Has GRC got a stronger philosophical substance than CSR?

publication date 01.07.2006

Social responsibility of company, government

For small to medium-scale businesses, being a socially and environmentally responsible company in the EU today is becoming an integral part of their intelligent entrepreneurial and marketing strategy effecting even their admission to the region and the market. The GRC process should be controlled by the state through its agencies.

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Our business literature has recently discovered a new term: GRC. Let us, then, start examining what we could imagine behind this term. In sum, it is a cluster of three essential managerial activities.

  • Corporate governance (CG) – a responsible approach to the company´s management.
  • Risk management (RM) – control over and responsibility for the risks inside and outside the company.
  • Compliance ( C ) -  ensuring compliance with the regulations relevant to the civil self-government and the civil service as well as to a corporation or firm doing business locally, so that it is perceived positively by citizens and accepted along with all its activites and predetermined impacts on the environment. 

While CSR speaks about “the corporate social responsibility of companies“, then, if we carry out a more detailed literary analysis of “the responsible experts“, GRC really represents a sort of managerial homoeostasis taking advantage of positive synergic links to the company´s systematic integration into the civilian life of a region or a state.

GRC, through its substance, expresses an advertised effort and commitment of companies´ managing subjects to maintain a synergic balance not just in the spheres of environment protection, safety, economy and administration, but, more so, in the social sphere. Also, in the sphere of the quality of human resources with enforcement of a socially-responsible management as a priority. Moreover, whether we like it or not, there are strong pressures of the above subsistence factors on the region´s culture in general and, in particular, on its directed development. These effects, naturally, influence all the processes, the structure, the resources and information businesses, corporations or firms get. 

Having specified the individual GRC factors in a larger-scale, more sophisticated system, GRC proved to be displaying an in-depth, consistent and multi-spectral picture, especially in cases where it comes to maintain the balance of all the elements of the company´s management with the aim to integrate the company into the local community. As the company, corporation or firm is controlled by a subject called management, it is more than clear GRC is unabiguously appealing to companies´ management. Experts anticipate GRC will soon become the dominating facotor in modern enterprise and managerial perception of the world, not only with big corporations, but also with small and medium-scale businesses.

Many experts point out by meeting the GRC requirements the company will present itself much better in the broader market environment, which has a positive effect on the company´s goodwill and brand. This again, following a certain regress in the past period, is gaining importance and significance even in medium-scale companies which highlight their image.

What is really meant by corporate governance?

In essence, it includes a systematic supervision of execution and operation of the company´s governance and management with a regard to the region´s infrastructure (see ISO 9001/2000). Generally, it presents legal and executive methods and procedures that bind public limited companies to maintain a balanced relation between the company itself and those who constitute it, i.e. its shareholders, board of directors, supervisory board, committees, executive management, employees, customers and suppliers, considering all possible impacts, both positive and negative, on the general public. 

By the way, let us remember the problems we had in this country with the dumping sites of imported waste in such localities where the logistic companies did not get the message of GRC, and, with the state legislative bodies keeping silence on the subject, all the three aforementioned spheres were disrupted. These events became not only highly undesirable, but even hazardous, with the highest degree of risk to the citizens and increased danger that they would be affected. It was stated they had simply happened, and then nobody put any questions to anybody. Only a handful of individuals made their raised voice heard to the regional authorities by making queries as to how it could have happened. A number of these dumping sites later simply burnt down.

Having considered a range of the recent hazardous situations, it turns out that governance and mangement of the company towards the GRC is the right philosophy which rests in creating of relevant, working sturctures of supervisory and managing bodies, in its legal codification and implementation into documents, and in establishing the company management´s responsibility to execute the governance, especially in the cases when the management and the owners do not belong to the national structure. 

If we come back to the heart of the GRC matter, we have to say GRC in the Czech Republic, with companies acting the way they currently do, is in its infancy including supervision, inspections and measures taken by the local authorities. In many far more flagrant cases it was clear the philosophy and beliefs of international mangement groups were not, regarding GRC, up to the expected standards of the European culture. In some cases it was even knowingly disregarded. As an example, see secondary and tertiary raw materials imported not just to the Czech Republic, but also elsewhere.

