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2 May 2002, p. 73);
Centrica plc (owner of British Gas) has developed an extensive community
policy which had key priority areas for involvement. Centrica have developed
Chapter 12 “ Social and business ethic risk overview 285



a wide definition of what they consider as the community in which they oper-
ate. They view all stakeholders as an integral part of their business success:
Stakeholders are people or groups of people who use our services, who supply us with
goods, who work for us, who own our shares or who have an interest in Centrica and
the way we work.

The group have developed a wide range of community programmes; many
encourage the efficient use of energy in the wider community and schools in
particular. This sits comfortably with the corporate image they wish to por-
tray and has had a bottom-line benefit to the company as they estimate it has
helped retain hundreds of thousands of customers who approve of their
approach.
The primary benefits of British Gas™s community projects have been listed as:
Insulated 1500 homes belonging to vulnerable older people, thereby
improving living conditions and reducing energy consumption;
Funded six Help the Aged advice workers;
Donated £1.5 million in 1999 and a similar amount in 2000;
Raised £800 000 through fundraising from customers;
Raised over £220 000 from British Gas employees to date; and
Helped raise more than £1 million through the Heating or Eating Appeal.
This partnership is also helping to insulate community buildings and is pro-
moting liquid gas powered vehicles for community groups for their environ-
mental, economic and safety benefits.


Cultural risk (see Chapter 13)
Organisational cultural issues and cultural due diligence (CDD) are covered in the
next chapter. Issues like cultural clashes when mergers occur, outsourcing and off-
shoring are discussed having regard to the relevance to today™s business culture.


Human resources risk (human rights inside the workplace)
(see Chapter 14)
Results relating to human resources show that:
Poor human resources (internal human rights) risk accounts for a potential
loss of business value of 0.7% for the top 500 EU and US companies market
value; and
This risk exposure has been reduced from 1.1% of market value by good risk
management techniques (the risk reduction/management factor).


Human rights risk outside the workplace (see Chapter 15)
Research and analysis results indicate that:
Human rights (external) risk is 0.3% of market value for the top 500 EU and
US companies; and
Part C “ Overview of the Social Aspects of Business Risks
286



This risk exposure has been reduced from 0.4% of market value by good risk
management techniques (the risk reduction/management factor).
Assessment of a company is based on the extent to which the management
implements its policies to protect employees from the following abuses:
Child labour, as defined by the ILO Convention 138;
Forced and compulsory labour; and
Unethical disciplinary practices.


Health and safety in the workforce (see Chapter 16)
Internal health risks of the workforce
Research indicates that:
Internal health risk is 0.7% of market value of the 500 top EU and US compa-
nies; and
This risk exposure has been reduced from 1.5% of market value by good risk
management techniques (the risk reduction/management factor).


Internal safety issues of the workforce
Results indicate that:
Internal workforce safety risk accounts for a loss of 0.5% of market value of
the 500 top EU and US companies; and
This risk exposure has been reduced from 1.1% of market value by good risk
management techniques (the risk reduction/management factor).


Health and safety of the public and customers
(see Chapter 17)
External health risks to customers and the public
Results indicate that:
External health risks to customers and the public is 0.4% of market value of
the 500 largest EU and US companies; and
This risk exposure has been reduced from 0.6% of market value by good risk
management techniques (the risk reduction/management factor).


External safety issues: general public and customers
Results indicate that:
External safety risks are 1.0% of market value of the 500 top EU and US
companies; and
Chapter 12 “ Social and business ethic risk overview 287



This risk exposure has been reduced from 1.6% of market value by good risk
management techniques (the risk reduction/management factor).


Historical health liability risks
Results indicate that:
Historical health liabilities risk is an average of 1.2% of market value of the
top 500 EU and US companies; and
This risk exposure has been reduced from 1.9% of market value by good risk
management techniques (the risk reduction/management factor).


Chapter summary
Consideration of the issues covered in this chapter will help provide support
for the development of a sustainable ERM/sustainable and economic risk
management system (SERM).
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13
Social and cultural risk management
13 Social and cultural risk
management



CHAPTER OVERVIEW
There are many lengthy publications, manuals and books that address the
vital matter of corporate culture. Clearly the comprehensive treatment of
such a topic cannot be attempted in this chapter. Instead, as with some
other chapters such as Business Interruption and Risk Management (see
Chapter 8), selected aspects will be mentioned and prioritised in accor-
dance with the theme and discussion of risk management and corporate
governance. Moreover the topical area of outsourcing or off-shoring (men-
tioned also in Chapter 7) is discussed more fully having regard to the rele-
vance to today™s business culture. It should also be noted that much of
what has been said in most of the earlier chapters could be described in
terms of ongoing and proactive sustainable risk management.




