Corporate Responsibility Management

Eugene A. Razzetti

The most scrupulously researched and carefully worded request for proposal from the Department of Defense (DoD) is only as good as the contractor that wins the award. And what does DoD really know about the “winner” other than he can repeat our demands as if he created them and produce a raft of resumés for any real or imagined proficiency?

We all understand that DoD contractors must provide DoD with a measurably high-quality product or service, on time and within budget. Good luck with that. But wait—it gets worse. Contractors today also must succeed simultaneously across a spectrum of previously hidden challenges that impact the final product, regardless of whether they should have such an impact. Such previously hidden indicators include community responsibility, employee health, safety, quality of life, and environmental compliance. More than ever, DoD contractors (like the rest of the working world) need to recognize and accept all of the previously invisible responsibilities that involve good citizenship. Fulfilling those responsibilities is neither easy nor automatic, and it will impact the final DoD product. Accordingly, program managers should look for the key indicators discussed below in their initial contractor screenings and throughout the duration of the contract.

Background

In recent years, even the most overconfident chief executive officers (CEOs) have acknowledged the success of structured management systems like ISO 9000, ISO 14000, and many of the others. In those same recent years, monumental company failures have both underscored the need and created the requirement for CEOs and chief financial officers to satisfy themselves and attest in writing regarding the veracity of their documentation. Reliance on outside auditors, to the exclusion of internal auditing and controls, inevitably leads to disaster.

In 2006, I co-created MVO 8000, an international standard for Corporate Responsibility Management (CRM). It was not the intention to replace the knowledge and skill of an ethical CEO with a cookbook. Rather, it was to provide CEOs with useful tools to run their organizations as sound, even-handed leaders, managers and neighbors.

I have written for Defense AT&L magazine about “Synergy and Innovation,” “Due Diligence,” “Tabletop Exercises” and the “Ethical Imperative to Cancel Ineffectual DoD programs.” This article supports the others and describes essential indicators of CRM—a management methodology that is (sadly) not yet assessed in the proposal process.

Discussion

Ethical Literacy → Sense of Obligation → Formal Standards

Here are 10 “concealed” but measurable indicators of contractor readiness and potential performance.

1 - Corporate Ethics and Organizational Character

Corporate ethics concerns systemic reflection on the rules and issues of how people act. A robust corporate ethics or CRM program institutionalizes ethical rules and practices in the conduct of a corporation’s business. For our purposes, CRM is the creation and control of processes to ensure that DoD contractors perform to established standards of ethical practice.

Unlike the more familiar structured management approaches, CRM works with an organization’s character rather than that of its product in order to establish and continually enhance the total organization and how it does business. Specifically, the organization’s ability to:

Create a corporate culture that promotes ethical conduct and makes it a way of life.
Make a promise and keep it.
Pledge to a compliance requirement and meet it.
Be open and honest in all its dealings, with no trade-offs or cut corners.
Show the greatest possible respect to employees and customers.
Take seriously its responsibility to the community—however large or small.
Practice environmental husbandry and conservation.
Practice responsible risk management and measurably define acceptable risk.
Develop meaningful metrics and performance indicators.
Bullet-proof customer relationships with a solid reputation.
Effectively self-audit and not rely on outsiders.

Apply this organizational character to the future in both strategic planning and the selection and development of its next generation of leadership.

2 - An Organized CRM System

CRM policy development should:

Clearly state management’s commitment to high standards of ethical practice.
Be consistent with management’s vision and strategies for the future.
Permit measurable objectives to be developed.
Be widely disseminated within the organization and among other stakeholders.
Document its objectives clearly and be reviewed routinely, and be the object of continual improvement.

A structured CRM System (CRMS) covers relevant ethical aspects of business practice. Customers, suppliers, personnel, investors and other “stakeholders” want to deal with trustworthy organizations that conduct business with integrity. A reputation for trust and integrity is an irreplaceable management asset for recruiting and retaining high-quality personnel. A structured CRMS provides organizations with an agreeable, reliable and ethically responsible working environment, providing the foundation for profitability and longevity. Not only will organizations be improved internally, but communities will be strengthened and enhanced. I see this routinely with my clients in the private sector.