We have only touched the first sphere. The second sphere, risk management, as well as the third one, compliance with regulations and laws, will, therefore, pose an even bigger problem. Auditors inspecting functionality and safety of control systems of chemical companies, for instance, can confirm what the current condition of elaborated documents, inspections, supervisions is like, how they are relly being done in practice, etc. All the three spheres are facing a number of problems which, if unsolved, may lead to the company´s inefficiency, loss of credibility and, eventually, its demise.

Unfortunately, what is to be of the greatest help in controlling the company, i.e. establishing of a metric base in each of the three spheres mentioned and finding tolerance limits, ranks among major problems. The idea that we have to be able to measure what we want to control is still not understood. If we are to measure anything, we have to have a measuring system that enables us to identify why we measure a particular quantity set out in the measuring system and what direct and indirect information about the company it gives us.

In the measuring systems (CG, RM, C) there are also the so-called complementary specific factors which often get into the measuring systems owing to an inconsistent control. The synergy of links between the complements plays a significant role here. Let us take the sphere of business ethics, for instance. Rather frequently it comes to contradictions between entrepreneurial intents and wishes and demands of the general public. And because CG includes also the sphere of GRC (Corporate Social Responsibility), “contradictory battle situations“ arise in the true sense of the word which cannot be resolved even by our legal system. This may be why “black-and-white“ decisions are hard to take, and our courts of justice have not yet learned well how to find intelligent compromises (see the TV series “With own eyes“). A situation in which contradictions in the legislations of two or more countries appear is going to be even more difficult to settle. 

It was not in vain when a special European commission was established, as part of the EU, to examine, apart from other issues, how CSR is being perceived by customers. The outcome was very interesting. For the survey done by the European commission has revealed up to 25% of customers consider the company´s social image as early as they select the goods and services for purchase.

Small to medium-scale businesses have indicated in the same survey on their part that:

  • the greatest benefit of CSR for them is their customers´ loyalty (35%),
  • good relations with the general public in the region where the company´s head-office is located (28%),
  • employee satisfaction (18%).

The remaining 10% are associated with environmental aspects, 6% with supporting the region´s management with regard to the company´s development, and 3% with supplementary aspects. Being a socially and environmentally responsible company is, therefore, for a small to medium-scale entrepreneurs, becoming a part of an intelligent business and, mainly, marketing strategy, effecting companies´ entrance into regions and the market as well. So, they act honestly, humanly and with “their visors lifted“. How much more information will the GRC aspects bring to the survey when they are correctly metered and monitored.

The third equally important problem can be identified in securing and coordinating the companies´ business processes that form synergic links not only in a single sphere, such as CG for instance, but across all the three spheres. Looking for the measurability, we have to admit there are spots where the company can be measured only imperfectly. However, there have already been some managers´ voices saying that, after reasonable measuring systems are elaborated, both companies and the general public, local authorities in the regions and the public service will surely agreee on priorities. 

What is important, nevertheless, is that the general public should be given greater autonomy and opportunity from the side of the state´s legislative bodies to control public affairs, a greater freedom to take decisions and access to information, and truthful reporting.

On the other hand, arrogant communication by civil servants towards the citizens, such as “you´ve got it on the Internet …“,  “read through the act … babble, babble ….“,  or  “it´s not really OUR invention, it´s come down from on high“, nearly always ends with citizens´ resistance not only to companies but to local authorities as well. From the systematic poit of view, this situatioan is wrong, for it is the general public which is the GRC´s customer.

The GRC process should be controlled by the state through its agencies. So far we only know what we, as citizens, have to pay for, what we have to – sometimes ridiculously - conform to and what we will be penalized for. From the perspective of companies, GRC has not been generally asserted. This is clearly going to be a heavily imbalanced sphere until the civil servants have carried out real managerial analyses and got oriented not only to the customers, but also to the citizens who are not customers, as viewed from the perspective of the company´s products, yet they are affected by an irresponsible management of companies in those regions where the the two groups interact. The coexistence of the general public and companies in regions does pose a serious systematic problem which should be solved not by conducting campaigns or asserting there is no money for a particular purpose, but by looking for joint solutions. 

Autor: Doc. Ing. Vladimír Horáček, CSc.

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