The business case for CSR

Charitable donations and all other activities that fall under the banner of corporate social responsibility are no longer regarded as 'simply the right thing to do' within law firms. CSR has grown up and is now riding high on the business agendas of legal marketing professionals. By Richard Brophy.

The fundamental question for any business seeking to embrace the principles of corporate social responsibility (CSR) is how to shift its positioning from a reductive and reactive business activity, to one that is productive and proactive: from a set of actions that are primarily about box ticking, media management and saying the right thing, to actions that pre-empt stakeholder need, communicate with confidence and demonstrate value to the overall business. Law firms are no exception, but for a variety of reasons – their structure, their place in the supply chain, even their collective psychology – the concept is not so easily exercised.

Identifying a business case for CSR in environments largely free of investor, media and consumer pressure is not easy. We are catching up, but we still lag behind some of our peers in the business community. Perhaps not in intention, but possibly in our ability to think about this strategically, to think about this because it is one more strand of necessary business activity, rather than because it is ‘simply the right thing to do’. But as much as we should emulate our peers in the corporate sector, we should also avoid the pitfall of taking that analogy too far. Aping principles that make sense in shareholder-owned businesses, or those with a large public presence and so much more to lose, we do ourselves a disservice by failing to acknowledge our limitations and also demonstrating that we should be judged against unique criteria.

Who wants to know?
Marks & Spencer’s chief executive Stuart Rose’s recent announcement about the organisation’s ‘Plan A’ initiative offers us a current example of how I perceive the development of CSR. The initiative involves Marks & Spencer investing some £200m in changing every aspect of the way it does business, to ensure it can be environmentally sustainable within five years. For an organisation that has only recently announced it is in the recovery room after a difficult period in its history, this is actually quite a remarkable commitment.

Here there is a clear recognition that the planetary emergency we are facing has also exposed a huge window of opportunity. Nevertheless, the benefits to the business are neither immediately predictable, nor altogether that tangible in the short term. On the face of it such moves appear to run counter to economist Milton Friedman’s famous maxim that the only responsibility of company directors is to run a business with the singular aim of profit maximisation. But Rose is a businessman, and this strategy is clearly not about altruism. He sees CSR as being central to long-term profit maximisation. And if you’re wondering why CSR has risen up the agenda (albeit a little slowly) at law firms, it’s because Rose is not alone. If this were only about employee interests in charitable causes, or how to tackle waste paper, then Legal Marketing magazine wouldn’t be interested in publishing this article. Whilst there are likely to be multiple drivers and motivations for law firms to adopt CSR principles, it’s undeniably the pressure from their clients that has ensured it has more than a cursory presence on the agenda.

CSR is growing up
Almost all of the FTSE 100 and a growing number of the FTSE 250, now seek to measure, assure and publish CSR reports covering such topics as ethics, health and safety, environmental protection, supply-chain management and community investment. In addition, the combined influence of new legislation covering directors’ duties, and the role of insurance companies in factoring in an assessment of a directors’ response to environmental risk in directors and officers renewals is ensuring personal accountability at board level. Finally, leading companies like HSBC, BSkyB, Barclays, Marks & Spencer and BP have recognised the potential competitive advantage of demonstrating their ethical credentials and are realising the buying power they have in ensuring their credentials work through their supply chain.

What we are seeing is a gradual maturing of the debate. An arc of activity that has moved through cynicism and objection, to a dawning recognition that these issues are not going away, and finally to the realisation that tackling them head on can mean true, positive value for the bottom line. The recognition that there are clear benefits in adopting a leadership position, and leadership on CSR, means taking your suppliers with you. Many law firms will now identify with questionnaires from existing and potential clients requesting information on policies and procedures in relation to diversity, environment and community. Whilst legal-service providers remain low down in terms of reputation risk, there is no doubt that the arrival of these questionnaires has occasioned the odd furrowed brow in offices across the City.