CRMS implementation requires an organization to formulate policies from which relevant procedures and standards are developed. Policy statements then transition into measurable goals and objectives. Feedback mechanisms (such as internal audits and management reviews) keep the system dynamic, flexible and self-correcting.

Formal risk assessments identify and prioritize where actions are required (or may have been ineffective). Relevant metrics monitor and measure interdependencies and evaluate the effectiveness of preventive and corrective actions.

More than ever, DoD contractors (like the rest of the working world) need to recognize and accept all of the previously invisible responsibilities that involve good citizenship.

A CRMS is not intended for the enhancement of, or change to, the statutory and regulatory requirements with which organizations must comply, nor is it meant to replace occupational safety and health, or environmental compliance conventions. However, a CRMS, set up within an organization, can reinforce and give great credibility and cohesion to those areas.

3 - Moral Values and Moral Responsibility

For simplicity, we can define moral values as the attaching of priority, importance and allegiance to what is morally good and correct. Having identified and stated our moral values, we need then to impose upon ourselves the responsibility to act in accordance with those moral values—specifically, in how we conduct our business in the community and in the world.

4 - Responsible Business Practices

Figure 1 describes the merging of best management and responsible business practices.

Best management practices over the years have generally come to mean what works best for the organization. They can refer to products, services or the indirect operation of the organization. Best management practices, like processes developed under ISO 9000, for example, should be subject to review with thought to continuous improvement through periodic review and revision. Subjecting these practices to cost-benefit analyses, or with thought to the environment (e.g., cradle-to-grave supply chain management) will likely cause their periodic revision, even if only slightly.

More than ever, DoD contractors (like the rest of the working world) need to recognize and accept all of the previously invisible responsibilities that involve good citizenship.

The objective of Responsible Business Practices is to ensure that companies balance productivity and efficiency with corporate responsibility, environmental attention and community responsibility. DoD should suspend business with unprincipled or corrupt suppliers and/or their subcontractors, including those who fail to maintain a safe and intimidation-free working environment or an effective environmental management program.

Reviewing and reassessing best management practices with thought to CRM will likely result in some revision of those practices to the betterment of the organization and the community, as well as the final DoD product or service.

5 - Vulnerability Assessment

Like any of the more conventional subsets of organizational management, corporate responsibility management should be subject to ongoing identification and assessment of vulnerabilities from within and from outside.

Figure 2 provides a generic vulnerability assessment that CEOs or management consultants develop to show a snapshot status or situation. In doing the assessment, we assume that vulnerabilities will always exist and that aggressive CRM programs can decrease their magnitude and “harden” the organization. Accordingly, the goal of vulnerability assessment is to identify areas of low process protection and strengthen them as needed.

6 - Converting Gaps into Goals and Objectives—the Strategic Plan

Many excellent books have been written about strategic planning, and many of them are trendy rather than excellent. And many consultants have become rich ruining conference room walls with butcher paper and ink from magic markers. It is not my purpose to repeat or contradict any of them. CEOs decide the best approach—just ensuring that there is a clearly defined mission, a vision of how to accomplish the mission, and with all gaps identified. This requires buy-in at all levels.

An organization’s ability to detect, react to and correct shortcomings is one of the best ways to influence stakeholders. Whether you call them internal audits, reviews, controls or (if you’ve done some time in the military) inspections, these self-imposed forays into how an organization does its business are among the single most important ways to keep organizations safe, legal, profitable and responsible. Internal audits (let’s use that term) allow CEOs to find the shortcomings before they become obvious on the outside. They can be as complex or as basic as they need to be. It’s only important that they fully address all processes and that the shortcomings uncovered be acted upon. Internal auditors should not audit their own work but should fully understand the subject matter they are reviewing.

7 - Doing Things Right

Sound ethical practices and sound economic practices are not mutually exclusive. In the 1990s, many companies found that environmental management, not environmental compliance, lead to better-looking bottom lines as well as better-looking neighborhoods. An organization intent on “doing things right” must make that intention actionable across a broad spectrum of its activities. Making a profit (as a likely example) means making that profit ethically and responsibly.

Specifications need to be correctly developed and followed; prices correctly determined; cost figures accurate and proper; and milestone inspections being performed and satisfactory, with shortcomings identified.

