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ISO Annex SL Illustrates Distinction Between Stakeholder Capitalism and Corporate Social Responsibility

With the practices of Enterprise Engagement now required in 60 ISO standards, Deann Desai, convener for the ISO Technical Committee that manages the Annex SL management standard, believes it’s only a matter of time before CEOs get the message that today’s organizations need a strategic and tactical focus on all their stakeholders --customers, distribution partners, employees, vendors, and communities--that ISO and other business practices have overlooked. This article was first published in 2018 reporting on the Annex SL framework, which was published in 2012. It contains all the principles of Stakeholder Capitalism without any mention of corporate social responsibility, which became conflated with Stakeholder Capitalism after the Business Roundtable issued its 2019 redefinition of the corporation to include all stakeholders without any clear definition of what that meant.

This article, first published in July 2018, is being updated to make the point that the principles of Stakeholder Capitalism and its implementation are closer to total quality management than they are to corporate social responsibility. Based on its long history going back to the 1950s, the principles of Stakeholder Capitalism are rooted more closely in strategic and quality management than they are in corporate social responsibility, a point of confusion that has led to needless debates. ESM will check back in with ISO officials to find out how organizations are doing in their application of Annex SL. 

Below is what ESM published about the application of ISO standards to a stakeholder approach to management before the Business Roundtable's publication of its new definition of the corporate charter. The International Organization for Standardization Annex SL framework was first published in 2012. The article below is published verbatim to make the point that the people involved with the practical application of stakeholder management were not thinking about corporate social responsibility as an end-result. In the world of Stakeholder Capitalism, positive social benefits arise as a result of organizations considering the interests of their stakeholders in their decision-making and in a commitment to not offloading costs on to society, not because companies divert profits to causes for the purposes of responsiblities outside the interests of its stakeholders and communities. 

Does your organization or any of your clients follow ISO 9001 quality management or any of the 60 ISO standards listed here? If so, there’s a chance you'll start seeing an increased interest in the concept of Enterprise Engagement coming from the C-suite in the coming years. Why? Because ISO requirements under Annex SL, potentially affecting two million or more companies worldwide, now require CEO-responsibility for a formal strategy and tactical plan for Human Capital Management. Chief executives at organizations certified in any of these 60 standards are now required to have a written plan that connects the dots between all internal and external stakeholders and the processes used to engage and equip them to achieve organizational goals. Annex SL was created to provide common terms and definitions for all 60 ISO management system standards to make it easier for organizations that have to comply with more than one standard.
According Deann Desai, the Annex JTCG Convener, many companies going through the current round of audits and certification are beginning a journey to address changes that require time and commitment. One of the biggest changes, in addition to having a clearly articulated people management system, is “the strategic focus on leadership.” She says the Annex SL standard eliminates the reference in previous standards to a “management representative.” Under the new standards, she emphasizes, the senior management’s responsibility is explicit and required. “One of the biggest changes in Annex SL is the focus on leadership and the role of people. Another key change is the connection to the business and the business context. The business context includes engagement of interested parties. These people issues are a part of an organization's journey in the development and maintenance of their ISO systems.” 
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The Need to Address All Stakeholders

Desai explains: “Ensuring that the organization's business goals are front and center is very important. This includes understanding the strategic and tactical risks. There are a lot of different people and organizations that have an interest in what you do as an organization. Understanding which ones you need to address is an important priority for top management. For instance, at an airline, you have passengers and employees, but you also have regulators, investors, vendors, airports, and residential communities surrounding the airports. An organization needs to take into consideration the needs of all these people, but you can't please everyone all the time. An organization needs to take all those stakeholders into consideration to determine where their needs match with where the organization needs to go. An organization has to set priorities, and it will get better results if it balances the need for all these parties with the business goals.”
She agrees that patience is required on this journey and that it is reasonable to give both organizations and certification bodies time to absorb the significance of these chances." In effect, Desai says, ISO had overlooked the fundamental role of people in achieving the best results from standards but needs to give organizations time to adapt.
"The changes an organization has to make to fully take on board all these changes in Annex SL--risk management, engagement, change management, etc.--will depend on the organization and what practices they currently have in place. It takes time for organizations to learn about the standards and to make the necessary changes. One of the goals of Annex SL is to improve engagement of senior management, and not just at the C-Suite level. That’s why we added an entire Section 5 entitled "Leadership," and by that we mean top management, mid-level management and operational management."
Many of the Annex SL provisions are requirements, she explains. “Many of the ISO Annex SL provisions are reflected in various ISO standards as requirements, meaning the auditors for 60 standards must audit for their fulfillment. In other words, like most ISO standards, Annex SL gives CEOs a free hand at deciding specifically how they seek to achieve organizational goals through a strategic and tactical human capital plan. What essential is the organization have such a plan and can demonstrate it." 
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The Need to Connect the Dots 

Desai says that “management systems are really designed so that senior management, middle management, operations and employees are all on the same page with the same outcomes in mind, and that they’re all headed in that direction. The primary management value is to align strategic with tactical goals. The framework helps to provide a funnel for decision-making based on identifying the biggest risks and ensuring that the organization is properly addressing those risks. You need to determine both your strategic and tactical risks to determine your goals and strategy.” 
So, ESM asks her:  Do most companies achieving their ISO audits in those 60 standards this year really meet the requirements of the new ISO Annex SL management framework? 
Desai says. “It takes time for people to learn about changes and how those changes impact their organization. One of the fundamental principles of management system standards is continuous improvement: developing a plan for engagement can be one of those improvements." 
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Auditors Need to See Progress 

For now, she says, an informed and honest auditor will want “to make sure this time around that an organization is progressing toward this transition, but I don’t think it’s fair to expect an organization to go from zero to a thousand miles an hour. The people issue is just one of the new Annex SL requirements. This is a lot of change to manage and it’s fair to give organizations time.” 
Desai believes that as executives become familiar with the standards and their economic benefits they will seize the opportunity. “In the US, many CEOs have a very short sight-line, so they’re not interested in a longer-term strategy. Other countries in the world take a longer view, and so have embraced Annex SL more enthusiastically,” she says, citing the Netherlands as an example. 
For more information on ISO Annex SL, click here


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