Good corporate citizens will reap commercial rewards
Companies that behave like good citizens will reap the financial benefits, while failing to do so can cause long-term damage, was the message to AIRMIC delegates from Andrew Tunnicliffe, chief operating officer at Aon Global Risk Consulting.
‘Stakeholders such as customers, staff or investors expect firms to show corporate social responsibility. If they don’t, people are likely to vote with their feet. This is a critical risk that requires careful management,’ he said.
He added that recent events such as government bailouts for banks and corporate failures had demonstrated that businesses ‘have responsibilities extending beyond quarterly stock price improvement.
‘Even in the heartland of corporate capitalism there is a realisation that they must embrace a sense of responsibility to the individuals, communities and even the global markets they serve,’ he said. ‘Getting this requirement wrong introduces massive reputational risk which is impossible to cover through insurance.’
Tunnicliffe cited a number of surveys and research papers that would seem to demonstrate how stock market valuation of organisations considered to be socially responsible investments responds positively. According to research by Morgan Stanley and Oxford Analytica, investment in such companies had been predicted to rise from 5% of the UK stock market in 2001 to 15% this year. He expected the upward trend to continue.
Tunnicliffe also debated the cost benefit of embracing compliance and governance standards such as the controversial Sarbanes Oxley legislation. In one study it was noted that investors believed the financial benefits would outweigh the compliance costs resulting in a bidding up of share price when the news of the act was positive.
‘Ethical behaviour has been shown to be a good investment. Greed, on the other hand, can be counter-productive, as we have seen recently,’ said Tunnicliffe
He listed financial responsibility, business ethics and integrity, a commitment to safeguarding the environment, a commitment to workforce diversity and stewardship of local communities as being among the hallmarks of a well-run business.