Background and key concepts
In the context of this discussion at its most basic level, a risk is anything which
could prevent an organisation from achieving its business objectives. Those
objectives, and the risks that affect them, will apply at different levels, from
high level objectives of financial performance and corporate reputation, to the
specific objectives relating to particular business units, functions or projects.
It is well understood that the management of risks in a consistent manner
requires an understanding of the level of risk which the organisation is pre-
pared to tolerate “ in other words, the appetite for risk. This is a key consider-
ation, and will set the basis on which possible responses to risk will be
evaluated. The appetite for risk may be driven by a number of different factors:
The expectations of stakeholders such as shareholders, investors, customers,
employees and management in relation to uncertainty and potential adverse
consequences;
The expectations of stakeholders in relation to the organisation™s ability to
profit from uncertain events and opportunities “ in other words, how ˜entre-
preneurial™ the business is expected to be;
Chapter 13 “ Social and cultural risk management 291



Brand values and market profile;
Previous experiences in dealing with unexpected events;
The volatility of the markets in which the business operates;
The approaches and positioning adopted by competitors; and
Cultural issues, such as national perceptions of risk and expectations as to
how they should be addressed.
An organisation™s appetite for risk can be a means of distinguishing it from its
competitors, and the adoption of a transparent risk management approach can
be a way to demonstrate that difference.
At a strategic level, tolerance of risk will usually depend on the types of
risks involved. For example, health and safety issues and regulatory compli-
ance should usually be regarded as matters for which risks should be reduced
to a level which is as low as reasonably practical. Conversely, there may be a
higher tolerance for adverse financial performance in relation to specific activ-
ities, particularly where this may be balanced by the potential for a correspond-
ing ˜upside™ or a portfolio of other activities.
Similarly, risks arising in relation to lower level business objectives will
need to be reviewed separately to assess the tolerance to risk as well the possi-
ble effects on higher level objectives.


A good strategy: part of organisational culture
There is a story, allegedly true, about John F. Kennedy visiting NASA in
the 1960s. The President met one of the employees and asked the man
what he did. The man responded, ˜I™m helping to put a man on the moon.™
The press were intrigued by the response and made an effort to find out
what the man™s job was. It turned out that he was a janitor.
This is an excellent example of an organisation with a very successful
strategy “ a clear mission, communicated to all staff and with staff highly
motivated to deliver.



What is strategy?
In order to understand why strategy is important, we clearly need to define
what it is (and is not). Strategy is about figuring out:
Where the organisation wants to get to;
Planning how to get there; and
Implementing the plan.
When figuring out strategy, a company needs to take into account many aspects
of its business and its environment including its potential customers, its com-
petitors, its own competencies and skills and legal implications. Depending on
the company™s size and business line it may need to take into account other
considerations such as the political and economic environment.
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Coming up with the plan is only part of the problem. Arguably the most
difficult part of strategy, where most companies fail, is in the implementation.
It is extremely important to emphasise that strategy is not just a document.
Time and again, companies put significant amounts of time and effort into cre-
ating strategy documents, only to put them in a drawer and forget about the
contents. If this is the strategy for the organisation then it is highly likely that
many people, if not everybody in the organisation, needs to know about it “ to
be talking about it, basing decisions on it, acting accordingly.
An even more fundamental mistake is where the business strategy is kept
˜safe™ and restricted to a few staff for fear of the competitors getting hold of it. If
the strategy is not shared with staff then the strategy is irrelevant because there
is very little hope of it getting implemented.


The strategic process
The strategic process can be broken down into four broad areas, although these
will overlap in many organisations:
First, a company needs to decide on its intentions. The intentions may be cre-
ated by one person, a special strategy group, the board or an outside consult-
ant. These intentions may be written down in a 60 page document. Equally,
they may be represented by a few sheets of paper or even just stored in the
leader™s head. The key aspect is that there is a clear intention about the
desired future state of the company in, say, three years™ time which is shared
by key members of the leadership team. The ˜intention™ might include:
New markets entered;
Strategic partnerships formed;
New channels to market created;
Profits;
Revenue;
Types of customers being served;
New customer service approach; and
Products and services offered.
The second part of the strategy process is for a company to plan how it is
going to achieve its intentions. If the intentions are at all significant, the
chances are that every person in the organisation will have a role to play in
helping the company to achieve its intentions. Every person throughout the
organisation is taking actions daily which could be helping or hindering the
effort to reach the desired future state of the company. The implication of this
is that every person in the organisation needs to have the knowledge, the
skills and the motivation to play their part in delivering the strategy.
For example, consider an international manufacturing company with its
head office in Australia, a factory in China and a sales and marketing team in
the UK. In the absence of a clear strategy and plan, the UK office may be mar-
keting to a high end of the market, while the factory has taken decisions to
reduce the quality of product due to cost saving measures introduced by head
Chapter 13 “ Social and cultural risk management 293



office in Australia. If the company has decided from a strategic perspective to
target the low end of the market, this needs to be reflected in decisions taken
throughout the organisation “ sales and marketing, manufacturing, legal, etc.
Of course, it is far easier said than done to get the whole organisation in line
and delivering to the same goal. The company™s processes and culture may
require a significant shift in order to achieve strategic intent. Hence, a signif-
icant part of the planning process is to find ways to communicate with and
engage the entire organisation.
Let us briefly turn to employee involvement in creating strategy. While
consulting with people in the organisation is very time consuming and could

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