Taking responsibility

Tuesday, 27 July, 2004
Ben Cooper, www.just-drinks.com
Corporate Social Responsibility has been a growth area in all industries for some time, and the drinks business is no exception. Companies are investing far more time and money than ever before in developing and promoting their CSR strategies and policies. Ben Cooper asks why.

'There is nothing more venomous than a professed philanthropist,' Trollope wrote, and it would appear that in general we retain a certain cynicism towards individuals and organisations who claim to be doing good works. Today we view with no greater suspicion, companies who vaunt their politically correct ideals or charitable activities in the hope of generating goodwill.

But it is in this rather distrustful atmosphere that the cult of Corporate Social Responsibility (CSR) has prospered. The idea that corporations should behave responsibly, be aware of and act to limit the social and environmental damage their activities might cause, is not, one would hope, revolutionary. But in today's business environment it is considered sage for companies to publicise as much as possible their record and stance on these matters, along with any charitable activities in which they might be involved.

CSR is big business. Many large companies, including notable drinks producers such as Allied Domecq, Pernod-Ricard and Diageo, publish extensive reports detailing their CSR policies and activities. Conferences, websites and newsletters on the subject proliferate. It is to a degree the public face of so-called 'compassionate capitalism' which has, we are constantly informed, replaced the 'greed-is-good' style of the same which burned itself out after the 1980s.

But while the turn of the century seems to have provided a climate where this culture can grow, that does not extend to public naivete or credulity. In fact, and probably because of what happened in the 1980s, we are inclined to be more cynical and distrustful. So companies are publicising their CSR credentials to an audience which is more likely than ever to question why they are doing it.

So what is the cult of CSR really about? According to Geoffrey Bush, director of corporate citizenship at Diageo, the rationale behind CSR can be attributed to five prime motivations: protecting reputation, brand equity and engendering trust; attracting and motivating talent; managing and mitigating risk; ensuring licence to operate in respect of legislative control over advertising and the like; building stable and prosperous operating environments.

It is a reassuringly unromantic view of the subject, and therefore far more likely to be taken at face value. None of these motivations can be said to be purely philanthropic or altruistic but at the same time none can be said to be an instant reliable means of ensuring improved performance. What characterises all of the above, apart from their social resonance, is the fact that they are relatively long-term investments. In other words, companies are not investing in CSR for short-term performance gain.

In fact, it is very likely that consumer choice decisions are rarely made on the basis of CSR considerations, particularly for the major drinks companies whose corporate identities are so distant from their actual brand names. 'I don't think it has an influence on consumers,' says Stephen Whitehead, director of group corporate affairs for Allied Domecq. 'The relationship between the corporate brand and the consumer brand is extremely distant in our business.'

However, where consumer interaction becomes extremely significant is when some element of CSR is mishandled or results in bad publicity, particularly if a consumer group or special interest lobby becomes involved and encourages activities such as consumer boycotts. In this instance, that gap between corporate and brand identity can be leapt very quickly, and for companies such as Coca-Cola or Shell where the corporate and brand identities are synonymous the stakes are that much higher.

So for Whitehead, sound CSR policy is far more about protection of brand image and insurance against potentially bad publicity. 'It's not about doing the right thing or tree hugging and PR,' says Whitehead. 'It's about managing our business and taking out as much risk as possible. It's not about PR value because I don't think there is a lot of PR value in it to be honest. It's about protecting your reputation and managing risk.'

One only has to look at the recent bad publicity Coca-Cola suffered when a bottling plant in India was accused of depleting a rural community's water supply, to see exactly where CSR policy interfaces with consumer reaction. CSR is effectively about recognising those situations before they happen and avoiding them.

If that can be seen as CSR translating into a palpable commercial benefit it is interesting to note that investment analysts still retain considerable scepticism towards the CSR protestations of public companies, to the exasperation on occasions of those charged with promoting this side of the business. 'To be honest because it is quite a soft issue it is not something that we factor into our investment cases,' one analyst told just-drinks. 'These things are not front of mind when I look at these companies and try and come up with investment decisions.'

However, Stephen Whitehead believes the investment community's view of CSR is changing slowly. 'Analysts are not ignoring it,' he says. 'They are recognising it as an issue they have to follow but they are not yet incorporating it into their buying and selling decisions.'

Geoffrey Bush discerns a difference between investment analysts primarily concerned with share-dealing and long-term fund-based investors. He believes that those with their eye on the long term are more inclined to be sensitive and attentive toward CSR considerations. 'The sell side analysts have very little interest in the CSR side of things,' says Bush. 'They offer a perspective of how you operate within your sector from a risk management and broader governance point of view but their interest doesn't go any further. On the buy side, interest has gone further.'

From the point of view of the CSR policymaker, it is the so-called ethical or Socially Responsible Investment (SRI) funds which are the most likely to take an interest, but Bush has found that fund managers in general are inclined to take CSR matters more seriously.

In addition, analysts are more likely to take a company's CSR policies and activities into consideration when they are closely related to its core business. For example, CSR related to environmental factors will have more prominence in assessing oil companies while policies towards binge-drinking, drink-driving and encouraging sensible consumption will have greater salience with regard to drinks companies.

However, it could be argued that CSR activities in these highly sensitive areas are of an entirely different type precisely because of their vital necessity. For Alexandra Oldroyd, drinks analyst at Morgan Stanley, there is no doubt that CSR activities in this area are a significant factor for drinks companies. 'They have to be active in this area because if they aren't, it will be forced on them by regulation,' she told just-drinks. 'It is therefore a necessity because of the sensitivity of the sector to various issues like drink driving, underage drinking and excessive consumption.'

But surely where CSR is most interesting as a phenomenon and most persuasive of any notion of 'caring capitalism' is where there is at least an element of choice for the corporation, where it does not have to do something but it will because it's the right thing to do. To a degree, the harder you have to search for the reason they are doing it, the better the company looks.

Even though drinks producers often work in a hostile policy environment where potential bad publicity can lurk behind any corner, this heightened sensitivity towards issues of social responsibility also stands them in very good stead when it comes to more general CSR matters. It is therefore no surprise to find such companies as Allied Domecq, Diageo and Pernod-Ricard among the more prominent companies in this area.

'We are scrutinised by a lot of third party organisations which don't approve of selling alcohol,' says Whitehead. 'Because of the nature of the business we're in we are more attuned to public issues and how we manage those issues. We also know that it's not about what you say but what you do.'

That, of course, is a moot point. The principles espoused by drinks companies and their professed commitment to socially responsible marketing - born out of self-interest and self-preservation - is constantly being judged against their actions. And that can be said for the wider CSR debate too. When CSR considerations are not taken seriously by rogue companies or fail to live up to their billing, it brings the whole CSR ethos into disrepute.