Although it is absolutely correct that we should be able to respond to these questions, it hardly represents what I would call a ‘business case’. They might bring about a shuffling in the seat, a slight discomfort, but do they result in a wider appreciation of what’s going on when these questions are being asked: that what the client may be exploring is not necessarily whether you have a policy of turning the lights off at night, but whether they want to have a long-term relationship with you? Moving to the productive and proactive approach entails welcoming these questions as an opportunity to explore and understand why CSR has become so critical to our clients’ businesses, and also to demonstrate how we have tested our own capabilities in this area, and introduced measures to improve our credentials.

It’s quite possible that questions about CSR issues – particularly sustainability and diversity – will become much more critical to ongoing client relationships, that graduates will start to make these issues a much more critical test of their desire to join a firm, that the activist community and the media will scrutinise us more closely, and that the business model of law firms will change sufficiently to render some of us subject to investor pressure. However, it may well be that given our current business model, our approach to recruiting and retaining staff, and the relatively weak moral sanctions we experience from external stakeholders, that there is a limit to how far the concept of CSR can be developed in a law firm. But within those limitations, aligning CSR with brand differentiation, competitive advantage and business success is one way to start that shift to the productive and proactive.

CSR and the perception of difference
There is a process, more normally used in engineering, called Six Sigma. It is a process whereby manufacturers engineer out imperfections to a point where the product is as near perfect as available materials allow. In this age of functionality close to perfection, products and services are incapable of competing purely on their technical ability to do the job. What makes an iPod more successful than any other MP3 player, for example? The Apple brand, of course. The consumer-brand economy functions on the perception of difference, equating personal identity with the identity of a product, how it differentiates itself and how we are differentiated by it.

Are law firms any different? Comparing like for like, with law firms offering the same technical capability, what is it that makes an organisation choose to work with one law firm over another? Equally, in the competitive market for graduates, once you get to a certain level of salary and benefits, what is it that makes people want to work for Herbert Smith over any other equivalent City law firm?

It’s the perception of difference. And those differences can be extremely subtle and notoriously difficult to measure. But as a business leader once said: “I know that 50 per cent of my advertising spend doesn’t work, I just don’t know which 50 per cent,” – and on this ambiguity thrives an entire industry. So we have to work on the basis that if we do nothing, nothing will happen. The business case for CSR in law firms has to be about brand differentiation, the force of argument which says that CSR is about demonstrating difference. First and foremost, therefore, it has to be about relationships with our two key stakeholders – our clients and our people.

What happened to ‘simply the right thing to do’?
Writing on the tenth anniversary of CSR think tank Tomorrow’s Company (‘Why values must still matter to tomorrow’s companies’, Financial Times, 31 January 2007), Sir Stuart Hampson, chairman of the John Lewis Partnership, noted of its inception: “Our conclusion that future leaders needed to focus on relationships, reputation and knowledge seemed controversial at the time and obvious soon afterwards.” Apply this sentiment to the concept of CSR in a law firm and it’s probably still a bit controversial. Surely, some would say, we should be doing this because it’s simply the right thing to do, not because of some cynical marketing ploy. And they would be correct. We should be striving for leadership on this because it is the right thing to do. But the right thing to do is not a business case, it’s a motivation.

Philanthropy is a personal motivation, to be encouraged certainly, facilitated through tax-efficient giving and other measures, but it cannot be the fundamental basis of a CSR strategy. Doing pro bono work is the right thing to do, but a business case for pro bono requires an understanding of how such commitments can have an impact on the development of our lawyers. Recycling and energy efficiency are the right thing to do. But the business case has to be about cost saving, brand enhancement, and the ability to be able to respond to CSR questionnaires from clients with substantive credentials. Being transparent about the impact of our business on society and the planet is the right thing to do. But the business case is that such transparency is vital in the war for talent, where graduates have the luxury of choice. In short, it’s one more opportunity to differentiate.

