, when they have a new graduate induction day, 70% of the questions raised in the discussion are about the firm’s corporate responsibility practices. That is one reason – and a very powerful one – why corporate responsibility is about competitiveness. Its about recruiting and retaining the best people.

There are other reasons why its important for competitiveness. The classical reason is that its about risk management and strengthening the brand in the minds of consumers. And I think that a very interesting reason is that it can provide an impetus to innovate by bringing new thinking to business problems and generating ideas for new products and services. Corporate responsibility is a very creative activity, bringing together committed and able people who would not normally have the chance to meet and giving them the chance to collaborate on shared social and environmental concerns. N Its good for personal development and its good for generating new business ideas.

Businesses perform better, and will be more sustainable in the long term, when they have regard to a wider group of issues in pursuing success. Its a common-sense approach. Companies interact with their customers and suppliers. They make sure that their employees are skilled, motivated and properly rewarded. They think about their impact on the communities where they operate and on the environment. It makes good business sense.

Socially Responsible Investment

As Pensions Minister in 1999 – and that is another job I have done twice – I introduced an amendment to the Pensions Act requiring pension funds to state in their investment principles the extent, if at all, they take into account social and environmental issues in the selection and retention of investments. The regulation didn’t require funds to introduce such a policy, or indeed to take any action at all – simply to state whether they had one or not. And that has stimulated, as I hoped that it would, a great deal of interest and focus on socially responsible investment. The increasing prominence of reporting and disclosure initiatives – for example the Carbon Disclosure Project – is also increasing the amount of information available and the awareness of consumers and investors alike.

Financial institutions have responded to the growing and ever more sophisticated demands from the public and stakeholders by providing a much wider portfolio of products. At the same time, investors have demonstrated that they can engage more successfully with companies to deliver improvements in how they handle social and environmental challenges.

I am very encouraged by the increasing interest in responsible investment. I know that at the end of September last year, the Investment Management Association reported an increase of nearly 600% in net new investments in ethical funds compared with the same quarter the previous year. But there is still a lot more that can be done. I really hope that these trends continue and that we see further mainstreaming of responsible investment practices, with the City of London acting as a global leader in this area. And the growing focus on the urgency of building a global low carbon economy will be a powerful driver for more activity in the months to come.

A global carbon market is at the heart of the Government’s approach on this. We want to see the power of the market harnessed to set the global price for carbon, so rewarding the most efficient and innovative actions to tackle climate change. In that way, the market – rather than regulation or fiscal incentives – can be left to do the heavy lifting of bringing about the changes in the economy that we need. Building a global low carbon economy will require a step-change in how capital is allocated across the whole economy. The genesis of responsible investment emerged from the religious movements of the nineteenth century, and responsible investment will be key to defining challenges in the 21st Century.

Companies Act 2006

On 1 October, we implemented key provisions in the Companies Act 2006 – another part of my portfolio – relating to directors’ duties.

The new statutory statement of directors’ duties in the Act reflects our view that the success of a company depends on care for the people who work in the company and in its supply chain and with the wider community.

Pursuing the interests of shareholders, and recognising wider responsibilities, are complementary to each other. I am sure that no one here today will find that a novel idea. And neither will most directors in well-run companies. But the debate around the statement of the duty in the Act showed there were still people who preferred to see an inevitable conflict between profit and Corporate Responsibility.

The best and most successful companies have always been those that took seriously their wider responsibilities. If the Act can help to spread that best practice to other companies, and I hope that it will, then it will be good for UK competitiveness.

As well as the new statement of duties that applies to all companies, under the Act, quoted companies must now include information on environmental, employee, social and community matters, as well as on contractual and other arrangements essential to the business, as part of their annual Business Review. Where directors judge that this information is material to an assessment of the company’s past performance or future prospects, it has to be included.

I think this is a significant step in improving corporate reporting, and a further boost to the Corporate Responsibility movement – and I will be watching with great interest what additional information becomes available as companies publish their first business reviews in compliance with the new obligation over the coming months.

Government policy

So in returning to this area, I want to build upon my previous work, and on the work of my other ministerial predecessors, in helping develop further our contribution to and our encouragement of Corporate Responsibility.

One of the ideas I promoted when I was last in this role was for the CSR Academy – an initiative to help provide training for the kind of skills which managers need to do corporate responsibility successfully. The Academy is now housed with Business in the Community. Perhaps there will be more along those lines that we need to do.

Our aim still is that private and public sector organisations should take account of their economic, social and environmental impact, and take action to address them, drawing upon their own expertise and resources.

It entails companies going beyond compliance with the requirements of the law, and working out for themselves how they can contribute to social and environmental goals: choosing whether to partner with voluntary or community sector groups, trade unions, consumers, local authorities – choosing partners who suit their circumstances; and adopting innovative approaches and policy frameworks that promote and share best practice.

I want to make a new push to gather together the different threads of Government activity into a coherent whole. Too often it can seem as if Government activity is divided between the different Departments who have an interest in corporate responsibility, either at home in Britain or internationally.

I have therefore asked my officials to look at how we can better pull together and co-ordinate good work across Government – and also amongst business and other organisations – and make more explicit where that effort is based, how to access it and the way it supports our future strategy.

I hope we can engage with business leaders and other stakeholders in that activity. I want then to refresh the Government’s approach and support, to show what has changed and clarify our current priority areas. And I would be delighted to gather up any ideas from people in this conference – either today or by contacting the department subsequently if ideas strike you later on.

City Leaders’ Initiative

Let me just illustrate with one imaginative initiative under way at the moment: what we call the City Leaders’ Initiative.

It began at a breakfast meeting at No 10 last July hosted by the Prime Minister and which I chaired. Twenty leading figures from the Financial Services industry were invited by the Prime Minister to participate in informal dialogue with Government about whether the distinctive skills and top level expertise of the City could be applied effectively to tackling difficult social problems where the Third Sector was deeply involved.

The essential concept was to encourage City Leaders to engage in a new way with Government and the Third Sector, to enable us to take best advantage on the deal-making, solutions-orientated approach of City professionals, of their ability to develop creative financing solutions, and their deep understanding of governance issues. Four teams are now working on financial issues around such diverse areas as children in care, immunisation and drug addiction. And the question they are looking at is – we know that progress in those areas will save public money in the medium term. Can we devise mechanisms in the financial markets to release resources now on the basis of those savings which will only be realised in the future.

Its an example of aiming to harness and stretch the best brains in the organisations – recognising that they want to contribute, and that we certainly want them developing ideas for these tough problems – by contrast to the apporach we have sometimes seen of corporate responsibilty being for junior people and peripharal to the company mainstream. I want corporate responsibility to be at the heart of what company leaders are doing.

Conclusion

So as we think this through in Government over the coming months, I hope we can have a dialogue at events like this, exchange ideas, and jointly develop a strategy which all of us can be enthusiastic about.

Thank you for your interest – and thank you for the chance to contribute to this discussion today.