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Wednesday, November 9, 2011

Strategic CSR - HSBC

On the surface, the article in the first url below by Mallen Baker (Foreword, pxvii) is a useful comment on the evolving issue of executive compensation. Increasingly, some firms are beginning to include sustainability-related targets in executives’ performance related bonuses. HSBC is leading this group of firms (for more examples, see CSR Newsletter on September 8, 2010, titled ‘Executive Compensation,’ about similar policies at Akzo Nobel and other European firms, such as DSM and TNT):

HSBC says that the adoption of this practice has helped to cut waste, water and electricity use within the company. A raging success story. Other companies, such as Kingfisher, also have a direct link.

Baker is reluctant, however, to support such developments unequivocally. As such, the more interesting point in the article focuses on the issue he highlights regarding the difference between values-led and incentive-led firms:

For me, the need to incentivise the right payments through bonuses is the device you fall back on when you have a company without embedded values. If you need to offer selfish motivations to achieve public good, you're not valuing the public good properly, or you're not hiring people that will respond to the public good.

While recognizing that values-led firms remain the exception (and incentive-led firms the rule), Baker argues that it is important to retain sight of the difference, while also recognizing that altering the basis on which executives are rewarded is at least a step in the right direction:

… the majority of businesses are not values-led, they follow a conventional business logic which is amoral. And in that situation, you have to create a system that will encourage the right outcomes. … Tying large executive remuneration to sustainability outcomes is therefore a good thing. It concedes that the our businesses are run by people who will only respond to large financial incentives. It operates within the short term business logic of the current prevailing culture - one which has helped put us in the mess we're in. But if we accept that we change the world by accepting the way it is, not pretending it is the way we would like it to be, then it is not a bad step to take.

Just because the outcomes may look the same, however, does not mean that the motives driving the behavior are inconsequential and won’t matter in more substantive ways in different contexts.

The article in the second url below gives different examples of other organizations, such as Walmart, that are trying to instill a values-led culture firm-wide:

AS WALMART grew into the world’s largest retailer, its staff were subjected to a long list of dos and don’ts covering every aspect of their work. Now the firm has decided that its rules-based culture is too inflexible to cope with the challenges of globalisation and technological change, and is trying to instill a “values-based” culture, in which employees can be trusted to do the right thing because they know what the firm stands for.

Take care

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HSBC ‘bonuses for sustainability’ is the best of the second best
By Mallen Baker
June 3, 2011

The view from the top, and bottom
Business – Corporate Culture
September 24, 2011
The Economist