By failing to seek alignment with business development and client-relationship programmes, learning and development, graduate recruitment, and risk management, we fail the concept of CSR and undermine our future as trusted business advisors to our clients. This was brought home to me at a recent conference, when the head of legal at a major corporate expressed bewilderment at how proactive the accountancy firms were being in demonstrating their approach to CSR, as well as seeking to support her with supply-chain issues – a level of support that was inversely proportionate to the deafening silence from law firms.

Fortune favours the brave
The business model of law firms – owner-managed, decentralised and fluid – makes generating a business case for CSR a challenge. It can be done, but first we have to swallow our natural reserve against describing CSR in terms of improved profitability and business success. CSR has to earn its keep. Not everyone is comfortable with this terminology, but philanthropy alone is an insufficient rationale for something that is increasingly necessary rather than voluntary. The key areas where we have to seek alignment with existing strategies, and so piggy-back on more readily accepted activities, include business development and client-relationship programmes, graduate recruitment, the personal development of our fee earners, retention of staff overall and improved operational efficiency.

It’s also quite possible there is a limit to what we can achieve. Extending our sphere of influence cannot undermine our role as trusted business advisers with our clients’ best interests at heart. But within our limitations, the business case has to be about understanding the risks and opportunities that are inherent elements of the drive for all businesses to be more responsible. It is our job to help our clients manage those risks and exploit the opportunities. If nothing else, CSR is an entry point to helping our fee earners understand these issues, making us a better, more qualified firm as a result.

In my office, I have an anonymous quote stapled to the wall: “Remember, people will judge you by your actions, not your intentions. You may have a heart of gold – but so does a hard boiled egg.” The business case for CSR in law firms has to be about action, rather than intention. Whilst the intangibles have a rightful place – ‘the right thing to do’, the ‘moral imperative’, ‘shared values’ – the experience of CSR, particularly in a law firm, has to be about actions that demonstrate difference, competitive advantage and, hopefully, real commercial benefit. ?

Richard Brophy is CSR Manager for Herbert Smith LLP. He can be contacted at richard.brophy@herbertsmith.com. This is an edited version of a presentation to a CSR in Law Firms Conference, which took place on Monday 22 January 2007.

Sidebars

1) Why integrating CSR in a law firm is not automatic:

Decentralised business structure – easy for the sceptics to undermine core principles;
Product is not designed to adapt to changing social norms, law firms follow the energy of their clients;
Limited moral sanctions from public, media, activists and clients;
Tangibility issue – difficult to demonstrate value (resembles internal communications in this respect);
Time lag – law firms can have quite short-term business strategies, CSR requires a long-term commitment for value to be seen.

2) Example business cases:

Pro bono – offers litigation associates hands-on advocacy in a low-risk setting (enhancing the commercial offer of litigation practice);
Reducing environmental impact – operational efficiency and cost saving, brand enhancement and ‘green’ credentials;
Transparent reporting – building trust with key stakeholders like legal graduates, could be a vital source of differentiation.

3) Where integration can be found:

Business development (for example, pre-empting shifts in public policy and consumer behaviour);
Client relationships (for example,, knowledge transfer about the ‘softer’ side of clients’ business – ice-breaker rather than deal-breaker);
Professional development (for example, commercial-awareness training);
Operational efficiency (for example, cost savings through waste reduction and energy efficiency);
Risk management (possibly part of a wider risk management agenda within law firms).

4) Emerging issues:

Carbon snowball – a number of law firms may choose to join Simmons & Simmons and SJ Berwin by going carbon neutral and using this as a source of competitive advantage on their ‘green credentials’;
Supply-chain integrity – for example, a possible challenge by the activist community who have been campaigning for better pay and conditions for cleaners;
Media scrutiny will increase – as more law firms turn to CSR as an opportunity to differentiate, so too will it prove to be an opportunity for the media to challenge the laggards.