Personnel training and competence must be appropriate for the tasks, and the environment (if not enhanced) must not be damaged.

To achieve and maintain a reputation for doing things right, contractors must ensure that all of the above considerations (and more) are reflected in delivery of products and services.

Add to this the need to be a good neighbor. These days, many top organizations are mobilizing their forces into measurable performances of citizenship and commitment (e.g., adopt a school, park, team or street).

8 - An Ethics Mindset

Day-in, day-out allegiance to CRM starts at the top—by example, and not by fiat. Nothing spells disaster more precisely than when employees see bosses breaking rules that they would break at the cost of their jobs.

Doing things right, as mentioned earlier, requires sensitivity for the ethical issues inherent in an organization or program. Contractors encounter these every day, when dealing with:

Responsibilities to DoD
Responsibilities to suppliers
Employee performance measurement and handling
grievances
Benchmarking ethical performance
Product and service quality
Community responsibilities
Protecting the environment
Employee recruitment, training, competence certification, health benefits and general quality of life
Strategy development, marketing and sales campaigns
Business development
Development and certification of financial statements and disclosures

Organizations need to develop and publish what they consider to be ethical conduct by employees at all levels. Table 1 is a section from the checklist for a Code of Ethics and Standards of Conduct.

9 - Laws, Regulations and the Environment

“To expect no regulation is willful blindness.” —Peter Drucker

We have had a history of manufacturing crises in the United States—unsafe automobile brakes, tires and air bags, air and water pollution, improper hazardous waste disposal and squandering of public utilities. This history has been chronicled in terms of deaths, diseases, public scandals, fines, product removals/recalls and company bankruptcies; and also by government investigation, intervention and legislation. When the government gets involved, it is usually after the damage is done and punitive action is the order of the day. It does not have to be that way, and forward-thinking organizations know that.

The public in general and DoD in particular are entitled to expect products to be not only safe but to cause no harm in their creation; and the government has the obligation to enforce and ensure that right.

DoD contractors need to identify their environmental impact(s)—actual and potential, positive and negative. An organization implementing a CRMS and not yet having an Environmental Management System can create both simultaneously. The organization should benchmark its initial situation relative to environmental compliance. It can effectively do so by assessing its environmental compliance status with regard to:

Hazardous material control and management
Its activities and processes and their environmental impact
Applicable statutory and regulatory requirements
Pollution prevention and energy conservation
Supplier selection
Contract development
Identification and monitoring of environmental aspects

10 - Outreach to the Community

Contractors should fully define and accept their roles, responsibilities and authorities as members of the community, including:

Evaluation of the potential impact of all operations on the environment
Periodic evaluation of the performance of community responsibilities as part of a formal review process, with appropriate feedback mechanisms, and normal and emergency lines of communication
Execution of environmentally sound policies and objectives
Development of recommendations for improvement

Summary

At this point, we know that black ink on the bottom line is not enough. There are other considerations and measurements of a DoD contractor. If the elements of an effective CRMS are not there, sooner or later the product suffers.

DoD contractors need to identify all the processes of the potential product or service. Once identified, then understand the inherent risks to the product and the environment. Product performance must be capable of measurement, and the findings actionable. Core values need to be in writing—in the base documents and all supporting documents as well.

DoD contractors need to identify all stakeholders. They certainly include the military end user but also employees, suppliers, shareholders and surrounding communities. Stakeholders may be scattered all over the world, or just downstream of that little creek that flows behind the loading dock. Contractors can communicate through a very sophisticated website or through the storm drains.

Program managers and contractors need to identify all the ethical issues associated with contract performance. Contractors need to recognize their obligation to deliver value and the direct relationship their reputation has with that value. Contractors put their names on their product, whether they realize it or not.

Day-in, day-out allegiance to a CRMS starts at the top—by example, and not by fiat. DoD contractors’ responsibilities to their employees and suppliers go beyond writing checks. They have an obligation to be fair and honest with the employees and suppliers, and have a right to expect the same in return.

Read the full issue of

Defense AT&L

Razzetti, a retired U.S. Navy captain, is a management consultant, auditor, and military analyst. He is the author of five management books, including The Executive’s Guide to Corporate Responsibility Management and MVO 8000.

The author can be contacted at [email protected].

Breadcrumb