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The crisis at Northern Rock is an exposure of corporate social responsibility. The UK’s fifth largest mortgage provider had to be bailed out by the Bank of England in order to fulfil its most fundamental social obligation – safeguarding the savings of its depositors. This was a breach of trust by a FTSE 100 member that had made much of its credentials as a responsible business. Through its charitable foundation, Northern Rock was a pillar of the community and an example for ethical investors. Conscientious behaviour was assumed to be hard-wired into the former building society’s DNA.
There are echoes of Enron here. While the charge against Northern Rock is mismanagement, not impropriety, the US oil and gas trading company was likewise famous for community initiatives in its home town of Houston. Once again there is a sense of CSR being wrong-footed; perhaps all those good works distracted attention from fundamental problems in the business.
Northern Rock shows the danger of treating CSR as an add-on rather than a core part of the business. The bank’s meticulous care, through its foundation, for the communities of north-east England did not extend to its financing arrangements, where it sailed too close to the wind and so fatally undermined its viability. Lack of disclosure was not an issue; Northern Rock’s vulnerability was apparent. Indeed, the directors made a virtue of it.
So why did no one in the CSR fraternity blow the whistle? Clearly, the required analytical skills are in short supply. Corporate responsibility managers may have strong people skills, but they can lack a grasp of company finances. A grounding in social or environmental sciences is not the best preparation for triple bottom line thinking, where economics becomes essential. More financial training is urgently needed and business schools are waking up to this deficit (see pages four and six). CSR executives – and not only in banks – need to speak and understand financial language so they can make their concerns known. That requires better communication skills.
Above all, executives and analysts alike need to be sure they are looking in the right place. Ticking the right boxes on issues such as board diversity and ethical supply chain management is necessary but not sufficient. A clean record on factory inspections is meaningless if the overall business model is not sustainable. That is one of the lessons of Northern Rock. There need to be people dedicated to recognizing warning signs, and bold enough to challenge accepted practice.
There are echoes of Enron here. While the charge against Northern Rock is mismanagement, not impropriety, the US oil and gas trading company was likewise famous for community initiatives in its home town of Houston. Once again there is a sense of CSR being wrong-footed; perhaps all those good works distracted attention from fundamental problems in the business.
Northern Rock shows the danger of treating CSR as an add-on rather than a core part of the business. The bank’s meticulous care, through its foundation, for the communities of north-east England did not extend to its financing arrangements, where it sailed too close to the wind and so fatally undermined its viability. Lack of disclosure was not an issue; Northern Rock’s vulnerability was apparent. Indeed, the directors made a virtue of it.
So why did no one in the CSR fraternity blow the whistle? Clearly, the required analytical skills are in short supply. Corporate responsibility managers may have strong people skills, but they can lack a grasp of company finances. A grounding in social or environmental sciences is not the best preparation for triple bottom line thinking, where economics becomes essential. More financial training is urgently needed and business schools are waking up to this deficit (see pages four and six). CSR executives – and not only in banks – need to speak and understand financial language so they can make their concerns known. That requires better communication skills.
Above all, executives and analysts alike need to be sure they are looking in the right place. Ticking the right boxes on issues such as board diversity and ethical supply chain management is necessary but not sufficient. A clean record on factory inspections is meaningless if the overall business model is not sustainable. That is one of the lessons of Northern Rock. There need to be people dedicated to recognizing warning signs, and bold enough to challenge accepted practice.
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